MOBILE BANKERSPROFESSIONAL FLEXIBILITYEXCELLENCEREGIONAL PROJECTSEASY UP TO DATEKNOWLEDGEFLEXIBILITYBEST SERVICEREGIONAL PROJECTSB2BPURCHASE OF RECEIVABLESFINANCIAL ADVICEFINANCIAL LITERACY MOBILE BANKSPONSORSHIPECOLOGYGROWTHGOOD DEEDSNLB KLIKNLB KLIKGROWTHECOLOGYPROFESSIONALFINANCIAL LITERACY TRUSTB2BEASYBANK GUARANTEEMOBILE WALLET NLB PAY5.800+ EMPLOYEESDONATIONS DIGITALMENTORSHIPB2BB2CBEST SERVICEREGIONAL PROJECTSNLB TELEDOMDIGITAL SERVICESWIN-WINTRUST24/7ACCESSIBILITYREGIONAL PROJECTSPRIVATE BANKINGPURCHASE OF RECEIVABLESBANK GUARANTEEMOBILE WALLET NLB PAYKNOWLEDGEACCESSIBILITYCONSULTINGSTABILITYFLEXIBILITYDIGITAL SERVICESUP TO DATEMOBILE WALLET NLB PAYNLB TELEDOMKLIKINSARAJEVOBANK GUARANTEEPURCHASE OF RECEIVABLESR&DB2BGROWTHDIGITAL SERVICESSECURITYHEALTHFLEXIBILITYTRUSTSECURITY24/7B2BR&DWIN-WINPODGORICASECURITYBANJA LUKALJUBLJANAQUALITYBELGRADEPRISHTINA24/7327 BRANCHESREGIONAL PROJECTSBANK GUARANTEETRUSTKLIKINEASYCAREWIN-WINAnnual Report2019Locally&RegionallyKLIKINSKOPJE Locally & Regionally
Annual Report 2019
Locally & Regionally
Annual Report 2019
NLB Group Annual Report 2019
Contents
Strategic Members Overview
Key Highlights
Macroeconomic Environment
Business Report
Statement by the Management Board of NLB
Statement by the Supervisory Board of NLB
Strategy
Overview of Financial Performance
Regulatory Environment
Segment Analysis
Retail Banking in Slovenia
Corporate and Investment Banking in Slovenia
Strategic Foreign Markets
Financial Markets
Non-Core Members
Processing Operations and IT
Risk Management
Human Resources
Corporate Governance
Compliance and Integrity
Internal Audit
Corporate Governance Statements
Disclosure on Shares and Shareholders of NLB
Corporate and Social Responsibility
Events After the End of the 2019 Financial Year
Audited Finacial Statements of NLB Group and NLB d.d.
Alternative Performance Indicators
NLB Group Chart
Organisational Structure of NLB
NLB Group Directory
Definitions and Glossary of Selected Terms
7
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24
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169
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351
354
356
360
Strategic Members Overview Market position in 2019Macroeconomic indicators for 2019BranchesActive clientsTotal assets (in EUR million)Net loans to customers (in EUR million)Result after tax (in EUR million)Deposits from customers (in EUR million)Market share by total assetsGDP (real growth in %)Unemployment rate (in %)Average inflation (in %)Current account of the balanceof payments (as a % of GDP)Budget deficit/surplus(as a % of GDP)9.093680,0319,8024,5897,761176.123.8%3181,855,13214,1747,60511,612193.61,514²5.534.0% 415.6% 55031652401,7481,4629151,17632.916.0% 553218,45577341261817.118.8%38134,2566383995159.035215,63380154068519.51965,5175483464377.628139,4926144124374.12.41.74.63.30.817.52.70.933.14.12.725.33.20.414.73.71.910.75.6-0.9-4.7-3.9-16.0-6.30.5-2.11.0-1.1-2.6-0.1NLBGroupNLB,LjubljanaSloveniaNorthMacedoniaBosniaand HerzegovinaKosovoSerbiaNLB Vita,LjubljanaNLBSkladi,LjubljanaNLBBanka,SkopjeNLBBanka,Banja LukaNLBBanka,PrishtinaNLBBanka,SarajevoNLBBanka,PodgoricaNLBBanka,BeogradMontenegro75.3%11.9%81.7%17.6% 1. 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 North Macedonia as at 30 September 2019. 6. Market share in the Republic of Srpska as at 30 September 2019. 7. Market share in the Federation of BiH as at 30 September 2019. 8. Market share in Serbia as at 30 September 2019.EASYEASYFINANCIAL ADVICECULTUREPROGRESSIVENESSPROGRESSIVENESSFLEXIBILITYDIGITAL SERVICESPROFESSIONALGOOD DEEDSEXCELLENCECULTURETHEATRE INTERPRETERSPONSORSHIPSSPORTSSPORTSSARAJEVOLJUBLJANABELGRADEBANJA LUKAPODGORICASKOPJEPRISHTINASOCIAL RESPONSIBILITYDONATIONSSPONSORSHIPS5.800+ EMPLOYEESCULTUREMENTORSHIPMENTORSHIPUP TO DATEARTMENTORSHIPMENTORSHIPFINANCIAL ADVICESPORTS GAMESECOLOGYECOLOGYTRUSTECOLOGYLOCAL COMMUNITYEASYEASYYOUTH SPORTDIGITALACCESSIBILITYACCESSIBILITYFAMILY DAYSPONSORSHIPSTRUSTREGIONAL PROJECTS327 BRANCHESCULTUREFINANCIAL LITERACYSPONSORSHIPSYOUTH SPORTBANKING PACKAGESKLIKINNLB KLIKR&DR&DSECURITYQUALITY OF LIFELOCAL COMMUNITYQUALITY OF LIFEQUALITY OF LIFEQUALITY OF LIFEBEST SERVICEFLEXIBILITYNLB TELEDOMNLB TELEDOMPERSONAL BANKINGPRIVATE BANKINGDONATIONSPRIVATE BANKINGENTREPRENEURSHIP DIGITAL SERVICESMOBILE BANKERSBANK GUARANTEEBANKING PACKAGESUNDERSTANDINGSTOCK MARKETONLINE BANKKNOWLEDGEKNOWLEDGEDIGITAL SERVICESLOCAL COMMUNITYMOBILE BANKFAMILY FRIENDLY ENTERPRISEFINANCIAL LITERACYTOP EMPLOYERTOP EMPLOYERBEST SERVICEFAMILY DAYFAMILY DAYCONSULTING327 BRANCHES5.800+ EMPLOYEESSTABILITYPROGRESSIVENESSDIGITALBUSINESS FORUMDIGITALKLIKINCULTURESPORTSTOP EMPLOYERBEST SERVICEBEST SERVICEFAMILY DAYDIGITALKLIKINCARE FOR EMPLOYEESCULTURESPORTSCSRCSRNLB WHEELCULTUREBANKING PACKAGESBANKING PACKAGESUNDERSTANDINGDIGITAL SERVICESONLINE BANKSPORTS GAMESSPORTS GAMESHEALTHY BANKECOLOGYTRUSTKLIKINKLIKINCULTURECULTURECSRCSRDIGITALDIGITALCULTURESPORTSSPORTSCSRCARECARECARECARECSRCSRKLIKINKLIKINUNDERSTANDINGFLEXIBILITYFLEXIBILITYCULTUREAAAAREEMTTGR&DTZZZZMZZFFCDALDABRFCDCDDDDEGEAAAMTVZVCRFZDDONATIONS24/724/724/724/7APLEDUCATIONPROGRESSIVENESSSPORTSDARTDONATIONSEASYDIGITALBANK GUARANTEEHEALTHY BANKMOBILE WALLET NLB PAYFAMILY FRIENDLY ENTERPRISESPORTSTZMDIGITALTC Strategic Members Overview Market position in 2019Macroeconomic indicators for 2019BranchesActive clientsTotal assets (in EUR million)Net loans to customers (in EUR million)Result after tax (in EUR million)Deposits from customers (in EUR million)Market share by total assetsGDP (real growth in %)Unemployment rate (in %)Average inflation (in %)Current account of the balanceof payments (as a % of GDP)Budget deficit/surplus(as a % of GDP)9.093680,0319,8024,5897,761176.123.8%3181,855,13214,1747,60511,612193.61,514²5.534.0% 415.6% 55031652401,7481,4629151,17632.916.0% 553218,45577341261817.118.8%38134,2566383995159.035215,63380154068519.51965,5175483464377.628139,4926144124374.12.41.74.63.30.817.52.70.933.14.12.725.33.20.414.73.71.910.75.6-0.9-4.7-3.9-16.0-6.30.5-2.11.0-1.1-2.6-0.1NLBGroupNLB,LjubljanaSloveniaNorthMacedoniaBosniaand HerzegovinaKosovoSerbiaNLB Vita,LjubljanaNLBSkladi,LjubljanaNLBBanka,SkopjeNLBBanka,Banja LukaNLBBanka,PrishtinaNLBBanka,SarajevoNLBBanka,PodgoricaNLBBanka,BeogradMontenegro75.3%11.9%81.7%17.6% 1. 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 North Macedonia as at 30 September 2019. 6. Market share in the Republic of Srpska as at 30 September 2019. 7. Market share in the Federation of BiH as at 30 September 2019. 8. Market share in Serbia as at 30 September 2019.EASYEASYFINANCIAL ADVICECULTUREPROGRESSIVENESSPROGRESSIVENESSFLEXIBILITYDIGITAL SERVICESPROFESSIONALGOOD DEEDSEXCELLENCECULTURETHEATRE INTERPRETERSPONSORSHIPSSPORTSSPORTSSARAJEVOLJUBLJANABELGRADEBANJA LUKAPODGORICASKOPJEPRISHTINASOCIAL RESPONSIBILITYDONATIONSSPONSORSHIPS5.800+ EMPLOYEESCULTUREMENTORSHIPMENTORSHIPUP TO DATEARTMENTORSHIPMENTORSHIPFINANCIAL ADVICESPORTS GAMESECOLOGYECOLOGYTRUSTECOLOGYLOCAL COMMUNITYEASYEASYYOUTH SPORTDIGITALACCESSIBILITYACCESSIBILITYFAMILY DAYSPONSORSHIPSTRUSTREGIONAL PROJECTS327 BRANCHESCULTUREFINANCIAL LITERACYSPONSORSHIPSYOUTH SPORTBANKING PACKAGESKLIKINNLB KLIKR&DR&DSECURITYQUALITY OF LIFELOCAL COMMUNITYQUALITY OF LIFEQUALITY OF LIFEQUALITY OF LIFEBEST SERVICEFLEXIBILITYNLB TELEDOMNLB TELEDOMPERSONAL BANKINGPRIVATE BANKINGDONATIONSPRIVATE BANKINGENTREPRENEURSHIP DIGITAL SERVICESMOBILE BANKERSBANK GUARANTEEBANKING PACKAGESUNDERSTANDINGSTOCK MARKETONLINE BANKKNOWLEDGEKNOWLEDGEDIGITAL SERVICESLOCAL COMMUNITYMOBILE BANKFAMILY FRIENDLY ENTERPRISEFINANCIAL LITERACYTOP EMPLOYERTOP EMPLOYERBEST SERVICEFAMILY DAYFAMILY DAYCONSULTING327 BRANCHES5.800+ EMPLOYEESSTABILITYPROGRESSIVENESSDIGITALBUSINESS FORUMDIGITALKLIKINCULTURESPORTSTOP EMPLOYERBEST SERVICEBEST SERVICEFAMILY DAYDIGITALKLIKINCARE FOR EMPLOYEESCULTURESPORTSCSRCSRNLB WHEELCULTUREBANKING PACKAGESBANKING PACKAGESUNDERSTANDINGDIGITAL SERVICESONLINE BANKSPORTS GAMESSPORTS GAMESHEALTHY BANKECOLOGYTRUSTKLIKINKLIKINCULTURECULTURECSRCSRDIGITALDIGITALCULTURESPORTSSPORTSCSRCARECARECARECARECSRCSRKLIKINKLIKINUNDERSTANDINGFLEXIBILITYFLEXIBILITYCULTUREAAAAREEMTTGR&DTZZZZMZZFFCDALDABRFCDCDDDDEGEAAAMTVZVCRFZDDONATIONS24/724/724/724/7APLEDUCATIONPROGRESSIVENESSSPORTSDARTDONATIONSEASYDIGITALBANK GUARANTEEHEALTHY BANKMOBILE WALLET NLB PAYFAMILY FRIENDLY ENTERPRISESPORTSTZMDIGITALTC 8
Chapter 1
Key Highlights
Overview of NLB Group
The Group is the largest banking and
financial group in Slovenia with a
strategic focus on selected markets in
SEE. It covers markets with a population
of approximately 17 million people. The
Group is comprised of NLB as the main
entity in Slovenia and as parent company
to its six subsidiary banks in SEE, several
companies for ancillary services (asset
management, real estate management,
etc.), and a limited number of non-core
subsidiaries in a controlled wind-down.
NLB is a publicly listed company. The
Group’s largest shareholder is the RoS
with 25% + one share ownership.
The largest banking and
financial group in Slovenia
NLB is the largest bank in Slovenia, with
93 branches, 680,031 active clients, and a
23.8% market share by total assets.
A very strong retail deposit-taking franchise
with a 30.5% market share measured by
deposits from customers.
The market leader across banking products
and innovative solutions, and a leading
provider of asset management and
bankassurance products.
The rating of NLB was improved by
Standard and Poor’s: an upgrade from
BB+ to BBB- (outlook: stable). Two rating
agencies affirmed the ratings of NLB; Fitch:
BB+ (outlook: stable) and Moody’s: Baa2
(outlook: positive).
Leading position in selected SEE
markets with growth potential
SEE markets are still recording solid GDP
growth, and exceeding the Eurozone
average. Domestic consumption in these
markets is robust and the penetration of
financial products is significantly below
European average.
NLB is present in five SEE countries
(North Macedonia, Kosovo, two
subsidiaries in BiH, Montenegro and
Serbia). Some of the Group banks are
market leaders, in four out of six markets,
the market share exceeds 10%.
All subsidiary banks in the region are well
integrated in the Group, profitable, highly
liquid, well-capitalised, largely self-funded,
therefore well placed to benefit from the
growth rates present in the region.
The Group has a strong network of 225
branches and 1.18 million active clients in
SEE only (excluding NLB).
Steps towards strengthening of Group’s
position in Serbia were taken when in
December 2019 the Bank was selected
as the preferred bidder for the potential
acquisition of the Republic of Serbia’s
shareholding in Komercijalna Banka
a.d. Beograd, while on 26 February 2020
the Bank entered into a share purchase
agreement with the Republic of Serbia
for the acquisition of an 83.23% ordinary
shareholding in Komercijalna Banka a.d.
Beograd.
Stable and profitable operations
Profitable for six-consecutive years in a
row, with the highest Group profit before
impairments and provisions (EUR 212.2
million) in 2019.
Revenue evolution is driven by a stable net
interest margin and increasing fee income.
The structure has changed in favour of
retail loans, reflecting in higher interest
income.
Strong increase in the contribution of
international operations to revenue and
profit growth.
Continuous cost containment efforts.
ROE a.t. of 11.7% and a solid total capital
ratio of 16.3%.
NLB Group Annual Report 2019 9
Negative cost of risk due to a stable
macroeconomic environment and positive
results from active NPL collection.
Self-funded and well-capitalised
Very strong liquidity position, well
diversified structure of liquidity reserves.
The results of the 2019 ECB Liquidity
stress test showed the Group holds
sufficient liquidity reserves to cover extreme
circumstances. Vast majority of funding
sourced from low priced retail deposits
(majority of which are sight deposits).
Low LTD of 65.5% derives from deposit
inflows exceeding loan growth.
A solid total capital ratio of 16.3%. CET
1 ratio of 15.8% is above the EU average
as published by the EBA (end of Q3 2019:
14.6%), reflecting strong capital basis
and supportive of further stable dividend
pay-outs.
Constant improvement of asset quality
Strategic orientation
Positive asset quality trend continued.
Very stable credit portfolio quality with
increasing Stage 1 exposures. Strategic
healthy growth in the retail segment.
Consistent, very low new NPLs formation
(2019: 0.6% of gross loan portfolio, which
equals EUR 55.8 million).
NPE ratio as defined by EBA was
additionally reduced from 4.6% in 2018 to
2.7% in 2019 (EU average: 2.5% at the end
of Q3 2019), with a strong NPL coverage
ratio 29 standing at 65%, highly above EU
average (end of Q3 2019: 44.6%).
A comprehensive organic and inorganic
NPE reduction strategy. Great emphasis
on intensive and proactive handling of
problematic customers in a very early stage.
Continuous disposal of non-core Group
members and non-core loan portfolios.
In November 2019, the Group approved
a new, comprehensive five-year strategy
aimed at protecting and strengthening
its market position in its home region,
and actively participating in the growth
and consolidation of the market. It also
reaffirmed the Group’s mission and vision,
which clearly defines its identity and SEE as
its focus – its home region.
Since successful digitalisation requires
competitive IT infrastructure and
capabilities, the Group will continue to
invest significantly in these areas.
Following the successful conclusion of
the privatisation and the lifting of all
restrictions from the commitments made by
the RoS to the EC, the Bank will finally be
able to start operating with its full potential
at home and in the SEE market.
9. 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 targets (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
* Target total capital ratio is regularly revised by the competent bodies to reflect each time the applicable capital requirements.
** Calculated on the basis of average interest bearing assets.
Performance in 2019
Mid-term target
2.48%
65.5%
16.3%
58.7%
-20 bps
2.7%
11.7%
70%
> 2.7%
< 95%
16.25%*
~ 50%
< 90 bps
< 4%
~ 12.0%
~ 70%
NLB Group Annual Report 2019 10
Key performance indicators
Table 2: Key financial indicators for NLB Group and NLB
Income statement data (in EUR million)
Net interest income
Net non-interest income
Total costs
Result before impairments and provisions
Impairments and provisions
Gains less losses from capital investments in
subsidiaries, associates, and joint ventures
Result before tax
Result of non-controlling interests
Result after tax
Financial position statement data (in EUR million)
Total assets
Gross loans to customers
Impairments and deviations from FV
Net loans to customers
Financial Assets
Deposits from customers
Equity
Non-controlling interests
Total off-balance sheet items
Key financial indicators
a) Capital adequacy
Total capital ratio*
Tier 1 ratio*
CET 1 ratio*
Total RWA (in EUR million)
RWA / Total assets
b) Asset quality
2019
2018
2017
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
318
195
-301
212
-1
4
215
8
194
14,174
7,938
-334
7,605
3,830
11,612
1,686
45
4,222
16.3%
15.8%
15.8%
9,186
64.8%
158
195
-190
164
14
-
178
-
176
9,802
4,718
-129
4,589
3,169
7,761
1,333
-
3,644
22.6%
21.8%
21.8%
5,225
53.3%
313
180
-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
-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
-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
-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%
NPL coverage ratio 1 (coverage of gross non-
performing loans with impairments for all loans)
NPL coverage ratio 2 (coverage of gross non-performing
loans with impairments for non-performing loans)
NPL coverage ratio (EBA definition)**
NPL volume (in EUR million)
NPL ratio (internal def.; NPL / Total loans)
Net NPL ratio (internal def.; net NPL / Total net loans)
NPL ratio (EBA definition)**
NPE ratio (EBA definition)
Received collaterals / NPE
NPL Collateral received / NPL (EBA definition)
89.2%
76.2%
77.1%
65.8%
77.5%
67.8%
65.0%
64.5%
375
3.8%
1.4%
4.6%
2.7%
66.6%
35.4%
56.7%
55.5%
169
2.8%
1.3%
3.3%
2.0%
72.0%
33.6%
64.6%
63.7%
622
6.9%
2.6%
7.9%
4.7%
67.4%
41.2%
57.1%
55.0%
343
6.3%
2.8%
6.8%
3.9%
71.1%
39.9%
62.2%
56.0%
-
844
9.2%
3.8%
-
6.7%
66.5%
-
-
478
8.1%
3.8%
-
5.8%
70.0%
-
NLB Group Annual Report 2019
11
NLB
-0.8%
1.8%
3.8%
14.1%
2.1%
14.4%
2.2%
2.0%
53.3%
3.4%
2.0%
61.6%
46.6%
23.0%
68.6%
6.3%
1
20,000,000
10
69.1
Credit impairments and provisions / RWA
-0.1%
-0.3%
-0.3%
-0.6%
-0.5%
2019
2018
2017
NLB Group
NLB
NLB Group
NLB
NLB Group
c) Profitability
Net 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
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
Total revenues / RWA
Key indicators per share
Shareholders****
Shares
The corresponding value of one share (in EUR)
Book value (in EUR)
International credit ratings
S&P
Fitch
Moody's*****
Employees
Number of employees
2.4%
3.9%
12.7%
1.6%
11.7%
1.5%
2.3%
58.7%
3.3%
2.1%
54.7%
44.7%
-
65.5%
5.6%
-
-
-
84.3
1.7%
3.8%
13.4%
1.9%
13.3%
1.9%
2.1%
53.7%
3.6%
1.9%
63.8%
52.1%
23.8%
59.1%
6.8%
2,100
20,000,000
10
66.7
2.5%
3.9%
13.2%
1.9%
11.8%
1.6%
2.3%
58.5%
3.3%
2.3%
54.1%
38.0%
-
68.3%
5.7%
-
-
-
80.8
1.8%
3.7%
12.4%
2.0%
11.6%
1.9%
2.0%
55.3%
3.6%
2.0%
48.2%
42.5%
22.7%
63.7%
6.4%
1,716
20,000,000
10
64.8
BBB-
BB+
Baa2
BB+
BB+
Baa2
2.6%
4.1%
14.8%
2.0%
14.4%
1.9%
2.4%
58.4%
3.3%
2.3%
54.5%
41.4%
-
70.8%
5.7%
-
-
-
82.7
BB
BB
Ba1
5,878
2,659
5,887
2,690
6,029
2,789
Further details on the definition of certain indicatiors in
**** As per share register of KDD. The shares are listed on Ljubljana Stock Exchange. The Bank of New York Mellon (the
this table are available in chapter Alternative Performance
“GDR Depositary”) represented in the share register of KDD as one holder is not the beneficial owner of shares, it
Indicators.
holds shares in its capacity as the depositary for the GDR holders. The GDRs representing shares are issued against the
*
31 Dec 2018 includes 1H 2018 result (EUR 109 million). 31
deposit of shares and are listed on London Stock Exchange. Therefore, the number in the share register of KDD does
Dec 2019 includes EUR 35 million of 2019 result.
not represent all final beneficial owners of the Bank shares. The rights under the deposited shares can be exercised by
** Disclosure of this indicator is required since 31 Dec 2019.
the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either
*** Calculated on the basis of average total assets.
attend the general meeting of bank’s shareholders or to exercise any voting rights under the deposited shares.
***** Unsolicited rating.
NLB Group Annual Report 2019
12
Table 3: Information on the LCR* (in thousand EUR)
Q1 2019 (Jan - Mar)
Q2 2019 (Apr - Jun)
Q3 2019 (Jul - Sep)
Q4 2019 (Oct - Dec)
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
Liquidity Coverage Ratio (LCR)
345%
397%
356%
412%
355%
410%
341%
389%
High Quality Liquid Assets (HQLA)
2,957,708
2,760,435
3,105,974
2,897,806
3,223,801
2,998,890
3,386,824
3,144,193
Net Liquidity Outflows
861,677
700,855
875,421
709,125
913,087
736,886
996,379
811,172
* 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
Share information
Total numbers of shares issued
Highest closing price (in 2019)
Lowest closing price (in 2019)
Closing price as at 30 December 2019*
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 30 December 2019*
* No market on 31 December 2019.
31 December 2019
20,000,000
EUR 65.00
EUR 54.00
EUR 62.00
EUR 84.3
EUR 9.7
0.73
EUR 7.13
EUR 1,240,000,000
NLB Group Annual Report 2019
13
NLB Group Annual Report 2019 14
Key Events
JANUARY
TOP EMPLOYER
FEBRUARY
RESULTS
MARCH
MAY
COMPLETED PRIVATISATION
JULY
BBB-
S&P RATING
APRIL
TIER 2 BONDS
JUNE
PROFIT
SEPTEMBER
UPDATED STRATEGY
EC COMMITMENTS
FULFILLED
PRESTIGIOUS AWARDS
MSCI FRONTIER MARKETS
PREFERRED BIDDER FOR KB
AUGUST
OCTOBER
NOVEMBER
DECEMBER
February
The Bank was awarded the Top Employer
Certificate for the fourth consecutive year
by an independent Dutch institute (Top
Employers Institute).
The Bank disclosed a new decision on
implementing a prudential requirement
from the ECB, which has been effective
since 1 March, resulting in a total SREP
capital requirement (TSCR) of 11.25%,
which includes the minimum own funds
of 8% (Pillar 1 Requirement) and the
own funds requirement of 3.25% (Pillar
2 Requirement) to be held in the excess
of the minimum own funds requirement
on the consolidated level. With this
decision, the ECB has decreased the Pillar
2 Requirement from 3.5% to 3.25% of
CET1. This decision, together with the
applicable CBR, results in the OCR of
14.75%.
May
The Bank issued 10NC5 subordinated
Tier 2 notes in the aggregate nominal
amount of EUR 45 million. The fixed
coupon of the notes during the first five
years is 4.2% p.a., thereafter it will be reset
to the sum of the then applicable 5Y MS,
and the fixed margin as defined at the
issuance of the notes (i.e., 4.159% p.a). The
notes with ticker NLB27 and ISIN code
SI0022103855 were, as at 8 May, admitted
for trading on the regulated market of the
Ljubljana Stock Exchange, bond segment.
The Bank received the decision of the BoS
relating to the MREL requirement, which
amounts to 17.93% of TLOF at the sub-
consolidated level of the NLB Resolution
Group. The transition period to reach the
MREL requirement is 30 June 2023, and
from that date it shall be met at all times.
Standard and Poor’s raised NLB’s credit
rating by one notch to BBB- from BB+, a
move that takes it to the investment grade.
The outlook is stable. The Bank’s other
credit ratings are BB+ (stable outlook)
by Fitch, and Baa2 (positive outlook) by
Moody’s.
June
At the 33rd General Meeting of the Bank,
the shareholders elected four new members
of the Supervisory Board of NLB: Mark
William Lane Richards, Shrenik Dhirajlal
Davda, Andreas Klingen, and Gregor Rok
Kastelic. All have been appointed for a
four-year term.
Dividends in the amount of EUR
142,600,000.00 (EUR 7.13 gross per share)
were paid out to the shareholders in line
with the decision taken at the 33rd General
Meeting of the Bank.
The privatisation process of NLB was
successfully completed by way of an
accelerated bookbuilding of the remaining
10 per cent of the RoS’s stake in the NLB’s
share capital minus 1 share. After the
completion, the RoS remains the largest
shareholder of NLB, owning the 25 per
cent stake plus one share. Following this,
almost all of the restrictions from the
commitments made by the RoS to the EC
have been lifted.
July
NLB announced that three Group members
received the Euromoney Excellence
Awards. NLB received the award as the
best Slovenian Bank and recognition as
the best transformation in the SEE region,
NLB Banka, Podgorica received the award
as the best bank in Montenegro, and NLB
Banka, Skopje as the best bank in North
Macedonia.
NLB Group Annual Report 2019 JANUARY
TOP EMPLOYER
MARCH
MAY
COMPLETED PRIVATISATION
RESULTS
FEBRUARY
BBB-
S&P RATING
APRIL
TIER 2 BONDS
JUNE
JULY
PROFIT
PRESTIGIOUS AWARDS
AUGUST
SEPTEMBER
UPDATED STRATEGY
OCTOBER
EC COMMITMENTS
FULFILLED
NOVEMBER
MSCI FRONTIER MARKETS
PREFERRED BIDDER FOR KB
15
DECEMBER
September
November
The Supervisory Board of NLB met at
its 57th meeting to discuss the Group
operations in the first six months of the
year. It took note of the key elements of the
new NLB Group strategy and approved the
establishment of a new leasing company.
NLB entered into a bilateral agreement
to raise EUR 45 million of subordinated
Tier 2 debt to strengthen and optimise the
capital structure.
October
The 34th General Meeting of Shareholders
was held in which a decision was adopted
on the remuneration of the members of the
NLB Supervisory Board and its committees.
Supervisory Board of NLB and
Management Board member of NLB
László Pelle, COO, agreed on the early
termination of his mandate. Mr. Pelle led
the area of operational business (COO)
until 31 January 2020, so that the Bank
could continue to operate as usual.
The Bank issued 10NC5 subordinated Tier
2 notes in the aggregate nominal amount
of EUR 120 million. The fixed coupon
of the notes during the first five years is
3.65% p.a., thereafter it will be reset to the
sum of the then applicable 5Y MS and the
fixed margin as provided at the issuance
of the notes (i.e., 3.833% p.a). The notes
with ISIN code XS2080776607 and rated
BB by S&P rating agency were admitted to
trading on the Euro MTF Market operated
by the Luxembourg Stock Exchange on 19
November.
On 27 November MSCI included NLB’s
shares in MSCI Slovenia and MSCI
Frontier Markets.
On 28 November, the Bank announced that
it has received new decision establishing
prudential requirement from ECB, which
is applicable from 1 January 2020, leading
to total SREP capital requirement (TSCR)
of 10.75%, that includes minimum own
funds of 8% (Pillar 1 Requirement) and
own funds requirement of 2.75% (Pillar 2
Requirement; current Pillar 2 Requirement
was reduced from 3.25% to 2.75%) to be
held in excess of the minimum own funds
requirement on a consolidated level. This
decision, together with the applicable CBR,
leads to OCR of 14.25%.
On 29 November the Supervisory board of
NLB appointed Petr Brunclík as member
of the Management Board, with a five-year
term of office from the day he receives
consent by the ECB. He will assume the
function of COO and will be responsible
for the IT, operations, procurement, and
corporate real estate management. Petr
Brunclík has almost 20 years of diverse
banking, business, customer service, process
improvement, online, and technology
experience.
December
On 27 December NLB and KBC Insurance
NV agreed to sell their respective stakes in
the 50/50 life insurance joint venture NLB
Vita to Sava Re, parent company of the
Sava Insurance Group. By doing that, it is
NLB’s opinion that it has fulfilled its last
commitment towards the EC, in connection
with the state aid procedings.
The Bank was selected as the preferred
bidder for the potential acquisition of
the Republic of Serbia’s shareholding in
Komercijalna Banka a.d. Beograd.
NLB Group Annual Report 2019 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 2019*
Shareholder
Number of shares
Percentage of shares
Bank of New York Mellon on behalf of the GDR holders**
12,464,548
of which Brandes Investment Partners, L.P. ***
of which EBRD***
of which Schroders plc***
Republic of Slovenia (RoS)
Other shareholders
Total
/
/
/
5,000,001
2,535,451
20,000,000
62.32
>5 and <10
>5 and <10
>5 and <10
25.00
12.68
100.00
*
Information is sourced from NLB’s shareholders book accessible at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) and available
to CSD members. Information on major holdings is based on the self-declarations by individual holders pursuant to the applicable provisions of Slovenian legislation, which requires that the
holders of shares in a listed company notify the company whenever their direct and/or indirect holdings pass the set thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75%. The table lists
all self-declared major holders whose notifications have been received. In reliance of this obligation vested with the holders of major holdings, the Bank postulates that no other entities nor
any natural person holds directly and/or indirectly ten or more percent of the Bank’s shares.
** 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 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 shareholder’s meeting or to exercise any voting rights under the deposited 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)
Jan 2019
Feb 2019
M ar 2019
A pr 2019
M ay 2019
Ju n 2019
Jul 2019
A u g 2019
Sep 2019
O ct 2019
N ov 2019
D ec 2019
80.00
75.00
70.00
65.00
60.00
55.00
50.00
45.00
40.00
Jan 2019
Feb 2019
M ar 2019
A pr 2019
16.00
15.00
14.00
13.00
12.00
11.00
10.00
9.00
8.00
7.00
A u g 2019
Sep 2019
O ct 2019
N ov 2019
D ec 2019
M ay 2019
Ju n 2019
Jul 2019
Figure 1: Ljubljana Stock Exchange (Shares)
Figure 2: London Stock Exchange (GDRs)
NLB Group Annual Report 2019 17
Symbol
NLBR
Market capitalisation as
at 30 December 2019*
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. In 2019
the bank’s share was covered with two
additional research reports, by InterCapital
and Raiffesien Centrobank.
NLB’s Market capitalisation
Table 6: Market capitalisation
Ljubljana Stock Exchange (Shares)
* No market on 31 December 2019.
Indexes
FTSE Frontier Index: NLB (GDR) has been
added to the FTSE Frontiers Index effective
as at 27 November 2018.
SBITOP Index: SBITOP index of the
Ljubljana Stock Exchange also includes the
stock of NLB as at 12 December 2018.
MSCI Frontier Index: NLB’s shares have
been included in MSCI Slovenia and MSCI
Frontier Markets as at 27 November 2019.
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
a roadshow, investor meetings, calls, and
conferences, reflecting the diverse nature of
the Bank’s ownership structure. Open and
regular communication with investors and
analysts allowed for dialogue promotion 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.
Figure 2: London Stock Exchange (GDRs)
NLB Group Annual Report 2019 18
Chapter 2
Macroeconomic
Environment
2.6%
global economic
growth in 2019
1.2%
economic growth in
the Euro-area in 2019
2.4%
economic growth
in Slovenia in 2019
3.2%
economic growth in the
Group’s region in 2019
Global and European Economy
The global economic growth diminished
in 2019 with 2.6% growth, after already
moderated growth in 2018 (+3.2%),
whereas the Euro area slowdown was
even more noticeable with 1.2% growth
in 2019, down from 1.9% in 2018. Trade
uncertainties and trade wars, along with
matured growth cycles, were making further
pressure on the cooling global economic
momentum. Industrial production declined
in many economies, pushing it into a
contraction territory, whereas overall growth
remained focused on the service sector.
This economic slowdown forced CBs to
consider further stimulus. The Federal
Reserve System (FED) dropped the target
range for its federal funds rate to 1.50% to
1.75%, while the ECB announced its new
stimulus package with a cut in the deposit
facility rate down to -0.50% and mitigating
measures for banks (more generous TLTRO
conditions and a tiered deposit rate system),
along with the restart of open-ended
quantitative easing (QE) or the net asset
purchase programme (APP) at a monthly
pace of EUR 20 billion. The ECB also
called for active fiscal policy.
key risks for the global economic outlook
are further trade uncertainties and the
continuation of the trade war between the
US and China, possible trade escalation
between the US and the EU, as well as
possible further social unrest and the
growing impact of the climate changes.
The next determinant will be the 11-month
transition period (until the end of 2020) in
which the UK will negotiate its future trade
deal with the EU. If failing to do so, the
hard Brexit with its negative consequences
will follow. A volatile environment and a
weaker global growth could further restrain
exports and investment activity in the Euro
area. Nonetheless, a modest growth in the
Euro area should be underpinned with a
solid private consumption along with tight
labour market and higher wages. This
scenario can hold only in the case that the
coronavirus outbreak in China will not
have destructive global long-lasting effects.
Consensus Forecast from FocusEconomics
predicts global growth at 2.6% in 2020 and
2.8% in 2021, while in the Euro area it is
expected a growth of 1.0% in 2020 and
1.2% in 2021.
Economy in the Group’s region
The global economic momentum is set to
remain solid in 2020. Weaker economic
growth in developed countries and China
ought to be counterbalanced by a stronger
growth in other emerging countries. The
The economic growth in the Group’s region
slightly decreased on average, reducing
from 3.9% in 2018 to an estimated 3.2%
in 2019. The consumer prices decreased as
well from 1.7% on average in 2018 to 1.4%
NLB Group Annual Report 2019
19
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 %)
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2.7
4.8
3.0
4.7
1.1
2.0
4.2
1.9
4.1
3.4
5.1
2.7
4.4
3.8
1.2
2.4
2.7
3.2
3.3
3.7
4.1
1.0
2.6
2.7
2.8
3.2
3.5
3.9
1.2
2.7
3.0
2.9
3.3
3.5
3.9
1.5
1.6
0.8
2.4
1.4
3.2
1.5
1.8
1.9
1.4
2.6
1.4
2.0
1.1
1.2
1.7
0.9
0.4
0.8
1.9
2.7
1.3
1.7
1.4
1.5
1.4
2.1
1.8
1.4
1.9
1.7
1.7
1.9
2.3
1.9
9.1
6.6
8.2
5.1
7.6
4.6
7.5
4.3
7.5
4.2
38.4
36.0
33.1
31.0
29.0
16.1
15.2
14.7
14.3
14.2
22.4
20.7
17.5
16.8
16.1
13.5
12.7
10.7
10.1
9.4
30.5
29.5
25.3
26.0
25.3
Euro area
Slovenia
BiH
Montenegro
N. Macedonia
Serbia
Kosovo
Source: Statistical offices, FocusEconomics
Note: Registered unemployment data used for BiH; Consensus Forecasts are highlighted in grey.
Table 8: Movement of the balance of payment and fiscal indicators in the Euro area and NLB Group region
Current account balance
(% GDP)
Fiscal balance
(% GDP)
Public debt
(% GDP)
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
3.1
6.1
3.1
5.7
2.7
5.6
2.8
5.2
2.6
4.9
-4.2
-3.6
-4.7
-4.7
-4.6
-16.1
-17.0
-16.0
-15.3
-14.3
-1.1
-5.2
-5.4
-0.1
-5.2
-7.6
-0.9
-6.3
-3.9
-1.2
-5.9
-7.8
-1.3
-5.7
-7.8
-0.9
-0.5
-0.8
-1.0
-1.1
87.8
85.9
85.1
84.4
83.1
0.0
2.6
-5.5
-2.7
1.1
-1.1
0.8
2.3
-3.6
-1.8
0.6
-2.6
0.5
1.0
-2.6
-2.1
-0.1
-1.1
0.3
0.7
-0.2
-2.4
-0.4
-2.9
0.3
0.6
1.0
-2.4
-0.5
-2.7
74.1
70.4
66.9
64.0
61.1
39.2
34.3
33.3
31.7
31.3
64.2
70.1
72.3
69.2
64.9
39.4
40.6
40.4
42.0
42.4
59.3
53.7
51.9
49.4
47.5
16.2
17.1
16.9
19.7
21.6
Euro area
Slovenia
BiH
Montenegro
N. Macedonia
Serbia
Kosovo
Source: Statistical offices, FocusEconomics
Note: Consensus Forecasts are highlighted in grey.
in 2019. The highest annual increase of
economic growth was registered by North
Macedonia, growing from 2.7% to 3.3%,
while the highest decrease was registered
by Montenegro, falling from 5.1% to a
still solid 3.2%. Slovenia followed closely
with a decrease from 4.1% to 2.4%. The
fiscal balance as a percentage of GDP was
positive again in Slovenia and BiH, whereas
in other countries, it was negative. The
current account balance as a percentage
of GDP was negative in all the countries
except in Slovenia.
In Slovenia, the economic growth,
decreased throughout 2019, while the
European slowdown diminished the exports
to EU member states and the stumbled EU
automotive sector weakened the industrial
production. On the other hand, a strong
domestic demand with robust private
consumption, diminished unemployment,
rising wages, and solid fixed investment
and public spending, underpinned the
growth, which remained well above the
Euro area. In BiH, the growth slowed
during the 2019. Industrial production
dropped in H2 2019, among ongoing
manufacturing sector weakness, while
exports fell sharply, on the other hand,
unemployment diminished in the same
period. In Montenegro, the economic
momentum accelerated in the H2 2019.
Robust growth was supported with a surge
in fixed investment and a strong tourism
contribution, whereas household spending
moderated. In North Macedonia, an
improving investor confidence after resolved
political dispute with neighbouring Greece,
contributed to increased economic growth
in H2 2019. Additionally, tourism sector
and construction strengthened, while the
external sector dragged on growth. In
Serbia, the economic growth enhanced
in H2 2019, underpinned with increased
private consumption and public spending,
NLB Group Annual Report 2019 20
Table 9: Movement of key banking systems indicators in the NLB Group region, 2019
Corporate loans Household loans
Corporate deposits Household deposits Net interest margin
NPL
CAR / TCR
in mn
in mn
in mn
in mn
EUR ∆ % YoY
EUR ∆ % YoY
EUR ∆ % YoY
EUR ∆ % YoY
2018,
in %
2019,
in %
in % ∆ pp YoY
in % ∆ pp YoY
Slovenia
BiH
Montenegro
N. Macedonia
Serbia
Kosovo
8,877
4.8
10,703
2.9
-2.7
18.2*
4,612
1,075
2,731
9,889
1,917
4.6
4.2
1.9
8.2
9.8
6.2
7.9
8.6
6,758
-0.4
20,365
2,072
8.8
6,770
1,049
-4.6
1,317
5,100
1,358
2,797
10.5
1,820
14.6
4,433
9,457
9.9
7,603
4.5
13,255
1,103
10.4
837
24.1
2,650
8.7
9.0
-0.8
7.9
12.5
11.5
1.8
3.0
4.3
3.2
5.2
5.3
1.8
2.8*
4.5*
2.9*
4.9
5.4
7.7*
4.7*
5.0*
5.2
2.0
-1.7
18.1*
-2.0
19.5**
0.0
16.9*
-0.2
23.2**
0.1
2.6
2.3
0.6
0.0
-0.7
15.9
-1.1
Source: Statistical offices, Central banks, NLB
Note: Net interest margin calculated on interest-bearing assets.
*Data in Q3 2019.
**Data in Q2 2019.
fixed investment and an improving business
climate. In Kosovo, the economic growth
boosted as well in H2 2019 on already solid
H1 2019. Private consumption, public
spending and remittances, all contributed to
a strong growth in 2019.
rebound in industrial output. In Kosovo,
the economic momentum is anticipated
to weaken slightly but remained solid as
momentum in Europe wanes and drags
on exports. Regional political tensions also
continue to weigh on prospects.
The economic growth in the NLB Group’s
region will moderate to around 3% in
2020. Weaker economic growth in the Euro
area is decreasing the exports, nevertheless,
solid fundamentals underpinned with
robust private consumption, diminishing
unemployment, still solid fiscal support,
strong tourism sector and remittances,
should all support a solid growth in 2020.
The key risks are, beside the global risks,
regional trade protectionism and political
tensions, particularly between Kosovo and
Serbia, and political stalemates, like in BiH
or Kosovo. Postponed or vetoed EU entry
talks, can be on the other hand, at least
partially compensated with the creation of
so called ‘mini-Schengen’ agreement, which
would guarantee the freedom of movement
of goods, services, people and capital in the
region.
The growth is set to moderate in Slovenia
in 2020 on a continued slowdown in
external sector and weakening domestic
activity, as FocusEconomics reports.
Reduced absorption of EU funds and lower
public spending are set to drag on overall
domestic demand. Private consumption
should remain solid, supported by higher
wages. In BiH, the growth is expected
to remain stable in 2020. The end of
the political deadlock should improve
the business climate. In Montenegro,
the economy seems to be weakening in
2020 but remain solid. The slowdown in
private consumption should be buffered
with a recovery in the industrial sector,
an improving labour market and strong
tourism. In North Macedonia, the growth
is projected to remain robust in 2020.
Private consumption with looser fiscal policy
and strong investment ought to support
the growth. In Serbia, strong economic
growth should continue in 2020 as well,
reinforced by fiscal stimulus and record-high
FDI inflows, consumer spending and a
Banking System in the Group’s region
The banking systems in the Group’s
region improved in 2019. The highest
corporate loans growth was recorded
in Kosovo (+9.8% annually) and Serbia
(8.2% annually), while North Macedonia’s
annual growth was more moderate with
1.9%, on the other side. The highest surge
of household loans was registered by
Kosovo, North Macedonia and Serbia, with
around 10% annual growth, whereas other
countries recorded solid 6% to 8% annual
growth. Kosovo presented the highest
increase in corporate deposits annual
growth with 24.1%, while Montenegro and
Slovenia registered a negative growth of
-4.6% and -0.4%, respectively. Household
deposits growth remains solid in the whole
Group region, growing from 8% to 12%
annually, with an exception of Montenegro
with negative annual growth of -0.8%.
The net interest margin was the highest
in Kosovo and Serbia with around 5%.
Slovenia’s net interest margin remained
at moderate 1.8%, due to the constraints
imposed by the ECB interest rate policy.
The NPL ratio as a measure of the quality
of bank loan portfolio improved in the
entire Group’s regional banking systems,
with Slovenia leading these improvements
by 2.7 p.p. annually. The capital adequacy
NLB Group Annual Report 2019 21
of the banking systems remained at
solid levels. It improved in almost all the
countries of the Group, except in Kosovo
where slightly decreased.
The LTD ratio increased only in Serbia and
Montenegro, while the ROE ratio increased
in Slovenia, BiH and Montenegro, whereas
in Serbia, North Macedonia and Kosovo, it
declined.
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. Banking system in the
Group’s region is expected to remain its
positive outlook in 2020. Solid economic
growth is projected to outperform the rigid
Euro area, even though there are signs of
moderating momentum. We can expect,
that the growth potential for the loans
will remain strong. All three expenditures
components of the GDP will continue
to underpin a solid GDP growth in the
Group’s region of operation, which can
be supported by credit financing. Private
consumption as the strongest part of the
GDP is forecasted to increase in all the
countries of the Group’s region in 2020,
from 2.8% in BiH and Montenegro up
to 3.5% in Serbia, and with the average
growth of 3%. Forecasted fixed investment
growth and government consumption
growth for 2020 will continue to support
the overall economic growth in all the
countries as well.
120%
100%
80%
60%
40%
20%
0%
Euro area
Slovenia
Serbia
BiH
N. Macedonia Montenegro
Kosovo
2018
2019
Source: ECB, National central banks, NLB
Note: Q2 2019 data for Serbia.
Figure 3: LTD ratio in the Euro area and NLB Group region
21%
18%
15%
12%
9%
6%
3%
0%
Euro area
Slovenia
Serbia
BiH
N. Macedonia Montenegro
Kosovo
2018
2019
Source: ECB, National central banks
Note: Return on average equity (ROAE) used for BiH and Kosovo; Q2 2019 data for Serbia;
Q3 2019 data for Euro area, BiH, N. Macedonia and Montenegro.
Figure 4: ROE ratio in the Euro area and NLB Group region
60%
50%
40%
30%
20%
10%
0%
Euro area
Slovenia
Serbia
BiH
N. Macedonia Montenegro
Kosovo
Loans to non-financial corporations, % GDP
Households loans, % GDP
Source: ECB, National central banks, NLB
Note: Q3 2019 annualized data.
Figure 5: Loans to non-financial corporations and households’
loans in the Euro area and the NLB Group region in 2019
NLB Group Annual Report 2019 FINANČNI NASVETIBusiness ReportNLB TELEDOM PURCHASE OF RECEIVABLESCONTACT CENTREMOBILE WALLET NLB PAY INTEGRITYENTREPRENEURSHIP BEST SERVICEASSETSTRUSTQUALITY OF LIFEMOBILE BANKERSSTRATEGY REGIONAL PROJECTS PROFESSIONAL FINANCIAL ADVICESTOCK MARKETPROFESSIONALGROWTH UP TO DATE5.800+ EMPLOYEESKNOWLEDGE EXCELLENCE318 BRANCHES24/7 23
NLB Group Annual Report 2019 FINANČNI NASVETIBusiness ReportNLB TELEDOM PURCHASE OF RECEIVABLESCONTACT CENTREMOBILE WALLET NLB PAY INTEGRITYENTREPRENEURSHIP BEST SERVICEASSETSTRUSTQUALITY OF LIFEMOBILE BANKERSSTRATEGY REGIONAL PROJECTS PROFESSIONAL FINANCIAL ADVICESTOCK MARKETPROFESSIONALGROWTH UP TO DATE5.800+ EMPLOYEESKNOWLEDGE EXCELLENCE318 BRANCHES24/7 24
Chapter 3
Statement by the
Management
Board of NLB
Dear Stakeholders,
The end of the decade brought a
breakthrough for NLB Group. With the
sale of the remaining 10% minus 1 share
of the Republic of Slovenia’s stake in the
Bank in June 2019, we completed the
privatisation process, and with the sale
of the 50% stake in the life insurance
company NLB Vita in December 2019,
we delivered on the last of the severe
restrictions imposed on NLB by the EC.
This enabled us not only to start operating
and competing on the market with our
full potential, but to ultimately also
bring into focus and leverage our main
comparative advantage – that the niche
region in which we operate is our home.
10. Croatia being the only exception.
The Group is the only international
universal banking group that is present in
Slovenia, and with retail operations in all of
the markets of former Yugoslavia from the
Western Balkans.10 We are also the only one
headquartered here, and the only one with
an exclusive strategic interest in this region.
We bring added-value to clients on our
markets, because we speak the languages,
understand local specifics and mentality, as
well as share a common past and values.
Therefore, not only the head, but also
the heart of the Group are situated here,
making our approach to this region truly
one of a strategic systemic partner.
This role is even more important because
of the relatively limited interest of global
players in the region, which consequentially
offers many business opportunities. We
also feel a responsibility to develop and
distribute state of the art financial services
to the citizens and businesses living and
acting here. Some of them, for example
cross-border lending, we have already
begun addressing; and we expect to add
others shortly, such as leasing and regional
trade and supply chain finance. We are also
seeking opportunities in the international
syndicated loans market, residential
real-estate, infrastructural and other
project financing, as well as replicating and
deploying market leading bankassurance
and asset management services from
Slovenia to other SEE markets. For the first
time since the imposition of EU restrictions
in December 2013, NLB can now address
potential acquisition options within
consolidation processes in the banking
sectors in SEE, including potentially
entering new markets such as Albania and
at some point Croatia. Up until now, some
of our subsidiaries have been partially
addressing some of the above opportunities,
while now we can and will apply the
capacity of the entire Group.
An enormous step in this direction was
taken in February of 2020 with the signing
of the SPA between the Republic of Serbia
and NLB to acquire 83.23% of shares
in Komercijalna Banka a.d. Beograd,
the fourth largest bank in Serbia. The
closing of the deal is subject to approvals
from various regulatory authorities and
is expected in six to nine months after
signing. Nevertheless, the signing alone was
an extremely important milestone on our
way to position NLB Group as a top three
banking institution, with at least a 10%
market share in terms of total assets in all
the markets of our presence with retail
operations. With that, the regional platform
for the promotion of and support to trade
within the region has been put in place.
We are proponents of ideas on opening
borders for goods, services, and capital, but
especially for talents to freely move and
create within the region.
The results of our region-oriented
focus speak for themselves. In 2019, the
Group continued its trend of stable and
profitable business operations, recording
a net profit of EUR 193.6 million, with
all SEE subsidiary banks reporting profits
and contributing a substantial 39% to the
Group result. It is especially encouraging
that in the volatile macroeconomic and
regulatory environment, the recurring
results have shown a solid trend and the
profit before provisions and impairments
increased by 4% YoY.
NLB Group Annual Report 2019 25
are people who know and understand the
industry in which we work, who develop
innovative, customer-oriented products and
services, who feel close to the environment
and the region where we live, and who want
to contribute to a better quality of life. We
are unique in our region, since for us SEE is
not just a spot on a map. This is our home.
We aim to achieve our goal of improving
the quality of life in the region by
employing our knowledge and customer-
oriented services to deliver relevant
universal financial solutions to our clients
whenever and wherever they need us.
However, we have also been impacting the
quality of life through a wide range of our
socially responsible pursuits in the fields of
environmental protection, sustainability,
humanitarian activities, and culture, while
in the virtual era we promote youth sports
and a healthy lifestyle. Above all, we invest
in the knowledge and well-being of our
employees. We believe that a satisfied
and an effective employee is one who can
balance its personal and business lives, and
one who knows that his or her potential
is recognised and meaningfully deployed.
Keeping this in mind, we take great care
to nurture, mentor, and develop our
employees to leverage their talents, while
supporting them on their path, recognising
their needs and the needs of the Group to
build our future success story together.
Overall, we can really be proud of what
NLB Group has achieved in recent years,
but the challenges that lay before us are not
negligible. Tense political circumstances
and frictions along with an economic
slowdown, disruption from tech companies,
an ever tightening and limiting regulatory
framework, and pending consolidation
of the banking sector in the region create
uncertain business circumstances. With
in-depth knowledge and understanding
of the environment, and focused, yet
decisive efforts, the business can thrive,
nevertheless. This is something that we
firmly believe and have defined in our new
business strategy that focuses on further
strengthening our market position in
our niche home region with continuing
extensive digitalisation based on real client
needs, efficiency of our operations, and
a relevant, impactful social responsibility
programme. We are convinced that
together with all our stakeholders we can
achieve something extraordinary and
meaningful. Why? Because we are creating
and caring for our home. For us, as noted
above, it is not just a spot on the map –
home is where people who matter the most
are, where we feel good and where we face
challenges confidently, enthusiastically, and
passionately. Where we make sure that we
are ready and have answers – for whatever
may come.
The parent company NLB also achieved
other very important milestones. The
first anniversary of its shares having been
admitted to trading on the Ljubljana and
London Stock Exchanges was proudly
celebrated by opening trading in London
in November 2019. Rating agencies
acknowledged our efforts and results by
upgrading Bank’s credit ratings and outlooks.
We confidently returned to international
capital markets by successfully completing
two issuances of subordinated Tier 2 bonds
supported by an international and regional
investor base (one transaction being self-
arranged). Finally, we were able to prove our
strong performance and potential by paying
out dividends in the amount of EUR 7.13
gross per share and EUR 142.6 million in
total, providing a 13.84% yield to the price
of the IPO in November 2018. We remain
committed to continuously improving and
growing our business, and with that further
justifying the demonstrated trust to deliver
on the expectations of our shareholders also
in the future.
However, as an institution of systemic
importance on the regional level, we are not
only interested in strictly business topics. We
are not merely a universal financial group,
nor are we a simple sum of numbers,
balance sheets, and financial results that
create added-value for our stakeholders and
contribute to economic development. We
Management Board of NLB
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group Annual Report 2019 26
Archibald Kremser
Member of the Management Board
Andreas Burkhardt
Member of the Management Board
NLB Group Annual Report 2019 27
Blaž Brodnjak
President & CEO
Petr Brunclík
Member of the Management Board*
*Appointed by the Supervisory Board of NLB on 29 November 2019;
Mr. Brunclík is waiting for the relevant consent by the ECB to assume
the office of the Management Board member.
NLB Group Annual Report 2019 28
Chapter 4
Statement by
the Supervisory
Board of NLB
To Our Shareholders,
The traditional banking business model
is beset on all sides by the challengers
of growth, whether in the form of the
persistence of an extremely low Euro
interest margin environment, or in the
form of fast developing new competitive
models eating into several banking
revenue streams, or even in the form
of adverse regulatory costs and ever-
increasing complexity of doing business.
But I believe that the single biggest
challenge and obstacle for growth of the
traditional universal bank is the mindset of
complacency. That said, we, members of
the Supervisory Board, believe it is our duty
to help to steer, monitor, and supervise the
Group to overcome every challenge and
obstacle for growth the Bank faces and will
face on the market, and to put special and
utmost focus on our talent development, to
our employees. To the talent which stands at
the beginning and at the heart of the value
creation chain in our banking group, a chain
that simply has to deliver a significant added
value to our clients, good and consistent
results to our shareholders, widespread
positive effects to our society, and an
impactful contribution to the environment in
which we operate. Needless to say, we believe
the employees of the Group should never be
complacent.
The strategy and the plan for the Group
have been outlined and are clear: the
Group has approved a new, comprehensive
five-year strategy aimed at protecting and
strengthening its market position in its home
region, and one that actively participates
in the growth and consolidation of the
market. It also reaffirmed the Group’s
mission and vision, which clearly defines
its identity and SEE as its focus – its home
region. The Group’s strategic focus has
remained unchanged. We will remain and
further strengthen our unique banking play
proposition with a rock-solid balance sheet,
self-funded and growing subsidiaries, and
with the predominantly stable deposit-based
financed assets.
As a regional specialist, the Group needs to
capitalize on the newly opened opportunities
that lie ahead of us. More specifically,
following the successful conclusion of the
privatization, the Group will finally be able
to start operating with its full potential at
home and across the SEE market. Without
limitations, the Group will provide leasing,
factoring, and all other forms of local and
cross-border project financing, and will invest
even more intensively in digitalisation, the
development of new channels, and rigorous
pursuit of the highest level of customer
experience. We should and we will capture
some of those favourable growth tailwinds in
this otherwise challenging and competitive
business environment.
I am not only proud of what the Group
has delivered to all of its key constituencies
(shareholders, clients, employees, and society)
in 2019, I am once more looking into the
future of the Group with high expectations,
and backing them with the firm belief that it
will deliver on its promises.
2019 business developments
The economic growth in the Group’s region
moderated slightly in 2019 from the peak
back in 2018. Trade uncertainties, along
with matured growth cycles, exerted further
pressure on the cooling global economic
momentum. Weaker economic growth in
the euro area and more specifically the
industrial production, which was pushed
into a contraction territory, decreased the
exports. Nonetheless, solid fundamentals
underpinned with robust private
consumption, diminished unemployment,
a strong tourism sector and remittances, all
supported robust growth in 2019 which was
well above the euro area average.
After a successfully completed first phase
of privatisation in November 2018, the
second phase of privatisation of the Bank
was completed in June 2019, as required by
the commitments given by the RoS to the
EC upon the recapitalisation of the Bank
in December 2013. With the second phase
of privatisation of the Bank completed,
and the conclusion of the Agreement on
the Sale and Purchase of Shares of the
subsidiary insurance company NLB Vita
d.d. in December 2019, we believe that
the commitments given to the EC have
been fulfilled. In this respect, the Bank is
still expecting the last semi-annual report
from the Monitoring Trustee. Despite
certain restraints and limitations caused by
the EC commitments (the prohibition of
cross-border financing that caused higher
liquidity that costs money, and the restraints
on ROE and new acquisitions), the NLB
Group has been able to generate solid results
and favourable trends in the areas of asset
leverage, balance sheet management, cross
selling, cost control, and the cost of risk.
NLB Group Annual Report 2019 29
2019 brought important changes, but
nothing distorted the positive direction
in which NLB Group is moving
For the financial year 2019, the Group
continued its trend of stable and profitable
business operations, with the annual net
operating income growth reaching EUR
513.6 million, for the first time surpassing
the EUR 500 million benchmark behind a
4% growth rate.
The result before impairments and
provisions grew by 4% and also reached a
record level of EUR 212.2 million. Group’s
net profit for the period amounted to EUR
193.6 million and the Bank reached a net
profit in the amount of EUR 176.1 million.
All SEE subsidiaries finished the year with
a profit and significantly contributed to the
Group’s result.
The operations of the Group were
underpinned by strong liquidity and capital
positions, with the total capital adequacy
ratio reaching 16.3%, which is above the
regulatory requirements.
The overall risk appetite profile of the
Group continues to exemplify a conservative
mentality. The trend of improving the
quality of the Group loan portfolio has
continued and the NPL ratio decreased to
3.8%.
The Group, therefore, successfully continues
with its activities to achieve the set medium-
term financial targets.
NLB Group maintains its corporate
governance principles in line
with the highest standards
In accordance with the two-tier governance
system, the Bank’s Supervisory Board
issues approvals to the Management Board
related to the Bank’s business policy and
financial plan, approves the strategy of the
Bank and the Group, organises the internal
control system, draws up the audit plan of
Internal Audit, discusses the findings of the
Primož Karpe
Chairman of the Supervisory Board
NLB Group Annual Report 2019 30
regulators, checks the annual reports and
other financial reports, and formulates a
written report for the General Meeting of
the Bank, gives consent to certain financial
transactions (e.g. issuing of own securities
and equity stakes in companies and other
legal entities), and supervises the work
of Internal Audit and Compliance and
Integrity.
From 1 January 2019 and until 28 February
2019, the Supervisory Board of NLB
consisted 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.
Two members of the Supervisory Board
submitted their resignation statements on 30
November 2018 with a three-month notice,
as a result of changed EC commitments that
the RoS submitted to the EC in 2018, which
required independence of all members of
the Supervisory Board.
Despite full awareness of the European
bank average, in terms of female
participation at the level of key governing
bodies, and even though the selection
process for four new members of the
Supervisory Board was open to candidates
of both genders, female representatives
unfortunately did not participate in the
selection process.
Therefore, at the General Meeting on
10 June 2019, three members of the
Supervisory Board were elected (Mark
William Lane Richards, Shrenik Dhirajlal
Davda, and Gregor Rok Kastelic), whereas
one member’s term of office was renewed
(Andreas Klingen). On 28 June 2019, the
Supervisory Board of NLB met for the
first time with all nine members, as defined
by the Articles of Association of NLB.
At this meeting, the Supervisory Board
also allocated members to its existing
committees (Audit, Risk, Remuneration,
and Nomination) and established a new
committee for Operations & IT.
With respect to the issue of diversity, the
second version of the Policy on the Provision
of Diversity of the Management Body and
Senior Management was adopted at the
33rd General Meeting of Shareholders
on 10 June 2019, extending requirements
on diversity not only to the Supervisory
Board members and members of the
Management Board, but to members of
senior management as well. Other key
amendments to the policy include the
determination of policy objectives, and the
way in which these objectives are achieved,
while at the same time the policy specifies its
implementation and reporting.
The Supervisory Board is composed of
nine representatives, whose qualifications,
work, age, and the fields of work differ.
The Supervisory Board members are from
47 to 72 years old. Their knowledge is
versatile and covers various fields, including
banking and investment banking, private
equity, insurance, and the manufacturing
sector. Throughout their careers, they have
managed and supervised many companies
and corporations.
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 the Bank
and add value to the Group. The delivery
of critical and assertive opinions has been
and will remain at the core of our decision-
making principles, through the expected
engaged participation of all the members at
all times.
NLB’s Supervisory Board monitors and
supervises the management and operations
of the Group. In doing so, it resolves
to utilise uncompromised principles
of professionalism and expertise, and
maintains 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 the Bank, while
adhering at all times to banking regulations
and its statutory powers.
Procedurally, the Supervisory Board
performed its work in accordance with its
competences and the Rules of Procedure
of the Supervisory Board of NLB. It
carried out its function of assuring efficient
supervision over the management of NLB
and the 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 the Bank. The Corporate
Governance Code for Listed Companies was
also observed by the Supervisory Board in
performing its duties.
The Supervisory Board acts in accordance
with the highest ethical standards of
management, considering the prevention
of conflict of interest. Throughout the
year, Supervisory Board members took
precautionary measures to avoid any
conflicts of interest that might have
influenced their decisions. The Supervisory
Board actively managed the conflicts of
interest of its members and gave consent
to its members to assume positions on
Supervisory Boards of non-related
companies.
Year 2019 was a busy year from a
corporate governance perspective, with the
Supervisory Board holding seven regular,
10 correspondence, and one extraordinary
session. The Supervisory Board received
NLB Group Annual Report 2019 31
Review and approval of NLB
Group Annual Report 2019
The Management Board of NLB submitted
the NLB Group Annual Report 2019 to the
Supervisory Board, including the Business
Report and Financial Report with the
audited financial statements of the Bank, the
audited consolidated financial statements
of the Group, and the auditor’s opinion.
According to the auditor, the financial
statements with accompanying notes present
fairly, in all material respects, the financial
position of the Bank and the Group as at
31 December 2019, and their financial
performance and cash flows for that year in
accordance with the International Financial
Reporting Standards as adopted by the EU.
It was also established that the information
contained in the business section of the
Annual Report is consistent with the audited
financial statements of the Bank and the
Group.
In accordance with Article 34 of the Articles
of Association of NLB, the Supervisory
Board verified the submitted Annual Report,
and shall prepare a report for the General
Meeting of Shareholders. The Supervisory
Board had no objections to the report of the
audit company Ernst & Young, Ljubljana.
Following a careful examination of the NLB
Group Annual Report 2019, the Supervisory
Board had no objections, and unanimously
approved it.
Yours truly,
Supervisory Board of NLB
Primož Karpe
Chairman of the
Supervisory Board
humanitarian projects, mentorship, support
for the professional athletes and sports for
young people, the protection of cultural
heritage, the promotion of entrepreneurship,
taking good care of employees,
environmental protection, and compliance
and integrity.
Our commitment to develop and maintain
excellent HR practices and development
programs for employees has for the fifth
consecutive year, awarded to our Bank
the acclaimed ‘Top Employer Slovenia’
certificate. NLB became the first Slovenian
company – and the only bank – to receive
this prestigious international certificate in
2016, and since then it has been upgrading
its employee management practices year
after year. The Bank shares its knowledge
and experience with other companies of
the Group because it is our desire and
ambition that other members also receive
this certificate.
Pursuant to the second paragraph of Article
282 of the Companies Act (ZGD-1), the
Supervisory Board has compiled this written
statement to the NLB Group Annual
Report 2019 with the aim of accurately and
authentically presenting the activities of the
Supervisory Board during the year.
Based on Articles 272 and 281 a) of the
Companies Act (ZGD-1) and stipulations
of this statement, the Supervisory Board
asserts and establishes that it regularly and
thoroughly monitored the operations of
the Bank and the Group in 2019 within its
competences, thus adequately supervising
the management and operations of the Bank
and the Group and overseeing the Bank’s
Internal Audit.
expert assistance from its five operational
committees (Audit, Risk, Nomination,
Remuneration, and Operations and IT). The
committees of the Supervisory Board met at
its four to six regular meetings and discussed
topics and adopted decisions from the areas
that they are in charge of (with the exception
of the newly established Operations and IT
Committee that met at two regular sessions).
The Supervisory Board approved
achievements of the Management Board
goals and proposed new goals for the
Management Board, appointed a new
Chief Operations Officer (COO), adopted
decisions on succession planning for
members of the Management Board, the
Supervisory Board self-assessment report,
and acknowledged the candidates for
members of the Supervisory Board.
Through the year it acknowledged regular
reports on documents received from
the regulator(s), namely the BoS and
ECB, and on the implementation of the
requirements, adopted regular quarterly
reports on State Aid, adopted changes to
the Corporate Governance Policy of the
NLB, acknowledged amendments to the
Corporate Governance Policy of the NLB
Group, and adopted amendments to the
internal acts. The Supervisory Board also
adopted decisions (or acknowledgements)
on the establishment of new companies,
cross-border financing, and international
syndicated financing, large exposures, sale
of receivables, claim write-offs, divestment
of the Group companies, legal proceedings
involving the Bank and the Group members,
transactions with persons in special relations
with the Bank, etc.
In addition to good performance, the
Group has an important socially responsible
mission, as it wishes to contribute to a
better quality of life of the community
at large. In the area of Corporate and
Social Responsibility, we perceive the
responsibility to our clients, employees, and
the society at large as a mission. The areas
of social responsibility include numerous
NLB Group Annual Report 2019
32
Chapter 5
New Vision and Mission
Strategy
Within the Group strategy, new vision and
mission statements were defined, as set out
below.
The foundations of the new Vision are:
• Together we will take care of the
financial needs of our clients and will
impact the quality of life in our region.
• By 2025, NLB Group will be a systemic
provider of client relevant universal
financial services in all target markets.
In November 2019, the Group approved
Good foundations for a new period
• We will improve the quality of life in our
its new, comprehensive five-year
strategy aimed at protecting and
strengthening its market position in its
home region, and to actively participate
in the growth and consolidation of
the market. The new strategy defines
the Group’s focus as further extensive
digitalisation, significant increase of
client centricity, and cost efficiency. It
also reaffirmed the Group’s mission and
vision, which clearly defines its identity
and SEE as its focus – its home region.
As a geographical niche player, the Group
has great foundations to build on: deeply
rooted, strong market positions in a
highly fragmented region; positive brand
perception at subsidiaries; good recent
performance; acknowledged innovations
(digital); and plentiful untapped potential to
be exploited in various market segments and
operations.
Following the successful restructuring,
privatisation, and restored profitability, key
restrictions related to EC commitments
were finally eliminated. While the
market growth projections have recently
experienced a significant slow-down (or
even downturn), new challenges and
opportunities emerged. Given the new
circumstances, the Bank’s new, updated
strategy aims to identify, detail, and
operationalise the future path for the entire
Group for the next years.
home region.
The foundations of the new Mission are:
• We strive to improve and develop our
home together for present and future
generations.
• We are from this region, therefore we
understand its business environment,
customs and, most of all, its people. With
our commitment, knowledge, and our
innovative solutions, we take superior
care for our customers and create a better
life, a better future for us all.
• Welcome to our home.
Strategic focus areas
The Bank is striving to protect and
strengthen its market position as a systemic
player in its home region, and actively
participate in the growth and expected
consolidation of the market. As a leading
player, the Bank would like to best serve its
clients’ financial needs. In retail banking,
the Bank is striving to get closer to its clients
through anchor products and by offering
personalised digital services (e.g. omni-
channel, marketplace) to suit their lifestyle.
In corporate banking, the Bank is looking
to cover more complex, cross-boarder needs
NLB Group Annual Report 2019 of clients and find entry points to suit all the
clients’ needs.
provide lifestyle and value chain services to
lock relationships.
The Bank would like to strengthen its core,
to increase its profitability through a more
customer-centric approach. Additionally,
the Bank is planning to accelerate
growth through entering/expanding its
presence into selected adjacencies (e.g.
leasing, bancassurance) and diversify
the services on a horizontal level. The
Bank is simultaneously seeking additional
opportunities (within consolidation
processes in the banking sectors in the SEE),
which are not part of the current strategic
plan due to the high level of uncertainty.
The Group is continuing to direct
comprehensive strategic efforts toward
digital transformation. The Bank is striving
to simplify, automate, and digitise processes
to minimise costs. 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. Since successful digitalisation
requires competitive IT infrastructure and
capabilities, the Group will continue to
invest significantly in these areas. The focus
will be mainly on improving the speed of
IT deliveries by adopting agile principles,
to implement the best online experience
for customers in the SEE, and enhance
capabilities for processing data, modelling,
and relevance of services to clients.
Comprehensive transformation plan
The Bank has elaborated a comprehensive,
detailed program plan to reach set targets.
Projects and initiatives were identified,
also channelling all major running change
efforts into one overarching strategic
transformation program.
The cornerstone of the new strategy
is strengthening customer centricity by
establishing a customer-based market
management, improving the understanding
of the clients, reimagining digital client
journeys, and accelerating innovation to
The transformation program puts effort
on increasing operational efficiency and
cost management, and on improving
the utilisation of the Group’s capital.
Simultaneously, overall operational
capabilities will be strengthened through
improving human capital, optimising
IT, digitalising internal processes, and
leveraging information capital.
In order to drive transformation, a new
change management platform was also set
up.
Brexit impact on the Group’s performance
As the Group operations are only related to
the SEE region, the estimation is that Brexit
will not have any significant impact on the
Group’s business performance.
Sustainable development vision
The Group has an important social
responsibility mission, that is to contribute
to a higher quality of life of all inhabitants
in the environment where it operates. The
Bank is responsible to clients, its employees,
society as a whole, and to the environment.
The Group is in the process of developing
the Environmental Social and Governance
Strategy (ESG) and setting concrete ESG
commitments and targets.
Post EC commitments
In June, the privatisation process of the
Bank was successfully completed. With the
sale of the remaining 10 percent minus
1 share of the Bank, almost all of the
restrictions from the commitments made
by the RoS to the EC when granting state
aid in 2013 have been lifted. The RoS
will remain the largest shareholder of the
Bank, owning a 25 per cent stake plus 1
share. The final commitment to the EC in
connection with the state aid proceedings
33
was satisfied with the sale of the Bank’s
stake (50%) in the Slovenian life insurance
company NLB Vita in December.
The Bank will finally be able to start
operating with its full potential in SEE,
the Group’s home region – countries
where the Group is present with banking
subsidiaries. As a regional specialist, the
Group will be able to seek opportunities to
strengthen its position as a systemic player
in all the markets. Without limitations, the
Bank will again be able to provide leasing,
factoring, and all other forms of local and
cross-border project financing, and to invest
even more intensively in digitalisation, the
development of new channels, and the
highest level of customer experience.
The efforts by the Bank to establish a
new leasing company have already been
made aiming at complementing product
range with state-of-the-art leasing solutions
focusing on mobility in Slovenia and
subsequently across the home region.
Mid-term targets
The measures and potentials outlined in
the above strategy confirmed the already
published mid-term targets for the 2020 to
2023 period:
• Net interest margin > 2.7%
• LTD < 95%
• Total capital ratio 16.25%11
• CIR ~ 50%
• Cost of risk < 90 bps
• NPE ratio < 4%
• ROE ~ 12%
• Dividend pay-out (as a percentage
of the Group profits) ~ 70%
11. Target total capital ratio is regularly revised by the
competent bodies to reflect each time the applicable
capital requirements.
NLB Group Annual Report 2019 34
The Group is pursuing a range of activities
to achieve its strategic financial objectives.
The environment has visibly changed,
especially in the eurozone, given the adverse
interest rate outlook and possible further
decreases of the ECB deposit rates. The
main ambition is that despite deteriorating
market conditions, the Bank is committed to
reaching the mid-term targets set for NLB.
The indicated mid-term targets are only
targets, and not profit forecasts. The targets
constitute forward-looking statements which
are subject to a number of risk factors
and are not guarantees of future financial
performance.
implementation of pending capital
measures (we refer to details disclosed in
our presentation of 26 February 2020) and
synchronised with the closing process.
Any potential further acquisitions (e.g.
market entry Albania) will be subjected to
the same strict criteria of being earnings per
share (EPS) accretive and value-creating for
our shareholders. Clearly, potential targets
– if any – are expected to be significantly
smaller in size compared to Komercijalna
Banka a.d. Beograd.
Distributable profit as at 31 December 2019
amounts to EUR 228,040 thousand.
Dividend policy
Risk Factors
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 2019, the Group had
CET1 ratio of 15.8% which includes the
part of 2019 net profit of EUR 35 million.
The Bank also optimized the Group capital
structure by issuing a Tier 2 instruments
in 2019; one instruments was already
recognized in the capital as at 31 December
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 16.25%, this, however, is under
revision to reflect the new (lower) capital
requirement (TSCR) that is applicable as at
1 January 2020. The Bank’s dividend policy
envisages yearly distribution of dividends
in the approximate amount of 70% of the
Group’s result, while fulfilling all regulatory
requirements including Pillar 2 Guidance.
Given the Bank’s successful bid for
Komercijalna Banka a.d. Beograd, the
dividend payment for the financial year
2019 will be subjected to the timely
The risk factors affecting the business
outlook are (among others): the economy’s
sensitivity to a potential slowdown in
the eurozone, the worsened interest rate
outlook, regulatory and tax measures
impacting the banks, and geopolitical
uncertainties.
Economic momentum in the region where
the Group operates is gradually slowing
down as a consequence of the global and
eurozone economic slowdown, nevertheless
it remains favourable. The economic growth
of the Group’s region remains solid. In
addition to that, structural imbalances and
the economic slowdown in this region might
decrease consumer spending and industrial
production and increase unemployment.
Further consolidation of the banking sector
in Slovenia may have an impact on the
market competition.
Such circumstances could have an adverse
impact on the Group’s current operating
results and related profitability, although
no material impact is currently anticipated.
Potential negative impacts could primarily
be caused by the unfavourable low interest
rate environment, lower interest margins,
further deterioration of macroeconomic
circumstances, and instability in financial
markets.
In this regard, the Group closely follows
macroeconomic indicators relevant to the
Group’s operations:
• GDP trends
• Growth of loans in the banking sector
• Economic sentiment
• Unemployment
• Consumer confidence
• Construction sentiment
• FX rates
• Interest rate development and related
future forecasts
• Other relevant market indicators
The Group established a comprehensive
internal stress testing framework and
early warning systems in different risk
areas with built-in risk factors, relevant
to the Group’s business model. The
stress testing framework is integrated into
the Risk Appetite, ICAAP, ILAAP, and
Recovery Plan to determine how severely
unexpected changes in the business and
macro environment might affect the
Group’s capital adequacy or liquidity
position. Both the stress testing framework
and early warning systems support
proactive management of the Group’s
overall risk profile, such as the capital and
liquidity positions from a forward-looking
perspective.
Risk management actions that might be
used by the Group are determined by
different internal policies, and are applied
when necessary. Moreover, selection and
application of mitigation measures follow
a three-layer approach, considering the
feasibility analysis of the measure, its impact
on the Group’s business model, and the
strength of available measure.
NLB Group Annual Report 2019 35
Costs are expected to continue growing in
2020 at the same pace as in 2019 but are
expected to plateau thereafter. The reasons
for that are the continuation of spending on
IT upgrades, strategy implementation, and
labour cost inflation observed throughout
the region. Mitigants for further rises
in costs are ongoing strategic efforts to
re-dimension the physical footprint of
the Bank, as well as continue efforts for
operational process excellence.
The cost of risk is expected to continue to
normalise but should stay at a reasonably
low level. The asset quality is stable, and no
material deterioration is foreseen.
The Bank is currently in the process of
a potential acquisition of Komercijalna
banka in Serbia (SPA signed, closing
process pending). As the timing and actual
outcome of the transaction is still subject
of regulatory and anti-trust approvals in
multiple jurisdictions, any potential effects
are not included in the outlook.
Potential negative impacts from the
coronavirus (COVID-19) outbreak and
spread are not included in the outlook.
Outlook 2020
The macro outlook suggests that the
countries where the Group operates are
likely to experience growth at around three
percent, if supported by loose monetary
conditions, fiscal easing and solid domestic
demand. The public debt as percentage of
GDP in all those markets are below the EU
average, accompanied by low household
indebtedness and solid savings performance.
Considering these circumstances, continued
loan growth is expected in all geographies
where the Group is present, save for
the retail market in Slovenia where new
regulatory lending restrictions have been
put in place by end 2019. Margins are
expected to be under further pressure as
observed in 2019, with business in retail
lending being more resilient compared to
corporate lending. The Group continues
to strive for increasing margins over time
by emphasising higher margin activities
and pursuing new opportunities such as
leasing. Losses in rate revenues will be
partially mitigated by further emphasis on
fee income.
While it is too early to conclude, more
challenges to grow revenues in retail
business in Slovenia are expected given the
new imposed lending restrictions. Strategic
foreign markets should grow at a similar
pace as in 2019. It needs to be emphasised
that in the past years net non-interest
income included non-recurring components
which are by nature unpredictable.
NLB Group Annual Report 2019 36
Chapter 6
Overview of
Financial Performance
The Group achieved a profit for the sixth
consecutive year in the amount of EUR
193.6 million, down 5% from the year
This result is based on the following key
drivers:
• A strong total capital ratio of 16.3%
while ROE a.t. stood at 11.7%.
before (2018: EUR 203.6 million). The
• A strong positive performance in the
• Continued solid performance with
strong result reflects business growth
with increasing interest income at a stable
margin, growing net fee and commission
income, and the negative cost of risk.
Bank with the year-end result of EUR
176.1 million. All Group subsidiary banks
in the SEE contributed an important
part to the consolidated net profit of the
Group (39%, i.e., EUR 74.8 million).
• A very solid performance in the total
net operating income based on higher
net interest income predominantly due
to loan volume growth, lower interest
expenses, and higher net fee and
commission income.
negative cost of risk, due to release of
impairments and provisions.
• NPLs further reduced due to successful
forbearance measures and a supportive
macroeconomic environment with the
Group’s indicator Gross NPL ratio
(defined by the EBA), decreased to 4.6%
(2018: 7.9%); NPE ratio (defined by the
EBA) dropped to 2.7%, 2.0 p.p. drop
YoY.
• Continued loan growth, especially in
6,488 million (46% of total assets).
• Liquid assets portfolio amounted to EUR
Strategic Foreign Markets (8% YoY) and
Retail Banking in Slovenia (7% YoY).
NLB Group Annual Report 2019 37
Strong result achieved in all Core
ROE a.t.
6.6%
7.4%
14.4%
11.8%
11.7%
segments12 of the Group
The Core segments achieved a result
before tax of EUR 218.5 million. Strategic
Foreign Markets contributed the largest
share to result before tax in the amount
of EUR 92.9 million, followed by the
segment of Corporate and Investment
Banking in Slovenia with EUR 56.8
million, Retail Banking in Slovenia with
EUR 47.5 million, and Financial Markets
in Slovenia with EUR 27.6 million. The
Other segment recorded a loss before tax
in the amount of EUR 6.4 million, mostly
due to establishment of HR provisions for
reorganization (EUR 5.5 million).
Strategic Foreign Markets achieved the
highest net interest income in the amount
of EUR 157.5 million, followed by Retail
Banking in Slovenia and Corporate and
Investment Banking in Slovenia, with
EUR 87.4 million and EUR 37.3 million,
respectively. Financial Markets in Slovenia
contributed EUR 33.6 million to the net
interest income of the Group.
The net non-interest income was the
highest in the segment Retail Banking in
Slovenia, EUR 78.2 million, followed by
Strategic Foreign Markets and Corporate
and Investment Banking in Slovenia,
EUR 52.9 million and EUR 43.0 million,
respectively.
Non-core Members: Slightly
negative result of operations due
to continuing divestments
Total assets of Non-core Members
decreased by EUR 94.2 million. The
segment realised a loss before tax of
EUR 3.1 million, which is in line with the
restructuring plan.
12. From 2019, some shifts in the reporting of business
segments have been applied (see p. 55). Core segments
include Retail Banking in Slovenia, Corporate and
Investment Banking in Slovenia, Strategic Foreign Markets,
Financial markets in Slovenia and the Other segment.
CAGR* 20%
225.1
203.6
193.6
110.0
2016
2017
2018
2019
91.9
2015
* Compound Annual Growth Rate.
Figure 6: Profit after tax of NLB Group (in EUR million) / ROE after tax (in %)
157.5
87.4
78.2
92.9
47.5
56.8
52.9
43.0
37.3
33.6
27.6
2.0
8.2
2.7
12.8
Retail Banking
in Slovenia
Corporate
and Investment
Banking
in Slovenia
Strategic
Foreign
Markets
Financial
Markets
in Slovenia
-3.1
-0.1
-6.4
Non-Core
Members
Other
34.9
30.4
23.3
33.5
6.9
8.1
Key/SME
Corporates and
Investment Banking
Restructuring
and Workout
Net interest income
Net non-interest income
Result before tax
Figure 7: Segment results of NLB Group (in EUR million)
NLB Group Annual Report 2019
38
Income statement
Table 10: Income statement of NLB Group and NLB
2019
2018
Change YoY
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Change QoQ
NLB Group
in EUR million
Net interest income
318.5
312.9
Net fee and commission income
170.3
160.6
Dividend income
Net income from financial
transactions
Net other income
0.2
33.8
-9.3
5.6
9.7
0.1
2%
6%
76%
0.1
14.7
19.1
130%
4.9
-14.2
-
8%
4%
79.7
43.5
0.0
5.8
-0.1
49.2
79.8
44.6
0.0
5.1
-2.1
47.6
79.7
42.1
0.1
10.7
-9.0
43.9
79.4
40.1
0.1
12.3
2.0
54.4
81.0
40.7
0.0
3.1
-0.5
43.3
128.9
127.4
123.6
133.8
124.3
Net non-interest income
195.1
180.4
Total net operating income
513.6
493.3
Employee costs
-171.2
-165.1
Other general and
administrative expenses
-99.3
-96.3
Depreciation and amortisation
-31.0
-27.2
14.8
20.3
-6.1
-3.0
-3.7
-4%
-48.0
-41.8
-41.4
-40.1
-43.2
-3%
-31.4
-23.3
-23.4
-21.2
-28.4
-14%
-7.7
-7.9
-7.7
-7.7
-6.7
-0.1
-1.2
0.0
0.7
2.0
1.6
1.5
-6.2
-8.1
0.3
0%
-3%
55%
14%
94%
3%
1%
-15%
-35%
3%
Total costs
-301.4
-288.7
-12.8
-4%
-87.0
-73.0
-72.4
-69.0
-78.3
-14.0
-19%
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
212.2
204.6
7.6
4%
41.9
54.4
51.2
64.8
46.0
-12.5
-23%
13.3
30.2
-16.9
-56%
-14.3
-1.0
-6.9
23.3
-7.4
-107%
-24.3
-
-10.7
-2.3
-8.4
16.4
-1.1
15.2
-4.0
-0.8
-4.9
3.3
-3.9
-0.6
7.0
-18.7
-2.7
4.3
-7.3
-26.0
-
-
-
4.2
5.4
-1.2
-23%
0.0
1.6
1.4
1.1
1.3
-1.6
-97%
Result before tax
215.4
233.3
-17.9
Income tax
-13.6
-21.8
Result of non-controlling interests
8.2
7.9
8.2
0.3
Result after tax
193.6
203.6
-10.1
-8%
38%
4%
-5%
31.2
2.2
2.0
31.3
71.2
-0.9
2.4
67.9
47.7
-9.5
1.8
36.4
65.3
-5.4
2.0
57.9
51.7
-40.1
-56%
-5.1
1.2
3.1
-0.4
-
-15%
45.3
-36.6
-54%
NLB Group Annual Report 2019 39
2019
2018
Change YoY
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Change QoQ
NLB
in EUR million
Net interest income
158.1
158.0
Net fee and commission income
104.0
100.2
0.1
3.8
0%
4%
Dividend income
Net income from financial
transactions
Net other income
71.2
24.0
-4.0
49.7
21.5
43%
15.5
184%
8.4
7.1
Net non-interest income
195.2
165.4
Total net operating income
353.3
323.4
Employee costs
-108.6
-103.8
Other general and
administrative expenses
-63.2
-57.6
Depreciation and amortisation
-18.0
-17.5
39.1
25.9
0.0
2.6
1.1
29.6
68.7
39.4
27.0
1.3
2.7
-0.7
30.2
69.6
39.9
25.9
65.5
8.5
-6.0
94.0
133.8
39.8
25.2
4.4
10.1
1.6
41.4
81.2
40.5
24.8
0.0
1.5
1.6
27.9
68.3
-31.2
-26.3
-26.2
-25.0
-27.6
-10%
-21.4
-14.8
-14.2
-12.7
-17.7
-4.6
-4.7
-4.4
-4.3
-4.4
-11.1
29.8
29.9
-4.7
-5.6
-0.5
-
18%
9%
-5%
-3%
-6%
-0.2
-1.1
-1.3
-0.1
1.8
-0.7
-0.9
-4.9
-6.6
0.0
-1%
-4%
-99%
-3%
-
-2%
-1%
-19%
-45%
1%
Total costs
-189.8
-179.0
-10.8
-57.2
-45.8
-44.8
-42.0
-49.8
-11.5
-25%
Result before impairments
and provisions
Impairments and provisions
for credit risk
Other impairments and provisions
Impairments and provisions
Result before tax
Income tax
Result after tax
163.5
144.4
19.0
13%
11.5
23.8
89.0
39.2
18.6
-12.4
-52%
17.1
-2.8
14.2
29.8
-12.8
-43%
3.2
33.1
-6.1
-
-18.8
-57%
177.7
177.5
-1.6
-12.2
176.1
165.3
0.2
10.6
10.8
0%
87%
7%
2.2
-6.2
-4.0
7.4
5.7
13.2
14.1
0.0
14.0
37.9
2.6
40.4
-2.0
0.1
-1.9
87.1
-6.8
80.4
2.8
3.3
6.1
45.3
-3.1
42.2
11.7
-11.8
-84%
3.2
14.8
33.4
-2.7
30.7
-6.2
-18.0
-30.4
-
-
-80%
3.2
124%
-27.2
-67%
NLB Group Annual Report 2019 40
5.0
9.7
-5.0%
-12.8
5.6
203.6
8.2
193.6
-0.3
-24.3
-1.2
2018
Net interest
income
Net fee
& commission
income
Other net
non-interest
income
Total
costs
Impairments
and provisions
Gains
and losses*
Income tax
Result of
non-controlling
interests
2019
* Gains less losses from capital investments in subsidiaries. associates. and joint ventures.
* Gains less losses from capital investments in subsidiaries, associates, and joint ventures.
Figure 8: Profit after tax of NLB Group (in EUR million) – evolution YoY
Result reflects business growth
with increasing net interest and
fee and commission income
The Group generated EUR 193.6 million
of profit after tax, EUR 10.1 million or 5%
less YoY.
The Group’s result was based on the
following key drivers and YoY evolution:
• Net interest income higher by EUR 5.6
million (2%), mainly due to loan volume
growth, especially in the segments
Strategic Foreign Markets and Retail
Banking in Slovenia, and lower interest
expenses due to a decrease in average
deposit rates in the Bank and also in
most of the Group banking subsidiaries
in SEE.
• Net fee and commission income higher
by EUR 9.7 million or 6%, mainly from
the retail segment in the Bank and in the
Group banking subsidiaries in SEE. Most
of the foreign banks recorded an increase
in number of customers.
• Total costs higher by EUR 12.8 million
or 4%, mostly due to higher employee
(adjustments on management board and
senior management post-privatisation
compensation), technology (mainly
licenses), and consulting and supervision
costs.
• Net non-interest income was positively
impacted by non-recurring income as a
partial repayment of a larger exposure
measured at fair value through profit and
loss and active management of banking
book securities in the amount of EUR
4.5 million.
• EUR 1.0 million of net provisions and
impairments were established in 2019,
while EUR 23.3 million were released
in 2018. The release of impairments
and provision for credit risk amounted
to EUR 13.3 million (EUR 30.2 million
in 2018). The establishment of other
impairments and provisions in the
amount of EUR 14.3 million, mostly HR
provisions for reorganisation in the Bank
(EUR 5.5 million), while on the Group
level provisions for pending legal disputes
(EUR 5.7 million) and impairments of
non-financial assets (EUR 3.2 million).
• Income tax was EUR 8.2 million lower,
mainly due to increase of recognized
deferred tax assets (DTA) (based on
stable results and profit projection in the
Bank, estimated 5 years DTA utilization
increased).
• In 2019, positive one-off effect from the
revaluation of a non-core equity stake
was realized in the amount of EUR
6.3 million in Q2 (sale of this stake in
Q4); whereas in the same period of
2018, the net non-interest income was
positively impacted by the sale of NLB
Nov penziski fond, Skopje in the amount
of EUR 12.2 million and negatively
impacted by the sale of a 28.13%
minority stake in Skupna pokojninska
družba in the amount of EUR 0.5
million.
Despite a competitive market environment
and strong competition, all banks in the
Group improved result before impairments
and provisions.
NLB Group Annual Report 2019 41
The result of the Bank increased by 7%
YoY to EUR 176.1 million from EUR
165.3 million achieved in 2018. The main
drivers were EUR 21.5 million higher
dividend income, EUR 15.5 million higher
net profit from financial operations (mainly
due to revaluation of a non-core equity
stake and partial repayment of a larger
exposure measured at fair value through
profit and loss), EUR 10.6 million lower
income tax, and EUR 10.8 million higher
costs.
Lower profit compared to the previous year
was recorded in NLB Banka, Skopje due
to a one-off effect of the sale of NLB Nov
penziski fond, Skopje which had a positive
impact on 2018 profit, and in NLB Banka,
Podgorica and NLB Banka, Beograd due
to established provisions for pending legal
disputes. A significant increase in result was
achieved in NLB Banka, Prishtina primarily
due to growth in loan portfolio and
therefore increase of net interest income as
well as net fee and commission income.
Profit before impairments and provisions
of the Group totalled EUR 212.2 million,
which is EUR 7.6 million or 4% higher
YoY. Material negative effect relates to
regulatory expenses in the amount of
EUR 16.2 million, of which EUR 14.2
million to DGS and EUR 2.0 million to
SRF. Recurring profit before impairments
and provisions was stable in first three
quarters of 2019, while the drop in last
quarter relates to higher costs, which was
partially compensated by higher net fee and
commission income.
Net interest income
Net interest income of the Group
accounted for 62% of the Group’s total net
revenues, increasing by 2% YoY to EUR
318.5 million, due to an increase of interest
income in most of the banks of the Group,
supported by loan book growth. Higher
interest expenses in Q3 and Q4 were due to
new subordinated Tier 2 instruments raised
by the Bank, while interest expenses for
customer deposits were decreasing.
+7%
176.1
165.3
-11%
37.1
32.9
+6%
16.2
17.1
+3%
8.8
9.0
+32%
19.5
14.8
-25%
10.0
7.6
-20%
5.2
4.1
NLB
NLB Banka,
Skopje
NLB Banka,
Banja Luka
NLB Banka,
Sarajevo
NLB Banka,
Prishtina
NLB Banka,
Podgorica
NLB Banka,
Beograd
2018
2018
2019
Figure 9: Profit after tax of NLB Group banks (on a stand-alone basis, in EUR million)
64.8
55.3
11.7
-2.2
46.0
48.4
-2.1
-0.3
51.2
54.4
54.7
56.8
5.8
-9.3
-2.3
-0.1
41.9
41.0
3.3
-2.4
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Non-recurring net non-interest income
Regulatory costs
Result before impairments and provisions w/o non-recurring income
* From June 2019 on, different presentation of non-recurring items is in use.
Figure 10: Result before impairments and provisions of NLB Group (in EUR million)*
+2% YoY
312.9
318.5
358.9
364.8
-45.9
2018
-46.3
2019
Interest income
Interest expenses
81.0
92.1
-11.1
+0% QoQ
79.8
91.4
79.7
92.1
-11.6
-12.4
Q4 2018
Q3 2019
Q4 2019
Figure 11: Net interest income of NLB Group (in EUR million)
NLB Group Annual Report 2019 4.3
14.9
-9.7
-3.3
-0.6
312.9
318.5
2018
IR assets
IR liabilities
Amount
assets
Amount
liabilities
Derivatives
& other
2019
Figure 12: Effects on net interest income change (in EUR million) – evolution YoY
3.85%
3.71%
2.56%
1.89%
2.56%
1.92%
3.67%
2.54%
1.91%
3.63%
3.59%
2.51%
1.88%
2.48%
1.85%
1-12 2018
1-3 2019
1-6 2019
1-9 2019
1-12 2019
NLB
NLB Group
Strategic foreign banks
* Interest margin data for the Group and Strategic foreign banks for 2018 are adjusted to the
new methodology (calculation based on the number of days for the period).
Figure 13: Net interest margin13 of NLB Group (in %)
42
Net interest income was negatively affected
by lower interest rates on assets, which was
over compensated by higher loan volume
growth. Slight positive effects derived also
on deposit side from active management
of deposit pricing despite the increase of
deposit volume.
Net interest margin in the Group decreased
0.08 p.p. YoY and amounted to 2.48%.
The interest margin for the Bank and the
Group banking members in SEE decreased
YoY, and amounted to 1.85% and 3.59%,
respectively.
Net non-interest income
Net non-interest income reached EUR
195.1 million and increased by EUR 14.8
million or 8% YoY. The YoY dynamic was
influenced by the following factors:
• Net fee and commission income higher
by EUR 9.7 million or 6% YoY, mainly
from the retail segment in the Bank and
in the Group banking subsidiaries in
SEE. Most of the foreign banks recorded
an increase in number of customers.
• Recurring other net non-interest income
amounted to EUR 3.9 million (EUR -1.2
million YoY) and was mainly affected by
the regulatory costs (SRF and DGS) in
the total amount of EUR 16.2 million
and higher net gains from FX trading.
• Net non-interest income was positively
impacted by non-recurring income as a
partial repayment of a larger exposure
measured at fair value through profit and
loss and active management of banking
book securities in the amount of EUR
4.5 million.
13. Calculated on the basis of average interest bearing assets.
NLB Group Annual Report 2019 43
• In 2019, a positive one-off effect from
revaluation of a non-core equity stake
was realised in the amount of EUR
6.3 million in Q2 (sale of this stake in
Q4); whereas in the same period of
2018, the net non-interest income was
positively impacted by the sale of NLB
Nov penziski fond, Skopje in the amount
of EUR 12.2 million and negatively
impacted by the sale of 28.13% minority
stake in Skupna pokojninska družba in
the amount of EUR 0.5 million.
Operating costs
Total costs amounted to EUR 301.4
million (of which EUR 1.6 million were
comprised of non-recurring costs related
to restructuring, as well as EUR 3.0
million of performance rewards paid in
December) and are thus by EUR 12.8
million or 4% higher YoY. The increase
was mostly due to higher employee costs
in the amount of EUR 6.1 million (mainly
adjustments on management board and
senior management post-privatisation
compensation) and other general and
administrative costs (licences, consulting
and supervision).
CIR stood at 58.7%, a 0.2 p.p. increase
YoY.
+8% YoY
180.4
14.6
5.0
0.1
195.1
20.7
3.9
0.2
160.6
170.3
3.0
+3% QoQ
0.0
3.3
49.2
2.4
43.5
0.0
43.3
2.9
40.7
-0.3
0.0
47.6
3.0
44.6
-0.1
2018
2019
Q4 2018
Q3 2019
Q4 2019
Net fee and commission income
Non-recurring other net non-interest income
Recurring other net non-interest income
Dividend income
* From June 2019 on, different presentation of non-recurring items is in use.
Figure 14: Net non-interest income of NLB Group (in EUR million)*
+4% YoY
301.4
31.0
99.3
288.7
27.2
96.3
165.1
171.2
78.3
6.7
28.4
43.2
73.0
7.9
23.3
41.8
+19% QoQ
87.0
7.7
31.4
48.0
2018
2019
Q4 2018
Q3 2019
Q4 2019
Employee costs
Depreciation and amortisation
Other general and administrative expenses
Figure 15: Total costs of NLB Group (in EUR million)
NLB Group Annual Report 2019 44
Establishment of net
impairments and provisions
In 2019, the Group established EUR 1.0
million of net impairments and provisions,
while in 2018 EUR 23.3 million were
released.
Impairments and provisions for credit
risk were net released in the amount of
EUR 13.3 million and the cost of risk was
negative, -20 bps (in 2018 -43 bps).
Other impairments and provisions in 2019
were net established in the amount of
EUR 14.3 million, mostly HR provisions
for reorganisation in the Bank (EUR 5.5
million), while on the Group level provisions
for pending legal disputes (EUR 5.7 million)
and impairments of non-financial assets
(EUR 3.2 million).
Asset quality
Positive asset quality trend continued in
2019. The Group’s lending strategy focuses
on its core markets of retail, SME, and
selected corporate business activities in
the SEE region. Preserving a high credit
portfolio quality represents the most
important key aim, with a focus on the
quality of new placements leading to a
diversified portfolio of customers. The
portfolio quality in 2019 was very stable
with increasing Stage 1 exposures and a
reduction of NPL loans, which are below
the Slovenian average. The high percentage
of the Stage 1 loan portfolio is a result of
a cautious lending policy. Respectively, the
volume of Stage 2 loans is quite limited,
the majority of their decrease in the past
year occurred due to positive resolving of
exposures in this stage. The efforts led to
cumulatively very low new NPLs formation
in the amount of EUR 55.8 million, which
represents 0.6% of the total portfolio.
Gross NPL formation has been low since
2015.
23.3
30.2
-6.9
2018
13.3
-14.3
-1.0
2019
15.2
16.4
-1.1
4.3
7.0
-2.7
-8.4
-2.3
-10.7
Q4 2018
Q3 2019
Q4 2019
Other impairments and provisions
Impairments and provisions for credit risk
Figure 16: NLB Group impairments and provisions (in EUR million)
Formation / gross loans
1.2%
1.4%
0.7%
0.7%
0.6% YtD
Limited formation at front book* in 2015 to Q4 2019:
EUR 50 million, o/w EUR 3.6 million in 2019
123
15
77
31
128
31
32
64
60
37
21
2
64
36
16
12
56
35
20
2015
2016
2017
2018
2019
Corporate
SME
Retail/Other
* Refers to Corporate loans disbursed since 2014 and Retail loans disbursed since 2015.
Figure 17: NLB Group gross NPL formation (in EUR million)
NLB Group Annual Report 2019 45
Statement of financial position
Table 11: Statement of financial position of NLB Group and NLB
31 Dec
2019
31 Dec
2018
Change YoY
31 Dec
2019
30 Sep
2019
30 Jun
2019
31 Mar
2019
31 Dec
2018
Change QoQ
NLB Group
in EUR million
ASSETS
Cash, cash balances at central banks,
and other demand deposits at banks
2,101.3
1,588.3
513.0
32%
2,101.3
1,531.4
1,460.7
1,589.0
1,588.3
570.0
37%
Loans to banks
93.4
118.7
-25.3
-21%
93.4
90.3
108.1
108.9
118.7
3.1
Loans to customers
7,604.7
7,148.4
456.3
7,938.3
7,627.5
310.8
3,646.3
3,540.4
105.8
4,013.5
3,726.5
287.0
6%
4%
3%
8%
7,604.7
7,496.0
7,280.8
7,264.3
7,148.4
108.7
7,938.3
7,905.1
7,721.1
7,719.0
7,627.5
33.2
3,646.3
3,661.5
3,565.7
3,593.1
3,540.4
-15.2
4,013.5
3,931.5
3,842.1
3,780.7
3,726.5
82.0
278.6
360.5
-82.0
-23%
278.6
312.1
313.3
345.2
360.5
-33.5
-11%
-333.6
-479.0
145.4
30%
-333.6
-409.0
-440.2
-454.7
-479.0
75.4
18%
Financial assets
3,829.7
3,399.2
430.5
13%
3,829.7
3,841.4
3,787.4
3,608.0
3,399.2
- Trading book
24.0
63.6
-39.6
-62%
24.0
87.6
116.9
38.4
63.6
- Non-trading book
3,805.7
3,335.6
470.0
14%
3,805.7
3,753.9
3,670.5
3,569.6
3,335.6
7.5
37.1
-29.6
-80%
7.5
7.5
42.3
42.9
37.1
247.9
236.0
39.5
35.0
250.0
177.1
11.9
4.6
72.8
13%
41%
5%
247.9
247.5
251.6
252.2
236.0
39.5
35.7
33.5
33.2
35.0
250.0
239.8
199.9
167.3
177.1
10.2
14,174.1
12,740.0
1,434.1
11% 14,174.1
13,489.5
13,164.4
13,065.8
12,740.0
684.5
Deposits from customers
11,612.3
10,464.0
1,148.3
11% 11,612.3
11,038.2
10,753.5
10,675.8
10,464.0
574.1
2,772.0
2,337.3
434.7
19%
2,772.0
2,429.9
2,294.6
2,255.3
2,337.3
342.1
8,582.9
7,865.6
717.3
9%
8,582.9
8,330.2
8,178.9
8,017.4
7,865.6
252.7
Deposits form banks and central banks
42.8
26.8
257.4
261.1
-3.7
16.1
-1%
60%
257.4
278.0
280.0
403.1
261.1
42.8
56.3
44.8
24.6
26.8
234.8
320.3
-85.4
-27%
234.8
242.7
306.8
317.4
320.3
342.6
256.5
86.1
34%
342.6
357.6
386.8
305.7
256.5
-15.0
Subordinated liabilities
210.6
15.1
195.5
-
210.6
90.3
44.9
15.3
15.1
120.3
133%
Equity
1,685.9
1,616.2
Non-controlling interests
45.0
41.2
69.7
3.8
4%
9%
1,685.9
1,661.5
1,587.4
1,683.8
1,616.2
45.0
42.9
40.3
43.2
41.2
24.4
2.1
TOTAL LIABILITIES AND EQUITY
14,174.1
12,740.0
1,434.1
11% 14,174.1
13,489.5
13,164.4
13,065.8
12,740.0
684.6
1%
5%
5%
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
Borrowings
Other liabilities
3%
1%
0%
0%
2%
0%
-73%
1%
-1%
0%
11%
4%
5%
5%
14%
3%
-7%
-24%
-3%
-4%
-11.7
-63.5
51.8
0.0
0.5
3.9
-20.7
-13.5
-7.9
NLB Group Annual Report 2019 46
31 Dec
2019
31 Dec
2018
Change YoY
31 Dec
2019
30 Sep
2019
30 Jun
2019
31 Mar
2019
31 Dec
2018
Change QoQ
NLB
in EUR million
ASSETS
Cash, cash balances at central banks,
and other demand deposits at banks
1,292.2
795.1
497.1
63%
1,292.2
712.7
757.6
877.6
795.1
579.5
81%
Loans to banks
144.4
110.3
34.1
31%
144.4
147.9
130.4
94.0
110.3
Loans to customers
4,589.2
4,478.1
111.1
4,718.0
4,703.7
14.4
2%
0%
4,589.2
4,602.7
4,463.0
4,531.3
4,478.1
4,718.0
4,781.4
4,654.5
4,734.2
4,703.7
2,154.5
2,190.3
-35.8
-2%
2,154.5
2,225.4
2,137.0
2,202.9
2,190.3
2,376.8
2,241.6
135.2
6%
2,376.8
2,339.7
2,286.9
2,267.8
2,241.6
186.8
271.7
-85.0
-31%
186.8
216.4
230.6
263.5
271.7
-29.6
-14%
-128.9
-225.6
96.7
43%
-128.9
-178.8
-191.5
-202.9
-225.6
49.9
28%
Financial assets
3,168.6
2,869.4
299.2
10%
3,168.6
3,198.5
3,158.1
3,013.5
2,869.4
- Trading book
24.1
63.6
-39.5
-62%
24.1
87.6
117.0
38.3
63.6
- Non-trading book
3,144.5
2,805.8
338.7
12%
3,144.5
3,110.9
3,041.1
2,975.2
2,805.8
-29.9
-63.5
33.6
353.2
355.5
-2.3
-1%
353.2
355.5
355.5
355.5
355.5
-2.3
89.9
26.0
138.1
86.9
23.4
92.3
3.0
2.6
45.8
3%
11%
50%
89.9
26.0
87.6
24.0
88.9
22.6
88.1
22.1
138.1
160.5
166.8
106.1
86.9
23.4
92.3
-22.4
-14%
9,801.6
8,811.0
990.5
11%
9,801.6
9,289.4
9,143.0
9,088.2
8,811.0
512.2
6%
Deposits from customers
7,760.7
7,033.4
727.3
10%
7,760.7
7,344.0
7,210.0
7,217.6
7,033.4
416.7
1,674.9
1,392.2
282.7
20%
1,674.9
1,379.4
1,318.6
1,334.0
1,392.2
295.5
5,985.0
5,522.1
462.8
8%
5,985.0
5,854.5
5,764.2
5,645.4
5,522.1
130.5
100.9
119.1
-18.2
-15%
100.9
110.1
127.2
238.3
119.1
Deposits form banks and central banks
89.8
48.9
40.9
84%
89.8
85.5
71.4
66.0
48.9
164.1
248.3
-84.2
-34%
164.1
173.8
238.9
247.7
248.3
243.1
185.2
57.9
31%
243.1
267.7
289.8
214.7
185.2
-24.6
Subordinated liabilities
210.6
0.0
210.6
-
210.6
90.3
44.9
0.0
0.0
120.3
133%
Equity
1,333.2
1,295.2
38.0
3%
1,333.2
1,328.1
1,288.0
1,342.2
1,295.2
5.1
TOTAL LIABILITIES AND EQUITY
9,801.6
8,811.0
990.5
11%
9,801.6
9,289.4
9,143.0
9,088.2
8,811.0
512.2
0%
6%
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
Borrowings
Other liabilities
-3.5
-13.5
-63.4
-70.9
37.1
-2%
0%
-1%
-3%
2%
-1%
-73%
1%
-1%
3%
8%
6%
21%
2%
-8%
5%
-6%
-9%
2.3
1.9
-9.2
4.3
-9.7
NLB Group Annual Report 2019 47
Total assets of the Group increased to
EUR 14,174.1 million, mainly due to the
continued inflows of deposits, which were
placed mainly in liquidity reserves and
partially in loans to customers.
Assets
66% of the total assets are booked in
Slovenia, while the vast majority of the
remaining assets (34%) are booked in SEE
countries.
The Group recorded growth in gross loan
to customers (EUR 310.8 million or 4%
YoY), in gross loans to individuals (EUR
287.0 million or 8% YoY) and to corporate
(EUR 105.8 million or 3% YoY), while
gross loans to state recorded a decrease
(EUR 82.0 million or 23% YoY).
Key business activities recorded an 8%
increase of gross loans to customers YoY
to EUR 7,559.6 million. A YoY increase
of gross loans to customers was recorded
in all segments of Key business activities,
Strategic Foreign Markets (EUR 229.4
million), Retail Banking in Slovenia (EUR
166.8 million, of which a EUR 38.1 million
increase relates to the transfer of micro
clients from the Corporate and Investment
Banking in Slovenia segment), and the
Key/SME Corporates (EUR 143.9 million).
Other 0.2%
Serbia 4.5%
Montenegro 3.8%
Kosovo 5.6%
BiH 9.7%
N. Macedonia 10.2%
Slovenia
66.0%
* Geographical analysis based on the booking entity location.
Figure 18: NLB Group total assets by booking entity (in %)*
12,238
513
2,963
6,994
1,767
CAGR 8%
12,740
485
3,399
7,148
1,707
+11% YoY
14,174
545
3,830
7,605
2,195
31 Dec 2017
31 Dec 2018
31 Dec 2019
Other Assets
Financial Assets
Net loans to customers
Cash equivalents. placements with banks and loans to banks
Figure 19: Total assets of NLB Group (in EUR million) – structure
CAGR 5%
7,020
1,843
2,243
2,933
+8% YoY
7,560
1,987
2,410
3,162
6,797
2,013
2,122
2,661
31 Dec 2017
31 Dec 2018
31 Dec 2019
Strategic Foreign Markets
Retail Banking in Slovenia
Key/SME Corporates*
* Including Gross loans to Corporate and to State.
Figure 20: NLB Group gross loans to customers by Key business activities (in EUR million)
NLB Group Annual Report 2019 48
Institutions 3%
State** 17%
SME 20%
EUR 9.8bn
Retail
consumer
20%
Corporates
19%
BiH 11%
Other**
4%
N. Macedonia
11%
Montenegro 5%
Croatia 0%
Kosovo 7%
EUR 9.8bn
Serbia 6%
BAM 6%
MKD 7%
Other 5%
Floating 46%
EUR 9.8bn
EUR 9.8bn
Retail housing 21%
Slovenia 56%
Segment
Geography
EUR 82%
Currency
Fixed 54%
Interest rate
*
Loan portfolio also includes advances to banks and CBs.
** State includes exposures to CBs.
*** The largest part represent EU members.
Figure 21: Loan portfolio* by segment, geography, currency, and rate type
The loan portfolio of the Group is
well diversified, and there are no large
concentrations in any specific client
segment or industry. The majority of the
loan portfolio refers to euro currency, while
the rest originates from local currencies
of the Group banking members. From
interest rate type, half of the loan portfolio
is linked to the fixed interest rate, and the
rest to floating rate (mostly to the Euribor
reference rate).
Liabilities
Total liabilities of the Group increased
and amounted to EUR 12,443.2 million.
The Group’s funding base is dominated
by customer deposits accounting for 82%
in which sight deposits prevail (81%,
compared to 79% as at year-end 2018).
The majority of customer deposits (74%)
were from individuals. 67% of deposits
were collected in Slovenia, and the rest in
the Group banking members in SEE.
Deposits from customers increased by
11% YoY and amounted to EUR 11,612.3
million. The increase derives mostly from
deposits from individuals (EUR 717.3
million or 9%), while corporate deposit
increase (19% YoY) was to a large extent
related to a one-off event at the end of
2019.
CAGR 9%
11,083
256
347
261
2,337
+12% YoY
15
27
10,550
249
395
256
2,260
7,363
7,866
211
12,443
343
278
257
2,772
8,583
31 Dec 2017
31 Dec 2018
31 Dec 2019
Deposits from individuals
Corporate deposits
State deposits
Other liabilities
Borrowings and Deposits from banks and central banks
Subordinated liabilities
Figure 22: Total liabilities of NLB Group – structure (in EUR million)
NLB Group Annual Report 2019 49
Wholesale funding activities in the Group
are conducted with the aim of achieving
diversification, improving structural
liquidity and capital position, and fulfilling
regulatory requirements. The Bank raised
EUR 210.6 million (carrying amount) of
wholesale funding (subordinated Tier 2
instruments) to strenghten and optimise
the capital position. Two Group banking
subsidiaries have, due to their solid liquidity
position, early prepaid two subordinated
instruments in a total amount of EUR 15
million.
The LTD ratio was 65.5% at the Group
level; a decrease of 2.8 p.p. YoY as a result
of increased deposits, which was partially
neutralized 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.
Capital and capital adequacy
The Overall Capital Requirement (OCR)
amounted to 14.75% for the Bank 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 applicable OCR requirement for 2019
was raised to 14.75%, due to the gradual
phase-in of the Capital Conservation Buffer
as prescribed by the law and introduction
of the O-SII Buffer. In contrast, the Pillar
2 Requirement decreased by 0.25 p.p. to
3.25%, as a result of better overall SREP
assessment. Pillar 2 Guidance (P2G)
amounts to 1.0% of CET1.
International
Slovenia
Term
11%
Term
34%
Sight
66%
Sight
89%
Figure 23: Deposits from customers by type
70.8%
68.3%
65.5%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Figure 24: LTD ratio movement
15.9%
16.7%
16.3%
44.6
1,362
1,453
1,451
31 Dec 2017
31 Dec 2018
31 Dec 2019
Tier 1
Tier 2
Total capital ratio
Figure 25: NLB Group capital (in EUR million) and total capital ratio (in %)
NLB Group Annual Report 2019 50
Table 12: NLB Group Capital Requirements and buffers
Pillar 1 (P1R)
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
CET1
AT1
Tier 2
CET1
CET1
Tier 1
2020
4.5%
1.5%
2.0%
2.75%
7.25%
8.75%
2019
4.5%
1.5%
2.0%
3.25%
7.75%
9.25%
2018
4.5%
1.5%
2.0%
3.5%
8.0%
9.5%
Total Capital
10.75%
11.25%
11.5%
CET1
CET1
CET1
CET1
Tier 1
Total Capital
CET1
CET1
2.5%
1.0%
0.0%
10.75%
12.25%
14.25%
1.0%
11.75%
2.5%
1.0%
0.0%
11.25%
12.75%
14.75%
1.0%
1.875%
0.0%
0.0%
9.875%
11.375%
13.375%
1.5%
12.25%
11.375%
From 1 January 2020, NLB is required to
maintain the OCR at the level of 14.25%
on a consolidated basis, consisting of:
• 10.75% TSCR (8% Pillar 1 Requirement
and 2.75% Pillar 2 Requirement); and
the bank issued 10NC5 subordinated Tier
2 notes in the aggregate nominal amount
of EUR 120 million, which were subject
to the BoS/ECB approval process and
therefore not included in the capital as of
31 December 2019.14
• 3.5% CBR (2.5% Capital Conservation
Buffer, 1% O-SII Buffer and 0%
Countercyclical Buffer).
The Pillar 2 Requirement decreased by 0.5
p.p. to 2.75%, as a result of better overall
SREP assessment.
The capital of the Bank and the Group
covers all the current and announced
regulatory capital requirements, including
capital buffers and other currently known
requirements, as well as the P2G.
To strengthen and optimise the capital
structure, the Bank issued 10NC5
subordinated Tier 2 notes in the aggregate
nominal amount of EUR 45 million on
6 May 2019; the instrument has been
included in the capital since 30 June 2019.
In addition to that, on 19 November 2019,
On 17 September 2019, the Bank entered
into a loan agreement to raise EUR 45
million of subordinated Tier 2 debt. As the
Bank had not obtained the ECB’s approval
to count the Tier 2 loan towards its capital
by the end of 2019 and was not reasonably
expected to receive it in the near future, the
Bank exercised early repayment of the loan
on 17 January 2020.
As at 31 December 2019, the total capital
ratio for the Group stood at 16.3% (or 0.5
p.p. lower than at the end of 2018), and
for NLB at 22.6% (or 1.4 p.p. lower than
at the end of 2018). The Tier 1 ratio and
CET1 ratio (15.8% or 0.9 p.p. lower than
at the end of 2018) differs from the total
capital ratio due to the subordinated Tier 2
notes issuance conducted in May. The lower
NLB Group capital adequacy compared to
the end of 2018 derives from higher RWA
YoY (EUR 507.9 million for the Group). In
June 2019, NLB paid out dividends in the
total amount of EUR 142.6 million, which
represents EUR 7.13 gross per share. Total
capital increased by EUR 42.4 million,
mainly due to inclusion of the Tier 2 notes
(EUR 44.6 million).
The RWA for credit risk increased by EUR
540.6 million YoY, mainly in the Corporate
and Retail segment15 in the amount of
EUR 397.3 million due to loan growth. The
decrease in RWA for market risks and CVA
(EUR -20.8 million) is mainly the result of
more closed positions in domestic currencies
of non-euro subsidiary banks. The decrease
in the RWA for operating risks (EUR -11.9
million) arose from the lower three-year
average of relevant income, as defined in
Article 316 of CRR, which represents the
basis for the calculation.
Further information on capital and capital
adequacy is available in the Note 5.22 to the
Audited Annual Financial Statements.
14. For further developments see chapter Events after the
end of the 2019 financial year.
15. Based on COREP segmentation.
NLB Group Annual Report 2019 51
Table 13: Total risk exposure for NLB Group (in EUR million)
Total risk exposure amount (RWA)
RWA for credit risk
RWA for market risks + CVA
RWA for operational risk
31 Dec 2019
31 Dec 2018
31 Dec 2017
Change YoY
9,186
7,720
524
942
8,678
7,180
544
953
8,546
7,096
501
949
5.9%
7.5%
-3.8%
-1.2%
Liquidity position
The Group liquidity remains strong, with
high level of liquid assets in total assets
(46%) that is reflected in the LCR ratio
standing at 325%, compared to 361% as
at 31 December 2018. The Group holds a
comfortable liquidity position at both the
Group and subsidiary bank levels, standing
well above the targeted risk appetite
limit.
3,151
3,303
3,308
3,335
3,985
873
923
963
1,005
1,226
EUR million
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
31 Dec 2018
LCR = 361%
31 Mar 2019
LCR = 358%
30 Jun 2019
LCR = 344%
30 Sep 2019
LCR = 332%
31 Dec 2019
LCR = 325%
High quality liquid assets
Net liquidity outflows
Figure 26: LCR quarterly dynamic of NLB Group
NLB Group Annual Report 2019 52
Chapter 7
Regulatory
Environment
During 2019, more than 200 changes
in the EU and Slovenian regulatory
environment were adopted and the most
relevant and material effects on the
Bank and the Group are the following.
Regulatory development regarding
Regulation (EU) 2016/1011 on indices
used as benchmarks in financial instruments
and financial contracts or to measure the
performance of investment funds (BMR),
which introduced a common framework to
ensure the accuracy and integrity of indices
used as benchmarks (e.g. EURIBOR,
LIBOR) in financial instruments and
financial contracts, or to measure the
performance of investment funds in the
Union, included Belgian Financial Services
and Market Authority (FSMA) authorisation
of European Money Markets Institute
(EMMI) as the administrator of EURIBOR
under the BMR. Consequently, EURIBOR
is now considered BMR-compliant and
was added to the European Securities and
Markets Authority (ESMA) benchmark
register. The Bank is thus also able to use
EURIBOR after the end of the applicable
BMR transitional period. The Working
Group on Euro Risk-Free Rates, established
to identify and recommend risk-free rates
that could serve as a basis for an alternative
to current benchmarks used in a variety of
financial instruments and contracts in the
Euro area, such as the euro overnight index
average (EONIA) and the euro interbank
offered rate (EURIBOR), published several
reports, inter alia, fallback arrangements for
users of the Euro short-term rate (€STR)
and the introduction of €STR-based
fallbacks for EURIBOR. In November
2019, the working group also published a
report with high-level recommendations
for fallback provisions in contracts that
use a reference to EURIBOR. The ECB
decided to develop a €STR to reflect
the wholesale euro unsecured overnight
borrowing costs of Euro area banks. The
€STR was published for the first time on 2
October 2019. Accordingly, the Bank took
action to include new circumstances in the
appropriate documentation and processes.
Regulation (EU) 2016/679 of the European
Parliament and of the Council of 27 April
2016 on the protection of natural persons
regarding the processing of personal data
and on the free movement of such data, and
repealing Directive 95/46 /EC (GDPR)
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 were aligned with the
GDPR requirements. The new Slovenian
Personal Data Protection Act (ZVOP-2),
regulating additional requirements on
the protection of personal data, was not
adopted in 2019 and a new proposal was
prepared by the Government, which means
additional implementation activities are
expected in 2020 when ZVOP-2 will be
adopted (depending on final wording of the
new law, setting additional requirements to
the ones set by GDPR).
In February 2019, the EBA published
the revised Guidelines on Outsourcing
Arrangements that reviewed the existing
CEBS Guidelines on outsourcing published
in 2006. The aim of the Guidelines is to
specify which arrangements with third
parties are to be considered as outsourcing.
The Guidelines differentiate between the
requirements on critical and important
outsourcing arrangements and other
outsourcing arrangements. The new
Guidelines, which are consistent with
the requirements on outsourcing under
the Payments Services Directive (PSD2),
the Markets in Financial Instruments
Directive (MiFID II), and the Commission’s
Delegated Regulation (EU) 2017/565, aim
at ensuring that institutions can apply a
single framework on outsourcing for all their
banking, investment, and payment activities
and services.
Also in February 2019, the Slovenian
national assembly passed the Act Amending
the Insurance Act, which transposes the
Directive 2016/97 on the distribution of
insurance products (IDD) into Slovenian
law and regulates the concepts relating
to the distribution of insurance products.
The Bank ran several implementation
activities to ensure compliance with the new
requirements.
In May 2019, the Ministry of Economic
Development and Technology published the
proposal of the amended Companies Act
that transposes the Directive (EU) 2017/828
amending Directive 2007/36/EC as
regards the encouragement of long-term
shareholder engagement into the Slovenian
legislation. The proposed amendments will
include provisions regarding the exercise
of shareholders’ rights (the rights and
obligations arising from shares in relation to
the company, provision of information, and
instructions for exercising rights, processing
NLB Group Annual Report 2019 of personal data of shareholders, etc.). The
act is expected to be adopted by the end of
2020.
Furthermore, in June 2019 the banking
reform package was adopted which further
implements material elements of the
Basel III framework. The key changes
introduced by the banking reform package
which was proposed in 2018 consists of
the following two regulations and two
directives: the Regulation (EU) 2019/876
of the European Parliament and of the
Council of 20 May 2019 amending
Regulation (EU) No 575/2013 as regards
the leverage ratio, the net stable funding
ratio, requirements for own funds and
eligible liabilities, counterparty credit
risk, market risk, exposures to central
counterparties, exposures to collective
investment undertakings, large exposures,
reporting and disclosure requirements,
and Regulation (EU) No 648/2012; the
Directive (EU) 2019/878 of the European
Parliament and of the Council of 20 May
2019 amending Directive 2013/36/EU
as regards exempted entities, financial
holding companies, mixed financial holding
companies, remuneration, supervisory
measures and powers and capital
conservation measures; the Directive (EU)
2019/879 of the European Parliament and
of the Council of 20 May 2019 amending
Directive 2014/59/EU as regards the
loss-absorbing and recapitalisation capacity
of credit institutions and investment
firms and Directive 98/26/EC and the
Regulation (EU) 2019/877 of the European
Parliament and of the Council of 20
May 2019 amending Regulation (EU) No
806/2014 as regards the loss-absorbing
and recapitalisation capacity of credit
institutions and investment firms.
The Bank is subject to these capital
adequacy and liquidity rules imposed by the
EU (including the Capital Requirements
Directive 2013/36/EU as amended
by Directive 2019/878 ‘CRD V’ and
the Regulation (EU) No 575/2013 as
amended, replaced, or supplemented from
time to time (including as amended by
Regulation 876/2019 ‘CRR2’)), which
govern the activities in which banks may
engage and are designed to maintain the
safety and soundness of banks, and limit
their exposure to risk. Despite the fact
that the majority of the new provisions
apply from June 2021, the Bank started
its implementation activities to ensure the
timely implementation of CRR2 provisions.
The national legislation regulating further
rules set under the CRD V (i.e., Zakon o
bančništvu, the Banking Act) and BRRD 2
(Zakon o reševanju in prisilnem prenehanju
bank; ZRPPB) is expected to be adopted in
December 2020.
The Payment Services, Services of Issuing
Electronic Money, and Payment Systems
Act (Zakon o plačilnih storitvah, storitvah
izdajanja elektronskega denarja in plačilnih
sistemih) (the ‘Payments Act’) transposing
European-wide PSD2 requirements, came
into force on 22 February 2018. Regulatory
Technical Standards on strong customer
authentication and secure communication
under PSD2 were published in the EU’s
Official Journal on 13 March 2018, and
fully applied from 14 September 2019.
Compliance with the Payments Act and the
Regulatory Technical Standards required
major changes of the Bank’s IT systems.
To minimise the effects of excessive
lending to consumers, the BoS adopted the
Regulation on macroprudential restrictions
on household lending, which entered into
force on 1 November 2019. The aim of the
measure is to mitigate and prevent excessive
credit growth and leverage. The regulation
sets out two binding macroprudential
instruments: a cap on the ratio of
the annual debt servicing costs to the
consumer’s annual income (DSTI) when the
loan agreement is concluded, and limits on
maturity. The regulation also sets out a non-
binding macroprudential instrument, which
is a recommendation regarding a cap on the
ratio of the amount of a credit agreement
for residential real-estate to the value of the
real-estate pledged as collateral (LTV) when
53
the credit agreement is concluded. Through
these two macroprudential instruments,
the BoS applied binding minimum credit
standards to housing loans and consumer
loans, and at the same time repealed
pre-existing non-binding macroprudential
instruments.
In November 2019, the Ministry of
Finance published a proposal of the
amendment to the Anti-Money Laundering
and Terrorist Financing Act, which is
necessary to transpose the Directive (EU)
2018/843 on the prevention of the use of
the financial system for the purposes of
money laundering or terrorist financing
into the Slovenian legislation. This
Directive (the so-called 5th Anti-Money
Laundering Directive) aims not only to
detect and investigate money laundering,
but also to prevent it from occurring.
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 customer’s identity.
The new Prospectus Regulation (Regulation
(EU) 2017/1129) was published in the
Official Journal of the EU 30 June 2017
and entered into force on 20 July 2017. The
Regulation has from 21 July 2019 essentially
repealed and replaced the Prospectus
Directive (EU Directive 2003/71/EC) and
all related level 2 measures, and as an EU
regulation, is directly effective across all EU
member states without any requirement
for implementation into national law.
Additional national implementing acts will
be adopted regarding certain provisions
related to, among others, the scope
and exemption of the new regime, the
designation of competent authorities, their
powers, and the sanctioning regime.
NLB Group Annual Report 2019 Chapter 8
Segment Analysis
Segments of the Group are divided into
core and non-core segments.
The core segments are the following:
• Retail Banking in Slovenia, which
includes banking with individuals and
asset management, as well as the results
of the jointly-controlled company
NLB Vita and the associated company
Bankart.
• Corporate and Investment Banking in
Slovenia, which includes banking with
Key corporate clients, SMEs, Investment
Banking, and Restructuring and workout.
• Strategic Foreign Markets, which include
the operations of strategic Group banks
in strategic markets (BiH, Montenegro,
Kosovo, North Macedonia, and Serbia).
• Financial Markets in Slovenia include
treasury activities and trading in
financial instruments, while they also
present the results of asset and liabilities
management (ALM).
• Other include for the Banks categories
whose operating results cannot be
allocated to specific segments.
Non-core Members include the operations
of non-core Group members according to
the EC commitments, REAM entities, NLB
Srbija and NLB Crna Gora.
From 2019, some shifts in the reporting
of business segments have been applied,
following the completion of the
restructuring process imposed by the EC
and also reflecting strategic streamlining of
business operations within the corporate
segment as follows:
55
• The results from Investment Banking and
Custody services have been transferred
from Financial Markets in Slovenia to
the enlarged Corporate and Investment
Banking in Slovenia.
• Micro clients in Slovenia have been
transferred from Corporate and
Investment Banking in Slovenia to Retail
Banking in Slovenia.
• Corporate exposures previously reported
in Non-Core markets and activities
have been transferred to Corporate and
Investment Banking in Slovenia given
that special reporting requirements from
the EC commitments have ceased to
apply. The remaining segment has been
renamed to Non-Core members and
contains non-core subsidiaries mostly in
liquidation.
• Further, the SPVs established for NPLs
from banks in Serbia and Montenegro
(NLB Srbija, and NLB Crna Gora), have
been transferred from Strategic Foreign
Markets to Non-Core members.
Due to the new methodology, the
segment results for 2019 are not directly
comparable to the segment results from
the previous year. The table below presents
the estimated effects due to the segment
changes for the full year 2018.
Table 14: Estimated effects of the segment methodology changes for 2018
in EUR million
Net interest income
Net non-interest income
Total costs*
Impairments and provisions*
Result before tax
Total assets
Gross loans to customers
Deposit from customers
*negative value=increase, positive value=decrease
Retail banking
in Slovenia
Corporate and
Investment
banking in
Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core
members
Other
3.1
4.6
-6.1
-0.9
0.7
37.1
38.1
188.1
1.8
2.3
-4.4
6.6
6.3
-9.5
111.8
-107.6
0.5
-1.8
1.4
1.4
1.5
-43.5
-69.0
0.0
-0.3
-8.2
6.1
0.0
-2.4
47.9
-0.1
-71.0
-5.1
3.2
3.0
-7.1
-6.1
-32.1
-80.8
-9.6
no effects
no effects
NLB Group Annual Report 2019 Clients
728,691
clients in total
644,003
active clients
472,409
payroll clients*
4,924
new clients joined
the Bank in 2019
*payroll or/and pension
Digital services
43.8%
digital users
228,557
mobile bank users
74.3%
contactless payments
56
Chapter 9
Retail Banking
in Slovenia
The segment recorded EUR 78.2 million of
net non-interest income, EUR 11.1 million
(17%) increase YoY; EUR 8.8 million due
to an increase in net fee and commission
income, of which EUR 0.5 million increase
is related to mutual funds and EUR 0.6
million to bancassurance business. The
effect of the transfer of micro clients from
Corporate and Investment Banking in
Slovenia to Retail Banking in Slovenia
segment is assessed to amount to EUR 4.6
million.
Considering the effect of the change in
segment presentation (approximately EUR
6.1 million) the total costs were EUR 10.6
million higher YoY.
The presentation of the increase in deposits
from customers YoY (EUR 641.7 million)
is mostly due to an increase in demand
deposits from retail clients and transfer
of micro clients from the Corporate and
Investment Banking in Slovenia segment
(EUR 188.1 million).
The Bank maintains a leading position in
retail banking, which is proven by market
share in loans and deposits. The vast
branch network is supported by digital
solutions and an offer of comprehensive
products and services, preparing the
Bank for future challenges. The Bank
is committed to enhancing customer
experience, and so standardised services
are being simplified, and the Bank is
available to customers through various
channels 24/7. Personal interactions in
branches are focused on more complex
transactions and advisory services.
The segment achieved profit before tax in
the amount of EUR 47.5 million, or 16%
higher YoY, due to higher net interest and
net non-interest income.
Net interest income was 10% higher YoY
due to higher interest rates and growth in
volume of gross loans in the amount of
EUR 166.8 million YoY, of which EUR
38.1 million increase relates to the transfer
of micro clients from the Corporate and
Investment Banking in Slovenia segment.
The production of new consumer loans
amounted to EUR 368.6 million (EUR
336.2 million in 2018), which led to an
increase of balance of EUR 89.3 million
YoY. Housing loans increased by EUR 50.5
million YoY. The share of consumer loans
in all gross loans increased to 29% (from
27% at the end 2018).
NLB Group Annual Report 2019
Contribution to NLB Group
Highlights:
57
22%
27%
40%
Result b.t.
Net interest
income
Net non-interest
income
• Klikin and NLB Klik were ranked first among
mobile or online banks in Slovenia.
• NLB Pay mobile wallet with digitised
Maestro, Mastercard, and Visa cards
enabling paying, cash withdrawal,
and cards’ management.
• Largest player in private banking.
• NLB Skladi, is the largest mutual funds
company on the Slovenian market
with a market share over 34%, also
implemented a mobile application for
easy and simple review of saved funds.
in EUR million consolidated
Change YoY
2019
87.4
78.2
81.9
165.6
-117.9
47.7
-4.4
4.2
47.5
2018
79.3
67.1
73.2
146.4
-107.3
39.1
-3.7
5.4
40.9
8.1
11.1
8.8
19.2
-10.6
8.6
-0.7
-1.2
6.6
31 Dec 2019
31 Dec 2018
Change YoY
2,385.1
2,410.2
1,425.0
2.54%
688.3
6.33%
296.9
6,456.2
0.05%
40.8
2019
19
71.2%
2.04%
2,217.4
2,243.4
1,374.6
2.50%
599.0
5.88%
269.9
5,814.5
0.08%
43.0
2018
17
73.3%
2.02%
167.7
166.8
50.5
89.3
27.0
641.7
-2.2
0.04 p.p.
0.45 p.p.
-0.03 p.p.
Change YoY
2
-2.1 p.p.
0.02 p.p.
10%
17%
12%
13%
-10%
22%
-19%
-23%
16%
8%
7%
4%
15%
10%
11%
-5%
Retail banking in Slovenia
Figure 27: Contribution to NLB Group (result b.t.,
net interest income, net non-interest income)
Table 15: Performance of the Retail Banking in Slovenia segment
Net interest income
Net non-interest income
o/w Net fee and commmission income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Net gains from investments in subsidiaries, associates, and JVs'
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
Due to the new methodology, the results of this segment for 2019 are not directly comparable to its results from the previous year.
NLB Group Annual Report 2019 58
40.0%
30.0%
20.0%
10.0%
30.7%
25.1%
23.4%
22.3%
30.3%
25.2%
22.2%
23.2%
30.5%
26.2%
23.1%
21.8%
8,087
7,238
12,162
12,768
10,272
31 Dec 2017
31 Dec 2018
31 Dec 2019
Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019
Market share in housing loans
Market share in loans to customers
Market share in consumer loans
Market share in deposits from customers
Figure 28: NLB’s market share in retail banking in Slovenia
Market leader in retail banking in Slovenia
Cards and payment solutions
Figure 29: Use of the video call
functionality (no. of contacts)
increase YoY) in a total volume of over
EUR 8 million (182% increase YoY) with
more than 20 thousand digitised cards.
NLB Pay is also being implemented in other
Group banks.
Payments with contactless and digitised
cards is even faster and easier with the limit
of a single payment without a PIN being
increased from EUR 15 to EUR 25 with no
effect on the safety of the payments.
The Bank’s card market share represents
27.2% (2018: 28.3%) of the Slovenian
market. Individuals’ debit and credit
card volumes of payment transactions
represented a total of EUR 2,269 million
(2018: EUR 2,078 million), and cash
withdrawals in the total of EUR 2,556
million (2018: EUR 2,531 million).
The mobile wallet, NLB Pay, enables
clients with digitised Maestro, Mastercard,
and Visa cards to make payments at POS
terminals and to withdraw cash from
contactless ATMs in and outside Slovenia.
Beside cash withdrawal, NLB Pay also
enables checking of a user’s balance of the
remaining limit of Maestro, MasterCard,
and Visa cards. The user can also define
the limitations on ATMs and e-commerce
usage and usage outside Slovenia. With
these upgrades of the application, the Bank
ensures even greater user experience and
increases the safety of the cards’ operations.
Almost 13 thousand users have already
downloaded the app, and in 2019 carried
out over 350 thousand transactions (a 151%
s
d
r
a
c
f
o
#
/
s
r
e
s
u
f
o
#
30,000
25,000
20,000
15,000
10,000
5,000
0
1,234
1,256
996
625
2,517
1,930
1,653
)
R
U
E
d
n
a
s
u
o
h
t
n
i
(
e
m
u
o
V
l
2,500
2,000
1,500
1,000
500
0
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Volume (in 000 EUR)
# of users
# of cards
Figure 30: NLB Pay in numbers
The Bank’s main sales channel remains the
largest branch network in Slovenia with 93
branches, and is supported with the largest
ATM network (551 or a 35.7% market share
in Slovenia) of which 327 are contactless
(59.3% of the Bank’s ATM network). In
addition to intensive digitalisation efforts,
the branch offices are being refurbished to
enhance customers’ experience. In 2019, the
Bank finished the refurbishment (complete
or partial) of seven branch offices.
Digital sales channels are gaining
prominence, and the Bank is a market
leader in providing customers opportunities
to do business. The Bank can be reached
through the NLB Contact Centre 24/7, the
largest and only 24/7 bank contact centre
in Slovenia that has been operating for 25
years, being able to advise customers on
banking products, and concluding certain
banking transactions. NLB is the only bank
in Slovenia to offer video call service 24/7.
This service has already been available
for two years. With video call, the digital
experience is getting closer to the classic
branch office, which can also be noticed
in the large pickup (119% increase YoY)
in the use of this channel. The Bank has
also adapted the video call for users with
a hearing disability by the presence of an
interpreter, which makes it easier to perform
basic banking services and enables them to
be more involved in the hearing world.
NLB Group Annual Report 2019
59
1,009
1,077
474
554
1,168
1,231
1,309
747
753
911
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
AuM (EUR million)
# of Clients
Figure 31: Assets under management and the number of private banking clients
NLB result 2019
NLB result 2018
Competitiors average result 2019
83
80
79
Figure 32: Satisfaction with the attitude towards customers
Private banking
Private banking has the leading position
among private banking providers in
Slovenia, with an increasing number
of clients (6% YoY) and assets under
management (21% YoY).
Enchancing the banking
experience of the clients
The Bank is the leader in the Slovenian
market because of the knowledge,
experience, and understanding of
customers’ needs with many solutions,
thus paving the way for new customers
and changing customer habits. The Bank
provides customers the right solutions at
the right time and place, thus meeting
their needs. Customers’ experience is also
elevated to higher levels with experienced
and well-trained personal advisors. Every
year the expertise and level of service is
confirmed by the customer satisfaction
index, especially in the satisfaction of
attitudes toward customers and user
experience, which also includes digital
services (2019 Valicon Client Satisfaction
Survey).
Most of the customers already have the
packages providing them with transparent,
modern and simple daily banking services.
The Bank also strongly encourages the
clients to use paperless solutions with
e-statements being available to all clients
free of charge from Q1 2019 on.
The overview of the costs the customers
incur by using banking services have been
greatly simplified with the introduction of
banking packages, namely, clients know
exactly what services their package contains
and how much they will pay for them. This
information is even clearer and transparent
with the implementation of annual
statement with an overview of costs.
NLB Group Annual Report 2019 34.5%
8.6%
30.4%
16.4%
34.6%
27.4%
35.9%
35.4%
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
Klikin
NLB Klik
Figure 33: Online and mobile banking penetration
34.0%
32.1%
29.9%
27.2%
24.8%
21.8%
19.2%
15.2%
16.7% 16.4%
6.0% 6.1%
9.1%
7.4%
11.4% 12.6% 12.5% 13.5%
14.6% 15.7%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
NLB Vita
NLB Skladi
Figure 34: NLB Skladi and NLB Vita (traditional life products) market share evolution
60
Moving to digital
Digitalisation trends place the emphasis
on the use of mobile phones, which is why
the Bank focuses on improving the user
experience through mobile devices. The
total number of mobile bank Klikin users
increased by 28% YoY (to 35.4% of the
Bank’s customers), thus quickly becoming a
preferred way to conduct banking business
with the Bank.
According to the analysis of an
independent market evaluation
(mBančništvo v Sloveniji 2019, performed
by E-laborat), the Bank remained the most
digitally developed bank in Slovenia with a
focus on user-friendly business, and with the
online bank NLB Klik and the mobile bank
Klikin ranking first among comparative
banks in Slovenia.
Ancillary businesses complementing
banking products
NLB Skladi, the largest asset and mutual
funds management company in Slovenia,
increased its market share to 34.02% (31
December 2018: 32.11%), and was also
ranked first in the amount of net-inflows
(EUR 87.6 million) in an environment
where some of other asset management
companies experienced net outflows. Total
assets under management were EUR
1,513.8 million (31 December 2018: EUR
1,215 million) of which EUR 1,023.8
million consisted of mutual funds (31
December 2018: EUR 792.8 million) and
EUR 490.0 million in the discretionary
portfolio (31 December 2018: EUR 422.5
million). In July 2019, a new mobile
application was implemented which makes
it possible to easily and safely view the
balances of saved funds, view the history of
payments, simulate potential tax liabilities,
have access to publications, and edit
personal information.
NLB Group Annual Report 2019 61
NLB Vita16 was ranked third among classic
life insurance companies in Slovenia, with
an increased market share excluding pension
companies of 15.7% (31 December 2018:
14.6%). The company charged EUR 84.6
million in gross written premiums (a 10%
increase YoY; 2018: EUR 76.9 million), of
which EUR 80.4 million was in life insurance
(2018: EUR 73.1 million), with an estimated
balance sheet of EUR 557 million (31
December 2018: EUR 459 million).
In cooperation with the insurance company
GENERALI Zavarovalnica d.d., the Bank
provides non-life insurance products to
the Bank’s clients, including car and home
insurance. In 2019, 12.5% more polices were
acquired YoY. The gross written premium
amounted to EUR 3.88 million (2018: EUR
3.38 million), representing a 15% increase
YoY.
12.9%
3.7%
1.2%
13.4%
14.0%
4.9%
1.5%
6.5%
1.5%
14.9%
7.5%
1.7%
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
NLB Vita
NLB Skladi
Generali
Figure 35: Customers’ penetration of ancillary business
35.7%
ATMs market share
EUR 1,513.8 million
of NLB Skladi’s assets under management
16. NLB sold the company on 27 December 2019 within the
efforts to satisfy commitments imposed by the EC.
NLB Group Annual Report 2019 62
Chapter 10
Corporate and Investment
Banking in Slovenia
Corporate clients
44,075
clients in total
36,028
active clients
1,121
new clients joined
the Bank in 2019
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,
not only in Slovenia, but also in the wider
NLB Group home region – the region
where the Group operates through its
banking subsidiaries. The Bank offers
a full spectrum of financial services
to its clients, including lending, cash
management, payment services, trade
finance, as well as capital markets advisory
services, and continues to provide support
by using traditional and digital solutions.
The segment realised profit before tax in
amount EUR 56.8 million, 6% decrease
YoY.
Net interest income decreased EUR 5.3
million YoY, mostly due to decrease in
balances in restructuring and workout
loans and partialy because of lower interest
margins. EUR 89.9 million increase of
gross loans to customers was affected by
the change in segment presentation in net
amount of EUR 111.8 million (EUR 149.8
million due to transfer from NLB Non-Core
and EUR -38.1 million from the transfer of
micro clients to Retail Banking in Slovenia).
Key and SME clients recorded the growth
in gross loans mostly due to production of
new long-term loans, especially in H2 2019.
The gross loans to state recorded a decrease
of EUR 32.5 million YoY.
Investment Banking
Net fee and commission income increased
EUR 2.5 million YoY, of which most
represents the effect of the change in
segment presentation (positive effects of
EUR 6.2 million and EUR 0.8 million due
to inclusion of Investment Banking and
previously non-core corporate exposures
in this segment, respectively, and negative
effect of EUR -4.8 million due to the
transfer of micro clients to Retail Banking
in Slovenia segment).
Total costs increased EUR 1.5 million
YoY, mostly due to the change in segment
presentation (EUR 4.4 million).
Impairments and provisions were released
in the amount of EUR 21.0 million as a
result of successful restructuring and sale of
pledged real-estate.
EUR 285 million
of syndicated loans
EUR 980 million
buy and sell orders
EUR 778 million
FX spot deals
EUR 14.8 billion
assets under custody
Digital services
36,482
digital users
20,921
mobile bank users
36.6%
market coverage
with POS terminals
NLB Group Annual Report 2019
63
Contribution to NLB Group
Highlights:
26%
12%
22%
Result b.t.
Net interest
income
Net non-interest
income
Corporate and Investment Banking in Slovenia
Figure 36: Contribution to NLB Group (result b.t.,
net interest income, net non-interest income)
Table 16: Performance of the Corporate and Investment Banking in Slovenia segment
• The Bank actively exploits
cross-border opportunities.
• The new online application for purchase of
receivables (NLB Odkup terjatev) simplifies
access to short-term financial sources.
• Increased presence on debt capital markets
by arranging over EUR 400 million of
securities issues for Slovenian issuers on
domestic and international markets.
in EUR million consolidated
Change YoY
Net interest income
Net non-interest income
o/w Net fee and commmission 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/SMECorporates
Interest rate on Key/SME Corporates loans
Investment banking*
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
2019
37.3
43.0
32.4
80.2
-44.4
35.8
21.0
56.8
2018
42.5
34.1
29.9
76.7
-43.0
33.7
26.6
60.4
-5.3
8.8
2.5
3.6
-1.5
2.1
-5.6
-3.5
31 Dec 2019
31 Dec 2018
Change YoY
2,049.6
2,150.9
1,976.8
1,819.3
1.82%
0.1
157.4
173.6
1.88%
1,299.1
0.07%
128.7
2019
-103
55.4%
2.20%
1,950.4
2,061.0
1,854.4
1,643.2
1.88%
0.1
211.2
206.1
1.69%
1,120.8
0.07%
179.7
2018
-135
56.0%
2.61%
99.2
89.9
122.4
176.1
-53.8
-32.5
178.3
-51.1
-0.06 p.p.
-
0.19 p.p.
0.00 p.p.
Change YoY
32
-0.6 p.p.
-0.41 p.p.
-12%
26%
8%
5%
-3%
6%
-21%
-6%
5%
4%
7%
11%
-25%
-16%
16%
-28%
Due to the new methodology, the results of this segment for 2019 are not directly comparable to its results from the previous year.
*Investment Banking was shown as separate part of this segment before 2019. Profit before tax of Investment Banking for year 2018 in amount EUR 2.4 million.
NLB Group Annual Report 2019 30.0%
International corporate business
opportunities in home region
and across the EEA
17.5%
16.5%
64
30.0 %
25.0 %
20.0 %
15.0 %
10.0 %
25.6%
20.8%
16.0%
24.5%
18.2%
14.9%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in deposits from customers
Market share in loans to customers
Market share in guarantees, letters of credit & other contingent liabilities
Figure 37: NLB’s market share in corporate banking in Slovenia
Market leader focusing on
customers’ needs
The Bank is the leading bank servicing
corporate clients in Slovenia, with by
far the largest client base, whereas it has
maintained its stronghold in all client
segments.
The Bank is focused on the small and mid
enterprises segment, and actively exploits
business opportunities in SEE in the large
corporate segment. After several years of
key corporates portfolio decline, mainly due
to EC Committments, in 2019 an increase
of the loan portfolio was recorded, based
also on transactions in cross-border lending.
One of the Bank’s key objectives remains
quality before quantity, and personal
engagement with customers to understand
their opportunities and risks.
The Bank offers a full spectrum of financial
services to its clients, including lending, cash
management, payment services, as well as
capital markets advisory services.
The Bank is also recognisable in the
field of trade finance supporting export
economy in international markets. It
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 and the wider home region. For
exporters representing an important part of
the Slovenian economy, the trade finance
product range and tailor-made solutions
are comprehensive from traditional
trade finance products, to other modern
structures which provide safe financing
throughout the supply chains. The stronger
market position reflects an active advisory
approach to the Group customers.
As a member of the Factor Chain
International, the Bank aims to offer
exporters and importers international
purchase of receivables, thus providing
them with a modern, fast, and easy way of
financing, which is an additional incentive
for international business.
The Bank is available to its clients via
various traditional and digital channels,
where less complex transactions are being
handled with the use of e- and m-banking
apps.
The Bank has been organising business
educational meetings with the companies
for the sixth consecutive year. How we will
do business and work in the future was the
topic of the 2019 meeting, where the Bank
brought together companies and leading
experts in Slovenia to jointly find solutions
for the business challenges they face in their
daily operations.
The Bank concluded several transactions
(in the total amount of EUR 126 million)
in SEE. With those facilities, the Bank and
respective Group members further solidified
their position as key regional banking
partner in its home region with a complete
range of corporate and investment banking
services.
In addition to the home region financing,
the Bank’s opportunity is also participation
in selective syndication loan facilities across
the EEA.
Digitalisation of product offering
A fully digitised and user-friendly online
application for the purchase of receivables
(NLB Odkup terjatev) was made available to
companies. It offers quick and simple access
to short-term financial sources without
additional borrowing.
The number of Klikpro users also
continued to grow with a 21% YoY
increase. This digital channel and the
functionalities it offers, including Express
Loan and Express Overdraft up to EUR
30,000 with no additional documentation,
collateral, or required visits to the bank’s
office, are well accepted by the clients.
In accordance with the European PSD2
Regulation, which among others also
stipulates further enhancement of the
security for clients when executing payment
services, the NLB Proklik and Klikpro
applications were upgraded.
The Bank’s mobile wallet NLB Pay app
enables clients to make contactless, simple,
fast, and safe payments on the contactless
POS (in Slovenia and abroad) with the NLB
Business Mastercard and NLB Business
Maestro cards. NLB Pay also enables
installment payments.
NLB Group Annual Report 2019 65
103
113
127
134
1,803
1,894
2,054
2,261
2016
2017
2018
2019
2016
2017
2018
2019
Figure 38: Transaction volume of NLB
Figure 39: Transaction volume
business cards (in EUR million)
at NLB POS (in EUR million)
Investment banking and
securities services
Payments, cards, and merchants acquiring
drive resilient corporate fee income
The Bank maintains its position in business
cards, and increased its business volume
growing 5% YoY in a challenging business
environment, including new technologies
(e.g. mobile payments) implemented
by fintechs. Key initiatives remain pay-
later payment cards with an installment
functionality, and the introduction of the
mobile payment solution 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, with a 36.6% market share
in merchants acquiring.
The Bank arranged, as a lead manager,
EUR 444 million worth of issuance in
debt instruments for Slovenian clients,
which were placed with domestic and
international investors. The Bank, acting
as a mandated lead arranger, organised
syndicated loans in a total amount of EUR
285 million. The Bank was active in M&A
and other financial advisory engagements,
where as the sole financial advisor it
successfully organised several takeover bids.
Within the scope of brokerage services, the
Bank executed clients’ buy and sell orders
in a total amount of EUR 980 million
(2018: EUR 954 million), while in the area
of dealing in financial instruments the Bank
executed FX spot deals in a total amount
of EUR 778 million (2018: EUR 855.6
million) and for EUR 310 million (2018:
EUR 434 million) worth of deals with
derivatives.
In custody services for Slovenian and
international investors, the Bank remains
the leading provider of such services
in Slovenia. The total value of assets
under custody, together with the fund
administration services is EUR 14.8 billion
(2018: EUR 15.9 billion).
NLB Group Annual Report 2019 67
Gross loans to customers increased by EUR
229.4 million YoY due to an increase in
gross loans in most subsidiary banks, whereas
the largest increases were recorded in NLB
Banka, Beograd (EUR 91.7 million) and
NLB Banka, Prishtina (EUR 73.2 million).
The high increase was negatively affected by
the change in segment presentation (EUR
-69.0 million).
CIR amounted to 50.5%, a YoY increase of
3.7 p.p.
The subsidiary banks continued following
the strategic direction of organic growth
in the local markets. It was a result of
high growth and generally positive
macroeconomic factors in the region on
one side, and internal business factors like
operational and service excellence on the
other. Focusing on clients and achieving a
positive customer experience were a part
of the focal point of the banks’ activities.
Active engagement in social responsibility
activities in the Group further strengthened
the relationship with the employees, clients,
and the community.
The introduction of modern technologies
enabled the launching of several new
products that were well perceived by
clients. This also increased operational
excellence, contributing a fair share to the
improved customer perception. After the EC
commitments were fulfilled and the ban on
financing foreign clients lifted as at 1 January
2019, cross-border lending transactions
were successfully reactivated. The Bank and
the Group members regained the position
to offer higher value credit facilities and
project financing to reputable clients in
the region, which has been recognised as a
good opportunity to deploy funds in today’s
banking sector that is dominated by excess
liquidity.
Chapter 11
Strategic Foreign
Markets
The core part of the Group in foreign
markets consists of six banks. They
are locally recognised as important
financial institutions and/or market
leaders in segments or innovation.
They have a stable market position
and have earned a strong reputation.
Improvements in efficiency, gradual
progress on innovation, and successful
implementation of group-wide initiatives
have led to continuous and profitable
growth in regular business. The market
shares of subsidiary banks exceed
10% in four out of six markets. The
core members of the Group in foreign
markets, key profit generation units,
posted a profit before tax of EUR 92.9
million. The contribution to the Group
results before tax of the Strategic
Foreign Markets was 43%. The total net
operating income of all banks amounted
to EUR 210.4 million. This is the result
of strong growth in loan production,
especially in the retail segment with
the double-digit growth rates recorded
in four out of six banks, improved
cost efficiency, and commitments to
client-centric digital solutions, talent
management, and active engagement
in social responsibility initiatives.
The year was successful for all bank
members of the Group in foreign markets –
all of them posted a profit before tax in the
total amount of EUR 92.9 million (2018:
EUR 99.7 million), including the result of
minority shareholders. The 7% decrease
YoY was due to a one-off effect of the sale of
NLB Nov penziski fond, Skopje in Q1 2018.
The increase of net interest income by EUR
7.4 million YoY was recorded on behalf
of the higher volume (EUR 229.4 million
increase of gross loans to customers YoY),
despite the decreasing trend of interest
margins.
Net non-interest income decreased by
EUR 11.0 million YoY, mostly due to a
one-off positive effect of the sale of NLB
Nov penziski fond, Skopje in Q1 2018.
The regular part of revenues – net fee and
commission income increased by EUR 4.9
million or 10% YoY.
The total costs increased by EUR 6.2 million
YoY, despite EUR 1.4 million decrease due
to the change in the segment presentation.
Net impairments and provisions were
established in the amount of EUR 11.3
million in 2019 (of which EUR 4.9 million
of impairments and provisions for credit
risk and EUR 3.1 million due to provisions
for pending legal disputes in NLB Banka,
Podgorica), while in 2018 were established in
the amount of EUR 14.3 million.
NLB Group Annual Report 2019 68
Contribution to NLB Group
43%
49%
27%
Result b.t.
Net interest
income
Net non-interest
income
Strategic Foreign Markets
Figure 40: Contribution to NLB Group (result b.t.,
net interest income, net non-interest income)
Table 17: Results of the Strategic Foreign Markets segment
Net interest income
Net non-interest income
o/w Net fee and commmission income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
o/w Result of minority shareholders
Net loans to customers
Gross loans to customers
Individuals
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
2019
157.5
52.9
55.0
210.4
-106.2
104.2
-11.3
92.9
8.2
2018
150.1
63.9
50.1
214.0
-100.0
114.0
-14.3
99.7
7.9
7.4
-11.0
4.9
-3.6
-6.2
-9.8
3.0
-6.8
0.3
31 Dec 2019
31 Dec 2018
Change YoY
in EUR million consolidated
Change YoY
5%
-17%
10%
-2%
-6%
-9%
21%
-7%
4%
11%
8%
12%
5%
-2%
12%
306.6
229.4
165.7
65.3
-1.7
418.6
-0.38 p.p.
-0.43 p.p.
-0.32 p.p.
-0.09 p.p.
-108.3
-49 %
Change YoY
-18
3.7 p.p.
-0.26 p.p.
3,024.6
3,162.1
1,603.8
6.71%
1,470.3
4.49%
88.0
4.00%
3,856.7
0.53%
111.6
2019
17
50.5%
3.59%
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
2018
35
46.7%
3.85%
Due to the new methodology, the results of this segment for 2019 are not directly comparable to its results from the previous year.
NLB Group Annual Report 2019 69
Result a.t. (in EUR million)
ROE a.t. (in%)
Net interest income (in EUR million)
3.7
5.4
14.2
8.3
23.7
40.0
5.2
10.0
14.8
8.8
16.2
37.1
4.1
7.6
19.5
9.0
17.1
32.9
2017
2018
2019
6.7%
7.0%
22.2%
12.8%
29.3%
27.8%
2017
7.9%
14.9%
21.6%
11.6%
18.7%
19.9%
2018
5.9%
11.2%
25.1%
11.2%
19.9%
16.2%
2019
18.0
16.4
24.5
18.1
18.1
49.7
19.8
18.0
27.4
17.6
19.1
48.8
20.7
20.3
31.0
18.0
18.5
49.0
2017
2018
2019
Total costs (in EUR million)
CIR (in%)
Net loans to individuals (in EUR million)
16.3
12.4
11.2
14.0
12.8
23.4
18.0
12.3
11.8
14.2
13.0
25.0
19.5
13.5
11.7
14.7
13.0
26.6
2017
2018
2019
Net loans to corporate (in EUR million)
145
62
238
144
134
322
195
82
292
156
161
343
252
93
335
180
163
356
77.8%
57.7%
38.7%
54.8%
46.1%
37.4%
2017
76.2%
51.8%
36.4%
54.8%
43.5%
34.4%
2018
78.3%
51.4%
31.9%
53.3%
43.2%
41.0%
2019
93
169
149
186
157
467
123
199
175
200
176
512
159
227
205
215
197
557
2017
2018
2019
NLB Banka, Beograd
NLB Banka, Sarajevo
NLB Banka, Podgorica
NLB Banka, Banja Luka
NLB Banka, Prishtina
NLB Banka, Skopje
2017
2018
2019
Figure 41: Strategic Foreign Markets (banking members) performance overview
NLB Group Annual Report 2019 70
NLB Banka, Skopje
The bank is the 3rd largest bank in North
Macedonia, with a 16.0% market share
in total assets (as at 30 September 2019).
It provides banking services to customers
through a branch network of 52 branches,
172 ATMs, platforms for online and
mobile banking, credit intermediaries,
and a contact centre. On its local market,
the bank is in the group of systemically
important banks.
The predominant strength of the bank is
in the retail segment. However, the bank
provides a full range of financial services
to retail and corporate clients. It is the
market leader in the introduction of mass
sale digital platforms used by third parties
(credit intermediaries) and the distribution
of life insurance products. By promoting
the first NLB Banking Assistant 24/7,
the bank became the first bank in the
country to be available through Viber,
and remained the leader in innovations by
upgrading of NLB mKlik and NLB Pay
mobile wallet with new functionalities. The
‘Think Green’ campaign encouraged its
clients to use e-banking statements.
The main opportunities the bank foresees
are the growth of loans, deposits, and
payment services, with a focus on high-yield
retail market products, and expanding the
offer of non-banking products focused on
bancassurance. On the corporate side, the
bank tends to introduce new loan products
and cross-sale packages, industry specific
offers, and offers for start-up companies
with a combined range of financial
products, and building a strong regional
brand through active participation in
cross-border cooperation among the Group
members. Mobile and electronic banking
is expected to become a significant sales
channel.
Financial performance
The bank realised profit after tax in the
amount of EUR 32.9 million (2018: EUR
37.1 million), and profit before impairments
and provisions in the amount of EUR
38.3 million (2018: EUR 47.7 million
with included capital gain from the sale
of NLB Nov Penziski Fond, Skopje in the
amount of EUR 8.5 million). This one-off
in 2018 was also reflected in ROE a.t.,
which decreased to 16.2% (2018: 19.9%)
and CIR, which increased to 41.0% (2018:
34.4%). Total capital ratio remained
stable at 16.4% (2018: 16.7%). The result
was driven by strong retail lending, card
operations, payment services, and the sale
of insurance products. The total assets of
the bank rose by 8%, with a 7% growth in
net loans to customers, and a 9% growth
in deposits from customers. The NPL ratio
was further reduced to 4.2% (2018: 5.1%).
Retail banking
Retail banking recorded growth in gross
loans (8%) and deposits (7%). The retail
loan portfolio was dominated by consumer
loans (55% of gross retail loans), while
housing loans occupied 33% of gross retail
loans. The interest margin in the retail
segment is still high, but under significant
pressure coming from competition offering
lower interest rates and lower collateral
requirements. Growth in gross retail loans
was recorded, mainly due to an increase
of housing loans volume (14%). The key
drivers of income growth were new loans
production and card operations.
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. The bank invested in
technical support for digital services.
Macroeconomic
Snapshot
In North Macedonia, an
improving investor confidence
after resolved political dispute
with neighbouring Greece,
contributed to increased
economic growth in H2 2019.
Additionally, tourism sector
and construction strengthened,
while the external sector
dragged on growth.
GDP (real growth in %)
3.5
3.0
2.5
2.0
2018
2019
2020
Average inflation (in %)
1.5
1.0
0.5
0.0
2018
2019
2020
Unemployment rate (in %)
21.0
18.0
15.0
12.0
2018
2019
2020
Figure 42: GDP growth,
Inflation, Unemployment
Outlook
The growth is projected to
remain robust in 2020. Private
consumption with looser fiscal
policy and strong investment
ought to support the growth.
NLB Group Annual Report 2019 71
Table 18: Key performance indicators of NLB Banka, Skopje***
in EUR thousands
Key performance indicators
2019
2018
Change YoY
Contribution
to NLB Group
17%
Result b.t.
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Net interest
income
5%
Net non-interest
income
16%
Total assets
Financial position statement indicators
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets**
NLB Banka, Skopje
LTD
49,022
15,868
48,781
23,972
-26,578
-25,049
-2,224
36,088
32,877
-6,796
40,908
37,068
1,462,306
1,350,054
915,149
858,592
969,213
918,140
1,175,612
1,076,154
209,664
199,808
0.5%
-33.8%
-6.1%
67.3%
-11.8%
-11.3%
8.3%
6.6%
5.6%
9.2%
4.9%
16.4%
3.7%
16.2%
2.4%
41.0%
48,311
4.2%
16.0%
77.8%
16.7%
-0.3 p.p.
4.0%
-0.3 p.p.
19.9%
-3.7 p.p.
3.0%
-0.6 p.p.
34.4%
55,967
6.5 p.p.
-13.7%
5.1%
-0.9 p.p.
16.3%
79.8%
-0.3 p.p.
-1.9 p.p.
Figure 43: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data for 2019 as at 30 September 2019.
*** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
25.0%
20.0%
15.0%
10.0%
21.2%
17.9%
16.4%
14.8%
21.1%
17.4%
16.3%
14.3%
20.5%
17.3%
16.0%
14.4%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 44: 3-year market share evolution*
* Market share data for 2019 as at 30 September 2019.
NLB Group Annual Report 2019 72
Corporate banking
Role in society
The bank was actively engaged in different
corporate and social responsibility
activities which further strengthened the
relationship with the employees, clients,
prospective clients, and the community.
On the occasion of the savings month, a
charity event and educational activities for
the children were organised throughout
the branches as well as in the NLB Gallery
of the bank. Numerous sports events
were supported and donations were given
for sport clubs and talented individuals,
including sport activities where the bank’s
employees participated. At the end of the
year, the bank organised a New Year’s
charity action to collect gifts for the
children of women – victims of domestic
violence, housed in ESE – Association for
Emancipation, Solidarity, and Equality of
Women.
Corporate banking recorded growth in
gross loans (3%) and deposits (16%). The
loan portfolio was dominated by SMEs.
Growth in gross loans was recorded
mainly due to an increase of loans to large
corporates. The key drivers of income
growth were expanding loan and card
operations business.
The bank had a market share of 14.4% in
corporate gross loans, continued to foster a
supportive business climate for SMEs and
offered reliable service to corporates that
included an offer of tailor-made packages
to serve the needs of different segments of
legal entities and expansion of the services
with the introduction of new types of credit
lines.
An example of solidifying the position
of a regional banking partner, the Group
successfully supported an important
technological project on the local market
that involved upgrading, rebuilding, and
reconstruction of the manufacturing facility.
Awards
The bank won the prestigious Bank of the
Year award in North Macedonia by the
financial magazine The Banker for the 10th
time. It was also named Best Bank in North
Macedonia for 2018 by Euromoney London,
and Best Bank in North Macedonia at the
Europe Banking Awards by the financial
magazine EMEA, for the third year in a
row. Dedication to its employees, the bank
was recognised with the ‘People-oriented
Company’ plaque by the Macedonian
Human Resources Association.
NLB Group Annual Report 2019 73
Macroeconomic
Snapshot
In BiH, the growth slowed
during the 2019. Industrial
production dropped in H2 2019,
among ongoing manufacturing
sector weakness, while
exports fell sharply, on the
other hand, unemployment
diminished in the same period.
GDP (real growth in %)
3.5
3.0
2.5
2.0
2018
2019
2020
Average inflation (in %)
1.4
1.1
0.8
0.5
2018
2019
2020
Unemployment rate (in %)
36.0
34.0
32.0
30.0
2018
2019
2020
Figure 45: GDP growth,
Inflation, Unemployment
Outlook
The growth is expected to
remain stable in 2020. The end
of the political deadlock should
improve the business climate.
NLB Banka, Banja Luka
The bank is the 3rd largest bank in the
Republic of Srpska, with a 18.8% market
share in total assets (as at 30 September
2019). It provides banking services to
customers through a broad branch network
of 53 branches and 74 ATMs.
The predominant strength of the bank
are its market position in the corporate
and retail segments, and a very strong
deposit base. The bank is focused on
the modernisation of sales channels
and services providing improvements of
electronic and mobile banking services. To
improve client interaction and presentation
of services, the bank modernised its web
page and improved its presence on the most
commonly used social networks.
The main opportunities the bank foresees
are in the strengthening of consumer
lending, improvement of processes, and
further development of digital channels.
Financial performance
The bank realised profit after tax in the
amount of EUR 17.1 million (2018: EUR
16.2 million), and profit before impairments
and provisions in the amount of EUR 17.2
million (2018: EUR 17.0 million). ROE a.t.
increased to 19.9% (2018: 18.7%) and CIR
improved to 43.2% (2018: 43.5%). Total
capital ratio also increased to 15.9% (2018:
15.6%). The main driver of the result
was net interest income, while the bank
recorded a 6% YoY growth in net non-
interest income deriving predominantly
from payment and card transactions. Net
non-interest income represents 38.5%
of total income, the highest among NLB
banking subsidiaries. The total assets of
the bank rose by 7%, with a 7% growth in
net loans to customers, and in a 7% growth
in deposits from customers, respectively.
The bank successfully resolved several NPL
cases and further reduced the NPL ratio to
1.3% (2018: 3.2%).
Retail banking
Retail banking recorded growth in gross
loans (11%) and deposits (8%). The retail
loan portfolio was dominated by housing
loans (50% of gross retail loans), while
consumer loans occupied 44% of gross
retail loans. Growth in gross retail loans
was recorded, mainly due to growth in
consumer loans (13%) and housing loans
(11%). The key drivers of income growth
were new loan production and card
operations.
The main focus remains cross-selling
among corporate and retail. The bank
was especially successful in cooperation
with local real-estate investors who
promoted the bank as a creditor. The bank
supplemented its offer with the introduction
of bankassurance products expanding the
bank’s product range.
The bank successfully finished the card
processor migration to accommodate faster
client service development and synergies on
the Group level. In addition, 92% of the
bank’s ATM network has been modernised.
Corporate banking
Corporate banking recorded growth in
deposits (8%), while gross loans to corporate
remained approximately the same YoY.
The loan portfolio was dominated by the
industries of services and trade. The key
drivers of income growth were new loan
production and cross-selling.
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 was active
in the cross-boarder financing activities in
cooperation with NLB to provide financing
for the large local company.
NLB Group Annual Report 2019 Table 19: Key performance indicators of NLB Banka, Banja Luka***
in EUR thousands
Key performance indicators
2019
2018
Change YoY
74
Contribution
to NLB Group
9%
Result b.t.
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
6%
Total assets
Financial position statement indicators
Net interest
income
4%
Net non-interest
income
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets**
NLB Banka, Banja Luka
LTD
18,547
11,606
19,057
10,939
-13,018
-13,046
1,535
18,670
17,101
1,387
18,337
16,184
773,410
720,509
411,739
384,806
426,844
408,312
618,095
575,775
88,745
87,218
-2.7%
6.1%
0.2%
10.7%
1.8%
5.7%
7.3%
7.0%
4.5%
7.4%
1.8%
15.9%
2.5%
19.9%
2.3%
43.2%
7,620
1.3%
18.8%
66.6%
15.6%
0.4 p.p.
2.8%
-0.3 p.p.
18.7%
1.2 p.p.
2.3%
-0.1 p.p.
43.5%
19,199
-0.3 p.p.
-60.3%
3.2%
-1.9 p.p.
18.3%
66.8%
0.5 p.p.
-0.2 p.p.
Figure 46: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data for 2019 as at 30 September 2019.
*** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
25.0%
20.0%
15.0%
10.0%
20.6%
18.6%
15.2%
14.2%
19.8%
18.3%
16.1%
15.4%
20.1%
18.8%
16.4%
14.8%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 47: 3-year market share evolution*
* Market share data for 2019 as at 30 September 2019.
NLB Group Annual Report 2019 75
Awards
The bank was awarded the Golden BAM
award for the highest ROE and ROA
among banks in BiH for 2018 by financial
and business magazine Banks & Business in
BiH.
Role in society
The bank remains an active member
of social community by engaging and
donating to local communities. Activities
were predominately aimed at young people
by promoting savings and enabling young
graduates to gain their first work experience
after their studies. The bank is also a
long-term sponsor for local sport events
and promotes activities that have a broader
social impact on local society.
NLB Group Annual Report 2019 76
NLB Banka, Sarajevo
The bank is the 6th largest bank in the
Federation of BiH, with a 5.3% market
share in total assets (as at 30 September
2019). It provides a variety of banking
services to customers through a broad
branch network of 38 branches and 83
ATMs.
The predominant strength of the
bank is in consumer lending and the
development of innovative retail products
largely contributing to a high share of
net non-interest income (35%). With
new headquarters in Sarajevo opened in
October 2019, the focus on the clients’s
was additionally strengthened. Improving
customer experience was achieved as
well with the introduction of new digital
products and solutions.
The main opportunities forseen by the bank
are in the segments of SME loans, retail
housing loans, and bankassurance products.
Financial performance
The bank realised the highest ever profit
after tax in the amount of EUR 9.0 million
(2018: EUR 8.8 million), and profit before
impairments and provisions in the amount
of EUR 12.8 million (2018: EUR 11.7
million) in spite of the strong competition
and declining interest rates on the market,
and with improved cost efficiency (CIR
of 53.3%; 2018: 54.8%). The bank had
total capital ratio at 16.0% (2018: 16.4%)
and paid out dividends after more than 10
years. The bank recorded a strong 15%
YoY growth in net non-interest income,
especially from payments, card business,
and bankassurance. Total assets of the bank
rose by 8%, with 11% growth in net loans
to customers, and 9% growth in deposits
from customers. The NPL ratio was further
reduced to 3.3% (2018: 5.7%).
Retail banking
Retail banking recorded growth in gross
loans (7%) and deposits (7%). The retail
loan portfolio was dominated by consumer
loans (80% of gross retail loans), while
housing loans occupied 14% of gross
retail loans. Growth in gross retail loans
was recorded, mainly due to increase of
consumer loans and credit cards. The key
driver of income growth was focusing on
highly profitable products (overdrafts, credit
cards).
The bank introduced a fast cash loan
‘NLB Keš kredit’ through an online loan
application on its website, and offers a card
that enables purchasing in installments via
SMS message on all POS in the country
and abroad. As one of the first banks in
the market, it introduced a mobile wallet
solution - NLB Pay service for its clients.
Corporate banking
The corporate banking segment
recorded growth in gross loans (7%) and
deposits (6%). The growth in gross loans
was recorded despite significant loan
repayments by clients before maturity.
The key drivers of income growth were
increased loan volumes, service fee
repricing, and an increase in the trade
finance business.
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.
Macroeconomic
Snapshot
In BiH, the growth slowed
during the 2019. Industrial
production dropped in H2 2019,
among ongoing manufacturing
sector weakness, while
exports fell sharply, on the
other hand, unemployment
diminished in the same period.
GDP (real growth in %)
3.5
3.0
2.5
2.0
2018
2019
2020
Average inflation (in %)
1.4
1.1
0.8
0.5
2018
2019
2020
Unemployment rate (in %)
36.0
34.0
32.0
30.0
2018
2019
2020
Figure 48: GDP growth,
Inflation, Unemployment
Outlook
The growth is expected to
remain stable in 2020. The end
of the political deadlock should
improve the business climate.
NLB Group Annual Report 2019 Contribution
to NLB Group
5%
Result b.t.
6%
Net interest
income
3%
Net non-interest
income
77
Table 20: Key performance indicators of NLB Banka, Sarajevo***
in EUR thousands
Key performance indicators
2019
2018
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Financial position statement indicators
Total assets
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets**
17,962
9,513
17,586
8,271
-14,654
-14,170
2.1%
15.0%
-3.4%
-1,965
-26.5%
-2,486
10,335
9,047
9,722
8,757
637,739
592,166
399,299
359,499
420,236
391,567
515,230
472,297
81,499
80,174
6.3%
3.3%
7.7%
11.1%
7.3%
9.1%
1.7%
16.0%
3.0%
11.2%
1.5%
53.3%
18,582
3.3%
5.3%
16.4%
-0.4 p.p.
3.2%
-0.2 p.p.
11.6%
-0.3 p.p.
1.6%
-0.1 p.p.
54.8%
30,805
5.7%
5.2%
-1.5 p.p.
-39.7%
-2.4 p.p.
0.1 p.p.
1.4 p.p.
NLB Banka, Sarajevo
LTD
77.5%
76.1%
Figure 49: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data for 2019 as at 30 September 2019.
*** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
7.0%
6.0%
5.0%
4.0%
6.1%
5.3%
5.2%
5.0%
6.1%
6.1%
5.3%
5.2%
4.9%
5.4%
5.3%
5.3%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 50: 3-year market share evolution*
* Market share data for 2019 as at 30 September 2019.
NLB Group Annual Report 2019 78
Awards
Among 350 nominated companies, NLB
Banka, Sarajevo was elected as one of the
top 10 employers in BiH and the second
most desirable employer in the BiH
financial sector. The Bank’s CEO Lidija
Žigić received a Golden BAM award for
the most successful woman manager in the
banking sector by financial and business
magazine Banks & Business in BIH.
Role in society
The bank hosted the Entrepreneurship
Academy for its clients and employees,
which was prepared in cooperation with
EFSE and Deloitte. Furthermore, the
Business Forum was organised together
with NLB Banka, Banja Luka for more
than 200 clients from across the country
with strong media coverage.
Engagement of the bank was visible
in more than 50 corporate and social
responsibility initiatives, actively
participating in various humanitarian
projects, sponsorships, and donations such
as sponsoring the Sarajevo Marketing
Summit, the first festival ‘Live Stage,’ the
regional IT conference ‘Tech Cruise,’
the project ‘Clean the Earth in One Day
Tuzla,’ and more. Donations were mainly
given in support of health improvement,
as well as the education and promotion of
young people.
NLB Group Annual Report 2019 NLB Banka, Prishtina
The bank is the 3rd largest bank in Kosovo
with a 17.6% market share in total assets.
It provides a variety of banking services to
customers through a broad branch network
of 35 branches and 71 ATMs. In its local
market the bank is the market leader, and
had the highest growth in 2019.
The predominant strength of the bank is
in providing a full spectrum of financial
services to retail and corporate clients, and
being a market leader in innovations on
the local banking sector. In 2019, the bank
was the first bank on the local market to
introduce the digital wallet mobile phone
application NLB Pay. The improved
customers’ experience in using electronic
banking services resulted in an increased
number of e-banking users by 12.7%.
The bank sees the main opportunities
for the future growth in the areas of
the corporate segment, development of
agro segment, cross-selling, and further
upgrading clients’ experience.
Financial performance
The bank had the best financial year since
its establishment by realising profit after
tax in the amount of EUR 19.5 million
(2018: EUR 14.8 million), and profit
before impairments and provisions in the
amount of EUR 25.1 million (2018: EUR
20.6 million). ROE a.t. was 25.1% (2018:
21.6%), while CIR further improved to
group-wide lowest 31.9% (2018: 36.4%).
Total capital ratio strengthened to 16.4%
(2018: 14.6%). The result was mainly
driven by the increase of the business
volumes. The total assets of the bank rose
by 20%, the main factors were the amount
of net loans to customers and deposits
from customers. The NPL ratio was further
reduced to 1.5% (2018: 2.4%).
Retail banking
Retail banking recorded growth in gross
loans (16%) and deposits (13%). The retail
loan portfolio was dominated by housing
loans (65% of gross retail loans), while
consumer loans occupied 26% of gross
retail loans. Growth in gross retail loans
was recorded, mainly due to the increased
volume of housing loans (22% growth).
The key drivers of income growth were the
housing loans.
The growth in retail was mainly driven
by several partnership agreements with
construction and trade companies to
finance its products. New cards were also
introduced (Master Debit Card replacing all
Visa debit products) and new packages that
increased non-interest income.
Corporate banking
Corporate banking recorded growth in
gross loans (14%) and deposits (27%), which
was mainly due to cross-selling of products
through existing corporate clients targeting
new retail and SME clients as well. The key
drivers of income growth were loans for
fixed assets and overdrafts.
The bank offered fast, safe, and reliable
execution of payments, and competitive
pricing led to an increased number of
payments contributing to the non-interest
income growth. Cooperation on the
Group level resulted in the financing of the
construction of a major locally recognised
project contributing largely to clean energy
production from renewable sources.
79
Macroeconomic
Snapshot
In Kosovo, the economic growth
boosted as well in H2 2019 on
already solid H1 2019. Private
consumption, public spending
and remittances, all contributed
to a strong growth in 2019.
GDP (real growth in %)
4.0
3.8
3.6
3.4
2018
2019
2020
Average inflation (in %)
2.7
1.9
1.1
0.3
2018
2019
2020
Unemployment rate (in %)
30.0
26.0
22.0
18.0
2018
2019
2020
Figure 51: GDP growth,
Inflation, Unemployment
Outlook
The economic momentum
is anticipated to weaken
slightly but remained solid as
momentum in Europe wanes
and drags on exports. Regional
political tensions also continue
to weigh on prospects.
NLB Group Annual Report 2019 80
Contribution
to NLB Group
Table 21: Key performance indicators of NLB Banka, Prishtina**
in EUR thousands
Key performance indicators
2019
2018
Change YoY
Result b.t.
10%
10%
Net interest
income
2%
Net non-interest
income
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Financial position statement indicators
Total assets
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NLB Banka, Prishtina
LTD
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets
31,014
5,774
27,372
5,034
-11,731
-11,801
-3,069
21,988
19,545
-3,792
16,813
14,836
801,085
668,127
540,073
466,854
567,103
493,950
685,385
585,851
84,927
71,786
13.3%
14.7%
0.6%
19.1%
30.8%
31.7%
19.9%
15.7%
14.8%
17.0%
18.3%
16.4%
4.3%
25.1%
2.7%
31.9%
10,939
1.5%
17.6%
78.8%
14.6%
1.8 p.p.
4.4%
-0.1 p.p.
21.6%
2.4%
36.4%
14,362
3.5 p.p.
0.3 p.p.
-4.5 p.p.
-23.8%
2.4%
-0.9 p.p.
16.8%
79.7%
0.8 p.p.
-0.9 p.p.
Figure 52: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
19.0%
18.0%
17.0%
17.0%
16.4%
16.2%
16.0%
15.7%
15.0%
17.7%
17.9%
17.6%
16.8%
18.8%
18.3%
17.9%
17.6%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 53: 3-year market share evolution
NLB Group Annual Report 2019 81
Awards
EBRD awarded NLB Banka, Prishtina
again for its performance under the
EBRD’s Trade Facilitation Program (TFP)
as the ‘Most Active Bank in Kosovo.’
Mastercard Direct Services awarded NLB
Banka, Prishtina with the ‘MCDS Market
Shaker Award’ for launching the NLB
Pay – a digital wallet and mobile phone
application that supports all Mastercard
cards.
Role in society
The Bank has entered into a cooperation
with educational institutions for the
admission of students for internships, as
well as individual agreements based on
student requests.
Additionally, the bank supported
philanthropic goals including donations
aimed at welfare, sports, and education.
NLB Group Annual Report 2019 82
NLB Banka, Podgorica
Retail banking
Retail banking recorded growth in gross
loans (14%) and deposits (10%). The retail
loan portfolio was dominated by housing
loans (54% of gross retail loans); while
consumer loans occupied 43% of gross
retail loans. Growth in gross retail loans
was recorded, mainly due to an increase in
housing loans volume. The key drivers of
income growth were new loan production
and payments business.
The bank implemented the five-minute
decision-making process in branches or
via Viber in the case of a NLB Super Fast
Cash Loan, a type of consumer loan that
proved particularly popular with younger
Montenegro’s retail borrowers. The
first cashless branch on the local market
was opened offering clients a different
experience in financial management.
Corporate banking
Corporate banking recorded growth in
gross loans (12%) and deposits (16%). The
loan portfolio was dominated by large
corporates. Growth in gross loans was
recorded, mainly due to an increase of
loans to the dominating segment. The key
drivers of income growth were expanding
loans’ volume and a better collection of
NPLs.
The bank coordinated the first joint cross-
border financing with NLB for a real-estate
development project proving the Group’s
ability to become a key regional banking
partner.
The bank is the 3rd largest bank in
Montenegro, with a 11.9% market share
in total assets. It provides banking services
to customers through a branch network
of 19 branches and 64 ATMs. In its local
market, the bank is categorised as one of
the systemically important banks.
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 local market. The
corporate segment was also given a higher
client focus through digitalisation. One of
the most successful retail products launch
in the year 2019 was the consumer loan
NLB Super Fast Cash Loan. The bank
also opened the first ‘cashless’ branch in
Podgorica.
The main opportunities for the future
are: the SME segment in tourism, the
improvement of customer support
through new packages in cooperation with
insurance companies, and the improvement
of client experience in all segments through
innovative product offerings supported by
modern e-channels and experienced sales
staff able to advise customers’ decisions.
Financial performance
The bank realised profit after tax in the
amount of EUR 7.6 million (2018: EUR
10.0 million) and profit before impairments
and provisions in the amount of EUR 12.8
million (2018: EUR 11.5 million). ROE
a.t. was 11.2% (2018: 14.9%), while CIR
improved to 51.4% (2018: 51.8%). Total
capital ratio was 15.0% (2018: 16.2%). The
result was driven by the double digit growth
of the retail loan portfolio being the main
net interest income driver. The total assets
of the bank rose by 12%, mainly due to
growth in net loans to customers. The NPL
ratio was further reduced to 4.0% (2018:
5.2%).
Macroeconomic
Snapshot
In Montenegro, the economic
momentum accelerated in
the H2 2019. Robust growth
was supported with a surge in
fixed investment and a strong
tourism contribution, whereas
household spending moderated.
GDP (real growth in %)
5.0
4.0
3.0
2.0
1.0
2018
2019
2020
Average inflation (in %)
3.0
2.0
1.0
0.0
2018
2019
2020
Unemployment rate (in %)
16.0
14.0
12.0
10.0
2018
2019
2020
Figure 54: GDP growth,
Inflation, Unemployment
Outlook
The economy seems to be
weakening in 2020 but remain
solid. The slowdown in private
consumption should be buffered
with a recovery in the industrial
sector, an improving labour
market and strong tourism.
NLB Group Annual Report 2019 Contribution
to NLB Group
4%
Result b.t.
6%
Net interest
income
2%
Net non-interest
income
NLB Banka, Podgorica
Figure 55: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
83
Table 22: Key performance indicators of NLB Banka, Podgorica**
in EUR thousands
Key performance indicators
2019
2018
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Financial position statement indicators
Total assets
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets
LTD
20,276
5,985
18,047
5,771
-13,489
-12,340
-3,808
8,964
7,565
-1,267
10,211
10,033
548,483
489,283
346,299
310,692
359,180
323,914
436,545
391,750
67,532
68,937
12.4%
3.7%
-9.3%
-
-12.2%
-24.6%
12.1%
11.5%
10.9%
11.4%
-2.0%
15.0%
4.3%
11.2%
1.5%
51.4%
18,129
4.0%
11.9%
79.3%
16.2%
-1.3 p.p.
4.1%
0.2 p.p.
14.9%
-3.7 p.p.
2.1%
-0.7 p.p.
51.8%
20,627
-0.4 p.p.
-12.1%
5.2%
-1.2 p.p.
11.1%
79.3%
0.8 p.p.
0.0 p.p.
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
15.9%
16.0%
11.0%
11.0%
7.1%
11.3%
11.1%
7.6%
16.9%
12.6%
11.9%
8.3%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 56: 3-year market share evolution
NLB Group Annual Report 2019 84
Awards
The bank was awarded as the best bank in
Montenegro for 2019 by Euromoney due to
achievements relating to growth, efficiency,
and progress on innovation.
Role in society
The bank carries out its socially responsible
activities through donations approved
primarily for organisations of social
importance, and those registered for
community assistance and charity work.
In December, the bank held the NLB
Business Forum, ‘Women in Business; The
New Value of the Montenegrin Economy,’
which was aimed at boosting an important
dialogue about women’s entrepreneurship,
and contributing to creating a more
favorable environment for its development.
NLB Group Annual Report 2019 NLB Banka, Beograd
The bank is the 16th largest bank in Serbia,
with a 1.7% market share in total assets
(data as at 30 September 2019). It provides
banking services to customers through a
branch network of 28 branches and 63
ATMs.
The predominant strength of the bank is
agro business, the segment of the market
where it controls 13% (2018: 12.6%) of the
market.
The main opportunities lie in the large
companies segment, cross-selling, and
improving client experience, as well as in
the continuation of very successful work
in the agro segment. The local market
has promising potential, therefore the
bank focuses on trade finance, a client
experience upgrade, renewed branch
formats, improved e- and m-banking
solutions, factoring, supply chain finance,
and bankassurance.
Financial performance
The bank realised profit after tax in the
amount of EUR 4.1 million (2018: EUR
5.2 million) and profit before impairments
and provisions in the amount of EUR 5.4
million (2018: EUR 5.6 million). ROE
a.t. was 5.9% (2018: 7.9%), while CIR
increased to 78.3% (2018: 76.2%), and
total capital ratio increased to 19.5% (2018:
16.7%). The result was mainly driven by
the increase of business volume and the low
cost of risk. The total assets of the bank
rose by 27%, the main factor was new loan
production. NPL ratio was further reduced
to 1.6% (2018: 2.4%).
Retail banking
Retail banking recorded growth in gross
loans (29%) and deposits (36%). The retail
loan portfolio was dominated by consumer
loans (76% of gross retail loans), while
housing loans occupied 22% of gross retail
loans. Local currency (RSD) loans occupied
78% of the loan portfolio, while deposits
were mostly (81%) in FX. The interest
margin in the retail segment is still high, but
under significant pressure by competitors.
Growth in gross retail loans was recorded,
mainly due to very high growth in housing
loans (72%), with consumer loans strongly
contributing to increased nominal figures.
The key drivers of income growth were
new loans production and repricing
initiatives on current accounts.
To diversify the product mix, the bank
continued to focus on housing loans
as a product (increase of share from
16.1% to 21.6%), a market segment with
good prospects, and opportunities for
cross-selling.
Corporate banking
Corporate banking recorded growth in
gross loans (28%) and deposits (16%). EUR
loans occupied 96% of the loan portfolio,
while deposits prevailed (72%) in local
currency (RSD). Higher demand for FX
loans is a consequence of lower nominal
interest rates, therefore the portion of RSD
loans in the new production decreased
compared to the previous period. Growth
in gross loans was recorded, mainly due to
new production of loans to SMEs. The key
drivers of income growth were new loans
production and guarantees.
85
Macroeconomic
Snapshot
In Serbia, the economic
growth enhanced in H2 2019,
underpinned with increased
private consumption and public
spending, fixed investment and
an improving business climate.
GDP (real growth in %)
5.0
4.0
3.0
2.0
1.0
2018
2019
2020
Average inflation (in %)
2.2
1.8
1.4
1.0
2018
2019
2020
Unemployment rate (in %)
13.0
11.0
9.0
7.0
5.0
2018
2019
2020
Figure 57: GDP growth,
Inflation, Unemployment
Outlook
Strong economic growth
should continue in 2020 as well,
reinforced by fiscal stimulus
and record-high FDI inflows,
consumer spending and a
rebound in industrial output.
NLB Group Annual Report 2019 86
Contribution
to NLB Group
2%
Result b.t.
7%
Net interest
income
1%
Net non-interest
income
NLB Banka, Beograd
Figure 58: Contribution to NLB
Group (result b.t., net interest
income, net non-interest income)
Table 23: Key performance indicators of NLB Banka, Beograd***
in EUR thousands
Key performance indicators
2019
2018
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Financial position statement indicators
Total assets
Net loans to customers
Gross loans to customers
Deposits from customers
Equity
Key financial indicators
Total capital ratio
Interest margin*
ROE a.t.
ROA a.t.
CIR
NPL volume
NPL ratio (internal def.: NPL/Total loans)
Market share by total assets**
20,722
4,141
19,764
3,832
-19,471
-17,981
-1,254
4,138
4,142
-377
5,238
5,202
614,268
484,492
412,046
318,792
419,521
327,847
437,268
352,940
72,954
67,686
4.8%
8.1%
-8.3%
-
-21.0%
-20.4%
26.8%
29.3%
28.0%
23.9%
7.8%
19.5%
16.7%
2.8 p.p.
4.0%
5.9%
0.8%
4.9%
7.9%
1.2%
78.3%
76.2%
8,004
1.6%
1.7%
9,884
2.4%
1.5%
-0.9 p.p.
-2.0 p.p.
-0.5 p.p.
2.1 p.p.
-19.0%
-0.9 p.p.
0.2 p.p.
3.9 p.p.
LTD
94.2%
90.3%
*
Interest margin for 2018 is adjusted to the new methodology (calculation based on number of days in the period).
** Data for 2019 as at 30 September 2019.
*** Data on a stand-alone basis as included in the consolidated financial statements of the Group.
2.0%
1.5%
1.5%
1.4%
1.3%
1.0%
1.2%
1.9%
1.5%
1.5%
1.4%
1.9%
1.9%
1.8%
1.7%
31 Dec 2017
31 Dec 2018
31 Dec 2019
Market share in loans to corporate
Market share by total assets
Market share in deposits from customers
Market share in loans to individuals
Figure 59: 3-year market share evolution*
* Market share data for 2019 as at 30 September 2019.
NLB Group Annual Report 2019 87
The bank was for the second consecutive
year the market leader in loans to farmers
subsidised by the Serbian Ministry of
Agriculture (a 23% share in total new
production of such loans in the banking
sector).
The bank proved to be a valuable partner
in the project finance transaction conducted
on the Group cross-border level.
Role in society
For the 8th year in a row the bank
organised the ‘NLB Organic Competition,’
a landmark project which recognises and
awards the best organic production projects,
and supports environmental protection
and sustainable development. The bank
also supported agribusiness by sponsoring
agricultural events in Serbia. The bank
continued its program in the NLB Gallery
started in 2017 within which young artists
can exhibit. 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.
NLB Group Annual Report 2019 88
Chapter 12
Financial Markets
The segment is focused on the Group’s
activities on international financial
markets, including treasury operations.
In the challenging environment of low
deposits (one-off item). Increase in banking
book securities (EUR 338.3 million YoY)
due to a surplus in liquidity.
interest rates on financial markets,
The Group’s ALM
the continuous focus was on prudent
liquidity reserves management. Wholesale
funding activities contribute to the
Group’s funding, and were conducted
with the aim of achieving diversification
and fulfilling regulatory requirements.
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 27.6 million, 15% increase YoY,
despite negative effect of EUR -2.4 million
recorded due to the change in segment
presentation.
Net interest income is EUR 2.1 million
higher YoY, mostly due to higher volumes,
since the yields on securities decreased YoY.
Higher net non-interest income, EUR
3.1 million YoY, is mostly due to active
management of banking book securities,
which positively affected the net income
from financial transactions, mostly in Q1
2019.
Increase in balances with the CB (EUR
469.1 million YoY) due to high inflow of
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 the
macroeconomic environment and financial
markets development. Monitoring and
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 housing 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 Group’s FX risk is measured and
managed with the use of a combination of
a 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.
NLB Group Annual Report 2019 89
Contribution to NLB Group
Highlights:
13%
11%
1%
• Optimisation of asset management of
the Bank and the banking subsidiaries.
• Well diversified banking book portfolio from
geographical and asset class perspective.
• In 2019 Bank issued two Tier 2
subordinated bonds in aggregate
amount of EUR 165 million.
46%
liquid assets (% of total assets)
75%
government securities in the
Group’s banking book portfolio
4.09 years
average maturity of the Group’s
banking book portfolio
Result b.t.
Net interest
income
Net non-interest
income
Financial Markets
Figure 60: Contribution to NLB Group (result b.t.,
net interest income, net non-interest income)
Table 24: Performance of the Financial Markets in Slovenia segment
2019
2018
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
33.6
2.0
35.6
-7.5
28.1
-0.5
27.6
31.4
-1.1
30.3
-6.5
23.8
0.2
24.0
2.1
3.1
5.3
-1.0
4.3
-0.7
3.6
Balances with Central banks
1,044.1
575.0
Banking book securities
3,093.6
2,755.2
469.1
338.3
31 Dec 2019
31 Dec 2018
Change YoY
7%
-
17%
-15%
18%
-
15%
82%
12%
Interest rate on banking book securities
Wholesale funding*
Interest rate on wholesale funding*
Subordinated liabilities
Interest rate on subordinated liabilities
1.25%
244.1
0.50%
1.03%
161.6
0.50%
210.6
4.03%
-0.22 p.p.
-82.6
-34%
0.00 p.p.
-
-
The segment Financial Markets in Slovenia was in the previous reports shown without Investment Banking, so the results of
this segment for 2019 are directly comparable to its results from the previous year.
* Item includes only borrowings, till 30 June 2019 it included also deposits from banks.
NLB Group Annual Report 2019
90
Liquid assets in total assets
n
o
i
l
l
i
m
R
U
E
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
44%
5,495
45%
5,413
58%
57%
1%
9%
17%
15%
2%
13%
13%
16%
44%
5,248
50%
5%
16%
14%
15%
44%
5,346
45%
5,455
50%
53%
1%
13%
19%
16%
1%
13%
20%
13%
41%
5,172
63%
1%
6%
27%
3%
46%
6,488
58%
0%
4%
29%
8%
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
ECB eligible credit claims
Cash & CB reserves
Placements with banks
Trading book debt securities
Banking book debt securities
Encumbered assets
Figure 61: Evolution of NLB Group liquid assets structure (in EUR million)
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 the liquid assets of the Bank.
The Group’s liquid assets as at year-end
were comprised of a cash equivalent
(EUR 2,192 million), a debt securities
portfolio (EUR 3,750 million), and credit
claims eligible for CB secured funding
operations (EUR 545 million). The liquid
assets portfolio represents 46% of total
assets corresponding to EUR 6,488 million
(2018: 41%). A small part of liquid assets
(EUR 486 million) was encumbered for
operational and regulatory purposes.
Corporate 0%
Senior
Unsecured 8%
Agency 3%
GGB 4%
Government
sec. 75%
Covered
bond 10%
Slovenia
26%
SEE 14%
France 11%
Germany 6%
Belgium 5%
Netherlands 4%
Luxembourg 3%
Finland 3 %
Spain 3%
Other
25%
Figure 62: Banking book portfolio of NLB
Group by asset class and geographical
structure as at 31 December 2019
NLB Group Annual Report 2019
Table 25: Maturity profile of NLB Group’s banking book securities as at 31 December 2019
91
2020
2021-2022
2023-2024
2025+
Total
in EUR million
402.6
215.6
187.0
394.5
797.1
361.2
178.0
183.2
356.7
717.9
184.8
65.2
119.6
725.4
910.2
539.1
494.0
45.1
781.0
1,320.1
1,487.7
952.8
534.9
2,257.6
3,745.2
Wholesale funding
Wholesale funding activities in the Group
are conducted with the aim of achieving
diversification; improving structural
liquidity and capital position; and fulfilling
regulatory requirements. The Bank raised
EUR 210.6 million (carrying amount) of
wholesale funding (subordinated Tier 2
instruments) to strenghten and optimise
the capital position. Two Group banking
subsidiaries have, due to their solid liquidity
position, early prepaid two subordinated
instruments in a total amount of EUR 15
million.
Domestic securities (the Group strategic markets)
Slovenia
Other SEE
International securities
Total
Liquidity reserves represent liquid assets
which are not encumbered and can provide
funding of the future core growth.
Banking book debt securities constituted
58% of the Group’s liquid assets. 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 asset classes.
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 4.09 years in
2019 (4.15 years in 2018).
The average yield on the Group’s securities
was 1.2% (1.4% in 2018).
NLB Group Annual Report 2019 92
Chapter 13
Non-Core Members
The Non-Core Members segment includes
the operations of non-core Group
members and the non-core part of the
Bank’s portfolio, which consists of non-
performing 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 remains a rigorous
wind-down of all non-core portfolios and
the consequent reduction of costs. The
implementation of the wind-down has
been pursued with a variety of measures,
including the sales of portfolios, sales
and negative effect of transfer of NLB
Srbija and NLB Crna Gora from Strategic
Foreign Markets (EUR 1.4 million).
A substantial decrease in total assets of the
segment YoY (EUR 94.2 million, of which
EUR 32.1 million due to the change in
segment presentation), which is in line with
the divestment strategy of the Non-Core
segment.
The wind-down of the Non-Core segment
in 2019 included:
of individual assets, the collection or
• A reduction of the Bank’s loan exposure
restructuring of individual assets, and
with foreign clients
active management of real-estate assets.
The segment recorded EUR 3.5 million
decrease of net operating income, which
included a transfer of the NLB non-core
part to Corporate and Investment Banking
segment (approximately EUR -3.3 million)
and a transfer of NLB Srbija and NLB
Crna Gora from Strategic Foreign Markets
(EUR 1.3 million); effect on net non-interest
income from contractual penalty (EUR 1.3
million) in Q1 2019.
Decrease in total costs, EUR 4.3 million
YoY, was realized primarly due to positive
effect of divestment of non-strategic Group
members and a transfer of NLB non-core
part to Corporate and Investment Banking
segment (approximately EUR 4.4 million)
• Divestment of non-core Group members
• Sale of the Bank’s equity participations
• Active management of real-estate assets
Reduction of the Bank’s credit
business with foreign clients
Non-core loan exposures decreased in
line with the planned dynamic. The bank
resolved several significant exposures in
BiH, Croatia, Montenegro, Italy, and Czech
Republic, thus contributing to NPL and
other off-balance wind-down process with a
positive effect on P&L.
Highlights:
• Positive contribution to the Bank’s
results and resolving NPL or the
off-balance sheet level.
• A decrease in total costs, which were
reduced by as much as 23% YoY to the level
of EUR 14.0 million (2018: EUR 18.2 million).
• Some significant client exposures in different
countries in the region were resolved.
Divestment of non-core Group members
Non-core Group members operating
in leasing, factoring/trade finance and
real-estate are in the process of being
wound-down, with new business being
suspended in all of them. The decrease
of the cumulative non-core subsidiaries’
portfolio remains ongoing through regular
repayments and collection measures.
During 2015 – 2019 a liquidation process
was initiated in almost all non-core
subsidiaries. The liquidation process
has been running with thoughtful cost
management and well established collection
procedures leading to a successful divesture
in 2019 of several non-core subsidiaries
such as Prospera Plus d.o.o., Ljubljana – v
likvidaciji, NLB InterFinanz Praha s.r.o.
Praha v likvidaci and CBSinvest d.o.o.,
Sarajevo.
Sale of NLB’s equity participations
The Bank has continued divesting its
non-core equity participations, and
consequently, by the end of the year the
overall asset volume of equity participations
is at EUR 0.31 million (2018: EUR 0.99
million).
NLB Group Annual Report 2019 Table 26: Results of the Non-Core Members segment
in EUR million consolidated
Over
93
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
Segment assets
Net loans to customers
Gross loans to customers
Investment property and property & equipment
received for repayment of loans
Other assets
Deposits from customers
Non-performing loans (gross)
Cost of risk (in bps)
CIR
EUR 151.4 million
reduction of gross loans to
foreign clients in 2019
Over
EUR 30.62 million
the total sales value of real-estate
transactions executed or supported
by the real-estate team in 2019
-71%
59%
-24%
23%
19%
-
-
-36%
-58%
-52%
10%
-23%
-
2019
2018
Change YoY
2.7
8.2
11.0
-14.0
-3.0
-0.1
-3.1
9.3
5.2
14.5
-18.2
-3.7
11.9
8.2
-6.6
3.0
-3.5
4.3
0.7
-12.0
-11.3
31 Dec 2019 31 Dec 2018
Change YoY
263.7
160.9
288.6
68.5
34.3
9.6
-94.2
-93.5
-151.4
7.0
-7.8
-9.6
169.5
67.4
137.2
75.6
26.5
0.0
93.6
2019
-218
179.7
-86.1
-48%
2018
-705
Change YoY
487
127.2%
125.5%
1.7 p.p.
Due to the new methodology, the results of this segment for 2019 are not directly comparable to its results from the previous year.
Active management of real-estate assets
The divestment process of still remaining
NPL exposures at the Bank or at the non-
core subsidiaries’ level is being facilitated
through a specialised team for repossessing,
managing, and divesting collateral
real-estate. Real-estate expertise and
services are offered to the Group members
assisting them in implementation of the
most efficient divestment manner of the
remaining non-performing portfolio or the
repossession of the collateral real-estates.
The main task of this management team
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 2019, the team executed or
supported real-estate transactions with a
total sales value of over EUR 154.2 million,
and directly or indirectly contributed to a
EUR 471.18 million of NPL reduction,
including EUR 63.23 million in 2019 alone.
NLB Group Annual Report 2019
94
Chapter 14
Processing Operations
and IT
Processing operations
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 in the future.
Payment processing
The Group retained its role as an important
player on the payments market not only
in Slovenia, but also in the Group’s home
region – a region where the Group is
present with banking subsidiaries. The total
number of payment transactions exceeded
156 million, which in terms of total value
means more than EUR 284 billion.
In terms of fees from payments and cash
operations, the Group gained more than
EUR 55 million.
The competition on the payments market
is continuously increasing, simultaneously
users of payment services require more
and more flexibility from their providers.
Therefore, provision of a positive user
experience stays on the top of the list of
the Bank’s priorities. Accordingly, the Bank
successfully introduced instant payments,
i.e., payments which are executed in only
few seconds. At the same time, the Bank
also adhered to the Slovenian instant
payments scheme called ‘Flik,’ as it is
expected that instant payments will soon
become the prevailing payment instrument.
The Bank also improved user experience
in the area of international payments, as
the Global Payments Innovation (GPI)
service was introduced that enables
higher transparency of costs, faster
payment execution, and easier tracking of
international payment transactions.
Special attention was also dedicated to the
security of electronic and mobile payments
and their respective payments processing.
With fulfilment of PSD2 requirements,
an important step forward was made in
the direction of even more efficient fraud
prevention, and provision of the higher
protection of payments users.
With all mentioned activities, the Bank
is strengthening its role as a reliable and
trustworthy provider of payments services.
This is also confirmed in its high market
share, which the Bank has successfully
retained in recent years.
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
present, cash supply services are provided
with their own capacities for the needs
of the Group. However, on two markets
(Slovenia and North Macedonia) all-round
cash supply services for several other
commercial banks are performed. In the
home region, the Group banks provide
cash supply services for 873 bank branches
and 1,272 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 countries with the highest volumes
of such business (Slovenia and North
Macedonia).
One of the most important goals in the
recent period is to ensure a high level of
ATM network performance, establishing
even better control over ATMs’ operations,
and the systematic reduction of errors.
NLB Group Annual Report 2019 95
Information Technology
Highlights:
The Group continues to provide its
• The availability of the information systems
clients with sustainable and satisfactory
is at an extraordinary high level (99.93%).
services supported through highly
reliable and secure technology platforms.
• The Bank is introducing key new platforms
The Bank is very actively pursuing a
from world-leading providers in digital
technology transformation programme,
banking, integration, and data management.
where two new large platforms
were introduced in 2019. The Group
• Cyber security capabilities are continuously
is actively managing centralisation
monitored and strengthened to
activities of regional governance, and
provide safe and robust services.
is pursuing gradual standardisation
of applications and infrastructure.
IT infrastructure and reliability
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 operations and successful risk
management in this area. The availability
of the information system is at an very high
level of 99.93% (2018: 99.90%), and the
share of unplanned interruptions is very
low, 0.02% (2018: 0.04%). In 2019, the
number of days without system/service
interruptions were at 83% (2018: 81%).
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 Group is constantly striving to
improve IT processes to maintain at least
the 3rd maturity level (COBIT). High IT
operational performance is also recorded in
the Group members.
Main IT initiatives
The main focus of the year has been
oriented at the implementation and delivery
of new technological platforms that will
enhance customer insight capabilities and
foster a greater level of their engagement
through a smart digital channels approach.
The first deliverables on digital banking
and integration platforms are already in
production, thus proving their operational
capabilities and improvements of
development velocity. New platforms are
centralising channel management which
holistically supports banks implementation
of the PSD2 initiative, and will enable
further pursuit of innovative solutions. The
Bank has also achieved several milestones in
the implementation of a group wide Data
Management platform which encompasses
an enterprise data warehouse, Big Data,
advanced analytics, risk management
analytics, profitability, data governance, and
consolidated regulatory reporting.
In addition to the transformation
initiative, the Bank has further optimised
the automated decision-making for loan
origination by small enterprises, and the
improved efficiency of collections that has
newly developed automation of set-off
clauses. Efficient corporate relationship
management has been improved with
a comprehensive relationship overview.
Important digitalisation efforts have been
achieved in the supply chain finance
platform that is already gaining traction
with corporate clients.
Successful implementation of testing
automation not only improves the quality of
the software, but also provides an important
milestone towards achieving continuous
development and testing processes. Internal
efficiencies have been achieved with a new
document management solution and digital
support for meeting management. The
Bank has also launched a new HR solution
24.6%
Payment services
market share by
the Bank
2,145
Total cash points
supplied by the Group
873
Bank branches
supplied by the
Group
1,272
ATMs supplied by
the Group
NLB Group Annual Report 2019
All employees in the Group are also being
continually educated about the importance
of information/cyber security, as well social
engineering techniques. The Group banks
are providing employees and customers
with security notifications, especially for
the occurrence of threats in the (global)
environment with potential impact on
the banks’ IT systems, services, products,
and customers. The Bank is also testing
the awareness of its employees with social
engineering attack simulations.
96
to facilitate the increase of employee
engagement and supports their training
and acquisition of new competences.
The introduction of this modern project
portfolio management tool is increasing the
efficiency of transformation and project
management.
The Group is also setting strong
expectations for improving business outputs
by launching a Robotic Process Automation
(RPA) pilot. The technology overhaul
is also well underway in the Group’s
subsidiary banks. In 2019, standardised
interfaces to Core banking systems of
several Group’s subsidiary banks were
successfully implemented – which improves
the integration capabilities for any group-
wide application roll-out. The Group has
further expanded the scope of the Group
Competence Centre to five additional areas,
and has invested in the standardisation of
several larger elements of infrastructure.
In the coming years, the Bank will continue
investing in newly adopted technologies to
support the business strategy, and to achieve
superior client experience in terms of
quality, innovation, reliability, and security.
Cyber security
The Group is giving special interest
to cyber security, and consequently
assuring confidentiality, integrity, and the
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
at the Bank’s Information Security Steering
Committee, Operational Risk Committee,
and Management Board meetings. In 2019,
the Security Operations Centre (SOC) was
enhanced using an external expert forensic
service for incident handling and response,
threat intelligence, and emergency response.
Additional resources were recruited in the
area of cyber security. Several vulnerability
mitigation actions were successfully
complemented and corresponding
protective measures implemented in order
to raise the overall level on cyber security
resilience.
23.4%
14.4%
24.1%
18.8%
8.6%
NLB Banka,
Beograd
NLB Banka,
Sarajevo
NLB Banka,
Podgorica
NLB Banka,
Prishtina
NLB Banka,
Banja Luka
NLB Banka,
Skopje
NLB
41.8%
46.0%
% of digital users
Figure 63: Digital penetration per Group’s subsidiary banks
NLB Group Annual Report 2019 98
Chapter 15
Risk Management
Highlights:
• The negative cost of risk in the last three
years, due to favourable macroeconomic
conditions, prudent credit policy principles,
and proactive NPL management.
• The positive asset quality trend continued.
The Group reached strategic healthy growth
in the retail portfolio, which increased
by 20.5 p.p. in the last three years.
Self-funded strong liquidity and a solid
capital position continued in 2019,
demonstrating the Group’s financial
resilience. Efficient managing of risks
and capital is crucial for the Group to
sustain long-term profitable operations.
A robust risk management framework
is comprehensively integrated into
decision-making, steering, and mitigation
processes within the Group, with the aim
of proactively supporting 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
subsidiaries. Furthermore, it is also
responsible for several ancillary services
companies and non-core subsidiaries
which are in a controlled wind-down.
The Group’s credit portfolio quality
remained very 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 stable macroeconomic
environment, prudent new financing, 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 NPLs, and
closely approached the average EU banking
level (44.6% for Q3 2019). 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 the whole
SEE region, even though economic growth
slowed slightly – that said, it still remained
relatively high, including further increased
emerging uncertainties in the international
environment.
In the continued negative interest rate
environment in 2019, 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 rate
products resulted in moderately increased
interest rate risk exposure, which stayed
within the risk appetite tolerance toward
this risk. Moreover the Group’s capital and
liquidity position remained strong in both
the Group and subsidiary bank levels.
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
compliant with the rules set by the local
regulators. Across the Group, assessments
are made and risks managed in the Group in
a uniform manner, and take into account the
specifics of the markets in which individual
Group members operate 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. It should be
noted that risk management is continuously
adapting with the aim of detecting and
managing new potential emerging risks.
The Group puts great emphasis on the risk
culture and awareness across the entire
Group. The main risk principles are set
NLB Group Annual Report 2019 99
3.50% 3.50%
3.25%
2.75%
2017
2018
2019
2020
Figure 64: NLB Group’s Pillar 2
Requirement evolution
forth by the Group’s Risk Appetite and
Risk Strategy, designed in accordance with
business strategy. Special focus is placed
on the inclusion of risk analysis into the
decision-making process at strategic and
operating levels, diversification to avoid large
concentration, optimal capital usage and
allocation, appropriate risk-adjusted pricing,
and overall compliance with internal rules
and 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, the Group puts
great emphasis on their integration into the
overall risk management system in order
to assure proactive support for informed
decision-making.
Proactive risk management in 2019
The MREL requirement for the Group is
based on the Multiple Point of Entry (MPE)
approach. It is set as the percentage of
TLOF at the sub-consolidated level of the
NLB Resolution Group (the Bank and non-
core part of the Group). On 17 May, the
Bank received a decision by the BoS relating
to the MREL requirement, which is 17.93%
of TLOF at the sub-consolidated level of
the NLB Resolution Group. The transition
period to reach the MREL requirement
is until 30 June 2023, and from that date
onwards it is required to be met at all times.
The Group made the implementation
of MREL requirement as part of its risk
appetite and the MREL requirement is
regularly monitored.
One of the key aims of Risk Management
is to preserve a prudent level of the Group’s
capital position. The Group monitors its
capital position at the Group and individual
subsidiary bank level in accordance with
the Risk Appetite, also incorporating the
established ICAAP process under normal
and stressed conditions. As at 31 December,
the Group had a very solid capital position
and total capital ratio of 16.3%, which
does not yet include EUR 120 million of
Tier 2 capital, which the Group successfully
issued on international capital markets on
19 November 2019.17 The CET1 ratio,
representing the capital of highest quality,
stood at 15.8%, which is above the EU
average as published by the EBA (14.4%
for Q3 2019). As at 31 December 2019,
the Group had already met the fully-
loaded regulatory requirements applicable
in the year 2020 (including new SREP
requirement). Moreover, enhanced overall
corporate governance led to a lower Pillar
2 Requirement (P2R) in the last two years,
which decreased from 3.5% in 2018 to
2.75% applicable in 2020, while Pillar 2
Guidance remains at low level of 1% both
in 2019 and 2020.
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 325% and the unencumbered eligible
reserves in the amount of EUR 6,002
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 levels
predominately entails customer deposits,
namely in the retail segment, representing
a very stable and constantly growing base.
17. For further developments see chapter Events after the
end of the 2019 financial year.
NLB Group Annual Report 2019 100
A very comfortable level of LTD at 65.5%
gives the Group the potential for further
customer loan placements. The Group was
included in the 2019 ECB Liquidity stress
test exercise. The final results of the stress
test showed that even in a very unfavourable
(extreme) scenario, defined by the ECB, the
Group held sufficient liquidity reserves.
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
on intensive and proactive handling of
problematic customers, changes in the credit
process, and the early warning system for
detecting an increased credit risk at a very
early stage. 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
the 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-
400%
350%
300%
250%
200%
150%
100%
3 1 D e c 2 0 1 8
3 1 Ja n 2 0 1 9
2 8 F e b 2 0 1 9
3 1 M ar 2 0 1 9
3 0 A
p r 2 0 1 9
3 1 M a y 2 0 1 9
3 0 J u n 2 0 1 9
3 1 J ul 2 0 1 9
3 1 A
u g 2 0 1 9
3 0 S e p 2 0 1 9
3 1 O ct 2 0 1 9
3 0 N
o v 2 0 1 9
3 1 D e c 2 0 1 9
Figure 65: NLB Group’s LCR
sized, and small enterprise segments.
Moreover, on the corporate segment the
Bank established cooperation with selected
corporate clients (through different types
of lending or investments instruments).
All other banking members in the SEE
region, where the Group is present, are
universal banks mainly focused on the retail
and medium-sized and small enterprises
segments. Their primary goal is to provide
comprehensive services to clients by taking
into account prudent risk management
principles. The current structure of credit
portfolio (gross loans) consists of 41% of
retail clients, 19% of large corporate clients,
20% of SMEs and micro companies, while
the remainder of the portfolio consists of
other liquid assets. In comparison with the
previous year, the credit portfolio structure
has changed in favour of retail loans. There
is no large concentration in any specific
industry or client segment.
The majority of the Group’s loan portfolio
is classified as Stage 1 (91.4%), a relatively
small portion as Stage 2 (4.8%), and Stage
3 (3.6%). Loans in stages from 1 to 3 are
booked at an amortised cost, while the
remaining minor part (0.3%) represents
fair value loans through P&L (FVPL).
The portfolio quality was very stable
with increasing Stage 1 exposures and a
reduction of NPL loans, which are below
the Slovenian average. The high percentage
of Stage 1 loan portfolio is the result of a
cautious lending policy, while the volume of
Stage 2 loans is quite limited, this decrease
occurred due to the positive resolving of
exposures in this stage.
The Group is actively present on the market
in the SEE region, financing existing and
new creditworthy clients. The successful
deleveraging of companies and new
investment projects in Slovenia have had a
Institutions 3%
Highest quality
Default
State 17%
SME 20%
57
58
61 61
63
%
n
I
Mortgages
21%
Corporates
19%
Consumer
20%
23
25
18
28
30
6
5
5
4
3
19
14
9
7
4
A
B
C
D and E (NPLs)
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
Gross exposures include also reserves at CBs and demand deposits at banks.
Figure 66: NLB Group structure of the credit portfolio (gross loans and advances) by segment and by rating
NLB Group Annual Report 2019
101
An important Group strength is the NPL
coverage ratio 1, which remains high at
89.2%. Furthermore, the Group’s NPL
coverage ratio 2 stands at 65.0%, which is
well above the EU average as published by
the EBA (44.6% for Q3 2019). As such, it
enables a further reduction in NPLs without
significantly influencing the cost of risk in
the coming years. Moreover, it proves that
past reduction was done on average without
a negative impact to the profit and loss
account.
Regarding market risks, the Group pursues
a low risk appetite for market risk in the
trading book. The exposure to trading
(according to the CRR) is only allowed to
be carried by the parent Bank as the main
entity of the Group, and is very limited.
The Bank maintains a small trading
portfolio, mainly to monitor market signals
in the global markets. As such, it does not
constitute a material risk to the Group’s
operations and its tolerance for interest rate
and credit spread risk is very low.
The Group carries its main business
activities in euros, and the subsidiary banks,
in addition to their domestic currencies,
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 at less than 2% of capital.
Regarding structural FX positions on a
consolidated level, assets and liabilities held
in foreign operations are converted 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
CET1 capital.
86.7%
1,131,026
6.4% 6.4%
0.5%
91.4%
4.8% 3.6%
0.3%
-106,874
-23,134
-224,698
31 Dec 2018
31 Dec 2018 – 31 Dec 2019
31 Dec 2019
Stage 1
Stage 2
Stage 3
FVTPL
Figure 67: NLB Group loan portfolio (valued at amortized cost) by stages
positive influence on the approval of new
loans, but nevertheless lending growth in
the corporate segment remained relatively
moderate. In the retail segment, especially
in the consumer loan segment, positive
trends were recorded throughout the region.
The low unemployment rate and relatively
high wage growth reflected in the increased
household consumption alongside with the
increasing residential real-estate prices.
The Group strives to ensure the best
possible collateral for long-term loans,
namely mortgages in most cases. Thus, the
real-estate mortgage 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.
In November 2019, BoS adopted the
Regulation on macroprudential restrictions
on household lending, which introduced
a binding macro-prudential measure in
the area of retail lending by determining
the maximum disposable amount of
consumer or housing loans in relation to
the borrower’s income (DSTI), related
limitation on consumer loan’s maturity, and
the maximum level of derogations referring
to these limitations on a single bank level.
The new regulation may have a negative
impact on the demand for retail lending
products in Slovenia, namely in segment of
long-term consumer loans.
Efforts led to cumulatively very low new
NPL formation in the amount of EUR
55.8 million, which represents 0.6% of
the total portfolio. In addition, a stable
macroeconomic environment across the
region resulted in the negative cost of
risk, whose evolution during the year was
otherwise very stable and below mid-term
strategic orientations.
A strong focus on further reduction of
NPLs on the Group level remained in 2019.
Precisely set targets in the Group’s NPL
Strategy, an active workout and positive
macroeconomic trends supported a further
substantial reduction in the volume of
the non-performing portfolio. The active
approach to NPL management gives strong
emphasis on restructuring, and use of other
NPL management tools such as foreclosure
of collateral, the sale of claims, and pledged
assets. The existing non-performing credit
portfolio stock in the Group was reduced
from EUR 622 million to EUR 375
million YoY, and the reduction exceeded
the set targets. The combined result of all
of the effects resulted in a lower share of
NPLs from 6.9% to 3.8% YoY, while the
internationally more comparable NPE ratio
based on the EBA methodology dropped
from 4.7% to 2.7% YoY. In addition, the
Group’s indicator Gross NPL ratio, defined
by EBA, decreased to 4.6%, and thus moved
below the regulatory defined threshold for
establishment of a NPL strategy framework.
NLB Group Annual Report 2019 102
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 the
transformation of deposits from term to
sight as a result 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 15.4 million
if market interest rates increase by 50 bps,
whereas if they decreased, the exposure
would be lower due to zero floor clauses
included in the loan contracts (EUR 14.7
million). From an EVE perspective, the
capital sensitivity of 200 bps equals 6.1%
of the Group’s capital.
In the area of operational risk
management, where the Group has
established a robust operational risk
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 2019, 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,
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
89.2%
76.1%
77.5%
77.1%
69.7%
68.7%
72.2%
3,684
59.3%
2,798
2,623
28.2%
25.6%
25.1%
1,896
19.3%
1,299
13.8%
844
9.2%
622
6.9%
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
NPL coverage ratio 1
NPL ratio*
NPLs
* By internal definition.
Figure 68: NLB Group NPL, NPL ratio and Coverage ratio
90
80
70
60
50
40
30
20
10
0
375
3.8%
31 Dec
2019
89%
72%
63%
76%
65%
78%
77%
62%
65%
65%
2015
2016
2017
2018
2019
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 69: NLB Group Coverage ratio and NPL Coverage ratio
-7.02% -7.21%
-7.19%
-5.46%
-6.09%
31 Dec
2018
31 Mar
2019
31 Jun
2019
31 Sep
2019
31 Dec
2019
Figure 70: NLB Group’s EVE evolution
NLB Group Annual Report 2019 103
325%
The Group LCR
65%
The Group NPL Coverage ratio
-20 bps
The Group Cost of Risk was negative
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.
In addition, the Group was also diligently
managing other, non-financial risks,
referring to the Group’s business model or
arising from other external circumstances,
within the established ICAAP process. The
uniform stress testing programme, which
includes internally-developed models,
stress scenarios, and sensitivity analysis,
was further enhanced. Such stress testing
framework is the subject of a regular
internal validation cycle and related
procedures where substantial progress in
2019 was made. The goal of the Group
is to have a strong validation governance
process and controls over applied selected
risk approaches and internal models.
Further information on risk management
is available in the Note 6.0 to the Audited
Annual Financial Statements and Pillar 3
Disclosures.
NLB Group Annual Report 2019
104
Chapter 16
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 organisational
and cultural development. In 2019, all
employees were involved in targeted
development, with the focus mainly on
management and sales profiles, lean
processes, social learning activities,
and implementation of practices to
enhance employee efficiency. The
Group believes that investments
in its employees are crucial for the
successful introduction of changes.
In the past few years, the Group made
substantial progress in improving its HR
management function by implementing
performance management, promotional
schemes, remuneration schemes,
organisational culture, and target
development for key groups of employees.
HR’s top priority remained changing the
organisational culture, 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 changes in the future.
In recent years, the Group undertook
efforts to gradually optimise and right-size
its staffing level in line with the current
organisational structure. In the last five
years the Group has reduced the number
of employees by 13.6% (925 employees,
434 in the Bank alone) and concluded
several major reorganisations. With the
comprehensive HR strategy, the Group’s
business needs were profoundly analysed
and workforce planning schemes formed.
Accordingly, talent career activities were
carried out throughout the Group, aiming
to support future business needs.
To continue with the upgrading of HR
processes and improving qualitative
analytics, a new IT tool was introduced
in the Bank that supports crucial HR
processes (i.e., core HR data, performance
management, recruiting, learning and
development, talent management, and
career development). In the coming
years, the same IT tool will be integrated
throughout the Group.
Proud to be recognised as
an attractive employer
The Group is continuing to strengthen
its HR practises based on feedback from
reputable institutions and benchmarks with
best-in-class HR practises. The Bank was
6,803
6,714
6,175
6,029
5,887
5,878
3,093
3,027
2,885
2,789
2,690
2,659
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2014
2015
2016
2017
2018
2019
NLB
NLB Group
Figure 71: Reduction of the number of employees in NLB Group
NLB Group Annual Report 2019 105
34.6
hours of education
per employee in 2019
465
new hires of significant
group members in 2019
5,878
employees in the Group
Table 27: NLB Group employees by countries
Country
Slovenia*
Serbia
BiH (Republic of Srpska, Federation of BiH)
Montenegro
North Macedonia
Kosovo
Germany
Switzerland
Croatia
Total (the Group)
Number of employees (as at 31 December 2019)
2,750 (NLB: 2,659, other: 91)
494
934
312
903
474
1
3
7
5,878
* Without Bankart, Prvi Faktor, NLB Vita.
once again recognised as ‘Top Employer’
by Top Employer Institute, for already the
5th consecutive year. NLB Banka, Sarajevo
was awarded as second best employer in
the financial sector. NLB Banka, Skopje
was highly recognised for being a people-
oriented bank, where the bank was awarded
with the corporate badge ‘People-oriented
company’ by the Macedonian HR
Association.
Continuing a longstanding tradition
of investing in employees
Caring about the employees is the key
value reflected in several activities and
opportunities intended for all of the
employees. The organisational culture is
changing by engaging in various fields,
integrating the member companies,
enabling staff rotation and changing the
work environment, promoting out-of-the-
box thinking and personal development,
and by changing our behaviour we are
changing the organisational culture.
Knowledge for whatever may come
The Group strives for high quality and
compliance with the standards of a modern
learning organisation. Various training
activities are aimed to rise awareness and
encourage employees to embrace changes.
The objective of these activities is to train
the employees to reach their business
targets, and thus meet their personal
expectations by showing social responsibility
in interaction with all the stakeholders.
Diverse training courses are organised
for employees to obtain new skills and
expertise. Employees from different
management levels, from leadership
talents to directors, are involved in the
development of leadership skills. Skills are
developed as modules where the contents
are upgraded accordingly. The Group
started developing a joint leadership brand
to promote and develop constructive
leadership behaviours. Its purpose is to
define key leadership behaviours that will
clearly represent a NLB leader at all levels
throughout the Group.
Development of the Group talents followed
career development plans set for individual
employees. Some Group member
companies also identified new talents in
2019 and prepared development plans for
them.
Special attention is being paid to new
recruits who undergo specially designed
training courses in their first year to
gain the knowledge they need to meet
expectations in their knew roles. With
the onboarding programme they are
helped with the integration into the new
environment and more connected to new
co-workers.
NLB Group Annual Report 2019
The remuneration policy defines the
circumstances for subsequent adjustment
of payments to the risks that mandatorily
reduce the deferred variable part of the
salary to zero (holdback), or circumstances
that potentially reduce the deferred part
of the variable part of the salary to zero
(clawback).
106
Apart from standard learning methods, a
lot of internal training is performed in the
workplace – through mentorship, coaching,
exchanging experience with co-workers, as
well as staff rotation in other departments
or member companies. These are all
efficient forms of social learning.
The Group supports all employees and
their leaders in organising different forms
of informal socialising to improve the
organisational climate, engagement, and
workplace well-being.
The aim of the Group is to carry out the
majority of training programmes internally
with knowledge transfer. Everyone is
involved in the knowledge transfer process;
experts from individual fields take the role
of internal lecturers, mentors, or coaches.
Health is a major value
The Group was committed to offering
knowledge on good health, creating a
work environment that enables quality
interpersonal relationships, and promoting
activities that enhance the good health and
satisfaction of employees.
All banks take great care and follow a
healthy programme covering the key
elements of well-being: physical, emotional,
and psychological. This way all employees
are encouraged to regularly attend various
organised activities: the Group’s joint
sports games twice a year, workshops on a
healthy lifestyle, healthy food, exercising,
stress management in the workplace, special
sports events, and health checks.
Remuneration system as a motivation
for engaged and committed employees
For employees working in the companies
within the Group, one’s 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 quarterly or half-yearly
compensation, the employees are awarded
with annual rewards related to the business
performance of the bank in which they
work. Performance assessments are done by
the head of the employee’s organisational
unit using a top-down approach to evaluate
the employee’s achievements in relation
to goals set for a particular assessment
period (quarter or half-year). The goals
are set according to the ‘SMART’ method,
meaning that they have to be specific,
measurable, achievable, relevant, and
time-bound.
For employees performing special work,
a new remuneration policy has been
designed and implemented on the Group
level. Major changes relate to defining the
categories of employees and introducing
criteria needed for placing employees into
the relevant category. For a controlling
or supervisory function, the increased
importance of influencing risk management
is recognised, where more categories
of employees are involved in and their
remuneration model differentiate from
other employees performing special work.
NLB Group Annual Report 2019 108
Chapter 17
Corporate Governance
The corporate governance of the Bank
is based on applicable legislation of the
RoS, particularly the provisions of the
Companies Act (ZGD-1) and the Banking
Act (ZBan-2), the Decision on Internal
Governance, the Management Body and
the Adequate Internal Capital Assessment
Procedure for Banks and Savings Banks,
the relevant EBA Guidelines on internal
governance, the EBA Guidelines on
the assessment of the suitability of
members of the management body and
key function holders, as well as the EBA
Guidelines on remuneration practices.
Apart from the mentioned binding legal
framework, from the date when the first
phase of the privatisation of the Bank was
completed (14 November 2018), the Bank
was a publicly listed company which also
follows the Corporate Governance Code
for Listed Companies (October 2016).
Deviations from the recommendations of
the code are published in the Corporate
Governance Statement of NLB, which is
part of the Business Report in the NLB
Group Annual Report, as well as on
the Bank’s website: https://www.nlb.si/
corporate-governance.
The corporate governance framework
of the Bank is designed jointly by the
Management Board and the Supervisory
Board of the Bank with the Corporate
Governance Policy of NLB (March 2019,
published on the website: https://www.
nlb.si/corporate-governance), wherein
they commit to and publicly disclose to
shareholders, clients, creditors, employees,
and other stakeholders as a whole, how they
will supervise and manage the Bank. The
Management and Supervisory Boards also
decide on which corporate governance code
the Bank should follow. The mentioned
policy should be read together with the
NLB Group Corporate Governance
Policy, in which the corporate governance
principles and mechanisms of the Group
members (except for NLB) are defined and
governed.
In compliance with Slovenian legislation,
the Bank has a two-tier system under which
the relationships between individual bodies
are founded on a mutual division of rights
and responsibilities, as defined by the
Bank’s Articles of Association (published on
https://www.nlb.si/corporate-governance).
According to Articles of Association,
the Bank’s corporate governance bodies
are as follows: the General Meeting, the
Supervisory Board, and the Management
Board.
The General Meeting of Shareholders
The General Meeting of Shareholders
(General Meeting) is the highest 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);
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 a discharge from liability to
the Management and Supervisory Boards.
Competences of the General Meeting are
stipulated in the Companies Act (ZGD-1),
the Banking Act (ZBan-2), and the Articles
of Association.
The General Meeting is convened by the
Management Board at least once a year.
It may be convened by the Supervisory
Board in cases stipulated by Articles of
Association. The notice of convocation of
the General Meeting must be published no
fewer than 30 days before the date of the
General Meeting.
During 2019 the General Meeting of the
Bank met twice, namely:
Shareholders of the Bank gathered on 10
June 2019 at the 33rd General Meeting,
the first after the successfully concluded
public offering of shares on 14 November
NLB Group Annual Report 2019 109
website. Materials with the proposed
resolutions and explanations, as well
as other materials, are available to the
shareholders at the registered seat of the
Bank. On the mentioned Bank’s website,
NLB publishes information on the cost of
the particular General Meeting, as well.
Group’s Corporate Governance
As the parent bank, the Bank implements
the 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 the
manner 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.
2018 when the Bank became a joint-stock
company with dispersed domestic and
international ownership. On the meeting,
shareholders acknowledged the adopted
NLB Group Annual Report 2018, the
report of the Supervisory Board on the
results of the review of the Annual Report,
and the information on the remuneration
of the members of the Management and
Supervisory Boards for the previous year.
In addition, the shareholders decided on
the allocation of the accumulated profit for
2018, and granted a discharge from liability
to the Management and Supervisory
Boards for the 2018 business year. They
decided to allocate EUR 142,600,000.00
of the total EUR 194,491,264.58 of
accumulated profit as at 31 December
2018, which means EUR 7.13 gross per
share. The remaining portion of EUR
51,891,264.58 remains undistributed and
represents retained earnings.
The General Meeting elected four new
members of the Supervisory Board,
namely: Mark William Lane Richards,
Shrenik Dhirajlal Davda, Gregor Rok
Kastelic, and Andreas Klingen (whose term
of office expired). All four were appointed
to a four-year term starting on the day of
appointment until the end of the Bank’s
Annual General Meeting decision on the
use of accumulated profit for the fourth
business year since their election, the first
year being the business year during which
they were appointed. In the selection
process, the amendments to Article 20 of
the Articles of Association (adopted on the
General Meeting dated 12 October 2018)
were followed, regulating the appointment
and membership of the Supervisory Board
members in accordance with the EC’s
decision binding the RoS to appoint only
independent experts to the Supervisory
Board.
The General Meeting also authorised the
Management Board for redeeming own
shares and the exclusion of the preemptive
right of the existing shareholders in the
disposal of own shares in the period of 36
months from the adoption of the resolution
at the General Meeting. Pursuant to the
provisions of the Banking Act (ZBan-
2) and other relevant regulations, the
Bank is required to pay out the variable
remuneration of certain employees (in
part) in NLB’s shares. The authorisation is
valid for acquiring up to 36,542 NLB own
shares, while the total percentage of shares
acquired on the basis of this authorisation,
together with the own shares already in
possession of the Bank, may not exceed
10% of the Bank’s share capital (2,000,000
shares).
The General Meeting also acknowledged
the adopted Internal Audit’s Report for
2018 and the opinion of the Supervisory
Board, adopted the Policy on the provision
of diversity of the management body and
senior management, and adopted the Policy
on the selection of suitable candidates for
members of the Supervisory Board.
On 21 October 2019, the shareholders
of the Bank gathered at the 34th General
Meeting and confirmed the proposed
increase of the remuneration for the
members of the Supervisory Board and
its committees, which was also based on
market levels and the remuneration of
peers and competitors.
Due to the fact that with the completed
first phase of the privatisation of the
Bank on 14 November 2018, the Bank
became a publicly listed company. The
Bank respects, recommendations of the
Corporate Governance Code for Listed
Companies, as well as the Guidelines on
Disclosure for Listed Companies (Ljubljana
Stock Exchange). In order to assure equal
treatment of shareholders convocations and
counterproposals of the Bank’s General
Meetings are available on the Bank’s
website (www.nlb.si) and published in the
SEOnet system of the Ljubljana Stock
Exchange, on RNS (Regulatory News
Service) on the London Stock Exchange,
and the AJPES (Agency of the RoS for
Public Legal Records and Related Services)
NLB Group Annual Report 2019 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.
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 in
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 to support
and steer the Group members, as well as to
be a strong link between Group members
and the Bank. They also facilitate best
practice sharing on different levels. ‘Stream
coordinators’ were introduced at the end
of 2018 to: address the facilitation of more
in-depth knowledge of competence 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 the exploitation of synergies
at the Group level and coordination of
regional projects.
110
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
- By exercising supervision through
the supervisory bodies of the Group
members
- With proposals for appointing the
management of the Group members
- With proposals for appointing
representatives of the Bank to
supervisory bodies
- Through participation of Bank’s
representatives in various committees
and commissions of the Group
members
• Through mechanisms that ensure
efficient business monitoring and
governance, such as:
- Harmonisation of operations in
accordance with the so-called
‘competence line principle’
- Group Management Board Meetings,
Group Leadership meetings, Group
ALCO meetings, etc.
- Development activities carried out via
cross-functional working groups, group
projects, competence centres, centres
of excellence, etc.
- Through additional supervision of the
Group members carried out by control
functions (risk management, audit,
compliance) and external supervising
authorities (ECB, local regulators,
external auditors)
NLB Group Annual Report 2019 111
to convene the extraordinary General
Shareholders’ Meeting of NLB for 21
October 2019
• Approved Internal Capital Adequacy
Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment Process
(ILAAP) and Risk Appetite Reports,
Pillar III Disclosures for the NLB Group
for 2018, capital optimisation activity
for NLB and NLB Group in 2019,
NLB Group NPLs wind-down strategy,
report on the Top 50 groups of clients
by exposure in the NLB Group, on the
write-off of receivables from the off-
balance sheet record
• Approved the Annual Plan of the
Internal Audit, the Annual Report of
the Compliance and Integrity, Interim
Reports on the operations of the NLB
Group, amendments to the Internal
Audit Charter of NLB, the regular
annual Assessment on Risks in the
Area of Compliance and Integrity, and
acknowledged itself on the Internal
Audit’s Comprehensive Opinion 2018
• Approved achievements of the goals of
the Management Board in 2018 and
approved goals for the Management
Board for 2019, appointed a new COO,
adopted decisions on succession planning
for members of the Management
Board, report on self-assessment of the
Supervisory Board, acknowledged itself
about candidates for members of the
Supervisory Board
• Acknowledged the presentation of IT,
acknowledged IT performance indicators
• Adopted regular quarterly reports on
State Aid – Status Reports, and adopted
the Report on Risks relating to the
Unfinished Procedures before the EC
regarding the State Aid
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 the
Companies Act (ZGD-1) and supplemented
by provisions of the Article 48 of the
Banking Act (ZBan-2), other regulations,
and internal rules of the Bank (the Articles
of Association and Rules of Procedures of
the Supervisory Board). The Supervisory
Board issues approvals to the Management
Board related to the Banks’ business policy
and financial plan, and approves the
strategy of the Bank and the Group, the
internal control system organisation, the
Annual Plan of the Internal Audit, and
issues approvals to all financial transactions
for which they are required to give consent.
The Supervisory Board acts in accordance
with the highest ethical standards of
management, considering the prevention of
conflicts of interest.
In accordance with the Articles of
Association, the Supervisory Board
consists of nine members appointed by
the General Meeting. Until 28 February
2019, the Supervisory Board consisted 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. Two members
of the Supervisory Board submitted their
resignation statements on 30 November
2018 with a three-month notice, as a result
of changed EC commitments that the
RoS submitted to the EC in 2018, which
required independence of all members of
the Supervisory Board. After the expiration
of the notice period on the 28 February
2019, the Supervisory Board continued to
work with full powers.
Therefore, at the General Meeting on 10
June 2019 four members of Supervisory
Board were appointed (Mark William
Lane Richards, Shrenik Dhirajlal Davda
and Gregor Rok Kastelic), whereas one
member’s term of office was renewed
(Andreas Klingen). On 28 June 2019,
the Supervisory Board met for the first
time with all nine members, as defined
by the Articles of Association. At the
mentioned meeting the Supervisory Board
also allocated members to its existing
committees (Audit, Risk, Remuneration
and Nomination) and established a new
committee for Operations & IT.
At the beginning of July 2019, all members
of the Supervisory Board signed Statements
on the Independence of Members of
the Supervisory Board in which they
all declared themselves independent.
The statements are published on the
Bank’s web page: https://www.nlb.si/
corporate-governance.
In 2019, the Supervisory Board met at
seven regular, 10 correspondence, and one
extraordinary session and considered the
following key topics:
• Adopted NLB Group Budget 2020 and
acknowledged the financial projections
for 2021-2024
• Adopted the Corporate Governance
Statement of NLB and adopted the Risk
Management Statement of NLB
• Approved the NLB Group Annual
Report 2018, and adopted the Report
of the Supervisory Board of NLB
on the results of examining the NLB
Group Annual Report 2018, adopted
the Annual Report of Internal Audit
for 2018 for the General Meeting of
shareholders
• Approved the Annual Corporate Social
Responsibility Report for 2018, and
approved the Statement on non-financial
operations of the NLB Group for 2018
• Approved the proposal to convene the
regular General Meeting of NLB for
10 June 2019, as well as the proposal
NLB Group Annual Report 2019 112
Members of the Supervisory Board (from left to right):
László Urbán, Ph.D., Primož Karpe, MSc (Chairman), Alexander Bayr, Mag,
Gregor Rok Kastelic, Mark William Lane Richards, Shrenik
Dhirajlal Davda, Peter Groznik, Ph.D. and David Eric Simon.
* Andreas Klingen (Deputy Chair) is not on the photo.
NLB Group Annual Report 2019 113
NLB Group Annual Report 2019 114
• Acknowledged the regular reports
on documents received from the
regulator(s) BoS and the ECB, and on the
implementation of the requirements
• Acknowledged the status report on
the implementation of the activities
concerning investor relations
• Adopted amendments to the Rules
of Procedure of the Risk Committee
of the Supervisory Board of NLB,
the Rules of Procedure of the Audit
Committee of the Supervisory Board
of NLB, adopted changes to the
Corporate Governance Policy of the
NLB, acknowledged amendments to the
Corporate Governance Policy of NLB
Group, approved the Rules on Inside
Information; approved the Policy on
the Selection of Suitable Candidates for
Members of the Management Board of
the Bank
• Adopted decisions (or acknowledgements)
on the establishment of new companies,
cross-border financing and international
syndicated financing, large exposures,
sale of receivables, write-offs of claims,
divestment of the Group companies,
legal proceedings involving NLB and
the Group members, transactions with
persons in special relations with the
Bank, etc.
Further information about the work and
powers of the Supervisory Board is set
out in the section ‘Corporate Governance
Statement of NLB.’
Primož Karpe, MSc
Other important positions
Chairman of the Supervisory Board
and achievements:
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
• Co-founder and a partner in an
independent, highly successful regionally
focused private equity fund, which
made its name by investing in the anti-
cyclical sectors of healthcare provision,
well-known food brands and pharma
packaging
Economics in Ljubljana (majoring in
Finance)
• Mentor of several prospective regional
start-ups and equity fundraising specialist
Career:
• Advisory board member at regional VC
and regional buyout funds
• Director of Angler Ltd. Zagreb, Croatia
(since 2015)
• EBRD’s Team Coordinator for the IPO
• Partner (passive - investor) at Blue Sea
Capital SCSp, Luxembourg (since 2011)
• Partner (active - operational manager)
at Blue Sea Capital SCSp, Luxemburg/
Zagreb (2011-2015)
pre-listing programme
• Extensive working experience with the
large institutional and Gov’t investors,
including US AID (DAI) as the
independent contractor.
Membership in NLB Supervisory
• Co-founder and the leading partner in
Board committees:
company Vafer Ltd. (2008-2010)
• Managing Director of company
Publikum Korpfin d.o.o. (2007-2008)
• Audit Committee (Member)
• Nomination Committee (Chairman)
• Head of the business development
• Operations and IT (Member)
(M&A) department at Telekom Slovenija
d.d. (2006-2007)
Membership in management bodies
of related or unrelated companies:
• Assistant to the CEO of Mobitel d.d.
(2002-2006)
• Angler d.o.o. - Director
• COO at Eon d.o.o. (2000-2002)
• FX trader/head of the assets and
liabilities management department at
SKB banka d.d. (1996-2000)
NLB Group Annual Report 2019 115
Andreas Klingen
Deputy Chair of the Supervisory Board
Term of office: 2015-2019,
renewed term 2019-2023
Education:
• Master’s degree in Business
Administration, Rotterdam School
of Management, Rotterdam, The
Netherlands
• Member of the Board of Directors
of Komercialna banka Beograd a.d.
(November 2014 - November 2018)
• Deputy Head of Large Corporates
Department, Deutsche Bank, Austria
(1997-1998)
• Member of Supervisory Boards of Banks
in Central and Eastern Europe and CIS
(2005-2013)
• Key Customer Account Manager,
Österreichische Volksbanken AG
(1987-1997)
Membership in NLB Supervisory
• Sales Manager, Unilever (1985-1987)
Board committees:
• Nomination Committee (Deputy
and achievements:
Other important functions
• Master of Science degree in Physics,
Chairman)
Technical University, Berlin, Germany
Career:
• Independent Expert/Advisor,
entrepreneur, Berlin, Germany (since
2014)
• Risk Committee (Chairman)
Membership in management bodies
of related or unrelated companies:
• None
• Member of the Management Board of
the Chamber of Commerce of Slovakia-
Austria (2000-2012)
• Member of the Supervisory Board of
WKBG Bank, Austria (since 2016)
Membership in NLB Supervisory
• Deputy CEO, CFO PC Erste Bank, Kiev,
Alexander Bayr, Mag
Board committees:
Ukraine (2010-2013)
Member of the Supervisory Board
Term of office: 2016-2020
• Remuneration Committee (Chairman)
• Head of Strategic Group Development
in Erste Group Bank, Vienna, Austria
(2005-2010)
Education:
• Audit Committee (Deputy Chairman)
• Faculty of Economics in Innsbruck
• Nomination Committee (Member)
• Senior Vice President, Investment
(1985)
Banking, Financial Institutions in JP
Morgan, London, UK (1998-2005)
Career:
Membership in management bodies
of related or unrelated companies:
• Senior Associate in Lazard, Frankfurt/
• Manager of Corporates and Real Estate,
• WKBG Bank, Vienna; Member of the
Paris/London (1993-1998)
BAWAG PSK, Vienna (since 2013)
Supervisory Board (since 2016)
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
• Independent Non-Executive Director
Nepi Rockcastle plc, (since April 2019)
• Real Estate Projects, BAWAGPSK,
Vienna (2008-2012)
Education:
• Member of Supervisory Board of Kyrgyz
Investment and Credit Bank CISC (since
December 2016)
• Member of Supervisory Board of Credit
Bank of Moscow PJSC (since November
2016)
• 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)
NLB Group Annual Report 2019 116
• Advisor, PricewaterhouseCoopers,
Membership in management bodies
Prague (2012-2013)
of related or unrelated companies:
• Advisor (1994-2012), Head of
• Jihlavan a.s., President of the Supervisory
Restructuring (2004-2007), Head of
Central Europe Bad Debts Unit and
Senior Restructuring Officer (2007-
2012), Ceskoslovenska Obchodni Banka
a.s.
• Independent Banking Consultant,
cooperating with USAID and EBRD
(1992-1994)
• International Banking Consultant,
Morgan Grenfell & Co (1993-1994)
Board
• Czech Aerospace industries sro, legal
representative
• Central Europe Industry Partners a.s.,
sole Member of the Supervisory Board
László Urbán, Ph.D.
Member of the Supervisory Board
Education:
• 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)
• Deputy CEO and member of the Board
of Directors at Postabank, Hungary
(1998-2000)
• Director of Planning and Chief
Economist at ABN-AMRO Bank,
Hungary (1996-1998)
Other important functions
and achievements:
• Visiting Fellow, Economist at The World
Bank, Washington DC (1995-1996)
(1993-1994)
• Associate Professor at Eotvos University
of Budapest (1985-1992)
Membership in NLB Supervisory
Board committees:
Term of office: 2016-2020
• Member of Parliament, Hungary
• Joint Branch Manager, Byblos Bank Sal,
• Doctorate from the Budapest University
London (1986-1988)
of Economics, Hungary (1985)
• Risk Committee (Deputy Chairman)
• Assistant Vice President, American
Express Bank, London (1980-1986)
• Master of Arts degree, Budapest
• Remuneration Committee (Deputy
University of Economics, Hungary
(1982)
Chairman)
• Senior Credit Analyst, Manufacturers
Hanover Trust, London (1978-1980)
Career:
• National Westminster Bank, London
(1971-1977)
Other important functions
and achievements:
• Member of the Supervisory Board
of Ukreximbank in Ukraine (since
November 2019)
• Adjunct Professor at Central European
University Business School (2012-2017)
• Primary expertise in credit, restructuring,
and NPL
• Member of the Supervisory Board at
• Operations and IT Committee (Member)
Membership in management bodies
of related or unrelated companies:
• None
Peter Groznik, Ph.D.
Member of the Supervisory Board
Term of office: 2017-2021
Membership in the NLB
Supervisory Board Committees:
• Audit Committee (Chairman)
EBRD (2010-2011)
Education:
• CFO and Member of the Board of
Directors at OTP Bank (2007-2009)
• Director, General Secretariat at National
• Doctor of Science - Kelley School
of Business, Indiana University
Bloomington, US (2003)
• Risk Committee (Member)
Bank of Hungary (2005-2006)
• Master of Business Sciences - Kelley
• Vice President, Business Planning
Director at Citigroup, New York
(2000-2005)
School of Business, Indiana University
Bloomington, US (2001)
NLB Group Annual Report 2019 117
• Bachelor of Economics, Finance -
Shrenik Dhirajlal Davda
Membership in management bodies
Faculty of Economics, University of
Ljubljana (1996)
Member of the Supervisory Board
of related or unrelated companies:
Term of office: 2019-2023
Career:
Education:
• President of the Managing Board -
CETIS Group (since September 2019)
• Masters of Business Administration,
INSEAD. Fontainebleau, France
• None
Mark William Lane Richards
Member of the Supervisory Board
Term of office: 2019-2023
• Director- MSIN, investment and
• Bachelor of Laws, London School of
Education:
consulting company (since March 2019)
Economics & Political Science. London,
UK
• Owner and Director - NorthGrant,
svetovanje d.o.o., Ljubljana (2017-2019)
Career:
• Oxford University: M.A Modern History
and Economics 1st class (1984-1987)
• London Business School: Accelerated
• Member of the Management Board -
• Chairman of the Supervisory Board,
Management Programme (1995)
Gorenje d.d. (2012-2017)
Ukrgasbank. Kyiv, Ukraine (since 2015)
• Chartered Institute of Bankers:
• Owner and Director - NorthGrant,
• Partner, NECP LLP. London, UK (since
Associate (1990)
svetovanje d.o.o., Ljubljana (2010-2012)
2013)
• President of the Management Board -
• CEO, Gryphon Emerging Markets Ltd.
KD Skladi d.o.o., Ljubljana (2009-2010)
London, UK (2011-2013)
• Director of Investment Department -
• Adviser, Blackfish Capital Ltd. London,
KD, NPD by 2008, KD Skladi and KD
Holding from 2008 to 2009 (2005-2009)
UK (2010-2011)
Membership in the NLB
Supervisory Board committees:
• Director, Deutsche Bank Ltd. London,
UK (2007-2010)
• Co-Founder, New Europe Capital
Career:
• Non Executive Director, and Chair of
the Risk Committee, CIB Bank Egypt
(since 2014)
• Non Executive Director, Sheffield
Haworth Ltd (London-based Financial
services global Executive Search firm)
(since 2016)
• Nomination Committee (Member)
Partners Ltd. London, UK
• Non Executive Director: Vencap
• Risk Committee (Member)
Membership in management bodies
• IB Head Baltics, Balkans, Ukraine, JP
Morgan Ltd. London, UK (1989-2005)
of related or unrelated companies:
• Manager, Gulf International Bank Ltd
• MSIN
• CETIS
London, UK (1982-1987)
Membership in the NLB
Supervisory Board committees:
• Operations and IT Committee
(Deputy Chairman)
• Remuneration Committee (Member)
• Audit Committee (Member)
International (UK based Venture Capital
focused investment firm) (since 2019)
• Chief Executive IPGL Ltd. (Financial
services focused single family office)
(2016-2018)
• Partner and Head of Financial Services,
Actis Private Equity (a major emerging
markets focused private equity firm)
(2005-2016)
• Barclays Bank Plc. Senior Executive
Roles included Director Group corporate
development, Strategy Director, and
CFO International Offshore Banking,
originally a Corporate Banker
(1987-2005)
NLB Group Annual Report 2019 118
Membership in the NLB
Membership in the NLB
Committees of the Bank’s
Supervisory Board committees:
Supervisory Board committees:
Supervisory Board
• Operations and IT Committee
• Remuneration Committee (Member)
(Chairman)
• Nomination Committee (Member)
• Risk Committee (Member)
• Audit Committee (Member)
Membership in management bodies
of related or unrelated companies:
Membership in management bodies
• Triglav Group, Slovenia, Deputy
The supervisory Board appoints committees
that prepare proposals for resolutions
passed by the Supervisory Board, ensures
their implementation, and performs other
expert tasks. From 28 June 2019 the Bank’s
Supervisory Board had five collective
decision-making and advisory committees,
namely:
of related or unrelated companies:
• None
Gregor Rok Kastelic
Member of the Supervisory Board
Term of office: 2019-2023
Education:
Chairman of the Supervisory Board
(2012-2017)
• The Audit Committee
• SIB Banka, Slovenia, Member of the
• The Risk Committee
Supervisory Board (2009-2012)
• Komercijalna banka AD Belgrade,
Serbia, Member of the Supervisory
Board (2006)
• The Nomination Committee
• The Remuneration Committee, and
• The Operations and Information
• International MBA, South Carolina
• NLB Montenegrobanka AD Podgorica,
Technology (IT) Committee
University, US
Montenegro, Member of the Supervisory
Board (2006)
• Bachelor of Economics, University of
Ljubljana, Slovenia
• Komercijalna banka AD Skopje,
Career:
Macedonia, Member of the Supervisory
Board (2005-2006)
• Managing Director, Head of Emerging
Europe, Corporate Finance, ING Bank,
London (since 2010)
• ABN Amro Bank N.B., Uzbekistan,
Member of the Supervisory Board
(2004-2006)
• Managing Director, Co-Head of Private
Equity Division, Silkroutefinancial (UK)
Ltd, London (2009-2010)
• Executive Director, Financial Institutions
Team, Morgan Stanley, London
(2006-2008)
• Principal Banker, Financial Institutions
Team, EBRD, London (2003-2006)
• Senior Associate, CEEMEA Investment
Banking Team, Schroder Salomon Smith
Barney, London (1999-2002)
• Senior Equity Analyst, CAIB
Investmentbank, London (1995-1999)
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.
From 1 January 2019, the composition
of the committee was as follows: David
Eric Simon (Chairman), Alexander Bayr
(Deputy Chairman), Primož Karpe, and
Vida Šeme Hočevar (members). New
members of the Supervisory Board were
elected on the General Meeting dated
10 June 2019. From 28 June 2019, the
composition of the committee was as
follows: David Eric Simon (Chairman),
Alexander Bayr (Deputy Chairman),
Primož Karpe, Shrenik Dhirajlal Davda,
and Gregor Rok Kastelic (members).
There were five regular sessions and four
correspondence sessions of the Audit
Committee in 2019. The following is a
summary of key topics considered by the
Audit Committee:
NLB Group Annual Report 2019 119
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.
From 1 January 2019, the composition
of the committee was as follows: Primož
Karpe (Chairman), Andreas Klingen
(Deputy Chairman), Alexander Bayr,
Vida Šeme Hočevar, and Peter Groznik
(members). New members of the
Supervisory Board were elected on the
General Meeting dated 10 June 2019.
From 28 June 2019, the composition of
the committee was as follows: Primož
Karpe (Chairman), Andreas Klingen
(Deputy Chairman), Alexander Bayr, Peter
Groznik, and Mark William Lane Richards
(members).
• Annual Report of Internal Audit
for 2018 for the General Meeting of
shareholders
• Annual plan of the Internal Audit and
Compliance
• Regular interim reports on the operations
of the NLB Group, Internal Audit’s
report, Report on the work of the
Compliance and Integrity for 2018
• Amendments to the Internal Audit
Charter of NLB
members of the Supervisory Board were
elected on the General Meeting dated
10 June 2019. From 28 June 2019, the
composition of the committee was as
follows: Andreas Klingen (Chairman),
László Urbán (Deputy Chairman), Peter
Groznik, Mark William Lane Richards, and
David Eric Simon (members).
There were five regular sessions of the
Risk Committee in 2019. The following is
a summary of key topics considered by the
Risk Committee:
• Regular quarterly risk reports in NLB
• Regular reports on overdue
and the NLB Group
recommendations of the Internal Audit
• Regular annual Assessment on Risks in
the Area of Compliance and Integrity
Statement on Liquidity Adequacy and
regular ILAAP, ICAAP reports
• ICAAP and ILAAP Manual and
• Reports on the documents received
from BoS and ECB and on the
implementation of the requirements of
the BoS and ECB
• Pillar III Disclosures of the Basel
Standards for the NLB Group for 2018
• Risk Appetite Reports
• Approval of the NLB Group Annual
• Approved updated version of the Risk
Report and approval of the Corporate
Social Responsibility Report for 2018
Appetite of the NLB Group and capital
optimisation activity
• Information on cooperation with the
external auditor in auditing the NLB
Group Annual Report, in particular by
means of exchanging briefings on major
audit-related issues
The Risk Committee
The Risk Committee monitors and drafts
resolutions for the Supervisory Board in all
risk areas relevant to the Bank’s operations.
It is consulted on the current and future risk
appetite and the risk management strategy,
and helps carry out control over senior
management concerning implementation
of the risk management strategy.
From 1 January 2019, the composition
of the committee was as follows: Andreas
Klingen (Chairman), László Urbán (Deputy
Chairman), Simona Kozjek, Peter Groznik,
and David Eric Simon (members). New
• NLB Group NPLs wind-down strategy
• Report on the Top 50 groups of clients
by exposure in the NLB Group
• Report on the Top 20 largest exposures
to clients in restructuring procedures
• Proposal for the issuance of prior consent
of the Supervisory Board of NLB, in
accordance with the first paragraph of
article 164 of the Banking Act (ZBan-2),
for a legal transaction based on which
the Bank’s total exposure to individual
client or a group of related clients would
reach or exceed 10% of the Bank’s
eligible capital (or if it increases by each
subsequent 5% of the Bank’s eligible
capital)
NLB Group Annual Report 2019 Target Operating Model implementation
in the areas of IT, the Security Operating
System, Competence Centre and
Operations.
On the session of the Supervisory Board
dated 28 June 2019, a decision to establish
a new committee for Operations and IT
was adopted. The Supervisory Board also
adopted a decision on the composition
of the committee, which was as follows:
Mark William Lane Richards (Chairman),
Shrenik Dhirajlal Davda (Deputy
Chairman), Primož Karpe, Andreas
Klingen, and László Urbán (members).
There were two sessions of the Operations
and IT Committee 2019. The Operations
and IT Committee acknowledged itself by
presenting:
• IT performance indicators
• Top 5 IT priorities
• Presentation of IT and Operations
(Priorities Dashboard)
120
There were five regular sessions of the
Nomination Committee in 2019. The
following is a summary of key topics
considered by the Nomination Committee:
• Assessment of the collective suitability
of members of the Supervisory Board
(Fit&Proper)
• Regular annual suitability assessment of
the Management Board and Supervisory
Board
From 1 January 2019, the composition of
the committee was as follows: Vida Šeme
Hočevar (Chairwoman), Simona Kozjek
(Deputy Chairwoman), Primož Karpe, and
László Urbán (members). New members
of the Supervisory Board were elected on
the General Meeting dated 10 June 2019.
From 28 June 2019, the composition of
the committee was as follows: Alexander
Bayr (Chairman), László Urbán (Deputy
Chairman), Shrenik Dhirajlal Davda, and
Gregor Rok Kastelic (members).
• Selection of the Management Board
member responsible for IT and
operations (COO)
• Presentation of the proposed new
candidates to the Supervisory Board
• Assessment of the suitability of
the candidates for members of the
Supervisory Board of NLB
• Amendments to the Rules of Procedure
of the Nomination Committee of the
Supervisory Board of NLB
• Amendments for the Policy on the
selection of suitable candidates for
members of the Supervisory Board of
the bank; amendments for the Policy
on the selection of suitable candidates
for members of the Management
Board of the bank; amendments to
the Policy on the provision of diversity
of the management body and senior
management
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.
There were four sessions of the
Remuneration Committee in 2019.
The following is a summary of key
topics considered by the Remuneration
Committee:
• Realisation of the goals of the
Management Board of NLB for 2018
and information on approved goals for
2019
• Assessment of the performance and the
proposed variable part of remuneration
for directors of Internal Audit,
Compliance and Integrity and Global
Risk
• Proposed amendments to the Policy
on Remuneration for the Employees
Performing Special Work
The Operations and IT Committee
The Committee shall monitor and prepare
draft resolutions for the Supervisory Board,
whereby the tasks it mainly performs are
the following: monitor the implementation
of the IT Strategy, Information Security
Strategy, and Operations Strategy;
monitor key operations and IT KPI’s and
service quality indicators; monitor key
operations and IT projects and initiatives;
monitor operating risks in the area of
Operations, IT and Security; monitor
the recommendations for ensuring and
increasing the level of information/cyber
security, issued by CISO, address the report
on potential violations, events and incidents
in the area of IT security; and monitor the
NLB Group Annual Report 2019 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. In accordance with
the Articles of Association, the Supervisory
Board may appoint (and recall) three to
six members (a president and up to five
members) to the Management Board. The
President and members are appointed for a
term of five years and may be reappointed
or dismissed early in accordance with the
law and the Articles of Association. The
selection is not only based 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 2019, the Management Board of the
Bank consisted of Blaž Brodnjak (a member
since 1 December 2012, Deputy President
since 5 February 2016, and President,
CEO and CMO since 6 July 2016, with
a new five-year term of office as at 6 July
2016); and members Archibald Kremser,
acting as CFO (since 31 July 2013 and with
a new five-year term of office as at 6 July
2016); Andreas Burkhardt acting as CRO
(since 18 September 2013 and with a new
five-year term of office as at 6 July 2016);
and László Pelle acting as COO (since 26
October 2016). The five-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.
On 30 October 2019, the Supervisory
Board of NLB and László Pelle, member of
the Management Board and COO, agreed
on the termination of his office in effect on
31 January 2020. On 29 November 2019,
the Supervisory Board appointed Petr
Brunclík as member of the Management
Board, with a five-year term of office from
the day he receives consent by the ECB.
He will assume the function of COO and
will be responsible for the IT, operations,
procurement, and corporate real-estate
management departments. The new COO
is joining the Bank during its intense digital
and IT transformation, as well as numerous
challenges being set forth to the banking
sector by various fintech companies, and
continuing calls to improve customer
experience.
Petr Brunclík has almost 20 years of diverse
banking, business, customer service, process
improvement, online, and technology
experience. He majored in information
technologies and applied informatics at
the University of Economics in Prague.
Before joining NLB, he gained extensive
experience as a Chief IT and Operations
Officer (CIO & COO) at the Home Credit
Philippines (from June 2017), which is
a part of the Home Credit Group, an
international consumer finance provider,
with a leading presence across 11 countries
in CEE, Asia, and North America.
In June 2019, SSH completed the second
phase of the privatisation of NLB, and
the commitment given to the EC (as
amended in August 2018) has been fulfilled
in that respect. Through the year, the
Management Board devoted considerable
efforts toward digitalisation, streamlining,
and the modernisation of processes and
services of the Bank, and thus enabled the
entire Group to progress in technological
development, digitalisation, and new
opportunities for future growth.
The remuneration of the members of
the Management Board is determined in
their respective employment contracts.
The variable part of their remuneration
is also subject to the Remuneration Policy
for Employees Performing Special Work
(November 2019). The remuneration
policy defines the rules and criteria for the
adjustment of variable remuneration to
performance and risks prior to awarding
of variable remuneration and the rules and
criteria for the use of malus in relation to
121
the deferred part of variable remuneration
and clawback. Employment contracts of
the members of the Management Board
also determine other rights of the members
of the Management Board in accordance
with the Rules on determining other rights
under management employment contracts
or other regulations of the Bank (October
2016).
In 2019, the Bank did not pay variable
remuneration in the form of NLB shares
to any member of the Management
Board, nor do stock option plans and
comparable financial instruments make up
the majority of the variable remuneration
of any member of the Management Board.
In relation to the payment of variable
remuneration in own shares, the Bank
complies with the Banking Act (ZBan-2)
and the Guidelines of the BoS dated 22
November 2016, concerning the application
of the principle of proportionality in the
implementation of remuneration policies
(BoS Guidelines). Considering that the
Bank shares are listed on a regulated market
and based on point 7 of the first paragraph
of Article 170 of the Banking Act (ZBan-2),
which is based on the Directive 2013/36/
EU of the European Parliament and of
the Council, at least 50% of the variable
remuneration of (among other) each
member of the NLB Management Board
shall comprise ordinary shares of NLB.
The said requirement applies to both the
non-deferred and the deferred part of
variable remuneration (which is different
from recommendations 21.4 and 21.6
which provide that variable remuneration
awarded in shares should not be paid out
for at least three years after the award).
When the variable remuneration of an
individual Identified Staff in a particular
year does not exceed EUR 50,000, the BoS
Guidelines allow for an exception from
the requirement that a part of variable
remuneration has to be paid in own shares
of the bank. As the said threshold was not
exceeded, in 2019 NLB did not pay variable
remuneration to any of the members of
Management Board in the form of shares.
NLB Group Annual Report 2019 122
More information on remuneration policies
is contained in the Human Resources
chapter and in Disclosures Under Pillar III
of the Basel Standards. Concrete amounts
of remuneration of the Management Board
members for 2019 are described in the
chapter Corporate Governance Statements
and in Financial Statements (Related-party
transactions).
In a decision dated 13 June 2019, the
Constitutional Court of the RoS repealed
Article 33(4) of the Banking Act (ZBan-2),
which provided for an exception for banks
regarding employee participation in the
governance of a company pursuant to the
Worker Participation in Management Act
(ZSDU). Following the mentioned decision
of the Constitutional Court, the Bank is
required to enable workers participation in
its governing bodies. For that purpose, the
Bank and its worker’s council concluded
an agreement dated 28 November 2019
according to which the Bank is to prepare
and submit at its regular 2020 General
Meeting an amendment to its Articles
of Association that enable a right of the
Bank’s employees to nominate up to one
third of the Bank’s Supervisory Board
members. It was additionally agreed that
the worker’s council will not exercise its
right to nominate a labour director of the
Bank Management Board before the end of
August 2021. Provided that the change of
the Articles of Association is adopted, the
Bank’s employees organised in a worker’s
council will have an option to participate
in the Bank’s governance. Nevertheless, the
decision to exercise that right rests with the
worker’s council alone.
NLB Group Annual Report 2019 123
Blaž Brodnjak
President & CEO
Term of office: 2016-2021
Education:
Other important functions
Membership in management or
and achievements:
supervisory bodies of related
or unrelated companies:
• Was a chairman or member of the
supervisory boards of 11 banking, three
insurance, and one production company
Direct responsibility:
• Chairman of the Supervisory Board:
NLB Banka, Sarajevo
NLB Banka, Banja Luka
NLB Banka, Skopje
• Strategy and Business Development
• Member of the Supervisory Board:
• Legal and Secretariat
• Communication
NLB Vita, Ljubljana
• President of the Association of Banks in
Slovenia (from 1 November 2017)
• HR and Organisation Development
• Member of the Board of Governors:
AmCham Slovenia
• Investment Banking and Custody
• Retail and Private Banking and
Corporate Banking
• MBA, IEDC Bled School of
Management (2009)
• Faculty of Economics, University of
Ljubljana (1998)
Career:
• President, CEO and CMO of NLB
(July 2016-), Deputy President of the
Management Board (2016), Member of
the Management Board (2012-2016) in
NLB
• Head of Group Corporate and Public
Finance Division in the Hypo Alpe Adria
Group in Klagenfurt (2010-2012)
• Proxy of the Management Board of
Zavarovalnica Triglav (2009-2010)
• Member of the Management Board of
Bawag banka (2005-2009)
• Head of Corporate Banking at Raiffeisen
Krekova banka (2004-2005)
NLB Group Annual Report 2019 124
Andreas Burkhardt
Member of the Management Board
Term of office: 2016-2021
Education:
Other important functions
Membership in management or
and achievements:
supervisory bodies of related
or unrelated companies:
• 18 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:
• 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 2019 125
Archibald Kremser
Member of the Management Board
Term of office: 2016-2021
Education:
• 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 by
establishing a ‘bad-bank’ and winding-
down/divestment of non-core assets
and businesses (2008–2011)
- Leading efforts to reposition
Kommunalkredit Austria as
an advisory-based specialised
infrastructure bank in preparation
for its subsequent privatisation
(2011-2013)
• Worked in leading international
consulting firms Ernst & Young/
Cap Gemini (1997-2004), Bain &
Company (2004-2005), leading strategic
transformation projects in IT/Operations
and performance improvement for
various international financial institutions
in Austria, Germany, Switzerland, and
the entire CEE
Direct responsibility:
• Financial Accounting
• Controlling
• Financial Markets
• Group Real Estate Asset Management
• Procurement and Corporate Real Estate
Management
• Group Steering
Membership in management or
supervisory bodies of related
Other important functions
or unrelated companies:
and achievements:
• Chairman of the Board of Directors:
NLB Banka, Belgrade
NLB Banka, Podgorica
• More than 20 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
NLB Group Annual Report 2019 126
László Pelle
Member of the Management Board
Term of office: 2016-2021; early
termination as of 31 January 2020
Education and training:
• 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:
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)
• COO of NLB (2016-31 January 2020)
Other important functions
and achievements:
• 25 years of experience in the
management of banking operations and
IT in various countries of Central and
SEE
Direct responsibility:
• Innovation and Business Analysis
• Development of Information System,
Data Management, IT infrastructure
• Payments Processing
• Cash Processing
• Treasury and Financial Markets
Processing
• Corporate Banking Processing
• Retail Banking Processing
• 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)
• Operations and Technology Director,
Consumer Bank, responsible for
operations and technology. Set up of
the initial banking infrastructure for
credit cards and consumer banking in
Citibank Handlowy Warszawie, Poland
(1997-2002)
• Regional Business Planning and Analysis
Manager for Card Products, heading
the business planning and analysis
function (Pacific & CEEMEA countries)
in Citibank N.A. Asia Pacific CEEMEA
Regional Office, Singapore (1996-1997)
• Card Operations Manager, Systems
Development and Application Support,
started up the retail bank and card
NLB Group Annual Report 2019 127
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).
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 four members. The
Chairman of the Committee is the Director
of Credit Risk – Corporate and Retail.
Management Board appointed also other
working bodies that operate at the lower
level:
• The Committee for New and Existing
Products
• The Group Real-Estate Asset
Management Sub Committee
• Committee for Business IT Architecture
• Data Management Committee
• The Anti-Money Laundering
Commission
Further information about the work and
powers of the Management Board is set
out in the section ‘Corporate Governance
Statement of NLB.’
has four members. The Chairman of
the Committee is the member of the
Management Board responsible for the area
of finance (CFO).
Collective decision-making bodies
The NLB Group Real-Estate Asset
Management Committee
The NLB 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 portfolio of development 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 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 11 members. The
Chairman of the Board is the member
of the Management Board in charge of
Retail and Private Banking and Corporate
Banking (CMO).
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 key collective decision-making and
advisory bodies of the Management Board
are:
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 Directors.
The Committee adopts decisions that are
outside of the powers of the directors, 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.
As a rule, Committee meetings are
convened once a week. The Committee
has eight members. The Chairman of
the Committee is the member of the
Management Board responsible for the area
of risk (CRO).
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
NLB Group Annual Report 2019 128
Advisory bodies of the Bank’s
Electronic Data Management
Management Board
System (EDMS)
In 2019, the Electronic Data Management
System (EDMS) project came to an end.
With EDMS, a very important step was
made towards electronic management of
the meetings of the Bank’s bodies. All the
meetings of the Management Board, the
Supervisory Board and its committees,
Management Board for the Group,
collective decision-making bodies and
advisory bodies of the Bank’s Management
Board are thus conducted electronically.
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 obtain decisions. The Committee
has 12 members. The Chairman of
the Committee is the member of the
Management Board responsible for the area
of risk (CRO).
NLB Group Annual Report 2019 129
NLB Group Annual Report 2019 130
Chapter 18
Compliance
and Integrity
The Bank constantly builds, strengthens,
Group-wide ethics and integrity standards
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
standards of compliance management.
A key element of the Group’s long-
term success is to follow reasonably set
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.
The Compliance and Integrity in the Bank
addresses the following risk areas: fraud
prevention and investigation; AML/CTF;
privacy data protection and information
security; 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.
Within the framework of the programme
of ensuring business compliance, the
Group also deals with the ethics and
integrity of the organisation. Such a
programme encourages employees and
other stakeholders to conduct business,
which is consistent with a strong positive
organisational culture. The values of the
Group, embedded in the Group Code of
Conduct, provide guidance and principles
of expected behaviour regarding ethical
conduct and require appropriate conduct
from all employees at any level of the
organisation, including its contractors.
Regime on inside information (MAR)
In line with the Financial Instruments
Market Act (ZTFI-1), MAR, and other
relevant regulations, the Bank has a 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. The Bank has also in place a system
implementing the market abuse prevention
regime in accordance with MAR, to prevent
insider trading, market manipulation and
illegal disclosure of inside information.
Managing regulatory compliance risks
The Bank is constantly faced with
complex processes of adaptation to the
new regulatory environment and complex
requirements. In 2019, higher focus was
required in the field of inter alia, payment
services (PSD2 and related regulatory
requirements, implementing technical
standards as well as EBA guidelines), the
market of financial instruments (MiFID
II, MiFIR), new banking prudential
regulatory requirements (CRR, CRD,
hence a number of technical standards
and guidelines are yet to be prepared
in due course), proposed changes to the
AML/CTF laws and regulations, the new
regulatory rules on benchmarks (BMR),
and new macroprudential requirements
issued by the BoS related to consumer loans.
All the aforementioned as well as other
changes in the Group’s legal environment
needed to be implemented in the bank’s
business operations, as well as internal
processes. Consequently the compliance
function supported and coordinated these
processes to ensure timely implementation
and is constantly monitoring the process of
ensuring compliance with the requirements
applicable to the Bank or Group.
NLB Group Annual Report 2019 131
200
More than 200 regulatory changes
in Slovenian or EU environment
relevant for the Bank were
identified and monitored in
2019, 82 of them being directly
applicable, whereas Group-wide
there were approximately 300 of
all relevant regulatory changes
identified and monitored.
2,090
More than 2,090 hours were
dedicated to advising on
compliance issues by the
Compliance and Integrity in NLB.
11
There were 11 policies and
procedures from compliance area
issued and implemented in 2019,
upgrading compliance and integrity
practices in the Bank and the Group.
Within the Group, the constantly changing
regulatory environment required several
implementation activities as well. 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. Upgraded Group AML
and Acceptance policies were adopted in
2020, introducing further enhancements
of Group AML governance in line with
directions set by the BoS. Headquarters
are exercising constant onsite and off-site
monitoring of the implementation and
execution of standards throughout the
Group.
where criteria were met. The Bank has
adopted additional measures to prevent the
onboarding of clients with new types of
AML/CTF indicators. Following the 2018
increase of the AML/CTF team, the bank
also dedicated additional resources to the
team in 2019.
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 27001:2013
and ISO 27002:2013 standard, including
related to external providers (i.e., personal
data processors and external software
providers). Special obligatory e-training for
all employees in the area of information
security was prepared and was followed
by testing of awareness related to social
engineering; all as part of prevention
measures in this area.
The Bank is running its operations in line
with GDPR requirements including the
retention and processing of personal data,
dedicated Data Privacy Officer, education,
and training of employees. New Slovenian
Personal Data Protection Act (ZVOP-2)
was not adopted in 2019 – although it
is expected to be adopted in 2020. If
necessary, further alignments will be
made when the national legislation will
be in place.
Prevention
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
A reassessment of compliance risks
(so-called ECRA - Enterprise Compliance
Risk Assessment) was carried out at the
Group level, based on the newly updated
methodology in 2019 after conducting this
process in 2017. The assessment allows
NLB Group Annual Report 2019
132
the Group to reduce the compliance
and integrity risks with already prepared
risk-mitigation measures and understand
the residual compliance risks. 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, outsourcing, and other
changes materially affecting the Bank’s
business.
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 prevention
of insider trading and market manipulation,
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 the implementation of 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 2019, employees at all levels
received information and training about the
prevention of harmful conduct, procedures,
and whistleblowing channels. The Group
also continued with the implementation of
the Whistler, a special IT tool for whistle-
blowers, whereas the process of internal
investigations is in place. The Bank’s staff is
obliged to take part in yearly Compliance
training and education.
75
In 2019, more than 75 trainings
were organized, educational
and risk-awareness activities,
covering different compliance
and integrity topics in the Bank,
whereas Group-wide more than
100 of them were conducted.
10
In 2019, compliance function
conducted 10 visits in the Group
members, covering all areas in the
Compliance and Integrity. Onsite
visits are only part of the Group
compliance and integrity programme
to ensure an adequate level of
compliance and integrity standards
and practices in the Group.
NLB Group Annual Report 2019 133
19,686
hours spent in audits
709
hours spent on consulting
24
Internal Audit experts
46
planned and extraordinary
audits conducted
Chapter 19
Internal Audit
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
internal controls, and thereby strengthens
assignments were conducted and three
were postponed due to objective reasons.
Furthermore, auditors conducted 18
branch inspections and were involved in a
strategic project as advisor. The majority of
the recommendations given in 2019 were
implemented within the agreed deadlines.
and protects the value of the Bank.
Implementation of uniform rules
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. 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, vault operation,
cash management, IT development
process, incident management, RWA
calculation and risk assessment framework,
provisioning, NPL and collateral
management, and others.
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 2019,
Internal Audit in NLB intended to
perform 49 audits, out of which 46 audit
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
the 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 (ZBan-2) 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 2019
134
NLB Group Annual Report 2019 135
Chapter 20
Corporate Governance
Statements
NLB Group Annual Report 2019 136
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
2019, and represent the actual and fair
financial standing of the Bank and the NLB
Group, as well as their operating results in
the year that ended 31 December 2019.
The Management Board confirms that
the business report includes a fair view of
developments and operating results of the
Bank and the Group and their financial
standings, including a description of the
key types of risks and the companies under
consolidation are exposed as a whole.
Management Board of NLB
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group Annual Report 2019 Types of Services for which NLB Holds Authorisation
137
4.
5.
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
webpage of the BoS: 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 (1st paragraph) of the Regulation on
Books of Accounts and Annual Reports of
Banks and Savings Banks (Official Gazette
of the RoS, No. 69/17 and 73/19) adopted
by the BoS on the basis of the authorisation
from Article 93 of the Banking Act (Official
Gazette of the RoS, no. 25/15 and
subsequent amendments, hereinafter ZBan-
2), NLB hereby lists all of the types of
financial services which, in accordance with
the authorisation of the BoS, took place
during the period for which the business
report was prepared.
NLB has an authorisation to perform
banking services pursuant to Article 5 of
the Banking Act (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 Banking Act (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)
4. payment services
5.
6.
7.
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
9.
8. 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 M&A
10. monetary intermediation on interbank
markets
11. advice on portfolio management
12. safekeeping of securities and other
related services
13. 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)
14.
15.
It may perform the following additional
financial services, pursuant to Article 6 of
the Banking Act (ZBan-2):
1. brokerage in the sale of insurance
policies pursuant to the law governing
the insurance industry
NLB Group Annual Report 2019 138
Corporate Governance Statement of NLB
Pursuant to the fifth paragraph of Article
70 of the Companies Act (ZGD-118) NLB
hereby gives the following Corporate
Governance Statement as a part of the
Business Report of the NLB Group Annual
Report 2019.
1. STATEMENT OF COMPLIANCE WITH THE
CORPORATE GOVERNANCE CODE
NLB as a company whose shares are listed
on Prime Market of the Ljubljana Stock
Exchange hereby discloses the compliance
with the Corporate Governance Code for
Listed Companies, as the code that applies
for the bank. Information contained in this
point represents a ‘Statement of Compliance
with the Corporate Governance Code’ as
defined in the Ljubljana Stock Exchange
Rules, valid from 9 December 2019 (Articles
24 – 26).
1.1. REFERENCES TO THE CODE, THE
RECOMMENDATIONS AND OTHER
INTERNAL REGULATIONS ON CORPORATE
GOVERNANCE
Corporate governance of the Bank is
based on applicable legislation of the RoS,
particularly the provisions of the Companies
Act (ZGD-1) and the Banking Act (ZBan-
2), the 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, No. 73/15, and
further changes), and the EBA Guidelines on
Internal Governance (EBA/GL/2017/11;
21/03/2018).
The corporate governance framework of the
Bank is designed jointly by the Management
Board and the Supervisory Board of the
Bank with a Corporate Governance Policy
of NLB (March 2019, published on website:
https://www.nlb.si/corporate-governance),
wherein they commit to and publicly disclose
to shareholders, clients, creditors, employees,
and other stakeholders as a whole, how they
will supervise and manage the Bank. The
Management and Supervisory Boards also
decide on which corporate governance code
the Bank should follow.
Apart from binding legal framework, NLB
also follows a Corporate Governance
Code for Listed Companies (Slovenian
Directors’ Association and Ljubljana Stock
Exchange, adopted 27 October 2016, valid
from 1 January 2017). The recommended
practices contribute to a transparent and
understandable governance system, which
promotes both domestic and foreign investor
confidence, as well as the confidence of
employees, other stakeholders (regulators,
suppliers, etc.) and the general public.
Due to the fact that the first phase of the
privatisation of the Bank was concluded
on 14 November 2018, NLB became a
listed company (as its shares were listed on
Ljubljana Stock Exchange and the GDRs
representing NLB’s ordinary shares were
listed on London Stock Exchange). From the
mentioned date on NLB has followed the
recommendations of the mentioned code
exclusively. The code is available on the web
site: www.ljse.si.
Corporate Governance Policy of the NLB
policy should be read together with the NLB
Group Corporate Governance Policy, in
which the corporate governance principles
and mechanisms of the Group members
are defined, while also respecting the local
legislation and regulatory requirements.
Furthermore, in 2019 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 (commitments on 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/cas-
es/269184/269184_1911771_145_2.pdf
and
• https://eur-lex.europa.eu/le-
gal-content/EN/ TXT/?uri=uris
erv:OJ.L_.2018.298.01.0017.01.
ENG&toc=OJ:L:2018:298:TOC).
However, as at 31 December 2019 all
the commitments expired and to NLB’s
assessment were also fulfilled, therefore
consequently the limitations given by the
commitments are not valid anymore.
NLB strives to increase the level of its
business transparency and informs the
shareholders and other expert community
in line with the Guidelines on Disclosure
for Listed Companies (Ljubljana Stock
Exchange, 19 August 2019) on electronic
communications system of the Ljubljana
Stock Exchange (SEOnet) and in line with
Rules of the London Stock Exchange
through Regulatory News Services (RNS) of
the London Stock Exchange.
According to the Companies Act (ZGD-1,
Article 70, paragraph 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 (1 January until 31
December 2019).
18. The Companies Law (ZGD- 1; Official Gazette of the RoS,
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, 15/17 and 22/19 – ZposS).
NLB Group Annual Report 2019 The Bank publishes this statement in the
Business Report of the NLB Group Annual
Report 2019, as well as a separate report
on its website (https://www.nlb.si/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, and other documents that
are communicated to the stakeholders
by being published on the NLB website
(http://www.nlb.si/corporate-governance).
2. STATEMENT OF COMPLIANCE WITH
THE CORPORATE GOVERNANCE CODE
FOR LISTED COMPANIES
NLB deviates from the recommendations
as described below, and hereby explains
reasoning for such deviations.
Recommendation no. 8.1: Upon
convocation of the General Meeting
of shareholders scheduled for 10
June 2019 NLB did not publish all
required information pursuant to this
recommendation on its website. In the
future, NLB intends to publish on its
website also all required information
regarding the organised collection of proxy
notices.
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. 10.1: In assessing
a candidate’s eligibility for a Supervisory
Board member, statutory criteria are
applied, however, candidates don’t have
a certificate evidencing their specialised
professional competence for membership
on a Supervisory Board, such as the
Certificate of the Slovenian Directors’
Association, or any other relevant
certificate.
Recommendation no. 12.2: The Rules
of Procedure of the Supervisory Board to
NLB do not include the list of all types of
transactions for which the Management
Board needs prior approval of the
Supervisory Board but refer to Article 24 of
the Articles of Association. The mentioned
rules also do not include 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
managing 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
the Articles of Association. Professional
services of the bank take care that timely
information is provided to the Supervisory
Board.
Recommendation no. 15.3: NLB
deviates from this recommendation because
the President of the Supervisory Board
is at the same time the 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 the Banking Act (ZBan-2)
and Labour Law.
Recommendation no. 17: In our
opinion, at the beginning 2019 the
Bank was not providing payment to
the Supervisory Board members that
139
corresponded to their responsibilities and
the fines set by the Banking Act (ZBan-2).
However, changes to the reimbursement of
the Supervisory Board and its committees
were adopted at the General Meeting
dated 21 October 2019 that to a better
degree correspond with the responsibilities
and tasks to which the members of the
Supervisory Board are subjected.
Recommendations no. 21.4 to
21.6: In 2019, NLB did not pay variable
remuneration in the form of NLB shares
to any member of the NLB Management
Board, 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. In relation to
the payment of variable remuneration
in own shares NLB complies with the
Banking Act (ZBan-2) and the Guidelines
of the BoS dated 22 November 2016,
concerning the application of the principle
of proportionality in the implementation
of remuneration policies (hereinafter:
BoS Guidelines). Considering that NLB
shares are listed on a regulated market and
based on point 7 of the first paragraph of
Article 170 of the Banking Act (ZBan-2),
which is based on the Directive 2013/36/
EU of the European Parliament and of
the Council, at least 50% of the variable
remuneration of (among other) each
member of the NLB Management Board
shall comprise ordinary shares of NLB.
The said requirement applies to both the
non-deferred and the deferred part of
variable remuneration (which is different
from recommendations 21.4 and 21.6
which provide that variable remuneration
awarded in shares should not be paid out
for at least three years after the award).
When the variable remuneration of an
individual Identified Staff in a particular
year does not exceed EUR 50,000, the BoS
Guidelines allow for an exception from
the requirement that a part of variable
remuneration has to be paid in own shares
of the bank. As the said threshold was not
exceeded, in 2019 NLB did not pay variable
NLB Group Annual Report 2019 140
remuneration to any of the members of
NLB Management Board in the form of
NLB shares.
of its bodies (Management Board and
Supervisory Board and the General
Meeting) on its website.
Recommendation no. 25.3: The Bank
deviates from the recommendation on
rotation of audit companies. In 2018, the
Bank followed provisions of the Banking
Act (ZBan-2) and the Recommendations
and the Expectations of SSH regarding the
rotation of audit companies, which define a
longer rotation period (10 years).
Recommendation no. 27.4: NLB draws
up its financial calendar which is published
on banks’ website (https://www.nlb.si/
financial-calendar) and includes the date
of the Annual General Meeting, however,
it doesn’t provide information on the
dividend payment date. Dividend payment
date is announced in the Publication of
the Agenda and Proposed Resolutions to
be passed at the Annual General Meeting
(both documents published on https://
www.nlb.si/general-meetings). The
dividend payment date is determined
based on KDD Operations Rules (Central
Securities Clearing Corporation).
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 2020.
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
3. MAIN FEATURES OF INTERNAL
CONTROL AND RISK MANAGEMENT
SYSTEMS IN RELATION TO FINANCIAL
REPORTING
NLB is governed by the provisions of the
Banking Act (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, NLB has developed a steady
and reliable internal governance system
encompassing the following:
• A clear organisational 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
• The appropriate remuneration policies
and practices that are in line with
prudent and effective risk management,
and thus promote risk management
3.1. Internal control mechanisms
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
organisational procedures, business
procedures, and work procedures
(internal controls), and
• The internal control functions and
departments (internal control
functions)
3.1.1. Internal Controls
Internal controls should put in place at all
levels of the Banks organisational structure,
especially the levels of commercial, control,
and support functions, and at the level
of each of the Banks 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 the responsibilities for its
establishment, continuous performance,
and its upgrading. On the organisational
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 Banks 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.
3.1.2. Internal Control Functions
The internal control functions are part of
the system of the internal governance in the
Bank. Internal control functions include:
a) The Internal Audit Department
The Internal Audit function is organised
according to the Charter on the Internal
Audit of NLB adopted by the Management
Board on 13 November 2018 (and
supplemented on 13 August 2019), to
which the Supervisory Board of NLB gave
its approval (30 November 2018 and 6
September 2019).
NLB Group Annual Report 2019 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 organisation, including the nature
of the relationship between the functional
responsibility of the Head of the Internal
Audit to the supervisory body, grants
authorisations 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 Group and takes
care of constant development of the
internal auditing function.
Pursuant to the provisions of the law, the
Bank has organised the internal audit as an
independent organisational 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
organised 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 authorisations and
responsibilities of the risk management
function according to the requirements
of the Banking Act (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 represents
an important part of overall management
and governance system in the Group. This
function in NLB is organised within the
Risk stream, covered by the member of
the Management Board in charge of risk
(CRO). Risk stream covers the following
organisational units:
• Global Risk
• Corporate and Retail Credit Analysis
Department
• Evaluation and Control
• Restructuring
• Non-Performing Loan Management
Department
The risk management function is
performed by the Global Risk. In
accordance with the competences,
authorisations, and responsibilities,
Global Risk is represented by its General
Manager. The Global Risk is, in functional
and organisational terms, separate from
other functions where business decisions
are adopted and where potential 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
141
the same time unhindered and independent
access to the Supervisory Board of NLB
and the Risk Committee of the Supervisory
Board of the NLB.
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 members
of the Group, the risk management
function is organised according to the local
legislation, taking into account the bases
for set-up, organisation, 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
Group the bases with which they have
to align their strategic risk orientations,
internal policies, organisation, work
procedures, methodologies, and reporting
system.
NLB is, as a systemic bank, involved in
the Single Supervisory 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 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 key
NLB Group Annual Report 2019 142
strategic risk targets and orientations. 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. The Group is constantly
enhancing and continuously adapting its
risk management system with the aim to
detect and adequately manage existing and
new potential emerging risks.
The Group plans a prudent risk appetite
and optimally profitable operations in
the long run, including fulfilment 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 and internal
capital allocation, representing the key
components of proactive risk management
process in the Group. They enable timely
and detailed monitoring, management,
and mitigation when needed. 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 and stress testing in
different risk areas with the intention to
strengthen the existing internal controls and
timely responding when necessary.
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 Function, Information
Security Function, and AML/CTF Function
Compliance and Integrity in the Group in
its role as internal control function performs
control activities with respect to the main
following areas:
• Anti-money laundering and counter-
terrorist financing
• Information security and data protection
• Personal data protection
• Regulatory compliance management
• Prevention of fraud and internal
investigations
• Development of compliance risk
methodologies, and setting and
monitoring ethics and integrity standards
• Harmonisation of policies and practices
within the Group (Competence line
Compliance and Integrity)
Compliance and Integrity is an
organisational unit of the Bank, placed
directly under the Bank’s Management
Board in the organisational structure. 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. Separate policies regulate different
areas which are organised within the
Compliance and Integrity in NLB.
Supervision over compliance of
operations is within the competence
of the Compliance and Integrity. This
enables the Compliance and Integrity to
operate independently from other Bank’s
departments. The director of Compliance
and Integrity does not perform any other
function at the Bank that could possibly
lead to conflict of interests. To ensure
his independence, the director reports to
the Management Board and to a specific
member of the Bank’s Management
Board responsible for compliance area
(including information security and
AML/CTF functions), which additionally
ensures independence of operation of the
Compliance and Integrity. As information
security and AML/CTF functions are
organised within Compliance and Integrity,
the CISO and head of AML/CTF area
are ensured full independence through
equal reporting lines as the director of
Compliance and Integrity. All three also
have direct access and separate reporting
line to the Bank’s Supervisory Board.
Following the NLB model, the compliance
function has been established in the core
members of the Group as well. Through
specific binding standards in the area
of compliance and integrity, there is a
harmonised system of standards and
practices in the area of compliance and
integrity in place in the entire Group, in
core and non-core members.
3.2. Financial reporting
With the aim of ensuring appropriate
financial reporting procedures, NLB
pursues the adopted Policy on Accounting
Controls. The accounting controls are
provided through the operation of the
complete accounting function with the
purpose of ensuring quality and reliable
accounting information, and thereby
accurate and timely financial reporting.
The principal identified risks in this
area are managed with an appropriate
system of authorisations, a segregation
of duties, compliance with accounting
rules, documenting of all business
events, a custody system, posting on the
day of a business event, in-built control
mechanisms in source applications, and
archiving pursuant to the laws and internal
regulations. Furthermore, the policy
precisely defines primary accounting
controls, performed in the scope of
analytical bookkeeping, and secondary
accounting controls, i.e., checking the
efficiency of implementation of primary
accounting controls. With an efficient
mechanism of controls in the area of
accounting reporting, NLB ensures:
NLB Group Annual Report 2019 143
• 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
4. INFORMATION ON POINT 4,
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)
PARAGRAPH 5, OF THE ARTICLE 70 OF
THE ZGD-1 regarding points 3, 4, 6, 8, and
9 of the paragraph 6 of the same article
Changes in share capital were made on 21
June 2019 when the RoS sold the remaining
shares of NLB up to Blocking Minority
(25% plus 1 share). As at 31 December
2019, NLB’s share capital totalled EUR
200 million and was divided into 20 million
shares. All shares belong to a single class
and are issued in book-entry form. The
shares are listed on Prime Market of
Ljubljana Stock Exchange and the GDRs,
representing shares, are listed on the Main
Market of London Stock Exchange. Five
GDR represent one share of NLB.
NLB’s main shareholders as at 31 December 2019*
Shareholder
Bank of New York Mellon on behalf of the GDR holders**
- of which Brandes Investment Partners, L.P.***
- of which EBRD***
- of which Schroders plc***
RoS
Other shareholders
Total
Number of
shares
12,464,548
/
/
/
5,000,001
2,535,451
20,000,000
Percentage of shares
62.32
>5 and <10
>5 and <10
>5 and <10
25.00
12.68
100.00
*
Information is sourced from NLB’s shareholders book accessible at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) and available
to CSD members. Information on major holdings is based on the self-declarations by individual holders pursuant to the applicable provisions of Slovenian legislation, which requires that the
holders of shares in a listed company notify the company whenever their direct and/or indirect holdings pass the set thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75%. The table lists
all self-declared major holders whose notifications have been received. In reliance of this obligation vested with the holders of major holdings, the Bank postulates that no other entities nor
any natural person holds directly and/or indirectly ten or more percent of the Bank’s shares.
** 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 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 shareholder’s meeting or to exercise any voting rights under the deposited 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 the website: https://
www.nlb.si/shares.
Explanation regarding the holders of
securities that carry special control
rights (Point 4 of the sixth paragraph
of Article 70 of the ZGD-1)
No special controlling rights are attached to
NLB shares.
Explanation regarding restrictions
related to voting rights, in particular:
(i) restrictions of voting rights to a
certain stake or certain number of
votes, (ii) deadlines for executing
voting rights, and (iii) agreements
in which, 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
Bank’s authorisation. The authorisation to
transfer the shares shall be granted by the
Supervisory Board.
The Bank may refuse to grant authorisation
to transfer shares, if the acquirer together
with its shares held prior to the acquisition
and the shares held by third parties on
behalf of such an acquirer exceeds 25% of
the Bank’s voting shares plus one share.
Notwithstanding the provision above, the
authorisation to transfer shares shall not be
required if the acquirer acquires the shares
on behalf of third parties, and as such it is
not authorised to exercise their voting rights
at its own discretion, while committing to
the Bank that it shall not exercise the voting
rights attached to these shares as instructed
by a relevant third party on behalf of
which these shares are held, if the acquirer
fails to receive from this party, together
with instructions, a written undertaking
stipulating that this party holds the shares
for its own account and that at the same
NLB Group Annual Report 2019 144
time it does not, directly or indirectly, hold
more than 25% of the Bank’s voting shares.
Without having applied for authorisation to
transfer shares, or without having received
the Bank’s authorisation, the acquirer that
exceeds 25% of the Bank’s voting shares
shall be able to exercise the voting rights of
25% of its voting shares.
Explanation regarding the (i)
company’s rules on appointment
or replacement of members of
the management of supervisory
bodies, and (ii) changes 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.
The President and members of the
Management Board of the Bank may be
recalled prior to the expiry of their term of
office in accordance with applicable laws
and NLB’s Articles of Association.
Each member of the Management Board
of the Bank may prematurely resign her/
his term of office with a period of notice of
three months.
Supervisory Board
The Supervisory Board members are
elected by the Shareholders’ Meeting
for a period of four years, in accordance
with NLB’s Articles of Association. The
Supervisory Board of the Bank shall, at its
first meeting after the appointment, elect
from among its members a Chair and at
least one Deputy Chair of the Supervisory
Board of the Bank.
Membership of the Supervisory Board
members shall be terminated after the
expiry of their terms of office or based on
a resolution on removal adopted by the
Shareholders Meeting. Supervisory Board
members may resign at any time with a
period of notice of three months.
In its Decision No. U-I-56-19, dated 13
June 2019, the Constitutional Court of
the RoS rescinded the fourth paragraph
of Article 33 of the Banking Act (ZBan-2)
on workers’ non-participation in the
bank’s managing bodies. In 2019, the
right of workers on participation in bank’s
managing bodies, according to the Worker
Participation in Management Act (ZSDU),
has not been realised yet.
Changes to the company’s
Articles of Association
In accordance with provisions of the
Companies Act (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
authorisation of the members
of the management, particularly
authorisations to issue or purchase
own shares (Point 9 of the sixth
paragraph of Article 70 of the
ZGD-1)
The General Meeting of Shareholders
of NLB on 10 June 2019 authorised the
Management Board for redeeming treasury
shares and exclusion of the pre-emptive
right of the existing shareholders in the
disposal of treasury shares in the period
of 36 months from the adoption of the
resolution at the General Meeting. Pursuant
to the provisions of the Banking Act
(ZBan-2) and other relevant regulations,
the Bank is required to pay out the variable
remuneration of certain employees (in part)
in NLB’s shares. The authorisation is valid
for acquiring up to 36,542 NLB treasury
shares, while the total percentage of shares
acquired on the basis of this authorisation,
together with the treasury shares already in
possession of NLB, may not exceed 10% of
NLB share capital (2,000,000 shares).
5. INFORMATION ON THE WORK AND
KEY POWERS OF THE SHAREHOLDERS’
MEETING AND OF ITS KEY POWERS, AND
A DESCRIPTION OF SHAREHOLDERS’
RIGHTS AND THE METHOD OF THEIR
EXERCISING
Competences of the Bank’s General
Meeting are stipulated in the Companies
Act (ZGD-1), the Banking Act (ZBan-2) and
the Articles of Association. 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 the 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.
NLB Group Annual Report 2019 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.
professional integrity, protects business
secrets, and is held accountable for the
legality of the Bank’s operations within the
limits set by the relevant regulations. In
accordance with the Articles of Association,
the Management Board consists of three
to six members, one of whom is appointed
President of the Management Board of the
Bank.
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.
Based of Article 296 (3rd paragraph,
fifth indent) of the Companies Act NLB
informs shareholders on their rights as
shareholders in an Information On Rights
of Shareholders that is published among
documents for convocation of each General
Meeting (i.e., on expansion of the agenda,
proposals by shareholders, voting proposals
by shareholders, and the shareholders right
to be informed).
6. 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.
6.1. 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
In 2019, the Management Board of the
Bank consisted of Blaž Brodnjak (a member
since 1 December 2012, Deputy President
since 5 February 2016, and President,
CEO and CMO since 6 July 2016, with
a new five-year term of office as at 6 July
2016); and members Archibald Kremser,
acting as CFO (since 31 July 2013 and with
a new five-year term of office as at 6 July
2016); Andreas Burkhardt acting as CRO
(since 18 September 2013 and with a new
five-year term of office as at 6 July 2016);
and László Pelle acting as COO (since 26
October 2016). The five-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.
On 30 October 2019, the Supervisory
Board of NLB and László Pelle, member
of the Management Board and COO,
agreed on the termination of office going
into on 31 January 2020. On 29 November
2019, the Supervisory Board appointed Petr
Brunclík as member of the Management
Board, with a five-year term of office from
the day he receives consent by the ECB.
He will assume the function of COO and
will be responsible for the IT, operations,
procurement, and corporate real estate
management departments.
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
145
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 2019, the Management Board, with
a support of the Bank’s internal project
team and external legal advisors, actively
worked to complete the second phase of
the sales process of the Bank, run under the
leadership of SSH. On 21 June 2019, with
the sale of NLB’s shares up to the Blocking
Minority (25% + 1 share) the second phase
of privatisation of NLB was completed.
Successfully finished privatisation process
of NLB and the sale of insurance company
NLB Vita d.d. in December 2019 resulted
in fulfilment of the commitments towards
the EC. Through the year, the Management
Board also 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.
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.
6.2. 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.
NLB Group Annual Report 2019 146
From 1 January 2019 and until 28
February 2019 the Supervisory Board
of NLB consisted 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. Two members of
the Supervisory Board submitted their
resignation statements on 30 November
2019 giving three months’ notice, as a
result of changed EC commitments that
the RoS submitted to the EC in 2018 which
required independence of all members of
the Supervisory Board.
Therefore, at the General Meeting on 10
June 2019 four members of Supervisory
Board were elected (Mark William, Lan
Richards, Shrenik Dhirajlal Davda,
and Gregor Rok Kastelic), whereas one
member’s term of office was renewed
(Andreas Klingen). On 28 June 2019, the
Supervisory Board of NLB met for the first
time with all nine members, as defined by
the Articles of Association. At this meeting,
the Supervisory Board also allocated
members to its existing committees (Audit,
Risk, Remuneration, and Nomination) and
established a new committee for Operations
& IT.
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 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 2019, the Supervisory Board met at
seven regular, 10 correspondence and
one extraordinary session and considered
following key topics:
• Adopted the NLB Group Budget
2020 and acknowledged the financial
projections for 2021-2024
• Adopted the Corporate Governance
Statement of NLB, adopted the Risk
Management Statement of NLB
• Approved the NLB Group Annual
Report 2018, adopted the Report of the
Supervisory Board of NLB on the results
of examining the NLB Group Annual
Report 2018, adopted the Annual
Report of Internal Audit for 2018 for the
General Meeting of shareholders
• Approved the Annual Corporate Social
Responsibility Report for 2018 and
approved the Statement on non-financial
operations of the NLB Group for 2018
• Approved the proposal to convene the
regular General Meeting of NLB for 10
June 2019 and proposal to convene the
extraordinary General Shareholders’
Meeting of NLB for 21 October 2019
• Approved the Internal Capital Adequacy
Assessment Process (ICAAP) and the
Internal Liquidity Adequacy Assessment
Process (ILAAP) and Risk Appetite
Reports, Pilar III Disclosures for the NLB
Group for 2018, capital optimisation
activity for NLB and NLB Group in
2019, NLB Group NPLs wind-down
strategy, the report on the Top 50 groups
of clients by exposure in the NLB Group,
on write-off of receivables from the off-
balance sheet record
• Approved the Annual plan of the
Internal Audit, the Annual Report
of the Compliance and Integrity, the
Interim Reports on the operations of
the NLB Group, amendments to the
Internal Audit Charter of NLB, regular
annual Assessment on Risks in the
Area of Compliance and Integrity, and
acknowledged itself on the Internal
Audit’s Comprehensive Opinion 2018
• Approved achievements of the goals of
the Management Board in 2018 and
approved goals for the Management
Board for 2019, appointed a new COO,
adopted decisions on succession planning
for members of the Management Board,
the report on self-assessment of the
Supervisory Board, acknowledged itself
about candidates for members of the
Supervisory Board
• Acknowledged the presentation of IT,
acknowledged IT performance indicators
• Adopted the regular quarterly reports
on State Aid – the Status Reports and
adopted Report on risks relating to the
unfinished procedures before the EC
regarding the State aid
• Acknowledged the regular reports
on documents received from the
regulator(s) BoS and ECB and on the
implementation of the requirements
• Acknowledged the status report on
the implementation on the activities
concerning investor relations
• Adopted the amendments to the Rules
of Procedure of the Risk Committee of
the Supervisory Board of NLB, Rules
of Procedure of the Audit Committee
of the Supervisory Board of NLB,
adopted changes to the Corporate
Governance Policy of the NLB,
acknowledged the amendments to the
Corporate Governance Policy of NLB
Group, approved the Rules on Inside
Information; approved Policy on the
Selection of suitable Candidates for
members of the Management Board of
the Bank
• Adopted decisions (or acknowledgements)
on establishment of new companies,
cross-border financing and international
syndicated financing, large exposures,
sale of receivables, write-offs of claims,
divestment of the Group companies,
legal proceedings involving NLB and
NLB Group members, transactions with
persons in special relations with the
Bank, etc.
6.3. The Supervisory Board Committees
All five 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
NLB Group Annual Report 2019 147
The Audit Committee’s tasks are defined
by law, the Bank’s Articles of Association,
the 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
There were five regular sessions and four
correspondence sessions of the Audit
Committee in 2019. The following is a
summary of the key topics considered by
the Audit Committee:
6.3.2. The Risk Committee of the
Supervisory Board of NLB
From 1 January 2019 the composition of
the committee was as follows: Andreas
Klingen (Chairman), László Urbán (Deputy
Chairman), Simona Kozjek, Peter Groznik,
and David Eric Simon (members). New
members of the Supervisory Board were
elected on the General Meeting dated
10 June 2019. From 28 June 2019, the
composition of the committee was as
follows: Andreas Klingen (Chairman),
László Urbán (Deputy Chairman), Peter
Groznik, Mark William Lane Richards and
David Eric Simon (members).
There were five regular sessions of the
Risk Committee in 2019. Following is a
summary of key topics considered by the
Risk Committee:
• Regular quarterly risk reports in NLB
• Annual Report of Internal Audit
and the NLB Group
meetings related to a particular area.
The Supervisory Board has the following
committees.
• The Audit Committee
• The Risk Committee
• The Nomination Committee
• The Remuneration Committee
• The Operations and IT Committee
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.
for 2018 for the General Meeting of
shareholders
• Annual plan of the Internal Audit and
6.3.1. The Audit Committee of the
Compliance
Supervisory Board of NLB
From 1 January 2019 the composition
of the committee was as follows: David
Eric Simon (Chairman), Alexander Bayr
(Deputy Chairman), Primož Karpe, and
Vida Šeme Hočevar (members). New
members of the Supervisory Board were
elected on the General Meeting dated
10 June 2019. From 28 June 2019, the
composition of the committee was as
follows: David Eric Simon (Chairman),
Alexander Bayr (Deputy Chairman),
Primož Karpe, Shrenik Dhirajlal Davda,
and Gregor Rok Kastelic (members).
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.
• Regular interim reports on the operations
of the Group, Internal Audit’s report,
Report on the work of the Compliance
and Integrity for 2018
• Amendments to the Internal Audit
Charter of NLB
• Regular reports on overdue
recommendations of the Internal Audit
• Regular Annual Assessment on Risks in
the Area of Compliance and Integrity
• Reports on the documents received
from BoS and ECB and on the
implementation of the requirements of
the BoS and ECB
• Approval of the NLB Group Annual
Report, and approval of the Corporate
Social Responsibility Report for 2018
• Information on cooperation with the
external auditor in auditing the Group’s
annual report, in particular by means of
exchanging briefings on major audit-
related issues
• ICAAP and ILAAP Manual and
Statement on Liquidity Adequacy and
regular ILAAP, ICAAP reports
• Pilar III Disclosures of the Basel
Standards for the NLB Group for 2018
• Risk Appetite Reports
• approved updated version of Risk
Appetite of the NLB Group and capital
optimisation activity
• NLB Group NPLs wind-down strategy
• Report on Top 50 groups of clients by
exposure in the NLB Group
• Report on Top 20 largest exposures to
clients in restructuring procedures
• Proposal for the issuance of prior consent
of the Supervisory Board of NLB, in
accordance with the first paragraph of
article 164 of Banking Act (ZBan-2),
for a legal transaction based on which
the Bank’s total exposure to individual
client or a group of related clients would
reach or exceed 10% of the Bank’s
eligible capital (or if it increases by each
subsequent 5% of the Bank’s eligible
capital)
NLB Group Annual Report 2019 148
Responsibilities of the committee are
defined in Rules of Procedure of the Risk
Committee of the Supervisory Board of
NLB.
6.3.3. The Nomination Committee of the
Supervisory Board of NLB
From 1 January 2019 the composition
of the committee was as follows: Primož
Karpe (Chairman), Andreas Klingen
(Deputy Chairman), Alexander Bayr,
Vida Šeme Hočevar, and Peter Groznik
(members). New members of the
Supervisory Board were elected on the
General Meeting dated 10 June 2019.
From 28 June 2019, the composition of
the committee was as follows: Primož
Karpe (Chairman), Andreas Klingen
(Deputy Chairman), Alexander Bayr, Peter
Groznik and Mark William Lane Richards
(members).
There were five regular sessions of the
Nomination Committee in 2019. The
following is a summary of key topics
considered by the Nomination Committee:
• Assessment of collective suitability of
members of the Supervisory Board
(Fit&Proper)
• Regular annual suitability assessment of
the Management Board and Supervisory
Board
• selection of the Management Board
member responsible for IT and
operations (COO)
• Presentation of proposed new candidates
to the Supervisory Board
• Assessment of suitability of the
candidates for members of the
Supervisory Board of NLB
• Amendments to the Rules of Procedure
of the Nomination Committee of
the Supervisory Board of NLB;
Amendments for the Policy on selection
of suitable candidates for members of
the Supervisory Board of the bank;
amendments for the Policy on selection
of suitable candidates for members of
the Management Board of the bank;
amendments to the Policy on the
provision of diversity of the management
body and senior management
Responsibilities of the committee are
defined in Rules of Procedure of the
Nomination Committee of the Supervisory
Board of NLB.
6.3.4. The Remuneration Committee of
the Supervisory Board of NLB
From 1 January 2019 the composition of
the committee was as follows: Vida Šeme
Hočevar (Chairwoman), Simona Kozjek
(Deputy Chairwoman), Primož Karpe, and
László Urbán (members). New members
of the Supervisory Board were elected on
the General Meeting dated 10 June 2019.
From 28 June 2019, the composition of
the committee was as follows: Alexander
Bayr (Chairman), László Urbán (Deputy
Chairman), Shrenik Dhirajlal Davda, and
Gregor Rok Kastelic (members).
There were four sessions of the
Remuneration Committee in 2019.
The following is a summary of key
topics considered by the Remuneration
Committee:
• Realisation of goals of Management
Board of NLB for 2018 and information
on approved goals for 2019
a new committee for Operations and IT
was adopted. The Supervisory Board also
adopted a decision on composition of the
committee, which was as follows: Mark
Willam Lane Richards (Chairman), Shrenik
Dhirajlal Davda (Deputy Chairman),
Primož Karpe, Andreas Klingen, and
László Urbán (members).
There were two sessions of the Operations
and IT Committee 2019. The Operations
and IT Committee acknowledged itself
with:
• IT performance indicators
• Top 5 IT priorities
• Presentation of IT and Operations
(Priorities Dashboard)
Responsibilities of the Operations and IT
Committee of the Supervisory Board of
NLB are defined in Rules of Procedure of
the Operations and IT Committee of the
NLB.
Composition of the Committees of the
Supervisory Board is described in detail
in the Appendix C.2 of the Corporate
Governance Code for Listed Companies (as
attachment to this statement).
7. DESCRIPTION POLICY ON THE
• Assessment of performance and
PROVISION OF DIVERSITY OF THE
proposed variable part of remuneration
for the directors of Internal Audit,
Compliance and Integrity, and Global
Risk
• Proposed amendments to the Policy
on Remuneration for the Employees
Performing Special Work
Responsibilities of the committee
concerning remuneration policies
are defined by Rules of Procedure of
the Remuneration Committee of the
Supervisory Board of NLB.
6.3.5. The Operations and IT Committee
of the Supervisory Board of NLB
On session of the Supervisory Board
dated 28 June 2019 a decision to establish
MANAGEMENT BODY AND SENIOR
MANAGEMENT
7.1. Supervisory Board, Management
Board and senior management
The second version of Policy on the
Provision of Diversity of the Management
Body and Senior Management was adopted
on 33th General Meeting of Shareholders
on 10 June 2019. The previous Policy
on the Provision of Diversity of the
Members of the Supervisory Board (2006),
was supplemented and extended on the
members of the Management Board and
members of the senior management.
NLB Group Annual Report 2019 149
No changes in the composition of the
Management Board were made in 2019.
On 31 December 2019 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.
On 30 October 2019, the Supervisory
Board of NLB and László Pelle, agreed on
the termination of office going into effect
on 31 January 2020. On 29 November
2019, the Supervisory Board appointed Petr
Brunclík as member of the Management
Board.
Ljubljana, 2 April 2020
With the Policy on the provision of
diversity of the management body
and senior management, NLB sets
the framework in the area of diversity of
and representation of both genders in
the management and supervision bodies
(Supervisory Board and Management
Board) and the senior management. It
also lays down the process of the selection
and appointment of candidates (defined in
more detail in the Policy on the selection
of suitable candidates for members of
the Supervisory Board and the Policy on
the selection of suitable candidates for
members of the Management Board),
which enables the management body to
be composed in such manner that, as a
whole, it possesses suitable knowledge,
skills, and experience needed for in-
depth understanding of the strategy and
challenges of the Bank, and the risks to
which the latter is exposed.
The key amendments to the second edition
of the policy include the determination of
policy objectives and the way in which these
objectives are achieved, while at the same
time the policy specifies its implementation
and reporting.
As described in the chapter Corporate
Governance in the NLB Group Annual
Report 2019, two members were females
in the composition of the Supervisory
Board until 28 February 2019. However,
even though selection process for four new
members of the Supervisory Board was
open to candidates of both genders, female
representatives did not participate in the
selection process, therefore, on General
Meeting on 10 June 2019 only male
representatives were elected as members of
the Supervisory Board of NLB.
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
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 2019
150
Table 28: Composition of Management in financial year 2019 (C.1)
Name and Surname
Position held (president, member)
Area of work covered within
the Management Board
First appointment to the position
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
Table 29: Composition of Supervisory Board and Committees in financial year 2019 (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
Gender
Citizenship
Year of birth
Qualification
Primož Karpe
President
10 February 2016
Andreas Klingen
Deputy President
22 June 2015 /
10 June 2019
Alexander Bayr
David Eric Simon
Member
Member
4 August 2016
4 August 2016
László Urbán
Member
10 February 2016
2020
2019/2023
2020
2020
2020
Vida Šeme Hočevar
Member
8 September 2017
28 February 2019
Member
8 September 2017
28 February 2019
Simona Kozjek
Peter Groznik
Mark William
Lane Richards
Member
8 September 2017
Member
10 June 2019
Shrenik Dhirajlal Davda
Gregor Rok Kastelic
Member
Member
10 June 2019
10 June 2019
2021
2023
2023
2023
No
No
No
No
No
No
No
No
No
No
No
7/7
7/7
7/7
7/7
6/7
1/1
1/1
6/7
3/3
3/3
3/3
Conclusion of
the position /
term of office
5 July 2021
5 July 2021
5 July 2021
Slovene
German
Austrian
1974
1971
1971
1966
31 January 2020
Hungarian
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
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
male
Hungarian
male
male
male
male
female
female
male
male
male
male
Slovene
German
Austrian
British
Slovene
Slovene
Slovene
British
British
Slovene
1970
MSc
Banking / Finance
1964 University Degree
Banking / Finance
1960 University Degree
Banking / Finance
1948
Higher National
Banking / Finance
Diploma in
Business Studies
1959
1967
1975
1971
1966
1960
1968
PhD
PhD
MSc
PhD
MSc
MSc
Banking / Finance
Finance/ Insurance
Banking / Finance
Finance, industry,
investment banking
Finance
Banking / Finance
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
NO
NO
NO
YES
YES
NO
NO
YES
Kyrgyz Investment and Credit Bank
CISC, Credit Bank of Moscow
PJSC, Nepi Rockcastle plc
WKBG Bank, Vienna
Jihlavan a.s., Central Europe
Industry Partners a.s.
Ukreximbank, Ukraine
Hit, d.d. (since December 2018)
MSIN d.o.o., Ljubljana,
CETIS d.d., Ljubljana
Ltd, Vencap International
Ukrgasbank, Kyiv, Ukraine
MSc
Banking / Finance
NO
CIB Bank Egypt, Sheffield Haworth
NLB Group Annual Report 2019
Table 28: Composition of Management in financial year 2019 (C.1)
Name and Surname
Position held (president, member)
the Management Board
First appointment to the position
Area of work covered within
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
Table 29: Composition of Supervisory Board and Committees in financial year 2019 (C.2)
Name and Surname
member)
to the position
term of office
structure / employees
5/7) applicable on his/her mandate
Gender
Citizenship
Year of birth
Qualification
Position held
Conclusion of
Representative of the
Attendance at SB session in regard to the
(president deputy,
First appointment
the position /
company's capital
total number of SB session (for example
31 January 2020
Hungarian
Conclusion of
the position /
term of office
5 July 2021
5 July 2021
5 July 2021
Slovene
German
Austrian
151
Citizenship
Year of birth
Qualification
Professional profile
Membership in supervisory
bodies in companies not
related to the company
1974
1971
1971
1966
MBA
MBA
MBA
MSc
Banking / Finance
Banks' Association of Slovenia
Banking / Finance
Banking / Finance
Banking Operations
and IT Management
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
Primož Karpe
President
10 February 2016
Andreas Klingen
Deputy President
22 June 2015 /
10 June 2019
2020
2019/2023
Alexander Bayr
David Eric Simon
Member
Member
4 August 2016
4 August 2016
László Urbán
Member
10 February 2016
Vida Šeme Hočevar
Member
8 September 2017
28 February 2019
Member
8 September 2017
28 February 2019
Simona Kozjek
Peter Groznik
Mark William
Lane Richards
Member
8 September 2017
Member
10 June 2019
Shrenik Dhirajlal Davda
Gregor Rok Kastelic
Member
Member
10 June 2019
10 June 2019
2020
2020
2020
2021
2023
2023
2023
No
No
No
No
No
No
No
No
No
No
No
7/7
7/7
7/7
7/7
6/7
1/1
1/1
6/7
3/3
3/3
3/3
male
male
male
male
Slovene
German
Austrian
British
male
Hungarian
female
female
male
male
male
male
Slovene
Slovene
Slovene
British
British
Slovene
1970
MSc
Banking / Finance
1964 University Degree
Banking / Finance
1960 University Degree
Banking / Finance
1948
1959
1967
1975
1971
1966
1960
1968
Higher National
Diploma in
Business Studies
Banking / Finance
PhD
PhD
MSc
PhD
Banking / Finance
Finance/ Insurance
Banking / Finance
Finance, industry,
investment banking
MSc
Banking / Finance
MSc
MSc
Finance
Banking / Finance
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
NO
NO
NO
YES
YES
NO
NO
NO
YES
Kyrgyz Investment and Credit Bank
CISC, Credit Bank of Moscow
PJSC, Nepi Rockcastle plc
WKBG Bank, Vienna
Jihlavan a.s., Central Europe
Industry Partners a.s.
Ukreximbank, Ukraine
Hit, d.d. (since December 2018)
MSIN d.o.o., Ljubljana,
CETIS d.d., Ljubljana
CIB Bank Egypt, Sheffield Haworth
Ltd, Vencap International
Ukrgasbank, Kyiv, Ukraine
NLB Group Annual Report 2019
152
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
Vida Šeme Hočevar
Remuneration Committee
6 October 2017
28 February 2019
President
Simona Kozjek
Primož Karpe
Remuneration Committee
6 October 2017
28 February 2019
Deputy President
Remuneration Committee
15 April 2017
17 June 2019
Member
2020 Member / Deputy President
László Urbán
Remuneration Committee
Alexander Bayr
Remuneration Committee
Shrenik Dhirajlal Davda
Remuneration Committee
Gregor Rok Kastelic
Remuneration Committee
Primož Karpe
Nomination Committee
Andreas Klingen
Nomination Committee
Alexander Bayr
Nomination Committee
6 October 2017 /
1 March 2019
1 March 2019
28 June 2019
28 June 2019
15 April 2016
19 February 2016
6 October 2017
2020
2023
2023
2020
2023
2020
Vida Šeme Hočevar
Nomination Committee
6 October 2017
28 February 2019
Peter Groznik
Nomination Committee
6 October 2017
Mark William Lane Richards
Nomination Committee
David Eric Simon
Audit Committee
Alexander Bayr
Primož Karpe
Audit Committee
Audit Committee
28 June 2019
7 April 2016
26 August 2016
19 February 2016
2021
2023
2020
2020
2020
Vida Šeme Hočevar
Audit Committee
6 October 2017
28 February 2019
Shrenik Dhirajlal Davda
Audit Committee
Gregor Rok Kastelic
Audit Committee
28 June 2019
28 June 2019
2023
2023
Andreas Klingen
Risk Committee
19 February 2016
2019 / 2023
President
Member
Member
President
Deputy President
Member
Member
Member
Member
President
Deputy President
Member
Member
Member
Member
President
László Urbán
Simona Kozjek
Peter Groznik
Risk Committee
Risk Committee
Risk Committee
David Eric Simon
Risk Committee
Mark William Lane Richards
Risk Committee
Mark William Lane Richards Operational and IT Committee
Shrenik Dhirajlal Davda
Operational and IT Committee
László Urbán
Operational and IT Committee
Andreas Klingen
Operational and IT Committee
Primož Karpe
Operational and IT Committee
26 August 2016
2020
Deputy President
6 October 2017
28 February 2019
6 October 2017
26 August 2016
28 June 2019
28 June 2019
28 June 2019
28 June 2019
28 June 2019
28 June 2019
2021
2020
2023
2023
2023
2020
2023
2020
Member
Member
Member
Member
President
Deputy President
Member
Member
Member
Attendance at sessions of
SB's Committees in regard
to the total number of
SB's session (applicable
on his/her mandate)
0/0
0/0
3/3
4/4
4/4
1/1
1/1
5/5
5/5
5/5
0/0
5/5
1/1
5/5
5/5
5/5
0/0
2/2
2/2
5/5
5/5
0/0
4/5
5/5
2/2
2/2
2/2
2/2
2/2
2/2
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 2019
153
Table 30: Composition and amount of remuneration of the Management Board members in the financial year 2019 (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
433,881.77
member
412,972.63
member
397,290.83
Name and
Surname
Blaž
Brodnjak
Archibald
Kremser
Andreas
Burkhardt
László Pelle
member
355,472.71
*This chart does not include other benefits and cost refunds.
Total (2)
45,496.87
45,496.87
45,496.87
25,000.00
Deferred
income (3)
Severance
pay (4)
Bonuses (5)
‘Draw-
back’ (6)
Total gross
(1+2+3+
4+5-6)
Total net*
0.00
2,172.98
0.00
481,551.62
201,966.35
0.00
25,392.87
0.00
483,862.37
180,419.32
0.00
18,515.24
0.00
461,302.94
178,521.29
0.00
30,363.58
0.00
410,836.29
149,729.16
Table 31: Composition and amount of remuneration of members of the Supervisory Board and committee members in the financial year
2019 (in EUR) (C.4)
Position held
(president,
deputy president,
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
Mark William
Lane Richards
Member
Member
Shrenik Dhirajlal Davda Member
Gregor Rok Kastelic
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
48,979.84
41,136.09
33,384.07
38,758.06
36,993.95
3,750.00
5,000.00
32,213.71
26,008.06
23,071.57
21,901.21
7,260.00
5,940.00
5,445.00
6,765.00
6,380.00
935.00
1,155.00
5,720.00
2,200.00
2,200.00
1,980.00
56,239.84
47,076.09
38,829.07
45,523.06
43,373.95
4,685.00
6,155.00
37,933.71
56,239.84
32,408.09
25,578.50
29,988.11
28,572.48
3,407.42
4,476.55
27,589.29
28,208.06
18,581.99
25,271.57
23,881.21
16,647.60
17,368.83
9,698.01
17,535.50
6,758.55
15,991.69
16,770.34
0.00
22.00
4,056.69
4,119.19
6,136.43
4,406.03
* After the prepayment of income taxes which is not taken into account in potential subsequent balancing payments of personal income taxes.
NLB Group Annual Report 2019
154
Statement of Management of Risk
NLB’s Management Board and
Supervisory Board provide herewith a
concise statement of the risk management
according to Article 17 of the Regulation
on Internal Governance Arrangements, the
Management body and the Internal Capital
Adequacy Assessment Process for Banks
and Savings banks (Official Gazette of the
RoS, no. 73/15, 49/16, 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), points (e) and (f), as well
as the EBA Guidelines in on Disclosure
requirements (EBA GL/2016/11).
Risk management in the Group,
representing an important element of the
Group’s overall corporate governance, is
implemented in accordance with the set
strategic guidelines, established internal
policies, and procedures which take into
account the European banking regulations,
the regulations adopted by the BoS, 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. The Group gives
high importance to the risk culture and
awareness of all relevant risks within the
entire Group. Maintaining risk awareness
is engrained in the business strategy of
the Group. The business and operating
environment that is relevant for the Group’s
operations is changing with trends such as
changing customer behaviours, emerging
new technologies and competitors, and
increasing new regulatory requirements.
Consequently, risk management is
continuously adapting in order to detect
and manage new potential emerging risks.
The Group uses the ‘three lines of defence
framework’ as an important element of
its internal governance, whereby the Risk
Management Function acts as a second line
of defence. A Robust and Comprehensive
Risk Management Framework is defined
and organised with regard to the Group’s
business and risk profile, based on a
forward-looking perspective to meet
internally set strategic objectives and all
external requirements. A Proactive Risk
Management and Control System is
primarily 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 use different
mitigation measures when necessary. In this
respect, the Group is constantly enhancing
and complementing the existing methods
and processes in all risk management
segments. Moreover, Group’s enhanced
overall corporate governance reflects in
lower SREP requirement for the year 2020,
which has decreased in the last two years.
The Group plans a prudent risk profile,
optimal capital usage, and profitable
operations in the long run, considering
the risks assumed. The Business Strategy,
the Risk Appetite, the Risk Strategy, and
the key internal risk policies of the Group
that are approved by the Management
Board and the Supervisory Board of
NLB, specify the strategic objectives and
guidelines concerning risk assumption,
the approaches, and methodologies of
monitoring, measuring, mitigating, and
managing all types of risk at different
relevant levels. Moreover, the main
strategic risk guidelines are consistently
integrated into regular business strategy
review, the budgeting process, and other
strategic decisions, whereby informed
decision-making is assured. The Group is
regularly monitoring its target risk appetite
profile and internal capital allocation,
representing the key component of
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 the Group established a
comprehensive stress testing framework and
other early warning systems in different risk
areas, with the intention to contribute to
setting and pursuing the Group’s business
strategy, to support decision-making on an
ongoing basis, to strengthen the existing
internal controls, and to enable timely
response 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 with a
forward-looking perspective. As such, it is
embedded into Group’s Risk Management
System, namely Risk Appetite, ICAAP,
ILAAP, and the Recovery Plan, as an
important component of sound risk
management. Besides internal stress testing,
the Group as a systemically important bank
also participates in the regulatory stress test
exercises carried out by the ECB.
The Group is the largest Slovenian banking
and financial group with important
presence in the SEE region.
NLB Group Annual Report 2019 155
Values of the most important risk appetite
indicators of the Group as at the end
of year 2019, reflecting interconnection
between strategic business orientations, risk
strategy, and targeted risk appetite profile,
were the following:
• Total capital ratio 16.3%
• Tier 1 capital ratio 15.8%
• Common Equity Tier 1 ratio (CET1)
15.8%
• Leverage ratio 8.7%
• Cost of risk -20 bps
• The share of non-performing exposure
(NPE) by EBA 2.7%
• NPL coverage ratio 65.0%
• LTD 65.5%
• LCR 325%
• NSFR 160%
• EVE sensitivity (of 200 bps) 6.1% of
capital
• Transactional FX risk 1.7% of capital
• Net losses from operational risk 5.2% of
capital requirement for operational risk
Consequently, the Group concluded the
year 2019 as self-funded, with strong
liquidity and solid capital position,
demonstrating the Group’s financial
resilience.
During 2019, no transactions of sufficiently
material nature to impact on the Group’s
risk profile or distribution of risks on the
Group were carried out.
The Condensed Statement of the
management of risk is also published on
the NLB intranet with the aim of strict
adherence of the Banks’ employees 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, 2 April 2020
indicators servicing as an early warning
system. The conclusion of transactions in
derivative financial instruments at NLB is
primarily limited to servicing customers and
hedging Bank’s own positions. In the area
of currency risk, the 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 main NLB Group Risk Appetite
Statement objectives are following:
• Preservation of regulatory capital
adequacy
• Preservation of internal capital adequacy
• Fulfilment of MREL requirement
• Maintenance of low leverage
• Improvement in the quality of the
credit portfolio, sufficient NPL coverage,
sustainable credit risk volatility,
sustainable cost of risk across the
economic cycle, sustainable industry
concentration, sustainable exposure to
project financing
• Maintenance of a solid liquidity position,
maintaining stable customers’ deposits as
the main funding base
• Diversification of risk in exposures to
banks and sovereigns
• Limited exposure to credit spread risk
• Limited exposure to interest rate risk
• Limited exposure to FX risk
• Sustainable tolerance to net losses from
operational risk
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. The
Group has a well-diversified business model.
Efficient managing of risks and capital is
crucial for the Group to sustain long-term
profitable operations. Based on the Group’s
business strategy credit risk is the dominant
risk category, followed by credit spread
and interest rate risk in the banking book,
operational risk, liquidity risk, market risk,
and other non-financial risks. Regular
risk identification and their assessment is
performed within ICAAP process in order
to assure their overall control and effective
risk management on an ongoing basis.
Managing risks and capital efficiently
at all levels is crucial for the Group
sustained long-term profitable operations.
Management of credit risk, representing
the Group’s most important risk, focuses on
the taking of moderate risks – diversified
credit portfolio, adequate credit portfolio
quality, sustainable cost of risk and ensuring
an optimal return considering the risks
assumed. The liquidity risk tolerance is low.
The 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. The Group limited exposure to
credit spread risk, arising from the valuation
risk of debt securities portfolio servicing
as liquidity reserves, to the moderate
level. The 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.
When assuming operational risk, the 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
NLB Group Annual Report 2019 156
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
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 2019
157
Statement of the Arrangement of Internal Governance
NLB pursues internal governance,
including corporate governance, according
to the legislation applicable in the RoS, also
adhering to its internal acts.
NLB fully complies with the acts referred to
in Article 9, paragraph two of the Banking
Act (ZBan-2).
With the aim of strengthening internal
governance, the Bank operates especially in
compliance with:
1)
the provisions of the Banking Act
(ZBan-2) defining the internal
governance arrangements, especially
the provisions of Chapter 3.4
(Governance system of a bank) and
Chapter 6 (Internal governance
arrangements and internal capital
adequacy), in the part referring to
bank/savings bank or members of a
management body,
2) Regulation on Internal Governance
Arrangements, the Management Body,
and the Internal Capital Adequacy
Assessment Process for Banks and
Savings Banks, 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 BoS on the
application of these Guidelines.
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’s webpage: https://
www.nlb.si/corporate-governance.
Ljubljana, 2 April 2020
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
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 2019
158
Statement of Non-financial Information
In line with Article 70.c of the Companies
Act19 (ZGD-1), the Bank reports on
non-financial information separately from
the NLB Group Annual Report 2019.
The Bank’s disclosures of non-financial
information are prepared in a form of
a Non-financial Statement of the NLB
Group 2019, and are included in its Annual
Report on Corporate Social Responsibility
2019, by applying the GRI Sustainability
Reporting Standards (GRI), and thus
ensuring compliance with the requirements
of the regulations regarding the disclosure
of non-financial information.
The Annual Report on Social and
Environmental Policy of NLB for 2019,
as well as the Statement of Non-financial
Information of the NLB Group 2019 are
available on the Bank’s website: https://
www.nlb.si/annual-reports-on-corporate-
social-responsibility.
19. Official Gazette of the RoS, 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, 15/17 and 22/19
(The Law on Professional Secrecy – ZPosS).
NLB Group Annual Report 2019 159
NLB Group Annual Report 2019 160
Chapter 21
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 a share capital increase, the right to
profit participation (dividends), the right
to a share in the 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.
Table 32: Main shareholder structure of NLB (as at 31 December 2019)*
Shareholder
Bank of New York Mellon on behalf of the GDR holders
- of which Brandes Investment Partners, L.P.**
- of which EBRD**
- of which Schroders plc**
RoS
Other shareholders
Total
Number of
shares
12,464,548
/
/
/
5,000,001
2,535,451
20,000,000
Percentage of shares
62.32
>5 and <10
>5 and <10
>5 and <10
25.00
12.68
100.00
*
Information is sourced from NLB’s shareholders book accessible at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) and available
to CSD members. Information on major holdings is based on the self-declarations by individual holders pursuant to the applicable provisions of Slovenian legislation, which requires that the
holders of shares in a listed company notify the company whenever their direct and/or indirect holdings pass the set thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75%. The table lists
all self-declared major holders whose notifications have been received. In reliance of this obligation vested with the holders of major holdings, the Bank postulates that no other entities nor
any natural person holds directly and/or indirectly ten or more percent of the Bank’s 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.
The Bank of New York Mellon holds shares
in its capacity as the GDR’s 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
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 approval 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 an 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. 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,
exceeded the 25% share of the Bank with
voting rights, increased by one share.
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
NLB Group Annual Report 2019 161
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.
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 33: 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 2019)
Shareholder
RoS
Brandes Investment Partners, L.P.*
EBRD*
Schroders plc*
* 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 are appointed and recalled by
the Supervisory Board of the Bank; the
Number of shares
Percentage of shares
Nature of ownership
5,000,001
/
/
/
25.00
>5 and <10
>5 and <10
>5 and <10
shares
GDRs
GDRs
GDRs
President of the Management Board may
propose to the Chair of the Supervisory
Board of the Bank to appoint or recall
an individual member or the remaining
members of the Management Board of
the Bank. The President and members of
the Management Board 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 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 is
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
NLB Group Annual Report 2019 162
members shall be independent professionals
as defined by the Articles of Association.
The second version of the Policy on the
Provision of Diversity of the Management
Body and Senior Management was adopted
on 33th General Meeting of Shareholders
on 10 June 2019. The previous Policy
on the Provision of Diversity of the
Members of the Supervisory Board (2006),
was supplemented and extended on the
members of the Management Board and
members of the senior management.
With the Policy on the provision of diversity
of the management body and senior
management, NLB sets the framework in
the area of diversity of and representation
of both genders in the management and
supervision bodies (Supervisory Board
and Management Board) and the senior
management. It also lays down the
process of the selection and appointment
of candidates (defined in more detail in
the Policy on the selection of suitable
candidates for members of the Supervisory
Board and the Policy on the selection of
suitable candidates for members of the
Management Board), which enables the
management body to be composed in such
a manner that, as a whole, it possesses the
suitable knowledge, skills, and experience
needed for in-depth understanding of the
strategy and challenges of the Bank, and
the risks to which the latter is exposed.
The key amendments to the second edition
of the policy include the determination of
policy objectives and the way in which these
objectives are achieved, while at the same
time the policy specifies its implementation
and reporting.
As described in the chapter Corporate
Governance in the NLB Group Annual
Report 2019, in the composition of the
Supervisory Board until 28 February 2019,
two members were females. However, even
though the selection process for four new
members of the Supervisory Board was
open to candidates of both genders, female
representatives did not participate in the
selection process, therefore on General
Meeting on 10 June 2019 only male
representatives were elected as members of
the Supervisory Board of NLB.
No changes in the composition of the
Management Board were made in 2019.
On 31 December 2019 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.
On 30 October 2019, the Supervisory
Board of NLB and László Pelle agreed on
the termination of office going into effect
on 31 January 2020. On 29 November
2019, the Supervisory Board appointed Petr
Brunclík as member of the Management
Board.
possession of NLB, may not exceed 10% of
NLB share capital (2,000,000 shares).
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,
• Amendments to Articles of Association:
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 the Group after 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.
A qualified majority of at least 75%
(seventy-five per cent) of the votes cast
by shareholders at the general meeting
of the 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
The General Meeting of Shareholders
of NLB on 10 June 2019 authorised the
Management Board for redeeming treasury
shares and the exclusion of the preemptive
right of the existing shareholders in the
disposal of treasury shares in the period
of 36 months from the adoption of the
resolution at the General Meeting. Pursuant
to the provisions of the Banking Act
(ZBan-2) and other relevant regulations,
the Bank is required to pay out the variable
remuneration of certain employees (in part)
in NLB’s shares. The authorisation is valid
for acquiring up to 36,542 NLB treasury
shares, while the total percentage of shares
acquired on the basis of this authorisation,
together with the treasury shares already in
NLB Group Annual Report 2019 2. Number of shares held by members of
the Supervisory Board and Management
Board
Table 34: Number of shares held by members of Supervisory Board and Management Board (as at 31 December 2019)
Shares held as at 31 December 2019
Number
Name of member of Supervisory Board
Primož Karpe
Andreas Klingen
Alexander Bayr
David Eric Simon*
László Urbán
Peter Groznik**
Gregor Rok Kastelic
Shrenik Dhirajlal Davda
Mark William Lane Richards
Name of member of Management Board
Blaž Brodnjak
Archibald Kremser
Andreas Burkhardt
László Pelle
936
1,198
110
582
303
350
—
—
—
1,136
151
151
151
163
%
0.005%
0.006%
0.001%
0.003%
0.002%
0.002%
—
—
—
0.006%
0.001%
0.001%
0.001%
*
David Eric Simon holds 2,910 GDRs, which is equal to 582 shares (as 1 share represents 5 GDRs).
** Peter Groznik holds Bank’s shares indirectly through a company wholly owned by Peter Groznik.
3. Stock option agreements
There are some exemptions if
Refund of Withholding Tax
The Bank has no stock option agreements
in relation with listed shares.
4. Dividend taxation
Withholding tax
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:
• Individuals: 27.5%20
• Intermediaries: 27.5%
• Legal entities (other than Intermediaries):
15%
20. The tax rate for individuals and intermediaries in amount
of 27.5% applies from 1 January 2020 onwards.
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
GDR depositary will be subject to the
deduction and withholding of Slovenian tax
at the rate of 27.5 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.
Application of Double Tax Treaties
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 a resident for
taxation purposes in such a country, issued
by the tax authorities of such a country.
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 RoS.
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) with
respect to such a dividend payment.
NLB Group Annual Report 2019 164
Chapter 22
Corporate and Social
Responsibility
The Group, as an institution of systemic
importance in the region, is not focusing
only on strictly business topics, like
numbers, balance sheets, and financial
results. Its mission is much broader and
aims to be seen and valued in peoples’
lives, among its employees, in many social
aspects, like sports and humanitarian
The focus was on environmental protection,
sustainability, humanitarian activities,
promotion of financial literacy, and
entrepreneurship, as well as supporting
culture, sports, and a healthy lifestyle. Above
all, investments were made in knowledge and
well-being of the Group’s employees.
projects and in the environment. In
Committed to the Group’s employees
addition to developing innovative,
customer-oriented products and services,
and thus creating added value for the
stakeholders and contributing to economic
development, it cares especially for the
home region and wants to contribute
to an overall better quality of life. SEE is
not just a spot on a map. It is our home.
The Group aims to achieve the
improvements of the quality of life in
the home region by fulfilling its socially
responsible mission. In 2019, the Group
successfully completed 352 CSR projects,
all of them aligned with Groups’ Politics
of Corporate and Social Responsibility.
The process of monitoring and deciding
on sponsorships and donations were
streamlined, thus ensuring even more
synergy between the members of the Group.
The well-being of the Group’s employees
is the first and foremost concern. With
accurate insight in every employee’s
strengths and potentials it can offer
development plans for employees and careful
monitoring progress later on. A satisfied and
effective employee with a work/life balance
knows that his or her potential is recognised.
In the Bank, a better work-life balance was
achieved with a series of measures of a
family friendly company, amongst them NLB
Family day, which was organised for the first
time in 2019.
The efforts were recognised to be successful
in ensuring the well-being of the employees
by the Top Employer Institute, which has
granted NLB the prestigious certificate for
the fourth consecutive year, thus ranking
the Bank amongst the best employers in the
world. In 2019, recognition as the second
most desirable employer in the financial
sector was also awarded to NLB Banka,
Sarajevo, making this Group subsidiary bank
one of the Top 10 employers in BiH.
Financial literacy and promotion
of entrepreneurship
As a general sponsor, the bank supported
the Kopaonik business forum, which
gathered around 1,300 businessmen,
representatives of state institutions, and
non-governmental organisations. Also, in
BiH and Montenegro regional business
forums were organised: in BiH NLB Banka,
Sarajevo and NLB Banka, Banja Luka
focused on talents and in Montenegro
‘Women in Business: The New Value of the
Montenegrin Economy,’ during which the
successful business stories of NLB Banka,
Podgorica women clients were presented.
In 2019, NLB Banka, Sarajevo supported
a new cycle of lectures at the Academy
for Entrepreneurship which was
prepared in cooperation with EFSE and
Deloitte; and NLB has, similarly, backed
developing entrepreneurial spirit amongst
young people by organising financial-
entrepreneurial workshops for the My
Company programme under the auspices
of the Institute for the Promotion of Youth
Entrepreneurship.
Aiming at promoting financial literacy, the
Group organised many financial workshops
for children – members of sports clubs,
who participate in the project Youth sports;
as well as a financial workshop with the
presence of a sign language interpreter for
people with hearing disabilities.
Humanitarian initiatives
The Bank focused much of its attention on
people with hearing disability by supporting
the Theatre Interpreter Initiative, which
introduced a series of theatre plays with sign
language interpreters into the Slovenian
cultural sphere, thus enabling a more equal
inclusion of people with hearing disability
into everyday life. The Bank’s service 24/7
video call was updated with the presence of
an interpreter once a week, thus enabling
people with hearing disability to carry out
basic banking tasks.
NLB Group Annual Report 2019 165
Entrepreneurship 7%
Culture 14%
Local entities
(mentorship,
conferences) 9%
HR 7%
Humanitarian
25%
Sports for
young and
professional
sports 38%
Figure 72: The structure of socially
responsible projects in NLB Group in 2019
organic food production, family
entrepreneurship, sustainable development,
and care for the environment as well as
general health of the population; and
NLB Banka, Sarajevo participated in the
initiative of cleaning the city in just one day.
Financing large renewable energy project
in Kosovo, which is expected to significantly
increase the production of green energy
from renewable sources in the region, was a
project supported on the Group level.
In the future, the Group will put additional
efforts to environment protection and
sustainability with the new Environmental
Social and Governance Strategy, which is
being prepared to upgrade current CSR
activities primarily with activities related
to the safeguarding of the environment –
where we live, work, and dream.
Disclosure of the Group’s sustainability
reporting based on GRI Sustainability
Reporting Standards (GRI) is part of
the Annual Report on Corporate Social
Responsibility 2019 which is publicly
available on the Bank’s website: https://
www.nlb.si/social-responsibility.
Other vulnerable groups and noteworthy
causes were supported as well. Amongst
them hospitals and children in need. The
Bank has, for example, also collected
old Slovenian currency and donated the
collected amount to the Europa Donna
association. NLB Banka, Prishtina paid
special attention to people with disabilities
and underprivileged families.
Supporting professional sport
and encouraging youth sports
The Group supported professional athletes
as well as children – members of sports
clubs, participating in the project Youth
Sports, to inspire young people to take up
sports, learn how to win, and, on the other
hand, learn how to lose with dignity. Across
Slovenia, the Bank supported 36 local sports
clubs, and gave opportunity to almost 2,000
children to see the football qualifications for
the European Championship 2020.
Other Group member banks also
contributed their share to this mission.
NLB Banka, Prishtina has, for example,
financially supported men’s rugby
championships and chess tournaments;
and NLB Banka, Podgorica combined the
promotion of sports with humanitarian
initiative and the long-time project ‘Small
Steps are Changing the World for the
Better,’ during which they donated funds to
Montenegrin maternity hospitals.
Preserving environment
and cultural heritage
However, the Group has focused also on
the bigger picture – the protection of
environment and preserving of cultural
heritage. Many exhibitions were held in
NLB Banka, Beograd, NLB Banka, Skopje,
and NLB Galerija Avla; and in addition,
decisive steps were taken in preparation for
the establishment of the Slovenian banking
museum.
NLB Banka, Beograd continued with its
admirable project Organic, supporting
NLB Group Annual Report 2019 166
Chapter 23
Events After the End of
the 2019 Financial Year
On 5 February, the Bank issued 10NC5
subordinated Tier 2 notes in the aggregate
nominal amount of EUR 120 million. The
fixed coupon of the notes during the first
five years is 3.40% p.a., thereafter it will be
reset to the sum of the then applicable 5Y
MS and the fixed margin as provided at
the issuance of the notes (i.e. 3.658% p.a.).
The notes with ISIN code XS2113139195
and rated BB by S&P rating agency were
admitted to trading on the Euro MTF
Market operated by the Luxembourg Stock
Exchange on 5 February.
On 26 February, NLB entered into a share
purchase agreement with the Republic of
Serbia for the acquisition of an 83.23%
ordinary shareholding in Komercijalna
Banka a.d. Beograd. The closing of the
transaction is expected in Q4 2020 and is
subject to mandatory regulatory approvals
from, amongst others, the ECB, BoS and the
National Bank of Serbia. The consideration
for the 83.23% shareholding amounts to
EUR 387 million, which will be payable
in cash on completion. In accordance with
Serbian bank privatisation regulations,
NLB is not required to launch a mandatory
tender offer for minorities’ shareholdings in
Komercijalna Banka a.d. Beograd.
On 4 March NLB obtained ECB permission
to include the subordinated Tier 2 notes
it issued on 19 November 2019 in the
aggregate amount of EUR 120 million with
ISIN code XS2080776607 in the calculation
of Tier 2 capital.
Following the indications of the outbreak of
the coronavirus – COVID-19 (hereinafter:
coronavirus) in March in Slovenia and SEE,
the Group has taken necessary measures
to protect its investors, customers, and
employees by ensuring safety conditions
and ensuring services are provided
without disruption. As the outbreak and
spread of the coronavirus continues to
evolve, it is challenging to predict the full
extent and duration of its business and
economic implications. Consequently,
these circumstances may present Group
members with challenges relating to the
business operations in large part due to the
respective governmental bodies measures
and policies which have already been
implemented or might be implemented in
the future. Such measures and policies could
significantly disrupt the activities of one or
more Group members, and so the Group
is considering implementing measures to
support the economies in SEE region. The
Group estimates the coronavirus could
have a negative effect on the loan portfolio,
asset quality, impairments and provisions,
fair value measurement of financial assets,
etc. The extent of the implications for the
Group’s financial performance are currently
not possible to evaluate with a high degree
of certainty.
NLB Group Annual Report 2019 167
NLB Group Annual Report 2019 Financial ReportINTEREST INCOMESHARE CAPITALTAXRATIOSFEESCASHSUBSIDARIESSHARE CAPITALACCOUNTINGCAPITAL ADEQUACY LOANSIMPAIRMENTFINANCIAL STATEMENTSRISK MANAGEMENTPERFORMANCE INDICATORSSEGMENTACCOUNTINGM&A Financial ReportINTEREST INCOMESHARE CAPITALTAXRATIOSFEESCASHSUBSIDARIESSHARE CAPITALACCOUNTINGCAPITAL ADEQUACY LOANSIMPAIRMENTFINANCIAL STATEMENTSRISK MANAGEMENTPERFORMANCE INDICATORSSEGMENTACCOUNTINGM&A 170
Contents
Independent auditor’s report
Statement of management’s responsibility
Income statement for the annual period ended 31 December
Statement of comprehensive income for the annual period ended 31 December
Statement of financial position as at 31 December
Statement of changes in equity for the annual period ended 31 December
Statement of cash flows for the annual period ended 31 December
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. Allowances for 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 16 as at 1 January 2019
3.
4.
Changes in subsidiary holdings
Notes to the income statement
4.1.
Interest income and expenses
4.2. Dividend income
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NLB Group Annual Report 2019 4.3. Fee and commission income and expenses
4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
4.5. Gains less losses from financial assets and liabilities held for trading
4.6. 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. Derivatives for hedging purposes
5.6. Financial assets measured at amortised cost
5.7. Non-current assets classified as held for sale
5.8. Property and equipment
5.9.
Investment property
5.10. Intangible assets
5.11. Leases
5.12. Investments in subsidiaries, associates and joint ventures
5.13. Other assets
5.14. Movements in allowance for the impairment of financial assets
5.15. Financial liabilities, measured at amortised cost
5.16. Provisions
5.17. Deferred income tax
5.18. Income tax relating to components of other comprehensive income
5.19. Other liabilities
5.20. Share capital
5.21. Accumulated other comprehensive income and reserves
5.22. Capital adequacy ratios
5.23. Off-balance sheet liabilities
5.24. 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
171
207
208
209
209
209
210
210
211
212
212
213
213
214
215
216
216
216
217
218
219
222
224
225
228
229
230
233
239
240
244
246
252
255
255
255
256
257
260
261
263
266
287
297
309
311
320
322
326
333
NLB Group Annual Report 2019 172
Independent auditor’s report
This is a translation of the original report in Slovene language
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Nova Ljubljanska Banka, d.d.
Opinion
We have audited the separate financial statements of Nova Ljubljanska Banka, d.d. (“the Bank”) and the
consolidated financial statements of NLB Group (“the Group”), which comprise the statement of financial position
and consolidated statement of financial position as at 31 December 2019, the income statement and consolidated
income statement, the statement of other comprehensive income and consolidated statement of other
comprehensive income, the statement of changes in equity and consolidated statement of changes in equity, the
statement of cash flows and consolidated statement of cash flows for the year then ended, and a summary of
significant accounting policies and other explanatory information.
In our opinion, the accompanying separate financial statements and consolidated financial statements present fairly,
in all material respects, the financial position of the Bank and the Group as at 31 December 2019 and its separate
and consolidated financial performance and its separate and consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISA) and Regulation (EU) No.
537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding
statutory audit of public-interest entities (“Regulation (EU) No. 537/2014 of the European Parliament and the
Council“). Our responsibilities under those rules are further described in the Auditor’s responsibilities for the audit
of the separate and consolidated financial statements section of our report. We are independent of the Bank and
the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the
separate and consolidated financial statements in Slovenia, and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
separate and consolidated financial statements of the current period. These matters were addressed in the context
of our audit of the separate and consolidated financial statements as a whole and in forming our opinion thereon
and we do not provide a separate opinion on these matters. For the matters below, our description of how our audit
addressed the matters is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the separate and
consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the separate and consolidated financial statements. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying separate and consolidated financial statements.
1/5
NLB Group 2019 Annual Report 173
Credit risk and impairment of loans and advances to customers
The carrying amount of loans and advances given
customers at amortized costs amounts to EUR 4.6 billion
(or 47% of total assets) at the Bank and EUR 7.6 billion
(or 54% of total assets) at the Group as of 31 December
2019. Total provisions as of 31 December 2019 at the
Bank amounted to EUR 119 million and at the Group to
EUR 322 million. Impairment of loans and advances to
customers is a highly subjective area due to the level of
judgment applied by management in determining credit
provisions specifically around expected life time losses,
loss given default (LGD) and probability of default (PD)
in case of Stage 1 and Stage 2. Mainly, higher risk is
related to assessment of individual provisions for loans
and advances to customers in Stage 3, which are
determined based on scenarios and their likelihood of
happening. Scenarios are based on 'going' and 'gone'
assumption of debt repayment. Those scenarios contain
assumptions and estimates related to identification of
significant changes in credit risk, impairment triggers,
probabilities of scenarios for cash flow forecasts and
collateral realization, all containing high
level of
complexity and subjectivity. Bank’s Stage 3 gross
balance of loans and advances to customers was EUR
144 million as of 31 December 2019 (Group: EUR 344
million) and total provisions EUR 85 million (Group: EUR
231 million).
Provisions for loans and advances to customers in
Stage 1 and Stage 2 are determined based on complex
models and parameters used in those models, such as:
life time PD, LGD, identification of significant changes in
credit risk, inclusion of forward-looking elements and
segmentation of exposures, which all involve significant
management assumptions and estimates. The Bank’s
Stage 1 and Stage 2 combined gross balance of loans
and advances to customers was EUR 4.5 billion (Group:
EUR 7.6 billion) as of 31 December 2019 and total
provisions EUR 32 million (Group: EUR 90 million).
As provisions for loans and advances to customers are
significant to understanding the financial statements as
a whole and bear significant judgements, we conclude
this to be a significant item for our audit and a key
auditing matter. For further information, refer to Note
6.1. Credit risk management of the separate and
consolidated financial statements.
We understood and evaluated the processes for
identifying default events within the loan portfolios, as
well as the impairment assessment processes for
loans.
On a sample basis of performing
loans with
characteristics that might imply a default event had
occurred we assessed if the criteria for determining
whether a default event had occurred are fulfilled and
therefore whether there was a requirement to calculate
an impairment provision using Stage 3 methodology.
re-performed management’s
For a sample of Stage 3 individually impaired loans, we
understood the latest developments at the borrower
and the basis of measuring the impairment provisions
and considered whether key
judgments were
appropriate given the borrowers’ circumstances. We
also
impairment
calculation for mathematical accuracy. In addition, we
tested key
impairment calculation
the
including the expected future cash flows and valuation
of collateral held, and discussed with management as
to whether valuations were up to date, consistent with
the strategy being followed in respect of the particular
borrower and appropriate for the purpose.
inputs
to
In respect of statistical models that are used for the
estimation of credit risk related impairment losses of
Stage 1 and Stage 2 exposures, we involved risk
specialists in evaluation of the model documentation
and other
related evidence such as models’
governance, segmentation policy, expected credit loss
estimation process and assessment of
their
compliance with IFRS 9. We also reviewed changes in
risk models implemented in the current period. We
evaluated the application of the models through the
recalculation for mathematical accuracy of credit risk
related impairment losses, allowances and provisions
defined by IFRS 9.
We assessed the adequacy of the Bank’s and the
Group’s disclosures included in Note 6.1. Credit risk
management of
the separate and consolidated
financial statements.
2/5
NLB Group 2019 Annual Report 174
Information technology (IT) systems and controls over financial reporting
interest and
A significant part of the Bank's and the Group’s financial
reporting process and
fee revenue
recognition is heavily reliant on IT systems with
automated processes and controls over the capture,
storage and extraction of information. A fundamental
component of these processes and controls is ensuring
appropriate user access and change management
protocols exist and are being adhered to.
These protocols are important because they ensure that
access and changes to IT systems and related data are
made and authorized in an appropriate manner.
As our audit sought to place a high level of reliance on
IT systems and application controls related to financial
reporting, a high proportion of the overall audit effort was
in this area. Furthermore, the complexity of IT systems
and nature of application controls requires special
expertise to be involved in the audit. We therefore
consider this as a key audit matter.
We focused our audit on those IT systems and controls
that are significant for the Bank’s and the Group’s
financial reporting. As audit procedures over the IT
systems and application controls require specific
expertise, we involved IT audit specialists in our audit
procedures.
We understood and assessed the overall IT control
environment and the controls in place which included
controls over access to systems and data, as well as
system changes. We adjusted our audit approach
based on the financial significance of the system and
whether there were automated procedures supported
by that system.
As part of our audit procedures we tested the operating
effectiveness of controls over appropriate access rights
to assess whether only appropriate users had the
ability to create, modify or delete user accounts for the
relevant in-scope applications. We also tested the
operating effectiveness of controls around system
development and program changes to establish that
changes to the system were appropriately authorized,
implemented. Additionally, we
developed and
assessed and tested
the design and operating
effectiveness of the application controls embedded in
the processes relevant to our audit.
Other information
Other information comprises the information included in the Annual Report other than the separate and consolidated
financial statements and auditor’s report thereon. Management is responsible for the other information.
Our opinion on the separate and consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the separate and consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent with the separate
and consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. In addition, we assess whether the other information has been prepared, in all material respects, in
accordance with applicable law or regulation, in particular, whether the other information complies with law or
regulation in terms of formal requirements and procedure for preparing the other information in the context of
materiality, i.e. whether any non-compliance with these requirements could influence judgments made on the basis
of the other information.
Based on the procedures performed, to the extent we are able to assess it, we report that:
·
·
The other information describing the facts that are also presented in the separate and consolidated
financial statements is, in all material respects, consistent with the separate and consolidated financial
statements; and
The other information is prepared in compliance with applicable law or regulation.
In addition, our responsibility is to report, based on the knowledge and understanding of the Bank and the Group
obtained in the audit, on whether the other information contains any material misstatement. Based on the
procedures we have performed on the other information obtained, we have not identified any material misstatement.
3/5
NLB Group 2019 Annual Report 175
Responsibilities of management, supervisory board and the audit committee for the separate and
consolidated financial statements
Management is responsible for the preparation and fair presentation of the separate and consolidated financial
statements in accordance with International Financial Reporting Standards as adopted by the European Union, and
for such internal control as management determines is necessary to enable the preparation of the separate and
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate and consolidated financial statements, management is responsible for assessing the
Bank’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate the Bank
and Group or to cease operations, or has no realistic alternative but to do so.
The audit committee and supervisory board are responsible for overseeing the Bank’s and the Group’s financial
reporting process. The supervisory board is responsible to approve the audited annual report.
Auditor’s responsibilities for the audit of the separate and consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the separate and consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these separate and consolidated
financial statements.
As part of an audit in accordance with audit rules, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
• identify and assess the risks of material misstatement of the separate and consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s
and the Group’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management;
• conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Bank’s and Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the separate
and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Bank and the Group to cease to continue as a going concern;
• evaluate the overall presentation, structure and content of the separate and consolidated financial statements,
including the disclosures, and whether the separate and consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation;
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the audit committee and the supervisory board regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the audit committee and the supervisory board with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
4/5
NLB Group 2019 Annual Report 176
From the matters communicated with the audit committee and the supervisory board, we determine those matters
that were of most significance in the audit of the separate and consolidated financial statements of the current
period and are therefore the key audit matters.
Other requirements on content of auditor’s report in compliance with Regulation (EU) No. 537/2014 of the
European Parliament and of the Council
Appointment and Approval of Auditor
We were appointed as auditors of the Bank and the Group at the general meeting of shareholders on 27 June 2018,
the president of the supervisory board has signed the audit agreement on 7 September 2018. The agreement was
signed for the period of 5 years.
Total uninterrupted engagement period, including previous renewals (extension of the period for which we were
originally appointed) and reappointments for the statutory auditor, has lasted for 7 years. Janez Uranič and Simon
Podvinski are certified auditors, responsible for the audit in the name of Ernst & Young d.o.o.
Consistence with Additional Report to Audit Committee
Our audit opinion on the separate and consolidated financial statements expressed herein is consistent with the
additional report to the audit committee of the Bank, which we issued on the same date as the issue date of this
report.
Non-audit Services
No prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014 of the European
Parliament and of the Council were provided by us to the Bank and its controlled undertakings and we remain
independent from the Bank and its controlled undertakings in conducting the audit.
In addition to statutory audit services and services disclosed in the Annual Report and in the separate and
consolidated financial statements, no other services which were provided by us to the Bank and its controlled
undertakings.
Ljubljana, 17 March 2020
Janez Uranič
Director, Certified auditor
Ernst & Young d.o.o.
Dunajska 111, Ljubljana
Simon Podvinski
Certified auditor
5/5
NLB Group 2019 Annual Report 177
NLB Group 2019 Annual Report 178
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 2019,
and for the accompanying accounting
policies and notes to the financial
statements.
The Management Board is responsible for
the preparation and fair presentation of
these financial statements in accordance
with the International Financial Reporting
Standards as adopted by the European
Union, and with the requirements of the
The Management Board
Slovenian Companies Act and the Banking
Act so as to give a true and fair view of the
financial position of NLB Group and NLB
as at 31 December 2019, 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.
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group Annual Report 2019 Income statement for the annual
period ended 31 December
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
Gains less losses from modification
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.
5.5.a)
4.7.
4.8.
4.9.
4.10.
4.11.
4.12.
4.12.
4.13.
4.13.
5.12.c)
4.14.
4.15.
179
NLB Group
NLB
in EUR thousands
2019
357,412
7,406
364,818
(46,331)
318,487
208
234,979
(64,640)
170,339
4,643
10,465
18,765
-
(555)
706
3,355
16,270
(28,214)
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
2019
175,598
7,310
182,908
(24,782)
158,126
71,231
137,898
(33,943)
103,955
4,512
3,335
16,289
-
(555)
396
432
8,508
(28,268)
(12,347)
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)
(270,442)
(261,432)
(171,749)
(161,439)
(30,964)
(27,224)
(18,046)
(17,531)
(182)
(312)
(11,135)
13,630
(3,177)
4,197
(687)
215,397
(13,579)
201,818
193,576
8,242
-
3,156
(1,512)
27,047
(5,414)
5,446
11,828
233,336
(21,759)
211,577
203,647
7,930
-
368
(5,586)
16,661
2,795
-
(579)
177,746
(1,597)
176,149
-
1,157
2,258
28,659
981
-
11,822
177,486
(12,187)
165,299
176,149
165,299
-
8.8
-
8.3
Earnings per share/diluted earnings per share (in EUR per share)
4.16.
9.7
10.2
The notes are an integral part of these financial statements.
NLB Group Annual Report 2019 180
Statement of comprehensive income for
the annual period ended 31 December
Notes
Net profit for the year after tax
Other comprehensive income after tax
Items that will not be reclassified to income statement
Actuarial gains/(losses) on defined benefit pensions plans
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
5.18.
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
Valuation gains/(losses) taken to equity
Transferred to income statement
Share of other comprehensive income/(losses) of
entities accounted for using the equity method
5.4.c)
4.4., 4.13.
Income tax relating to components of other comprehensive income
5.18.
Total comprehensive income for the year after tax
Attributable to owners of the parent
Attributable to non-controlling interests
The notes are an integral part of these financial statements.
NLB Group
NLB
in EUR thousands
2019
201,818
19,040
(1,777)
284
1,233
(146)
1,299
1,299
13,129
16,526
(3,397)
8,440
(3,422)
220,858
212,266
8,592
2018
211,577
(14,337)
1,166
1,015
(1,120)
141
(1,128)
(1,128)
(12,343)
(12,073)
(270)
(5,375)
3,307
197,240
189,430
7,810
2019
176,149
4,446
(1,523)
213
-
104
-
-
6,977
11,202
(4,225)
-
(1,325)
180,595
180,595
-
2018
165,299
(8,361)
884
(10)
-
(73)
-
-
(11,311)
(11,371)
60
-
2,149
156,938
156,938
-
NLB Group Annual Report 2019 181
Statement of financial position
as at 31 December
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
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 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
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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
5.1.
5.2.a)
5.3.a)
5.4.
5.6.a)
5.6.b)
5.6.c)
5.6.d)
5.5.b)
5.5.c)
5.12.a)
5.12.b)
5.8.a)
5.9.
5.10.
5.17.
5.13.
5.7.a)
5.2.b)
5.3.b)
5.15.a)
5.15.b)
5.15.a)
5.15.b)
5.15.c)
5.15.d)
5.5.b)
5.16.
5.17.
5.19.
5.20.
5.21.a)
5.21.b)
5.21.a)
2,101,346
1,588,349
1,292,211
24,038
25,359
63,609
32,389
24,085
23,287
795,102
63,611
29,141
2,141,428
1,898,079
1,656,657
1,528,314
1,653,848
93,403
7,589,724
97,415
788
8,991
-
7,499
1,428,962
118,696
7,124,633
75,171
417
2,517
-
37,147
195,605
177,404
52,316
39,542
6,284
29,500
63,811
43,191
58,644
34,968
877
22,847
70,971
4,349
1,485,166
144,352
4,568,599
67,279
788
8,991
351,883
1,366
89,904
9,303
25,980
5,463
29,569
11,142
5,532
1,274,978
110,297
4,451,477
42,741
417
2,517
350,733
4,777
86,934
12,026
23,391
-
22,234
10,637
1,720
14,174,088
12,740,029
9,801,557
8,811,047
17,903
7,998
42,840
170,385
12,300
4,190
26,775
258,423
11,612,317
10,464,017
64,458
210,569
158,484
49,507
88,414
2,271
2,833
15,212
61,844
15,050
100,887
29,474
80,134
12,152
2,499
14,840
12,443,191
11,082,585
200,000
871,378
26,493
13,522
574,489
1,685,882
45,015
1,730,897
14,174,088
200,000
871,378
7,823
13,522
523,493
1,616,216
41,228
1,657,444
12,740,029
17,892
7,746
89,820
161,564
7,760,737
2,537
210,569
98,342
49,507
60,384
-
-
9,234
8,468,332
200,000
871,378
20,285
13,522
228,040
12,256
3,981
48,903
244,133
7,033,409
4,128
-
62,212
29,474
56,994
10,784
-
9,543
7,515,817
200,000
871,378
15,839
13,522
194,491
1,333,225
1,295,230
-
1,333,225
9,801,557
-
1,295,230
8,811,047
NLB Group Annual Report 2019 182
The Management Board has authorised
for issue the financial statements and the
accompanying notes.
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
Ljubljana, 17 March 2020
NLB Group Annual Report 2019 183
Statement of changes in equity for the
annual period ended 31 December
NLB Group
Share capital
Share
premium
Accumulated other comprehensive income
in EUR thousands
Fair value
reserve of
financial
assets
measured
at FVOCI
Foreign
currency
translation
reserve
Equity
attributable
to owners of
the parent
Retained
earnings
Equity
attributable
to non-
controlling
interests
Total equity
Other Profit reserves
Balance as at 1 January 2019
200,000
871,378
28,702
(18,275)
(2,604)
13,522
523,493
1,616,216
41,228
1,657,444
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
Transfer of actuarial gains
-
-
-
-
-
-
-
-
-
-
-
-
-
19,178
1,220
(1,708)
19,178
1,220
(1,708)
-
-
-
-
-
(20)
-
-
-
-
-
193,576
193,576
8,242
201,818
-
18,690
350
19,040
193,576
212,266
8,592
220,858
(142,600)
(142,600)
(4,805)
(147,405)
20
-
-
-
Balance as at 31 December 2019
200,000
871,378
47,880
(17,055)
(4,332)
13,522
574,489
1,685,882
45,015
1,730,897
NLB Group
Share capital
Share
premium
Accumulated other comprehensive income
in EUR thousands
Fair value
reserve of
financial
assets
measured
at FVOCI
Foreign
currency
translation
reserve
Equity
attributable
to owners of
the parent
Retained
earnings
Equity
attributable
to non-
controlling
interests
Total equity
Other Profit reserves
Balance as at 1 January 2018
200,000
871,378
45,143
(17,248)
(3,595)
13,522
588,186
1,697,386
36,891
1,734,277
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
Transfer of fair value reserve
Other
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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
NLB Group Annual Report 2019 184
NLB
Share capital
Share premium
in EUR thousands
Accumulated other
comprehensive income
Fair value reserve
of financial
assets measured
at FVOCI
Other
Profit reserves Retained earnings
Total equity
Balance as at 1 January 2019
200,000
871,378
18,620
(2,781)
13,522
194,491
1,295,230
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
-
-
-
-
-
-
-
-
-
5,824
5,824
-
-
(1,378)
(1,378)
-
-
-
-
-
176,149
176,149
-
4,446
176,149
180,595
(142,600)
(142,600)
Balance as at 31 December 2019
200,000
871,378
24,444
(4,159)
13,522
228,040
1,333,225
NLB
Share capital
Share premium
in EUR thousands
Accumulated other
comprehensive income
Fair value reserve
of financial
assets measured
at FVOCI
Other
Profit reserves Retained earnings
Total equity
Balance as at 1 January 2018
200,000
871,378
27,741
(3,497)
13,522
299,748
1,408,892
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
Transfer of fair value reserve
-
-
-
-
-
-
-
-
-
-
-
(9,077)
(9,077)
-
(44)
-
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
The notes are an integral part of these financial statements.
NLB Group Annual Report 2019 Statement of cash flows for the annual
period ended 31 December
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 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 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 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
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
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from financing activities
Issue of subordinated debt
Payments from financing activities
Dividends paid
Repayments of subordinated debt
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.
185
NLB
2019
228,618
(21,335)
71,229
134,530
(34,041)
4,513
4,072
in EUR thousands
2018
216,528
(23,503)
49,692
130,488
(32,535)
791
3,819
(171,633)
(163,014)
7,859
(12,724)
(23,283)
187,805
(229,476)
44,214
25,948
8,252
(14,843)
(335)
175,340
209,016
10,773
8,464
NLB Group
Notes
2019
2018
407,372
(44,062)
2,985
232,860
(68,000)
4,644
10,776
(264,452)
18,378
(26,698)
(34,225)
239,578
(575,987)
44,214
29,084
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
(250,506)
(266,865)
(126,152)
(266,349)
(411,170)
12,391
1,067,045
-
1,067,440
(395)
730,636
251,424
6,556
8
-
269
244,591
(500,106)
(19,257)
(13,311)
-
(467,538)
(248,682)
208,321
208,321
(162,246)
(147,244)
(15,002)
46,075
3,693
528,029
1,729,093
2,260,815
148,042
19,527
525,311
(691)
527,007
(1,005)
675,972
(173,964)
478
679,366
-
679,366
-
637,695
454,865
1,263
160,647
(691)
161,004
334
545,003
498,388
224,834
409,337
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
3,684
3,437
-
269
217,444
(448,106)
(10,787)
(9,125)
(1,744)
(426,450)
(223,272)
208,321
208,321
(142,600)
(142,600)
-
65,721
1,189
480,144
824,337
1,305,670
80
12,526
4,600
158
391,973
(521,369)
(10,442)
(9,931)
(2,100)
(498,896)
(112,032)
-
-
(270,600)
(270,600)
-
(270,600)
(453)
162,371
662,419
824,337
5.15.c)
5.15.c)
NLB Group Annual Report 2019 186
Statement of cash flows for the annual
period ended 31 December
NLB Group
NLB
in EUR thousands
Notes
2019
2018
2019
2018
Cash and cash equivalents comprise:
Cash, cash balances at central banks, and other demand deposits at banks
5.1.
2,101,871
1,588,819
1,292,345
Loans and advances to banks with original maturity up to 3 months
Debt securities measured at amortised cost with
original maturity up to 3 months
Debt securities measured at fair value through other comprehensive
income with original maturity up to 3 months
85,369
10,007
72,170
-
5,770
10,007
66,020
68,104
-
795,190
29,147
-
-
Total
2,263,267
1,729,093
1,308,122
824,337
NLB Group Annual Report 2019 187
1. General information
under the national legislation are included
where appropriate.
been adjusted to conform to the changes in
presentation in the current year.
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 5.12. 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 GDRs
represent one share of NLB.
As at 31 December 2019, the largest
shareholder of NLB with significant
influence is the Republic of Slovenia,
owning 25.00% plus one share (31
December 2018: 35.00% of the shares).
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 the 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
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.
With regard to implementation of IFRS 16
(note 5.11.), NLB Group chose a modified
retrospective approach, with no adjustments
to comparative amounts. Therefore,
amounts related to 2019 are presented
according to IFRS 16 and amounts related
to 2018 according to IAS 17.
2.2. Basis for presenting the financial
2.4. Consolidation
statements
The financial statements have been
prepared on a going-concern basis, under
the historical cost convention as modified by
the revaluation of financial assets measured
at fair value through other comprehensive
income, financial assets and financial
liabilities at fair value through profit or
loss, including all derivative contracts,
hedged items in fair value hedge accounting
relationships, non-current assets classified as
held for sale 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
In the consolidated financial statements
(NLB Group), 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
NLB Group Annual Report 2019 188
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 (NLB),
investments in subsidiaries, associates, and
joint ventures are accounted for with the
cost method. Dividends from subsidiaries,
joint ventures, or associates are recognised
in the income statement when NLB’s
right to receive the dividend has been
established.
In the consolidated financial statements,
investments in associates are accounted for
using the equity method of accounting.
These are generally undertakings in which
NLB Group holds between 20% and 50%
of the voting rights, and over which NLB
Group exercises significant influence, but
does not have control.
Joint ventures are those entities over whose
activities NLB Group has joint control,
as established by contractual agreement.
In the consolidated financial statements,
investments in joint ventures are accounted
for using the equity method of accounting.
NLB Group’s share of its associates’ and
joint ventures’ post-acquisition profits or
losses is recognised in the consolidated
income statement, and its share of other
comprehensive income is recognised
in other comprehensive income. The
cumulative post-acquisition movements are
adjusted against the carrying amount of
the investment. When NLB Group’s share
of losses in an associate and joint venture
equals or exceeds its interest in the associate
and joint venture, including any other
unsecured receivables, NLB Group does
not recognise further losses unless it has
incurred obligations or made payments on
behalf of the associate and joint venture.
NLB Group resumes recognising its share
of those profits only after its share of
the profits equals the share of losses not
recognised (note 5.12.b).
NLB Group’s subsidiaries, associates, and
joint ventures are presented in note 5.12.
professional services. Transaction costs
incurred for issuing equity instruments
are deducted from the equity, and all
other transaction costs associated with the
acquisition are expensed.
The goodwill of associates and joint
ventures is included in the carrying value of
investments.
2.7. A combination of entities or
businesses under common control
A merger of entities within NLB Group is
a business combination involving entities
under common control. For such mergers,
members of NLB Group apply merger
accounting principles, and use the carrying
amounts of merged entities as reported in
the consolidated financial statements. No
goodwill is recognised on mergers of NLB
Group entities.
Mergers of entities within NLB Group
do not affect the consolidated financial
statements.
2.8. Foreign currency translation
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 has
identified all the assets acquired and all the
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
Items included in the financial statements
of each of NLB Group’s entities are
measured using the currency of the
primary economic environment in which
the entity operates (i.e. the functional
currency). The financial statements are
presented in euros, which is NLB Group’s
presentation currency.
Transactions and balances
Foreign currency transactions are translated
into the functional currency at the
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions, and from the translation of
monetary assets and liabilities denominated
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
NLB Group Annual Report 2019 classified as financial assets and measured
at fair value through other comprehensive
income 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 financial
assets, measured at fair value through
other comprehensive income, are included
together with valuation reserves in the
valuation (losses)/gains taken to other
comprehensive income and accumulated in
the equity.
Gains and losses resulting from foreign
currency purchases and sales for trading
purposes are included in the income
statement as gains less losses from financial
assets and liabilities held for trading.
NLB Group entities
The financial statements of all NLB Group
entities that have a functional currency
different from the presentation currency are
translated into the presentation currency as
follows:
• assets and liabilities for each statement of
financial position presented are translated
at the closing rate on the reporting date;
• income and expenses for each income
statement are translated at average
exchange rates; and
• components of equity are translated at
the historical rate.
Goodwill and fair value adjustments arising
from the acquisition of a foreign entity are
treated as assets and liabilities of the foreign
entity and translated at the closing rate.
In the consolidated financial statements,
exchange differences arising from the
translation of the net investment in
foreign operations are recognised in other
comprehensive income. When control over
a foreign operation is lost, the previously
recognised exchange differences on
translations to a different presentation
currency are reclassified from other
comprehensive income to profit and loss
for the year. On the partial disposal of
a subsidiary without loss of control, the
related portion of accumulated currency
translation differences is reclassified as a
non-controlling interest within the equity.
2.9. Interest income and expenses
Interest income and expenses for all
financial instruments measured at
amortised cost, and financial assets
measured at fair value through other
comprehensive income 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
189
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
a) Classification and measurement
Financial instruments are initially measured
at fair value plus or minus, in the case of a
financial instrument not measured at fair
value through profit or loss, transaction
costs that are directly attributable to
the acquisition or issue of the financial
instrument. Subsequent measurement
depends on the classification of the
instrument.
Financial assets
All debt financial assets need to be assessed
based on a combination of the Group’s
business model for managing the assets
and the instruments’ contractual cash flow
characteristics. Measurement categories of
financial assets are as follows:
• Financial assets, measured at amortised
costs (AC);
• Financial assets at fair value through
other comprehensive income (FVOCI);
• Financial assets held for trading
(FVTPL); and
NLB Group Annual Report 2019 190
• 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,
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.
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 expected frequency, value, and timing
of sales.
Financial liabilities
Financial liabilities are subsequently
measured at an amortised cost or at fair
value through profit or loss, when they are
held for trading, derivative instruments, or
the fair value designation is applied.
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;
- debt securities in the second group
are held under a business model ‘held
to collect and sale’ with the aim of
collecting the contractual cash flows
and sale of financial assets, and forms
part of the Group’s liquidity reserves;
the third part of debt securities is held
within the business model for holding
them in order to collect contractual
cash flows.
-
With regard to debt securities within the
‘held to collect’ business model, the sales
which are related to the increase of the
issuers’ credit risk, concentrations risk, sales
made close to the final maturity, or sales 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.
Upon initial recognition, financial liability
may be irrevocably designated as measured
at fair value through profit or loss if
that 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, or
if the liabilities are part of a group of
financial instruments which are managed
and their performance evaluated on
a fair value basis in accordance with
a documented risk management or
investment strategy. Changes in fair value
are recognised in profit or loss, with the
exception of movements in fair value of
liabilities due to changes of NLB Group’s
own credit risk. Such changes are presented
in other comprehensive income with no
subsequent reclassification to the income
statement.
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 reflect 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
NLB Group Annual Report 2019 A review of instruments’ contractual
• if the modification is such that it changes
cash flow characteristics (the SPPI test –
the result of 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
measured at FVTPL.
NLB Group reviews 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 has 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 loan
agreements.
Accounting policy for
modified financial assets
When contractual cash flows of a financial
asset are modified, NLB Group assesses
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 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) Reclassification
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 presented periods. Financial liabilities
shall not be reclassified.
c) 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’).
191
In cases where the data used for valuation
are not fully observable in financial markets,
day one gains or losses are not recognised
immediately in the income statement. The
timing of recognition of deferred day one
gains or losses is determined individually.
It is either amortised over the life of the
transaction, deferred until the instrument’s
fair value can be determined using market
observable inputs, or realised through
settlement.
d) Derecognition
A financial asset is derecognised when
the contractual rights to the cash flows
from the financial asset expire, or when
the financial asset is transferred, and the
transfer qualifies for derecognition. A
financial liability is derecognised only when
it is extinguished, i.e., when the obligation
specified in the contract is discharged,
cancelled, or expires.
e) 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 enforcement
procedures. NLB still seeks to recover all
amounts it is legally entitled to in full. A
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 5.14.a).
f) Fair value measurement principles
The fair value of financial instruments
traded on active markets is based on the
price that would be received to sell the
assets or transfer liability (exit price) being
measured at the reporting date, excluding
transaction costs. If there is no active
market, the fair value of the instruments
NLB Group Annual Report 2019 192
is estimated using discounted cash flow
techniques or pricing models.
If discounted cash flow techniques are
used, estimated future cash flows are based
on management’s best estimates; and
the discount rate is a market-based rate
at the reporting date for an instrument
with similar terms and conditions. If
pricing models are used, inputs are based
on market-based measurements at the
reporting date.
g) Derivative financial instruments
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. 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, disclosures that
are required by the IFRS 9 related
amendments to IFRS 7 ‘Financial
Instruments: Disclosures’ are implemented.
At the inception of the transaction, NLB
Group documents the relationship between
hedged items and hedging instruments, as
well as its risk management objective and
strategy for undertaking various hedge
transactions. NLB Group also documents
its assessment, both at 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.
When a hedging instrument expires or
is sold, or when a hedge no longer meets
hedge accounting criteria, any cumulative
gain or loss existing in other comprehensive
income and previously accumulated
in equity at that time remains in other
comprehensive income and in equity, and
is recognised in profit or loss only when
the forecasted transaction is ultimately
recognised in the income statement.
When a forecasted transaction is no
longer expected to occur, the cumulative
gain or loss that was reported in other
comprehensive income is immediately
transferred to the income statement.
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. Allowances for financial assets
a) Expected credit losses for
collective allowances
IFRS 9 applies an expected loss model
that provides an unbiased and probability-
weighted estimate of credit losses by
evaluating a range of possible outcomes
that incorporates forecasts of future
economic conditions. The expected loss
model requires NLB Group to recognise
NLB Group Annual Report 2019 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.
In general model, the allowance is based
on the expected credit losses associated
with the probability of default in the
next 12 months unless there has been a
significant increase in credit risk since
initial recognition, in which case, the
allowance is based on the probability of
default over the life of the financial asset
(LECL). When determining whether the
risk of default increased significantly since
initial recognition, the Group considers
reasonable and supportable information
that is relevant and available without
undue cost or effort. This includes both
quantitative and qualitative information
and analysis, based on the Group’s
historical data, experience, expert credit
assessment, and incorporation of forward-
looking information.
• 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 internal rating system
and contains 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 deteriorate based on the rating
of other credit facilities of the same client.
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 (which is accompanied with
the increase of Probability of default
(PD) indicator),
• 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
Classification into stages
the borrower, or
NLB Group prepared a methodology for
ECL defining the criteria for classification
into stages, transition criteria between
stages, models for risk indicators
calculation, forward-looking scenarios,
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 initial recognition, NLB Group
recognises an allowance based on
12-month period,
• Stage 2 – underperforming portfolio:
significant increase in credit risk (SICR)
since initial recognition, NLB Group
recognises an allowance for lifetime
period, and
• if the facility is placed on the watch list or
intensive care 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.
The classification into stages is based on
the facility level, nevertheless occurring
delays on one facility may trigger the Stage
deterioration of other facilities of the
same client. When the SICR criteria no
longer exist, the facility may be transferred
to a more favourable stage subject to the
prescribed holding period.
193
ECL for Stage 1 financial assets is
calculated based on 12-month PDs or
shorter period PDs, if the remaining
maturity of the financial asset is shorter
than 1 year. The 12-month PD already
includes 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.
The ECL for Stage 2 financial assets is
calculated based on 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
a 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 being 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 obtained result for
each month is discounted to the present
time using the original effective interest
rate of the facility. For Stage 1 exposures,
the ECL only takes a 12-month period into
account, while for Stage 2 or 3 all potential
losses until maturity date are included.
The EAD represents the anticipated
outstanding amount owed by the obligor,
which is determined as the sum of
NLB Group Annual Report 2019 194
on-balance exposure and expected future
drawings of the off-balance exposure. The
drawings are assessed by applying the CCF
(credit conversion factor) based on the
bank’s historic experience with similar types
of facilities.
The PD is the estimation of likelihood of
default over a given time horizon. The
estimation is performed separately for each
unique product group or segment of clients.
Through the cycle, the PD is supplemented
with the forward-looking aspect using
multiple possible scenarios.
The LGD parameter reflects the expected
loss the facility will incur in case of the
event of default. The LGD value is
assessed based on the Bank’s historic
data on repayments from different types
of collateral, as well as other types of
repayments such as regular/partial
repayments, repayments from legal
proceedings, sale of receivables, and
others. Through the cycle, the LGD is
supplemented with the forward-looking
aspect to reflect the expected changes in the
macroeconomic parameters.
Risk parameter calculations are based on
the data from each subsidiary, while the
calculations and modelling are performed
centrally. In the case where the data
samples are not sufficiently large, hurdle
rates are applied based on the regulatory or
other benchmarks.
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 macroeconomic scenarios used by
the NLB Group for ECL measurement
are based on existing Group’s stress testing
framework. Scenarios under the Stress
testing framework are regularly presented,
challenged, and discussed by the Capital
Management Group (CMG), the Liquidity
Management Group (LMG), respective
Committees (ALCO, RICO, and OpRisk
Committee), and the Management Board.
Scenarios and statistical models are the
same for all NLB Group members, local
specifics for subsidiaries are captured by
the process of scenarios results calibration.
A three-component scenario framework is
used under the IFRS 9, namely Baseline,
Optimistic, and Pessimistic scenarios.
The baseline scenario presents a direct
application of official GDP forecasts
(IMF, EC, and IMAD), with additional
modifications to mitigate for possible
excessive optimism or pessimism in
forecasts. The pessimistic scenario
assumes moderate cyclical slowdown of
the economy – the main reason for the
slowdown is because of the exports due to
international growth and trade moderation.
House prices growth is derived by the
internal models, using the official GDP
projections as a price driver. The optimistic
scenario simply takes the best forecaster
GDP projections in the 5Y period, while
the pessimistic scenario refers to the adverse
macro scenario from the ICAAP process.
Each scenario is weighted by the respective
probability of occurrence and the weighted
average scenario is subsequently calculated.
Weights are derived from the historical
data, based on their distribution properties.
The weighted average scenario is used
as a base for IFRS 9 ECL calculations.
Currently, NLB Group uses GDP for PDs
and House prices growth for LGD forward-
looking projections.
NLB Group Annual Report 2019 Macroeconomic scenarios for Risk parameters explanatory variables
Risk parameter
PD
Scenario
Scenario weight
(period average)
Baseline
Optimistic
Pessimistic
Weighted average
43%
36%
21%
-
GDP percentage growth 5Y projection
2019
2.70
3.40
(1.77)
2.80
2020
2.39
3.10
(2.56)
2.57
2021
2.23
2.80
1.47
2.09
2022
1.81
2.32
1.08
1.82
195
2023
1.63
2.08
0.84
1.66
Risk parameter
LGD*
Scenario
Scenario
weight
Weighted average
-
2019
(0.06)
2020
(0.15)
2021
(0.34)
2022
(0.45)
2023
(0.51)
House prices growth 5Y projection
* Weighted average GDP scenario was used in internal econometric model for House prices growth forecasting
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
Assets carried at an amortised cost
NLB Group assesses impairments
of financial assets separately for all
individually significant assets classified in
Stage 3. 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. All other financial
assets obtain collective allowances.
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 considered
along with the sale of collateral that is not
crucial for future business. In case of the
‘gone concern’ principle, the repayments
are based on expected cash flows from the
sale of collateral. 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 of financial assets
measured at an amortised cost is reduced
through an allowance account and the loss
is recognised in the income statement item
‘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 the 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 the ‘Provisions’ item and in the
income statement in the 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 an 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.
2.14. Forborne loans
A forborne loan (or restructured financial
asset) arises as a result of a debtor’s inability
to repay a debt under the originally agreed
terms, either by modifying the terms of
the original contract (via an annex) or by
signing a new contract under which the
contracting parties agree the partial or
total repayment of the original debt. If to
receivables due from the client the status of
restructuring is introduced, the debtor must
be classified in the rating group C or lower.
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
NLB Group Annual Report 2019 196
which forbearance measures have been
extended.
The accounting treatment of forborne
loans depends on the type of restructuring.
When NLB Group embarks on a forborne
loan via the 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 upon 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
considers 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 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 exposure is no
longer considered as impaired or defaulted,
if determined amounts were repaid, if
one year has passed from the latest of the
events defined (introduction of forbearance,
classification in the non-performing part,
repayment of the last overdue amount,
end of the grace period) 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.
considered. 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.
The forborne status is withdrawn when:
2.16. Offsetting
• at least a 2-year probation period has
passed since the latest of:
-
the moment of extending the
restructuring measures or
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, in the probation period, is
more than 30 days in default more than
EUR 100.
2.15. Repossessed assets
In certain circumstances, assets are
repossessed following the foreclosure on
loans that are in default. Repossessed assets
are initially recognised in the financial
statements at their fair value and classified
in the appropriate category according to
their purpose and are sold as soon as is
practical in order to reduce exposure (note
6.1.l). 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
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
measured at an amortised cost. 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.
In financial statements, the difference
between the sale and repurchase price is
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
NLB Group Annual Report 2019 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 a 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
in %
2 - 5
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 to earn rentals, or to increase the
value of a long-term investment, rather
than to be used by the NLB Group.
Investment properties are stated at fair
value determined by a certified appraiser.
Fair value is based on current market prices.
Any gain or loss arising from a change in
the fair value is recognised in the income
statement.
2.21. Non-current assets and disposal
Leasehold improvements
5 - 25
groups classified as held for sale
Computers
Furniture and equipment
Motor vehicles
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
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
197
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) Accounting for leases based on IFRS 16
A lease is a contract, or part of a contract,
which creates enforceable rights and
obligations and conveys the right to control
the use of an identified asset for a period of
time in exchange for consideration. Thus,
IFRS 16 requires determination whether a
contract is, or contains, a lease.
NLB Group as a lessee
NLB Group recognises a liability to make
lease payments and an asset representing
the right to use the underlying asset (i.e.,
the right-of-use asset) during the lease term
for all leases, except for short-term leases
and leases of low-value. As short-term
leases are defined as those which at the
commencement date have a lease term of
12 months or less without the option to
purchase the underlying asset. Leases of
underlying assets with a value, when new,
lower or equal to EUR 5 thousand are
defined as low value leases and are thus
recognised as an expense on a straight-line
basis over the lease term.
Right-of-use assets
At the commencement date, NLB Group
measures the right-of-use asset at cost,
reduced by any accumulated depreciation
and impairment losses, and adjusted for
any remeasurement of lease liabilities. The
cost of right-of-use assets consists of the
amount of lease liabilities recognised, initial
direct costs incurred, an estimate of costs
to be incurred by the lessee in dismantling
and removing the underlying asset to
the condition required by the terms and
conditions of the lease and lease payments
made at or before the commencement date
less any lease incentives received. After
the commencement date, NLB Group
measures the right-of-use asset using a cost
model and recognises depreciation of the
NLB Group Annual Report 2019 198
right-of-use assets, on a straight-line basis
over the lease term, and (separately) interest
on the lease liabilities.
Lease liabilities
At the commencement date, NLB Group
measures the lease liability at the present
value of the lease payments that are not
paid at that date. The lease payments
consist of fixed payments, variable lease
payments that depend on an index or a
rate, amounts expected to be paid under
residual value guarantees, the exercise
price of a purchase option if there exist
reasonable certainty for it to be exercised,
and payments of penalties for terminating
the lease, if the lease term reflects exercising
the option to terminate. Subsequently (after
the commencement date), NLB Group
measures the lease liability by:
• increasing the carrying amount to reflect
interest on the lease liability;
• reducing the carrying amount to reflect
the lease payments made; and
• remeasuring the carrying amount
to reflect any reassessment or lease
modifications.
NLB Group as a lessor
NLB Group is not exposed to finance
leases as a lessor. Its leases are classified
as operating, since it does not transfer
substantially all the risks and rewards
incidental to ownership of an underlying
asset. Lease payments from operating leases
are recognised as income on a straight-line
basis. NLB Group recognises cost, including
depreciation, incurred in earning the lease
income as an expense. Initial direct costs
incurred in obtaining an operating lease are
added to the carrying amount of the leased
asset and recognised over the lease term on
the same basis as rental income.
b) Accounting for leases based on IAS 17
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 upon 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.
Finance lease receivables are recognised
at an amount equal to the net investment
in the lease, including the unguaranteed
residual value.
NLB Group as a lessee
Sale-and-leaseback transactions
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 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.
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 three months.
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. 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 an 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
NLB Group Annual Report 2019 in accordance with IAS 32 Financial
Instruments: Presentation. An issued
financial instrument is only considered an
equity instrument if that instrument does
not represent a contractual obligation for
payment.
Issued financial instruments with
characteristics of equity are recognised
in equity in the statement of financial
position. Transaction costs incurred for
issuing such instruments are deducted from
equity reserves. The corresponding interest
is recognised directly in profit reserves.
The carrying value of an issued financial
instrument with characteristics of equity
is presented in the statement of changes
in equity in the item ‘Other Equity
Instruments.’
2.26. Provisions
Provisions are recognised when NLB
Group has a present legal or constructive
obligation as a result of past events, and
it is probable that an outflow of resources
embodying economic benefits will be
required to settle the obligation, and a
reliable estimate of the amount of the
obligation can be made.
2.27. Contingent liabilities and
commitments
Financial and non-financial guarantees
Financial guarantees are contracts that
require the issuer to make specific payments
to reimburse the holder for a loss it incurs
because a specific debtor fails to make
payments when due, in accordance with the
terms of debt instruments. Such financial
guarantees are given to banks, financial
institutions, and other bodies on behalf of
the customer to secure loans, overdrafts,
and other banking facilities.
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
• 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
199
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 2019 in Slovenia was 19% (2018: 19%).
Current and deferred taxes are recognised
in profit or loss, except for taxes related
to effects recognised directly in equity
(deferred tax related to the fair value re-
measurement of financial assets measured
at fair value through other comprehensive
income, cash flow hedges, and actuarial
gains and losses on defined benefit pension
plans is charged or credited directly to other
comprehensive income).
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 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 Annual Report 2019 200
are recognised only to the extent that it is
probable that:
compensations and non-monetary
benefits);
• retirement indemnity bonuses (post-
• the temporary differences will be reversed
employment benefits); and
in the foreseeable future; and
• taxable profit will be available.
• jubilee long-service benefits (other
employment benefits).
Slovenian law does not set limits or
deadlines by which uncovered tax losses
must be utilised.
A tax on financial services, which means
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. The tax rate is 8.5% (2018: 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 5.24.
Based on the requirements of Slovenian
legislation, NLB Group has additionally
disclosed in note 5.24. the 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,
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
fulfil certain conditions, they are entitled to
a lump-sum severance payment. Employees
are also entitled to a long-service bonus for
every 10 years of service in NLB.
These obligations are measured at the
present value of future cash outflows
considering future salary increases and
other conditions, and then apportioned to
past and future employee service based on
benefit plan terms and conditions.
Service costs are included in the income
statement in the item ‘Administrative
expenses’ as defined benefit costs, while
interest expenses on the defined benefit
liability are recognised in the item ‘Interest
and similar expenses.’ These interest
expenses represent the change during the
period in the defined benefit liability that
arises from the passage of time. 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 in the
income statement as defined benefit costs.
2.31. Share capital
Dividends on ordinary shares
Dividends on ordinary shares are
recognised in equity in the period in which
they are approved by NLB’s shareholders.
Treasury shares
If NLB or another member of NLB
Group purchases NLB’s shares, the
consideration paid is deducted from 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
provides the service that generates income.
Direct costs are attributed to the segment
that is directly related to the provided
service and indirect costs (costs which
service centres provide for profit centres)
are attributed to the segment for which the
service is provided, whereas overhead costs
are allocated according to general keys.
External net income is the net income of
NLB Group from the consolidated income
statement. Income tax is not allocated
between segments (note 7.a).
NLB Group Annual Report 2019 In accordance with IFRS 8, NLB Group
has the following reportable segments:
Retail Banking in Slovenia, Corporate and
Investment Banking in Slovenia, Strategic
Foreign Markets, Financial Markets in
Slovenia, Non-core members, 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 fulfilment 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 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. The ECL
in this group of assets are estimated based
on 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 to make loss estimations as
realistic as possible.
NLB Group performs regular stress testing
as part of the ICAAP process normative
approach, where the 3-year budget is tested
for adverse circumstances. The selected
stress scenario predicts adverse economic
circumstances where slowing global
economy mercantilist policy effects the
economic growth, even more in small open
economies like Slovenia.
In terms of credit risk, the scenario has
an unfavourable impact on default rates
(transfer of assets from performing to
default) and loss rates (expected losses after
occurrence of default). Furthermore, a
transfer of assets within the performing
sub-portfolio to rating classes with worse
default probabilities is envisaged. 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, as well as on the remaining
performing portfolio.
The results of the stress scenario for NLB
Group shows an increase of impairments in
the first year of stress by EUR 73.6 million
(2018: EUR 75.2 million), and an increase
in the coverage of the credit portfolio by
impairments by 1.16 percentage points
(2018: 0.89 percentage points).
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
201
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, and financial
assets measured at fair value through other
comprehensive income.
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 valuations 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 investments in
subsidiaries, associates and joint ventures
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:
• 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
NLB Group Annual Report 2019 202
of divestment. The business plans of
individual entities are based on an
assessment of future economic conditions
that will impact an individual member’s
business and the quality of the credit
portfolio.
• The growth rate in cash flows for the
period following the adopted business
plan is between 1 and 1.5%.
• The target capital adequacy ratio of an
individual bank is between 13 and 17%.
• The discount rate derived from the
capital asset pricing model that is used to
discount future cash flows is based on the
cost of equity allocated to an individual
investment. The discount rate reflects
the impact of a range of financial and
economic variables, including the risk-
free rate and risk premium. The value of
variables used is subject to fluctuations
outside management’s control. The
pre-tax discount rate is between 9.66 and
15.81% (31 December 2018: between
9.66 and 15.18%).
For strategic NLB Group members in 2019
and 2018, there were no indications of
impairment for equity investments.
In 2019, NLB impaired equity investments
in non-core members in the amount of
EUR 590 thousand.
d) Employee benefits
Liabilities for certain employee benefits are
calculated by an independent actuary. The
main assumptions included in the actuarial
calculation are as follows:
Actuarial assumptions
Discount factor
Wage growth based on inflation, promotions, and
wage growth based on past years of service
Other assumptions
NLB Group
2019
2018
NLB
2019
2018
0.2% - 3.2%
1.01% - 5.0%
0.2%
1.05%
1.8% - 3.7%
1.4% - 3.8%
3.0% - 3.3%
2.8% - 3.3%
Number of employees eligible for benefits
5,010
5,044
2,608
2,662
Sensitivity analysis of significant actuarial assumptions for post-employment benefit
NLB Group
NLB
31 dec 2019
Discount rate
Future salary increases
Discount rate
Future salary increases
Impact on employee benefits provisions -
post-employment benefits (in %)
The minimum discount rate is considered to be 0%.
e) Taxes
NLB Group operates in countries governed
by different laws. The deferred tax assets
recognised as at 31 December 2019 are
based on profit forecasts and take the
expected manner of recovery of the assets
into account. Changes in assumptions
regarding the likely manner of recovering
assets or changes in profit forecasts can lead
to the recognition of currently unrecognised
deferred tax assets or derecognition of
previously created deferred tax assets. If
NLB profit projections used for estimation
of the amount of deferred tax assets which
are expected to be reversed in foreseeable
future (i.e., within 5 years) would increase
(decrease) by 10%, the estimated amount
of deferred tax assets would increase by
EUR 6,126 thousand (decrease of EUR
+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.
(5.5)
2.9
5.9
(5.5)
(5.4)
2.3
5.8
(5.5)
6,126 thousand). NLB Group will adjust
deferred tax assets accordingly in the event
of changes to assumptions regarding future
operations (notes 4.15. and 5.17.).
Accounting standards and amendments
to existing standards effective for
annual periods beginning on 1
January 2019 that were endorsed by
the EU and adopted by NLB Group
2.34. Implementation of the new and
• IFRS 16 (new standard) – ‘Leases’
revised International Financial Reporting
Standards
During the current year, NLB Group
adopted all new and revised standards and
interpretations issued by the International
Accounting Standards Board (hereinafter:
‘the IASB’) and the International Financial
Reporting Interpretations Committee
(hereinafter: ‘the IFRIC’), and that are
endorsed by the EU that are effective for
annual accounting periods beginning on 1
January 2019.
(effective for annual 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
NLB Group Annual Report 2019 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.
Presentation of effects of transition to
IFRS 16 is disclosed in note 2.35.
• IFRS 9 (amendment) – ‘Prepayment
Features with Negative Compensation’
is 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 amortised cost or fair value
through other comprehensive income,
if the prepayment amount substantially
represents the reasonable compensation
and unpaid principal and interest.
Reasonable compensation may be
positive or negative. Prior to this
amendment financial assets with this
negative compensation feature would
have failed the exclusive payments
of principal and interest test and be
mandatorily measured at fair value
through profit or loss. There is no impact
on NLB Group’s consolidated financial
statements.
• IFRIC 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. There is
no impact on NLB Group’s consolidated
financial statements.
• ‘Annual Improvements to IFRS 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.
There is no impact on NLB Group’s
consolidated financial statements.
• IAS 28 (amendment) – ‘Long-term
Interests in Associates and Joint
Ventures’ is effective for annual periods
beginning on or after 1 January 2019.
The amendment clarifies that IFRS
9 Financial Instruments applies to
long-term interests in an associate or
joint venture that form part of the net
investment in the associate or joint
venture, but to which the equity method
is not applied. There is no impact on
203
NLB Group’s consolidated financial
statements.
• IAS 19 (amendment) – ‘Plan
Amendment, Curtailment or Settlement’
is effective for annual periods beginning
on or after 1 January 2019. 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. There is no impact on
NLB Group’s consolidated financial
statements.
Accounting standards and amendments to
existing standards that were endorsed by
the EU and adopted early by NLB Group
• The Bank has early adopted ‘Interest
Rate Benchmark Reform Amendments
to IFRS 9, IAS 39 and IFRS 7’. The
amendments modify some specific hedge
accounting requirements to provide
relief from potential effects of the
uncertainty caused by the IBOR reform.
Meaning, that the IBOR reform should
not generally cause hedge accounting to
terminate. As indicated in the accounting
policies, NLB Group elected, as a policy
choice permitted under IFRS 9, to
continue to apply hedge accounting in
accordance with IAS 39. IAS 39 requires
that for cash flow hedges, a forecast
transaction must be highly probable.
IAS 39 also requires that a hedging
relationship only qualifies for hedge
accounting if the hedging relationship
is highly effective in achieving offsetting
changes in fair value or cash flows
attributable to the hedged risk. The
assessment of hedge effectiveness is made
prospectively and retrospectively. As a
result of interest rate benchmark reform,
there may be uncertainties about the
timing and or amount of benchmark-
based cash flows of the hedged item
or the hedging instrument during the
NLB Group Annual Report 2019
204
period before the replacement of an
existing interest rate benchmark with
an alternative nearly risk-free interest
rate. This may lead to uncertainty
whether a forecast transaction is highly
probable and whether prospectively the
hedging relationship is expected to be
highly effective. Additional information
about interest rate benchmark reform is
provided in note 5.5. d).
Accounting standards and
amendments to existing standards
that were endorsed by the EU, but
not adopted early by NLB Group
• 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
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.
• ‘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.
Accounting standards and
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.
amendments to existing standards,
2.35. Presentation of effects at transition
but not endorsed by the EU
to IFRS 16 as at 1 January 2019
• IFRS 17 (new standard) – ‘Insurance
Contracts’ is effective for annual
periods beginning on or after 1 January
2021. The new standard provides
a comprehensive principle-based
framework for the measurement and
presentation of all insurance contracts.
The new standard will replace IFRS
4 Insurance Contracts, and requires
insurance contracts to be measured using
current fulfilment cash flows, and for
revenue to be recognised as the service is
provided over the coverage period. NLB
Group does not expect an impact on its
consolidated financial statements.
• 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.
• 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
The note explains the impact of the
adoption of IFRS 16 on the NLB Group’s
financial statements.
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 a 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. The weighted average
lessee’s incremental borrowing rate applied
to the lease liabilities on 1 January 2019 was
between 0.97% and 3% for NLB Group
(NLB: between 1.05% and 1.52%).
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 19,045
thousand (NLB: EUR 2,578 thousand).
The impact on the regulatory equity is
immaterial.
NLB Group Annual Report 2019 Measurement of lease liabilities
Operating lease commitments disclosed as at 31 December 2018
Discounted using the lessee's incremental borrowing rate at the date of initial application
(Less) short-term leases not recognised as a liability
(Less) low-value leases not recognised as a liability
(Less) leases of intangible assets not recognised as a liability
Lease liability recognised as at 1 January 2019
NLB Group
24,848
(2,487)
(600)
(1,893)
(823)
19,045
205
in EUR thousands
NLB
3,711
(80)
(242)
-
(811)
2,578
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.).
3. Changes in subsidiary holdings
Changes in 2019
Capital changes:
• In January 2019, decrease of share
capital in the amount of EUR 3,324
thousand was registered in NLB Leasing
d.o.o. Sarajevo. From March 2019 the
company is formally in liquidation.
• An increase in share capital in the form
of a cash contribution in the amount of
EUR 1,740 thousand in REAM d.o.o.,
Podgorica to ensure regular business
operations.
Other changes:
• In January 2019, REAM d.o.o., Belgrade
merged with SR-RE d.o.o., Belgrade. In
April 2019, SR-RE d.o.o., Belgrade was
renamed REAM d.o.o., Belgrade.
• From 1 January 2019 NLB Srbija d.o.o.,
Belgrade and NLB Crna Gora d.o.o.,
Podgorica were transferred from core to
non-core members.
• In June 2019, Prospera plus d.o.o.,
Ljubljana – v likvidaciji and NLB
Interfinanz Praha s.r.o., Prague – vo
likvidaci were liquidated. In accordance
with a court order, companies were
removed from the court register.
• In June 2019, NLB sold its subsidiary
CBS Invest d.o.o., Sarajevo.
• In December 2019 NLB and KBC
Insurance NV, in a joint process, agreed
to sell their respective stakes in the
life insurance NLB Vita. As the sale is
expected to qualify for recognition as a
completed sale within one year from the
end of the reporting period, investment
in joint venture NLB Vita has been
transferred from line “Investments in
associates and joint ventures” into line
“Non-current assets classified as held for
sale.”
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.).
• NLB Interfinanz, Praga – vo 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
NLB Group Annual Report 2019 206
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
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
Derivatives - hedge accounting
Total
Interest and similar expenses
Due to customers
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., 5.16.c)
Deposits from banks and central banks
Lease liabiliies (note 5.11.a)
Other financial liabilities
Total
Net interest
The item ‘Negative interest’ includes the
interest from deposits with banks and
central banks in the amount of EUR 2,970
thousand for NLB Group (2018: EUR
3,179 thousand), and EUR 2,060 thousand
for NLB (2018: EUR 2,802 thousand), and
also interest from securities with a negative
yield due to the purchase with a premium
in the amount of EUR 518 thousand for
NLB Group and NLB (2018: EUR 185
thousand).
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
357,412
311,541
23,215
20,606
1,235
815
7,406
6,097
1,300
9
351,773
304,652
23,107
20,749
2,070
1,195
7,084
5,571
1,513
-
175,598
141,345
19,119
11,656
3,065
413
7,310
6,097
1,204
9
174,296
139,235
19,152
12,937
2,394
578
7,135
5,571
1,564
-
364,818
358,857
182,908
181,431
23,111
25,039
5,100
8,969
1,285
940
2,716
3,488
184
216
316
6
4,814
8,372
1,505
1,160
1,275
3,364
221
184
-
13
4,317
5,100
8,969
1,110
-
2,271
2,578
96
298
38
5
5,616
4,814
8,372
1,221
-
-
2,987
126
258
-
5
46,331
45,947
24,782
23,399
318,487
312,910
158,126
158,032
NLB Group Annual Report 2019 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 mandatorily at fair value through profit or loss
Total
207
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
111
-
111
-
-
97
208
95
12
83
-
-
23
118
-
-
-
68,353
2,781
97
71,231
-
-
-
47,955
1,714
23
49,692
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
2019
2018
2019
2018
69,423
60,686
54,697
17,621
11,282
6,384
5,619
66,552
48,829
56,472
16,369
10,840
4,757
5,467
39,369
45,606
41,015
36,378
23,477
27,151
5,506
7,192
4,832
4,141
4,991
7,095
4,199
3,897
225,712
209,286
130,123
124,726
49,685
43,461
28,261
26,131
6,605
955
1,989
114
2,529
6,125
1,148
2,062
161
2,200
875
771
487
30
753
61,877
55,157
31,177
829
906
764
30
1,059
29,719
Net fee and commission income related to banking activities
163,835
154,129
98,946
95,007
NLB Group Annual Report 2019 208
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
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
1,281
1,513
256
4,877
1,162
178
9,267
2,711
52
2,763
6,504
1,418
1,240
574
5,151
795
95
9,273
2,728
59
2,787
6,486
1,227
-
256
4,953
1,162
177
7,775
2,714
52
2,766
5,009
1,367
-
574
5,120
795
95
7,951
2,736
59
2,795
5,156
234,979
64,640
218,559
57,944
137,898
33,943
132,677
32,514
Total a) and b)
170,339
160,615
103,955
100,163
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
Financial liabilities measured at amortised cost
- gains
Total
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
4,528
(1)
116
-
-
4,643
941
(697)
6
(459)
254
45
4,397
(1)
116
-
-
4,512
785
(697)
6
(459)
-
(365)
NLB Group Annual Report 2019 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
- securities
Total
209
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
24,102
(12,574)
1,455
(1,459)
363
(1,900)
478
10,465
18,762
(8,145)
551
(933)
260
(753)
(242)
9,500
16,058
(11,338)
1,455
(1,459)
41
(1,900)
478
3,335
10,947
(6,943)
551
(933)
257
(752)
(242)
2,885
4.6. Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss
Equity securities
- gains
- losses
Debt securities
- gains
- losses
Loans and advances to customers
- gains
Total
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
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
9.277
(945)
6
(66)
10.493
18.765
1.121
(834)
-
(10)
3.759
4.036
8.061
(945)
-
-
9.173
16.289
1.088
(543)
-
-
4.739
5.284
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
662
19
39
(14)
706
782
(2)
(37)
2
745
372
-
39
(15)
396
255
-
(37)
-
218
NLB Group Annual Report 2019 210
4.8. Other operating income
Income from non-banking services
- cash transportation
- operating leases of movable property
- IT services
- other
Rental income from investment property
Revaluation of investment property to fair value (note 5.9.)
Sale of investment property
Other operating income
Total
4.9. Other operating expenses
Deposit guarantee
Other taxes and compulsory public levies
Expenses related to issued service guarantees
Single Resolution Fund
Membership fees and similar fees
Revaluation of investment property to fair value (note 5.9.)
Other operating expenses
Total
Other operating expenses mainly include
expenses associated with donations,
damages, and licences.
NLB Group
NLB
in EUR thousands
2019
6,605
3,170
985
863
1,587
4,124
849
361
4,331
16,270
2018
8,176
3,328
2,152
988
1,708
4,759
730
121
4,894
18,680
2019
5,694
3,170
455
863
1,206
697
11
220
1,886
8,508
2018
5,653
3,328
437
988
900
543
169
69
3,334
9,768
NLB Group
NLB
in EUR thousands
2019
14,173
2,757
2,477
2,050
815
541
5,401
28,214
2018
13,818
2,772
3,068
2,506
840
774
4,490
28,268
2019
4,984
1,027
2,477
2,050
322
86
1,401
12,347
2018
5,746
1,001
3,068
2,506
361
65
1,890
14,637
NLB Group Annual Report 2019 4.10. Administrative expenses
211
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
Employee costs
Gross salaries, compensations, and other short-term benefits
151,634
146,171
Defined contribution scheme
Social security contributions
Defined benefit expenses (note 5.16.c)
Post-employment benefits
Other employee benefits
Total
Other general and administrative expenses
Material
Services
Intellectual services
Costs of supervision
Costs of other services
Business travel
Marketing
Buildings and equipment
Electricity
Rents and leases
Maintainance costs
Costs of security
Insurance for tangible assets
Other costs related to buildings and equipment
10,484
8,317
741
447
294
10,351
8,457
139
343
(204)
95,934
6,826
5,591
218
54
164
91,742
6,776
5,551
(225)
69
(294)
171,176
165,118
108,569
103,844
4,562
29,841
13,908
3,494
12,439
1,205
9,625
22,243
4,113
1,899
6,975
3,669
2,056
3,531
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
1,834
20,674
9,894
1,931
8,849
512
5,985
2,330
16,842
6,854
1,444
8,544
515
5,486
13,101
14,200
2,230
528
5,049
1,619
1,152
2,523
2,321
1,242
5,219
1,652
1,120
2,646
Technology
20,282
16,377
13,581
10,895
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
9,342
7,061
2,096
1,783
9,305
5,215
2,002
2,088
2,203
8,496
3,949
2,059
1,873
8,757
4,547
2,149
2,061
2,137
6,556
4,514
1,503
1,008
6,002
4,001
751
1,250
1,491
5,851
2,341
1,535
1,168
6,025
4,010
765
1,250
1,302
99,266
96,314
63,180
57,595
Total administrative expenses
270,442
261,432
171,749
161,439
Number of employees
5,878
5,887
2,659
2,690
Costs of other services include costs for
cash transport, archiving services, personal
insurance costs, and legal costs and fees.
NLB Group Annual Report 2019 212
In the presented years, NLB Group and
NLB paid the following expenses related to
the services of the statutory auditor:
External audit services
Audit of annual report
Other audit services
Other non-audit services
Total
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
570
10
-
580
497
492
6
995
211
10
-
221
206
479
6
691
Additionally, to the services included in
the table above, the statutory auditor
performed also some services related to
the issue of subordinated instruments in
the amount of EUR 330 thousand. These
expenses are included in the calculation
of the effective interest rate of the issued
subordinated instruments.
4.11. Depreciation and amortisation
Amortisation of intangible assets (note 5.10.)
Depreciation of property and equipment:
- own property and equipment (note 5.8.b)
- right-of-use assets (note 5.11.a)
Total
4.12. Provisions
Guarantees and commitments (note 5.16.b)
Restructuring provisions (note 5.16.d)
Provisions for legal risks (note 5.16.e)
Other provisions (note 5.16.f)
Total
NLB Group
2019
9,994
16,393
4,577
30,964
2018
10,794
16,430
-
27,224
in EUR thousands
2018
8,135
9,396
-
17,531
NLB
2019
7,348
9,922
776
18,046
NLB Group
NLB
in EUR thousands
2019
312
5,478
5,696
(39)
2018
(3,156)
(21)
1,533
-
11,447
(1,644)
2019
(368)
5,500
191
(105)
5,218
2018
(1,157)
-
(2,258)
-
(3,415)
NLB Group Annual Report 2019 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 5.14.a)
Loans and advances to legal entities measured at amortised cost (note 5.14.a)
Debt securities measured at fair value through other comprehensive income (note 5.14.b)
Debt securities measured at amortised cost (note 5.14.b)
Other financial assets measured at amortised cost (note 5.14.a)
213
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
63
8,010
(23,856)
1,130
237
786
(175)
7,724
46
3,772
21
3,155
(35,902)
(21,606)
(31,988)
(26)
733
599
171
293
663
148
25
(20)
Total
(13,630)
(27,047)
(16,661)
(28,659)
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 5.8.)
Other assets
Total
Total impairment
-
-
-
171
3,006
3,177
-
-
-
643
4,771
5,414
(2,843)
1
(2,842)
-
47
47
(958)
20
(938)
-
(43)
(43)
(10,453)
(21,633)
(19,456)
(29,640)
In 2019, NLB impaired equity investments
in non-core subsidiaries and an associate
in total amount of EUR 591 thousand
(2018: EUR 544 thousand). Release of
impairments in total amount of EUR
3,433 thousand relates mainly to decrease
of share capital in non-core subsidiary and
consequential repayment of funds to NLB
(2018: EUR 1,482 thousand, mainly due
to repayment from liquidation mass of
non-core subsidiaries).
4.14. Gains less losses from non-current assets held for sale
Impairments of investments in subsidiaries
and associates are included in the segment
“Non-core members.”
Gains less losses on derecognition of subsidiaries
Gains less losses on derecognition of associates
Gains less losses from property and equipment
Total
NLB Group
NLB
in EUR thousands
2019
(110)
(1)
(576)
(687)
2018
12,178
(477)
127
11,828
2019
-
(1)
(578)
(579)
2018
9,203
2,465
154
11,822
In 2018, NLB sold its subsidiaries NLB Nov
Penziski Fond a.d., Skopje and Ream d.o.o.,
Zagreb. At the 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
the 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.
NLB Group Annual Report 2019 214
4.15. Income tax
Current income tax
Deferred income tax (note 5.17.)
Total
Income tax differs from the amount of
tax determined by applying the Slovenian
statutory tax rate as follows:
NLB Group
NLB
2019
21,620
(8,041)
13,579
2018
22,679
(920)
21,759
2019
10,153
(8,556)
1,597
in EUR thousands
2018
12,027
160
12,187
NLB Group
NLB
in EUR thousands
2019
2018
2019
2018
Profit before tax
215,397
233,336
177,746
177,486
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
40,925
(3,102)
3,829
(2,112)
(2,929)
(8,531)
(9,110)
(8,393)
2,870
113
19
44,334
(3,100)
(2,438)
(141)
(1,920)
(8,715)
(8,324)
-
1,605
27
431
33,772
(13,632)
627
(2,650)
(1,864)
(9,155)
-
(8,393)
2,870
3
19
33,722
(10,223)
838
(319)
(1,536)
(11,957)
-
-
1,605
1
56
13,579
21,759
1,597
12,187
Each member of NLB Group (disclosed in
note 5.12) is taxable as required by local tax
legislation. Income tax rates within NLB
Group range from 9-32%.
A tax rate of 19% was applied in Slovenia
in 2019 (2018: 19%).
Most of the non-taxable income relates
to dividends. NLB excluded EUR 67,605
thousand dividend income in 2019 (2018:
EUR 47,208 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.
In 2019, NLB continued its trend of
stable and profitable business operations
and based on five-years profit projections
increased recognised deferred tax assets
by EUR 6,739 thousand (included in
Changes in recognition and measurement
of deferred taxes).
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 in respect to which simultaneously
deferred tax liabilities are recognised are
excluded from this calculation (e.g. deferred
tax assets for temporary non-deductible
NLB Group Annual Report 2019 215
expenses for impairment of debt securities
measured at fair value through other
comprehensive income and deferred tax
assets related to hedge accounting).
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 the amount of
EUR 322,077 thousand as at 31 December
2019 (31 December 2018: EUR 321,561
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
291,357 thousand (2018: EUR 382,055
thousand).
encouraging voluntary compliance and
reduce administrative burdens on financial
supervision. FURS cooperates with NLB
and responds quickly to resolve NLB’s tax
compliance issues, which reduces NLB’s tax
risks and uncertain tax positions.
The tax authorities may audit operations
of NLB Group entities. As a general rule,
a tax inspection, which could result in
additional tax liability, default interest and
fines for tax, may be initiated at any time
within 4 to 6 years from the date of tax
statement or from the year in which tax
should have been assessed. NLB is not
aware of any circumstances that could give
rise to a potential material tax liability in
this respect.
The effective tax rate of the NLB Group
relating to operations in 2019 is 6.3%
(2018: 9.3%) (calculated as a ratio of the
tax expense and profit before tax), and for
NLB is 0.9% (2018: 6.9%).
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.
In 2018, the Financial Administration
of the Republic of Slovenia (FURS)
granted NLB a special tax status for a
period of three years. The purpose of the
status is to establish cooperation between
FURS and the taxpayers, with the aim of
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 thousands)
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
2019
2018
2019
193,576
20,000
9.7
9.7
203,647
20,000
10.2
10.2
176,149
20,000
8.8
8.8
2018
165,299
20,000
8.3
8.3
NLB Group Annual Report 2019 216
5. Notes to the statement of financial position
5.1. Cash, cash balances at central banks, and other demand deposits at banks
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Balances and obligatory reserves with central banks
1,569,753
1,075,378
1,044,255
Cash
Demand deposits at banks
Allowance for impairment
Total
339,897
192,221
312,748
200,693
164,725
83,365
2,101,871
1,588,819
1,292,345
(525)
(470)
(134)
575,088
153,315
66,787
795,190
(88)
2,101,346
1,588,349
1,292,211
795,102
Slovenian banks are required to maintain
a compulsory reserve with the Bank
of Slovenia relative to the volume and
structure of their customer deposits.
Other banks in NLB Group maintain a
compulsory reserve in accordance with
local legislation. NLB and other banks in
NLB Group fulfil their compulsory reserve
deposit requirements.
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 EU members
- non-EU members
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
5.23.b.
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
18,169
2,056
16,113
810
3
807
734
734
13,561
1,081
12,480
414
85
329
937
937
18,216
2,103
16,113
810
3
807
734
734
13,563
1,083
12,480
414
85
329
937
937
19,713
14,912
19,760
14,914
4,325
1,041
40
3,244
-
4,325
18,659
6,770
10,121
1,768
30,038
48,697
4,325
1,041
40
3,244
-
4,325
18,659
6,770
10,121
1,768
30,038
48,697
24,038
63,609
24,085
63,611
4,325
4,325
48,697
48,697
4,325
4,325
48,697
48,697
NLB Group Annual Report 2019 217
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
17,238
1,983
15,255
3
3
662
662
11,343
956
10,387
86
86
871
871
17,238
1,983
15,255
3
3
651
651
11,302
915
10,387
86
86
868
868
17,903
12,300
17,892
12,256
b) Trading liabilities
Derivatives, excluding hedging instruments
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
5.23.b.
5.3. Non-trading financial instruments measured at fair value through profit or loss
a) Financial assets mandatorily at fair value through profit or loss
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
3,167
5,475
1,756
14,961
25,359
2,207
451
1,756
8,191
8,191
2,513
4,067
2,009
23,800
32,389
6,666
4,657
2,009
1,923
1,923
2,716
2,513
-
-
20,571
23,287
-
-
-
2,716
2,716
34
-
26,594
29,141
624
624
-
1,923
1,923
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
As at 31 December 2019, NLB Group and
NLB do not have any equity instruments
obtained by from taking possession of
collateral in the statement of financial
position (31 December 2018: EUR 624
thousand) (note 6.1.l).
NLB Group Annual Report 2019 218
b) Financial liabilities measured at fair value through profit or loss
Liabilities
Loans and advances to companies
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
7,998
4,190
7,746
3,981
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
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
1,913,623
1,330,137
1,648,863
1,051,199
434,168
557,783
338,186
561,596
21,890
4,936
44,687
112,162
93,184
14,982
3,996
66,020
425,114
427,862
198,223
588,180
9,484
4,577
44,484
99,398
50,106
-
49,292
100,757
1,509,559
1,433,476
930,561
362,694
528,359
39,508
561,596
17,402
259
44,687
102,152
87,170
14,982
-
-
837,347
402,783
417,233
17,331
588,180
7,949
248
44,484
50,106
50,106
-
-
-
2,141,428
1,898,079
1,656,657
1,528,314
(5,597)
1,952,920
3,288
(4,470)
1,685,708
3,185
(2,512)
1,611,711
-
(2,339)
1,483,582
-
1,949,632
1,682,523
1,611,711
1,483,582
188,508
46,335
142,173
212,371
45,876
166,495
44,946
44,946
-
44,732
44,732
-
Bonds
- governments
- Republic of Slovenia
- other EU members
- non-EU members
- banks
- other issuers
Shares
National Resolution Fund
Treasury bills
- Republic of Slovenia
- other EU members
- 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
The credit quality analysis for financial
assets and contingent liabilities is disclosed
in note 6.1 j) and movements in allowance
for the impairment of debt securities in
note 5.14 b).
NLB Group Annual Report 2019 b) Movements of financial assets measured at fair value through other comprehensive income
219
in EUR thousands
Balance as at 1 January
1,898,079
1,654,856
1,528,314
1,283,767
NLB Group
NLB
2019
2018
2019
2018
Effects of translation of foreign operations to presentation currency
977
(209)
Additions
Disposals and maturity
Net interest income
Exchange differences on monetary assets
Changes in fair values
Balance as at 31 December
1,958,648
1,579,126
(1,767,198)
(1,350,103)
20,142
1,135
29,645
20,564
964
(7,119)
-
802,625
(711,020)
11,192
1,268
24,278
-
481,507
(243,219)
12,752
1,038
(7,531)
2,141,428
1,898,079
1,656,657
1,528,314
As at 31 December 2019, the value of
equity instruments obtained by NLB Group
from taking possession of collateral and
recognised in the statement of financial
position is EUR 3,289 thousand (31
December 2018: EUR 3,185 thousand)
(note 6.1.l).
In 2019, NLB Group and NLB did not
realise any gain or loss (2018: NLB Group
net gain in the amount of EUR 2,101
thousand and NLB net gain in the amount
of EUR 44 thousand) by selling equity
securities measured at fair value through
other comprehensive income. The gain in
2018 was 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
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 5.17.)
Share of other comprehensive income of associates and joint ventures
Balance as at 31 December
- debt securities
- equity securities
NLB Group
NLB
in EUR thousands
2019
28,861
29
-
16,782
(4,527)
1,130
-
(1,859)
7,900
48,316
43,933
4,383
2018
45,315
(18)
(65)
(10,969)
(244)
(26)
(2,101)
2,394
(5,425)
28,861
26,818
2,043
2019
18,620
-
-
11,415
(4,396)
171
-
(1,366)
-
24,444
24,156
288
2018
27,741
-
-
(11,381)
(88)
148
(44)
2,244
-
18,620
18,477
143
5.5. 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.
NLB Group Annual Report 2019 220
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.’
Sources of hedge ineffectiveness may arise,
but are not limited to the discount rates
used for valuation of derivatives at fair
value, and notional and timing differences,
as well differences in the amortising
plan between hedged items and hedging
instrument.
a) Fair value adjustment in hedge accounting recognised in profit or loss
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
2019
(555)
(19,482)
(12,968)
(6,514)
18,927
(153)
(257)
12,864
6,473
in EUR thousands
2018
472
(4,224)
(2,425)
(1,799)
4,696
(170)
(783)
3,850
1,799
In both of the presented years all fair value
hedges were effective, with actual results
of the hedge within a range of 80-125%,
therefore, no discontinuation of the hedge
accounting was required.
As at 31 December 2019 and 2018, NLB
Group and NLB had no relationships
designated for cash flow hedge accounting
or for hedge of a net investment in a foreign
b) Notional amounts of interest rate swaps
operation. NLB Group applied hedge of
a net investment in a foreign operation in
years 2011 and 2012 and at that time it
recognised EUR 754 thousand gain on the
hedging instrument in other comprehensive
income (note 5.21.b). This gain will be
included in the consolidated income
statement when the foreign operation is
disposed of as a part of the gain or loss on
the disposal.
NLB Group and NLB
Fair value hedge
31 Dec 2019
31 Dec 2018
Notional amount
Fair value
in EUR thousands
Asset
Liability
561,500
493,677
788
417
49,507
29,474
NLB Group Annual Report 2019 221
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 there
has been a change in the hedge designation
during the year. The accumulated fair
value adjustment is presented in the same
line 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 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
Macro fair value hedges
Fixed rate retail loans
2019
2018
in EUR thousands
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
479,098
3,582
117,811
357,705
149,198
149,198
35,668
293
13,378
21,997
8,991
8,991
439,374
11,554
4,422
78,655
356,297
114,224
114,224
446
1,974
9,134
2,517
2,517
d) IBOR reform
Following the decision by global regulators
to phase out IBORs and replace them
with alternative reference rates, the Bank
has established a project to manage the
transition for any of its contracts that could
be affected. The project is sponsored by
the Group CFO and is being led by senior
representatives from functions across the
Bank including Sales, Legal, Finance,
Global Risk, Operations, and Technology.
The project provides quarterly progress
updates to the Group ALCO.
The table below indicates the nominal
amount and weighted average maturity of
derivatives in hedging relationships that will
be affected by IBOR reform, analysed by
interest rate basis. The derivative hedging
instruments provide a close approximation
to the extent of the risk exposure the
NLB Group manages through hedging
relationships.
Nominal amount
(in EUR thousands)
Weighted average maturity
(years)
186,472
375,028
6.23
8.95
31 Dec 2019
Interest rate swaps
EURIBOR (3 months)
EURIBOR (6 months)
As can be seen in the table, all derivatives
in hedging relationships are exposed to
EURIBOR, therefore the uncertainty
arising from interest rate benchmark reform
derives mainly from derivatives with longer
maturities, when change of EURIBOR
is expected. As at 31 December 2019,
derivatives with remaining maturity of five
or more years amount to EUR 441,189
thousand.
NLB Group Annual Report 2019 222
5.6. 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
The credit quality analysis for financial
assets and contingent liabilities is disclosed
in note 6.1 j) and movements in allowance
for the impairment of debt securities in
note 5.14 a).
a) Debt securities
Government
Companies
Banks
Financial organisation
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
1,653,848
1,428,962
1,485,166
1,274,978
93,403
118,696
144,352
110,297
7,589,724
7,124,633
4,568,599
4,451,477
97,415
75,171
67,279
42,741
9,434,390
8,747,462
6,265,396
5,879,493
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
1,285,540
1,138,415
1,115,335
81,350
264,323
25,775
81,990
183,715
27,740
81,350
264,323
25,775
982,856
81,990
183,715
27,740
1,656,988
1,431,860
1,486,783
1,276,301
Allowance for impairment (note 5.14.b)
(3,140)
(2,898)
(1,617)
(1,323)
Total
1,653,848
1,428,962
1,485,166
1,274,978
b) Loans and advances to banks
Loans
Time deposits
Purchased receivables
Allowance for impairment (note 5.14.a)
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
2,213
91,076
209
93,498
(95)
93,403
1,710
116,450
662
118,822
(126)
118,696
81,633
62,651
209
144,493
(141)
144,352
40,073
69,639
662
110,374
(77)
110,297
NLB Group Annual Report 2019 c) Loans and advances to customers
Loans
Overdrafts
Finance lease receivables (note 5.11 b)
Credit card business
Called guarantees
Allowance for impairment (note 5.14.a)
Total
Analysis of loans and advances to customers by sector
Government
Financial organisations
Companies
Individuals
Total
d) Other financial assets
Analysis by type of other financial assets
Receivables in the course of collection
Credit card receivables
Debtors
Fees and commissions
Receivables from purchase agreements for equity securities
Dividends
Prepayments
Other financial assets
Allowance for impairment (note 5.14.a)
Total
223
in EUR thousands
NLB Group
NLB
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
7,408,374
7,051,289
4,446,843
4,408,703
328,947
49,017
122,730
3,100
7,912,168
(322,444)
7,589,724
311,366
86,842
120,611
8,092
7,578,200
(453,567)
7,124,633
179,381
178,590
-
60,688
452
4,687,364
(118,765)
4,568,599
-
60,130
6,613
4,654,036
(202,559)
4,451,477
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
271,389
100,054
3,280,246
3,938,035
7,589,724
352,746
88,676
3,041,159
3,642,052
7,124,633
182,582
131,442
1,901,950
2,352,625
4,568,599
267,716
177,744
1,790,350
2,215,667
4,451,477
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
18,901
18,497
6,360
5,315
612
46
38
52,552
102,321
(4,906)
97,415
19,127
18,355
6,015
5,591
610
44
5,131
28,494
83,367
(8,196)
75,171
16,029
12,194
1,525
3,524
610
46
-
35,192
69,120
(1,841)
67,279
16,110
12,705
820
4,013
610
44
-
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.
NLB Group Annual Report 2019 NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
21,749
25,500
10,810
3,857
35,499
97,415
20,398
17,923
11,420
4,757
20,673
75,171
14,994
24,905
6,920
1,506
18,954
67,279
11,686
2,903
7,170
1,505
19,477
42,741
NLB Group
NLB
in EUR thousands
2019
683
2
1,828
(397)
(257)
1,859
2018
1,375
-
1,127
(898)
(921)
683
2019
548
-
278
(204)
(257)
365
2018
1,263
-
457
(251)
(921)
548
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
4,308
38,883
43,191
4,349
-
4,349
2,123
3,409
5,532
1,720
-
1,720
224
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
Effects of translation of foreign operations to presentation currency
Called guarantees
Paid guarantees
Write-offs
Balance as at 31 December
5.7. Non-current assets classified as held for sale
a) Analysis by type of non-current assets classified as held for sale
Property and equipment
Investment in joint venture
Total non-current assets held for sale
Item ‘Property and equipment’ includes
business premises and assets received as
collateral that are in the process of sale.
NLB Group and NLB classified joint
venture NLB Vita, Ljubljana as non-current
assets held for sale, due to its expected sale
in 2020 (note 3). The investment in NLB
Vita is included in the segment “Retail
banking in Slovenia”.
NLB Group Annual Report 2019 225
b) Analysis of movements
NLB Group
NLB
in EUR thousands
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additions
Transfer from/(into) property and equipment (note 5.8.)
Transfer from/(into) other assets
Transfer from investments in associates and joint ventures
Transfer from/(into) investment property (note 5.9.)
Disposals
Valuation
2019
4,349
21
-
1,328
85
38,883
(550)
(320)
(605)
2018
11,631
5
32
381
-
-
-
(7,779)
79
Balance as at 31 December
43,191
4,349
2019
1,720
-
-
1,249
-
3,409
-
(248)
(598)
5,532
2018
2,564
-
-
242
-
-
-
(1,195)
109
1,720
5.8. Property and equipment
a) Analysis by type
Own property and equipment
Right-of-use assets (note 5.11)
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
179,060
16,545
177,404
-
87,120
2,784
86,934
-
195,605
177,404
89,904
86,934
NLB Group Annual Report 2019 226
b) Movement of own property and equipment
NLB Group
NLB
in EUR thousands
Land &
Buildings
Computers
Other equipment
Total
Land &
Buildings
Computers
Other equipment
Total
for own use
in operating
lease
for own use
in operating
lease
Cost
Balance as at 1 January 2019
312,458
69,234
94,313
6,804
482,809
198,180
47,021
50,206
5,208
300,615
Effects of translation of foreign
operations to presentation currency
Additions
Disposals
Transfer to/from investment
property (note 5.9.)
Transfer to/from non-current
assets held for sale (note 5.7.)
222
56
122
-
400
-
-
-
-
-
4,561
11,816
4,369
363
21,109
2,952
6,614
1,488
363
11,417
(700)
(4,881)
(8,231)
(981)
(14,793)
(473)
(2,900)
-
-
-
-
-
-
-
(473)
(2,900)
(2,819)
(381)
-
-
-
(3,559)
(5,507)
(130)
(9,196)
-
-
-
-
-
-
-
-
-
-
(2,819)
-
Disposal of subsidiary (note 3.)
-
(40)
(341)
Balance as at 31 December 2019
313,168
76,185
90,232
6,186
485,771
198,313
50,076
46,187
5,441
300,017
Depreciation and impairment
Balance as at 1 January 2019
168,665
51,348
80,922
4,470
305,405
132,296
33,567
43,897
3,921
213,681
Effects of translation of foreign
operations to presentation currency
80
44
108
-
232
Disposals
(241)
(4,820)
(7,522)
(604)
(13,187)
-
(1)
-
-
(3,504)
(5,549)
Depreciation (note 4.11.)
7,010
6,643
1,981
759
16,393
4,603
3,744
1,047
Impairment (note 4.13.)
Transfer to/from investment
property (note 5.9.)
Transfer to/from non-current
assets held for sale (note 5.7.)
171
(350)
(1,572)
-
-
-
-
-
-
Disposal of subsidiary (note 3.)
-
(40)
(341)
-
-
-
-
171
(350)
-
-
(1,572)
(1,570)
(381)
-
-
-
-
-
-
-
-
-
-
(82)
528
-
-
-
-
-
(9,136)
9,922
-
-
(1,570)
-
Balance as at 31 December 2019
173,763
53,175
75,148
4,625
306,711
135,328
33,807
39,395
4,367
212,897
Net carrying value
Balance as at 31 December 2019
139,405
23,010
15,084
1,561
179,060
62,985
16,269
6,792
1,074
87,120
Balance as at 1 January 2019
143,793
17,886
13,391
2,334
177,404
65,884
13,454
6,309
1,287
86,934
NLB Group Annual Report 2019 NLB Group
NLB
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
227
in EUR thousands
Effects of translation of foreign operations
to presentation currency
Additions
Disposals
Impairment (note 4.13.)
Transfer to/from investment property (note 5.9.)
(13,012)
Transfer to/from non-current assets
held for sale (note 5.7.)
(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 5.9.)
Transfer to/from non-current assets
held for sale (note 5.7.)
(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
thousand. For NLB Group, a total of
44.9% of assets leased out related to motor
vehicles and for NLB all assets leased out
related to other equipment.
NLB Group and NLB had no assets held
under finance leases as at 31 December
2018. As at 31 December 2019, assets held
under finance leases are presented within
right-of-use assets disclosed in note 5.11.
As at 31 December 2019, the value of assets
received by taking possession of collateral
and included in property and equipment
by NLB Group amounted to EUR 1,440
thousand (31 December 2018: EUR 1,418
thousand), and in NLB amounted to EUR
7 thousand (31 December 2018: EUR 7
thousand) (note 6.1.l).
As at 31 December 2018, the net carrying
value of assets leased out by NLB Group
under operating leases was EUR 2,334
thousand, and by NLB was EUR 1,287
NLB Group Annual Report 2019 228
5.9. 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 5.8.)
Transfer from/(into) non-current assets held for sale (note 5.7.)
Transfer from/(into) other assets
Net valuation to fair value (note 4.8. and 4.9.)
Balance as at 31 December
NLB Group
NLB
in EUR thousands
2019
58,644
84
1,024
(8,417)
123
550
-
308
2018
51,838
(9)
99
(5,687)
8,877
-
3,570
(44)
52,316
58,644
2019
12,026
-
923
(3,571)
-
-
-
(75)
9,303
2018
9,257
-
-
(53)
540
-
2,178
104
12,026
The value of assets received by taking
possession of collateral and included
in investment property by NLB Group
amounted to EUR 32,465 thousand (31
December 2018: EUR 38,747 thousand),
and in NLB amounted to EUR 3,464
thousand (31 December 2018: EUR 6,464
thousand) (note 6.1.l).
Operating expenses arising from investment
properties
Leased to others
Not leased to others
Total
NLB Group
NLB
in EUR thousands
2019
1,135
235
1,370
2018
1,155
455
1,610
2019
456
175
631
2018
432
412
844
NLB Group Annual Report 2019 5.10. Intangible assets
Cost
Balance as at 1 January 2019
Effects of translation of foreign operations to presentation currency
Additions
Write-offs
Disposal of subsidiary (note 3)
Balance as at 31 December 2019
Amortisation and impairment
Balance as at 1 January 2019
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.11.)
Write-offs
Disposal of subsidiary (note 3)
Balance as at 31 December 2019
Net carrying value
Balance as at 31 December 2019
Balance as at 1 January 2019
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
229
NLB Group
in EUR thousands
NLB
Software licenses
Goodwill
Total
Software licenses
214,343
32,336
246,679
182,708
109
14,534
(69)
(225)
-
-
-
-
109
14,534
(69)
(225)
-
9,937
(64)
-
228,692
32,336
261,028
192,581
182,904
28,807
211,711
159,317
75
9,994
(69)
(225)
-
-
-
-
75
9,994
(69)
(225)
-
7,348
(64)
-
192,679
28,807
221,486
166,601
36,013
31,439
3,529
3,529
39,542
25,980
34,968
23,391
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 Annual Report 2019 230
5.11. Leases
a) NLB Group as a lessee
Right-of-use assets
Land and buildings
Vehicles
Furniture and equipment
Total
Lease liabilities
in EUR thousands
NLB Group
NLB
31 Dec 2019
31 Dec 2019
13,481
1,256
1,808
16,545
16,713
1,691
1,049
44
2,784
2,784
In the statement of financial position,
right-of-use assets are included in the
item ‘Property and equipment’ and lease
liabilities are included in the item ‘Other
financial liabilities.’
Additions to the right-of-use assets during
2019 in NLB Group amounted to EUR
3,650 thousand and in NLB EUR 1,114
thousand.
The income statement shows the following
amounts relating to leases:
Depreciation of right-of-use assets
Land and buildings
Vehicles
Furniture and equipment
Total
Interest expenses on lease liabilities (note 4.1.)
Expenses relating to short-term leases (included in administrative expenses)
Expenses relating to leases of low-value assets that are not shown above as short-term leases (included in administrative expenses)
Income from sub-leasing right-of-use assets (included in other operating income)
NLB Group
2019
3,446
522
609
4,577
NLB Group
2019
(316)
(506)
(787)
114
in EUR thousands
NLB
2019
425
349
2
776
in EUR thousands
NLB
2019
(38)
(375)
(151)
-
The total cash outflow for leases in 2019 in
NLB Group was EUR 5,558 thousand and
in NLB EUR 752 thousand.
NLB Group leases various offices, branches,
vehicles, and other equipment used in
its business. Rental contracts for offices
and branches generally have lease terms
between 5 to 20 years, while some contracts
are made for indefinite periods. Contracts
for indefinite periods are included in
measurement of the liability in accordance
with planning projections. Normally, a
5-year lease term is assumed, with the
exemption of business premises on strategic
locations where management assesses a
different (longer) lease term. Vehicles and
other equipment generally have lease terms
between 1 to 5 years. There are several
lease contracts that include extension and
termination options. These options are
negotiated by management to align with the
Group’s business needs. Lease payments to
be made under reasonably certain extension
options are included in measurement of the
liability.
Lease terms are negotiated on an individual
basis and contain a range of different terms
and conditions. The lease agreements do
not impose any covenants other than the
security interests in the leased assets that are
NLB Group Annual Report 2019 231
held by the lessor. Leased assets may not be
used as security for borrowing purposes.
NLB Group also has certain leases of other
equipment with lease term of 12 months
or less, and equipment with low value. For
these leases, NLB Group applies the short-
term lease and lease of low-value assets
recognition exemptions. Lease payments on
Operating lease commitments (IAS 17)
short-term leases and leases of low-value
assets are recognised as an expense on a
straight-line basis over the lease term.
For calculation of the net present value
of the future lease payments, NLB Group
applies the internal transfer price for retail
deposits as a discount rate.
NLB Group and NLB do not have expenses
relating to variable payments and gains
or losses arising from sale and leaseback
transactions.
Maturity analysis of lease liabilities is
disclosed in note 6.3.f).
The future minimum lease payments under non-cancellable operating leases are as follows:
in EUR thousands
NLB Group
NLB
31 Dec 2018
31 Dec 2018
3,753
11,582
1,883
1,935
5,270
425
24,848
604
1,424
120
489
1,074
-
3,711
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
b) NLB Group as a lessor
Finance and operating leases of motor
vehicles and operating leases of business
premises and POS terminals represent
the majority of agreements in which NLB
Group acts as a lessor.
payable monthly. There are no variable
lease payments that depend on an index or
rate. The investment properties generally
have lease terms between 2 to 10 years.
Some contracts are made for indefinite
period.
Most 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). Most of the finance
lease agreements are concluded for a
non-cancellable period of between 48 and
60 months. By paying the last instalment at
the end of the contract, the leasing object
becomes the lessee’s property. The financial
leasing receivables are secured by the
object of financing. NLB Group does not
have finance lease contracts with variable
payments.
The investment properties are leased to
lessee under operating leases with rentals
As at 31 December 2019, the allowance
for unrecoverable finance lease receivables
included in the allowance for loan
impairment amounted to EUR 4,505
thousand (as at 31 December 2018 EUR
6,335 thousand).
Finance leases
Loans and advances to customers in NLB
Group include finance lease receivables.
The following table sets out a maturity
analysis of lease receivables, showing the
undiscounted lease payments to be received
after the reporting date.
NLB Group Annual Report 2019 232
NLB Group (IFRS 16)
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease receivable
Unearned finance income
Net investment in the lease
During 2019, NLB Group recognised
interest income on lease receivables in the
amount of EUR 3,776 thousand.
NLB Group (IAS 17)
The gross investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
- present value of minimum lease payments
The net investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Total
in EUR thousands
2019
25,351
13,119
7,317
3,632
1,758
1,860
53,037
(4,020)
49,017
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
NLB Group Annual Report 2019 Operating lease
Maturity analysis of lease payments,
showing the undiscounted lease payments
to be received after the reporting date
(IFRS 16):
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
Future minimum operating lease income
from investment property (IAS 17):
Not later than one year
Later than one year and not later than five years
Later than five years
Total
233
NLB Group
2019
1,855
1,447
1,200
484
445
697
in EUR thousands
NLB
2019
405
392
315
293
285
326
6,128
2,016
NLB Group
2018
2,941
5,801
336
9,078
in EUR thousands
NLB
2018
603
2,097
236
2,936
NLB Group realised rental income arising
from: investment properties in the amount
of EUR 4,124 thousand (2018: EUR 4,759
thousand); movable property in the amount
of EUR 985 thousand (2018: EUR 2,152
thousand). NLB realised rental income
arising from: investment properties in the
amount of EUR 697 thousand (2018: EUR
543 thousand); movable property in the
amount of EUR 455 thousand (2018: EUR
437 thousand) (note 4.8.).
5.12. Investments in subsidiaries, associates and joint ventures
a) Analysis by type of investment in subsidiaries
NLB
Banks
Other financial organisations
Enterprises
Total
31 Dec 2019
31 Dec 2018
in EUR thousands
277,160
18,819
55,904
351,883
277,160
18,819
54,754
350,733
NLB Group Annual Report 2019 234
Data of subsidiaries as included in the
consolidated financial statements of NLB
Group as at 31 December 2019:
Nature of
Business
Country of
Incorporation
Equity as at
31 Dec 2019
Profit/(loss)
for 2019
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
North Macedonia
209,664
32,877
NLB Banka a.d., Podgorica
Banking
Montenegro
67,532
7,565
NLB Banka a.d., Banja Luka
Banking
Bosnia and Herzegovina
88,745
17,101
NLB Banka sh.a., Prishtina
Banking
Kosovo
84,927
19,545
NLB Banka d.d., Sarajevo
Banking
Bosnia and Herzegovina
NLB Banka a.d., Belgrade
Banking
Serbia
NLB Skladi d.o.o., Ljubljana
Finance
Slovenia
Non-core members
NLB Leasing d.o.o. - v likvidaciji, Ljubljana
Finance
Slovenia
Optima Leasing d.o.o., Zagreb - "u likvidaciji" Finance
Croatia
81,499
72,954
10,509
16,786
2,373
9,047
4,142
5,512
1,332
(502)
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Montenegro
(1,558)
(1,662)
NLB Leasing d.o.o., Belgrade - u likvidaciji
Finance
Serbia
NLB Leasing d.o.o., Sarajevo
Finance
Bosnia and Herzegovina
Tara Hotel d.o.o., Budva
Real estate
Montenegro
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Slovenia
5,930
632
17,618
20,518
430
(365)
480
141
OL Nekretnine d.o.o., Zagreb - u likvidaciji
Real estate
Croatia
1,556
(161)
BH-RE d.o.o., Sarajevo
Real estate
Bosnia and Herzegovina
REAM d.o.o., Podgorica
Real estate
Montenegro
REAM d.o.o., Belgrade
Real estate
Serbia
SPV 2 d.o.o., Belgrade
Real estate
Serbia
S-REAM d.o.o, Ljubljana
Real estate
Slovenia
REAM d.o.o., Zagreb
Real estate
Croatia
NLB Srbija d.o.o., Belgrade
Real estate
Serbia
NLB Crna Gora d.o.o., Podgorica
Real estate
Montenegro
18
1,818
1,912
814
1,585
2,045
30,933
615
(13)
(89)
(267)
(57)
(168)
458
557
165
NLB InterFinanz AG, Zürich in Liquidation
Finance
Switzerland
9,817
2,302
NLB InterFinanz d.o.o., Belgrade
Finance
Serbia
LHB AG, Frankfurt
Finance
Germany
(21)
2,164
(1)
(275)
86.97
99.83
99.85
81.21
97.34
86.97
99.83
99.85
81.21
97.35
86.97
99.83
99.85
81.21
97.34
86.97
99.83
99.85
81.21
97.35
99.997
99.997
99.997
99.997
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
NLB Group Annual Report 2019 235
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
North Macedonia
199,808
37,068
NLB Banka a.d., Podgorica
Banking
Montenegro
68,937
10,033
NLB Banka a.d., Banja Luka
Banking
Bosnia and Herzegovina
87,218
16,184
NLB Banka sh.a., Prishtina
Banking
Kosovo
71,786
14,836
NLB Banka d.d., Sarajevo
Banking
Bosnia and Herzegovina
NLB Banka a.d., Belgrade
Banking
Serbia
NLB Srbija d.o.o., Belgrade
Real estate
Serbia
NLB Skladi d.o.o., Ljubljana
Finance
Slovenia
NLB Crna Gora d.o.o., Podgorica
Real estate
Montenegro
Non-core members
NLB Leasing d.o.o. - v likvidaciji, Ljubljana
Finance
Slovenia
Optima Leasing d.o.o., Zagreb - "u likvidaciji" Finance
Croatia
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Montenegro
NLB Leasing d.o.o., Belgrade - u likvidaciji
Finance
Serbia
NLB Leasing d.o.o., Sarajevo
Finance
Bosnia and Herzegovina
NLB Lizing d.o.o.e.l., Skopje - vo likvidacija
Finance
North Macedonia
Tara Hotel d.o.o., Budva
Real estate
Montenegro
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Slovenia
OL Nekretnine d.o.o., Zagreb - u likvidaciji
Real estate
Croatia
BH-RE d.o.o., Sarajevo
Real estate
Bosnia and Herzegovina
REAM d.o.o., Podgorica
Real estate
Montenegro
REAM d.o.o., Belgrade
Real estate
Serbia
SR-RE d.o.o., Belgrade
Real estate
Serbia
SPV 2 d.o.o., Belgrade
Real estate
Serbia
S-REAM d.o.o, Ljubljana
Real estate
Slovenia
REAM d.o.o., Zagreb
Real estate
Croatia
CBS Invest d.o.o., Sarajevo
Real estate
Bosnia and Herzegovina
NLB InterFinanz AG, Zürich in Liquidation
Finance
Switzerland
NLB InterFinanz Praha s.r.o., Prague
Finance
Czech Republic
NLB InterFinanz d.o.o., Belgrade
Finance
Serbia
Prospera plus d.o.o., Ljubljana - v likvidaciji
Tourist and
catering trade
Slovenia
LHB AG, Frankfurt
Finance
Germany
Changes in ownership interest in
subsidiaries of NLB Group in 2019 and
2018 are presented in note 3.
80,174
67,686
30,110
9,321
450
15,472
2,884
105
5,448
4,577
1,062
18,496
20,377
1,726
29
167
135
2,027
862
1,753
1,597
22
7,682
177
(21)
162
3,543
8,757
5,202
(536)
4,324
(870)
4,582
(946)
(453)
259
(180)
87
1,568
(648)
1,184
(15)
(143)
(99)
(328)
(753)
(47)
928
(36)
210
(30)
(5)
(323)
780
86.97
99.83
99.85
81.21
97.34
86.97
99.83
99.85
81.21
97.35
86.97
99.83
99.85
81.21
97.34
86.97
99.83
99.85
81.21
97.35
99.997
99.997
99.997
99.997
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 Annual Report 2019 236
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
2019
13.03
13.03
84,105
32,877
4,284
1,092
33,969
4,426
3,139
668,866
793,433
1,049,358
203,277
209,664
27,319
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
2019
18.79
18.79
45,066
19,545
3,673
1,025
20,570
3,865
1,396
379,090
421,995
597,505
118,653
84,927
15,958
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
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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Other financial organisations
Enterprises
Total
7,499
-
7,499
37,147
-
37,147
1,056
310
1,366
4,465
312
4,777
In 2018, NLB sold its associate Skupna
pokojninska družba, d.o.o., Ljubljana (note
4.14.).
NLB Group’s associates
Nature of Business
Country of
Incorporation
Shareholding %
Voting rights % Shareholding %
Voting rights %
2019
2018
Bankart d.o.o., Ljubljana
ARG - Nepremičnine d.o.o., Horjul
Card processing
Real estate
Slovenia
Slovenia
39.44
75.00
39.44
75.00
39.44
75.00
39.44
75.00
By contractual agreement between the
shareholders, NLB does not control ARG-
Nepremičnine, Horjul, but does have a
significant influence. Therefore, the entity is
accounted as an associate.
NLB Group Annual Report 2019 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
237
in EUR thousands
2018
7,243
1,281
(59)
1,222
2019
7,499
1,036
(81)
955
In 2019, NLB Group did not recognise
a share of profit of an associate in the
amount of EUR 5 thousand (31 December
2018: unrecognised profit EUR 39
thousand), as it still has the cumulative
unrecognised share of losses of an associate
that as at 31 December 2019 amounted to
EUR 2,295 thousand (31 December 2018:
EUR 2,299 thousand).
2019
2018
Nature of Business
Country of
Incorporation
Voting rights%
Voting rights%
Insurance
Finance
Slovenia
Slovenia
50
50
50
50
NLB Group’s joint ventures
NLB Vita d.d., Ljubljana
Prvi Faktor Group, Ljubljana
In 2019, NLB Group did not recognise
a share of loss of a joint venture in
the amount of EUR 183 thousand (31
December 2018: unrecognised loss EUR
135 thousand). Cumulative unrecognised
share of losses of a joint venture as at 31
December 2019 amounted to EUR 14,687
thousand (31 December 2018: EUR 14,505
thousand).
NLB Group Annual Report 2019 238
Summarised financial information on
material joint venture NLB Vita, Ljubljana
included in the consolidated financial
statements of NLB Group:
Revenues
Interest income
Interest expense
Depreciation and amortisation
Income tax
Profit for the period
Other comprehensive income
Total comprehensive income
NLB Group's share of:
- Profit for the period
- 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
Data for 2019 are presented as of 30
September as the investment was at that
time classified as non-current assets held
for sale, due to its expected sale in 2020
(note 3).
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
Transfer to non-current assets classified as held for sale (note 5.7.b)
Balance as at 31 December
in EUR thousands
NLB Vita d.d., Ljubljana
nine months ended
Sep 2019
62,604
6,119
(27)
(285)
(1,483)
6,323
21,756
28,079
3,162
10,878
2018
88,492
7,829
(2)
(241)
(1,835)
8,330
(10,424)
(2,094)
4,165
(5,212)
30 Sep 2019
31 Dec 2018
541,801
457,929
362
35
458,081
398,122
83,720
41,860
41,860
59,807
29,904
29,904
2019
37,147
-
5,051
(854)
7,819
(2,781)
(38,883)
7,499
in EUR thousands
2018
43,765
(5,077)
7,201
(1,755)
(5,273)
(1,714)
-
37,147
NLB Group Annual Report 2019 5.13. Other assets
239
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Assets, received as collateral (note 6.1.l)
51,322
60,173
6,005
2,513
2,021
1,950
5,247
3,346
1,421
784
5,292
4,935
378
435
102
5,815
3,862
378
400
182
63,811
70,971
11,142
10,637
Deferred expenses
Inventories
Claim for taxes and other dues
Prepayments
Total
Assets, received as collateral on NLB
Group in the amount of EUR 50,467
thousand (31 December 2018: EUR 59,540
thousand), and on NLB in the amount of
EUR 5,292 thousand (31 December 2018:
EUR 5,815 thousand) consisting of real
estate (note 6.1 l).
NLB Group Annual Report 2019 240
5.14. Movements in allowance for the impairment of financial assets
a) Movements in allowance for the impairment of loans and receivables measured at amortised cost
in EUR thousands
Effects of
translation
of foreign
operations
to
presentation
currency
Balance
as at 1
Jan 2019
Increases/
Transfers
(Decreases) Write-offs
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Disposal of
subsidiary
Balance as at
31 Dec 2019
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
17,162
24,416
182
11,754
(7,474)
-
120
9,598
4,184
(197)
(2,825)
20
11
(31)
(7)
50
18
2
1
22
(1)
Loans and advances to individuals
8,263
Loans and advances to legal entities
27,274
Other financial assets
58
Lifetime ECL credit-impaired
(8,321)
3,980
(1,317)
(1,369)
(63)
24
(3)
(38)
(2)
Loans and advances to individuals
59,054
189
(3,433)
13,661
(21,117)
Loans and advances to legal entities
317,524
1,000
(8,281)
(12,839)
(112,266)
Other financial assets
7,956
(3)
43
795
(2,073)
Of which: Purchased credit-
impaired financial assets
Loans and advances to legal entities
2,184
Other financial assets
1
-
-
-
-
(298)
2
-
-
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)
-
-
-
-
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
-
-
2,182
2,510
11
(638)
(18)
8
-
-
-
(29)
(33)
-
(13)
(25)
1
16
-
1
(6)
-
21
(320)
-
-
-
-
-
-
-
-
21,613
35,210
177
6,103
27,076
27
-
-
-
-
-
-
47,737
3,821
184,800
13,499
(4)
(2,020)
4,702
56
1
-
-
-
1,887
3
-
-
in EUR thousands
(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
-
-
Effects of
translation
of foreign
operations to
presentation
currency
Balance as at
1 Jan 2018
Increases/
Transfers
(Decreases) Write-offs
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
Repayments
of written-off
receivables
NLB Group Annual Report 2019 241
Balance as at
1 Jan 2019
Transfers
Increases/
(Decreases)
Write-offs
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2019
Repayments
of written-off
receivables
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
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
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
6,355
10,511
27
3,991
2,036
15
(2,377)
728
25
Loans and advances to individuals
1,255
(2,875)
1,854
Loans and advances to legal entities
11,405
6,433
(8,882)
Other financial assets
6
(2)
4
-
(5)
(4)
(3)
(34)
-
(775)
380
(8)
1,164
870
1
(545)
(139)
(2)
-
-
1
20
-
1
-
-
19
12
-
1
-
7,195
13,670
55
1,396
9,792
9
15,576
71,277
1,777
1,856
3
-
-
-
-
-
-
1,382
6,671
16
-
-
18,347
154,763
1,855
2,145
1
(1,116)
(8,469)
(13)
5,833
(6,962)
(7,892)
(66,998)
659
(722)
-
-
(290)
2
-
-
Balance as at
1 Jan 2018
Transfers
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
4,908
11,396
24
2,050
4,266
5
5,288
(661)
12
(2,701)
13,054
18
(3,651)
156
(9)
1,619
(7,165)
(17)
-
(28)
(4)
-
(11)
-
(191)
(379)
4
284
1,261
-
Loans and advances to individuals
20,009
(2,587)
5,286
(5,529)
1,121
Loans and advances to legal entities
210,321
(12,393)
(16,468)
(26,750)
Other financial assets
2,637
(30)
419
(1,174)
Of which: Purchased credit-
impaired financial assets
Loans and advances to legal entities
Other financial assets
The contractual amount outstanding on
financial assets that were written off during
the year ending 31 December 2019 and
that are still subject to enforcement activity
for NLB Group amounted to EUR 99,782
thousand (31 December 2018: EUR 41,116
thousand), and for NLB amounted to EUR
1,656
-
-
-
489
1
-
-
51,137 thousand (31 December 2018: EUR
9,598 thousand).
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 Annual Report 2019 242
b) Movements in allowance for the impairment of debt securities
NLB Group
Balance as at
1 Jan 2019
Effects of
translation
of foreign
operations to
presentation
currency
Transfers
Increases/
(Decreases)
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2019
in EUR thousands
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
2,898
3,597
75
798
4
(4)
-
-
-
19
292
1,332
(19)
(24)
-
-
(55)
(188)
10
-
1
1
-
-
3,140
4,757
42
798
in EUR thousands
NLB Group
Balance as at
1 Jan 2018
Effects of
translation
of foreign
operations to
presentation
currency
Transfers
Increases/
(Decreases)
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
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
2,169
3,696
-
798
(4)
1
-
-
-
(108)
728
28
108
(33)
-
-
5
(21)
-
-
-
1
-
-
2,898
3,597
75
798
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
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 2019
Increases/
(Decreases)
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2019
1,323
1,541
798
342
182
-
(49)
(11)
-
1
2
-
1,617
1,714
798
Balance as at
1 Jan 2018
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 Annual Report 2019 c) Explanation of how significant
changes in the gross carrying amount
of financial instruments contributed
to changes in the loss allowance
In year 2019, the gross carrying amount
of debt securities at amortised cost
increased by EUR 225,128 thousand for
NLB Group and EUR 210,482 for NLB,
but since they are all classified in Stage
1, this only increased the balance of loss
allowance by EUR 242 thousand at the
NLB Group level, and EUR 294 thousand
at the NLB level. Similarly, changes in
the gross carrying amount of loans to
banks did not cause significant changes in
the loss allowance. For NLB Group, the
gross carrying amount of loans to banks
decreased for EUR 25,324 thousand and
loss allowance for EUR 31 thousand,
while at NLB level gross carrying amount
increased for EUR 34,119 thousand and
loss allowance for EUR 64 thousand.
The decrease of loss allowance for other
financial assets for NLB Group in the
amount of EUR 3,290 thousand was
mainly caused by a decrease of carrying
amount due to disposal of subsidiary (EUR
2,020 thousand) and write-offs (EUR
2,106 thousand). At the NLB level, the
loss allowance for other financial assets
decreased only by EUR 47 thousand.
243
The biggest change in loss allowance
was recognised for loans and advances to
other customers which decreased by EUR
131,123 at the NLB Group level, and
EUR 83,794 at the NLB level, regardless
of the fact that the gross carrying amount
increased by EUR 333,968 thousand for
NLB Group and EUR 33,328 thousand
for NLB. Most decreases of gross carrying
amount were realised in Stages 2 and 3
with lifetime expected credit losses, while
increases were realised in Stage 1 with only
12-month expected credit losses. The table
below illustrates how changes in the gross
carrying amount of loans and advances to
customers contributed to changes in the loss
allowance.
in EUR thousands
NLB Group
NLB
12-month
expected
credit losses
Lifetime ECL
not credit
- impaired
Lifetime ECL
credit-impaired
12-month
expected
credit losses
Lifetime ECL
not credit
- impaired
Lifetime ECL
credit-impaired
Total
Total
Balance as at 1 January 2019
6,426,820
577,935
573,445
7,578,200
4,146,744
208,191
299,101
4,654,036
Effects of translation of foreign
operations to presentation currency
4,896
587
2,110
7,593
-
-
-
Transfers
(6,887)
(17,381)
24,268
-
(12,370)
9,872
2,498
-
-
Increases/(Decreases)
666,177
(90,175)
(116,728)
459,274
213,446
(28,728)
(80,394)
104,324
Write-offs
Foreign exchange
(197)
1,515
(41)
92
(133,383)
(133,621)
(885)
722
(5)
2,734
(37)
128
(73,960)
(74,002)
144
3,006
Balance as at 31 December 2019
7,092,324
471,017
348,827
7,912,168
4,350,549
189,426
147,389
4,687,364
NLB Group Annual Report 2019 244
5.15. 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
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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
42,840
170,385
26,775
258,423
89,820
161,564
48,903
244,133
11,612,317
10,464,017
7,760,737
7,033,409
64,458
210,569
158,484
61,844
15,050
100,887
2,537
210,569
98,342
4,128
-
62,212
12,259,053
10,926,996
8,323,569
7,392,785
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
31,298
23,191
86,366
41,949
9,463,888
8,281,230
6,917,810
6,084,776
214,472
134,735
214,770
120,906
69,855
114,836
83,258
106,060
2,212,002
1,857,646
1,352,522
1,111,963
6,902,679
6,087,908
5,380,597
4,783,495
11,542
3,584
2,148,429
2,182,787
42,909
126,156
299,094
46,328
91,906
266,857
1,680,270
1,777,696
3,454
842,927
31,027
32,147
175,368
604,385
6,954
948,633
35,838
8,196
165,952
738,647
11,655,157
10,490,792
7,850,557
7,082,312
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
170,385
258,423
64,458
16,657
44,157
3,644
61,844
10,582
45,417
5,845
234,843
320,267
161,564
2,537
-
-
2,537
164,101
244,133
4,128
-
-
4,128
248,261
NLB Group Annual Report 2019 245
As at 31 December 2019, NLB Group
and NLB had EUR 344,687 thousand in
undrawn borrowings (31 December 2018:
EUR 343,653 thousand).
c) Subordinated liabilities
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Currency
Due date
Interest rate
Carrying
amount
Nominal
value
Carrying
amount
Nominal
value
Carrying
amount
Nominal
value
Carrying
amount
Nominal
value
-
-
-
45,826
45,000
119,376
120,000
-
45,367
45,000
-
-
-
-
-
-
-
-
-
-
Subordinated
bonds
Subordinated
loans
EUR
6.5.2029
EUR
19.11.2029
4.2% to 6.5.2024,
thereafter 5Y MS
+ 4.159% p.a.
3.65% to 19.11.2024,
thereafter 5Y MS
+ 3.833% p.a.
45,826
45,000
119,376
120,000
EUR
20.9.2029
EUR
EUR
30.6.2020
26.6.2025
3.826% to 20.9.2024,
thereafter 5Y IRS
+ 4.21% p.a.
6 months EURIBOR
+ 7.7% p.a.
6 months EURIBOR
+ 6.25% p.a.
45,367
45,000
-
-
-
-
5,110
5,000
9,940
10,000
-
-
-
-
Total
210,569
210,000
15,050
15,000
210,569
210,000
In September 2019, NLB entered into
a loan agreement relating to a EUR 45
million of subordinated loan intended
for the inclusion into additional capital to
strengthen and optimise its capital structure.
NLB may, according to valid legislation,
only include the loan in calculation of
additional capital after obtaining approval
from the ECB. As such approval had
not been granted by 23 December 2019,
and it was not reasonably expected to be
granted in the near future, NLB announced
the prepayment of the loan, which was
exercised in January 2020.
Both bonds issued in year 2019 represent
non-convertible Tier 2 instruments (note
5.22.). In the event of bankruptcy or
liquidation of the issuer, obligations arising
from Tier 2 instruments shall be repaid;
a) after repayment of all unsubordinated
obligations of the Issuer as well as of all
subordinated obligations (if any) which
are expressed to rank in priority to Tier
2 instruments;
b) with the same priority (pari passu) as,
and proportionally with the obligations
arising from other instruments which
qualify as Tier 2 instruments or have the
same priority of repayment as the Tier 2
instruments;
c) in priority to the obligations arising
from shares or other instruments which
qualify as Common Equity Tier 1
capital instruments or additional Tier 1
instruments or have the same priority of
repayment as these instruments.
NLB Group Annual Report 2019 246
Movement of subordinated liabilities
Balance as at 1 January
Exchange differences of opening balances
Cash flow items:
- new issued subordinated liabilities
- repayments of subordinated liabilities
Non-Cash flow items:
- accrued interest
Balance as at 31 December
d) Other financial liabilities
Items in the course of payment
Debit or credit card payables
Suppliers
Lease liabilities (note 5.11.a)
Accrued expenses
Accrued salaries
Unused annual leave
Fees and commissions
Other financial liabilities
Total
NLB Group
NLB
in EUR thousands
2019
2018
2019
15,050
6
193,319
208,321
(15,002)
2,194
2,194
2018
27,350
(143)
(11,975)
-
(11,975)
(182)
(182)
-
-
208,321
208,321
-
2,248
2,248
210,569
15,050
210,569
-
-
-
-
-
-
-
-
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
24,124
24,092
21,600
16,713
17,848
13,011
3,784
1,736
35,576
158,484
20,360
22,567
16,404
-
11,988
12,683
3,645
1,861
11,379
100,887
4,960
20,014
16,259
2,784
10,481
9,666
2,455
1,660
30,063
98,342
4,451
20,511
13,191
-
4,741
9,151
2,389
1,802
5,976
62,212
Other financial liabilities mainly include
liabilities to insurance companies, received
warranties, obligation for purchase of
securities and trust services.
5.16. Provisions
a) Analysis by type of provisions
Provisions for guarantees and commitments (note 5.23.a)
Employee benefit provisions
Restructuring provisions
Provisions for legal risks
Other provisions
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
39,421
17,704
14,500
16,627
162
88,414
39,082
15,404
12,363
13,076
209
80,134
29,163
14,743
14,182
2,211
85
60,384
29,516
13,158
11,942
2,180
198
56,994
NLB Group Annual Report 2019 Legal risks
Provisions for legal risks are formed
based on expectations regarding the
probable outcome of legal disputes. As
at 31 December 2019, NLB Group was
involved in 31 (31 December 2018: 34)
legal disputes with material claims against
group members in the total amount of
EUR 340,492 thousand, excluding accrued
interest (31 December 2018: EUR 374,620
thousand). As at 31 December 2019, NLB
was involved in 16 (31 December 2018:
17) legal disputes with material monetary
claims against NLB. The total amount of
these claims, excluding accrued interest,
was EUR 177,075 thousand (31 December
2018: EUR 205,686 thousand).
In connection with legal risks, 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 170 million (as per 31. December
2019). Due to the fact the proceedings
had been pending for such a long time,
the penalty interest already exceeds the
principal amount. As NLB is not liable
for the old foreign currency savings, based
on numerous process and content-related
reasons, NLB has all along objected to these
claims. Two key reasons NLB is not liable
for the old foreign currency savings are
that it was only founded on the basis of the
Constitutional 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 of 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
of the proceedings commenced, the Court
Date of the ruling
Plaintiff
Principal amount
Costs of the
proceedings
Measures taken by NLB
247
of Appeal, the County Court of Zagreb,
ruled in six claims (as explained bellow in
detail) in favour of the plaintiff. In three of
those cases, NLB filed a constitutional suit
after extraordinary legal measure of NLB
with the Supreme Court of the Republic
of Croatia was not successful and in three
NLB filed an extraordinary legal measure
with the Supreme Court of the Republic of
Croatia.
Contrary to the decisions of the court
described above in another case, a claim
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 the
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.
The table below summarises the amounts
according to final court decisions (not
including penalty interest).
May 2015
PBZ
254.76 EUR
15,781.25 HRK
April 2018
PBZ
222,426.39 EUR
253,283.37 HRK
September 2017
ZaBa
492,430.53 EUR
748,583.75 HRK
November 2017
December 2018
PBZ
PBZ
220,115.98 EUR
688,268.12 HRK
375,938.42 EUR
679,926.08 HRK
March 2019
PBZ
9,185,141.76 USD
3,198,760.00 HRK
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 Count 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.
NLB challenged the judgment with the extraordinary legal measure
(revision) on the Supreme Count of the Republic of Croatia and later, if
necessary, will challenge the judgment 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.
NLB Group Annual Report 2019 248
The NLB Shareholders’ Meeting provided
the Management Board of NLB with
instructions how to act in the event of
existing or potential new final decisions
by Croatian courts against LB and NLB
regarding the transferred foreign currency
deposits, 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, and 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 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
b) Movements in provisions for guarantees and commitments
sums recovered from NLB by enforcement.
In the above-mentioned case from May
2015, the Succession Fund of the Republic
of Slovenia has already compensated the
sums recovered from NLB by enforcement.
All procedures relating to the receivables
of PBZ and ZaBa, as well as NLB’s view
on this matter were also discussed with the
ECB as the supervisor 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 the opposite.
Regardless of the negative judgement, in
the financial statements NLB Group did
not recognise the negative impact due to
protection provided by the ZVKNNLB. For
final judgements, NLB Group recognised
the liabilities and related assets which
currently amount to approximately EUR
22 million. They are included within other
financial assets (note 5.6.d) and other
financial liabilities (note 5.15.d).
in EUR thousands
Effects of
translation
of foreign
operations to
presentation
currency
Balance as at
1 Jan 2019
Transfer
Increases/
(Decreases)
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2019
NLB Group
12-month expected credit losses
Guarantees and commitments
Lifetime ECL not credit-impaired
Guarantees and commitments
Lifetime ECL credit-impaired
Guarantees and commitments
26,774
Of which: Purchased credit-
impaired financial assets
Guarantees and commitments
688
9,044
3,264
8
1
3
-
2,318
2,596
(1,058)
(1,721)
655
(597)
(2,114)
245
(12)
1
-
12,909
2,444
14
24,068
-
1,296
-
-
1,984
NLB Group Annual Report 2019 Effects of
translation
of foreign
operations to
presentation
currency
Balance as at
1 Jan 2018
Transfer
Increases/
(Decreases)
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
NLB Group
12-month expected credit losses
249
in EUR thousands
Guarantees and commitments
6,928
(12)
2,424
Lifetime ECL not credit-impaired
Guarantees and commitments
Lifetime ECL credit-impaired
Guarantees and commitments
Of which: Purchased credit-
impaired financial assets
4,833
30,504
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
NLB
12-month expected credit losses
Balance as at
1 Jan 2019
Transfer
Increases/
(Decreases)
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2019
Guarantees and commitments
4,071
513
2,223
(663)
Lifetime ECL not credit-impaired
Guarantees and commitments
Lifetime ECL credit-impaired
Guarantees and commitments
Of which: Purchased credit-impaired financial assets
821
(261)
28
24,624
(252)
(2,013)
Guarantees and commitments
688
-
1,296
65
(8)
-
1
-
14
-
6,145
653
22,365
1,984
NLB
12-month expected credit losses
Balance as at
1 Jan 2018
Transfer
Increases/
(Decreases)
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
Guarantees and commitments
2,946
273
1,040
(189)
Lifetime ECL not credit-impaired
Guarantees and commitments
Lifetime ECL credit-impaired
Guarantees and commitments
Of which: Purchased credit-impaired financial assets
450
10
328
27,276
(283)
(2,365)
Guarantees and commitments
-
-
688
33
(4)
-
1
-
-
-
4,071
821
24,624
688
NLB Group Annual Report 2019 250
c) Movements in employee benefit provisions
Post-employment benefits
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.10.)
Provisions released (note 4.10.)
Interest expenses (note 4.1.)
Utilised during year (payments)
Actuarial gains and losses
Balance as at 31 December
Other employee benefits
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Transfer to other liabilities
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.
d) 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
NLB Group
NLB
in EUR thousands
2019
13,157
2
1,155
(708)
147
(210)
1,777
15,320
2018
14,144
(3)
928
(585)
172
(333)
(1,166)
13,157
2019
11,588
-
724
(670)
85
(85)
1,523
13,165
2018
12,338
-
599
(530)
108
(43)
(884)
11,588
NLB Group
NLB
in EUR thousands
2019
2,247
2
-
329
(35)
37
(196)
2,384
2018
6,296
(3)
(3,613)
243
(447)
49
(278)
2,247
2019
1,570
-
-
164
-
11
(167)
1,578
2018
4,374
-
(2,312)
91
(385)
18
(216)
1,570
NLB Group
NLB
in EUR thousands
2019
12,363
-
5,523
(45)
(3,341)
14,500
2018
15,284
1
3
(24)
(2,901)
12,363
2019
11,942
-
5,500
-
(3,260)
14,182
2018
14,687
-
-
-
(2,745)
11,942
NLB Group Annual Report 2019 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
fewer employees in the coming years.
251
e) 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
f) 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
2019
13,076
24
5,837
(141)
(2,168)
(1)
16,627
2018
15,786
8
4,529
(2,996)
(4,250)
(1)
13,076
2019
2,180
-
251
(60)
(160)
-
2,211
2018
4,958
-
293
(2,551)
(520)
-
2,180
NLB Group
NLB
in EUR thousands
2019
209
66
(105)
(8)
162
2018
214
-
-
(5)
209
2019
198
-
(105)
(8)
85
2018
203
-
-
(5)
198
NLB Group Annual Report 2019 252
5.17. Deferred income tax
a) Analysis by type of deferred income taxes
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Deferred income tax assets
Valuation of financial instruments and capital investments
36,286
25,834
36,244
25,747
Impairment provisions
Employee benefit provisions
Depreciation and valuation of non-financial assets
910
4,109
1,087
905
3,671
1,627
784
3,196
154
697
2,915
157
Total deferred income tax assets
42,392
32,037
40,378
29,516
11,159
1,296
3,270
15,725
29,500
(2,833)
NLB Group
2019
8,041
8,305
100
293
(657)
(1,714)
(1,859)
145
7,205
1,179
3,305
11,689
22,847
(2,499)
2018
920
248
282
(180)
570
2,226
2,394
(168)
10,131
201
477
10,809
29,569
-
NLB
2019
8,556
8,305
87
136
28
(1,221)
(1,366)
145
6,606
232
444
7,282
22,234
-
2018
(160)
147
33
(349)
9
2,076
2,244
(168)
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
Included in other comprehensive income for the current year
- valuation and impairment of financial assets measured at
fair value through other comprehensive income
- actuarial assumptions and experience
As at 31 December 2019, NLB recognised
EUR 40,378 thousand in deferred tax
assets (31 December 2018: EUR 29,516
thousand). Unrecognised deferred tax assets
amount to EUR 235,693 thousand (31
December 2018: EUR 262,081 thousand),
of which EUR 180,335 thousand (31
December 2018: EUR 189,491 thousand)
relates to unrecognised deferred tax
assets from tax loss, and EUR 55,358
thousand (31 December 2018: EUR 72,590
thousand) to unrecognised deferred tax
assets from impairments of non-strategic
capital investments.
NLB Group Annual Report 2019 b) Movements in deferred income taxes
Deferred income tax assets
NLB Group
Balance as at 1 January 2018
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
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 2019
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets Impairment provisions
4,018
1
(180)
(168)
3,671
-
293
145
4,109
25,267
-
38
529
25,834
-
8,190
2,262
36,286
976
-
651
-
1,627
2
(542)
-
1,087
890
1
14
-
905
-
5
-
910
NLB
Balance as at 1 January 2018
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2018
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2019
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets Impairment provisions
3,432
(349)
(168)
2,915
136
145
3,196
25,229
38
480
25,747
8,190
2,307
36,244
162
(5)
-
157
(3)
-
154
664
33
-
697
87
-
784
253
in EUR thousands
Total
31,151
2
523
361
32,037
2
7,946
2,407
42,392
in EUR thousands
Total
29,487
(283)
312
29,516
8,410
2,452
40,378
NLB Group Annual Report 2019 254
Deferred income tax liabilities
NLB Group
Balance as at 1 January 2018
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
Effects of translation of foreign operations to presentation currency
Charged/(credited) to profit and loss
Charged/(credited)to other comprehensive income
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
3,543
(11)
(268)
41
3,305
6
(95)
54
9,323
(2)
(210)
(1,906)
7,205
2
(115)
4,067
1,097
1
81
-
1,179
2
115
-
Balance as at 31 December 2019
3,270
11,159
1,296
NLB
Balance as at 1 January 2018
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2018
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2019
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
416
-
28
444
-
33
477
8,507
(109)
(1,792)
6,606
(115)
3,640
10,131
246
(14)
-
232
(31)
-
201
in EUR thousands
Total
13,963
(12)
(397)
(1,865)
11,689
10
(95)
4,121
15,725
in EUR thousands
Total
9,169
(123)
(1,764)
7,282
(146)
3,673
10,809
NLB Group Annual Report 2019 5.18. Income tax relating to components of other comprehensive income
255
in EUR thousands
2019
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
NLB Group
NLB
Actuarial gains and lossess
Financial assets measured at fair value
through other comprehensive income
Share of associates and joint ventures
Total
2018
Actuarial gains and lossess
Financial assets measured at fair value
through other comprehensive income
Share of associates and joint ventures
Total
5.19. Other liabilities
Deferred income
Taxes payable
Payments received in advance
Total
(1,777)
13,413
9,673
21,309
145
(1,859)
(1,854)
(3,568)
(1,632)
11,554
7,819
17,741
(1,523)
145
(1,378)
7,190
(1,366)
-
-
5,667
(1,221)
5,824
-
4,446
NLB Group
NLB
in EUR thousands
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
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
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
9,012
4,209
1,991
8,269
4,210
2,361
15,212
14,840
6,142
3,039
53
9,234
5,698
3,185
660
9,543
5.20. Share capital
The share capital of NLB amounts to EUR
200,000 thousand and did not change
during 2019. 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 2019, the
major shareholder of NLB with significant
influence is the Republic of Slovenia,
owning 25.00% plus one share. As at 31
December 2018, the major shareholder
of NLB with significant influence is the
Republic of Slovenia, which owned
35.00%.
The book value of a NLB share on a
consolidated level as at 31 December 2019
was EUR 84.3 (31 December 2018: EUR
80.8), and on solo level was EUR 66.7 (31
December 2018: EUR 64.8). 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 2019
amounts to EUR 228,040 thousand (31
December 2018: EUR 194,491 thousand),
and consists of NLB net profit for 2019
in the amount of EUR 176,149 thousand
(2018: EUR 165,299 thousand), and
retained earnings from previous years in
the amount of EUR 51,891 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.
The shares give to their holders the
right to vote at the NLB’s meeting of
shareholders where, as a rule, each share
entitles its holder to one vote. Nevertheless,
a shareholder who acquires shares which,
together with the shares already held by
such shareholder or by a third person
on behalf of such shareholder, represent
more than 25% of the NLB’s share capital,
may only exercise its voting rights under
such shares if NLB’s Supervisory Board
approves such acquisition. The Supervisory
Board’s approval may only be rejected if,
following such acquisition, such person
would hold shares representing more than
25% of NLB’s issued share capital plus one
share. The approval shall be considered
NLB Group Annual Report 2019 256
given if not expressly rejected in 20 days.
No such approval is necessary in respect
of the shares acquired by a person on
behalf of third persons provided that
such person is not entitled to exercise the
voting rights arising out of such shares at
its own discretion and undertakes to NLB
that it will not exercise the voting rights
based on voting instructions unless such
voting instructions are accompanied with
a confirmation that the person giving
such instructions is the beneficial owner
of the shares in respect of which votes are
to be exercised and does not hold in the
aggregate, directly or indirectly 25% or
more NLB shares with voting rights.
The shares also give their holders the
right to be informed, pre-emptive right to
subscribe for new shares on a pro rata basis
in case of a share capital increase, the right
to a pro-rata share of remaining assets in
case of bankruptcy or liquidation or NLB
and the right to receive dividend. In 2019
b) Accumulated other comprehensive income
NLB paid dividends for previous year in
the amount of 7.13 EUR per share (2018:
13.53 EUR per share), which decreased
retained earnings for EUR 142,600
thousand (2018: EUR 270,600 thousand).
As at 31 December 2019 and 31 December
2018 NLB holds no own shares. In June
2019, the General Assembly of NLB
authorised the Management Board that in
the period of 36 months from the adoption
of the shareholders’ resolution, it can buy
own shares of the Bank for the payment of
variable remuneration to certain employees
as required by the Banking Act and other
relevant regulations. When disposing of
own shares which NLB acquires on the
basis of this authorisation, the pre-emptive
right of the existing shareholders to acquire
shares is completely excluded, provided
that own shares are disposed of for the
purpose of paying variable remuneration
to employees of NLB in the form of NLB
shares.
5.21. Accumulated other comprehensive
income and reserves
a) Reserves
The share premium account as at 31
December 2019 and 31 December 2018
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 2019 and 31 December
2018 profit reserves in the amount of EUR
13,522 thousand relate entirely to legal
reserves in accordance with the Companies
Act.
In 2019, NLB recorded a net profit in the
amount of EUR 176,149 thousand which
is included in the retained earnings as at 31
December 2019.
Financial assets measured at fair value through other comprehensive income - debt securities
Financial assets measured at fair value through other comprehensive income - equity securities
Actuarial defined benefit pension plans
Foreign currency translation
Hedge of a net investment in a foreign operation
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
45,040
2,840
(5,086)
27,166
1,536
(3,358)
(17,055)
(18,275)
754
26,493
754
7,823
24,156
288
(4,159)
-
-
18,504
116
(2,781)
-
-
20,285
15,839
NLB Group Annual Report 2019 5.22. 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
257
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
200,000
871,378
358,648
35,000
14,364
13,522
(2,194)
(3,529)
200,000
871,378
293,026
108,829
3,598
13,522
(1,983)
(3,529)
200,000
871,378
51,891
8,166
20,285
13,522
(1,701)
-
200,000
871,378
29,192
103,335
15,839
13,522
(1,607)
-
(36,013)
(31,439)
(25,980)
(23,391)
COMMON EQUITY TIER 1 CAPITAL (CET1)
1,451,176
1,453,402
1,137,561
1,208,268
Additional Tier 1 capital
TIER 1 CAPITAL
Tier 2 capital
-
-
-
-
1,451,176
1,453,402
1,137,561
1,208,268
44,595
-
44,595
-
Total CAPITAL (OWN FUNDS)
1,495,771
1,453,402
1,182,156
1,208,268
RWA for credit risk
RWA for market risks
RWA for credit valuation adjustment risk
RWA for operational risk
7,720,232
7,179,678
4,344,829
4,150,987
523,050
663
941,594
541,901
2,563
953,482
274,025
663
605,581
273,476
2,563
596,586
Total RISK EXPOSURE AMOUNT (RWA)
9,185,539
8,677,624
5,225,098
5,023,612
Common Equity Tier 1 Ratio
Tier 1 Ratio
Total Capital Ratio
15.8%
15.8%
16.3%
16.7%
16.7%
16.7%
21.8%
21.8%
22.6%
24.1%
24.1%
24.1%
European banking capital legislation
– CRD IV, is based on the Basel III
guidelines. The legislation defines three
capital ratios reflecting a different quality
of capital:
• Common Equity Tier 1 ratio (ratio
between common or CET1 capital and
risk-weighted exposure amount or RWA),
which must be at least 4.5%;
• Tier 1 capital ratio (Tier 1 capital to
RWA), which must be at least 6%; and
• Total capital ratio (total capital to RWA),
which must be at least 8%.
In addition to the aforementioned ratios
which form the Pillar 1 requirement,
NLB must meet other requirements and
recommendations that are imposed by the
supervisory institutions or by the legislation:
• Pillar 2 Requirement (SREP
• Pillar 2 Capital Guidance: capital
recommendation set by the supervisory
institution through the SREP process. It
is bank-specific and is a recommendation,
and not obligatory. Any non-compliance
does not affect dividends or other
distributions from capital; however, it
might lead to intensified supervision and
the imposition of measures to re-establish
a prudent level of capital (including
preparation of capital restoration plan).
requirement): bank-specific, obligatory
requirement set by the supervisory
institution through the SREP process
(together with the Pillar 1 requirement
it represents the minimum total SREP
capital requirement – TSCR);
• Applicable combined buffer requirement
(CBR): a system of capital buffers to
be added on top of TSCR – breaching
of the CBR is not a breach of capital
requirement, but triggers limitations
in payment of dividends and other
distributions from capital. Some of the
buffers are prescribed by law for all banks
and some of them are bank-specific, set
by the supervisory institution (CBR and
TSCR together form the overall capital
requirement – OCR);
NLB Group Annual Report 2019 258
NLB’s overall capital requirement on the consolidated level
SREP requirement
Pillar 1 (P1R)
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
CET1
AT1
T2
CET1
CET1
Tier 1
Total Capital
CET1
CET1
CET1
CET1
Tier 1
Total Capital
CET1
CET1
2019
4.5%
1.5%
2.0%
3.25%
7.75%
9.25%
11.25%
2018
4.5%
1.5%
2.0%
3.50%
8.00%
9.50%
11.50%
2.500%
1.875%
1.0%
0.0%
11.250%
12.750%
14.750%
1.0%
12.250%
0.0%
0.0%
9.875%
11.375%
13.375%
1.5%
11.375%
The Overall Capital Requirement (OCR)
amounted to 14.75% for NLB on the
consolidated basis, consisting of:
• 3.5% CBR (2.5% Capital conservation
buffer, 1% O-SII buffer and 0%
Countercyclical buffer).
and was not reasonably expected to receive
it in the near future, NLB exercised early
repayment on 17 January 2020.
• 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).
Pillar 2 Requirement from 1 January 2020
decreased additionally, by 0.5 p.p. to 2.75%,
as a result of enhanced overall corporate
governance, resulting in overall SREP
assessment.
The applicable OCR requirement for 2019
was raised to 14.75%, due to the gradual
phase-in of the Capital Conservation Buffer
as prescribed by the law and introduction
of 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. Moreover, Pillar 2 Guidance
(P2G) remains at a relatively low level, 1.0%
of CET1.
From 1 January 2020, NLB is required to
maintain the OCR on the level of 14.25%
on a consolidated basis, consisting of:
• 10.75% TSCR (8% Pillar 1 Requirement
and 2.75% Pillar 2 Requirement); and
To strengthen and optimise the capital
structure, NLB issued 10NC5 subordinated
Tier 2 notes in the aggregate nominal
amount of EUR 45 million on 6 May 2019
and instrument has been included in the
capital since 30 June 2019. In addition to
that, on 19 November 2019, NLB issued
10NC5 subordinated Tier 2 notes in the
aggregate nominal amount of EUR 120
million, which are not included in NLB
Group’s capital as at 31 December 2019,
permission for their inclusion was obtained
on 4 March 2020.
On 17 September 2019, NLB entered into
a loan agreement to raise EUR 45 million
of subordinated Tier 2 debt. As NLB had
not obtained ECB approval to count the
loan towards its capital by end of 2019
The capital of NLB and the NLB Group
at the end of year 2019 remains strong in
accordance with risk appetite orientations,
at a level which covers all the current and
announced regulatory capital requirements,
including capital buffers and other currently
known requirements, as well as the P2G.
As of 31 December 2019, NLB Group
capital ratios on a consolidated basis stand
at:
• 15.8% CET1 ratio,
• 15.8% Tier 1 ratio,
• 16.3% Total Capital ratio.
NLB Group’s capital adequacy in terms of
CET1, representing the capital of highest
quality, was within the stated risk appetite
limit and above the EU average (14.6% for
Q3 2019) as published by the European
Banking Authority (EBA).
In the scope of regulatory risks, which
include credit risk, operational risk,
NLB Group Annual Report 2019 259
maintain capital on an ongoing basis, as
well the adequate distribution of internal
capital for covering the nature and level of
the risks to which NLB Group is or might
be exposed. In addition, the NLB Group
gives strong emphasis on its integration
into the overall risk management system
in order to assure proactive support for
informed decision-making.
Under an economic perspective NLB
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 NLB Group’s
annual business plan review and budgeting
process.
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.
As at 31 December 2019, the Total Capital
Ratio for the NLB Group stood at 16.3%
(or 0.5 p.p. lower than at the end of 2018),
and for NLB at 22.6% (or 1.4 p.p. lower
than at the end of 2018). The Tier 1 ratio
and CET1 ratio (15.8% or 0.9 p.p. lower
than at the end of 2018) differs from the
Total Capital Ratio due to new Tier 2 notes
issued in May. The lower capital adequacy
compared to the end of 2018 derives from
higher RWA YoY (EUR 507.9 million for
the NLB Group). In June 2019, NLB paid
out dividends in the total amount of EUR
142.6 million, which represents EUR 7.13
gross per share. Total Capital increased by
EUR 42.4 million, mainly due to new Tier
2 notes (EUR 44.6 million).
The RWA for credit risk in 2019 increased
by EUR 540.6 million, mainly due to
increase of exposure in the Corporate
and Retail segment due to loan growth.
The decrease in RWA for market risks and
CVA (Credit value adjustments) (EUR
-20.8 million) is mainly the result of more
closed positions in domestic currencies of
non-euro subsidiary banks. The decrease
in the RWA for operating risks (EUR -11.9
million) arises from the lower three-year
average of relevant income, as defined in
Article 316 of CRR, which represents the
basis for the calculation.
The most important goal of internal capital
adequacy assessment process (ICAAP) in
NLB Group, set up in accordance with
ECB Guidelines, 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
NLB Group Annual Report 2019 260
5.23. Off-balance sheet liabilities
a) Contractual amounts of off-balance sheet financial instruments
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Short-term guarantees
- financial
- non-financial
Long-term guarantees
- financial
- non-financial
210,469
111,526
98,943
705,989
272,071
433,918
204,513
116,547
87,966
604,793
241,231
363,562
58,920
53,541
502,012
171,989
330,023
Commitments to extend credit
1,346,012
1,207,642
1,072,458
112,461
122,273
66,184
56,089
451,053
161,606
289,447
945,856
5,302
5,200
22,871
8,742
18,155
10,415
6,243
14,106
2,294,083
2,045,518
1,707,280
1,529,684
(39,421)
(39,082)
(29,163)
(29,516)
2,254,662
2,006,436
1,678,117
1,500,168
Letters of credit
Other
Provisions (note 5.16.b)
Total
Fee income from all issued non-financial
guarantees amounted to EUR 4,801
thousand (2018: EUR 5,096 thousand) in
NLB Group, and to EUR 4,375 thousand
(2018: EUR 4,267 thousand) in NLB.
Besides the instruments presented in the
table above, NLB Group and NLB enter
also into contracts related to guarantee
lines. When the contract is signed, bank
and a client agree on all conditions for
issuing guarantees. Nevertheless, NLB
Group can discontinue issuing guarantees
if the client’s conditions worsen. As at 31
December 2019 unused guarantee lines
at the NLB Group level amount to EUR
307,199 thousand, and at the NLB level
EUR 247,485 thousand.
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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
42,736
1,706,073
42,121
1,790,411
52,299
1,706,073
35,723
1,790,411
42,736
69,328
42,121
65,834
52,299
69,328
35,723
65,834
-
1,636,745
-
1,724,577
-
1,636,745
-
1,724,577
12,864
28,875
11,954
30,750
12,864
28,875
11,954
30,750
-
28,875
-
30,750
-
28,875
-
30,750
12,864
-
11,954
-
12,864
-
11,954
108,640
28,298
65,979
8,953
107,936
28,298
65,590
108,640
28,298
65,979
8,953
107,936
28,298
65,590
-
8,953
8,953
164,240
1,763,246
120,054
1,830,114
173,099
1,763,246
113,267
1,830,114
1,927,486
1,950,168
1,936,345
1,943,381
The notional amounts of derivative
financial instruments that qualify for
hedge accounting at NLB Group and NLB
amount to EUR 561,500 thousand (31
December 2018: EUR 493,677 thousand)
(note 5.5.b). 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., and
5.5.
NLB Group Annual Report 2019
c) Capital commitments
Capital commitments for purchase of:
- property and equipment
- intangible assets
Total
261
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
7,286
2,122
9,408
2,476
1,839
4,315
7,201
2,084
9,285
2,476
1,787
4,263
5.24. 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.
Funds managed on behalf of third parties
Fiduciary activities
Settlement and other services
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
24,495,725
24,879,612
23,259,665
24,062,542
1,012,492
1,251,416
980,964
1,220,641
25,508,217
26,131,028
24,240,629
25,283,183
NLB Group Annual Report 2019 262
Fiduciary activities
Assets
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Clearing or transaction account claims for client assets
24,431,766
24,815,258
23,202,008
24,003,252
- from financial instruments
24,431,355
24,808,718
23,201,641
23,997,062
- receipt, processing, and execution of orders
9,574,811
8,945,528
8,930,064
8,643,063
- management of financial instruments portfolio
522,263
437,066
-
-
- custody services
14,334,281
15,426,124
14,271,577
15,353,999
- 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
124
287
63,959
28,250
35,709
608
5,932
64,354
13,788
50,566
80
287
57,657
21,948
35,709
258
5,932
59,290
8,724
50,566
Clearing or transaction liabilities for client assets
24,495,725
24,879,612
23,259,665
24,062,542
- to client from cash and financial instruments
- receipt, processing, and execution of orders
24,492,746
24,876,258
23,258,161
24,059,499
9,606,633
8,965,387
8,961,886
8,662,922
- management of financial instruments portfolio
527,134
442,169
-
-
- custody services
14,358,979
15,468,702
14,296,275
15,396,577
- 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.
83
2,514
382
344
2,615
395
83
1,039
382
344
2,304
395
Fee income for funds managed on behalf of third parties
Fiduciary activities (note 4.3.b)
Settlement and other services
Total
NLB Group
NLB
in EUR thousands
2019
9,267
1,435
2018
9,273
1,570
10,702
10,843
2019
7,775
1,185
8,960
2018
7,951
1,166
9,117
NLB Group Annual Report 2019 6. Risk management
Risk management in NLB Group is
implemented in accordance with the set
strategic guidelines, 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 with the
aim to proactively and comprehensively
support decision-making.
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, proactive
risk management and mitigation by
incorporating:
• risk appetite statement and risk strategy
orientations,
• yearly review of strategic business goals,
budgeting, and capital planning process,
• internal capital adequacy assessment
process (ICAAP) and internal liquidity
adequacy assessment process (ILAAP),
• recovery plan activities,
• other internal stress-testing capabilities,
early warning systems and on-going risk
analysis,
• regulatory and internal management
reporting.
NLB Group uses the ‘three lines of defence
framework’ as an important element of
its internal governance, whereby Risk
management function acts as a second line
of defence. 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 at a very early stage, efficient
risk management, and mitigation of them
with the aim of ensuring the prudent use of
its capital and adequate liquidity structure
to support the financial resilience of the
Group.
Key risk management guidelines of NLB
Group are defined by its Risk Appetite
and Risk Strategy regarding the Group’s
business model, based on a forward-looking
perspective. The Strategy of NLB Group,
the Risk Appetite, Risk Strategy, and the
key internal policies of NLB Group – which
are approved by the Management and
Supervisory Boards – specify the strategic
goals, risk appetite guidelines, approaches,
and methodologies for monitoring,
measuring, and managing all types of
risk in order to meet internal strategic
objectives and all external requirements.
The main strategic risk guidelines are
comprehensively integrated into decision-
making, including the annual business plan
review and budgeting process.
NLB Group plans a prudent risk profile
and optimal capital usage, representing
an important element of its business
strategy and related mid-term financial
targets. 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, the sustainable costs of risk, and
263
ensuring an optimal return considering
the risks assumed. As regards liquidity
risk, the tolerance is low, while the
activities are geared towards an adequate
liquidity position on an ongoing basis.
The Group limited exposure to credit
spread risk, arising from the valuation
risk of debt securities portfolio servicing
as liquidity reserves, to the moderate
level. The 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. When assuming
operational risk, the Group pursues the
orientation that such a risk must not
significantly impact its operations. The
risk appetite for operational risks is low
to moderate, with a focus on mitigation
actions for important risks and key risk
indicators servicing as an early warning
system. Concerning market risks, the 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.
Within these frameworks, the Group
monitors a range of risk metrics, including
internal capital allocation, 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 regularly reported to
the respective committees and/or the
Management Board of the Bank. The
banking subsidiaries within NLB Group
adapted a corresponding approach to
monitor and manage their target risk
profiles. Additionally, the Group established
early warning systems in different risk areas
with the intention of strengthening existing
internal controls and timely response when
necessary.
NLB Group established a comprehensive
stress testing framework and other early
warning systems in different risk areas with
the intention to strengthen the existing
NLB Group Annual Report 2019 264
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 the capital and liquidity positions
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.
For the purpose of an efficient risk
mitigation process, NLB Group applies
a single set of standards to retail and
corporate loan collateral, representing a
secondary source of repayment with the
aim of efficient credit risk management
and optimal capital consumption. The
Group has a system for monitoring and
reporting collateral at fair (market) value
in accordance with the International
Valuation Standards (IVS). The eligibility
of collateral, by types and ratios referring
to prudent lending criteria, is set within
internal lending guidelines. Credit
risk mitigation principles and rules in
NLB Group are described in more
relevant details in the section Credit risk
management. When hedging market
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.
b) Risk management structure
and organisation
NLB Group’s corporate governance
framework is based on the principles of
sound and responsible governance, in
accordance with the applicable legislation
of the Republic of Slovenia, particularly the
provisions of the Companies Act (ZGD-1)
and the Banking Act (ZBan-2), Regulation
on Internal Governance Arrangements,
the Management Body, and the Internal
Capital Adequacy Assessment Process
for Banks and Savings Banks, the EBA
Guidelines on internal governance, the
EBA Guidelines on the assessment of the
suitability of members of the management
body, and key function holders, as well
as the EBA Guidelines on remuneration
practices. Several layers of management
provide cohesive risk management
governance in NLB Group.
NLB Group established three lines of
a defence framework with the aim of
managing 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 of 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.
The 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 strategy and 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
NLB Group Annual Report 2019 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 EBA
guidelines. Regarding 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, valuation,
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,
uniform database structure within Data
Warehouse (DWH), comprehensive data
quality assurance and automated report
preparation, which ensures the quality of
reports and reduces the possibility of errors.
d) Data and IT system
Risk data are calculated and stored in NLB
Group Data Warehouse (DWH), collected
from NLB and other group member’s
DWH. 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 2019
Efficient managing of risks and capital is
crucial for NLB Group to sustain long-
term profitable operations. The 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. With that in mind, the risk
management framework is continuously
265
adapting with the aim to detect and
manage new potential emerging risks.
The Group gives special focus 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 usage of
internal capital, 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.
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. In the year 2019, NLB Group’s
credit portfolio quality remained very solid
and improved further with a stable rating
structure and portfolio diversification.
NLB Group experienced healthy lending
growth and negative cost of risk, resulting
from stable macroeconomic environment,
prudent new financing and the active
management of non-performing loans.
The portfolio quality 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. A high percentage
of the Stage 1 loan portfolio is a result of
cautious lending policy. Respectively, the
volume of Stage 2 loans is quite limited,
their decrease occurred due to positive
resolving of these exposures. 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 NPL reduction without significant
influence on cost of risk in the years ahead.
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
NLB Group Annual Report 2019 266
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
risk appetite tolerance toward this risk.
Moreover, during 2019 the Group’s capital
and liquidity position remained strong at
both, the Group and subsidiary bank levels.
In the area of operational risk NLB Group
follows the guideline that such risk may
not considerably influence its operations.
In 2019, additional efforts were made
regarding proactive mitigation, prevention,
and minimisation of potential damage in
the future. Key risk indicators, servicing as
an early warning system for the broader
field of operational risks, 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.
6.1. Credit risk management
a) Introduction
In its operations, NLB Group is exposed to
credit risk, or the risk of losses due to the
failure of a debtor to settle its liabilities to
NLB Group. For that reason, it proactively
and comprehensively monitors and assesses
the aforementioned risk. In that process,
NLB Group follows the International
Financial Reporting Standards, regulations
issued by the European Central Bank or
Bank of Slovenia, and the EBA guidelines.
This area is governed in greater detail by
the internal methodologies and procedures
set out in internal acts.
Through regular reviews of the business
practices and the credit portfolios of
NLB entities, NLB ensures that the
credit risk management of those entities
function in accordance with NLB Group’s
risk management standards to enable
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 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.
For the purpose of objectively assessing
a client’s operation comprehensively,
internal scoring models for particular
client segments have been developed. 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. In this part
of the credit process, regular monitoring
of clients within the Early Warning
System (EWS) is important. In case of
client default, restructuring or work-out
is initiated depending on the severity of
client position.
• The quality and trends in the credit
portfolio, including on-balance and
off-balance sheet exposures, are actively
monitored and analysed at the level of
the overall portfolio of NLB Group and
NLB.
Comprehensive analyses are regularly
performed to assure monitoring of the
portfolio quality through time and to
identify any breach of limits or targets.
Great emphasis is placed on the evolution
of portfolio structure in terms of client
segmentation, credit rating structure,
structure by stages (based on IFRS 9) and
NPL ratios. Furthermore, the coverage
of NPL is an important indicator of
potential future losses that has to be
closely monitored.
the quality of new loans production and
test the conservativity of the lending
standards, which should ensure the
portfolio quality is maintained within the
Group Risk Appetite.
Apart from default risk, the portfolio
management is also focused on
monitoring single name and industry
concentration, migration, and FX
lending risk. 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, migration, and FX
lending 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.
An 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
value of the financial asset in question,
impairment must be recognised.
Apart from analysing the portfolio as a
whole, vintage analysis is used to monitor
Collective ECL allowances are made for
the remainder of the portfolio, which is
NLB Group Annual Report 2019
267
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.
In November 2019, Bank of Slovenia
introduced a binding macro-prudential
measure in retail lending, by determining
maximum disposable amount of consumer
or housing loans in relation to the
borrower’s income (DSTI) related limitation
on consumer loan’s maturity, and the
maximum level of derogations referring to
these limitations on a single bank level. By
introducing this measure, BoS anticipates
a decrease of relatively high growth in the
consumer lending, namely in the long-term
segment.
To further enhance existing risk
management tools, The Group is constantly
developing a wide range of advanced
approaches supported by mathematical and
statistical models in credit risk assessment in
line with best banking practises, while at the
same time enabling faster responsiveness
towards clients.
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 at a very early stage.
Reduction of NPLs on the Group level
remained a strong focus in 2019, the
reduction exceeded set targets in the budget
for 2019. As at 31 December 2019 the
share of non-performing exposure by EBA
methodology was 2.7% (reduced from 4.7%
at the end of 2018). Moreover, the coverage
ratio remains high at 65.0%, which is well
above the EU average published by the
EBA (44.6% in 3Q 2019).
not assessed on an individual basis. Based
on IFRS9 requirements, financial assets
measured at amortised 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 must
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 considered
when creating collective provisions.
The models used to estimate future risk
parameters are validated and back tested on
a regular basis to make loss estimations as
realistic as possible.
b) Main emphasis in 2019
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. 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 in the region, financing existing and
new creditworthy clients. The successful
deleveraging and new investment projects
in Slovenia have had a positive influence on
the approval of new loans, but nevertheless
lending growth in the corporate segment
remained relatively moderate. In the
retail segment, especially in the consumer
loan segment, positive trends have been
recorded throughout the region. The low
unemployment rate and relatively high
wage growth reflected in the increased
household consumption alongside with
the increasing residential real estate
prices. In 2019 efforts, arising from the
improved credit standards, resulted in the
cumulatively very low new non-performing
loans (NPL) formation. In addition, the
NLB Group Annual Report 2019 268
c) Maximum exposure to credit risk
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Cash, cash balances at central banks, and other demand deposits at banks
2,101,346
1,588,349
1,292,211
795,102
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or loss
24,038
16,717
63,609
25,809
24,085
20,571
63,611
26,594
Financial assets at fair value through other comprehensive income
2,091,805
1,849,018
1,611,711
1,483,582
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
Derivatives - hedge accounting
Total net financial assets
Guarantees
Financial guarantees
Non-financial guarantees
Loan commitments
Other potential liabilities
Total contingent liabilities
1,653,848
1,428,962
1,485,166
1,274,978
271,389
93,403
100,054
352,746
118,696
88,676
182,582
144,352
131,442
267,716
110,297
177,744
3,938,035
3,642,052
2,352,625
2,215,667
3,280,246
3,041,159
1,901,950
1,790,350
97,415
788
75,171
417
67,279
788
42,741
417
13,669,084
12,274,664
9,214,762
8,248,799
916,458
383,597
532,861
809,306
357,778
451,528
614,473
230,909
383,564
1,346,012
1,207,642
1,072,458
31,613
28,570
20,349
573,326
227,790
345,536
945,856
10,502
2,294,083
2,045,518
1,707,280
1,529,684
Total maximum exposure to credit risk
15,963,167
14,320,182
10,922,042
9,778,483
Maximum exposure to credit risk is a
presentation of NLB Group’s exposure to
credit risk separately by individual types of
financial assets and contingent liabilities.
Exposures stated in the above table are
shown for the balance sheet items in their
net book value as reported in the statement
of financial position, and for off-balance
sheet items in the amount of their nominal
value.
NLB Group Annual Report 2019 d) Collateral from financial assets that are credit-impaired
31 Dec 2019
Financial assets at amortised cost
Loans to government
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
269
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
3,219
26,984
45,571
177
75,951
6,405
88,119
274,472
4,055
373,051
1,273
12,786
26,457
992
41,508
-
9,161
66,348
93
75,602
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
860
18
11,955
57,088
1,743
71,664
-
-
9,344
119,392
128
128,864
NLB Group Annual Report 2019 270
31 Dec 2019
Financial assets at amortised cost
Loans to government
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
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
3,219
18,101
21,683
9
6,405
42,505
94,608
1,519
43,012
145,037
-
6,948
10,585
352
17,885
-
1,954
22,802
39
24,795
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
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 Annual Report 2019 e) Collateral from loans mandatorily at fair value through profit or loss
271
NLB Group
in EUR thousands
Fully/over collateralised financial assets
31 Dec 2019
31 Dec 2018
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
14,961
28,981
23,800
39,465
NLB
in EUR thousands
Fully/over collateralised financial assets
31 Dec 2019
31 Dec 2018
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
20,571
25,085
26,594
38,511
f) Credit protection policy
The 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 the NLB Group
is the Loan Collateral Policy in NLB d.d.
and NLB Group. The Policy has been
adopted by the Management Board of NLB
and by the supervisory bodies of respective
members for other members of the 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.
In line with the policy, the primary source of
loan repayment is the debtor’s solvency, and
the accepted collateral is a secondary source
of repayment in case the debtor ceases to
repay the contractual obligations.
The 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, beside other criteria, 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 (e.g. a lien on
movable property, a pledge of an equity
stake, investment coupons, 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 of a lower
probability that this type of collateral would
generate a cash flow, the NLB Group takes
a conservative approach and accepts the
collateral while reporting its value as zero.
g) The processes for valuing collateral
In compliance with relevant regulations, the
NLB Group has established a system for
monitoring and reporting collateral at fair
(market) value.
agreements. Both, valuation reports and
sales agreements must not be older than
one year. In NLB and members of the NLB
Group, most reports of external appraisers
are controlled. Controls are performed
by internal appraisers. The subject of
control is the content, value, scope, and
format of the report, its compliance with
international valuation standards, and the
estimated value. If they notice deviations,
they estimate needed correction of the
value of the external valuation (in %) and
correct the value of the external valuation.
The value adjustment can only be negative
and can be applied only in a limited range.
For the purposes of business decisions
and the calculation of the necessary
impairments and provisions, additional
deductions (haircuts) are applied to the
eventual adjusted market value, depending
on the type of collateral. These haircuts for
purpose of liquidation value are for real
estate in the range of 30 to 70%, depending
on the type of real estate and location, for
movables they range between 50 and 100%,
depending on the type of movable.
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
The market value of financial instruments
held by the NLB Group is obtained from
the organised market – such as the stock
exchange, for listed financial instruments
or determined in accordance with the
NLB Group Annual Report 2019 272
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 the 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
value appraisers with licences granted by the
Slovenian Institute of Auditors, will verify
the appraisal. The expert department is also
responsible for reviewing valuations of real
estate serving as collateral for large loans.
Other NLB Group members obtain
valuations from in-house appraisers and
outsourced appraisers, all possessing the
necessary licences. The 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 larger
exposures, real-estate evaluations must
also be reviewed by an internal licensed
appraiser with knowledge of the local
real-estate market. If the appraisal does not
correspond to the international valuation
standards or if the value adjustment is
greater than certain limit, the appraisal is
rejected as inadequate.
When assuring collateral, the NLB Group
follows the internal regulations which define
the minimum security or pledge ratios. The
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, the 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.
The 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 Republic of Slovenia, and
partly, for the housing segment to 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). The value of pledged movable
property is monitored once a year (in NLB
automated, with a straight-line depreciation
over the period of the remaining useful life).
h) 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 the
case of a debtor (borrower) defaulting on
their contractual obligations to sell a specific
property to recover claims, keep specific
non-cash property or cash, or reduce or
offset the amount of exposure against the
counterparty’s debt to the Bank.
The NLB Group accepts the following
material types of loan collateral:
• Collateral in the form of business and
residential real estate: land, buildings
and individual parts of buildings in a
storeyed property intended for living in
or performing a business activity, such as
land in the area foreseen for construction,
apartments, residential buildings, garages
and holiday homes, business premises,
industrial buildings, offices, shops, hotels,
branches and warehouses, forests, parking
spaces, etc. Objects can be completed
or under construction. Priority is given
to property where the pledge right of
the bank is entered in the first place
and real estate is already owned by the
debtor and/or the pledger. For real estate,
there must be a market, and it must be
redeemable within a reasonable time.
• Collateral in the form of movable
property: priority is given to the types of
movable property, that are highly likely
to be sold in the event of execution, and
the funds received are used to repay the
collateralised claims (their market value
must be estimated with considerable
reliability). Among the appropriate types
of movable property, the bank includes
motor vehicles, agricultural machinery,
construction machinery, production lines
and series-produced machines, and some
custom-made production machines.
• 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):
- Cash receivable collateral; bank
deposits and savings with bank are
appropriate in domestic and foreign
currency;
- Debt securities: shares and bonds
which, according to the bank’s
assessment, are suitable for securing
investments and are traded on a
regulated market (marketable securities
of higher-quality Slovenian and foreign
issuers);
- The pledge of investment coupons of
mutual funds managed by management
companies (a priority company NLB
Skladi, asset management d.o.o.) and
are, according to the bank assessment,
suitable for insurance of investments.
• A pledge of an equity stake: non-
marketable capital shares with a credit
rating of at least B are adequate.
NLB Group Annual Report 2019 • A pledge or assignment of receivables
as collateral: cash receivables must have
longer maturities than the maturity of the
investment and they must not be due and
not be paid.
• Other material forms of loan collateral
(e.g. life insurance policies pledged to
NLB): The Bank accepts products of
NLB Vita, life insurance company d.d.
Ljubljana – a pledge of an investment
life insurance policy and a life insurance
policy with a guaranteed return that
includes saving, in addition to insurance.
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: for the
collateralisation of private individuals’
loans, employees, or pensioners are
adequate guarantors. They must not be
in the process of personal bankruptcy.
They are responsible for fulfilling the
debtor’s obligations for loans with a
repayment period not exceeding 60
months. For the collateralisation of legal
entities investments, legal entities, private
individuals or private individuals are
adequate guarantors;
• Bank guarantees;
• Government guarantees (e.g. of the
Republic of Slovenia);
• Guarantees by national and regional
development agencies with which the
Bank has a contract on the acceptance of
guarantees (e.g. Slovene Enterprise Fund);
• Other types of personal loan collateral.
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 d.d. has also created, in the
area of real-estate loan collateral, an ‘on
line’ connection with the Surveying and
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
exposures, the next most frequent forms of
collateral are government and corporate
guarantees, while in retail loans, it is
guarantors.
i) Evaluation risk of collateral
Client/counterparty credit risk is the
key decision parameter when approving
exposures. Collateral is a secondary source
of repayment, and therefore decisions on
approvals of exposures should not primarily
be based on the provided collateral.
However, collateral is an important comfort
element in the approval process and,
depending on the credit rating of the client,
a prerequisite. NLB Group has prescribed
the minimum ratios between the value of
collateral and the loan amount, depending
on the type of collateral and the client
rating. The ratios are based on experience,
regulatory guidelines, and are prescribed in
the Business Rules.
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, from which payment can
be realistically expected if it is liquidated, is
considered.
NLB Group has the largest concentration
of collaterals arising from mortgages on
real estate, which is a relatively reliable and
273
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, which are expected to be
achieved in a sale (expected payment from
collateral). Priority is given to property
where the pledge right of the bank is
entered in the first place and real estate is
already owned by the debtor and/or the
pledger. For real estate, there must be a
market, and it must be redeemable within a
reasonable time.
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 based on 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
regarding 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.
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 fulfil to be able to be considered.
NLB Group Annual Report 2019 274
j) Credit quality analysis for financial assets and contingent liabilities
NLB Group
NLB
in EUR thousands
31 Dec 2019
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
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
1,316,405
340,583
-
-
(3,140)
1,653,848
68,270
24,728
500
-
(95)
93,403
-
-
-
-
-
-
-
-
-
-
-
-
4,887,014
47,299
2,180,375
132,989
24,935
290,729
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,316,405 1,316,405
-
-
-
-
340,583
170,378
-
-
-
-
(3,140)
(1,617)
- 1,653,848 1,485,166
-
-
-
-
-
-
68,270
144,392
24,728
101
500
-
(95)
-
-
(141)
93,403
144,352
-
-
-
-
-
-
-
-
-
-
- 4,934,313 3,173,430
10,940
- 2,313,364 1,155,231
38,324
-
315,664
21,888
140,162
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,316,405
170,378
-
-
(1,617)
1,485,166
144,392
101
-
-
(141)
144,352
3,184,370
1,193,555
162,050
-
-
344,050
4,777
348,827
-
-
143,605
3,784
147,389
(56,728)
(33,179)
(230,650)
(1,887)
(322,444)
(20,724)
(11,188)
(84,997)
(1,856)
(118,765)
7,035,596
437,838
113,400
2,890 7,589,724 4,329,825
178,238
58,608
1,928
4,568,599
71,271
24,439
192
-
(177)
95,725
1,631,116
460,427
-
-
33
49
466
-
-
-
-
5,855
(27)
521
-
262
-
-
(4,699)
1,156
-
-
-
-
(4,757)
(42)
(798)
982,227
3,442
1,108,696
43,620
17,348
65,554
-
-
-
-
-
-
16
(3)
13
71,304
59,971
24,488
6,720
658
5,871
(4,906)
179
-
(55)
6
18
88
-
-
-
2,129
(9)
(1,774)
97,415
66,815
103
355
-
-
-
-
-
- 1,631,116 1,504,437
460,689
107,274
-
-
-
-
(5,597)
(1,714)
-
-
-
-
-
985,669
782,113
806
- 1,152,316
781,518
20,201
-
82,902
11,580
41,422
-
-
-
-
(798)
-
-
-
-
-
-
9
(3)
6
-
-
-
-
-
-
-
-
59,977
6,738
267
2,138
(1,841)
67,279
1,504,437
107,274
-
-
(2,512)
782,919
801,719
53,002
-
-
66,252
6,944
73,196
-
-
62,696
6,944
69,640
(12,909)
(2,444)
(22,084)
(1,984)
(39,421)
(6,145)
(653)
(20,381)
(1,984)
(29,163)
2,095,362
110,172
44,168
4,960 2,254,662 1,569,066
61,776
42,315
4,960
1,678,117
NLB Group Annual Report 2019 275
in EUR thousands
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
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 Annual Report 2019 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 7 million.
Materially important clients are submitted
to the NLB Credit Committee.
NLB regularly reviews the business
practices and credit portfolios of NLB
Group entities to make sure they are
operating in accordance with the minimum
risk management standards of NLB Group.
This ensures appropriate standard processes
for managing and reporting credit risks at
the consolidated level.
276
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 aligned rating
methodology is used across the entire NLB
Group. It 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 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
risk, starting one notch lower than ‘A’ rating
group clients. These clients show stable
performance, acceptable financial ratios,
and qualitative elements, and have sufficient
cash flow to settle their obligations, but
may be 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. CCC rated clients are financed by the
bank only in the case when such support
brings more positive effects for the bank;
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 Groups 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
NLB Group Annual Report 2019 NLB Group
All forborne exposures
Impairment, provisions
and value adjustments
Non - performing
Gross carrying
amount
Performing
Impaired
Defaulted
Performing
forborne
exposures
Non-performing
forborne
exposures
277
in EUR thousands
Collateral
and financial
guarantees
received on
forborne
exposures
278,449
65,090
213,359
213,359
(4,940)
(139,455)
130,954
5,945
1,959
237,588
32,957
278,449
2,414
-
24
53,970
11,096
65,090
1,520
5,945
1,935
5,945
1,935
-
-
(2,725)
(1,935)
3,219
24
183,618
183,618
(4,464)
(128,327)
104,518
21,861
21,861
(476)
(6,468)
23,193
213,359
213,359
(4,940)
(139,455)
130,954
894
894
(7)
(835)
1,309
k) Forborne loans
31 Dec 2019
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
Total exposures with forbearance measures
280,863
66,610
214,253
214,253
(4,947)
(140,290)
132,263
NLB Group
All forborne exposures
Impairment, provisions
and value adjustments
Non - performing
Gross carrying
amount
Performing
Impaired
Defaulted
Performing
forborne
exposures
Non-performing
forborne
exposures
in EUR thousands
Collateral
and financial
guarantees
received on
forborne
exposures
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
31 Dec 2018
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
Total exposures with forbearance measures
410,994
74,191
336,804
336,804
(5,184)
(204,906)
131,380
NLB Group Annual Report 2019 278
31 Dec 2019
Loans and advances (including at
amortised cost and fair value)
Governments
Other financial organisations
NLB
All forborne exposures
Impairment, provisions
and value adjustments
Non - performing
Gross carrying
amount
Performing
Impaired
Defaulted
Performing
forborne
exposures
Non-performing
forborne
exposures
in EUR thousands
Collateral
and financial
guarantees
received on
forborne
exposures
168,852
45,830
123,022
123,022
(2,910)
(69,783)
92,366
5,627
1,959
-
24
5,627
1,935
5,627
1,935
-
-
(2,407)
(1,935)
3,219
24
71,389
17,734
92,366
1,283
93,649
in EUR thousands
Collateral
and financial
guarantees
received on
forborne
exposures
Non-financial organisations
137,872
37,670
100,202
100,202
(2,610)
(62,157)
Households
23,394
8,136
15,258
15,258
(300)
(3,284)
Debt instruments other than HFT
168,852
45,830
123,022
123,022
(2,910)
(69,783)
Loan commitments given
2,389
1,495
894
894
(7)
(835)
Total exposures with forbearance measures
171,241
47,325
123,916
123,916
(2,917)
(70,618)
NLB
All forborne exposures
Impairment, provisions
and value adjustments
Non - performing
Gross carrying
amount
Performing
Impaired
Defaulted
Performing
forborne
exposures
Non-performing
forborne
exposures
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
31 Dec 2018
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
Total exposures with forbearance measures
277,611
55,847
221,764
221,764
(3,802)
(116,848)
103,424
NLB Group Annual Report 2019 279
NLB Group
in EUR thousands
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
5,745
3,759
9,504
4,527
1,309
5,836
3,819
1,286
5,105
14,911
5,081
19,992
NLB
8,166
1,967
10,133
11,042
3,096
14,138
42,420
70,114
112,534
37,364
126,178
163,542
in EUR thousands
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
3,298
3,129
6,427
2,264
1,070
3,334
309
967
1,276
12,821
4,670
17,491
5,083
722
5,805
7,329
2,741
10,070
34,230
48,421
82,651
28,483
98,353
126,836
Forborne exposures of debt instruments by periods of forbearance
31 Dec 2019
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 2019
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31 Dec 2018
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
The 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 Annual Report 2019 280
l) 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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
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)
Investment property (note 5.9.)
Property and equipment (note 5.8.)
Investments in subsidiaries and associates
Real estates (note 5.13.)
Other assets (note 5.13.)
Total
m) Analysis of loans and advances by industry sectors
-
3,289
32,465
1,440
-
50,467
855
88,516
624
3,185
38,747
1,418
-
59,540
633
-
-
3,464
7
2,442
5,292
-
624
-
6,464
7
2,444
5,815
-
104,147
11,205
15,354
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
Trade industry
Health care and social security
Other financial assets
Total
31 Dec 2019
31 Dec 2018
in EUR thousands
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
93,498
(95)
93,403
93,479
(2,763)
90,716
178,504
(4,352)
174,152
236,394
(29,669)
206,725
1.20
1.16
2.23
2.65
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
857,269
(42,368)
814,901
10.45
851,033
(60,441)
790,592
10.77
10,762
61,261
(559)
(6,770)
10,203
54,491
184,435
(4,533)
179,902
0.13
0.70
2.31
12,593
55,129
(447)
(7,439)
12,146
47,690
248,448
(5,144)
243,304
0.17
0.65
3.31
4,013,488
(75,453)
3,938,035
50.52
3,726,531
(84,479)
3,642,052
49.60
18,441
(1,596)
16,845
151,217
(3,609)
147,608
599,180
(55,871)
543,309
752,835
(75,264)
677,571
24,604
102,321
(1,538)
(4,906)
23,066
97,415
0.22
1.89
6.97
9.33
8.69
0.30
1.25
17,171
(4,103)
13,068
143,636
(3,944)
139,692
599,224
(69,137)
530,087
703,935
(25,090)
678,845
752,807
(122,910)
629,897
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
8,122,948
(327,445)
7,795,503
100.00
7,804,189
(461,889)
7,342,300
100.00
Transport and communications
745,260
(18,099)
727,161
NLB Group Annual Report 2019 281
in EUR thousands
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 2019
31 Dec 2018
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
144,493
(141)
144,352
125,521
(3,441)
122,080
138,587
(2,497)
136,090
67,427
(11,545)
55,882
3.01
2.54
2.83
1.16
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
557,861
(13,994)
543,867
11.33
561,905
(15,306)
546,599
11.80
6,078
14,714
92,924
(56)
(809)
(1,689)
6,022
13,905
91,235
0.13
0.29
1.90
7,314
14,373
(38)
(268)
7,276
14,105
151,818
(1,534)
150,284
0.16
0.30
3.25
2,376,791
(24,166)
2,352,625
49.00
2,241,624
(25,957)
2,215,667
47.84
6,495
(47)
6,448
49,732
(1,604)
48,128
398,059
(29,139)
368,920
0.13
1.00
7.68
9,645
(657)
8,988
51,173
(1,451)
49,722
404,209
(43,929)
360,280
0.19
1.07
7.78
Transport and communications
645,791
(3,822)
641,969
13.37
616,781
(10,986)
605,795
13.08
Trade industry
217,068
(24,849)
192,219
10,887
69,120
(1,107)
(1,841)
9,780
67,279
4.00
0.20
1.40
249,004
(55,673)
193,331
11,981
44,629
(1,075)
(1,888)
10,906
42,741
4.17
0.24
0.92
4,921,548
(120,747)
4,800,801
100.00
4,835,633
(204,524)
4,631,109
100.00
Health care and social security
Other financial assets
Total
n) Analysis of net loans and advances by geographical sectors
Country
Slovenia
Other European Union members
Other countries
Total
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
4,405,416
4,302,730
4,401,362
4,297,956
180,385
168,657
3,209,702
2,870,913
100,261
299,178
100,769
232,384
7,795,503
7,342,300
4,800,801
4,631,109
NLB Group Annual Report 2019 282
o) Analysis of debt securities and derivative financial instruments by geographical sectors
in EUR thousands
31 Dec 2019
NLB Group
NLB
Financial assets
measured at
amortised cost
Financial
assets held
for trading
Financial assets
measured
at fair value
through OCI
Non-trading
financial assets
mandatorily
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
417,611
1,041
535,160
-
13,278
417,611
1,041
457,671
13,278
1,103,666
1,391
6,416
976,304
Country
Slovenia
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
- Romania
- Bulgaria
- Lithuania
- Latvia
- Other
United States of America
Other countries
- North Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Iceland
- Norway
- Other
Total
976,304
8,720
40,754
164,488
124,649
50,642
79,096
120,107
41,312
8,091
-
78,891
1,193
21,721
63,600
44,704
13,873
1,024
27,252
18,161
35,880
9,082
13,534
9,530
46,724
213,209
141,909
-
-
26,773
-
5,070
6,304
33,153
40
-
10
10
-
-
-
10
-
-
-
-
-
-
10
-
-
-
-
-
-
-
-
-
3,244
-
-
-
-
-
-
-
-
-
15,463
56,834
234,174
62,276
99,586
34,066
91,484
80,712
42,029
18,288
48,042
79,053
42,630
51,105
22,863
43,741
19,180
1,841
5,239
3,301
24,654
12,123
14,982
36,442
109
-
-
-
-
-
302
625
-
-
355
-
-
-
-
-
-
-
-
-
-
-
-
-
416,537
365
99,914
84,118
87,464
24,852
70,140
-
17,706
32,343
-
-
-
-
-
-
-
365
1,756
-
-
622
16
3
-
8,720
40,754
164,488
124,649
50,642
79,096
426
120,107
-
-
-
-
4,941
-
-
-
-
-
-
-
-
-
-
408
-
807
-
-
-
-
807
-
-
-
41,312
8,091
-
78,891
1,193
21,721
63,600
44,704
13,873
1,024
27,252
18,161
35,880
9,082
13,534
9,530
46,724
44,527
-
-
-
-
-
5,070
6,304
33,153
40
-
10
10
-
-
-
10
-
-
-
-
-
-
10
-
-
-
-
-
-
-
-
3,244
-
-
-
-
-
-
-
-
-
1,074,241
6,416
15,463
51,425
223,049
57,515
99,586
34,066
88,479
79,645
42,029
18,288
48,042
79,053
42,630
47,047
22,863
43,741
19,180
1,841
5,239
3,301
24,654
12,123
14,982
16,678
63,121
-
9,801
-
3,271
-
-
17,706
32,343
-
-
622
16
3
-
426
-
-
-
-
4,941
-
-
-
-
-
-
-
-
-
-
408
-
854
2
45
-
-
807
-
-
-
1,653,848
4,325
2,091,805
20,501
1,485,166
4,325
1,611,711
20,548
Other members of the European Union
included in the item ‘Other’ are Greece,
Cyprus, and Croatia.
Other members of the ‘Other countries’ in
the item ‘Other’ are Canada, Australia, and
Russia.
NLB Group Annual Report 2019 31 Dec 2018
NLB Group
NLB
283
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
mandatorily
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
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
Country
Slovenia
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
- Romania
- Bulgaria
- Lithuania
- Latvia
- Other
United States of America
Other countries
- North 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
12,770
2,022
13,603
5,201
43,419
184,802
127,473
-
-
26,511
-
-
5,130
992
24,696
-
-
-
23,566
50,744
127,192
4,028
61,166
-
114,376
3,088
3,005
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
3,316
20,750
11,974
-
1,768
15,730
520
-
103
-
-
-
-
648
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
12,770
2,022
13,603
5,201
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
-
3,316
20,750
11,974
-
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 Cyprus
and Croatia.
Other members of the ‘Other countries’ in
the item ‘Other’ are Canada, Australia, and
Russia.
NLB Group Annual Report 2019 284
p) Internal rating of derivatives counterparties
A
B
C
Total
NLB Group
NLB
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
in %
74.14
16.34
9.52
100.00
70.92
19.17
9.91
100.00
in %
74.27
16.26
9.47
100.00
70.92
19.17
9.91
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.
r) Debt securities in NLB’s and NLB Group’s portfolio that represent subordinated liabilities for the issuer
31 Dec 2019
Internal rating
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
Total
31 Dec 2018
Internal rating
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
Total
NLB Group
B
-
-
-
-
NLB Group
B
-
-
-
-
A
523
-
-
523
A
523
-
-
523
C
Total
A
-
-
-
-
523
523
-
-
67,167
-
523
67,690
C
Total
A
-
-
-
-
523
523
-
-
24,024
-
523
24,547
in EUR thousands
C
-
-
5,915
5,915
Total
523
67,167
5,915
73,605
in EUR thousands
C
-
-
5,833
5,833
Total
523
24,024
5,833
30,380
NLB
B
-
-
-
-
NLB
B
-
-
-
-
NLB Group Annual Report 2019 s) Presentation of net financial instruments by measurement category
NLB Group
Financial assets
held for trading
Non-trading
financial assets
mandatorily 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 2019
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
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,325
4,325
-
-
-
-
19,713
-
-
-
-
-
-
-
-
-
2,101,346
10,398
2,141,428
1,653,848
1,756
1,913,623
1,617,272
3,167
-
-
5,475
-
14,961
-
-
-
-
14,961
-
49,623
66,020
112,162
-
-
-
-
-
-
-
-
-
-
28,013
8,563
-
-
7,638,615
44,512
267,796
3,593
93,403
100,010
3,914,839
3,262,567
97,415
-
44
23,196
17,679
-
-
-
-
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
-
24,038
25,359
2,141,428
11,491,224
44,512
788
13,727,349
NLB Group
in EUR thousands
Financial assets
held for trading
Non-trading
financial assets
mandatorily at
FV through P&L
Financial assets
measured at FV
through OCI
Financial assets
measured at
amortised cost Financial leases
Derivatives
for hedge
accounting
63,609
32,389
1,898,079
10,255,304
80,507
417
12,330,305
285
in EUR thousands
Total
2,101,346
3,809,999
3,536,976
52,790
94,033
120,725
5,475
788
20,501
-
-
-
-
-
-
-
7,698,088
271,389
93,403
100,054
3,938,035
3,295,207
97,415
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NLB Group Annual Report 2019 286
31 Dec 2019
Cash and obligatory reserves with central banks,
and other demand deposits at banks
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
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 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
NLB
in EUR thousands
Financial assets
held for trading
Non-trading
financial assets
mandatorily at
FV through P&L
Financial assets
measured at FV
through OCI
Financial assets
measured at
amortised cost
Derivatives for
hedge accounting
-
4,325
4,325
-
-
-
19,760
-
-
-
-
-
-
-
-
-
1,292,211
2,716
1,656,657
1,485,166
-
1,509,559
1,457,153
2,716
44,946
-
-
-
-
20,571
-
-
-
-
20,571
-
-
28,013
102,152
-
-
-
-
-
-
-
-
-
-
4,712,951
182,582
144,352
131,442
2,352,625
1,901,950
67,279
-
-
-
-
-
-
788
-
-
-
-
-
-
-
Total
1,292,211
3,148,864
2,971,037
47,662
28,013
102,152
20,548
4,733,522
182,582
144,352
131,442
2,352,625
1,922,521
67,279
24,085
23,287
1,656,657
7,557,607
788
9,262,424
NLB
in EUR thousands
Financial assets
held for trading
Non-trading
financial assets
mandatorily 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
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
63,611
29,141
1,528,314
6,674,595
417
8,296,078
As at 31 December 2019 and 31 December
2018, 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 Annual Report 2019 287
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 on the currency
level so that they are always within the limits.
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
reporting date. Foreign exchange differences
of non-euro assets and liabilities against euro
are recognised in OCI, and therefore affect
shareholder’s equity and CET1 capital. NLB
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.
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 with 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 income statement. FX
exposures in banking book result from core
banking business activities.
NLB Group Annual Report 2019 288
a) The amount of financial instruments denominated in euros and in foreign currency
31 Dec 2019
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
1,575,186
33,621
37,527
455,012
2,101,346
20,795
24,908
3,243
451
-
-
-
-
24,038
25,359
1,928,168
52,774
3,289
157,197
2,141,428
1,458,013
35,119
6,366,058
42,600
788
8,991
58,379
37,594
43,663
30,402
-
-
-
137,456
1,653,848
11,488
53,464
50
-
-
9,202
93,403
1,126,539
7,589,724
24,363
-
-
97,415
788
8,991
Total financial assets
11,460,626
260,127
105,818
1,909,769
13,736,340
Financial liabilities
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
17,903
7,520
49,507
7,488
147,041
-
382
-
7,214
14,389
-
-
-
1,440
8,955
-
96
-
26,698
-
17,903
7,998
49,507
42,840
170,385
- due to customers
9,872,408
187,862
79,921
1,472,126
11,612,317
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Total financial liabilities
64,458
210,569
110,743
10,487,637
-
-
22,863
232,710
-
-
1,302
91,618
-
-
23,576
64,458
210,569
158,484
1,522,496
12,334,461
Net on-balance sheet financial position
972,989
27,417
14,200
387,273
1,401,879
Derivative financial instruments
16,442
(14,336)
(4,232)
(7,707)
(9,833)
Net financial position
989,431
13,081
9,968
379,566
1,392,046
31 Dec 2018
Total financial assets
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
10,244,629
9,313,339
931,290
21,590
952,880
224,982
217,040
7,942
434
8,376
117,218
93,631
1,745,993
12,332,822
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
NLB Group Annual Report 2019 289
in EUR thousands
NLB
EUR
USD
CHF
Other
Total
1,231,447
20,842
23,287
13,864
3,243
-
1,600,023
32,345
1,425,594
139,709
4,470,822
36,274
788
8,991
58,379
-
38,314
30,371
-
-
9,148
37,752
1,292,211
-
-
-
-
-
56,880
-
-
-
-
-
24,085
23,287
24,289
1,656,657
1,193
4,643
2,583
634
-
-
1,485,166
144,352
4,568,599
67,279
788
8,991
31 Dec 2019
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
8,957,777
176,516
66,028
71,094
9,271,415
Financial liabilities
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
- due to customers
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Total financial liabilities
17,892
7,364
49,507
60,118
138,220
7,581,040
2,537
210,569
75,116
8,142,363
-
382
-
7,505
14,389
98,706
-
-
21,413
142,395
-
-
-
7,565
8,955
45,238
-
-
241
61,999
-
-
-
14,632
-
17,892
7,746
49,507
89,820
161,564
35,753
7,760,737
-
-
1,572
51,957
2,537
210,569
98,342
8,398,714
Net on-balance sheet financial position
815,414
34,121
4,029
19,137
872,701
Derivative financial instruments
21,804
(21,784)
(2,760)
(7,168)
(9,908)
Net financial position
837,218
12,337
1,269
11,969
862,793
31 Dec 2018
Total financial assets
Total financial liabilities
8,003,580
7,191,592
147,869
139,446
79,630
62,909
67,516
44,549
8,298,595
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
NLB Group Annual Report 2019 290
b) FX sensitivity analysis
Scenarios
USD
CHF
CZK
RSD
MKD
JPY
AUD
HUF
HRK
BAM
31 Dec 2019
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 2019
31 Dec 2018
+/-4%
+/-3%
+/-3%
+/-2%
+/-2%
+/-5%
+/-5%
+/-4%
+/-1%
+/-0%
+/-6%
+/-4%
+/-3%
+/-2%
+/-2%
+/-7%
+/-5%
+/-4%
+/-1%
+/-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
340
(218)
1
11
3
78
215
(314)
204
(1)
(10)
(3)
(71)
(195)
-
164
-
2,083
4,310
237
6,794
-
(154)
-
(2,009)
(4,132)
(236)
(6,531)
298
8
1
14
13
80
(11)
-
-
-
-
-
414
(11)
(276)
10
(7)
(1)
(13)
(12)
(73)
-
-
-
-
-
(382)
10
NLB Group Annual Report 2019 291
in EUR thousands
NLB Group
NLB
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)
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
economic value of the banking book
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 floors.
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
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 Annual Report 2019 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.
292
Moreover, considering 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
NLB Group Annual Report 2019 293
a) Analysis of financial instruments
according to the exposure
to interest rate risk
Illustrated below are the carrying amounts
of financial instruments categorised by the
earlier of contractual reprising or residual
maturity.
31 Dec 2019
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
2,101,346
644,013
1,457,333
1,457,333
Financial assets held for trading
24,038
19,713
4,325
1,040
-
21
-
37
-
-
-
3,227
283
25,359
8,642
16,717
7,165
3,760
1,728
3,781
2,141,428
49,623
2,091,805
112,049
238,266
177,088
996,792
567,610
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
1,653,848
-
1,653,848
100,245
106,742
103,961
561,810
781,090
- loans and advances to banks
93,403
533
92,870
65,918
23,860
2,188
902
2
- loans and advances to customers
7,589,724
71,720
7,518,004
1,653,925
1,281,613
2,443,003
1,415,059
724,404
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
97,415
97,415
788
788
8,991
8,991
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total financial assets
13,736,340
901,438
12,834,902
3,397,675
1,654,262
2,728,005
2,978,344
2,076,616
Financial liabilities
Trading liabilities
Financial liabilities measured at fair
value through profit or loss
17,903
17,903
7,998
7,998
Derivatives - hedge accounting
49,507
49,507
Financial liabilities measured at amortised cost
-
-
-
-
-
-
-
-
-
-
-
-
- deposits from banks and central banks
42,840
805
42,035
34,576
2,552
4,907
-
-
-
-
- borrowings from banks and central banks
170,385
-
170,385
2,845
5,559
146,993
14,838
- due to customers
11,612,317
79,124
11,533,193
9,837,184
356,977
856,938
479,620
-
-
-
-
150
2,474
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
64,458
210,569
-
-
210,569
45,367
158,484
158,438
46
6
-
-
1,754
163,448
11
29
-
-
64,458
1,287
2,011
7,322
24,395
29,443
Total financial liabilities
12,334,461
313,775
12,020,686
9,921,265
367,099
1,017,925
682,330
32,067
Total interest repricing gap
(6,523,590)
1,287,163
1,710,080
2,296,014
2,044,549
NLB Group Annual Report 2019 294
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
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
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 Annual Report 2019 31 Dec 2019
Financial assets
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
NLB
295
in EUR thousands
Cash, cash balances at central banks, and
other demand deposits at banks
1,292,211
164,725
1,127,486
1,127,486
Financial assets held for trading
24,085
19,760
4,325
1,040
-
21
-
37
-
-
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
23,287
2,716
20,571
7,845
6,610
2,821
3,012
1,656,657
44,946
1,611,711
25,798
186,222
115,877
795,629
488,185
1,485,166
144,352
-
18
1,485,166
97,672
73,519
84,662
453,767
775,546
144,334
15,880
12,010
97,210
4,124
15,110
-
3,227
283
- loans and advances to customers
4,568,599
49,123
4,519,476
1,086,078
1,022,248
1,557,001
440,464
413,685
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
67,279
67,279
788
788
8,991
8,991
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total financial assets
9,271,415
358,346
8,913,069
2,361,799
1,300,630
1,857,608
1,696,996
1,696,036
Financial liabilities
Trading liabilities
Financial liabilities measured at fair
value through profit or loss
17,892
17,892
7,746
7,746
Derivatives - hedge accounting
49,507
49,507
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
89,820
161,564
7,760,737
2,537
210,569
-
-
-
-
-
-
-
-
-
-
-
89,820
89,820
-
-
-
-
-
-
-
-
-
-
-
-
161,564
85
5,559
142,871
13,049
-
-
-
-
-
7,760,737
7,233,733
194,230
256,289
74,580
1,905
2,537
-
210,569
45,367
-
-
-
32
2,505
1,754
163,448
11
29
-
-
-
98,342
98,296
46
6
Total financial liabilities
8,398,714
173,441
8,225,273
7,369,011
199,789
400,957
253,611
1,905
Total interest repricing gap
(5,007,212)
1,100,841
1,456,651
1,443,385
1,694,131
NLB Group Annual Report 2019 296
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
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
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
Cash flows are presented by taking into
account their contractual maturity and
according to the amortisation 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 use different cash flow modelling
techniques.
NLB Group Annual Report 2019 297
b) A 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 a sudden parallel interest rate
shock down by 50 basis points for EUR,
USD, and CHF currencies, while for all
other significant currencies a 100 basis
points sudden parallel interest rate shock
down is implied. The analysis assumes 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
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Net interest income sensitivity
Net interest income sensitivity - as % of Equity
14,689
1.01%
13,099
0.90%
8,488
0.75%
7,835
0.65%
The values in the table are calculated on
short-term interest rate gaps, where the
applied parallel interest rate shock down
by 50/100 basis points represents a realistic
and practical scenario. The calculations of
the sensitivity of net interest income are
implemented in technological support.
The EVE (Economic Value of Equity)
method is a measure of the sensitivity of
changes in market interest rates on the
economic value of financial instruments.
EVE represents the present value of
net future cash flows and provides a
comprehensive view of the possible long-
term effects of changing interest rates at
least under the six prescribed standardised
interest rate shock scenarios or more
if necessary, according to the situation
on financial markets. Calculations are
considering behavioural and automatic
options, as well as the allocation of non-
maturing deposits.
The assessment of the impact of a change
in interest rates of 200 basis points on
the economic value of the banking book
position:
NLB Group
NLB
in EUR thousands
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Interest risk in banking book - EVE
Interest risk in banking book - EVE as % of Equity
88,355
6.09%
102,397
7.02%
71,979
6.33%
77,131
6.37%
The applied sudden parallel interest rate
shock up is by 200 basis points, which
represents a “worst case” scenario for NLB
Group. The calculation takes into the
account allocation of the core part of non-
maturing deposits and other behavioural
assumptions.
Exposure to the 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
due to low interest rate environment. 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.
Group’s daily operations or its financial
conditions.
6.3. Liquidity risk
Liquidity risk is the risk that NLB Group is
unable to meet all 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.
• 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.
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
Liquidity risk is defined as an important
risk type at NLB Group, which must 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
NLB Group Annual Report 2019 298
within the requirements set by the regulator.
By maintaining a smooth long-term
maturity profile, limiting dependence on
wholesale funding, and holding a solid
liquidity buffer, the NLB Group maintains
a sound and robust liquidity position, even
under severely adverse conditions.
The Management Board approves the
Liquidity Risk Management Policy, which
outlines the key principles for the bank’s
liquidity management. ALCO receives
a regular report on the liquidity position
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.
responsible for its own liquidity position and
carries out the following activities:
Overall assessment of the liquidity position
of NLB Group is assessed in the Internal
Liquidity Adequacy Assessment Process
(ILAAP) at least once per year for NLB
Group, and it includes a clear formal
statement on liquidity adequacy, supported
by an analysis of ILAAP outcomes. NLB
Group maintains a sufficient amount of
liquidity reserves in the form of high credit
quality debt securities that are eligible for
refinancing via the ECB/central bank or
on the market. In the current situation,
NLB Group also strives to follow as
closely as possible the long-term trend of
diversification on both the liability and
asset sides of the balance sheet. NLB
Group regularly performs stress tests with
the aim of testing the liquidity stability
and the availability of liquidity reserves in
various stress situations. In addition, special
attention is given to the fulfilment of the
liquidity regulation (CRR/CRD), with
monitoring and reporting of the liquidity
coverage ratio (LCR) according to the
Delegated Act and net stable funding ratio
(NSFR). This also includes monitoring
and reporting of Additional Liquidity
Monitoring Metrics (ALMM) on solo and
consolidated levels. In accordance with the
Commission Implementing Regulation
(EU), NLB Group regularly monitors
and issues quarterly reports on asset
encumbrance.
The Group 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
• 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 performed daily.
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
NLB Group Annual Report 2019 299
reported to ALCO, and to local Assets and
Liabilities Committees.
a) Managing NLB Group’s
liquidity reserves
NLB Group has liquidity reserves available
to cover liabilities that fall or may become
due. Liquidity reserves must become
available on short notice. Liquidity reserves
comprise cash, the settlement account at
the central bank, sight deposits and term
deposits at banks, debt securities and loans
eligible as collateral for the 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 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Cash, cash balances at central banks, and other demand deposits at banks
2,101,346
1,588,349
1,292,211
795,102
Time deposits at banks
Trading book securities
Banking book securities
ECB eligible loans
Total liquid assets
91,076
4,325
116,450
48,697
62,651
4,325
69,639
48,697
3,745,653
3,277,980
3,096,877
2,758,560
545,247
140,777
545,247
140,777
6,487,647
5,172,253
5,001,311
3,812,775
As at 31 December 2019, 78.9% (31
December 2018: 77.5%) of debt securities
in the banking book of NLB Group
were government securities (including
government guaranteed bonds – GGB),
and 7.8% (31 December 2018: 9.7%) 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 (Slovenian) 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 fulfil the high eligibility criteria
set by the ECB itself and for domestic loans
are specified in the general terms about
execution of monetary policy framework
(Part 4) adopted by the Bank of Slovenia.
NLB is the only member of NLB Group
that complies with the conditions set by
the Eurosystem to classify as an eligible
counterparty. As such, 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 Annual Report 2019 300
b) Encumbered assets
2019
Loans on demand
Equity instruments
Debt securities
Loans and advances other
than loans on demand
Other assets
Total
2018
Loans on demand
Equity instruments
Debt securities
Loans and advances other
than loans on demand
Other assets
Total
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
443,953
-
-
-
1,317,496
-
86,302
58,265
58,265
-
-
-
1,041,184
-
47,662
47,662
50,944
57,697
3,700,790
3,755,463
50,944
57,697
3,050,258
3,101,857
71,105
-
566,002
-
-
7,724,398
807,137
13,608,086
-
-
64,711
-
201,957
NLB Group
4,736,090
724,406
9,599,600
-
-
in EUR thousands
-
-
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
410,200
-
-
-
865,401
-
78,807
55,641
55,641
-
-
-
562,980
-
47,279
47,279
59,696
64,791
3,268,990
3,305,827
59,696
64,791
2,747,561
2,781,400
50,767
-
520,663
-
-
7,291,533
737,800
12,219,365
-
-
44,271
-
182,774
-
-
4,586,838
683,615
8,628,273
-
-
c) Collateral received – unencumbered
The nominal amount of collateral received,
or own debt securities issued not available
for encumbrance are shown in the table
below:
Equity instruments
Loans and advances other than loans on demand
Other assets
Total
NLB Group
NLB
in EUR thousands
2019
197,157
111,726
2018
215,033
117,661
2019
176,532
20,249
2018
199,652
23,303
7,361,858
7,360,279
3,703,078
3,735,514
7,670,741
7,692,973
3,899,859
3,958,469
NLB Group Annual Report 2019 d) Source of encumbrance
301
in EUR thousands
NLB Group
NLB
2019
2018
2019
2018
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
Other sources of encumbrance
65,056
78,174
39,597
54,919
65,056
78,174
39,597
54,919
8,955
4,107
14,553
11,561
21,891
8,955
14,553
11,561
21,891
473,274
4,296
443,854
-
109,230
-
105,965
Total
78,118
566,001
55,454
520,664
74,011
201,957
51,158
182,775
As at 31 December 2019, NLB Group and
NLB had a large share of unencumbered
assets. Other sources of encumbrance
mostly relate to the obligatory reserve.
On the NLB Group level, the amount of
encumbered assets equalled EUR 566
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 2019
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
-
129
96
7,773
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
34,762
829
3,171
713
4,728
20,183
179
132,649
19,175
173,549
- due to customers
9,748,905
310,184
923,914
646,400
11,446
11,640,849
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
547
45,447
99,576
2,384
-
6,592
6,801
7,984
13,629
29,818
25,080
34,037
28,387
194,798
3,258
67,728
272,126
158,484
Credit risk related commitments
519,894
141,560
542,244
291,615
265,909
1,761,222
Non-financial guarantees
26,319
47,942
146,477
244,240
67,883
532,861
Total
10,476,279
514,067
1,664,664
1,411,791
590,856
14,657,657
Total financial assets
3,089,393
766,986
1,897,395
5,418,262
3,864,711
15,036,747
-
-
7,998
42,840
NLB Group Annual Report 2019 302
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
31 Dec 2019
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
89,820
85
-
-
-
-
7,746
-
713
17,004
128,181
- due to customers
7,192,671
138,709
274,599
148,107
-
-
18,537
10,017
7,746
89,820
164,520
7,764,103
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
-
45,447
63,098
-
-
6,403
32
6,801
3,053
2,505
25,080
25,707
-
2,537
194,798
272,126
81
98,342
Credit risk related commitments
462,738
112,337
357,075
198,855
192,711
1,323,716
Non-financial guarantees
19,401
37,667
92,882
197,417
36,197
383,564
Total
7,873,260
295,829
751,446
733,598
452,341
10,106,474
Total financial assets
1,835,982
455,148
1,027,315
3,627,280
3,080,579
10,026,304
NLB Group Annual Report 2019 303
in EUR thousands
31 Dec 2018
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
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
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 Annual Report 2019 304
f) An analysis of the statement of financial position by residual contractual maturity
31 Dec 2019
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
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
2,101,346
20,753
600
-
21
461
-
37
-
-
2,428
12,945
-
2,101,346
3,227
8,925
24,038
25,359
246,264
220,646
157,256
956,226
561,036
2,141,428
74,571
63,799
108,115
127,645
562,425
781,092
1,653,848
24,393
2,764
2,440
7
93,403
- loans and advances to customers
487,218
367,641
1,420,888
3,185,043
2,128,934
7,589,724
1,012
912
22,486
- other financial assets
Derivatives - hedge accounting
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in associates, and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities 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
73,005
788
-
-
-
-
-
-
202
-
-
-
-
-
-
-
-
29
-
-
-
43,191
-
-
-
-
6,053
-
-
903
-
28,441
40,760
11,147
-
-
29,419
7,596
-
-
8,088
97,415
788
8,991
-
43,191
167,164
195,605
11,556
28,395
7,499
-
81
-
52,316
39,542
7,499
6,284
29,500
63,811
18,684
8,282
29,249
3,087,230
730,600
1,790,423
4,859,831
3,706,004
14,174,088
17,903
-
49,507
34,762
815
-
129
-
3,171
705
-
96
-
4,728
19,393
-
7,773
-
179
-
-
-
-
17,903
7,998
49,507
42,840
130,528
18,944
170,385
- due to customers
9,747,598
307,696
913,343
632,382
11,298
11,612,317
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
- lease liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Credit risk related commitments
Non-financial guarantees
485
45,367
99,205
371
10,559
1,798
-
8,653
2,202
-
7,300
684
641
473
-
544
5,980
1,754
11,001
2,628
32,464
-
-
1,397
27,547
28,244
-
163,448
24,265
9,772
42,888
-
2,478
4,000
-
3,258
1,862
-
355
618
64,458
210,569
141,771
16,713
88,414
2,271
2,833
15,212
10,017,023
323,545
992,784
881,812
228,027
12,443,191
519,894
26,319
141,560
47,942
542,244
146,477
291,615
244,240
265,909
1,761,222
67,883
532,861
Total liabilities and credit-related commitments
10,563,236
513,047
1,681,505
1,417,667
561,819
14,737,274
NLB Group Annual Report 2019 305
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 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
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
- 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 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 Annual Report 2019 306
31 Dec 2019
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
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
1,292,211
20,800
365
-
21
144
-
37
785
-
-
18,994
-
1,292,211
3,227
2,999
24,085
23,287
25,798
186,222
115,877
795,629
533,131
1,656,657
74,400
8,925
73,519
12,011
107,934
453,767
775,546
1,485,166
48,149
8,358
66,909
144,352
- loans and advances to customers
360,469
162,053
659,576
1,937,129
1,449,372
4,568,599
- other financial assets
Derivatives - hedge accounting
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities 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
43,901
788
-
-
-
-
-
-
-
-
5,472
314
600
22,464
-
-
-
-
-
-
-
23
-
-
-
-
5,532
-
-
-
1,719
5,440
-
903
-
19,637
9,303
10,199
65,170
-
-
29,569
5,670
-
-
-
8,088
-
70,267
-
15,781
67,279
788
8,991
5,532
89,904
9,303
25,980
286,360
353,249
-
-
-
5,463
29,569
11,142
1,833,129
434,307
951,319
3,371,122
3,211,680
9,801,557
17,892
-
49,507
89,820
85
-
-
-
-
-
-
-
-
-
7,746
-
-
-
-
-
-
17,892
7,746
49,507
89,820
705
16,296
126,165
18,313
161,564
- due to customers
7,192,603
138,492
273,855
145,898
9,889
7,760,737
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
- lease liabilities
Provisions
Other liabilities
Total liabilities
-
45,367
63,067
31
231
3,949
-
-
6,269
134
309
333
32
1,754
2,452
601
22,313
334
2,505
-
2,537
-
163,448
210,569
23,770
1,937
37,531
4,000
-
81
-
618
95,558
2,784
60,384
9,234
7,462,552
146,242
317,637
349,552
192,349
8,468,332
Credit risk related commitments
Non-financial guarantees
462,738
19,401
112,337
37,667
357,075
92,882
198,855
197,417
192,711
1,323,716
36,197
383,564
Total liabilities and credit-related commitments
7,944,691
296,246
767,594
745,824
421,257
10,175,612
NLB Group Annual Report 2019 307
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 classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates and joint ventures
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities 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 Annual Report 2019 308
g) Derivative cash flows
The table below illustrates cash flows
from derivatives, broken down into the
relevant maturity buckets based on residual
maturities. The amounts disclosed in the
table are the contractual undiscounted cash
flows prepared on the basis of spot rates on
the reporting date.
31 Dec 2019
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
- Caps and floors
- Outflow
- Inflow
Total outflow
Total inflow
31 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
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
(28,609)
(79,443)
28,636
79,494
(34,425)
34,370
(3,893)
3,897
(7,913)
7,919
(73,630)
73,797
(20,868)
20,886
-
-
-
-
-
-
(136,833)
136,935
(111,948)
112,064
(1,170)
(2,772)
(12,146)
(44,445)
(23,811)
(84,344)
94
1,024
6,359
15,742
14,139
37,358
-
-
-
-
-
-
(4)
4
-
-
(4)
4
(64,204)
(86,108)
(93,689)
(65,317)
(23,811)
(333,129)
63,100
84,415
88,075
36,632
14,139
286,361
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
(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
NLB Group Annual Report 2019 309
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
(27,908)
(79,443)
27,935
79,494
(36,436)
36,380
(7,021)
7,019
(7,913)
7,919
(78,099)
78,228
(20,868)
20,886
-
-
-
-
-
-
(136,132)
136,234
(121,556)
121,627
(1,170)
(2,772)
(12,146)
(44,445)
(23,811)
(84,344)
94
1,024
6,359
15,742
14,139
37,358
-
-
-
-
-
-
(4)
4
-
-
(4)
4
(65,514)
(89,236)
(98,158)
(65,317)
(23,811)
(342,036)
64,409
87,537
92,506
36,632
14,139
295,223
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
(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
31 Dec 2019
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
- Caps and floors
- Outflow
- Inflow
Total outflow
Total inflow
31 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
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 and optimisation
of internal processes. The NLB Group
has set up a system of collecting loss
events, identification, assessment, and
management of operational risks, all with
NLB Group Annual Report 2019 310
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 a specific methodology
as an early warning system. 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 2019
was a bit higher than in the previous year,
nevertheless, it still 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 bigger or more important loss
events to the top levels of decision-making
at NLB and the Supervisory Board of NLB.
Additional attention is paid to the reporting
of potential loss events in order to improve
the internal controls, and thus minimise
those and similar events.
Through comprehensive identification of
operational risks, possible future losses are
identified, estimated, and appropriately
managed. The major operational risks
are actively managed with the measures
taken to reduce them. An operational
risk profile is prepared once a year on the
basis of the operational risk identification.
Special emphasis is put on the most topical
risks, among which in particular are those
with a low probability of occurrence and
very high potential financial influence.
For this purpose, the Bank has developed
the methodology of stress testing for
operational risk. The methodology is a
combination of modelling loss event data
and scenario analysis for exceptional, but
plausible events. Scenario analysis are made
based on experience and knowledge of
experts from various critical areas.
The capital requirement for operational
risk is calculated using the basic indicator
approach at NLB Group level and using the
standardised approach at the NLB level.
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 2019, 44 tests were carried
out at NLB (35 internal ones and nine
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 2019, NLB thus carried
out a training course for all employees
(e-education), the Crisis Teams of office
buildings, and participants of annul BIA.
Upon IT failures, the Bank successfully
used the IT plans and instructions for
manual procedures, and thus also ensured
business operations in emergency situations.
c) Management of other types of non-
financial risks – capital risk, strategic risks,
b) Business Continuity Management (BCM)
reputation risk, and profitability risk
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.
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 addition,
they are integrated into internal capital
NLB Group Annual Report 2019 311
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).
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 the 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, is 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.
NLB Group Annual Report 2019 312
a) Financial and non-financial assets and liabilities measured at fair value in the financial statements
31 Dec 2019
Financial assets
Financial instruments held for trading
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 classified as held for sale
Non-financial assets impaired during the year
Recoverable amount of property and equipment
Recoverable amount of investments in
subsidiaries, associates, and joint ventures
NLB Group
NLB
in EUR thousands
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
4,325
4,325
-
-
18,906
-
18,906
788
807
-
807
-
24,038
4,325
19,713
788
4,325
4,325
-
-
18,953
-
18,953
788
807
-
807
-
24,085
4,325
19,760
788
1,847,901
289,418
4,109
2,141,428
1,603,904
52,494
259
1,656,657
1,847,739
244,066
-
2,091,805
1,603,904
7,807
-
1,611,711
162
45,352
4,109
49,623
7,682
1,756
5,926
-
-
-
-
-
-
-
-
-
-
-
-
-
17,677
25,359
-
2,716
1,756
8,642
14,961
14,961
17,903
17,903
49,507
-
-
-
17,903
17,903
49,507
-
7,998
7,998
23,383
28,933
52,316
43,191
4,299
-
-
-
-
43,191
4,299
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44,687
259
44,946
-
-
-
-
23,287
23,287
-
-
2,716
2,716
20,571
20,571
17,892
17,892
49,507
-
-
-
17,892
17,892
49,507
-
7,746
7,746
9,303
5,532
-
310
-
-
-
9,303
5,532
-
5,222
5,532
NLB Group Annual Report 2019
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
313
in EUR thousands
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 classified as held for sale
Non-financial assets impaired during the year
Recoverable amount of property 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
26,436
32,208
58,644
4,349
6,025
-
-
-
-
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 Annual Report 2019 314
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
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 2019 and 2018, neither NLB Group
nor NLB had any significant transfers of
financial instruments between levels of
valuation.
• derivatives: derivatives except forward
derivatives and options on equity
instruments that are not quoted on active
markets; and
The input parameters used in the income
approach are the risk-free yield curve and
the spread over the yield curve (credit,
liquidity, country).
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;
• the National Resolution Fund.
Non-financial assets on Level 2 of the fair
value hierarchy at NLB Group and NLB
include investment property.
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.
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 Annual Report 2019 315
performing loans, the value of collateral
and other pay off estimates can be used.
Non-financial assets on Level 3 of the fair
value hierarchy at NLB Group include
investment property.
NLB Group uses three valuation methods
for the valuation of equity financial assets
mentioned in first bullet: the income,
market, and cost approaches.
NLB Group selects valuation model and
values of unobservable input data within
a reasonable possible range but uses
model and input data that other market
participants would use.
At least one of the 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 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.
At least one of the 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 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
Bloomberg 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-
NLB Group Annual Report 2019 316
Movements of financial assets and liabilities at Level 3
Financial
instruments held
for trading
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 Group
Derivatives Equity instruments Equity instruments
Loans and other
financial assets
Total financial
assets
Loans and other
financial liabilities
Balance as at 1 January 2018
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2018
Exchange differences
Effects of translation of foreign
operations to presentation currency
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Transfer to level 3
571
-
(242)
-
-
-
329
-
-
478
-
-
-
-
3,853
127
-
(7)
-
(13)
3,960
-
106
-
43
-
-
-
Balance as at 31 December 2019
807
4,109
1,578
-
345
-
-
-
1,923
-
-
7,128
-
-
(6,935)
600
2,716
24,649
-
2,749
-
26,399
(29,997)
23,800
-
-
14,291
-
7,147
30,651
127
2,852
(7)
26,399
(30,010)
30,012
-
106
21,897
43
7,147
(30,277)
(37,212)
-
14,961
600
22,593
5,180
20
(1,010)
-
-
-
4,190
10
-
3,798
-
-
-
-
7,998
Financial
instruments held
for trading
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
Loans and other
financial assets
Total financial
assets
Loans and other
financial liabilities
30,055
32,479
-
-
Balance as at 1 January 2018
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2018
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Transfer to level 3
571
-
(242)
-
-
-
329
-
478
-
-
-
-
275
-
-
(24)
-
(3)
248
-
-
11
-
-
-
Balance as at 31 December 2019
807
259
1,578
-
345
-
-
-
1,923
-
4,169
-
26,161
(33,791)
26,594
-
7,128
12,927
-
-
(6,935)
600
2,716
-
10,908
(29,858)
-
20,571
4,272
(24)
26,161
(33,794)
29,094
-
-
20,533
11
10,908
(36,793)
600
24,353
4,531
20
(570)
-
-
-
3,981
10
3,755
-
-
-
-
7,746
NLB Group Annual Report 2019 317
NLB Group and NLB recognise the effects
from valuation of trading instruments in
income statement line ‘Gains less losses
from financial assets and liabilities held
for trading’, effects from valuation of
non-trading equity instruments and loans
mandatorily measured at fair value through
profit or loss in income statement line
‘Gains less losses from non-trading financial
assets mandatorily at fair value through
profit or loss’ and effects from valuation
of financial assets measured at fair value
through other comprehensive income in
the accumulated other comprehensive
income item “Financial assets measured
at fair value through other comprehensive
income”.
In 2019, NLB Group and NLB recognised
the following unrealised gains or losses for
financial instruments that were at Level 3 as
at 31 December:
NLB Group
31 Dec 2019
Items of Income statement
Financial assets
measured at fair
value through other
comprehensive
income
Financial assets,
held for trading
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
Derivatives
Equity instruments
Equity instruments
Loans and other
financial assets
Loans and other
financial liabilities
Gains/(losses) from financial assets and liabilities held for trading
478
Gains/(losses) from non-trading financial assets
mandatorily at fair value through profit or loss
Foreign exchange translation gains/(losses)
Item of Other comprehensive income
Financial assets measured at fair value through
other comprehensive income
-
-
-
-
-
-
43
-
845
-
-
-
14,291
-
-
-
(3,798)
(10)
-
NLB Group
31 Dec 2018
Items of Income statement
Financial assets
measured at fair
value through other
comprehensive
income
Financial assets,
held for trading
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
Derivatives
Equity instruments
Equity instruments
Loans and other
financial assets
Loans and other
financial liabilities
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
Foreign exchange translation gains/(losses)
Item of Other comprehensive income
Financial assets measured at fair value through
other comprehensive income
-
-
-
-
-
-
(7)
-
345
-
-
-
2,749
-
-
-
1,010
(20)
-
NLB Group Annual Report 2019 318
NLB
31 Dec 2019
Items of Income statement
Financial assets
measured at fair
value through other
comprehensive
income
Financial assets,
held for trading
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
Derivatives
Equity instruments
Equity instruments
Loans and other
financial assets
Loans and other
financial liabilities
Gains/(losses) from financial assets and liabilities held for trading
478
Gains/(losses) from non-trading financial assets
mandatorily at fair value through profit or loss
Foreign exchange translation gains/(losses)
Item of Other comprehensive income
Financial assets measured at fair value through
other comprehensive income
-
-
-
-
-
-
11
-
845
-
-
-
12,927
-
-
-
(3,755)
(10)
-
NLB
31 Dec 2018
Items of Income statement
Financial assets
measured at fair
value through other
comprehensive
income
Financial assets,
held for trading
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
Derivatives
Equity instruments
Equity instruments
Loans and other
financial assets
Loans and other
financial liabilities
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
Foreign exchange translation gains/(losses)
Item of Other comprehensive income
Financial assets measured at fair value through
other comprehensive income
-
-
-
-
-
-
(24)
-
345
-
-
-
4,169
-
-
-
570
(20)
-
Movements of non-financial assets at Level 3
Investment property
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additions
Disposals
Transfer from/(into) property and equipment
Transfer from/(into) non-current assets held for sale
Transfer from/(into) other assets
Net valuation to fair value
Balance as at 31 December
in EUR thousands
NLB Group
2019
32,208
84
-
(4,188)
(363)
550
-
642
2018
24,119
(9)
99
(891)
7,600
-
1,392
(102)
28,933
32,208
NLB Group Annual Report 2019 e) Fair value of financial instruments not measured at fair value in financial statements
319
in EUR thousands
NLB Group
NLB
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value
Financial assets measured at amortised cost
- debt securities
1,653,848
1,715,350
1,428,962
1,471,050
1,485,166
1,543,518
1,274,978
1,313,913
- loans and advances to banks
93,403
93,503
118,696
118,973
144,352
150,520
110,297
123,377
- loans and advances to customers
7,589,724
7,775,128
7,124,633
7,186,301
4,568,599
4,713,622
4,451,477
4,472,075
- other financial assets
97,415
97,415
75,171
75,171
67,279
67,279
42,741
42,741
Financial liabilities measured at amortised cost
- deposits from banks and central banks
42,840
42,690
26,775
26,754
89,820
89,820
48,903
48,901
- borrowings from banks and central banks
170,385
178,374
258,423
268,003
161,564
169,312
244,133
253,376
- due to customers
11,612,317
11,630,157
10,464,017
10,478,309
7,760,737
7,768,365
7,033,409
7,039,583
- borrowings from other customers
64,458
63,868
61,844
62,226
2,537
2,548
4,128
4,135
- subordinated liabilities
210,569
211,889
15,050
15,209
210,569
211,889
-
-
- other financial liabilities
158,484
158,484
100,887
100,887
98,342
98,342
62,212
62,212
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.
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.
Loans and advances to banks
The estimated fair value of deposits is based
on discounted cash flows using prevailing
market interest rates for instruments with
similar credit risk and residual maturities.
The fair value of overnight deposits equals
their carrying value.
Loans and advances to customers
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.
NLB Group Annual Report 2019 320
Fair value hierarchy of financial instruments not measured at fair value in financial statements
NLB Group
NLB
in EUR thousands
31 Dec 2019
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
1,464,677
250,673
- 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
-
-
-
-
-
-
-
93,503
7,775,128
97,415
42,690
178,374
11,630,157
63,868
166,349
45,540
-
158,484
-
-
-
-
-
-
-
-
-
-
1,715,350
1,437,771
105,747
93,503
7,775,128
97,415
42,690
178,374
11,630,157
63,868
-
-
-
-
-
-
-
150,520
4,713,622
67,279
89,820
169,312
7,768,365
2,548
211,889
166,349
45,540
158,484
-
98,342
-
-
-
-
-
-
-
-
-
-
1,543,518
150,520
4,713,622
67,279
89,820
169,312
7,768,365
2,548
211,889
98,342
in EUR thousands
31 Dec 2018
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
NLB Group
NLB
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
-
-
-
-
-
-
-
-
-
-
1,313,913
123,377
4,472,075
42,741
48,901
253,376
7,039,583
4,135
-
62,212
6.6. Offsetting financial assets and
financial liabilities
NLB Group has entered into bilateral
foreign exchange netting arrangements
with certain banks and corporates. Cash
flows from such transactions that are due
on the same day in the same currency, are
settled on a net basis, i.e., a single cash
flow for each currency. The settlement of
all interest rates derivatives is also carried
out by netting of both legs of transaction.
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 2013, NLB Group also novated certain
standardised derivatives (some interest
rate swaps) to a clearing house or central
counterparty. A system of daily margins
assures the mitigation and collateralisation
of exposures, as well as the daily settlement
of cash flows for each currency.
All derivatives are done under the
conditions of signed Master Agreements
(MA), with international banks ISDA MA
is in place along with CSA annex and for
corporates domestic MA is in place, which
enable daily evaluation and exchange of
margining.
NLB Group Annual Report 2019 Gross amounts of
recognised financial
assets/liabilities
19,695
67,399
NLB Group
Amounts not set-off on the statement
of financial position
Impact of master
netting agreements
Financial instruments
collateral
16
59,657
4,061
4,061
NLB
Amounts not set-off on the statement
of financial position
Gross amounts of
recognised financial
assets/liabilities
Impact of master
netting agreements
Financial instruments
collateral
19,742
67,399
4,061
4,061
16
59,657
321
in EUR thousands
Net amount
15,618
3,681
in EUR thousands
Net amount
15,665
3,681
in EUR thousands
NLB Group and NLB
Amounts not set-off on the statement
of financial position
Gross amounts of
recognised financial
assets/liabilities
Impact of master
netting agreements
Financial instruments
collateral
15,002
41,730
2,111
2,111
1,027
35,898
Net amount
11,864
3,721
31 Dec 2019
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
31 Dec 2019
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
31 Dec 2018
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
NLB Group and NLB have no financial
assets/liabilities set off in the statement of
financial position.
NLB Group Annual Report 2019 322
7. Analysis by segment for NLB Group
a) Segments
2019
Total net income
NLB Group
in EUR thousands
Corporate
and
investment
banking in
Slovenia
Retail
banking in
Slovenia
Strategic
foreign
markets
Financial
markets in
Slovenia
Non-core
members
Other
activities Unallocated
Total
165,637
80,226
210,415
35,586
10,967
12,741
Net income from external customers
172,677
84,992
213,184
19,201
10,865
12,681
Intersegment net income
(7,041)
(4,766)
(2,769)
16,385
Net interest income
87,409
37,264
157,543
33,604
Net interest income from external customers
94,829
41,348
160,463
17,703
102
2,740
4,277
Intersegment net interest income
(7,420)
(4,084)
(2,920)
15,901
(1,537)
60
(73)
(133)
60
Administrative expenses
(106,402)
(40,508)
(93,255)
(6,862)
(12,653)
(12,090)
Depreciation and amortisation
(11,546)
(3,937)
(12,931)
(621)
(1,300)
(1,271)
Reportable segment profit/(loss) before
impairment and provision charge
Other net gains/(losses) from equity investments
in subsidiaries, associates, and joint ventures
47,689
35,780
104,229
28,103
(2,986)
(621)
4,197
-
-
-
-
-
Impairment and provisions charge
(4,382)
21,043
(11,295)
(475)
(108)
(5,776)
Profit/(loss) before income tax
47,504
56,823
92,934
27,628
(3,094)
(6,397)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
47,504
56,823
84,692
27,628
(3,094)
(6,397)
-
-
-
-
8,242
-
-
-
-
-
-
-
Reportable segment assets
2,551,708
2,042,200
4,731,350
4,412,561
169,456
259,314
Investments in associates, and joint ventures
7,499
-
-
-
-
-
Reportable segment liabilities
6,464,417
1,341,878
4,043,172
465,168
8,791
119,766
Additions to non-current assets
13,310
4,618
13,995
342
291
4,111
-
-
-
-
-
-
-
-
-
-
-
-
-
-
515,571
513,600
1,971
318,487
318,487
-
(271,770)
(31,607)
212,194
4,197
(994)
215,397
207,155
8,242
(13,579)
(13,579)
193,576
14,166,589
7,499
12,443,191
36,667
-
-
-
-
NLB Group Annual Report 2019 323
in EUR thousands
Other
activities Unallocated
Total
2018
Total net income
Retail
banking in
Slovenia
Corporate
banking in
Slovenia
Strategic
foreign
markets
NLB Group
Financial
markets and
investment
banking in
Slovenia
Non-strategic
markets and
activities
146,429
76,663
213,979
38,829
14,515
Net income from external customers
147,981
80,264
214,934
30,779
14,510
Intersegment net income
(1,552)
(3,602)
(955)
8,051
Net interest income
79,325
42,535
150,113
31,686
Net interest income from external customers
81,235
46,137
151,850
23,892
Intersegment net interest income
(1,910)
(3,602)
(1,737)
7,794
4
9,334
9,927
(593)
4,849
4,801
48
(83)
(131)
48
Administrative expenses
(96,960)
(38,963)
(90,863)
(11,487)
(16,794)
(8,358)
Depreciation and amortisation
(10,350)
(3,996)
(9,098)
(1,098)
(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
39,119
33,703
114,018
26,244
(3,703)
(4,769)
5,446
-
-
-
-
-
Impairment and provisions charge
(3,692)
26,648
(14,286)
241
11,938
2,428
Profit/(loss) before income tax
40,874
60,351
99,732
26,485
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
40,874
60,351
91,802
26,485
-
-
-
-
7,930
-
-
-
8,236
8,236
-
-
(2,341)
(2,341)
-
-
Reportable segment assets
2,347,174
1,975,803
4,293,207
3,634,975
263,690
188,033
Investments in associates, and joint ventures
37,147
-
-
-
-
-
Reportable segment liabilities
5,821,282
1,157,405
3,596,397
391,145
18,334
98,023
Additions to non-current assets
11,138
4,061
8,928
673
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
-
-
-
-
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.
The business activities of NLB are divided
into several segments. Interest income
is reallocated between segments on the
basis of fund transfer rates (FTP). Other
NLB Group members are, based on their
business activity, included in only one
segment.
monitored due to changes in the criteria for
market segmentation and the treatment of
legal entities in NLB, the termination of
the European Commission commitments
related to disinvestment of certain
industries and other strategic decisions.
This has resulted in the following changes:
• Investment banking and custody services
shifted from segment Financial markets
in Slovenia to segment Corporate and
Investment Banking in Slovenia.
• Part of legal entities with the basic
treatment was transferred from the
segment Corporate and Investment
Banking in Slovenia to the segment Retail
banking in Slovenia.
• Since the European Commission
In 2019, NLB Group changed the way in
which business segments are managed and
commitments regarding the reduction
of credit business in specific industries
(construction, transport, financial
holdings and foreign clients) have
ceased to exist, there is no need for
specific monitoring of NLB non-core
segment. Consequently, such clients were
transferred to the segment Corporate
and Investment Banking in Slovenia from
the segment Non-strategic markets and
activities, which was renamed to Non-
core members in 2019.
• The transfer of NLB Srbija and NLB
Črna Gora from the Strategic Foreign
Markets segment to the Non-core
members segment.
Due to these changes the segments’
results for the year 2019 are not directly
comparable to the segments’ results for the
previous year.
NLB Group Annual Report 2019 324
Description of NLB Group’s segments:
• Retail banking in Slovenia represents
banking with individuals and legal
entities with the basic treatment in NLB
and assets management – NLB Skladi.
It also includes the contribution to the
financial result of the joint venture NLB
Vita and the associate Bankart;
(bank) members in strategic markets of
NLB Group (Bosnia and Herzegovina,
Montenegro, Kosovo, North Macedonia
and Serbia), except leasing and REAM
entities;
• Financial markets in Slovenia, which
include treasury activities, asset liability
management, trading in financial
instruments;
• Corporate and Investment Banking in
• Non-core members represent total
NLB Group is primarily a financial group,
and net interest income represents the
majority of its net revenues. NLB Group’s
main indicator of a segment’s efficiency is
net profit before tax.
There was no income from transactions
with a single external customer that
amounted to 10% or more of NLB Group’s
income.
Slovenia, which includes operations with
large (key), medium-sized (mid-market),
micro and small businesses, intensive care
and non-performing loans, brokerage
and custody of securities, as well as
financial advisory;
• Strategic foreign markets represent
all business activities of NLB Group
activities of NLB Group members in
non-strategic markets of NLB Group
(Croatia, Germany, Switzerland) and all
leasing and REAM entities; and
• Other activities represent items of
NLB income statement not related to
reportable segments.
b) Geographical information
Geographical analysis includes a
breakdown of items with respect to the
country in which individual NLB Group
entities are located.
NLB Group
Slovenia
South East Europe
North Macedonia
Serbia
Montenegro
Croatia
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousands
2019
2018
2019
2018
2019
2018
2019
2018
332,511
327,594
295,254
284,157
114,711
136,206
(2,821)
(12,823)
266,923
249,344
216,347
208,551
100,034
96,166
(10,692)
(8,930)
84,134
82,710
66,498
69,410
36,216
36,332
(3,211)
(3,879)
33,578
29,307
25,390
24,323
33,121
30,114
28,091
24,855
63
-
783
1,115
4,997
8,353
(105)
4,368
9,729
1,148
(172)
(1,909)
(100)
(219)
406
(143)
Bosnia and Herzegovina
70,975
68,751
58,403
56,476
28,738
27,832
(2,857)
(3,118)
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
45,052
38,462
37,182
32,372
21,835
16,757
(2,443)
(1,977)
571
7
564
-
596
8
588
-
1,998
61
1,937
1
561
(122)
683
-
665
(276)
941
(13)
994
779
215
(30)
(66)
-
(66)
-
(6)
-
(6)
-
600,005
577,534
513,600
493,269
215,397
233,336
(13,579)
(21,759)
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, net operating income and, gain less
losses from non-current assets held for sale.
NLB Group Annual Report 2019 325
in EUR thousands
Non-current assets
Total assets
Number of employees
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
151,934
179,526
9,350,558
8,373,933
142,870
128,416
4,811,617
4,346,277
2,750
3,124
2,786
3,096
34,971
25,549
30,089
2,045
34,246
15,970
158
152
6
-
31,537
1,448,179
1,341,154
24,086
28,811
2,827
639,351
511,119
533,849
518,083
12,497
23,945
28,240
1,381,718
1,282,643
12,915
796,023
669,333
221
209
12
-
11,913
1,787
10,126
-
19,641
1,335
18,306
178
903
494
312
7
934
474
4
1
3
-
893
471
308
9
939
476
5
1
4
-
294,962
308,163
14,174,088
12,740,029
5,878
5,887
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousands
2019
2018
2019
2018
2019
2018
2019
2018
415,437
388,060
371,079
341,840
185,857
186,366
(2,926)
(13,201)
267,546
249,748
214,111
212,235
99,862
100,806
(10,635)
(8,815)
84,105
82,692
64,890
73,592
36,088
41,283
(3,211)
(3,879)
33,798
29,520
26,171
25,005
33,381
30,264
27,904
24,561
142
30
756
786
4,919
8,368
(105)
3,844
9,729
1,309
(115)
(1,909)
(100)
(104)
406
(143)
NLB Group
Slovenia
South East Europe
North Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
The table below presents data on NLB
Group members before intercompany
eliminations and consolidation journals.
NLB Group
Slovenia
South East Europe
North Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
71,054
68,780
57,602
55,885
28,604
27,828
(2,857)
(3,118)
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
45,066
38,462
36,788
32,406
21,988
16,813
(2,443)
(1,977)
1,688
2
1,686
-
634
4
630
-
2,882
56
2,826
1
202
(126)
328
-
2,033
(275)
2,308
(13)
996
780
216
(30)
(6)
-
(6)
-
(6)
-
(6)
-
684,671
638,442
588,073
554,277
287,739
288,138
(13,567)
(22,022)
NLB Group Annual Report 2019 326
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; a major shareholder of NLB with
significant influence, subsidiaries, associates,
and joint ventures.
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
A number of banking transactions are
entered into with related parties in the
normal course of business. The volume
of related-party transactions and the
outstanding balances are as follows:
Management Board and
other Key management
personnel
Family members of
the Management
Board and other key
management personnel
in EUR 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
NLB Group and NLB
2019
2018
2019
2018
2019
2018
2019
2018
Loans issued
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest income
Deposits received
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest expense
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Other income
Other expenses
1,903
1,192
(976)
2,119
41
1,732
1,367
1,903
34
1,981
1,868
(1,520)
(2,117)
1,579
1,732
(4)
2,759
246
11
20
(8)
(4)
2,552
221
9
5
(3)
2,021
946
347
492
413
221
231
245
242
441
413
43
(1,064)
(319)
(287)
(346)
(452)
(208)
520
8
447
1,175
(751)
871
-
-
82
6
-
-
347
8
769
656
(978)
447
(1)
-
83
6
-
(1)
130
3
102
265
(174)
193
-
4
91
5
-
231
4
593
648
(1,139)
102
-
6
59
10
-
(54)
(58)
248
5
341
158
(301)
198
-
-
18
2
-
-
435
53
(75)
413
10
240
769
(668)
341
-
-
26
2
-
-
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
legislation (ZBan-2). The applicable
Remuneration Policy for the Employees
Performing special job in NLB d.d.
regulates the remuneration of the members
of the Management Board and refers to
NLB Group Annual Report 2019
the period to which the variable part of the
salary for performance relates.
Simultaneously, under the contract,
members of the Management Board are
entitled to a variable part of the salary
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.
In accordance with the legislation, the
annual variable part of the salary cannot
in any case exceed eight average gross
salaries in a business year of members
of the Management Board. In addition,
members of the Management Board are
entitled to variable part of the salary only
proportionally, depending on their actual
employment in the Bank for the period for
which the variable part of the salary relates.
NLB Group and NLB
Short-term benefits
Cost refunds
Long-term bonuses:
- severance pay
- other benefits
- variable part of payments
Total
327
The non-deferred part of variable
remuneration is paid no later than three
months after the adoption of the Annual
Report of NLB d.d. for the business year
to which the variable remuneration relates.
Variable remuneration part of payment
of an employee performing special job is
awarded and paid in cash, provided that the
amount does not exceed EUR 50 thousand
for each financial year, and if this is
permissible in accordance with the relevant
regulation.
If the variable remuneration part of
payment of an employee performing
special job exceeds EUR 50 thousand
for each financial year and if this is
permissible in accordance with the relevant
regulation, then at least 50% of the variable
remuneration must consist of instruments.
The employee performing special job may
only transfer such instruments with the
Bank’s approval which cannot be issued
before the expiry of two years after the
acquisition. The latter applies to both – the
non-deferred and deferred part of the
variable remuneration.
The deferred part of the variable part of
the salary must be deferred for a period of
at least three and at most five years of the
day on which the non-deferred part of such
variable remuneration is paid, according to
the legislation (ZBan-2).
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.
The table below shows payments in
presented periods.
Management Board
Other key management personnel
Supervisory Board
in EUR thousands
2019
1,676
4
-
6
162
1,848
2018
661
5
-
6
143
815
2019
5,064
86
-
72
1,316
6,538
2018
4,734
88
4
73
1,352
6,251
2019
357
85
-
-
-
2018
251
57
-
-
-
442
308
Short-term benefits include:
• non-monetary benefits (company cars,
• monetary benefits (gross salaries,
supplementary insurance, holiday
allowances, other bonuses); and
health care, apartments, etc.).
The reimbursement of cost comprises food
allowances and travel expenses.
NLB Group Annual Report 2019 328
Payments to individual members of the Management Board
Member
Blaž Brodnjak
1.12.2012
Andreas Burkhardt
18.9.2013
Archibald Kremser
31.7.2013
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
2019
433,882
2,173
1,016
1,409
45,497
483,977
397,291
18,515
1,047
1,409
45,497
463,759
412,973
25,393
1,028
1,409
45,497
486,300
355,473
30,364
1,261
1,409
25,000
413,507
in EUR
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
NLB Group Annual Report 2019 Payments to individual members of the Supervisory Board
Member
Andreas Klingen
22.6.2015
Primož Karpe
11.2.2016
Laszlo Zoltan Urban
11.2.2016
Alexander Bayr
4.8.2016
David Eric Simon
4.8.2016
Peter Groznik
8.9.2017
Simona Kozjek
8.9.2017
Vida Šeme Hočevar
8.9.2017
Gregor Rok Kastelic
10.6.2019
Shrenik Dhirajlal Davda
10.6.2019
Mark William Lane Richards
10.6.2019
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
329
in EUR
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
-
-
-
-
-
-
-
-
-
2019
5,940
41,136
17,200
7,260
48,980
9,698
5,445
33,384
6,759
6,765
38,758
15,992
6,380
36,994
16,770
5,720
32,214
4,056
935
3,750
-
1,155
5,000
22
1,980
21,901
4,406
2,200
23,072
6,136
2,200
26,008
4,119
NLB Group Annual Report 2019 330
Related-party transactions with subsidiaries, associates, and joint ventures
Loans issued
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest income
Impairment
Deposits received
Balance at 1 January
Effects of translation of foreign operations to presentation currency
Increase
Decrease
Balance at 31 December
Interest expense
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 held for trading
NLB Group
in EUR thousands
Associates
Joint ventures
2019
2018
2019
2018
1,176
112
(222)
1,066
34
21
722
-
1,920
(1,800)
842
-
18
1,294
31
9
1,296
120
(240)
1,176
38
20
4,958
-
14,750
(18,986)
722
-
22
1,131
35
107
(14,101)
(12,496)
192
(545)
-
196
(853)
(1)
2,981
37
(1,813)
1,205
21
66
4,424
17
92,618
(88,604)
8,455
(66)
539
250
26
4,985
(2,138)
134
(23)
-
4,333
58
(1,410)
2,981
40
99
6,856
5
90,948
(93,385)
4,424
(34)
347
231
26
4,325
(2,020)
132
(26)
-
NLB Group Annual Report 2019 331
in EUR thousands
NLB
Subsidiaries
Associates
Joint ventures
2019
2018
2019
2018
2019
2018
187,744
278,064
95,047
63,853
(122,157)
(154,173)
160,634
187,744
4,694
1,461
4,453
798
56,784
36,470
376,939
358,462
(363,254)
(338,148)
70,469
56,784
34
(12)
27
24
1,176
112
(222)
1,066
34
21
-
-
-
-
-
-
1,296
120
(240)
1,176
38
20
-
-
-
-
-
-
2,940
35
(1,801)
1,174
19
66
-
-
-
-
-
-
4,272
53
(1,385)
2,940
38
99
-
-
-
-
-
-
40,313
56,129
13,862,854
14,565,179
722
1,920
4,958
14,750
2,588
82,911
4,855
80,802
(13,822,361)
(14,580,995)
(1,800)
(18,986)
(80,081)
(83,069)
80,806
(228)
47
9,743
984
235
40,313
(207)
2
588
745
86
842
722
5,418
2,588
-
-
-
18
1,174
31
-
-
9
-
-
-
22
1,078
35
-
-
107
(11,918)
(11,029)
192
(542)
-
-
196
(538)
(1)
-
-
-
-
539
116
26
-
-
4,847
(771)
133
(23)
-
-
-
-
-
347
140
26
-
-
4,203
(906)
131
(26)
-
-
Loans issued
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest income
Impairment
Deposits
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest income
Impairment
Deposits received
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest expense
Derivatives
Fair value
Contractual amount
Other financial assets
Other financial liabilities
Guarantees issued and credit commitments
32,727
25,413
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
Gains less losses from non-trading financial assets
mandatorily at fair value through profit or loss
(461)
3,297
6,276
(19)
533
(443)
(225)
(419)
(29)
4,811
5,746
(33)
587
(799)
(57)
1,214
NLB Group Annual Report 2019 332
Related-party transactions with major shareholder with significant influence
The volumes of related party transactions with major shareholder are as follows:
NLB Group
Shareholder
in EUR thousands
NLB
Shareholder
2019
2018
2019
2018
79,156
3,320
(54,270)
28,206
1,563
908,263
767,386
127,781
16,862
(65,487)
79,156
2,579
901,511
543,501
76,374
3,270
(51,438)
28,206
1,513
855,872
630,949
123,659
16,778
(64,063)
76,374
2,495
826,362
451,642
(836,044)
(532,384)
(720,857)
(417,190)
11,360
850,965
13,014
651
22
1,168
144
(35)
181
(5)
2,809
(360)
(4,365)
908,263
18,276
648
7
1,153
657
(37)
184
(203)
366
(334)
12,124
778,088
14,047
651
22
1,168
144
(35)
181
(5)
2,809
(360)
(4,923)
855,872
18,508
648
7
1,153
657
(37)
184
(203)
366
(334)
Loans issued
Balance at 1 January
Increase
Decrease
Balance at 31 December
Interest income
Investments in securities
Balance at 1 January
Increase
Decrease
Valuation
Balance 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
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 Annual Report 2019
NLB Group and NLB
Loans
Borrowings, deposits and business accounts
Loans
Debt securities measured at amortised cost
Borrowings, deposits and business accounts
Interest income from loans
Fees and commissions income
Interest income from debt securities measured at amortised cost
Interest expense from borrowings, deposits, and business accounts
333
in EUR thousands
Amount of significant transactions
concluded during the year
Number of significant transactions
concluded during the year
2019
57,113
179,309
2018
2019
2018
-
-
1
2
-
-
Year-end balance of all
significant transactions
Number of significant
transactions at year-end
2019
2018
6
1
2
5
1
2
2019
582,081
78,014
115,500
2018
539,116
76,680
135,063
Effects in income statement
during the year
2019
3,175
175
2,139
(849)
2018
1,281
15
(81)
(63)
respective governmental bodies measures
and policies which have already been
implemented or might be implemented
in the future. Such measures and policies
could significantly disrupt the activities
of one or more Group members, and
the Group is considering implementing
measures to support the economies
in SEE region. The Group estimates
the coronavirus could have a negative
effect on the loan portfolio, asset quality,
impairments and provisions, fair value
measurement of financial assets, etc. The
extent of the implications for the Group’s
financial performance are currently not
possible to evaluate with a high degree of
certainty.
9. Events after the reporting date
On 17 January 2020 NLB exercised early
repayment of subordinated loan in the
amount of EUR 45 million (note 5.15 c).
On 5 February 2020 NLB issued
subordinated Tier 2 notes in a nominal
amount of EUR 120 million, with maturity
after 10 years and the possibility of early
termination after five years. The fixed
coupon of the notes during the first five
years is 3.40% p.a., thereafter it will be
reset to the sum of the then applicable
5Y MS and the fixed margin as provided
at the issuance of the notes (i.e., 3,658%
p.a.). The final offering price for the notes
is equal to 100% of their nominal value.
The notes with ISIN code XS2113139195
and rated BB by S&P rating agency were
admitted to trading on the Euro MTF
Market operated by the Luxembourg Stock
Exchange on 5 February 2020.
On 26 February 2020, NLB entered into
a share purchase agreement with the
Republic of Serbia for the acquisition
of an 83.23% ordinary shareholding
in Komercijalna Banka a.d. Beograd
(KB). The consideration for the 83.23%
shareholding amounts to EUR 387
million, which will be payable in cash
on completion. The purchase price will
be subject to a 2% annual interest rate
between 1 January 2020 and closing,
with NLB benefiting from KB’s earnings
during that period under a “locked-box”
mechanism. In accordance with Serbian
bank privatisation regulations, NLB is not
required to launch a mandatory tender
offer for minorities’ shareholdings in KB.
The closing of the transaction is expected
in Q4 2020 and is subject to mandatory
regulatory approvals from, amongst others,
the European Central Bank, Bank of
Slovenia and the National Bank of Serbia.
Following the indications of the outbreak of
the coronavirus – COVID-19 (hereinafter
coronavirus) in March in Slovenia and SEE,
the Group has taken necessary measures
to protect its investors, customers, and
employees, by ensuring safety conditions
and ensuring services are provided
without disruption. As the outbreak and
spread of the coronavirus continues to
evolve, it is challenging to predict the full
extent and duration of its business and
economic implications. Consequently, these
circumstances may present NLB Group
members with challenges relating to the
business operations in large part due to the
NLB Group Annual Report 2019 334
NLB Group Annual Report 2019 335
NLB Group Annual Report 2019 336
Alternative
Performance Indicators
The Bank has chosen to present these
APIs, either because they are in common
use within the industry or because they
are commonly used by investors and as
such useful for disclosure. The APIs are
used internally to monitor and manage
operations of the Bank and the Group,
and are not considered to be directly
comparable with similar KPIs presented
by other companies. The Bank’s APIs are
described below together with definitions.
Cost of risk - Calculated as the ratio
between credit impairments and provisions
annualized from the income statement and
average net loans to customers.
Numerator
Credit impairments and provisions*
Denominator
Average net loans to customers**
Cost of risk
(in EUR million and bps)
NLB Group
2018
2019
30.0
14.5
7,012.3
-43
7,339.4
-20
* NLB internal information. Credit impairments and provisions are annualized, calculated as all established and released impairments on loans and provisions for off balance (from
income statement) in the period divided by number of months for reporting period and multiplied by 12.
** NLB internal information. Average net loans to customers are calculated as sum of balance of previous year end (31 December) and monthly balances of the last day of each month
from January to month t divided by (t+1).
Cost to income ratio (CIR) - Indicator
of cost efficiency, calculated as the ratio
between total costs and total net operating
income.
Numerator
Total cost
Denominator
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
284.7
288.7
301.4
175.9
179.0
189.8
Total net operating income
Cost to income ratio (CIR)
487.7
58.4%
493.3
58.5%
513.6
58.7%
330.1
53.3%
323.4
55.3%
353.3
53.7%
NLB Group Annual Report 2019
337
(in EUR million and %)
NLB Banka, Skopje
NLB Banka, Banja Luka
NLB Banka, Sarajevo
NLB Banka, Prishtina
NLB Banka, Podgorica
NLB Banka, Beograd
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Numerator
Total cost
23.4
25.0
26.6
12.8
13.0
13.0
14.0
14.2
14.7
11.2
11.8
11.7
12.4
12.3
13.5
16.3
18.0
19.5
Denominator
Total income
62.5
72.8
64.9
27.8
30.0
30.2
25.5
25.9
27.5
29.1
32.4
36.8
21.5
23.8
26.3
21.0
23.6
24.9
Cost to income
ratio (CIR)
37.4% 34.4% 41.0% 46.1% 43.5% 43.2% 54.8% 54.8% 53.3% 38.7% 36.4% 31.9% 57.7% 51.8% 51.4% 77.8% 76.2% 78.3%
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:
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.
Numerator
Total (AC) loans in Stage 1
Denominator
Total gross loans and advances
IFRS 9 classification into Stage 1
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.
The remaining minor part (0.3 per cent.
December 2019; 0.5 per cent. December
2018) represents FVTPL. Classification into
stages is calculated in internal data source,
by which the NLB Group measures the
loan portfolio quality and is also published
in Business Report of Annual and Interim
Reports.
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
7,817
8,948
9,017
86.7%
9,793
91.4%
NLB Group Annual Report 2019
338
Numerator
Total (AC) loans in Stage 2
Denominator
Total gross loans and advances
IFRS 9 classification into Stage 2
Numerator
Total (AC) loans in Stage 3
Denominator
Total gross loans and advances
IFRS 9 classification into Stage 3
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
578
9,017
6.4%
471
9,793
4.8%
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
573
9,017
6.4%
349
9,793
3.6%
Liquidity coverage ratio - LCR refers
to high liquid assets held by the financial
institution to cover its net liquidity outflows
over a 30-calendar day stress period.
The LCR requires financial institutions
to maintain a sufficient reserve of high-
quality liquid assets (HQLA) to withstand
a crisis that puts their cash flows under
pressure. The assets to hold must equal to
or greater than their net cash outflow over
a 30-calendar-day stress period (having at
least 100% coverage). The parameters of
the stress scenario are defined under Basel
III guidelines. Below presented calculations
are based on internal data sources.
Numerator
Stock of HQLA
Denominator
Net liquidity outflow
LCR
Based on the EC’s Delegated Act on LCR.
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
3,151
873
361%
3,985
1,226
325%
NLB Group Annual Report 2019
339
Net loan to deposit ratio (LTD) –
Calculated as the ratio between net loans
to customers and deposits from customers.
There is no regulatory defined limitation on
the LTD, however the aim of this measure
is to restrict extensive growth of the loan
portfolio.
NLB Group
NLB
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Net loans to customers
6,994.5
7,148.4
7,604.7
4,669.6
4,478.1
4,589.2
Denominator
Deposits from customers
Net loan to deposit ratio (LTD)
9,879.0
70.8%
10,464.0
11,612.3
68.3%
65.5%
6,811.6
68.6%
7,033.4
63.7%
7,760.7
59.1%
NLB Banka,
Skopje
NLB Banka,
Banja Luka
NLB Banka,
Sarajevo
NLB Banka,
Prishtina
NLB Banka,
Podgorica
NLB Banka,
Beograd
(in EUR million and %)
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
31 December
Numerator
Net loans to customers
858.6
915.1
384.8
411.7
359.5
399.3
466.9
540.1
310.7
346.3
318.8
412.0
Denominator
Deposits from customers
1,076.2
1,175.6
575.8
618.1
472.3
515.2
585.9
685.4
391.8
436.5
352.9
437.3
Net loan to deposit ratio (LTD)
79.8%
77.8%
66.8%
66.6%
76.1%
77.5%
79.7%
78.8%
79.3%
79.3%
90.3%
94.2%
NLB Group Annual Report 2019
340
Net interest margin on the basis of
interest bearing assets – Calculated
as the ratio between net interest income
annualized and average interest bearing
assets.
Numerator
Net interest income*
Denominator
NLB Group
2018
2019
1-3
NLB Group
1-6
2019
(in EUR million and %)
1-9
312.9
318.5
321.8
320.7
319.3
Average interest bearing assets**
Net interest margin on interest bearing assets
12,220.7
2.56%
12,845.9
2.48%
12,585.6
2.56%
12,617.0
2.54%
12,714.6
2.51%
SEE banks total
SEE banks total
(in EUR million and %)
2018
2019
1-3
1-6
2019
1-9
150.6
157.5
156.6
157.0
157.2
Numerator
Net interest income*
Denominator
Average interest bearing assets**
Net interest margin on interest bearing assets
3,915.5
3.85%
4,390.9
3.59%
4,226.5
3.71%
4,275.5
3.67%
4,333.0
3.63%
NLB
1-3
2018
2019
NLB
1-6
2019
(in EUR million and %)
1-9
158.0
158.1
161.2
160.5
159.1
Numerator
Net interest income*
Denominator
Average interest bearing assets**
Net interest margin on interest bearing assets
8,339.6
1.89%
8,537.9
1.85%
8,395.4
1.92%
8,407.5
1.91%
8,461.6
1.88%
NLB Group Annual Report 2019 341
(in EUR million and %)
NLB Banka, Skopje
NLB Banka, Banja Luka NLB Banka, Sarajevo
NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
Numerator
Net interest income*
48.8
49.0
19.1
18.5
17.6
18.0
27.4
31.0
18.0
20.3
19.8
20.7
Denominator
Average interest
bearing assets**
Net interest margin on
interest bearing assets
1,224.6
1,338.5
683.4
738.9
549.6
608.1
616.7
715.8
439.3
475.2
401.9
514.4
4.0%
3.7%
2.8%
2.5%
3.2%
3.0%
4.4%
4.3%
4.1%
4.3%
4.9%
4.0%
* Net interest income is annualized, calculated as sum of interest income and interest expenses in the period divided by number of days in the period and multiplied by number of days
in the year.
** NLB internal information. Average interest bearing assets for the NLB Group and SEE banks are calculated as the sum of balance of previous year end (31 December) and monthly
balances of the last day of each month from January to reporting month t divided by (t+1). Average interest bearing assets for NLB are calculated as sum of balance of the previous
year end (31 December) and daily balances in the period (from 1 January to day d – last day in reporting month) divided by (d+1).
Net interest margin on total assets
- Calculated as ratio between net interest
income annualized and average total assets.
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
Numerator
Net interest income*
309.3
312.9
318.5
158.8
158.0
158.1
Denominator
Average total assets**
12,046.3
12,515.5
13,311.6
Net interest margin on total assets
2.6%
2.5%
2.4%
8,704.9
1.8%
8,870.9
1.8%
9,206.3
1.7%
* Net interest income is annualized, calculated as sum of interest income and interest expenses in the period divided by number of days in the period and multiplied by number of days
in the year.
** NLB internal information. Average total assets for the NLB Group are calculated as sum of balance of the previous year end (31 December) and monthly balances of the last day of
each month from January to month t divided by (t+1). Average total assets for NLB are calculated as sum of total assets of the previous year end (31 December) and daily balances in
the period (from 1 January to day d – last day in reporting month) divided by (d+1).
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). Non-performing
exposures measured by fair value loans
through P&L (FVTPL) are taken into
account at fair value increased by amount
of negative fair changes for credit risk.
NPE per cent. (on-balance and off-
balance) / Classified on-balance and
off-balance exposures - NPE per cent. 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.
Below presented calculations are based on
internal data sources.
Where Non-Performing Exposure
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). Share of NPEs is calculated
on the basis of internal data source, by
which the NLB Group monitors the
portfolio quality.
NLB Group Annual Report 2019 342
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Total Non-Performing on-balance and
off-balance Exposure in Finrep18
Denominator
Total on-balance and off-balance
exposures in Finrep18
NPE per cent.
NPL - Non-performing loans 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).
560
385
221
933
675
433
9,676
5.8%
9,763
3.9%
11,088
2.0%
13,941
6.7%
14,410
4.7%
16,229
2.7%
NPL per cent. - Share of non-performing
loans in total loans: non-performing loans
as a percentage of total loans to clients
before deduction of loan loss allowances;
ratio in gross terms. Where non-performing
loans are defined as 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). Share of non-
performing loans is calculated on the basis
of internal data source, by which the NLB
Group monitors the loan portfolio quality.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Total Non-Performing Loans
478
343
169
844
622
375
Denominator
Total gross loans
NPL per cent.
5,866
8.1%
5,455
6.3%
5,990
2.8%
9,130
9.2%
9,017
6.9%
9,793
3.8%
NLB Group Annual Report 2019 343
(in EUR million and %)
NLB Banka, Skopje
NLB Banka, Banja Luka NLB Banka, Sarajevo
NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
31 December
56
48
19
8
31
19
14
11
21
18
10
8
Numerator
Total Non-
Performing Loans
Denominator
Total gross loans
1,102
1,147
599
598
544
564
599
714
397
455
408
513
NPL per cent.
5.1%
4.2%
3.2%
1.3%
5.7%
3.3%
2.4%
1.5%
5.2%
4.0%
2.4%
1.6%
NPL coverage ratio 1 - The coverage of
the gross non-performing loans portfolio
with loan loss allowances on the entire loan
portfolio - loan impairment in respect of
non-performing loans. It shows the level of
credit provisions that the entity has already
absorbed into its profit and loss accounts
in respect of the total of impaired loans.
NPL coverage ratio 1 is calculated on the
basis of internal data source, by which the
NLB Group monitors the quality of loan
portfolio.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Loan loss allowances entire loan portfolio
324
226
129
655
480
334
Denominator
Total Non-Performing Loans
NPL coverage ratio 1 (NPL CR 1)
478
67.8%
343
65.8%
169
76.2%
844
77.5%
622
77.1%
375
89.2%
NPL coverage ratio 2 - The coverage of
the gross non-performing loans portfolio
with loan loss allowances on the non-
performing loans portfolio. NPL coverage
ratio 2 is calculated on the basis of internal
data source, by which the NLB Group
monitors the loan portfolio quality.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Loan loss allowances non-
performing loan portfolio
Denominator
Total Non-Performing Loans
NPL coverage ratio 2 (NPL CR 2)
267
196
96
525
402
244
478
56.0%
343
57.1%
169
56.7%
844
62.2%
622
64.6%
375
65.0%
Net NPL Ratio - Share of net non-
performing loans in total net loans:
non-performing loans after deduction of
loss allowances on the non-performing
loans portfolio as a percentage of total
loans to clients after deduction of loan
loss allowances; ratio in net terms. Below
presented calculations are based on internal
data sources.
NLB Group Annual Report 2019 344
Numerator
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Net volume of non-performing loans
210
147
73
319
220
131
Denominator
Total Net Loans
Net NPL ratio per cent. (%Net NPL)
5,543
3.8%
5,230
2.8%
5,861
1.3%
8,476
3.8%
8,538
2.6%
9,459
1.4%
Received collaterals for NPLs /
NPL – The coverage of the gross non-
performing loans portfolio with collateral
for non-performing loans. The collateral
market value is used for this calculation.
Below presented calculations are based on
internal data sources.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Gross volume of Non-Performing
Loans covered by collaterals
Denominator
Total Non-Performing Loans
Received collaterals for NPLs / NPL
334
244
122
562
419
250
478
70.0%
343
71.1%
169
72.0%
844
66.5%
622
67.4%
375
66.6%
NLB Group Annual Report 2019 Gross NPL ratio defined by EBA
recourse to collateral (before deduction of
loan loss allowances).
Non-performing loans and advances
(EBA def.) - Non-performing loans include
loans and advances in accordance with
EBA Methodology that are classified as to
D and E, namely loans at least 90 days past
due, or loans unlikely to be repaid without
Gross NPL ratio (EBA def.) - The gross
NPL ratio is the ratio of the gross carrying
amount of non-performing loans and
advances to the total gross carrying amount
of loans and advances, in accordance with
345
the EBA methodology (report Finrep18).
For the purpose of this calculation, loans
and advances classified as held for sale, cash
balances at CBs and other demand deposits
are excluded both from the denominator
and from the numerator. Below presented
calculations are based on internal data
sources.
(in EUR million and %)
NLB
NLB Group
31 December
2017
2018
2019
2017
2018
2019
Numerator
Gross volume of Non-Performing
Loans and advances without loans
held for sale, cash balances at CBs
and other demand deposits
Denominator
Gross volume of Loans and advances
in Finrep18 without loans held
for sale, cash balances at CBs
and other demand deposits
Gross NPL ratio per cent. (% NPL)
-
-
-
328
164
4,841
6.8%
4,923
3.3%
-
-
-
614
373
7,811
7.9 %
8,126
4.6%
NPL coverage ratio (EBA def.) - The
NPL coverage ratio is the ratio of the
amount of accumulated impairment,
negative changes in fair value due to credit
risk to the non-performing loans and
advances, in accordance with the EBA
methodology (report Finrep18).
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Volume of allowances and value
adjustments for credit losses on
Non-Performing loans and advances
Denominator
Gross volume of Non-Performing
loans and advances
NPL coverage ratio per cent. (% CR)
-
-
-
181
91
328
55.0%
164
55.5%
-
-
-
391
240
614
63.7%
373
64.5%
NLB Group Annual Report 2019 346
Collaterals received / NPL (EBA def.)
- The NPL collateral ratio is the ratio of
the collateral received for non-performing
loans and advances to the gross carrying
amount of collateralized non-performing
loans and advances, in accordance with the
EBA methodology (report Finrep18). The
calculation is provided on single loan basis.
The NPLs where the amount of collateral
received exceeds the net non-performing
of each loan exposure are the subject of
calculation.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Volume of collateral received up to the
carrying amount of each loan or advance
Denominator
Gross volume of collateralized Non-
Performing loans and advances
NPL coverage ratio per cent. (% CR)
-
-
-
23
59
13
38
39.9%
33.6%
-
-
-
46
112
41.2%
24
67
35.4%
Net stable funding ratio (NSFR) - The
net stable funding ratio is a liquidity risk
standard requiring financial institutions to
hold enough stable funding to cover the
duration of their long-term assets.
NSFR is defined as the amount of available
stable funding relative to the amount of
required stable funding, and is based on
the current Basel Committee guidelines.
This ratio should be equal to at least 100%
on an on-going basis. »Available stable
funding« is defined as the portion of capital
and liabilities expected to be reliable over
the time horizon considered by the NSFR,
which extends to one year. The amount of
such stable funding required of a specific
institution is a function of the liquidity
characteristics and residual maturities of
the various assets held by that institution as
well as those of its off-balance-sheet (OBS)
exposures. Below presented calculations are
based on internal data sources.
Numerator
Amount of available stable funding
Denominator
Amount of required stable funding
NSFR
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
10,994
11,958
6,929
159%
7,496
160%
NLB Group Annual Report 2019
347
EVE (Economic Value of Equity)
method is a measure of sensitivity of
changes in market interest rates on the
economic value of financial instruments.
EVE represents the present value of
net future cash flows and provides a
comprehensive view of the possible long-
term effects of changing interest rates at
least under the six prescribed standardised
interest rate shock scenarios or more if
necessary, according to the situation on
financial markets. Calculations are taking
into account behavioural and automatic
options as well as allocation of non-
maturing deposits.
The assessment of the impact of a change
in interest rates of 200 bps on the economic
value of the banking book position:
Interest risk in banking book – EVE
Interest risk in banking book – EVE as % of Equity
(in EUR million and %)
NLB Group
31 December 2018
31 December 2019
102,397
7.02%
88,355
6.09%
Return on equity before tax (ROE
b.t.) – Calculated as the ratio between
result before tax annualized and average
total equity (including non-controlling
interests).
Numerator
Result before tax*
Denominator
Average total equity**
ROE b.t.
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
237.3
233.3
215.4
184.9
177.5
177.7
1,599.2
14.8%
1,768.7
13.2%
1,700.7
12.7%
1,310.1
14.1%
1,426.8
12.4%
1,328.7
13.4%
* Result before tax is annualized, calculated as result before tax in the period divided by number of months for reporting period and multiplied by 12.
** NLB internal information. Average total equity (including non-controlling interests) is calculated as sum of balance as at end of previous year end (31 December) and monthly
balances of the last day of each month from January to month t divided by (t+1).
Return on equity after tax (ROE a.t.)
– Calculated as the ratio between result
after tax annualized and average equity.
Numerator
Result after tax*
Denominator
Average equity**
ROE a.t.
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
225.1
203.6
193.6
189.1
165.3
176.1
1,566.7
14.4%
1,729.9
11.8%
1,658.0
11.7%
1,310.1
14.4%
1,426.8
11.6%
1,328.7
13.3%
NLB Group Annual Report 2019
348
Numerator
Result after
tax*
Denominator
Average
equity**
NLB Banka, Skopje
NLB Banka, Banja Luka
NLB Banka, Sarajevo
NLB Banka, Prishtina
NLB Banka, Podgorica
NLB Banka, Beograd
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
40.0
37.1
32.9
23.7
16.2
17.1
8.3
8.8
9.0
14.2
14.8
19.5
5.4
10.0
7.6
3.7
5.2
4.1
143.7
186.3
202.8
81.0
86.6
86.1
64.7
75.8
80.5
64.0
68.8
78.0
77.4
67.3
67.6
55.9
65.8
69.8
ROE a.t.
27.8% 19.9% 16.2% 29.3% 18.7% 19.9% 12.8% 11.6% 11.2% 22.2% 21.6% 25.1% 7.0% 14.9% 11.2% 6.7% 7.9% 5.9%
* Result after tax is annualized, calculated as result after tax in the period divided by number of months for reporting period and multiplied by 12.
** NLB internal information. Average equity is calculated as sum of balance as at end of previous year end (31 December) and monthly balances of the last day of each month from
January to month t divided by (t+1).
Return on assets (ROA b.t.) –
Calculated as the ratio between result
before tax annualized and average total
assets.
Numerator
Result before tax*
Denominator
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
237.3
233.3
215.4
184.9
177.5
177.7
Average total assets**
12,046.3
12,515.5
13,311.7
ROA b.t.
2.0%
1.9%
1.6%
8,711.5
2.1%
8,847.4
2.0%
9,215.3
1.9%
* Result before tax is annualized, calculated as result before tax in the period divided by number of months for reporting period and multiplied by 12.
** NLB internal information. Average total assets is calculated as sum of balance as at end of previous year end (31 December) and monthly balances of the last day of each month from
January to month t divided by (t+1).
Return on assets (ROA a.t.) –
Calculated as the ratio between result after
tax annualized and average total assets.
NLB Group
2017
2018
2019
2017
(in EUR million and %)
NLB
2018
2019
225.1
203.6
193.6
189.1
165.3
176.1
Numerator
Result after tax*
Denominator
Average total assets**
12,046.3
12,515.5
13,311.7
ROA a.t.
1.9%
1.6%
1.5%
8,711.5
2.2%
8,847.4
1.9%
9,215.3
1.9%
NLB Group Annual Report 2019
349
(in EUR million and %)
NLB Banka, Skopje
NLB Banka, Banja Luka NLB Banka, Sarajevo
NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
Numerator
Result after tax*
37.1
32.9
16.2
17.1
8.8
9.0
14.8
19.5
10.0
7.6
5.2
4.1
Denominator
Average total assets**
1,258.1
1,377.1
700.3
759.3
554.9
620.0
619.8
720.6
469.7
520.3
418.6
537.1
ROA a.t.
3.0%
2.4%
2.3%
2.3%
1.6%
1.5%
2.4%
2.7%
2.1%
1.5%
1.2%
0.8%
* Result after tax is annualized, calculated as result after tax in the period divided by number of months for reporting period and multiplied by 12.
** NLB internal information. Average total assets is calculated as sum of balance as at end of previous year end (31 December) and monthly balances of the last day of each month from
January to month t divided by (t+1).
Total capital ratio (TCR) - Total capital
ratio is the own funds of the institution
expressed as a percentage of the total risk
exposure amount.
NLB
NLB Group
(in EUR million and %)
31 December
2017
2018
2019
2017
2018
2019
Numerator
Total capital (Own funds)
1,140.6
1,208.3
1,182.2
1,362.1
1,453.4
1,495.8
Denominator
Total risk exposure Amount (Total RWA)
Total capital ratio
5,234.1
21.8%
5,023.6
24.1%
5,225.1
22.6%
8,546.5
15.9%
8,677.6
16.7%
9,185.5
16.3%
NLB Banka, Skopje
NLB Banka, Banja Luka NLB Banka, Sarajevo
NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd
(in EUR million and %)
31 December
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
Numerator
Total capital
174.5
188.4
66.5
70.1
63.0
68.9
74.9
98.2
44.7
46.1
54.4
81.1
Denominator
Total risk exposure
amount (Total RWA)
1,045.8
1,149.2
427.2
439.9
384.9
431.1
513.8
599.1
275.7
308.1
326.1
416.3
Total capital ratio
16.7%
16.4%
15.6%
15.9%
16.4%
16.0%
14.6%
16.4%
16.2%
15.0%
16.7%
19.5%
NLB Group Annual Report 2019
350
NLB Group Annual Report 2019 351
NLB Group Chart
NLB Group Annual Report 2019 Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
Banks
Financial institutions
Foreign countries
Slovenia
Companies
Slovenia
Bankart, Ljubljana
39.44%
39.44%
100%
100%
50%
50%
NLB Banka, Beograd
99.997%
99.997%
NLB Skladi, Ljubljana
NLB Vita****
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%
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, 5% SID banka d.d.
*** on 23 April 2019 SR-RE, Beograd was renamed to REAM, Beograd.
**** on 27 December 2019 the Sale Purchase Agreement for the 100% share in the company NLB Vita d.d., Ljubljana was signed.
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
100%
100%
NLB Leasing, Beograd
in liquidation
NLB Leasing, Podgorica
in liquidation
LHB AG, Frankfurt
Sophia Portfolio BV*
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
Companies
Slovenia
PRO-REM, Ljubljana
in liquidation
100%
100%
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
S-REAM d.o.o., Ljubljana
REAM, Zagreb
ARG-Nepremičnine, Horjul
100%
100%
100%
100%
100%
100%
100%
100%
75%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
REAM, Beograd***
REAM, Podgorica
SPV 2 DOO Beograd
NLB Srbija, Beograd
NLB Crna Gora, Podgorica
Foreign countries
Foreign countries
NLB Leasing, Sarajevo
Tara Hotel, Budva
Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
Banks
Financial institutions
Foreign countries
Slovenia
Companies
Slovenia
NLB Banka, Beograd
NLB Skladi, Ljubljana
Bankart, Ljubljana
39.44%
39.44%
NLB Banka, Sarajevo
NLB Vita****
100%
100%
50%
50%
99.997%
99.997%
97.35%
97.35%
99.83%
99.83%
81.21%
81.21%
99.85%
99.85%
86.97%
86.97%
NLB Banka, Podgorica
NLB Banka, Prishtina
NLB Banka, Banja Luka
NLB Banka, Skopje
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, 5% SID banka d.d.
*** on 23 April 2019 SR-RE, Beograd was renamed to REAM, Beograd.
**** on 27 December 2019 the Sale Purchase Agreement for the 100% share in the company NLB Vita d.d., Ljubljana was signed.
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
PRO-REM, Ljubljana
in liquidation
100%
100%
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
S-REAM d.o.o., Ljubljana
REAM, Zagreb
ARG-Nepremičnine, Horjul
100%
100%
100%
100%
100%
100%
100%
100%
75%
75%
Foreign countries
Foreign countries
NLB InterFinanz, Zürich
in liquidation
100%
100%
NLB InterFinanz, Beograd
in liquidation
100%
100%
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%
0%
0%
REAM, Beograd***
REAM, Podgorica
Tara Hotel, Budva
SPV 2 DOO Beograd
NLB Srbija, Beograd
NLB Crna Gora, Podgorica
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
354
Organisational
Structure of NLB
Supervisory Board
Management Board
Strategy and Business
Development
Legal and Secretariat
Communications
Human Resources and
Organization Development
CEO
Internal Audit
Worker’s council*
Compliance
and Integrity
Group Steering
CFO
CMO
COO
Group Real Estate
Asset Management
Sales Development and
Management
Innovation Management
and Business Analysis
Procurment and CREM
CSA & Cross-border Financing
Information System
Development
Evaluation and Control
Controlling
Large Corporates
Data Management
Financial Accounting
and Administration
Small and Mid Corporates
IT Infrastructure
Financial Markets
Trade Finance Services
Payments Processing
CRO
Global Risk
Credit Risk -
Corporate and Retail
Restructuring
Workout and
Legal Support
Investment Banking
and Custody
Private Banking
NLB Contact Centre
Sales Support
Distribution Network
Cash Processing
Treasury and Financial
Markets Processing
Corporate Banking
Processing
Retail Banking
Processing
Area Branch
Area Branch
Osrednjeslovenska - Jug
Dolenjska, Bela krajina in Posavje
Area Branch
Area Branch
Osrednjeslovenska - Sever
Primorska, Goriška in Notranjska
Area Branch
Domžale, Kamnik in Zasavje
Micro Enterprises
Area Branch
Savinjsko - Koroška
Mobile Banking
Area Branch
Podravsko - Pomurska
Distribution Network
Back Office
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-2).
* Worker's Council is independent organisational unit with no subordinate or
superior organisational units and it operates in accordance with ZSDU.
NLB Group Annual Report 2019
Supervisory Board
Management Board
Strategy and Business
Development
Legal and Secretariat
Communications
Human Resources and
Organization Development
CEO
Internal Audit
Worker’s council*
Compliance
and Integrity
Group Steering
CRO
Global Risk
Credit Risk -
Corporate and Retail
CFO
CMO
COO
Group Real Estate
Asset Management
Sales Development and
Management
Innovation Management
and Business Analysis
Procurment and CREM
CSA & Cross-border Financing
Information System
Development
Evaluation and Control
Controlling
Large Corporates
Data Management
Restructuring
Workout and
Legal Support
Financial Accounting
and Administration
Small and Mid Corporates
IT Infrastructure
Financial Markets
Trade Finance Services
Payments Processing
Investment Banking
and Custody
Private Banking
NLB Contact Centre
Sales Support
Distribution Network
Cash Processing
Treasury and Financial
Markets Processing
Corporate Banking
Processing
Retail Banking
Processing
Area Branch
Osrednjeslovenska - Jug
Area Branch
Dolenjska, Bela krajina in Posavje
Area Branch
Osrednjeslovenska - Sever
Area Branch
Primorska, Goriška in Notranjska
Area Branch
Domžale, Kamnik in Zasavje
Micro Enterprises
Area Branch
Savinjsko - Koroška
Mobile Banking
Area Branch
Podravsko - Pomurska
Distribution Network
Back Office
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-2).
* Worker's Council is independent organisational unit with no subordinate or
superior organisational units and it operates in accordance with ZSDU.
356
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
Northeast region
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel.: +386 1 724 54 75
Southwest region
Pristaniška ulica 45
6000 Koper, Slovenia
Tel.: +386 5 610 30 29
Podravsko-Pomurska region
Titova cesta 2
2000 Maribor, Slovenia
Tel.: +386 2 234 45 00
Savinjsko-Koroška region
Kocenova 1
3000 Celje, Slovenia
Tel.: +386 3 424 01 11
Innovative Entrepreneurship Centre
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 31 49
CSA & Cross-border Financing
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 26 18
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 Board21
Slovenian network
and Posavje Branch
Seidlova cesta 3
8000 Novo mesto, Slovenia
Tel: +386 7 339 14 56
Primorska, Goriška, and
Notranjska Branch
Pristaniška 45
6000 Koper, Slovenia
Tel: +386 5 610 30 10
Private Banking
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 23 66
Osrednjeslovenska - South Branch
Micro Enterprises
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 23 30
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 50 01
Osrednjeslovenska - North Branch
Mobile banking
Celovška 89
1000 Ljubljana, Slovenia
Tel: +386 1 476 57 02
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 44 39
Domžale, Kamnik, and Zasavje Branch
Small and Mid Corporates
Small Enterprises I
Trg republike 2
1000 Ljubljana, Slovenia
Tel.: +386 1 476 49 52
Small Enterprises II
Titova cesta 2
2000 Maribor, Slovenia
Tel.: +386 2 234 45 09
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel: +386 1 724 55 01
Savinjsko-Koroška Branch
Glavni trg 30
2380 Slovenj Gradec, Slovenia
Tel: +386 2 884 9150
Podravsko-Pomurska Branch
Titova cesta 2
2000 Maribor, Slovenia
Tel: +386 2 234 45 04
21. Till 31 January 2020.
NLB Group Annual Report 2019
357
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
Large Corporates
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 26 92
Members of NLB Group
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 Board22
Lavdim Koshutova, Member of
the Management Board
Ul. Koševo br. 3, 71000 Sarajevo - Centar
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 720 300
Fax: +387 35 302 802
E-mail: info@nlb.ba
www.nlb.ba
Lidija Žigić, President of the
Management Board
Denis Hasanić, Member of
the Management Board
Jure Peljhan, Member of the
Management Board
NLB Banka a.d., Belgrade
NLB Banka a.d. Banja Luka
NLB Leasing d.o.o., Ljubljana – v likvidaciji
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 Board23
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
22. Member till 1 January 2020; Gem Maloku, member
from 1 January.
23. Member till 1 January 2020; Peter Zelen, member
from 1 Januarry 2020; additionally, Igor Davchevski was
appointed as member from 1 January 2020.
NLB Group Annual Report 2019 358
NLB Leasing d.o.o. Sarajevo
Prvi faktor d.o.o. u likvidaciji, Zagreb
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
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
Hektorovičeva 2
10000 Zagreb, Croatia
Tel: +385 1 6165 000
Fax: +385 1 6176 629
E-mail: jure.hartman@prvifaktor.hr
Jure Hartman, 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
Prvi faktor d.o.o., v likvidaciji, Ljubljana
Beograd – u likvidaciji
NLB InterFinanz d.o.o.,
Slovenska cesta 17
1000 Ljubljana, Slovenia
Tel: +386 1 200 54 10
Fax: +386 1 200 54 30
E-mail: klemen.hauko@prvifaktor.si
Klemen Hauko, Liquidator
Prvi faktor – faktoring d.o.o.,
Beograd – u likvidaciji
Bulevar Mihajla Pupina 165 v
11070 Novi Beograd, Serbia
Tel: +381 11 222 54 00
Fax: +381 11 222 54 44
E-mail: zeljko.atanaskovic@prvifaktor.rs
Željko Atanasković, Liquidator
Prvi faktor d.o.o. u likvidaciji, Sarajevo
Mis Irbina 26/1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 61 066 055
E-mail: denan.bogdanic@prvifaktor.ba
Đenan Bogdanić, Liquidator
Bulevar Mihajla Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 11 22 25 350
Fax: +381 11 22 25 354
Vladan Tekić, Liquidator
NLB Vita d.d., Ljubljana
Trg republike 3
1000 Ljubljana, Slovenia
Tel: +386 1 476 58 00
Fax: +386 1 476 58 18
E-mail: info@nlbvita.si
www.nlbvita.si
Irena Prelog, President of the
Management Board
Tine Pust, Member of the
Management Board
(See NLB Group Chart chapter)
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, Director
Jure Kvaternik, Director
Rainer Schamberger, 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, president of
the Management Board
NLB Group Annual Report 2019 359
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 in liquidation
Puharjeva ulica 3
1000 Ljubljana, Slovenia
E-mail: info@nlbinterfinanz.ch
Marko Čelebić, Director
PRO-REM d.o.o., Ljubljana - v likvidaciji
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
(See NLB Group Chart chapter)
Hotel Tara d.o.o., Budva
Bulevar Džordža Vašingtona
102, Podgorica
81000 Podgorica, Montenegro
Tel: +382 20 675 900
E-mail: gligor.bojic@nlb.me
Gligor Bojić, Director
BH-RE d.o.o., Sarajevo
Ul. Danijela Ozme 2
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 789 345
Fax: +387 33 789 346
E-mail: info@nlbleasing.ba
Denis Silajdžić, 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: marko.celebic@nlb.me
Marko Čelebić, Executive Director
Barbara Šink, Authorised Representative
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., 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: julijana.milic@nlb.si
Lamija Hadžiosmanović, Director
Julijana Milić, Director
(See NLB Group Chart chapter.)
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
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
(See NLB Group Chart chapter)
NLB Group Annual Report 2019 360
Definitions and Glossary of Selected Terms
ALM
AML/CTF
Asset and Liability Management
Anti-Money Laundering and Counter-Terrorism Financing
Articles of Association
Articles of Association of the Bank
BiH
BMR
BoS
bps
BRRD 2
CAGR
CB
CBR
CEBS
CEE
CEO
CET1
CFO
CIR
CMO
COO
CRD
CRO
CRR
CSR
CVA
DGS
DSTI
EBA
EBRD
EC
ECB
EEA
EMU
EU
EVE
FDI
FVTPL
FX
GDP
GDPR
GDR
HR
IAS 39
ICAAP
Bosnia and Herzegovina
Benchmarks Regulation
Bank of Slovenia
Basis Points
Bank Recovery and Resolution Directive
Compound Annual Growth Rate
Central Bank
Combined Buffer Requirement
Committee of European Banking Supervisors
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
Debt Service-to-Income
European Banking Authority
European Bank for Reconstruction and Development
European Commission
European Central Bank
European Economic Area
Economic and Monetary Union of the European Union
European Union
Economic Value of Equity
Foreign Direct Investments
Fair Value Loans Through Profit or Loss
Foreign Exchange
Gross Domestic Product
General Data Protection Regulation
Global Depositary Receipts
Human Resources
International Accounting Standard 39
Internal Capital Adequacy Assessment Process
NLB Group Annual Report 2019 361
IFRS 9
ILAAP
KDD
KPI
LCR
LTD
M&A
MAR
MiFID II
MiFIR
MREL
International Financial Reporting Standard 9
Internal Liquidity Adequacy Assessment Process
Central Securities Clearing Corporation
Key Performance Indicator
Liquidity Coverage Ratio
Loan-to-Deposit Ratio
Mergers and Acquisitions
Market Abuse Regulation
Markets in Financial Instruments Directive
Markets in Financial Instruments Regulation Rules
Minimum Requirement of Own Funds and Eligible Liabilities
NLB or the Bank
NLB d.d.
NLB Skladi
NLB Assets Management
NPE
NPL
OCR
p.p.
POS
PSD2
REAM
ROA
ROE
RoS
RWA
SEE
SME
SREP
SRF
SSH
TCR
TLOF
TLTRO
TSCR
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
Republic of Slovenia
Risk Weighted Assets
South Eastern Europe
Small and Medium-sized Enterprises
Supervisory Review and Evaluation Process
Single Resolution Fund
Slovenian Sovereign Holding
Total Capital Ratio
Total Liabilities and Own Funds
Targeted Longer-Term Refinancing Operations
Total SREP Capital Requirement
The Group
NLB Group
UK
US
ZBan-2
ZGD-1
ZRPPB
ZTFI-1
ZVOP-2
€STR
United Kingdom
United States
Slovenian Banking Act
The Companies Act
The Resolution and Compulsory Winding-Up of Banks Act
Financial Instruments Market Act
The Slovenian Personal Data Protection Act
Euro Short-Term Rate
NLB Group Annual Report 2019 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
Copyright: NLB d.d., Ljubljana, Slovenia
Ljubljana, April 2020
MOBILE BANKERSPROFESSIONAL FLEXIBILITYEXCELLENCEREGIONAL PROJECTSEASY UP TO DATEKNOWLEDGEFLEXIBILITYBEST SERVICEREGIONAL PROJECTSB2BPURCHASE OF RECEIVABLESFINANCIAL ADVICEFINANCIAL LITERACY MOBILE BANKSPONSORSHIPECOLOGYGROWTHGOOD DEEDSNLB KLIKNLB KLIKGROWTHECOLOGYPROFESSIONALFINANCIAL LITERACY TRUSTB2BEASYBANK GUARANTEEMOBILE WALLET NLB PAY5.800+ EMPLOYEESDONATIONS DIGITALMENTORSHIPB2BB2CBEST SERVICEREGIONAL PROJECTSNLB TELEDOMDIGITAL SERVICESWIN-WINTRUST24/7ACCESSIBILITYREGIONAL PROJECTSPRIVATE BANKINGPURCHASE OF RECEIVABLESBANK GUARANTEEMOBILE WALLET NLB PAYKNOWLEDGEACCESSIBILITYCONSULTINGSTABILITYFLEXIBILITYDIGITAL SERVICESUP TO DATEMOBILE WALLET NLB PAYNLB TELEDOMKLIKINSARAJEVOBANK GUARANTEEPURCHASE OF RECEIVABLESR&DB2BGROWTHDIGITAL SERVICESSECURITYHEALTHFLEXIBILITYTRUSTSECURITY24/7B2BR&DWIN-WINPODGORICASECURITYBANJA LUKALJUBLJANAQUALITYBELGRADEPRISHTINA24/7327 BRANCHESREGIONAL PROJECTSBANK GUARANTEETRUSTKLIKINEASYCAREWIN-WINKLIKINSKOPJE