Nova Ljubljanska Banka
Annual Report 2023

Plain-text annual report

Building on advantages of our home court NLB Group Annual Report 2023 Contents OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . 3 NLB Group at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 BUSINESS REPORT . . . . . . . . . . . . . . . 29 Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 FINANCIAL REPORT . . . . . . . . . . . . . 183 NLB Group Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 Statement by the Management Board of NLB . . . . . . . . . 6 Funding Strategy, Capital, and MREL Compliance . . 32 Definitions and Glossary of Selected Terms . . . . . . . . . 371 Statement by the Chairman of the Supervisory Board of NLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Risk Factors and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Key Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Key Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Shareholder Structure and Market Performance of NLB’s Shares and GDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Macroeconomic Environment . . . . . . . . . . . . . . . . . . . . . . . . 20 Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Overview of Financial Performance . . . . . . . . . . . . . . . . . . 46 Segment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 IT and Cyber Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Compliance and Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Internal Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Corporate Governance Statements . . . . . . . . . . . . . . . . 128 Disclosure on Shares and Shareholders of NLB . . . . . 156 Events After the End of the 2023 Financial Year . . . . . 158 Reconciliation of Financial Statements in Business and Financial Part of the Report . . . . . . . 159 Alternative Performance Indicators . . . . . . . . . . . . . . . . 162 NLB Group Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Organisational Structure of NLB . . . . . . . . . . . . . . . . . . . . 182 2 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Report format The Annual Report in PDF format represents its unofficial version . The Annual Report Forward-looking statements The expectations, forecasts and statements regarding future developments that are in European Single Electronic Format (ESEF) is pursuant to Commission Delegated contained in this report are based on assumptions and are contingent on a number of Regulation (EU) 2019/815 and paragraph one of Article 134 of the Market in Financial factors that will come into play in the future . Consequently, the actual situation may turn Instruments Act (ZTFI-1) and represents its official version published on SEOnet . out to be different . Contents OVERVIEW 3 3 NLB Group NLB Group Annual Report Annual Report 2023 2023 Overview Overview MB Statement MB Statement SB Statement SB Statement Key Highlights Key Highlights Business Business Report Report Strategy Strategy Risk Factors & Risk Factors & Outlook Outlook Sustainability Sustainability Performance Performance Overview Overview Segment Analysis Segment Analysis Risk Management Risk Management Financial Financial Report Report Financial Report Financial Report Contents Contents NLB Group at a Glance Total assets Total capital Total operating income Number of active clients Employees 7 banks EUR 25,942 million EUR 3,109 million EUR 1,093 million more than 2 .8 million 7,982 with 418 branches Vision Our strategic focus Ratings The Group will take care of the financial needs of its clients and improve the quality of life in its home region – South-Eastern Europe. Sustainable banking • NLB has been a member of the UNEP FI Net-Zero Banking Alliance since May 2022 and published its first NLB Group Net-Zero Disclosure Report in December 2023. • Sustainalytics ESG Rating: 16.0 (improvement by 1.7 points vs. 2022, top 13% of all banks assessed) • Reduction of operational carbon footprint 2023 vs. 2022: -7.6% Be a REGIONAL CHAMPION Put CLIENTS FIRST GROW our market position Monetise OPPORTUNITIES AND SYNERGIES BBB 2023 BBB 2022 Stable investment grade rating from the S&P Global Ratings . Moody’s (unsolicited) long-term Credit rating at A3 with stable outlook . 4 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 5 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Antonio Argir Member Peter Andreas Burkhardt Member Blaž Brodnjak Chief executive officer Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Statement by the Management Board of NLB Esteemed Stakeholders, The most inspiring success stories are never only acquire and seamlessly consolidate and integrate carbon sustainable economy that will use resources written by great results, unique measures, or continuous winning streaks . They also consist of stumbles which are overcome by effort, perseverance, and resilience . Of many defeats, born in a dignified way . Of joy and businesses . Another very significant milestone for the Group was signing the sale and purchase agreement for Summit Leasing Slovenia in November . Subject to regulatory clearances, this transaction will boost NLB more efficiently . We are committed to making a positive contribution to this both through our operations and our business, thereby creating better footprints . satisfaction, when achieving the almost impossible . Group’s ambitions in the strategically important leasing We believe, however, that a positive contribution to And they are, above all, made up of indescribable segment, will build on the ambition of the Group to add society is also achieved with direct and decisive actions feelings of belonging, homecoming, and warmth when value for the shareholders, and provide the clients with whenever and wherever needed, which we have proven experiencing this on one’s home court . In NLB Group, we do business from our hearts and souls with and for our home region – and we live it every day . With this in mind, we made sure that 2023 was truly another year to remember – one in which NLB Group delivered an impressive set of results, yet at the same time continued to take responsible actions and with its strategic focus and business decisions laid the foundations for stable, profitable operations for years to come . All of this was accomplished in addition to our additional services and solutions . The latter of these by further generous support to key pillars of the regional ambitions will also be supplemented in the future by expanding the offer of asset management services of the Group, following a successfully concluded sale and purchase agreement of NLB Skladi to acquire a 100% society in the form of numerous sponsorships and donations that address the most pressing challenges of our societies, and in 2023 cumulatively amount to more than EUR 17 million . In June, the Group contributed shareholding in Generali Investments AD Skopje . over EUR 1 .35 million across its operational markets in In 2023, the Group continued to focus on enhancing our customers’ user experience, as well as recognising and addressing the needs of the economies in the region . In addition to others, NLB in Slovenia launched the the home region to support more than 30 associations, with selected recipients covering a variety of societal challenges such as childcare, assistance for socially vulnerable families, support for the elderly, and aid for employees facing constraints due to illness or accidents . donations and sponsorships to humanitarian, health, new mobile and web application, "NLB Klik," upgraded Moreover, the Group’s quick and effective response was cultural, sport, and other pillars of society to continue the Group’s mobile wallet "NLB Pay" with Google Pay, especially evident during the August floods in Slovenia: to create better footprints, and by that improving the launched the NLB Smart POS solution for micro and to eliminate the consequences of which the Bank quality of life in South-eastern Europe . small business segments, and continued digging donated a total of EUR 9 .5 million . A total EUR 4 million In a continuously uncertain operating environment regional infrastructure projects such as, the Krivača and sustainable reconstruction and investments; a solidarity with escalating geopolitical tensions, volatile financial Selac wind power-plants, the Sava Congress Centre in fund of EUR 0 .5 million was established for dozens of deeper into AI-driven data science . It supported large was allocated to the 20 most-affected municipalities for conditions, as well as ever-tightening regulatory Belgrade, and others . NLB’s impacted employees; and EUR 5 million was transferred to the budget of the Republic of Slovenia . controlled cost evolution, and benign asset quality reflected the strong credit and performance of NLB additional tax exceeding EUR 30 million annually for the requirements, the Group’s business model resilience remained one of the key distinguishing factors among the market participants . It provided for recurring solid performance that is characterised by robust revenues, trends, which when combined enabled NLB Group to reach EUR 550 .7 million of net income after tax, further strengthening market shares across geographies, client segments, and product lines . Among our key achievements in 2023, we should highlight the legal and operational merger of N Banka . This process was successfully completed in September, The Bank also successfully issued its first ever, green senior preferred notes, amounting to EUR 500 million . The four times oversubscribed transaction not only Furthermore, under the recently adopted reconstruction law, which also imposes a tax on banks’ total assets starting on 1 January 2024, NLB will be obliged to pay an Group, but also demonstrated that NLB has wide next five years . Combining donations and the respective access to capital markets, and confirmed our focus balance sheet tax, NLB will contribute over EUR 170 on sustainable development . This commitment was additionally reinforced by the publication of NLB Group’s first Net-Zero portfolio targets that outline our efforts and progress in aligning emissions with the Net-Zero pathways by 2050 or sooner, focusing on key sectors such as power generation, iron and steel, million for the recovery alone . The Group’s strong business results in 2023 translated into significant added value for our shareholders . NLB has delivered on its commitment, performing substantial dividend payments of EUR 110 million in two tranches in 2023, which was well on the path of fulfilling the ambition of achieving a total capital return within the envisaged timeframe and budget, as yet residential mortgages, and commercial real estate . In another indication of the Group’s proven capacity to NLB Group, we firmly support the transition to a low- 6 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents through robust cash dividends in a cumulative amount Yet ever stronger confidence of investors, analysts, and than EUR 1,000,000 at the beginning of 2024, confirming of EUR 500 million between 2022 and the end of 2025 . What is more, the business results of 2023 enabled us to significantly increase our future dividend payments by committing to at least 40% pay-out ratio of the previous markets in the NLB Group has already been reflected in the improved ratings . Moody’s first upgraded NLB’s long-term deposits rating from Baa1 to A3 with a stable appreciation of global investor base for the NLB’s equity story and consistent strong performance . outlook, and later upgraded NLB’s baseline credit All of these accomplishments fuel our motivation to years’ profit after tax . In 2024, this translates to EUR assessment (BCA) and adjusted BCA from ba1 to baa3 . even more enthusiastically address key opportunities 220 million in dividends, representing a 100% uptick Furthermore, the Group received a new ESG Risk Rating that lie ahead . We are fully aware that we can succeed from 2023, while at the same time maintaining capacity of 16 .0 by Sustainalytics, thus improving the previous at that only by continuously investing in talent – not the for organic and/or M&A driven growth . NLB Group rating by 1 .7 points . The improved rating ranks in the constantly monitors market conditions and analyses top 13 per cent among all banks rated by the firm . All potential opportunities for meaningful and value of this was especially noticeable in a year of the fifth accretive acquisitions to further strengthen our position anniversary of the NLB shares listing on the Ljubljana least because of this we have in 2023, for the eighth year in a row, been awarded the renowned Top Employer certificate for the best employers, underscoring our focus on their learning and development . We are taking in target markets . Stock Exchange, and of global share certificates at lessons from sports and a sports mindset, as we believe To compliment a strengthened dividend pay-out in December 2023, the Group kicked-off the new mid-term business strategy defining process, thereby laying the foundations for successful operations and added value for all its stakeholders in the future . The details of future the London Stock Exchange, as well as the NLB stock that this spirit is the main ingredient our economies and reaching record valuations . Since the IPO, the share businesses need to succeed on the global stage . We are price increased from EUR 51 .5 to EUR 85 .0 at the end finding inspiration in the effort, dedication, successes, of 2023, bringing investors 65% price return and more and triumphs of athletes and in the dignity with which than 128% total return (including dividends), bringing annual return in excess of 17% . At the beginning of the they recover from setbacks . And we feel a deep sense of pride when we see that our efforts contribute to a strategic priorities and ambitions of the Group will be year 2024, share price exceeded EUR 100 and thus better quality of life in our home region . We are, last disclosed at the upcoming Investor Day on 9 May 2024, brought investors in the IPO more than 100% price but not least, building our success on our home court in Ljubljana . return . Trading with shares and GDRs has in the past advantage . And we are confident that the best for our year materially improved, from combined average daily NLB Group is yet to come . liquidity around EUR 500,000 in 2020 and 2021 to more Yours truly, Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer 7 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Statement by the Chairman of the Supervisory Board of NLB Primož Karpe Chairman of NLB Supervisory Board Dear shareholders, esteemed clients, valued employees and other interested stakeholders, You will probably agree with the statement that the year balance sheet, transactions, and distribution . This brings Out of the top five revenue pools for the banking sector, 2023 has been transformational from a typical bank us to the main question: where is our NLB Group on this carefully underwritten retail and corporate lending shareholder mindset perspective . Banks, in general, transition path? have generated record profits following the steepest remain at the core of our activities . However, the two other "growing revenue pools" are also particularly and fastest rate hike in the eurozone history . Taken At the Supervisory Board, our mindset strongly supports interesting for the Group going forward: wealth & asset as a whole, both 2022 and 2023 have been the years the Bank’s future strategy in a way that unlocks management and payments (of NLB Group members) of banks’ profitability evolution bonanza, but (and shareholder value . Namely, the banking valuation gap with all their sub-segments . Unlike balance sheet it’s worth emphasising that "but") with considerable highlights a need for our business model to evolve conditioned growth in lending and deposit-taking variation between banks, riding the tailwind . The time alongside the three key pillars mentioned above . If the (the balance sheet factor), where our commitment to has come to talk about value creation that a sustainable capital markets, on average, expect long-term average organic and inorganic growth remains intact, wealth banking business model can generate going forward ROE of banks will level down or be slightly above and asset management and payments/transactions are and to consider it with a different mindset . (or even below) the cost of equity, where then is this off-balance sheet-driven . The two segments also stand As the McKinsey annual review of the sector1 points out, regardless of what happens next, including cycle change "unlocking factor" that can persuade investors there out as the largest value creation and total shareholder is indeed a way to a long-term sustainable and highly return generating sub-sectors across the financial profitable growth of NLB Group, with less dependency institutions’ universe over the last decade . 8 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report and rate spread "normalisation", the banking transition on cycle steering? is very real, large, and tangible . And I couldn’t agree more; it has been affecting three key banking pillars: the 1 McKinsey & Co: The Global Banking Annual Review 2023; The Great Banking Transition; October 2023. It is easy to notice that the growth of off-balance sheet funds (retail AUM, pension funds money, private debt Contents and equity, insurance assets under management) have depends on the market characteristics of the retail bank mobility being a good example) are consolidating their been surpassing on-balance sheet growth over the last clientele . We have already created an omnichannel value propositions, and we want to be part of it . While decade as the source of funding for investments in the experience where branch and contact centre embedded finance’s long-term prospects may look real economy . Even our core SEE region is not immune professionals have the tools to support customers at appealing, some already market-proven best practices to this . And I think NLB Group can hop on this trajectory any stage of the sales journey . But, there is a dire need offer attractive scaling options, for example in insurance of growth . Our growth (both geographic and organic) in to invest more into the most advanced technology and and point-of-sale lending . And we are looking to be the asset & wealth management market share proves apply it to segments like credit-risk decisioning in real there as well . While we still cling to multiple distribution that, and our adopted payments strategy focus ads time, back-end processes that drive clients through channels, removing this silos logic over the mid-term into further rationale to the above . self-servicing, and well-designed digital workflows, a more streamlined approach offers us new opportunities all backed by logically designed data warehouse for performance improvements . Transaction volumes have, over a more extended period, architecture . Nevertheless, as we all know, the deeper we also been moving to non-traditional players and are dive into the digital world, the stronger our cyber security Hence, if the transition of the banking model is an no longer solely in the domain of banks . Banks have defences need to be, addressing the plethora of cyber undisputed fact of the present and the future, your NLB been selling and spinning off operations or acquiring risks all banks are exposed to . Therefore, our cyber Group is committed to making it happen . Deploying its them, in line with their strategies, to either gain scale security investment focus must always stay at the top of capital prudently and strictly in line with our RORAC- or rationalize . This includes payment processing our minds . Since the distribution channels of NLB Group driven profitability signalling system . companies, wealth and asset managers, etc . Again, allow for further development, there is ample room and NLB Group, with its payment and transaction-focused ambition (coupled with its co-ownership of payment opportunity for improvements in their utilisation, allowing for an even more embedded finance approach . Still, only by relentlessly pursuing excellence will we be able to approach it, enabling ourselves to continue processing) and regional wealth and asset management giving back to all our key constituencies to whom we ambition, can ride this trend . The demand for embedded finance (embedding financial owe all this: to our shareholders, to our employees, products into non-financial platforms or vice versa) is to our wider society (in the widest ESG sense) and of Finally, the distribution is moving increasingly from also growing . "Traditional" embedded finance ecosystems course, to our clients . omnichannel to mobile-only channels, although that such as retail and B2C marketplaces (car leasing/ Yours truly, Supervisory Board of NLB Primož Karpe Chairman 9 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents We are building our success on the home court advantage . NLB Banka, Banja Luka Market share by total assets Result after tax 10 Total assets Active clients NLB, Ljubljana Market share by total assets Result after tax Total assets Active clients 30 .2% 514 (in EUR millions) 16,015 (in EUR millions) 719,708 NLB Lease&Go, Ljubljana Market share by total assets(ii) Result after tax Total assets Net loans to customers 10 .1% 2 (in EUR milliions) 283 (in EUR millions) 257 (in EUR milliions) NLB Skladi, Ljubljana Market share Result by total assets (i) after tax Assets under management 39 .6% 9 (in EUR milliions) 2,360 (in EUR milliions) NLB Banka, Sarajevo Result Market share after tax by total assets Total assets Active clients 6 .2% 13 (in EUR milliions) 917 (in EUR millions) 133,567 (i) Market share of assets under management (AuM) in mutual funds. (ii) Market share of leasing portfolio. NLB Banka, Podgorica Result Market share after tax by total assets Total assets Active clients For further information on NLB Group subsidiaries, please refer to the chapter Segment Analysis . 14 .4% 27 (in EUR milliions) 971 (in EUR millions) 93,873 20 .4% 24 (in EUR milliions) 1,041 (in EUR millions) 210,985 NLB Komercijalna Banka, Beograd Market share by total assets Result after tax Total assets Active clients 9 .9% 132 (in EUR milliions) 5,019 (in EUR millions) 1,060,357 NLB Lease&Go Leasing, Beograd Market share by total assets Result after tax Total assets Net loans to customers 5 .1% -1 (in EUR milliions) 71 (in EUR millions) 69 (in EUR milliions) NLB Banka, Prishtina Result Market share after tax by total assets Total assets Active clients 16 .9% 36 (in EUR milliions) 1,230 (in EUR millions) 230,418 NLB Banka, Skopje Market share by total assets Result after tax Total assets Active clients 15 .6% 45 (in EUR milliions) 1,902 (in EUR millions) 407,635 NLB Lease&Go, Skopje Market share by total assets Result after tax Total assets Net loans to customers n .a . -1 (in EUR milliions) 10 (in EUR millions) 9 (in EUR milliions) Key Highlights Built on foundations for strong performance Profit a .t . (in EUR millions) 204 194 270 138 NGW(i) KB 236 551 447 173 NGW(i) N Banka 2018 2019 2020 2021 2022 2023 (i) NGW = negative goodwill = gains from bargain purchase Net interest income Gross loans to customers Non-performing loans (NPLs) 833 7,627 7,938 10,033 1,877 KB 14,064 622 13,397 954 N Banka 10,903 475 375 367 328 301 313 318 300 505 409 11 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 2018 2019 2020 2021 2022 2023 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 Contents Empowering growth through strong capital, delivering significantly higher shareholder returns, underpinned by solid asset quality trends Capital MREL TCR MREL ratio 20 .3% 40 .2% vs. 15.5% vs. 34.99% Asset quality cost of risk -7 bps requirement (incl. P2G) requirement Dividend pay-out in 2024 EUR MREL funding (stock) EUR NPL ratio 220million 1,556 million which represents a 40% pay-out ratio of the 2023 profit MREL funding in 2023: EUR 540 million 1 .5% (internal definition) 12 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Key Performance Indicators Table 1: Key financial indicators for NLB Group and NLB NLB Group NLB Income statement data (in EUR millions) Net interest income Net non-interest income Net non-interest income (BoS) Total costs Operating costs (BoS) Result before impairments and provisions(i) 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 millions) Total assets Gross loans to customers Impairments and valuations of loans to customer 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 CET1 ratio Total RWA (in EUR millions) RWA / Total assets b) Asset quality 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)(ii) NPL coverage ratio (EBA definition) (BoS)(iii) NPL volume (in EUR millions) NPL ratio (internal def .; NPL/ Total loans) Net NPL ratio (internal def .; net NPL / Total net loans) NPL ratio (EBA definition)(ii) NPL ratio (EBA definition) (BoS)(iii) NPE ratio (EBA definition) NPE ratio (EBA definition) (BoS)(iv) 2023 833 260 300 -502 -541 591 -14 1 578 13 551 25,942 14,064 -329 13,735 4,804 20,733 2,883 65 6,301 20 .3% 16 .9% 16 .4% 15,337 59 .1% 110 .0% 64 .6% 65 .6% 65 .6% 301 1 .5% 0 .5% 2 .1% 1 .5% 1 .1% 1 .1% 2022 505 294 503 -460 -496 338 -29 1 483 11 447 24,160 13,397 -324 13,073 4,877 20,028 2,366 57 5,449 19 .2% 15 .7% 15 .1% 14,653 60 .6% 98 .9% 57 .1% 58 .1% 58 .1% 328 1 .8% 0 .8% 2 .4% 1 .8% 1 .3% 1 .3% 2021 409 258 294 -415 -451 252 9 1 261 11 236 21,577 10,903 -316 10,587 5,208 17,641 2,079 137 4,655 17 .8% 15 .5% 15 .5% 12,667 58 .7% 86 .1% 57 .9% 58 .4% 58 .4% 367 2 .4% 1 .0% 3 .4% 2 .4% 1 .7% 1 .7% 2023 373 266 277 -238 -249 401 78 - 479 - 514 16,015 7,277 -121 7,156 3,016 11,882 2,249 - 5,291 25 .2% 19 .7% 18 .8% 9,207 57 .5% 87 .9% 61 .2% 61 .4% 61 .4% 138 1 .2% 0 .5% 1 .9% 1 .2% 0 .9% 0 .9% 2022 177 189 199 -208 -218 158 6 - 164 - 160 13,939 6,157 -95 6,062 2,961 10,984 1,603 - 4,046 25 .6% 19 .1% 18 .1% 7,833 56 .2% 86 .1% 58 .1% 58 .2% 58 .2% 111 1 .1% 0 .5% 1 .7% 1 .1% 0 .9% 0 .9% 2021 139 222 232 -184 -193 178 34 - 211 - 208 12,700 5,250 -97 5,153 3,034 9,660 1,552 - 3,489 24 .6% 20 .3% 20 .3% 6,709 52 .8% 75 .1% 60 .6% 60 .8% 60 .8% 130 1 .5% 0 .6% 2 .4% 1 .5% 1 .1% 1 .1% 13 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Received collaterals / NPL NPL Collateral received / NPL (EBA definition) Credit impairments and provisions / RWA c) Profitability Net interest margin (BoS)(v) Financial intermediation margin (BoS) Operational business margin(vi) ROE b .t . ROA b .t . ROE a .t . ROA a .t . d) Business costs Operating costs / Average total assets (BoS) 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 Liquidity Coverage Ratio (LCR) Net stable funding ratio (NSFR) f) Leverage ratio Leverage ratio g) Other Market share in terms of total assets LTD Total revenues / RWA Key indicators per share Shareholders(vii) Shares The corresponding value of one share (in EUR) Book value (in EUR) Branches Number of branches Employees Number of employees International credit ratings S&P Fitch Moody’s(viii) NLB Group NLB 2023 58 .1% 45 .6% -0 .1% 3 .4% 4 .6% 4 .8% 21 .6% 2 .3% 21 .0% 2 .2% 2 .2% 45 .9% 3 .3% 1 .9% 51 .9% 41 .0% 245 .7% 187 .3% 9 .6% - 66 .2% 7 .1% - - - 139 .9 418 7,982 2022 61 .0% 54 .7% 0 .1% 2 .2% 4 .4% 3 .6% 20 .6% 2 .1% 19 .9% 1 .9% 2 .2% 57 .6% 3 .1% 1 .9% 48 .5% 40 .7% 220 .3% 183 .0% 9 .1% - 65 .3% 5 .4% - - - 114 .1 440 8,228 2021 61 .7% 58 .8% -0 .3% 2 .0% 3 .4% 3 .3% 11 .8% 1 .3% 11 .4% 1 .1% 2 .2% 62 .3% 3 .3% 1 .9% 48 .9% 40 .2% 252 .6% 185 .2% 10 .2% - 60 .0% 5 .3% - - - 103 .9 479 8,185 2023 58 .7% 67 .1% 0 .0% 2 .5% 4 .4% 3 .7% 26 .0% 3 .3% 27 .9% 3 .5% 1 .7% 37 .3% 2 .6% 1 .5% 66 .5% 51 .5% 299 .7% 175 .0% 10 .9% 30 .2% 60 .2% 6 .9% 3,457 2022 58 .4% 75 .6% 0 .2% 1 .3% 2 .9% 2 .5% 10 .5% 1 .2% 10 .2% 1 .2% 1 .7% 56 .8% 2 .7% 1 .5% 61 .8% 49 .8% 276 .5% 177 .6% 10 .3% 27 .6% 55 .2% 4 .7% 3,025 2021 60 .0% 63 .1% -0 .4% 1 .2% 3 .1% 2 .3% 14 .0% 1 .8% 13 .8% 1 .8% 1 .6% 50 .8% 2 .7% 1 .4% 59 .4% 47 .4% 314 .5% 171 .4% 13 .6% 26 .3% 53 .3% 5 .4% 2,571 20,000,000 20,000,000 20,000,000 10 108 .3 68 2,554 10 75 .9 71 10 77 .6 75 2,418 2,510 NLB Rating 2023 NLB Rating 2022 NLB Rating 2021 NLB Outlook 2023 NLB Outlook 2022 NLB Outlook 2021 BBB - A3 BBB - Baa1 BBB- - Baa1 Stable - Stable Stable - Stable Stable - Stable Further details on the definition of certain indicators in this table are available in the chapter Alternative Performance Indicators. (i) The result before impairments and provisions of NLB Group for the year 2022 does not include negative goodwill. (ii) Loans and advances without loans and advances classified as held for sale, cash balances at central banks, and other demand deposits. (iii) Loans and advances including cash balances at CBs and other demand deposits. (iv) The carrying amount of debt instruments measured at fair value through other comprehensive income (FVOCI) is increased by value adjustments due to impairments. (v) Calculated on the basis of average total assets. (vi) Calculated as Net income from operational business (NII - Tier 2 expenses + Net fee and commission income + Recurring net income from financial operations)/Average total assets. (vii) As per share register of Central Securities Clearing Corporation (KDD). The shares are listed on Ljubljana Stock Exchange. The Bank of New York Mellon (the 'GDR Depositary') represented in the share register of KDD as a single holder is not the beneficial owner of shares, it holds shares in its capacity as the depositary for the GDR holders. The GDRs representing shares are issued against the deposit of shares and are listed on London Stock Exchange. Therefore, the number in the share register of KDD does not represent all final beneficial owners of the Bank shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the general meeting of Bank's shareholders or to exercise any voting rights under the deposited shares. (viii) Unsolicited rating. 14 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Key Events April Agreement on acquisition of N Banka submitted to the court registry June Issue of Green Senior Preferred Notes Dividend payment November Acquisition of Summit Leasing & Generali Investment Skopje Improved ESG Risk rating September N Banka legal & operational merger January "Top Employer" certificate February Moody’s rating upgrade May Announcement of MREL requirement August Donations for those affected by floods in Slovenia March Slovenia’s Best Private Bank for High Net Worth Individuals October First Bankarium commemorative banknote December Prime Market Share of the Year Dividend payment Additional flood relief donations 15 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents January · "Top Employer" certificate: The Top Employers Institute awarded the Bank the prestigious "Top Employer" certificate for the 8th consecutive year . · Best Indoor Experience 2023: Bankarium was awarded the Best Indoor Experience 2023 award in the In Your Pocket Ljubljana competition . February · Rating upgrade: Credit rating agency Moody’s upgraded NLB’s long-term deposit rating to A3 from Baa1 . March · USA regional banks & Credit Suisse turmoil: The collapse of two regional banks in the USA, Silicon · New members of the Supervisory Board: The General Meeting appointed four members, two of whom were members before – Shrenik Dhirajlal Davda and Mark November · Acquisition of Summit Leasing: The Bank signed SPA for 100% shareholding in Summit Leasing Slovenija William Lane Richards, and two new members – Cvetka and its subsidiaries . Selšek and André-Marc Prudent-Toccanier, all for four- year terms . · Green Senior Preferred Notes: The Bank debuted in issuing green senior preferred notes amounting to EUR 500 million with a maturity of 4NC3, counting towards · Acquisition of Generali Investment AD Skopje: NLB Skladi signed SPA for acquiring a majority shareholding in Generali Investments AD Skopje . · ESG Risk Rating: The NLB Group significantly improved Sustainalytics ESG Risk Rating to 16 .0 . meeting the MREL requirement . · Donations to various associations, humanitarian organisations and groups: The Bank donated EUR 1 .35 million to more than 30 recipients from the SEE region December · Dividend payment: The Bank paid the dividends (the second tranche) of EUR 55 million or EUR 2 .75 gross per in the area of childcare, socially vulnerable families, care for the elderly and employees who might be in Valley Bank and Signature Bank, impacted Europe need due to illness or accident . as it put European banks under much stress . Swiss financial regulators engineered an emergency rescue plan for Credit Suisse with the UBS Group AG buying Credit Suisse . As of 31 March 2023, the Group has only a small exposure to Credit Suisse, derived mainly from a limited bond investment . From a liquidity point of view, no material deviations from the normal intra-monthly August · ECB’s licence for N Banka merger: On 3 August 2023, NLB received the authorisation of the ECB for the merger of N Banka . · Measures taken regarding the floods in Slovenia: To help alleviate the effects of the floods that affected a deposit dynamics were identified at the Group level as part of Slovenia, the Bank introduced systemic steps, share . · Prime Market Share of the Year: Ljubljana Stock Exchange awarded NLB Bank for Prime Market Share of the Year . · the! Award: NLB received three awards from the Croatian Public Relations Association: gold for the NLB Investor Day, silver for the NLB Frame of Help and bronze for the communication support of the N Banka acquisition . · New SREP requirement: A new SREP decision for NLB Group under which Pillar 2 Requirement has been a result of the turmoil . including a donation of EUR 4 million for sustainable reduced from 2 .40% to 2 .12% while Pillar 2 guidance · Slovenia’s Best Private Bank for High Net Worth Individuals: Euromoney awarded NLB as part of the global private banking awards in 2023 . April · Acquisition: The agreement concluded on 16 November 2022 between the acquiring company NLB and the reconstruction to the most afflicted municipalities . remains at 1 .00% . The new SREP decision shall apply The Bank also provided solidarity aid to its affected employees . In addition, NLB Banka, Skopje donated EUR 60,000 to the Slovenian Red Cross and other as of 1 January 2024 . · MREL requirement: NLB received the decision of the Bank of Slovenia on the MREL requirement . Starting organisations to support flood relief efforts . As a part 1 January 2024, NLB must comply with 30 .66% TREA of risk management, the Bank has been enhancing (excluding CBR) and 10 .69% LRE at the NLB Resolution its existing flood risk assessment model based on acquired company N Banka was submitted to the flood risk zones to minimise future negative impacts of District Court of Ljubljana court registry . similar events . May · New MREL requirement: From 1 January 2024, the MREL requirement to be met by the Bank on a September · N Banka legal and operational merger: On 1 September, the legal and operational merger Group level . · Employer Brand Awards Adria 2023: NLB received two awards at Best Employer Brand Awards Adria 2023: Best Employer Brand – Banking Sector and Integration of Corporate and Employer Brand . · Additional donations for flood relief: NLB donated an additional EUR 5 million to the Budget of the Republic consolidated basis at the resolution group level shall be between N Banka and NLB was successfully completed of Slovenia to a particular budget line to raise funds to 30 .99% of the Total Risk Exposure Amount, excluding 18 months after having been acquired by NLB within applicable CBR and 10 .39% of the Leverage Ratio the envisaged budget and timeframe . Exposure . June · Dividend payment: The Bank paid the dividends October · First Bankarium commemorative banknote: The Bankarium commemorative banknote was presented to recover the consequences of the August floods . · First NLB Group Net-Zero disclosure report: The Bank released the first comprehensive overview of efforts and progress to achieve net-zero emissions by 2050 or sooner . (the first tranche) of EUR 55 million, or EUR 2 .75 gross the public . per share . 16 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Shareholder Structure and Market Performance of NLB’s Shares and GDRs 21 .97% Other shareholders 25% + 1 share Republic of Slovenia 53 .03% Shares in GDR format(i) (i) Bank of New York Mellon on behalf of the GDR holders GDR holders with shares >5% and <10%: - EBRD - Schroders plc Shareholder Structure of NLB The Bank’s 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 NLB share . Table 2: NLB’s main shareholders as at 31 December 2023(i) Shareholder Bank of New York Mellon on behalf of the GDR holders(ii) of which EBRD(iii) of which Schroders plc(iii)(iv) Republic of Slovenia (RoS) Other shareholders Total Number of shares Percentage of shares 10,605,146 53 .03 / / >5 and <10 >5 and <10 5,000,001 4,394,853 25 .00 21 .97 20,000,000 100.00 17 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report (i) This information is sourced from the NLB’s shareholders’ book that is accessible at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) and available to CSD members. The information on major holdings is based on self-declarations by individual holders pursuant to the applicable provisions of Slovenian legislation, which require 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 on this obligation vested with the holders of major holdings, the Bank postulates that no other entities nor any natural person hold directly and/or indirectly ten or more percent of the Bank’s shares. (ii) 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 shareholders’ meeting or exercise any voting rights under the deposited shares. (iii) The information on GDR ownership is based on self-declarations by individual GDR holders as required pursuant to the applicable provisions of Slovenian law. (iv) Further information is available in the chapter Events After the End of the 2023 Financial Year. Contents Market Performance of NLB’s Shares and GDRs Rebased to January 2023, the European banking stocks index gained 11% . It started the year positively, only to fall to the lowest in March as investors were probably spooked by the still elevated inflation and increasingly faltering demand (for loans), as the CB hiked rates (10 times) in a historic campaign . The price fluctuated mildly but with a growing trend up until November . Not surprisingly, the index closed the remainder of the year with a strong performance, reaching its highest price at the close of the year after Q3 results indicated a solid and lucrative year for the banks that had net interest income registering high growth . The effect was further enhanced by the fact that the liability side of the balance sheet reacted with a notable lag in scope . Hence, the index gained 11% in 2023, outperforming the European stock index, which was short of achieving 8% in 2023 . It similarly fell in value in March and rebounded to a volatile period, ending with the lowest price in November to finish the year strong . It also reached the Ljubljana Stock Exchange awarded NLB as Prime Market Share of the Year Expanded Analyst Coverage of NLB by HSBC and PKO BP, and first credit rating by Bank of America highest price at the close of the year (bringing forth notable effects of disinflation) . The SBI index’s lowest price was seen at the start of the year . From there it grew to reach the highest price of the year at the end of July only to experience a fall in August . It finished the year with a growing trend, reaching growth north of 18% in the year 2023 . The price of the Bank’s stock grew rather steadily until August, from where the price stagnated until mid- November, to finish the year strongly (the price was the highest in mid-December), due to a similar mix of factors as described two paragraphs above . In 2023, the price of the bank’s stock grew by 36%, outperforming the SBI index and European STOXX 600 for banks . Figure 1: NLB share price movements on the Ljubljana Stock Exchange and NLB GDR price movement on the London Stock Exchange (in EUR) GDR 18.00 17.00 16.00 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 Ja n 2 0 23 Fe b 2 0 23 M ar 2 0 23 A pr 2 0 23 M ay 2 0 23 Ju n 2 0 23 Jul 2 0 23 A u g 2 0 23 Se p 2 0 23 O ct 2 0 23 N ov 2 0 23 D ec 2 0 23 Shares 90.00 85.00 80.00 75.00 70.00 65.00 60.00 18 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Shares (NLBR) GDR (NLB) Source: Ljubljana Stock Exchange, Bloomberg. Contents EUR 600,000 in combined average regular trading volume per day (excluding block trades) In addition, in December 2023, the Ljubljana Stock Exchange awarded Bank shares (ticker "NLBR") the "Prime Market Share of the Year" accolade . IR presentations, financial reports, and important information are available on the Bank’s website in line with IR’s Financial Calendar . NLB Shares and GDRs Table 3: NLB share information Share information Total number of shares issued Highest closing price (in 2023) Lowest closing price (in 2023) Closing price as at 29 December 2023(i) 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(i) (i) No market on 30 and 31 December 2023. 31 Dec 2023 20,000,000 EUR 86 .0 EUR 62 .0 EUR 85 .0 EUR 139 .9 EUR 27 .5 0 .61 EUR 5 .5 EUR 1,700,000,000 Indices The Bank’s shares are included in several indices: the SBITOP index, SBITOP TR index, and ADRIA prime index The Investor Relations Function of the Ljubljana Stock Exchange, FTSE Frontier Index, The Bank participated in various forms of engagement, MSCI Frontier, and MSCI Slovenia, S&P Eastern Europe such as investor meetings, calls, conferences, and BMI, S&P Emerging Frontier Super Composite BMI, S&P roadshows to meet the requirements of the Bank’s Extended Frontier 150, S&P Frontier BMI, S&P Frontier ownership . Transparent communication with investors Ex-GCC BMI, S&P Slovenia BMI, as well as the STOXX and analysts allowed for a dialogue on strategic All Europe Total Market, STOXX Balkan Total Market, developments, as well as on the financial performance STOXX Balkan Total Market ex-Greece & Turkey, STOXX of the Group . The Bank promoted greater awareness EU Enlarged Total Market, STOXX Eastern Europe 300, and understanding of operating businesses, STOXX Eastern Europe 300 Banks, STOXX Eastern developments, and events, which influence the Europe Large 100, STOXX Eastern Europe Total Market, performance of the Bank's share price . The performance STOXX Eastern Europe Total Market Small, STOXX of the Bank is covered by analysts from EFG Hermes, Global Total Market, and STOXX Slovenia Total Market, JP Morgan, Deutsche Bank, Wood & Company, Citi, among others . InterCapital, Raiffeisen Bank International, HSBC, PKO BP, and Ilirika BPH . Throughout 2023, the Bank participated in more than 10 conferences, organised earnings calls, conducted six non-deal roadshows for equity and for fixed- income investors, and met 160+ investors on 200+ investor interactions . Those meetings covered various topics, including governance (including remuneration), sustainability, digitalisation, strategy, and finance . In 2023, the Bank received its first credit rating from Bank of America, expanding analysts’ coverage beyond equity research and helping the Bank with capital markets activities . Additionally, the analysts from HSBC and PKO BP initiated coverage on the NLB in 2023, leading to 10 covering equity analysts . Share price growth in 2023 above 36% 19 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Macroeconomic Environment In 2023, the growth in the Euro area was weak, as the economic environment was affected by tighter financial conditions, lower aggregate demand, and an insufficient credit supply . Weak foreign demand and receding fiscal support hampered activity . Conflicts in Palestine and the Middle East added to the rise of uncertainty . The global and European economy The 2020s are turning into an inactive decade for the global economy as stagnation, loss of purchasing power, depleted savings, and high interest rates plague the growth outlook . The unresolved conflict in Ukraine and additional Israel-Palestinian hostilities since October 2023 have contributed to uncertainty . Freight rates, initially declining since the Suez Canal obstruction in 2021, were under pressure again as alternative routes had to be employed as Houthi attacks blocked the Red Sea trade route . While the global economy is in a better place concerning the recession risk than last year, developing countries still feel the strain of slow growth, deteriorating global trade, expensive borrowing, and very tight financial conditions that are further aggravated by elevated food prices . The global economy expanded slowly in 2023, predominantly driven by a solid year for the US economy and emerging markets, which were led by China . Private consumption supported by tight labour markets proved to be the growth driver for the world economy . This has been a pleasant surprise despite the CBs’ substantial tightening of the monetary policy . US economic growth in 2023 was relatively resilient . Still, the tighter monetary policy has already shown signs of hampered spending, and the unemployment rate rose by 0 .4 p .p . within a year, which is a considerable jump in a short amount of time . Credit card debt has already been growing, and retail sales data suggests consumers slowed purchasing in Q4 2023 . The personal saving rate has been declining since May and has been low historically . In China, economic activity stabilised after the reopening, despite weakness in the real estate sector towards the year’s end, as it represents a noticeable portion of Chinese GDP and could affect the rest of world economies . A trend akin to the Western economies, which is becoming increasingly evident, the increasing debt levels are directly muting China’s growth . In the Euro area, a recession was avoided, but YoY GDP growth was on a clear downward path throughout the year, with marginal growth in Q1 and Q2, and stagnation in Q3 and Q4 . The export of goods started the year strong in Q1, but soon soured after that, remaining in contraction for the remainder of the year in YoY terms due to weak external demand . Imports grew initially, but contracted from March to September when they bottomed up, pointing towards a pent-up 1 .6%economic growth in Slovenia in 2023 demand (for foreign goods) and shrinking inventories . Moreover, recent ECB data on year-end wage HICP inflation started the year in the double-digit negotiations suggests persistent future high wage territory, nearing the mandated goal by year-end pressures with no indication of a peak . Though subdued which was driven by the disinflationary momentum . for most of the year, consumer confidence slightly Core inflation, though slower to decrease, followed a improved in the closing quarter . However, ESI and its similar downward trend . Services prices rose noticeably sub-indicators showed signs of bottoming out in the last until August, then started declining due to retreating two months of 2023 . The unemployment rate changed demand . Food maintained significant pressure on price slightly in 2023, staying tight in historical comparison . levels, resisting the disinflationary trend . Energy had a noticeable deflationary effect, especially in the last In 2023, the FED raised its target range from 4 .25%– quarter, primarily due to the base effect . Industrial 4 .50% to 25 bps to 5 .25%–5 .50% (by four 25 bps hikes) production lost the previous year’s momentum in and stayed there from July until the end of the year . March and contracted until the final quarter as foreign Despite December minutes suggesting reduced inflation and domestic demand weakened . The composite risks, concerns persisted, especially in housing and PMI contracted after May services PMI outperformed non-housing services . The year-end data in labour manufacturing PMI . Retail trade as a proxy for demand markets, consumer demand, and the housing market, showed negative momentum (YoY) throughout 2023, and supported the FED’s cautious approach to easing was influenced by higher interest rates and consumer monetary policy . The ECB finished its historic campaign spending cutbacks . ECB’s private consumption metric of 10-rate hikes in September 2023, bringing the deposit stagnated in the first half of 2023, then experienced a facility rate to 4 .0% . Since then, the ECB has stuck to the mild uptick in Q3 that was still below the peak in Q3 "higher for longer" narrative to support its intention to 2022 . Negotiated wages and gross disposable income keep the rates there until inflation declines towards the rose, improving for most countries of the Euro area mandated goal . Bond yields dropped in the last quarter, (in the same comparison), suggesting a consumer causing a price increase when the ECB was winding preference for saving over spending, which was down PEPP . At the end of 2023, the ECB urged banks to confirmed by the increase in the household saving rate, prepare for more delinquencies, unpaid loans, and surpassing the 2022 levels . elevated liquidity risk . Also, it failed to disclose the quantity and pace of potential cuts in 2024, most 20 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents probably because of tight labour markets and wage austerity must be ushered in to manage the elevated decrease . In Bosnia and Herzegovina, the average rates in January-November 2023 rose the most in consumer loans, followed by NFC loans – whereas the real estate loans finished the year at the same level they opened . In North Macedonia, during the same period, average interest rates increased the most for real estate loans, followed by consumer and NFC loans, while in Slovenia, interest rates increased the most for NFC loans, followed by real estate loans, while they have decreased marginally during the period for consumer loans . Slow economic growth, elevated prices and interest rates, and uncertainty about the mid-term developments impacted global foreign direct investment (FDI) flows in 2023 . Despite that, some countries in the region reached new FDI records; Serbia, Kosovo, and Bosnia and Herzegovina reported strong FDI flows in 2023, while Slovenia, Montenegro, and North Macedonia reported positive albeit moderated FDI flows . Appetites for regional investments that would decrease global supply chains dependency together with investment potential in the region are supporting FDI factors, where mid-term outlook uncertainties represent the main factors for their eventual transitory moderation . growth pressures instilling uncertainty about the "second debt levels . round effects ." The 2023 was a year of stagnation, slow growth, weak demand and tight labour markets The risk of the recession has receded compared to a year ago, and inflation has gradually declined in most regions due to lower energy and food prices . Global growth, however, will continue to reflect the impact of monetary policy tightening and elevated rates across advanced economies in 2024, leading to sluggish investment . After contracting noticeably in 2023, global trade growth is expected to pick up, but regional tensions could influence commodity prices . Borrowing costs for countries with poor credit ratings will remain very high . The Euro area GDP should grow at an underwhelming pace in 2024, supported by expected recoveries in industrial sectors, increased consumer spending, wage growth, and lower inflation . Exports should pick up again as global trade improves . However, slowdowns in the Mediterranean economies and the lagged effects of interest rate hikes will cap the overall upturn . Potential turbulence in the banking and financial sectors and sizeable public debt levels pose risks . Governments should continue to roll back the related support measures to reduce elevated public debts and avoid additional inflationary pressures . The Euro area households, especially those with lower incomes and floating-rate loans, feel the strain of higher interest rates . Although tight labour markets, government support measures, and accumulated savings managed to mitigate household vulnerabilities, low-income earners continue to face pressure on real incomes, consumption, and debt servicing ability . Further challenges may arise if energy prices soar or interest rates continue to remain elevated . Fiscal The economy in the Group’s region In 2023, growth appeared slow, but still slightly less stagnant than the Euro area and began picking up in Q3 . As the year started, the export sector grew; however, as economic growth started receding in the Euro area, the foreign demand subsided quickly, hurting the exporting industry . Double-digit inflation in the first half of the year caused domestic demand for foreign goods to retreat even faster, causing imports to contract . Private consumption remained the main growth driver, picking up in Q3 and maintaining momentum towards the year’s end . Inflation started in double-digit territory, but disinflationary trends grabbed hold as the CBs lifted policy rates . Only the Serbian economy persisted with double-digit inflation by June, and growth rates subsided steadily . Food and non-alcoholic beverages drove annual inflation in the first half of 2023 . Still, by Q3 of 2023, the item was already experiencing notable disinflationary trends and was surpassed by housing and related costs and leisure and accommodation prices . Industrial production had a solid performance in Q1, but soured afterwards due to a lack of foreign demand, with Montenegro being an outlier with solid Q1 and Q3 prints . Retail sales mostly posted negative growth in annual terms, apart from Bosnia and Herzegovina and Montenegro, which exceeded expectations . An economic sentiment indicator began improving slowly across the region until August, when it experienced a setback but finished the year on a more positive note . Tight labour markets (in historical terms) enabled and supported the growth of economies, with unemployment rates subsiding in 2023, except for the Q3 upticks in Bosnia and Herzegovina, and Slovenia . In 2023, the average interest rates in Serbia’s NFC sector increased as consumer and housing loan rates began subsiding in October . In Montenegro, consumer loans saw the most significant rate increase as NFC and real estate rates were similar or lower in November (compared with January) . Likewise, in Kosovo, consumer loans saw rates increase marginally from January to November, as NFC and real estate loans saw rates 21 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents A macroeconomic snapshot of NLB Group’s region Growth in Slovenia was slow in the first half of 2023 and decreased further in Q3, as it experienced a flood- induced slowdown . The annual decline in goods and services exports (starting after Q1) outpaced Q2’s contraction as the floods hit the key auto industry . 2 .2%economic growth in the Group’s region in 2023 Montenegro’s YoY GDP growth cooled slightly in Q3, coming from Q2’s expansion . A softer, albeit still-strong increase in exports and a faster expansion in imports weighed on the external sector . Moreover, household spending growth decelerated amid a surprisingly strong disinflationary trend at the end of Q2 . That said, both fixed investment and government consumption gained steam . Available data for Q4 2023 is relatively upbeat, as industrial production rose notably annually . Moreover, YoY growth in tourist arrivals outpaced Q3’s average Moreover, private consumption shifted into contraction, growth was stable . Inflation persisted in double digits increase . That said, merchandise exports plunged YoY in and both public spending and fixed investment expanded less than in Q2 . The savings rate declined until May and started subsiding after (apart from the October, while economic sentiment was less optimistic hiccup in August) . During the last quarter, the economy than in Q3 . notably in Q3, as in previous years . However, a gathered some steam . Industrial output rebounded significant part of the workforce takes annual leave . annually from Q2’s fall, and retail sales declined at a That said, the external sector made a net contribution gentler pace in the same period . to GDP as imports declined sharply in comparison to exports . Turning to Q4, the available data suggested growth would pick up as the impact of the floods fades In Bosnia and Herzegovina, the YoY economic growth accelerated in Q3 to the same slow pace of growth amid disaster relief from the EU . In October, industrial already seen in Q1 . The improvement was driven by output posted the best reading in over a year (which pickups in both public and private spending growth, was still rather shabby), while retail trade contracted at supported by the disinflationary trend in the period . a softer YoY pace amid lower inflation, was a good sign Investment growth slowed, while exports continued for private spending . their sharp contraction since Q3 2020 . The economy lost momentum towards the year’s end as industrial GDP growth in Serbia picked up throughout the year . It sped up in Q3 thanks to more robust domestic demand, output contracted markedly in annual terms in the last quarter, while retail sales expanded slower than in Q3 . as household consumption, public spending, and fixed Meanwhile, merchandise exports continued to shrink, investment grew rapidly . On the flip side, exports shrank, albeit at a softer rate than in Q3 . In mid-December, reflecting the stagnation of major growth partners . the EU decided not to open accession negotiations The end of the year should show strong performance with the country due to a lack of compliance with the driven by domestic demand, as retail sales gathered membership criteria . steam in Q4, while economic sentiment strengthened in the same period, especially in the services sector . On 17 December, the ruling Serbian Progressive Party (SNS) obtained an absolute majority in snap parliamentary Kosovo’s YoY economic growth accelerated in Q3 of 2023, but was still short of the Q1 growth . The improvement was driven by more vigorous private elections . That said, opposition parties and international spending thanks to robust remittance inflows and a observers denounced the misuse of public resources marked pickup in government expenditures due to rising during the campaign, and made accusations about public wages . In contrast, investment growth slowed, voter intimidation . North Macedonia’s annual economic growth increased slightly in Q3 from Q2 in a year of slow growth . Despite while exports contracted – the available data for Q4 2023 painted a mixed picture . Tourist arrivals lost steam in October . However, merchandise exports fell at a softer rate relative to Q3 . In other news, on 1 January, the the positive change, the expenditure breakdown country joined Europe’s open-border Schengen zone, indicates that the economy weakened in general, as which is also likely to spur outflows of workers to other a sharper decline in imports drove the improvement . European countries . Public spending, total investment, and exports all contracted at sharper rates, while private consumption 22 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The banking system in the Group’s region In general, 2023 was a year to remember for the banks Due to rising interest rates, the National Bank of Serbia where NFC loans contracted in YoY terms . The global as the higher interest rates saw margins increase, imposed temporary measures on housing loans, limiting and Euro area’s demand receded, further adding to the bringing profitability to levels not seen in a long time . interest for borrowers’ first variable-rate housing loan effect of higher interest rates . Production companies Loan demand remained strong despite higher borrowing up to EUR 200,000, secured by a mortgage for the next seemingly decided to deleverage and thus turn to their rates and tighter monetary policy, whereas banks 15 months, starting with the October instalment . Despite possible internal sources, such as retained earnings experienced increased funding costs . At the close of the this, household loan appetite remained very robust and cash buffers, since corporate lending performed year, the hiking cycle had already entered its final stage, throughout the region, with Kosovo notably exceeding much worse than last year, as it contracted in Slovenia but market participants already anticipated lower rates YoY growth compared to other countries . Corporate and Serbia – which were hit by supply (tighter credit in the upcoming period; therefore, interest rates on new loans grew at a slower YoY pace (compared with the standards) and demand (higher rates) impediments . loans in the Euro area declined at the close of the year, previous year), with only Serbia witnessing similar resulting in an increased amount of renegotiated loans . dynamics to the ones in the Euro area and Slovenia, Table 4: Movement of key banking systems indicators in the NLB Group region in 2023 Corporate loans Household loans Corporate deposits Household deposits Net interest margin NPL CAR in EUR millions Δ % YoY in EUR millions Δ % YoY in EUR millions Δ % YoY in EUR millions Δ % YoY 2022, in % 2023, in % in % Δ pp YoY in % Δ pp YoY Slovenia Serbia N . Macedonia BiH Kosovo Montenegro 9,968 14,791 3,460 5,854 2,954 1,460 -4 .9 -1 .7 3 .3 8 .1 9 .8 3 .3 12,556 12,576 3,730 5,998 1,914 1,734 3 .4 1 .0 6 .7 7 .8 17 .3 9 .2 10,784 15,696 2,625 7,601 1,321 2,202 11 .1 16 .2 13 .2 2 .9 12 .4 -5 .2 26,514 18,692 5,671 8,417 4,061 2,730 2 .8 10 .0 7 .9 13 .6 11 .3 11 .1 1 .6 2 .9 3 .1 2 .5 3 .9 4 .0 3 .0 4 .0 4 .0(i) 3 .3 3 .2 4 .7 1 .4 3 .2 2 .8 3 .8 2 .0 5 .0(i) -0 .1 0 .2 -0 .1 -1 .1 0 .0 -0 .9 19 .3(i) 21 .4 18 .1 19 .3(i) 15 .8 20 .7(i) 0 .8 1 .2 0 .4 0 .1 1 .0 2 .3 Source: Statistical offices, CBs, NLB. Note: Net interest margin calculated on interest-bearing assets. Residential loans and deposits for Montenegro. (i) Data for Q3 2023. 23 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In other countries, the growth was in the lower Figure 2: ROE ratio in the Euro area and NLB Group region 4.6% 7.2% single-digit range, except in Kosovo, where it was just shy of double-digit (YoY) growth . Corporate deposit growth was in double digits in Serbia, while North Macedonia and Slovenia trailed, with the rest of the countries experiencing growth below the mid-single digit range . The growth of household deposits was least pronounced in Slovenia, and was more notable Euro area Slovenia in Kosovo and North Macedonia, and in double-digit Serbia territory in Serbia and Montenegro . The NPLs indicator exhibits some upticks in the region (North Macedonia and Serbia), as well as some marginal movements downwards (Montenegro and Slovenia) with no significant changes occurring despite the notable rise in interest rates, except for Bosnia and Herzegovina where a notable contraction occurred . The net interest income improved throughout the Group’s region, reflecting the interest rate hikes by respective central banks, the growth of lending, and price effects . The capital adequacy ratio improved in all Group region countries, mostly Montenegro and Serbia . In contrast, in other N. Macedonia BiH Kosovo Montenegro 2022 2023 10.8% 20.6% 13.8% 18.2% 12.2% 12.0% 16.1% 15.0% 14.4% 20.6% 19.7% 19.3% countries, it improved to more or less half of that extent, insinuating that the banks in the Group remain solid and Source: ECB, National CBs. Note: Return on average equity (ROAE) used for Bosnia and Herzegovina. Data for the Euro area, Bosnia and Herzegovina and North Macedonia are from Q3 2023 and for Serbia is from 30 November 2023. well-capitalised . Figure 3: Loans to non-financial corporations and household loans (% GDP) in the Euro area and NLB Group region in 2023 Euro area Slovenia Serbia N. Macedonia BiH Kosovo 35.7% 47.7% 17.3% 20.5% 17.7% 15.7% 18.1% 21.3% 19.4% 19.4% 25.8% 27.9% 30.9% Montenegro 24.5% Loans to non/financial corporations, % GDP Household loans, % GDP Source: National CBs, National Statistical Offices. Note: Data for Q3 of 2023, except for the Euro area, Slovenia, and Serbia (year-end). Residential loans for Montenegro. 24 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The LTD ratio decreased in Slovenia, North Macedonia, Figure 4: LTD ratio in the Euro area and NLB Group region and Serbia, but improved in Bosnia and Herzegovina, Montenegro, and Kosovo . The banks’ profitability in the Group’s region has continued to improve in 2023 due to rising interest rates . Still, maintaining the earnings Euro area momentum next year will certainly not be impossible . Slovenia The net interest income increased further in 2023 compared to last year and reached levels not seen in approximately 15 years, as the profitability in the region was astounding, with ROE in double digits territory in all Serbia countries of the Group (almost doubled in Slovenia) . N. Macedonia BiH Kosovo Montenegro 2022 2023 Source: ECB, National CBs, NLB. Note: LTD for Serbia is from 30 November 2023, the rest are from 31 December 2023. 67.1% 63.6% 79.3% 74.3% 85.5% 81.6% 71.3% 71.7% 78.3% 80.2% 60.2% 62.2% 94.6% 94.3% 25 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Sport excites us and brings us together . Slovenian men's national handball team Adaptability and quick thinking ensure court advantage . Regulatory Environment During 2023, 119 changes with material effects on the Bank and the Group were adopted in the EU and Slovenian regulatory environments . The Group strives to be fully compliant with the existing and new requirements . Disclosure of the most relevant changes in legislation and regulation that influence the Group are presented herein . Regulatory Environment in Slovenia The Bank is subject to capital adequacy and liquidity rules imposed by the EU (CRR/CRD), which govern the activities in which banks may engage and are designed to maintain the safety and soundness of banks to limit their risk exposure . The CRD V was further transposed into the Banking Act (ZBan-3) . In October 2021, the European Commission adopted a further package of a review of the CRR and CRD with the final elements for implementing Basel III in the EU . These final elements were agreed in December 2023, endorsed by the Council and Parliament, and will be implemented in EU law . As a financial institution offering benchmark-based products, the Bank meets its obligations under Regulation 2016/1011 (BMR) and regularly monitors developments in this area by adapting its operations to the requirements of regulators and industry . Due to the constant care about the interests of its customers, especially the protection of their data, the legislation in the field of personal data protection is also essential to the Bank . The Bank strictly adheres to its obligations imposed on it by GDPR in Slovenia and the Group . The new Slovenian Personal Data Protection Act (ZVOP-2) was adopted in December 2022 and is implemented in the Bank’s operations . In the financial markets, there were no significant changes in the regulatory environment in 2023 . The Bank complies with MiFIR/MiFID II and EMIR provisions regarding financial market transactions, enhanced investor protection, transparency, and reporting obligations . The Group also considers and complies with the Both documents demonstrate a straightforward regulations concerning prevention of money laundering top-down and bottom-up process for sustainability and terrorist financing (AML/CTF), with the Prevention governance, including climate change aspects, that of Money Laundering and Terrorist Financing Act extend from individual business units and countries (ZPPDFT-2), effective in April 2022, replacing the previous to the management bodies . The Bank also updated law and integrating the provisions of Directive (EU) other sustainability-related internal documents in 2019/1153, Directive (EU) 2019/2177, and Regulation various business areas in line with regulatory and other (EU) 2018/1672 into Slovenia’s legislation . In addition, developments . These developments are monitored an Amendment and supplements to the Act on regularly by the Sustainability Unit, Compliance and Prevention of Money Laundering and Terrorist Financing (ZPPDFT-2A) were published in the Slovenian Official Gazette in November 2022 . The Group regularly monitors and manages all newly introduced financial sanctions from all relevant regimes . The regulatory environment underwent significant changes in the payment and settlement systems field Integrity, and within specific business areas, and are promptly implemented in the internal governance framework . In December 2022, the Digital Operational Resilience Act (DORA) Regulation was published in the EU’s Official Journal alongside the revised directive on the security of network and information systems (NIS2) . The new in 2023 . The European Commission proposed a third framework introduces a comprehensive set of rules Payment Services Directive (PSD3) and a new Payment concerning financial sector firms’ information and Services Regulation (PSR) to enhance user protection, communications technologies (ICT) and risk management open banking, enforcement, and unification in the to strengthen their digital operational resilience and European payments market . The Bank is preparing prevent and mitigate cyber threats . In 2023, the Bank to meet its obligations under the new legislative carried out activities to implement the new regulatory framework, which is expected to enter into force by the requirements, which will apply from 17 January 2025 . end of 2026 . The Bank meets its obligations under PSD2, the respective regulatory technical standards and the Payment Services, Services for Issuing Electronic Money and Payment Systems Act (ZPlaSSIED) . The Bank is committed to providing the best user experience while ensuring compliance with the regulatory requirements in the payment and settlement systems . In the EU’s policy context under the European Regulatory Environment in the Group’s region The regulatory environment in the rest of the region where the Group operates was dominated by actions Green Deal, "sustainable finance" is understood as to ensure the stable functioning of financial systems . finance to support economic growth while reducing During 2023, 132 changes with material effects on the environmental pressures and considering social and Group were adopted in the regulatory environments governance aspects . In 2023, the Bank updated its in the Group’s region . It is worth noting that this figure governance of the ESG area by adopting two new excludes any changes affecting solely NLB d .d . internal documents: the Sustainability Policy and Standard – Rulebook on sustainability management . 27 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In Serbia, the most significant regulatory changes introduced by the National Bank of Serbia throughout to the expectations of the regulator in the ESG area of the ECB on business operations of banks in Bosnia (Guidelines for Managing Risks Related to Climate and Herzegovina . Lastly, the National Assembly has 2023 were related to the facilitation of financing of the Change and Environmental Risks) . Implementing the adopted the new Family Law, which affects the Bank’s citizens, dinarisation of the financial system, including Guidelines is to guide the banking sector in terms of product called Children’s Deposit . Parents or guardians a set of measures and activities aiming to enhance the determining, measuring, managing, and controlling cannot make payments from the child’s deposit without use of the dinar in Serbia’s financial system, further climate and environmental risks, publishing data and reasonable cause and literal approval from a competent leading to the stabilisation of the prices on the market information related to these risks, and segment integration Guardianship Authority . and related to preserving and strengthening the of environmental sustainability in the Bank’s business financial system stability . In that sense, to facilitate the activities . In June 2023, the Federal Banking Agency financing of the citizens, the National Bank of Serbia adopted the Decision on the conditions and method of In Kosovo, in 2023, several regulations were adopted by the Central Bank of Kosovo . The Bank’s main activities adopted the Decision on Temporary Measures for Banks submitting customer complaints and the actions of entities concerned the implementation of the requirements from Relating to Natural Persons’ Housing Loans, introducing of the banking system, which prescribes new terms for the Regulation on access to payment accounts with basic a temporary freeze on the variable nominal interest provider and user of services (banks and others), as well services, which determines the conditions for customers’ rate . Further, to prescribe measures related to the as definitions of complaints . Changes were made to the access to payment accounts with basic services as a dinarisation of the financial system and preserving and local procedure of the client’s complaint, and an internal necessary tool to encourage their participation in the strengthening its stability, the National Bank of Serbia act was aligned with the decision . adopted the Decision on Amendment to the Decision on financial market . It is also related to Regulations on bank liquidity risk management, Regulations on reporting of Capital Adequacy of Banks to increase the exposure in dinars and the Decision on Amendments to the Decision Although the Law on Prevention of Money Laundering and Financing of Terrorist Activities has not yet been banks, Regulations on the interbank payment system, etc . Furthermore, there have been legal changes and on Banks’ Required Reserves with the National Bank adopted, the Ministry of Security of Bosnia and guidelines to follow regarding cyber security, the Law on of Serbia, introducing changed ratios for calculation of Herzegovina made Amendments to the Rulebook on prevention and protection from violence against women required reserves of the dinars and foreign currency the Implementation of the Law on Prevention of Money and gender-based updates on rules provided by the base . In addition, several laws and by-laws regarding Laundering and Financing of Terrorist Activities . The Kosovo Deposit Security Fund, instructions regarding the tax and accounting, outsourcing of activities and labour Rulebook prescribes additional indicators of suspicious Logs of Personal Data Processing Activities, etc . law have been adopted . transactions and clients, including indicators of suspicious transactions of bank employees . In North Macedonia, the process of harmonisation with the Law on Payment Services and Payment Systems and related by-laws continued during the 2023 year, In the Republic of Srpska, the local regulator, the Banking Agency of the Republic of Srpska, published In Montenegro, the main activities 2023 were dedicated to implementing the Law on Interbank Fees and Special Business Rules Concerning Payment Cards, which apply from 9 January 2024 . This Law regulates interbank and several new by-laws from various areas related to numerous decisions that influenced the Bank’s internal fees charged when executing payment transactions this Law were also adopted and are in the process of acts and processes . The most important one is the in Montenegro based on payment cards issued to implementation in the Bank or already implemented . Decision on minimum standards of recording of banks’ consumers and special business rules related to issuing The National Bank of the Republic of North Macedonia lending activities, which provides rules of the minimum or executing payment transactions based on payment adopted several significant acts, such as the Decision on standards of documenting during the negotiation phase, cards . Amendments to the Law on Payment Transactions the credit risk management methodology, the Circular for loan approval, credit exposure, etc ., for the entire time (PSD2) apply from 8 April 2024 . The PSD2 regulation in the protection of consumers who use financial services of the establishment and duration of the contract with Montenegro relies on and complements the existing EU in the banking sector, the Decisions on the amount of the client . Next to this decision, the Agency published rules, and it refers to payment services in the internal the rate of the countercyclical protective layer of the Guidelines for the management of climate-related market . PSD2 expands the scope of payment services capital for exposures in the Republic of North Macedonia risks, representing the first Act in the area of climate and their providers, more clearly defines exceptions, and exposures to other countries, the Decision on the regulation . The Guidelines are not obligatory; however, improves cooperation and the exchange of information method of implementation of measures to prevent certain expectations of banks are to be accomplished among participants in the payment traffic, and introduces money laundering and terrorist financing, the Decision and reported to the Agency by 30 June 2024 . Next, the stricter security requirements for electronic payments . In on foreign exchange office activities, etc . In addition, the Central Bank of Bosnia and Herzegovina adopted the bancassurance, novelties in the by-laws refer to clients’ Bank continuously undertakes the necessary activities Decision to amend the Decision on establishing and pre-contractual information, procedures regarding the according to the set deadlines . maintaining mandatory reserves and determining protection of their rights, and reporting to the regulator . In the Federation of Bosnia and Herzegovina, the most important decision of the regulator in 2023 is related compensation for the amount of reserves, intending The Bank continued to consistently apply the decisions on to harmonise with the policy of the ECB and mitigate introducing international restrictive measures determined the impact of the increase in the reference interest rate by the EU Council’s decisions . 28 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents BUSINESS REPORT 29 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Strategy The Group has continued to execute its medium-term strategy, focusing on strengthening its market position in its home region, actively participating in the growth and consolidation of the market, and promoting the ESG agenda . Digitalisation, client centricity, and cost efficiency remain key strategic orientations to deliver the Group’s vision . The Group is currently in the process of defining its new Strategy 2030, which is expected to outline the key decisions regarding capital allocation in the future . Be a regional champion The Group aims to further strengthen its role as a systemically important financial institution in the SEE region . To achieve this, it strives to become a leader in all its target markets and to have a prominent role in the region’s development . The Group believes there is significant value to be unlocked by facilitating further development of the region and increasing its standard of living . As one of the most important players in the region’s financial system, the Group is carrying its share of responsibility for building a stable banking system . The 2022 acquisition of N Banka is an example of the Group’s resolve to commit capital in turbulent times for the benefit of all stakeholders . In 2023, the merger of N Banka was successfully closed with the transfer of all customers and their operations . Put clients first The Group is driving its customer-centric agenda by starting with the financial needs of its customers and The Group is promoting ambitious environmental, looking for ways to improve and streamline its products sustainability, and corporate governance agendas . and services to fulfil them to the utmost extent . One It joined leading peers from the banking industry in way the Group does this is by digitising its distribution collective efforts to reach net-zero emissions by 2050 . channels, allowing clients to access its products and In 2023, the Group published its first net zero portfolio services from anywhere at any time . targets within the NLB Group Net Zero disclosure report . For more information on Net Zero, please refer to the The Group is committed to adding innovative financial chapter Sustainability . solutions to address its clients’ unmet and new needs . Accelerating the development of the SEE region Promoting the ESG agenda Supporting stability of the banking sector Be a regional champion Put clients first Digitalizing distribution channels Adding new financial solutions as per clients' needs Offering strong customer support Growing client market share Creating value for shareholders Offering a great place to work Grow our market position Monetise opportunities and synergies Finding inorganic expansion opportunlties Establishing horizontally diversified businesses Continuing strategic transformation 30 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents By staying on top of the latest trends, needs, and An employee engagement metric is measured and asset management services, concluded an agreement technologies, it will stay competitive and deliver the analysed in relation to its employees . best possible banking experience . Ensuring strong to purchase the majority ownership of Generali Investments AD Skopje, further expanding asset customer support remains one of the Group’s key The Group regularly engages with its stakeholders in management activities within the Group . focuses . It requires that its customer service team is defining what is material to them and the Group . Some knowledgeable, friendly, and always ready to assist of the most important channels for communications The Group is moving closer to the fintech ecosystem to clients with their questions or concerns, wherever they with the stakeholders (in addition to the regular publicly find new and better ways of solving customers’ financial may be . available periodic reports, presentations, and webcasts needs . It established a corporate venture team, eNLaB, Digitalisation The Group continues implementing substantial efforts and resources toward digital distribution channels and operating models . The customers’ preference for an increased share of digital business interactions has remained even after normalisation since the COVID-19 pandemic . Effective and safe digital distribution channels require novel operating models and automated processes to minimise response times and costs . One of the results of digitalisation and process optimisation is a reduced amount of printed paper . The Group will continue to invest in IT infrastructure and its digital capabilities and roles . The focus will be on improving the speed of IT delivery by adopting agile methodology principles, providing and implementing the best online experience for customers in the SEE, and enhancing capabilities for processing data, modelling, and delivering relevant services to clients . One such example is the launch of the new omnichannel solution "NLB Klik", which allows checking and managing personal finances and offers a unified user experience on mobile phones and PCs . Grow our market position The Group is working to strengthen its market position as a systemic player in its home region . To do this, the Group is monitoring how well it is creating value for three types of its main stakeholders: shareholders, customers, and employees . Concerning its shareholders, the Group views its decisions through a lens of maximising its return on equity . Concerning its customers, market shares and Net Promoter Scores (NPS) are tracked . on the Group performance) are, for example, the NLB to build business cooperation with ambitious fintech Group Sustainability Report and the corporate website, players to accelerate the Group’s efforts in bringing along with social media channels . novel use cases and business solutions to the market . Continuing transformation The Group follows a comprehensive plan to deliver its mission and financial targets to facilitate continuous transformation in an ever-changing environment . It has identified a series of projects and initiatives and has dedicated resources for implementation . All significant running change efforts are channelled into one overall strategic transformation programme . The backbone of the strategy is strengthening customer- centricity by establishing customer-based market management, improving the understanding of clients, reimagining digital client journeys, and accelerating innovation to provide lifestyle and value chain services to strengthen relationships . The transformation programme also focuses on increased operational efficiency, cost management, and the improved utilisation of the Group’s capital . Simultaneously, overall operational capabilities are enhanced by improving human capital, optimising IT infrastructure, digitalising internal processes, and leveraging information capital . The Group’s employees represent its key resource and are one of its main drivers for creating value . Through the focus on recruitment, management, and continual development of employees, they are given the opportunity to thrive by making the most of their talent and experiences . Monetise opportunities and synergies Significant strategic business efforts have been made to achieve business synergies across the Group regarding costs and operational efficiency . The Group believes that these can help offset the adverse economic effects of the rising inflation on the Group’s clients . In Slovenia, the Bank has achieved further synergies with the full integration of N Banka in 2023 . The Group monitors market conditions and analyses potential M&A opportunities that could add value to the Bank’s shareholders . The Group is fully engaged in re-establishing some key financial services across all its markets, thus diversifying its services horizontally . In the Group Strategy, leasing is one of the strategic activities representing an important part of the Group’s business portfolio . Leasing operations in Slovenia (NLB Lease&Go, Ljubljana) are gaining momentum, while new leasing companies were established within the Group in North Macedonia and Serbia in 2022 . The Group has further materially enhanced its strategically important position in 2023, announcing the acquisition of Summit Leasing, Slovenia’s leading auto finance provider . In addition, NLB Skladi, which offers clients 31 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Funding Strategy, Capital, and MREL Compliance Deposit strategy Deposits from customers represent the primary funding source for the Group, and each bank within the Group has established processes that enable prudent strategic deposit management that is aligned with business targets Fostering strong client relationships is vital for maintaining a stable and growing deposit base . At the same time, and regulatory requirements . Regularly monitoring wholesale funding focuses on meeting MREL requirements and optimising capital, which leads to increased average deposits and their structure enables timely reactions funding costs . Nonetheless, overall funding cost remains low thanks to a reliable deposit base and the stability of whenever necessary due to business or regulatory- sight deposit pricing, which remains unaffected by market fluctuations . Figure 5: Average cost of funding (quarterly data) 4.87% 4.73% 0.51% 0.24% Q1 2023 0.58% 0.28% Q2 2023 Total average cost of funding Average interest rate for deposits from customers Average cost of wholesale funding 5.66% 0.80% 0.38% Q3 2023 related reasons . The LTD ratio evolution in recent years, including the disruptive COVID pandemic in 2020, political turbulence in 2022, and high inflation in 2023, was still confined to a healthy liquidity zone below 70%, which proved that the deposit base of the Group is robust, and the liquidity position strong . A leading Group market position and a responsive client relationship are essential for a stable deposit base . Besides 5.78% that, proper deposit pricing is pivotal in risk management and business decision-making . The Group’s fund pricing is aligned with international standards . The year 2023 further underlined the importance of responsive deposit pricing and active client relationships in highly competitive markets; all Group entities reacted systematically and defended their market positions in line with strategic targets . The deposit beta, which measures the Group’s response in deposit pricing from the start of the ECB hiking cycle, was low at 8% in 2023, and is a sign of a stable deposit base . Group retail deposits represent a majority in the structure and are the most stable funding source, with around 80% insured by the Deposit Guarantee Scheme . Despite the challenging business environment, Group retail deposits recorded an increase in 2023 . Sight deposits represent 84% of Group retail deposits, and despite a modest structural decrease related to increased interest rates and expected transformation to term deposits, sight 0.88% 0.46% deposits represent a stable funding source . This supports Q4 2023 the stable business of the Group in the region, even during volatile times in the wholesale funding markets . Although corporate sector deposits represent a smaller share of the deposit structure of the Group, they are still an important source of liquidity as well . Despite increased price levels, combined with uncertainties related to the economic outlook, the corporate deposit base of the Group became stronger and remains structurally stable . 32 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Capital and capital adequacy Capital requirements Figure 6: NLB Group capital requirements as at 31 December 2023 2.40% 1.35% 0.45% 0.60% 8.00% CET1 4.50% AT1 1.50% T2 2.00% Pillar 1 Pillar 2 10.40% 5.85% 1.95% 2.60% TSCR OCR 14.51% 4.11% 1.00% 1.00% OCR+P2G 15.51% 10.96% 1.95% 2.60% Combined Buffer P2G OCR+P2G As at the end of 2023, the Bank’s Overall Capital In addition to the above requirements, the Pillar 2 Slovenia will increase from 0 .5% to 1 .0% . At the same Requirement (OCR) on a consolidated basis was 14 .51% . Guidance (P2G) is 1 .0% of Common Equity Tier 1 (CET1) . time, the sectoral systemic risk buffer for retail exposures This requirement has two components: · The Total SREP Capital Requirement (TSCR) is 10 .40%, which includes 8 .00% Pillar 1 and 2 .40% Pillar 2 Effective from 1 January 2024, NLB has lower capital decrease from 1 .0% to 0 .5% . requirements . On 1 December 2023, NLB received a to natural persons secured by residential real estate will Requirements . As at 1 January 2023, the Pillar 2 new SREP decision on a consolidated basis for 2024 . Requirement decreased by 0 .2 p .p . to 2 .40% due to a As per the decision, the Pillar 2 Requirement decreased better overall SREP assessment . · The second component is the Combined Buffer Requirement (CBR), which is 4 .11%, and includes a by 0 .28 p .p . to 2 .12%, since the overall SREP assessment improved . 2 .50% Capital Conservation Buffer, a 1 .25% O-SII Buffer, a 0 .26% Countercyclical Buffer2 and a 0 .10% Systemic risk buffer3 . Effective as at 1 January 2025, there will be some changes in the capital buffer rates for Slovenia . The countercyclical capital buffer rate for exposures in 33 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 2 The Bank of Slovenia has increased the countercyclical capital buffer for exposures in Slovenia from 0% to 0.5%. The Bank had to meet the required buffer from 31 December 2023 onwards. 3 Starting from 1 January 2023, the Bank of Slovenia has mandated that banks maintain systemic risk buffer rates for sectoral exposures. The required rates are 1.0% for all retail exposures to natural persons secured by residential real estate and 0.5% for all other exposures to natural persons. Contents above requirements . The higher total capital adequacy Common Equity Tier 1 capital Capital adequacy As at 31 December 2023, the TCR for the Group stood at 20 .3% (or 1 .1 p .p . increase YoY), and the CET1 ratio stood at 16 .4% (1 .3 p .p . increase YoY), – which is well derives from higher c apital (EUR 302 .8 million YoY), which compensated for the increase of the RWA (EUR 684 .1 million YoY) . The Group increased its capital with a partial inclusion of 2023 profit (EUR 327 .4 million) . Temporary treatment of FVOCI for sovereign securities ceased to apply as at 1 January 2023, which decreased capital by EUR 61 .6 million . This effect was compensated with EUR 84 .5 million in revaluation adjustments . In December 2023, a deduction item related to deferred taxes appeared in EUR 47 .0 million . Table 5: Capital realisation YoY and surplus of NLB Group Tier 1 capital Total capital Total risk exposure amount (RWA) Common Equity Tier 1 Ratio Tier 1 Ratio Total Capital Ratio 31 Dec 2023 31 Dec 2022 Change YoY Surplus 31 Dec 2023 in EUR millions 2,509 .9 2,597 .8 3,109 .2 15,337 .2 16 .4% 16 .9% 20 .3% 2,208 .2 2,295 .7 2,806 .4 14,653 .1 15 .1% 15 .7% 19 .2% 301 .7 302 .1 302 .8 684 .1 1 .3 p .p . 1 .3 p .p . 1 .1 p .p . 829 .0 617 .8 730 .2 5 .4 p .p . 4 .0 p .p . 4 .8 p .p . Figure 7: NLB Group capital (in EUR millions), realised total capital ratios and regulatory thresholds Figure 8: NLB Group CET1 (in EUR millions), realised CET1 ratio and regulatory requirement 17.78% 15.25% 2,253 287 19.15% 15.10% 2,806 511 1,966 2,296 20.27% 15.51% 3,109 511 2,598 15.23% 15.47% 15.07% 16.36% 10.55% 10.46% 10.96% 10.80% 1,960 2,208 2,510 31 Dec 2021 31 Dec 2022 31 Dec 2023 1 Jan 2024 31 Dec 2021 31 Dec 2022 31 Dec 2023 1 Jan 2024 Tier 1 Tier 2 TCR realised OCR+P2G requirement CET1 CET1 ratio realised CET1 (OCR+P2G) requirement Figure 9: Capital and capital ratios of NLB Group – evolution YoY (in EUR millions) Capital / changes in Capital 2,806 327 2.1% 23 -47 n.a. 3,109 0.2% -0.3% -0.9% 19.2% TCR 31 Dec 2022 Result OCI DTA RWA impact 20.3% TCR 31 Dec 2023 34 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Dividend payout The dividend payout in 2023 was split into two tranches . The first instalment of EUR 55 .0 million was paid in June 2023, while the second was paid in the same amount of EUR 55 .0 million in December 2023, contributing to the 2023 cumulative payout of EUR 110 .0 million . Total risk exposure dynamic In 2023 (YoY), the RWA of the Group for credit risk increased by EUR 370 .3 million, mainly as the consequence of ramping up lending activity in all Group banks, the most in the Bank, NLB Komercijalna Banka, Beograd and NLB Banka Prishtina . Higher RWA for exposures associated with particularly high risk due to new project financing loans given, mainly in the Bank and NLB Komercijalna banka, Beograd, was partially offset by repayments or by withdrawing the high-risk flag after fulfilling the relevant conditions . In contrast, a RWA decrease was observed for liquidity assets, mainly in Komercijalna Banka, Beograd, due to the maturity Table 6: Total risk exposure for NLB Group Total risk exposure amount (RWA) RWA for credit risk Central governments or central banks Regional governments or local authorities Public sector entities Institutions Corporates Retail of some Serbian bonds and higher MIGA guarantee Secured by mortgages on immovable property for assets at central banks in foreign currency (EUR) . Exposures in default The higher MIGA guarantee also reduced the RWA for Items associated with particularly high risk exposures dominated in EUR at the central bank in Skopje . Furthermore, RWA also decreased due to the maturity of Macedonian bonds and Bosnian bonds of Republika Srpska . The RWA decline for liquidity assets was partly mitigated by the RWA increase at institutions, mainly in the Bank, due to the purchase of bank bonds, a larger volume of deposits at commercial banks and higher risk weights for institutions from countries outside the EEA that are not on the third-party equivalent list (e .g ., the United Kingdom) . Repayments, higher Covered bonds Claims in the form of CU Equity exposures Other items RWA for market risk + CVA RWA for operational risk 31 Dec 2023 31 Dec 2022 Change YoY in EUR millions RWA 15,337.2 12,168.1 RWA Density RWA 14,653.1 45.3% 11,797.9 9 .4% 37 .2% 19 .3% 33 .6% 92 .0% 71 .0% 37 .5% 113 .3% 150 .0% 12 .8% 20 .4% 121 .9% 48 .0% 899 .8 96 .9 19 .1 369 .8 3,740 .4 4,606 .0 1,067 .5 117 .4 671 .8 27 .8 12 .9 104 .4 434 .4 1,461.9 1,707.1 1,109 .2 101 .2 57 .9 292 .0 3,520 .3 4,371 .0 987 .7 156 .4 642 .4 31 .5 17 .9 90 .1 420 .1 1,445.1 1,410.1 RWA Density 46.7% 12 .7% 42 .9% 37 .5% 28 .9% 90 .1% 70 .7% 37 .5% 113 .6% 150 .0% 11 .4% 26 .2% 124 .1% 46 .3% 684.1 370.3 4.7% 3.1% -209 .5 -18 .9% -4 .3 -38 .8 77 .8 220 .1 235 .0 79 .7 -39 .0 29 .3 -3 .6 -5 .0 14 .3 14 .3 16.8 -4 .2% -66 .9% 26 .6% 6 .3% 5 .4% 8 .1% -24 .9% 4 .6% -11 .6% -28 .1% 15 .8% 3 .4% 1.2% 297.0 21.1% derivative transactions subject to CRR risk based on Further information on capital and capital adequacy impairments and provisions, upgrades, and improved OEM method), and higher RWA for TDI risk of EUR 1 .2 is available in the Note 5 .23 . of the financial part of the data of real estate collaterals for CRR eligibility resulted million (mostly IRS derivatives) . report and in Pillar 3 Disclosures . in the RWA reduction for non-performing exposures . The increase in RWAs for market risks and Credit Value million YoY) derives from the higher net interests, mainly Adjustments (CVA) in the amount of EUR 16 .8 million from the Bank and Komercijalna banka, Beograd, YoY was the result of higher RWA for FX risk of EUR 86 .6 resulting in a higher three-year average of relevant million (mainly the result of more opened positions in income . There were no significant deviations from domestic currencies of non-euro subsidiary banks – previous years in the other components used in the The increase in the RWA for operational risks (EUR 297 .0 mostly RSD), lower RWA for CVA risk of EUR 71 .4 million calculations . (due to a change of calculating exposure value for 35 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Wholesale funding and MREL Wholesale funding activities in the Group are conducted Figure 10: Resolution groups within NLB Group SLO NLB d .d . & NLB Lease&Go, NLB Skladi, Other MNE NLB Banka, Podgorica RKS NLB Banka, Prishtina BIH NLB Banka, Banja Luka MKD NLB Banka, Skopje SRB NLB Komercijalna Banka, Beograd Resolution group MREL legislation not implemented yet BIH NLB Banka, Sarajevo with the aim of achieving diversification, improving structural liquidity and capital position, and fulfilling regulatory requirements, especially compliance with the MREL requirements . The Preferred Resolution Strategy (PRS) for NLB Group is based on the Multiple Point of Entry (MPE) strategy . Bail-in at the level of NLB is the primary resolution tool to be applied during the stabilisation phase . Within NLB Group, seven resolution groups are designated . The resolution group in the Banking Union is headed by NLB and the remaining six resolution groups are headed by the banking subsidiaries located in non-EU countries (Bosnia and Herzegovina, Montenegro, and Serbia, while Kosovo and North Macedonia have not yet implemented MREL legislation) . The NLB Resolution Group consists of NLB as the only banking member and other non-banking members, the latter representing less than 5% in TREA . The entities and their contribution to TREA of the NLB Resolution Group are presented in the table below . Table 7: Contribution to NLB Resolution Group’s TREA Entity NLB d .d . NLB Lease&Go, Ljubljana NLB Skladi, Ljubljana Other TREA total in EUR millions 31 Dec 2023 7,861 213 56 124 8,256 NLB has to ensure a linear build-up of own funds and eligible liabilities towards the MREL requirement applicable as of 1 January 2024, which amounts to: · 30 .66% of TREA + applicable CBR (4 .33% on 31 December 2023), · 10 .69% of LRE . On 31 December 2023, the MREL ratio amounted to 40 .24% TREA and 19 .94% LRE, which was well above the required level . 36 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The composition of the own funds and eligible liabilities Figure 11: Evolution of MREL eligible funding (in EUR millions), MREL requirement and realised MREL ratio items by which the Bank met the MREL requirement was as presented in the table below . Table 8: Composition of the own funds and eligible liabilities of NLB Resolution Group Own funds and eligible liabilities items 31 Dec 2023 in EUR millions CET1 Additional Tier 1 instruments Tier 2 instruments Unsecured and unsubordinated claims arising from debt instruments Total 1,768 82 508 964 3,322 In June 2023, the Bank issued green senior preferred notes of EUR 500 million to strengthen the MREL buffer, and thus ensured that the Bank could comfortably meet the higher MREL requirement from 1 January 2024 onwards . In addition, the Bank obtained other MREL eligible instruments in a total amount of EUR 40 million . 36.31% 28.69% 489 2,041 39.17% 31.45% 979 40.24% 31.91% 964 2,209 2,358 34.99% 31 Dec 2022 30 Sep 2023 31 Dec 2023 1 Jan 2024 Realised MREL ratio MREL requirement (including CBR) CET1+T1+T2 MREL deposits and senior funding SEE banking members in Bosnia and Herzegovina, In 2024, certain MREL regulation changes are expected Serbia, and Montenegro are subject to local MREL in the Group countries of operations, and the subsidiary requirements . As of 31 December 2023, all banking banks are exploring all options to ensure a linear build- subsidiaries have secured the necessary eligible up of own funds and eligible liabilities to fulfil the local funding to meet the SalMREL requirements, set as per MREL requirements . Total Liabilities and Own Funds (TLOF) target level . 37 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Risk Factors and Outlook Risk factors Risk factors affecting the business outlook are (among others): · The economy’s sensitivity to a potential slowdown in the Euro area or globally · Potential liquidity outflows · Widening credit spreads · Worsened interest rate outlook / Persistence of high inflation · Energy and commodity price volatility · Increasing unemployment · Geopolitical uncertainties · Potential cyber-attacks · Litigation risks · Regulatory, other legislative, and tax measures impacting the banks The sharp rebound from the COVID recession has turned in the prospective stagflation in 2023 . As a result of rising inflation, high-interest rates, weaker external demand, and increased macroeconomic uncertainty, subdued economic growth or its gradual slowdown was experienced . The growth in the Group’s region was moderate, though relatively high inflationary pressures and other uncertainties could suggest a further slowdown, namely in private consumption and investment growth . Credit risk usually increases considerably in times of an economic slowdown . The Group has thoroughly analysed and adjusted the potential impact on the credit portfolio in light of anticipated inflationary pressures and expected decreases in economic growth . Lending growth in the corporate and retail segments remained relatively moderate, especially in such circumstances . Regarding the credit portfolio quality, the Group carefully monitors the potentially most affected segments to detect any significant increase in credit risk at a very early stage . In August 2023, certain areas in Slovenia were damaged by floods . Their impact on the Bank’s credit portfolio quality in the corporate and retail segments was estimated as negligible, and only minor client credit quality deterioration or received collaterals e .g . litigation cases related to loan processing fee and occurred . The aforementioned adverse developments loan insurance premium in Serbia and CHF litigations in could affect the cost of risk and NPLs . Notwithstanding Slovenia . In the latter case, we have noticed an increase the established procedures in the Group’s credit risk in the number of proceedings against the Bank, which management, there can be no certainty that they will be was expected . The current litigations against the Bank sufficient to ensure the Group’s credit portfolio quality or referring to CHF are less material, but the Bank is closely the corresponding impairments remain adequate . monitoring developments . The investment strategy of the Group, referring to the The Group is subject to various regulations and laws Group’s bond portfolio kept for liquidity purposes, relating to banking, insurance, and financial services . adapts to the expected market trends in accordance Respectively, it faces the risk of significant interventions with the set risk appetite . Geopolitical uncertainties by several regulatory and enforcement authorities have increased volatility in the financial markets, in each jurisdiction in which it operates, including particularly shifts in credit spreads, rising interest rates, and foreign exchange rate fluctuations . The Group changes of tax treatment of banking business (e .g . application of VAT on card payments services in Bosnia closely monitors its prominent bond portfolio positions, and Herzegovina) and changes in interpretation mostly sovereigns, and carefully manages them by of legislation (e .g . introduction of reimbursement incorporating adequate early warning systems to limit of a proportional part of loan costs in case of early the potential sensitivity of regulatory capital . repayment of consumer loans in Slovenia) . So far, no material movements regarding the Group’s The SEE region is the Group’s most significant significant FX positions have been observed . Current geographic area of operations outside the RoS, and the developments, market observations, and potential economic conditions in this region are, therefore, crucial mitigations are closely monitored and discussed . While to the Group’s operations and financial condition results . the Group monitors its liquidity, interest rate, credit The Group’s financial condition could be adversely spread, FX position, and corresponding trends, their affected by any instability or economic deterioration in impacts on the Group positions, and any significant and this region . unanticipated movements on the markets or a variety of factors, such as competitive pressures, consumer confidence, or other certain factors outside the Group’s control, could adversely affect the Group’s operations, capital, and financial condition . Special attention is paid to the continuous provision of services to clients, their monitoring, and the prevention of cyber-attacks and potential fraud events . The Group has established internal controls and other measures to facilitate adequate management . However, these measures may only sometimes entirely prevent possible adverse effects . With regards to litigation risk, in recent years, and even more so in recent periods, the Bank has seen a shift in case law that is generally more favourable to consumers, 38 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In this regard, the Group closely follows the The alternative scenarios are based on plausible drivers might affect the Group’s capital adequacy or liquidity macroeconomic indicators relevant to its operations: · GDP trends and forecasts, · Economic sentiment, · Unemployment rate, · Consumer confidence, · Construction sentiment, · Deposit stability and growth of loans in the banking sector, · Credit spreads and related future forecasts, · Interest rate development and related future forecasts, · FX rates, · Energy and commodity prices, · Other relevant market indicators . of economic development for the next three years . The position . The stress-testing framework and recovery optimistic scenario is supply- and demand-driven, with plan indicators support proactive management of a mild winter and sufficient energy supplies easing price the Group’s overall risk profile in these circumstances, pressures in the Euro area . China’s decision to abandon including capital and liquidity positions from a forward- strict COVID restrictions supports the Euro area exports, looking perspective . which stimulates demand . Lower inflation leads to an optimistic financial market outlook, and the first Risk Management actions that the Group might use year shows positive growth expectations, followed by are determined by various internal policies and additional ECB support and moderated growth potential applied when necessary . Moreover, the selection and in the following two years . application of mitigation measures follow a three-layer approach, considering the feasibility analysis of the The severe, supply- and demand-driven scenario measure, its impact on the Group’s business model, and depicts sluggish economic growth due to lower the strength of the available measure . consumer purchasing power, geopolitical disruption, During 2023, the Group reviewed the IFRS 9 provisioning and elevated inflation . The Group home countries by testing the relevant macroeconomic scenarios to experience near-zero real economic growth, leading reflect the current circumstances and their future impacts accurately . The Group established multiple scenarios to substantial upward shocks in financial markets . Political tensions persist, causing supply disruptions, (i .e ., baseline, optimistic, and severe) for the Expected and inflation remains higher than expected, resulting Credit Losses (ECL) calculation, aiming to create a unified in increased long-term inflation expectations . GDP projection of macroeconomic and financial variables growth remains low as the ECB implements a restrictive for the Group, aligned with the Bank’s consolidated monetary policy . Despite a slow increase in the view of the future of economic development in the SEE . unemployment rate, many industries still face a tight The Group formed three probable scenarios with an labour market . The financial system stabilises, allowing associated probability of occurrence for forward-looking the ECB to focus on taming inflation . The Bank considers assessment of risk provisioning in the context of the IFRS these scenarios in calculating expected credit losses in 9 . These IFRS 9 macroeconomic scenarios incorporate the context of the IFRS 9 . the forward-looking and probability-weighted aspects of the ECL impairment calculation . Both features On this basis, the Group revised scenario weights in may change when material changes in the future H1 2023 and assigned weights of 20%–60%–20% development of the economy are recognised and not (alternative scenarios receiving 20% each, and the embedded in previous forecasts . baseline scenario 60%), with minor changes in some entities to reflect the likelihood of relevant future The baseline scenario presents an expected forecast economic conditions in their environment . Regular macroeconomic view for all the countries of the yearly revision of IFRS 9 provisioning will be conducted Group . This scenario is based on recent official and In H1 2024 . professional forecasts, with specific adjustments for individual countries of the Group . Key characteristics The Group established a comprehensive internal include no additional supply shocks, decreasing stress-testing framework and early warning systems inflation due to increased ECB key rate and quantitative in various risk areas with built-in risk factors relevant tightening, a slightly less tight labour market, GDP to the Group’s business model . The stress-testing growth supported by declining interest rates and framework is integrated into the Risk Appetite, Internal positive expectations, regional containment of political Capital Adequacy Assessment Process (ICAAP), Internal tensions, and limited spillover effects of financial system Liquidity Adequacy Assessment Process (ILAAP), and the issues on the real economy . Recovery Plan to determine how severe and unexpected changes in the business and macro environment 39 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Outlook The indicated outlook constitutes forward-looking The position of the Group is strong, and the performance quality expected in all segments and geographies, the statements which are subject to several risk factors and throughout all of year 2023 in many of the item lines cost of risk is expected to be between 20 and 40 bps . are not a guarantee of future financial performance . exceeded the plans and previous guidance . The Group The NLB Group is pursuing various strategic activities is herewith presenting the guidance for the full year 2024 In January 2024, Tier 2 notes in the amount of EUR 300 to enhance its business performance . The interest rate and 2025 . The outlook for 2024 does not include effects million and 10NC5 tenor were issued and have already outlook is uncertain, given the adaptive monetary from the announced acquisition of Summit Leasing, been included in the capital following the ECB approval . policy of the ECB and local central banks to the general which is expected to close before the end of 2024 and In parallel, the Bank conducted a liability management economic sentiment . thus without material effects for 2024 . The Group is exercise (LME), repurchasing EUR 219 .6 million of its two preparing a new business strategy and vision for 2030 outstanding Tier 2 notes to optimise its capital structure . In Slovenia, the economic growth is forecasted to that will, among others, also outline shareholders’ Moreover, in 2024, the Bank is considering issuing senior accelerate in 2024 compared to 2023 thanks to returns going forward in line with the improved earnings preferred notes in benchmark size, subject to market reconstruction efforts, relief funds, cooling inflation, and outlook . The announcement of the key strategic conditions . Both issuances will enable the Bank to meet strengthening export demand from the wider Euro area . directions for the Group is planned for the Investor Day MREL requirements comfortably . Downside risks are a slower-than-expected recovery on 9 May in Ljubljana . among key trading partners and potential energy price The operating environment, coupled with an appropriate spikes . Economic growth is seen accelerating in the region The outlook for 2024 incorporates a reasonable tactical and strategic positioning of the Group, have led (apart from Montenegro), mainly due to better prospects amount of prudence, most notable on the still prevailing the Group to achieve strong running results . Previously of the major trading partners, disinflation, falling market view that interest rates by the end of 2024 will indicated guidance on nominal dividend payment has interest rates, and stronger household consumption . be lowered by some 150 bps . Despite this assumption, materialised in increasing dividend payments and, at the The performance of the Euro area, ethno-nationalistic the Group is expected to achieve more than EUR 1,100 same time, meaningful build-up of the capital buffers, tensions and the wars in Ukraine and Gaza are key million in regular income since a comfortable level of net allowing for a potential M&A . With this outlook, the Bank factors to watch . The Group’s region is expected to grow interest income and fee income is still expected due to is communicating its intention to pay EUR 220 million in by 2 .2% in 2023 and 2 .5% in 2024 . While banks have so the growing loan book and fee business stemming from dividends in 2024, translating to a 40% pay-out ratio out far largely benefited from higher interest rates in 2023, more robust household consumption . The cost to income of 2023 profit after tax . This represents a 100% increase the uncertain macro-financial conditions may continue to ratio is expected to stay below 50%, indicating that from dividend payments made in 2023 or more than 75% weigh on volume growth going forward in the short term . cost inflation should be reasonably contained . With the of the so far’s guidance for the cumulative payment until Loan potential in 2024 should improve, however . mid-single digit loan growth and still solid trends in asset the end of 2025 . Such capital return will not impede the Table 9: Movement of key macroeconomic indicators in the Euro area and NLB Group region Euro area Slovenia Serbia N . Macedonia BiH Kosovo Montenegro GDP (real growth in %) Average inflation (in %) Unemployment rate (in %) 2022 2023 2024 2025 2026 3 .4 2 .5 2 .5 2 .2 4 .2 4 .3 6 .4 0 .4 1 .6 2 .5 1 .8 1 .6 3 .3 5 .1 0 .6 1 .9 2 .9 2 .6 2 .5 3 .7 3 .3 1 .5 2 .5 3 .4 3 .2 3 .0 4 .0 3 .2 1 .6 3 .0 3 .4 3 .2 3 .0 4 .0 3 .3 2022 8 .4 9 .3 12 .0 14 .1 14 .0 11 .6 13 .0 2023 5 .4 7 .2 12 .1 9 .4 6 .1 4 .9 8 .6 2024 2025 2026 2022 2023 2024 2025 2026 2 .5 3 .1 5 .8 4 .0 2 .9 2 .8 3 .8 2 .2 2 .5 3 .7 2 .6 2 .4 2 .7 2 .8 2 .0 2 .2 3 .0 1 .8 1 .9 2 .5 2 .4 6 .8 4 .0 9 .6 14 .4 15 .4 12 .6 14 .7 6 .5 3 .8 9 .5 13 .1 13 .3 11 .0 13 .2 6 .7 4 .2 9 .0 12 .7 12 .5 10 .5 13 .0 6 .7 4 .2 8 .8 12 .4 12 .0 10 .0 12 .7 6 .5 4 .0 8 .6 12 .2 11 .5 9 .5 12 .5 Note: NLB Forecasts are highlighted in grey. Source: Statistical offices, Focus Economics. 40 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Bank’s capacity to grow, either organically or through to a one percentage point increase of ROE a .t . (from M&A, while, at the same time, avoiding the capital to around 14% to 15%), and ROE normalised expected to build excessively . exceed 20% (previously around 20%) . The intended pay-out ratio for 2025 from the 2024 results exceeds The outlook for 2025 (i .e ., the outlook for the mid-term 40%, still retaining up to EUR 4 billion in M&A capacity . targets within the final year of the current strategy) will be subject to revision at the upcoming Investor Day in With this guidance on dividends, the Bank will pay May . On the "as-is" presumption, the guidance for 2025 cumulative dividends between 2022 and 2024 in the total indicates the continuation of the current trends with amount of EUR 430 million, well on the path to delivering stable and growing results for the NLB Group . Increased EUR 500 million of dividends in the regular income by EUR 100 million, to around EUR 1,200 2022–2025 period . million and higher dividend distribution also translates Table 10: Market performance and outlook for the period 2023-2025 Regular income CIR Cost of risk Loan growth Dividends ROE a .t . ROE a .t . normalised(ii) M&A potential Last Outlook for 2023 > EUR 1,000 million ~ 46% ~ 0 bps Mid single-digit Actual 2023 Performance EUR 1,108 million 46% -7 bps 5% EUR 110 million EUR 110 million >15% >20% 21% 29% Outlook for 2024 Last Outlook for 2025 > EUR 1,100 million ~ EUR 1,100 million < 50% 20-40 bps Mid single-digit EUR 220 million (40% of 2023 profit) ~ 15% > 20% < 50% 30-50 bps High single-digit EUR 500 million (2022-2025)(i) ~ 14% ~ 20% Tactical M&A capacity of > EUR 4 billion RWA Revised Outlook for 2025 ~ EUR 1,200 million < 50% 30-50 bps High single-digit More than 40% of 2024 profit(i) ~ 15% > 20% M&A capacity of up to EUR 4 billion RWA (i) Future capital returns will be revised during the new 2030 strategy process. (ii) ROE a.t. normalised = result a.t. divided by the average risk-adjusted capital. An average risk-adjusted capital is calculated as a Tier 1 requirement of average RWA reduced by minority shareholder capital contribution. 41 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In the efforts, sacrifices, successes, and triumphs of athletes … Slovenian ski jumping team It's not just about the jump you make, but the courage to take that leap in the first place . Sustainability As a systemically important regional financial institution, NLB Group aims to actively contribute to the sustainable transformation of the economy and society to a more green, just and inclusive future for the present and future generations . Therefore, the Group has placed sustainability matters and ESG factors at the core of its business strategy and business model . The Group regularly monitors and strengthens the overview of our efforts and progress towards business . Total outstanding volume of corporate existing mechanisms, control functions, and activities for transitioning the operational and attributable GHG responsible governance and oversight in sustainability emissions from lending and investment portfolios to and ESG . A vital governance milestone was the adoption align with pathways consistent with achieving net zero of a comprehensive Sustainability Policy in December by 2050 or sooner . 2023, together with the rulebook for harmonised sustainability management across the Group . The policy NLB Group is committed to the highest standards of demonstrates the commitment to our sustainability mission, which is leading by example, improving quality corporate governance, compliance, and integrity . The Group’s fundamental commitment to responsible sustainable financing stood at EUR 331 million . · Based on the Net-Zero Strategy and assessed market potential in the region, the Group set a new commitment in December 2023 to allocate EUR 1 .9 billion by 2030 to clients in sustainable transition . · In June 2023, NLB issued its inaugural senior green bonds in a benchmark nominal value size of EUR 500 million . The proceeds shall be used in line of life, and contributing to a sustainable economy and business conduct is set out in the NLB Group Code with NLB Green Bond Framework which is aligned with society across the Group’s three sustainability pillars: of Conduct . At the same time, specific principles are ICMA principles . The first annual allocation and impact Sustainable Operations Sustainable Finance Contribution to Society stipulated in several domain-specific internal documents in accordance with developments in the sustainability area . In 2023, the Group put particular emphasis on report is expected to be published in June . · Throughout 2023, the Group successfully followed its strategic orientations and annual plans in risk implementing the Policy on Respect for Human Rights in management . Among other improvements, ESG risk its business conduct by setting standards for respect for management was upgraded and further integrated These pillars define and deliver forward-looking human rights in its operations and expecting the same into NLB Group’s overall credit-approval process, strategic principles, objectives, key targets and KPIs, standard to be ensured by its clients and suppliers . Environmental and Social Risk Management System initiatives, and action plans across the NLB Group . NLB, as a parent bank in the Group, is a signatory to the UN Environment Programme Finance Initiative (UNEP FI) Principles for Responsible Banking and Net Zero Banking Alliance . Thereby, The Group members officially endorse the UN Sustainable Development Goals and take decisive actions to address climate- related risks and opportunities and thus contribute to achieving the 2015 Paris Climate Agreement objective to limit global warming to 1 .5°C by mid-century compared to the pre-industrial era . In December 2023, the first NLB Group Net Zero disclosure report was published, reaffirming our commitment to achieving Net-Zero by setting targets for reducing its financed emissions and maintaining a coal exclusion policy . The report provides a comprehensive Overview of sustainability pillars – key achievements Sustainable Finance · NLB Group’s portfolio decarbonisation strategy focuses on four key sectors: power generation, iron and steel, residential real estate, and commercial real estate, where the Group has significant emissions and exposure and has set NZBA-aligned targets . · The Group finances its corporate and retail clients in their sustainable transition and actively engages with them to encourage the development of their own net-zero strategies . · At the end of 2023, the Group’s total new production volume of sustainable financing4 stood at EUR 287 million, of which EUR 198 million was corporate, and EUR 89 million was retail and micro (ESMS), collateral evaluation process and related credit portfolio management . Methodologies in credit rating classification and ESG due diligence were improved, within NLB Group’s commitment to the strict limitation of new financing of certain activities, the Lending Policy was amended with a new exclusion list . 16 .0Sustainalytics' ESG Risk Rating 43 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 4 Green lending classification refers to the internal methodology of NLB Group, which refers to EBRD, MIGA, Green bond and EU taxonomy frameworks (and NZBA in case of retail green lending). If a loan is mapped to either of these frameworks, it is considered as a green loan. Contents end of 2022 . The calculation of operational carbon our corporate social responsibility activities with an footprint (Scope 1, Scope 2, Scope 3, limited and without overarching focus on education in the communities Sustainable Operations · At the Group, sustainable operations mean managing our non-financial operations by being an environmentally responsible institution and ensuring sustainable relations with our stakeholders . · At the end of 2023, the Group’s operational carbon footprint decreased by 7 .6% in comparison with the category 15) has been in place since 2019, follows the GHG Protocol, and is annually verified by an external independent institution . In line with the Group’s climate- neutral commitment, we started the initiative to reach operational net-zero by 2050 or sooner . · In 2023, the Group made advancements in implementing ESG factors in the procurement process, such as implementing bidders and suppliers due diligence . · The Group stayed committed to high standards in all aspects of sustainable client relations, including identifying clients’ needs and issues, responsible product development and offering, responsible marketing communications, providing the awareness-building Sustainability Festival was European Sustainability Reporting standards ESRS by executed in October, which actively engaged more conducting the new double materiality analysis and than 1,000 employees in several sustainability activities . further improving and automating the data collecting 44 Contribution to Society · The Group actively contributes towards more comprehensive socio-economic development through where it operates . · In 2023, NLB Group continued to manage CSR activities in such way that each of them contributes to at least one UN SDG5 . · Among several other initiatives in 2023, the Group also focused on increasing financial and digital literacy and financial inclusion, especially among young people and the elderly . More information is available in the chapter process . In addition, we will keep integrating other relevant reporting frameworks, such as IFRS S1/S2 (where TCFD was transposed at the end of 2023) and keep following the implications of the Taskforce on Nature-related Financial Disclosures (TNFD) proposal . · Identifying and mitigating ESG risks and pursuing opportunities stemming from lending or investment portfolios and business relations with key stakeholders, while following ECB and EBA guidelines . . · Further commitment to building sustainability-related awareness, culture, and capacity in all NLB Group members . · Exploring possibilities to influence and further strengthen the Group’s value chain in terms of Corporate Social Responsibility . sustainable practices . Outlook The Group recognises sustainability, particularly confidentiality and privacy of client data, as well as climate change, as one of modern society’s most cyber- and physical security . · At the Group, sustainable practices and human resource management are strongly interconnected . In significant challenges . The call to drastically change how companies, governments, and individuals – consumers – address sustainability is expected to be addition to adhering to labour-related regulation, the intensified in 2024 and onwards . To further improve Group invested in employee development, provided its environmental and social impacts and maintain a diverse and inclusive workplace environment, high corporate governance standards, the Group will motivational and remuneration mechanisms, increased continue to implement initiatives and activities across all the number of trainings per employee, promoted three sustainability pillars in accordance with the annual health, safety, and well-being, improved employee engagement, and received the award Top Employer for the 8th consecutive year . · Sustainability training for employees in all hierarchical levels was provided to enhance and further develop their capacity and skills . In total, employees did action plans . The main priorities in 2024 are as follows: · Fortify the implementation of the UN Principles for responsible banking in our business model and upgrade targets in our priority impact areas . · Further developing and implementing a comprehensive NLB Group climate strategy, including 7,572 total hours of sustainability-related training, in pathways to decarbonise the Group’s portfolio and NLB Group's overall ESG Risk score improved by 1.7 points. This represents low risk and ranks the Group among the top 13 percent of all banks assessed with Sustainalytics NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report particular to enhance awareness of ESG risks and their appropriate treatment, as well as to strengthen the employees’ client engagement capacity and practices operations by 2050 . · Financing the green transition of the Group corporate and retail clients in line with our net-zero commitment Despite its clear ambition and action to mitigate sustainability risks, the finance sector’s role, including the Group, has its limitations . Climate action, as well as to support the Net-Zero Strategy . · Two major initiatives were completed further to enhance the sustainable culture among employees in 2023 . The renewed e-training on sustainability was launched across the Group in September and completed by all employees . The Group-wide by providing them with sustainable banking, leasing positive changes in business and society, necessitate and asset management products . · Implementing the newly introduced sustainability- related governance framework across the NLB Group . · Providing CSRD readiness and aligning sustainability disclosures with the forthcoming new directive and collective efforts . It is imperative for the clients to also take action, while governments should provide the necessary guidance and direction, regulatory environment through dedicated policies to achieve net-zero goals by 2050 . Therefore, the NLB Group will continue to engage 5 For a full list of the 17 Goals of the United Nations Sustainable Development, see the UN website. Contents stakeholders, build partnerships, and contribute to discussions on further improving sustainability-related Culture and protection of cultural heritage The Bank is a great patron of developing Slovenian art managers and women entrepreneurs with the aim of networking and sharing experiences . Through inspiring regulations and supportive environment . and culture . As a responsible owner of an extensive stories, the goal was to empower each other and point This section summarises the NLB Group’s results and works internationally . The Group launched a new key initiatives in each sustainability pillar For more NLB Group Art Programme for visual arts, aiming to NLB Komercijalna Banka organised a traditional information, please refer to the NLB Group Sustainability support contemporary art in SEE, including investing in Organic contest to encourage organic agriculture in collection of 20th-century art heritage, the Bank exhibits out the positive sides of female togetherness . Report 2023 . Corporate Social Responsibility The Group remains determined to create more sustainable footprints in its home region . The main pillars stay the same, with some awe-inspiring projects . More information is also available in NLB Group Sustainability Report 2023 . Education, financial literacy, and mentoring In 2023, Bankarium, the pioneering Slovenian Banking Museum founded by NLB in 2021, welcomed 3,854 visitors . Beyond its role as a museum, Bankarium stands as a financial literacy centre, guiding visitors through six stages of personal finance management with interactive digital games, quizzes, and educational resources . It is widely accepted and enjoyed by school groups, through which the Group significantly contributes to knowledge transfer for future generations . NLB Banka, Podgorica extended its outreach in Montenegro, hosting financial literacy programs in seven schools and facilitating dialogues with youths in four cities . Young people discussed various aspects, from banking to social entrepreneurial initiatives to financial management . acquisitions and commissions of works of art and art projects and design a new art collection called "SEE ART ." Responsibility to the environment To be responsible for the environment is to care for nature . In response to the degradation of a section of the southern Trnovski gozd, a forest located near Nova Gorica, Slovenia, due to recent natural disasters, the Bank’s employees planted 2,500 seedlings across approximately one hectare to aid regeneration efforts . Serbia . This year, 50 innovative projects have applied to the 12th NLB Organic, and the best four have been rewarded with RSD 2 .5 million . In addition to the award for the best project in organic agriculture, new categories were women, youths under 40, and the service industry that offers at least one organic product from Serbia . Supporting youth, female, and disabled sports NLB takes great pride in its long-standing NLB Youth Similarly, NLB Banka Banja Luka organised a tree- planting initiative with colleagues from the Bijeljina Sports project in Slovenia . In 2023, the project reached its ninth year, supporting a remarkable 66 sports branch and local partners to prevent soil erosion in clubs and 10,000 children . NLB Group's commitment flood-prone areas . extends beyond Slovenia, as the Bank actively supports youth sports in other markets, with over 2,000 children By supporting Slovenian beekeeping, which is among participating across the Group's region . the best in the world, NLB endorses the preservation of a rich cultural heritage and the protection of the environment . On the 150th anniversary of the Slovenian Beekeeping Association, NLB enabled the organisation Furthermore, NLB Group demonstrates its dedication to inclusivity through the NLB Wheel project, donating two sports wheelchairs specifically for disabled basketball of the 2023 International Young Beekeepers players and giving ongoing support to KHF Istog, one of Competition, which took place in Slovenia in the Kosovo's most successful women's handball clubs . summer . The first competition of this kind in Slovenia was attended by over 150 participants from 30 countries across the globe, marking a significant milestone for Slovenian beekeeping . Sustainable entrepreneurship The goal of several "Women in Adria" events that were Philanthropy NLB Group made a substantial donation totalling EUR 1 .35 million across all markets of operations in the home region . Employees proposed and selected recipients for the donation . In response to devastating floods in Slovenia, the Bank donated EUR 9 .5 million to help the organised by NLB Banka, Banja Luka throughout most affected citizens and municipalities . Bosnia and Herzegovina was to bring together women 45 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Overview of Financial Performance The Group posted a profit after tax of EUR 550 .7 million, surpassing the previous year by a remarkable EUR 103 .8 million, representing a 23% YoY increase . It is important to highlight that the 2023 result was positively impacted by the booking of deferred tax assets (EUR 61 .9 million), and the 2022 result by the negative goodwill from the acquisition of N Banka (EUR 172 .8 million) . The following key drivers influenced the Group’s performance: · Despite the challenging rising interest rate environment, the Group experienced a YoY increase of · A significant 65% YoY increase in net interest income was driven by healthy loan demand and the effects of higher interest rates on loans and central bank balances . The deposit beta (the cumulative change EUR 666 .2 million in gross loans to customers, of which of the average customer deposit interest rate EUR 491 .9 million went to individuals . · More attractive pricing, especially for term deposits, caused a EUR 705 .0 million increase in the deposit base YoY, of which EUR 511 .6 million from individuals and EUR 293 .7 million from corporates . A total EUR 100 .2 million decrease in the state deposit reflected the compared with the cumulative change of the average ECB deposit facility rate) in the respective period was 8% on the Group level . Consequently, the annual net interest margin improved by 1 .21 p .p . YoY to 3 .50% . · Net fee and commission income benefitted from the favourable impact of economic activity and an upswing high price elasticity of the deposits of the certain large in consumer spending across all banking members . clients in Slovenia . Additionally, increased activity in investment funds, bancassurance, and guarantee business contributed Figure 12: Profit after tax of NLB Group – evolution YoY (in EUR millions) 4.6 -38.3 -41.6 14.8 0.3 -172.9 328.4 446.9 EUR 1,093 .3 million of total net operating income 10.1 -1.7 550.7 46 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 2022 Net interest income Net fee and commission income Other net non- interest income Total costs Impairments and provisions Share of profit from investments in associates and joint ventures Negative goodwill Income tax Results of non- controlling interests 2023 Contents EUR 550 .7 million of net profit positively to fees . The effects of cancelling the high balance deposit fee in the Bank and implementing temporary measures, particularly in Serbia, were therefore effectively mitigated and resulted in a moderate 2% increase of net fee and commission income YoY . · NLB donated a total amount of EUR 11 .5 million, of which EUR 9 .0 million was a direct voluntary contribution to the budget and municipalities for flood recovery in Slovenia, the rest being discretionary support payments . · Total costs witnessed an uptick of EUR 41 .6 million or 9% YoY owing to several factors, namely, general inflationary trends within the region, investments into technology enhancements across the Group, rate) . The unrecognised deferred tax assets amount to Recurring profit before impairments and provisions of EUR 127 .7 million . Additionally, the deferred tax liability the Group, totalling EUR 606 .3 million, was exceptional for withholding tax on dividends, which are projected in 2023, with EUR 287 .6 million or 90% higher YoY . In to be paid in the foreseeable future in the amount of Q1 2023, the result before impairments and provisions EUR 9 .6 million, was recorded on NLB Group . · Enhanced financial performance resulted in ROE a .t . at 21 .0%, which was 8 .8 p .p . higher YoY (compared to 12 .2% in 2022 without the inclusion of negative goodwill) . · A sound financial position was confirmed by a robust Total Capital Ratio (TCR) of 20 .3%, which improved was affected by the accrual of a one-time yearly payment of regulatory costs in Slovenian banks (EUR 2 .9 million Single Resolution Fund (SRF) and EUR 8 .6 million Deposit Guarantee Scheme (DGS)), in Q3 by EUR 4 .0 million in donations to 20 municipalities affected by the floods in Slovenia, in by 1 p .p . YoY primarily due to the partial inclusion of Q4 by EUR 5 .0 million in additional donations for the 2023 result . · The multi-year declining trend of the non-performing credit portfolio stock continued, mostly due to post-flood reconstruction effort, and a EUR 15 .3 million modification loss due to interest rate regulation on housing loans in NLB Komercijalna Banka, Beograd . repayments, cured clients, and collection . The combination of successful resolution of NPL and credit growth of a high-quality portfolio resulted in the decrease of gross NPL ratio (EBA def .) from 2 .4% to 2 .1% YoY, and the NPE ratio (EBA def .) by 0 .2 p .p . YoY to 1 .1% . · Unencumbered liquidity reserves portfolio amounted to EUR 10,207 .1 million (39 .6% of total assets) . the expansion of the leasing and asset management Figure 13: Result before impairments and provisions of NLB Group (in EUR millions) activities, the intensive integration process in Slovenia (EUR 9 .2 million of integration costs in 2023), and costs related to the new acquisition . · The Group net released EUR 11 .8 million in impairments and provisions for credit risk, attributed to material repayments of previously written-off receivables and changes in the model, despite new establishments from portfolio development in loans to individuals . Consequently, the cost of risk was negative at -7 bps . · Other impairments and provisions were net established in the amount of EUR 25 .9 million, mainly due to pending fee repayments in the Slovenian banks, HR restructuring provisions in the Bank, and legal provisions . · Based on substantially increased profit projections for the upcoming five years (2024 onwards) and the higher corporate income tax rate (nominal rates increased from 19% to 22%), the Bank increased the recognised part of the deferred tax assets by EUR 61 .9 million +75% 591.4 645.4 338.3 354.9 19.5 -36.1 -14.9 -39.1 124.8 136.2 146.1 155.2 168.2 180.5 152.3 173.5 6.8 -18.2 -1.3 -7.8 -5.9 -6.4 -14.5 -6.7 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Result before impairments and provisions w/o non-recurring income and regulatory costs Non-recurring net non-interest income (EUR 48 .4 million recognised income due to profit Regulatory costs projections and EUR 13 .5 million due to increase of tax 47 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents All banks recorded a profit on a standalone basis and positively contributed to the Group’s result . The largest contribution of EUR 269 .6 million came from NLB, followed by NLB Komercijalna Banka, Beograd, with EUR 131 .7 million . The YoY contribution of NLB was notably higher due to elevated net interest income and net released impairment and provisions . The SEE banks contributed 44% to the Group result with growth achieved in all banks . For more information on banks’ operations, see the chapters NLB, Ljubljana and Strategic Foreign Markets . Figure 14: Contribution to Profit after tax by bank member (in EUR millions) +224% 269.6 83.3 -93% 184.1 NGW 172.8 +99% 131.7 66.2 48.9% NLB Other 1.1% NLB Banka, Podgorica 4.4% NLB Banka, Prishtina 5.4% NLB Banka, Sarajevo 2.3% NLB Banka, Banja Luka 4.4% EUR 550.7 million NLB Banka, Skopje 7.2% 2.3% N Banka(i) 23.9% NLB Komercijalna Banka, Beograd +20% 39.7 33.1 +26% 24.3 19.4 +12% 11.1 12.5 +11% 26.6 29.5 +48% 24.5 16.6 12.7 NLB(i) N Banka(i) NLB KB, Beograd(ii) NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica 2022 2023 (i) Merger of NLB and N Banka on 1 Sept ember 2023. (ii) Merger of NLB Komercijalna Banka, Beograd and NLB Banka, Beograd on 30 April 2022. The profit of NLB Komercijalna Banka, Beograd in 2022 also includes the profit of NLB Banka, Beograd (EUR 2.2 million). 48 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Income statement Table 11: Income statement of NLB Group Net interest income Net fee and commission income Dividend income Net income from financial transactions Net other income Net non-interest income Total net operating income Employee costs Other general and administrative expenses Depreciation and amortisation Total costs Result before impairments and provisions Impairments and provisions for credit risk Other impairments and provisions Impairments and provisions Share of profit from investments in associates and joint ventures Negative goodwill Result before tax Income tax Result of non-controlling interests Result after tax 2023 833 .3 278 .0 0 .2 17 .3 -35 .4 260 .0 1,093.3 -282 .2 -170 .5 -49 .2 -501 .9 591.4 11 .8 -25 .9 -14 .1 1 .1 0 .0 578.4 -15 .1 12 .6 550.7 2022 504 .9 273 .4 0 .2 36 .6 -16 .6 293 .6 798.5 -257 .7 -155 .2 -47 .4 -460 .3 338.3 -17 .5 -11 .4 -28 .9 0 .8 172 .9 483.1 -25 .2 11 .0 446.9 Change YoY Q4 2023 Q3 2023 Q2 2023 Q1 2023 Change QoQ in EUR millions 328 .4 4 .6 -0 .1 -19 .3 -18 .9 -33 .7 294.7 -24 .5 -15 .2 -1 .8 -41 .6 253.2 29 .3 -14 .5 14 .8 0 .3 -172 .9 95.3 10 .1 1 .7 103.8 65% 2% -30% -53% -114% -11% 37% -10% -10% -4% -9% 75% - -128% 51% 37% - 20% 40% 15% 23% 231 .9 72 .4 0 .0 -2 .3 -9 .5 60 .6 292.5 -74 .7 -51 .8 -13 .7 -140 .2 152.3 -15 .0 -13 .0 -28 .0 -0 .2 0 .0 124.0 42 .8 3 .0 163.8 221 .5 70 .9 0 .1 4 .7 -8 .0 67 .7 289.2 -70 .0 -38 .8 -12 .0 -120 .9 168.2 -3 .1 -0 .7 -3 .8 0 .7 0 .0 165.1 -18 .0 2 .8 144.2 201 .0 68 .5 0 .0 6 .0 -5 .8 68 .7 269.7 -70 .6 -41 .1 -11 .8 -123 .6 146.1 11 .5 -6 .2 5 .4 0 .3 0 .0 151.8 -25 .9 3 .3 122.6 179 .0 66 .1 0 .0 8 .9 -12 .1 63 .0 241.9 -66 .8 -38 .7 -11 .7 -117 .1 124.8 18 .4 -6 .0 12 .4 0 .3 0 .0 137.5 -13 .9 3 .4 120.1 10 .4 1 .4 0 .0 -7 .0 -1 .5 -7 .1 3.3 -4 .7 -12 .9 -1 .7 -19 .3 -15.9 -11 .8 -12 .4 -24 .2 -1 .0 0 .0 5% 2% -68% - -18% -10% 1% -7% -33% -14% -16% -9% - - - - - -41.1 -25% 60 .8 0 .2 19.5 - 7% 14% 49 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Net interest income The Group’s net interest income constituted 76% of the Group’s total net revenues (2022: 63%) and reached EUR 833 .3 million . A significant increase in the net interest income was recorded in all Group banking members, supported by loan volume growth from healthy demand for loans coupled with prevailing higher interest rates . The growth mainly came from loans to customers, with EUR 253 .7 million (EUR 98 .3 million allocated to individuals and EUR 155 .4 million to corporate and state), and balances at banks and central banks amounting to EUR 127 .7 million . At the same time, interest expenses increased due to higher expenses incurred from wholesale funding raised for the minimum requirement for own funds and eligible liabilities (MREL) and capital requirement, as well as higher expenses for customer deposits . Profitability protection is one of the NLB Group’s priorities . Net interest income sensitivity, simulated by 100 bps immediate parallel downward shift in interest rates, yields a net interest income sensitivity of EUR -101 million, mostly driven by the cash and Euribor rate positions . Focus on stabilising net interest income includes on-going increased fixed interest rate loan production, active management of funding mix, liabilities hedging activities, and increasing duration of BB securities portfolio . Funding cost grew at much lower pace than interest rates on assets and consequently, the Group’s annual net interest margin was improved by 1 .21 p .p . to 3 .50% in 2023 . The annual operational business margin was 4 .75%, 1 .19 p .p . higher YoY, mainly due to the net interest income growth . Figure 15: Net interest income of NLB Group (in EUR millions) +65% 833.3 504.9 569.8 -64.9 2022 993.4 -160.1 2023 179.0 207.0 201.0 233.2 221.5 267.7 231.9 285.4 -28.0 -32.2 -46.2 -53.5 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Interest income Interest expenses Figure 16: Net interest margin and operational business margin of NLB Group(i) (quarterly data) 4.39% 3.14% 4.73% 3.46% 4.89% 3.64% 4.99% 3.74% 50 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Q1 2023 Q2 2023 Q3 2023 Q4 2023 Net interest margin Operational business margin (i) Calculated based on average interest-bearing assets. Contents Figure 17: Net non-interest income of NLB Group (in EUR millions) 4 .0 million in donations were paid to 20 municipalities 293.6 -11% 19.5 0.7 260.0 Net non-interest income The overall YoY decrease in the net non-interest income derives from the negative impact from non-recurring income . In Q1, the gain of EUR 4 .2 million was realised from the sale of real estate in Serbia, and in Q3, EUR affected by the floods in Slovenia . In Q4, there were EUR 5 .0 million additional donations paid for the post-flood reconstruction effort, and a EUR 15 .3 million modification loss was recorded for interest rate regulation on housing loans in NLB Komercijalna Banka, Beograd . Additionally, regulatory charges were also higher by EUR 2 .9 million YoY due to higher deposit base, mostly occurring in Q1 due to accrual of one-off expenses in Slovenia . Despite a decline in the net non-interest income, the net fee and commission income – a significant part of it – recorded modest growth . The negative effects of the cancellation of the high balance deposit fee in the Bank and temporary measures for consumer protection, particularly in Serbia, were effectively mitigated with the positive impact of increased economic activity and consumption, leading to higher fees across all banking members . Additional positive influence on fees came from the increased performance of investment funds, bancassurance, and guarantee business . 273.4 278.0 6.8 63.0 66.1 1.5 68.7 68.5 67.7 70.9 2.6 60.6 2.8 72.4 2022 -14.9 2023 -3.1 -10.0 -1.3 -5.9 -14.5 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Net fee and commission income Recurring other net non-interest income Non-recurring other net non-interest income 51 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Total costs Total costs amounted to EUR 501 .9 million and were 9% higher than the previous year . The increase was observed in all banks of the NLB Group, and was primarily driven by a EUR 24 .5 million rise in employee costs and a EUR 15 .2 million increase in other general and administrative expenses . The escalation in depreciation and amortisation resulted from higher investment activity in the last quarter . The growth of the other general and administrative expenses can be attributed to the general inflationary trends within the region, investments into technology enhancements across the Group, growth of the leasing and asset management activities, the intensive integration process in Slovenia (EUR 9 .2 million integration costs in 2023), and costs related to new Figure 18: Total costs of NLB Group (in EUR millions) +9% 501.9 49.2 170.5 460.3 47.4 155.2 257.7 282.2 117.1 66.8 11.7 38.7 123.6 70.6 11.8 41.1 120.9 70.0 12.0 38.8 140.2 74.7 13.7 51.8 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 acquisition . The Group is undertaking several initiatives Employee costs Other general and administrative expenses Depreciation and amortisation (some of them are channel strategy, digitalisation, going paperless, instituting a lean process, and branch network optimisation) to keep costs low . In Q3, some cost optimisation and HR synergies related to the merger of NLB and N Banka were observed . However, owing to prevailing circumstances and current economic situation, characterised by significant inflationary pressures across all cost categories, many of the successful efficiency measures across the Group were nullified . The costs were increasing throughout the year, with a higher share occurring in the last quarter (28% of total costs, the same as in the previous year) due to year- end employee payments and higher IT and marketing costs (sponsorships) . CIR stood at 45 .9%, representing a significant 11 .7 p .p . improvement YoY, driven by strong net operating income growth that outpaced the increase in total costs . 52 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Impairments and provisions The Group released net impairments and provisions for credit risk in the amount of EUR 11 .8 million . The established impairments derived from portfolio development, from new financing and minor portfolio deterioration . In contrast, material repayments of written-off receivables and changes in models contributed to lower total impact and negative cost of risk in the financial year . Other impairments and provisions were net established in the amount of EUR 25 .9 million, mainly due to pending fee repayments in the Slovenian banks and HR restructuring provisions in the Bank . Figure 19: Impairments and provisions of NLB Group (in EUR millions) CoR (bps) 14 -7 11.8 -25.9 -14.1 2023 -17.5 -11.4 -28.9 2022 12.4 18.4 -6.0 5.4 11.5 -6.2 -3.1 -0.7 -3.8 -15.0 -13.0 -28.0 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Impairments and provisions for credit risk Other impairments and provisions 53 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Corporate income tax and deferred taxes of NLB, Ljubljana The effective tax rate in 2023 was significantly influenced The effective tax rate of NLB, excluding deferred tax effect, the overall contribution rate will be substantially by several non-recurring items, with the most material assets revaluation, non-taxable dividends, and non- higher and is expected to be slightly less than 20% on impact coming from the increase of deferred tax taxable reversal of equity investments, amounts to 11% NLB Group level until 2028 . When both changes expire, assets . Based on a highly successful year in 2023 and at NLB d .d ., on group level 12% (excluding also non- and when NLB’s tax loss carry forward will be utilised, increased profit projections for the upcoming five taxable interest from state bonds, according to the we expect a regular effective tax/contribution rate of years (from 2024 onwards), NLB increased recognised local tax legislations) . Including voluntary contributions around 15% . deferred tax assets of EUR 56 .7 million in 2023 (EUR paid in Slovenia to Republic of Slovenia and Slovene 48 .4 million recognised in income statement and EUR municipalities the equivalent rate amounts to 14% . The Minimum Tax Act was adopted in Slovenia in 8 .3 million in other comprehensive income) . Deferred December 2023 based on OECD Pillar 2 Model Rules taxes were additionally increased for EUR 14 .9 million Based on the Reconstruction, Development and and related EU Directive . It is expected that the parent due to a higher corporate income tax rate in the next Provision of Financial Resources Act, the tax on balance company NLB will be liable to pay the top-up tax five years (2024 to 2028), namely EUR 13 .5 million income sheet was introduced for the years 2024-2028 (yearly concerning subsidiaries in non-EU jurisdictions that recognised in income statement and EUR 1 .4 million in tax liability is estimated to amount to more than EUR 30 have a statutory tax rate below 15% . Based on the first other comprehensive income . million), and the tax rate for corporate income tax was estimates for the year 2024, we expect that the tax The other factor influencing the effective tax rate of From 2024 on, when these two changes will come into increased from 19% to 22% for the years 2024 to 2028 . liability shall not be material . NLB was the non-taxable income, consisting mostly of received dividends and the release of impairments of equity investments in subsidiary banks . In addition, Table 12: Effective tax and contribution rates tax losses carry-forward decreased 50% of the taxable base . Profit before tax Non-taxable income Non-taxable dividends received Non-taxable reversal of equity investments Non-taxable interest from state bonds Taxable income Adjustments Utilization of tax loss carry forward Other adjustments(i) Tax base Corporate income tax (at 19%) Withholding tax (mainly dividends) & other Recognition and increase of DTAs Non-recognised deferred tax assets on current loss and other Total tax Regular tax payable (corporate income tax and withholding tax) Effective tax rate for regular tax Donations to state and municipalities Contribution (regular tax and donations) Overall contribution rate (i) Effect of different tax rates in other countries is included in other adjustments. NLB 479 -236 -138 -98 0 243 -145 -115 -30 98 18 8 -62 0 -36 26 11% 9 35 14% in EUR millions NLB Group 578 0 0 0 -40 538 -232 -117 -115 306 58 8 -62 11 15 66 12% 9 75 14% 54 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Statement of financial position Table 13: Statement of financial position of NLB Group ASSETS Cash, cash balances at central banks, and other demand deposits at banks Loans to banks Net loans to customers Gross loans to customers  - Corporate  - Individuals  - State Impairments and valuation of loans to customers Financial assets  - Trading book  - Non-trading book Investments in subsidiaries, associates, and joint ventures Property and equipment Investment property Intangible assets Other assets TOTAL ASSETS LIABILITIES Deposits from customers  - Corporate  - Individuals  - State Deposits from banks and central banks Borrowings Subordinated debt securities Other debt securities in issue Other liabilities Equity Non-controlling interests TOTAL LIABILITIES AND EQUITY 31 Dec 2023 31 Dec 2022 Change YoY 31 Dec 2023 30 Sep 2023 30 Jun 2023 31 Mar 2023 in EUR millions 6,103 .6 5,271 .4 547 .6 13,734 .6 14,063 .6 6,437 .8 7,235 .3 390 .4 -329 .0 4,803 .7 15 .8 4,787 .9 12 .5 278 .0 31 .1 62 .1 368 .7 223 .0 13,073 .0 13,397 .3 6,345 .7 6,743 .4 308 .2 -324 .4 4,877 .4 21 .6 4,855 .8 11 .7 251 .3 35 .6 58 .2 358 .6 832 .2 324 .7 661 .6 666 .2 92 .1 491 .9 82 .3 -4 .6 -73 .8 -5 .8 -68 .0 0 .8 26 .7 -4 .5 3 .9 10 .1 25,942.0 24,160.2 1,781.7 20,732 .7 5,859 .2 14,460 .3 413 .2 95 .3 240 .1 509 .4 828 .8 587 .6 2,882 .9 65 .1 20,027 .7 5,565 .6 13,948 .7 513 .4 106 .4 281 .1 508 .8 307 .2 506 .7 2,365 .6 56 .7 705 .0 293 .7 511 .6 -100 .2 -11 .1 -41 .0 0 .6 521 .6 80 .9 517 .3 8 .4 25,942.0 24,160.2 1,781.7 16% 146% 5% 5% 1% 7% 27% -1% -2% -27% -1% 7% 11% -13% 7% 3% 7% 4% 5% 4% -20% -10% -15% 0% 170% 16% 22% 15% 7% 6,103 .6 5,815 .7 5,760 .4 5,304 .3 547 .6 13,734 .6 14,063 .6 6,437 .8 7,235 .3 390 .4 -329 .0 4,803 .7 15 .8 4,787 .9 12 .5 278 .0 31 .1 62 .1 368 .7 518 .6 13,666 .1 13,990 .2 6,526 .0 7,107 .2 357 .1 -324 .2 4,653 .1 25 .0 4,628 .1 13 .0 257 .1 33 .1 55 .4 266 .0 304 .7 13,431 .8 13,747 .3 6,454 .4 6,945 .8 347 .1 -315 .5 4,553 .7 21 .1 4,532 .6 12 .3 254 .3 34 .5 56 .1 293 .6 329 .1 13,137 .7 13,455 .0 6,269 .3 6,850 .7 335 .0 -317 .3 4,582 .5 19 .3 4,563 .3 12 .0 252 .1 35 .3 56 .9 301 .9 25,942.0 25,278.0 24,701.5 24,011.8 20,732 .7 5,859 .2 14,460 .3 413 .2 95 .3 240 .1 509 .4 828 .8 587 .6 2,882 .9 65 .1 20,289 .1 5,676 .8 14,156 .7 455 .7 127 .2 221 .0 529 .0 810 .0 504 .9 2,734 .9 61 .9 19,924 .9 5,363 .7 14,168 .6 392 .5 107 .4 220 .0 520 .0 814 .5 469 .3 2,586 .1 59 .2 25,942.0 25,278.0 24,701.5 19,732 .0 5,331 .8 13,951 .7 448 .5 107 .4 279 .9 513 .2 311 .7 499 .6 2,507 .6 60 .3 24,011.8 55 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The balance sheet volume of the Group totalled EUR Figure 20: Balance sheet structure of NLB Group on 31 December 2023 (in EUR millions) 25,942 .0 million at the end of the year and increased by EUR 1,781 .7 million YoY . Growth in the customer’s loan book was fully financed with growth in customer deposits, while additional MREL funding increased the Other assets 753 liquidity reserves . 25,942 25,942 Financial assets 4,804 Other liabilities 588 Other debt securities in issue 829 Cash equivalents & placements with banks 6,651 Total equity 2,948 Deposits from customers 20,733 Subordinated debt securities 509 Deposits from banks and central banks & Borrowings  335 Deposits from state 2.0% Deposits from individuals 69.7% Deposits from corporate 28.3% 20,733 13,735 Net loans to customers 13,735 Loans to corporate 45.6% Loans to individuals 51.6% Loans to state 2.8% The LTD ratio (net) was 66 .2% at the Group level; a 1 .0 p .p . YoY increase resulted from higher relative increase of gross loans compared to deposits . Assets Liabilities Figure 21: NLB Group’s LTD ratio movement 65.3% 20,027.7 66.2% 20,732.7 13,073.0 13,734.6 31 Dec 2022 31 Dec 2023 LTD Net loans (in EUR millions) Deposits (in EUR millions) 56 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Assets Figure 22: Total assets of NLB Group – structure (in EUR millions) +7% 24,160.2 715.5 25,942.0 752.5 4,877.4 13,073.0 5,494.3 31 Dec 2022 4,803.7 13,734.6 6,651.2 31 Dec 2023 The distribution of total assets between countries was Figure 23: Total assets of NLB Group by country (in %)(i) Cash equivalents, placements with banks and loans to banks Financial Assets Net loans to customers Other Assets similar to the previous year, with 57 .2% of the total assets related to the Group members located in Slovenia and 19 .6% in Serbia . 2023 57 .2% Slovenia 19 .6% Serbia 7 .3% N. Macedonia 7 .5% BiH 4 .7% Kosovo 3 .6% Montenegro 2022 57 .7% Slovenia 19 .3% Serbia 7 .6% N. Macedonia 7 .4% BiH 4 .5% Kosovo 3 .4% Montenegro 57 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 0 .1% Other ( i) The geographical analysis includes a breakdown of items with respect to the country in which individual NLB Group members are located. 0 .1% Other Contents The lending activity continued with stable growth in Slovenia (NLB and N Banka), with stable new loan Gross loans to corporate and state in Slovenia increased 2023 . The highest increase of 9% was recorded in production of housing loans in the contractual amount by EUR 3 .3 million YoY where in the beginning of 2023, loans to individuals in the SEE banks, with each Group of EUR 393 .1 million in 2023 (EUR 749 .5 million in 2022) . the volume decreased by EUR 120 million due to the member bank recording high YoY growth from 5% to Conversely, the new production of consumer loans repayment of extraordinary liquidity lines for energy 18% in outstanding loan balances . The new production improved, with EUR 394 .1 million new deals approved in companies provided in December 2022 . New production of loans was high, with over EUR 900 million of new 2023 (EUR 268 .3 million in 2022) . was high, with almost EUR 1 .3 billion in new loans consumer loans approved (10% more than in the previous year) . Most SEE banks also recorded growth in corporate and state loans, with the highest 11% growth achieved in NLB approved in 2023 . Despite higher interest rates, the solid growth in the Komercijalna Banka, Beograd . volume of loans to individuals was also recorded in Figure 24: NLB Group gross loans to customers dynamics (in EUR millions) Gross loans to individuals NLB Group +7% 6,743.4 7,235.3 4.74% 5.71% NLB(i)(ii) SEE Banks(i) +5% +9% 3,448.0 3.84% 3,608.8 4.72% 3,220.9 5.66% 3,523.1 6.63% 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 Gross loans to corporate & state +3% 6,653.9 6,828.2 3.04% 5.09% +0% 3,667.8 4.61% 3,664.5 2.19% +6% 3,245.4 5.50% 3,050.3 3.84% 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 Gross loans Interest rates (i) On a standalone basis. (ii) Merger of NLB and N Banka on 1 September 2023. Volumes for 2022 for N Banka and NLB, interest rates only for NLB. 58 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Despite significant portfolio growth in all NLB Group the volume of housing loans are still prevailing . Most of of the loan portfolio was linked to a fixed interest rate, banks in 2023, the loan portfolio remained well- the loan portfolio refers to the euro currency, while the and the rest mainly to the Euribor reference rate . 59 diversified, and there was no large concentration in any rest originates from the local currencies of the Group specific industry or client segment . In the retail portfolio banking members . From interest rate type, almost 66% Figure 25: Loan portfolio(i) by segment, geography, currency, and interest rate type (in EUR millions) by segment(iv) Institutions 451 2% SME 3,764 19% State(ii) 5,928 29% EUR 20 .2 billion Corporates 2,865 14% Retail consumer 3,131 15% Retail housing 4,105 20% by geography Other(iii) 670 3% Serbia 4,084 20% Kosovo 1,016 5% Montenegro 723 4% N. Macedonia 1,493 7% EUR 20 .2 billion Slovenia 10,811 53% BiH 1,447 7% by currency by interest rate Floating 34% EUR 20 .2 billion EUR 82% EUR 20 .2 billion Fixed 66% Other 1% BAM 4% MKD 5% RSD 8% (i) The loan portfolio also includes account balances, required reserves at CBs, and demand deposits at banks. (ii) State includes exposures to CBs. (iii) The largest part represents EU members. (iv) Segmentation following the company size defined in the Companies Act of an individual country in the region. NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The banking book debt securities portfolio slightly Two business models are implemented, dividing the and related deferred taxes) . New FVOCI investments decreased YoY to EUR 4,687 million (book value), portfolio into securities valued at fair value through are typically placed at a short duration . In contrast, constituting 18 .1% of the Group’s total assets compared other comprehensive income (FVOCI) and securities the AC portfolio at year-end increased to 53 .8% of the to 19 .7% in 2022 . The portfolio’s average duration valued at amortised cost (AC) . The FVOCI portfolio at total Group debt securities portfolio, with an average at year-end was 2 .8 years (2022: 2 .7 years), and the year-end represented 46 .2% of the total Group debt duration of 3 .7 years . Unrealised losses of AC Group’s average yield was 0 .55 p .p . higher in 2023, reaching securities portfolio, 13 .5 p .p . lower YoY, with an average debt securities portfolio during 2023 amounted to EUR 1 .67% . duration of 1 .9 years . The negative valuation of FVOCI 81 million . The ESG portfolio represented 6 .5% of the Group’s debt securities portfolio during 2023 amounted whole portfolio . Additional information is available in to EUR 89 million (the net of hedge accounting effects the NLB Group Sustainability Report 2023 . Figure 26: Banking book debt securities portfolio by geography, asset class, currency, and maturity profile as at 31 December 2023 (in EUR millions) by geography by asset class by currency Finland 158 Austria 191 BiH 191 the Netherlands 230 Belgium 258 N. Macedonia 270 Other 1,316 EUR 4,687 million Government bonds 3,584 Serbia 720 EUR 4,687 million Germany 275 France 376 Slovenia 703 Bank senior unsecured bonds 556 EUR 3,681 Covered bond 218 GGB 140 Multilateral bank bonds 136 Subordinated debt 38 Corporate bonds 15 EUR 4,687 million RSD 507 USD 210 MKD 152 BAM 117 Other 20 % of total portfolio 26% 1,235 771 357 107 maturity profile 32% 1,518 647 636 235 21% 20% 993 647 241 105 941 607 78 256 2024 2025-2026 2027-2028 2029+ Slovenia SEE International 60 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Liquidity position The Group’s liquidity remains strong, with a high level of unencumbered liquidity reserves in total assets (39 .6%) reflected in the LCR ratio of 245 .7%, compared to 220 .3% at the end of 2022 . The Group holds a comfortable liquidity position, with liquidity ratios well above the 220.3% risk appetite limit at the Group and individual banking member levels . Figure 27: LCR quarterly dynamic of NLB Group (in EUR millions) 231.3% 244.8% 238.9% 245.7% 6,028 6,132 6,505 6,688 7,012 2,737 2,651 2,657 2,800 2,854 31 Dec 2022 31 Mar 2023 30 Jun 2023 30 Sep 2023 31 Dec 2023 Stock of HQLA Net liquidity outflow LCR In 2023, the Group’s unencumbered liquidity reserves Figure 28: Evolution of NLB Group unencumbered liquidity reserves (in EUR millions) increased by 11% YoY, comprising of cash, balances with CB without minimum reserve requirement, the debt securities portfolio, and credit claims eligible for CB-secured funding operations . Among others, these liquidity reserves provided the basis for future strategic growth . The growth of unencumbered liquidity reserves 9,187.5 9,113.6 in 2023 can largely be attributed to the increase in CB 49.4% 47.0% 9,406.8 44.9% 9,675.0 45.0% 10,207.1 44.8% reserves, while values of other categories stayed at similar levels throughout 2023 . Encumbered liquidity reserves, used for operational and regulatory purposes, decreased by 66% YoY to EUR 41 .5 million (excluding obligatory reserves) and were excluded from the liquidity reserves portfolio . 0.0% 0.0% 0.0% 0.0% 0.0% 45.9% 49.0% 48.6% 48.6% 7.0% 6.1% 6.3% 6.6% 43.8% 6.8% 31 Dec 2022 31 Mar 2023 30 Jun 2023 30 Sep 2023 31 Dec 2023 ECB eligible credit claims Trading book debt securities (market value) Cash & CB reserves Banking book debt securities (market value) 61 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Liabilities The total liabilities of the Group increased and amounted to EUR 22,994 .0 million, with additional EUR 2,948 .0 of total equity . The Group’s funding base was dominated by customer deposits, accounting for 80% . Sight deposits prevailed; however, due to increased interest rates and attractive offers on term deposits, the share of term deposits increased by 3 p .p . in 2023 and accounted for 16% (13% at the end of 2022) . Most customer deposits were from individuals (70%, the same as at the end of 2022) . Figure 29: Total liabilities of NLB Group – structure (in EUR millions) +6% 21,737.9 506.7 307.2 508.8 281.1 20,027.7 106.4 22,994.0 587.6 828.8 509.4 240.1 20,732.7 95.3 31 Dec 2022 31 Dec 2023 Deposit from customers Subordinated liabilities Deposit from banks and central banks Other debt securities in issue Other liabilities Borrowings 62 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Deposits from customers increased by 4% YoY . The Deposits from individuals recorded growth in all bank largest increase of 15% was recorded in the corporate members, 3% in the Bank and 5% in SEE banks . The and state deposits in the SEE banks due to the improved Bank’s share of term and savings accounts increased economic situation in the region . In the Bank, the by 5 p .p . YoY to 48%, with term deposit volume in 2023 corporate and state deposit base decreased due to the increasing by more than EUR 350 million, mainly in high price elasticity of the certain large corporate and the last four months due to an attractive offer on term state clients . deposits . For more information on the average cost of funding, please refer to the chapter Funding Strategy, Capital, and MREL Compliance . Figure 30: NLB Group deposits from customers dynamics (in EUR millions) Deposits from individuals NLB Group +4% 13,948.7 1,665.3 12,283.4 0.10% 14,640.3 2,282.6 12,177.7 0.33% SEE Banks(i) NLB(i)(ii) +3% 8,325.8 402.0 8,543.8 702.3 7,923.8 0.05% 7,841.6 0.35% +5% 5,623.0 1,263.3 4,359.6 0.17% 5,916.5 1,580.4 4,336.1 0.32% 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 Deposits from corporate & state +3% 6,079.0 976.4 5,102.6 0.11% 6,272.4 995.6 5,276.9 0.37% -6% 3,337.7 504.7 2,833.0 0.25% 3,557.4 670.7 2,886.8 0.05% +15% 2,588.5 306.2 2,282.2 0.18% 2,983.3 509.1 2,474.2 0.51% 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 Sight deposits  Term deposits  Interest rates (i) On a standalone basis. (ii) Merger of NLB and N Banka on 1 September 2023. Volumes for 2022 for N Banka and NLB, interest rates only for NLB. 63 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents On the assets side, the securities portfolio has a duration Figure 31: Duration overview (balance sheet items in EUR millions)(i) of 2 .9 years and a loan portfolio of 2 .4 years . A large weight in the duration of total assets also has assets with the central bank, which lowers the duration of total assets to 1 .9 years . On the liabilities side, the issued securities portfolio has a duration of 1 .9 years and a term deposits portfolio of 0 .9 year . The largest weight in the duration of total liabilities has a portfolio of sight deposits, which lowers the duration of total liabilities to 0 .5 years . Total duration GAP of banking book derivatives is -2 .3 years . 26,680 O/N Central bank 5,905 0.6 Y Interbank 654 2.9 Y Debt securities 4,414 2.4 Y Loans and advances 14,624 1.4 Y Derivates 1,084 Assets (i) Included are cash flows and not carring amount. 26,680 Interbank 778 Debt securities issued 1.6 Y 1.9 Y 1,310 0.9 Y Term deposits 3,735 O/N Sight deposits 17,100 3.7 Y Derivates 1,084 Equity 2,883 Liabilities 64 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Off-balance sheet items Off-balance sheet items of the Group amounted to EUR 6,300 .8 million and were primarily comprised of guarantees (26%), loan commitments (39%), and derivatives (34%) . Loan commitments were primarily divided between loans (60%), overdrafts (15% retail and 11% corporate), and cards (16%) . Most of the Group’s derivatives were concluded by the Bank either for hedging the banking book or trading with customers . The substantial augmentation in derivatives trading volume primarily came from several key factors . Firstly, a significant portion of this increase, totalling EUR 450 million, can be attributed to hedging the senior preferred bond issued in June 2023 . Secondly, newly participation from NLB Group members was notable, as they engaged in hedging activities concerning their respective positions in the banking book . Lastly, the consolidation efforts following the merger of N Banka with NLB led to a notable surge, particularly through the novation of existing derivatives contracts . Figure 32: Off-balance sheet items of NLB Group (in EUR millions) +16% 35.0 5,449.5 1,511.3 2,407.1 1,496.0 41.0 6,300.8 1,631.6 2,487.5 2,140.8 31 Dec 2022 31 Dec 2023 Guarantees Letters of credit Loan commitments Derivatives 65 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Segment Analysis6 Core Segments Retail Banking in Slovenia includes banking with individuals and micro companies (NLB and N Banka), Strategic Foreign Markets consist of the operations of strategic Group banks in the strategic markets (Serbia, Non-Core Segment Non-Core Members include the operations of non-core NLB Group members, namely REAM and leasing entities asset management (NLB Skladi), and part of subsidiary North Macedonia, Bosnia and Herzegovina, Kosovo, and in liquidation, NLB Srbija, and NLB Crna Gora . NLB Lease&Go, Ljubljana that includes operations with Montenegro), as well as investment company KomBank retail clients, as well as the contribution to the result of Invest, Beograd, NLB DigIT, Beograd, NLB Lease&Go, the associated company Bankart . Skopje and NLB Lease&Go Leasing, Beograd . Corporate and Investment Banking in Slovenia includes banking with Key Corporate Clients, SMEs, Cross-Border Other activities include categories in NLB and N Banka whose operating results cannot be allocated to specific Corporate Financing, Investment Banking and Custody, segments, including negative goodwill from acquisition Restructuring and Workout in NLB and N Banka, and of N Banka and NLB Lease&Go Leasing, Beograd in part of the subsidiary NLB Lease&Go, Ljubljana that 2022 as well as subsidiaries NLB Cultural Heritage includes operations with corporate clients . Management Institute and Privatinvest . Financial Markets in Slovenia include treasury activities and trading with financial instruments, while they also present the results of asset and liabilities management (ALM) in both, NLB and N Banka . Table 14: Segments of NLB Group NLB Group Core Segments Non-Core Segment Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Financial Markets in Slovenia Strategic Foreign Markets Other Non-Core Members Profit b .t . (in EUR millions) Contribution to Group’s profit b .t . Total assets (in EUR millions) % of total assets CIR Cost of risk (bps) 578 100% 25,942 100% 45 .9% -7 182 31% 3,791 15% 41 .9% 56 87 15% 3,376 13% 47 .1% -36 35 6% 7,232 28% 24 .5% / 292 50% 11,059 43% 46 .4% -13 -7 -1% 436 2% 240 .0% / -10 -2% 47 0% / / NLB Group’s main indicator of a segment’s efficiency is net profit before tax . No revenues were generated from transactions with a single external customer that would amount to 10% or more of the Group's revenues . 66 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 6 N Banka is included in the segment analysis for the years 2023 and 2022 as an independent legal entity; in the segment analysis for the year 2023, it is included with the result for the period 1 January – 31 August 2023. Contents Financial and Business Performance Table 15: Key performance indicators of NLB(i) NLB, Ljubljana NLB, as Slovenia’s largest and systematically important bank, has demonstrated remarkable business resilience in the dynamic economic landscape this year . Bolstered by the successful merger with N Banka in September, the Bank has expanded its footprint, securing a substantial market share, including in both retail and corporate lending . In 2023, NLB achieved a milestone with a record-high profit . The interest rate environment contributed to a considerable increase in net interest income . Moreover, income from dividends (EUR 145 .3 million), the release of impairments of equity investments (EUR 97 .8 million), and deferred tax assets Key performance indicators 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 (EUR 61 .9 million) materially added to the overall result . Equity Demonstrating responsibility as a key player in the market, NLB proactively addressed the aftermath of August’s floods in Slovenia . The Bank donated EUR 4 .0 million to the 20 affected municipalities and made a one-time payment of EUR 5 .0 million to the Reconstruction Fund, showcasing its commitment to corporate social responsibility and community welfare . Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 372,566 265,946 -237,864 78,098 478,746 514,287 177,027 189,153 -207,866 5,756 164,070 159,602 16,014,776 13,939,333 7,156,068 7,276,656 6,062,305 6,157,442 11,881,563 10,984,411 2,249,451 1,602,870 25 .2% 2 .8% 27 .9% 3 .5% 37 .3% 25 .6% 1 .5% 10 .2% 1 .2% 56 .8% 138,004 111,170 1 .2% 30 .2% 60 .2% 1 .1% 27 .6% 55 .2% 110% 41% -14% - 192% - 15% 18% 18% 8% 40% -0 .3 p .p . 1 .3 p .p . 17 .7 p .p . 2 .3 p .p . -19 .5 p .p . 24% 0 .0 p .p . 2 .6 p .p . 5 .0 p .p . (i) Data on a stand-alone basis as included in the Group’s consolidated financial statements. Merger of NLB and N Banka on 1 September 2023. EUR 514 million result a.t. 49% contribution to NLB Group’s result a.t. 30 .2% market share by total assets Largest bank in the country (by total assets) 67 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 16: Key performance indicators of N Banka(i) 2023 2022 Change YoY in EUR thousands Key performance indicators 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 Net interest margin CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 27,822 5,225 -16,811 511 16,747 13,389 25,270 10,453 -22,976 925 13,672 11,085 1,293,280 939,238 955,035 898,768 186,423 21 .4% 2 .0% 64 .3% 23,633 1 .9% 2 .6% 10% -50% 27% -45% 22% 21% - - - - - -21 .4 p .p . -2 .0 p .p . -64 .3 p .p . - -1 .9 p .p . -2 .6 p .p . 104 .5% -104 .5 p .p . (i) Data on a stand-alone basis as included in the Group’s consolidated financial statements. N banka's internal calculation of net interest margin and total capital ratio. Data for 2022 are for the period March-December. Data for 2023 are for the period January-August, merger of NLB and N Banka on 1 September 2023. Table 17: Capital realisation YoY and surplus of NLB Common Equity Tier 1 capital (CET1) Tier 1 capital Total capital Total risk exposure amount (RWA) Common Equity Tier 1 Ratio Tier 1 Ratio Total Capital Ratio 31 Dec 2023 31 Dec 2022 Change YoY 1,734 .6 1,816 .6 2,324 .1 9,207 .5 18 .8% 19 .7% 25 .2% 1,414 .7 1,496 .7 2,004 .2 7,832 .7 18 .1% 19 .1% 25 .6% 319 .9 319 .9 319 .9 1,374 .8 0 .8 p .p . 0 .6 p .p . -0 .3 p .p . in EUR millions Surplus 31 Dec 2023 1,045 .9 989 .8 1,313 .1 11 .4 p .p . 2 .9 p .p . 4 .2 p .p . 68 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents … as well as the dignified handling of defeats, we find inspiration . Cedevita Olimpija basketball team The pursuit of excellence knows no boundaries . Retail Banking in Slovenia The Bank has prioritised customers’ needs and experience and recently integrated N Banka, thereby strengthening its position as the market leader in retail banking . The Bank offers tailored product and service options to cater to different customer segments, and it is accessible through various channels such as traditional branch offices, a mobile branch on wheels, and an extensive ATM network, ensuring that customers can conveniently reach the Bank anytime, anywhere . The Bank proudly offers clients 24/7 access to its services via the Contact Centre and digital banking and remains committed to delivering the highest standards of excellence in everything it does . The Bank’s primary objective is to strive to be the best and most innovative bank, particularly in providing digital services to its customers, leveraging its strategic assets and transforming the sales process to enhance the user experience . Figure 33: Contribution to NLB Group Financial and Business Performance Table 18: Performance of the Retail Banking in Slovenia segment Result b.t.31% 32% Net interest income 39% Net non-interest income Net interest income  Net interest income from Assets(i)  Net interest income from Liabilities(i) Net non-interest income  o/w Net fee and commission income Total net operating income Total costs Result before impairments and provisions Impairments and provisions Share of profit from investments in associates and joint ventures Result before tax Net loans to customers Gross loans to customers  Housing loans   Interest rate on housing loans(ii)  Consumer loans   Interest rate on consumer loans(ii)  NLB Lease&Go, Ljubljana  Other Deposits from customers  Interest rate on deposits(ii) Non-performing loans (gross) Cost of risk (in bps) CIR Net interest margin(ii) 31 Dec 2023 31 Dec 2022 Change YoY 2023 264 .7 87 .2 177 .5 102 .3 114 .1 367.0 -153 .8 213.2 -32 .6 1 .1 181.7 2022 104 .8 95 .8 9 .1 106 .7 113 .2 211.5 -144 .0 67.4 -21 .4 0 .8 46.8 3,586 .5 3,641 .0 2,430 .8 2.35% 722 .1 7.11% 69 .0 419 .2 9,085 .8 0.05% 67 .7 3,694 .2 3,760 .8 2,483 .5 3.07% 818 .5 8.14% 98 .2 360 .6 9,357 .8 0.32% 77 .3 2023 56 41 .9% 4 .17% in EUR millions consolidated Change YoY 159 .9 -8 .5 168 .4 -4 .4 0 .9 155.5 -9 .8 145.7 -11 .2 0 .3 134.9 107 .7 119 .8 52 .7 0.72 p.p. 96 .5 1.03 p.p. 29 .2 -58 .6 272 .0 0.27 p.p. 153% -9% - -4% 1% 74% -7% - -52% 37% - 3% 3% 2% 13% 42% -14% 3% 9 .6 14% 2022 Change YoY 58 68 .1% 1 .70% -3 -26 .2 p .p . 2 .48 p .p . (i) Net interest income from assets and liabilities using Fund Transfer Pricing (FTP). (ii) Net interest margin and interest rates before the merger of NLB and N Banka only for NLB. The segment’s net interest margin is calculated as the ratio between annualised net interest income (i) and the sum of average interest-bearing assets and liabilities divided by 2. 70 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Net interest income experienced a substantial YoY increase, primarily driven by higher volumes and the positive impact of the key ECB interest rate hike on the segment’s income from clients’ deposits . The average interest rate on deposits increased by 27 bps YoY by providing more attractive offerings on interest rates for term deposits and savings accounts for individuals – which clients perceived positively . Consequently, the deposit base increased by 3% YoY, with a shift towards long-term deposits . The term deposit volume in 2023 increased by over EUR 350 million, particularly in the last four months of 2023 . Solid growth in the volume of 30.2% and 29.8% market share in housing loans and consumer loans The segment’s total costs increased YoY due to general inflationary trends within the region, investments into loans to individuals was also recorded, with stable new technology enhancements, and the integration process loan production of housing loans and higher new of NLB and N Banka . production of consumer loans, especially in the second half of the year (EUR 394 .1 million new deals were approved in 2023 vs . EUR 268 .3 million in 2022) . This increase is related to the adjustments of macroprudential restrictions on consumer lending, Impairments and provisions for credit risk were net established due to the portfolio development, repayments of written-off receivables and changes in models . Other provisions were related to potential which changed the minimum creditworthiness amount liability concerning the pending fee repayments . for consumers . Net fee and commission income remained stable YoY . The positive impact of increased economic activity The operational merger of N Banka was successfully completed at the beginning of September . With the merger, the Bank again confirmed its systemically and consumption, with an additional positive influence important position in the market . The market share in on fees from the increase of investment in funds and retail lending and deposit-taking stayed at the same bancassurance business, was entirely offset by the level at 29 .5% and 33 .5%, respectively . The retail part of cancellation of the high balance deposit fee – which in NLB Lease&Go, Ljubljana, continued growing steadily 2022 amounted to EUR 1 .8 million . and recorded a 42 .3% portfolio increase YoY . Customer experience is our focus The Bank’s product and service development is primarily driven by the requirements and expectations of its clients . In addition, the Bank tailors its offer to suit specific segments and devises processes to support its clients’ life situations . The sales approach and the offer are uniquely tailored to each segment, serving as the foundation for the Bank’s initiatives and business models . To enhance user experience, the Bank is broadening its spectrum of services to cater to an array of diverse segments . Successful migration and integration of N Banka clients In Valicon’s Client Satisfaction Survey (CSS), the Customer Satisfaction Index indicator measures long-term relationship with clients . The Net Promoter Score (NPS) indicates transactional satisfaction after a completed service . The Bank’s client satisfaction remained stable and better than the competition in 2023 . Furthermore, clients expressed a higher level of satisfaction with the Bank’s advisors . Kindness and competence are valued the most and are the main reasons for high client satisfaction (80 vs . 73 for the competition) . The NPS for 2023 shows a stable level of satisfaction with a value of 61 (the benchmark for the financial sector in 2023 is 52 based on SurveyMonkey global benchmark), influenced mostly by the high satisfaction with advisory service . Figure 34: Market share of net loans to individuals and market share of deposits from individuals 26.9% 24.4% 30.5% 29.6% 30.2% 29.8% 33.9% 15.2% 7.3% 36.1% 21.5% 9.8% 36.9% 25.1% 31 Dec 2021 31 Dec 2022 31 Dec 2023 31 Dec 2021 31 Dec 2022 31 Dec 2023 experience . Housing loans Consumer loans Sight deposits Short-term deposits Long-term deposits In the integration process, clients of N Banka have switched to NLB services and solutions . In addition, the Bank introduced some of its established good practices 5.8% and services, such as a revolving card offer and a partnership model, focusing on providing a positive user 71 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Added value for our clients Private banking is a leading banking provider for this segment in the market and an integral part of the In cooperation with NLB Lease&Go, Ljubljana, the Bank extended its range of financial services to private Bank’s offering, showing a substantial 24% YoY growth individuals . Clients can now visit the branch offices in assets under management . Also, the client base has for expert advice and high-quality financial services expanded notably by 17% YoY to 2,347 clients . Products to choose the best leasing solution that is tailored to and services are carefully selected and tailored to meet their needs . The NLB Quick Leasing model covers the the unique needs of these clients . The Bank provides digital aspect, enabling simple and quick car financing comprehensive wealth manage-ment, combining approval through an E2E digital process . banking and financial products, along with a full spectrum of advisory services . Dedication to providing exceptional service has been recognised by Euromoney, The Bank is the largest provider of bancassurance on the market, with the insurance companies Vita, which awarded the Bank’s Private Banking segment življenska zavarovalnica, Generali Zavarovalnica, and as Slovenia’s Best Private Bank for High Net Worth Individuals in 2023 . Figure 35: Assets under management and the number of private banking clients 1,800 1,243 2,000 1,377 1,580 1,075 2,347 1,711 Zavarovalnica Triglav being its long-term partners . Moreover, Vita’s model of exclusive distribution of life and health insurance products again resulted in record business volume for these insurance types . Vita also introduced new health insurance, NLB Vita Diseases, which provides coverage in the event of one or more severe illnesses and further improved its digital footprint within Bank’s digital solutions . Figure 36: Active clients’ penetration(i) of ancillary business 16.8% 17.1% 17.4% 17.1% 9.4% 10.3% 10.6% 10.9% 2.2% 2.5% 2.6% 2.2% 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 NLB Skladi Vita Generali (i) Drop in bancassurance product due to migrated N Banka’s clients Strong and stable market position in lending, deposits, and asset management 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 AuM (in EUR millions) # of Clients NLB Skladi, Slovenia’s largest asset management company, maintains a high market share of 39 .6% . Net inflows in 2023 amounted to EUR 171 .3 million, accounting for 50 .5% of all net inflows in the market . The total assets under management grew by 20% YtD to reach EUR 2,360 .3 million, of which EUR 1,896 .3 million is from mutual funds and EUR 464 .0 million is from the discretionary portfolio . 72 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Top Retail banking institution in Slovenia Launch of new digital bank NLB Klik Approaching clients Customers’ digital activity continues rising, driven entirely by mobile, impacted by customer base demographics . To grow mobile usage even more, the Bank will continue to add a broader range of servicing functionalities to the new omnichannel solution NLB Klik . A more comprehensive range of services will boost higher digital adoption and engagement . With the new solution, the Bank witnessed another boost in active digital users by 14% YoY and active digital penetration by 5 .5 p .p . YoY . Figure 37: Digital penetration(i) also upgraded ATMs to be more friendly to blind and visually impaired customers . The Bank is proactively promoting the digitisation of payments through various activities . The Group’s mobile wallet NLB Pay was significantly improved to become the digital wallet of choice, with Google Pay being an option for paying, Flik P2P (person-to-person), and e-commerce payments gained significant traction and boosted use and improved various customer journeys . The Bank has also offered the most flexible credit card 3-in-1 feature, offering to customers all relevant financing options on credit cards: charge, revolving, or instalment options . The implementation of the new Group’s mobile POS terminal solution, the NLB Smart POS, was well-received by micro-segment, small businesses, and other merchants, enabling them to provide simple, 61% fast, and safe services . 56% Figure 38: NLB Pay volume of transactions (in EUR thousands) 49% 43% 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 (i) Share of active digital users in # of clients with an active transactional account. When introducing changes, the Contact Centre (CC), the only 24/7 available banking contact point in Slovenia, 12,577 122,952 +108.7% 58,924 36,218 plays a crucial role for the Bank’s clients who need assistance or have inquiries regarding the Bank’s products or channels . It is also well-accepted as a virtual bank for contracting new products, as 11% of consumer loans and overdraft sales were completed via the CC in 2023 . The Bank is promoting the advisory role of its branch offices, focusing on shifting transactional business to digital and card-based services . The goal of this redirection is to decrease cash-based transactions . With an increasing number of clients using digital banking and 24/7 accessible channels such as CC and ATMs, the Bank is closer to achieving its goal . With one of the largest ATM networks in the country, the Bank 2020 2021 2022 2023 The Bank has introduced the possibility of returning part of the value of purchases to customers called NLB Cashback for card payments . The service, also implemented across the Group, is a novelty in the Slovenian market . The City of Ljubljana has become the first open loop transit city in the region, as the Bank introduced a transit-ready solution for cards acceptance for transit payments . 73 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Corporate and Investment Banking in Slovenia The Bank reaffirmed its position as a leading and systemic player in its home region . It continues to support corporate clients with daily banking and tailor-made comprehensive solutions, including trade finance, corporate finance, and cross-border financing . The Bank also strongly emphasises sustainability in all its operations . 25 .7% market share in loans to customers Figure 39: Contribution to NLB Group Financial and Business Performance Table 19: Performance of the Corporate and Investment Banking in Slovenia segment Result b.t.15% 13% Net interest income 16% Net non-interest income Net interest income  Net interest income from Assets(i)  Net interest income from Liabilities(i) Net non-interest income  o/w Net fee and commission 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/SME/Cross-Border Corporates    Interest rate on Key/SME/Cross Border Corporates loans(ii)  Investment banking  Restructuring and Workout  NLB Lease&Go, Ljubljana  State   Interest rate on State loans(ii) Deposits from customers   Interest rate on deposits(ii) Non-performing loans (gross) Cost of risk (in bps) CIR Net interest margin(ii) in EUR millions consolidated Change YoY 2023 106 .5 62 .2 44 .3 42 .7 40 .2 149.2 -70 .2 79.0 7 .9 86.9 2022 52 .9 53 .7 -0 .8 52 .3 43 .6 105.2 -65 .1 40.1 12 .2 52.3 53 .5 8 .5 45 .1 -9 .5 -3 .3 44.0 -5 .1 38.9 -4 .2 34.6 31 Dec 2023 31 Dec 2022 Change YoY 3,360 .2 3,413 .2 3,306 .7 3,049 .5 4.54% 0 .1 97 .7 159 .4 105 .6 5.95% 2,471 .8 0.28% 61 .8 2023 -36 47 .1% 3 .55% 3,370 .1 3,424 .6 3,311 .5 3,129 .9 1.95% 0 .1 60 .8 120 .7 112 .9 2.59% 2,731 .0 0.07% 67 .6 2022 -42 61 .9% 1 .80% -9 .9 -11 .3 -4 .8 -80 .4 2.59 p.p. 0 .0 36 .9 38 .7 -7 .3 3.36 p.p. -259 .1 0.21 p.p. -5 .8 Change YoY 6 -14 .8 p .p . 1 .74 p .p . 101% 16% - -18% -8% 42% -8% 97% -35% 66% 0% 0% 0% -3% 8% 61% 32% -6% -9% -9% 74 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report (i) Net interest income from assets and liabilities using FTP. (ii) Net interest margin and interest rates before the merger of NLB and N Banka only for NLB. The segment’s net interest margin is calculated as the ratio between annualised net interest income (i) and the sum of average interest-bearing assets and liabilities divided by 2. Contents In Corporate and Investment Banking, the Bank continues its long tradition and commitment to Net fee and commission income decreased YoY due to the cancellation of the high balance deposit fee, which Following the August floods, the Bank has taken immediate measures to support the economy to recover sustainable and long-term business relationships . amounted to EUR 5 .7 million in 2022, partially offset from the consequences of the floods, including a more Cooperating with almost 11,000 corporate clients, the by higher fees from guarantees (EUR 1 .3 million) and favourable loan line of EUR 100 million, and a moratorium business’s principal revolves around customer centricity payment transactions (EUR 0 .6 million) . on the repayment of loan obligations, if required . and addressing clients’ actual needs . The Bank provides extensive and customised financial solutions to support the broader economy . NLB is the first choice for corporate clients in Slovenia In 2023, the Bank successfully organised nine regional events for its corporate clients, with topical themes on ESG: Thinking Entrepreneurially, Acting Sustainably (Taxonomy) and AI: Artificial and Human Intelligence Partnering for Business Success . The segment faced 8% YoY higher costs as operating costs increased, stemming from the general inflationary trends within the region, investments into technology enhancements, and the integration process of NLB and N Banka . Impairments and provisions were net released in the amount of EUR 7 .9 million due to the portfolio development and successful workout resolution . The volume of gross loans decreased by EUR 11 .3 million YoY, primarily due to EUR 120 million repaid extraordinary liquidity credit lines from the energy sector, which was approved in December 2022, and less predictable business environment influencing corporate clients to In September, the Bank successfully migrated and be more cautious when taking business decisions and integrated N Banka’s clients . investing in development projects . However, the Bank has been steadily increasing its market share in loans to the Figure 40: Market share in Corporate Banking in Slovenia current 25 .7% . 39.0% 38.6% 25.3% 23.8% 25.7% 23.4% 31.5% 20.0% 18.3% 31 Dec 2021 31 Dec 2022 31 Dec 2023 Market share in loans to customers Market share in deposits from customers(i) Market share in guarantees and letters of credit (i) Change in methodology, received loans are excluded from the calculation. Similar to the retail segment, the notable YoY rise in net interest income was primarily driven by the loan volume and deposit margin . Deposit interest rates, being less sensitive to market rate volatility, earned a higher segment income in a rising market rate environment, considering the short maturity of the deposit base . In contrast, the loan market has become increasingly competitive, and client rates have not increased fully to reflect recent market rate movements, resulting in slight decrease in interest margins on the loan portfolio . The volume of deposits decreased by 9% YoY, due to the high price elasticity of certain large corporate clients and slight decline in market share . Nevertheless, the Bank kept a solid deposit base, with most clients having house-bank relationships . Comprehensive solution offering Sustainable Finance Corporate Banking continued with successful financing of the green transformation project throughout the region, encompassing the renovations of electricity distribution networks in Slovenia, the construction of a wind farm in the region, energy renovation of larger buildings, and the establishment of electric battery production in Slovenia . The Bank is increasing its share of financing the green transformation of Slovenian companies and beyond . Trade finance solutions In the trade finance, the Bank maintains its leading position in the region, with a 38 .6% market shares . The guarantee portfolio increased by 29 .5% compared to the previous year . The Bank’s guarantees support all major infrastructure projects in Slovenia and the region . Through all types of letters of credit, which are also structured to enable financing, the Bank reduces payment and performance risks for exporters and importers . A strong focus has been given to purchasing the receivables business, including introducing a reverse factoring product developed in Q4 2022 . Cross-Border Financing Cross-Border activities have seen substantial development in 2023 . Key highlights include EUR 175 million of signed loan facilities in 2023, combined with EUR 435 million in outstanding portfolio, and additionally EUR 100 million in still undisbursed loans by the end of 2023 . Most of these financings were intended to support green and sustainable projects (newly signed loans at approx . EUR 50 million) in the home region while supporting other key industries like infrastructure, energy, and real estate . Outside the home region, activities were concentrated on granting Schuldschein loans to major international investment-grade-rated companies from the Nordics and Western Europe . Additionally, there has been a 38 .6% market share in guarantees and letters of credit 75 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents acceptance for transit payments on city buses in the Slovenian capital . Figure 41: Transaction volume in acquiring (in EUR millions) 76 in 2023 increased by 15% and reached EUR 191 .3 million e-commerce strong emphasis on forming strategic partnerships with key stakeholders (developers, equity/quasi-equity providers, investors, and commercial and development The Bank remains among the top Slovenian players in custodian services for Slovenian and international clients . The total value of assets under custody on banks), especially in the sustainable finance universe, domestic and foreign markets has increased throughout both regionally and globally . the year, amounting to EUR 18 .6 billion at the end of the year (31 December 2022: EUR 16 .4 billion) . Successful migration and integration of N Banka clients Investment banking & Custody The Bank executed clients’ buy and sell orders in the amount of EUR 942 .6 million within brokerage services in 2023 . In dealing with financial instruments, the Bank conducted foreign exchange spot deals amounting to EUR 1,094 .8 million, and transactions involving derivatives reached EUR 173 .4 million in 2023 . The NLB trading platform has been thriving, offering clients the best possible interaction with the Bank for executing financial instrument deals . The services for buying and selling physical gold, introduced last year, have also shown considerable growth and high interest on the clients’ side in 2023 . Leasing financing Intermediary business for NLB Lease&Go, Ljubljana, has also been the focus of the Bank’s commercial activities, providing clients with the best possible financing solutions for financing vehicles and equipment . In NLB Lease&Go, Ljubljana, the total volume of new business (including short-term financing), which had the effect on increased balance of leasing portfolio at year end of 2023 by EUR 38 .7 million or 32% compared to 2022 . End-to-end leasing applications have gained further validity and usefulness . They have started to be used on the market, mainly through intermediaries – vehicle broker-dealers (partners), which enables a fast and smooth leasing process from start to finish . Digital payments In the area of digital payments, the Bank improved its solutions to corporate clients by revamping NLB Pay and incorporating Google Pay, transforming it into a virtual The Bank has been actively involved in the financial or smart wallet that enables payments . A new payment advisory business . In addition to the M&A and advisory method for E-commerce merchants, Flik P2eM, was business, it was engaged in the organisation of launched . As the first among Slovenian banks, the Bank syndicated loans (as a sole mandated lead arranger) launched the Group’s new mobile POS terminal solution, in the amount of EUR 304 million (NLB participating in NLB Smart POS, primarily for the micro-segment and financing with EUR 162 million), and organising the bond issuing (as a lead arranger or joint lead arranger) in the small businesses . With the new app, merchants can transform their smartphones or tablets into mobile nominal amount of EUR 523 million . 32%annual growth in NLB Lease&Go, Ljubljana corporate portfolio POS terminals, offering their clients simple, fast, safe, and contactless payments . In partnership with LPP, the public transportation company in Ljubljana, the Bank has introduced a transit-ready solution for card Strong focus on green eligible projects with 11% in total new business +48% 113 76 47 55 2020 2021 2022 2023 +13% 3,244 2,865 2,348 2,535 2020 2021 2022 2023 POS The Bank was the leading bank in the introduction of instant payments on the Slovenian market and is the only bank enabling users of m-bank to automatically send out transactions as instant payments - every day of the year in Slovenia and the SEPA area . Flik P2P enables money transfer among all Slovenian banks’ clients, while Flik P2M payments enable purchases on NLB POS terminals and on POS terminals of some other Slovenian banks which have upgraded their POS . As the first banking group in the SEE, the Group enables services arising from the SWIFT Global Payment Initiative, an international payments service enabling banks to transfer money faster and more safely worldwide . At the same time, it enables full tracking of payment orders and monitoring of related costs . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial Markets in Slovenia The segment is focused on the Group’s activities in international financial markets, including treasury operations . This continuous focus was on prudent liquidity reserves management in the changed interest rate environment . In 2023, the Bank issued its first senior preferred green notes of EUR 500 million . 3 .7 years average duration of the banking book debt securities portfolio Figure 42: Contribution to NLB Group Financial and Business7 Performance Table 20: Performance of the Financial Markets in Slovenia segment Result b.t.6% Net interest income5% Net interest income Net interest income w/o ALM(i) o/w ALM Net non-interest income Total net operating income Total costs Result before impairments and provisions Impairments and provisions Result before tax Balances with Central banks Banking book securities Interest rate(ii) Borrowings Interest rate(ii) Subordinated liabilities (Tier 2) Interest rate(ii) Other debt securities in issue Interest rate(ii) (i) Net interest income from assets and liabilities using FTP. (ii) Interest rates only for NLB. in EUR millions consolidated Change YoY 2023 37 .8 23 .1 14 .6 2 .7 40.4 -9 .9 30.5 4 .8 35.3 2022 47 .3 16 .2 31 .1 -0 .7 46.6 -9 .4 37.2 -3 .4 33.8 -9 .6 6 .9 -16 .5 3 .4 -6.2 -0 .5 -6.6 8 .1 1.5 31 Dec 2023 31 Dec 2022 Change YoY 4,153 .2 2,981 .1 1.17% 82 .8 1.66% 509 .4 6.89% 828 .8 6.56% 3,373 .7 2,993 .3 0.74% 160 .5 -0.72% 508 .8 4.16% 307 .2 6.00% 779 .5 -12 .3 0.43 p.p. -77 .7 2.38 p.p. 0 .6 2.73 p.p. 521 .6 0.56 p.p. -20% 43% -53% - -13% -5% -18% - 4% 23% 0% -48% 0% 170% 77 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report The net interest income was EUR 9 .6 million lower YoY due to the new bond issuance and further transfer of There was an increase in balances with the central bank (EUR 779 .5 million YoY) . The excess liquidity deriving from ALM results to Retail Banking in Slovenia and Corporate issued debt securities was placed at the central bank . and Investment Banking in Slovenia segments, while Borrowings decreased by EUR 77 .7 million YoY because interest income from banking book improved . of the prepayment of TLTRO in the amount of EUR 63 million in H1 . 7 This business overview includes the operations of the Group’s ALM, due to more comprehensive presentation of the operations on the group level. Contents liquidity for different situations, including emergencies and crisis conditions . For settling due liabilities, the Group uses its liquid assets, which are comprised of liquidity reserves (see the subchapter Liquidity Position in the chapter Overview of Financial Performance) and other liquid assets . The latter includes funds held on accounts with other banks and money market placements, which are treated as inflows according to LCR calculation . Liquid assets are managed by each Group member on its own . Capital, liquidity, and interest rate risks management with an active presence on capital markets The Group’s ALM The Group’s ALM process strategically manages the Group’s balance sheet concerning the interest rate, currency, and liquidity risk considering the macroeconomic environment and financial markets developments . Monitoring and managing the Group’s exposure to market risk is decentralised, with uniform guidelines and limits for each type of risk for individual Group members . From the interest rate risk perspective, the 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, the non-banking sector deposits continued to increase, mainly in the form of term deposits . The Group manages its positions and stabilises its interest margin through pricing policy adjustments, whereas to manage interest rate risk exposure, the Group actively adjusts the average duration of liquidity reserves and keeps outstanding "plain vanilla" derivatives . Active profitability management has been supported by a highly disciplined deposit pricing policy, enabling the response to a highly competitive loan market all over the Group’s strategic markets . 63%government securities in the banking book debt securities portfolio Liquidity management The Group’s liquidity management focuses on ensuring a sufficient level of liquidity reserves to settle all due liabilities, minimising the cost of maintaining liquidity and optimising the structure of liquidity reserves . The Group has developed a comprehensive liquidity contingency plan (LCP) to ensure an appropriate level of 78 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Wholesale funding Wholesale funding activities in the Group aim to achieve diversification, improve structural liquidity and capital position, and fulfil regulatory requirements, especially ensuring compliance with the MREL requirements . The Bank was active in capital markets, issuing its first green EUR 500 million senior preferred notes with 4NC3 tenor in June for MREL purposes . NLB Group members were also active in the wholesale market . More specifically, they obtained funding from international financial institutions . NLB Banka, Sarajevo will use its EUR 5 million credit line to meet its MREL requirement . First issuance of senior preferred notes in green format on international capital markets Table 21: Overview of outstanding NLB notes as at 31 December 2023(i) in EUR millions 79 Type of bond ISIN code Issue Date Maturity First call date Interest Rate Nominal Value Senior Preferred XS2498964209 19 Jul 2022 Senior Preferred XS2641055012 27 Jun 2023 19 Jul 2025 27 Jun 2027 19 Jul 2024 27 Jun 2026 Tier 2(i) Tier 2(i) Tier 2(i) Tier 2 SI0022103855 6 May 2019 6 May 2029 XS2080776607 19 Nov 2019 19 Nov 2029 XS2113139195 5 Feb 2020 5 Feb 2030 6 May 2024 19 Nov 2024 5 Feb 2025 XS2413677464 28 Nov 2022 28 Nov 2032 28 Nov 2027 10 .750% p .a . Additional Tier 1 SI0022104275 23 Sep 2022 Perpetual(i) between 23 Sep 2027 and 23 Mar 2028 Total Tier 2: 9 .721% p .a . 6 .000% p .a . 7 .125% p .a . Total SP: 4 .200% p .a . 3 .650% p .a . 3 .400% p .a . 300 500 800 45 120 120 225 510 82 (i) Further information is available in the chapter Events After the End of the 2023 Financial Year. Figure 43: Volume of outstanding NLB notes (in EUR millions) Total AT1: Total outstanding: 82 1,392(i) 1,392.0 82.0 510.0 800.0 1,117.5 82.0 535.5 1,107.0 82.0 525.0 500.0 500.0 607.0 82.0 525.0 31 Dec 2023 31 Dec 2024 31 Dec 2025 31 Dec 2026 SP Tier 2 AT1 Note: Including issued Tier 2 notes of EUR 300 million and repurchase of EUR 219.6 million of two existing Tier 2 notes (both in January 2024). Maturity envisaged on call date. Figure 44: Refinancing needs from matured NLB notes (in EUR millions) 54.9 300.0 500.0 10.5 31 Dec 2024 31 Dec 2025 31 Dec 2026 SP Tier 2 Note: Maturity envisaged on call date. NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB’s banking book debt securities portfolio Figure 45: Banking book securities portfolio of NLB by asset class and geography as at 31 December 2023 (in EUR millions) by asset class by geography Government bonds 1,856 EUR 2,928 million Bank senior unsecured bonds 552 Covered bonds 218 GGB 140 Multilateral bank bonds 117 Subordinated debt 38 Corporate bonds 8 Other 895 EUR 2,928 million Slovenia 636 Ireland 82 Sweden 90 Spain 108 Finland 117 Austria 152 the Netherlands 162 Belgium 191 Germany 191 France 304 The purpose of banking book securities is to provide liquidity, stabilise the interest margin, and manage interest rate risk . In 2023, an ongoing goal was to further Figure 46: Maturity profile of NLB banking book securities as at 31 December 2023 2023 had been sold at the beginning of February 2023, contributing to the impairment release of EUR 4 .2 million . diversify the Bank’s banking book securities portfolio, % of total portfolio which at the end of 2023 amounted to EUR 2,928 million, constituting 18 .3% of the Bank’s total assets . At the year- end, debt securities measured at FVOCI represented 32 .9% of the Bank debt securities portfolio, having a duration of 2 .7 years, while the duration of the portfolio measured at AC was 4 .2 years . The negative valuation of the FVOCI portfolio at year-end amounted to EUR 48 million (net of hedge accounting effects and related deferred taxes), and unrealised losses from securities measured at AC amounted to EUR 77 million . The average duration of the Bank’s banking book debt securities was approximately 3 .7 years at year-end, and the average yield on the Bank’s banking book debt securities portfolio increased by 0 .43 p .p . YoY to 1 .17% . 13% 388 344 32% 935 637 67 45 230 26% 757 635 105 29% 847 592 17 256 2024 2025-2026 2027-2028 2029+ Slovenia SEE International As of year-end, the Bank is no longer exposed to the Russian Federation . The USD 8 million nominal exposure that would have otherwise matured in September As the Group actively works on incorporating ESG in its business profile, the portfolio reflects the growing market of ESG bonds . The Bank’s debt securities portfolio includes EUR 287 million (or 9 .8%) of the ESG debt securities issued by governments, multilateral organisations or financial institutions, of which EUR 132 million were bought in 2023 . Additional information is available in the NLB Group Sustainability Report 2023 . 80 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Inspiration that can often be transferred to the business environment as well . Slovenian biathlon and cross-country teams There's always room for faster times . Strategic Foreign Markets The market shares (by total assets) of subsidiary banks reaching or exceeding 10% in five out of six markets Figure 47: Contribution to NLB Group Result b.t.50% Net interest income51% 46% Net non-interest income The core financial part of the Group in the Strategic Foreign Markets segment consists of six banks, one asset management company, a captive IT services company, and two leasing companies . The Group banking subsidiaries are locally firmly entrenched as important financial institutions and market leaders across various business segments and provide a comprehensive range of financial services to retail and corporate clients . All Group subsidiary banks have a stable market position and enjoy a robust reputation . The market share of the banking subsidiaries, measured by total assets, reached or surpassed 10% in five out of six markets . In 2023, in a rising interest rates environment, the Group banks marked remarkable double-digit growth of gross loans to customers, above the local market average, especially in the retail segment, thereby contributing to the overall economic development of local countries’ households and supporting green financing . In line with the self-funding strategy, the Group banks attracted new depositors (9% YoY growth), adapting to prevailing market conditions, thus ensuring organic growth and keeping optimal balance sheet structure . The Group banks’ ESG and CSR activities were continuously upgraded by supporting the financial literacy of clients, organising the #FrameOfHelp project for small entrepreneurs, tree planting activities, and many more events, as stated in the Group Sustainability report . In 2023, the Group banks accelerated their digital transformation by automating processes and offering various digital solutions to clients, thus bringing, first in some markets, various solutions further boosting digital penetration by almost doubling the number of digital users . For their efforts in digital solutions and green financing, several Group banks received notable awards for their contribution to the local countries of operation . Leasing operations continued with solid growth, especially in Serbia, by achieving a market share in new production of 11 .5% . Six subsidiary banks, two leasing companies, one IT services company, and one investment fund company Profit before tax EUR 291 .5 million 56% higher compared to last year 82 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial and Business Performance Table 22: Results of the Strategic Foreign Markets segment in EUR millions consolidated Change YoY NLB Lease&Go Leasing, Beograd realised a remarkable growth in new financial leasing financing of Net interest income  Interest income  Interest expense Net non-interest income  o/w Net fee and c ommission 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 Net interest margin 2023 423 .2 472 .5 -49 .3 118 .4 124 .1 541.6 -251 .2 290.4 1 .1 291.5 12 .6 2022 298 .0 322 .8 -24 .8 129 .5 118 .7 427.6 -228 .1 199.4 -12 .3 187.1 11 .0 125 .2 149 .7 -24 .5 -11 .1 5 .4 114.0 -23 .1 91.0 13 .4 104.4 1 .7 31 Dec 2023 31 Dec 2022 Change YoY 6,648 .1 6,839 .8 3,525 .6 6.63% 3,042 .9 5.37% 271 .4 7.13% 8,878 .3 0.38% 134 .0 2023 -13 46 .4% 4 .19% 6,077 .5 6,271 .4 3,221 .0 5.66% 2,869 .0 3.84% 181 .4 3.65% 8,171 .2 0.17% 160 .6 2022 7 53 .4% 3 .14% 570 .6 568 .5 304 .6 0.97 p.p. 173 .9 1.53 p.p. 90 .0 3.48 p.p. 707 .1 0.21 p.p. -26 .7 Change YoY -20 -7 .0 p .p . 1 .05 p .p . Amid an increasing interest rate environment, persisting pricing pressures, and regulatory changes The volume of the loans increased 9% YoY . The most significant increase in gross loans to customers was and interventions, and despite signs of an economic achieved by NLB Banka, Prishtina (12% YoY), NLB Banka, slowdown, the banking members from the Group Sarajevo (10% YoY), NLB Banka, Podgorica (9% YoY) continued to grow, which resulted in remarkable 2023 and NLB Komercijalna Banka, Beograd (9% YoY) . High results . Serving various business segments of clients, the performance in new business production continued in the banks exhibit solid liquidity and capital . corporate and retail segments as several products and services were upgraded, which included streamlining and modernising their distribution network and improving their digital offering . 42% 46% -99% -9% 5% 27% -10% 46% - 56% 15% 9% 9% 9% 6% 50% 9% EUR 85 .3 million YoY by increasing the financial leasing market share in the country’s new leasing production to approximately 11 .5% . The higher interest rate environment and economic contraction affected customers’ behaviour . The overall confidence remained strong, and the total customer deposit base increased by 9% YoY . The net interest income increased by EUR 125 .2 million YoY due to higher volumes and interest rate hikes . All banking members recorded a double-digit increase YoY, with the highest impact in an interest rate increase in NLB Komercijalna Banka, Beograd, of EUR 77 .9 million YoY, due to a high portion of the portfolio at the variable interest rates . The net fee and commission income increased by EUR 5 .4 million due to higher volumes of card business and payments, repricing activities and increased sale of bancassurance products . Nevertheless, the total net non-interest income of the segment decreased by EUR 11 .1 million YoY due to a EUR 15 .3 million modification loss related to interest rate regulation on housing loans -17% in NLB Komercijalna Banka, Beograd . Total costs increased by EUR 23 .1 million YoY due to higher operating costs resulting from inflationary pressures and increase in leasing activities . However, the CIR of the segment improved to 46 .4% . Impairments and provisions were net released in EUR 1 .1 million due to successful NPL resolution . The banking members as leading financial institutions in the SEE markets, leasing financing is growing 83 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Figure 48: Result after tax of strategic NLB Group banks (in EUR millions) +100% 132.3 66.0 +18% 44.5 37.9 +26% 24.3 19.3 +12% 11.4 12.8 +11% 36.0 32.4 +60% 26.7 16.6 NLB Komercialna Banka, Beograd(i) NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica 2022 2023 (i) Merger of NLB Komercijalna Banka, Beograd and NLB Banka, Beograd on 30 April 2022. The profit of NLB Komercijalna Banka, Beograd in 2022 does not include the profit of NLB Banka, Beograd (EUR 2.2 million). The rising interest rates on the market supported SEE production was still high, significantly outperforming the banking members’ results, thus showing a net interest local markets, especially in consumer loans . The highest margin between 3 .03% (NLB Banka, Sarajevo) and increase in loans to individuals was achieved by NLB 4 .75% (NLB Banka, Podgorica) . Retail Banking Despite the loan squeeze due to increasing interest rates, the banking members realised robust new retail loan production of 9% YoY . The loan portfolio to individuals increased in all banking members . New loan Banka, Prishtina, and both Bosnian banks with double- digit growth, followed by other banks in the region with the single-digit growth of the loan portfolio . Moreover, all the banks in the Group increased their market share in consumer lending from 0 .1 p .p . to 1 .8 p .p . YoY . NLB Banka, Banja Luka achieved an impressive growth of 1 .8 p .p . market share YtD, following NLB Komercijalna Banka, Beograd (0 .6 p .p .), NLB Banka, Skopje (0 .8 p .p .), NLB Banka, Prishtina (0 .6 p .p .), and NLB Banka, Sarajevo (0 .1 p .p .) . In terms of housing loans, NLB Banka, Banja Luka marked a remarkable boost of 1 .3 p .p ., followed by NLB Komercijalna Banka, Beograd (0 .6 p .p .), NLB Banka, Podgorica (0 .3 p .p .) and NLB Banka, Skopje (0 .3 p .p .) . New production in ESG loans accelerated in 2023 with the offering of various NLB Green Loans through partners – Eco mortgage loans through business partners, Eco home appliance loans, electric and hybrid vehicles, and so forth . Turbulences in the banking sector at the beginning of the year increased client concerns over their deposits . The Group banks retained customer confidence as the total segment deposits from individuals increased by 5% YoY . Corporate Banking The banking members maintained a positive trend in approving new financing and attracting new corporate clients . The portfolio to corporate clients recorded a 6% YoY growth, with the highest growth levels achieved in NLB Komercijalna Banka, Beograd, NLB Banka, Sarajevo and NLB Banka, Prishtina with low-double or high-single digit growth . The banks continued with sustainable financing by supporting green investments, particularly in solar power plants and energy efficiency . The SEE banks attracted corporate deposits by boosting corporate balances of the segment by 17% YoY . 84 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Despite a considerable drop in housing loan demand Financial position statement indicators in 2023, the bank marked growth over the market . The Total assets NLB Komercijalna Banka, Beograd In 2023, the bank achieved remarkable profitability with growth of its net profit by 100% . The bank managed to increase lending activities in all segments significantly and, throughout the year, achieved higher growth than the market while improving the quality of the loan portfolio by embedding it as a leading banking institution in the local market . increased interest rates also served as a important factor of profit growth . NLB Komercijalna Banka, Beograd started the complete transformation of the business model by introducing an agile, simple, and fast working model, digitalising products and services, and putting a sustainability concept at the centre of business decisions . In 2023, the bank was awarded a digital award for the first time for "Welcome to the Bank of Real Opportunities" for two socially responsible campaigns – "NLB Organic" and "NLB Frame of Help" as well, and the bank became the first certified family-friendly bank in Serbia . EUR 132 million result a.t. 24% contribution to NLB Group’s result a.t. 9 .9% market share by total assets 5th largest bank in the country Financial and Business Performance Table 23: Key performance indicators of NLB Komercijalna Banka, Beograd(i) Key performance indicators Net interest income Net non-interest income Total costs Impairments and provisions Result before tax Result after tax Net loans to customers Gross loans to customers Deposits from customers Equity Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 211,296 49,686 -113,634 1,933 149,281 132,313 5,019,429 2,811,599 2,848,543 4,004,112 827,575 27 .1% 4 .7% 16 .9% 2 .8% 43 .5% 22,490 0 .6% 9 .9% 70 .2% 124,269 58,805 -102,137 -11,801 69,136 66,014 4,670,405 2,589,222 2,624,735 3,692,213 737,972 24 .6% 3 .0% 9 .6% 1 .5% 56 .6% 32,519 1 .0% 10 .0% 70 .1% 70% -16% -11% - 116% 100% 7% 9% 9% 8% 12% 2 .5 p .p . 1 .7 p .p . 7 .3 p .p . 1 .3 p .p . -13 .1 p .p . -31% -0 .4 p .p . -0 .1 p .p . 0 .1 p .p . (i) Data on a stand-alone basis as included in the Group’s consolidated financial statements. In April 2022, NLB Banka, Beograd merged with Komercijalna Banka, Beograd. Key financial indicators (ROE a.t., ROA a.t., CIR and net interest margin) for 2022 calculated for the merged bank. Retail banking Despite operating in a challenging environment, Corporate banking The corporate segment in 2023 observed a 6% the retail segment recorded 5% YoY growth in gross growth in gross loans . The bank aimed to build a loans over the average market growth, driven mainly strong value proposition for all products and services by increased volume of consumer loans . The bank continued to gain the growth of the market share of in the cross and upselling program, which also brought added-value to customers . retail loans to 12% . Significant double-digit growth in consumer loans was confirming its commitment to the green agenda and marked (10% YoY) by increasing the market share to ESG targets by supporting the increase of renewable 10 .4% . Despite a decline in demand in the housing energy in Serbia . The bank also approved several project segment, growth above the market peers was achieved financings for important real estate developments and The bank participated in green project financing, thus at 4% YoY, thus boosting the share in the housing segment by 40 bps to 12 .7% . The deposit base increased by 5% YoY . The interest margin in the retail segment was still high, but under intense pressure from competition . sovereign funding for road infrastructure development . 85 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial and Business Performance Table 24: Key performance indicators of NLB Banka, Skopje(i) 2023 2022 Change YoY in EUR thousands NLB Banka, Skopje The bank is a leading banking institution in the local market and is identified as a systemically important bank . In 2023, its success was once again confirmed and recognised by receiving several prestigious awards in the fields of banking, outstanding growth Key performance indicators Net interest income Net non-interest income in cashless payment systems of the country, and Total costs demonstrated humanity and solidarity . Impairments and provisions The bank continues to support the country’s population and economy . The focus remains on digitalisation, improving digital channels to increase customer digital penetration, improve customer experience, and expand the portfolio of products and services with a particular focus on "green" products, as well as socially responsible projects for caring for their employees and the community in its entirety . 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 Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 65,406 21,198 -36,416 -761 49,427 44,517 1,902,260 1,216,188 1,276,133 1,499,509 279,987 18 .9% 3 .7% 16 .5% 2 .4% 42 .0% 48,791 3 .1% 15 .6% 81 .1% 53,932 21,948 -31,778 -2,434 41,668 37,874 1,847,521 1,170,692 1,234,343 1,462,015 265,844 18 .2% 3 .1% 15 .0% 2 .1% 41 .9% 54,549 3 .6% 16 .3% 80 .1% 21% -3% -15% 69% 19% 18% 3% 4% 3% 3% 5% 0 .7 p .p . 0 .5 p .p . 1 .5 p .p . 0 .3 p .p . 0 .2 p .p . -11% -0 .5 p .p . -0 .7 p .p . 1 .0 p .p . EUR 45 million result a.t. 7% contribution to NLB Group’s result a.t. 15 .6% market share by total assets 3rd largest bank in the country (i) Data on a stand-alone basis as included in the Group’s consolidated financial statements. Retail banking The gross loans experienced significant YoY growth of 10% with the increase in housing (12%) and consumer loans (11%), surpassing the 2023 market growth . The highest amounts of disbursed loans so far in the retail segment led to an increase in the market share to 22 .7% . The deposit base increased by 1 .4% YoY . The interest margin in the retail segment was still high, but under intense pressure from competition . The key drivers of income growth were the portfolio increase, foreign payment operations, account management, and bancassurance . Corporate banking As of 31 December 2023, the bank had a market share of 12 .4% in corporate gross loans . Considering the strategic orientation, NLB Banka, Skopje maintained its interest in credit support for investments in renewable sources and projects to increase energy efficiency, modernisation, and automation of the corporate segment . The bank increased the portfolio in the segment of long- term financing of highly creditworthy clients, securing a stable portfolio and revenue generation . The bank had a total outstanding balance of EUR 41 million in project financing and almost EUR 30 million outstanding balance of loans approved for investments in renewable sources and energy-efficient investments . NLB Banka Skopje also supported many export-oriented companies by offering them services and products appropriate for their operation to adapt to emerging market conditions . In response to macroeconomic developments, corporate interest rates were aligned with market conditions throughout the year . 86 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB Banka, Banja Luka Financial and Business Performance Table 25: Key performance indicators of NLB Banka, Banja Luka(i) In 2023, the bank remained the second most important bank in the Republic of Srpska market, reaffirming its status as a leading bank in retail with an increased market share of 21 .7% (increased by 1 .6 p .p .) . The predominant strength of the bank was its market Key performance indicators Net interest income Net non-interest income Total costs Impairments and provisions position in the corporate and retail segments and a solid deposit base . As evidence of a highly successful Result before tax Result after tax year, the bank also received several "Golden BAM" Financial position statement indicators awards for the highest ROE, the best CIR, and, for the Total assets first time, the award for being the most innovative bank in the market of Bosnia and Herzegovina . Net loans to customers Gross loans to customers Deposits from customers Equity Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 32,475 14,399 -19,433 -763 26,678 24,269 1,040,630 556,960 575,960 840,115 107,270 15 .9% 3 .4% 24 .2% 2 .4% 41 .5% 5,543 0 .7% 20 .4% 66 .3% 23,594 14,941 -17,293 -280 20,962 19,281 995,308 523,238 540,533 796,668 96,237 16 .0% 2 .6% 20 .2% 2 .0% 44 .9% 8,272 1 .1% 20 .1% 65 .7% 38% -4% -12% -173% 27% 26% 5% 6% 7% 5% 11% -0 .1 p .p . 0 .8 p .p . 4 .0 p .p . 0 .4 p .p . -3 .4 p .p . -33% -0 .4 p .p . 0 .3 p .p . 0 .6 p .p . (i)Data on a stand-alone basis as included in the Group’s consolidated financial statements. EUR 24 million result a.t. 4% contribution to NLB Group’s result a.t. Retail banking Retail banking recorded excellent double-digit YoY Corporate banking Corporate banking recorded YoY growth in gross loans growth in gross loans (13%), while deposits grew by 6% (2%) by supporting local companies in short- and YoY . Consumer loans increased by 19% and housing long-term projects . loans by 7% YoY . The market share in retail loans rose by 1 .9 p .p . YoY and reached 22 .0%, while the market share in retail deposits was 25 .7% . The key drivers of income Corporate deposits recorded YoY growth of 12%, which supported the bank’s organic growth . 20 .4% market share by total assets 2nd largest bank in the country growth were interest income and income from accounts and payments processing . The focus remains on further growth of the retail portfolio, with particular emphasis on introducing additional customer services, especially in digitalisation and bancassurance services . 87 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial and Business Performance Table 26: Key performance indicators of NLB Banka, Sarajevo(i) NLB Banka, Sarajevo In 2023, the bank showed solid performance and remarkable loan growth of 10% by boosting the bank’s market share . The predominant strength of the bank was in consumer lending and the development of innovative retail products, largely contributing to the Key performance indicators Net interest income Net non-interest income high share of net non-interest income (31% of net fee Total costs and commission income in total net operating income) . Impairments and provisions The bank achieved an impressive 31% YoY growth in net interest income, driven by a substantial surge in Result before tax Result after tax loan volume and vigilant monitoring of market and Financial position statement indicators interest rate trends . In 2023, the bank launched new digital products and actively contributed to the country's green financing initiatives . As a result, it received several awards in the local market, namely the Golden BAM award for the "Total ESG Effect" category; awards for the best digital socially responsible campaign, "The Healing Horse" and "Go Green Star"; as well the Visa Awards for "Google Pay Launch" and for First-to-Market with "Tap-to-Phone" . Total assets Net loans to customers Gross loans to customers Deposits from customers Equity Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 25,490 11,203 -19,877 -2,939 13,877 12,819 917,233 575,560 597,715 749,708 95,980 17 .8% 3 .0% 13 .6% 1 .5% 54 .2% 15,732 2 .0% 6 .2% 76 .8% 19,524 12,152 -18,304 -982 12,390 11,436 838,117 521,326 542,001 673,402 90,608 16 .5% 2 .6% 12 .5% 1 .5% 57 .8% 16,986 2 .3% 6 .0% 77 .4% 31% -8% -9% -199% 12% 12% 9% 10% 10% 11% 6% 1 .3 p .p . 0 .4 p .p . 1 .1 p .p . 0 .0 p .p . -3 .6 p .p . -7% -0 .3 p .p . 0 .2 p .p . -0 .6 p .p . (i) Data on a standalone basis as included in the consolidated financial statements of the Group. EUR 13 million result a.t. 2% contribution to NLB Group’s result a.t. 6 .2% market share by total assets 6th largest bank in the Federation of BiH Retail banking Retail banking recorded YoY growth in gross loans, Corporate banking The corporate banking segment achieved YoY growth reaching 10%, propelled by the expansion of housing in gross loans, reaching 10% . The focus was increasing and consumer loans . Housing loans experienced a YoY the client loan portfolio by acquiring new creditworthy increase by 7%, while the consumer loans portfolio grew clients . Also, a positive trend was observed in the volume by 12% YoY, attributed to heightened demand, various campaigns, and increased employee engagement . of the guarantees portfolio . A strong focus is placed on green loans and the implementation of ESG standards Additionally, the average interest rate in the retail segment rose to 5 .63% in 2023 compared to 5 .37% Corporate deposits reached YoY growth of 21%, as well . in 2022 . accompanied by a shift in the maturity structure, with an increasing share of corporate term deposits by 8% YoY . 88 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial and Business Performance Table 27: Key performance indicators of NLB Banka, Prishtina(i) NLB Banka, Prishtina In 2023, the bank kept its leading position in profitability by increasing its net profit by 11% . It ranked the second biggest bank in Kosovo by increasing its total assets by 13% YoY . The bank’s predominant strength has been providing a full spectrum of financial services to retail Key performance indicators Net interest income Net non-interest income and corporate clients, and being a market leader in Total costs innovations in the local banking sector . Net interest Impairments and provisions income grew by 18% YoY, mainly due to boosting lending activities and optimising investments in Result before tax Result after tax securities and the balance sheet . Financial position statement indicators The bank received the EBRD "Most Active Local Bank in Using TFP Line" award for several consecutive years . Total assets Net loans to customers Gross loans to customers Deposits from customers Equity Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 47,165 8,017 -15,995 776 39,963 35,968 1,229,757 831,333 866,730 1,008,261 149,669 15 .8% 4 .2% 27 .3% 3 .2% 29 .0% 16,234 1 .6% 16 .9% 82 .5% 39,844 8,547 -14,348 2,052 36,095 32,402 1,083,638 740,775 777,202 894,242 113,844 15 .7% 4 .1% 29 .2% 3 .3% 29 .7% 15,705 1 .7% 16 .7% 82 .8% 18% -6% -11% -62% 11% 11% 13% 12% 12% 13% 31% 0 .1 p .p . 0 .1 p .p . -1 .9 p .p . -0 .1 p .p . -0 .7 p .p . 3% -0 .1 p .p . 0 .2 p .p . -0 .4 p .p . (i) Data on a stand-alone basis as included in the Group’s consolidated financial statements. EUR 36 million result a.t. 5% contribution to NLB Group’s result a.t. 16 .9% market share by total assets 2nd largest bank in the country Retail banking In 2023, the bank achieved YoY growth in gross loans Corporate banking Corporate banking recorded YoY growth in gross loans (18%) and deposits (8%) . The growth in retail was of 7%, mainly driven by the disruption of the normal predominately fuelled by heightened loan demand and supply chain (external factors) and the cross-selling of a further rise in the general consumption pattern . This, products through existing corporate clients, particularly in turn, has resulted in an inflation-driven increase in real estate prices . The growth in housing loans reached targeting new retail and SME clients . Optimisation of the bank’s liquidity structure was highlighted by an 18 .5% 16%, and consumer loans showed a substantial 24% YoY YoY deposits increase . The key drivers of income growth increase . were working capital loans, credit lines, and overdrafts . Cooperation on the Group level resulted in financing the In addition, the bank has signed several partnership construction of a major locally recognised project that agreements with construction and trade companies contributed largely to clean energy production from to finance their products and boost the performance renewable sources . committed by the sales department . 89 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial and Business Performance Table 28: Key performance indicators of NLB Banka, Podgorica(i) NLB Banka, Podgorica In 2023, the bank maintained the second position within 11 banks in the market and is identified as a systemically important bank . The predominant strength of the bank is seen in housing and consumer loans, where the bank is an important player in the local market . Key performance indicators Net interest income Net non-interest income Total costs Impairments and provisions Result before tax Result after tax The Bank received th e recognition »The Best Bank in Financial position statement indicators Montenegro« for the second year in a row, awarded Total assets by the world’s most influential financial magazine, Euromoney . It also presented the bank with two more valuable awards, declaring it the best ESG and socially responsible bank in Montenegro . Net loans to customers Gross loans to customers Deposits from customers Equity Key financial indicators Total capital ratio Net interest margin ROE a .t . ROA a .t . CIR NPL volume NPL ratio (internal def .: NPL/Total loans) Market share by total assets LTD 2023 2022 Change YoY in EUR thousands 40,335 8,955 -20,418 3,238 32,110 26,658 971,149 584,526 603,349 798,018 120,390 19 .2% 4 .8% 22 .9% 2 .9% 41 .4% 24,140 3 .2% 14 .4% 73 .2% 29,607 7,720 -20,252 1,165 18,240 16,613 851,630 532,254 552,470 692,872 106,937 18 .4% 4 .0% 16 .7% 2 .1% 54 .3% 32,610 4 .6% 13 .3% 76 .8% 36% 16% -1% 178% 76% 60% 14% 10% 9% 15% 13% 0 .8 p .p . 0 .7 p .p . 6 .2 p .p . 0 .8 p .p . -12 .8 p .p . -26% -1 .4 p .p . 1 .1 p .p . -3 .6 p .p . EUR 27 million result a.t. 4% contribution to NLB Group’s result a.t. 14 .4% market share by total assets 2nd largest bank in the country (i) Data on a standalone basis as included in the consolidated financial statements of the Group. Retail banking Retail banking recorded YoY growth in gross loans (10%) Corporate banking The corporate banking segment recorded YoY growth in and deposits (8%) . Consumer loans present 52% of gross loans (3%) and deposits (26%) . The loan portfolio the retail portfolio, while housing loans occupied 48% . predominantly consisted of large corporates, which Growth in gross loans was recorded by the increase in increased by 6% YoY . New production of consumer loans volume by 12% YoY and housing loans by 7% YoY . Consumer loan growth was affected by timely EUR 81 .5 million was recorded in all segments — large corporate, state, and SME — by improving the existing organised and well-executed consumer loan campaigns portfolio quality . following increased salaries within state institutions . The focus remains on further growth of the retail in the country, such as a wind power plant portfolio, with particular emphasis on introducing in the amount of EUR 25 million, an electric additional services for customers, especially transmission infrastructure, and a high-end business in digitalisation . centre in Montenegro . The Group financed several strategic corporate projects 90 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report The Bank and EBRD signed a contract worth EUR 2 million to lend to the population for energy-efficient residential building investments and reduce costs and CO2 emissions . Contents NLB DigIT, Beograd The company is the IT hub, supporting the Group members and spearheading digital transformation projects . The company was built on the resource pool of the Group Competence Centre of NLB Banka, Beograd (merged into NLB Komercijalana Banka, Beograd in 2022), and additional external staff onboarding . NLB DigIT’s primary focus is to deliver services with a high level of quality to Group entities in domains where IT resources and expertise are scarce throughout the region . NLB DigIT provides services mainly in key areas such as IT security setup for all the banks, IT delivery, and others . Leasing and Asset Management operations expansion in SEE The Group is consolidating its strategically important position in its home SEE region, announcing new acquisitions within leasing and asset management activities . Leasing is one of the strategic activities of the NLB Group . It complements the Bank’s lending services and enables retail and corporate clients to choose the option that best addresses their needs, situations, and preferences . After entering the Slovenian market with NLB Lease&Go, Ljubljana in the spring of 2020, leasing activities gained momentum . New leasing companies were established within the Group in 2022 in North Macedonia and Serbia . With remarkable growth, especially in Serbia, NLB Lease&Go Leasing, Beograd and NLB Lease&Go, Skopje ended the year 2023 with EUR 69 .4 million and EUR 9 .3 million of net loans to customers, respectively . In November 2023, the Bank entered into a sale and purchase agreement to acquire a 100% shareholding in SLS HOLDCO, holdinška družba, d .o .o ., the parent company of Summit Leasing Slovenija d .o .o ., and its subsidiaries, from funds managed by affiliates of Apollo Global Management Inc . and the EBRD . Meanwhile, the Group and its member company NLB Skladi, which offers clients asset management services, are also writing a new regional story . NLB Skladi, asset management, d .o .o . has recently concluded a purchase agreement with Generali Investments to purchase the majority ownership of the company Generali Investments AD Skopje . 91 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Non-Core Members The Non-Core Members segment includes the operations of non-core Group members . The main objective in the efficient divestment manner of the remaining non- non-core segment remains a rigorous wind-down of all non-core portfolios and the consequent reduction of performing portfolio or the repossession of the collateral costs . The implementation of the wind-down has been pursued with a variety of measures, including the sales real estate . of portfolios (either packages that include portfolios in a single market or entity, as well as packages combining portfolios in different markets and/or entities), sales or liquidation of non-core entities, sales of individual assets, The main task is to ensure value-preserving strategies the collection or restructuring of individual assets, and active management of real estate assets . Financial and Business Performance Table 29: Results of the Non-Core Members segment Net interest income Net non-interest income Total net operating income Total costs Result before impairments and provisions Impairments and provisions Result before tax 2023 1 .5 -1 .7 -0.1 -13 .7 -13.9 3 .7 -10.1 2022 0 .3 4 .4 4.7 -12 .6 -7.9 -0 .8 -8.7 Segment assets Net loans to customers Gross loans to customers Investment property and property & equipment received for repayment of loans Other assets Non-performing loans (gross) 31 Dec 2023 31 Dec 2022 Change YoY 47.1 10 .9 28 .6 20 .1 16 .0 27 .4 61.5 13 .8 35 .4 39 .6 8 .1 32 .3 -14.5 -2 .9 -6 .9 -19 .5 7 .9 -4 .8 in EUR millions consolidated Change YoY 1 .3 -6 .1 -4.8 -1 .1 -6.0 4 .6 -1.4 - - - -9% -75% - -16% -24% -21% -19% -49% 97% -15% for the real estate management, 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 2023, real-estate transactions with a total sales value of EUR 290 .3 million were executed or supported and directly or indirectly contributed to a EUR 656 .4 million NPL reduction, of which EUR 9 .9 million in 2023 alone . In order to achieve efficient, sustainable, environmentally and socially responsible NLB Group operations, as per NLB Group Real Estate strategy, as of 2024, the NLB Real Estate Management companies will be part of the non-financial core Group members . 92 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report The wind-down has remained the main objective of New business has been suspended for all non-core the non-core segment in all the non-core portfolios . Group members who are in the process of being In line with the divestment strategy, several non-core wound down . The decrease of the cumulative non-core Group members were liquidated or disinvested, thus the subsidiaries’ portfolio remains ongoing through regular segment’s total assets decreased by EUR 14 .5 million YoY . repayments and different collection measures . EUR 6 .9 million reduction of gross loans to customers in 2023 Divestment of non-core Group members A liquidation process is ongoing in all non-core leasing and trade finance subsidiaries and some real estate Active management of real estate assets The divestment process of the remaining NPL exposures at the Bank or the non-core subsidiaries’ level is subsidiaries . The divestment process has been running facilitated through a specialised team for repossessing, with thoughtful cost management and well-established managing, and divesting collateral real estate . Real collection procedures . estate expertise and services are offered to the Group members, assisting them in implementing the most EUR 48 .2 million the total sales value of real-estate transactions executed or supported by the real-estate team in 2023 Contents It is the sporting mentality that our economy and entrepreneurship also need on the global stage . Slovenian men's national volleyball team Elevate your game and leave your heart on the court . Risk Management The self-funded model, strong liquidity, and a solid capital position continued in 2023, demonstrating the Group’s financial resilience . Efficient management of risks and capital is crucial for the Group to sustain long-term profitable operations . A robust Risk Management framework is comprehensively integrated into the Group’s decision-making, steering, and mitigation processes, which aims to support its business operations proactively . The Group contributes to sustainable finance by incorporating environmental, social, and governance risks into its business strategies, risk management framework, and internal governance arrangements . The Group has a well-diversified business model . Under Based on the Group’s business strategy, credit risk is the its strategic orientations, it intends to be sustainably dominant risk category, followed by credit spread and profitable, predominantly working with clients on its core interest rate risk in the banking book, and operational markets, providing innovative, but simple customer- risk . Credit risk management focuses on moderate risk- oriented solutions, and actively contributing to a taking, striving to assure a diversified credit portfolio, sustainable, more balanced, and inclusive economic adequate credit portfolio quality, the sustainable and social system . Efficient management of risks and cost of risk, and optimal returns considering the risks capital is crucial for the Group to sustain long-term assumed . The Group has limited exposure to the other operations . Risk Management in the Group manages, aforementioned risks, while market and other non- assesses, and monitors risks within the Bank as the main financial risks are less important from a materiality entity in Slovenia and the competence centre for six perspective . The Group integrates and manages ESG banking subsidiaries . risks within the existing types of risks, such as credit, Figure 49: Risk profile of NLB Group as at 31 December 2023 2.4% 1.4% 9.5% 7.5% 10.0% 3.7% Credit risk Concentration risk Credit spread risk Interest rate risk in banking book Operational risk Market risk 65.5% Business and Strategic risk 1 .1%low level of NPE (EBA def.) liquidity, market, and operational risk, as part of its risk management framework . These risks are estimated as low, except for transition risk in the area of credit, which is assessed as low to medium . Liquidity risk tolerance is low . The Group must maintain an appropriate level of liquidity at all times, and also pursue a proper structure of the sources of financing . Table 30: NLB Group’s Key Risk Appetite indicators (KRIs) KRIs Total capital ratio CET1 ratio LCR NSFR Cost of risk NPL ratio (EBA definition) NPE (EBA definition) Interest rate risk (EVE) 31 Dec 2023 20 .3% 16 .4% 245 .7% 187 .3% -7 bps 2 .1% 1 .1% -4 .2% During 2023, the Group’s credit portfolio quality remained high-quality and well-diversified, with a stable rating structure and lower NPLs level . The Group recorded a slower credit portfolio growth in all segments 94 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents after strong new corporate and retail loan origination the ECB, namely, setting Pillar 2 Guidance, which across all markets in 2022 due to inflationary pressures, remained at a relatively low level of 100 bps . higher interest rates and low GDP growth . The impacts of the floods in Slovenia were estimated as negligible, and only minor client credit quality deterioration or received collaterals occurred . Besides, the Group monitored the macroeconomic and geopolitical circumstances closely, remaining very prudent in identifying any increase in credit risk at a very early stage, and proactive in NPL management . The cost of risk remained low, at -7 bps, mainly due to the successful collection of previously written-off receivables, revised risk parameters, and -7 bps cost of risk on Group level · formulating and controlling the Group’s Risk Management policies, · setting limits, · overseeing the harmonisation, · regular monitoring risk exposures and limits based on centralised reporting at the Group level . The Group greatly emphasises the risk culture and awareness across the entire Group . The Group’s Risk Management framework is forward-looking and tailored to its business model and corresponding risk profile . The main risk principles and limits are set forth stable portfolio development in the SEE region . Besides, the Group is also included in two ECB Stress test by the Group’s Risk Appetite and Risk Strategy, which The Group stayed well capitalised and well above the analysis and the 2024 ECB Cyber Resilience Stress Test The Group performs the risk identification process risk appetite at both the Group and banking member Exercise, which started in Q3 2023 and will be concluded regularly as part of the ICAAP and ILAAP frameworks . exercises – the 2024 EBA Fit-for-55 climate risk scenario are designed in accordance with its business strategy . levels . The Group’s liquidity position also remained in H1 2024 . solid, with liquidity indicators high above the regulatory requirements, indicating its low tolerance for liquidity risk . Significant attention was put into the structure and concentration of liquidity reserves by incorporating early warning systems, while at the same time considering the potential adverse negative market movements . Investment activity continued with a balanced approach to finding attractive market opportunities while pursuing well-managed credit spread and interest rate risk, as well as capital consumption . Raising the interest rate environment and corresponding increased market demand for fixed interest rate products led to moderate interest rate risk exposure, which stayed well within the risk appetite tolerance . As a systemically important institution, the Group was included in the ECB Stress Test exercise performed in H1 2023 . On 30 July, the results of stress tests carried out for important banks by the ECB to assess the resilience of the financial institutions were disclosed . Under the adverse scenario, the CET1 ratio (fully loaded) would fall As a systemic bank, the Bank is involved in the Single Supervisory Mechanism (SSM). Supervision is under the jurisdiction of the Joint Supervisory Team (JST) of: ECB BoS ECB regulations are followed by the Group, where the Group subsidiaries operating outside Slovenia are compliant with the rules set by the local regulators. Third-party equivalents are approved in Serbia, Bosnia and Herzegovina, and North Macedonia, aligning local regulations with CRR rules. Across the Group, risks are assessed, monitored, managed, or mitigated in a uniform manner, as defined in the Group’s Risk management standards, also considering the specifics of the markets in which individual Group members operate. All topical risks in this process, including ESG-related ones, are comprehensively assessed, monitored, and mitigated where necessary . Particular focus is placed on including risk analysis in the decision-making process at strategic and operating levels, diversification to avoid large concentrations, 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 to ensure 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, the Recovery plan, and other internal stress-testing capabilities into the Risk Management system is essential . Moreover, the Group emphasises their integration into the overall Risk Management system to assure proactive support for informed in the 300–599 bps range after three years without Risk Management and control are performed through decision-making . mitigation measures . The Group’s results of adverse a clear organisational structure with defined roles depletion were lower than the peer group and average and responsibilities . The organisation and delineation SSM sample banks results . Moreover, the Group’s data of competencies are designed to prevent conflicts of quality and accuracy were assessed as above average . interest and ensure a transparent and documented The final results of the bottom-up stress test showed that decision-making process subject to an appropriate even in a very unfavourable market condition as defined upward and downward flow of information . the EBA and ECB, the Group holds sufficient resilience in terms of capitalisation . The qualitative outcomes were Competence line Risk Management in NLB is, by included in the determination of capital requirements by encompassing several professional areas, in charge of: Proactive Risk Management in 2023 95 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The uniform stress-testing programme, which includes Figure 50: NLB Group’s Risk Management framework internally developed models, stress scenarios, and sensitivity analysis, is regularly revised and complemented . The Group established an internal ESG stress-testing concept to identify the most relevant financial vulnerabilities stemming from climate risk, which is constantly further enhanced by considering available ESG-related data . Such a comprehensive stress-testing framework is the subject of a regular internal validation cycle and related procedures where the Group established a comprehensive validation framework . The Group supports a robust validation governance process and controls over applied and selected risk approaches and internal models . The business and operating environment relevant for the Group operations is changing, with trends such as sustainability, social responsibility, governance, changing customer behaviour, emerging new technologies, and competitors actively contributing to a more sustainable, balanced, and inclusive economic and social system – as well increasing new regulatory requirements . It should be noted that Risk Management is continuously adapting to detect and manage new potential emerging risks . ICAAP & ILAAP inputs Business strategy Risk identification Risk Appetite (Limit system) Capital and Financial planning ILAAP • Economic and normative assessment of liquidity • Stress tests • Liquidity contingency plan (LCP) ICAAP • Economic and normative assessment of capital • Stress tests Results Recovery plan Assessment of liquidity and capital (significant deterioration) 96 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Proactive Risk Management in 2023 A prudent capital-level position and achieved interim MREL targets 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 levels in accordance with the Risk Appetite . It also incorporates normative and economic perspectives as part of the established ICAAP process . As at 31 December 2023, the Group had a very solid capital position and TCR of 20 .3% (1 .1 p .p . YoY increase) . The CET1 ratio, representing capital of the highest quality, stood at 16 .4% (1 .3 p .p . YoY decrease) . Capital is higher mainly due to the partial inclusion of 2023 profit (EUR 327 .4 million) . Temporary treatment of FVOCI for sovereign securities ceased to apply, resulting in a decrease of capital by EUR 61 .6 million . This effect was compensated with EUR 84 .5 million of revaluation adjustments . In addition, a deduction item related to deferred taxes decreased the capital by EUR 47 .0 million . An increase of RWA in NLB Group for credit risk mostly relates to the contribution of acquired N Banka and ramping up lending activity in all NLB Group banks . RWA growth was partially mitigated by CRR-eligible real estate collaterals . A slight increase in RWAs for market risks and CVA is mainly the result of higher RWA for FX risk . The main effect of an increase in the RWA for operational risks derives from the higher net interests, resulting in a higher three-year average of relevant income . As at 31 December 2023, the Group meets all fully loaded regulatory requirements . Moreover, enhanced overall corporate governance in recent years led to a lower P2R, which decreased from 2 .40% applicable in 2023 to 2 .12% applicable from 1 January 2024, while Pillar 2 Guidance remains at a low level of 1% . The MREL requirement forms part of the Group’s risk appetite, whereby its fulfilment is regularly analysed and monitored . NLB complies with all interim targets . More information on MREL is available in the chapter Funding Strategy, Capital, and MREL Compliance . Figure 51: NLB Group’s Pillar 2 Requirement evolution 3.50% 3.25% 2.75% 2.75% 2.60% 2.40% 2.12% 2018 2019 2020 2021 2022 2023 2024 97 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Maintaining a solid level and structure of liquidity Maintaining a solid level and structure of liquidity represents the next very important risk target . The liquidity position remained stable and strong at the Group and individual subsidiary bank levels . Group LCR slightly increased to 245 .7% (by 25 .4 p .p . YoY), Group would survive at least three months under such remaining well above the risk appetite limit . The stress conditions . The core funding base of the Group level of the unencumbered eligible liquid reserves predominately represents retail customer deposits remained at a high level, representing 39 .6% of total with a very stable and constantly growing base . LTD assets . The Group has sufficient liquidity reserves increased to 66 .2% from 65 .3% at the end of 2022, in the form of placements with the ECB, prime debt though it remains at a very comfortable level . securities, and money market placements . Even in the event of the combined adverse stress scenario, the Figure 52: NLB Group’s LCR 300% 280% 260% 240% 220% 200% 180% 160% 140% 120% 100% 31 D ec 2 0 22 31 Ja n 2 0 23 28 Fe b 2 0 23 31 M ar 2 0 23 3 0 A pr 2 0 23 31 M ay 2 0 23 3 0 Ju n 2 0 23 31 Jul 2 0 23 31 A u g 2 0 23 3 0 Se p 2 0 23 31 O ct 2 0 23 3 0 N ov 2 0 23 31 D ec 2 0 23 LCR NLB Group 98 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Maintaining adequate credit portfolio quality Maintaining adequate credit portfolio quality is the most important goal, focusing on cautious risk-taking and the quality of new loans, leading to a diversified portfolio of customers . The Group is constantly developing a wide range of advanced approaches in the credit risk assessment segment in line with best banking practices to enhance the existing risk management tools further while enabling greater customer responsiveness . The sized companies, and small enterprise segments, restructuring approach in the Group is focused on whereas in the corporate segment, the Bank established the early detection of clients with potential financial cooperation with selected corporate clients (through difficulties and their proactive treatment . different types of lending or investment instruments) . All other banking members in the SEE region where the The Group actively supports SEE markets by financing Group is present are universal banks, mainly focused existing and new creditworthy clients . The Group’s on the retail, medium-sized companies, and small lending strategy focuses on its core markets of retail, enterprise segments . Their primary goal is to provide SME, and selected corporate business activities within comprehensive services to clients by applying prudent the region and EU . In the Slovenian market, the focus is risk management principles . on providing appropriate solutions for retail, medium- Figure 53: NLB Group structure of the credit portfolio(i) (gross loans) by segment (in EUR millions) and rating(ii) Institutions 451 SME 3,764 State(iii) 5,928 63% 62% 63% EUR 20 .2 billion Corporates 2,865 32% 33% 33% NPLs 3% 3% 3% 1% 1% 1% 1% 1% 1% Retail consumer 3,131 Retail housing 4,105 Highest quality 31 Dec 2021 31 Dec 2022 31 Dec 2023 A B C D E Default (i) Loan portfolio also includes reserves at CBs and demand deposits at banks, which are also shown in the rating distribution. (ii) Ratings A, B, and C are performing exposures. Rating A: investment grade clients with high financial stability; Rating B: clients with high ability to repay their obligations, a significant aggravation of the economic environment would cause problems to them; Rating C: performing clients with increased level of risk who may encounter issues with settlement of liabilities in the future; Ratings D and E are NPLs: Default clients (article 178 of CRR), including clients in delay >90 days and other clients considered "unlikely to pay" with delays below 90 days. The numbers may add up to less than 100% due to rounding. (iii) State includes exposures to CBs. 99 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Lending growth was observed in the corporate, as well to finance some of the region’s top corporate clients credit portfolio remains well diversified, and no large as in the retail segments in 2023 . In the circumstances while focusing on SMEs as its key segment . The current concentration exists in any specific industry or client of the growing EURIBOR, there was a certain transfer structure of the credit portfolio (gross loans) consists of segment . The share of the retail portfolio in the whole to fixed interest rates; at the same time, the new loan 35 .7% retail clients, 14 .2% large corporate clients, and credit portfolio is quite substantial, with mortgage loans production slowed down compared to the previous year . 18 .6% SMEs and micro companies, while the remainder as the still prevailing segment . In the corporate segment, the Bank seized opportunities of the portfolio consists of other liquid assets . The Table 31: Overview of NLB Group loan portfolio by industry as at 31 December 2023 Corporate sector Retail sector Corporate sector by industry NLB Group Accommodation and food service activities Act . of extraterritorial org . and bodies Administrative and support service activities Agriculture, forestry and fishing Arts, entertainment and recreation Construction industry Education Electricity, gas, steam and air conditioning Finance Human health and social work activities Information and communication Manufacturing Mining and quarrying Professional, scientific and techn . act . Public admin ., defence, compulsory social . Real estate activities Services Transport and storage Water supply Wholesale and retail trade Other Total Corporate sector 198 .8 0 .0 111 .3 344 .7 20 .0 556 .9 15 .0 543 .3 144 .4 37 .4 291 .6 % 3 .0% 0 .0% 1 .7% 5 .2% 0 .3% 8 .4% 0 .2% 8 .2% 2 .2% 0 .6% 4 .4% Retail consumer 43% EUR 7 .2 billion Retail housing 57% in EUR millions ∆ 2023 -17 .9 0 .0 31 .5 18 .4 -3 .6 -12 .8 1 .1 -7 .2 -80 .3 -9 .5 -23 .3 66 .0 -8 .1 47 .7 10 .8 64 .6 -2 .8 -10 .5 5 .8 12 .3 1 .5 83.7 1,524 .9 23 .0% 46 .1 234 .9 199 .5 377 .4 13 .9 619 .0 57 .1 1,290 .2 2 .8 0 .7% 3 .5% 3 .0% 5 .7% 0 .2% 9 .3% 0 .9% 19 .5% 0 .0% 6,629.3 100.0% Companies’ financing also includes financing of real In the development phase, the Bank requires a minimum estate activities (projects), which represent a smaller of 25% of equity and a pre-lease/pre-sale of 30% for part of the portfolio . Projects are carefully monitored offices, 60% for shopping malls and 20% for residential throughout each phase of construction . For real estate before first disbursement . The Bank finances income-producing CRE companies in the operating projects sponsored by investors with proven track phase, the DSCR is between 1 .2 and 1 .4, and the LTV is, records . In the CRE portfolio, occupancy rates and rent on average, lower than 60%; a sufficient reserve and repayment to the Bank is not threatened . For most approved loans, an amortization repayment structure was backed against the background of concluded long-term rental contracts (offices and shopping malls segment) . deterioration have not been observed . 100 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Approximately 53% of the NLB Group corporate and segment . In the retail segment, close to 70% of the loan contractual interest rates for existing loans at the retail loan portfolio is linked to a fixed interest rate, and portfolio is linked to a fixed interest rate, which results client’s request . 101 the rest to a floating rate (mainly the Euribor reference from considerable growth predominately of housing rate) . Floating interest rates dominate the corporate loans in 2023 and activities of changing the type of Figure 54: NLB Group corporate and retail loan portfolio by interest rates as at 31 December 2023 Figure 55: NLB Group loan portfolio by stages as at 31 December 2023 Corporate (incl . SME) Consumer Housing 37% 63% 34% 30% 66% 70% Fix Float Stage 3 2% Stage 2 3% FVTPL 0% Institutions 2% State 31% Corporate 31% Table 32: NLB Group loan portfolio by stages as at 31 December 2023 Stage 1 95% Retail 36% Stage 1 Credit portfolio Stage 2 Stage 3 & FVTPL Stage 1 Stage 2 Stage 3 & FVTPL Provisions and FV changes for credit portfolio in EUR millions Credit portfolio Share of Total YTD change Credit portfolio Share of Total YTD change Credit portfolio Share of Total YTD change Provision Volume Provision Coverage Provision Volume Provision Coverage Total NLB Group o/w Corporate o/w Retail o/w State 19,239.2 6,005 .6 6,854 .7 95.0% 90 .6% 94 .7% 1,781.6 85 .6 431 .7 5,928 .1 100 .0% 1,182 .5 o/w Institutions 450 .8 99 .9% 81 .8 704.1 454 .3 249 .6 - 0 .3 3.5% 6 .9% 3 .4% - 0 .1% 85.9 28 .6 57 .0 - 0 .3 300.5 169 .4 131 .0 0 .0 0 .1 1.5% 2 .6% 1 .8% 0 .0% 0 .0% -27.5 -30 .4 3 .0 -0 .1 0 .0 92.3 50 .0 39 .7 2 .4 0 .2 0.5% 0 .8% 0 .6% 0 .0% 0 .0% 44.1 19 .7 24 .4 - - 6.3% 4 .3% 9 .8% - - Provisions & FV changes Coverage with provisions and FV changes 194.2 109 .7 84 .4 0 .0 0 .1 64.6% 64 .7% 64 .4% 98 .4% 75 .9% The majority of the Group’s loan portfolio is classified as Figure 56: NLB Group Corporate and Retail loan portfolio (valued at amortised cost) by stages NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Stage 1 (95 .0%), the remaining portfolio as Stage 2 (3 .5%), Stage 3, and FVTPL (1 .5%) . The portfolio quality remains very stable, with increasing Stage 1 exposures and a relatively low percentage of NPLs . The percentage of the Stage 1 loan portfolio remains almost at the same level as at the end of 2022, i .e ., at 94 .7% in the retail segment, while in the corporate segment, despite the adverse economic conditions, improved to the level of 90 .6%, which is a result of cautious lending policy and successful 4,526 closure of NPL . The Stage 2 allocation slightly increased in the corporate and retail segment due to the changed macroeconomic conditions and improved Early Warning System (EWS) . Nevertheless, the increase remains negligible compared to the entire portfolio volume . Stage 1 by segment (in EUR millions) Stage 2 by segment (in EUR millions) Stage 3 by segment (in EUR millions) +1% YoY 5,920 6,006 5,371 +7% YoY 6,855 6,423 +7% YoY 412 426 454 +30% YoY 250 242 193 120 -15% YoY 200 169 +2% YoY 130 128 131 Corporate Retail Corporate Retail Corporate Retail 31 Dec 2021 31 Dec 2022 31 Dec 2023 Contents New NPLs formation and NPL management In 2023, NPL formation amounted to EUR 118 million or 0 .6% of the total loan portfolio . Nevertheless, the total amount of NPL decreased during 2023 and remained quite low . Figure 57: NLB Group gross NPL formation (in EUR millions) Formation / gross loans (stock) 0.9% 143 80 58 0.7% 0.6% 127 70 51 5 7 118 76 43 2021 2022 2023 Corporate SME Retail In 2023, the Bank released impairments and provisions Figure 58: Cumulative net new impairments and provisions for credit risk in NLB Group (in EUR millions) for a credit risk of EUR 11 .8 million . The established impairments derive from portfolio development, new financing and any portfolio deterioration . In contrast, material repayments of written-off receivables and changes in models contributed to a lower total impact and negative cost of risk of -7 bps in the financial year . Macroeconomic conditions in the region could continue to be affected by high inflation and relatively low GDP growth, which could have a negative impact on the level of the cost of risk in the following periods, but their impact should not be substantial . 10.4 11.8 -22.9 24.2 Changes in models / risk parameters Portfolio development Repayments of written-off receivables Net impairments and provisions for credit risk 1-12 2023 release establishment 102 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Figure 59: NLB Group NPL, NPL ratio and Coverage ratio 1(i) (in EUR millions) 103 Precisely set targets and various proactive workout approaches facilitated the management of the non- performing portfolio . The Group’s approach to NPL management puts a strong emphasis on restructuring and the use of other active NPL management tools, such as the foreclosure of collateral, the sale of claims, and pledged assets . In 2023, the multi-year declining trend of the non-performing credit portfolio stock continued, primarily due to repayments, cured clients, and the collection . The non-performing credit portfolio stock in the Group decreased to EUR 300 .5 million at the end of 2023 compared to EUR 328 .3 million at the end of 2022 . The combined result of contraction in the non-performing credit portfolio stock and credit growth of a higher quality portfolio led to 1 .5% of NPLs . At the same time, the internationally more comparable NPE ratio, based on the EBA methodology, stood at 1 .1% . The Group’s indicator gross NPL ratio, defined by the EBA, equals 2 .1% . 110.0% 98.9% 89.2% 81.8% 86.1% 475 375 367 328 301 3.8% 3.5% 2.4% 1.8% 1.5% 31 Dec 2019 31 Dec 2020 31 Dec 2021 31 Dec 2022 31 Dec 2023 Coverage ratio 1 NLP ratio NLPs (i) By internal definition. Due to extensive experience gained in the last few years in dealing with clients with financial difficulties An important Group strength is the NPL coverage ratio 1 (coverage of gross NPLs with impairments for all loans), The Group strives to ensure the best possible collateral for long-term loans, namely mortgages in most cases . resulting primarily from legacy portfolios, the Group which remains high at 110 .0% . Furthermore, the Group’s Thus, the real-estate mortgage is the most frequent has developed an extensive knowledge base both NPL coverage ratio 2 (coverage of gross NPLs with form of loan collateral for corporate and retail clients . In in the prevention of financial difficulties for clients impairments for NPL) stands at 64 .6%, well above the corporate loans, government and corporate guarantees to restructure viable clients in case of need, and to EU average published by the EBA (42 .6% for Q3 2023) . are also common types of collateral . In retail loans, the efficiently work out exposures with no realistic recovery As such, it enables a further reduction in NPLs without other most frequent types of loan collateral are loan prospects . This extensive knowledge base is available significantly influencing the cost of risk in the coming insurances by insurance companies and guarantors . throughout the Group . Risk units, as well as restructuring years . and workout teams, are properly staffed and have the capacity to deal, if needed, with considerably increased volumes in a professional and efficient manner . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Low market risk in the trading book Regarding market risks in the trading book, 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 Group carries its main business activities in euros, and the subsidiary banks, in addition to their domestic currencies, also operate in euros, the Group’s reporting currency . The Group’s net open FX position from transactional risk is low, at 1 .4% 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 . Proactive management of interest rate risk in the banking book The exposure to interest rate risk is moderate and The exposure to interest rate risk remains modest, within derives mainly from the banking book positions . The the risk appetite limits . The Group applies different Group has a strategy of maintaining a low Economic scenarios when assessing the EVE sensitivity . In 2023, Value of Equity (EVE) indicator while simultaneously the Group upgraded the measuring of interest rate risk monitoring the effects on Earnings At Risk (EAR) . Bonds according to new EBA Guidelines, which impacted EVE and loans with a fixed interest rate contribute the result . From the EVE perspective, the estimated capital most to the interest rate risk exposure in terms of the sensitivity of the worst regulatory scenario (parallel up Economic Value of Equity (EVE) indicator . In contrast, +200 bps) is 4 .2% of the Group’s T1 capital . exposure is managed with core deposits, which present the most important and material element of interest rate risk management . To a lesser extent, the Group also uses plain vanilla derivatives to hedge risk . Figure 60: NLB Group’s EVE evolution -5.1% -3.7% -3.0% -2.7% -4.2% 31 Dec 2022 31 Mar 2023 30 Jun 2023 30 Sep 2023 31 Dec 2023 104 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Robust operational risk management In operational risk management, where the Group has established a robust operational risk culture, the main qualitative activities refer to reporting loss events and identifying, assessing, and managing operational risks . Constant improvements of control activities, processes, and/or organisation are performed on this basis . Besides that, the Group also focuses on proactive mitigation, prevention, and minimisation of potential damage . Special attention is dedicated to the stress- testing system, based on a scenario analysis referring to the potentially high severity, low-frequency events and modelling data on loss events . The Bank uses the gamma distribution technique for modelling, which proved to be the most suitable . From an economic perspective, the aim is to ensure the necessary capital for materially important risks that could happen extremely rarely . Consequently, data on realised loss events are used with a confidence interval of 99 .9% . Moreover, some add-ons are added for specific current and significant risks . In a normative view, a 90% confidence level is used for more plausible, but still severe events which would be absorbed through P&L . In NLB Group, the reported incurred net loss arising from loss events in 2023 was higher than in the previous year but remained within the set tolerance limits for operational risk . Certain litigation costs occurred due to systemic issues such as changes in the interpretation of legislation (e .g . introduction of reimbursement of a proportional part of loan costs in case of early repayment of consumer loans in Slovenia), litigation risk (e .g . litigation cases related to loan processing fee and loan insurance premium in Serbia) and changes of tax treatment of banking business (e .g . application of VAT on card payments services in Bosnia and Herzegovina) . Apart from losses already included in the loss event database, the Bank could also experience one-off and unpredictable extreme events . The list of such potential events is updated yearly, based on current risks in the Bank’s environment or past realised events in the banking industry . For those possible and topical events, scenario analyses are prepared . In 2023, several such scenarios were defined . The cyber-attack scenario as an umbrella scenario was further divided into five more detailed areas of credit, liquidity, market, and operational scenarios for different types of such attacks . The results risk . The management of ESG risks follows ECB show that the most significant loss could derive from the and EBA guidelines, following the tendency of their following potential events: possible difficulties operating comprehensive integration into all relevant processes . electronic banking channels, anti-money laundering, cyber-attacks, other external fraud events, and legal risk . The availability of ESG data in the region where the Group For these scenarios, existent controls were additionally operates is still lacking . Nevertheless, the Group made revised, while for identifying potential deficiencies, significant progress in obtaining relevant ESG-related mitigation measures were defined . data from its clients, being the prerequisite for adequate Furthermore, key risk indicators serve as an early management of ESG risks . For the purpose of calculating warning system for the broader field of operational credit portfolio GHG emissions, several important risks (such as HR, processes, systems, and external activities started in 2022 . For larger corporate clients, the conditions) . They are regularly monitored, analysed, and Group initiated direct Scope 1, 2, and 3 data-gathering reported to improve the existing internal controls and processes, whereas for the SME and micro-segments, it decision-making and the corresponding proactive enable on-time reactions . developed its own proxies in cooperation with an external expert . In residential mortgages, the most essential input The Group supports proactive discussion of operational risks on all hierarchical levels . Every employee can for GHG calculation is the buildings’ energy performance certificates . In H1 2023, NLB Group disclosed financed report loss events . The biggest/most important GHG emissions arising from its credit portfolio in Pillar 3 operational risks are escalated in a short period and Disclosures . Besides the emissions, the Group collected, discussed at the Operational Risk Committee sessions, analysed, and used relevant historical data for physical while implementation of the mitigation measures is risk and publicly available climate change pertinent closely monitored . studies to its region . In addition, the Group was also diligently managing The Group conducts a materiality assessment as part other non-financial risks, referring to the Group’s of its overall risk identification process to determine business model or arising from other external the level of transitional and physical risk to which the circumstances within the established ICAAP process . Group is exposed . In this process, the identification Incorporating ESG risks The Group contributes to sustainable finance by of environmental risk factors, relevant transmission channels, and their materiality and impact on the Group’s financial performance in short-, mid-, and long-term periods are assessed . From the perspective incorporating ESG risks into its business strategies, of physical risk, the most relevant natural disasters its risk management framework, and internal are floods, landslides and drought, while hail and governance arrangements . By adopting the NLB Group windstorms are also frequent but less material . Despite Sustainability programme, the Group implemented the this, the Group can expect its impact to increase in the main sustainability elements into its business model . long run if no adequate changes are implemented The NLB Group Sustainability Committee oversees the are implemented by governments and society in a integration of ESG factors into the NLB Group business timely manner . Chronic risk is not determined as a model . Thus, sustainable finance integrates ESG criteria material risk . Transition risks already arise in the short into the Group’s business and investment decisions for term due to the determination of the EU to reduce the lasting benefit of the Group’s clients and society . carbon emissions, according to its ambitious net zero strategy by 2050 . With the NZBA commitment and ESG risks do not represent a new risk category, but implementation of NLB Group’s Net Zero Strategy in rather one of the risk drivers of the existing type of 2023, its impacts are expected to diminish gradually in risks . The Group integrates and manages them within the long run . Nevertheless, the Group assessed them the established risk management framework in the more materially than physical risk . 105 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In recent years, the Bank signed Framework the Bank has substantial emissions and/or exposure were prepared to deal with financial and economic Agreements with the EBRD, such as the Contract of and available data . These include residential mortgages shocks stemming from climate risk . 106 Guarantees with MIGA, and committed to the UN and commercial real estate . These targets will be Principles of Responsible Banking . Consequently, the integrated into NLB Group’s Risk appetite as well . In 2023, NLB’s ESG Risk Rating was revised and improved . Group established a mechanism for environmental The assigned rating reflects a low risk of experiencing and social screening of current or potential financing Besides, the Group analyses and monitors its credit material financial impacts from ESG factors . applications against the MIGA and EBRD Exclusion portfolio using heat maps . For heat maps, the Group List and applicable environmental and social laws . aggregates single risks by using predefined weights to Further information on risk management is available in The management of ESG risks is incorporated into determine a final risk score . Such an approach enables Note 6 of the financial part of the report, the Group’s overall credit approval process and the different views over the Group’s corporate portfolio from Pillar 3 Disclosures, and the NLB Group Sustainability related credit portfolio management . Sustainable physical and transition risk perspectives . Concerning Report 2023 . financing is implemented in accordance with the Group’s physical risk, some adverse events in the region in the Environmental and Social Management System (ESMS) . past years were observed in the public infrastructure In addition to addressing ESG risks in all relevant stages and agriculture . However, they were reimbursed of the credit-granting process, relevant ESG criteria were to a large extent by the government or insurance . also considered in the collateral evaluation process . Consequently, there were no material impacts on the Group’s portfolio quality or liquidity . In the process of the transaction approval, collecting ESG data at the KYC stage was established . A regulatory The Group carefully considers potential reputation compliance check represents the next important step and liability risks that could arise from the sustainable and includes verification that a client is adhering to financing of its clients . Special attention is given to the applicable laws, regulations, and standards . If the approving new products and monitoring the fulfilment transaction is classified with a high E&S risk, a strict of relevant criteria by the clients . Additional key risk deviation management process is in place that ensures indicators have been addressed, serving as an early further enhanced risk assessment . During a project’s warning system in the area of ESG risks . Besides, lifetime, ESG risk monitoring is established to assess physical risks, as part of ESG risks in the area of the impact of each risk and create a strategy for its operational risk, are addressed in the Group’s business mitigation . With that, the Group ensures that the risks are continuity management (BCM) . As such, BCM is carried adequately addressed and that any changes or newly out to protect lives, goods, and reputation . Business emerged risks are identified and addressed . continuity plans included relevant ESG risks . They are On the portfolio level, the Group does not face any large disasters, and the undesired effects of the environment concentration towards specific NACE industrial sectors to mitigate their consequences . prepared to be used in the event of natural disasters, IT exposed to climate risk, with the role of transitional risk being more prevalent . Based on the industry An internal ESG stress-testing concept to identify the segmentation of the portfolio and corresponding most relevant financial vulnerabilities stemming from emissions, the Group has a relatively low exposure transitional and physical climate risks was established, to emission-intensive sectors in its corporate clients’ which was further revised and enhanced by considering businesses . The Group does not finance companies that disposable ESG-related data . The results of the climate extract fossil fuels or operate coal-fired power plants as stress tests showed no material impacts on the Group’s part of its strategy . Moreover, in December 2023, NLB, as capital and liquidity positions . a member of the UN Net-Zero Banking Alliance, publicly disclosed its Net-Zero commitment . With this step, As a systemically important institution, the Group was the Bank pledged to align its lending and investment included in the ECB Stress test exercise – 2024 EBA Fit- portfolio with net-zero emissions by 2050 . In its initial for-55 climate risk scenario analysis . The exercise started round of NZBA targets, NLB Group has focused on fossil in December 2023 and will be concluded in March 2024 . fuel-based and highly energy-intensive sectors (power By performing this exercise, the ECB assessed how banks generation and iron and steel) and other sectors where NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents From it we can truly learn how important it is to work in sync … Slovenian alpine skiing team Advantage is built in every slide and everyturn . IT and Cyber Security The Group remains committed to providing its clients with sustainable and efficient services that are supported by highly reliable and secure technology platforms . The Bank is also advancing its technology transformation programme and consolidating core banking systems . IT Security, IT Infrastructure, and IT Governance have made significant progress in the consolidation process at the Group level . Additionally, the Bank rolled out further group-wide business solutions like a contact centre and new product origination platform, and successfully launched a new digital banking platform in Slovenia . The Bank also successfully carried out a technical merger with N Banka . The Bank has prioritised and invested in extra resources and products to enhance overall cyber security resilience in response to the increase in general cyber security risks . IT Strategy 2020–2024 At the end of 2020, an upgraded IT Strategy incorporating the Group dimension was adopted . Since the existing one is coming to an end, the strategy for the next period is being prepared to pursue further digital transformation . The current IT Strategy covers the following: Vision Build the best digital banking IT team in the SEE region . · Introduce a new way of agile development and DevOps transformation, leading to shorter release cycles, automated testing, and fewer manual tasks . · Ensure the necessary development capacity . · Introduce modern collaboration tools and digitise internal processes . · Ensure quality, security, and availability of IT systems and applications . · Have a highly motivated, effective, and satisfied IT team working closely with the business side . 99 .95% availability in NLB IT Infrastructure: Ensuring reliability and resilience Confirmed high performance with numbers IT performance is monitored through a set of relevant indicators that are linked to the Balanced Scorecard (BSC) system . The indicators reflect high performance of IT operations and successful risk management in this segment . With 99 .95% IT system availability and a very low 0 .05% of unplanned interruptions, the Bank continues to prioritise stability . In 2023, the number of days without system/service interruptions was 79% (2022: 81 .1%) . Harmonised Service Level Agreements (SLA) are in place with users of the information system, which the Bank has managed to fulfil to a very high degree . The Group members recorded high IT operational performance (between 99 .87% and 99 .99%) . Mission Enable the best client and employee experiences Main IT initiatives through reliable, effective, secure, accessible, and Transformation with expanding group-wide scalable IT solutions . capabilities The primary focus is to transform IT, cover the Main principles · Increase client satisfaction in all segments with a new digital omnichannel platform, digitise client journeys organisation, group perspective, processes, people, and technology . The IT has supported a more agile way of delivery to make a better partner to businesses, and interactions (CRM), and achieve operational resulting in higher efficiency . Specifically, a Group IT excellence . · Have an effective IT architecture using cloud solutions and open-source software where possible . domain concept was introduced that promotes shared teams and IT solutions across the Group . Strengthening the team and extra investments in cyber security Group-wide capabilities are still expanding, and the Group Competence Centre in Belgrade, Serbia, which was transferred from the Bank to a separate IT service company called NLB DigIt, significantly supports development on the Group level . Change of delivery approach The team has made significant achievements in the key strategic directions regarding solution delivery . They developed a new call centre solution in Slovenia, executed new deployments in the Group, and fully enrolled a new Digital Banking platform in Slovenia . Additionally, the team made progress in reducing reliance on the mainframe and migrated the next set of applications from the mainframe to distributed systems . After acquiring N Banka, the Bank onboarded N Banka IT into the Group and developed an integration plan and strategy in 2022 . The technical merger was completed in 2023 . Core systems consolidation IT followed the core banking system strategy, and the consolidation of core banking systems is in progress . Due to the N Banka integration in Slovenia, the programme course was adjusted, and the first scope was migrated into the new target core system . Enterprise and application architecture The focus of enterprise and application architecture is on two key areas . The first focuses on the Group solution, with most new solutions adhering to a Group standard and associated Group roadmaps . New Group solutions have been chosen for a digital web portal and Customer Relationship Management . The second area involves establishing a standardised enterprise architecture management system for which a market standard tool was procured to enable simpler application portfolio management, mitigate software obsolescence and IT risks and provide support in defining transformation paths . 108 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Data management The Bank continues implementing a comprehensive data management platform across the Group, encompassing an enterprise data warehouse, advanced analytics, risk management analytics, profitability, data governance, and consolidated Group regulatory reporting . The Group continues to address data throughout the entire life cycle by implementing data governance policies and tools . Outlook In the upcoming years, the Bank remains dedicated to investing in newly adopted technologies crucial for supporting the business strategy, especially in digital, data, the cloud, and customer relationship management . The aim is to consolidate the Group’s infrastructure, simplify core systems, and elevate the client experience regarding quality, innovation, reliability, and security . More than 1 .7 million digital users in the Group Digital penetration The Group is working towards digitalisation, which involves utilising the available and ever-changing information technology tools to enhance its efficiency and provide clients with more innovative, personalised, accurate, and prompt service . With an increasing number of smartphone users, the Group aims to move more customers to alternative distribution channels . The Group is committed to developing a wide range of 24/7 digital solutions to bring clients closer and offer them anchor products and accessible and personalised digital services . The primary objective is to encourage digital banking adoption among active customers . Figure 61: Digital penetration of the Group banks as at 31 December 2023 109 61% 60% 67% 55% 33% 34% 33% 27% 29% 32% 30% 25% 24% 19% NLB, Ljubljana NLB KB, Beograd NLB Banka, Skopje NLB Banka, Sarajevo NLB Banka, Banja Luka NLB Banka, Prishtina NLB Banka, Podgorica Penetration (all) Penetration (active) Cyber security Strengthening team and implementing new solutions The Group focuses on cyber security, assuring confidentiality, integrity, and availability of data, information, and IT systems supporting banking services and products for clients . Cyber security in the Group is constantly tested and upgraded by security assessments, independent reviews, and penetration testing, and also regularly discussed at the Bank’s Information Security Steering Committee, Operational Risk Committee, and Management Board meetings . During 2023, the Group stepped up its cyber security capabilities regarding human resources by hiring specialists for different domains . Currently there are 35 FTEs hired in IT security as the first line of defence and 21 FTEs in the CISO corner, working as a second line of defence . Additionally, improvements were made in vulnerability management, with all Group members now utilising a unified solution and configuration . The team can conduct on-demand scans and stay abreast of global trends and most recently published vulnerabilities, which provides a more proactive approach to the whole vulnerability remediation process in the Group . Several different new cyber security solutions were introduced within the Group, and the implementation process was initiated in all banks, leading to EUR 1 .9 million CAPEX and EUR 2 .0 million OPEX annually spent at the Group level . The goal is to have Group unified cyber security solutions in place, guaranteeing equal levels of protection throughout all Group members . The most significant achievement of the Group Cyber security team is that almost all bank members in 2023 had individual on-demand requests for different penetration testing services . More information about cyber security is available in the chapter Compliance and Integrity . Continuous employee education and information exchange All employees in the Group are continuously educated about the importance of information/cyber security, as well as social engineering techniques . The banks in the Group provide employees and customers with security notifications, especially regarding threats in the (global) environment with potential impact on the banks’ IT systems, services, products, and clients . The Bank also tests the awareness of its employees with social engineering attack simulations . Threat intelligence data is shared by the Group team with all Group members, providing information on the latest threats and recommendations on mitigation measures . In conjunction with routine phishing simulations, the Group Cyber Security team has deployed its proprietary phishing platform and effectively executed simulated internal employee phishing tests across all Group members . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Human Resources As a frontrunner in the market, NLB Group realises that investing in employees is crucial, and understands that engaged employees are pivotal in achieving our business goals and driving successful outcomes . That is why the Group continued with its long-lasting tradition of investing in employee development, searching for new approaches, and introducing new practices to improve organisational culture, leadership, and employee experience . Simultaneously, it firmly tries to uphold its "Top Employer" status in the workforce market . Employee Headcount The Group continues with the optimisation of processes and right-sizing its staffing level . Due to the acquisition of N Banka, the number of employees rose to some degree, but has downsized throughout the year to reach 7,982 by the end of 2023 . Table 33: NLB Group headcount by countries Country Slovenia Serbia N . Macedonia BiH Kosovo Montenegro Germany Switzerland Croatia Group Total 31 Dec 2023 31 Dec 2022 Changes YoY 2,689 2,480 2,833 2,614 -144 -134 962 990 468 390 0 2 1 954 971 467 380 1 2 6 8 19 1 10 -1 0 -5 best-in-class HR practices . In 2023, the Bank was is actively enhancing the leadership competencies once again recognised as a "Top Employer" by the Dutch Top Employer Institute for the 8th consecutive year, demonstrating a high level of expertise and contribution in the areas of people strategy, leadership, of its senior management to align with the changing organisational culture . In line with this, the Group undertook two major activities this year: · Employees at the B and B-1 levels in the Group digitalisation, talent acquisition and development, received individual development and follow-up performance management, sustainability, and a lot coaching sessions on their development needs and more . The Bank will continue to ensure an even more action plans based on the M/I and L/I 360 feedback stimulating work environment . on culture impact . "Top Employer" in 2023 for the 8th consecutive year Investing in Employees: A Longstanding Tradition Continued Organisational culture Recognising the importance of organisational culture in driving company development and success, the Group has proactively embraced a comprehensive approach to its enhancement . Following a thorough assessment of the current organisational culture, targeted activities have been initiated to foster more constructive behavioural styles aligning with NLB’s goals and target corporate culture . With the input of employees, various improvement initiatives were defined and implemented . The Bank introduced leadership development programmes to improve psychological · After an in-depth leadership assessment, the Group development plans were aligned with strategy and culture improvement . Moreover, to ensure the leadership succession pipeline, the Bank identifies potential successors in all Group members . Talent cultivation and innovation The Group has identified talented employees in leadership, professionalism, and youth potential . They received additional opportunities, knowledge, personalised development plans, essential skills to manage and lead in future challenges . The Bank has delivered two major internal Hackathon initiatives to foster internal capabilities and an innovative and entrepreneurial mindset . The Talents-on Hackathon in the parent bank focused on developing agile cooperation and introducing innovation . In addition, the Data Science Hackathon was carried out on the Group level to support the broadening and exchanging of skills throughout the Group . On average employee spent 7 .2 days on training activities 7,982 8,228 -246 safety and enhance organisational culture, focusing Aspiring to maintain "Top Employer" status The Group continues strengthening its Human Resources (HR) practices based on feedback from reputable institutions and benchmarks with on implementing and promoting corporate values and work efficiency through meetings . Multiple initiatives coupled with existing practices have proven to be an effective way to support the desired development of organisational culture . Strategic leadership development Working environments significantly impact employee satisfaction, and leaders at all levels play an important role in creating a productive atmosphere . The Group 110 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Developing NLB Employer Brand The Group focuses on developing and actively cultivating its Employer Brand to attract top-tier talent across the region . The Group has implemented various internal and external activities to show who the Bank is as an employer . As a caring mentor, the Bank cooperates with multiple universities throughout the region, offering scholarships and career opportunities to young talents . Also, it invites internal ambassadors to promote and provide recommendations for employment, offers various benefits to employees, and introduces continuous improvements to its processes . As a confirmation of the efforts, the Bank received two Best Employer Brand Awards in the categories of banking and the integration of corporate and employer brands . Retention and Mobility Based on the aligned Retention Policy in all subsidiaries, the Bank strategically managed across the Group to plan, respond, and accept some challenges based on the workforce market by attracting, developing, and retaining employees . The Mobility Policy within NLB Group is well established throughout the Group . The most commonly used type of mobility is virtual teams, established in all entities and across borders . In addition, some reassignments and job rotations were carried out . Engagement of employees A crucial part of success is the motivation and Ready to Face Tomorrow’s Challenges Various training activities to embrace changes The Group upholds rigorous standards characteristic of a contemporary learning institution . In response to the swiftly evolving business landscape, the Bank has broadened its array of training programmes to encompass emerging and pertinent subjects . These include Generative AI, Change Management, Data Analytics, Digital Literacy, ESG, Mergers and Acquisitions, among others, reflecting the shifts in our business and surroundings . To that end, in addition to regular off-the-shelf programmes, we organised a highly technical series of internal ESG workshops for every NLB Group Member focusing on green investments, ESG risk scorecards, and EU taxonomy . We also organised many digital literacy programmes covering subjects from Generative AI tools to MS 365 and other productivity tools to boost the understanding and effectiveness of our employees and better prepare them for the continuously more digital business environment . The main goal remains to enhance the accessibility and availability of training or programmes by offering a diverse range of online content and simultaneously delivering high-quality in-class training and workshops, whether conducted engagement of employees . In 2023, 81 .5% of employees internally or externally . participated in the survey . Figure 62: NLB Group Employee Engagement 2023 50% 37% Engaged Not engaged Actively disengaged 13% The majority of training hours in the Group are provided through internal training (45%) and internal e-learning programmes (24%), while external training (21%) and Udemy for Business (10%) are also utilised . In 2023, Udemy for Business was utilised across the Group to a substantial number of employees, enabling them access to 7,000+ quality training courses . The objective is to empower employees to take control of their professional development, providing them with opportunities to upskill or reskill anytime, anywhere . This approach aims to equip them with the necessary capabilities to tackle upcoming challenges effectively . A total of 3,200 employees across the Group benefited from Udemy access, collectively engaging in 5,449 days of video content, averaging 1 .7 days per employee with a license . 111 Well-being & Health The Group consistently prioritises imparting knowledge about healthy habits and advocates for activities contributing to employees’ well-being and satisfaction . It fosters a healthy work environment conducive to meaningful interpersonal connections and a balanced work-life dynamic . The Bank proudly holds a family-friendly certificate as a testament to these efforts . In 2023, the Bank conducted training sessions on health issues, addressing stress management and cultivating healthy habits, mental well-being, mindfulness, personal energy, and effective communication . An internal sustainable mobility challenge ran from May through November, promoting exercise – walking, running, and biking – to reduce work commute-related carbon footprint . Also, in 2023, the Bank organised a Group- wide program called "Sustainability Festival", celebrating environmental awareness and eco-friendly practices, featuring engaging activities, insightful workshops, and showcases of sustainable initiatives . The Group continuously enables employees whose presence on the Group’s premises is not essential to the business process to work from home (remotely) . With it, the Group is enabling employees, if they so choose, an option to balance their work-life balance better . 7,982 employees in the Group family NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The Role of Remuneration System in Fostering Employee Engagement and Commitment Table 34: Composed salary for an employee working in the companies within NLB Group Members of the Management Board receive remuneration consisting of a fixed part of the salary and a variable part of the salary . The variable part of the salary for each member of the Management Board is awarded and paid in cash if the variable part does not exceed EUR 50,000 and is not higher than one-third of their total remuneration for the respective business year . The variable part of the salary for each member of the Management Board is awarded and paid in cash and instruments if the amount of the variable part exceeds EUR 50,000 and is higher than one-third of their total remuneration for the respective business year . Fixed part Fixed pay is determined according to the complexity of the job position for which the employee has concluded a contract of employment . Variable part It depends on the employee’s working performance . At least 50% of the variable part of the salary of the Management Board member awarded for an individual business year shall be deferred for a period of at least five years, starting on the day of payment of the non- deferred part of the variable part of the salary . Employees are assessed and awarded: - quarterly or half-yearly, and - annual rewards related to the business performance of the bank where they work . A performance assessment is done by the head of the employee’s organisational unit using a top-down approach to evaluate the employee’s achievements in relation to goals set for a particular assessment period (quarter or half-year) . The goals are set according to the "SMART" method, meaning they must be specific, measurable, achievable, relevant, and time-bound . In 2023, NLB initiated the transformation process regarding the performance management and reward system for employees on collective agreement . The process of setting "SMART" goals and cascading goals top-down by hierarchy remains the same; changes are more related to ensuring a more transparent and long- term incentive scheme by implementing target bonuses and yearly (for the business part of the bank remains half-yearly) assessments . All these changes will be implemented in the Group in the upcoming period . The Remuneration Policy for members of the Supervisory and Management Boards of NLB Members of the Supervisory Board may receive In 2023, the Bank amended the Remuneration Policy, which the Supervisory Board adopted in its session on 26 October 2023 . It was then submitted to the General Assembly of NLB for voting, which was held on 11 December 2023 . The Policy was not confirmed at the General Assembly, but since the voting is of consultative nature it has entered into force and is applicable as of 1 January 2024 . The Remuneration Policy will be further improved and presented to the shareholders at the next General Meeting . The Remuneration policy for employees in NLB and in the Group The Remuneration Policy for Employees in the NLB and the Group presents the basic framework of principles for rewarding all employees in the Group . It defines fixed and variable remuneration, the goal-setting system and performance criteria (Key Performance Indicators) and sets out the conditions for the awarding and payment of the variable part of remuneration . The Remuneration Policy includes provisions of deferral, malus, retention, and clawback of the variable part of remuneration compliant with the relevant resolutions of the remuneration for identified employees, severance the Bank’s General Meeting . payments, and compensation for the non-competition period for identified employees and pension benefits for Members of the Management Board receive all employees . remuneration compliant with the relevant Remuneration Policy of members of the Supervisory and Management Boards of NLB . Diversity Policy Framework The Policy on the Provision of Diversity of the Management Body and Senior Management was amended in 2022 and was adopted by the shareholders’ General Meeting in June 2022 . The Diversity Policy sets the framework for the Bank’s commitments to diversity . It focuses on the representation in the Management Body and senior management on certain aspects where specific goals and implementation of these goals related to gender structure, age structure, professional competencies, skills and experience, continuity of composition of the management body and senior management, international experience, personal integrity, and geographical provenance are defined . The policy is annually reviewed by the Nomination Committee of the Supervisory Board . The Bank implements the principles of the Diversity policy through other policies and procedures, namely 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, as well as procedures of the Nomination Committee of the Supervisory Board . Objectives and process Considering the size of the Bank, the Group members, and their regional presence and business strategy, the following aspects are essential to ensure diversity: · gender representation · age structure, which should reflect the age structure in the Bank to the largest extent possible · professional competencies, skills and experience; · continuity of composition of the management body and senior management; · international experience; · personal integrity; · geographical provenance . Goals related to the above-defined aspects of diversity are defined in the relevant diversity policy and are disclosed in NLB Group Sustainability Report 2023 . 112 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Corporate Governance Corporate governance of the Bank is based on legislation of the RoS, particularly (but not exclusively) the provisions of the Companies Act (ZGD-1) and the Banking Act (ZBan-3), the Decision of the BoS on Internal Governance, Management Body, Adequate Internal Capital Assessment Procedure for Banks and Savings Banks, relevant EBA Guidelines on internal governance, EBA Guidelines on the assessment of the suitability of members of the management body and key function holders, EBA Guidelines on prudent remuneration, and relevant EU regulations regarding sustainability issues and other applicable RoS and EU regulations . Apart from a binding legal framework, the Bank complies with the Slovenian Corporate Governance Code for Listed Companies . The Code stipulates governance, management, and leadership principles based on the "comply or explain" principle of companies listed on the Ljubljana Stock Exchange . Deviations from the recommendations of the said Code are published in the NLB Group Annual Report in the section Corporate Governance Statement of NLB . This statement is prepared in accordance with Article 70 (Paragraph 5) of the Companies Act (ZGD-1) . The before-mentioned statement is also published on the Bank’s website, as well as on the website of Ljubljana Stock Exchange – SEOnet . Rules and Procedures The Bank’s Corporate Governance includes processes through which Bank objectives are set and pursued (directed and controlled) . Lately, it has become an efficient way to channel investor-driven initiatives related to sustainability . Corporate governance principles identify the distribution of rights and responsibilities among different stakeholders in the Bank (Management and Supervisory Board, shareholders, investors, creditors, auditor, regulators, and other stakeholders), and include the rules and Articles of Association of NLB d .d . NLB operates under a two-tier governance system, NLB Group Code of Conduct In the NLB Group Code of Conduct, the values, mission, defined by the Banking Act (ZBan-3) and Companies Act and core principles of conduct are defined together with (ZGD-1) . The Management Board manages the Bank’s a set of guidelines to which the Group is committed . The operations, and the Supervisory Board provides for Code describes the values and basic principles of ethical control and supervision of the Management Board’s business conduct that the Group respects, promotes, work . Shareholders exercise their rights at General and expects to be followed by the whole Group . Meetings of Shareholders . For more information, refer to Operating with integrity and responsibility is key to the the Bank’s website Corporate Governance . Group’s corporate culture . The Code demands that every employee, regardless of their job or location of work, and every other stakeholder of the Group comply with the highest standards of integrity . Corporate Governance Policy of the NLB and NLB Group Governance Policy The corporate governance framework of the Bank, the Corporate Governance Policy of NLB (February 2023), is drawn up jointly by the Management and the Supervisory Boards of the Bank . In this policy, the Management and Supervisory Boards publicly disclose commitments to shareholders, clients, creditors, employees, and other stakeholders as a whole and explain how the Bank is managed and supervised, as well as adopt decisions on which corporate governance code the Bank follows (https://ww .nlb .si/corporate-governance) . The Corporate Governance Policy of NLB should be read together with the NLB Group Governance Policy (December 2023), in which the corporate governance principles and procedures for decision-making in corporate affairs . The mechanisms of the Group members (NLB excluded) are most important rules and procedures are: defined and governed . 113 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Bank’s Governing Bodies The Bank’s corporate governance is based on a two- tier system in which the Management Board manages the Bank’s daily operations, and the Supervisory Board controls and supervises Management Board's work . General Meeting of Shareholders Supervisory Board Management Board The General Meeting of Shareholders The shareholders exercise their rights related to the Bank’s operations at General Meetings . The out the first tranche of distributable profit as dividends, Both pay-outs in a total amount of EUR 110 million from totalling EUR 55 million, which is equivalent to EUR 2 .75 the profit generated in 2022 are not included in the gross per share . capital base, meaning they do not affect the Group’s capital ratios . With these pay-outs, the Bank remains The General Meeting also adopted decisions on the firmly on a path to fulfilling its ambition – a total capital election of the Supervisory Board members . As the term return through solid cash dividends in a cumulative of office of four members of the Supervisory Board, amount of EUR 500 million between 2022 and the end Bank’s General Meeting passes decisions that follow namely Deputy Chairman Andreas Klingen, Shrenik of 2025 . legislation and the Bank’s Articles of Association . Decisions adopted by the General Meeting include, among others, adopting and amending the Articles of Association, use of distributable profit, granting a discharge from liability to the Management and Supervisory Boards, changes to the Bank’s share capital, appointing and discharging members of the Supervisory Board (representatives of capital), remuneration of members of the Supervisory and Dhirajlal Davda, Gregor Rok Kastelic, and Mark William Lane Richards, expired, the General Meeting also At the General Meeting, shareholders got acquainted with appointed four members, of whom two were existing the revised Remuneration Policy, which was not confirmed and two were new . The shareholders in the consultative vote . The Remuneration Policy enters re-appointed Shrenik Dhirajlal Davda and Mark William into force, irrespective of the outcome of the vote, and Lane Richards . They also appointed two new members, applies as of 1 January 2024 to the remuneration of the namely Cvetka Selšek, a former CEO and Chairwoman members of the Supervisory Board and the members of of the Societe Generale SKB Bank (Slovenia), and the Management Board, which refers to the period as of André-Marc Prudent-Toccanier, a seasoned banker who 1 January 2024 . The Remuneration Policy will be further Management Boards, and authorisation regarding the has held various managerial positions in his 40-year improved and presented to the shareholders by the next characteristics of the issue of securities . career at Societe Generale . All four were appointed General Meeting . There were two General Meetings of Shareholders in 2023 . At the 40th General Meeting of the Shareholders dated 19 June 2023, the shareholders took note of the adopted NLB Group Annual Report 2022 . They adopted members began on the day of their appointment, while More information on the work of the General Meeting Cvetka Selšek and André-Marc Prudent-Toccanier of the Shareholders activities is available in the chapter assumed the position of members of the Supervisory Board on 15 August 2023, after the ECB agreed to their Corporate Governance Statement of NLB, and on the Bank’s website . the Report of the Supervisory Board of NLB on the results appointment to their position . for a four-year term of office, which for the existing of the examination of the NLB Group Annual Report 2022 and the Report on remuneration in the business year 2022 with the Additional information to the Report on remuneration in the business year 2022 based on SSH’s Baselines, and the Internal Audit Report for 2022, with the Opinion of the Supervisory Board of NLB . The General Meeting adopted decisions on allocating distributable profit from the previous year and granted a discharge from liability to the Management Board and Supervisory Boards . The shareholders decided to pay The General Meeting also decided on payments to the members of the Supervisory Board and its committees . In the 41st General Meeting of the Shareholders held on 11 December, shareholders confirmed the payment of additional dividends at EUR 2 .75 gross per share (the second tranche) or EUR 55 million, making a total dividend pay-out in 2023 EUR 110 million . EUR 55 million was already paid-out to shareholders on 27 June 2023 . 114 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The Supervisory Board In accordance with the Articles of Association, the As at 31 December 2023, the Supervisory Board had the following members: Supervisory Board consists of 10 members, eight of whom represent the interests of shareholders and two of whom represent the interests of employees . The Members of the Supervisory Board of the Bank representing the shareholders’ interests are elected and recalled at the Bank’s General Meeting from Representatives of Capital Primož Karpe, M .Sc . Chairman Term of office: 2016–2020, renewed term 2020–2024 Shrenik Dhirajlal Davda, MBA, LLB Deputy Chairman Term of office: 2019–2023, renewed term 2023–2027 David Eric Simon Member Term of office: 2016–2020, renewed term 2020–2024) persons proposed by shareholders or the Supervisory Board of the Bank . Members of the Supervisory Board Link to CV Link to CV Link to CV of the Bank representing employees’ interests are elected and recalled by the Workers’ Council of the Bank . All Supervisory Board members must be independent experts . Membership in NLB Supervisory Board committees: • Nomination Committee (Chairman) • Audit Committee (Member) • Operations and IT Committee (Member) Membership in NLB Supervisory Board committees:: • Remuneration Committee (Chairman) • Risk Committee (Member) • Audit Committee (Member) Membership in NLB Supervisory Board committees:: • Audit Committee (Chairman) • Risk Committee (Member) As at 31 December 2023: Number of members: Diversity: Membership in management bodies of related or unrelated companies: • Angler d.o.o. – Director • Aroma Global 3 Ltd. – Chairman of the Supervisory Board Membership in management bodies of related or unrelated companies: • Charity Commission of England and Wales – Commissioner and Board Member (since 27 March 2023) • IPSO, UK – Lay Member of the Board (since 8 March 2022) • New Europe Capital Partners Ltd. London, UK – Managing Director Membership in management bodies of related or unrelated companies: • Jihlavan a.s. – Chairman of the Supervisory Board • Jihlavan Real Estate a.s. – Chairman of the Supervisory Board • Czech Aerospace industries sro – Legal representative 10 48 are out of 10 members were female (40%) representatives of capital, while 2 are representatives of workers There was only one change in the composition of the Supervisory Board in 2023 . At the General Meeting of the Shareholders held on 19 June 2023, four members were elected, two existing and two new, as mentioned above . At the end of the year, the composition of the Supervisory Board was as follows: Primož Karpe (Chairman), Shrenik Dhirajlal Davda (Deputy Chairman), David Eric Simon, Verica Trstenjak, Islam Osama Zekry, Shrenik Dhirajlal Davda, Mark William Lane Richards, Cvetka Selšek, Andre-Marc Prudent-Toccanier (all of them shareholders' representatives), and Sergeja Kočar and Tadeja Žbontar Rems (as employees' representatives) . Islam Osama Zekry, Ph .D . Member Term of office: 2021–2025 André-Marc Prudent-Toccanier Member Term of office: 2023–2027 Mark William Lane Richards, M .Sc . Member Term of office: 2019–2023, renewed term 2023-2027 Link to CV Link to CV Link to CV Membership in NLB Supervisory Board committees: • Operations and IT Committee (Deputy Chairman) • Nomination Committee (Member) • Risk Committee (Member) Membership in NLB Supervisory Board committees: • Risk Committee (Chairman) • Operations and IT Committee (Member) • Audit Committee (Member)). Membership in management bodies of related or unrelated companies: • CIB Housing association, Egypt – President of the Supervisory Board • Egyptian AI Council (Ministry of Communication and Information Technology) – Member of the Supervisory Board Membership in management bodies of related or unrelated companies: • None Membership in NLB Supervisory Board committees: • Operations and IT Committee (Chairman) • Remuneration Committee (Deputy Chairman) • Nomination Committee (Deputy Chairman) Membership in management bodies of related or unrelated companies: • Vencap International pic Ukraine (UK) – Chairman • Berry Palmer & Lyle Ltd. (BPL Global) (Lloyds of London insurance Broker) – Non-Executive Director • Sheffield Haworth Ltd – Non-Executive Director 115 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Representatives of Capital Cvetka Selšek Member Term of office: 2023–2027 Verica Trstenjak, Ph .D . Member Term of office: 2020–2024 Link to CV Link to CV Membership in NLB Supervisory Board committees: • Audit Committee (Deputy Chairwoman) • Risk Committee (Deputy Chairwoman) Membership in management bodies of related or unrelated companies: • Directors’ Association of Slovenia – Deputy President • Managers Association of Slovenia – Member of the Honorable Tribunal Membership in NLB Supervisory Board committees: • Nomination Committee (Member) • Remuneration Committee (Member) Membership in management bodies of related or unrelated companies: • None Representative of Employees Tadeja Žbontar Rems, M .Sc . Member Term of office: 2021–2025 Sergeja Kočar, M .Sc . Member Term of office: 2020–2024 Link to CV Link to CV Membership in NLB Supervisory Board committees:: • Operations and IT Committee (Member) • Remuneration Committee (Member) Membership in NLB Supervisory Board committees: • Nomination Committee (Member) • Remuneration Committee (Member) Membership in management bodies of related or unrelated companies: • None Membership in management bodies of related or unrelated companies: • None Further information about the work and composition of the Supervisory Board is available in the chapter Corporate Governance Statement of NLB . 116 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Committees of the Supervisory Board The Supervisory Board appoints committees that prepare proposals for resolutions passed by the Supervisory Board, ensure their implementation, and perform other expert tasks . The Bank’s Supervisory Board has five collective decision-making and advisory committees . Selection and independence of an audit firm The selection of and audit firm is carried according to the internal act . A proposal for the criteria for the appointment of the audit company and the minimum conditions for cooperation are prepared, which also include the mandatory disclosure of all possible (non-) audit services . Based on the recommendation of the Audit Committee, the Supervisory Board proposes the appointment of an audit company, which is approved by the Shareholders' Meeting . The statutory auditor must assess and document compliance with independence requirements before accepting or continuing a statutory audit engagement . The Audit Committee annually requires written declarations of independence from the statutory auditors, which must apply to both the audit firm and the audit partners and senior personnel involved in the audit engagement . Audit Committee Risk Committee Nomination Committee Remuneration Operations and Committee Information Technology (IT) Committee David Eric Simon, Chairman Andreas Klingen, Chairman (until 19 June 2023) Primož Karpe, Chairman Gregor Rok Kastelic, Chairman (until 19 June 2023) Mark William Lane Richards, Chairman Cvetka Selšek, Deputy Chairwoman (from 18 September 2023) André-Marc Prudent-Toccanier, Chairman (from 18 September 2023) Andreas Klingen, Deputy Chairman (until 19 June 2023) Shrenik Dhirajlal Davda, Chairman (from 18 September 2023) Islam Osama Zekry, Deputy Chairman Primož Karpe, Member Cvetka Selšek, Deputy Chairwoman (from 18 September 2023) Mark William Lane Richards, Deputy Chairman (from 18 September 2023) Mark William Lane Richards, Deputy Chairman Andreas Klingen, Member (until 19 June 2023) Shrenik Dhirajlal Davda, Member Shrenik Dhirajlal Davda, Member Verica Trstenjak, Member Verica Trstenjak, Member Primož Karpe, Member Further information about the work and composition of the Committees of the Supervisory Board is available in the chapter Corporate Governance Statement of NLB . André-Marc Prudent-Toccanier, Member (from 18 September 2023) Islam Osama Zekry, Member Sergeja Kočar, Member Sergeja Kočar, Member Tadeja Žbontar Rems, Member Gregor Rok Kastelic, Member (until 19 June 2023) David Eric Simon, Member Islam Osama Zekry, Member Tadeja Žbontar Rems, Member André-Marc Prudent-Toccanier, Member (from 18 September 2023) Gregor Rok Kastelic, Member (until 19 June 2023) 117 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents As at 31 December 2023, the composition of the Management Board was as follows: 118 The Management Board The Management Board represents the Bank and manages its daily operations, independently and at its discretion, as provided by the applicable laws and the Articles of Association of NLB . In accordance with the mentioned Articles of Association, the Management Board has three to seven members (the president and up to six members) appointed and dismissed by the Supervisory Board . The president and members of the Management Board are assigned to a five-year term of office . They may be reappointed or dismissed early in accordance with the law and Articles of Association . As at 31 December 2023: Number of members: Mandate: 6 5members -year term of office In 2023, the composition of the Management Board remained unchanged . The Management Board of the Bank consists of Blaž Brodnjak as President & CEO, Archibald Kremser as Chief Financial Officer (CFO), Peter Andreas Burkhardt as Chief Risk Officer (CRO), Hedvika Usenik as Chief Marketing Officer (CMO), responsible for Retail Banking and Private Banking, Blaž Brodnjak CEO (since 2016) Term of office: 2012–2016, 2016–2021, renewed term 2021–2026 Peter Andreas Burkhardt CRO Term of office: 2013–2016, 2016–2021, renewed term 2021–2026 Archibald Kremser CFO Term of office: 2013–2016, 2016–2021, renewed term 2021–2026 Deputy CEO (since 2023) Link to CV Link to CV Link to CV Other important functions and achievements: • 22 years of experience in banking, especially in Central Europe. Other important functions and achievements: • More than 23 years of experience in the financial services industry in Austria, CEE, and SEE, focusing on finance and asset management, strategy and corporate development, and performance improvement assignments. Other important functions and achievements: • More than 23 years of experience in managerial positions on all levels of international banking groups. • Was a chairman or member of the supervisory boards of 13 commercial banks in six countries, three insurance companies in three countries, a leading asset management company in Slovenia and a multinational production group. Direct responsibility: • Strategy and Business Development • Legal and Secretariat • Brand and Communication • Human Resources and Organisation Development • Internal Audit • Compliance and Integrity Direct responsibility: • Global Risk • Credit Risk – Corporate • Credit Risk – Retail • Workout and Legal Support • Restructuring • Evaluation and Control • Financial Instruments Processing • Corporate Customer Delivery • Retail Banking Processing Direct responsibility: • Financial Accounting and Administration • Controlling • Financial Markets • Group Real Estate Management • IT Delivery • IT Infrastructure • Data Management • IT Governance • IT Security • Procurement Membership in management or supervisory bodies of related or unrelated companies: • Chairman of the Supervisory Board: NLB Banka, Podgorica • Chairman of the Board of Directors: NLB Komercijalna Banka, Beograd Membership in management or supervisory bodies of related or unrelated companies: • Chairman of the Supervisory Board: Membership in management or supervisory bodies of related or unrelated companies: • Chairman of the Supervisory Board: Andrej Lasič as CMO, responsible for Corporate and NLB Banka, Skopje Investment Banking, and Antonio Argir, responsible for Group governance, payments, and innovations . • Chairman of the Board of Directors: NLB Banka, Prishtina • Member of the Board of Directors: NLB Komercijalna Banka, Beograd • President of the Association of Banks in Slovenia • President of the Board of Governors: AmCham Slovenia • Member of the Executive Committee of the Handball Federation of Slovenia • Member of the Board of Directors: • Cedevita Olimpija NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Lease&Go, Ljubljana NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Antonio Argir Responsible for Group governance, payments, and innovations Term of office: 2022–2027 Andrej Lasič CMO (responsible for Corporate and Investment Banking) Term of office: 2022–2027 Hedvika Usenik CMO (responsible for Retail Banking and Private Banking) Term of office: 2022–2027 Link to CV Link to CV Link to CV Other important functions and achievements: • Over 26 years of experience in corporate and investment banking in international banking groups. Other important functions and achievements: • Over 21 years of experience in international banking groups, thereof more than 17 years of managerial experience. Other important functions and achievements: • Under the management of Antonio Argir, NLB Banka, Skopje marked exceptional growth in all segments of its operations and was perceived as the most innovative bank on the market, with a significant increase in the bank’s profitability, and share price increased fivefold. • Vice President of the Economic Chamber of North Macedonia (2018–2023) Direct responsibility: • Group Steering • Cash Processing • Payments Processing • Payments and Cards Services and Business Development Direct responsibility: • Capital Structure Advisory and Cross-Border Financing • Large Corporates • Small and Mid Corporates • Trade Finance Services • Investment Banking and Custody • NLB Group Corporate and Investment Banking Management Membership in management or supervisory bodies of related or unrelated companies: • Member of the Supervisory Board: NLB Lease&Go, Ljubljana Membership in management or supervisory bodies of related or unrelated companies: • Member of the Supervisory Board: NLB Banka, Sarajevo Direct responsibility: • Private Banking • Call Centre 24/7 • Distribution Network • Customer, Product Management and Digital Services Membership in management or supervisory bodies of related or unrelated companies: • Chairwoman of the Supervisory Board: NLB Skladi • Member of the Supervisory Board: NLB Banka, Banja Luka • Member of Management Board: Institute for Economic Research • Member of Management Board: British–Slovenian Chamber of Commerce Further information about the work and composition of the Management Board is available in the chapter Corporate Governance Statement of NLB . 119 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Collective Decision-Making Bodies The Management Board appoints different committees, commissions, boards, and working bodies to execute relevant tasks within the powers of the Management Board . Corporate Credit Committee Assets and Liabilities Management Committee of the NLB Group NLB Operational Risk Committee Change the Bank Committee Chairman: CRO Chairman: CFO Chairman: CRO Chairman: CEO Number of members: 8 The Committee determines credit ratings, makes decisions on the reclassification of clients, and approves commercial banking investment transactions and limits beyond the directors’ competencies . The Committee adopts decisions on investment transactions in commercial banking within the statutory powers in 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 . Number of members: equal to the number of the appointed members of the Management Board The Committee monitors conditions in the macroeconomic environment . It analyses the balance sheet, changes to and trends in the assets and liabilities of the Bank and the Group companies, and drafts resolutions and issues guidelines for achieving the structure of the Bank’s and the Group’s balance sheet . Committee meetings are generally convened once a month . Number of members: 16 The Committee is responsible for monitoring, guiding, and supervising operational risk management in the Bank and transferring this methodology to the Group members . As a rule, the Committee meets once every two months . Number of members: equal to the number of the appointed members of the Management Board The Committee is responsible for adopting decisions related to the development portfolio to transform the Bank and decisions associated with adopting the development guidelines . As a rule, the Committee meetings are convened once a month . Risk Committee Group Real Estate Management Committee Chairman: CRO Chairman: CFO Sales Committee Private Individual Credit Committee Chairman: CMO (responsible for Corporate and Investment Banking) Chairman: Director of Credit Risk – Retail Number of members: 12 Number of members: 3 Number of members: 13 Number of members: 5 The Risk Committee monitors and periodically reviews matters related to risk and commercial risk and prepares materials for the Management Board to make decisions . As a rule, committee meetings are convened quarterly . The Committee gives 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 Sales Committee adopts decisions on managing the range of products and services and the relations with the clients in sales . As a rule, Committee meetings are convened once a week . The 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 Management Board also appointed working bodies that operate at a lower level: Committee for New and Existing Products Group Real Estate Management Sub Committee Committee for Business IT Architecture Data Management Committee Anti-Money Laundering Commission Corporate Customer Acceptability Committee 120 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Advisory bodies of the Bank’s Management Board Watch List Committee Chairman: CRO Number of members: 7 NLB Group Non-Performing Assets Divestment Committee NLB d.d. Sustainability Committee Chairman: Director of Workout and Legal Support Chairman: CEO Number of members: 7 Number of members: 20 The Watch List Committee is a body which monitors the progress of activities for clients on the Watch list . As a rule, committee meetings are convened quarterly . The NLB Group Non-Performing Assets Divestment Committee monitors the operations of Non-Core Group Members and issues opinions, recommendations, and initiatives . As a rule, committee meetings are convened quarterly . The Committee oversees the integration of the ESG factors to the NLB d .d . and the NLB Group members’ business model in a focused and coordinated way across the company, issues opinions, recommendations, and initiatives, and takes relevant decisions when needed . The Committee shall discuss, develop and approve sustainability strategies, policies, initiatives, methodologies, KPIs and other relevant procedures . It shall influence sustainability-related strategic objectives and shall monitor its development and realisation . As a rule, committee meetings are convened quarterly . NLB Group’s Governance As the parent bank, NLB implements the corporate Model of Governance of NLB Group consists of three (Internal Audit, Risk Management and Compliance, and business governance of the Group members in pillars: compliance with EU and BoS legislation, the local including AML, Information Security, Fraud Prevention, and Physical Security) . legislation, and regulatory requirements applicable 1 . Corporate Governance, which is carried out following to respective Group members while also considering fundamental corporate rules and governance internal rules, ECB Guidelines, and other applicable regulations . The Group operating model is comprehensively defined in the NLB Group Governance Policy through corporate and business governance rules, principles, criteria, and mechanisms which define the roles, authorisations, and responsibilities of relevant stakeholders to ensure that they act orchestrated and achieve the set business goals . In the Bank, the Group Steering Department is the principal partner of the Bank’s Management Board in the corporate and partially also business governance principles comprised of: · shareholder voting at the General Meeting of NLB Group members, · proposing candidates for supervisory bodies of NLB Group members, · offering professional support to supervisory bodies of NLB Group members, · offering professional support in the selection of candidates for management of NLB Group members, · proposing candidates for various committees of NLB Group members . 2 . Business Governance which is carried out through of strategic and non-strategic Group companies . mechanisms that ensure efficient business guidance In line with strategic aspirations, the two key senior and oversight: functions were fully introduced in recent years: country · setting up a formal business governance framework managers who support and steer the Group members by Group Steering, and facilitate best practice-sharing on different levels, · standardisation and harmonisation of operations and stream coordinators who address the facilitation across NLB Group by Competence Lines . of more in-depth knowledge of competence lines and greater integration between streams and the Group 3 . The Internal Control Functions serve as the members, the increasing transmission of current second and third lines of defence . In addition information, needs, and other requirements from the to standardisation and harmonisation in Group members . their respective areas, they also oversee the implementation of group rules and requirements 121 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Figure 63: NLB Group Governance Model General Assembly of NLB Supervisory Board of NLB Management Board of NLB NLB Group Steering Corporate Governance Business Governance Internal Control Functions General Assembly of NLB Group members Supervisory Bodies of NLB Group members Management Boards of NLB Group members Competence Lines Internal Audit Group functions Risk management Competence Centers Centers of Excellence Group domains Sustainability Management Compliance(i) (i) Including also AML, CISO, Fraud Prevention and Physical Securtiy The NLB Group consists of NLB and Group members d .o .o ., Ljubljana), two companies were sold (Tara Hotel NLB Group Governance Policy also provides the who represent: d .o .o . and Optima Leasing d .o .o . in liquidation), the formal framework for the operation of other business · financial core members: banks, leasing companies, liquidation process of NLB Leasing d .o .o . Beograd–in governance levels (i .e ., Group functions and Group and asset management companies; liquidation was completed, and the company was virtual teams) and sub-groups (granddaughters), sets · non-financial core members: real estate management companies (from 1 January 2024) and deleted from the court register . the overarching formal framework and defines the roles of key stakeholders in sustainability management, and other non-financial companies; In the last year, an in-depth revision and renewal of the establishes clear communication and escalation rules . · non-core members: companies in wind-down existing NLB Group operating model was performed The policy was adopted in December 2023 and will be process or companies considered non-strategic for due to recent changes in the Group structure and subject to the Supervisory Board’s acknowledgement in NLB Group . business governance . As a result, the new NLB Group February 2024 . Governance Policy enhanced the role of Competence At the end of 2023, the Group comprised 30 members, Lines, which is the main business governance The legal and organisational structure of the banking six fewer than the previous year . In the core part of the Group, the merger of N Banka to NLB was successfully counterpart of the Group members, responsible for harmonisation and standardisation of the Group group, including a description of the internal governance arrangements, the arrangements about close links closed in September . Most of the changes relate to the operations and, therefore, represents the highest level and the arrangements regarding the governance of reduction of the non-core part of the Group, namely two of business governance hierarchy with professional, subsidiaries, are available on the Bank’s website . companies merged (SPV 2 d .o .o ., Beograd with REAM competent, and qualified teams that are entirely or d .o .o ., Beograd and REAM d .o .o . Zagreb, with S-REAM at least primarily dedicated to the Group . The revised 122 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB NLB Group 123 As such, all employees are included in yearly training the ethical culture and values of the organisation Compliance and Integrity The Group addresses the challenges of stringent regulation and strict regulatory requirements with a systematic approach to mitigating compliance risks . It is essential to ensure that employees and decision-makers know and understand the purpose and objectives of the regulations . The Group is continuously strengthening its compliance function and due diligence of its operations . A culture of compliance is integrated into day-to-day business of the Group to support its operations, contribute to its robust internal control environment, and ensure that compliance risks are mitigated . employees are committed to the culture of responsibility to the customer, implementation of the planned business results, care for the environment, and promotion of a healthy lifestyle . The Bank acts in accordance with the legislation and the rules of the profession, ethical principles and good business practices, as well as the values of the NLB Group . The confidence it enjoys among the customers, fellow employees, shareholders, and society gives it great responsibility . The Bank justifies this trust by working with the stakeholders for a positive change, mutual benefits, and growth . and awareness-raising activities in general ethics, anti-corruption, anti-money laundering, information security, etc . The Group’s Code of Conduct was updated in 2023 . It provides guidance and principles of expected behaviour regarding ethical conduct and requires adequate conduct from all the employees at any level of the organisation, including its contractors . Group-wide ethics and integrity standards Compliance and Integrity addresses the following areas: Prevention As part of the Bank’s commitment to ethics and integrity, it has implemented various prevention activities to protect the Bank and its stakeholders from the risk to · Prevention and investigation of frauds, abuses and reputation, money laundering, terrorist financing, fraud, other types of misconduct (Fraud); corruption, and other forms of financial crime . · Prevention of money laundering and terrorist financing (MLTFP) and restrictive measures; · Personal data protection (DPO); · Information protection (CISO); · Regulatory compliance; The Bank conducts regular assessments of compliance risks, the so-called "Enterprise Compliance Risk Assessment" (ECRA); the management of the Bank, particularly Compliance and Integrity, can plan its · Prevention of corruption and bribery (ABC) and activities to reduce or mitigate compliance and integrity management of conflicts of interest; risks . As part of the compliance programme, Compliance · Prevention of abuse on the financial instruments and Integrity is also involved, among other things, in risk market; assessments regarding new and changed products, fit · Cooperation in the procedure of assessment of and proper assessments for key function holders, and suitability of key function holders; members of management bodies, outsourcing, and · Efficient, consistent and proportional actions in the other material changes affecting the Bank’s business . event of identified deviations from compliance and integrity; Several workshops and mandatory e-training on ethics, · Cooperation in the system of internal controls; preventing corruption, conflicts of interest, protecting · General professional ethics; · Physical/technical security . personal data, AML/CFT, Information Security, Physical Security, and other relevant topics related to everyday work were prepared as a standard compliance function . Within the framework of the programme of ensuring For all employees, yearly e-trainings are mandatory on business compliance, the Group also deals with the subjects such as prevention of insider trading and market ethics and integrity of the organisation . The Group manipulation, ethics, anti-corruption, mitigation of 2,363 4,179 The number of employees who completed training on the Code of Conduct in 2023 The number of employees engaged and satisfied with 2,389 NLB 350 NLB Group 751 The number of suppliers and business partners who signed or agreed to comply with the Code of Conduct, anti-corruption policies, and conflict of interest policies conflict of interests, personal data protection, information security, and similar topics . The Group focuses on promoting a corporate culture that facilitates compliance and ethics . For this purpose, the Group regularly raises awareness through various means, such as monthly compliance newsletters, highlighting essential regulatory changes and providing current information and case studies relating to compliance and ethics . The Bank is constantly improving the compliance risk management system and regularly monitors and implements activities, and also renews relevant internal acts to manage compliance risks also in individual areas, such as ensuring the compliance of the management body, operations of the market of financial instruments and custody, data protection, prevention tax evasion, and obligations arising from the automatic exchange of information on financial accounts and the management of the system of internal controls and risks brought by the new legislation . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The regime on inside information (MAR) In line with the Market Abuse Regulation (MAR) and other relevant regulations, the Bank has established a system at the level of the Bank and the entire Group for managing and publicly disclosing inside information on NLB in a manner that enables it to comply with the obligations related to inside information identification and disclosure according to the applicable rules and regulations applicable at any time . Also, the Bank has a system to implement the market abuse prevention regime following the MAR guidelines to prevent insider trading, market manipulation, and illegal disclosure of inside information . Prevention of Money Laundering and Terrorism Financing, and Financial Sanctions Compliance The Bank complies with national regulations on Anti- Money Laundering and Countering the Financing of Terrorism (AML/CFT), including the EBA, BoS, and other competent authorities’ guidelines and standards . The RoS is a member of the EU and thus subject to the European AML/CFT Directives, which is how the EU transposes the Financial Action Task Force recommendations throughout the EU . For the Bank, it is paramount to effectively mitigate the risk of money laundering, financing of terrorism, and breaches of financial sanctions . For these reasons, the rules, procedures, and technology in the AML/CFT area are subject to strict and unified policies and standards . The same principles also apply to the Bank’s framework on financial sanctions . The Bank regularly updates and enhances its governance in line with directions set by the BoS . Through the system of performing risk assessment, regular reporting, and constant on-site and off-site control, the headquarters effectively monitor implementation and execution of standards throughout the Group . The Bank regularly performs customer due diligence following the risk-based approach, and in the case of increased risk performs additional measures, both in the segment of "Know your customer" and ongoing monitoring of transactional activities . In the case of detected deviations, also considering the AML/CFT indicators, the AML function of the Bank ensures the review and, if AML/CFT legislation requires, reports the customers and transactions to the competent Financial Intelligence Unit . In its Acceptance Policy, the Bank has also adopted additional measures to prevent onboarding customers who do not correspond to its risk appetite . The Bank also ensures a high awareness of the AML/CFT and financial sanctions with regular training of all Bank employees . Information security and personal data protection The information security area, inter alia, is focused on implementing measures to increase the level of information/cyber security and the Bank’s overall digital resilience by improving cyber threat intelligence situational awareness and testing the cyber security resilience of information systems (pen-tests) . Furthermore, in 2023, the Bank also assessed the information security status of 38 of the Bank’s outsourcing providers according to EBA guidelines . Special obligatory e-trainings in information security and social engineering were prepared for all employees – with one specially dedicated training for the Bank’s Management Board members carried out as part of the prevention measures in this area . In response to a notable surge in cyber fraud attempts targeting its customers, the Bank has implemented a robust Brand Intelligence/Brand Protection service . This enhancement enables NLB to swiftly and proactively detect fraudulent NLB-like phishing portals, empowering it to take decisive and independent actions to mitigate threats posed by phishing campaigns targeting its clients . New information security approaches were introduced and implemented across the Group, improving the visibility and autonomy of each local Chief Information Security Officer (CISO) office in core subsidiaries . The focus was on increasing awareness of the local responsibility for information security management following the subsidiaries' executive management risk appetite, the organisation's ability to build defence, 124 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents and local regulatory compliance . The Bank continues a robust brand protection tool, a testament to its its membership in the only global cyber intelligence- commitment to preserving the trust and confidence sharing community focused on financial services that customers place in the Bank . The Bank also exclusively . All local CISO offices have access to implemented a range of additional controls in web & intelligence exchange platforms and cyber resilience mobile e-banking channels . resources to anticipate, mitigate, and respond to cyber threats and NLB Group cyber threat intelligence We are committed to ensuring the security of our service was founded . To manage cyber risks, the Group customers and employees, and as such, we have is working on critical intelligence access, strategies strengthened our approaches to managing risks to address crisis events, and building a trusted related to cyber security and preventing unauthorized network of relationships . In 2023, the Group continued payment transactions . We have been actively the cyber-attack incident response exercise and participating in The Bank Association (ZBS) initiatives, participated in the 2023 FS-ISAC CAPS (cyber-attack playing a pivotal role in educating the public about against payment systems) exercise, which challenged cyber and payment fraud prevention . incident response teams to overcome a simulated attack against systems and processes, locking part of the bank We devote significant attention to employee training, data through forced cooperation of a bank employee informing about identified patterns of various and receiving a demand for a payment of ransom . The Bank runs its operations in line with GDPR types of fraud, and providing recommendations for process improvement . requirements, including the retention and processing Fraud prevention in loan origination processes is of personal data, a dedicated Data Privacy Officer, intricately linked to operational risk and requires a education, and training of employees . A new Slovenian comprehensive approach . We have implemented Personal Data Protection Act (ZVOP-2) was adopted in rigorous verification processes for new loan 2022 and is implemented in the Bank’s operations . applications, including identity verification checks, thorough credit history analysis, and cross-referencing information from multiple sources to identify any inconsistencies or fraudulent indicators . Our involvement in these activities underscores our dedication to fostering a secure and transparent business environment . We remain steadfast in our mission to uphold the highest standards of business ethics, ensuring that our customers can engage with our brand with absolute confidence . Fraud prevention and investigation The Group has implemented a unified system and standards for preventing and investigating suspected misconduct . This framework enables anyone, both internal and external stakeholders, to unhinderedly report potential suspected misconduct through several different communication channels, also anonymous . The Bank uses various measures to ensure complete and total protection of the informant from any potential retaliation they could endure due to well-intended reporting of a suspicion of harmful conduct and adheres to commitments outlined also in the Whistleblower Protection Act . A specialised team centrally handles all reports received, following the detailed internal procedures . Furthermore, the Bank has implemented effective and appropriate reporting mechanisms for management bodies . In the past year, the Bank has made significant strides in safeguarding its brand’s integrity . It has implemented 125 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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, and functioning of internal controls; thereby strengthening and protecting the value of the Bank . Internal Audit is an independent, objective, and advisory control body responsible for a systematic and professional assessment of the effectiveness of risk management procedures, completeness and functionality of internal control systems, and management of the Group operations on an ongoing basis . Internal Audit provides impartial assurance to the Management and Supervisory Boards on the management of risks in key areas, i .e ., the internal governance of risk data collection and risk reporting, the ICAAP process, cyber security transformation processes, digital banking platform, the Single Resolution Board – SRB, ESG, anti-money laundry, outsourcing process, card fraud management, remuneration, lending processes, large exposure, RWA for credit and operational risk, cash management in branches, and others . Performed audits Internal Audit performs its tasks and responsibilities at its discretion and in compliance with the annual audit plan approved by the Management and the Supervisory Board . Based on its internal methodology and comprehensive risk analysis for 2023, Internal Audit planned 91 audits, of which 62 were completed and covered various areas of operations in the Bank and the Group . Moreover, 23 of these assignments were branch inspections, four were conducted as group audits, five were joint audits with a local auditor, three were quality reviews in banking subsidiaries, and one new audit was initiated . In addition, Internal Audit was involved in several strategic projects as an advisor . Five planned audits were postponed for objective reasons . Most of the recommendations given in 2023 were implemented within the agreed-upon deadlines . Implementation of uniform rules Internal Audit continuously 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 compliance with these rules within the Group . Following the highest standards In 2022, an external quality review of the internal audit function was performed and confirmed that Internal Audit and other internal audit services in the Group operate in accordance with the following: International Standards for the Professional Practice of Internal Auditing Code of Internal Auditing Principles Banking Act (ZBan-3) or other relevant laws regulating the operations of a Group member Code of Ethics of an Internal Auditor 91planned and extraordinary audits conducted in the Bank 36Internal Audit experts 126 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents … as one team, towards a common goal . Slovenian national soccer team The collective dream comes true when all hearts beat as one . Corporate Governance Statements 128 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The Statement of Management’s Responsibility In accordance with the provisions of Article 134 (2nd paragraph) of the Market and Financial Instruments Act8, the Management Board hereby confirms the statements made in the business report, which are in The Management Board confirms that the business report gives a fair view of developments and operating results of the Bank and the Group and their financial standings, including a description of the material types of accordance with the attached financial statements as risks the Bank and the NLB Group companies included in of 31 December 2023, and represent the actual and fair the consolidation that are exposed as a whole . financial standing of the Bank and the NLB Group as well as their operating results in the year that ended 31 December 2023 . Ljubljana, 10 April 2024 Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer 129 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 8 ZTFI-1, Official Gazzete of the RoS, No. 77/18, 17/19 – corr., 66/19 in 123/21. Contents Authorisation to Perform Banking Services NLB has an authorisation to perform banking services pursuant to Article 5 of the Banking Act (Official Gazette of the RS, No . 92/2021, with Amendments; hereinafter: the ZBan-3) . Banking services are the acceptance of  5 . Issuance and management of other payment 13 . Credit rating services: collecting, analyzing instruments (i .e . travellers’ cheques and banker’s and disseminating information regarding drafts) in the part in which this service is not creditworthiness included in service of point 4 of this Article 14 . Leasing of safe deposit boxes deposits and other repayable funds from the public and  6 . Issuing of guarantees and other commitments 15 . Investment services and transactions, and ancillary the granting of credits for its own account .  7 . Trading for own account or for the account of investment services in accordance with the ZTFI The bank has an authorisation to perform mutually recognised and additional financial services . It may perform the following mutually recognised financial services, pursuant to Article 5 of the ZBan-3:  1 . Receiving deposits  2 . 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 clients: · in money-market instruments, · in foreign exchange, including currency exchange transactions, · financial futures and options, · exchange and interest-rate instruments, · in transferable securities It may perform the following additional financial services, pursuant to Article 6 of the ZBan-3:  1 . insurance agency service pursuant to the law governing the insurance industry  4 . custodian and administrative services according to the law governing investment funds and  8 . Participation in securities issues and the provision management companies of associated services  5 . credit brokerage for consumer and other types of  9 . Corporate consultancy with regard to capital loans structure, operational strategy and related matters,  6 . other services or transactions: and consultancy and services in connection with 6 .1 . intermediation in financial leasing corporate mergers and acquisitions 6 .2 . sale and purchase of investments in gold 10 . Monetary intermediation on interbank markets non-current non-past-due receivables at a 11 . Advice on portfolio management Authorisation to perform banking services is published discount and without recourse, secured by 12 . Safekeeping of securities and other related on the official website of the BoS . financial instruments (forfeiting) services  4 . Payment services and electronic money issuing services 130 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Corporate Governance Statement of NLB Pursuant to Article 70, paragraph 5 of the Companies Act (ZGD-1)9 NLB hereby gives the following Corporate Governance Statement of NLB d .d . as part of the Business Report of the NLB Group Annual Report 2023 . The main function of this statement is the prompt informing of investors on the coherence of the Bank’s corporate governance system . 1 . COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE 1 .1 . References to the Code on Corporate Governance The recommended best corporate governance practices contribute to a transparent and understandable corporate governance system, which promotes both domestic and foreign investor confidence, as well as the confidence of employees, other stakeholders (shareholders, regulators, suppliers, etc .), and the public . A decision on which code the Bank will follow was made jointly by the Management and Supervisory Boards of the Bank by adopting the Corporate Governance Policy of NLB .10 Last year, the Corporate Governance Statement of NLB was made according to the renewed version of the Slovenian Corporate Governance Code for Listed Companies . Compliance with the Slovenian Corporate Governance Code for Listed Companies is explained in this statement on a "comply or explain basis," in which the Bank provides an explanation regarding deviations, reasoning for non-compliance with a certain recommendation, or alternative practices performed mostly due to stricter banking regulation . 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 (from 1 January until 31 December) . The Corporate Governance Statement of NLB is included The Corporate Governance system of the Bank and in the Business Report of the NLB Group Annual Report, all relevant information on Bank’s management that and is also published as a separate report on the Bank’s exceeds the requirements of article 70 of the Companies website in the chapter Corporate Governance . Act (ZGD-1) are published in the chapter of Risk Management of this annual report, where ESG Risk NLB strives to increase the level of its business Management for the year 2023 is described, as well as transparency and informs the shareholders and in the Sustainability chapter of this annual report, and other expert community in line with the Guidelines the NLB Group Sustainability Report 2023 . Some other on the Disclosure for Listed Companies (Ljubljana aspects about the functioning of the Bank’s managing Stock Exchange, 18 December 2020) on an electronic bodies are described in the chapter on Corporate communications system of the Ljubljana Stock Exchange, Governance of this annual report, as well as in the and in line with Rules and Regulation of the Luxembourg Corporate Governance Policy of NLB published on Stock Exchange, as well as in line with the Rules of the NLB’s website . Information on the Diversity Policy and London Stock Exchange through Regulatory News Remuneration Policy and ESG risks is also described in Services (RNS) of the London Stock Exchange . the Pillar 3 Disclosures, according to Basel standards . NLB also upholds its own code of conduct . The NLB Group Code of Conduct, which was revised in May 2023, is a standardised document for all members of the Group that defines values, lays down the standards of ethical business conduct, and serves as the guideline for all our relationships regardless of whether it involves clients, competitors, business partners, state authorities, regulators, shareholders, or internal relationships between employees . At the same time, it is the basis of the Group values and basic principles of conduct which provide specific conduct guidelines to its employees . The aim of this approach is to ensure compliance with all applicable laws, regulations, and standards, and is published on the Bank’s website . 131 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 9 The Companies Act (ZGD-1; Official Gazette of the RoS, No. 65/09 and consecutive changes). 10 February 2023. Contents 2 . COMPLIANCE WITH THE SLOVENIAN CORPORATE GOVERNANCE CODE FOR LISTED COMPANIES The Bank does not follow, or partially implement, and the NLB Group (December 2023), and in the Policy or adhere to different, in most cases stricter, on Conflict-of-Interest Management and Corruption Recommendation 14.4: In 2023, the NLB Workers’ Council did not report to the Supervisory Board despite being banking regulations with regard to the following Prevention of NLB d .d . and the NLB Group (April 2023) . prompted . The NLB Workers’ Council will inform the recommendations: Recommendation 5.6: NLB does not provide an external assessment of the adequacy of the Corporate Governance Recommendation 12.1: In assessing a candidate’s eligibility to be a Supervisory Board member, statutory criteria are applied, however, according to the Policy to Statement of NLB at least every three years since NLB is a Assess the Suitability of the Management and Supervisory professional services of NLB if it will have the intention to report to the Supervisory Board in the future . Recommendation 14.6: Access to the archives after expiration of the term of office of the members of systemically important bank with demanding regulation Board Members in NLB (June 2022), it is not necessary the Supervisory Board is determined by the Rules of that takes into account high standards of corporate for candidates to have a certificate evidencing their Procedure of the Supervisory Board of NLB . Members of governance . The Bank is highly regulated by a regulator specialised professional competence for membership on the Supervisory Board do not sign a special Agreement and examined by the external auditor . a Supervisory Board, such as the Certificate of Slovenian on the access to the archives upon taking up the Directors’ Association, or any other relevant certificate . position . See also Recommendation 14 .2 above . Recommendation 7: The Bank has publicly disclosed its strategic document which serves as the overarching However, all strict conditions must be fulfilled according to banking legislature, including the wide range of framework for sustainability management, replacing knowledge, skills, and experience . Recommendation 17.6: Decisions discussed at the meeting are always available to members of the Supervisory Board in the bank’s information system . the previous NLB Sustainability Framework . The Bank has also started activities to develop the comprehensive NLB Group Net-Zero Strategy in line with the Bank’s Recommendation 14.2: Currently, valid Rules of Procedure of the Supervisory Board of NLB (2023) are As soon as it is possible, but no later than two working days after the meeting of the Supervisory Board, the commitment to a climate-positive future and its net- prepared according to strict rules governing banks . They Secretariat prepares copies of the decisions adopted zero ambition, following UNEP FI – NZBA guidance and do not include provisions on the Agreement on access at the meetings of the Supervisory Board and forwards methodology . In December 2023, NLB Group published to the archives after expiration of the term of office of them to the proposer and all recipients listed in each the first NLB Group Net-Zero Disclosure Report which the members of the Supervisory Board, as the access decision . An employee of the Secretariat, who is present provides a comprehensive overview of the Bank’s efforts to the archives after expiration of the term of office is at the meeting, approves the amendments to the and progress towards transitioning the operational and determined by the provisions of the Rules of Procedure resolutions and thereby confirms the consistency of the attributable GHG emissions from lending and investment of the Supervisory Board of NLB and not in a content of the resolutions adopted at the meeting . portfolios to align with pathways that are consistent with special agreement . achieving net-zero by 2050 or sooner . Recommendation 7.2: The Sustainability Policy in NLB d .d . and NLB Group was adopted by the Management Recommendation 14.3: The Rules of Procedure of the Supervisory Board of NLB do not include the scope of topics and timeframe to be respected by the Recommendation 19.1: In 2023, the Supervisory Board members (representatives of capital and representatives of workers) did not receive attendance fees, but received payments for performing their function based on the Board and the Supervisory Board of the Bank . Management Board in its periodic reporting of the decisions of the General Meeting of shareholders dated Recommendation 7.4: The Sustainability Policy of NLB d .d . and NLB Group contains basic due diligence Supervisory Board . However, the scope of topics and 21 October 2019, 15 June 2020, and 11 December 2023 . time frames of periodic reporting to the Supervisory Remuneration of the members of the Supervisory Board Board are included in annual Action Plan of the is regulated by the Articles of Association and the guidelines and measures for identifying risks and Supervisory Board . Competent organisational units of Remuneration Policy for the Members of the Supervisory prevention of serious harm in relation to areas the Bank take care that timely information is provided to covered . Additionally, due diligence guidelines and the Supervisory Board . measures for identifying risk are further elaborated in the Policy on the Respect for Human Rights in NLB Board of NLB d .d ., and the Members of the Management Board of NLB d .d .11 Recommendation 20: Minutes of the Supervisory Board are taken by a professional employee of the bank who was specified by the 132 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 11 The second version was adopted by the Supervisory Board on 19 October 2022 and approved by the General Meeting of shareholders on 12 December 2022. The third version was adopted by the Supervisory Board on 26 October 2023 but was not approved by the General Meeting of shareholders on 11 December 2023. Since the voting is of consultative nature it has entered into force and is applicable as of 1 January 2024. Contents Management Board to the Supervisory Board to assist in the implementation of the Supervisory Board’s tasks . Recommendation 23.5: In accordance with regulations and the Remuneration Policy of the Members of the Supervisory Board of NLB d .d . and the Members of the Management Board of the NLB d .d, in 2023, NLB awarded to the members of its Management Board 50% of their variable remuneration in share-linked instruments: 50% of such instruments were handed over to the members of the Management Board without any deferral, and the remaining 50% of such instruments will be handed over to the members of the Management Board during a 5-year deferral period . Recommendation 26.6: The Bank maintains a list of transactions with related persons according to the Banking Act (ZBan-3) . A list of transactions with related persons is submitted to the Supervisory Board by special demand . Recommendation 30.4: NLB draws up its Financial Calendar which is published on the Banks’ website, and includes the date of the Annual General Meeting . However, it doesn’t provide information on the dividend payment date . Date is announced in the publication of the Agenda and Proposed Resolutions to be passed at the Annual General Meeting. The dividend payment date is determined based on KDD’s Operations Rules (Central Securities Clearing Corporation) . Recommendation 32.7: NLB does not publish the rules of procedure of its bodies (Management Board and Supervisory Board and its committees) on its website . However, each year the Bank discloses the composition, competences, and work of its managing bodies in the Corporate Governance Statement of NLB and publishes it in the NLB Group Annual Report, on the Bank’s website, as well as on the web page of the Ljubljana Stock Exchange . 133 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 3 . MAIN FEATURES OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO FINANCIAL REPORTING NLB is governed by the provisions of the Capital 3 . The third level of controls is performed by the assurances based on risk assessment, with a consultancy Requirements Regulation (CRR), with amendments, internal audit function, which assesses and regularly and deep understanding of the Bank’s operations . In together with all applicable delegated acts, the Banking checks the completeness, functionality, and addition, the Internal Audit carries out regular control Act (ZBan-3) and the Regulation on Internal Governance adequacy of the internal control system . An internal of the quality of operation of the other internal audit Arrangements, the Management Body and the Internal audit is completely independent of both the first line departments in the Group and takes care of constant Capital Adequacy Assessment Process for Banks and and the second-level control functions . development of the internal auditing function . Savings Banks regulating, and relevant EBA Guidelines, among other, the Bank’s obligation to set up, maintain In the event of deficiencies, irregularities, or breaches The Supervisory Board of NLB must issue its approval appropriate internal control, and risk management identified in the process of implementation of internal of the appointment, remuneration, and dismissal to systems . Due to the above, the NLB has developed controls the breaches are discussed at the Operational the Head of the Internal Audit, which ensures their a steady and reliable internal governance system Risk Committee (which is the collective decision-making independence and so, the independence of the work of encompassing the following: body appointed by the Management Board of the the Internal Audit . 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, business, and work procedures (internal controls), and · the internal control functions and departments (internal control functions) . 3.1.1. Internal Controls The policy entitled "Internal Control System" defines a system of internal controls as set of rules, procedures, and organisational structures . The system of internal controls in NLB is designed to ensure that for each Bank that is established for execution of individual tasks within powers of the Management Board of the Bank) . The mentioned committee adopts decisions so b) The Risk Management Function The Risk Management Function is organised according that appropriate actions are taken, and informs the to the Charter of the Risk Management Function of NLB Management Board of the Bank about deficiencies and adopted by the Management Board, in agreement with actions taken on that behalf . the Supervisory Board of NLB . As NLB advances its commitment to sustainable and The risk management function represents an important responsible banking, updates to the Internal Control part of overall management and governance system in System policy, implemented in November 2023, the Group . This function in NLB is organised within the reflect our dedication to ensuring a comprehensive Risk stream, covered by the member of the Management approach to ESG governance, addressing ESG risks, and Board in charge of risk (Chief risk officer - CRO) . promoting responsible business practices . 3.1.2. Internal Control Functions The internal control functions are part of the system of The risk management function is performed by the Global Risk function . In accordance with the competences, authorisations, and responsibilities Global key risk there is a process or other measure to reduce the internal governance in the Bank . Internal control Risk is represented by its General Manager . Global or manage that risk and that process or measure is effective for that purpose . functions include: Risk is in functional and organisational terms separate from other functions where business decisions are Mentioned policy introduces a new description of the a) The Internal Audit Function The Internal Audit function is organised according to adopted and where potential conflict of interest may arise with the risk management function . The head three lines of defence, namely: the Charter on the Internal Audit of NLB adopted by the of the risk management function has direct access to 1 . First-level (or line) controls are implemented into Management Board, to which the Supervisory Board of the Management Board of the NLB, and at the same business and non-business organisational units NLB gave its approval . (OU) . 2 . Second-level controls are divided between Risk Management and Compliance control functions The Management Board has set up an independent internal audit function which gives assurances and time has unhindered and independent access to the Supervisory Board of NLB and the Risk Committee of the Supervisory Board of the NLB . (including AML/CTF and Information security advice about risk management, internal controls Risk management and control is performed through management) that carry out independent controls system, and management of the NLB . The mission and a clear organisational structure with defined roles and supervision over the operation of the first line of the principal task of the Internal Audit is to consolidate and responsibilities . The organisation and delineation defence . and secure the value of the Bank by issuing objective of competencies is designed to prevent conflicts of 134 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents interest, to ensure a transparent and documented Compliance and Integrity is an organisational unit of decision-making process, and is subject to an the Bank, placed directly under the Bank’s Management appropriate upward and downward flow of information . Board in the organisational structure . The Bank adopted The competence line, Risk Management in NLB, the Integrity and Compliance Policy of the NLB and the encompasses several professional areas, and is in NLB Group, which was revised in December 2023 . This charge of formulating and controlling the Group’s risk Policy regulates the method and scope of the activities management policies, setting limits, overseeing the of the compliance function in the Bank . Supervision harmonisation, regular monitoring of risk exposures, and over compliance of operations is within the competence limits based on centralised reporting at the Group level . of the Compliance and Integrity . This enables the Compliance and Integrity to operate independently from In members of the Group, the risk management other Bank’s departments . function is organised according to the local legislation, considering the bases for setup, organisation, and The Director of Compliance and Integrity does not activities in risk management in the members, as perform any other function at the Bank that could defined in the document "Risk Management Standards possibly lead to conflict of interests . To ensure his in the NLB Group ." c) The Compliance Function, Information Security Function, and AML/CTF Function Compliance and Integrity in the Group in its role as independence, the Director reports directly to the Management and Supervisory Boards . Additionally, the Director provides regular updates to a designated member of the Bank’s Management Board responsible for overseeing compliance area (including information internal control function performs control activities with security, personal data protection, and AML/CTF respect to the main following areas: · anti-money laundering and counter-terrorist financing (separately for NLB and the Group); · information security and data protection; · personal data protection; · regulatory compliance management; · prevention of fraud and internal investigations; · security; · 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) . functions) . This arrangement provides additional assurance for the independence of the Compliance and Integrity operations . As information security, AML/CTF, and Group AML functions are organised within Compliance and Integrity, CISO for NLB (Chief Information Security Officer), Group CISO, DPO (Data Protection Officer), the head of the AML/CTF area for NLB, and head of Group AML are ensured full independence through equal reporting lines as the Director of Compliance and Integrity . Following NLB’s model, the compliance function was established in the core members of the Group, as well based on the Group standards for the compliance and integrity area . 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 accounting reporting, NLB ensures: · A reliable decision-making and operation support system; · Accurate, complete, and timely accounting data, the resulting accounting, and other reports of the Bank; · Compliance with legal and other requirements . Financial statements of NLB and consolidated financial statements of the NLB Group are audited by the auditing company KPMG Slovenia d .o .o ., Ljubljana . The mentioned auditing company was appointed as the auditor of NLB by the 38th General Meeting of shareholders of the Bank dated 20 June 2022 for the financial years 2023 to 2026 . 135 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 4 . INFORMATION ON POINT 4, PARAGRAPH 5, OF THE ARTICLE 70 OF THE ZGD-1 regarding points 3, 4, 6, 8, and 9 of paragraph 6 of the same article Explanation regarding significant direct and indirect share of 25% of the Bank’s voting shares . Approval for The Management Board ownership of the company’s securities in the sense of the transfer of shares is issued by the Supervisory Board . Articles of Association define that the Management achieving a qualified stake as determined by the act Board of the Bank is comprised of three to seven regulating acquisitions The Bank rejects the request for approval of transfer members, one of whom is appointed President of (Point 3 of the sixth paragraph of Article 70 of the ZGD-1) shares if the acquirer, together with the shares held by the Management Board of the Bank . The number the acquirer before the acquisition and the shares held of Management Board members is determined by Significant direct and indirect ownership of the by third parties for the account of the acquirer, exceeded a resolution of the Bank’s Supervisory Board . The company’s securities in terms of achieving a qualifying the 25% share of the Bank with voting rights, increased President and other members of the Management holding as defined in the Takeovers Act (as at by one share . Board are appointed and recalled by the Supervisory Board of the Bank; the President of the Management 31 December 2023) . Shareholder RoS EBRD(i) Schroders plc(i) (i) In the form of GDRs. Number of shares Percentage of shares Nature of ownership 5,000,001 25 .00 shares / >5 and <10 / >5 and <10 GDRs GDRs More information on the Bank’s Share Capital is available on the NLB website . Notwithstanding the provision mentioned in the first Board may propose to the Chair of the Supervisory paragraph, approval for the transfer of shares is not Board of the Bank to appoint or recall an individual required if the acquirer of the shares has acquired them member or the remaining members of the Management for the account of third parties, so that it is not entitled Board of the Bank . to exercise voting rights from these shares at its sole discretion, while at the same time committing to the The President and members of the Management Board Bank, it will not exercise voting rights on the basis of the shall be appointed for a period of five years and may be instructions of an individual third party for whose account re-appointed for another term of office . The President it has acquired the shares if, together with the instructions and members of the Management Board may be recalled for voting, it does not receive a written guarantee from prior to the expiry of their term of office in accordance Explanation regarding the holders of securities that that person that this person has shares for his own with applicable laws and Articles of Association . Each carry special control rights account, and that this person is not, directly or indirectly, member of the Management Board of the Bank may (Point 4 of the sixth paragraph of Article 70 of the ZGD-1) a holder of more than 25% of the Bank’s voting rights . prematurely resign her/his term of office with a period of notice of three months . Written notice shall be delivered to The Bank did not issue any securities carrying special The acquirer who exceeds the share of 25% of the the Chair of the Supervisory Board of the Bank . The notice controlling rights . Explanation regarding the 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 Bank’s shares with voting rights and does not require the term may be shorter than three months if requested by issuance of approval for the transfer of shares, or does the resigning member of the Management Board of the not receive the approval of the Bank, may exercise the Bank in his/her notice and is subject to the approval of voting right from 25% of the shares with the voting rights . the Supervisory Board of the Bank . There are no restrictions other than those mentioned A member of the Bank’s Management Board may only and those that are regulatory . be a person who fulfils the legally prescribed conditions for a management board member under the law on Explanation on the (i) company’s rules on appointment banking and who obtained a licence from the BoS or (Point 6 of the sixth paragraph of Article 70 of the ZGD-1) or replacement of members of the management or the ECB, if executing the competences and tasks from supervisory bodies, and (ii) changes to company’s Item (e) of paragraph 1 of Article 4 of Regulation (EU) The shares of the Bank are freely transferable, subject to Articles of Association no . 1024/2013 for the performance of the function of the provisions of the Articles of Association of the Bank which require the approval of the Supervisory Board, namely for the transfer of shares of the Bank by which (Point 8 of the sixth paragraph of Article 70 of the ZGD-1) a bank’s management board member under the law regulating banking . The Bank assesses every candidate The appointment or replacement of members of the following the Bank’s Policy governing the Fit & Proper the acquirer, together with the shares held by the holder management or supervisory bodies assessment prior to the appointment . before such an acquisition and the shares held by third parties for the account of the acquirer, exceeds the 136 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The Supervisory Board for the performance of the function of a bank’s The Supervisory Board of the Bank consists of a total supervisory board member under the law regulating of 10 members, of which eight members represent the banking . The Bank assesses every candidate following interests of shareholders and two members represent the Bank’s Policy governing Fit & Proper assessment the interests of employees . Members representing the prior to the appointment . interests of shareholders shall be elected and recalled by the Bank’s General Meeting from persons proposed by shareholders or the Supervisory Board of the Bank, Amendments to Articles of Association A qualified majority of at least 75% (seventy-five per and members representing the interests of employees cent) of the votes cast by shareholders at the general shall be elected and recalled by the Workers’ Council meeting of the Bank’s shareholders is required for of the Bank . Members of the Supervisory Board the adoption of any amendments of the Articles of representing the interests of shareholders are elected by Association . an ordinary majority of votes cast by the shareholders . Explanation regarding the authorisation of The term of office of the Supervisory Board members the members of the management, particularly commences on the day their appointment enters into authorisations to issue or purchase own shares force (at the start of the term of office) and lasts up (Point 9 of the sixth paragraph of Article 70 of the ZGD-1) until the end of the Bank’s Annual General Meeting of shareholders which decides on the use of accumulated No authorisation exists which would authorise the profit for the fourth business year since the start of their members of the management to issue or purchase own term of office, unless otherwise stipulated at the time shares of the Bank . of appointment of individual members . In this context, the first year is deemed the business year in which the members of the Supervisory Board of the Bank started their term of office . The General Meeting of the Bank may dismiss an individual or all members of the Supervisory Board (representatives of shareholders) 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 . A member representing the interests of employees cannot be elected Chair or Deputy Chair of the Supervisory Board of the Bank . All the Supervisory Board members shall be independent professionals, as defined by the Articles of Association . A member of the Bank’s Supervisory Board may only be a person who fulfils the legally prescribed conditions for a supervisory board Member under the banking act 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 137 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 5 . INFORMATION ON THE WORK AND KEY POWERS OF THE SHAREHOLDERS’ MEETING AND OF ITS KEY POWERS, AND A DESCRIPTION OF SHAREHOLDERS’ RIGHTS AND THE METHOD OF THEIR EXERCISING The General Meeting is a body of the Bank through share capital increase, the right to profit participation Shrenik Dhirajlal Davda and Mark William Lane which shareholders exercise their rights, which include (dividends), and the right to a share in surplus in the Richards, and also appointed two new members, namely among others: decisions on corporate changes event of liquidation or bankruptcy of the Bank and the Cvetka Selšek, and André-Marc Prudent-Toccanier . (amendments of the Articles of Association, increase right to be informed . or decrease of share capital) and legal restructuring All four were appointed for a four-year term of office, which for the existing members began on the day of (mergers, acquisitions), adopting decisions on all According to Article 296 of the Companies Act, NLB their appointment, while Cvetka Selšek and André-Marc statutory issues with respect to appointing and informs shareholders on their rights as shareholders Prudent-Toccanier assumed the position of members of discharging members of the Supervisory Board in an Information on the Rights of Shareholders that the Supervisory Board on 15 August 2023, after the ECB (representatives of shareholders), and appointment is published among the documents for convocation agreed to their appointment to their position . of an auditor, distribution decisions (appropriation of of each General Meeting (i .e ., on the expansion of the distributable profit), and the granting of discharge from liability to the Management and Supervisory Boards . agenda, proposals by shareholders, voting proposals by shareholders, and the shareholders right to be informed) . The General Meeting of NLB also took note on Internal Audit Report for 2022 and Opinion of the Supervisory The General Meeting is convened by the Management Board . The General Meeting may be convened by the Supervisory Board in cases where the Management There were two General Meetings of shareholders in 2023 . Shareholders gathered at the 39th General Meeting on 19 June 2023 . At the General Meeting, shareholders Board of NLB and adopted decision on Determination of payments to members of the Supervisory Board of NLB and its committees . Board fails to convene the General Meeting or where acknowledged the adopted NLB Group 2022 Annual a convocation is necessary to ensure unhindered Report, the Report of the Supervisory Board of NLB on The 41st General Meeting of NLB Shareholders held on 19 December 2023 confirmed payment of additional operations of the Bank . The Supervisory Board may the results of the examination of the NLB Group Annual dividends of EUR 55 million EUR (2 .75 gross per amend the agenda of the General Meeting convened in Report 2022, the Report on renumerations for the share), making a total dividend pay-out in 2023 of line with the bylaws . business year 2022, and the Additional information to EUR 110 million . With these pay-outs, NLB remains firmly As a rule, the General Meeting of the Bank shall be based on SSH’s Baselines . convened at the registered office of the Bank, yet it through solid cash dividends in a cumulative amount of EUR 500 million between 2022 and by the end of 2025 . the Report on remuneration for the business year 2022 on the path to fulfil its ambition – a total capital return may also be convened at another venue specified by The shareholders also decided on the allocation of the convenor . The Management Board may stipulate distributable profit for 2022 and granted a discharge At the General Meeting, the shareholders became that shareholders may attend or vote before or at the from liability to the Management Board and Supervisory acquainted with the revised Remuneration Policy, which General Meeting by electronic means without physical Board of NLB for the year 2022 . The distributable profit was updated so that it ensures that the members of the presence . The General Meeting of shareholders shall adopt resolutions by simple majority of the votes of the Bank as at 31 December 2022 amounted to EUR 515,463,762 .89 . Part of that profit, in the amount of EUR management board are rewarded in accordance with the long-term strategic goals of the NLB Group and cast, unless the applicable laws or the Bank’s Articles 55,000,000 .00, was paid out as dividends (EUR 2 .75 with the interests and directions of the shareholders, the of Association stipulate a larger majority or other gross per share) . conditions (adoption and amendments of the Articles of relevant legislation, guidelines, and best practices with the aim of with the aim of rewarding board members not Association, issue of convertible bonds or other equity The General Meeting of NLB adopted a decision on only for their contribution to immediate financial success, securities of the Bank, exclusion of pre-emptive right election of members of the Supervisory Board of NLB . but also to the overall sustainable development of the of existing shareholders, decrease in share capital, the As the term of office of four members of the Supervisory NLB Group, growth and creation of long-term value status restructuring of the Bank, liquidation of the Bank Board of NLB, namely Deputy Chairman Andreas for shareholders . The policy was not confirmed in the and discharge of Supervisory Board members) . Klingen, Shrenik Dhirajlal Davda, Gregor Rok Kastelic, consultative vote, but nevertheless comes into force . Until The shareholders have the right to participate at General Meeting also appointed four members, of whom Remuneration Policy and present it to the shareholders . the general meeting of the Bank, the voting right, two were already performing a function of a member of The outcome of the vote is available to all interested pre-emptive right to subscribe for new shares in case of the Supervisory Board . The shareholders re-appointed stakeholders on NLB’s website . and Mark William Lane Richards had expired, the the next General Meeting NLB will further improve its 138 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 6 . INFORMATION ABOUT THE COMPOSITION AND WORK OF THE MANAGEMENT AND SUPERVISORY BODY AND ITS COMMITTEES 6 .1 . Composition of the Management Board In 2023, the Management Board of the Bank consisted of consists of six members, namely: Blaž Brodnjak as President & CEO, Archibald Kremser as Chief Financial Officer (CFO), Andreas Burkhardt as Chief Risk Officer (CRO), as well as Hedvika Usenik as Chief Marketing Officer (CMO) – responsible for Retail Banking and Private Banking, Antonio Argir – responsible for Group governance, payments, and innovations, and Andrej Lasič as CMO – responsible for Corporate and Investment Banking . Work of the Management Board Despite the uncertainties caused by decelerated economic growth, and high inflation, NLB Group once more demonstrated its resilience and delivered strong results . The successful performance of NLB Group can be attributed to the vigorous emphasis on prudent risk management and unwavering focus on maintaining high asset quality, a strong capital base, and robust liquidity position, while remaining committed to ever-improving excellent customer services and embracing opportunities for further growth . In 2023, the Management Board continued to work on the implementation of the NLB Group Strategy and the inclusion of ESG factors into the NLB Group business model . The Management Board stayed focused on growth of core business and was aware of all the risks possible and eventual distress, while the bank helped customers that faced difficulties due to strengthened market conditions . In 2023, NLB Group delivered remarkable business results . They enabled the Bank to pay out a distributable profit for 2022 in the form of dividends in a total amount of EUR 110 million, and thereby reaffirmed NLB Group’s stable and successful business operations and strong capital position . Dividends were paid in two instalments, namely in the amount of EUR 55 million in June 2023, and in the amount of EUR 55 million in December 2023 . There are many topics that the Management Board was equal opportunities, as well as independent and working on to remain the leading group in the region . We professional corporate governance . To that extent the stayed committed to further improvement and enhancing Management Board was extremely proud of receiving of the satisfaction and user experience of customers, and an improved second ESG rating (December 2023) to increase digital payment penetration and innovation assessed by Sustainalytics (previous ESG risk rating was in the payments area . As part of the digital agenda, we improved by of 1 .7 points) . launched our new "Klik," as our online bank "NLB Klik" and mobile bank, "Klikin" merged into one modern digital A detailed information on composition of the bank "NLB Klik," which make it easier for our customers Management Board can be found in Appendix C .1 of to manage their finances . In the business network, this statement . we focused on enhanced advice to our customers . In order to do that, we had to keep investing in advance technologies and peoples’ strengths . The Management Board successfully completed the merger of N Banka (former Sberbanka that NLB acquired in March 2022) into NLB that was formally completed on 1 September 2023, and continued activities on the business aspects of integration to make sure that former clients of the bank will benefit from best of both worlds . In 2023, the Management Board signed an agreement for the acquisition of the largest leasing company in Slovenia, which also has operations in Croatia, and an agreement for the acquisition of the third largest asset management company in North Macedonia . Obtaining permits for the acquisition of the Summit Leasing, Slovenia Group together with the Croatian branch and Generali Investments Macedonia is in progress . The Management Board is deeply aware of the banks’ vital role in fighting climate change by supporting the global transition of the real economy towards net-zero, which is why we not only strive to reinforce, accelerate, and support the implementation of decarbonisation, but also want to lead by example . To that extent in December 2023, our first NLB Group Net-Zero Disclosure Report was published, which reaffirms our commitment to achieving Net-Zero by setting targets for reducing its financed emissions and maintaining a coal exclusion policy by 2050 or sooner . Besides environmental issues, the Management Board is equally active about addressing social and governance topics, we advocate 6 .2 . Composition of the Supervisory Board At the beginning of 2023, the Supervisory Board of NLB consisted of 10 members, of which eight were representatives of shareholders (in addition to Primož Karpe (President) and Andreas Klingen (Deputy), members were also Mark William Lane Richards, Shrenik Dhirajlal Davda, David Eric Simon, Gregor Rok Kastelic, Verica Trstenjak, and Osama Zekry, while Sergeja Kočar, and Tadeja Žbontar Rems, were representatives of the workers . As already mentioned in this chapter, the term of office of four members of the Supervisory Board expired . The General Meeting on its session dated 19 June 2023 appointed four members, of whom two were existing, while two members were new . On 31 December 2023, the Supervisory Board of NLB consisted of Primož Karpe (the Chairman), Shrenik Dhirajlal Davda (Deputy Chairman), David Eric Simon, Mark William Lane Richards, Verica Trstenjak, Islam Osama Zekry, Cvetka Selšek, and André-Marc Prudent-Toccanier, and with Sergeja Kočar and Tadeja Žbontar Rems serving as representatives of the employees . Statement of Independence of the Members of the Supervisory Board In accordance with Article 16 of the Articles of Association of NLB, all Supervisory Board members must be independent experts . Persons representing the interests of employees in the Supervisory Board of the 139 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Bank are considered independent despite the existence types of risk to steer the Group’s fulfilment of internal During the year, the Supervisory Board adopted of an employment relationship with the Bank upon strategic objectives and fulfil all external requirements . periodic reports of the Internal Audit, Compliance, and fulfilling certain terms and conditions . Consequently, the following items were discussed issued approval to the transactions with persons in and adopted – the NLB Group Risk appetite, the NLB special relationship with the Bank, and to the conclusion A statement of independence, in which they declare Group Risk strategy, ICAAP and ILAAP of NLB Group, of legal transactions in accordance with Article 170 of the themselves on their meeting of the criteria of conflict of the Recovery Plan of NLB Group, regular Risk reports Banking Act . interest, is provided by a candidate for a function of a for NLB and NLB Group, other relevant risk reports and member of the Supervisory Board, upon each change information on Pillar III Disclosures . that would mean change of his/her independence status According to the recommendation of the Slovenian Corporate Governance Code for Listed Companies, and once a year (with the new statements published as Through the year, the Supervisory Board the Supervisory Board adopted a decision to engage of January 2024) . It is published on the Bank’s website . acknowledged regular reports on documents received an external advisor for the evaluation of efficiency from the regulator(s), namely, the Bank of Slovenia and self-assessment of the Supervisory Board of NLB Work of the Supervisory Board In 2023, the Supervisory Board held seven regular and ECB, and the implementation of the requirements and the Audit Committee of NLB . It also adopted the of regulators . As a systemically important institution, Internal Audit’s Annual Report for 2023, the Internal and nine correspondence sessions . In its work, the the Group was included in the ECB Stress Test exercise Audit Plan (2024 & the long-term plan), the Action Plan Supervisory Board of NLB received professional aiming to assess the resilience of the financial for Compliance & Integrity for 2024, the regular periodic assistance from five operational committees, namely: institution, performed in H1 2023 . The Supervisory reports on the Internal Audit, Compliance, and Security . The Audit Committee, the Risk Committee, the Nomination Committee, the Remuneration Committee, Board was acquainted with the exercise, where the results showed that even in a very unfavourable market With the aim of ensuring sustainable development, NLB and the Operations and Information Technology condition defined by the EBA and ECB, the Group holds Group strives to actively contribute to a more balanced Committee . Mentioned committees function as sufficient resilience in terms of capitalisation . and inclusive economic and social system through three consulting bodies of the Supervisory Board as they lines of actions: sustainable operations, sustainable discuss the materials and proposals of the Management The Supervisory Board adopted decisions with regards finance, and Corporate Social Responsibility . The Board related to a particular area . Based on their to the convocation of the two General Meetings of Supervisory Board regularly adopts decisions related to findings, the Supervisory Board passed the appropriate shareholders . At the General Meeting of shareholders sustainability and ESG issues . resolutions . Each of the five committees is composed of dated 11 June 2023, the General Meeting acknowledged at least three members of the Supervisory Board . itself with the Annual Report 2022, the Report of the Throughout the year, the Supervisory Board has Supervisory Board and the Additional information maintained a well-balanced professional relationship Through the year, the Supervisory Board monitored to the Report on remuneration . The General Meeting with the Management Board and enjoyed timely, the implementation and effectiveness of the NLB adopted a decision on the allocation of distributable comprehensive, and data-supported inputs from the Group’s Strategy and adopted the regular NLB Group profit for 2022, and granted a discharge from liability to latter, enabling the Supervisory Board to adopt all its Sustainability Implementation Update and NLB Group the Management and Supervisory Boards . The General decisions in line with the professional interests of the Payments Progress update . The Supervisory Board Meeting of Shareholders acknowledged the adopted Bank, whilst always adhering to banking regulations issued approvals to the Management Board related Internal Audit Report for 2022, and the positive opinion of and its statutory powers . to the Bank’s Business Policy and the NLB Group 2024 the Supervisory Board of NLB granted with the resolution Budget and Financial Projections 2025 – 2028, adopted of the Supervisory Board adopted on 23 February 2023 . To ensure transparent decision-making at sessions of the NLB Group Annual Report for 2022, and NLB Group The General Meeting adopted decisions on the four the Supervisory Board and at sessions of committees Sustainability Report 2022, the Annual Internal Audit proposed candidates for the Supervisory Board and on which they sit, members of the Supervisory Board in Plan, the Plan of Compliance & Integrity, and adopted determined payments to members of the Supervisory particular take into account all necessary precautionary the Comprehensive Opinion of the Internal Audit . Board of NLB and its committees . measures to avoid conflicts of interest . In order to implement effective corporate governance The General Meeting, dated 11 December 2023, adopted Pursuant to Article 282 of the Companies Act arrangements, the Supervisory Board acted within a decision on the allocation of second tranche of (ZGD-1) and the above report, the Supervisory Board its powers to ensure that the bank’s business goals, the distributable profit for 2022, and approved the of NLB established and ensured that it regularly strategies, and policies were properly coordinated with Remuneration Policy for the Members of the Supervisory and thoroughly monitored the Bank’s and the NLB the strategies and policies for assuming and managing Board of NLB d .d . and the Members of the Management Group’s operations in 2023 within its powers and risks . The Supervisory Board was regularly informed Board of NLB d .d ., whereby the vote on this resolution efficiently supervised the Bank’s and the NLB Group’s on the risk profile of the Group, and the corresponding was of a consultative nature . management and operations . 140 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Composition of the Supervisory Board members is There were six regular, one extraordinary, and three Board, the committee also regularly meets with described in the Appendix C .2 of this statement . correspondence sessions of the Audit Committee in 2023 . representatives of professional services for individual 141 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 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 Worker’s Council can nominate one Supervisory Board member – a representative of the workers into each committee . The member of the Committee may only be appointed from among the members of the Supervisory Board . The term of office of Chair, the Deputy Chair, and members of the Committee should not exceed their term of office as Supervisory Board members . The responsibilities of committees are defined in the Rules of Procedure of the Committees of the Supervisory Board of NLB . 6 .3 .1 . The Audit Committee of the Supervisory Board of NLB The Audit Committee monitors and prepares draft resolutions for the Supervisory Board on accounting reporting, internal control and risk management, internal audit, the compliance of operations, and external audit, and as well monitors the implementation of regulatory measures . At the end of 2023, the composition of the committee was as follows: David Eric Simon (Chairman), Cvetka Selšek (Deputy Chairwoman), Primož Karpe, Shrenik Dhirajlal Davda and André-Marc Prudent-Toccanier (members) . Changes in membership of the committee that occurred during the year, as well as academic degrees of the Audit Committee members, are reflected in the chart on the Supervisory Board Committees (Appendix C .2 below) . The following is a summary of key topics considered by areas covered by the committee . The president of the the Audit Committee: · The NLB Group 2022 Annual Report, Key Performance Indicators; Comprehensive Opinion of Internal Audit for committee also meets regularly with representatives of the external auditor and regulators . 2022; Internal Audit Annual Report for 2022;Corporate In 2023, the Audit Committee carried out a self- Governance Statement of NLB; Statement on assessment of its work with the help of an external Management of Risk of the NLB, the NLB Group independent evaluator, the Directors' Association of Sustainability Report for 2022; the Report of the of the Slovenia . Based on the findings, an action plan was Audit Committee of the Supervisory Board of NLB to prepared, which will be discussed and approved at the the Supervisory Board of NLB about the statutory audit Supervisory Board meeting in March 2024 . for financial year 2022; Changes to fees for statutory audit on NLB Group level; Annual Report for the 2022 6 .3 .2 . The Risk Committee of the Supervisory Board ECRA – general risk assessment regarding integrity and compliance operations at NLB and NLB Group; Audit planning for 2023 financial statements; · Regular interim reports on the operations of the NLB Group and Business Performance Indicatory of NLB 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 Group’s current and future risk appetite, the corresponding for NLB and NLB Group, Quarterly Internal Audit risk profile and risk management strategy, and helps Reports, Compliance and Integrity Reports, Reports on carry out control over senior management concerning Information security assurance in NLB; Assessment of implementation of the risk management strategy . the NLB Group identified employees in control functions for 2022; Approval of the payment of deferred variable At the end of 2023, the composition of the committee was part for Directors in control functions; · NLB Group Internal Audit Plan (2024 & long-term), Action Plan for Compliance and Integrity Centre as follows: André-Marc Prudent-Toccanier (Chairman), Cvetka Selšek (Deputy Chairwoman), Shrenik Davda, Islam Osama Zekry, and David Eric Simon (members) . for 2024; · Regular reports on overdue material recommendations of the Internal Audit; Reports on the documents Changes in the membership of the committee that occurred during the year are reflected in the chart on Supervisory Board Committees (Appendix C .2 below) . received from the BoS and ECB and on the implementation of the requirements of the BoS and There were five regular sessions of the Risk Committee ECB; the Policy of the Internal Controls System; the in 2023 . The following is a summary of key topics Report on the court proceedings exceeding EUR 0 .5 million; reports on Restructuring of TOP 20 clients; · Information about the costs of the Management Board and Supervisory Board; · Revision of Rules on the Prevention of Market Abuse and Supervision over the Implementation of Personal Transactions in the Provision of Investment Services and Transactions in NLB d .d .; Revision of the Policy Internal control system; · Self-assessment of the Audit Committee for 2022 . The Audit Committee performs its tasks both at the meetings themselves and outside of the meetings . considered by the Risk Committee: · Risk Management Strategy of the NLB Group; Risk Appetite of the NLB Group; Risk dashboard of NLB and NLB Group; IT Security Architecture and Protection of NLB Group; Report on status information security in NLB and NLB Group; · Internal liquidity adequacy process (ILAAP); The Internal Capital Adequacy Assessment Process (ICAAP) in NLB Group; the NLB Group Recovery Plan for 2022; the Statement of Management of Risk of the NLB; the ECB stress test findings related topics · Regular quarterly risk reports of NLB and the NLB Group; Pillar III Disclosures of the NLB Group for In addition to considering materials at the meetings 2022 and Acknowledgement of quarterly Pillar III themselves and preparing proposals for the Supervisory Disclosures; Information on the status of information NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents security in NLB and NLB Group; · Confirmation of the goals of identified employees; · Report on the Top 50 groups of clients by exposure in the NLB Group; Report on Top 20 largest restructuring cases; Report on the material court proceedings for NLB and NLB Group members; · Information of the assessment of the NLB Group and NLB results and identified employees in control function for the year 2022; Approval of the payment of the deferred variable part of the salary for the Director of the Global Risk; · Changes to Risk Appetite of the NLB Group; NLB Group Non-Performing Exposure and Foreclosed Assets There were five regular sessions of the Nomination Committee in 2023 . The following is a summary of key topics considered by the Nomination Committee: · Determination and the appointment of the Deputy President of the Management Board of the Bank; · Fit and proper assessment – Candidates for members of the Supervisory Board of NLB; · The reassessment of suitability of the Supervisory Board member; · Compliance and integrity – prolongation of the mandate; · Annual review of the Diversity Policy . · Salary increase of the Director of a controlled function; Awarding of variable pay to the Management Board members for financial years 2019 and 2020 in instruments; · Remuneration Policy for Employees of NLB d .d . and the NLB Group – annual review; Report on the implementation of the NLB remuneration policy to the NLB Group members . 6 .3 .5 . The Operations and IT Committee of the Supervisory Board of NLB The Committee monitors and prepares draft resolutions for the Supervisory Board, whereby the main tasks Strategy for the period 2023 – 2025; Proposals for the 6 .3 .4 . The Remuneration Committee of the Supervisory that it performs are the following: monitors the issuance of prior consent of the Supervisory Board of NLB for legal transactions based on Banking Act Board of NLB The Remuneration Committee carries out expert and implementation of the IT Strategy, Information Security Strategy, and Operations Strategy; monitors key (ZBan-3) for large exposures; transactions with NLB independent assessments of the remuneration policies operations and IT KPI’s and service quality indicators; Group members; and, prior consent to conclude legal deal with MIGA . and practices and formulates initiatives for measures related to improving the management of the Bank’s monitors key operations and IT projects and initiatives; monitors operating risks in the area of Operations, risks, capital, and liquidity; prepares proposals for IT, and Security; monitors the recommendations for 6 .3 .3 . The Nomination Committee of the Supervisory remuneration-related decisions of the Supervisory ensuring and increasing the level of information/ Board of NLB The Nomination Committee drafts proposed Board; and supervises the remuneration of senior cyber security issued by CISO; addresses the report on management performing the risk management and potential violations, events, and incidents in the area of resolutions for the Supervisory Board concerning the compliance functions . appointment and dismissal of the Management Board IT security; and monitors the Target Operating Model implementation in the areas of IT, the Security Operating members; recommends candidates for Supervisory At the end of 2023, the composition of the committee System, Competence Centre, and Operations . Board members; recommends to the Supervisory was as follows: Shrenik Davda (Chairman), Mark William Board the dismissal of members of the Management Lane Richards (Deputy Chairman), Verica Trstenjak, At the end of 2023, the composition of the committee and Supervisory Boards (representatives of capital); Tadeja Žbontar Rems, and Sergeja Kočar (members) . was as follows: Mark William Lane Richards (Chairman), prepares the content of executive employment contracts Changes in the membership of the committee that Islam Osama Zekry (Deputy Chairman), Primož Karpe, for the President and members of the Management occurred during the year are reflected in the chart on Tadeja Žbontar Rems, and André-Marc Prudent- Board; evaluates the performance of the Management Supervisory Board Committees (Appendix C .2 below) . Toccanier . Membership of Janja Žabjek Dolinšek was and Supervisory Boards; and assesses the knowledge, terminated on 8 July 2022 . Changes in membership skills, and experience of individual members of the There were five regular and two correspondence of the committee that occurred during the year are Management and Supervisory Boards and the bodies sessions of the Remuneration Committee in 2023 . The reflected in the chart on Supervisory Board Committees as a whole . following is a summary of key topics considered by the (Appendix C .2 below) . At the end of 20223, the composition of the committee was as follows: Primož Karpe (Chairman), Mark Richards Remuneration Committee: · The proposed goals of the NLB Group for 2023; Assessment of goals for the members of the (Deputy Chairman), Verica Trstenjak, Sergeja Kočar Management Board of the NLB for 2022; Proposal for and Islam Zekry (members) . Membership of the Bojana Šteblaj was terminated on 12 September 2022 . Changes in the membership of the committee that occurred annual self-assessment of identified employees; · Confirmation of financial goals of the NLB Group; financial goals of NLB and goals for each member of during the year are reflected in the chart on Supervisory the Management Board of NLB for 2022; Confirmation Board Committees (Appendix C .2 below) . of the assessment of the NLB Group and NLB results and identified employees in control function for the year 2021; Confirmation of goals of identified employees in controlled and supervisory functions; There were five sessions of the Operations and IT Committee 2023 . The Operations and IT Committee acknowledged itself with: · IT Strategy update; Procurement Strategy; · Review of IT KPIs and Business Priorities; Data/BI remediation progress update; Report on process metrics; · Information on the achievement of goals for 2022 in the area of Information Technology in the Group; · Performance Metrics; Data/BI remediation progress update; 142 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents · Customer relationship management – Project update; · Payment IT strategy update; Payment transactions – analysis of process of optimisation; · Information on Afina – N Banka integration; Digital Banking Platform status; Artificial Intelligence and advance analytics activities and plans in NLB Group; BIT project rollout; OMNI project; Web project readiness assessment . 143 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 7 . DESCRIPTION POLICY ON THE PROVISION OF DIVERSITY OF THE MANAGEMENT BODY 144 AND SENIOR MANAGEMENT 7 .1 . Description of the policy NLB adopted amendments to the Policy on the Provision of Diversity of the Management Body and Senior Management of NLB d .d . (hereinafter: Diversity Policy) in 2022 to align it with the stipulations of the changed legislation and to address the concerns of stakeholders . The amended Diversity Policy was adopted at the Annual General Meeting on 20 June 2022 . The Diversity Policy outlines specific goals for achieving diverse representation on the Supervisory Board, Management Board, and senior management . The policy establishes various diversity goals, ensuring that the composition of the management body encompasses a collective proficiency in knowledge, skills, and experience . This comprehensive approach aims to foster a deep understanding of the Bank’s strategy, challenges, and the associated risks . This policy concurrently establishes a framework to promote diversity across dimensions such as gender, age, a spectrum of knowledge, skills, and experience, international exposure, and geographical origin . The Diversity Policy sets out the targets to be pursued in terms of representation on the Supervisory Board, Management Board, and senior management, according to different diversity goals in order the management body is composed in such a way that, as a whole has the knowledge, skills, and experience necessary for an in-depth understanding of the Bank’s strategy and challenges, and the risks to which it is exposed . The policy is annually reviewed by the Nomination Committee of the Supervisory Board . The Report on Diversity is adopted on the Supervisory Board on a yearly basis . The Bank implements the principles of the Diversity Policy through other policies and procedures, namely 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, as well as procedures of the Nomination Committee of the Supervisory Board . To achieve the objectives of this diversity policy, one of the measure the influence the selection process is also: if two candidates for the position of a member of the Management Board or a member of the Supervisory Board meet all the required tender criteria and at the same time the target gender representation is not achieved in a certain body, a candidate of the underrepresented sex shall be selected . 7 .2 . Objectives of the policy Considering the size of the Bank and the NLB Group, our regional presence and business strategy, the following goals are important to ensure diversity: · Gender diversity – The Bank pursues this objective by ensuring that all stakeholders involved in the HR process strive to construct a well-balanced pool of candidates during the recruitment process . This involves considering the equitable representation of the less-represented gender and achieving a suitable balance between both genders in alignment with the objectives outlined in the Policy . The establishment and implementation of a comprehensive policy for candidate selection create incentives for diversity within the management body . · Age diversity – The Bank pursues the achievement of age diversity that accurately reflects the Bank’s age demographics . To fulfil this objective, the Bank employs recruitment channels designed to attract a broad spectrum of candidates across different age groups, ensuring representation from all demographic segments in both the management body and senior management . When appointing new candidates, the Bank carefully considers the appropriate balance between younger and older members within the management body or the age distribution within senior management . · Professional competencies, skills, and experience – The collective expertise of the management body must encompass a diverse spectrum of knowledge, skills, and professional capabilities . The composition shall adhere to specific criteria, encompassing factors such as experience, reputation, effective management of potential conflicts of interest, independence, time commitment, and the overall cohesion of the body . The requests previously mentioned apply mutatis mutandis to the senior management . · Continuity of composition of the management body and senior management – the Bank ensures a suitable ratio between the existing and the new members of the management body and senior management by not changing all members of the management body or senior management simultaneously when mandates expire . · International experience – The Bank should ensure a suitable share of the management body and senior management members with international experience in different areas (e .g ., foreigners and Slovenians doing business abroad) . To this end, the Bank has established a timeframe, aligning with relevant policies for selecting qualified candidates in the selection process . · Personal integrity – The management body and senior management members must achieve a high level of personal integrity whereby integrity represents the expected action and responsibility of individuals and organisations in preventing and eliminating risks of using authority, function, authority, or other decision- making power contrary to law, legally permissible goals, and according to the guidelines defined in the NLB Group Code of Conduct . · Geographical provenance – The Bank strives for the management body members to have different geographical provenances, ensuring that at the collective level, the management body has suitable knowledge of the culture, market characteristics, and legal framework in the areas where the Bank operates . Targets related to the above-defined aspects of diversity for the management body and senior management until the 2025 are defined in the Policy on the provision of diversity of the management body and senior management in NLB d .d . adopted by the General Meeting dated 20 June 2022 (available at www .nlb . si/general-meetings-in-year-2022 and www .nlb .si/ additional-disclosures-according-to-article-104-of-the- zban-3) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 7 .3 . The manner the policy is implemented To achieve the objectives outlined in this diversity policy, the following measures are applied: · Upon the appointment of new members or re- appointment of the members of the Supervisory Board and Management Board, due consideration is given to 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 . The above applies mutatis mutandis (with necessary adjustments) to the appointment and re-appointment of the Bank’s senior management . · The pre-definition of conditions for the performance of each function, including the required profile of prospective members of the management body, occurs prior to their appointment . · Using recruitment pathways that attract a sufficiently wide range of different candidates .  · Should two candidates for the position of a member of the Management Board or a member of the Supervisory Board meet all the required tender criteria and at the same time the target gender representation is not achieved in a certain body, a candidate of the underrepresented sex shall be selected .  · In achieving the target representation of the Management Board, as well as by a predetermined replacement plan and by fulfilling another member of the Management Board, as defined by the Articles of Association of NLB . · Considering the objectives of the diversity policy when assessing the collective suitability of management and supervisory bodies .  7 .4 . Results achieved Implementation and the results achieved by the diversity policy during the reporting period: The Supervisory Board It is estimated that the goals for 2023 were almost achieved . Members of the Supervisory Board as a whole cover an adequately wide range of knowledge, skills, and professional experience of its members . The Supervisory Board is composed with regard to the following criteria: experience, reputation, management of potential conflicts of interest, independence, available time, and collective suitability . The Senior Management For 2023, we estimate that the goals were achieved, as senior management at a high level met the requirements Also, the Supervisory Board has a suitable ratio between relating to the range of knowledge, skills, and the existing and the new members considered when professional experience . Regarding the requirements appointing new members in Supervisory Board the ratio related to international experience in various fields, it is between existing and new members is not below 70% . estimated that senior management has largely relevant The members of the Supervisory Board have a high level international experience . It is also estimated that 43% of of personal integrity, a suitable share of members of the women in senior management is appropriate . Supervisory Board have international experience, and have suitable geographical experience as set in the plan for the year 2023 . Since the term of office of four members of the Supervisory Board expired in 2023, and to retain the proportion of women in Supervisory Board this criterion was also taken into consideration in the recruitment process . Therefore, at the General Meeting dated 19 June 2023 two male representatives were re-appointed for the position, while among two new members for the position, one member was female . With this, we maintained the desired target value of gender diversity almost at the planned level . The goal for the members of the Supervisory Board has been almost achieved with 40% of representation of women on the Supervisory Board (on 31 December 2023) since the plan set up for the year 2023 assumed a 42% share of women . Regarding the age structure of the Supervisory Board, it is also considered appropriate, according to the plan set up for 2023 as members of the Supervisory Board are represented in the age groups from 40 to 60+ . The Management Board We estimate that the goals for 2023 have been achieved as the members of the Management Board as a whole meet a high level of requirements related to the set goals, namely age structure, gender structure, professional competencies, skills and experience, and requirements related to relevant international experience in various fields, personal integrity, and geographical provenance . In terms of gender diversity, the target set for 2023 was accomplished, maintaining a representation of 16 .7%, the equivalent of at least one woman . 145 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Regarding the age structure, it is also considered appropriate, as senior management in the age structure is very dispersed and is thus represented in all age groups from 30 to 60 years . Wide range of knowledge, skills and professional experience Supervisory Board of NLB Management Board of NLB Senior Management of NLB 2023 High Plan for 2023 High 2023 High Plan for 2023 High 2023 High Plan for 2023 High International experience of the members in different areas Medium High Medium High Medium High Medium High Medium High Medium High Continuity of composition of the management body Personal integrity Geographical provenance Age structure Additional information on the framework, objectives, and chart with set goals of the Diversity Policy can be found in the NLB Group Sustainability Report 2023, as well as in the chapter Human Resources in this Annual Report . High High High High High High High High Medium High Medium High Medium High Medium High 20-30 = 0 30-40 = 0 40-50 = 1 50-60 = 5 60+ = 4 0 0 2 5 5 20-30 = 0 30-40 = 0 40-50 = 3 50-60 = 3 60+ = 0 0 0 2 4 0 High High Low 20-30 = 0 30-40 = 1 40-50 = 23 50-60 = 14 60+ = 2 High High Low 0 1 18 16 2 7 .5 . Description of diversity policy from a gender perspective As already mentioned in point 7 .2: Gender diversity 7 .6 . Goals that are followed by the Bank Goals followed by the bank are published in the Policy – The Bank pursues this objective by ensuring that on the provision of diversity of the management body all stakeholders involved in the HR process strive to and senior management in NLB d .d . adopted by the construct a well-balanced pool of candidates during General Meeting dated 20 June 2022 (available at www . the recruitment process . This involves considering nlb .si/general-meetings-in-year-2022 and www .nlb .si/ With the changed composition of the Supervisory Board in 2023, NLB achieved the first goal, which is a representation of 40% of women in the Supervisory Board of NLB (4 out of 10 members are women) . As far as both goals together are concerned NLB is slightly below 33% (5 out of 16 members) . Results of the gender diversity in public companies are checked quarterly by Deloitte and published on the website of the Slovenian the equitable representation of the less-represented additional-disclosures-according-to-article-104-of-the- Directors’ Association . gender and achieving a suitable balance between both zban-3) . genders in alignment with the objectives outlined in the Policy . The establishment and implementation of a Apart from goals in the Policy the Bank also respects comprehensive policy for candidate selection create and follows the initiative 40/33/2026 Slovenian Directors’ incentives for diversity within the management body . Association, by voluntarily committing to achieving the target of gender diversity by the conclusion of the year In 2023, two new members of the Supervisory Board 2026 . This initiative entails achieving a representation of were appointed and in order to retain the proportion 40% for members of supervisory boards and an overall of women in Supervisory Board in the recruitment 33% representation for members of supervisory boards process this criterion was also taken into consideration . and management boards of the underrepresented The goal for 2023 set for the Management Board was gender in public joint-stock companies and state-owned achieved and stayed on 16 .7% or one woman . It is also enterprises by 2026 . estimated that 43% of women in senior management is appropriate (the set goal was slightly higher) . 146 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 7 .7 . Impact on selection procedures Already explained in Point 7 .3 . All the above criteria are considered in the selection process for the members of the Management Board and the Supervisory Board . In 2023, because of this objective in the selection process, in order to maintain gender diversity among the candidates for Supervisory Board of NLB, one female representative was elected . Statement on changes that occurred between the end of accounting period up to the publication of this statement In accordance with Guidelines on Disclosure for Listed Companies, point 6 .3 .2 (Ljubljana Stock Exchange, 18 December 2020) NLB hereby states that the following changes occurred between the end of accounting period up to the publication of this statement . Ljubljana, 21 March 2024 Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer 147 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 35: Composition of Management in financial year 2023 (C .1) Name and Surname Position held (President, Member) Area of work covered within the Management Board First appointment to the position Conclusion of the position/ term of office Citizenship Year of birth Qualification Professional profile Membership in supervisory bodies in companies not related to the company 148 Blaž Brodnjak President CEO 6 July 2016(i) 6 July 2026 Slovenian 1974 MBA Banking/Finance Archibald Kremser Peter Andreas Burkhardt Deputy CEO/ Member Member CFO CRO 31 July 2013 6 July 2026 Austrian 18 September 2013 6 July 2026 German 1971 1971 MBA Banking/Finance MBA Banking/Finance Banks‘ Association of Slovenia, AmCham Slovenia, Handball Federation of Slovenia, Cedevita Olimpija Antonio Argir Member Andrej Lasič Member Hedvika Usenik Member Responsible for Group governance, payments and innovations CMO (responsible for Corporate and Investment Banking) CMO (responsible for Retail Banking and Private Banking) (i) Member of the Management Board since 2012. 28 April 2022 28 April 2027 Macedonian 1975 MBA Banking/Finance Economic Chamber of North Macedonia 28 April 2022 28 April 2027 Slovenian 1970 Bachelor’s degree Banking/Finance 28 April 2022 28 April 2027 Slovenian 1972 MBA Banking/Finance Institute for Economic Research NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 36: Composition of Supervisory Board and Committees in financial year 2023 (C .2) Name and Surname Position held (Chairman, Deputy Chairman, Member) First appointment to the position Conclusion of the position / term of office Representative of the company‘s capital structure / employees Primož Karpe Chairman 10 February 2016 2024 Andreas Klingen Deputy Chairman 22 June 2015 19 June 2023 Shrenik Dhirajlal Davda Deputy Chairman/ Member 10 June 2019 2027 David Eric Simon Member 4 August 2016 2024 Mark William Lane Richards Gregor Rok Kastelic Verica Trstenjak Cvetka Selšek André-Marc Prudent- Toccanier Sergeja Kočar Tadeja Žbontar Rems Islam Osama Zekry Member 10 June 2019 2023 Member 10 June 2019 19 June 2023 Member 15 June 2020 2024 Member 19 June 2023 2027 Member 19 June 2023 2027 Member 17 June 2020 2024 Member 22 January 2021 2025 Member 14 June 2021 2025 Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company‘s capital structure Representative of the company’s employees Representative of the company’s employees Representative of the company‘s capital structure 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 Professional profile Independence under Article 23 of the Code (YES/NO) Existence of conflict of interest, in the business year (YES/NO) Membership in supervisory bodies in other companies or institutions 7/7 male Slovenian 1970 MSc Banking/ Finance YES YES 3/3 male German 1964 University Degree Banking/ Finance YES NO 7/7 male British 1960 MBA, LLB Finance YES NO 7/7 male British 1948 Higher National Diploma in Business Studies Banking/ Finance YES NO 7/7 male British 1966 MSc 3/3 male Slovenian 1968 MSc Banking/ Finance Banking/ Finance 7/7 female Slovenian 1962 PhD Law YES NO YES YES NO NO 3/3 female Slovenian 1951 University Degree Banking/ Finance YES NO Angler d .o .o, Aroma Global 3 Ltd . Kyrgyz Investment, Credit Bank CISC, Nepi Rockcastle N .V . Charity Commission of England and Wales, PSO, UK Jihlavan a .s ., Czech Aerospace industries sro, Central Europe Industry Partners a .s . BPL Global (Lloyds of London insurance Broker), Sheffield Haworth Ltd, Vencap International pic Ukraine (UK) Honorable Tribunal of Managers Association of Slovenia, Directors’ Association of Slovenia 3/3 male French 1955 MSc Banking/ Finance YES female Slovenian 1968 MSc Management YES female Slovenian 1968 MSc YES 7/7 7/7 NO NO NO IT IT YES NO CIB Housing association, Egypt, Egyptian AI Council (Ministry of Communication and Information Technology) 6/7 male Egyptian 1977 PhD 149 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Name and Surname Membership in committees (audit, nominal, income committee, etc.) First appointment to the position Conclusion of the position/term of office Chairman/Deputy Chairman/Member Shrenik Dhirajlal Davda Mark William Lane Richards Verica Trstenjak Tadeja Žbontar Rems Sergeja Kočar Primož Karpe Mark William Lane Richards Verica Trstenjak Sergeja Kočar Islam Osama Zekry David Eric Simon Cvetka Selšek Primož Karpe André-Marc Prudent-Toccanier Shrenik Dhirajlal Davda André-Marc Prudent-Toccanier Cvetka Selšek Shrenik Dhirajlal Davda David Eric Simon Islam Osama Zekry Mark William Lane Richards Islam Osama Zekry Primož Karpe Tadeja Žbontar Rems Remuneration Committee Remuneration Committee Remuneration Committee Remuneration Committee Remuneration Committee Nomination Committee Nomination Committee Nomination Committee Nomination Committee Nomination Committee Audit Committee Audit Committee Audit Committee Audit Committee Audit Committee Risk Committee Risk Committee Risk Committee Risk Committee Risk Committee Operational and IT Committee Operational and IT Committee Operational and IT Committee Operational and IT Committee 28 June 2019 26 June 2020 18 September 2023 18 September 2023 26 June 2020 15 April 2016 18 September 2023 26 June 2020 26 June 2020 18 September 2023 7 April 2016 18 September 2023 15 April 2016 18 September 2023 28 June 2019 18 September 2023 18 September 2023 8 July 2021 7 April 2016 8 July 2021 28 June 2019 8 July 2021 15 April 2016 8 April 2021 André-Marc Prudent-Toccanier Operational and IT Committee 18 September 2023 (i) There were also extraordinary sessions of the committees that are not reflected in this table. 2027 2027 2024 2025 2024 2024 2027 2024 2024 2025 2024 2027 2024 2027 2027 2027 2027 2027 2024 2025 2027 2025 2024 2025 2027 Chairman Deputy Chairman Member Member Member Chairman Deputy Chairman Member Member Member Chairman Deputy Chairwoman Member Member Member Chairman Deputy Chairwoman Member Member Member Chairman Deputy Chairman 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)(i) 5/5 5/5 1/2 2/2 5/5 5/5 1/1 5/5 5/5 1/1 6/6 1/1 5/6 1/1 6/6 1/1 1/1 5/5 5/5 3/5 5/5 4/5 5/5 5/5 1/1 External member in committees (audit, nominal, income committee, etc.) - The Banking Act (ZBan-3) contains provision stipulating that, irrespective of provision of Companies Act (ZGD-1) only members of the Supervisory Board can be appointed to Supervisory committees. Name and Surname none Attendance at sessions of SB‘s Committees in regard to the total number of SB‘s session (for example 5/7) Gender Qualification Year of birth Professional profile Membership in supervisory bodies in companies not related to the company 150 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             Statement of Management of Risk NLB d .d .’s Management Board and Supervisory Board management and control system is primarily based on being a prerequisite for adequate decision-making and provide herewith a concise statement of the risk Risk appetite and Risk strategy, which are consistent the corresponding proactive management of ESG risks . management according to Article 17 of the Decision on with the Group’s Business strategy, and focused on Internal Governance Arrangements, the Management early risk identification and efficient risk management . NLB Group plans a prudent risk profile, optimal Body, and the Internal Capital Adequacy Assessment Set governance and different risk management capital usage, and profitable operations in the long Process for Banks and Savings Banks (Official Gazette tools enable adequate oversight of the Group’s risk run, considering the risks assumed . The Business of the RS, no . 73/15 and 115/2021), Regulation (EU) profile, proactively support its business operations strategy, the Risk appetite, the Risk strategy and the 575/2013, article 435 (Risk management objectives and and its management by incorporating escalation key internal risk policies of NLB Group, approved by policies), points (e) and (f), as well as the EBA Guidelines procedures, and using different mitigation measures the Management Board and the Supervisory Board of on Internal Governance (EBA/GL/2021/05) and EBA when necessary . In this respect, the Group is constantly NLB d .d ., specify the strategic objectives and guidelines Guidelines on Disclosure requirements (EBA GL/2016/11) . enhancing and complementing the existing methods concerning risk assumption, the approaches and and processes in all risk management segments . methodologies of monitoring, measuring, mitigating, Risk management in NLB Group, representing an and managing all types of risk at different relevant important element of the Group’s overall corporate NLB Group is engaged in contributing to sustainable levels . Moreover, the main strategic risk guidelines are governance, is implemented in accordance with the finance by incorporating environmental, social, and consistently integrated into regular business strategy set strategic guidelines, established internal policies, governance (ESG) risks into its business strategies, risk review, budgeting process, and other strategic decisions, and procedures that take into account the European management framework, and internal governance whereby informed decision-making is assured . NLB banking regulations, the regulations adopted by the arrangements . With the adoption of the NLB Group Group is regularly monitoring its target risk appetite Bank of Slovenia, the current EBA guidelines, and the Sustainability programme, the Group implemented the profile and internal capital allocation, representing relevant good banking practices . EU regulations are main sustainability elements into its business model . the key component of proactive management . Risk followed by NLB Group, where the Group subsidiaries The goal of this strategic, organisation-wide initiative limits usage and potential deviations from limits or operating outside Slovenia are also compliant with the is to ensure sustainable financial performance of the target values are regularly reported to the respective rules set by the local regulators . NLB Group gives high Group by considering ESG risks and opportunities in committees and/or the Management Board of the Bank, importance to the risk culture and awareness of all its operations, and to actively contribute to a more the Risk Committee of the Supervisory Board, and the relevant risks within the entire Group . Maintaining risk balanced and inclusive economic and social system . Supervisory Board of the Bank . awareness is engrained in the business and risk strategy Thus, sustainable finance integrates ESG criteria into of the Group . The business and operating environment, the Group’s business and investment decisions for the Additionally, NLB Group established a comprehensive relevant for the Group’s operations, is changing with lasting benefit of Group’s clients and society . Moreover, stress testing framework and other early warning trends such as sustainability, social responsibility, in December 2023, NLB, as a member of the UN Net- systems in different risk areas, with the intention to governance, changing customer behaviour, emerging Zero Banking Alliance, publicly disclosed its Net-Zero contribute to setting and pursuing the Group’s business new technologies and competitors, as well as increasing commitment . With this step, the Bank pledged to align its strategy, to support decision-making on an ongoing new regulatory requirements . Respectively, risk lending and investment portfolio with net-zero emissions basis, to strengthen the existing internal controls, and management is continuously adapting with the aim to detect and manage new potential emerging risks . by 2050 . to enable timely response when necessary . The stress testing framework includes all material types of risk, The NLB Group Sustainability Committee oversees as well those related to ESG, and various relevant NLB Group uses the "three lines of defence framework" the integration of the ESG factors into the NLB Group stress scenarios or sensitivity analysis, according to as an important element of its internal governance, business model . The management of ESG risks the vulnerability of the Group’s business model . Stress whereby the Risk management function acts as a addresses the Group’s overall risk management testing has an important role when assessing the second line of defence . The Group has enhanced framework, namely the credit approval process, Group’s resilience to stressed circumstances, namely overall corporate governance, which is reflected in a collateral evaluation process, and related credit from profitability, capital adequacy, and in a liquidity lower SREP requirement in recent years . The robust and comprehensive Risk Management framework is portfolio management . It follows ECB and EBA guidelines with tendency of their comprehensive forward-looking perspective . As such, it is embedded into the Group’s Risk management system, namely defined and organised with regards to the Group’s integration into all relevant processes . The availability of Risk appetite, ICAAP, ILAAP, and the Recovery plan, as business and risk profile, based on a forward-looking ESG data in the region where NLB Group operates is still an important component of sound risk management . perspective to meet internally set strategic objectives, lacking . Nevertheless, the Group has set up the process Besides internal stress testing, NLB Group as a and all external requirements . The Proactive Risk of obtaining relevant ESG-related data from its clients, 151 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents systemically important bank also participates in the is stated . Moreover, in 2023, the Group has indicated in the beginning of the year 2024 . In its initial round of regulatory stress test exercises carried out by the ECB . activities for further comprehensive enhancement of the NZBA targets, NLB Group has focused on fossil fuel- 152 existing interest rate risk management . When assuming based and highly energy-intensive sectors, such as NLB Group is one of the largest Slovenian banking and operational risk, NLB Group pursues the orientation that power generation and iron and steel, and other sectors financial groups with an important presence in the SEE such risk must not significantly impact its operations . The where the Bank has substantial emissions and/or region . In accordance with its strategic orientations, Risk appetite for operational risks is low to moderate, exposure and available data . These include residential it intends to be sustainably profitable, predominantly with a focus on mitigation actions for important risks and mortgages and commercial real estate . working with clients in its core markets, providing key risk indicators servicing as an early warning system . innovative but simple customer-oriented solutions, The conclusion of transactions in derivative financial Values of the most important risk appetite indicators and actively contributing to a more balanced and instruments at NLB d .d . is primarily limited to servicing of NLB Group as at the end of year 2023, reflecting inclusive economic and social system . NLB Group has customers and hedging the Bank’s own positions . In interconnection between strategic business orientations, a well-diversified business model . Efficient managing the area of currency risk, the NLB Group thus pursues risk strategy, and targeted risk appetite profile, were of risks and capital is crucial for the Group to sustain the goals of low to moderate exposure . Based on long-term profitable operations . Based on the Group’s environmental and climate risk assessment impact of business strategy, credit risk is the dominant risk these risks is estimated as low, except for a transition category, followed by credit spread risk on the banking risk in the area of credit risk which is assessed as low to book portfolio, interest rate risk in the banking book, medium . The tolerance for all other risk types, including operational risk, liquidity risk, market risk, and other non-financial risks . ESG risks do not represent a new non-financial risks, is low with a focus on minimising their possible impacts on the Group’s operations . risk category, but rather one of risk drivers of the existing types of risks, such as credit, liquidity, market, The main NLB Group Risk Appetite Statement objectives and operational risk . The Group integrates and manages them within the established risk management framework . Regular risk identification and their assessment is performed within the ICAAP process with the aim to assure their overall control and effective risk management on an ongoing basis . are following: · preservation of regulatory and 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 Managing risks and capital efficiently at all levels is volatility, sustainable cost of risk across the economic crucial for NLB Group sustained long-term profitable cycle, limited Stage 2 exposures, sustainable industry operations . Management of credit risk, representing and individual concentration, sustainable exposure to the Group’s most important risk, focuses on the taking of moderate risks – a diversified credit portfolio, adequate credit portfolio quality, a sustainable cost of risk, and ensuring an optimal return considering the risks assumed . The liquidity risk tolerance is low . The NLB Group must maintain an appropriate level of liquidity at all times to meet its short-term liabilities, even if a specific stress scenario is realised . Further, with the aim of minimising this risk, the Group pursues an appropriate structure of sources of financing . The Group limited exposure to credit spread risk, arising from cross border, leverage, M&A and 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 foreign exchange risk; · sustainable exposure to ESG risks; · sustainable tolerance to net losses from operational risk . following: · Total capital ratio 20 .3%, · Tier 1 capital ratio 17 .0%, · Common Equity Tier 1 ratio (CET1) 16 .4%, · Leverage ratio 9 .6%, · Cost of risk -7 bps, · The share of non-performing exposure (NPE%) by EBA 1 .1%, · Non-performing loans coverage ratio (NPL CR) 64 .6%, · Loan-to-deposit ratio (LTD) 66 .2%, · LCR 245 .7%, · NSFR 187 .3%, · EVE sensitivity (of 200 bps) -4 .2% of capital, · Transactional FX risk 1 .4% of capital, · No new financing of coal mining and coal-fired electricity generation (0 EUR), · Net losses from operational risk 20 .0% of capital requirement for operational risk . During 2023, the Group’s credit portfolio quality remained high-quality and well-diversified, with a stable rating structure and lower NPLs level . The Group recorded a slower credit portfolio growth in all segments after strong new corporate and retail loan origination across all markets in previous year due to inflationary pressures, higher interest rates, and low GDP growth . The impacts of the floods in Slovenia were estimated as negligible, and only minor client credit quality deterioration or received collaterals occurred . Besides, the Group monitored the macroeconomic and the valuation risk of debt securities portfolio servicing During the year 2023, sustainable ESG financing geopolitical circumstances closely, remaining very as liquidity reserves, to a moderate level . NLB Group’s in accordance with Environmental and Social prudent in identifying any increase in credit risk at a basic orientation in the management of interest rate risk Management System (ESMS) was integrated in the very early stage, and proactive in NPL management . is to limit unexpected negative effects on revenues and Group’s Risk appetite and overall risk management The cost of risk remained at a very low level, mainly capital that would arise from changed market interest framework . In addition, publicly disclosed its Net-Zero due to the successful collection of previously rates, and therefore, a moderate tolerance for this risk commitment was addressed in the Group’s Risk appetite NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents written-off receivables, revised risk parameters, and demand for fixed interest rate products led to moderate Slovenija and its subsidiaries, while NLB Skladi signed stable portfolio development in the SEE region . interest rate risk exposure, which stayed well within the SPA for acquiring a majority shareholding in Generali 153 The Group stayed well capitalised and well above the risk appetite tolerance . Investments AD Skopje . Otherwise, during 2023 there were no other transactions of sufficiently material nature risk appetite at both the Group and banking member Consequently, NLB Group concluded the year 2023 to impact on NLB Group’s risk profile or distribution of levels . The liquidity position of the Group also remained as self-funded, with strong liquidity and a very solid the risks on the Group level . solid, with liquidity indicators high above the regulatory capital position, demonstrating the Group’s financial requirements, indicating its low tolerance for this risk . resilience . Moreover, in 2023, NLB’s ESG Risk Rating The Condensed Statement of the management of risk Significant attention was put into the structure and assigned by Sustainalytics was revised and improved . is also published on the NLB intranet with the aim concentration of liquidity reserves by incorporating early The assigned rating reflects a low risk of experiencing of strict adherence of the banks’ employees at daily warning systems, while at the same time considering material financial impacts from ESG factors . N Banka, operations of the Bank, as regards the definition and the potential adverse negative market movements . which legally and operationally merged at the end of importance of a consistent tendency of the adopted Investment activity continued with a balanced approach September 2023 with NLB d .d ., had a similar business risks, and ways to take into account when adopting its to finding attractive market opportunities while pursuing model to the Bank’s or the Group’s, and so, its impact daily business decisions . well-managed credit spread and interest rate risk, as on the Bank’s and Group’s risk profile at the end of well as capital consumption . Raising the interest rate the year 2023 was rather limited . In addition, NLB environment and corresponding increased market signed a SPA for 100% shareholding in Summit Leasing Ljubljana, 21 March 2024 Supervisory Board of NLB Primož Karpe Chairman Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Statement on Non-Financial Operation In accordance with Article 56 and in conjunction with Article 70c of the Companies Act, the Bank has · The main risks regarding the aforementioned issues are listed in Sustainability Strategy, Climate (Net- · the recommendations of the Task force on Climate Related Financial Disclosures (TCFD) - in line with the prepared a consolidated Statement on Non-Financial Zero) Strategy, Sustainable Finance and ESG Risk requirements and recommendations of the Financial Operation as a separate report, called the NLB Group Sustainability Report 2023 . Management . · Key non-financial performance indicators which are important for specific activities are described in 2023 Conduct Authority (FCA); and · the Global Reporting Initiative (GRI) Sustainability Reporting Standards . The consolidated report enables interested parties to NLB Group Sustainability Report and summarised in understand the material dimensions of the NLB Group’s Chapter Sustainability KPIs and Targets . The NLB Group Sustainability Report 2023 is published development, performance, and position, and the on the Bank’s website, on the Ljubljana Stock impact of its activities, and includes the following non- In addition to the aforementioned information, the Exchange’s SEOnet system, on the websites of the financial information, which is disclosed in NLB Group report discloses information based on the following Agency of the Republic of Slovenia for Public Legal Sustainability Report 2023: · NLB Group’s business model, which is presented in Chapters NLB Group at a Glance and Sustainability Strategy . · Policy description and results on environmental, social, and human resources matters are described in Chapter Sustainability Strategy and related chapters, and Climate (Net-Zero) Strategy . · Policy description and results on respect for human rights are described in Chapter Respecting Human Rights . · Policy description and results on anti-corruption and anti-bribery matters are covered in Chapter Fighting against corruption and bribery . Ljubljana, 10 April 2024 Management Board of NLB legal bases, requirements, recommendations, and Records and Related Services (AJPES), and on the reporting frameworks: · EU Taxonomy: Regulation (EU) 2020/852 establishing a framework for the promotion of sustainable London Stock Exchange (LSE), at the same time as the NLB Group Annual Report 2023 . investments and the delegated acts adopted under this The NLB Group’s Consolidated Annual Report 2023 is Regulation; · Requirements and recommendations of regulatory authorities: Bank of Slovenia (BS), Securities Market Agency (SMA); · the United Nations Principles for Responsible Banking (UN-PRB United Nations Principle for Responsible Banking); · ECB Guide on Climate and Environmental Risks; · the European Commission’s Guidelines on Non-Financial Reporting; thus in line with the requirements of the Companies Act (ZGD-1), which requires public interest entities with an average number of employees exceeding 500 on the balance sheet cut-off date to include a Statement on Non-Financial Operation in their business report . Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer 154 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents That is why NLB has been proudly supporting Slovenian sports for decades . Slovenian table tennis team It takes control, timing, and unwavering focus to win . Disclosure on Shares and Shareholders of NLB 1 . Information pursuant to the Companies Act (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 in the General Meeting of the 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 . Information regarding the shareholder structure of NLB (as at 31 December 2023) is available in the subchapter Shareholder Structure of NLB in the chapter Shareholder Structure and Market Performance of NLB’s Shares and GDRs . by third parties for the account of the acquirer, exceed 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 on account of third parties so that (s)he is not entitled to exercise voting rights from these shares at his/her 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 NLB does not have an employee share scheme . In sole discretion, while at the same time committing to accordance with the relevant remuneration policies the Bank, (s)he will not exercise voting rights on the basis of the instructions of an individual third party for (when required by ZBan-3), a part of variable remuneration of NLB’s Identified Staff shall consist whose account (s)he has acquired the shares if, together of NLB shares or NLB share-linked instruments or with the instructions for voting, (s)he does not receive equivalent non-cash instruments (the instrument used a written guarantee from the person that this person is determined by the Supervisory Board) . So far, NLB has shares on his/her own account and that this person has not used its own shares for this purpose . It currently is not, directly or indirectly, a holder of more than 25% uses NLB share-linked instruments . More information of the Bank’s voting rights . The acquirer who exceeds will be available in the Report on Remunerations for the the share of 25% of the Bank’s shares with voting rights Management Body of NLB d .d . in the 2023 Business Year . 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 . 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 There are no restrictions other than those mentioned and those that are regulatory . 1 .3 Qualifying holdings This information is included in the chapter Corporate the provisions of the Articles of Association of the Bank, Governance Statement of NLB . 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 1 .4 Securities carrying special controlling rights This information is included in the chapter Corporate Governance Statement of NLB . 1 .6 Explanation regarding restrictions related to voting rights This information is included in the chapter Corporate Governance Statement of NLB . 1 .7 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 .8 The company’s rules on the appointment or replacement of management and supervisory board members and changes of the articles of association This information is included in the chapter Corporate Governance Statement of NLB . 156 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 1 .9 Authorisations given to management, particularly authorisations to issue or purchase own shares This information is included in the chapter Corporate Governance Statement of NLB . 1 .10 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 .11 All agreements between the Bank and its management or supervision bodies or its employees which envisage compensation if, due to a bid as laid down by the Act governing M&A, these persons resign, are dismissed without a well-founded reason, or their employment is terminated In line with the employment contracts of the members of the Management Board, if 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 the Bank or 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 ." 2 . Number of shares held by members of the Supervisory Board and Management Board Table 37: Number of shares held by members of the Supervisory Board and Management Board Name of member of Supervisory Board Primož Karpe David Eric Simon(i) Islam Osama Zekry Shrenik Dhirajlal Davda Mark William Lane Richards Verica Trstenjak André-Marc Prudent-Toccanier Cvetka Selšek Sergeja Kočar Tadeja Žbontar Rems Name of member of Management Board Blaž Brodnjak Archibald Kremser Peter Andreas Burkhardt Andrej Lasič Hedvika Usenik Antonio Argir Shares held as at 31 Dec 2023 Number % 1,286 582 0 .006% 0 .003% — — — — — — 190 — Number 1,700 791 800 325 450 620 — — — — — — 0 .001% — % 0 .009% 0 .004% 0 .004% 0 .002% 0 .002% 0 .003% (i) David Eric Simon holds 2,910 GDRs, which is equal to 582 shares (as 1 share represents 5 GDRs). 3 . Stock option agreements The Bank has no stock option agreements in relation to its listed shares . 4 . Dividend taxation Withholding tax In 2023, a Slovenian payer was 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: 25% · Intermediaries: 25% · Legal entities (other than Intermediaries): 15% . There are some exemptions if 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 25% . 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 . In the case of legal entities, the exemptions are related to the characteristics of the legal entities . Application of Double Tax Treaties If the payee is not an intermediary, Financial Administration of the RoS (FURS) 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 . Refund of Withholding Tax 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 a 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 (FURS) . Legal persons Dividends with respect to the shares received by a legal person who is a 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 . 157 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Events After the End of the 2023 Financial Year On 24 January 2024, the Bank issued Tier 2 notes in the amount of EUR 300 million and 10NC5 tenor (ISIN: XS2750306511) . In parallel, the Bank conducted a liability management exercise (LME) where it repurchased EUR 219 .6 million of its two outstanding Tier 2 notes with approaching call dates (ISIN: XS2080776607 and XS2113139195) . The LME was concluded on 26 January 2024 On 21 March 2024, the shareholding of Schroders plc in the Bank changed from 5 .12% to 4 .98% . Notice of early redemption of subordinated notes as of 2 April 2024: NLB will, based on the obtained permission of the European Central Bank, redeem its subordinated notes in the aggregate nominal amount of EUR 45 million, issued on 6 May 2019 and with maturity on 6 May 2029 (ISIN: SI0022103855), before their maturity . Pursuant to the terms and condition of the notes the early repayment of principal and accrued and unpaid interest will be made on the fifth anniversary from the issuance, being 6 May 2024 . 158 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Reconciliation of Financial Statements in Business and Financial Part of the Report Table 38: Income Statement of NLB Group for the annual period ended 31 December 2023 in EUR millions Financial Report in EUR thousands Notes Business Report Net interest income Net fee and commission income Dividend income 833 .3 278 .0 Interest and similar income Interest and similar expenses Fee and commission income Fee and commission expenses 0 .2 Dividend income Net income from financial transactions 17 .3 Net other income Net non-interest income Total net operating income Employee costs Other general and administrative expenses (35 .4) 260 .0 1,093.3 (282 .2) (170 .5) Gains less losses from financial assets and liabilities not measured 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 liabilities measured at fair value through profit or loss Fair value adjustments in hedge accounting Foreign exchange translation gains less losses Gains less losses from modification of financial assets Gains less losses on derecognition of non-financial assets Other net operating income Cash contributions to resolution funds and deposit guarantee schemes Gains less losses from non-current assets held for sale Net gains or losses on derecognition of investments in subsidiaries, associates and joint ventures Administrative expenses Depreciation and amortisation (49 .2) Depreciation and amortisation Total costs Result before impairments and provisions Impairments and provisions for credit risk Other impairments and provisions Impairments and provisions Gains less losses from capital investment in subsidiaries, associates, and joint ventures Result before tax Income tax (501.9) 591.4 11 .8 (25 .9) (14 .1) Provisions for credit losses Impairment of financial assets Provisions for other liabilities and charges Impairment of non-financial assets 1 .1 Share of profit from investments in associates and joint ventures (accounted for using the equity method) 578.4 Profit before income tax (15 .1) Income tax Result of non-controlling interests 12 .6 Attributable to non-controlling interests Result after tax 550.7 Attributable to owners of the parent 993,405 (160,071) 398,741 (120,780) 169 (742) 32,187 1,784 (799) 3,899 (2,778) (16,271) 3,200 (4,692) (39,093) 5,903 (766) 259,962 1,093,296 (452,623) (49,232) (501,855) 591,441 5,055 6,717 (25,925) 53 (14,100) 1,072 578,413 (15,090) 12,623 550,700 4 .1 . 4 .1 . 4 .3 . 4 .3 . 4 .2 . 4 .4 . 4 .5 . 4 .6 . 5 .5 .a) 4 .7 . 4 .12 . 4 .8 . 4 .10 . 5 .12 .b), c) 4 .9 . 4 .11 . 4 .13 . 4 .14 . 4 .13 . 4 .14 . 5 .12 .g) 4 .15 . 159 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 39: Statement of Financial Position of NLB Group as at 31 December 2023 in EUR millions Financial Report in EUR thousands Notes Business Report ASSETS Cash, cash balances at central banks, and other demand deposits at banks Loans to banks Net loans to customers Financial assets - Trading book 6,103 .6 Cash, cash balances at central banks and other demand deposits at banks 547 .6 Financial assets measured at amortised cost - loans and advances to banks 13,734 .6 Financial assets measured at amortised cost - loans and advances to customers 4,803 .7 15 .7 Financial assets held for trading - Non-trading book 4,788 .0 Non-trading financial assets mandatorily at fair value through profit or loss - part (without loans) Financial assets measured at fair value through other comprehensive income Financial assets measured at amortised cost - debt securities Investments in subsidiaries, associates, and joint ventures Property and equipment Investment property Intangible assets 12 .5 Investments in associates and joint ventures 278 .0 Property and equipment 31 .1 Investment property 62 .1 Intangible assets Financial assets measured at amortised cost - other financial assets Derivatives - hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Other assets TOTAL ASSETS LIABILITIES 368 .7 Current income tax assets Deferred income tax assets Other assets Non-current assets held for sale 25,942.0 Total assets Deposits from customers 20,732 .7 Financial liabilities measured at amortised cost - due to customers Deposits from banks and central banks 95 .3 Financial liabilities measured at amortised cost - deposits from banks and central banks Borrowings Subordinated debt securities Other debt securities in issue Other liabilities 240 .1 509 .4 828 .8 587 .6 Financial liabilities measured at amortised cost - borrowings from banks and central banks Financial liabilities measured at amortised cost - borrowings from other customers Financial liabilities measured at amortised cost - debt securities issued Financial liabilities held for trading Financial liabilities measured at fair value through profit or loss Financial liabilities measured at amortised cost - other financial liabilities Derivatives - hedge accounting Provisions Current income tax liabilities Deferred income tax liabilities Other liabilities Equity Non-controlling interests TOTAL LIABILITIES AND EQUITY 2,882 .9 Equity and reserves attributable to owners of the parent 65 .1 Non-controlling interests 25,942.0 Total liabilities and equity 5 .1 . 5 .6 .b) 5 .6 .c) 5 .2 .a) 5 .3 .a) 5 .4 . 5 .6 .a) 5 .12 .g) 5 .8 . 5 .9 . 5 .10 . 5 .6 .d) 5 .5 .b) 5 .5 .c) 5 .17 . 5 .13 . 5 .7 . 5 .15 .a) 5 .15 .a) 5 .15 .b) 5 .15 .b) 5 .15 .c) 5 .2 .b) 5 .3 .b) 5 .15 .d) 5 .5 .b) 5 .16 . 5 .17 . 5 .19 . 6,103,561 547,640 13,734,601 4,803,678 15,718 14,175 2,251,556 2,522,229 12,519 278,034 31,116 62,117 165,962 47,614 (10,207) 42 111,305 49,154 4,849 25,941,985 20,732,722 95,283 140,419 99,718 1,338,235 13,217 4,482 357,116 3,540 113,305 35,879 1,426 58,653 2,882,850 65,140 25,941,985 160 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents We also believe that if a single athlete can make it to the top, everyone is worth supporting . NLB Wheel Willpower and determination transcend all barriers . 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 are 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 . Table 40: NLB Group cost of risk calculation Numerator Credit impairments and provisions(i) Denominator Average net loans to customers(ii) Cost of risk (bps) in EUR millions NLB Group 2023 -8 .8 2022 17 .6 13,432 .3 12,256 .6 -7 14 (i) NLB internal information. Credit impairments and provisions are annualized, calculated as all established and released impairments on loans and provisions for off balance (from the income statement) in the period divided by the number of months for reporting period and multiplied by 12. The net established Credit impairments and provisions are shown with a positive sign, and the net released Credit impairments and provisions are shown with a negative sign. (ii) NLB internal information. Average net loans to customers are calculated as sum of the 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). Cost to income ratio (CIR) – Indicator of cost efficiency, calculated as the ratio between the total costs and total net operating income . Table 41a: NLB Group and NLB CIR calculation Numerator Total costs Denominator NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 501 .9 460 .3 415 .4 237 .9 207 .9 183 .6 Total net operating income Cost to income ratio (CIR) 1,093 .3 45.9% 798 .5 57.6% 666 .9 62.3% 638 .5 37.3% 366 .2 56.8% 361 .5 50.8% 162 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 41b: NLB Group’s banking subsidiaries CIR calculation in EUR millions 163 Numerator Total cost Denominator NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica N Banka, Ljubljana 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2022 113 .6 109 .0 36 .4 31 .8 19 .4 17 .3 19 .9 18 .3 16 .0 14 .3 20 .4 20 .3 23 .0 Table 41: Total net operating income Cost to income ratio (CIR) 261 .0 43.5% 192 .4 56.6% 86 .6 75 .9 46 .9 38 .5 36 .7 31 .7 55 .2 48 .4 49 .3 37 .3 35 .7 42.0% 41.9% 41.5% 44.9% 54.2% 57.8% 29.0% 29.7% 41.4% 54.3% 64.3% Total average cost of funding (quarterly) – Calculated as the ratio between interest expenses annualized and average interest-bearing liabilities . Table 42: NLB Group’s average cost of funding (quarterly) calculation Numerator Interest expenses(i) Denominator Average interest-bearing liabilities(ii) Total average cost of funding (quarterly) NLB Group in EUR millions Q4 2023 Q3 2023 Q2 2023 Q1 2023 194 .1 173 .8 123 .2 107 .6 22,083 .7 21,828 .0 21,097 .3 21,060 .6 0.88% 0.80% 0.58% 0.51% (i) Interest expenses (quarterly) are annualized, calculated as the sum of interest expenses in the period divided by the number of days in the quarter and multiplied by the number of days in the year. Interest expenses on interest bearing liabilities also include interest income from negative interest rate on financial liabilities. (ii) NLB internal information. Average interest-bearing liabilities (quarterly) for the NLB Group are calculated as the sum of monthly balances (t) for the corresponding quarter and monthly balance at the end of the previous quarter divided by (t+1). Average cost of wholesale funding(iii) (quarterly) – Calculated as the ratio between interest expenses on deposits from customers annualized and average wholesale funding . Table 43: NLB Group’s average cost of wholesale funding (quarterly) calculation NLB Group in EUR millions Q4 2023 Q3 2023 Q2 2023 Q1 2023 Numerator Interest expenses from wholesale funding(i) 96 .9 94 .4 62 .9 58 .8 Denominator Average wholesale funding(ii) Average cost of wholesale funding (quarterly) 1,674 .7 5.78% 1,665 .8 5.66% 1,329 .1 4.73% 1,205 .7 4.87% (i) Interest expenses from wholesale funding (quarterly) are annualized, calculated as the sum of interest expenses from wholesale funding in the period divided by the number of days in the quarter and multiplied by the number of days in the year. (ii) NLB internal information. Average wholesale funding (quarterly) for the NLB Group, calculated as the sum of monthly balances (t) for the corresponding quarters and monthly balance at the end of the previous quarter divided by (t+1). (iii) Wholesales funding includes deposits from banks and central banks, borrowings, debt instruments, and subordinated liabilities. NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Average interest rate for deposits from customers (quarterly) – Calculated as the ratio between interest expenses on deposits from customers annualized and average deposits from customers . Table 44: NLB Group’s average interest rate for deposits from customers (quarterly) calculation NLB Group in EUR millions Q4 2023 Q3 2023 Q2 2023 Q1 2023 Numerator Interest expenses on deposits from customers(i) 94 .7 77 .2 55 .4 47 .1 Denominator Average deposits from customers(ii) 20,409 .0 20,162 .2 19,768 .1 19,854 .9 Average interest rate for deposits from customers (quarterly) 0.46% 0.38% 0.28% 0.24% (i) Interest expenses on deposits from customers (quaterly) are annualized, calculated as the sum of interest expenses on deposits from customers in the period divided by the number of days in the quarter and multiplied by the number of days in the year. (ii) NLB internal information. Average deposits from customers (quarterly) for the NLB Group, calculated as the sum of monthly balances (t) for the corresponding quarters and monthly balance at the end of the previous quarter divided by (t+1). Deposit beta – Calculated as the ratio between the change of interest rate on deposits from customers and change of ECB deposit facility interest rate over the selected period . Table 45: NLB Group’s Deposit beta calculation NLB Group in %, bps 2023 Q2 2022 Q4 2023 ∆ (in bps) Numerator Interest rate on deposits from customers(i) 0 .09% 0 .46% Denominator ECB deposit facility interest rate(ii) Deposit beta (i) NLB internal information. Interest rate on deposits from customers (quarterly average). (ii) Data from the ECB. Deposit facility interest rate (quarterly average). -0 .5% 4 .0% 37 450 8% 164 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents FVTPL – Financial assets measured mandatorily at fair value through profit or loss represent the minor part IFRS 9 requires an expected loss model, where an lifetime allowances for these financial assets . The allowance for the expected credit losses (ECL) is formed . definition of default is harmonised with the EBA 165 (0 .002% December 2023; 0 .002% December 2022) of Loans measured at amortised costs (AC) are classified guidelines . the loan portfolio (before the deduction of fair value into the following stages (before deduction of loan loss for credit risk; loans with contractual cash flows that allowances): are not solely payments of principal and interest on the principal amount outstanding) . Classification into stages is calculated in the internal data source, by which the NLB Group measures the loan portfolio quality, and which is also published in the Business Report of Annual and Interim Reports . · 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 Table 46d: NLB Group Stage 1 in the Corporate segment calculation in EUR millions NLB Group 2023 Numerator Total (AC) loans in Stage 1 to Corporates 6,005 .6 Denominator Total gross loans to Corporates Corporates - IFRS 9 classification into Stage 1 6,629 .3 90.6% Table 46e: NLB Group Stage 2 in the Corporate segment calculation in EUR millions NLB Group 2023 in EUR millions NLB Group 2023 19,239 .2 20,243 .9 95.0% in EUR millions NLB Group 2023 704 .1 Numerator Total (AC) loans in Stage 2 to Corporates 454 .3 20,243 .9 3.5% Denominator Total gross loans to Corporates Corporates - IFRS 9 classification into Stage 2 6,629 .3 6.9% 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 . Table 46g: NLB Group Stage 1 in the Retail segment calculation Numerator Total (AC) loans in Stage 1 to Retail Denominator Total gross loans to Retail Retail - IFRS 9 classification into Stage 1 in EUR millions NLB Group 2023 6,854 .7 7,235 .3 94.7% Table 46h: NLB Group Stage 2 in the Retail segment calculation Numerator Total (AC) loans in Stage 2 to Retail Denominator Total gross loans to Retail Retail - IFRS 9 classification into Stage 2 in EUR millions NLB Group 2023 249 .6 7,235 .3 3.4% in EUR millions NLB Group 2023 300 .2 0 .3 20,243 .9 1.5% Table 46f: NLB Group Stage 3 in the Corporate segment calculation Numerator Total (AC) loans in Stage 3 to Corporates Total (FVTPL) non-performing loans Denominator Total gross loans to Corporates Corporates - IFRS 9 classification into Stage 3 in EUR millions NLB Group 2023 169 .1 0 .3 6,629 .3 2.6% Table 46i: NLB Group Stage 3 in the Retail segment calculation Numerator Total (AC) loans in Stage 3 to Retail Denominator Total gross loans to Retail Retail - IFRS 9 classification into Stage 3 in EUR millions NLB Group 2023 131 .0 7,235 .3 1.8% Table 46a: NLB Group Stage 1 calculation Numerator Total (AC) loans in Stage 1 Denominator Total gross loans and advances IFRS 9 classification into Stage 1 Table 46b: NLB Group Stage 2 calculation Numerator Total (AC) loans in Stage 2 Denominator Total gross loans and advances IFRS 9 classification into Stage 2 Table 46c: NLB Group Stage 3 calculation Numerator Total (AC) loans in Stage 3 Total (FVTPL) non-performing loans Denominator Total gross loans and advances IFRS 9 classification into Stage 3 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 45: Table 46: Leverage ratio – Its calculation uses Tier 1 as the numerator, and the denominator is the total exposure of all active balance sheet and off-balance-sheet items after the adjustments are made in the context of which the exposures from individual derivatives, exposures from transactions of security funding, and other off-balance sheet items are especially pointed out . The leverage ratio is a non-risk based supplementary measure to the risk-based capital requirements . A minimum leverage ratio requirement is 3% . The purpose of the leverage ratio is to limit the size of the Bank balance sheets, and with a special emphasis on exposures which are not weighted within the framework of the existing capital requirement calculations . Table 47: NLB Group and NLB leverage ratio Numerator Tier I Denominator NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 2,597 .8 2,295 .7 1,965 .6 1,816 .6 1,496 .7 1,362 .7 Total Leverage Ratio exposure measure 26,927 .7 25,240 .5 19,229 .5 16,637 .0 14,553 .0 10,041 .1 Leverage ratio 9.6% 9.1% 10.2% 10.9% 10.3% 13.6% 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 . The calculations presented below are based on internal data sources . Table 48: NLB Group LCR calculation(i) 31 Dec 2023 30 Nov 2023 31 Oct 2023 30 Sep 2023 31 Aug 2023 31 Jul 2023 30 Jun 2023 31 May 2023 30 Apr 2023 31 Mar 2023 28 Feb 2023 31 Jan 2023 31 Dec 2022 31 Dec 2021 NLB Group in EUR millions Numerator Stock of HQLA 7,011 .7 6,719 .5 6,687 .9 6,687 .7 6,772 .4 6,594 .5 6,505 .1 5,922 .2 5,943 .8 6,131 .6 6,093 .1 6,069 .0 6,028 .3 5,367 .1 Denominator Net liquidity outflow 2,853 .9 2,736 .9 2,809 .2 2,799 .8 2,691 .4 2,648 .8 2,657 .4 2,541 .8 2,671 .8 2,651 .4 2,663 .4 2,649 .8 2,736 .6 2,125 .0 LCR 245.7% 245.5% 238.1% 238.9% 251.6% 249.0% 244.8% 233.0% 222.5% 231.3% 228.8% 229.0% 220.3% 252.6% (i) Based on the European Commission’s Delegated Act on LCR. 166 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 . Table 49a: NLB Group and NLB LTD calculation NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2021 31 Dec 2023 31 Dec 2022 31 Dec 2021 in EUR millions Numerator Net loans to customers 13,734 .6 13,073 .0 10,587 .1 7,156 .1 6,062 .3 5,153 .0 Denominator Deposits from customers Net loan to deposit ratio (LTD) 20,732 .7 20,027 .7 17,640 .8 11,881 .6 10,984 .4 66.2% 65.3% 60.0% 60.2% 55.2% 9,659 .6 53.3% Table 49b: NLB Group’s banking subsidiaries LTD calculation NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica N Banka, Ljubljana 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2022 in EUR millions Numerator Net loans to customers 2,811 .6 2,589 .2 1,216 .2 1,170 .7 557 .0 523 .2 575 .6 521 .3 831 .3 740 .8 584 .5 532 .3 939 .2 Denominator Deposits from customers 4,004 .1 3,692 .2 1,499 .5 1,462 .0 Net loan to deposit ratio (LTD) 70.2% 70.1% 81.1% 80.1% 840 .1 66.3% 796 .7 65.7% 749 .7 76.8% 673 .4 77.4% 1,008 .3 82.5% 894 .2 82.8% 798 .0 73.2% 692 .9 898 .8 76.8% 104.5% Table 49: Table 50: NLB Group’s banking subsidiaries net interest margin on the basis of interest-bearing assets calculation(iii) Net interest margin on the basis of interest-bearing assets – Calculated as the ratio between net interest income annualized and average interest-bearing assets . NLB NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica N Banka, Ljubljana 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2022 in EUR millions 372 .6 177 .0 211 .3 131 .6 65 .4 53 .9 32 .5 23 .6 25 .5 19 .5 47 .2 39 .8 40 .3 29 .6 27 .8 Numerator Net interest income(i) Denominator Average interest bearing-assets(ii) 13,470 .3 11,968 .2 4,517 .8 4,389 .0 1,784 .1 1,714 .0 961 .7 915 .1 841 .2 746 .3 1,124 .1 978 .4 848 .7 737 .2 1,377 .0 Net interest margin on interest-bearing assets 2.8% 1.5% 4.7% 3.0% 3.7% 3.1% 3.4% 2.6% 3.0% 2.6% 4.2% 4.1% 4.8% 4.0% 2.0% (i) Net interest income is annualized, and calculated as the sum of interest income and interest expenses in the period divided by the number of days in the period and multiplied by the number of days in the year. (ii) NLB internal information. Average interest-bearing assets for NLB are calculated as the sum of total assets of the previous year end (31 December) and daily balances in the period (from 1 January to day d – the last day in reporting month) divided by (d+1). Average interest-bearing assets for individual bank members 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). N Banka internal information. Average interest-bearing assets for N Banka are calculated as the sum of daily balances in the period (from 1 January to day d – the last day in reporting period) divided by number of days d. (iii) Data for N Banka internal information. 167 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Net interest margin on the basis of interest-bearing assets - Calculated as the ratio between net interest income annualized and average interest-bearing assets . Table 51: NLB Group’s net interest margin on the basis of interest-bearing assets calculation Numerator Net interest income(i) Denominator Average interest-bearing assets(ii) Net interest margin on interest-bearing assets in EUR millions NLB Group 2023 833 .3 23,782 .7 3.50% 2022 504 .9 21,988 .4 2.30% (i) Net interest income is annualized, calculated as the sum of interest income and interest expenses in the period divided by the number of days in the period and multiplied by the number of days in the year. (ii) NLB internal information. Average interest-bearing assets for the Group are calculated as the sum of balance from the previous year end (31 December) and monthly balances of the last day of each month from January to the reporting month t divided by (t+1). Net interest margin on the basis of interest-bearing assets (quarterly) – Calculated as the ratio between the net interest income annualized and average interest-bearing assets . Table 52: NLB Group net interest margin on the basis of interest-bearing assets calculation (quarterly) Numerator Net interest income(i) Denominator NLB Group in EUR millions Q4 2023 Q3 2023 Q2 2023 Q1 2023 920 .0 878 .7 806 .2 725 .8 Average interest-bearing assets(ii) Net interest margin on interest-bearing assets (quarterly) 24,582 .1 3.74% 24,127 .6 3.64% 23,301 .0 3.46% 23,106 .7 3.14% (i) Net interest income (quarterly) is annualized, calculated as the sum of interest income and interest expenses in the period divided by the number of days in the quarter and multiplied by the number of days in the year. (ii) NLB internal information. Average interest-bearing assets (quarterly) for the NLB Group are calculated as the sum of monthly balances (t) for the corresponding quarter and monthly balance at the end of the previous quarter divided by (t+1). Net interest margin on total assets – Calculated as the ratio between net interest income annualized, and average total assets . Table 53: NLB Group and NLB net interest margin on total assets calculation Numerator Net interest income(i) Denominator Average total assets(ii) Net interest margin on total assets 2023 833 .3 NLB Group 2022 504 .9 2021 409 .4 2023 372 .6 NLB 2022 177 .0 in EUR millions 2021 139 .5 24,706 .3 3.4% 22,975 .9 2.2% 20,659 .0 2.0% 14,728 .7 2.5% 13,133 .2 1.3% 11,853 .9 1.2% (i) Net interest income is annualized, and calculated as sum of interest income and interest expenses in the period divided by the number of days in the period and multiplied by the number of days in the year. (ii) 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 the sum of total assets of the previous year end (31 December) and daily balances in the period (from 1 January to day day d – the last day in reporting month) divided by (t+1). 168 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 Finrep18; before the deduction of allowances for the ECL) . Non- performing exposures measured by fair value loans through P&L (FVTPL) are considered at fair value increased by the 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 the Finrep18 before deduction of allowances for the ECL; the ratio is in gross terms . Non-Performing Exposure includes risk exposure to D- and E-rated clients (including loans and advances, debt securities, and off-balance exposures, which are included in the report Finrep18 before the deduction of allowances for the ECL) . The share of NPEs is calculated based on an internal data source, with which the NLB Group monitors the portfolio quality . The calculations presented below are based on internal data sources . Table 54: NLB Group and NLB NPE (EBA def.) calculation Numerator Total Non-Performing on-balance and off-balance Exposure in Finrep18 Denominator Total on-balance and off-balance exposures in Finrep18 NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 333 .8 373 .6 415 .5 155 .1 136 .0 159 .5 30,122 .3 28,133 .2 24,328 .0 17,874 .0 15,512 .0 13,869 .9 NPE per cent. 1.1% 1.3% 1.7% 0.9% 0.9% 1.1% NPE – The NPE indicator, according to the BoS calculation, differs from the EBA methodology in the treatment of debt instruments measured at FVOCI . Due to impairments, value adjustments increase the carrying amount of debt instruments measured at FVOCI . Table 55: NLB Group and NLB NPE (EBA def.) (BoS) calculation Numerator Total Non-Performing on-balance and off-balance Exposure in Finrep18 Denominator Total on-balance and off-balance exposures in Finrep18, where carrying amount of FVOCI is increased by value adjustments due to impairments NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 333 .8 373 .6 415 .5 155 .1 136 .0 159 .5 30,284 .1 28,134 .7 24,339 .2 17,907 .9 15,506 .3 13,872 .1 NPE per cent. 1.1% 1.3% 1.7% 0.9% 0.9% 1.1% 169 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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) . NPL per cent. – The 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) . The share of non-performing loans is calculated based on an internal data source, with which the NLB Group monitors the loan portfolio quality . Table 56a: NLB NPL calculation Numerator Total Non-Performing Loans Denominator Total gross loans NPL per cent. Table 56b: NLB Group NPL calculation 2023 138 .0 11,562 .7 1.2% NLB 2022 111 .2 9,667 .2 1.1% Numerator Total Non-Performing Loans Denominator Total gross loans NPL per cent. 2023 300 .5 2022 328 .3 NLB Group 2021 367 .4 2020 474 .7 20,243 .9 1.5% 18,403 .9 1.8% 15,541 .8 2.4% 13,686 .6 3.5% in EUR millions 2021 130 .4 8,522 .5 1.5% in EUR millions 2019 374 .7 9,793 .5 3.8% Table 56c: NLB Group’s banking subsidiaries NPL calculation NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Komercijalna Banka, Beograd in EUR millions NLB Group’s banking subsidiaries Numerator Total Non-Performing Loans 48 .8 54 .5 5 .5 8 .3 15 .7 17 .0 16 .2 15 .7 24 .1 32 .6 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 22 .5 2022 32 .5 2023 270 .9 Denominator Total gross loans NPL per cent. 1,558 .5 1,506 .5 3.1% 3.6% 783 .9 0.7% 734 .4 1.1% 772 .2 2.0% 724 .2 2.3% 1,043 .6 1.6% 940 .5 1.7% 756 .1 3.2% 715 .3 4.6% 3,960 .1 0.6% 3,390 .0 19,866 .4 1.0% 1.4% 170 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 with respect to the total of impaired loans . The NPL coverage ratio 1 is calculated based on an internal data source, with which the NLB Group monitors the quality of the loan portfolio . Table 57a: NLB NPL coverage ratio 1 calculation Numerator Loan loss allowances entire loan portfolio Denominator Total Non-Performing Loans NPL coverage ratio 1 (NPL CR 1) Table 57b: NLB Group NPL coverage ratio 1 calculation in EUR millions NLB 2022 95 .7 2021 97 .9 111 .2 86.1% 130 .4 75.1% 2023 121 .3 138 .0 87.9% NLB Group in EUR millions 2023 2022 2021 2020 2019 Numerator Loan loss allowances entire loan portfolio 330 .5 324 .8 316 .5 388 .4 334 .2 Denominator Total Non-Performing Loans NPL coverage ratio 1 (NPL CR 1) 300 .5 110.0% 328 .3 98.9% 367 .4 86.1% 474 .7 81.8% 374 .7 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 . The NPL coverage ratio 2 is calculated based on an internal data source, with which the NLB Group monitors the loan portfolio quality . Table 58: NLB Group and NLB NPL coverage ratio 2 calculation Numerator Loan loss allowances non- performing loan portfolio Denominator Total Non-Performing Loans NPL coverage ratio 2 (NPL CR 2) NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 194 .2 187 .4 212 .9 84 .4 64 .5 79 .0 300 .5 64.6% 328 .3 57.1% 367 .4 57.9% 138 .0 61.2% 111 .2 58.1% 130 .4 60.6% Table 56: Table 57: 171 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Net NPL Ratio – The 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 the deduction of loan loss allowances; the ratio is in net terms . The calculations presented below are based on internal data sources . Table 59: NLB Group and NLB Net NPL ratio calculation NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions Numerator Net volume of non-performing loans 106 .4 140 .9 154 .5 53 .6 46 .6 51 .4 Denominator Total Net Loans 19,913 .3 18,079 .1 15,225 .4 11,441 .4 9,571 .5 8,424 .7 Net NPL ratio per cent. (% Net NPL) 0.5% 0.8% 1.0% 0.5% 0.5% 0.6% 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 . The calculations presented below are based on internal data sources . Table 60: NLB Group and NLB Received collaterals for NPLs/NPL calculation Numerator Gross volume of Non-Performing Loans covered by collaterals Denominator Total Non-Performing Loans Received collaterals for NPLs / NPL NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 174 .6 200 .3 226 .6 81 .0 64 .9 78 .2 300 .5 58.1% 328 .3 61.0% 367 .4 61.7% 138 .0 58.7% 111 .2 58.4% 130 .4 60.0% Non-performing loans and advances (EBA def.) – Non-performing loans include loans and advances in accordance with EBA Methodology that are classified as D and E, namely loans at least 90 days past due or loans unlikely to be repaid without recourse to collateral (before deduction of loan loss allowances) . 172 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 the EBA methodology (report Finrep18) . For this calculation, loans and advances classified as held for sale, cash balances at CBs, and other demand deposits are excluded from the denominator and the numerator . The calculations presented below are based on internal data sources . Table 61: NLB Group and NLB Gross NPL ratio (EBA def.) calculation 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 NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 310 .8 337 .2 375 .1 139 .4 111 .7 131 .2 14,780 .1 13,796 .0 11,128 .8 7,520 .3 6,610 .8 5,498 .9 Gross NPL ratio per cent. (% NPL) 2.1% 2.4% 3.4% 1.9% 1.7% 2.4% Gross NPL ratio (EBA def.) (BoS) – 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 the EBA methodology (report Finrep18) . Cash balances at CBs and other demand deposits are included in the calculation . The EU banking sector indicator is published quarterly by the EBA in the Risk dashboard . The calculations presented below are based on internal data sources . Table 62: NLB Group and NLB Gross NPL ratio (EBA def.) (BoS) calculation Numerator Gross volume of Non-Performing Loans and advances Denominator Gross volume of Loans and advances in Finrep18 NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 310 .8 337 .2 375 .1 139 .4 111 .7 131 .2 20,421 .9 18,590 .5 15,668 .8 11,664 .9 9,780 .9 8,615 .3 Gross NPL ratio per cent. (% NPL) 1.5% 1.8% 2.4% 1.2% 1.1% 1.5% 173 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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) . Loans and advances classified as held for sale, cash balances at CBs and other demand deposits are excluded from the denominator and the numerator . Table 63: NLB Group and NLB NPL coverage ratio (EBA def.) calculation Numerator Volume of allowances and value adjustments for credit losses on Non-Performing loans and advances(i) 204 .0 195 .9 219 .1 85 .6 65 .0 79 .8 Denominator Gross volume of Non-Performing loans and advances(i) NPL coverage ratio per cent. (% CR) (i)Without loans and advances classified as held for sale, cash balances at CBs, and other demand deposits. 310 .8 65.6% 337 .2 58.1% 375 .1 58.4% 139 .4 61.4% 111 .7 58.2% 131 .2 60.8% NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions NPL coverage ratio (EBA def.) (BoS) – 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) . Cash balances at CBs and other demand deposits are included in the calculation . Table 64: NLB Group and NLB NPL coverage ratio (EBA def.) (BoS) calculation Numerator Volume of allowances and value adjustments for credit losses on Non-Performing loans and advances 204 .0 195 .9 219 .1 85 .6 65 .0 79 .8 Denominator Gross volume of Non-Performing loans and advances NPL coverage ratio per cent. (% CR) 310 .8 65.6% 337 .2 58.1% 375 .1 58.4% 139 .4 61.4% 111 .7 58.2% 131 .2 60.8% NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions Collateral 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 a 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 . Table 65: NLB Group and NLB NPL collateral coverage ratio (EBA def.) calculation Numerator Volume of collateral received up to the carrying amount of each loan or advance 16 .7 30 .7 36 .7 7 .0 Denominator Gross volume of collateralized Non-Performing loans and advances NPL Collateral received / NPL (%) 36 .6 45.6% 56 .1 54.7% 62 .5 58.8% 10 .4 67.1% 6 .2 8 .2 75.6% 12 .2 19 .4 63.1% NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 174 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 ongoing 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 and those of its off-balance-sheet (OBS) exposures . The calculations presented below are based on internal data sources . Table 66: NLB Group and NLB NSFR calculation NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2021 31 Dec 2023 31 Dec 2022 31 Dec 2021 in EUR millions Numerator Amount of available stable funding 21,868 .5 20,409 .1 18,446 .7 13,375 .3 11,691 .2 10,815 .8 Denominator Amount of required stable funding 11,677 .6 11,154 .7 NSFR 187.3% 183.0% 9,960 .8 185.2% 7,577 .5 176.5% 6,582 .3 177.6% 6,309 .5 171.4% EVE (Economic Value of Equity) method – The EVE method measures 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 under at least six prescribed standardised interest rate shock scenarios or more if necessary, according to the situation on financial markets . Calculations take into account 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 bps on the economic value of the banking book position: Table 67: NLB Group EVE calculation 31 Dec 2023 30 Sep 2023 30 Jun 2023 31 Mar 2023 31 Dec 2022 NLB Group in EUR thousands Numerator Interest risk in banking book – EVE -108,489 .1 -69,389 .2 -83,353 .2 -61,615 .8 -110,452 .4 Denominator Equity (Tier I) EVE as % of Equity 2,589,612 .0 2,281,260 .0 2,269,153 .0 2,254,020 .0 2,166,333 .0 -4.2% -3.0% -3.7% -2.7% -5.1% 175 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Operational business margin (OBM) – Calculated as the ratio between operational business net income annualized and average assets . Table 68: NLB Group and NLB OBM calculation NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions Numerator Operational business net income(i) 1,174 .7 820 .0 678 .1 541 .3 326 .8 274 .3 Denominator Average total assets(ii) OBM (cumulative) 24,706 .3 22,975 .9 20,659 .0 14,705 .7 13,147 .5 11,876 .0 4.8% 3.6% 3.3% 3.7% 2.5% 2.3% (i) Operational business net income is annualized, and calculated as operational business income in the period divided by the number of days in the period and multiplied by the number of days in the year. Operational business income consists of net interest income (excluding interest expenses from subordinated securities), net fees and commissions and net gains and losses from financial assets and liabilities held for trading that derive from foreign exchange trading. (ii) NLB internal information. Average total assets is calculated as a sum of balance as at the end 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). Operational business margin (OBM) (quarterly) – Calculated as the ratio between operational business net income annualized and average assets . Table 69: NLB Group OBM (quarterly) calculation Numerator Operational business net income(i) Denominator Average total assets(ii) OBM (quarterly) NLB Group in EUR millions Q4 2023 Q3 2023 Q2 2023 Q1 2023 1,272 .4 1,223 .6 1,145 .3 1,054 .7 25,494 .3 4.99% 25,037 .1 4.89% 24,211 .9 4.73% 24,049 .9 4.39% (i) Operational b usiness net income (quarterly) is annualized, and calculated as operational business income in the period divided by the number of days in the quarter and multiplied by the number of days in the year. Operational business income consists of net interest income (excluding interest expenses from subordinated securities), net fees and commissions and net gains and losses from financial assets and liabilities held for trading that derive from foreign exchange trading. (ii) NLB internal information. Average total assets (quarterly) for the NLB Group are calculated as the sum of monthly balances (t) for the corresponding quarter and monthly balance at the end of the previous quarter divided by (t+1). 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) . Table 70: NLB Group and NLB ROE b.t. calculation Numerator  Result before tax(i) Denominator  Average total equity(ii) ROE b.t. NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 578 .4 483 .1 261 .4 478 .7 164 .1 211 .5 2,683 .6 21.6% 2,344 .4 20.6% 2,222 .8 11.8% 1,843 .8 26.0% 1,558 .3 10.5% 1,507 .2 14.0% (i) The result before tax is annualized and calculated as the result before tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total equity (including non-controlling interests) is calculated as the sum of the balance as at end 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). 176 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Return on equity after tax (ROE a.t.) – Calculated as the ratio between result after tax annualized and average equity . Table 71a: NLB Group and NLB ROE a.t. calculation Numerator Result after tax(i) Denominator Average equity(ii) ROE a.t. NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 550 .7 446 .9 236 .4 514 .3 159 .6 208 .4 2,623 .0 21.0% 2,248 .7 19.9% 2,069 .9 11.4% 1,843 .8 27.9% 1,558 .3 10.2% 1,507 .2 13.8% (i) The result after tax is annualized and calculated as the result after tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average equity is calculated as the sum of the balance as at the end 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). Table 71b: NLB Group (w/o negative goodwill) ROE a.t. calculation NLB Group (w/o NGW) Numerator Result after tax(i) Denominator Average equity(ii) ROE a.t. (i)(ii) Please refer to the notes under Table 71a. in EUR millions 2022 274 .0 2,248 .7 12.2% Table 71c: NLB Group’s banking subsidiaries ROE a.t. calculation Numerator Result after tax(i) Denominator Average equity(ii) ROE a.t. (i)(ii) Please refer t o the notes under Table 71a. NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina in EUR millions NLB Banka, Podgorica 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 132 .3 68 .2 44 .5 37 .9 24 .3 19 .3 12 .8 11 .4 36 .0 32 .4 26 .7 16 .6 784 .6 16.9% 713 .0 9.6% 270 .4 16.5% 252 .9 15.0% 100 .2 24.2% 95 .3 94 .1 91 .5 20.2% 13.6% 12.5% 131 .8 27.3% 111 .1 29.2% 116 .6 22.9% 99 .5 16.7% 177 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Table 71: Table 72: NLB Group ROE a.t. normalized calculation Return on equity after tax (ROE a.t.) normalized(iii)– Calculated as the ratio between result after tax annualized and average risk adjusted capital . Numerator Result after tax(i) Denominator Average risk adjusted capital(ii) ROE a.t. in EUR millions NLB Group 2023 550 .7 1,879 .2 29% (i) Result after tax is annualized, calculated as a result after tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average risk adjusted capital is calculated as a sum of Risk Weighted Assets (RWA) balance as at the end of the previous year end (31 December) and monthly Risk Weighted Assets (RWA) balances of the last day of each month from January to month t divided by (t+1), multiplied by Tier 1 regulatory capital requirement and decreased by minority shareholder capital. (iii) Result a.t. w/o negative goodwill divided by Average risk adjusted capital. Average risk adjusted capital calculated as Tier 1 requirement of average Risk Weighted Assets (RWA) reduced for minority shareholder capital contribution. Return on assets before tax (ROA b.t.) – Calculated as the ratio between result before tax annualized and average total assets . Table 73: NLB Group and NLB ROA b.t. calculation Numerator Result before tax(i) Denominator Average total assets(ii) ROA b.t. NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 578 .4 483 .1 261 .4 478 .7 164 .1 211 .5 24,706 .3 22,975 .9 20,659 .0 14,705 .7 13,147 .5 11,876 .0 2.3% 2.1% 1.3% 3.3% 1.2% 1.8% (i) The result before tax is annualized and calculated as the result before tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total assets are calculated as the sum of the balance as at the end of the previous year end (31 December) and the monthly balances of the last day of each month from January to month t divided by (t+1). 178 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Return on assets after tax (ROA a.t.) – Calculated as the ratio between result after tax annualized and average total assets . Table 74a: NLB Group and NLB ROA a.t. calculation Numerator Result after tax(i) Denominator Average total assets(ii) ROA a.t. NLB Group NLB 2023 2022 2021 2023 2022 2021 in EUR millions 550 .7 446 .9 236 .4 514 .3 159 .6 208 .4 24,706 .3 22,975 .9 20,659 .0 14,705 .7 13,147 .5 11,876 .0 2.2% 1.9% 1.1% 3.5% 1.2% 1.8% (i) The result after tax is annualized and calculated as the result after tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total assets are calculated as the sum of balance as at the end 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). Table 74b: NLB Group’s banking subsidiaries ROA a.t. calculation NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina in EUR millions NLB Banka, Podgorica 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 132 .3 68 .2 44 .5 37 .9 24 .3 19 .3 12 .8 11 .4 36 .0 32 .4 26 .7 16 .6 4,760 .5 4,668 .8 1,833 .2 1,771 .1 1,003 .6 2.8% 1.5% 2.4% 2.1% 2.4% 948 .7 2.0% 870 .9 1.5% 777 .6 1.5% 1,135 .9 3.2% 987 .1 3.3% 911 .3 2.9% 795 .2 2.1% Numerator Result after tax(i) Denominator Average total assets(ii) ROA a.t. (i)(ii) Please refer to the notes under Table 74a. 179 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Total capital ratio (TCR) – TCR is the own funds of the institution expressed as a percentage of the total risk exposure amount . Table 75a: NLB Group and NLB TCR calculation NLB Group 31 Dec 2023 31 Dec 2022 31 Dec 2021 31 Dec 2023 in EUR millions NLB 31 Dec 2022 31 Dec 2021 Numerator Total capital (Own funds) 3,109 .2 2,806 .4 2,252 .5 2,324 .1 2,004 .2 1,647 .3 Denominator Total risk exposure Amount (Total RWA) 15,337 .2 14,653 .1 12,667 .4 Total capital ratio 20.3% 19.2% 17.8% 9,207 .5 25.2% 7,832 .7 25.6% 6,708 .5 24.6% Table 75b: NLB Group’s banking subsidiaries TCR calculation NLB Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica N Banka, Ljubljana 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 31 Dec 2022 in EUR millions 717 .0 620 .9 268 .7 251 .4 88 .6 81 .4 95 .0 80 .4 135 .5 117 .5 87 .6 77 .0 188 .3 2,647 .4 2,521 .5 1,422 .3 1,384 .8 557 .2 508 .3 534 .0 488 .1 855 .3 746 .0 456 .6 419 .6 877 .9 27.1% 24.6% 18.9% 18.2% 15.9% 16.0% 17.8% 16.5% 15.8% 15.7% 19.2% 18.4% 21.4% Numerator Total capital Denominator Total risk exposure Amount (Total RWA) Total capital ratio 180 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB Group Chart Nova Ljubljanska banka d .d ., Ljubljana Core Non-Core Banks Financial institutions Companies Financial institutions Companies Slovenia NLB Skladi, Ljubljana Slovenia Bankart, Ljubljana(ii) 100% 100% 46 .03% 46 .03% NLB Lease&Go, leasing, Ljubljana 100% 100% NLB Cultural Heritage Management Institute 100% 100% Slovenia NLB Leasing, Ljubljana – v likvidaciji(iii) 100% 100% Prvi faktor, v likvidaciji, Ljubljana 50% 50% Slovenia S-REAM, Ljubljana 100% 100% PRO-REM, Ljubljana – v likvidaciji 100% 100% ARG-Nepremičnine, Horjul 75% 75% PRIVATINVEST, Ljubljana 100% 100% Foreign countries Foreign countries Foreign countries Foreign countries Foreign countries NLB Lease&Go, Skopje(iv) 51% 100% NLB Lease&Go Leasing, Beograd(v) 50 .73% 99 .64% NLB DigIT, Beograd 100% 100% NLB Banka, Sarajevo 97 .35% 97 .35% NLB Banka, Podgorica 99 .87% 99 .87% NLB Banka, Prishtina 82 .38% 82 .38% NLB Banka, Banja Luka 99 .85% 99 .85% NLB Banka, Skopje 86 .97% 86 .97% NLB Komercijalna Banka, Beograd 100% 100% KomBank Invest, Beograd 100% 100% REAM, Beograd 100% 100% REAM, Podgorica 100% 100% NLB Srbija, Beograd 100% 100% OL Nekretnine – u likvidaciji, Zagreb 100% 100% NLB InterFinanz in Liquidation, Zürich 100% 100% NLB InterFinanz, Beograd – u likvidaciji 100% 100% LHB AG, Frankfurt am Main 100% 100% NLB Crna Gora, Podgorica 100% 100% Prvi faktor u likvidaciji, Zagreb(i.a) 100% 100% Prvi faktor-faktoring, Beograd – u likvidaciji(i.b) 90% 95% % direct share % direct share Subsidiary % indirect share at the group level Associate % indirect share at the group level % direct share % indirect share at the group level Joint Venture Legend: The chart shows voting rights shares. The Group includes entities according to the definition in the Financial Conglomerates Act (Article 2). (i.a) 100% direct ownership Prvi Faktor, v likvidaciji, Ljubljana. (i.b) 90% direct ownership Prvi Faktor, v likvidaciji, Ljubljana, 5% NLB, 5% SID banka d.d. (ii) - 46.03% direct ownership of NLB d.d. - Abanka merged into Nova KBM, which currently has a 29.22% share in Bankart. This is over the 25% threshold set in the Founding agreement - no shareholder other than NLB can have more than 25% capital share in Bankart. (iii) 100% direct ownership NLB Lease&Go, leasing, d.o.o., Ljubljana. (iv) 51% direct ownership NLB Lease&Go, leasing, d.o.o., Ljubljana, 49% NLB Banka AD Skopje. (v) 50.73% direct ownership NLB Lease&Go, leasing, d.o.o., Ljubljana, 48.91% NLB Komercijalna Banka, Beograd. 181 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Organisational Structure of NLB Supervisory Board Management Board Internal Audit Worker´s Council(i) Compliance and Integrity Group Steering Strategy and Business Development Legal and Secretariat Brand and Communication Human Resources and Organization Development Global Risk Group Real Estate Management CSA & Cross-border Financing IT Delivery Credit Risk - Corporate Controlling Large Corporates Data Management Credit Risk - Retail Financial Accounting and Administration Evaluation and Control Financial Markets Restructuring Workout and Legal support IT Governance IT Security IT Infrastructure Procurement Payments and Cards Services and Business Development Payments Processing Cash Processing Financial Instruments Processing Corporate Customer Delivery Retail Banking Processing Small and Mid Corporates Trade Finance Services Investment Banking and Custody NLB Group Corporate and Investment Banking Management Customer, Product Management and Digital Services Private Banking KC 24/7 Distribution Network Area Branch Ljubljana Area Branch Northwest and Central Slovenia Area Branch Northeast Slovenia Area Branch East Slovenia Area Branch Southeast Slovenia Area Branch Southwest Slovenia Micro Enterprises Mobile Banking Distribution Network Coordination 182 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report CRO CFO CMO COO Contents Understanding of the tasks and responsibilities of Global Risk, Compliance and Integrity and Internal Audit is taken into account in accordance to the definitions of the (currently valid) Banking Act-ZBan-3. (i) Worker´s Council is independent organisational unit with no subordinate or superior organisational units and it operates in accordance with ZSDU. FINANCIAL REPORT 183 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Contents Independent auditor’s report . . . . . . . . . . . . . . . . . . . . 186 2 .15 . Repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . 211 4 .4 . Gains less losses from financial assets Statement of management’s responsibility . . . . . . . 190 2 .16 . Offsetting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 and liabilities not measured at fair value through profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Income statement for the annual period ended 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Statement of other comprehensive income for the annual period ended 31 December . . . . . . . . 192 Statement of financial position as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Statement of changes in equity for the annual period ended 31 December . . . . . . . . . . . . . . . 195 Statement of cash flows for the annual period ended 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Notes to the financial statements . . . . . . . . . . . . . . . . . 199 2 .17 . Sale and repurchase agreements . . . . . . . . . . . . . 212 2 .18 . Property and equipment . . . . . . . . . . . . . . . . . . . . . . 212 4 .5 . Gains less losses from financial assets and liabilities held for trading . . . . . . . . . . . . . . . . . . 226 2 .19 . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 4 .6 . Gains less losses from non-trading 2 .20 . Investment properties . . . . . . . . . . . . . . . . . . . . . . . . 212 financial assets mandatorily at fair value through profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 2 .21 . Non-current assets and disposal groups classified as held for sale . . . . . . . . . . . . . . . . . . . . . 212 4 .7 . Foreign exchange translation gains less losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 2 .22 . Accounting for leases . . . . . . . . . . . . . . . . . . . . . . . . . 213 4 .8 . Other net operating income . . . . . . . . . . . . . . . . . . . . 228 2 .23 . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 213 4 .9 . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . 229 2 .24 . Borrowings, deposits, and issued 4 .10 . Cash contributions to resolution funds debt securities with characteristics of debt . . . . 213 and deposit guarantee schemes . . . . . . . . . . . . . . 230 1 . General information . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 2 .25 . Other issued financial instruments with 2 . Summary of material accounting policy characteristics of equity . . . . . . . . . . . . . . . . . . . . . . 214 information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 2 .26 . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 4 .11 . Depreciation and amortisation . . . . . . . . . . . . . . . 231 4 .12 . Gains less losses from modification of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 2 .1 . Statement of compliance . . . . . . . . . . . . . . . . . . . . . . . 199 2 .2 . Basis for presenting the financial statements . . . 199 2 .3 . Comparative amounts . . . . . . . . . . . . . . . . . . . . . . . . . 200 2 .4 . Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 2 .5 . Business combinations, goodwill, and bargain purchases . . . . . . . . . . . . . . . . . . . . . . . . 201 2 .6 . Investments in subsidiaries, associates 2 .27 . Contingent liabilities and commitments . . . . . . . 214 4 .13 . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 2 .28 . Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 4 .14 . Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 2 .29 . Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 4 .15 . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 2 .30 . Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 4 .16 . Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 2 .31 . Share-based payment transactions . . . . . . . . . . 216 5 . Notes to the statement of financial position . . . . . 235 2 .32 . Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 5 .1 . Cash, cash balances at central banks, and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 2 .33 . Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 2 .7 . A combination of entities or businesses 2 .34 . Critical accounting estimates and judgments and other demand deposits at banks . . . . . . . . . . 235 5 .2 . Financial instruments held for trading . . . . . . . . . 236 under common control . . . . . . . . . . . . . . . . . . . . . . . . . 202 in applying accounting policies . . . . . . . . . . . . . . 216 5 .3 . Non-trading financial instruments measured 2 .8 . Foreign currency translation . . . . . . . . . . . . . . . . . . . 203 2 .35 . Implementation of the new and revised at fair value through profit or loss . . . . . . . . . . . . . . 237 2 .9 . Interest income and expenses . . . . . . . . . . . . . . . . . . 203 2 .10 . Fee and commission income . . . . . . . . . . . . . . . . . . 203 2 .11 . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 2 .12 . Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . 204 2 .13 . Allowances for financial assets . . . . . . . . . . . . . . . 207 2 .14 . Forborne loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 International Financial Reporting Standards . . 219 5 .4 . Financial assets measured at fair value 3 . Changes in the composition of the NLB Group . . . 220 4 . Notes to the income statement . . . . . . . . . . . . . . . . . 222 4 .1 . Interest income and expenses . . . . . . . . . . . . . . . . . . 222 4 .2 . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 4 .3 . Fee and commission income and expenses . . . . 223 through other comprehensive income . . . . . . . . . . 238 5 .5 . Derivatives for hedging purposes . . . . . . . . . . . . . . 240 5 .6 . Financial assets measured at amortised cost . . . 244 5 .7 . Non-current assets held for sale . . . . . . . . . . . . . . 246 5 .8 . Property and equipment . . . . . . . . . . . . . . . . . . . . . . . 246 184 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 5 .9 . Investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 5 .23 . Capital adequacy ratios . . . . . . . . . . . . . . . . . . . . . . 292 5 .10 . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 5 .24 . Off-balance sheet liabilities . . . . . . . . . . . . . . . . . . 295 5 .11 . Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 5 .25 . Funds managed on behalf of third parties . . . . 297 5 .12 . Investments in subsidiaries, associates 6 . Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 5 .13 . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 5 .14 . Movements in allowance for the impairment of financial assets . . . . . . . . . . . . . . . 264 5 .15 . Financial liabilities, measured at 6 .1 . Credit risk management . . . . . . . . . . . . . . . . . . . . . . . 301 6 .2 . Market risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 6 .3 . Liquidity risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 6 .4 . Management of non-financial risks . . . . . . . . . . . . 341 amortised cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 6 .5 . Fair value hierarchy of financial and 5 .16 . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 5 .17 . Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . 285 5 .18 . Income tax relating to components of other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 289 non-financial assets and liabilities . . . . . . . . . . . . . 342 6 .6 . Environmental and climate-related risks . . . . . . . 352 6 .7 . Offsetting financial assets and financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 352 5 .19 . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 7 . Analysis by segment for NLB Group . . . . . . . . . . . . 354 5 .20 . Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 8 . Related-party transactions . . . . . . . . . . . . . . . . . . . . 358 5 .21 . Other equity instruments issued . . . . . . . . . . . . . . 290 9 . Events after the reporting date . . . . . . . . . . . . . . . . . 367 5 .22 . Accumulated other comprehensive income and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 185 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Independent auditor’s report KPMG SLOVENIJA, podjetje za revidiranje, d.o.o. Železna cesta 8a SI-1000 Ljubljana Slovenija Telefon: +386 (0) 1 420 11 60 Internet: http://www.kpmg.si Independent Auditors' Report Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audits of the separate and consolidated financial statements of the current period. These matters were addressed in the context of our audits 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. To the shareholders of Nova Ljubljanska banka d.d., Ljubljana We have determined the following key audit matters: Report on the Audit of the Separate and Consolidated Financial Statements Opinion We have audited the separate financial statements of Nova Ljubljanska banka d.d., Ljubljana (the “Bank”) and the consolidated financial statements of the Bank and its subsidiaries (collectively, the “Group”), which comprise: • the separate and consolidated statements of financial position as at 31 December 2023; and, for the period from 1 January to 31 December 2023: • • • • the separate and consolidated income statements; the separate and consolidated statements of other comprehensive income; the separate and consolidated statements of changes in equity; the separate and consolidated statements of cash flows; and • notes, comprising material accounting policies and other explanatory information. In our opinion, the accompanying separate and consolidated financial statements give a true and fair view of the unconsolidated and consolidated financial position, respectively, of the Bank and the Group as at 31 December 2023, and of their respective unconsolidated and consolidated financial performance and unconsolidated and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS EU”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and EU 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 (OJ L 158, 27.5.2014, p. 77- 112 - EU Regulation EU No 537/2014). Our responsibilities under those standards 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 International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (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. © 2024 KPMG SLOVENIJA, podjetje za revidiranje, d.o.o., slovenska družba z omejeno odgovornostjo in članica globalne organizacije neodvisnih članic, ki so povezane s KPMG International Limited, zasebno angleško družbo z omejeno odgovornostjo. Vse pravice pridržane. vpis v sodni register: Okrožno sodišče v Ljubljani št. reg. vl.: 061/12062100 osnovni kapital: 54.892,00 EUR ID za DDV: SI20437145 matična št.: 5648556000 Allowance for impairment of loans and advances to customers As at 31 December 2023, the carrying amount of loans and advances to customers of the Bank and the Group, respectively: EUR 7,148 million and EUR 13,735 million; related impairment allowance of the Bank and the Group, respectively: EUR 120 million and EUR 329 million. We refer to the separate and consolidated financial statements: Note 2.34. ”Critical accounting estimates and judgments in applying accounting policies”, Note 2.13. ”Allowances for financial assets”, Note 5.6. “Financial assets measured at amortised cost”, Note 5.14. “Movements in allowance for the impairment of financial assets” and Note 6.1. “Credit risk management”. Key audit matter Our response for impairment Allowances represent management’s best estimate of the expected credit losses (“ECLs”) within loans and advances to customers (“loans”, “exposures”) measured at amortized cost at the reporting date. We focused on this area as the measurement of allowances for impairment requires the Management Board to make complex and subjective assumptions and judgements. ECLs for performing exposures (Stage 1 and Stage 2 in the IFRS 9 Financial instruments hierarchy) and for non-performing/defaulted (Stage 3) exposures not exceeding prescribed quantitative thresholds, are determined by modelling techniques relying on key parameters such as the probability of default (“PD”), exposure at default (“EAD”), credit conversion factor (“CCF”) and loss given default (“LGD”), taking into account historical experience, identification of exposures with a significant increase in credit risk and forward-looking (“SICR”), management “collective judgment impairment allowance”). information (together ECLs for Stage 3 loans whose amounts exceed the quantitative thresholds are determined on an individual basis by means of a discounted cash flows analysis. The process involves subjectivity and reliance on a number of significant assumptions, including, those in respect of the expected proceeds from the sale of the related collaterals and minimum period for collateral disposal. Our procedures in the area, performed, where applicable, with the assistance of our own financial risk management (FRM) and information technology (IT) audit specialists, included, among other things: the level of — inspecting the Bank’s and Group’s ECL methodology and assessing its compliance with the requirements of the relevant financial reporting standards. As part of the above, we the Management Board on challenged whether the methodology’s sophistication is appropriate based on our assessment of the entity and portfolio level factors; — testing implementation and operating effectiveness of selected controls in the process of approval, recording and monitoring of loans, including, but not limited to, rating to classification, calculation of days past due, over inputs of collateral data in the system and calculation of ECLs; the design, the credit relating those — challenging the appropriateness and consistency of the Bank’s and the Group’s application of the standard’s definitions of their classification of SICR and default, exposures into performing and non- performing and segmentation of loans into homogenous groups; — evaluating whether appropriately considered in loan staging and impairment measurement were the current volatile macroeconomic environment, which included the effects of 2 186 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents In the wake of the above factors, coupled with the significantly higher estimation uncertainty stemming from the impact of the current macroeconomic environment (geopolitical situation, increasing interest rates, energy prices and inflation), we considered allowance for impairment of loans and advances to customers to be associated with a significant risk of material misstatement in the separate and consolidated financial statements. Therefore, the area required our increased attention in the audit and as such was determined to be a key audit matter. challenging the management overlays used in measuring ECLs at the Group level. Other Matter For collective impairment allowance: — obtaining in the forward-looking relevant information and macroeconomic projections the Bank’s and Group’s ECL used measurement. Independently assessing the information by means of inquiries of the Management Board and inspecting publicly available information; the Group’s historical — challenging the collective PD, EAD, CCF and LGD parameters, by reference to the Bank’s and loan default experience and historical realized losses on those defaults, also considering any required adjustments to reflect expected changes in circumstances; — for a risk-based sample of loans, critically assessing, by reference to the underlying loan files and through discussion with responsible loan officers and credit risk management personnel, the existence of any impairment triggers for classification to Stage 2 or Stage 3 as at 31 December 2023. For individually: impairment allowances calculated — for a risk-based sample of Stage 3 loans, challenging the Bank’s and Group’s cash flow projections and key assumptions used in scenarios, by reference to our knowledge of the relevant industry and of the borrower. We also challenged the collateral valuations by inspecting the underlying valuation reports obtained by the Bank and Group, and also by reference to publicly available data. For loan exposures in totality: — critically assessing overall reasonableness of for impairment, including the loans provision coverage; the the allowances — examining whether the Bank’s and Group’s loan risk-related impairment and credit disclosures in the separate and consolidated financial statements appropriately address relevant quantitative and qualitative the requirements of financial reporting framework. the applicable The separate and consolidated financial statements of, respectively, the Bank and the Group as at and for the year ended 31 December 2022 were audited by another auditor who expressed an unmodified opinion on those financial statements on 12 April 2023. Other Information Management is responsible for the other information. The other information comprises the “Overview” “Business Report”, “NLB Group Directory” and “Definitions and Glossary of Selected Terms” included in the Annual Report but does not include the separate and consolidated financial statements and our auditor’s report thereon. Our opinion on the separate and consolidated financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, 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 identified above 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. In addition, with respect to the Business Report, we are required to report on its consistency with the separate and consolidated financial statements and on whether the Business Report includes the disclosures required by the Companies Act dated 4 May 2006 (official gazette of Republic of Slovenia No. 42/2006 with amendments - hereafter referred to as »the applicable legal requirements«). Based solely on the work required to be undertaken in the course of the audit of the separate and consolidated financial statements and the procedures above, in our opinion: • • the information given in the Business Report for the financial year for which the separate and consolidated financial statements are prepared is consistent, in all material respects, with the separate and consolidated financial statements; and the Business Report has been prepared in accordance with the applicable legal requirements. Responsibilities of Management and Those Charged with Governance for the Separate and Consolidated Financial Statements Management is responsible for the preparation of separate and consolidated financial statements that give a true and fair view in accordance with IFRS EU, and for such internal control as management determines is necessary to enable the preparation of 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 or the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s and the Group’s financial reporting process. Auditors' 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 auditors’ 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 ISAs and EU Regulation (EU) No 537/2014 will always detect a material misstatement when it exists. Misstatements can arise 3 4 187 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 ISAs and EU Regulation (EU) No 537/2014, 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 the 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 auditors’ 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 auditors’ report. However, future events or conditions may cause the Bank or 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 those charged with governance 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 those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, 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. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements We were appointed by the shareholders of the Bank on the shareholders meeting dated 20 June 2022 to audit the Bank’s and the Group’s respective separate and consolidated financial statements for the year ended 31 December 2023. Our total uninterrupted period of engagement is 1 year. We confirm that: • our audit opinion is consistent with the additional report presented to the Audit Committee of the Bank dated 10 April 2024; • we have not provided any prohibited non-audit services (NASs) referred in Article 5 of EU Regulation (EU) No 537/2014. We also remained independent of the Bank and the Group in conducting the audit. For the period to which our statutory audit relates, we and other KPMG network firms have not provided any other services to the Bank and its controlled related entities which are not disclosed in the Business Report or in the separate and consolidated financial statements. Independent Auditor's Report on the Compliance of the Electronic Financial Statements with the Delegated Regulation 2019/815 on a Single Electronic Reporting Format (“ESEF Format”) We have conducted an engagement to provide reasonable assurance as to whether the audited separate and consolidated financial statements of the Bank and the Group, respectively, for the financial year ended 31 December 2023 (respectively, “Audited Separate Financial Statements” and “Audited Consolidated Financial Statements” and, collectively, “Audited Separate and Consolidated Financial Statements”) have been prepared in accordance with the requirements of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing the Directive 2004/109/EC of the European Parliament and the Council with regard to regulatory technical standards for establishing a single electronic reporting format applicable for the year 2023 (“Delegated Regulation”). Responsibilities of the Bank’s Management and Those Charged with Governance The Bank’s Management is responsible for the preparation and presentation of the Audited Separate and Consolidated Financial Statements in accordance with the Delegated Regulation, and for such internal control as management determines is necessary to enable the preparation of the Audited Separate and Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the preparation of the Audited Separate and Consolidated Financial Statements in compliance with requirements of the Delegated Regulation. Auditor’s Responsibilities Our responsibility is to express an opinion on whether the Audited Separate and Consolidated Financial Statements are prepared in accordance with requirements of the Delegated Regulation. We conducted our assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information issued by the International Auditing and Assurance Standards Board. That standard requires that we plan and perform our procedures to obtain reasonable assurance about whether the separate and consolidated financial statements in the ESEF Format are properly prepared and presented in accordance with the requirements of the Delegated Regulation, in all material respects. We have acted in accordance with the independence and ethical requirements of the EU Regulation 537/2014 and the IESBA Code. The Code is based on the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Our firm applies International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related 5 6 188 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Services Engagements, issued by the IAASB. This standard requires the firm to design, implement and operate a system of quality management, including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Summary of Work Performed Within the scope of our work, we performed the following audit procedures: • • identified and assessed the risks of material non-compliance of the Audited Separate and Consolidated Financial Statements with the requirements of the Delegated Regulation, whether due to error or fraud; obtained an understanding of internal control relevant to the engagement in order to provide reasonable assurance for designing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of such internal control. Specifically in respect of the Audited Consolidated Financial Statements, we obtained reasonable assurance that: • • • the Audited Consolidated Financial Statements are presented in a correct XHTML electronic format; the values and disclosures in the Audited Consolidated Financial Statements in XHTML format are correctly marked and in Inline XBRL (iXBRL) technology and that their machine reading provides complete and accurate information contained in the Audited Consolidated Financial Statements; notes to the Audited Consolidated Financial Statements are correctly block-tagged. Specifically in respect of the Audited Separate Financial Statements, we obtained reasonable assurance that: • the Audited Separated Financial Statements are presented in a correct XHTML electronic format. We believe that the evidence obtained provides a sufficient and appropriate basis for our opinion. Opinion In our opinion, based on the procedures performed and the evidence obtained, the Audited Separate and Consolidated Financial Statements of the Bank and the Group, respectively, as at and for the financial year ended 31 December 2023 are prepared, in all material respects, in accordance with the requirements of the Delegated Regulation. On behalf of audit firm KPMG SLOVENIJA, podjetje za revidiranje, d.o.o. Domagoj Vuković, FCCA Certified Auditor Partner KPMG Slovenija, d.o.o. 1 Ljubljana, 10 April 2024 7 189 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Statement of management’s responsibility The Management Board hereby confirms its Slovenian Companies Act and the Banking Act so as been prepared on a going-concern basis for NLB Group responsibility for preparing the consolidated financial to give a true and fair view of the financial position of and NLB, and in line with valid legislation and the statements of NLB Group and the financial statements NLB Group and NLB as at 31 December 2023, and their International Financial Reporting Standards as adopted of NLB for the year ending on 31 December 2023, and for financial results and cash flows for the year then ended . by the European Union . the accompanying accounting policies and notes to the financial statements . The Management Board also confirms that the The Management Board is also responsible for The Management Board is responsible for the applied, and that the accounting estimates were appropriate measures for safeguarding assets, and preparation and fair presentation of these financial prepared according to the principles of prudence and the prevention and identification of fraud and other statements in accordance with the International good management . The Management Board further irregularities or illegal acts . appropriate accounting policies were consistently appropriate accounting practices, the adoption of Financial Reporting Standards as adopted by the confirms that the financial statements of NLB Group European Union, and with the requirements of the and NLB, together with the accompanying notes, have The Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer 190 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Income statement for the annual period ended 31 December NLB Group in EUR thousands NLB Interest income calculated using the effective interest method Other interest and similar income Interest and similar income Interest expenses calculated using the effective interest method Other interest and similar expenses Interest and similar expenses Net interest income Dividend income Fee and commission income Fee and commission expenses Net fee and commission income Gains less losses from financial assets and liabilities not measured 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 liabilities measured at fair value through profit or loss Fair value adjustments in hedge accounting Foreign exchange translation gains less losses Notes 4 .1 . 4 .1 . 4 .2 . 4 .3 . 4 .3 . 4 .4 . 4 .5 . 4 .6 . 5 .5 .a) 4 .7 . Net gains or losses on derecognition of investments in subsidiaries, associates and joint ventures 5 .12 .b), c) Gains less losses on derecognition of non-financial assets Other net operating income Administrative expenses Cash contributions to resolution funds and deposit guarantee schemes Depreciation and amortisation Gains less losses from modification of financial assets Provisions for credit losses Provisions for other liabilities and charges Impairment of financial assets Impairment of non-financial assets Gain from bargain purchase 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 Earnings per share (in EUR per share) Diluted earnings per share (in EUR per share) The notes are an integral part of these financial statements . 4 .8 . 4 .9 . 4 .10 . 4 .11 . 4 .12 . 4 .13 . 4 .13 . 4 .14 . 4 .14 . 5 .12 .e), f) 5 .12 .g) 4 .15 . 4 .16 . 4 .16 . 2023 952,875 40,530 993,405 (148,034) (12,037) (160,071) 833,334 169 398,741 (120,780) 277,961 (742) 32,187 1,784 (799) 3,899 (2,778) (766) 3,200 (4,692) (452,623) (39,093) (49,232) (16,271) 5,055 (25,925) 6,717 53 - 1,072 5,903 578,413 (15,090) 563,323 550,700 12,623 27 .5 27 .5 2022 558,826 10,950 569,776 (53,086) (11,768) (64,854) 504,922 242 381,599 (108,249) 273,350 866 33,451 90 286 1,655 297 - 1,861 16,778 (412,886) (36,144) (47,390) (26) (3,050) (5,932) (14,454) (5,433) 172,878 781 921 483,063 (25,230) 457,833 446,862 10,971 22 .3 22 .3 2023 477,154 21,184 498,338 (115,779) (9,993) (125,772) 372,566 145,258 170,981 (42,432) 128,549 (834) (408) 2,445 (382) 3,588 3,003 (105) 49 (4,006) (218,407) (11,383) (19,457) - 3,074 (14,422) (7,668) 97,114 - - 172 478,746 35,541 514,287 2022 217,881 4,081 221,962 (34,166) (10,769) (44,935) 177,027 56,044 166,440 (37,291) 129,149 (1,050) 11,332 (1,451) 163 1,655 (1,588) - 33 4,411 (190,865) (9,713) (17,001) - 282 (2,325) (14,968) 22,767 - - 168 164,070 (4,468) 159,602 514,287 159,602 - 25 .7 25 .7 - 8 .0 8 .0 191 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 Statement of other comprehensive income for the annual period ended 31 December 192 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 Share of other comprehensive income/(losses) of entities accounted for using the equity method Income tax relating to components of other comprehensive income Items that have been or 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 Income tax relating to components of other comprehensive income 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 . Notes 5 .16 .c) 5 .4 .c) 5 .18 . 5 .4 .c) 4 .4 ., 4 .14 . 5.18. NLB Group 2023 563,323 84,952 (444) 6,796 45 (973) 1,884 1,884 70,926 77,238 (6,312) 6,718 648,275 635,233 13,042 2022 457,833 (149,677) 4,031 (2,383) 121 17 596 596 (163,055) (168,593) 5,538 10,996 308,156 297,936 10,220 in EUR thousands NLB 2023 514,287 48,078 588 2,284 - (465) - - 33,822 38,046 (4,224) 11,849 562,365 562,365 - 2022 159,602 (90,445) 2,048 (1,925) - 80 - - (92,030) (98,172) 6,142 1,382 69,157 69,157 - NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 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 held for sale Total assets Financial liabilities held for trading 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 - debt securities issued - 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 Other equity instruments 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 . Notes 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 .g) 5 .8 . 5 .9 . 5 .10 . 5 .17 . 5 .13 . 5 .7 . 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 .22 .a) 5 .21 . 5 .22 .b) 5 .22 .a) NLB Group in EUR thousands NLB 31 Dec 2023 6,103,561 15,718 14,175 2,251,556 2,522,229 547,640 13,734,601 165,962 47,614 (10,207) - 12,519 278,034 31,116 62,117 42 111,305 49,154 4,849 25,941,985 31 Dec 2022 5,271,365 21,588 19,031 2,919,203 1,917,615 222,965 13,072,986 177,823 59,362 (23,767) - 11,677 251,316 35,639 58,235 1,696 55,527 72,543 15,436 24,160,240 31 Dec 2023 4,318,032 17,957 16,643 1,023,012 1,966,169 149,011 7,148,283 101,596 47,614 (12,514) 975,757 4,823 85,970 7,640 37,379 - 109,449 13,907 4,048 16,014,776 31 Dec 2022 3,339,024 21,692 15,411 1,334,061 1,597,448 350,625 6,054,413 114,399 59,362 (23,767) 904,040 4,571 78,592 6,753 30,425 - 34,888 13,161 4,235 13,939,333 13,217 4,482 21,589 1,796 17,510 3,210 22,150 2,514 95,283 140,419 20,732,722 99,718 1,338,235 357,116 3,540 113,305 35,879 1,426 58,653 22,993,995 200,000 871,378 84,178 (76,118) 13,522 1,789,890 2,882,850 65,140 2,947,990 25,941,985 106,414 198,609 20,027,726 82,482 815,990 294,463 2,124 122,652 12,420 2,569 49,081 21,737,915 200,000 871,378 84,184 (160,588) 13,522 1,357,089 2,365,585 56,740 2,422,325 24,160,240 147,002 82,797 11,881,563 - 1,338,235 198,020 1,420 48,456 14,762 - 32,350 13,765,325 200,000 871,378 84,178 (36,316) 13,522 1,116,689 2,249,451 - 2,249,451 16,014,776 212,656 57,292 10,984,411 216 815,990 164,567 2,124 45,216 3,940 - 25,387 12,336,463 200,000 871,378 84,184 (81,677) 13,522 515,463 1,602,870 - 1,602,870 13,939,333 193 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 The Management Board of NLB has authorised for issue the financial statements and the accompanying notes . The Management Board of NLB Hedvika Usenik Member Andrej Lasič Member Archibald Kremser Member Peter Andreas Burkhardt Member Antonio Argir Member Blaž Brodnjak Chief executive officer Ljubljana, 10 April 2024 194 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Statement of changes in equity for the annual period ended 31 December  in EUR thousands 195 200,000 871,378 84,178 (60,019) (14,588) (1,511) 13,522 1,789,890 2,882,850 65,140 2,947,990 NLB Group Share capital Share premium Other equity instruments Accumulated other comprehensive income Fair value reserve of financial assets measured at FVOCI Foreign currency translation reserve 5.20. 5.22.a) 5.21. 5.22.b) 5.22.b) 200,000 871,378 84,184 (142,909) (16,485) - - - - - - - - - - - - - - - - - - - - (6) - - 82,953 1,897 82,953 1,897 - - (63) - - - - - NLB Group Share capital Share premium Other equity instruments Accumulated other comprehensive income Fair value reserve of financial assets measured at FVOCI Foreign currency translation reserve 5.20. 5.22.a) 5.21. 5.22.b) 5.22.b) 200,000 871,378 - - - - - - - - - - - - - - - - - - - - - 82,000 - - 2,184 11,366 (17,184) - (153,255) (153,255) - - (1,020) - - - 632 632 - - 67 - - Notes Balance as at 1 January 2023 - Net profit for the year - Other comprehensive income Total comprehensive income after tax Dividends Transactions with non-controlling interests (note 3 .) Transfer of fair values reserve Other Balance as at 31 December 2023 Notes Balance as at 1 January 2022 - Net profit for the year - Other comprehensive income Total comprehensive income after tax Dividends Other equity instruments issued Transactions with non-controlling interests (note 3 .) Transfer of fair values reserve Other Balance as at 31 December 2022 Other Profit reserves Retained earnings Equity attributable to owners of the parent Equity attributable to non- controlling interests Total equity 5.22.b) (1,194) - (317) (317) - - - - 5.22.a) 13,522 1,357,089 2,365,585 56,740 2,422,325 - - - - - - - 550,700 550,700 12,623 563,323 - 84,533 419 84,952 550,700 635,233 13,042 648,275 (110,000) (110,000) (4,634) (114,634) 8 63 8 - (7,970) (7,976) (8) - - - - (7,976)  in EUR thousands Other Profit reserves Retained earnings Equity attributable to owners of the parent Equity attributable to non- controlling interests Total equity 5.22.b) (4,734) - 3,697 3,697 - - (140) (17) - 5.22.a) 13,522 1,004,385 2,078,733 137,390 2,216,123 - - - - - - - - 446,862 446,862 10,971 457,833 - (148,926) (751) (149,677) 446,862 297,936 10,220 308,156 (100,000) (100,000) (4,568) (104,568) - 82,000 - 82,000 8,230 7,137 (86,358) (79,221) 17 (2,405) - (221) - 56 - (165) 200,000 871,378 84,184 (142,909) (16,485) (1,194) 13,522 1,357,089 2,365,585 56,740 2,422,325 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                                                     Accumulated other comprehensive income in EUR thousands 196 Balance as at 31 December 2023 200,000 871,378 NLB Notes Balance as at 1 January 2023 - Net profit for the year - Other comprehensive income Total comprehensive income after tax Dividends Merger of subsidiary Other NLB Notes Balance as at 1 January 2022 - Net profit for the year - Other comprehensive income Total comprehensive income after tax Dividends Other equity instruments issued Other Share capital Share premium Other equity instruments 5.20. 200,000 5.22.a) 871,378 5.21. 84,184 - - - - - - - - - - - - Fair value reserve of financial assets measured at FVOCI 5.22.b) (79,743) - 47,521 47,521 - (2,889) - (35,111) Other 5.22.b) (1,934) - 557 557 - 172 - Profit reserves Retained earnings Total equity 5.22.a) 13,522 - - - - - - 5.20. 515,463 514,287 - 514,287 (110,000) 204,904 (7,965) 1,602,870 514,287 48,078 562,365 (110,000) 202,187 (7,971) (1,205) 13,522 1,116,689 2,249,451 Share capital Share premium Other equity instruments 5.20. 200,000 5.22.a) 871,378 - - - - - - - - - - - - Accumulated other comprehensive income Fair value reserve of financial assets measured at FVOCI 5.22.b) 12,464 - (92,207) (92,207) - - - Other 5.22.b) (3,696) - 1,762 1,762 - - -  in EUR thousands Profit reserves Retained earnings Total equity 5.22.a) 13,522 - - - - - - 5.20. 458,266 159,602 - 159,602 (100,000) - (2,405) 515,463 1,551,934 159,602 (90,445) 69,157 (100,000) 82,000 (221) 1,602,870 - - - - - (6) 84,178 5.21. - - - - - 82,000 2,184 84,184 Balance as at 31 December 2022 200,000 871,378 The notes are an integral part of these financial statements . (79,743) (1,934) 13,522 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                     Statement of cash flows for the annual period ended 31 December in EUR thousands 197 Notes NLB Group 2023 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 receipts Other payments 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 deposits and borrowings measured at amortised cost Net increase/(decrease) in other liabilities Net cash flows from 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, net of cash and cash equivalents 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, net of cash acquired and increase in subsidiaries‘ equity Purchase of debt securities measured at amortised cost Net cash flows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from financing activities Issuance of subordinated bonds Issuance of senior preferred notes Issuance of ordinary shares and other equity instruments Other proceeds related to financing activities Payments from financing activities Dividends paid Purchase of subsidiary‘s treasury shares Lease payments Net cash flows 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 of merged bank at the date of the merger Cash and cash equivalents at end of year The notes are an integral part of these financial statements . 5 .12 .b), c) 3 ., 5 .12 .e), f) 5 .15 .c) 5 .15 .c) 5 .21 . 997,912 (135,715) 417 397,366 (120,892) 94 29,374 (467,937) 16,913 (63,413) (33,404) 620,715 (74,575) 200 6,416 733,788 (818,626) 3,647 854,231 847,289 6,942 1,400,371 445,345 11,314 12,776 16,786 404,469 (1,083,639) (42,681) (19,305) - (1,021,653) (638,294) 497,708 - 497,708 - - (122,273) (114,749) - (7,524) 375,435 (595) 1,137,512 5,500,222 - 6,637,139 2022 624,528 (50,824) 965 382,354 (105,086) 3,365 32,799 (428,539) 19,148 (43,260) (18,336) 417,114 (1,002,409) (213) 3,357 349,351 (1,357,757) 2,853 476,590 476,083 507 (108,705) 211,536 19,675 - 1,081 190,780 (252,726) (26,910) (14,273) 198,241 (409,784) (41,190) 599,338 217,873 299,029 82,000 436 (131,745) (104,586) (19,042) (8,117) 467,593 6,213 317,698 5,176,311 - 5,500,222 NLB 2023 494,577 (110,439) 138,327 164,611 (41,809) 2 4,287 (216,407) 11,141 (24,090) (7,750) 412,450 (14,214) 200 648 400,123 (414,239) (946) 280,488 274,363 6,125 678,724 196,331 224 20,068 944 175,095 (551,632) (10,152) (12,587) - (528,893) (355,301) 497,708 - 497,708 - - (111,264) (110,000) - (1,264) 386,444 1,039 709,867 3,494,435 118,158 4,323,499 2022 247,675 (30,982) 75,071 162,129 (37,183) 1 12,073 (186,831) 10,159 (11,955) 3,635 243,792 (819,088) (213) (3,048) 76,653 (890,003) (2,477) 621,876 617,277 4,599 46,580 138,980 2,915 21,130 645 114,290 (442,731) (5,748) (6,684) (120,944) (309,355) (303,751) 598,902 217,873 299,029 82,000 - (100,974) (100,000) - (974) 497,928 (1,106) 240,757 3,254,784 - 3,494,435 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         Cash and cash equivalents comprise: Cash, cash balances at central banks, and other demand deposits at banks Loans and advances to banks with original maturity up to three months Debt securities measured at fair value through other comprehensive income with original maturity up to three months Total Notes 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 NLB Group NLB in EUR thousands 5 .1 . 6,104,851 506,266 5,272,538 208,404 4,318,499 5,000 3,339,381 155,054 26,022 19,280 - - 6,637,139 5,500,222 4,323,499 3,494,435 198 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 Notes to the financial statements 1 . General information Nova Ljubljanska banka d .d . Ljubljana (hereinafter: ‘NLB’ or ‘the Bank’) is a Slovenian joint-stock entity providing universal banking services . NLB Group consists of NLB and its subsidiaries located in nine countries, mainly in Slovenia and the SEE market . Information on 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, 1000 Ljubljana . NLB’s shares are listed on the Ljubljana Stock Exchange, and the global depositary receipts (‘GDR’) representing ordinary shares of NLB, are listed on the London Stock Exchange . Five GDRs represent one share of NLB . As at 31 December 2023 and as at 31 December 2022, the largest shareholder of NLB with significant influence is the Republic of Slovenia, owning 25.00% plus one share. 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 material accounting policy information The material accounting policy information 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 under the national legislation are included where appropriate . The separate and consolidated financial statements are comprised of the income statement and statement of other comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows, material accounting policy information, and the notes . 2 .2 . Basis for presenting the financial statements The financial statements have been prepared on a going-concern basis, under the historical cost convention as modified by the revaluation of 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 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 .34 . This document contains both the separate financial statements of NLB, and the consolidated financial statements of NLB Group . The presented accounting policies apply to both sets of financial statements, with the exception of policies described in notes 2 .4 . and 2 .5 ., which only apply to the consolidated financial statements and policies described in note 2 .6 ., where differences in the accounting treatment for investments in subsidiaries, and associated and joint ventures between separate and consolidated financial statements are described . Data relating to separate financial statements is marked ‘NLB,’ while data relating to consolidated financial statements is marked ‘NLB Group .’ 199 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 2 .3 . Comparative amounts Except when a standard or an interpretation permits Compared to the presentation of the financial statements income/expenses’ to section ‘Interest income/expenses or requires otherwise, all amounts are reported or for the year ended 31 December 2022, subtotals of line calculated using the effective interest method,’ and disclosed with comparative amounts. Where IAS 8 applies, items ‘Interest income/expenses calculated using the separately disclosed line item ‘Finance leases,’ which comparative figures have been adjusted to conform to the effective interest method’ and ‘Other interest and similar was in the previous year presentation included in the line changes in presentation in the current year. income/expenses’ in the Income statement and note item ‘Loans and advances to customers at amortised 4.1. were changed due to reclassification of line item cost.’ Comparative amounts have been adjusted to reflect ‘Negative interest’ from section ‘Other interest and similar these changes in the presentation. 31 Dec 2022 Income statement Interest income calculated using the effective interest method Other interest and similar income Interest and similar income Interest expenses calculated using the effective interest method Other interest and similar expenses Interest and similar expenses Net interest income Note 4.1. Interest income and expenses Analysis by type of assets and liabilities Interest and similar income Interest income calculated using the effective interest method Loans and advances to customers at amortised cost Negative interest Other interest and similar income Finance leases Negative interest Interest and similar expenses Interest expenses calculated using the effective interest method Negative interest Other interest and similar expenses Negative interest NLB Group NLB Notes Old presentation New presentation Change Old presentation New presentation Change in EUR thousands 4.1. 4.1. 561,467 8,309 569,776 (43.785) (21,069) (64,854) 504,922 561,467 489,999 - 8,309 - 3,966 43,785 - 21,069 9,301 558,826 10,950 569,776 (53,086) (11,768) (64,854) 504,922 558,826 483,392 3,966 10,950 6,607 - 53,086 9,301 11,768 - 2,641 (2,641) - 9,301 (9,301) - - 2,641 6,607 (3,966) (2,641) (6,607) 3,966 (9,301) (9,301) 9,301 9,301 214,163 7,799 221,962 (27,373) (17,562) (44,935) 177,027 214,163 174,543 - 7,799 - 3,718 27,373 - 17,562 6,793 217,881 4,081 221,962 (34,166) (10,769) (44,935) 177,027 217,881 174,543 3,718 4,081 - - 34,166 6,793 10,769 - (3,718) 3,718 - 6,793 (6,793) - - (3,718) - (3,718) 3,718 - 3,718 (6,793) (6,793) 6,793 6,793 200 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Compared to the presentation of the financial statements section ‘Cash flows from financing activities,’ which was operating activities.’ Comparative amounts have been for the year ended 31 December 2022, some subtotals in previous years included in the line item ‘Net increase/ adjusted to reflect these changes in the presentation. 201 in the Statement of cash flows were change due to (decrease) in deposits and borrowings measured at separately disclosed line item ‘Lease payments’ in amortised cost’ under the section ‘Cash flows from 31 Dec 2022 Statement of cash flows CASH FLOWS FROM OPERATING ACTIVITIES Increases/(decreases) in operating liabilities Net increase/(decrease) in deposits and borrowings measured at amortised cost Net cash flows from operating activities CASH FLOWS FROM FINANCING ACTIVITIES Payments from financing activities Lease payments Net cash flows from financing activities NLB Group NLB Old presentation New presentation Change Old presentation New presentation Change in EUR thousands 468,473 467,966 476,590 476,083 (116,822) (108,705) (123,628) (131,745) - 475,710 (8,117) 467,593 (8,117) (8,117) (8,117) 8,117 8,117 8,117 620,902 616,303 45,606 621,876 617,277 46,580 (100,000) (100,974) - (974) 498,902 497,928 (974) (974) (974) 974 974 974 2 .4 . Consolidation 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 . 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, either directly or indirectly . NLB Group measures non-controlling interest 2 .5 . Business combinations, goodwill, and bargain purchases on a transaction-by-transaction basis, either at fair NLB Group accounts for business combinations using value, or by the non-controlling interest’s proportionate the acquisition method when the acquired set of share of net assets of the acquiree . activities and assets meets the definition of a business, and control is transferred to the Group . In determining Inter-company transactions, balances, and unrealised whether a particular set of activities and assets is a gains on transactions between NLB Group entities are business, the Group assesses whether the set of assets eliminated . Unrealised losses are also eliminated unless and activities acquired includes, at a minimum, an input the transaction provides evidence of impairment of the and substantive process, and whether the acquired set asset transferred . NLB Group treats transactions with non-controlling interests as transactions with equity owners of NLB has the ability to produce outputs . The acquired process is considered substantive if it is critical to the ability to continue producing outputs; and the inputs acquired include an organised workforce with the necessary 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 . Group . For purchases of subsidiaries from non-controlling skills, knowledge, or experience to perform that process interests, the difference between any consideration paid or it significantly contributes to the ability to continue and the relevant share acquired of the carrying value of producing outputs and is considered unique or scarce net assets of the subsidiary is deducted from the equity . or cannot be replaced without significant cost, effort, or For sales to non-controlling interests, the differences delay in the ability to continue producing outputs . 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 between any proceeds received and the relevant share of non-controlling interests are also recorded in the equity . All effects are presented in the line item ‘Equity Attributable to Non-controlling Interest .’ The consideration transferred is measured at the fair value of the assets transferred, equity interest issued, liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements and fair value of any pre-existing equity interest in the subsidiary . However, NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             this excludes amounts related to the settlement of Goodwill is tested annually for impairment. For the NLB Group’s share of its associates and joint ventures pre-existing relationships which are recognised in profit purpose of impairment testing, goodwill arising from post-acquisition profits or losses is recognised in or loss . Acquisition-related costs such as advisory, a business combination is, from the acquisition date, the consolidated income statement, and its share of legal, valuation, and similar professional services are allocated to the Group’s cash-generating units (CGUs) other comprehensive income is recognised in other recognised in profit or loss as well . Transaction costs or groups of CGUs that are expected to benefit from the comprehensive income . The cumulative post-acquisition incurred for issuing equity instruments are deducted synergies of the combination. Where goodwill has been movements are adjusted against the carrying amount of from the equity, and all other transaction costs allocated to a cash-generating unit (CGU) and part of the investment . When NLB Group’s share of losses in an associated with the acquisition are expensed . the operation within that unit is disposed of, the goodwill associate and joint venture equals or exceeds its interest associated with the disposed operation is included in in the associate and joint venture, including any other Identifiable assets acquired and liabilities assumed in the carrying amount of the operation when determining unsecured receivables, NLB Group does not recognise a business combination are, with limited exceptions, the gain or loss on disposal. Goodwill disposed in these further losses unless it has incurred obligations or made measured initially at their fair values at the circumstances is measured based on the relative values payments on behalf of the associate and joint venture . acquisition date . of the disposed operation and the portion of the cash- NLB Group resumes recognising its share of those profits generating unit retained. only after its share of the profits equals the share of A contingent consideration classified as equity is not re- losses not recognised (note 5 .12 .g) . measured and its subsequent settlement is accounted The goodwill of associates and joint ventures is included for within equity . A contingent consideration classified in the carrying value of investments . NLB Group’s subsidiaries, associates and joint ventures as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments In a business combination achieved in stages, NLB is measured at fair value at each reporting date, and Group remeasures its previously held equity interest changes in fair value are recognised in the statement of in the acquiree at its acquisition-date fair value, and profit or loss in accordance with IFRS 9 . Other contingent recognises the resulting gain or loss, if any, in profit considerations that are not within the scope of IFRS 9 or loss . are presented in note 5 .12 . 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 2 .6 . Investments in subsidiaries, associates and joint ventures In the separate financial statements (NLB), investments in subsidiaries, associates and joint ventures are financial statements . accounted for with the cost method . Dividends from subsidiaries, joint ventures, or associates are recognised Mergers of entities within NLB Group do not affect the in the income statement when NLB’s right to receive the consolidated financial statements . dividend has been established . In the consolidated financial statements, investments in associates are accounted for using the equity method of When accounting for a merger in separate financial statements (the merger of a parent company and its subsidiary) if a surviving entity is the parent company, accounting . These are generally undertakings in which NLB applies an accounting policy to recognise the NLB Group holds between 20% and 50% of the voting difference between: (1) the amounts assigned to the rights, and over which NLB Group exercises significant assets and liabilities in the parents separate financial influence, but does not have control . Joint ventures are entities over whose activities NLB Group has joint control, established by contractual statements after the merger; and (2) the carrying amounts of the investments in the merged subsidiary before the merger, directly in equity . In such case, the acquired assets and assumed liabilities are recognised agreement . In the consolidated financial statements, at the carrying amounts from the consolidated financial investments in joint ventures are accounted for using the statements of merged subsidiary as of the date of the equity method of accounting . merger, including any recognised goodwill and fair value adjustments related to merged subsidiary’s assets are measured at fair value at each reporting date, and changes in fair value are recognised in profit or loss . For each business combination, NLB Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets at the date of acquisition . All other components of non-controlling interests are measured at their acquisition-date fair values, unless another measurement basis is required by IFRSs . Goodwill is measured as the excess of the aggregate of the consideration transferred measured at fair value, 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. 202 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents and liabilities . The comparative amounts in separate financial statements are not restated . NLB Group entities The financial statements of all NLB Group entities the financial instrument, or a shorter period (when appropriate) to the gross carrying amount of the financial 203 2 .8 . Foreign currency translation Functional and presentation currency Items included in the financial statements of each of that have a functional currency different from asset or to the amortised cost of a financial liability . the presentation currency are translated into the Interest income includes coupons earned on fixed- presentation currency as follows: yield investments and trading securities, and accrued • assets and liabilities for each statement of financial discounts and premiums on securities . The calculation of position presented are translated at the closing rate at the effective interest rate includes all fees and points paid NLB Group’s entities are measured using the currency of the date of statement of financial position; or received by parties to the contract and all transaction the primary economic environment in which the entity • income and expenses for each income statement are costs, but excludes future credit risk losses . operates (i .e ., the functional currency) . The financial translated at average annual exchange rates; and statements are presented in euros, which is NLB Group’s • components of equity are translated at the historical Interest income is calculated by applying the effective presentation currency . rate . interest rate to the gross carrying amount of financial assets other than credit-impaired assets . Transactions and balances Foreign currency transactions are translated into the Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets When a financial asset becomes credit-impaired and functional currency at the exchange rates prevailing and liabilities of the foreign entity and translated at the is, therefore, classified in Stage 3, interest income is at the dates of the transactions . Foreign exchange closing rate . gains and losses resulting from the settlement of such transactions and from the translation of monetary In the consolidated financial statements, exchange calculated by applying the effective interest rate to the net amortised cost of the financial asset . If the financial asset cures and is no longer credit-impaired, interest assets and liabilities denominated in foreign currencies differences arising from the translation of the net income is again calculated on a gross basis . are recognised in the income statement, except when investment in foreign operations are recognised in other deferred in other comprehensive income as qualifying comprehensive income . When control over a foreign In the case of purchased or originated credit-impaired cash flow hedges . operation is lost, the previously recognised exchange financial assets (POCI), the credit-adjusted effective differences on translations to a different presentation interest rate is applied to the amortised cost of the Translation differences resulting from changes in the currency are reclassified from other comprehensive financial asset from initial recognition . The credit- amortised cost of monetary items denominated in income to profit and loss for the year . On the partial adjusted effective interest rate is the interest rate that, at a foreign currency and classified as financial assets disposal of a subsidiary without loss of control, the initial recognition, discounts the estimated future cash measured at fair value through other comprehensive related portion of accumulated currency translation flows (including credit losses) to the amortised cost of income, are recognised in the income statement . differences is reclassified as a non-controlling interest the purchased or originated credit-impaired financial within the equity . Translation differences on non-monetary items, such as equity instruments 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- 2 .9 . Interest income and expenses Interest income and expenses for all financial instruments monetary items, such as equity instruments classified measured at amortised cost, and financial assets as financial assets measured at fair value through measured at fair value through other comprehensive asset . At the NLB Group level, most POCI exposures relate to the initial recognition of non-performing exposures in the case of a business combination . 2 .10 . Fee and commission income Fees and commissions mainly include fees received from other comprehensive income, are included together income are recognised in the income statement for credit cards and ATMs, customer transaction accounts, with valuation reserves in the valuation (losses)/ all interest-bearing instruments on an accrual basis payment services, investment funds, and commissions gains taken to other comprehensive income and using the effective interest method . Interest income from guarantees . Fee and commission income are accumulated in the equity . on all trading assets and financial assets mandatorily recognised at an amount that reflects the consideration Gains and losses resulting from foreign currency or loss is recognised using the contractual interest exchange for providing the services . The performance purchases and sales for trading purposes are included rate . The effective interest method is used to calculate obligations, as well as the timing of their satisfaction, in the income statement as gains less losses from the amortised cost of a financial asset or financial are identified and determined at the inception of the financial assets and liabilities held for trading . liability, and to allocate the interest income or interest contract . The Group’s revenue contracts do not include required to be measured at fair value through profit to which the NLB Group expects to be entitled, in expenses over the relevant period . The effective interest multiple performance obligations . rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents When the NLB Group provides a service to its customers, • Non-trading financial assets, mandatorily at fair value to profit or loss . In NLB Group, the most material equity the consideration is invoiced and generally due through profit or loss (FVTPL) . instrument irrevocably designated as FVOCI is the immediately upon satisfaction of a service provided at investment in the National Resolution Fund (note 5 .4 .a) . a point in time . When the service is provided over time, Financial assets are measured at AC if they are held NLB Group decided to use this presentation alternative the consideration is invoiced and due in line with the within a business model for the purpose of collecting because the fund was established based on the law, and contractual provisions . contractual cash flows (‘held to collect’), and if cash it has a highly regulated investment strategy in order to flows are solely payments of principal and interest ensure safety, low risk, and the high liquidity of the fund . The NLB Group has generally concluded that it is on the principal amount outstanding . After initial the principal in its revenue arrangements because it recognition, they are measured at the amortised cost All other financial assets are mandatorily measured at typically controls the services before transferring them using the effective interest method and are subject FVTPL, including financial assets within other business to the customer . to impairment . Interest income calculated using the models such as financial assets managed at fair value Fees and commissions that are integral to the effective losses, and impairment are recognised in profit or loss . cash flows that are not solely payments of principal and interest rate of financial assets and liabilities are Each of them is presented as a separate line item in the interest on the principal amount outstanding . Net gains presented within interest income or expenses . income statement . Any gain or loss on derecognition is and losses, including any interest or dividend income, effective interest method, foreign exchange gains and or held for trading and financial assets with contractual recognised in profit or loss in line item ‘Gains less losses are recognised in profit or loss . 2 .11 . Dividend income Dividends are recognised in the income statement from financial assets and liabilities not measured at fair value through profit or loss .’ IFRS 9 includes an option to designate financial assets at fair value through profit or loss if doing so eliminates within the line item ‘Dividend income’ when NLB Debt financial instruments are measured at FVOCI if or significantly reduces a measurement or recognition Group’s right to receive payment has been established they are held within a business model for the purpose of inconsistency that would otherwise arise from and an inflow of economic benefits is probable . In the both collecting contractual cash flows and selling (‘held measuring assets or liabilities, or recognising the gains consolidated financial statements, dividends received to collect and sell’), and if cash flows are solely payments or losses on them on different bases . from associates and joint ventures reduce the carrying of principal and interest on the principal amount value of the investment . outstanding . FVOCI results in the debt instruments being Financial liabilities 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 . recognised at fair value in the statement of financial Financial liabilities are subsequently measured at the position and at the AC in the income statement . Interest amortised cost or at fair value through profit or loss, income is calculated using the effective interest method, when they are held for trading, derivative instruments, foreign exchange gains and losses, and impairments are or the fair value designation is applied . recognised separately in the income statement . Other net gains and losses are recognised in other comprehensive Upon initial recognition, financial liability may be income, until the instrument is derecognised . At irrevocably designated as measured at fair value derecognition of the debt financial instrument, the through profit or loss if that eliminates or significantly cumulative gains and losses previously recognised in reduces a measurement or recognition inconsistency other comprehensive income are reclassified to the that would otherwise arise from measuring assets or income statement under the line item ‘Gains less losses liabilities or recognising the gains or losses on them on from financial assets and liabilities not classified at fair different bases, or if the liabilities are part of a group Financial assets value through profit or loss .’ All debt financial assets need to be assessed based on a combination of the Group’s business model for Equity instruments that are not held for trading may be accordance with a documented risk management or managing the assets and the instruments’ contractual irrevocably designated as FVOCI, with no subsequent investment strategy . cash flow characteristics . The measurement categories reclassification of gains or losses to the income 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 statement . Dividends are recognised as income in Changes in the fair value of financial liabilities profit or loss unless the dividend clearly represents a designated as measured at fair value through profit or recovery of part of the cost of the investment, in which loss are recognised in profit or loss, with the exception case, such gains are recorded in other comprehensive of movement in the fair value due to changes of NLB income . Other net gains and losses are recognised in Group’s own credit risk . Such changes are presented other comprehensive income and are never reclassified of financial instruments which are managed and their performance evaluated on a fair value basis in 204 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents in other comprehensive income with no subsequent • debt securities in the second group are held under is put on new and non-standardised characteristics of reclassification to the income statement . a business model ‘held to collect and sale’ with the loan agreements . 205 intention of collecting the contractual cash flows and Other financial liabilities are subsequently measured sale of financial assets, and forms part of the Group’s at amortised cost using the effective interest method . liquidity reserves; Accounting policy for modified financial assets When contractual cash flows of a financial asset Interest expenses and foreign exchange gains and • the third part of debt securities is held within the are modified, NLB Group assesses if the terms and losses are recognised in profit or loss . Any gain or loss business model for holding them with objective to conditions have been modified to the extent that, on the derecognition of a financial liability is recognised collect contractual cash flows . substantially, it becomes a new financial asset . The in profit or loss . In the event of derecognition of a following factors are, amongst others, considered when financial liability measured at amortised cost, the gains With regard to debt securities within the ‘held to collect’ making such assessment: and losses are recognised in the line item ‘Gains less business model, the sales which are related to the • reason for modification of cash flows; losses from financial assets and liabilities not classified increase of the issuers’ credit risk, sales made close to the • change in currency of the loan; at fair value through profit or loss .’ Gains and losses on final maturity, or sales in order to meet liquidity needs • introduction of an equity feature; disposals of financial liabilities designated as measured in a stress case scenario are permitted . Other sales, • replacement of initially agreed debtor with a new at fair value through profit or loss are also presented which are not due to an increase in credit risk may still debtor that is not related party to initial debtor; and separately from those held for trading . be consistent with a held to collect business model if such • if the modification changes the result of the SPPI test . sales are incidental to the overall business model, and: Assessment of NLB Group’s business model NLB Group has determined its business model • are insignificant in value both individually and in aggregate, even when such sales are frequent; If the modification results in derecognition of a financial asset, the new financial asset is initially separately for each reporting unit within NLB Group, and • are infrequent even when they are significant in value . recognised at fair value, with the difference recognised 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 A review of instruments’ contractual cash flow characteristics (the SPPI test – solely payment of principal and interest on the principal amount financial assets held within that business model are outstanding) 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 . In such cases, NLB Group recalculates evaluated and reported to key management personnel; The second step in the classification of the financial the gross carrying amount of the financial asset and • the risks that affect the performance of the business assets in portfolios being ‘held to collect’ and ‘held to recognises modification gain or loss in the income model and, in particular, the way those risks are collect and sell’ relates to the assessment of whether statement . The gross carrying amount is recalculated managed; the contractual cash flows are consistent with the SPPI as the present value of the renegotiated or modified • how the managers of the business are compensated test . The principal amount reflects the fair value at contractual cash flows that are discounted at the (e .g ., whether the compensation is based on the fair initial recognition less any subsequent changes, e .g . financial asset’s original effective interest rate (or value of the assets or on collection of contractual cash due to repayment . The interest must represent only the credit-adjusted effective interest rate for purchased or flows); and consideration for the time value of money, credit risk, originated credit-impaired financial assets) . • the expected frequency, value, and timing of sales . other basic lending risks, and a profit margin consistent The business model assessment is based on reasonably expected scenarios without taking worst-case and 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 b) Reclassification Financial assets can be reclassified when and only when NLB Group’s business model for managing those stress case scenarios into consideration . In general, asset is mandatorily measured at fair value through assets changes . The reclassification takes place from the business model assessment of the Group can be profit or loss . summarised as follows: the start of the reporting period following the change . Such changes are expected to be very infrequent, and • Loans and deposits given are included in a business NLB Group reviews the portfolio within ‘held to collect’ none occurred during the presented periods . Financial model ‘held to collect’ since the primary objective and ‘held to collect and sale’ for standardised products liabilities shall not be reclassified . of NLB Group for the loan portfolio is to collect the on a level of a product and for non-standardised contractual cash flows; products on a single exposure level . The Group has • Debt securities are divided into three business models: established a procedure for SPPI identification as part of c) Day one gains or losses The best evidence of fair value at initial recognition • the first group of debt securities presents ‘held for regular investment process with defined responsibilities is the transaction price (i .e ., the fair value of the trading’ category; for primary and secondary controls . Special emphasis consideration given or received), unless the fair value of NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report that instrument is evidenced by a comparison with other Contents observable current market transactions in the same instrument (i .e ., without modification or repackaging), or f) Fair value measurement principles The fair value of financial instruments traded on active requirements in accordance with the policy choice permitted under IFRS 9 . However, disclosures that are based on a valuation technique whose variables only markets is based on the price that would be received required by the IFRS 9 related amendments to IFRS 7 include data from observable markets . to sell the assets or transfer liability (exit price) being ‘Financial Instruments: Disclosures’ are implemented . measured at the reporting date, excluding transaction If the transaction price on a non-active market is costs . If there is no active market, the fair value of the At the inception of the transaction, NLB Group different than the fair value from other observable instruments is estimated using discounted cash flow documents the relationship between hedged items and current market transactions in the same instrument, techniques or pricing models . or is based on a valuation technique whose variables hedging instruments, as well as its risk management objective, valuation methodology, and strategy for only include data from observable markets, the If discounted cash flow techniques are used, estimated undertaking various hedge transactions . NLB Group difference between the transaction price and fair value future cash flows are based on management’s best also documents its assessment, both at the hedge is recognised immediately in the income statement (‘day estimates; and the discount rate is a market-based inception and on an ongoing basis, of whether the one gains or losses’) . rate at the reporting date for an instrument with similar derivatives used in hedging transactions are highly In cases where the data used for valuation are not fully are based on market-based measurements at the of hedged items . The actual results of a hedge must observable in financial markets, day one gains or losses reporting date . always fall within a range of 80–125% . terms and conditions . If pricing models are used, inputs effective in offsetting changes in fair values or cash flows 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 g) Derivative financial instruments and Fair value hedge hedge accounting Changes in the fair value of derivatives that are over the life of the transaction, deferred until the Derivative financial instruments – including forward designated and qualify as fair value hedges are instrument’s fair value can be determined using market and futures contracts, swaps, and options – are initially recognised in the income statement together with any observable inputs, or realised through settlement . recognised in the statement of financial position at fair changes in the fair value of the hedged asset or liability value . Derivative financial instruments are subsequently that are attributable to the hedged risk . Effective changes d) Derecognition A financial asset is derecognised when the contractual re-measured at their fair value . Fair values are in the fair value of hedging instruments and related obtained from quoted market prices, discounted cash hedged items are reflected in ‘Fair Value Adjustments rights to the cash flows from the financial asset expire, flow models, or pricing models, as appropriate . All in Hedge Accounting’ in the income statement . or when the financial asset is transferred, and the derivatives are carried at their fair value within assets Any ineffectiveness from derivatives is recognised transfer qualifies for derecognition . A financial liability when the derivative position is favourable to NLB Group, immediately in the income statement, recorded in the is derecognised only when it is extinguished, i .e ., when and within liabilities when the derivative position is same line as change in fair value of hedging instruments the obligation specified in the contract is discharged, unfavourable to NLB Group . and hedged item if they are different . cancelled, or expires . The method of recognising the resulting fair value gain If a hedge no longer meets the hedge accounting e) Write-offs NLB Group writes off financial assets in their entirety or loss depends on whether the derivative is designated criteria, the adjustment to the carrying amount of the as a hedging instrument and, if so, the nature of the item hedged item for which the effective interest method is or a portion thereof when it has exhausted all practical being hedged . NLB Group designates certain derivatives used is amortised to profit or loss over the remaining recovery efforts and has no reasonable expectations of as either: period to maturity . The adjustment to the carrying recovery . Criteria indicating that there is no reasonable • hedges of the fair value of recognised assets or amount of a hedged equity security is included in the expectation of recovery include default period, quality liabilities or firm commitments (fair value hedge); income statement upon disposal of the equity security . of collateral, and different stages of enforcement • hedges of highly probable future cash flows procedures . NLB Group may write off financial assets attributable to a recognised asset or liability, or a Cash flow hedge that are still subject to enforcement activities, but this highly probable forecasted transaction (cash flow The effective portion of changes in the fair value of does not affect its rights in the enforcement procedures . hedge); or derivatives that are designated and qualify as cash flow NLB Group still seeks to recover all amounts it is legally • hedges of a net investment in a foreign operation (net hedges is recognised in other comprehensive income . entitled to in full . A write-off reduces the gross carrying investment hedge) . amount of a financial asset and allowance for the The gain or loss relating to the ineffective portion is immediately recognised in the income statement . impairment . Any subsequent recoveries are credited Hedge accounting is used when certain criteria are to credit loss expenses . Write-offs and recoveries are met . NLB Group and NLB have exercised the option to Amounts accumulated in equity are recycled as a disclosed in note 5 .14 .a) and b) . continue applying the existing IAS 39 hedge accounting reclassification from other comprehensive income to the 206 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents income statement in the periods when the hedged item in which case, the allowance is based on the probability speculative investment rating grade on the short rating affects the profit or loss . of default over the life of the financial asset (LECL) . When scale (with only 3 performing rating groups), 207 determining whether the risk of default has increased • when a threefold increase of LPD since initial When a hedging instrument expires or is sold, or when significantly since initial recognition, the Group considers recognition is detected (comparing the LPD assessed a hedge no longer meets hedge accounting criteria, any reasonable and supportable information that is using the PD curve calculated at instrument origination cumulative gain or loss existing in other comprehensive relevant and available without undue cost or effort . This and the last available PD curve), income and previously accumulated in equity at that includes both quantitative and qualitative information • when a financial asset has material delays over time remains in other comprehensive income and in and analysis, based on the Group’s historical data, 30 days with a healing period of 3 months and the equity, and is recognised in profit or loss only when the experience, expert credit assessment, and incorporation materiality limit aligned with the one used as a forecasted transaction is ultimately recognised in the of forward-looking information . income statement . When a forecasted transaction is no default trigger (the materiality limit is aligned with the regulatory limit for default definition, the holding period longer expected to occur, the cumulative gain or loss Classification into stages of 3 months is applied), that was reported in other comprehensive income is NLB Group prepared a methodology for ECL defining the • if NLB Group grants a forbearance to the borrower immediately transferred to the income statement . criteria for classification into stages, transition criteria where the rules of forbearance expiry are aligned with Hedge of a net investment in a foreign operation forward-looking scenarios, and the validation of • if the facility is placed on the watch list or intensive Hedges of net investments in foreign operations are models . The Group classifies financial instruments into care list, accounted for in consolidated financial statements similar to cash flow hedges . Any gain or loss on the Stage 1, Stage 2, and Stage 3, based on the applied ECL allowance methodology as described below: • if a retail client is placed on the watch list based on features which lead to increased credit risk (such as hedging instrument relating to the effective portion • Stage 1 – performing portfolio: no significant increase spending habits, decreased employment security, between stages, models for risk indicators calculation, the ECB Guidelines, of the hedge is recognised directly in equity . The gain of credit risk since initial recognition, NLB Group political risk and similar) . or loss relating to the ineffective portion is recognised recognises an allowance based on 12-month period; immediately in the consolidated income statement in • Stage 2 – underperforming portfolio: significant The methodology of credit rating for banks and ‘Gains Less Losses on Financial Assets and Liabilities increase in credit risk (SICR) since initial recognition, sovereign classification depends on the existence or Held for Trading .’ Gains and losses accumulated in other NLB Group recognises an allowance for lifetime period; non-existence of a rating from international credit rating comprehensive income are included in the consolidated and agencies – Fitch, Moody’s, or the S&P . Ratings are set income statement when the foreign operation is • Stage 3 – impaired portfolio: NLB Group recognises on a basis of the average international credit rating . disposed of as part of the gain or loss on the disposal . lifetime allowances for these defaulted financial assets . If there are no international credit ratings available, the credit rating classification is based on the internal 2 .13 . Allowances for financial assets a) Expected credit losses for collective allowances IFRS 9 applies an expected loss model that provides an The Bank has aligned its definition of credit impaired Methodology Rating Classification for Financial assets under IFRS 9 to the new European Banking Markets clients' segments in NLB d .d . and NLB Group . Authority (EBA) definition of non-performing loans For banks without an international credit rating, we (NPLs) as at 31 December 2020 . The Bank uses a unified obtain information from Bureau van Dijk, a Moody's unbiased and probability-weighted estimate of credit definition of past due and default exposures; defaulted Analytics Company, using the modules BankScore and losses by evaluating a range of possible outcomes that clients are rated D, DF, or E based on the internal rating BankFocus . Additionally, information is obtained by an incorporates forecasts of future economic conditions . system and contains the clients with material delays analyst from the annual reports with the assistance of The expected loss model requires NLB Group to over 90 days, as well as the clients that were assessed the central relationship manager . recognise not only credit losses that have already as unlikely to pay . All facilities of retail clients obtain a occurred, but also losses that are expected to occur unified credit rating . in the future . An allowance for expected credit losses The classification into stages is based on the facility level . Nevertheless, occurring delays on one facility may (ECL) is required for all loans and other debt financial A significant increase in credit risk is assumed: trigger the stage deterioration of other facilities of the assets not measured at FVTPL, together with loan • when a credit rating significantly deteriorates at the same client . When the SICR criteria no longer exist, the commitments and financial guarantee contracts . reporting date in comparison to the credit rating facility may be transferred to a more favourable stage at initial recognition a significant deterioration is a subject to the prescribed cure period of three months . In the general model, the allowance is based on the 3-notch rating decrease taking into consideration the expected credit losses associated with the probability NLB Group’s long rating scale (with 9 performing rating The ECL for Stage 1 financial assets is calculated based of default in the next 12 months unless there has been a classes) or deterioration from invest/invest with care to on 12-month PDs or shorter period PDs, if the remaining significant increase in credit risk since initial recognition, maturity of the financial asset is shorter than 1 year . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The 12-month PD already includes the macroeconomic clients by size, institutions, or central government), or inflation due to an increased ECB key rate and impact effect . Allowances in Stage 1 are designed to by product group (mortgage, consumer loans, and quantitative tightening, a slightly less tight labour reflect expected credit losses that had been incurred in other retail products) . Through the cycle, the PD is market, GDP growth supported by declining interest the performing portfolio, but have not been identified . supplemented with the forward-looking aspect using rates and positive expectations, regional containment The ECL for Stage 2 financial assets is calculated based on lifetime PDs (LPD) because their credit risk has Risk parameter calculations are based on the data from three possible scenarios . of political tensions, and limited spill over effects of financial system issues on the real economy . increased significantly since their initial recognition . each subsidiary, while the calculations and modelling The alternative scenarios are based on plausible drivers This calculation is also based on a forward-looking are performed centrally . In the case where the data of economic development for the next three years . The assessment that considers several economic scenarios samples are not sufficiently large, hurdle rates are optimistic scenario is supply- and demand-driven, with in order to recognise the probability of losses associated applied based on the regulatory or other benchmarks . a mild winter and sufficient energy supplies easing price with the predicted macro-economic forecasts . Expected Life pressures in the euro area . China’s decision to abandon strict COVID restrictions supports the euro area exports, For financial instruments in Stage 3, the same treatment When measuring ECL, the NLB Group must consider the and stimulating demand . Lower inflation leads to is applied as for those considered to be credit impaired . maximum contractual period over which the NLB Group an optimistic financial market outlook, and the first Exposures below the materiality threshold obtain is exposed to credit risk . For certain revolving credit year shows positive growth expectations, followed by collective allowances using a PD of 100% . Financial facilities that do not have a fixed maturity, the expected additional ECB support and moderated growth potential instruments will be transferred out of Stage 3 if they no longer meet the criteria of being credit-impaired life is estimated based on the period over which the NLB Group is exposed to credit risk and where the credit in the following two years . after a probation period . Special treatment applies losses would not be mitigated by management actions . The severe, supply- and demand-driven scenario for purchased or originated credit-impaired financial instruments (POCI), where only the cumulative changes Forward-looking information depicts sluggish economic growth due to lower consumer purchasing power, geopolitical disruption, in lifetime expected losses since the initial recognition During 2023, NLB Group reviewed the IFRS 9 and elevated inflation . The NLB Group home countries are recognised as a loss allowance . provisioning by testing the relevant macroeconomic experience near-zero real economic growth, leading scenarios to accurately reflect the current circumstances to substantial upward shocks in financial markets . The calculation of collective allowances is performed and their future impacts . by multiplying the EAD (exposure at default) at the Political tensions persist, causing supply disruptions, and inflation remains higher than expected, resulting end of each month with an appropriate PD and LGD NLB Group established multiple scenarios (i .e ., baseline, in increased long-term inflation expectations . GDP (loss-given default) . The obtained result for each optimistic, and severe) for the ECL calculation, aiming growth remains low as the ECB implements a restrictive month is discounted to the present time using the to create a unified projection of macroeconomic and monetary policy . Despite a slow increase in the original effective interest rate of the facility . For Stage financial variables for the Group, aligned with the Bank’s unemployment rate, many industries still face a tight 1 exposures, the ECL only takes a 12-month period into consolidated view of the future of economic development labour market . The financial system stabilises, allowing account, while for Stage 2 or 3 all potential losses until in the SEE . The Group formed three probable scenarios the ECB to focus on taming inflation . The Bank considers the maturity date are included . Risk parameters are with an associated probability of occurrence for forward- these scenarios in calculating expected credit losses in calculated separately for each of the three possible looking assessment of risk provisioning in the context the context of the IFRS 9 . scenarios . The final ECL for each facility is calculated as of the IFRS 9 . These IFRS 9 macroeconomic scenarios a weighted average ECL for each scenario . incorporate the forward-looking and probability- weighted aspects of the ECL impairment calculation . The EAD represents the anticipated outstanding amount Both features may change when material changes in the owed by the obligor, which is determined as the sum of future development of the economy are recognised and on-balance exposure and expected future drawings of not embedded in previous forecasts . the off-balance exposure . The drawings are assessed by applying the CCF (credit conversion factor) based on the The baseline scenario presents an expected forecast Bank’s historic experience with similar types of facilities . macroeconomic view for all the countries of the The PD is the estimation of the likelihood of default professional forecasts, with specific adjustments for over a given time horizon . The estimation is performed individual countries of the Group . Key characteristics separately for each unique segment (corporate include no additional supply shocks, decreasing Group . This scenario is based on recent official and 208 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Macroeconomic scenarios for explanatory variables, developed for each country in the NLB Group used in 2022 (in %): Slovenia Real GDP Unemployment rate Bosnia and Herzegovina Real GDP Unemployment rate Montenegro Real GDP Unemployment rate North Macedonia Real GDP Unemployment rate Serbia Real GDP Unemployment rate Kosovo Real GDP Unemployment rate Optimistic scenario Baseline scenario Severe scenario 2022 2023 2024 2022 2023 2024 2022 2023 2024 4 .7 4 .3 4 .0 15 .4 6 .2 16 .2 4 .1 15 .0 4 .8 9 .9 4 .4 23 .7 5 .5 4 .2 4 .9 15 .4 6 .9 15 .8 6 .0 14 .4 6 .5 9 .2 6 .5 22 .9 4 .0 4 .0 4 .6 14 .8 5 .2 14 .9 5 .2 13 .9 5 .0 8 .8 5 .1 22 .2 3 .5 4 .4 2 .4 15 .3 4 .2 16 .1 2 .9 15 .2 3 .6 10 .0 2 .8 23 .6 3 .1 4 .4 2 .3 15 .1 3 .9 15 .5 3 .6 14 .9 4 .1 9 .4 3 .9 22 .6 2 .8 4 .3 3 .0 14 .4 3 .2 14 .5 4 .0 14 .6 3 .8 9 .1 3 .5 21 .8 1 .5 4 .6 (0 .1) 18 .3 1 .2 16 .2 (0 .1) 15 .5 1 .6 10 .4 0 .3 23 .7 0 .6 5 .6 (0 .7) 18 .9 (0 .1) 16 .2 0 .1 16 .4 1 .6 11 .5 0 .9 23 .3 1 .8 7 .9 1 .8 18 .3 1 .7 16 .5 2 .5 19 .1 2 .8 15 .3 2 .3 23 .8 209 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Macroeconomic scenarios for explanatory variables, developed for each country in the NLB Group used in 2023 (in %): Slovenia Real GDP Unemployment rate EURIBOR (6 months) Bosnia and Herzegovina Real GDP Unemployment rate EURIBOR (6 months) Montenegro Real GDP Unemployment rate EURIBOR (6 months) North Macedonia Real GDP Unemployment rate EURIBOR (6 months) Serbia Real GDP Unemployment rate EURIBOR (6 months) Kosovo Real GDP Unemployment rate EURIBOR (6 months) Optimistic scenario Baseline scenario Severe scenario 2023 2024 2025 2023 2024 2025 2023 2024 2025 2 .4 3 .9 2 .4 2 .3 15 .0 2 .4 6 .0 13 .5 2 .4 3 .6 13 .7 2 .4 3 .3 9 .4 2 .4 4 .1 16 .3 2 .4 3 .4 4 .0 2 .1 2 .9 14 .0 2 .1 5 .5 12 .2 2 .1 4 .3 12 .7 2 .1 4 .2 8 .6 2 .1 4 .6 14 .9 2 .1 2 .5 4 .1 2 .2 2 .4 14 .2 2 .2 3 .4 12 .3 2 .2 3 .3 12 .8 2 .2 3 .6 8 .7 2 .2 3 .8 14 .6 2 .2 0 .6 4 .0 2 .7 1 .0 15 .2 2 .7 2 .6 13 .7 2 .7 1 .6 13 .9 2 .7 1 .8 9 .5 2 .7 2 .4 16 .5 2 .7 2 .2 4 .2 2 .3 2 .0 15 .1 2 .3 3 .2 13 .3 2 .3 3 .0 13 .7 2 .3 3 .1 9 .2 2 .3 3 .5 16 .0 2 .3 2 .5 4 .2 2 .3 2 .3 14 .8 2 .3 3 .2 12 .9 2 .3 3 .3 13 .4 2 .3 3 .4 9 .0 2 .3 3 .8 15 .2 2 .3 (0 .6) 4 .5 4 .6 0 .3 15 .9 4 .6 0 .6 14 .4 4 .6 0 .3 15 .3 4 .6 1 .1 10 .2 4 .6 1 .4 17 .2 4 .6 0 .4 5 .0 4 .5 0 .9 16 .2 4 .5 0 .1 14 .4 4 .5 1 .1 16 .0 4 .5 2 .0 10 .4 4 .5 2 .0 17 .1 4 .5 0 .7 5 .3 4 .6 1 .2 16 .2 4 .6 0 .1 14 .3 4 .6 1 .4 16 .3 4 .6 2 .3 10 .6 4 .6 2 .3 16 .6 4 .6 NLB Group formed three probable scenarios with an b) Individual assessment of allowances for impaired expected cash flows from the sale of collateral . The associated probability of occurrence for forward- financial assets expected payment from the collateral is calculated from looking assessment of risk provisioning in the context of NLB Group assesses impairments of financial assets the appraised market value of the collateral, the haircut IFRS 9 . IFRS 9 macroeconomic scenarios incorporate the separately for all individually significant assets is used as defined in the Haircut Methodology, and forward-looking and probability-weighted aspects of classified in Stage 3 . The materiality threshold is set at discounted . Off-balance sheet liabilities are also assessed ECL impairment calculation . Both features may change a EUR 0 .5 million exposure for legal entities, and EUR individually and, where necessary, related allowances when material changes in the future development of 0 .1 million for private persons on the level of NLB, while are recognised as liabilities . the economy are recognised and not embedded in the Group members apply lower thresholds applicable previous forecasts . On this basis, for the year 2023, the to their portfolio size . All other financial assets obtain The carrying amount of financial assets measured at Group assigned weights of 20%-60%-20% (alternative collective allowances . scenarios receiving 20% each, and the baseline amortised cost is reduced through an allowance account and the loss is recognised in the income statement line scenario 60%), with minor changes in some entities The amount of loss is measured as the difference item ‘Impairment of financial assets .’ If the amount of to reflect the likelihood of relevant future economic between the asset’s carrying amount and the present allowances for ECL decreases subsequently due to an conditions in their environment . value of estimated future cash flows, which are event occurring after the impairment was recognised Effects of changed risk parameters The effects of the changed risk parameters on the amount of expected credit losses are disclosed in notes 5 .14 . and 5 .16 .b) . discounted to the estimation date . The scenario of (e .g ., repayment in the collection process exceeds the expected cash flows can be based on the ‘going concern’ assessed expected payment from collateral), the reversal assumption, where the cash flow from operations is of the loss is recognised as a reduction in the allowance considered along with the sale of collateral that is not account, and the gain is recognised in the same income crucial for future business . In the case of the ‘gone statement item . For off-balance exposures, the amount concern’ principle, the repayments are based on of ECL is recognised in the statement of financial position 210 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                     in the line item ‘Provisions’ and in the income statement as a result of a contractually agreed debt waiver and In the case of a deferral of payment approved due to the in the line item ‘Provisions for credit losses .’ ownership restructuring or debt to equity swap, NLB COVID-19 crisis, the probation period is extended for the 211 Group derecognises the claim in the part relating to period of deferral . The ECLs for debt instruments measured at fair value the write-down or the contractually agreed upon debt through other comprehensive income do not reduce waiver . The new estimate of the future cash flows for the carrying amount of these financial assets in the the residual claim, not yet written down, is based on an statement of financial position, which remains at fair updated estimate of the probability of loss . NLB Group 2 .15 . Repossessed assets In certain circumstances, assets are repossessed value . Instead, an amount equal to the allowance that considers the debtor’s modified position, the economic following the foreclosure on loans that are in default . would arise if the assets were measured at amortised expectations, and the collateral of the forborne loan . Repossessed assets are initially recognised in the cost is recognised in other comprehensive income as an When NLB Group is embarking on the forborne loan by financial statements at their fair value and classified in accumulated impairment amount, with a corresponding taking possession of other assets (i .e ., property, plant the appropriate category according to their purpose charge to profit or loss . The accumulated loss recognised and equipment; securities; and other financial assets), and are sold as soon as it is feasible in order to reduce in other comprehensive income is recycled to the profit including investments in the equity of debtors obtained exposure (note 6 .1 .l) . After initial recognition, the or loss upon derecognition of the assets, or when the via debt-to-equity swaps, it recognises the acquired repossessed assets are measured and accounted for in amount of allowances for ECL decreases due to an event assets in the statement of financial position at fair value, accordance with the policies applicable to the relevant occurring after the impairment was recognised . recognising the difference between the fair value of the asset categories . Non-financial repossessed assets asset and the carrying amount of the eliminated claim in mainly represent items of real estate that NLB Group 2 .14 . Forborne loans A forborne loan (or restructured financial asset) arises profit or loss . classifies within investment properties measured in accordance with an IAS 40 Investment property (note Forborne exposures may be identified in both the 2 .20 .), and other assets measured in accordance with as a result of a debtor’s inability to repay a debt under performing and non-performing parts of the portfolio . IAS 2 Inventories . the originally agreed terms, either by modifying the Where the forborne loan is classified in the non- terms of the original contract (via an annex) or by performing part of the portfolio, it can be reclassified Real estate obtained as collateral from the foreclosure signing a new contract under which the contracting to the performing part when exposure is no longer of loans and receivables, classified as other assets parties agree the partial or total repayment of the considered as impaired or defaulted, when determined are initially recognised at fair value less costs to sell original debt . When receivables from the client receive amounts were repaid, when one year has passed (realisable value), wherein only the direct costs of restructuring status, the debtor must be classified in the from the latest of the events defined (introduction of sales can be considered, but up to the amount of gross rating grade C or lower . forbearance, classification in the non-performing part, carrying amount of foreclosed loan . At subsequent repayment of the last overdue amount, end of the grace measurement, the realisable value is verified at least The definitions of forborne loans closely follow period), and after the introduction of forbearance there annually . Valuations of the fair value of real estate are definitions that were developed by the European have been no overdue amounts or doubts concerning performed by certified real estate appraisers . The real Banking Authority (EBA) . These definitions aim to the repayment of the entire exposure, under the terms estate is impaired when the carrying value exceeds the achieve comprehensive coverage of exposures to which and conditions after the forbearance . The absence of realisable value . The effect of impairment is recognised forbearance measures have been extended . doubt is confirmed by analysis of the financial situation as the impairment of other assets, and the reversal of the debtor . The accounting treatment of forborne loans depends on the type of restructuring . When NLB Group embarks The forborne status is withdrawn when: on a forborne loan via the modified terms of repayment • at least a 2-year probation period has passed since the proceeding from extending the deadline for the latest of: repayment of the principal and/or interest, and/or a • the moment of extending the restructuring measures, forbearance of the repayment of the principal, and/ or of impairment as income from the reversal of the impairment of other assets . 2 .16 . Offsetting Financial assets and liabilities are offset, and the net amount reported in the statement of financial position or interest or a reduction in the interest rate, and/or • the forborne exposure was deemed performing; when there is a legally enforceable right to offset the other expenses, it adjusts the carrying amount of the • regular payments of the principal or interest were recognised amounts, and there is an intention to settle forborne loan on the basis of the discounted value of made, in a substantial total amount, during at least half on a net basis, or to realise the asset and settle the the estimated future cash flows under the modified the probation period; liability simultaneously . terms, and recognises the resulting effect in profit or • no exposure, in the probation period, is more than 30 loss . In the event of the reduction of a claim against the days in default of more than EUR 100; debtor via the reduction in the amount of the claims • the client fulfils determined financial indicators . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Depreciation is calculated on a straight-line basis over are measured in accordance with IAS 38 Intangible the assets’ estimated useful lives . The following annual Assets . Other intangible assets acquired in a business 212 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 recognised in financial liabilities measured at an amortised cost . Securities sold subject depreciation rates were applied: NLB Group and NLB Buildings Leasehold improvements to sale and repurchase agreements are reclassified in Computers the financial statements as pledged assets when the Furniture and equipment transferee has the right by contract or custom to sell or Motor vehicles in % 2 – 5 5 – 25 14 .3 – 50 10 – 33 .3 12 .5 – 25 re-pledge the collateral . Securities purchased under agreements to resell (reverse repos) are presented as loans to other banks or customers, as appropriate . Depreciation does not begin until the assets are available for use . 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 method . 2 .18 . Property and equipment All items of property and equipment are initially recognised at cost . They are subsequently measured at cost less any accumulated depreciation and any accumulated impairment loss . Each year, NLB Group assesses whether there are indications that property and equipment may be impaired . If any such indication exists, the recoverable amounts are estimated . The recoverable amount is the higher of the fair value less costs to sell and value in use . If the recoverable amount exceeds the carrying value, the assets are not impaired . If the carrying amount exceeds the recoverable amount, the difference is recognised as an impairment 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 . 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, goodwill (note 2 .5 .), and identifiable intangible assets acquired in a business combination . Intangible assets other than goodwill, have a finite useful life and are in the statement of financial position stated at cost, less accumulated amortisation and impairment losses . Amortisation is calculated on a straight-line basis at rates designed to write-down the cost of an intangible asset over its estimated useful life . The core banking system is amortised over a period of 10 years, and other software over a period of three to five years . Amortisation does not begin until the assets are available for use . The identifiable intangible assets acquired in a business combination and recognised separately from goodwill, are recorded at fair value on the acquisition date if the intangible asset is separable or arises from contractual or other legal rights . After initial recognition, intangible assets acquired in a business combination combination (note 5 .10 .) relate to core deposits and trade name . Their useful life is assessed to be five years . Amortisation of a trade name is calculated on a straight-line basis, while for core deposits accelerated amortisation is applied, since it better reflects the pattern of the asset’s consumption . 2 .20 . Investment properties Investment properties include properties held to earn rentals, or to increase the value of a long-term investment, rather than to be used by NLB Group . Investment properties are carried at fair value determined by a certified appraiser . Fair value is based on current market prices . Any gain or loss arising from a change in the fair value is recognised in the income statement . 2 .21 . Non-current assets and disposal groups classified as held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use . This condition is deemed to be met only when the sale is highly probable, and the asset is available for immediate sale in its present condition . Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification . Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell . In the case of business combinations, NLB Group measures an acquired non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations at 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 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents in accordance with the applicable standards (e .g ., adjusted for any remeasurement of lease liabilities) and Sale-and-leaseback transactions deferred tax assets, assets arising from employee recognises depreciation of the right-of-use assets on a NLB Group also enters into sale-and-leaseback benefits, financial instruments, investment property straight-line basis over the lease term, and (separately) transactions (in which NLB Group is primarily a measured at fair value, and contractual rights under interest on the lease liabilities . In the statement of lessor) under which the leased assets are purchased insurance contracts) . Tangible and intangible assets are financial position, right-of-use assets are presented in from, and then leased back to the lessee . These not depreciated . The effects of sale and valuation are the line item ‘Property and equipment .’ contracts are classified as finance leases or operating included in the income statement as a gain or loss from non-current assets held for sale . Lease liabilities leases, depending on the contractual terms of the leaseback agreement . At the commencement date, NLB Group measures the Liabilities directly associated with disposal groups are lease liability at the present value of the lease payments Leases recognised in a business combination reclassified and presented separately in the statement that are not paid at that date . The lease payments In most leases acquired in business combinations, of financial position . consist of fixed payments, variable lease payments that the acquiree is the lessee . For such leases, NLB Group 2 .22 . Accounting for leases A lease is a contract, or part of a contract which creates depend on an index or a rate, amounts expected to applies the IFRS 16 initial measurement provisions be paid under residual value guarantees, the exercise (with exceptions for leases with remaining term of 12 price of a purchase option if there exists a reasonable months or less and low value leases), and recognises the certainty for it to be exercised, and payments of acquired lease liability as if the lease contract was a new enforceable rights and obligations and conveys the penalties for terminating the lease if the lease term lease at the acquisition date . The right-of-use asset is right to control the use of an identified asset for a period of time in exchange for a consideration . Thus, reflects exercising the option to terminate . Subsequently (after the commencement date), NLB Group measures measured at an amount equal to the recognised liability . There are no favourable or unfavourable terms of the IFRS 16 requires determination whether a contract is, or the lease liability by: leases relative to market terms, which would require the • increasing the carrying amount to reflect interest on the adjustment of the right-of-use assets . contains, a lease . NLB Group as a lessee lease liability; • reducing the carrying amount to reflect the lease NLB Group recognises a liability to make lease payments made; payments and an asset representing the right to use the • remeasuring the carrying amount to reflect any 2 .23 . Cash and cash equivalents For the purpose of the statement of cash flows, cash underlying asset (i .e ., the right-of-use asset) during the reassessment or lease modifications . and cash equivalents comprise cash and balances with lease term for all leases, except for short-term leases central banks and other demand deposits at banks, loans and leases of low-value . Short-term leases are defined In the statement of financial position, lease liabilities are to banks and debt securities not held for trading with an as those which at the commencement date have a lease presented in line item ‘Other financial liabilities .’ original maturity of up to three months . Cash and cash term of 12 months or less without the option to purchase the underlying asset . Leases of underlying assets with a NLB Group as a lessor value, when new, lower, or equal to EUR 5 thousand are Payments under operating leases are recognised defined as low value leases, and are thus recognised as as income on a straight-line basis over the period of expenses on a straight-line basis over the lease term . the lease . Assets leased under operating leases are Right-of-use assets At the commencement date, NLB Group measures the presented in the statement of financial position as investment property or as property and equipment . right-of-use asset at cost . The cost of right-of-use assets NLB Group classifies a lease as a finance lease when the consists of the amount of lease liabilities recognised, risks and rewards incidental to ownership of a leased the initial direct costs incurred, an estimate of costs to asset lie with the lessee . When assets are leased under be incurred by the lessee in dismantling and removing a finance lease, the present value of the lease payments the underlying asset to the condition required by the is recognised as a receivable . Income from finance lease terms and conditions of the lease and lease payments transactions is amortised over the lifetime of the lease made at or before the commencement date less any using the interest rate implicit in the lease . Finance lease lease incentives received . After the commencement date, receivables are recognised at an amount equal to the NLB Group measures the right-of-use asset using a cost net investment in the lease, /including the unguaranteed model (the asset is measured at cost, reduced by any residual value and any initial direct costs of the lessor . accumulated depreciation and impairment losses, and 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 interest expenses, applying the effective interest rate . Repurchased own debt is disclosed as a reduction of 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 . 213 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 2 .25 . Other issued financial instruments with characteristics of equity Upon initial recognition, other issued financial instruments are classified in part or in full as equity instruments if the contractual characteristics of the instruments are such that NLB Group must classify them as equity instruments in accordance with IAS 32 Financial Instruments: 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 retained earnings . The corresponding interest is recognised directly in retained earnings . The carrying value of an issued financial instrument with characteristics of equity is presented in the statement of changes in equity in the line 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 . They are recognised in the amount that is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period . When the effect of the time value of money is material, NLB Group determines the level of provisions by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability . 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 usually 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 • ECL provisions 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 . 214 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 values of guarantees, letters of credit, and undrawn loan commitments where the loan agreed to be provided is on market terms, are not recognised in the statement of financial position . Contingent liabilities recognised in a business combination A contingent liability recognised in a business combination is initially measured at its fair value and is recognised in the statement of financial position in the line item ‘Provisions .’ After initial recognition, it is measured at the higher of: • the amount that would be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; or • the amount initially recognised less, if appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers . This requirement does not apply to contracts accounted for in accordance with IFRS 9 . 2 .28 . Taxes Income tax expenses 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 . Income tax rates within NLB Group ranges from 9 to 32% . The corporate income tax rate for 2023 in Slovenia was 19% (2022: 19%) . According to Reconstruction, Development and Provision of Financial Resources Act, the corporate income tax rate is increased to 22% from 2024 to 2028 . Current and deferred taxes are recognised in profit or loss, except to the extent that they relate to a business combination or taxes related to effects recognised directly in equity (deferred tax related to the fair value re-measurement of financial assets measured at fair NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents value through other comprehensive income, cash flow Slovenian tax law does not set deadlines by which Short-term employee benefits are recognised in the hedges, and actuarial gains and losses on defined uncovered tax losses must be utilised . period to which they relate and included in the income benefit pension plans is charged or credited directly to statement line item ‘Administrative expenses .’ Among other comprehensive income) . A tax on financial services is a tax on fees, paid for others, they include the payment of contributions for prescribed financial services rendered (financial services, pension and disability insurance, which according to Deferred income tax is calculated using the balance exempt from value-added tax (with the exception of Slovenian local legislation (for employer) amount to sheet liability method for temporary differences arising securities transactions) and the services of insurance 8 .85% of the gross salaries . between the tax bases of assets and liabilities, and their brokers and agents), paid in Slovenia. The tax rate is 8.5% carrying amounts for financial reporting purposes . (2022: 8.5%) and the tax is paid monthly. Given that the tax According to legislation, employees retire after they Deferred tax assets are recognised if it is probable accrued revenues in the financial statements. severance payment . Employees are also entitled to a on financial services is classified as a sales tax, it reduces fulfil certain conditions and are entitled to a lump-sum that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised . 2 .29 . Fiduciary activities NLB Group provides asset management services to These obligations are measured at the present value of future cash outflows considering future salary increases long-service bonus for every 10 years of service in NLB . Deferred tax assets and liabilities are measured at its clients . Assets held in a fiduciary capacity are not and other conditions, and then apportioned to past and tax rates enacted or substantively enacted at the end reported in NLB Group’s financial statements as they do future employee service based on the benefit plan’s of the reporting period that are expected to apply to the period when the asset is realised, or the liability is not represent assets of NLB Group . Fee and commission terms and conditions . income and expenses relating to fiduciary activities are settled . At each reporting date, NLB Group reviews the generally recognised in the income statement when the Service costs are included in the income statement in carrying amount of deferred tax assets and assesses service has been provided (see also note 2 .10 .) . Fee and the line item ‘Administrative expenses’ as defined benefit future taxable profits against which temporary taxable commission income charged for this type of service is costs, while interest expenses on the defined benefit differences can be utilised . broken down by items in note 4 .3 .b) . Further details on liability are recognised in the line item ‘Interest and transactions managed on behalf of third parties are similar expenses .’ These interest expenses represent Deferred tax assets for temporary differences arising disclosed in note 5 .25 . from impairments of investments in subsidiaries, the change during the period in the defined benefit liability that arises from the passage of time . For post- associates and joint ventures are recognised only to the Based on the requirements of Slovenian legislation, NLB employment benefits, actuarial gains and losses extent that it is probable that: Group has, in note 5 .25 ., additionally disclosed the assets from the effect of changes in actuarial assumptions • the temporary differences will be reversed in the and liabilities on accounts used to manage financial and experience adjustments (differences between foreseeable future; and • taxable profit will be available . assets from fiduciary activities, i .e ., information related the realised and expected payments) are recognised to the receipt, processing, and execution of orders and in other comprehensive income under the line item NLB Group recognises a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries to the extent that NLB is able to control the timing of reversal of the temporary related custody activities . 2 .30 . Employee benefits Employee benefits include: ‘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 . In the statement of differences and that it is probably that the temporary • short-term employee benefits (such as salary, financial position, liabilities for short-term employee differences will reverse in the foreseeable future . As NLB compensations, annual holiday allowance, separation benefits are included in the line item ‘Other liabilities,’ controls the dividend policy of its subsidiaries, NLB Group allowance, and non-monetary benefits); while liabilities for post-employment benefits and other recognised the deferred tax liability on withholding tax • reimbursement of commuting costs, meal allowance, employment benefits (jubilee long-service benefits) are payable on future planned dividend pay-out . compensation for use of own resources; included in the line item ‘Provisions .’ In the case of business combination, deferred tax balances are recognised if related to temporary • retirement indemnity bonuses (post-employment benefits); • other employment benefits (jubilee long-service In the case of a business combination employee benefits are recognised and measured in accordance with IAS 19 differences and carry-forwards of an acquiree that exist benefits, voluntary supplementary pension insurance); Employee Benefits, i .e ., not at fair value . at the acquisition date, or if they arise as a result of the • variable remuneration . acquisition. Income taxes are measured in accordance with IAS 12 Income Taxes. 215 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Share issue costs Costs directly attributable to the issue of new shares with the applicable standard . Estimates and judgments are evaluated on a continuing basis, and are based are recognised in equity as a reduction in the share on past experience and other factors, including premium account . expectations with regard to future events . 216 2 .31 . Share-based payment transactions Cash-settled share-based payment transactions If certain conditions are met, members of the Management Board and employees performing special work (i .e ., those who can significantly impact the risk profile of the Group in the scope of their tasks and activities) receive part of their variable remuneration in the form of financial instruments, whose value is linked to the value of NLB share . Upon expiration of the legally prescribed period (up to five years), beneficiaries receive cash payments depending on the value of a NLB share . The first contracts, including share-based payment transactions, were concluded in the second quarter of 2022 . In the statement of financial position, a liability is recognised in the line item ‘Financial liabilities measured at fair value through profit or loss .’ Its fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognised in the income statement line item ‘Gains less losses from financial liabilities measured at fair value through profit or loss .’ Equity-settled share-based payment transactions NLB Group does not have any equity-settled share- based payment transactions . 2 .33 . Segment reporting Operating segments are reported in a manner a) Allowances for expected credit losses on loans and advances NLB Group monitors and checks the quality of the consistent with internal reporting to the Management loan portfolio at the individual and portfolio levels to Board of the Bank, which is the executive body that continuously estimate the necessary allowances for ECL . makes decisions regarding the allocation of resources NLB Group creates individual allowances for individually and assesses the performance of a specific segment . significant financial assets attributed to Stage 3 . Such an assignment is based on information regarding the Transactions between organisational units (OUs) are fulfilment of contractual obligations or other financial managed under normal operating conditions . Interest difficulties of the debtor, and other important facts . income among individual OUs in the parent bank (NLB) Individual assessments are based on the expected and N Banka is allocated using a fund transfer pricing discounted cash flows from operations and/or the method and shown within the net interest income of assessed expected payment from collateral . each OU . Net non-interest income is allocated to the OU that actually provides the service that generates Allowances are assessed collectively for financial assets income . Direct costs are attributed to the segment assigned to Stage 1 or 2, or for financial assets in Stage 3 that is directly related to the provided service, and with exposure below the materiality threshold . The ECL indirect costs (costs which service centres provide for in this group of assets are estimated based on expected profit centres) are attributed to the segment for which value of risk parameters combining the historic the service is provided, whereas overhead costs are movements with the future macroeconomic predictions allocated according to general keys . External net income for three separate scenarios . The models used to is the net income of NLB Group from the consolidated estimate future risk parameters are validated and back- income statement . Income tax is not allocated between tested on a regular basis to make the loss estimations as segments . Analysis by segment for NLB Group is realistic as possible . presented in note 7 . 2 .32 . 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 . In accordance with IFRS 8, NLB Group has the following to collectively assess the allowances for credit risk: reportable segments: Retail Banking in Slovenia, optimistic, baseline, and severe scenario . The key features Corporate and Investment Banking in Slovenia, Strategic of each scenario are described in note 2 .13 .a) Forward- Foreign Markets, Financial Markets in Slovenia, Non- looking information . Recognised allowances represent a core members, and Other Activities . weighted average of the results of the three scenarios . NLB Group applies 3 different macroeconomic scenarios Treasury shares If NLB or another member of NLB Group purchases NLB 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 shares are purchased by NLB itself or other NLB Group entities, NLB creates reserves for treasury shares in equity . 2 .34 . 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 In terms of credit risk parameters, the scenarios differ in the level of default rates (transfer of assets from performing to non-performing status) and loss rates (the % of exposure that will not be repaid in case of default occurrence) . Applying a 100% probability on each of the scenario provides an overview of severity or optimism reflected in the two remaining scenarios . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents The results for NLB Group show the following deviations to ensure they appropriately reflect current market which themselves are sensitive to the assumptions used . of the severe and optimistic scenario from the baseline conditions, including the relative liquidity of the market The review of impairment represents management’s as at 31 December 2023: and the applied credit spread . Changes in assumptions best estimate of the facts and assumptions such as: 217 Optimistic scenario Baseline scenario Severe scenario regarding these factors could affect the reported fair • Future cash flows from individual investments present values of financial instruments held for trading, and the estimated cash flow for periods for which adopted financial assets measured at fair value through other business plans are available . For core members, Level of collective allowances 91% 100% 137% comprehensive income . estimated cash flows are based on a five-year business plan . For non-core members, estimated cash flows The result shows that the optimistic scenario would The fair values of derivative financial instruments are are based on a period in line with the strategy of result in 91% of the baseline provisions, while the severe determined on the basis of market data (mark-to- divestment . The business plans of individual entities are scenario and its conservative assumptions lead to an market), in accordance with NLB Group’s methodology based on an assessment of future economic conditions increase of 37% compared to the baseline . for the valuation of financial instruments . The market that will impact an individual member’s business and exchange rates, interest rates, yield, and volatility curves the quality of the credit portfolio; b) Fair value of financial instruments The fair values of financial investments traded on the used in valuations are based on the market snapshot • The growth rate in cash flows for the period following principle . Market data are saved daily at 4 p .m ., and later the adopted business plan is between 2 .8 and 4 .0%; active market are based on current bid prices (financial used for the calculation of the fair values (market value, • The target capital adequacy ratio of an individual bank assets) or offer prices (financial liabilities) . NPV) of financial instruments . NLB Group applies market is between 14 and 17%; 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 yield curves for valuation, and fair values are additionally adjusted for credit risk of the counterparty . • The discount rate derived from the capital asset pricing model that is used to discount future cash The fair value hierarchy of financial instruments is individual investment . The discount rate reflects the flows is based on the cost of equity allocated to an recent transaction prices, the use of a discounted cash disclosed in note 6 .5 . flow model, valuation based on comparable entities, and other frequently used valuation models . These valuation models at their best estimate reflect current associates and joint ventures management’s control . The pre-tax discount rate is market conditions at the measurement date, which The process of identifying and assessing the impairment between 10 .2 and 20 .25% (31 December 2022: between may not be representative of market conditions either of investments in subsidiaries, associates and joint 13 .1 and 22 .2%) . before or after the measurement date . Management ventures is inherently uncertain, as the forecasting of reviewed all applied models as at the reporting date cash flows requires the significant use of estimates, c) Impairment of investments in subsidiaries, of variables used is subject to fluctuations outside impact of a range of financial and economic variables, including the risk-free rate and risk premium . The value NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 Number of employees eligible for benefits A sensitivity analysis of significant actuarial assumptions for post-employment benefit: NLB Group 2023 2022 NLB 2023 2022 3 .6% - 8 .0% 3 .1% - 8 .3% 4 .0% 3 .1% 2 .4% - 13 .4% 2 .3% - 14 .2% 2 .4% - 8 .0% 3 .0% - 7 .0% 7,177 7,154 2,519 2,369 31 Dec 2023 NLB Group NLB Impact on provisions for employee benefits - post-employment benefits (in %) Discount rate Future salary increases Discount rate Future salary increases +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . (4 .4) 4 .8 4 .8 (4 .5) (4 .2) 4 .5 4 .5 (4 .2) 31 Dec 2022 NLB Group NLB Impact on provisions for employee benefits - post-employment benefits (in %) Individual analysis is done by changing one assumption for +/- 0 .5 percentage points, while all other assumptions stay the same . The breakdown of actuarial gains and losses for post- employment benefit by causes: Actuarial gains and losses due to changed financial assumptions Actuarial gains and losses due to changes in demographic assumptions Actuarial gains and losses due to experience Total actuarial gains and losses for the year The weighted average duration of liabilities in years: Post-employment benefit Discount rate Future salary increases Discount rate Future salary increases +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . +0 .5 p .p . -0 .5 p .p . (4 .7) 5 .0 5 .1 (4 .8) (4 .5) 4 .8 4 .9 (4 .7) NLB Group 2023 (470) 141 (115) (444) 2022 4,093 - (62) 4,031 in EUR thousands NLB 2023 614 - (26) 588 2022 1,759 - 289 2,048 NLB Group 2023 2022 9 .6 - 20 .9 11 .1 - 22 .0 NLB 2023 10 .9 2022 11 .1 218 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                     e) Taxes NLB Group operates in countries governed by different clarify how companies should distinguish changes assets and liabilities . In periods in which Pillar Two in accounting policies from changes in accounting legislation is enacted or substantively enacted, but not laws . The deferred tax assets recognised as at 31 estimates . That distinction is important because yet in effect, an entity is required to disclose known or December 2023 are based on profit forecasts and changes in accounting estimates are applied reasonably estimable information that helps users of take the expected manner of recovery of the assets prospectively only to future transactions and other financial statements understand the entity’s exposure into account . Changes in assumptions regarding future events, but changes in accounting policies to Pillar Two income taxes arising from that legislation . the likely manner of recovering assets or changes in are generally also applied retrospectively to past NLB Group has disclosed impact on financial profit forecasts can lead to the recognition of currently transactions and other past events . There was no statements in note 4 .15 . unrecognised deferred tax assets or derecognition impact on NLB Group financial statements . of previously created deferred tax assets . If profit • IFRS 17 (new standard including amendments) – Accounting standards and amendments to existing projections used for estimation of the amount of Insurance Contracts is effective for annual periods standards that were endorsed by the EU, but not deferred tax assets which are expected to be reversed beginning on or after 1 January 2023 . The new in the foreseeable future (i .e ., within five years) would standard provides a comprehensive principle-based adopted early by NLB Group New and revised accounting standards and change by 10%, the estimated amount of deferred tax framework for the measurement and presentation of interpretations endorsed by the EU that are not assets would change by approximately EUR 10 .7 million all insurance contracts . The new standard will replace mandatory for annual accounting periods beginning (notes 4 .15 . and 5 .17 .) . IFRS 4 Insurance Contracts and requires insurance on 1 January 2023, were not adopted early by NLB 2 .35 . Implementation of the new and revised International Financial Reporting Standards During the current year, NLB Group adopted all new and revised standards and interpretations issued by the International Accounting Standards Board (hereinafter: ‘the IASB’) and the International Financial Reporting Interpretations Committee (hereinafter: ‘the IFRIC’), and that are endorsed by the EU that are effective for annual accounting periods beginning on 1 January 2023 . Accounting standards and amendments to existing standards effective for annual periods beginning on 1 January 2023 that were endorsed by the EU and adopted by NLB Group • IAS 1 (amendment) – Presentation of Financial Statements and IFRS Practice Statement 2 – Disclosure of Accounting policies is effective for annual periods beginning on or after 1 January 2023 . The amendments to IAS 1 require companies to disclose their material accounting policy information rather than their significant accounting policies . The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures . There was no impact on NLB Group financial statements . • IAS 8 (amendment) – Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates is effective for annual periods beginning on or after 1 January 2023 . The amendments contracts to be measured using current fulfilment Group . These standards and amendments are not cash flows, and for revenue to be recognised – as the service is provided over the coverage period . The expected to have a material impact on the consolidated financial statements of NLB Group in the future reporting additionally issued amendments to IFRS 17 simplify periods and on foreseeable future transactions . some requirements and explanation of financial NLB Group plans to adopt the accounting standards performance, and provide additional transition reliefs and amendments listed below for reporting periods to reduce the complexity of applying standard for the commencing on or after the effective date . first time . There was no impact on NLB Group financial statements . • IAS 12 (amendment) – Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction is effective for annual periods beginning • IAS 1 (amendment and deferral of effective date) – Presentation of Financial Statements: Classification of Liabilities as Current or Non-current is effective for annual periods beginning on or after 1 January 2024 . on or after 1 January 2023 . IAS 12 specifies how a The amendments clarify that liabilities are classified company accounts for income tax, including deferred as either current or non-current, depending on the tax, which represents tax payable or recoverable in rights that exist at the end of the reporting period . the future . In specified circumstances, companies Classification is unaffected by the expectations of the are exempt from recognising deferred tax when they entity or events after the reporting date . The amendment recognise assets or liabilities for the first time . The also clarifies what IAS 1 means when it refers to the amendments clarify that the exemption does not apply ‘settlement’ of a liability . NLB Group does not expect an and that companies are required to recognise deferred tax on such transactions . There was no impact on NLB Group financial statements . impact on the financial statements . • IAS 1 (amendment) – Presentation of Financial Statements: Non-current Liabilities with Covenants • IAS 12 (amendment) – Income taxes: International is effective for annual periods beginning on or after Tax Reform – Pillar Two Model Rules is effective for 1 January 2024 . The amendments improved the annual periods beginning on or after 1 January 2023 . information an entity provides when its right to defer The amendments to IAS 12 introduce a temporary settlement of a liability for at least 12 months is subject exception from accounting for deferred taxes arising to compliance with covenants . The amendments from the implementation of the OECD Pillar Two Model also responded to stakeholders’ concerns about the Rules . Applying the exception, an entity does not classification of such a liability as current or non- recognise deferred tax assets and liabilities related current . NLB Group does not expect an impact on the to the OECD Pillar Two income taxes . It also does not financial statements . disclose any information about these deferred tax 219 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents • IFRS 16 (amendment) – Leases: Lease Liability in a Sale and Leaseback is effective for annual periods beginning on or after 1 January 2024 . The determine a spot exchange rate when exchangeability ownership of NLB Lease&Go leasing d .o .o . Beograd is lacking . A currency is exchangeable when an entity is 50 .73%, meanwhile, NLB Komercijalna banka a .d . is able to exchange that currency for another currency Beograd ownership of NLB Lease&Go leasing d .o .o . 220 amendments affect only the subsequent measurement through market or exchange mechanisms that create Beograd is 48 .91% . of lease liabilities arising from a sale and leaseback enforceable rights and obligations without undue delay transaction with variable lease payments, which at the measurement date and for a specified purpose . Other changes: occurred from the date of initial application of IFRS If a currency is not exchangeable at the measurement • In April 2023, after merging with REAM d .o .o ., Beograd, 16 and for which the seller-lessee’s accounting policy date, the entity is required to estimate the spot exchange subsidiary SPV 2 d .o .o ., Beograd ceased to exist . All its differs from the requirements specified in these rate as the rate that would have applied to an orderly assets and liabilities were transferred to REAM d .o .o ., amendments . NLB Group does not expect an impact exchange transaction between market participants Beograd which become after merger its universal on the financial statements . at the measurement date under prevailing economic legal successor . conditions, and disclose expected affects to the entity’s • In May 2023, NLB Group sold its subsidiary Tara Hotel Accounting standards and amendments to existing financial statements . NLB Group does not expect an d .o .o . Budva (note 5 .12 .c) . impact on the financial statements . • In July 2023, a purchase agreement was signed for the standards, but not endorsed by the EU • IAS 7 (amendment) – Statement of Cash Flows and IFRS 7 (amendment) – Financial Instruments: Disclosures: Supplier Finance Arrangements is effective for annual periods beginning on or after 1 January 2024 . The amendments add a disclosure objective to IAS 7 stating that an entity is required to disclose information about 3 . Changes in the composition of the NLB Group its supplier finance arrangements that enables users of financial statements to assess the effects of those Changes in 2023 Capital changes: sale of NLB Group`s subsidiary Optima Leasing d .o .o ., Zagreb – u likvidaciji . The transfer of the ownership was entered into Register of Companies on 13 September 2023 (note 5 .12 .b) . • In August 2023, NLB received an authorisation of the ECB for the merger of the N Banka . On 1 September 2023, with entry of the merger in the Register of Companies, the process of legal merger of N Banka arrangements on the entity’s liabilities and cash flows, • In January 2023, NLB Lease&Go, leasing, d .o .o ., with NLB was closed . As at the date of the merger, N and the entity’s exposure to liquidity risk . Supplier Ljubljana increased share capital in the form of a cash Banka ceased to exist as an independent legal entity, finance arrangements are characterised by one or contribution in the amount of EUR 2,100 thousand in and NLB as a universal successor, took over all of its more finance providers offering to pay amounts an company Zastava Istrabenz Lizing, d .o .o ., Beograd . rights and obligations (note 5 .12 .d) . entity owes its suppliers and the entity agreeing to Ownership interest increased from 95 .20% to 99% . • In September 2023, NLB Leasing d .o .o ., Beograd – u pay according to the terms and conditions of the In January 2023, the company was renamed to ‘NLB likvidaciji was liquidated . In accordance with the court arrangements at the same date as, or a date later Lease&Go leasing d .o .o . Beograd .’ order, the company was removed from the court register . than, suppliers are paid . The amendments note that • In June 2023, NLB Lease&Go, leasing, d .o .o ., Ljubljana • In September 2023, after cross boarder merging with arrangements that are solely credit enhancements increased share capital in the form of a cash S-REAM d .o .o ., Ljubljana, subsidiary REAM d .o .o, for the entity or instruments used by the entity to contribution in the amount of EUR 1,195 thousand Zagreb ceased to exist . All its assets and liabilities were settle directly with a supplier the amounts owed are in company NLB Lease&Go leasing d .o .o . Beograd . transferred to S-REAM d .o .o ., Ljubljana, which become not supplier finance arrangements . Meanwhile, the Ownership interest increased from 99% to 99 .30% . after merger its universal legal successor . amendments to IFRS 7 require from an entity to disclose • In September 2023, NLB Komercijalna banka a .d . • On 30 November 2023, NLB concluded a purchase a description of how it manages the liquidity risk Beograd increased share capital in the form of a cash agreement for the acquisition of a 100% stake in the resulting from financial liabilities . The amendments contribution in the amount of EUR 767 thousand in company SLS HOLDCO d .o .o ., the parent company of include as an additional factor whether the entity company KomBank Invest a .d . Beograd . Summit Leasing Slovenija d .o .o . and its subsidiaries has accessed, or has access to, supplier finance • In September 2023, NLB Lease&Go, leasing, d .o .o ., from funds managed by affiliates of Apollo Global arrangements that provide the entity with extended Ljubljana and NLB Banka a .d ., Skopje increased Management, Inc . and the European Bank for payment terms or the entity’s suppliers with early share capital in the form of a cash contribution in the Reconstruction and Development . The purchase price payment terms . NLB Group does not expect an impact total amount of EUR 1,571 thousand in company NLB for the mentioned deal is equal to the book value of on the financial statements . • IAS 21 (amendment) – The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability is effective for annual periods beginning on or after 1 January 2025 . Lease&Go, d .o .o . Skopje . Summit Leasing with an additional small mark-up . • In December 2023, NLB Komercijalna banka a .d . Completion of the transaction depends on obtaining Beograd increased share capital in the form of a cash regulatory approvals and approvals from competent contribution in the amount of EUR 3,804 thousand authorities/institutions for the protection of competition The amendments clarify how an entity should assess in company NLB Lease&Go leasing d .o .o . Beograd . and is expected in the second half of 2024 . whether a currency is exchangeable and how it should After that, NLB Lease&Go, leasing, d .o .o ., Ljubljana NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Changes in 2022 Capital changes: of this Serbian bank . Prior to the squeeze-out process, • In December 2022, an increase in share capital in the NLB owned 90 .2155% of share capital and 91 .7294% of form of a cash contribution in the amount of EUR 21,130 221 • In March 2022, in accordance with Resolution and voting rights . Through the squeeze-out process, NLB thousand in S-REAM d .o .o ., Ljubljana for the purpose of Compulsory Winding-Up of Banks Act, NLB became acquired 1,528,110 regular shares and 316,260 preferred consolidation of real estate companies in Slovenia . an owner of 100% shares of Sberbank banka d .d ., shares with a total value of EUR 61,865 thousand . Ljubljana . The purchase price for the bank was EUR • In September 2022, an increase in share capital in the Other changes: 5,109 thousand and was fully paid in cash (note 5 .12 .e) . form of a cash contribution in the amount of EUR 306 • After obtaining all regulatory licenses, as well as by At the General Meeting of Shareholders of Sberbank thousand in NLB Lease&Go, leasing, d .o .o ., Ljubljana registering the merger with the Business Registers banka d .d ., Ljubljana, held in April 2022, a decision was for the purpose of achieving NLB Group’s leasing Agency, the integration process of Komercijalna made to rename Sberbank banka d .d ., Ljubljana to ‘N strategy . banka a .d . Beograd and NLB Banka a .d ., Beograd, Banka d .d ., Ljubljana .’ • In September 2022, NLB Lease&Go, leasing, d .o .o ., was successfully completed . From 30 April 2022, the • In March 2022, Komercijalna banka a .d . Beograd Ljubljana (51%) and NLB Banka a .d ., Skopje (49%) bank operates under the new name NLB Komercijalna bought 2 .90% of all ordinary shares in the amount of established the financial company named ‘NLB Liz&Go banka a .d . Beograd . Based on the merger of NLB EUR 19,047 thousand of treasury shares from dissenting d .o .o . Skopje .’ In December 2022, the company was Banka a .d ., Beograd to Komercijalna banka a .d . shareholders, which Komercijalna banka a .d . Beograd renamed to ‘NLB Lease&Go d .o .o . Skopje .’ Beograd as the acquirer, NLB Komercijalna banka a .d . should dispose of within 12 months of their takeover . • In November 2022, NLB Lease&Go, leasing, d .o .o ., Beograd is its universal legal successor . • In April 2022, NLB established IT services company Ljubljana became an owner of 95 .20% of financial • In November 2022, NLB Komercijalna banka a .d . named ‘NLB DigIT d .o .o ., Beograd .’ • In May 2022, NLB acquired an additional 442,799 company ‘Zastava Istrabenz Lizing, d .o .o ., Beograd .’ The purchase price for the company was EUR 1,036 Beograd sold its 23 .97% ownership interest in NLB Banka a .d ., Podgorica to NLB . ordinary shares of NLB Komercijalna banka a .d . thousand and was fully paid in cash (note 5 .12 .f) . In • In December 2022, NLB sold its 100% ownership Beograd and combined with existing shareholding January 2023, the company was renamed to ‘NLB interest in PRO-REM d .o .o ., Ljubljana – v likvidaciji to reached the ownership of 90 .2155% of the basic capital Lease&Go leasing d .o .o . Beograd .’ S-REAM d .o .o ., Ljubljana . and 91 .7294% of shares with voting rights . The increase • In December 2022, an increase in share capital in the in capital investment was recognised in the amount of form of a cash contribution in the amount of EUR 2,100 EUR 15,715 thousand . thousand in NLB Lease&Go, leasing, d .o .o ., Ljubljana • In July 2022, NLB successfully squeezed out the for the purpose of achieving NLB Group’s leasing remaining shareholders of NLB Komercijalna banka strategy . a .d . Beograd and thereby became the owner of 100% NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents in EUR thousands The line item ‘Negative interest’ classified under the NLB Group NLB line item ‘Interest income calculated using the effective 2023 2022 2023 2022 interest method’ in 2022 mainly includes the interest from targeted longer-term refinancing operations (TLTRO) in 952,875 558,826 477,154 217,881 the amount of EUR 3,902 thousand for NLB Group and 38,645 38,840 9,184 11,215 36,886 130,829 21,616 16,791 12,067 3,770 24,237 122,807 9,584 11,431 10,868 6,106 EUR 3,677 thousand for NLB (note 5 .15 .b) . The line item ‘Negative interest’ classified under the line item ‘Interest expenses calculated using the effective interest method’ in 2022 includes the interest from deposits with banks and central banks in the amount of EUR 8,746 thousand for NLB Group and EUR 6,238 thousand for NLB . It also includes interest from deposits with financial organisations in the amount of EUR 186 thousand for NLB Group and NLB, and interest from securities with a negative yield in the amount of EUR 369 thousand for NLB Group and NLB . 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 calculated using the effective interest method Financial assets measured at fair value through other comprehensive income Securities measured at amortised cost Deposits with banks and central banks Loans and advances to banks measured at amortised cost Loans and advances to customers at amortised cost 724,899 483,392 311,342 174,543 Negative interest Other interest and similar income Financial assets held for trading Non-trading financial assets mandatorily at fair value through profit or loss Derivatives - hedge accounting Finance leases Other Total - 3,966 40,530 10,950 6,213 3,732 48 14,529 18,959 781 48 559 6,607 4 - 21,184 6,459 417 14,308 - - 3,718 4,081 3,352 166 559 - 4 993,405 569,776 498,338 221,962 Interest and similar expenses Interest expenses calculated using the effective interest method 148,034 53,086 115,779 34,166 Deposits from banks and central banks Borrowings from banks and central banks Due to customers Borrowings from other customers Subordinated liabilities Debt securities issued Lease liabilities (note 5 .11 .a) Negative interest Other interest and similar expenses Derivatives - hedge accounting Financial liabilities held for trading Interest expenses on defined employee benefits (note 2 .30 ., 5 .16 .c) Other Total 795 1,236 6,914 712 692 617 19,464 36,266 5,116 3,372 1,880 68,784 1,515 35,155 36,579 728 21 939 12,737 8,183 431 9,301 12,037 11,768 4,470 5,595 668 1,304 7,468 3,497 374 429 - 35,155 36,579 132 21 9,993 4,444 5,191 330 28 - 12,737 8,183 28 6,793 10,769 7,468 3,144 144 13 160,071 64,854 125,772 44,935 Net interest income 833,334 504,922 372,566 177,027 222 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         4 .2 . Dividend income Financial assets measured at fair value through other comprehensive income - 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 NLB Group NLB in EUR thousands 2023 116 116 - - 53 169 2022 173 173 - - 69 242 2023 2022 - - - - 144,930 55,244 275 53 754 46 145,258 56,044 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 Agency of insurance products Other services in EUR thousands NLB Group NLB 2023 2022 2023 2022 130,460 113,358 93,527 89,277 50,094 53,355 44,476 52,120 88,334 32,994 13,425 10,381 94,035 29,640 10,511 17,336 24,977 24,005 9,916 9,679 3,816 9,034 7,973 11,019 Total fee and commission income from contracts with customers 369,121 354,157 151,837 148,627 Guarantees Total 17,954 16,417 9,577 8,418 387,075 370,574 161,414 157,045 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 91,543 78,291 33,387 28,390 13,169 13,812 1,351 1,148 1,516 4,627 1,691 4,314 1,335 4,036 1,713 5,594 888 679 1,598 606 841 944 1,580 917 116,860 104,781 38,509 33,820 Net fee and commission income related to banking activities 270,215 265,793 122,905 123,225 223 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                       b) Fee and commission income and expenses relating to fiduciary activities Fee and commission income related to fiduciary activities Receipt, processing, and execution of orders Management of financial instruments portfolio Initial or subsequent underwriting and/or placing of financial instruments without a firm commitment basis Custody and similar services Management of clients‘ account of non-materialised securities Safe-keeping of clients‘ financial instruments Advice to companies on capital structure, business strategy, and related matters and advice, and services relating to mergers and acquisitions of companies in EUR thousands NLB Group NLB 2023 2022 2023 2022 1,661 1,724 228 6,027 1,942 75 9 1,928 1,601 143 5,150 1,696 34 473 1,546 1,657 - 228 5,842 1,942 - 9 - 143 5,426 1,696 - 473 Total 11,666 11,025 9,567 9,395 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 3,844 76 3,920 3,374 94 3,468 3,847 76 3,923 3,377 94 3,471 Net fee income related to fiduciary activities 7,746 7,557 5,644 5,924 Total fee and commission income a) and b) Total fee and commission expenses a) and b) 398,741 381,599 170,981 166,440 120,780 108,249 42,432 37,291 Total net fee and commission a) and b) 277,961 273,350 128,549 129,149 224 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             c) Analysis of fee and commission income and expenses by type and by segments in EUR thousands 225 2023 Fee and commission income Fee and commission income relating to financial instruments not at fair value through profit or loss Other fee and commission Total fee and commission income from contracts with customers Guarantees Total Fee and commission expenses Total Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Strategic Foreign Markets Financial Markets in Slovenia NLB Group Non-Core Members Other activities Intercompany relations Total 84,170 71,260 120 155,550 (41,434) (41,434) 22,043 117,756 23,400 71,358 10,361 55,804 (15,593) (15,593) 7,545 196,659 (72,547) (72,547) 125 493 35 653 - 46 - 46 (2,727) (2,727) (122) (122) 14 (121) 223,987 2,763 (12,520) 156,800 13 2,790 (1,118) (1,118) (120) (12,761) 17,954 398,741 12,761 12,761 (120,780) (120,780) Net fee and commission income 114,116 40,211 124,112 (2,074) (76) 1,672 - 277,961 2022 Fee and commission income Fee and commission income relating to financial instruments not at fair value through profit or loss Other fee and commission Total fee and commission income from contracts with customers Guarantees Total Fee and commission expenses Total Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Strategic Foreign Markets Financial Markets in Slovenia NLB Group Non-Core Members Other activities Intercompany relations Total in EUR thousands 76,956 71,481 120 148,557 (35,312) (35,312) 19,022 106,491 29,072 70,320 9,365 57,459 (13,907) (13,907) 7,014 183,825 (65,087) (65,087) 635 687 32 1,354 (3,012) (3,012) - 182 - 182 (184) (184) 11 (480) 202,635 2,132 (11,327) 162,547 - (114) 2,143 (11,921) 16,417 381,599 (2,668) (2,668) 11,921 11,921 (108,249) (108,249) Net fee and commission income 113,245 43,552 118,738 (1,658) (2) (525) - 273,350 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                             4 .4 . Gains less losses from financial assets and liabilities not measured 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 Total Sales of debt instruments measured at amortised cost in 2022 were made due to increase in credit risk . in EUR thousands NLB Group NLB 2023 2022 2023 2022 94 96 (836) (1,764) - - (742) 3,269 (735) 866 2 (836) - - - (316) 1 (735) (834) (1,050) 4 .5 . Gains less losses from financial assets and liabilities held for trading in EUR thousands NLB Group NLB 2023 2022 2023 2022 35,774 43,213 12,308 19,388 (7,394) (13,988) (7,299) (11,465) 188 (28) 2,462 1,182 3 237 (175) 3,636 512 16 134 (28) (1,512) (4,014) 3 195 (175) 2,768 605 16 32,187 33,451 (408) 11,332 Foreign exchange trading - gains - losses Debt instruments - gains - losses Derivatives - currency - interest rate - securities Total Interest income from financial assets held for trading is included in the income statement line item ‘Interest and similar income’ and interest expenses from financial liabilities held for trading in line item ‘Interest and similar expenses’ (note 4 .1 .) . 226 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         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 Interest income from non-trading financial assets mandatorily at fair value through profit or loss is included in the income statement line item ‘Interest and similar income’ (note 4 .1 .) in EUR thousands NLB Group NLB 2023 2022 2023 2022 2,667 (985) 3,481 (3,162) 1,901 (712) 2,699 (1,925) 122 (44) 24 1,784 70 (299) - 90 - - - - 1,256 2,445 (2,225) (1,451) . 4 .7 . Foreign exchange translation gains less losses Financial assets and liabilities not measured as at fair value through profit or loss Financial assets measured at fair value through profit or loss Other Total NLB Group 2023 (2,549) (7) (222) (2,778) 2022 (95) (11) 403 297 in EUR thousands NLB 2023 2022 3,232 (1,980) (7) (222) 3,003 (11) 403 (1,588) 227 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         4 .8 . Other net operating income 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 Other operating expenses Donations Expenses related to issued service guarantees Revaluation of investment property to fair value (note 5 .9 .) Other operating expenses Total in EUR thousands NLB Group NLB 2023 2022 2023 2022 7,933 3,455 2,133 221 2,124 1,755 617 427 6,676 6,952 3,327 1,252 254 2,119 2,912 3,766 2,450 7,366 6,862 3,481 485 1,249 1,647 359 223 17 6,367 3,383 475 1,020 1,489 459 85 393 2,915 2,912 17,408 23,446 10,376 10,216 12,008 1,535 11,564 3,597 545 1,734 7,813 22,100 451 674 4,008 6,668 545 41 2,232 14,382 451 1 1,756 5,805 Other net operating income (4,692) 16,778 (4,006) 4,411 The line item ‘Donations,’ classified under the ‘Other Other operating expenses mainly include expenses operating expenses’ in year 2023 also include donations associated with the changes in proportional deduction of NLB for floods mitigation in Slovenia to municipalities of VAT, licences, penalties and damages . in the total amount of EUR 4,000 thousand, and to the Budget of the Republic of Slovenia to a particular budget Other operating income mainly include reimbursement line to raise funds to recover the consequences of the of costs and taxes and income from sale of gold . August floods in the amount of EUR 5,000 thousand . 228 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     4 .9 . Administrative expenses Employee costs Gross salaries, compensations, and other short-term benefits 252,731 230,277 118,962 104,278 in EUR thousands NLB Group NLB 2023 2022 2023 2022 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 Other tax expenses Membership fees and similar Business travel Marketing Buildings and equipment Electricity Rents and leases Maintenance costs Costs of security Insurance for tangible assets Other costs related to buildings and equipment Technology Maintenance 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 17,424 12,612 (602) (1,134) 532 16,343 11,404 (365) (82) (283) 8,225 6,864 (279) (452) 173 7,217 6,002 (207) (38) (169) 282,165 257,659 133,772 117,290 6,672 46,735 18,385 4,942 23,408 4,454 903 1,684 17,373 32,680 8,285 3,012 9,370 5,952 656 5,405 43,093 22,527 12,612 3,267 4,687 6,091 47,053 20,393 5,422 21,238 4,096 833 1,230 15,340 33,092 10,212 2,079 8,846 6,181 689 5,085 32,735 15,792 9,725 3,022 4,196 12,490 11,146 4,868 5,141 2,481 4,374 4,043 4,717 2,386 3,611 1,624 26,824 9,768 2,806 14,250 1,040 359 561 9,213 15,290 4,307 526 4,977 2,203 152 3,125 23,100 10,232 8,829 2,157 1,882 4,567 2,814 558 1,195 2,057 1,529 24,748 9,932 3,325 11,491 956 322 326 7,916 15,230 5,740 273 4,335 1,935 156 2,791 16,349 6,140 6,760 1,876 1,573 4,423 2,612 649 1,162 1,776 170,458 155,227 84,635 73,575 Total administrative expenses 452,623 412,886 218,407 190,865 Number of employees 7,982 8,228 2,554 2,418 Costs of other services include costs for cash transport, archiving costs, costs for certification agency and e-business, and other attorneys and notaries services costs . 229 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     in EUR thousands NLB Group NLB 2023 2022 2023 2022 944 28 972 750 412 1,162 333 28 361 275 287 562 In the table below are presented expenses related to the services of the statutory auditor: External audit services Audit of annual report Other audit services Total The contractual amount of remuneration of auditor for audit of annual report (without VAT, predefined costs and inflation, if exceeds 3% in individual state of the NLB Group member) in 2023 in the NLB Group amounted to EUR 757 thousand of which in NLB EUR 341 thousand . Additionally, to the services included in the paragraph above, the statutory auditor in 2023 performed also other assurance services in the amount of EUR 343 thousand (Group: EUR 350 thousand) and non-assurance services in the amount of EUR 7 thousand (Group: EUR 17 thousand), both related to the issuance of bonds . Amounts are presented without VAT . Payment was included in the calculation of the effective interest rate on the instrument issued . In 2023 and 2022, the statutory auditor did not performed any other non- audit services . Tax on banks’ balance sheets For the years 2024-2028 tax on banks’ balance sheets was introduced in Slovenia . The yearly tax liability is estimated to be more than EUR 30 million . 4 .10 . Cash contributions to resolution funds and deposit guarantee schemes Cash contributions to deposit guarantee schemes Cash contributions to resolution funds Total in EUR thousands NLB Group NLB 2023 36,946 2,147 39,093 2022 33,884 2,260 36,144 2023 9,686 1,697 11,383 2022 7,614 2,099 9,713 230 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         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 in EUR thousands NLB Group 2023 2022 16,402 15,757 NLB 2023 7,528 24,832 7,998 49,232 22,941 8,692 47,390 10,508 1,421 19,457 2022 5,769 10,260 972 17,001 4 .12 . Gains less losses from modification of financial assets NLB Group Financial assets modified during the period Amortised cost before modification Net modification gains/(losses) 2023 2022 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total in EUR thousands 510,682 (16,043) 4,141 (123) 4,145 (105) 518,968 (16,271) 1,046 (56) 1,361 5 698 25 3,105 (26) The majority of modification loss of financial assets in The loss represents the difference between the balance 2023 refers to the Decision on temporary measures of the loan on the modification date and the discounted for banks in relation to housing loans to natural value of the cash flows of the modified repayment plans persons, which limited the interest rates of housing using the original effective interest rate . loans in Serbia . NLB Group Financial assets modified since initial recognition Gross carrying amount of financial assets for which loss allowance has changed to 12-month measurement during the period 4 .13 . Provisions Provisions for credit losses Guarantees and commitments (note 5 .16 .b) Provisions for other liabilities and charges Restructuring provisions (note 5 .16 .d) Provisions for legal risks (note 5 .16 .e) Other provisions (note 5 .16 .f) Total in EUR thousands 31 Dec 2023 31 Dec 2022 775 - NLB Group NLB in EUR thousands 2023 (5,055) (5,055) 25,925 3,654 7,280 14,991 20,870 2022 3,050 3,050 5,932 10,325 1,645 (6,038) 8,982 2023 (3,074) (3,074) 14,422 3,800 (2,678) 13,300 11,348 2022 (282) (282) 2,325 - 125 2,200 2,043 231 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents           4 .14 . Impairment charge in EUR thousands NLB Group NLB 2023 2022 2023 2022 Impairment of financial assets Cash balances at central banks, and other demand deposits at banks Loans and advances to banks measured at amortised cost (note 5 .14 .a) (504) 23 (6,600) 67 110 (80) 10 34 Loans and advances to individuals measured at amortised cost (note 5 .14 .a) 37,632 17,140 15,689 13,523 Loans and advances to other customers 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) Total impairment of financial assets (41,396) (2,629) (4,254) (4,744) (7,054) 1,749 2,833 3,870 474 2,132 (5,058) 5,826 672 589 161 158 (6,717) 14,454 7,668 14,968 Impairment of investments in subsidiaries, associates and joint ventures Investments in subsidiaries Investments in associates and joint ventures Total Impairment of other assets Property and equipment (note 5 .8 .b) Other assets Total - - - - - - (96,876) (22,685) (241) (88) (97,117) (22,773) 47 (100) (53) 1,620 3,813 5,433 - 3 3 - 6 6 Total impairment of non-financial assets (53) 5,433 (97,114) (22,767) Total impairment (6,770) 19,887 (89,446) (7,799) Impairment of financial assets in 2022 includes EUR The recoverable amounts have been calculated based 8,900 thousand of 12-month expected credit losses for on value in use, determining by discounting the future Stage 1 financial assets, acquired through a business cash flows expected to be generated from holding the combination (note 5 .12 .e) . Of that, EUR 8,894 thousand investments . The values assigned to the key assumptions relates to financial assets measured at amortised cost, represent management’s assessment of future trends in EUR 5 thousand to financial assets measured at fair the relevant sectors and have been based on historical value through other comprehensive income, and EUR 1 thousand to cash balances at central banks and other data from both internal and external sources (discount rate from 10 .2% to 20 .25%; growth rate from 2 .8% to 4%; demand deposits at banks . target capital adequacy ratio between 14% and 17%) . Details of the assumptions used in the estimates are Impairment of debt securities measured at amortised presented in note 2 .34 .c) . cost in 2022 relates mainly to impairment of Russian sovereign debt, which was sold in February 2023 In 2023, NLB impaired equity investment in non-core (note 5 .4 .) . In 2023, NLB released impairments related to equity investments in subsidiaries and an associate in total amount of EUR 97,847 thousand (2022: EUR 23,388 thousand) . Release of impartments in subsidiaries was due to increase in their estimated recoverable amounts . subsidiary in amount of EUR 730 thousand (2022: EUR 615 thousand), which is included in the amount in the line item ‘Investments in subsidiaries .’ 232 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     4 .15 . Income tax Current income tax Deferred income tax (note 5 .17 .) Total Reconciliations of differences from the amount of tax determined by applying the Slovenian statutory tax rate and reconciliation of effects: NLB Group 2023 66,072 (50,982) 15,090 2022 26,753 (1,523) 25,230 in EUR thousands NLB 2023 25,210 (60,751) (35,541) 2022 5,992 (1,524) 4,468 Profit before tax NLB Group 2023 578,413 2022 483,063 2023 478,746 in EUR thousands NLB 2022 164,070 Tax calculated at prescribed rate of 19% 109,898 19 .0% 91,782 19 .0% 90,962 19 .0% 31,173 19 .0% Tax effect of: Income not subject to tax Non-deductible expenses Utilization of previously non-deductible expenses Tax reliefs Use of previously unrecognised tax losses Unrecognised deferred tax assets on current period tax losses Recognition of previously unrecognised deferred tax on tax losses Recognition of previously unrecognised deferred tax on deductible temporary differences Changes in deferred taxes due to the increase of tax rate Effect of different tax rates in other countries Withholding tax for which no tax credit was available Deferred tax liability on undistributed profits Adjustment to tax in respect of prior years Other Total (13,180) 10,572 (16,034) (3,324) (22,266) 14,218 (46,697) (1,918) (13,491) (18,636) 6,920 9,626 50 (648) 15,090 -2 .3% 1 .8% -2 .8% -0 .6% -3 .8% 2 .4% -8 .1% -0 .3% -2 .3% -3 .2% 1 .2% 1 .7% - -0 .1% 2.6% (45,621) 7,332 (3,370) (4,132) (5,022) 487 - -9 .4% 1 .5% -0 .7% -0 .8% -1 .0% 0 .1% (45,966) 3,130 (2,578) (3,301) (21,898) - - (46,697) (4,688) -1 .0% (1,918) - (12,963) 1,617 - (282) 90 25,230 - (13,544) -2 .7% 0 .3% - -0 .1% - 5.2% - 6,920 - (3) (648) (35,541) -9 .6% 0 .7% -0 .5% -0 .7% -4 .6% - -9 .8% -0 .4% -2 .8% - 1 .4% - - -0 .1% -7.4% (14,548) 1,605 (3,370) (2,792) (4,641) - - -8 .9% 1 .0% -2 .1% -1 .7% -2 .8% - - (4,688) -2 .9% - - - - 1,617 1 .0% - - 112 4,468 - - 0 .1% 2.7% Each member of NLB Group (disclosed in note 5 .12 .a) is dividend income in 2023 which amounts to EUR 137,994 (non-taxable income in 2022 amounts to EUR 172,810 taxable as required by local tax legislation . Income tax thousand (2022: EUR 53,242 thousand) .  thousand) . rates within NLB Group ranges from 9 to 32% . • release of impairments of equity investments in 2023 amounted to EUR 18,591 thousand (2022: EUR 4,444 NLB recognised deferred tax assets accrued on the A tax rate of 19% was applied in Slovenia in 2023 (2022: thousand) . They are based on non-taxable income basis of temporary differences in an amount that, given 19%) . For the years 2024-2028 the rate in Slovenia will from release of impairments of equity investments in future profit estimates, is expected to be reversed in the be 22% . 2023 in amount of EUR 97,847 thousand (2022: EUR foreseeable future (i .e ., within five years) . Due to some The effect of income not subject to tax of NLB in 2023, 23,388 thousand) . uncertainties regarding external factors (regulatory environment, market situation, etc .), a lower range of related to: The effect of income not subject to tax of NLB Group for expected outcomes was considered for the purposes of • dividends in 2023 amounted EUR 26,219 thousand (2022: 2022 mostly relates to the gain from a bargain purchase deferred tax assets calculation . EUR 10,116 thousand) . They are based on non-taxable of N Banka, and amounted to EUR 32,834 thousand 233 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         Based on a highly successful year in 2023 and assets with respect to which simultaneously deferred NLB has a special tax status at the Financial substantially increased profit projections for the tax liabilities are recognised are excluded from this Administration of the Republic of Slovenia (FURS) . upcoming 5 years, NLB increased recognised deferred calculation (e .g ., deferred tax assets for temporary non- The purpose of the status is to establish cooperation tax assets for EUR 56,668 thousand in 2023 . The deductible expenses for impairment of debt securities between FURS and the taxpayers, with the aim of increased amount consists of recognition of previously measured at fair value through other comprehensive encouraging voluntary compliance and reduce unrecognised deferred tax on tax losses in the amount income and deferred tax assets related to fair value administrative burdens on financial supervision . FURS of EUR 46,697 thousand, recognition of previously hedge accounting) . unrecognised deferred tax on deductible temporary cooperates with NLB and responds quickly to resolve NLB’s tax compliance issues, which reduces NLB’s tax differences (tax non-deductible impairments of non- NLB Group members did not recognise deferred tax risks and uncertain tax positions . core equity investments) in the amount of EUR 1,681 assets for tax losses if there is uncertainty about whether thousand, and recognition of unrecognised deferred tax the tax losses can be utilised, because it is not probable assets for valuation of financial instruments which was that future taxable profits will be available against which Global minimum tax The Minimum Tax Act was adopted in Slovenia in recognised in other comprehensive income in amount of the deferred tax assets can be utilised . The majority December 2023, providing a global minimum tax for EUR 8,290 thousand . of the impact of unrecognised deferred tax assets on multinational and large domestic groups . It is expected current period tax losses for 2023 relates to the tax that the parent company NLB will be liable to pay Deferred tax assets were also increased by EUR 14,924 loss of a non-strategic subsidiary that realised tax loss the top-up tax concerning subsidiaries in non-EU thousand due to an increase of the tax rate to 22% for due to the utilisation of previously tax non-deductible jurisdictions that have a statutory tax rate below 15% the next 5 years (2024 to 2028), of which EUR 13,544 thousand was recognised in the income statement, and expenses for impairments in the subsidiary, which was divested in 2023 . and have not enacted the new legislation on Global minimum tax in domestic legislation . Based on first EUR 1,380 thousand in other comprehensive income . estimates for the year 2024, we expect that the tax Deferred tax liability related to undistributed profits liability will amount to approximately EUR 4 million . In 2023, NLB recognised deferred tax assets on all includes withholding tax which shall be paid in the year However, since the newly enacted legislation in Slovenia temporary differences (non-recognised deferred tax 2024 on projected dividends . is only effective from 1 January 2024, there is no current assets on temporary differences in 2022 are disclosed in tax impact for the year 2023 . note 5 .17 . Deferred Income tax) . The deferred tax assets The tax authorities may audit operations of NLB Group for tax losses in 2023 are recognised in the amount entities . In general, tax inspection, which may result in The NLB Group applied a mandatory temporary that takes into account other recognised deferred the emergence of additional tax liability, default interest, exception from the requirements of IAS 12, according to tax assets, reaches the total amount of deferred tax and penalties, may be initiated at any time within four which information on deferred tax assets and liabilities assets, for which a reversal is expected within five to six years from the date of tax statement or from the related to Global minimum tax are not recognised . years (in 2022 deferred tax assets for tax loses were not year in which tax should have been assessed . NLB is recognised, due to the consideration of the total amount not aware of any circumstances that could give rise to a of recognised deferred tax assets) . The deferred tax potential material tax liability in this respect . 234 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 4 .16 . Earnings per share Earnings per share are calculated by dividing the net profit by the weighted average number of ordinary shares in issue, less treasury shares . Diluted earnings per share are the same as basic earnings per share for NLB Group and NLB, since subordinated bonds and other 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) NLB Group 2023 2022 NLB 2023 2022 550,700 446,862 514,287 159,602 Weighted average number of ordinary shares (in thousands) 20,000 20,000 20,000 20,000 Basic earnings per share (in EUR per share) Diluted earnings per share (in EUR per share) 27 .5 27 .5 22 .3 22 .3 25 .7 25 .7 8 .0 8 .0 5 . Notes to the statement of financial position 5 .1 . Cash, cash balances at central banks, and other demand deposits at banks NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 Balances and obligatory reserves with central banks 5,435,460 4,536,526 4,077,399 3,104,442 Cash Demand deposits at banks Allowance for impairment Total 470,902 198,489 489,197 246,815 181,735 59,365 180,483 54,456 6,104,851 5,272,538 4,318,499 3,339,381 (1,290) (1,173) (467) (357) 6,103,561 5,271,365 4,318,032 3,339,024 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 . 235 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         5 .2 . Financial instruments held for trading a) Financial assets held for trading Derivatives, excluding hedging instruments Swap contracts - currency swaps - interest rate swaps Options - interest rate options - securities options Forward contracts - currency forward Total derivatives Securities Treasury bills Total securities Total - quoted securities of these debt instruments The notional amounts of derivative financial instruments are disclosed in note 5 .24 .b) . b) Financial liabilities held for trading 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 .24 .b) . NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 13,867 3,687 10,180 1,249 1,229 20 602 602 16,169 743 15,426 2,312 2,295 17 2,904 2,904 16,135 3,712 12,423 1,249 1,229 20 573 573 16,274 849 15,425 2,312 2,295 17 2,903 2,903 15,718 21,385 17,957 21,489 - - 203 203 - - 203 203 15,718 21,588 17,957 21,692 - - 203 203 - - 203 203 NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 11,139 2,035 9,104 1,573 1,573 505 505 15,903 1,550 14,353 2,800 2,800 2,886 2,886 15,440 4,216 11,224 1,573 1,573 497 497 16,535 1,963 14,572 2,742 2,742 2,873 2,873 13,217 21,589 17,510 22,150 236 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 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 Assets Shares Investment funds Bonds Loans and advances to companies Total - quoted securities of these equity instruments of these debt instruments - unquoted securities of these equity instruments NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 6,300 2,658 5,217 - 14,175 5,217 - 5,217 8,958 8,958 5,579 10,336 3,116 - 19,031 3,484 368 3,116 15,547 15,547 6,300 2,558 - 7,785 16,643 - - - 8,858 8,858 5,211 2,308 - 7,892 15,411 - - - 7,519 7,519 As at 31 December 2023, NLB Group did not have any December 2022, NLB did not have any assets received assets received by taking possession of collateral by taking possession of collateral and included in and included in financial assets mandatorily at fair financial assets mandatorily at fair value through profit value through profit or loss (31 December 2022: EUR or loss (note 6 .1 .l) . 368 thousand) . As at 31 December 2023 and as at 31 b) Financial liabilities measured at fair value through profit or loss Liabilities Loans and advances to companies Other financial liabilities (note 2 .31 .) Total NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 - 4,482 4,482 - 1,796 1,796 1,234 1,976 3,210 1,786 728 2,514 237 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         5 .4 . Financial assets measured at fair value through other comprehensive income a) Analysis by type of financial assets measured at fair value through other comprehensive income Bonds - governments - Republic of Slovenia - other EU members - Republic of Serbia - other non-EU members - banks - other issuers Shares National Resolution Fund Treasury bills - Republic of Slovenia - other EU members - other non-EU members Commercial bills Total of these debt securities of these equity securities NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 1,836,604 2,506,224 1,398,036 1,895,891 246,155 200,914 579,333 371,634 413,926 24,642 26,467 60,625 301,838 19,902 247,827 34,109 26,022 269,853 271,464 898,531 456,043 578,552 31,781 22,285 58,122 310,748 52,723 170,382 87,643 21,824 962,084 523,516 210,509 194,599 4,482 113,926 413,926 24,642 303 60,625 - - - - - 1,196,760 586,427 199,224 253,346 3,913 129,944 578,552 31,781 269 42,515 94,517 32,908 10,888 50,721 - 2,251,556 2,919,203 1,023,012 1,334,061 2,164,464 2,838,796 962,084 1,291,277 87,092 80,407 60,928 42,784 Allowance for impairment (note 5 .14 .b) (7,329) (15,876) (2,448) (8,799) - quoted securities of these debt instruments of these equity instruments - unquoted securities of these debt instruments of these equity instruments 1,997,126 2,612,330 1,992,263 2,593,533 4,863 254,430 172,201 82,229 18,797 306,873 245,263 61,610 962,084 962,084 - 1,291,277 1,291,277 - 60,928 42,784 - - 60,928 42,784 As at 31 December 2023, the Bank does not have any The credit quality analysis for financial assets and exposure towards the Russia anymore . A Russian contingent liabilities is disclosed in note 6 .1 .j) and government bond in the nominal amount of USD 8,000 movements in allowance for the impairment of debt thousand that would otherwise mature in September securities in note 5 .14 .b) . 2023, was sold at the beginning of February 2023 . 238 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     b) Movements of financial assets measured at fair value through other comprehensive income in EUR thousands 239 2023 Debt securities 2,838,796 (293) - 1,446,746 (2,249,943) 38,624 1,901 88,633 - NLB Group NLB 2022 2023 2022 Equity securities Debt securities Equity securities Debt securities Equity securities Debt securities 80,407 3,395,261 66,599 1,291,277 42,784 1,541,042 Equity securities 44,709 (34) 1,358 30 53,223 16,164 - - 1,699,839 (82) (2,141,377) - - 38,471 3,104 - - - - 6,801 (211,083) (2,386) - - - - - 59,345 (479,962) 9,163 (766) 49,410 33,617 - - - - - - - - 290,245 (414,666) 10,846 4,484 - - - - - - 2,284 15,860 60,928 (140,674) (1,925) - - 1,291,277 42,784 2,164,464 87,092 2,838,796 80,407 962,084 Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 .e) Additions Derecognition Net interest income Exchange differences on monetary assets Changes in fair values Merger of subsidiary (note 5 .12 .d) Balance as at 31 December As at 31 December 2023, and as at 31 December 2022, NLB Group and NLB do not have any equity instruments measured at fair value through other comprehensive income obtained by taking possession of collateral in the statement of financial position (note 6 .1 .l) . 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 Net gains/(losses) from changes in fair value Gains/losses transferred to net profit on disposal (note 4 .4 .) Impairment (note 4 .14 .) Transfer of gains/losses to retained earnings Deferred income tax (note 5 .17 .) Merger of subsidiary Balance as at 31 December NLB Group NLB 2022 2023 2022 in EUR thousands 2023 Debt securities (144,578) (31) 77,269 742 (7,054) - 6,718 - Equity securities 1,332 (5) Debt securities 7,481 (12) Equity securities 3,257 3 6,801 (168,581) (2,386) - - (63) (1,054) - 1,668 3,870 - 10,996 - - - - 458 - Debt securities (78,283) Equity securities (1,460) Debt securities 12,365 Equity securities 99 - - 38,046 834 (5,058) - 11,849 (2,643) - - 2,284 (98,172) (1,925) - - - (434) (246) 144 316 5,826 - 1,382 - - - - 366 - (78,283) (1,460) (66,934) 7,011 (144,578) 1,332 (35,255) NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             5 .5 . Derivatives for hedging purposes NLB Group entities measure exposure to interest rate interest rate . All fair value hedges are made on assets regularly for macro hedges where the characteristics of risk using repricing gap analysis and by calculating the and liability items . sensitivity of the statement of financial position and off- both items in the hedge relationship do not fully match by comparing the change in the fair value of both items balance-sheet items in terms of the economic value of Hedge accounting principles (i .e ., fair value and cash to the shift in the yield curve . equity . The portfolio duration is used as a measure of risk flow hedging) were applied in the hedging of interest rate in the management of securities in the banking book . risk using interest rate swaps . These hedge relationships Sources of hedge ineffectiveness may arise from to are designated in such a way that the characteristics the different of discount rates used for valuation of NLB Group entities use interest rate swaps (IRS) to of the hedging instrument and those of the hedged hedged and hedging instruments, notional and timing close open positions in an individual maturity bucket . item match (i .e ., the principal terms match), while the differences, as well differences in the amortisation plan Micro and macro fair value hedges are used for that dollar-offset method is used to regularly measure hedge between hedged items and the hedging instrument . purpose, i .e ., the swapping of a fixed interest rate on a effectiveness retrospectively . Efficiency is considered Hedge effectiveness is assessed monthly, by comparing hedged item for a variable interest rate . Micro cash flow when total difference is within range 80%–125% or within changes in the fair value of the hedged item that are hedges are also occasionally used, i .e . the swapping materiality threshold defined at origination of hedge . attributable to a hedged risk with changes in the fair of a variable interest rate on a hedged item for a fixed Prospective testing of hedge effectiveness is carried out value of the hedging instrument . a) Fair value adjustment in hedge accounting recognised in profit or loss Fair value hedge from assets items 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 Fair value hedge from liability items Net effects from hedging instruments - interest rate swap for micro hedge Net effects from hedged items - debt securities issued NLB Group in EUR thousands NLB 2023 2,735 (24,799) (15,677) (9,122) 27,534 (3) 2,684 11,293 13,560 2022 1,655 89,894 57,981 31,913 (88,239) (57) (14,834) (42,499) (30,849) NLB Group 2023 1,164 6,505 6,505 (5,341) (5,341) 2022 - - - - - 2023 2,424 (22,803) (13,681) (9,122) 25,227 (3) 2,684 11,293 11,253 2022 1,655 89,894 57,981 31,913 (88,239) (57) (14,834) (42,499) (30,849) in EUR thousands NLB 2023 1,164 6,505 6,505 (5,341) (5,341) 2022 - - - - - In both years presented, all fair value hedges were a foreign operation . NLB Group applied a hedge of a effective, with actual results of the hedge ratio within a net investment in a foreign operation in years 2011 and range of 80–125%, therefore, no discontinuation of the 2012, and at that time recognised a EUR 754 thousand hedge accounting was required . gain on the hedging instrument in other comprehensive As at 31 December 2023 and 2022, NLB Group and consolidated income statement when the foreign NLB had no relationships designated for cash flow operation is disposed of as a part of the gain or loss on hedge accounting or for hedge of a net investment in the disposal . income (note 5 .22 .b) . This gain will be included in the 240 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         b) Notional amounts of interest rate swaps Fair value hedge of assets items 31 Dec 2023 31 Dec 2022 Fair value hedge of liability items 31 Dec 2023 31 Dec 2022 Notional amount 633,798 644,132 Notional amount 450,000 - The hedging instrument is included in the statement of financial position in the line item Derivatives – hedge accounting . NLB Group Fair value Asset Liability 38,738 59,362 3,540 2,124 Change in fair value of hedging instrument used for calculating hedge ineffectiveness 19,708 90,439 Notional amount 573,798 644,132 NLB Fair value Asset Liability 38,738 59,362 1,420 2,124 in EUR thousands Change in fair value of hedging instrument used for calculating hedge ineffectiveness 17,843 90,439 NLB Group Fair value Asset Liability 8,876 - - - Change in fair value of hedging instrument used for calculating hedge ineffectiveness 8,774 - Notional amount 450,000 - NLB Fair value Asset Liability 8,876 - - - in EUR thousands Change in fair value of hedging instrument used for calculating hedge ineffectiveness 8,774 - 241 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     c) Accumulated fair value adjustments arising from the corresponding continuing hedge relationships The table below presents accumulated fair value presented in the same line of statement of financial adjustment is presented in a separate line item ‘Fair adjustments arising from the corresponding continuing position as a hedged item, except for macro fair value changes of the hedged items in portfolio hedge of hedge relationships, irrespective of whether there value hedges . In such relationships, hedged items are interest rate risk .’ has been a change in the hedge designation during presented in the line item ‘Financial assets measured the year . The accumulated fair value adjustment is at amortised cost,’ while the accumulated fair value NLB Group NLB 2023 2022 2023 2022 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 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 in EUR thousands - 108,494 242,347 464,393 - (4,349) (15,841) 5,341 573 108,979 261,879 - 3 (6,721) (27,205) - - 108,494 242,347 464,393 - (4,349) (15,841) 5,341 573 108,979 261,879 - 3 (6,721) (27,205) - 267,908 (10,207) 153,594 (23,767) 205,601 (12,514) 153,594 (23,767) Micro fair value hedges Fixed rate corporate loans measured at AC Fixed rate bonds measured at AC Fixed rate bonds measured at FVOCI Fixed rate issued bonds Macro fair value hedges Fixed rate retail loans The change in fair value of the hedge item used as the basis for recognising hedge ineffectiveness: Micro fair value hedges Macro fair value hedges NLB Group 2023 3,591 10,577 2022 57,201 31,122 in EUR thousands NLB 2023 3,591 8,540 2022 57,201 31,122 d) IBOR reform NLB Group continuously monitors the development NLB Group no longer offers new products that would of Benchmark Interest Rate Reform and is actively be tied to reference rates in termination . With regards preparing for the changes imposed by the regulation . In to the reference rates, the NLB Group offers only 2018, NLB formed a special working group which deals products related to EURIBOR, which is not scheduled for with the preparation for the discontinuation of some discontinuation . Therefore, NLB Group’s attention in the important reference interest rates and reports on this to past few years has been focused on the modification of the NLB Group ALCO . new contractual relationships with customers in which EURIBOR occurs . 242 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       EURIBOR’s possible discontinuation Due to the timely transition to the new hybrid EURIBOR fallback clause into all new EURIBOR (both retail and include fallback provisions in legacy contracts . The exact methodology which meet the BMR requirements, corporate) contracts . timing depends on regulatory/market development and 243 EURIBOR can continue to be used in new and legacy best practice . contracts for the foreseeable future . In May 2021, the Euro RFR Working Group produced its recommendations on EURIBOR fallback trigger NLB as a supervised entity, is required to comply EU-supervised entities are bound to include robust events and €STR-based EURIBOR fallback rates . Our with the Benchmark regulation and, as a user of fallback clauses into contractual documentation with the mid-term activities are expected to undertake on the benchmarks, must produce and maintain a robust clients . In November 2019, the Euro risk-free rates (RFR) implementation of more precise fallback provisioning, written plan setting out the actions NLB would take Working Group published high level recommendations based on these recommendations . NLB identified in the event that a benchmark materially changes or for fallback provisions for products referencing potential €STR-based fallbacks for EURIBOR, in line ceases to be provided . NLB has prepared a plan, which EURIBOR . The inclusion of robust fallback language is a with the current market consensus on those fallbacks sets out an inexhaustive/summary action list, and will requirement in contracts subject to the EU Benchmark and intends to proceed with the activities for inclusion continue to closely follow market standards to identify Regulation . The Bank already incorporated the generic on EURIBOR fallbacks into all new EURIBOR-based alternative benchmarks that could be referenced in contracts . In the next step, the Bank is also expected to substitute of existing benchmarks . LIBOR discontinuation Since many LIBOR settings ceased to exist at the beginning of 2022, the Bank finished the process of winding-down the exposures in a most efficient way . NLB Group Incremental LIBOR transactions were not allowed Interest rate swaps (assets) unconditionally . NLB Group activities for implementation of LIBOR transition were as follows: · review of outstanding LIBOR referencing loans, · identification of alternative reference rate to be used for loan portfolio, · analysis of how the alternative reference rate will be calculated and how to calculate any economic difference between LIBORs and the selected alternative reference rates, · consideration of IT system accommodation with alternative reference rates, · documentation of the transition of the loans . EURIBOR (3 months) EURIBOR (6 months) USD LIBOR (6 months) Interest rate swaps (liabilities) EURIBOR (3 months) EURIBOR (6 months) NLB Interest rate swaps (assets) EURIBOR (3 months) EURIBOR (6 months) USD LIBOR (6 months) The tables indicate the notional amount and weighted Interest rate swaps (liabilities) average maturity of derivatives on the NLB Group level and separately NLB d .d . sole in hedging relationships EURIBOR (3 months) EURIBOR (6 months) 2023 in EUR thousands 2022 Notional amount (in EUR thousands) Weighted average maturity (years) Notional amount (in EUR thousands) Weighted average maturity (years) 318,509 315,289 - 350,000 100,000 2023 8 .94 5 .68 - 2 .49 2 .49 280,981 355,651 7,500 - - 10 .01 6 .06 0 .71 - - in EUR thousands 2022 Notional amount (in EUR thousands) Weighted average maturity (years) Notional amount (in EUR thousands) Weighted average maturity (years) 258,509 315,289 - 350,000 100,000 9 .72 5 .68 - 2 .49 2 .49 280,981 355,651 7,500 - - 10 .01 6 .06 0 .71 - - that will be affected by the IBOR reform, analysed on an interest rate basis . The derivative hedging instruments provide a close approximation to the extent of the risk exposure NLB Group manages through hedging relationships . As can be seen from the table, the majority of long- EURIBOR could be expected . As at 31 December 2023, term derivatives in hedging relationships are exposed derivatives with remaining maturity of five or more to EURIBOR, therefore, the uncertainty arising from years amount to EUR 285,280 thousand (31 December interest rate benchmark reform derives mainly from 2022: EUR 295,580 thousand) . derivatives with longer maturities, when a change of NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     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) . a) Debt securities Governments Companies Banks Financial organisations in EUR thousands NLB Group NLB 31 Dec 2023 2,522,229 547,640 31 Dec 2022 1,917,615 222,965 13,734,601 13,072,986 165,962 177,823 16,970,432 15,391,389 31 Dec 2023 1,966,169 149,011 7,148,283 101,596 9,365,059 31 Dec 2022 1,597,448 350,625 6,054,413 114,399 8,116,885 in EUR thousands NLB Group NLB 31 Dec 2023 1,898,725 79,679 536,096 13,251 31 Dec 2022 1,486,496 84,979 323,944 25,980 31 Dec 2023 1,347,161 72,458 536,096 13,251 31 Dec 2022 1,184,601 64,913 323,944 25,980 2,527,751 1,921,399 1,968,966 1,599,438 Allowance for impairment (note 5 .14 .b) (5,522) (3,784) (2,797) (1,990) Total 2,522,229 1,917,615 1,966,169 1,597,448 b) Loans and advances to banks Loans Time deposits Reverse sale and repurchase agreements Purchased receivables Allowance for impairment (note 5 .14 .a) Total 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 NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 623 249,765 294,069 3,482 547,939 (299) 547,640 782 118,241 102,358 1,853 223,234 (269) 222,965 119,914 25,865 - 3,482 149,261 (250) 149,011 127,717 221,271 - 1,853 350,841 (216) 350,625 NLB Group NLB in EUR thousands 31 Dec 2023 13,117,311 31 Dec 2022 12,626,259 449,145 337,610 154,664 4,498 425,135 193,948 148,870 2,772 14,063,228 13,396,984 (328,627) (323,998) 13,734,601 13,072,986 31 Dec 2023 6,946,199 236,792 - 82,457 2,403 7,267,851 (119,568) 7,148,283 31 Dec 2022 5,873,443 208,499 - 64,460 1,423 6,147,825 (93,412) 6,054,413 244 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                       Analysis of loans and advances to customers by sector Governments Financial organisations Companies Individuals Total d) Other financial assets Analysis by type of other financial assets Receivables in the course of settlement and other temporary accounts Credit card receivables Debtors Fees and commissions Receivables to brokerage firms and others for the sale of securities and custody services Accrued income Prepayments Other financial assets Allowance for impairment (note 5 .14 .a) Total in EUR thousands NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 386,291 91,523 6,169,972 7,086,815 303,443 116,078 6,031,795 6,621,670 13,734,601 13,072,986 118,220 384,995 3,101,465 3,543,603 7,148,283 124,736 286,504 2,606,674 3,036,499 6,054,413 NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 43,608 54,748 9,265 9,734 - 7,171 2,176 50,065 176,767 (10,805) 165,962 36,712 41,364 8,516 8,737 31,587 3,390 2,563 53,988 186,857 (9,034) 177,823 20,207 42,753 2,013 2,924 - 6,247 - 29,066 103,210 (1,614) 101,596 19,370 30,544 2,710 2,359 31,081 3,413 - 25,935 115,412 (1,013) 114,399 Receivables in the course of settlement are temporary ‘Act for Value Protection of Republic of Slovenia’s Capital balances which will be transferred to the appropriate Investment in Nova Ljubljanska banka d .d ., Ljubljana’ item in the days following their occurrence . (note 5 .16 .a) . The remaining balance includes claims for fees and legal costs, and claims from refunds . Other financial assets in the amount of EUR 22,745 thousand (31 December 2022: EUR 23,508 thousand) relate to a receivable recognised in accordance with the Analysis of other financial assets by sector Banks Government Financial organisations Companies Individuals Total NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 51,020 44,233 30,715 5,062 34,932 38,362 78,285 23,644 6,368 31,164 165,962 177,823 19,779 25,756 23,554 723 31,784 101,596 11,918 55,708 17,578 670 28,525 114,399 245 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             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 Merger of subsidiary Write-offs Balance as at 31 December NLB Group NLB in EUR thousands 2023 397 (1) 1,184 (534) - (62) 984 2022 717 1 891 (1,087) - (125) 397 2023 90 - - - 32 (62) 60 2022 420 - 82 (287) - (125) 90 5 .7 . Non-current assets held for sale The line item ‘Non-current assets held for sale’ includes thousand (31 December 2022: EUR 651 thousand) . As at business premises and assets received as collateral 31 December 2023, and as at 31 December 2022, NLB that are in the process of being sold . As at 31 December did not have any non-current assets obtained by taking 2023, the value of assets received by taking possession of collateral and included in non-current assets possession of collateral and included in non-current assets held for sale (note 6 .1 .l) . held for sale by NLB Group amounted to EUR 474 Analysis of movements of non-current assets held for sale Balance as at 1 January Effects of translation of foreign operations to presentation currency Transfer from/(to) property and equipment (note 5 .8 .) Disposals Valuation Balance as at 31 December 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 2023 15,436 11 584 (10,861) (321) 4,849 2022 7,051 9 8,226 (637) 787 15,436 2023 4,235 - 584 (655) (116) 4,048 2022 4,089 - 617 (532) 61 4,235 in EUR thousands NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 249,920 28,114 278,034 228,944 22,372 251,316 80,240 5,730 85,970 75,262 3,330 78,592 246 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             b) Movement of own property and equipment in EUR thousands 247 Cost Balance as at 1 January 2023 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 .) Merger of subsidiary (note 5 .12 .d) Disposal of subsidiaries (note 5 .12 .b), c) Balance as at 31 December 2023 Depreciation and impairment Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Disposals Depreciation (note 4 .11 .) Impairment (note 4 .14 .) Transfer to/from non-current assets held for sale (note 5 .7 .) Merger of subsidiary (note 5 .12 .d) Disposal of subsidiaries (note 5 .12 .b), c) Balance as at 31 December 2023 Net carrying value Balance as at 31 December 2023 NLB Group NLB Land & Buildings Computers Other equipment Total Land & Buildings Computers Other equipment Total for own use in operating lease for own use in operating lease 347,252 84,875 95,075 9,304 536,506 195,685 42,180 43,783 3,722 285,370 (68) (20) (3) - (91) - - - 16,827 (5,519) 86 (1,051) - - 14,104 (4,969) 15,217 (5,627) - - - - - - (22) (50) 7,604 53,752 3,527 (1,904) (18,019) - - - - 86 (1,051) - (72) - - (1,051) 3,919 - 4,737 (1,357) 2,829 (2,403) - - 992 - - - 657 - - 482 (2) - - - - - 11,575 (3,762) - (1,051) 5,568 - 357,527 93,968 104,612 15,004 571,111 202,080 46,552 44,866 4,202 297,700 177,896 53,340 72,310 4,016 307,562 138,264 29,619 38,891 3,334 210,108 (10) (914) 6,782 47 (467) - - (3) 11 - (2) (4,615) 10,123 (4,845) 6,412 (335) 1,515 (10,709) 24,832 - - - - - - (22) (50) - - - - 47 (467) - (72) - - 3,750 - (467) 233 - - - (1,350) 4,635 (2,359) 1,884 - - 515 - - - 274 - - (2) 239 - - - - - (3,711) 10,508 - (467) 1,022 - 183,334 58,823 73,838 5,196 321,191 141,780 33,419 38,690 3,571 217,460 174,193 35,145 30,774 9,808 249,920 60,300 13,133 6,176 631 80,240 Balance as at 1 January 2023 169,356 31,535 22,765 5,288 228,944 57,421 12,561 4,892 388 75,262 As at 31 December 2023, the value of assets received by taking possession of collateral and included in property and equipment by NLB Group amounted to EUR 11,641 thousand (31 December 2022: EUR 11,962 thousand) . As at 31 December 2023 and as at 31 December 2022, NLB did not have any assets received by taking possession of collateral and included in property and equipment (note 6 .1 .l) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                   NLB Group NLB in EUR thousands 248 Cost Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 . e), f) Additions Disposals Impairment (note 4 .14 .) Transfer to/from investment property (note 5 .9 .) Transfer to/from non-current assets held for sale (note 5 .7 .) Land & Buildings Computers Other equipment Total Land & Buildings Computers Other equipment Total for own use in operating lease for own use in operating lease 346,858 80,131 94,729 5,609 527,327 195,852 43,899 46,143 3,519 289,413 39 4,552 8,118 (1,242) 79 (1,358) (9,794) 13 818 13,508 (9,595) - - - 3 1,154 10,767 (11,550) - (28) - - - 4,262 (567) - - - 55 6,524 36,655 (22,954) 79 (1,386) (9,794) - - 1,448 - - - (1,615) - - - - 3,072 (4,791) 1,420 (3,780) - - - - - - - - 271 (68) - - - - - 6,211 (8,639) - - (1,615) Balance as at 31 December 2022 347,252 84,875 95,075 9,304 536,506 195,685 42,180 43,783 3,722 285,370 Depreciation and impairment Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Disposals Depreciation (note 4 .11 .) Impairment (note 4 .14 .) Transfer to/from investment property (note 5 .9 .) Transfer to/from non-current assets held for sale (note 5 .7 .) 172,160 53,833 74,415 3,326 303,734 135,514 30,087 37,782 3,125 206,508 (3) 7 4 (1,109) 7,030 1,699 (313) (1,568) (9,608) 9,108 (8,084) 5,979 - - - - (4) - - (134) 824 - - - 8 (18,935) 22,941 1,699 (317) (1,568) - - 3,748 - - (998) - (4,713) 4,245 - - - - (904) 2,013 - - - - (45) 254 - - - - (5,662) 10,260 - - (998) Balance as at 31 December 2022 177,896 53,340 72,310 4,016 307,562 138,264 29,619 38,891 3,334 210,108 Net carrying value Balance as at 31 December 2022 169,356 31,535 22,765 5,288 228,944 57,421 12,561 4,892 388 75,262 Balance as at 1 January 2022 174,698 26,298 20,314 2,283 223,593 60,338 13,812 8,361 394 82,905 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                   NLB Group 2023 35,639 (14) - - (3,392) (86) 86 (1,117) - 2022 47,624 22 766 70 (17,004) 1,069 - 3,092 - 31,116 35,639 in EUR thousands NLB 2023 6,753 - - - (79) - - 182 784 7,640 2022 9,181 - - - (2,512) - - 84 - 6,753 5 .9 . Investment property Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e), f) Additions Disposals Transfer from/(to) property and equipment (note 5 .8 .) Transfer from/(to) other assets Net valuation to fair value (note 4 .8 .) Merger of subsidiary (note 5 .12 .d) Balance as at 31 December As at 31 December 2023, the value of assets received by taking possession of collateral and included in investment property by NLB Group amounted to EUR 21,253 thousand (31 December 2022: EUR 25,326 thousand), and in NLB amounted to EUR 2,263 thousand (31 December 2022: EUR 1,901 thousand) (note 6 .1 .l) . Operating expenses arising from investment properties: Leased to others Not leased to others Total NLB Group 2023 1,986 459 2,445 2022 2,496 564 3,060 in EUR thousands NLB 2023 373 298 671 2022 355 300 655 249 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         5 .10 . Intangible assets Cost Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Merger of subsidiary (note 5 .12 .d) Additions Disposals Write-offs Disposal of subsidiary (note 5 .12 .b) Balance as at 31 December 2023 Amortisation and impairment Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Merger of subsidiary (note 5 .12 .d) Disposals Amortisation (note 4 .11 .) Write-offs Disposal of subsidiary (note 5 .12 .b) Balance as at 31 December 2023 Net carrying value Balance as at 31 December 2023 Balance as at 1 January 2023 Other intangible assets represent additionally identified intangible assets in a business combination, namely core deposits and trade name . Software licenses NLB Group Other intangible assets Goodwill Total Software licenses in EUR thousands NLB 259,684 (25) - 20,697 (4) (7,740) (167) 272,445 210,821 (16) - (4) 14,037 (7,336) (167) 217,335 55,110 48,863 13,227 (13) - - - - - 32,336 - - - - - - 13,214 32,336 305,247 (38) - 20,697 (4) (7,740) (167) 317,995 207,769 - 979 13,797 - (4,366) - 218,179 7,384 (13) - - 2,365 - - 9,736 3,478 5,843 28,807 247,012 177,344 - - - - - - 28,807 3,529 3,529 (29) - (4) 16,402 (7,336) (167) 255,878 62,117 58,235 - 294 - 7,528 (4,366) - 180,800 37,379 30,425 250 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Software licenses NLB Group Other intangible assets Goodwill Total Software licenses in EUR thousands NLB 251 Cost Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e), f) Additions Disposals Write-offs Balance as at 31 December 2022 Amortisation and impairment Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Amortisation (note 4 .11 .) Write-offs Balance as at 31 December 2022 Net carrying value Balance as at 31 December 2022 Balance as at 1 January 2022 5 .11 . Leases a) NLB Group as a lessee Right-of-use assets Land and buildings Vehicles Computers Furniture and equipment Total Lease liabilities 245,607 (7) 1,444 14,170 (535) (995) 259,684 198,997 (8) 12,655 (823) 210,821 48,863 46,610 13,211 32,336 291,154 201,028 16 - - - - - - - - - 9 1,444 14,170 (535) (995) 13,227 32,336 305,247 4,274 8 3,102 - 7,384 5,843 8,937 28,807 - - - 28,807 3,529 3,529 232,078 - 15,757 (823) 247,012 58,235 59,076 - - 6,741 - - 207,769 171,575 - 5,769 - 177,344 30,425 29,453 NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 24,541 19,567 92 395 3,086 28,114 28,944 130 - 2,675 22,372 23,840 2,794 2,681 255 - 5,730 5,793 2,241 1,089 - - 3,330 3,349 In the statement of financial position, right-of-use assets Additions to the right-of-use assets during 2023 in NLB are included in the line item ‘Property and equipment’ Group amounted to EUR 19,149 thousand (2022: EUR 6,411 and lease liabilities are included in the line item ‘Other thousand), and in NLB EUR 4,656 thousand of which financial liabilities .’ EUR 500 thousand from N Banka merger (2022: EUR 1,751 thousand) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                   The income statement shows the following amounts relating to leases: Depreciation of right-of-use assets (note 4.11.) Land and buildings Vehicles Computers 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) in EUR thousands NLB Group 2023 2022 NLB 2023 6,519 160 61 1,258 7,998 7,092 276 - 1,324 8,692 692 705 24 - 1,421 2022 511 448 - 13 972 NLB Group 2023 (728) (1,554) 2022 (431) (855) in EUR thousands NLB 2023 (132) (403) 2022 (28) (158) (1,237) (1,129) (182) (185) 140 77 - - The total cash outflow for leases in 2023 in NLB Group Lease terms are negotiated on an individual basis and was EUR 8,242 thousand (2022: EUR 8,547 thousand), and contain a range of different terms and conditions . The in NLB EUR 1,386 thousand (2022: EUR 1,001 thousand) . lease agreements do not impose any covenants other than the security interests in the leased assets that are NLB Group leases various offices, branches, vehicles, and held by the lessor . Leased assets may not be used as other equipment used in its business . Rental contracts security for borrowing purposes . for offices and branches generally have lease terms between 5 to 20 years, while some contracts are made NLB Group also has certain leases of other equipment for indefinite periods . Contracts for indefinite periods are with a lease term of 12 months or less, and equipment included in the measurement of the liability in accordance with low value . For these leases, NLB Group applies with planning projections . Normally, a lease term of five years is assumed, with the exemption of business the short-term lease and the lease of low-value assets recognition exemptions . Lease payments on short-term premises on strategic locations where management leases and leases of low-value assets are recognised as assesses a different (longer) lease term . Vehicles and expenses on a straight-line basis over the lease term . other equipment generally have lease terms between 1 and 5 years . There are several lease contracts that For calculation of the net present value of the future include extension and termination options . These options lease payments, NLB Group applies the internal transfer are negotiated by management to align with the Group’s price as a discount rate . business needs . Lease payments to be made under reasonably certain extension options are included in NLB Group and NLB do not have expenses relating to measurement of the liability . variable payments and gains or losses arising from a sale and leaseback transactions . 252 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         The following table sets out a maturity analysis of lease liabilities . 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 NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 448 446 2,125 15,693 10,232 28,944 3,440 431 2,913 16,300 756 23,840 149 258 1,187 3,592 607 5,793 82 155 664 2,056 392 3,349 The increase in lease liabilities in the NLB Group in 2023 arising from the newly concluded long-term lease contracts for business premises . b) NLB Group as a lessor Finance and operating leases of motor vehicles Finance leases Operating lease Loans and advances to customers in NLB Group include A maturity analysis of lease payments, showing the and operating leases of business premises and POS finance lease receivables . undiscounted lease payments to be received after the terminals represent the majority of agreements in which NLB Group acts as a lessor . The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments Most of the lease agreements entered into by NLB Group to be received after the reporting date . as lessor contracts are finance lease agreements . Most of the finance lease agreements are concluded for a non-cancellable period of between 48 and 60 months . NLB Group By paying the last instalment at the end of the contract, Less than 1 year 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 not included in the measurement of the net investment in the lease . 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Total undiscounted lease receivable in EUR thousands 2023 115,449 89,047 76,876 62,091 31,172 20,787 2022 70,629 46,515 39,899 29,423 17,422 13,878 395,422 217,766 The investment properties are leased to the lessee under operating leases with rentals payable monthly . There are no variable lease payments that depend on an index or a rate . The investment properties generally have lease terms between 2 and 10 years . Some contracts are made for an indefinite period . Unearned finance income (57,812) (23,818) Net investment in the lease 337,610 193,948 During 2023, NLB Group recognised interest income on lease receivables in the amount of EUR 18,959 thousand (2022: EUR 6,607 thousand) . reporting date . Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Total in EUR thousands NLB Group NLB 2023 2022 2023 2022 4,991 2,580 2,920 1,678 1,434 1,013 1,657 1,028 694 488 689 1,314 300 297 271 254 189 592 345 343 340 315 315 1,224 12,725 7,761 1,903 2,882 NLB Group realised rental income arising from: investment properties in the amount of EUR 1,755 thousand (2022: EUR 2,912 thousand); and movable property in the amount of EUR 2,133 thousand (2022: EUR 1,252 thousand) . NLB realised rental income arising from: investment properties in the amount of EUR 359 thousand (2022: EUR 459 thousand); and movable property in the amount of EUR 485 thousand (2022: EUR 475 thousand) (note 4 .8 .) . 253 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     5 .12 . Investments in subsidiaries, associates and joint ventures a) Analysis by type of investment in subsidiaries NLB Banks Other financial organisations Enterprises Total in EUR thousands 31 Dec 2023 31 Dec 2022 901,765 813,362 30,407 43,585 32,126 58,552 975,757 904,040 Data of subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2023: Core members NLB Banka a.d., Skopje NLB Banka a.d., Podgorica NLB Banka a.d., Banja Luka NLB Banka sh.a., Prishtina NLB Banka d.d., Sarajevo NLB Komercijalna banka a.d. Beograd KomBank Invest a .d . Beograd NLB Skladi d.o.o., Ljubljana NLB Lease&Go, leasing, d.o.o., Ljubljana NLB Lease&Go, d .o .o . Skopje** NLB Lease&Go leasing d .o .o . Beograd*** NLB Zavod za upravljanje kulturne dediščine, Ljubljana NLB DigIT d.o.o., Beograd Non-core members NLB Leasing d.o.o., Ljubljana - v likvidaciji* NLB Crna Gora d.o.o., Podgorica NLB InterFinanz AG, Zürich in Liquidation NLB InterFinanz d .o .o ., Beograd LHB AG, Frankfurt REAM d.o.o., Podgorica REAM d.o.o., Beograd - Novi Beograd S-REAM d.o.o., Ljubljana PRO-REM d .o .o ., Ljubljana - v likvidaciji OL Nekretnine d .o .o ., Zagreb - u likvidaciji NLB Srbija d.o.o., Beograd Privatinvest d.o.o., Ljubljana Nature of Business Country of Incorporation Equity as at 31 Dec 2023 (in EUR thousands) Profit/(loss) for 2023 (in EUR thousands) NLB Group NLB Shareholding (in %) Voting rights (in %) Shareholding (in %) Voting rights (in %) Banking North Macedonia 279,987 Banking Montenegro 120,390 Banking Bosnia and Herzegovina Banking Kosovo Banking Banking Finance Finance Finance Finance Bosnia and Herzegovina Serbia Serbia Slovenia Slovenia North Macedonia Finance Serbia Cultural heritage management Slovenia IT services Serbia Finance Finance Finance Finance Finance Slovenia Montenegro Switzerland Serbia Germany Real estate Montenegro Real estate Serbia Real estate Slovenia Real estate Slovenia Real estate Croatia Real estate Serbia Real estate Slovenia 107,270 149,669 95,980 827,575 769 13,707 21,251 1,493 7,115 3,500 2,569 2,021 3,643 9,762 3 684 2,156 2,042 22,452 20,447 1,153 18,252 110 44,517 26,658 24,269 35,968 12,819 132,313 (1,201) 9,498 1,664 (605) (736) 86 204 1,487 348 (2,321) 1 (402) 389 (576) (384) 635 (314) (603) (11) 86 .97 99 .87 99 .85 82 .38 97 .34 100 100 100 100 100 86 .97 99 .87 99 .85 82 .38 97 .35 100 100 100 100 100 99 .64 99 .64 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 86 .97 99 .87 99 .85 82 .38 97 .34 100 - 100 100 - - 100 100 - 100 100 - 100 100 100 100 - - 100 100 86 .97 99 .87 99 .85 82 .38 97 .35 100 - 100 100 - - 100 100 - 100 100 - 100 100 100 100 - - 100 100 *100% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana. **51% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana and 49% ownership of NLB Banka a.d., Skopje. ***50.73% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana and 48.91% NLB Komercijalna banka a.d. Beograd. 254 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                                   Data of subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2022: Nature of Business Country of Incorporation Equity as at 31 Dec 2022 (in EUR thousands) Profit/(loss) for 2022 (in EUR thousands) NLB Group NLB Shareholding (in %) Voting rights (in %) Shareholding (in %) Voting rights (in %) Core members NLB Banka a.d., Skopje NLB Banka a.d., Podgorica NLB Banka a.d., Banja Luka NLB Banka sh.a., Prishtina NLB Banka d.d., Sarajevo NLB Komercijalna banka a.d. Beograd KomBank Invest a .d . Beograd N Banka d.d., Ljubljana Privatinvest d .o .o ., Ljubljana NLB Skladi d.o.o., Ljubljana NLB Lease&Go, leasing, d.o.o., Ljubljana NLB Lease&Go, d .o .o . Skopje** Banking North Macedonia 265,844 Banking Montenegro 106,937 Banking Bosnia and Herzegovina Banking Kosovo Banking Banking Finance Banking Bosnia and Herzegovina Serbia Serbia Slovenia Real estate Slovenia Finance Finance Finance Slovenia Slovenia North Macedonia 96,237 113,844 90,608 737,972 1,203 186,423 123 12,598 19,578 529 766 37,874 16,613 19,281 32,402 11,436 66,014 (148) 11,085 (99) 8,404 810 (68) (390) 86 .97 99 .87 99 .85 82 .38 97 .34 100 100 100 100 100 100 100 86 .97 99 .87 99 .85 82 .38 97 .35 100 100 100 100 100 100 100 95 .20 95 .20 NLB Lease&Go leasing d .o .o . Beograd Finance Serbia NLB Zavod za upravljanje kulturne dediščine, Ljubljana NLB DigIT d.o.o., Beograd Non-core members NLB Leasing d.o.o., Ljubljana - v likvidaciji* Optima Leasing d .o .o ., Zagreb - „u likvidaciji“ NLB Leasing d.o.o., Beograd - u likvidaciji NLB Crna Gora d.o.o., Podgorica NLB InterFinanz AG, Zürich in Liquidation NLB InterFinanz d .o .o ., Beograd LHB AG, Frankfurt Tara Hotel d.o.o., Budva REAM d.o.o., Podgorica REAM d.o.o., Beograd - Novi Beograd SPV 2 d.o.o., Beograd - Novi Beograd S-REAM d.o.o., Ljubljana REAM d .o .o ., Zagreb PRO-REM d .o .o ., Ljubljana - v likvidaciji OL Nekretnine d .o .o ., Zagreb - u likvidaciji NLB Srbija d.o.o., Beograd Cultural heritage management Slovenia 3,414 2,601 IT services Serbia 2,368 (36) Finance Finance Finance Finance Finance Finance Finance Slovenia Croatia Serbia Montenegro Switzerland Serbia Germany Real estate Montenegro Real estate Montenegro Real estate Real estate Serbia Serbia Real estate Slovenia Real estate Croatia Real estate Slovenia Real estate Croatia Real estate Serbia 16,936 821 5,899 3,295 366 (434) (91) 165 10,029 (2,213) 4 1,086 13,546 1,767 1,758 867 23,141 994 19,974 1,467 31,591 1 (646) (3,255) 71 (90) 35 (184) 66 162 153 (709) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 *100% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana. **51% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana and 49% ownership of NLB Banka a.d., Skopje. Changes in ownership interest in the subsidiaries of NLB Group in 2023 and 2022 are presented in note 3 . 86 .97 99 .87 99 .85 82 .38 97 .34 100 - 100 - 100 100 - - 100 100 - - 100 100 100 - 100 86 .97 99 .87 99 .85 82 .38 97 .35 100 - 100 - 100 100 - - 100 100 - - 100 100 100 - 100 12 .71 12 .71 100 100 100 100 - - - 100 100 100 100 - - - 100 100 255 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                                   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 2023 13 .03 13 .03 111,640 44,517 5,801 3,363 47,880 6,239 4,391 2022 13 .03 13 .03 94,624 37,874 4,935 (5,071) 32,803 4,274 1,332 867,333 826,723 1,034,922 1,020,798 1,393,480 1,404,491 228,788 279,987 36,482 177,186 265,844 34,639 in EUR thousands NLB Banka, Prishtina 2023 17 .62 17 .62 68,468 35,968 6,339 (141) 35,827 6,314 - 716,000 513,757 856,340 223,748 149,669 26,376 2022 17 .62 17 .62 58,296 32,402 5,710 (309) 32,093 5,656 3,014 563,629 520,009 806,646 163,148 113,844 20,063 256 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     b) Disposal of subsidiary Optima Leasing d .o .o ., Zagreb – u likvidaciji In September 2023, NLB Group sold its subsidiary The assets and liabilities derecognised from NLB Group Optima Leasing d .o .o ., Zagreb – u likvidaciji . financial statements as a result of disposal are as follows: Cash, cash balances at central banks and other demand deposits at banks Financial assets measured at amortised cost - other financial assets Other assets Total assets Provisions Other liabilities Total liabilities Net assets of subsidiary Total disposal consideration Cash and cash equivalents in subsidiary sold Cash outflow on disposal Consideration for disposal of the subsidiary Carrying amount of net assets disposed of Loss from disposal of subsidiary in consolidated financial statements  in EUR thousands 713 4 104 821 30 22 52 769 470 (713) (243) 470 769 (299) At sale of subsidiary Optima Leasing d .o .o ., Zagreb – u likvidaciji, NLB Group realised a loss in the amount of EUR 299 thousand . c) Disposal of subsidiary Tara Hotel d .o .o ., Budva In May 2023, NLB Group sold its subsidiary Tara Hotel d .o .o ., Budva . The assets and liabilities derecognised from NLB Group financial statements as a result of disposal are as follows: in EUR thousands Cash, cash balances at central banks and other demand deposits at banks Financial assets measured at amortised cost - other financial assets Other assets Total assets Financial liabilities measured at amortised cost - borrowings from banks and central banks - other financial liabilities Deferred income tax liabilities Other liabilities Total liabilities Net assets of subsidiary Total disposal consideration Cash inflow on disposal Consideration for disposal of the subsidiary Carrying amount of net assets disposed of Loss from disposal of subsidiary in consolidated financial statements At sale of Tara Hotel d .o .o ., Budva NLB Group realised a loss in the amount of EUR 467 thousand and NLB in the amount of EUR 105 thousand . 2 19 13,938 13,959 178 20 193 82 473 13,486 13,019 13,019 13,019 13,486 (467) 257 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents in EUR thousands 258 d) Merger of N Banka d .d ., Ljubljana On 1 September 2023, with entry of the merger in the Register of Companies, the process of legal merger of N Banka d .d . with NLB d .d . was closed . As at the date of the merger, N Banka ceased to exist as an independent Items of the statement of financial position at the day of the merger were as follows: Cash, cash balances at central banks and other demand deposits at banks Financial assets measured at fair value through other comprehensive income legal entity, and NLB, as a universal legal successor, Financial assets measured at amortised cost took over all of its rights and obligations . Merger was accounted for using merger accounting principles, due to the fact that such a merger is considered to be a business combination involving entities under common control . NLB has applied for the merger the following accounting policy: • As of 1 September 2023 all assets, liabilities and off- balance sheet items of N Banka were recognised as they were reported for the purposes of NLB Group financial statements as of 31 August 2023 in relevant line items of assets, liabilities and off-balance sheet items of merged bank; and - debt securities - loans and advances to banks - loans and advances to customers - other financial assets Investments in associates and joint ventures Tangible assets Property and equipment - own property and equipment - right-of-use assets Investment property Intangible assets Deferred income tax assets Other assets Total assets • As of 1 September 2023 all income and expenses of Financial liabilities held for trading N Banka were recognised as they were reported Financial liabilities measured at amortised cost for the purposes of NLB Group financial statements - deposits from banks and central banks as of 31 August 2023 directly into retained earnings . - borrowings from banks and central banks Therefore only income and expenses from 1 September 2023 onwards were recognised in the income statement of merged bank . As at the day of the merger, NLB also took over control of the company Privatinvest d .o .o ., which was 100% owned by N Banka and whose assets consist only of repossessed real estate . N Banka also had an investment in Bankart d .o .o ., Ljubljana, which was on the day of the merger transferred to NLB . - due to customers - other financial liabilities Provisions Current income tax liabilities Other liabilities Total liabilities Equity Total liabilities and equity 118,158 49,477 13,044 3 765,552 2,664 134 4,884 4,546 338 784 685 2,426 68 957,879 189 131,070 40,084 574,747 2,193 7,881 1,026 943 758,133 199,746 957,879 As a result of the merger, NLB’s off-balance sheet Items of the N Banka income statement for the period liabilities increased by EUR 200,933 thousand: 1 January - 31 August 2023 as they were reported for the purposes of NLB Group financial statements: Guarantees Commitments to extend credit Total 108,673 92,260 200,933 Net interest income Net fee and commission income Profit for the year in EUR thousands in EUR thousands 27,822 6,016 13,389 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents in EUR thousands 259 e) Acquisition of N Banka d .d ., Ljubljana On the level of the European Central Bank and the Single Resolution Board, a decision was made on 28 The assets and liabilities recognised as a result of the acquisition are as follows: February 2022 to suspend the business operations of Cash, cash balances at central banks and other demand deposits at banks the banking group Sberbank Europe AG, which also Financial assets held for trading had a subsidiary bank in Slovenia . At the same time, a transitional period or short-term moratorium was adopted, during which a solution for the Slovenian subsidiary, Sberbank banka d .d ., was found with the aim to ensure the continuity of the business operations for all of its clients . On 1 March 2022, in order to maintain financial stability in Slovenia, the Single Resolution Board, in cooperation with the Bank of Slovenia, adopted a scheme and resolution plan for Sberbank banka d .d ., Ljubljana . Based on this resolution, the Bank of Slovenia issued a decision using the instrument of sale of operation in a way that all shares are transferred from the shareholders to the transferee . In the process of finding a new owner of Sberbank banka d .d ., Ljubljana, a sale agreement was concluded with NLB, which became an owner of 100% of the bank’s shares as at 1 March 2022 . At the date of acquisition, 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 Investments in associates and joint ventures Tangible assets Property and equipment - own property and equipment (note 5 .8 .b) - right-of-use assets Investment property Intangible assets Current income tax assets Deferred income tax assets Other assets Total assets the acquired bank had one 100% owned subsidiary, Financial liabilities held for trading company Privatinvest d .o .o ., whose assets consist only Financial liabilities measured at amortised cost - deposits from banks and central banks - borrowings from banks and central banks - due to customers - other financial liabilities Provisions Current income tax liabilities Other liabilities Total liabilities Net identifiable assets acquired Consideration given Gain from bargain purchase of repossessed real estate . It also had an investment into Bankart d .o .o ., Ljubljana, which is in individual financial statements of the acquired bank accounted for as financial asset measured at fair value through other comprehensive income, while on the level of NLB Group it is an associate . In April 2022, Sberbank banka d .d ., Ljubljana was renamed to N Banka d .d ., Ljubljana . The purchase price for the bank was EUR 5,109 thousand and was fully paid in cash . There are no contingent consideration arrangements . At the acquisition date, cash in acquired entities amounted to EUR 265,062 thousand, therefore the net inflow of cash amounted to EUR 259,953 thousand (included in the statement of cash flows within payments from investing activities) . NLB owns 100% of N Banka, therefore no non-controlling Current market conditions, when banks are generally interests were recognised as a result of acquisition . valued below their net book values, usually result in The acquisition of N Banka resulted in a gain from in the case of N Banka even higher than it would be as a bargain purchase in the amount of EUR 172,810 a result of an orderly transaction, since the bank was thousand, which is recognised in the income statement acquired in the process of resolution . Gain from bargain under the line item ‘Gain from bargain purchase .’ purchase is not taxable . recognition of a gain from a bargain purchase, which is 265,062 4,788 332 69,387 12,819 2,489 1,148,615 3,465 11 10,905 6,387 4,518 464 1,424 46 4,481 2,169 1,526,457 4,698 24,937 190,008 1,072,411 30,155 21,896 2,249 2,184 1,348,538 177,919 5,109 172,810 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents As a result of the acquisition, NLB Group’s off-balance The valuation techniques used for measuring the fair value of material assets and liabilities acquired were as follows: sheet liabilities increased by EUR 277,772 thousand: Guarantees - financial - non-financial Commitments to extend credit Letters of credit Total in EUR thousands 136,309 41,615 94,694 138,749 2,714 277,772 Since the bank was acquired within a very short timeframe in the process of resolution, acquisition- related costs were immaterial . NLB obtained all the necessary information for measuring fair values, therefore no amounts were measured and recognised on a provisional basis . Assets acquired Performing loans Non-performing loans Debt securities Real estate Valuation technique Discounted cash flow approach: Since these are performing loans, it was assumed that they would be repaid by future cash flows in accordance with amortisation schedules . Credit risk was considered for loans which are classified in Stage 2 in N Banka individual financial statements, by reducing future cash flows accordingly . Also prepayment risk was estimated for consumer and mortgage loans . The discount rates used for fair value measurement of loans were based on the publicly available interest rates published by Bank of Slovenia, that represent market rates and are thus considered the most appropriate . Discount rates differ based on product type, client segment, maturity and currency . Discounted cash flow approach: Since these are non-performing loans, it could generally not be assumed that they would be repaid with cash flows from client’s regular business . Instead, gone concern principle was used, taking into account liquidation value of collateral as expected cash flows . Appropriate haircuts for age of valuations, type of collateral, type of location, and type of real estate were used to estimate the liquidation value of collateral, which was then discounted for a period of 4 years, with the required yield of 15% . For debt securities classified in Level 1 of fair value hierarchy, fair values were determined by an observable market price in an active market for an identical asset . For valuing debt securities in Level 2, income approach was used, based on the estimation of future cash flows discounted to the present value . The input parameters used in the income approach were the risk-free yield curve and the spread over the yield curve (credit, liquidity, country) . Three approaches were used for estimating the value of real estate - the income capitalisation approach, the sale comparison approach and the residual land value approach . Each views the valuation from different perspectives and considers data from different market sources . The most suitable approach depends on the characteristics and use of individual real estate . The income capitalization approach: Values property by the amount of income - cash flow that it can potentially generate . The value of the property is derived by converting the expected income generated from a property into a present value estimate using market capitalization rate . This method is commonly used for valuing income-generating properties . The sale comparison approach: Values property by comparing similar properties that have been sold recently . This approach is sometimes referred to as the ‘direct sales comparison approach .’ The reliability of an indication found by this method depends on the quality of comparable data found in the marketplace and application of adequate adjustments for individually appraised real estate . When sale transactions are not available, the direct sales comparison approach is not applicable . Residual land value approach: is a method for calculating the value of development land . It is performed by subtracting from the total value of a development project, all costs associated with the development project, including profit but excluding the cost of the land . It is applicable only for development/ construction land . Liabilities acquired Deposits Valuation technique Discounted cash flow approach: Aggregated future cash flows were discounted by applying market interest rates for term deposits . As a discount rate, average market rates on the deposits, published by Bank of Slovenia, were used . The fair value of acquired loans and advances to Immediately after acquisition, 12-month expected credit customers is EUR 1,148,615 thousand, of which EUR losses for Stage 1 financial assets in the amount of 1,127,261 thousand relates to performing portfolio and EUR 21,354 thousand to non-performing portfolio . EUR 8,900 thousand and attributable deferred taxes in the amount of EUR 1,691 thousand were recognised . The latter was recognised as purchased or originated Additionally, EUR 39,657 thousand of revenue, EUR 18,294 credit-impaired financial assets (POCI) . The gross thousand of gain after tax, and EUR 2,650 thousand of contractual amount for performing loans and advances other comprehensive loss were recognised in NLB Group to customers is EUR 1,135,072 thousand and for this financial statements since the acquisition date . Had the exposure 12-month expected credit losses in the amount acquisition occurred on 1 January 2022, management of EUR 8,552 thousand were recognised through the estimates that the consolidated revenue (excluding gain income statement . The gross contractual amount for non-performing loans and advances to customers from bargain purchase) would have been approximately EUR 960 million, and the consolidated profit for the year is EUR 49,641 thousand, and it is expected that (excluding gain from bargain purchase) approximately approximately EUR 23 million of the contractual cash EUR 265 million . The exact result is difficult to determine flows will not be collected . due to the changed circumstances during the year, especially the impact of the war in Ukraine . 260 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents f) Acquisition of NLB Lease&Go leasing d .o .o . Beograd In November 2022, NLB Lease&Go, leasing, d .o .o ., no contingent consideration arrangements . At the Ljubljana became an owner of 95 .20% of financial acquisition date, cash in acquired entity amounted to EUR company Zastava Istrabenz Lizing, d .o .o ., Beograd . 117 thousand, therefore the net outflow of cash amounted to EUR 919 thousand (included in the statement of cash In January 2023, Zastava Istrabenz Lizing, d .o .o ., Beograd flows within payments from investing activities) . was renamed to NLB Lease&Go leasing d .o .o . Beograd . The assets and liabilities recognised as a result of the The purchase price for the company was EUR 1,036 acquisition are as follows: thousand and was fully paid in cash . There are in EUR thousands Cash, cash balances at central banks and other demand deposits at banks Financial assets measured at amortised cost - loans and advances to banks - loans and advances to customers - other financial assets Tangible assets Property and equipment - own property and equipment (note 5 .8 .b) Investment property Intangible assets Current income tax assets Other assets Total assets Financial liabilities measured at amortised cost - borrowings from other customers - other financial liabilities Provisions Other liabilities Total liabilities Net identifiable assets acquired (100%) Less: non-controlling interests Net assets acquired (NLB Group share) Consideration given Gain from bargain purchase 117 171 913 5 137 137 302 20 5 2 1,672 490 7 7 8 512 1,160 56 1,104 1,036 68 NLB Group recognises non-controlling interests in NLB The acquisition of NLB Lease&Go leasing d .o .o . Beograd Lease&Go leasing d .o .o . Beograd at the non-controlling resulted in a gain from a bargain purchase in the interest’s proportionate share of the acquired entity’s net amount of EUR 68 thousand, which is recognised in the identifiable assets . income statement under the line item ‘Gain from bargain purchase .’ Gain from bargain purchase is not taxable . 261 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 4,282 289 4,571 in % g) Analysis by type of investment in associates and joint ventures NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 Carrying amount of the NLB Group‘s interest Other financial organisations Enterprises Total 12,519 11,677 - - 12,519 11,677 4,293 530 4,823 NLB Group’s associates 2023 Bankart d .o .o ., Ljubljana ARG - Nepremičnine d .o .o ., Horjul 2022 Bankart d .o .o ., Ljubljana ARG - Nepremičnine d .o .o ., Horjul Nature of Business Card processing Country of Incorporation Slovenia Real estate Slovenia NLB Group NLB Shareholding Voting rights Shareholding Voting rights 46 .03 75 .00 46 .03 75 .00 46 .03 75 .00 46 .03 75 .00 in % Nature of Business Card processing Country of Incorporation Slovenia Real estate Slovenia NLB Group NLB Shareholding Voting rights Shareholding Voting rights 46 .03 75 .00 46 .03 75 .00 45 .64 75 .00 45 .64 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 . The 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 NLB Group’s interest in an associate was in previous years reduced to zero, consequently NLB Group did not recognise a share of profit in the amount of EUR 347 thousand in 2023 (2022: EUR 87 thousand) . The cumulative unrecognised share of losses of an associate as at 31 December 2023 amounted to EUR 1,742 thousand (31 December 2022: EUR 2,083 thousand) . in EUR thousands 2023 12,519 1,072 45 1,117 2022 11,677 781 121 902 262 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB Group’s joint ventures Prvi Faktor Group, Ljubljana NLB Group’s interest in a joint venture was in previous years reduced to zero, consequently NLB Group did not recognise a share of profit in the amount of EUR 751 thousand in 2023 (2022: EUR 429 thousand) . The cumulative unrecognised share of losses of a joint venture as at 31 December 2023 amounted to EUR 13,645 thousand (31 December 2022: EUR 14,396 thousand) . h) Movements of investments in associates NLB Group Balance as at 1 January Acquisition of subsidiary (note 5 .12 .e) Share of result before tax Share of tax Net gains/(losses) recognised in other comprehensive income Dividends received Balance as at 31 December 5 .13 . Other assets Assets, received as collateral (note 6 .1 .l) Deferred expenses Inventories Claim for taxes and other dues Prepayments Total Assets, received as collateral on NLB Group in the amount of EUR 27,122 thousand (31 December 2022: EUR 50,913 thousand), and on NLB in the amount of EUR 3,129 thousand (31 December 2022: EUR 3,170 thousand) consist of real estate (note 6 .1 .l) . Nature of Business Finance Country of Incorporation Slovenia in % 2023 2022 Voting rights Voting rights 50 50 in EUR thousands 2023 11,677 - 1,394 (322) 45 (275) 12,519 2022 11,525 11 827 (46) 121 (761) 11,677 NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 27,637 12,313 5,825 1,599 1,780 51,586 12,200 4,961 1,509 2,287 3,129 6,915 2,943 531 389 3,170 6,929 2,324 417 321 49,154 72,543 13,907 13,161 263 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 Balance as at 1 Jan 2023 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements NLB Group Notes 12-month expected credit losses Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL not credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL credit-impaired Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Of which: Purchased or originated credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets 161 31,385 59,840 1,246 14,582 31,230 38 108 75,807 111,154 7,750 (499) (3,134) 185 - (13) (17) - (5) 1 - - (5) 645 - - (6) (2) - 31,614 (1,229) (17) (28,704) (1,988) (36) - (2,910) 3,217 53 - - - 4.14. 49 (22,681) 5,634 (201) 34,051 (9,837) 82 (26) 29,543 (8,614) 3,374 (414) (4,817) 185 4.14. - (419) (13,134) (117) 5,121 156 (26) - 720 (364) (18) - - - - (221) - (42) (18) (8) (17) - (23,445) (19,399) (764) (456) (1,026) - in EUR thousands Disposal of subsidiary Balance as at 31 Dec 2023 Repayments of written-off receivables 5.6.b), c), d) 4.14. 3 3 (7) - - - (225) (20) 24 224 (1) 4 4,070 22,624 17 2,393 14,968 863 - - - - - - (271) - - - 213 39,668 51,087 624 25,051 19,778 40 86 83,780 109,263 10,141 1,024 5,985 1,231 - - - - - - - - 8,703 15,237 261 1,377 2,012 - 264 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             Balance as at 1 Jan 2022 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements NLB Group Notes 12-month expected credit losses Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL not credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL credit-impaired Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Of which: Purchased or originated credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets 198 18,336 50,961 476 7,398 26,624 36 - 76,047 136,607 5,714 (157) 613 (608) 1 (6) 6 1 (4) 2 (1) - 4 626 (3) 1 (2) - - 19,708 (4,026) (263) (12,893) 2,175 13 - (6,815) 1,851 250 - - - 4.14. (46) (12,932) 18,487 911 16,206 2,943 1 108 28,969 (9,912) 1,556 24 (11,136) (1,034) - (239) (1) (72) (18) (1) (26) - (21,199) (27,759) (1,136) (219) (244) - 4.14. 5 6,521 (5,585) 20 3,897 (493) 12 - (751) 144 (22) - - - in EUR thousands Balance as at 31 Dec 2022 Repayments of written-off receivables 5.6.b), c), d) 4.14. 3 (3) (2) 173 (4) (20) 3 - (448) 9,597 1,391 (148) 7,635 1,827 161 31,385 59,840 1,246 14,582 31,230 38 108 75,807 111,154 7,750 (499) (3,134) 185 - - - - - - - - 8,213 24,770 346 1,537 3,546 12 Column Increases/(Decreases) also includes 12-month Other movements relate mainly to income from expected credit losses recognised at the acquisition of repayments of non-performing exposures in NLB N Banka in the amount of EUR 187 thousand for Loans Komercijalna banka a .d . Beograd and N Banka, which and advances to banks, in the amount of EUR 8,552 were at acquisition recognised at fair value, without a thousand for Loans and advances to customers, and corresponding allowance for the impairment and to in the amount of EUR 95 thousand for Other financial expenses due to initial recognition of non-performing assets (notes 4 .14 . and 5 .12 .e) . exposure at fair value in NLB . 265 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents           Balance as at 1 Jan 2023 Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements in EUR thousands 266 NLB Notes 12-month expected credit losses Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL not credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL credit-impaired Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Of which: Purchased or originated credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets 216 6,161 14,880 203 7,385 800 2 - 34,286 29,900 808 - 638 1 - 15,744 (1,199) (193) (14,921) 1,344 (6) - (823) (145) 199 - - - 4.14. (54) (14,192) (2,541) (92) 15,949 (2,647) 7 (28) 15,358 11,822 785 1,672 4,661 - - (189) - (7) (10) (1) (1) - (5,797) (7,292) (296) (20) (247) - 4.14. 2 (603) (3,622) (34) 2,127 (444) - - 17 (29) - - - - Merger of subsidiary Balance as at 31 Dec 2023 Repayments of written-off receivables 5.12.d)  5.6.b), c), d) 4.14. - 1 25 (1) 24 - - 4 819 1,677 (8) 88 626 1 - 1,151 5,939 222 935 3,501 - 110 1,803 2,375 26 15 - - 164 8,073 13,482 98 11,489 2,553 2 86 45,663 38,308 1,514 1,755 5,678 2 - - - - - - - - 2,967 6,793 77 - - - NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         NLB Notes 12-month expected credit losses Loans and advances to banks Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL not credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets Lifetime ECL credit-impaired Loans and advances to individuals Loans and advances to other customers Other financial assets Of which: Purchased or originated credit-impaired Loans and advances to other customers Other financial assets Balance as at 1 Jan 2022 Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements 182 3,503 10,101 62 2,421 1,787 1 31,497 47,110 1,090 838 6 - 7,665 833 16 (6,808) 1,192 - (857) (2,025) (16) - - 4.14. 34 (6,686) 5,358 95 8,313 (2,277) 2 9,321 3,922 225 4,801 (5) - (238) (1) (17) (15) (1) (1) (5,761) (11,178) (491) - - 4.14. - 1,916 (1,440) 46 3,474 100 - (279) (94) - - - in EUR thousands Balance as at 31 Dec 2022 Repayments of written-off receivables 5.6.b), c), d) 4.14. - 1 29 1 - (1) - 365 (7,835) - (5,001) - 216 6,161 14,880 203 7,385 800 2 34,286 29,900 808 638 1 - - - - - - - 2,536 10,313 210 - - Other movements relate mainly to expenses due to initial recognition of non-performing exposure at fair value . The contractual amount outstanding on financial assets that were written off during the year ending 31 December 2023 and that are still subject to enforcement activity for NLB Group amounted to EUR 43,080 thousand (31 December 2022: EUR 29,654 thousand), and for NLB amounted to EUR 15,715 thousand (31 December 2022: EUR 9,949 thousand), of which EUR 2,962 thousand in NLB Group (31 December 2022: EUR 1,730 thousand) and EUR 1,904 thousand in NLB (31 December 2022: EUR 1,140 thousand) represent interest receivables that have not been recognised in the income statement prior to the write-off . 267 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         b) Movements in allowance for the impairment of debt securities in EUR thousands 268 NLB Group Notes 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 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 2023 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2023 3,519 9,029 265 70 6,777 2 4 (1) - - (52) - 52 - - 4.14. 1,478 (2,470) (253) (13) - - - - (4,483) (1,537) 4.14. 9 (87) 515 (1) - 5.4.a), 5.6.a) 4,946 6,475 576 56 798 (10) (1) (2) - 41 Release of lifetime ECL credit-impaired debt securities measured at fair value through other comprehensive income relates to impairment of Russian sovereign debt, which was sold in February 2023 . NLB Group Notes 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 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 2022 Effects of translation of foreign operations to presentation currency 3,253 11,148 52 70 798 (2) 5 1 - - Transfers Increases/ (Decreases) Changes in models/ risk parameters Foreign exchange differences and other movements 4.14. 158 (2,049) 271 739 - (25) - (803) 828 5,235 4.14. 104 (67) (59) 12 - in EUR thousands Balance as at 31 Dec 2022 5.4.a), 5.6.a) 3,519 9,029 265 70 6 17 - 52 (84) 6,777 Column Increases/(Decreases) includes also 12-month Impairment of debt securities measured at fair value expected credit losses recognised at the acquisition of N Banka in the amount of EUR 60 thousand for Debt through other comprehensive income relates mainly to impairment of Russian sovereign debt (note 5 .4 .) . securities measured at amortised cost, and in the amount of EUR 5 thousand for Debt securities measured at fair value through other comprehensive income (notes 4 .14 . and 5 .12 .e) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                   NLB Notes 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 amortised cost Lifetime ECL credit-impaired Debt securities measured at fair value through other comprehensive income Balance as at 1 Jan 2023 Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Merger of subsidiary Foreign exchange differences and other movements 1,990 2,022 - 6,777 (52) - 52 - 4.14. 585 (554) 123 - - - (4,483) (1,537) 4.14. (36) (21) - - 5.12.d)  140 204 - - in EUR thousands Balance as at 31 Dec 2023 5.4.a), 5.6.a) (3) (1) (2) 41 2,624 1,650 173 798 Release of lifetime ECL credit-impaired debt securities measured at fair value through other comprehensive income relates to impairment of Russian sovereign debt, which was sold in February 2023 . NLB Notes 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 Balance as at 1 Jan 2022 Transfers Increases/ (Decreases) 1,826 2,203 - 798 - (25) (803) 828 4.14. 119 (192) 751 5,235 Impairment of debt securities measured at fair value through other comprehensive income relates mainly to impairment of Russian sovereign debt (note 5 .4 .) . Changes in models/risk parameters 4.14. Foreign exchange differences and o ther movements in EUR thousands Balance as at 31 Dec 2022 5.4.a), 5.6.a) 42 32 - - 3 4 52 1,990 2,022 - (84) 6,777 269 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents               c) Explanation of how significant changes in the gross carrying amount of financial instruments contributed to changes in the loss allowance Movement of gross carrying amount of loans to banks in EUR thousands 270 Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e), f) Increases/(Decreases) Exchange differences on monetary assets Transfers Merger of subsidiary (note 5 .12 .d) Balance as at 31 December NLB Group 2023 2022 NLB 2023 Lifetime ECL credit- impaired 12-month expected credit losses Lifetime ECL credit- impaired 12-month expected credit losses 223,126 (105) - 322,034 2,771 - - 108 140,881 - - 5 - - - 74 2,660 75,516 4,103 (108) - 547,826 113 223,126 12-month expected credit losses 350,841 - - (202,175) 482 - - 149,148 Lifetime ECL credit- impaired - - - - - - 113 113 - - - - - 108 - 108 2022 12-month expected credit losses 199,469 - - 150,644 728 - - 350,841 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       Movement of gross carrying amount of loans and advances to individuals in EUR thousands 271 Individuals Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Transfers Increases/(Decreases) Write-offs Exchange differences on monetary assets Modification losses (note 4 .12 .) Merger of subsidiary (note 5 .12 .d) Balance as at 31 December 2023 Individuals Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e) Transfers Increases/(Decreases) Write-offs Exchange differences on monetary assets Modification losses (note 4 .12 .) Balance as at 31 December 2022 NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 6,422,877 190,121 130,446 6,743,444 2,922,907 101,744 59,680 3,084,331 (1,606) (24) (12) (1,642) - (103,434) 551,995 (221) 783 (15,669) - 70,870 (12,564) (18) 124 (85) - 32,564 (7,469) (23,445) 186 (105) - - 531,962 (23,684) 1,093 (15,859) (48,707) 204,972 (189) 1,914 - - 298,616 6,854,725 248,424 132,165 7,235,314 3,379,513 - 34,682 5,439 (10) 127 - 10,279 152,261 - 14,025 (346) (5,797) 189 - - - 210,065 (5,996) 2,230 - 9,303 318,198 77,054 3,608,828 in EUR thousands NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 5,372,551 120,235 128,285 5,621,071 2,570,925 66,035 57,396 2,694,356 672 411,068 (106,876) 746,532 (239) (746) (85) (12) - 78,073 (8,179) (18) 34 (12) 8 668 6,583 28,803 (12,059) (21,199) 12 13 417,651 - 726,294 (21,456) (700) (84) - - (46,023) 396,545 (238) 1,698 - - - 35,084 596 (15) 44 - - - 10,939 (2,932) (5,761) 38 - - - - 394,209 (6,014) 1,780 - 6,422,877 190,121 130,446 6,743,444 2,922,907 101,744 59,680 3,084,331 In year 2023, the loss allowance for loans and advances In year 2022, the loss allowance for loans and advances Acquisition of subsidiaries in 2022 (note 5 .12 .f) to individuals increased by EUR 26,725 thousand at the to individuals increased by EUR 19,993 thousand at contributed EUR 417,651 thousand to the gross carrying NLB Group level, while at the NLB level it increased by the NLB Group level, while at the NLB level it increased amount of loans and advances to individuals on the NLB EUR 17,393 thousand . The reasons for increases are by EUR 10,411 thousand . The main reasons for these Group level . also changed risk parameters, which increased the loss increases are changed risk parameters, which increased allowance by EUR 5,422 thousand at the NLB Group level, loss allowance by EUR 9,667 thousand at the NLB Group and by EUR 1,541 thousand at NLB level . At the NLB level, level, and by EUR 5,111 thousand at NLB level and an it also increased due to the merger of N Banka by EUR increase of the gross carrying amount . At the NLB Group 3,889 thousand . At the NLB Group level, the gross carrying level, the gross carrying amount increased by EUR amount increased by EUR 491,870 thousand, mainly due 1,122,373 thousand, mainly due to increased exposure to increased exposure, while at the NLB level it increased and the acquisition of subsidiaries, while at the NLB level by EUR 524,497 thousand due to increased exposure and it increased by EUR 389,975 thousand . the merger of N Banka (EUR 318,198 thousand) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Movement of gross carrying amount of loans and advances to other customers in EUR thousands 272 Other customers Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Transfers Increases/(Decreases) Write-offs Exchange differences on monetary assets Modification losses (note 4 .12 .) Merger of subsidiary (note 5 .12 .d) Balance as at 31 December 2023 Other customers Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e), f) Transfers Increases/(Decreases) Write-offs Exchange differences on monetary assets Modification losses (note 4 .12 .) Balance as at 31 December 2022 NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 6,028,285 423,671 201,584 6,653,540 2,960,455 51,906 51,133 3,063,494 (1,887) (128) 960 (1,055) - (94,306) 277,557 - (1,622) (374) - 80,889 (53,135) (8) (97) (38) - 13,417 (27,449) (19,399) (6) - - - 196,973 (19,407) (1,725) (412) (41,456) 115,612 - (91) - - 400,313 6,207,653 451,154 169,107 6,827,914 3,434,833 - 36,860 26,546 (1) - - - 4,596 (2,303) (7,292) - - - - 139,855 (7,293) (91) - 47,665 162,976 15,080 61,214 463,058 3,659,023 in EUR thousands NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 4,630,485 412,184 239,354 5,282,023 2,351,275 123,304 72,637 2,547,216 1,189 716,577 (154,654) 87 - 123,967 835,299 (112,477) (1) (639) 29 (1) (106) 17 893 2,169 15,300 30,687 (56,944) (27,759) 41 12 731,877 - 665,878 (27,761) (704) 58 - - 34,662 572,648 (1) 1,871 - - - (37,337) (34,158) (1) 98 - - - 2,675 (13,056) (11,178) 55 - - - - 525,434 (11,180) 2,024 - 6,028,285 423,671 201,584 6,653,540 2,960,455 51,906 51,133 3,063,494 In 2023, the gross carrying amount of loans and advances In 2022, the gross carrying amount of loans and to other customers increased by EUR 174,374 thousand at advances to other customers increased by EUR 1,371,517 the NLB Group level mostly in Stage 1 due to the increased thousand at the NLB Group level and EUR 516,278 exposure . Irrespective of that, the loss allowance thousand at the NLB level, mostly in Stage 1 due to the decreased by EUR 22,096 thousand . The main reason for acquisition of subsidiaries and the increased exposure . the decrease were write-offs in the amount of EUR 19,407 Regardless of that, the loss allowance decreased by EUR thousand . Also, in 2023, the gross carrying amount of 11,968 thousand at the NLB Group level and EUR 12,631 loans and advances to other customers increased by EUR thousand at the NLB level, mainly in Stage 3 . The main 595,529 thousand at the NLB level, mostly due to merger reason for the decrease were write-offs in the amount of N Bank (EUR 463,058 thousand) . The loss allowance of EUR 27,761 thousand at the NLB Group level and EUR increased by EUR 8,925 thousand, the main reason was 11,180 thousand at the NLB level . the merger of N Banka (EUR 11,815 thousand) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Movement of gross carrying amount of other level by EUR 601 thousand . The main reason for this did not contribute significantly to the increase of the financial assets moderate increase at the NLB Group level and on the loss allowance . Therefore, the loss allowance for other 273 The gross carrying amount of other financial assets NLB level are write-offs (EUR 823 thousand at the NLB financial assets in year 2022 on the NLB Group level in 2023 decreased (by EUR 10,090 thousand at the Group level and EUR 304 thousand at the NLB level) . increased only by EUR 2,808 thousand, while at the NLB Group level and EUR 12,202 thousand at the NLB NLB level it decreased by EUR 140 thousand . The main level), with the majority of these decreases relating The gross carrying amount of other financial assets in reason for this moderate increase at the NLB Group level to receivables for the sale of securities . As these 2022 increased (by EUR 58,402 thousand at the NLB and decrease on the NLB level are write-offs (EUR 1,234 receivables are by their nature short-term, they did Group level and EUR 21,855 thousand at the NLB level), thousand at the NLB Group level and EUR 509 thousand not contribute significantly to the decrease of the loss with the majority of this increase relating to credit card at the NLB level) . allowance . Therefore, the loss allowance for other receivables and receivables for the sale of securities . As financial assets in year 2023 on the NLB Group level these receivables are by their nature short-term, they increased only by EUR 1,771 thousand, while at the NLB Movement of gross carrying amount of debt securities measured at amortised cost in EUR thousands Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e) Additions Derecognition Net interest income Exchange differences on monetary assets Other Merger of subsidiary (note 5 .12 .d) Transfers Balance as at 31 December NLB Group 2023 2022 NLB 2023 Lifetime ECL not credit - impaired 12-month expected credit losses Lifetime ECL not credit - impaired 12-month expected credit losses Lifetime ECL not credit - impaired 12-month expected credit losses 1,914,170 (344) - 1,023,233 (453,836) 36,750 (2,234) 2,684 - (4,993) 7,229 1,713,711 7,220 1,599,438 (8) - - (24) 136 (5) - - 4,993 (187) 12,819 411,724 (226,884) 16,791 1,030 (14,834) - - 9 - - - - - - - - - 531,650 (200,534) 24,101 (1,664) 2,684 13,184 (4,993) 2,515,430 12,321 1,914,170 7,229 1,963,866 2022 12-month expected credit losses 1,438,250 - - 310,394 (146,939) 11,431 1,136 (14,834) - - 1,599,438 - - - - (24) 136 (5) - - 4,993 5,100 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       Movement of gross carrying amount of debt securities measured at fair value through other comprehensive income in EUR thousands 274 Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Additions Derecognition Net interest income Exchange differences on monetary assets Merger of subsidiary Balance as at 31 December 2023 Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e) Additions Derecognition Net interest income Exchange differences on monetary assets Transfers Balance as at 31 December 2022 12-month expected credit losses 2,999,030 (262) 1,446,746 (2,233,255) 38,624 1,914 - 12-month expected credit losses 3,396,101 1,370 53,223 1,699,839 - - - - - - NLB Group NLB Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 165 8,337 3,007,532 1,367,496 - - - - (262) - 1,446,746 59,345 (21) (7,526) (2,240,802) (463,403) - (13) - 798 38,624 1,901 - 9,163 (753) 37,085 2,253,739 1,008,933 - - - - - - - - 8,337 1,375,833 - - - 59,345 (7,526) (470,929) - (13) - 798 9,163 (766) 37,085 1,009,731 2,252,797 144 NLB Group NLB Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total in EUR thousands 184 798 3,397,083 1,526,972 - - - - (121) 77 7,583 8,337 1,370 53,223 1,699,839 (2,185,558) 38,471 3,104 - - - 290,245 (443,781) 10,929 3,434 (20,303) 3,007,532 1,367,496 - - - - (13,731) 38 973 12,720 - 798 1,527,770 - - - - (121) 77 7,583 8,337 - - 290,245 (457,512) 10,846 4,484 - 1,375,833 (2,171,808) (13,750) 38,554 2,054 (20,303) 2,999,030 38 973 12,720 165 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         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 Debt securities issued Other financial liabilities Total NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 95,283 140,419 106,414 198,609 147,002 82,797 212,656 57,292 20,732,722 20,027,726 11,881,563 10,984,411 99,718 1,338,235 357,116 82,482 815,990 294,463 - 1,338,235 198,020 216 815,990 164,567 22,763,493 21,525,684 13,647,617 12,235,132 a) Deposits from banks and central banks and amounts due to customers Deposit on demand - banks and central banks - other customers - governments - financial organisations - companies - individuals Other deposits - banks and central banks - other customers - governments - financial organisations - companies - individuals Total NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 75,756 86,892 127,726 193,523 17,454,515 17,386,022 10,674,541 10,268,908 351,313 285,540 421,770 306,836 64,406 225,295 151,251 254,948 4,639,997 4,374,028 2,543,280 2,241,793 12,177,665 12,283,388 7,841,560 7,620,916 19,527 19,522 19,276 3,278,207 2,641,704 1,207,022 61,880 215,457 718,230 91,662 237,758 646,944 2,282,640 1,665,340 35,813 90,590 378,340 702,279 19,133 715,503 42,049 95,637 282,560 295,257 20,828,005 20,134,140 12,028,565 11,197,067 b) Borrowings from banks and central banks and other customers Loans - banks and central banks - other customers - governments - financial organisations - companies Total As at 31 December 2023, NLB Group and NLB had EUR 95,249 thousand in undrawn borrowings (31 December 2022: EUR 96,878 thousand) . NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 140,419 198,609 82,797 99,718 20,357 79,361 - 82,482 21,535 60,731 216 - - - - 240,137 281,091 82,797 57,292 216 - - 216 57,508 275 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                     Targeted longer-term refinancing operations (TLTRO) In June 2021, NLB participated in the ECB TLTRO III .8 threshold, and in the case of NLB, also expected early In December 2021, N Banka participated in ECB TLTRO operation and had drawn a credit tranche of EUR repayment was taken into account . As the lending III .10 operation and had drawn a credit tranche of EUR 750,000 thousand for three years . The loan was repaid performance threshold was achieved in both banks, 93,000 thousand for three years . In December 2022, early in June 2022 . N Banka repaid a part of the loan early in the amount there were no changes in estimates of payments due to the revised assessment of meeting the eligibility criteria . of EUR 30,000 thousand . In June 2023, N Banka also NLB Group accounted for these loans according to the Changes in the interest rate applied by the ECB were repaid the remaining part of the loan early in the requirements of IFRS 9 and recognises interest income implemented prospectively . NLB Group does not consider amount of EUR 63,000 thousand . by applying the expected effective interest rate (note 4 .1 .) . these loans as loans at below-market rate of interest, as The expected effective interest rate was estimated based these targeted longer-term refinancing operations were on the expectation of achieving a lending performance available to all banks under the same conditions . c) Debt securities issued NLB Group and NLB Subordinated bonds Total Subordinated bonds Senior Preferred notes Total Senior Preferred notes Total Debt securities issued Currency Due date Interest rate EUR EUR EUR EUR EUR EUR 06 .05 .2029 19 .11 .2029 05 .02 .2030 28 .11 .2032 4 .20% to 06 .05 .2024, thereafter 5Y MS + 4 .159% p .a . 3 .65% to 19 .11 .2024, thereafter 5Y MS + 3 .833% p .a . 3 .40% to 05 .02 .2025, thereafter 5Y MS + 3 .658% p .a . 10 .75% to 28 .11 .2027, thereafter 5Y MS + 8 .298% p .a . 19 .07 .2025 27 .06 .2027 6% to 19 .07 .2024, thereafter 1Y MS + 4 .835% p .a . 7 .125% to 27 .07 .2026, thereafter 1Y MS + 3 .606% p .a . 31 Dec 2023 31 Dec 2022 Carrying amount Nominal value Carrying amount Nominal value in EUR thousands 45,980 119,781 123,176 220,458 509,395 45,000 120,000 120,000 225,000 510,000 45,941 119,677 123,106 220,054 508,778 45,000 120,000 120,000 225,000 510,000 307,507 521,333 828,840 300,000 500,000 800,000 307,212 300,000 - - 307,212 300,000 1,338,235 1,310,000 815,990 810,000 All issued subordinated bonds represent non- convertible Tier 2 instruments (note 5 .23 .) . 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 at 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 . 276 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             Movement of debt securities issued NLB Group and NLB Subordinated bonds Senior Preferred notes in EUR thousands Balance as at 1 January Cash flow items: - new issued - repayments of interest Non-Cash flow items: - accrued interest - other 2023 508,778 (34,538) - (34,538) 35,155 35,155 - 2022 288,519 207,523 217,873 (10,350) 12,736 12,736 - 2023 307,212 479,708 497,708 (18,000) 41,920 36,579 5,341 2022 - 299,029 299,029 - 8,183 8,183 - Balance as at 31 December 509,395 508,778 828,840 307,212 NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 93,425 113,398 22,872 28,944 35,628 1,242 288 61,319 357,116 70,232 72,148 19,608 23,840 33,574 751 224 17,957 90,495 16,614 5,793 17,065 1,133 268 16,281 54,920 13,455 3,349 15,898 633 205 74,086 294,463 48,695 198,020 59,826 164,567 d) Other financial liabilities Items in the course of settlement Debit or credit card payables Suppliers Lease liabilities (note 5 .11 .a) Accrued expenses Fees and commissions Liabilities to brokerage firms and others for securities purchase and custody services Other financial liabilities Total Other financial liabilities in the amount of EUR 24,025 thousand (31 December 2022: EUR 24,788 thousand) relate to a liability recognised in accordance with the ‘Act for Value Protection of Republic of Slovenia’s Capital Investment in Nova Ljubljanska banka d .d ., Ljubljana’ (note 5 .16 .a) . The remaining balance also includes liabilities to insurance companies, liabilities for received EIB financial initiatives, that can be used for specified purposes, received warranties, and obligations for the purchase of securities . 277 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       5 .16 . Provisions a) Analysis by type of provisions Provisions for guarantees and commitments (note 5 .24 .a) Stage 1 Stage 2 Stage 3 Employee benefit provisions Restructuring provisions Provisions for legal risks Other provisions Total Provisions for guarantees and commitments represent expected credit losses in accordance with IFRS 9, employee benefits are recognised in accordance with IAS 19, while all other provisions are recognised according to IAS 37 . Legal risks NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 32,548 18,429 1,655 12,464 17,892 12,592 44,833 5,440 37,609 18,826 1,953 16,830 18,026 21,036 43,209 2,772 17,941 7,653 319 9,969 11,795 7,198 6,219 5,303 20,299 8,156 378 11,765 11,876 7,288 3,584 2,169 113,305 122,652 48,456 45,216 Provisions for legal risks are formed based on the old foreign currency savings, based on numerous Zagreb, ruled in six claims (as explained below in detail) expectations regarding the probable outcome of legal process and content-related reasons, NLB has all along in favour of the plaintiff . In four of those cases, NLB disputes . As at 31 December 2023, NLB Group was objected to these claims . Two key reasons NLB is not filed a constitutional suit after an extraordinary legal involved in 41 (31 December 2022: 41) legal disputes with liable for the old foreign currency savings are that it was measure of NLB with the Supreme Court of the Republic material claims against Group members in the total only founded on the basis of the Constitutional Act on 27 of Croatia was not successful, and in two, NLB filed an amount of EUR 463,122 thousand, excluding accrued July 1994 (at the time the savings were deposited with LB extraordinary legal measure with the Supreme Court of interest (31 December 2022: EUR 462,564 thousand) . As at Branch Zagreb, NLB did not yet exist), and NLB did not the Republic of Croatia . 31 December 2023, NLB was involved in 21 (31 December assume any such obligations . Moreover, this is a former 2022: 17) legal disputes with material monetary claims Yugoslavia succession matter, as the governments of the Contrary to the decisions of the court described above against NLB . The total amount of these claims, excluding Republic of Slovenia and the Republic of Croatia agreed in another case, a claim filed by the PBZ was refused accrued interest, was EUR 236,727 thousand (31 in a Memorandum of Understanding signed in 2013 and the judgment became final in favour of NLB . The December 2022: EUR 219,847 thousand) . whose intent was to find a solution to the transferred extraordinary legal measure with the Supreme Court In connection with legal risks, the largest amount of material monetary claims relates to civil claims filed (LB) on the basis of the Agreement on Succession Issues . The Memorandum also said that the Republic dismissed by the Supreme Court on 16 June 2015 . by Privredna banka Zagreb (the PBZ) and Zagrebačka of Croatia would ensure the stay of all the proceedings In the other cases, with respect to which court banka (the ZaBa) against NLB, referring to the old commenced by the PBZ and the ZaBa in relation to the procedures described above are pending, final court savings of LB Branch Zagreb savers, which were transferred foreign currency savings until the issue was decisions have not yet been issued . foreign currency savings of Ljubljanska banka in Croatia of the Republic of Croatia, filed by the plaintiff, was transferred to these two banks in a principal amount finally resolved . of approximately EUR 174 .4 million (as per 31 December 2023) . Due to the fact the proceedings had been pending Despite the agreement in the Memorandum of for such a long time, the penalty interest already Understanding to stay all of the proceedings exceeds the principal amount . As NLB is not liable for commenced, the Court of Appeal, the County Court of 278 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     The table below summarises the amounts according to final court decisions (not including penalty interest): Date of the ruling Plaintiff Principal amount Costs of the proceedings Measures taken by NLB May 2015 PBZ 254 .76 EUR 2,094 .53 EUR April 2018 PBZ 222,426 .39 EUR 33,616 .48 EUR September 2017 ZaBa 492,430 .53 EUR 99,354 .14 EUR November 2017 PBZ 220,115 .98 EUR 91,348 .88 EUR December 2018 PBZ 3,855,173 .35 SEK 90,241 .70 EUR March 2019 PBZ 9,185,141 .76 USD 424,548 .41 EUR 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 Court of the Republic of Croatia rejected the constitutional appeal of NLB d .d . on 5 October 2021 . 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 Court of the Republic of Croatia rejected the constitutional appeal of NLB d .d . on 5 October 2021 . NLB challenged the judgments with the extraordinary legal measure (revision) on the Supreme Count of the Republic of Croatia, which rejected NLB‘s revision on 22 November 2023 (judgment received on 5 January 2024) . NLB intends to challenge the judgment in question with a constitutional lawsuit before the Constitutional Court of 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 . Constitutional Court of the Republic of Croatia rejected the constitutional appeal of NLB d .d . on 3 October 2023 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 . The NLB Shareholders’ Meeting provided the Croatian courts with regard to the transferred foreign compensation of the sums recovered from NLB by Management Board of NLB with instructions how to act currency deposits, that is the principle amount, accrued enforcement . In the aforementioned case from May in the event of existing or potential new final decisions interest, expenses of court, attorney’s expenses and 2015, the Succession Fund of the Republic of Slovenia by Croatian courts against LB and NLB regarding the other expenses of the plaintiff, and expenses related has already compensated the sums recovered from NLB transferred foreign currency deposits, especially not to enforcement with the accrued interest, and shall by enforcement . to voluntarily settle the adjudicated amounts, and also not compensate NLB for its own costs or for the gave some additional instructions on the usage of difference between the book value of its assets sold Provisions for legal risks for existing claims filed by PBZ legal remedies and regarding the management of the in enforcement proceedings and the price obtained and ZaBa are not formed, since NLB believes that based property from that perspective . for such assets in enforcement proceedings . There on the factual and legal evaluation there are greater shall be no compensation for any voluntarily made prospects for the court proceedings to end in favour of On 19 July 2018, the National Assembly of the Republic payments by NLB . In accordance with the ZVKNNLB NLB than the opposite . of Slovenia passed the ‘Act for Value Protection of and pursuant to the agreement between NLB and Republic of Slovenia’s Capital Investment in Nova the Fund, as envisaged by the ZVKNNLB (which was Regardless of the negative outcomes for claims for Ljubljanska banka d .d ., Ljubljana’ (Zakon za zaščito vrednosti kapitalske naložbe Republike Slovenije v concluded on 14 August 2018), NLB has to contest the claims made against it in court proceedings in relation which the final ruling was issued, in the financial statements NLB Group did not recognise the negative Novi Ljubljanski banki d .d ., Ljubljana, hereinafter: ‘the to transferred foreign currency deposits, and use impact on profit and loss due to protection provided ZVKNNLB’) which entered into force on 14 August 2018 . against court decisions that are disadvantageous for by the ZVKNNLB . For final judgements, NLB Group In accordance with the ZVKNNLB, the Succession Fund NLB, all reasonable legal remedies and to continue to recognised the liabilities and related assets, which are of the Republic of Slovenia (Sklad Republike Slovenije actively challenge the judicial decisions of the courts of included within other financial assets (note 5 .6 .d) and za nasledstvo, javni sklad, hereinafter: ‘the Fund’), the Republic of Croatia in relation to transferred foreign other financial liabilities (note 5 .15 .d) . shall compensate NLB for the sums recovered from currency deposits on the basis of which enforcement NLB by enforcement of final judgements delivered by took place, leading, on the basis of ZVKNNLB, to the 279 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents b) Provisions for guarantees and commitments Movements in provisions for guarantees and commitments NLB Group Notes 12-month expected credit losses Guarantees and commitments Lifetime ECL not credit-impaired Guarantees and commitments Lifetime ECL credit-impaired Guarantees and commitments Of which: Purchased or originated credit-impaired Guarantees and commitments NLB Group Notes 12-month expected credit losses Guarantees and commitments Lifetime ECL not credit-impaired Guarantees and commitments Lifetime ECL credit-impaired Guarantees and commitments Of which: Purchased or originated credit-impaired Guarantees and commitments Balance as at 1 Jan 2023 Effects of translation of foreign operations to presentation currency 18,826 1,953 16,830 4,095 (3) - - 1 Transfer Increases/ (Decreases) Changes in models/risk parameters 583 (263) (320) 4.13. 2,609 (873) (4,039) - (1,015) 4.13. (3,587) 837 (2) - in EUR thousands Balance as at 31 Dec 2023 Foreign exchange differences and other movements 5.16.a) 18,429 1,655 12,464 3,095 1 1 (5) 14 Balance as at 1 Jan 2022 Effects of translation of foreign operations to presentation currency 12,912 1,640 18,889 4,344 2 (1) (1) - Acquisition of subsidiaries Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements in EUR thousands Balance as at 31 Dec 2022 5.12.e) 921 - 180 180 4.13. 4.13. 1,468 2,765 740 (55) 291 (685) (1,462) (11) (444) 76 (88) - 5.16.a) 18,826 1,953 16,830 4,095 18 2 (3) 26 280 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                 in EUR thousands 281 NLB Notes 12-month expected credit losses Guarantees and commitments Lifetime ECL not credit-impaired Guarantees and commitments Lifetime ECL credit-impaired Guarantees and commitments Of which: Purchased or originated credit-impaired Guarantees and commitments NLB Notes 12-month expected credit losses Guarantees and commitments Lifetime ECL not credit-impaired Guarantees and commitments Lifetime ECL credit-impaired Guarantees and commitments Of which: Purchased or originated credit-impaired Guarantees and commitments Balance as at 1 Jan 2023 Transfer Increases/ (Decreases) Changes in models/risk parameters Merger of subsidiary Balance as at 31 Dec 2023 8,156 378 11,765 2,876 158 147 (305) - 4.13. (146) (616) (1,589) (3) 4.13. (1,142) 387 32 - 5.12.d)  627 23 66 62 5.16.a) 7,653 319 9,969 2,935 Balance as at 1 Jan 2022 Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements in EUR thousands Balance as at 31 Dec 2022 3,909 141 16,510 4,041 570 60 (630) (11) 4.13. (229) 192 (4,146) (1,179) 4.13. 3,910 (15) 6 - (4) - 25 25 5.16.a) 8,156 378 11,765 2,876 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents           Movement of contractual amounts of guarantees and commitments in off-balance sheet Balance as at 1 January 2023 Effects of translation of foreign operations to presentation currency Increases/(Decreases) Foreign exchange differences Transfers Merger of subsidiary (note 5 .12 .d) 12-month expected credit losses 3,843,293 (837) 224,499 231 (34,627) - 83,270 (28) (9,271) - 32,645 - NLB Group Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total NLB in EUR thousands 26,897 3,953,460 2,397,742 35,243 15,019 2,448,004 (2) (7,960) - 1,982 - (867) 207,268 231 - - - 216,455 152 (28,955) 198,583 - 1,071 - 28,362 1,943 66,619 - - (2,041) 215,485 - 593 407 13,978 152 - 200,933 2,864,574 Balance as at 31 December 2023 4,032,559 106,616 20,917 4,160,092 2,783,977 NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total in EUR thousands Balance as at 1 January 2022 3,027,971 97,536 38,998 3,164,505 1,913,572 49,102 26,903 1,989,577 Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 .f) Increases/(Decreases) Foreign exchange differences Transfers 541 277,325 543,028 703 (6,275) 24 - (14,927) 16 621 Balance as at 31 December 2022 3,843,293 83,270 4 447 (18,212) 6 5,654 26,897 569 277,772 509,889 725 - - - 477,730 631 5,809 3,953,460 2,397,742 - - (8,465) 16 (5,410) 35,243 - - (11,491) 6 (399) 15,019 - - 457,774 653 - 2,448,004 282 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         c) Movements in employee benefit provisions Post-employment benefits Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .e), f) Merger of subsidiary (note 5 .12 .d) Additional provisions (note 4 .9 .) Provisions released (note 4 .9 .) Interest expenses (note 4 .1 .) Utilised during year (payments) Actuarial gains and losses Balance as at 31 December Other employee benefits Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 .e) Merger of subsidiary (note 5 .12 .d) Additional provisions (note 4 .9 .) Provisions released (note 4 .9 .) Interest expenses (note 4 .1 .) Utilised during year Balance as at 31 December NLB Group 2023 16,021 (3) - - 227 (1,361) 587 (447) 444 15,468 NLB Group 2023 2,005 (1) - - 636 (104) 81 (193) 2,424 2022 19,227 2 1,393 - 1,046 (1,128) 335 (823) (4,031) 16,021 2022 2,220 - 167 - 275 (558) 39 (138) 2,005 in EUR thousands NLB 2023 10,672 - - 531 587 (1,039) 297 (91) (588) 10,369 2022 12,781 - - - 635 (673) 130 (153) (2,048) 10,672 in EUR thousands NLB 2023 1,204 - - 79 173 - 33 (63) 1,426 2022 1,425 - - - 90 (259) 14 (66) 1,204 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 .13 .) Provisions released (note 4 .13 .) Utilised during year Balance as at 31 December NLB Group NLB in EUR thousands 2023 21,036 (1) 4,006 (352) (12,097) 12,592 2022 19,217 10 10,335 (10) (8,516) 21,036 2023 7,288 - 3,800 - (3,890) 7,198 2022 11,131 - - - (3,843) 7,288 Additional restructuring provisions recognised during Additional restructuring provisions recognised during the year 2023 relate mainly to NLB for the purpose of the year 2022 relate mainly to N Banka and NLB continuing the reorganisation, optimisation of work Komercijalna banka a .d . Beograd and are based on processes/business in individual segments and HR reorganisation plans in both banks . restructuring (restructuring of workforce in accordance with business demands) and the related reduction in the number of employees . 283 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents           e) Movements in provisions for legal risks Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 .e) Disposal of subsidiaries (note 5 .12 .b) Merger of subsidiary (note 5 .12 .d) Additional provisions (note 4 .13 .) Provisions released (note 4 .13 .) Utilised during year Balance as at 31 December f) Movements in other provisions Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiary (note 5 .12 .e) Merger of subsidiary (note 5 .12 .d) Additional provisions (note 4 .13 .) Provisions released (note 4 .13 .) Utilised during year Other Balance as at 31 December NLB Group 2023 43,209 8 - (30) - 16,354 (9,074) (5,634) 44,833 NLB Group 2023 2,772 1 - - 15,019 (28) (12,324) - 5,440 2022 45,288 54 1,790 - - 7,595 (5,950) (5,568) 43,209 2022 11 - 17,452 - 2,372 (8,410) (106) (8,547) 2,772 in EUR thousands NLB 2023 3,584 - - - 5,382 899 (3,577) (69) 6,219 2022 3,466 - - - - 125 - (7) 3,584 in EUR thousands NLB 2023 2,169 - - 1,173 13,300 - (11,339) - 5,303 2022 - - - - 2,200 - (31) - 2,169 Other provisions in year 2023 in the NLB Group and NLB March 2022, some unfavourable events, which were relate mainly to liability in relation to reimbursement of taken into account already at assessing initial fair fees in case of early loan repayment . values realised, therefore EUR 8,547 thousand of At the acquisition of N Banka on 1 March 2022, other receivables, mainly for unsettled derivative transactions . provisions increased by EUR 17,452 thousand, which Additionally, the amount of other provisions significantly represents the assessed fair value of contingent decreased in December 2022 (for EUR 8,400 thousand), liabilities of N Banka as at the acquisition date . During when possible obligation ceased to exist . provisions were used to decrease the amount of related 284 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       5 .17 . Deferred income tax a) Analysis by type of deferred income taxes NLB Group NLB 31 Dec 2023 Deferred income tax assets Deferred income tax liabilities Included in the income statement Valuation of financial instruments and capital investments Impairment of financial assets Provisions for liabilities and charges Depreciation and valuation of non-financial assets Fair value adjustments of financial assets measured at amortised cost Tax losses Undistributed profit of subsidiaries Other Total 59,640 9,704 9,047 4,141 1,940 54,069 - 248 7,218 3,589 - 1,304 6,651 - 9,626 522 138,789 28,910 8,055 801 (928) (452) (1,398) 54,069 (9,626) 461 50,982 The table above does not include the effects of the merger of N Banka. Included in other comprehensive income Deferred income tax assets Deferred income tax liabilities Included in the income statement 4,322 1,342 81 - - - - - 55,098 3,556 1,153 1,856 123 1,412 54,069 - - 538 - 168 - - - - 7,517 (961) 23 9 94 54,069 - - 5,745 113,711 4,262 60,751 11,384 31 Dec 2022 Deferred income tax assets Deferred income tax liabilities Included in the income statement Valuation of financial instruments and capital investments Impairment of financial assets Provisions for liabilities and charges Depreciation and valuation of non-financial assets Fair value adjustments of financial assets measured at amortised cost Unpaid dividends Tax losses Tax reliefs Other Total 48,415 9,480 9,899 4,737 2,046 - - - 141 74,718 8,375 5,501 - 1,641 5,366 - - - 877 21,760 6,416 2,934 (1,718) 962 (2,540) (3,876) (253) (945) 543 1,523 Temporary differences on which NLB did not recognise deferred tax assets, as related deferred tax assets would exceed the amount of deferred tax assets expected to be reversed in five years are presented in the table below, together with non-recognised deferred tax assets . NLB Group NLB Included in other comprehensive income 12,346 (892) (441) - - - - - - Deferred income tax assets Deferred income tax liabilities Included in the income statement 38,028 2,050 1,819 109 - - - - - 5,283 1,672 - 163 - - - - - 4,819 1,133 (555) 3 - (3,876) - - - 11,013 42,006 7,118 1,524 1,462 in EUR thousands Included in other comprehensive income 10,244 1,171 (31) - - - - - in EUR thousands Included in other comprehensive income 2,850 (1,102) (286) - - - - - - 285 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     NLB Tax loss Impairments and valuation of capital investments and financial instruments 31 Dec 2023 31 Dec 2022 Temporary difference 580,388 - Non-recognised deferred tax assets Temporary difference Non-recognised deferred tax assets 127,686 - 950,469 116,913 180,589 22,213 in EUR thousands Due to highly successful year 2023 and the projected loss in amount of EUR 54,069 thousand . The tax loss on NLB did not recognise deferred tax assets on good profits in the 5 years profit projections and also which NLB did not recognise deferred tax assets, as at temporary differences arising from the impairments of due to the increase of tax rate to 22% for the years 31 December 2023 amounts to EUR 580,388 thousand investments in subsidiaries and associates where it is 2024-2028, NLB importantly increased the amount of (31 December 2022: EUR 950,469 thousand) . Slovenian not probable that the temporary difference will reverse recognised deferred tax assets in 2023 . NLB recognised tax law does not set deadlines by which uncovered tax in the foreseeable future . These temporary differences all previously non-recognised deferred tax assets for losses must be utilised, but the use of tax loss is limited amount to EUR 189,311 thousand as at 31 December impairments and valuation of capital investments and to 50% of the actual tax base . Other banking members 2023 (31 December 2022: EUR 282,092 thousand) . financial instruments and deferred tax assets for tax have no tax losses . 286 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   b) Movements in deferred income taxes Deferred income tax assets NLB Group Provisions for liabilities and charges Valuation of financial instruments and capital investments Depreciation and valuation of non-financial assets Impairment of financial assets Unpaid dividends Tax losses Balance as at 1 January 2022 10,128 33,002 3,505 5,879 3,876 6 2 3 7 - Fair value adjustments of financial assets measured at amortised cost 320 - Tax relief 945 - 253 - Effects of translation of foreign operations to presentation currency (Charged)/credited to profit and loss (Charged)/credited to other comprehensive income Acquisition of subsidiary (note 5 .12 .e) Balance as at 31 December 2022 Effects of translation of foreign operations to presentation currency (Charged)/credited to profit and loss (Charged)/credited to other comprehensive income (1,718) 4,837 1,229 3,583 (3,876) (253) (945) (516) (441) 10,270 304 - - - 11 1,924 9,899 (5) (928) 81 48,415 4,737 9,480 1 - 7,490 3,734 (596) - (8) 232 - - - - - - - - - - - - 54,069 - 54,069 - - - - - - - - 2,242 2,046 2 (108) - 1,940 Balance as at 31 December 2023 9,047 59,640 4,141 9,704 in EUR thousands Other Total 62 - 79 - - 57,970 18 2,420 9,829 4,481 141 74,718 - (10) 107 60,266 - 3,815 248 138,789  in EUR thousands NLB Balance as at 1 January 2022 (Charged)/credited to profit and loss (Charged)/credited to other comprehensive income Balance as at 31 December 2022 (Charged)/credited to profit and loss (Charged)/credited to other comprehensive income Merger of subsidiary (note 5 .12 .d) Balance as at 31 December 2023 Provisions for liabilities and charges Valuation of financial instruments and capital investments Depreciation and valuation of non-financial assets Impairment of financial assets Tax losses Fair value adjustments of financial assets measured at amortised cost 2,660 (555) (286) 1,819 23 (31) 45 1,856 31,696 4,688 1,644 38,028 7,517 8,517 1,036 55,098 112 (3) - 109 14 - - 123 917 1,133 - 2,050 (961) - 64 - - - - 54,069 - - 1,153 54,069 - - - - 94 - 1,318 1,412 Unpaid dividends 3,876 (3,876) - - - - - - Total 39,261 1,387 1,358 42,006 60,756 8,486 2,463 113,711 287 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Deferred income tax liabilities NLB Group Impairment of financial assets Balance as at 1 January 2022 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 2022 Effects of translation of foreign operations to presentation currency Charged/(credited) to profit and loss Charged/(credited)to other comprehensive income Disposal of subsidiaries Balance as at 31 December 2023 3,960 - 649 892 5,501 (1) (569) (1,342) - 3,589 Valuation of financial instruments and capital investments 12,026 4 (1,579) (2,076) 8,375 (4) (565) (588) - 7,218 Depreciation and valuation of non-financial assets Undistributed profit of subsidiaries Fair value adjustments of financial assets measured at amortised cost 1,374 - 267 - 1,641 - (144) - (193) 1,304 - - - - - - 9,626 - - 3,338 4 2,024 - 5,366 (5) 1,290 - - 9,626 6,651 NLB Balance as at 1 January 2022 Charged/(credited) to profit and loss Charged/(credited) to other comprehensive income Balance as at 31 December 2022 Charged/(credited) to profit and loss Charged/(credited) to other comprehensive income Merger of subsidiary (note 5 .12 .d) Balance as at 31 December 2023 Impairment of financial assets 570 - 1,102 1,672 - (1,171) 37 538 Valuation of financial instruments and capital investments 6,620 (131) (1,206) 5,283 - (1,727) - 3,556 Depreciation and valuation of non-financial assets 169 (6) - 163 5 - - 168 in EUR thousands Other Total 1,340 22,038 1 (464) - 877 (1) (354) - - 522 9 897 (1,184) 21,760 (11) 9,284 (1,930) (193) 28,910 in EUR thousands Total 7,359 (137) (104) 7,118 5 (2,898) 37 4,262 288 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents               5 .18 . Income tax relating to components of other comprehensive income 289 2023 Actuarial gains and losses Financial assets measured at fair value through other comprehensive income Share of associates and joint ventures Total 2022 Actuarial gains and losses Financial assets measured at fair value through other comprehensive income Share of associates and joint ventures Total 5 .19 . Other liabilities Accrued salaries Unused annual leave Deferred income Taxes payable Payments received in advance Total NLB Group NLB Before tax Tax expense Net of tax Before tax Tax expense Net of tax (444) 77,722 45 77,323 81 5,664 - 5,745 (363) 83,386 45 83,068 588 36,106 - 36,694 (31) 11,415 - 11,384 557 47,521 - 48,078 in EUR thousands NLB Group Before tax Tax expense NLB Before tax Tax expense 4,031 (165,438) 121 (161,286) (441) 11,454 - Net of tax 3,590 (153,984) 121 2,048 (93,955) - 11,013 (150,273) (91,907) in EUR thousands Net of tax 1,762 (92,207) - (90,445) (286) 1,748 - 1,462 NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 28,228 7,657 11,376 7,015 4,377 58,653 21,948 6,886 11,177 5,724 3,346 49,081 19,461 2,761 4,376 4,895 857 32,350 14,014 2,569 4,749 4,023 32 25,387 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         5 .21 . Other equity instruments issued On 23 September 2022, NLB issued subordinated notes intended to qualify as Additional Tier 1 Instruments in the aggregate nominal amount of EUR 82 million . The notes have no scheduled maturity date . The issuer has the option for early redemption of the notes in the period between 23 September 2027 and 23 March 2028, and on each distribution payment date after 23 March 2028 . Until 23 March 2028, the interest on the principal of the notes will accrue at the interest rate of 9 .721% per annum, and for each subsequent 5-year period, will accrue at the applicable interest rate, which shall be reset prior to the commencement of each such period (5Y MS + 7 .20% per annum) . The coupon payments are discretionary and non-cumulative . The notes terms provide for a temporary write-down in the event that the Common Equity Tier 1 ratio of NLB Group and/or NLB drop(s) below 5 .125% . The issue price was equal to 100% of the nominal amount of the notes . The ISIN code of the notes is SI0022104275 . The carrying amount as at 31 December 2023 is EUR 84,178 thousand (31 December 2022: EUR 84,184 thousand) . 5 .20 . Share capital The share capital of NLB amounts to EUR 200,000 thousand and did not change in 2023 . It is comprised 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 2023, the major shareholder of NLB with significant influence is the Republic of Slovenia, who owns 25 .00% plus one share . The book value of a NLB share on a consolidated level as at 31 December 2023 was EUR 139 .9 (31 December 2022: EUR 114 .1), and on a solo level was EUR 108 .3 (31 December 2022: EUR 75 .9) . It is calculated as the ratio of net assets’ book value excluding other equity instruments issued and the number of shares . Distributable profit as at 31 December 2023 amounts to EUR 1,116,689 thousand (31 December 2022: EUR 515,463 thousand) and consists of NLB net profit for 2023 in the amount of EUR 514,287 thousand (2022: EUR 159,602 thousand), and retained earnings from previous years in the amount of EUR 405,463 thousand, increased for the N Banka merger effect in the amount of EUR 204,904 thousand and reduced for the interests of subordinated bonds issued in the year 2023 – which are considered instruments of additional basic capital in the amount of EUR 7,965 thousand . Its allocation will be subject to a decision by the Bank’s General Assembly . The proposal for the General Assembly will be prepared by the Management and the Supervisory Board, considering restrictions imposed by the regulators, the Group’s risk appetite, the target capital adequacy at the Group’s 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 an acquisition . The Supervisory Board’s approval may only be rejected if, following such an acquisition, such a person would hold shares representing more than 25% of NLB’s issued share capital plus one share . The approval shall be considered given if not expressly rejected in 20 days . No such approval is necessary with respect to the shares acquired by a person on behalf of third persons provided that such a 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 with respect to 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, as well as the pre-emptive right to subscribe for new shares on a pro rata basis in the 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 a dividend . In 2023, NLB paid dividends for the previous year in the amount of EUR 5 .5 per share (2022: EUR 5 .0 per share), which decreased retained earnings by EUR 110,000 thousand (2022: EUR 100,000 thousand) . As at 31 December 2023 and 31 December 2022, 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 . NLB did not buy any own shares based on this authorisation . 290 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 5 .22 . Accumulated other comprehensive income and reserves a) Reserves The share premium account as at 31 December 2023 and 31 December 2022 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 2023 and 31 December 2022, profit reserves in the amount of EUR 13,522 thousand relate entirely to legal reserves in accordance with the Companies Act . In 2023, NLB recorded a net profit in the amount of EUR 514,287 thousand (2022: net profit EUR 159,602 thousand) which is included in the retained earnings as at 31 December 2023 . b) Accumulated other comprehensive income Financial assets measured at fair value through other comprehensive income - debt securities Financial assets measured at fair value through other comprehensive income - equity securities Actuarial defined benefit pension plans Foreign currency translation Hedge of a net investment in a foreign operation Total NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 (66,666) (143,954) (35,255) (78,283) 6,647 1,045 (2,265) (14,588) 754 (1,948) (16,485) 754 144 (1,205) - - (1,460) (1,934) - - (76,118) (160,588) (36,316) (81,677) 291 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     5 .23 . Capital adequacy ratios Paid up capital instruments Share premium Retained earnings - from previous years Profit eligible - from current year Accumulated other comprehensive income Other reserves Minority interest Prudential filters: Additional Valuation Adjustments (AVA) (-) Goodwill (-) Other intangible assets (-) Deferred tax assets (-) Insufficient coverage for non-performing exposures COMMON EQUITY TIER 1 CAPITAL (CET1) Capital instruments eligible as AT1 Capital Minority interest Additional Tier 1 capital TIER 1 CAPITAL Capital instruments and subordinated loans eligible as Tier 2 capital Minority interest TIER 2 CAPITAL TOTAL CAPITAL RWA for credit risk RWA for market risks RWA for credit valuation adjustment risk RWA for operational risk TOTAL RISK EXPOSURE AMOUNT (RWA) Common Equity Tier 1 Ratio Tier 1 Ratio Total Capital Ratio NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 200,000 871,378 1,235,363 327,398 (75,662) 13,522 28,798 (2,295) (3,529) (37,153) (47,002) (907) 200,000 871,378 908,965 334,297 (98,470) 13,522 26,806 (2,981) (3,529) (41,351) - (418) 200,000 871,378 602,402 159,833 (36,316) 13,522 - (1,067) - (20,846) (54,069) (246) 200,000 871,378 355,861 49,602 (50,527) 13,522 - (1,385) - (23,675) - (80) 2,509,911 2,208,219 1,734,591 1,414,696 82,000 5,907 87,907 82,000 5,481 87,481 2,597,818 2,295,700 507,516 3,874 511,390 3,109,208 12,168,121 1,447,713 14,200 1,707,128 507,516 3,159 510,675 2,806,375 11,797,851 1,359,476 85,600 1,410,132 82,000 - 82,000 1,816,591 507,516 - 507,516 2,324,107 7,449,829 818,113 15,613 923,943 82,000 - 82,000 1,496,696 507,516 - 507,516 2,004,212 6,356,959 776,963 86,138 612,654 15,337,162 14,653,059 9,207,498 7,832,714 16 .4% 16 .9% 20.3% 15 .1% 15 .7% 19.2% 18 .8% 19 .7% 25.2% 18 .1% 19 .1% 25.6% European banking capital legislation – CRD IV, is based In addition to the aforementioned ratios which form the of the buffers are prescribed by law for all banks and on the Basel III guidelines . The legislation defines three capital ratios reflecting a different quality of capital: Pillar 1 requirement, NLB must meet other requirements and recommendations that are imposed by the some of them are bank-specific, set by the supervisory institution (CBR and TSCR together form the overall - Common Equity Tier 1 ratio (ratio between common supervisory institutions or by the legislation: capital requirement – OCR), or CET1 capital and risk-weighted exposure amount - The Pillar 2 Requirement (SREP requirement): bank- - Pillar 2 Capital Guidance: capital recommendation or RWA), which must be at least 4 .5%, specific, obligatory requirement set by the supervisory set by the supervisory institution through the SREP - Tier 1 capital ratio (Tier 1 capital to RWA), which must institution through the SREP process (together with the process . It is bank-specific and is a recommendation, be at least 6%, and Pillar 1 requirement it represents the minimum total and not obligatory . Any non-compliance does not - Total capital ratio (total capital to RWA), which must SREP capital requirement – TSCR), affect dividends or other distributions from capital; be at least 8% . - The applicable combined buffer requirement (CBR): however, it might lead to intensified supervision and a system of capital buffers to be added on top of the imposition of measures to re-establish a prudent TSCR – breaching of the CBR is not a breach of capital level of capital (including preparation of capital requirement, but triggers limitations in the payment of restoration plan) . dividends and other distributions from capital . Some 292 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     Overall capital requirements of NLB Group on consolidated level: SREP requirement Pillar 1 (P1R) Pillar 2 (P2R) Total SREP Capital Requirement (TSCR) Combined buffer requirement (CBR) Capital Conservation buffer O-SII buffer Systemic risk buffer Countercyclical buffer Overall capital requirement (OCR) = MDA threshold Pillar 2 Guidance (P2G) OCR + P2G CET1 AT1 T2 CET1 Tier 1 Total Capital CET1 Tier 1 Total Capital CET1 CET1 CET1 CET1 CET1 Tier 1 Total Capital CET1 CET1 Tier 1 Total Capital 2023 4 .5% 1 .5% 2 .0% 1 .35% 1 .80% 2 .40% 5 .85% 7 .80% 10 .40% 2 .50% 1 .25% 0 .10% 0 .26% 9 .96% 11 .91% 14 .51% 1 .0% 10 .96% 12 .91% 15 .51% 2022 4 .5% 1 .5% 2 .0% 1 .46% 1 .95% 2 .60% 5 .96% 7 .95% 10 .60% 2 .5% 1 .0% 0 .0% 0 .0% 9 .46% 11 .45% 14 .10% 1 .0% 10 .46% 12 .45% 15 .10% 2021 4 .5% 1 .5% 2 .0% 1 .55% 2 .06% 2 .75% 6 .05% 8 .06% 10 .75% 2 .5% 1 .0% 0 .0% 0 .0% 9 .55% 11 .56% 14 .25% 1 .0% 10 .55% 12 .56% 15 .25% As at December 31, 2023, the Group’s Overall Capital Effective as at 1 January 2025, there will be some indicator approach . The same approaches are used Requirement (OCR) on a consolidated basis was 14 .51% . changes in the capital buffer rates for Slovenia . The for calculating the capital requirements for NLB on This requirement has two components: countercyclical capital buffer rate for exposures in a standalone basis, except for the calculation of the · The Total SREP Capital Requirement (TSCR) is Slovenia will increase from 0 .5% to 1 .0% . At the same capital requirement for operational risks where the 10 .40%, including 8 .00% Pillar 1 and 2 .40% Pillar time, the sectoral systemic risk buffer for retail exposures standardised approach is used . 2 Requirements . As at 1 January 2023, the Pillar 2 to natural persons secured by residential real estate will Requirement decreased by 0 .2 p .p . to 2 .40% due to a decrease from 1 .0% to 0 .5% . better overall SREP assessment . As at 31 December 2023, the TCR for the NLB Group stood at 20 .3% (or 1 .1 p .p . increase compared to 31 · The second component is the Combined Buffer The Bank and NLB Group’s capital covers all the current December 2022), and the CET1 ratio stood at 16 .4% Requirement (CBR), which is 4 .11%, and includes a and announced regulatory capital requirements, (1 .3 p .p . increase compared to 31 December 2022), well 2 .50% Capital Conservation Buffer, a 1 .25% O-SII Buffer, a 0 .26% Countercyclical Buffer and a 0 .10% Systemic including capital buffers and other currently known requirements, as well as the P2G . above requirements . The higher total capital adequacy derives from higher capital (EUR 302 .8 million compared risk buffer . to 31 December 2022), which compensated for the As at 31 December 2023, NLB Group capital ratios on a increase of the RWA (EUR 684 .1 million compared to 31 In addition to the above requirements, the Pillar 2 consolidated basis stand at: Guidance (P2G) is 1 .0% of Common Equity Tier 1 (CET1) . · 16 .4% CET1 ratio, · 16 .9% Tier 1 ratio, Effective from 1 January 2024, NLB has lower capital · 20 .3% Total Capital ratio . requirements . On 1 December 2023, NLB received a new SREP decision on a consolidated basis for In the scope of regulatory risks, which include credit December 2022) . The NLB Group increased its capital with a partial inclusion of 2023 profit (EUR 327 .4 million) . Temporary treatment of FVOCI for sovereign securities ceased to apply as at 1 January 2023, which decreased capital by EUR 61 .6 million . This effect was compensated with EUR 84 .5 million in revaluation adjustments . In 2024 . As per the decision, the Pillar 2 Requirement risk, operational risk, and market risk, NLB Group December 2023, a deduction item related to deferred decreased by 0 .28 p .p . to 2 .12% since the overall SREP uses a standardised approach for credit and market taxes appeared in EUR 47 .0 million . assessment improved . risks, while the calculation of capital requirement for operational risks is made according to a basic 293 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   In 2023, the RWA of Group for credit risk increased and provisions, upgrades, and improved data of real capital and sustainability on an ongoing basis . The by EUR 370 .3 million, mainly as the consequence of estate collaterals for CRR eligibility resulted in the RWA purpose of this process is to have in place sound, ramping up lending activity in all NLB Group banks, reduction for non-performing exposures . effective, and comprehensive strategies and processes the most in the Bank, NLB Komercijalna banka a .d . to assess and maintain capital on an ongoing basis, Beograd and NLB Banka Pristina . Higher RWA for The increase in RWAs for market risks and Credit Value as well the adequate distribution of internal capital for exposures associated with particularly high risk due Adjustments (CVA) in the amount of EUR 16 .8 million covering the nature and level of the risks to which NLB to new project financing loans given, mainly in the compared to 31 December 2022 was the result of higher Group is or might be exposed . In addition, NLB Group Bank and NLB Komercijalna banka a .d . Beograd, was RWA for FX risk of EUR 86 .6 million (mainly the result of gives strong emphasis on its integration into the overall partially offset by repayments or by withdrawing the more opened positions in domestic currencies of non- risk management system in order to assure proactive high-risk flag after fulfilling the relevant conditions . In euro subsidiary banks – mostly RSD), lower RWA for CVA support for informed decision-making . contrast, an RWA decrease was observed for liquidity risk of EUR 71 .4 million (due to a change of calculating assets, mainly in NLB Komercijalna banka a .d . Beograd, exposure value for derivative transactions subject to From an economic perspective, NLB Group manages due to the maturity of some Serbian bonds and CRR risk based on OEM method) and higher RWA for TDI its capital adequacy by ensuring that all its risks are higher MIGA guarantee for assets at central banks in risk of EUR 1 .2 million (mostly IRS derivatives) . adequately covered by internal capital . A normative a foreign currency (EUR) . The higher MIGA guarantee perspective is a multiyear forward-looking assessment also reduced the RWA for exposures nominated in The increase in the RWA for operational risks (EUR 297 .0 of NLB Group which shows its ability to fulfil all of its EUR at the central bank in Skopje . Furthermore, RWA million compared to 31 December 2022) derived from capital-related regulatory and supervisory requirements also decreased due to the maturity of Macedonian bonds and Bosnian bonds of Republika Srpska . The the higher net interests, mainly from the Bank and NLB Komercijalna banka a .d . Beograd, resulting in a higher and risk appetite of NLB Group . Within these capital constraints, NLB Group defines its management buffers RWA decline for liquidity assets was partly mitigated three-year average of relevant income . There were no in the Risk appetite above the regulatory and supervisory by the RWA increase at institutions, mainly in the Bank significant deviations from previous years in the other requirement, and the internal capital needs that allow it due to the purchase of bank bonds, larger volume of components used in the calculations . to sustainably follow its business strategy . A normative deposits at commercial banks and higher risk weights perspective includes several stress scenarios which are for institutions from countries outside the EEA that The most important goal of internal capital adequacy integrated into NLB Group’s annual business plan review are not on the third-party equivalent list (e .g ., the assessment process (ICAAP) in NLB Group, set up in and budgeting process . United Kingdom) . Repayments, higher impairments accordance with ECB Guidelines, is ensuring adequate 294 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 5 .24 . Off-balance sheet liabilities a) Contractual amounts of off-balance sheet financial instruments Short-term guarantees - financial - non-financial Long-term guarantees - financial - non-financial Loan commitments Letters of credit Other Provisions (note 5 .16 .b) Total NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 369,849 154,769 215,080 407,967 220,786 187,181 1,261,764 1,103,341 513,523 748,241 427,743 675,598 205,731 88,373 117,358 817,646 309,909 507,737 176,535 96,473 80,062 613,061 230,318 382,743 2,469,800 2,388,468 1,822,847 1,635,498 41,026 17,653 4,160,092 (32,548) 4,127,544 35,029 18,655 3,953,460 (37,609) 3,915,851 10,446 7,904 2,864,574 (17,941) 2,846,633 13,204 9,706 2,448,004 (20,299) 2,427,705 Fee income from issued non-financial guarantees amounted to EUR 8,628 thousand (2022: EUR 7,535 thousand) in NLB Group, and to EUR 5,552 thousand (2022: EUR 4,574 thousand) in NLB . In addition to the instruments presented in the table above, NLB Group and NLB have also some low- risk off-balance sheet items, for which a 0% credit conversion factor is applied in accordance with the Capital Requirements Regulation (credit and other lines which can be irrevocably cancelled by a bank) . As at 31 December 2023, these items at the NLB Group level amount to EUR 915,450 thousand (31 December 2022: EUR 657,232 thousand), and at the NLB level EUR 412,330 thousand (31 December 2022: EUR 316,977 thousand) . 295 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     b) Analysis of derivative financial instruments by notional amounts in EUR thousands 296 Swaps - currency swaps - interest rate swaps Options - interest rate options - securities options Forward contracts - currency forward Total 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 NLB Group NLB Short-term 486,874 482,463 4,411 - - - 74,351 74,351 Long-term 1,526,962 10,799 1,516,163 45,924 30,189 15,735 6,640 6,640 Short-term 257,015 256,820 195 72 72 - 54,660 54,660 Long-term 1,111,946 - 1,111,946 60,626 46,963 13,663 11,720 11,720 Short-term 715,173 710,762 4,411 - - - 72,120 72,120 Long-term 1,586,962 10,799 1,576,163 45,924 30,189 15,735 6,640 6,640 Short-term 359,978 359,587 391 72 72 - 54,384 54,384 Long-term 1,111,690 - 1,111,690 60,626 46,963 13,663 11,720 11,720 561,225 1,579,526 311,747 1,184,292 787,293 1,639,526 414,434 1,184,036 2,140,751 1,496,039 2,426,819 1,598,470 As at 31 December 2023, the NLB Group held interest hedge the fair value of bonds issued in 2023 with a total rate swaps intended as fair value hedges of assets contractual value of EUR 450,000 thousand (note 5 .5 .b) . with a total nominal value of EUR 633,798 thousand (31 December 2022: EUR 644,132 thousand) and intended to Derivatives that qualify for hedge accounting are used hedge the fair value of bonds issued in 2023 with a total to hedge interest rate risk . nominal value of EUR 450,000 thousand (note 5 .5 .b) . The fair values of derivative financial instruments are As at 31 December 2023, the NLB held interest rate disclosed in notes 5 .2 . and 5 .5 . swaps intended as fair value hedges of assets with a total nominal value of EUR 573,798 thousand (31 December 2022: EUR 644,132 thousand) and intended to c) Capital commitments Capital commitments for purchase of: - property and equipment - intangible assets Total NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands 3,131 2,901 6,032 1,651 5,246 6,897 3,022 2,470 5,492 1,496 5,206 6,702 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents             5 .25 . Funds managed on behalf of third parties Funds managed on behalf of third parties are charged to the respective fund, and no liability falls on accounted separately from NLB Group’s funds . Income NLB Group in connection with these transactions . NLB and expenses arising with respect to these funds are Group charges fees for its services . Funds managed on behalf of third parties Fiduciary activities Settlement and other services Total Fiduciary activities Assets NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 30,241,726 26,935,868 28,278,498 24,990,075 1,085,213 1,247,360 1,010,624 1,156,361 31,326,939 28,183,228 29,289,122 26,146,436 NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 Clearing or transaction account claims for client assets 30,196,860 26,886,137 28,243,725 24,950,876 From financial instruments 30,196,322 26,866,494 28,243,237 24,931,891 - receipt, processing, and execution of orders 11,217,662 10,004,881 10,407,489 9,166,585 - management of financial instruments portfolio 573,177 509,000 - - - custody services 18,405,483 16,352,613 17,835,748 15,765,306 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 128 410 44,866 27,082 17,784 891 18,752 49,731 22,037 27,694 78 410 34,773 16,989 17,784 233 18,752 39,199 22,037 17,162 Clearing or transaction liabilities for client assets 30,241,726 26,935,868 28,278,498 24,990,075 To clients from cash and financial instruments 30,238,652 26,931,466 28,275,954 24,986,135 - receipt, processing, and execution of orders 11,233,595 10,024,193 10,423,422 9,185,897 - management of financial instruments portfolio 582,790 519,728 - - - custody services 18,422,267 16,387,545 17,852,532 15,800,238 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 . 138 2,532 404 444 3,540 418 138 2,002 404 444 3,078 418 Fee income for funds managed on behalf of third parties Fiduciary activities (note 4 .3 .b) Settlement and other services Total NLB Group 2023 11,666 912 12,578 2022 11,025 1,372 12,397 in EUR thousands NLB 2023 9,567 806 2022 9,395 1,363 10,373 10,758 297 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                       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, 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 support decision-making . Managing risks and capital efficiently is crucial for NLB Group sustained long-term profitable operations . A 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 the 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 regular 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 the 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 Besides, the Group also focuses on proactive mitigation, prevention, and minimisation of potential damage . proactively manage, assess, and monitor risks within The conclusion of transactions with derivative financial the Group . Sound and holistic understanding of risk instruments at NLB is primarily limited to servicing management is embedded into the entire organisation, customers and hedging Bank’s own positions . In the focusing on risk identification at a very early stage, area of currency risk, NLB Group pursues the goals of efficient risk management, and mitigation of them with low to moderate exposure . The tolerance for other risk the aim of ensuring the prudent use of its capital and types is low and focuses on minimising their possible adequate liquidity structure to support the financial impacts on NLB Group’s entire operations . resilience of the Group . Environmental, social, and governance (ESG) risks Key strategic risk management principles of NLB Group do not represent a new risk category, but rather one are defined by its Risk Appetite and Risk Strategy, of risk drivers of the existing types of risks, such as designed in accordance with the Group’s business model, credit, liquidity, market and operational risk . The Group integrating forward-looking perspective . The Strategy integrates and manages them within the established of NLB Group, the Risk Appetite, Risk Strategy, and the risk management framework . The management of ESG key internal policies of NLB Group – which are approved risks follows ECB and EBA guidelines with the tendency by the Management and Supervisory Boards – specify the strategic goals, risk appetite guidelines, approaches, to comprehensively integrate them into all relevant processes . Based on environmental and climate risk and methodologies for monitoring, measuring, and assessment impact of these risks is estimated as low, managing all types of risk in order to meet internal except for transition risk in the area of credit which is strategic objectives and fulfil all external requirements . assessed as low to medium . With the NZBA commitment The main strategic risk guidelines are comprehensively the Bank made a pledge to align the Bank’s lending integrated into decision-making, including the business and investment portfolio with net-zero emissions by plan review and budgeting process . 2050 .The availability of ESG data in the region where NLB Group operates is still lacking . Nevertheless, the NLB Group plans a prudent risk profile and optimal Group made a large progress in the process of obtaining capital usage, representing an important element of its relevant ESG related data from its clients, being business strategy and related mid-term financial targets . prerequisite for adequate decision-making and the The management of credit risk, which is the most corresponding proactive management of ESG risks . important risk category in NLB Group, concentrates on taking moderate risks – a diversified credit portfolio, Risk management focuses on managing and mitigating adequate credit portfolio quality, the sustainable costs risks in line with the Group’s Risk Appetite and Risk of risk, and ensuring an optimal return considering the Strategy . Within these frameworks, the Group monitors risks assumed . As regards liquidity risk, the tolerance a range of risk metrics, including internal capital is low, while the activities are geared towards ensuring allocation in order to assure the Group’s risk profile an adequate liquidity position on an ongoing basis . The is in line with its risk appetite . The usage of risk limits Group limited exposure to credit spread risk, arising and potential deviations from limits and target values from the valuation risk of debt securities portfolio are regularly reported to the respective committees servicing as liquidity reserves, to moderate level . The and/or the Management Board of the Bank . The fundamental orientation in the management of interest banking subsidiaries within NLB Group adapted a rate risk is to limit unexpected negative effects on corresponding approach to monitor and manage their revenues and capital, therefore, a moderate tolerance target risk profiles . for this risk is stated . When assuming operational risk, the Group pursues the orientation that such a NLB Group established a comprehensive stress-testing risk must not significantly impact its operations . On framework and other early warning systems in different this basis, changes of control activities, processes, risk areas with the intention to strengthen the existing and/or organisation are performed when necessary . internal controls and timely response when necessary . 298 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Robust and uniform stress-testing programme includes holders, as well as the EBA Guidelines on remuneration respective Committees, which is where appropriate all material types of risk and relevant stress scenario practices . Several layers of management provide measures are adopted . analysis, according to the vulnerability of the Group’s cohesive risk management governance in NLB Group . business model . The Group established an internal ESG The credit ratings of clients that are materially important stress-testing concept to identify most relevant financial NLB Group established the three lines of a defence to NLB Group and the issuing of credit risk opinions vulnerabilities stemming from climate risk, which will framework with the aim of managing risks effectively . are centralised via the Credit Committee of NLB . The be further enhanced by considering disposable ESG- The three lines of defence concept provides a process follows the co-decision principle, in which the related data . Stress testing is integrated into the risk clear division of activities and defines roles and credit committee of the respective Group member first appetite, ICAAP, ILAAP, Recovery Plan, and budgeting responsibilities for risk management at different levels approves their decision, following which the Credit process to support proactive management of the within the Group . Risk management in the Group acts as Committee of NLB gives their opinion . The resolution of Group’s risk profile, namely the capital and liquidity a second line of defence, accountable for appropriate the Credit Committee of NLB is made on the basis of all positions in a forward-looking perspective . In addition, managing, assessing, monitoring, and reporting of risks available documentation, including a non-binding rating the Group also performs reverse stress tests with the aim in the Bank as the main entity in Slovenia, and as the opinion prepared by the underwriting department of to test its maximum recovery capacity . Other partial risk competence centre in charge of six banking members, NLB . This same principle and process is also set for the assessments are covered by other risk analysis, based leasing members, and other non-core subsidiaries issuing of credit exposures for the materially important on relevant risk parameters, and integrated into the which are in a controlled wind-out . clients of NLB Group . process of setting a risk management limit system . For the purpose of an efficient risk mitigation process, Overall, the organisation and delineation of competencies in NLB Group’s risk management Risk monitoring in NLB Group members is operating within an independent and/or separate organisational NLB Group applies a single set of standards to retail structure is designed to prevent conflicts of interest unit . This way, monitoring of risks is established based and corporate loan collateral, representing a secondary and ensure a transparent and documented decision- on standardised and systemic risk management source of repayment with the aim of efficient credit making process, subject to an appropriate upward and approaches . This monitoring enables a comprehensive risk management and optimal capital consumption . downward flow of information . Risk management in overview of the Group’s and of each member’s statement The Group has a system for monitoring and reporting NLB Group is managed within the Risk management of financial position . In compliance with the risk appetite, collateral at fair (market) value in accordance with the competence line, which is a specialised competence risk management strategy, and policies of NLB Group, International Valuation Standards (IVS) . The eligibility line encompassing several professional areas for which risk monitoring in each NLB Group member is separated of collateral, by types and ratios referring to prudent the Global Risk Department, the Credit Risk – Corporate from its management and/or business function to lending criteria, is set within internal lending guidelines . Department, the Credit Risk – Retail Department and maintain the objectivity required when assessing Credit risk mitigation principles and rules in NLB Group the Evaluation and Control Department are responsible business decisions (three lines of defence concept) . The are described in more relevant details in the section within NLB, and which reports to the Management organisational unit for managing risks directly reports ‘Credit risk management .’ When hedging market risks, Board, Assets and Liabilities Committee (ALCO) to the Management Board and its committees (Credit namely interest rate risk and foreign exchange risk, in Risk Committee (RICO) and Credit Committee of the Committee, ALCO, RICO and the Operational Risk line with the set risk appetite, NLB Group follows the Management Board and the Risk Committee of the Committee) and Management Board, which report to the principle of natural hedge or using derivatives in line Supervisory Board . The risk management competence Supervisory Board (the Risk Committee of the Supervisory with hedge accounting principles . line is in charge of formulating and controlling the Board or Board of Directors) . b) Risk management structure and organisation NLB Group’s corporate governance framework is based risk management policies of NLB Group, setting limits, establishing methodologies, overseeing the harmonisation of risk management policies within the c) Risk measurement and reporting systems As a systemic banking group, NLB Group is subject on the principles of sound and responsible governance, NLB Group, monitoring NLB Group’s risk exposures, and to the Single Supervisory Mechanism (SSM), which is in accordance with the applicable legislation of the preparing external and internal reports . supervised by the Joint Supervisory Team (JST) of the Republic of Slovenia, particularly the provisions of the ECB and the Bank of Slovenia . The Group member Companies Act (ZGD-1) and the Banking Act (ZBan-3), All members of NLB Group that are included in the complies with the ECB regulation, while NLB Group the Regulation on Internal Governance Arrangements, financial statements of NLB Group, report their subsidiaries operating outside Slovenia are also the Management Body, and the Internal Capital exposure to risks to the competent organisational compliant with the rules set by the local regulators . A Adequacy Assessment Process for Banks and Savings units within the Risk management competence line . third-party equivalent was approved in Serbia, Bosnia Banks, the EBA Guidelines on internal governance, the These organisational units then report all relevant and Herzegovina, and North Macedonia, resulting EBA Guidelines on the assessment of the suitability of risk information to the Management Board and its in alignment of local regulation with CRR rules . With members of the management body, and key function respective Committees and the Supervisory Board its regards to capital adequacy, based on the provisions of 299 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents the Directive (CRD), Decision (CRR), NLB Group applies objectives of the Group’s risk management function . NLB closely, remaining prudent in identifying any increase a standardised approach to credit and market risk, and Group data governance and data quality framework in credit risk at a very early stage and proactive in NPL the basic approach (a simplified approach with less data consists of identifying risks, developing policies and management . The cost of risk remained at low level, granularity) to operational risks, with the exception of controls on data confidentiality, integrity, accuracy, and mainly due to the successful collection of previously NLB which applies the standardised approach . availability, and by executing the second line of defence written-off receivables, revised risk parameters, and a controls by an independent validation unit under the stable portfolio development .in the whole region . The Across the Group, risks are assessed, monitored, responsibility of Group Data Governance Officer . This liquidity position of the Group remained very robust . managed, or mitigated in a uniform manner, as defined framework covers agreed service level standards for Even if a highly unfavourable liquidity scenario would in the Group’s Risk management standards, and both in-house and outsourced data-related processes . materialise, the Group holds a sufficient level of high- consider the specifics of the markets in which individual NLB Group members operate . For the purposes of measuring exposure to credit risk, liquidity risk, interest e) Main emphasis of risk management in 2023 Efficient managing of risks and capital remains quality liquidity reserves . Significant attention was put into the structure and concentration of liquidity reserves by incorporating early warning systems, while keeping in rate, and credit spread risk in the banking book, crucial for NLB Group to sustain long-term profitable mind the potential adverse negative market movements . operational risk, market risk, ESG, and non-financial operations . The Group further enhanced the robustness risks, in addition to the prescribed regulations, NLB of its risk management system in all respective risk The management of ESG risks follows ECB and EBA Group uses internal methodologies and approaches categories in order to manage them proactively, guidelines with a tendency of their comprehensive that enable more detailed monitoring and management comprehensively, and prudently . Risk identification integration into all relevant processes . It addresses of risks . These internal methodologies are aligned with ECB, EBA, and Basel guidelines, as well as best practices in a very early stage, its efficient managing, and the corresponding mitigation processes represent essential the Group’s overall credit approval process and related credit portfolio management . Sustainable ESG in banking methodologies . steps in such a system . The business and operating financing in accordance with Environmental and Social environment relevant for NLB Group operations is Management System is integrated into the Group’s Risk As for risk reporting, NLB Group’s internal guidelines changing with trends, such as sustainability, social Appetite Statement . As part of its strategy, the Group reflect, in addition to internal requirements, the responsibility, governance, changing customer does not finance companies that extract fossil fuels or substance and frequency of reporting required by the behaviours, emerging new technologies and operate coal-fired power plants . Moreover, in December Bank of Slovenia and the ECB . In addition, each member competitors, as well as increasing new regulatory 2023 NLB as a member of the UN Net-Zero Banking of NLB Group also complies with the requirements of its requirements . Respectfully, the risk management Alliance, publicly disclosed its Net-Zero commitment . local regulations . Risk reporting is carried out in the form framework is regularly adapted with the aim of With this step, the Bank made a pledge to align the of standardised reports, pursuant to risk management detecting and managing new potential emerging risks . Bank’s lending and investment portfolio with net-zero policies based on common methodologies for emissions by 2050 . measuring exposure to risks, uniform database structure The NLB Group gives special focus on the inclusion within Data Warehouse (DWH), comprehensive data of risk analysis into the decision-making process on As a systemically important institution, the Group was quality assurance, and automated report preparation, strategic and operating levels, diversification in order to included in the ECB Stress Test exercise performed in H1 which ensures the quality of reports and reduces the avoid a large concentration, optimal usage of internal 2023 . On 30 July, the results of stress tests carried out for possibility of errors . capital, appropriate risk-adjusted pricing, regular important banks by the ECB to assess the resilience of d) Data and IT system Risk data are calculated and stored in NLB Group DWH and collected from NLB and other Group member’s education/trainings at all levels of management, and the the financial institutions were disclosed . The final results assurance of overall compliance with internal policies/ of the bottom-up stress test showed that even in a very rules and relevant regulations . unfavourable market condition defined by the EBA and ECB, the Group holds sufficient resilience in terms of DWH . The established process provides an integrated During 2023, the Group’s credit portfolio quality capitalisation . The qualitative outcomes were included information in common reference structure where remained of high quality, well diversified, with a stable in the determination of capital requirements by the ECB, business users can access in a consistent and subject- rating structure and lower level of NPLs . In the light namely setting Pillar 2 Guidance . oriented format . Data are regularly checked and of inflationary pressures, higher interest rates and validated . Data used for internal risk assessment, low GDP growth, the Group recorded a slower credit Besides, the Group is also included in two ECB Stress management, and reporting are the same as data which portfolio growth in all segments . Impacts of the floods test exercises – 2024 EBA Fit-for-55 climate risk scenario NLB Group uses for regulatory reporting . in Slovenia were estimated as negligible, and only analysis and the 2024 ECB Cyber Resilience Stress Test minor client credit quality deteriorations or received Exercise, which started in Q3 2023 and will be concluded The Group has established a strong and robust data collaterals were recorded . Besides, the Group monitored in H1 2024 . governance program that aligns with the goals and the macroeconomic and geopolitical circumstances 300 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 . To objectively assess a client’s operation, internal scoring models for particular client segments or product types 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 the case of client default, restructuring or work-out is initiated depending on the severity of the client’s 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 single banking entities . Comprehensive analyses are regularly performed Expected future cash flows (from ordinary operations to assure monitoring of the portfolio quality through and possible redemption of collateral) are assessed time and to identify any breach of limits or targets . following an individual review . If their discounted value Great emphasis is placed on the evolution of portfolio differs from the book value of the financial asset in structure in terms of client segmentation, credit rating question, impairment must be recognised . structure, structure by stages (based on IFRS 9), and NPL ratios . Furthermore, the coverage of NPL is an Collective ECL allowances are made for the remainder important indicator of potential future losses that is of the portfolio, which is not assessed on an individual closely monitored . basis . Based on IFRS 9 requirements, financial assets measured at amortised cost or at fair value through Apart from analysing the portfolio as a whole, the other comprehensive income are attributed to the quality of new loans production is monitored to test the appropriate stage based on the estimated increase of conservativity of the lending standards, which should credit risk of a single exposure since initial recognition . ensure the portfolio quality is maintained within the The stage of financial assets determines whether a Group Risk Appetite . 12-month or lifetime ECL must be considered . The ECL calculation is based on the forward-looking probability Beside default risk, the portfolio management is also of default (PD) and loss given default (LGD), which are focused on monitoring single name and industry concentration, migration, FX lending, and the calculated using historic data and statistical modelling, as well as predicted macroeconomic parameters for Environmental and climate risks of the credit portfolio . different scenarios . For off-balance financial assets, Increasing emphasis is also placed on stress tests that the probability of the redemption of guarantees is forecast the effects of adverse negative macroeconomic considered when creating collective provisions . The movements on the portfolio, on the level of impairments models used to estimate future risk parameters are and provisions, and on capital adequacy . Capital validated and backtested on a regular basis to make requirements for credit risk at NLB Group level loss estimations as realistic as possible . within the first pillar are calculated according to the Standardised approach, while within the second pillar The management of ESG risks addresses the Group’s an internal IRB approach is used to estimate the RWA overall credit approval process and related credit for default, migration, and FX lending risk . In addition, portfolio management . Sustainable financing is a single name concentration add-on is based on the implemented through amended documentary Granularity adjustment methodology, and an industry framework: concentration add-on is estimated based on the HHI - Lending Policy for Non-Financial Companies in concentration indexes . NLB d .d . and NLB Group where in the special chapter Environmental and Social Framework three NLB and other NLB Group members assess the level categories are defined (prohibited, restricted, normal of credit risk losses on an individual basis for material activities); claims, and at the collective level for the rest of - Policy Environmental and Social Transaction Policy the portfolio . Framework in NLB d .d . and NLB Group applies to certain transactions with the greatest potential for An individual review is performed for material Stage significant E&S impact (exclusion list, regulatory 3 financial assets which have been rated as non- compliance check, category A list); performing based on the information regarding - Methodology Environmental and Social Transaction significant financial problems encountered by a Categorisation Methodology Framework in NLB d .d . customer, actual breaches of contractual obligations and NLB Group provides a guide to the typical level of such as arrears in the settlement of liabilities, whether inherent environmental and social risk according to financial assets will be restructured for economic NACE codes . or legal reasons, and the likelihood that a customer will enter bankruptcy or a financial reorganisation . 301 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Beside addressing ESG risks in all relevant stages of Lending growth, which was observed in the Corporate, the credit-granting process relevant ESG criteria were as well as in the Retail segment in 2022 no longer also considered in the collateral evaluation process . On prevailed in 2023 due rising interest rates that led to less the portfolio level, the Group does not face any large favourable lending conditions . In the circumstances of concentration towards specific NACE industrial sectors the growing EURIBOR, there was certain transfer to fixed exposed to climate risk, whereby the role of transitional interest rates, especially in the housing loans market . In risk is more prevailing . The availability of ESG data in the Corporate segment, the Bank seized opportunities the region where NLB Group operates is still lacking, to finance some of the top corporate clients in the region nevertheless the Group has made material progress while keeping the focus on SME as its key segment . in this respect in 2022 and has ambitious plans for the Credit portfolio remains well-diversified, there is no large following year . b) Main emphasis in 2023 In the process of constantly complementing and enhancing credit risk management, NLB Group focuses concentration in any specific industry or client segment . The share of retail portfolio in the whole credit portfolio is quite substantial, with still prevailing segment of mortgage loans . on taking moderate risks, and at the same time ensuring In 2023, the Group’s credit portfolio quality remained an optimal return considering the risks assumed . solid with a stable rating structure and diversified Preserving high credit portfolio quality represents the most important key aim, with a focus on the quality of portfolio . Great emphasis was placed on intensive and proactive handling of problematic customers and an new placements leading to a diversified portfolio of early warning system for detecting increased credit customers . The Group is actively present on the market risk at a very early stage . The stock of NPE volume in the region, financing existing and new creditworthy decreased, as a result of active workout management . clients . To further enhance existing risk management As at 31 December 2023, the share of non-performing tools, the Group is constantly developing a wide range of exposure by EBA methodology in NLB Group was 1 .1% advanced approaches supported by mathematical and (1 .3% at the end of 2022) . Moreover, the coverage ratio statistical models in credit risk assessment in line with remains high at 64 .6%, which is above the EU average best banking practises, while at the same time enabling published by the EBA (42 .6% in 3Q 2023) . faster responsiveness towards clients . 302 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents c) Maximum exposure to credit risk 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 at fair value through other comprehensive income Financial assets at amortised cost Debt securities Loans to governments Loans to banks Loans to financial organisations Loans to individuals Loans to companies Other financial assets Derivatives - hedge accounting Total net financial assets Guarantees Financial guarantees Non-financial guarantees Loan commitments Other potential liabilities Total contingent liabilities NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 6,103,561 5,271,365 4,318,032 3,339,024 15,718 21,588 17,957 21,692 5,217 3,116 7,785 7,892 2,164,464 2,838,796 962,084 1,291,277 2,522,229 1,917,615 1,966,169 1,597,448 386,291 547,640 91,523 303,443 222,965 116,078 118,220 149,011 384,995 124,736 350,625 286,504 7,086,815 6,621,670 3,543,603 3,036,499 6,169,972 6,031,795 3,101,465 2,606,674 165,962 47,614 177,823 59,362 101,596 47,614 114,399 59,362 25,307,006 23,585,616 14,718,531 12,836,132 1,631,613 1,511,308 1,023,377 668,292 963,321 648,529 862,779 398,282 625,095 789,596 326,791 462,805 2,469,800 2,388,468 1,822,847 1,635,498 58,679 53,684 18,350 22,910 4,160,092 3,953,460 2,864,574 2,448,004 Total maximum exposure to credit risk 29,467,098 27,539,076 17,583,105 15,284,136 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 . 303 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     d) Collaterals from financial assets measured at amortised cost Collaterals from credit impaired financial assets measured at amortised cost 31 Dec 2023 NLB Group in EUR thousands 304 Financial assets at amortised cost Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral - 47,586 102,763 119 150,468 - 28,634 47,238 57 75,929 - 133,472 343,157 4,507 481,136 113 83,423 66,332 10,484 160,352 27 17,964 12,606 405 31,002 - 4,511 20,506 54 25,071 31 Dec 2022 NLB Group in EUR thousands Financial assets at amortised cost Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral - 46,587 127,938 249 174,774 - 32,322 69,180 104 101,606 - 135,480 426,805 7,301 569,586 108 81,523 71,733 8,979 162,343 - 19,235 19,227 1,374 39,836 - 5,607 22,607 46 28,260 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         31 Dec 2023 NLB in EUR thousands 305 Financial assets at amortised cost Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral - 32,400 41,759 7 74,166 - 20,097 18,968 2 39,067 - 76,149 145,806 355 222,310 113 43,943 19,456 1,655 65,167 27 10,579 3,938 146 14,690 - 3,189 4,028 10 16,374 31 Dec 2022 NLB in EUR thousands Financial assets at amortised cost Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral - 22,988 36,494 3 59,485 - 16,518 17,154 2 33,674 - 50,403 93,719 379 144,501 - 36,692 14,637 830 52,159 - 8,876 4,079 23 12,978 - 3,311 2,130 7 5,448 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         Collaterals from financial assets measured at amortised cost classified into Stage 1 and 2 31 Dec 2023 NLB Group in EUR thousands 306 Financial assets at amortised cost Debt securities Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral 113,822 216 3,358,508 2,489,620 1,440 5,963,606 113,724 216 3,351,490 2,466,593 1,436 5,933,459 113,161 1,037 7,084,152 5,645,989 3,296 2,413,929 547,610 3,745,797 4,169,199 164,724 2,408,505 547,397 3,688,727 4,121,349 164,064 12,847,635 11,041,259 10,930,042 - - 184,220 620,595 487 805,302 31 Dec 2022 NLB Group in EUR thousands Financial assets at amortised cost Debt securities Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral 123,860 480 3,245,998 2,467,255 607 5,838,200 123,753 475 3,240,439 2,430,478 604 5,795,749 123,860 972 6,636,980 5,536,384 2,387 12,300,583 1,797,539 222,646 3,369,336 3,986,614 177,022 9,553,157 1,793,862 222,490 3,329,674 3,932,431 175,741 9,454,198 - - 169,791 645,861 138 815,790 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         31 Dec 2023 NLB in EUR thousands 307 Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral Financial assets at amortised cost Debt securities Loans to banks Loans to individuals Loans to other customers Other financial assets Total 113,822 - 1,902,110 1,024,057 44 3,040,033 113,724 - 1,900,201 1,025,532 44 3,039,501 113,161 - 4,027,602 2,437,145 130 6,578,038 1,855,144 149,148 1,630,374 2,573,752 101,504 6,309,922 1,852,445 148,984 1,612,726 2,556,242 101,404 6,271,801 - - 38,207 311,166 18 349,391 in EUR thousands 31 Dec 2022 NLB Financial assets at amortised cost Debt securities Loans to banks Loans to individuals Loans to other customers Other financial assets Total Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Gross value of financial assets Net value of financial assets Fair value of collateral Gross value of financial assets Net value of financial assets Fair value of collateral 123,860 - 1,611,092 837,771 6 2,572,729 123,753 - 1,610,129 836,196 6 2,570,084 123,860 - 3,256,002 1,630,471 19 5,010,352 1,475,578 350,841 1,413,559 2,174,592 114,573 5,529,143 1,473,695 350,625 1,400,976 2,160,485 114,368 5,500,149 - - 37,933 331,673 11 369,617 e) Collateral from loans mandatorily at fair value through profit or loss NLB Loans mandatorily at fair value through profit or loss 31 Dec 2023 31 Dec 2022 Fully/over collateralised loans Loans not or not fully covered with collateral Fully/over collateralised loans Loans not or not fully covered with collateral Fair value of loans Fair value of collateral Fair value of loans Fair value of collateral Fair value of loans Fair value of collateral Fair value of loans Fair value of collateral 70 149 7,715 5,800 4,345 4,699 3,547 2,000 in EUR thousands NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         f) Credit protection policy NLB Group applies a single set of standards to retail g) The processes for valuing collateral In compliance with relevant regulations, NLB Group appraiser included on the NLB’s reference list, the NLB’s expert department which employs certified real estate and corporate loan collateral, as developed by has established a system for monitoring and reporting appraisers in construction with licences granted by the NLB Group members in accordance with regulatory collateral at fair (market) value . requirements . The master document regulating loan Slovenian Ministry of Justice, and certified real-estate value appraisers with licences granted by the Slovenian collateral in the NLB Group is the Loan Collateral The market value of real estate used as collateral is Institute of Auditors, will verify the appraisal . The expert Policy in NLB d .d . and NLB Group . The Policy has been obtained from valuation reports of licensed appraisers . department is also responsible for reviewing valuations adopted by the Management Board of NLB Group . The The market value of movable property is obtained of real estate serving as collateral for large loans . Policy represents the basic principles that NLB Group’s from valuation reports of licensed appraisers or from employees must take into account when signing, sales agreements . Both, valuation reports and sales Other NLB Group members obtain valuations from evaluating, monitoring, and reporting collateral, with agreements must not be older than one year . In NLB in-house appraisers and outsourced appraisers, all the aim of reducing credit risk . and members of NLB Group, most reports of external possessing the necessary licences . NLB Group has real estate appraisers are controlled . Controls are compiled a reference list of appraisers for valuations In line with the policy, the primary source of loan performed by internal appraisers . The subject of of real estate located outside the Republic of Slovenia . repayment is the debtor’s solvency, and the accepted control is the content, value, scope, and format of the Appraisals must be made in accordance with the collateral is a secondary source of repayment in case report, its compliance with international valuation international valuation standards, and for larger the debtor ceases to repay the contractual obligations . standards, and the estimated value . If they notice exposures, real-estate evaluations must also be reviewed NLB Group primarily accepts collateral complying with deviations, they estimate the needed correction of the value of the external valuation (in %) and correct the by an internal licensed appraiser with knowledge of the local real-estate market . If the appraisal does not the Basel II requirements with the aim of improving value of the external valuation . The value adjustment correspond to the international valuation standards or credit risk management and consuming capital can only be negative and can be applied only in a if the value adjustment is greater than certain limit, the economically . In accordance with Basel II, collateral may limited range . For the purposes of business decisions appraisal is rejected as inadequate . consist of pledged deposits, government guarantees, and the calculation of the necessary impairments and bank guarantees, debt securities issued by central provisions, additional deductions (haircuts) are applied When assuring collateral, NLB Group follows the internal governments and central banks, bank debt securities, to the eventual adjusted market value, depending on regulations which define the minimum security or and real-estate mortgages (the real estate must be, the type of collateral . These haircuts for purpose of pledge ratios . NLB Group strives to obtain collateral with beside other criteria, located in the European Economic liquidation value are for real estate in the range of 30 to a higher value than the underlying exposure (depending Area or in country recognised in EBA’s third party 70%, depending on the type of real estate and location, on the borrower’s rating, loan maturity, etc .) with the equivalent list for the effect on capital to be recognised) . and for movables they range between 50 and 100%, aim of reducing negative consequences resulting from depending on the type of movable . any major swings in market prices of the assets used as Loans made to companies and sole proprietors may collateral . If real estate, movable property, and financial be secured by other forms of collateral, as well (e .g ., a The market value of financial instruments held by NLB instruments serve as collateral, NLB Group’s lien on such lien on movable property, a pledge of an equity stake, Group is obtained from the organised market – such assets should be top ranking . Exceptionally, where the investment coupons, collateral by pledged/assigned as the stock exchange, for listed financial instruments value of the mortgaged real estate is large enough, the receivables, etc .) if it is assessed that the collateral could or determined in accordance with the internal lien can have a different priority order . generate a cash flow if it were needed as a secondary methodology for unlisted financial instruments (such source of payment . If there is of a lower probability that collateral is used exceptionally and on a small scale in NLB Group monitors the value of collateral during this type of collateral would generate a cash flow, NLB loans granted to companies and sole proprietors) . the loan repayment period in accordance with the Group takes a conservative approach and accepts the mandatory periods and internal instructions . For collateral while reporting its value as zero . NLB has compiled a reference list of licensed real estate example, the value of collateral using mortgaged appraisers for real estate . All appraisals must be made real estate is monitored annually, either by preparing In September 2023, the operational merger of N Banka for the purpose of secured lending and in accordance individual assessments or by using the internal into NLB was successfully completed with the transfer of with the international valuation standards (IVS, EVS, and methodology for preparing an own value appraisal all customers and their business . During the transition RICS) . Appraisals related to retail loans are generally of real estate, based either on public records and period prior to the merger, N Banka has adopted all ordered only from appraisers with whom the NLB has indexes of real-estate value published by the relevant relevant internal acts in the field of collaterals, thus a contract for real-estate valuations . For corporate government authorities (the Surveying and Mapping facilitating the integration into NLB system . loans, appraisals are usually submitted by clients . If Authority in the Republic of Slovenia) or on analyses a client submits an appraisal that is not made by an carried out . The value of pledged movable property 308 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents is monitored once a year (in NLB automated, with - Debt and equity securities: bonds and shares which, Loans are very often secured by a combination of a straight-line depreciation over the period of the according to the Bank’s assessment, are suitable for collateral types . The general recommendations on loan remaining useful life) . securing investments and are traded on a regulated collateral are specified in the internal instructions and h) The main types of collateral taken by the NLB Group NLB Group accepts different forms of material and Slovenian and foreign issuers); type of collateral and the coverage of loan by collateral - The pledge of investment coupons of mutual depends on the client’s creditworthiness (credit rating), personal security as loan collateral . funds managed by management companies (a loan maturity, and varies depending on whether the loan market (marketable securities of higher-quality include the elements specified below . The decision on the priority company NLB Skladi) and are, according is granted to retail or a corporate client . Material loan collateral gives the right in the case of to the Bank’s assessment, suitable for insurance of a debtor (borrower) defaulting on their contractual investments . NLB has also created, in the area of real-estate loan obligations to sell a specific property to recover - A pledge of an equity stake: non-marketable capital collateral, an ‘online’ connection with the Surveying and claims, keep specific non-cash property or cash, or shares with a credit rating of at least B are adequate; Mapping Authority in the Republic of Slovenia, which reduce or offset the amount of exposure against the - A pledge or assignment of receivables as collateral: allows direct and immediate verification of the existence counterparty’s debt to the Bank . cash receivables must have longer maturities than the of property . maturity of the investment and they must not be due NLB Group accepts the following material types of loan and not be paid; NLB Group strives to ensure the best possible collateral collateral: - Other material forms of loan collateral (e .g ., life for long-term loans, in particular mortgages where - Collateral in the form of business and residential real estate: land, buildings, and individual parts of insurance policies pledged to NLB): The Bank accepts products of Vita, life insurance company d .d . possible . As a result, the mortgaging of real estate is the most frequent form of loan collateral of corporate buildings in a storeyed property intended for living in Ljubljana – a pledge of an investment life insurance and retail clients . In corporate exposures, the next or performing a business activity, such as land in the policy and a life insurance policy with a guaranteed most frequent forms of collateral are government area foreseen for construction, apartments, residential return that includes saving, in addition to insurance . and corporate guarantees, while in retail loans, it is buildings, garages and holiday homes, business guarantors . premises, industrial buildings, offices, shops, hotels, Personal loan collateral is a method for reducing credit branches and warehouses, forests, parking spaces, etc . risk whereby a third party undertakes to pay the debt in The objects can be completed or under construction . case of the primary debtor (borrower) defaulting . Priority is given to property where the pledge right of i) Risks, deriving from valuation of received collateral Client/counterparty credit risk is the key decision parameter when approving exposures . Collateral is a the Bank is entered in the first place and real estate NLB Group accepts the following types of personal loan secondary source of repayment, and therefore decisions is already owned by the debtor and/or the pledger . collateral: on the approvals of exposures should not primarily be For real estate, there must be a market, and it must be - Joint and several guarantees by retail and corporate based on the provided collateral . However, collateral is redeemable within a reasonable time; clients: for the collateralisation of private individuals’ an important comfort element in the approval process - Collateral in the form of movable property: priority loans, employees, or pensioners are adequate and, depending on the credit rating of the client, a is given to the types of movable property, that are guarantors . They must not be in the process of prerequisite . NLB Group has prescribed the minimum highly likely to be sold in the event of execution, and personal bankruptcy . They are responsible for ratios between the value of collateral and the loan the funds received are used to repay the collateralised fulfilling the debtor’s obligations for loans with a amount, depending on the type of collateral, loan claims (their market value must be estimated with repayment period not exceeding 60 months . For maturity, and the client rating . The ratios are based on considerable reliability) . Among the appropriate types the collateralisation of legal entities investments, experience and regulatory guidelines . of movable property, the Bank includes motor vehicles, legal entities, individuals, or private individuals are agricultural machinery, construction machinery, adequate guarantors; production lines, and series-produced machines, and - Bank guarantees; NLB Group pays particular attention to closely monitoring the fair value of collateral, and to receiving some custom-made production machines; - Government guarantees (e .g ., of the Republic of regular and independent revaluations by applying - Collateral by a pledge of financial assets (bank Slovenia); the International Valuation Standards . Through a deposits or cash-like instruments, debt securities - Guarantees by national and regional development detailed examination of all collateral received, NLB has of different issuers, investment fund units, equity agencies with which the Bank has a contract on ensured that only collateral from which payment can be securities, or convertible bonds): the acceptance of guarantees (e .g . the Slovenian realistically expected if it is liquidated, is considered . - Cash receivable collateral: bank deposits and Enterprise Fund); savings with Bank are appropriate in domestic and - Other types of personal loan collateral . foreign currency; 309 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB Group has the largest concentration of collaterals Collateral consisting of securities entails market risk, Collateral consisting of the sureties of corporate clients, arising from mortgages on real estate, which is a specifically the risk of changes in the prices of securities sureties of private individuals, and bank guarantees relatively reliable and quality type of collateral . Due to on capital markets . To limit such risks and restrict entail the credit risk of the provider of the collateral . NLB the possible decrease of real estate market prices, the the possibility of the value of instruments received Group includes the amount of the guarantees received Group closely monitors the real-estate collateral values as collateral falling below approved limits, the Rules in the exposure of the guarantor, and guarantees are and, where required, establishes higher amounts of determine minimum pledge ratios for securing loans only taken into account as collateral if the guarantor has impairments and provisions for non-performing loans based on pledged securities and equity shares in sufficient overall creditworthiness . secured by real estate, based on estimated discounts of NLB . Deviations from the Rules are subject to the prior the real-estate value, which are expected to be achieved approval of the respective decision bodies of the Bank . The Business Rules – Collateral for Retail and Corporate in a sale (expected payment from collateral) . Priority is The ratio between the loan amount and the securities’ Loans regulate which forms of collateral are acceptable, given to property where the pledge right of the Group is value is determined regarding the rating of the issuer, and which preconditions a type of collateral needs to entered in the first place and the real estate is already the securities’ liquidity, maturity, and correlation with fulfil to be able to be considered . owned by the debtor and/or the pledger . For real estate, changes in market indexes, i .e ., by considering the key there must be a market, and it must be redeemable features reflecting the level of volatility of market prices, within a reasonable time . and the ability to sell the securities at the market price . 310 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents j) Credit quality analysis for financial assets and contingent liabilities in EUR thousands 311 31 Dec 2023 Debt securities at amortised cost A B C Loss allowance Carrying amount Loans and advances to banks at amortised cost A B D and E Loss allowance Carrying amount Loans and advances to individuals at amortised cost A B C D and E Loss allowance Carrying amount Loans and advances to other customers at amortised cost A B C D and E Loss allowance Carrying amount Other financial assets at amortised cost A B C D and E Loss allowance Carrying amount Debt instruments at fair value through other comprehensive income A B C D and E Loss allowance Contingent liabilities A B C D and E Loss allowance Carrying amount NLB Group NLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit- impaired financial assets Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit- impaired financial assets Total 1,779,525 735,905 - (4,946) 2,510,484 166,615 381,211 - (213) 547,613 6,787,523 64,863 2,339 - (39,668) 6,815,057 1,344,256 4,724,560 138,837 - (51,087) 6,156,566 125,514 39,042 819 - (624) 164,751 1,221,592 1,031,205 - - (6,475) 1,691,834 2,286,997 53,728 - (18,429) 4,014,130 - - 12,321 (576) 11,745 - - - - - 111,211 55,590 81,623 - (25,051) 223,373 3,758 158,829 288,567 - (19,778) 431,376 77 156 556 - (40) 749 - - 144 - (56) 26,522 33,489 46,605 - (1,655) 104,961 - - - - - - - 113 (86) 27 - - - 126,743 (82,756) 43,987 - - - 152,759 (103,278) 49,481 - - - 9,346 (8,910) 436 - - - 798 (798) - - - 17,221 (9,369) 7,852 - 1,779,525 735,905 - 12,321 - - (5,522) - 2,522,229 1,590,676 373,190 - (2,624) 1,961,242 - - - - - 166,615 381,211 113 (299) 547,640 10 514 4,266 (1,024) 632 6,899,366 120,463 84,476 131,009 (148,499) 4,398 7,086,815 - 1,348,014 12 4,883,401 427,404 - 169,095 16,336 (180,128) (5,985) 10,363 6,647,786 - - - 1,257 (1,231) 26 125,591 39,198 1,375 10,603 (10,805) 165,962 - 1,221,592 - 1,031,205 144 - 798 - (7,329) - 145,666 3,482 - (164) 148,984 3,373,404 6,109 - - (8,072) 3,371,441 1,167,563 2,182,739 84,531 - (13,482) 3,421,351 83,727 17,580 122 - (98) 101,331 854,472 154,461 - - (1,650) - - 5,100 (173) 4,927 - - - - - 77,225 31,221 43,815 - (11,489) 140,772 1,961 59,001 102,014 - (2,553) 160,423 25 50 44 - (2) 117 - - - - - - - - - - - - 113 (86) 27 - - - 72,822 (43,908) 28,914 - - - 49,049 (32,631) 16,418 - - - 1,658 (1,512) 146 - - - - - - 1,590,676 373,190 - 5,100 - - (2,797) - 1,966,169 - - - - - 145,666 3,482 113 (250) 149,011 8 389 3,521 (1,755) 313 3,450,942 37,338 44,204 76,343 (65,224) 2,476 3,543,603 - 1,169,524 - 2,241,740 186,545 - 61,215 12,166 (54,344) (5,678) 6,488 3,604,680 - - - 4 (2) 2 - - - 798 (798) 83,752 17,630 166 1,662 (1,614) 101,596 854,472 154,461 - 798 (2,448) 37 1,718,393 11 2,320,497 100,503 20,699 (32,548) 601 4,127,544 170 3,478 (3,095) 1,358,079 1,383,937 41,961 - (7,653) 2,776,324 25,286 25,497 15,836 - (319) 66,300 - - - 10,613 (7,034) 3,579 10 1,383,375 1 1,409,435 57,853 13,911 (17,941) 430 2,846,633 56 3,298 (2,935) NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   NLB Group NLB in EUR thousands 312 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit- impaired financial assets Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit- impaired financial assets Total 31 Dec 2022 Debt securities at amortised cost A B C Loss allowance Carrying amount Loans and advances to banks at amortised cost A B D and E Loss allowance Carrying amount Loans and advances to individuals at amortised cost A B C D and E Loss allowance Carrying amount Loans and advances to other 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 1,388,564 525,606 - (3,519) 1,910,651 87,422 135,704 - (161) 222,965 6,327,508 80,749 14,620 - (31,385) 6,391,492 1,366,495 4,508,706 153,084 - (59,840) 5,968,445 138,353 37,103 1,370 - (1,246) 175,580 1,453,671 1,545,358 - - (9,029) 1,500,489 2,294,429 48,375 - (18,826) 3,824,467 - - 7,229 (265) 6,964 - - - - - 82,441 40,465 67,215 - (14,582) 175,539 1,405 146,749 275,517 - (31,230) 392,441 57 169 577 - (38) 765 - - 165 - (70) - - - - - - - 108 (108) - - - - 122,350 (76,306) 46,044 - - - 178,206 (114,288) 63,918 - - - 7,940 (7,565) 375 - - - 8,338 (6,777) - 1,388,564 525,606 - 7,229 - - (3,784) - 1,917,615 1,318,134 281,304 - (1,990) 1,597,448 - - - - - 87,422 135,704 108 (269) 222,965 50 1,514 5,760 499 772 6,410,721 121,264 83,349 128,110 (121,774) 8,595 6,621,670 - 1,367,900 15 4,655,470 430,499 199,671 (202,224) 26,512 6,451,316 1,898 21,465 3,134 - - - 1,288 (185) 1,103 138,410 37,272 1,947 9,228 (9,034) 177,823 - 1,453,671 - 1,545,358 165 - 8,338 - (15,876) - 350,138 703 - (216) 350,625 2,915,578 7,329 - - (6,161) 2,916,746 1,007,159 1,907,775 45,521 - (14,880) 2,945,575 102,414 11,362 759 - (203) 114,332 1,159,704 207,791 - - (2,022) 1,118,801 1,256,792 22,149 - (8,156) 2,389,586 - - - - - - - - - - 37,725 29,299 34,720 - (7,385) 94,359 91 23,418 28,397 - (800) 51,106 2 19 23 - (2) 42 - - - - - 4,426 17,906 12,911 - (378) 34,865 - - - - - - - - - - - - - 59,680 (34,286) 25,394 - - - 47,824 (29,262) 18,562 - - - 832 (807) 25 - - - 8,338 (6,777) - - - 11,575 (8,889) 2,686 - 1,318,134 281,304 - - - - (1,990) - 1,597,448 - - - - - 350,138 703 - (216) 350,625 - 2,953,303 36,628 - 34,720 - 59,680 - - (47,832) - 3,036,499 - 1,007,250 - 1,931,193 73,920 2 51,131 3,307 (638) (45,580) 2,671 3,017,914 - - - 1 (1) - 102,416 11,381 782 833 (1,013) 114,399 - 1,159,704 207,791 - - - 8,338 - (8,799) - - 1,123,227 101 1,274,799 35,085 14,893 (20,299) 568 2,427,705 25 3,318 (2,876) 6,657 38,878 37,735 - (1,953) 81,317 - - - 20,134 (12,735) 7,399 34 1,507,180 318 2,333,625 86,198 26,457 (37,609) 2,668 3,915,851 88 6,323 (4,095) NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   NLB Group’s client credit rating classification is based The NLB Group ratings in the master scale are mapped on an internally developed methodology, drawing from to the following PD structure: internal statistical analyses, good banking practices, as well as Bank of Slovenia regulations, and ECB and Rating class Average PD in % 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 . 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 . AAA AA A BBB BB B CCC CC C D DF E 0 .05 0 .15 0 .30 0 .60 1 .20 2 .40 4 .80 9 .60 19 .20 100 100 100 Rating Group B (BBB to B rating classes) includes In 2020, NLB Group applied a new default definition clients with a low credit risk, starting one notch lower than ‘A’ rating group clients . These clients show based on the EBA guidelines, where the materiality threshold for delays is determined in absolute and stable performance, acceptable financial ratios, and relative terms (EUR 100 for retail and EUR 500 for the qualitative elements, and have sufficient cash flow to non-retail segment and 1% of the total on-balance settle their obligations, but may be more sensitive to exposure on the client level) . At the same time, the changes in the industry or the economy . The Rating assessment of rating for private individuals was Group B classification is an investment grade for BBB, improved by establishing a common rating on the client and an ‘invest with care’ for BB and B . level . In 2023, a scoring model for private individual clients came into effect, which will enable higher degree Rating Group C (CCC to C rating classes) includes clients of differentiation among the clients as it introduces 9 who are exposed to a higher and above-average level performing rating classes (instead of the previous 3) . of credit risk . CCC rated clients are financed by the Bank only in the case when such support brings more positive A standard corporate rating methodology, with effects for the Bank; however, Rating Group C is overall the prescribed set of parameters (qualitative and considered as a substantial risk . The Bank reasonably quantitative) applies to all the NLB Group bank entities . restricts cooperation with such clients and decreases its Groups of connected clients are treated as materially exposure to them . important for the NLB Group whenever exposure exceeds EUR 7 million, or EUR 15 million for NLB Group Rating Groups D (D and DF rating classes) and E members with total assets greater than EUR 1 .5 billion . represent non-performing clients that are treated Materially important clients are submitted to the NLB as defaulted . D, DF, and E rating classified clients Credit Committee . are ordinarily transferred to the specialised units for restructuring (which performs business and financial NLB regularly reviews the business practices and credit restructuring with a goal of minimising losses and portfolios of NLB Group entities to make sure they restoring the client to a performing status) or workout are operating in accordance with the minimum risk and legal support (with the goal of minimising losses management standards of NLB Group . This ensures due to default) . appropriate standard processes for managing and reporting credit risks at the consolidated level . 313 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents k) Forborne loans 31 Dec 2023 Loans and advances (including at amortised cost and fair value) Governments Other financial organisations Non-financial organisations Households Debt instruments other than held for trading Loan commitments given Total exposures with forbearance measures 31 Dec 2022 Loans and advances (including at amortised cost and fair value) Governments Other financial organisations Non-financial organisations Households Debt instruments other than held for trading Loan commitments given Total exposures with forbearance measures NLB Group All forborne exposures Impairment, provisions and value adjustments Gross carrying amount Performing Non - performing Impaired Defaulted Performing forborne exposures Non-performing forborne exposures in EUR thousands Collateral and financial guarantees received on forborne exposures 246,402 116,477 129,874 129,925 624 1,388 168,726 75,664 246,402 434 246,836 419 - 77,709 38,349 116,477 84 116,561 205 1,388 90,966 37,315 129,874 350 130,224 205 1,388 91,017 37,315 129,925 350 130,275 (7,883) (22) - (3,857) (4,004) (7,883) (1) (7,884) (81,121) (205) (1,388) (59,606) (19,922) (81,121) (27) (81,148) 92,352 - - 58,611 33,741 92,352 352 92,704 All forborne exposures Impairment, provisions and value adjustments NLB Group Gross carrying amount Performing Non - performing Impaired Defaulted Performing forborne exposures Non-performing forborne exposures 272,249 117,808 154,385 154,441 840 1,526 207,473 62,410 272,249 1,392 273,641 604 201 89,871 27,132 117,808 743 118,551 236 1,325 117,546 35,278 154,385 649 155,034 236 1,325 117,602 35,278 154,441 649 155,090 (9,929) (12) (6) (7,267) (2,644) (9,929) (2) (9,931) (79,535) (234) (1,325) (61,900) (16,076) (79,535) (209) (79,744) in EUR thousands Collateral and financial guarantees received on forborne exposures 121,376 - - 87,245 34,131 121,376 740 122,116 314 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 31 Dec 2023 Loans and advances (including at amortised cost and fair value) Other financial organisations Non-financial organisations Households Debt instruments other than held for trading Loan commitments given Total exposures with forbearance measures 31 Dec 2022 Loans and advances (including at amortised cost and fair value) Other financial organisations Non-financial organisations Households Debt instruments other than held for trading Loan commitments given Total exposures with forbearance measures NLB All forborne exposures Impairment, provisions and value adjustments Performing Non - performing Impaired Defaulted Performing forborne exposures Non-performing forborne exposures 42,584 - 15,166 27,418 42,584 84 42,668 68,270 1,388 35,762 31,120 68,270 350 68,620 68,321 1,388 35,813 31,120 68,321 350 68,671 NLB (3,718) - (70) (3,648) (3,718) (1) (3,719) (41,050) (1,388) (23,142) (16,520) (41,050) (27) (41,077) All forborne exposures Impairment, provisions and value adjustments Performing Non - performing Impaired Defaulted Performing forborne exposures Non-performing forborne exposures 16,694 201 3,521 12,972 16,694 41 16,735 67,944 1,325 38,893 27,726 67,944 646 68,590 68,000 1,325 38,949 27,726 68,000 646 68,646 (1,628) (6) (40) (1,582) (1,628) (2) (1,630) (37,260) (1,325) (22,935) (13,000) (37,260) (207) (37,467) in EUR thousands Collateral and financial guarantees received on forborne exposures 53,937 - 27,232 26,705 53,937 352 54,289 in EUR thousands Collateral and financial guarantees received on forborne exposures 38,474 - 19,073 19,401 38,474 416 38,890 Gross carrying amount 110,905 1,388 50,979 58,538 110,905 434 111,339 Gross carrying amount 84,694 1,526 42,470 40,698 84,694 687 85,381 315 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Forborne exposures of debt instruments by periods of forbearance 31 Dec 2023 Performing exposures Non-performing exposures Total exposures with forbearance measures 31 Dec 2022 Performing exposures Non-performing exposures Total exposures with forbearance measures NLB Group in EUR thousands Up to 3 months 3 to 6 months 6 to 12 months Over 12 months 7,519 1,569 9,088 2,930 4,343 7,273 1,813 6,838 8,651 45,452 3,472 48,924 8,140 5,071 13,211 4,714 13,351 18,065 91,122 35,275 126,397 54,783 53,684 108,467 31 Dec 2023 Performing exposures Non-performing exposures Total exposures with forbearance measures 31 Dec 2022 Performing exposures Non-performing exposures Total exposures with forbearance measures Up to 3 months 3 to 6 months 6 to 12 months Over 12 months NLB in EUR thousands 7,059 1,312 8,371 2,063 1,939 4,002 1,690 6,634 8,324 608 1,261 1,869 2,880 2,455 5,335 1,864 7,300 9,164 27,237 16,819 44,056 10,531 20,184 30,715 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 . 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: Net value  Nature of assets Equity securities mandatorily measured at fair value through profit or loss (note 5 .3 .a) 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 .) Non-current assets held for sale (note 5 .7 .) NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 in EUR thousands - 21,253 11,641 - 27,122 515 474 368 25,326 11,962 - 50,913 673 651 - 2,263 - 530 3,129 - - - 1,901 - 2,049 3,170 - - Total 61,005 89,893 5,922 7,120 316 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       m) Analysis of loans and advances by industry sectors in EUR thousands 317 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 Transport and communications Trade industry Health care and social security Other financial assets Gross loans 547,939 154,385 599,988 535,444 1,487,769 14,278 108,204 390,522 31 Dec 2023 Impairment provisions (299) (2,321) (9,284) (23,798) (29,619) (481) (3,536) (4,234) Net loans 547,640 152,064 590,704 511,646 1,458,150 13,797 104,668 386,288 7,235,314 (148,499) 7,086,815 45,801 388,668 929,438 884,162 1,254,749 34,506 176,767 (1,733) (7,604) (34,385) (20,676) (41,550) (907) (10,805) 44,068 381,064 895,053 863,486 1,213,199 33,599 165,962 (%) 3 .79 1 .05 4 .09 3 .54 10 .09 0 .10 0 .72 2 .67 49 .05 0 .31 2 .64 6 .19 5 .98 8 .40 0 .23 1 .15 31 Dec 2022 Gross loans Impairment provisions 223,234 235,737 601,556 547,251 1,415,304 13,246 98,813 285,495 6,743,441 53,854 389,376 809,891 920,149 1,239,161 43,710 186,857 (269) (2,579) (10,704) (27,686) (25,553) (1,313) (3,063) (4,737) (121,771) (2,747) (9,162) (41,343) (19,476) (53,113) (751) (9,034) Net loans 222,965 233,158 590,852 519,565 1,389,751 11,933 95,750 280,758 6,621,670 51,107 380,214 768,548 900,673 1,186,048 42,959 177,823 (%) 1 .65 1 .73 4 .39 3 .86 10 .31 0 .09 0 .71 2 .08 49 .14 0 .38 2 .82 5 .70 6 .68 8 .80 0 .32 1 .32 Total 14,787,934 (339,731) 14,448,203 100.00 13,807,075 (333,301) 13,473,774 100.00 NLB Industry sector Banks Finance Electricity, gas, and water Construction industry Heavy industry Education Agriculture, forestry, and fishing Public sector Individuals Mining Entrepreneurs Services Transport and communications Trade industry Health care and social security Other financial assets Total 31 Dec 2023 Gross loans Impairment provisions 149,261 440,080 429,569 131,462 847,052 3,509 14,566 116,388 3,608,827 19,996 83,802 607,989 580,244 370,514 21,638 103,210 (250) (2,914) (2,577) (8,652) (11,135) (63) (65) (824) (65,224) (71) (2,753) (15,368) (3,814) (5,521) (587) (1,614) Net loans 149,011 437,166 426,992 122,810 835,917 3,446 14,501 115,564 3,543,603 19,925 81,049 592,621 576,430 364,993 21,051 101,596 (%) 2 .01 5 .90 5 .76 1 .66 11 .29 0 .05 0 .20 1 .56 47 .84 0 .27 1 .09 8 .00 7 .78 4 .93 0 .28 1 .37 31 Dec 2022 Gross loans Impairment provisions 350,841 383,781 371,356 150,715 688,517 3,529 15,432 104,303 3,084,331 23,736 64,471 342,882 589,152 308,724 24,788 115,412 (216) (3,167) (1,467) (9,714) (6,161) (19) (70) (1,176) (47,832) (185) (1,722) (12,336) (3,155) (6,143) (265) (1,013) Net loans 350,625 380,614 369,889 141,001 682,356 3,510 15,362 103,127 3,036,499 23,551 62,749 330,546 585,997 302,581 24,523 114,399 in EUR thousands (%) 5 .37 5 .83 5 .67 2 .16 10 .45 0 .05 0 .24 1 .58 46 .52 0 .36 0 .96 5 .06 8 .98 4 .64 0 .38 1 .75 7,528,107 (121,432) 7,406,675 100.00 6,621,970 (94,641) 6,527,329 100.00 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents n) Analysis of net loans and advances by geographical sectors Country Slovenia Other European Union members Serbia Other countries Total in EUR thousands NLB Group NLB 31 Dec 2023 6,705,660 414,732 3,306,766 4,021,045 31 Dec 2022 6,704,603 274,795 2,790,892 3,703,484 31 Dec 2023 6,701,924 222,556 193,376 288,819 31 Dec 2022 5,824,477 180,842 184,530 337,480 14,448,203 13,473,774 7,406,675 6,527,329 318 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   o) Analysis of debt securities and derivative financial instruments by geographical sectors in EUR thousands NLB 319 31 Dec 2023 Country Slovenia Other members of European Union - Austria - Belgium - Bulgaria - Czech Republic - Cyprus - Denmark - Finland - France - Germany - Hungary - Ireland - Italy - Latvia - Lithuania - Luxembourg - Malta - Netherlands - Poland - Portugal - Romania - Slovakia - Spain - Sweden - Other United States of America Other countries - Bosnia and Herzegovina - Kosovo - Montenegro - North Macedonia - Serbia - Albania - Canada - Great Britain - Iceland - Israel - Kazakhstan - Norway - Other NLB Group Financial assets measured at amortised cost 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 measured at fair value through OCI Derivative financial instruments 428,163 1,567,873 113,531 173,326 34,226 12,975 18,172 16,662 67,257 239,395 167,538 45,211 58,793 51,566 23,276 20,596 69,567 27,442 117,309 35,024 42,677 53,190 63,406 67,471 41,597 7,666 37,158 489,035 59,073 - 60,109 154,398 140,796 - 26,681 1,638 7,737 7,408 - 19,303 11,892 274,855 805,334 77,472 84,471 1,002 - 1,550 8,187 90,419 136,115 107,278 5,639 31,191 5,989 - - 7,337 - 112,840 7,126 16,574 5,013 18,900 40,190 48,041 - 58,889 1,025,385 132,027 48,614 22,665 115,535 579,332 27,819 12,133 51,436 8,205 9,062 7,507 6,465 4,585 - 5,217 707 706 - - - - 707 - 505 - - 100 - - - - 1,092 35,121 - 7,819 - - - - - 9,227 12,301 - 2,677 - - - - - 2,492 3,097 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 27,119 - 20 - 29 821 - - 26,249 - - - - - 416,679 1,440,075 105,552 156,407 34,226 12,975 18,172 16,662 59,293 211,895 136,969 45,211 52,634 51,566 23,276 20,596 69,567 27,442 91,519 35,024 42,677 53,190 58,488 67,471 41,597 7,666 6,831 102,584 4,064 - 6,760 13,129 3,972 - 26,681 1,638 7,737 7,408 - 19,303 11,892 219,307 551,192 46,541 34,407 1,002 - 1,550 8,187 57,919 92,483 54,500 5,639 29,141 5,989 - - 7,337 - 70,653 7,126 16,574 5,013 18,900 40,190 48,041 - 7,427 184,158 2,917 - 3,008 46,539 4,482 27,819 12,133 51,436 8,205 9,062 7,507 6,465 4,585 1,092 35,121 - 7,819 - - - - - 9,227 12,301 - 2,677 - - - - - 3,097 - - - - - - - - 29,358 - 20 2,243 7 839 - - 26,249 - - - - - Total 2,522,229 2,164,463 5,217 63,332 1,966,169 962,084 65,571 Other members of the European Union included in the line item ‘Other’ are Estonia and Greece . Other members of the ‘Other countries’ in the line item ‘Other’ are Egypt, Uzbekistan, South Korea and Oman . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial assets measured at amortised cost Financial assets held for trading NLB Group Financial assets measured at fair value through OCI 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 in EUR thousands NLB 320 31 Dec 2022 Country Slovenia Other members of European Union - Austria - Belgium - Bulgaria - Czech Republic - Cyprus - Denmark - Finland - France - Germany - Greece - Hungary - Ireland - Italy - Latvia - Lithuania - Luxembourg - Netherlands - Poland - Portugal - Romania - Slovakia - Spain - Sweden - Other United States of America Other countries - Bosnia and Herzegovina - Kosovo - Montenegro - North Macedonia - Serbia - Albania - Canada - Great Britain - Iceland - Israel - Kazakhstan - Norway - Russia - Switzerland - Other 360,623 1,214,523 96,349 129,217 41,233 12,901 10,187 5,975 57,440 184,831 139,370 - 37,346 53,384 37,472 15,507 16,798 91,588 57,523 19,772 46,750 37,802 31,523 55,076 24,753 11,726 25,966 316,503 7,648 - 40,672 189,383 25,490 - 3,007 - 7,746 - - 16,186 - 19,287 7,084 Non-trading financial assets mandatorily at FV through profit or loss - 2,267 - - - - - - - - - - - - 99 - - - 2,450 36,606 - 11,397 - - - - - 10,087 10,447 - - - - - - - 2,168 4,675 - - - - - - - 849 - - - - - - - - - - - - - - - - - - - - - - - - 41,691 - 17 - 5 - - - 41,669 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 331,539 951,992 79,119 94,088 3,029 - 1,553 13,333 114,292 169,157 105,082 10,888 5,260 31,592 13,544 - - 27,256 112,907 17,691 16,440 4,827 31,592 39,097 61,245 - 62,170 203 1,493,095 - - - - - - - - - - - - - 203 - 203 177,746 58,034 20,949 134,268 898,531 25,866 21,147 54,178 7,892 9,053 12,970 11,206 2,026 54,572 4,657 347,976 1,184,663 96,349 129,217 41,233 12,901 10,187 5,975 57,440 179,844 114,497 - 37,346 53,384 37,472 15,507 16,798 91,588 57,523 19,772 46,750 37,802 31,523 55,076 24,753 11,726 4,690 60,119 4,056 - 6,780 15,260 - - 3,007 - 7,746 - - 16,186 - - 7,084 - - - - - - - - - - - - - - - - - - - - - - - - - - - 203 - - - - - - - - - - - - - 203 - 203 241,095 774,380 51,193 55,622 3,029 - 1,553 13,333 84,477 137,668 70,207 10,888 5,260 29,525 13,544 - - 27,256 99,933 17,691 16,440 4,827 31,592 39,097 61,245 - 11,859 263,943 2,905 - 2,819 54,590 3,913 25,866 21,147 54,178 7,892 9,053 12,970 11,206 2,026 50,721 4,657 2,449 36,606 - 11,397 - - - - - 10,087 10,447 - - - - - - - 4,675 - - - - - - - - 41,796 - 17 - 31 79 - - 41,669 - - - - - - - NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Total 1,917,615 2,838,796 3,116 80,747 1,597,448 Other members of the European Union included in the line item ‘Other’ are Malta and Estonia . Other members of the ‘Other countries’ in the line item ‘Other’ are Egypt, Uzbekistan, and Oman . 1,291,277 80,851 Contents p) Internal rating of derivatives counterparties A B C D and E Total All derivatives in the banking book are entered into with counterparties with an external investment-grade rating . When derivatives are entered into on behalf of NLB Group’s customers, such customers usually do not have an external rating, but all such transactions are covered through back-to-back transactions involving third parties with an external investment-grade rating . q) Debt financial instruments in NLB Group’s and NLB’s portfolio that represent subordinated liabilities for the issuer in % NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 92 .94 6 .91 0 .08 0 .08 88 .90 11 .10 0 .00 0 .00 93 .80 6 .06 0 .07 0 .07 90 .18 9 .82 0 .00 0 .00 100.00 100.00 100.00 100.00 r) Debt financial instruments in NLB Group’s and NLB’s portfolio that represent subordinated liabilities for the issuer 31 Dec 2023 Internal rating 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 Total 31 Dec 2022 Internal rating 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 Total A 28,421 9,484 - - 37,905 A 28,014 2,612 - - 30,626 NLB Group C - - - - - NLB Group C - - - - - B - - - - - B - - - - - D - - - - - D - - - - - Total A 28,421 28,421 9,484 - - 9,484 90,153 - 37,905 128,058 Total A 28,014 28,014 2,612 - - 2,612 84,713 - 30,626 115,339 NLB C - - - 7,050 7,050 NLB C - - - 6,613 6,613 B - - - - - B - - - - - in EUR thousands D - - - - - Total 28,421 9,484 90,153 7,050 135,108 in EUR thousands D - - - - - Total 28,014 2,612 84,713 6,613 121,952 321 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents s) Presentation of net financial instruments by measurement category in EUR thousands 322 Financial assets held for trading Non-trading financial assets mandatorily at FV through P&L Financial assets measured at FV through OCI NLB Group Financial assets measured at amortised cost Financial leases Derivatives for hedge accounting - 6,103,561 31 Dec 2023 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 governments - Loans to banks - Loans to financial organisations - Loans to individuals - Loans to other customers Other financial assets Total financial assets 31 Dec 2022 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 governments - Loans to banks - Loans to financial organisations - Loans to individuals - Loans to other customers Other financial assets Total financial assets 15,718 14,175 2,251,556 22,737,725 47,614 25,403,056 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 NLB Group Financial assets measured at amortised cost Financial leases Derivatives for hedge accounting - 5,271,365 13,945,973 336,268 - - - - - - - 15,718 - - - - - - - - 14,175 5,217 6,300 - - 2,658 - - - - - - - - - 203 - - - 203 - 21,385 - - - - - - - - 19,031 3,116 5,579 - - 10,336 - - - - - - - - 2,251,556 1,836,604 87,092 26,022 301,838 - - - - - - - - - 2,919,203 2,506,224 80,407 21,824 310,748 - - - - - - - - - 2,522,229 2,522,229 - - - - - 386,059 547,640 91,460 6,986,045 5,934,769 165,962 1,917,615 1,917,615 - - - - - 303,086 222,965 116,046 6,550,704 5,909,928 177,823 - - - - - - - - - - - - - - - - 232 - 63 100,770 235,203 - 336,268 357 - 32 70,966 121,867 - 193,222 13,102,729 193,222 Total 6,103,561 4,787,960 4,364,050 93,392 26,022 301,838 2,658 63,332 14,282,241 386,291 547,640 91,523 7,086,815 6,169,972 165,962 Total 5,271,365 4,856,052 4,426,955 85,986 21,824 310,951 10,336 80,747 13,295,951 303,443 222,965 116,078 6,621,670 6,031,795 177,823 - - - - - - - 47,614 - - - - - - - - - - - - - - 59,362 - - - - - - - 21,588 19,031 2,919,203 20,469,532 59,362 23,681,938 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     in EUR thousands 323 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 NLB - - - - - 17,957 - - - - - - - 17,957 - 8,858 - 6,300 2,558 - 7,785 - - - - 7,785 - 16,643 - 1,023,012 962,084 60,928 - - - - - - - - - 4,318,032 1,966,169 1,966,169 - - - 7,297,294 118,220 149,011 384,995 3,543,603 3,101,465 101,596 - - - - - 47,614 - - - - - - - 1,023,012 13,683,091 47,614 14,788,317 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 - 203 - - 203 - 21,489 - - - - - - - 21,692 - 7,519 - 5,211 - 2,308 - 7,892 - - - - 7,892 - 15,411 - 1,334,061 1,196,760 42,784 94,517 - - - - - - - - - 3,339,024 1,597,448 1,597,448 - - - - 6,405,038 124,736 350,625 286,504 3,036,499 2,606,674 114,399 - - - - - - 59,362 - - - - - - - 1,334,061 11,455,909 59,362 12,886,435 Total 4,318,032 2,998,039 2,928,253 67,228 2,558 65,571 7,305,079 118,220 149,011 384,995 3,543,603 3,109,250 101,596 Total 3,339,024 2,939,231 2,794,208 47,995 94,720 2,308 80,851 6,412,930 124,736 350,625 286,504 3,036,499 2,614,566 114,399 31 Dec 2023 Cash and obligatory reserves with central banks, and other demand deposits at banks Securities - Bonds - Shares - Investment funds Derivatives Loans and receivables - Loans to governments - Loans to banks - Loans to financial organisations - Loans to individuals - Loans to other customers Other financial assets Total financial assets 31 Dec 2022 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 governments - Loans to banks - Loans to financial organisations - Loans to individuals - Loans to other customers Other financial assets Total financial assets As at 31 December 2023 and 31 December 2022, 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 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     6 .2 . Market risk NLB Group 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 Assets and Liabilities 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, backtesting, 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 interest income and economic value of equity 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 FX rates, whilst limiting the volatility in the income of the Strategy on trading with financial instruments in statement . FX exposures in banking book result from NLB Group, the trading activities in other NLB Group core banking business activities . members are very restricted . Each member is responsible for its own currency risk For monitoring and managing NLB Group’s exposure policy, which also includes a limit system and is in line to market risks, uniform guidelines and exposure limits with the parent Bank’s guidelines and standards, as well for each type of risk are set for individual NLB Group as local regulatory requirements . Policies are confirmed entities . The methodologies are in line with regulatory by either the local Management Board or Supervisory requirements on individual and consolidated levels, Board . NLB monitors and manages NLB Group currency while reporting to the regulator on the consolidated risk exposure on a monthly basis for each member and level is carried out using the standardised approach . on the consolidated level . Pursuant to the relevant policies, NLB Group entities must monitor and manage exposure to market risks and NLB Group banks follow the guidelines for managing FX report to NLB accordingly . The exposure of an individual lending in NLB Group . The guidelines’ goal is to address NLB Group entity is regularly monitored and reported to risks stemming from the potential excessive growth of the Assets and Liabilities Committee of NLB Group (NLB FX lending, to identify hidden risks, and tail-event risks Group ALCO) . 6.2.1. Currency risk (FX) Foreign currency risk (FX) is a risk of the potential related to FX lending, to mitigate the respective risk, to internalise the respective costs, and to hold adequate capital with respect to FX lending . losses from the open FX positions due to the changes The positions of all currencies in the statement of of the foreign currency rates . The exposures of NLB to financial position of NLB, for which a daily limit is set, the movement of the FX rates have an impact on the are monitored daily . FX positions are managed on the financial position and cash flows of the Bank . The Bank currency level so that they are always within the limits . measures and manages the FX risk with a usage of combination of sensitivity analysis, VaR, scenarios, and Regarding structural FX positions on a consolidation stress-testing . level, assets, and liabilities held in foreign operations are translated into euro currency at the closing FX rate on In the trading book, similar to the other market risks, the reporting date . Foreign exchange differences of non- risk is managed on the basis of VaR limits that are euro assets and liabilities against euro are recognised in approved by the Management Board of the Bank and in OCI, and therefore affect shareholder’s equity and CET1 accordance with the adopted policy of managing market capital . NLB Group ALM employs strategies to manage risk in the trading book of NLB . The trading FX risk is this foreign currency exposure, including matched managed on an integrated basis at a portfolio level . funding of assets and liabilities . NLB monitors and manages FX risk in the banking book Exposure to currency risks is discussed at daily liquidity according to the policy of managing FX risk in NLB . meetings and monthly meetings of the ALCO committee The policy is primarily composed to protect Common of the NLB Group, and quarterly on the consolidated Equity Tier 1 against the negative effects of the volatility level . 324 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents a) Analysis of financial instruments by currency exposure 31 Dec 2023 Financial assets EUR RSD NLB Group USD CHF Other Total in EUR thousands 325 Cash, cash balances at central banks, and other demand deposits at banks 5,117,465 468,397 Financial assets held for trading Non-trading financial assets mandatorily at fair value through profit or loss 15,718 7,875 - - Financial assets measured at fair value through other comprehensive income 1,629,595 389,392 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 2,112,344 173,510 11,215,215 95,883 47,614 (10,207) 117,940 294,884 1,049,206 18,890 - - 37,052 - 6,300 138,401 96,660 41,070 19,600 23,091 - - 38,933 441,714 6,103,561 - - - - 28,361 47,409 47 - - - - 15,718 14,175 94,168 2,251,556 195,285 9,815 2,522,229 547,640 1,403,171 13,734,601 28,051 - - 165,962 47,614 (10,207) Total financial assets 20,405,012 2,338,709 362,174 114,750 2,172,204 25,392,849 Financial liabilities Financial liabilities held for trading 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 - debt securities issued - other financial liabilities Total financial liabilities 13,217 2,914 3,540 55,741 127,206 - 532 - 14,320 - 16,968,455 1,418,343 99,718 1,338,235 249,881 - - 41,067 18,858,907 1,474,262 - - - 5,113 13,213 360,062 - - 36,216 414,604 - - - 6,199 - - 1,036 - 13,910 - 13,217 4,482 3,540 95,283 140,419 212,261 1,773,601 20,732,722 - - 1,808 220,268 - - 28,144 99,718 1,338,235 357,116 1,816,691 22,784,732 Net on-balance sheet financial position 1,546,105 864,447 (52,430) (105,518) 355,513 2,608,117 Derivative financial instruments (233,578) (25,498) 55,204 123,650 59,879 (20,343) Net financial position 31 Dec 2022 Total financial assets Total financial liabilities 1,312,527 838,949 2,774 18,132 415,392 2,587,774 19,235,733 18,039,672 1,834,866 1,188,425 323,743 416,320 209,176 208,949 2,054,653 1,697,827 23,658,171 21,551,193 Net on-balance sheet financial position 1,196,061 646,441 (92,577) 227 356,826 2,106,978 Derivative financial instruments (75,897) 42,632 82,411 (2,031) 51,477 98,592 Net financial position 1,120,164 689,073 (10,166) (1,804) 408,303 2,205,570 Other mostly relates to exposures in currency MKD and BAM . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents               in EUR thousands 326 31 Dec 2023 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 EUR 4,284,634 17,957 10,343 989,555 1,891,752 149,011 7,085,715 78,522 47,614 (12,514) RSD 544 - - - - - - 3 - - NLB USD 7,518 - 6,300 28,234 59,625 - 13,205 23,036 - - CHF Other Total 8,844 16,492 4,318,032 - - - - - 49,112 4 - - - - 17,957 16,643 5,223 1,023,012 14,792 - 251 31 - - 1,966,169 149,011 7,148,283 101,596 47,614 (12,514) Total financial assets 14,542,589 547 137,918 57,960 36,789 14,775,803 Financial liabilities Financial liabilities held for trading 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 - debt securities issued - other financial liabilities Total financial liabilities Net on-balance sheet financial position Derivative financial instruments Net financial position 31 Dec 2022 Total financial assets Total financial liabilities Net on-balance sheet financial position Derivative financial instruments Net financial position Other mostly relates to exposures in currency GBP and CAD . 17,510 3,210 1,420 111,289 69,584 11,595,732 1,338,235 173,942 13,310,922 1,231,667 (157,517) 1,074,150 12,552,661 11,905,320 647,341 (79,626) 567,715 - - - 78 - 23 - 2 103 444 5 449 474 104 370 - 370 - - - 6,915 13,213 148,346 - 23,703 192,177 - - - 11,607 - 84,643 - 135 - - - 17,113 - 17,510 3,210 1,420 147,002 82,797 52,819 11,881,563 - 238 1,338,235 198,020 96,385 70,170 13,669,757 (54,259) (38,425) (33,381) 1,106,046 55,204 39,957 40,143 (22,208) 945 1,532 6,762 1,083,838 130,881 196,776 115,791 86,245 62,861 73,475 12,862,668 12,261,920 (65,895) 29,546 (10,614) 600,748 65,535 (29,451) 24,326 (19,216) (360) 95 13,712 581,532 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents               NLB Group and NLB 31 Dec 2023 +/-13 .32% +/-9 .67% +/-7 .10% +/-0 .55% +/-1 .82% +/-19 .69% +/-9 .20% +/-20 .39% - +/-0% 31 Dec 2022 +/-9 .27% +/-7 .88% +/-5 .70% +/-0 .40% +/-1 .62% +/-12 .35% +/-9 .91% +/-13 .43% +/-0 .98% +/-0% 31 Dec 2023 31 Dec 2022 NLB Group NLB NLB Group NLB Effects on income statement Effects on other comprehensive income Effects on income statement Effects on other comprehensive income Effects on income statement Effects on other comprehensive income Effects on income statement Effects on other comprehensive income in EUR thousands (294) 53 - 2 4 102 (133) 225 (44) - (2) (4) (71) 104 248 - - - - - 248 (190) - - - - - (190) (333) (662) (2) 11 1 251 (734) 277 565 2 (11) (1) (203) 629 - 463 - 3,167 4,518 48 8,196 - (396) - (3,142) (4,375) (48) (7,961) (482) 423 7 1 1 1 144 (328) 400 (6) (1) (1) (1) (121) 270 - - - - - 423 (351) - - - - - (351) b) FX sensitivity analysis Scenarios USD CHF CZK RSD MKD JPY AUD HUF HRK BAM Appreciation of USD CHF CZK RSD MKD Other (342) (730) - (125) 4 100 - 1,330 - 4,775 5,234 93 Effects on comprehensive income (1,093) 11,432 Depreciation of USD CHF CZK RSD MKD Other Effects on comprehensive income 262 601 - 124 (4) (70) 913 - (1,096) - (4,724) (5,047) (93) (10,960) The effect on the other comprehensive income statement of NLB Group has increased due to the higher translation positions in MKD and RSD currencies, and because of the higher volatility growths’ scenarios for MKD and RSD currencies . 327 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   6.2.2. Managing market risks in the trading book Market risk exposure in the trading book arises mostly The interest rate risk in the banking book is measured its interest rate margin primarily with the pricing policy and monitored within a framework of interest rate and a fund transfer pricing policy . An important part as a result of the changes in interest rates, credit risk management policy that establishes consistent of the interest rate risk management is presented by spreads, FX rates, and equity prices . methodologies, models, and limit systems . NLB Group the banking book securities portfolio, whose primary The Management Board determines low total risk of two main measures: it also contributes to the stability of the interest rate manages interest rate risk exposure through application purpose is to maintain adequate liquidity reserves, while appetite and limits by the risk type . The limits are · Economic value sensitivity – using BPV method (Basis margin . monitored daily by the Global Risk Department . Point Value), which measures the extent to which the NLB uses an internal VaR model based on the variance- interest rates change according to the scenario; plain vanilla derivative financial instruments (interest covariance method for other market risks . The daily · Sensitivity of net interest income – which measures the rate swaps, overnight index swaps, cross currency calculation of the VAR value is adjusted to Basel impact of the interest rate change on future net interest swaps, and forward rate agreements), most of which are standards (99% confidence interval, a monitored period income over a one-year period, assuming constant treated according to hedge accounting rules . economic value of the banking book would change if NLB Group also manages interest rates risk by using of 250 business days, a 10-day holding position period) . balance sheet volume and structure . Each member of NLB Group is responsible for its 6.2.3. Interest rate risk Interest rate risk is the risk to NLB Group’s capital and NLB Group regularly measures interest rate risk own interest rate risk policy, which includes the limit exposure in the banking book under various system and is in line with the parent Bank’s guidelines profit or loss arising from changes in market interest rates . Interest rate risk management of NLB Group standardised and additional scenarios of changes in the level and shape of interest rate yield curve, and standards, as well as with the local regulatory requirements . NLB regularly monitors the interest rate includes all interest rate-sensitive on- and off-balance including all significant sources of risk, taking into risk exposure of each individual member of NLB Group sheet assets and liabilities which are divided into the account behavioural and modelling assumptions . Part in accordance with the Standards for Risk Management trading and banking book according to regulatory of non-maturing deposits, which is considered as a in NLB Group . The document comprises guidelines for standards . It takes into account the positions in each core part is allocated long-term by using replicating uniform and effective interest rate risk management currency . Interest rate risk management in NLB Group portfolio approach . Optionality risk is mainly derived within individual NLB Group members . is adopted in accordance with the risk appetite and from behavioural options, reflected in prepayments risk strategy, based on general Basel standards on and withdrawals, and embedded options such as caps Interest rate risk in the banking book is measured, interest rate management in the banking book (IRRBB; and floors . Moreover, considering expected cash flows, monitored, and reported by the Global Risk Department hereinafter: ‘Standards’) and European Banking non-performing exposures, as well as off-balance sheet (weekly in the case of NLB and monthly on Group level), Authority guidelines . items are considered when measuring interest rate risk while positions are managed by Financial Markets . In the trading book, interest rate risk is measured exposure . Exposure to interest rate risk is discussed on ALCO monthly on NLB’s individual level and quarterly on the on the basis of the VaR method and BPV method, in The interest rate risk is closely measured, monitored, consolidated level . accordance with the adopted policy for managing and managed within approved risk limits and controls . market risk in the trading book of NLB . The Group manages interest rate positions and stabilises 328 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents  a) Analysis of financial instruments according to the exposure to interest rate risk The following table presents open net interest rate risk positions by the most important currencies of NLB Group . Financial instruments without maturity such as sight deposits are presented in the first gap irrespective of their behavioural characteristics and the NLB Group’s expectations . 31 Dec 2023 Currency EUR RSD MKD Other 31 Dec 2022 Currency EUR RSD MKD Other 31 Dec 2023 Currency EUR Other 31 Dec 2022 Currency EUR Other 1 - 3 years (2,109,587) 573,943 253,734 (206,743) 1 - 3 years (2,061,940) 338,852 192,033 (131,316) 1 - 3 years (1,772,291) (176,222) 1 - 3 years (1,871,890) (81,512) NLB Group 3 - 5 years 1,278,722 195,097 25,929 130,171 NLB Group 3 - 5 years 1,461,068 213,972 13,086 73,414 NLB 3 - 5 years 1,004,157 19,729 NLB 3 - 5 years 1,050,116 29,436 5 - 10 years 1,519,103 69,386 (5,110) 87,324 5 - 10 years 1,389,104 52,070 17,792 52,832 in EUR thousands Over 10 Years 756,545 5 5,960 3,970 in EUR thousands Over 10 Years 667,013 2 10,070 6,652 in EUR thousands 5 - 10 years 1,436,836 20,418 Over 10 Years 645,084 - in EUR thousands 5 - 10 years 1,023,946 395 Over 10 Years 550,833 7,189 329 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents b) Net interest income sensitivity analysis and an economic view of interest rate risk in the banking book The analysis of interest income sensitivity for the horizon The assessment of the impact of a change in interest of the next 12 months assumes a sudden parallel interest rates of 50/100 basis points on the amount of net rate shock down by 50 basis points for EUR or 100 basis interest income of the banking book position: points for other currencies . The analysis assumes that the positions used remain unchanged . Net interest income sensitivity Net interest income sensitivity - as % of Equity NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 57,595 2 .22% 43,713 2 .02% 33,281 1 .84% 21,393 1 .48% The ‘EVE’ (Economic Value of Equity) method is a to the situation on financial markets . Calculations are measure of the sensitivity of changes in market interest considering behavioural and automatic options, as well rates on the economic value of financial instruments . as the allocation of non-maturing deposits . The EVE represents the present value of net future cash flows and provides a comprehensive view of the The assessment of the impact of a change in interest possible long-term effects of changing interest rates rates of 200 basis points on the economic value of the at least under the six prescribed standardised interest banking book position: rate shock scenarios or more if necessary, according NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 108,489 4 .19% 122,276 5 .60% 60,747 3 .36% 82,714 5 .72% Interest risk in banking book - EVE Interest risk in banking book - EVE as % of Equity 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 . 330 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                         6 .3 . Liquidity risk Liquidity risk is the risk of the NLB Group being unable to fulfil current or future expected and unexpected cash requirements, across all time horizons . The risk may stem from the reduction in funding sources or a reduction in the liquidity of certain assets . Liquidity risk is related to funding liquidity risk (the NLB Group’s liquidity on the liabilities-side) and market liquidity risk (counterbalancing capacity on the assets- side) . On the liabilities-side, liquidity risk can result in a loss if the Bank is unable to settle all its liabilities or when the Bank, because of its incapacity to provide sufficient funds to settle its obligations, is forced to raise the necessary funds at a cost which significantly exceeds the normal cost . On the assets-side, the liquidity risk is related to the market value of counterbalancing capacity and arises in case of significant reduction of market value of an individual financial instrument and may result in insufficient value of counterbalancing capacity to cover the NLB Group’s liquidity needs . Intraday liquidity risk is the capacity required during the business day to enable financial institutions to make payments and settle obligations . In the risk identification process, first the reasons for the realisation of each identified material risk are analysed and grouped together in short risk descriptions . Material risks are then classified into three groups based on what part of liquidity is affected by the realisation of the material risks: the liabilities side, the assets side, and intraday liquidity risk . The origin of each risk is determined as being internal, external, or a combination of internal and external (internal shock, meaning it originates within the Bank, or external shock; meaning it comes from outside the Bank – e .g ., a major macroeconomic event, physical or transition event, ESG rating downgrade) . Based on the identified material risks, key liquidity risk drivers are defined . Key risk drivers of the liquidity position are factors that are expected to trigger a substantial deterioration of the Group’s liquidity position . This deterioration may take place in the form of an increase in outflows, a decrease in inflows or a decrease in the liquidity value of the counterbalancing capacity . Liquidity risk is defined as an important risk type for NLB - to ensure that climate-related and environmental Group, and one which must be managed carefully . NLB risks which could have a material impact on net Group has a liquidity risk management framework in cash outflows or liquidity reserves, are incorporate place that enables maintaining a low risk tolerance for into liquidity risk management and liquidity reserves liquidity risk . NLB Group formulated a set of liquidity risk calibration . metrics and limits to manage liquidity position within the requirements set by the regulator . By maintaining a Overall assessment of the liquidity position of NLB smooth long-term maturity profile, limiting dependence Group is assessed in the Internal Liquidity Adequacy on wholesale funding, and holding a solid liquidity Assessment Process (ILAAP) at least once per year for reserve, the NLB Group maintains a sound and NLB Group, and it includes a clear formal statement robust liquidity position, even under severely adverse on liquidity adequacy, supported by an analysis of conditions . ILAAP outcomes . The ILAAP process is integral to risk management frameworks and is aligned with the The Management Board approves the Liquidity Risk NLB Group’s risk appetite which is consistent with the Management Policy, which outlines the key principles business model and approved by the management for the Bank’s liquidity management . ALCO receives board . Based on the Risk Appetite, the NLB Group a regular report on the liquidity position and the prepares a business plan and financial forecasts which performance against approved limits and targets . ALCO oversees the development of the Bank’s funding and are crucial for defining internal capital needs (the ICAAP process) and an internal liquidity assessment liquidity position and decides on liquidity risk-related (ILAAP process) . Both processes are conducted issues in NLB Group . from the normative and economic perspectives and supplemented by the stress-testing programme . Risk tolerance for liquidity risk is low, therefore NLB Group must be able to provide sufficient funds for NLB Group performs stress tests on a regular basis settling its liabilities at all times, even if a specific stress for a variety of bank-specific and market-wide stress scenario is realised . NLB Group measures and manages scenarios (individually and in combination) to identify its liquidity in two stages: - Static view (current exposure), sources of potential liquidity strain and to ensure that current exposures remain in accordance with - Forward-looking and stress-testing . the NLB Group’s established liquidity risk tolerance . The objectives of monitoring and managing liquidity risk management strategies, policies, and positions, define in NLB Group are as follows: minimum amount of counterbalancing capacity, and to - ensuring a sufficient amount of liquidity for the develop effective contingency plans . Stress test outcomes are used to adjust its liquidity risk settlement of all NLB Group’s liabilities; - minimising the costs of maintaining liquidity; NLB Group has a formal liquidity contingency plan - determining an adequate amount of counterbalancing (LCP) that clearly sets out the procedures for addressing capacity and optimal liquidity management; liquidity shortfalls in stressed situations . The plan - ensuring adequate control environment; outlines procedures to manage a range of stress - ensuring an appropriate level of liquidity for different environments, establish clear lines of responsibility, situations and stress scenarios; include clear invocation and escalation procedures, - anticipating emergencies or crisis conditions, and and is regularly tested and updated to ensure that it is implementing contingency plans in the event of operationally robust . extraordinary circumstances; - ensuring regular projections of future cash flows and NLB Group maintains a sufficient amount of liquidity stress-testing of liquidity risk; reserves in the form of high credit quality debt securities - preparing proposals for establishing additional that are eligible for refinancing via the ECB/central bank financial assets as collateral for sources of funding; or on the market . In the current situation, NLB Group also strives to follow as closely as possible the long-term 331 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents trend of diversification on both the liability and asset sides of the balance sheet . NLB Group regularly performs a) Managing NLB Group’s liquidity reserves NLB Group has liquidity reserves available to cover stress tests with the aim of testing the liquidity stability liabilities that fall or may become due . Liquidity reserves and the availability of liquidity reserves in various stress must become available on short notice . Liquidity situations . In addition, special attention is given to the reserves are comprised of cash, the settlement account fulfilment of the liquidity regulation (CRR/CRD), with at the central bank above reserve requirement, debt monitoring and reporting of the liquidity coverage ratio securities valued at market value, and loans eligible (LCR) according to the Delegated Act and net stable as collateral for the Eurosystem’s liquidity providing funding ratio (NSFR) . This also includes monitoring and operations on the basis of which the Bank may generate reporting of Additional Liquidity Monitoring Metrics the requisite liquidity at any time . The available liquidity (ALMM) on solo and consolidated levels . In accordance reserves are liquidity reserves decreased by the required with the Commission Implementing Regulation (EU), NLB balances for the continuous performance of payment Group regularly monitors and issues quarterly reports on transactions, encumbered securities, and/or credit asset encumbrance . claims for different purposes (secured funding) . The Group manages its liquidity position (liquidity within The structure of liquidity reserves is shown in the one day) daily, for a period of several days or weeks in following table . advance, based on the planning and monitoring of cash flows . Each NLB Group member is responsible for its own liquidity position and carries out the following activities: - managing intraday liquidity; - planning and monitoring cash flows; Liquidity reserves NLB Group in EUR thousands NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 - monitoring and complying with the liquidity regulations Cash, cash balances at central banks* 4,958,969 4,020,397 4,142,013 3,180,523 of the central bank; - adopting business decisions; - forming and managing liquidity reserves; and - performing a liquidity stress test to define the liquidity reserves for smooth functioning of the payment system in stressed circumstances . Trading book securities** Banking book securities** ECB eligible loans Total available liquidity reserves Encumbered liquidity reserves *above reserve requirement **market value - 203 - 203 4,569,721 4,542,597 2,810,064 2,679,404 678,445 624,278 678,445 624,278 10,207,135 9,187,475 7,630,522 6,484,408 41,502 122,963 41,502 5,451 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 . Liquidity risk management in NLB Group is 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 . Each Group member is responsible for ensuring adequate liquidity via the necessary sources of funding and their appropriate diversification and maturity, and by managing liquidity reserves and fulfilling the requirements of regulations governing liquidity . The exposure of an individual NLB Group member towards liquidity risk is regularly monitored and reported to ALCO, and to local Assets and Liabilities Committees . As at 31 December 2023, 79 .5% (31 December 2022: for domestic loans are specified in the general terms 81 .0%) of debt securities in the banking book of about execution of monetary policy framework (Part NLB Group were government securities (including 4) adopted by the Bank of Slovenia . NLB is the only government guaranteed bonds – GGB), and 11 .9% (31 member of NLB Group that classifies as an eligible December 2022: 9 .1%) were senior unsecured bonds . counterparty to the Eurosystem . As such, these ECB credit claims are included among liquidity reserves . The purpose of banking book securities is to provide liquidity, along with stabilisation of the interest margin Members of NLB Group manage their liquid assets and the interest rate risk management, simultaneously . on a decentralised basis in compliance with the local When managing the portfolio, NLB Group uses liquidity regulation and valid policies and standards of conservative principles, particularly with respect to the NLB Group . portfolio’s structure in terms of issuers’ ratings and asset class . The general rules and principles for managing the banking book securities are laid in the Framework for managing debt securities in the banking book . The ECB-eligible credit claims comprise loans which fulfil the high eligibility criteria set by the ECB itself and 332 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     b) Encumbered/unencumbered assets in EUR thousands 333 31 Dec 2023 Loans on demand Equity instruments Debt securities Loans and advances other than loans on demand Other assets Total 31 Dec 2022 Loans on demand Equity instruments Debt securities Loans and advances other than loans on demand Other assets Total Carrying amount of encumbered assets 1,241,906 1,002 42,739 15,171 - 1,300,818 NLB Group NLB Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities Carrying amount of encumbered assets Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities - 1,002 41,502 - - 4,390,753 95,048 4,649,171 14,433,032 1,073,163 24,641,167 - 95,048 4,568,776 - - 118,356 - 42,739 8,067 - 169,162 - - 41,502 - - 4,017,941 69,786 2,885,514 7,398,608 1,473,765 15,845,614 - 69,786 2,810,064 - - Carrying amount of encumbered assets 1,109,016 742 77,522 27,000 - 1,214,280 NLB Group NLB 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 - 742 74,992 - - 3,673,152 95,580 4,682,208 13,446,808 1,048,212 22,945,960 - 95,580 4,516,292 - - 112,804 - 57,041 11,413 - 181,258 - - 54,510 - - 3,045,737 50,303 2,831,887 6,515,916 1,314,232 13,758,075 - 50,303 2,679,423 - - in EUR thousands c) Collateral received – unencumbered The table below shows the nominal value of collateral received and own debt securities issued not available for encumbrance . Equity instruments Loans and advances other than loans on demand Other assets Total in EUR thousands NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 293,343 175,307 262,947 167,431 13,599,848 12,876,402 14,068,498 13,306,780 265,757 51,190 6,408,890 6,725,837 239,405 16,867 4,721,729 4,978,001 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         NLB Group NLB 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral 2,486 - 2,861 5,347 9,638 - 1,291,180 1,300,818 3,238 62,755 2,901 68,894 13,753 65,048 1,135,479 1,214,280 2,486 - - 2,486 9,638 - 159,524 169,162 9,607 13,001 - 22,608 20,051 12,971 148,235 181,257 in EUR thousands 334 d) Sources of encumbrance Derivatives Deposits Other sources of encumbrance Total As at 31 December 2023, 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 1,301 million (31 December 2022: EUR 1,214 million) . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     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 2023 Carrying amount Total Up to 1 Month 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 - other financial assets Total financial assets 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 - debt securities issued - other financial liabilities Credit risk related commitments Non-financial guarantees 6,103,561 6,103,561 6,103,561 14,175 14,175 1,009 NLB Group 1 Month to 3 Months - 707 in EUR thousands 3 Months to 1 Year - 11,586 1 Year to 5 Years Over 5 Years - 873 - - 2,251,556 2,408,707 283,269 222,258 434,430 1,212,748 256,002 2,522,229 547,640 2,825,397 547,646 13,734,601 16,818,381 165,962 165,962 64,238 500,739 691,501 132,368 115,969 43,829 622,566 1,150 273,677 1,572 1,310,387 1,061,126 1,502 3,068,830 7,109,179 1,732 6,705 4 5,326,305 24,007 25,339,724 28,883,829 7,776,685 1,006,479 3,791,827 9,641,394 6,667,444 4,482 4,482 - 95,283 140,419 95,726 147,519 75,818 1,198 20,732,722 20,857,070 17,921,304 99,718 1,338,235 357,116 3,196,771 963,321 114,387 1,852,163 357,116 3,196,771 963,321 1,101 - 274,348 3,196,771 76,594 - - 1,417 258,812 1,835 4,079 6,915 - 97,262 370,320 - 4,144 338 15,330 11,311 1,661,298 8,261 84,166 9,111 - 4,332 16,181 928,654 9,021 871,459 26,557 - 246 117,412 87,002 94,169 892,459 40,185 - 338,287 2,127,764 380,994 2,241,342 70,184 1,301,995 Total financial liabilities and credit-related commitments 26,928,067 27,588,555 21,547,134 335 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   31 Dec 2022 Carrying amount Total Up to 1 Month 1 Month to 3 Months 3 Months to 1 Year 1 Year to 5 Years Over 5 Years NLB Group in EUR thousands 336 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 - other financial assets Total financial assets 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 - debt securities issued - other financial liabilities Credit risk related commitments Non-financial guarantees 5,271,365 5,271,370 5,271,370 19,031 19,031 6,028 - - - - - - - 13,003 2,919,203 3,155,399 622,857 210,878 413,150 1,600,987 307,527 1,917,615 222,965 2,015,086 223,182 13,072,986 15,075,576 177,823 177,822 21,204 216,396 625,837 145,170 23,600,988 25,937,466 6,908,862 93,066 763 674,761 5,804 985,272 220,454 4,495 2,959,896 3,100 991,980 1,526 6,047,276 23,699 688,382 2 4,767,806 49 3,601,095 8,665,468 5,776,769 1,796 1,796 - - - 1,796 106,414 198,609 106,787 201,625 85,924 1,386 101 2,067 164 5,809 20,027,726 20,069,028 17,972,715 301,188 958,293 82,482 815,990 294,463 3,090,681 862,779 85,495 1,176,970 294,463 3,090,681 862,779 651 - 200,302 3,090,286 238,213 20,598 129,289 819,684 35,338 473,176 61,190 250 1,413 4,427 8,979 70 65,243 383,488 6,247 52,572 22,610 75 155,752 1,201,522 323,300 1,864,621 - - 63,074 17,148 41,846 646,795 1,382 - 80,271 850,516 Total financial liabilities and credit-related commitments 25,480,940 25,889,624 21,589,477 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   in EUR thousands 337 NLB 1 Month to 3 Months - 43 3 Months to 1 Year - 12,714 1 Year to 5 Years Over 5 Years - 154 - 4,600 1,023,012 1,063,468 11,640 38,854 241,365 632,002 139,607 31 Dec 2023 Carrying amount Total Up to 1 Month 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 - other financial assets Total financial assets 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 - debt securities issued - other financial liabilities Credit risk related commitments Non-financial guarantees 4,318,032 4,318,032 4,318,032 16,643 17,515 4 1,966,169 149,011 7,148,283 101,596 2,202,821 201,826 8,487,918 101,597 6,764 5,933 405,580 70,972 14,722,746 16,393,177 4,818,925 3,210 3,210 1,234 147,002 82,797 147,442 83,851 127,726 - 11,881,563 11,919,187 10,985,068 1,338,235 198,020 2,239,479 625,095 1,852,163 198,020 2,239,479 625,095 - 149,601 2,239,479 29,712 Total financial liabilities and credit-related commitments 16,515,401 17,068,447 13,532,820 30,167 6,719 212,509 1,131 289,423 - - - 97,176 4,079 6,481 - 68,768 176,504 154,110 15,928 1,284,363 1,583 1,057,182 42,789 3,621,788 5,035 954,598 130,457 2,963,678 22,876 1,710,063 5,358,950 4,215,816 - 1,976 - 15,330 1,654 540,607 84,166 6,871 - 196,286 844,914 4,142 1,967 278,051 871,459 9,902 - 244 80,230 18,285 892,459 25,165 - 265,632 1,433,129 64,697 1,081,080 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   31 Dec 2022 Carrying amount Total Up to 1 Month in EUR thousands 338 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 - other financial assets Total financial assets 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 - debt securities issued - other financial liabilities Credit risk related commitments Non-financial guarantees 3,339,024 3,339,024 3,339,024 15,411 16,201 553 NLB 1 Month to 3 Months - 102 3 Months to 1 Year 1 Year to 5 Years Over 5 Years - 330 - - 7,378 7,838 1,334,061 1,398,203 66,285 105,372 212,998 834,228 179,320 1,597,448 350,625 6,054,413 114,399 1,681,693 390,583 6,975,507 114,399 20,826 112,305 326,426 90,598 30,251 55,403 210,512 375 141,751 40,168 1,174,802 89 848,140 101,332 2,828,633 23,320 640,725 81,375 2,435,134 17 12,805,381 13,915,610 3,956,017 402,015 1,570,138 4,643,031 3,344,409 2,514 2,514 1,786 212,656 57,292 212,967 58,819 193,526 13,086 10,984,411 10,996,371 10,604,437 216 815,990 164,567 1,985,199 462,805 216 1,176,970 164,567 1,985,199 462,805 1 - 122,875 1,985,199 23,682 - - 681 60,516 - 4,427 4,891 - 52,473 122,988 - - - 119,935 - 52,572 6,494 - 106,608 285,609 728 19,441 45,052 208,066 215 473,176 29,915 - 243,618 1,020,211 - - - 3,417 - 646,795 392 - 36,424 687,028 Total financial liabilities and credit-related commitments 14,685,650 15,060,428 12,944,592 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 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   f) 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 2023 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 2022 Foreign exchange derivatives - Forwards - Outflow - Inflow - Swaps - Outflow - Inflow Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow - Inflow - Caps and floors - Outflow - Inflow Total outflow Total inflow Up to 1 Month 1 Month to 3 Months 3 Months to 1 Year 1 Year to 5 Years Over 5 Years Total NLB Group in EUR thousands (52,767) 52,821 (264,488) 264,597 (1,000) 3,250 (211) 179 (12,024) 12,035 (150,003) 150,432 (5,613) 4,043 (51) 37 (15,874) 15,890 (77,229) 78,250 (27,240) 34,172 (768) 629 (318,466) 320,847 (167,691) 166,547 (121,111) 128,941 (250) 250 - - (51,905) 79,633 (586) 416 (52,741) 80,299 - - - - (80,915) 80,996 (491,720) 493,279 (22,798) 37,296 (108,556) 158,394 (6) 3 (1,622) 1,264 (22,804) 37,299 (682,813) 733,933 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 (31,846) 31,895 (194,674) 193,719 (819) 816 (14) 45 (22,128) 22,136 (52,726) 53,098 (2,100) 2,560 (36) 30 (5,856) 5,863 (10,042) 9,996 (10,699) 19,982 (667) 850 (6,475) 6,487 - - (105,839) 76,356 (16,104) 1,468 (227,353) 226,475 (76,990) 77,824 (27,264) 36,691 (128,418) 84,311 - - - - (24,177) 44,616 (8,632) 15 (32,809) 44,631 (66,305) 66,381 (257,442) 256,813 (143,634) 144,330 (25,453) 2,408 (492,834) 469,932 339 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     31 Dec 2023 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 2022 Foreign exchange derivatives - Forwards - Outflow - Inflow - Swaps - Outflow - Inflow Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow - Inflow - Caps and floors - Outflow - Inflow Total outflow Total inflow Up to 1 Month 1 Month to 3 Months NLB 3 Months to 1 Year 1 Year to 5 Years in EUR thousands 340 Over 5 Years Total (50,861) 50,894 (310,781) 310,647 (1,455) 3,605 (211) 179 (11,715) 11,726 (279,104) 278,819 (5,763) 4,162 (51) 37 (15,874) 15,890 (131,949) 132,095 (29,050) 35,869 (768) 629 (363,308) 365,325 (296,633) 294,744 (177,641) 184,483 (250) 250 - - (57,044) 87,326 (586) 416 (57,880) 87,992 - - - - (78,700) 78,760 (721,834) 721,561 (23,651) 38,276 (116,963) 169,238 (6) 3 (1,622) 1,264 (23,657) 38,279 (919,119) 970,823 Up to 1 Month 1 Month to 3 Months NLB 3 Months to 1 Year 1 Year to 5 Years in EUR thousands Over 5 Years Total (31,557) 31,618 (249,950) 248,993 (844) 819 (50) 45 (22,128) 22,136 (110,588) 110,595 (2,027) 2,567 (55) 30 (282,401) 281,475 (134,798) 135,328 (5,856) 5,863 - - (12,366) 20,349 (919) 850 (19,141) 27,062 (6,475) 6,487 - - (41,180) 77,243 (1,824) 1,468 (49,479) 85,198 - - - - (22,621) 44,616 (41) 15 (66,016) 66,104 (360,538) 359,588 (79,038) 145,594 (2,889) 2,408 (22,662) 44,631 (508,481) 573,694 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     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 NLB Group, with the disinvestment process of non-core activities and optimisation of internal processes . NLB Group has set up a system of collecting loss events, identification, assessment, and management of operational risks, all with the aim of ensuring quality management of operational risks . This is particularly valid in strategic banking members . All NLB Group banking members monitor risk appetite limits for operational risk . The upper tolerance limit is 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 are taken . The warning and critical limit of loss events are also defined, which in case of exceeding require escalation procedures an acceptance of possible additional 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 decision-making 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 Group standards . In banking members, The capital requirement for operational risk is calculated these documents are in line with the development of using the basic indicator approach at the NLB Group operational risk management and regularly updated . level and using the standardised approach at the NLB 341 The whole NLB Group uses uniform software support, level . which is also regularly upgraded . In NLB Group, the reported incurred net loss arising b) Business Continuity Management (BCM) In NLB Group, business continuity management is from loss events in 2023 was higher than in the previous carried out to protect lives, goods, and reputation . year but remaining within the set tolerance limits for Business continuity plans are prepared to be used in operational risk . the event of natural disasters, IT disasters, epidemic/ pandemic, and the undesired effects of the environment In general, considerable attention is paid to reporting to mitigate their consequences . loss events, their mitigation measures, and defining operational risks in all segments . To treat major loss The concept of the action plan that is prepared each year events appropriately and as soon as possible, the Bank is such that the activities contribute to the upgrading or introduced an escalation scale for reporting bigger or improvement of the Business Continuity Management more important loss events to the top levels of decision- System . In 2023, Business Continuity Management was making at NLB and the Supervisory Board of NLB . Additional attention is paid to the reporting of potential upgraded and optimised – rationalisation of Business Impact Analysis (hereinafter BIA) . loss events in order to improve the internal controls, and thus minimise those and similar events . Furthermore, the The basis for modernising the business continuity plans methodology to monitor, analyse, and report key risk is the regular annual Business Impact Analysis (BIA) . On indicators is established, servicing as an early warning its basis, the adequacy of the plans for Organisational system . The aim is to improve business and supporting Unit Plans (merged office buildings and HR plans) and IT processes, as well enabling prompt response . plans are checked . The best indicator of the adequacy Through comprehensive identification of operational tested Manual Procedures, backup locations, and risks, possible future losses are identified, estimated, the IT Disaster Recovery Plan and external . No major of the business continuity plans is testing . In 2023, NLB and appropriately managed . Each year, special deviations were identified . emphasis is placed on current risks as a result of the risk identification process, including ESG risks . For the In NLB Group, know-how and methodologies are later key risk indicators (KRIs) have been also addressed transferred to its members . The members have adopted for ESG risks, servicing as an early warning system . appropriate documents which are in line with the The major operational risks are actively managed with standards of NLB and revised in accordance with the the measures taken to reduce them . An operational development of business continuity management . The risk profile is prepared once a year based on the activity of the members is monitored throughout the operational risk identification . Special emphasis is put year, and expert assistance is provided if necessary . on the most topical risks, among which in particular are those with a low probability of occurrence and very For more efficient functioning of the business continuity high potential financial influence . For this purpose, the management system in NLB Group, training courses and Bank has developed the methodology of stress-testing visits to individual banking members are also provided . for operational risk . The methodology is a combination All preventive and response measures with regard to of modelling loss event data and scenario analysis for business continuity are regularly sent to the members exceptional, but plausible events . Scenario analyses are with the purpose to help and act in the uniform made based on experience and knowledge of experts way . Besides, workshops are performed to present from various critical areas . development of Business Continuity Management System to all the NLB Group members to be more resilient in all relevant circumstances . NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents With regards to natural disasters (floods) and IT failures, the assumptions of NLB Group . This hierarchy gives Wherever possible, fair value is determined as an the Bank successfully used the business continuity plans the highest priority to observable market data when observable market price in an active market for an and instructions for manual procedures, and thus also available, and the lowest priority to unobservable identical asset or liability . An active market is a market ensured business operations in emergency situations . market data . NLB Group considers relevant and in which transactions for an asset or liability are observable market prices in its valuations, where executed with sufficient frequency and volume to provide c) Management of other types of non-financial risks – possible . The fair value hierarchy comprises the pricing information on an ongoing basis . Assets and strategic risks, reputation risk, and profitability risk following levels: liabilities measured at fair value in active markets are Risks not included in the regulatory capital - Level 1 – Quoted prices (unadjusted) on active markets . determined as the market price of a unit (e .g ., share) requirements (standardised approach) but have or This level includes listed equities, debt instruments, at the measurement date, multiplied by the quantity might have an important influence on the risk profile gold, derivatives, units of investment funds, and other of units owned by NLB Group . The fair value of assets of NLB Group, are regularly assessed, monitored, unadjusted market prices of assets and liabilities . and liabilities whose market is not active is determined and managed . In addition, they are integrated into When an asset or liability may be exchanged in using valuation techniques . These techniques bear a internal capital adequacy assessment process (ICAAP) . multiple active markets, the principal market for the different intensity level of estimates and assumptions, NLB Group established internal methodologies for asset or liability must be determined . In the absence of depending on the availability of observable market identifying and assessing specific types of risk, referring a principal market, the most advantageous market for inputs associated with the asset or liability that is the to the Group’s business model or arising from other the asset or liability must be determined . subject of the valuation . Unobservable inputs shall external circumstances . If a certain risk is assessed - Level 2 – A valuation technique where inputs are reflect the estimates and assumptions that other market as a materially important risk, relevant disposable preventive and mitigation measures are applied, observable, either directly (i .e ., prices) or indirectly (i .e ., derived from prices) . Level 2 includes prices quoted for participants would use when pricing the asset or liability . including regular monitoring of their effectiveness . similar assets or liabilities in active markets and prices For non-financial assets measured at fair value and On this basis, internal capital is considered, and its quoted for identical or similar assets, and liabilities not classified at Level 1, fair value is determined based consumption regularly monitored . in markets that are not active . The sources of input on valuation reports provided by certified valuators . 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 parameters for financial instruments, such as yield Valuations are prepared in accordance with the curves, credit spreads, foreign exchange rates, and the International Valuation Standards (IVS) . 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 . 342 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents a) Financial and non-financial assets and liabilities measured at fair value in the financial statements in EUR thousands 343 31 Dec 2023 NLB Group NLB Financial assets Financial instruments held for trading 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 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 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 - - - 15,698 15,698 47,614 20 20 - Total fair value 15,718 15,718 47,614 - - - 1,456,684 793,516 1,356 2,251,556 955,638 1,451,824 4,860 5,317 5,217 100 - - - - - - - - - 712,570 80,946 - - - - 13,217 13,217 3,540 4,482 10,927 4,048 - - 70 2,164,464 955,638 1,286 8,858 - 8,858 - - - - - 20,189 801 89 - 87,092 14,175 5,217 8,958 - 13,217 13,217 3,540 4,482 31,116 4,849 89 - - - - - - - - - - - - - - 17,937 17,937 47,614 67,071 6,446 60,625 - - - - 17,510 17,510 1,420 3,210 7,640 4,048 - - Total fair value 17,957 17,957 47,614 1,023,012 962,084 60,928 20 20 - 303 - 303 16,643 16,643 - 8,858 7,785 - - - - - - - - 8,858 7,785 17,510 17,510 1,420 3,210 7,640 4,048 - 1,646 1,646 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   31 Dec 2022 NLB Group NLB in EUR thousands 344 Level 1 Level 2 Level 3 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 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 1,746,405 1,169,306 3,492 2,919,203 1,282,584 1,745,896 1,090,664 509 78,642 2,838,796 1,282,584 Level 1 Level 2 Level 3 203 203 - - 21,368 - 21,368 59,362 17 - 17 - Total fair value 21,588 203 21,385 59,362 2,236 1,256 7,519 - 7,519 - - - - - 23,447 11,201 80,407 19,031 3,116 15,915 - 21,589 21,589 2,124 1,796 35,639 15,436 - - - - 21,589 21,589 2,124 1,796 12,192 4,235 - - 30,636 30,636 - - 11,512 3,116 8,396 - - - - - - - - - 203 203 - - - - - - - - - - - - - - - 21,472 - 21,472 59,362 49,182 6,667 42,515 - - - - 22,150 22,150 2,124 2,514 6,753 4,235 - - Total fair value 21,692 203 21,489 59,362 17 - 17 - 2,295 1,334,061 2,026 269 15,411 - 7,519 7,892 - - - - - - - 1,291,277 42,784 15,411 - 7,519 7,892 22,150 22,150 2,124 2,514 6,753 4,235 - 3,301 3,301 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 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 Gold Funds Debt securities Loans Equities Currency Interest Derivatives valuation model valuation model valuation model (underlying in level 1) valuation model (underlying instrument in level 3) from level 2 to 3 underlying instrument excluded from exchange market from level 3 to 2 underlying instrument included in exchange market market value from exchange market market value from spot market official price by fund management company market value from exchange market valuation model valuation model valuation model valuation model valuation model valuation model 1 2 3 Transfers from level 1 to 3 equity excluded from exchange market from level 1 to 3 companies in insolvency proceedings from level 1 to 3 equity not liquid (not trading for 2 months) from level 3 to 1 equity included in exchange market from level 1 to 3 from level 1 to 2 fund management company stops publishing regular valuation from level 3 to 1 fund management company starts publishing regular valuation debt securities excluded from exchange market from level 1 to 2 debt securities not liquid (not trading for 6 months) from level 1 to 3 and from 2 to 3 companies in insolvency proceedings from level 2 to 1 and from 3 to 1 start trading with debt securities on exchange market from level 3 to 2 until valuation parameters are confirmed on ALCO (at least on quarterly basis) For 2023, neither NLB Group nor NLB had any significant transfers between levels of valuation of financial instruments measured at fair value in financial statements . 345 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                                     c) Financial and non-financial assets and liabilities at to account for capital preservation are used . Rents at NLB Group uses three valuation methods for the Level 2 regarding the fair value hierarchy Financial instruments on Level 2 of the fair value similar locations are generated from various sources, valuation of equity financial assets mentioned in first like data from lessors and lessees, web databases, and bullet: income, market, and cost approaches . hierarchy at NLB Group and NLB include: own databases . NLB Group has observable data for all - debt securities: mostly bonds not quoted on active investment property at its disposal . If observable data NLB Group selects valuation model and values of markets and valuated by a valuation model; for similar locations are not available, NLB Group uses unobservable input data within a reasonable possible - derivatives: derivatives except forward derivatives and data from wider locations and adjusts it appropriately . range, but uses model and input data that other market options on equity instruments that are not quoted on participants would use . active markets; and - the National Resolution Fund . d) Financial and non-financial assets and liabilities at Level 3 of the fair value hierarchy At least one of the three valuation methods are used Financial instruments on Level 3 of the fair value for the valuation of investment property . The majority Non-financial assets on Level 2 of the fair value hierarchy in NLB Group and NLB include: of investment property is valued using the income hierarchy at NLB Group and NLB include investment - equities: mainly financial equities that are not quoted approach where the present value of future expected properties and non-current assets held for sale . on active markets; returns is assessed . - debt instruments: bonds not quoted on active markets When valuing bonds classified on Level 2, NLB Group and valuated by valuation model with inputs which are When valuing an investment property, average rents primarily uses the income approach based on an not based on observable market data; at similar locations and capitalisation ratios such as: estimation of future cash flows discounted to the present value . - derivative financial instruments: forward derivatives and options on equity instruments that are not quoted the risk-free yield, risk premium, and the risk premium to account for capital preservation are used . Rents at on an active organised market . Fair values for forward similar locations are generated from various sources, The input parameters used in the income approach are derivatives are determined using the discounted like data from lessors and lessees, web databases, and the risk-free yield curve and the spread over the yield cash flow model . Fair values for equity options are own databases . NLB Group has observable data for all curve (credit, liquidity, country) . determined using valuation models for options (the investment property at its disposal . If observable data Fair values for derivatives are determined using a and Black-Scholes model) . Unobservable inputs data from wider locations and adjusts it appropriately . Garman and Kohlhagen model, the binomial model, for similar locations are not available, NLB Group uses discounted cash flow model based on the risk-free include the fair values of underlying instruments yield curve . Fair values for options are determined determined using valuation models . The source of using valuation models for options (the Garman and observable market inputs is the Bloomberg information Kohlhagen model, the binomial model, and the Black- system; Scholes model) . - loans measured at fair value, which according to IFRS 9 do not pass the SPPI test . Fair value is calculated on the At least one of the three valuation methods are used basis of the discounted expected future cash flows with for the valuation of investment property . The majority the required rate of return . In defining the expected of investment property is valued using the income cash flows for loans, the value of collateral and other approach where the present value of future expected pay off estimates can be used . returns is assessed . When valuing an investment property, average rents hierarchy at NLB Group include investment properties at similar locations and capitalisation ratios such as: and non-current assets held for sale . the risk-free yield, risk premium, and the risk premium Non-financial assets on Level 3 of the fair value 346 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Movements of financial assets and liabilities at Level 3 NLB Group Balance as at 1 January 2022 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries Valuation: - through profit or loss - recognised in other comprehensive income Foreign exchange differences Increases Decreases Transfers to Level 3 Balance as at 31 December 2022 Valuation: - through profit or loss - recognised in other comprehensive income Foreign exchange differences Increases Decreases Write-offs Balance as at 31 December 2023 NLB Balance as at 1 January 2022 Valuation: - through profit or loss - recognised in other comprehensive income Foreign exchange differences Increases Decreases Transfers to Level 3 Balance as at 31 December 2022 Valuation: - through profit or loss - recognised in other comprehensive income Foreign exchange differences Increases Decreases Write-offs Merger of subsidiary Balance as at 31 December 2023 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 Total financial assets Derivatives Debt instruments Equity instruments Equity instruments 1 - - 16 - - - - - 17 3 - - - - - 20 351 - - - 239 (25) - (141) 1,812 2,236 - 5,768 21 - (6,418) (1,537) 70 1,136 (2) 12 - 110 - - - - 1,256 - 49 - - (19) - 1,286 4,472 - - 477 - 262 2,873 (565) - 7,519 1,362 - (173) 150 - - 8,858 5,960 (2) 12 493 349 237 2,873 (706) 1,812 11,028 1,365 5,817 (152) 150 (6,437) (1,537) 10,234 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 Total financial assets Derivatives Debt instruments Equity instruments Equity instruments 1 16 - - - - - 17 3 - - - - - - 20 - - 239 (25) - - 1,812 2,026 - 5,768 21 - (6,278) (1,537) - - 219 - 50 - - - - 269 - 19 - - - - 15 303 4,472 477 - 262 2,873 (565) - 7,519 1,362 - (173) 150 - - - 8,858 4,692 493 289 237 2,873 (565) 1,812 9,831 1,365 5,787 (152) 150 (6,278) (1,537) 15 9,181 347 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     NLB Group and NLB recognise the effects from valuation of trading instruments in income statement line item ‘Gains less losses from financial assets and liabilities held for trading,’ the effects from valuation of non-trading equity instruments and loans mandatorily measured at fair value through profit or loss in the income statement line item ‘Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss,’ and the effects from valuation of financial assets measured at fair value through other comprehensive income in the accumulated other comprehensive income line item ‘Financial assets measured at fair value through other comprehensive income .’ In 2023 and in 2022, 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 2023 Items of Income statement Financial assets held for trading Financial assets measured at fair value through OCI in EUR thousands Non-trading financial assets mandatorily at fair value through profit or loss Derivatives Debt instruments Equity instruments Equity instruments Gains less losses from financial assets and liabilities held for trading Gains less losses from non-trading assets mandatorily at fair value through profit or loss Foreign exchange translation gains less losses Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income 3 - - - - - - - NLB Group 2022 Items of Income statement Financial assets held for trading Financial assets measured at fair value through OCI Derivatives Debt instruments Equity instruments Equity instruments Gains less losses from financial assets and liabilities held for trading Gains less losses from non-trading assets mandatorily at fair value through profit or loss Foreign exchange translation gains less losses Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income 16 - - - - (25) 239 - - - 110 - 477 262 - - - - 49 - 1,362 (173) - in EUR thousands Non-trading financial assets mandatorily at fair value through profit or loss 348 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Financial assets held for trading Financial assets measured at fair value through OCI in EUR thousands Non-trading financial assets mandatorily at fair value through profit or loss 349 Derivatives Debt instruments Equity instruments Equity instruments NLB 2023 Items of Income statement NLB 2022 Items of Income statement - - - 19 - 1,362 (173) - in EUR thousands Non-trading financial assets mandatorily at fair value through profit or loss Gains less losses from financial assets and liabilities held for trading Gains less losses from non-trading assets mandatorily at fair value through profit or loss Foreign exchange translation gains less losses Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income 3 - - - - - - - Financial assets held for trading Financial assets measured at fair value through OCI Derivatives Debt instruments Equity instruments Equity instruments Gains less losses from financial assets and liabilities held for trading Gains less losses from non-trading assets mandatorily at fair value through profit or loss Foreign exchange translation gains less losses Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income 16 - - - - - (25) 239 - - - 50 - 477 262 - Movements of non-financial assets at Level 3 NLB Group Balance as at 1 January Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries (note 5 .12 .f) Additions Disposals Transfer from/(to) property and equipment Transfer from/(to) other assets Net valuation to fair value Balance as at 31 December Investment property in EUR thousands Non-current assets held for sale 2023 2022 23,447 27,642 2023 11,201 (14) - - 22 302 3 11 - - (1,954) (7,578) (10,206) (86) 86 (1,290) 20,189 434 - 2,622 23,447 - - (205) 801 2022 2,962 9 - 7,609 (105) - - 726 11,201 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   e) Fair value of financial instruments not measured at fair value in financial statements Financial instruments not measured at fair value The table below shows estimated fair values of financial in financial statements are not managed on a fair instruments not measured at fair value in the statement value basis . For respective instruments fair values are of financial position . calculated for disclosure purposes only, and do not impact NLB Group statement of financial position or income statement . 31 Dec 2023 31 Dec 2022 31 Dec 2023 31 Dec 2022 Carrying value Fair value Carrying value Fair value Carrying value Fair value Carrying value Fair value NLB Group NLB in EUR thousands Financial assets measured at amortised cost - debt securities - loans and advances to banks 2,522,229 547,640 2,440,596 547,555 1,917,615 222,965 1,749,169 223,077 - loans and advances to customers 13,734,601 13,256,192 13,072,986 12,883,859 - other financial assets 165,962 165,962 177,823 177,823 1,966,169 149,011 7,148,283 101,596 1,889,481 149,011 6,895,232 101,596 1,597,448 350,625 6,054,413 114,399 1,442,453 362,422 5,965,468 114,399 Financial liabilities measured at amortised cost - deposits from banks and central banks - borrowings from banks and central banks - due to customers 95,283 95,657 106,414 106,627 147,002 147,379 212,656 212,880 140,419 134,020 198,609 193,774 82,797 75,152 57,292 52,897 20,732,722 20,746,603 20,027,726 20,031,938 11,881,563 11,892,641 10,984,411 10,989,255 - borrowings from other customers - debt securities issued - other financial liabilities 99,718 1,338,235 357,116 101,649 1,363,301 357,116 82,482 815,990 294,463 80,684 788,892 294,463 - 1,338,235 198,020 - 1,363,301 198,020 216 815,990 164,567 216 788,892 164,567 Loans and advances to banks of cash flows, current market rates, and the credit risk Loan commitments The estimated fair value of deposits is based on of the depository institution itself . A portion of sight For credit facilities that are drawn soon after the NLB discounted cash flows using prevailing market interest deposits is stable, similar to term deposits . Therefore, Group grants loans (drawn at market rates) and loan rates for instruments with similar credit risk and residual their economic value for NLB Group differs from the commitments to those clients that are not impaired, maturities . The fair value of overnight deposits equals carrying amount . their carrying value . Loans and advances to customers The estimated fair value of other deposits and borrowings from customers is based on discounted cash the fair value is close to zero . For loan commitments to clients that are impaired, fair value represents the amount of the recognised provisions . The estimated fair value of loans and advances flows using interest rates for new deposits with similar Other financial assets and liabilities represents the discounted amount of estimated future residual maturities . cash flows expected to be received . Expected cash flows are discounted at current market rates for debts with Debt securities measured at amortised cost and debt 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 similar credit risk and residual maturities to determine securities issued and payables . their fair value . Deposits and borrowings The fair value of debt securities measured at amortised cost and debt securities issued is based on their quoted market price or value calculated by using a discounted The fair value of sight deposits and overnight deposits cash flow method and the prevailing money market equals their carrying value . However, their actual value interest rates . for NLB Group depends on the timing and amounts 350 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       Fair value hierarchy of financial instruments not measured at fair value in financial statements 31 Dec 2023 NLB Group NLB Level 1 Level 2 Level 3 Total fair value Level 1 Level 2 Level 3 Financial assets measured at amortised cost - debt securities - 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 - debt securities issued - other financial liabilities 2,030,120 - - - - - - - 1,363,301 - 403,255 547,555 7,221 - 2,440,596 547,555 - - 13,256,192 13,256,192 165,962 165,962 95,657 134,020 20,746,603 - - - - - - 101,649 - 357,116 95,657 134,020 20,746,603 101,649 1,363,301 357,116 1,779,995 - - - - - - - 1,363,301 - 31 Dec 2022 NLB Group Financial assets measured at amortised cost - debt securities - 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 - debt securities issued - other financial liabilities 1,476,615 - - - - - - - 748,958 - 265,325 223,077 7,229 - 1,749,169 223,077 - - 12,883,859 12,883,859 177,823 177,823 106,627 193,774 20,031,938 - 39,934 - - - - 80,684 - 294,463 106,627 193,774 20,031,938 80,684 788,892 294,463 1,350,003 - - - - - - - 748,958 - in EUR thousands Total fair value 1,889,481 149,011 6,895,232 101,596 109,486 149,011 - - - - 6,895,232 101,596 - - - - - 198,020 147,379 75,152 11,892,641 - 1,363,301 198,020 147,379 75,152 11,892,641 - - - NLB in EUR thousands Total fair value 1,442,453 362,422 5,965,468 114,399 92,450 362,422 - - - - 5,965,468 114,399 212,880 52,897 10,989,255 - 39,934 - - - - 216 - 164,567 212,880 52,897 10,989,255 216 788,892 164,567 Level 1 Level 2 Level 3 Total fair value Level 1 Level 2 Level 3 351 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     6 .6 . Environmental and climate- related risks The NLB Group is engaged in contributing to sustainable finance by incorporating environmental, social, and governance (ESG) risks into its business strategies, risk management framework, and internal governance arrangements . With the adoption of the NLB Group Sustainability programme, NLB Group implemented sustainability elements into its business model . Thus, sustainable finance integrates ESG criteria into the Group’s business and investment decisions for the lasting benefit of the Group’s clients and society . The NLB Group Sustainability Committee oversees the integration of the ESG factors to the NLB Group business model . ESG risks do not represent a new risk category, but rather one of the risk drivers of the existing type of risks . The Group integrates and manages them within the established risk management framework in the areas of credit, liquidity, market, and operational risk . The management of ESG risks follows ECB and EBA guidelines, following the tendency of their comprehensive integration into all relevant processes . The management of ESG risks is incorporated into the Group’s overall credit approval process and the related credit portfolio management . Sustainable financing is implemented in accordance with the Group’s Environmental and Social Management System (ESMS) . In addition to addressing ESG risks in all relevant stages of the credit-granting process, relevant ESG criteria were also considered in the collateral evaluation process . The NLB Group conducts a materiality assessment as part of its overall risk identification process to determine the level of transitional and physical risk to which the Group is exposed . In this process, the identification of environmental risk factors, relevant transmission channels, and their materiality and impact on the Group’s financial performance in short-, mid- and long-term periods are assessed . From the perspective of physical risk, the most relevant natural disasters are floods, landslides, and drought, while hail and windstorms are also frequent, but less material . Despite this, the Group can expect its impact to increase in the long run if no adequate policy changes are implemented in a timely manner . Chronic risk is not determined as a material risk . Transition risks already arise in the short term due to the determination of the EU to reduce carbon emissions, according to its ambitious net zero strategy by 2050 . With the NZBA commitment and implementation of NLB Group’s Net Zero Strategy in 2023, its impacts are expected to diminish gradually in the long run . Nevertheless, the Group assessed them more materially than physical risk . As a systemically important institution, the NLB Group was included in the ECB Stress test exercise – 2024 EBA Fit-for-55 climate risk scenario analysis . The exercise started in December 2023 and will be concluded in March 2024 . By performing this exercise, the ECB assessed how banks were prepared to deal with financial and economic shocks stemming from climate risk . 6 .7 . 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 the entire financial instrument . NLB Group also holds certain standardised derivatives (some interest rate swaps) with 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 conducted under the conditions of signed Master Agreements (MA), with international banks . The 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 . 352 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 31 Dec 2023 Financial assets/liabilities Derivatives - assets Derivatives - liabilities 31 Dec 2022 Financial assets/liabilities Derivatives - assets Derivatives - liabilities 31 Dec 2023 Financial assets/liabilities Derivatives - assets Derivatives - liabilities 31 Dec 2022 Financial assets/liabilities Derivatives - assets Derivatives - liabilities NLB Group Amounts not set off in the statement of financial position in EUR thousands Gross amounts of recognised financial assets/ liabilities 63,283 16,714 Impact of master netting agreements Financial instruments collateral Net amount 4,992 4,992 52,103 1,563 6,188 10,159 NLB Group Amounts not set off in the statement of financial position in EUR thousands Gross amounts of recognised financial assets/ liabilities 80,724 17,482 Impact of master netting agreements Financial instruments collateral Net amount 3,053 3,053 72,204 1,959 5,467 12,470 NLB Amounts not set off in the statement of financial position in EUR thousands Gross amounts of recognised financial assets/ liabilities 65,551 18,929 Impact of master netting agreements Financial instruments collateral Net amount 5,013 5,013 54,346 1,563 6,192 12,353 NLB Amounts not set off in the statement of financial position in EUR thousands Gross amounts of recognised financial assets/ liabilities 80,834 24,273 Impact of master netting agreements Financial instruments collateral Net amount 3,133 3,133 72,204 8,251 5,497 12,889 NLB Group and NLB have no financial assets/liabilities set off in the statement of financial position . 353 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents         7 . Analysis by segment for NLB Group a) Segments 2023 Total net income Net income from external customers Intersegment net income Net interest income Net interest income from external customers Intersegment net interest income Administrative expenses Depreciation and amortisation Reportable segment profit/(loss) before impairment and provision charge Other net gains/(losses) from equity investments in associates and joint ventures Impairment and provisions charge Profit/(loss) before income tax Owners of the parent Non-controlling interests Income tax Profit for the year NLB Group Financial Markets in Slovenia Non-Core Members Other activities Unallocated Total in EUR thousands Retail Banking in Slovenia Corporate and Investment Banking in Slovenia 366,988 246,811 120,177 264,707 147,803 116,904 (141,132) (12,675) 149,184 204,868 (55,684) 106,462 161,103 (54,641) (63,955) (6,240) Strategic Foreign Markets 541,624 541,098 526 423,249 429,464 (6,215) (223,239) (27,990) 40,437 95,748 (55,311) 37,752 94,023 (56,271) (9,202) (689) (131) (578) 447 1,540 1,444 96 5,574 5,349 225 (376) (503) 127 (13,230) (508) (12,740) (635) 213,181 78,989 290,395 30,546 (13,869) (7,801) 1,072 (32,592) 181,661 181,661 - - - 7,909 86,898 86,898 - - - 1,124 291,519 278,896 12,623 - - 4,757 35,303 35,303 - - - 3,729 (10,140) (10,140) - - - 973 (6,828) (6,828) - - - - - - - - - - - - - - - - (15,090) 1,103,676 1,093,296 10,380 833,334 833,334 - (463,498) (48,737) 591,441 1,072 (14,100) 578,413 565,790 12,623 (15,090) 550,700 Reportable segment assets 3,778,767 3,376,370 11,058,835 7,232,457 47,097 435,940 Investments in associates and joint ventures 12,519 - - - Reportable segment liabilities Additions to non-current assets 9,381,016 2,512,801 9,329,079 1,540,000 19,775 9,826 40,239 505 - 3,419 4 - 227,680 4,099 - - - - 25,929,466 12,519 22,993,995 74,448 354 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   2022 Total net income Net income from external customers Intersegment net income Net interest income Net interest income from external customers Intersegment net interest income Administrative expenses Depreciation and amortisation Reportable segment profit/(loss) before impairment and provision charge Other net gains/(losses) from equity investments in associates and joint ventures Gain from bargain purchase Impairment and provisions charge Profit/(loss) before income tax Owners of the parent Non-controlling interests Income tax Profit for the year Retail Banking in Slovenia Corporate and Investment Banking in Slovenia 211,474 227,590 (16,116) 104,809 125,541 (20,732) (132,893) (11,149) 105,198 121,042 (15,844) 52,930 71,832 (18,902) (60,471) (4,629) Strategic Foreign Markets 427,519 429,999 (2,480) 298,042 303,349 (5,307) (199,593) (28,538) 67,432 40,098 199,388 781 - (21,435) 46,778 46,778 - - - - 12,156 52,254 52,254 - - - 68 (12,325) 187,131 176,160 10,971 - NLB Group Financial Markets in Slovenia Non-Core Members Other activities Unallocated Total 46,601 5,558 41,043 47,304 2,169 45,135 (8,812) (618) 37,171 - - (3,363) 33,808 33,808 - - 4,697 4,426 271 267 453 (186) (12,109) (498) (7,910) - - (829) (8,739) (8,739) - - 10,024 9,934 90 1,570 1,578 (8) (7,309) (621) 2,094 - 172,810 (3,073) 171,831 171,831 - - - - - - - - - - - - - - - - - (25,230) 805,513 798,549 6,964 504,922 504,922 - (421,187) (46,053) 338,273 781 172,878 (28,869) 483,063 472,092 10,971 (25,230) 446,862 Reportable segment assets 3,665,110 3,372,047 10,179,396 6,514,047 61,563 356,400 Investments in associates and joint ventures 11,677 - - - Reportable segment liabilities Additions to non-current assets 9,108,497 2,777,001 8,539,025 1,118,681 10,717 6,088 29,042 261 - 3,754 99 - 190,957 4,688 - - - - 24,148,563 11,677 21,737,915 50,895 Segment reporting is presented in accordance with the The core segments are the following: • Financial Markets in Slovenia include treasury activities strategy on the basis of the organisational structure • Retail Banking in Slovenia, which includes banking with and trading with financial instruments, while they also used in management reporting of NLB Group’s results . individuals and micro companies (NLB and N Banka), present the results of asset and liabilities management NLB Group’s segments are business units that focus on asset management (NLB Skladi), and part of subsidiary (ALM) in both NLB and N Banka . different customers and markets . They are managed NLB Lease&Go Ljubljana that includes operations with • Other activities include categories in NLB and N Banka separately because each business unit requires different retail clients, as well as the contribution to the result of whose operating results cannot be allocated to specific strategies and service levels . the associated company Bankart . segments, including gain from bargain purchase from • Corporate and Investment Banking in Slovenia, which acquisition of N Banka in 2022, as well as subsidiaries NLB The business activities of the parent bank (NLB) and includes banking with Key Corporate Clients, SMEs, Cultural Heritage Management Institute and Privatinvest . N Banka are divided into several segments . Interest Cross-border corporate financing, Investment Banking income and expenses are reallocated between and Custody, Restructuring and Workout in NLB and Non-Core Members include the operations of non-core segments on the basis of fund transfer prices (FTP) . N Banka, and part of the subsidiary NLB Lease&Go NLB Group members, namely REAM and leasing entities Other NLB Group members are, based on their business Ljubljana that includes operations with corporate clients . in liquidation, NLB Srbija, and NLB Crna Gora . activity, included in only one segment except NLB • Strategic Foreign Markets, which consist of the Lease&Go Ljubljana, which is according to its business operations of strategic Group banks in the strategic NLB Group is primarily a financial group, and net activities divided into two segments . markets (North Macedonia, Bosnia and Herzegovina, interest income represents the majority of its net Kosovo, Montenegro, and Serbia), as well as investment revenues . NLB Group’s main indicator of a segment’s The segments of NLB Group are divided into core and company KomBank Invest, Beograd, NLB DigIT, efficiency is net profit before tax . non-core segments . Beograd, NLB Lease&Go Skopje, and NLB Lease&Go in EUR thousands 355 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report leasing Beograd . No revenues were generated from transactions with a single external customer that would amount to 10% or more of NLB Group’s revenues . Contents   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 Bosnia and Herzegovina Croatia Kosovo Montenegro North Macedonia Serbia Western Europe Germany Switzerland Total in EUR thousands Revenues Net income Profit/(loss) before income tax Income tax 2023 729,170 663,042 104,460 - 68,279 62,625 111,599 316,079 103 - 103 2022 445,749 505,855 84,065 23 58,297 49,528 94,660 219,282 13 - 13 2023 556,854 538,752 85,158 (557) 56,374 51,658 90,233 255,886 (2,310) 51 (2,361) 2022 367,121 431,267 71,205 473 49,251 38,251 78,369 193,718 161 58 103 2023 275,533 305,507 40,677 (527) 39,797 32,032 49,895 143,633 (2,627) (402) (2,225) 2022 288,563 194,764 33,475 (170) 35,922 15,436 41,807 68,294 (264) (647) 383 2023 19,447 (34,525) (3,467) - (3,995) (5,502) (4,910) (16,651) (12) - (12) 2022 (9,719) (15,487) (2,635) (45) (3,693) (1,838) (3,795) (3,481) (24) - (24) 1,392,315 951,617 1,093,296 798,549 578,413 483,063 (15,090) (25,230) 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, the effect on the derecognition of assets, net operating income, and gain less losses from non-current assets held for sale . NLB Group Slovenia South East Europe Bosnia and Herzegovina Croatia Kosovo Montenegro North Macedonia Serbia Western Europe Germany Switzerland Total Non-current assets Total assets Number of employees in EUR thousands 31 Dec 2023 31 Dec 2022 160,574 223,185 38,861 - 13,810 23,163 34,276 152,037 204,802 35,550 377 14,289 17,416 36,348 113,075 100,822 27 27 - 28 28 - 31 Dec 2023 14,851,067 11,072,317 1,934,891 1,194 1,229,426 928,913 1,895,297 5,082,596 18,601 552 18,049 31 Dec 2022 13,935,167 10,216,136 1,799,877 3,557 1,082,474 825,400 1,832,477 4,672,351 8,937 691 8,246 31 Dec 2023 31 Dec 2022 2,689 5,291 990 1 468 390 962 2,833 5,392 971 6 467 380 954 2,480 2,614 2 - 2 3 1 2 383,786 356,867 25,941,985 24,160,240 7,982 8,228 356 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     The table below presents data on NLB Group members before intercompany eliminations and consolidation journals: NLB Group Slovenia South East Europe Bosnia and Herzegovina Croatia Kosovo Montenegro North Macedonia Serbia Western Europe Germany Switzerland Total Revenues Net income Profit/(loss) before income tax 2023 909,550 670,510 105,503 - 68,468 64,729 111,933 319,877 118 - 118 2022 523,774 507,243 84,107 128 58,296 49,738 94,624 220,350 25 1 24 2023 704,971 542,776 83,567 (385) 55,182 50,465 86,612 267,335 (2,467) 51 (2,518) 2022 431,187 429,307 70,211 617 48,391 37,822 75,882 2023 511,693 308,129 40,555 (366) 39,963 32,836 48,822 196,384 146,319 (12) 54 (66) (2,711) (402) (2,309) 2022 191,900 199,981 33,352 (170) 36,095 18,374 41,601 70,729 (2,835) (646) (2,189) in EUR thousands Income tax 2023 28,958 (34,879) (3,467) - (3,995) (5,502) (4,910) (17,005) (12) - (12) 2022 (9,153) (15,952) (2,635) (45) (3,693) (1,838) (3,795) (3,946) (24) - (24) 1,580,178 1,031,042 1,245,280 860,482 817,111 389,046 (5,933) (25,129) 357 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   8 . Related-party transactions A related party is a person or entity that is related to members of the Management Board, key management members and companies these related parties have NLB Group in such a manner that it has control or joint personnel, or their family members have control, joint control, has a significant influence, or is a member control, or a significant influence; a major shareholder control, joint control, or significant influence A number of banking transactions are entered into of the key management personnel of the reporting of NLB with significant influence, subsidiaries, with related parties within regular course of business . entity . Related parties of NLB Group and NLB include: associates and joint ventures . The volume of related-party transactions and the key management personnel (Management Board, outstanding balances are as follows: other key management personnel and their family Related-party transactions with Management Board members); the Supervisory Board; companies in which and other key management personnel, their family NLB Group 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 expenses Other financial liabilities Other financial liabilities measured at fair value through profit or loss (note 2.31.) Other operating liabilities Guarantees issued and loan commitments Fee income Other income Other expenses Management Board and other Key management personnel Family members of the Management Board and other key management personnel Companies in which members of the Management Board, key management personnel or their family members have control, joint control or a significant influence 2023 2022 2,173 1,214 (1,532) 1,855 57 2,556 2,617 (2,806) 2,367 (33) 1 2,075 11,066 287 19 16 - 2,097 1,526 (1,450) 2,173 41 2,170 2,938 (2,552) 2,556 (7) 2 801 6,559 237 19 17 - 2023 469 307 (332) 444 17 926 1,440 (1,213) 1,153 (6) - - - 64 8 - - 2022 415 324 (270) 469 10 718 634 (426) 926 - - - - 70 7 - - 2023 - - - - - 218 496 (442) 272 - 12 - - - 3 - (94) 2022 532 8 (540) - - 590 6,413 (6,785) 218 - 3 - - - 66 - (382) in EUR thousands Supervisory Board 2023 2022 54 46 (76) 24 1 348 407 (338) 417 (5) - - - 14 1 - (1) 60 76 (82) 54 - 505 398 (555) 348 (2) - - - 17 2 - - 358 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   NLB 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 expenses Other financial liabilities Other financial liabilities measured at fair value through profit or loss (note 2.31.) Other operating liabilities Guarantees issued and loan commitments Fee income Other income Other expenses Management Board and other Key management personnel Family members of the Management Board and other key management personnel Companies in which members of the Management Board, key management personnel or their family members have control, joint control or a significant influence 2023 2022 2,172 1,203 (1,521) 1,854 57 2,536 2,555 (2,734) 2,357 (33) 1 1,975 11,080 279 19 16 - 2,097 1,480 (1,405) 2,172 41 2,170 2,643 (2,277) 2,536 (7) 2 728 6,539 223 18 17 - 2023 469 307 (332) 444 17 926 1,440 (1,213) 1,153 (6) - - 64 8 - - 2022 415 324 (270) 469 10 718 634 (426) 926 - - - 70 7 - - 2023 - - - - - 218 496 (442) 272 - 12 - - 3 - 2022 532 8 (540) - - 590 6,413 (6,785) 218 - 3 - - 66 - (94) (382) in EUR thousands Supervisory Board 2023 2022 54 46 (76) 24 1 348 407 (338) 417 (5) - - 14 1 - (1) 60 76 (82) 54 - 505 398 (555) 348 (2) - - 17 2 - - Key management compensation The remuneration for the 2023 for the members of the Supervisory Board of NLB d .d . and the Management identified employees who are included in the Policy on The Bank’s General Meeting may determine and change the basis of the Bank’s self-assessment . the remuneration of the members of the Supervisory Board independently from the Remuneration Policy, and Board of NLB d .d . is regulated in Remuneration Policy Members of the Supervisory Board may, in relation to may change, repeal, or replace any of its resolutions in for the Members of the Supervisory Board of NLB d .d . their function of a member of the Supervisory Board, relation to the remuneration of the Supervisory Board and the Members of the Management Board of NLB only receive remuneration that is compliant with the members at any time, or adopt a new resolution in d .d . The remuneration for the identified employees and relevant resolutions of the Bank’s General Meeting . relation to the remuneration of the Supervisory Board other employees is regulated in Remuneration Policy for The Supervisory Board members are entitled to a members . The last changes of the remuneration of employees of NLB d .d . and NLB Group . remuneration for performing their function and/or attendance fees for their membership in the Supervisory members of the Supervisory Board were adopted at the General Meeting of NLB d .d . 19 June 2023 . In the Remuneration Policy and based thereon and in Board of the Bank and the committees of the accordance with Commission Delegated regulation (EU) Supervisory Board of the Bank, which are determined in The performance of key management is defined by 2021/923, the Bank designates identified employees . accordance with respective applicable resolution by the financial and non-financial criteria . In addition to the In designating identified employees, the internal General Meeting of the Bank, and to reimbursement of salary determined in their employment contract, they organisation and the nature, scope, and complexity of travel expenses, daily allowances, and accommodation are entitled to the annual variable part of the salary the Bank’s activities are taken into account . The criteria costs up to the amount provided by the regulations based on their achievement of the financial and non- fully take into account the risks that the Bank or the NLB governing reimbursement of costs related to work and financial performance criteria, which encompass Group is or could be exposed to its given risk profile other income not included in the tax base . the goals of NLB Group or NLB, the goals of the and risk appetite . The Remuneration Policy includes members of the Supervisory Board, members of the Management Board, senior management, and other organisational unit, and the personal goals of the employee performing special work . 359 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   The objectives and performance assessment criteria day on which the non-deferred part of such variable of each member of the Management Board shall remuneration is paid and it is paid in proportional be determined each year by the Supervisory Board shares, according to the relevant legislation . NLB d .d . at the time of adoption of the Bank’s annual business plan . Also, the Supervisory Board of NLB The table below shows payments in presented periods: NLB Group and NLB Management Board Other key management personnel Supervisory Board in EUR thousands Short-term benefits Cost refunds Long-term bonuses: - severance pay - other benefits - variable part of payments Total 2023 3,076 2022 2,282 9 - 53 299 3,437 6 - 7 276 2,571 2023 6,604 112 120 163 1,252 8,251 2022 6,148 98 - 77 1,425 7,748 2023 728 104 - - - 2022 696 74 - - - 832 770 Short-term benefits include: - monetary benefits (gross salaries, supplementary insurance, holiday allowances, and other bonuses); - non-monetary benefits (company cars, health care, residential facilities, etc .) . The reimbursement of cost comprises food allowances, travel expenses, and use of own resources . d .d . confirm the objectives of the heads of control or supervisory functions . The objectives and performance assessment criteria for the identified employees are determined by the Management Board . The variable portion of receipts for a given financial year may not exceed nine salaries of a member of the Management Board in the financial year . Other identified employees are entitled to a variable part of remuneration according to the category of employee in the maximum amount of three to six salaries . Key management shall be entitled to a variable part of the performance benefit only in proportional part to the actual period of employment (duration of the term of office) of the Bank during the period to which the variable part of the performance benefit relates . The non-deferred part of variable remuneration is paid no later than three months after the adoption of the Annual Report of NLB Group for the business year to which the variable remuneration relates . Variable remuneration part of payment of an identified employee is awarded and paid in cash, provided that the amount does not exceed EUR 50 thousand or/and is higher than one-third of his/her total remuneration for each financial year, and if this is permissible in accordance with the relevant regulation . If the variable remuneration part of payment of an identified employee exceeds EUR 50 thousand or/and is higher than one-third of his/her total remuneration 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 part of the variable remuneration of an identified employee consisting of instruments shall be awarded and paid under the terms and conditions in the valid Remuneration Policy in instruments whose value is based on the value of the share of NLB d .d . (with these instruments not giving any dividends or other yields) . The deferred part of the variable part of the salary must be deferred for a period of at least five years of the 360 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   Payments to individual members of the Management Board Member / Mandate Blaž Brodnjak 1 .12 .2012 Peter Andreas Burkhardt 18 .09 .2013 Archibald Kremser 31 .07 .2013 Antonio Argir 28 .04 .2022 Andrej Lasič 28 .04 .2022 Hedvika Usenik 28 .04 .2022 Short-term benefits: - gross salary and holiday allowance - benefits and other short-term bonuses Costs refunds Long-term bonuses: - other benefits - variable part of payments Total Short-term benefits: - gross salary and holiday allowance - benefits and other short-term bonuses Costs refunds Long-term bonuses: - other benefits - variable part of payments Total Short-term benefits: - gross salary and holiday allowance - benefits and other short-term bonuses Costs refunds Long-term bonuses: - other benefits - variable part of payments Total Short-term benefits: - gross salary and holiday allowance - benefits and other short-term bonuses Costs refunds Long-term bonuses: - other benefits - variable part of payments Total Short-term benefits: - gross salary and holiday allowance - benefits and other short-term bonuses Costs refunds Long-term bonuses: - other benefits - variable part of payments Total 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 2023 in EUR 2022 662,159 542,370 9,040 1,490 2,904 92,854 768,447 552,167 46,318 1,540 3,364 83,480 686,869 632,159 33,364 1,324 3,364 88,539 758,750 352,909 64,854 1,515 37,140 34,047 490,465 6,908 1,318 1,912 95,214 647,722 486,438 33,588 1,243 1,452 89,132 611,853 517,370 39,220 1,302 1,452 91,870 651,214 205,291 30,077 796 859 - 237,023 352,909 205,292 3,756 1,469 3,364 34,047 395,545 352,909 13,234 1,507 2,904 34,047 404,601 4,216 796 859 - 211,163 205,292 5,512 782 859 - 212,445 361 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents               Payments to individual members of the Supervisory Board Member / Mandate Primož Karpe 11 .02 .2016 David Eric Simon 04 .08 .2016 Shrenik Dhirajlal Davda 10 .06 .2019 Mark William Lane Richards 10 .06 .2019 Verica Trstenjak 15 .06 .2020 Sergeja Kočar 17 .06 .2020 Islam Osama Bahgat Zekry 14 .06 .2021 Tadeja Žbontar Rems 22 .01 .2021 Cvetka Selšek 15 .08 .2023 Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds André Marc Richard Prudent Toccanier Annual compensation 15 .08 .2023 Gregor Rok Kastelic 10 .06 .2019 - 19 .06 .2023 Andreas Klingen 22 .06 .2015 - 19 .06 .2023 Bojana Šteblaj 17 .06 .2020 - 12 .09 .2022 Janja Žabjek Dolinšek 20 .11 .2020 - 08 .07 .2022 Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds Annual compensation Other bonuses - benefit Costs refunds 2023 103,680 279 9,300 87,480 279 13,162 83,683 279 19,444 87,480 279 18,141 73,254 279 3,490 23,659 279 1,017 77,760 279 17,656 44,774 279 309 30,102 279 2,580 33,063 279 6,773 38,025 - 4,527 42,250 - 7,917 - - - - - - in EUR 2022 96,000 382 10,952 81,000 382 7,931 72,000 382 8,767 81,000 382 9,493 66,000 382 1,473 8,327 382 1,183 72,000 382 17,622 31,215 382 185 - - - - - - 81,000 382 9,340 90,000 382 7,360 12,014 - - 1,473 - 32 362 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents                               Related-party transactions with subsidiaries, associates and joint ventures NLB Group Loans issued Balance at 1 January Acquisition of subsidiaries 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 expenses Other financial assets Other financial liabilities Guarantees issued and loan commitments Income/(expenses) provisions for guaranties and commitments Fee income Fee expenses Other income Other expenses Associates 2023 1,057 - 1,161 (2,208) 10 63 825 5,375 - 10,378 (9,585) 6,168 - 7 1,460 30 2 8 (16,167) 53 (1,174) 2022 1,011 77 145 (176) 1,057 39 (8) 7,967 - 5,982 (8,574) 5,375 - 7 1,116 2,034 (1) 69 (12,894) 92 (571) in EUR thousands Joint ventures 363 2023 201 - 2 (203) - 1 6 3,071 (3) 6,902 (8,519) 1,451 (36) 1 - - - - - 5 - 2022 201 - 2 (2) 201 3 2 3,492 3 1,073 (1,497) 3,071 (46) - 1 - - - - 5 - NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   NLB Loans issued Balance at 1 January Increase Decrease Balance at 31 December of which at amortised cost of which at fair value through profit or loss Interest income Impairment Valuation Deposits Balance at 1 January Increase Decrease Balance at 31 December Interest income Interest expenses Impairment Loans received Balance at 1 January Increase Decrease Balance at 31 December Interest income Interest expenses Deposits received Balance at 1 January Increase Decrease Balance at 31 December Interest expenses Derivatives Fair value Contractual amount Interest income Interest expenses Other financial assets Impairment Other financial liabilities Guarantees issued and loan commitments Income/(expenses) provisions for guaranties and commitments Received loan commitments and financial guarantees Fee income Fee expenses Other income Other expenses Gains less losses from financial assets and liabilities held for trading Subsidiaries 2023 337,900 660,088 (539,304) 458,684 450,213 8,471 19,938 11 1,231 2022 250,303 536,279 (448,682) 337,900 328,641 9,259 7,461 (645) (2,225) 223,492 1,120,256 (1,321,986) 21,762 83,948 2,171,418 (2,031,874) 223,492 985 - 43 13,001 36,887 (49,888) - - (12) 940 (5) (18) 44,484 13,001 (44,484) 13,001 9 (2) 165,778 68,372 87,107,211 23,967,799 (87,168,040) (23,870,393) 104,949 (5,205) 54 298,290 25 (208) 2,058 3 4,615 87,094 (76) 10,741 10,632 (5) 1,959 (5,087) (1,898) 165,778 (465) (6,681) 113,711 312 (181) 2,514 5 2,710 46,366 (85) 10,983 10,200 (280) 1,543 (5,864) (7,132) Associates 2023 982 1,161 (2,133) 10 10 - 63 861 - - - - - - - - - - - - - - 2022 1,011 145 (174) 982 982 - 39 27 - - - - - - - - - - - - - - 5,375 10,378 (9,585) 6,168 7,967 5,982 (8,574) 5,375 - - - - - 7 - 1,340 30 2 - 8 (12,698) 43 (1,137) - - - - - - 7 - 972 2,034 (1) - 69 (9,964) 92 (559) - in EUR thousands Joint ventures 364 2023 201 2 (203) - - - 1 6 - - - - - - - - - - - - - - 40 418 (63) 395 - - - - - - - - - - - - - 2 - - 2022 201 2 (2) 201 201 - 3 2 - - - - - - - - - - - - - - 27 82 (69) 40 - - - - - - - - - - - - - 2 - - NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents   Related-party transactions with major shareholder with significant influence The volumes of related party transactions with major shareholder are as follows: Loans issued Balance at 1 January Increase Decrease Balance at 31 December Interest income Investments in securities Balance at 1 January Exchange difference on opening balance Acquisition of subsidiaries Increase Decrease Valuation Balance at 31 December Interest income Interest expenses Other financial assets Other financial liabilities Guarantees issued and loan commitments Fee income Fee expenses Other income Other expenses Gains less losses from financial assets and liabilities not measured at fair value through profit or loss Gains less losses from financial assets and liabilities held for trading NLB Group 2023 17,595 2,731 (6,942) 13,384 713 564,287 (27) - 550,561 (548,065) 10,773 577,529 7,131 (21) 65 20 1,466 574 (28) 272 (5,009) (656) - 2022 20,534 3,708 (6,647) 17,595 713 534,522 36 151,047 672,692 (746,698) (47,312) 564,287 5,816 - 31,141 2 1,194 350 (28) 257 (3) - (66) in EUR thousands NLB 2023 17,595 2,731 (6,942) 13,384 713 2022 20,534 3,708 (6,647) 17,595 713 473,389 483,656 - 33,617 409,682 (410,346) 10,584 516,926 5,692 (21) 65 20 1,466 574 (28) 272 (5,009) (656) - - - 553,823 (521,066) (43,024) 473,389 5,844 - 31,141 2 1,194 350 (28) 257 (3) - (66) 365 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents     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 with exposure above EUR 40 million and their business accounts . NLB Group and NLB Guarantees issued and loan commitments NLB Group and NLB Loans Debt securities measured at amortised cost Borrowings, deposits and business accounts Guarantees issued and loan commitments NLB Group and NLB Interest income from loans Fees and commissions income Interest income from debt securities measured at amortised cost and net valuation effects from hedge accounting Interest expenses from borrowings, deposits, and business accounts Amount of significant transactions concluded during the year Number of significant transactions concluded during the year 2023 50,000 2022 188,000 2023 1 2022 3 in EUR thousands Year-end balance of all significant transactions Number of significant transactions at year-end in EUR thousands 2023 406,005 64,132 30,399 152,500 2022 565,330 64,913 108,606 152,500 2023 10 1 3 2 2022 10 1 3 2 in EUR thousands Effects in income statement during the year 2023 18,489 51 2,411 - 2022 5,130 777 (4,940) (99) 366 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents       9 . Events after the reporting date Subordinated notes On 24 January 2024, NLB issued subordinated Tier 2 notes in the total nominal amount of EUR 300 million, 10NC5 tenor and ISIN code XS2750306511 . In parallel, NLB conducted a liability management exercise where it repurchased EUR 219 .6 million of its two outstanding subordinated Tier 2 notes with approaching call dates with ISIN code XS2080776607 and XS2113139195 . The liability management exercise was concluded on 26 January 2024 . Notice of early redemption of subordinated notes as of 2 April 2024 NLB will, based on the obtained permission of the European Central Bank, redeem its subordinated notes in the aggregate nominal amount of EUR 45 million, issued on 6 May 2019 and with maturity on 6 May 2029 (ISIN code SI0022103855), before their maturity . Pursuant to the terms and condition of the notes the early repayment of principal and accrued and unpaid interest will be made on the fifth anniversary from the issuance, being 6 May 2024 . 367 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB Group Directory Nova Ljubljanska banka d .d ., Ljubljana Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 39 00, +386 1 477 20 00 E-mail: info@nlb .si www .nlb .si Blaž Brodnjak, CEO Antonio Argir, Responsible for Group governance, payments and innovations Peter Andreas Burkhardt, CRO Archibald Kremser, CFO Andrej Lasič, CMO (responsible for Corporate and Investment Banking) Hedvika Usenik, CMO (responsible for Retail Banking and Private Banking) Slovenian network Area Branch Ljubljana Trg republike 2 1000 Ljubljana, Slovenia Area Branch Northwest and Central Slovenia Ljubljanska cesta 62 1230 Domžale, Slovenia Area Branch East Slovenia Titova cesta 2 2000 Maribor, Slovenia Area Branch Northeast Slovenia Rudarska cesta 3 3320 Velenje, Slovenia Area Branch Southeast Slovenia Seidlova cesta 3 8000 Novo mesto, Slovenia Area Branch Southwest Slovenia Cesta Zore Perello - Godina 7 6000 Koper, Slovenia Private Banking Trg republike 2 1000 Ljubljana, Slovenia Micro Enterprises Trg republike 2 1000 Ljubljana, Slovenia Mobile banking Trg republike 2 1000 Ljubljana, Slovenia Small and Mid-corporates Central region Trg republike 2 1000 Ljubljana, Slovenia Northwest region Ljubljanska cesta 62 1230 Domžale, Slovenia Primorsko-Goriška region Cesta Zore Perello - Godina 7 6000 Koper, Slovenia Podravsko-Pomurska region Titova cesta 2 2000 Maribor, Slovenia Savinjsko-Koroška region Kocenova 1 3000 Celje, Slovenia Dolenjsko-Posavska region Seidlova cesta 3 8000 Novo mesto, Slovenia CSA & Cross-Border Financing Trg republike 2 1000 Ljubljana, Slovenia Large corporates Institutional Investors Trg republike 2 1000 Ljubljana, Slovenia Large Corporates Trg republike 2 1000 Ljubljana, Slovenia Investment Banking and Custody Trg republike 2 1000 Ljubljana, Slovenia Trade Finance Services Trg republike 2 1000 Ljubljana, Slovenia 368 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Members of NLB Group NLB Komercijalna Banka AD Beograd Bulevar Mihajla Pupina 165v 11070 New Belgrade, Serbia E-mail: kontakt .centar@nlbkb .rs www . nlbkb .rs Vlastimir Vuković, President of the Management Board Dejan Janjatović, Deputy of the President of the Management Board Vladimir Bošković, Member of the Management Board Bojana Kaličanin - Stojanović, Member of the Management Board NLB Banka AD Skopje Vodnjanska 1 1000 Skopje, North Macedonia E-mail: info@nlb .mk www .nlb .mk Branko Greganović, President of the Management Board Peter Zelen, Member of the Management Board Igor Davčevski, Member of the Management Board NLB Banka a .d . Banja Luka Milana Tepića 4 78000 Banja Luka, Republic of Srpska, Bosnia and Herzegovina E-mail: helpdesk@nlb-rs .ba www .nlb-rs .ba Goran Babić, President of the Management Board Marjana Usenik, Member of the Management Board12 Ljiljana Krsman, Member of the Management Board NLB Banka d .d ., Sarajevo Ul . Koševo br . 3 71000 Sarajevo, Bosnia and Herzegovina 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 sh .a ., Prishtina Rr . Ukshin Hoti nr . 124 10000 Prishtina, Kosovo E-mail: qendrakontaktuese@nlb-kos .com www .nlb-kos .com Gazmend Kadriu, President of the Management Board Gem Maloku, Member of the Management Board13 NLB Lease&Go d .o .o . Skopje Vodnjanska 1 1000 Skopje, North Macedonia E-mail: info@nlbleasego .mk www .nlbleasego .mk Gregor Martinuč, Director Gjore Andonovski, Director NLB Banka a .d ., Podgorica Bulevar Stanka Dragojevića 46 81000 Podgorica, Montenegro E-mail: info@nlb .me www .nlb .me NLB Lease&Go Leasing d .o .o ., Beograd Mihajla Pupina 165v (prvi sprat) 11070 New Belgrade, Serbia E-mail: office@nlbleasego .rs www .nlbleasego .rs Martin Leberle, President of the Management Board Boris Stević, Chairman of the Executive Board Dražen Vujošević, Member of the Management Board Michael Krenn, Member of the Executive Board Lana Đurasović, Member of the Management Board NLB DigIT d .o .o . Beograd Omladinskih brigada 90b 11070 New Belgrade, Serbia E-mail: office@nlbdigit .rs www .nlbdigit .rs Vladimir Rupar, Director Mina Popović, Director KomBank Invest a .d . Beograd Kralja Petra 19 11000 Belgrade, Serbia E-mail: vladimir .garic@kombankinvest .com www .kombankinvest .com Vladimir Garić, Director NLB Lease&Go, leasing, d .o .o ., Ljubljana Šlandrova ulica 2 1231 Ljubljana - Črnuče, Slovenia E-mail: info@nlbleasego .si www .nlbleasego .si Andrej Pucer, Director Anže Pogačnik, Director NLB Cultural Heritage Management Institute, Ljubljana Čopova ulica 3 1000 Ljubljana, Slovenia E-mail: irena .cuk@nlb .si www .bankarium .si Irena Čuk, Director NLB Leasing d .o .o ., Ljubljana – v likvidaciji Šlandrova ulica 2 1231 Ljubljana - Črnuče, Slovenia E-mail: anze .pogacnik@nlbleasing .si Anže Pogačnik, Liquidator Prvi faktor d .o .o ., v likvidaciji, Ljubljana Slovenska cesta 17 1000 Ljubljana, Slovenia E-mail: france .zupan@prvifaktor .si iztok .zupanc@prvifaktor .si France Zupan, Liquidator Iztok Zupanc, Liquidator Prvi faktor – faktoring d .o .o ., Beograd – u likvidaciji Bulevar Mihajla Pupina 165v Claus-Peter Martin Mueller, Director 11070 New Belgrade, Serbia E-mail: zeljko .atanaskovic@prvifaktor .rs Željko Atanasković, Liquidator 369 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report 12 Marjana Usenik was a Member of the Management Board until 31 December 2023. Martin Mavrič and Živko Šiftar were appointed as Members of the Management Board starting from 1 January 2024. 13 Mirsad Haskaj was appointed as Member of the Management Board as of 1 January 2024 and Ardian Hasa as of 1 February 2024. Contents S-REAM d .o .o ., Ljubljana Čopova 3 1000 Ljubljana, Slovenia E-mail: nepremicnine@s-ream .com www .nlbrealestate .com Lamija Hadžiosmanović, Director Miroslav Živković, Director ARG – Nepremičnine d .o .o . Vrhniška cesta 30 1354 Horjul, Slovenia E-mail: matic .kermavnar@cbre .com Matic Kermavnar, 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 Marko Čelebić, Director Prvi faktor d .o .o . u likvidaciji, Zagreb Miramarska cesta 24 10000 Zagreb, Croatia E-mail: info@prvifaktor .hr Vjekoslav Budimir, Liquidator NLB InterFinanz AG in Liquidation, Zürich Beethovenstrasse 48 8002 Zürich, Switzerland E-mail: info@nlbinterfinanz .ch Jean-David Barnezet Llort, Liquidator Polona Žižmund, Liquidator NLB InterFinanz d .o .o ., Beograd – u likvidaciji Bulevar Mihajla Pupina 165v 11070 New Belgrade, Serbia Liljana Zoraja, Liquidator NLB Skladi, upravljanje premoženja, d .o .o ., Ljubljana Tivolska cesta 48 1000 Ljubljana, Slovenia E-mail: info@nlbskladi .si www .nlbskladi .si Luka Podlogar, President of the Management Board Blaž Bračič, Member of the Management Board Bankart d .o .o ., Ljubljana Celovška cesta 150 1000 Ljubljana, Slovenia E-mail: info@bankart .si www .bankart .si Aleksander Kurtevski, Director Tomaž Borštner, Director LHB Aktiengesellschaft, Frankfurt am Main Silberbornstrasse 14 D-60320 Frankfurt, Germany E-mail: matjaz .jevnisek@lhb .de Matjaž Jevnišek, President of the Management Board PRIVATINVEST d .o .o . Ljubljana Dunajska cesta 128A 1000 Ljubljana, Slovenia E-mail: info@privatinvest .si Anže Boris Dugar, Director Julijana Milić, Director PRO-REM d .o .o ., Ljubljana – v likvidaciji Čopova 3 1000 Ljubljana, Slovenia E-mail: info@prorem .si www .nlbrealestate .com Nataša Batagelj, Liquidator Andrej Novak, Liquidator REAM d .o .o ., Podgorica Bul . Džordža Vašingtona br . 102, I . sprat/20 81000 Podgorica, Montenegro E-mail: gligor .bojic@nlb .me www .nlbrealestate .com Gligor Bojić, Director Marko Furlan, Authorised Representative OL Nekretnine d .o .o . u likvidaciji, Zagreb Miramarska 24 10000 Zagreb, Croatia E-mail: ivan .strek@olnekretnine .hr Vjekoslav Budimir, Liquidator Ivan Štrek, Liquidator REAM d .o .o ., Beograd Bulevar Mihajla Pupina 165v 11070 New Belgrade, Serbia E-mail: miroslav .zivkovic@ream-srb .com www .nlbrealestate .com Miroslav Živković, Director Bojana Kostandinović, Director NLB Srbija d .o .o ., Beograd Bulevar Mihajla Pupina 165v 11070 New Belgrade, Serbia E-mail: office@nlbsrbija .co .rs www .nlbsrbija .co .rs Željko Atanasković, Director NLB Crna Gora d .o .o ., Podgorica Bulevar Džordža Vašingtona 102, II sprat/38 81000 Podgorica, Montenegro E-mail: goran .lalicevic@nlb .me Goran Laličević, Executive Director Barbara Šink, Authorised Representative Marko Čelebić, Authorised Representative 370 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents Definitions and Glossary of Selected Terms AC ALCO ALM ALMM Amortised Costs Asset and Liability Committee Asset and Liability Management Additional Liquidity Monitoring Metrics AML/CTF Anti-Money Laundering and Counter-Terrorism Financing AT1 AuM B2C BCA BCM BIA BiH BMR BoS bps BPV CB CBR CEE CEO CET1 CFO CGU CIR CISO CMO CoR CRD CRE CRM CRO CRR CSA CSD CSR CSRD CVA DGS DTA DWH EAD EaR EBA EBRD ECB ECL Additional Tier 1 capital Assets under Management Business-to-Consumer Baseline Credit Assessment Business Continuity Management Business Impact Analysis Bosnia and Herzegovina Benchmarks Regulation Bank of Slovenia Basis Points Basis Point Value Central Bank Combined Buffer Requirement Central Eastern Europe Chief Executive Officer Common Equity Tier 1 capital Chief Financial Officer Cash-Generating Units Cost-to-Income Ratio Chief Information Security Officer Chief Marketing Officer Cost of Risk Capital Requirements Directive Commercial Real Estate Customer Relationship Management Chief Risk Officer Capital Requirements Regulation Credit Support Annex Central Security Depository Corporate Social Responsibility Corporate Sustainable Reporting Directive Credit Value Adjustments Deposit Guarantee Scheme Deferred Tax Asset Data Warehouse Exposure at Default Earnings at Risk European Banking Authority European Bank for Reconstruction and Development European Central Bank Expected Credit Losses ECRA EEA EIB EMIR EPS ESEF E&S ESG ESMS EU EVE EWS FDI FTE FTP FURS FVOCI FVTPL FX GAR GDP GDPR GDR GGB HHI HR IAS IASB ICAAP ICMA IFRIC IFRS ILAAP IRB IRRBB IRS ISDA IVS JST KB KDD KPI KRI LCP LCR LECL Enterprise Compliance Risk Assessment European Economic Area European Investment Bank European Market Infrastructure Regulation Earnings Per Share European Single Electronic Format Environmental and Social Environmental, Social and Governance Environmental and Social Management System European Union Economic Value of Equity Early Warning System Foreign Direct Investment Full Time Equivalent Fund Transfer Pricing Financial Administration of the Republic of Slovenia Fair Value Through Other Comprehensive Income Fair Value Through Profit or Loss Foreign Exchange Green Asset Ratio Gross Domestic Product General Data Protection Regulation Global Depositary Receipts Government Guaranteed Bonds Herfindahl-Hirschman Index Human Resources International Accounting Standard International Accounting Standards Board Internal Capital Adequacy Assessment Process International Capital Market Association International Financial Reporting Interpretations Committee International Financial Reporting Standard Internal Liquidity Adequacy Assessment Process Internal ratings-based Interest Rate Risks for Banking Book Interest Rate Swaps International Swaps and Derivatives Association International Valuation Standards Joint Supervisory Team Komercijalna Banka Central Securities Clearing Corporation Key Performance Indicator Key Risk Indicators Liquidity Contingency Plan Liquidity Coverage Ratio Lifetime Expected Credit Losses 371 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents LGD LPD LRE LTD M&A MA MAR Loss Given Default Lifetime Probability of a Default Leverage Ratio Exposure Loan-to-Deposit Ratio Mergers and Acquisitions Master Agreements Market Abuse Regulation MiFID II Markets in Financial Instruments Directive MiFIR MIGA MREL MS NACE NFC NGW Markets in Financial Instruments Regulation Rules Multilateral Investment Guarantee Agency (part of the World Bank Group) Minimum Requirement of Own Funds and Eligible Liabilities Mid-swap Statistical Classification of Economic Activities in the European Community Non-Financial Corporation Negative Goodwill, i .e . Gains from Bargain Purchase NLB or the Bank NLB d .d . NPE NPL NPS NPV NSFR NZBA OBM OCI OCR OEM O-SII OU p .p . P1R P2eM P2G P2M P2P P2R PD PMI POCI POS PSD2 REAM Non-Performing Exposures Non-Performing Loans Net Promoter Score Net Present Value Net stable funding ratio Net-Zero Banking Alliance Operational Business Margin Other Comprehensive Income Overall Capital Requirement Original Exposure Method Other Systemically Important Institutions Organisational Units Percentage Point(s) Pillar 1 Requirement Person to e-Merchant Pillar 2 Guidance Person to Merchant Person to Person Pillar 2 Requirements Probability of Default Purchasing Managers’ Index Purchased or Originated Credit-Impaired Point of Sale Payments Services Directive Real Estate Asset Management RFR RICO RICS ROA ROE Risk-Free Rates Risk Committee Royal Institution of Chartered Surveyors Return on Assets Return on Equity RORAC Return On Risk-Adjusted Capital RoS RSD RWA SEE SICR SLA SME SPPI SRB SREP SRF SSM TCFD TCR TDI Republic of Slovenia Serbian dinar Risk Weighted Assets South-Eastern Europe Significant Increase of Credit Risk Service Level Agreements Small and Medium-sized Enterprises Solely Payment of Principal and Interest Single Resolution Board Supervisory Review and Evaluation Process Single Resolution Fund Single Supervisory Mechanism Task force on Climate Related Financial Disclosures Total Capital Ratio Traded Debt Instruments The Group NLB Group TLTRO TREA TSCR UN Targeted Longer-Term Refinancing Operations Total Risk exposure Amount Total SREP Capital Requirement United Nations UN SDG United Nations Sustainable Development Goals UNEP FI PRB United Nations Environment Programme Finance Initiative’s Principles for Responsible Banking VaR VAT ZBan-3 ZGD-1 ZPIZ Value-at-Risk Value Added Tax Slovenian Banking Act Companies Act Slovenian Pension and Disability Insurance Act ZPPDFT-2 Prevention of Money Laundering and Terrorist Financing Act ZPPDFT-2A Act Amending the Prevention of Money Laundering and Terrorist Financing Act ZTFI-1 Financial Instruments Market Act ZVKNNLB Slovenian Act for Value Protection of Republic of Slovenia’s Capital Investment in Nova Ljubljanska banka d .d ., Ljubljana ZVOP-2 Slovenian Personal Data Protection Act 372 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents 373 NLB Group Annual Report 2023 Overview MB Statement SB Statement Key Highlights Business Report Strategy Risk Factors & Outlook Sustainability Performance Overview Segment Analysis Risk Management Financial Report Financial Report Contents NLB d .d ., Ljubljana nlb .si NLB d .d . Production: Saatchi & Saatchi Ljubljana Photographs: Archive of NLB and Archives of Sports Associations and Clubs All rights reserved: NLB d .d ., Ljubljana Ljubljana, April 2024 

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