To the Management and the Supervisory Board of Nova Ljubljanska banka d.d., Ljubljana
We have audited the accompanying consolidated financial statements of Nova Ljubljanska Banka d.d., Ljubljana and its subsidiaries (NLB Group), consisting of the consolidated balance sheet as of 31 December 2001, the consolidated profit and loss statement and the consolidated cash flow statement for the year then ended.
These financial statements are the responsibility of the managing board of the Bank. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the fundamental auditing principles and the International Auditing Standards. Those principles and standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audit also included assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above give a true and fair view of the financial position of the NLB Group as of 31 December 2001, the results of its operations, and the cash flows for the year then ended, in conformity with the Slovenian Accounting Standards issued by Slovenian Institute of Auditors.
Ljubljana, 12 April 2002
Consolidated Income Statement
Consolidated Balance Sheet
The Management Board approved the financial statements and notes to the financial statements.
Consolidated Statement of Changes in Financial Position
1. Significant accounting policies
The principal accounting policies applied by the Nova Ljubljanska banka d.d., Ljubljana Group ("the Group") for the preparation of the consolidated financial statements are set out below:
a) Basis of presentation of financial statements
Subsidiary undertakings, which are those companies in which the Bank, directly or indirectly, has an interest of more than half of the voting rights, or otherwise has power to exercise control over the operations, have been fully consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Bank and are no longer consolidated from the date of disposal. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between group companies have been eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Bank. Separate disclosure is made of minority interests.
On acquisition of a subsidiary, the Bank calculates the difference between the fair value of the assets and liabilities acquired and the fair value of the consideration given. Where the consideration given exceeds the net assets acquired, goodwill arises; this is amortised to the income statement over a period of five years. Where the net assets acquired exceeds the consideration given, negative goodwill arises; this is treated as a liability and amortised to the income statement over a period of five years.
Investments in associated undertakings are accounted for using the equity method of accounting. These are undertakings over which the Group has between 20% and 50% of the voting rights, and over which the Group exercises significant influence, but which it does not control. Provisions are recorded for long-term impairment in value.
Equity accounting involves recognising in the income statement the Group's share of the associates' profit or loss for the year. The Group's interest in the associate is carried in the balance sheet at an amount that reflects its share of the net assets of the associate and includes goodwill on acquisition.
Regarding associates, negative goodwill is included in the carrying amount of an investment in an associate over a period of five years.
Assets and liabilities in tolars which fall due for payment more than 30 days after they arise can be revalued at a rate equal to the rolling inflation index (TOM). Assets and liabilities with a maturity of up to 30 days are not revalued.
Domestic investments, property and equipment, intangible assets, own shares and capital are revalued using the general price index.
Revaluation income and expenses are included in the revaluation statement, which is presented in a net amount in the income statement under other income or expenses.
d) Assets and liabilities in foreign currencies
e) Interest income and expenses
Interest expenses are included in the income statement as soon as they are accrued, while interest income is included in the income statement depending on the valuation of the client. Where the conditions set out in the Bank of Slovenia regulations are met, the income from performing assets (A and B grading groups) are included in the income statement as soon as they are accounted, with appropriate charges being set against assets in B grading group. Income from non-performing assets (C, D and E grading groups) are excluded until paid, and reported under liabilities as suspended income.
f) Income and expenses from commission and fees
g) Investments in securities
General banking risk provision is established for the purpose of protecting against risks arising from the Group's overall operations.
Increases and decreases in provisions are shown in the financial statements on a gross basis.
k) Property and equipment
Depreciation of property and equipment is provided on a straight-line basis at rates designed to write off cost or valuation of buildings and equipment over their estimated useful lives.
The following annual depreciation rates are applied:
Property and equipment in the course of construction is not depreciated until it is brought into use.
Maintenance and repairs are charged to the income statement when the expenditure is incurred and renewals capitalised.
l) Intangible assets
Amortisation is provided on a straight-line basis at rates designed to write off the cost of software over their estimated useful lives. The current system software and the new information technology system are amortised over a period of ten years and other software over a period of five years.
Intangible assets in the course of construction are not amortised until they are brought into use.
m) Finance lease
n) Derivative financial instruments
Derivative financial instruments for trading purposes are carried at their fair value in the balance sheet only when unfavourable to the Bank. Gains and losses on trading derivative instruments are included in net profit/loss arising from finance transactions as they arise. Gains and losses on other derivative instruments used for hedging purposes are deferred and recognised as income or expense on the same basis as the corresponding expense or income on the hedged position.
o) Tax on profit and balance sheet tax
In 2001 the Slovenian balance sheet tax is calculated as a 3% levy on certain balance sheet items. According to Slovenian legislation the maximum balance sheet tax is limited to 50% of pre-tax profit. Where the 3% levy exceeds 50% of profits, the lower tax charge is payable.
p) Funds managed on behalf of third parties
On 1 October 2001 Banka Velenje d.d., Velenje, Pomurska banka d.d., Murska Sobota and Dolenjska banka d.d., Novo mesto were merged with the NLB.
Even before their merger with the NLB, Banka Velenje and Pomurska banka were included in its consolidated financial statements and their merger did not have any particular effect on the financial statements of the Group, only the capital of the Group increased by most of the capital of the minority shareholders. The remaining part of the capital of the minority shareholders was accounted for as negative goodwill in accordance with the share exchange ratio achieved. According to IAS 22 a restructuring provision in amount of tolars 1,400,000 thousand was charged against the negative goodwill. The Bank will amortise the remaining part of negative goodwill over a period of five years.
However the merger of Dolenjska banka, which in accordance with the merger agreement was accounted for in the consolidated financial statements as from 1 January 2001, affected both the balance sheet and the income statement of the Group since in the previous year it had not been included in the Group. The transaction increased the capital of the Group in a way similar to the result of the merger of the first two banks. As a result of the acquisition of Dolenjska banka, the Group's total assets rose by tolars 108,332,238 thousand.
The income and expenses of the merged banks for the first nine months of 2001 are included in the consolidated income statement as income and expenses of independent banks, while for the last quarter they are included in the income and expenses of the NLB. Because the mergers were accounted for in the consolidated financial statements as from 1 January 2001, the income statement for 2001 no longer shows part of the profit that would belong to the minority shareholders of the merged banks. In addition, that part of the balance sheet tax of the NLB, which belongs to the acquired banks, is shown in the income statement of the Group.
3. Change in the scope of consolidation
In the financial statements of the NLB Group for 2001 the LHB Internationale Handelsbank AG Group (LHB Bank), Frankfurt/Main, Tutunska Banka AD, Skopje (Tutunska banka) and Commercebank d.d., Sarajevo (Commercebank) are consolidated for the first time.
The LHB Bank became a subsidiary of the NLB on 29 December 2001 when the NLB increased its share in the company to 50.41%. Consequently, the LHB bank is included in the consolidated financial statements as a subsidiary bank for the first time on 31 December 2001. Consequently, only the balance sheet of the LHB bank is fully consolidated; the income statement includes only the proportional share of its operating result. The following subsidiaries of the LHB bank are also included in the consolidated financial statements of the NLB Group: LHB Finance d.o.o., Ljubljana, LHB Immobilien GmbH, Frankfurt/Main and VB Banka AD, Banja Luka. Due to its immateriality the sub-subsidiary VB Inter Invest AD, Banja Luka is not included in the consolidated financial statements (its total assets account for 0.01 % of the Group's total assets).
Due to consolidation of the LHB Bank, Tutunska banka was also consolidated in the Group's financial statements. On consolidation, goodwill amounting to tolars 248,328 thousand was accounted for, which will be amortised over a period of five years. Due to its immateriality the subsidiary Tutunskabroker AD, Skopje is not included in the consolidated financial statements (its total assets accounts for 0.01 % of the Group's total assets).
Commercebank became a subsidiary bank of the NLB at the beginning of 2001, and in the financial statements of the NLB Group for 2001 both its balance sheet and income statement are fully consolidated. On consolidation, goodwill amounting to tolars 263,114 thousand was accounted for, which will be amortised over a period of five years.
The consolidation of the new subsidiaries increased the Group's assets and liabilities as follows:
In 2001, pursuant to the Decree on the Supervision of Banks and Savings
Banks on a Consolidated Basis and additional instructions from the Bank
of Slovenia, and taking into account the criteria based on the specific
regulations of the Bank of Slovenia, the NLB set aside additional specific
provisions (calculative provisions) in the consolidated financial statements
for the balance sheet and off-balance sheet asset items of its subsidiaries.
a) Analysis by type of assets and liabilities
b) Analysis by sector
6. Income from securities
7. Income and expenses from fees and commissions
8. Net profit from finance transactions
9. Other operating income
a) Analysis by type
b) Analysis of the revaluation income statement
10. General administrative expenses
12. Other operating expenses
13. Charge for/write back of bad and doubtful debts
14. Extraordinary (loss)/profit
16. Cash and balances with the Central Bank
17. Placements with, and loans to, other banks
a) Maturity analysis
A detailed maturity analysis of loans to banks is given in Note 40 - Balance sheet maturity analysis.
b) Analysis by type of loan
c) Geographical analysis
d) Loans to associated and other related banks
Loans extended to associated and other related banks as at 31 December 2001 amounted to tolars 13,139,552 thousand (tolars 17,232,952 thousand as at 31 December 2000).
e) Analysis of movements
18. Loans and advances to customers
a) Analysis by type of customer
b) Analysis by sector
c) Guaranteed loans
The loans guaranteed by the Republic of Slovenia and Slovenian banks are:
d) Analysis by type of advance
e) Loans to associated and other related parties
Loans extended to associated and other related parties as at 31 December 2001 amounted to tolars 9,850,389 thousand (tolars 10,244,311 thousand as at 31 December 2000), while loans extended to members of the management and the Supervisory Board amounted to tolars 94,487 thousand (tolars 54,146 thousand as at 31 December 2000).
f) Analysis of movements
19. Investment securities
The market value of investment securities exceeds the carrying value in amount of tolars 843,068 thousand.
The market value of securities held for trading exceeds the carrying
value in amount of tolars 1,933,057 thousand (tolars 782,337 thousand
as at 31 December 2000).
21. Investments in associated companies and other investments
Investments in associated banks decreased due to the LHB Bank, which
is at 31 December 2001 accounted for as a subsidiary and Dolenjska banka,
which merged with the Bank in 2001.
The associated companies are:
The management considers that the fair value of investment in associated companies and other investments is not less then the carrying value, except where provision has been made for any permanent diminution in value.
22. Intangible assets
23. Property and equipment
24. Other assets
a) Analysis by type of asset
b) Analysis of interest movements
25. Accrued income and deferred expenses
26. Movements in specific provisions by type of asset
27. Deposits and borrowings from banks
a) Analysis of deposits
b) Analysis of borrowings
c) Analysis of deposits and borrowings from associated and other related banks
As at 31 December 2001 loans and deposits received from associated and other related banks amounted to tolars 17,576,325 thousand (tolars 19,473,465 thousand as at 31 December 2000).
d) Analysis of movement
28. Deposits and borrowings from other customers
a) Analysis of deposits by type of customer
b) Analysis of borrowings by type of customer
c) Analysis of deposits and loans from associated and other related companies
As at 31 December 2001 loans and deposits received from other associated and other related companies amounted to tolars 17,196,997 thousand (tolars 4,387,174 thousand as at 31 December 2000).
d) Analysis of movement
29. Debt securities
Liabilities to associated and other related companies for issues of securities as at 31 December 2001 amounted to tolars 2,483,998 thousand (tolars 260,227 thousand as at 31 December 2000).
30. Other liabilities
a) Analysis by type of liability
b) Analysis of interest movements
31. Accruals and deferred income
32. Provisions for liabilities and charges
a) Analysis by type of provision
b) Analysis of movements
33. Provisions for general banking risks
The general banking risk provision increased mainly due to consolidation of the LHB in 2001, which established the provision of tolars 2,600,770 thousand in accordance with German regulations.
34. Subordinated liabilities
35. Minority interest
a) Analysis of subscribed capital by type of shareholder
b) Changes in equity
Banka Zasavje allocated part of the net profit for 2001 to distributable reserves and to the own share's fund in accordance with the provisions of the amended Companies Act.
37. Off-balance sheet
a) Analysis by type of contingent liabilities and commitments
According to the Bank of Slovenia's methodology the total off-balance sheet items of the Group amounted to tolars 731,074,750 thousand. In accordance with the Decree on the Classification of On-Balance Sheet and Off-Balance Sheet Asset Items of Banks and Savings Banks, the Group established provisions only for contingent liabilities and committments amounted to tolars 319,861,494 thousand.
b) Analysis of derivative financial instruments
c) Assets pledged
38. Funds managed on behalf of third parties
The Group manages assets totalling tolars 115,938,273 thousand (tolars 69,414,273 thousand as at 31 December 2000) on behalf of third parties. Managed funds' assets are accounted for separately from those of the Group. Income and expenses of these funds are for the account of the respective fund and no liability falls on the Group in connection with these transactions. The Group is compensated for its services by fees chargeable to the funds.
The result of the operations of the LHB Bank (a profit of tolars 1,467,815 thousand) and the LHB Group (a loss of tolars 226,214 thousand) differ due to the elimination of intercompany profit arising from the LHB building which was sold to its subsidiary LHB Immobilien.
40. Balance sheet maturity analysis
41. Balance sheet analysis by currency