To the Management and the Supervisory Board of Nova Ljubljanska banka d.d., Ljubljana We have audited the accompanying financial statements of Nova Ljubljanska Banka d.d., Ljubljana consisting of the balance sheet as of 31 December 2001, the profit and loss statement and the 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 review 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 financial statements referred to above give a true and fair view of the financial position of the company 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. KPMG SLOVENIJA,
Ljubljana, 12 April 2002
Income Statement
The Management Board approved the financial statements and notes to the financial statements.
Notes to Financial Statements 1. Significant accounting policies The principal accounting policies applied by the Nova Ljubljanska banka d.d., Ljubljana ('the Bank' or 'NLB') for the preparation of the financial statements are set out below : a) Basis of presentation of financial statements b) Revaluation 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. c) Assets and liabilities in foreign currencies d) 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's 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. e) Income and expenses from commission and fees f) Investments in securities g) Investments in subsidiaries and associated companies
and other investments h) Loans i) Provisions General banking risk provision is established for the purpose of protecting against risks arising from the Bank's overall operations. Increases and decreases in provisions are shown in the financial statements on a gross basis. j) Property and equipment 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 occurred and renewals capitalised. k) 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. l) 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. m) Tax on profit and balance sheet tax n) 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. At the time of the mergers, all the assets and liabilities of the three banks were transferred to the NLB. On the basis of the share exchange ratio, the subscribed capital of the NLB was increased by tolars 1,553,788 thousand, the share premium was increased by tolars 12,650,942 thousand and negative goodwill in the amount of tolars 2,462,274 thousand was calculated. According to IAS 22 a restructuring provision in amount of tolars 1,400,00 thousand was charged against the negative goodwill. The Bank will amortise the remaining part of the negative goodwill over a period of five years. The merger of the banks increased the Bank's assets and liabilities as set out below: 3. Interest income and expense
5. Income and expenses from fees and commissions 6. Net profit from finance transactions The increase in income and expenses from trading in derivative financial instruments results from the increased volume of transactions in derivative financial instruments (see note 35b). 7. Other operating income a) Analysis by type b) Analysis of the revaluation income statement 8. General administrative expenses 9. Depreciation 10.Other Operating Expenses 11. Charge for/write back of bad and doubtful debts 12. Extraordinary (loss)/profit
13. Tax 14. Cash and balances with the Central Bank The increase in cash in foreign currency results from the introduction of the euro and the consequent abolition of the old European currencies. The Bank is required to maintain an obligatory reserve with the Bank
of Slovenia, relative to the volume and structure of its customer deposits.
The current requirement of the Bank of Slovenia regarding the calculation
of the amount to be held as obligatory reserve is as follows: 15. Placements with, and loans to, other banks a) Maturity analysis A detailed maturity analysis of loans to banks is given in Note 38 - Balance sheet maturity analysis. b) Analysis by type of loan c) Geographical analysis d) Analysis by related party e) Analysis of movements
a) Analysis by type of customer b) Analysis by sector c) Analysis by type of advance
d) Guaranteed loans e) Analysis by related party f) Analysis of movements 17. Investment securities a) Analysis by type of securities At 31 December 2001 the Bank held tolars 83,142,400 thousand of bonds of the Republic of Slovenia (rehabilitation bonds). The bonds are divided among 10 different series with maturities ranging from 2004 to 2010. These bonds receive revaluation interest based on the revaluation index and real interest at rates of between 5.3% and 6.5% depending on maturity. Certain series of these bonds allow the holder to elect to receive revaluation interest based on the movement of the deutschemark (from 1 January 2002 euro) against the tolar rather than the revaluation index. Such elections have to be made by 15 October of the preceding year. The Bank did not make any such elections for 2002. In 2001 the Bank opted for a further sale of these bonds amounting to tolars 2,382 million and so transferred them from investment portfolio to the dealing portfolio. The bonds of the Republic of Slovenia for unpaid foreign currency deposits represent amounts taken over by the Republic of Slovenia under the law on the settlement of liabilities from unpaid foreign currency deposits. The bonds amounting to tolars 22,317,151 thousand are denominated in tolars with a real interest rate of 4.5% per annum and mature in 2007. Other bonds amounting to tolars 4,528,522 thousand are denominated in deutschemark (from 1 January 2002 euro) with a real interest rate of 8% per annum and mature in 2022. With the merger of the banks NLB acquired these bonds in the amount of tolars 5,101,718 thousand. The bonds of the Republic of Slovenia totalling tolars 20,453,427 thousand
represent amounts taken over by the Republic of Slovenia under the law
on the settlement of liabilities from paid foreign currency deposits.
In November 1996 the Republic of Slovenia issued the bonds with a maturity
of 20 years and revaluation interest of 90% of the general price index
and a real interest rate of 3% per annum. With the merger of the banks
NLB acquired these bonds in the amount of tolars 16,428,121 thousand. The market value of investment securities exceeds the carrying value
for tolars 636,395 thousand (tolars 500,779 thousand as at 31 December
2000). b) Analysis of movements
a) Analysis by type of security The market value of securities held for trading exceeds the carrying
value for tolars 1,131,946 thousand (tolars 629,280 thousand as at 31
December 2000). b) Analysis of movements
a) Analysis by type of investment b) Analysis of movements With the merger of the banks in 2001 the Bank increased its equity stake in Banka Celje from 14.72 per cent to 25.56 per cent. In December 2001 NLB increased its equity stake in LHB Internationale Handelsbank AG, Frankfurt /Main to 50.41 per cent, subsequently LHB Bank and Tutunska banka, became its subsidiaries (see Note 20). At the end of 2001 NLB sold its capital investment in Revoz and Papirnico Vevče for tolars 3,328,171 thousand. Management consider that the fair value of the investments in associated companies is not less than the carrying value. The principal associated companies are:
a) Analysis by type of investment
b) Analysis of movement Investment in LHB Bank has been adjusted by using the equity method of accounting which affected the Bank's reserves as a change in accounting policy. The Bank's subsidiaries are: 21. Intangible assets
23. Other assets a) Analysis by type of asset b) Analysis of provisions by type of asset c) Analysis of interest movements 24. Accrued income and deferred expenses 25. Movements in specific provisions by type of asset 26. Deposits and borrowings from banks a) Analysis of deposits b) Analysis of borrowings c) Analysis by related party d) Analysis of movements
a) Analysis by type of customer b) Analysis by type of customer
d) Analysis of movements 28. Debt securities a) Maturity analysis b) Analysis by related part A detailed maturity analysis of bonds is given in Note 38 - Balance sheet maturity analysis. 29. Other liabilities a) Analysis by type of liability b) Analysis of interest movements 30. Accruals and deferred income 31. Provisions for liabilities and charges a) Analysis by type of provision Other provisions include: - provisions for potential liabilities from the legal action in connection with Tržaška kreditna banka in the amount of tolars 500,000 thousand. At the first hearing in connection with this suit, on 15 April 2002, NLB will lodge a preparatory submission in which it will contest all the statements made by Tržaška kreditna banka in the suit. - provisions for payment system strategic project of the Bank in the amount of tolars 154,844 thousand (31 December 2000: tolars 154,844 thousand), - provisions for resolving the issues of unconfirmed transactions of debt conversion under the New Financial Agreement in the amount of tolars 110,464 thousand (31 December 2000: tolars 110,464 thousand), - provisions for pensions in Triest Branch in the amount of tolars 30,893 thousand (31 December 2000: tolars 22,613 thousand). b) Analysis of movements 32. General banking risks provisions 33. Subordinated Liabilities In accordance with the Decree on the calculation of capital, capital requirements and capital adequacy of banks and savings banks subordinated long-term loans are included in the Bank's Tier2 capital. The loan agreements do not contain any provisions on conversion to capital or any other liabilities. In the year 2001, the interest expense of the Bank on the basis of this loan amounted to tolars 922,004 thousand. 34. Equity a) Analysis of subscribed capital by type of shareholder At 31 December 2001 there were 883 entities having the status of Bank's shareholders. With a holding of 5,739,270 shares, being 74.71% of the share capital, the Republic of Slovenia remained the majority shareholder of the Bank. As at 31 December 2001 the share capital was represented by 7,682,015 ordinary shares, each with a nominal value of tolars 2,000. b) Changes in equity Dividends are accounted for in the period in which they are declared. A dividend of tolars 296.3 per share was declared at the Bank's Annual General Meeting in June 2001.
c) Analysis of capital in accordance with the amended
Companies Act 35. Off-balance sheet a) Analysis by types of contingent liabilities and commitments According to the Bank of Slovenia's methodology the total off-balance sheet items amounted to tolars 636,967,161 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 Bank established provisions only for contingent liabilities and commitments amounted to tolars 275,518,889 thousand. b) Analysis of derivative financial instruments c) Assets pledged 36. Funds managed on behalf of third parties The Bank manages assets totaling tolars 114,873,153 thousand (as at 31 December 2000: tolars 68,210,843 thousand) on behalf of third parties. Managed funds' assets are accounted for separately from those of the Bank. Income and expenses of these funds are for the account of the respective fund and no liability falls on the Bank in connection with these transactions. The Bank is compensated for its services by fees chargeable to the funds. 37. Foreign branches The Bank has a branch in Triest, which total assets amounted to tolars 20,817,854 thousand as of 31 December 2001 and net profit for the year 2001 tolars 11,624 thousand. 38. Balance sheet maturity analysis 39. Balance sheet analysis by currency |