Solid financial results, integration of daughter banks, further expansion abroad and the start of privatisation program were the key features in 2001 The Nova Ljubljanska banka Group ('the Group') made significant progress during the year and its principal operating unit, Nova Ljubljanska banka d.d. ('the Bank' or 'NLB'), delivered a sound financial performance.

The Group achieved a record pre-tax profit under Slovene Accounting Standards ('SAS') of 17,046.3 million tolars (77.0 million euros) equivalent to 104.8 million euros under International Accounting Standards ('IAS'). Return on equity reached 14.9 percent under SAS or 20.1 per cent under IAS. The Group further consolidated its position as the leading financial institution in Slovenia; volume growth moved ahead significantly. The Group's consolidated balance sheet reached 1,742.4 billion tolars (7,869.8 million euros under SAS equivalent to 7,778.8 million euros under IAS) at the end of 2001, an increase of 49.5 percent. Market share, measured in assets size, increased by three percentage points to 38 per cent of the Slovenian banking industry. We achieved high volume growth while maintaining the quality of the asset portfolio, exposure to A and B grade clients was 94.6 per cent of the Group's total asset portfolio.

These results reflect a good performance in the increasingly competitive business environment in Slovenia; at the same time we integrated three daughter banks into NLB as fully-fledged retail divisions. In addition, the Group continued its expansion into Southeast Europe, which started in 2000 and undertook the consolidation of some of its foreign operations.

Domestically, our growth drivers embraced a number of key features including a strong retail franchise, encouraging increase in non-interest income and cost saving synergies. I expect this to continue in the future.

Abroad, LHB Bank, Frankfurt and Tutunska banka, Skopje were consolidated into the Group as subsidiaries with effect from 31 December 2001. LB InterFinanz, Zurich and LBS Bank-New York continued to consolidate their operations. Commercebank, Sarajevo achieved good volume growth.

NLB is building its domestic position as a springboard for further expansion into the wider region. It is a core element of the Group's strategy for the forthcoming period for which privatisation is a key component. The strategy is embedded in the Slovenian Government's privatisation program, which is designed to provide NLB with key shareholder(s) while also helping to drive its growth strategy.

With over 103 billion tolars under SAS (465 million euros) or 109.5 billion tolars under IAS (495 million euros), the Group is well capitalised, these resources include non-equity funds and have been sufficient to finance both organic growth and expansion. However the Group's future plans will be facilitated and accelerated by partnership built with key shareholder(s) in the privatisation program.

Economic environment domestically and abroad conducive to domestic growth and further foreign expansion

The Slovenian economy slowed in 2001, along with activity levels in most developed countries; nevertheless GDP increased by 3.0 per cent. As a result of domestic demand growth and general capacity growth in Central and especially Southeast Europe, following the end of the conflict in the Balkans, the region achieved above average growth in the year. In Slovenia, the current account was virtually in balance for the first time since 1997 and inflation fell to 7 per cent at 2001 year end. Unemployment by ILO standards decreased to 6.4 percent.

Slovenia is one of a small group of countries in the region expected to be in the 'first wave' of new members of the European Union, probably in 2004.The Government has introduced fiscal policies to boost economic activity and bring Slovenia into line with the EU average. It has also laid out a post-transition development paradigm including higher share of investment, external trade and FDI and an increasing share of services in GDP (e.g. education, telecommunications, productive services and business services). The accession to EU membership is expected to have a positive effect on economic growth, while lowering inflation and unemployment rates.

Markets of Southeast Europe have an important role in the Group's strategy. Despite current difficulties, the region is likely to experience positive economic development and growth over the medium term. This provides considerable opportunity for the NLB Group, which has the experience and background to establish itself as the leading financial institution in the region.

Core competencies of retail franchise, corporate banking and corporate finance to be further expanded domestically and abroad

The Group's core competencies and comparative competitive advantages have enabled it to expand internationally while simultaneously carrying out a program of integration within its home market. I am satisfied that virtually all members of the Group have successfully realised their business and strategic objectives. The Group and NLB have strengthened their position as the leading financial institution(s) in Slovenia and successfully re-entered the markets of Central and Southeast Europe.

The management of NLB is aware of the present and future challenges and opportunities it faces. We are actively introducing new products and services, provided through both traditional and modern distribution channels. At the same time, with the introduction of new Information Technology platforms, we are redesigning NLB's and the Group's business processes and introducing an integrated database and new information management systems.

I am satisfied with the continued progress of Project Sigma, one of our most important IT system developments, which is expected to become fully operational in the course of 2002. Sigma will enable us to undertake significant operational cost reductions and enhance financial efficiency by shifting resources to more productive uses. This will further strengthen our retail operations.

As in previous years our efforts have attracted widespread recognition. Last year, for the fifth consecutive time, NLB received Euromoney's Award for Excellence in Slovenia. We were awarded similar distinctions by Global Finance and the Banker magazines.
While we are proud to receive this recognition, we firmly believe that the only true measure of progress is customer satisfaction and their continued confidence in NLB and the Group as a whole.

Strategic objective: A profitable NLB Group with total assets of 20 billion euros providing services in a market of more than 20 million people

The year under review saw us commence the implementation of our business policies aimed at realising the Group's strategic objectives and vision. These envisage the Group establishing itself as one of the leading, most competitive and financially sound financial institution in the region, with the capacity to meet the financial services requirements of private and corporate customers throughout Central and Southeast Europe.

We believe that 2002 and beyond will further contribute to the realisation of the Group's strategic and business targets. The main focus in the period will be to strengthen and build the size and profitability of NLB and the Group commensurate with a steady improvement in the quality and efficiency of their operations. In this way we aim to satisfy all our stakeholders - customers, shareholders and employees.
Our key strategic objectives for the period 2002 - 2006, aimed at strengthening the Group's position in Central Europe, are:

• Grow the balance sheet domestically and internationally. Our aim is to grow NLB's total balance sheet, to reach 20 billion euros by 2006, with profitability continuing to exceed the average for the Slovenian banking sector. We expect to achieve these goals through a combination of organic growth and acquisitions of banks and other financial organisations in Slovenia and beyond.
• Expand in foreign markets. As a consequence of growing internationally, we expect 40 per cent of the Group's balance sheet to be outside Slovenia, serving a market of more than 20 million people across Southeast Europe.
• Further development of fee business banking services. Given the narrowing of interest rate margins, the target of the Group is to increase the proportion of its total non-interest related earnings to reach 40 per cent.
• Improvement in NLB's internal efficiency and NLB's value maximization. Further investment in information management technologies is already underway to facilitate the development of new services, that will create better flexibility of transactions and increase automation and e-banking franchises, each at lower costs, resulting in an increase in earnings per share ratios. As part of this value creation programme, the Group and NLB will introduce appropriate management incentive schemes.
• Increase levels of customer satisfaction. We will continue to analyse our performance and introduce initiatives to raise levels of service aimed at increasing customer satisfaction and loyalty. Our aim is that over time this programme will contribute to profitability.
• Private banking and bankassurance. Expand our offering focused on serving the needs of high net worth individuals and to offer clients bankassurance services.
• Continue to invest in our people. Education and development of all of the Group's staff and management is an on-going process of high priority that will be continued. We need to ensure that our skills and competencies are continually upgraded, that opportunities are provided for career progression, and well structured succession plans are implemented.

The past year has witnessed considerable change within our organisation as we move towards privatisation, an event that we unreservedly support. After the year end, on April 19, 2002 the Government of Slovenia agreed to sell 34 per cent of the shares in NLB to KBC, a leading Belgium banking-insurance Group, for 435 million euros. This transaction represents the end of the development phase, which started in 1993. We are looking forward to work closely with KBC and we welcome our new shareholders to Slovenia.

NLB is the major bank, and the Group the major financial services institution, in Slovenia and a growing force in the region. I am confident that we are well placed to expand our influence, not only in Slovenia but also in the whole Southeast European region, as we utilise our considerable financial strength and expertise to deliver results in line with the expectations of our shareholders.

The performance of the Group is dependent on the quality and commitment of its staff. Our results again reflect their hard work, skill and dedication. Our employees have an average of fifteen years service and many are university graduates. Education is a key element in our human resources program to ensure that staff at all levels are allowed to develop and grow their skills to ensure that they are able to realise their true potential and enjoy exciting and productive careers within the organisation.

Finally I would like to express my heartfelt thanks to all the management and staff for their loyalty and tremendous efforts to achieve success, not only in the past year but also throughout the process of the Group's restructuring. I would also like to express my gratitude to NLB's Supervisory Board for its support in development of our successful medium-term strategy.

Marko Voljč
President & CEO