Profile of NLB Group and NLB
NLB Group and NLB financial highlights
Supervisory Board Members
Statement of the President and Chief Executive Officer
Financial Review of NLB Group and NLB in 2002
NLB Group and NLB risk management
Human Resources Management
Audited Consolidated Financial Statements for NLB Group under Slovenian Accounting Standards
Financial data and figures of NLB according to Bank of Slovenia Methodology
Audited Financial Statements for NLB d.d. under Slovenian Accounting Standards
Audited Consolidated Financial Statements for the NLB Group according to International Financial Reporting Standards
Audited Financial Statements for the NLB d.d. according to International Financial Reporting Standards
Audited Consolidated Financial Statements for NLB Group under Slovenian Accounting Standards
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 2002, the consolidated income statement,
the consolidated cash flow statement, the consolidated statement of changes in equity and the notes to the consolidated financial
statements for the year then ended. We have read the management's report on operations. These financial statements and
the notes are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements
based on our audit.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Nova Ljubljanska banka d.d., Ljubljana ("the Bank" or
"NLB") is incorporated in Slovenia as a joint stock company
providing universal banking services. The majority shareholders
of Nova Ljubljanska banka d.d. are the Republic of
Slovenia holding 35.71% of the shares and KBC Bank N.V.,
Brussels ("KBC Bank") holding 34% of the shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The Nova Ljubljanska banka d.d., Ljubljana Group ("the Group")
consolidated financial statements have been prepared in accordance
with the Slovenian Accounting Standards (SAS), and the
Bank of Slovenia's regulations, represented by the Decree on the
Classification of Balance Sheet and Off-Balance Sheet Asset
Items of Banks and Savings Banks, the Decree on Establishing
Specific Provisions of Banks and Savings Banks, the Decree on
Supervision of Banks and Savings Banks on Consolidated Basis,
and other Bank of Slovenia's regulations.
The consolidated financial statements include the financial
statements of Nova Ljubljanska banka d.d., Ljubljana and its
subsidiaries, which are set out in Note 42.
Subsidiary undertakings, which are those companies in
which NLB, directly or indirectly, has an interest of more than
half of the voting rights, or otherwise has the power to exercise
control over the operations, have been fully consolidated.
Subsidiaries are consolidated from the date on which
effective control is transferred to NLB and are no longer consolidated
from the date of disposal. Intercompany transactions,
balances and unrealised surpluses and deficits on
transactions between group companies have been eliminated.
Separate disclosure is made of minority interests.
b) Translation of the financial statements of foreign subsidiaries
Assets and liabilities of foreign subsidiaries are translated to tolar at mid - market exchange rate of the Bank of Slovenia ruling at the balance sheet date. The income and expenses of foreign subsidiaries are translated to tolar at average exchange rate of the Bank of Slovenia for the reporting period. Differences between mid - market, ruling at the balance sheet date, and average exchange rate of the Bank of Slovenia are reported under equity as consolidation capital adjustment.
c) Assets and liabilities in foreign currency
Assets and liabilities in foreign currency are converted into the tolar equivalent at the mid-market exchange rate of the Bank of Slovenia as at the last day of the accounting period. Foreign exchange gains and losses are included in the income statement.
d) Interest, fees and commissions
Interest, fees and commissions expenses are included in the income statement as soon as they are accrued, while interest, fees and commissions income is included in the income statement depending on the grading of the client. According to the Bank of Slovenia's regulations the income from performing assets (A and B grading groups) is included in the income statement as soon as it occurs, except for interest income from mortgage loans to clients classified in B grading group. Income from these loans and income from non-performing loans (C, D and E grading groups) is excluded until paid, and reported as allowances for bad and doubtful interest under other assets. In the cash flow statement interest is presented as cash flows from operating activities.
e) Investments in securities
Investments in securities held for trading and investments in
debt securities available for sale are initially recorded at cost.
Subsequently they are stated at lower of the cost or fair
value. The fair value is based on a quoted market price at the
balance sheet date. If a quoted market price is not available,
the fair value of the securities is estimated using discounted
cash flow techniques or it is assessed in accordance with the
grading group of the issuer. Where discounted cash flow
techniques are used, estimated future cash flows are based
on management's best estimates and the discount rate is a
market related rate at the balance sheet date for a financial
instrument with similar terms and conditions.
f) Own shares
Own shares constitute a part of the company's share capital, presented as assets in the balance sheet. Gains and losses on sale of own shares are credited or charged to reserves.
g) Investments in other companies
Investments in other companies are initially measured at
cost, being the amount of cash paid or the fair value of consideration
given. Subsequently they are accounted for using
the cost method. Profits are recognised in the income statement
only to the extent of dividends received.
h) Derivative financial instruments
For the accounting purposes derivative financial instruments
are designated for hedging or for trading purpose. The contract
and notional amount of derivative financial instruments
is recorded in the off - balance sheet, while their fair values
are presented as other assets when favourable to the Group
or other liabilities when unfavourable to the Group.
i) Finance lease
Assets leased out under a finance lease are presented in the balance sheet as receivables at the amount equal to the net investments in the lease, less any impairment.
j) Loans and borrowings
Loans and borrowings are initially recognised at the amount
of the cash given or received.
In accordance with the Bank of Slovenia's regulation the
Group is required to establish specific risk provisions and
provisions for general banking risks.
Specific provisions for other foreseeable risks, stated on the
liability side of the balance sheet, are established in respect
of interest rate risk and foreign exchange risk.
l) Uncollectable loans and advances
Uncollectable loans and advances are written off, according to internal written procedures of the Group, after all necessary procedures for recovery have been completed. Any eventual subsequent repayments of loans and advances previously written off are recognised as income.
m) Provisions for liabilities and charges
Provisions for obligations that are expected to occur in the
period exceeding one year are recognised in the financial
n) Accruals and deferred income and expenses
Income and expenses are recognised when they occur and not as cash is received or paid. They are presented as accruals in a separate balance sheet position.
o) Property and equipment
All property and equipment is initially recorded at cost. The
cost of property and equipment comprises purchase price
including import duties, initial delivery and installation costs.
Land and works of art are not depreciated.
p) Investment property
Investment property includes land and buildings owned by
the Group and leased out under operating lease. Investment
property is accounted for using the same accounting policies
adopted by the Group for property and equipment.
q) Intangible assets
Intangible assets are initially recognised at cost including any directly attributable costs. Intangible assets are subsequently impaired if their carrying amount exceeds their value in use. Amortisation is provided on a straight-line basis at rates designed to write off the cost of intangible assets 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 four years. Intangible assets are not amortised until they are brought into use.
Inventories include costs of construction projects where the Group is an investor and property held for sale in the ordinary course of business. Inventories are written down when their carrying amount exceeds their net realisable value.
s) Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise cash and balances with central bank, securities held for trading, loans to banks and debt securities not held for trading with maturity up to 90 days.
t) Tax on profit and balance sheet tax
Slovenian corporate tax is provided on taxable profits at the
rate of 25%. Foreign taxes are provided for in accordance
with local tax laws and accounting principles.
u) Funds managed on behalf of third parties
Assets and liabilities managed on behalf of third parties are stated on net basis.
2. CHANGE IN THE SCOPE OF CONSOLIDATION
Union Invest Capital a.s., Ostrava, Czech Republic which provides
factoring and forfeiting services, became a subsidiary of
NLB in April 2002 when NLB acquired a 100% share of the
company. In May 2002 the company was renamed as LB
Factoring CZ, a.s., Ostrava, Czech Republic and included in
consolidated financial statements during the year 2002. On
the consolidation goodwill amounting to the 4,210 thousand
tolars was accounted for.
3. NEW SLOVENIAN ACCOUNTING STANDARDS
New Slovenian Accounting Standards became operative for
financial statements covering periods beginning after 1
January 2002. The main changes resulting from adoption of
the new Slovenian Accounting Standards and amended regulations
of the Bank of Slovenia are:
4. POST BALANCE SHEET EVENTS
From the balance sheet date until the completion of this report, no such event has occurred that would require the restatement of the completed consolidated financial statements or any additional disclosure.
Fees and commissions income for the year 2002 includes the amount of 3,028,993 thousand tolars received from a major multinational company for providing tolars for the purchase of shares of a major Slovenian company.
In accordance with the changes to the Slovenian Accounting Standards and amended regulations of the Bank of Slovenia, the
Group changed the presentation of impairment losses on investments in securities and investments in other companies in the year
2002. Prior to adoption of the renewed accounting standards the Group was, according to the Bank of Slovenia's regulations,
required to establish provisions in respect of losses on financial investments. In the income statement for the year 2002 impairment
losses on financial investments are presented as losses from financial transaction. Provisions established in previous periods
were released and presented as income in the year 2002 (see notes 20, 21, 22, 23 and 29).
In the year 2002 the Group decreased depreciation rates from 25 % to 14,3 % for automated teller machines and from 20 % to 10 % for communication equipment due to extension of their estimated useful lives. The adoption of the new deprecation rates resulted in a decrease in depreciation expenses by 264,955 thousand tolars.
In 2002 the Group made additional provisions for employment-restructuring program of 500,000 thousand tolars and additional provisions for pensions of 229,259 thousand tolars.
Specific provisions for country risk were in 2001 established as part of specific provisions and were stated on the asset side of the balance sheet.
For a detailed maturity analysis of Placements with, and loans to other banks refer to note 46 - Balance sheet maturity analysis.
d) Loans to associated and other related banks
Loans extended to associated and other related banks as at 31 December 2002 amounted to 9,795,087 thousand tolars (13,139,552 thousand tolars as at 31 December 2001).
The total amount of non-performing loans (C, D and E grading groups) amounted to 68,310,239 thousand tolars as at 31 December 2002, while loans overdue amounted to 33,040,641 thousand tolars. Interest income from non-performing loans, not recognised as income, amounted to 6,238,931 thousand tolars as at 31 December 2002.
e) Loans to associated and other related parties
Loans extended to associated and other related parties as at 31 December 2002 amounted to 8,995,259 thousand tolars (9,850,389 thousand tolars as at 31 December 2001).
The carrying amount of debt securities not held for trading as at 31 December 2002 is lower than the market value by 2,428,353
The total amount of debt securities not held for trading as at 31 December 2002 includes listed securities in the amount of 90,294,193 thousand tolars.
The total amount of securities held for trading as at 31 December 2002 includes listed securities in the amount of 97,476,814
thousand tolars (109,946,939 thousand tolars as at 31 December 2001).
The total amount of investments in other companies as at 31 December 2002 includes listed securities in the amount of 2,064,549 thousand tolars.
Under intangible assets the Group's new information system is presented with the carrying value of 8,323,062 thousand tolars.
The Group states 70,585 thousand tolars as at 31 December 2002 in computers acquired on finance lease.
26. OWN SHARES
The Group holds own shares totalling 490,828 thousand tolars being 34,926 own shares in the nominal amount of 69,852 thousand
tolars. LB Trading d.o.o., Ljubljana and LB Hipo d.o.o., Ljubljana hold each one share meanwhile Korođka banka d.d., Slovenj
Gradec holds 34,924 NLB shares being 0.45% of the subscribed capital.
According to Bank of Slovenia's methodology investment property and property acquired for debt repayment have been transferred to other assets.
c) Analysis of deposits and borrowings from associated and other related banks
Deposits and borrowing received from associated and other related banks amounted to 7,628,195 thousand tolars as at 31 December 2002 (17,576,325 thousand tolars as at 31 December 2001).
c) Analysis of deposits and borrowings from associated and other related companies
Deposits and borrowing received from associated and other related companies amounted to tolars 18,568,205 thousand as at 31 December 2002 (tolars 17,196,997 thousand as at 31 December 2001).
For a detailed maturity analysis of bonds refer to note 46 - Balance sheet maturity analysis.
b) Analysis of issued debt securities to associated and other related companies
Liabilities to associated and other related companies arising from debt securities amounted to 10,125,558 thousand tolars as at 31 December 2002 (2,483,998 thousand tolars as at 31 December 2001).
Other provisions include provisions utilised by LHB Bank for tax payments totalling 1,236,657 thousand tolars. Additional provisions totalling 951,385 thousand tolars were utilised for an out-of-court settlement with the Tržaška Kreditna Banka in liquidation (see note 34b in NLB financial statements).
Subordinated liabilities arising from subordinated loans are commented in detail in note 36 of NLB financial statements.
At 31 December 2002, NLB subscribed capital was represented by 7,682,015 ordinary shares, each with the nominal value of
2,000 tolars. The shares are issued in a non-materialised form and are registred in the Centralna klirinško depotna družba d.d.
register. All shares are ordinary shares of the same class.
According to the Bank of Slovenia's methodology the Group's total off-balance sheet items amounted to 1,474,886,849 thousand
tolars. In accordance with the Decree on the classification of Balance Sheet and Off-Balance Sheet items of Banks and Saving
Banks, the Group established provisions only for contingent liabilities and commitments amounting to 332,939,129 thousand
Certain derivative financial instruments, while providing effective economic hedges under the risk management strategy of the Group, do not qualify for hedge accounting under the specific accounting rules and are therefore treated as derivatives held for trading.
41. FUNDS MANAGED ON BEHALF OF THIRD PARTIES
The Group manages assets totalling 117,761,367 thousand tolars (115,938,273 thousand tolars as at 31 December 2001) on behalf of third parties. Managed funds 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.
Consolidated financial statements include Koroška banka d.d., Slovenj Gradec, Banka Zasavje d.d., Trbovlje and Banka Domžale
d.d., Domžale on the basis of the contract on business cooperation and group risk management.
The Group is organised into three main business segments:
* Interest rates based on interest income and expenses increased by credit commissions.