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 Financial Statements for NLB d.d. under Slovenian Accounting Standards
We have audited the accompanying financial statements of Nova Ljubljanska Banka d.d., Ljubljana, consisting of the balance
sheet as of 31 December 2002, the income statement, the cash flow statement, the statement of changes in equity, and the
notes to the 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 manangement. Our responsibility is to express an opinion on
these financial statements based on our audit.
1. NOTES TO 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The Bank's financial statements have been prepared in
accordance with Slovenian Accounting Standards, and 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 and the Decree on
Establishing Specific Provisions of Banks and Savings Banks
and other Bank of Slovenia's regulations.
a) Assets and liabilities in foreign currencies
Assets and liabilities in foreign currencies 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.
b) Interest, fees and commissions
Interest, fees and commissions expenses are included in the
income statement as soon as they are accrued, while interest,
commissions and fees 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.
c) 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 calculated 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.
d) 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.
e) Investments in subsidiaries, associates, jointly controlled companies and investments in other companies
Investments in capital are initially measured at cost, being the
amount of cash paid or the fair value of consideration given.
f) Derivative financial instruments
For the accounting purposes derivative financial instruments
are designated for hedging or for trading purposes. 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 Bank
or other liabilities when unfavourable to the Bank.
g) Loans and borrowings
Loans and borrowings are initially recognised at the amount
of the cash given or received.
In accordance with Bank of Slovenia's regulation the Bank is
required to establish specific risk provisions and provisions for
general banking risks.
i) Uncollectable loans and advances
Uncollectable loans and advances are written off, according to internal written procedures of the Bank, after all necessary procedures for recovery have been completed. Any eventual subsequent repayments of loans and advances previously written off are recognised as income from loans and advances written off.
j) Provisions for liabilities and charges
Provisions for obligations that are expected to occur in the
period exceeding one year are recognised in the financial
k) Negative goodwill
Negative goodwill presents excess of the fair values of the net identifiable assets over the cost of acquisition. Negative goodwill is presented as part of provisions for liabilities and charges and it is amortised over a period of five years.
l) 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.
m) 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.
n) Investment property
Investment property includes land and buildings owned by
the Bank and leased out under operating lease. Investment
property is accounted for using the same accounting policies
adopted by the Bank for property and equipment.
o) 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.
Intangible assets are not amortised until they are brought into use.
p) Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise cash and balances with the Central Bank, securities held for trading, loans to banks and debt securities not held for trading with maturity up to 90 days.
q) 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.
r) Funds managed on behalf of third parties
Assets and liabilities managed on behalf of third parties are in the balance sheet stated on a net basis.
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 the adoption
of the new Slovenian Accounting Standards and amended
regulations of the Bank of Slovenia are:
4. POST BALANCE SHEET EVENTS
In September 2002 Banca Antoniana Populare filed a lawsuit against LB InterFinanz AG in the amount of DEM 10 million (= 5,113 million euro) plus interest rate of 5 % since the year 1996. The plaintiff contests the authenticity of a document that granted LB InterFinanz AG to utilize a guarantee. LB InterFinanz's lawyers do not assess the plaintiff's rationale as compelling and expect the District Court to rule in favour of LB InterFinanz AG in the year 2003, otherwise LB InterFinanz AG will appeal the decision at the Supreme Courts. Due to favourable expectations of the LB InterFinanz's lawyers, the Bank issued in April 2003 a guarantee on behalf of LB InterFinanz AG.
Interest income from loans to foreign banks and to other foreign customers amounted to 2,999,773 thousand tolars as at 31 December 2002, while interest expenses from borrowings and deposits from foreign banks and other foreign customers amounted to 6,736,538 tolars as at 31 December 2002.
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.
The increase in income and expenses from derivative financial instruments in the year 2002 results from the increased volume of
transactions in currency swaps with the Bank of Slovenia (see note 38b).
In the year 2002 the Bank 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 230,599 thousand tolars.
In the year 2002 the Bank established additional provisions for the employment-restructuring program in the amount of 500,000 thousand tolars. According to realized profit for the year 2002 the Bank provided for employee costs in the amount of 181,120 thousand tolars with the purpose of remunerations to key management.
Provisions for country risk were in the year 2001 established within specific provisions and stated on the asset side of the balance sheet as allowances for bad and doubtful assets.
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:
A detailed maturity analysis of loans to banks is given in Note 44 - Balance sheet maturity analysis.
The total amount of non-performing loans (C, D and E grading groups) amounted to 38,097,569 thousand tolars as at 31 December 2002, while loans overdue amounted to 18,014,584 thousand tolars. Interest income from non- performing loans, not recognised as income, amounted to 3,758,349 thousand tolars as at 31 December 2002.
Other securities include Factor bank d.d. bonds with a total value of 150,000 thousand tolars which have the nature of a subordinate
debt. Other than interest entitlement (at an annual rate of TOM + 6 per cent) and the right to repayment of the principal
the Bank does not have any other rights deriving from these bonds.
At 31 December 2002 debt securities not held for trading amounting to 30,086,346 thousand tolars were listed on the stock exchange (27,266,116 thousand tolars as at 31 December 2001).
At 31 December 2002 the securities held for trading amounting to 87,799,497 thousand tolars were listed on the stock exchange
(58,922,966 thousand tolars as at 31 December 2001)
Investments in Koroška banka d.d, Slovenj Gradec , Banka Domžale d.d., Domžale and Banka Zasavje d.d., Trbovlje are treated
as investments in subsidiaries due to specific contractual agreement, which ensures control by NLB, while Tutunska Banka was
treated as a subsidiary due to the majority share held by the NLB Group.
In the year 2002 the Bank increased its voting share in Banka Celje to 36.56 %.
In November 2002 Slovenska izvozna družba d.d., Ljubljana (SID) purchased additional capital in LB Factors d.o.o., Ljubljana, a subsidiary of the NLB Group. Due to the contractually agreed sharing of control over business activities, LB Factors d.o.o., Ljubljana, became a jointly controlled company by both NLB and SID. LB Factors is now 50 % owned by the NLB Group.
According to the new Slovenian Accounting Standards the Bank adjusted the carrying amount of investments in associated and jointly controlled companies to its share of the fair values of the net identifiable assets. Adjustment resulted in an increase of value of investments by 3,824,199 thousand tolars. Investments were also adjusted for the Bank's share of profits and losses by the amount of 788,908 thousand tolars. Positive effects arising from the use of the equity method of accounting were reported under a specific capital revaluation adjustment in the balance sheet, while negative effects were reported in the income statement as expenses from revaluation.
Under intangible assets the Bank´s new information system is presented with the carrying value of 7,673,919 thousand tolars.
Due to adoption of new Slovenian Accounting Standards the Bank tested the property's value in use by the independent qualified
valuer in the year 2002. The value in use exercise was based on estimating present value of the future cash flows from continuing
use and disposal. The exercise results proved that property is not impaired.
25. OWN SHARES
In accordance with the amended Companies Act the Bank disposed 3,944 own shares in the nominal value of 7,888 thousand
tolars at price of 106,388 thousands tolars in the year 2002. Gain on the sale of own shares, amounting to 56,134 thousand
tolars, was recorded in equity reserves.
In the year 2002 due to adoption of new Slovenian Accounting Standards and the Bank of Slovenia's methodology for the presentation of financial statements the Bank transferred investment property and property acquired for debt repayment from property and equipment to other assets.
A detailed maturity analysis of bonds is given in Note 44 - Balance sheet maturity analysis.
Other provisions include:
In the year 2001 the Bank had a legal proceeding with Tržaška Kreditna Banka (TKB) due to deposits withdrawal performed the year before the start of liquidation process of TKB. In the year 2001 and in the beginning of the year 2002 the Bank established a provision against potential claims in the amount of 1,000,000 thousand tolars. Due to out of court settlement at the end of the year 2002 in the amount of 951,385 thousand tolars, the unused provision was released to income.
In accordance with the Decree on the calculation of capital, capital requirements and capital adequacy of Banks and Savings
Banks, four subordinated long-term loans are included in the Bank's Tier 2 capital. The loan agreements do not contain any provisions
on conversion to capital or any other liabilities.
As at 31 December 2002 7,682,015 ordinary shares represented the capital of the Bank, each with a nominal value of 2,000
tolars. Shares are issued in non-material form and registered in the Clearing House. All shares are ordinary and inscribed.
Basic earnings per share at 31 December 2002 amounted to 822.15 tolars. The weighted average number of ordinary shares outstanding
during the year ended 2002 was 7,638,662.
c) Distributable net profit for the year 2002
As at 31 December 2002 the Bank formed own shares fund in respect of NLB's shares held by its subsidiaries. Net profit for the year 2002 in the amount of 2,649,240 thousand tolars was transferred to other profit reserves, while the retained earnings and remaining part of net profit for the year 2002 in the amount of 3,195,767 thousand tolars represent distributable net profit for the year 2002.
According to the Bank of Slovenia's methodology the total off-balance sheet items amounted to 1,410,118,309 thousand tolars.
In accordance with the Decree on the Classification of Balance Sheet and Off-Balance Sheet Asset items of Banks and Savings
Banks the total contingent liabilities with risk exposure amounted to 325,377,924 thousand tolars.
Certain derivative financial instruments, while providing effective economic hedges under the risk management strategy of the Bank, do not qualify for hedge accounting under the specific accounting rules and are therefore treated as derivatives held for trading.
39. FUNDS MANAGED ON BEHALF OF THIRD PARTIES
The Bank manages assets totalling 113,319,955 thousand tolars (as at 31 December 2001: 114,873,153 thousands tolars) 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.
40. FOREIGN BRANCHES
The Bank has a branch in Triest, which total assets amounted to 23,220,696 thousand tolars as of 31 December 2002 and net profit for the year 2002 17,966 thousand tolars.
Placements with and loans to other bank
The estimated fair value of the deposits is based on discounted cash flows using prevailing money market interest rates for debts with similar credit risk and remaining maturity.
Loans and advances to customers
Loans and advances are net of specific provisions for impairment. The Bank uses a discount rate adjustment approach. In other words the stream of contracted cash flows forms the basis for the present value computation, and the rates used to discount those cash flows reflect the uncertainties of cash flows.
The fair value to the depository institution of a demand deposits on the expectations of the timing and amounts of withdrawals
of the existing balance, the level of prevailing interest rates with similar terms, the costs of servicing the deposit and the Bank's
own credit risk. This is essentially important for core demand deposits, which have a positive fair value.
Debt securities held to maturity
The fair value of the bonds of the Republic of Slovenia for paid foreign currency deposits is calculated using discounted cash
flows techniques. Due to their lower contractual interest rate against market interest rate of comparable market bonds the fair
value of these bonds is lower than the carrying value. These bonds represent first-class securities and according to the Bank's
positive intention to hold them to maturity they will be, irrespective of their momentary fair value, settled at maturity at their
The Bank's organisational structure is from the beginning of the year 2003 based on 3 major business segments (value generation
centres). This business segments are used for segment reporting for the year 2002:
Effective interest rates are calculated on the basis of daily averages for each interest bearing balance sheet item (separately for tolars and foreign currencies). Interest income from loans to banks and loans to other customers are increased by commitment fees and commissions related to these loans.