CHAIRMAN'S STATEMENT

NLB has successfully completed its privatisation program this year, by adopting a unique model allowing it to maintain its identity with a long history in the region, while strengthening its corporate governance and improving its business orientation. The shareholding structure of the Bank consists of the Republic of Slovenia (36 per cent), KBC (34 per cent), the European Bank for Reconstruction and Development (5 per cent), Slovene funds (10 per cent), and other Slovene investors (15 per cent).

The transition has been very smooth, reflecting the high level of professionalism and the strong support and commitment of both the new foreign shareholders and the Slovene owners. One of the key factors of the successful privatisation was the high level of professionalism of management and staff who represent the most valuable assets of the Bank.

A new Supervisory Board, representing the new shareholding structure, was elected by the General Assembly in September 2002. The Board consists of eleven distinguished professionals from Slovenia, KBC and EBRD. The members are: Mr. Anton Žunič (president), Mr. Uroš Slavinec (deputy president), Mr. Herman Agneessens, Mr. Frans Florquin, Mr. Zvone Ivanušič, Mr. Igor Kušar, Mr. Jože Lenič, Mr. Dirk Mampaey, Mr. Victor Pastor, Mrs. Metka Tekavčič and Mr. David Michael Truman.

The Supervisory Board appointed a five member Management Board reflecting the continuation of the success of the old management, the commitment of KBC, and the business strategy of NLB and the Group in Slovenia and in the region. The Management Board consists of: Mr. Marko Voljč (president), Mr. Andrej Hazabent, Mr. Pierre Van Keirsbilck, Mr. Matej Narat and Mr. Borut Stanič.

The Supervisory Board has already approved a system of corporate governance in line with international practice applicable for leading banking institutions. The Board has approved a detailed business strategy for the Bank and the Group, with focus on consolidation of some areas and expansion in others. The Board will also pay special attention with regard to the management information system and automation, quality of services, risk management, and product innovation.

The strategy of the Bank and the Group is to maintain its leading role in Slovenia and to increase its presence in the neighbouring region. The Bank will adopt measures to improve its competitive edge, by implementing a cost rationalisation program that would allow it to operate profitably with more competitive margins. Moreover, the Bank will focus on strengthening the relationship with its clients by providing high quality services and introducing new products.

The privatisation did not have any adverse effect on the performance of the Bank. At the end of the 2002, total consolidated assets (under Slovenian Accounting Standards) reached 1,981.0 billion tolars, an increase of 14.4 per cent over last year, while the Group's equity stood at 107.3 billion tolars, an increase of 3.1 per cent. Significant achievement in the year was the growth of noninterest income where commission and fees on the consolidated level witnessed an important surge of 49 per cent reflecting the various arrays of financial products offered by the Bank and the result of its focus on fee based activities.

The Bank continued its consolidation of its domestic and international operations. The market share of the Bank and its domestic daughter banks in Slovenia reached 38.7 per cent in 2002, and it is expected to increase in 2003 as the results of improving the relationship with clients and increasing of some capital investments.

The Bank has managed to dissolve its operation in New York, in accordance with the approved budget and strategy. On the other hand, the Bank is considering acquiring new banking institutions in the former Yugoslavia, and participating in a new banking venture in Bulgaria. The strategy behind the regional expansion is to improve the ability of the Bank to service its existing clients, and to operate in new markets where it has competitive advantages.

The Bank has already benefited from the participation of the new shareholders; most notably in introducing new financial products, obtaining long-term funding, and referring of new businesses throughout its network.

We understand the challenges that lie ahead, including those associated with the banking industry in general, and those pertaining specifically to NLB. We are confident that we can implement our business strategy in Slovenia and in the region successfully.