STATEMENT OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

NLB experienced a year of significant change in 2002. The business environment was as challenging as it has been for some years with increased competition and less favourable economic conditions. Against this background the NLB Group and Bank can report a solid performance in operations in a year that also saw the successful completion of privatisation, transfer of the domestic payments system to the banking sector, and further strengthening of relationships within the NLB Group that has led to improved synergies.

The Group reported profit before tax of 15.6 billion tolars (67.6 million euros) in accordance with Slovene Accounting Standards (SAS), and 24.7 billion tolars (107.4 million euros) in accordance with International Financial Reporting Standards (IFRS). Using the SAS financial statements, NLB Bank's earnings per share was 818 tolars per share in 2002 an increase of 4 per cent. The Group reported return on equity of 11.9 per cent and return on assets of 0.84 per cent again using SAS, and while these numbers were solid considering the operating environment, both were down on the previous year. At the Bank's annual general meeting in June 2003, the Supervisory Board will propose payment of a dividend of 327 tolars per share representing a 40 per cent pay out of attributable profits.

The key features on the business front included declining interest margins being offset by strong growth in noninterest income, and the commencement of a cost rationalisation program. Business volumes grew strongly during 2002 with total assets climbing to 1,981 billion tolars (8.6 billions euros) a growth of more than 14 per cent on the previous year. NLB maintained its market share of assets in the total banking system (38.7 per cent) with an increase in market share of the deposit sector (39.6 per cent) although there was a decline in market share in the lending sector (35.6 per cent), reflecting the very competitive pricing environment especially in corporate lending.

During 2002 credit quality remained a high priority reflected in 95 per cent of the total asset portfolio being classified in the highest grade A and B ratings. In the Bank's asset portfolio at the year-end total specific provisions covered over 100 per cent of doubtful and non-performing assets. The Group's equity measured in SAS grew to 107.3 billion tolars (466 million euros) and in IFRS to 118 billion tolars (511 million euros) by the end of December 2002. Capital adequacy levels of 11.5 per cent reflect efficient equity management and adequate provisioning levels against the Groups risks.

Within the NLB Group the Bank remains the largest component, however other Group companies continue to gain importance in the Group results. Further synergies are constantly being implemented and result in the creation of an additional competitive advantage for the Group. Almost all domestic subsidiaries reported profit growth in 2002 while the performance of Tutunska Banka, Skopje, stood out amongst the foreign subsidiaries.

The privatisation process that took place during 2002 brought significant change to the ownership structure. The ownership profile now sees the Belgian banking and insurance group KBC as a new shareholder holding a 34 per cent stake in NLB while the State holds 35.7 per cent. The remaining 30 per cent are held by various institutional and private investors including the EBRD who holds 5 per cent and two Slovene Funds that also hold 5 per cent each.

The changes in the ownership have also brought about changes in the Supervisory Board and Management Board. KBC representation on the Supervisory Board has helped improve corporate governance and we are happy to have a broad range of international experience on board that definitely helps with the development of the Bank. The Management Board has expanded to five members and the new horizontal organizational structure sees the emergence of value generating centers allowing for more flexible and transparent operations. Each of the five centers is led by a member of the Management Board and this focus will also contribute to the cost rationalisation program thus providing a solid base for future growth.

The entry of our new key shareholder KBC will provide the Bank with the opportunity of more dynamic development and strengthen our competitive advantage. Our capital base has been strengthened and this is facilitating our goal to further expand to the markets of Southeast Europe. We anticipate that progress will be made in developing a presence in Montenegro and in Serbia thus adding to our portfolio of investments in banks in the region.

In our domestic market we are working together with KBC in exploring and developing new business areas and possibilities of enhancing profitability. In mid 2003 we plan to commence marketing new life assurance products through our first combined joint venture with KBC, NLB Vita (NLB Life). This year we also plan to launch asset management products through a newly established asset management company called NLB Skladi (NLB Asset Management). With the introduction of these new services our focus is to deliver on our strategy to grow and diversify business development opportunities.

Looking forward we see continued focus on preserving interest margins, developing non-interest income business and seeking to actively manage the cost base. These three areas will be key to developing growth in profitability and specific programs are in place to address each area. Proactive management of the interest rate environment is already taking place as we see rapid convergence between the current Slovene tolar interest rates and euro rates as ultimate entry to ERM2/EMU is a priority for the Slovenia. The introduction of new services as well as the upgrading and development of modern distribution channels will add to the growth in non-interest income. In cost management we have set challenging targets for 2003 in both investment and operational cost areas, which we expect, will result in improved efficiencies this year. Attention will also be focused on improving and expanding existing strategic areas of operations including leasing, factoring and forfeiting.

A key challenge in recent years has been in managing the significant investment in information technology that is critical for the long-term efficiency of the Group's operations. During 2002 progress has been made with several new technologies introduced in the framework of the Sigma project for corporate and retail services. This will facilitate the streamlining of operations and create further synergies within the Group as the process continues in 2003.

The Slovene economy grew by 3.2 per cent, once again displaying its resilient character as it managed to mitigate the impact of reduced global economic activity by expanding to the faster growing markets of Southeast Europe. Formal entry to the European Union in May 2004 is not expected to bring major changes either for the economy or the banking sector as Slovenia has already made significant strides in its convergence with EU.

Against this macroeconomic background, the strategic direction of the NLB Group is to become a leading banking and financial group in the region of central and Southeast Europe. In setting out our strategic targets the basic principle of maximizing shareholder value is at the core as we believe this will help us increase the satisfaction of all stakeholder groups including our customers, our employees and our owners. The five principal strategic objectives of the NLB Group are based on strengthening and expanding our position and presence on the markets of the region and focus on growth in profitability and efficiency.

The five objectives are:

• Deliver a return on equity of the Group in excess of the average for the Slovene banking sector;
• Expand operations to achieve a total volume of operations of 20 billion euros by 2006. The Group's goal is to have a presence of 10 to 15 percent market share in the target countries in the region;
• Maintain the leading position in the Slovene market and develop market segment strategies for specific sectors.
• Improve efficiency by reducing the Group's cost/income ratio to 58 per cent by 2005 and 55 per cent by 2007;
• Develop the Group to be a leading financial services group in the region, not just providing banking services but also insurance related business, asset management business, leasing, factoring and forfaiting.

Finally I believe it is critical to recognize the importance of the contribution made by our employees in the past year. Despite the significant challenges presented by all the changes taking place, employees across the Group have once again demonstrated resilience and enthusiasm in delivering with quality and reliability. We are now focusing on developing customer service and sales as key priorities and we also strive to increase the mobility of people within the Group implementing a vision of creating a uniform organisational culture. I would like to thank all our management and staff across the NLB Group, for the significant contribution made in the past year and emphasise that NLB is keen to remain the employer of "preferred choice".

I would like to express thanks to all our loyal customers who have trusted us with their business in the last year and I would also express my gratitude to NLB's Supervisory Board for the clear and firm support given to the Bank's and Group's development strategy.

I invite you to enter the new era with even greater enthusiasm so that we can work together to build the NLB Group into a leading financial institution in the region of Southeast Europe.

From right to left: Gašper Jože Filiplič, Senior Director, Corporate Banking I Central Slovenia, Deputy Member of the Management Board; Milan M. Cvikl, Chief Financial Officer, Deputy Member of the Management Board; Marko Voljč, President of the Management Board and CEO; Maksimiljan Janez Senčar, Senior Director, Deputy Member of the Management Board, Milan Marinič, Secretary General, Deputy Member of the Management Board; Matej Narat, Member of the Management Board; Borut Stanič, Member of the Management Board; Dušan Gale, Chief Information Officer, Deputy Member of the Management Board; Tomaž Košir, Senior Director, Branch Network, Deputy Member of the Management Board; Andrej Hazabent, Member of the Management Board; Pierre Van Keirsbilck, Member of the Management Board.