Audited Financial Statements for NLB Bank under Slovenian Accounting Standards
Report of the auditors
To the members of Nova Ljubljanska banka d.d., Ljubljana
We have audited the accompanying balance sheet of Nova Ljubljanska banka d.d., Ljubljana ('NLB Bank') standing alone as of 31 December 2003 and the related statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements give a true and fair view of the financial position of NLB Bank standing alone as of 31 December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with Slovenian Accounting Standards.
This audit report has been translated from the Slovenian original. This translation is provided for reference purposes only and is not to be signed.
The Management Board authorised for issue the financial statements and notes to the financial statements.
Ljubljana, 23 April 2004
Cash flow statement
Statements of changes in equity
Statement of management's responsibilities
The management are responsible for preparing financial statements for each financial year that present fairly the state of affairs of NLB Bank as at the end of the financial year and of the profit or loss for that period.
The management confirm that suitable accounting policies have been used and applied consistently and reasonable and prudent judgements and estimates have been made in the preparation of the financial statements for the year ended 31 December 2003. The management also confirm that applicable legislation and Slovenian Accounting Standards have been followed and that the financial statements have been prepared on the going concern basis.
The management are responsible for keeping proper accounting records, for taking reasonable steps to safeguard the assets of NLB Bank and to prevent and detect fraud and other irregularities.
The tax authorities may at any time inspect the books and records within 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties.
NOTES TO FINANCIAL STATEMENTS
1. General information
NLB Bank is incorporated in Slovenia as a joint stock company providing universal banking services. The majority shareholders of NLB Bank are the Republic of Slovenia, holding 35.41% of the shares and KBC Bank N.V., Brussels ('KBC Bank'), holding 34% of the shares.
The address of its registered office is:
Nova Ljubljanska banka d.d., Ljubljana, Trg republike 2, Ljubljana
The increase in the general price index for the year 2003 was 4.6% (2002: 7.2%). The exchange rate changed from 230.3 tolars to the euro at 31 December 2002 to 236.7 tolars to the euro at 31 December 2003, and from 221.1 tolars to the US dollar at 31 December 2002 to 189.4 tolars to the US dollar at 31 December 2003.
2. Significant accounting policies
NLB Bank's financial statements have been prepared in accordance with Slovene 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.
The principal accounting policies applied by NLB Bank for the preparation the financial statements are set out below:
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, commission and fee 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. 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.
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.
Held to maturity securities are initially measured at cost. After initial recognition they are stated in the balance sheet at the amount of the principal outstanding less any impairment.
The Bank use FIFO method for determination of the profit or loss on derecognition of securities.
d) Treasury shares
Treasury shares constitute a part of the company's share capital, presented as assets in the balance sheet. Gains and losses on sale of treasury 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.
Investments in subsidiaries, associates and jointly controlled companies are accounted for using the equity method, while investments in other companies are accounted for using the cost method.
NLB Bank's share of profits and losses of subsidiaries is included in the income statement as soon as it is accrued, while the share of the profits of associates and jointly controlled companies is until payment reported in the equity. NLB Bank's share of losses of associates and jointly controlled companies is included in the income statement immediately.
Profits of other companies are recognised in the income statement only to the extent of dividends received.
If there is an indication that investments may be impaired each individual investment is assessed. Any impairment is recognised immediately in the income statement.
f) 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 NLB Bank or other liabilities when unfavourable to NLB Bank.
Fair values are obtained from quoted market prices, discounted cash flow models and pricing models as appropriate.
Losses on derivative financial instruments, treated as held for trading, are recognised in the income statement immediately. Gains are recognised in the income statement only when they are realized.
Changes in the fair value of derivative financial instruments that are designated as the fair value hedge are recognised in the income statement on the same basis as the corresponding change in the fair value of the hedged item.
Changes in the fair value of derivative financial instruments that are designated as cash flow hedges and that prove to be highly effective in relation to the hedged risk, are presented in the equity as specific capital revaluation adjustment, while the ineffective portion is immediately reported in the income statement.
The income statement includes foreign exchange differences from certain financial derivatives, which are providing effective economic hedges in respect of foreign currency risk exposure.
g) Loans and borrowings
Loans and borrowings are initially recognised at the amount of the cash given or received.
Loans are stated in the balance sheet at the amount of the principal outstanding, increased by interest capitalised where appropriate, less any provision for unrecoverable amounts.
Borrowings in the balance sheet are presented at the amount of the principal outstanding, increased by interest capitalised where appropriate.
In accordance with Bank of Slovenia's regulation NLB Bank is required to establish specific risk provisions and provisions for general banking risks.
Specific provisions are established on loans, advances and off-balance sheet items in respect of credit risk on the basis of provisioning rates specified by the Bank of Slovenia's Decree on the Classification of Balance Sheet and Off-Balance Sheet Asset Items of Banks and Savings Banks. Specific credit risk provisions on loans and advances to customers classified in the rating group B, C, D or E are stated on the asset side of the balance sheet as allowances for bad and doubtful loans, while specific credit risk provisions for A rating group are stated on the liability side. Specific credit risk provisions established on off-balance sheet items and specific country risk provisions are also stated on the liability side of the balance sheet.
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.
General banking risk provisions, stated on the liability side of the balance sheet, are established for the purpose of protecting against risks arising from NLB Bank's overall operations.
i) Uncollectable loans and advances
Uncollectable loans and advances are written off, according to internal written procedures of NLB 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 statements when:
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 to the income statement 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.
At each balance sheet date NLB Bank assesses whether there is any indication that assets may be impaired. If any such indication exists the recoverable amount is estimated. Recoverable amount is the higher of net selling price and value in use. When value in use exceeds carrying amount that indicates that assets are not impaired.
Depreciation of property and equipment is provided on a straight-line basis at rates designed to write off cost or valuation of buildings and equipment over their estimated useful lives.
Land and works of art are not depreciated.
Property and equipment is depreciated from the first day of next month after it was brought into use.
Subsequent expenditures result in an increase of an asset's carrying amount when it is probable that future economic benefits will exceed the originally assessed benefits or in an extension of the useful life of an asset.
The same accounting policies are applied for assets held by NLB Bank under a finance lease.
n) Investment property
Investment property includes land and buildings owned by NLB Bank and leased out under operating lease. Investment property is accounted for using the same accounting policies adopted by NLB Bank for property and equipment.
According to the Bank of Slovenia's methodology investment property is in the balance sheet presented as other assets.
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.
Amortisation is provided on a straight-line basis at rates designed to write off the cost of intangible assets over its estimated useful life.
Intangible assets are not amortised until they are brought into use. Range in amortisation rates for intangible assets differ from the range in rates for the year 2002 due to the acquisition of new types of intangible assets.
p) 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.
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.
In 2002 the Slovenian balance sheet tax is calculated as a 3% levy on certain balance sheet items. According to Slovenian legislation the maximum balance sheet tax is limited to 50% of pre-tax profit. Where the 3% levy exceeds 50% of profits, the lower tax charge is payable.
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.
s) Segmental reporting
Business segments provide products or services that are subject to risk and returns that are different from those of other business segments.
Interest income from loans to foreign banks and to other foreign costumers amounted to 4,043,353 thousand tolars as at 31 December 2003 (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 8,313,260 thousand tolars as at 31 December 2003 (6,736,538 thousand tolars as at 31 December 2002).
Income from valuation of securities held for frading and expenses from derivative financial instruments include reversal of effects in the amount of 746,160 thousand tolars and 801,798 thausand tolars respectively that relate to temporary purchased securities which werw transferred to loans (see note 17 g).
NLB Bank made changes to its policy for credit and country risk provisions in 2003. The net impact of these changes resulted in a lower credit and country risk provisions charge being required in 2003 had these changes not been implemented. NLB Bank's credit provisioning policy is in compliance with the Bank of Slovenia regulations at all times. There were three main changes to the policy as follows:
The provisioning percentages were changed for the categories graded B from 14% to 10%, for C from 27% to 26% and for D from 62% to 53%. The impact of the changes meant that 8,271,786 thousand tolars lower credit provisions were required using the new policy. The new percentage ratios for potential losses are either at or above those required by the Bank of Slovenia, and are considered by management to be adequate.
The provisioning policy of exposures to citizens changed where from previously 5% provision for B graded exposures is now increased to 10%. At the same time unsecured loans and used overdraft limits that were graded B are now graded on a case by case basis using actual default criteria, and has resulted in some exposures being regarded as A. The impact of these policy changes resulted in 1,875,243 thousand tolars lower credit provisions being required.
There was a change in the Bank of Slovenia regulations regarding provisions for exposures secured by mortgage that has to be enforced by the end of 2005. NLB Bank has decided to implement the changed regulations already in 2003 and this has had resulted in additional credit provisions of 1,203,519 thousand tolars.
NLB 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:
The total amount of non-performing loans (C, D and E grading groups) amounted to 46,536,974 thousand tolars as at 31 December 2003 (38,097,569 thousand tolars as at 31 December 2002), while loans overdue amounted to 20,385,323 thousand tolars (18,014,584 thousand tolars as at 31 December 2002). Interest income from nonperforming loans, not recognised as income, amounted to 3,922,424 thousand tolars as at 31 December 2003 (3,758,349 thousand tolars as at 31 December 2002).
In the year 2003 temporary purchased securities in the amount of 1,339,696 thousand tolars were transferred to loans and revalued according to the credit risk exposure of the transaction.
Other securities include Factor bank d.d. bonds with a total value of 150,000 thousand tolars, Slovenica d.d. bonds with a total value of 500,000 thousand tolars and Probanka d.d. bonds with a total value 235,270 thousand tolars which have the nature of a subordinate debt. Other than interest entitlement and the right to repayment of the principal NLB Bank does not have any other rights deriving from these bonds.
The market value of debt securities available for sale exceeds their carrying value by 2,180,422 thousand tolars as at 31 December 2003 (35,812 thousand tolars as at 31 December 2002).
In the year 2003 NLB Bank has started dividing its financial instruments into trading and banking book. In accordance with the Regulation on capital adequacy of banks and savings banks and consequently according to the impact of splitting financial instruments into trading and banking book on the calculation of capital adequacy NLB Bank reclassified securities in the amount of 37,447,763 thousand tolars from trading to available for sale group. Subject to reclassification were government bonds for which NLB Bank decided not to sell in the future and not to trade with them. The reclassification caused no impact on financial statements of NLB Bank due to the fact that accounting principles under SAS are the same for securities held for trading and securities available for sale.
At 31 December 2003 securities not held for trading amounting to 59,871,757 thousand tolars were listed on the stock exchange (30,086,346 thousand tolars as at 31 December 2002).
At 31 December 2003 the securities held for trading amounting to 86,090,183 thousand tolars were listed on the stock exchange (87,799,497 thousand tolars as at 31 December 2002).
The market value of securities held for trading exceeds their carrying value by 5,403,959 thousand tolars as at 31 December 2003 (4,556,394 thousand tolars as at 31 December 2002).
Other securities include Factor bank d.d. bonds with a total value of 101,300 thousand tolars (251,300 thousand tolars as at 31 December 2002), which have the nature of a subordinate debt. Other than its interest entitlement and the right to repayment of the principal NLB Bank doesn't have any other rights deriving from these bonds. Other securities include also NLB Bank bonds in the amount of 3,918,942 thousand tolars (3,401 thousand tolars as at 31 December 2002).
In the year 2003 NLB Bank increased interest in its subsidiary banks Koropka banka, Banka Domžale and Banka Zasavje. NLB Bank sold in the year 2003 45% interest in LB Leasing to Slovenian subsidiary banks.
Tutunska Banka a.d., Skopje and Montenegro banka a.d., are treated as subsidiaries due to the majority interest held by NLB Group.
In April 2003 NLB Bank acquired majority interest in Slovenska investicijska banka (SIB). NLB Bank cooperated with SIB in the interbank market as with any other Slovenian and foreign banks from the early establishment of SIB. NLB Bank showed primarily an interest for the acquisition of SIB due to the incentives from the business segment of NLB Bank to acquire trough SIB businesses with the following companies; Holding Ljubljana d.o.o. (Holding), JP Energetika Ljubljana d.o.o (Energetika) and City of Ljubljana.
In March 2003 Energetika, the major shareholders of SIB at that time, publicly offered shares and later performed due diligence and NLB Bank submitted a binding offer. NLB Bank was chosen as only potential buyer of SIB, therefore in May 2003 Purchase agreement and Agreement on financial and business collaboration were signed. According to the Agreement on financial and business collaboration two thirds of transactions and business (deposits, payment transfers, accounts) with Energetika and Holding were transferred from SIB to NLB Bank. The cost for acquired interest in SIB amounted to 405 million tolars. Negotiations with Holding and Energetika for additional purchase consideration contingent on transfer of additional transactions from SIB to NLB Bank were not successful as Energetika withdrew from negotiations and later filed lawsuit. In accordance with the public offering NLB Bank acquired additional 2% of shares and became 80.78% owner of SIB.
NLB Bank started implementing regulations and standards of NLB in SIB as permitted by the law. SIB also started with business improvements such as sale and intensive recovery of debts, sale of capital investments and property but as they were not successful the Assembly of SIB decided on 29 December 2003 to start with the liquidation process of the bank. The beginning of liquidation process and nomination of administrator in bankruptcy was registered on 5 January 2004. On 27 February 2004 the Management Board of NLB Bank accepted decision to purchase net assets of SIB at the price equal to the carrying values.
In accordance with all known facts NLB Bank established provisions in the amount of estimated negative net assets of SIB less present value of the future net income that NLB will earn from acquired transactions from SIB. Provisions were in the financial statements of NLB Bank recognised in the amount of 1,993,886 thousand tolars consisting of the impairment of an investment in the amount of 411,863 thousand tolars and of provisions for patronage statement in the amount of 1,582,023 thousand tolars.
Prvi Faktor is in financial statements treated as jointly controlled company according to 50% interest held by NLB Group.
In the year 2003 NLB Bank formed together with KBC Bank insurance company NLB Vita, ćivljenjska zavarovalnica d.d.
Intangible assets include NLB Bank's information system with the carrying value of 11,918,861 thousand tolars (information system completed for use 6,629,527 thousand tolars, information system in course of implementation 5,289,334 thousand tolars). Accumulated amortisation of information system as at 31 December 2003 amounted to 882,054 thousand tolars while the amortisation costs of the system in the year 2003 amounted to 658,263 thousand tolars. The remaining useful life of the information system is between 7 and 9 years. Other costs included in the income statements for the year 2003 amounted to 192,021 thousand tolars.
The information system for the retail banking (Bancs) was in partially operational in 2003 and started fully operating in January 2004. The information system for the corporate banking (Globus), which is presented under assets in the course of implementation is currently under review with assessment of the systems appropriateness according to NLB Bank's requirements. Findings from the review of the system are due in mid 2004.
In the year 2003 NLB Bank sold its buildings at Šubičeva 2 street in Ljubljana and at Stossmayerjeva 26 street in Maribor with the carrying value 1,062,700 thousand tolars.
In the year 2003 there were no indications that assets may be impaired.
There are no assets held under finance lease in NLB Bank's financial statements for the year 2003.
24. Treasury shares
In the year 2003 there were no contractual agreements between NLB Bank and third parties for the acquisition or disposal of NLB's shares on behalf of NLB Bank nor were there any contractual agreements for pledge of NLB's shares as collateral on behalf of NLB Bank.
Shares of NLB Bank held by its subsidiaries LB Trading d.o.o, Ljubljana LB Hipo d.o.o., Ljubljana and Koroška Banka d.d., Zasavje amounted to 490,828 thousand tolars as at 31 December 2003. In respect of these shares NLB Bank formed treasury shares fund in the year 2002.
Balance of derivative financial instruments included in other assets and other liabilities increased in the year 2003 compared to the year 2002 due to the recognition of exchange differences arising from the changes in mid exchange rate of the Bank of Slovenia.
Receivables in the course of collection are temporary balances, which are according to the functionality of the information support system transferred to appropriate item of other assets within next few days after the occurrence.
Other provisions include provisions for pensions and termination indemnities in the amount of 107,517 thousand tolars as at 31 December 2003 (1,179,308 thousand tolars as at 31 December 2002).
At the end of the year 2003 the Management Board of NLB Bank decided to proceed with the employee-restructuring plan in order to rationalize costs and number of employees. The main features of the restructuring plan for the year 2004 relate to limitation of new employees and to restructuring of existing employees through an internal job market. The termination plan will include those employees that will not be relocated through the internal job market. The Management Board of NLB Bank hasn't approved yet any detailed plan for the termination of employment nor has developed any criteria or list of employees who will be compensated for terminating their services therefore NLB Bank according to principles of accounting standards didn't recognise provisions in its financial statements.
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 and issued subordinate securities are included in NLB Bank's Tier 2 capital. The loan agreements and issued subordinate securities do not contain any provisions on conversion to capital or any other liabilities.
As at 31 December 2003 7,682,015 ordinary shares represented the capital of NLB Bank, each with a nominal value of 2,000 tolars. Shares are issued in non-material form and registered in the Central Securities Clearing Corporation. All shares are ordinary and inscribed.
At 31 December 2003 there were 919 shareholders. NLB Bank's shareholders are 257 corporate entities, 660 citizens and 2 non-residents.
According to the decision of the Assembly in the year 2003 NLB Bank paid a dividend for the year 2002 of 327 tolars per share amounting to 2,512,019 thousand tolars.
Basic earnings per share at 31 December 2003 amounted to 715 tolars (822,15 tolars as at 31 December 2002). The weighted average number of ordinary shares outstanding during the year ended 31 December 2003 was 7,682,015 (7,638,662 as at 31 December 2002).
If NLB Bank maintained capital at the rate equal to the general price index in the year 2003, profit before tax would amount to 5,742,734 thousand tolars (4,962,735 thousand tolars as at 31 December 2002). If instead of the general prices index the growth rate for euro in the year 2003 was used it would result in a profit before tax at amount of 7,896,081 thousand tolars (8,475,995 thousand tolars as at 31 December 2002).
c) Distributable net profit for the year 2003
In accordance with the decision of the Supervisory Board net profit for the year 2003 in the amount of 2,746,676 thousand tolars was transferred to other profit reserves, while the retained earnings and remaining part of net profit for the year 2003 in the amount of 2,746,714 thousand tolars represent distributable net profit for the year 2003.
According to the Bank of Slovenia's methodology the total off-balance sheet items amounted to 1,731,126,938 thousand tolars (1,410,118,309 thousand tolars as at 31 December 2002). 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 405,110,347 thousand tolars (325,377,924 thousand tolars as at 31 December 2002).
The total amount of all guarantees issued by NLB Bank to its subsidiaries amounted to 3,309,755 thousand tolars as at 31 December 2003 (1,663,503 thousand tolars as at 31 December 2002). The total amount of letters of awareness written on behalf of NLB Bank's subsidiaries amounted 74,644,761 thousand tolars as at 31 December 2003 (37,193,684 thousand tolars as at 31 December 2002).
Those derivative financial instruments, which provide effective economic hedges under the risk management strategy of NLB Bank, do not qualify for hedge accounting under the specific accounting rules and are therefore treated as derivatives held for trading.
Financial statements of NLB Bank for the year 2003 include provisions for financial derivative instruments in the amount of 14,534 thousand tolars (33,463 thousand tolars as at 31 December 2002).
c) Assets pledged
No assets are pledged as collateral for liabilities of NLB Bank as at 31 December 2003.
38. Funds managed on behalf of third parties
NLB Bank manages assets totaling 135,627,971 thousand tolars (113,319,955 thousand tolars as at 31 December 2002) on behalf of third parties. Managed funds' assets are accounted for separately from those of NLB Bank. Income and expenses of these funds are for the account of the respective fund and no liability falls on NLB Bank in connection with these transactions. NLB Bank is compensated for its services by fees chargeable to the funds.
39. Foreign branches
NLB Bank has a branch in Triest, which total assets amounted to amounted to 29,256,279 thousand tolars as of 31 December 2003 (23,220,696 thousand tolars as at 31 December 2002) and net profit for the year 2003 3,297 thousand tolars (17,966 thousand tolars as at year 2002).
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. NLB 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.
Debt securities held to maturity
The fair value of the bonds of the Republic of Slovenia for paid foreign currency deposits is calculated by 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 NLB Bank's positive intention to hold them to maturity they will be, irrespective of their momentary fair value, settled at maturity at their carrying value.
The fair value of other securities held to maturity is based on their quoted market price or calculated by using discounted cash flows techniques and it is higher or equal to the carrying value of these securities.
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 NLB Bank's own credit risk. This is essentially important for core demand deposits, which have a positive fair value.
The estimated fair value of other deposits is based on discounted cash flows using interest rates for new debts with similar remaining maturity.
NLB 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 2003:
Inter- segment transfers are determined under normal commercial terms and conditions. Segment balance sheet items comprise operating assets and liabilities of reportable segments.
43. Balance sheet maturity analysis
Year ended 31 December 2003:
44. Balance sheet analysis by currency
Year ended 31 December 2003:
45. Effective interest rates
The interest rate risk exposure analysis of NLB Bank's balance sheet as at 31 December 2003:
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.
Key figures of NLB Bank in accordance to Bank of Slovenia methodology