Dear All,
I was appointed as the new President and CEO on February 1, 2004, so allow me to first introduce the basic characteristic and business results of NLB in 2003 as were discussed on the Supervisory Board.
In 2003, under the leadership of five members of the Management Board with Marko Voljč as the President, NLB Bank was faced with the challenging environment presented by converging interest rates and the intense competition in the market. Slovenia's imminent entry to the European Union accelerated the decline in tolar interest rates and had a significant impact on NLB Bank's business operations. Still, the results of the past year were satisfying. The trend of declining interest rates and margins is set to continue to be a key feature of NLB Bank's performance in the near future.
In 2003 NLB Group reported a 6.6% growth in profit before tax and minority interests to 16.6 billion tolars or 70.1 million euros (in accordance with SAS). Using IFRS the profit before tax reached 20.0 billion tolars (84.5 million euros). Profit before tax of NLB Bank amounted to 11.0 billion tolars (46.5 million euros) using SAS and 13.0 billion tolars (55.1 million euros) using IFRS.
The Group reported return on equity of 12.5% and return on assets of 0.8%, both before tax, using SAS. Earnings per share of NLB Bank amounted to 715.1 tolars. A dividend payment in the amount of 40% of NLB Bank's attributable profit (SAS) or 286 tolars per share will be proposed at the Annual General Meeting by the Supervisory Board in July 2004.
Among the key events 2003 included the problems NLB Bank experienced when transferring the personal business support to a new IT platform. Prompt action and suitable measures that were taken enabled NLB Bank to normalize activities by the end of year without any major consequences.
For the first time in NLB Bank's history NLB Bank recorded a decrease in net interest income in nominal terms despite a 15% increase in interest bearing assets. The fall in net interest income that was due to declining net interest margins was partially offset by growth in non-interest income revenues that grew in line with targeted levels. Initiatives taken by management restricted the growth in costs to just 1.3%, however with income growth under pressure costs will have to be strongly controlled going forward. In summary the declining interest margins will demand three key activities including an intensive policy of interest rate management, growth in non-interest revenues and cost rationalization.
NLB Group balance sheet grew by 9% reaching 2,155 billion tolars (9.1 billion euros) at the end of December 2003. The balance sheet of NLB Bank totalled 1,717 billion tolars (7.3 billion euros), with growth mainly due to 25% increase in corporate lending. NLB Bank's market share has marginally increased by 0.3% in corporate lending while the market share in retail deposits has seen a similar size reduction, despite a growth in the deposit base in 2003.
At the end of 2003 the Group's equity amounted to 110.6 billion tolars measured in SAS (467.2 million euros) and 145.4 billion tolars (615 million euros) using IFRS. Capital adequacy levels exceed the prudent levels required by the Bank of Slovenia and comfortably exceed the BIS recommended ratios 15.2% (due to BIS standards). NLB Group puts a high priority on prudent and quality risk management, reflected again in the reduction of non-performing loans to 3.22% of the total portfolio at 2003 year-end.
NLB Bank is a universal bank with a leading position in the Slovenian banking sector. It expanded its range of services on the Slovenian market in 2003 with creation of a life assurance company NLB Vita, a joint venture with KBC. This venture has enabled NLB Group to develop new business areas in addition to traditional banking services. The success of this venture can be measured in terms of the 4% market share already achieved in the relevant life assurance market in the first six months of operations.
Also in Slovenia, NLB Bank increased its shareholding in Banka Domžale, Banka Zasavje and Koroška banka and thus acquired the majority share. The strategic acquisition SIB was focused on expanding the customer base in the particular segment that SIB was positioned.
In the beginning of 2004 NLB Bank has begun to offer asset management services through NLB Skladi, a 100% NLB Bank owned subsidiary.
In 2003 the Group expanded its geographic presence with the acquisition of subsidiary banks Montenegrobanka in Serbia & Montenegro, Prva Preduzetnička Banka subsequently renamed LHB Banka Beograd, while West East Bank in Bulgaria joined NLB Group as a associate bank.
Other newly established companies including LB InterFinanz and LB Leasing in Serbia & Montenegro and CBS Invest in Bosnia & Herzegovina are targeted at increasing forfeiting, leasing and real estate management activities.
NLB Bank has always been the largest Slovenian bank operating internationally, and will strive to maintain this position while fulfilling our strategic goals:
- To put our customers, their wishes and needs at the centre of our activities.
- Maintain our leading position in Slovenia.
- Consolidate the Group and become the leading financial group in SE Europe.
These goals form the basis of the way in which the Group will achieve the target profit requested by the owners to the satisfaction of all stakeholders.
NLB Group is keen to continue its consolidation and disinvestment activities within the framework of strengthening the Group's position by enhancing synergies among members, and widening the range of services and expanding the customer base. Simultaneously NLB Bank is focused on improving the governance and supervision across the Group.
The strategic decisions in expanding to southeast Europe are already showing some positive results. In 2003 Tutunska Banka, Macedonia increased its balance sheet by 34.2%, while profit grew by 9.9%. CBS Bank, Bosnia & Herzegovina grew its balance by 39% with profits rising 7%. VB Banka grew significantly by 45%. Also the performance of Montenegrobanka, bought in May 2003, saw good volume growth.
We are entering a new period of great challenges. EU membership will expose the significance and value of NLB Bank's international position. On the other hand intense competition together with increased regulation will demand continuous development, increased quality and effective management of costs. The success of NLB Group even after the EU entry is assured by its strong position, financial strength and international presence.
The success of our business is dependent upon on the efforts of our employees. I would like to thank all our employees across NLB Group for the contribution to our business results, and especially welcome the new employees that joined the Group in the last year. The Group has the potential required to deliver our goals and I believe we will be able to take this advantage.
I would like to express thanks to NLB Bank's Supervisory Board for supporting our operations and future development of NLB Group.
To all investors I thank you for your trust and loyalty and would like to commit to you that will deliver with satisfaction to you as our owners and customers also in the future.
The path chosen is difficult however with commitment, endless searching for new and better ideas and consistent exploiting of all internal resources as the drivers, we will reach our ambitious target: to maintain the high reputation that we earned for many years on the domestic market and to rank ourselves among the best in the wider region.
