Financial markets

Transactions in financial instruments

Stockbrokerage

Stockbrokerage services are intended for investors who wish to make their own decisions regarding investments in financial instruments, and who assume the associated risks and are prepared to dedicate more of their own time to the active management of their assets.

At the end of 2010, NLB worked with 14,651 stockbrokerage customers, who executed 31,155 transactions during the year in the total amount of more than EUR 433 million. Income from stockbroking was up 26.4% on 2009.

Other NLB Group companies providing stockbrokerage services are Convest, a member of the Belgrade stock exchange, and NLB Tutunska banka, a member of the Macedonian Stock Exchange in Skopje.

Portfolio management and investment advice

Portfolio management is based on the fact that the customer pays funds into a selected portfolio with a specific investment policy and leaves the management function to the discretion of experts. The Bank also offers institutional investors special share and bond portfolios, whose investment policies are fully adapted to the investor's needs.

Improved conditions on the capital markets and the increased willingness of customers to invest in financial instruments characterized 2010. The Bank recorded net inflows of EUR 22.3 million in 2010, while the total value of assets under management amounted to EUR 101.9 million (38.1% growth and 12.8% growth in the number of customers with respect to the balances at the end of 2009). The Bank's results were well above-average compared with other Slovenian mutual funds managers, as net inflows in portfolio management reached the level of net inflows of all mutual funds in Slovenia in 2010 (EUR 17.4 million).

Organization and process of securities issuing

The service of issuing securities is appropriate for customers searching for an alternative type of financing and primarily sources with longer maturities and deferred payment of liabilities.

NLB participated in the issuance of securities by other issuers in 2010. NLB organized and carried out the third consecutive offering of SID banka bonds in the total nominal value of EUR 69 million and the first sale of new shares to increase the capital of Unior, Novoles, Adria Airways and Gorenje, which were offered to existing shareholders and to selected investors.

Advisory services on providing financial resources to finance projects and regular operations of companies

The Bank offers its customers assistance in setting up financing models, selecting optimal financial structure and instruments, divesting unnecessary assets and investments, carrying out due diligence reviews of operations to assess the value of assets of companies under consideration for strategic buyouts or purchase of participating interest, etc.

In 2010, NLB participated in the process of providing financial resources on foreign markets (funds from EIB, EBRD and commercial banks and obtaining bank guarantees to secure EIB funds) in two major investment projects in Slovenia: financing the construction of the 600 MW Block 6 at the Šoštanj thermal power plant and the construction of a natural gas distribution network for Geoplin.

Organization of syndicated loans, guarantees and provision of agency services

NLB offers syndication services for private capital projects and infrastructure projects of national importance. In 2010, NLB provided financial resources for major Slovenian companies, together with banks of the NLB Group and other Slovenian banks. The value of the approved syndicated loans and syndicated guarantees issued to Slovenian residents (transactions in which NLB served as agent) amounted to EUR 422.1 million in 2010.

Trading

Similar to the entire financial industry, 2010 was a very demanding year in the trading segment. The financial crisis continued, with interest rates reaching record-low levels, while volatility was high on all markets. Trading is difficult and risky in such conditions. The Bank therefore reduced its exposure in all positions.

• Currency trading

The Bank concluded 34,365 forex trading transactions in 2010 in the total amount of EUR 9.4 billion, the highest annual level in the Bank's history. The Bank works with all major international banks in this segment. The volume of transactions has risen continuously from year to year, and was up 51% on the previous year.

• Securities trading

Together with fourteen foreign banks and two Slovenian banks, NLB functions as a liquidity custodian on the MTS Slovenia trading platform. Listing and trading on this platform means competing with the world’s largest banks. Eight Slovenian government bonds are currently traded on the aforementioned platform. Liquidity custodians are committed to buying and selling at least EUR 2 million of each bond at any time. Total trading on the market exceeded EUR 21 million in 2010. NLB is an active market participant.

● Derivatives trading

NLB further enhanced trading in its own name and on its own account in 2010, compared with 2009. The volume of trading in futures contracts was up 50% in 2010 compared with the previous year. The increase is primarily the result of a wider range of futures contracts and the preparation of a good basis for transacting with companies in this area in the future.

The Bank executed currency swaps in the amount of EUR 2.4 billion in 2010, the majority in the following currency pairings: EUR/CHF, EUR/USD AND EUR/CZK.

• Trading in interbank deposits and treasury bills

The Bank trades daily in interbank deposits in all major currencies. There were a total of 4,580 transactions (all currencies and all banks together) in the amount of EUR 26,762 billion. The majority of transactions (68% of total turnover) were executed with foreign banks. NLB also provides primary subscription services for treasury bills issued by the Ministry of Finance of the Republic of Slovenia.

● Trading in cash

The Bank concluded 6,752 foreign currency purchase/sale transactions in 2010 in the total amount of EUR 436 million. The majority of transactions in 2010 were in the Croatian kuna in the amount of EUR 128 million or 29% of total turnover. The second most important currency was the Swiss franc, in which the bank recorded transactions of EUR 125 million. The the US dollar also accounted for a significant proportion of turnover, with EUR 40 million in purchase/sale transactions.

● Syndicated issues of Slovenian government bonds

Twelve foreign and three Slovenian banks comprise the group of primary dealers for the Ministry of Finance. The tasks of primary dealers are to issue and maintain the liquidity of Slovenian government bonds on the organized MTS Slovenia market. The Ministry of Finance issued two government bonds in 2010: RS68 bonds in the amount of EUR 1 billion and RS67 bonds in the amount of EUR 1.5 billion. NLB served as one of the main organizers (lead manager) in the issue of the latter.

Transactions with customers

A major step forward was made in 2010 in the sale of financial instruments to customers. The Bank takes into account previously planned objectives and focuses on the quality of services, with an emphasis on the individual treatment of and a personal relationship with the customer. The Bank also aims to remain the leading provider of services in Slovenia in this segment. Despite the continuing financial crisis and the deterioration of the economic situation, turnover in financial instruments with customers was up in 2010. Purchases/sales of foreign currencies (66%) and deposits (17%) account for the highest proportions of turnover. Derivatives, the proportion of which is rising from year to year, account for the remainder of transactions.

NLB places a great deal of emphasis on the development of new products and tracking the wishes of its customers. The Bank followed market trends in 2010 and introduced two new products: "asset swap" and "swaption". The first product was introduced in April 2010, while second is available since January 2011. NLB began a project in 2010 to introduce trading in synthetic futures contracts, which it plans to begin offering customers at the beginning of 2012. Thus, the range of synthetic futures contracts will be expanded from the current currencies futures to synthetic futures transactions involving commodities, interest rates, etc.

Custody services

The long trend of growth in assets in custody continued in 2010. Despite the adverse conditions on the financial markets, revenue from custody services exceeded the planned level by 37%. The value of assets in custody stood at EUR 7.25 billion at the end of the year, up 30% on a very successful year in 2009. The Bank recorded a similar increase in assets on the domestic and foreign capital markets.

On the domestic market, successful cooperation continued with Clearstream Banking Luxembourg in transactions with Slovenian government bonds on the MTS Slovenia platform.

Growth in operations on foreign markets was stable in 2010 with regard to the volume of assets in custody and the number of transactions. In addition to the domestic market, the majority of transaction were executed in the US, Germany, the UK, France and on the Eurobond market. New features introduced by US tax legislation under the FATCA, and thus in the operations of global financial institutions, were the subject of intense study during the second half of the year.

Operations in the investment fund segment were characterized by a sharp decline in securities transactions in the context of an increase in cash deposits and a slight increase in outflows from funds.

Despite the uncertain situation on the capital market, the Bank assesses its custody activities for investment funds as successful. The marketing of new investment and pension funds has already provided positive results, as the Bank received into custody two cover funds from one of the largest pension companies in Slovenia, and thus increased the volume of assets in investment and pension funds by more than 47%.

As part of regional custody services, the Bank established a sub-custody network of NLB Group companies on the markets of Serbia, Bosnia and Herzegovina, Montenegro and Macedonia. In addition to custody services in the sub-custody network, Group banks independently market custody services on their local markets aimed at transactions on domestic and foreign markets and the transactions of pension and investment funds.