Statement by the President of the Management Board of NLB

Dear shareholders, business partners and employees,

Like the majority of banks in Slovenia and around the world, NLB has been affected by the global financial and economic crisis, the second wave of which hit Slovenia in 2011. In exceptionally difficult circumstances, NLB succeeded in maintaining its leading position on the domestic market, as well as its important role in the narrower region of South-eastern Europe.

The recession, which has affected a large number of the Bank's customers, led to a further, severe deterioration in the quality of NLB's portfolio. To ensure continuing operations, a high level of impairments and provisions were created. These amounted to EUR 466.8 million at the Bank and EUR 520.1 million in the NLB Group overall. The hardest hit customers were those from the sectors of construction, manufacturing, services, finance and trade.

The Bank's loss of EUR 233.2 million in 2011 exceeded the loss generated the previous year. Similarly, the loss generated by the NLB Group was higher than that generated the previous year and amounted to EUR 239.2 million. The negative effects of the operations of subsidiaries, which do not form the strategic core of the NLB Group, account for an increasingly higher proportion of the parent bank's negative operating results. Last year, impairments created for investments in subsidiaries accounted for more than half of the Group's loss. Here it should be noted that results before provisions were better than those recorded in 2010, but primarily on account of one-off effects and lower operating costs.

Last year, the Bank continued to consolidate and rehabilitate in line with NLB's development and operational strategy for the period 2010 to 2014. NLB systematically carried out those activities defined as crucial to achieving established objectives. This included divestment, reducing risk-adjusted assets, lowering the Bank's risk profile and improving cost efficiency.

The NLB Group proceeded with the discontinuation of certain unprofitable activities and withdrew from certain markets last year. As a result, the Bank's total assets were down 6% to stand at EUR 13 billion, while the NLB Group's total assets amounted to EUR 16.4 billion at the end of 2011, a decrease of 8.1% on the previous year. Owing to the aforementioned trends, the contraction in corporate and retail operations continued on both the lending and deposit sides. There was, however, no significant drop in market share.

A great deal of attention was also given to maintaining the Bank's good liquidity position in 2011, which remains one of the key variables for operations in the current year. NLB maintained and even improved its capital adequacy slightly, although it has not yet fulfilled the expectations of Slovenian and European regulators, who insist on the earliest possible compliance with the latest capital standards for banks. The Bank's largest shareholder, the Republic of Slovenia, facilitated a capital increase during the first half of the year, thereby increasing its direct holding to more than half of the Bank's equity. The loss generated mostly offset the aforementioned capital increase. However, consolidation measures led to the freeing up of a significant amount of capital thanks to a reduction in risk-adjusted assets and divestment activities.

Although the government's capital injection was key to maintaining the Bank's capital adequacy, NLB was less than satisfied with government measures aimed at rehabilitating sectors and companies affected by the financial and economic crisis. The grip of the recession is expected to have a significant impact on corporate operations this year. Banks will therefore be forced to focus on those companies that will be able to operate successfully again in the future with financial support and through restructuring. Notwithstanding the fact that banks will bear a significant part of that burden, we can expect that the government will also contribute to the overall rehabilitation of the economy using the measures at its disposal.

The forecasts of both international and domestic institutions indicate that another difficult year awaits us. A further deterioration in the portfolio and another year of high impairment costs can be expected in 2012. Revenue growth at NLB will be low in the context of a slow economic recovery. Nevertheless, we will strive to improve operating results, and prove that the Bank is on the right path and that it is capable of creating added value for its shareholders.

Two factors will be crucial to operations in the future: trends in the external economic environment and our success in restructuring the NLB Group. Banking operations have changed significantly in recent years and require an innovative approach to customers, as well as transparent responses and agreements that take into account the needs of our customers. We cannot fail to recognize that constant awareness of risks and the ability to manage them effectively are crucial to the Bank's commercial activities. That crucial aspect of governance at the Bank is receiving more attention than in past years.

NLB has been faced with serious challenges in recent years, but as always will strive to recapture its tradition of successful operations, primarily on the basis of the invaluable knowledge and dedication of its employees.

Management Board of NLB



Božo Jašovič
President of the
Management Board