Statement by the Management Board of NLB

Dear shareholders, business partners and employees,

The banking system once again faced major external and internal challenges in 2012. The year ended with uncertainty: results generated in the domestic and European economies were weak, confidence was low and the mood was negative. The recession, which has affected a large number of the Bank’s customers, led to a further, significant deterioration in the quality of banks’ portfolios, including that of NLB. Persistent uncertainty regarding systemic solutions to strengthen the stability of the Slovenian banking system and other much needed reforms for the Slovenian economy and state as a whole has led to the further downgrading of Slovenia and individual banks.

Results in 2012

As expected, NLB generated negative operating results in 2012. The Bank generated a loss of EUR 304.9 million, an increase of EUR 71.7 million on the previous year, due to the level of impairment and provisioning costs. NLB generated a profit prior to provisions and impairments in the amount of EUR 318.4 million, an increase of EUR 130.2 million on 2011, primarily due to the one-off effects of the early repurchase of equity instruments at a discount. Improved cost-efficiency at NLB also contributed to the better results before impairments. The effects of continuous efforts to reduce costs are tangible, with total costs down EUR 14.3 million or down 6.0% relative to 2011.

In accordance with its strategy, NLB continues to withdraw from non-strategic markets and activities. The Bank’s total assets were thus down 11.5% relative to the end of 2011 to stand at EUR 11,487.4 million at the end of 2012, while the NLB Group’s total assets were down 12.8% and amounted to EUR 14,334.7 million. The NLB Group’s main activity remains banking, which NLB develops in the scope of existing subsidiary banks on the markets of South-eastern Europe.

NLB Group also generated an after-tax loss of EUR 273.5 million in 2012 due to the high level of provisions and impairments created. Profit before provisions amounted to EUR 299.0 million, an increase of 18.4% compared with 2011, primarily as the result of one-off effects.

In the fourth quarter of 2012, NLB’s Supervisory Board and Management Board warned owners of the need to increase the Bank’s capital due to necessary impairments to the credit portfolio in 2012 and potentially in 2013. Despite its considerable need for provisions, the Group ended the year with a core tier 1 of 8.8%, nearing the 9% benchmark required by the EBA, as the result of a capital increase and the issue of convertible bonds in the middle of 2012, and as the result of the internal optimization of the use of capital.

The Bank’s activities and priorities following the change in management in the final quarter of 2012 and for the future

NLB’s management gave the majority of its attention at the end of 2012 to drafting specific plans to restructure the Bank, including plans in the following areas: the implementation of changes to necessary processes and organizational solutions relating to risk management and work with problematic investments and/or customers faced with liquidity problems, the analysis of trends in revenues and the development of the Bank’s transactions and the drafting of plans to halt the negative trends in this area, the review of implementation of the strategy to divest the Bank’s nonstrategic activities and assets, and the revision of the Bank’s communication strategy and the drafting of a communication plan for key audiences in 2013 (with the objectives of gradually adapting the Bank’s communications to the new conditions and improving the image in the eyes of the public).

In accordance with the European Commission’s decision, NLB prepared the Restructuring Plan of NLB in the final quarter of 2012. Following its approval by the Supervisory Board in December 2012, the plan was submitted to the Ministry of Finance and later to the European Commission. The Bank’s restructuring plan is expected to be coordinated with the European Commission in 2013, and must demonstrate the viability of NLB’s operations in the future. The restructuring plan will be one of the main factors in formulating changes at the Bank and in drafting a new, comprehensive strategy for NLB Group. Ultimate success will require a great deal of work, the results of which may not be seen for several years given the nature of necessary changes.

Already at the beginning of 2013, NLB’s new Management Board began the concrete restructuring of the most important areas, with an initial focus on the highest possible quality of work with customers, in particular with companies with a healthy business core and potential for future development, and for which the need to restructure financially has been identified. It immediately took measures and accelerated activities to improve credit processes, to analyse the market and income potential, and to draft the measures to optimise the Bank’s overall processes and costs. It established more intensive communications with employees and the other stakeholders. It adopted certain decisions regarding potential changes to the organisational structure, including the establishment of a non-core business area (the objectives of the latter are primarily to increase the quality, effectiveness and success of managing and discontinuing the non-core activities and to transparently illustrate the scope and potential of non-core activities, all in order to strengthen NLB’s capital and specialize human resources in managing non-core activities).

The year 2013 will be characterised mainly by the coordination of the Bank’s restructuring plan with the European Commission and at the same time by the implementation of certain key activities in the restructuring of the Bank: the re-engineering of key business processes, the further discontinuation of non-core activities and activities that do not generate sufficient added value, and increased efficiency in terms of the Bank’s operating revenues and expenses. NLB’s management will strive to begin with the prompt implementation of restructuring processes that have not yet been started in order for the Bank to implement actual changes as soon as possible.

Only through the implementation of the restructuring program will NLB be able to improve its image, competitiveness and profitability on the domestic and foreign markets, and once again take steps towards maintaining operations without further state aid. A great deal of time and effort will have to be invested to achieve that objective. The key to success will be working closely with the Bank’s customers, employees, business partners, owners and other stakeholders. We express to all of you our sincere thanks for your cooperation and trust.

Management Board of NLB



Janko Medja
President of the Management Board