Nova Kreditna banka Maribor dd

d100,000,000 Fixed to Floating Rate Perpetual Loan Participation Notes issued by, but
without recourse to, Maribor Finance B.V. for the sole purpose of funding a subordinated
loan by VTB Bank Europe plc to
Nova Kreditna banka Maribor d.d.
(incorporated in Slovenia)
Issue Price: 100 per cent.
Maribor Finance B.V., a company incorporated in The Netherlands (the ‘‘Issuer’’), is issuing an aggregate principal amount of
d100,000,000 Fixed to Floating Rate Perpetual Loan Participation Notes (the ‘‘Notes’’) for the sole purpose of funding a 100 per cent.
participation by the Issuer (the ‘‘Sub-Participation’’) in a d100,000,000 subordinated loan (the ‘‘Subordinated Loan’’) to Nova
Kreditna banka Maribor d.d. (‘‘NKBM’’ or the ‘‘Bank’’) by VTB Bank Europe plc (the ‘‘Lender’’ or ‘‘VTB’’) pursuant to a subparticipation agreement dated 12 October 2007 (the ‘‘Sub-Participation Agreement’’) between the Issuer and the Lender. Pursuant to
the Sub-Participation Agreement, the Lender will use the proceeds of the Sub-Participation for the sole purpose of financing the
Subordinated Loan which will be made under an agreement dated 12 October 2007 (the ‘‘Subordinated Loan Agreement’’) between
the Lender and NKBM as borrower. The Notes will be issued on or about 12 October 2007 (the ‘‘Closing Date’’) and be constituted
by a trust deed dated the Closing Date (the ‘‘Trust Deed’’) between the Issuer, the Lender and BNY Corporate Trustee Services
Limited as trustee (the ‘‘Trustee’’)
Subject as provided in the Trust Deed, (i) the Lender will charge to the Issuer, by way of first fixed charge as security for its
payment obligations under the Sub-Participation Agreement, its rights and interests as lender under the Subordinated Loan
Agreement (including all sums due to the Lender thereunder, other than in respect of certain reserved rights) (all security granted by
the Lender to the Issuer being referred to herein as the ‘‘Lender Security’’); and (ii) the Issuer will charge to the Trustee, for the
benefit of the Noteholders, by way of first fixed charge as security for its payment obligations in respect of the Notes, (a) its rights
and interests under the Lender Security and (b) its rights and interests as participant under the Sub-Participation Agreement
(including all sums due to the Issuer thereunder). In addition, (x) the Lender will assign its administrative rights under the
Subordinated Loan Agreement to the Issuer, and (y) the Issuer will assign those rights, together with its own administrative rights
under the Sub-Participation Agreement, to the Trustee. See ‘‘Terms and Conditions of the Notes’’ and the Trust Deed for further
details.
The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest and additional amounts
(if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an
obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts
(if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually
received by or for the account of the Issuer pursuant to the Sub-Participation Agreement or the Lender Security. The Issuer will
have no other financial obligation under the Notes. Accordingly, Noteholders will be deemed to have accepted and agreed that they
will be relying solely and exclusively on the credit and financial standing of NKBM in respect of the financial servicing of the Notes.
To the extent payable as described herein, interest shall accrue during the period from and including the Closing Date to but
excluding 12 October 2012 (the ‘‘Reset Date’’) at a fixed rate of 7.02 per cent. per annum, payable annually in arrears on 12 October
of each year, commencing 12 October 2008. If the Subordinated Loan has not been prepaid or the Notes have not otherwise been
redeemed on or prior to the Reset Date, interest (to the extent payable as described herein) shall accrue at a floating rate equal to
the sum of three month EURIBOR and 4.0 per cent. per annum from and including the Reset Date. Interest shall be payable
quarterly in arrear on 12 January, 12 April, 12 July and 12 October in each year, commencing on 12 January 2013.
Except as set forth herein (see ‘‘Taxation’’), payments in respect of the Notes will be made without any deduction or withholding for
or on account of taxes of The Netherlands, except as required by law. In that event, the Issuer will only be required to pay
additional amounts to the extent that it receives corresponding amounts under the Sub-Participation Agreement. Payments under the
Sub-Participation Agreement shall be made without any deduction or withholding for or on account of taxes of the United Kingdom,
except as required by law. In that event, the Lender will only be required to pay additional amounts to the extent that it receives
corresponding amounts under the Subordinated Loan Agreement. Payments under the Subordinated Loan Agreement will be made
without any deduction or withholding for or on account of taxes in Slovenia, except as required by law, in which event NKBM will
be obliged to increase the amounts payable under the Subordinated Loan Agreement (subject to certain exceptions).
The Subordinated Loan is intended to qualify as Upper Tier 2 Capital (‘‘Upper Tier 2 Capital’’) forming part of NKBM’s
‘‘supplementary capital 1’’ (dodatni kapital 1) under regulations of Banka Slovenije. Under the terms of the Subordinated Loan
Agreement, NKBM will have the right to prepay the Subordinated Loan in whole but not in part, subject to the consent of Banka
Slovenije, if the Subordinated Loan ceases to have regulatory capital treatment as Upper Tier 2 Capital or on any Interest Payment
Date during the Step-Up Interest Term (see ‘‘The Subordinated Loan Agreement’’). In addition, NKBM may prepay the Subordinated
Loan, in whole but not in part, on any Interest Payment Date upon NKBM being required to increase payments on account of
withholding tax levied in The Netherlands, the United Kingdom, Slovenia or any Qualifying Jurisdiction (see ‘‘The Subordinated
Loan Agreement’’) in respect of the Subordinated Loan, if NKBM must pay additional amounts in respect of withholding or tax
payable by the Lender under the Sub-Participation Agreement or by the Issuer under the Notes, if NKBM must pay amounts in
respect of certain other increased costs of the Lender or if NKBM is unable to obtain a tax deduction for Slovenian corporation tax
purposes in respect of the next payment of interest due under the Subordinated Loan. Subject to its terms, the Subordinated Loan
shall be repaid at its principal amount together with any accrued and unpaid interest and, accordingly, the Sub-Participation and
the Notes shall also become due and payable as described herein.
AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE ‘‘RISK FACTORS’’.
The Notes, the Sub-Participation and the Subordinated Loan have not been and will not be registered under the U.S. Securities Act of
1933 (the ‘‘Securities Act’’). The Notes are being offered outside the United States of America by the Managers (as defined under
‘‘Subscription and Sale’’) in accordance with Regulation S under the Securities Act, and may not be offered or sold within the United
States or to or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
Application has been made to the Irish Financial Services Regulatory Authority (‘‘IFSRA’’), as competent authority under Directive
2003/71/EC (the ‘‘Prospectus Directive’’) in Ireland, for this Prospectus to be approved. Application has been made to the Irish Stock
Exchange Limited (the ‘‘Irish Stock Exchange’’) for the Notes to be admitted to the official list of the Irish Stock Exchange (the
‘‘Official List’’) and trading on its regulated market. This Prospectus constitutes a ‘‘prospectus’’ pursuant to Article 5 of the
Prospectus Directive.
The Notes will be issued in registered form in the denomination of d50,000 and integral multiples of d1,000 in excess thereof. The
Notes will be represented by a global registered note certificate (the ‘‘Global Note Certificate’’) registered in the name of The Bank of
New York Depository (Nominees) Limited as nominee for The Bank of New York as common depositary for Euroclear Bank S.A./
N.V. (‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream, Luxembourg’’) on the Closing Date. Individual note
certificates (‘‘Individual Note Certificates’’) evidencing holdings of Notes will be available only in certain limited circumstances
described under ‘‘Summary of the Provisions Relating to the Notes in Global Form’’.
Sole Bookrunner
Morgan Stanley
Joint Lead Managers
Morgan Stanley
VTB
The date of this Prospectus is 11 October 2007
TABLE OF CONTENTS
RISK FACTORS ...........................................................................................................................
IMPORTANT INFORMATION ..................................................................................................
FORWARD-LOOKING STATEMENTS ....................................................................................
PRESENTATION OF FINANCIAL AND OTHER INFORMATION.....................................
OVERVIEW OF NKBM AND THE OFFERING......................................................................
DESCRIPTION OF THE TRANSACTION ................................................................................
USE OF PROCEEDS ....................................................................................................................
RECENT DEVELOPMENTS.......................................................................................................
EXCHANGE RATES AND EXCHANGE CONTROLS ...........................................................
SELECTED FINANCIAL INFORMATION ..............................................................................
SELECTED FINANCIAL RATIOS.............................................................................................
BUSINESS .....................................................................................................................................
MANAGEMENT AND EMPLOYEES .......................................................................................
RELATED PARTY TRANSACTIONS .......................................................................................
THE ISSUER.................................................................................................................................
THE LENDER ..............................................................................................................................
THE SUBORDINATED LOAN AGREEMENT ........................................................................
TERMS AND CONDITIONS OF THE NOTES ........................................................................
SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ...
THE BANKING SECTOR AND BANKING REGULATIONS IN SLOVENIA ....................
TAXATION ...................................................................................................................................
SUBSCRIPTION AND SALE ......................................................................................................
GENERAL INFORMATION.......................................................................................................
INDEX TO FINANCIAL STATEMENTS ..................................................................................
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3
14
16
17
19
24
26
27
32
33
35
36
70
72
73
75
76
104
119
121
123
128
130
F-1
RISK FACTORS
Prior to making an investment decision prospective investors should carefully consider all of the
information set forth in this document including the following risk factors. There may be other
considerations over and above the risk factors set out below which should be taken into account in
relation to any investment in the Notes.
Risks relating to the NKBM Group and NKBM
Due to the rapid implementation of changes in the laws and regulations governing the Slovenian banking
sector, strains have been placed on the NKBM Group’s management, personnel needs and general business
practice.
The NKBM Group has adapted its business in response to significant changes in laws and
regulations governing the Slovenian banking sector in recent years. Most notably, on 1 May 2004,
Slovenia became a member of the EU, adopting the euro as its national currency two years later. As
a result of Slovenia’s adoption of the euro, the NKBM Group adopted the euro as its own operating
and reporting currency, converting all customer accounts previously recorded in tolar to euro, and
transforming NKBM’s systems to carry out all previously tolar-denominated transactions in euro,
commencing on 1 January 2007. Concurrently with the NKBM Group’s adoption of the euro, it has
implemented IFRS as the accounting standard governing the preparation of its financial statements
and the reporting of its results, and has commenced a project aimed at achieving compliance with the
Capital Markets Directive (Basel II) from 1 January 2008 onwards. The implementation of the euro
as the operating and reporting currency of the NKBM Group, the adoption of IFRS and the
movement toward compliance with Basel II continues to place significant strain on the NKBM
Group’s management, IT and risk management systems, requires additional personnel and additional
training for existing employees, and diverts attention from ordinary business operations. There can be
no assurance that the NKBM Group will meet the challenges presented by the current or future
implementation of new laws and regulations in Slovenia and the EU. Any failure to effectively
manage these challenges may materially impact the NKBM Group’s financial condition and results of
operations.
The NKBM Group’s failure to manage growth effectively may adversely impact its business.
The NKBM Group has witnessed rapid growth in its business. The NKBM Group’s total assets
increased from c2,990.0 million as of 31 December 2004 to c4,641.7 million as of 30 June 2007. Its
total loans and advances increased from c1,723.6 million as of 31 December 2004 to c2,968.4 million
as of 30 June 2007 and total deposits increased from c2,194.1 million as of 31 December 2004 to
c2,973.0 million as of 30 June 2007. Such growth puts pressure on the NKBM Group’s ability to
effectively manage and control historical as well as newly emerging risks. Its ability to sustain growth
depends primarily upon its ability to manage key issues, such as selecting and retaining skilled
manpower, maintaining an effective technology platform that can be continually upgraded, developing
a knowledge base to face emerging challenges, and ensuring a high standard of customer service.
The NKBM Group’s growth, both organic and through strategic acquisitions, has required, and
will continue to require, significant allocation of capital and management resources, further
development of its financial, internal controls and information technology systems, continued
upgrading and streamlining of its risk management systems and additional training and recruitment of
management and other key personnel. At the same time, the NKBM Group must maintain a
consistent level of client services and current operations to avoid loss of business or damage to its
reputation. Any inability to effectively manage any of these operating issues may adversely affect the
NKBM Group’s business growth and, as a result, may materially impact its financial condition and
results of operations.
NKBM faces challenges associated with recently acquired entities and it may not be able to realise the
anticipated benefits of any future acquisitions.
NKBM faces risks associated with the operations of its subsidiaries and associated companies.
Since it acquired a 55 per cent. shareholding in PBS d.d. (‘‘PBS’’) in September 2004, the NKBM
Group has been faced with challenges associated with consolidating the operations of PBS into those
of the NKBM Group as well as managing new risks inherited from PBS. For example, the
consolidation of PBS creates additional pressure on the NKBM Group’s IT, accounting and risk
management systems. In addition, in order to leverage the geographic coverage provided by PBS’s
access to the post office network, it is reliant on PBS’s ability to effectively offer and distribute
3
NKBM products and services. There can be no assurance that the NKBM Group will maximise the
potential synergies made available through its acquisition of PBS, including those relating to its
extensive distribution network. NKBM faces similar challenges related to its acquisition of a majority
shareholding in Adria Bank AG in April 2007. There can be no assurance that it will be able to meet
the challenges and maximise the benefits of the acquisition. In addition to the risks associated with
NKBM’s majority or wholly-owned subsidiaries, it faces particular risks associated with its 49.96 per
cent. owned associated company, Zavarovalnica Maribor d.d. (‘‘ZM’’). Without a majority
shareholding, ZM may pursue strategies that are not in the best interests of NKBM’s business or
those of its shareholders. Any inability to align the strategy of its subsidiaries and associated
companies with its business plan or otherwise successfully integrate them into its business, may
adversely impact the financial condition and results of operations of the NKBM Group as a whole.
While NKBM’s principal strategy is to expand its business through organic growth in its
existing core markets, it will also consider acquisition opportunities on an opportunistic basis. NKBM
may be unsuccessful in its acquisition strategy if suitable acquisition opportunities are unavailable to
it due to a scarcity in the market or it is unable to gather sufficient information about potential
targets that fit its business model or that allows it to value accurately the targets it identifies. As a
result, NKBM may, for example, inaccurately assess the targets it chooses to acquire. Even after an
acquisition target has been identified, the acquisition may be difficult to negotiate or may cost more
than NKBM is willing or able to pay or NKBM may be unable to acquire necessary regulatory
approvals for the acquisition. In addition, if it is unable to successfully integrate acquired entities
such as PBS and Adria Bank AG, it could lead to disruptions to NKBM’s business. Further, if the
operations or assimilation of an acquired business do not accord with NKBM’s expectations, it may
have to decrease the value attributed to the acquired business or realign its structure.
The growth of the NKBM Group’s loan portfolio has increased its credit exposure and will require additional
monitoring by management.
As a result of the significant growth in the NKBM Group’s total gross customer loan portfolio
from c1,723.6 million as of 31 December 2004 to c2,707.3 million as of 30 June 2007, its credit
exposure has increased significantly. This increase will require continued and improved monitoring by
management of credit quality and the adequacy of the NKBM Group’s provisioning levels. The
anticipated further increase in lending in line with the NKBM Group’s overall growth strategy may
further increase credit risk. Continued growth of its loan portfolio could put additional pressure on
its loan monitoring and control procedures. Any failure to manage the NKBM Group’s growing loan
portfolio while maintaining the quality of its assets through effective credit risk policies could require
further provisioning and/or result in a higher level of write-offs of non-performing loans or an
increase in reserves and have a material adverse effect on the NKBM Group’s financial condition or
results of operations.
The Slovenian financial services sector is very competitive and the NKBM Group’s growth strategy depends on
its ability to compete effectively.
As of 31 December 2006, there were 20 commercial banks operating in Slovenia, with the top
three banks, including the NKBM Group, comprising more than half of the market. The NKBM
Group faces competition from both Slovenian and foreign commercial banks in all of its products
and services. The Slovenian financial sector may experience consolidation, resulting in fewer banks
and financial institutions. Merged entities may have competitive advantages in pricing and delivery
channels. Since the NKBM Group raises funds largely from Slovenian market sources and individual
depositors it, like all Slovenian banks, faces increasing competition for these funds.
Although Slovenia’s membership in the EU may improve the NKBM Group’s operating
environment generally, it has intensified an already competitive market. EU accession has also made
Slovenia’s banking sector more attractive to foreign competitors. For example, foreign banks,
including Bank Austria Creditanstalt and Intesa Sanpaolo, have recently expanded operations in
Slovenia. As the Slovenian banking sector has historically been highly concentrated, certain foreign
banks have offered more competitive rates for loans and deposits to gain a foothold in the market.
Some of these institutions may offer a broader array of products and have greater financial resources
than the NKBM Group, including lower funding costs.
This competitive environment has put downward pressure on net interest margins and, therefore,
the NKBM Group’s profitability. Its net interest margin remained flat at 2.3 per cent. for the years
ended 31 December 2005 and 2006, which was a decrease from net interest margin in 31 December
2004 of 2.7 per cent. If such margin compression continues, the NKBM Group’s profitability could
4
continue to be negatively impacted. In addition, due to competitive pressures, it may be unable to
successfully execute its growth strategy and offer products and services at reasonable returns which
may materially adversely affect the NKBM Group’s business, financial condition and results of
operations.
The Republic of Slovenia has the ability to exert significant influence over NKBM, and its interests may
conflict with those of other holders of NKBM ordinary shares.
The Republic of Slovenia is expected to beneficially own the majority of NKBM’s outstanding
shares following the anticipated privatisation. As a result, the Republic of Slovenia has the ability to
continue to control the appointment of NKBM’s Supervisory Board and management, as well as
other policy decisions relating to its operations. NKBM’s current Supervisory Board consists of nine
members, all of whom are independent. However, all Supervisory Board members have been
nominated by the Republic of Slovenia and have been elected by a vote of NKBM’s shareholders,
which includes the Republic of Slovenia, which will, and following the anticipated privatisation will,
control the majority of NKBM’s shares. The Republic of Slovenia has the ability to cause NKBM to
engage in certain activities that may not be based purely on commercial considerations and may place
substantial pressure on the Supervisory Board to comply with its directions. The interests of the
Republic of Slovenia could therefore conflict with NKBM’s best interests or the best interests of its
minority shareholders, and the Republic of Slovenia may make decisions that materially adversely
affect your investment in the Notes.
Following the anticipated privatisation, there may be further offerings of NKBM ordinary
shares to follow in the future, ultimately reducing the Republic of Slovenia’s holding in NKBM’s
outstanding ordinary shares. However, there can be no assurance that additional privatisation efforts
will occur in the future.
The NKBM Group’s banking business is vulnerable to interest rate risk.
The NKBM Group’s profitability is primarily based on its net interest margin, which is a
function of the pricing of its liabilities and assets. For the year ended 31 December 2006, net interest
income (before provisions for loan impairments) constituted 57.9 per cent. of the NKBM Group’s
operating income and, for the six-month period ending 30 June 2007, it accounted for 52.4 per cent.
of its operating income.
Fluctuations in interest rates could adversely affect the NKBM Group’s operations and financial
condition in a number of different ways. An increase in interest rates generally may decrease the
value of its fixed rate loans and raise its funding costs. Such an increase could also generally decrease
the value of fixed rate debt securities in its securities portfolio. In addition, an increase in interest
rates may reduce overall demand for new loans and increase the risk of customer defaults, while
general volatility in interest rates may result in a gap between the NKBM Group’s interest-rate
sensitive assets and liabilities. Interest rates are sensitive to many factors beyond its control, including
the policies of the European Central Bank and the Bank of Slovenia, domestic and international
economic conditions and political factors. There can be no assurance that it will be able to protect
itself from the adverse effects of future interest rate fluctuations. Any fluctuations in market interest
rates could lead to a reduction in net interest income and adversely affect the NKBM Group results
of operations.
NKBM faces maturity mismatches between assets and liabilities. If it fails to attract and retain deposits, its
business may be adversely affected.
NKBM meets its funding requirements through short-term and long-term deposits from retail
and corporate depositors, interbank loans and through the capital markets. A significant portion of
NKBM’s assets have maturities with longer terms than its liabilities, and it expects this mismatch to
continue. As of 30 June 2007, the majority of NKBM’s liabilities were short term in nature, defined
as having maturities of less than one year, including demand/current accounts which have no
restrictions on withdrawal. If a substantial number of NKBM’s depositors were to withdraw funds or
do not roll over deposited funds upon maturity, its liquidity position could be adversely affected and
it could be required to pay higher interest rates on deposits in order to attract and/or retain further
deposits. While NKBM measures the stability of its current/demand deposits daily and the majority
of its current/demand deposits represent core and stable funding from relatively non-price sensitive
customers, a failure to obtain rollover of customer deposits upon maturity or to replace them with
new deposits could have a material adverse effect on NKBM’s business, financial conditions and
results of operations.
5
With respect to funding raised through the capital markets, NKBM’s ability to raise funding in
amounts sufficient to meet its liquidity needs could be adversely affected by a number of factors,
including in particular Slovenian and international economic conditions. If short-term funding is not
available on commercially reasonable terms, it would be required to utilise other, more expensive,
methods to meet its liquidity needs, such as secured borrowings or asset sales, which may not be
available on commercially reasonable terms. The use of more expensive funding sources may have a
material adverse effect on NKBM’s business, financial condition and results of operations.
Any increase in NKBM’s portfolio of Non-Performing Loans (‘‘NPLs’’) may adversely affect its business.
Due to NKBM’s history as a state-owned bank, it inherited a significant amount of nonperforming loans from the time when NKBM entered a government-sponsored rehabilitation
programme initiated by the banking authorities in Slovenia. Although NKBM was able to remove a
number of NPLs from its portfolio in connection with the rehabilitation process, there are certain
NPLs that it is unable to remove efficiently as a result of uncertain tax issues. While NKBM believes
that the risks relating to these NPLs are sufficiently covered by specific loan loss reserves and
collateral related to the loans, there can be no assurance that additional provisioning requirements
will not adversely affect NKBM’s profitability. As of 30 June 2007, gross NPLs represented 7.1 per
cent. of gross advances and its NPLs net of provisions represented 4.1 per cent. of net advances. As
of 30 June 2007, NKBM had provisioned for 62.8 per cent. of its total NPLs pursuant to applicable
internal policies, regulatory guidelines and the quality of collateral available to it. If there is any
deterioration in the quality of NKBM’s collateral or further aging of the assets after being classified
as non-performing, an increase in provisions will be required. This increase in provisions may
adversely impact NBKM’s financial condition and results of operations.
A number of factors could affect NKBM’s ability to control and reduce NPLs and restructured
loans. Some of these factors, including developments in the Slovenian economy, movements in global
markets, competition, market interest rates and exchange rates, are not within NKBM’s control.
There can be no assurance that its credit approval and monitoring procedures will reduce the amount
of loans that become non-performing in the future or that it will be successful in its efforts to
improve collections and foreclose on existing NPLs or that the overall quality of NKBM’s loan
portfolio will not deteriorate in the future. If it is not able to control its asset quality, or if there is a
further significant increase in its NPLs, NKBM’s business and financial condition could be adversely
affected. Furthermore, when NKBM restructures NPLs, it may receive lower interest payments than
originally agreed to and, in some cases, it may collect less than the original principal amounts.
NKBM can give no assurance that there will not be any reduction in provisions for loan losses
as a percentage of NPLs or otherwise or that the percentage of NPLs that it will be able to recover
will be similar to its past experience of recoveries of NPLs. In the event of any deterioration in its
asset portfolio caused by an increase in NPLs, there could be a material adverse effect on NKBM’s
business, financial condition and results
NKBM faces challenges associated with the lack of reliable information on potential borrowers in Slovenia.
Due to a lack of historical need, there is no centralised register for defaulted borrowers in
Slovenia nor is there a centralised credit bureau. As there is a lack of frequent and reliable
information on borrowers in Slovenia, NKBM has historically had to rely, to a large extent, on
information provided by its borrowers as well as statutory financial statements of its borrowers, to
the extent they are available, to evaluate their financial performance and monitor credit quality.
In addition, NKBM intends to increase its lending to retail customers. These customers
generally have less capital and liability management experience than larger customers and are more
sensitive to economic downturns. The availability of accurate and comprehensive financial and general
credit information for retail customers in Slovenia is even more limited than in the case of larger
corporate clients, which makes it more difficult for NKBM to accurately assess the credit risk
associated with lending to these customers. NKBM’s strategy to increase the size of NBKM’s retail
banking operations may require the extension of credit to retail customers that do not already have
an established credit history with NKBM.
NBKM’s risk management methods depend, in part, upon an evaluation of information
regarding markets, clients or other matters. This information may not in all cases be accurate,
complete, up-to-date or properly evaluated. NKBM have taken, and continue to take, steps to
coordinate and accelerate data collection and analysis to prevent deficiencies in NBKM’s internal
procedures in the future. However, the general limitations of frequent and reliable information about
6
borrowers in Slovenia may negatively affect the credit review process that it undertakes and the asset
quality of its loan portfolios, which may result in it not becoming aware of events of default of its
borrowers and an increase in the number of NPLs, which could have a material adverse effect on
NKBM’s financial condition and results of operations.
The NKBM Group is presently unable to monitor and control procedures relating to the loan portfolio on a
group-wide basis.
There is currently no NKBM Group-wide policy with respect to risk management procedures
and there is no consolidated NKBM Group-wide loan database. There are also no limits for NKBM
Group-wide exposure to a single borrower or group of related borrowers on a consolidated basis.
While NKBM intends to implement a NKBM Group-wide policy by the end of 2007, even once a
comprehensive risk management procedure is developed, the implementation of risk management
procedures at its subsidiaries may not be consistent nor can there be any assurance that NKBM’s risk
management policy will work in the way in which it was designed. While certain decisions regarding
the extension of significant credit by PBS and Adria Bank AG, NBKM’s subsidiaries, may be made
with its knowledge by way of NKBM’s representation on the supervisory boards of such subsidiaries,
it has no representation on the credit committees of these subsidiaries and its operational reporting IT
systems do not enable it to monitor the loan portfolios of its subsidiaries in the aggregate on a daily
basis. There is therefore a risk of incorrect assessment of credit exposure and concentration limits that
may result in credit being extended to a single borrower or group of related borrowers without the
NKBM Group entity that extends the credit or NKBM knowing the extent to which the NKBM
Group is already exposed to such borrower or group of related borrowers. Any failure to
appropriately manage such risk can have a material adverse effect on the NKBM Group’s business,
financial condition and results of operations.
NKBM’s inability to foreclose on collateral in the event of a default may result in a failure to recover the
expected value of the collateral.
NKBM’s loans to customers are generally secured. It may experience delays before it is able to
enforce and realise the value of collateral underlying its NPLs, and a particular loan may be classified
as non-performing for several years before collateral may be seized and liquidated. In particular, the
laws relating to mortgages in Slovenia are not well developed and NKBM has experienced difficulties
in collecting on non-performing home loans secured by real estate. These difficulties may significantly
reduce its ability to realise the value of its collateral in a timely fashion or at all and, therefore,
reduce the effectiveness of taking security for the loans it makes. Any failure to recover the expected
value of collateral would expose NKBM to potential losses, which may materially adversely affect its
financial condition and results of operations.
A decline in the value or the illiquidity of the collateral securing NKBM’s loans to customers may adversely
affect its loan portfolio.
A substantial portion of NKBM’s loans to corporate and retail customers is secured by
collateral such as real property, production equipment, vehicles, liquid securities and inventory.
Downturns in the relevant markets or a general deterioration of economic conditions may result in
declines in the value of collateral securing a number of loans to levels below the amounts of the
outstanding principal and accrued interest on those loans. If collateral values decline, they may not be
sufficient to cover uncollectible amounts on secured loans, which may require NKBM to reclassify the
relevant loans, establish additional provisions for loan impairment and increase reserve requirements.
A failure to recover the expected value of collateral may expose NKBM to losses, which may
materially adversely affect its financial condition and results of operations.
The NKBM Group is exposed to various industry sectors. Deterioration in the performance of any of these
industry sectors to which it has significant credit exposure may adversely impact its business.
The NKBM Group’s credit exposure to corporate borrowers is dispersed throughout various
industry sectors. In particular, the construction sector, which represented 7.4 per cent. of the NKBM
Group’s gross loan portfolio and the real estate sector, which represented 7.8 per cent. of its gross
loan portfolio as of 30 June 2007, are volatile and subject to fluctuation. A significant deterioration in
the performance of these or any other sector in the Slovenian economy, which may be driven by
events not within the NKBM Group’s control, such as an economic downturn, regulatory action or
policy announcements by Slovenian Government authorities, would adversely impact the ability of
borrowers in that industry to service their debt obligations to the NKBM Group. As a result, it
7
would experience increased delinquency risk, increased provisions and increased write-offs, which
could have a material adverse effect on its business, financial condition and results of operations.
System failures or an inability to adapt to technological changes could adversely impact the NKBM Group’s
business.
Information technology is very important to the operation of the NKBM Group’s business and
its ability to analyse its business on a consolidated basis. Any failure in the NKBM’s Group systems
could significantly affect its operations and the quality of customer service and could result in
financial losses.
The NKBM Group has been engaging in a number of projects in relation to its information
technology systems. This process has given rise, and will continue to give rise, to operational risk.
For example, NKBM recently renovated its secondary ‘‘back-up’’ system at its Maribor headquarters
and are in the process of introducing same-day settlement of international money transfers in
compliance with recent changes to applicable Slovenian banking regulations. NKBM has also
transferred its retail operations from its ‘‘legacy’’ information systems to its new Nobis system in May
2006. The simultaneous implementation of these and other technology projects has placed a significant
strain on NKBM Group employees, management and existing systems and there can be no assurance
that all such projects will be completed successfully, on time or to budget, or that its operations will
not be adversely affected.
In addition, the NKBM Group’s success depends, in part, on its ability to respond to
technological advances and emerging banking industry standards and practices on a cost-effective and
timely basis. The development and implementation of new technology entails significant technological
and business risks. There can be no assurance that it will successfully implement and integrate new
technologies effectively or adapt its transaction-processing systems to its business or customer
requirements or emerging industry standards. If the NKBM Group is unable, for technical, legal,
financial or other reasons, to adapt to changing market conditions, customer requirements or
technological changes in a timely manner, its business, financial condition and results of operations
could be materially adversely affected.
Significant security breaches and fraud and theft could adversely impact the NKBM Group’s business.
The NKBM Group seeks to protect its computer systems and network infrastructure from
physical break-ins as well as security breaches, system-related fraud and other disruptive problems
caused by its increased use of the Internet. Computer break-ins and power disruptions could affect
the security of information stored in and transmitted through these computer systems and the NKBM
Group network infrastructure. Although it intends to continue to implement security technology and
establish operational procedures to prevent break-ins, damage and failures, there can be no assurance
that the security measures the NKBM Group companies employ will be adequate or successful.
The NKBM Group is also exposed to risks of fraud or theft by its staff, customers and third
parties. It believes that it maintains types and levels of insurance consistent with the banking industry
in Slovenia. Not every risk, however, is insured, such as fraudulent charge card use, and the proceeds
of any insurance payments may not always cover the entire loss. The failure of any of the NKBM
Group’s security measures or its inability to protect against fraud and theft could have a material
adverse effect on its business, financial condition and results of operations.
The NKBM Group may be unable to meet its regulatory requirements relating to capital adequacy.
The NKBM Group is required by the Bank of Slovenia to have a minimum capital adequacy
ratio as stipulated in accordance with Bank of Slovenia regulations on capital adequacy. Its capital
adequacy ratio was 9.7 per cent. as of 31 December 2006 and 9.09 per cent. as of 30 June 2007. The
NKBM Group’s ability to obtain additional capital may be restricted by a number of factors,
including:
*
its future financial condition, results of operations and cash flows;
*
any necessary government regulatory approvals;
*
general market conditions for capital-raising activities by commercial banks and other
financial institutions; and
*
decisions of NKBM’s majority shareholder, the Republic of Slovenia, with respect to the
appropriation of accumulated profit.
8
The NKBM Group has historically faced challenges related to maintaining sufficient levels of
capital adequacy. If it requires additional capital in the future, it cannot guarantee that it will be able
to obtain this capital on favourable terms, in a timely manner or at all. If it is unable to raise further
capital to support its growth or if its capital position otherwise declines, its ability to implement its
business strategy may be materially adversely affected.
In addition, the NKBM Group has undertaken a project to comply with Basel II, which will
come into effect in Slovenia on 1 January 2008. It has elected to adopt the standardised approach for
calculating capital requirements for credit risk and has elected to adopt the basic indicator approach
for calculating capital requirements for operational risk. The NKBM Group has assessed the level of
change to the capital requirement that compliance with the new capital requirements will entail. It has
adopted a conservative approach in assessing the likely level of change to the capital requirement and
the level of change was a 0.3 per cent. lower capital adequacy ratio than using its current
methodology. Accordingly, although current projections indicate that the directive may only have a
marginal negative impact on the NKBM Group’s capital position, there can be no assurance that this
will, in fact, be the case or that any failure by it to address the new capital requirements adequately
would not have an adverse effect on its business. If any future alterations to the capital adequacy
standards under Basel II with regard to limits on the deployment and use of capital require Slovenian
banks to maintain higher capital levels or limit the use of significant portions of their capital, this
could have a material adverse effect on the NKBM Group’s business, financial condition, results of
operations or prospects.
The NKBM Group’s competitive position and future prospects depend on its senior management team and
other key personnel.
The NKBM Group’s ability to maintain its competitive position and to implement its business
strategy depends to a large degree on the services of its senior management team and other key
personnel. The departure of key personnel can disrupt its operations and require it to invest
additional amounts in finding appropriate replacements. In addition, with a smaller pool of skilled
and qualified employees available in Slovenia, competition for such personnel in the banking industry
in Slovenia is intense. There is particular difficulty in hiring personnel with expertise in financial and
accounting or asset management as well as executives to manage the NBM Group’s international
expansion. There can be no assurance that the NKBM Group will be able to continue to retain or
attract key personnel and NKBM is not insured against the detrimental effects to its business
resulting from the loss or dismissal of key personnel. The loss or decline in the services of members
of the NKBM Group’s senior management team or an inability to attract, retain and motivate
qualified key personnel could have a material adverse effect on its business, financial condition and
results of operations.
Adoption of IFRS reporting requires retention of dedicated personnel and could result in increased operating
expenses.
In 2006, the NKBM Group began preparing its audited consolidated financial statements in
accordance with IFRS. NKBM has prepared its audited consolidated financial statements for the
years ended 31 December 2005 and 2006 as well as for the six months ended 30 June 2007, included
elsewhere in this Prospectus, in accordance with IFRS, and it will continue to prepare IFRS financial
statements going forward. IFRS reporting requires disclosure of additional information, which has
required the NKBM Group to quickly gain an understanding of the applicable requirements and
implement additional reporting procedures. It will need to continue to retain dedicated personnel,
which could result in an increase in the associated operating expenses.
In addition, the NKBM Group’s subsidiary bank, PBS, similarly underwent the transition to
IFRS reporting in 2006, which also required additional training and dedicated personnel and resulted
in higher operating costs. The quality of the NKBM Group’s consolidated IFRS financial statements
is reliant on the continued effective implementation of IFRS at the subsidiary and associated
company levels, which could also result in an increase in the associated operating expenses.
The NKBM Group has significant off-balance sheet credit related commitments that may lead to potential
losses.
As part of the NKBM Group’s business, it issues guarantees and letters of credit. As of 30 June
2007, it had issued guarantees amounting to c278.1 million and letters of credit amounting to c31.6
million. All such credit related commitments are classified as off-balance sheet items in the Financial
Statements. Although the NKBM Group has recognised provisions for its off-balance sheet credit
9
related commitments, there can be no assurance that these provisions will be sufficient to cover the
actual losses that it may potentially incur on its credit related commitments.
The NKBM Group may not be successful in implementing new business strategies.
Implementing the NKBM Group’s business strategies may require knowledge and expertise that
differ from those applied in its current business operations, including different personnel needs,
competitive challenges, management skills, risk management procedures, guidelines and systems. The
NKBM Group may not be successful in developing such knowledge and expertise or integrating new
operations into its existing business, and therefore may not be able to fully implement its business
strategies. An inability to effectively implement NKBM Group business strategies could have a
material adverse effect on its business, financial condition and results of operations.
Risks Relating to Slovenia
A slowdown in economic growth in Slovenia, other EU countries or neighbouring regions could cause the
NKBM Group’s business to suffer.
A substantial part of the NKBM Group’s operations are in the domestic Slovenian market and
its performance and the growth of its business are necessarily dependent on the overall health of the
Slovenian economy. Although real GDP grew by 4.0 per cent. and 5.2 per cent. in 2005 and 2006,
respectively, according to the Institute of Macroeconomic Analysis and Development in Slovenia, the
Slovenian economy could be negatively affected by a number of factors, including inflation and
foreign direct investment into Slovenia. Any downturn in the Slovenian economy may adversely affect
the financial viability of the NKBM Group’s retail, corporate and brokerage businesses and result in
a significant decrease in the demand for financial services, including new loans, a decrease in loan
values, or an increase in NPLs or provisions for loan losses, any of which could have a material
adverse effect on the NKBM Group’s financial condition and results of operations.
Changes in the Slovenian and European regulatory framework could adversely affect the NKBM Group’s
business.
The NKBM Group is subject to extensive regulation and supervision by the Bank of Slovenia,
the European Central Bank and the European System of Central Banks. The banking laws to which
it is subject govern the activities in which banks may engage, and are designed to maintain the safety
and soundness of banks, as well as to limit the banks’ exposure to risk. As some of the banking laws
and regulations affecting the NKBM Group have only recently been adopted, such as the Basel II,
the manner in which such laws and related regulations are applied to the operations of financial
institutions is still evolving. No assurance can thus be given that laws and regulations will be
adopted, enforced or interpreted in a manner that will not have an adverse effect on the NKBM
Group’s business, financial condition and results of operations.
Rapid changes in Slovenian laws and regulations may expose the NKBM Group to possible legal requirement
violations.
Due to the rapid changes in Slovenian laws and regulations during recent years, the NKBM
Group may, from time to time, have violated, may be violating and may in the future violate, certain
legal requirements, including provisions of labour, foreign exchange, customs, tax and banking
regulations. The NKBM Group believes that any such violations have not had a material adverse
effect upon its activities or financial condition, but there can be no assurances that this will continue
to be the case.
The introduction of the euro may negatively affect Slovenia’s international competitiveness as well Slovenian
bank revenues from foreign exchange-related products and services.
The introduction of the euro as the currency of Slovenia on 1 January 2007, may substantially
restrict the independent monetary policies and decisions of the Bank of Slovenia, such as its ability to
influence exchange rates. This could negatively affect Slovenia’s international competitiveness. In
addition, the introduction of the euro exposes the Slovenian economy to the EU economic cycle,
which will be reflected in the euro exchange rate. As a result of the introduction of the euro, and in
common with the experience of banks located in countries which have previously adopted the euro,
the NKBM Group has experienced a decline in revenues from certain foreign exchange and payment
services. While the NKBM Group will seek to compensate for such decline with other sources of fee
income, there can be no assurance that any additional fee income will be generated or, if generated,
10
that such additional fee income will fully compensate the expected loss of revenues as a result of the
introduction of the euro.
Risks relating to the Notes
Certain Terms of the Subordinated Loan relating to the Notes differ from the loan terms for existing undated
cumulative Regulatory Capital debt issued by NKBM
NKBM entered into a subordinated loan agreement with ING Bank N.V. as lender in October
2006 (the ‘‘Existing Subordinated Loan’’), the loan under which was funded by an issue of floating
rate perpetual notes (the ‘‘Existing Notes’’) by ING Bank N.V. The Existing Subordinated Loan
qualified as upper tier two regulatory capital in accordance with the then current capital adequacy
regulations of the Bank of Slovenia. The Subordinated Loan advanced by VTB Bank Europe plc to
NKBM also qualifies as upper tier two regulatory capital in accordance with the capital adequacy
regulations of the Bank of Slovenia. The applicable capital adequacy regulations for upper tier two
regulatory capital (as promulgated by the Bank of Slovenia) have changed since the execution of the
Existing Subordinated Loan. As a result of this change, the rights of NKBM to defer interest under
the terms of the Subordinated Loan differ from those set out under the Existing Subordinated Loan.
In circumstances where NKBM records a net profit but no dividend has been paid by it in the
previous financial year and no payment has been made by NKBM under tier one obligations in the
form of innovative instruments, NKBM would have a right to defer an interest payment under the
Subordinated Loan, but would not have a corresponding right to defer an interest payment under the
Existing Subordinated Loan. Holders of the Notes may therefore not receive interest in circumstances
where holders of the Existing Notes would be entitled to an interest payment (if those circumstances
existed at the time that interest became due under the Existing Subordinated Loan). Holders of the
Notes are assisted, however, by the obligation under the Subordinated Loan requiring NKBM to pay
any interest deferred pursuant to the Subordinated Loan at the time that NKBM pays any amounts
owing (including interest) under loans ranking or expressed to rank pari passu with the Subordinated
Loan (such loans include the Existing Subordinated Loan). This means that a deferred interest
payment under the Subordinated Loan would become payable upon NKBM making any subsequent
interest payment under the Existing Subordinated Loan.
Interest payments on the Subordinated Loan may be subject to withholding tax or other taxes
Based on the professional advice it has received, NKBM believes that interest payments to the
Lender on the Subordinated Loan will not be subject to withholding tax. However, if the withholding
tax exemption does not apply, interest payments on borrowed funds made by a Slovenian entity to a
non-resident legal entity are subject to Slovenian withholding tax at a rate of 15 per cent. unless
another exemption or reduced rate can be applied in reliance on the relevant double taxation treaty.
There can be no assurance that such an exemption will be available, in which case NKBM will be
required to gross up.
The Notes may be redeemed early if withholding tax becomes payable or the Issuer incurs certain increased
costs or it becomes unlawful to allow the Subordinated Loan or the Notes to remain outstanding
In the event that NKBM is required to increase the amounts payable under the Subordinated
Loan Agreement, including in the event that any tax is or becomes applicable to such payments, or
the Lender or the Issuer incurs increased costs reimbursable by NKBM, NKBM may repay the
Subordinated Loan in whole but not in part, at its principal amount together with any accrued and
unpaid interest at any time, and shall prepay the Subordinated Loan pursuant to its terms in certain
circumstances where it is unlawful to allow the Subordinated Loan or the Notes to remain
outstanding and, to the extent that it has actually received the relevant funds from NKBM, the
Lender shall repay amounts owing to the Issuer under the Sub-Participation Agreement and the
Issuer shall redeem all outstanding Notes in accordance with the terms and conditions of the Notes.
See ‘‘Subordinated Loan Agreement – Repayments’’ and ‘‘Subordinated Loan Agreement – Payments’’.
Changes to the credit ratings of NKBM or Slovenia may adversely affect the Notes’ trading price
Any changes in the credit ratings of NKBM or Slovenia could adversely affect the trading price
of the Notes. A change in the credit rating of one or more other Slovenian corporate borrowers or
banks could also adversely affect the trading price of the Notes. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any
time by the assigning rating organisation.
11
Payments under the Notes are limited to the amount of certain payments received by the Issuer under the
Subordinated Loan Agreement
The Issuer has an obligation under the terms and conditions of the Notes to pay such amounts
of principal, interest and additional amounts (if any) as are due in respect of the Notes. However, the
Issuer’s obligation to pay is limited to the amount of principal, interest and additional amounts (if
any) actually received by or for the account of the Issuer from the Lender under the SubParticipation Agreement and, in turn, the Lender is only obliged to make payments under the SubParticipation Agreement to the Issuer in an amount equivalent to sums of principal, interest and/or
Additional Amounts (as defined in the Subordinated Loan Agreement), if any, actually received by or
for the account of the Lender under the Subordinated Loan Agreement. Consequently, if NKBM fails
to meet its payment obligations under the Subordinated Loan Agreement in full and/or the Lender
fails to meet its obligations under the Sub-Participation Agreement in full, this will result in the
Noteholders receiving less than the scheduled amount of principal or interest or other amounts, if
any.
NKBM will have the ability to incur more debt and this could increase the risks described above
NKBM may decide to incur additional debt in the future that will be senior to the
Subordinated Loan Agreement. The Subordinated Loan Agreement contains no limitations on
NKBM’s ability to incur additional debt. If new debt is added to NKBM’s current debt levels, the
magnitude of the related risks described above could increase, and the foregoing factors could have
an adverse effect on the ability of NKBM to pay amounts due in respect of the Subordinated Loan
Agreement and, therefore, ultimately the Issuer’s obligation to pay amounts due in respect of the
Notes. This may also reduce the amount recoverable by the Noteholders on a winding-up of NKBM.
As at 31 December 2006, NKBM had approximately c130 million of indebtedness which would rank
senior to its obligations under the Subordinated Loan Agreement and such amount is likely to
increase.
NKBM’s payment obligations under the Subordinated Loan are subordinated to the claims of unsubordinated
creditors
NKBM’s obligations under the Subordinated Loan Agreement will be unsecured and
subordinated and will rank junior in priority to the claims of all Senior Creditors (as defined in the
Subordinated Loan Agreement), pari passu among themselves and with Parity Securities (as defined in
the Subordinated Loan Agreement) and senior in priority only to Junior Securities (as defined in the
Subordinated Loan Agreement). There is therefore a real risk that an investor in the Notes (payments
on which being dependent, among other things, on payment by NKBM under the Subordinated Loan
Agreement) will lose all or some of their investment should NKBM become insolvent.
Noteholders have no direct recourse against NKBM
Save as otherwise expressly provided in the terms and conditions of the Notes, no proprietary
or other direct interest in the Lender’s rights under or in respect of the Subordinated Loan
Agreement or the Issuer’s rights under or in respect of the Sub-Participation Agreement exists for the
benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any right
to enforce any provision of the Subordinated Loan Agreement or the Sub-Participation Agreement or
have direct recourse to NKBM as borrower except through action by the Trustee under the Note
Security (as defined in the Trust Deed). Neither the Issuer nor the Trustee (under the Note Security)
shall be required to enter into proceedings to enforce payment under the Subordinated Loan
Agreement unless it has been indemnified and/or secured by the Noteholders to its satisfaction against
all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs,
charges and expenses which may be incurred by it in connection therewith. The Issuer is only obliged
to make payments under the Notes to Noteholders in an amount equivalent to sums of principal,
interest and/or additional amounts, if any, actually received by or for the account of the Issuer from
the Lender under the Sub-Participation Agreement and, in turn, the Lender is only obliged to make
payments under the Sub-Participation Agreement to the Issuer in an amount equivalent to sums of
principal, interest and/or additional amounts, if any, actually received by or for the account of the
Lender under the Subordinated Loan Agreement. Consequently, if NKBM fails to meet its
obligations under the Subordinated Loan Agreement in full and/or the Lender fails to meet its
obligations under the Sub-Participation Agreement in full, Noteholders will receive less that the
scheduled amount of principal, interest and/or additional amounts, if any, on the relevant due date.
12
Noteholders will have no further recourse against the Issuer, the Lender or NKBM after such
payments are made.
There is no existing market for the Notes
There is no existing market for the Notes. Application has been made to for the Notes to be
admitted to trading on the Irish Stock Exchange. However, there can be no assurance that an active
trading market for the Notes will develop or be maintained. If an active trading market for the Notes
does not develop or is not maintained, the market price and liquidity of the Notes may be adversely
affected.
Additional Credit Risk
Upon the Lender paying amounts due under the Sub-Participation Agreement into the Issuer
Account (as defined in the Trust Deed), the Lender’s obligation to make payment under the SubParticipation Agreement will be discharged pro tanto. As a result, Noteholders will be taking
additional credit risk on the Lender (when payment has been made by NKBM under the
Subordinated Loan Agreement into the Lender Account (as defined in the Subordinated Loan
Agreement) but not yet paid by the Lender into the Issuer Account) and on the Issuer and The Bank
of New York while such funds are held (and not disbursed) in the Issuer Account. While the
payment into the Issuer Account will not discharge the Issuer’s payment obligations under the Notes,
in the event that The Bank of New York were to become insolvent while such funds were in the
Issuer Account, Noteholders would only be able to look to the Issuer for payments due under the
Notes and the Issuer may not have sufficient assets to be able to meet its payment obligations under
the Notes, given that the payment obligations of NKBM under the Subordinated Loan Agreement
and of the Lender under the Sub-Participation Agreement shall have been discharged upon payment
by them of amounts due thereunder into the respective accounts referred to above.
Perpetual Loan Participation Notes
The Notes are perpetual securities in respect of which there is no fixed redemption date. The
Issuer is under no obligation to redeem the Notes (save in the limited circumstances referred to in
‘‘Terms and Conditions of the Notes – Condition 6.2 (Mandatory Redemption) and Condition 6.3
(No Other Redemption)’’ herein) and the Noteholders will have no right to redeem the Notes at any
time. Furthermore, the Subordinated Loan Agreement has no maturity date and there is no
obligation on NKBM to repay the Subordinated Loan at any time (except for certain limited
circumstances relating to illegality). In addition, any prepayment of the Subordinated Loan (following
which the Notes will also be redeemed, as described herein), whether at the option of NKBM or
otherwise, is subject to the prior consent of Banka Slovenije.
13
IMPORTANT INFORMATION
This prospectus (the ‘‘Prospectus’’) comprises a prospectus for the purposes of Article 5 of the
Prospectus Regulations and for the purpose of giving information with regard to the Issuer, the
Lender, NKBM and NKBM and its subsidiaries taken as a whole (the ‘‘NKBM Group’’) which,
according to the particular nature of the Issuer, the Lender, NKBM, the NKBM Group, the Notes,
the Sub-Participation and the Subordinated Loan, is necessary to enable investors to make an
informed assessment of the assets and liabilities, financial position, profit and losses and prospects of
the Issuer, the Lender, NKBM and the NKBM Group. Each of the Issuer and NKBM accepts
responsibility for the information contained in this prospectus (the ‘‘Prospectus’’). To the best of the
knowledge and belief of each of the Issuer and NKBM (having taken all reasonable care to ensure
that such is the case), the information contained in this Prospectus is in accordance with the facts
and does not omit anything likely to affect the import of such information.
The Lender accepts responsibility for the information in this Prospectus only with respect to
itself, save for the statement at paragraph 9 of ‘‘General Information’’ to the extent such statement
relates to the laws of Slovenia (the ‘‘Lender Information’’). To the best of the knowledge and belief
of the Lender (having taken all reasonable care to ensure that such is the case), such Lender
Information is in accordance with the facts and does not omit anything likely to affect the import of
such information.
NKBM has derived substantially all of the information contained in this Prospectus concerning
the Slovenian banking market and its competitors, which may include estimates or approximations,
from publicly available information, including press releases and filings made under various securities
laws. NKBM accepts responsibility for correctly copying such information from its sources and
confirms that such information has been correctly copied from its sources. As far as NKBM is aware
and is able to ascertain from the information published by such third parties, no facts have been
omitted which would render the copied information inaccurate or misleading. The source of third
party information is identified where used. However, NKBM has relied on the accuracy of such
information without carrying out an independent verification. In addition, some of the information
contained in this Prospectus has been derived from official data published by Banka Slovenije;
NKBM does not accept responsibility for the accuracy of such information.
Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any
circumstances create any implication that there has been no adverse change, or any event reasonably
likely to involve any adverse change, in the condition (financial or otherwise) of NKBM or the Issuer
since the date of this Prospectus.
This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the
Managers, the Issuer, the Lender or NKBM to subscribe for, or purchase, any Notes. The
distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted
by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Lender,
NKBM and the Managers to inform themselves about and to observe any such restrictions. For a
description of certain further restrictions on offers and sales of Notes and distribution of this
Prospectus, see ‘‘Subscription and Sale’’.
No person is authorised to provide any information or to make any representation not
contained in this Prospectus and any information or representation not so contained must not be
relied upon as having been authorised by or on behalf of NKBM, the Issuer, the Lender, the Trustee
or the Managers. The delivery of this Prospectus at any time does not imply that the information
contained in it is correct as at any time subsequent to its date. Without limitation to the generality of
the foregoing, the contents of NKBM’s website do not form any part of this Prospectus.
IN CONNECTION WITH THE ISSUE OF THE NOTES, MORGAN STANLEY & CO.
INTERNATIONAL PLC (OR PERSONS ACTING ON ITS BEHALF) MAY OVER-ALLOT
NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET
PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE
PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT MORGAN STANLEY & CO.
INTERNATIONAL PLC (OR PERSONS ACTING ON ITS BEHALF) WILL UNDERTAKE
STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER
THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE
OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT
IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE
OF THE NOTES AND 60 DAYS AFTER THE DATE OF ALLOTMENT OF THE NOTES.
14
ANY STABILISATION ACTION OR OVER-ALLOTMENT SHALL BE CONDUCTED IN
ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE
MANAGERS OR THE TRUSTEE AS TO THE ACCURACY OR COMPLETENESS OF THE
INFORMATION SET FORTH IN THIS PROSPECTUS, AND NOTHING CONTAINED IN THIS
PROSPECTUS IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION,
WHETHER AS TO THE PAST OR THE FUTURE. NEITHER THE MANAGERS NOR THE
TRUSTEE ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS
OF THE INFORMATION SET FORTH IN THIS PROSPECTUS. EACH PERSON
CONTEMPLATING MAKING AN INVESTMENT IN THE NOTES MUST MAKE ITS OWN
INVESTIGATION AND ANALYSIS OF THE OBLIGATIONS OF THE ISSUER AND THE
LENDER DESCRIBED HEREIN AND OF THE CREDITWORTHINESS OF NKBM, AS WELL
AS ITS OWN DETERMINATION OF THE SUITABILITY OF ANY SUCH INVESTMENT,
WITH PARTICULAR REFERENCE TO ITS OWN INVESTMENT OBJECTIVES AND
EXPERIENCE, AND ANY OTHER FACTORS THAT MAY BE RELEVANT TO IT IN
CONNECTION WITH SUCH INVESTMENT.
The Managers reserve the right to reject any offer to purchase the Notes, in whole or in part,
for any reason or to sell less than the aggregate principal amount of the Notes offered hereby.
Distribution of this Prospectus to any person other than the intended recipient is unauthorised. Each
prospective purchaser of the Notes, by accepting delivery of this document, agrees to the foregoing.
15
FORWARD-LOOKING STATEMENTS
Some statements in this Prospectus, as well as written and oral statements which NKBM or its
representatives make from time to time in reports, filings, news releases, conferences, teleconferences,
web postings or otherwise, may be deemed to be ‘‘forward-looking statements’’. Forward-looking
statements include statements concerning NKBM’s plans, objectives, goals, strategies and future
operations and performance and the assumptions underlying these forward-looking statements.
NKBM uses the words ‘‘anticipates’’, ‘‘estimates’’, ‘‘expects’’, ‘‘believes’’, ‘‘intends’’, ‘‘plans’’, ‘‘may’’,
‘‘will’’, ‘‘should’’ and any similar expressions to identify forward-looking statements. These forwardlooking statements are contained in ‘‘Overview of NKBM and the Offering’’, ‘‘Risk Factors’’,
‘‘Business’’ and other sections of this Prospectus. NKBM has based these forward-looking statements
on the current view of its management with respect to future events and financial performance. These
views reflect the best judgement of NKBM’s management but involve uncertainties and are subject to
certain risks the occurrence of which could cause actual results to differ materially from those
predicted in NKBM’s forward-looking statements and from past results, performance or achievements.
Although NKBM believes that the estimates and the projections reflected in its forward-looking
statements are reasonable, if one or more of the risks or uncertainties materialise or occur, including
those which NKBM has identified in this Prospectus, or if any of NKBM’s underlying assumptions
prove to be incomplete or incorrect, NKBM’s actual results of operations may vary from those
expected, estimated or projected.
NKBM is not obliged to, and does not intend to, update or revise any forward-looking
statements made in this Prospectus whether as a result of new information, future events or
otherwise. All subsequent written or oral forward-looking statements attributable to NKBM, or
persons acting on NKBM’s behalf, are expressly qualified in their entirety by the cautionary
statements contained throughout this Prospectus. As a result of these risks, uncertainties and
assumptions, a prospective purchaser of the Notes should not place undue reliance on these forwardlooking statements.
16
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Presentation of Financial Information
NKBM’s financial information set forth herein has, unless otherwise indicated, been extracted,
without material adjustments, from its unaudited interim consolidated financial statements as of and
for the six months ended 30 June 2007, as set forth starting on page F-2 of this document (the
‘‘Interim Financial Statements’’), and from its audited annual consolidated financial statements as of
and for the years ended 31 December 2005 and 2006, as set forth starting on page F-8 of this
Prospectus (the ‘‘Annual Consolidated Financial Statements’’) and from its audited annual nonconsolidated financial statements as of and for the years ended 31 December 2005 and 2006, as set
forth starting on page F-66 of this document (the ‘‘Annual Non-Consolidated Financial Statements’’).
The Interim Financial Statements, the Annual Consolidated Financial Statements and the Annual
Non-Consolidated Financial Statements have been prepared in accordance with International
Financial Reporting Standards (‘‘IFRS’’) issued by the International Accounting Standards Board and
adopted by the European Union, respectively. The Interim Financial Statements, the Annual
Consolidated Financial Statements and the Annual Non-Consolidated Financial Statements are
together referred to in this Prospectus as the ‘‘IFRS Financial Statements’’.
NKBM keeps the accounting records relating to the NKBM Group in accordance with
Slovenian banking legislation. Slovenian banking legislation required Slovenian banks to keep their
accounting records in accordance with Slovenian Accounting Standards (‘‘SAS’’) for financial periods
ending on or prior to 31 December 2005. Since 1 January 2006, Slovenian banks have been required
to keep their accounting records in accordance with IFRS. The consolidated and non-consolidated
financial statements for the year ended 31 December 2005 have therefore been prepared based on
those accounting records prepared in accordance with SAS and adjusted as necessary in order to
comply with IFRS.
NKBM has previously presented its financial statements in Slovene tolar (‘‘SIT’’) and has done
so for the year ended 31 December 2006. NKBM has also prepared audited financial statements for
the years ended 31 December 2005 and 2006 in euro which have been included in this Prospectus.
Unless otherwise stated, any balance sheet data in euro is translated from SIT at the exchange rate
published by Banka Slovenije applicable on the date of such balance sheet (or, if no such rate was
published for such date, the immediately preceding date), and any income statement data in euro is
translated from SIT into euro at the average exchange rate published by Banka Slovenije applicable
to the period to which such income statement data relates. All the SIT figures in ‘‘Business
Description’’ are translated into euro at the exchange rate of 239.64 for 1 EUR irrespective of the
date to which such data relates.
See ‘‘Exchange Rates and Exchange Controls’’ for further information regarding rates of
exchange between the Slovene tolar and the euro.
Currency
In this Prospectus, the following currency terms are used:
*
‘‘SIT’’ or ‘‘Slovene tolar’’ means the former currency of Slovenia;
*
‘‘USD’’, ‘‘U.S. dollar’’ or ‘‘U.S.$’’ means the lawful currency of the United States;
*
‘‘EUR’’, ‘‘euro’’ or ‘‘c’’ means the lawful currency of the member states of the European
Union that adopted the single currency (including Slovenia) in accordance with the Treaty
of Rome establishing the European Economic Community, as amended;
*
‘‘CHF’’ means the lawful currency of the Swiss Confederation;
*
‘‘GBP’’ means the lawful currency of the United Kingdom;
*
‘‘CAD’’ means the lawful currency of Canada; and
*
‘‘DEM’’ means the former currency of Germany.
NKBM’s Market Share Information
Save where specifically indicated, NKBM has calculated its market share information presented
in this Prospectus on the basis of market data regularly published by Banka Slovenije.
17
Rounding
Some numerical figures included in this Prospectus have been subject to rounding adjustments.
Accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation
of the figures that preceded them.
Auditors
NKBM’s Annual Consolidated Financial Statements and the Annual Non-Consolidated
Financial Statements included in this Prospectus have been audited by KPMG Slovenija, podjetje za
revidiranje, d.o.o., independent auditors, whose reports thereon are included at pages F-8, F-65, F-66
and F-125.
Language of Prospectus
The language of this Prospectus is English. Certain legislative references and technical terms
have been cited in their original language in order that the correct technical meaning may be ascribed
to them under applicable law.
18
OVERVIEW OF NKBM AND THE OFFERING
This overview may not contain all the information that may be important to prospective purchasers
of the Notes. Prospective purchasers of the Notes should read this entire Prospectus, including the more
detailed information regarding NKBM’s business and the IFRS Financial Statements included elsewhere
in this Prospectus. Investing in the Notes involves risks, and prospective purchasers should carefully
consider the information set forth under ‘‘Risk Factors’’. Certain statements in this Prospectus are also
forward-looking statements that involve risks and uncertainties as described under ‘‘Forward-Looking
Statements’’.
NKBM
NKBM is a full service financial institution in Slovenia providing a comprehensive range of
retail, corporate and investment banking services to its clients and customers. NKBM is currently the
second largest bank in Slovenia, with 87 branches, sub-branches and agencies as at 31 December
2006. The core banking business is further complemented by a variety of financial services offered by
NKBM’s subsidiaries and affiliates.
The NKBM Group had consolidated profit before tax of SIT 13,361.7 million (c55.8 million)
for the year ended 31 December 2006. As at 31 December 2006 it had total assets of SIT 1,020,375.8
million (c4,258.0 million) and total equity of SIT 76,943.9 million (c321.1 million). NKBM had nonconsolidated profit before tax of SIT 10,654.8 million (c44.5 million) for the year ended 31 December
2006. As at 31 December 2006 it had total assets of SIT 879,277.1 million (c3,669.2 million) and total
equity of SIT 66,847.3 million (c278.9 million).
NKBM is incorporated in Slovenia as a bank in the form of a ‘‘delniška druz̆ba’’ (joint-stock
company) with limited liability.
NKBM was established in 1955 under the name of Komunalna banka Maribor in the city of
Maribor in the north-eastern part of Slovenia and in 1978 it was amalgamated with 22 other banks
to create the Ljubljanska Banka (LB) Group. In 1993 NKBM severed its links with the LB Group
and resumed operating as an autonomous joint-stock enterprise under the name of Kreditna Banka
Maribor d.d. In 1994, Kreditna banka Maribor was renamed Nova Kreditna banka Maribor by way
of an Act of Parliament.
The Ministry of Finance of the Republic of Slovenia holds 90.4 per cent. of NKBM’s ordinary
share capital. The Republic of Slovenia holds a further 9.6 per cent. indirectly through the Capital
Fund of the Republic of Slovenia and the Slovene Restitution Fund.
NKBM’s activities can be categorised broadly under corporate banking (including corporate
loans and deposit facilities in euro and foreign currencies and domestic payment services) and retail
banking (including consumer and home loans, deposit facilities, domestic and international payment
services).
NKBM’s most important investment is its 49.96 per cent. shareholding in Zavarovalnica
Maribor d.d. (‘‘ZM’’), Slovenia’s third largest insurance company. ZM provides life insurance
products and, in conjunction with partner AXA Assistance, provides tourist and travel insurance. All
NKBM’s branches currently offer these insurance products.
19
The Offering
The Offering
c100,000,000 Fixed to Floating Rate Perpetual Loan Participation
Notes.
Issuer and participant under the
Sub-Participation Agreement
Maribor Finance B.V.
Lender under the Subordinated
Loan Agreement and obligor
under the Sub-Participation
Agreement
VTB Bank Europe plc
Borrower
Nova Kreditna banka Maribor d.d., with its registered office and
business headquarters at Ulica Vita Kraigherja 4, 2505 Maribor,
Slovenia.
Issue Price
100 per cent. of the principal amount of the Notes.
Use of Proceeds
The Issuer will use the gross proceeds of the issue of the Notes,
amounting to c100,000,000, for the sole purpose of funding its SubParticipation in the Subordinated Loan in the same amount. The
Lender will use such proceeds from the Sub-Participation for the
sole purpose of funding the Subordinated Loan to NKBM in the
same amount. NKBM will separately pay estimated total
commissions and other expenses payable in connection with the
offering of the Notes and the other arrangements referred to in this
Prospectus of approximately c1,750,000. The proceeds of the
Subordinated Loan will be used by NKBM for general corporate
purposes and to strengthen its capital base.
Interest
The Issuer will account to the Noteholders for an amount equal to
the amounts of interest actually received by it pursuant to the SubParticipation Agreement. To the extent payable as described herein,
interest shall accrue during the period from and including the
Closing Date to but excluding the Reset Date at a fixed rate of 7.02
per cent. per annum and shall be payable annually in arrear on 12
October in each year, commencing on 12 October 2008, with the
last such payment due on 12 October 2012. If the Subordinated
Loan has not been prepaid (and the Notes have not been redeemed)
on or prior to the expiry of such Initial Interest Term, interest (to
the extent payable as described herein) shall accrue at a floating rate
equal to the sum of three month EURIBOR and 4.0 per cent. per
annum from and including the Rest Date and thereafter and shall
be payable quarterly in arrear on 12 January, 12 April, 12 July and
12 October in each year, commencing on 12 January 2013. See
‘‘Terms and Conditions of the Notes’’.
Limited Recourse
The Notes will constitute the obligation of the Issuer to apply an
amount equal to the proceeds from the issue of the Notes solely for
the purpose of funding the Sub-Participation pursuant to the terms
of the Sub-Participation Agreement. The Issuer will only account to
the Noteholders for all amounts equivalent to those (if any)
received from the Lender under the Sub-Participation Agreement
(including pursuant to the Lender Security granted to the Issuer in
connection therewith) and the Lender will account to the Issuer for
all amounts equivalent to those (if any) received from NKBM
under the Subordinated Loan Agreement, in each case less any
amounts in respect of the Reserved Rights (as defined under
‘‘Terms and Conditions of the Notes’’).
Status of the Notes
The Notes constitute direct, limited recourse and unsubordinated
obligations of the Issuer. The Notes are secured in the manner
described below and shall at all times rank pari passu and without
20
preference among themselves, all as more fully described under
‘‘Terms and Conditions of the Notes – Condition 2 (Status and
Limited Recourse)’’ and ‘‘Condition 3 (Security)’’.
Status of the Subordinated Loan
Any rights (excluding the Reserved Rights as defined in the
Subordinated Loan Agreement) under the provisions of the
Subordinated Loan Agreement against NKBM in respect of the
principal of, and interest on, the Subordinated Loan will rank
junior to all Senior Obligations (as defined in the Subordinated
Loan Agreement), will rank pari passu among themselves and with
Parity Securities (as defined in the Subordinated Loan Agreement)
and will rank senior to Junior Securities (as defined in the
Subordinated Loan Agreement). See Clause 2.3 of the
Subordinated Loan Agreement.
Security
Subject as provided in the Trust Deed, the Lender will, in the Trust
Deed as security for its payment obligations under the SubParticipation Agreement: (i) charge to the Issuer by way of first
fixed charge its rights and interests as lender under the
Subordinated Loan Agreement (including all sums due to the
Lender thereunder, other than in respect of certain reserved rights);
(ii) charge to the Issuer by way of first fixed charge its rights and
interests in and to all sums held in the Lender Account (other than
in respect of the Reserved Rights) (together with (i), the ‘‘Lender
Charged Property’’); and (iii) assign to the Issuer its administrative
rights under the Subordinated Loan Agreement (the ‘‘Lender
Transferred Rights’’). In addition, subject as provided in the Trust
Deed, the Issuer will, in the Trust Deed as security for its payment
obligations in respect of the Notes: (x) charge to the Trustee by way
of first fixed charge its rights and interests as participant under the
Sub-Participation Agreement (including all sums due to the Issuer
thereunder) and the Lender Charged Property; (y) charge to the
Trustee by way of first fixed charge its rights and interests in and to
all sums held in the Issuer Account; and (z) assign to the Trustee its
administrative rights under the Sub-Participation Agreement and
the Lender Transferred Rights. Subject to the provisions of the
Trust Deed including the Trustee being indemnified and/or secured
to its satisfaction, (a) the security granted by the Lender shall only
become enforceable following the occurrence of a Lender Relevant
Event and (b) the security granted by the Issuer shall only become
enforceable following the occurrence of an Issuer Relevant Event.
See ‘‘Terms and Conditions of the Notes – Condition 3 (Security)’’
and the Trust Deed for further details.
Form
The Notes will be issued in registered form in the denomination of
c50,000 each and integral multiples of c1,000 in excess thereof and
will be represented by a Global Note Certificate which will be
exchangeable for Individual Note Certificates in the limited
circumstances described under ‘‘Summary of Provisions Relating
to the Notes in Global Form’’.
Deferral of Interest under
Subordinated Loan
NKBM may elect to defer payments due under the Subordinated
Loan Agreement in its sole and absolute discretion in whole or in
part in accordance with Clause 5.8 of the Subordinated Loan
Agreement. Interest will not accrue on any payment so deferred.
NKBM may elect to pay the whole or any part of the Deferred
Payments (as defined in the Subordinated Loan Agreement) on
giving written notice to the Lender. The aggregate amount of
Deferred Payments which remains unpaid shall become due and
payable in full upon (i) the occurrence of a Bankruptcy Event or (ii)
the payment by NKBM of any amounts owing under Junior or
21
Parity Securities or (iii) the declaration by NKBM of dividends on
its ordinary shares or any other shares in issue or (iv) a repayment
under Clause 6 of the Subordinated Loan Agreement.
Call Option
Under the terms of the Subordinated Loan Agreement, NKBM will
have the right, subject to the prior approval of Banka Slovenije to
prepay the Subordinated Loan in whole but not in part on any
Interest Payment Date during the Step-Up Interest Term at its
principal amount together with any accrued and unpaid interest.
Gross-Up Event
NKBM may, subject to the prior approval of Banka Slovenije
prepay the Subordinated Loan, in whole but not in part at its
principal amount plus accrued and unpaid interest thereon if
NKBM is required to pay additional amounts in respect of
Slovenian, Dutch or United Kingdom taxes (or taxes in other
relevant jurisdictions) in respect of the Subordinated Loan and this
cannot be avoided by NKBM taking reasonable measures available
to it or it must pay the Lender: (i) Additional Amounts in respect of
additional amounts payable by the Lender pursuant to the SubParticipation Agreement or; (ii) Additional Amounts in respect of
additional amounts payable by the Issuer pursuant to the terms of
the Notes.
Regulatory Event
NKBM may, subject to the prior approval of Banka Slovenije,
prepay the Subordinated Loan, in whole but not in part at any time
after the drawdown of the advance under the Subordinated Loan
Agreement at its principal amount plus accrued and unpaid interest
thereon, if the Subordinated Loan ceases to have regulatory capital
treatment as Upper Tier 2 Capital under regulations of Banka
Slovenije due to a change in, or a change of interpretation of, such
regulations (except where the Subordinated Loan ceases to have
such regulatory capital treatment due to NKBM exceeding the limit
specified by Banka Slovenije for holdings of Upper Tier 2 Capital).
Failure to Pay
If NKBM shall not make payment of any principal or any interest
payable in respect of the Subordinated Loan for a period of 10 days
or more after the due date for the same (which, subject to Clause
14.1 of the Subordinated Loan Agreement, failure to make
payment shall constitute prima facie evidence of NKBM’s
inability to make such payment), the Trustee or the Issuer (as
directed by the Trustee) pursuant to the Lender Transferred Rights
(as defined under ‘‘Terms and Conditions of the Notes – Condition
3 (Security)’’), may institute proceedings in Slovenia (but not
elsewhere) for the winding-up of NKBM and/or prove in the
winding-up of NKBM.
Relevant Event
If an Issuer Relevant Event (as defined in the Trust Deed) occurs,
the Trustee may enforce the security granted by the Issuer and if a
Lender Relevant Event (as defined in the Trust Deed) occurs, the
Trustee or the Issuer (as directed by the Trustee) may enforce the
security granted by the Lender in each case subject to the provisions
of the Trust Deed.
Withholding Tax
All payments of principal and interest under the Notes will be made
free and clear of all taxes, duties, assessments or governmental
charges of The Netherlands, save as required by law. All payments
of principal and interest under the Sub-Participation Agreement
will be made free and clear of all taxes, duties, assessments or
governmental charges of the United Kingdom, save as required by
law. All payments of principal and interest under the Subordinated
Loan Agreement will be made free and clear of all taxes, duties
assessments or governmental charges of Slovenia, The Netherlands
or the United Kingdom, save as required by law. If any taxes,
22
duties, assessments or governmental charges are payable in any of
the above jurisdictions, the sum payable by NKBM will (subject to
certain exceptions) be required to be increased to the extent
necessary to ensure that the Issuer receives from the Lender a net
sum under the Sub-Participation Agreement which it would have
received had no such deduction or withholding been made or
required to be made. The sole obligation of the Issuer in this respect
will be to pay to the Noteholders sums equivalent to the sums
received from the Lender. See ‘‘Terms and Conditions of the
Notes’’.
Amendments and Waivers
As long as any of the Notes remains outstanding, the Lender will
not, without the prior written consent of the Trustee, agree to any
amendment to or any modification or waiver of, or authorise any
breach or proposed breach of, the terms of the Subordinated Loan
Agreement or the Sub-Participation Agreement, except as
otherwise expressly provided in the Trust Deed, the Subordinated
Loan Agreement or the Sub-Participation Agreement, as the case
may be. As long as any of the Notes remains outstanding, the
Issuer will not, without the prior written consent of the Trustee,
agree to any amendment to or any modification or waiver of, or
authorise any breach or proposed breach of, the terms of the SubParticipation Agreement and/or the Lender Security granted to it in
connection therewith, except as otherwise expressly provided in the
Trust Deed or the Sub-Participation Agreement.
Listing
Application has been made to the IFSRA as competent authority
under the Prospectus Directive for this Prospectus to be approved.
Application has been made to the Irish Stock Exchange for the
Notes to be admitted to the Official List and trading on its
regulated market.
Selling Restrictions
The Notes, the Sub-Participation and the Subordinated Loan have
not been and will not be registered under the Securities Act and,
subject to certain exceptions, may not be offered or sold within the
United States. The Notes may be offered or sold in other
jurisdictions (including the United Kingdom and Slovenia) only
in compliance with applicable laws and regulations. See
‘‘Subscription and Sale’’.
Governing Law
The Notes, the Sub-Participation Agreement, the Subordinated
Loan Agreement and the Trust Deed will be governed by and
construed in accordance with English law, except for the
subordination provisions included in the Subordinated Loan
Agreement which will be governed by and construed in
accordance with Slovenian law.
Joint Lead Managers
Morgan Stanley & Co. International plc and VTB Bank Europe plc
Trustee
BNY Corporate Trustee Services Limited
Principal Paying and Transfer
Agent and Calculation Agent
The Bank of New York
Registrar and Paying and Transfer
Agent in Ireland
BNY Financial Services Plc
Risk Factors
An investment in the Notes involves a high degree of risk. See
‘‘Risk Factors’’.
Security Codes for the Notes
ISIN: XS0325446903
Common Code: 32544690
23
DESCRIPTION OF THE TRANSACTION
The following summary contains basic information about the Notes, the Sub-Participation and
the Subordinated Loan and should be read in conjunction with, and is qualified in its entirety by, the
information set forth under ‘‘Terms and Conditions of the Notes’’ and ‘‘The Subordinated Loan
Agreement’’ appearing elsewhere in this Prospectus.
Principal and Interest
Lender
Issuer
Sub-Participation
Proceeds
of the
Notes
Principal and
Interest on the
Notes
Principal and
Interest on the
Subordinated
Loan
Subordinated
Loan
NKBM
Noteholders
The transaction will be structured as a subordinated loan to NKBM by the Lender. The Issuer
will issue the Notes which will be limited recourse loan participation notes issued for the sole purpose
of funding a 100 per cent. Sub-Participation by the Issuer in the Subordinated Loan. The Lender will
use the proceeds of the Sub-Participation for the sole purpose of funding the Subordinated Loan. The
Notes will be subject to, and have the benefit of, the Trust Deed. The obligation of the Issuer to
make payments under the Notes shall constitute an obligation only to pay to the Noteholders an
amount equal to and in the same currency as sums of principal, interest and/or additional amounts (if
any) actually received by or for the account of the Issuer pursuant to the Sub-Participation
Agreement and/or the Lender Security granted to it by the Lender in connection therewith.
Noteholders must rely upon NKBM’s ability to pay under the Subordinated Loan Agreement
and the credit and financial standing of NKBM. They must also rely on the Lender’s covenant to
pay under the Sub-Participation Agreement (see ‘‘Risk Factors – Risks Relating to the Notes and the
Subordinated Loan -Additional credit risk’’ for further details). Noteholders shall have no recourse
(direct or indirect) to any assets of the Issuer or the Lender other than the Issuer’s rights under the
Sub-Participation Agreement and/or the Lender Security granted to it by the Lender in connection
therewith. The Issuer shall not be liable to make any payment in respect of the Notes other than as
expressly provided in the Terms and Conditions and in the Trust Deed. Assuming the due
performance by NKBM of its obligations under the Subordinated Loan Agreement and by the
Lender under the Sub-Participation Agreement to pay such amounts and subject to the limited
recourse nature of the Notes and certain circumstances where NKBM has discretion to, or is obliged
to, cancel payments of interest under the Subordinated Loan, the Subordinated Loan Agreement and
the Sub-Participation Agreement have the capacity to produce funds to service any payments due and
payable on the Notes.
Subject as provided in the Trust Deed:
(i)
the Lender will charge to the Issuer, by way of first fixed charge as security for its
payment obligations under the Sub-Participation Agreement, (a) its rights to principal,
interest and additional amounts (if any) as lender under the Subordinated Loan
Agreement, (b) its right to receive all sums payable by NKBM under any claim, award or
judgment relating to the Subordinated Loan Agreement and (c) amounts received pursuant
to the Subordinated Loan Agreement into an account with The Bank of New York in the
name of the Lender, together with the debt represented thereby (the ‘‘Lender Account’’), in
each case other than certain amounts in respect of certain Reserved Rights (as defined in
‘‘Terms and Conditions of the Notes’’). The Lender will also assign certain administrative
rights under the Subordinated Loan Agreement to the Issuer (all security granted by the
Lender to the Issuer under the Trust Deed being referred to herein as the ‘‘Lender
Security’’); and
(ii)
the Issuer will charge to the Trustee, for the benefit of the Noteholders, by way of first
fixed charge as security for its payment obligations in respect of the Notes, (a) its rights
and interests under the Lender Security, (b) its rights to principal, interest and additional
24
amounts (if any) as the participant under the Sub-Participation Agreement, (c) its right to
receive all sums payable by the Lender under any claim, award or judgment relating to the
Sub-Participation Agreement and (d) amounts received pursuant to the Sub-Participation
Agreement into an account with The Bank of New York in the name of the Issuer,
together with the debt represented thereby (the ‘‘Issuer Account’’ and, together with the
Lender Account, the ‘‘Accounts’’). The Issuer will also assign certain administrative rights
under the Sub-Participation Agreement, as well as the administrative rights assigned to it
as described in (i) above, to the Trustee.
See ‘‘Terms and Conditions of the Notes’’ and the Trust Deed for further details.
NKBM will be obliged to make payments under the Subordinated Loan to the Lender to the
Lender Account in accordance with the terms of the Subordinated Loan Agreement, and the Lender
will be obliged to make payments under the Sub-Participation to the Issuer to the Issuer Account in
accordance with the terms of the Sub-Participation Agreement. The Lender’s obligation to make
payments under the Sub-Participation will be deemed to be satisfied to the extent that payments are
made to the Issuer Account by the Lender in amounts equal to those received into the Lender
Account (less any amounts in respect of the Reserved Rights) by the Lender from NKBM pursuant
to the Subordinated Loan Agreement.
Each of the Lender and the Issuer will covenant in the Trust Deed not to agree to any
amendment to or any modification or waiver of, or authorise any breach or potential breach of, the
terms of the Subordinated Loan Agreement and the Sub-Participation Agreement (as appropriate)
unless the Trustee has given its prior written consent. Any amendments, modifications, waivers or
authorisations made with the Trustee’s consent shall be notified to the Noteholders in accordance
with the Terms and Conditions of the Notes and will be binding on the Noteholders.
The relevant security created under the Trust Deed will become enforceable upon the occurrence
of a Lender Relevant Event or an Issuer Relevant Event (as appropriate), as further described in the
Terms and Conditions of the Notes.
Payments in respect of the Notes will be made without any deduction or withholding for or on
account of taxes of The Netherlands, except as required by law. In that event, the Issuer will only be
required to pay additional amounts to the extent that it receives corresponding amounts under the
Sub-Participation Agreement and the Lender receives the corresponding amount under the
Subordinated Loan Agreement. The Subordinated Loan Agreement will provide for NKBM to pay
such corresponding amounts in these circumstances. Payments under the Sub-Participation Agreement
will be made without any deduction or withholding for or on account of United Kingdom taxes,
except as required by law. In that event, the Lender will only be required to pay additional amounts
to the extent that it receives corresponding amounts under the Subordinated Loan Agreement. In
addition, payments under the Subordinated Loan Agreement will be made without any deduction or
withholding for or on account of Slovenian, United Kingdom or Dutch taxes, except as required by
law, in which event NKBM will be obliged to increase the amounts payable under the Subordinated
Loan Agreement (save in certain circumstances).
In certain circumstances, subject to the consent of Banka Slovenije, the Subordinated Loan may
be prepaid at its principal amount, together with accrued but unpaid interest, as more fully set out in
the Subordinated Loan Agreement. In each case (to the extent the Lender has actually received the
relevant funds from NKBM) the payment amount of all outstanding Notes will be prepaid by the
Issuer together with accrued interest, to the extent that the relevant amount has been received by it
under the Sub-Participation Agreement and/or the Lender Security.
25
USE OF PROCEEDS
The Issuer will use the gross proceeds of the issue of the Notes, amounting to c100,000,000, for
the sole purpose of funding its Sub-Participation in the Subordinated Loan in the same amount. The
Lender will use such proceeds from the Sub-Participation for the sole purpose of funding the
Subordinated Loan to NKBM in the same amount.
NKBM will separately pay estimated total commissions and other expenses payable in
connection with the offering of the Notes and the other arrangements referred to in this Prospectus
of approximately c1,750,000. The proceeds of the Subordinated Loan Agreement will be used by
NKBM for general corporate purposes and to strengthen its capital base.
26
RECENT DEVELOPMENTS
Privatisation Plan
In May 2007, the Minister of Finance of the Republic of Slovenia announced the Slovenian
government’s intention to list NKBM on the Ljubljana Stock Exchange before the end of 2007. The
privatisation plan would initially involve the sale of 49 per cent. of NKBM to institutional and retail
investors, with the remaining 51 per cent. retained by the government for the time being. In July
2007, the Slovenian government engaged an international investment bank to act as global coordinator in relation to the offering of NKBM shares pursuant to the privatisation plan and the
listing of NKBM on the Ljubljana Stock Exchange. The date of the second stage of the privatisation
of NKBM has not been decided as of the date of this Prospectus but the Slovenian government has
expressed its intention to retain ownership of a 25 per cent. plus one stake in NKBM in the longterm.
Exposure to Global Market Volatility
In spite of the volatility experienced in the global credit markets during the summer of 2007
initially emanating from defaults in the U.S. sub-prime mortgage market and consequent liquidity
pressures experienced in the global banking market, NKBM currently believes that it has been
minimally affected by such market conditions. NKBM has not suffered undue liquidity constraints in
domestic and foreign inter-bank markets. In addition, its exposure through holdings of structured
products to the pricing and valuation uncertainties which have occurred at this time has been small
due to NKBM’s minimal holdings of such products.
Interim Financial Statements
NKBM has prepared unaudited consolidated financial statements as at and for the six months
ended 30 June 2007 which have been prepared in accordance with IFRS and which have been
reviewed by KPMG Slovenija. Such unaudited interim consolidated financial statements appear below
and in the F-pages of this Prospectus.
27
CONSOLIDATED INTERIM INCOME STATEMENT OF NKBM
For the six months ended
30 June
2006
30 June
2007
(in millions of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Interest income .......................................................................................
Interest expenses .....................................................................................
Interest net income (1 – 2) .....................................................................
Dividend income.....................................................................................
Fee and commission income ..................................................................
Fee and commission expenses................................................................
Fee and commission net income (5 – 6)..................................................
Realised gains and losses on financial assets and liabilities not
measured at fair value through profit and loss ....................................
Gains and losses on financial assets and liabilities held for trading....
Gains and losses on financial assets and liabilities designated at fair
value through profit or loss ...................................................................
Fair value adjustments in hedge accounting .........................................
Exchange differences ..............................................................................
Gains and losses on derecognition of assets other than held for sale .
Other operating net income ...................................................................
Financial and operating income and expenses (3 + 4 + 7 + 8 + 9 +
10 + 11 + 12 + 13 + 14).......................................................................
Administration costs...............................................................................
Depreciation ...........................................................................................
Provisions................................................................................................
Impairment .............................................................................................
Negative goodwill ...................................................................................
Share of the profit or loss of associates and joint ventures
accounted for using the equity method .................................................
Total profit or loss from non-current assets and disposal groups
classified as held for sale........................................................................
TOTAL
PROFIT
OR
LOSS
BEFORE
TAX
FROM
CONTINUING OPERATIONS (15 – 16 – 17 – 18 – 19 + 20 + 21
+ 22) .......................................................................................................
Tax expense (income) related to profit or loss from continuing
operations ...............................................................................................
TOTAL PROFIT OR LOSS AFTER TAX FROM CONTINUING
OPERATIONS (23 – 24).......................................................................
Total profit or loss after tax from discontinued operations.................
NET PROFIT OR LOSS for the financial year (25 + 26) ..................
28
88.6
38.4
50.3
0.9
26.2
5.3
20.9
114.4
57.3
57.1
0.8
29.9
5.0
24.9
(0.2)
(1.2)
2.6
24.0
0
0
1.1
1.3
0.7
0.1
0.1
0
0.3
2.8
73.0
41.1
5.3
4.9
4.7
0
112.7
46.1
5.7
2.3
9.3
0
1.9
2.4
0
0.2
19.0
51.9
(0.3)
13.2
19.3
0
19.3
38.6
0
38.6
CONSOLIDATED INTERIM BALANCE SHEET OF NKBM
As at
31 December
2006
30 June
2007
(in millions of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
Cash and cash balances with central banks........................................
Financial assets held of trading...........................................................
Financial assets designated at fair value through profit or loss ........
Available-for-sale financial assets ........................................................
Loans and receivables ..........................................................................
Held-to-maturity investments...............................................................
Derivatives – hedge accounting ...........................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest income on financial assets........................................
Tangible assets .....................................................................................
Investment property .............................................................................
Intangible assets ...................................................................................
Investments in subsidiaries, associates and joint ventures..................
Tax assets .............................................................................................
Other assets ..........................................................................................
Non-current assets and disposal groups classified as held for sale....
TOTAL ASSETS .................................................................................
Deposits from central banks................................................................
Financial liabilities held of trading .....................................................
Financial liabilities designated at fair value through profit or loss ...
Financial liabilities measured at amortised cost .................................
Financial liabilities associated to transferred assets............................
Derivatives – hedge accounting ...........................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest expenses on financial liabilities ................................
Provisions .............................................................................................
Tax liabilities ........................................................................................
Other liabilities .....................................................................................
Liabilities included in disposal groups classified as held for sale ......
Basic equity capital ..............................................................................
Share premium account .......................................................................
Equity component of compound financial instruments ......................
Revaluation reserves.............................................................................
Reserves from profit (including retained earnings) .............................
Treasury shares ....................................................................................
Income from current year....................................................................
Interim dividends .................................................................................
Minority interest ..................................................................................
TOTAL LIABILITIES AND EQUITY ..............................................
29
109.7
135.9
0
786.0
2,707.3
292.8
0
95.6
164.0
0
988.4
2,968.4
140.7
0.1
0
0
79.1
5.9
23.0
43.4
3.9
70.9
0
4,258.0
0
0.2
0
3,845.0
0
0
0
0
78.2
5.6
24.5
42.8
9.9
123.3
0.1
4,641.7
0
0
0
4,138.4
0
0
0
18.8
29.2
7.4
36.3
0
24.4
29.1
0
16.5
225.8
0
13.7
0
11.6
4,258.0
0
19.5
32.7
19.6
74.6
0
24.4
29.1
0
15.8
224.0
0
37.1
0
26.6
4,641.7
Consolidated unaudited interim income statement of NKBM
NKBM’s consolidated net interest income for the six months ended 30 June 2007 comprised
c57.1 million, an increase of 13.6 per cent., as compared with the six months ended 30 June 2006
(c50.3 million). The increase is attributable to an increase in interest income of 29.1 per cent. to
c114.4 million for the six months ended 30 June 2007 as compared to c88.6 million for the six
months ended 30 June 2006 and was partially offset by an increase in interest expense of 49.4 per
cent. to c57.3 million for the six months ended 30 June 2007 as compared to c38.4 million for the six
months ended 30 June 2006. The increase in interest income was principally due to the increase in
NKBM’s loan portfolio over the six month period ended 30 June 2007, rather than any particular
changes in interest rates being charged to customers. Interest expense derives principally from interest
paid on customer and inter-bank deposits and its increase was principally due to the growth in
deposits over the six month period ended 30 June 2007, rather than any particular changes to interest
rates being offered on deposits to customers.
NKBM’s consolidated net fee and commission income for the six months ended 30 June 2007
comprised c24.9 million, an increase of 19.1 per cent., as compared with the six months ended 30
June 2006 (c20.9 million). The increase is principally attributable to the increase of fees and
commissions from credit card and payment card operations and domestic payment transactions as a
result of the larger volume of such transactions over the six month period ended 30 June 2007. In
addition, fees and commissions earned from guarantees and loans increased due to an increase in the
fee level charged by NKBM. Fees and commissions earned from international payment operations
decreased over this period due to the introduction of EU regulations which required certain domestic
and international payments to be charged in the same manner. Fee and commission expenses
decreased due to a decrease in fees for other services in the six month period ended 30 June 2007.
NKBM’s consolidated gains on financial assets and liabilities held for trading increased over the
six month period ended 30 June 2007 to c24.0 million from a loss of c1.2 million recorded for the six
month period ended 30 June 2006. This gain resulted from one-off trading gains in the equity market
through the sale by NKBM of certain equity stakes in listed corporates.
NKBM’s consolidated financial and operating income comprises net interest income, net fee and
commission income and certain other items including gains and losses on financial assets and
liabilities held for trading. NKBM’s consolidated financial and operating income for the six months
ended 30 June 2007 comprised c112.7 million, an increase of 54.4 per cent., as compared with the six
months ended 30 June 2006 (c73 million). This increase was due to the increases in net interest
income, fee and commission income and in gains on financial assets and liabilities held for trading as
mentioned above.
NKBM’s consolidated administrative costs (which include staff expenses such as wages and
salaries, social security and person contributions and general and administrative expenses) for the six
months ended 30 June 2007 comprised c46.1 million, an increase of 12 per cent., as compared with
the six months ended 30 June 2006 (c41.1 million). This increase was principally due to the increase
in salary and related costs due to salary inflation and increased employee numbers and to increased
cost of services.
NKBM’s consolidated net profit before tax for the six months ended 30 June 2007 comprised
c51.9 million, an increase of 173 per cent., as compared with the six months ended 30 June 2006
(c19.0 million) with such increase being attributable to the reasons given above.
NKBM’s consolidated net profit after tax for the six months ended 30 June 2007 comprised
c38.6 million, an increase of 100 per cent., as compared with the six months ended 30 June 2006
(c19.3 million). Tax expenses for the six months ended 30 June 2007 amounted to c13.2 million, as
compared with a tax income of c300 thousand for the six months ended 30 June 2006. For the six
months ended 30 June 2007 NKBM calculated tax in respect of earnings at a rate of 25 per cent. in
accordance with new requirements of the Bank of Slovenia. In the first half of 2006 NKBM did not,
and were not required to, calculate or account for any tax on profit.
Consolidated unaudited interim balance sheet of NKBM
NKBM’s consolidated loans and receivables (net of provisions) comprised c2,968 million as at
30 June 2007, an increase of 9.6 per cent., as compared to 31 December 2006 (c2,707 million) which
reflected growth in NKBM’s loan portfolio comprising principally increases in loans to the non-bank
sector including increases in loans to non-financial companies, to households, to other financial
30
organisations, to foreign persons and to sole proprietors, and also to the effect of the acquisition of
Adria Bank’s loan portfolio.
NKBM’s consolidated available-for-sale financial assets (including investment in equities and
debt securities) comprised c988.4 million as at 30 June 2007, an increase of 25.8 per cent., as
compared to c786.0 million as at 30 June 2006. This increase was principally due to the purchase by
NKBM of investment-grade sovereign (both foreign and domestic) and bank securities. NKBM’s
held-to-maturity investments decreased to c140.7 million as at 30 June 2007, a decrease of 52.0 per
cent., from c292.8 million as at 31 December 2006 primarily due to the redemption of two tranches
of Slovenian state securities in an amount of approximately c179.7 million.
NKBM’s consolidated financial liabilities measured at amortised cost (including customer
deposits, inter-bank deposits, loans received and securities issuance) comprised c4,138 million as at 30
June 2007, an increase of 7.6 per cent., as compared to c3,845 million as at 31 December 2006.
Deposits to the non-bank sector (included in such aggregate amounts) comprised c2,789 million as at
30 June 2007, an increase of 7.2 per cent., as compared to c2,602 million as at 31 December 2006.
This increase was principally attributable to the increase in current savings of retail customers as well
as, to a lesser extent, corporate deposits and the contribution of Adria Bank’s deposit portfolio.
NKBM’s consolidated total assets comprised c4,642 million as at 30 June 2007, an increase of 9
per cent., as compared to c4,258 million as at 31 December 2006. This increase was principally due
to the increase in loans and receivables and available for sale financial assets which was partially
offset by the decrease in held to maturity investments, as described above.
31
EXCHANGE RATES AND EXCHANGE CONTROLS
The following table sets forth, for the periods indicated, the high, low, average and period-end
exchange rates for the purchase of SIT, all expressed in SIT per euro. These translations should not
be construed as representations that SIT amounts actually represent such euro amounts or could be
converted into euro at the rate indicated as of any of the dates mentioned in this Prospectus or at
all.
High
Low
Average
Period End
(SIT per e)
2006 .......................................................................
2005 .......................................................................
2004 .......................................................................
2003 .......................................................................
2002 .......................................................................
2001 .......................................................................
239.8512
239.9122
240.0120
236.7326
234.5799
222.3676
238.2354
239.3038
235.4197
224.7458
211.1165
213.0632
239.5251
239.5057
238.9392
233.2797
225.4444
216.8579
239.4102
239.4171
239.7352
236.7133
231.8894
219.7608
Source: Bloomberg.
As at the date of this Prospectus, there are no exchange controls applicable in Slovenia that
would restrict the payment of any amounts by NKBM under the Subordinated Loan Agreement.
32
SELECTED FINANCIAL INFORMATION
The following tables contain selected financial information derived (presented in SIT and euro)
from NKBM’s audited consolidated financial statements as at and for the years ended 31 December
2005 and 2006 prepared in accordance with IFRS and audited by KPMG Slovenija d.o.o. Such
information is qualified by reference to and should be read in conjunction with the audited
consolidated financial statements of NKBM as at and for the years ended 31 December 2005 and
2006, respectively, which are included elsewhere in this Prospectus.
Consolidated Income Statement of NKBM
Year ended 31 December
2005
2006
(in millions of SIT)
Interest income ......................................................
Interest expenses ....................................................
Interest net income .................................................
Dividend income....................................................
Fee and commission income..................................
Fee and commission expense.................................
Fee and commission net income..............................
Realised gains and losses on financial assets and
liabilities not measured at fair value through
profit and loss ...................................................
Gains and losses on financial assets and liabilities
held for trading .................................................
Gains and losses on financial assets and liabilities
designated at fair value through profit or loss .
Fair value adjustments in hedge accounting .........
Exchange differences .............................................
Gains and losses on derecognition of assets other
than held for sale ..............................................
Other operating net income...................................
Financial and operating income and expenses.........
Administration costs..............................................
Depreciation ..........................................................
Provisions ..............................................................
Impairment ............................................................
Negative goodwill ..................................................
Share of the profit or loss of associates and joint
ventures accounted for using the equity method
Total profit or loss from non-current assets and
disposal groups classified as held for sale .........
Total profit or loss before tax from continuing
operations ..........................................................
Tax expense (income) related to profit or loss from
continuing operations........................................
Total profit or loss after tax from continuing
operations ..........................................................
Total profit or loss after tax from discontinued
operations..........................................................
Net profit or loss for the financial year ..................
38,092.2
16,715.4
21,376.8
1,386.9
11,268.5
2,382.5
8,885.9
(229.1)
5,597.3
0
0
(25.9)
33
Year ended 31 December
2005
2006
(in millions of euro)
44,147.8
20,111.3
24,036.4
1,321.5
12,469.7
2,978.3
9,491.4
424.8
3,752.5
0
0
(347.8)
159.0
69.8
89.2
5.8
47.0
9.9
37.1
184.2
83.9
100.3
5.5
52.0
12.4
39.6
(1.0)
1.8
23.4
15.7
0
0
(0.1)
0
0
(1.5)
319.7
1,733.4
39,045.0
20,291.6
2,118.0
1,185.1
3,649.9
0
618.5
3,992.9
43,290.1
21,731.4
2,663.3
1,750.6
4,572.1
0
1.3
7.2
162.9
84.7
8.8
4.9
15.2
0
2.6
16.7
180.6
90.7
11.1
7.3
19.1
0
1,398.9
788.9
5.8
3.3
0
0
0
0
13,199.2
13,361.7
55.1
55.8
2,223.0
2,478.0
9.3
10.3
10,976.1
10,883.7
45.8
45.4
0
10,976.1
0
10,883.7
0
45.8
0
45.4
Consolidated Balance Sheet of NKBM
Year ended 31 December
2005
2006
(in millions of SIT)
17,990.9
26,299.5
48,972.9
32,571.3
Cash and cash balances with central banks ..........
Financial assets held for trading ...........................
Financial assets designated at fair value through
profit or loss......................................................
Available-for-sale financial assets ..........................
Loans and receivables............................................
Held-to-maturity investments ................................
Derivatives – hedge accounting .............................
Fair value changes of the hedged items in portfolio
hedge of interest rate risk .................................
Accrued interest income on financial assets ..........
Property, plant and equipment..............................
Investment property ..............................................
Intangible assets.....................................................
Investments in subsidiaries, associates and joint
ventures .............................................................
Tax assets ..............................................................
Other assets ...........................................................
Non-current assets and disposal groups classified
as held for sale ..................................................
Total assets ............................................................
Deposits from central banks .................................
Financial liabilities held for trading ......................
Financial liabilities designated at fair value
through profit or loss ........................................
Financial liabilities measured at amortised cost....
Financial liabilities associated to transferred assets
Derivatives – hedge accounting .............................
Fair value changes of the hedged items in portfolio
hedge of interest rate risk .................................
Accrued interest expenses on financial liabilities...
Provisions ..............................................................
Tax liabilities
..........................................................................
Other liabilities ......................................................
Liabilities included in disposal groups classified as
held of sale ........................................................
Basic equity capital................................................
Share premium account.........................................
Equity component of compound financial
instruments ........................................................
Revaluation reserves ..............................................
Reserves from profit (including retained earnings)
Treasury shares......................................................
Income from current year......................................
Interim dividends...................................................
Minority interest....................................................
Total liabilities and equity......................................
Off-balance sheet items..........................................
2005
2006
(in millions of euro)
75.1
109.7
204.4
135.9
0
109,374.2
506,796.2
113,802.0
0
0
188,353.4
648,769.0
70,176.2
0
0
456.4
2,114.8
474.9
0
0
786.0
2,707.3
292.8
0
0
0.1
16,580.9
1,074.3
4,668.2
0
0.4
18,958.8
1,403.9
5,510.7
0
0
69.2
4.5
19.5
0
2
79.1
5.9
23.0
10,185.9
749.8
12,737.0
10,406.4
931.3
16,986.8
42.5
3.1
53.2
43.4
3.9
70.9
94.7
843,027.3
0
0
8.3
1,020,375.8
0
36.9
0.4
3,517.9
0
0
0.0
4,258.0
0
0.1
0
753,960.9
0
0
0
921,426.0
0
0
0
3,146.2
0
0
0
3,845.0
0
0
0
3,602.7
5,322.2
0
4,500.3
6,987.3
0
15.0
22.2
0
18.8
29.2
2,872.6
9,486.5
1,783.9
8,697.0
12.0
39.6
7.4
36.3
0
5,839.5
6,963.0
0
5,839.5
6,969.3
0
24.4
29.1
0
24.4
29.1
0
0
5,363.4
3,960.4
41,587.0
54,101.7
(6.5)
(6.5)
5,692.5
3,289.9
0
0
2,343.4
2,789.6
843,027.3 1,020,375.8
165,931.2
252,114.1
34
Year ended 31 December
0
22.4
173.5
(0.0)
23.8
0
9.8
3,517.9
692.4
0
16.5
225.8
(0.0)
13.7
0
11.6
4,258.0
1,052.1
SELECTED FINANCIAL RATIOS
Except as set out in the notes, the financial ratios in the table below have been calculated on
the basis of information appearing in the audited Annual Consolidated Financial Statements as at
and for the years ended 31 December 2005 and 2006.
As at and for
the year ended
31 December
2005
2006
Performance ratios
Net interest margin (before provisions) ..............................................................
Non-interest income to operating income...........................................................
Cost income ratio................................................................................................
Return on shareholders’ equity (before tax) .......................................................
Return on average assets (before tax).................................................................
2.74%
47.1%
55.4%
23.55%
1.69%
2.58%
45.5%
55.3%
18.47%
1.43%
Balance sheet ratios (at period end):
Customer deposits to total deposits ....................................................................
Customer loans to customer deposits .................................................................
99.1%
76.8%
99.0%
88.8%
Asset quality (at period end)
Non-performing loans (categories C, D and E) to total loans (gross) ...............
Non-performing loans (categories D and E only) to total loans (gross)............
Provisions to non-performing loans (C, D and E) .............................................
9.27%
6.43%
68.54%
7.66%
5.09%
65.56%
Capital adequacy(1)
Tier 1 capital ratio ..............................................................................................
Total capital ratio ...............................................................................................
6.06%
9.61%
5.58%
9.70%
Note:
(1) The Bank’s consolidated tier 1 capital ratio and total capital ratio as at 31 December 2005 and 2006 are calculated on the basis of
accounting records prepared in accordance with IFRS and in line with the regulations of Banka Slovenije.
35
BUSINESS
Overview
NKBM is a full service financial institution in Slovenia providing a comprehensive range of
retail, corporate and investment banking services to its clients and customers. NKBM is currently the
second largest bank in Slovenia, with 87 branches, sub-branches and agencies as at 31 December
2006. The core banking business is further complemented by a variety of financial services offered by
NKBM’s subsidiaries and affiliates (see ‘‘Subsidiaries and Affiliates’’). Members of the NKBM Group
offer a diverse range of ancillary and subsidiary activities such as insurance, investment, mutual and
pension fund portfolio management, securities dealing and trading, fund management, asset
management, leasing, real estate marketing and project development, as well as trade finance,
intermediation and business on behalf of third parties.
The NKBM Group had consolidated profit before tax of SIT 13,361.7 million (A55.8 million)
for the year ended 31 December 2006 as compared to SIT 13,199.2 million (A55.1 million) for the
year ended 31 December 2005. As at 31 December 2006 it had total assets of SIT 1,020,375.8 million
(A4,258.0 million), as compared to SIT 843,027.3 million (A3,517.9 million) as at 31 December 2005;
and total equity of SIT 76,943.9 (A321.1 million) compared to SIT 67,782.3 (A282.9 million) as at 31
December 2005.
NKBM had non-consolidated profit before tax of SIT 10,654.8 million (A44.5 million) for the
year ended 31 December 2006 as compared to SIT 10,289.6 million (A42.9 million) for the year ended
31 December 2005. As at 31 December 2006 it had total assets of SIT 879,277.1 million (A3,669.2
million), as compared to SIT 716,986.6 million (A2,991.9 million) as at 31 December 2005; and total
equity of SIT 66,847.3 million (A278.9 million) compared to SIT 59,145.8 million (A246.8 million) as
at 31 December 2005.
NKBM is incorporated in Slovenia as a bank in the form of a ‘‘delniška druz̆ba’’ (joint-stock
company) with limited liability. NKBM is registered with the court register (sodni register) held at the
District Court in Maribor (Okrožno sodišče v Mariboru) under file no. 10924200 and with
identification no. 5860580. NKBM’s registered address is Ulica Vita Kraigherja 4, 2505 Maribor,
Slovenia and its telephone number is +386 2 229 2290.
History
NKBM was established in 1955 under the name of Komunalna banka Maribor in the city of
Maribor in the north-eastern part of Slovenia. After two further name changes, in 1978 it was
amalgamated with 22 other banks to create the Ljubljanska Banka (LB) Group. In 1990 Kreditna
banka Maribor became a joint stock company and a ‘‘daughter bank’’ within the LB group. In 1993
NKBM severed its links with the LB Group and resumed operating as an autonomous joint-stock
enterprise under the name of Kreditna Banka Maribor d.d. Following a recession in Slovenia which
materially affected NKBM’s asset quality, NKBM was placed in government-supervised rehabilitation
under the ownership and management of the state Bank Rehabilitation Agency.
In 1994, Kreditna banka Maribor was renamed Nova Kreditna banka Maribor by way of an
Act of Parliament and succeeded to all the liabilities and assets of Kreditna banka Maribor d.d.,
other than certain liabilities incurred prior to the break-up of the former Yugoslavia. During the
rehabilitation process NKBM transferred a number of bad assets, including non-performing loans,
foreign exchange deposits with the National Bank of Yugoslavia, and other related liabilities to the
Bank Rehabilitation Agency in exchange for long-term Republic of Slovenia bonds. NKBM
successfully completed its rehabilitation programme in 1997.
In September 2004, the Government of the Republic of Slovenia agreed to transfer its 55 per
cent. shareholding in Postna Banka Slovenije d.d. (‘‘PBS’’) to NKBM.
In 2005 NKBM adopted a resolution to merge with its brokerage company subsidiary, MBH
d.o.o. (Mariborška borznoposredniska hiša), which involved the transfer of all business activities of this
company to NKBM. The merger was completed at the end of 2005.
In September 2005 three subsidiaries of NKBM (KBM Fineko d.o.o., KBM Invest d.o.o. and
KBM Leasing d.o.o.) purchased a 76 per cent. interest in Multiconsult d.o.o. of Zagreb which has
increased opportunities for the NKBM Group to carry out business projects in Croatia.
In 2001, NKBM acquired a 25.04 per cent. interest in Adria Bank AG (‘‘Adria Bank’’), an
Austrian bank which also operates in Serbia, Montenegro, Macedonia, Croatia, Slovakia, the Czech
36
Republic, Hungary and Russia. NKBM increased its stake in Adria Bank to 50.54 per cent. in April
2007.
In May 2007, the Minister of Finance of Slovenia confirmed the Slovenian government’s
intention to privatise NKBM. See ‘‘Recent Developments’’.
Competition
NKBM faces considerable competition in its home market in Slovenia. There are currently 20
banks and three savings banks in Slovenia, as well as two branches of foreign banks. According to
data provided by Banka Slovenije, NKBM had a market share of 10.9 per cent. in terms of total
banking assets as at 31 December 2006, compared with a market share of 10.2 per cent. as at 31
December 2005. This made it the second largest bank in Slovenia behind Nova LB d.d. Ljubljana
(‘‘Nova LB’’). NKBM’s main competitors include Nova LB (with a market share by total assets of
30.3 per cent. as at 31 December 2006 according to Banka Slovenije figures), ABANKA Vipa d.d.,
SKB Banka d.d., Unicredit Banka Slovenija d.d., Banka Koper d.d., Banka Celje d.d. and Gorenjska
Banka d.d.
Following Slovenia’s accession to the EU, competition, mainly from foreign banks, has increased
which has placed pressure on net interest margins, particularly in the corporate sector. However
NKBM benefits from a strong regional franchise and believes that its knowledge of the small and
medium sized enterprise sector and its strong position in the retail sector are further competitive
strengths in the local market.
Ownership
The Ministry of Finance of the Republic of Slovenia holds 90.4 per cent. of NKBM’s ordinary
share capital. The Republic of Slovenia holds a further 9.6 per cent. indirectly through the Capital
Fund of the Republic of Slovenia and the Slovene Restitution Fund, which each hold 4.8 per cent.
The Supervisory Board of NKBM consists of nine members and oversees the activity of NKBM’s
Management Board but does not participate in the day-to-day operation of NKBM.
Competitive Strengths
NKBM believes its competitive strengths are:
Leading market position in Slovenia
NKBM is the second largest bank in Slovenia based on market shares of 10.1 per cent., 10.1
per cent. and 13.3 per cent. by total assets, customer loans and customer deposits, respectively, as of
30 June 2007, according to the Bank of Slovenia. It has held these positions for more than 10 years.
Based on the same measures, NKBM believes that it was the largest bank in the Podravska
(Maribor) and Goriška (Nova Gorica) administrative regions of Slovenia, which together accounted
for approximately 22 per cent. of the country’s population, according to EuroStat. It believes that its
position in the market reflects the loyalty of NKBM customers and the strength of the NKBM and
PBS brand names.
Extensive national distribution network
NKBM considers the size and extent of its distribution network to be a key competitive
advantage. As of 30 June 2007, NKBM had 87 branded branch offices, four PBS branded branch
offices, two PBS commercial centres, 231 NKBM branded automatic teller machines (‘‘ATMs’’), 22
PBS branded ATMs, 4,351 NKBM point-of-sale (‘‘POS’’) terminals and Internet banking for NKBM
customers. In addition, through PBS, it is the only banking group in Slovenia that is able to provide
its customers with a range of retail and corporate banking products and services through the
Slovenian post office’s network of over 550 outlets. NKBM believes that this provides it with the
most extensive physical distribution network of any banking group in Slovenia, with a presence in all
cities and towns, as well as most large villages.
Attractive funding structure
Customer deposits are NKBM‘s most important source of funding and represented 69.4 per
cent. of its financial liabilities as of 30 June 2007. As at the same date, approximately 49.1 per cent.
of its financial liabilities were deposits placed by retail customers and more than 50 per cent. of
NKBM’s customer deposits were current/demand accounts. As the interest rates payable on current/
demand accounts are usually lower than for other types of deposit accounts and as many of NKBM’s
37
retail depositors have been customers of NKBM for many years, it believes that it has a low-cost and
stable funding base.
Sizeable retail customer deposit base providing significant cross-selling potential
As of 30 June 2007, NKBM and PBS had approximately 548,000 and 112,000 retail deposit
customers, respectively, many of whom have not yet taken advantage of NKBM’s products and
services. As the Slovenian economy matures, NKBM believes that there will be increasing demand for
both banking and non-banking financial products. It therefore believes that there is significant
potential for it to cross-sell both banking and non-banking financial products and services to its retail
depositors.
Strong corporate banking franchise
As of 30 June 2007, NKBM was the second largest bank in the Slovenian corporate banking
market based on market shares of 9.4 per cent. and 10.9 per cent. in corporate loans and corporate
deposits, respectively, according to the Bank of Slovenia. It has relationships with many of the
leading Slovenian companies, especially those based in Maribor which is a major manufacturing and
industrial centre. NKBM also believes that it has a particular expertise in servicing the needs of
SMEs, a segment of the market that is characterised by higher levels of lending growth and margins
relative to the overall corporate banking market.
Extensive and innovative product range
NKBM provides what it believes to be one of the most extensive ranges of banking and nonbanking financial products available in Slovenia. NKBM also believes that it has a successful track
record of introducing new products to the Slovenian banking market. By way of example, it was the
first bank in Slovenia to offer Internet banking services to retail customers when it introduced
Bank@Net in 1998 and is, at present, the only bank in Slovenia providing a service allowing its
customers to make secure payments using their mobile telephones through Moneta. It was also the
first bank in Slovenia to offer retail customers bill payments through ATMs with on-line current
account connection.
Strong loan and deposit growth
NKBM increased the size of its net customer loan and customer deposit portfolios by 33.7 per
cent. and 14.2 per cent., respectively, for the twelve months ended 30 June 2007, allowing it to
increase its market shares by these measures.
Focused international diversification
In addition to strengthening its position in the Slovenian financial services sector, NKBM is
pursuing a strategy of targeted geographic expansion in other countries that formed part of the
former Yugoslavia, with a primary focus on Serbia and Croatia and secondary focus on Bosnia
Macedonia and Montenegro, as well as Albania, Austria and Italy. It believes that it is wellpositioned to benefit from the growth of the financial services sectors in these countries, especially in
former Yugoslav republics given Slovenia’s historic and cultural links as well as growing trade with
them. NKBM has been active in these markets for many years, having provided banking services to
many of its corporate banking clients who are present in these markets. In 2006 it established leasing
and real estate businesses in Croatia, while ZM is in the process of establishing life and non-life
insurance companies in Croatia. In addition, it has recently increased its strategic shareholding in
Adria Bank AG to 50.54 per cent. Since its incorporation in 1980, Adria Bank AG has focused on
providing corporate banking services to companies active throughout the former Yugoslavia.
Strong shareholder support
NKBM is one of only two banks in Slovenia in which the Republic of Slovenia has a direct
shareholding. The Republic of Slovenia has been its largest shareholder since it was separated from
the LB Group in 1993. The most recent long-term foreign currency credit ratings assigned to the
Republic of Slovenia by Standard & Poor’s and Moody’s were AA and Aa2, respectively.
Stable and experienced senior management team
Many members of NKBM senior management, including the two members of the Management
Board, have been with NKBM for over 10 years. During this time, its management faced a number
of external challenges, including, but not limited to, the cancellation of the privatisation of the Bank
in 2002, the implementation of IFRS amongst Slovenian banks in 2006 and the introduction of the
38
euro as the official currency of Slovenia with effect from 1 January 2007. Notwithstanding these
challenges, it has experienced substantial growth during this period both in terms of its total assets
and net profitability, which it believes is partly a result of the strength of the senior management
team.
Strategy
NKBM’s overall objective is to increase its profitability in all areas of its business by
strengthening its already strong position in the Slovenian financial services sector and developing its
activities in other markets in the region, with a particular focus on Serbia and Croatia. The key
elements of NKBM’s strategy are set out below:
Strengthen NKBM’s position in the Slovenian financial services sector through increasing levels of cross-selling
NKBM intends to utilise the capabilities and product offerings of NKBM companies to crosssell a wide range of financial services offerings to its existing customers, as well as to attract new
customers. In order to facilitate cross-selling, NKBM intends to make use of the well-recognised
‘‘NKBM’’ brand name in marketing campaigns to promote the products and services offered by
NKBM group companies.
In respect of retail banking, it intends to develop its current range of bancassurance products
and services to its customers by expanding the range of insurance and mutual fund products available
through its branch network and, in time, through PBS. The broad offering of services will enhance
NKBM’s ability to meet diverse customer needs as well as increase its operating income, particularly
fee and commission income.
Develop and leverage the potential of NKBM’s extensive distribution network
NKBM is focused on the continued development of its distribution network, which it intends to
maintain and, where cost efficient, expand. NKBM intends to adopt a selective approach to its own
branch growth, targeting areas where it is either under-represented or not present, such as in
Ljubljana and the surrounding Osrednjeslovenska and Gorenjska regions. By the end of 2007, NKBM
intends to open three new branch offices in these locations and reach 90 branches, 245 ATMs and
4,580 POS terminals. NKBM also intends to open up to 10 more branch offices over the three-year
period ending 31 December 2010. In addition, NKBM intends to rationalise its branch office network
in locations where there is an overlap in the coverage of existing offices.
NKBM also plans to leverage the broad geographical coverage provided to it through PBS’
relationship with the Slovenian postal service, Poštna Slovenija. While it intends to maintain PBS as a
standalone operation focused on providing payment and banking services to individuals wishing to
utilise the post office network for their banking needs, it also intends to extend the range of NKBM’s
own products and services available through the postal network, as well as to distribute other NKBM
group companies’ products and services through the postal network.
Strengthen NKBM’s position as one of the leading corporate banks in Slovenia, with a focus on SMEs
NKBM is currently the second largest corporate bank in Slovenia. It is working to build on its
already strong position in the Podrovska (Maribor) and Goriška (Nova Gorica) regions and increase
its penetration in the ‘‘blue chip’’ corporate market in other regions across Slovenia. NKBM is also
working to grow its SME franchise and cross-sell products and services offered. In particular,
NKBM’s intends to promote the management consultancy and financial advisory services that it
offers to its corporate banking clients.
Through these initiatives, it expects to offer its customers a more comprehensive and competitive
financial services’ product portfolio.
Increase NKBM’s operational efficiency through rigorous cost management and the implementation of new
technology
NKBM intends to invest in alternative distribution channels, pursue synergies across its
operations and improve its IT systems to enhance operational efficiency, increase revenues and reduce
costs. NKBM has invested in alternative distribution channels, such as its Bank@Net and Poslovni
Bank@Net Internet banking services as well as Moneta and Telebank telephone banking services. It
plans to continue to expand and develop these services, which not only improve customer service but
also increase NKBM operational efficiency. NKBM also has an ongoing commitment to improve its
IT systems, which will reduce personnel time devoted to administrative functions as well as optimise
39
its office space. It intends to take advantage of these changes to restructure branch offices by
reducing the number of back office branch staff and increasing the number and proportion of frontoffice revenue earning staff, as well as increasing the physical space dedicated to front office activities.
Improvements in IT will also advance NKBM risk management efforts and help it identify areas of
duplication where cost-saving measures may be implemented.
NKBM has extensive experience in the banking sector and has developed a strong back office
and support team. It intends to leverage this expertise by integrating these operations across NKBM,
particularly in respect of PBS, which will also yield additional cost-saving opportunities.
Leverage trade and customer links to further develop NKBM’s international franchise
NKBM is well positioned to take advantage of growth opportunities in financial services outside
of Slovenia by capitalising on the combined knowledge and expertise of NKBM. NKBM will adopt a
focused approach to international expansion with a primary focus on Croatia and Serbia, the largest
countries of the former Yugoslavia by population, with a secondary focus on the former Yugoslav
republics, (Bosnia-Herzegovina, Macedonia and Montenegro), Albania as well as Austria and Italy. It
intends to open representative offices in Zagreb (Croatia) and Belgrade (Serbia) during the second
half of 2008 and expand its presence in these markets initially through the development of specialist
financial services businesses such as real estate brokerage and leasing. NKBM also intends to apply
an opportunistic approach to acquisitions (including increasing its shareholding in current affiliates
such as Adria Bank AG), which will be strictly evaluated in the context of its overall corporate
strategy and targeted levels of profitability. NKBM has set a target for its international activities to
account for 10 per cent. of its total assets by the end of 2010. NKBM international growth will
better enable it to support and satisfy its clients’ needs in the region.
Improving customer service
NKBM believes that NKBM provides a high standard of service to customers, a factor which it
believes has been instrumental in helping it to retain and win customers. In order to improve the
quality of customer service, NKBM plans, amongst other things, to increase employee training and
improve the quality of the monitoring of employee performance, the customer complaints system and
customer call centre, as well as to introduce a customer relationship manager concept throughout
NKBM.
Set clear financial targets, improve credit quality and develop a consistent dividend payment track record
NKBM’s management intends to focus on return on average equity as a key indicator when
setting financial performance targets. Its business plan envisages that it will increase its post-tax return
on average equity to approximately 20 per cent. for 2010. As part of management’s aim to control
costs, it has set an objective of ensuring its annual cost/average asset ratio is below 3 per cent. Such
targets are merely goals set by management and should not be construed as a prediction of future
performance. There can be no assurance that NKBM will achieve these targets.
NKBM intends to continue to improve the credit quality of its loan portfolio and risk
management standards, consistent with its view that improving credit quality, and thus profitability,
of the loan portfolio is a higher priority than loan growth alone.
NKBM intends to maintain a capital adequacy ratio of approximately 9-10 per cent., which it
considers prudent. Subject to applicable law, NKBM intends to recommend the implementation of a
dividend policy envisaging an annual dividend payment equating to 10 per cent., 20 per cent., 30 per
cent. and 35 per cent. of net income for the 2007, 2008, 2009 and 2010 financial years, respectively.
Such a recommendation would be made insofar as such a proposal would be consistent with
maintaining the soundness of its financial position and maintaining a prudent level of capital
adequacy. Accordingly, the payment of future dividends will be dependent upon the results of
NKBM’s operations, future prospects, financing requirements to ensure the implementation of its
overall corporate strategy and other factors deemed relevant by its management.
Business of NKBM
Overview
NKBM is a fully licensed bank and provides a comprehensive range of retail, corporate and
investment banking services to its clients and customers in both the corporate and retail sectors. Its
core banking business is further complemented by a variety of financial services offered by NKBM’s
subsidiaries and affiliates such as insurance and pension fund management. NKBM’s most important
40
investment is its 49.96 per cent. shareholding in Zavarovalnica Maribor d.d. (‘‘ZM’’), Slovenia’s
second largest insurance company.
The table below sets out the total loans and deposits of NKBM as at 31 December 2005 and
2006, showing the breakdown between the corporate and the retail sectors.
As at 31 December
2005
2006
(in millions of SIT)
Loans
Corporate customers..........................................................................................
Retail customers ................................................................................................
259,516.1
133,505.6
352,961.0
155,912.0
Total...................................................................................................................
393,021.7
508,873.1
Deposits
Corporate customers..........................................................................................
Retail customers ................................................................................................
139,918.4
344,349.4
166,009.5
380,349.1
Total...................................................................................................................
484,267.8
546,358.6
Corporate Banking
Within the corporate banking sector NKBM focuses on non-financial sector institutions (such as
companies, state owned bodies and institutions), other financial institutions, non-profit institutions
and non-resident accounts. In this sector, NKBM extends a wide range of products and services to its
clients which include deposit-taking, loans and facilities, financial and commercial consultancy,
guarantees, domestic and international payment services, factoring, forfeit financing, documentary
operations and export-finance transactions.
Corporate Loans
NKBM provides short-term and long-term loans to its clients in both euro and foreign
currencies. As at 31 December 2006, total corporate loans, including to financial institutions,
amounted to SIT 352,961 million (A1,472.85 million) (representing 69.4 per cent. of total loans).
Among its short-terms loans, NKBM extends to its clients euro credits of up to 30 days. In
addition to overdraft facilities, NKBM also offers credit facilities to its clients for a period of 30 days
or more. These include loans secured against deposits (offered to customers who have deposits with
the Bank) and bridging loans (offered to customers who are not able to draw on their deposits until
a specific time). In addition, NKBM has also contracted loans in U.S. dollars and Swiss francs. The
interest rates for such loans are determined on the basis of reference and market interest rates,
increased by an agreed margin.
In the category of short-term euro and foreign currency loans to institutions and enterprises, the
major portion of funds loaned to its clients are used to finance projects for the purpose of day-to-day
operations. NKBM also facilitates loans in conjunction with a variety of other institutions, including
trust funds and municipal authorities, under more favourable terms than would otherwise apply.
Through the extension of long-term loans, NKBM has financed local infrastructure investments, as
well as capital equipment acquisitions and various construction projects in Slovenia. Smaller projects
have also been supported through special long-term facilities provided by NKBM through the onlending of loans from various funds at both municipal and state levels.
In 2006, loans to non-financial-sector institutions excluding sole proprietors accounted for 79.4
per cent. of total loans to legal entities (comprising an increase of 31.7 per cent. in value from the
previous year); loans to other financial institutions represented 13.4 per cent. (comprising an increase
of 65.4 per cent. in value from the previous year); loans to the state sector represented 2.0 per cent.
(comprising an increase of 17 per cent. in value from 2005); and loans to non-residents accounted for
4.9 per cent. (comprising an increase of 52.6 per cent. in value from 2005). See ‘‘Loan Portfolio’’.
41
Corporate Deposits
NKBM offers short-term and time deposit facilities, in foreign currency and euro. As regards
short-term euro deposits, NKBM offers overnight and up to 30 day deposits, as well as deposits of 1,
2, 3, 6, 9 and 12 months maturity. NKBM also offers deposits in foreign currencies with the same
maturity periods.
NKBM also offers a broad spectrum of long-term deposits, which encompasses fixed-term euro
deposits, as well as foreign currency deposits with maturities of over 1, 2, 3 and 5 years. With respect
to foreign currency deposits, NKBM also offers foreign currency deposits at call, where a period of
notice of withdrawal is required. Since the end of 2003, NKBM’s clients have been able to contract
long-term deposits whereby they could select the type of interest rate that was most suitable to their
needs, namely either the reference rate or the rate currently applicable to 60-day Banka Slovenije
treasury bills.
In addition to its more traditional deposits, NKBM is able to provide its corporate clients with
certificates of deposit, as well as the possibility of obtaining liquidity loans under more favourable
terms secured against euro deposits with maturities in excess of 31 days. In addition to promoting the
use of Activa MasterCard and Visa business cards, NKBM also contracts frame agreements for
multiple credit and debit payments, as well as offering the use of deposits as first-ranking loan
collateral or for instituting guarantees and documentary credits.
In the category of deposits from corporate clients excluding sole proprietors, deposits from nonfinancial sector institutions amounted to 57.3 per cent. of total deposits from clients in the corporate
banking sector in 2006 (comprising an increase of 11.2 per cent. in value from the previous year);
deposits from other financial sector institutions represented 19.5 per cent. of total deposits
(comprising an increase of 12.0 per cent. in value from the previous year); deposits from the state
sector represented 16.1 per cent. of total deposits (comprising an increase of 63.1 per cent. in value
from 2005) and deposits from non-residents represented 3.6 per cent. of total deposits (comprising an
increase of 23.9 per cent. in value from 2005).
Total deposits by non-financial corporations grew by SIT 9,595 million (A40 million) during
2006 to SIT 95,061 million (A396.7 million); among these, demand deposits represented SIT 29,191
million (A121.8 million), while short-term and long-term deposits amounted to SIT 65,870 million
(A274.9 million).
Domestic Payment Services
Preparations for the adoption of the euro required changes in the field of domestic payment
services. In collaboration with the Slovenian Banking Association, NKBM’s staff prepared euroadjusted payment forms (special deposit slip, special money and universal payment order BN02).
During 2005, NKBM was integrated into the TARGET pan-European payment system which began
to process ‘‘domestic’’ payment orders on the adoption of the euro in Slovenia on 1 January 2007
and the abolition of the domestic payment system. All planned activities, adaptations and changes by
NKBM as a result of the adoption of the euro in Slovenia were completed by NKBM on time.
As at 31 December 2006, NKBM maintained 323,767 active transaction accounts, a rise of 1.02
per cent. on the previous year. NKBM’s portion of all active transaction accounts registered at the
central register of transaction accounts with Banka Slovenije is 13.8 per cent. The number of active
business transaction accounts (transaction accounts of corporate clients and sole proprietors) stood at
22,118 (12.6 per cent. market share) and the number of transaction accounts of private citizens stood
at 301,649 (13.9 per cent. market share).
The proportion of transactions which were executed electronically via NKBM’s Poslovni
Bank@net system was 91 per cent. in 2006, compared with 87 per cent. in 2005. The volume of
banking transactions executed electronically continued to increase in 2006 compared to 2005. The
highest growth was recorded in the volume of transactions executed electronically through Bankart
(which is a company offering debit card and ATM processing services, as well as POS terminals to
banks, financial institutions and other non-banking organisations in Slovenia). Domestic payment
transactions executed through Bankart increased by 57 per cent. in 2006, compared to a 24.9 per
cent. rise in transactions executed through Bankart within the banking sector generally in 2006. The
percentage of transactions executed electronically increased by 21.4 per cent. in 2006 (compared to
growth in the banking sector generally of 14.2 per cent.).
42
Retail Banking
NKBM offers a broad range of products and services to its retail customers across Slovenia,
which for statistical purposes include private citizens and sole proprietors.
The products and services include all types of consumer and home loans, deposit facilities,
domestic and international payment services, currency exchange, travellers cheques, resident and nonresident accounts services, safety deposit facilities, as well as Western Union money transfers, and the
existing range is regularly expanded through new products and services that are specifically adapted
to meet the needs of consumers in Slovenia. NKBM uses its retail banking capabilities to pursue its
objectives of selling NKBM Group products and services to its retail customers across Slovenia.
NKBM continued to market its subsidiary KBM Infond’s mutual funds throughout 2006 and
collected new payments of SIT 2,885 million, exceeding set targets.
NKBM has increased the number of customers using its ‘‘Moneta’’ mobile phone payment
system in 2006 as well as the number of sales points allowing payment of products and services by
mobile phone.
In October 2006, the Bank began marketing the ‘‘Nova KBM Flex Pension’’ jointly with
Zavarovalnica Maribor. It is a 100 per cent. guaranteed principal and past realised return pension
policy.
NKBM’s bankers (who are licensed to sell insurance products) acted as intermediaries in the
sale of 454 insurance policies in 2006, totalling SIT 437 million (exceeding the planned target of SIT
400 million).
Retail Loans
NKBM offers short- and long-term retail loans. As at 31 December 2006, total retail loans
amounted to SIT 172,806 million (A721.1 million) (or 14.9 per cent. of total loans). Within the scope
of long-term loans, NKBM facilitates loans with up to 10 years repayment and variable real interest
rates. NKBM also offers consumer loans with repayment periods of three to five years and fixed
nominal interest rates.
This range is complemented by NKBM’s Kredit Takoj which offers instantly obtainable shortand long-term loan facilities to citizens and sole proprietors, whereby regular repayment instalments
are paid through a standing order on the borrower’s current account. Available with both fixed or
variable interest rates, Kredit Takoj covers consumer loans with repayment periods of up to 12
months as well as 60 months. In addition to this, and in conjunction with retailers, NKBM offers
sales credit (Kredit na Mestu) which are instalment facilities offered directly to the purchasing public
through the retailer or service provider, without the need to visit NKBM. The maximum amount of
such sales credit is A1,300 with a maximum maturity of 24 months.
To customers with immediate liquidity problems, NKBM offers short- and long-term euro and
foreign-currency denominated bridging loans, together with overdraft facilities for those holding
transaction accounts.
For the purchase of residential property, as well as the construction of houses, dwelling
renovations and the acquisition of building plots, NKBM offers home loans in euro as well as loans
denominated in foreign currencies, repayable over 5, 10, 15, 20 and most recently, in the case of euro
denominated loans, 25 years. Loans in foreign currency, in particular Swiss francs, bear more
favourable interest rates than those in euro and NKBM recorded an increased demand for foreign
currency home loans in 2006.
As at 31 December 2006, NKBM had extended SIT 155,912 million (A650.6 million) in net retail
loans (which figure includes loans to citizens and sole proprietors). In the structure of net loans to
non-banking sector customers, the portion accounted for by households (i.e. private citizens and sole
proprietors) decreased from 33.9 per cent. in 2005 to 30.6 per cent. in 2006. The remaining portion,
comprising net loans to non-banking sector institutions, corporations and companies, the state sector,
other financial institutions, non-residents and non-profit organisations and institutions, increased from
66.1 per cent. in 2005 to 69.4 per cent. in 2006.
Retail Deposits
In terms of short-term euro deposits, NKBM offers its customers time deposits with various
maturities. Customers can contract deposits for 8 to 14 days and from 14 to 30 days in amounts with
specified minimums. As regards time deposits with fixed terms of 1, 3, 6, 9 and 12 months, NKBM
provides premium interest rates, the magnitude of which is dependent on the deposited amount.
43
Another product offered to retail customers is the euro savings book and euro savings account,
each with a 31-day notice of withdrawal, as well as the special 365-day euro time deposit offering a
more favourable interest rate. By way of these products, NKBM provides a broad and varied range
of euro savings accounts and services aimed at the public at large.
In addition to the various types of euro deposit, NKBM facilitates foreign currency deposits
with maturities of 1, 3 and 6 months. The interest rates paid on foreign currency deposits are
adjusted to market interest rates. NKBM also contracts time deposits for U.S. dollars, Canadian
dollars, Australian dollars, British pounds and Swiss francs, with maturities of over 1, 3 and 6
months, and interest rates in accordance with the amount deposited. Further to this, NKBM provides
a number of non-standard deposit products, including a foreign currency savings book with a onemonth notice of withdrawal.
Within the scope of long-term deposits, NKBM offers to its customers long-term euro deposits
with maturities of over 1, 2, 3 and 5 years, together with foreign currency deposits with maturities of
over 1 and 2 years, the interest rates for which increase in accordance with the amount deposited.
Long-term loans are offered in the same foreign currencies as are available for short-term deposits.
The total number of available types of savings schemes such as annuity savings, housing savings,
foreign currency accounts and savings books increased during 2006. Among these products is Rentno
Varcevanje, a special type of long-term savings annuity aimed at providing the recipient with a
supplementary pension, and thus an improved standard of living in their retirement years. By way of
this scheme, customers may contract into the scheme in euro.
NKBM has also in the past facilitated savings schemes for the solution of housing problems
through Slovenia’s National Housing Savings Scheme. This programme enables NKBM to offer
individuals 5 and 10 year savings plans which are supported by the State, so that after 5 or 10 years
the depositor is able to secure a 10 or 20 year home-loan at a favourable interest rate. NKBM did
not participate in the 2006 savings scheme.
Demand (sight) deposits held by households, namely private citizens and sole proprietors, grew
by SIT 18,099 million (A75.5 million) and amounted to SIT 168,213 million (A701.9 million) at the
end of 2006; total short- and long-term deposits grew by SIT 17,907 million (A74.7 million) and
amounted to SIT 212,137 million (A885.2 million) at the end of 2006.
Insurance Services
NKBM has a 49.96 per cent. shareholding in ZM, Slovenia’s third largest insurance company.
ZM provides life insurance products and, in conjunction with partner AXA Assistance, provides
tourist and travel insurance. All NKBM’s branches currently offer these insurance products.
ZM intends to enter the insurance market in Croatia through the acquisition of two insurance
companies in Croatia.
International Payments
During 2005 and 2006, NKBM actively encouraged the usage of its Poslovni Bank@net
electronic banking facility for international operations. In 2006 foreign currency transactions
amounting to SIT 388,608 million (A1,621.63 million) were performed through Poslovni Bank@net, a
system which enables customers to, amongst other things, comply with reporting requirements for
payments received, transmit statistical data on incoming payments, claim for deposits and transfer
foreign currency to other accounts.
Total net payment transactions performed through NKBM accounts held at its foreign
correspondents, namely international payments for exports and imports, retail banking remittances
and foreign currency cash operations (banknotes), amounted to the equivalent of SIT 1,094,675
million (A4,568 million) in 2006 (as compared to SIT 838,021 million (A3,497 million) in 2005); the
majority was effected in euro, followed by U.S. dollars; payments in other currencies accounted for
less than 1 per cent. each.
During 2007, NKBM will integrate into the TARGET2 system for the purposes of its
international payments in the same way as it has already done for its domestic payments. This will
mean that international payments will be completed within 30-40 minutes of the relevant order being
made, rather than the standard two days for clearance that currently applies for cross-border
payments. The TARGET2 system enables banks to prepare payment orders 5 days in advance of
payment. It is anticipated that integration into the TARGET2 system will take place in November
2007.
44
Branch Operations
NKBM enables its customers to perform their business with it in a number of ways:
*
in person, at the counters of its various branches and offices during working hours
*
through automatic teller machines (‘‘ATMs’’)
*
using cards at point-of-sale (‘‘POS’’) terminals
*
using electronic banking systems: Bank@net (for retail customers) and Poslovni Bank@net
(for business customers)
*
using the Telebanka telephone banking service
*
using the mobile telephone banking services and
*
via Western Union.
NKBM’s operations are currently restricted to Slovenia. As of the end of 2005, NKBM had a
total of 87 organisational units comprising 14 branches, and 73 sub-branches, agencies and
commercial banking departments which provide services to its corporate, institutional, commercial and
retail customers.
At the end of 2006 NKBM operated 226 ATMs. A total of 13,034,737 transactions, which was
2 per cent. more than the previous year, were performed through these ATMs, during the course of
2006.
Despite the very strong growth attained in previous years, card operations continued to expand
in 2006. As of the end of 2006, NKBM had issued 295,571 debit cards and 71,511 credit cards, an
increase of 3.34 per cent. and 4.37 per cent., respectively, from 2005.
The increase in card operations was also influenced by an 11 per cent. rise in the number of
POS terminals and by the end of 2006 NKBM had 4,080 terminals in operation.
The number of users of Bank@net, NKBM’s electronic banking service for retail customers,
increased by 39.28 per cent. during 2006. The number of transactions increased by 47.35 per cent. By
the end of 2006, 26,608 customers were utilising the system.
The Poslovni Bank@net system, NKBM’s electronic banking service for business customers,
provides its users with, among other things, the balance on their account, account turnover,
preparation of payment orders and the execution of payments; the review and printing of account
statements; monitoring the receipt of payments from abroad, as well as the making of such payments;
the dispatch of orders for the placement of foreign currency deposits, the purchase and sale of foreign
currency, as well as the transfer of such funds to other accounts. In addition to reviewing and
sending messages, Poslovni Bank@net also facilitates the transmission of statistical data for use by
Banka Slovenije.
The number of enterprises taking advantage of Poslovni Bank@net increased by 13.68 per cent.
during 2006, and at the end of 2006 there were 5,209 users. The number of domestic transactions
increased by 8.12 per cent. and the number of foreign transactions by 25.14 per cent., while the total
value of domestic and foreign transactions increased 16.77 per cent. and 35.12 per cent., respectively,
on the previous year.
Cellular telephone banking services for enterprises, known as Poslovni Bank@net, EPP Mobile,
are available to business customers. EPP Mobile is designed to perform basic transactions between
companies and NKBM. It is a mobile version of Poslovni Bank@net, giving customers an online
connection to their account using their mobile phone. EPP Mobile displays euro account balances,
account turnover, preparation of euro payment orders, execution of payments and a record of
payments already made.
Another telephone service, Telebanka, also facilitates the performance of banking services via
phone and offers the customer immediate and secure access to NKBM’s services. By following basic
safety protocols in accessing NKBM, the customer can obtain information as to their balance and
account transactions. They can also order blank cheques, place stop-payments on cheques, request
overdrafts, organise payment cards for use with their account, arrange documentation for loans, as
well as call for and cancel cash withdrawals. By using a special security identification card, the
customer can also make payments through Telebanka, obtain loans and place deposits and take
advantage of Western Union payment services. In addition, together with details of the latest interest
and exchange rates, Telebanka allows the customer to access a large amount of useful information
concerning banking services and their accounts.
45
Moneta is a system used by NKBM customers for performing secure cashless payments by
mobile phone. During 2006, 3,355 customers registered to use the Moneta service with NKBM, an
increase of 3.0 per cent. over 2005 as a result of increased marketing of the service. By the end of
2006, NKBM concluded 685 contracts with the providers of Moneta services at 898 points of sale, an
increase of 85 per cent. on 2005. Turnover in the Moneta system amounted to over SIT 1,100 million
(A4,590,219 million) in 2006, an increase of over 100 per cent. compared to 2005, mainly due to the
increasing number of users and points of sale.
NKBM also offers Western Union funds transfer and payment services. The number of money
transfer transactions utilising this service increased by 27.92 per cent. in 2006. In the first three
months of 2007, 2,856 transfers were made (641 debit transactions in an aggregate amount of
A270,151.55 million and 2,215 credit transactions in an aggregate amount of A738,405.53 million).
Risk Management
Introduction
The principal categories of risk inherent in NKBM’s business are credit risk, interest rate risk,
liquidity risk and foreign exchange risk (interest rate and foreign exchange risks are market risks).
The purpose of risk management is to monitor and control the size and concentration of risks arising
from NKBM’s activities. NKBM manages all types of operational and financial risk centrally and
independently from its day-to-day commercial activities. NKBM’s risk management policy is designed
to identify and analyse the relevant risks, set appropriate limits and continually monitor those limits
by means of a management and control structure that separates risk-management from its day-to-day
commercial activity. The Management of NKBM is responsible for defining the overall approach to
risk management and thereafter risk management is performed directly by:
*
The Assets and Liabilities Committee (‘‘ALCO’’) which examines the structural balance of
NKBM’s assets and liabilities in light of applicable risks, as well as relevant internal and
external regulatory requirements. ALCO establishes the liquidity goals and policies in view
of NKBM’s short- and long-term liquidity structure, capital adequacy, interest risk, the tax
aspects of operations, currency and market risks, the profitability, efficiency and
effectiveness of profit centres, financial plans as well as credit and other risk pertinent to
existing and new products.
*
Liquidity Committee which is responsible for the daily management of short-term liquidity
and also establishes the scope of the daily exchange rate policy.
*
Credit Committee which examines and approves large exposure and credit risks pertaining
to business with NKBM’s largest clients.
*
Risk Management Division which monitors daily currency, market and investment risk in
compliance with set limits.
*
The Economic Advisory and Credit Portfolio Measurement Department verifies the
appropriateness of NKBM’s classification of customers at least once a year.
Credit Risk
Credit risk is broadly defined as the risk that a borrower will fail to meet its financial
obligations to the creditor. NKBM protects itself against credit risk in a number of ways:
*
by assessing the degree of risk posed by individual debtors, as well as by the allocation of
specific provisions;
*
with regard to on-balance sheet assets and off-balance sheet commitments;
*
by ensuring adequate capital to cover potential credit risk;
*
implementation of internal limits with regard to exposure to individual segments of the
market; and
*
paying due regard to the exposure limits that have been prescribed for individual debtors
and parties with large capital associations.
Risk management in NKBM also involves an assessment as to the quality of an individual
borrower’s collateral, as well as an evaluation of the borrower’s capacity to meet its obligations to
NKBM. Based on these criteria, debtors are classified into groups A to E according to the assessed
degree of risk of loan default. Categories C to E represent non-performing loans. NKBM’s riskassessment methodology used in the risk-grade categorisation of its borrowers utilises both objective
46
criteria, such as delays in payment and a credit scoring system, and subjective criteria, and conforms
to the regulations prescribed by Banka Slovenije. The individual assessment of a borrower is further
complemented by an analysis of the impact that the particular borrower has on the total credit
portfolio of NKBM which is then used to ensure an appropriate diversification of the portfolio. In
addition, NKBM focuses on its aggregate exposure to individual groups, which reflects relevant
economic, geographic and institutional sectors. As of 31 December 2006, NKBM’s credit portfolio
amounted to SIT 687,549 million (A2,869 million). Of this, 92.73 per cent. was classified either as A
or B (see ‘‘Loan Losses and Provisions’’ and ‘‘Loan Classification and Provisioning Policies’’).
On the basis of its loan categorisations, NKBM is able to estimate the extent of potential losses
that may arise as a result of credit risk, which, in turn, provides the basis for establishing the specific
provisions of funds necessary to cover such risk. As at 31 December 2006, provisions set aside for B,
C, D and E-rated assets amounted to SIT 43,708 million (A182.4 million). In 2006, in line with the
enlargement of its credit portfolio, NKBM made a total provision of SIT 47,535 million (A198.4
million) against credit risks or 6.91 per cent. of total loan assets.
Capital Coverage of Credit Risks
NKBM ensures adequate regulatory capital in order to cover unexpected losses from its credit
portfolio. NKBM assesses the amount of risk-weighted assets, which is the sum of the net values of
all on-balance and off-balance sheet items, weighted by the degree of credit risk. At 31 December
2006, risk-weighted assets amounted to SIT 576,211.4 million (A2,404.5 million), with risk adjusted
capital amounting to SIT 46,096.9 million (A192.4 million).
The amount of risk-weighted assets forms the basis of the calculation of the requisite capital
necessary to cover credit risks. Pursuant to regulations on the capital adequacy of banks and savings
institutions, NKBM must ensure there is at least 9 per cent. coverage of risk-weighted assets by
capital that can cover such credit risk (most banks in Slovenia are required to hold 10 per cent.
coverage of risk-weighted assets). As of 31 March 2007, NKBM’s capital ratio stood at 10.23 per
cent. of NKBM’s risk weighted assets. Following the issue of the Notes and the loan of the proceeds
to NKBM, NKBM expects that its capital ratio will increase to 10.24 per cent.
The banking system in Slovenia will implement the Basle II accords at the start of 2008.
Internal Limits to Exposure
Credit risk also encompasses risk from over-exposure to a single client or group of related
clients. NKBM ensures it is not over-exposed to any one client or grouping of connected clients
through establishing internal exposure limits, which are set separately for foreign banks and domestic
financial institutions. NKBM is also subject to Banka Slovenije limits on large exposures to non-bank
clients. NKBM is in compliance with all such requirements. See ‘‘Loan Portfolio – Loans by Size and
Concentration’’.
The provisions of Banka Slovenije regulations governing exposure determine the largest
permissible exposures to a single client or group of connected clients and private individuals in a
specific relationship with NKBM and NKBM operates within the framework of the statutory limits
prescribed for permissible exposures.
Liquidity Risk
Liquidity risk management is intended to ensure that, even under adverse conditions, a bank has
access to the funds necessary to cover clients’ needs, maturing liabilities and the capital requirements
of NKBM’s operations. Liquidity risk arises in the general funding of financing, trading and
investment activities and in the management of positions. It includes both the risk of unexpected
increases in the cost of funding a bank’s assets portfolio at appropriate maturities and the risk of
being unable to liquidate a position in a timely manner at a reasonable price.
NKBM measures liquidity risk by employing assets and liabilities maturity mismatch
methodology, with structural liquidity risk being assessed in relation to net liquid assets. So as to
conform to statutory regulations pertaining to the narrowest liquidity margin which banks are
required to ensure, NKBM measures its co-efficient of liquidity on a daily basis. NKBM calculates
the co-efficient of liquidity in two time-bands, namely from 0-30 days (time band I) and from 0-180
days (time band II). The total prescribed co-efficient of liquidity in each time band must be at least 1.
However, NKBM generally targets a co-efficient of liquidity in excess of the statutory requirement, so
as to permit additional flexibility. On 31 December 2006, the liquidity co-efficient for time band I was
1.418 and for time band II 1.252.
47
Further, NKBM’s internal limits prescribe the proportion of assets which must be left in liquid
assets. Before 20 April 2007, at least 30 per cent. of the balance sheet total was required to be
represented by high quality securities, such as treasury bills, government securities and investment
grade corporate bonds. However, from 20 April 2007 this internal limit has been revised by NKBM
to 23 per cent. which has released the other 7 per cent. previously used in connection with this as
funds for use in other areas of NKBM’s business.
NKBM’s Liquidity Committee, which among others includes all members of the Management
Board, meets daily and monitors implementation of the liquidity policy established by the Asset and
Liability Committee and NKBM is also obliged to report daily to Banka Slovenije in respect of its
statutory reserve requirements.
Market Risk
Market risk represents the Bank’s exposure to movements in interest and exchange rates, as well
as fluctuations in the value of securities. Market risk can affect the financial results of the Bank
because it changes the values of the financial instruments which the Bank holds. Market risks
monitored by NKBM include position risk, interest rate risk and foreign currency risk. Position risk
arises from trading activities that the Bank performs on its own account with the aim of generating a
profit from changes in the price of financial instruments. Interest rate risk arises where there is a
mismatch in interest rate maturity in assets and liabilities, while foreign currency risk results from
unreconciled foreign currency positions.
Position Risk
Position risk is the risk of suffering a loss as a result of changes in the price of a financial
instrument which the Bank holds in its portfolio for trading on its own account. The Bank measures
market values of all tradable items on a daily basis. An established methodology is used to prescribe
limits on the permissible trading volume for each type of financial instrument. It is based on the
Value at Risk (‘‘VaR’’) method and is compliant with the Basel II requirements.
The equity securities portfolio is limited by the highest market value and the VaR method, while
the debt securities portfolio is limited by the highest market value and by allocating an appropriate
risk weighting to each debt security. These limits may be changed by a resolution passed by ALCO
providing that the change does not affect the annual capital adequacy plan.
A similar methodology is used to monitor the position risk of foreign currency trading. There
are predetermined trading volume limits for each individual foreign currency trader. The Trading
Support Department monitors these trading limits on a daily basis and reports to the relevant
authorities. In 2006, all trading was in line with the set limits.
The Bank offers the service of buying and selling derivatives to its customers. However, the
Bank acts as a broker only and does not assume its own position in such derivatives.
Interest Rate Risk
Interest rate risk is the risk of suffering a loss where changes in interest rates result in a
mismatch in the effect of interest rates (i.e. differences between the interest payable on liabilities and
the interest receivable on assets).
Trading book interest rate risk is managed in the same way as limits on trading books. The
Bank manages its bank book interest rate risk by monitoring the maturity of interest bearing balance
sheet and off-balance sheet items for all key currencies and reference interest rates which the Bank
uses. In 2006, interest rate risk was monitored for SIT, EUR, USD and CHF which together cover
99.8% of total interest rate exposure. The exposure to interest rate changes is calculated as the change
in the net present value of the difference between liabilities and assets during the period for which
interest rates are determined in response to anticipated changes in interest rates in the next three
months. Anticipated changes in interest rates are calculated for each currency and maturity by
estimating the difference between current and future interest rates.
The analysis of interest rate risk is included in the monthly report on liquidity and market risk
and is reviewed by ALCO. The interest rate policy is set taking into account the market conditions
and the interest rate margin of different currencies and maturity periods.
Currency Risk
Foreign exchange risk represents the potential loss due to unreconciled foreign currency
positions and the volatility of exchange rates.
48
To comply with a resolution passed by ALCO, the Bank maintains a closed foreign currency
position for individual currencies on a daily basis. The limits on the open foreign currency positions
are set on the basis of its impact on the Bank’s capital adequacy ratio and in accordance with the
Bank’s annual financial plan. The methodology of monitoring and maintaining a balanced foreign
currency position is based on the VaR methodology in line with the Basel requirements. The highest
value at risk allowed is set for each individual currency as well as for the entire foreign currency
portfolio. The open foreign currency position is monitored daily by the Risk Management Division,
which also calculates the daily result due to unreconciled foreign currency positions. In 2006 the sole
exception was the euro, for which the Bank intentionally maintained a long position. The main
reason was to ensure compliance with the regulation on the minimum liquidity to be maintained by a
bank. The maintenance of a long position in euro was considered to be a low risk due to the
imminent introduction of the euro in Slovenia.
Capital Risk
Capital risk represents the risk of the Bank’s capital being of inadequate size or of an
inappropriate composition for the Bank’s operations.
The Bank has a three-year plan for the capital and capital adequacy of the Bank and of the
NKBM Group. The capital adequacy ratio is monitored and any deviation is dealt with by ALCO.
Operational Risk
Operational risk (‘‘OR’’) is the risk of suffering a loss resulting from inadequate or failed
internal processes, people and systems, or from external factors.
In 2006, the Bank adopted a system of OR management and developed its own application
system for monitoring damage-causing events. The Bank has taken into consideration the Basel
recommendations in the implementation of OR monitoring. The Bank has started monitoring OR
using the simple approach (or the basic indicator approach, whereby capital requirement is measured
only for 15 per cent. of gross income), but will aim to adopt the standardised approach (which
involves measuring each of the seven Basel II segments) within the next three years. The short-term
goal is to collect information on damage-causing events while in the medium-term the objectives are
to ensure there is a complete, objective and standardised overview of OR in the Bank and the
NKBM Group and to enhance the awareness of OR in all employees. The Bank has also planned to
implement a self-review which will be performed by each organisational unit at least once a year. The
monitoring of OR events and an assessment of their consequences will enable each individual
organisational unit to review its performance objectively.
Basel II
The Bank complied with the requirements of the Basel II Capital Accord within the set
timeframe.
In accordance with the requirements of the new capital regulation, the Bank adopted the
standardised approach in the calculation of capital requirements. At the same time, the plan to
implement the Internal Ratings based (‘‘IRB’’) approach by the year 2010 has commenced. In 2006,
the Bank started to align its application system to the standardised and IRB approaches and to
ensure that the necessary time series data for the IRB approach are captured.
Initially, the operational risks will be monitored by the Bank in accordance with the simple
approach. The systems currently adopted for OR monitoring already satisfy the requirements for the
standardised approach to OR monitoring which the Bank will start employing in the next three years.
In 2007, the Bank will continue to monitor operational risk loss events and establish a system of selfreview of OR events in each organisational unit. The resulting internal knowhow will assist in the
ongoing education of employees.
Loan Portfolio
NKBM offers a range of lending products to its retail and corporate customers. It offers
individual clients (including sole traders and entrepreneurs) overdrafts of up to 12 months, short-term
and long-term consumer loans, short-term and long-term bridging loans and housing loans. For
corporate clients it offers local currency and foreign currency short- and long-term loans, including
letters of credit facilities, export financing, project financing, factoring and forfeiting.
49
The following table sets out details of NKBM’s loan portfolio as at the dates indicated:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
16,053.6
4.09
15,861.4
3.12
Overdraft ...............................................................
Short-term loans(1)
Domestic Currency(2) .............................................
Other Currencies....................................................
Long-term loans
Domestic Currency ................................................
Other Currencies....................................................
Claims under guarantees .......................................
Total ......................................................................
Provisions for credit risk .......................................
59,153.4
60,816.0
15.05
15.47
54,798.8
118,584.9
10.77
23.30
149,053.9
107,861.9
82.9
393,021.7
45,243.7
37.93
27.44
0.02
100.00
137,906.8
181,614.1
107.1
508,873.1
46,343.3
27.10
35.69
0.02
100.00
Total ......................................................................
438,265.5
555,216.4
Notes:
(1) Including credit cards.
(2) As at 31 December 2005 and 31 December 2006 the domestic currency in Slovenia was SIT.
Currency
Slovenian banks have been allowed to offer foreign currency loans without any limitations since
1 November 2003. Until then, banks could offer loans only to corporates for investments or
purchases abroad.
The following table sets out details of NKBM’s loan portfolio by currency as at the dates
indicated:
As at 31 December
2005
2006
Domestic Currency ................................................
Other Currencies....................................................
(in millions
of SIT)
224,267.6
168,754.2
(%)
57.06
42.94
(in millions
of SIT)
208,613.2
300,259.8
(%)
41.00
59.00
Total ......................................................................
393,021.7
100.00
508,873.1
100.00
50
Maturity
The following table sets out details of NKBM’s loan portfolio by maturity and aggregate as at
the dates indicated:
As at 31 December
2005
(in millions
of SIT)
(1)
Short-term loans .................................................
Long-term loans(2) .................................................
Total ......................................................................
Provisions for credit risk .......................................
136,105.9
256,915.8
393,021.7
45,243.7
Total ......................................................................
438,265.5
2006
(%)
34.63
65.37
100.00
(in millions
of SIT)
189,352.1
319,520.9
508,873.1
46,343.3
(%)
37.21
62.79
100.00
555,216.4
Notes:
(1) Short-term means up to one year.
(2) Long-term means more than one year.
Sector Concentration
Certain market share and other data as to the Slovenian banking sector in this section is derived
from official Government sources.
NKBM’s strategy is focused on customers with favourable ratings from areas of activity that are
showing positive operating trends and customers from sectors whose weighting in NKBM’s portfolio
is lower than that for banks in Slovenia as a whole.
The Slovenian Institute of Macroeconomic Analysis and Development (‘‘IMAD’’) forecast, in its
Spring 2007 report, positive economic activity in Slovenia in 2007, following stronger than predicted
economic growth in 2006. GDP growth in 2006 amounted to 5.2 per cent., 1.2 per cent. more than in
2005 and 0.5 per cent. above IMAD’s autumn forecast. This was substantially driven by increased
foreign investment activity.
In 2006, the growth of value added (5.3 per cent.) reached its highest level in eleven years. The
primary activities sectors (agriculture, forestry, hunting, fishing, mining, manufacturing, electricity, gas
and water supply and construction) recorded the strongest growth among NKBM’s sectors in 2006.
Market services also contributed to the high growth of value added. The growth of value added in
public services in Slovenia slowed in 2006 compared to 2005.
Growth was particularly strong in manufacturing and construction, where it amounted to 6.7
per cent. in 2006 compared to the previous year. The growth in manufacturing in Slovenia (7.4 per
cent. in 2006 compared to 2005) was largely due to the increase in export-oriented industries. The
highest growth rates were recorded in the four largest industries: the electro, chemical, metal and
machinery industries. Except for the metal industry, all are classified as high- or medium-high
technology intensive industries according to the definition of the Organisation for Economic Cooperation and Development. Construction activity was particularly high in the second half of the year
assisted by the favourable weather conditions. Various large infrastructure projects, such as the
construction of motorways and housing, were undertaken. In addition, the construction of nonresidential buildings (such as hotels and wholesale and retail trade buildings) also increased. The
growth of other primary activities (mining and quarrying, electricity, gas and water supply) was more
modest, while agriculture recorded a decrease in value for the second consecutive year due to lower
crop production.
Growth in market services increased for the third consecutive year, reaching 5.6 per cent. in
2006 compared to the previous year. Positive results were recorded in both traditional market services
(distributive trades, hotels, restaurants and transport) and knowledge-based services (such as business
and financial growth services). The growth in turnover continued to increase in restaurants and bars,
whereas in hotels the increase in turnover was at approximately the same levels as last year. Growth
in distributive trades was at its highest level since 1997 due to increased turnover in wholesale trade
and sales of motor vehicles. In retail trade, however, only shops selling furniture, household
equipment and construction materials recorded a marked increase in turnover in 2006. In business
51
services, growth rates in certain knowledge-based services (legal, tax and business consultancy,
computer services and temporary employment agencies) remain favourable. Real estate activities also
increased substantially. As in previous years, economic growth in financial intermediation was
supported by stable macroeconomic conditions and low interest rates in Slovenia. This has led to an
increase in banks’ lending activities and an expansion of other financial services, but also resulted in a
decline in customer savings. Economic growth in transport, storage and communications was slightly
lower than in 2005, but was assisted by continued activity in the road freight transport sector. Postal
and telecommunication services also recorded growth.
Economic growth in public services was 2.4 per cent. in 2006, having slowed since 2005 in all
sectors. Low growth in public administration reflects the decline in the number of civil service
employees, which accounts for approximately 70 per cent. of the total employment in this sector. The
education sector recorded a slowdown in employment growth last year following the proposed
reorganisation of primary education in Slovenia. The reduced level of employment in primary and
secondary schools may also reflect the need for less staff due to the falling number of children of
school age in Slovenia. Employment only rose in higher education, which may indicate that there is a
shift in favour of tertiary education assisted by the increased number of higher education institutions
and the launch of a reorganisation of higher education in Slovenia together with new study
programmes. In the health and social care sector, the level of employment growth in social care was
low, while health care growth remained at the same level as 2005. Growth in community and
personal services was also lower than in 2005. The highest growth rates were recorded predominantly
in the commercial sector (casinos, leisure, cultural and sporting activities) and in sewage and refuse
disposal and sanitation.
NKBM intends to focus on those sectors set out above which are performing strongly than on
other economic sectors. However, it will still follow internal rules on loan portfolio diversification and
prescribed limits on exposure to a single client and to groups of connected clients.
The most economically developed regions in Slovenia are Central Slovenia (Osrednjeslovenska
regija), Drava region (Podravska regija) and Savinja region (Savinjska regija), which make up
approximately 44.2 per cent., 10.8 per cent. and 10.2 per cent. of all corporate revenues in Slovenia,
respectively. Non-financial corporates represented 45.5 per cent. of the NKBM portfolio on 31
December 2006. Regional exposure is mainly concentrated in four regions: Drava region, totalling
40.8 per cent., Central Slovenia totalling 18.1 per cent., Gorica region (Goriška regija) totalling 15.7
per cent. and Savinja region totalling 12.3 per cent. In all other Slovenian regions, NKBM has less
than 5 per cent. regional exposure.
Central Slovenia, Drava region and Savinja region have developed economically over the last
few years and it is expected that this will continue. For this reason NKBM has decided to focus its
marketing and selling activities in Central Slovenia and Savinja region, where NKBM has not yet
fully developed its potential.
Strategically, in order to manage credit risk properly, NKBM focuses on providing services to
clients with good ratings, considering also their potential for economic growth and the diversification
of its client portfolio by sector and region. The following table sets out NKBM’s total exposure
(financial assets at amortised cost, financial assets at purchase value, off-balance sheet liabilities and
other liabilities) by economic sector as at the dates indicated:
As at 31 December
Agriculture .........................................................................................................
Fishing ...............................................................................................................
Mining ...............................................................................................................
Manufacturing ...................................................................................................
Electricity, gas, water supply .............................................................................
Construction ......................................................................................................
Trade..................................................................................................................
Catering .............................................................................................................
Traffic and communications ..............................................................................
Financial Mediation...........................................................................................
52
2005
2006
(%)
0.5
0.0
0.1
14.9
0.6
6.7
9.0
1.2
1.1
16.1
(%)
0.5
0.0
0.2
15.0
0.7
6.6
8.7
1.2
1.2
17.7
As at 31 December
2005
2006
Real estate..........................................................................................................
Public administration.........................................................................................
Education...........................................................................................................
Health and social care .......................................................................................
Foreign legal persons .........................................................................................
Other (private citizens, other public services)....................................................
(%)
6.9
11.9
0.1
0.3
10.9
19.7
(%)
7.5
9.9
0.1
0.4
13.2
17.1
Total ..................................................................................................................
100.0
100.0
Loans by Size and Concentration
NKBM’s exposure to a single client is represented by the sum of all balance sheet and offbalance sheet items which evidence actual or potential claims of the Bank against the respective client,
the investments for NKBM’s own account in financial instruments issued by that client and NKBM’s
equity holdings in such client. NKBM is also required to adhere to regulations imposed by Banka
Slovenije (‘‘Central Bank Regulations’’).
According to Central Bank Regulations, a bank’s exposure to a single client should be classified
as a large exposure if the value of the exposure is equal to or exceeds 10 per cent. of the bank’s
capital. The relevant regulations also stipulate that a bank’s capital shall be the capital calculated in
accordance with the prevailing Regulation on Calculation of Capital of Banks and Savings Banks of
Banka Slovenije.
Under Central Bank Regulations, a single client is a client who is either a borrower, a
guarantor, an issuer of a security, a person in which NKBM has an equity holding, a client (i.e. the
counter-party with whom an agreement has been made) in the case of a derivatives contract or any
client who is classified as a debtor in relation to NKBM. A single client under Central Bank
Regulations shall also be deemed to refer to two or more persons between whom there is sufficient
relationship as to constitute a single risk for NKBM (a ‘‘Group of Connected clients’’) and such a
group shall be treated as a single client.
Further, Central Bank Regulations also provide that:
*
a bank’s exposure to a single client shall not exceed 25 per cent. of its capital;
*
a bank’s exposure to a single client in a special relationship with the bank (as referred to
in Article 164 of the Banking Act-1) shall not exceed 20 per cent. of its capital. A client is
considered to be in a special relationship with a bank if it is either: (i) a member of the
management board or supervisory board (or a family member of such a person); or (ii) a
legal person (other than a bank) who is a management board member; or (iii) a proxy of
the bank’s management or supervisory board member, (or a family member of such a
person); or (iv) a natural person holding more than 5 per cent. of the voting rights or
share capital in the bank (or a family member of such a person); or (v) a company (other
than a bank) holding directly or indirectly more than 10 per cent. of the voting rights or
share capital in the bank (or a member of the management or supervisory board or the
board of directors or proxy of such a company);
*
a bank’s exposure to (i) its controlling company, (ii) an individual person who the bank
controls directly or indirectly and (iii) an individual person who is directly or indirectly
controlled by the same company shall not exceed 20 per cent. of its capital;
*
a bank’s total exposure to all its clients in a special relationship with the bank shall not
exceed 200 per cent. of its capital; and
*
a bank’s sum of all its large exposures should not exceed 800 per cent. of its capital. A
large exposure is an exposure to an individual person that reaches or exceeds 10 per cent.
of the bank’s capital.
53
The following table sets out details of NKBM’s largest loan and largest exposure:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
Largest loan...........................................................
16,666.0
3.39
16,719.1
2.65
Total loans(1) ..........................................................
Largest exposure....................................................
495,659.2
97,829.1
100.00
11.49
633,000.1
98,945.2
100.00
9.23
Total exposure........................................................
850,926.0
100.00
1,072,046.9
100.00
Note:
(1) total loan amounts include accrued interest in respect of such loans
The following table sets out details of NKBM’s loan portfolio by size as at the dates indicated:
As at 31 December
2005
2006
under 5,000 EUR ..................................................
From 5,000 – under 50,000 EUR..........................
From 50,000 – under 500,000 EUR
From 500,000 – under 1,000,000 EUR .................
Over 1,000,000 EUR .............................................
(in millions
of SIT)
55,860.1
78,479.8
73,965.9
40,513.3
189,446.4
(%)
12.75
17.91
16.87
9.24
43.23
(in millions
of SIT)
39,644.1
99,498.7
83,668.1
41,249.9
291,155.6
(%)
7.14
17.92
15.07
7.43
52.44
Total ......................................................................
438,265.5
100.0
555,216.4
100.0
Non-performing loans
The following table sets out certain information relating to NKBM’s non-performing loans as at
the dates indicated:
As at 31 December
2005
Gross Loans .....................................................................................................
Non Performing Loans .....................................................................................
Ratio of NPLs to Gross Loans .........................................................................
Specific Provisions (Provisions for NPLs) .........................................................
Ratio of Specific Provisions to NPLs (%) .........................................................
Total Provisions
Ratio of Total Provisions to NPLs (%) ............................................................
2006
(in millions of SIT except
percentages)
576,678
687,549
48,896
50,015
8.48
7.27
35,695
33,985
73.0
67.95
46,269
47,535
94.63
95.04
Notes:
‘‘Non-performing loans’’ means those classified as C, D and E.
‘‘Gross Loans’’ include risk balance sheet items, i.e.: loans, held to maturity financial assets, interest from financial assets and other
assets;
According to IFRS gross loans include interest and indemnities (this is in accordance with the rules of Banka Slovenije).
54
The following table sets out details of NKBM’s non-performing loan portfolio by economic
sector as at the dates indicated:
As at 31 December
2005
2006
(%)
Financial assets at amortised cost
Agriculture .........................................................................................................
Fishing ...............................................................................................................
Mining ...............................................................................................................
Manufacturing ...................................................................................................
Electricity, gas, water supply .............................................................................
Construction ......................................................................................................
Trade..................................................................................................................
Catering .............................................................................................................
Traffic and communication ...............................................................................
Financial mediation ...........................................................................................
Real estate..........................................................................................................
Public administration.........................................................................................
Education...........................................................................................................
Health and social care .......................................................................................
Foreign legal persons .........................................................................................
Other ..................................................................................................................
2.54
0.09
0.00
32.14
0.30
5.72
9.47
2.22
0.80
0.34
6.04
0.00
0.05
0.00
10.46
29.83
2.59
0.08
0.00
38.31
0.00
3.22
7.80
2.12
1.46
0.31
6.90
0.00
0.02
0.01
8.43
28.75
Total...................................................................................................................
100.00
100.00
Notes:
The table shows the structure of financial assets at amortised cost (clients classified C, D and E are included, provisions exceed 15 per
cent.)
Loan Losses and Provisions
A specific credit risk provision for loan impairment is established to provide management the
means of estimating credit losses as soon as the recovery of an exposure has been identified as
doubtful. In the case of loans to borrowers in countries where there is an increased risk of difficulties
in servicing external debt, an assessment of the political and economic situation is made and
additional country risk provisions are established as necessary.
When a loan is deemed uncollectible, it is written off against the related provision for
impairments. Subsequent recoveries of loans are credited to the income statement if previously written
off.
NKBM, within the framework of prescribed and internal criteria, classifies balance sheet and
off-balance-sheet asset items according to their level of risk and evaluates potential losses deriving
from credit risks.
Up to 1 January 2006, specific provisions for potential losses that NKBM established according
to the classification of loans as B, C, D and E were recorded as the value adjustments of claims on
the assets side of the balance sheet. Provisions for potential losses that NKBM established for loans
in category A were also recorded as the value adjustments of claims on the asset side of the balance
sheet. Specific provisions in relation to impairments of financial assets that NKBM established
according to classification of claims in groups B, C, D and E were recorded as value adjustments of
such claims on the assets side of the balance sheet.
Since 1 January 2006, NKBM has assessed the strength of financial assets and has assessed the
probability of loss from contingent liabilities in accordance with IFRS. As a result, the provisions for
category A loans are recognised in the same way as for claims classified within other grades.
55
NKBM classifies financial assets and contingent liabilities into the following groups:
(i)
Individually significant claims against banks and savings banks in Slovenia, direct
governmental entities and investment grade banks in the EU (as defined by Banka
Slovenije in The Regulation on the Assessment of Credit Risk Losses of Banks and
Savings Banks);
(ii)
Individually significant claims against non-investment grade foreign banks and savings
banks;
(iii) Individually significant claims against non-bank companies, sole proprietors, citizens and
others;
(iv) Individually significant and insignificant claims with prime collateral; and
(v)
Individually insignificant claims against non-bank companies, sole proprietors, citizens and
others (A-E grades).
Loan Classification and Provisioning Policies
Loan Classification
NKBM classifies its loans as A, B, C, D and E rated loans on the basis of objective criteria
(such as how frequently loans are serviced) and subjective criteria (such as the financial position of
the defaulter and its capability of providing sufficient cash flow for loan servicing in the future).
NKBM’s criteria for rating loans are in accordance with Banka Slovenije regulations.
A rated loans comprise the following:
*
loans to Banka Slovenije and the Slovene government, loans to the European Union and
loans to the government and central banks of EEA countries and comparable OECD
countries;
*
loans insured with high quality collateral meeting NKBM’s requirements;
*
loans to counterparties whose payments are made on time, or exceptionally up to 15 days
in arrears.
B rated loans comprise loans to counterparties:
*
whose cash flow NKBM estimates to be sufficient for meeting obligations as they fall due
but whose current financial standing has deteriorated , although it is unlikely to worsen
significantly in the future;
*
whose payments are often up to 30 days in arrears and occasionally 31 to 90 days in
arrears.
C rated loans comprise loans to counterparties:
*
whose cash flow NKBM estimates not to be sufficient for the regular settlement of due
liabilities;
*
who are substantially undercapitalised;
*
who lack sufficient long-term sources of funds to finance long-term investments;
*
who do not provide to NKBM sufficient up-to-date information or appropriate
documentation related to the settlement of liabilities;
*
whose payments are often up to 90 days in arrears and occasionally 91 to 180 days in
arrears.
D rated loans comprise loans to counterparties:
*
for whom there exists a substantial probability of loss of part of the financial asset or
payment of the assumed liability;
*
that are insolvent or have no liquidity;
*
against whom a motion for initiation of compulsory settlement or bankruptcy proceedings
has been lodged at the competent court;
*
that are undergoing rehabilitation or compulsory settlement;
*
that are in bankruptcy;
*
whose payments are often 91 to 180 days in arrears, and occasionally 181 to 360 days in
arrears, but where NKBM has reason to expect the loan to be covered in part.
56
E rated loans comprise the following:
*
loans that in NKBM’s assessment will not be repaid;
*
loans with a disputed legal basis;
*
loans to counterparties whose payments are more than 360 days in arrears.
The following table sets out details of NKBM’s Loan Portfolio by credit quality classification as
at the dates indicated:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
A ............................................................
B.............................................................
C ............................................................
D ............................................................
E.............................................................
448,467
79,315
13,155
5,547
30,194
77.77
13.75
2.28
0.96
5.24
533,583
103,951
15,726
7,690
26,599
77.61
15.12
2.29
1.12
3.87
Total ......................................................................
576,678
100.00
687,549
100.00
Category
Category
Category
Category
Category
Provisioning Policy
NKBM uses the following provisions in accordance with internal methodology which is in
compliance with IFRS and Banka Slovenije regulations:
*
for A clients 1 per cent.
*
for B clients 9 per cent. (private citizens 10 per cent.)
*
for C clients 23 per cent. (private citizens 25 per cent.)
*
for D clients 50 per cent.
*
for E clients 100 per cent.
Financial assets that are individually treated are not classified into categories and the provision
is calculated by applying internal methodology for assessment of credit risk losses.
As NKBM is required to pay tax on total provisions in each class which exceed the stipulated
average, it aims to match the stipulated average across each class as a whole.
The following table sets out the percentage of total provisions allocated to each credit category
by NKBM:
As at 31 December
2005
2006
A ............................................................
B.............................................................
C ............................................................
D ............................................................
E.............................................................
(in millions
of SIT)
3,037
7,537
3,172
2,828
29,695
(%)
6.56
16.29
6.86
6.11
64.18
(in millions
of SIT)
3,827
9,723
3,405
3,900
26,680
(%)
8.05
20.45
7.16
8.21
56.13
Total ......................................................................
46,269
100.00
47,535
100.00
Category
Category
Category
Category
Category
Lending and Credit Review Policies and Procedures
Loans are managed and analysed by the relationship manager at the branch level. The Credit
Portfolio Department measures risk associated with the customer and classifies the customer’s risk
level. The relationship manager is responsible for submitting the loan application to the relevant
57
credit committee for approval. The credit committee will then decide if the loan should be approved
and will take into account factors such as the loan amount or percentage of capital of NKBM.
NKBM has instituted a five-stage loan approval process, with limits placed upon decisionmaking at each level. Loans exceeding the lending limits of individual branches are referred up
through a series of committees, with the approval of NKBM’s Central Credit Committee being
required for all loans representing more than 2 per cent. of NKBM’s total equity and all loans to
customers classified in bands C, D and E.
The Credit Portfolio Department is also responsible for monitoring customer’s risk level. NKBM
has a special work-out unit for problem loans.
Collateral Policy
Collateral is used as a means for protection against non-payment of obligations in case
applicable circumstances change. As a general rule, corporate loans are not granted without collateral.
Retail loans (short-term), however, may be granted without collateral through special offers
(products). Long-term loans must generally have additional collateral insurance such as first ranking
collateral, mortgage, pledge of movable property, pledge of securities, insurance by Slovenian Export
Corporation or other insurance.
The following table sets out details of the proportions NKBM’s loan portfolio which were
collateralised and uncollateralised as a percentage of NKBM’s total loan portfolio as at the dates
indicated:
As at 31 December
2005
2006
Collateralised .........................................................
Uncollateralised .....................................................
(in millions
of SIT)
521,891
54,787
(%)
90.50
9.50
(in millions
of SIT)
627,135
60,413
(%)
91.21
8.79
Total ......................................................................
576,678
100.00
687,549
100.00
Policy on Write-offs
A debt is written off as a bad debt when the Management Board or certain officials which are
authorised by the Management Board of the Bank deem that NKBM will not be able to recover the
debt based on a recommendation by the relevant department at the Bank. Any potential tax reliefs
are also taken into account when determining if a debt is to be written off as a bad debt.
The recommendation must include evidence that the debt is unrecoverable by the Bank. There
must also be proof that all reasonable action has been taken to recover the debt and that any legal
action would prove to be uneconomical. The following should also be documented and/or referred to
in the recommendations, as applicable:
*
an analysis highlighting the changes in the financial position of the debtor which shows
that the debtor is no longer in a position to repay the debt or that the Bank’s insurance is
insufficient to repay the debt in full;
*
a court order on the striking off of the debtor from the register of companies in the
Republic of Slovenia;
*
a court order commencing or determining bankruptcy proceedings against the debtor;
*
a court order on commencing or determining the compulsory administration of the debtor;
*
a resolution of the Agency of the Republic of Slovenia for Public Legal Records and
Related Services (‘‘AJPES’’) on the striking off of the debtor as a sole proprietor from the
register of companies in the Republic of Slovenia;
*
proof of unsuccessful court proceedings for recovery of the debt from the debtor;
*
an indication that the debt has been insufficiently or improperly documented to prove the
existence of the debt and/or the Bank’s right of repayment of the debt;
*
an indication that the costs of recovering a debt in court would surpass the amount of the
debt or that the claim may become time-barred.
58
Decisions for write-offs of bad debt are made as follows:
*
by order of the Management Board;
*
by order of executive Directors and branch managers: pursuant to authorisation granted by
the Management Board;
*
by order of the chief legal officer;
*
by court order (following the deactivation of companies) or by order of other Slovenian
state agencies such as AJPES subsequent to receiving advice from the Bank’s legal
department; and
*
in accordance with the Bank’s tariff for charging fees and commissions for certain services
provided to its customers.
The Bank sets, as part of its decision on interest rates, a minimum threshold below which
interest is not to be charged by the Bank. Any interest falling below this threshold will instead be
written off.
Funding and Liquidity
NKBM’s funding base is one of its key strengths, with customer deposits funding around 59.6
per cent. of balance sheet assets. Approximately 72.6 per cent. of non-bank funding was derived from
retail deposits as at 31 December 2006.
The following table sets forth an analysis of the sources of funding of NKBM as at the dates
indicated:
As at 31 December
2005
2006
Short term due to Banks ...................................................................................
Due to Customers..............................................................................................
Debt Securities ...................................................................................................
Other Borrowed Funds(1)...................................................................................
Subordinated Liabilities.....................................................................................
(in millions of SIT)
4,354.7
8,462.4
468,291.1
523,717.7
37,312.7
27,399.5
113,512.2
203,603.4
19,166.0
31,153.2
Total...................................................................................................................
642,636.7
794,336.1
Note:
(1) Includes long-term borrowings from banks.
Due to Banks
The following table sets out details by maturity of NKBM’s liabilities to other banks as at the
dates indicated:
As at 31 December
2005
2006
(in millions of SIT)
On demand
Domestic Currency ........................................................................................
Other Currencies ............................................................................................
Time deposits
Domestic Currency ........................................................................................
Other Currencies ............................................................................................
13.5
2,112.2
10.5
1,728.4
2,394.1
0
6,880.1
0
Total...................................................................................................................
4,519.7
8,619.0
In 2006, liabilities due to other banks increased by SIT 4,099,242 thousand (A17,107,000), mainly
due to the increase in time deposits.
59
Due to Customers
In 2006 the amount of liabilities to non-banking customers increased by SIT 55,426,578
thousand (A231,291,000). Liabilities to non-financial corporations increased by 12.2 per cent. or
SIT 10,138,831 thousand (A42,308,000). Liabilities to government entities increased by 63.1 per cent.
or SIT 10,363,590 thousand (A43,247,000).
The following table sets out details of NKBM’s liabilities to customers by category as at the
dates indicated:
As at 31 December
2005
2006
(in millions of SIT)
Non-Financial Corporations .............................................................................
Government .......................................................................................................
Financial Institutions .........................................................................................
Retail..................................................................................................................
Non-Residents ...................................................................................................
Non-Profit Institutions ......................................................................................
82,885.2
16,424.8
15,512.7
344,349.4
4,815.8
4,303.2
93,024.1
26,788.3
11,779.5
380,349.1
5,967.9
5,808.7
Total...................................................................................................................
468,291.1
523,717.7
Debt Securities
The following table sets out details of NKBM’s outstanding senior debt issues as at the dates
indicated:
As at 31 December
2005
2006
Certificates of Deposit .......................................................................................
Bonds .................................................................................................................
(in millions of SIT)
5,405.4
2,399.2
31,907.3
25,000.4
Total...................................................................................................................
37,312.7
27,399.5
Other Borrowed Funds
The following table sets out details of NKBM’s liabilities in respect of other borrowed funds as
at the dates indicated:
As at 31 December
2005
2006
(in millions of SIT)
Banks
Domestic Currency ........................................................................................
Other Currencies ............................................................................................
Other customers
Domestic Currency ........................................................................................
Other Currencies ............................................................................................
Total...................................................................................................................
60
0
97,370.4
0
180,805.8
5,134.1
10,842.6
3,817.4
18,823.5
113,347.1
203,446.7
Subordinated Liabilities
As at 31 December
2005
2006
Subordinated notes ............................................................................................
Subordinated loans ............................................................................................
(in millions of SIT)
19,166.0
19,171.2
0
11,982.0
Total...................................................................................................................
19,166.0
31,153.2
Funding by Original Maturities
The following table sets out NKBM’s total funding by remaining life as at the dates indicated:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
Short-term ..........................................................
Long-term(2) ...........................................................
482,004
160,633
75.00
25.00
548,315
246,021
69.03
30.97
Total ......................................................................
642,637
100.00
794,336
100.00
(1)
Notes:
(1) Short-term means up to one year.
(2) Long-term means one year or more.
Funding by Currency
The following table sets out NKBM’s total funding by currency as at the dates indicated:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
SIT .........................................................................
EUR ......................................................................
USD.......................................................................
Other......................................................................
362,751
257,305
16,220
6,361
56.45
40.04
2.52
0.99
395,192
355,813
14,842
28,490
49.75
44.79
1.87
3.59
Total ......................................................................
642,637
100.00
794,336
100.00
Deposit Accounts
NKBM offers to its clients different kinds of deposits in euro as well as in foreign currency.
Besides sight deposits in euro and major currencies, NKBM offers short-term deposits (1, 2, 3, 6 and
9 months) and long-term deposits (over 1, 2, 3 and 5 years) in euro, United States Dollars,
Australian Dollars, Canadian Dollars and Pounds Sterling. Banka Slovenije does not define any
maturity limitations in respect of deposits. NKBM also offers deposits to corporate customers, sole
proprietors and individuals.
NKBM also offers personal accounts and banking-insurance products. With the intention to
broaden its business, NKBM devotes most attention to personal selling and market oriented selling
actions. NKBM also provides personal banking to certain clients.
61
The following table sets out details of NKBM’s deposit base by category of customers as at the
dates indicated:
As at 31 December
2005
2006
(in millions
of SIT)
(%)
(in millions
of SIT)
(%)
Retail .....................................................................
Corporate...............................................................
344,349.4
123,941.7
73.53
26.47
380,349.1
143,368.6
72.62
27.38
Total ......................................................................
468,291.1
100.00
523,717.7
100.00
The following table sets out NKBM’s deposit base by maturity and by category of customer as
at the dates indicated:
As at 31 December
2005
2006
Demand Deposits ..................................................
Time Deposits........................................................
(in millions
of SIT)
187,443.8
280,847.3
(%)
40.03
59.97
(in millions
of SIT)
207,886.8
315,830.9
(%)
39.69
60.31
Total ......................................................................
468,291.1
100.00
523,717.7
100.00
The following table sets out NKBM’s deposit base by maturity as at the dates indicated:
As at 31 December
2005
2006
Demand .................................................................
Short-term(1) ..........................................................
Long-term(2) ...........................................................
(in millions
of SIT)
187,443.8
227,018.7
53,828.6
(%)
40.03
48.48
11.49
(in millions
of SIT)
207,886.8
243,031.4
72,799.6
(%)
39.69
46.41
13.90
Total ......................................................................
468,291.1
100.00
523,717.7
100.00
Notes:
(1) Short-term means up to one year.
(2) Long-term means one year or more.
62
The following table sets out the concentration by size of NKBM’s deposits base as at the dates
indicated:
As at 31 December
2005
Demand Deposits ..............................................................................................
under 5,000 EUR...............................................................................................
From 5,000 – under 50,000 EUR ......................................................................
From 50,000 – under 500,000 EUR ..................................................................
From 500,000 – under 1,000,000 EUR..............................................................
Over 1,000,000 EUR..........................................................................................
Time Deposits ....................................................................................................
under 5,000 EUR...............................................................................................
From 5,000 – under 50,000 EUR ......................................................................
From 50,000 – under 500,000 EUR ..................................................................
From 500,000 – under 1,000,000 EUR..............................................................
Over 1,000,000 EUR..........................................................................................
(in millions
187,443.8
62,321.1
92,379.5
25,177.0
2,795.9
4,770.2
280,847.3
22,967.4
128,355.6
65,236.6
17,074.2
47,213.5
Total...................................................................................................................
468,291.1
2006
of SIT)
207,886.8
65,665.5
106,959.8
28,751.7
3,005.5
3,504.3
315,830.9
21,532.0
133,634.5
68,572.1
14,177.1
77,915.3
523,717.7
As at 31 December
2005
Retail..................................................................................................................
under 5,000 EUR...............................................................................................
From 5,000 – under 50,000 EUR ......................................................................
From 50,000 – under 500,000 EUR ..................................................................
From 500,000 – under 1,000,000 EUR..............................................................
Over 1,000,000 EUR..........................................................................................
Corporate...........................................................................................................
under 5,000 EUR...............................................................................................
From 5,000 – under 50,000 EUR ......................................................................
From 50,000 – under 500,000 EUR ..................................................................
From 500,000 – under 1,000,000 EUR..............................................................
Over 1,000,000 EUR..........................................................................................
(in millions
344,349.4
81,779.6
209,272.7
49,229.3
2,062.1
2,005.8
123,941.7
2,127.1
13,692.7
41,186.2
17,563.7
49,372.0
Total...................................................................................................................
468,291.1
2006
of SIT)
380,349.1
83,397.5
230,507.5
59,775.4
1,896.7
4,772.0
143,368.6
2,106.3
13,350.1
37,724.0
14,841.5
75,346.6
523,717.7
Contracted external funding
On 14 January 2005, NKBM contracted a long-term loan with Zuercher Kantonalbank worth
8,000,000 Swiss francs with a maturity of five years, repayable in one instalment on maturity. These
funds were allocated mainly for consumer and residential loans, as the demand for loans in Swiss
francs was significant in the first half of the year due to the low Swiss interest rate.
On 2 February 2005, NKBM signed a long-term loan agreement with Die Erste Bank der
österreichischen Sparkassen AG and Kaerntner Sparkasse AG in the amount of A20 million and in
September 2004, NKBM signed a loan agreement for A20 million with the Council of Europe
Development Bank. The first drawing of funds, used for financing investment projects of small- and
medium-sized companies, was realised by NKBM on 11 February 2005, and the second on 22
November 2005. The amount of each drawing was A10 million with a maturity of 10 years.
In July 2004, NKBM signed a frame loan agreement totalling A10 million with Austrian bank
Raiffeisen Landesbank Kaernten. The first drawing in the amount of A4.5 million was realised in 2004
and the second one totalling A5 million in July 2005, each with a maturity of five years.
NKBM also entered into a syndicated loan agreement on 12 July 2005 totalling A240 million
with a syndicate of 26 banks led by Bank Austria Creditanstalt AG, DZ Bank AG and WestLB AG,
63
the highest loan amount ever contracted by NKBM on foreign financial markets, with a maturity of
five years.
NKBM contracted four loans with the Slovenian Export Corporation during 2005 and two
during the first half of 2006 to be used for refinancing exporters and a foreign currency loan.
In May 2006 NKBM issued a loan certificate in the amount of A135 million through HSH
Nordbank AG. The maturity of the loan certificate is five years and it is repayable in one instalment
on maturity.
In December 2006, NKBM signed a syndicated dual currency loan agreement in the amount of
EUR 157.5 million and CHF 150 million with a syndicate of 16 international banks, led by Bank
Austria Creditanstalt AG, DZ BANK AG, Deutsche Zentral-Genossenschaftsbank, Frankfurt am
Main and Erste Bank der oesterreichischen Sparkassen AG, as Mandated Lead Arrangers. The
maturity of the loan is 5 years.
In May 2006, the Supervisory Board gave its consent to the Management Board to raise
perpetual hybrid capital in the amount of EUR 50 million. The mandate for the transaction was
given to ING Bank NV in July 2006. ING Bank NV granted a subordinated loan to NKBM and
issued EUR 50 million Floating Rate Perpetual Notes. The loan qualifies as an Upper Tier 2 Capital
and is callable after 10 years with Banka Slovenije’s prior approval.
In March 2006, NKBM concluded a credit line agreement in the amount of EUR 5 million with
Adria Bank AG. The line expired on 31 January 2007. Another credit line worth EUR 7 million was
agreed with LHB Internationale Handelsbank AG, but it has not been utilised.
The following table sets out NKBM’s contracted external funding as of the date of this
Prospectus:
Name of the Lender (MLA)
Loan Amount
and currency
BAWAG .........................................
A10,000,000
RZB AG(1) ......................................
A30,000,000
ING Bank NV ................................
A50,000,000
RZB AG .........................................
A5,000,000
BayernLB ........................................
A60,000,000
RZB AG
Raiffeisen Landesbank Kaernten....
A10,000,000
Council of Europe Development
Bank (CEB) ................................
A20,000,000
Nomura International PLC(2) .........
A50,000,000
Zuercher Kantonalbank.................. CHF 8,000,000
Die Erste Bank AG.........................
A20,000,000
Kaerntner Sparkasse AG
Bank Austria Creditanstalt AG ......
A240,000,000
DZ Bank AG
WestLB AG
HSH Nordbank AG .......................
A135,000,000
Bank Austria Creditanstalt AG,
A157,500,000
DZ Bank AG, Erste Bank AG .......CHF150,000,000
ING Bank NV ................................
A50,000,000
Date of the Loan
Agreement
28 March
16 December
3 July
7 November
20 February
2001
2002
2003
2003
2004
11 July 2004
11 September
3 December
14 January
2 February
2004
2004
2005
2005
Tenor
7
7(5)
5
5
5
years
Senior
years(3) Subordinated
years
Senior
years
Senior
years
Senior
5 years
10
7(5)
5
5
Status of the
Loan
Senior
years
Senior
years(3) Subordinated
years
Senior
years
Senior
12 July 2005
5 years
Senior
16 May 2006
12 December 2006
5 years
5 years
Senior
Senior
5 October 2006
Perpetual
Subordinated
Notes:
(1) The fund provided on 16 December 2002 was in the form of subordinated floating rate notes issued by NKBM with RZB AG
acting as Lead Manager for such issue.
(2) The funding provided on 3 December 2004 was in the form of subordinated floating rate notes issued by NKBM with Nomura
International PLC acting as Lead Manager for such issue.
(3) The notes issued by NKBM include a call option exercisable offer 5 years and final maturity of 7 years.
Treasury Operations
In January 2005, NKBM issued certificates of deposit in the amount of SIT 550 million (A2.3
million). The maturity of the issue was one year with an interest rate of 3.80 per cent. Certificates of
64
deposit were also issued in March 2006. The total value of this issue was SIT 900 million (A3.7
million), with a maturity of two years and an interest rate of 3.73 per cent.
Securities Portfolio
NKBM’s portfolio combines securities held for trading and debt securities not held for trading.
Debt securities not held for trading are securities available for sale and investments held to maturity.
NKBM’s securities portfolio amounted to SIT 242,148 million (A1,010 million) as at 31
December 2006. Securities held for trading amounted to SIT 29,999 million (A125 million), of which
securities in euro of financial and non-financial companies, banks and certificates of deposit amounted
to SIT 21,088 million (A88 million). The largest portion of this amount was represented by Petrol
d.d., Infond holding d.d. and Infond ID d.d. shares.
Securities held for trading in FX amounted SIT 8.8 million (A37,000) as at 31 December 2006.
These are long-term investments.
Debt securities not held for trading amounted to SIT 212,149 million (A885 million) as at 31
December 2006, of which securities available for sale amounted to SIT 157,772 million (A658 million)
(including capital investments of SIT 1,321 million (A5.5 million)). Euro securities available for sale
amounted to SIT 156,870 million (A654 million) (including treasury notes of Banka Slovenije and
Republic of Slovenia (‘‘RS’’) Bonds) and FX securities available for sale amounted to SIT 902 million
(A4 million).
Investments held to maturity in euro amounted to SIT 54,376 million (A227 million) (RS bonds).
In March 2007, the Republic of Slovenia pre-paid obligations from its RS47 callable bond
(issued by the Republic of Slovenia on 8 November 2002) in the amount of A99 million. NKBM also
sold treasury bills of Banka Slovenije in the amount of A37 million. In accordance with its investment
policy, NKBM invested these funds into investment grade government securities, banks and financial
institutions securities that are rated as least BBB and are available for sale.
Capital Adequacy
NKBM is required to comply with capital adequacy regulations adopted by Banka Slovenije,
which are based on the standards established by the Bank of International Settlements (‘‘BIS’’). These
guidelines require a bank to maintain an adequate level of regulatory capital against risk-bearing
assets and off balance sheet exposures. NKBM’s total capital ratio is calculated by dividing its Tier 1
capital plus its Tier 2 capital by the aggregate of its risk-weighted assets and risk-weighted off balance
sheet exposures. In accordance with these regulations, NKBM must maintain a total capital ratio in
excess of 9 per cent. As at 31 March 2007, NKBM’s capital ratio was 10.23 per cent.
The subordinated loan to be advanced to NKBM is expected to qualify as Tier 2 Capital.
Accordingly, NKBM’s capital ratio is expected to increase to approximately 10.24 per cent.
65
The following table sets out details of NKBM’s capital base as at the dates indicated:
As at 31 December
2005
Tier 1 Capital.....................................................................................................
Share Capital..................................................................................................
Reserves..........................................................................................................
Tier 2 Capital.....................................................................................................
Total Tier 1 and 2 Capital.................................................................................
Investments in unconsolidated subsidiaries and associates ...............................
Total Tier 1 and Tier 2 Capital plus Adjustment .............................................
Total Risk-weighted assets(1) .............................................................................
Capital Adequacy Ratios (%)
Tier 1 Ratio(2) ................................................................................................
Total Capital Ratio(3).....................................................................................
2006
(in millions of SIT)
43,930.7
46,404.1
7,406.5
7,406.5
41,664.0
45,421.8
16,291.1
24,443.3
60,221.9
70,847.4
(9,770.3)
(11,038.4)
50,451.6
59,809.0
494,186.5
601,319.3
6.91
10.21
5.88
9.95
Notes:
(1) Total of on-balance sheet and off-balance sheet Risk-weighted Assets.
(2) Ratio of Tier 1 Capital Risk-weighted Assets.
(3) Ratio of Total Tier 1 and 2 Capital to Risk-weighted Assets.
The Bank’s consolidated tier 1 capital ratio and total capital ratio as at 31 March 2007 and 31
December 2006 were calculated on the basis of accounting records prepared in accordance with IFRS
and in line with the regulations of Banka Slovenije. The Bank’s consolidated tier 1 capital ratio and
total capital ratio as at 31 December 2005 are calculated on the basis of accounting records prepared
in accordance with SAS and in line with the regulations of Banka Slovenije. The Bank believes that
the change in accounting basis prescribed by Slovenian banking legislation (as described under
‘‘Presentation of Financial and Other Information’’) has not had a material impact on the ratios as
presented in the above table and that they are therefore comparable. By way of illustration, the
Bank’s consolidated total capital ratio as at 1 January 2006, prepared under IFRS, was 9.61 per cent.
and the consolidated total capital ratio as at 31 December 2005, prepared in accordance with SAS,
was 9.35 per cent.
Contingent Liabilities and Commitments
Off Balance Sheet Liabilities
In the normal course of business NKBM is a party to contracts for derivative financial
instruments which represent a very low initial investment compared to the notional value of the
contract.
Derivative financial instruments are initially recognised in the balance sheet at cost value
(including transaction costs) and are not re-measured at their fair value. Certain derivative
transactions, while providing effective economic hedges under NKBM’s risk management positions, do
not qualify for hedge accounting under the specific rules of IAS 39 and are therefore treated as
derivatives held for trading.
66
Subsidiaries and Affiliates
The table below sets out the principal subsidiaries of NKBM and its ownership interest as at 31
December 2006. Significant affiliates where NKBM has less than a 50 per cent. voting interest include
ZM and Moja Nalozba-Pokojninska Druzba d.d. Adria Bank AG Multiconsult and Multiconsult
Leasing are also part of the NKBM Group, but on an indirect ownership basis.
Country of
incorporation
Net asset value as at
31 December 2005
Net asset value as at
31 December 2006
Purchase
Total
value of the
capital of
investment the company
Purchase
Total
value of the
capital of
investment the company
Bank’s
ownership and
voting power
interest as at
31 December
2006
(%)
(in millions of SIT)
KBM Invest d.o.o. ..............................
Gorica Leasing d.o.o. .........................
KBM Fineko d.o.o. ............................
KBM Infond d.o.o..............................
KBM Leasing d.o.o. ...........................
Hotel Slavija(1) ....................................
M-Pay d.o.o. .......................................
PBS d.d.(2) ...........................................
Multiconsult d.o.o.(3) ..........................
Multiconsult Leasing d.o.o.(3) .............
Zavarovalnica Maribor d.d.................
Moja naloba d.d.(2) .............................
Adria Bank AG (4) ..............................
Total....................................................
*
Slovenia
Slovenia
Slovenia
Slovenia
Slovenia
Slovenia
Slovenia
Slovenia
Croatia
Croatia
Slovenia
Slovenia
Austria
271.2
83.9
204.6
433.7
661.8
441.9
14.1
1,739.6
—
—
3,689.7
194.2
1,593.3
510.9
136.7
368.6
1,756.8
777.4
623.5
28.9
4,110.9
—
—
15,444.4
443.4
7,303.3
9,328.1
271.2
83.9
204.6
433.7
661.8
—
14.1
2,015.2
0
0
3,689.7
374.2
1,593.3
433.2
93.0
499.0
1,846.8
874.5
—
30.9
5,010.9
65.3
48.0
16,874.0
849.2
7,438.9
99.37
100.00
100.00
72.00
100.00
—
50.00
55.00
76.00
78.40
49,96
45,00
25.04
9,341.6
the amount of capital of specific affiliate complies with figures included in the financial statements of the NKBM Group
Notes:
(1) The Hotel Slavija is in voluntary liquidation.
(2) In 2006 PBS and Moja Naloba were capitalized.
(3) Multiconsult and Multiconsult Leasing are owned indirectly.
(4) NKBM increased its ownership of Adria Bank on 12 April 2007 to 50.54 per cent.
Technology
NKBM has recently completed a major upgrade to its server and storage infrastructure, with the
assistance of IBM Slovenia. The new hardware is intended to ensure a higher level of flexibility,
scalability and data security to NKBM. NKBM also completed work in December 2005 on a major
new computer centre at Tezno, Maribor that meets advanced security and technical standards.
NKBM invested SIT 1,668.8 million (A6.9 million) in this project. In 2006, the majority of IT
activities was focused on the introduction of IFRS and the euro. The main activities performed were:
*
the transfer of the main payments system servers and the back-up payment system services
to new servers at different locations;
*
testing black-outs of individual components of the server and the testing of emergency
procedures when certain parts of the server are down. Testing confirmed that the Bank
had suitable emergency procedures and back-up servers;
*
updating NKBM’s system software and equipment and transferring central production
from Nobis to the Bank’s new computer system IBM P590;
*
upgrading the Poslovni Bank@Net’s server to permit uninterrupted operations and to
upgrade the data server;
*
establishment of a back-up connection with an automatic switch to numerous branches
within the Bank’s network as part of the Bank’s disaster recovery plan (e.g. where, due to
unforeseen circumstances, the branch connection to the primary centre (Tenzo) fails it is
automatically connected to the secondary centre (head office)); and
*
establishment of electronic banking back-up servers for NKBM Group companies.
In total, investments in computer equipment amounted to SIT 2,117 million (A8.8 million) were
made in 2006, in order to upgrade systems for the implementation of IFRS and euro. SIT 237.5
67
million (A1.1 million) was invested in the Bank’s ATM networks and SIT 162.7 million (A0.67 million)
in POS terminals.
In 2006, NKBM completed the transfer of its retail banking operations from its ‘‘legacy’’
information systems to its new Nobis system.
NKBM is currently involved in a number of projects in relation to its information technology
systems and architecture. NKBM is seeking to implement a number of internal projects and tasks,
including introducing Basel II standards (adaptation of applications for calculating of capital
adequacy according to the standardised approach), electronic banking (upgrading of security
standards and introduction of new functionality to assist customers), migrating to the TARGET2
system and upgrading the system with the introduction of SEPA (Single European Payments Area).
NKBM expects that on completion of these projects the quality of its operations and services received
by its customers will improve.
Property
NKBM owns the large majority of its property on a freehold basis. As at 31 December 2006,
the net book value of NKBM’s land and buildings was SIT 10,245 million (A42.7 million). None of
NKBM’s property is pledged as collateral.
Legal Proceedings
While the NKBM Group is involved in legal proceedings from time to time, arising in the
ordinary course of its business, it is not and has not been involved in any governmental, legal or
arbitration proceedings (including any proceedings which are pending or threatened of which it is
aware) during the previous 12 months that may have, or have had in the recent past, significant
effects on its business, financial position or results of operations.
The most relevant legal proceedings is the denationalisation proceeding, which is pending with
the Administrative unit in Maribor under No. 362-05-51/94-343, in which the denationalisation
beneficiaries Zveza hranilno kreditnih slub Slovenije and Slovenska zadružna kmetijska banka require
that NKBM must return several plots of land in the cadastral Community of Maribor-Grad, which
currently represents the business buildings housing Mestna hranilnica. The denationalisation claim was
filed in 1993 and, after having carried out the procedure in 2004, the first level body granted the
request of the denationalization beneficiaries and ordered NKBM to return ownership and possession
of the buildings of Mestna hranilnica within 30 days from the final decision. Due to NKBM’s
investment in the denationalised premises the denationalisation beneficiaries are obliged to pay
NKBM compensation in the amount of DEM 1,267,167.21 (A647,892) over ten years in monthly
installments of DEM 10,559.73 (A5,399), at 6 per cent. interest. NKBM’s appeal against this decision,
as well as the legal action, by which it challenged the decision of the administrative court has not
been successful. In 2006, NKBM appealed the decision of the administrative court to the Supreme
Court of the Republic of Slovenia. The Supreme Court has not yet decided the appeal.
Anti-Money Laundering Compliance Procedures
NKBM has established an anti-money laundering department which reports directly to the
Management Board. This department ensures that NKBM conducts its business in accordance with
applicable legislation on money laundering, namely the Law on Prevention of Money Laundering
which is fully compliant with EU directives concerning the prevention of money laundering. All
procedures within NKBM are in compliance with this law and NKBM has developed written policies
documenting the processes that it has in place to prevent, detect and report suspicious activities.
The central anti-money laundering regulatory body in Slovenia is the Office for the Prevention
of Money Laundering which is organised within the Ministry of Finance. NKBM has to report
regularly to this Agency on all suspicious activities and all cash transactions or series of cash
transactions exceeding approximately A30,000.
Compliance with the law is checked by internal NKBM auditors, external auditors and through
Bank Slovenije on-site supervision.
All clients opening an account with NKBM must present a valid ID card for the account to be
opened. Non-residents opening an account must present themselves in person as well as a valid ID
card at the bank counter. All data collected from non-resident clients are updated on a yearly basis,
and as a result each client must visit an NKBM branch in person yearly to present a valid ID and
additional requested documentation for operating the account.
68
NKBM does not conduct any business with shell banks, politically exposed persons, higher risk
customers or clients in any countries or territories deemed ‘‘non-cooperative’’ by the Financial Action
Task Force on Money Laundering, an international organisation established following the G-7
Summit in Paris in 1989.
69
MANAGEMENT AND EMPLOYEES
Management
NKBM is governed by two management bodies, the Supervisory Board and the Management
Board.
The Supervisory Board
The Supervisory Board is responsible for supervising the work of the Management Board in
order to ensure that NKBM’s operations remain in accordance with legal and statutory provisions.
The current Supervisory Board was appointed in March 2005. The members of the Supervisory Board
are listed below:
*
Daniel Blejc, president, Modan Informatika d.o.o.
*
Andrej Svetina, deputy president, GlaxoSmithKline – GSK d.o.o.
*
Janez Erjavec, Pomurski sejem d.d.
*
Anton Guzej, RTV Slovenija
*
Anton Jurgetz, BMW Group
*
Matjaž Koželj, Aktiva DZU d.o.o.
*
Stanislav Lesjak, Paloma Horgen d.o.o.
*
Tanja Markovič Hribernik, Faculty of Economics in Maribor
*
Marija Ribič, J & M Ribič d.o.o.
No potential conflicts exist between any duties to NKBM of the persons on the Supervisory
Board, as listed above, and their private interests or other duties in respect of their management
roles.
Management Board
The Management Board of NKBM is responsible for the day-to-day management of NKBM.
The current Management Board was appointed in May 2005. The members of the Management
Board are listed below:
*
Matjaž Kovačič
*
Manja Skernišak
The business address of each of the above is Nova Kreditna banka Maribor d.d., Ulica Vita
Kraigherja 4, 2505 Maribor, Slovenia.
The aggregate remuneration of members of the Management Board in 2006 was SIT 62,030,000
(A258,846.60).
The aggregate remuneration for members of the Supervisory Board in 2006 was SIT 16,306,000
(A68,043.73).
None of the members of the Supervisory Board and Management Board hold any shares or
share options in NKBM. NKBM had no financial exposure to members of the Supervisory Board as
at 31 December 2006. Loans to members of the Management Board as at 31 December 2006
amounted to SIT 29,442,000 (A122,859.30).
No potential conflicts exist between any duties to NKBM of the persons on the Management
Board, as listed above, and their private interests or other duties in respect of their management
roles.
Auditors
Internal audits are a key component in the supervision of NKBM’s operations, and to some
extent in the performance of the NKBM Group as a whole. Internal auditors do not merely assess
whether procedures, processes and the internal controls structure conform to the established policies,
they also ascertain whether they are accomplishing NKBM’s objectives. The effectiveness of risk
management systems are also evaluated, as are control and governance processes and the procedures
which have been implemented to improve efficiency. Through the years, the internal auditors
performed their audit in accordance with the standards of internal auditing and the professional code
of ethics adopted by the Slovenian Institute of Auditors.
70
KPMG Slovenija d.o.o. has acted as external auditors for NKBM since 1 January 2004. It has
been established that in all respects the financial statements give a true and fair account of the
financial situation of NKBM.
Employees
As at 31 December 2006 NKBM had a total of 1,511 employees, as compared to 1,546 as at 31
December 2005.
Around half of the workforce is a member of a union. NKBM’s relations with the union are
good and there has been no industrial action in the last three years.
NKBM has no unfunded pension liabilities.
71
RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial or operational decisions.
A number of banking transactions are entered into with related parties in the normal course of
business. The volume of transactions involving related parties for the years ended 31 December 2005
and 2006 are as follows (audited data extracted from the Annual Financial Statements):
Subsidiaries
Type of related party
2005
Loans to banks ......................................................
Loans to the non-banking sector ..........................
Liabilities to banks ................................................
Liabilities to the non-banking sector.....................
Debt securities .......................................................
Debt securities not held for trading ......................
Off-balance sheet items..........................................
4,393.6
18,094.78
28.4
1,170.0
50.0
0
299.9
Total ......................................................................
24,036.8
Associates
2006
2005
2006
(in millions of SIT)
6,955.9
1,766.1
27,735.9
0
3,213.2
0
763.3
1,354.6
0
3,982.0
0
762
933.3
92.5
1,709.4
0
1,198.0
1,528.9
1,650.0
0
255.4
39,601.6
6,341.7
7,956.9
A bank’s exposure to a single client in a special relationship with the bank (as referred to in
Article 164 of the Banking Act-1) shall not exceed 20 per cent. of its capital. A client is considered to
be in a special relationship with a bank if it is either: (i) a member of the management board or
supervisory board (or a family member of such a person); or (ii) a legal person (other than a bank)
who is a management board member; or (iii) a proxy of the bank’s management or supervisory board
member, (or a family member of such a person); or (iv) a natural person holding more than 5 per
cent. of the voting rights or share capital in the bank (or a family member of such a person); or (v) a
company (other than a bank) holding directly or indirectly more than 10 per cent. of the voting
rights or share capital in the bank (or a member of the management or supervisory board or the
board of directors or proxy of such a company).
A bank’s exposure to (i) its controlling company, (ii) an individual person who the bank
controls directly or indirectly and (iii) an individual person who is directly or indirectly controlled by
the same company shall not exceed 20 per cent. of its capital. A bank’s total exposure to all its
clients in a special relationship with the bank shall not exceed 200 per cent. of its capital.
72
THE ISSUER
General
Maribor Finance B.V. was incorporated as a private company with limited liability (besloten
vennootschap met beperkte aansprakelijkheid) under, and subject to, the laws of The Netherlands on 9
July 2007 for an unlimited duration. It is registered in the Commercial Register of the Chamber of
Commerce of Amsterdam, The Netherlands under number 34278018.
The Issuer is wholly-owned by Stichting Maribor Finance, established as a foundation (stichting)
on 21 June 2007 under, and subject to, the laws of The Netherlands. It is registered in the
Commercial Register of the Chamber of Commerce of Amsterdam, The Netherlands under number
34276724.
The Articles of Association (the ‘‘Articles’’) of the Issuer dated 9 July 2007 (as currently in
effect) provide under clause 3.1 that the objects of the Issuer are:
(a)
to raise funds through, inter alia, the issuance of bonds and other debt instruments,
borrowing under loan agreements, the use of financial derivatives or otherwise and to
invest and apply funds obtained by the Issuer in, inter alia, (interests in) bank deposits,
repurchase agreements, loans, bonds, debt instruments, shares, warrants and other similar
securities and also in financial derivatives;
(b)
to grant security for the Issuer’s obligations and debts;
(c)
to enter into agreements, including, but not limited to, financial derivatives such as credit
default swaps, interest and/or currency exchange agreements, and facility arrangements to
enter into financial derivatives; and
(d)
to enter into agreements, including, but not limited to, bank, securities and cash
administration agreements, asset management agreements and agreements creating security
in connection with the objects mentioned under (a), (b) and (c) above.
Clause 3.2 of the Articles provides that the term ‘‘interest on loans’’ as mentioned in the first
paragraph under 3.1(a) shall also include the entering into sub-participations in loan agreements
provided by third parties as well as to issue sureties or on-demand guarantees for the obligations of
the borrowers under such loans, secured by a (pledged) deposit placed with or a bailsum provided to
the relevant lender.
The registered office of the Issuer is at Locatellikade 1, 1076 AZ Amsterdam, The Netherlands
and its telephone number is +31 20 575 5600.
The issue of the Notes and the entering into by the Issuer of the Sub-Participation Agreement,
the Trust Deed, the Agency Agreement, the Subscription Agreement and other matters relating to the
issue of the Notes and the Sub-Participation were duly authorised by resolutions of the management
board of the Issuer dated 10 October 2007.
Capitalisation
The following table sets forth the unaudited capitalisation of the Issuer as at the date of this
Prospectus, as adjusted to give effect to the issue of the Notes:
(A)
Shareholders’ Equity
Issued Capital Stock of A18,000
(Authorised Capital Stock of A90,000).............................................................................
Indebtedness
A100,000,000 Floating Rate Perpetual Loan Participation Notes with a Fixed Rate
provision for the initial period .........................................................................................
Total Indebtedness................................................................................................................
A100,000,000
A100,000,000
Total Capitalisation and Indebtedness ...................................................................................
A100,018,000
73
18,000
Business
So long as any of the Notes remain outstanding, the Issuer will be subject to the restrictions set
out in the Conditions and the Trust Deed under which it has agreed to conduct no business other
than in connection with the issue and servicing of the Notes and the entry into and performance of
the Sub-Participation Agreement.
The Issuer has been established as a special purpose entity for the sole purpose of issuing the
Notes. It has no other principal business activity. The Issuer has not commenced operations or
carried out any business since its incorporation.
Corporate Administration
TMF Management B.V., a private company with limited liability incorporated under the laws of
The Netherlands, has been appointed as the managing director of the Issuer and is responsible for the
management and administration of the Issuer. TMF Management B.V. specialises in providing trustee
services and the incorporation and management of trusts, funds, foundations and companies for
institutions, multinationals and private individuals. The managing director of the Issuer has its
corporate seat in Amsterdam, The Netherlands and its place of business is at Locatellikade 1, 1076
AZ Amsterdam, The Netherlands.
TMF Management B.V. have entered into a corporate services agreement with the Issuer and
Stichting Maribor Finance under which either the Issuer or TMF Management B.V. may terminate
such agreement any time upon giving not less than two months prior notice in writing to the other
parties thereto provided that any termination by TMF Management B.V. shall not be effective until a
replacement is appointed acceptable to the Issuer and the Trustee, which approval will not be
unreasonably withheld.
Directors
The sole managing director of the Issuer is TMF Management B.V., which may engage in other
activities and have other interests which may conflict with the interests of the Issuer. TMF
Management B.V. specialises in providing trustee services and the incorporation and management of
trusts, funds, foundations and companies for institutions, multinationals and private individuals. It is
registered in the Commercial Register of the Chamber of Commerce of Amsterdam, The Netherlands
under number 33203015.
The sole managing director of Stichting Maribor Finance is TMF Management B.V. No
potential conflicts of interest exist between TMF Management B.V., in its capacity as managing
director of the Issuer and its private interests and other duties.
The directors of TMF Management B.V. are Franciscus Adrianus Josephus van Oers, Maria
Christina van der Sluijs-Plantz, Jan Reint Baron de Vos van Steenwijk, Timo Johannes van Rijn,
Robert William de Koning and Johan Versluis, each of whose business address is the registered
address of TMF Management B.V.
Financial Statements
Since its incorporation, the Issuer has not engaged in any material activities other than those
incidental to its registration as a private company with limited liability under, and subject to, the laws
of The Netherlands. As at the date of this Prospectus, no accounts for the Issuer have been made up.
The Issuer will produce annual audited financial statement with a financial year ending on 31
December. As the Issuer had no subsidiaries, such accounts will be non-consolidated. The first
financial period of the Issuer will be from its date of incorporation to 31 December 2008.
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THE LENDER
VTB was founded in London in 1919. At an Extraordinary General Meeting of its shareholders
on, and with effect from, 23 October 2006, VTB changed its name from Moscow Narodny Bank
Limited and re-registered as a public company. VTB is an English bank which is majority-owned by
JSC VTB Bank (previously called the Bank for Foreign Trade (Vneshtorgbank)), a bank organised
and existing under the laws of the Russian Federation. It has significant business relationships with
customers both in and outside Russia. VTB is an authorised person under the Financial Services and
Markets Act 2000 (‘‘FSMA’’) and is regulated pursuant to the FSMA by the United Kingdom
Financial Services Authority. VTB’s registered and head office is located in the United Kingdom at
81 King William Street, London EC4N 7BG, United Kingdom. VTB has a branch in Singapore and
representative offices in Moscow and Beijing.
Neither VTB nor any of its affiliates is an affiliate of NKBM.
The authorised and issued share capital of VTB as at the date of this Prospectus is
£196,254,553.26, divided into 735,035,780 fully paid ordinary shares of 26.7 pence each.
The members of the Board of Directors of VTB as at the date of this Prospectus are:
Chairman and CEO......................................
Executive directors........................................
Non-executive directors ................................
I. Souvorov
E. Grevtsev, S. Clark, V. Sokolov, S. Thunem
I. Lomakin, D. Charters, G. Casey, N. Kuznetsov
The address of each director and the Chairman is the registered office of VTB referred to
above.
Since VTB’s sole obligation in respect of the Notes is to make certain payments to the Issuer,
pursuant to the Sub-Participation Agreement, as and when payments on the Subordinated Loan are
received by VTB from NKBM pursuant to the Subordinated Loan Agreement, financial or other
more detailed information in relation to VTB has not been included in this Prospectus.
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THE SUBORDINATED LOAN AGREEMENT
Pursuant to the current regulations of Banka Slovenije, NKBM may only repay the Subordinated
Loan (i) on or after the expiry of five years from the disbursement thereof; and (ii) if it has obtained
prior approval from the Central Bank approving such repayment.
The following is substantially all of the text of the Subordinated Loan Agreement entered into
between NKBM and the Lender, save for the schedules thereto.
This Agreement is made on 11 October 2007 between:
(1)
NOVA KREDITNA BANKA MARIBOR d.d., incorporated under the laws of Slovenia,
whose registered office is at Ulica Vita Kraigherja 4, 2505 Maribor, Slovenia, as borrower
(the ‘‘Borrower’’); and
(2)
VTB BANK EUROPE PLC, incorporated under the laws of England and Wales, whose
registered office is at 81 King William Street, London EC4N 7BG, United Kingdom, as
lender (the ‘‘Lender’’).
WHEREAS:
(A)
The Lender has at the request of the Borrower agreed to make available to the Borrower
a single disbursement subordinated credit term loan in the amount of A100,000,000 on the
terms and subject to the conditions of this Agreement.
(B)
It is intended by the Borrower that the Subordinated Loan (as defined below) will qualify
as part of the Borrower’s Upper Tier 2 Capital (as defined below) under applicable
regulations of the Central Bank (as defined below).
(C)
It is intended that the Lender and the Issuer (as defined below) will enter into the SubParticipation Agreement (as defined below).
(D)
The Issuer will issue certain loan participation notes based on the amount of the
Subordinated Loan.
It is agreed as follows:
1
DEFINITIONS AND INTERPRETATION
1.1
Definitions
In this Agreement the following terms have the meanings given to them in this Clause
1.1:
‘‘Affiliate’’ of any specified Person means (i) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with such
specified Person, (ii) any other Person who is a director or officer (A) of such specified
Person or (B) of any Subsidiary of such specified Person. For the purpose of this
definition, ‘‘control’’ when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise and the terms ‘‘controlling’’ and
‘‘controlled’’ have meanings correlative to the foregoing;
‘‘Agency’’ means any agency, authority, central bank, department, committee,
government, legislature, minister, ministry, official or public or statutory person (whether
autonomous or not) of, or of the government of, any state or supra-national body;
‘‘Agency Agreement’’ means the Agency Agreement to be dated on or prior to the
Closing Date, as amended, varied or supplemented between the parties thereto relating to
the Notes;
‘‘Agreed Funding Source’’ means any Person (including a designated representative of such
Person) to whom the Lender owes any Financial Indebtedness (including securities),
which Financial Indebtedness was incurred solely and expressly to fund the Subordinated
Loan;
‘‘Auditors’’ means KPMG Slovenija, podjetje za revidiranje, d.o.o. or any internationally
recognised firm of accountants approved by the Lender such approval not to be
unreasonably withheld;
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‘‘Authorised Signatory’’ means, in the case of the Borrower, any of the persons referred to
in the certificate listed as item 3 in the Schedule 1 hereto and, in the case of the Lender,
a duly authorised officer of the Lender, from time to time;
‘‘Bank’’ means an undertaking which is duly licensed by the competent authority in the
jurisdiction of its incorporation to receive deposits and other repayable funds from the
public and grant credits for its own account;
‘‘Bankruptcy Event’’ means any of the following events: (i) a competent court of Slovenia
making an order for the liquidation (likvidacija) or declaration of bankruptcy (stečaj) of
the Borrower; (ii) the Central Bank adopting a decision to liquidate the Borrower; or (iii)
a general meeting of shareholders of the Borrower adopting a decision to liquidate the
Borrower;
‘‘Bankruptcy Proceedings’’ means any court, administrative or corporate proceedings in
Slovenia purporting to liquidate or to declare the bankruptcy (stečaj) of the Borrower;
‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which (a) the
London Interbank Market is open for dealing between Banks generally, and (b) if on
that day a payment is to be made hereunder, commercial Banks generally are open for
business in Ljubljana and London and TARGET settles payment and (if different)
commercial Banks are generally open for business in the city where the specified office of
the Principal Paying and Transfer Agent is located;
‘‘Calculation Agent’’ means The Bank of New York or such other entity as may be
appointed as Calculation Agent in accordance with the Agency Agreement;
‘‘Capital Calculation Regulation’’ means the Central Bank’s Regulation entitled ‘‘Sklep o
izračunu kapitala bank in hranilnic’’ (Regulation on Capital Calculation of Banks and
Savings Banks) (Uradni list RS, No. 135/06) of Slovenia, as may be from time to time
amended or re-enacted, and any other minimum capital, capital or other requirements
specified for Banks applicable to the Borrower;
‘‘Central Bank’’ means the Banka Slovenije or any successor as banking supervisory
authority of Slovenia;
‘‘Closing Date’’ means 12 October 2007;
‘‘Default’’ means an event specified in Clause 14.1;
‘‘Fees Distribution Letter’’ means the fees distribution letter dated 11 October 2007
among, inter alia, the Borrower and the Lender;
‘‘Financial Indebtedness’’ means any obligation for the payment of money in any currency,
whether sole, joint or several, and whether actual or contingent, in respect of:
(i)
moneys borrowed or raised (including the capitalised value of obligations under
financial leases and hire purchase agreements which would, in accordance with
IFRS, be treated as finance or capital leases but excluding moneys raised by way of
the issue of share capital (whether or not for a cash consideration) and any
premium on such share capital) and interest and other charges thereon or in respect
thereof;
(ii)
any liability under any debenture, bond, note, loan stock or other security or under
any acceptance or documentary credit, bill discounting or note purchase facility or
any similar instrument;
(iii)
any liability in respect of the deferred acquisition cost of property, assets or services
to the extent payable after the time of acquisition or possession thereof by the
party liable, but not including any such liability in respect of normal trade credit
for a period not exceeding six months for goods or services supplied;
(iv)
any liability under any interest rate or currency hedging agreement (and the amount
for the Financial Indebtedness in relation to any such transaction shall be
calculated by reference to the mark-to-market valuation of such transaction (if it
shows a sum owed to the counterparty of the Lender, the Borrower or any
Subsidiary of the Borrower (as the case may be)), at the relevant time);
(v)
any liability under or in respect of any bonding facility, guarantee facility or similar
facility; and
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(vi)
(without double counting) any guarantee or other assurance against financial loss in
respect of such moneys borrowed or raised, interest, charges or other liability
(whether the person liable in respect of such moneys borrowed or raised, interest,
charges or other liability is or is not a member of the Group);
‘‘Fixed Rate Interest Payment Date’’ shall have the meaning set out in Clause 5.2.1;
‘‘Fixed Rate Interest Period’’ shall have the meaning set out in Clause 5.2.1;
‘‘Floating Interest Rate’’ shall have the meaning set out in Clause 5.3.3;
‘‘Floating Rate Interest Payment Date’’ means for as long as the Subordinated Loan
remains outstanding, in respect of the period after the Reset Date, 12 January, 12 April,
12 July and 12 October in each year, commencing on 12 January 2013, subject to
adjustment in accordance with Clause 5.3.1;
‘‘Floating Rate Interest Period’’ shall have the meaning set out in Clause 4;
‘‘Group’’ means the Borrower and its Subsidiaries from time to time taken as a whole;
‘‘IFRS’’ means International Financial Reporting Standards, including International
Accounting Standards and Interpretations, issued by the International Accounting
Standards Board as amended, supplemented or re-issued from time to time;
‘‘IFRS Financial Statements’’ means the audited consolidated and non-consolidated
financial statements of the Borrower for the financial years ended 31 December 2005 and
31 December 2006, prepared in accordance with IFRS;
‘‘Indebtedness’’ means any indebtedness, in respect of any Person for, or in respect of,
moneys borrowed or raised including, without limitation, any amount raised by
acceptance under any acceptance credit facility; any amount raised pursuant to any note
purchase facility or the issue of bonds, notes, debentures, loan stock or any similar
instrument; any amount raised pursuant to any issue of shares which are expressed to be
redeemable; any amount raised under any other transaction (including any forward sale
or purchase agreement) having the economic effect of a borrowing; and the amount of
any liability in respect of any guarantee or indemnity for any of the items referred to
above, provided that such defined term does not include any indebtedness owed to the
state budget, local budget and non-budgetary funds on account of taxes which are not
overdue;
‘‘Initial Interest Term’’ means the period from (and including) the Closing Date to (but
excluding) the Reset Date;
‘‘Interest Payment Date’’ means each Fixed Rate Interest Payment Date and/or each
Floating Rate Interest Payment Date, as the case may be subject to the context so
requiring;
‘‘Interest Period’’ means a Fixed Rate Interest Period and/or a Floating Rate Interest
Period, as the case may be.
‘‘Innovative Instrument’’ means an instrument which satisfies Article 11 of the Capital
Calculation Regulation (or any such successor paragraph or regulation, as the case may
be) in order to be eligible to be included in the Borrower’s core capital (temeljni kapital);
‘‘Interest Rate’’ means the Fixed Interest Rate and/or the Floating Interest Rate, as the
case may be;
‘‘Issuer’’ means Maribor Finance B.V. as issuer of the Notes;
‘‘Junior Securities’’ means any and all of the Borrower’s
Instruments or other obligations from time to time outstanding
rank junior to the Subordinated Loan including a guarantee or
agreement issued or entered into by the Borrower which ranks
junior with the Subordinated Loan;
shares and Innovative
ranking or expressed to
support (or any similar)
or is expressed to rank
‘‘Lender Account’’ means the account in the name of the Lender at The Bank of New
York, Account number 5319969780;
‘‘Margin’’ means 4.0 per cent. per annum;
78
‘‘Notes’’ means the A100,000,000 floating rate perpetual notes proposed to be issued by
the Issuer pursuant to the Trust Deed for the sole purpose of financing the Subordinated
Loan by way of the Sub-Participation Agreement;
‘‘Officers’ Certificate’’ means a certificate signed on behalf of the Borrower by two
officers of the Borrower (at least one of whom shall be the principal executive officer,
principal accounting officer or principal financial officer of the Borrower) and in a form
which is satisfactory to the Lender;
‘‘Parity Securities’’ means any and all of the Borrower’s cumulative undated loans,
securities or other obligations (excluding any of its cumulative preference shares) from
time to time outstanding, ranking or expressed to rank pari passu with the Subordinated
Loan including a guarantee or support (or any similar) agreement issued or entered into
by the Borrower which ranks or is expressed to rank pari passu with the Subordinated
Loan;
‘‘Person’’ means any individual, company, corporation, firm, partnership, joint venture,
association, trust, organisation, state or agency of a state or any other entity, whether or
not having separate legal personality;
‘‘Potential Bankruptcy Event’’ means an event or circumstance which could, with the
giving of notice, lapse of time, making of any determination, order or declaration or
adoption of a decision or any combination thereof, become a Bankruptcy Event;
‘‘Principal Paying and Transfer Agent’’ means The Bank of New York as principal paying
and transfer agent under the Agency Agreement and any successor thereto as provided
thereunder;
‘‘Qualifying Bank’’ means a Bank which is resident in a Qualifying Jurisdiction;
‘‘Qualifying Jurisdiction’’ means any jurisdiction in which the Lender or any successor
thereto or assignee thereof is entitled to receive payment of interest on the Subordinated
Loan under a double taxation agreement in force on such date (subject to the completion
of any necessary procedural formalities) providing for full exemption from Slovenian
withholding tax on interest derived from a source within Slovenia to a resident of such
jurisdiction;
‘‘Reserved Rights’’ means all and any rights, interests and benefits in respect of the
obligations of the Lender under the following provisions of this Agreement, namely:
Clause 3.2 (Payment of Fees), Clause 7.1 (Additional Amounts), Clause 7.2 (Tax
Indemnity), Clause 7.4.2 (Tax Credits and Tax Refunds) (the last sentence thereof), Clause
7.6 (Delivery of Forms) (the last sentence thereof), Clause 7.8 (Costs), Clause 9.1
(Increased Costs of the Lender), Clause 15.2 (Borrower’s Indemnity), Clause 16.2 (Currency
Indemnity) and Clause 18 (Costs and Expenses), in each case only to the extent that the
Lender has received amounts to which it is entitled absolutely;
‘‘Reset Date’’ means the Fixed Rate Interest Payment Date falling in October 2012;
‘‘Same-Day Funds’’ means euro funds settled through the Trans European Automated
Real Time Gross Settlement Express Transfer (TARGET) System or such other funds for
payment in euro as the Lender may at any time determine to be customary for the
settlement of international transactions in London of the type contemplated hereby;
‘‘Senior Obligations’’ means any and all obligations of the Borrower other than
obligations of the Borrower under Junior Securities or Parity Securities;
‘‘Slovenia’’ means the Republic of Slovenia and any province or political sub-division
thereof or therein;
‘‘Step-Up Interest Term’’ means the period from (and including) the Reset Date;
‘‘Subordinated Loan’’ has the meaning set forth in Clause 2;
‘‘Sub-Participation Agreement’’ means the sub-participation agreement dated the date
hereof between the Lender and the Issuer for the purposes of the Issuer’s 100 per cent.
sub-participation in the Subordinated Loan (the ‘‘Sub-Participation’’) using the proceeds
of the issue of the Notes;
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‘‘Subscription Agreement’’ means the agreement dated the date hereof between the Lender,
the Borrower, the Issuer and Morgan Stanley & Co. International plc providing for the
issuance of the Notes;
‘‘Subsidiary’’ means a company or corporation (A):
(a)
which is controlled, directly or indirectly, by another company or corporation (B);
or
(b)
more than half the issued share capital of which is beneficially owned, directly or
indirectly, by B,
and, for these purposes, A shall be treated as being controlled by B if B is able to direct
A’s affairs and/or to control the composition of A’s board of directors or equivalent
body;
‘‘TARGET Settlement Day’’ means any day on which the Trans European Automated
Real Time Gross Settlement Express Transfer (TARGET) system is open;
‘‘Taxes’’ means any taxes, levies, duties, imposts, assessments, governmental charges or
other charges or withholding of a similar nature (including interest and penalties payable
in connection with any failure to pay or delay in paying the same);
‘‘Trust Deed’’ means the trust deed constituting the Notes for the equal and rateable
benefit of the Noteholders to be dated on or prior to the Closing Date between the
Issuer, the Lender and the Trustee as amended, varied or supplemented from time to
time;
‘‘Trustee’’ means BNY Corporate Trustee Services Limited as trustee under the Trust
Deed and any successor thereto as provided thereunder; and
‘‘Upper Tier 2 Capital’’ has the meaning ascribed to hybrid instruments (hibridni
instrumenti) qualifying as ‘‘supplementary capital 1’’ (dodatni kapital 1) in the Capital
Calculation Regulation in force as at the date hereof.
1.2
Other Definitions
Unless the context otherwise requires, terms used in this Agreement which are not defined
in this Agreement but which are defined in the Trust Deed, the Notes, the Agency
Agreement or the Subscription Agreement shall have the meanings assigned to such terms
therein.
1.3
Interpretation
Any reference in this Agreement to:
(a)
the ‘‘Borrower’’ or ‘‘the Lender’’ includes its and any subsequent successors,
assignees and chargees in accordance with their respective interests;
(b)
a ‘‘Business Day’’ means a day (other than a Saturday or Sunday) which is a
TARGET Settlement Day and on which Banks generally are open for business in
London, Amsterdam and Ljubljana;
(c)
the ‘‘equivalent’’ on any given date in one currency (the ‘‘first currency’’) of an
amount denominated in another currency (the ‘‘second currency’’) is a reference to
the amount of the first currency which could be purchased with the amount of the
second currency at the spot rate of exchange quoted on the relevant Reuters page
on such date for the purchase of the first currency with the second currency;
(d)
a ‘‘month’’ means a period starting on one day in a calendar month and ending on
the numerically corresponding day in the next succeeding calendar month save that,
where any such period would otherwise end on a day which is not a Business Day,
it shall end on the next succeeding Business Day, unless that day falls in the next
calendar month, in which case it shall end on the immediately preceding Business
Day, provided that, if a period starts on the last Business Day in a calendar month
or if there is no numerically corresponding day in the month in which that period
ends, that period shall end on the last Business Day in that later month (and
references to ‘‘months’’ shall be construed accordingly); and
(e)
‘‘VAT’’ means value added tax, including any similar tax which may be imposed in
place thereof from time to time.
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2
1.4
Currency References
‘‘g’’ and ‘‘euro’’ denote the currency introduced at the third stage of European economic
and monetary union pursuant to the Treaty establishing the European Community as
amended by the Treaty on European Union.
1.5
Statutes
Any reference in this Agreement to a statute shall be construed as a reference to such
statute as the same may have been, or may from time to time be, amended or re-enacted.
1.6
Headings
Clause and Schedule headings are for ease of reference only.
1.7
Amended Documents
Save where the contrary is indicated, any reference in this Agreement to this Agreement,
the Fees Distribution Letter, the Subscription Agreement, the Sub-Participation
Agreement, the Trust Deed, the Agency Agreement or any other agreement or document
shall be construed as a reference to this Agreement, the Fees Distribution Letter, the
Subscription Agreement, the Sub-Participation Agreement , the Trust Deed, the Agency
Agreement or, as the case may be, such other agreement or document as the same may
have been, or may from time to time be, amended, varied, novated or supplemented.
THE SUBORDINATED LOAN
2.1
Grant of the Subordinated Loan
On the terms and subject to the conditions hereof, the Lender grants to the Borrower
and the Borrower hereby agrees to borrow from the Lender a single disbursement
subordinated term loan facility in the amount of A100,000,000 (the ‘‘Subordinated Loan’’).
2.2
Purpose and Application
The Subordinated Loan is intended to be counted by the Borrower as part of its Upper
Tier 2 Capital and the proceeds of the Subordinated Loan shall be used by the Borrower
to strengthen its capital base and for general corporate purposes and, without affecting
the obligations of the Borrower in any way, the Lender shall not be obliged to concern
itself with such application.
2.3
Subordination and Other General Characteristics of the Subordinated Loan
2.3.1 The claims of the Lender under this Agreement, excluding the Reserved Rights,
constitute direct, unconditional, unsecured and subordinated obligations ranking
junior to all Senior Obligations, pari passu among themselves and with Parity
Securities and senior to Junior Securities. On the occurrence of a Bankruptcy Event
and so long as such Bankruptcy Event is continuing, (i) the claims of the Lender
hereunder shall be subordinated in right of payment to all Senior Obligations and
(ii) the Lender shall not be entitled to claim for or receive or retain any amount
payable hereunder unless and until all amounts due under Senior Obligations have
been paid in full. The Reserved Rights constitute the direct, unconditional,
unsecured and unsubordinated obligations of the Borrower and will rank at least
equally with other unsecured and unsubordinated obligations of the Borrower, and
will therefore rank equally with the claims of all Senior Creditors for the purposes
of the foregoing.
2.3.2 In addition, in order for the Subordinated Loan to qualify as part of the
Borrower’s Upper Tier 2 Capital, it is hereby agreed between the Lender and the
Borrower that:
(i)
the Subordinated Loan shall be of indeterminate maturity;
(ii) the Borrower’s obligations under the Subordinated Loan shall be unsecured
and shall not be covered by a guarantee provided by the Borrower or any of
its Affiliates neither by any other type of agreement which would legally or
economically improve the ranking of these obligations in relation to other
creditors;
(iii) the Subordinated Loan shall be available to the Borrower for the purpose of
covering its losses in the ordinary operations of the Borrower;
81
(iv) in no event shall any amounts under the Subordinated Loan become due and
payable by the Borrower at the initiative of the Lender or otherwise without
the Central Bank’s consent (if applicable); and
(v)
the Borrower shall have the right to defer payment of interest under the
Subordinated Loan as provided in Clause 5.8.
2.3.3 The provisions of this Clause 2.3 and Clause 2.4 are governed by the laws of
Slovenia and such provisions are irrevocable and shall take precedence over any
other contradictory provision contained herein.
2.4
3
Set-Off, Counterclaim, Retention etc.
The Lender may not exercise, claim or plead any right of set-off, counter-claim or
retention or any similar right in respect of any amount owed to it by the Borrower
arising under or in connection with the Subordinated Loan, excluding the Reserved
Rights, and the Lender shall be deemed to have waived all such rights.
AVAILABILITY OF THE SUBORDINATED LOAN
3.1
Drawdown
Subject to the conditions hereof, the Subordinated Loan will be available by way of a
single advance which will be made by the Lender to the Borrower, and the Borrower will
draw down the Subordinated Loan, on the Closing Date by payment of the Subordinated
Loan in accordance with the following payment instructions: Deutsche Bank AG; swift
code: DEUTDEFF; account number: 100-93623441000; for the account of Nova Kreditna
banka Maribor d.d.; swift code: KBMASI2X; provided that the Subordinated Loan will
only be advanced if:
3.1.1 the Lender has confirmed to the Borrower that on or prior to the Closing Date, it
has received all of the documents listed in the Schedule 1 hereto each dated the
Closing Date (save where Schedule 1 states otherwise) and that each is in form and
substance satisfactory to the Lender, save as the Lender may otherwise agree; and
3.1.2 as at the Closing Date (i) no Bankruptcy Proceedings, Potential Bankruptcy Event
or Bankruptcy Event have or has occurred, (ii) the representations and warranties
made and given by the Borrower in Clause 10 shall be true and accurate as if made
on the Closing Date with respect to the facts and circumstances then subsisting, (iii)
the Borrower is in full compliance with all of its obligations under this Agreement
and there shall have been no breach of any such obligations, (iv) the SubParticipation Agreement, the Subscription Agreement, the Trust Deed and the
Agency Agreement shall have been executed and delivered, and the Issuer shall have
received the full amount of the proceeds of the issue of the Notes pursuant to the
Subscription Agreement and the Issuer shall have confirmed receipt of such moneys
and the Lender shall have received the full amount of the Sub-Participation and the
Lender shall have confirmed receipt of such moneys, (v) the Lender shall have
received in full the amount referred to in Clause 3.2 and (vi) the Central Bank shall
have issued its consent in relation to the capital treatment of this Agreement as
Upper Tier 2 Capital.
3.2
4
Payment of Fees
In consideration of the Lender advancing the Subordinated Loan to the Borrower, the
Borrower hereby agrees that it shall pay in Same-Day Funds such fees and expenses
which are required to be paid by the Borrower in accordance with the Fees Distribution
Letter.
INTEREST PERIODS
For the period from the Reset Date, each year for which the Subordinated Loan is outstanding,
shall be divided into successive quarterly periods, each of which (other than the first, which shall
commence on (and shall include) the Reset Date) shall start on (and shall include) a Floating
Rate Interest Payment Date and shall end on (but shall exclude) the first, or the next following,
Floating Rate Interest Payment Date (each a ‘‘Floating Rate Interest Period’’).
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5
PAYMENT AND CALCULATION OF INTEREST AND SUSPENSION OF INTEREST
5.1
Payment of Interest
As set out in Clause 17.1 but subject to Clause 5.8 the Borrower shall, not later than
10.00 a.m. (Brussels time) one Business Day prior to each Interest Payment Date, in
respect of the relevant Interest Period, pay to the Lender accrued interest (calculated to
(but excluding) the last day of the relevant Interest Period) on the outstanding principal
amount of the Subordinated Loan in Same-Day Funds to the Lender Account. The
Lender agrees with the Borrower that it will not deposit any other monies into such
account and that no withdrawals shall be made from such account other than as
provided for and in accordance with the Trust Deed and the Agency Agreement. For the
avoidance of doubt, interest shall not be capitalised and shall not be paid in advance of
the disbursement of the Subordinated Loan.
5.2
Calculation of Fixed Rate Interest
5.2.1 For the period from the Closing Date to the Reset Date, the Subordinated Loan
shall bear interest at the rate of 7.02 per cent. per annum payable annually in
arrear on 12 October in each year commencing on 12 October 2008 and ending on
the Reset Date, (a ‘‘Fixed Rate Interest Payment Date’’). A ‘‘Fixed Rate Interest
Period’’ means the period from (and including) a Fixed Rate Interest Payment Date
to (but excluding) the next Fixed Rate Interest Payment Date (other than the first
such period which shall commence on (and include) the Closing Date and end on
(but exclude) the first Fixed Interest Payment Date.
5.2.2 Where it is necessary to compute an amount of interest during the Fixed Rate
Interest Period in respect of the Subordinated Loan for a period of less than one
year, it will be calculated on the basis of the number of days in such period, from
and including the date from which interest begins to accrue to but excluding the
date on which it falls due, divided by the number of days in the Fixed Rate
Interest Period in which such period falls.
5.3
Calculation of Floating Rate Interest
5.3.1 The Subordinated Loan bears floating rate interest from the Reset Date and such
interest will be payable on a Floating Rate Interest Payment Date. If any Floating
Rate Interest Payment Date would otherwise fall on a day which is not a Business
Day, it shall be postponed to the next day which is a Business Day unless it would
thereby fall into the next calendar month in which event it shall be brought
forward to the immediately preceding Business Day. Floating Rate Interest Payment
Dates shall be adjusted for purposes of accrual of interest.
5.3.2 The Subordinated Loan will cease to bear interest from the due date for repayment
hereunder unless payment of principal is improperly withheld or refused. In such
event, it shall continue to bear interest in accordance with this Clause (both before
and after judgment) until the day on which all sums due in respect of the
Subordinated Loan up to that day are received by or on behalf of the Lender.
5.3.3 The Borrower shall procure that the floating rate of interest from time to time in
respect of the Subordinated Loan (the ‘‘Floating Interest Rate’’) will be determined
by the Calculation Agent on the following basis:
(i)
On the second TARGET Settlement Day prior to each Floating Rate Interest
Period (the ‘‘Interest Determination Date’’), the Borrower shall procure that the
Calculation Agent will determine the offered rate for three month euro
deposits (‘‘EURIBOR’’) as at 11.00 a.m. (Brussels time) on the Interest
Determination Date in question as displayed on the display designated as
Reuters page ‘‘EURIBOR01’’ (or such other page or pages as may replace it
for the purpose of displaying such information) (the ‘‘Screen Rate’’). The
Floating Rate Interest Rate for such Floating Rate Interest Period shall be the
aggregate of the Screen Rate and the Margin.
(ii) If such offered rate does not appear, or if the relevant page is unavailable, the
Borrower shall procure that the Calculation Agent will instead request the
principal Euro-zone office of each of four major Banks in the Euro-zone
interbank market selected by the Calculation Agent (the ‘‘Reference Banks’’) to
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provide the Calculation Agent with its offered quotation to leading Banks in
the Euro-zone interbank market for EURIBOR as at 11.00 a.m. (Brussels
time) on the Interest Determination Date in question. If at least two of the
Reference Banks provide the Calculation Agent with such offered quotations,
the Interest Rate for such Floating Rate Interest Period shall be the aggregate
of the arithmetic mean (rounded upwards, if necessary, to the nearest fifth
decimal place) of such offered quotations and the Margin.
(iii) If on any Interest Determination Date on which the provisions of subparagraph (ii) above apply, one only or none of the Reference Banks provides
the Calculation Agent with such a quotation, the Borrower will procure that
the Calculation Agent will determine the Floating Interest Rate for the next
Floating Rate Interest Period to be the aggregate of the Margin and the
arithmetic mean (rounded upwards, if necessary, to the fifth decimal place) of
the rates which leading Banks in the Euro-zone selected by the Calculation
Agent are quoting, on the relevant Interest Determination Date, for euro
deposits for a period of three months commencing on the relevant Interest
Determination Date, to leading European Banks, except that, if the Banks so
selected by the Calculation Agent (being at least three in number) are not
quoting as mentioned above, the Floating Interest Rate shall be the Floating
Interest Rate in effect for the last preceding Floating Interest Period to which
one of the preceding sub-paragraphs of this Clause 5.2.3 shall have applied or
in the case of the first Floating Rate Interest Period after the Reset Date, shall
be equal to the Fixed Interest Rate.
(iv) Where interest is to be calculated in respect of a period which is equal to or
shorter than a Floating Rate Interest Period the day-count fraction used will
be the actual number of days in the relevant period, from and including the
date from which interest begins to accrue to but excluding the date on which
it falls due, divided by 360.
5.4
Determination of Floating Interest Rate and Calculation of Interest Amount
The Borrower shall procure that the Calculation Agent will, as soon as practicable after
11.00 a.m. (Brussels time) on each Interest Determination Date, determine the Floating
Interest Rate and calculate the amount of interest payable (the ‘‘Interest Amount’’) for the
relevant Floating Rate Interest Period. The Interest Amount shall be calculated by
applying the Floating Interest Rate to the outstanding principal amount of the
Subordinated Loan, multiplying such product by the actual number of days in the
Floating Interest Period concerned divided by 360 and rounding the resulting figure to
the nearest A0.01 (A0.005 being rounded upwards).
5.5
Notification of Floating Interest Rate and Interest Amount
The Borrower shall procure that the Calculation Agent will cause the Floating Interest
Rate and the Interest Amount for each Floating Rate Interest Period and the relevant
Floating Rate Interest Payment Date to be notified to the Borrower and the Lender in
accordance herewith as soon as possible after their determination but in no event later
than the second Business Day thereafter. If the Subordinated Loan becomes due and
payable after the Reset Date, under Clause 14, the accrued Floating Rate Interest payable
in respect of the Subordinated Loan shall nevertheless continue to be calculated as
previously by the Calculation Agent in accordance with this Clause (except as otherwise
provided by law) but no publication of the Floating Interest Rate or the Floating Rate
Interest Amount so calculated need be made unless the Lender otherwise requires.
The Interest Amount, the Floating Interest Rate and the Floating Rate Interest Payment
Date so notified may subsequently be amended (or appropriate alternative arrangements
made by way of adjustment) without notice in the event of any extension or shortening
of the relevant Floating Rate Interest Period or in the event of proven or manifest error.
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5.6
Determinations of Calculation Agent Binding
All notifications, opinions, determinations, certificates, calculations, quotations and
decisions given, expressed, made or obtained for the purposes of this Clause 5 by the
Calculation Agent, shall (in the absence of manifest error) be binding on the Borrower
and the Lender and no liability shall attach to the Calculation Agent in connection with
the exercise or non-exercise by it of any of its powers, duties and discretions.
5.7
Assumption when Calculating Interest
Whenever under this Agreement interest is to be calculated to the last day of a Floating
Rate Interest Period and the calculation is required to be made before such last day, the
parties shall assume that the amount of the Subordinated Loan outstanding on the day
of the calculation is also the amount of the Subordinated Loan outstanding on the last
day of the relevant Floating Rate Interest Period.
5.8
Deferral of Payments
The Borrower may elect, by notice in writing to the Lender (a ‘‘Deferral Notice’’), from
time to time and at any time not less than three Business Days prior to an Interest
Payment Date (which notice shall be irrevocable), to defer the payment of all amounts
payable hereunder if a Deferral Event (as defined below) has occurred and, accordingly,
on the giving of such notice the due date for payment of such amounts (‘‘Deferred
Payments’’) shall be so deferred and the Borrower shall not be obliged to make payment
thereof on the date the same would otherwise have become due and payable, and such
deferral of payment shall not constitute a default by the Borrower for any purpose. A
Deferral Notice shall only be effective if it is accompanied by documents evidencing the
occurrence of a Deferral Event unless such documents have already been provided to the
Lender in accordance with Clause 12.2.
Interest will not accrue on any payment so deferred. The Borrower may give to the
Lender written notice of its intention to pay the whole or any part of the Deferred
Payments (a ‘‘Payment Notice’’) and the relevant Deferred Payments (or part thereof)
shall become due and payable on the seventh day after the date of such Payment Notice.
In addition, the aggregate amount of Deferred Payments which remains unpaid shall
become due and payable in full upon (i) the occurrence of a Bankruptcy Event or (ii) the
payment by the Borrower of any amounts owing under Junior or Parity Securities or (iii)
the declaration by the Borrower of dividends on its ordinary shares or any other shares
in issue or (iv) a repayment under Clause 6 below.
‘‘Deferral Event’’ means (i) no dividends are declared and paid by the Borrower in respect
of the previous financial year and (ii) no payments with respect to any Innovative
Instruments are made during the financial year in which the applicable Interest Payment
Date occurs.
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5.9
Period of Deferral
The Borrower shall take all reasonable steps to remedy the conditions giving rise to any
deferral pursuant to Clause 5.8 and shall pay the full amount of interest payment which
has been deferred within 30 Business Days after the relevant conditions giving rise to the
deferral cease to exist.
5.10
Non-Business Days
If any Fixed Rate Interest Payment Date is not a Business Day, the Lender shall not be
entitled to payment in respect of the Subordinated Loan until the next following Business
Day nor to any interest or other sum in respect of such postponed payment.
REPAYMENT
6.1
Maturity of Subordinated Loan
The Subordinated Loan has no maturity and shall only become repayable in accordance
with this Clause 6 and Clause 14.
6.2
Approval of the Central Bank
Any repayment of the Subordinated Loan pursuant to this Clause 6 shall only be
permitted if the Borrower has obtained a prior approval of the Central Bank approving
such repayment.
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6.3
Borrower Repayment Upon Loss of Capital Treatment
The Borrower shall have the right to repay the Subordinated Loan in whole (but not part
only) at its principal amount together with interest accrued to the date fixed for
redemption (up to but excluding the date of such payment) and any Deferred Payments
on any Fixed Rate Interest Payment Date up to and including the Reset Date if the
Subordinated Loan has ceased to have regulatory capital treatment as an Upper Tier 2
Capital loan under the Capital Calculation Regulation due to a change in, or a change of
interpretation of, the Capital Calculation Regulation (except where the Subordinated
Loan ceases to have such regulatory capital treatment due to NKBM exceeding the limit
specified by the Bank of Slovenia for holdings of Upper Tier Two Capital), provided that
written notice thereof, together with an Officers’ Certificate confirming the existence of
the relevant circumstances permitting such a repayment, shall be given to the Lender not
less than 30 days nor more than 60 days prior to the date of repayment.
6.4
Borrower Repayment During Step-Up Interest Term
The Borrower may, on any Floating Rate Interest Payment Date during the Step-Up
Interest Term upon no less than 30 days’ nor more than 60 days’ prior written notice to
the Lender to that effect, repay the whole (but not part only) of the outstanding principal
amount of the Subordinated Loan together with accrued interest (up to but excluding the
date of such payment) and any Deferred Payments.
6.5
Borrower Repayment for Tax Reasons and Change in Circumstances
If, as a result of the application of or any amendments to or change in the laws or
regulations of Slovenia, the United Kingdom, the Netherlands or any Qualifying
Jurisdiction or of any political sub-division thereof or any authority therein having power
to tax (the ‘‘Taxing Jurisdiction’’), the Borrower would thereby be required to increase
the payment of principal or interest or any other payment due hereunder as provided in
Clause 7.1. or to pay additional amounts as provided in Clause 7.2, or, if (for whatever
reason) the Borrower would have to or has been required to pay additional amounts
pursuant to Clause 9 and, in any such case, such obligation cannot be avoided by the
Borrower taking reasonable measures available to it, then the Borrower may, upon not
less than 30 days’ nor more than 60 days’ prior written notice to the Lender to that
effect, providing the documentation specified in the next sentence in a form reasonably
satisfactory to the Lender and specifying the date of payment, on any Interest Payment
Date repay the whole (but not part only) of the Subordinated Loan at its principal
amount, together with any amounts then payable under Clauses 7.1 or 7.2, accrued
interest (up to but excluding the date of such payment) and any Deferred Payments. In
conjunction with the delivery of any notice of repayment pursuant to this Clause 6.5, the
Borrower shall deliver to the Lender an Officers’ Certificate, that the Borrower would be
required to increase the amount payable or to pay additional amounts and such
obligation cannot be avoided by the Borrower taking reasonable measures, supported by
an opinion of an independent tax adviser of recognised standing in the relevant tax
jurisdiction.
No notice under this Clause 6.5 shall be given earlier than 60 days prior to the earliest
date on which the Borrower would be obliged to pay such amounts under Clause 7.1 or
Clause 7.2.
6.6
Repayment upon Special Tax Event
The Borrower may prepay the Subordinated Loan, in whole but not in part, at its
principal amount plus accrued and unpaid interest thereon, if, due to a change in law,
ruling or interpretation thereof, which in each case occurs and becomes effective after the
date of this Agreement, it will be unable to obtain a tax deduction for Slovenian
corporation tax purposes in respect of the next payment of interest due under the
Subordinated Loan and this cannot be avoided by the Borrower taking reasonable
measures available to it, provided that written notice thereof, together with an Officers’
Certificate confirming the existence of the relevant circumstances permitting such a
repayment, shall be given to the Lender and the Trustee not less than 30 days nor more
than 60 days prior to the date of repayment.
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6.7
Notice of Repayment
Any notice given by the Borrower pursuant to Clauses 6.3, 6.4 or 6.5 shall be
irrevocable, shall state that the Subordinated Loan is subject to repayment, shall specify
the Business Day upon which repayment is to be made, shall be accompanied by a copy
of the Central Bank’s approval referred to in Clause 6.2 and shall oblige the Borrower to
make such repayment on such Business Day.
6.8
Repayment Amounts
The Borrower shall, not later than 10.00 a.m. (Brussels time) one Business Day prior to
the date of repayment, pay to the Lender the outstanding principal amount of the
Subordinated Loan, all accrued interest (calculated to (but excluding) the date of such
repayment), any Deferred Payments and all other amounts owing to the Lender
hereunder in Same-Day Funds to the Lender Account with the Principal Paying and
Transfer Agent. The Borrower shall indemnify the Lender on demand against any costs
and expenses reasonably incurred and properly documented by the Lender on account of
any repayment made in accordance with this Clause 6.
6.9
The Borrower may not repay the Subordinated Loan pursuant to this Clause 6 if to do
so would breach the regulations of the Central Bank. No amount repaid under this
Agreement may subsequently be reborrowed.
TAXES
7.1
Additional Amounts
All payments to be made by the Borrower hereunder (including, for the avoidance of
doubt, payments made pursuant to the enforcement of the security granted under the
Trust Deed) shall be made in full without set off or counterclaim, free and clear of and
without deduction for or on account of any present or future Taxes imposed or levied by
or on behalf of any taxing authority of or in, or having authority to tax in, the United
Kingdom, the Netherlands, Slovenia, any Qualifying Jurisdiction in which the Lender or
any successor thereto is resident for tax purposes or any country or state from or
through which the Borrower makes payment hereunder in connection herewith (‘‘Relevant
Taxes’’), unless such withholding or deduction of Relevant Taxes is required by law, in
which case the Borrower shall, on the due date for such payment, increase the amounts
payable as may be necessary to ensure that the Lender receives a net amount in euro
which, following any such deduction or withholding on account of Relevant Taxes, shall
be equal to the full amount which it would have received had the payment not been
made subject to Relevant Taxes so withheld or deducted and shall deliver to the Lender
without undue delay, evidence satisfactory to the Lender of such deduction or
withholding and of the accounting therefor to the relevant authority. If the Lender pays
any amount in respect of such Relevant Taxes, the Borrower shall reimburse the Lender
in euro on demand an amount equal to such payment(s). For the avoidance of doubt,
this Clause 7.1 is without prejudice to the obligations of the Lender pursuant to Clause
7.6.
Provided, however that this Clause 7.1 shall not apply to any Tax assessed on the Lender
under the laws of the jurisdiction of which the Lender is a resident and acting through
for tax purposes, if such Tax is imposed on or calculated by reference to the net income
received or receivable (but not any sum deemed to be received or receivable) by the
Lender.
7.2
Tax Indemnity
Without prejudice to the provisions of Clause 7.1, if the Lender notifies the Borrower
that:
7.2.1 the Lender has become obligated to make any deduction or withholding for or on
account of any Taxes from any payment which the Lender is obliged to make
under or in respect of the Sub-Participation Agreement in circumstances where the
Lender is required to make such a payment and to pay additional amounts
pursuant to the Sub-Participation Agreement; and/or, that the Issuer has become
obliged to make any withholding or deduction for or on account of any Taxes
from any payment which the Issuer is required to make under or in respect of the
Notes in circumstances where the Issuer is required to make such a payment and to
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pay additional amounts under the terms and conditions of the Notes, the Borrower
agrees to pay to the Lender, at least one Business Day prior to the date on which
payment is due under the Sub-Participation Agreement or under the Notes, as the
case may be, (and otherwise in accordance with the terms of this Agreement), in
Same-Day Funds to the Lender Account, such additional amounts as are equal to
the additional payments which the Lender would be required to make pursuant to
the Sub-Participation Agreement and/or the Issuer must pay under the terms and
conditions of the Notes; or
7.2.2 (setting out in reasonable detail the nature and extent of the obligation with such
evidence as the Borrower may reasonably require) the Lender has become obligated
to make any payment to a Person (other than to or for the account of any Agreed
Funding Source) for or on account of any Taxes in respect of the Sub-Participation
Agreement or the Issuer has become obliged to make any payment to a Person
(other than to or for the account of any Noteholders) for or on account of any
Taxes in respect of the Notes, imposed by any Taxing Jurisdiction or any liability
in respect of any such payment is asserted, imposed, levied or assessed against the
Lender or the Issuer (as the case may be),
the Borrower agrees to pay to the Lender, no later than 10:00 a.m. (Brussels time) one
Business Day prior to the date on which payment is due to such Person in Same-Day
Funds to the Lender Account, such sums as are equal to the said payments which the
Lender or the Issuer (as the case may be) must pay in respect of Taxes (it being
understood that neither the Lender, the Issuer nor the Principal Paying and Transfer
Agent nor any other Paying and Transfer Agent shall have any obligation to determine
whether any Person is entitled to such sums).
Provided, however, that:
(a)
the Lender shall, immediately upon the receipt from any Paying and Transfer Agent
of any reimbursement of the sums or additional payments paid as contemplated by
Clause 7.2 (including, without limitation, to the extent that the Issuer is not entitled
to such additional amounts pursuant to the terms of the Sub-Participation
Agreement and/or the holders of the Notes are not entitled to such additional
payments under the terms and conditions of the Notes, as the case may be), pay
such amounts to the Borrower to such account as shall be notified by the Borrower
to the Lender at the relevant time less any applicable taxes, duties or other costs (it
being understood that neither the Lender, the Issuer, nor the Principal Paying and
Transfer Agent nor any other Paying and Transfer Agent shall have no obligation
to determine whether the Issuer or any holder of Notes as the case may be is
entitled to such additional amount); and
(b)
the Lender or the Issuer, as the case may be, shall not be in a worse after-tax
position than it would have been in had it not been obliged to make such
withholding or deduction as set out in Clause 7.2.
For the avoidance of doubt, the provisions of this Clause 7.2 shall not apply to any
withholding or deductions of Taxes with respect to the Subordinated Loan which are
subject to payment of additional amounts under Clause 7.1.
7.3
Tax Claims
If the Lender intends to make a claim pursuant to Clause 7.2, it shall notify the
Borrower thereof as soon as reasonably practicable after the Lender becomes aware of
any obligation to make any such withholding or deduction or to pay any such tax (as
contemplated by Clause 7.2) provided that nothing herein shall require the Lender or the
Issuer, as the case may be, to disclose any confidential information relating to the
organisation of its affairs.
7.4
Tax Credits and Tax Refunds
7.4.1 To the extent that the Lender subsequently obtains or uses any tax credit, relief or
allowance or other reimbursements relating to a deduction or withholding with
respect to which the Borrower has made a payment pursuant to Clause 7.1 or 7.2,
it shall pay to the Borrower so much of the benefit it received as will leave the
Lender, in its reasonable opinion, in substantially the same position as it would
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have been had no additional amounts pursuant to Clause 7.1 or 7.2 been required
to be paid by the Borrower; provided, however, that the question of whether any
such benefit has been received, and accordingly, whether any payment should be
made to the Borrower, the amount of any such payment and the timing of any
such payment, shall be determined solely by the Lender. The Lender shall have the
absolute discretion whether, and in what order and manner, it claims any credits or
refunds available to it, and the Lender shall in no circumstances be obliged to
disclose to the Borrower any information regarding its tax affairs or computations,
provided that the Lender shall notify the Borrower of any tax credit or allowance.
Any such reimbursement shall, in the absence of manifest error and subject to the
Lender specifying in writing in reasonable detail the calculation of such credit,
relief, allowance or other reimbursement and of such payment and providing
relevant supporting documents evidencing such matters, be conclusive evidence of
the amount due to the Borrower hereunder and shall be accepted by the Borrower
in full and final settlement of its rights of reimbursement hereunder in respect of
such deduction or withholding.
7.4.2 If as a result of a failure to obtain relief from deduction or withholding of any Tax
imposed by the Slovenian tax authorities or any Qualifying Jurisdiction (a) such
Tax is deducted or withheld by the Borrower and pursuant to this Clause 7 an
increased amount is paid by the Borrower to the Lender in respect of such
deduction or withholding, and (b) following the deduction or withholding of Tax as
referred to above, the Borrower applies on behalf of the Lender to the relevant
Slovenian or Qualifying Jurisdiction tax authorities for a tax refund and such tax
refund is credited by the Slovenian or Qualifying Jurisdiction tax authorities to a
bank account of the Lender, the Lender shall as soon as reasonably practicable
notify the Borrower of the receipt of such tax refund and promptly transfer the
entire amount of the tax refund to the extent that the Lender determines in its
absolute discretion (acting in good faith) that to do so will leave it (after the
payment) in no worse an after-tax position than it would have been in had no such
withholding or deduction been made or required to be made to a bank account of
the Borrower provided that such an account has been specified for that purpose by
the Borrower. The Borrower agrees to use its reasonable endeavours to assist the
Lender in the making of any such application.
7.5
Qualifying Bank
The Lender represents that it is a Bank and the Lender (and any successor thereto) shall
promptly, upon becoming aware of such, notify the Borrower if it ceases to be a Bank.
7.6
Delivery of Forms
The Lender shall use its reasonable endeavours within 30 days of the request of the
Borrower (to the extent it is able to do so under applicable law including Slovenian laws)
to deliver to the Borrower such other information or forms, including a power of
attorney in form and substance acceptable to the Borrower authorising it to file the
certificate on behalf of the Lender with the relevant tax authority, as may need to be
duly completed and delivered by the Lender to enable the Borrower to obtain relief from
deduction or withholding of Slovenian Taxes or, as the case may be, to obtain a tax
refund if a relief from deduction or withholding of Slovenian Taxes has not been
obtained. If required, the other forms referred to in this Clause 7.6 shall be duly signed
by the Lender and stamped or otherwise approved by the competent tax authority in the
jurisdiction in which the Lender is resident for tax purposes and the power of attorney
shall be duly signed and apostilled or otherwise legalised (if required). If a relief from
deduction or withholding of Slovenian Taxes or a tax refund under this Clause 7 has not
been obtained and further to an application of the Borrower to the relevant Slovenian
tax authorities the latter requests the Lender’s euro bank account details, the Lender shall
at the request of the Borrower (a) use reasonable efforts to procure that such euro bank
account of the Lender is duly opened and maintained, and (b) thereafter furnish the
Borrower with the details of such euro bank account. The Borrower shall provide the
Lender with all assistance it may reasonably require to ensure that the Lender can
complete and deliver the other information or forms specified in this Clause 7.6.
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8
9
7.7
Tax Treatment
As at the date hereof and based on legal advice received, the Borrower and the Lender
hereby agree to treat the Subordinated Loan as a subordinated debt obligation of the
Borrower payable to the Lender, as the beneficial owner of such debt obligation, for
Slovenian and UK tax purposes.
7.8
Costs
The costs of all applications, certifications and administrative costs of compliance by the
Lender with Slovenian tax authority requirements and legislation as envisaged under this
Clause 7 shall be borne by the Borrower.
TAX RECEIPTS
8.1
Notification of Requirement to Deduct Tax
If, at any time, the Borrower is required by law to make any deduction or withholding
from any sum payable by it hereunder (or if thereafter there is any change in the rates at
which or the manner in which such deductions or withholdings are calculated), the
Borrower shall promptly notify the Lender.
8.2
Evidence of Payment of Tax
If the Borrower makes any payment hereunder in respect of which it is required to make
any deduction or withholding, it shall pay the full amount required to be deducted or
withheld to the relevant tax or other authority (subject to any right which the Borrower
may have to contest such payment) within the time allowed for such payment under
applicable law and shall deliver to the Lender, within 45 days after it has made such
payment to the applicable authority, an original receipt (or a certified copy thereof)
issued by such authority evidencing the payment to such authority of all amounts so
required to be deducted or withheld in respect of such payment. The Borrower shall also
provide an English translation of such receipts.
CHANGES IN CIRCUMSTANCES
9.1
Increased Costs of the Lender
If, by reason of (i) any change in, repeal of or introduction of any tax, law (including
any statute, treaty, order, decree, ordinance or similar legislative or executive action),
regulation, regulatory requirement or official directive (whether or not having the force of
law but, if not having the force of law, the observance of which is in accordance with the
generally accepted accounting or financial practice of financial institutions in the country
concerned), letter, instruction, request, notice, guideline, policy or practice statement
(whether or not having the force of law but, if not having the force of law, the
observance of which is in accordance with the generally accepted accounting or financial
practices of financial institutions in the country concerned) or in any decision or ruling
thereon, or in the interpretation or application thereof by any other person charged with
the administration thereof, a court of law or tribunal or other competent authority in
Slovenia, the United Kingdom or the Netherlands, which, in each case, occurs on or after
the date of this Agreement and/or (ii) any compliance by the Lender in respect of the
Subordinated Loan with a change on or after the date of this Agreement in any request,
policy or guideline (whether or not having the force of law but, if not having the force of
law, the observance of which is in accordance with the generally accepted accounting or
financial practice of financial institutions in the country concerned) from or of any central
or other fiscal, monetary or other authority, agency or any official of any such authority
(including, for the avoidance of doubt, any recommendations regarding capital adequacy
standards published by the Basle Committee on Banking Regulations and Supervisory
Practices at the Bank for International Settlements):
9.1.1 the Lender incurs or will incur an additional or increased cost as a result of the
Lender entering into or performing its obligations (including the obligation to
advance the Subordinated Loan) under this Agreement; or
9.1.2 the Lender becomes or will become liable to make any additional payment on
account of tax or otherwise on or calculated by reference to the amount of the
Subordinated Loan and/or to any sum received or receivable by the Lender
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hereunder, or the rate of return from the Subordinated Loan on the Lender’s (or
its Affiliate’s) total capital or the amount of principal, interest or other amount
payable to or received by the Lender hereunder is reduced; or
9.1.3 the Lender makes any payment or foregoes any interest or other return on or
calculated by reference to the gross amount of any sum receivable by it from the
Borrower hereunder or makes any payment or forgoes any interest or other return
on or calculated by reference to the gross amount of the Subordinated Loan,
then, subject in each case to Clause 9.2, upon demand by the Lender to the Borrower:
(a)
(in the case of Clauses 9.1.1, 9.1.2 and 9.1.3) the Borrower shall on demand pay to
the Lender such additional amount as shall be necessary to compensate the Lender
for such increased costs, payment or foregone interest or other return; and
(b)
(in the case of Clause 9.1.2) the Borrower shall, at the time the amount so reduced
would otherwise have been payable, pay to the Lender such additional amount as
shall be necessary to compensate the Lender for such reduction;
provided, however that in each case the amount of such increased cost, reduced amount
or payment made or foregone shall be deemed not to exceed an amount equal to the
proportion which is attributable to this Agreement and further provided that the
Borrower shall not be obliged to pay any additional amount in connection with increased
costs, reduced amount or payment made or foregone which:
10
(i)
is attributable to a deduction or withholding of Relevant Taxes (as defined in
Clause 7.1);
(ii)
is attributable to Tax payable by the Lender on its overall net income; or
(iii)
is compensated under Clause 7.2.
9.2
Increased Costs Claims
If the Lender intends to make a claim pursuant to Clause 9.1, it shall promptly after the
Lender becomes aware of the relevant reason notify the Borrower thereof and provide (to
the extent reasonably practicable) a description in writing in reasonable detail of the
relevant reason (as described in Clause 9.1 above) including a description of the relevant
affected jurisdiction or country and the date on which the change in circumstances took
effect. This written description shall (to the extent reasonably practicable) demonstrate the
connection between the change in circumstance and the additional costs and shall be
accompanied by relevant supporting documents evidencing the matters described therein,
provided that nothing herein shall require the Lender to disclose any confidential
information relating to the organisation of its or any other Person’s affairs.
9.3
Mitigation
If circumstances arise which would result in any payment being required to be made by
the Borrower pursuant to Clauses 7.1, 7.2 or 9, then, without in any way limiting,
reducing or otherwise qualifying the rights of the Lender or the Borrower’s obligations
under any of the above mentioned provisions, the Lender shall as soon as reasonably
practicable upon becoming aware of the same notify the Borrower thereof and, in
consultation with the Borrower and to the extent it can lawfully do so and without
prejudice to its own position, take reasonable steps (at the Borrower’s expense) to remove
such circumstances or mitigate the effects of such circumstances including (without
limitation) by the change of its lending office or transfer of its rights or obligations under
this Agreement to another Bank, provided that the Lender shall be under no obligation
to take any such action if, in its opinion, to do so might have any adverse effect upon its
business, operations or financial condition.
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower makes the representations and warranties set out in Clause 10.1 to Clause 10.15
(inclusive) and acknowledges that the Lender has entered into this Agreement in reliance on
those representations and warranties.
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10.1
Status
It and each of its Subsidiaries is duly organised and incorporated and validly existing
under Slovenian law, is not in liquidation or receivership, has full power and authority to
own, lease and operate its properties and conduct its business as currently conducted, and
that the Borrower is able lawfully to execute and perform its obligations under this
Agreement and borrow the Subordinated Loan.
10.2
Authorisation
The Borrower has taken all necessary corporate, legal and other action required to
authorise the borrowing of the Subordinated Loan on the terms and subject to the
conditions of this Agreement and to authorise the execution and delivery of this
Agreement and all other documents to be executed and delivered by it in connection with
this Agreement and the performance of this Agreement in accordance with its terms.
10.3
Governmental Approvals
All actions or things required to be taken, fulfilled or done by the laws and regulations
of Slovenia (including without limitation, consent, approval, authorisation, order, licence
or qualification of or with any governmental, judicial, regulatory or public body,
administrative agency or other governmental body of Slovenia), and all registrations,
filings or notarisations required by the laws and regulations of Slovenia in order to
ensure (i) that the Borrower and each of its Subsidiaries is able to own its assets and
carry on its business as currently conducted and, if not, the absence of which could not
reasonably be expected to have a material adverse effect on the Borrower’s ability to
perform its obligations under this Agreement and (ii) the due execution, delivery, validity,
performance, legality, enforceability and admissibility by the Borrower of this Agreement
have been obtained, fulfilled or done and are in full force and effect.
10.4
Pari Passu Obligations
Under the laws of Slovenia in force at the date of this Agreement, the claims of the
Lender against the Borrower under this Agreement in relation to payment of the
Subordinated Loan and other payments under this Agreement (excluding the Reserved
Rights) will be subordinated in right of payment to Senior Obligations.
10.5
No Deduction
Subject to the representation of the Lender under Clause 11.1(i) being true and accurate
and except as disclosed in ‘‘Taxation - Slovenia’’ in the Prospectus, payments of any
amounts payable by the Borrower to the Lender under this Agreement may be made
without withholding or deduction on account of Slovenian withholding tax.
10.6
Governing Law
Under the laws of Slovenia in force at the date of this Agreement, in any proceedings
taken in Slovenia in relation to this Agreement, the choice of English law as the
governing law of this Agreement will be recognised and enforced in Slovenia after
compliance with the applicable procedural rules in Slovenia.
10.7
Validity and Admissibility in Evidence
All acts, conditions and things required to be done, fulfilled and performed (other than
by the Lender) to make this Agreement admissible in evidence in Slovenia have been
done, fulfilled and performed.
10.8
Valid and Binding Obligations
This Agreement has been duly executed and delivered by the Borrower and the
obligations expressed to be assumed by the Borrower in this Agreement are legal, valid
and binding and, subject to applicable bankruptcy, insolvency, moratorium and similar
laws affecting creditors’ rights generally and to general principles of equity, enforceable
against it in accordance with their terms.
10.9
No Stamp Taxes
Under the laws of Slovenia in force at the date of this Agreement, the execution, delivery
and enforceability of this Agreement is not subject to any Taxes imposed by or within
Slovenia or any political subdivision or taxing authority thereof or therein (including,
without limitation, any transfer tax, stamp duty or similar levy).
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10.10 No Bankruptcy Proceedings or Event
No Bankruptcy Proceedings have occurred or are occurring and no event has occurred or
circumstance has arisen which constitutes a Bankruptcy Event or Potential Bankruptcy
Event.
10.11 No Other Default
The Borrower is not in breach of or default under any other agreement of instrument in
relation to Indebtedness by which it is bound other than any breach or default that
would not have a material adverse effect on the Borrower’s ability to perform or comply
with its obligations under this Agreement.
10.12 No Material Proceedings
There are no lawsuits, litigation or other legal or administrative or arbitration
proceedings current or pending or, to the best of the knowledge and belief of the
Borrower, threatened before any court, tribunal, arbitration panel or Agency which might
(a) prohibit the execution and delivery of this Agreement or the Borrower’s compliance
with its obligations hereunder or (b) adversely affect the right and power of the Borrower
to enter into this Agreement or (c) have a material adverse effect on the business,
financial condition or prospects of the Borrower or on the Borrower’s ability to perform
or comply with its obligations under this Agreement.
10.13 No Material Adverse Change
Since 31 December 2006 there has been no material adverse change or any development
involving a material adverse change in the condition (financial or otherwise), business
prospects, properties, shareholders’ equity, results of operations or general affairs of the
Borrower or the Group taken as a whole.
10.14 No Undisclosed Material Assets or Liabilities
Neither the Borrower nor any other member of the Group had, as at the date as of
which the audit report of the Auditors on the financial statements of the Borrower for
the year ended 31 December 2006 was prepared, any material assets or liabilities
(contingent or otherwise) which were not disclosed (including in the notes thereto) or
adequately reserved against in accordance with IFRS nor were there at that date any
unrealised or anticipated losses of the Borrower or the Group arising from commitments
entered into by it which were not so disclosed or reserved against.
10.15 Status of Subordinated Loan
(i) The Borrower’s obligations under the Subordinated Loan constitute direct,
unconditional and unsecured obligations of the Borrower and (ii) based on the view of
the Central Bank, the Borrower reasonably believes that this Subordinated Loan shall
qualify as Upper Tier 2 Capital in accordance with the Capital Calculation Regulation
(subject to the Borrower obtaining such view from the Central Bank).
10.16 Financial Statements
The IFRS Financial Statements were prepared pursuant to the relevant laws of Slovenia
and in accordance with IFRS current as at the date thereof and give (in conjunction with
the notes thereto) a true and fair view of the financial condition of the Group at the date
as of which they were prepared and the results of the Group’s operations and changes in
financial position during the financial years or periods then ended.
10.17 Independent Auditors
The Auditors, who have reported on certain financial statements of the Borrower, are
independent auditors with respect to the Borrower; the non-consolidated financial
statements of the Borrower and the consolidated financial statements of the Group for
the years ended 31 December 2005 and 31 December 2006 were prepared in accordance
with IFRS and have been audited by the Auditors without qualification.
10.18 Accounting Records and Controls
The Borrower and each of its Subsidiaries makes and keeps accurate books and records
and maintains a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions by the Borrower and its Subsidiaries are executed in
accordance with management’s general or specific authorisations; (ii) transactions are
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recorded as necessary to permit preparation of financial statements in conformity with the
all applicable accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management’s general or specific
authorisation; and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to any
differences.
10.19 No Right of Immunity
Neither the Borrower nor its property has any right of immunity from suit, execution,
attachment or other legal process on the grounds of sovereignty or otherwise in respect of
any action or proceeding relating in any way to this Agreement other than assets that are
exempted from execution or attachment pursuant to the laws of general application.
10.20 Strikes and Employment Disputes
There are no strikes or other employment disputes against the Borrower which are
pending or, to the best of the Borrower’s knowledge, threatened in writing which could
have a Material Adverse Effect.
10.21 Execution of Agreement
Its execution and delivery of this Agreement and its exercise of its rights and performance
of its obligations hereunder do not and will not:
10.21.1
conflict with or result in a breach or violation of any of the terms of, or
constitute a default under, any instrument, agreement or order to which the
Borrower or any of its Subsidiaries is a party or by which it or its properties is
bound;
10.21.2
conflict with or result in a breach or violation of the provisions of the
constitutional documents of the Borrower or any resolution of its shareholders;
10.21.3
result in Bankruptcy Proceedings or give rise to any Bankruptcy Event or
Potential Bankruptcy Event or moratorium in respect of any of the obligations
of the Borrower or any of its Subsidiaries or the creation of any lien,
encumbrance or other security interest (howsoever described) in respect of any
of the assets of the Borrower or any of its Subsidiaries or a default under any
agreement or instrument evidencing financial indebtedness of the Borrower, and
no such event will occur upon the making of the advance of the Subordinated
Loan; or
10.21.4
conflict with any law or regulation or any order of any governmental, judicial,
regulatory or public body or authority in Slovenia
10.22 Compliance with Laws
Neither the entry into nor the performance by the Borrower of its obligations under this
Agreement will violate any laws or regulations of Slovenia or any directives of
governmental authorities therein having the force of law, and (a) the Borrower is in
compliance in all material respects with all applicable provisions of the law and
regulations of Slovenia and (b) no Subsidiary is in violation of any applicable provision
of the laws and regulations of Slovenia, except for such violations which would not have
a material adverse effect on the Borrower’s ability to perform its obligations under this
Agreement.
10.23 Private and Commercial Acts
The execution of this Agreement by the Borrower constitutes, and its exercise of its rights
and performance of its obligations hereunder will constitute, private and commercial acts
done and performed for private and commercial purposes.
10.24 Overdue Tax Liabilities
The Borrower has no overdue tax liabilities which would have a Material Adverse Effect
other than those which it has disclosed to the Lender prior to the date hereof or which it
is contesting in good faith.
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10.25 OFAC
The Borrower’s use of the proceeds of the Subordinated Loan received under the
Subordinated Loan Agreement will not conflict with, or result in a breach or violation of,
the Rules and Regulations enforced by the Office of Foreign Assets Control of the U.S.
Department of the Treasury (the ‘‘OFAC Regulations’’) by any of the parties to this
Agreement, and neither the Borrower nor any of its Subsidiaries nor any director, officer,
nor any agent or employee of the Borrower or any of its Subsidiaries, has been
designated a sanctioned person under the OFAC Regulations;
10.26 Repetition
Each of the representations and warranties contained in Clause 10 shall be deemed to be
repeated by the Borrower on the Closing Date.
11
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender makes the representations and warranties set out in this Clause 11 and
acknowledges that the Borrower has entered into this Agreement in reliance on those
representations and warranties, and that those representations and warranties shall remain in full
force and effect at the date hereof and shall be repeated by the Lender on the Closing Date.
11.1
12
Lender Representation
The Lender confirms that (i) it is a Bank; (ii) it will account for the Loan on the date of
closing on its balance sheet as an asset under ‘‘loans and advances to banks’’; and (iii) at
the date hereof, it does not have a permanent establishment in Slovenia.
COVENANTS
The covenants in this Clause 12 remain in force from the date of this Agreement for so long as
the Subordinated Loan or any part of it is or may be outstanding.
12.1
Notification of Bankruptcy Event or Potential Bankruptcy Event
The Borrower shall promptly inform the Lender of the occurrence of any Bankruptcy
Event or Potential Bankruptcy Event and, upon a written request to that effect from the
Lender, confirm to the Lender that, save as previously notified to the Lender or as
notified in such confirmation, no Bankruptcy Event or Potential Bankruptcy Event has
occurred.
12.2
Financial Information
So long as the Subordinated Loan (or any part thereof) remains outstanding hereunder,
the Borrower shall deliver to the Lender not later than six (6) months after the end of
each of its financial years, copies of the Borrower’s unconsolidated financial statements
for such financial year, as audited by the Auditors and prepared in accordance with
IFRS.
13
ABSENCE OF FIDUCIARY RELATIONSHIP
Each of the Borrower and the Lender acknowledges that in connection with the issue and
offering of the Notes and the provision of the Subordinated Loan by the Lender to the
Borrower: (i) each of Morgan Stanley & Co. International plc and VTB Bank Europe plc (each
a ‘‘Manager’’ and together the ‘‘Managers’’) has acted at arm’s length, is not an agent of, and
owes no fiduciary duties to, the Borrower or the Lender or any other person, (ii) each Manager
owes the Borrower and the Lender only those duties and obligations set forth in prior written
agreements, if any, and (iii) each Manager may have interests that differ from those of either
the Borrower or the Lender. Each of the Borrower and the Lender waives to the full extent
permitted by applicable law any claims it may have against either Manager arising from an
alleged breach of fiduciary duty in connection with the issue and offering of the Notes and the
provision of the Subordinated Loan.
14
EVENTS OF DEFAULT AND ENFORCEMENT
14.1 Events of Default
If the Borrower shall not make payment of any principal or any interest or any payments
to be made under Clause 7 in respect of the Subordinated Loan for a period of 10 days
or more after the due date for the same (which failure to make payment shall constitute
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prima facie evidence of the Borrower’s inability to make such payment, but such failure
shall not exist if the Borrower has deferred payment of interest under Clause 5.8), the
Lender may take such steps as may be appropriate under applicable law to have
Bankruptcy Proceedings in Slovenia instituted (but not elsewhere) and prove in such
Bankruptcy Proceedings, and thereupon the Lender may give notice to the Borrower that
the Subordinated Loan is due and repayable immediately (and the Subordinated Loan
shall thereby become, subject to Clause 2.3 (Subordination and other General
Characteristics of the Subordinated Loan)) at its principal amount, together with accrued
interest and any additional amounts payable in accordance with Clauses 7.1 and 7.2.
15
14.2
Proceedings
The Lender shall be entitled to institute such proceedings against the Borrower as it may
think fit to enforce any obligation, condition or provision binding on the Borrower under
this Agreement (other than any obligation for payment of any principal or interest in
respect of the Subordinated Loan) provided that the Borrower shall not by virtue of any
such proceedings be obliged to pay, and the Lender shall not be entitled to claim for or
receive or retain, any sum or sums representing principal or interest in respect of the
Subordinated Loan sooner than the same would otherwise have been payable by it.
14.3
Insolvency
In the event of a Bankruptcy Event, the Lender may: (i) give notice to the Borrower that
the Subordinated Loan is due and repayable immediately in accordance with the rules of
bankruptcy or liquidation proceedings (and the Subordinated Loan shall thereby become,
subject always to Clause 2.3, so due and repayable) at its principal amount together with
accrued interest (up to but excluding the date of payment), any amounts payable in
accordance with Clauses 7.1 and 7.2 and any Deferred Payments; and (ii) prove in the
winding-up of the Borrower.
14.4
Remedies
No remedy against the Borrower, other than as referred to in this Clause 14, shall be
available to the Lender in Slovenia or elsewhere, whether for the recovery of amounts
owing in respect of the Subordinated Loan or in respect of any breach by the Borrower
of any of its other obligations under or in respect of the Subordinated Loan.
ACCRUAL OF INTEREST AND INDEMNITY
15.1 Accrual of Interest
If any sum due and payable by the Borrower hereunder (other than any amount of
interest) is not paid on the due date therefor in accordance with the provisions of Clause
17, interest will continue to accrue on such sum at a rate per annum equal to the Interest
Rate up to but excluding the date on which it is paid by the Borrower.
15.2
Borrower’s Indemnity
The Borrower undertakes to the Lender, that if the Lender, any of its Affiliates, or any
director, officer, employee or agent of the Lender or any such Affiliate or any person
controlling the Lender within the meaning of the United States securities laws (each an
‘‘indemnified party’’) incurs any loss, liability, cost, claim, charge, expense (including
without limitation, (i) any amount payable by the Lender under the Sub-Participation
Agreement, the Trust Deed and/or the Agency Agreement or based on any dispute or
issue arising out of or in connection with the Notes excluding any amount already due
under Clause 7.2 and/or (ii) Taxes, legal fees, expenses, demand or damage and any
applicable stamp duties, stamp duty reserve tax or other duties payable by the Lender
together with in each case any VAT thereon) (a ‘‘Loss’’) which an indemnified party may
sustain or incur as a result of or in connection with any Bankruptcy Event, Bankruptcy
Proceedings, the Subordinated Loan, this Agreement (or enforcement thereof), the SubParticipation Agreement or the constitution, listing or enforcement of the Notes or the
Notes being outstanding or any combination of any of the foregoing, the Borrower shall
pay to the Lender on demand an amount equal to such Loss and all costs, charges and
expenses which it or any indemnified party may pay or incur in connection with
investigating, disputing or defending any such action or claim as such costs, charges and
expenses are incurred, unless such Loss was caused by such indemnified party’s fraud,
negligence, default or wilful misconduct. Except as expressly provided in the Trust Deed,
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the Lender shall not have any duty or obligation, whether as fiduciary or trustee, for any
indemnified party or otherwise, to recover any such payment or to account to any other
person for any amounts paid to it under this Clause 15.2.
Without limiting the generality of the foregoing, the Borrower also undertakes to
indemnify the Lender against any Loss arising out of, or in connection with, the Notes
(excluding any amounts already claimed under Clause 7.2) issued to the Noteholders or
any other Agreed Funding Source, as the case may be, or based on any dispute or issue
arising out of, or in connection with, any Notes issued to the Noteholders or any other
Agreed Funding Source, as the case may be, unless, in circumstances where this
indemnity is enforced by someone other than an assignee under Clause 19.3, such Loss
was either caused by the Lender’s fraud, negligence or wilful misconduct or arises out of
a breach of any undertakings of the Lender contained herein (or, following the execution
of any other agreements entered into in connection with the Noteholders or any other
Agreed Funding Source, as the case may be, in such other agreements).
16
15.3
Independent Obligation
Clause 15.2 constitutes a separate and independent obligation of the Borrower from its
other obligations under or in connection with this Agreement or any other obligations of
the Borrower in connection with the issuance of the Notes and shall not affect, or be
construed to affect, any other provisions of this Agreement or any such other obligations.
15.4
Evidence of Loss
A certificate of the Lender setting forth the amount of the Loss, costs, charges and
expenses described in Clause 15.2 and specifying in full detail the basis therefor and
calculations thereof shall be conclusive evidence of the amount of such Loss, cost, charges
and expenses.
15.5
Survival
The obligations of the Borrower pursuant to Clauses 7.1, 7.2, 15.2 and 16.2 shall survive
the execution and delivery of this Agreement, the drawdown of the Subordinated Loan
and the repayment of the Subordinated Loan, in each case by the Borrower.
CURRENCY OF ACCOUNT AND PAYMENT
16.1 Currency of Account
The euro is the currency of account and payment for each and every sum at any time
due from the Borrower hereunder.
16.2
17
Currency Indemnity
If any sum due from the Borrower under this Agreement or any order or judgment given
or made in relation hereto has to be converted from the currency (the ‘‘first currency’’) in
which the same is payable hereunder or under such order or judgment into another
currency (the ‘‘second currency’’) for the purpose of (a) making or filing a claim or proof
against the Borrower, (b) obtaining an order or judgment in any court or other tribunal
or (c) enforcing any order or judgment given or made in relation hereto, the Borrower
shall indemnify and hold harmless the Lender from and against any loss suffered or
incurred as a result of any discrepancy between (i) the rate of exchange used for such
purpose to convert the sum in question from the first currency into the second currency
and (ii) the rate or rates of exchange at which the Lender may in the ordinary course of
business purchase the first currency with the second currency upon receipt of a sum paid
to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.
PAYMENTS
17.1 Payments to the Lender
On each date on which this Agreement requires an amount denominated in euro to be
paid by the Borrower, the Borrower shall make the same available to the Lender by
payment in euro and in Same-Day Funds (or in such other funds as may for the time
being be customary in the Euro-zone for the settlement in the Euro-zone of international
banking transactions in euro) on such date to the Lender Account other than amounts
payable (i) payable under the Fees Distribution Letter and (ii) payable in relation to
Clauses 7.1, 7.2, 15.2 and 16.2 which the Borrower shall pay to such account or accounts
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as the Lender shall notify to the Borrower. Without prejudice to its obligations under
Clause 5.1, the Borrower shall procure that, before 9.00 a.m. (Brussels time) on the
Business Day before the due date of each payment made by it under this Clause 17.1, the
Bank effecting payment on its behalf confirms to the Lender or to such person as the
Lender may direct by tested telex or authenticated SWIFT message the payment
instructions relating to such payment.
18
17.2
Alternative Payment Arrangements
If, at any time, it shall become impracticable (by reason of any action of any
governmental authority or any change of law, exchange control regulations or any similar
event) for the Borrower to make any payments under this Agreement in the manner
specified in Clause 17.1, then the Borrower may seek agreement with the Lender on
alternative arrangements for the payment to the Lender of amounts due (prior to the
delivery of any notice referred to in Clause 17.1) under this Agreement provided that, in
the absence of any such agreement with the Lender, the Borrower shall be obliged to
make all payments due to the Lender in the manner specified above.
17.3
No Set-off
All payments required to be made by the Borrower hereunder shall be calculated without
reference to any set-off or counterclaim and shall be made free and clear of and without
any deduction for or on account of any set-off or counterclaim.
17.4
Other Payment Arrangements
Any payment arrangements agreed by the Borrower and the Lender, otherwise than as
provided by Clause 17.1 shall be in compliance with applicable regulations of Central
Bank and the UK Financial Services Authority.
COSTS AND EXPENSES
18.1
Transaction Expenses and Fees
The Borrower agrees that it shall pay the fees and expenses of the Lender, or arrange for
such fees and expenses to be paid on its behalf as specified in the Fees Distribution
Letter.
18.2
Preservation and Enforcement of Rights
The Borrower shall, from time to time on demand of the Lender reimburse the Lender
for all costs and expenses (including legal fees and expenses) together with any VAT
thereon properly incurred in or in connection with the preservation and/or enforcement of
any of its rights under this Agreement (except where the relevant claim is successfully
defended by the Borrower).
18.3
Stamp Taxes
18.3.1 The Borrower shall pay all stamp, registration and documentary taxes or similar
charges (if any) imposed on the Borrower by any person in Slovenia, The
Netherlands or the United Kingdom which may be payable or determined to be
payable in connection with the execution, delivery or performance of this
Agreement.
18.3.2
18.4
The Borrower agrees that if the Lender incurs a liability to pay any stamp,
registration and documentary taxes or similar charges (if any) imposed by any
person in Slovenia, The Netherlands or the United Kingdom which may be
payable or determined to be payable in connection with the execution, delivery or
performance of this Agreement, the Borrower shall reimburse the Lender on
demand an amount equal to such stamp or other documentary taxes or duties.
Costs relating to Amendments and Waivers
The Borrower shall, from time to time on demand of the Lender (and without prejudice
to the provisions of Clause 15.2 and Clause 18.2) compensate the Lender at such daily
and/or hourly rates as the Lender shall from time to time reasonably determine for all
time expended by the Lender, its respective directors, officers and employees, and for all
costs and expenses (including telephone, fax, copying, travel and personnel costs) they
may incur, in connection with the Lender taking such action as it may consider
appropriate in connection with:
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19
18.4.1
the granting or proposed granting of any waiver or consent requested hereunder
by the Borrower;
18.4.2
any actual, potential or suspected breach by the Borrower of any of its
obligations under this Agreement;
18.4.3
the occurrence of any event which is a Bankruptcy Event or a Potential
Bankruptcy Event; or
18.4.4
any amendment or proposed amendment to this Agreement, the Sub-Participation
Agreement, the Subscription Agreement or the Notes themselves requested by the
Borrower.
ASSIGNMENTS AND TRANSFERS
19.1 This Agreement shall inure to the benefit of and be binding upon the parties, their
respective successors and any permitted assignee or transferee of some or all of a party’s
rights or obligations under this Agreement. Any reference in this Agreement to any party
shall be construed accordingly and, in particular, references to the exercise of rights and
discretions by the Lender, following the enforcement of the security and/or assignment
referred to in Clause 19.3 below, shall be references to the exercise of such rights or
discretions by the Trustee (as Trustee). Notwithstanding the foregoing, the Trustee shall
not be entitled to participate in any discussions between the Lender and the Borrower or
any agreements of the Lender or the Borrower pursuant to Clause 7.4, Clause 7.8, Clause
9 or Clause 19.4.
19.2
The Borrower shall not assign or transfer all or any part of its rights or obligations
hereunder to any other party.
19.3
The Lender may only assign or transfer, in whole or in part, any of its rights and
benefits or obligations under this Agreement (i) on the Closing Date in accordance with
the provisions of the Trust Deed; (ii) as set out in Clause 19.4 below; (iii) to a Qualifying
Bank in accordance with the provisions of the Trust Deed; or (iv) to such Bank as the
Borrower shall nominate in writing in accordance with the terms of the Trust Deed (in
the case of Clauses 19.3 and 19.4, with the prior approval of the Issuer, the Agreed
Funding Source and/or any other person in whose favour security may have been granted
by the Lender in respect of this Agreement (the ‘‘Secured Party’’) and subject to the
completion of such documentation as may be agreed in connection therewith between the
Secured Party and the Lender at the relevant time).
19.4
If at any time by reason of the introduction of any change after the date of this
Agreement in any applicable law or regulation or regulatory requirement or directive of
any agency or any state or otherwise, the Lender reasonably determines that it is or
would be unlawful or contrary to such applicable law, regulation, regulatory requirement
or directive (i) for the Lender to allow all or part of the Subordinated Loan or the Issuer
to allow all or part of the Notes to remain outstanding or for the Lender to maintain or
give effect to any of its obligations in connection with this Agreement and/or to charge
or receive or to be paid interest at the rate then applicable in relation to the
Subordinated Loan, or (ii) for the Borrower to borrow the Subordinated Loan or to
allow all or part of the Subordinated Loan to remain outstanding or to give effect to any
of its obligations in connection with this Agreement and/or to pay interest at the rate
then applicable to the Subordinated Loan, then upon notice by the Lender to the
Borrower in writing (setting out in reasonable detail the nature and extent of the relevant
circumstances), the Borrower and the Lender shall, to the extent reasonably practicable in
the circumstances and at the expense of the Borrower, consult in good faith as to a basis
which eliminates the application of such circumstances; provided, however, that the
Lender shall be under no obligation to continue such consultation if a basis has not been
determined within 30 days of the date on which it so notified the Borrower. If such a
basis has not been determined within such 30 day period, then the Lender shall by notice
in writing to the Borrower prior to the expiry of such 30 day period be entitled to assign
or transfer without the consent of the Borrower, in whole or in part, its rights and
benefits or obligations under this Agreement to a Qualifying Bank subject to (i) the prior
approval of any Secured Party and (ii) the completion of such documentation as may be
agreed in connection therewith between the Secured Party and the Lender at the relevant
99
time. If, after the Fixed Rate Interest Payment Date falling in October 2012, such an
assignment has not occurred within the 30 days, then the Borrower shall, subject to
Clause 6.2, prepay the Subordinated Loan in whole but not in part at its principal
amount together with any accrued and unpaid interest on the next Interest Payment Date
or on such earlier date as the Lender shall certify to be necessary to comply with such
requirements. For the avoidance of doubt, no such prepayment may occur prior to the
Fixed Rate Interest Payment Date falling in October 2012.
19.5
20
CALCULATIONS AND EVIDENCE OF DEBT
20.1 Evidence of Debt
The entries made in the account referred to in Clause 5.1 shall, in the absence of
manifest error, constitute prima facie evidence of the existence and amounts of the
Borrower’s obligations recorded therein, including payments by the Borrower in
satisfaction of such obligations. The Lender shall maintain in accordance with its usual
practice accounts evidencing the amounts from time to time lent by and owing to it
hereunder; in any legal action or proceeding arising out of or in connection with this
Agreement, in the absence of manifest error and subject to the provision by the Lender
to the Borrower of written information describing in reasonable detail the calculation or
computation of such amounts together with the relevant supporting documents evidencing
the matters described therein, the entries made in such accounts shall be conclusive
evidence of the existence and amounts of the obligations of the Borrower therein
recorded.
20.2
21
Any references in this Agreement to any such assignee or transferee pursuant to Clause
19.3 or 19.4 shall be construed accordingly and, in particular, references to the rights,
benefits and obligations hereunder of the Lender, following such assignment or transfer,
shall be references to such rights, benefits or obligations of the assignee or transferee.
Change of Circumstance Certificates
A certificate of the Lender describing in reasonable detail (a) the amount by which a sum
payable to it hereunder is to be increased under Clause 7.1 or (b) the amount for the
time being required to indemnify it against any such cost, payment or liability as is
mentioned in Clause 7.2 or Clause 9.1 or Clause 15.2 shall, in the absence of manifest
error, be conclusive evidence of the existence and amounts of the specified obligations of
the Borrower in relation to the Lender.
AMENDMENTS, REMEDIES AND WAIVERS, PARTIAL INVALIDITY
21.1 Amendments
Except as otherwise provided by its terms, this Agreement may not be varied except by
an agreement in writing signed by the parties. Save for any modification of any of the
provisions of this Agreement which is of a formal, minor or technical nature or is made
to correct a manifest error, no modification in respect of the following provisions of this
Agreement shall become effective unless written notice is given to the Central Bank (for
so long as there is a requirement to give such notice) and prior approval is received from
the Central Bank (or confirmation has been received from the Central Bank that such
prior approval is not required):
21.2
21.1.1
the subordinated status of the Lender’s claims hereunder as set out in Clause 2.3;
21.1.2
Clause 2.4;
21.1.3
Clause 5.8;
21.1.4
Clause 6;
21.1.5
Clause 14;
21.1.6
Clause 21.1; and
21.1.7
Clause 23.1.
Remedies and Waivers
No failure by the Lender or the Borrower to exercise, nor any delay by the Lender or
the Borrower in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy prevent any
100
further or other exercise thereof or the exercise of any other right or remedy. The rights
and remedies herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
22
21.3
Partial Invalidity
If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any
respect under the law of any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions hereof nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected or impaired
thereby.
21.4
Counterparts
This Agreement may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same agreement.
NOTICES; LANGUAGE
22.1
Written Notice
All notices, requests, demands or other communication to be made under this Agreement
shall be in writing and, unless otherwise stated, shall be delivered by fax or post.
22.2
Giving of Notice
Any communication or document to be delivered by one person to another pursuant to
this Agreement shall (unless that other person has by 5 days’ written notice specified
another address) be made or delivered to that other person, addressed as follows:
22.2.1
If to the Borrower:
Ulica Vita Kraigherja 4
2505 Maribor
Slovenia
Attention:
22.2.2
Romana Muraus
Tel:
+386 2 229 2286
Fax:
+386 2 252 7870
If to the Lender:
81 King William Street
London EC4N 7BG
United Kingdom
Attention:
Gerard Keating
Tel:
+44 20 7815 9324
Fax:
+44 20 7929 2534
and shall be deemed to have been delivered at the time when confirmation of its
transmission has been recorded by the sender’s fax machine at the end of the
communication (in the case of any communication by fax) or (in the case of any
communication made by post) upon receipt by the addressee (in each case, if given
during normal business hours of the recipient, and, if not given during such hours, on the
immediately succeeding business day in the city of the addressee during which such
normal business hours next occur).
22.3
English Language
Each communication and document delivered by one party to another pursuant to this
Agreement shall be in the English language or accompanied by a translation into English
certified (by an officer of the person delivering the same) as being a true and accurate
translation. In the event of any discrepancies between the English and Slovenian versions
of such communication or document, or any dispute regarding the interpretation of any
provision in the English or Slovenian versions of such communication or document, the
English version of such communication or document shall prevail, unless the document is
a statutory or other official document.
101
22.4
23
Language of Agreement
This Agreement has been executed in the English language and the language which
governs the interpretation of this Agreement is the English language.
LAW AND JURISDICTION
23.1
English Law
This Agreement is governed by, and shall be construed in accordance with, English law
provided that any provisions hereof related to the subordination of the Subordinated
Loan shall be governed by, and construed in accordance with, Slovenian law.
23.2
English Courts
Subject to Clause 14.1, the Borrower agrees for the benefit of the Lender that the courts
of England shall have exclusive jurisdiction to hear and determine any suit, action or
proceedings, and to settle any disputes, which arise out of or in connection with this
Agreement (‘‘Proceedings’’) and, for such purposes, irrevocably submits to the exclusive
jurisdiction of such courts.
23.3
Waiver of any Applicable Immunity
To the extent that the Borrower may in any jurisdiction claim for itself or its assets or
revenues immunity from suit, execution, attachment (whether in aid of execution, before
making of a judgment or award or otherwise) or other legal process and to the extent
that such immunity (whether or not claimed) may be attributed in any such jurisdiction
to the Borrower or its assets or revenues, the Borrower agrees not to claim and
irrevocably waives such immunity to the full extent permitted by the laws of such
jurisdiction.
23.4
Appropriate Forum
The Borrower irrevocably waives any objection which it might now or hereafter have to
the courts of England being nominated as the forum to hear and determine any
Proceedings and to settle any disputes which arise out of or in connection with this
Agreement, and agrees not to claim that any such court is not a convenient or
appropriate forum and further irrevocably agrees that a final and conclusive judgment in
any Proceedings brought in the English courts with competent jurisdiction shall be
conclusive and binding and may be enforced in the courts of any other jurisdiction.
23.5
Service of Process (Borrower)
The Borrower agrees that the service of process relating to any Proceedings in England
and Wales may be by delivery to Hackwood Secretaries Limited at its registered office for
the time being, currently at One Silk Street, London EC2Y 8HQ. If such person is not or
ceases to be effectively appointed to accept service of process, the Borrower shall
immediately appoint a further person in the United Kingdom to accept service of process
on its behalf and, failing such appointment within 15 days, the Lender shall be entitled to
appoint such a person by written notice to the Borrower. Nothing in this Clause shall
affect the right of the Lender to serve process in any other manner permitted by law.
23.6
Non-exclusivity
The submission by the Borrower to the exclusive jurisdiction of the English courts shall
not (and shall not be construed so as to) limit the right of the Lender to bring
Proceedings in any other court of competent jurisdiction.
23.7
Contracts (Rights of Third Parties) Act 1999
A person who is not a party to this Agreement has no rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not
affect any right or remedy of a third party which exists or is available apart from that
Act.
102
In witness whereof, the parties hereto, acting through their duly authorised representatives, have
caused this Agreement to be signed in their respective names as of the date first above written.
VTB BANK EUROPE PLC
By:
By:
Name:
Name:
Title:
Title:
NOVA KREDITNA BANKA MARIBOR d.d.
By:
By:
Name:
Name:
Title:
Title:
103
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the Terms and Conditions of the Notes, which will be endorsed on each
Note in definitive form (if and to the extent issued). The terms and conditions applicable to any Note in
global form will differ from those terms and conditions which would apply to Notes in definitive form to
the extent described under ‘‘Summary of the Provisions Relating to the Notes in Global Form’’ below.
The c100,000,000 Floating Rate Perpetual Loan Participation Notes with a Fixed Rate provision
for the initial period (the ‘‘Notes’’, which expression shall in these Terms and Conditions, unless the
context otherwise requires, include any further notes issued pursuant to Condition 14 (Further Issues)
and forming a single series with the Notes) of Maribor Finance B.V. (the ‘‘Issuer’’) are constituted
and secured by a trust deed (such trust deed as modified and/or restated and/or supplemented from
time to time, the ‘‘Trust Deed’’) dated 12 October 2007 between the Issuer, VTB Bank Europe plc (in
its capacity as lender pursuant to the Subordinated Loan Agreement defined below, the ‘‘Lender’’)
and BNY Corporate Trustee Services Limited as trustee (the ‘‘Trustee’’, which expression shall include
its successor(s)) for the holders of the Notes (the ‘‘Noteholders’’). The Issuer has authorised the
creation, issue and sale of the Notes for the sole purpose of funding a 100 per cent. participation by
the Issuer (the ‘‘Sub-Participation’’) in a c100,000,000 subordinated loan (the ‘‘Subordinated Loan’’)
to Nova Kreditna banka Maribor d.d. (‘‘NKBM’’) by the Lender pursuant to a sub-participation
agreement dated 12 October 2007 (such agreement as modified and/or restated and/or supplemented
from time to time, the ‘‘Sub-Participation Agreement’’) between the Issuer and the Lender. Pursuant
to the Sub-Participation Agreement, the Lender will use the proceeds of the Sub-Participation for the
sole purpose of financing the Subordinated Loan, which has been recorded under an agreement dated
12 October 2007 (such agreement as modified and/or restated and/or supplemented from time to time,
the ‘‘Subordinated Loan Agreement’’) between the Lender and NKBM as borrower.
The statements in these Terms and Conditions relating to the obligations of the Issuer to pay
principal, interest and additional amounts, if any, due in respect of the Notes, are subject to Clause 5
(Payment and Calculation of Interest and Suspension of Interest) of the Subordinated Loan
Agreement and Condition 2 (Status and Limited Recourse). Where any amount of principal or
interest or any additional amounts, if any, payable pursuant to Condition 8 (Taxation) are stated
herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to
make any such payment shall constitute an obligation only to account to the Noteholders on each
date upon which such amounts of principal, interest and additional amounts, if any, are due in
respect of the Notes, for an amount equivalent to the sums of principal, interest and additional
amounts, if any, actually received by, or for the account of, the Issuer from the Lender pursuant to
the Sub-Participation Agreement.
Noteholders must therefore rely upon (i) the covenant by NKBM to pay under the
Subordinated Loan Agreement (which has been assigned to the Issuer as described in Condition 3
(Security)) and the credit and financial standing of NKBM and (ii) the covenant by the Lender to
pay under the Sub-Participation Agreement. Noteholders shall have no recourse (direct or indirect) to
any assets of the Issuer or the Lender other than the assets subject to the Note Security (as defined
in Condition 3 (Security)).
The statements in these Terms and Conditions include summaries of, and are subject to, the
detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and an agency
agreement (such agreement as modified and/or restated and/or supplemented from time to time, the
‘‘Agency Agreement’’) dated 12 October 2007 between the Issuer, The Bank of New York as
principal paying and transfer agent (the ‘‘Principal Paying and Transfer Agent’’, which expression
includes any successor principal paying and transfer agent appointed from time to time in connection
with the Notes), the other paying agents named therein (together with the Principal Paying and
Transfer Agent, the ‘‘Paying and Transfer Agents’’, which expression includes any additional or
successor paying and transfer agents appointed from time to time in connection with the Notes),
BNY Financial Services Plc as registrar (the ‘‘Registrar’’, which expression includes any successor
registrar appointed from time to time in connection with the Notes), and the Trustee are available for
inspection during normal business hours at the registered office for the time being of the Trustee,
being at the date hereof at One Canada Square, London E14 5AL, and at the specified office of each
Paying and Transfer Agent.
Certain provisions of these Conditions include definitions to be found in, and summaries of
detailed provisions of, the Trust Deed, the Subordinated Loan Agreement and/or, as the case may be,
the Agency Agreement and such summaries are subject to their detailed provisions and definitions.
104
The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all
the provisions of the Trust Deed and the Agency Agreement applicable to them.
1
Form, Denomination, Title and Transfers
1.1
Form and Denomination
The Notes are in registered form, without interest coupons attached, in the denomination of
c50,000 each and integral multiples of c1,000 in excess thereof.
1.2
Register
The Registrar will maintain outside the United Kingdom a register (the ‘‘Register’’) in respect of
the Notes in accordance with the provisions of the Agency Agreement. In these Conditions, the
holder of a Note means the person in whose name such Note is for the time being registered in
the Register (or, in the case of a joint holding, the first named thereof) and ‘‘Noteholder’’ and
‘‘Holder’’ shall be construed accordingly. A certificate (each, a ‘‘Note Certificate’’) will be issued
to each Noteholder in respect of its registered holding. Each Note Certificate will be numbered
serially with an identifying number which will be recorded in the Register.
1.3
Title
Each Noteholder shall (except as otherwise required by law) be treated as the absolute owner of
such Note for all purposes (whether or not it is overdue and regardless of any notice of
ownership, trust or any other interest therein, any writing on the Note Certificate relating
thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of
such Note Certificate) and no person shall be liable for so treating such Noteholder.
1.4
Transfers
Subject to Conditions 1.7 and 1.8 below, a Note may be transferred upon surrender of the
relevant Note Certificate, with the endorsed form of transfer duly completed (including any
certificates as to compliance with restrictions on transfer included therein), at the specified office
of the Registrar or any Paying and Transfer Agent, together with such evidence as the Registrar
or (as the case may be) such Paying and Transfer Agent may reasonably require to prove the
title of the transferor and the authority of the individuals who have executed the form of
transfer, provided that a Note may not be transferred unless the principal amount of Notes
transferred and (where not all of the Notes held by a Noteholder are being transferred) the
principal amount of the balance of Notes not transferred equal or exceed c50,000. Where not all
the Notes represented by the surrendered Note Certificate are the subject of the transfer, a new
Note Certificate in respect of the balance of the Notes will be issued to the transferor.
1.5
Registration and delivery of Note Certificates
Within five business days of the surrender of a Note Certificate in accordance with Condition
1.4, the Registrar will register the transfer in question and deliver a new Note Certificate of a
like principal amount to the Notes transferred to each relevant Noteholder at its specified office
or (as the case may be) the specified office of any Paying and Transfer Agent or (at the request
and risk of any such relevant Noteholder) by uninsured first-class mail (airmail if overseas) to
the address specified for the purpose by such relevant Noteholder. In this paragraph, ‘‘business
day’’ means a day on which banks are open for general business (including dealings in foreign
currencies) in the city where the Registrar or (as the case may be) the relevant Paying and
Transfer Agent has its specified office.
1.6
No charge
The transfer of a Note will be effected without charge by or on behalf of the Issuer, the
Registrar or any Paying and Transfer Agent but against such indemnity as the Registrar or (as
the case may be) such Paying and Transfer Agent may require in respect of any tax or other
duty of whatsoever nature which may be levied or imposed in connection with such transfer.
1.7
Closed periods
Noteholders may not require transfers to be registered during the period of 15 days ending on
the due date for any payment of principal or interest in respect of the Notes.
105
1.8
Regulations concerning transfers and registration
All transfers of Notes and entries on the Register are subject to the detailed regulations
concerning the transfer of Notes scheduled to the Agency Agreement. The regulations may be
changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy
of the current regulations will be mailed (free of charge) by the Registrar and/or any Paying and
Transfer Agent to any Noteholder who requests in writing a copy of such regulations. So long
as any of the Notes are admitted to trading on the Irish Stock Exchange’s regulated market, a
copy of the current regulations will be publicly available at the specified offices of the Principal
Paying and Transfer Agent in the Republic of Ireland.
2
Status and Limited Recourse
The Notes constitute direct limited recourse obligations of the Issuer. Recourse in respect of the
Notes is limited in the manner described in this Condition 2 (Status and Limited Recourse). The
Notes are secured in the manner described in Condition 3 (Security) and shall rank at all times pari
passu and without preference amongst themselves.
The sole purpose of the issue of the Notes is to provide the funds for the Sub-Participation in
the Subordinated Loan and, by this means, to fund the Subordinated Loan itself. The Notes
constitute the obligation of the Issuer to apply an amount equal to the gross proceeds from the issue
of the Notes for funding the Sub-Participation and to account to the Noteholders for an amount
equivalent to sums of principal, interest and additional amounts, if any, actually received by, or for
the account of, the Issuer from the Lender pursuant to the Sub-Participation Agreement, the right to
receive which is, inter alia, being charged by way of security to the Trustee by virtue of the charge as
security for the Issuer’s payment obligations under the Trust Deed and in respect of the Notes.
Noteholders must, therefore, rely upon the ability of NKBM to pay under the Subordinated
Loan Agreement and the credit and financial standing of NKBM and the covenant of the Lender to
comply with its obligations under the Sub-Participation Agreement. Noteholders shall have no
recourse (direct or indirect) to any assets of the Issuer or the Lender other than the assets subject to
the Note Security.
Payments in respect of the Notes equivalent to the sums actually received by or for the account
of, the Issuer by way of principal, interest or additional amounts, if any, pursuant to the SubParticipation Agreement will be made pro rata among all Noteholders (subject to Condition 8
(Taxation)), on the corresponding payment dates of, and in the currency of, and subject to the
conditions attaching to, the equivalent payment in accordance with the Sub-Participation and the
Subordinated Loan Agreement. The Issuer shall not be liable to make any payment in respect of the
Notes other than as expressly provided herein. The Issuer shall be under no obligation to exercise in
favour of the Noteholders any rights of set-off or of banker’s lien or to combine accounts or
counterclaim that may arise out of other transactions between the Issuer and the Lender.
Any payment made by the Lender under the Sub-Participation Agreement to, or to the order of,
the Trustee or the Principal Paying and Transfer Agent will satisfy pro tanto the obligations of the
Issuer in respect of the Notes except in each case to the extent that there is a subsequent failure to
make payments to the Noteholders. In the circumstances described in the Trust Deed and these
Terms and Conditions where payments under the Subordinated Loan Agreement may be made by
NKBM to or to the order of, the Trustee, such payments will satisfy pro tanto the obligations of the
Lender in respect of the Sub-Participation Agreement and shall satisfy pro tanto the obligations of the
Issuer in respect of the Notes except in each case to the extent that there is a subsequent failure to
make payments to the Noteholders.
Only the Trustee may pursue the remedies available under the Trust Deed to enforce the rights
of the Noteholders and none of the Noteholders is entitled to proceed against the Issuer or the
Lender unless the Trustee, having become bound to proceed in accordance with the Trust Deed, has
failed or neglected to do so within a reasonable time and such failure or neglect is continuing.
Notwithstanding any other provision of these Terms and Conditions and the provisions of the
Trust Deed, the Trustee and the Noteholders shall have recourse only to the Note Security in respect
of the Notes in accordance with Clause 7.4 (Limited Recourse) of the Trust Deed and the Trustee
having realised the same and distributed the proceeds of the Note Security in accordance with Clause
8 (Application of Moneys received by the Trustee) of the Trust Deed, none of the Trustee nor the
Noteholders, nor anyone acting on behalf of any of them, shall be entitled to take any further steps
against the Issuer or the Lender to recover any further sum and no debt shall be owed by the Issuer
106
or the Lender in respect of such sum. In particular, none of the Trustee, any Noteholder, nor any
other party to the Trust Deed shall be entitled to institute, or join with any other person in bringing,
instituting, or joining, insolvency proceedings (whether court based or otherwise) in relation to the
Issuer or the Lender.
Noteholders are deemed to have accepted that:
(i)
(A) neither the Issuer nor the Trustee makes any representation or warranty in respect of,
and shall at no time have any responsibility for, or liability, or obligation in respect of the
performance and observance by NKBM of its obligations under the Subordinated Loan
Agreement or by the Lender under the Sub-Participation Agreement or the recoverability
of any sum of principal, interest or additional amounts, if any, due or to become due from
NKBM under the Subordinated Loan Agreement and/or from the Lender under the SubParticipation Agreement; and (B) the Lender makes no representation or warranty in
respect of, and shall at no time have any responsibility for, or (save as otherwise expressly
provided in the Trust Deed) liability or obligation in respect of the performance and
observance by NKBM of its obligations under the Subordinated Loan Agreement or the
recoverability of any sum of principal, interest or additional amounts or other amounts, if
any, due or to become due from NKBM under the Subordinated Loan Agreement;
(ii)
neither the Issuer nor the Trustee shall at any time have any responsibility for, or
obligation or liability in respect of, the condition (financial, operational or otherwise),
creditworthiness, affairs, status, nature or prospects of NKBM or the Lender;
(iii) neither the Issuer nor the Trustee shall at any time have any responsibility for, or
obligation or liability in respect of, any misrepresentation or breach of warranty or any
act, default or omission of NKBM under or in respect of the Subordinated Loan
Agreement or the Lender under or in respect of the Sub-Participation Agreement;
(iv) the Trustee shall not at any time have any responsibility for, or liability or obligation in
respect of, the performance and observance by the Registrar or any Paying and Transfer
Agent of its obligations under the Agency Agreement;
(v)
the financial servicing and the performance of the terms of the Notes depend upon (i) the
performance by NKBM of its obligations under the Subordinated Loan Agreement, its
ability to pay under the Subordinated Loan Agreement and its credit and financial
standing and (ii) the performance by the Lender of its obligations under the SubParticipation Agreement, which are dependent on receipt by it of corresponding payments
under the Subordinated Loan;
(vi) neither the Issuer (nor the Trustee) will be monitoring whether NKBM is complying with
its obligations under the Subordinated Loan Agreement or the Lender is complying with
its obligations under the Sub-Participation Agreement, as the case may be, and shall not
be responsible for investigating any aspect of NKBM’s or the Lender’s performance in
relation thereto and, in the case of NKBM, will be entitled to rely on self-certification by
NKBM and where applicable, third parties as a means of monitoring whether NKBM is
complying with its obligations (other than its obligations to make any payment of principal
or interest) under the Subordinated Loan Agreement and the Trustee will not be liable for
any failure to make the usual or any investigations which might be made by a security
holder in relation to the property which is the subject of the Note Security (as defined in
Condition 3 (Security)) and held by way of security for the Notes, and shall not be bound
to enquire into or be liable for any defect or failure in the right or title of the Issuer to
such secured property whether such defect or failure was known to the Trustee or might
have been discovered upon examination or enquiry or whether capable of remedy or not,
nor will it have any liability for the enforce ability of the security created by the Note
Security (as defined in Condition 3 (Security)) whether as a result of any failure, omission
or defect in registering or filing or otherwise protecting or perfecting such security and the
Trustee will have no responsibility for the value of such security; and
(vii) if NKBM is required by law to make any withholding or deduction for or on account of
tax from any payment under the Subordinated Loan Agreement, if the Lender is required
by law to make any withholding or deduction for or on account of tax from any payment
under the Sub-Participation Agreement or if the Issuer is required by law to make any
withholding or deduction for or on account of tax from any payment in respect of the
Notes, the sole obligation of the Issuer will be to pay to the Noteholders sums equivalent
107
to the sums actually received from the Lender pursuant to the Sub-Participation
Agreement in respect of such payment, including, if applicable, additional amounts (in
respect of the tax required to be so withheld or deducted) and the Lender will only pay
such equivalent sums to the Issuer to the extent and at such time as it shall have actually
received equivalent sums from NKBM under the Subordinated Loan Agreement in respect
of such payment, including, if applicable, by way of additional amounts (in respect of tax
required to be withheld or deducted).
Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other
direct interest in the Issuer’s rights under or in respect of the Sub-Participation Agreement or the
Sub-Participation exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no
Noteholder will have any entitlement to enforce any of the provisions in the Sub-Participation
Agreement or have direct recourse to the Lender except through action by the Trustee under the
Note Security. Neither the Issuer nor the Trustee pursuant to the Issuer Transferred Rights (as
defined below) shall be required to take proceedings to enforce payment under the Sub-Participation
Agreement, unless it has been indemnified and/or secured to its satisfaction against all liabilities,
proceedings, claims and demands to which it may thereby become liable and all costs, charges and
expenses which may be incurred by it in connection therewith.
Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other
direct interest in the Lender’s rights under or in respect of the Subordinated Loan Agreement or the
Subordinated Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed,
no Noteholder will have any entitlement to enforce any of the provisions in the Subordinated Loan
Agreement or have direct recourse to NKBM except through action by the Trustee under the Note
Security. Neither the Lender nor the Trustee pursuant to the Lender Transferred Rights shall be
required to take proceedings to enforce payment under the Subordinated Loan Agreement unless it
has been indemnified and/or secured to its satisfaction against all liabilities, proceedings, claims and
demands to which it may thereby become liable and all costs, charges and expenses which may be
incurred by it in connection therewith.
3
3.1
Security
The Issuer has in the Trust Deed as security for its payment obligations under the Notes and the Trust
Deed:
(i) charged by way of first fixed charge to the Trustee all of the Issuer’s rights, interests and
benefits in and to: (a) principal, interest and other amounts now or hereafter paid and/or
payable by the Lender to the Issuer under the Sub-Participation Agreement; (b) all
amounts now or hereafter paid or payable by the Lender to the Issuer under or in respect
of any claim, award or judgment relating to the Sub-Participation Agreement; and (c) the
Lender Charged Property;
(ii)
charged by way of first fixed charge to the Trustee all of the Issuer’s rights, interest and
benefits in and to all sums held on deposit from time to time, in the Issuer Account (as
defined in the Trust Deed) with the Principal Paying and Transfer Agent, together with the
debt represented thereby pursuant to the Trust Deed (the property charged pursuant to
this Condition 3.1(ii), together with the property charged pursuant to Condition 3.1(i), the
‘‘Issuer Charged Property’’); and
(iii) assigned absolutely to the Trustee all of the Issuer’s rights, interest and benefits
whatsoever, both present and future, whether proprietary, contractual or otherwise under
or arising out of or evidenced by (a) the Sub-Participation Agreement (including, without
limitation, the right to take proceedings to enforce the obligations of the Lender
thereunder) other than the Issuer Charged Property and amounts payable by NKBM in
relation to the Issuer Charged Property and (b) the Lender Transferred Rights (as defined
below) (together referred to as the ‘‘Issuer Transferred Rights’’ and together with the
Issuer Charged Property and, for the avoidance of doubt, the Lender Security, the ‘‘Note
Security’’).
3.2
The Lender has in the Trust Deed as security for its payment obligations to the Issuer under the SubParticipation Agreement:
(i) charged by way of first fixed charge to the Issuer all of the Lender’s rights, interests and
benefits in and to: (a) principal, interest and other amounts now or hereafter paid and/or
payable by NKBM to the Lender under the Subordinated Loan Agreement; and (b) all
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amounts now or hereafter paid or payable by NKBM to the Lender under or in respect of
any claim, award or judgment relating to the Subordinated Loan Agreement (in each case
other than any rights and benefits constituting Reserved Rights as such term is defined in
the Trust Deed);
(ii)
charged by way of first fixed charge to the Issuer all of the Lender’s rights, interest and
benefit in and to all sums held on deposit from time to time, in the Lender Account (as
defined in the Subordinated Loan Agreement) with the Principal Paying and Transfer
Agent, together with the debt represented thereby (except to the extent such debt relates to
Reserved Rights) pursuant to the Trust Deed (the property charged pursuant to this
Condition 3.2(ii), together with the property charged pursuant to Condition 3.2(i) other
than the Reserved Rights, the ‘‘Lender Charged Property’’); and
(iii) assigned absolutely to the Issuer all of the Lender’s rights, interests and benefits
whatsoever, both present and future, whether proprietary, contractual or otherwise under
or arising out of or evidenced by the Subordinated Loan Agreement (including, without
limitation, the right to institute proceedings against NKBM in the circumstances provided
therein) other than the Lender Charged Property and the Reserved Rights and amounts
payable by NKBM in relation to the Lender Charged Property and the Reserved Rights
(the ‘‘Lender Transferred Rights’’ and, together with the Lender Charged Property, the
‘‘Lender Security’’).
In the circumstances set out in Condition 13 (Enforcement), the Trustee can (subject to it being
indemnified and/or secured to its satisfaction) be required by Noteholders holding at least onequarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as
defined in the Trust Deed) of Noteholders to exercise certain of its powers under the Trust
Deed (including those arising in connection with the Note Security).
4
Issuer’s Covenant; Lender’s Covenant
As provided in the Trust Deed, so long as any of the Notes remains outstanding (as defined in
the Trust Deed), the Issuer will not, without the prior written consent of the Trustee, agree to any
amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the
terms of the Sub-Participation Agreement and/or the Lender Security granted to it in connection
therewith and will act at all times in accordance with any instructions of the Trustee from time to
time with respect to the Sub-Participation Agreement and the Lender Security, except as otherwise
expressly provided in the Trust Deed and the Sub-Participation Agreement. Any such amendment,
modification, waiver or authorisation made with the consent of the Trustee shall be binding on the
Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be
notified by the Issuer to the Noteholders in accordance with Condition 15 (Notices).
As provided in the Trust Deed, so long as any of the Notes remains outstanding, the Lender
will not, without the prior written consent of the Trustee, agree to any amendments to, any
modification of, any waiver of or authorise any breach or proposed breach of the terms of the
Subordinated Loan Agreement and will act at all times in accordance with any instructions of the
Trustee, from time to time, with respect to the Subordinated Loan Agreement, except as otherwise
expressly provided in the Trust Deed and the Subordinated Loan Agreement. Any such amendment,
modification, waiver or authorisation made with the consent of the Trustee shall be binding on the
Noteholders and shall be notified by the Issuer to the Noteholders in accordance with Condition 15
(Notices).
5
Interest
5.1
Accrual of Interest
On each Interest Payment Date (as defined in the Subordinated Loan Agreement) (i) the Lender
shall account to the Issuer for an amount equivalent to amounts of interest and additional
amounts (if any) actually received by or for the account of the Lender pursuant to the
Subordinated Loan Agreement (or on such later date as such amounts are actually received by
the Lender) and (ii) the Issuer shall account to the Noteholders for an amount equivalent to
amounts of interest and additional amounts (if any) actually received by or for the account of
the Issuer pursuant to the Sub-Participation Agreement (or on such later date as such amounts
are actually received by the Issuer).
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Subject to Clause 5.8 (Deferral of Payments) of the Subordinated Loan Agreement, pursuant to
which NKBM may have the right or the obligation to defer payment of interest under the
Subordinated Loan Agreement on any Interest Payment Date, interest accrues on the
Subordinated Loan from and including 12 October 2007 to but excluding 12 October 2012 (the
‘‘Reset Date’’) at a fixed rate of 7.02 per cent. per annum payable annually in arrears on 12
October of each year, commencing 12 October 2008. If the Subordinated Loan has not been
prepaid or the Notes have not otherwise been redeemed on or prior to the Reset Date, interest
(to the extent payable as provided in Clause 5.8 (Deferral of Payments) of the Subordinated
Loan Agreement) shall accrue at a floating rate equal to the sum of three month EURIBOR
(determined in accordance with the Subordinated Loan Agreement) and 4.0 per cent. per annum
from and including the Reset Date and thereafter and shall be payable quarterly in arrear on 12
January, 12 April, 12 July and 12 October in each year, commencing on 12 January 2013 (each
a ‘‘Floating Rate Interest Payment Date’’), subject in each case to the Business Day Convention
(as defined below), all as more particularly described in the Subordinated Loan Agreement.
Three month EURIBOR will be determined on the second TARGET Settlement Day (as defined
in the Subordinated Loan Agreement) prior to the relevant Interest Period (as defined below), as
more fully set out in the Subordinated Loan Agreement, by the Calculation Agent (as defined in
the Subordinated Loan Agreement) (such determination by the Calculation Agent being final
and binding on the Lender and NKBM, in the absence of manifest error).
Under the Subordinated Loan Agreement, if any Floating Rate Interest Payment Date would
otherwise fall on a day which is not a Business Day (as defined in the Subordinated Loan
Agreement), it shall be postponed to the next day which is a Business Day unless it would
thereby fall into the next calendar month in which event it shall be brought forward to the
immediately preceding Business Day (the ‘‘Business Day Convention’’). Floating Rate Interest
Payment Dates shall be adjusted for purposes of accrual of interest in accordance with the
Subordinated Loan Agreement.
Under the Subordinated Loan Agreement, the period beginning on (and including) the Closing
Date (as defined in the Subordinated Loan Agreement) and ending on (but excluding) the next
succeeding Interest Payment Date (as defined in the Subordinated Loan Agreement) and each
successive period beginning on (and including) an Interest Payment Date and ending on (but
excluding) the next succeeding Interest Payment Date is an ‘‘Interest Period’’.
If interest is required to be calculated for an Interest Period of less than a full year, such
interest shall be calculated in accordance with the Subordinated Loan Agreement.
5.2
Overdue Interest
In the event that, and to the extent that, the Lender actually receives any amounts in respect of
interest on unpaid sums from NKBM under the Subordinated Loan Agreement (other than
amounts so received forming part of the Reserved Rights) and the Issuer actually receives such
amounts from the Lender under the Sub-Participation Agreement, then the Issuer shall account
to the Noteholders for an amount equivalent to the amounts in respect of interest on unpaid
sums actually so received.
5.3
Notification to the Paying and Transfer Agents and Stock Exchange
The Issuer will cause the rate of interest payable on the Notes as described in Condition 5.1 to
be notified to the Paying and Transfer Agents and each stock exchange (if any) on which the
Notes are then listed as soon as practicable after receipt by the Issuer of notice from the
Calculation Agent of such determination but in any event not later than the first day of the
relevant Interest Period.
5.4
Status of Notification
All notifications, opinions, determinations, certificates, calculations, quotations and decisions
given, expressed, made or obtained for the purposes of this Condition by or on behalf of the
Issuer or, failing which, the Calculation Agent will (in the absence of manifest error) be binding
on the Issuer, the Calculation Agent, the Paying and Transfer Agents, the Trustee and the
Noteholders and (subject as aforesaid) no liability to any such person will attach to the Issuer
or the Calculation Agent in connection with the exercise or non-exercise by it of its powers,
duties and discretions for such purposes.
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6
Redemption
6.1
No Fixed Redemption Date
The Notes are perpetual securities in respect of which there is no fixed redemption date.
6.2
Mandatory Redemption
If the Subordinated Loan becomes repayable pursuant to Clause 6.3 (Borrower Repayment
Upon Loss of Capital Treatment), Clause 6.4 (Borrower Repayment During Step-up Interest
Term), Clause 6.5 (Borrower Repayment for Tax Reasons and Change in Circumstances) or
Clause 19.4 of the Subordinated Loan Agreement and is repaid and the Sub-Participation
becomes repayable pursuant to the terms of the Sub-Participation Agreement and is repaid, the
Notes will be redeemed in whole, but not in part, on giving not less than 10 days’ nor more
than 20 days’ notice to the Noteholders in accordance with Condition 15 (Notices) (which notice
shall be irrevocable), at the outstanding principal amount thereof together with interest accrued
on the amount of principal so repaid to (but excluding) the date fixed for redemption (which
shall be the date fixed for repayment pursuant to Clause 6 (Repayment) of the Subordinated
Loan Agreement and the date fixed for repayment pursuant to the Sub-Participation
Agreement).
Prior to the publication of any notice of redemption referred to in this Condition 6.2, the Issuer
shall deliver to the Trustee a certificate signed by the managing director of the Issuer stating (i)
that the Issuer is entitled to effect such redemption in accordance with this Condition 6.2 and
(ii) the date fixed for redemption of the Notes, and the Trustee shall be entitled to rely on and
accept the certificate as sufficient evidence of the satisfaction of the applicable condition set out
above, in which event it shall be conclusive and binding on the Noteholders.
Upon the expiry of any such notice given by the Issuer to the Noteholders as is referred to in
this Condition 6.2, the Issuer shall be bound to redeem the Notes in accordance with this
Condition 6, subject as provided in Condition 7 (Payments).
6.3
No Other Redemption
Except where the Subordinated Loan becomes due and payable pursuant to Clause 14 (Events
of Default and Enforcement) of the Subordinated Loan Agreement, the Issuer shall not be
entitled to redeem the Notes otherwise than as provided in this Condition 6. The Noteholders
shall not be entitled to redeem the Notes at any time.
7
Payments
7.1
Principal
Payments of principal shall be made by euro cheque drawn on, or, upon application by a
Noteholder to the specified office of the Principal Paying and Transfer Agent not later than the
15th day before the due date for any such payment, by transfer to a euro account maintained
by the payee with, a bank in the Euro-zone, and shall only be made upon surrender (or, in the
case of part payment only, endorsement) of the relevant Note Certificates at the specified office
of any Paying and Transfer Agent.
7.2
Interest
Payments of interest shall be made by euro cheque drawn on, or, upon application by a
Noteholder to the specified office of the Principal Paying and Transfer Agent not later than the
15th day before the due date for any such payment, by transfer to a euro account maintained
by the payee with, a bank in the Euro-zone, and (in the case of interest payable on
redemption), shall only be made upon surrender (or, in the case of part payment only,
endorsement) of the relevant Note Certificates at the specified office of any Paying and Transfer
Agent.
7.3
Payments subject to applicable laws
Payments in respect of principal, interest and additional amounts (if any) on the Notes are
subject in all cases to any fiscal or other laws and regulations applicable in the place of
payment, but without prejudice to the provisions of Condition 8 (Taxation).
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7.4
Payment only on a Presentation Date
A holder shall be entitled to present a Note Certificate for payment only on a Presentation Date
and shall not be entitled to any further interest or other payment if a Presentation Date is after
the due date.
‘‘Presentation Date’’ means a day which (subject to Condition 9 (Prescription)):
(i)
is or falls after the relevant due date;
(ii)
is a Business Day in the place of the specified office of the Paying or Transfer Agent at
which the Note Certificate is presented for payment; and
(iii) in the case of payment by credit or transfer to a euro account in the Euro-zone as referred
to above, is a Target Settlement Day.
In this Condition 7.4, ‘‘Business Day’’ means, in relation to any place, a day on which
commercial banks and foreign exchange markets settle payments and are open for general
business (including dealing in foreign exchange and foreign currency deposits) in that place.
7.5
Paying and Transfer Agents
The names of the initial Paying and Transfer Agents and their initial specified offices are set out
at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior
written approval of the Trustee, at any time to vary or terminate the appointment of any
Paying and Transfer Agent and to appoint additional or other Paying and Transfer Agents
provided that it will at all times maintain:
(i)
a Paying and Transfer Agent with a specified office in a Member State of the European
Union that will not be obliged to withhold or deduct tax pursuant to any law
implementing the European Council Directive on Taxation of Savings Income in the form
of Interest Payments (‘‘European Council Directive 2003/48/EC’’) or any other Directive
implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000;
and
(ii)
so long as the Notes are listed on the Irish Stock Exchange’s regulated market, a Paying
Agent having its specified office in the Republic of Ireland.
Notice of termination or appointment and of any changes in specified offices will be given to
the Noteholders promptly by the Issuer in accordance with Condition 15 (Notices).
7.6
Partial payments
If a Paying and Transfer Agent makes a partial payment in respect of any Note, the Issuer shall
procure that the amount and date of such payment are noted on the Register and, in the case
of partial payment upon presentation of a Note Certificate, that a statement indicating the
amount and the date of such payment is endorsed on the relevant Note Certificate.
7.7
Record date
Each payment in respect of a Note will be made to the person shown as the Noteholder in the
Register at the opening of business in the place of the Registrar’s specified office on the 15th
day before the due date for such payment (the ‘‘Record Date’’). Where payment in respect of a
Note is to be made by cheque, the cheque will be mailed to the address shown as the address of
the Noteholder in the Register at the opening of business on the relevant Record Date.
7.8
Payment to the Issuer Account and the Lender Account
Save as the Trustee may otherwise direct at any time after the security created pursuant to the
Trust Deed becomes enforceable, the Issuer will pursuant to the provisions of Clause 7 of the
Agency Agreement require the Lender to make all payments of principal, interest, additional
amounts or other amounts, if any, to be made pursuant to the Sub-Participation Agreement to
the Issuer Account. Save as the Trustee may otherwise direct at any time after the security
created pursuant to the Trust Deed becomes enforceable, the Lender will pursuant to the
provisions of Clause 7 of the Agency Agreement require NKBM to make all payments of
principal, interest, additional amounts or other amounts, if any, to be made pursuant to the
Subordinated Loan Agreement to the Lender Account (less any amounts in respect of the
Reserved Rights).
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7.9
Payment Obligations Limited
The obligations of the Issuer to make payments under Condition 6 (Redemption) and this
Condition 7 shall constitute an obligation only to pay to the Noteholders on such date upon
which a payment is due in respect of the Notes, to the extent of sums of principal, interest,
additional amounts or other amounts, if any, actually received by or for the account of the
Issuer from the Lender pursuant to the Sub-Participation Agreement and the Lender will only
pay such sums of principal, interest and additional amounts, if any, to the Issuer to the extent
of the sums of principal, interest and additional amounts, if any, actually received by or for the
account of the Lender from NKBM pursuant to the Subordinated Loan Agreement (less any
amounts in respect of the Reserved Rights).
8
Taxation
All payments of principal and interest by or on behalf of the Issuer in respect of the Notes shall
be made without withholding or deduction for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatsoever nature (‘‘Taxes’’) imposed or levied by or on
behalf of The Netherlands or any political subdivision or any authority thereof or therein having
power to tax (the ‘‘Taxing Authority’’), unless the withholding or deduction of the Taxes is required
by law. In that case, the Issuer shall, subject as provided below, pay such additional amounts as may
be necessary in order that the net amounts received by the Noteholders after the withholding or
deduction shall equal the respective amounts which would have been receivable in respect of the
Notes in the absence of the withholding or deduction, except that no additional amounts shall be
payable in respect of any Note:
(a)
presented for payment by or on behalf of a holder which is liable to the Taxes in respect
of such Note by reason of his having some connection with the Taxing Authority or any
political subdivision or any authority thereof or therein having power to tax other than the
mere holding of the Note;
(b)
where such withholding or deduction is imposed on a payment to an individual and is
required to be made pursuant to European Council Directive 2003/48/EC or any law
implementing or complying with, or introduced in order to conform to, such Directive;
(c)
presented for payment by or on behalf of a holder who would be able to avoid such
withholding or deduction by presenting the relevant Note to another Paying Agent in a
Member State of the European Union;
(d)
presented for payment more than 30 days after the Relevant Date (as defined below)
except to the extent that such additional payment would have been payable if the relevant
Note had been presented for payment on such 30th day; or
(e)
for any Taxes that are imposed or withheld by reason of the failure of the holder of the
Note to comply with a request of, or on behalf of, the Issuer addressed to the holder to
provide information concerning the nationality, residence or identity of such holder or to
make any declaration or similar claim or satisfy any information or reporting requirement,
which is required or imposed by a statute, treaty, regulation, protocol or administrative
practice as a precondition to exemption from all or part of such Taxes.
Notwithstanding the foregoing provisions, the Issuer shall only make such additional payments to
the Noteholders to the extent and at such time as it shall have actually received an equivalent amount
from the Lender under the Sub-Participation Agreement and the Lender will only pay such equivalent
amount to the Issuer to the extent and at such time as it shall have actually received an equivalent
amount from NKBM under the Subordinated Loan Agreement by way of any additional amounts or
otherwise.
To the extent that the Issuer does not receive from the Lender such equivalent amount in full,
the Issuer shall account to each Noteholder entitled to receive such additional amount pursuant to
this Condition 8 for an additional amount equivalent to a pro rata proportion of such additional
amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions
of the Sub-Participation Agreement on or as soon as may be practicable after the date of the receipt
of, in the currency of, and subject to any conditions attaching to the payment of, such additional
amount to the Issuer.
In these Conditions, ‘‘Relevant Date’’ means the date on which the payment in question first
becomes due except that if the full amount of the money payable has not been received in London by
113
the Principal Paying and Transfer Agent or the Trustee on or before the due date, it means the date
on which (the full amount of the money having been so received) notice to that effect has been duly
given to the Noteholders by the Issuer in accordance with Condition 15 (Notices).
Any reference in these Conditions to principal or interest shall be deemed to include, without
duplication, any additional amounts in respect of principal or interest (as the case may be) which
may be payable under this Condition 8 or any undertaking given in addition to or in substitution for
this Condition 8 pursuant to the Trust Deed, the Sub-Participation Agreement or the Subordinated
Loan Agreement.
9
Prescription
Claims for principal and interest on redemption shall become void unless the relevant Note
Certificates are surrendered for payment within 10 years, and claims for interest due other than on
redemption shall become void unless made within five years, in each case of the appropriate Relevant
Date.
10
Replacement of Notes
If any Note Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the
specified office of the Registrar and/or the Principal Paying and Transfer Agent having its specified
office in the Republic of Ireland or the United Kingdom, respectively, subject to all applicable laws
and stock exchange requirements, upon payment by the claimant of the expenses incurred in
connection with such replacement and on such terms as to evidence, security, indemnity and
otherwise as the Issuer, Registrar and/or the Principal Paying and Transfer Agent may reasonably
require. Mutilated or defaced Note Certificates must be surrendered before replacements will be
issued.
11
Trustee and Paying and Transfer Agents
11.1 Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from
responsibility in certain circumstances, including provisions relieving it from taking action unless
indemnified and/or secured to its satisfaction.
11.2 Trustee Contracting with the Issuer, the Lender and/or NKBM
The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (i)
to enter into business transactions with the Issuer, the Lender and/or NKBM and/or any
subsidiary of the Issuer, the Lender and/or NKBM and to act as trustee for the holders of any
other securities issued or guaranteed by or relating to, the Issuer, the Lender and/or NKBM
and/or any subsidiary of the Issuer, the Lender and/or NKBM, (ii) to exercise and enforce its
rights, comply with its obligations and perform its duties under or in relation to any such
transactions or, as the case may be, any such trusteeship without regard to the interests of, or
consequences for, the Noteholders and (iii) to retain and not be liable to account for any profit
made or any other amount or benefit received thereby or in connection therewith.
11.3 Trustee to have regard to Interests of Noteholders as one Class
In connection with the exercise by it of any of its trusts, powers, authorities and discretions
(including, without limitation, any modification, waiver, authorisation, determination or
substitution), the Trustee shall have regard to the general interests of the Noteholders as a class
but shall not have regard to any interests arising from circumstances particular to individual
Noteholders (whatever their number) and, in particular but without limitation, shall not have
regard to the consequences of any such exercise for individual Noteholders (whatever their
number) resulting from their being for any purpose domiciled or resident in, or otherwise
connected with, or subject to the jurisdiction of, any particular territory or any political subdivision thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be
entitled to claim, from the Issuer, the Lender, the Trustee or any other person any
indemnification or payment in respect of any tax consequence of any such exercise upon
individual Noteholders except to the extent provided for in Condition 8 (Taxation) and/or any
undertaking given in addition to, or in substitution for, Condition 8 (Taxation) pursuant to the
Trust Deed and/or the Subordinated Loan Agreement.
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11.4 General
The Trust Deed will provide, inter alia, that the Trustee may act on the opinion or advice of or
a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker,
auctioneer, accountant, auditor or other expert, notwithstanding that such opinion or advice
contains a limitation on liability or, in the case of the auditors of NKBM, disclaims all liability.
The Notes provide for the Trustee to take action on behalf of the Noteholders in certain
situations, but only if the Trustee is indemnified and/or secured to its satisfaction. It may not
be possible for the Trustee to take certain actions in relation to the Notes and accordingly in
such circumstances the Trustee will be unable to take action, notwithstanding the provision of
any indemnity to it, and it will be for the Noteholders to take action directly.
11.5 Paying and Transfer Agents
In acting under the Agency Agreement and in connection with the Notes, the Paying and
Transfer Agents act solely as agents of the Issuer and (to the extent provided therein) the
Trustee and do not assume any obligations towards or relationship of agency or trust for or
with any of the Noteholders. The Agency Agreement contains provisions for the indemnification
of the Paying and Transfer Agents and for their relief from responsibility in certain
circumstances.
12
Meeting of Noteholders; Modification, Waiver, Authorisation and Determination; Substitution
12.1 Meetings of Noteholders
The Trust Deed contains provisions for convening meetings of Noteholders to consider matters
affecting their interests, including the modification or abrogation by Extraordinary Resolution of
any provisions of the Subordinated Loan Agreement, these Terms and Conditions, the SubParticipation Agreement or the Trust Deed. The quorum at any meeting for passing an
Extraordinary Resolution will be one or more persons present holding or representing more than
50 per cent. of the aggregate principal amount of the outstanding Notes or, at any adjourned
meeting, one or more persons present being or representing Noteholders whatever the
outstanding principal amount of the Notes held or represented; provided, however, that certain
matters set out in the Trust Deed may only be sanctioned by an Extraordinary Resolution
passed at a meeting of Noteholders at which one or more persons present, holding or
representing not less than two-thirds or, at any adjourned meeting, one-third of the aggregate
principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly
passed at any such meeting shall be binding on all the Noteholders, whether present or not.
12.2 Modification
The Trustee may, without the consent of the Noteholders, agree to any modification of these
Terms and Conditions, the Trust Deed, the Sub-Participation Agreement or the Subordinated
Loan Agreement (other than in the case of the Subordinated Loan Agreement, any matter for
which the consent of Banka Slovenije is required and such consent is not obtained) which is, in
the opinion of the Trustee, of a formal, minor or technical nature or is to correct a manifest
and any other modification (save as mentioned in the Trust Deed) which is, in the opinion of
the Trustee, not materially prejudicial to the interests of Noteholders.
12.3 Waiver, Authorisation and Determination
In addition, the Trustee may, without the consent of the Noteholders, authorise or waive any
breach or proposed breach of these Terms and Conditions or the Trust Deed by the Issuer or,
pursuant to the Issuer Transferred Rights, the Sub-Participation Agreement by the Lender or,
the Subordinated Loan Agreement by NKBM, or determine that any Relevant Event shall not
be treated as such if, in the opinion of the Trustee, the interests of the Noteholders would not
be materially prejudiced thereby.
12.4 Notification to Noteholders
Unless the Trustee agrees otherwise, any such modification, waiver, determination or
authorisation shall be notified to the Noteholders by the Issuer in accordance with Condition 15
(Notices) as soon as practicable thereafter.
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12.5 Substitution
The Trust Deed contains provisions under which the Trustee may, without the consent of the
Noteholders, agree to the transfer the obligations of the Issuer as principal debtor under the
Trust Deed and the Notes to a third party provided that certain conditions specified in the
Trust Deed are fulfilled. In the case of such a substitution, the Trustee may agree, without the
consent of the Noteholders, to a change of law governing the Notes and the Trust Deed
provided that such change would not, in the opinion of the Trustee, be materially prejudicial to
the Noteholders.
The Trust Deed also contains provisions under which the Trustee may, upon a Lender Relevant
Event (as defined below), without the consent of the Noteholders, agree to a transfer by the
Lender of its rights under the Subordinated Loan Agreement and its obligations under the SubParticipation Agreement to another bank nominated by NKBM provided that certain conditions
specified in the Trust Deed are fulfilled.
So long as any of the Notes are admitted to trading on the Irish Stock Exchange, in the event
of any such substitution, the Irish Stock Exchange will be informed of such substitution, a
supplemental prospectus will be produced and will be made publicly available at the specified
office of the Paying and Transfer Agent in the Republic of Ireland and such substitution shall
be notified to the Noteholders as soon as practicable thereafter and in accordance with
Condition 15 (Notices).
13
Enforcement
13.1 Enforcement by the Trustee
At any time after an Event of Default, an Issuer Relevant Event (as defined below) or a Lender
Relevant Event shall have been initiated or occurred, the Trustee may, at its discretion and
without notice, (i) in the case of an Event of Default, give notice that the Subordinated Loan is
due and repayable immediately, institute proceedings in Slovenia (but not elsewhere) for the
winding-up of NKBM and/or prove in the winding-up of NKBM and do all such other acts in
connection therewith that the Trustee or the holders may direct, and/or (ii) in the case of an
Issuer Relevant Event, enforce the security created by the Issuer, or (iii) in the case of a Lender
Relevant Event, enforce the security created by the Lender (or direct the Issuer to do so) or (iv)
in any such case institute such proceedings as it thinks fit or is directed so to do by the
Noteholders to enforce its and/or the Noteholders’ rights under the Trust Deed in respect of the
Notes, but it shall not be bound to do so unless:
(i)
it has been so requested in writing by the holders of at least one-quarter in principal
amount of the Notes outstanding or has been so directed by an Extraordinary Resolution;
and
(ii)
it has been indemnified and/or provided with security to its satisfaction against all
liabilities, taxes, losses, proceedings, claims and demands to which it may thereby become
liable and all costs, charges and expenses which may be incurred by it in connection
therewith.
Upon repayment of the Subordinated Loan (and the Sub-Participation), the Notes will be
redeemed or repaid at their principal amount together with interest accrued to the date fixed for
redemption together with additional amounts (if any) due in respect thereof and thereupon shall
cease to be outstanding. The Issuer shall have no right to take any action under the
Subordinated Loan Agreement in the case of a default in payments of principal, interest or
other amounts due under the Subordinated Loan Agreement.
The Trust Deed also provides that, in the case of an Issuer Relevant Event or Lender Relevant
Event, the Trustee may, and shall if requested to do so by Noteholders of at least one-quarter
in principal amount of the Notes outstanding or if directed to do so by an Extraordinary
Resolution and, in either case, subject to it being secured and/or indemnified to its satisfaction,
(i) enforce (or require the Issuer to enforce) the security created in the Trust Deed by the Issuer
in the case of an Issuer Relevant Event or (ii) enforce (or require the Issuer to enforce) the
security created in the Trust Deed by the Lender in the case of a Lender Relevant Event, as the
case may be, in favour of the Noteholders.
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For the purposes of these Conditions, the following definitions shall apply:
(x)
‘‘Event of Default’’ means the occurrence of any of: (i) NKBM shall not make payment of
any principal or any interest payable in respect of the Subordinated Loan for a period of
10 days or more after the due date for the same as provided in Clause 14.1 (Events of
Default) of the Subordinated Loan Agreement; or (ii) the commencement of liquidation
proceedings in respect of, or the bankruptcy of NKBM as provided in Clause 14.3
(Insolvency) of the Subordinated Loan Agreement;
(y)
‘‘Issuer Relevant Event’’ means the occurrence of any of: (i) the failure by the Issuer to
make any payment of principal or interest on the Notes when due; (ii) the Issuer being
adjudged, by law or a court, to be insolvent or bankrupt or unable to pay its debts; (iii)
the Issuer stopping, suspending or threatening to stop or suspend payment of all or a
material part of its debts (or a particular type of its debts) or proposing to make a general
assignment or arrangement or composition with or for the benefit of the relevant creditors
in respect of any such debts; (iv) a moratorium being agreed or declared in respect of or
affecting all or any part of (or a particular type of) the debts of the Issuer; or (v) an order
being made or an effective resolution being passed for the winding-up or dissolution of the
Issuer; and
(z)
‘‘Lender Relevant Event’’ means the occurrence of any of: (i) the Lender failing to make
payment of principal or interest under the Sub-Participation Agreement when due; (ii) the
Lender is or could be deemed, by law or a court, to be insolvent or bankrupt or unable to
pay its debts; (iii) the Lender stopping, suspending or threatening to stop or suspend
payment of all or a material part of (or a particular type of) its debts or proposing to
make a general assignment or arrangement or composition with or for the benefit of the
relevant creditors in respect of any such debts; (iv) a moratorium being agreed or declared
in respect of or affecting all or any part of the debts (or a particular type of debts) of the
Lender; (v) an administrator is appointed, an order being made or an effective resolution
being passed for the winding-up or dissolution or administration of the Lender; or (vi) the
Lender ceasing or threatening to cease to carry on all or a material part of its business or
operations, except for the purpose of and followed by a reconstruction, amalgamation,
reorganisation, merger or consolidation or by an Extraordinary Resolution of Noteholders.
13.2 Enforcement by the Noteholder
No Noteholder may proceed directly against the Issuer unless the Trustee, having become bound
to do so, fails to do so within a reasonable time and the failure is continuing.
14
Further Issues
The Issuer may from time to time, with the consent of the Lender and NKBM but without the
consent of the Noteholders and in accordance with the Trust Deed, create and issue further notes
having the same terms and conditions as the Notes in all respects (or in all respects except for the
issue price, issue date and/or first payment of interest on such further notes) so as to be consolidated
and form a single series with the Notes.
Such further notes shall be issued under a deed supplemental to the Trust Deed. In relation to
such further issue, the Issuer will enter into a sub-participation agreement supplemental to the SubParticipation Agreement with the Lender on the same terms as the original Sub-Participation
Agreement (or on the same terms except for the first payment of interest) subject to any
modifications which, in the sole opinion of the Trustee, would not materially prejudice the interests of
the Noteholders. The Issuer will provide a further fixed charge and absolute assignment in favour of
the Trustee of its rights under such supplemental sub-participation agreement (and in respect of its
rights under the further security granted to it by the Lender as referred to below) equivalent to the
rights charged and assigned as Note Security in relation to the Issuer’s rights under the original SubParticipation Agreement and the Lender Security which will, together with the Note Security referred
to in the Conditions, secure both the Notes and such further notes. In relation to such further issue,
the Lender will enter into a subordinated loan agreement supplemental to the Subordinated Loan
Agreement with NKBM on the same terms as the original Subordinated Loan Agreement (or on the
same terms except for the first payment of interest) subject to any modifications which, in the sole
opinion of the Trustee, would not materially prejudice the interests of the Noteholders (save for any
modifications for which the consent of Banka Slovenije is required and such consent is not obtained).
The Lender will provide a further fixed charge and absolute assignment in favour of the Issuer of its
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rights under such supplemental subordinated loan agreement equivalent to the rights charged and
assigned as Lender Security in relation to the Lender’s rights under the original Subordinated Loan
Agreement which will, together with the Lender Security referred to in the Conditions, secure both
the Subordinated Loan Agreement and the further subordinated loan agreement supplemental thereto.
15
Notices
Notices to the Noteholders will be sent to them by first-class mail (or its equivalent) or (if
posted to an overseas address) by airmail at their respective addresses on the Register. Any such
notice shall be deemed to have been given on the fourth day after the date of mailing. In addition, so
long as the Notes are admitted to trading on the Irish Stock Exchange, notices to Noteholders shall
be valid if published in a leading newspaper of general circulation in the Republic of Ireland (which
is currently expected to be the Irish Times ). Any such notice shall be deemed to have been given on
the date of such publication, or if published more than once or on different dates, on the first date
on which publication is made. If publication as provided above is not practicable, notice will be given
in such other manner, and shall be deemed to have been given on such date, as the Trustee may
approve.
16 Governing Law and Submission to Jurisdiction
16.1 Governing Law
The Notes, the Trust Deed, the Subordinated Loan Agreement and the Sub-Participation
Agreement are governed by, and shall be construed in accordance with, English law, save for
the subordination provisions in the Subordinated Loan Agreement which are governed by, and
shall be construed in accordance with, Slovenian law.
16.2 Jurisdiction
The Issuer has in the Trust Deed irrevocably agreed for the benefit of the Trustee that the
courts of England are to have jurisdiction to settle any disputes which may arise out of or in
connection with the Trust Deed and the Notes and accordingly has submitted to the jurisdiction
of the English courts. The Issuer has also, in the Trust Deed, waived any objection to the
courts of England on the grounds that they are an inconvenient or inappropriate forum.
16.3 Appointment of Process Agent
The Issuer has in the Trust Deed irrevocably and unconditionally appointed TMF Management
(UK) Limited at Pellipar House, 9 Cloak Lane, London EC4R 2RU, United Kingdom, for the
time being as its agent for service of process in England in respect of any suit, action or
proceeding arising out of or in connection with the Trust Deed, and has undertaken that in the
event of such agent ceasing so to act it will appoint such other person as the Trustee may
approve as its agent for that purpose.
17
Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the Notes under the
Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any
person which exists or is available apart from that Act.
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SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL
FORM
The following is a summary of the provisions to be contained in the Trust Deed to constitute the
Notes and in the Global Note Certificate which will apply to, and in some cases modify, the Terms and
Conditions of the Notes while the Notes are represented by the Global Note Certificate.
1
Form of Notes
The Notes will be represented by a Global Note Certificate which will be registered in the name
of The Bank of New York Depository (Nominees) Limited as nominee for and deposited with The
Bank of New York as common depositary for Euroclear and Clearstream, Luxembourg.
2
Exchange
The Global Note Certificate will become exchangeable in whole, but not in part, for individual
note certificates (‘‘Individual Note Certificates’’) if (a) Euroclear or Clearstream, Luxembourg is closed
for business for a continuous period of 14 days (other than by reason of legal holidays) or announces
an intention permanently to cease business; or (b) the Issuer fails to pay an amount in respect of the
Notes within five days of the date on which such amount became due and payable under the
Conditions. Thereupon the Issuer shall notify the Noteholder of the occurrence of any of the events
specified in (a) and (b) as soon as practicable thereafter.
Whenever the Global Note Certificate is to be exchanged for Individual Note Certificates, such
Individual Note Certificates shall be issued in an aggregate principal amount equal to the principal
amount of the Global Note Certificate within five business days of the delivery, by or on behalf of
the registered holder of the Global Note Certificate, Euroclear and/or Clearstream, Luxembourg, to
the Registrar of such information as is required to complete and deliver such Individual Note
Certificates (including, without limitation, the names and addresses of the persons in whose names the
Individual Note Certificates are to be registered and the principal amount of each such person’s
holding) against the surrender of the Global Note Certificate at the specified office of the Registrar.
Such exchange will be effected in accordance with the provisions of the Paying and Transfer Agency
Agreement and the regulations concerning the transfer and registration of Notes scheduled thereto
and, in particular, shall be effected without charge to any holder or the Trustee, but against such
indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature
which may be levied or imposed in connection with such exchange.
‘‘Exchange Date’’ means a date falling not less than 60 days after that on which the notice
requiring exchange is given and on which banks are open for business in the city in which the
Principal Paying and Transfer Agent is located and, except in the case of exchange pursuant to (a)
above, in the city or cities in which the relevant clearing system(s) is/are located.
In addition, the Global Note Certificate will contain provisions which modify the Terms and
Conditions of the Notes as they apply to the Notes evidenced by the Global Note Certificate. The
following is a summary of certain of those provisions:
3
Notices
Notwithstanding Condition 15 (Notices), so long as the Global Note Certificate is held on
behalf of Euroclear, Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative Clearing
System’’), the mailing of notices, as referred to therein, to Holders of Notes represented by the
Global Note Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream,
Luxembourg or (as the case may be) such Alternative Clearing System; provided, however, that, so
long as the Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange so
require, notices will also be published in a leading newspaper having general circulation in Ireland
(which is expected to be the Irish Times).
4
Meetings
The Holder shall be treated at any meeting of Noteholders as having one vote in respect of
each c1,000 principal amount of Notes for which the Global Note Certificate may be exchanged.
5
Payment
To the extent that the Issuer has actually received the relevant funds from the Lender, payments
in respect of Notes represented by a Global Note Certificate will be made against presentation for
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endorsement and, if no further payment of principal or interest is to be made in respect of the Notes,
against presentation and surrender of such Global Note Certificate to or to the order of the
Registrar. Upon payment of any principal, the amount so paid shall be endorsed by or on behalf of
the Registrar on behalf of the Issuer on the schedule to the Global Note Certificate. Payment while
Notes are represented by a Global Note Certificate will be made in accordance with the procedures of
Euroclear and Clearstream, Luxembourg or any Alternative Clearing System as appropriate.
6
Cancellation
Cancellation of any Note will be effected by a reduction in the principal amount of the Notes in
the Register.
7
Transfers
Transfers of interests in the Notes will be effected through the records of Euroclear and
Clearstream, Luxembourg or any Alternative Clearing System and their respective direct and indirect
participants.
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THE BANKING SECTOR AND BANKING REGULATIONS IN SLOVENIA
Overview
At the end of 2006, there were 20 commercial banks operating in Slovenia (eight of which were
daughter banks), two foreign branches and three savings banks. Slovenia’s banking sector is
dominated by commercial banks, which accounted for 99.4 per cent. of total banking assets at 31
December 2006 (compared with 99.5 per cent. as at 31 December 2005). Savings banks made up the
remaining 0.6 per cent. In 2006, a subsidiary of Kaertner Sparkasse AG became its daughter bank,
Bank Sparkasse d.d. Ljubljana. Two new banking entities started operations in 2007, SID Slovenska
izvozna in razvojna banka d.d., Ljubljana and RCI Banque Societe Anonyme, Ljubljana Branch.
The banking system is highly concentrated with the top two banks, NLB and NKBM,
representing approximately 41.2 per cent. of total banking assets as at 31 December 2006 and the top
five accounting for a combined 62.4 per cent. market share.
The share of equity in the banking sector in Slovenia held by foreign investors amounted to
37.7 per cent. at the end of 2006, compared with 34.9 per cent. at 31 December 2005.
Ownership Structure
The following table shows the ownership structure of the total equity capital of the banking
sector in Slovenia as at 31 December 2006:
% of equity capital
As at 31 December
2004
2005
2006
(%)
Shareholder
Non-residents with more than 50% shareholding .......................
Non-residents with less than 50% shareholding ..........................
Central government .....................................................................
Other domestic entities ................................................................
16.5
15.9
19.1
48.6
19.4
15.5
18.2
46.9
27.7
10.0
17.9
44.4
Source: Banka Slovenije
Assets
In 31 December 2006, the balance sheet assets of the banking system amounted to SIT 8,080.1
billion, a nominal growth of 15.1 per cent. (compared to 23.6 per cent. growth in 2005). Banks in
foreign ownership as well as small domestic banks recorded the highest growth in balance sheet
assets. Similarly, foreign owned banks and small domestic banks recorded the biggest increase in their
market shares.
Trends in Financial Performance in 2006
Financial results of banks in Slovenia in 2006 were affected by the migration from Slovene
Accounting Standards to IFRS. As a result some categories in the income statements of such banks
are not comparable to previous years’ figures. Compared to previous years, banks in Slovenia
achieved higher net income from trading books and there were reductions in impairments and
provisions.
In 2006, Slovenian banks have seen an increase in their net profits, grossing up to SIT 94.3
billion (income before tax), which was an increase of SIT 31.7 billion or 47 per cent. in real terms
compared to 2005. The average return on equity (ROE) rose from 12.7 per cent. in 2005 to 15.1 per
cent. in 2006, while average return on assets increased to 1.3 per cent. (1.0 per cent. in 2005). The net
interest margin fell from 2.4 per cent. in 2005 to 2.2 per cent. in 2006.
In 2006 total assets of the Slovenian banking system increased by SIT 1,061.9 billion and at the
year end amounted to SIT 8,080.1 billion. Foreign-owned banks continue to grow at an aboveaverage rate. The nominal growth of the Slovenian banking system’s total assets compared to last
year was 15.1 per cent., while real growth was 12.0 per cent., which is less than that in 2005 but
higher than 2003 and 2004.
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As in previous years the principal source of financing in 2006 was borrowing from foreign
banks. The level of borrowing in the banking sector is however decreasing, which led to the growth
of total balance sheet borrowing by only 53.1 per cent. or SIT 564.2 billion (in 2005 it was 64.4 per
cent.). Banks directed the majority of the increase in total assets to lending to non-bank sectors, in
particular to households and non-financial companies. This trend, which began in 2003, is still
continuing.
In 2006, three banks issued securities. Several banks decided to issue subordinated capital, which
led to an increase of 40.1 per cent. of subordinated capital issued by Slovenian banks compared to
2005.
Solvency
The average capital adequacy ratio of banks in Slovenia as at 31 December 2006 was 11.1 per
cent.
Regulation
Banka Slovenije, the banking regulator, is committed to following the European Central Bank’s
regulatory directives and legislation. Banks will, in particular be expected to comply with Basel II.
Banka Slovenije is the bank of issue and the central bank of the Republic of Slovenia. It was
established on 25 July 1991 when the Parliament of the Republic of Slovenia passed the central bank
act, the Law on Banka Slovenije.
Banka Slovenije’s primary task is to protect the stability of the domestic currency and to ensure
the liquidity of payments within Slovenia and with other countries. Banka Slovenije is a nongovernmental independent institution; it is obliged to present a report on its operations to the
Slovenian Parliament every six months. It is the bank of banks and the lender of last resort; it is the
supervisor of the banking system (but not of other financial intermediaries non-banks). Banka
Slovenije is the banker of the government and conducts no corporate business and none with natural
persons. Banka Slovenije is not allowed to take up loans abroad for its own account, nor for the
account of third persons.
For the financial year commencing 1 January 2006 Slovenian banks are required to prepare their
financial statements in accordance with IFRS. New standards for 2006 have introduced changes in the
calculations of specific provisions, in the treatment of some commissions as interest income, in the
allowance for insurances and in the calculation of capital.
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TAXATION
The following is a general description of certain tax laws relating to the Notes, the SubParticipation and the Subordinated Loan as in effect on the date hereof and does not purport to be a
comprehensive discussion of the tax treatment of the Notes, the Sub-Participation and the Subordinated
Loan. Prospective purchasers of the Notes should consult their own tax advisers as to which countries’
tax laws could be relevant to acquiring, holding and disposing of Notes and receiving payments of
interest, principal and/or other amounts under the Notes and the consequences of such actions under the
tax laws of those countries.
Slovenia
The Subordinated Loan
As at the date of this Prospectus, payments of interest by a bank to another bank or financial
institution can be made free of withholding or deduction of any taxes of whatsoever nature imposed,
levied, withheld or assessed in Slovenia. As the Lender is a bank the Bank believes that interest
payments to the Lender on the Subordinated Loan will not be subject to withholding tax.
Nevertheless, a certain degree of risk exists that due to the interpretation of the Slovenian tax
legislation by Slovenian tax authorities the interest payments under the Subordinated Loan Agreement
will be subject to withholding tax. In this case (as well as in the case that the said withholding tax
exemption would cease to apply), Slovenian withholding tax would apply to such payments at a rate
of 15 per cent., unless another exemption or reduced rate can be applied in reliance on an applicable
double taxation treaty.
The Notes
Corporate Investors
(a)
Tax on Interest Income
Pursuant to the Slovenian Corporate Income Tax Act (Zakon o davku od dohodka pravnih oseb),
the income derived by a legal entity that is a Slovenian resident or through a permanent
establishment of a non-Slovenian resident in Slovenia from interest on the Notes will constitute
a part of the overall annual income of such Slovenian resident or, as the case may be,
permanent establishment, and will be subject to the corporate income tax (Davek od dohodka
pravnih oseb) imposed on the overall net income at the rate of 23 per cent. in 2007, which will
be decreased to 20 per cent. by 2010. The decreases are to be implemented gradually, with the
tax rate decreasing to 23 per cent. in 2007, 22 per cent. in 2008, 21 per cent. in 2009 and finally
to 20 per cent. in 2010.
(b)
Tax on Capital Gains
Capital gains realised by a legal entity that is a Slovenian resident or by a permanent
establishment of a non-Slovenian resident in Slovenia will constitute a part of the overall annual
income of such Slovenian resident or, as the case may be, permanent establishment, and will be
subject to the corporate income tax (Davek od dohodka pravnih oseb) imposed on the overall net
income at the rate of 23 per cent. in 2007, which will be decreased to 20 per cent. by 2010. The
decreases are to be implemented gradually, with the tax rate decreasing to 23 per cent. in 2007,
22 per cent. in 2008, 21 per cent. in 2009 and finally to 20 per cent. in 2010.
Individuals
(a)
Tax on Interest Income
Pursuant to the Slovenian Personal Income Tax Act (Zakon o dohodnini), interest on the Notes
paid to individuals who are Slovenian residents for the purposes of that Act is taxable for the
financial year 2007 at a flat rate of 15 per cent. and thereafter at a flat rate of 20 per cent. This
tax is the definitive tax imposed by Slovenia on such interest income and may be levied in one
of the two ways described below.
If a payment of interest is effected by a Slovenian resident for tax purposes or by a permanent
establishment in Slovenia, the tax on interest income is levied by way of withholding.
In all other cases, the recipient of interest who is liable to Slovenian tax on interest income
must declare each such payment in a tax return filed by the 15th of a calendar month for the
previous three months and pay the tax thereon after it is assessed by the tax authority. The
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amount of tax payable in Slovenia on interest may be reduced by the amount of any nonSlovenian tax on such interest subject to the presentation of sufficient evidence that such nonSlovenian tax has been paid or assessed.
(b)
Tax on Capital Gains
Individuals are not liable to Slovenian tax on capital gains resulting from disposal of the Notes
(except where the gains are realised within the scope of conducting an individual’s business
activity in which case they will constitute a part of such individual’s overall income and will be
subject to the tax rate applicable to the relevant amount of overall annual income).
(c)
Inheritance and Gift Tax
Acquisition of any assets in Slovenia by an individual as an inheritance or a gift may be subject
to taxation in Slovenia. The tax rate ranges from 5 per cent. to 39 per cent. depending on the
value of the assets and on the personal relationship between the transferor and transferee.
Other Taxes
No Slovene stamp duty or transfer taxes are payable in connection with the issue, delivery,
transfer or redemption of any Note.
The Netherlands
This is a general summary and the tax consequences as described here may not apply to a holder
of Notes. Any potential investor should consult his own tax adviser for more information about the tax
consequences of acquiring, owning and disposing of the Notes in his particular circumstances.
This taxation summary solely addresses the principal Dutch tax consequences of the acquisition, the
ownership and disposition of the Notes. It does not consider every aspect of taxation that may be
relevant to a particular holder of the Notes under special circumstances or who is subject to special
treatment under applicable law. Where in this summary English terms and expressions are used to refer
to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to
be attributed to the equivalent Dutch concepts under Dutch tax law.
This summary is based on the tax law of The Netherlands (unpublished case law not included) as
it stands on the date of this Prospectus. The law upon which this summary is based is subject to change,
perhaps with retroactive effect. Any such change may invalidate the contents of this summary, which will
not be updated to reflect such change. This summary assumes that each transaction with respect to the
Notes is at arm’s length.
Withholding tax
All payments under the Notes may be made free from withholding or deduction of or for any
taxes of whatever nature imposed, levied, withheld or assessed by The Netherlands or any political
subdivision or taxing authority thereof or therein, except where the Notes are issued under such terms
and conditions that such Notes are capable of being classified as equity of the Issuer for Dutch tax
purposes or actually function as equity of the Issuer within the meaning of article 10, paragraph 1,
letter d, of the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969 or ‘‘CTA’’)
and where the Notes are issued that are redeemable in exchange for, convertible into or linked to
shares or other equity instruments issued or to be issued by the Issuer or by any entity related to the
Issuer.
Pursuant to the Dutch Dividend Tax Act 1965 (Wet op de dividendbelasting 1965), withholding
tax at a statutory rate of 15% applies to consideration under loans that actually function as equity of
the debtor within the meaning of article 10, paragraph 1, letter d, of the Dutch CTA. The law does
not define under what circumstances debt must be considered actually to function as equity. From
Parliamentary documents it may be concluded that a combination of long maturity, subordination
and consideration that is, legally or in fact, contingent on the profits or on the distribution of profits
of the Issuer or an entity affiliated to the Issuer is required, but other characteristics may be relevant
as well. In light of this limited guidance, it can not be excluded that the Notes may be considered to
actually function as equity within the meaning of article 10, paragraph 1, letter d of the Dutch CTA.
Taxes on income and capital gains
The summary set out in this section ‘‘Taxes on income and capital gains’’ only applies to a
holder of the Notes who is neither resident nor deemed to be resident in The Netherlands for the
124
purposes of Dutch income tax or corporation tax, as the case may be, and, in the case of an
individual, has not elected to be treated as a resident of The Netherlands for Dutch income tax
purposes (a ‘‘Non-Resident holder of the Notes’’).
Individuals
A Non-Resident holder of the Notes who is an individual will not be subject to any Dutch
taxes on income or capital gains in respect of any benefits derived or deemed to be derived from the
Notes, including any payment under the Notes and any gain realised on the disposal of the Notes,
except if
1.
he derives profits from an enterprise, whether as an entrepreneur (ondernemer) or pursuant to a
co-entitlement to the net value of such enterprise, other than as a shareholder, such enterprise
either being managed in The Netherlands or carried on, in whole or in part, through a
permanent establishment or a permanent representative in The Netherlands and his the Notes
are attributable to such enterprise; or
2.
he derives benefits or is deemed to derive benefits from the Notes that are taxable as benefits
from miscellaneous activities in The Netherlands (resultaat uit overige werkzaamheden in
Nederland).
If a holder of the Notes is an individual who does not come under exception 1. above, and if
he derives or is deemed to derive benefits from the Notes, including any payment thereunder and any
gain realised on the disposal thereof, such benefits are taxable as benefits from miscellaneous activities
in The Netherlands if he, or an individual who is a connected person in relation to him as meant by
article 3.91, paragraph 2, letter b, or c, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting
2001), has a substantial interest (aanmerkelijk belang) in the Issuer.
A person has a substantial interest in the Issuer if such person – either alone or, in the case of
an individual, together with his partner (partner), if any – owns, directly or indirectly, either a
number of shares representing five per cent. or more of the total issued and outstanding capital (or
the issued and outstanding capital of any class of shares) of the Issuer, or rights to acquire, directly
or indirectly, shares, whether or not already issued, representing five per cent. or more of the total
issued and outstanding capital (or the issued and outstanding capital of any class of shares) of the
Issuer, or profit participating certificates (winstbewijzen) relating to five per cent. or more of the
annual profit of the Issuer or to five per cent. or more of the liquidation proceeds of the Issuer.
A person who is entitled to the benefits from shares or profit participating certificates (for
instance a holder of a right of usufruct) is deemed to be a holder of shares or profit participating
certificates, as the case may be, and such person’s entitlement to such benefits is considered a share or
a profit participating certificate, as the case may be.
Furthermore, a holder of the Notes who is an individual and who does not come under
exception 1. above may, inter alia, derive benefits from the Notes that are taxable as benefits from
miscellaneous activities in the following circumstances, if such activities are performed or deemed to
be performed in The Netherlands:
a.
if his investment activities go beyond the activities of an active portfolio investor, for instance in
case of the use of insider knowledge (voorkennis) or comparable forms of special knowledge; or
b.
if he makes the Notes available or is deemed to make the Notes available, legally or in fact,
directly or indirectly, to certain parties as meant in articles 3.91 and 3.92 of the Dutch Income
Tax Act 2001 under circumstances described there.
Entities
A Non-Resident holder of the Notes other than an individual will not be subject to any Dutch
taxes on income or capital gains in respect of benefits derived or deemed to be derived from the
Notes, including any payment under the Notes or any gain realised on the disposal of the Notes,
except if
(a)
such Non-Resident holder of the Notes derives profits from an enterprise, whether as an
entrepreneur (ondernemer) or pursuant to a co-entitlement to the net value of such enterprise,
other than as a holder of securities, such enterprise either being managed in The Netherlands or
carried on, in whole or in part, through a permanent establishment or a permanent
representative in The Netherlands, and its the Notes are attributable to such enterprise; or
(b)
such Non-Resident holder of the Notes has a substantial interest in the Issuer.
125
A person other than an individual has a substantial interest in the Issuer, (x) if it has a
substantial interest in the Issuer (as described above under Individuals) or (y) if it has a deemed
substantial interest in the Issuer. A deemed substantial interest may be present if its shares, profit
participating certificates or rights to acquire shares or profit participating certificates in the Issuer
have been acquired by such person or are deemed to have been acquired by such person on a nonrecognition basis.
General
Subject to the above, a Non-Resident holder of the Notes will not be subject to income taxation
in The Netherlands by reason only of the execution (ondertekening), delivery (overhandiging) and/or
enforcement of the documents relating to the issue of the Notes or the performance by the Issuer of
its obligations thereunder or under the Notes.
Gift and inheritance taxes
A person who acquires the Notes as a gift, in form or in substance, or who acquires or is
deemed to acquire the Notes on the death of an individual, will not be subject to Dutch gift tax or
to Dutch inheritance tax, as the case may be, unless:
(i)
the donor is, or the deceased was resident or deemed to be resident in The Netherlands for
purposes of gift or inheritance tax, as the case may be; or
(ii)
the Notes are or were attributable to an enterprise or part of an enterprise that the donor or
the deceased carried on through a permanent establishment or a permanent representative in
The Netherlands at the time of the gift or of the death of the deceased; or
(iii) the donor made a gift of the Notes, then became a resident or deemed resident of The
Netherlands, and died as a resident or deemed resident of The Netherlands within 180 days of
the date of the gift.
Other taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or
duty, other than court fees, is payable in The Netherlands in respect of or in connection with the
execution, delivery and/or enforcement by legal proceedings (including the enforcement of any foreign
judgment in the courts of The Netherlands) of the documents relating to the issue of the Notes, the
performance by the Issuer of its obligations thereunder or under the Notes or in respect of or in
connection with the transfer of the Notes.
United Kingdom
The Sub-Participation
Payment of Interest under the Sub-Participation
Provided that it continues to be a bank within the meaning of section 991 of the United
Kingdom Income Tax Act 2007 (the ‘‘Act’’), and provided that the interest on the Sub-Participation
is paid in the ordinary course of its business within the meaning of section 878 of the Act, payments
of interest by the Lender to Issuer under the Sub-Participation can be made without withholding or
deduction for or on account of United Kingdom income tax.
The Notes
The comments below are of a general nature based on current United Kingdom law and HM
Revenue and Customs practice and are not intended to be exhaustive. Any Noteholders who are in doubt
as to their own tax position should consult their professional advisers.
Interest on the Notes
Persons in the United Kingdom (i) paying interest to or receiving interest on behalf of another
person who is an individual, or (ii) paying amounts due on redemption of any Notes which constitute
deeply discounted securities as defined in Chapter 8 of Part 4 of the Income Tax (Trading and Other
Income) Act 2005 to or receiving such amounts on behalf of another person who is an individual,
may be required to provide certain information to HM Revenue and Customs regarding the identity
of the payee or person entitled to the interest and, in certain circumstances, such information may be
exchanged with tax authorities in other countries.
126
European Union Directive on the Taxation of Savings Income
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are
required to provide to the tax authorities of another Member State details of payment of interest (or
similar income) paid by a person within its jurisdiction to an individual resident in that other
Member State. However for a transitional period, Belgium, Luxembourg and Austria are instead
required (unless during that period they elect otherwise) to operate a withholding system in relation
to such payments (the ending of such transitional period being dependent upon the conclusion of
certain other agreements relating to information exchange with certain other countries). A number of
non-EU countries, including Switzerland and certain dependent or associated territories of certain
Member States, have agreed to adopt similar measures (being either the provision of information or,
as in the case of Switzerland, transitional withholding) in relation to payments made by a person
within its jurisdiction to, or collected by such a person for, an individual resident in a Member State.
In addition, Member States have entered into reciprocal provision of information or transitional
withholding arrangements with certain of those dependent or associated territories in relation to
payments made by a person in a Member State to, or collected by such a person for, an individual
resident in one of those territories.
127
SUBSCRIPTION AND SALE
Morgan Stanley & Co. International plc and VTB Bank Europe plc (each a ‘‘Manager’’ and
together the ‘‘Managers’’) have, pursuant to the terms and conditions set forth in a subscription
agreement dated 11 October 2007 (the ‘‘Subscription Agreement’’), agreed with the Issuer, the Lender
and NKBM, subject to the satisfaction of certain conditions set forth therein, jointly and severally to
subscribe and pay for the Notes at the issue price of 100 per cent. of the principal amount of the
Notes. NKBM has agreed to pay certain commissions, fees, costs and expenses in connection with the
Subordinated Loan and the offering of the Notes and to reimburse the Issuer and the Trustee for
certain of their expenses in connection with the offering of the Notes. The Managers are entitled to
be released and discharged from their obligations under the Subscription Agreement in certain
circumstances prior to payment being made to the Issuer.
United States
The Notes, the Sub-Participation and the Subordinated Loan have not been and will
registered under the Securities Act, the securities laws of any State or other jurisdiction of the
States and may not be offered or sold within the United States or to, or for the account or
of, U.S. persons except in certain transactions exempt from the registration requirements
Securities Act.
not be
United
benefit
of the
Prior to the expiration of a 40-day distribution compliance period commencing on the Closing
Date, the Notes may not be offered or sold in the United States or to, or for the account or benefit
of, U.S. persons, and any such sales conducted by a broker/dealer (whether or not it is participating
in the offering) may violate the registration requirements of the Securities Act. Thereafter, the Notes
may not be offered or sold within the United States or to or for the account or benefit of U.S.
persons except in certain transactions exempt from, or not subject to, the registration requirements of
the Securities Act. Each Manager has agreed that, except as permitted by the Subscription
Agreement, it will not offer, sell or deliver the Notes (i) as part of their distribution at any time or
(ii) otherwise until 40 days after the later of the commencement of the offering and the closing date
within the United States or to, or for the account or benefit of, U.S. persons and that it will have
sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration
that purchases any Notes during the distribution compliance period a confirmation or other notice
setting forth the restrictions on offers and sales of the Notes within the United States or to, or for
the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to
them by Regulation S under the Securities Act.
United Kingdom
Each Manager has represented and agreed that (i) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated any invitation or inducement
to engage in investment activity (within the meaning of section 21 of the Financial Services and
Markets Act 2000 (‘‘FSMA’’)) received by it in connection with the issue or sale of any Notes in
circumstances in which section 21(1) of the FSMA does not apply to the Issuer, the Lender or
NKBM and (ii) it has complied and will comply with all applicable provisions of the FSMA with
respect to anything done by it in relation to the Notes in, from or otherwise involving the United
Kingdom.
Slovenia
The Notes may only be offered publicly in Slovenia if:
(a)
a prospectus in relation to the Notes has been published in Slovenia during the period of
the last 12 months which has been previously either (i) approved by the Slovenian
Securities Market Agency (Agencija za trg vrednostnih papirjev) (the ‘‘ATVP’’) or (ii) by the
competent authority of another member state of the European Union (each a ‘‘Member
State’’) and notified to the ATVP in accordance with Directive 2003/71/EC (the
‘‘Prospectus Directive’’); or
(b)
an exemption from the obligation to publish a prospectus, as provided in the Slovenian
Market in Financial Instruments Act (Zakon o trgu finančnih instrumentov) (the ‘‘ZTFI’’),
applies to such offer such as, among others:
(i)
if the offer is addressed solely to qualified investors (dobro pouceni vlagatelji), as
defined in the ZTFI; or
128
(ii)
if the offer is addressed to fewer than 100 natural or legal persons not being qualified
investors, having a permanent residence or corporate seat in Slovenia or any other
Member State; or
(iii) if the offer is addressed to investors who undertake to acquire the Notes for a total
consideration of at least EUR 50,000 per investor, for each separate offer; or
(iv) if the minimum amount per one offered unit amounts to at least EUR 50,000; or
(v)
if the total consideration for the Notes being offered is less than EUR 100,000, which
limit shall be calculated over a period of 12 months.
For the purposes of the ZTFI, the term
any form and by any means, presenting
securities to be offered, so as to enable
securities. This definition shall also be
financial intermediaries.
‘‘public offering’’ means a communication to persons in
sufficient information on the terms of the offer and the
an investor to decide to purchase or subscribe to these
applicable to the initial placing of securities through
According to the ZTFI, the term ‘‘qualified investor’’ (dobro pouceni vlagatelj) includes, among
others:
(i)
credit institutions (kreditne institucije), investment firms (investicijska podjetja), insurance
companies (zavarovalnice), collective investment schemes (kolektivni naložbeni podjemi) and
their management companies, pension funds (pokojninski skladi) and the managers thereof,
other regulated financial companies (as defined in Art. 5 of the ZTFI) as well as other
entities whose corporate purpose is solely to invest in securities;
(ii)
national, regional or local governments;
(iii) central banks;
(iv) international organisations such as the International Monetary Fund, the European
Investment Bank, the European Central Bank and similar;
(v)
large companies (i.e. companies fulfilling at least two of the following conditions: (1) an
average of at least 250 employees in the last financial year; (2) net annual total revenues
from sales exceeding EUR 50,000,000 in the last financial year; and (3) a total balance
sheet at the end of the last financial year exceeding EUR 43,000,000); and
(vi) other legal entities and individuals, that expressly request to be considered as qualified
investors and are registered as such with the register of qualified investors of a Member
State of their residence.
General
The Managers have agreed that, to the best of its knowledge and belief, they have complied and
will comply with applicable laws and regulations in each jurisdiction in which they offer, sell or
deliver Notes or distribute this Prospectus (and any amendments thereof and supplements thereto) or
any other offering or publicity material relating to the Notes, the Issuer, the Lender or NKBM.
No action has or will be taken in any jurisdiction by the Issuer, NKBM or any of the
Managers that would, or is intended to, permit a public offer of the Notes or possession or
distribution of any offering material in relation thereto, in any country or jurisdiction where action
for that purpose is required. Accordingly, each Manager has undertaken to the Issuer and NKBM
that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any offering
circular, prospectus, form of application, advertisement or other document or information in any
country or jurisdiction except under circumstances that will, to the best of its knowledge and belief,
result in compliance with any applicable laws and regulations and all offers and sales of Notes by it
will be made on the same terms.
129
GENERAL INFORMATION
1.
Application has been made to the Irish Stock Exchange for the Notes to be admitted to the
Official List and to trading on the Irish Stock Exchange’s regulated market.
2.
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg.
The Common Code of the Notes is 32544690 and the ISIN is XS0325446903.
3.
So long as any of the Notes are listed on the Irish Stock Exchange and the rules of the Irish
Stock Exchange shall so require, the Issuer will maintain a paying agent in Ireland.
4.
For so long as any of the Notes are listed on the Irish Stock Exchange, hard copies of the
following documents (and hard copies of English translations where the documents in question
are not in English) may be inspected at and are available free of charge from the specified
offices of the Paying and Transfer Agent in Ireland during normal business hours on any
weekday (Saturdays, Sundays and public holidays excepted):
*
the memorandum and articles of association of the Issuer and the Borrower;
*
this Prospectus;
*
the Agency Agreement;
*
the Subordinated Loan Agreement;
*
the Trust Deed, which includes the forms of the Global Note Certificate and the Individual
Note Certificates;
*
the Sub-Participation Agreement;
*
NKBM’s audited annual and unaudited interim consolidated and non-consolidated
financial statements prepared in accordance with IFRS, to the extent published after the
date of this Prospectus; and
*
the authorisations listed below.
5.
NKBM, the Lender and the Issuer have obtained all necessary consents, approvals and
authorisations required in connection with the Subordinated Loan, the Sub-Participation and the
issue and performance of the Notes (as the case may be). The issuance of the Notes was
authorised by the Issuer by resolutions of its sole managing director passed on 10 October 2007.
The Subordinated Loan Agreement was authorised by NKBM by resolutions of the
Management Board passed on 30 May 2007, 3 October 2007, 9 October 2007 and 10 October
2007.
6.
Since the Issuer’s date of incorporation, there has been no significant change in the financial or
trading position, or material adverse change in the prospects, of the Issuer. Since 31 December
2006, there has been no significant change in the financial or trading position, and since 31
December 2006 there has been no material adverse change in the prospects, of NKBM and its
subsidiaries.
7.
NKBM’s IFRS consolidated and non-consolidated financial statements as at and for the years
ended 31 December 2005 and 2006 included in this document have been audited by KPMG
Slovenija d.o.o., who have expressed unqualified opinions on those statements, as stated in their
reports appearing in this Prospectus. KPMG Slovenija, d.o.o. is duly licensed to act as auditing
firm in Slovenia and is entered in the register of auditing firms maintained by the Slovenian
Institute of Auditors. The reports of KPMG Slovenija d.o.o. appearing together with the
financial statements of NKBM set out in this Prospectus are included, in the form and context
in which they are included, with the consent of KPMG Slovenija d.o.o.
8.
No consents, approvals, authorisation or orders of any regulatory authorities are required by the
Issuer under the laws of The Netherlands for acquiring and maintaining the Sub-Participation or
for the issue and performance of the Notes.
9.
All necessary consents, approvals, authorisations or orders of any regulatory authorities required
by the Lender under the laws of the United Kingdom and Slovenia for the granting and
maintaining of the Subordinated Loan and the Sub-Participation have been obtained by the
Lender.
130
10.
Neither NKBM nor the Issuer has entered into any material contracts outside the ordinary
course of its business which could result in any NKBM Group member being under an
obligation or entitlement that is material to NKBM’s ability to meet its obligations under the
Subordinated Loan Agreement or the Issuer or Lender’s ability to make payments under the
Sub-Participation Agreement, the Notes or the Trust Deed, as the case may be.
11.
There are no governmental, legal or arbitration proceedings (including any such proceedings
which are pending or threatened of which NKBM or the Issuer is aware), and there have been
no such proceedings during the 12 months preceding the date of this Prospectus, which may
have, or have had in the recent past, significant effects on NKBM and its subsidiaries’ or the
Issuer’s financial position and profitability.
12.
The total fees and expenses in connection with the admission of the Notes to trading on the
Irish Stock Exchange’s regulated market are expected to be approximately c4,550.00.
13.
Other than as disclosed in this Prospectus, in ‘‘Terms and Conditions of the Notes’’ and
‘‘Subscription and Sale’’, there are no restrictions on transfer of the Notes.
14.
The Issuer does not intend to provide any post-issuance information in relation to the
Subordinated Loan Agreement, the Sub-Participation Agreement or any other assets forming
part of the Note Security.
131
INDEX TO FINANCIAL STATEMENTS
Unaudited interim financial statements prepared in accordance with IFRS as at and for the half
year ended 30 June 2007
Independent Accountant’s Review Report dated 14 September 2007 ..........................................
F-2
Consolidated Unaudited Income Statement for the Six Months Ended 30 June 2007 ................
F-3
Consolidated Unaudited Balance Sheet as at 30 June 2007 .........................................................
F-4
Independent Accountant’s Review Report dated 14 September 2007 ..........................................
F-5
Non-Consolidated Unaudited Income Statement for the Six Months Ended 30 June 2007 ........
F-6
Non-Consolidated Unaudited Balance Sheet as at 30 June 2007 .................................................
F-7
Audited annual consolidated financial statements prepared in accordance with IFRS as at and for
the year ended 31 December 2006
Independent Auditors’ Report dated 26 April 2007 .....................................................................
F-8
Consolidated Income Statement for the Year Ended 31 December 2006 ....................................
F-9
Consolidated Balance Sheet as at 31 December 2006...................................................................
F-10
Consolidated Cash Flow Statement for the Year Ended 31 December 2006...............................
F-11
Consolidated Statement of Changes in Equity as at 31 December 2006......................................
F-13
Notes to the Consolidated Financial Statements as at and for the Year Ended 31 December 2006
F-15
Consolidated Income Statement for the Year Ended 31 December 2006 (in euro) .....................
F-63
Consolidated Balance Sheet for the Year Ended 31 December 2006 (in euros)...........................
F-64
Independent Auditors’ Report dated 10 May 2006 ......................................................................
F-65
Audited annual non-consolidated financial statements prepared in accordance with IFRS as at and
for the year ended 31 December 2006
Independent Auditors’ Report dated 26 April 2007 .....................................................................
F-66
Non-Consolidated Income Statement for the Year Ended 31 December 2006 ............................
F-67
Non-Consolidated Balance Sheet as at 31 December 2006 ..........................................................
F-68
Non-Consolidated Cash Flow Statement for the Year Ended 31 December 2006.......................
F-69
Non-Consolidated Statement of Changes in Equity as at 31 December 2006 .............................
F-71
Notes to the Non-Consolidated Financial Statements as at and for the Year Ended 31 December
2006 ...........................................................................................................................................
F-73
Non-Consolidated Income Statement for the Year Ended 31 December 2006 (in euro) .............
F-123
Non-Consolidated Balance Sheet for the Year Ended 31 December 2006 (in euros) ..................
F-124
Independent Auditors’ Report dated 10 May 2006 ......................................................................
F-125
F-1
F-2
CONSOLIDATED INTERIM INCOME STATEMENT OF NKBM
For the six months ended
30 June
2007
30 June
2006
(in thousands of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Interest income .....................................................................................
Interest expenses...................................................................................
Interest net income (1 – 2) ...................................................................
Dividend income ..................................................................................
Fee and commission income................................................................
Fee and commission expenses .............................................................
Fee and commission net income (5 – 6) ...............................................
Realised gains and losses on financial assets and liabilities not
measured at fair value through profit and loss ..................................
Gains and losses on financial assets and liabilities held for trading .
Gains and losses on financial assets and liabilities designated at
fair value through profit or loss..........................................................
Fair value adjustments in hedge accounting .......................................
Exchange differences ............................................................................
Gains and losses on derecognition of assets other than held for
sale ........................................................................................................
Other operating net income .................................................................
Financial and operating income and expenses (3 + 4 + 7 + 8 + 9 +
10 + 11 + 12 + 13 + 14) ....................................................................
Administration costs ............................................................................
Depreciation .........................................................................................
Provisions .............................................................................................
Impairment ...........................................................................................
Negative goodwill.................................................................................
Share of the profit or loss of associates and joint ventures
accounted for using the equity method...............................................
Total profit or loss from non-current assets and disposal groups
classified as held for sale .....................................................................
TOTAL PROFIT OR LOSS BEFORE TAX FROM
CONTINUING OPERATIONS (15 – 16 – 17 – 18 – 19 + 20 +
21 + 22)................................................................................................
Tax expense (income) related to profit or loss from continuing
operations .............................................................................................
TOTAL
PROFIT
OR
LOSS
AFTER
TAX
FROM
CONTINUING OPERATIONS (23 – 24)..........................................
Total profit or loss after tax from discontinued operations ..............
NET PROFIT OR LOSS for the financial year (25 + 26) ................
F-3
114,409
57,337
57,072
848
29,852
4,983
24,869
88,636
38,379
50,257
90
26,165
5,258
20,907
2,646
24,005
(195)
(1,184)
55
125
17
0
0
1,079
298
2,763
1,322
708
112,698
46,083
5,666
2,339
9,254
0
72,984
41,117
5,322
4,855
4,655
0
2,356
1,945
160
0
51,872
18,980
13,241
38,631
0
38,631
(300)
19,280
0
19,280
CONSOLIDATED INTERIM BALANCE SHEET OF NKBM
As at
30 June
2007
31 December
2006
(in thousands of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
Cash and cash balances with central banks........................................
Financial assets held of trading...........................................................
Financial assets designated at fair value through profit or loss ........
Available-for-sale financial assets ........................................................
Loans and receivables ..........................................................................
Held-to-maturity investments...............................................................
Derivates – hedge accounting ..............................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest income on financial assets........................................
Tangible assets .....................................................................................
Investment property .............................................................................
Intangible assets ...................................................................................
Investments in subsidiaries, associates and joint ventures..................
Tax assets .............................................................................................
Other assets ..........................................................................................
Non-current assets and disposal groups classified as held for sale....
TOTAL ASSETS .................................................................................
Deposits from central banks................................................................
Financial liabilities held of trading .....................................................
Financial liabilities designated at fair value through profit or loss ...
Financial liabilities measured at amortised cost .................................
Financial liabilities associated to transferred assets............................
Derivatives – hedge accounting ...........................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest expanses on financial liabilities ................................
Provisions .............................................................................................
Tax liabilities ........................................................................................
Other liabilities .....................................................................................
Liabilities included in disposal groups classified as held for sale ......
Basic equity capital ..............................................................................
Share premium account .......................................................................
Equity component of compound financial instruments ......................
Revaluation reserves.............................................................................
Reserves from profit (including retained earnings) .............................
Treasury shares ....................................................................................
Income from current year....................................................................
Interim dividends .................................................................................
Minority interest ..................................................................................
TOTAL LIABILITIES AND EQUITY ..............................................
F-4
95,628
164,049
0
988,395
2,968,384
140,698
130
109,746
135,918
0
785,985
2,707,265
292,840
0
0
5
78,223
5,625
24,507
42,769
9,941
123,305
54
4,641,713
8
17
0
4,138,433
0
5
0
2
79,114
5,858
22,996
43,425
3,886
70,885
35
4,257,953
0
154
0
3,845,043
0
0
0
19,482
32,674
19,589
74,648
0
24,367
29,083
0
15,834
223,991
(27)
37,053
0
26,556
4,641,713
0
18,779
29,157
7,444
36,294
0
24,368
29,083
0
16,526
225,761
(27)
13,729
0
11,641
4,257,953
F-5
INTERIM INCOME STATEMENT OF NKBM
For the six months ended
30 June
2007
30 June
2006
(in thousands of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Interest income .......................................................................................
Interest expenses .....................................................................................
Interest net income (1 – 2) .....................................................................
Dividend income.....................................................................................
Fee and commission income ..................................................................
Fee and commission expenses................................................................
Fee and commission net income (5 – 6)..................................................
Realised gains and losses on financial assets and liabilities not
measured at fair value through profit and loss ....................................
Gains and losses on financial assets and liabilities held for trading....
Gains and losses on financial assets and liabilities designated at fair
value through profit or loss ...................................................................
Fair value adjustments in hedge accounting .........................................
Exchange differences ..............................................................................
Gains and losses on derecognition of assets other than held for sale .
Other operating net income ...................................................................
Financial and operating income and expenses (3 + 4 + 7 + 8 + 9 +
10 + 11 + 12 + 13 + 14).......................................................................
Administration costs...............................................................................
Depreciation ...........................................................................................
Provisions................................................................................................
Impairment .............................................................................................
Negative goodwill ...................................................................................
Share of the profit or loss of associates and joint ventures
accounted for using the equity method .................................................
Total profit or loss from non-current assets and disposal groups
classified as held for sale........................................................................
TOTAL
PROFIT
OR
LOSS
BEFORE
TAX
FROM
CONTINUING OPERATIONS (15 – 16 – 17 – 18 – 19 + 20 + 21
+ 22) .......................................................................................................
Tax expense (income) related to profit or loss from continuing
operations ...............................................................................................
TOTAL PROFIT OR LOSS AFTER TAX FROM CONTINUING
OPERATIONS (23 – 24).......................................................................
Total profit or loss after tax from discontinued operations.................
NET PROFIT OR LOSS for the financial year (25 + 26) ..................
F-6
94,130
(47,351)
46,779
2,231
20,380
(2,223)
18,157
76,090
(32,678)
43,412
959
18,072
(2,387)
15,685
(311)
22,659
(534)
(1,640)
0
125
(233)
26
(326)
0
0
1,087
202
(228)
89,107
(34,688)
(4,599)
(418)
(4,917)
0
58,943
(32,617)
(4,301)
(4,372)
(3,385)
0
0
0
160
0
44,645
14,268
(11,268)
1,365
33,377
0
33,377
15,633
0
15,633
INTERIM BALANCE SHEET OF NKBM
As at
30 June
2007
31 December
2006
(in thousands of euro)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
Cash and cash balances with central banks........................................
Financial assets held of trading...........................................................
Financial assets designated at fair value through profit or loss ........
Available-for-sale financial assets ........................................................
Loans and receivables ..........................................................................
Held-to-maturity investments...............................................................
Derivates – hedge accounting ..............................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest income on financial assets........................................
Tangible assets .....................................................................................
Investment property .............................................................................
Intangible assets ...................................................................................
Investments in subsidiaries, associates and joint ventures..................
Tax assets .............................................................................................
Other assets ..........................................................................................
Non-current assets and disposal groups classified as held for sale....
TOTAL ASSETS .................................................................................
Deposits from central banks................................................................
Financial liabilities held of trading .....................................................
Financial liabilities designated at fair value through profit or loss ...
Financial liabilities measured at amortised cost .................................
Financial liabilities associated to transferred assets............................
Derivatives – hedge accounting ...........................................................
Fair value changes of the hedged items in portfolio hedge of
interest rate risk ...................................................................................
Accrued interest expanses on financial liabilities ................................
Provisions .............................................................................................
Tax liabilities ........................................................................................
Other liabilities .....................................................................................
Liabilities included in disposal groups classified as held for sale ......
Basic equity capital ..............................................................................
Share premium account .......................................................................
Equity component of compound financial instruments ......................
Revaluation reserves.............................................................................
Reserves from profit (including retained earnings) .............................
Treasury shares ....................................................................................
Income from current year....................................................................
Interim dividends .................................................................................
TOTAL LIABILITIES AND EQUITY ..............................................
OFF-BALANCE SHEET ITEMS.......................................................
F-7
68,337
160,143
0
815,866
2,565,735
10,808
130
87,956
125,182
0
658,373
2,440,057
226,910
0
0
2
56,167
467
21,053
48,941
8,003
14,133
0
3,769,785
8
17
0
3,379,356
0
5
0
2
58,016
467
21,216
38,982
3,170
8,805
22
3,669,158
0
154
0
3,314,706
0
0
0
19,028
26,527
14,549
37,945
0
24,367
28,847
0
(2,527)
208,286
0
33,377
0
3,769,785
708,753
0
18,678
26,172
3,829
26,670
0
24,368
28,847
0
1,977
215,011
0
8,746
0
3,669,158
839,012
F-8
1 Income Statement
(Abbreviated Layout) – Nova KBM Group
in thousands of tolars
Ser.
No.
ITEM DESCRIPTION
Notes
1 January to
31 December 2006
1 January to
31 December 2005
1
Interest income
5
44,147,763
2
Interest expenses
5
20,111,339
38,092,164
16,715,410
3
Interest net income (1 – 2)
5
24,036,424
21,376,754
4
Dividend income
6
1,321,531
1,386,901
5
Fee and commission income
7
12,469,660
11,268,452
6
Fee and commission expenses
7
2,978,265
2,382,521
7
Fee and commission net income (5 - 6)
7
9,491,395
8,885,931
8
Realised gains and losses on financial assets and
liabilities not measured at fair value through profit
or loss
8
424,767
(229,108)
9
Gains and losses on financial assets and liabilities
held for trading
9
3,752,467
5,597,304
10
Gains and losses on financial assets and liabilities
designated at fair value through profit and loss
0
0
11
Fair value adjustments in hedge accounting
0
0
12
Exchange differences
10
(347,811)
(25,874)
13
Gains and losses on derecognition of assets other
than held for sale
11
618,463
319,694
14
Other operating net income
12
15
Financial and operating income and expenses
(3 + 4 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14)
16
Administration costs
17
Depreciation
18
19
3,992,861
1,733,393
43,290,097
39,044,995
13
21,731,398
20,291,597
14
2,663,291
2,118,043
Provisions
15
1,750,563
1,185,143
Impairments
16
4,572,071
3,649,880
20
Negative goodwill
0
0
21
Share of profit or loss of associates and joint
ventures accounted for using the equity method
788,898
1,398,851
22
Total profit or loss from non-current assets and
disposal groups classified as held for sale
0
0
23
TOTAL PROFIT OR LOSS BEFORE TAX FROM
CONTINUING OPERATIONS
(15 – 16 – 17 – 18 – 19 + 20 + 21 + 22)
13,361,672
13,199,183
24
Tax expense (income) related to profit or loss from
continuing operations
2,477,990
2,223,043
25
TOTAL PROFIT OR LOSS AFTER TAX FROM
CONTINUING OPERATIONS (23 – 24)
10,883,682
10,976,140
26
Total profit or loss after tax from discontinued
operations
0
0
27
NET PROFIT OR LOSS for the financial year
(25 + 26)
10,883,682
10,976,140
17
a) Majority interest
787,665
409,121
b) Minority interest
300,252
253,346
F-9
Financial Statements of the Nova KBM Group
2 Balance Sheet
(Abbreviated Layout) – Nova KBM Group
in thousands of tolars
Ser.
No.
ITEM DESCRIPTION
Notes
31 December
2006
31 December
2005
ASSETS
1
Cash and cash balances with central banks
18
26,299,480
17,990,930
2
Financial assets held for trading
19
32,571,271
48,972,859
3
Financial assets designated at fair value through profit or loss
0
0
4
Available-for-sale financial assets
20
188,353,394
109,374,231
5
Loans and receivables
21
648,769,012
506,796,312
6
Held to maturity investments
22
70,176,247
113,802,028
7
Derivatives – hedge accounting
0
0
8
Fair value changes of the hedged items in portfolio hedge
of interest rate risk
0
0
9
Accrued interest income on financial assets
23
424
58
10
Property, plant and equipment
24
18,958,762
16,580,947
11
Investment property
25
1,403,886
1,074,339
12
Intangible assets
26
5,510,655
4,668,223
13
Investments in subsidiaries, associates and joint ventures
27
10,406,354
10,185,865
14
Tax assets
28
931,258
749,807
15
Other assets
29
16,986,816
12,736,964
16
Non-current assets and disposal groups classified as held for sale
30
17
TOTAL ASSETS
8,273
94,704
1,020,375,832
843,027,267
LIABILITIES
18
Deposits from central banks
19
Financial liabilities held for trading
20
Financial liabilities designated at fair value through profit or loss
21
Financial liabilities measured at amortised cost
0
0
31
36,895
0
0
0
32
921,426,014
753,960,923
22
Financial liabilities associated to transferred assets
0
0
23
Derivatives – hedge accounting
0
0
24
Fair value changes of the hedged items in portfolio hedge
of interest rate risk
0
0
25
Accrued interest expense on financial liabilities
33
4,500,298
3,602,715
26
Provisions
34
6,987,250
5,322,231
27
Tax liabilities
35
1,783,909
2,872,630
28
Other liabilities
36
8,697,600
9,486,473
29
Liabilities included in disposal groups classified as held for sale
30
Basic equity capital
31
Share premium account
32
Equity component of compound financial instruments
33
Revaluation reserves
39
3,960,355
5,363,360
34
Reserves from profit (including retained earnings)
40
54,101,697
41,587,011
35
Treasury shares
(6,522)
(6,522)
36
Income from current year
41
3,289,925
5,692,457
37
Interim dividends
38
Minority interest
39
TOTAL LIABILITIES AND EQUITY
40
OFF-BALANCE SHEET ITEMS (B.1 – B.4)
F-10
0
0
37
5,839,496
5,839,496
38
6,969,291
6,963,049
0
0
0
0
2,789,624
2,343,444
1,020,375,832
843,027,267
252,114,136
165,931,203
3 Cash Flow Statement for the
Nova KBM Group
in thousands of tolars
Designation
ITEM DESCRIPTION
1
A
a)
2
Total profit of loss before tax
Impairments/(reversal of impairments) of fi nancial assets held to maturity
1 January to
31 December
2005
3
4
13,361,672
13,199,183
2,663,290
2,118,398
0
0
44,370
37,206
Impairments of capital investments in subsidiaries, associates and joint ventures
0
532
(Negative goodwill)
0
0
Share of profit or loss of associates and joint ventures accounted for using the equity method
788,898
1,398,851
Net (gains)/losses from exchange differences
347,811
25,874
Impairments of property, plant and equipment, investment property, intangible assets and other assets
Net (gains)/losses from fi nancial assets held to maturity
Net (gains)/losses from the sale of property, plant and equipment and investment properties
Net (gains)/losses from the sale of intangible assets
13,880
840
(102,831)
25,027
22,197
0
Other (gains)/losses from investing activities
(793,333)
(987,134)
Other (gains)/losses from fi nancing activities
604,567
4,424
(706)
0
0
0
Net unrealised gains in revaluation reserves from fi nancial assets available for sale
(excluding effect of deferred tax)
3,825,158
4,929,575
Net unrealised gains in revaluation reserves from hedging of cashflow against risks
(excluding effect of deferred tax)
0
0
Unrealised (gains)/losses from fi nancial assets measured at fair value that are components of cash
equivalents
Net unrealised (gains)/losses from non-current assets held for sale and discontinued operations
and liabilities associated therewith
Other adjustments to total profit or loss before tax
Cash flows from operating activities before changes in operating assets and liabilities
(Increases)/decreases in operating assets
Net (increase)/decrease in fi nancial assets designated at fair value through profit or loss
Net (increase)/decrease in fi nancial assets available for sale
Net (increase)/decrease in loans and receivables
Net (increase)/decrease in assets-derivatives used for hedging
Net (increase)/decrease in interest on fi nancial assets (accrued income)
Net (increase)/decrease in deferred charges
Net (increase)/decrease in non-current fi nancial assets held for sale
Net (increase)/decrease in other assets
c)
1 January to
31 December
2006
CASH FLOWS FROM OPERATING ACTIVITIES
Depreciation
b)
Amount
Increases/(decreases) in operating liabilities
1,653,242
928,503
22,428,215
21,681,279
(182,849,736)
(122,262,433)
16,409,166
35,473,448
(55,706,981)
(44,651,697)
(147,773,979)
(112,480,450)
464,433
0
(1,805)
(4,981)
(43,852)
(13,624)
89,398
0
3,713,884
(585,129)
160,630,854
114,644,915
Net increase/(decrease) in fi nancial liabilities to central banks
0
0
Net increase/(decrease) in fi nancial liabilities held for trading
36,895
0
Net increase/(decrease) in fi nancial liabilities designated at fair value through profit or loss
Net increase/(decrease) in deposits, loans and receivables and debt securities measured at amortised cost
Net increase/(decrease) in liability derivatives
0
0
158,533,817
111,706,441
0
0
Net increase/(decrease) in interest on fi nancial liabilities (accrued expenses)
908,565
844,606
Net increase/(decrease) in deferred income
118,874
(575,282)
Net increase/(decrease) in liabilities associated with non-current assets held for sale
Net increase/(decrease) in other liabilities
0
0
1,032,703
2,669,150
d)
Cash flow from operating activities (a + b + c)
209,333
14,063,761
e)
Income taxes (paid) refunded
(3,245,238)
(1,682,661)
f)
Net cash flow from operating activities (d +e)
(3,035,905)
12,381,100
F-11
Financial Statements of the Nova KBM Group
in thousands of tolars
Designation
ITEM DESCRIPTION
1
B
a)
Amount
2
1 January to
31 December
2006
1 January to
31 December
2005
3
4
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts from investing activities
Receipt from the sale of property, plant and equipment and investment properties
Receipts from the sale of intangible assets
Receipts from the disposal of subsidiaries, associates and joint ventures
59,520,154
154,677,626
261,879
909,465
0
0
823,332
1,538,305
Receipts from the sale of capital investments in subsidiaries not included in cash and cash equivalents
Receipts from non-current assets or liabilities held for sale
Receipts from the sale of fi nancial assets held to maturity
Other receipts from investing activities
b)
0
151,230,100
3,049,896
999,756
(18,091,240)
(148,878,300)
(Cash payments to acquire property, plant and equipment and investment properties)
(1,430,602)
(6,615,273)
(Cash payments to acquire intangible assets)
(1,075,692)
(105,045)
(Cash payments for the investments in subsidiaries, associates and joint ventures)
(5,353,306)
(1,024,652)
0
(17)
Cash payments on investing activities
(Cash payments for the capital investments in subsidiaries not included in cash and cash equivalents)
(Cash outflow to non-current assets held for sale)
(Cash payments to acquire held to maturity investments)
(Other cash payments relating to investing activities)
(106,502)
0
(10,125,138)
(139,123,837)
0
(2,009,476)
41,428,914
5,799,326
Cash proceeds from fi nancing activities
15,461,972
16,924,550
Cash proceeds from subordinated liabilities issued
12,624,528
16,924,550
c)
Net cash flow from investing activities (a – b)
C
CASH FLOWS FROM FINANCING ACTIVITIES
a)
Cash proceeds from issuing shares and other equity instruments
Cash proceeds from the sale of treasury shares
Other cash proceeds related to investing activities
b)
0
55,385,047
Cash payments on fi nancing activities
(Dividends paid)
(Cash repayments of subordinated liabilities)
(Cash payments to acquire treasury shares)
(Other cash payments related to fi nancing activities)
c)
Net cash flow from fi nancing activities (a – b)
D
Effects of change in exchange rates on cash and cash equivalents
E
Effects of change in fair value on cash and cash equivalents
F
Net increase in cash and cash equivalents (Ae+Bc+Cc)
G
Opening balance of cash and cash equivalents
H
Closing balance of cash and cash equivalents (D+E+F+G)
F-12
225,429
0
0
0
2,612,015
0
(13,569,720)
(9,440,286)
(184,826)
(1,139,380)
(1,209,236)
(8,300,906)
0
0
(12,175,658)
0
1,892,252
7,484,264
(689,122)
(686,264)
2,035
0
40,285,261
25,664,690
84,274,672
59,296,246
123,872,846
84,274,672
4 Statement of Changes in Equit y
for the Period 1 January to
31 December 2006 – Nova KBM Group
9
10
11
(6,522)
5,692,457
Total capital
8
10,081,786
Minority interest
Interim dividends
7
Income from current
fi nancial year
6
Treasury shares
5
Retained earnings or loss
Equity component of compound
financial instruments
4
Reserves from profit
Share premium
3
ITEM
DESCRIPTION
Revaluation reserves
Basic equity capital
in thousands of tolars
Item
Code
12
13
1
2
A
OPENING
BALANCE FOR
THE REPORTING
PERIOD
B
Equity capital inflows
0
6,242
0
277,317
195,632
429,992
0 10,714,104
0
495,737 12,119,024
a)
New share capital
subscribed (paid)
0
0
0
0
0
0
0
0
0
110,443
110,443
b)
Sale of treasury
shares
0
0
0
0
0
0
0
0
0
0
0
c)
Increase in
revaluation reserves
in connection with
0
0
0
277,317
0
0
0
0
0
71,746
349,063
– fi nancial
assets available
for sale
0
0
0
276,389
0
0
0
0
0
71,746
348,135
0
928
5,839,496 6,963,049
0
5,363,360 31,505,225
0 2,343,444 67,782,295
– other assets
0
0
0
928
0
0
0
0
0
d)
Income from
current fi nancial
year (net profit
or loss)
0
0
0
0
0
0
0 10,714,104
0
169,578 10,883,682
e)
Other increases
0
6,242
0
0
195,632
429,992
C
Changes in equity
capital
0
0
0
0
7,244,976
5,657,744
a)
Transfer of net
profit to reserves
from profit
0
0
0
0
7,244,976
b)
Covering of the loss
brought forward
0
0
0
0
c)
Transfer of
components of
equity capital to
a special fund of
treasury shares
0
0
0
d)
Creation/
elimination of
treasury shares
0
0
e)
Appropriation of
(accounting for)
dividends
0
f)
Other movements
in equity capital
D
0
0
143,970
775,836
0 (13,033,394)
0
130,674
0
(41,913)
0
(7,333,737)
0
130,674
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,699,657
0
(5,699,657)
0
0
0
Equity capital
outflows
0
0
0
1,680,322
0
1,013,658
0
83,242
0
180,231
2,957,453
a)
Appropriation
of (accounting for)
dividends
0
0
0
0
0
793,333
0
0
0
177,255
970,588
b)
Repayment
of equity capital
0
0
0
0
0
0
0
0
0
0
0
c)
Sale of treasury
shares
0
0
0
0
0
0
0
0
0
0
0
d)
Decrease in
revaluation reserves
in connection with
0
0
0
1,680,322
0
0
0
0
0
0
1,680,322
0
0
0
1,680,322
0
0
0
0
0
0
1,680,322
0
0
220,325
0
83,242
0
2,976
306,543
3,960,355 38,945,833 15,155,864
(6,522)
3,289,925
0
– fi nancial
assets available
for sale
e)
Other decreases
E
CLOSING
BALANCE FOR
THE REPORTING
PERIOD
0
0
0
5,839,496
6,969,291
0
F-13
0
2,789,624 76,943,866
Financial Statements of the Nova KBM Group
4 Statement of Changes in Equit y
for the Period 1 January to
31 December 2005 – Nova KBM Group
B
Equity capital inflows
0
50,222
0
5,363,360
a)
New share capital
subscribed (paid)
0
0
0
0
b)
Sale of treasury
shares
0
0
0
c)
Increase in
revaluation reserves
in connection with
0
0
0
– fi nancial
assets available
for sale
5,839,496 6,912,827
0
29,258 26,846,048
10
11
Total capital
9
Minority interest
8
Interim dividends
7
OPENING
BALANCE FOR
THE REPORTING
PERIOD
Income from current
fi nancial year
6
2
A
Treasury shares
5
1
Retained earnings or loss
Equity component of compound
financial instruments
4
Reserves from profit
Share premium
3
ITEM
DESCRIPTION
Revaluation reserves
Basic equity capital
in thousands of tolars
Item
Code
12
13
3,312,225
0
1,379,935
0
0 44,319,789
112,395
9,530,291
0 10,677,464
0
2,281,477
28,015,209
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,363,360
0
0
0
0
0
0
5,363,360
0
0
5,363,360
0
0
0
0
0
0
5,363,360
0
0
0 10,836,125
0
d)
Income from
current fi nancial
year (net profit
or loss)
0
0
0
0
e)
Other increases
0
50,222
0
0
112,395
9,530,291
0
(158,661)
0
2,141,462
11,675,709
C
Changes in equity
capital
0
0
0
0
4,546,782
1,756,193
0
(6,364,942)
0
61,967
0
a)
Transfer of net
profit to reserves
from profit
0
0
0
0
4,546,782
0
0
(4,608,749)
0
61,967
0
b)
Covering of the loss
brought forward
0
0
0
0
0
0
0
0
0
0
0
c)
Transfer of
components of
equity capital to
a special fund of
treasury shares
0
0
0
0
0
0
0
0
0
0
0
d)
Creation/
elimination of
treasury shares
0
0
0
0
0
0
0
0
0
0
0
e)
Appropriation of
(accounting for)
dividends
0
0
0
0
0
0
0
0
0
0
0
f)
Other movements in
equity capital
0
0
0
0
0
1,756,193
0 (1,756,193)
0
0
0
D
Equity capital
outflows
0
0
0
29,258
0
4,516,923
6,522
0
0
0
4,552,703
a)
Appropriation of
(accounting for)
dividends
0
0
0
0
0
1,054,695
0
0
0
0
1,054,695
b)
Repayment of
equity capital
0
0
0
0
0
0
0
0
0
0
0
c)
Sale of treasury
shares
0
0
0
0
0
0
0
0
0
0
0
d)
Decrease in
revaluation reserves
in connection with
0
0
0
29,258
0
0
0
0
0
0
29,258
0
0
0
29,258
0
0
0
0
0
0
29,258
0
0
0
0
0
3,462,228
6,522
0
0
0
3,468,750
5,839,496 6,963,049
0
5,363,360 31,505,225
10,081,786
(6,522)
5,692,457
– fi nancial
assets available
for sale
e)
Other decreases
E
CLOSING
BALANCE FOR
THE REPORTING
PERIOD
F-14
140,015 10,976,140
0 2,343,444 67,782,295
1 Ba sic I n f or m at ion
Nova Kreditna banka Maribor d.d. (the Bank) is a Slovenian joint stock company that provides universal banking services. The Bank’s majority shareholder is the Republic of Slovenia with 90.4102%
of shares. Kapitalska družba d.d and Slovenska od{kodninska družba d.d. each hold a 4.7949%
share in the Bank.
The consolidated financial statements of the Bank for the year ended 31 December 2006 include the
Bank and its subsidiaries (hereinafter: the Group) and the Group’s participating interests in associates.
All amounts in the financial statements and the accompanying notes are expressed in thousands
of tolars unless otherwise indicated. Roundings used in summing up of financial data may result
in calculations.
Definition of the Group
The Group is comprised of:
Company
Relation
Nova Kreditna banka Maribor,d.d.
parent bank
Po{tna banka Slovenije d.d.
subsidiary bank
KBM Fineko d.o.o.
subsidiary company
Participating interest
of Nova KBM in %
55
100
KBM Infond d.o.o.
subsidiary company
72
KBM Leasing d.o.o.
subsidiary company
100
KBM Invest d.o.o.
subsidiary company
99.37
Gorica Leasing d.o.o.
subsidiary company
100
M Pay d.o.o.
subsidiary company
50
Multiconsult d.o.o.
indirect subsidiary
76
Multiconsult Leasing d.o.o.
indirect subsidiary
78.4
Adria Bank Wien
associated bank
25.04
Zavarovalnica Maribor, d.d.
associated company
49.96
Moja naložba, d.d.
associated company
45
2 Ac c ou n t i ng Pol ic i e s
Significant accounting policies
Statement of compliance
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
In 2006 the Bank adopted the IFRS as the sole reporting standard. In the preparation of this
year’s annual report certain data for 2005 were adjusted. The adjustments arise from the implementation of the new Methodology for estimating credit risk losses and due to the exclusion
of land from the value of property at individual members of the Group.
These differences are explained in Note 48 – Effect of changes to accounting policies.
F-15
Notes to the Financial Statements of the Nova KBM Group
Basis for presentation of financial statements
The accounting policies used in the preparation of the financial statements are in line with the
IFRS and the Bank’s internal acts, which are valid for all members of the Group. These documents
are: the Methodology for estimating credit risk losses at Nova KBM d.d., Recognition of insurance
during the impairment of financial assets and Classification and valuation of financial instruments
in accordance with the IFRS.
The accounting policies are harmonised within the Group and adjusted appropriately as required.
These policies were applied consistently for both years presented, unless otherwise stated.
Consolidation
The Group’s non-current financial investments are as follows:
in subsidiaries in which the Group’s participating interest exceeds 50%,
in associates in which the Group’s participating interest is more than 20% and less than 50%
for which the Group exercises significant influence,
in others.
Subsidiaries are included in the consolidate financial statement using the method of full consolidation. Associates are included using the equity method.
The financial statements of the parent company and its subsidiaries are combined in the process
of full consolidation. All mutual claims and liabilities between Group companies and all income
and expenses realised within the Group are eliminated.
The portion of profit or loss pertaining to the Group is disclosed in the consolidated financial statements. In the consolidated balance sheet, capital investments in subsidiaries and associates are
disclosed in an amount representing the relevant share of net worth. The associated profit or loss
of minority shareholders and partners is disclosed in the income statement and balance sheet.
Reporting and functional currency
The items shown in the Group’s financial statements are presented in thousands of tolars, the tolar
being the functional and reporting currency of the Bank as the parent company.
The financial statements of individual companies are presented in the functional currency of the
primary economic environment. Assets, liabilities, income and expenses are converted at the
exchange rate valid as at the balance sheet date.
Conversion of transactions to foreign currency
Transactions in foreign currency are converted into the functional currency at the exchange rate valid
on the day of the transaction. Exchange rate differences are recognised in the income statement.
Property, plant and equipment
The Bank uses the historical cost model for its accounting policies. According to this model the
Bank depreciates property, plant and equipment at their historically recognised cost and impairs
them only when their impairment is necessary.
The Bank begins depreciating property, plant and equipment on the first day of the following month
after they are put into use. Depreciation is calculated using the straight line method.
F-16
The depreciation rates applied in 2006 were the same as the previous year. They are as follows:
buildings
computer equipment
vehicles
other equipment
other investments
licences
3 percent
33.33 percent
12.5 percent
6.7 to 25 percent
10 percent
10 percent
Land is recognised separately from buildings and generally has an unlimited useful life. Therefore
it is not depreciated.
For co-divided ownership of commercial space the value of the associated land is included in the
cost of that part of the building owned by an individual member of the Group.
An asset is derecognised upon disposal or if future economic benefits are no longer expected from
its use.
Intangible assets
Intangible assets include investments in computer software and licences. They are depreciated
using the straight-line method.
The Group stops depreciating intangible assets when they are defined as current assets for sale or
when they are derecognised (i. e. when the Group no longer expects any further economic benefits).
The Group determines the recoverable value of intangible assets annually. If this value is lower than
cost, revaluation due to impairment must be carried out.
Investment property
Investment property is an asset that the Group does not use directly in its operations: it is held
with the intention of renting it commercially.
Upon recognition investment property is measured at cost. The Group subsequently measures
invest-ment property at fair value.
A licenced real estate appraiser verifies the fair value of investment property at the end of each
financial year.
Gains or losses arising from changes in fair value are included in the income statement in the period
to which they relate.
Reclassification to investment property
Property which is built or developed for transitional use as investment property is treated as an
intangible asset and disclosed at cost until construction or development is complete, at which time
it becomes investment property. Gains or losses arising from the re-measurement of fair value are
recognised in the income statement.
If the property used in ownership becomes investment property, that property is measured according to its fair value and reclassified to investment property. Gains arising during re-measurement
are recognised directly in equity. Losses are recognised directly in the income statement.
The Group does not classify property used primarily in ownership as investment property.
F-17
Notes to the Financial Statements of the Nova KBM Group
Property acquired as payment for receivables
Upon initial recognition, the Group measures property acquired as payment for receivables based
on an appraiser’s records, which are obtained upon the payment of the receivables. They are later
measured at fair value. The Group holds the property acquired for sale and discloses it in inventories.
The Group obtains the fair value from a licensed real estate appraiser at the end of each financial
year if the property is not sold within one year of acquisition.
Non-current assets held for sale
The Group categorises assets that no longer have any commercial benefit and are intended for sale
as non-current assets held for sale.
Property, plant and equipment held for sale are measured at the lower of book and fair value,
reduced by the costs of sale or depreciation, until exclusion from use.
Assets held for sale are shown as an individual item in the balance sheet.
The Group has defined recognition, measurement, revaluation and derecognition of property, plant
and equipment, intangible assets, investment property, property acquired as payment for receivables and current assets held for sale in an internal act.
Financial assets
Upon initial recognition, the Group classifies financial instruments with regard to the purpose
of acquisition, the period held and type of financial instrument into the following categories:
Financial assets designated at fair value through profit or loss are classified as financial instruments held for trading and other financial instruments designated at fair value through profit
or loss. The Group classifies instruments intended for active trading and benefiting from current price fluctuations as financial instruments held for trading. Equity and debt securities and
derivatives, except those intended as insurance, are classified into this category.
Financial assets held to maturity are assets with defined or definable payments and defined
maturity for which the Group attests to the purpose and capacity to hold the assets to maturity.
Financial assets available for sale are assets that the Group intends to hold for an undetermined
time and which can be sold owing to liquidity requirements, changes in interest rates, exchange
rates or the prices of financial instruments.
Financial investments in the equity of other companies are non-current investments in the
equity of subsidiaries and associates in which the Group invests for the purpose of exercising
controlling or significant influence on the operations of those companies.
Loans and receivables are financial assets with defined or definable payments that are not traded
on an active market.
Upon the adoption of a decision to purchase securities or investments in the equity of other companies, the management board of an individual member of the Group also defines the purpose of the
investment and determines its method of valuation.
Purchases of financial instruments measured at fair value through profit or loss are recognised
in the Group’s accounts on the date the transaction was concluded.
Financial assets, excluding financial instruments measured at fair value through profit or loss,
are initially measured at fair value (cost), increased by transaction costs.
F-18
Gains and losses from financial assets measured at fair value are recognised in the income statement in the period to which they relate. For financial assets available for sale, gains and losses are
recognised in equity and are transferred to the income statement upon derecognition, i.e. when the
assets are sold or impaired.
Loans and financial assets held to maturity are measured at amortised cost.
Financial assets are derecognised when the Bank’s contractual rights to cash flows expire or if the
Bank transfers the assets to another party, including management thereof or all risks and benefits
arising from the assets. Purchases and sales performed in a customary manner are calculated on the
day of the transaction, i.e. the date when the Bank binds itself to purchase or sell the assets.
Valuation of financial instruments
The Group applies provisions and criteria for the impairment of financial assets set out in the
following methodologies:
Methodology for assessing credit risk losses,
Methodology for recognising insurance during the impairment of financial assets,
Methodology for classifying and valuing financial instruments.
Measuring financial instruments at fair value
The following are measured at fair value: financial instruments classified as held for trading and
financial instruments measured at fair value through profit or loss and available for sale.
The fair value of financial instruments is based on a published market price as at the balance sheet
date. If the market price is unknown, fair value is determined based on a model of discounted future
cash flows or on a pricing model.
Debt instruments available for sale are recorded at fair value. The effects of valuation are recognised
in equity. If impartial evidence exists that the asset is impaired, the loss recognised in equity shall
be eliminated and recognised in the income statement. A loss recognised as such can be reversed.
Financial instruments measured at amortised cost
The impairment of financial instruments held to maturity is possible if impartial evidence of impairment exists.
The amount of impairment loss is measured as the difference between the asset’s carrying amount
and the present value of future cash flows discounted by the original interest rate. The value of
losses is recognised in the income statement.
Derivatives, including foreign currency forward transactions, swaps with the Bank of Slovenia, currency options and forward transactions in securities are used by the Bank for trading and hedging.
They are valued at market prices and based on valid currency exchanges lists of the Bank of Slovenia
or by contractual future value. All changes to fair value are recognised in the income statement.
Loans and receivables
The Group records loans at amortised cost. Loans are disclosed in the amount of outstanding principles, increased by outstanding interest and fees and commissions and decreased by appropriate
impairment in accordance with Nova KBM’s methodology for assessing credit risk losses.
Fees and commissions paid in advance for non-current loans are accrued by the Group at the effective interest rate.
F-19
Notes to the Financial Statements of the Nova KBM Group
The Group continuously assesses (or at a minimum quarterly) whether impartial evidence exists or
events have occurred since recognition and whether these events have an impact on the future cash
flows of a financial asset or group of financial assets and can be reliably assessed. Significant information that indicates impairment of a financial asset are default and the probability of bankruptcy,
composition or financial reorganisation.
The amount of impairment loss is measured as the difference between the asset’s carrying amount
and the present value of future cash flows discounted at the contractual interest rate. Whenever the
Group uses first-class or adequate insurance, it takes into account the expected cash flows from
liquidation of the insurance. The carrying amount of the asset is decreased directly or through
an impairment account. The value of losses is recognised in the income statement.
If the value of the impairment decreases in the following period, the previously recognised impairment loss is eliminated. The value of eliminated losses is recognised in the income statement.
Cash equivalents
Cash equivalents are current, highly liquid investments that can be quickly converted to a known
amount of cash and for which the risk of changes in value is negligible.
The Group includes the following in cash equivalents:
cash and balances on settlement and current accounts,
loans to banks with an original maturity of up to three months,
investments in government debt securities of EU Member States and securities of central banks
and the ECB with an original maturity of up to three months.
Financial liabilities
Financial liabilities are liabilities to customers for deposits, loans received, securities issued and
other liabilities from financing activities.
They are disclosed in the balance sheet in the amount of cash received based on agreements and
are measured at amortised cost. They are increased by the amount of returns and decreased by the
amount of repayments.
Provisions
The Group recognises non-current provisions for liabilities and expenses owing to present obligation
(legal or constructive) arising from past event for which it is possible that an outflow of resources
enabling an inflow of economic benefits will be required to settle the obligation and a reasonable
estimate of the obligation can be made. The Group forms provisions for pensions and similar liabilities, for off-balance sheet liabilities, for pending legal issues and other provisions.
The Group forms provisions for pensions and similar liabilities that reflect the present value of liabilities for termination benefits and loyalty bonuses. A calculation is performed for every employee
in such a manner that termination benefits at retirement provided for by an employment contract are
taken into account, as well as the costs of expected loyalty bonuses for total years of service at the
company until retirement. A certified actuary performs the calculation of liabilities for the Group
using the book provision method.
When calculating present value a discount interest rate is used that is equal to the market rate of
return on the corporate bonds of an issuer with a high credit rating, issued in a currency that is the
same as the currency of the employer’s liabilities.
The Group recognises provisions for off-balance sheet liabilities when conditions are met in accordance with the Methodology for assessing credit risk losses.
F-20
Financial and operating income and expenses
Income is recognised when there is a probability of a future economic benefit which can be reliably
measured.
Interest income and expenses are disclosed in accrued amounts at a level, with maturities and in the
manner set out in the Bank’s decision on interest rates or based on an agreement between a member
of the Group and its customer.
Interest income and expenses
All interest income and expenses from operations with financial assets are recognised in the income
statement using the effective interest rate method.
The following are disclosed in interest expenses: normal, default and accrued interest and prepaid
compensation for repayment costs for non-current loans to households. Compensation is transferred
to income according to the loan repayment period.
Liabilities arising from deposits, issued securities, loans received and other expenses from financial
liabilities are included in interest expenses.
Dividend income
Dividends or participating interests received from capital investments in companies are included
in dividend income.
Income and expenses from fees and commissions
Income includes fees and commissions arising from services performed in accordance with the valid
Tariff or based on the provisions of an agreement between a member of the Group and its customer.
Expenses for fees and commissions include amounts paid for the services of others pursuant to
an agreement between a member of the Group and a creditor.
As a rule, income and expenses are disclosed in the income statement when the related service
is performed.
Income and expenses from financial transactions
The Group discloses the following in income and expenses from financial transactions: realised
gains and losses from financial assets that are not measured at fair value through profit or loss and
gains and losses from the trading of equity and debt securities and derivatives measured at fair
value through profit and loss.
Other operating gains and losses
Income from the leasing of business premises and other income are included in other gains.
Expenses for contributions, subscriptions and other operating expenses are included in other losses.
Impairments
The Group discloses the following in impairments: impairments of financial assets measured
at amortised cost based on criteria set out in the Methodology for assessing credit risk losses and
impairments of investment property based on the assessment of a certified appraiser.
F-21
Notes to the Financial Statements of the Nova KBM Group
Taxes
Tax expense related to profit or loss from continuing operations is shown as the amount charged
by each member of the Group in accordance with local legislation. The amount is shown as the sum
of taxes relating to profit or loss in the consolidated income statement.
Deferred tax is calculated for all temporary differences between the value of assets and liabilities
for tax purposes and their carrying amount at tax rates for 2007 pursuant to valid tax legislation,
know already in 2006.
The most significant temporary differences arise from the valuation of financial instruments and
investment properties and from provisions.
Deferred tax asset is recognised for all deductible temporary differences to the extent that it
is probable that future taxable income will be available against which temporary differences can
be applied.
Deferred tax relating to the valuation of financial instruments available for sale and measured
at amortised cost is directly disclosed in equity.
Reporting by segments
A segment is recognisable as an integral part of the Group dealing with products or services (business segment) or products and services in a particular economic environment (geographical segment) and is subject to risks and returns different from those in other segments. The Group’s reporting is based on business segments. The Group does not report by geographical segment as more
than 90% of operations are carried out in the territory of Slovenia.
F-22
3 E x posu r e t o Va r ious R isk s
Credit risk
Credit risk is the risk of loss owing to the failure of a bank’s debtor to discharge its liabilities. Credit
risk management is the continuous monitoring and analysing of an individual business partner,
supervision of approved investments, monitoring of the adequacy regarding the insurance of investments, measuring and analysing of shifts in a portfolio with regard to its composition (activity, sector, size, etc.) and quality.
Companies in the Group give special attention to assessing material financial assets and contingent
off-balance sheet liabilities. If during the assessment of material financial assets and contingent offbalance sheet liabilities the companies identify potential losses or if a claim to a debtor is insured
with collateral that can be used to mitigate credit risk (first-class or adequate insurance) the claim
is generally impaired individually. If an individual impairment or provision is not necessary, the
debtor’s claims are impaired collectively.
The extent of expected losses is the basis for the formation of impairments of assets to their recoverable amount and the creation of provisions for off-balance sheet items.
The Group disclosed impairments of financial assets as at 31 December 2006 in the amount of SIT
54,931 million (SIT 11,531 million for individual impairment of financial assets and SIT 43,400
million for collective impairment). The Group had provisions for off-balance sheet liabilities totalling SIT 3,698 million as at 31 December 2006. Individual and collective impairments of off-balance sheet liabilities were SIT 985 million and SIT 2,714 million, respectively.
Coverage of non-performing claims (categories C, D and E) with collective impairment and provisions was 87% as at 31 December 2006.
a) credit risk (continued)
Balance sheet claims to
banks
2006
Balance sheet claims to the
non-banking sector
2005
2006
2005
Off-balance sheet liabilities
2006
2005
Total
2006
2005
Individual impairment
Credit rating category A
61,375,834
39,708,111
68,733,122
65,328,586
3,132,824
2,997,674
133,241,780
108,034,371
Credit rating category B
13,322
244,760
39,171,814
18,236,801
5,183,125
1,662,948
44,368,261
20,144,509
Credit rating category C
0
0
7,279,456
7,845,238
2,148,673
997,164
9,428,129
8,842,402
Credit rating category D
0
0
6,622,048
3,425,968
24,146
533,728
6,646,194
3,959,696
Credit rating category E
51,692
50,535
2,401,879
703,367
43,211
0
2,496,782
753,902
61,440,848
40,003,406
124,208,319
95,539,960
10,531,979
6,191,514
196,181,146
141,734,880
Gross value
Impairments/provisions
126,250
117,557
11,405,065
6,769,508
984,790
1,013,283
12,516,105
7,900,348
61,314,598
39,885,849
112,803,254
88,770,452
9,547,189
5,178,231
183,665,041
133,834,532
Credit rating category A
45,235,301
71,460,360
421,778,812
314,408,691
96,715,970
23,344,657
563,730,083
409,213,708
Credit rating category B
0
2
91,361,399
67,884,579
14,005,450
16,169,836
105,366,849
84,054,417
Credit rating category C
0
0
12,992,586
10,186,097
3,376,098
3,066,880
16,368,684
13,252,977
Credit rating category D
0
0
4,257,374
5,694,274
1,247,854
53,037
5,505,228
5,747,311
Credit rating category E
0
0
26,798,966
31,067,639
96,500
182,632
26,895,466
31,250,271
45,235,301
71,460,362
557,189,137
429,241,280
115,441,872
42,817,042
717,866,310
543,518,684
0
0
43,400,390
44,164,494
2,713,656
1,620,498
46,114,046
45,784,992
Net value
45,235,301
71,460,362
513,788,747
385,076,786
112,728,216
41,196,544
671,752,264
497,733,692
Total gross value
106,676,149
111,463,768
681,397,456
524,781,240
125,973,851
49,008,556
914,047,456
685,253,564
Net value
Collective impairment
Gross value
Impairments/provisions
F-23
Notes to the Financial Statements of the Nova KBM Group
b) Interest rate risk
Interest rate risk is the risk of a loss arising due to changes in interest rates or the structure of interest rates at maturity mismatches of interest bearing assets and liabilities with regard to the maturity
of interest rate repricing and the method of charging interest. The majority of exposures in the Group
are in Slovenian tolars and euros. The table below shows a breakdown of items with regard to the
interest rate repricing period. The Group manages exposure to interest rate changes by reconciling
the manner of charging interest for assets and liabilities and by taking into account the characteristics of individual items.
Assets – 31 December 2006
BLANCE SHEET ITEM
TOTAL
Non-interest
bearing
Interest
bearing
Sight
Up to 1
month
1 to 3
months
3 to 12
months
Over 1 year
and up to
5 years
Over 5 years
Cash and cash balance
with central banks
26,299,480
12,815,820
13,483,660
10,984,649
2,499,011
0
0
0
0
Financial assets held for
trading
32,571,271
14,269,246
18,302,025
0
174,400
4,394,687
5,273,407
5,788,920
2,670,611
10,598,748 177,754,646
0
23,462,836
51,491,572
28,101,126
29,661,681
45,037,431
Available-for-sale
fi nancial assets
188,353,394
Loans and receivables
648,769,012
1,689,251
647,079,761
24,552,792
475,364,019
23,190,194
71,285,286
37,206,890
15,480,579
70,176,247
0
70,176,247
0
52,377,196
563,823
2,130,073
2,048,573
13,056,583
424
424
0
0
0
0
0
0
0
18,958,762
18,958,762
0
0
0
0
0
0
0
Investment property
1,403,886
1,403,886
0
0
0
0
0
0
0
Intangible assets
5,510,655
5,510,655
0
0
0
0
0
0
0
10,406,354
10,406,354
0
0
0
0
0
0
0
Held to maturity
investments
Accrued interest income
on fi nancial assets
Property, plant
and equipment
Investments in
subsidiaries, associates
and joint ventures
Tax assets
Other assets
Non-current assets and
disposal groups classified
as held for sale
Total assets
931,258
931,258
0
0
0
0
0
0
0
16,986,815
5,333,038
11,653,777
1,683,452
140,514
276,029
1,193,288
4,419,518
3,940,976
8,273
8,273
0
0
0
0
0
0
0
81,925,716 938,450,116
37,220,893
554,017,977
79,916,304 107,983,180
79,125,581
80,186,180
1,020,375,832
F-24
Liabilities – 31 December 2006
BLANCE SHEET ITEM
TOTAL
Non-interest
bearing
Interest
bearing
Sight
Up to 1
month
1 to 3
months
3 to 12
months
Over 1 year
and up to
5 years
Over 5 years
0
0
0
107,635 921,318,379 211,829,296 255,477,209 168,900,965 244,734,637
34,153,889
6,222,382
1,629,995
33,792
217
6,075
Liabilities
Financial liabilities held
for trading
Financial liabilities
measured at amortised
cost
36,895
921,426,014
36,895
31,904
0
4,468,394
0
836
0
0
Accrued interest
expenses on fi nancial
liabilities
4,500,298
1,792,376
1,011,178
Provisions
6,987,250
6,981,175
6,075
Tax liabilities
1,783,909
1,396,047
387,862
0
0
0
0
0
0
256,935
0
130,927
0
Other liabilities
8,697,600
7,909,545
788,055
12,161
0
757,727
0
18,167
0
0
Basic equity capital
5,839,496
5,839,496
0
0
0
0
0
0
0
Share premium account
6,969,291
6,969,291
0
0
0
0
0
0
0
Revaluation reserves
3,960,355
3,960,355
0
0
0
0
0
0
0
Reserves from profit
(including retained
earnings)
54,101,697
54,101,697
0
0
0
0
0
0
0
Treasury shares
(6,522)
(6,522)
0
0
0
0
0
0
0
Net income
from current year
3,289,925
3,289,925
0
0
0
0
0
0
0
Equity of minority
shareholders
2,789,624
2,789,624
0
0
0
0
0
0
0
93,407,067 926,968,765 211,842,293 258,284,247 169,912,144
246,513,726
34,187,681
6,228,674
Total liabilities
and equity
1,020,375,832
Net exposure to interest
rate risk (1) minus (2)
0 (11,481,351)
Cumulative exposure
Off-balance sheet items
(B.1 – B.4)
0
11,481,351
0
201,155,129 201,155,129
(174,621,400) 295,733,730
(89,995,839)
(138,530,547)
44,937,901
73,957,506
0 (174,621,400) 121,112,330
31,116,491
(107,414,056)
(62,476,155)
11,481,351
0
0
0
0
Over 1 year
and up to 5
years
Over 5 years
0
0
0
Interest rate risk as at 31 December 2005
BLANCE SHEET ITEM
TOTAL
Non-interest
bearing
Interest
bearing
Sight
Total assets (1)
843,027,267
61,682,745 781,344,522
Total liabilities and
equity (2)
843,027,267
92,122,679 750,904,588
Net exposure to interest
rate risk (1) minus (2)
Cumulative exposure
Off-balance sheet items
(B.1 – B.4)
0 (30,439,935)
0
0
30,439,934
0
141,865,372 141,865,372
F-25
Up to 1
month
30,435,188 561,897,226
1 to 3
months
3 to 12
months
35,677,720
53,929,395
42,967,121
56,437,872
941,076
616,729,375
66,875,607
45,306,492
15,160,433
5,891,606
29,494,113
(54,832,149)
(31,197,887)
8,622,903
27,806,688
50,546,267
29,494,113 (25,338,036) (56,535,924) (47,913,020)
(20,106,333)
30,439,934
Notes to the Financial Statements of the Nova KBM Group
c) Liquidity risk
Liquidity risk arises from maturity mismatch between assets and liabilities. The table below
provides shows the Group’s structural liquidity
Assets – 31 December 2006
BLANCE SHEET ITEM
TOTAL
Sight
Up to 1 month
1 to 3 months
3 to 12
months
Over 1 year
and up to 5
years
Over 5 years
Cash and cash balance with the central banks
26,299,480
26,299,480
0
0
0
0
0
Financial assets held for trading
32,571,271
0
32,571,271
0
0
0
0
Available-for-sale fi nancial assets
188,353,394
0
188,353,394
0
0
0
0
Loans and receivables
648,769,012
34,820,204
100,700,272
88,394,090
148,147,547
177,733,707
98,973,192
70,176,247
0
9,007,953
569,168
21,183,453
2,042,842
37,372,831
424
184
240
0
0
0
0
18,958,762
1,664,850
1,923
788,404
93,134
776,501
15,633,950
Investment property
1,403,886
453,319
652
1,304
78,932
31,308
838,371
Intangible assets
5,510,655
92,194
79
1,606,870
6,707
362,428
3,442,377
10,406,354
0
0
0
0
0
10,406,354
Held to maturity fi nancial assests
Accrued interest income on fi nancial assets
Property, plant and equipment
Investments in subsidiaries, associates and
joint ventures
Tax assets
Other assets
931,258
759,645
0
0
28,670
124,059
18,884
16,986,816
2,696,693
1,323,981
483,646
1,318,024
7,060,527
4,103,945
8,273
2,967
0
0
5,306
0
0
1,020,375,832
66,789,536
331,959,765
91,843,482
170,861,773
188,131,372
170,789,904
Up to 1 month
1 to 3 months
Over 1 year
and up to 5
years
Over 5 years
Non-current assets and disposal groups
classified as held for sale
Total assets
Liabilities – 31 December 2006
BLANCE SHEET ITEM
TOTAL
Sight
3 to 12
months
Liabilities
Financial liabilities held for trading
36,895
0
36,895
0
0
0
0
921,426,014
269,729,670
133,161,141
150,182,621
99,052,440
231,457,288
37,842,854
Accrued interest expenses on fi nancial
liabilities
4,500,298
10,255
1,067,365
2,438,932
776,352
188,127
19,267
Provisions
6,987,250
186,475
286,941
670,989
1,536,405
3,399,142
907,298
Tax liabilities
1,783,909
0
914,564
0
748,367
120,978
0
Other liabilities
8,697,600
4,827,088
3,114,699
322,979
193,204
149,966
89,664
Basic equity capital
5,839,496
0
0
0
0
0
5,839,496
Share premium
6,969,291
0
0
0
0
0
6,969,291
Revaluation reserves
3,960,355
0
3,960,355
0
0
0
0
54,101,697
0
0
0
0
0
54,101,697
Financial liabilities measured
at amortised cost
Reserves from profit
(including retained earnings)
Treasury shares
Net income from current year
Interim dividends
Equity of minority shareholders
Total liabilities and equity
Mismatch (1) minus (2)
Expected outflow relating
to contingent liabilities
Total mismatch (1) – (2) – (3)
(6,522)
0
0
0
0
0
(6,522)
3,289,925
0
0
0
3,289,925
0
0
0
0
0
0
0
0
0
2,789,624
0
0
0
0
0
2,789,624
1,020,375,832
274,753,488
142,541,960
153,615,521
105,596,693
235,315,501
108,552,669
0
(207,963,952)
189,417,805
(61,772,039)
65,265,080
(47,184,129)
62,237,235
68,000
136,000
612,000
348,000
273,000
189,349,805
(61,908,039)
64,653,080
(47,532,129)
61,964,235
1,437,000
(1,437,000)
(207,963,952)
F-26
Liquidity risk as at 31 December 2005
BLANCE SHEET ITEM
TOTAL
Sight
Up to 1 month
1 to 3 months
3 to 12
months
Over 1 year
and up to 5
years
Over 5 years
144,726,011
Total assets (1)
843,027,267
49,586,574
227,487,647
70,718,677
149,394,789
201,113,569
Total liabilities and equity (2)
843,027,267
240,195,679
122,717,739
139,645,614
95,059,704
150,956,106
94,452,425
0 (190,609,105)
104,769,908
(68,926,937)
54,335,084
50,157,463
50,273,586
39,735,378
20,779,342
57,214,470
15,182,428
3,404,144
Mismatch (1) minus (2)
Off-balance sheet items (B.1 – B.4)
141,865,372
5,549,610
d) Currency risk
Currency risk represents the potential loss due to an unreconciled foreign currency sub-balance
and the volatility of foreign exchange rates. The Group monitors the exposure to currency risk by
controlled opening of the foreign currency positions. The open foreign currency position for other
currencies in the amount of SIT 5.5 billion relates to financial assets available for sale. The amount
in HRK relates to the company Multiconsult.
Assets – 31 December 2006
BLANCE SHEET ITEM
Total
EUR
USD
Other
currencies
SIT
Currency clause
Cash and cash balance with the central banks
26,299,480
2,243,063
135,125
348,741
23,572,551
0
Financial assets held for trading
32,571,271
17,044,776
8,964
0
15,093,538
423,993
Available-for-sale fi nancial assets
188,353,394
63,120,705
906,794
5,353,306
116,028,081
2,944,508
Loans and receivables
648,769,012
291,750,089
13,732,396
30,138,230
290,512,585
22,635,712
70,176,247
9,204,776
0
0
60,166,834
804,637
424
0
0
0
424
0
18,958,762
0
0
56,667
18,902,095
0
1,403,886
0
0
0
1,403,886
0
Held to maturity investments
Accrued interest income on fi nancial asset
Property, plant and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates
and joint ventures
Tax assets
Other assets
Non-current assets and disposal groups
classified as held for sale
Total assets
5,510,655
0
0
5,457
5,505,198
0
10,406,354
0
0
0
10,406,354
0
931,258
24,371
413
0
906,474
0
16,986,816
342,495
11,349
16,131
5,346,687
11,270,154
8,273
0
0
0
8,273
0
1,020,375,832
383,730,275
14,795,041
35,918,532
547,852,980
38,079,004
F-27
Notes to the Financial Statements of the Nova KBM Group
Liabilities – 31 December 2006
BLANCE SHEET ITEM
Total
EUR
USD
Other
currencies
SIT
Currency clause
Liabilities
Financial liabilities held for trading
36,895
0
0
0
36,895
0
921,426,014
369,928,120
14,955,005
28,980,612
497,643,615
9,918,662
Accrued interest expenses
on fi nancial liabilities
4,500,298
2,286,002
84,327
43,797
2,018,575
67,597
Provisions
6,987,250
47,460
0
0
6,889,308
50,482
Tax liabilities
1,783,909
0
0
0
1,783,909
0
Other liabilities
8,697,600
1,552,363
5,477
186,509
6,953,251
0
Basic equity capital
5,839,496
0
0
0
5,839,496
0
Share premium account
6,969,291
0
0
0
6,969,291
0
Financial liabilities measured
at amortised cost
Revaluation reserves
Reserves from profit
(including retained earnings)
Treasury shares
Net income from current year
3,960,355
0
0
928
3,959,427
0
54,101,697
0
0
(1,254)
54,102,951
0
0
(6,522)
0
0
0
(6,522)
3,289,925
0
0
(41,866)
3,331,791
0
0
0
0
0
0
0
Interim dividends
Equity of minority shareholders
Total liabilities and equity
2,789,624
0
0
15,661
2,773,963
0
1,020,375,832
373,813,945
1 5,044,809
29,184,387
592,295,950
10,036,741
0
9,916,330
(249,768)
6,734,145
(44,442,970)
28,042,263
Mismatch (1) minus (2)
Currency risk as at 31 December 2005
BLANCE SHEET ITEM
Total
EUR
USD
Other
currencies
SIT
Currency clause
Total assets (1)
843,027,267
254,834,628
16,272,663
6,570,899
506,730,162
Total liabilities and equity (2)
843,027,267
263,531,874
16,190,974
6,473,849
540,635,103
16,195,467
0
(8,697,246)
81,689
97,049
(33,904,941)
42,423,448
141,865,372
30,669,568
4,889,752
609,368
105,696,684
0
Mismatch (1) minus (2)
Off-balance sheet items (B.1 – B.4)
58,618,915
e) Geographical breakdown of the balance sheet as at 31 December 2006
Assets – 31 December 2006
BLANCE SHEET ITEM
Cash and cash balance
with the central banks
Financial assets held for trading
Total
Slovenia
26,299,480
26,299,480
32,571,271
Total abroad
0
European
Union
Republics
of the
former
Yugoslavia
0
0
Other
0
15,386,580
17,184,691
16,454,162
768
729,762
Available-for-sale
financial assets
188,353,394 127,109,247
61,244,147
42,324,641
5,353,306
13,566,201
Loans and receivables
648,769,012 591,674,855
Held to maturity investments
Accrued interest income
on financial assets
Property, plant and equipment
57,094,157
40,553,804
11,242,708
5,297,644
70,176,247
69,979,366
196,881
196,881
0
0
424
424
0
0
0
0
0
18,958,762
18,902,095
56,667
0
56,667
Investment property
1,403,886
1,403,886
0
0
0
0
Intangible assets
5,510,655
5,505,198
5,457
0
5,457
0
10,406,354
8,560,603
1,845,751
1,845,751
0
0
Investments in subsidiaries,
associates and joint ventures
Tax assets
Other assets
Non-current assets and disposal
groups classified as held for sale
Total assets
931,258
931,258
0
0
0
0
16,986,815
16,920,790
66,026
44,582
12,263
9,181
8,273
8,273
0
0
0
0
1,020,375,832 882,682,054 137,693,778
101,419,821
16,671,170
19,602,787
F-28
Liabilities – 31 December 2006
BLANCE SHEET ITEM
Total
Slovenia
Total abroad
European
Union
Republics
of the former
Yugoslavia
Other
Liabilities
Financial liabilities held for
trading
Financial liabilities measured
at amortised cost
36,895
921,426,014
Accrued interest expenses
on financial liabilities
4,500,298
Provisions
Tax liabilities
0
36,895
36,895
0
0
700,535,757 220,890,257 217,259,486
1,584,122
2,046,649
1,560,605
7,075
14,929
85,192
2,917,689
1,582,609
6,987,250
6,667,173
320,077
0
234,885
1,783,909
1,783,909
0
0
0
0
Other liabilities
8,697,600
8,416,180
281,420
208,923
64,489
8,008
Basic equity capital
5,839,496
5,839,496
0
0
0
0
Share premium account
6,969,291
6,969,291
0
0
0
0
Revaluation reserves
Reserves from profit
(including retained earnings)
Treasury shares
Net income from current year
Equity of minority shareholders
Total liabilities and equity
3,960,355
3,959,427
928
0
928
0
54,101,697
53,980,933
120,764
122,018
(1,254)
0
(6,522)
(6,522)
0
0
0
0
3,289,925
3,201,403
88,522
130,388
(41,866)
0
2,789,624
2,773,963
15,661
0
15,661
0
1,020,375,832 797,038,699 223,337,132
219,318,315
1,864,040
2,154,778
85,643,355 (85,643,355) (117,898,494)
14,807,130
17,448,009
Net exposure (1) minus (2)
0
Geographical breakdown of the balance sheet as at 31 December 2005
BLANCE SHEET ITEM
Total
Slovenia
Total abroad
Republics
of the former
Yugoslavia
Other
Total assets (1)
843,027,267 758,042,938
59,644,416
10,335,253
15,004,660
Total liabilities and equity (2)
843,027,267 716,922,231 126,105,036 109,331,375
2,232,161
14,541,500
Net exposure (1) minus (2)
Off-balance sheet items
(B.1 – B.4)
84,984,329
European
Union
0
41,120,707
(41,120,707)
(49,686,958)
8,103,092
463,160
141,865,372
140,601,370
1,264,002
0
991,799
272,203
F-29
Notes to the Financial Statements of the Nova KBM Group
4 Br e a k dow n by Busi n e ss Segm en t s
Analysis by operating segments (business segments) as at 31 December 2006
Business network
Interest net income
Operations with
companies
Financial markets
Other
(unclassified)
Total
10,446,721
7,926,472
4,738,932
924,299
6,718,190
3,040,124
(448,111)
181,192
9,491,395
4,426
230,348
1,086,757
0
1,321,531
Realised gains and losses on fi nancial assets
and liabilities not measured at fair value through
profit or loss
420,987
(53,751)
93,334
(35,803)
424,767
Gains and losses on fi nancial assets and liabilities
held for trading
578,476
41,678
3,132,893
(580)
3,752,467
Fees and commissions net income
Dividend income
24,036,424
Net exchange differences
(5,806)
19,285
(361,652)
362
(347,811)
Gains and losses on derecognition of assets other
than held for sale
71,991
293,730
203,750
48,992
618,463
3,992,861
Other operating net income
581,325
1,085,138
98,956
2,227,442
5,348,965
(4,168,448)
(1,180,517)
0
0
Income by segments
24,165,275
8,414,576
7,364,342
3,345,904
43,290,097
Profit or loss before tax from continuing operations
15,088,793
1,308,476
3,821,194
(7,548,209)
13,361,672
226,689
29,994
0
1,888,661
2,477,990
Income between segments
Tax expense (income) related to profit or loss from
continuing operations
Net profit or loss for the fi nancial year
0
0
0
0
10,883,682
Assets by segments
364,119,046
213,821,409
409,517,072
32,918,305
1,020,375,832
Liabilities (excluding capital) by segments
553,949,950
73,061,454
302,624,825
13,795,737
943,431,966
2,995,156
3,278,848
(3,968)
52,598
6,322,634
Depreciation and amortisation
994,384
115,533
12,963
1,518,329
2,663,291
Cost of assets acquired
800,543
83,256
8,906
3,191,483
7,435,623
Provisions and impairments
Analysis by business segments as at 31 December 2005
Business network
Operations with
companies
Financial markets
Other
(unclassified)
Total
Interest net income
8,284,361
6,261,477
6,225,177
605,739
Fees and commissions net income
6,352,920
2,881,646
(293,577)
(55,058)
8,885,931
Dividend income
260,570
201,657
924,674
0
1,386,901
Realised gains and losses on fi nancial assets and
liabilities not measured at fair value through profit
or loss
128,701
0
(357,809)
0
(229,108)
Gains and losses on fi nancial assets and liabilities
held for trading
625,675
136,752
4,865,873
(30,996)
5,597,304
(5,150)
(5,308)
(15,386)
(30)
(25,874)
(23,675)
19,690
314,921
8,758
319,694
1,733,393
Net exchange differences
Gains and losses on derecognition of assets other
than held for sale
Other operating net income
21,376,754
651,419
1,019,068
727
62,179
6,556,069
(2,925,271)
(3,630,798)
0
0
Income by segments
22,830,890
7,589,711
8,033,802
590,592
39,044,995
Profit or loss before tax from continuing operations
16,860,372
2,927,187
4,146,062
(11,244,825)
13,199,183
51,718
0
0
1,974,068
2,223,043
Income between segments
Tax expense (income) related to profit or loss from
continuing operations
Net profit or loss for the fi nancial year
0
0
0
0
10,976,140
Assets by segments
209,273,736
162,291,908
374,290,073
97,171,550
843,027,267
Liabilities (excluding capital) by segments
484,760,730
79,229,863
197,988,501
13,265,878
775,244,972
1,450,998
1,593,027
55,693
1,735,305
4,835,023
Depreciation and amortisation
929,684
112,538
12,312
1,063,509
2,118,043
Cost of assets acquired
950,153
187,112
10,154
5,732,284
8,112,213
Provisions and impairments
F-30
No t e s t o t h e I nc om e S tat em en t
5 Interest net income
a) breakdown of interest by sector
2006
Income
2005
Expenses
Income
Expenses
17,209,089
3,531,878
13,928,273
State
6,384,935
1,324,590
7,366,821
956,274
Banks
6,322,807
4,698,750
5,377,539
2,595,254
Non-financial corporations
Other financial organisations
2,310,489
1,155,405
2,179,956
491,965
3,408,871
12,213,453
7,399,552
10,506,284
6,646,382
Foreign entities
724,877
893,060
327,571
735,315
Non-profit household service providers
137,197
83,553
93,711
62,825
44,147,763
20,111,339
38,092,164
16,715,410
Households
Total
b) breakdown of interest by type
2006
Ordinary interest
Default interest
Other interest
Total
2005
Income
Expenses
Income
43,054,961
20,064,569
36,954,508
Expenses
1,027,024
144
1,082,679
822
65,778
46,626
54,977
8,799
44,147,763
20,111,339
38,092,164
16,715,410
16,705,789
c) breakdown of interest income and expense by type of assets and liabilities
2006
Current
2005
Non-current
Current
Non-current
Interest income
Interest on balances with the central banks
123,872
0
132,389
188
Interest on financial assets held for trading
1,181,795
76,529
445,181
99,138
Interest on financial assets available for sale
Interest on loans and deposits (including interest
on finance leases)
Interest on financial assets held to maturity
Interest on other receivables
Total
Total by maturity
1,967,358
3,459,025
1,709,065
3,638,998
12,364,536
20,844,516
12,085,804
15,275,507
1,485,967
2,572,346
1,041,684
3,526,379
71,819
0
130,322
7,509
17,195,347
26,952,416
15,544,445
22,547,719
44,147,763
38,092,164
Interest expense
Interest on financial liabilities to central banks
Interest on financial liabilities held for trading
Interest on financial liabilities measured at
amortised cost
Interest on other financial liabilities (including
interest on finance leases)
Total
51,084
0
216,934
0
0
15,194
0
9,299,952
10,661,902
8,215,589
8,139,389
98,401
0
126,044
2,260
9,449,437
10,661,902
8,573,761
8,141,649
Total by maturity
20,111,339
16,715,410
Net interest
24,036,424
21,376,754
0
The Group generates most of its interest income (75.1%) on loans and deposits. Compared to 2005,
the share of this type of income increased by 4.3 percentage points.
F-31
Notes to the Financial Statements of the Nova KBM Group
d) net interest
2006
2005
Total interest income
44,147,763
Total interest expense
20,111,339
16,715,410
Net interest
24,036,424
21,376,754
38,092,164
The effect of subordinated debt on the Group’s interest expense was SIT 209,296 thousand in 2006.
6 Dividend income
2006
2005
265,317
Financial assets held for trading
– investments of banks
– investments of other issuers
Financial assets available for sale
– investments of banks
– investments
of other issuers
Investments in a Group company’s equity accounted
for using the cost method
– investments in the equity of subsidiaries
– investments in the equity of associates
Total
261,506
7,942
248
257,375
261,258
262,881
339,204
16,782
1,555
246,099
337,649
793,333
786,191
682,745
736,493
110,588
49,698
1,321,531
1,386,901
7 Fee and commission net income
a) breakdown of fees and commissions by sector
2006
Fees and commissions received
2005
12,469,660
11,268,452
6,481,481
5,573,598
State
261,422
261,209
Banks
219,820
568,676
Non-financial corporations
Other financial organisations
Households
Foreign entities
32,977
84,545
5,254,533
4,620,584
81,662
53,333
137,765
106,507
Fees and commissions paid
2,978,265
2,382,521
Net fees and commissions
9,491,395
8,885,931
Non-profit household service providers
F-32
b) breakdown of fees and commissions by type
2006
2005
Fee and commission income
680,372
581,055
Fees and commissions from domestic
payment transactions
4,374,389
3,680,905
Fees and commissions from international
payment transactions
1,050,321
984,995
Fees and commissions from brokerage
and commission-business
40,222
19,627
Fees and commissions from exchange
office services
245
702
Fees and commissions from securities
transactions for customers
145,461
8,090
Fees and commissions from guarantees given
Fees and commissions from credit operations
1,402,729
1,525,559
Fees and commissions from
administrative services
4,770,515
4,462,242
5,406
5,277
12,469,660
11,268,452
1,389,349
1,383,599
Fees and commissions for international
banking services
775,491
407,230
Fees and commissions for exchange
office services
162,816
142,583
Fees and commissions for brokerage
and commission-business
2,089
20
88,051
30,711
Fees and commissions from safekeeping
of objects and valuables
Total
Fee and commission expenses
Fees and commissions for domestic
banking services
Fees and commissions for stock exchange
transactions and other transactions
involving securities
Fees and commissions for payment transactions
304,244
184,274
Fees and commissions for other services
256,225
234,104
Total
2,978,265
2,382,521
Net fees and commissions
9,491,395
8,885,931
In the structure of fee and commission income, income from brokerage and commission-business
rose the most in relative terms, mainly due to an increased volume of commission-based loans.
With regard to fee and commission expenses, fees and commissions for international banking services recorded the largest growth. The increase is primarily the result of the Group’s more active
role in international financial markets.
F-33
Notes to the Financial Statements of the Nova KBM Group
8 Gains and losses on financial assets and liabilities not measured
at fair value through profit or loss
2006
Realised
gains
2005
Realised
losses
Net realised
gains/losses
Realised
gains
Realised
losses
Net realised
gains/losses
Available-for-sale
financial assets
354,032
114,285
239,747
136,015
481,579
(345,564)
Loans measured
at amortised cost
103,578
120,837
(17,259)
145,268
120,606
24,662
Held to maturity investments
0
13,880
(13,880)
0
840
(840)
Other financial assets
and liabilities
258,111
41,952
216,159
150,167
57,533
92,634
Total
715,721
290,954
424,767
431,450
660,558
(229,108)
Realised gains on available-for-sale financial assets include the amount of SIT 60,000 thousand
which was realised during the disposal of the capital investment in Steklarna Roga{ka.
9 Gains and losses on financial assets and liabilities held for trading
2006
Gains
Trading in equity securities
and shares
Trading in derivatives
Net gains/
losses
Gains
Losses
Net gains/
losses
5,488,846
2,216,850
3,271,996
4,579,985
6,417
4,573,568
342,004
1,810,387
(1,468,383)
509,847
311,455
198,392
1,407,911
461,872
946,039
1,059,404
303,802
755,602
Trading in debt securities
Trading in foreign currencies
(purchase/sale)
2005
Losses
1,157,065
220,866
936,199
202,828
197,643
5,185
– trading in derivatives
– futures/forwards
1,143,064
208,645
934,419
165,771
151,870
13,901
– trading in derivatives
– swaps
14,001
12,221
1,780
37,057
45,773
(8,716)
Trading in other financial assets
Total
66,616
0
66,616
64,635
78
64,557
8,462,442
4,709,975
3,752,467
6,416,699
819,395
5,597,304
10 Exchange differences
2006
2005
Foreign exchange gains
26.121.486
33.324.612
Foreign exchange losses
26.469.297
33.350.486
(347.811)
(25.874)
Total
F-34
11 Gains and losses on derecognition of assets other than assets held for sale
2006
Gains
Derecognition of property, plant
and equipment
Derecognition of intangible assets
2005
Losses
Net gains/
losses
Gains
Losses
Net gains/
losses
149,382
45,471
103,911
74,428
24,346
50,082
0
22,871
(22,871)
0
11,677
(11,677)
1,930
1,507
423
0
0
0
Derecognition of investments
in subsidiaries, associates
and joint ventures
376,014
0
376,014
309,868
0
309,868
Derecognition of other assets,
excluding assets in the process
of being sold
275,546
114,560
160,986
0
28,579
(28,579)
Total
802,872
184,409
618,463
384,296
64,602
319,694
Derecognition of investment
property
In 2006, the liquidation of the company Hotel Slavija d.d. was completed. Proceeds received by the
Group amounted to SIT 644,969 thousand. Following the derecognition of the capital investment,
the Group recognised a gain of SIT 203,022 thousand.
12 Other operating net income
2006
2005
Gains
Income from non-banking services
Income from investment property used
in operating leases
1,971,481
1,483,667
55,781
49,316
Other operating income
4,438,757
1,851,921
Total
6,466,019
3,384,904
150,260
125,553
94,293
91,294
Expenses
Taxes
Contributions
Other duties
1,974
2,923
65,934
64,340
Other operating expenses
2,160,697
1,367,401
Total
2,473,158
1,651,511
Other operating net income
3,992,861
1,733,393
Subscriptions, etc.
Other operating income of the Group in 2006 is partially comprised of default interest refunded to
Nova KBM d.d. charged on tax liabilities and imposed on the Bank by two decisions of the Tax Administration of the Republic of Slovenia relating to 1993 and 1994 in the amount of SIT 1,645,252
thousand and to 1999 and 2000 in the amount of SIT 711,082 thousand. Interest was refunded
pursuant to a decision of the Constitutional Court.
F-35
Notes to the Financial Statements of the Nova KBM Group
13 Administration costs
2006
2005
Staff expenses
Gross wages and salaries
9,535,423
8,721,728
Social security contributions
686,249
610,214
Contributions for pension insurance
805,527
742,221
Other contributions from gross wages
and salaries
543,726
557,848
Transportation allowance
303,045
286,865
Meal allowance
274,620
271,789
Employee bonuses
79,743
86,512
8,330
52,444
431,161
449,670
12,667,824
11,779,291
Costs of materials
438,761
534,428
Costs of energy
252,897
247,129
Termination benefits and early
retirement payments
Other labour costs arising from employment
contracts
Total
General and administrative expenses
Costs of specialised literature
65,118
63,942
Other costs
459,062
296,227
Expenses for property obtained through
operating lease
619,158
658,454
3,699,717
3,295,711
Third-party services
Business travel expenses
72,081
82,944
Maintenance costs of fi xed assets
1,294,397
1,416,935
Advertising costs
1,170,997
1,124,587
Entertainment costs
99,706
97,891
Consulting, auditing, accounting
and other services
509,776
304,782
School fees, scholarships and other training costs
157,233
165,955
Costs of insurance
157,742
171,956
Other administrative costs
66,929
51,365
9,063,574
8,512,306
Total
Lower costs of material are chiefly the result of standardising the purchase of materials at Nova
KBM d.d. and lower prices brought about by economies of scale. On the other hand, higher costs of
consulting, auditing and other services and higher administrative costs stem from increased activities of Nova KBM d.d. in international financial markets and higher IT support costs related to the
transition to IFRS and the adoption of the euro.
14 Depreciation and amortisation
2006
Depreciation of property, plant and equipment
2005
1,991,647
Amortisation of intangible assets
Total
F-36
1,535,671
671,644
582,372
2,663,291
2,118,043
15 Provisions
2006
Provisions for pensions and other post
retirement benefit liabilities
2005
125,994
Provisions for off-balance sheet liabilities
Provisions for pending legal issues
Other provisions
Total
74,927
1,064,659
391,796
553,255
613,326
6,655
105,094
1,750,563
1,185,143
In 2006, the Group made additional non-current provisions for pensions and other post retirement
benefits in the amount of SIT 124,866 thousand, based on an actuarial calculation.
The Group also made additional non-current provisions for pending legal issues in the amount of SIT
553,255 thousand and for off-balance sheet liabilities in the amount of SIT 12,637,434 thousand.
In 2006, the Group reversed unnecessary provisions in the amount of SIT 11,670,676 thousand
comprised mainly of the off-balance sheet liabilities totalling SIT 11,572,769 thousand.
16 Impairments
Impairments of financial assets not measured at fair value through profit or loss
2006
Available-for-sale financial assets
2005
0
735,565
Loans (including finance leases) measured
at amortised cost
4,546,939
2,876,577
Total impairments of financial assets not measured
at fair value through profit or loss
4,546,939
3,612,142
Impairments of other assets
2006
Property, plant and equipment
2005
9,983
Investment property
231
(2,359)
0
0
532
Other assets
17,508
36,975
Total impairments of other assets
25,132
37,738
4,572,071
3,649,880
Investments in capital of subsidiaries, associates
and joint ventures
Total impairments
The Group recognised the impairment of investment property based on the appraisal of a
licensed real estate appraiser.
F-37
Notes to the Financial Statements of the Nova KBM Group
17 Tax expenses (income) related to profit or loss from continuing operations
2006
Tax expense (income) related to profit or loss
from continuing operations
2005
2,631,381
2,281,293
Deferred tax from continuing operations
(153,391)
(58,250)
Total
2,477,990
2,223,043
In 2006 the Nova KBM Group calculated tax expense related to profit or loss from continuing operations (corporate income tax) at a rate of 25 percent.
In 2006 the Nova KBM Group calculated deferred tax on all temporary differences between the
value of assets and their carrying amount. A tax rate of 23%, valid for 2007, pursuant to current
legislation and known already in 2006, was applied.
Most significant temporary differences relate to the valuation of financial instruments, investment
property, property, plant and equipment used in operating leases, lease receivables and provisions.
The Nova KBM Group recognised deferred taxes for all deductible temporary differences, deducted
during the determination of taxable profit to the extent that it is probable that future taxable income
will be available against which temporary differences can be applied.
Reconciliation of effective tax rate
2006
rate
rate
amount
13,361,672
Before tax profit in accordance with IFRS
Income tax at official rate
2005
amount
13,199,183
25.0 %
3,340,418
25.0 %
3,299,796
0.0%
3,499
1.5%
202,519
(2.3%)
(301,895)
(4.4%)
(582,200)
2.8%
378,184
4.9%
644,099
Tax deductible income
(5.9%)
(791,938)
(1.6%)
(206,203)
Increase of expenses
(not recognised in previous years)
(1.3%)
(171,847)
0.0%
(297)
Income not recognised for tax purposes
0.2%
21,569
0.1%
13,325
Other adjustments to the income statement
0.0%
0
(8.7%)
(1,147,996)
18.5%
2,477,990
16.8%
2,223,043
Derecognition of tax relief from previous years
Tax relief in current year
Expenses not recognised for tax purposes
Total tax expense (income) related to
profit or loss from continuing operations
The amount of other adjustments in the 2005 income statement represents the amount arising
from the adjustment made to the income statement for the sake of comparison with the year 2006.
Tax expense (income) related to profit or loss from continuing operations for 2005 is calculated
in accordance with the Corporate Income Tax Act and Slovenian Accounting Standards.
F-38
No t e s t o t h e Ba l a nc e Sh e e t
18 Cash and cash balances with the central banks
31 December 2006
Domestic
currency
Cash on hand
Obligatory deposits at the central bank
– settlement account at the central bank
– transit account for settlement account
Other deposits at the central bank
Total by currency
Total
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
9,889,730
2,726,090
6,742,909
11,076,977
0
9,542,605
1,494,518
0
11,074,622
0
10,196,565
0
2,355
0
(653,960)
0
2,605,844
839
0
210,898
23,572,551
2,726,929
16,285,514
1,705,416
26,299,480
17,990,930
The higher balance of cash at the end of 2006 is the result of the transition to the new currency
(the euro).
Cash and cash equivalents
31 December 2006
31 December 2005
Cash and cash balance with the central banks
26,299,480
17,990,930
Available-for-sale financial assets
41,882,605
24,067,850
55,690,761
42,215,892
123,872,846
84,274,672
Loans to banks
Total
Cash equivalents include loans to banks and investments in government debt securities with an
original maturity of up to three months.
F-39
Notes to the Financial Statements of the Nova KBM Group
19 Financial assets held for trading
a) by type, currency and listing
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Derivatives
0
130,951
0
0
Investments
13,441,629
240,466
7,881,565
134,116
– Investments of banks
– Investments of other issuers
5,311
15,527
5,041
14,713
13,436,318
224,939
7,876,524
119,403
38,487,171
Debt securities
1,944,951
16,813,274
2,470,007
– bonds
1,488,751
16,764,925
1,983,248
38,487,171
1,064,519
15,822,594
1,082,715
21,863,763
– bank bonds
– government bonds
– bonds of other issuers
– other securities
Total
Quoted
Unquoted
Total
4,273
221,533
464,745
15,972,242
419,959
720,798
435,788
651,166
456,200
48,349
486,759
0
15,386,580
17,184,691
10,351,572
38,621,287
14,478,917
17,053,740
9,466,729
34,608,535
907,663
130,951
703,993
4,012,752
32,571,271
48,972,859
In 2006, the balance of debt securities decreased by 54% mainly due to sales by Nova KBM d.d.
of government bonds issued by European Community Member States. The increase in the value
of portfolio of investments of other issuers by 70 percent as compared to 2005 is the result of
stepped up securities trading activities of Nova KBM d.d.
b) changes in financial assets held for trading
2006
2005
Balance as at 1 January
48,972,859
14,501,168
Increases during the year
25,185,281
50,450,001
17,829,091
29,226,639
– acquisition
– exchange rate differences
– changes in fair value
– other (accrued interest, realised gains/losses)
16,525
4,837
3,707,785
4,965,360
3,631,880
16,253,165
41,586,869
15,978,310
– sale and liquidation
35,786,867
15,277,778
– changes in fair value
2,427,400
436,716
Decreases during the year
– exchange rate differences
– other (accrued interest, realised gains/losses)
Balance as at 31 December
8,948
9,435
3,363,654
254,381
32,571,271
48,972,859
On 31 December 2006, the securities issued by Bank Austria Creditanstalt AG Wien and held by
NKBM d.d. in the amount of SIT 2,428,056 thousand had characteristics of subordinated debt.
At PBS d.d., the bonds of Zavarovalnica Slovenica in the amount of SIT 100,280 thousand had the
same characteristics.
F-40
20 Available-for-sale financial assets
a) by type, currency and listing
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
3,909,124
Investments available for sale, measured
at fair value
Investments available for sale, measured at cost
Domestic
currency
0
Foreign
currency
4,689,895
0
1,049,409
5,640,216
19,197
287,890
Debt securities available for sale
113,727,145
64,027,500
92,592,784
11,784,465
Total
118,685,678
69,667,716
97,301,876
12,072,355
Quoted
73,774,696
64,027,500
72,379,157
11,784,465
Unquoted
44,910,982
5,640,216
24,922,719
287,890
Total
188,353,394
109,374,231
Available-for-sale financial assets rose by 72% in 2006. The largest increase was the result of
the purchase of bonds of other issuers leading to a 70% increase in the value of the available-forsale debt securities portfolio. The purchase of Bank of Slovenia bills by the Group banks led to an
increase of unlisted, available-for-sale financial assets of 80%.
According to the Bank’s estimates, the cost of investments measured at cost represents an approximation of their fair value. These financial investments are not listed on an active market.
b) by type, currency and sector
31 December 2006
Domestic
currency
Investments available for sale, measured
at fair value
– capital investments in banks
31 December 2005
Foreign
currency
Domestic
currency
3,909,124
0
Foreign
currency
4,689,895
0
0
0
27,062
0
– capital investments in other financial
organisations
2,515,069
0
3,709,415
0
– capital investments in non-financial
organisations
1,394,055
0
953,418
0
1,049,409
5,640,216
19,197
287,890
26,950
283,012
687
283,012
– capital investments in other financial
organisations
252,562
0
10,848
4,878
– capital investments in non-financial
organisations
769,897
3,898
7,662
0
Investments available for sale, measured at cost
– capital investments in banks
– capital investments in other foreign entities
Debt securities available for sale
– issued by governments and central banks
0
5,353,306
0
0
113,727,145
64,027,500
92,592,784
11,784,465
98,296,126
10,105,770
76,990,292
10,653,915
– issued by banks
9,378,078
1,131,278
9,654,111
1,130,550
– issued by others
6,052,941
52,790,452
5,948,381
0
118,685,678
69,667,716
97,301,876
12,072,355
Total
Active investment management activities at company Infond led to a 33% drop in the value of capital
investments in other financial organisations measured at fair value. The increase in capital investments in
other foreign entities is related to the expansion of the real estate activities of the company Multiconsult.
F-41
Notes to the Financial Statements of the Nova KBM Group
c) data on companies in which the Group holds a participating interest
Name and registered office
Group’s participating
interest in %
Share of voting
rights in %
Investments available for sale, measured
at fair value
Balance of
investment as at
31 December 2006
3,909,124
Premogovnik Velenje d.d., Velenje
12.67
12.67
1,302,512
Infond ID d.d., Maribor
9.016
9.016
1,900,162
9.10
9.10
581,544
Petrol d.d., Ljubljana
0.021
0.021
51,487
Krka d.d., Novo Mesto
0.006
0.006
40,056
Infond Evropa
0.399
0.399
10,797
Infond Bric
0.188
0.188
12,110
Infond Energy
0.489
0.489
10,456
Banka Celje d.d., Celje
0.18
0.18
26,950
LHB Frankfurt, Frankfurt on the Main
2.40
2.40
283,012
22,509
Infond ID 1 d.d., Maribor
Investments available for sale, measured at cost
IEDC School of Management, Bled
6,689,625
4.17
4.17
Bankart d.o.o., Ljubljana
14.01
14.01
89,860
Perutnina Ptuj d.d., Ptuj
0.88
0.88
124,988
Marles na~rtovanje in gradnja hi{ d.d., Maribor
10.21
10.21
264,822
Zavarovalnica Triglav d.d., Ljubljana
0.0005
0.0005
182,191
Ljubljana Stock Exchange, Ljubljana
4.60
4.60
25,580
Central Securities Clearing Corporation, Ljubljana
4.57
4.57
20,572
0.00267
0.00267
7,384
0.07
0.07
10,283
251,755
Pozavarovalnica Sava d.d., Ljubljana
SID-Slov.izvozna družba d.d., Ljubljana
CPM-Cestno podjetje d.d., Maribor
10.62
10.62
SWIFT, La Hulpe, Belgium
0.02
0.02
3,898
Vino Brežice d.d., Brežice
4.17
4.17
13,417
Rimske Terme d.o.o., Rimske Toplice
10.53
10.53
1,436
Ljubljanske mlekarne d.d., Ljubljana
0.02
0.02
2,531
City d.o.o., Maribor
6.53
6.53
5,131
Nomia Tim d.o.o., Croatia
100
100
1,128,089
Bili Galeb d.o.o., Croatia
100
100
1,300,774
Maslina d.o.o., Croatia
100
100
1,747,192
Nomia Nekretnine d.o.o., Croatia
100
100
1,177,251
Total investments available for sale
10,598,749
Investments in the companies Nomia Tim d.o.o., Bili Galeb d.o.o., Maslina d.o.o. and Nomia Nekretnine d.o.o. are owned by Multiconsult d.o.o. whose main line of business is real estate trading.
Investments were purchased with a view of obtaining the land associated with them. The investments will be sold when potential buyers for the land are found.
F-42
d) overview of changes to the balances of financial assets available for sale
Equity instruments
At fair value
Debt
instruments
Total financial
assets
available for
sale
At cost
Balance as at 1 January 2006
4,689,895
307,087
104,377,249
109,374,231
Recognition of new financial assets
1,406,178
6,585,288
330,551,116
338,542,582
Interest
0
0
127,308
127,308
Net exchange rate differences
0
0
28,302
28,302
473,869
0
549,653
1,023,522
Net change in fair value through equity
Net write-offs
Derecognition of financial assets
(6,754)
0
0
(6,754)
(2,721,912)
(202,750)
(257,874,784)
(260,799,446)
Other
Balance as at 31 December 2006
67,848
0
(4,199)
63,649
3,909,124
6,689,625
177,754,645
188,353,394
At Nova KBM d.d. the following have the characteristics of subordinated debt: Probank d.d. bonds
in the amount of SIT 27,407 thousand, representing 0.01 percent of available-for-sale financial
assets, Zavarovalnica Maribor d.d. bonds in the amount if SIT 637,076 thousand, representing 0.40
percent of available-for-sale financial assets, and Nova Ljubljanska banka d.d. bonds in the amount
of SIT 1,954,384 thousand, representing 1.23 percent of available-for-sale financial assets.
Shares and
participating interests
At fair value
Balance as at 1 January 2005
Debt
instruments
Total financial
assets
available for
sale
At cost
4,793,196
306,400
71,454,224
76,553,820
953,539
687
166,143,899
167,098,125
468,317
Recognition of new financial assets
Interest
0
0
468,317
Net exchange rate differences
0
0
19,725
19,725
(1,047,774)
0
(1,340,317)
(2,388,091)
(9,066)
0
(132,365,216)
(132,374,282)
0
0
(3,383)
(3,383)
4,689,895
307,087
104,377,249
109,374,231
Net change in fair value through equity
Derecognition of financial assets
Other
Balance as at 31 December 2005
21 Loans and receivables
a) by sectors
31 December 2006
Gross value
Loans to banks
– domestic currency
– foreign currency
Loans to the non-banking sector
Impairment
31 December 2005
Net value
Gross value
Impairment
Net value
95,426,531
126,250
95,300,281
80,136,752
114,581
80,022,171
45,310,706
500
45,310,206
48,305,655
500
48,305,155
50,115,825
125,750
49,990,075
31,831,097
114,081
31,717,016
606,160,998
52,692,267
553,468,731
477,987,851
51,213,710
426,774,141
– domestic currency
290,498,279
38,353,713
252,144,566
299,978,061
42,660,253
257,317,808
– foreign currency
315,662,719
14,338,554
301,324,165
178,009,790
8,553,457
169,456,333
701,587,529
52,818,517
648,769,012
558,124,603
51,328,291
506,796,312
Total loans
F-43
Notes to the Financial Statements of the Nova KBM Group
b) loans to banks by maturity and type
31 December 2006
Domestic
currency
Sight deposits
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
950
8,290,405
225
950
8,290,405
225
17,807,095
Current loans
9,152,424
40,177,811
12,098,377
13,624,062
– deposits
– current and specific account
17,807,095
9,152,424
38,516,259
6,402,890
11,789,624
– other investments
0
1,661,552
5,695,487
1,660,481
– loans
0
0
0
173,957
36,156,832
1,521,859
36,206,553
285,859
36,156,832
0
36,187,908
0
0
1,521,859
0
268,065
Non-current loans
– deposits
– loans
– other investments
Total net value
Impairments
Total gross value
0
0
18,645
17,794
45,310,206
49,990,075
48,305,155
31,717,016
500
125,750
500
114,081
45,310,706
50,115,825
48,305,655
31,831,097
c) changes to impairments of loans to banks
2006
2005
Balance as at 1 January
114,581
Additional impairments
119,965
42,975
Reversed impairments
108,296
12,873
Balance as at 31 December
126,250
114,581
84,479
Additional impairments or reversed impairments of loans to banks are disclosed in the income statement in the items impairments of loans measured at amortised cost, interest income and fee and
commission income.
d) by maturity and type of loans to the non-banking sector
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
94,352,198
98,966,113
94,893,996
48,996,757
– loans
72,636,336
97,804,445
72,781,821
48,732,120
– credit lines
19,326,585
0
19,215,101
0
2,389,277
1,161,668
2,897,074
264,637
Non-current
157,724,436
202,294,645
162,402,292
120,383,316
– loans
157,724,436
202,294,645
162,402,292
120,383,316
67,932
63,407
21,520
76,260
252,144,566
301,324,165
257,317,808
169,456,333
Current
– other investments
Receivables from guarantees given
Total loans to the non-banking sector
Impairments
Total gross value
38,353,713
14,338,554
42,660,253
8,553,457
290,498,279
315,662,719
299,978,061
178,009,790
F-44
e) loans to the non-banking sector by sectors
31 December 2006
Domestic
currency
Non-financial corporations
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
105,921,051
220,492,144
107,087,400
State
7,562,579
1,405,130
6,172,702
1,509,703
Other financial organisations
4,816,342
17,134,532
3,933,780
19,347,070
11,401,243
Foreign persons
125,669,027
810
17,395,416
0
974,902
287,977
860,387
57,138
Households
132,868,882
44,608,966
139,263,539
11,472,152
Total loans to the non-banking sector
252,144,566
301,324,165
257,317,808
169,456,333
38,353,713
14,338,554
42,660,253
8,553,457
290,498,279
315,662,719
299,978,061
178,009,790
Non-profit household service providers
Impairments
Total gross value
f) changes to impairments of loans to the non-banking sector
2006
2005
Balance as at 1 January
51,213,710
48,356,255
Additional impairments
38,076,241
19,055,881
Reversed impairments
36,597,684
16,198,426
Balance as at 31 December
52,692,267
51,213,710
Additional impairments or reversed impairments of loans to the non-banking sector are disclosed
in the income statement in the items impairments of loans measured at amortised cost, interest
income and fee and commission income.
22 Held-to-maturity investments
a) by type and sector
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Held-to-maturity debt securities
– issued by governments and central bank
– current securities
– non-current securities
– issued by banks
– non-current securities
– issued by others
– non-current securities
Total
57,219,382
9,007,896
77,650,464
32,358,369
0
9,007,896
19,542,156
32,358,369
57,219,382
0
58,108,308
0
1,065,467
0
1,104,188
0
1,065,467
0
1,104,188
0
2,686,621
196,881
2,542,758
146,249
2,686,621
196,881
2,542,758
146,249
60,971,470
9,204,777
81,297,410
32,504,618
Quoted
16,687,107
50,592
15,702,105
0
Unquoted
44,284,363
9,154,185
65,595,305
32,504,618
Total
70,176,247
113,802,028
The balance of held-to-maturity securities fell in 2006 primarily due to mature Bank of Slovenia
bills denominated in foreign currencies.
F-45
Notes to the Financial Statements of the Nova KBM Group
b) changes in held-to-maturity financial assets
2006
2005
113,802,028
Balance as at 1 January
Increases during the year
146,224,812
12,310,831
115,179,098
8,204,731
113,596,695
– exchange rate differences
2,185,693
1,582,403
– other
1,920,407
0
55,936,612
147,601,882
52,346,645
147,232,406
521,931
328,892
3,068,036
40,584
70,176,247
113,802,028
– acquisition
Decreases during the year
– sale and liquidation
– exchange rate differences
– other
Balance as at 31 December
23 Accrued interest on financial assets
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Interest receivables
– from non-financial corporations
197
0
52
– from sole proprietors
227
0
0
6
424
0
52
6
Total
0
24 Property, plant and equipment
Land and
buildings
Computer
equipment
Other
equipment
Finance
leases
PPE -inconstruction
Total
Cost
Balance as at 1 January 2006
16,509,414
10,421,533
6,787,554
40,477
1,165,567
Transfers
203,003
(372,283)
168,926
0
0
(354)
Additions
32,425
26,407
471,587
0
4,560,858
5,091,277
731,658
982,427
729,291
0
(2,454,870)
(11,494)
Transfer from PPE
in construction
Disposals
Balance as at 31 December 2006
34,924,545
(302,457)
(1,863,900)
(747,664)
(17,925)
(113,512)
(3,045,458)
17,174,043
9,194,184
7,409,694
22,552
3,158,043
36,958,516
18,343,598
Depreciation
and impairment losses
Balance as at 1 January 2006
5,373,728
8,568,288
4,383,504
18,078
0
Transfers
0
7,826
(7,826)
0
0
0
Additions
587
6
10,005
0
0
10,598
Depreciation
522,576
852,482
614,014
4,242
901
1,994,215
Disposals
(57,722)
(1,863,508)
(414,935)
(12,492)
0
(2,348,657)
Balance as at 31 December 2006
5,839,169
7,565,094
4,584,762
9,828
901
17,999,754
Carrying amount as at
1 January 2006
11,135,686
1,853,245
2,404,050
22,399
1,165,567
16,580,947
Carrying amount as at
31 December 2006
11,334,874
1,629,090
2,824,932
12,724
3,157,142
18,958,762
The increase in the value of land and buildings is the result of investments completed in Group companies. The renovation of Nova KBM’s premises accounted for the biggest share of the aforementioned increase, with the renovation of the Tolmin branch office and the completion of the investment
F-46
in Tezno information technology centre representing the most significant amounts. The remainder
of spending relates to the modernisation of branch offices in Ptuj and Maribor and to the renovation
of the Nova KBM Nova Gorica area head office carried out in connection with the euro project.
The upgrade of ATMs and POS terminals of Nova KBM and PBS, carried out due to transition to the
euro, accounted for the majority of the increase related to computer equipment. The decrease in 2006
concerning computer equipment is the result of disposal of out-dated applications by Group members.
The decrease in assets under finance leases is due to the expiration of finance lease contracts relating
to Nova KBM’s personal vehicles.
Land and
buildings
Computer
equipment
Other
equipment
Finance
leases
Fixed
assets in
preparation
Total
Cost
14,429,135
9,293,435
6,388,324
38,008
868,837
Transfers
(331,679)
(2,499)
20,039
0
0
(314,139)
Additions
576,614
13,136
530,593
6,086
5,797,026
6,923,455
1,933,812
1,563,035
697,878
5,807
(4,200,532)
0
Balance as at 1 January 2005
Transfer from
construction-in-progress
Decreases
Balance as at 31 December 2005
31,017,739
(98,468)
(445,574)
(849,280)
(9,424)
(1,299,764)
(2,702,510)
16,509,414
10,421,533
6,787,554
40,477
1,165,567
34,924,545
17,643,998
Depreciation
and impairment losses
Balance as at 1 January 2005
4,884,913
8,477,919
4,261,821
19,345
0
Transfers
(884)
(1,796)
2,680
0
0
0
Additions
51,217
0
34,414
1,966
0
87,597
Depreciation
456,030
534,052
540,108
5,482
0
1,535,672
Disposals
(17,548)
(441,887)
(455,750)
(8,715)
0
(923,900)
0
231
0
0
231
Revaluation
Balance as at 31 December 2005
5,373,728
8,568,288
4,383,504
18,078
0
18,343,598
Carrying amount as at
1 January 2005
9,544,222
815,516
2,126,503
18,663
868,837
13,373,741
Carrying amount as at
31 December 2005
11,135,686
1,853,245
2,404,050
22,399
1,165,567
16,580,947
25 Investment property
2006
2005
Cost
Balance as at 1 January
1,074,339
Additions
2,027,861
694,783
Disposals
(1,700,673)
(120,816)
Changes in fair value
500,372
2,359
0
1,403,886
1,074,339
Balance as at 1 January
0
116,860
Additions
0
829
Disposals
0
(117,689)
Carrying amount as at 31 December
1,403,886
1,074,339
Carrying amount as at 1 January
1,074,339
383,512
Balance as at 31 December
Value adjustment
The largest increase in investment property relates to the operations of the Gorica Leasing which
began leasing its sports facilities in Izola in 2006. The decrease in investment property is the result
of the sale of business premises also of company Gorica Leasing.
F-47
Notes to the Financial Statements of the Nova KBM Group
26 Intangible assets
Software
Intangible
assets
constructionin- progress
Other
intangible
assets
Total
Cost
Balance as at 1 January 2006
6,766,294
971,326
753,853
8,491,473
13,848
1,549,615
8,503
1,571,966
Transfer from construction-in-progress
854,913
(905,892)
53,371
2,392
Disposals
(33,477)
(2,393)
(41,187)
(77,057)
Additions
Other decreases
(15,407)
0
(130)
(15,537)
7,586,171
1,612,656
774,410
9,973,237
3,349,540
0
473,710
3,823,250
674
0
181
855
Amortisation
634,044
0
37,417
671,461
Disposals
(31,691)
0
(943)
(32,634)
(350)
0
0
(350)
3,952,217
0
510,365
4,462,582
Balance as at 31 December 2006
Amortisation and impairment losses
Balance as at 1 January 2006
Additions
Other decreases
Balance as at 31 December 2006
Carrying amount as at 1 January 2006
3,416,754
971,326
280,143
4,668,223
Carrying amount as at 31 December 2006
3,633,954
1,612,656
264,045
5,510,655
5,586,283
1,101,456
750,572
7,438,311
24,168
1,059,351
99,112
1,182,631
1,177,613
(1,189,481)
11,868
0
(21,770)
0
(107,699)
(129,469)
6,766,294
971,326
753,853
8,491,473
2,818,788
0
467,664
3,286,452
7,531
0
43,115
50,646
544,765
0
37,607
582,372
Cost
Balance as at 1 January 2005
Additions
Transfer from construction-in-progress
Disposals
Balance as at 31 December 2005
Amortisation and impairment losses
Balance as at 1 January 2005
Additions
Amortisation
Disposals
(21,544)
0
(74,676)
(96,220)
3,349,540
0
473,710
3,823,250
Carrying amount as at 1 January 2005
2,767,495
1,101,456
282,908
4,151,859
Carrying amount as at 31 December 2005
3,416,754
971,326
280,143
4,668,223
Balance as at 31 December 2005
The majority of the software increase at the Group level is related to the software upgrade in Nova
KBM and PBS, totalling SIT 836,965 thousand.
F-48
27 Investments in associates and joint ventures
a) by customers
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
0
1,845,752
0
1,828,253
– capital investments in foreign currency
in associated banks abroad
0
1,845,752
0
1,828,253
Investments in the capital of other associates
8,560,602
0
8,357,540
72
8,560,602
0
7,915,593
72
0
0
441,947
0
8,560,602
1,845,752
8,357,540
1,828,325
Investments in the capital of banks
– capital investments in financial associates
– capital investments in
non-financial corporations
Total
Total
10,406,354
10,185,865
b) changes in investments in subsidiaries, associates and joint ventures
2006
2005
Balance as at 1 January
Increases during the year
10.185.865
6.696.359
662.509
3.489.980
– acquisition
0
546
662.509
3.489.434
Decreases during the year
442.020
474
– sales and liquidation
441.948
0
0
474
0
0
– other
– impairments
– exchange rate differences
– other
Balance as at 31 December
72
0
10,406,354
10,185,865
In 2006, Nova KBM increased the capital of its associate company Moja naložba d.o.o. in the
amount of SIT 180,000 thousand.
The liquidation of Hotel Slavija d.d. was completed in 2006. As a result the Group derecognised its
capital investment in subsidiary non-financial corporations in the amount of SIT 441,948 thousand.
c) data on companies in which the Bank’s participating interest is at least 20%
Name and registered
office of the company
Total equity
as at 31
December
2006
Profit or
loss in
2006
Nominal
amount
Cost
Group’s
share in
equity
in %
Share of Investment
voting
as at 31
rights
December
in %
2006
25.04
25.04 1,845,752
Investments in the
equity of banks in the Group
Adria Bank AG, Wien
2,089,757
520,718
566,883 1,593,347
Investments in the equity
of other companies in the Group
Zavarovalnica Maribor d.d., Maribor
6,812,050
Moja Naložba, Pokojninska družba d.d.,
Maribor
1,150,000
1,277,601 3,403,382
13,868
Total
517,500
3,689,731
49.96
49.96 8,178,480
374,169
45.00
45.00
4,063,900
382,122
10,406,354
Nominal amount represents the number of lots of Nova KBM d.d. in the capital of the a. m. companies,
multiplied by the nominal value of the lot of the issued share.
F-49
Notes to the Financial Statements of the Nova KBM Group
28 Tax assets
31 December 2006
31 December 2005
Current tax receivable
0
– receivables from profit tax prepayments
Deferred tax assets
– other provisions for pending legal issues
35,852
0
35,852
931,258
713,955
396,122
281,897
– available-for-sale financial assets
98,331
33,211
– financial assets held for trading
62,436
20,430
– other provisions for balanced deposits
49,009
38,741
– non-current provisions for employees
308,799
325,931
5,688
6,221
– valuation of investment property
– other
– other provisions (National Housing Savings
Scheme -NSVS)
Total
0
416
10,873
7,108
931,258
749,807
29 Other assets
a) by type
31 December 2006
Domestic
currency
Cheques
Inventories
Receivables for fees and commissions
Prepayments
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
0
31,785
0
2,994,316
0
3,588,428
30,985
0
374,116
3,722
357,201
1,955
547,834
0
113,113
217
Accounts receivables
2,807,742
4,176
2,313,117
2,028
Other receivables
9,883,086
132,181
5,839,952
373,991
53,377
0
466
0
Surplus assets from internal relationships
and authorised transactions
Deferred costs and accrued revenues
Total
Impairment
Total gross value
152,133
2,348
115,511
0
16,812,604
174,212
12,327,788
409,176
1,081,275
4,674
1,035,738
5,673
17,893,879
178,886
13,363,526
414,849
Inventories include property received as repayment of Nova KBM’s receivables, investments projects
under construction and unsold property of KBM Invest.
Receivables from customers are primarily comprised of receivables of leasing companies from lessees.
b) changes to impairments of other assets
2006
2005
Balance as at 1 January
1,041,411
1,483,944
Additional impairments
228,449
394,616
Reversed impairments
183,911
837,149
1,085,949
1,041,411
Balance as at 31 December
Additional impairments or reversed impairments of other assets are disclosed in the income statement in the item impairments of loans measured at amortised cost.
F-50
30 Non-current assets held for sale
31 December 2006
31 December 2005
Property, plant and equipment classified as held
for sale in domestic currency
8,273
94,704
Total
8,273
94,704
Decreases recorded in 2006 include the sale of business premises of MMP Vrtojba in the amount
of SIT 8,065 thousand and business premises at Slovenska 27 in Ljubljana in the amount of SIT
89,398 thousand.
31 Financial liabilities held for trading
31 December 2006
31 December 2005
Derivatives held for trading – valuation,
forward contracts
36,895
0
Total
36,895
0
32 Financial liabilities measured at amortised cost
a) by type
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
458,346,174
171,143,466
407,317,429
152,945,043
8,469,676
211,566,857
8,066,106
113,942,947
Debt securities
37,317,837
0
49,564,941
0
Subordinated liabilities
3,428,804
31,153,200
2,958,409
19,166,048
507,562,491
413,863,523
467,906,885
286,054,038
Deposits
Loans
Total
Foreign
currency
b) deposits by customers and maturity
31 December 2006
Domestic
currency
Bank deposits
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
5,516,494
515,858
2,776,394
2,083,766
10,494
515,858
13,453
2,083,766
5,300,010
0
2,301,335
0
205,990
0
461,606
0
Deposits of the non-banking sector
452,829,680
170,627,608
404,541,035
150,861,277
Sight deposits of the non-banking sector
206,674,549
62,211,148
171,047,608
63,907,475
Current deposits of the non-banking sector
198,608,711
76,265,883
192,440,902
65,580,449
Sight deposits of banks
Current deposits of banks
Non-current deposits of banks
Non-current term deposits of the non-banking sector
Total
47,546,420
32,150,577
41,052,525
21,373,353
458,346,174
171,143,466
407,317,429
152,945,043
The Group recorded a 12% increase in deposits, mainly due to increased non-current household
savings in foreign currencies and tolars at Nova KBM d.d.
F-51
Notes to the Financial Statements of the Nova KBM Group
c) loans by customers and maturity
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
3,422,228
189,248,547
964,525
739,528
3,444,806
479,151
887,505
2,682,700
185,803,741
485,374
99,697,302
Loans of the non-banking sector
5,047,448
22,318,310
7,101,581
13,358,140
Current loans of the non-banking sector
1,361,443
4,188
1,180,188
0
Non-current loans of the non-banking sector
3,686,005
22,314,122
5,921,393
13,358,140
Total
8,469,676
211,566,857
8,066,106
113,942,947
Bank loans
Current bank loans
Non-current bank loans
100,584,807
Loans received by the Group rose 80% in 2006, primarily the result of Nova KBM d.d.’s raising
of non-current loans in international markets. Two syndicated loans in the amounts of EUR 157.5
million and CHF 150 million represented the majority of these loans which mature in December
2011. The interest rate for the loans raised (syndicated and bilateral) by Nova KBM d.d. ranges from
EURIBOR + 0.15% p.a. to EURIBOR + 0.70% p.a.
d) deposits and loans by sector
31 December 2006
31 December 2005
629,489,640
Deposits
Banks
560,262,472
6,032,351
4,860,161
97,434,852
86,328,651
State
29,431,866
19,878,840
Other financial organisations
13,386,561
17,969,103
Non-financial corporations
Foreign persons
6,090,297
4,952,120
Non-profit household service providers
6,864,930
5,097,837
Households
470,248,783
421,175,760
Loans
220,036,533
122,009,053
Banks
192,670,775
101,549,332
Non-financial corporations
Other financial corporations
2,039,138
2,580,615
25,322,432
17,879,106
Foreign persons
Total
4,188
0
849,526,173
682,271,525
e) debt securities by type and maturity
31 December 2006
31 December 2005
Debt securities in domestic currency
Current securities
386
– bonds issued
386
263
37,317,451
49,564,678
Non-current securities
263
– certificates of deposits
5,896,350
8,801,653
– bonds issued
31,421,101
40,763,025
37,317,837
49,564,941
Total
The decrease in the balance of debt securities is mainly the result of maturing KBM 2 bonds in January
and KBM 3 and KBM 4 bonds in October. The balance of certificates of deposits decreased due to
Nova KBM’s maturing certificates of deposits of up to and over two years.
The fourth issue of PBS bonds issued on 14 December 2001 in the amount of SIT 2,500,000 thousand
matured on 14 December 2006.
F-52
f) subordinated liabilities
Currency
Maturity date
Interest rate
31 December
2006
31 December
2005
EUR
16. 12. 2011
3M
EURIBOR
+ 1.10%
11,982,000
11,978,780
EUR
19. 12. 2009
6M
EURIBOR
+ 1.70%
7,189,200
7,187,268
SIT
20. 6. 2007
Tolar
indexation
clause + 6%
1,503,023
1,500,994
SIT
30. 9. 2011
4.70 %
1,006,818
1,005,732
EUR
5. 10. 2016
redeemable at
notice
3M
EURIBOR
+ 1.60%
11,982,000
SIT
undefined
maturity
Tolar
indexation
clause
+ 3.00%
0
150,678
SIT
undefined
maturity
Tolar
indexation
clause
+ 1.60%
0
301,005
SIT
undefined
maturity
6M
EURIBOR
+ 2.70%
918,963
0
34,582,004
22,124,457
Securities issued
Loans
Deposits
Total
In October 2006, Nova KBM raised hybrid capital in the amount of EUR 50 million. The transaction was realised through a loan agreement with the Dutch financial group ING Bank NV. The price
of the hybrid capital was 3-month EURIBOR + 160 basis points and will increase by 150 basis
points after ten years (i.e. on 5 October 2016). The Bank has an option to repay the hybrid capital
after ten years with prior consent of the Bank of Slovenia.
The balance of subordinated deposits in 2006 includes three deposit agreements. In October 2006,
PBS received a hybrid deposit in the amount of SIT 450,000 thousand. The loan transaction was
carried out through a time deposit agreement with Po{ta Slovenije d.o.o. as the depositor. The interest rate is 6-month EURIBOR + 2.7% p.a. The deposit’s maturity is undefined. The depositor’s
claims arising from this agreement cannot be realised at its own request and without the prior consent of the Bank of Slovenia. The Bank of Slovenia shall not authorise the repayment earlier than
five years and one day after the date the agreement was concluded and without proof or confirmation
that the Bank will continue to meet its capital adequacy requirement after repayment. In 2006,
deposit agreements from 2005 were amended with an annex changing the interest rate to 6-month
EURIBOR + 2.70% p.a.
33 Accrued interest expenses on financial liabilities
31 December 2006
31 December 2005
275,695
578,486
Accrued interest on loans received
1,714,077
904,850
Accrued interest on sight and time deposits
1,699,429
1,167,029
Liabilities for interest
Other accrued interest
Total
F-53
811,097
952,350
4,500,298
3,602,715
Notes to the Financial Statements of the Nova KBM Group
34 Provisions
Provisions for
pending legal
issues
Balance as at 1 January 2006
Provisions made during the year
Provisions reversed/used
during the year
Balance as at 31 December 2006
Provisions
for pensions
and similar
liabilities
to employees
Provisions
for offbalance sheet
liabilities
Other
provisions
Total
1,149,360
1,360,730
2,633,781
178,360
5,322,236
553,255
124,866
12,637,434
20,140
13,335,690
0
81,851
11,572,769
16,056
11,670,676
1,702,615
1,403,745
3,698,446
182,444
6,987,250
The use of provisions for liabilities to employees in the amount of SIT 81,851 thousand was not
recognised through profit or loss.
The Group creates provisions for off-balance sheet liabilities pursuant to the Methodology for
assessing credit risk losses. The Bank eliminated other provisions arising from deposits due to the
repayment of funds to its customers.
Provisions for
pending legal
issues
Provisions
for pensions
and similar
liabilities to
employees
Provisions
for offbalance sheet
liabilities
Other
provisions
Total
Balance as at 1 January 2005
539,951
1,280,470
2,241,990
69,345
4,131,756
Provisions made during the year
633,100
81,819
7,281,270
111,341
8,107,530
23,691
1,559
6,889,479
2,326
6,917,055
1,149,360
1,360,730
2,633,781
178,360
5,322,231
Provisions reversed/used
during the year
Balance as at 31 December 2005
In 2005, the Group did not recognise provisions for pending legal issue in the amount of SIT 3,915
thousand through profit or loss.
35 Tax liabilities
31 December 2006
655,683
– Current tax liabilities
– Deferred tax liabilities
Total
31 December 2005
1,162,465
1,128,226
1,710,165
1,783,909
2,872,630
Based on the calculation of tax expenses related to profit or loss from continuing operations in
2006, the Nova KBM Group identified a tax liability of SIT 3,023,086 thousand. Since the Nova
KBM Group made profit tax prepayments in 2006 totalling SIT 2,367,403 thousand, the Group’s
outstanding tax liabilities at the end of the year were SIT 655,683 thousand.
The Nova KBM Group deferred tax liabilities based on the valuation of securities designated
as available for sale.
F-54
36 Other liabilities
31 December 2006
31 December 2005
Liabilities for fees and commissions
17,021
13,101
Liabilities for advances received
73,931
304,962
7,859,367
8,540,841
747,281
539,978
0
87,591
8,697,600
9,486,473
Other liabilities
Accrued expenses and deferred revenues
Surplus of liabilities from internal relationships
and authorised transactions
Total other liabilities
The Group’s other liabilities in the amount of SIT 8,697,600 thousand included Nova KBM’s liability to the central bank in the amount of SIT 1,248,800 thousand for euros received. The Group’s
other significant liabilities also include liabilities to employees, liabilities from retail operations
relating to loan repayments, liabilities from payment card operations, liabilities to suppliers and tax
liabilities.
37 Share capital
31 December 2006
Ordinary shares
– government subscription
– subscription of other financial organisations
31 December 2005
5,839,496
5,839,496
5,559,496
5,559,496
280,000
280,000
Authorised capital is the Bank’s basic equity capital which the Bank’s Management Board may increase by issuing new shares. The Management Board of Nova KBM has been authorised to increase
basic equity capital between 4 November 2002 and 4 November 2007 by up to SIT 1,120,000
thousand, subject to the Supervisory Board’s consent.
38 Share premium account
31 December 2006
31 December 2005
Paid-up share premium
1,567,011
1,567,011
Share premium arising from
the general capital revaluation
5,402,280
5,396,038
Total
6,969,291
6,963,049
39 Fair value reserve
31 December 2006
31 December 2005
3,959,427
Fair value reserve relating to change in fair value
of available for sale financial assets
Transaltion reserve
Total
F-55
5,363,360
928
0
3,960,355
5,363,360
Notes to the Financial Statements of the Nova KBM Group
40 Reserves from profit (including retained earnings)
31 December 2006
Profit reserves
– legal reserves
31,839,177
2,580,143
1,961,994
– reserves for treasury shares
– statutory reserves
– other profit reserves
Retained earnings
– retained earnings
– retained earnings arising from
the transition to IFRS
Total
31 December 2005
39,277,058
6,522
6,522
32,242,547
27,991,522
4,447,847
1,879,139
14,824,639
9,747,834
2,244,060
565,194
12,580,579
9,182,640
54,101,697
41,587,011
41 Income from the current year
The Group’s net profit for the year was SIT 3,289,925 million.
42 Off-balance sheet items (commitments and contingent liabilities by type)
Domestic currency
Current
Foreign currency
Non-current
Current
Total
Non-current
31 December 2006
Financial guarantees
Service guarantees
5,951,940
6,320,252
2,735,826
6,727,255
21,735,273
14,240,263
22,506,827
2,270,393
3,956,846
42,974,329
Total guarantees
49,019,282
15,690,320
Pledged assets
75,358,017
0
Unsecured letters of credit
64,709,602
75,358,017
463,500
0
4,117,992
317,418
4,898,910
Approved unused loans
20,211,768
1,676,257
15,978,921
7,381,081
45,248,027
Approved unused limits
45,211,241
0
459,937
0
45,671,178
1,211,355
0
0
496
Other
Total commitments
and contingent liabilities
Loan replacement value
Total
68,310,621
23,820,435
225,951
0
193,377,371
43,628,747
1,211,851
92,131,056
225,951
237,323,536
31 December 2005
Financial guarantees
2,741,945
4,862,628
3,237,139
2,970,211
13,811,923
Service guarantees
7,826,925
16,150,527
818,350
3,050,215
27,846,017
Total guarantees
Pledged assets
Unsecured letters of credit
31,582,025
10,075,915
790,599
0
41,657,940
790,599
176,181
0
2,928,616
256,346
3,361,143
Approved unused loans
23,982,981
1,749,572
20,928,356
765,275
47,426,184
Approved unused limits
42,196,314
0
123,395
0
42,319,709
1,149,377
0
0
184,303
Other
Total commitments
and contingent liabilities
Loan replacement value
Total
69,078,244
22,001,329
78,482
0
101,705,531
35,262,206
1,333,680
91,079,573
78,482
136,967,737
In 2006, the balance of guarantees denominated in domestic currency rose mainly due to an
increased number of service guarantees issued to the construction sector.
F-56
Group assets pledged for securing liabilities:
31 December 2006
Assets
Bonds of the Republic of Slovenia – guarantees
Financial assets fund – earmarked for STEP 2
Financial assets fund for the provision of euro cash
31 December 2005
Liabilities
Assets
Liabilities
1,688,941
4,188,941
0
0
958,561
958,561
790,599
718,726
0
6,413,761
6,413,761
0
25,012,608
0
0
0
6,158,146
6,158,146
0
0
Bonds of the Republic of Slovenia RS 35 for euro
cash supply
15,750,000
0
0
0
Bills of the Bank of Slovenia for euro cash supply
19,376,000
0
0
0
Total
75,358,017
17,719,409
790,599
718,726
Financial assets fund – free of encumbrance
Bonds of the Republic of Slovenia
– deposit guarantees
43 Derivatives
Breakdown of derivatives by type as at 31 December 2006
Domestic currency
Foreign currency
Forward contracts – current
- trading
1,488,070
13,466,823
Total
1,488,070
13,466,823
Breakdown of derivatives held for trading by type as at 31 December 2006
Risk type
Type of derivative
Carrying amount in the balance sheet
Assets
Currency risk
forward
Total
Off-balance sheet
value
130,951
36,895
13,466,823
130,951
36,895
13,466,823
The amount of SIT 13,466,823 thousand relates to FX forwards.
F-57
Liabilities
Notes to the Financial Statements of the Nova KBM Group
O t h er No t e s
44 Authorised transactions
31 December 2006
Non-financial corporations
31 December 2005
75,118
514,208
State
6,146,343
1,109,425
Banks and other financial organizations
9,205,540
9,289,935
Households
27,923
1,218
Non-profit service providers
260,165
48,300
Liabilities from operations with securities
236,218
206,037
Liabilities for cheques of foreign issuers
Total
(3,727)
121
15,947,580
11,169,244
The increase in liabilities from transactions subject to authorisation can be attributed to the increased
lending of received funds to the public sector in relation to which the Bank acted as an agent.
45 Auditing costs
2006
2005
Audit of the annual report
52,998
59,784
Other auditing services
10,999
2,378
Tax consultancy services
Total
518
0
64,515
62,162
46 Related parties
a) information on loans to Management and Supervisory board*
Loans extended to Management and the Supervisory Board members, to other employees of the
company, and to employees based on a contract for which the tariff portion of the collective labour
agreement foes not apply are shown in the table below.
Management
Board members
2006
Loans
Average interest rate in %
Repayments
Sureties
Supervisory
Board members
2005
2006
Other Bank employees
2005
2006
2005
43,513
33,837
9,174
22,586
410,311
5.3
4.8
5.1
4.3
5.3
4.6
10,986
5,809
3,671
8,165
109,861
50,360
930
16,549
10,000
0
123,186
72,624
* Nova KBM d.d. + subsidiaries
F-58
291,083
b) exposure to the Bank of Slovenia and the State
Exposure to:
2006
Bank of Slovenia
2005
133,649,097
122,188,081
– settlement account
11,074,622
9,710,386
– loans
36,042,000
36,042,000
– securities – treasury bills
50,768,004
75,523,571
– interest
– other
Republic of Slovenia
– bonds by type
280,799
367,314
35,483,672
544,810
145,584,825
140,961,036
111,280,484
117,794,668
– other securities
9,737,101
209,345
– loans
1,301,521
0
20,307,574
20,718,178
1,972,761
1,881,701
– investments guaranteed by the Republic
of Slovenia
– interest
– other
Total exposure to the Bank of Slovenia and the State
Share of the balance sheet total in %
357,144
279,233,922
263,149,117
27
31
2,237,748
2,489,870
1,020,375,832
843,027,267
Off-balance sheet items covered by collateral
at the BS and RS
Balance sheet total
985,384
In 2006, the Group’s exposure to the State (the Slovenian Government, ministries, Pension
and Disability Insurance Institute, Health Insurance Institute) was SIT 145,585 million.
c) management and Supervisory board compensations
2006
Members of the Management Boards of companies
Members of the Supervisory Board
2005
241,436
323,916
22,284
22,458
Other Bank employees
1,155,177
1,056,963
Total
1,418,897
1,403,337
* Nova KBM d.d. + subsidiaries
In 2006, the members of Nova KBM d.d.’s Management Board received a bonus in the gross amount
of SIT 3,887 thousand for the performance of their functions in subsidiaries and associates.
47 Events after the balance sheet date
Following the receipt of appropriate approvals, Nova KBM d.d. became the majority owner of Adria
Bank AG Vienna (with a 50,54% shareholding) on 12 April 2007. The acquisition will enable the
Bank to pursue its strategic objective of expanding to foreign markets.
48 Effect of changes in accounting policies
In 2006 the Group adopted IFRS as the only reporting standard adopted by the EU. In the preparation of this year’s annual report certain data for 2005 were adjusted. These adjustments are due to
the implementation of the new Methodology for assessing credit risk losses and from the exclusion
of land from the value of property.
F-59
Notes to the Financial Statements of the Nova KBM Group
The table below shows the differences between individual income statement items.
Item no.
IFRS INCOME
STATEMENT
31 December
2005
IFRS
1
Interest income
2
Interest expenses
16,715,410
16,715,410
0
3
Interest net income
21,465,830
21,376,754
(89,076)
4
Dividend income
603,457
1,386,901
783,444
The difference stems from the elimination of the equity method
of valuating financial investments in subsidiaries. It consists
of dividends paid by subsidiaries to the parent company (SIT
783,087 thousand) and dividends paid by subsidiaries to other
subsidiaries in the Nova KBM Group (SIT 357 thousand).
5
Fee and commission
income
11,153,591
11,268,452
114,861
The difference relates to fees and commissions accrued by
a subsidiary bank in its 2005 fi nancial statements prepared
in accordance with IFRS which are no longer accrued under
IFRS in accordance with its changed accounting policy.
6
Fee and commission
expenses
2,382,521
2,382,521
0
7
Fees and commission
net income
8,771,070
8,885,931
114,861
8
Realised gains and losses
on fi nancial assets and
liabilities not measured
at fair value through
profit or loss
(229,108)
(229,108)
0
9
Gains and losses on
fi nancial assets and
liabilities held for trading
5,260,892
5,597,304
336,412
The difference stems from the valuation of financial assets held
for trading in accordance with IFRS 2005 and IFRS at transition.
PBS accounted for SIT 96,014 thousand of the difference while
NKBM’s share was SIT 240,398 thousand. A portion of the effects of valuation at fair value disclosed at transition to IFRS has
been distributed between the years 2004 and 2005 in the annual
report prepared in accordance with IFRS in which the fair value
model was already applied.
12
Exchange differences
(27,331)
(25,874)
1,457
The difference is the result of the elimination of foreign exchange
differences for capital investments in associates and for available-for-sale capital investment valued at historical cost.
13
Gains and losses on
derecognition of assets
other than held for sale
319,694
319,694
0
14
Other net operating
income
1,712,067
1,733,393
21,326
15
Financial and operating
income and expenses
37,765,110
39,044,995
1,168,424
16
Administration costs
20,289,293
20,291,597
2,304
The difference is related to the recognised depreciation
property, plant and equipment and to the amortisation of
intangible assets in the amount of EUR 500 which the Group
transferred to the costs of material used.
17
Depreciation
2,118,783
2,118,043
(740)
The difference is the result of the decrease of depreciation due to the exclusion of land from buildings (SIT 3,035
thousand), additional depreciation by a subsidiary bank (SIT
-2,904 thousand) and decreased depreciation by a subsidiary
company (SIT 609 thousand).
18
Provisions
877,175
1,185,143
307,968
19
Impairments
5,013,724
3,649,880
(1,363,844)
21
Share of profit or loss
of associates and joint
ventures accounted for
using the equity method
1,287,390
1,398,851
111,461
23
TOTAL PROFIT OR
LOSS BEFORE TAX
FROM CONTINUING
OPERATIONS
10,864,986
13,199,183
2,334,197
24
Tax expense (income)
related to profit
or loss from continuing
operations
2,888,234
2,223,043
(665,191)
25
TOTAL PROFIT OR
LOSS AFTER TAX
FROM CONTINUING
OPERATIONS
7,976,752
10,976,140
2,999,388
27
NET PROFIT/LOSS
for the fi nancial year
7,976,752
10,976,140
2,999,388
28
Profit of minority
shareholders
143,355
253,346
110,011
29
NET PROFIT OR LOSS
for the fi nancial year
(including profit
of minority shareholders)
7,833,417
10,722,794
2,889,377
38,181,240
31 December
2005
IFRS - adjusted
38,092,164
Difference
Explanation
(89,076)
F-60
The difference is mainly due to the creation of additionally
required value adjustments pursuant to the new Methodology
for assessing credit risk losses.
/
/
/
/
The amount of SIT 21,326 thousand is the result of increases
in other net operating profit of a subsidiary bank.
The difference occurred due to the creation of provisions for
employees (SIT 70,000 thousand) and off-balance sheet provisions (SIT 102,134 thousand) related to 2005, and due to the
effect of uniform classification of customers at the Nova KBM
Group level (SIT 135,834 thousand).
The difference stems from the new Methodology for assessing
credit risk losses.
The difference arises from the derecognition of non-current
capital investments in subsidiaries.
The difference which is equal to the tax charge arises from the
tax treatment of the valuation of fi nancial assets held for trading, accrued fees and commissions and provisions accounted
for in accordance with IFRS 2005 (SIT -701,850 thousand),
deferred tax revenue arising from provisions for employees
(SIT -17,500 thousand), increased tax liability of a subsidiary
bank (SIT 26,691 thousand), and from the elimination of
deferred income of a subsidiary (SIT 27,178 thousand).
The difference is the result of effects that influenced the 2005
income statement prepared in accordance with IFRS and
related to the profit of minority shareholders.
The table below shows the differences between individual balance sheet items. Only the items giving rise to differences have been presented.
Item no.
IFRS BALANCE SHEET
31 December
2005
IFRS
31 December
2005
IFRS - adjusted
Difference
Explanation
A.I.
Cash and cash balance
with central banks
17,990,932
17,990,930
(2)
A.II.
Financial assets held f
or trading
48,241,030
48,972,859
731,829
A.IV.
Available-for-sale
fi nancial assets
99,047,988
109,374,231
10,326,243
The difference is primarily due to changes in the balance sheet
scheme prescribed by the regulators (and from the reclassification of financial assets by subsidiaries to the item “availablefor-sale financial assets”, including the valuation thereof).
A.V.
Loans and receivables
490,855,289
506,796,312
15,941,023
The difference is mainly the result of: a) changes in fi nancial
statement schemes prescribed by the regulators, and b) the
transfer of interest, fees and commissions and payment card
operations receivables from the item other assets to the item
loans and receivables, the transfer of leasing agreement
receivables to loans and receivables (SIT 8,549,496 thousand)
and the implementation of the new Methodology for assessing
credit risk losses.
A.VI.
Held to maturity
fi nancial assets
119,970,341
113,802,028
(6,168,313)
The difference is primarily due to changes in the balance sheet
scheme prescribed by the regulators and from the reclassification of debt securities not held for trading to the item “available-for-sale financial assets” (SIT -7,215,600 thousand).
A.IX.
Accrued interest income
on fi nancial assets
0
58
58
The difference is due to changes in the balance sheet scheme
prescribed by the regulators.
A.X.
Property, plant
and equipment
19,896,351
16,580,947
(3,315,404)
To a large extent, the difference is the result of: exclusion
of investment property from property, plant and equipment
(SIT -964,754 thousand), inappropriate classification of
investment property receivables according to IFRS 2005 to
tangible (investment property in the process of completion; SIT
-2,288,000 thousand), exclusion of non-current assets held
for sale (SIT -94,704 thousand) and reclassification to a standalone balance sheet item, and immediate classification of
property, plant and equipment with a value of up to EUR 500
in value as expenses. Due to the excluded depreciation of land,
the value of fi xed assets increased by SIT 60,470 thousand.
A.XI.
Investment property
0
1,074,339
1,074,339
The difference stems from the transfer of investment property
of the Nova KBM Group, including the revaluation thereof,
from other assets (SIT 964,754 thousand) and property, plant
and equipment (SIT 109,585 thousand) to investment property.
A.XII.
Intangible assets
4,740,349
4,668,223
(72,126)
The difference occurred due to the transfer of a discount relating to bonds issued from fi nancial liabilities at amortised cost
(SIT 69,320 thousand), the transfer of non-current deferred
operating costs to the item other assets (SIT 2,371 thousand),
and due to immediate classification of intangible assets with
a value of up to EUR 500 as expenses (SIT 435 thousand).
A.XIII.
Investments in subsidiaries, associates and joint
ventures
6,699,480
10,185,865
3,486,385
The difference is the result of valuing non-current investments
in associates using the equity method. The valuation is aimed
at matching a proportionate part of an associate’s capital,
including the reconciliation to match revaluation reserves (the
latter was disregarded in accordance with IFRS 2005).
A.XIV.
Tax assets
0
749,807
749,807
The difference stems from the transfer of deferred tax assets
arising from non-current provisions for pending legal issues
and from non-current provisions for deposits from other assets,
and from the calculation of deferred tax assets arising from
provisions for employees and impaired fi nancial instruments
and investment property.
A.XV.
Other assets
31,164,849
12,736,964
(18,427,885)
The difference is primarily due to changes in the balance
sheet scheme prescribed by the regulators, and the transfer
of interest (SIT 6,306,572 thousand) and fees and commissions to appropriate fi nancial assets, the transfer of
receivables from unauthorised overdrafts and payment card
transactions to loans (SIT 3,563,269 thousand), the transfer
of lease receivables (SIT 8,549,486 thousand), and the transfer of tax assets to a stand-alone balance sheet item.
A.XVI.
Non-current assets and
disposal groups classified
as held for sale
0
94,704
94,704
The difference is due to changes in the balance sheet scheme
prescribed by the regulators (transfer of non-current assets
classified as held for sale and of discontinued operations to
a stand-alone balance sheet item).
Rounding.
The difference is primarily due to changes in the balance
sheet scheme prescribed by the regulators.
Total assets
838,606,609
843,027,267
4,420,658
L.IV.
Financial liabilities measured at amortised cost
750,863,774
753,960,923
3,097,149
The difference mainly arises from the introduction of the
amortised cost model and from the resulting transfer of
non-current accrued fees and commissions and non-current
accrued repayment costs (2,468,069), and the transfer of
fi nance lease liabilities and interest liabilities from other
liabilities (SIT 731,935 thousand). This item is reduced by
a discount on bonds issued.
L.VIII.
Accrued interest
expenses on fi nancial
liabilities
0
3,602,715
3,602,715
The difference is due to changes in the balance sheet
scheme prescribed by the regulators (elimination of interest
for fi nancial liabilities and presentation of such interest
in a stand-alone balance sheet item).
L.IX.
Provisions
5,613,413
5,322,231
(291,182)
F-61
The difference arises from the implementation of the new
methodology for assessing credit risk losses and from the
resulting elimination of excess provisions, the creation of
provisions for employees and from the reversal of non-current
provisions for donated funds.
Notes to the Financial Statements of the Nova KBM Group
L.X.
Tax liabilities
L.XI.
Other liabilities
0
2,872,630
2,872,630
21,279,029
9,486,473
(11,792,556)
The difference consists of the transfer of tax liabilities from
other liabilities (SIT 1,000,605 thousand), and of the transfer
of tax liabilities arising from the transition to IFRS (SIT
1,176,985 thousand) and deferred tax liabilities arising from
the revaluation of available-for-sale fi nancial assets to fair
value (SIT 695,040 thousand).
To a large extent, the difference is the result of: the transfer
of accounted for and accrued interest to interest on fi nancial
liabilities (SIT 3,627,930 thousand), the transfer of tax
liabilities to the item tax expenses (income) related to profit
or loss from continuing operations (SIT 1,000,605 thousand),
the transfer of repurchased receivables of a subsidiary to offbalance sheet items (SIT 1,987,379 thousand), the transfer,
according to IFRS 2005, of other non-current accrued
fees and commissions and non-current accrued repayment
costs stated under other liabilities to fi nancial liabilities at
amortised cost (SIT 2,468,069 thousand), and the transfer of
interest liabilities to fi nancial liabilities at amortised cost (SIT
731,935 thousand).
L.XIII.
Basic equity capital
5,839,496
5,839,496
0
L.XIV.
Share premium account
6,912,827
6,963,049
50,222
The change to an associate’s share premium account following
purchase (application of the equity method of valuing noncurrent investment in associates).
L.XVI.
Revaluation reserves
1,489,398
5,363,360
3,873,962
The amount of SIT 3,873,962 thousand stems from the
difference between IFRS and IFRS 2005 in the area of the
valuation of available-for-sale fi nancial assets (the majority is
relates to the valuation of associates using the equity method
which also encompasses revaluation reserves).
L.XVII.
Reserves from profit
(including retained
earnings)
41,866,939
41,587,011
(279,928)
The difference is the result of effects reflected in reserves
from profit.
L.XVIII.
Treasury shares
0
(6,522)
(6,522)
L.XIX.
Income from
the current year
2,803,080
5,692,457
2,889,377
Equity of minority
shareholders
1,938,653
2,343,444
404,791
838,606,690
843,027,267
4,420,658
Total liabilities
and equity
F-62
/
Treasury shares of a subsidiary – according to IFRS, treasury
shares constitute a capital deduction item.
The difference the result of effects that influenced the 2005
income statement prepared in accordance with IFRS.
The difference is the result of effects that influenced the income statement for the current year (2005) and reserves from
profit, and are related to the equity of minority shareholders.
Income Statement in Euros
for the Nova KBM Group
in thousands of euros
Ser. no.
ITEM DESCRIPTION
1 January to 31
December 2006
1 January to 31
December 2005
1
Interest income
2
Interest expenses
3
Interest net income (1 - 2)
4
Dividend income
5,515
5,787
5
Fee and commission income
52,035
47,022
6
Fee and commission expenses
12,428
9,942
7
Fee and commissions net income (5 - 6)
39,607
37,080
184,225
8
Realised gains and losses on financial assets and liabilities not measured at fair value through profit or loss
9
Gains and losses on fi nancial assets and liabilities held for trading
158,956
83,923
69,752
100,302
89,204
1,773
(956)
15,659
23,357
0
10
Gains and losses on fi nancial assets and (liabilities) designated at fair value through profit or loss
0
11
Fair value adjustments in hedge accounting
0
0
12
Exchange differences
(1,451)
(108)
2,581
1,334
13
Gains and losses on derecognition of assets other than held for sale
14
Other operating net income
15
Financial and operating income and expenses (3 + 4 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14)
16,662
7,233
180,646
162,932
16
Administration costs
90,684
84,675
17
Depreciation
11,114
8,838
18
Provisions
19
Impairments
20
Negative goodwill
21
Share of profit or loss of associates and joint ventures accounted for using the equity method
7,305
4,946
19,079
15,231
0
0
3,292
5,837
22
Total profit or loss from non-current assets and disposal groups classified as held for sale
0
0
23
TOTAL PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS
(15 – 16 – 17 – 18 – 19 + 20 + 21 + 22)
55,757
55,079
24
Tax expense (income) related to profit or loss from continuing operations
10,340
9,277
25
TOTAL PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS (23 – 24)
45,417
45,803
26
Total profit or loss after tax from discontinued operations
27
NET PROFIT/LOSS for the fi nancial year (25 + 26)
0
0
45,417
45,803
a) Majority interest
3,287
1,707
b) Minority interest
1,253
1,057
F-63
Notes to the Financial Statements of the Nova KBM Group
Balance Sheet in Euros for
the Nova KBM Group
in thousands of euros
Ser. no.
ITEM DESCRIPTION
31 December 2006
31 December 2005
ASSETS
1
Cash and cash balance with the central banks
109,746
75,075
2
Financial assets held for trading
135,918
204,360
3
Financial assets designated at fair value through profit or loss
4
Available-for-sale fi nancial assets
0
0
785,985
456,411
2,707,265
2,114,824
292,840
474,887
5
Loans and receivables
6
Held-to-maturity investments
7
Derivatives - hedge accounting
0
0
8
Fair value changes of the hedged items in portfolio hedge of interest rate risk
0
0
9
Accrued interest on fi nancial assets
2
0
10
Property, plant and equipment
79,114
69,191
11
Investment property
5,858
4,483
12
Intangible assets
22,996
19,480
13
Investments in subsidiaries, associates and joint ventures
43,425
42,505
14
Tax assets
15
Other assets
16
Non-current assets and disposal groups classified as held for sale
17
TOTAL ASSETS
3,886
3,129
70,885
53,150
35
395
4,257,953
3,517,890
0
0
LIABILITIES AND EQUITY
18
Deposits from central banks
19
Financial liabilities held for trading
20
Financial liabilities designated at fair value through profit or loss
21
Financial liabilities measured at amortised cost
22
Financial liabilities associated to transferred assets
23
154
0
0
0
3,845,043
3,146,223
0
0
Derivatives - hedge accounting
0
0
24
Fair value changes of the hedged items in portfolio hedge of interest rate risk
0
0
25
Accrued interest expense on fi nancial liabilities
18,779
15,034
26
Provisions
29,157
22,209
27
Tax liabilities
28
Other liabilities
29
Liabilities included in disposal groups held for sale
0
0
30
Basic equity capital
24,368
24,368
31
Share premium account
29,082
29,056
32
Equity component of compound fi nancial instruments
33
Revaluation reserves
34
Reserves from profit (including retained earnings)
35
Treasury shares
36
Income from current year
37
Interim dividends
38
Minority interest
7,444
11,987
36,294
39,586
0
0
16,526
22,381
225,762
173,540
(27)
(27)
13,729
23,754
0
0
11,641
9,779
39
TOTAL LIABILITIES AND EQUITY
4,257,953
3,517,890
40
OFF-BALANCE SHEET ITEMS (B.1 – B.4)
1,052,054
692,419
F-64
F-65
F-66
1 Income Statement (Abbreviated
Layout) for Nova KBM d.d.
in thousands of tolars
Ser.
No.
ITEM DESCRIPTION
Notes
1 January to
31 December 2006
1 January to
31 December 2005
1
Interest income
5
37,903,924
32,062,924
2
Interest expenses
5
(17,312,477)
(13,810,727)
3
Interest net income (1 - 2)
5
20,591,447
18,252,197
4
Dividend income
6
1,080,309
1,165,966
5
Fee and commission income
7
9,587,332
8,619,046
6
Fee and commission expenses
7
(1,658,286)
(1,103,549)
7
Fee and commission net income (5 - 6)
7
7,929,046
7,515,497
8
Realised gains and losses on financial assets
and liabilities not measured at fair value through
profit or loss
8
284,631
(357,809)
9
Gains and losses on financial assets and liabilities
held for trading
9
3,389,177
5,273,177
10
Gains and losses on financial assets (liabilities)
designated at fair value through profit or loss
0
0
11
Fair value adjustments in hedge accounting
0
0
12
Exchange differences
10
(351,264)
(28,887)
13
Gains and losses on derecognition of assets other
than held for sale
11
282,164
328,938
14
Other operating net income
12
15
Financial and operating income and expenses
(3 + 4 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14)
16
Administration cost
17
Depreciation
18
19
2,329,006
292,241
35,534,516
32,441,320
13
(17,344,467)
(16,286,111)
14
(2,137,185)
(1,626,459)
Provisions
15
(1,687,739)
(1,102,051)
Impairments
16
(3,710,361)
(3,137,087)
20
Negative goodwill
0
0
21
Share of profit or loss of associates and joint
ventures, accounted for using the equity method
0
0
22
Total profit or loss from non-current assets
and disposal groups classified as held for sale
0
0
23
TOTAL PROFIT OR LOSS BEFORE TAX FROM
CONTINUING OPERATIONS
(15 – 16 – 17 – 18 – 19 + 20 + 21 + 22)
10,654,764
10,289,612
24
Tax expense (income) related to profit or loss from
continuing operations
(1,829,287)
(1,938,722)
25
TOTAL PROFIT OR LOSS AFTER TAX FROM
CONTINUING OPERATIONS (23 - 24)
8,825,477
8,350,890
26
Total profit or loss after tax from discontinued
operations
0
0
27
NET PROFIT/LOSS for the financial year
(25 + 26)
8,825,477
8,350,890
3,023
2,860
Net profit per share
17
18
F-67
Financial Statements of Nova KBM d.d.
2 Balance Sheet (Abbreviated Layout)
for Nova KBM d.d.
in thousands of tolars
Item
No.
ITEM DESCRIPTION
Notes
31 December
2006
31 December
2005
ASSETS
1
Cash and cash balances with the central banks
19
21,077,914
12,837,683
2
Financial assets held for trading
20
29,998,614
46,362,207
4
Available-for-sale financial assets
21
157,772,490
98,033,049
5
Loans and receivables
22
584,735,169
453,256,524
6
Held-to-maturity investments
23
54,376,738
76,435,252
7
Derivatives – hedge accounting
0
0
8
Fair value changes of the hedged items in portfolio hedge of
interest rate risk
0
0
9
Accrued interest on financial assets
24
424
58
10
Property, plant and equipment
25
13,902,861
13,461,676
11
Investment property
26
111,944
109,585
12
Intangible assets
27
5,084,182
4,234,259
13
Investments in subsidiaries, associates and joint ventures
28
9,341,649
9,328,073
14
Tax assets
29
759,645
585,086
15
Other assets
30
2,110,119
2,248,422
16
Non-current assets and disposal groups classified
as held for sale
31
5,306
94,704
17
TOTAL ASSETS
879,277,055
716,986,578
LIABILITIES
0
0
36,895
0
0
0
794,336,121
642,636,717
0
0
Derivatives – hedge accounting
0
0
24
Fair value changes of the hedged items in portfolio hedge
of interest rate risk
0
0
25
Accrued interest expense on financial liabilities
34
4,475,948
3,600,188
26
Provisions
35
6,271,802
4,656,688
27
Tax liabilities
36
917,651
2,499,399
28
Other liabilities
37
6,391,337
4,447,795
29
Liabilities included in disposal groups classified as held for sale
30
Basic equity capital
31
Share premium account
32
Equity component of compound financial instruments
33
Revaluation reserves
34
Reserves from profit (including retained earnings)
35
Treasury shares
36
Income from current year
18
Deposits from central banks
19
Financial liabilities held for trading
20
Financial liabilities designated at fair value through profit
or loss
21
Financial liabilities measured at amortised cost
22
Financial liabilities associated to transferred assets
23
37
Interim dividends
38
TOTAL LIABILITIES AND EQUITY
39
OFF-BALANCE SHEET ITEMS (B.1 – B.4)
32
33
0
0
38
5,839,496
5,839,496
39
6,912,827
6,912,827
0
0
40
473,698
1,597,665
41
51,525,229
40,202,645
42
44,45
F-68
0
0
2,096,051
4,593,158
0
0
879,277,055
716,986,578
201,060,940
143,299,560
3 Cash Flow Statement for
Nova KBM d.d.
in thousands of tolars
Designation
ITEM DESCRIPTION
1
A
a)
2
Total profit or loss before tax
Impairments/(reversal of impairments) of fi nancial assets held to maturity
1 January to
31 December
2005
3
4
10,654,764
10,289,612
2,137,185
1,626,459
0
0
(2,359)
0
Impairments of capital investments in subsidiaries, associates and joint ventures
0
0
(Negative goodwill)
0
0
Share of profit or loss of associates and joint ventures, accounted for using the equity method
0
0
351,264
30,345
Impairments of property, plant and equipment, investment property, intangible assets and other assets
Net (gains)/losses from exchange differences
Net (gains)/losses from fi nancial assets held to maturity
Net (gains)/losses from sale of property, plant and equipment and investment properties
Net (gains)/losses from sale of intangible assets
Other (gains)/losses from investing activities
Other (gains)/losses from fi nancing activities
13,880
840
(101,339)
50,437
22,197
0
(792,388)
(785,834)
0
0
(706)
0
0
0
Net unrealized gains in revaluation reserves from fi nancial assets available for sale
(excluding effect of deferred tax)
614,031
1,597,665
Net unrealized gains in revaluation reserves from hedging of cashflow against risks
(excluding effect of deferred tax)
0
0
Unrealized (gains)/losses from fi nancial assets measured at fair value that are components
of cash equivalents
Net unrealized (gains)/losses from non-current assets held for sale and discontinued operations
and liabilities associated therewith
Other adjustments to total profit or loss before tax
Cash flows operating activities before changes in operating assets and liabilities
Net (increase)/decrease in operating assets
Net (increase)/decrease of fi nancial assets designated at fair value through profit or loss
Net (increase)/decrease in fi nancial assets available for sale
Net (increase)/decrease in loans and receivables
Net (increase)/decrease in assets-derivatives used for hedging
Net (increase)/decrease in interest on fi nancial assets (accrued income)
Net (increase)/decrease in deferred charges
Net (increase)/decrease in non-current assets held for sale
Net (increase)/decrease in other assets
c)
1 January to
31 December
2006
CASH FLOWS FROM OPERATING ACTIVITIES
Depreciation
b)
Amount
(Increase)/decrease in operating liabilities
1,687,739
1,102,051
14,584,268
13,911,575
(155,513,049)
(101,119,978)
16,371,031
35,165,544
(53,917,105)
(37,436,051)
(121,143,054)
(99,006,822)
0
0
(364)
0
(28,915)
(17,086)
89,398
0
3,115,960
174,437
149,975,824
105,911,625
Net (increase)/decrease in fi nancial liabilities to central banks
0
0
Net (increase)/decrease in fi nancial liabilities held for trading
36,895
0
Net (increase)/decrease in fi nancial liabilities designated at fair value through profit or loss
Net (increase)/decrease in deposits, loans and receivables and debt securities, measured at amortised cost
Net (increase)/decrease in liability-derivatives
Net (increase)/decrease in interest on fi nancial liabilities (accrued expenses)
Net (increase)/decrease in deferred income
Net (increase)/decrease in liabilities associated with non-current assets held for sale
Net (increase)/decrease in other liabilities
d)
Cash flow from operating activities (a + b + c)
e)
Income taxes (paid)/refunded
f)
Net cash flow from operating activities (d + e)
F-69
0
0
145,833,223
104,371,698
0
0
880,870
825,274
24,710
(575,282)
0
0
3,200,126
1,289,935
9,047,043
18,703,222
(3,006,526)
(1,473,662)
6,040,517
17,229,560
Financial Statements of Nova KBM d.d.
in thousands of tolars
Designation
ITEM DESCRIPTION
1
B
a)
Amount
2
Receipts from investing activities
Receipts from the sale of intangible assets
Receipts from the disposal of subsidiaries, associates and joint ventures
Receipts from non-current assets or liabilities held for sale
Receipts from the sale of fi nancial assets held to maturity
Other receipts from investing activities
Cash payments on investing activities
(Cash payments to acquire property, plant and equipment and investment properties)
(Cash payments to acquire intangible assets)
(Cash outflow to non-current assets or liabilities held for sale)
(Cash payment for investments in subsidiaries, associates and joint ventures)
(Cash payments to acquire held to maturity investments)
(Other cash payments related to investing activities)
3
4
35,890,059
40,498,492
245,756
445,190
0
0
704,969
1,501,948
0
0
33,796,551
37,765,520
1,142,783
785,834
(13,269,998)
(36,642,169)
(2,222,319)
(4,918,662)
(973,191)
0
0
0
0
(1,024,652)
(10,074,488)
(30,698,855)
0
0
22,620,061
3,856,323
Cash proceeds from fi nancing activities
15,311,280
16,736,109
Cash proceeds from subordinate liabilities issued
12,021,865
16,736,109
Cash proceeds from issuing shares and other equity instruments
0
0
Cash proceeds from sale of treasury shares
0
0
3,289,415
0
(15,202,861)
(10,219,619)
0
(1,000,100)
(Cash repayments of subordinate liabilities)
(994,738)
(9,219,519)
(Cash payments to acquire treasury shares)
0
0
(14,208,123)
0
108,419
6,516,490
(685,942)
(686,917)
c)
Net cash flow from investing activities (a - b)
C
CASH FLOWS FROM FINANCING ACTIVITIES
a)
Other cash proceeds related to fi nancial activities
b)
1 January to
31 December
2005
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts from the sale of property, plant and equipment and investment properties
b)
1 January to
31 December
2006
Cash payments for fi nancing activities
(Dividends paid)
(Other cash payments related to fi nancial activities)
c)
Net cash flow from fi nancing activities (a-b)
D
Effects of change in exchange rates on cash and cash equivalents
E
Effects of change in fair value on cash and cash equivalents
F
Net increase in cash and cash equivalents (Ae + Bc + Cc)
G
Opening balance of cash and cash equivalents
H
Closing balance of cash and cash equivalents (D + E + F + G)
F-70
2,035
0
28,768,997
27,602,373
75,530,028
48,614,572
103,615,118
75,530,028
4 Statement of Changes in Equit y
for the Period 1 January to
31 December 2006 for Nova KBM d.d.
in thousands of tolars
1
2
A
OPENING BALANCE FOR
THE REPORTING PERIOD
B
Equity capital inflows
a)
New share capital
subscribed (paid)
0
b)
Sale of treasury shares
c)
Increase in revaluation
reserves
d)
0
59,145,791
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Income from current
fi nancial year (net profit
or net loss)
0
0
0
0
0
0
0
8,825,477
0
8,825,477
e)
Other increases
0
0
0
0
0
0
0
0
0
0
C
Changes in equity capital
a)
Transfers of net profit
to reserves from profit
0
0
0
0
6,729,426
0
0 (6,729,426)
0
0
b)
Covering of the of loss
brought forward
0
0
0
0
0
0
0
0
0
0
c)
Transfer of components
of equity capital to a special
fund of treasury shares
0
0
0
0
0
0
0
0
0
0
d)
Creation/elimination of fund
of treasury shares
0
0
0
0
0
0
0
0
0
0
e)
Appropriation of
(accounting for) dividends
in form of shares
0
0
0
0
0
0
0
0
0
0
f)
Other movements
in equity capital 2
0
0
0
0
0
4,593,158
0 (4,593,158)
0
0
Reserves from profit
10
11
Total capital
4,593,158
5
Interim dividends
0
4
Income from
current fi nancial year
9
9,182,640
3
5,839,496 6,912,827
Revaluation reserves
8
31,020,005
Equity component of
compound fi nancial
instruments
7
1,597,665
Share premium
6
0
Basic equity capital
Treasury share
(capital deduction item)
ITEM DESCRIPTION
Retained
earnings or loss
Item
Code
12
0
0
D
Equity capital outflows
a)
Appropriation of
(accounting for) dividends
0
0
0
0
0
0
0
0
0
0
b)
Repayment of equity capital
0
0
0
0
0
0
0
0
0
0
c)
Sale of treasury shares
0
0
0
0
0
0
0
0
0
0
d)
Decrease of revaluation
reserves
0
0
0
0
0
0
0
0
0
0
0
0
0 (1,123,967)
e)
Other decreases1
E
CLOSING BALANCE FOR
THE REPORTING PERIOD
F
PROFIT FOR
APPROPRIATION
for fi nancial year3
0
5,839,496 6,912,827
0
473,698
0
0
0
0
37,749,431
13,775,798
0
2,096,051
416,226
13,775,798
2,096,051
0 (1,123,967)
0
66,847,301
16,288,075
Note
1
The amount SIT 1,123,967 thousand represents a decrease in revaluation reserves related to fi nancial assets held for sale.
2
The amount SIT 4,593,158 thousand represents the transfer of undistributed profits from the previous period (SIT 1,195,219 thousand) and retained earnings related
to the transition to the IFRS.
3
The amount SIT 416,226 thousand represents other reserves created from balance sheet profit in 2004, which will be subject to distribution in 2007.
F-71
Financial Statements of Nova KBM d.d.
4 Statement of Changes in Equit y
for the Period 1 January to
31 December 2005 for Nova KBM d.d.
in thousands of tolars
1
2
A
OPENING BALANCE FOR
THE REPORTING PERIOD
B
Equity capital inflows
a)
New share capital
subscribed (paid)
0
b)
Sale of treasury shares
c)
Increase in revaluation
reserves
d)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Income from current
fi nancial year (net profit
or net loss)
0
0
0
0
0
0
0
8,350,890
0
8,350,890
e)
Other increases1
0
0
0
1,597,665
0
0
0
0
0
1,597,665
C
Changes in equity capital
a)
Transfers of net profit
to reserves from profit
0
0
0
0
4,173,958
0
0
(4,173,958)
0
0
b)
Covering of the of loss
brought forward
0
0
0
0
0
0
0
0
0
0
c)
Transfer of components
of equity capital to a special
fund of treasury shares
0
0
0
0
0
0
0
0
0
0
d)
Creation/elimination of fund
of treasury shares
0
0
0
0
0
0
0
0
0
0
e)
Appropriation of
(accounting for) dividends
in form of shares
0
0
0
0
0
0
0
0
0
0
f)
Other movements
in equity capital
0
0
0
0
0
0
0
0
0
0
D
Equity capital outflows
a)
Appropriation of (accounting
for) dividends
0
0
0
0
0
0
0 (1,000,100)
0 (1,000,100)
b)
Repayment of equity capital
0
0
0
0
0
0
0
0
0
0
c)
Sale of treasury shares
0
0
0
0
0
0
0
0
0
0
d)
Decrease of revaluation
reserves
0
0
0
0
0
0
0
0
0
0
0
0
0 (1,123,967)
0
0
0
0
0 (1,123,967)
1,597,665 31,020,005
9,182,640
0
4,593,158
e)
Other decreases
E
CLOSING BALANCE FOR
THE REPORTING PERIOD
F
PROFIT FOR
APPROPRIATION
for fi nancial year
6
10
11
Total capital
0
5
Interim dividends
1,416,326
4
Income from
current fi nancial year
0
3
5,839,496 6,912,827
Reserves from profit
9,182,640
Revaluation reserves
9
26,846,047
Equity component of
compound fi nancial
instruments
8
0
Share premium
7
0
Basic equity capital
Treasury share
(capital deduction item)
ITEM DESCRIPTION
Retained
earnings or loss
Item
Code
12
0 50,197,336
0
0
0
5,839,496 6,912,827
0
9,182,640
Note
1
The amount SIT 1,597,665 thousand represents the revaluation of fi nancial assets available for sale measured at fair value.
F-72
4,593,158
0
59,145,791
13,775,798
1 Ba sic I n f or m at ion
Nova Kreditna banka Maribor d.d. (the Bank) is a Slovenian joint stock company that provides universal banking services. The Bank’s majority shareholder is the Republic of Slovenia with 90.4102%
of shares. Kapitalska družba d.d and Slovenska od{kodninska družba d.d. each hold a 4.7949%
share in the Bank.
The Bank’s business address is: Nova Kreditna banka Maribor d.d., Maribor, Ulica Vita Kraigherja 4.
The amounts in the financial statements and the accompanying notes are expressed in SIT thousands of tolars unless otherwise indicated. Roundings used in summing up of financial data may
result in calculation.
2 Ac c ou n t i ng Pol ic i e s
Significant accounting policies
Statement of conformity
The financial statements are prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU.
In 2006 the Bank adopted the IFRS as the sole reporting standard. In the preparation of this year’s
annual report certain data for 2005 were adjusted. The adjustments arise from the implementation of the new Methodology for estimating credit risk losses, the elimination of the equity capital
method of valuating financial investments in subsidiaries and associates, and due to the exclusion
of land from the value of property.
These differences are explained in Note 53 – Effect of changes to accounting policies.
Basis for presentation of financial statements
The accounting policies used during the preparation of the financial statements are in line with the
IFRS and the Bank’s internal acts. These documents are: the Methodology for estimating credit risk
losses at NKBM, Recognition of insurance during the impairment of financial assets and Classification and valuation of financial instruments in accordance with the IFRS.
The accounting policies are harmonised within the Group and are adjusted appropriately as required.
These policies were applied consistently for both years presented, unless otherwise stated.
F-73
Notes to the Financial Statements of Nova KBM d.d.
Definition of the Group
The Group is comprised of:
Company
Relation
Nova Kreditna banka Maribor, d.d.
Po{tna banka Slovenije d.d
KBM Fineko d.o.o.
KBM Infond d.o.o.
KBM Leasing d.o.o.
KBM Invest d.o.o.
Gorica Leasing d.o.o.
M Pay d.o.o.
Multiconsult d.o.o
Multiconsult Leasing d.o.o.
Adria Bank Wien
Maribor Insurance Company
Moja naložba, d.d.
parent bank
subsidiary bank
subsidiary company
subsidiary company
subsidiary company
subsidiary company
subsidiary company
subsidiary company
indirect subsidiary
indirect subsidiary
associate company
associate company
associate company
Participating interest
of Nova KBM d.d. in %
55
100
72
100
99,37
100
50
76
78.4
25.04
49.96
45
Non-current capital investments in subsidiaries and associates are disclosed in the individual
statements at cost.
Reporting and functional currency
The items shown in the financial statements are presented in tolars, the tolar being the functional
and reporting currency of the Bank as the parent company.
Conversion of transactions into foreign currency
Transactions in foreign currency are converted into the functional currency at the exchange rate on
the day of the transaction. Exchange rate differences are recognised in the income statement.
Property, plant and equipment
The Bank uses the cost model for its accounting policies. According to this model the Bank depreciates property, plant and equipment at their recognised cost and impairs them only when the
impairment of the assets is necessary.
The Bank begins depreciating property, plant and equipment on the first day of the following month
after they have been put into use. Depreciation is calculated using the straight line method.
The depreciation rates applied in 2006 were the same as the previous year. They are as follows:
buildings
computer equipment
vehicles
other equipment
other investments
licences
3 percent
33.33 percent
12.5 percent
6.7 to 25 percent
10 percent
10 percent
Land is recognised separately from buildings and generally has an unlimited useful life. Therefore
it is not depreciated.
For co-divided ownership of commercial space the value of the associated land is included in the
cost of that part of the building.
An asset is derecognised upon disposal or if future economic benefits are no longer expected from its use.
F-74
Intangible assets
Intangible assets include investments in computer software and licences. They are depreciated
using the straight line method. The Bank stops depreciating intangible assets when they are defined
as current assets for sale or when they are derecognised (i.e. when the Bank no longer expects any
further economic benefits).
The Bank determines the value of intangible assets annually. If this value is lower than cost, revaluation due to impairment must be carried out.
Investment property
Investment property is an asset that the Bank does not use directly in its operations; it is held with
the intention of renting it commercially.
Upon recognition it is measured at cost, and later the Bank measures investment property using the
fair value model.
A licensed real estate appraiser verifies the fair value of investment property at the end of each
financial year.
Gains or losses arising from changes in fair value are included in the income statement in the period
to which they relate.
Reclassification to investment property
Property which is built or developed for transitional use as investment property is treated as an
intangible asset and disclosed at its cost until construction or development is complete, at which
time it becomes investment property. Gains or losses arising from the re-measurement of fair value
are recognised in the income statement.
If the property used in ownership becomes investment property, that property is measured according to its fair value and reclassified to investment property. Gains arising during re-measurement
are recognised directly in equity. Losses are recognised directly in the income statement.
The Bank does not classify property used in ownership as investment property.
Property acquired as payment for receivables
Upon initial recognition, the Bank measures property acquired as payment for receivables based on
an appraiser’s records, which is obtained upon the payment of the receivables. They are later measured at fair value. The Bank holds the property acquired for sale and discloses it in inventories.
The Bank obtains the fair value from a licensed real estate appraiser at the end of each financial
year if the property is not sold within one year of acquisition.
Non-current assets for sale
The Bank categorises assets that no longer have any commercial benefits and are intended for sale
as non-current assets held for sale.
Property, plant and equipment held for sale are measured at the lower of book and fair value, reduced by the costs of sale or depreciation, until exclusion from use.
Assets held for sale are shown as individual items in the balance sheet.
The Bank has defined recognition, measurement, revaluation and derecognition of property, plant
and equipment, intangible assets, investment property, property acquired as payment for receivables, and current assets held for sale in an internal act.
F-75
Notes to the Financial Statements of Nova KBM d.d.
Financial assets
Upon initial recognition, the Bank classifies financial instruments with regard to purpose of acquisition, the period held and type of financial instrument into the following categories:
Financial assets designated at fair value through profit or loss are classified as financial instruments held for trading and financial instruments acquired exclusively for resale in the short
term. Equity and debt securities and derivatives, except those intended as insurance, are classified into this category.
Financial assets held to maturity are assets with defined or definable payments and defined maturity for which the Bank attests to the purpose and capacity to hold the assets until maturity.
Financial assets available for sale are assets which the Bank intends to hold for an undetermined
time and which can be sold owing to liquidity requirements, changes in interest rates, exchange
rates or the prices of financial instruments.
Financial investments in the equity of other companies are non-current investments in the equity
of subsidiaries and associates in which the Bank invests for the purpose of exercising controlling
or significant influence on the operations of those companies.
Loans and receivables are financial assets with defined or definable payments which are not
traded on an active market.
Upon the adoption of a decision to purchase securities or investments in the equity of other companies, the management board of the individual member of the Group also defines the purpose of the
investment and determines its method of valuation.
Purchases of financial instruments measured at fair value through profit or loss are recognised in
the Bank’s accounts on the date transaction was concluded.
Financial assets excluding financial instruments measured at fair value through profit or loss are
initially measured at fair value, increased by transaction costs.
Gains and losses from financial assets measured at fair value are recognised in the income statement in the period to which they relate. For financial assets available for sale, gains and losses are
recognised in equity and are transferred to the income statement upon derecognition, i.e. when the
assets are sold or impaired.
Loans and financial assets held to maturity are measured at amortised cost.
Financial assets are derecognised when the Bank’s contractual rights to cash flows expire or if the
Bank transfers the assets to another party, including management thereof or all risks and benefits
arising from the assets. Purchases and sales performed in a customary manner are calculated on
the day of the transaction, i.e. the date when the Bank binds itself to purchase or sell the assets.
Financial obligations are derecognised when the Bank’s contractual obligations expire, are terminated or suspended.
Valuation of financial instruments
The Bank applies provisions and criteria for impairment of financial assets set out in the following
methodologies:
Methodology for assessing credit risk losses
Methodology for recognising insurance during the impairment of financial assets
Methodology for classifying and valuing financial instruments
Measuring financial instruments at fair value
The following are measured at fair value: financial instruments classified as held for trading, financial instruments measured at fair value through profit or loss and available for sale.
F-76
The fair value of financial instruments is based on the published market price as at the balance
sheet date. If the market price is unknown, fair value is determined based on a model of discounted
future cash flows or on a pricing model.
Debt instruments available for sale are recorded at fair value. The effects of valuation are recognised
in equity. If impartial evidence exists that the asset is impaired, the loss recognised in equity shall
be eliminated and recognised in the income statement. A loss recognised as such can be voided.
Financial instruments measured at amortised cost
The impairment of financial instruments held to maturity is possible if impartial evidence of
impairment exists.
The amount of impairment loss is measured as the difference between the asset’s book value and
the present value of future cash flows discounted by the original interest rate. The value of losses
is recognised in the income statement.
Derivatives, including foreign currency forward transactions, swaps with the Bank of Slovenia,
currency options and forward transactions in securities, are used by the Bank for trading and
hedging. They are valued at market prices and based on valid currency exchanges lists of the
Bank of Slovenia or by contractual future value. All changes to fair value are recognised in the
income statement.
Loans and receivables
The Bank records loans at amortised cost. Loans are disclosed in the amount of outstanding principles, increased by outstanding interest and fees and commissions and decreased by appropriate
impairment losses in accordance with Nova KBM’s Methodology for assessing credit risk losses.
Fees and commissions paid in advance for non-current loans are accrued by the Bank at the effective interest rate.
The Bank continuously assesses (or at a minimum quarterly) whether impartial evidence exists or
events have occurred since recognition and whether these events have an impact on the future cash
flows of a financial asset or group of financial assets and can be reliably assessed. Significant information that indicates impairment of a financial asset is necessary are default and the probability of
bankruptcy, composition or financial reorganisation.
The amount of impairment loss is measured as the difference between the asset’s book value and the
present value of future cash flows discounted at the contractual interest rate. Whenever the Bank
uses first-class or adequate insurance, it takes into account the expected cash flows from liquidation
of the insurance. The book value of the asset is decreased directly or through an impairment losses
account. The value of losses is recognised in the income statement.
If the value of the impairment decreases in the following period, the previously recognised impairment loss is eliminated. The value of eliminated losses is recognised in the income statement.
Cash equivalents
Cash equivalents are current, highly liquid investments that can be quickly converted to a known
amount of cash and for which the risk of changes in value is negligible.
The Bank includes the following in cash equivalents:
cash and balances on settlement and current accounts
loans to banks with an original maturity of up to three months
investments in government debt securities of EU Member States and securities of central banks
and the ECB with an original maturity of up to three months
F-77
Notes to the Financial Statements of Nova KBM d.d.
Financial liabilities
Financial liabilities are liabilities to customers for deposits, loans received, securities issued and
other liabilities from financing activities.
They are disclosed in the balance sheet in the amount of cash received based on agreements and
are measured at amortised cost. They are increased by the amount of returns and decreased by the
amount of repayments.
Provisions
The Bank recognises non-current provisions for liabilities and expenses owing to present obligations
(legal or constructive) arising from past events for which it is possible that an outflow of resources
enabling an inflow of economic benefits will be required to settle the obligations and a reasonable
estimate of the obligation can be made. The Bank forms provisions for pensions and similar liabilities, for off-balance sheet liabilities, for pending legal issues and other provisions.
The Bank forms provisions for pensions and similar liabilities that reflect the present value of liabilities for termination benefits and loyalty bonuses. A calculation is performed for every employee
in such a manner that termination benefits at retirement provided for by the employment contract
are taken into account, as well as the costs of expected loyalty bonuses for total years of service at
the company until retirement. A certified actuary performs the calculation of liabilities for the Bank
using the book provision method.
When calculating present value a discount interest rate is used that is equal to the market rate of
return on the corporate bonds of an issuer with a high credit rating, issued in a currency that is the
same as the currency of the employer’s liabilities.
The Bank recognises provisions for off-balance sheet liabilities when conditions are met in accordance with the Methodology for assessing credit risk losses
Financial and operating income and expenses
Income is recognised when there is a probability of future economic benefits which can be reliably
measured.
Interest income and expenses are disclosed in accrued amounts at a level, with maturities and in the
manner set out in the Bank’s decision on interest rates or based on an agreement between a member
of the Group and its customer.
Interest income and expenses
All interest income and expenses from operations with financial assets are recognised in the income
statement using the effective interest rate method.
The following are disclosed in interest expenses: normal, default and accrued interest and prepaid
compensation for repayment costs for non-current loans to households. Compensation is transferred
to expenses according to the loan repayment period.
Liabilities arising from deposits, issued securities, loans received and other expenses from financial
liabilities are included in interest expenses.
Dividend income
Dividends or participating interests received from capital investments in companies are included in dividend income.
F-78
Income and expenses from fees and commissions
Income includes fees and commissions arising from services performed in accordance with the valid
Tariff or based on the provisions of an agreement between a member of the Group and its customer.
Expenses for fees and commissions include amounts paid for the services of others pursuant to an
agreement between a member of the Group and a creditor.
As a rule, income and expenses are disclosed in the income statement when a service is performed.
Income and expenses from financial transactions
The Bank discloses the following in income and expenses from financial transactions: realised gains
and losses from financial assets that are not measured at fair value through profit or loss and gains
and losses from the trading of equity and debt securities and derivatives measured at fair value
through profit and loss.
Other operating gains and losses
Income from the leasing of business premises and other income are included in other gains. Expenses
for contributions, subscriptions and other operating expenses are included in other losses.
Impairments
The Bank discloses the following in impairments: impairments of financial assets measured at
amortised cost based on criteria set out in the Methodology for assessing credit risk losses and
impairments of investment property based on the assessment of a licensed appraiser.
Taxes
Tax expense related to profit or loss from continuing operations is disclosed in the amount calculated by the Bank on the basis of the Corporate Income Tax Act.
Deferred tax is calculated for all temporary differences between the value of assets and liabilities
for tax purposes and their book value. They were calculated at tax rates for 2007 pursuant to valid
tax legislation, known already in 2006.
The most significant temporary differences arise from the valuation of financial instruments and
investment properties and from provisions.
Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that future taxable income will be available against which temporary differences can be applied.
Deferred tax relating to the valuation of financial instruments available for sale and measured at
amortised cost is directly disclosed in equity.
Reporting by segments
A segment is recognisable as an integral part of the Bank dealing with products or services (business segment) or products and services in a particular economic environment (geographical segment)
and is subject to risks and returns different from those in other segments. The Bank’s reporting is
based on business segments. The Bank does not report by geographical segment as more than 90%
of operations are carried out in the territory of Slovenia.
F-79
Notes to the Financial Statements of Nova KBM d.d.
3 E x p osu r e t o Va r ious R isk s
a) Credit risk
Credit risk is the risk of loss owing to the failure of a bank’s debtor to discharge its liabilities. The
Bank defines credit risk management as the continuous monitoring and analysing of an individual
business partner, supervision of approved investments, monitoring of the adequacy regarding the
insurance of investments, measuring and analysing of shifts in a portfolio with regard to its composition (activity, sector, size, etc.) and quality.
The Bank classifies individual debtors into credit risk categories A to E based on assessments, evaluations of a debtor’s ability to discharge its liabilities to the Bank at maturity and the types of insurance
for receivables. Classification is carried out based on an internally adopted Methodology for classifying
customers into credit risk categories, which is based on the International Financial Reporting Standards and the Bank of Slovenia Regulation on assessment of credit risks of banks and savings banks.
The objective is to estimate expected losses based on objective and subjective criteria.
The Bank gives special attention to assessing material financial assets and contingent off-balance
sheet liabilities. If during the assessment of material financial assets and contingent off-balance
sheet liabilities the Bank identifies potential losses or if a claim to a debtor is insured with collateral that can be used to mitigate credit risk (first-class or adequate insurance) the claim is generally
impaired individually. If the Bank determines that an individual impairment or provision is not
necessary, the debtor’s claims are impaired collectively.
The extent of expected losses is the basis for the formation of impairments of assets to their recoverable amount and the creation of provisions for off-balance sheet items.
The Bank disclosed impairments of financial assets as at 31 December 2006 in the amount of SIT
47,535 million (SIT 5,022 million for individual impairment of financial assets and SIT 42,513
million for collective impairment). The Bank had provisions for off-balance sheet liabilities totalling
SIT 3,513 million. Individual and collective impairments of off-balance sheet liabilities were SIT
645 million and SIT 2,868 million, respectively.
Coverage of non-performing claims (categories C, D and E) with collective impairment and provisions was 93% as at 31 December 2006.
Credit risk (continued)
Balance sheet claims
to banks
2006
Balance sheet claims to the
non-banking sector
2005
2006
2005
Off-balance sheet liabilities
2006
Total
2005
2006
2005
Individual impairment
Credit risk category A
60,252,151
41,397,139
24,531,363
19,191,822
4,186,500
3,032,331
88,970,014
63,621,292
Credit risk category B
13,322
244,762
4,476,578
16,478,709
3,316,640
1,662,948
7,806,540
18,386,419
Credit risk category C
0
0
3,863,733
3,401,908
170,168
584,075
4,033,901
3,985,983
Credit risk category D
0
0
3,716,825
906,351
30,460
530,621
3,747,285
1,436,972
Credit risk category E
51,692
50,535
1,383,964
11,334
253,381
0
1,689,037
61,869
60,317,165
41,692,436
37,972,463
39,990,124
7,957,149
5,809,975
106,246,777
123,374,996
Gross value
Impairments/provisions
126,250
117,382
4,895,691
3,121,975
645,473
917,706
5,667,414
4,157,063
60,190,915
41,575,054
33,076,772
36,868,149
7,311,676
4,892,269
100,579,363
120,018,257
Credit risk category A
25,730,503
51,681,481
423,069,130
336,140,867
56,501,258
12,054,743
505,300,891
396,921,514
Credit risk category B
0
2
99,461,517
62,592,068
14,991,259
15,094,407
114,452,776
77,686,477
Credit risk category C
0
0
11,861,966
9,752,693
2,855,774
429,891
14,717,740
10,182,584
Credit risk category D
0
0
3,973,060
5,535,780
1,200,252
51,161
5,173,312
5,586,941
Credit risk category E
0
0
25,162,741
29,291,111
86,094
182,632
25,248,835
29,473,743
25,730,503
51,681,483
563,528,414
443,312,519
75,634,637
27,812,834
664,893,554
543,719,908
0
0
42,512,742
42,767,134
2,867,932
1,746,187
45,380,674
44,513,321
Net value
25,730,503
51,681,483
521,015,672
400,545,385
72,766,705
26,066,647
619,512,880
500,952,774
Total gross value
86,047,668
93,373,919
601,500,877
483,302,643
83,591,786
33,622,809
771,140,331
607,343,794
Net value
Collective impairment
Gross value
Impairments/provisions
F-80
b) Interest rate risk
Interest rate risk is the risk of a loss arising due to changes in interest rates or the structure of
interest rates of maturity mismatches of interest bearing assets and liabilities with regard to the
maturity of interest rate repricing and the method of charging interest. The majority of exposures
in the Bank are in Slovenian tolars and euros. The table below shows a breakdown of items with
regard to the interest rate repricing period. The Bank manages exposure to interest rate changes
by reconciling the manner of charging interest for assets and liabilities and taking into account the
characteristics of individual items.
Assets – 31 December 2006
BALANCE
SHEET ITEM
TOTAL
Non-interest
bearing
Interest
bearing
Sight
Up to
1 month
1 to 3
months
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
Cash and cash balance
with central banks
21,077,914
10,087,963
10,989,951
10,984,649
5,302
0
0
0
0
Financial assets held
for trading
29,998,614
13,450,949
16,547,665
0
171,365
4,368,865
5,130,304
4,544,126
2,333,005
0
11,366,416
51,243,223
27,942,215
26,849,711
37,747,169
Available-for-sale
fi nancial assets
157,772,490
2,623,756 155,148,734
Loans and receivables
584,735,169
1,403,521
583,331,648
24,134,065
427,438,786
21,928,816
76,032,272
25,571,581
8,226,127
54,376,738
0
54,376,738
0
52,377,139
0
532,810
405,731
1,061,059
424
424
0
0
0
0
0
0
0
13,902,861
13,902,861
0
0
0
0
0
0
0
0
Held to maturity
investments
Accrued interest income
on fi nancial assets
Property, plant and
equipment
Investment property
111,944
111,944
0
0
0
0
0
0
Intangible assets
5,084,182
5,084,182
0
0
0
0
0
0
0
Investments in
subsidiaries, associates
and joint ventures
9,341,649
9,341,649
0
0
0
0
0
0
0
0
Tax assets
Other assets
Non-current assets
and disposal groups
classified as held for sale
Total assets (1)
759,645
759,645
0
0
0
0
0
0
2,110,119
2,110,119
0
0
0
0
0
0
0
5,306
5,306
0
0
0
0
0
0
0
58,882,319 820,394,736
35,118,714
491,359,009
77,540,903 109,637,601
57,371,149
49,367,360
879,277,055
F-81
Notes to the Financial Statements of Nova KBM d.d.
Liabilities – 31 December 2006
BALANCE
SHEET ITEM
TOTAL
Non-interest
bearing
Interest
bearing
Sight
Up to
1 month
1 to 3
months
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
0
0
0
0 794,336,121 213,175,263 165,970,744 154,166,535 234,323,160
24,480,737
2,219,681
Liabilities
Financial liabilities held
for trading
36,895
Financial liabilities measured at amortised cost
794,336,121
36,895
0
0
0
0
Accrued interest
expenses on fi nancial
liabilities
4,475,948
0
4,475,948
836
1,799,558
1,011,524
1,629,995
33,818
217
Provisions
6,271,802
6,271,802
0
0
0
0
0
0
0
917,651
917,651
0
0
0
0
0
0
0
Other liabilities
6,391,337
6,391,337
0
0
0
0
0
0
0
Basic equity capital
5,839,496
5,839,496
0
0
0
0
0
0
0
Share premium account
Tax liabilities
6,912,827
6,912,827
0
0
0
0
0
0
0
Revaluation reserves
473,698
473,698
0
0
0
0
0
0
0
Reserves from profit
(including retained
earnings)
51,525,229
51,525,229
0
0
0
0
0
0
0
2,096,051
2,096,051
0
0
0
0
0
0
0
879,277,055
80,464,986
798,812,069 213,176,099
167,770,302
155,178,060
235,953,155
24,514,555
2,219,898
21,582,667 (178,057,385) 323,588,707 (77,637,157)
(126,315,554)
32,856,594
47,147,462
Net income from
current year
Total liabilities
and equity (2)
Net exposure to interest
rate risk (1) minus (2)
0 (21,582,667)
Cumulative exposure
Off-balance sheet items
(B.1 – B.4)
0
0
0 (178,057,385)
201,155,129 201,155,129
0
145,531,322
67,894,165
(58,421,389)
(25,564,795)
21,582,667
0
0
0
0
0
0
Interest rate risk as at 31 December 2005
BALANCE
SHEET ITEM
TOTAL
Total assets (1)
716,986,578
49,095,304 667,891,274
Total liabilities
and equity (2)
716,986,578
78,535,718 638,450,860
Net exposure to interest
rate risk (1) minus (2)
Cumulative exposure
Off-balance sheet
items (B.1 – B.4)
Non-interest
bearing
0 (29,440,414)
Interest
bearing
Sight
29,440,414
0
0
0
141,865,372
141,865,372
0
Up to
1 month
1 to 3
months
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
21,889,000
45,202,346
35,598,541
36,138,545
52,202,317
32,991,558
3,562,103
219,161
(43,334,597) (30,313,317)
12,210,788
32,036,438
35,919,384
22,921,718 (20,412,879) (50,726,196)
(38,515,408)
(6,478,970)
29,440,414
0
0
0
22,922,218 506,140,624
500
22,921,718
549,475,221
0
0
F-82
0
Interest rate risk – actual interest rates
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
ASSETS
Non-bank customers
non-financial corporations
5.86 %
4.97 %
6.51 %
State
4.69 %
4.49 %
5.21 %
-
other financial organisations
4.97 %
4.93 %
5.72 %
3.77 %
non-profit service providers
5.85 %
5.54 %
6.05 %
4.26 %
households
7.56 %
4.82 %
7.56 %
4.33 %
Banks
3.66 %
4.03 %
4.22 %
2.71 %
Securities
4.49 %
3.82 %
3.88 %
3.44 %
TOTAL ASSETS
5.76 %
4.63 %
5.83 %
3.60 %
0.50 %
3.82 %
LIABILITIES
Non-bank customers
non-financial corporations
2.37 %
2.02 %
2.63 %
State
3.06 %
2.81 %
3.34 %
2.42 %
other financial organisations
3.80 %
4.05 %
4.46 %
2.83 %
non-profit service providers
1.37 %
2.52 %
1.35 %
0.41 %
households
1.69 %
2.12 %
1.90 %
1.25 %
Banks
3.27 %
3.62 %
3.88 %
2.41 %
Securities
4.48 %
-
5.08 %
-
-
5.15 %
-
3.90 %
2.21 %
3.13 %
2.57 %
1.87 %
Subordinated liabilities
TOTAL LIABILITIES AND EQUITY
c) Liquidity risk
Liquidity risk arises from maturity mismatches between assets and liabilities. The table below shows
the Bank’s structural liquidity. When monitoring structural liquidity the Bank takes into account the
characteristics of individual items and available possibilities for providing additional liquidity.
Assets – 31 December 2006
BALANCE
SHEET ITEM
TOTAL
Sight
Up to
1 month
1 to 3 months
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
Cash and cash balance with central banks
21,077,914
21,077,914
0
0
0
0
0
Financial assets held for trading
29,998,614
0
29,998,614
0
0
0
0
Available-for-sale fi nancial assets
157,772,490
0
157,772,490
0
0
0
0
Loans and receivables
584,735,169
33,517,770
84,838,859
69,544,320
150,227,213
163,897,833
82,709,174
54,376,738
0
9,007,896
5,345
19,586,190
400,000
25,377,307
424
185
240
0
0
0
0
13,902,861
0
0
0
148,886
185,847
13,568,128
Held to maturity fi nancial assets
Accrued interest income on fi nancial assets
Property, plant and equipment
Investment property
111,944
0
0
0
0
0
111,944
Intangible assets
5,084,182
0
0
1,606,712
5,993
38,406
3,433,070
Investments in subsidiaries, associates
and joint ventures
9,341,649
0
0
0
0
0
9,341,649
Tax assets
Other assets
Non-current assets and disposal groups
classified as held for sale
Total assets (1)
759,645
759,645
0
0
0
0
0
2,110,119
947,355
151,104
144,948
97,486
767,874
1,352
5,306
0
0
0
5,306
0
0
879,277,055
56,302,868
281,769,202
71,301,325
170,071,074
165,289,961
134,542,625
F-83
Notes to the Financial Statements of Nova KBM d.d.
Liabilities – 31 December 2006
BALANCE
SHEET ITEM
TOTAL
Sight
Up to
1 month
1 to 3 months
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
Liabilities
Financial liabilities held for trading
36,895
0
36,895
0
0
0
0
794,336,121
209,944,103
116,761,919
134,882,376
86,726,476
214,742,186
31,279,061
Accrued interest expenses
on fi nancial liabilities
4,475,948
10,254
1,042,977
2,438,944
776,352
188,153
19,266
Provisions
6,271,802
186,475
286,941
670,989
1,468,977
3,380,289
278,131
917,651
0
910,127
0
7,524
0
0
Other liabilities
6,391,337
3,978,137
1,875,006
277,233
92,836
127,128
40,997
Basic equity capital
5,839,496
0
0
0
0
0
5,839,496
Share premium account
6,912,827
0
0
0
0
0
6,912,827
473,698
0
473,698
0
0
0
0
51,525,229
0
0
0
0
0
51,525,229
Financial liabilities measured
at amortised cost
Tax liabilities
Revaluation reserves
Reserves from profit
(including retained earnings)
Net income from current year
2,096,051
0
0
0
2,096,051
0
0
Total liabilities and equity (2)
879,277,055
214,118,969
121,387,562
138,269,542
93,264,267
218,437,757
93,798,958
(0)
(157,816,101)
160,381,640
(66,968,218)
76,806,807
(53,147,796)
40,743,667
68,000
136,000
612,000
348,000
273,000
(157,816,101)
160,313,640
(67,104,218)
76,194,807
(53,495,796)
40,470,667
Sight
Up to
1 month
1 to 3 months
Mismatch (1) minus (2)
Expected outflow relating
to contingent liabilities (3)
Total mismatch (1) – (2) – (3)
1,437,000
(1,437,000)
Liquidity risk as at 31 December 2005
BALANCE
SHEET ITEM
TOTAL
Total assets (1)
716,986,578
37,124,439
203,598,590
52,201,819
Total liabilities and equity (2)
716,986,578
190,566,950
103,418,309
124,651,420
0
(153,442,511)
100,180,281
141,865,372
5,549,610
39,735,378
Mismatch (1) minus (2)
Off-balance sheet items (B.1 – B.4)
F-84
3 to 12
months
Over 1 year
and up
to 5 years
Over 5 years
146,992,984
165,019,878
112,048,868
77,170,243
135,337,989
85,841,667
(72,449,601)
69,822,741
29,681,889
26,207,201
20,779,342
57,214,470
15,182,428
3,404,144
d) Currency risk
Currency risk represents a potential loss due to an unreconciled foreign currency sub-balance and
the volatility of foreign exchange rates. The Bank monitors the exposure to currency risk by controlling the opening of the foreign currency positions. The currency clause in the table below relates
mainly to EUR.
Assets – 31 December 2006
BALANCE SHEET ITEM
EUR
Cash and cash balance with central banks
Financial assets held for trading
Available-for-sale fi nancial assets
Loans and receivables
USD
Other
currencies
SIT
Currency
clause
Total
2,119,461
122,412
262,364
18,573,676
0
21,077,914
16,774,894
8,964
0
13,210,721
4,035
29,998,614
62,967,949
906,794
0
91,067,755
2,829,992
157,772,490
309,904,829
13,725,486
29,974,863
226,570,603
4,559,388
584,735,169
54,376,738
Held to maturity investments
9,154,185
0
0
45,222,553
0
Accrued interest income on fi nancial assets
0
0
0
424
0
424
Property, plant and equipment
0
0
0
13,902,861
0
13,902,861
Investment property
0
0
0
111,944
0
111,944
Intangible assets
0
0
0
5,084,182
0
5,084,182
Investments in subsidiaries, associates
and joint ventures
0
0
0
9,341,649
0
9,341,649
Tax assets
24,371
413
0
734,862
0
759,645
114,377
11,342
4,805
1,870,749
108,846
2,110,119
0
0
0
5,306
0
5,306
401,060,066
14,775,411
30,242,032
425,697,285
7,502,261
879,277,055
Other assets
Non-current assets and disposal groups
classified as held for sale
Total assets (1)
Liabilities – 31 December 2006
BALANCE SHEET ITEM
EUR
USD
Other
currencies
SIT
Currency
clause
Total
Liabilities
Financial liabilities held for trading
Financial liabilities measured
at amortised cost
Accrued interest expenses
on fi nancial liabilities
0
0
0
36,895
0
36,895
355,812,619
14,841,508
28,490,468
392,041,180
3,150,346
794,336,121
2,286,336
84,327
40,573
2,001,734
62,978
4,475,948
6,271,802
Provisions
0
0
0
6,224,832
46,970
Tax liabilities
0
0
0
917,651
0
917,651
1,407,854
4,873
175,495
4,803,116
0
6,391,337
Other liabilities
Basic equity capital
0
0
0
5,839,496
0
5,839,496
Share premium account
0
0
0
6,912,827
0
6,912,827
Revaluation reserves
0
0
0
473,698
0
473,698
Reserves from profit (including
retained earnings)
0
0
0
51,525,229
0
51,525,229
Net income from current year
0
0
0
2,096,051
0
2,096,051
Total liabilities and equity (2)
359,506,809
14,930,708
28,706,536
472,872,708
3,260,294
879,277,055
41,553,257
(155,297)
1,535,496
(47,175,423)
4,241,967
0
Net exposure (1) minus (2)
F-85
Notes to the Financial Statements of Nova KBM d.d.
Currency risk as at 31 December 2005
BALANCE SHEET ITEM
EUR
USD
Other
currencies
SIT
Currency
clause
Total
Total assets (1)
264,514,984
16,259,466
6,528,565
390,020,203
39,663,359
716,986,578
Total liabilities and equity (2)
257,622,176
16,160,601
6,346,270
425,489,194
11,368,337
716,986,578
6,892,808
98,866
182,295
(35,468,991)
28,295,022
0
30,669,568
4,889,752
609,368
105,696,684
0
141,865,372
Net exposure (1) minus (2)
Off-balance sheet items (B.1 – B.4)
e) Geographical breakdown of the balance sheet
Assets – 31 December 2006
BALANCE SHEET ITEM
Cash and cash balance with
central banks
Financial assets held for trading
Total
Slovenia
21,077,914
21,077,914
Total abroad
European
Union
Republics
of the former
Yugoslavia
0
0
0
Other
0
29,998,614
13,083,805
16,914,809
16,184,280
768
729,762
Available-for-sale
financial assets
157,772,490
102,034,405
55,738,085
42,171,885
0
13,566,201
Loans and receivables
584,735,169
522,755,746
61,979,423
40,553,804
16,127,974
5,297,644
Held to maturity investments
54,376,738
54,230,449
146,289
146,289
0
0
424
424
0
0
0
0
13,902,861
13,902,861
0
0
0
0
111,944
111,944
0
0
0
0
Intangible assets
5,084,182
5,084,182
0
0
0
0
Investments in subsidiaries,
associates and joint ventures
9,341,649
7,748,304
1,593,345
1,593,345
0
0
Accrued interest income
on financial assets
Property, plant and equipment
Investment property
Tax assets
Other assets
Non-current assets and disposal
groups classified as held for sale
Total assets (1)
759,645
759,645
0
0
0
0
2,110,119
2,077,901
32,218
22,107
937
9,174
5,306
5,306
0
0
0
0
879,277,055
742,872,886
136,404,170
100,671,710
16,129,680
19,602,780
F-86
Liabilities – 31 December 2006
BALANCE SHEET ITEM
Total
Slovenia
Total abroad
European
Union
Republics
of the former
Yugoslavia
Other
Liabilities
Financial liabilities held
for trading
Financial liabilities measured
at amortised cost
36,895
0
794,336,121 575,843,343
36,895
36,895
0
0
218,492,778 214,866,195
1,579,934
2,046,649
Accrued interest expenses
on financial liabilities
4,475,948
2,896,563
1,579,385
1,557,381
7,075
14,929
Provisions
6,271,802
5,951,725
320,077
0
234,885
85,192
917,651
917,651
0
0
0
0
Other liabilities
6,391,337
6,165,931
225,406
167,599
49,871
7,936
Basic equity capital
5,839,496
5,839,496
0
0
0
0
Share premium account
6,912,827
6,912,827
0
0
0
0
Tax liabilities
Revaluation reserves
Reserves from profit (including
retained earnings)
Net income from current year
Total liabilities and equity (2)
473,698
473,698
0
0
0
0
51,525,229
51,525,229
0
0
0
0
2,096,051
2,096,051
0
0
0
0
879,277,055 658,622,513 220,654,542 216,628,070
1,871,766
2,154,706
14,257,914
17,448,074
Net exposure (1) minus (2)
0
84,250,372 (84,250,372) (115,956,361)
Geographical breakdown of the balance sheet as at 31 December 2005
BALANCE SHEET ITEM
Total
Slovenia
Total abroad
Republics
of the former
Yugoslavia
Other
Total assets (1)
716,986,578 632,034,301
59,612,443
10,335,181
15,004,653
Total liabilities and equity (2)
716,986,578 593,477,794 123,508,784 106,738,083
2,229,391
14,541,310
8,105,790
463,343
991,799
272,203
Net exposure (1) minus (2)
Off-balance sheet items (B.1 – B.4)
0
84,952,277
European
Union
38,556,507 (38,556,507) (47,125,640)
141,865,372 140,601,370
F-87
1,264,002
0
Notes to the Financial Statements of Nova KBM d.d.
4 Br e a k dow n by Busi n e ss Segm en t s
Analysis by operating segments (business segments) as at 31 December 2006
Business network
External income
Operations
with companies
Financial
markets
Other
(unclassified)
Total
16,829,854
7,930,546
7,407,123
3,366,993
35,534,516
Interest net income
9,607,897
6,399,916
3,661,768
921,866
20,591,447
Fees and commissions net income
6,597,316
1,584,414
(430,181)
177,497
Dividend income
4,318
1,075,991
7,929,046
1,080,309
Realised gains and losses on fi nancial
assets and liabilities not measured at fair
value through profit or loss
280,829
(53,751)
93,334
(35,781)
284,631
Net gains and losses on fi nancial assets
and liabilities held for trading
315,491
22,704
3,051,563
(581)
3,389,177
0
0
(351,264)
0
(351,264)
29,422
0
203,750
48,992
282,164
2,329,006
Exchange differences
Net gains and losses on derecognition
of assets, other than held for sale
Other operating net income
(5,419)
(22,737)
102,162
2,255,000
3,419,772
(2,963,632)
(456,140)
0
0
Income by segments
20,249,626
4,966,914
6,950,983
3,366,993
35,534,516
Profit or loss before tax from continuing
operations
12,808,191
1,607502
2,719,206
(6,480,135)
10,654764
0
0
0
1,829,287
1,829,287
Income between segments
Tax expense (income) related to profit or loss
from continuing operations
Net profit or loss for the fi nancial year
0
0
0
0
8,825,477
Assets by segments
329,121,308
187,332,571
338,581,611
24,241,565
879,277,055
Liabilities (excluding capital) by segments
455,602,697
74,402,721
271,524,192
10,900,145
812,429,755
2,832,718
2,603,669
(3,968)
(34,319)
5,398,100
Depreciation and amortisation
750,287
26,702
11,250
1,348,946
2,137,185
Cost of assets acquired
660,176
18,498
7,971
2,353,708
3,040,353
Provisions and impairments
Analysis by operating segments (business segments) as at 31 December 2005
Business network
External income
Operations
with commercial
operators
Financial
markets
Other
(unclassified)
Total
14,925,958
6,561,708
10,326,455
627,199
32,441,320
Interest net income
7,752,406
4,900,321
4,993,737
605,733
18,252,197
Fees and commissions net income
6,310,193
1,540,421
(279,875)
(55,242)
7,515,497
260,484
0
905,482
0
1,165,966
0
0
(357,809)
0
(357,809)
403,940
121,001
4,779,232
(30,996)
5,273,177
0
0
(28,887)
0
(28,887)
5,259
0
314,921
8,758
328,938
292,241
Dividend income
Realised gains and losses on fi nancial
assets and liabilities not measured at fair
value through profit or loss
Net gains and losses on fi nancial assets
and liabilities held for trading
Exchange differences
Net gains and losses on derecognition
of assets, other than held for sale
Other operating net income
193,676
(35)
(346)
98,946
4,455,318
(1,993,709)
(2,461,609)
0
0
Income by segments
19,381,276
4,567,999
7,864,846
627,199
32,441,320
Profit or loss before tax from continuing
operations
15,081,984
2,846,795
2,737,862
(10,377,029)
10,289,612
0
0
0
1,938,722
1,938,722
Income between segments
Tax expense (income) related to profit or loss
from continuing operations
Net profit or loss for the fi nancial year
0
0
0
0
Assets by segments
184,231,555
138,231,977
300,271,801
94,251,245
716,986,578
Liabilities (excluding capital) by segments
408,981,307
73,495,286
164,401,805
10,962,389
657,840,787
1,357,811
1,149,309
13,366
1,718,652
4,239,138
Depreciation and amortisation
710,784
20,792
10,859
884,024
1,626,459
Cost of assets acquired
538,707
113
7,294
4,755,556
5,301,670
Provisions and impairments
F-88
8,350,89
No t e s t o t h e I nc ome S tat emen t It ems
5 Interest net income
a) breakdown of interest by sectors
2006
Income
Non-financial corporations
2005
Expenses
Income
Expenses
14,168,856
3,329,282
11,758,934
State
5,259,276
1,067,135
6,005,632
651,170
Banks
5,015,103
4,201,429
3,675,215
2,269,562
Other financial organisations
Households
Foreign persons
Non-profit household service providers
Total
2,016,482
1,973,864
1,389,913
1,099,587
2,563,898
10,682,963
6,361,451
9,148,923
5,521,689
722,559
892,846
327,419
734,977
81,303
70,421
47,214
52,949
37,903,924
17,312,477
32,062,924
13,810,727
Income
Expense
Income
Expense
37,036,019
17,312,367
31,126,628
13,810,544
867,905
0
934,255
0
0
110
2,041
183
37,903,924
17,312,477
32,062,924
13,810,727
b) breakdown of interest by type
2006
Ordinary interest
Default interest
Other interest
Total
2005
c) breakdown of interest income and expenses by type of assets and liabilities
2006
Current
2005
Non-current
Current
Non-current
Interest income
Interest on balances with central banks
Interest on financial assets held for trading
Interest on financial assets available for sale
Interest on loans and deposits
(including interest on finance leases)
Interest on financial assets held to maturity
Interest on other receivables
Total
Total by maturity
104,886
0
101,618
0
1,181,495
0
417,422
0
1,529,980
3,108,201
1,663,370
3,377,144
10,902,989
17,893,304
10,417,273
13,132,234
698,189
2,479,909
273,407
2,604,565
4,971
0
73,835
2,056
14,422,510
23,481,414
12,946,925
19,115,999
37,903,924
32,062,924
Interest expense
Interest on financial liabilities to central banks
Interest on financial liabilities, measured
at amortised cost
Interest on other financial liabilities
(including liabilities from financial leases)
Total
51,084
0
216,934
0
8,228,810
9,032,473
7,048,724
6,544,886
110
0
24
159
8,280,004
9,032,473
7,265,682
6,545,045
Total by maturity
17,312,477
13,810,727
Net interest
20,591,447
18,252,197
F-89
Notes to the Financial Statements of Nova KBM d.d.
d) net interest
2006
2005
Total interest income
37,903,924
Total interest expense
17,312,477
13,810,727
Net interest
20,591,447
18,252,197
Average interest rate by assets in %
5.15 %
4.89 %
Average interest rate by liabilities in %
2.68 %
2.26 %
32,062,924
The effect of subordinated debt on interest expense in 2006 amounted to SIT 3,412 thousand.
The average interest rate for liabilities for all outstanding amounts as at 31 December 2006 was
2.68% (2.21% for amounts in domestic currency and 3.13% for amounts in foreign currencies). The
average interest rate for deposits of the non-banking sector was 1.86%, 3.6% for deposits of banks
and 4.48% for securities.
The average interest rate for outstanding loans as at 31 December 2006 was 5.15% (5.76% for loans
in domestic currency and 4.63% for loans in foreign currencies). The average interest rate for outstanding loans of the non-banking sector was 5.7%, 3.91% for banks and 4.23% for securities. The highest
average interest rate for outstanding loans approved for the non-bank sector was achieved for households, with an average interest rate of 6.89%, followed by non-profit service providers with the interest rate of 5.79%, non-financial corporations with the interest rate of 5.22%, and other sectors (other
financial organisations and the State with average interest rates of 4.94% and 4.69%, respectively.
6 Dividend income
2006
2005
255,095
Financial assets held for trading
– investments of banks
– investments of other issuers
Financial assets available for sale
242, 314
7,686
0
247,409
242,314
32,826
137,818
– investments of banks
16,782
1,555
– investments of other issuers
16,044
136,263
792,388
785,834
– investments in the equity of subsidiaries
681,800
736,136
– investments in the equity of associates
110,588
49,698
1,080,309
1,165,966
Investments in a Group company’s equity
accounted for using the cost method
Total
F-90
7 Fee and commission net income
a) breakdown of fees and commissions by sectors
2006
2005
Fees and commissions received
9,587,332
8,619,046
Non-financial corporations
5,004,533
4,229,099
State
27,223
17,453
Banks
330,075
291,641
Other financial organisations
Households
Foreign persons
100,385
78,505
3,916,227
3,853,216
81,662
47,936
127,227
101,196
Fees and commissions paid
1,658,286
1,103,549
Net fees and commissions
7,929,046
7,515,497
Non-profit household service providers
b) breakdown of fees and commissions by type
2006
2005
Fee and commission income
611,200
Fees and commissions from guarantees given
528,238
Fees and commissions from banks in the Group
91,763
2,025
Fees and commissions from subsidiaries
68,880
36,532
Fees and commissions from domestic
payment transactions
2,729,437
2,232,434
Fees and commissions from international
payment transactions
1,007,209
955,423
40,586
19,627
245
702
147,755
11,465
Fees and commissions from credit operations
1,047,238
1,249,945
Fees and commissions from
administrative services
3,837,613
3,577,378
5,406
5,277
9,587,332
8,619,046
Fees and commissions for domestic
banking services
462,965
481,177
Fees and commissions for international
banking services
767,694
397,611
Fees and commissions for exchange
office services
2
574
Fees and commissions for brokerage
and commission business
2,089
20
82,083
24,824
251,762
138,950
Fees and commissions from brokerage
and commission business
Fees and commissions from
exchange office services
Fees and commissions from securities
transactions for customers
Fees and commissions from safekeeping
of objects and valuables
Total
Fee and commission expenses
Fees and commissions for stock exchange
transactions and other transactions
involving securities
Fees and commissions for payment transactions
Fees and commissions for other services
91,691
60,393
Total
1,658,286
1,103,549
Net fees and commissions
7,929,046
7,515,497
F-91
Notes to the Financial Statements of Nova KBM d.d.
Fee and commission expense rose by SIT 554,737 thousand or 50.3%. The largest increase was
recorded in fees and commissions for international banking services (SIT 370,083 thousand or 93.1%).
The increase is primarily the result of the Bank’s more active role in international financial markets.
8 Realised gains and losses on financial assets and liabilities not measured
at fair value through profit or loss
2006
Realised
gains
2005
Realised
losses
Net realised
gains/losses
Realised
gains
Realised
losses
Net realised
gains/losses
Available-for-sale financial assets
354,032
114,263
239,769
136,015
481,579
(345,564)
Loans measured at amortised cost
103,578
120,837
(17,259)
145,268
120,606
24,662
Held to maturity investments
0
13,880
(13,880)
0
840
(840)
Financial liabilities measured
at amortised cost
0
0
0
0
0
0
Other financial assets
and liabilities
117,416
41,415
76,001
0
36,067
(36,067)
Total
575,026
290,395
284,631
281,283
639,092
(357,809)
Realised gains on available-for-sale financial assets include SIT 60,000 thousand realised during
the disposal of the capital investment in Steklarna Roga{ka.
9 Gains and losses on financial assets and liabilities held for trading
2006
Gains
Trading in equity securities
and shares
Trading in derivatives
– trading in derivatives
– futures/forwards
2,096,282
3,228,682
338,650
1,784,325
1,128,294
458,323
Gains
Losses
Net gains/
losses
4,522,168
2,235
4,519,933
(1,445,675)
504,970
279,045
225,925
669,971
823,596
301,462
522,134
1,157,065
220,866
936,199
202,828
197,643
5,185
1,143,064
208,645
934,419
165,771
151,870
13,901
14,001
12,221
1,780
37,057
45,773
(8,716)
7,948,973
4,559,796
3,389,177
6,053,562
780,385
5,273,177
– trading in derivatives
– swaps
Total
2005
Net gains/
losses
5,324,964
Trading in debt securities
Trading in foreign currencies
(purchase/sale)
Losses
Net income from financial assets and liabilities intended for trading decreased by SIT 1.884,000
thousand compared to the previous year, the majority of which relates to losses incurred in debt
securities trading (SIT 1,445,675 thousand).
10 Exchange differences
2006
2005
Foreign exchange gains
26,080,519
33,307,896
Foreign exchange losses
26,431,783
33,336,783
(351,264)
(28,887)
Total
F-92
11 Gains and losses on derecognition of assets other than held for sale
2006
Gains
Derecognition of property, plant
and equipment
Derecognition of intangible assets
2005
Losses
Net gains/
losses
Gains
146,782
45,443
101,339
Losses
Net gains/
losses
74,428
23,991
50,437
0
22,197
(22,197)
0
11,677
(11,677)
Derecognition of investments
in subsidiaries, associates and
joint ventures
203,022
0
203,022
290,178
0
290,178
Total
349,804
67,640
282,164
364,606
35,668
328,938
In 2006, the liquidation of the company Hotel Slavija d.d. was completed. Proceeds received by the
Bank amounted to SIT 644,969 thousand. Following derecognition of the capital investment, the
Bank recognised a gain of SIT 203,022 thousand.
12 Other operating net income
2006
2005
Gains
Income from investment property used
in operating leases
13,048
18,534
Other operating income
2,900,223
851,905
Total
2,913,271
870,439
Taxes
149,145
125,553
Contributions
94,293
91,294
Subscriptions, etc.
37,314
36,373
Other operating expenses
303,513
324,978
Total
584,265
578,198
2,329,006
292,241
Losses
Other operating net income
Other operating income of the Bank in 2006 is partially comprised of a refund of default interest
charged on tax liabilities and imposed on the Bank by two decisions of the Tax Administration
of the Republic of Slovenia relating to 1993 and 1994 in the amount of SIT 1,645,252 thousand
and to 1999 and 2000 in the amount of SIT 711,082 thousand. Interest was refunded pursuant
to a decision of the Constitutional Court.
The majority of operating expense is comprised of insurance premium payments in the amount of
SIT 152,155 thousand and costs of financing leases and royalties totalling SIT 98,993 thousand.
F-93
Notes to the Financial Statements of Nova KBM d.d.
13 Administration cost
2006
2005
Staff expenses
Gross wages and salaries
7,725,013
7,066,951
Social security contributions
526,554
479,612
Contributions for pension insurance
642,762
585,458
Other contributions from gross wages and salaries
415,636
424,892
Transportation allowance
231,660
219,997
Meal allowance
229,264
228,561
79,662
86,269
Employee bonuses
Termination benefits and early retirement payments
2,285
39,176
275,414
311,556
10,128,250
9,442,472
Costs of materials
272,167
342,823
Costs of energy
237,910
236,482
Other labour costs arising from
employment contracts
Total
General and administrative expenses
Costs of specialised literature
51,339
51,425
Other costs
84,060
79,060
492,012
524,114
3,316,693
2,892,318
Expenses for property obtained through
operating leases
Services by others
Business travel expenses
Maintenance costs of fi xed assets
Advertising costs
Entertainment costs
52,174
61,486
1,041,277
1,187,904
915,308
844,991
75,443
78,068
Consulting, auditing, accounting
and other services
411,292
245,423
School fees, scholarships and other training costs
134,524
136,765
Costs of insurance
127,140
154,585
Other administrative costs
Total
4,878
8,195
7,216,217
6,843,639
General and administrative costs rose by SIT 372,578 thousand. The largest increase was noted in
third-party services, relating to payments for processing payment cards, postage, computer services, transport of cash, ATMs, property insurance, microfilming, cleaning of business premises and
telephone costs.
Costs of materials decreased by SIT 70,656 thousand, which is the result of standardising the
purchase of materials (electronically) and reducing the number of suppliers to two, thereby lowering
prices through economies of scale.
14 Depreciation
2006
2005
1,580,105
Depreciation of property, plant and equipment
Amortisation of intangible assets
Total
F-94
1,146,442
557,080
480,017
2,137,185
1,626,459
15 Provisions
2006
Provisions for pensions and other post-retirement
benefit liabilities
2005
107,116
Provisions for off-balance sheet liabilities
Provisions for pending legal issues
Other provisions
Total
70,000
1,110,897
341,717
478,854
609,862
(9,128)
80,472
1,687,739
1,102,051
In 2006 the Bank made additional non-current term provisions for liabilities to employees for retirement benefits in the amount of SIT 98,405 thousand and for loyalty bonuses totalling SIT 8,711
thousand based on an actuarial calculation.
In 2006 the Bank reversed unnecessary provisions in the amount of SIT 9,128 thousand arising
from household deposits.
16 Impairments
Impairments of financial assets not measured at fair value through profit or loss
2006
Available-for-sale financial assets
2005
0
735,328
Loans (including finance leases) measured
at amortised cost
3,712,720
2,401,759
Total impairments of financial assets not measured
at fair value through profit or loss
3,712,720
3,137,087
Impairments of other assets
2006
2005
(2,359)
Investment property
0
Intangible assets
- intangible assets - goodwill
Total impairments of other assets
Total impairments
0
0
(2,359)
0
3,710,361
3,137,087
The Bank recognised the impairment of investment property on the basis of assessment made by
a licensed real estate appraiser.
17 Tax expense (income) related to profit or loss from continuing operations
2006
2005
1,910,756
Tax expense (income) related to profit or loss
from continuing operations
Deferred tax from continuing operations
Total
F-95
1,956,222
(81,469)
(17,500)
1,829,287
1,938,722
Notes to the Financial Statements of Nova KBM d.d.
In 2006 the Bank calculated tax expense related to profit or loss at a rate of 25 percent.
In 2006 the Bank calculated deferred tax for all temporary differences between the value of assets
and liabilities for tax purposes and their carrying amount. A tax rate of 23%, valid for 2007 pursuant to current tax legislation and known already in 2006, was applied.
The most significant temporary differences relate to the valuation of financial instruments and
investment properties and from provisions.
The Bank recognised deferred tax assets for all deductible temporary differences deducted during
the determination of the taxable profit, to the extent that it is probable that future taxable income
will be available against which temporary differences can be applied.
Reconciliation of effective tax rate
2006
rate
Derecognition of tax relief from past years
Tax relief in current year
Expenses not recognised for tax purposes
rate
amount
10,654,764
Before tax profit in accordance with IFRS
Income tax at official rate
2005
amount
10,289,612
25.0%
2,663,691
25.0%
0.0%
282
1.9%
2,572,403
199,982
(2.5%)
(269,288)
(4.4%)
(455,514)
3.5%
369,909
9.3%
954,942
Taxable income
(7.4%)
(789,463)
(1.9%)
(196,834)
Increase of expenses (not recognised in previous years)
(1.6%)
(168,157)
0.0%
0
0.2%
22,312
0.1%
11,739
0.0%
0
(11.2%)
(1,147,996)
17.2%
1,829,287
18.8%
1,938,722
Income not recognised for tax purposes
Other adjustments to the income statement
Total tax expense (income) related to profit or loss
from continuing operations
The amount of other adjustments to the 2005 income statement represents the amount arising from
adjustments made to the income statement for the sake of comparison with 2006. Tax expenses
(income) related to profit or loss from continuing operations for 2005 is calculated according to the
Corporate Income Tax Act and in accordance with Slovenian Accounting Standards.
18 Net profit per share
2006
2005
Net profit for the financial year (in SIT thousand)
8,825,477
8,350,890
Number of ordinary shares
2,919,748
2,919,748
3,023
2,860
Net profit per share (SIT)
F-96
No t e s t o t h e Ba l a nc e Sh e e t
19 Cash and cash balances with the central banks
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Cash on hand
7,584,565
2,503,398
3,690,462
Obligatory deposits at the central bank
8,583,310
0
7,732,810
0
8,580,955
0
8,386,770
0
– settlement account at the central bank
– transit account for settlement account
Other deposits at the central bank
Total by currency
Total
1,246,631
2,355
0
(653,960)
0
2,405,802
839
0
167,780
18,573,677
2,504,237
11,423,272
1,414,411
21,077,914
12,837,683
The balance of cash on hand at year end was SIT 10,087,963 thousand, or SIT 5,150,870 thousand more
than the previous year. The reason for this increase is the transition to the new currency – the euro.
Cash and cash equivalents
31 December 2006
31 December 2005
Cash and cash balances with the central banks
21,077,914
Available-for-sale financial assets
29,861,960
24,067,850
Loans to banks
52,675,244
38,624,495
103,615,118
75,530,028
Total
12,837,683
Cash equivalents include loans to banks and investments in government debt securities with an
original maturity of up to three months.
20 Financial assets held-for-trading
a) by type and currency
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Derivatives
0
130,951
0
0
Investments
12,623,332
240,466
7,449,616
134,116
– investments of banks
0
15,527
0
14,713
12,623,332
224,939
7,449,616
119,403
460,473
16,543,392
291,304
38,487,171
4,273
16,543,392
0
38,487,171
– bank bonds
0
15,822,594
0
21,863,763
– state bonds
4,273
0
0
15,972,242
0
720,798
0
651,166
456,200
0
291,304
0
Total
13,083,805
16,914,809
7,740,920
38,621,287
Quoted
12,623,332
16,783,858
7,513,321
34,608,535
460,473
130,951
227,599
4,012,752
– investments of other issuers
Debt securities
– bonds
– bonds from other issuers
– other securities
Unquoted
Total
29,998,614
F-97
46,362,207
Notes to the Financial Statements of Nova KBM d.d.
The number of securities held-for-sale fell in 2006 primarily due to the sale of government bonds
issued by European Community Member States.
b) changes in financial assets held-for-sale
2006
2005
As at 1 January
46,362,207
11,469,495
Increases during the year
24,566,081
48,354,016
17,434,832
27,222,421
– acquisition
– exchange rate differences
– changes in fair value
– other
16,385
4,837
3,482,984
4,873,593
3,631,880
16,253,165
Decreases during the year
40,929,674
13,461,304
– sales and liquidation
35,275,113
12,764,417
– changes in fair value
2,281,959
433,071
– exchange rate differences
– other
As at 31 December
8,948
9,435
3,363,654
254,381
29,998,614
46,362,207
The item “other” includes deferred interest and realised gains or losses.
The securities issued by Bank Austria Creditanstalt AG Wien in the amount of SIT 2,428,056
thousand have the characteristics of a subordinated debt.
21 Available-for-sale financial assets
a) by type and listing
31 December 2006
Domestic
currency
Investments available for sale, measured
at fair value
Investments available for sale, measured at cost
1,302,512
31 December 2005
Foreign
currency
Domestic
currency
0
Foreign
currency
1,058,522
0
1,034,335
286,910
0
287,890
Debt securities available for sale
91,273,989
63,874,744
84,902,172
11,784,465
Total
93,610,836
64,161,654
85,960,694
12,072,355
Quoted
60,777,928
64,161,654
61,043,667
11,784,465
Unquoted
32,832,908
286,910
24,917,027
287,890
Total
93,610,836
64,161,654
85,960,694
12,072,355
The balance of securities available for sale rose in 2006 primarily due to the purchase of bonds
from other issuers. The Bank estimates that the cost of the investments measured at cost is an approximation of the fair value. These financial investments are not listed on an active market.
F-98
b) by type and sectors
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
1,302,512
0
1,058,522
– capital investments in banks
0
0
27,062
0
– capital investments in other financial organisations
0
0
78,040
0
Investments available for sale measured at fair value
0
– capital investments in non-financial organisations
1,302,512
0
953,420
0
Investments available for sale measured at cost
1,034,335
286,910
0
287,890
– capital investments in banks
26,950
283,012
0
283,012
– capital investments in other financial organisations
245,150
0
0
4,878
– capital investments in non-financial organisations
762,235
3,898
0
0
Debt securities available for sale
91,273,989
63,874,744
84,902,172
11,784,465
– issued by the State and central bank
75,958,067
10,105,770
69,408,031
10,653,915
– issued by banks
9,378,078
1,131,278
9,654,111
1,130,550
– issued by others
5,937,844
52,637,696
5,840,030
0
93,610,836
64,161,654
85,960,694
12,072,355
Total
c) data on companies in which the Bank’s share does not exceed 20%
Name and registered office of the company
Bank’s share in
equity in %
Share of voting
rights in %
Investments as at
31 December 2006
1,302,512
Investments available for sale measured at fair value
12.67
12.67
Banka Celje d.d., Celje
0.18
0.18
26,950
LHB Frankfurt, Frankfurt
2.40
2.40
283,012
22,509
Premogovnik Velenje d.d., Velenje
1,302,512
1,321,245
Investments available for sale measured at cost
4.17
4.17
Bankart d.o.o., Ljubljana
12.99
12.99
83,307
Perutnina Ptuj d.d., Ptuj
0.88
0.88
124,988
IEDC Business School, Bled
10.21
10.21
264,822
Zavarovalnica Triglav d.d., Ljubljana
0.0005
0.0005
182,191
Ljubljana Stock Exchange, Ljubljana
4.60
4.60
25,580
KDD Central Securities Clearing Corporation,
Ljubljana
4.38
4.38
19,713
0.00267
0.00267
7,384
0.07
0.07
10,283
251,755
Marles na~rtovanje in gradnja hi{ d.d., Maribor
Pozavarovalnica Sava d.d., Ljubljana
SID-Slov.izvozna družba d.d., Ljubljana
10.62
10.62
SWIFT, La Hulpe, Belgium
0.02
0.02
3,898
Vino Brežice d.d., Brežice
4.17
4.17
13,417
10.53
10.53
CPM-Cestno podjetje d.d., Maribor
Rimske Terme d.o.o., Rimske Toplice
1,436
2,623,757
Total investments available for sale
F-99
Notes to the Financial Statements of Nova KBM d.d.
d) overview of changes in assets available for sale
Equity instruments
At fair value
Debt securities
Total financial
assets available for sale
At historical
cost
As at 1 January 2006
1,058,522
287,890
96,686,637
98,033,049
Recognition of new financial assets
1,302,512
1,231,982
254,476,042
257,010,536
Net exchange rate differences
0
0
28,226
28,226
Net change in fair value
0
0
614,031
614,031
Derecognition of financial assets
1,058,522
198,627
196,656,203
197,913,352
As at 31 December 2006
1,302,512
1,321,245
155,148,733
157,772,490
As at 1 January 2005
797,953
287,890
71,361,252
72,447,095
Recognition of new financial assets
953,539
0
158,928,299
159,881,838
205,958
Interest
0
0
205,958
Net exchange rate differences
0
0
19,725
19,725
(683,904)
0
(1,463,381)
(2,147,285)
9,066
0
132,365,216
132,374,282
1,058,522
287,890
96,686,637
98,033,049
Net change in fair value
Derecognition of financial assets
As at 31 December 2005
The following securities had the characteristics of a subordinated debt in 2006: the bonds of
Probanka d.d. in the amount of SIT 27,407 thousand (0.01% of financial assets available for sale),
the bonds of Zavarovalnica Maribor d.d. in the amount of SIT 634,076 thousand, (0.4% of financial assets available for sale), and the bonds of Nova Ljubljanska banka d.d. in the amount of
SIT 1,954,384 thousand, accounting for 1.23 % of financial assets available for sale.
22 Loans and receivables
a) by sectors
31 December 2006
Gross value
Loans to banks
Impairment
31 December 2005
Net value
Gross value
Impairment
Net value
75,988,352
126,250
75,862,102
60,349,391
114,581
60,234,810
– domestic currency
22,507,240
500
22,506,740
26,258,309
500
26,257,809
– foreign currency
53,481,112
125,750
53,355,362
34,091,082
114,081
33,977,001
555,216,380
46,343,313
508,873,067
438,265,451
45,243,737
393,021,714
– domestic currency
241,622,185
33,008,956
208,613,229
261,224,511
36,956,955
224,267,556
– foreign currency
313,594,195
13,334,357
300,259,838
177,040,940
8,286,782
168,754,158
631,204,732
46,469,563
584,735,169
498,614,842
45,358,318
453,256,524
Loans to the non-banking sector
Total loans
F-100
b) loans to banks – by maturity and type
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
0
8,089,333
0
0
8,089,333
0
16,473,446
Current loans
4,408,100
40,177,811
8,697,332
13,624,062
– deposits
2,400,560
38,516,259
3,001,845
11,789,624
– other investments
2,007,540
1,661,552
5,695,487
1,660,481
0
0
0
173,957
18,098,640
5,088,218
17,560,477
3,879,493
16,719,099
0
16,741,832
0
0
1,519,392
0
268,065
Sight deposits
– current and specific account
– loans
Non-current loans
– deposits
– loans
– other investments
Total net value
Impairment
Total gross value
16,473,446
1,379,541
3,568,826
818,645
3,611,428
22,506,740
53,355,362
26,257,809
33,977,001
500
125,750
500
114,081
22,507,240
53,481,112
26,258,309
34,091,082
c) changes to impairments of loans to banks
2006
2005
As at 1 January
114,581
Additional impairments
119,965
84,479
42,975
Eliminated impairments
108,296
12,873
As at 31 December
126,250
114,581
The additionally created or eliminated impairments of loans to banks are reflected in the income
statement in the item impairment of loans measured at amortised cost and in the items interest income from and fee and commission income.
d) by maturity and type of loan to the non-banking sector
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
70,660,123
118,584,944
75,207,055
60,815,967
– loans
53,513,077
117,423,276
56,541,118
60,551,330
– credit lines
15,861,394
0
16,053,615
0
1,285,652
1,161,668
2,612,322
264,637
Non-current
137,906,812
181,614,115
149,053,861
107,861,931
– loans
137,906,812
181,614,115
149,053,861
107,861,931
46,294
60,779
6,640
76,260
208,613,229
300,259,838
224,267,556
168,754,158
Current
– other investments
Receivables from guarantees given
Total loans to the non-banking sector
Impairments
Total gross value
33,008,956
13,334,357
36,956,955
8,286,782
241,622,185
313,594,195
261,224,511
177,040,940
F-101
Notes to the Financial Statements of Nova KBM d.d.
e) loans to the non-banking sector by sectors
31 December 2006
Domestic
currency
Non-financial companies
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
79,511,650
200,697,664
87,506,623
State
6,754,520
183,821
5,930,731
28
Other financial organisations
4,249,333
43,002,532
4,471,349
24,103,391
11,401,243
Foreign persons
Non-profit household service providers
Households
Total loans to the non-banking sector
Impairments
Total gross value
125,206,033
810
17,395,416
0
955,640
209,654
849,864
46,881
117,141,276
38,770,752
125,508,989
7,996,583
208,613,229
300,259,838
224,267,556
168,754,158
33,008,956
13,334,357
36,956,955
8,286,782
241,622,185
313,594,195
261,224,511
177,040,940
f) changes to impairments of loans the non-banking sector
2006
2005
As at 1 January
45,243,737
Additional impairments
34,399,559
43,054,913
17,062,742
Eliminated impairments
33,299,983
14,873,918
As at 31 December
46,343,313
45,243,737
The additionally created or eliminated impairments of loans to the non-banking sector are reflected
in the income statement in the item impairment of loans measured at amortised cost and in the items
interest and fee and commission income.
23 Held-to-maturity investments
a) by type and currency
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Held-to-maturity debt securities
– issued by the State and central bank
– current securities
– non-current securities
– issued by banks
– non-current securities
– issued by others
– non-current securities
Total
Quoted
Unquoted
Total
43,573,235
9,007,896
42,511,344
32,239,289
0
9,007,896
0
32,239,289
43,573,235
0
42,511,344
0
714,805
0
603,040
0
714,805
0
603,040
0
934,513
146,289
935,330
146,249
934,513
146,289
935,330
146,249
45,222,553
9,154,185
44,049,714
32,385,538
1,439,432
0
935,330
0
43,783,121
9,154,185
43,114,384
32,385,538
54,376,738
76,435,252
The balance of held-to-maturity securities fell in 2006 primarily due to mature Bank of Slovenia
bills in foreign currency.
F-102
b) changes in held-to-maturity financial assets
2006
2005
As at 1 January
76,435,252
103,916,908
Increase during the year
12,259,968
6,654,803
– acquisition
8,154,081
5,072,400
– exchange rate differences
2,185,480
1,582,403
– other
Decrease during the year
– sales and liquidation
– exchange rate differences
– other
As at 31 December
1,920,407
0
34,318,482
34,136,459
30,763,317
33,807,567
521,931
328,892
3,033,234
0
54,376,738
76,435,252
24 Accrued interest on financial assets
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Interest receivables
– from non-financial corporations
197
0
52
– from sole proprietors
227
0
0
6
424
0
52
6
Total
F-103
0
Notes to the Financial Statements of Nova KBM d.d.
25 Property, plant and equipment
Land and
buildings
Computer
equipment
Other
equipment
Financial
lease
PPE in
construction
Total
Cost or impaired value
As at 1 January 2006
Transfers between types
of assets
Additions
PPE in construction
Disposals
As at 31 December 2006
14,734,311
9,122,866
5,521,037
32,803
293,680
29,704,697
203,003
(372,283)
169,280
0
0
0
2,114,286
5,822
0
240
0
2,108,224
729,887
812,944
685,935
0
(2,253,018)
(24,252)
(113,217)
(1,653,746)
(356,455)
(17,925)
0
(2,141,343)
15,559,806
7,909,781
6,020,037
14,878
148,886
29,653,388
4,939,115
7,495,414
3,792,332
16,160
0
16,243,021
0
7,826
(7,826)
0
0
0
Depreciation
and impairment losses
As at 1 January 2006
Transfers between types
of assets
Depreciation
433,165
680,124
466,099
3,283
0
1,582,671
Disposals
(57,722)
(1,653,673)
(351,278)
(12,492)
0
(2,075,165)
As at 31 December 2006
5,314,558
6,529,691
3,899,327
6,951
0
15,750,527
Carrying amount
as at 1 January 2006
9,795,196
1,627,452
1,728,705
16,643
293,680
13,461,676
10,245,248
1,380,090
2,120,710
7,927
148,886
13,902,861
12,791,360
7,978,575
5,175,307
30,334
768,675
26,744,251
(17,540)
(2,499)
20,039
79,980
6,544
38,469
1,928,703
1,459,384
(48,192)
(319,138)
14,734,311
9,122,866
4,545,615
(884)
Carrying amount
as at 31 December 2006
Cost or impaired value
As at 1 January 2005
Transfers between types of assets
Additions
PPE in construction
Disposals
As at 31 December 2005
0
0
6,086
3,578,791
3,709,870
659,892
5,807
(4,053,786)
0
(372,670)
(9,424)
0
(749,424)
5,521,037
32,803
293,680
29,704,697
7,462,293
3,706,762
18,386
0
15,733,056
(1,796)
2,680
0
0
Depreciation
and impairment losses
As at 1 January 2005
Transfers between
types of assets
Additions
Depreciation
Disposals
30,990
0
34,414
1,966
0
67,370
378,204
350,275
413,440
4,523
0
1,146,442
(14,810)
(315,358)
(364,964)
(8,715)
0
(703,847)
As at 31 December 2005
4,939,115
7,495,414
3,792,332
16,160
0
16,243,021
Carrying amount
as at 1 January 2005
8,245,745
516,282
1,468,545
11,948
768,675
11,011,195
Carrying amount
as at 31 December 2005
9,795,196
1,627,452
1,728,705
16,643
293,680
13,461,676
The largest purchases of land and buildings relate to investments completed in 2006. These investments include the renovation of Tezno information centre building, valued at SIT 134,709 thousand,
the Ptuj branch office, valued at SIT 123,724 thousand, and the Tolmin branch office, valued at
SIT 332,906 thousand. The decrease in the purchase value of the land buildings includes the sale
of housing owned by the Bank and valued at SIT 25,304 thousand, and the write-off of the MH
Miklo{i~eva Ptuj commercial building, valued at SIT 20,864 thousand, due to the denationalisation process. The increase in the purchase value of computer equipment includes the upgrading of
ATMs, valued at SIT 391,995 thousand and POS terminals, valued at SIT 167,425 thousand, the
purchase of which was necessary due to the euro changeover. The value of the computer equipment
fell by SIT 1,207,164 thousand due to the disposal of the old applications used at bank counters.
The value of other equipment rose on account of investments in other equipment, valued at SIT
F-104
233,843 thousand, euro coin and banknote counting machines, valued at SIT 215,087 thousand
and air-conditioning equipment, valued at SIT 92,055 thousand.
The decrease of assets in financial leases was due to the expiration of financial lease agreements
for four personal vehicles, which were transferred in 2006 to other equipment with a carrying value
of SIT 5,433 thousand. The Bank now has only three personal vehicles left in financial leases. The
oldest financial lease agreement from 2002 expires in 2007 (the interest rate is 9%). The other
two agreements were entered into in 2004 and expire in 2009 and 2010 (the interest rate for both
agreements is 6.2%).
26 Investment property
2006
2005
Cost
109,585
As at 1 January
129,676
Additions
0
48,486
Disposals
0
(68,577)
Changes in fair value
2,359
0
111,944
109,585
As at 1 January
0
68,577
Depreciation
0
(3,478)
Disposals
0
(65,099)
As at 31 December
Depreciation
and impairment losses
As at 31 December
0
0
Carrying amount as at 1 January
109,585
61,099
Carrying amount as at 31 December
111,944
109,585
27 Intangible assets
Software
Intangible
assets
constructionin- progress
Other
intangible
assets
Total
Cost
As at 1 January 2006
Additions
Transfer from construction in progress
Disposals
Other decreases
As at 31 December 2006
5,731,746
950,652
635,973
7,318,371
0
1,461,825
2,181
1,464,006
752,394
(805,765)
53,371
0
(5,258)
0
(41,187)
(46,445)
(15,407)
0
(130)
(15,537)
6,463,475
1,606,712
650,208
8,720,395
2,624,582
0
459,530
3,084,112
531,309
0
25,771
557,080
(3,686)
0
(943)
(4,629)
(350)
0
0
(350)
3,151,855
0
484,358
3,636,213
Amortisation and impairment losses
As at 1 January 2006
Amortisation
Disposals
Other decreases
As at 31 December 2006
Carrying value as at 1 January 2006
3,107,164
950,652
176,443
4,234,259
Carrying value as at 31 December 2006
3,311,620
1,606,712
165,850
5,084,182
F-105
Notes to the Financial Statements of Nova KBM d.d.
Software
Intangible
assets
constructionin- progress
Other
intangible
assets
Total
Cost
As at 1 January 2005
Additions
Transfer from construction-in-progress
Disposals
As at 31 December 2005
4,627,692
1,097,951
632,484
6,358,127
10,565
958,941
99,112
1,068,618
1,094,372
(1,106,240)
11,868
0
(883)
0
(107,491)
(108,374)
5,731,746
950,652
635,973
7,318,371
2,163,932
0
464,868
2,628,800
7,531
0
43,115
50,646
Amortisation
As at 1 January 2005
Additions
Amortisation
Disposals
454,002
0
26,015
480,017
(883)
0
(74,468)
(75,351)
3,084,112
As at 31 December 2005
2,624,582
0
459,530
Carrying amount as at 1 January 2005
2,463,760
1,097,951
167,616
3,729,327
Carrying amount as at 31 December 2005
3,107,164
950,652
176,443
4,234,259
Increases in software include mainly software upgrades, valued at SIT 752,394 thousand. Due
to an extended testing phase, the Bank has SIT 1,606 thousand in its intangible construction-inprogress assets.
The goodwill assumed in 2005 due to the Bank’s acquisition of MBH d.o.o. in the amount of SIT
53,894 thousand for which the value adjustment in the amount of SIT 42,217 thousand was made
and a portion of which was written off in 2005 (SIT 11,677 thousand), is included in the table of
changes in other intangible assets for 2005.
28 Investments in subsidiaries, associates and joint ventures
a) by customers
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
2,015,150
1,593,345
1,739,626
2,015,150
0
1,739,626
0
0
1,593,345
0
1,593,346
5,733,154
0
5,995,101
0
– capital investments in financial associates
4,063,901
0
3,883,901
0
– capital investments in financial subsidiaries
1,193,450
0
1,193,450
0
475,803
0
917,750
0
7,748,304
1,593,345
7,734,727
1,593,346
Investments in the capital of banks in the Group
– capital investments in banks within the Group
– capital investments in foreign currency
in associated banks abroad
Investments in the capital of other companies
in the Group
– capital investments in non-financial subsidiaries
Total
1,593,346
Nominal amount represents the number of lots of Nova KBM d.d. in the capital of the a.m. companies, multiplied by the nominal value of a lot of the issued share.
F-106
b) changes in investments in subsidiaries, associates and joint ventures
2006
As at 1 January
Increase during the year
– acquisition
2005
9,328,073
11,567,891
455,524
1,992,425
455,524
71,113
0
1,921,312
441,948
4,232,243
441,948
1,202,704
– other
Decrease during the year
– sales and liquidation
– exchange rate differences
0
1,837
– other
0
3,027,702
9,341,649
9,328,073
As at 31 December
In 2006 the Bank injected equity capital into the PBS d.d. bank in the amount of SIT 275,524 thousand and in to the associate Moja naložba d.o.o. in the amount of SIT 180,000 thousand.
The liquidation of Hotel Slavija d.d. was completed in 2006. The Bank derecognised its related
capital investment in the amount of SIT 441,948 thousand.
c) data on companies in which the Bank’s participating interest is as least 20%
Name and registered
office of the company
Total equity
as at 31
December
2006
Profit
or loss
in 2006
Nominal
amount
Cost
Bank’s
share in
equity in %
Share
of voting
rights in %
Investments
as at 31
December
2006
Investments
in the equity of banks
in the Group
Po{tna banka Slovenije
d.d., Maribor
1,424,400
451,087
683,860
2,015,150
55.00
55.00
2,015,150
Adria Bank AG, Vienna
2,089,757
520,718
566,883
1,593,347
25.04
25.04
1,593,347
239,500
72,325
237,912
271,244
99.37
99.37
271,244
78,000
(36,365)
78,000
83,853
100.00
100.00
83,853
KBM Fineko d.o.o.,
Maribor
126,885
164,275
126,885
204,558
100.00
100.00
204,558
KBM Infond d.o.o.,
Maribor
350,000
400,556
252,000
433,723
72.00
72.00
433,723
KBM Leasing d.o.o.,
Maribor
412,520
97,127
412,520
661,796
100.00
100.00
661,796
Investments in the
capital of companies
in the Group
KBM Invest d.o.o.,
Maribor
Gorica Leasing d.o.o.,
Nova Gorica
M-Pay d.o.o., Maribor
30,000
1,918
15,000
14,078
50.00
50.00
14,078
Zavarovalnica Maribor
d.d., Maribor
6,812,050
1,277,601
3,403,382
3,689,731
49.96
49.96
3,689,731
Moja Naložba,
Pokojninska družba d.d.,
Maribor
1,150,000
13,868
517,500
374,169
45.00
45.00
374,169
Total
9,341,649
9,341,649
Nominal amount represents the number of lots of Nova KBM d.d. in the capital of the a.m. companies multiplied by the nominal value of a lot of the issued share.
F-107
Notes to the Financial Statements of Nova KBM d.d.
29 Tax assets
31 December 2006
31 December 2005
Non-current deferred tax assets
– other provisions for legal issues
353,787
264,837
– financial assets available for sale
93,044
0
– financial assets held-for-trading
30,376
19,591
– other provisions for deposits
– non-current provisions for employees
16,805
20,548
263,845
278,166
– valuation of investment property
Total
1,788
1,944
759,645
585,086
30 Other assets
a) by type
31 December 2006
Domestic
currency
Cheques
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
0
31,737
0
Inventories
773,399
0
995,317
0
Receivables for fees and commissions
272,705
2,647
214,493
1,923
0
Prepayments
30,844
51,730
0
40,972
Account receivables
150,591
0
164,081
0
Other receivables
576,736
96,141
394,268
333,381
52,375
0
0
0
Surplus of assets from internal relationships
and authorised transactions
Deferred costs and accrued revenues
Total
Impairments
Total gross value
102,058
0
73,143
0
1,979,594
130,525
1,882,274
366,148
193,688
4,674
217,065
5,673
2,173,282
135,199
2,099,339
371,821
At the end of 2006, inventories stood at SIT 773,399 thousand. Property, plant and equipment,
acquired as debt accounted for the largest portion of inventories.
b) changes to impairments of other assets
2006
2005
As at 1 January
222,738
Additional impairments
125,731
831,351
84,231
Reversed impairments
150,107
692,844
As at 31 December
198,362
222,738
The additionally created or eliminated impairments of other assets are reflected in the income statement in the item impairment of loans measured at amortised cost.
F-108
31 Non-current assets held for sale
31 December 2006
31 December 2005
Held-for-sale property, plant and equipment
in domestic currency
5,306
94,704
Total
5,306
94,704
The decrease in 2006 includes the sale of business premises of MMP Vrtojba, valued at SIT 8,065
thousand and business premises at Slovenska 27, Ljubljana, valued at SIT 89,398.
32 Financial liabilities held-for-trading
31 December 2006
31 December 2005
Held-for-sale derivatives – valuation,
forward contracts
36,895
0
Total
36,895
0
33 Financial liabilities measured at amortised cost
a) by type
31 December 2006
Domestic
currency
Deposits
Domestic
currency
Foreign
currency
363,974,554
168,362,097
320,303,945
152,506,888
3,817,436
199,629,297
5,134,129
108,212,986
27,399,537
0
37,312,721
0
0
31,153,200
0
19,166,048
395,191,527
399,144,594
362,750,795
279,885,922
Loans
Debt securities
Subordinated liabilities
Total
31 December 2005
Foreign
currency
b) deposits by customers and maturity
31 December 2006
Domestic
currency
Domestic
currency
Foreign
currency
6,890,569
1,728,407
2,407,529
2,112,205
10,494
1,728,407
13,453
2,112,205
6,723,454
0
2,229,004
0
156,621
0
165,072
0
357,083,985
166,633,690
317,896,416
150,394,683
63,663,238
Bank’s deposits
Sight deposits of banks
Current deposits of banks
Non-current deposits of banks
Deposits of the non-banking sector
31 December 2005
Foreign
currency
Sight deposits of the non-banking sector
147,737,843
60,148,913
123,780,579
Current deposits of the non-banking sector
168,385,962
74,645,398
161,627,799
65,390,913
40,960,180
31,839,379
32,488,038
21,340,532
363,974,554
168,362,097
320,303,945
152,506,888
Non-current deposits of the non-banking sector
Total
F-109
Notes to the Financial Statements of Nova KBM d.d.
c) loans by customers and maturity
31 December 2006
Domestic
currency
31 December 2005
Foreign
currency
Domestic
currency
Foreign
currency
Bank loans
0
180,805,810
0
Current bank loans
0
1,198,200
0
97,370,390
0
Non-current bank loans
0
179,607,610
0
97,370,390
Loans of the non-banking sector
3,817,436
18,823,487
5,134,129
10,842,596
Current loans of the non-banking sector
1,120,500
0
929,030
0
Non-current loans of the non-banking sector
2,696,936
18,823,487
4,205,099
10,842,596
Total
3,817,436
199,629,297
5,134,129
108,212,986
Non-current bank loans rose by SIT 82,237,220 thousand or 84.5%, mainly due to the raising of
two syndicated loans in the amount of EUR 157,5 million and CHF 150 million. These two loans
mature in December 2011. The interest rate for loans raised (syndicated, bilateral) ranges from
EURIBOR + 0.15 % p.a. to EURIBOR + 0.70 % p.a.
d) deposits and loans by sectors
31 December 2006
Deposits
31 December 2005
532,336,651
Banks
472,810,833
8,618,975
4,519,735
Non-financial companies
93,024,050
82,885,219
State
26,788,342
16,424,752
Other financial organisations
11,779,523
15,512,696
Foreign persons
5,967,924
4,815,785
Non-profit household service providers
5,808,736
4,303,225
Households
Loans
380,349,101
344,349,421
203,446,733
113,347,115
180,805,810
97,370,390
Banks
Non-financial companies
2,036,936
2,580,615
Other financial companies
20,603,987
13,396,110
735,783,384
586,157,948
Total
Deposits rose by 12% primarily due to the increased non-current foreign currency and tolar savings
of households with the Bank.
e) debt securities by type and maturity
31 December 2006
31 December 2005
Debt securities in domestic currency
Current securities
386
– bonds issued
386
263
27,399,151
37,312,458
Non-current securities
– certificates of deposits
– bonds issued
Total
263
2,399,151
5,405,414
25,000,000
31,907,044
27,399,537
37,312,721
The balance of debt securities at the end of 2006 was lower by SIT 9,913,184 thousand, primarily
the result of maturing KBM2 series bonds in January and KBM3 and KBM4 series bonds in October. The balance of certificates of deposits also fell due to maturing certificates of deposits of up to
and over two years.
F-110
f) subordinated liabilities
Currency
Date
of maturity
Interest rate
31 December
2006
31 December
2005
EUR
16 Dec 2011
EURIBOR
3M + 1.10 %
11,982,000
11,978,780
EUR
19 Dec 2009
EURIBOR
6M + 1.70 %
7,189,200
7,187,268
EUR
5 Oct 2016
call option
EURIBOR
3M + 1.60 %
11,982,000
Securities issued
Loans
Total
31,153,200
19,166,048
Nova KBM raised hybrid capital in the amount of EUR 50 million in October 2006. The raising of
hybrid capital was realised through a loan agreement with the Dutch financial group ING Bank NV.
The price of the hybrid capital raised was 3M EURIBOR + 160 basis points. After ten years (i.e. on
5 October 2016), the price will rise by 150 basis points. With prior consent from the Bank of Slovenia, the Bank has the option of repaying the hybrid capital after ten years.
34 Accrued interest expense on financial liabilities
31 December 2006
31 December 2005
243,791
574,277
Accrued interest on loans received
1,709,458
904,803
Accrued interest on sight deposits
and fixed-term deposits
1,711,576
1,168,758
Liabilities for interest
Other accrued interest
Total
811,123
952,350
4,475,948
3,600,188
35 Provisions
Provisions
for pending
legal issues
Balance as at 1 January 2006
Provisions
for pensions
and similar
liabilities to
employees
Provisions
for offbalance sheet
liabilities
Other
provisions
Total
1,059,350
1,112,663
2,402,483
82,192
4,656,688
Provisions made during the year
478,854
107,116
12,107,066
0
12,693,036
Provisions reversed/used during
the year
0
72,626
10,996,169
9,127
11,077,992
1,538,204
1,147,153
3,513,380
73,065
6,271,802
Balance as at 31 December 2006
The use of provisions for liabilities to employees in the amount of SIT 72,626 thousand was not recognised through the profit or loss. The Bank creates provisions for off-balance sheet liabilities in accordance with the Methodology for assessing credit risk losses. The Bank eliminated other provisions in
with regard of balanced deposits due to the repayment of funds to customers.
F-111
Notes to the Financial Statements of Nova KBM d.d.
Provisions
for pending
legal issues
Provisions
for pensions
and similar
liabilities
to employees
Provisions
for offbalance sheet
liabilities
Other
provisions
Total
Balance as at 1 January 2005
453,404
1,042,663
2,060,767
0
Provisions made during the year
611,364
70,000
6,949,454
82,192
7,713,010
Provisions reversed/used during
the year
5,418
0
6,607,738
0
6,613,156
1,059,350
1,112,663
2,402,483
82,192
4,656,688
Balance as at 31 December 2005
3,556,834
The Bank did not recognise provisions used for pending legal issues against the Bank in the amount
of SIT 3,915 thousand through profit or loss.
36 Tax liabilities
31 December 2006
31 December 2005
7,524
951,719
Deferred tax liabilities
910,127
1,547,680
Total
917,651
2,499,399
Current tax liabilities
Based on the calculation of tax expenses related to profit or loss from continuing operations in 2006,
the Bank identified a tax liability of SIT 2,249,132 thousand. Since the Bank made profit tax prepayments totalling SIT 2,241,608 thousand in 2006, its outstanding tax liability at the end of the year
was SIT 7,524 thousand.
The Bank recognised deferred tax liabilities based on the valuation of securities designated as available for sale.
37 Other liabilities
31 December 2006
Liabilities for fees and commissions
Liabilities for advances received
Other liabilities
Accrued expenses and deferred revenues
Surplus of liabilities from internal relationships and
authorised transactions
Total other liabilities
31 December 2005
10,461
6,607
5,631
201,001
5,887,709
3,689,770
487,536
462,826
0
87,591
6,391,337
4,447,795
The Bank’s other liabilities also comprise a liability to the central bank for the euros received, in
the amount of SIT 1,248,800 thousand. Large amounts were also represented by liabilities resulting from retail operations with regard to the repayment of loans, payment card operations, liabilities to suppliers and accrued expenses and deferred revenues relating to fees and commissions for
documentary operations.
F-112
38 Basic equity capital
31 December 2006
Ordinary shares
– government subscription
– subscription of other financial organisations
31 December 2005
5,839,496
5,839,496
5,559,496
5,559,496
280,000
280,000
Authorised capital is the Bank’s basic equity which the Management Board may increase by issuing
new shares. The Bank’s Management Board is authorised to increase basic equity capital, with the
consent of the Supervisory Board, by up to SIT 1,120,000 thousand in the period from 4 November
2002 to 4 November 2007.
39 Share premium account
31 December 2006
31 December 2005
Paid-up capital surplus
1,567,011
1,567,011
Share premium arising from the general capital
revaluation
5,345,816
5,345,816
Total
6,912,827
6,912,827
40 Fair value reserve
31 December 2006
31 December 2005
Fair value reserve relating to change in fair value
of available for sale financial assets
473,698
1,597,665
Total
473,698
1,597,665
41 Reserves from profit
31 December 2006
37,749,430
Profit reserves
– legal reserves
– statutory reserves
– other profit reserves
Retained earnings
– retained earnings
– retained arising from the transition to IFRS
Total
31 December 2005
31,020,005
1,949,726
1,508,453
32,129,996
27,937,894
3,669,708
1,573,658
13,775,799
9,182,640
1,195,220
0
12,580,579
9,182,640
51,525,229
40,202,645
The entire balance sheet profit for the 2005 financial year in the amount of SIT 1,195,220 thousand
remained undistributed pursuant to the decision of Nova KBM d.d.’s General Assembly of 4 July
2006, and constitutes retained profit.
The Bank’s Management Board increased legal and statutory reserves from the net profit of the 2006
financial year in the total amount of SIT 4,633,376 thousand. The Supervisory Board created other
profit reserves from the net profit of the 2006 financial year in the amount of SIT 2,096,051 thousand.
F-113
Notes to the Financial Statements of Nova KBM d.d.
A portion of the retained earnings from the transition to IFRS, relating to 2006 amounts to SIT
3,397,939 thousand and is mainly the result of securities achieving their fair value and the release
of impairments and provisions due to changes in the methodology of assessing credit risk losses.
42 Income from current year
The Bank achieved a net profit of SIT 8,825,477 thousand in the 2006 financial year.
Pursuant to the first paragraph of Article 230 of the Companies Act (ZGD) and Articles 39 and 40
of the Bank’s Articles of Association, the Management Board used SIT 441,274 thousand of net
profit for legal reserves and SIT 4,192,102 thousand for statutory reserves. The Supervisory Board
created other profit reserves from remaining net profit (following the creation of legal and statutory
reserves), pursuant to the third paragraph of Article 230 of the ZGD, in the amount of 50% thereof
(i.e. SIT 2,096,051 thousand).
Net profit for the 2006 financial year, following the creation of profit reserves, amounted to SIT
2,096,051 thousand.
43 Balance sheet profit
2006
8,825,477
Net profit for the financial year
+ retained earnings
1,195,220
+ retained earnings arising from the transition to IFRS
12,580,579
+ decrease in profit reserves
416,226
– increase in profit reserves
441,274
– increase in statutory reserves
4,192,102
– increase in other profit reserves
2,096,051
Balance sheet profit
16,288,075
The Supervisory Board will recommend it to the Bank’s General Assembly that balance sheet profit
in the amount of SIT 16,288 million is to be used for payments to shareholders in the amount of SIT
3,675 million and for payments of bonuses to Supervisory Board members in the amount of SIT 32
million. The remaining balance sheet profit in the amount of SIT 12,581 million should be allocated
to other profit reserves. The Bank’s General Assembly will make a decision on the use of balance
sheet profit probably in June 2007.
F-114
44 Off-balance sheet items (commitments and contingent liabilities)
Domestic currency
Current
Foreign currency
Non-current
Current
Total
Non-current
31 December 2006
Financial guarantees
Service guarantees
5,579,545
5,072,446
2,495,449
6,637,468
11,947,336
20,753,521
2,141,385
3,917,251
Total guarantees
43,352,848
Pledged assets
Unsecured letters of credit
15,191,553
40,232,017
19,784,908
38,759,493
58,544,401
0
40,232,017
463,500
0
4,117,992
317,418
4,898,910
Approved unused loans
16,674,982
1,413,222
16,104,451
6,562,361
40,755,016
Approved unused limits
41,309,459
0
459,937
0
41,769,396
0
0
0
496
Other
Total commitments
and contingent liabilities
59,397,663
Loan replacement value
Total
23,127,245
225,951
0
143,671,979
42,754,208
496
82,524,908
225,951
186,426,187
31 December 2005
Financial guarantees
1,844,873
4,599,675
2,829,665
2,812,654
12,086,867
Service guarantees
5,974,315
15,394,913
714,879
3,046,258
25,130,365
Total guarantees
Pledged assets
Unsecured letters of credit
27,813,776
9,403,456
790,599
0
37,217,232
790,599
176,181
0
2,928,616
256,346
Approved unused loans
18,789,140
1,374,408
20,946,612
405,501
41,515,661
Approved unused limits
38,761,936
0
123,395
0
38,885,331
0
0
0
184,303
Other
Total commitments
and contingent liabilities
58,925,484
Loan replacement value
Total
21,659,811
78,482
0
87,784,522
34,248,229
3,361,143
184,303
80,585,295
78,482
122,032,751
In 2006 guarantees in domestic currency rose by SIT 15,539,072 thousand or 55.8%, primarily due
to an increase in the issuing of service guarantees to the construction sector.
Bank assets pledged for securing liabilities:
31 December 2006
Assets
Slovenian bonds - guarantee
Financial assets fund for STEP 2
Financial assets fund for the provision of euro cash
Financial assets fund – free of encumbrance
Slovenian bonds – guarantee of deposits
Total
F-115
31 December 2005
Liabilities
Assets
Liabilities
1,688,941
4,188,941
0
0
958,561
958,561
790,599
718,726
0
6,413,761
6,413,761
0
25,012,608
0
0
0
6,158,146
6,158,146
0
0
40, 232,017
17,719,409
790,599
718,726
Notes to the Financial Statements of Nova KBM d.d.
45 Off-balance sheet items (derivatives)
Derivatives by type as at 31 December 2006
Domestic currency
Foreign currency
Forward contracts – current
– trading
1,488,070
13,372,635
Total
1,488,070
13,372,635
Derivatives for trading as at 31 December 2006
Type of risk
Type of derivative
Book value in the balance sheet
Assets
Currency risk
Total
forward
Liabilities
Off-balance
sheet amount
130,951
36,895
13,372,634
130,951
36,895
13,372,634
The amount of SIT 13,372,634 thousand represents FX forwards.
F-116
O t h er No t e s
46 Authorised transactions
31 December 2006
31 December 2005
75,118
514,208
State
6,146,343
1,109,425
Banks and other financial organisations
9,205,540
9,289,935
Non-financial corporations
Households
27,923
1,218
Non-profit service providers
260,165
48,300
Liabilities resulting from operations with securities
236,218
206,037
Liabilities for cheques sold from foreign issuers
Total
(3,727)
121
15,947,580
11,169,244
The increase in liabilities resulting from authorised transactions can be attributed to increased
financing of the public sector with regard to assets received from banks, for which the Bank acts as
an agent.
47 Auditing costs
2006
2005
Audit of the annual report
31,492
37,865
Other auditing services
10,974
374
Tax consultancy services
Total
87
0
42,553
38,239
48 Important relationships with the Bank – related parties
a) balance sheet and off-balance sheet as at 31 December 2006
Subsidiaries
Associates
6,955,909
Loans to banks
Loans to the non-banking sector
Liabilities to banks
Liabilities to the non-banking sector
Debt securities
Off-balance sheet items
Total
F-117
1,709,419
27,735,857
0
3,213,170
1,197,994
763,329
1,528,896
0
1,650,000
933,316
255,376
39,601,581
6,341,685
Notes to the Financial Statements of Nova KBM d.d.
Balance sheet and off-balance sheet as at 31 December 2005
Subsidiaries
Associates
4,393,634
Loans to banks
Loans to the non-banking sector
0
0
761,617
Debt securities not held for trading
Liabilities to banks
Liabilities to the non–banking sector
28,439
0
1,170,040
1,354,633
50,000
3,981,993
Debt securities
Off-balance sheet items
Total
1,766,136
18,094,794
299,850
92,481
24,036,757
7,956,860
The value of loans to the non-banking sector increased primarily due to the financing of Gorica leasing
d.o.o. (an increase of 55%) and Multiconsult d.o.o., which was included in the Nova KBM Group in 2006.
b) income statement as at 31 December 2006
Subsidiaries
Associates
1,051,326
(183,709)
Dividends income
681,800
110,588
Fee and commission net income
162,479
22,494
5,408
0
Interest net income
Gains and losses on financial assets and liabilities
held for trading
Costs of services
Total
104,156
28,196
2,005,169
(22,431)
Income statement as at 31 December 2005
Subsidiaries
Associates
729,598
Interest net income
Dividends income
(127,762)
1,026,314
49,698
Fee and commission net income
84,768
1,763,303
Gains and losses on financial assets and liabilities
held for trading
(8,152)
0
Costs of services
Total
81,396
0
1,913,924
1,685,239
The majority of securities represent KBM5 and KBM8 bonds in the total amount of SIT 1,150,000
thousand.
Loans approved for members of the Management and Supervisory Board and other employees of the
company on the basis of a contract for which the tariff portion of the collective agreement does not apply,
are shown in the table below.
Members of the
Management Board
2006
Loans
Average interest rate
for loans in %
Repayments
Sureties
Members of the
Supervisory Board
2005
2006
Other Bank employees
2005
2006
2005
29,442
33,595
0
14,922
296,565
265,684
5.2
4.6
-
4.4
5.2
4.6
4,086
5,049
0
4,995
74,191
47,124
930
16,549
0
0
116,500
66,754
The item loans includes the balance of loans not yet repaid as at 31 December 2006; repayments
constitute the amount of loans repaid during the financial year.
F-118
49 Exposure to the Bank of Slovenia and the State
Exposure to:
2006
2005
64,177,632
Bank of Slovenia
80,937,456
8,580,955
7,900,591
– loans
16,666,000
16,666,000
– securities – bills
38,768,004
55,904,738
154,951
254,570
– settlement account
– interest
7,722
211,557
122,349,645
119,032,260
87,257,244
94,331,546
9,737,101
209,345
– other
Republic of Slovenia
– bonds by type
– other securities
– loans
– investments guaranteed
by the Republic of Slovenia
– interest
1,000,000
0
19,409,891
19,817,409
1,972,761
1,881,701
734,900
302,389
186,527,277
199,969,716
– other
Total exposure to the Bank of Slovenia
and the State
21.22
27.93
2,237,748
2,489,870
879,065,155
715,868,308
Share of the balance sheet total in %
Off-balance sheet items, covered by collateral
at the BS and RS
Balance sheet total
In 2006 the Bank’s exposure to the State (the Slovenian government, ministries, Pension and Disability Insurance Institute, Health Insurance Institute) stood at SIT 122,350 million, broken down
as follows: SIT 96,994 million in securities, SIT 22,118 million in other investments and SIT 2,238
million in off-balance sheet items covered by collateral with the Republic of Slovenia.
50 Changes in outstanding receivables
Types of receivables and
investments
Loans to banks
Loans to the non-banking sector
Interest
Balance
as at
1 January
2006
%
Net
increase/
decrease
Write-offs
Balance
as at
31 December
2006
%
47,801
0.08
3,519
0
51,320
0.07
25,994,646
6.00
2,060,044
(3,340,009)
24,714,681
4.64
11,162
99.64
163,030
(12)
174,180
99.86
Other
2,019,924
50.90
(302,448)
(2,760)
1,714,716
44.19
Total
28,073,533
1,924,145
(3,342,781)
26,654,897
Types of receivables and
investments
Balance
as at
1 January
2005
Net
increase/
decrease
Write-offs
Balance
as at
31 December
2005
Loans to banks
Loans to the non-banking sector
Interest
%
%
51,485
0.16
(3,684)
0
47,801
0.08
27,997,835
3.66
(549,725)
(1,453,464)
25,994,646
2.99
12,022
95.64
(855)
(5)
11,162
95.68
Other
2,175,583
29.82
(154,458)
(1,201)
2,019,924
31.69
Total
30,236,925
(708,722)
(1,454,670)
28,073,533
F-119
Notes to the Financial Statements of Nova KBM d.d.
51 Receipts
2006
2005
Members of the Management Board
62,030
102,182
Matjaž Kova~i~
32,374
30,589
Manja Skerni{ak
29,656
14,833
^rtomir Mesari~
0
40,934
0
15,826
Drago Pi{ek
Members of the Supervisory Board
16,306
11,311
Other bank employees
831,224
815,975
Total
909,560
929,468
Under the agreement, the receipts of the members of the Management Board and employees include gross salaries, pay for annual leave, indemnity money and bonuses and totalled SIT 893,254
thousand. In 2006 indemnity money and bonuses amounted to SIT 6,760 thousand and SIT 1,570
thousand, respectively.
52 Events after the balance sheet date
Following the receipt of appropriate approvals, Nova KBM d.d. became the majority owner of Adria
Bank AG Vienna (50.54%) on 12 April 2007. The purchase of shares will enable the Bank to achieve its strategic objective of expanding to foreign markets.
F-120
53 Effect of changes in accounting policies
In 2006 the bank adopted IFRS as the only reporting standard. It adjusted certain data for 2005
during the preparation of the annual report. These adjustments are due to the implementation of
the new Methodology for assessing credit risk losses, the elimination of the equity method for
valuating financial investments in subsidiaries and associates and the exclusion of land from
the value of property. The following table presents the differences between individual items of the
income statement. Only those items where a difference exists are shown.
No.
NCOME STATEMENT
IN ACCORDANCE WITH IFRS
31 December
2005
IFRS
1
Interest income
2
Interest expenses
13,810,727
13,810,727
0
3
Interest net income
18,350,954
18,252,197
(98,757)
4
Dividend income
807,235
1,165,966
358,731
The difference results from the elimination
of the equity method for valuating fi nancial
investments in subsidiaries and associates.
Transition to the historical cost valuation
method.
9
Gains and losses on fi nancial assets
and liabilities held for trading
5,371,526
5,273,177
(98,349)
The difference results from the valuation of
fi nancial assets held for trading in accordance with IFRS in 2005 and in accordance
with IFRS during the transition. A portion of
the revaluation during the transition to IFRS
is distributed in the Annual Report in accordance with IFRS between the years 2004
and 2005.
11
Fair value adjustments in hedge accounting
41,253
0
(41,253)
The difference relates to the valuation of
derivatives, measured in accordance with
IFRS 2005.
12
Exchange differences
(30,344)
(28,887)
1,457
The difference results from the exclusion of
exchange-rate differences for capital investments in associates and capital investments
available for sale, measured at cost.
15
Financial and operating incomes and expenses
32,331,168
32,452,997
121,829
17
Depreciation
1,629,494
1,626,459
(3,035)
The difference is the result of the decrease
of depreciation and amortisation due to the
exclusion of land from buildings.
18
Provisions
929,917
1,102,051
172,134
The difference results from the creation of
provisions for employees in the year 2005
and the creation of additionally required
provisions based on the new methodology for
assessing credit risk losses.
19
Impairments
3,854,165
3,148,764
(705,401)
The difference results from the implementation of the new methodology for assessing
credit risk losses.
21
Share of profit or loss of associates and joint
ventures accounted for using the equity
method.
1,387,255
0
(1,387,255)
The difference results from the elimination
of the equity method for valuating fi nancial
investments in subsidiaries and associates.
Transition to the method of valuation at historical cost.
23
TOTAL PROFIT OR LOSS BEFORE TAX
FROM CONTINUING OPERATIONS
11,033,892
10,289,612
(729,124)
24
Tax expense (income) related to profit or
loss from continuing operations
2,697,119
1,938,722
(758,397)
25
TOTAL PROFIT OR /LOSS AFTER TAX
FROM CONTINUING OPERATIONS
8,321,617
8,350,890
29,273
27
NET PROFIT/LOSS FOR THE
FINANCIAL YEAR
8,321,617
8,350,890
29,273
32,161,681
F-121
31 December
2005
IFRS - adjusted
32,062,924
Difference
Explanation of differences
(98,757)
The difference results from the creation of
additionally required impairments based
on the new methodology for assessing credit
risk losses
/
The difference is mainly the consequence of
the tax effect of the revaluation of held-fortrading fi nancial assets.
Notes to the Financial Statements of Nova KBM d.d.
The following table presents the differences between individual items of the balance sheet. Only
those items where the difference exists are shown.
BALANCE SHEET
IN ACCORDANCE
WITH IFRS
31 December
2005
IFRS
31 December
2005
IFRS - adjusted
Difference
Explanation of differences
A.I.
Cash and cash balance
with central banks
12,837,685
12,837,683
(2)
A.II.
Financial assets held
for trading
45,706,271
46,362,207
655,936
The difference is primarily due to changes in fi nancial statement schemes prescribed by regulator.
A.IV.
Available-for-sale
fi nancial assets
94,551,820
98,033,049
3,481,229
The difference is primarily due to changes in fi nancial statement schemes prescribed by regulator.
A.V.
Loans and receivables
446,287,283
453,256,524
6,969,241
The difference is primarily due to changes in fi nancial statement schemes prescribed by regulators, and results from the
transfer of interest and receivables with regard to payment
card operations from the item “other assets” in the total
amount of SIT 4,588,521 thousand. The implementation of
the new methodology for assessing credit risk losses reduces
the balance of loans by SIT 2,955,577 thousand.
A.VI.
Held-to-maturity
investment
76,079,443
76,435,252
355,809
The difference is due to changes in fi nancial statement
schemes prescribed by regulator.
A.IX.
Accrued interest
on fi nancial assets
0
58
58
The difference is due to changes in fi nancial statement
schemes prescribed by regulator.
A.X.
Property, plant
and equipment
13,495,911
13,461,676
(34,235)
The difference is primarily due to changes in fi nancial
statement schemes prescribed by regulators. The exclusion of
depreciation and amortisation calculated for land increases
the value of fi xed assets by SIT 60,470 thousand.
A.XI.
Investment property
0
109,585
109,585
The difference is due to the transfer of investment property from
other items and from the revaluation of investment property.
A.XIII.
Investments in
subsidiaries, associates
and joint ventures
12,947,238
9,328,073
(3,619,165)
The difference is due to the transfer of investments in the capital of other parties – AFS in the item “fi nancial assets available for sale” – and to the elimination of the equity method for
valuating investments in subsidiaries and associates.
A.XIV.
Tax assets
0
585,086
585,086
A.XV.
Other assets
11,372,981
2,248,422
(9,124,559)
A.XVI.
Non-current assets and
disposal groups classified
as held for sale
0
94,704
94,704
Rounding.
The difference results from the transfer of receivables for
deferred taxes from non-current provisions for legal issue
and non-current provisions for deposits from the item “other
assets” and the calculation of deferred tax assets from provisions for employees and impaired fi nancial instruments and
investment property.
The difference is primarily due to changes in fi nancial statement schemes prescribed by regulators. The majority, or SIT
4,733,557 thousand, is due to the transfer of interest to the
corresponding categories of fi nancial assets. The transfer of
receivables from payment card operations reduces other assets
by SIT 2,955,577 thousand.
The difference is primarily due to changes in fi nancial statement schemes prescribed by regulator.
Total assets
717,512,891
716,986,578
(526,313)
P.IV.
Financial
liabilities measured
at amortised cost
640,165,935
642,636,717
2,470,782
The difference is primarily due to the transfer of non-current
accrued fees and commissions and deferred repayment costs
from the item “other liabilities”.
P.VIII.
Accrued interest expense
on fi nancial liabilities
0
3,600,188
3,600,188
The difference is due to changes in fi nancial statement
schemes prescribed by regulator.
P.IX.
Provisions
5,190,754
4,656,688
(534,066)
The difference is due to the implementation of the new methodology for assessing credit risk losses, which reduces the balance
of provisions by SIT 1,643,783 thousand. During the transition,
the Bank created provisions for employees in the amount of SIT
1,112,663 thousand. The remaining difference refers to the
cancellation of non-current provisions for donor funds.
P.X.
Tax liabilities
0
2,499,399
2,499,399
The difference is due to the transfer of liabilities profit tax
from the item “other liabilities”, in the amount of SIT 951,719
thousand. Tax from the transition to IFRS increased tax
liabilities by SIT 1,015,125 thousand, and deferred tax from
the revaluation of fi nancial assets available for sale designated
at fair value by SIT 532,555 thousand.
P.XI.
Other liabilities
13,143,625
4,447,795
(8,695,830)
The difference is primarily due to the transfer of calculated
and accrued interest to the item “interest on fi nancial liabilities” in the amount of SIT 3,600,190 thousand and the transfer of liabilities for profit tax to the item “tax liabilities” in the
amount of SIT 951,719 thousand. The transfer of non-current
accrued fees and commissions and deferred repayment costs
from the item “other liabilities measured at repayment value”
amounts to SIT 2,468,069 thousand.
P.XVI.
Revaluation reserves
1,489,398
1,597,665
108,267
The difference is due to the revaluation of fi nancial assets
available for sale between 2005 and 2006 IFRS.
P.XVII.
Reserves for profit (including retained earnings)
40,206,971
40,202,645
(4,326)
The difference is due to all other differences, expressed in
profit and later in profit reserves.
P.XIX.
Net income or loss for
the fi nancial year
4,563,885
4,593,158
29,273
The difference is due to all other differences, expressed in profit.
717,512,891
716,986,578
(526,313)
Total liabilities
F-122
Income Statement in Euros
in thousands of euros
Ser.
No.
ITEM DESCRIPTION
1 January to
31 December 2006
1 January to
31 December 2005
1
Interest income
158,170
133,796
2
Interest expenses
(72,243)
(57,631)
3
Interest net income (1 - 2)
85,927
76,165
4
Dividend income
5
4,508
4,865
Fee and commission income
40,007
35,967
6
Fee and commission expenses
(6,920)
(4,605)
7
Fee and commission net income (5 - 6)
33,087
31,362
8
Realised gains and loses on fi nancial assets and liabilities not measured
at fair value through profit or loss
1,188
(1,493)
9
Gains and losses on fi nancial assets and liabilities held for trading
14,143
22,005
10
Gains and loses on fi nancial assets and (liabilities) designated at fair value through profit or loss
0
0
11
Fair value adjustment in hedge accounting
0
0
12
Exchange differences
(1,466)
(121)
13
Gains and losses on derecognition of assets other than held for held for sale
1,177
1,372
14
Other operating net income
9,719
1,220
15
Financial and operating incomes and expenses (3 + 4 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14)
148,283
135,375
16
Administration costs
(72,377)
(67,961)
17
Depreciation
(8,918)
(6,787)
18
Provisions
(7,043)
(4,599)
19
Impairments
(15,483)
(13,090)
20
Negative goodwill
0
0
21
Share of profit or loss of associates and joint ventures accounted for using the equity method
0
0
22
Total profit or loss from non-current assets and disposal groups classified as held for sale
0
0
23
TOTAL PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS
(15 - 16 - 17 - 18 - 19 + 20 + 21 + 22)
44,462
42,938
24
Tax expense (income) related to profit or loss from continuing operations
(7,634)
(8,090)
25
TOTAL PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS (23 - 24)
36,828
34,848
26
Total profit or loss after tax from discontinued operations
27
NET PROFIT/LOSS for the fi nancial year (25 + 26)
Net profit per share
F-123
0
0
36,828
34,848
13
12
Notes to the Financial Statements of Nova KBM d.d.
Balance Sheet in Euros
in thousands of euros
Item
No.
ITEM DESCRIPTION
31 December 2006
31 December 2005
ASSETS
1
Cash and cash balances with central banks
2
Financial assets held for trading
3
Financial assets designated at fair value through profit or loss
4
Available-for-sale fi nancial assets
87,956
53,571
125,182
193,466
0
0
658,373
409,085
2,440,057
1,891,406
226,910
318,959
5
Loans and receivables
6
Held-to-maturity investments
7
Derivatives – hedge accounting
0
0
8
Fair value changes of the hedged items in portfolio hedge of interest rate risk
0
0
9
Accrued interest income on fi nancial assets
2
0
10
Property, plant and equipment
58,016
56,175
11
Investment property
467
457
12
Intangible assets
21,216
17,669
13
Investments subsidiaries, associates and joint ventures
38,982
38,925
14
Tax assets
3,170
2,442
15
Other assets
8,805
9,382
16
Non-current assets and disposal groups classified as held for sale
17
TOTAL ASSETS
22
395
3,669,158
2,991,932
LIABILITIES
18
Deposit from central banks
19
Financial liabilities held for trading
20
Financial liabilities designated at fair value through profit or loss
21
Financial liabilities measured at amortised cost
22
Financial liabilities associated to transferred assets
23
0
0
0
154
0
0
0
3,314,706
2,681,675
0
0
Derivatives – hedge accounting
0
0
24
Fair value changes of the hedged items in portfolio hedge of interest rate risk
0
0
25
Accrued interest expense on fi nancial liabilities
18,678
15,023
26
Provisions
26,172
19,432
27
Tax liabilities
3,829
10,430
26,670
18,560
28
Other liabilities
29
Liabilities included in disposal groups held for sale
30
0
0
Basic equity capital
24,368
24,368
31
Share premium account
28,847
28,847
32
Capital related to compound fi nancial instruments
33
Revaluation reserves
34
Reserves from profit (including retained earnings)
35
Treasury shares
36
Income from the current year
37
Interim dividends
38
TOTAL LIABILITIES AND EQUITY
39
OFF-BALANCE SHEET ITEMS (B.1 – B.4)
F-124
0
0
1,977
6,667
215,011
167,763
0
0
8,746
19,167
0
0
3,669,158
2,991,932
839,012
597,978
F-125
BORROWER
Nova Kreditna banka Maribor d.d.
Ulica Vita Kraigherja 4
2505 Maribor
Slovenia
LENDER
VTB Bank Europe plc
81 King William Street
London EC4N 7BG
United Kingdom
ISSUER
Maribor Finance B.V.
Locatellikade 1
1076 AZ Amsterdam
The Netherlands
LEGAL ADVISERS TO THE BORROWER
as to Slovenian law
Odvetniki Dolan, Vidmar & Zemljaric
Slovenska cesta 29
1000 Ljubljana
Slovenia
LEGAL ADVISERS TO THE MANAGERS
as to English law
as to Dutch law
as to Slovenian law
Linklaters LLP
One Silk Street
London EC2Y 8HQ
United Kingdom
Linklaters LLP
World Trade Centre Amsterdam
Tower H, 22nd Floor
Zuidplein 180
1077 XV Amsterdam
The Netherlands
Jadek & Pensa
Tavcarjeva 6
1000 Ljubljana
Slovenia
LEGAL ADVISERS TO THE LENDER AND THE TRUSTEE
as to English law
White & Case LLP
5 Old Broad Street
London EC2N 1DW
United Kingdom
TRUSTEE
BNY Corporate Trustee Services Limited
One Canada Square
London E14 5AL
United Kingdom
PRINCIPAL PAYING AND TRANSFER AGENT, CALCULATION AGENT
AND LISTING AGENT
The Bank of New York
One Canada Square
London E14 5AL
United Kingdom
REGISTRAR AND IRISH PAYING AND TRANSFER AGENT
BNY Financial Services Plc
30 Herbert Street
Dublin 2
Republic of Ireland
AUDITORS TO THE BORROWER
KPMG Slovenija, podjetje za revidiranje, d.o.o.
Železna cesta 8A
1000 Ljubljana
Slovenia
imprima — C96794