Semi-Annual Report 2011

Transcription

1 Semi-Annual Report

2 Key financial data st Half st Half st Half st Half 2011 Key indicators Return on equity after tax (ROE a.t.) -16.2% -3.5% 0.2% -17.5% * -5.8% * 0.2% * Return on assets after tax (ROA a.t.) -1.2% -0.3% 0.0% -1.1% * -0.4% * 0.0% * Cost/income ratio (CIR) 59.3% 60.1% 56.1% 61.5% 62.5% 59.8% Capital adequacy ratio (CAR) 10.0% 10.6% 12.1% 10.2% 10.7% 12.1% Tier 1 ratio 6.5% 7.4% 9.0% 6.0% 6.7% 8.0% Loan/deposit ratio (LTD) 129.8% 125.1% 126.1% 125.7% 126.7% 123.9% Market share in terms of total assets 27.5% 29.4% 27.4% Profit and loss account indicators (in million EUR) Net interest income Net non-interest income Costs Impairments and provisions Result before tax Result of minority shareholders Result after tax Financial position statement indicators (in million EUR) Total assets 13,830 15,556 13,653 17,888 19,578 17,432 Loans to non-banking sector 9,200 9,447 9,023 11,880 12,333 11,658 Deposits from non-bankig sector ** 7,664 8,011 7,774 10,387 10,515 10,416 Equity 986 1,139 1,226 1,011 1,173 1,255 Equity of minority shareholders Key indicators per share Number of shares 8,905,952 8,905,952 11,061, Nominal value (in EUR) Book value (in EUR) International credit ratings Moody's Fitch st Half st Half 2011 A3 A1 Baa3 A- A- A- * Without taking into account the profits of minority shareholders. ** Including deposits recognised at fair value. 2

3 Contents Business Report 2 Introduction 3 Activities 3 Key events 5 Financial review of operations 5 Risk management 8 Funding 11 Corporate governance of 12 Financial Statements 14 1

4 1 Report Business 2

5 Introduction The is Slovenia s largest banking and financial group. As at 30 June 2011, it consisted of 50 banks and companies, while also operating one subsidiary and representative offices in foreign markets. The s most important activity is banking which is complemented by other financial activities such as leasing, factoring, forfeiting, insurance and asset management. Activities In 2010, the adopted a new strategy which contains a new definition of strategic markets and activities of the. The strategic markets of former Yugoslavia remain, while the plans to withdraw from other markets. The s focus in terms of non-banking services has also changed as factoring and real estate leasing have become non-strategic activities. In line with the strategy, the sells its investments in non-strategic markets and investments in factoring companies. The aim of these measures is to achieve the organisational and financial consolidation and capital strengthening of the so as to enable a more intensive focus on those markets and activities that have proven to be the most profitable and promising. In those markets, the continues with activities aimed at the search for synergies and streamlining of group member operations. Great emphasis is put on the continued development of corporate governance, especially procedures to harmonise operating standards which were initiated in the past, and the transfer of know-how and best practices within the Group pursuant to the business line principle. Activities in the first half of 2011 followed the new strategic guidelines. In the framework of the project of withdrawing from non-strategic markets, the disinvestment process in the Bulgarian market is about to be completed since the agreement on the sale of Banka Sofia was signed in April and the transaction was completed in July. In March, the process of voluntary liquidation of the company Nova penzija in liquidation was completed and the company was removed from the Companies Register of the Republic of Serbia. The Bank is also looking for potential buyers or methods to sell other non-strategic investments. With the aim of selling the stake in the company InterFinanz, the 26.72% share in Tutunska banka was transferred from InterFinanz to the in June. Within the scope of reorganising the s leasing activity, the s purchase of the company Leasing Sarajevo from Leasing Ljubljana was entered in the Court Register in February. With the aim of providing an adequate level of capital in companies of the, capital was increased in the following companies in the first half of 2011: Srbija, Leasing Sarajevo, Factoring, Optima Leasing and Nov penzijski fond. Business Report 3

6 Southeastern Europe Western and Central Europe In March 2011 the increased its capital by EUR 250 million in two tranches. In the first tranche, the existing shareholders were granted a pre-emptive right based on their existing shares, which was fully exercised only by the Republic of Slovenia as the largest shareholder. The second largest shareholder, KBC Bank, subscribed for shares sufficient to guarantee 25% + 1 share. The remaining shares were offered to the general public in the second tranche and subscribed to by the Republic of Slovenia in full. On 7 March 2011 the European Commission issued a temporary decision establishing that the Republic of Slovenia s participation in the s capital increase was considered state aid compatible with the common market as it eliminated a deficiency in the Slovenian economy. The final decision on the measure will be adopted after an assessment of the restructuring plan which the has to submit to the European Commission. In the meantime, i.e. until the restructuring plan is approved, limitations apply regarding the payment of dividends and coupons on hybrid instruments, along with restrictions regarding the revocation of hybrid instruments. Table 1: Matrix of activities of members as at 30 June Slovenia Austria Czech Republic Germany Italy Slovakia Switzerland Bosnia and Herzegovina Bulgaria Croatia Kosovo Macedonia Montenegro Banking, Ljubljana; Banka Celje, Celje*; SIB (in liquidation), Ljubljana Adria Bank, Vienna* LHB Internationale Handelsbank, Frankfurt/Main Trieste Branch, Trieste Razvojna banka, Banja Luka; Tuzlanska banka, Tuzla Banka Sofia, Sofia*** Prishtina, Pristina Tutunska banka, Skopje Montenegrobanka, Podgorica Leasing Leasing, Ljubljana; Leasing, Koper; Leasing, Maribor Leasing, Sarajevo Leasing, Sofia Optima Leasing, Zagreb Lizing, Skopje Leasing, Podgorica Factoring and forfeiting Prvi faktor, Ljubljana** InterFinanz, Prague; Factoring, Ostrava Factor (in liquidation), Bratislava InterFinanz, Zürich Prvi faktor, Sarajevo** Prvi faktor, Zagreb** Prvi faktor, Skopje** Insurance Vita, Ljubljana**; Skupna pokojninska družba, Ljubljana* Nov penziski fond, Skopje Penzija, Podgorica**** Asset management Skladi, Ljubljana Other activities Prospera Plus, Ljubljana; Propria, Ljubljana; Bankart, Ljubljana*; FIN-DO, Domžale; ICJ, Domžale** LHB Immobilien, Frankfurt/Main Plan, Banja Luka; CBS Invest, Sarajevo LHB Trade, Zagreb; OL Nekretnine, Zagreb Tutunska broker (in liquidation), Skopje Serbia banka, Belgrade Leasing, Belgrade InterFinanz, Belgrade; Prvi faktor, Belgrade** Conet (in liquidation), Novi Sad; Convest, Novi Sad; Srbija, Belgrade * Associated companies. ** Joint ventures. *** The company was sold in July **** The company has already acquired an operating licence and is currently acquiring an operating licence for the pension fund. Business Report 4

7 Key events January: The was one of the main organisers of the successful issue of a new bond of the Republic of Slovenia. March: The international rating agency Fitch confirmed the s existing long-term credit rating. A capital increase of the in the amount of EUR 250 million. The European Commission introduced the procedure for establishing state aid to the. April: The signed an agreement on the sale of its 97.01% stake in Banka Sofia. The received the award of the Global Finance magazine for the Best Bank in Slovenia in 2011 for the 14 th consecutive time and the Best Bank in Currency Trading in Slovenia in 2011 for the 8 th consecutive time. May: Guy Snoeks was appointed a new member of the Management Board of the. June: The international rating agency Moody s lowered the s credit rating. Partial early redemption of bonds with the guarantee of the Republic of Slovenia in the amount of EUR 296,097,000. Financial review of operations In the first half of 2011 the recorded a solid result for its operations before provisions totalling EUR million and for the in the amount of EUR 95.5 million. The result after tax, which totalled EUR 0.9 million in the and EUR 1.2 million in the, was influenced by the high established credit portfolio impairments amounting to EUR million at the level of the Group or EUR 70.9 million at the level of the Bank. The total comprehensive result, which also takes into account evaluations of securities and cash flows otherwise recognised through capital, amounted to minus EUR 3.9 million at the level of the Group and minus EUR 10.4 million at the level of the Bank. Several positive factors need to be pointed out, namely: a series of steps have been taken which resulted in reduced costs and consequently improved cost efficiency; the Group had no problems meeting its liquidity requirements; and credit granting is selective, following stricter rules and the consistent implementation of the collateral policy. Profit and loss account In the first half of 2011, the s net interest income totalled EUR million, 3% less than in the same period last year. Even though the interest margin grew to 2.6%, the effect was neutralised by a smaller volume of business. In contrast, the Bank generated a net interest income of EUR million or 1% more than in the first half of last year. The biggest share in the structure of net non-interest income is commissions which, at the Group level, amounted to EUR 76.7 million and EUR 58.0 million at the Bank level. The Group s net non-interest income totalled EUR million and that of the Bank EUR 75.1 million. At the Group level, costs decreased by 3% to EUR million and at the Bank level they fell by 1%, amounting to EUR million. Labour costs, which account for more than half of all costs, remained at last year s respective levels in both the Bank and the Group. On the other Business Report 5

8 Banking - abroad Other Banking - Slovenia Asset management Factoring and forfeiting Leasing Macedonia Montenegro Slovenia Serbia Bosnia and Herzegovina Kosovo Switzerland Slovakia Czech Republic Bulgaria Croatia Germany in million EUR in million EUR hand, operating costs dropped by 8% at the Group level and 3% at the Bank level compared to the same period last year. Further, depreciation costs were also reduced, namely by 3% and 1% in the Group and the Bank, respectively. The cost/income ratio (CIR) stood at 59.8% for the, i.e. 2.7 b.p. better than in the same period last year, while the same indicator for the improved by 4.0 b.p. to 56.1%. In spite of the economic recovery, credit risk still had a considerable impact. Consequently, the established EUR million of additional impairments and provisions in the first six months of 2011, 24% less than in the same period last year, while additional impairments and provisions in the totalled EUR 90.9 million, 16% less than in the same period last year. Table 2: Key profit and loss account items 1st Half st Half 2011 Grow th 1st Half st Half 2011 in million EUR in million EUR in million EUR in million EUR Net interest income % % Net non-interest income % % Net fees and commissions % % Dividend revenues % % Net income from financial transactions % % Net other revenues % % Total net income % % Costs % % Employee costs % % Operating costs % % Depreciation and amortisation % % Result from equity investments in associates and joint ventures (equity method) % Result before provisions % % Impairments and provisions % % Impairments of financial assets available for sale through equity % % Credit impairments and provisions % % Other impairments and provisions % % Result before tax % % Income tax expense Result of minority shareholders % Result after tax % % Effects recognised through equity % % - from cash-flow hedges % % - from financial assets available for sale % % Comprehensive result % % Grow th Illustration 1: Result before tax structure of the in the first half of 2011 (by business and geographical segments) Business Report 6

9 Statement of financial position At the end of the first half of 2011, total assets of the amounted to EUR 17,431.8 million, which is 3% less than at the end of last year, while total assets of the decreased by 1%, reaching EUR 13,652.5 million. The s operations are still marked by the stagnation of credit growth. The results of the recession in the real sector were seen in a deterioration of the Group s asset portfolio and the resulting need to reprogramme loans in those segments most affected by the recession. The increased the requirements for collateral and tightened up the criteria on project feasibility, while at the same time it accelerated the process of establishing impairments and provisions since the quality of collateral has deteriorated in the uncertain economic situation. Thus, loans to the non-banking sector dropped by 2% in the first half of 2011 in both the Bank and the Group, totalling EUR 11,658.4 million for the Group and EUR 9,022.7 million for the Bank. Deposits from the non-banking sector, on the other hand, remained at the 2010 year-end level, totalling EUR 10,415.9 million for the Group and EUR 7,774.0 million for the Bank. The loan/deposit ratio (LTD) in the non-banking sector dropped by 1.8 b.p. at the Group level in the first half of 2011 to reach 123.9%, while at the Bank level it dropped by 3.7 b.p. to stand at 126.1% at the end of June. Table 3: Key financial position statement items ASSETS Grow th in million EUR in million EUR in million EUR in million EUR Cash % % Loans to banks % % Loans to non-banking sector 9, , % 11, , % Gross loans to non-banking sector 9, , % 13, , % - corporate 7, , % 9, , % - state % % - retail 2, , % 2, , % Impairments % -1, , % Financial assets 2, , % 3, , % - held for trading % % - available for sale and held to maturity 2, , % 3, , % Investments in subsidiaries, associates and joint ventures % % Property and equipment % % Intangible assets % % Other assets % % Total assets 13, , % 17, , % LIABILITIES Deposits from non-banking sector * 7, , % 10, , % - corporate 1, , % 2, , % - state , % 1, , % - retail 5, , % 6, , % Deposits form banks % % Debt securities in issue 1, , % 1, , % Borrow ings 2, , % 3, , % Other liabilities % % Subordinated debt % % Equity , % 1, , % Equity of minority shareholders % Total liabilities 13, , % 17, , % * Including deposits recognised at fair v alue. Grow th Business Report 7

10 Illustration 2: Total assets structure of the as at 30 June 2011 (by business and geographical segments) Banking - Slovenia 73.8% Banking - abroad 20.8% Leasing 2.8% Factoring and forfeiting 2.3% Other 0.3% Slovenia 76.0% Bosnia and Herzegovina 5.5% Macedonia 5.4% Germany 3.1% Slovakia 0.0% Montenegro 2.8% Serbia 2.4% Kosovo 2.0% Switzerland 1.3% Czech Republic 0.9% Croatia 0.4% Bulgaria 0.2% Capital and capital adequacy Pursuant to the s adopted strategy, the s capital was increased with the issue of new ordinary shares in the amount of EUR 250 million in March. As at 30 June 2011 the regulatory capital of the totalled EUR 1,829.8 million, which is EUR million more than at the end of On the same date, the capital adequacy ratio (CAR) was estimated at 12.1% or 1.9 b.p. more than at the end of last year, while the Tier 1 ratio was assessed at 8.0%, namely 2.0 b.p. higher than at the end of As at 30 June 2011 the s regulatory capital totalled EUR 1,330.9 million, which is EUR million more than at the end of On the same date, the Bank s capital adequacy ratio (CAR) was 12.1% or 2.1 b.p. more than at the end of last year, while the Tier 1 ratio was 9.0%, which is 2.5 b.p. higher than at the end of Risk management Risk management in the is based on the following principles: Independence of risk management from specific business lines and independent decision-making. The achievement of the Bank s business goals may not be associated with the assumption of unacceptably high risks. A long tradition of using different instruments for managing and measuring risks (management of regulatory and internal capital, proactive determination of the most appropriate amount of provisions and impairments, risk value, diversification and other modern methods of portfolio management, score models, internal ratings, economic capital etc.). Decisions in the area of risk management are based on an integral assessment of various risk factors. As a rule, no decisions are adopted solely on the basis of the result of a specific quantitative model or methodological approach (the diversification of modelling approaches). The risk appetite in the arises from the strategic orientation of the Group which foresees a redefining of the target risk profile with the aim to increase conservativeness. The strict implementation of centralised reporting and implementation of minimum standards of risk management in subsidiary banks and other financial companies of the. These principles remain valid in circumstances marked by the s significant loss in 2010 and the potential negative impact of the economic and financial situation in Slovenia and the crisis in some EU member states. In the area of risk management, the consolidation process continued in 2011 and the risk model used by the was transferred to members of the. Business Report 8

11 In the, credit risk is the most significant type of risk and must be treated very carefully and precisely in view of the current recession. Despite the somewhat calmer situation in international financial markets, a lot of attention must be paid to the liquidity risk of the entire Group. The Group closely monitors and manages operational and market risks, as well as other risk in the process of assessing its internal capital. The banking regulation amendments in the field of credit and liquidity risks, informally named Basel III, which the will implement in accordance with the adopted orientations of the regulators, are also considered new challenges. Credit risk management Credit risk is managed at two levels in the, namely at the level of an individual client (debtor) and at the level of the entire or part of the portfolio of the member. At the level of an individual client, adequate procedures need to be carried out in different phases of the client relationship before, upon and after signing the contract. In the first phase, client information is essential, among other things enabling an objective assessment of the financial position and credit rating and a determination of the debt ceiling. In the second phase, an appropriate contract is drawn up, including provisions on collateral and covenants. The third phase contains various forms of monitoring the client in terms of the regular settlement of obligations and other relevant data that influence the credit ability or the need to establish and/or change the volume of impairments. The credit portfolio is regularly monitored by segment type (credit rating, country type and size of client, activity, insurance, poor/overdue receivables, exposure currency etc.). Monitoring includes an analysis of changes and, based on time series, the establishment of trends in the movements, risk level and concentration of the credit portfolio. The matrices of client migrations between rating groups and similar methods for determining the dynamics of changes in the portfolio are the most important instruments for assessing the quality of the credit portfolio, the characteristics of the internal rating system and the level of exposure to system risk. In the credit portfolio, appropriate methods are regularly used to establish and measure the degree of portfolio concentration or diversification. Through regular reviews of business practices and credit portfolios in the Group members, the ensures that they manage their credit risks in accordance with the minimum risk management standards applicable in the. This guarantees reasonably harmonised procedures of managing and monitoring credit risks at the consolidated level. The period of economic crisis has accelerated the following trends in the credit policy area: requirements for better quality collateral with strictly applied pledge ratios, with the value being measured by taking the fair value concept into account; the increased impairment of receivables and establishment of provisions for assumed liabilities; the revision of client credit rating methodologies, which take account of the reduced risk appetite; and central monitoring and submission of opinions regarding the granting of major loans in members of the. It should be pointed out that at the end of last year the Bank started introducing additional systems of early warning and detection of problem clients, which are being used in It updated the procedures for assessing the appropriate level of impairments and provisions with the aim of a timely and accurate response, in terms of amounts, to changes in client quality. Business Report 9

12 Illustration 3: Risk portfolio structure by client s internal credit rating in the as at 30 June 2011 D 7.5% E 5.5% C 9.1% A 53.6% B 24.3% Liquidity risk management Liquidity risk management in the is carried out in line with adequate policies and strategies that define the rules and responsibilities system. At the level of the Group, the Bank uses a balanced strategy of liquidity management depending on the sources of financing. Monitoring of the liquidity position and aligned maturity of assets and liabilities is carried out through the analysis and supervision of the structure of assets and liabilities of the Bank and members of the Group. The liquidity situation in financial markets again deteriorated recently as a result of the debt crisis in some EU member states. Despite the extremely difficult situation in the international capital market, and the reduced credit rating of Slovenian banks during the long-term process of the Bank's capital increase, the successfully acquired a new long-term loan. The Group efficiently takes care of the management of operational and structural liquidity. At the operational level, the Bank manages its liquidity mainly by concluding deals in the interbank money market. The Bank has no problems meeting operational liquidity at the level of the. It focuses more of its activities on the provision of structural liquidity and indirectly regulates the structure of its balance by means of interest policy, while the main emphasis remains on attracting long-term household deposits. A sufficient and high-quality portfolio of secondary liquidity reserves was crucially important for ensuring the liquidity of the entire. By virtue of its conservative approach to assuming risk, the and the other banking members of the Group have in the preceding years already compiled a substantial amount of liquidity investments of high quality, mostly government securities, which are assets accepted by the ECB. The total balance of both primary and secondary liquidity reserves at the end of June 2011 accounted for 29.8% of total assets which would enable the Bank access to liquidity for itself and members of the, in spite of the unfavourable market situation. The Group produces even more scenarios in exceptional situations which take account of the specific crises of the Bank and the systemic crises in the broader economic environment. The Bank as well as members of the have adopted a crisis management plan as the action plan for regulating liquidity in extraordinary circumstances. The and members of the Group calculate liquidity gaps monthly. Market risk management In general, market risk management is supported by the use of modern methodologies and software, as well as the system of reporting, which guarantees adequate control of all market risks in all companies of the. Separate guidelines have been set up for banking members and other financial institutions. Further, the Group has decentralised some activities while others are only performed by the. An example of the latter are services related to the trading book which are Business Report 10

13 performed by the for other members of the Group since the is the only trading bank in the Group. In terms of market risk reporting, the regularly and consistently handles and discusses all types of market risks and adequate limits at the Group ALCO. Exposure to various market risks (currency risks and interest rate risk management in the banking book, price risks and other market risks in the trading book) is relatively low in the Group. This is due to the Group s strategic business orientations in this area, where the openness of positions arises mainly from structural imbalances, while the major part of activities is focused on servicing clients needs. There has been only one deviation recently, namely the increased portfolio of equity securities arising from the liquidation of received loan collateral, the amount of which is being reduced by gradual sales. Operational risk management To monitor operational risk, the has set up a system of collecting loss events and identifying and assessing operational risks in a single database. The tolerance ceiling for loss events has been determined. Loss events that exceed this ceiling are subjected to special treatment and further measures are taken, if necessary. In the case of major loss events, the implementation of adopted risk management measures is monitored. The highest ranking operational risks are monitored separately as they could endanger the company s operations. In the, know-how and methodologies are transferred to the banks and other members which are consolidated (except small members). All members have already adopted adequate documents which are in compliance with standards. In this way the operational risk management model has been set up in the entire. Forecast In 2008, the suffered the first impact of the financial and subsequently economic crisis which caused a deterioration of the credit portfolio, increased provisions and impairments, and worse results. The trend continued in 2009 and particularly in 2010, when a loss was recorded. In the first half of 2011, the trend stopped somewhat, as indicated by the positive interim result. With the more conservative crediting policy and maintenance of the adequate coverage of non-performing loans with provisions and impairments, as well as the accelerated collection of non-performing loans, companies of the have responded well to the unfavourable economic climate, which is not expected to improve considerably in the second half of the year. It is estimated that the deteriorated economic situation in the domestic market, the debt crisis in some European countries and the flow-on effects in our strategic markets continue to negatively affect the portfolio of the, although to a somewhat smaller extent. The situation in international capital markets remains relatively difficult, with the persisting consequences of the financial crisis. Funding The did not have to provide additional long-term sources of financing in the first six months of the year due to the favourable liquidity situation and large volume of secondary liquidity reserves; nevertheless, the Bank started activities to raise finance to cover liabilities in the second half of 2011 and The most significant activities included the raising of a new syndicated loan as well as activities for future issues of bonds and talks with international financial institutions that grant longterm special purpose credit lines to the Bank. Thus, the signed one credit line in this period, with the EBRD, totalling EUR 30 million, which was intended for members of the to finance SME projects. With the aim of reducing liabilities in 2012 and in accordance with the large scope of secondary liquidity reserves, the Bank repaid the syndicated loan raised in 2008 early and redeemed bonds falling due on 23 July 2012 early, thereby reducing the amount of issued bonds with a guarantee of the Republic of Slovenia from EUR 1,500,000,000 to EUR 1,203,903,000. Business Report 11

14 To ensure the harmonisation of the, all borrowing of Group members in international financial markets was centralised through the as the parent bank coordinates and advises the members in relation to borrowing in these markets. In the first half of the year, members of the Group primarily raised finance by borrowing from Slovenian and foreign commercial banks. Total indebtedness of members of the with commercial banks in the first half of the year amounted to EUR million. In addition to the above, members of the also raised finance by borrowing from multilateral financial institutions (MFI) in the first half of 2011, in a total amount of EUR million. Corporate governance of Management Board Pursuant to the Articles of Association, the Management Board of the Bank may be composed of three to six members (President of the Management Board and five members), who are appointed and recalled by the Supervisory Board. The President and members of the Management Board are appointed for a period of five years and may be recalled prior to the expiry of their term of office in accordance with applicable laws and the Bank s Articles of Association. Members of the Management Board are: Chairman: Božo Jašovič (as of 1 October 2009); Members: David Benedek (as of 15 July 2009), Claude Deroose (until 16 May 2011), Marko Jazbec, Robert Kleindienst (as of 15 July 2009) and Guy Snoeks (as of 5 July 2011). Supervisory Board Pursuant to the Articles of Association, the Supervisory Board comprises 11 members who are appointed and recalled by the General Meeting of the Bank from among persons nominated by the shareholders or the Supervisory Board of the Bank. The Supervisory Board was appointed at the Bank's General Meeting of Shareholders held on 30 June 2009 for the period lasting from their appointment until the end of the Bank's Annual General Meeting which is deciding on the use of distributable profit for the fourth business year since they have been elected. In this context, the first year shall be deemed the business year in which members of the Supervisory Board were elected. Members of the Supervisory Board are: Chairman: Marko Simoneti; Deputy Chairman: Rasto Ovin; Members: Andrej Baričič, Riet Docx, Jurij Detiček (from 1 July 2010), John Hollows, Anton Macuh (as of 25 November 2010), Igor Masten, Stojan Petrič, Boris Škapin and Jan Vanhevel (until 16 May 2011). Following the resignation of Jan Vanhevel, no new substitute member of the Supervisory Board was elected in his place by the General Meeting held on 30 June General Meeting of Shareholders On 30 June 2011, representatives of owners gathered at the 17 th regular General Meeting of Shareholders. A total of 85.79% of shareholder votes was present at the beginning of the General Meeting. At the General Meeting, the shareholders acknowledged the adopted Annual Report for 2010 and the Report of the Supervisory Board, the Information on the income of members of the Management Board and the Supervisory Board in 2010, and the Rules of the Supervisory Board of the for determining other rights under the ZPPOGD. The shareholders set the payments for performing the function and the session fees of members of the Supervisory Board and its committees. They also Business Report 12

15 granted a discharge to the Management Board and the Supervisory Board for 2010 and adopted some amendments and supplements to the Articles of Association of the. The shareholders present at the General Meeting appointed the auditing house PricewaterhouseCoopers d.o.o., Ljubljana, as auditor for the 2011 financial year. The has no holders of securities that would ensure specific control rights. The has no limitations on voting rights as all shares ensure voting rights in compliance with the legislation (with the exception of potential own shares). Table 4: Ten largest shareholders of the as at 30 June 2011 Name of shareholder Number of shares Share (in %) 1 Republic of Slovenija 5,045, KBC Bank NV 2,765, Poteza Naložbe, d.o.o. - in bankruptcy 494, Slovenska odškodninska družba, d.d. 449, Kapitalska družba, d.d. 445, Zavarovalnica Triglav, d.d. 280, UCTAM d.o.o. 153, NFD 1 Delniški investicijski sklad, d.d. 131, Triglav vzajemni skladi 108, Factor banka d.d. 69, major shareholders - total 9,944, Other shareholders 1,116, Total shareholders 11,061, Business Report 13

16 2 Statements Financial Business Report 14

17 Key financial data Unaudited financial statements of d.d. and pursuant to the International Financial Reporting Standards as adopted by the European Union Business Report 15

18 Unaudited financial statements of d.d. and Contents INCOME STATEMENT...17 STATEMENT OF COMPREHENSIVE INCOME...18 EARNINGS PER SHARE...18 INCOME STATEMENT BY QUARTER...19 STATEMENT OF COMPREHENSIVE INCOME BY QUARTER...21 STATEMENT OF FINANCIAL POSITION...22 STATEMENT OF CHANGES IN EQUITY...23 STATEMENT OF CASH FLOWS...24 NOTES TO THE FINANCIAL STATEMENTS GENERAL INFORMATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CHANGES IN SUBSIDIARY HOLDINGS IN FIRST HALF YEAR EVENTS AFTER REPORTING DATE NOTES TO THE INCOME STATEMENT Interest income and expenses Net fee and commission income Gains less losses from financial assets and liabilities held for trading Other operating income Other operating expenses Administrative expenses Impairment charge NOTES TO THE STATEMENT OF FINANCIAL POSITION Loans and advances Loans and advances to banks Loans and advances to customers Movements in allowance for impairment of loans and advances to banks and customers Fair value hierarchy of financial instruments Trading liabilities Deposits, borrowings and debt securities in issue Subordinated liabilities Provisions Tax effects relating to each component of other comprehensive income Share capital Capital ratios Off-balance sheet liabilities OTHER DISCLOSURES Related-party transactions Analysis by segment Subsidiaries...44 Financial Statements 16

19 Unaudited financial statements of d.d. and Income statement Notes H1/11 H1/10 H1/11 H1/10 Interest and similar income , , , ,971 Interest and similar expenses 5.1. (207,577) (193,697) (268,355) (254,570) Net interest income 142, , , ,401 ======== ======== ======== ======== Dividend income 11,117 13,987 4,755 1,824 Fee and commission income ,934 71,974 99,149 98,554 Fee and commission expenses 5.2. (12,937) (12,436) (22,419) (20,471) Net fee and commission income 57,997 59,538 76,730 78,083 ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (4,519) (1,693) (3,853) (31) Gains less losses from financial assets and liabilities held for trading 5.3. (6,513) (33,866) (3,525) (28,545) Gains less losses from financial assets and liabilities designated at fair value through profit or loss (1,206) (5,548) (1,216) (5,555) Fair value adjustments in hedge accounting Foreign exchange translation gains less losses 12,364 24,876 13,863 22,575 Gains less losses on derecognition of assets other than held for sale 25 (27) (364) (191) Other operating income ,296 8,148 19,308 21,120 Other operating expenses 5.5. (1,351) (997) (4,054) (2,752) Administrative expenses 5.6. (106,015) (107,440) (164,587) (166,298) Depreciation and amortization (15,914) (16,145) (28,123) (28,849) Provisions for liabilities and charges (23,736) (14,815) (22,701) (4,827) Impairment charge 5.7. (67,156) (93,838) (102,906) (159,551) Share of profits of associates and joint ventures accounted for using the equity method - - 3,159 4,709 Net loss from non-current assets held for sale (401) - (44) (375) PROFIT/(LOSS) BEFORE INCOME TAX 4,594 (26,564) 6,983 (40,593) ========= ========= ========= ========= Income tax (3,348) 6,453 (4,834) 5,654 PROFIT/(LOSS) FOR THE PERIOD 1,246 (20,111) 2,149 (34,939) ======== ======== ======== ======== Attributable to: Owners of the parent 1,246 (20,111) 949 (34,577) Non-controlling interests - - 1,200 (362) Financial Statements 17

20 Unaudited financial statements of d.d. and Statement of comprehensive income Note H1/11 H1/10 H1/11 H1/10 Net profit/(loss) for the period after tax 1,246 (20,111) 2,149 (34,939) Other comprehensive income after tax (11,613) (10,991) (4,929) (10,526) Foreign currency translation - - 8,362 (2,573) Cash flow hedges (effective portion) 1,520 (737) 1,520 (737) Valuation losses taken to equity (27) (3,334) (27) (3,334) Transferred to profit 1,547 2,597 1,547 2,597 Available for sale financial assets (16,029) (12,928) (15,304) (8,876) Valuation losses taken to equity (35,145) (31,801) (33,754) (31,315) Transferred to profit 19,116 18,873 18,450 22,439 Share of other comprehensive income of entities accounted for using the equity method - - (2,630) (1,444) Income tax relating to components of other comprehensive income ,896 2,674 3,123 3,104 Total comprehensive income for the period after tax (10,367) (31,102) (2,780) (45,465) Attributable to owners of the parent (10,367) (31,102) (3,863) (45,109) Attributable to non-controlling interests - - 1,083 (356) Earnings per share Basic earnings per share is calculated by dividing the net result by the weighted average number of ordinary shares in issue, less treasury shares. H1/11 H1/10 H1/11 H1/10 Net profit/(loss) (in thousand of euros) 1,246 (20,111) 949 (34,577) Weighted average number of ordinary shares (in thousand) 11,026 8,871 11,026 8,871 Basic and diluted earnings per share (in euros per share) 0.11 (2.27) 0.09 (3.90) Subordinated loans and debt securities in issue have no future conversion options and consequently there are no potential dilutive ordinary shares. Financial Statements 18

21 Unaudited financial statements of d.d. and Income statement by quarter Q2/11 Q1/11 Q4/10 Q3/10 Q2/10 Interest and similar income 160, , , , ,754 Interest and similar expenses (86,386) (121,191) (84,925) (80,859) (78,778) Net interest income 74,480 67,785 58,617 67,708 67,976 ======== ======== ======== ======== ======== Dividend income 7,889 3, ,349 11,139 Fee and commission income 36,412 34,522 37,982 36,849 36,944 Fee and commission expenses (6,981) _ (5,956) _ (7,719) _ (6,994) _ (6,784) _ Net fee and commission income 29,431 28,566 30,263 29,855 30,160 ======== ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (4,649) (1,939) Gains less losses from financial assets and liabilities held for trading (9,896) 3, ,297 (15,522) Gains less losses from financial assets and liabilities designated at fair value through profit or loss - (1,206) 1,607 (1,425) (3,898) Fair value adjustments in hedge accounting (184) Foreign exchange translation gains less losses 15,338 (2,974) 6,938 4,590 13,780 Gains less losses on derecognition of assets other than held for sale 8 17 (7) 1 (47) Other operating income 3,260 4,036 4,460 4,006 3,949 Other operating expenses (832) (519) (1,563) (499) (719) Administrative expenses (54,282) (51,733) (57,208) (51,783) (55,062) Depreciation and amortization (7,962) (7,952) (7,917) (7,907) (7,948) Provisions for liabilities and charges 12,103 (35,839) (14,509) 6,337 (11,564) Impairment charge (63,848) (3,308) (184,655) (75,354) (52,283) Net (loss)/profit from non-current assets held for sale (401) - (1,593) 37 - _ PROFIT/(LOSS) BEFORE INCOME TAX 846 3,748 (164,735) (15,024) (21,761) ======== ======== ======== ======== ======== Income tax (3,017) (331) 14,178 2,269 6,141 (LOSS)/PROFIT FOR THE PERIOD (2,171) 3,417 (150,557) (12,755) (15,620) ======== ======== ======== ======== ======== Financial Statements 19

22 Unaudited financial statements of d.d. and Q2/11 Q1/11 Q4/10 Q3/10 Q2/10 Interest and similar income 229, , , , ,950 Interest and similar expenses (116,436) (151,919) (116,567) (111,726) (109,182) Net interest income 112, ,443 98, , ,768 ======== ======== ======== ======== ======== Dividend income 4, ,197 1,772 Fee and commission income 51,401 47,748 53,615 51,323 50,941 Fee and commission expenses (11,901) (10,518) (12,645) (11,670) (11,960) _ Net fee and commission income 39,500 37,230 40,970 39,653 38,981 ======== ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (4,475) (1,849) Gains less losses from financial assets and liabilities held for trading (8,409) 4,884 3,712 4,703 (12,936) Gains less losses from financial assets and liabilities designated at fair value through profit or loss 1 (1,217) 1,678 (1,402) (3,980) Fair value adjustments in hedge accounting 529 (188) (312) Foreign exchange translation gains less losses 16,034 (2,171) 6,832 3,861 13,448 Gains less losses on derecognition of assets other than held for sale (288) (76) (781) (936) (592) Other operating income 9,289 10,019 10,378 6,774 11,205 Other operating expenses (2,455) (1,599) (3,342) (1,437) (1,749) Administrative expenses (84,191) (80,396) (87,867) (78,510) (85,145) Depreciation and amortization (14,071) (14,052) (14,114) (14,266) (14,516) Provisions for liabilities and charges 13,113 (35,814) (24,955) 5,363 (99) Impairment charge (83,679) (19,227) (200,647) (92,359) (94,358) Share of profits of associates and joint ventures accounted for using the equity method 1,666 1,493 (114) (739) 1,919 Net (loss)/profit from non-current assets held for sale (82) _ 38 _ (1,975) _ (233) _ (375) _ (LOSS)/PROFIT BEFORE INCOME TAX (35) 7,018 (171,025) (15,347) (37,411) ========= ========= ========= ========= ========= Income tax (1,967) (2,867) 16,101 (724) 5,596 (LOSS)/PROFIT FOR THE PERIOD (2,002) 4,151 (154,924) (16,071) (31,815) ======== ======== ======== ======== ======== Attributable to: Owners of the parent (2,956) 3,905 (152,804) (14,908) (31,921) Non-controlling interests (2,120) (1,163) 106 Financial Statements 20

23 Unaudited financial statements of d.d. and Statement of comprehensive income by quarter Q2/11 Q1/11 Q4/10 Q3/10 Q2/10 Net (loss)/profit for the period after tax (2,171) 3,417 (150,557) (12,755) (15,620) Other comprehensive income after tax (10,916) (697) (516) 10,833 (429) Cash flow hedges (effective portion) (182) 1,702 1, (291) Valuation (losses)/gains taken to equity (942) (353) (1,516) Transferred to profit ,225 Available for sale financial assets (13,411) (2,618) (2,353) 12,935 (171) Valuation losses taken to equity (27,993) (7,152) (4,879) (13,398) (19,289) Transferred to profit 14,582 4,534 2,526 26,333 19,118 Income tax relating to components of other comprehensive income 2, (2,634) 33 Total comprehensive income for the period after tax (13,087) 2,720 (151,073) (1,922) (16,049) Q2/11 Q1/11 Q4/10 Q3/10 Q2/10 Net (loss)/profit for the period after tax (2,002) 4,151 (154,924) (16,071) (31,815) Other comprehensive income after tax (4,318) (611) 864 6, Foreign currency translation 7, (100) (2,230) (684) Translation gains/(losses) taken to equity 7, (100) (2,230) (684) Cash flow hedges (effective portion) (182) 1,702 1, (291) Valuation (losses)/gains taken to equity (942) (353) (1,516) Transferred to profit ,225 Available for sale financial assets (13,362) (1,942) (1,358) 10,787 2,538 Valuation losses taken to equity (27,770) (5,984) (3,687) (11,446) (21,718) Transferred to profit 14,408 4,042 2,329 22,233 24,256 Share of other comprehensive income of entities accounted for using the equity method (1,363) (1,267) (1,747) Income tax relating to components of other comprehensive income 2, (255) (3,295) 972 Total comprehensive income for the period after tax (6,320) 3,540 (154,060) (9,989) (31,027) Attributable to owners of the parent (7,370) 3,507 (152,133) (8,873) (31,076) Attributable to non-controlling interests 1, (1,927) (1,116) 49 Financial Statements 21

24 Unaudited financial statements of d.d. and Statement of financial position Notes Cash and balances with central banks 208, , , ,895 Trading assets 235, , , ,691 Financial assets designated at fair value through profit or loss 1,803 23,781 3,439 25,674 Available for sale financial assets 1,733,960 1,985,181 2,120,623 2,433,414 Derivatives - hedge accounting 31,408 35,584 31,408 35,584 Loans and advances to banks , , , ,228 Loans and advances to customers ,022,659 9,199,809 11,658,389 11,879,659 Held to maturity investments 791, , , ,954 Fair value changes of the hedged items in portfolio hedge of interest rate risk Non-current assets and disposal group classified as held for sale 22,768 22,965 88, ,908 Pledged assets 211,930 20, ,930 20,593 Property and equipment 152, , , ,995 Investment property 1,637 1,637 49,960 51,705 Intangible assets 66,790 73, , ,489 Investments in subsidiaries 505, , Investments in associates and joint ventures 65,995 65, , ,760 Current income tax assets ,415 4,112 Deferred income tax assets 44,131 43,841 61,120 60,745 Other assets 63,858 42, , ,245 TOTAL ASSETS 13,652,518 13,830,219 17,431,853 17,887,952 ========== ========== ========== ========== Trading liabilities ,955 90,873 82,140 91,789 Financial liabilities designated at fair value through profit or loss 1,740-1,740 - Derivatives - hedge accounting 23,814 28,107 23,814 28,107 Deposits from banks 6.4.a) 189, , , ,011 Borrowings from banks 6.4.b) 1,639,539 2,051,757 2,376,697 2,924,873 Due to customers 6.4.a) 7,772,243 7,663,670 10,414,149 10,386,968 Borrowings from other customers 6.4.b) 33,637 14, , ,630 Debt securities in issue 1,470,455 1,793,520 1,478,453 1,803,962 Subordinated liabilities , , , ,461 Financial liabilities associated to transferred assets 211,259 20, ,259 20,669 Fair value changes of the hedged items in portfolio hedge of interest rate risk 2,168 1,134 2,168 1,134 Liabilities of disposal group classified as held for sale ,124 43,264 Provisions ,560 71, , ,869 Current income tax liabilities 1, ,517 1,697 Deferred income tax liabilities - - 1,611 1,894 Other liabilities 65,079 80, , ,001 TOTAL LIABILITIES 12,426,637 12,843,971 16,153,151 16,856,329 ========== ========== ========== ========== CAPITAL AND RESERVES ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital 92,314 74,328 92,314 74,328 Share premium 727, , , ,595 Revaluation reserve (6,688) 4,925 (14,536) (9,724) Profit reserves 413, , , ,448 Retained earnings 1,246-37,833 39,502 Treasury shares (2,048) (2,048) (2,048) (2,048) 1,225, ,248 1,254,620 1,011,101 Non-controlling interests ,082 20,522 TOTAL EQUITY 1,225, ,248 1,278,702 1,031,623 TOTAL LIABILITIES AND EQUITY 13,652,518 13,830,219 17,431,853 17,887,952 ========== ========== ========== ========== Financial Statements 22

25 Unaudited financial statements of d.d. and Statement of changes in equity Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, , ,595 4, ,448 - (2,048) 986,248 - Net gain for the period ,246-1,246 - Other comprehensive income - - (11,613) (11,613) Total comprehensive income after tax - - (11,613) - 1,246 - (10,367) New share capital subscribed (paid) 17, , ,000 Balance at June 30, , ,609 (6,688) 413,448 1,246 (2,048) 1,225,881 Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, , ,595 5, ,148 - (2,048) 1,177,622 Merger of subsidiary (7,277) - - (7,277) - Net loss for the period (20,111) - (20,111) - Other comprehensive income - - (10,991) (10,991) Total comprehensive income after tax - - (10,991) - (20,111) - (31,102) Balance at June 30, , ,595 (5,392) 596,871 (20,111) (2,048) 1,139,243 Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Equity attributable to owners of the parent Equity attributable to non-controlling interests Total equity Balance at January 1, , ,595 (9,724) 413,448 39,502 (2,048) 1,011,101 20,522 1,031,623 - Net gain for the period ,200 2,149 - Other comprehensive income - - (4,812) (4,812) (117) (4,929) Total comprehensive income after tax - - (4,812) (3,863) 1,083 (2,780) New share capital subscribed (paid) 17, , , ,000 Dividends paid (3) (3) Other* (2,618) - (2,618) 2,480 (138) Balance at June 30, , ,609 (14,536) 413,448 37,833 (2,048) 1,254,620 24,082 1,278,702 Share Share capital premium Revaluation reserves Profit reserves Retained earnings Treasury shares Equity attributable to owners of the parent Equity attributable to non-controlling interests Total equity Balance at January 1, , ,595 (5,898) 604,148 52,302 (2,048) 1,218,427 25,769 1,244,196 - Net loss for the period (34,577) - (34,577) (362) (34,939) - Other comprehensive income - - (10,532) (10,532) 6 (10,526) Total comprehensive income after tax - - (10,532) - (34,577) - (45,109) (356) (45,465) Dividends paid (1,320) (1,320) Other* (7,278) 7,156 - (122) (78) (200) Balance at June 30, , ,595 (16,430) 596,870 24,881 (2,048) 1,173,196 24,015 1,197,211 *Transactions with non-controlling interests. Financial Statements 23