RELEASE OF THE UNAUDITED INTERIM REPORT OF THE ABANKA GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2009

Transcription

1 RELEASE OF THE UNAUDITED INTERIM REPORT OF THE ABANKA GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2009 Pursuant to the Ljubljana Stock Exchange Rules and the legislation in force, Abanka Vipa d.d., Ljubljana hereby releases the unaudited interim report of the Abanka Group for the first half of In accordance with the legislation in force this report will be available on the website at as of 30 July 2009 for at least five years. The report in the English language is for information purposes only. Management of Abanka Vipa d.d. Ljubljana, 28 July 2009 Abanka Vipa d.d. Slovenska 58, 1517 Ljubljana, Slovenia tel.: info@abanka.si

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3 ABANKA VIPA d.d. Slovenska 58, 1517 Ljubljana, Slovenija T F SWIFT: ABANSI2X UNAUDITED INTERIM REPORT OF THE ABANKA GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2009 Company name and Registered office: ABANKA VIPA d.d., Slovenska 58, 1517 Ljubljana, Slovenija The bank is legally registered with the District Court in Ljubljana under Reg. No.: 1/02828/00, Nominal Capital: 30,045, EUR, Stat No.: , Identification Number For VAT: SI

4 CONTENTS A. BUSINESS REPORT FINANCIAL HIGHLIGHTS AND PERFORMANCE INDICATORS ABANKA GROUP ABANKA VIPA D.D PRESENTATION OF THE BANK AND THE GROUP ABOUT THE BANK SERVICES OF THE BANK BANK PROFILE ABOUT THE GROUP MAJOR BUSINESS EVENTS IN THE FIRST HALF OF FINANCIAL RESULTS IN THE FIRST HALF OF PERFORMANCE AS VIEWED THROUGH THE INCOME STATEMENT PERFORMANCE AS VIEWED THROUGH THE STATEMENT OF FINANCIAL POSITION PERFORMANCE OF THE ABANKA GROUP IN THE FIRST HALF OF CORPORATE BANKING RETAIL BANKING OPERATIONS WITH OTHER BANKS SECURITIES EQUITY INVESTMENTS PAYMENT TRANSACTIONS CARD AND ATM OPERATIONS INVESTMENT BROKERAGE AIII VPS MUTUAL PENSION FUND CUSTODY AND ADMINISTRATIVE SERVICES TOTAL EQUITY AND OWNERSHIP STRUCTURE RELATED PARTY TRANSACTIONS RISK MANAGEMENT RISK MANAGEMENT IN THE FIRST HALF OF MAIN TYPES OF RISK AND UNCERTAINTIES IN THE SECOND HALF OF CHANGES OF THE SUPERVISORY BOARD CHANGES OF THE BANK S MANAGEMENT BOARD B. INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 30 JUNE

5 BUSINESS REPORT

6 1. FINANCIAL HIGHLIGHTS AND PERFORMANCE INDICATORS 1.1. ABANKA GROUP EUR thousands STATEMENT OF FINANCIAL POSITION 30 June Dec Total assets 4,072,396 3,910,996 Total deposits from non-bank customers 2,196,641 1,918,527 Total loans to non-bank customers 2,773,385 2,773,794 Total equity 343, ,756 EUR thousands INCOME STATEMENT Jan.-June 2009 Jan.-June 2008 Net interest 40,078 39,560 Net non-interest income 18,937 18,990 Labour costs, general and administration costs (24,893) (24,403) Depreciation (3,295) (3,482) Impairments and provisions (21,669) (4,098) Profit or loss from ordinary and discontinued operations before tax 9,158 26,567 Corporate income tax on ordinary and discontinued operations (1,973) (6,074) INDICATORS Jan.-June 2009 Jan.-June 2008 Performance (in %) - return on assets after tax 0.4 * 1.1 * - return on equity after tax 4.2 * 11.8 * * annualized figures are calculated linearly on the basis of the first 6 months 2

7 1.2. ABANKA VIPA D.D. EUR thousands STATEMENT OF FINANCIAL POSITION 30 June Dec Total assets Total deposits from non-bank customers corporate retail Total loans to non-bank customers corporate retail Total equity Impairment of financial assets at amortised cost and provisions Off-balance sheet items EUR thousands INCOME STATEMENT Jan.-June 2009 Jan.-June 2008 Net interest Net non-interest income Labour costs, general and administration costs (23.080) (22.496) Depreciation (2.925) (3.094) Impairments and provisions (20.664) (3.355) Profit or loss before taxes from ordinary and discontinued operations Corporate income tax from ordinary and discontinued operations (1.940) (5.938) NUMBER OF EMPLOYEES 30 June Dec SHARES 30 June Dec Number of shareholders Number of shares Book value per share (in EUR) 48,27 47,21 INDICATORS Jan.-June 2009 Jan.-June 2008 Capital adequacy 13,0% 12,7% - own funds (in EUR thousand) Asset quality (in %) Impairment of financial assets at amortised cost and provisions 4,62 3,87 Performance (in %) - interest margin 1,97 * 2,26 * - financial intermediation margin 2,88 * 3,28 * - return on assets before tax 0,51 * 1,59 * - return on equity before tax 5,91 * 15,11 * - return on equity after tax 4,76 * 11,83 * Operational costs (in %) - operational costs/average assets 1,32 * 1,49 * Liquidity (in %) - liquid assets/short-term deposits from non-bank customers 31,36 41,40 - liquid assets/average assets 14,92 18,61 * annualized figures are calculated linearly on the basis of the first 6 months Note: Data and performance indicators are based on the Indicator Calculation Method prescribed by the Bank of Slovenia with its Decision on Accounting Records and Annual reports of (Savings) Banks. 3

8 2. PRESENTATION OF THE BANK AND THE GROUP 2.1. ABOUT THE BANK Abanka Vipa d.d. is a bank with a long tradition in the Slovenian banking sector. The origins of Abanka d.d. date back to 1955 when the bank operated as a branch of the Yugoslavian Bank for Foreign Trade. In 1977, the branch was renamed Jugobanka Temeljna banka Ljubljana. Abanka began using its current name on 1 January 1990 when it was transformed into a public limited company. On 31 December 2002, Banka Vipa merged with Abanka. Since that time, the bank has operated under the name Abanka Vipa d.d, abbreviated to Abanka d.d. (hereinafter: Abanka). Following the merger with Banka Vipa, Abanka making it the third largest bank in the Slovenian banking sector. Abanka ended the first half of the year 2009 as the third largest bank in terms of total assets. The bank's market share as at 30 June 2009 was 8.2%. Abanka is a universal bank with authorisation to provide all banking and other financial services. Through our extensive network of 41 branches throughout Slovenia, easily accessible e-banking, our advisory services and personal approach, we offer comprehensive financial services, ranging from traditional banking and banking-insurance services to investment banking. In the scope of its investment banking, Abanka also manages the mutual retirement fund, AIII VPS. Abanka has established its reputation internationally as well. With regard to international operations, Abanka successfully satisfies its customers' needs for international payment transactions thanks to its network of correspondent banks across the globe. Abanka's range of services of factoring, leasing and investment management is further supplemented by its subsidiaries in Slovenia: Abančna DZU d.o.o., Argolina d.o.o., Afaktor d.o.o., Aleasing d.o.o., Vogo leasing d.o.o., Analožbe d.o.o. and an associated company in Slovenia Abančna DZU Delniški Evropa and an associated company, KDSPV1 B.V., in the Netherlands, and a joint venture company, ASA Abanka leasing d.o.o., in Bosnia and Herzegovina SERVICES OF THE BANK Abanka is authorised to provide the following mutually recognised financial services in accordance with Articles 10 and 11 of the Banking Act: SERVICE 1. Acceptance of deposits; YES 2. Granting of loans, including: - consumer loans, - mortgage loans, - factoring, with or without recourse, - financing of commercial transactions (including forfeiting) YES or NO not provided or NO not provided yet YES YES YES NO not provided 3. Financial leasing: financial leasing of assets of which the duration approximately equals the expected useful life of the asset which is the NO not provided 4

9 object of the lease and for which the lessee acquires most of the benefit from the use of the asset and accepts the full risk of the transaction 4. Payment transaction services in accordance with the Payment YES Transactions Act (ZPlaP), excluding payment system management services; 5. Issuance and management of payment instruments (e.g. credit YES cards and travellers cheques); 6. Issuance of guarantees and other commitments; YES 7. Trading for own account or for the account of customers in: YES - money market instruments, YES - foreign exchange, including foreign exchange transactions, YES - financial futures and options, YES - exchange and interest-rate instruments, YES - transferable securities; YES 8. Participation in the issuance of securities and services related to YES such issues; 9. Advice and services related to mergers and the purchase of YES undertakings; 10. Money broking on inter-bank markets NO not provided 11. Portfolio management and advice; YES 12. Safekeeping of securities and other services related to safekeeping YES of securities; 13. Credit reference services: collection, analysis and provision of YES information on the credit-worthiness of legal entities; 14. Renting of safe deposit boxes; YES 15. Investment and ancillary investment services and operations. YES Abanka is also authorised to provide the following other financial services under Article 11 of the Banking Act: SERVICE YES or NO not provided or NO not provided yet 1. Insurance brokerage in accordance with the law governing the YES insurance business; 2. Administration of payment systems according to ZPlaP NO not provided 3. Pension fund management in accordance with the law governing YES pension and disability insurance; 4. Custodian services, in accordance with the law governing YES investment funds and management companies; 5. Credit brokerage for consumer and other types of loans NO not provided 6. Other services or operations that have similar characteristics as NO not provided yet mutually recognized financial services from points 1. through 5. of this (a procedure initiated paragraph regarding the method of performance and risks to which the to acquire a licence for banks are exposed in their performance. leasing brokerage) 5

10 2.3. BANK PROFILE Abanka Vipa d.d. is entered in the Companies Register kept by the District Court in Ljubljana under registration no. 1/02828/00 Registered office: Slovenska cesta 58, 1517 Ljubljana Transaction account: SI BIC code: ABANSI2X VAT identification no.: SI Registration no.: Share capital: EUR 30,045, Telephone: (+386 1) Fax: (+386 1) Website: ABOUT THE GROUP In addition to Abanka, as parent company, the Abanka Vipa Group (hereinafter: the Abanka Group) on 30 June 2009 includes the following: subsidiaries: Abančna DZU d.o.o., Afaktor d.o.o., Argolina d.o.o., Aleasing d.o.o., Vogo leasing d.o.o., and Analožbe d.o.o.; associated companies: Abančna DZU Delniški Evropa and KDSPV1 B.V.; joint venture company: ASA Abanka leasing d.o.o. ABANKA GROUP Abančna DZU 99.00% Afaktor % Argolina % Aleasing % Vogo leasing % Analožbe % Abančna DZU Delniški Evropa 30.29% KDSPV % ASA Abanka leasing 49.00% Subsidiaries Associated companies Joint venture company Structure as at 30 June

11 The following table indicates the year the subsidiaries, associated companies and joint venture company were included in the Abanka Group, their activities and Abanka's equity shareholding as at 30 June Company Became shareholder in Activity Equity shareholding Abančna DZU d.o.o investment fund 99.00% management Afaktor d.o.o factoring % Argolina d.o.o project financing % Aleasing d.o.o leasing % Vogo leasing d.o.o leasing % Analožbe d.o.o investment % management Abančna DZU Delniški Evropa 2006 mutual fund 30.29% KDSPV1 B.V investing in the KD 33.33% Private Equity Fund ASA Abanka leasing d.o.o leasing 49.00% In the first half of 2009 the subsidiaries, associated companies and the joint venture company were characterised by the following major business events: Družba Abančna DZU d.o.o.: in the reporting period mutual fund asset management put relatively more emphasis on asset revaluation (in view of the worsening economic environment and risk management on unfavourable capital markets); most of the activities were cantered around compliance with the regulations and amended legislation on investment funds: in early April an umbrella fund was set up, holding 11 sub-funds managed by Abančna DZU; the scheme, which includes 11 sub-funds, provides longer-term savings opportunities (without tax burdens in the case of moving from one sub-fund to another); on 13 April, 2009 the term of office of Edvard Abram, member of the Management Board, was extended and the Management Board gave Andrej Petek the power of procuration; Družba Analožbe d.o.o.: in the first six months of 2009 the operations of Analožbe were marked by a change of management and diversification into precious metal trading (Tone Pekolj was appointed Director of the company and Jure Poljšak was given the power of procuration); in addition to managing the existing portfolio, Analožbe thoroughly prepared procedures and processes for precious metal trading, so that in May this trading was actually launched as a new service. The management intends to develop precious metal trading into one of the core business lines of the company; 7

12 Družba Aleasing d.o.o.: in May an agreement on merger by acquisition of Vogo leasing to Aleasing was signed; Družba Vogo leasing d.o.o.: the first half of 2009 saw an increased number of repossessions of real property, cargo vehicles, private cars and equipment due to defaults on lease payments; inclusion of the IT system of Vogo Leasing in the IT system of Abanka provided for a high degree of reliability across the entire Abanka Group; on 1 July 2009 Vogo leasing was merged with Aleasing; Družba Afaktor d.o.o.: introduction of a two factor system of export non-recourse factoring; in the subsidiary AFAKTOR - faktoring finansiranje d.o.o., Belgrade, Mr. Igor Vukotić was appointed Director on 21 January 2009 (replacing Mrs. Nives Bermel Škrobonja) MAJOR BUSINESS EVENTS IN THE FIRST HALF OF 2009 The main business events and achievements in the first half of 2009 were the following: listing of the share with designation ABKN on the Slovene stock exchange index SBI 20: on 1 April 2009 ABKN share was included in the Slovene stock exchange index; Moody s credit rating in April the international credit ratings agency, Moody s, released a new credit rating report on Abanka, in which it changed Abanka s outlook to negative; the agency believes that the current financial position of the bank is good, but foresees risks due to unstable macroeconomic climate; the long-term credit rating 'A3' and financial strength rating 'D+' remained unchanged. 8

13 3. FINANCIAL RESULTS IN THE FIRST HALF OF 2009 The consolidated unaudited financial statements of the Abanka Group for the first six months of 2009, the same as for the respective period of 2008, consolidated Abanka and its subsidiaries Argolina, Abančna DZU, Afaktor, Aleasing, Vogo leasing and Analožbe. The participation in the associate KDSPV1 (former Alavits) and the joint venture ASA Abanka leasing are consolidated under the equity method. The assets in the associated company Abančna DZU Delniški Evropa (former Delniški Evropa Vipa Invest) are recognised at fair value through profit or loss and not consolidated under the equity method. The fund does not prepare financial statements in accordance with IFRS, but according to Slovene Accounting Standards. The interim report, including consolidated and non-consolidated financial statements, has not been audited. The financial statements of Abanka Vipa d.d. and those of the Abanka Group were prepared in accordance with International Financial Reporting Standards and pursuant to the Decision of the Bank of Slovenia on Accounting Records and Annual reports of (Savings) Banks. Until April 2008 the innovative instrument was recognised as a capital item and since May 2008 it has been treated as a liability. Consequently, returns on the innovative instrument were until April 2008 recorded as interim dividend and since May 2008 as interest expenses PERFORMANCE AS VIEWED THROUGH THE INCOME STATEMENT In the first half of 2009, the Abanka Group generated a profit before tax of EUR 9,158 thousand. Consolidated profit after tax earned in that period was EUR 7,185 thousand and 64.9% below the level reported for the same period of Abanka alone reported EUR 10,000 thousand in profit before tax and a return on equity of 5.9%. The Bank s profit after tax in the first six months of 2009 totalled EUR 8,060 thousand, which was 62.4% less than in the first half of the year before and 55.6% below the plan. Abanka posted a return on equity after tax of 4.8%. The Abanka Group in the first half of 2009 recorded interest income of EUR 100,027 thousand in 2008, which was 0.8% above the amount earned in the same period the year before. The Group s interest expenses amounted to EUR 59,949 thousand or 0.5% more than in the first six months of The Abanka Group s interest margin thus reached EUR 40,078 thousand or 1.3% above the amount reported at mid-year Interest income of Abanka in the first half-year was EUR 97,412 thousand, an increase of 0.7% over the previous half-year period, whilst interest expenses totalled EUR 58,652 thousand and were 1.4% higher than those incurred in the first six months of Abanka s interest margin amounted to EUR 38,760 thousand, which was 0.3% less compared to the same period the year before. In the first half of 2009 the Abanka Group posted EUR 13,845 thousand in net fees and commissions or 13.4% less than in same period the year before. Abanka contributed EUR 13,309 thousand to this result, which was 10.8% less than in the first six months of Other net non-interest income (excluding net fees and commissions) of the Abanka Group in the reporting period totalled EUR 5,092 thousand (as opposed to the first half of

14 when it earned EUR 2,999 thousand). Out of this Abanka posted a EUR 4,600 thousand (excluding net fees and commissions), as opposed to the first half of 2008 when it earned EUR 2,497 thousand in other net non-interest income. The Abanka Group s operating costs totalled EUR 28,188 thousand in the first half of 2009 and were 1.1% higher compared to the first six months of Labour costs of EUR 16,432 thousand were 10.3% higher than in the first half of the preceding year, whilst general and administrative expenses in the reporting period went down by 10.9%, to EUR 8,461 thousand compared to the first half of Depreciation expenses amounted to EUR 3,295 thousand, which was 5.4% less that posted for the first six months of The operating costs of Abanka in the first half of 2009 were EUR 26,005 thousand in total and 1.6% higher than in the respective period of the year before. Compared to that period labour costs were 11.6% higher and totalled EUR 15,342 thousand, whereas general and administrative expenses, equalling EUR 7,738 thousand, were 11.6% below the amount reported for the first six months of The Bank s depreciation expenses of EUR 2,925 thousand were 5.5% lower compared to the respective period of Labour costs in 2008 accounted for the largest proportion of operating costs (59.0%), followed by general and administrative expenses (29.8%) and depreciation expenses (11.2%). In the first half of 2009 the Abanka Group incurred EUR 21,669 thousand of net provision and impairment expenses net provision income reached EUR 1,578 thousand and net impairment expenses EUR 23,247 thousand. Abanka alone earned net provision income of EUR 1,578 thousand in the first half of 2009 (as opposed to the first half year of 2008 when it equalled EUR 796 thousand), whereas its net impairment expenses totalled EUR 22,242 thousand (compared to EUR 4,151 in the first six months of 2008). 50,000 NET INTEREST, NET FEES AND COMMISSION, OPERATING COSTS AND NET PROVISIONS AND NET IMPAIRMENT EXPENSES IN THE FIRST HALF OF 2009 AND ,000 38,760 38,886 30,000 EUR thousand 20,000 10, ,000 net interest 14,927 13,309 net fees and commission 1, operating costs net provisions net impairment expenses -4,151-20,000-30,000-26,005-25,590-22,242-40,000 Jan.-June 2009 Jan.-June

15 3.2. PERFORMANCE AS VIEWED THROUGH THE STATEMENT OF FINANCIAL POSITION Consolidated balance sheet total as at 30 June 2009 amounted to EUR 4,072,396 thousand, which was EUR 161,400 thousand or 4.1% above the level posted at the end of Combined balance sheet assets of consolidated companies, which equalled EUR 159,959 thousand, accounted for 3.9% of consolidated total assets (vs. 5.0% in 2008). After elimination of inter-company transactions, consolidated total assets exceeded Abanka s total assets by 1.5% or EUR 59,299 thousand. The Balance sheet total of Abanka at the end of June 2009 stood at EUR 4,013,097 thousand, having increased over the previous year s end by EUR 189,761 thousand or 5.0% and 6.1% above the plan. Loans to non-bank customers accounted for the largest proportion of consolidated balance sheet assets, amounting to EUR 2,773,385 thousand at the end of June 2009, or 68.1% of the total. As at mid-year 2009 Abanka s lending to the non-banking sector totalled EUR 2,739,279 thousand and accounted for 68,3% of the its total balance sheet assets. Compared to the end of 2008 this represented a 0.1% growth or EUR 2,599 thousand in nominal terms. The volume of loans to domestic corporate clients and sole proprietors and retail clients slightly rose, whilst lending to foreign corporate clients and the public sector decreased. Deposits and loans to banks by the Abanka Group totalled EUR 553,616 thousand as at the end of June 2009 and represented 13.6% of consolidated balance sheet assets. Compared to the end of 2008 they increased by 8.4%. Deposits and loans to banks by Abanka amounted to EUR 546,601 thousand at mid-year 2009 and accounted for 13.6% of total balance sheet assets, after having increased by 8.5% since the end of This growth came largely as a result of higher short-term loans to banks. Investments in securities by the Abanka Group as at the end of June 2009 amounted to EUR 646,351 thousand, after an increase of 26.6% or EUR 135,895 thousand compared to the end of Their share in consolidated balance sheet assets climbed from 13.1% at the end of 2008 to 15.9% the end of June As at 30 June 2009, investments in securities by Abanka totalled EUR 644,743 thousand and accounted for 16.1% of balance sheet assets. Compared to the end of 2008 they grew by EUR 135,768 thousand or 26.7%. Capital investments in subsidiaries, associated companies and the joint venture company at the end of June 2009 did not change since the end of December They totalled EUR 9,205 thousand and accounted for 0.2% of total assets. Property and equipment and intangible assets at the end of June 2009 amounted to EUR thousand and were EUR 564 thousand or 1.6% lower than at the end of The next graph shows the structure of Abanka s assets as at the end of June 2009 and as at the end of

16 ABANKA'S ASSET STRUCTURE AS AT 30 June 2009 AND 31 Dec loans to non-bank customers deposits and loans to banks investments in securities 30 June Dec other 0% 10% 20% 30% 40% 50% 60% 70% As at the end of June 2009 consolidated balance sheet liabilities were composed of 91.6% liabilities (EUR 3,728,663 thousand) and 8.4% of total equity (EUR 343,733 thousand). As at the reporting date balance sheet liabilities of Abanka were made up of 91.4% of total balance-sheet liabilities (EUR 3,666,015 thousand) and 8.6% of total equity (EUR 347,082 thousand). Deposits from non-bank customers of the Abanka Group represented the bulk of total liabilities. In the first half of 2009 these increased by 14.5% or EUR 278,114 thousand and reached EUR 2,196,641 thousand at the end of June As at the same date deposits from non-bank customers of Abanka totalled EUR 2,202,063 thousand and also increased by 14.1% or EUR 272,413 thousand over the end of deposits by the public sector grew by 50.3%, retail deposits by 3.1%, deposits by domestic and foreign corporate clients and sole proprietors by 4.0%. In total deposits by the non-banking sector the largest part was accounted for by domestic and foreign retail customers (47.2%), followed by public sector (30.1%) in second place and deposits domestic and foreign corporate customers and sole proprietors in third place (22.7%). Financial liabilities to banks of the Abanka Group at mid-year 2009 amounted to EUR 1,175,853 thousand, which was 9.4% less than at the end of Financial liabilities to banks of Abanka at the end of June 2009 totalled EUR 1,111,980 thousand and were 9.4% below the amount reported at the end of the previous year, and their proportion in total liabilities fell from 32.1% to 27.7%. Securities in issue of the Abanka Group equalled those of Abanka. In the first half of 2009 they rose by 4.9% and by the end of June reached EUR 296,198 thousand. Their share in total liabilities as at the reporting date was 7.4%, the same as at the end of Total equity of the Abanka Group at the end of June 2009 totalled EUR 343,733 thousand, which represents a 2.1% rise on the end of December Total equity of Abanka at the reporting date amounted to EUR 347,082 thousand, which was 2.2% more than at the end of the previous year. Total equity in total liabilities accounted for 8.6% compared to 8.9% at the end of December The next graph shows the structure of Abanka s liabilities as at the end of June 2009 and the end of

17 STRUCTURE OF ABANKA'S LIABILITIES AS AT 30 June 2009 AND 31 Dec deposits from non-bank customers financial liabilities to banks securities in issue total equity 30 June Dec other 0% 10% 20% 30% 40% 50% 60% 70% Unaudited share book value at the end of June 2009 amounted to EUR 48.27, calculated as a ratio between total capital items and the number of subscribed shares as at the end of June 2009, excluding own shares at the same date. The capital items taken into account include net profits for the first six months of Gross dividend per share for 2008 and 2007 amounted to EUR On 30 June 2003 an amendment to the Articles and Memorandum of Association was entered in the Companies Register, stipulating the amount of authorised capital of EUR 10,015 thousand (SIT 2,400 million). Subject to the prior approval by the Supervisory Board, the Management Board was authorised in the period of five years following the entry of relevant amendment to the Articles and Memorandum of Association in the Companies Register, to raise the share capital of the Bank by issuing new ordinary shares payable in cash. On 11 January 2005 the Management Board passed a decision on raising the share capital of Abanka Vipa d.d. from authorised capital, which was approved by the Supervisory Board on 20 January On this basis share capital was raised by issuing 700,000 ordinary registered shares with par value of EUR 4.17 (SIT 1,000) each. The total nominal value of the issue was EUR 2,921 thousand (SIT 700 million). Based on an approval from the Supervisory Board, the Management Board on 20 January 2005 waived the preference right to purchase new shares from authorised capital. After this recapitalisation 29.2% of the authorised capital amount was used. The share capital increase was entered in the Companies Register on 26 April On 31 March 2008, as a result of another recapitalisation, additional 1,700,000 shares of Abanka Vipa d.d. were registered in KDD. Through this issue the share capital rose by EUR 7,093, to EUR 30,045, in total and authorised capital was used to the full amount. The total number of shares registered in KDD as at 30 June 2009 was 7,179,661. At mid-year 2009 the Bank s share capital totalled EUR 30,045 thousand equalling 7,200,000 ordinary registered shares. 13

18 3.3. PERFORMANCE OF THE ABANKA GROUP IN THE FIRST HALF OF CORPORATE BANKING Corporate banking covers banking operations with domestic and foreign corporates as well as with the public sector and sole proprietors. Worsening economic crisis in the second half of 2008 had an impact on long-term borrowing opportunities on international markets and consequently resulted in growing nominal interest rates on deposits. Abanka continued with its conservative corporate lending policy growth, diversified into shorter-term lending and adapted its pricing policy to market conditions. Lending was to a large extent linked with other bank products and services, emphasis was laid on SMEs and investment funding and funding of property development projects were reduced. Taking into account general economic climate, Abanka concentrated on additional collateralisation and closer monitoring of borrowers. In the given circumstances, the portfolio expansion of the markets of East and South-East Europe was minimised through a selective approach and higher prices. Greater attention was given to complex corporate client management and active marketing, mainly cross-selling of all the products offered by the Bank and its subsidiaries to corporate clients as well as electronic range of products and services. The latter was upgraded with the launching of electronic accounts, as the first bank in Slovenia. The product was actively marketed and widely promoted in media. As regards small and medium-sized companies Abanka followed its strategy, which places this segment among the top priorities. In the first half of 2009 the Bank was again extremely active and made a series of different offers to this segment. Together with SID, the Slovene Export and Development Bank, in 2009 it greatly increased long-term credit lines available to SMEs. Abanka participated in several government public tenders aimed to promote small business. One such major tender was put up by the Slovene Enterprise Fund in co-operation with the Regional Development Fund of the EU. However, loans to SMEs grew slower than total corporate loans, as several small companies grew into large ones and the Abanka Group subsidiaries decreased their funding relatively. Abanka s focus on the SME segment was in 2009 additionally underpinned with media campaigns for individual offerings, primarily the business package for new clients, and expert meetings, organised for loyal clients to present them topical issues. Two new services were launched: 123 plačam mobile phone payment facility and 3D secure for safe web transactions. In the first half of 2009 many marketing activities cantered around card products and acquisition of new vendors, which boosted the volume of card transactions by 25% compared to the respective period last year. Loans to corporate clients by Abanka at the end of June 2009 amounted to EUR 2,306,575 thousand after a 0.3% decrease (EUR 6,196 thousand) since the beginning of the year. The market share in corporate lending at mid-year 2009 was 8.6% compared to 8.7% at the end of Loans to corporate clients accounted for 57.5% of total assets at the end of June 2009, whilst at the end of 2008 they represented 60.5%. In the first six months of 2009 loans to domestic corporate clients increased by 2.0% and loans to sole proprietors by 7.1%, but on the other hand, loans to the public sector and foreign corporate clients deceased by 14.8% and 5.7% respectively. In 2009, raising primary sources of funds was among our priority activities. Deposits by corporate clients in Abanka by the end of June 2009 reached EUR 1,162,937 thousand, 14

19 which represented a 26.1% growth on the end of December, The market share in deposits from the corporate sector increased from 12,6% and the end of 2008 to 12.8% at the end of June In the first half of the year deposits from the domestic corporate clients grew by 3.9%, deposits from the public sector by 50.3%, from sole proprietors by 3.2% and from foreign corporate clients by 16.9%. Two issues of government debt securities had the largest impact on such deposit growth rate of the public sector. In total balance sheet liabilities the share of deposits by corporate clients by the end of June 2009 represented 29.0% (vs. 24.1% half a year earlier) RETAIL BANKING Retail banking comprises operations with domestic and foreign individuals. In line with the principles of liquidity, prudence and profitability, with the aim of raising primary sources of funds and in view of difficult conditions on financial markets, Abanka in retail business intensified marketing of longer-term deposit products in the first half of A marketing campaign for gold annuity savings was successfully completed. All this effort boosted market shares and improved maturity structure. A similar approach will be taken in the second half of the year as well. Despite still relatively favourable credit terms, economic recession reduced demand for borrowing. Taking into account this fact Abanka started stimulating the promotion of its entire loan range. It promptly adapted its interest-rate and pricing policies to new conditions, in order to be competitive on the banking market. With the aim of increasing non-interest income, the following products were intensely marketed: e-invoice, payment orders, statements of account, cards, ATMs. On the other hand, rational cost-cutting was implemented. Several bank departments joined forces to enable systematic sales promotion and employees were specially trained for that purpose. Sales orientation is being constantly checked and consolidated. Managers are trained for coaching and sales are promoted also outside the branch network, primarily involving corporate client relationship managers. By upgrading the exiting services and developing new modern ones in combination with the development of new electronic sales channels Abanka is responding to the changes in the banking business and its clients industries. It seeks opportunities for combining telecommunication technology and banking services. By such following of trends Abanka endeavours to provide quality and timely service to its clients and thus consolidate good business relations and mutual trust. At the end of June 2009 loans to retail clients totalled EUR 432,704 thousand, of which the majority was lending to domestic retail clients and loans to foreign retail clients amounted to just EUR 576 thousand. Loans to retail clients went up 2.1%, but their portion in total assets decreased from 11.1% at the end of December 2008 to 10.8% at the end of June In terms of market share loans to retail clients at mid-year 2009 accounted for 6.5% compared to 6.4% at the end of Due to the situation in financial markets Abanka geared the majority of its sales and marketing activities towards the collection of deposits. As end of June 2009 deposits by retail clients in Abanka were EUR 1,039,126 thousand in total, of which EUR 39,007 thousand were deposits from foreign retail clients. In the first half of 2009 deposits by retail clients grew by 3.1%, domestic retail clients shares by 4.6% or EUR thousand and foreign retail clients shares fell by 23.8% or EUR 12,215 thousand. Deposits by retail clients 15

20 in total liabilities at the end of June 2009 accounted for 25.9% (vs. 26.4% at 2008 year end). At mid-year 2009 Abanka held a 7.6% share of the retail deposit market, the same as at the end of OPERATIONS WITH OTHER BANKS In the first six months of 2009 Slovene banks continued repaying their foreign borrowings. Two issues of government bonds in Slovenia, on the other hand, boosted non-banking sector deposits. In 2009 Abanka paid a lot of attention to providing short-term and structural liquidity. Limited financing opportunities on international markets were adequately set of by active involvement in the domestic market. Moreover, Abanka started to actively trade in derivative instruments, interest futures and currency futures. Loans to and deposits from banks of the Abanka Group amounted to EUR 553,616 thousand at the end of June 2009, whilst those of Abanka alone as at the same date totalled EUR 546,601 thousand, up by 8.5% or EUR 42,738 thousand compared to the end of December This was predominantly due to higher short-term loans to banks, which increased by 26.3% or EUR 61,756 thousand in nominal terms, sight bank deposits abroad rose by 200.3% or nominally by EUR 22,607 thousand. Other balances at the central bank dropped by 22.6% or EUR 38,962 thousand in nominal terms. The share of loans and advances to banks in the total assets rose from 13.2% at the end of 2008 to 13.6% half a year later. As at the end of June 2009, financial liabilities to banks of the Abanka Group totalled EUR 1,175,853 thousand and those of Abanka EUR 1,111,980 thousand. The latter were 9.4% or EUR 115,620 thousand higher compared to the end of Financial liabilities to banks accounted to 27.7% of total liabilities at mid-year 2009 compared to 32.1% at the end of December SECURITIES Abanka continued restructuring its debt securities portfolio on the banking book, with a main aim to restructure the reduced exposures to individual issuers of debt securities. In March 2009, Abanka played and active role in underwriting the second issue of bonds by the Republic of Slovenia, led by a bank syndicate which also involved BNP Paribas, Deutsche bank and Dresdner Kleinwort. Since 2007 Abanka has been a market maker on the MTS Slovenija sovereign market and has as a primary dealer participated in all bond issues by the Republic of Slovenia. In the first quarter of 2009 major stock exchange indices around the world continued to fall, to which the Bank adapted its activities reduced the volume of trading, primarily in foreign securities. The second quarter of the year witnessed general improvement in investment sentiment, which generally pushed up the market prices of securities. As a consequence, Abanka also increased its trading, mostly in the domestic market. At the end of June 2009, the value of the Abanka Group's investments in securities was EUR 646,351 thousand and exceeded that of Abanka by EUR 1,608 thousand. At mid-year 2009 investments in securities of Abanka stood at EUR 644,743 thousand and were 26.7% higher than at the end of They accounted for 16.1% of total assets, which is 16

21 more than the 13.3%, recorded at the end of The securities portfolio included both equity and debt securities. In the first half of 2009 equity securities held by Abanka grew by EUR 8,208 thousand or 17.7% and reached EUR 54,488 thousand at the end of June when they represented 8.5% of the total securities portfolio. Debt securities held by Abanka totalled EUR 590,255 thousand and at the end of June accounted for 91.5% of the total securities portfolio. Compared to the end of 2008 they increased by EUR 127,560 thousand or 27.6% (mainly thanks to the acquisition of treasury bonds of the Republic of Slovenia). Liabilities for securities issued of the Abanka Group equalled those of Abanka. Total securities in issue at the end of June 2009 amounted to EUR 296,198 thousand, which was 4.9% or nominally EUR 13,877 thousand more compared to the end of the preceding year. As at the reporting date securities in issue represented 7.4% of total liabilities, which was the same as at the end of In the first half of 2009 debt securities in issue grew by 23.4% or EUR 28,520 thousand in nominal terms and reached EUR 150,390 thousand (certificates of deposit alone increased by EUR 27,608 thousand), whist subordinated liabilities decreased by 9.1% or nominally EUR 14,643 thousand down to EUR 145,808 thousand EQUITY INVESTMENTS Equity investments in subsidiaries, associated companies and the joint venture company at the end of June 2009 amounted to EUR 9,205 thousand, the same as at the end of EUR thousands 30 June 2009 Structure 31 Dec Structure 09/08 index subsidiaries 8, % 8, % 100 associated companies % % 100 joint venture company 1, % 1, % 100 total capital investments 9, % 9, % PAYMENT TRANSACTIONS In the first half of 2009 Abanka completed the large migration of domestic credit payments into the SEPA low value payment system, provided by Bankart for domestic payments. In domestic payment transactions Abanka processed 20,919 orders in the Target 2 system in the first six months of 2009 worth EUR 19,821,667 thousand and 2,224,401 orders in the giro clearing system amounting to EUR 2,079,726 thousand. Abanka s market share was 9.2% measured by the number of processed orders and 14.6% measured by their value. In the first half of 2009 Abanka recorded international payment transactions of EUR 17,709,096 thousand and its market share of 11.3% placed it third among banks in Slovenia. (Payment transaction data include only international and cross-border payments of sums above EUR 50,000.) CARD AND ATM OPERATIONS As at mid-year 2009, there were 229,245 issued cards or 3.6% more than at the end of Ba Maestro card, also functioning as personal account card (144,679 cards), accounted for 17

22 the bulk (as much as 63.1%), whilst Visa Electron card experienced the strongest growth, (an increase of 10.4%; 33,712 cards). In the first six months of 2009 there were 6 million card transactions through Abanka s vendors, which represents an increase of 1.2% over the respective period of Total volume of transactions amounting to EUR 323,541 thousand was also higher than in the first half of 2008 by 2.7%. Abanka has an extensive network of points of sale for all card products. At mid-year 2009, the Bank had 3,166 POS terminals in Slovenia, which accounted for a 32% market share and was 9.7% more than at the end of At 16,114 points of sale in the network of Abanka 3.1 million transactions with cards of all brands were processed in the first half of 2009 or 22.7% more than in the first half of They totalled EUR 184,885 thousand, which represents and 26.9% increase on the respective period of Modern sales channels of Abanka include also an extensive ATM. The number of bankowned ATMs rose from 217 at the end of 2008 to 225 at mid-year 2009, representing a 13.3% of the market share. In the reporting period 2.5 million transactions were recorded at Abanka s ATMs worth EUR 209,956 thousand. ATM transactions increased by 5% in number and 10.8% in volume compared to the end of December INVESTMENT BROKERAGE The average volume of trading generated by Abanka on the Ljubljana Stock Exchange in the first half of 2009 accounted for 8.0% and positioned Abanka the third trader on the market. Total volume of stock exchange transactions in the reporting period was EUR 641,448 thousand, to which Abanka contributed EUR 51,245 thousand. Improving climate on stock exchanges increases the number of buy orders placed by our clients. On the other hand, Abanka is getting on board new clients using its financial instrument management services AIII VPS MUTUAL PENSION FUND In the first half of 2009, AIII VPS Mutual Pension Fund of Abanka performed well. Despite a negative trend in early 2009 and great slumps on capital markets, resulting in higher risk premiums, in the first six months of the year the fund recorded a 3.6% return and thus generated the required guaranteed return for In the reporting period no member left the fund in spite of unstable capital markets. This demonstrates a high degree of clients confidence in the pension fund, which Abanka has been successfully managing for the last 7 years CUSTODY AND ADMINISTRATIVE SERVICES Due to a difficult situation on financial markets in late 2008 and early 2009, which decreased net asset value of the investment funds to which Abanka provides custody services, the Custody and Administrative Services Department focused on attracting new clients and set the development of custody and administrative services as another priority, based on inhouse developed applications. 18

23 Abanka is the only provider of administrative services for long-term business funds of insurance companies in Slovenia TOTAL EQUITY AND OWNERSHIP STRUCTURE As mid June 2009 the total equity of the Abanka Group and Abanka amounted to EUR 343,733 thousand and EUR 347,082 thousand respectively. The Bank s total equity in the first half of 2009 increased by 2.2% or EUR 7,624 thousand on the end of the preceding year and accounted for 8.6% of total liabilities on the balance sheet. This increase was primarily thanks to revaluation surplus of EUR 6,827 thousand and reserves from profit of EUR 9,241 thousand. As at the end of June 2009 net profits as part of equity were EUR 8,444 thousand lower compared to the end of Share book value as at 30 June 2009 was EUR calculated on the basis of 7,190,787 shares. The ten major shareholders in Abanka at the end of June 2009 are shown below, along with their equity holdings as at the end of TEN LARGEST SHAREHOLDERS OF THE BANK Number of shares 30 June Dec Holding in % Rank Number of shares Holding in % Rank ZAVAROVALNICA TRIGLAV D.D. 1,843, ,843, SAVA D.D. 1,715, ,715, GORENJSKA BANKA D.D. 719, DELNIŠKI VZAJEMNI SKLAD TRIGLAV STEBER I 527, , HIT D.D., NOVA GORICA 442, , BPT TRŽIČ D.D. 342, VIPA HOLDING D.D. 266, , DAIMOND D.D. 255, , ZVON ENA HOLDING D.D. 174, ,235, SLOVENSKA ODŠKODNINSKA DRUŽBA D.D. 161, , Ten largest 6,448, ,582, Other shareholders 751, , All shareholders 7,200, ,200, At mid-year 2009 the ten largest shareholders held 6,448,655 shares or 89.5% of the Abanka s share capital, whilst half a year earlier this portion was 91.4%. At the reporting date Zavarovalnica Triglav d.d. held a 25.6% stake, Sava d.d. held its 23.8% participation in Abanka and Gorenjska banka d.d. with 9.9% became the third largest shareholder. By the end of June 2009 the total number of shareholders of Abanka had fallen to 1,129, from 1,142 at the end of At mid-year 2009 the Bank held 9,213 redeemed own shares, equivalent to 0.1% of its share capital. A fund of own shares was established for redeemed own shares. As at 30 June 2009 Aleš Žajdela, the President of the Management Board, was holding 1,327 shares of the Bank (0.02% of share capital), Gregor Hudobivnik, Member of the Management Board, 1,076 shares (0.01% of share capital) and Radovan Jereb, Member of the Management Board, 3,413 shares (0.05% of share capital). As at the reporting date no member of the Supervisory Board had any shares of Abanka Vipa d.d RELATED PARTY TRANSACTIONS In the period ended 30 June 2009 Abanka did not start any related party transactions under unusual market conditions. 19

24 4. RISK MANAGEMENT 4.1. RISK MANAGEMENT IN THE FIRST HALF OF 2009 As regards risk management the Bank fully concentrated on maintaining the quality of its credit portfolio in the first half of The global financial crisis was reflected in the financial statements of the Abanka s clients, mostly as lower sales. Another general result was an increased number of insolvency proceedings. Abanka s market risk exposure did not increase due to introduced risk management measures and stabilisation of financial markets. In order to minimize negative effects, Abanka adopted a number of measures to protect against credit risk. These include stringent credit standards, additional covenants in loan agreements, stricter collateralisation policy, closer monitoring of clients, stringent exposure limits, restriction of individual authorisations and more detailed follow-up of risk exposures of the affiliated companies in the Abanka Group. Abanka s operations were backed by sound and stable liquidity and were not materially affected by uncertainty in interbank funding market. Successful measures were taken to raise primary sources of funds, mainly in the form of competitive time deposit terms, new retail products and new certificates of deposit for corporate clients. In an effort to mitigate the effects of the financial crisis and credit crunch Slovenian Government took adequate measures. Public sector s deposits with banks were increased and the Government deposited funds raised with the new issues of government bonds these were short- and medium-term deposits by the Ministry of Finance and long-term loans by the Slovene Export and Development Bank. At the level of the Management Board and senior management of the Bank new working body was established. Its purpose is in deciding the adequacy of the Bank s risk policies, discussing the results of the implementation of an internal capital adequacy assessment process - ICAAP (stress tests, risk profile assessment, risk taking capacity) and taking measures for effective implementation of the procedures aimed at reducing and limiting losses from banking operations. This body is also competent for active and systematic monitoring of exposures to individual types of risk MAIN TYPES OF RISK AND UNCERTAINTIES IN THE SECOND HALF OF 2009 The Bank believes that in the second half of 2009 the state of the real economy will not improve significantly. As a result the need for additional impairments and provisions is likely to persist. Due to uncertain conditions in financial markets, the Bank will also continue with precise monitoring of market and liquidity risks. Abanka will focus its efforts on reducing opportunities for misuse and fraud, which can occur in economic recession, as well as on managing different types of operational risk. 20