ANNUAL REPORT 2014 BANKA CELJE, d.d., AND THE BANKA CELJE GROUP

Transcription

1 ANNUAL REPORT 2014 BANKA CELJE, d.d., AND THE BANKA CELJE GROUP Celje, March 2015

2 Banka Celje, d.d., and the Banka Celje Group Annual Report 2014, prepared in accordance with International Financial Reporting Standards, as adopted by the European Union.

3 Content A WORD BY THE MANAGEMENT BOARD OF BANKA CELJE, D.D REPORT OF THE SUPERVISORY BOARD OF BANKA CELJE, D.D I BUSINESS REPORT HIGHLIGHTS PRESENTATION ACTIVITIES AIMED AT RAISING CAPITAL, STATE AID AND TRANSFER OF BAD ASSETS TO THE BAMC SINGNIFICANT EVENTS IN 2014 AND EVENTS AFTER REPORTING DATE INFORMATION ON THE MEASURES AND PROCEDURES PERTAINING TO CLAIMS THE BANK S OPERATIONAL PLAN FOR THE ECONOMIC AND BANKING ENVIRONMENT IN The economic environment in Banking environment in REPORT ON OPERATIONS IN Financial results Financial position Operations according to key sectors Assuming and managing banking risks Internal organisation and human resources Information technology Sustainable development and social responsibility Marketing communications The operations of the Internal Audit MANAGING BODIES OF THE BANK ORGANISATIONAL STRUCTURE OF THE BANK STATEMENT OF CORPORATE GOVERNANCE STATEMENT OF MANAGEMENT S RESPONSIBILITIES AUDITOR S REPORT II FINANCIAL STATEMENTS INCOME STATEMENT STATEMENT OF OTHER COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS GENERAL INFORMATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis for the preparation of financial statements Comparative figures Subsidiary Consolidation Foreign currency translation Interest income and expenses Fee and commission income Dividend income Financial instruments Impairment of financial assets Offsetting Sale and repurchase agreements Cash and cash equivalents Accounting for leases Investment property Property and equipment Intangible assets Inventories Taxes Employee benefits Loans taken, deposits and debt securities issued

4 2.22 Provisions Financial and performance guarantees Share capital Segment reporting Critical accounting estimates and judgements NOTES TO THE INCOME STATEMENT Net interest and similar income Dividend income Net fee and commission income Gains less losses from financial assets and liabilities not classified at fair value through profit or loss Gains less losses from financial assets and liabilities held for trading Gains less losses from financial assets and liabilities designated at fair value through profit or loss Changes in fair value from hedge accounting Gains less losses from foreign exchange differences Net other operating (loss) Administrative expenses Amortisation and depreciation Provisions Impairment charges NOTES TO STATEMENT OF FINANCIAL POSITION Cash and balances with the Central Bank and demand deposits with banks Held for trading financial assets Available for sale financial assets Loans and advances to banks (excluding demand deposits) Loans and advances to customers Other financial assets Hedging derivatives Property and equipment Investment property Intangible assets Investments in subsidiaries, associates and joint ventures Income tax assets Deferred tax assets Other assets Financial liabilities designated at fair value through profit or loss Financial liabilities at amortised cost deposits from banks and central banks Financial liabilities at amortised cost due to customers Financial liabilities, measured at amortised cost borrowings from banks and central banks Financial liabilities at amortised cost borrowing from customers Debt securities Other financial liabilities Provisions Other liabilities Share capital Dividend per share Contingent liabilities and commitments Cash and cash equivalents Related party transactions Information on the results of organisational units abroad Events after reporting date RISK MANAGEMENT Credit risk Market risk Liquidity risk Capital and capital adequacy Fair value of financial assets and liabilities SEGMENT REPORTING III DISCLOSURES OF BANKA CELJE, D.D GENERAL INFORMATION RISK MANAGEMENT OBJECTIVES AND POLICIES (ARTICLE 435 OF THE CRR REGULATION) SCOPE OF APPLICATION (ARTICLE 436 OF THE CRR REGULATION) OWN FUNDS - CAPITAL (ARTICLE 437 OF THE CRR REGULATION) CAPITAL REQUIREMENTS (ARTICLE 438 OF THE CRR REGULATION) EXPOSURE TO COUNTERPARTY CREDIT RISK (ARTICLE 439 OF THE CRR REGULATION) CREDIT RISK ADJUSTMENTS (ARTICLE 442 OF THE CRR REGULATION) UNENCUMBERED ASSETS (ARTICLE 443 OF THE CRR REGULATION) USE OF ECAIS (ARTICLE 444 OF THE CRR REGULATION)

5 10 EXPOSURE TO MARKET RISK (ARTICLE 445 OF THE CRR REGULATION) OPERATIONAL RISK (ARTICLE 446 OF THE CRR REGULATION) EXPOSURES IN EQUITIES NOT INCLUDED IN THE TRADING BOOK (ARTICLE 447 OF THE CRR REGULATION) EXPOSURE TO INTEREST RATE RISK ON POSITIONS NOT INCLUDED IN THE TRADING BOOK (ARTICLE 448 OF THE CRR REGULATION) REMUNERATION POLICY (ARTICLE 450 OF THE CRR REGULATION) USE OF CREDIT RISK MITIGATION TECHNIQUES (ARTICLE 453 OF THE CRR REGULATION) List of abbreviations used ALCO Assets and Liabilities Committee ATM Automated teller machine BAMC Bank Asset Management Company Bank Banka Celje d.d., Celje CDs certificates of deposit CIR Cost Income Ratio CISA Certified Information System Auditor COREP Common Reporting CRD IV Capital Requirements Directive IV CRR Capital Requirements Regulation EBA The European Banking Authority EBA-DPM The European Banking Authority Data Point Model EBITDA Earnings before Interest, Taxes, Depreciation and Amortization EC European Commission ECAI External Credit Assessment Institutions ECB European Central Bank EU European Union EWS Early warning system FINREP Financial Reporting FX Forex GDP Gross domestic product Group Skupina Banke Celje IAS International Accounting Standards IASC International Accounting Standards Committee ICAAP The Internal Capital Adequacy Assessment Process ICR Increased credit risk monitoring system IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards IRB Internal Rating Based Approach IRS Interest Rate Swap IT Information Technology LCR Liquidity Coverage Ratio MRA Master Restructuring Agreement MT Monitoring Trustee NPL non-performing loans NSFR Net Stable Funding Ratio NSVS National housing savings scheme SEE South East Europe SEPA Single Euro Payments Area SISBON Slovene Information System on the Rating of Retail Clients SMEs Small and medium-sized enterprises Subsidiary Posest d.o.o., Celje VAT value added tax ZBan-1 Banking Act 5

6 ZDavP-2 Tax Procedure Act ZGD-1 Companies Act ZTFI Market in Financial Instruments Act ZUKSB Bank Stability Measures Act 6

7 A WORD BY THE MANAGEMENT BOARD OF BANKA CELJE, d.d. This past year was a very active and intense year for the Bank, we were faced with one of the most significant challenges in its 150-year history. In addition to continuing to provide banking services and maintaining high liquidity reserves, we were faced with the need to reduce the capital deficit and ensure long-term stability of the Bank s capital adequacy. In an otherwise difficult 2014, the Bank also successfully repositioned itself and focused on its primary, regional market. We had already begun activities aimed at increasing capital at the General Meeting of Shareholders in After the publication of stress test results at the end of 2013, we intensified these activities. We conducted interviews with major owners of the Bank then, spoke to representatives of Slovenian banks in foreign ownership and were looking for a potential investor outside of Slovenia. In the search for a strategic partner we cooperated with a foreign consulting company, which completed the project after testing the market. Unfortunately, the conditions in the first quarter of 2014 were too demanding for satisfactory interest in recapitalization to be expressed by potential investors. In accordance with the order by the regulator a recapitalization General Meeting of Shareholders was held in April 2014, while a program for the acquisition of state aid was being prepared simultaneously. The Bank was namely ordered to submit a detailed plan of measures for its reorganisation and to ask for the implementation of measures pertaining to state aid, should the recapitalization General Meeting of Shareholders prove unsuccessful. After the increase of capital from existing shareholders, the holders of subordinated capital instruments and other interested investors was not accomplished, we asked for state aid in the form of a transfer of certain assets to the Bank Asset Management Company (BAMC) and a capital increase at the end of April. During the deliberations on the submitted plan, the Government of the Republic of Slovenia added an additional covenant, namely that it would proceed with merger activities with Abanka in the event it acquires a majority share in Banka Celje. Based on this we prepared and submitted to the European Commission (EC) in October the restructuring program of the merged Banka Celje and Abanka. In parallel we continued searching for an option to increase the Bank s share capital through private investors, which is why due diligence was being performed on the Bank during this period. At the end of the due diligence procedure, the private investor only exhibited interest to participate in a later phase of consolidation in the Slovenian banking system. With the objective to on again ensure conditions for the Bank s long term operational success, taking into account the merger with Abanka and the preservation of the stability of the financial system in the Republic of Slovenia, we obtained the Decision on emergency measures by the Bank of Slovenia of 16 December. Based on the Decision all of the Bank s qualified liabilities were written off and capital was increased in the amount of EUR 190 million. The state became the sole owner of the bank. With the increase of share capital, minimum capital requirements were also met and long term capital adequacy was ensured. In spite of the processes that took place at the Bank, the Bank was able to preserve the trust of its customers, which is reflected in the growth of retail and private entrepreneur deposits. In total it granted EUR 213 million of new loans to corporate customer, to private entrepreneurs and to retail. Loans to customer did however decrease as compared with the year before, also as a consequence of the transfer of bad assets to the BAMC, based on the state aid received. The decrease in lending, recorded in the whole banking system, is also the result of weak creditworthiness of companies, reflected in bankruptcy proceedings begun and the removals from the register of companies due to bankruptcies. In 2014 the Bank made a profit before impairments and provisions in the amount of EUR 38.7 million. After the transfer of bad assets to the BAMC and the creation of impairments and provisions in the amount of EUR 64.4 million, a loss in the amount of EUR 21.1 million was made after tax.

8 At the Bank we provided an undisturbed, seamless banking service to the customers, implemented new services and prepared special offers. In line with the modified business policy, we focused on offering traditional banking products, with lower use of capital, thus supporting small and medium sized enterprises and retail, which became the strongest segment in the Bank s lending operations. The amended business model and the approved financial plan, compliant with the restructuring program of the merged bank, is being implemented in 2015 as well. In addition to focusing on the regional market and lending to small and medium sized enterprises and retail, the Bank will increase product placement activities and cross selling to customers, continue upgrading the risk management process and improving operational efficiency. As a trustworthy business partner it will continue to be socially responsible toward all of the participants in its environment and weave the values of tradition, know-how and expertise in the fabric of its operations.

9 REPORT OF THE SUPERVISORY BOARD OF BANKA CELJE, d.d. The framework of the Supervisory Board's operations and its responsibilities as well as its obligations is determined by the applicable legislation (the Banking Act, the Companies Act, the Regulation on the diligence of members of the management and supervisory boards of banks and savings banks) and the Bank's internal acts (the Articles of Association and the Rules of procedure related to the operations of the Supervisory Board and its committees) as well as other legal norms, which pertain to the Bank's operations. In its decision-making process during 2014, the Supervisory Board was supported by the Audit Committee, the Remuneration Committee and the Personnel Committee. Operations of the Supervisory Board The Supervisory Board of Banka Celje, d.d., was appointed at the 26th General Meeting of Shareholders on 24 May In 2014 it comprised: Jure Peljhan, Ph.D., as President, Barbara Smolnikar, M.Sc., as Vice-President, with the following members, namely: Tomaž Subotič, Ph.D., Melita Malgaj, Zdenko Zanoški, M. Sc., and Bojan Šrot. The Supervisory Board met at ten regular meetings in 2014, where it dealt with 104 items on the agenda and also held five correspondent sessions, where it addressed 11 agenda items. At its meetings the Supervisory Board acquainted itself with the Bank's interim results on the basis of reports prepared by the Management Board. It devoted extra attention to the consideration of measures that the Bank received from the Bank of Slovenia, together with the information on the Bank's activities addressing the identified irregularities. It kept itself constantly appraised of the activities taken in relation to the Bank s recapitalization and the consolidation procedure of Banka Celje and Abanka in great detail. It reviewed and approved the audited annual report of the Bank and the Group for 2013, after the explanation of the auditor s report by a certified auditor. The Supervisory Board was acquainted with all the key elements of the Bank's and the Group's Annual Report 2014 on an ongoing basis. The Supervisory Board acquainted itself with the Bank s measures pertaining to the improvement of risk management (with special focus on credit risk) and gave consent to the Bank s risk management policies and strategies and the risk profile for It also adopted the business policy and the Bank s financial plan for 2014, while also monitoring the operations of the Internal Audit. At the initiative of the Supervisory Board an external contractor conducted a special review of the granting of loans to several significant customers of the Bank currently in default, from 2008 onwards; the findings of the review and the Bank s activities aimed at improvement were presented to the members of the Supervisory Board in detail at several meetings. The Supervisory Board also approved the Policy of assessing the suitability of management and supervisory body members at Banka Celje, while also acquainting itself with the Policy on the suitability of key function holders at Banka Celje, d.d. The President of the Supervisory Board was in constant contact with the Management Board, which allowed for the Supervisory Board to constantly supervise the operations of the Management Board. The Supervisory Board invited the authorised auditor to its regular meetings, thus making it possible for the auditor to present it with findings related to audit of the Bank. The Supervisory Board ascertains that in 2014 its' members were not subject to conflict of interest and have performed their duties as Supervisory Board members autonomously and independently. The members attended the Supervisory Board meetings regularly, based on which it was able to meet in full composition, with all members actively participating in the creation of decisions by taking part in discussions related to individual items on the agenda.

10 Based on the scope of activities performed in 2014 the Supervisory Board deems its own operations in 2014 were performed with all due diligence, to the fullest extent possible in accordance with the Corporate Governance Code, without any deviation from good practice. Operations of the Audit Committee, the Remuneration Committee and the Personnel Committee The Audit Committee, comprising Tomaž Subotič, Ph.D., as President, Melita Malgaj as Vice- President, Barbara Smolnikar, M.Sc. as member and Blanka Vezjak, M.Sc., certified auditor, as the external independent member, met 8 times in It dealt with 67 items on the agenda. The materials it reviewed pertained to the adoption of the plan of the Audit Committee s operations in 2014, to the report on the operations of the Internal Audit for 2013 and to the plan of the operations of the Internal Audit for 2014 as well as the report on the operations of the Internal Audit during the first half of 2014, the information on the audit by the Bank of Slovenia (ICAAP process) and all of the other open items toward the Bank of Slovenia, the risk management strategy and policies, the trading strategy and the Bank s risk profile all for In July it acquainted itself with the offers for the selection of the auditors and proposed the naming of the auditors for 2014 to the Supervisory Board. It monitored the Bank's interim results, the Bank's exposure to credit risk (on a quarterly basis), its five-year development plan and its business policies and financial plan for It actively (at every meeting) discussed the activities related to the process of the restructuring of receivables to 15 largest corporate customers, with the potential to survive. It reviewed reports on the legal options for the filing of claims (damages, criminal charges or other procedures) pertaining to loans granted during the period in Slovenia and abroad. It was presented with the Agreement on the Audit of the Bank's Operations in 2014, with the findings of the external auditor after the completion of the initial phase of the audit for 2014 and with the report on the operations of Posest, d.o.o. The President of the Audit Committee kept the Supervisory Board informed of the Committee's activities on a regular basis through reports at the Supervisory Board meetings. The Committee was successful in the execution of all planned assignments in 2014, all the while offering the Supervisory Board advisory support in the areas for which it was established. The Remuneration Committee met at twice in 2014 and acquainted itself with the guidelines of the European Banking Authority on assessing the suitability of the members of management or supervisory bodies. It also discussed the Policy of assessing the suitability of management and supervisory body members at Banka Celje and agreed with its content. The Human Resources Committee met twice in 2014 and discussed and approved the criteria for the selection of the Bank s President of the Management Board. It also considered the offers of human resource agencies and selected the agency to carry out the process of selecting the new President of the Management Board. With the Supervisory Board s decision to suspend the process of selecting a new President of the Management Board, the Human Resources Committee concluded its tasks in 2014.

11 BUSINESS REPORT

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13 Business Report 2014 I BUSINESS REPORT 1 HIGHLIGHTS - amounts in thousands of EUR Bank Index =1:2 5=2:3 1. Statement of financial position (on 31 December) Total assets 1,711,982 1,815,228 2,270, Total deposits from the non-banking sector 1,251,321 1,274,152 1,416, companies 580, , , private individuals 670, , , Total amount of loans to the non-banking sector 891,629 1,240,057 1,590, companies 600, ,480 1,265, private individuals 291, , , Total equity 201,581 40, , Impairment of financial assets and provisions 162, , , Commitments and contingent liabilities 360, , , Income statement (from 1 January to 31 December) Net interest and similar income 39,012 37,291 46, Net non-interest income 32,022 94,680 24, Regular expenses (28,688) (30,610) (31,848) Restructuring costs (1,052) Depreciation and amortisation (2,593) (2,891) (3,392) Impairment and provisions (64,352) (214,054) (63,600) Loss before income tax (25,651) (115,584) (27,537) Income tax expense 4,550 (10,673) 2,553 (43) (418) 3. Statement of comprehensive income Other comprehensive income (8,135) 8,478 1,844 (96) 460 Income tax relating to other comprehensive income (279) 586 (265) (48) (221) 4. Number of customers - private individuals 127, , , companies 6,596 6,936 7, Number of employees (on 31 December) Shares Number of shareholders Number of shares 5,000, , , Nominal share value (in EUR) Book value per share (in EUR) Ratios in % Capital Capital adequacy ratio Asset quality Impairment charges on financial assets, measured at amortised cost, and provisions for guarantees and commitments / classified balance and off-balance sheet asset items Profitability Interest margin Financial mediation margin Return on assets - before tax (1.27) (5.87) (1.03) Return on equity - before tax (45.76) (81.59) (15.37) Return on equity - after tax (37.64) (89.12) (13.95) Operational costs Operational expenses / average assets Source: Methodologies for the calculation of operational indicators from 1 January 2014 and The instructions on changes from 10 December Loans to and deposits from the non-banking sector also include private entrepreneur data, which is included in retail in subsequent statements. 13

14 Business Report PRESENTATION The Bank holds a 100% ownership stake in the company Posest, d.o.o, Celje (the Subsidiary), which is fully consolidated. The Subsidiary is immaterial with regard to the scope of its operations, with the significant items in its balance sheet presented in detail in the financial statements. About the Bank The beginnings of the Bank s operations reach as far back as year 1864, when the Hranilnica mestne občine Celje (the Celje Municipal Savings Bank) was established. As Kreditna banka Celje (Celje Credit Bank) it joined Ljubljanska banka in It was converted into a joint-stock company at the end of 1989 and remained part of the Ljubljanska banka system as a subsidiary until Since 15 June 1994, the Bank has been operating independently under the name it holds today, namely Banka Celje, d.d. In line with the strategy of extending its operations outside the Celje region, the Bank acquired Banka Noricum, d.d., Ljubljana in 1996 and converted it into its main branch in Ljubljana, named Glavna Podružnica Ljubljana and then into a business unit in The Bank also acquired Hmezad banka, d.d., Žalec in 1998 and first converted it into a branch, namely Podružnica Hmezad (Hmezad branch), later making it a business unit at the start of In 1999 the Bank signed a Strategic partnership and business cooperation agreement with Nova Ljubljanska banka, d.d., thus becoming an associated member of its banking group. In February 2011, the consortium of the Bank's owners decided to offer the Bank's shares publicly, based on which due diligence of the Bank's operations was performed in May 2011 by a potential buyer. The owners then stopped the sale temporarily. In December 2014 the Bank obtained state aid due to the capital shortfall and after permission by the European Commission and committed to merging with Abanka by 1 January 2016 at the latest. In 2014 the Bank celebrated its 150 th anniversary, which was represented to the public using the slogan With you through generations, year by year, for 150 years. Profile Name Banka Celje, d.d. Headquarters Vodnikova 2, 3000 Celje Transaction account IBAN SI SWIFT SBCESI2X Tax number VAT ID number SI Registration number Share capital 50,000, EUR District Court of Celje Entry No. Srg.3053/94 Telephone Telefax Homepage address info@banka-celje.si Facebook Banka Celje 14

15 Business Report 2014 Scope of operations The Bank is an independent financial institution, established as a joint-stock company to execute all banking and other financial services. Based on the authorisations it holds, it is licensed to perform the following mutually recognised financial services in accordance with Article 10 of the Banking Act (ZBan-1): - accepting deposits; - lending that also includes: consumer loans, mortgage loans, factoring with or without recourse, financing of commercial transactions, including forfeiting; - payment services; - issuing and administering other payment instruments (for example, traveller's cheques and bankers' drafts) insofar as this activity is not covered by services referred to in point 3; - issuing guarantees and other commitments; - trading for own account or for the account of customers in: foreign exchange, including currency exchange transactions, financial futures and options, exchange and interest-rate instruments; - trading for own account in: money market instruments, transferable securities. The Bank may also perform the following other financial services in accordance with Article 11 of the ZBan-1: - insurance brokerage in accordance with the act governing insurance business; - marketing of mutual funds, sale of investment coupons or mutual fund shares; - tied agent services. The Bank complements the range of services it offers with the services offered through its specialist subsidiary company Posest, d.o.o., Celje, which was established in 1991 as a limited liability company. About the Group As at 31 December 2014 the Banka Celje Group (the Group) comprises: Banka Celje d.d. (the Bank) as the mother company and Posest, d.o.o., Celje (the Subsidiary). The Bank holds a 100% ownership stake in the Subsidiary. Subsidiary profile Name Posest d.o.o. Celje Headquarters Vrunčeva ulica 1, 3000 Celje Transaction account open with Banka Celje VAT ID number SI Registration number Share capital 2,124, EUR Telephone Telefax Homepage address info@posest.si The company Posest was established on 6 September 1991, with its full name being: Posest, Podjetje za trgovino, inženiring in posredovanje, d.o.o., Celje. Subsidiary s scope of operation The company is registered to perform a number of different types of activities, with its core business comprising: - marketing of real estate owned by the Subsidiary and the Bank; - property and equipment appraisals; - supervision of the purposeful use of loans granted to investors; - recovery activities pertaining to the Bank's bad debt; 15

16 Business Report property leasing; - owned and other property engineering; - advisory services to the Bank regarding real estate property financing. 3 ACTIVITIES AIMED AT RAISING CAPITAL, STATE AID AND TRANSFER OF BAD ASSETS TO THE BAMC Due to the ascertained capital shortfall, at the end of January 2014 the Bank submitted to the regulator a plan of activities aimed at reducing or covering the shortfall by At the same time the Bank also selected a consulting company for the recapitalization and started actively searching for private strategic investors. The two-stage process of looking for a prospective buyer ended as the commitments given were not sufficiently strong. After receiving the Order by the Bank of Slovenia on additional measures to increase share capital in April 2014, a recapitalization General Meeting of Shareholders was called, however a capital increase was not realized in the required period. After having unsuccessfully attempted to raise capital from private investors at the end of April 2014 the Bank applied for state aid in the form of the transfer of certain assets to the BAMC and the increase of share capital in accordance with the Bank Stability Measures Act (ZUKSB) and state aid rules. In order to obtain state aid the Bank prepared its own independent restructuring program, which was forwarded to the European Commission in April. In October, the European Commission was sent a new restructuring program, prepared for the merged Abanka and Banka Celje. The state aid approval by the European Commission was granted on 16 December 2014 provided a merger with Abanka take place no later than 1 January 2016 and the merged be sold by On 16 December 2014 the Bank received the Decision on emergency measures issued by the Bank of Slovenia, on the basis of which all of the Bank's qualified liabilities, which were incurred up until the issue date of the Decision and represented the Bank's share capital and subordinated financial instruments, were written down at the same time increasing the Bank's capital. After the decrease of share capital to EUR zero (0), the Bank's capital increased by EUR 190 million at the same time, with the state becoming the Bank's sole owner. After the capital increase, the Bank's capital amounts to EUR 50 million and is divided into EUR 5 million of ordinary no par value shares at EUR 10, with the issue amount of a share at EUR 38. Half of the capital was increased with cash, with the receipt of government bonds representing the other. The consent of the European Commission for state aid was prerequisite for the transfer of bad assets to the BAMC. The transfer value of assets was set at EUR 369,092 thousand and includes the transfer of loans, financial investments and other related claims. For the assets it transferred, the Bank received government guaranteed BAMC bonds in the amount of EUR 125,795 thousand. The condition for the issue of the European Commission permission was the compliance with commitments, which the Bank must meet and which will be monitored by the Monitoring Trustee (MT) on an ongoing basis. The Bank's commitments pertain mostly to the improvement of cost efficiency, risk management, to the withdrawal of the Bank from high-risk markets and investments and to the improvement of corporate governance. In January 2015 a special work group was established to coordinate operations in connection with the fulfilment of commitments. 16

17 Business Report SINGNIFICANT EVENTS IN 2014 AND EVENTS AFTER REPORTING DATE Significant events in preparation and submission of the plan of activities to decrease and cover for the capital shortfall until 2015 to the Bank of Slovenia in compliance with the requirement from the order issued on 17 January 2014; - the Bank s cooperation with a foreign consulting company aimed at finding a strategic partner; - due diligence by a private investor, who upon completion, exhibited interest to cooperate in later phases of the consolidation of the Slovenian banking system; - receipt of the Order on the elimination of violations with additional measures, which the Bank of Slovenia issued on 11 March 2014, with a request for the convening of the recapitalization Meeting of Shareholders; - the Decision by the Government of the Republic of Slovenia from 19 March 2014, stating the Bank meets the requirements for the implementation of stability strengthening measures (based on the ZUKSB) and that the Government of the Republic of Slovenia will act on its commitment to increase the Bank s capital and transfer part of its risk bearing assets to the BAMC, should the recapitalization by private investors prove unsuccessful; - recapitalization meeting of shareholders was held on 11 April 2014 and the decision on increasing share capital with cash in an amount of EUR 160 million by 25 April 2014 was adopted; recapitalization was not successful, none of the invited investors paid in new shares; - the Bank s independent restructuring program reviewed at the Ministry of Finance and at the Bank of Slovenia Council in April and submitted to the European Commission with subsequent amendments; - receipt of the Decision and the Verdict of the Celje High Court in the dispute regarding the payment of remuneration due to inability of use pertaining to the headquarter building at Vodnikova 2, which was returned to its owners in the denationalization process and the payment of EUR 5 million to the denationalization beneficiaries on 30 September 2014, the Bank continues its activities in the procedure for the payment of remuneration in relation to the stated procedure; - preparation and submission of the restructuring program of the merged Abanka and Banka Celje to the European Commission on 15 October 2014; - receipt of the Order on special supervision measures by the Bank of Slovenia issued on 19 November 2014, based on which the payment of principal and interest from the Bank s subordinated bonds was withheld pending the European Commission decision on state aid; - receipt of the Bank of Slovenia Decision on emergency measures issued on 16 December 2014, aimed at reinstating conditions for Bank s operational viability in the long-term, taking into account its merger with Abanka, and the preservation of the financial system stability in the Republic of Slovenia. Events after reporting date - establishment of a work group for the coordination with the Monitoring Trustee on 12 January 2014, with its key tasks being the monitoring and reporting on the implementation of the commitments made to the European Commission; - within the scope of activities in connection with the merger of Abanka and Banka Celje, in February the banks selected a company to carry out advisory services in relation to the merger; - the conclusion of the Bank s cooperation with the Financial Administration of the Republic of Slovenia in relation to horizontal monitoring with the implementation of amended legislation in April 2015 and the transfer to formal tax treatment of the Bank s operations in accordance with the provisions of the Tax Procedure Act (ZDavP-2); - in the merger process with Abanka Aleksander Vozel, M.Sc., will, after acquiring a licence from the Bank of Slovenia and after a new member of the Banka Celje Management Board has been named, join the Management Board of Abanka, where he will continue working on the merger of both banks. 17

18 Business Report INFORMATION ON THE MEASURES AND PROCEDURES PERTAINING TO CLAIMS To protect its interests and to recover its reputation the Bank is obligated to file claims pursuant to the order of the Bank of Slovenia in relation to compensation, labour and other relevant procedures, where this is legally possible, and claim damages and any benefits obtained in the violation of the applicable regulations. It is required to publicly disclose aggregated information. On the basis of the above, during the period from 1 January to 31 December 2014, the Bank in cooperation with external legal advisors notified of 43 suspicions of offences or brought criminal charges against 31 private individuals and 12 legal entities. A total of 32 property claims amounted to EUR 32.6 million in damages sought. At the same time, during the first half of 2014 external auditors carried out a review of the granting, monitoring and recovery activities related to loans to selected customers in terms of compliance with the statutory banking regulation, the Bank s internal acts and international banking practices. 6 THE BANK S OPERATIONAL PLAN FOR 2015 In November 2014, the Bank presented its Supervisory Board with bases for its planning, with the final document for 2015 presented after the adoption of the restructuring program at the European Commission and the acquisition of state aid. The strategic document in use for the period up to 2019 will be the restructuring program of the merged Banka Celje and Abanka. The Bank s operational policies along with the financial plan for 2015 is based on the restructuring program of Banka Celje and Abanka, which was drawn up with the assistance of an external advisory company and sent to the EC on 15 October 2014 as part of the permitted state aid assessment process. The plan also adheres to the commitments the Bank made to the EC. In forming the business objectives and the financial plan for 2015, the Bank took into account: - ensuring long-term stability of capital adequacy; - the capital received; - the preservation of independent operations in 2015, with the target date for the merger of Banka Celje and Abanka being 1 January 2016; - macroeconomic forecasts and changes in legislation. The Bank s business plan for 2015 includes the following key objectives: - focus on the regional market and lending to small and medium sized enterprises (SMEs) and to retail; - increased level of product placement to customers cross selling; - upgraded risk management processes; - further improvements in operational efficiency. The Bank s core market is Slovenia, especially the regions, where it is already present with through business units and branch offices. With an aim of increasing diversification, the Bank will promote lending to SMEs and to retail in Based on the planned marketing activities and the anticipated changes its sales processes the Bank plans to increase the average product placement to customers. The increased level of cross selling is to be carried out in all key segments in retail customer operations. In relation to risk management, 2015 will see the Bank upgrade its internal rating system of debtor classification and the setting of limits, set up an early increased risk warning system (EWS), upgrade liquidity risk management and stress testing to measure exposure to individual risk types. 18

19 Business Report THE ECONOMIC AND BANKING ENVIRONMENT IN The economic environment in 2014 The economic activity continued to recover in Slovenia during According to the initial assessment the real growth of the 2014 GDP (Gross domestic product) was 2.6%. The major share of the growth came from external demand and gross investments.traditionally, exports are the major contributor, increasing by 6.3% in 2014, with imports gaining as well. In 2014 imports reached 4.1%, which should, in addition to the cooling economies of the main trade partners, result in a smaller contribution of net exports to the economic growth in the future. The main increase in investments pertains to infrastructure at the local level partially financed with the use of European funds. In total these increased by 3.6% in With the improving economic conditions in the country, 2014 saw a gradually decreasing unemployment rate. End 2014 there was 119,460 unemployed persons, with the unemployment rate recorded at 13.0%. A year ago the unemployment rate was 13.5%, with the number of unemployed persons exceeding 124,000. The annual inflation rate, measured by the harmonised index of consumer prices, was a negative 0.1% in Slovenia in 2014, with deflation mainly being the consequence of lower energy prices, as well as food and consumer durables. The average 12-month price increase was 0.4% and was 1.5 percentage points lower than it was in In the European Monetary Union member states the annual inflation rate according to the data from November amounted to 0.3% on average, while the European Union (EU) member states average was 0.4% and 0.1% in Slovenia. GROSS DOMESTIC PRODUCT real growth rates in % 3,0 2,6 2,0 1,0 0,0-1,0 assessment ,0-2,0-3,0-2,6 Source: Economic mirror, January 2015, Institute of macroeconomic analysis and development 19

20 Business Report Banking environment in 2014 The shrinking of total assets in the banking system continued in 2014 for the fifth year in a row, however it came at a slower pace in comparison to prior two years. The assets side of the bank balance sheet saw loans and advances to customers decrease the most, while less profitable investments to the more liquid asset classes and securities increased. Loans to the corporate sector within loans and advances to customers decreased due to the transfer of bad assets to the BAMC and also due to the weak creditworthiness of the sector itself. In 2014 bankruptcy proceedings began in 1,302 companies, while 850 companies were erased from the Slovenian Register of Companies due to the completion of bankruptcy proceedings. Lending to the retail sector was the only part on the increase, as it is considered less risky with the low rate of nonperforming loans. Due to the relatively low indebtedness the forecast is that even more bank activities will be targeting the retail sector. The lending activity of banks was also impacted by instable funding. The amount of short-term funding is increasing and it represents a considerable limitation in funding long-term loans, which is why banks have been partially investing these in securities. Even the European Central Bank (ECB) funding is short-term and therefore suitable mainly for short-term liquidity management. Foreign currency loans, where the majority is represented by the Swiss franc, amounted to less than 5% of total loans end More than two thirds of the foreign currency loans are retail loans, which were mostly taken for residential purposes. The volume of Swiss franc loans decreased by about 60% as compared to its highest level in October 2008, mainly through debt redemption and swaps into euro denominated loans. Deposits from retail and the state increased in 2014, while bank liabilities from foreign funding decreased further. The retail sector primarily increased demand deposits in 2014, while inversely the state mainly increased short-term and long-term deposits. Liabilities to the ECB increased due to the second auction of the targeted long-term refinancing operations at the end of 2014, remained however significantly lower than in With the markedly improved capital adequacy after the execution of recapitalization activities in 2013 and 2014, it should be taken into account that the decline in lending activity and the adjustment of bank investment structure risk along with the related reduction of capital requirements is the prevailing way of maintaining and improving capital adequacy. Due to the low interest rate environment, the reduced volume of operations and the increased funding of foreign companies, income risk is going to increase in Slovenian banks in the future, as they will be hard pressed to generate sufficient income to cover for operational expenses and impairment costs. Credit growth and the volume of bad loans in the loan structure will have a key impact on the level of profitability risk in banks. 20

21 Business Report REPORT ON OPERATIONS IN Financial results In 2014 the Bank made a profit before impairment charges and provisions in an amount of EUR 38,701 thousand. After deducting the additional impairment charges and provisions, the pre-tax financial results were a negative by an amount of EUR 25,651 thousand. INTEREST AND NON-INTEREST INCOME, OPERATIONAL EXPENSES AND IMPAIRMENT CHARGES AND PROVISIONS in EUR thousands Interest income Non-interest income Expenses Impairment charges and provisions Net interest was EUR 1,721 thousand higher as compared with 2013, with income coming in lower by EUR thousand and expenses decreasing by EUR 22,841 thousand. The lower interest income was impacted most by the decrease in the average amount of interest bearing investments and lower interest rates. Mainly, the interest rates from purchased securities and loans to banks were lower. Lower expenditures were also the result of lower average interest-bearing liabilities and the lower deposit interest rates, while additionally less interest was paid for subordinated bonds and certificates of deposit (CDs) due to the suspended payment of due liabilities from these instruments and their write down after the Bank s recapitalization by the state, in compliance with the decisions adopted by the Bank of Slovenia. The Bank s interest margin amounted to 2.35% and was, due to the increase in net interest and a lower balance sheet, thus higher than the year before, when it came in at 1.73%. It also surpassed the interest margin attained by the banking system as a whole. Non-interest income amounted to EUR 32,022 thousand and include net fees and commissions and net gains from financial transactions. At EUR 14,944 thousand net fees and commissions lagged the 2013 figure by 5.5%, with the ratio net fees and commissions to operational expenses amounting to 46.2%. The Bank made most of its fees and commissions from card operations, payment operations and account maintenance. 21

22 Business Report 2014 Financial transaction resulted in a gain of EUR 17,078 thousand, as compared with the 2013 figure of EUR 78,862 thousand. In 2013 it was mainly the result of the valuation of issued subordinated liabilities to fair value, while 2014 saw the majority of the gains come from the sale of investments in shares and mutual funds and from the sale of the Republic of Slovenia bonds. Regular expenses with depreciation and amortization accounted for EUR 31,281 thousand, thus decreasing by EUR 2,220 thousand or by 6.6% as compared with Labour costs amounted to EUR 15,062 thousand. The Bank continued decreasing the number of employees in accordance with the plan, 32 employees in 2014, and discontinued paying supplementary pension insurance. Cost of materials and services amounted to EUR 13,628 thousand, with the majority coming from IT services and debit card costs. Depreciation and amortization decreased by 10.4% in 2014 and amounted to EUR 2,593 thousand end of the year. Restructuring costs amounted to EUR 1,052 thousand and represent a one-off expense in the process of merger with Abanka in accordance with the commitments given to the European Commission. 72.6% of the planned costs for 2014 were achieved and included severance pay, audit and advisory services, costs of monitoring the restructuring process and the costs of moving from the headquarters at Vodnikova street. The Bank s cost efficiency, measured by the share of operational costs in the average assets, amounted to 1.95% in 2014, with the cost to income ratio (CIR) coming in at 45.52%. Impairment charges and provisions amounted in total to EUR 64,352 thousand, being lower than in the previous year. Impairment charges and provisions in an amount of EUR 58,133 thousand pertain to credit risk, while impairment charges of EUR 5,761 thousand come from investments in available for sale financial instruments and additional provisions of EUR 458 thousand from the unresolved dispute related to the denationalization proceedings. 8.2 Financial position The total volume of operations in the Bank decreased by EUR 103,246 thousand in 2014 or by 5.7%. The Bank s total assets amounted to EUR 1,711,982 thousand end of December ASSETS in EUR thousands Loans and advances to customers Financial assets Loans and advances to banks, cash and balances Other assets

23 Business Report 2014 Net loans and advances to customers dropped by EUR 348,428 thousand or by 28.1% and accounted for 52% of the assets with EUR 891,629 thousand. The largest drop came in December, when bad assets were transferred to the BAMC. Net loans and advances to large corporate customers decreased the most, namely by 40.6% or by EUR 155,349 thousand, with their share in the Bank s assets falling from 21% to 13%. Loans and advances to SMEs decreased by 31.1% or by EUR 120,542 thousand, while loans and advances to other customers dropped by 36.0%, being EUR 42,495 thousand. Retail loans and loans to private entrepreneurs decreased the least, namely by 8.6% or by EUR 30,042 thousand. Holding at 19% of the assets, their share remained unchanged and simultaneously became the strongest segment of the Bank s lending activities. Investments in financial assets amounted to EUR 487,420 thousand end December 2014 and increased by 43.8% or a total of EUR 148,564 thousand during the year. In 2014 the Bank decreased investments in held for trading financials assets and the existing investments in available for sale financial assets. The increase mainly came as a result of the capital increase and the transfer to bad assets to the BAMC in December. In the recapitalization the Bank obtained Republic of Slovenia bonds in the amount of EUR 94,998 thousand, while also receiving government guaranteed BAMC bonds after the transfer of bad assets to the BAMC equal to the amount of the transfer value. Loans and advances to banks, cash and balances with the Central Bank increased by 45.8% or by EUR 96,187 thousand in 2014 due to high operational liquidity and the liquidity reserve. The increase is mainly down to the partial cash recapitalization in December, being EUR 95,002 thousand. LIABILITIES in EUR thousands Due to customers Capital Deposits and borrowings from banks Securities in issue Other liabilities Due to customers decreased by 1.8% or by EUR 22,831 thousand, with the share in total liabilities increasing from 70% to 73%. Compared to 2013 deposits from large corporate customers fell the most, namely by 36.9% or by EUR 33,076 thousand. Deposits from SMEs dropped by 4.6% or by EUR 6,061 thousand, with deposits from other customers decreasing by 0.9% or EUR 3,197 thousand. Within the latter, more than half is represented by the deposits from the Ministry of Finance, amounting to EUR 221,152 thousand in Retail deposits and deposits from private entrepreneurs are the only segment that actually grew in 2014, namely by 2.9%, with the share of these increasing in the structure of total liabilities from 38% to 41%. 23

24 Business Report 2014 The Bank followed the objective of ensuring an adequate ratio of loans to deposits from customers, which decreased from 0.97 to 0.72 in Deposits and borrowings from banks and the ECB fell by 60.6% amounting to EUR 137,044 thousand end December Most of the deposits and borrowings from banks are long-term. At the end of 2014 the Bank recorded no liabilities in the form of borrowings from the ECB, as these have been fully repaid in June. Capital amounted to EUR 201,581 end December 2014, thus increasing by EUR 160,823 thousand for the year. The existing share capital in the amount of EUR 16,980 thousand was decreased to EUR zero (0) on 16 December 2014, followed by a recapitalization of the Bank in the amount of EUR 190 million. Further, the change in capital in 2014 was negatively impacted by a net loss in the amount of EUR 21,101 thousand and the decrease of the revaluation reserve of available for sale financial assets in the amount of EUR 8,413 thousand. An increase in the share premium from simplified reduction of share capital by withdrawing shares in an amount of EUR 17,274 thousand and the transfer EUR 9 thousand in unpaid dividends as well as the EUR 34 thousand of unpaid bonuses to the members of the Supervisory Board from previous years to other profit reserves. As all of the Bank s qualified liabilities had been written down, it held no treasury shares as at 31 December Liabilities from securities in issue dropped by 20.8% or by EUR 28,065 thousand. The change is mainly the result of due certificates of deposit of different maturities and the payment of interest from issued bonds. 8.3 Operations according to key sectors Corporate banking Corporate banking comprises three segments, being large enterprises, SMEs and other customers. Other customers include the state and other financial organisations. Loans and advances to corporate customers Lending to corporates fell by 35.8% in 2014 or by EUR 318,386 thousand, amounting in total net to EUR 570,411 thousand end The largest drop came in December when bad assets were transferred to the BAMC. Even though loans to all segments decreased in value, the share of loans to SMEs recorded the smallest drop in the structure of the Bank s assets and became the strongest segment of corporate borrowers with a 15% share in line with the Bank s operational goals. In 2014 the Bank granted EUR 113,352 thousand new loans to corporates, while renewing a total of EUR 97,756 thousand gross loans. At the same time gross loans to corporates became due in an amount of EUR 726,032 thousand, wherein matured loans also include prepayments and the transfer of assets to the BAMC. 24

25 Business Report 2014 NET CORPORATE LOANS in EUR thousands Large enterprises SMEs Other customers In 2014 the Bank approved a rescheduling of loans in a total amount over EUR 150 million, mainly on the basis of legally binding forced settlements and commitments from agreements of financial restructuring (MRA, Master Restructuring Agreement). It obtained a total of EUR 45 million in repayment of claims from bad debtors. Due to customers Customer deposits went down by 7.2% or by EUR 42,334 thousand in value, reaching EUR 548,287 thousand end The share in total liabilities amounted to 32%. The largest share within the item is represented by deposits from other customers, with deposits from the Ministry of Finance. Other deposits from customers show the largest share of SMEs deposits, coming in at EUR 125,566 thousand Retail operations and private entrepreneurs The Bank puts great emphasis on retail operations and on operations with private entrepreneurs, which is why it has a broad business unit and ATM (Automated teller machine) network in the Celje region, which it uses to bring its services to as many customers as possible. The Bank will continue to promote this segment of operations. Loans to retail and private entrepreneurs Loans to retail went down by 5.9% or EUR 18,160 thousand in 2014, amounting to EUR 291,417 thousand end In spite of the decrease their share in the asset structure increased by 17%, thus remaining unchanged and becoming the strongest segment of the Bank s credit operations at the same time. Loans to private entrepreneurs fell by 28.5% or by EUR 11,882 thousand to a total of EUR 29,801 thousand. To a large extent the decrease is the result of private entrepreneurs restructuring into limited liability companies. In 2014 the Bank granted EUR 99,676 thousand new loans to retail and private entrepreneurs, while renewing a total of EUR 7,199 thousand gross loans. At the same time gross loans became due in 25

26 Business Report 2014 a total amount of EUR 133,790 thousand, wherein matured loans also include prepayments. Over 90% of all gross loans was granted to retail. LOANS TO RETAIL in EUR thousands Housing loans Consumer loans Other Retail and private entrepreneur deposits Retail and private entrepreneur deposits are the segment in the non-banking sector that grew in 2015, with their share in the structure of liabilities increasing from 38% to 41%. The increase in deposits by 2.9% points to the fact the in spite of the protracted recapitalization process, the Bank still enjoys the trust of the retail sector. Savings from retail increased by 1.9% in 2014 to a total of EUR 672,071 thousand, with private entrepreneur deposits going up by 26.4% to EUR 32,460 thousand. Even though demand deposits from retail increased by 8.2% in 2014 and term deposits fell by 3.3% retail saving still remains the strongest and most stable funding source for the Bank. DEPOSITS FROM RETAIL in EUR thousands Demand deposits Term deposits 26

27 Business Report 2014 Introduction of new services and special offers With the intention of promoting operations with retail, the Bank implemented new, commercially interesting products and worked on improving the existing services on offer. The significant new services of offer comprised: - the introduction of lending to housing stocks; - the introduction of the family loan; - the introduction of progressive short-term savings; - the Right Choice package, targeting new customers; - the option of making domestic currency deposits using the online Klik application; - the introduction of a special offer for the promotion of annuity savings with a more favourable interest rate for new customers; - the Summer Package special offer; - the special housing loans offer, featuring an adjusted interest rate and lower loan approval costs. Bancassurance The Bank also provides its savers with alternative savings instruments. It has been marketing insurance services for a number of years now, thus complementing the traditional banking and financial transactions on offer. Within the scope of insurance services, it offers its clients a number of different insurance types in cooperation with the following insurance companies based on the licence for insurance brokerage it holds: NLB Vita, Zavarovalnica Maribor, Zavarovalnica Triglav, Adriatic Slovenica and Zavarovalnica Tilia. It also offers its customers insurance in the event of unemployment, an accident or permanent disability, life insurance, accident insurance, property insurance, tourist insurance and card holder insurance. Modern services In addition to classical counter services, the Bank has also been offering its clients more modern services, comprising non-cash and self-service operations, e-banking, phone banking, bank letters and transaction monitoring with the use of text messaging services. In non-cash operations, the Bank offers a wide spectrum of card services. It issues payment cards of the Maestro, MasterCard, Visa and Visa Electron brands. End 2014 the Bank had 165,753 cards in issue, with Maestro being the most frequent, followed by MasterCard. To promote deferred payment card use the Bank introduced a special offer, giving new deferred payment card users free first year membership for the issue of a regular or gold payment card Activa/MasterCard and/or Activa/Visa and free security text messages in the first year informing the user of transactions done using one or all payment cards. End of June 2014 the Bank outsourced it POS terminal network for card payments. End 2014 the Bank added hotel bookings to its card services and the service of automatic cash deposits, which allows customers immediate disposal over funds deposited in the transaction account. With regard to self-service operations, clients had at their disposal 79 ATMs at the end of The Bank constantly monitors the safety of ATM operations and is working towards expanding the applicability of these as well as on their accessibility. Users gain 24 hour a day access to cash withdrawals, UPN payment orders, cash deposits, mobile phone account charging and also available a mini print-out of transactions for the past 90 days. 27

28 Business Report 2014 Modern e-banking has been available to customers through Klik application for the past 15 years and enables quick, safe and simple performance of most of the services offered by the Bank. E- banking is constantly adapting to new technologies. Safety has been provided for with the use of the most up-to-date online technologies. The Klik users have the option of performing electronic banking using mobile phones and table PCs to review account activity and card transaction details as well as operations with e-invoices Bank operations Loans and advances to banks and balances with the central bank Due to high operational liquidity and liquidity reserves loans and advances to banks increased by EUR 137,336 thousand in 2014, coming up to EUR 155,203 thousand by the end of the year. The increase is mainly the result of transaction account balances abroad and other short-term investments in foreign banks. Balances with the central bank on the other hand decreased, namely by EUR 41,588 thousand, as the Bank redirected operational liquidity surpluses to the interbank market with the aim of improving profitability. Deposits and borrowings from banks and the ECB Liabilities to banks decrease by 29.9% and amounted to EUR 137,044 thousand end December Interbank funding sources were acquired from the SID banka. In 2014 the Bank repaid loans in the total amount of EUR 55 million, entered into a new loan agreement for the unused part of the funding and thus acquired new long-term, five year dedicated funding. In June 2014 the Bank repaid the total amount of funding taken from the ECB Financial instrument operations Securities investments Securities investments amounted to EUR 487,420 thousand end 2014, representing 28% of the Bank s total assets, having increased by 43.8% compared with In December 2014 the Bank received state aid, half of which came in the form of bonds, and transferred bad assets to the BAMC, receiving government guaranteed bonds in exchange. End 2014 the Bank only held about 1 percent of investments in held for trading financial assets totalling EUR 4,636 thousand, with the remaining part of EUR 482,784 thousand represented by investments in available for sale financial assets. 28

29 Business Report 2014 SECURITIES INVESTMENTS in EUR thousands Held for trading Available for sale In line with its business policies the Bank sold all investments in held for trading financial assets in This category only showed receivables from derivatives in their fair value amounts. Available for sale financial assets are used for the management of liquidity, currency and interest rate risk. Investments in ECB eligible securities form part of the Bank s liquidity reserves. Equity securities investments amounted to EUR 3,350 thousand, being less than 1 percent of all available for sale securities investments. The investments in shares dropped by 66.4% in 2014 due to sales and the transfer to the BAMC. Debt securities investments amounted to EUR 479,434 thousand end 2014, having increased by EUR 161,513 thousand or by 50.8% compared with In addition to the receipt of recapitalization bonds in the amount of EUR 95 million and BAMC bonds in the amount of EUR million, the Bank also invested in prime securities due to excess liquidity. Securities in issue Liabilities from securities in issue decreased by 20.8% in 2014, amounting to a total of EUR 106,776 thousand end 2014, representing 6% of the Bank s liabilities. These comprised regular bonds and regular certificates of deposit. Subordinated liabilities were revalued to fair value in 2013, being completely eliminated at the Bank s recapitalization by the state in December 2014 (The Decision by the Bank of Slovenia on emergency measures). At the end of 2014 the Bank held three regular bond issues, two maturing in 2015 and one that matures in The Bank s liabilities in this respect amounted to EUR 98,524 thousand and decreased by EUR 761 thousand in the last year due to interest payments. Liabilities from issued regular certificates of deposit amounted to EUR 8,253 thousand end 2014 and dropped by EUR 26,304 thousand as compared with The Bank renewed a small part of the due regular certificates of deposit in 2014 with the issue of new long-term certificates of deposit in the amount of EUR 2,687 thousand. 29

30 Business Report Payments The Bank continued monitoring and implementing the changes brought about by the legislation and meeting its customers operational requirements in 2014 in relation to payment operations. In the technological aspects of SEPA (Single Euro Payments Area) it implemented all requirements in accordance with the Directive 260/2012, also fully implementing the ISO xml standard for data exchange between the Bank and its customers. Considering the fact that the banks are key in the development and processing of e-invoices, the Bank performed numerous activities to that end in To promote the use of the product it continued actively marketing it. Customers were provided with the option of manually entering e- invoices, as the Bank is aware that some do not have their own capabilities for the issue of e- invoices. In spite of the diversity of services and the competitive prices offered by other Slovenian banks, the Bank increased the number of open transaction accounts in 2014 by some 500 as compared to At the end of the year the Bank maintained 13,035 transaction accounts, representing a 5.7% of accounts held with banks in Slovenia. The Bank executed 12.5 million payment transactions totalling EUR 38,654 million for its customers in Despite its somewhat lower share (3.44%) in the total number of outflow transactions from Slovenia as compared with 2013 (3.47%), the total volume of payments still increased by 3%. 8.4 Assuming and managing banking risks In its operations, the Bank is exposed to a number of different risks which is why it developed a number of different procedures and methods for their management. The quality of assessing all risk types and responding to them in a timely manner as well as decreasing exposure to risk are important factors for the attainment of the Bank s strategic goals. It has prepared a strategy of assuming and managing risk together with nine policies, which feature detailed descriptions of procedures in connection with identifying, measuring or assessing, managing and monitoring risk. The strategy and policies of assuming and managing risk are updated annually, whereby environmental conditions and their effect on the Bank s operations are taken into consideration as well as the newly acquired experience and know-how in the area of risk management. In spite of the aforementioned risk types, the Bank also provides it is capable of managing all other significant types of risk, which it assumes in the course of its operations. In the event of new risk types being encountered, these are also included in comprehensive risk management activities. The Bank s largest exposure pertains to credit risk, followed by profitability, strategic, liquidity, operational, reputation risk, interest rate and capital risk as well as market risk. The Bank has prepared and implements the Banka Celje, d.d., Remuneration Policy to assess the suitability of key personnel at Banka Celje, d.d., and the Policy of assessing the suitability of Management and Supervisory Body members at Banka Celje, d.d. 30

31 Business Report 2014 On January 1, 2014 a new capital accord came into force as a result of Basel III requirements. The content of the new capital accord has been transferred to the European banking environment in the form of two documents: - Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (hereinafter referred to as Regulation CRR - Capital Requirements Regulation); - Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (hereinafter referred to as CRD IV - Capital Requirements Directive). The new capital accord Basel III, having been transferred to the banking environment through the abovementioned directive and regulation, has been implemented in the operations of the Bank on 1 January All the activities pertaining to the implementation of the provisions from the new legislation within the Bank are performed by the Basel II Project Group, with the goal of satisfying the legal requirements with respect to reporting to the regulator and improving risk monitoring as a basis for the further decision making process. The new legislation affects the area of capital and liquidity risk management the most with significant changes in credit risk management as well. The following includes definitions of individual bank risk types. Credit risk Credit risk, representing the risk of loss resulting from a debtor's inability to meet its obligation to the Bank, is considered one of the most important banking risks. The aim of assuming and managing credit risk is for the Bank to ensure up-to-date management and assessment of debtor risk or the risk related with investments and the credit portfolio. The Bank measures the risk associated with a debtor prior to granting a loan as accurately as possible and measures the exposure to credit risk for the entire duration of the credit relationship thereafter. It directs investments toward debtors with a high rating and toward less risky sectors and regions. It builds the risk associated with the investment into the interest rate and ensures the best possible collateral. The Bank limits portfolio concentration by setting up limits toward debtors or toward groups of related entities, by setting limits in connection with portfolio structure (according to sector, region, type of transaction and activity). Most of the transactions are entered into within the Republic of Slovenia, with treasury transactions being performed in other EU members, while decreasing exposure to the SEE region (South East Europe). The Bank has set up a system of early increased credit risk detection and is actively working on recovery of receivables past due. It approaches the restructuring of funding, where the company exhibits a sustainable model and sufficient cash flow to repay the loans under the new, restructured conditions. In the event of objective evidence on increased credit risk, the Bank assesses loss from credit risk and recognises impairment charges and provisions in line with international financial reporting standards (IFRS), while ensuring their adequacy on an ongoing basis later on. The Bank calculates credit risk capital requirements using the standardised approach. It also calculates an internal assessment of capital requirements to cover for unexpected loss from credit risk on a quarterly basis. It estimates the assessed internal capital requirements based on external factors and performs stress tests as well, while also measuring the effect that extraordinary, but probable, events have on profit and the Bank s financial position. 31

32 Business Report 2014 In 2014 the transfer of claims to the BAMC resulted in a decrease in exposure to credit risk. Nonperforming loans and loans to sectors with higher risk (real estate, financial brokerage, professional, scientific and sales activities) decreased significantly. The share of debtors in rating classes A and B (investment grade classes) increased to 67.20% (2013: 57.12%), rating class C (substandard) decreased to 10.97% (2013: 11.39%), while the share in the rating classes D and E (bad debtors or non-performing loans) decreased to 21.83% (2013: 31.49%). In 2014 the Bank applied additional impairment charges and provisions to cover for losses from credit risk in the amount of EUR 58,591 thousand (2013: EUR 207,897 thousand). The impairment charges for the year resulted from the new insolvency proceedings and the preventive corporate restructuring proceedings, decreased fair values of collateral, lengthy recovery procedures, further negative events effecting debtors, toward which the bank had restructured its claims. The new capital accord (Regulation CRR and Directive CRD IV) introduces changes in the field of credit risk management pertaining to capital requirement for credit risk, with an aim to limit investments in exposures with a higher rate of risk and directing these into retail banking, especially into SMEs, where an additional incentive of decreased capital requirements has been introduced. It determines a unified definition of default and the standards for the monitoring of defaulting exposures. The definition of restructured exposures has also been unified and requirements set regarding their monitoring after restructuring has been done. Thus, the goal is to achieve more transparency in banking operations and a higher level of comparability between banks. In 2015 credit risk remains one of the more significant risks the Bank faces, which is why it will continue to carefully monitor the exposure to it and implement measures to mitigate losses. Slovenia remains the target market, which is why the Bank will continue to decrease exposure to companies abroad, while maintaining its operations with foreign banks from lower risk markets. Market risk Market risk is the risk of loss due to changes in interest rates, currency rates and market prices of financial instruments. The most significant risk type within market risk is positional risk in equity and debt financial instruments and derivatives. Exposure to currency risk is low. In trading with financial instruments, the Bank is predominantly active in the financial market of the EU (securities transactions with prime banks and sovereigns in order to ensure an adequate liquidity reserve). The Bank defines investments and trading in financial instruments by applying limits to a number of different factors (according to issuer, transaction type, region, etc.), which the Bank constantly adjusts to take into account the conditions in the financial markets and its own business strategy. Additionally, it has also adopted stop-loss limits. The Bank enters into transactions with foreign currency and interest rate derivatives. Its basic policy in connection with derivatives trading is entering into transactions for the purpose of hedging own positions and client positions, whereby the latter transactions are hedged with counter positions. Transactions are entered into with prime foreign banks, thus allowing for low exposure to market risk from these instruments. In relation to foreign currency risk, the Bank s policy is that of a closed position across individual foreign currencies. Managing the open foreign exchange positions is performed through prompt transactions and with the use of foreign exchange derivatives in line with the limits set. Limits are low and are meant for the management of open foreign exchange positions within the scope of regular operations, not intended for speculative trading. The Bank calculates market risk capital requirements using the standardised approach. In 2015 the Bank will purchase financial instruments with the sole purpose of managing interest rate and liquidity risk. 32

33 Business Report 2014 Interest rate risk The risk of change in interest rates pertains to the exposure of the Bank s financial balances to fluctuations in interest rates, mainly due to the mismatch between the maturities of investments and the Bank's funding sources or to the mismatch between the type of interest rate or period, in which the interest rate is fixed. Exposure to interest rate risk may influence the amount of the Bank's net interest income as well as the economic value of its capital. To decrease interest rate risk, the Bank uses traditional balance sheet transactions, such as lending, securities purchases, deposit taking, issue of securities etc. In addition to these traditional banking transactions, it also enters into interest rate derivative transactions, not for speculative purposes, but to hedge for individual operations. In accordance with the IFRS the Bank measures such interest rate derivatives at fair value, which may have a significant impact on the income statement. This is why it introduced hedge accounting, which decreases the instability of operational results caused by adjustments in the fair value of derivatives intended for hedging. On a quarterly basis, the Bank calculates internal capital requirement estimates to cover for unexpected loss from banking book interest rate risk in line with internal methodologies. With the use of the above measures, the Bank was successful in decreasing exposure to interest rate risk. It will continue to close interest rate gaps using balance sheet instruments and interest derivative agreements in 2015, mitigating the effects on the income statement with hedge accounting. Liquidity risk Liquidity risk is the risk type that includes the risk of providing liquidity funding, when the Bank is unable to settle all of its due obligations or is forced to obtain sources of liquidity at significantly higher costs. It also includes market liquidity risk, pertaining to positions in financial instruments which cannot be sold or replaced in a short period of time without significantly affecting the market price. From the aspect of time, liquidity risk management is separated into operational liquidity management and structural liquidity management. The Bank provides for efficient management of operational and structural liquidity, representing the management of cash flows in a chosen time frame while taking into consideration the liquidity of available assets and the stability of asset sources. Operational and structural liquidity cash flow management is based on simulations done in relation to the maturity of asset sources and the maturity of assets according to their capacity for prompt realisation. For the purposes of operational liquidity the Bank has at its disposal an adequate amount of liquidity reserves, which enable it to settle matured liabilities in the shortest possible period in cases when usual liquidity sources are not available, or when these do not provide for the adequate liquidity required. For structural liquidity, the Bank provides for an adequate liquidity ratio in accordance with the Decision on minimal requirements for ensuring adequate liquidity for banks and savings banks, thus ensuring required reserves in the form of the structural liquidity surplus. In accordance with the Decision on risk management and the implementation of internal capital adequacy for banks and savings banks, the Bank performs quarterly stress test scenarios pertaining to liquidity. Based on the results of these stress tests, it defines target ratios and liquidity risk management limits. The tests allow it to determine the structure and minimal amount of the liquidity reserve. It also defines a contingency plan for the Bank to follow at the onset of the first signs of a liquidity crisis. 33

34 Business Report 2014 By employing a system of limits, the Bank also follows the objective of maximising funding source diversification. By maximising the diversification of liquidity sources with an emphasis on long-term liquidity, the Bank works towards the objective of an optimal liquidity gap, being the difference between assets and liquidity sources in a certain time interval. In 2014, the Bank managed liquidity risk in line with adopted policies, however the conditions in relation to accessing liquidity changed. The Bank did not have any problem with operational liquidity, as it provided for sufficient liquidity reserves (highly liquid assets, which are also eligible to be pledged as collateral for obligations toward the ECB and in the interbank repo market) to manage the required level of operational liquidity. More of its activities were aimed at providing adequate diversification of liquidity sources, which allowed it to follow the objective of an optimal structure of these, while emphasising stable liquidity sources. It also followed its objective of an adequate ratio of loans to the non-banking sector with deposits from the non-banking sector. The Regulation on prudential requirements for credit institutions and investment firms in the area of liquidity risk introduces the following new features: meeting the Liquidity Coverage Ratio (LCR), the Net Stable Funding Ratio (NSFR) and additional liquidity monitoring metrics. In 2014 the Bank reported a set of items for the LCR and the NSFR, while reporting liquidity metrics will be introduced within the year Operational risk Operational risk pertains to the risk of loss as a consequence of the inadequate or unsuccessful execution of internal processes, the actions of individual persons or the functioning of systems, or due to external factors. Due to its fast development and the characteristics of the financial system, the importance of operational risk is growing. It requires the setting up of a solid and reliable system for assuming and managing this risk type. In defining the way it assumes and manages operational risk, the Bank takes into consideration its size and development as well as the nature and complexity of its business activities. It has prepared a comprehensive review of its potential exposure to operational risk according to business processes, which is based on exposure according to category of operational risk, the frequency of an event occurring, the risk impacts and control environment. The Bank has prepared a list of operational processes, which served as the basis for the preparation of a profile pertaining to potential exposure to operational risk according to individual processes, for the Bank as a whole, for the preparation of a catalogue of all operational risk it identifies and for the preparation of a matrix of links between organisational units within the business processes. It calculates operational risk capital requirements according to the basic indicator approach. The calculation of the internal capital assessment and the capital requirements to cover unexpected loss from operational risk is done in line with adopted methodologies on a quarterly basis. Continuous operation of the Bank is regulated by the rulebook defining procedures, activities and processes of operation and organisation in the event of a crisis, which are part of operational risk. The purpose of the plan for continuous operation is to ensure the safety of employees and clients and to set up the smooth operation of key business processes in the shortest possible time at the existing and at an alternate location. All business processes performed by the Bank have plans in place for their performance in the event of non-functional IT. The goal of organised operations is to reduce operating and financial damage, which would materialise should activities and procedures defined in the continuous operation plans for the Bank and in the recovery plan be suspended. 34

35 Business Report 2014 Capital and capital adequacy In its operations, the Bank must always have at its disposal an adequate amount of capital, which depends on the volume and types of services the Bank provides and its strategy. An adequate capital base represents a contingency reserve pertaining to different risk types, which the Bank is exposed to in its operations. To cover unexpected loss, the capital of any bank must always amount to at least the sum of the capital requirements for the credit, market and operational risk, while capital adequacy, representing the ratio between capital and the sum of risk-weighted items, must always amount to at least 8%. The management of capital and capital adequacy within the Bank is based on adopted policies of assuming and managing capital risk and is in line with annual business plans, also expressed in the need for adequate regulatory capital. With the intention of assessing the capacity for assuming risk, the Bank prepares projections of the dynamics of capital and capital requirements as well as projections of the internal capital assessment and capital requirements for a period of five years in line with its restructuring plan. The Bank provides for a decrease in investments with higher capital expenditure (in the area of credit and market risk capital requirements), while also decreasing credit risk capital requirements by including property (residential and commercial) into the calculation of risk-weighted exposure. In 2014 the Bank continued with the activities aimed at decreasing capital risk and was successful in increasing capital. With the increase of its share capital, the Bank has provided for long-term capital adequacy. As at 31 December 2014 the Bank s capital adequacy after the capital increase amounts to 18.22%. More details are included under item 5.4 in Financial Statements. The Bank calculates an internal estimate of capital requirements on a quarterly basis to cover for unexpected losses from capital risk in accordance with the adopted methodologies. Profitability risk Profitability risk pertains to an inadequate structure or to the Bank s inability to provide ample and constant levels of profitability. The methodology of assessing profitability risk is based on determining the adequacy of the structure of the statement of financial position, the income statement items, the interest margin, cost efficiency, the profitability of new business and the return on assets and capital. This is why the Bank prepares monthly quantitative and qualitative analyses of the statement of financial position, the income statement, the statement of comprehensive income and the statement of cash flows, with the findings taken into account in the operational decision-making process. In line with the Bank s risk profile, profitability risk is one of the more significant risk types it faces, for which capital requirements are calculated in accordance with the prescribed methodology. Strategic risk The objective of strategic risk management is to reduce the risk of loss from erroneous operational decisions, the inappropriate implementation of decisions made or due to insufficient responsiveness to the changes in the operating environment. In accordance with the adopted commitment on the merger with Abanka, the Bank has only prepared strategic policies for the year 2015, while the strategy for the following four years has been prepared for the merged bank. The implementation of these strategic policies will be regularly monitored with the aim of adopting the right operational decisions and to recognise increased risk on time. These 35

36 Business Report 2014 strategic policies are implemented across all levels within the Bank and are adequately supported with all the required calculations and human and technological resources. Reputation risk Reputation risk represents the risk of loss due to a negative image, which the Bank has in the eyes of its clients, business partners, owners, investors and supervisors. To ensure the reputation of the Bank, as perceived by the interested public, is adequate for the attainment of operational goals, the management of its reputation is a strategic task for the Bank as a whole, not only its respective parts. The utmost attention is paid to operations with customers and to the contacts with supervisory institutions, potential investors and other public groups. The Bank manages reputation risk by ensuring safe and stable high quality operations, by having the Management Board and Supervisory Board conduct themselves in accordance with professional prudence and the highest ethical standards of management, by providing transparent operations, monitoring its media image, systematically communicating with various public groups, managing its human resources with the utmost care and by being socially responsible. It pays special attention to communicate to its customers, business partners, owners, investors and other interested groups. ICAAP process The Bank has set up a process of assessing adequate internal capital (the ICAAP process), which: - is based on the identification, measurement and assessment of risk, the preparation of an aggregate risk estimate and the monitoring of significant risk types; - allows for ensuring adequate internal capital levels in relation to the risk profile of the Bank; - is appropriately included in the management process (decision-making, risk management, etc.). For the purpose of assessing internal capital, the Bank calculates internal capital requirement estimates for risks it deems significant on the basis of its risk profile or it determines through the procedure of risk identification, measurement or assessment, management and monitoring that these might significantly impact its operations, thus requiring it to ensure appropriate capital levels. The Bank calculates the internal capital assessment and capital requirements on a quarterly basis, with the calculation being confirmed at the Risk Committee and then forwarded for consideration and approval at the ALCO (Assets and Liabilities Committee). The Bank re-assessed the level of exposure to individual risk types in major business lines and the quality of the control environment. It calculated the Bank s risk profile and prepared a risk matrix. Based on the risk profile, prepared in December 2014, the Bank is mostly exposed to credit risk, followed by profitability, strategic, liquidity, operational risk, reputation risk, interest rate rand capital risk and market risk. The risk profile deterioration trend stopped in 2014, however the calculated risk profile still deviates from the desired risk profile, as defined in the Strategy of assuming and managing risk. In spite of the positive economic trends the merger with Abanka Vipa, d.d., planned for the coming year, brings with it a certain level of uncertainty and risk. 36

37 Business Report Internal organisation and human resources The Bank has taken care to develop further during the entire course of its operation by investing in efficient IT support systems, its business network and in its human resource potential. Internal organisation Organisational structure The Bank is organised into a comprehensive organisational system. There are for main decisionmaking levels in place, namely the Managemet Board, both executive directors, the general managers of divisions and the heads of services, business units and departments. Its well-developed business network allows it to be present in all the major towns in the Celje region as well as in Ljubljana, being the financial centre of Slovenia, in Maribor and in Koper. End 2014 there were 8 branch offices with 20 agencies for individuals and 5 branch offices for corporates (micro, SMEs) and private entrepreneurs in operation within the Bank s 9 business units. Organisational changes In 2014, organisational changes mainly adhered to the restructuring plan, which was submitted to the European Commission. To unburden the business network a separate department was formed for direct support activities to sales operations. An independent support department was formed for marketing, the development of products and services, which took over the development and marketing assignments in relation to sales. With an aim of cutting down on the managerial levels and the Main Branch in Ljubljana and the Maribor Business Unit were also reorganised to achieve a greater focus on sales. The telephone switchboard was outsourced. Job systematisation To provide for a more efficient performance of business processes jobs within the business network were unified with the aim of forming the post of a universal personal banking advisor. The condition for the placement of staff to the new post was a successfully passed internal test, which was passed by 27 of the 45 potential candidates. Document management In 2014 the Bank also introduced an electronic document management system. During the initial stage activities were carried out in relation to the payment of invoices and the receipt of court mail and judicial enforcements in electronic form. Both processes were implemented in February Property management Due to discontinued operations at some of its business units during the past few years, the Bank is in the process of selling the empty offices. In December 2014 it sold its offices in Prebold. It acquired energy performance certificates for all the offices it leases or which are being sold. By the end of 2014 the energy performance certificates were also fitted in most of the other properties held by the Bank, with a few put in place by the end of March 2015 at the latest. Human resources Number of employees Human resources adjusted to the operational environment in The number of employees decreased gradually, going down 6.4% in comparison with On 31 December 2014 the Bank employed a staff of 468, with the average complement for the year being 497. There were 33 employment terminations in 2014, 29 of those were permanent basis and 4 temporary employment contracts. A new employee was hired on a temporary employment basis. Most of the causes for the 37

38 Business Report 2014 termination of employment were operational. The fluctuation rate was 6.25% in 2014, being 1.53 percentage points above the 2013 figure. Employees according to age and gender The average age at the Bank was 46.6 years in 2014, having increased in comparison with 2013 when it was The age group of 51 to 55 years was dominant. The high average age is due to the Bank s long tradition on the one hand and the result of restrictive human resource policy in recent years. The average length of service at the Bank was 21.4 years, with the average total employment period being 24.5 years. Women are dominant according to gender structure, representing 78% of all employees in The gender structure has not changed in any significant way during the past few years. Employee education structure The Bank puts a great deal of emphasis on knowledge and education, also shown in the fact that 4.9% of employees have completed their post-graduate studies and 60.7% have been educated at post-secondary school level at least. The Bank promotes improvement of the education structure by partly funding educational studies and providing the possibility of placing employees to posts that allow for further personal and professional development after they have completed their chosen studies. Compared with 2013 the share of employees holding higher education degrees increased by 2.8%. Employees with disabilities The share of employees with disabilities (category II. and III. disabled persons) is 2.1% and has gone down by 1.3 percentage point compared with 2013, mainly due to termination of employment. Two thirds of the employees with limited work abilities work in the retail network. The funds from exemptions and benefits in payment of contributions due to employment of people with disabilities are used to cover part of the cost of salaries paid to the employees with disabilities. Employee monitoring, development and promotion Annual interviews were performed in 2014, serving as the basis for the assessment of an individual s development potential, the determination of key personnel and for the preparation of an educational plan, for the individual employees as well as for employee groups. Based on the assessment of annual performance about 2% of employees were promoted (both vertically and horizontally). Employee testing was also performed with the objective of career potential assessment and the building of a human resource data base for the placement of employees to suitable posts. Testing included 10% of the employees. Based on the assessed personnel potential and the assessment of past performance about 1% of employees were promoted, while part of the employees were reassigned to different posts. Based on internal governance and in accordance with requirements from the European Banking Authority (EBA) guidelines policies for the assessment of the suitability of management and supervisory body members as well as key function holders were adopted during the past year. Employee training In 2014 employees attended 147 internally organised and external training programs. The Bank promoted internal training more to facilitate tailor-made know-how transfer between employees, as this meant more employees were able to participate. Training sessions featured know-how pertaining to products on offer, software skills, legislation, finance as well as practical skills. 38

39 Business Report 2014 Motivation and reward The Bank s internal documents also feature a policy on employee rewarding. The salary system includes a fix and a variable part. The variable part is intended for rewarding employees above average performance. It is performed every month on the basis of employee assessment in line with the criteria defined in the internal documents (quality, quantity, resource efficiency, inventiveness, diligence). The Bank rewards its best sales employees from the retail division in line with the model, which is adapted to the Bank s operations as well as the individual s performance. Rewards are given on a quarterly basis, with 16 employees receiving it on average in Project management and participation in working groups is rewarded also. Student and temporary work 5 employees, all for the retail division, were hired through an employment agency. Student work saw an average of 7 students working at the Bank at any one time, mainly performing secretarial and other administrative jobs. Family friendly company certificate The Bank is proud of the fact it holds the Family friendly company certificate. This is why it focuses its attention on families and the balancing of the employees family and work-life. Among the 15 measures it adopted, it emphasizes the children time bonus, New Year s gifts for children and gifts for the new-born. Taking care of the employees The Bank systematically monitors the health status of employees, which is a legal obligation as well. In 2014 the periodical medical examination was passed by more than 40% of the employees. This past year saw the preparation of instructions and criteria for granting solidarity aid to the employees. It was awarded to 4 employees. In October an in-house collective agreement was signed as well. 8.6 Information technology The core objective of IT (Information Technology) is to ensure continuous IT support. Activities were also directed at the programing of single new solutions, the cooperation on some of the larger projects and the performance of upgrades and adaptations of the existing hardware and software communications equipment. Projects The project of optimising the processes pertaining to card operations was completed in January 2015, with further development to be executed according to respective lines. Other major projects included the setup of the COREP and FINREP reports in accordance with the EBA-DPM methodology (European Banking Authority Data Point Model). The new reports have already been successfully sent out. In compliance with the requirement by the Bank of Slovenia a new software application was set up for liquidity flow reporting purposes. These too are being successfully reported since 1 April A new solution was set up for a more accurate record on real estate properties, including their revaluation. A milestone development process with continuous testing is being implemented, with an interactive data entry set as the goal. As a result, a comprehensive overhaul of the collateral determination module was required in the data warehouse. 39

40 Business Report 2014 Due to the level of interest for including a larger number of e-invoice issuers, the support for the receipt of e-invoices through multiple channels was set up in Outsourcing of operations Rationalisation of operations in 2014 meant that printing and enveloping was outsourced. Support for the preparation and exchange of documents was set up for this purpose. The project was fully completed mid-year. POS terminals were also. IT risk mitigation activities To mitigate IT risk regular monthly reports are being prepared on successful installation of security patches on banking equipment, with regular weekly reporting also done on the disturbances in the operation of key computing and communication systems with the announcement of the planned interventions. The Bank will continue introducing the monitoring system, which among other things provides direct communication to the custodians in the event of a malfunction or an overload in the systems being monitored. 8.7 Sustainable development and social responsibility The sound foundations of successful banking operations, which the Bank laid almost one and a half century ago, are a strong basis for its cooperation with its partners and the environment. In times when the world is characterized by rapid change, strategically placed communication is key to success in the market, which is why the Bank s Management Board takes special care to actively and transparently communicate with the interested public, while also having established all risk management mechanisms. Well thought out and quick decisions of the management with the professional and motivated employees enable the Bank to meet all expectations. It adapts to the market conditions and the different needs of individuals and companies. Simply a dependable banking service provider with a broad network of offices and modern banking channels, providing a range of services that customers expect. Being part of the environment is an important component of successful operations, quality development and progress for the Bank, which is why it is actively and responsibly involved in the social environment. In accordance with its vision and strategy, it invests in the environment in which it operates. It supports sports and culture with sponsorships, takes part in a number of charity projects and is actively involved in social projects, as it deems its further efficiency and success to be dependent on the support of its environment and the trust of different interest groups. In addition to cooperating with various cultural, humanitarian and sports societies, the Bank also supports the Muzej novejše zgodovine (Museum of Modern History) in Celje and its Hermanov Brlog (Herman s Den) project, the only Slovenian museum for children, the Pelikan Studio, while also being a long-term supporter of the Slovensko ljudsko gledališče Celje (Slovenian People s Theatre in Celje) and of the Zavod Celeia (Celeia Institute) as well as other institutions and companies that organise numerous cultural and sports events. In its operations, it shows special concern for underprivileged customer classes, offering special benefits to retirees, students and humanitarian and other organisations, while also still maintaining savings at primary schools. In doing so it hopes to contribute to the development of banking related values. 40

41 Business Report 2014 The Bank also helps its partners invest in environmental projects, construct waste water treatment plants and carry out other socially responsible projects. It purchases environmentally safe materials, separates waste, collects waste paper and ink cartridges and utilises a centrally controlled heating system to use energy rationally. 8.8 Marketing communications The Bank s marketing activities in 2014 were marked by two key topics: the celebration of its 150 th anniversary and the intensified communication regarding its new strategic position in the second half of the year. Especially the second half of the year saw the Bank s marketing activities aimed at the broader Celje region, more specifically at the towns and the surroundings, where it holds business units, branch offices and ATMs. Most of the Bank s activity was thus directed at the Savinjska region, where its recognition level and market share are the highest. The shift of the focus to the regional area was even more prominent in marketing, as the Bank s promotional campaigns were aimed at the area with more intensity in the second half of Increased attention to the region was first and most clearly reflected through the changes in the Bank s corporate slogan from Traditionally well done (emphasizing tradition, 150 years and quality), to the new Close to you, which completely changed the communication focus. With the new slogan the Bank took to emphasizing its geographic proximity to customers, while at the same time being able to externally and internally commit to changes and improvement, which will bring its services even closer to the customer. There have been many, also internal, communication activities, focusing on the desire and the will to change services, conditions and the Bank s behaviour in relations with customers. The new direction was supported by a marketing and communications campaign in autumn. Towards the end of the year the Bank started to intensify the addition of product messages with the clear intention of informing customers, that is not only close to them geographically, it also intends to improve its services and conditions. 8.9 The operations of the Internal Audit Internal Audit performs its duties in accordance with the international standards of professional practice in its capacity of an independent department reporting directly to the Management Board, at the second level of management. It is in constant contact with the Audit Committee and the Supervisory Board. When employees contribute opinions, assessments and recommendations, they can rely on internationally established professional internal audit standards and operate independently of other parts of the Bank. It works in accordance with the internal audit code and the internal auditor s professional ethics. The latest assessment of the Internal Audit Service's compliance with standards was performed in the period from November 2012 to January 2013 (the assessment period interval is 5 years). The information on the assessment was made public at the Slovenian Audit Institute s homepage. The two basic planning documents of the Internal Audit for 2014 comprised the dynamic three-year strategic plan and the annual operational program, which the Management Board adopts annually 41

42 Business Report 2014 with approval given by the Supervisory Board after due discussion at the Audit Committee. Both documents are based on the Bank s risk profile, its annual and development plan, it strategy and the fundamental characteristics of the environment in which it operates. The planned activities of the department are detailed in semi-annual operational plans, which the Management Board adopts. To monitor the Internal Audit s activities on an ongoing basis the Management Board endorses semi-annual and annual reports on its activities, showing the activities performed by it with emphasis given to the most significant findings, including an overview of the recommendations issued and implemented. The Supervisory Board reviewed the reports and they were considered at the Audit Committee, its advisory body, which was regularly kept appraised of the department s activities. The Supervisory Board was regularly kept informed of the audits conducted by external supervisory institutions and with the Bank s activities based on the requirements by the Bank of Slovenia. The annual Banka Celje, d.d., internal audit report, with the opinion of the Supervisory Board of Banka Celje, d.d., is also reviewed at the Meeting of Shareholders. The assignments of Internal Audit are defined by law and pertain to quality assessment in connection with the management of all types of risk (including the setting up of an adequate system of internal controls) and to the monitoring of compliance of the Bank s operations with regulations and internal rules as well as the principles of rational operations. To monitor the implementation of recommendations after internal audits have been completed the Bank s Management Board is made aware on at least two levels: first after every internal audit has been completed and after that a comprehensive annual report on the implementation of all the recommendations is given. A framework system for comprehensive monitoring of implementation of the annual operational programme has been set up comparing the plan and execution of internal audits. The Internal Audit also coordinates activities in connection with the selection of external auditors (through the Management Board, the Audit Committee and the Supervisory Board) to be decided upon at the General Meeting of Shareholders. The indicative annual plan of operations envisaged auditing 22 business areas in the Bank and the completion of four internal audits left over from 2013, under the assumption there will be no extraordinary large scale tasks (a total of 26 internal audits). Emphasis was placed on the auditing of credit and liquidity risks. Actually, 17 planned internal audits were completed by end February 2015, the 4 internal audits carried over from 2013 have been completed, with 6 extraordinary audits having been performed also (a total of 27 audits); an internal audits is still running and one was not completed as the internal audit employee s employment was terminated in November and two were not performed, as the execution made no sense due to the change in the circumstances of the Bank s operations. An audit of the implementation of new banking products is mandatory at their introduction, however there was no new banking product introduced in The department also informally advised in 20 instances with the intention of contributing to the better operations of the Bank. The most significant areas of operation, which were audited in 2014 include: credit risk management in its broadest sense, capital risk management, the quality of IT systems management from different points of view and compliance with new, amended legislation. In all internal audits and reviews, special emphasis was put on: the identification of procedures builtin for the management of risk, assessing the current situation as compared to the recorded data, the 42

43 Business Report 2014 quality of internal control systems, timely commencement of recovery procedures and the adequacy of collateral, compliance of operations with legislation and internal rules, operational risks related to IT and the possibilities for improving existing procedures; all aimed at further raising the quality of the Bank s operations, thus contributing to added value. In the performance of their duties internal auditors frequently cooperated with the Compliance Department. The Internal Audit s tasks were performed by five employees until November 2014 (including the department s General Manager). End November an employment relationship with an employee with the title of certified auditor was terminated. After the expiration of the term of office at the end of 2014, the post of the department s General Manager was taken over on 1 January 2015 by a new employee, with a Master of Science degree. One of the employees is a certified internal auditor, another is a certified information systems auditor (CISA) and is a Master of Science. All five employees have been educated at university level at least. Additionally, one employee holds an insurance broker licence and two employees hold the European Banking Certificate. Education and training of employees remained a constant in 2014, with additional knowledge being acquired in internal auditing, banking operations, IT skills, anti-money laundering, risk management and corporate governance. 43

44 Business Report MANAGING BODIES OF THE BANK GENERAL MEETING OF SHAREHOLDERS AUDIT COMMITTEE SUPERVISORY BOARD REMUNERATION COMMITTEE MANAGEMENT BOARD CREDIT COMMITTEE LIQUIDITY COMMITTEE MANAGEMENT COMMITTEE ORGANISATIONAL UNITS ASSETS AND LIABILITIES COMMITTEE - ALCO OTHER COMMITTEES AND COUNCILS 44

45 Business Report ORGANISATIONAL STRUCTURE OF THE BANK MANAGEMENT BOARD President & CEO Davorin Leskovar Member of the Management Board Aleksander Vozel, M.Sc INTERNAL AUDIT AML&CTF Officer Debt Restructuring Officer IT Consultant FINANCIAL MARKETS DIVISION EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR IT DIVISION LEGAL AFFAIRS AND COMPLIANCE OPERATIONS DIVISION CORPORATE DIVISION ACCOUNTING DIVISION GENERAL AFFAIRS MARKETING SUPPORT, PRODUCT AND SERVICES DEVELOPMENT DEP. RISK MANAGEMENT DIVISION PERSONNEL AND ORGANISATIONAL SERVICES RETAIL DIVISION PAYMENTS AND OPERATIONAL SUPPORT DIVISION Celje Business Unit for companies Celje Business Unit for private individuals RESTRUCTURING AND RECOVERY DIVISION Slovenske Konjice Business Unit Hmezad Žalec Business Unit Šentjur Business Unit Laško Business Unit Rogaška Slatina Business Unit Koper Business Unit Ljubljana Business Unit 45

46 Business Report STATEMENT OF CORPORATE GOVERNANCE The Bank s Corporate Governance statement is prepared in line with the provisions of the Companies Act (ZGD-1) and pertains to the financial year 2014, while also featuring the significant changes that have been recorded since the day of the signing of the statement. It includes the Statement on compliance with the Corporate Governance Code made by the Management Board and the Supervisory Board under item 11.1 and additional Notes in accordance with Paragraphs 5 and 6 of Article 70 of the ZGD-1 under item Statement of the Banka Celje, d.d., Management Board and Supervisory Board on Compliance with the Corporate Governance Code As a public company Banka Celje, d.d. (the Bank), which has bonds listed on the Ljubljana Stock Exchange d.d., is compliant with the ZBan-1 and the ZGD-1 as well as the Market in Financial Instruments Act (ZTFI) and the Rules of the Ljubljana Stock Exchange and with all the additional general rules, dealing with topics that are dealt with in the Corporate Governance Code. Corporate Governance Code is in the public domain, attainable at the Ljubljana Stock Exchange website at under for issuers/downloads. The Bank complies with the Corporate Governance Code dated 8 December 2009 (the Code) with the exception of some deviations or particularities, explained under individual items of the Code below. The Bank s subsidiary, Posest, d.o.o., as a non-public company and as such not subject to the provisions of the Code. Clause 1 The Bank's goals are defined in its annual and development plan, both of which are approved by the Supervisory Board and are not separately defined in its Articles of Association. Clauses 2, 2.1 and 2.2 As of yet, the Bank has not prepared or adopted a Bank Management Policy as an independent document, rather this area is regulated with different internal documents, as prescribed by European banking legislation, the ZBan-1, the Bank of Slovenia operating procedures, the ZGD-1, the ZTFI and other sector-specific legislation. Clause 4.2 The Bank would like to see large and institutional shareholders inform the public of their management policies pertaining to their investment in the Bank; this decision, however, is up to them. Since 16 December 2014 the Bank has a sole owner, the Republic of Slovenia, which does inform the interested public of its investment status. Clause 5.2 (second paragraph) The Bank does not publish specific data on the costs it incurred from the collection of powers of attorney; these are included in the cost of the organisation and execution of the annual General Meeting of Shareholders. Since 16 December 2014 the Bank has a sole owner, the Republic of Slovenia. Clause 5.4 The Bank s shares are currently not listed on the stock exchange. 46

47 Business Report 2014 Clause 5.5 The recent proposal to the General Meeting of Shareholders for the nomination of Supervisory Board members includes all of the legally required data; the rest is public domain data. Clause 5.6 The Bank, in line with general practice, as a rule, nominates the members of the Supervisory Board collectively. Clause 5.7 The remuneration policies concerning the Bank's Management Board are defined by the Supervisory Board on the basis of a proposal by the Remuneration Committee. Clause 5.8 The General Meeting of Shareholders of Banka Celje decides on the use of distributable profit separately, however it decides on the discharge of the Management Board and the Supervisory Board by single unified vote. Clause 5.9 Financial statements form part of the annual report, which together with the auditor s opinion is presented to the General Meeting of Shareholders. A representative of the Bank s authorised auditor is not invited to the Meeting. Were, however, the Meeting authorised to adopt annual financial statements, a representative of the authorised auditor would be invited. Clause 8.12 In its report, the Supervisory Board includes all of the requirements from the decision of the Bank of Slovenia pertaining to the due care and professional diligence of Management Board and Supervisory Board members and endeavours to include as much information as possible to represent adequately its activities during the year. The recommendations from Clause 8.12 of the Code will be observed as much as possible. Clause 11 In its operations until now the Supervisory Board has not yet nominated a secretary. In accordance with the consensus between the Management Board and the Supervisory Board this job is performed by the expert department within the Bank. Clauses 16.5 and 16.6 The Bank has no option plan or comparable financial instruments in place which would provide for variable reimbursement of the Management Board members. Clause 20.2 Individual areas of communication have been regulated by individual internal acts until now, however the Bank will endeavour to comply with this recommendation in the future. Clause 20.3 The Bank has not had a special internal act in place in connection with the limitations and disclosures pertaining to treasury share transactions until 16 December It holds no treasury shares. Clause 20.4 In making significant shareholder and public announcements, the Bank considers statutory time limits, which is why it does not prepare a calendar of significant announcements. It will endeavour to comply with this recommendation in the future. 47

48 Business Report 2014 Clause 22.2 The Bank does not prepare a separate sustainability report as this area forms part of the annual report. Clause 22.3 In line with the ZGD-1, the ZBan-1 and the ZTFI, the Bank informs the competent authorities on any qualifying share acquisitions. Clause 23 The Statement of Corporate Governance forms part of the annual report, which is published on the Bank s website Additional Notes in line with Paragraphs 5 and 6 of Article 70 of the ZGD The main characteristics of internal controls and risk management in connection with financial reporting The Bank has always had a system of internal controls set up during its operations, as it is the duty of the Bank's Management Board to conduct its operations in a manner ensuring an adequate risk management system in relation to all the business partners, owners and supervisory institutions. The system of internal controls is connected to a comprehensive whole in the sense of an umbrella act, determining the total extent of monitoring activities. The internal control system at the Bank must be set up in a way as to provide adequate assurances on the following activities: - the Bank's operations must be managed with great care and conducted on the basis of the approved development plan as well as the Bank's approved annual policies and financial plan aimed at ensuring profitable operations; - all operational activities, with the potential of increasing the Bank's liabilities, must be approved by the authorised person, with a segregation of responsibilities clearly defined; - assets must be secured appropriately, claims collateralized, liabilities monitored; - a strategy and risk management policies must be prepared, special care must be given to the monitoring of the Bank's capital adequacy, liquidity and credit risk, interest rate and operational risk, profitability and market risks; - a system for the prevention of loss due to irregularities, especially in connection with early fraud detection, abuse, anomalies or errors, must be set up; - the system of financial records needs to provide reliable, timely, up-to-date and complete information; - a system for the transmission of reliable, timely, up-to-date and complete information for reporting to owners and external institutions must be set up; - a supervised system for the introduction of new financial services and new banking products as well as entering new markets needs to be provided for Significant direct and indirect ownership of the Bank s securities Qualifying holdings, as defined by the law dealing with the market in financial instruments, in the Bank's equity were held by three companies, namely: - Nova Ljubljanska banka, holding 208,499 regular shares, thus having a 40.99% share in the voting rights; - Slovenska odškodninska družba, holding 47,592 regular shares, thus having a 9.36% share in the voting rights; - NFD1 Investicijski sklad, holding 46,820 regular shares, thus having a 9.21% share in the voting rights. 48

49 Business Report 2014 The voting rights of the Bank's other owners did not exceed the qualifying shares as defined by the act dealing with the market in financial instruments. On 16 December 2014 the Republic of Slovenia acquired a 100% stake in the Bank and has been the sole shareholder since the aforementioned date Holders of securities ensuring special rights of control The Bank's shares do not give their holders any special rights of control Restrictions related to voting rights The shareholder's voting right depends on the number of shares held and is not limited to a certain share or a certain number of votes. Each share provides one vote at the Meeting of Shareholders. Voting at the Meeting of Shareholders is a right given to shareholders - persons holding registered shares with voting rights entered in the central register for book entry securities at the end of the fourth day prior to the Meeting. The convenor of the General Meeting may restrict the voting rights of an individual shareholder, who acquired shares contrary to the regulations. Agreements, which - with the Bank's cooperation - would mean financial rights based on shares being separated from ownership of the shares, do not exist The Bank's rules on: - appointment and replacement of the management or supervisory body members - changes in the Articles of Association The Bank's rules on appointment and replacement of the members of its management or supervisory body and on the changes in the Articles of Association are defined in the Banka Celje, d.d., Articles of Association and in the Working Rules on the Operations of the Supervisory Board of Banka Celje, d.d. In accordance with the Articles of Association, the Supervisory Board comprises seven members appointed and discharged at the Meeting of Shareholders. To be appointed a Supervisory Board member, one must meet membership conditions for bank supervisory boards as defined by the ZGD- 1, the ZBan-1 and other applicable legislation. Supervisory Board members are appointed for a period of 4 years and may be re-appointed. The term for Supervisory Board members expires on the day of the General Meeting held in the fourth year after appointment. In the event of an early termination of appointment of Supervisory Board members that have been appointed at the General Meeting of Shareholders, replacements are appointed at the following General Meeting. The replacement is appointed until the end of the originally appointed member's term. Each member of the Supervisory Board may resign prior to the expiry of their term on giving three months notice. A written letter of resignation must be sent to the President of the Supervisory Board and in the event of the resignation of the President of the Supervisory Board, it must be sent to his deputy and the Bank's Management Board. 49

50 Business Report 2014 At the General Meeting of Shareholders, individual members of the Supervisory Board - or the Supervisory Board collectively - may be recalled early. Such a resolution shall be adopted with at least a three-quarter majority of votes present at the Meeting. Supervisory Board members appoint the Audit Committee, the Remuneration Committee and the Human Resources Committee serving as the bodies of the Supervisory Board. The president and members of the Bank's Management Board are appointed and discharged by the Supervisory Board. Only a candidate who meets all the conditions for appointment as defined by the ZGD-1 and the ZBan-1 may be appointed to the post of president or member of the Management Board. The President and Members of the Bank's Management Board are appointed for a term of five years and may be re-appointed. The President and Members of the Bank's Management Board may be recalled early in line with legislation in force. Each member of the Bank's Management Board may resign prior to the expiry of their term on giving six months notice. A written letter of resignation must be sent to the President of the Supervisory Board. The Articles of Association may be amended based on the decision made at the General Meeting of Shareholders, such a decision having been adopted by a majority of at least three quarters of votes present. The latest amendment to the Bank s Articles of Association having been entered on 16 December The General Meeting of the Bank's Shareholders may authorise the Supervisory Board to amend the Articles of Association to harmonise the text with the adopted resolutions in effect Authorisations of the Management Board Based on the amendment to the Articles of Association having been entered into the Court's Companies Register on 12 June 2013 during a five year period following the entry, the Management Board, under approval by the Bank's Supervisory Board, is authorised to increase share capital once or multiple times by no more than EUR 16,979, (authorised capital) by issuing no more than 508,629 new shares. The Bank may acquire and dispose of treasury shares in line with the ZGD-1. The Management Board decides on the conditions of the acquisition and disposal of treasury shares and must report treasury share transactions to the General Meeting Data on the activity of the General Meeting of the Bank s shareholders, its key responsibilities, description of shareholder rights and how these are exercised The Bank's Management Board calls the Meeting of Shareholders. It convenes at least once a year. The Supervisory Board calls the Meeting in the following cases: - if the Management Board does not call it at least once a year; - if the Management Board does not call it upon request of the minority as stipulated in the Articles of Association and the ZGD-1. The General Meeting of Shareholders passes decisions on: - the use of distributable profit and the discharge to the Management Board and Supervisory Board; - the adoption of the annual report in cases as defined by the ZGD-1; 50

51 Business Report the appointment and recall of Supervisory Board members; - amendments to the Articles of Association; - measures taken to increase or decrease capital; - changes in status; - the winding up of the Bank; - the appointment of an auditor; - authorisation to the Management Board to acquire treasury shares in accordance with the ZGD- 1; - other matters within the scope of its competencies in accordance with the ZGD-1 and the ZBan- 1. Shareholders holding 5% of the share capital in total may request, in writing, the General Meeting to be convened. Such a request must include a reason for the Meeting to be convened and the matter on which the Meeting is to pass a decision. In such an event, the Management Board is required to call the Meeting no later than 2 months after receiving a written request. Shareholders holding 5% of the share capital collectively may request, in writing, for a certain item to be included in the agenda of the General Meeting of Shareholders after it has been announced. The Bank's Management Board must accede to such a request, if it includes a prepared proposition of a decision falling under the responsibilities of the General Meeting and if the request was made in writing seven days after the call of the General Meeting at the latest, so that the item may be made public at least 14 days before the General Meeting The composition and activities of management and supervisory bodies and their committees The Supervisory Board monitors and supervises the management of the Bank and its operations. It conducts its assignment in accordance with the provisions of the statutory acts dealing with the operations of banks and companies and in accordance with the Bank s Articles of Association. At the Meeting of Shareholders in May 2011, new Supervisory Board members were elected: Jure Peljhan, Ph.D. as President, Zvonko Ivanušič, M.Sc. as Vice President, Uroš Čufer, Ph.D., Melita Malgaj, Tomaž Subotič, Ph.D., Bojan Šrot, Zdenko Zanoški, M.Sc. In March 2013 Uroš Čufer, Ph.D. resigned from his post and was replaced by Barbara Smolnikar, M.Sc., who was named to the post of Supervisory Board member at the 29 th General Meeting of Shareholders on 30 May On 27 November 2013 the Bank received a resignation from Zvonko Ivanušič, M.Sc., with Barbara Smolnikar, M.Sc. stepping in as Vice President in December In 2008, the Supervisory Board of Banka Celje, d.d., established a consulting body, namely the Audit Committee of Banka Celje, d.d. At the inaugural meeting of the Supervisory Board on 8 June 2011, new members of the Audit Committee were appointed, namely: Uroš Čufer, Ph.D., President, Tomaž Subotič, Ph.D., Deputy and Zdenka Habe, Member, as an independent expert. The Audit Committee continued to perform its activities in a slightly modified composition during 2013, these changes remained in effect through 2014, with members Tomaž Subotič, Ph.D., President, Melita Malgaj and Barbara Smolnikar, M.Sc. as members and Blanka Vezjak, M.Sc., as member and independent expert. At its 3 rd Meeting on 19 October 2011 the Supervisory Board named the Remuneration Committee. It comprises Jure Peljhan, Ph.D., as President, Zvonko Ivanušič, M.Sc., as Vice President, Tomaž Subotič, Ph.D., as member and Bojan Salobir, Executive Director, as the Bank's representative with a standing invitation. The Committee remained unchanged in 2013 until November, when Zvonko Ivanušič, M.Sc. resigned. In January 2014 the Supervisory Board appointed Mrs. Melita Malgaj in his stead; the Committee then remained unchanged through The Management Board represents and manages the Bank s operations according to the principles of joint and several liability. The Bank s Management Board usually meets once a week and 51

52 Business Report 2014 considers materials from areas as defined by the ZBan-1 and the Banka Celje, d.d., Management Board Working Rules at its meetings. According to the Articles of Association it comprises at least two members, which in 2014 were: Davorin Leskovar as President of the Management Board and Member of the Management Board, Aleksander Vozel, M.Sc. Davorin Leskovar is a member of the Supervisory Board at The Bank Association of Slovenia, while Aleksander Vozel, M.Sc. is a member of the supervisory board of NLB Prishtina. The Credit Committee comprises eight members and defines the conditions and criteria for acquiring and the placement of assets, makes decisions on lending and guarantee transactions and decides on distribution in line with its operational rulebook. In 2014, it comprised: the President of the Management Board at the post of President of the Credit Committee, the Vice President of the Management Board at the post of Vice President of the Credit Committee and the following members: the Executive Director for the Corporate Division and the Retail Division, the General Manager of the Risk Management Division, the General Manager of the Retail Division, the General Manager of the Financial Markets Division, the General Manager of the Corporate Division and the General Manager of the Legal Affairs and Compliance Division. The President of the Credit Committee may invite other General Managers to the Credit Committee meetings. The Head of the Internal Audit and Authorised Representative of the Management Board holds a standing invitation. Credit committee for debt restructuring and the monitoring of bad debt was established with the aim of efficiently monitoring the operations of the Restructuring and Recovery Division on an ongoing basis and to provide for efficient communication with the external public, operating in the field of recovery activities (bankruptcies, execution proceedings) and debt restructuring. The nine member committee was represented by: the President of the Management Board, member of the Management Board, the Executive Director for the Corporate Division and the Retail Division, Authorised Representative of the Management Board, the General Manager of the Restructuring and Recovery Division, the General Manager of the Retail Division, the General Manager of the Legal Affairs and Compliance Division, the General Manager of the Risk Management Division and the General Manager of the Corporate Division, with the Head of the Internal Audit holding a standing invitation. The Committee for debt restructuring and the monitoring of bad debt is chaired by the member of the management board, who, in accordance with the functional division between the Management Board members, covers the field of risk management, while the President of the Management Board chairs the meetings in his absence. The Liquidity Committee comprised five members in 2014: the General Manager of the Financial Markets Division as Committee President and the President of the Management Board, the Vice President of the Management Board, the Executive Director for the Corporate Division and the Retail Division and the General Manager of the Risk Management Division as members. The Liquidity Committee meets at least three times a week and supervises the Bank s liquidity position. It performs its duties in line with the Liquidity Committee Working Rules. The Bank s Management Committee operates as the Management Board s advisory and informative body. In 2014 it comprised the Bank's Management Board, the Executive Directors, General Managers, Authorised Representative of the Management Board, the Heads of independent functional organisational units, who, in accordance with their operative functions, answer directly to the Management Board and the Director of the subsidiary company. The Management Board may also appoint other attendees to the Management Committee s meetings. Operational rules are set with the Management Committee Working Rules and meetings are usually held once a month and are intended for the presentation of the financial and income position of the Bank as well as the consideration of project execution, all the while allowing for discussion on other significant decisions to be made in relation to the Bank s operations. 52

53 Business Report 2014 The Assets and Liabilities Committee the ALCO monitors the conditions in the financial markets, analyses the balances and changes in the Bank s statements, and prepares decisions aimed at the attainment of an adequate balance sheet structure. In line with the Working Rules on its operations, the Committee meets once a month. The members were: the President of the Management Board as President of the Committee, the Member of the Management Board, General Manager of the Accounting Division, General Manager of the Risk Management Division and the General Manager of the Financial Markets Division Structure of share capital, with special reference to: - rights and obligations, provided by shares or shares from individual classes, and - should multiple share classes exist, the proportion of share capital represented by an individual class The Bank's share capital is represented by 508,629 ordinary registered no par value shares until 16 December 2014, however it has been divided into 5,000,000 ordinary registered shares after the recapitalization by the Republic of Slovenia on 16 December Shareholders exercise their rights in the matters of the Bank's operations at the General Meeting of Shareholders. Regular shares are voting right shares, whereby each share ensures one vote at the Meeting Share transfer restrictions, especially: - restriction on security ownership and - requirement to acquire permission from the company or other holders of securities for a transfer The Bank's shares are transferred in line with the regulations pertaining to dematerialised securities. Current shareholders have priority, in proportion with their portion of the share capital, to subscribe new shares from authorised capital (the right expires on 12 June 2018) in the event of recapitalization. There are no other shareholding restrictions imposed by the Bank, whereas acquiring a qualifying share requires the approval of the Bank of Slovenia. There is no requirement to get the approval of the Bank or other shareholders to transfer shares Employee stock options The Bank does not have an employee stock option scheme in place Shareholder agreements that could result in the restriction of the transfer of shares or voting rights Agreements between shareholders that could result in the restriction of the transfer of shares or voting rights are not in force. Celje, 20 March

54 Business Report STATEMENT OF MANAGEMENT S RESPONSIBILITIES The Management Board herewith confirms the financial statements of the Bank and the Group for the year ended 31 December 2014 on pages 61 through 67 and the accounting policies and notes to the financial statements on pages 68 through 139 of the annual report. The Management Board is responsible for the preparation of the annual report in a way as to be a true and fair representation of the Bank s assets and the Group's assets and the results of their operations for the year ended 31 December The Management Board additionally confirms that appropriate accounting policies were consistently used and that the accounting estimates were prepared according to the principles of prudence and good management. The Management Board furthermore confirms that the financial statements together with the notes have been prepared on the basis of the assumption of continued operations of the companies in the Group and in line with the applicable legislation in force and the IFRS, as adopted by the EU. The Management Board is also responsible for appropriate accounting practices, for the adoption of appropriate measures for the insurance of property and for the prevention and identification of fraud and other irregularities or unlawfulness. The tax authorities may at any time within 5 years from the day of the tax charge examine the operations of the company, which in turn may cause the obligation of an additional tax payment, default interest payment and penalty from Corporate Income Tax or other taxes or duties. Management Board: Celje, 20 March

55 Business Report AUDITOR S REPORT 55

56 56 Banka Celje d.d. and the Banka Celje Group Business Report 2014

57 57 Banka Celje d.d. and the Banka Celje Group Business Report 2014

58 58 Banka Celje d.d. and the Banka Celje Group Business Report 2014