ANNUAL REPORT 2013 BANKA CELJE, d.d., AND THE BANKA

Transcription

ANNUAL REPORT 2013
BANKA CELJE, d.d., AND THE BANKA CELJE GROUP
Celje, April 2014
Banka Celje, d.d., and the Banke Celje Group
Annual Report 2013, prepared in accordance with
International Financial Reporting Standards, as adopted by the European Union.
Content
A WORD BY THE MANAGEMENT BOARD OF BANKA CELJE, D.D. .......................................................... 3
REPORT OF THE SUPERVISORY BOARD OF BANKA CELJE, D.D. .......................................................... 5
I BUSINESS REPORT ................................................................................................................................... 11
1 HIGHLIGHTS ......................................................................................................................................................... 11
2 PRESENTATION ................................................................................................................................................... 12
3 RECAPITALIZATION ............................................................................................................................................. 13
4 STRATEGY............................................................................................................................................................ 14
5 SIGNIFICANT EVENTS ......................................................................................................................................... 14
6 ECONOMIC AND BANKING ENVIRONMENT ....................................................................................................... 15
6.1 Economic environment ................................................................................................................................................. 15
6.2 Banking environment .................................................................................................................................................... 16
7 REPORT ON OPERATIONS IN 2013..................................................................................................................... 16
7.1 Financial results............................................................................................................................................................ 17
7.2 Financial position .......................................................................................................................................................... 19
7.3 Operations according to key sectors ............................................................................................................................. 22
7.4 Shareholder information ............................................................................................................................................... 28
7.5 Assuming and managing banking risks ........................................................................................................................ 30
7.6 Internal organisation, capital investments, IT and human resources ............................................................................. 37
7.7 Social and environmental responsibility ........................................................................................................................ 39
7.8 Internal Audit Department operations ........................................................................................................................... 39
8 MANAGING BODIES OF THE BANK ..................................................................................................................... 42
9 ORGANISATIONAL STRUCTURE OF THE BANK ................................................................................................ 43
10 STATEMENT OF CORPORATE GOVERNANCE ................................................................................................ 44
11 STATEMENT OF MANAGEMENT’S RESPONSIBILITIES .................................................................................. 53
12 AUDITOR’S REPORT .......................................................................................................................................... 54
II FINANCIAL STATEMENTS ......................................................................................................................... 59
1 INCOME STATEMENT .......................................................................................................................................... 59
2 STATEMENT OF COMPREHENSIVE INCOME .................................................................................................... 60
3 STATEMENT OF FINANCIAL POSITION .............................................................................................................. 61
4 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY................................................................................ 62
5 STATEMENT OF CASH FLOWS ........................................................................................................................... 64
NOTES TO THE FINANCIAL STATEMENTS ........................................................................................................... 66
1 GENERAL INFORMATION ............................................................................................................................................. 66
2 SIGNIFICANT ACCOUNTING POLICIES........................................................................................................................ 66
2.1 Declaration of Conformity ............................................................................................................................................. 67
2.2 Basis for preparation of financial statements ................................................................................................................ 67
2.3 Comparative figures ..................................................................................................................................................... 67
2.4 Investment in subsidiaries ............................................................................................................................................ 67
2.5 Consolidation ................................................................................................................................................................ 67
2.6 Foreign currency translation ......................................................................................................................................... 68
2.7 Interest income and expenses ...................................................................................................................................... 68
2.8 Fee and commission income ........................................................................................................................................ 68
2.9 Dividend income ........................................................................................................................................................... 69
2.10 Financial instruments .................................................................................................................................................. 69
2.11 Impairment of financial assets .................................................................................................................................... 71
2.12 Offsetting .................................................................................................................................................................... 73
2.13 Sale and repurchase agreements ............................................................................................................................... 73
2.14 Cash and cash equivalents ......................................................................................................................................... 74
2.15 Accounting for leases ................................................................................................................................................. 74
2.16 Investment property .................................................................................................................................................... 74
2.17 Property and equipment ............................................................................................................................................. 75
2.18 Intangible assets......................................................................................................................................................... 75
2.19 Inventories .................................................................................................................................................................. 75
2.20 Taxes.......................................................................................................................................................................... 75
2.21 Employee benefits ...................................................................................................................................................... 76
2.22 Loans taken, deposits and debt securities issued ....................................................................................................... 77
2.23 Provisions ................................................................................................................................................................... 77
2.24 Financial and performance guarantees....................................................................................................................... 77
3
2.25 Share capital .............................................................................................................................................................. 78
2.26 Segment reporting ...................................................................................................................................................... 78
2.27 Adoption of new or revised standards and interpretations .......................................................................................... 78
2.28 Critical accounting estimates and judgements ............................................................................................................ 84
3 NOTES TO THE INCOME STATEMENT ............................................................................................................... 85
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
Net interest and similar income .................................................................................................................................. 85
Dividend income ........................................................................................................................................................ 85
Net fee and commission income ................................................................................................................................ 86
Gains less losses from financial assets and liabilities not classified at fair value through profit or loss ...................... 86
Gains less losses from financial assets and liabilities held for trading ....................................................................... 87
Gains less losses from financial assets and liabilities designated at fair value through profit or loss ......................... 87
Changes in fair value from hedge accounting ............................................................................................................ 87
Gains less losses from foreign exchange differences ................................................................................................ 88
Net other operating (loss) / income ............................................................................................................................ 88
Administrative expenses ............................................................................................................................................ 89
Amortisation and depreciation ................................................................................................................................... 89
Provisions .................................................................................................................................................................. 90
Impairment charges ................................................................................................................................................... 90
Basic and diluted earnings per share ......................................................................................................................... 90
4
NOTES TO STATEMENT OF FINANCIAL POSITION ...................................................................................... 90
4.1 Cash and balances with the Central Bank ................................................................................................................. 90
4.2 Held for trading financial assets and liabilities ........................................................................................................... 91
4.3 Financial assets designated at fair value through profit or loss .................................................................................. 92
4.4 Available for sale financial assets .............................................................................................................................. 92
4.5 Loans and advances to banks ................................................................................................................................... 93
4.6 Loans and advances to customers ............................................................................................................................ 94
4.7 Other financial assets ................................................................................................................................................ 96
4.8 Held to maturity investments ..................................................................................................................................... 97
4.9 Hedging derivatives ................................................................................................................................................... 97
4.10 Property and equipment ............................................................................................................................................ 98
4.11 Investment property ................................................................................................................................................. 100
4.12 Intangible assets ...................................................................................................................................................... 101
4.13 Investments in subsidiaries, associates and joint ventures ...................................................................................... 102
4.14 Income tax assets .................................................................................................................................................... 102
4.14.1 Deferred tax assets ............................................................................................................................................... 102
4.15 Other assets ............................................................................................................................................................ 103
4.16 Deposits from Central Bank ..................................................................................................................................... 104
4.17 Financial liabilities designated at fair value through profit or loss ............................................................................. 104
4.18 Financial liabilities at amortised cost – deposits from banks .................................................................................... 106
4.19 Financial liabilities at amortised cost – due to customers......................................................................................... 107
4.20 Financial liabilities, measured at amortised cost – borrowings from banks .............................................................. 108
4.21 Financial liabilities at amortised cost – borrowing from customers ........................................................................... 108
4.22 Debt securities ......................................................................................................................................................... 109
4.23 Subordinated liabilities ............................................................................................................................................. 109
4.24 Other financial liabilities ........................................................................................................................................... 110
4.25 Provisions ................................................................................................................................................................ 110
4.26 Other liabilities ......................................................................................................................................................... 111
4.27 Share capital............................................................................................................................................................ 111
4.28 Dividend per share .................................................................................................................................................. 113
4.29 Contingent liabilities and commitments .................................................................................................................... 113
4.30 Cash and cash equivalents ...................................................................................................................................... 114
4.31 Related party transactions ....................................................................................................................................... 114
4.32 Information on the results of organisational units abroad ......................................................................................... 120
4.33 Events after reporting date ...................................................................................................................................... 120
5
5.1
5.2
5.3
5.4
5.5
RISK MANAGEMENT.............................................................................................................................................. 120
Credit risk ................................................................................................................................................................ 121
Market risk ............................................................................................................................................................... 142
Liquidity risk ............................................................................................................................................................. 150
Capital and capital adequacy ................................................................................................................................... 154
Fair value of financial assets and liabilities .............................................................................................................. 158
6
SEGMENT REPORTING ......................................................................................................................................... 163
4
A WORD BY THE MANAGEMENT BOARD OF BANKA CELJE, d.d.
A very challenging year has come to an end for Banka Celje with the conclusion of 2013. On the one
side it was impacted by processes leading to a contraction in the volume of operations, while on the
other hand processes pertaining to operational remodelling were also being performed at the same
time, which fills us with optimism.
The volume of the Bank’s balance sheet operations in 2013 decreased by a fifth in comparison with
the year before, reaching EUR 1,815 million. Due to difficult operational circumstances and the
negative result for the business year in an amount of EUR 126.3 million, the Bank’s capital
decreased, which led us to ascertain a shortfall in the capital required for reaching capital adequacy.
The reasons for the Bank having a negative result are to be found in additional impairment charges
and provisions, which we were forced to make in an amount of EUR 214.1 million; the amount
included no less than EUR 207.9 million in impairment charges and provisions pertaining to credit
risk.
Impairment charges were significantly higher than the year before. Here the Bank accounted for the
findings of the Asset Quality Review, the deterioration in economic conditions, the decreased fair
value of collateral, the increase in insolvency proceedings and the prolongation of the recovery
processes. The Bank covered the loss, in accordance with the Companies Act, with profit reserves
and capital surplus, thus preserving its share capital in its entirety.
The infavourable operational result in 2013 by no means affected the quality of our operations. The
Bank continued to provide quality services to its customers even during the difficult past year.
Throughout the year the Bank provided for high liquidity reserves, all the while fulfilling its contractual
obligations toward customers with due care and without difficulty.
In the second half of 2013 Banka Celje was included in the asset quality review and the stress
testing, being performed at the level of the banking system. The findings of the review and the
subsequent requirements set by the regulator have led us to prepare a detailed plan of activities and
measures aimed at the elimination of the capital shortfall. During the initial months of 2014 the Bank
thus implemented some of these measures and convened the General Meeting of Shareholders,
which adopted the resolution on the increase of share capital in an amount of EUR 160 million. Since
recapitalization failed, the Bank applied for state aid, which would be given through the transfer of
certain assets to the Bank Asset Management Company and through the increase of share capital
in accordance with the Act on measures to strengthen the stability of banks and in line with the Rules
on State Aid.
Simultaneously with the procedures aimed at the elimination of the capital shortfall and securing a
stable capital adequacy, we also prepared a new business model. It envisages the primary focus of
Banka Celje in the future to pertain to the offer of traditional banking products that require less capital
expenditure, while supporting small and medium-sized enterprises and retail customers as a priority.
It is our goal for the Bank to decrease its concentration in credit and deposit operations and to, from
the geographical standpoint, focus primarily on the regional market. Reorganisation will provide for
a lean and cost-effiective management structure, while eliminating activities, which present a too
high cost burden and which do not fit into the Bank’s core business.
Banka Celje is the second oldest bank in the Slovenian market. This year it is celebrating the 150 th
anniversary of its operation. Tradition and identity are its main advantages, the source of know-how
and the inspiration that we can strengthen the operations of this financial institution once again.
Banka Celje not only has an established brand, it also has a stable customer base, as it cooperates
with over 125,000 private individuals and 11,000 legal entities and private entrepreneurs. Its
employess are professionally trained and perform their duties regardless of the difficulty in the
business environment in accordance with the principles of professionalism, integrity, diligence and
respect.
The coming business year will be marked by the recapitalization process and the Bank’s new
business model; both of which will be based on the tradition and the know-how at our disposal, on
the basis of which Banka Celje shall again become profitable and interesting to investors.
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 2013, the Supervisory Board was supported by the Audit
Committee, the Remuneration Committee and the Personnel Committee.
Operations of the Supervisory Board
At the 26th General Meeting of Shareholders in May 2011 a new Supervisory Board of the Bank was
elected, comprising: Jure Peljhan, Ph.D., as President, Zvonko Ivanušič, M. Sc., as Vice-President,
with the following members: Uroš Čufer, Ph.D., Melita Malgaj, Tomaž Subotič, Ph.D., Bojan Šrot,
and Zdenko Zanoški, M. Sc. The Supervisory Board members’ term of office expires on the fourth
anniversary of their appointment, being the General Meeting of Shareholders in 2015. On March 20,
2013 Uroš Čufer, Ph.D., resigned from his position as member of the Supervisory Board due to being
appointed to the position of the Minister of Finance. At the 29th General Meeting of Shareholders in
May 2013 Barbara Smolnikar, M.Sc., was appointed to the position of member of the Supervisory
Board. In November 2013 Zvonko Ivanušič, M.Sc., resigned from his position in the Supervisory
Board, which is why Barbara Smolnikar, M.Sc., was named the new Vice-President of the
Supervisory Board at the meeting held on 18 December 2013.
The Supervisory Board met at eight regular meetings in 2013, where it dealt with 89 items on the
agenda and also held four correspondent sessions, where it addressed 6 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 addressed letters the Bank received from the Bank
of Slovenia, acquainted itself with the measures the Bank implemented in relation to risk
management and reviewed the Bank's policies and strategies on risk management and its risk profile
for 2014. The Supervisory Board adopted the Bank's operational policies and the budget for 2014.
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 Remuneration Committee met at its second regular meeting in 2013 and considered the
proposal pertaining to the changes and amendments to the Remuneration Policy at Banka Celje,
d.d., which it sent to the Bank's Supervisory Board to be adopted and it confirmed them.
The Supervisory Board also ascertains that in 2013 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.
Based on the scope of activities perfomed in 2013 and the executed self-assessment of operations,
the Supervisory Board deems it own operations in 2013 were performed with all due dilligence,
without any deviation from good practice.
Operations of the Audit Committee
The Audit Committee, comprising: Tomaž Subotič, Ph.D., as President, Melita Malgaj as VicePresident, Barbara Smolnikar, M.Sc. as member and Blanka Vezjak, M.Sc., certified auditor, as the
external independent member; met 6 times in 2013. It dealt with 48 items on the agenda. The
materials it reviewed pertained to the adoption of the plan of operation of the Audit Committee in
2013, 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. The Audit Committee also acquainted itself with the information on the
review by the Bank of Slovenia (ICAAP process). It reviewed the strategies and policies on risk
management, the trading strategy and the Bank's risk profile – all pertaining to 2014. In April it
proposed the selection of the auditor for 2013 to the Supervisory Board. It also 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 budget for 2013. It was presented with the Agreement on the Audit
of the Bank's Operations in 2013, with the findings of the external auditor after the completion of the
initial phase of the audit for 2013 and with the report on the operations of the Posest subsidiary.
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 2013 all the while offering the Supervisory
Board advisory support in the areas for which it was established. With Uroš Čufer having resigned
from his post on 20 March 2013, the Supervisory Board elected a new President of the Audit
Committee, namely Tomaž Subotič, Ph.D. and a new member of the Audit Committee, namely Melita
Malgaj as Vice-President, at its meeting on 22 March 2013. Barbara Smolnikar, M.Sc., was named
member of the Audit Committee at the Supervisory Board meeting on 5 September 2013. The
independent external member of the Audit Committee, Zdenka Habe, was dismissed by the
Supervisory Board at its meeting on 30 September 2013, at the proposal of the Audit Committee,
naming a new independent external member in Blanka Vezjak, M.Sc., at the same meeting.
BUSINESS REPORT
Banka Celje d.d. and the Banka Celje Group
Business Report 2013
I BUSINESS REPORT
1 HIGHLIGHTS
2013
Bank
2012
2011
- amounts in thousands of EUR
Group
2013
2012
2011
1. Statement of financial position (on 31 December)
Total assets
Total deposits from the non-banking sector
- companies
- private individuals
Total amount of loans to the non-banking sector
- companies
Total equity
Impairment of financial assets and provisions
Commitments and contingent liabilities
1,815,228
1,274,152
616,295
657,857
1,240,057
930,479
309,578
40,758
350,236
530,520
2,270,076
1,416,899
716,570
700,329
1,590,853
1,265,826
325,027
157,943
166,432
551,939
2,490,913
1,484,868
756,122
728,746
1,693,206
1,355,319
337,887
181,333
152,460
692,167
1,816,388
1,274,149
616,292
657,857
1,234,457
924,817
309,640
41,520
350,258
530,389
2,271,355
1,416,898
716,569
700,329
1,585,677
1,260,650
325,027
158,808
166,488
551,939
2,492,765
1,485,025
756,299
728,726
1,690,007
1,352,120
337,887
182,169
152,515
692,556
2. Income statement (from 1 January to 31 December)
Net interest and similar income
Net non-interest income
Labour costs, general and administrative costs
Depreciation and amortisation
Impairment and provisions
Loss before income tax
Income tax expense
37,291
94,680
30,610
2,891
(214,054)
(115,584)
(10,673)
46,589
24,714
31,848
3,392
(63,600)
(27,537)
2,553
48,927
23,171
33,731
3,764
(53,193)
(18,590)
3,715
37,244
95,056
31,005
2,924
(214,056)
(115,685)
(10,673)
46,556
26,361
33,398
3,426
(63,601)
(27,508)
2,552
48,895
23,939
34,372
3,791
(53,201)
(18,530)
3,715
8,478
586
1,844
(265)
(3,359)
672
8,478
586
1,844
(265)
(3,359)
672
128,166
11,505
131,062
12,505
134,651
11,737
128,195
11,526
131,092
12,525
134,683
11,755
500
508
530
505
513
534
706
508,629
33
80
709
508,629
33
311
704
508,629
33
357
706
508,629
33
80
709
508,629
33
311
704
508,629
33
357
2.49
13.01
14.42
2.54
13.04
14.46
21.61
7.96
6.68
21.61
7.96
6.68
1.73
6.13
(5.37)
(81.59)
(89.12)
1.93
2.95
(1.14)
(15.37)
(13.95)
1.95
2.88
(0.74)
(9.49)
(7.60)
1.73
6.14
(5.37)
(81.19)
(88.68)
1.93
3.02
(1.14)
(15.28)
(13.86)
1.95
2.91
(0.74)
(9.42)
(7.53)
1.56
1.46
1.50
1.58
1.52
1.52
3. Statement of comprehensive income
Other comprehensive income
Income tax relating to other comprehensive income
4.
Number of customers
- companies
5.
Number of employees (on 31 December)
6.
Shares
Number of shareholders
Number of shares
Nominal share value (in EUR)
Book value per share (in EUR)
7.
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
Return on equity - before tax
Return on equity - after tax
Operational costs
Operational expenses / average assets
11
2 PRESENTATION
On 31 December 2013 the Banka Celje Group comprised Banka Celje, d.d. (the ''Bank''), as the
parent bank and Posest, d.o.o., Celje (the ''Subsidiary''). The Bank owns 100% of the Subsidiary.
Head office
The Bank's head office is located in Celje, at Vodnikova 2.
Subsidiary's head office
The subsidiary Posest, d.o.o., is headquartered in Celje, Prešernova 18.
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 Banking Act (Zban-1) and the Companies Act
(ZGD-1). 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:
- 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;
- safe custody services.
The Bank may also perform the following other financial services in accordance with Article 11 of the
Banking Act:
- 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 its range of services on offer through its specialist subsidiary company
Posest, d.o.o., Celje, which deals in real estate and offers leasing products, while also providing
advisory services in the recovery of bad debt. It was established in 1991 as a limited liability
company.
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 company and the Bank;
- property and equipment appraisals;
- supervision of the purposeful use of loans granted to investors;
- repayment of the Bank's bad debt;
- property leasing;
- owned and other property engineering;
- advising the Bank regarding real estate property financing.
12
History
The beginnings of the Bank reach as far back as 1864, when Hranilnica mestne občine Celje was
established. As the Kreditna banka Celje, it joined Ljubljanska banka in 1971. The Bank was
transformed into a joint-stock company at the end of 1989 and remained part of the Ljubljanska
banka system as a subsidiary bank until 1994.
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 transformed it into its main branch in
Ljubljana, named Glavna Podružnica Ljubljana. The Bank also acquired Hmezad banka, d.d., Žalec
in 1998 and first transformed it into a branch, namely Podružnica Hmezad (Hmezad branch), later
making it a business unit at the start of 2011. 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, with the largest owner still not having changed
their decision.
The Bank will celebrate its 150th anniversary in 2014, which it will convey to the public using the
slogan ’’With you through generations, year in year out, for 150 years’’.
3 RECAPITALIZATION
The Bank detected the need to strengthen capital at the beginning of the year and included
recapitalization in its financial projections as well as proposing a resolution on authorised capital at
the regular Annual Meeting of Shareholders. Based on the vote the Bank acquired an equity
valuation as at 30 June 2013.
Talks were conducted with the existing major shareholders pertaining to recapitalization possibiltiies.
It was ascertained, that the Bank’s major shareholders either do not have the potential to recapitalize,
there are restrictions or have expressed no interest. Regarding the possibility of entering into
ownership, talks were held with banks under foreign ownership that are present in Slovenia and in
October 2013 the procedure to find a financial advisor for the recapitalization was started.
In the meantime the Bank was included in the asset quality review and subjected to stress tests. A
capital shortfall of EUR 388 million was ascertained pertaining to the continued stress scenario and
EUR 327 million pertaining to the base scenario for the period until the end of 2015. Folowing the
publication of the results of the asset quality review and the stress tests, the Bank received and
Order from the Bank of Slovenia pertaining to the capital shortfall requiring it to prepare a detailed
plan of activities to eliminate the shortfall. On its basis the Bank prepared ''The Programme of
attaining and maintaining the Bank's capital adequacy ratio'' and continued talks with banks under
foreign ownership in Slovenia. It was found that foreign banks are reluctant to take on risk in
Slovenia, with their reluctance to invest having to do with macroeconomic conditions and the
uncertainty due to the involvement in stress testing in the European Union.
In January 2014 an advisor for the Bank's recapitalization was selected, namely Raiffeisen
Centrobank, with an agreement signed in the same month. The process of finding a potential buyer
for the Bank was set up in two phases. The first phase included the preparation of the teaser
documentation, a market sounding and the final report on feedback and the interest expressed by
potential investors. The second phase is to include the structuring of the sales process, marketing,
13
road show, due diligence, negotiation, the signing of the SPA and the execution of the takeover bid.
The first phase saw 38 potential investors from the region and beyond being contacted, 19 of which
were banks from Russia, Turkey, Austria, Italy, France, Spain, Hungary and India.
Due to a lack of interest and the commitments to invest in the Bank not having been firm enough,
the share sale process was concluded with the conclusion of the first phase.
In accordance with the Resolution of the Bank of Slovenia dated 17 March 2014, the Bank convened
the 30th Meeting of Shareholders on 11 April 2014, which adopted the proposed resolutions on the
recapitalization with the final payment date set on 25 April 2014. The recapitalization was
unsuccessful, which is why the Bank applied for state aid which would be given through the transfer
of certain assets to the Bank Asset Management Company and through the increase of share capital
in accordance with the Act on measures to strengthen the stability of banks and in line with the Rules
on State Aid.
4 STRATEGY
Under the assumption of successful recapitalization, the Bank prepared a draft of its business
policies and budget for 2014 with a revised business strategy until 2018. Due to the recapitalization
process, the business policies for 2014 and the strategy until 2018 are still under revision.
In 2014 the Bank will promote the sale of traditional banking products that require less capital
expenditure, it will focus on business cooperation with small and medium-sized enterprises and retail
customers, all the while decreasing the concentration in the credit and deposit portfolios. In its
operations it will primarily focus on the regional market.
It will provide for a lean and cost-effective management structure. To this aim it has planned an
optimisation of operational processes, the elimination of certain activities, rationalization and a
gradual decrease in the number of employees.
With the help of its stable customer base, the established brand, experience, acquired during the
150 years of its operation, with state aid and with efficient rationalization, the Bank will again become
profitable and prove interesting to potential investors.
5 SIGNIFICANT EVENTS
2013:
- receipt of a resignation of a member of the Supervisory Board, namely Uroš Čufer, who
was named to the post of Minister of Finance of the Republic of Slovenia, with Barbara
Smolnikar, M.Sc., being his replacement and having been named to the post of Member of
the Supervisory Board at the 29th Regular Sharehoders’ Meeting on 30 May 2013;
- receipt of a letter from the Bank of Slovenia on 23 April 2013 in relation to the identification
of a possible set of assets subject to eventual action based on the Act on measures to
strengthen the stability of banks and the start of activities aimed at the realization of the
requirements of the letter;
- 29th regular meeting of shareholders carried out successfully on 30 May 2013, at which all
the proposed resolutions had been adopted, including a proposal on the recapitalization
through the use of authorised capital with the aim of strengthening the highest quality capital;
- receipt of the Order to eliminate violations of 20 June 2013, which the Bank of Slovenia
sent the Bank to verify the elimination of violations from warnings issued after a review of the
Bank’s operations was performed pertaining to credit, capital and liquidity risks and providing
14
-
-
-
-
-
the Bank of Slovenia with planning documents after obtaining consent from the Supervisory
Board at the end of September;
credit rating, announced by the international rating agency Fitch Ratings publicly on 17
October 2013, was maintained and the decision to discontinue cooperation with the agency
was adopted, as the rating was primarily intended for acquiring foreign interbank loans. The
Bank may restart the process of acquiring a rating at any time in the future;
the adoption of the decision by the Bank’s Management Board to commence the procedure
of evaluating of the Bank’s equity and the signing of an agreement with Raiffeisen
Centrobank pertaining to advisory services related to the recapitalization of the Bank;
a review of the loan portfolio quality and the performance of stress tests in the second
half of the year, commissioned by the Bank of Slovenia at the Oliver Wyman consulting firm
in cooperation with the auditors Ernst & Young and Deloitte for some of the Slovenian banks
with the aim of ascertaining the actually required additional capital for the banks;
naming of Blanka Vezjak, M.Sc., as an independent expert, to the Bank's Audit Committee
in September 2013;
receipt of a resignation of a member of the Supervisory Board, namely Zvonko Ivanušič,
M.Sc., in November 2013;
public release of the stress test and the results of the review of asset quality for ten
Slovenian banks on 12 December 2013;
refering to the members of the Supervisory Board at the 19th regular meeting on 18 December
2013 the decision of the then President of the Management Board of the Bank Dusan
Drofenik, M.Sc., not to begin his new term of office, granted by the Supevisory Board at its
meeting in June, due to personal reasons, on the basis of which the Supervisory Board named
the active Vice President Davorin Leskovar to the post of President of the Management
Board for the period from 1 January 2014 until the naming of the new President of the Bank’s
Management Board;
adoption of the resolution by the Supervisory Board at its 18th regular meeting on 27
November 2013 to carry out a more detailed review of the approval, monitoring and recovery
of the largest non-performing loans as a basis for contract negotiations with the selected
auditing firm;
receipt of the Order to eliminate the capital shortfall, which the Bank of Slovenia issues on 20
December 2013.
6 ECONOMIC AND BANKING ENVIRONMENT
6.1 Economic environment
After eight consecutive drops economic growth in Slovenia increased by 2.1% in the fourth quarter
of 2013 as compared with the same quarter in 2012. In 2013 the gross domestic product decreased
by 1.1%. The fourth quarter of 2013 saw gross investment in fixed assets increase by 5.9%, with
household end-consumption recovering as well, whereas government spending decreased by 1.9%
in comparison with the previous quarter. Taking into account investment spending and endconsumption, domestic demand had a positive effect on Slovene economic activity this time, while
foreign trade impacted it negatively due to an increase in imports. The export sector remains the
most flexible in the crisis and had a positive impact on the trends in the gross domestic product.
Exports of goods increased by 3.7%, while imports increased by 4.9% in 2013.
Following a two month period of stagnation, the registered unemployment rate increased by 0.5
percentage points in December 2013, to recorded 13.5%, with the number of unemployed persons
climbing to 124,015, being 5,900 higher than in December 2012. The construction sector contributed
most to the decrease in employment figures, with the decrease being rather less prominent in the
manufacturing sector. The increase in unemployment was highest in the age group of 15 to 24 year15
olds. The unemployment rate increased throughout the Slovenian statistical regions, with the highest
rates still coming from Pomurje, and the lowest recorded in the region of Gorenjska.
According to the latest date at the end of the third quarter of 2013, the public debt increased to
62.6% of the gross domestic product, with the budget deficit amounting to 4.6% of the gross domestic
product. By introducing measures aimed at the rehabilitation of the banking system, the public debt
increased to an estimated 75.6% by the end of 2013. The euro area average exceeds 90%.
The annual inflation rate, measured by the harmonised index of consumer prices, reached 0.9%
in Slovenia in 2013, with the average 12-month price growth coming in at 1.9%, representing a 0.9
percentage point decline in comparison to the 2012 figure. In the European Monetary Union member
states, the annual inflation rate according to the November data was 0.9% on average, reaching
1.0% in the European Union member states and 1.2% in Slovenia.
6.2 Banking environment
The conditions within the Slovenian banking system in 2013 were impacted by the continuation of
the economic recession and the further contraction in lending activity. The contraction in bank
lending activities was the consequence of reduced investments in fixed assets and declining
domestic consumption as well as the limited access of Slovenian banks in domestic ownership to
foreign funding. The changing of the structure of bank funding and the contraction of lending activity
resulted in the deterioration of the loan portfolio quality.
In December of 2013 after the review of the loan portfolio quality and after the performance of stress
tests in some of the Slovenian banks, the process of rehabilitating begun in accordance with the Act
on measures to strengthen the stability of banks. In spite of the transfer of non-performing assets of
the two largest Slovene banks to the Bank Asset Management Company - BAMC (Družba za
upravljanje terjatev bank - DUTB), the risk of a repeated deterioration of bank claims remains, should
there be no notable recovery in the economy. With the continuation of the economic crisis the risk of
infection of the healthy parts of the economy and of an additional deterioration of the loan portfolios
in banks remains present.
7 REPORT ON OPERATIONS IN 2013
The report on operations, including the chapter on assuming and managing banking risk, is based
on the Bank's operations, being the dominant entity within the Group. Based on permission issued
by the Bank of Slovenia, the subsidiary company is not included in the consolidated supervision in
accordance with the decision by the Bank of Slovenia on the Supervision of Banks and Savings
Banks on a Consolidated Basis, as from the aspect of the aim of supervision the Subsidiary does
not represent any significant effect.
16
7.1 Financial results
7.1.1 The Bank’s financial result
The deterioration of the credit portfolio quality and the decreased lending volumes were the two key
drivers leading to the Slovenian banking system's pre-tax loss in 2013, being the fourth year running
that a loss was made.
The Bank was faced with the problems afflicting the entire Slovenian banking system. In 2013 it
recorded a result before impairments and provisions in the amount of EUR 98,470 thousand. The
result before impairments and provisions in 2013 includes the effect of the subordinated debt
valuation to its fair value in the amount EUR 87,309 thosand. With the exclusion of this effect, the
Bank made a profit before impairments and provisions of EUR 11,161 thousand in 2013 (2012: EUR
36,063 thousand). Due to the changes in the Banking Act at the end of 2013 the terms of
subordinated debt changed significantly, namely with the inclusion of the embedded derivative
(possible conversion into shares in the event of capital inadequacy). Based on this and in accordance
with IAS 39, the Bank derecognised subordinated debt at amortized cost and recognised
subordinated debt with an embedded derivative at fair value. The fair value was determined by
certified appraisers and amounted to EUR 1 million as at 31 December 2013. With the revaluation
of subordinated debt to fair value the Bank did not write it off, it only recognized its fair value in
accordance with IAS 39. After decreases for the additional impairment charges and provisions made,
however, the result was a pre-tax loss in the amount of EUR 115,584 thousand. The higher loss in
comparison to the year before resulted from additional impairment charges and provisions that were
required. After taxes, which include the impairment of deferred tax assets in an amount of EUR
10,673 thousand, the net loss amounted to EUR 126,257 thousand.
The diagram below shows profit trends before impairment and provisioning:
100
98
90
in EUR million
80
70
60
31.12.2012
50
31.12.2013
40
30
36
20
10
0
Profit before impairment and provisions
17
Analysis of the Bank’s net income and expenses in 2013:
Net income and expenses
Realization
Realization
2013
2012
Change
Index
1
2
3=1-2
4=1:2
88,279
(50,988)
110,535
(63,946)
(22,256)
12,958
79.9
79.7
37,291
46,589
(9,298)
80.0
Net fee and commission income
Net gains from financial operations *
15,818
15,733
85
100.5
Interest and similar income
Interest and similar expense
78,862
8,981
69,881
878.1
(30,610)
(31,848)
1,238
96.1
(2,891)
(3,392)
501
85.2
Impairment charges and provisions
(214,054)
(63,600)
(150,454)
336.6
(Loss) from operations
(115,584)
(27,537)
(88,047)
419.7
Administrative expenses
Amortization
* includes dividends and other operating gains / (losses)
Net interest came in at EUR 37,291 thousand, remaining the strongest income category of the
Bank’s regular income. It was 20.0% off the realisation in 2012, namely by EUR 9,298 thousand.
The lower interest income was impacted most by the decrease in the average amount of interest
bearing investments by nearly 9% and the decrease in the average interest rate attained, mainly as
the consequence of the decreasing EURIBOR interest rates by 0.5 percentage points to 3.6%. The
biggest impact on interest expenses came from the reduced size of interest bearing liabilities by
almost 10%, with the average interest rates attained having decreased by 0.3 percentage points to
2.5%, mainly as a result of decreasing deposit interest rates. Consequently the cumulative interest
margin amounted to 1.73% in 2013, having come in at 1.93% in 2012.
Net fee and commission income from banking services amounted to EUR 15,818 thousand
beating the comparable 2012 figure by 0.5%. In comparison with 2012, card operations were off
most, mainly due to a decline in the volume of transactions, with the Bank decreasing the fallout by
lowering processing costs. On the other hand, fees and commissions from account maintenance
and guarantees exceeded the 2012 figures.
Financial transactions resulted in a profit totalling EUR 78,862 thousand, as compared with an
amount of EUR 8,981 thousand in 2012. Profit in 2012 was mainly the result of the early redemption
and a simultaneous new issue of subordinated bonds in a lower amount with a positive effect of EUR
10,595 thousand. In 2013 the profit was also for the most part made on the basis of a one-off event,
namely the valuation of issued subordinated liabilities to fair value in the amount of EUR 87,309
thousand. The estimate of the value of the subordinated liabilities was prepared by an external
appraiser. Dividend income came in at EUR 387 thousand, while other net operating losses, mainly
the result of changes in the balance sheet tax and the implementation of the financial services tax,
amounted to EUR 1,935 thousand.
Administrative expenses accounted for EUR 30,610 thousand, thus decreasing by EUR 1,238
thousand or by 3.9% as compared with 2012. The bulk of the decrease pertains to labour costs,
coming in lower than in the previous year by EUR 866 thousand, mainly due to the reduced number
of employees, a lower holiday allowance pay out and due to lower premiums paid for supplementary
pension insurance. Cost of materials and services were also lower by EUR 372 thousand.
The Bank’s cost efficiency, measured by the share of operational costs in the average assets,
amounted to 1.56% in 2013 (1.46% in 2012) due to a 20.0% drop in the total assets and the 4.9%
decrease in amortisation costs. The cost/income ratio (the CIR) came in at 25.39%. Without taking
into account the one-off effect of the valuation of subordinated liabilities to fair value the CIR would
come up to 75.01%.
18
Impairment charges and provisions amounted in total of EUR 214,054 thousand, being
significantly higher than in the previous years. In relation to these, the Bank took into account the
results of the asset quality review, the lengthening of the recovery processes and the lengthy
coordination of banks in resolving the matter of over-indebted companies, the increase in insolvency
proceedings, the decreased fair value of collateral and the deterioration of the economic conditions.
Impairment charges and provisions in an amount of EUR 207,895 thousand pertain to credit risk,
while EUR 6,159 thousand comes from investments in available for sale financial instruments.
The diagram below shows the trends in gross loans and impairments:
2.000
1.800
1.772
1.610
1.600
1.400
in EUR million
1.200
31. 12. 2012
1.000
31. 12. 2013
800
600
350
400
157
200
0
Gross loans
Impairments
7.1.2 The Group’s financial result
The gross loss of the Group recorded was EUR 101 thousand or 0.1% higher than the gross loss
recorded by the Bank, with the Group’s net loss being higher by the same amount.
The Group’s income statement differs from the Bank’s income statement most in other net operating
profit, mainly due to income from real estate sales and from leases by the Subsidiary in an amount
of EUR 398 thousand, with administrative expenses of the Subsidiary coming in at EUR 395
thousand.
7.2 Financial position
7.2.1 Financial position of the Bank
At the end of 2013 the Bank’s total assets amounted to EUR 1,815,228 thousand. As compared to
2012 the figure decreased by EUR 454,848 thousand or by 20.0%.
19
The Bank’s assets according to individual items:
Bank's assets
Loans and advances
2013
%
2012
%
Change
Index
1
2
3
4
5=1-3
6=1:3
1,260,213
69
1,615,610
71
(355,397)
78.0
17,867
1
22,043
1
(4,176)
81.1
1,240,057
68
1,590,853
70
(350,796)
77.9
2,289
-
2,714
-
(425)
84.3
338,856
19
488,097
22
(149,241)
69.4
- loans and advances to banks
- loans and advances to customers
- other financial assets
Financial assets
Other assets
Total
216,159
12
166,369
7
49,790
129.9
1,815,228
100
2,270,076
100
(454,848)
80.0
Loans and advances to banks decreased by 18.9% or by EUR 4,176 thousand. The decrease
came mainly from short-term investments in foreign banks.
Loans and advances to customers dropped by 22.1% in 2013 or by EUR 350,796 thousand, their
share in the structure of the assets thus having decreased from 70% to 68%. Changes in impairment
charges required with regard to loans and advances to customers amounted to EUR 193,114
thousand. Loan contraction was, similar to other Slovene banks, faster than the contraction of the
Bank’s balance sheet due to reduced demand, stricter lending standards and the creation of
impairments.
Loans and advances to customers as the most significant category of the Bank's assets are shown
in the following diagram:
1.800
1.600
1.591
1.400
in EUR million
1.240
1.266
1.200
930
1.000
31.12.2012
800
31.12.2013
600
325
400
310
200
0
Loans and advances to
customers
Loans to companies and
private entrepreneurs
Retail loans
Investments in financial assets have decreased by 30.6% in 2013 in accordance with the business
policies, with their share in the structure of the assets, as compared with 2012, decreasing from 22%
to 18%.
20
The Bank’s liabilities per item have been realised as follows:
Bank's liabilities
2013
%
2012
%
Change
Index
1
2
3
4
5=1-3
6=1:3
195,411
11
265,853
12
(70,442)
73.5
- foreign banks
101
-
19,120
1
(19,019)
0.5
Due to customers
1,274,152
70
1,416,899
62
(142,747)
89.9
Borrowings from the ECB
152,091
8
151,431
7
660
100.4
Securities in issue, subordinated liabilities
134,841
8
259,747
11
(124,906)
51.9
17,975
1
18,203
1
(228)
98.7
1,774,470
98
2,112,133
93
(337,663)
84.0
40,758
2
157,943
7
(117,185)
25.8
1,815,228
100
2,270,076
100
(454,848)
80.0
103,844
51
95,104
47
8,740
109.2
99,152
49
108,207
53
(9,055)
91.6
202,996
100
203,311
100
(315)
99.8
Deposits and borrowings from banks
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
Risk bearing commitments and contingent liabilities
Guarantees
Assumed liabilities
Total risk bearing com. and cont. liabilities
Deposits and borrowings from banks fell by 26.5%, with deposits and borrowings from foreign
banks only amounting to EUR 101 thousand, represented by at sight deposits with from foreign
banks. In the domestic interbank market the Bank directed its activities at acquiring predominantly
long-term dedicated financing from SID Banka.
Due to customers decreased by 10.1%. Retail deposits went down as well as deposits from
corporates and private entrepreneurs, while the ratio of net loans to deposits from the non-banking
sector improved from 1.12 to 0.97.
Due to customers as the most significant category in the Bank's liabilities:
1.600
1.400
1.417
1.272
1.200
in EUR million
1.000
800
717
700
614
600
658
31.12.2012
31.12.2013
400
200
0
Due to customers
Due to companies and
private entrepreneurs
Retail deposits
Deposits from the Central Bank include loans taken from the European Central Bank and
represent long-term liabilities. The Bank acquired the assets in December 2011 and in March 2012
within the framework of the Central Bank's 36-month funding facility.
21
The volume of own securities in issue and subordinated liabilities dropped by 48.1% in 2013.
The decrease was mainly the result of derecognition of the Bank’s subordinated liabilities from at
amortized cost and their recognition at fair value. Subordinated debt was restated to fair value in an
amount of EUR 1 million, as determined by the external appraisers. With the revaluation of
subordinated debt to fair value the Bank did not write it off, it only recognized its fair value in
accordance with IAS 39.
The Bank’s capital decreased by EUR 117,185 thousand or by 74.2% in 2013, and stood at EUR
40,758 thousand at the end of the year. The main cause for the decrease was the net loss achieved
during the 2013 financial year.
Risk bearing commitments and contingent liabilities fell by 0.2% in 2013. The volume of
guarantees issued increased by 9.2%, while the assumed liabilities dropped by 8.4%. The largest
increase came from short-term guarantees and letters of intent, while unused commitments to extend
loans and corporate overdrafts went down.
7.2.2 Financial position of the Group
The Group’s total assets came in EUR 1,160 thousand higher than the total assets of the Bank; in
comparison with 2012, the figure was EUR 454,967 thousand less.
Looking at Group assets, the higher total assets mainly pertain to the inventory and investment
property of the Subsidiary. Investment property includes the net carrying value of land and buildings
purchased for the purpose of operating lease.
The liabilities of the Group are higher than the liabilities of the Bank mainly in the items pertaining to
capital and other liabilities.
7.3 Operations according to key sectors
7.3.1 Corporate banking
Corporate banking, pertaining to companies and private individuals, represents a key sector for the
Bank, as it is the strongest segment of its operations.
The Group’s credit operations with companies came in EUR 5,600 thousand lower than the Bank’s
credit operations due to the elimination of mutual claims, while deposit operations of the Group did
not differ.
Within the Bank’s credit operations, the gross value of loans to companies and state amounted to
EUR 1,263,392 thousand, while impairments totalled EUR 332,913 thousand, having increased by
EUR 189,724 thousand in a year. The net value of loans to companies decreased by 26.5%,
representing a decrease in value of EUR 335,347 thousand. With a net amount of EUR 930,479
thousand, the share of loans to companies decreased within the structure of assets from 56% to
51%.
In lending to companies, the Bank devoted special attention to the management of bad debt. The
share of bad debt increased in 2013 due to new bankruptcies and compulsory settlement
proceedings, which is why in October 2013 the Bank restructured the work group dedicated to active
monitoring and recovery activities into an independent organisational unit for the restructuring and
recovery of receivables. It transferred the entire portfolio of bad debt to the new organisational unit,
thus reducing the workload of sales, which allowed these to more actively acquire new partners and
22
market other banking products, such as payments, cards, POS terminals. Lending was mainly done
on the basis of an adequate classification and within the scope of limit targets, with lending to risky
sectors having been limited, while the Bank also required an adequate amount of own assets and
cash flows for the repayment of the loan.
The Subsidiary was also included in lending to companies, namely in the appraisal of projects, the
monitoring of the purposeful use of funding and in the appraisal of pledged real estate.
Deposit operations have seen deposits from the non-banking sector decrease by 14.0% or by EUR
100,275 thousand to EUR 614,161 thousand. Government deposits accounted for EUR 215,467
thousand, having increased by EUR 30,969 thousand in 2013. In its deposit operations, the Bank
followed its objective of diversification, all the while adjusting deposit volume to the requirements of
credit operation.
The diagram below shows the trend in credit and deposit operations with the corporate sector:
1.400
1.266
1.200
930
1.000
in EUR million
800
717
614
600
31.12.2012
31.12.2013
400
200
0
Loans to companies and state
Deposits to companies and state
7.3.2 Retail operations
The Bank also puts a lot of emphasis on retail operations, having set up a broad retail network of
business units and ATM machines, which it uses to bring its services to as many clients as possible.
Retail loans went down by 4.8% in 2013. The gross value of loans amounted to EUR 324,537
thousand, with impairment charges amounting to EUR 14,959 thousand, having increased by EUR
2,968 thousand within the year.
Retail deposits also declined in 2013, namely by 6.1% or EUR 42,472 thousand. The decrease is
mostly a consequence of increased uncertainty prior to the announcement of stress test results and
the deterioration of the depositors’ economic situation.
According to maturity structure, the share of at sight deposits increased from 43.9% to 45.9% in total
retail deposits, while the share of short-term deposits decreased by 3.3 percentage points to 25.9%,
with the share of long-term deposits increasing from 26.9% to 28.2%.
23
The trends in retail credit and deposit operations:
800
700
700
658
600
in EUR million
500
31.12.2012
400
325
310
31.12.2013
300
200
100
0
Retail loans
Retail deposits
The Bank promoted retail operations in different ways. With the assistance of an internal strategic
and operative CRM (Customer Relationship Management) system it introduced efficient marketing
campaigns, which put client wishes, needs and interests to the fore.
Lending saw a new additional offer introduced, which was aimed at customers up to the age of 35,
employed on fixed-term contracts. The special feature of the offer pertains to the fact that, with
appropriate collateral, loans may be taken for a period, which exceeds the term of the employment
contract. The effects of the introduction of this lending facility were positive, with the Bank having
granted 128 loans. Retail clients also responded positively to special lending offers in summer, which
resulted in a total of 1,046 new loans granted.
To promote retail deposit operations, all Klik users were offered more favourable deposit conditions,
resulting in 1,355 new deposits. A new twin deposit service was introduced as well as the ''Right
Decision'' package, which in addition to free transaction account management during the first year
of operation also includes a package offering cheaper and free services. The effects of the offer are
favourable, with the Bank having gotten 558 new deposits based on the twin deposit offer, while
acquiring 334 new customers on the basis of the ‘’Right Decision’’ package.
Alternative savings instruments are also something the Bank provides its savers with. 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, cooperating with the following insurance companies based on
the licence for insurance brokerage it holds: NLB Vita, Zavarovalnica Maribor, Zavarovalnica Triglav,
Adriatic Slovenica and Tilia. In 2013 promoting life insurance through NLB Vita provided most of the
positive results. In total the Bank brokered the sale of nearly 6 thousand new insurance packages in
2013.
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.
24
In non-cash operations, the Bank offers a wide spectrum of card services. It issues payment cards
of the Activa Maestro, Activa/Mastercard, Activa/Visa and Activa Visa Electron brands. The Activa
card provided the foundation for the development of card operations in Slovenia more than a decade
ago. Up to today more than a million customers use Activa cards. At end 2013 the Bank had 170,159
cards in issue, with Activa Maestro representing most, followed by Activa Mastercard.
With regard to self-service operations, clients had at their disposal 83 ATMs at the end of 2013,
connected into the BA network across Slovenia. 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 a 24 hour a day access to cash withdrawals, UPN payment orders, cash
deposits, mobile phone account charging, and a mini print-out of transactions for the past 90 days is
also available.
Modern e-banking has been available to clients since July 2000 and it enables quick, safe and
simple performance of most of the services offered by the Bank. E-banking is constantly adapting to
new modern technologies. Safety has been provided for with the use of the most modern internet
technologies. The Klik users have the option of performing electronic banking using mobile phones
and table PCs to review account activity and a detailed card transaction overview as well as e-invoice
operations. In 2013 the Bank acquired over 1,600 new Klik users, which is now being used by 18,541
of the Bank's customers.
7.3.3 Banking operations
Operations with other banks are performed by the Bank, with the Subsidiary only dealing with the
parent bank.
Since the start of the crisis in the international financial markets the Bank has been monitoring its
liquidity with great responsibility, adopting measures aimed at the strengthening of operational and
structural liquidity. The operational liquidity position continued to be good in 2013. The Bank was
constantly faced with a surplus in short-term operational liquidity. On December 31, 2013 liquidity
reserves amounted to EUR 435 million. The surpluses were placed mainly with the European Central
Bank through participation in withdrawal of excess liquidity auctions and to a lesser extent the
surpluses were placed in the interbank market as well.
The Bank obtained liquid assets from SID Banka and the interbank market, while also making use
of funding from the European Central Bank. The Bank of Slovenia adopted a number of decisions,
on the basis of which Slovenian banks were able to increase eligible assets for the collateralization
of liabilities to the European Central Bank. The Bank obtained a confirmation of its application for
the selection of the ICAS BS as an additional rating source and thus added its additional adequate
financial investments into the financial asset fund for the collateralization of financial obligations
toward the European Central Bank. The larger part of the liabilities toward the European Central
Bank, which amounted to EUR 152.1 million in December 2013, the Bank will repay early in 2014,
in line with current operational liquidity surpluses.
Liabilities to commercial banks declined by 26.5%.The Slovenian banking system was heavily
influenced by the continued economic recession and the contraction in lending activity. Unfavourable
conditions, persisiting for a number of years now, confirm that excessive bank funding with sources,
acquired from foreign financial markets, increases the sensitivity of banks to the changing conditions
in the international financial markets. Due to a very limited access to long-term foreign funding, the
Bank did not raise any bilateral or syndicated loans in 2013, repaying all of the loans at final maturity.
End 2013 the Bank’s sole exposure was to SID Banka.
25
Trends in bank operations:
450
417
400
348
350
300
in EUR million
250
197
200
150
31.12.2012
31.12.2013
136
100
50
0
Loans and advances to banks and ECB
Deposits and borrowings from banks and
ECB
7.3.4 Financial instrument operations
The Bank conducts transactions with securities and derivative financial instruments, while the
Subsidiary does not.
The total volume of investments in securities decreased by 30.6% in comparison with 2012. In
December 2013 the Bank transferred the entire portfolio of held to maturity financial assets to the
category of investments in available for sale financial assets, which thus represent 97% of all
investments in financial assets.
Held for trading financial assets decreased by 58%. In 2013, the Bank exercised all of its futures
contracts involving certificates of deposit, while subordinated bonds of two banks were cancelled in
accordance with the decision on emergency measures by the Bank of Slovenia.
Financial assets designated at fair value through profit or loss no longer recorded a position at
the end of 2013. A subordinated bond issued by a bank was cancelled in accordance with the
decision on emergency measures by the Bank of Slovenia, a bond issued by a foreign issuer was
sold and another matured.
Available for sale financial assets represent part of the secondary liquidity reserve and are used
for the management of liquidity, currency and interest rate risk. At the end of the financial year the
Bank reassessed the capacity to hold and its intentions pertaining to the holding of the held to
maturity portfolio and has, having assessed it is no longer its intention to hold these, reclassified the
financial assets to the available for sale financial assets. In 2013 investments in debt securities were
reduced with lower reinvestment of matured bonds and short-term government T-bills. The Bank
also sold off all the remaining investments in mutual funds and impaired two capital investments.
Due to the entire portfolio of securities having been transferred the Bank no longer had any held to
maturity investments.
26
In 2013, in line with its business objectives, the Bank carried out futures transactions with underlying
securities, entered into interest rate and currency swaps as well as traded options. End 2013 interest
rate swaps were the most prevalent, representing 73.2% of all derivatives.
600
500
488
400
in EUR million
339
300
31.12.2012
260
31.12.2013
200
135
100
0
Securities investments
Own securities issued
Liabilities from securities in issue came down by a total of 48.1% in 2013. The Bank derecognised
its subordinated debt from at amortized cost and recognised it at fair value, as determined by external
authorised appraisers.
Financial liabilities at fair value through profit or loss dropped by 97.0% in 2013. All subordinated
liabilities were recognized to this category and were subsequently collectively revaluated to a lower
fair value.
Debt securities in issue include liabilities from regular bonds and certificates of deposit. Bonds
from three separate issues are included, maturing in 2015 and 2016. The decrease in the item is
therefore the result of certificates of deposit with maturities over 1 year maturing.
Subordinated liabilities were no longer shown at the end of 2013 due to derecognition at amortized
cost and the transfer to financial liabilities designated at fair value through profit or loss.
7.3.5 Payments
The Bank performs international and domestic payment operations, while the Subsidiary does not.
In 2013, the Bank concluded its activities in relation to the migration to SEPA (Single Euro Payments
Area) products. Credit and debit payments are now effect in accordance with new standards. The
Bank was also preparing to implement the Regulation 260/2012 valid from February 1, 2014 with a
transitional period until August 1, 2014, requiring the technological adjustment of respective
applications to be able to provide all the required data. The Bank was also preparing to fully
implement the ISO 20022 xml standard in the exchange of data between the Bank and the customer.
The overhaul of electronic banking for corporate customers and private entrepreneurs was
completed successfully and given a new name – ‘’BCNet’’. An updated design, new functionalities
27
and especially a unified format for domestic as well as foreign transactions have been made
available to the customer.
The project of own e-invoice issuing has been completed. The Bank’s business decision, that all
customers, who deal with the Bank electronically be automatically sent e-invoices was also
implemented. E-invoices, external and the Bank's own, are being received by 7,000 or 60.8%
corporate customers and private entrepreneurs.
End 2013 the entire SWIFT support was transferred to an external provider.
In 2013, the Bank executed 12.2 million payment transactions totalling EUR 43,432 million. Its share
in the total number of outflow transactions in Slovenia for 2013 amounted to 3.47% and thus
improved upon the 2012 share of 3.40%.
At the end of 2013, the Bank maintained 7,121 corporate transaction accounts and 5,431 transaction
accounts belonging to private entrepreneurs and to private undertakings, with its market share in the
Slovenian banking system coming in at 5.6% (2012: 5.8%).
In the area of transaction account management, the Bank is legally obligated to perform execution
activities on the basis of final court decisions received. In 2013, the Bank received 36,386 and
executed 20,320 final court decisions on compulsory debt collection and execution. The number of
decisions received increased by 40% in 2013, with the number of decisions implemented increasing
by 58%.
At the end of 2013, a total of 530 corporate accounts amounting to EUR 194.6 million (2013: 482
corporate accounts in an amount of EUR 202.8 million) as well as 453 accounts belonging to private
entrepreneurs and private undertakings in an amount of EUR 18.8 million (2012: 615 453 accounts
belonging to private entrepreneurs and private undertakings in an amount of EUR 23.2 million), were
frozen. The Bank was also authorised to execute 23,545 final decisions related to private individuals
totalling EUR 62.7 million (2012: 18,059 decisions in an amount of EUR 48.2 million).
7.4 Shareholder information
The Bank’s equity comprises share capital, share premium, revaluation reserve, profit reserves and
net profit, while own shares decrease it.
In order to improve capital structure and capital ratios, especially the top-quality Core Tier 1 capital,
the Bank eliminated pre-emptive rights based on preference shares in the last quarter of 2012, while
at the General Meeting of Shareholders in 2013 a resolution on authorized capital was adopted. On
this basis, the Bank began the recapitalization process.
In 2013, the Bank did not acquire or dispose of own shares. As at 31 December 2013, it held 251
regular own shares, 165 shares reserved for substitution with shares of the former Hmezad banka
and 938 shares pledged as collateral.
28
Equity in 2013 is shown in the table below:
Equity
2013
%
2012
%
Change
Index
1
2
3
4
5=1-3
6=1:3
Share capital
16,980
42
16,980
11
-
100
Share premium
51,380
126
51,380
32
-
100
Revaluation reserve
11,927
29
2,863
2
9,064
417
Profit reserves
86,759
213
111,735
71
(24,976)
78
(31)
-
(31)
-
-
100
(126,257)
(310)
(24,984)
(16)
(101,273)
505
40,758
100
157,943
100
(117,185)
26
Treasury shares
(Loss) for the year
Total
At the end of December 2013, the Bank's equity amounted to EUR 40,758 thousand, having
decreased by EUR 117,185 thousand in the year. The drop resulted from net loss amounting to EUR
126,257 thousand. The surplus from the revaluation of available for sale financial assets had a
positive effect of EUR 9,064 thousand on equity, with an additional positive impact from the transfer
of unpaid dividends from previous years to profit reserves in the amount of EUR 8 thousand.
The Group equity at end 2013 amounted to EUR 41,520 thousand exceeding the Bank equity by
EUR 762 thousand, with EUR 564 thousand of the figure pertaining to the profit reserves, EUR 162
thousand pertaining to the share premium and net profit representing EUR 36 thousand.
The book value of the Bank’s share, calculated as the ratio between the recorded value of capital
and the number of outstanding shares, amounted to EUR 80 as at 31 December 2013. Due to the
fact that the accumulated capital includes the positive effect of the valuation of subordinated debt,
which exceeds the value of accumulated capital, the share capital is negative, thus the book value
per share equals zero. More detailed information on the structure of share capital and the rights and
obligations based on the shares are shown in Chapter 10.2.9 of this annual report.
At end 2013, the share register of the Bank showed 706 shareholders, 216 of which were legal
entities, while 490 were private individuals. Nova Ljubljanska banka remains the Bank’s largest
shareholder, holding a 40.99% ownership share and a 41.11% share of the voting rights at the end
of 2013.
The following companies represent the Bank’s 10 largest shareholders:
- in %
Ownership share
40.99
9.36
9.21
4.00
3.88
3.75
2.67
2.43
1.79
1.53
79.61
10 largest shareholders as at 31 December 2013
Nova Ljubljanska banka d.d. Ljubljana
Slovenska odškodninska družba d.d. Ljubljana
NFD 1 Delniški podsklad
Abanka Vipa d.d. Ljubljana
Unior d.d. Zreče
Zavarovalnica Triglav d.d. and Kritni sklad Ljubljana
Nova Kreditna banka Maribor d.d. Maribor
Juteks d.d. Žalec
Opus Invest d.o.o. Velenje
Polzela d.d. Polzela
Total
29
7.5 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. The Bank’s largest exposure
pertains to capital risk, followed by liquidity, credit and strategic risk, profitability risk, operational,
reputation and market risk as well as interest rate risk.
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’’);
- 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 2006/48/EC (hereinafter referred to as ‘’CRD IV’’).
Preparations to the changes in the legislation are actively being performed in the Bank within the
Basel III project, the goal of which is to fulfil the legislative requirements regarding reporting to the
supervisory institution and to improve the monitoring of risks as a basis for the further decisionmaking process. The new legislation effects the management of capital and liquidity risk the most,
however changes regarding the management of credit risk are significant also.
The following includes definitions of individual banking risk types.
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 on 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-adjusted items, must always
amount to at least 8%. The management of the 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
principles, also expressed in the need for adequate regulatory capital.
With the intention of assessing the capacity for assuming risk, the Bank prepares a plan of the
dynamics in capital and capital requirements as well as projections of internal capital assessment
and capital requirements for a period of five years in line with its annual business policies and the
Bank’s financial plan as well as the five-year strategy, which show the fluctuations of capital
adequacy ratios in accordance with the planned volume of operations.
The Bank can increase capital with retained profit, by issuing subordinated debt and other suitable
financial instruments or by issuing shares. The Bank works on reducing investments with higher
capital requirements (related to capital requirements for credit and liquidity risk), while also
30
decreasing capital requirements for credit risk by including real estate (housing and offices) into the
calculation of the risk adjusted exposure.
In 2013 the Bank continued the activities to decreases capital risk, however it still recorded a severe
drop in regulatory capital as a consequence of the negative result. In 2013, a valuation of the Bank’s
share capital was made. The Bank conducted talks with existing owners on the possibility of a
recapitalization, while at the same time looking for a new strategic partner. Based on the assessment
provided by a certified business appraiser and in line with IAS 39 due to the significant changes in
the subordinated debt terms (amendment of the Banking Act) with the inclusion of the derivative, it
revalued its hybrid instrument and subordinated liabilities at fair value.
Based on the results of the asset quality review and the stress test results, the Bank received an
order by the Bank of Slovenia pertaining to the elimination of the capital shortfall by 30 June 2014.
To eliminate the capital shortfall the Bank has prepared programme on attaining and maintaining the
capital adequacy ratio, which it will endeavour to execute with the assistance of the state. Details
are presented in Chapters 3 and 4 of the Business Report.
The new capital accord (Regulation CRR and Directive CRD IV) introduces a new definition of
capital, which is divided into core and additional capital. Core capital comprises regular equity capital
and additional core capital, whereby the emphasis is put on regular equity capital or shareholder’s
capital, which is designated for the coverage of losses from the bank’s regular operations. Capital
ratios also relate to the structure of capital. The major features of the new regulation that will affect
the calculation of bank capital relate to more stringent criteria on the inclusion of capital instruments
in the calculation of capital, deductions from equity, additional disclosures in relation to capital and
the introduction of capital buffers. To mitigate the effects of more stringent capital standards that will
affect the calculation of capital, a transitional period has been introduced, during which the new rules
will gradually be implemented.
On a quarterly basis, the Bank calculates an internal estimate of capital requirements to cover
unexpected losses from capital risk in accordance with the adopted methodologies.
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.
Turning to 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.
31
In accordance with the Decision on risk management and 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.
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.
The Bank calculates the internal estimate of capital requirements to cover for unexpected loss from
liquidity risk in line with its internal methodologies on a quarterly basis.
In 2013, 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 in relation to operational
liquidity, as it provided for sufficient liquidity reserves (highly liquid assets, which are also eligible to
be pledged as collateral pertaining to obligations toward the European Central Bank 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 goal 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.
In 2013, the Bank continued to perform activities pertaining to the calculation of the value of the
Liquidity Coverage Ratio (the LCR) as defined by the new CRD IV capital accord. The LCR ratio
calculations show that the amount of the Bank's top-quality liquid assets exceeds the net liquidity
outflows in extreme liquidity conditions (30 days), which is why it will continue to work towards
ensuring an adequate amount of top-quality liquid assets in relation to the expected liquidity inflows
and outflows. Liquidity management will be directed at providing alternative long-term liquidity
sources.
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. The
Bank 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 and low risk investments being performed in other European
Union members, while decreasing exposure to the SEE region. The Bank has set up a system of
early increased credit risk detection and is actively working on recovery of receivables past due. 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,
while ensuring their adequacy on an ongoing basis later on.
32
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.
The Bank further reduced credit exposure in 2013, while limiting exposure to activities and regions
with a higher level of risk. The problems faced by the domestic economy and the inactivity of
business owners pertaining to the process of financial restructuring, the conditions in the housing
market and lengthy court procedures all led to a further deterioration of the credit portfolio. With the
number of insolvency proceedings increasing and with rising unemployment in 2013, the share of
defaulters and non-performing assets also increased. The share of debtors in rating classes A and
B (investment grade classes) decreased to 57.45% (2012: 74.53%) and the share of debtors
classified as C through E (bad debtors) increased to 42.55% (2012: 25.47%). In 2013 the Bank
applied significant additional impairment charges to cover for credit risk losses amounting to EUR
207,897 thousand, which pertain to the transition of debtors from the good to the bad part of the
credit portfolio (the effect of over-indebtedness in companies, of the increase in overdue receivables,
new insolvency procedures) and the additional provisioning in the bad part of the portfolio (decreased
fair value of collateral, lengthy recovery proceedings, further negative events in connection with
debtors, to which the Bank had already restructured receivables). In the year the Bank was included
in the asset quality review and the performance of stress testing, where further significant
impairments were determined, which was also impacted by the marked decrease in the value of
collateral.
An economic recovery is not yet expected in 2014, which is why the Bank will continue to implement
measures to mitigate the negative effect of the crisis (regular monitoring of debtor operations and
their rating, active recovery of receivables due, acquiring additional collateral, granting new loans to
financially stable companies and financing investments in core business, granting housing loans,
etc.). It will also continue to follow the strategy of maximizing the diversification of its credit portfolio
and reducing exposure to individual debtors and groups of related parties, all the while limiting
investments in sectors it estimates as high risk. Slovenia remains the target market, which is why
the Bank will continue to decrease exposure abroad, which amounted to 7.6% of the credit portfolio
at the end of 2013.
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 small and medium companies, 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.
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.
To this end, the Bank prepares a five-year strategy and regularly verifies its implementation, which
allows it to adapt to the changes in the internal and external business environments on time. The
strategy is clear enough to allow for it to be implemented throughout the Bank and is adequately
supported by all the required calculations, as well as by personnel and technological capabilities.
33
In line with the most recent calculation of the risk profile, the Bank will provide for capital requirements
pertaining to strategic risk, with the amount of these adjusted to the successfulness of the attainment
of stable ownership and a stable capital adequacy in the long-term.
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, the return on
assets and the capital and cost efficiency. 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.
To assess the adequacy of internal capital, the Bank calculates the internal estimate of capital
requirements to cover for unexpected loss from profitability risk on a quarterly basis in line with the
adopted methodology.
By reducing deposit rates as a result of the measure adopted by the Bank of Slovenia in spring of
2013, downward pressures on net interest income are being mitigated.
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 of 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 in 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 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
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. This image impacts the
establishment of new business relationships and services as well as maintenance of existing ones.
Negative effects may include loss of revenue, a deterioration of operational results, a decrease in at
sight deposits and other funding sources, a decline in the number of clients, drop of share value, etc.
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.
From the organisational point of view the management of reputation risk is not simply a task of an
individual organisational unit, rather it is the responsibility of all of the Bank’s employees, with the
Management Board playing a key role.
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 the varied public groups, managing
its human resources with utmost care, and by being socially responsible. It pays special attention to
communicating to its customers, business partners, owners, investors and other interested groups
the actions it is taking to strengthen its long-term stability, to increase capital adequacy and to
strengthen the system for the management of credit risk in order to solidify the Bank in the eyes of
the public as a creditworthy and trustworthy banking institution with 150- years worth of experience.
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
European Union (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
the Bank’s 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 making 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. On a
quarterly basis, the Bank calculates the internal estimated capital requirement to cover for
unexpected loss from market risk by using the value-at-risk method (VaR) and performs stress tests.
35
It also measures the effect of extraordinary, but probable, events on income and the financial position
of the Bank.
In 2013 the Bank severely limited purchases of financial instrument for the purpose of creating a
profit from the difference between purchasing and sales prices. The Bank will also not be buying
financial instruments for this purpose in 2014, but will invest in the instruments to ensure liquidity
reserves.
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.
The Bank analyses exposure to interest rate risk using the method of interest rate gaps, calculating
the effects that changes in interest rates have on net interest income (income aspect). It also
analyses interest rate risk with the use of the duration model, where it assesses the effect of change
in interest rates on the economic value of equity (economic aspect).
In relation to interest rate risk, the Bank follows the policy of a closed net banking book position,
meaning that the objective is to minimise the amount of interest rate gaps.
In the event that the implementation of measures to decrease interest risk is required, the Bank uses
traditional balance sheet transactions, such as lending, securities purchases, deposit taking, issue
of securities, etc. In addition to traditional balance sheet transactions, the Bank also enters into
agreements based on interest derivatives to hedge individual transactions, and not for the purpose
of speculation.
In accordance with International Financial Reporting Standards, the Bank values such interest
derivatives at fair value, which may have a significant impact on the income statement. Therefore
the Bank introduced hedge accounting, which decreases the instability of the operational results
caused by changes 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 2014, mitigating the effect on the income statement with the use of hedge
accounting.
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 the risk profile it determines through the
procedure of risk identification, measurement or assessment, management and monitoring, so that
36
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 considered and adopted at
ALCO.
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 2013, the Bank is mostly exposed to capital,
followed by liquidity, credit and strategic risk, profitability risk, operational risk, reputation risk, market
risk and interest rate risk. The calculated risk profile deviates from the desired risk profile, as defined
in the Strategy of assuming and managing risk, which is why the Bank has commenced activities,
which will result in decreased exposure of the Bank to individual risk types (recapitalization, forming
of a new organisational unit for the monitoring of restructured exposures and the recovery of
receivables, ongoing monitoring of the Bank’s liquidity position and ensuring a minimal amount of
liquidity reserves and other).
7.6 Internal organisation, capital investments, IT and human resources
The Bank provides its clients with universal banking services. It has taken care of its further
development 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
The Bank only has business units in Slovenia. Through a well-developed business network, it
operates in all the major towns of the Celje region as well as in Ljubljana, being the financial centre
of Slovenia, in Maribor and in Koper. End 2013 there were 8 branch offices with 20 agencies for
individuals and 6 branch offices for corporates and private entrepreneurs in operation within the
Bank’s 9 business units. November 2013 saw 2 agencies discontinued, namely the Vransko and
Prebold agencies. On October 1, 2013 a new division was formed for restructuring and recovery of
receivables.
The Subsidiary does not have any subsidiaries or affiliates.
Investments
The Bank earmarked EUR 1,233 thousand for investments in 2013, being 18.9% less than the year
before. Most of the funds were used for the purchases of hardware and software, licenses, ATM
purchases, external advisory services pertaining to the setting up of the data warehouse and the
purchased of air conditioning devices.
Major maintenance was carried out on mechanical installations, major maintenance work was also
done on the main UPS device at the IT center’s backup location and signalling and security systems
have been upgraded.
IT support
In addition to the activities needed for the performance of continuous IT support, a large part of the
IT support activities was also directed at the cooperation on some of the larger projects. The project
of optimising the processes pertaining to card operations saw the completion of the first phase in the
development of support, which was put into use on 1 July 2013 and which includes the setting up of
standards and the environment for the production of the solution for SMS notification ordering and
billing. Other major projects, requiring reporting to the supervisor, include the building of a new
application for the reporting of liquidity flows and the applications for the reporting of LCR (Liquidity
37
Coverage Ratio) and NSFR (Net Stable Funding Ratio) within the Basel III requirements. The most
intensive work on the building of the applications will be performed in the first half of 2014.
The migration of the Open VMS IT systems using Alpha technology to Integrity was completed. The
biggest problem was the heterogeneity of the IT infrastructure, especially in providing links of these
systems to all the other banking platforms, which support the operation of key business processes.
New disc systems were purchased. The implementation was also a very challenging project, which
however was necessary due to the increase in data volumes.
Additionally, the Bank continued to upgrade and implement mechanisms for the monitoring of its key
IT systems.
Human resources
As at 31 December 2013 the Bank employed 500 workers, of which 495 were employed on a
permanent basis and 5 were employed on temporary employment contracts. On average, the Bank
employed 509.5 employees. Over 47% of all employees or 236 workers came from the retail division.
During the year there were 16 employment terminations and 8 new employees were taken on.
The average age at the Bank amounted to 46.0 years in 2013, having increased by 11 months in
comparison with 2012. The gender structure of the employees has seen a rise in the share of male
employees, their share having increased in relation to 2012 from 21.7% to 22.2%.
The educational structure of employees is gradually improving also, with post-secondary school
education increasing. End 2013 the share of employees with at least post-secondary school level
education was 44.0%, university level was 18.4%, secondary school 35.4% and less than secondary
school level amounted to 2.2%. During the year 5 employees obtained a degree, 4 of those in higher
education professional programmes and one finishing a university level programme.
Achievement of strategic goals requires investments focused on the development of employee skills
and abilities. The Bank subsequently manages the quality of employee education. In 2013,
employees attended 172 training events in all areas of banking operations. The average cost of
training per employee amounted to EUR 167.73 in 2013.
The subsidiary company employed 5 people at the end of 2013. In addition to its regular employees,
the company also cooperates with external appraisers and has outsourced its accounting. Two of
the employees in the subsidiary company hold a Master's Degree, two have university degrees in
finance and architecture, while another holds a high school diploma. The head of projects and the
head of property sales both have acquired individual licenses in the fields of construction, real estate
operations and real estate appraisal (certified appraiser, appraiser certified by the Slovene Institute
of Auditors).
On 1 January 2013 an amended voluntary premium payment scheme came into force in relation to
voluntary supplementary pensions insurance, on the basis of which the premium payments the Bank
makes for its employees were lowered by half.
In September 2013, the Bank terminated the union’s in-house collective bargaining agreement.
Changes and amendments to the Collective bargaining agreement for the Slovenian banking sector
came into force after intense negotiations on 1 January 2014.
At the end of 2013 the Bank acquired the ‘’Family Friendly Company’’ certificate.
38
7.7 Social and environmental responsibility
The Bank’s Management Board manages the Bank, takes care of investor interests and fulfills
liabilities toward shareholders, the Supervisory Board and the general public, all the while actively
and transparently communicating with the interested public as well as operating within the framework
of established risk management mechanisms. The services the Bank offers are the result of knowhow based on almost 150 years of tradition.
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 in its Hermanov Brlog
(Herman’s Den) project, the only Slovenian museum for children, the Pelikan Studio, the Olympic
gold medallist Urška Žolnir, 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),
which organises numerous cultural 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
primary schools savings. In doing so it hopes to contribute to the development of banking related
values.
The Bank also helps its partners invest in ecologically sound projects, construct of waste water
treatment plants and carry out other social responsibility projects. It purchases ecologically safe
materials, separates waste, collects waste paper and ink cartridges, and utilises a centrally controlled
heating system to be rational in its energy usage.
7.8 Internal Audit Department operations
The Internal Audit Service is an independent department, which reports 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 operating
independently of other parts of the Bank.
The Service performs its duties in accordance with the internal audit standards of professional
practice 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 Service also regularly assesses how it is
viewed by the audited persons and also looks at the possibilities of improving the approach to
auditing.
The two basic planning documents of the Internal Audit comprise the dynamic three-year strategic
plan and the annual operational programme which the Management Board adopts annually 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, and the
fundamental characteristics of the environment in which it operates, while taking into consideration
39
the requirements by the Supervisory Board on compulsory internal auditing of certain operational
areas.
The planned activities of the service 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 and the Supervisory Board endorse semi-annual reports on its activities,
showing the significant activities performed by it, as well as an overview of the recommendations
issued and implemented. The reports are also considered at the Supervisory Board’s advisory body,
the Audit Committee. In line with legislation, the Supervisory Board is regularly kept appraised of the
audits conducted by the external supervisory institutions. The annual report on the internal audit is
also brought before the General Meeting of Shareholders.
The assignments of Internal Audit are defined by law and pertain foremost 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 the monitoring of compliance of the Bank’s operations with regulations and
internal rules as well as the principles of rational operations. 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 Bank’s Management Board is made aware of the
realisation of all recommendations after internal auditing has been performed 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. The Internal Audit also coordinates activities
in connection with the selection of the external auditors (through the Management Board, the Audit
Committee and the Supervisory Board) to be decided upon at the General Meeting of Shareholders.
The annual operational programme provided for audits of the Bank’s 22 business areas and the
completion of 6 internal audits from 2012, with the assumption there would be no large scale
extraordinary assignments (a total of 28 internal audits). Actually, 17 planned internal audits were
completed by end February 2014, 6 internal audits carried over from 2012 have been completed,
with 6 extraordinary audits having been performed (a total of 29 audits); two internal audits are still
running and two have been included in the plan of operations for 2014, the audit of the
implementation of new banking products has not been performed, as no product fitting the
characteristics of a new banking product was introduced. The Internal Audit prepared 35 expert
opinions pertaining to different areas of operation. There were a total of 64 instances where internal
audits were performed and expert advice was given in 2013. One of the advisory cases required
almost two months of activities by an employee. The care to see recommendations given be
implemented by the auditees was also a very important activity of the Service. End February 2014
saw 84% of the recommendations given implemented, with the implementation period pertaining to
the remaining recommendations not yet having expired.
The most significant areas of operation, which were audited in 2013 include: credit risk management
in its broadest sense, IT systems management quality from different points of view, the system of
internal controls set up within business units, anti-money laundering, capital risk management –
stress scenarios tested, risks from securities transactions, adequacy of collateral in relation to loans
given.
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
quality of internal control systems, timely commencement of recovery procedures and the adequacy
of collateral, compliance with the legislation and internal rules, and the possibilities for improvement
of existing procedures; all aimed at further raising the quality of the Bank’s operations thus
contributing to added value. Special attention is directed at the areas subject to new regulations
(external or internal) or changes in the established operational practices, frequently in cooperation
with the Compliance Department.
40
All of the Internal Audit’s assignments described were performed in 2013 by six employees (the
figure includes the department’s General Manager). One of the employees is a certified internal
auditor, another is a certified auditor and one is a certified information systems auditor (CISA) and
is a Master of Science. All the employees have been educated at university level at least.
Additionally, one employee holds an insurance broker licence and three employees hold the
European Banking Certificate. One of the employees continued with post-graduate Master’s studies
in 2013. As in previous years, 2013 saw education and training of employees remain a constant
mission, with additional knowledge attained in internal auditing, banking operations, IT skills, antimoney laundering, risk management and corporate governance.
41
8 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
42
9 ORGANISATIONAL STRUCTURE OF THE BANK
MANAGEMENT BOARD
Member of the Management Board
President & CEO
Aleksander Vozel
Member of the Management Board
Dušan Drofenik
INTERNAL AUDIT
RESTRUCTURING
AND RECOVERY
DIVISION
EXECUTIVE
DIRECTOR
ACCOUNTING
DIVISION
LEGAL AFFAIRS AND
COMPLIANCE
OPERATIONS
DIVISION
IT DIVISION
RIKS MANAGEMENT
DIVISION
Davorin Leskovar
EXECUTIVE
DIRECTOR
CORPORATE
DIVISION
FINANCIAL MARKETS
DIVISION
GENERAL AFFAIRS
MAIN BRANCH
LJUBLJANA
DEVELOPMENT
SERVICE
PERSONNEL AND
ORGANISATIONAL
SERVICES
Branch Ljubljana
RETAIL DIVISION
PAYMENTS AND
OPERATIONAL
SUPPORT DIVISION
Celje Business Unit for
private individuals
Celje Business Unit for
companies
Slovenske Konjice
Business Unit
Žalec Business Unit
Šentjur Business Unit
Laško Business Unit
Rogaška Slatina
Business Unit
Maribor Business Unit
Koper Business Unit
43
10 STATEMENT OF CORPORATE GOVERNANCE
The Bank’s Corporate Governance statement is prepared in line with the provisions of the
Companies Act (the ZGD-1) and pertains to the year 2013. It includes the Statement on compliance
with the Corporate Governance Code made by the Management Board and the Supervisory Board
under item 10.1 and additional Notes in accordance with Paragraphs 5 and 6 of Article 70 of the
Companies Act under item 10.2.
10.1 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 Banking Act (the ZBan-1) and the Companies Act as well as
the Market in Financial Instruments Act (the 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 http://www.ljse.si/ 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.
Posest, d.o.o., as a non-public company, is not subject to any code in its operations.
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, such as prescribed by the
Bank of Slovenia, 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 with their
management policies; this decision, however, is up to them.
Clause 5.2 (second paragraph)
The Bank does not publish 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.
Clause 5.4
The Bank’s shares are currently not listed on the stock exchange.
Clause 5.5
The 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.
44
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 Commission.
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 the annual financial
statements, a representative of the authorised auditor would be invited.
Clause 8.9
The Supervisory Board of the company has not formed a Personnel Committee or any other body,
which would set the criteria and recommendations pertaining to the nomination of the Management
Board in advance. The Bank will deal with this option in the future also.
Clause 8.12
In its report, the Supervisory Board also 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. In the future, 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 of the company.
Clause 13
The Personnel Committee or the Commission for Term Appointment have not been appointed; the
Bank will strive to comply with the recommendation in the future.
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 got a special internal act in place in connection with the limitations and disclosures
pertaining to treasury share transactions, as it considers this to be sufficiently regulated by existing
legislation.
45
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.
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 the
acquisition of a qualifying share.
Clause 23
The Statement of Corporate Governance forms part of the annual report, which is published on the
Bank’s website.
10.2
Additional Notes in line with Paragraphs 5 and 6 of Article 70 of the ZGD-1
10.2.1 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 all the dimensions of control 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 resulting in profitable operations,
- all operational activities, which have the potential to increase the Bank's liabilities, must be
approved by the authorised person, with a segregation of responsibilities clearly defined,
- assets must be secured appropriately, receivables insured, liabilities monitored,
- a strategy and policies for risk management 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 timely
detection of fraud, abuse, anomalies or errors, must be set up,
- the system of financial records needs to provide timely, reliable, 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.
46
10.2.2 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 are 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.
The voting rights of the Bank's other owners do not exceed the qualifying shares as defined by the
act dealing with the market in financial instruments.
10.2.3 Holders of securities ensuring special rights of control
The Bank's shares do not give their holders any special rights of control.
10.2.4 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 the 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.
10.2.5 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 Banka Celje, d.d., Supervisory
Board.
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 fulfil membership conditions for bank supervisory boards as defined by the
Companies Act and the Banking Act.
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 having been
appointed at the General Meeting of Shareholders, replacements are appointed at the following
47
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.
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 an Audit Committee and the Remuneration Committee, serving
as the bodies of the Supervisory Board. In 2014 they also appointed the Human Resource
Committee.
The president and members of the Bank's Management Board are appointed and discharged by the
Supervisory Board. Only a candidate who fulfils all the conditions for appointment as defined by the
Companies Act and the Banking Act 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 the
applicable legislation. 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 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.
10.2.6 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 16,979,769.65 (authorised capital) by issuing no more than
508,629 new shares.
The Bank may acquire and dispose of own shares in line with the Companies Act. The Management
Board decides on the conditions of the acquisition and disposal of own shares and must report own
share transactions at the General Meeting.
48
10.2.7 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.
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 Companies Act;
- 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 dissolution of the Bank;
- the appointment of the auditor;
- authorisation of the Management Board to acquire own shares in accordance with the
Companies Act;
- other matters within the scope of its competencies in accordance with the Companies Act
and the Banking Act.
Shareholders holding 20% 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 event, the Management Board is required
to call the Meeting no later than 2 months after receiving a written request.
Shareholders holding 20% 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. 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.
10.2.8 Data on 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 on 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 of 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 29th General Meeting of Shareholders on 30 May 2013.
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 2013.
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 constituent meeting of the Supervisory Board on 8 June
2011, new members of the Audit Committee were appointed, namely: Uroš Čufer, Ph.D., President,
49
Tomaž Subotič, Ph.D., Deputy and Zdenka Habe, Member, as an independent expert. The Audit
Committee continued to perform its activities in a modified composition during 2013, namely Tomaž
Subotič, Ph.D., President, Melita Malgaj and Barbara Smolnikar, M.Sc. as members and Blanka
Vezjak, M.Sc., as member and independent expert from October 2013. At its 3rd Meeting on October
19, 2011 the Supervisory Board named the Reimbursement Commission. 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
Commission remained unchanged in 2013 until November, when Zvonko Ivanušič, M.Sc. resigned.
In January 2014 the Supervisory Board appointed Mrs. Melita Malgaj instead of Zvonko Ivanušič,
M.Sc.
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
considers materials from areas as defined by the Banking Act and the Banka Celje, d.d.,
Management Board Working Rules at its meetings. Until December 31, 2012 these were: President
of the Management Board, Dušan Drofenik, M.Sc., Vice President of the Management Board,
Davorin Leskovar and Member of the Management Board, Aleksander Vozel, M.Sc. Dušan Drofenik,
M.Sc. decided in December, that he will not begin a new term as the President of the Bank’s
Management Board. From January 1, 2014 the Management Board comprises two members,
namely President of the Management Board, Davorin Leskovar and Member of the Management
Board, Aleksander Vozel, M.Sc.
The President of the Management Board, Dušan Drofenik, M.Sc. was a member of the Supervisory
Board at The Bank Association of Slovenia and a member of the Supervisory Board at the SloveneGerman Chamber of Commerce. Aleksander Vozel, M.Sc. is a member of the supervisory board of
NLB Prishtina, while Davorin Leskovar is not a member of any supervisory board.
The Credit Committee comprises nine members and defines the conditions and criteria for acquiring
and placement of assets, makes decisions on lending and guarantee transactions and decides on
distribution in line with its operational rulebook. In 2013, 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: Member of the Management Board, Executive Director for Corporate Division and Main
Branch Ljubljana, General Manager of the Risk Management Division, General Manager of the Retail
Division and the General Manager of the Financial Markets Division, the General Manager of the
Corporate Division and the General Manager of the Legal affairs, debt enforcement and compliance
operations Division. The President of the Credit Committee may invite other General Managers to
the Credit Committee meetings. When proposals from the Retail Division are being considered,
business unit Heads are also invited. 2014 saw changes to the composition of the Credit Committee
due to the two-member Management Board.
Credit committee for debt restructuring and the monitoring of bad debt was established with
the aim of efficiently monitoring the operations of the 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 eight member committee was
represented by: the President of the Management Board, both Management Board members, the
General Manager of the Debt Restructuring and Recovery Division, the General Manager of the
Retail Division, the General Manager of the Legal affairs, Debt Enforcement and Compliance
Operations Division, the General Manager of the Risk Management Division, the General Manager
of the Corporate Division and the General Manager of the Main Branch Ljubljana. 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, with the Vice President of the Management Board chairing the
50
meetings in his absence. Changes were made to the composition of the Credit committee for debt
restructuring and the monitoring of bad debt in 2014 due to the two-member Management Board.
The Liquidity Committee comprised seven members in 2013: General Manager of the Financial
Markets Division as Committee President and the following members: President of the Management
Board, Vice President of the Management Board, Member of the Management Board, Executive
Director for Corporate Division and Main Branch Ljubljana, General Manager of the Retail Division
and General Manager of the Risk Management Division. 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 2013 it comprised the Bank's Management Board, the Executive Directors,
General Managers and 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 Body’s meetings.
Operational rules are set with the Management Body 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 the execution of project assignments, all the while allowing for
discussion on other significant decisions to be made in relation to the Bank’s operations.
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 the 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: Vice President of the
Management Board as President of the Committee, the President of the Management Board at the
post of Vice President of the Committee, 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.
The IT Committee is the Management Board’s counselling body in connection with the execution of
its rights and obligations related to IT. It meets once a month. In addition to the President of the
Management Board, the Vice President of the Management Board and Member of the Management
Board as the president of the IT Committee, it also comprised the General Manager of the IT Division
and the Business Consultant for IT. Standing invitations were extended to the Assistant General
Manager of the IT Division, the Business Consultant for the development of IT, the internal auditor
in charge of IT and to the security systems engineer.
10.2.9 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.
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.
51
10.2.10 Share transfer restrictions, especially:
- restriction of security ownership and
- explanatory note on the requirement to acquire permission from the company or
other holders of securities for the 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 the authorised capital (the right expires on June 12, 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.
10.2.11 Employee stock options
The Bank does not have an employee stock option scheme in place.
10.2.12 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, 28 April 2014
52
11 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 2013 on pages 59 to 65 and the accounting policies and notes to the
accounting policies on pages 66 to 167 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 2013.
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 Group and in line with the existing legislation and the IFRS, as adopted by the European
Union.
The Management Board is also responsible for appropriate accounting practice, 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. The
Management Board is not aware of any circumstances, which could result in any such potentially
significant obligation.
Management Board:
Celje, 28 April 2014
53
12 AUDITOR’S REPORT
54
55
FINANCIAL STATEMENTS
Financial Statements 2013
(amounts in tables in thousands of Euros)
II FINANCIAL STATEMENTS
1 INCOME STATEMENT
Bank
Note
1 January to
31 December
2013
Group
1 January to
31 December
2012
1 January to
31 December
2013
1 January to
31 December
2012
3.1
3.1
88,279
(50,988)
110,535
(63,946)
88,232
(50,988)
110,502
(63,946)
3.1
37,291
46,589
37,244
46,556
Dividend income
3.2
387
751
387
751
Fee and commission income
Fee and commission expense
3.3
3.3
17,344
(1,526)
17,528
(1,795)
17,343
(1,526)
17,527
(1,795)
3.3
15,818
15,733
15,817
15,732
3.4
55,224
13,478
55,224
13,478
3.5
(5,777)
(5,613)
(5,777)
(5,613)
3.6
3.7
3.8
31,430
34
(490)
(11)
(1,935)
(30,610)
(2,891)
(57)
(213,997)
459
53
146
(111)
(182)
(31,848)
(3,392)
1,800
(65,400)
31,430
34
(490)
6
(1,575)
(31,005)
(2,924)
(57)
(213,999)
459
53
146
(105)
1,460
(33,398)
(3,426)
1,799
(65,400)
(115,584)
(27,537)
(115,685)
(27,508)
(10,673)
2,553
(10,673)
2,552
(126,257)
(248)
(24,984)
(49)
(126,358)
(249)
(24,956)
(49)
Net gains from financial assets and liabilities not
classified at fair value through profit or loss
Net (losses) from financial assets and liabilities held
for trading
Net gains from financial assets and liabilities
designated at fair value through profit or loss
Changes in fair value from hedging
Foreign exchange translation net (losses) / gains
Net (losses) / gains from derecognition of assets
Net other operating (loss) / gain
Depreciation and amortisation
Provisions
Impairment charges
3.9
3.10
3.11
3.12
3.13
(LOSS) BEFORE INCOME TAX
Income tax (expense) / credit
(LOSS) FOR THE YEAR
Basic and diluted earnings per share in EUR
3.14
The Notes form an integral part of these Financial Statements.
59
2 STATEMENT OF COMPREHENSIVE INCOME
Bank
1 January to
31 December
2013
(LOSS) FOR THE YEAR
Group
1 January to
31 December
2012
1 January to
31 December
2013
1 January to
31 December
2012
(126,257)
(24,984)
(126,358)
(24,956)
9,064
1,579
9,064
1,579
ITEMS THAT WILL SUBSEQUENTLY NOT BE RECLASSIFIED TO
PROFIT OR LOSS
74
-
74
-
Actuarial net gains from pension plans, recognised in retained
profit/(loss)
74
-
74
-
ITEMS THAT MAY SUBSEQUENTLY BE RECLASSIFIED TO
PROFIT OR LOSS
8,990
1,579
8,990
1,579
Net gains from available for sale financial assets
8,404
1,844
8,404
1,844
Valuation gains / (losses) taken to other comprehensive income
Recycled to income statement
2,471
5,933
(6,339)
8,183
2,471
5,933
(6,339)
8,183
586
(265)
586
(265)
(117,193)
(23,405)
(117,294)
(23,377)
OTHER COMPREHENSIVE INCOME AFTER TAX
Corporate income tax from items, that may be reclassified
subsequently to profit or loss
TOTAL COMPREHENSIVE INCOME FOR THE YEAR AFTER TAX
60
3 STATEMENT OF FINANCIAL POSITION
Note
Cash and balances with Central Bank
Financial assets held for trading
Financial assets designated at fair value through profit
or loss
Available for sale financial assets
Loans and advances
Held to maturity investments
Derivatives - hedging
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates and joint
ventures
Income tax assets
- deferred tax assets
Other assets
TOTAL ASSETS
Deposits from Central Bank
Financial liabilities held for trading
Financial liabilities designated at fair value through
profit or loss
Financial liabilities at amortised cost
- deposits from banks
- due to customers
- borrowings from banks
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
Provisions
Other liabilities
TOTAL LIABILITIES
Share capital
Share premium
Revaluation reserve
Profit reserves (including retained earnings)
Treasury shares
(Loss) for the year
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Bank
31 December
2013
2012
Group
31 December
2013
2012
4.1
4.2
191,995
10,961
127,486
26,123
191,995
10,961
127,486
26,123
4.3
4.4
327,895
1,260,213
17,867
1,240,057
2,289
3,437
14,165
4,108
5,064
186,758
1,615,610
22,043
1,590,853
2,714
270,152
6,892
14,918
4,415
327,895
1,255,052
17,867
1,234,457
2,728
3,437
14,174
4,432
4,113
5,064
186,758
1,610,814
22,043
1,585,677
3,094
270,152
6,892
14,928
2,679
4,421
2,257
197
2,257
10,087
10,087
314
3
3
4,326
10,090
10,090
5,948
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.14.1
4.15
1,815,228
2,270,076
1,816,388
2,271,355
4.16
152,091
151,431
152,091
151,431
4.2
1,125
1,888
1,125
1,888
4.17
1,000
33,592
1,000
33,592
4.18
4.19
4.20
4.21
4.22
4.23
4.24
1,608,824
11,276
1,272,018
184,135
2,134
133,841
5,420
1,915,156
10,567
1,413,621
255,286
3,278
170,880
55,275
6,249
1,608,975
11,276
1,272,015
184,135
2,134
133,841
5,574
1,915,310
10,567
1,413,620
255,286
3,278
170,880
55,275
6,404
4.25
9,903
9,576
9,940
9,612
4.26
1,527
490
1,737
714
1,774,470
16,980
51,380
11,927
86,759
(31)
(126,257)
40,758
1,815,228
2,112,133
16,980
51,380
2,863
111,735
(31)
(24,984)
157,943
2,270,076
1,774,868
16,980
51,542
11,927
87,323
(31)
(126,221)
41,520
1,816,388
2,112,547
16,980
51,542
2,863
112,410
(31)
(24,956)
158,808
2,271,355
4.27
4.27
4.27
4.27
4.27
4.27
61
4 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Bank
Note
BALANCE AS AT 1 JANUARY 2012
Share
capital
Share
premium
Revaluation
reserve
Profit
reserves
Retained earnings
(including net profit Treasury
for the year)
shares Total equity
16,980
51,380
1,284
126,595
(14,875)
(31)
181,333
-
-
1,579
-
(14,875)
15
(24,984)
14,875
-
-
(23,405)
15
BALANCE AS AT 31 DECEMBER 2012
16,980
51,380
2,863
111,735
(24,984)
(31)
157,943
16,980
51,380
2,863
111,735
(24,984)
(31)
157,943
-
-
9,064
-
(24,984)
8
(126,257)
24,984
-
-
(117,193)
8
16,980
51,380
11,927
86,759
(126,257)
(31)
40,758
Comprehensive income for the year after tax
Loss appropriation to profit reserves
Other
Coverage of loss brought forward
Other
4.27
62
Group
Share
capital
Share
premium
Revaluation
reserve
Profit
reserves
P
Retained earnings
r
(including net profit Treasury o
for the year)
shares fTotal equity
16,980
51,542
1,284
126,792
(14,398)
(31)
182,169
-
-
1,579
-
(14,875)
16
(24,956)
14,875
-
-
(23,377)
16
16,980
51,542
2,863
111,933
(24,479)
(31)
158,808
16,980
51,542
2,863
111,933
(24,479)
(31)
158,808
-
-
9,064
-
(24,984)
6
(126,358)
24,984
-
-
(117,294)
6
16,980
51,542
11,927
86,955
(125,853)
(31)
41,520
Allocation of net profit to profit reserves
Other
Loss appropriation to profit reserves
Other
63
5 STATEMENT OF CASH FLOWS
Bank
Group
1 January to
1 January to
1 January to
1 January to
31 Decem ber 31 Decem ber 31 Decem ber 31 Decem ber
2013
2012
2013
2012
A. CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Interest paid
Dividends received
77,598
101,208
77,551
101,241
(47,586)
(60,850)
(47,586)
(60,850)
387
751
387
751
Fee and commission received
17,294
17,397
17,293
17,397
Fee and commission paid
(1,522)
(1,807)
(1,522)
(1,807)
871
14,255
871
14,255
(235)
(76)
(235)
(76)
(6,917)
(5,966)
(6,917)
(5,966)
(30,731)
(31,581)
(31,125)
(31,581)
305
298
703
359
(2,311)
(1,886)
(2,349)
(1,886)
Realized gains from financial assets and financial liabilities
not classified as fair value through profit or loss
Realized (losses) from financial assets and financial
liabilities designated at fair value through profit or loss
(Losses) from financial assets and financial liabilities held
for trading
Payments to employees and suppliers
Operating income
Operating expenses
a) Cash flow s from operating activities before
changes in operating assets and liabilities
7,153
31,743
7,071
31,837
b) Decreases in operating assets
250,424
81,780
251,178
82,584
Net decrease in trading assets
15,359
27,156
15,359
27,156
4,887
2,723
4,887
2,723
Net decrease in financial assets, designated at fair value
through profit or loss
Net decrease in available for sale financial assets
Net decrease in loans and advances
Net decrease / (increased) in hedging derivative financial
assets
Net decrease / (increase) in other assets
c) (Decreases) in operating liabilities
Net increase in deposits from Central Bank
Net (decrease) in financial liabilities held for trading
Net (decrease) in financial liabilities designated at fair value
Net (decrease) in deposits and loans measured at
amortised cost
Net (decrease) of debt securities issued measured at
amortised cost
Net (decrease) of hedging derivative financial liabilities
Net increase / (decrease) in other liabilities
d) Cash flow generated from operating activities
(a+b+c)
e) Incom e tax refund
f) Net cash flow from operating activities (d+e)
64
81,184
4,361
81,184
4,361
145,421
49,494
145,785
52,958
3,455
(2,053)
3,455
(2,053)
118
99
508
(2,561)
(248,389)
(173,221)
(248,392)
(174,112)
71
59,929
71
59,929
(757)
(282)
(757)
(282)
-
(1,492)
-
(1,492)
(212,340)
(215,508)
(212,343)
(215,833)
(35,639)
(13,206)
(35,639)
(13,206)
-
(8)
-
(8)
276
(2,654)
276
(3,220)
9,188
(59,698)
9,857
(59,691)
-
1,409
-
1,409
9,188
(58,289)
9,857
(58,282)
Bank
Group
1 January to 1 January to
1 January to 1 January to
31 Decem ber 31 Decem ber 31 Decem ber 31 Decem ber
Note
2013
2012
2013
2012
B.
a)
b)
c)
C.
a)
b)
c)
D.
E.
F.
G.
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts from investing activities
Proceeds from sale of property and equipment and
investment property
Redemption of held to maturity investments
Paym ents from investing activities
(Purchase of property and equipment and
investment property)
(Purchase of intangible assets)
(Purchase of held to maturity investments)
Net cash provided by investing activities (a-b)
4.8
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from financing activities
Issue of subordinated liabilities
Expenditure from financing
(Dividends paid)
(Subordinated liabilities repayed)
Net cash used in financing activities (a-b)
EFFECTS OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH
EQUIVALENTS (Ae+Bc+Cc)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
CASH AND CASH EQUIVALENTS AT END OF
YEAR (D+E+F)
4.30
91,265
34,743
91,566
34,743
93
91,172
(34,860)
29
34,714
(28,140)
394
91,172
(35,830)
29
34,714
(28,147)
(807)
(872)
(33,181)
56,405
(795)
(503)
(26,842)
6,603
(1,777)
(872)
(33,181)
55,736
(799)
(506)
(26,842)
6,596
(4,782)
(4,782)
(4,782)
(21,844)
(21,844)
(21,844)
(4,782)
(4,782)
(4,782)
(21,844)
(21,844)
(21,844)
(478)
(89)
(478)
(89)
60,811
(73,530)
60,811
(73,530)
149,529
223,148
149,529
223,148
209,862
149,529
209,862
149,529
65
NOTES TO THE FINANCIAL STATEMENTS
1 GENERAL INFORMATION
Banka Celje d.d. (the Bank) is a Slovene joint stock company, providing universal banking services.
The Banka Celje, d.d., Group (the Group) comprises the Bank and its subsidiary, Posest, d.o.o. (the
Subsidiary).
The Bank is registered and located in Slovenia. The address of the Bank's headquarters is Banka
Celje, d.d., Vodnikova 2, Celje. The Bank's shares are not listed on any stock exchange.
The largest single shareholder of the Bank is Nova Ljubljanska banka d.d., with an ownership share
of 40.99%; other major shareholders are shown in Chapter 7.4 of the Business report.
The subsidiary Posest was established in 1991 as a limited liability company. The Bank is a 100%
owner of the Subsidiary.
Based on permission issued by the Bank of Slovenia, the subsidiary company is not included in the
consolidated supervision in accordance with the decision by the Bank of Slovenia on Supervision of
Banks and Savings Banks on a Consolidated Basis, as from the aspect of the aim of supervision the
Subsidiary does not represent any significant effect. Notes to the Financial Statements refer to the
Bank and the Group.
After the annual report has been approved by the Supervisory Board, standalone and consolidated
Financial Statements can no longer be amended.
2 SIGNIFICANT ACCOUNTING POLICIES
The Banka Celje d.d. and the Banka Celje Group financial statements have been prepared under
the going concern principle.
Banka Celje d.d. recorded a net loss of EUR 126,257 thousand in the year ended 31 December
2013, mostly due to impairment losses on loans and financial investments. Banka Celje Group
recorded a net loss of EUR 126,408 thousand in the year ended 31 December 2013, also mostly
due to impairment losses on loans and financial investments. Equity of Banka Celje d.d. amounted
to EUR 40,758 thousand and for Banka Celje Group EUR 41,520 thousand. The capital adequacy
ratio of Banka Celje d.d. and Banka Celje Group as of 31 December 2013 was 2.50% and 2.55%,
respectively. The regulatory requirement is 8%. Banka Celje d.d. and Banka Celje Group did not
comply with capital requirements as of 31 December 2013.
Banka Celje, d.d., started procedures to provide sufficient capital for the bank to meet capital
requirements at the end of 2013 and in 2014. Due to the failed recapitalization process, the Bank
applied for state aid which would be given through the transfer of certain assets to the Bank Asset
Management Company and through the increase of share capital in accordance with the Act on
measures to strengthen the stability of banks and in line with the Rules on State Aid.
In relation to the aforesaid, the Bank’s Management Board maintains that the going concern
assumption with regard to the preparation of separate and consolidated financial statements at 31
December 2013 is appropriate, even though significant uncertainty exists, which may cast doubt
about the Bank’s ability to continue as a going concern.
The principal accounting policies applied in the preparation of these standalone and consolidated
financial statements are set out below and have been consistently applied to both years presented.
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The disclosures in accordance with the Regulation on disclosures by banks and saving banks are
presented in a separate document.
2.1 Declaration of Conformity
Standalone and consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. Where
required, additional disclosures are included to comply with the requirements of local regulations.
The standalone and consolidated financial statements comprise the income statement, the
statement of comprehensive income, the statement of financial position, the statement of changes
in shareholder’s equity, the statement of cash flows, the principal accounting policies and the notes.
2.2 Basis for preparation of financial statements
The financial statements have been prepared under the going concern principle on the basis of the
historical cost convention, as modified by the revaluation of available-for-sale financial assets,
financial assets and financial liabilities at fair value through profit or loss and all derivative contracts,
which have been measured at fair value.
The standalone and consolidated statements of cash flows show the changes in cash and cash
equivalents arising from financial flows during the period classified according to operating activities,
investment activities and financing activities. Cash and cash equivalents include highly liquid
investments and are shown in Note 4.30. The standalone and consolidated statements of cash flows
have been prepared using the direct method, by amending the appropriate items from the
consolidated income statement with income and expenses or changes in operating assets and
liabilities from investments and financing during the period. Interest paid and received have been
classified as operating cash flows except where they are based on financing.
The preparation of financial statements in accordance with IFRS requires the use of certain
estimates and assumptions, which influence the value of reported assets and liabilities as well as
the disclosure of potential assets and liabilities on the reporting date and the amount of income and
expenses during the reported period. Estimates and judgements are evaluated on a continuing basis
and are based on past experience and other factors, including expectations with regard to future
events. Critical accounting estimates and judgements are disclosed in Note 2.28.
2.3 Comparative figures
The standalone and consolidated financial statements feature data disclosed using comparative
figures.
2.4 Investment in subsidiaries
In the separate financial statements, investment in the capital of the Subsidiary is accounted for at
cost. Dividends from the Subsidiary are recognised in the income statement, when the right to
receive cash flow is established.
2.5 Consolidation
The financial statements of the Subsidiary, used for the preparation of consolidated financial
statements, were prepared as of the Bank’s reporting date. The consolidation principles remained
unchanged in comparison with the previous year.
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The subsidiary has been fully consolidated since the day of the set-up and will be excluded from
consolidation on the date control is lost. Where necessary, accounting policies of the Subsidiary
have been adjusted to ensure consistency with the policies adopted by the Bank. In the process of
consolidation, all intercompany transactions, balances and unrealized gains have been eliminated.
2.6 Foreign currency translation
a) Functional and presentation currency
Items reported in these standalone and consolidated financial statements are measured using the
currency of the primary economic environment in which the Bank and the Group operate (the
functional currency). The financial statements are reported in Euros, which is the Bank’s and the
Subsidiary's functional and the Group’s presentation currency. All financial information, presented in
Euro, has been rounded to the nearest thousand.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency according to the exchange
rates prevailing on the date of the transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
Translation differences resulting from changes in amortised costs of monetary items denominated
in foreign currency classified as available for sale financial assets are recognised in the income
statement.
Translation differences on non-monetary items, such as equities at fair value through profit or loss,
are reported as part of fair value gain or loss in the income statement. Translation differences on
non-monetary items, such as equities classified as available for sale, are included together with
valuation reserves at fair value within other comprehensive income.
Gains and losses from foreign exchange trading are shown in the income statement under “Net gains
/ (losses) from financial assets and liabilities held for trading”.
2.7 Interest income and expenses
Interest income and expenses are recognised for all debt instruments, measured at amortised cost,
using the effective interest rate method. The aforementioned method serves the calculation of
amortised cost of a financial asset or financial liability and distributes interest income and expenses
across the expected life of a financial instrument. Interest income includes interest from fixed income
investments and investments in securities held for trading and from discounts and premiums on
bonds. The effective interest rate calculation includes all fees paid between parties at the conclusion
of the transaction, as well as transaction costs, however excludes future losses due to credit risk.
Once a financial asset or a group of related assets is impaired, the interest revenue is recognised
on the basis of the interest rate used to discount future cash flows to calculate impairment.
2.8 Fee and commission income
Fees and commissions are generally recognised as the service is provided, in accordance with the
Tariff or based on contractual provisions as negotiated between the Bank and the customer. Fee
and commission income includes fees and commissions from guarantees to companies issued by
the Bank, from payment operations and foreign exchange as well as from credit card operations.
Fees and commissions included in the calculation of the effective interest rate are shown in interest
income and expenses.
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2.9 Dividend income
Dividend income is recognised in the income statement when the Group’s right to receive payment
has been established. All dividend income is realised in Slovenia.
2.10 Financial instruments
2.10.1 Classification
The classification of financial instruments on initial recognition depends on the purpose of acquisition
and the instruments’ characteristics. The Group classifies financial instruments in the following
categories: financial instruments at fair value through profit or loss, loans and advances, held to
maturity investments and available for sale financial assets.
a) Financial instruments at fair value through profit or loss
This category includes financial instruments held for trading and financial instruments designated at
fair value through profit or loss at inception. A financial asset is classified in the held for trading
category if acquired principally for the purpose of selling in the short-term or for the creation of shortterm profits, or if so designated by management.
Financial assets and liabilities are designated at fair value through profit or loss when the following
conditions are met:
- with such a classification the Group eliminates or significantly reduces measurement or
recognition inconsistencies that would arise from the valuation of financial assets and
liabilities on different bases; or
- a financial instrument contains one or more embedded derivatives, which may significantly
modify its cash flows.
Derivatives are always categorised as held for trading unless they are designated as hedging
instruments in the application of accounting rules for hedge accounting.
b) Loans and advances
Loans and advances are non-derivative financial assets with fixed or determinable payments, which
are not quoted in an active market, other than:
- those that the Group intends to sell immediately or in the short-term, which are classified as
held for trading, and those that the Group upon initial recognition designates as at fair value
through profit or loss;
- those that the Group upon initial recognition designates as available-for-sale; or
- those for which the holder may not recover substantially all of its initial investment, for reasons
other than the deterioration of creditworthiness.
c) Held to maturity investments
Held to maturity investments are non-derivative financial instruments with fixed or determinable
payments and a fixed maturity which do not meet the definition of loans and receivables and which
the Group intends to hold until maturity and is able to do so.
d) Available for sale financial assets
Available for sale financial assets are those non-derivative financial assets which the Group intends
to hold for an indefinite period of time and which it may sell in response to liquidity needs or due to
changes in interest rates, exchange rates or prices of financial instruments.
2.10.2 Measurement and recognition
Financial assets, except financial assets at fair value through profit or loss, are initially recognised at
fair value increased by transaction costs.
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Financial instruments at fair value through profit or loss are initially recognised at fair value with
transaction costs recorded in the income statement.
Purchases and sales of financial instruments at fair value through profit or loss, held to maturity
investments and available for sale financial assets are recognised on trade date. Loans are
recognised when cash is advanced to the borrowers.
Financial assets at fair value through profit or loss and available for sale financial assets are
measured at fair value. Gains and losses from financial instruments at fair value through profit or
loss are included in the income statement in the period in which they arise. Gains and losses from
changes in the fair value of available for sale financial assets are recognised in other comprehensive
income until the financial asset is derecognised or impaired, at which time the cumulative amount
previously included in other comprehensive income is transferred to the income statement. Interest
calculated using the effective interest rate method and foreign currency gains and losses on
monetary assets classified as available for sale are recognised directly in the income statement.
Dividends on available for sale equity instruments are recognised in the income statement when the
Group’s right to receive payment is established.
Loans and held to maturity investments are carried at amortised cost.
2.10.3 Profit or loss at initial recognition
The best evidence of fair value at initial recognition is the transaction price, representing the fair
value of consideration given or received, unless where it is possible to prove fair value through other
comparable market transactions or on the basis of a valuation technique, whose variables are
exclusively based on market assumptions.
When the transaction price of a financial instrument on a non-active market differs from the price in
other observable current market transactions in the same instrument, or from the price ascertained
using a valuation technique whose variables include data from observable markets exclusively, the
Group immediately recognises the difference between the transaction price and the fair value in the
income statement.
2.10.4 Reclassification
Financial assets that are eligible for classification as loans and advances can be reclassified out of
the held for trading category if they are no longer held for the purpose of selling or repurchasing
them in the near-term. Financial assets that are not eligible for classification as loans and receivables
may be transferred from the held for trading category only in rare circumstances. Additionally,
instruments designated at fair value through profit and loss cannot be reclassified.
2.10.5 Derecognition
Financial assets are derecognised when the contractual rights to receive cash flows from these
assets have ceased to exist, or the assets have been transferred in the transfer that meets the criteria
for derecognition. Financial liabilities are derecognised when they have been discharged, cancelled
or have expired. Due to a significant change in the provisions of existing subordinated liabilities, to
have a derivative embedded into subordinated debt, the Bank eliminated their original recognition
and recognized these at fair value, while showing the effects in the income statement. Having
revalued its subordinated debt to fair value the Bank did not write it off, it only recognized its fair
value in accordance with IAS 39.
2.10.6 Fair value measurement principles
The fair value of financial instruments traded on active markets is based on the current best bid price
at the statement of financial position date, excluding transaction costs. If a market price is not
available, fair value is determined using discounted future cash flow or a pricing model.
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When using discounted future cash flow models, these are determined based on the most probable
estimate and the discount rate is a market based rate of an instrument with similar characteristics
on the last day of the reporting period. If the pricing model is used, market data at the reporting date
is used.
The fair value hierarchy is disclosed under 5.5.b.
2.10.7 Derivative financial instruments and hedge accounting
Derivatives, including forwards, futures and swaps, are initially recognised in the statement of
financial position at fair value. Fair value is determined on the basis of a listed market price, the
model of discounted future cash flows and with the use of pricing models. The fair values are
recognised in assets (positive valuation) or liabilities (negative valuation) in the statement of financial
position. Interest accruals on interest rate derivatives are recorded separately from fair value
measurement in the income statement.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being hedged. The Group uses
derivatives to hedge the fair value of recognised assets and liabilities.
Hedge accounting is used provided certain criteria are met. When a hedge is introduced a formal
document is prepared, describing the relationship between hedged items and hedging instruments,
as well as its risk management purpose and strategy and the valuation methodology. The Group
also documents the effectiveness assessment of hedging instruments at exposure to changes in the
fair value of a hedged instrument, which are attributable to hedging. The Group assesses the
effectiveness of a hedge at its inception and then on an ongoing basis during the duration of the
hedge, where the hedge effectiveness must always fall within a range of 80 to 125 percent.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recognised in the income statement, together with any changes in the fair value of the hedged asset
or liability that are attributable to the hedged risk. Effective changes in fair value of hedging
instruments and the related hedged items are reflected in the income statement under ’’Changes in
fair value from hedging’’.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount
of a hedged item for which the effective interest method is used is transferred to profit or loss over
the period to maturity. The adjustment in the carrying amount of the hedged equity investment is
included in operating profit at the moment of sale.
Individual derivative financial instruments that provide effective economic hedges which, however,
do not qualify for hedge accounting under the specific accounting rules, are treated as derivatives
held for trading. Changes in the fair value of those derivative instruments are recognised immediately
in the income statement under “Net gains / (losses) from financial assets and liabilities held for
trading”.
2.11 Impairment of financial assets
2.11.1 Assets measured at amortised cost
The Group assesses impairments of financial assets individually for all individually significant assets
where there is objective evidence of impairment and for other financial assets, that have already
been recognised as impaired (exposures rated D and E), while all other financial assets are impaired
collectively. According to the Regulation on credit risk loss assessment by the Bank of Slovenia, a
financial asset or off-balance sheet liability is individually significant if total exposure to the client
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exceeds EUR 650 thousand or 0.5% of the Bank’s equity. If the Group determines that no objective
evidence of impairment exists in an individually significant financial asset, it includes this asset in a
group of financial assets with similar credit risk characteristics and collectively assesses them for
impairment (exposures rated A through C). The Group individually assesses financial assets rated
D and E for impairment.
At each reporting date of the statement of financial position, the Group assesses whether there is
objective evidence that an individually significant financial asset is impaired as a consequence of
one or more events that occurred after initial recognition of the asset and that event has an impact
on the asset’s future cash flows, which can be reliably estimated.
The criteria the Group uses to determine the existence of objective evidence on an impairment loss
pertaining to a financial asset or asset class include:
- late payment of contractual interest or principal;
- debtor’s significant liquidity problems;
- breach of contract;
- start of bankruptcy proceedings, compulsory settlement proceedings or a different form of
financial restructuring;
- deterioration of the borrower’s competitive position;
- deterioration in the value of collateral; and
- credit rating downgraded below investment grade.
The Group estimates that the period between the occurrence of problems, which prevent the client
from fulfilling his obligations to the Group, and identification of these problems by the Group typically
varies from between one to three months. Junior management determines the assessment period
on a case by case basis.
If there is objective evidence that an impairment loss on loans and advances or held to maturity
investment has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows. The carrying amount
of the asset is reduced through an allowance account and the amount of the loss is recognised in
the income statement. The calculation of the present value of the estimated future cash flows of
collateralised financial assets reflects the present value of future cash flows from foreclosure, less
cost of obtaining and selling the collateral. Assumed off-balance sheet liabilities are also assessed
individually, and where necessary related provisions are recognised as liabilities.
For the purpose of collective impairment evaluation, the Group uses migration matrices, which
illustrate the expected migration of customers between internal rating classes. The probability of
migration is assessed on the basis of past experience, namely the annual migration matrices for
different types of customers. This data is then adjusted to the predicted future trends, since historic
experience does not necessarily reflect the actual economic conditions. The Bank includes the
estimates in the impairment percentages with an estimate of the general risk factor. Exposure to
private individuals is analysed additionally from the aspect of transaction type. For companies,
impairments are assessed on the basis of expected client transitions and with it the transition of good
debt to D and E rating classes with individually estimated average recovery rates from D and E
clients (bad debt class). The expected migrations of private individuals from good rating classes to
C, D and E are assessed for individual transaction types, the average recovery is subsequently
calculated on the basis of actual loss from bad debt for individual transaction type.
The amount of impairment loss is recorded in the allowance account. If the amount of the impairment
subsequently decreases due to an event occurring after the write down, the reversal of loss is
recognised as a reduction of an allowance for loan impairment.
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2.11.2 Assets available for sale
At the reporting date, the Group assesses whether there is objective evidence that available-for-sale
financial assets are impaired. A significant or prolonged decrease in the fair value of an equity
instrument below its cost may provide objective evidence of impairment. If any such evidence exists
for available for sale assets, the cumulative loss is removed from other comprehensive income and
recognised in the income statement as an impairment loss. In the statement of financial position
impairment loss directly decreases the value of a financial asset. A subsequent derecognition of loss
due to impairment of an equity instrument as a result of an increase in its fair value is recognised
through other comprehensive income.
If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases
and the increase can be objectively related to an event occurring after the impairment loss was
recognized, the impairment loss is reversed through the income statement.
The criteria the Group uses to determine whether a debt instrument is impaired:
- late payment of contractual interest or principal;
- issuer’s significant liquidity problems;
- breach of contract;
- start of bankruptcy proceedings at issuer;
- deterioration of the issuer’s competitive position;
- credit rating downgraded below investment grade.
Impairment losses recognised in the income statement are measured as the difference between the
carrying amount of the financial asset and its present fair value. The present fair value of the
instrument is its market price or discounted future cash flows, when the market price is not
obtainable.
2.11.3 Repossessed assets
The Group did not record any assets, received in payment of receivables through repossession of
assets pledged.
2.11.4 Renegotiated loans
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise
modified because of financial difficulties of the borrower or issuer, impairment is measured using the
original effective interest rate before the modification of terms. The renegotiated asset is then
derecognised and a new asset is recognised at its fair value.
2.12 Offsetting
Financial assets and liabilities are offset when a legally enforceable right to offset the recognised
amounts exists and there is an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously.
2.13 Sale and repurchase agreements
Securities sold under sale and repurchase agreements (repos) are retained in the financial
statements and the related liabilities are included in financial liabilities associated with the transferred
assets. Securities sold subject to sale and repurchase agreements are reclassified in the financial
statements as pledged assets when the counterparty has the right by contract to sell or re-pledge
the collateral. The difference between the sale and repurchase price is treated as interest and
accrued over the life of the repo agreements using the effective interest rate method.
73
2.14 Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and
balances with the Central Bank, government debt securities held for trading and loans to banks with
an original maturity of less than 90 days.
2.15 Accounting for leases
A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or series
of payments, the right to use an asset for an agreed period of time. Lease agreements are accounted
for in accordance with their classification as finance leases or operating leases at the inception of
the lease. The key classification factor is the extent to which the risks and rewards incidental to
ownership of a leased asset lie with the lessor or lessee.
a) the Group is the lessee
Leases entered into by the Group are operating and financial leases. The total payments made under
operating leases are included in the income statement on a straight line basis over the period of the
lease and are recorded in administrative expenses. When an operating lease is terminated before
the lease period has expired, any payment required to be made to the lessor is recognised as an
expense for the period in which termination takes place.
A financial lease is a lease, in which the lessee takes on nearly all the risks and rewards of
ownership. Assets, acquired through a financial lease, are recognised at fair value or at present
value of the minimum lease payments, decreased by depreciation costs and loss due to impairment
charges. Lease payments are recognised as interest expenses. Leased assets are depreciated over
the useful life of the asset. If there is no reasonable certainty that the lessee will obtain ownership
by the end of the lease term, such assets are depreciated over the shorter of the lease term or the
useful life of the asset.
b) the Group is the lessor
In operational leasing, the Group transfers the right to use an asset for a contractually agreed amount
of time to the lessee in exchange for a payment or a string of payments.
Payments received under operating leasing are recognised as other operating income in the income
statement on a straight line basis over the period of the lease. Assets leased out under operating
leases are presented in the consolidated statement of financial position as investment property or
as property and equipment.
Assets are leased under a finance lease when the risks and rewards related to ownership of a leased
asset are transferred to the lessee. When assets are leased out under a finance lease, the present
value of the minimum lease payments is recognised as a receivable. Income from finance leasing
transactions is apportioned systematically over the lease period. Receivables from a finance lease
are shown as net investments in the finance lease including the unguaranteed residual value.
2.16 Investment property
Investment property includes buildings held for leasing and not occupied by the Group.
Investment property is initially recognised at cost. Direct transaction costs are included in the initial
measurement. Subsequently, it is measured at cost less accumulated depreciation and any
accumulated impairment loss. When there is a change in use, the Group makes transfers to or from
investment property.
Depreciation is provided for on a straight line basis using a depreciation rate of 1.0%.
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2.17 Property and equipment
All property and equipment is initially recognised at cost. Subsequently, it is measured at cost less
accumulated depreciation and any accumulated impairment loss.
Each year the Group assesses whether there are any indications that assets may be impaired. If
such an indication exists, the Group estimates the recoverable amount. The recoverable amount is
the higher of the fair value less cost to sell and value in use. If the recoverable amount exceeds the
carrying value, the assets are not impaired. As at 31 December 2013 no property or equipment item
was impaired.
Depreciation is provided for on a straight line basis over their estimated useful lives. Assets in the
course of transfer or construction are not depreciated until they are available for use.
The following are approximations of the annual rates used:
Bank and Group
Buildings
Furniture and equipment
Computer equipment
Leasehold improvements
%
1.9 - 6.0
7.0 - 20.0
10.0 - 33.3
10.0 - 20.0
The assets' residual value and useful life are reviewed, and adjusted if appropriate, on each
statement of financial position date.
Gains and losses on disposal of property and equipment are determined as a difference between
the sale proceeds and their carrying amount and are recognised in the income statement.
Maintenance and repairs are charged to the income statement during the financial period in which
they are incurred. Subsequent costs that increase future economic benefits are recognised in the
carrying amount of a property and equipment item.
2.18 Intangible assets
Intangible assets comprise computer software and software licences. They are initially recognised
at cost, decreased by the accumulated amortisation and impairment losses.
Amortisation of intangible assets with a finite useful life is calculated on a straight-line basis at rates
designed to write down the cost of the intangible asset over its estimated useful life. Software and
licences are amortised over a period of three to ten years. Intangible assets begin to be amortised
when they are available for use.
2.19 Inventories
Inventories are measured at the lower of cost or net realisable value. The Group uses the weighted
average cost method to determine inventories.
2.20 Taxes
2.20.1 Corporate income tax
Corporate income tax is calculated using the provisions of the Corporate Income Tax Act (the Act)
at a tax rate of 17% and is recorded in the income statement.
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Until, and including, 2012 deferred income tax has been calculated using the balance sheet liability
method, for all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. During the past three years the Bank made a tax
loss. On the reporting date of the Statement of financial position it estimated, that future business
years carry a probability of attaining a sufficient profit for the Bank to cover for the tax loss and to
eliminate deferred tax assets. However, out of prudence due to the position it is currently in, the Bank
impaired the entire amount of deferred tax assets on 31 December 2013, while not forming deferred
tax assets for 2013.
Deferred tax related to fair value remeasurement of available for sale investments is charged or
credited directly to other comprehensive income and subsequently recognised in the income
statement together with the deferred gain or loss from the sale. As at 31 December 2013 the Bank
derecognized the entire amount of deferred tax liabilities, while not forming any for 2013.
2.20.2 Balance sheet tax
The Bank's total asset tax liability is shown under net other operating gains / (losses) (Note 3.9) and
is calculated in accordance with Slovenian legislation. The tax liability is represented by the
difference between the tax base and the tax relief. The tax base is balance sheet volume, which
represents the value of assets in the Statement of financial position. The tax rate for the balance
sheet is 0.1%. Calculated tax is reduced by 0.1% of loans granted to non-financial companies and
private entrepreneurs during the period.
2.20.3. Financial services tax
The liability to pay financial services tax is recognised in net other operating gains / (losses) (Note
3.9). In accordance with the adopted Financial Services Tax Act the Bank records the liability for the
period from 1 March 2013 onward. Thus, in line with the aforementioned act, financial services, which
in accordance with the Value Added Tax Act, are exempt from VAT payment, are taxed.
The basis for the financial services tax is the remuneration (fee or commission), which the Bank
receives in payment for a financial service it has provided.
2.21 Employee benefits
Employee benefits include: jubilee benefits and retirement indemnity bonuses. In accordance with
legislation, employees retire after 40 years of service and are entitled to a lump sum severance
payout at such time. Employees are also entitled to long service bonuses for every ten years of
service to the Bank.
The valuation of the provisions for these obligations is carried out by independent qualified actuaries.
The significant assumptions used in the actuarial calculation for the Group are:
Bank and Group
Discount rate
Number of employees entitled to benefits
Wage growth based on inflation, promotions and seniority
2013
2012
3.10%
3.55%
499
503
2.00%
3.00%
All gains and losses arising from changes in assumptions are immediately recognised in the income
statement, except for actuarial gains in the amount of EUR 74 thousand based on post-employment
benefits, which have been recognised in the revaluation reserve for the business year on the basis
of the amended IAS 19. Due to the immaterial nature of the effect the amendment of the aforesaid
standard has on actuarial gains or losses, the Bank did not prepare a calculation for the preceeding
period.
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The Group contributes to the State Pension Scheme (8.85% of gross salaries) in accordance with
legislation. Once contributions have been paid, the Bank has no further payment obligation. The
regular contributions constitute net periodic costs for the year in which they are due and are disclosed
under labour costs in the income statement.
2.22 Loans taken, deposits and debt securities issued
Loans taken, deposits and debt securities issued are initially recognised at fair value decreased by
the transaction costs. Loans and deposits are usually measured at cost, with the difference between
initial recognition and carrying value recognised in the income statement under interest income with
the use of the effective interest rate. A debt security issued is measured at cost or at fair value.
Purchases of own debt reduce the liabilities in the statement of financial position. The difference
between the carrying amount and the price of the own debt is shown in the income statement.
2.23 Provisions
Long-term provisions are recognised when the Group has a present legal or constructive obligation
as a result of past events and it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation
can be made.
The Bank creates provisions for post-employment benefits, for commitments and contingent
liabilities, for legally unresolved claims and on the basis of the national housing savings scheme.
For instruments carrying off-balance sheet risk provisions are formed for estimated loss from the
items, which are based on similar criteria as those set for loans.
To form provisions for legitimate obligations from past events a reliable estimate of the obligation
amounts is required.
2.24 Financial and performance guarantees
Financial guarantees are agreements that require the issuer to make specific payments to reimburse
the holder for a loss it incurs because a specific debtor fails to make payments when due, in
accordance with the terms of debt instruments at the initial or adjusted due date. Such financial
guarantees are given to banks, other financial institutions and other parties as a form of collateral on
loans, overdrafts and other banking facilities.
Performance guarantees are agreements, based on which the issuer is obligated to pay a
consideration, which compensates the holder for loss resulting from the contractor’s failure to fulfil
contractual obligations. Mainly these are issued to construction investors in the name of the
contractor, to secure the conditions, as defined in the agreement.
Financial and performance guarantees are initially recognised at fair value, which is recorded as the
amount of fees and commissions received. The fees are transferred to the income statement over
the contract term using the straight line method. The Group’s liabilities under guarantees are
subsequently measured at the greater of:
- the initial measurement, less amortisation calculated to recognise fee income over the period
of guarantee; or
- the best estimate of the expenditure required to settle the obligation.
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2.25 Share capital
Ordinary shares and preference shares are both classified as equity.
a) Share issue costs
Costs, directly attributed to the issue of new shares are recognised in equity as a reduction in share
premium.
b) Dividends on shares
Dividends on shares are recognised in equity in the period in which they are approved by the Bank’s
owners.
c) Treasury shares
Should the Bank purchase treasury shares, the consideration paid is deducted from total
shareholder’s equity as treasury shares. In the event of a subsequent sale of the acquired treasury
shares, the amount is shown as an increase in share capital.
2.26 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Assets
and Liabilities Committee (ALCO) that makes decisions on funding, investments and the operating
performance of the Bank and its segments. The criterion for the definition of the Bank’s segments is
represented by services, which are allocated based on similar characteristics to retail operations,
corporate operations and the financial markets. Income and expenses directly attributable to a
respective segment are included in the said segment's performance. Income tax is not allocated to
segments.
2.27 Adoption of new or revised standards and interpretations
The accounting policies, used in the preparation of the consolidated financial statements are
consistent with those of the consolidated annual financial statements for the year ended 31
December 2012, except for new and amended standards as of 1 January 2013, as presented below.
a)
Newly adopted standards and interpretations
IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income
(OCI)
The amendment becomes effective for annual periods beginning on or after 1 July 2012. The
amendment to IAS 1 changes the grouping of items presented in OCI. Items that could be reclassified
to profit or loss at a future point in time (for example, upon derecognition or settlement) are presented
separately from items that will never be reclassified. The amendment does not change the nature of
the items that were recognized in OCI, nor do they impact the determination of whether items in OCI
are reclassified through profit and loss in future periods. The amendment affects presentation only
and there is no impact on the Group's financial position or performance.
IAS 19 Employee benefits (revised)
The revised standard includes a number of amendments that range from fundamental changes to
simple clarifications and re-wording. The more significant changes include the following: for defined
benefit plans, the ability to defer recognition of actuarial gains and losses (i.e. the corridor approach)
has been removed; there are new or revised disclosure requirements which include quantitative
information of the sensitivity of the defined benefit obligation to a reasonably possible change in each
significant actuarial assumption; termination benefits are recognized at the earlier of when the offer
of termination cannot be withdrawn, or when the related restructuring costs are recognized under
IAS 37; the distinction between short-term and other long-term employee benefits is based on
78
expected timing of settlement rather than the employee’s entitlement to the benefits. This standard
is effective for annual periods beginning on or after 1 January 2013. The revised standard has
affected the presentation of actuarial gains on severance pay at retirement in the revaluation reserve.
IFRS 7 Financial Instruments: Disclosures (Offsetting Financial Assets and Financial Liabilities)
The amendment is effective for annual periods beginning on or after 1 January 2013. This
amendment requires an entity to disclose information about rights to set-off and related
arrangements (e.g. collateral agreements). The disclosures would provide users with information
that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The
new disclosures are required for all recognized financial instruments that are set off in accordance
with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognized financial
instruments that are subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are set-off in accordance with IAS 32. The amendment has no impact
on the Group's financial position or performance.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS
13 does not change when an entity is required to use fair value, but rather provides guidance on how
to measure fair value under IFRS when fair value is required or permitted.
Fair value under IFRS 13 is defined as “the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date”
(i.e. an “exit price”). “Fair value” as used in IFRS 2 Share-based Payments and IAS 17 Leases is
excluded from the scope of IFRS 13.
The standard provides clarification on a number of areas, including the following:
- Concepts of ‘highest and best use’ and ‘valuation premise’ are relevant only for non-financial
assets;
- Adjustments for blockage factors (block discounts) are prohibited in all fair value
measurements;
- A description of how to measure fair value when a market becomes less active.
New disclosures related to fair value measurements are also required to help users understand the
valuation techniques and inputs used to develop fair value measurements and the effect of fair value
measurements on profit or loss. The standard has no impact on the Group's financial position or
performance.
b) New IFRS standards and interpretations either not yet effective or not yet adopted by the
EU
In compliance with the requirements of IFRSs and subject to the endorsement by the European
Union, the Group will have to apply in future periods the following amended and revised standards
and interpretations. The Group is currently assessing the potential impacts of the new and revised
standards and interpretations that will be effective or adopted by the EU from 1 January 2014 or
later.
IAS 28 Investments in Associate and Joint Ventures (revised)
As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments
in Associates and Joint Ventures, and describes the application of the equity method to investments
in joint ventures in addition to associates. The amendment does not have a significant impact on the
financial position or performance of the Group. The standard has no impact on the Group's financial
position or performance.
79
IAS 32 Financial Instruments: Presentation (Offsetting Financial Assets and Financial Liabilities)
In December 2011, IASB issued an amendment to IAS 32, which is intended to clarify existing
application issues relating to the offsetting rules and reduce level of diversity in current practice. The
amendment is effective for financial statements beginning on or after 1 January 2014. The
amendments clarify that rights of set-off must not only be legally enforceable in the normal course of
business, but must also be enforceable in the event of default and the event of bankruptcy or
insolvency of all of the counterparties to the contract, including the reporting entity itself. The IAS 32
offsetting criteria require the reporting entity to intend either to settle on a net basis, or to realize the
asset and settle the liability simultaneously. The amendment clarifies that only gross settlement
mechanisms with features that eliminate or result in insignificant credit and liquidity risk and that
process receivables and payables in a single settlement process or cycle would be, in effect,
equivalent to net settlement and, therefore, meet the net settlement criterion. The Group does not
expect the amendment will have an impact on the Group's financial statements.
IAS 36 Impairment of Assets (Recoverable Amount Disclosure for Non-Financial Assets)
The amendment clarifies the disclosure requirements in respect of fair value less costs of disposal.
When IAS 36 Impairment of Assets was originally changed as a consequence of IFRS 13, the IASB
intended to require disclosure of information about the recoverable amount of impaired assets if that
amount was based on fair value less costs to sell. An unintended consequence of the amendments
was that an entity would be required to disclose the recoverable amount for each cash-generating
unit for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated
to that unit was significant in comparison with the entity’s total carrying amount of goodwill or
intangible assets with indefinite useful lives. This requirement has been deleted by the amendment.
In addition, the IASB added two disclosure requirements:
- Additional information about the fair value measurement of impaired assets when the
recoverable amount is based on fair value less costs of disposal;
- Information about the discount rates that have been used when the recoverable amount is
based on fair value less costs of disposal using a present value technique. The amendment
harmonises disclosure requirements between value in use and fair value less costs of
disposal.
The amendment is effective for financial statements beginning on or after 1 January 2014. The Group
does not expect the amendment will have an impact on the Group's financial statements.
IAS 39 Financial Instruments: Recognition and Measurement (Novation of Derivatives and
Continuation of Hedge Accounting)
The amendment provide an exception to the requirement to discontinue hedge accounting in certain
circumstances in which there is a change in counterparty to a hedging instrument in order to achieve
clearing for that instrument.
The amendment covers novations:
- That arise as a consequence of laws or regulations, or the introduction of laws or regulations;
- Where the parties to the hedging instrument agree that one or more clearing counterparties
replace the original counterparty to become the new counterparty to each of the parties;
- That did not result in changes to the terms of the original derivative other than changes
directly attributable to the change in counterparty to achieve clearing.
All of the above criteria must be met to continue hedge accounting under this exception. The
amendments cover novations to central counterparties, as well as to intermediaries such as clearing
members, or clients of the latter that are themselves intermediaries. For novations that do not meet
the criteria for the exception, entities have to assess the changes to the hedging instrument against
derecognition criteria for financial instruments and the general conditions for continuation of hedge
accounting.
80
The amendment is effective for financial statements beginning on or after 1 January 2014. The Group
does not expect the amendment will have an impact on the Group's financial statements.
IFRS 9 Financial Instruments – Classification and measurement
The IFRS 9 was originally issued in November 2009 and is intended to replace IAS 39 Financial
Instruments: Recognition and measurement. The standard introduces new requirements for
classifying and measuring financial assets and liabilities. In October 2010 the IASB added to IFRS
9 the requirements for classification and measurement of financial liabilities and derecognition of
financial assets and liabilities. Most of the requirements in IAS 39 for classification and measurement
of financial liabilities and derecognition of financial assets and liabilities were carried forward
unchanged to IFRS 9. The standard eliminates categories of financial instruments currently existing
in IAS 39: available-for-sale and held-to-maturity. According to IFRS 9 all financial assets and
liabilities are initially recognized at fair value plus transaction costs.
Financial assets
Debt instruments may, if the fair value option (FVO) is not invoked, be subsequently measured at
amortized cost if:
- The asset is held within a business model that has the objective to hold the assets to collect
the contractual cash flows; and
- The contractual terms of the financial asset give rise, on specified dates, to cash flows that
are solely payments of principal and interest on the principal outstanding.
All other debt instruments, where the above mentioned conditions are not met, are subsequently
measured at fair value.
All equity investment financial assets are measured at fair value either through other comprehensive
income (OCI) or profit or loss. Equity instruments held for trading must be measured at fair value
through profit or loss. Entities have an irrevocable choice of recognizing changes in fair value either
in OCI or profit or loss by instrument for all other equity investment financial assets.
Financial liabilities
For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes
in credit risk must be presented in OCI. The remainder of the change in fair value is presented in
profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI
would create or enlarge an accounting mismatch in profit or loss.
Hedge accounting
A new chapter on hedge accounting has been added to IFRS 9. This represents a major overhaul of
hedge accounting and puts in place a new model that introduces signiﬁcant improvements principally
by aligning the accounting more closely with risk management. There are also improvements to the
disclosures about hedge accounting and risk management.
The standard does not currently indicate the mandatory effective date. The IASB decided to defer
the mandatory effective date of IFRS 9 until the date of the completed version of IFRS 9 is known.
The standard has not yet been endorsed by EU.
The adoption of IFRS 9 will have an effect on the classification and measurement of the Bank’s
financial assets and liabilities. The Bank will quantify the effect in conjunction with the other phases,
when issued, to present a comprehensive picture.
IFRS 10 Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that
addresses the accounting for consolidated financial statements. It also includes the issues raised in
81
SIC-12 Consolidation - Special Purpose Entities, which resulted in SIC-12 being withdrawn. IAS 27,
as revised, is limited to the accounting for investments in subsidiaries, joint ventures, and associates
in separate financial statements.
IFRS 10 establishes a single control model that applies to all entities including special purpose
entities. The changes introduced by IFRS 10 will require management to exercise significant
judgment to determine which entities are controlled, and therefore, are required to be consolidated
by a parent, compared with the requirements that were in IAS 27. Control exists when an investor
has:
- Power over the investee (defined in IFRS 10 as when the investor has existing rights that
give it the current ability to direct the relevant activities);
- Exposure, or rights, to variable returns from its involvement with the investee; and
- The ability to use its power over the investee to affect the amount of the investor’s returns.
This standard becomes effective for annual periods beginning on or after 1 January 2013. The
endorsement process within EU adopted the standard and decided that the standard should be
applied, at the latest, as from the commencement date of a financial year starting on or after 1
January 2014. The Group does not expect the standard will have a significant impact on current
Group's interests in entities, but may affect the treatment of future acquisitions.
IFRS 11 Joint Arrangements
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Nonmonetary Contributions by Venturers.
Joint control under IFRS 11 is defined as the contractually agreed sharing of control of an
arrangement, which exists only when the decisions about the relevant activities require the
unanimous consent of the parties sharing control. “Control” in “joint control” refers to the definition of
“control” in IFRS 10. IFRS 11 also changes the accounting for joint arrangements by moving from
three categories under IAS 31 to the following two categories:
- Joint operation - An arrangement in which the parties with joint control have rights to the
assets and obligations for the liabilities relating to that arrangement. In respect of its interest
in a joint operation, a joint operator must recognize all of its assets, liabilities, revenues and
expenses, including its relative share of jointly controlled assets, liabilities, revenue and
expenses.
- Joint venture - An arrangement in which the parties with joint control have rights to the net
assets of the arrangement. Joint ventures are accounted for using the equity method. The
option in IAS 31 to account for joint ventures (as defined in IFRS 11) using proportionate
consolidation has been removed.
Under these new categories, the structure of the joint arrangement is not the only factor considered
when classifying the joint arrangement as either a joint operation or a joint venture, which is a change
from IAS 31. Under IFRS 11, parties are required to consider whether a separate vehicle exists and,
if so, the legal form of the separate vehicle, the contractual terms and conditions, and other facts
and circumstances.
This standard becomes effective for annual periods beginning on or after 1 January 2013. The
endorsement process within EU adopted the standard and decided that the standard should be
applied, at the latest, as from the commencement date of a financial year starting on or after 1
January 2014. The Group does not expect the standard will have a significant impact on current
Group's interests in other entities, but may affect the treatment of future arrangements.
82
IFRS 12 Disclosure of Involvement with Other Entities
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial
statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28.
These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and
structured entities. Some of the more extensive qualitative and quantitative disclosures of IFRS 12
include: provision of summarized financial information for each subsidiary with a material noncontrolling interest; description of significant judgments used by management in determining control,
joint control and significant influence, and the type of joint arrangement (i.e. joint operation or joint
venture); provision of summarized financial information for each individually material joint venture
and associate; and description of the nature of the risks associated with an entity’s interests in
unconsolidated structured entities.
This standard becomes effective for annual periods beginning on or after 1 January 2013 and may
affect the disclosures in the notes to financial statements. The endorsement process within EU
adopted the standard and decided that the standard should be applied, at the latest, as from the
commencement date of a financial year starting on or after 1 January 2014. The standard affects
presentation only and there is no impact on the Group's financial position or performance.
Investment Entities (Amendments to IFRS 10, IFRS 12, IAS 27 and IAS 28)
In October 2012 IASB issued the amendments that are effective for annual periods beginning on or
after 1 January 2014. These amendments will apply to investments in subsidiaries, joint ventures
and associates held by a reporting entity that meets the definition of an investment entity. An
investment entity will account for its investments in subsidiaries, associates and joint ventures at fair
value through profit or loss in accordance with IFRS 9 (or IAS 39, as appropriate), except for
investments in subsidiaries, associates and joint ventures that provide services that relate only to
the investment entity, which would be consolidated or accounted for using the equity method,
respectively. An investment entity will measure its investment in another controlled investment entity
at fair value. Non-investment entity parents of investment entities will not be permitted to retain the
fair value accounting that the investment entity subsidiary applies to its controlled investees. For
non-investment entities, the existing option in IAS 28, to measure investments in associates and joint
ventures at fair value through profit or loss, will be retained. The Group is currently assessing the
impact that this standard could have on the Group's financial position and performance.
IFRIC 21 Levies
The interpretation is applicable to all levies other than outflows that are within the scope of other
standards (e.g., IAS 12) and fines or other penalties for breaches of legislation. Levies are defined
in the interpretation as outflows of resources embodying economic benefits imposed by government
on entities in accordance with legislation. The interpretation clarifies that an entity recognizes a
liability for a levy when the activity that triggers payment, as identified by the relevant legislation,
occurs. It also clarifies that a levy liability is accrued progressively only if the activity that triggers
payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is
triggered upon reaching a minimum threshold, the interpretation clarifies that no liability is recognized
before the specified minimum threshold is reached. The interpretation does not address the
accounting for the debit side of the transaction that arises from recognizing a liability to pay a levy.
Entities look to other standards to decide whether the recognition of a liability to pay a levy would
give rise to an asset or an expense under the relevant standards. The interpretation is effective for
annual periods beginning on or after 1 January 2014. The Group is currently assessing the impact
that this interpretation could have on the Group's financial position and performance.
83
2.28 Critical accounting estimates and judgements
All the estimates and judgements used represent the best judgements in accordance with IFRS,
made in line with the applicable standards and are based on the principles of an active company, on
past experience and other factors, including expectations with regard to future events.
a) Impairment losses on loans and advances
With the objective of determining impairment charges, the Bank and the Group are reviewing their
loan portfolio at least on a quarterly basis. Prior to making the decision on recognising loss through
the income statement, they make judgements if any information exists which could signify a drop in
the estimated cash flows from loans. Such evidence includes the information on deterioration of
debtor creditworthiness or on deterioration of economic conditions and circumstances. Future cash
flows from financial assets are estimated on the basis of past experience and loss from credit risk
bearing assets. The estimated future cash flows reflect also the effects related to the current
circumstances. Individual estimations are prepared on the basis of projected future cash flows
including all relevant information in relation to the financial position and debtor creditworthiness as
well as collateral. The methodology and assumptions, used in estimating future cash flow are based
on regular reviews aimed at decreasing the differences between the estimated and actual losses.
Should the present value of future cash flows decrease by 1 percentage point, it would result in
additional impairment charges in the amount of EUR 2,080 thousand for the Bank and the Group
(2012: EUR 3,503 thousand for the Bank and EUR 3,504 thousand for the Group).
b) Fair value of financial instruments
The fair value of financial instruments traded on an organised market is determined using observable
market prices on the reporting date, being the price, representing the best bid for the financial
instrument.
Fair values of financial instruments not traded on organized markets are determined using valuation
models. These include comparisons with the prices from the most recent transactions, the use of
discounted future cash flows and other frequently used valuation methods. All models in use have
been verified to ensure that the results offer an adequate representation of actual market conditions,
including the relative liquidity of the market and the use of adequate market surpluses. Changes in
the estimates of these factors would impact the reported fair value of held for trading investments
and available for sale financial assets.
The fair values of derivatives are determined on the basis of market data, in line with the adopted
methodology of the valuation of financial instruments. Market foreign currency rates, market interest
rates, the yield curve and the volatility curves are used in the valuation.
c) Held to maturity investments
All held to maturity investments are classified as available for sale financial assets as at 31 December
2013. The effect of the reclassification is shown in Note 4.4.
84
3 NOTES TO THE INCOME STATEMENT
3.1 Net interest and similar income
Bank
2013
Loans and advances to customers
Loans and advances to banks
Securities
- held for trading
- financial assets designated at fair value
- available for sale financial assets
- held to maturity investments
Deposits with Central Bank
Derivatives - interest rate swap
Loans and advances from customers
Loans and advances from banks
Loans and deposits from Central Bank
Issued securities and CDs
Derivatives - interest rate swap
Group
2013
2012
2012
88,279
68,556
77
13,006
138
110,535
88,090
192
15,440
754
88,232
68,509
77
13,006
138
110,502
88,057
192
15,440
754
16
4,000
8,852
114
6,526
261
4,808
9,617
234
6,579
16
4,000
8,852
114
6,526
261
4,808
9,617
234
6,579
(50,988)
(30,999)
(5,844)
(660)
(12,126)
(1,359)
(63,946)
(34,784)
(13,059)
(1,420)
(12,217)
(2,466)
(50,988)
(30,999)
(5,844)
(660)
(12,126)
(1,359)
(63,946)
(34,784)
(13,059)
(1,420)
(12,217)
(2,466)
37,291
46,589
37,244
46,556
Among loans and advances to customers in amount of EUR 68,556 thousand the Bank and the
Group realised EUR 11,216 thousand of revenue from individually impaired loans (2012: EUR
19,608 thousand).
3.2 Dividend income
Bank and Group
2013
2012
Dividends from available for sale financial assets
Dividends from financial assets held for trading
379
8
462
289
Total
387
751
85
3.3 Net fee and commission income
Bank
Group
2013
2012
2013
2012
Fee and commission income
Payment services
Card operations
Current account
Guarantees
Other services
17,344
6,441
5,020
3,307
2,316
260
17,528
6,582
5,698
3,043
1,962
243
17,343
6,440
5,020
3,307
2,316
260
17,527
6,581
5,698
3,043
1,962
243
Fee and commission expenses
Payment services
Card operations
Brokerage commissions and other securities transactions
Other services
(1,526)
(680)
(654)
(129)
(63)
(1,795)
(672)
(905)
(170)
(48)
(1,526)
(680)
(654)
(129)
(63)
(1,795)
(672)
(905)
(170)
(48)
15,818
15,733
15,817
15,732
3.4 Gains less losses from financial assets and liabilities not classified at fair value through
profit or loss
Bank and Group
2013
2012
Financial liabilities recognised at amortised cost
Equity securities
Debt securities
Financial assets recognised at amortised cost
54,787
545
364
181
(108)
10,595
2,852
2,997
(145)
31
Total
55,224
13,478
The higher profit attained from financial liabilities measured at amortised cost in 2013 is the result of
the restating of subordinated bonds and certificates of deposit in the amount of EUR 54,705
thousand. Due to the changes in the Banking Act at the end of 2013 the terms of subordinated debt
changed significantly, namely with the inclusion of the embedded derivative (possible conversion
into shares in the event of capital inadequacy) in subordinated debt. Based on the aforementioned,
an appraisal of the fair value of subordnited debt was prepared by a certified appraiser.
With the revaluation of subordinated debt to fair value the Bank did not write it off, but only recognized
its fair value in accordance with IAS 39.
Detailed data on the subordinated debt issued and the method of its valuation is disclosed in Note
4.17.
86
3.5 Gains less losses from financial assets and liabilities held for trading
Bank and Group
2013
2012
Currency derivative financial instruments
Foreign currency trading
Equity securities
Debt securities
IRS and options
Forwards and futures with underlying securities
443
262
(1)
(104)
(1,539)
(4,838)
(58)
389
(363)
219
402
(6,202)
Total
(5,777)
(5,613)
The loss recognised from forwards and futures and the underlying securities in 2013 pertains mainly
to the lower fair value valuation of futures and forwards.
3.6 Gains less losses from financial assets and liabilities designated at fair value through
profit or loss
Bank and Group
2013
2012
Gains from valuation of securities in issue
(Losses) from bond valuation
32,604
(1,174)
1,097
(638)
Total
31,430
459
The profit from the valuation of issued securities is the result of the valuation of subordinated bond
in 2013. Due to the changes in the Banking Act at the end of 2013 the terms of subordinated debt
changed significantly, namely with the inclusion of the embedded derivative (possible conversion
into shares in the event of capital inadequacy) in subordinated debt. Based on the aforementioned,
an appraisal of the fair value of subordinated debt was prepared by a certified appraiser.
With the revaluation of subordinated debt to fair value the Bank did not write it off, only recognized
its fair value in accordance with IAS 39.
Detailed data on the subordinated debt issued and the method of its valuation is disclosed in Note
4.17.
Loss from the valuation of bonds is the result of the valuation of bonds purchased. The Bank
estimates fair value on the basis of quotes available from information platforms (Reuters or
Bloomberg).
3.7 Changes in fair value from hedge accounting
Bank and Group
Net profit / (loss) from hedged instruments
Net (loss) / profit from hedging derivatives
Total
2013
2012
3,487
(3,453)
(1,513)
1,566
34
53
Using hedge accounting, the Group hedged the fair value of some of its financial liabilities related to
a change in interest rates. Hedging derivatives are disclosed in detail in Note 4.9.
87
3.8 Gains less losses from foreign exchange differences
Bank and Group
Positive exchange rate differences
Negative exchange rate differences
2013
2012
4,904
(5,394)
4,082
(3,936)
(490)
146
Total
Net (loss) / profit from foreign exchange differences must be assessed with the effects of currency
derivatives shown in Note 3.5.
3.9 Net other operating (loss) / income
Bank
Group
2013
2012
2013
2012
306
198
108
298
191
107
704
308
288
108
1,944
298
1,539
107
Expenses
Taxes and other duties
Membership fees
Contributions to humanitarian organisations
Other operating expenses
(2,241)
(2,076)
(92)
(63)
(10)
(480)
(313)
(79)
(59)
(29)
(2,279)
(2,107)
(99)
(63)
(10)
(484)
(317)
(79)
(59)
(29)
Total
(1,935)
(182)
(1,575)
1,460
Income
Rental income
Income from the sale of real estate
Other operating income
Taxes and other duties feature the expense for balance sheet tax in an amount of EUR 952 thousand
(2012: EUR 206 thousand) and the expense of the financial services tax introduced in 2013 and
amounting to EUR 1,013 thousand.
88
3.10
Bank
2013
2012
Group
2013
2012
Labour costs
Gross salaries and compensations
Defined contribution scheme
Social security
Employee benefits
- post-employment benefits
- other employee benefits
Other labour expenses
(16,892)
(12,361)
(1,436)
(904)
(589)
(132)
(457)
(1,602)
(17,758)
(12,571)
(1,754)
(927)
(276)
247
(523)
(2,230)
(17,172)
(12,571)
(1,459)
(919)
(590)
(133)
(457)
(1,633)
(18,054)
(12,782)
(1,781)
(943)
(279)
244
(523)
(2,269)
General and administrative expenses
IT
Maintenance
Credit cards
Rent
- property
- equipment
- software
Material and energy costs
Advertising
Office stationery costs
Audit and consultancy
- audit of the annual report
Other services
(13,718)
(3,441)
(2,005)
(1,557)
(842)
(488)
(331)
(23)
(637)
(593)
(408)
(312)
(53)
(3,923)
(14,090)
(3,426)
(2,049)
(1,805)
(807)
(361)
(423)
(23)
(621)
(729)
(476)
(225)
(52)
(3,952)
(13,833)
(3,441)
(2,045)
(1,557)
(842)
(488)
(331)
(23)
(649)
(616)
(412)
(468)
(53)
(3,803)
(15,344)
(3,426)
(2,103)
(1,805)
(807)
(361)
(423)
(23)
(634)
(729)
(483)
(425)
(52)
(4,932)
Total
(30,610)
(31,848)
(31,005)
(33,398)
Bank and Group
Future operating lease payments
- up to 1 year
- 1 to 5 years
- over 5 years
800
1,887
874
Total
3,561
Employee data are presented in Chapter 7.6 of the Business report.
3.11
Amortisation and depreciation
Note
Depreciation of property and equipment
Amortisation of intangible assets
Depreciation of investment property
4.10
4.12
4.11
Total
89
Bank
2013
2012
Group
2013
2012
(1,855)
(1,036)
-
(2,203)
(1,189)
-
(1,857)
(1,037)
(30)
(2,206)
(1,190)
(30)
(2,891)
(3,392)
(2,924)
(3,426)
3.12
Provisions
Bank
Provisions for guarantees and commitments
Provisions for legal action
2013
2012
2013
2012
4.25
4.25
(57)
-
800
1,000
(57)
-
799
1,000
(57)
1,800
(57)
1,799
Total
3.13
Group
Note
Impairment charges
Bank
Impairment of loans measured at amortised cost
Impairment of available for sale financial assets
Impairment of equity securities
Impairment of debt securities
Total
Group
2013
2012
2013
2012
(207,838)
(6,159)
(54,558)
(10,842)
(207,840)
(6,159)
(54,558)
(10,842)
(5,659)
(500)
(10,842)
-
(5,659)
(500)
(10,842)
-
(213,997)
(65,400)
(213,999)
(65,400)
Detailed data on impairment of loans are disclosed in Note 5.1.
3.14
Basic and diluted earnings per share
Bank
Net (loss) - holders of ordinary shares
Number of ordinary shares
Basic and diluted net earnings per share
(EUR per share)
Group
2013
2012
2013
2012
(126,257)
(24,984)
(126,358)
(24,956)
508,378
508,378
508,378
508,378
(248)
(49)
(249)
(49)
Basic earnings per share are calculated by dividing net profit by the weighted average number of
ordinary shares issued, decreased by the treasury shares.
During the period from the reporting date to the annual report completion date the Bank did not enter
into any transactions involving ordinary or potential ordinary shares, which would require
adjustments to the calculation of earnings per share.
Issued subordinated debt securities do not have any conversion features.
4
NOTES TO STATEMENT OF FINANCIAL POSITION
4.1 Cash and balances with the Central Bank
Bank and Group
31 December 2013
31 December 2012
Balances with Central Bank
Cash in hand
178,744
13,251
113,672
13,814
Total
191,995
127,486
In 2013 the Bank placed surplus liquidity with the Central bank in the form term deposits with a
maturity of 7 days. The average minimum reserve requirement amounted to EUR 12,041 thousand
90
in 2013 (2012: EUR 12,839 thousand). The Bank must fulfil the minimum reserve requirement with
the Central Bank. The minimum reserve requirement amount depends on the volume and structure
of deposits received. In 2013 the Bank of Slovenia requirement pertaining to the calculation of the
minimum reserve amount was 1% of all deposits and debt securities with a maturity up to two years.
During the whole of 2013 the Bank provided for the required amount of the minimum reserve. The
minimum reserve requirement funds are usually at the disposal of the Bank for daily operations,
which is why they are included in cash and cash equivalents in full (Note 4.30).
4.2 Held for trading financial assets and liabilities
Bank and Group
Note
Derivatives
Equity securities
Debt instruments
4.2b
4.2a
4.2a
31 December 2013
Assets
Liabilities
Total
31 December 2012
Assets
Liabilities
5,934
3,040
1,987
1,125
-
10,786
4,120
11,217
1,888
-
10,961
1,125
26,123
1,888
In accordance with the changed investment policy, the Group has reduced the held for trading
financial assets with sale.
Financial assets held for trading did not form part of assets pledged in 2013 nor in 2012, and no debt
securities with original maturities below three months are held.
4.2a Changes in held for trading financial assets
Bank and Group
Equity securities
Debt securities
4,120
(1,080)
3,040
11,217
(8,823)
(303)
(104)
1,987
Balance as at 1 January 2013
Disposal
Interests
Change in fair value
Balance as at 31 December 2013
4.2b Derivative assets and liabilities
Bank and Group
Contractual amount
31 December 31 December
2013
2012
Derivatives
Fair value
31 December 2013
Assets Liabilities
31 December 2012
Assets Liabilities
IRS
Currency swaps
Futures and forwards
Option (Interest rate cap)
Currency option
120,424
23,351
9,733
11,000
-
125,550
29,556
17,860
11,500
2,246
5,782
26
126
-
1,049
76
-
7,886
166
2,724
1
9
1,608
28
242
1
9
Total
164,508
186,712
5,934
1,125
10,786
1,888
In 2013 the Group reduced the volume of derivatives trading.
91
The fair values of receivables and liabilities decreased on the basis of interest rate swaps, due to
lower contractual values and higher interest rates at the end of 2013. Mainly the Bank has entered
in interest rate swaps, where it pays a variable interest, while receiving fixed. A decrease in assets
was attained from these transactions. On the other hand, the transactions where it pays fixed and
receives variable interest, from which it achieved a reduction in liabilities, are less frequent.
In 2013, the Group reduced the volume of currency swap transactions, whereby the fair value
decreased due to the fluctuation of foreign currency rates.
The volume of forward agreements dropped also, with the fair value amounting to EUR 126 thousand
at the end of the year (2012: EUR 2,724 thousand). The lower fair value in the segment is mainly
the result of a decreased volume of investments and a revaluation.
4.3 Financial assets designated at fair value through profit or loss
Bank and Group
31 December 2013
31 December 2012
Debt instruments
-
5,064
Total
-
5,064
The decrease in financial assets designated at fair value through profit or loss comes from sales,
maturities and the cancellation of securities in 2013.
In 2013 and 2012, the Group did not pledge any financial assets designated at fair value through
profit and loss.
4.4 Available for sale financial assets
Bank and Group
31 December 2013
Impairment
Balance
Debt instruments
31 December 2012
Impairment
Balance
318,435
(514)
170,167
-
33,354
(23,380)
49,024
(32,433)
Total gross
351,789
(23,894)
219,191
(32,433)
Total net
327,895
Equity instruments
186,758
Due to the change in the intention and capability to hold securities to maturity, the Bank reclassified
these to available for sale financial assets on 31 December 2013 in a total amount of EUR 221,051
thousand; the effect of the revaluation to fair value is shown in Note 4.27.5.
On 31 December 2013 the Bank held EUR 263,089 thousand in available for sale securities that
were pledged with the Financial Property Fund of the Bank of Slovenia.
92
Changes in available for sale financial assets:
Bank and Group
Equity securities
Debt securities
Total available for sale
financial assets
25,205
9,691
(14,817)
7,354
(10,842)
16,591
177,996
91,087
(313)
(100,671)
2,068
170,167
203,201
100,778
(15,130)
(100,671)
9,422
(10,842)
186,758
1,487
(2,538)
94
(5,660)
9,974
41,267
(57,940)
(63,079)
221,051
6,955
(500)
317,921
42,754
(60,478)
(63,079)
221,051
7,049
(6,160)
327,895
Purchase
Sale
Realization at maturity
Impairment
Purchase
Sale
Realization at maturity
Reclassification from held to maturity
Impairment
4.5 Loans and advances to banks
Bank and Group
31 December 2013
Balance
31 December 2012
Impairment
Balance
Impairment
At sight
Short-term loans
12,045
5,822
-
8,357
13,686
-
Total gross
17,867
-
22,043
-
Total net
17,867
22,043
Cash and cash equivalents (Note 4.30) include loans to banks with maturity up to 90 days, in the
amount of EUR 17,867 thousand (2012: EUR 22,043 thousand).
93
4.6 Loans and advances to customers
4.6.1
Analysis by types of borrowers and currency:
Bank
Local currency
Loans and advances to state
Loans to private individuals
- overdraft accounts and cards
- housing loans
- consumer loans
- unauthorised account overdrafts
Loans to companies
- large companies
- SME
- other
31 December 2013
Balance
Impairment
Balance
Impairment
1,555,159
10,136
308,835
36,102
164,789
107,060
884
1,236,188
474,564
558,554
203,070
(337,007)
(12,498)
(206)
(4,903)
(7,024)
(365)
(324,509)
(80,662)
(132,720)
(111,127)
1,704,286
10,151
317,993
35,561
162,968
118,572
892
1,376,142
550,624
724,760
100,758
(148,871)
(10,491)
(203)
(3,917)
(5,975)
(396)
(138,380)
(11,537)
(100,888)
(25,955)
32,770
15,702
10,737
4,965
17,068
5,184
1,282
10,602
(10,865)
(2,461)
(353)
(2,108)
(8,404)
(85)
(100)
(8,219)
41,325
18,603
13,035
5,568
22,722
7,048
15,423
251
(5,887)
(1,078)
(305)
(773)
(4,809)
(58)
(4,746)
(5)
1,587,929
(347,872)
1,745,611
(154,758)
Foreign currency
- housing loans
- consumer loans and other
Loans to companies
- large companies
- SME
- other
Total gross
31 December 2012
Net total
1,240,057
1,590,853
An increase in the amount of loans to other companies in 2013 is for the most part a consequence
of the transition of companies from the classification as small and medium sized companies to other
companies. Predominantly these were companies that have filed for bankruptcy, for which AJPES
(Agency of the Republic of Slovenia for Public Legal Records and Related Services) no longer
publishes the data regarding size as at 31 December 2013.
94
31 December 2013
Group
31 December 2012
Balance
Impairment
Balance
Impairment
Local currency
1,549,559
(337,007)
1,699,110
(148,871)
- housing loans
- consumer loans
Loans to companies
- large companies
- SME
- other
10,136
308,897
36,102
164,851
107,060
884
1,230,526
483,078
544,378
203,070
(12,498)
(206)
(4,903)
(7,024)
(365)
(324,509)
(80,662)
(132,720)
(111,127)
10,151
318,058
35,561
163,033
118,572
892
1,370,901
560,051
710,092
100,758
(10,491)
(203)
(3,917)
(5,975)
(396)
(138,380)
(11,537)
(100,888)
(25,955)
32,770
15,702
10,737
4,965
17,068
5,184
1,282
10,602
(10,865)
(2,461)
(353)
(2,108)
(8,404)
(85)
(100)
(8,219)
41,325
18,603
13,035
5,568
22,722
7,048
15,423
251
(5,887)
(1,078)
(305)
(773)
(4,809)
(58)
(4,746)
(5)
1,582,329
(347,872)
1,740,435
(154,758)
Foreign currency
- housing loans
- consumer loans and other
Loans to companies
- large companies
- SME
- other
Total gross
Net total
4.6.2
1,234,457
1,585,677
Impairments and write-offs for customers, by types of credit facilities:
Bank
Impairment charges
Reversal of impairments
Sale of receivables
Write-offs
Impairment charges
Write-offs
Housing loans
Consumer and
other loans
Loans to private
individuals
Loans to
companies
Total
3,063
2,405
(1,240)
(6)
6,285
3,059
(1,756)
(241)
9,348
5,464
(2,996)
(247)
124,006
57,602
(8,714)
(24,250)
(5,455)
133,354
63,066
(11,710)
(24,250)
(5,702)
4,222
7,347
11,569
143,189
154,758
2,441
(1,407)
-
3,838
(1,372)
(110)
6,279
(2,779)
(110)
200,309
(7,628)
(2,957)
206,588
(10,407)
(3,067)
5,256
9,703
14,959
332,913
347,872
95
Housing
loans
Consumer and
other loans
Loans to private
individuals
Loans to
companies
Total
Impairment charges
Sale of receivables
Write-offs
3,063
2,405
(1,240)
(6)
4,222
6,285
3,059
(1,756)
(241)
7,347
9,348
5,464
(2,996)
(247)
11,569
124,010
57,598
(8,714)
(24,250)
(5,455)
143,189
133,358
63,062
(11,710)
(24,250)
(5,702)
154,758
Impairment charges
Write-offs
2,441
(1,407)
5,256
3,838
(1,372)
(110)
9,703
6,279
(2,779)
(110)
14,959
200,309
(7,628)
(2,957)
332,913
206,588
(10,407)
(3,067)
347,872
Group
4.7 Other financial assets
Bank
2013
2012
Receivables on the course of collection
Credit card receivables
Fees and commissions receivables
Other
Impairment
Total
Group
2013
2012
2,525
1,107
666
355
(2,364)
2,397
1,333
544
538
(2,098)
2,525
1,107
666
816
(2,386)
2,397
1,333
544
939
(2,119)
2,289
2,714
2,728
3,094
Movements in impairment provisions:
Bank
Impairment
Write-offs
2,746
1,784
(129)
(2,303)
2,098
Impairment
Write-offs
1,250
(873)
(111)
2,364
Group
Impairment
Write-offs
2,746
1,805
(129)
(2,303)
2,119
Impairment
Write-offs
1,251
(873)
(111)
2,386
96
4.8 Held to maturity investments
Bank and Group
31 December 2013
Balance
31 December 2012
Impairment
-
Net Held to maturity investments
-
Balance
-
270,152
Impairment
-
270,152
The Bank did not have any held to maturity investments pledged in 2012. End 2013 the Bank
reclassified all held to maturity investments to available for sale financial assets (Note 4.4)
Changes in held to maturity investments:
Bank and Group
Purchase
Redemption
Accrued interest
Interest paid
Purchase
Reclassification to available for sale
Redemption
Accrued interest
Interest paid
269,311
26,842
(29,997)
13,714
(9,718)
270,152
33,181
(221,051)
(82,290)
8,890
(8,882)
-
4.9 Hedging derivatives
Bank and Group
Contractual amount
2013
2012
Fair value
31 December 2013
Assets
Liabilities
31 December 2012
Assets
Liabilities
Hedging derivatives
(interest rate swap)
164,150
164,150
3,437
-
6,892
-
Total
164,150
164,150
3,437
-
6,892
-
Hedge accounting rules (fair value hedge) were applied in the hedging of interest rate risk using
interest rate swaps. These hedge relationships are created in such a way that the characteristics of
the hedge instrument and those of the hedged item match (e.g. the principal terms match). The fair
value of hedging instruments has decreased compared with the previous year, as the anticipated
future interest rates increased in 2013.
97
4.10
Property and equipment
Bank
Note
Cost as at 1 January 2012
Additions
Removal Vodnikova
Transfer from assets in course of
construction
Disposals
Cost as at 31 December 2012
Depreciation
Depreciation charge
Removal Vodnikova
Disposals
3.11
Net carrying value as at 31 December 2012
Additions
Removal Vodnikova
construction
Disposals
Depreciation
Depreciation charge
Removal Vodnikova
Disposals
3.11
Land and
buildings
Property held
Other
under finance Computer
lease hardware equipment
Assets in
course of
construction
Total
33,436
(6,195)
-
12,360
-
7,920
-
129
723
-
53,845
723
(6,195)
6
(202)
27,045
-
693
(1,067)
11,986
153
(385)
7,688
(852)
-
(1,654)
46,719
20,796
517
(5,006)
(138)
16,169
10,876
-
9,564
1,125
(949)
9,740
2,246
5,683
561
(352)
5,892
1,796
-
36,043
2,203
(5,006)
(1,439)
31,801
14,918
27,045
(784)
-
11,986
-
7,688
-
1,286
-
46,719
1,286
(784)
78
26,339
669
669
480
(773)
11,693
59
(291)
7,456
(1,286)
-
(1,064)
46,157
16,169
514
(644)
16,039
10,300
8
8
661
9,740
897
(773)
9,864
1,829
5,892
436
(247)
6,081
1,375
-
31,801
1,855
(644)
(1,020)
31,992
14,165
Larger purchases in 2013 are represented by purchases of computer equipment totalling EUR 480
thousand (POS terminals, ATMs, disk system) and the purchases of other equipment. Decreases
are mainly the result of the sale and disposal of outdated computers and other equipment.
The cost of equipment and property, that has already been fully depreciated, but is still in use by the
Bank, amounts to EUR 10,414 thousand.
In 2013 the Bank acquired office space in Maribor based on a finance lease in the amount of EUR
669 thousand.
Based on concluded legal proceedings the Bank removed the remaining value of the Vodnikova
office building in the amount of EUR 140 thousand (2012: EUR 1,189 thousand), having been in the
denationalisation process, from its books.
Property and equipment have not been pledged in 2013 or 2012.
98
Group
Note
Additions
Removal Vodnikova
Transfer to financial lease
construction
Disposals
Transfer to investment property
Depreciation
Depreciation charge
Removal Vodnikova
Transfer to investment property
Disposals
3.11
Additions
Removal Vodnikova
construction
Disposals
Depreciation
Depreciation charge
Removal Vodnikova
Disposals
3.11
Land and
buildings
Property held
under finance
lease
Computer
hardware
Other
equipment
Assets in
course of
construction
Total
33,512
(6,195)
-
-
12,369
-
7,980
-
997
1,154
(1,295)
54,858
1,154
(6,195)
(1,295)
6
(202)
(76)
27,045
-
693
(1,067)
11,995
157
(392)
7,745
(856)
-
(1,661)
(76)
46,785
20,801
517
(5,006)
(5)
(138)
16,169
10,876
-
9,570
1,126
(949)
9,747
2,248
5,735
563
(357)
5,941
1,804
-
36,106
2,206
(5,006)
(5)
(1,444)
31,857
14,928
27,045
(784)
-
11,995
-
7,745
-
1,287
-
46,785
1,287
(784)
78
26,339
669
669
481
(776)
11,700
59
(293)
7,511
(1,287)
-
(1,069)
46,219
16,169
514
(644)
16,039
10,300
8
8
661
9,747
898
(776)
9,869
1,831
5,941
437
(249)
6,129
1,382
-
31,857
1,857
(644)
(1,025)
32,045
14,174
99
4.11
Investment property
Group
Note
Transfer from tangible fixed assets
Transfer to inventory
Disposals
Depreciation
Depreciation charge
Transfer from tangible fixed assets
Disposals
3.11
Additions
Transfer from inventory
Disposals
Depreciation
Depreciation charge
Disposals
3.11
Land
Buildings
Total
33
5
38
3,291
71
(291)
(351)
2,720
3,324
76
(291)
(351)
2,758
38
54
30
5
(10)
79
2,641
54
30
5
(10)
79
2,679
38
461
499
2,720
1,074
540
(296)
4,038
2,758
1,535
540
(296)
4,537
499
79
30
(4)
105
3,933
79
30
(4)
105
4,432
Investment property includes land and buildings acquired to be leased out under an operating lease.
Rental income of EUR 186 thousand (2012: EUR 107 thousand) is included in Note 3.9 Net other
operating income / (loss). Maintenance costs related to investments property of EUR 9 thousand
(2012: EUR 8 thousand) are included in Note 3.10 under Administrative expenses. The fair value of
investment property was assessed by authorised appraisers using the comparative sales method
and the capitalisation of income. The fair value of investment property as at 31 December 2013
amounts to EUR 5,802 thousand (2012: 2,940 thousand).
100
4.12
Intangible assets
Software licenses
Assets in course of
installation and
other
Total
14,114
505
14,619
160
683
(505)
338
14,274
683
14,957
9,353
1,189
10,542
4,077
338
9,353
1,189
10,542
4,415
14,619
907
15,526
338
729
(907)
160
14,957
729
15,686
10,542
1,036
11,578
3,948
160
10,542
1,036
11,578
4,108
Bank
Note
Additions
Transfer from fixed assets in installation
Depreciation
Amortisation charge
3.11
Additions
Transfer from fixed assets in installation
Depreciation
Amortisation charge
3.11
Group
Note
Additions
Transfer from fixed asset in installation
Depreciation
Amortisation charge
3.11
Additions
Transfer from fixed asset in installation
Assets in course of
installation and
Software licenses
other
Total
14,120
508
14,628
160
686
(508)
338
14,280
686
14,966
9,355
1,190
10,545
4,083
338
9,355
1,190
10,545
4,421
14,628
907
15,535
338
729
(907)
160
14,966
729
15,695
10,545
1,037
11,582
-
10,545
1,037
11,582
3,953
160
4,113
Depreciation
Amortisation charge
3.11
2013 saw additional investments in retail operations’ software in an amount of EUR 267 thousand,
with data warehouse upgrades of EUR 187 thousand and the purchase of software licences
(Microsoft) in a total of EUR 245 thousand.
The cost of intangible long-term assets, that have been fully depreciated, but are still used by the
Bank, amounts to EUR 7,004 thousand.
101
4.13
Investments in subsidiaries, associates and joint ventures
Posest, d.o.o., Celje
Investment
% of
amount
ownership
Basic equity
capital
% voting
rights
Operating
result
31 December 2013
2,257
100.00
100.00
2,124
(137)
31 December 2012
2,257
100.00
100.00
2,124
7
4.14
Income tax assets
4.14.1 Deferred tax assets
Bank
2013
2012
Group
2013
2012
Deferred tax
-
(10,087)
3
(10,090)
Balance of assets as at 31 December
-
(10,087)
3
(10,090)
Bank
2013
2012
Group
2013
2012
Tax (loss)
Available for sale securities
Provisions for liabilities to employees
Marketable securities
-
5,141
4,649
222
75
3
-
5,141
4,649
225
75
Deferred tax assets
-
10,087
3
10,090
In 2013 the Bank recorded a tax loss of EUR 123,513 thousand, for which no deferred tax assets
were recognized. In the revaluation reserve EUR 11,853 thousand came from the revaluation of
available for sale financial assets to fair value, for which deferred tax liabilities were derecognized.
102
Changes in deferred tax:
Bank
2013
2012
Balance as at 1 January
10,087
7,799
Group
2013
2012
10,090
7,803
Income statement changes in deferred taxes:
Available for sale instruments - impairment
- recognition of assets for impairment
-
1,626
-
1,626
(5,235)
-
(1,763)
(883)
(5,235)
-
(1,763)
(883)
(222)
-
7
(50)
(78)
(222)
-
7
(51)
(78)
(5,141)
4,000
(381)
(5,141)
4,000
(381)
(75)
75
(75)
75
(10,673)
2,553
(10,673)
2,552
- derecognition of assets
- effect of change in tax rate
Provisions for liabilities to employees
- recognition of assets
- effect of change in tax rate
Tax loss
Investment tax relief
Income statement changes in deferred taxes as at
31 December
Changes in deferred taxes in the statement of comprehensive income:
Available for sale securities
- valuation to fair value
- elimination
586
(803)
538
586
(803)
538
Changes in deferred taxes recorded in other
comprehensive income as at 31 December
586
(265)
586
(265)
-
10,087
3
10,090
Statement of financial position on 31 December
4.15
Other assets
Bank
2013
2012
Group
2013
2012
Deferred expenses
Inventories
Other receivables
177
16
4
151
47
116
177
4,138
11
157
5,584
207
Total
197
314
4,326
5,948
Most of the inventories pertain to the Subsidiary and the decrease on 31 December 2013 amounted
to EUR 1,446 thousand. Inventories have decreased compared with 2012 due to the sale of flats
and the transfer to investment property. The carrying amount of inventory as at 31 Decmber 2013
does not exceed its realisible value.
103
4.16
Interest rate as at 31
December 2013
Bank and Group
Long-term loans from ECB in local currency
31 December
2013
0.25%
Total
31 December
2012
152,091
151,431
152,091
151,431
The interest rate dropped from 0.75% at the end of 2012 to 0.25% at the end of 2013.
4.17
Financial liabilities designated at fair value through profit or loss
Bank and Group
Maturity
Subordinated bonds BCE10
Certificates of deposit
Certificates of deposit
15.2.2017
28.12.2017
15.6.2016
26.11.2019
20.12.2019
29.11.2014
Total
Contractual
amount
37,000
15,145
12,147
24,478
3,000
250
92,020
Interest rate as at
31 December 2013
5.00%
2.39%
6.50%
8.00%
5.28%
1.34%
31 December
2013
31 December
2012
409
161
134
263
30
3
33,592
-
1,000
33,592
As at 31 December 2013 the Bank, based on the amended Banking Act and the subsequent inclusion
of a derivative into the existing subordinated debt, recognised subordinated bonds (BCE11, BCE12
and BCE16) and certificates of deposit at fair value. The existing debt was shown in financial
liabilities at amortised cost (Note 4.23) prior to derecognition. The significant change in the provisions
pertaining to original debt was considered in the valuation of the BCE10 subordinated bond, which
was already shown at fair value. The revaluation gains totalling EUR 87,309 thousand are disclosed
in an amount of EUR 54,705 thousand in Note 3.4 and the amount of EUR 32,604 thousand in Note
3.6. Subordinated debt was not written off, only revalued to fair value due to the embedded
derivative.
The valuation is based on the fair value estimate according to the assessment of an authorised
company appraiser. The valuation method takes into account the arithmetical average of market
values acquired using the following assumptions:
- recapitalization by a private investor, where the market value is the same as the arithmetical
average of the current value of expected free cash flows and the value discerned using the
method of comparable listed companies;
- intervention of the Bank of Slovenia or the government using the compulsory liquidation
method.
In accordance with the risk management policies the BCE10 subordinated bond was hedged using
a derivative, namely an interest rate swap. The Bank used the interest rate swap to exchange the
nominal interest rate with a variable interest rate, thus hedging the risk of a drop in long-term interest
rates.
The BCE10 bond features the following characteristics:
- the bond is not separately secured or guaranteed;
- the liabilities from the bond are subordinated to the senior debt instruments in case of
bankruptcy or liquidation, only redeemable once all non-subordinated liabilities to regular
104
-
creditors and liabilities based on subordinated debt, included in additional Tier II capital, have
been paid, thus representing a high risk investment;
the paid-in subordinated bond is available to cover for loss in the event of the Bank’s
bankruptcy or liquidation, but is not available to cover for losses during the Bank’s regular
operations.
The Bank issued the bonds BCE11 in a nominal amount of EUR 50 million at an interest rate of 6M
EURIBOR plus 2 percentage points. The stated interest rate is valid for a period of 10 years, when
the bond is callable. Should it not be called, the interest margin step-up will be 1 percentage point.
The first interest payment was due on 28 June 2008, with the following interest coupons paid on a
semi-annual basis. In 2012, the Bank redeemed EUR 34,855 thousand of the BCE11 series
subordinated bonds early and replaced them with the issue of new BCE16 series subordinated
bonds, thus improving capital adequacy.
The following are the main characteristics of the issued innovative subordinated bonds:
- the instrument does not have a set maturity, it can however be called, but no earlier than 10
years after the date of issue, in full, not in part, with the approval of the Bank of Slovenia;
- they are neither secured nor covered by a guarantee of the issuing bank or related entity or
any other form of arrangement that legally or economically enhances the seniority of the
claim;
- liabilities from these bonds are subordinated in full to liabilities toward regular creditors and
to liabilities based on subordinated debt instruments, meaning that in the event of bankruptcy
or winding up procedures they are redeemed only after the non-cumulative preferential
shares and regular shares, making them a high risk instrument;
- the Bank cannot pay out the Bank’s operating profit, should it not settle liabilities from
innovative instruments during the current year;
- the Bank has an unconditional right to use these funds to cover its losses during regular
operations;
- the Bank has the option of withholding interest payments from bonds, should it not have
record distributable profit in the previous year, interest payments are non-cumulative, which
is why any holder of the bond no longer has any claim to the interest withheld.
The BCE11’s interest coupons mature twice annually, on 28 June and on 28 December. The Bank
has regularly been making coupon payments, regardless of the recorded loss in 2011 and 2012. The
first time the Bank did not make a coupon payment on the BCE11 bond, was its 12th coupon, which
matured on 28 December 2013 in an amount of EUR 11.91 and totalling EUR 180,376.95.
In 2009 the Bank issued subordinated registered bonds BCE12. Interest is payable on an annual
basis, with the first coupon having matured on 15 June 2010 and the last one maturing on 15 June
2016. In 2012 the Bank issued subordinated bonds BCE16. Interest is calculated on a linear basis,
paid annually, with the first coupon having matured on 26 November 2013 and the last one maturing
on 26 November 2019.
The paid-in subordinated BCE12 and BC16 series bonds are only available to cover for the Bank’s
losses in the event of bankruptcy or liquidation, but are not available to cover for losses during the
Bank’s regular operations. The bonds are not secured nor guaranteed by the Bank, a related party
or on the basis of any different agreement, which would legally or economically improve the level of
payment priority prior to other creditors. The payment of all liabilities from these bonds is guaranteed
by the Bank with all its assets. In the event of bankruptcy or liquidation the liabilities from the bonds
are subordinated to senior debt instruments and are redeemed only once all non-subordinated
liabilities to regular creditors and the liabilities based on subordinated debt have been paid.
105
Subordinated bonds of the BCE10, BCE11, BCE12 and BCE16 series are listed on the Ljubljana
stock exchange.
Subordinated certificates of deposit, issued in 2007 in an amount of EUR 10,250 thousand at 6M
EURIBOR plus 1 percentage point, maturing in 7 years and paying semiannual interest, have been
redeemed early by the Bank in 2012. The redemption amount was EUR 10,000 thousand.
In 2012 the Bank issued subordinated certificates of deposit, maturing in 7 years, at an annual
interest rate of 5.275% and an issue price of 90.70%.
In the calculation of regulatory capital the Bank included the fair value of a hybrid instrument (BCE11
bond) in core capital and the fair value of subordinated liabilities in additional Tier I capital (BCE10,
BCE12, BCE16 bonds and the certificate of deposit).
4.18
Financial liabilities at amortised cost – deposits from banks
4.18.1 Analysis by currency and maturity
Bank and Group
31 December 2013 31 December 2012
At sight
In local currency
In foreign currency
1,023
100
923
519
7
512
Short-term
In local currency
10,253
10,253
10,048
10,048
Total
11,276
10,567
4.18.2 Analysis by region
Bank and Group
31 December 2013
31 December 2012
Slovenia
SE Europe
11,175
101
10,560
7
Total
11,276
10,567
106
4.19
Financial liabilities at amortised cost – due to customers
4.19.1 Analysis by currency and maturity and by type of customer
Bank
31 December 2013
At sight
Short-term
31 December 2012
Long-term
At sight
Short-term
Long-term
State
In local currency
In foreign currency
-
65,028
65,028
-
150,439
150,439
-
-
40,080
40,080
-
144,419
144,419
-
Companies
In local currency
In foreign currency
130,566
127,926
2,640
184,578
184,479
99
45,112
45,112
-
126,926
125,068
1,858
237,034
236,750
284
63,268
63,268
-
Private individuals
In local currency
In foreign currency
301,983
292,350
9,633
170,442
168,590
1,852
185,432
183,493
1,939
307,192
295,387
11,805
204,849
202,372
2,477
188,288
185,876
2,412
558
557
1
6,798
6,798
-
31,082
31,082
-
694
693
1
40,901
40,901
-
59,970
59,970
-
433,107
426,846
412,065
434,812
522,864
455,945
Other financial
institutions
In local currency
In foreign currency
Total
Total at sight, short-term
and long-term
Group
1,272,018
1,413,621
31 December 2013
31 December 2012
At sight
Short-term
Long-term
At sight
Short-term
Long-term
State
In local currency
In foreign currency
-
65,028
65,028
-
150,439
150,439
-
-
40,080
40,080
-
144,419
144,419
-
Companies
In local currency
In foreign currency
130,563
127,923
2,640
184,578
184,479
99
45,112
45,112
-
126,925
125,067
1,858
237,034
236,750
284
63,268
63,268
-
Private individuals
In local currency
In foreign currency
301,983
292,350
9,633
170,442
168,590
1,852
185,432
183,493
1,939
307,192
295,387
11,805
204,849
202,372
2,477
188,288
185,876
2,412
558
557
1
6,798
6,798
-
31,082
31,082
-
694
693
1
40,901
40,901
-
59,970
59,970
-
433,104
426,846
412,065
434,811
522,864
455,945
Other financial
institutions
In local currency
In foreign currency
Total
Total at sight, short-term
and long-term
1,272,015
1,413,620
107
Bank
Group
31 December 31 December 31 December 31 December
2013
2012
2013
2012
Slovenia
EU
SE Europe
Other
1,257,073
10,181
1,896
2,868
1,395,625
7,555
8,200
2,241
1,257,070
10,181
1,896
2,868
1,395,624
7,555
8,200
2,241
Total
1,272,018
1,413,621
1,272,015
1,413,620
4.20
Financial liabilities, measured at amortised cost – borrowings from banks
4.20.1 Analysis by currency and maturity
Bank and Group
Interest rate as at
31 December 2013
Local currency
Long-term loans
Short-term loans
2.48%
-
31 December 2013
31 December 2012
184,135
184,135
-
255,286
250,286
5,000
184,135
255,286
Total
As at 31 December 2013 the Bank and the Group do not meet the capital requirements as set by
the regulator, which is why the lender has the option of calling the loans. With the expected
recapitalization, the Bank will meet capital requirements, which is why loan maturity was not
adjusted, while the lender waived the option to cancel the loans.
Bank and Group
31 December 2013
31 December 2012
Slovenia
EU
184,135
-
236,173
19,113
Total
184,135
255,286
4.21
Financial liabilities at amortised cost – borrowing from customers
Bank and Group
Interest rate as at
31 December 2013
31 December 2013
Short-term
Local currency
2.77%
Long-term
-
Total
2,134
108
31 December 2012
2,134
Short-term
Long-term
3,278
3,278
4.22
Debt securities
Bank and Group
Maturity
Interest rate as at
31 December 2013
Certificates of deposit in local currency
Certificates - maturity in 2013
Bonds in local currency
Bonds BCE13
Bonds BCE14
Bonds BCE15
30.3.2015
1.10.2015
15.2.2016
31 December 2013 31 December 2012
3.99%
4.33%
4.55%
34,557
28,569
5,604
384
70,557
56,101
10,733
3,723
-
4.75%
4.55%
5.00%
99,284
41,380
20,699
37,205
100,323
41,346
20,958
38,019
133,841
170,880
Total
In March 2010 the Bank issued the 13th issue bonds in a total amount of EUR 40,000 thousand, in
October 2010 it issued the 14th issue bonds in an amount of EUR 20,000 thousand and the 15th issue
bonds in a total issue amount of EUR 34,150 thousand. The issues pertain to registered, EUR
denominated, non-materialised bonds. Interest is paid out annually, with bullet repayment at
maturity. The liabilities from the bonds are not secured nor otherwise guaranteed. The Bank
guarantees the obligations from the bonds it issues with all its assets without limit.
The BCE13, BCE14 and BCE15 series bonds are all listed on the Ljubljana stock exchange, while
certificates of deposit are not.
4.23
Subordinated liabilities
Bank and Group
Maturity
Subordinate bonds BCE11
Subordinate certificates of deposit
Subordinate certificates of deposit
28.12.2017
15.6.2016
26.11.2019
20.12.2019
29.11.2014
Total
Contractual Interest rate as at
amount
31 December 2013
15,145
12,147
24,478
3,000
250
55,020
-
31 December
2013
31 December
2012
-
15,103
12,524
24,672
2,726
250
-
55,275
As at 31 December 2013 the Bank, due to a significant change in the provisions of the original
agreement, fully derecognised subordinated bonds and certificates of deposit and recognised these
in financial liabilities at fair value through profit or loss (Note 4.17).
109
4.24
Other financial liabilities
Bank
2013
2012
Group
2013
2012
Debit or credit card payables
Payroll liabilities
Suppliers
Accruals
Items in course of payment
Other
1,619
1,216
1,191
516
179
699
1,443
1,258
1,745
538
673
592
1,619
1,257
1,243
516
179
760
1,443
1,299
1,860
538
673
591
Total
5,420
6,249
5,574
6,404
4.25
Provisions
Note
Pending legal cases
Employee benefits provision
Provisions for guarantees and commitments
Other provisions
Bank
31 December
31 December
2013
2012
4.29a
4.29d
Total
Group
31 December
31 December
2013
2012
4,598
2,885
2,299
121
4,738
2,412
2,242
184
4,598
2,920
2,301
121
4,738
2,446
2,244
184
9,903
9,576
9,940
9,612
Provisions for liabilities toward employees include future severance pay at retirement, jubilee
benefits and unpaid salaries.
Other provisions relate to the national housing savings scheme (NSVS). Should a saver in the
scheme not use the option to take a housing loan according to the conditions of the NSVS, the Group
must return all of the premiums that the saver received during the saving period to the Republic of
Slovenia Housing Fund.
Changes in provisions:
Bank
Provisions made / (released)
Provisions (utilized)
Release of provisions to revaluation
reserve
Provisions for
pending legal
cases
Provisions for
guarantees and
commitments
Employee
provisions
Other
provisions
Total
7,110
(1,000)
(1,372)
4,738
3,042
(800)
2,242
2,171
276
(35)
2,412
275
(91)
184
12,598
(1,524)
(1,498)
9,576
-
57
588
-
645
(140)
4,598
2,299
(74)
(41)
2,885
(63)
121
(74)
(244)
9,903
110
Group
Release of provisions to revaluation
reserve
Provisions for
pending legal
cases
Provisions for
guarantees and
commitments
Employee
provisions
Other
provisions
Total
7,110
(1,000)
(1,372)
4,738
3,043
(799)
2,244
2,202
279
(35)
2,446
275
(91)
184
12,630
(1,520)
(1,498)
9,612
-
57
589
-
646
(140)
4,598
2,301
(74)
(41)
2,920
(63)
121
(74)
(244)
9,940
Provisions for pending legal cases refer to legal proceedings that relate to the denationalisation
process. EUR 140 thousand was used when the building was derecognised.
4.26
Other liabilities
Bank
2013
2012
Taxes payable
Accruals
Other
Total
4.27
Group
2013
2012
711
816
-
416
66
8
921
816
-
601
66
47
1,527
490
1,737
714
Share capital
The capital of Banka Celje, d.d., amounted to EUR 40,758 thousand as at 31 December 2013, while
the Banka Celje Group capital stood at EUR 41,520 thousand. The total effect from the valuation of
subordinated debt was EUR 92,147 thousand. Had the valuation not been made, Banka Celje, d.d.,
would have exhibited negative capital in the amount of EUR 49,389 thousand, while the Banka Celje
Group would have shown EUR 50,627 thousand of negative equity.
4.27.1 Subscribed capital
The Bank’s share capital comprises 508,629 dematerialised ordinary registered no par value shares.
The Subsidiary is registered as a limited liability company.
On the basis of the findings of the asset quality review and the stress tests the Bank was given an
Order by the Bank of Slovenia in connection with the capital shortfall, containing a requirement to
prepare a detailed plan of activities to deliminate the said shortfall by 31 January 2014. On 31
January 2014 the Bank sent the supervisin authority a reply in the form of a document entitled
''Programme of attaining and maintaining the Bank's capital adequacy ratio''.
In January 2014 an advisor for the Bank's recapitalization was selected, namely Raiffeisen
Centrobank, with an agreement signed in the same month. The process of finding a potential buyer
for the Bank was set up in two phases. Due to a lack of interest and the commitments to invest in
111
the Bank not having been firm enough, the share sale process was concluded with the conclusion
of the first phase.
In accordance with the Resolution of the Bank of Slovenia dated 17 March 2014, the Bank convened
a Meeting of Shareholders on recapitalization, with the final payment date set on 25 April 2014. The
recapitalization was unsuccessful, which is why, in accordance with the Resolution of the Bank of
Slovenia on additional measures to increase share capital, the Bank’s Management Board applied
for state aid, which would be given through the transfer of certain assets to the Bank Asset
Management Company and through the increase of share capital in accordance with the Act on
measures to strengthen the stability of banks and in line with the Rules on State Aid.
The ownership structure did not change as compared with 2012, with the Bank’s 10 major
shareholders listed in Chapter 7.4 of the Business Report.
Number of shares and amount of share capital:
Bank
Number of
shares
Share capital in thousands of EUR
Ordinary shares
Preference shares
Total
508,629
13,584
3,396
16,980
508,629
16,980
-
16,980
508,629
16,980
-
16,980
4.27.2 Treasury shares
As at 31 December 2013, the Bank’s portfolio included 251 ordinary treasury shares in the total
amount of EUR 31 thousand; these shares are recorded as a deduction of the capital. The number
of treasury shares has not change.
4.27.3 Share premium
During 2011, 2012 and 2013 the share premium of the Bank stood unchanged at EUR 51,380
thousand. The Group share premium amounted to EUR 51,542 thousand exceeding the Bank’s total
by EUR 162 thousand.
4.27.4 Reserves
Based on the stipulations in Article 64 of the Companies Act, the Bank must form statutory reserves
in an amount which allows for the sum of statutory reserves and capital reserves to reach 10% of
the share capital. As at 31 December 2013, the Bank’s statutory reserves amounted to 17% of the
share capital.
Other profit reserves have been formed for unknown risk. After the annual report is approved, the
Bank will settle the negative financial result by charging profit reserves and will include the difference
in the calculation of core capital in accordance with the Decision on the calculation of capital in banks
and savings banks.
In line with the Articles of Association, only retained profit may be paid out.
4.27.5 Revaluation reserve
The revaluation reserve, an integral part of capital, amounted to EUR 11,927 thousand on 31
December 2013. Within the figure the Bank shows the revaluation of available for sale financial
assets to fair values (EUR 11,853 thousand) with EUR 9,443 thousand coming from financial assets
112
reclassified from held to maturity and actuarial gains from severance pay (EUR 74 thousand).
Changes in the revaluation reserve are shown in the statement of comprehensive income.
4.28
Dividend per share
Dividends payable are not accounted for until they have been ratified at the Bank's annual General
Shareholders’ Assembly. The dividends for 2011 and 2012 were not published and not paid out.
4.29
Contingent liabilities and commitments
a) Legal proceedings
On 31 December 2013, the Group's provisions for pending legal proceedings amounted to EUR
4,598 thousand related to the denationalisation process (2012: EUR 4,738 thousand), which
according to the Group's assessment are sufficient for the settlement of all potential liabilities from
the denationalisation process.
b) Capital commitments
As at 31 December 2013 and 31 December 2012, the Group did not exhibit any future obligations to
acquire property or equipment or intangible assets.
c) Contingent liabilities and commitments
Documentary (and standby) letters of credit constitute a written and irrevocable commitment of the
issuing (opening) bank, on behalf of the issuer (importer) to pay the beneficiary (exporter) the value
set out in the documents by a defined deadline:
- if the letter of credit is payable on sight; and
- if the letter of credit provides for deferred payment – to be paid at maturity, provided that the
beneficiary (exporter) presents documents that are in line with the conditions and deadlines
set out in the letter of credit.
A commitment may also take the form of a letter of credit confirmation, which is usually done at the
request or authorisation of the issuing (opening) bank and constitutes a firm commitment by the
confirming bank, in addition to that of the issuing bank, which independently assumes a commitment
to the beneficiary under certain conditions.
Commitments to extend credit represent unused portions of authorisations to extend credit in the
form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend
credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments.
113
d) Breakdown of contractual amounts relating to bank guarantees and assumed liabilities
Note
Bank
2013
2012
Guarantees
- performance guarantees
- financial guarantees
Commitments to extend credits
Total
Provisions
4.25
Total
4.30
Group
2013
2012
103,844
77,069
26,775
99,152
95,104
70,612
24,492
108,207
103,823
77,048
26,775
99,042
95,104
70,612
24,492
108,207
202,996
(2,299)
203,311
(2,242)
202,865
(2,301)
203,311
(2,244)
200,697
201,069
200,564
201,067
Cash and cash equivalents
Cash and cash equivalents in the statement of cash flows represent instruments with an original
maturity of less than 90 days.
Bank and Group
Note
31 December 2013
31 December 2012
Cash and balances with the Central Bank
4.1
191,995
127,486
Loans to banks
4.5
17,867
22,043
209,862
149,529
Total
4.31
Related party transactions
Related parties comprise key management personnel (Management Board members, Supervisory
Board members, senior management and their immediate family members), companies with
significant impact and the Subsidiary.
Gross amounts paid out to key management personnel
2013
Bank
Management
Board
members
2012
Supervisory
Board
Senior
members management
Total
Management
Board
members
Supervisory
Board
Senior
members management
Total
Fixed income
Variable income
Other income
Cost
reimbursement
Meeting fees
362
55
-
1,155
59
1,517
114
372
54
-
1,139
82
1,511
136
6
-
8
62
32
-
46
62
6
-
7
67
31
-
44
67
Total
423
70
1,246
1,739
432
74
1,252
1,758
114
2013
Group
2012
Management
Board
members
Supervisory
Board
members
Senior
management
Total
Management
Board
members
Supervisory
Board
Senior
members management
Fixed income
Variable income
Other income
Cost
reimbursement
Meeting fees
362
55
-
1,231
61
1,593
116
372
54
-
6
-
8
62
34
-
48
62
6
-
7
67
Total
423
70
1,326
1,819
432
74
Total
1,220 1,592
87
141
33
-
46
67
1,340 1,846
The Bank’s Management Board comprised 3 members in 2013. The senior management comprised
15 members (Group: 16 members). In 2012 the Republic of Slovenia became an indirect owner of
the Bank, which is why in 2013 salaries paid out to the Management Board and the senior
management were aligned with the legislation governing the remuneration of management in
companies under the majority ownership of the Republic of Slovenia.
Gross amounts paid out to Management Board and Supervisory Board members
2013
2012
Revenue
Revenue
Cost
reimburFixed Variable Other sement Total
Cost
reimburFixed Variable Other sement Total
Bank
Management Board Members
President & CEO
Member of the Management
Board & Deputy CEO
Member of the Management
Board
127
-
21
1
149
131
-
23
1
155
121
-
22
1
144
125
-
17
1
143
114
-
12
4
130
116
-
14
4
134
Total
362
-
55
6
423
372
-
54
6
432
Fixed remuneration includes gross salary, other pertains to holiday pay, jubilee benefits, premiums
pertain to additional pension insurance and annuity savings and accrued bonuses.
115
2013
Supervisory Board members
Fix
remuneration
2012
Cost
reimbursement Total
Fix
remuneration
Cost
reimbursement Total
President of the Supervisory Board
Member of the Supervisory Board &
Deputy CEO
Member of the Supervisory Board
Member of the Supervisory Board new
Member of the Supervisory Board resignation
11
1
12
11
1
12
10
9
9
9
9
1
6
-
11
9
9
15
9
11
9
9
9
9
6
-
11
9
9
15
9
3
-
3
-
-
-
2
-
2
9
-
9
Total
62
8
70
67
7
74
Related party transactions
Bank
2013
Managem ent and
Senior Shareholders
Supervisory Board m anagem ent
w ith m ore
m em bers w ith related
w ith related
than 20% of
parties
parties
shares
RECEIVABLES
Loans
Securities and derivatives
Liabilities assumed
Performance guarantees and
counter guarantees
Other financial assets
Posest,
d.o.o.
Total
55
15
260
151
34
3,711
1
-
14,220
110
18,246
152
159
-
-
1,917
7
21
2
1,938
9
Total
70
445
5,636
14,353
20,504
Impaired loans
Loan repayments during the year
79
(1)
179
(68)
62,578
(14)
2,784
(83)
65,620
915
1,057
-
3
1,975
248
-
138
1
5,423
96
-
5,809
97
1,163
1,196
5,519
3
7,881
(3)
-
5
(20)
-
104
(80)
(1,544)
269
(14)
378
(103)
(1,558)
LIABILITIES
Deposits
Debt securities and derivatives in
issue
Total
Interest income
Interest expense
116
Bank
2012
Managem ent and
Senior Shareholders
Supervisory Board m anagem ent
w ith m ore
w ith related
than 20% of
parties
parties
shares
RECEIVABLES
Loans
Liabilities assumed
Performance guarantees and
counter guarantees
Total
Impaired loans
LIABILITIES
Deposits
Debt securities and derivatives in
issue
Total
Interest income
Interest expense
Group
2013
Posest,
d.o.o.
Total
127
15
398
151
26
5,918
6,419
-
14,877
1,093
21,320
6,570
1,134
-
-
1,987
10
21
2
2,008
12
142
575
14,334
15,993
31,044
32
(1)
88
(56)
50,557
3,435
(57)
54,112
1,014
1,308
322
1
2,645
424
-
236
50
5,380
431
22
6,040
503
1,438
1,594
6,133
23
9,188
4
(51)
-
19
(52)
-
586
(310)
(2,287)
347
14
956
(413)
(2,273)
Managem ent and
Supervisory Board
parties
Senior
m anagem ent
w ith related
parties
Shareholders
w ith m ore than
20% of shares
Total
55
15
260
151
35
3,711
1
-
4,026
152
50
-
-
1,917
7
1,917
7
Total
70
446
5,636
6,152
Impaired loans
79
(1)
179
(68)
62,578
(69)
62,836
915
248
-
1,301
138
1
5,423
96
2,216
5,809
97
1,163
1,440
5,519
8,122
(3)
-
5
(21)
-
104
(80)
(1,544)
109
(104)
(1,544)
RECEIVABLES
Loans
Liabilities assumed
Performance guarantees and counter
guarantees
LIABILITIES
Deposits
Debt securities and derivatives in issue
Total
Interest income
Interest expense
117
Group
2012
Managem ent and
Supervisory Board
parties
Senior
m anagem ent
w ith related
parties
Shareholders
w ith m ore than
20% of shares
Total
127
15
7,566
151
30
5,918
6,419
-
13,611
6,570
45
-
-
1,987
10
1,987
10
142
7,747
14,334
22,223
32
(66)
4,169
(56)
50,557
(122)
54,758
LIABILITIES
Deposits
Debt securities and derivatives in issue
1,014
424
-
1,615
236
51
322
5,380
431
2,951
6,040
482
Total
1,438
1,902
6,133
9,473
4
(51)
-
382
(59)
32
586
(310)
(2,287)
972
(420)
(2,255)
RECEIVABLES
Loans
Liabilities assumed
Performance guarantees and counter
guarantees
Total
Impaired loans
Interest income
Interest expense
The Bank in the Group is indirectly controlled by the Republic of Slovenia, as two state-owned
companies, namely NLB, d.d., Ljubljana and SOD, d.d., Ljubljana together hold an interest of over
50% in the Bank.
As at 31 December 2013 the Bank did not record any individually significant loans given to the state
and government-related entities, while the total amount of such loans amounted to EUR 60,000
thousand as at 31 December 2012 (6 transactions). The total of individually significant debt securities
purchased as at 31 December 2013 amounted to EUR 55,500 thousand (3 transactions), while the
same amounted to EUR 156,000 thousand at 31 December 2012 (9 transactions).
The total amount of individually significant loans taken and deposits received came up to EUR
216,000 thousand (16 transactions) on 31 December 2013. The total amount of individually
significant loans taken and deposits received on 31 December 2012 was EUR 272,600 thousand
(24 transactions).
The effects of the above significant transactions, recognised in 2013 and 2012, have been recorded
in the income statement under interest income and expenses mainly. Interest income in 2013
amounted to EUR 1,276 thousand, coming in at EUR 3,220 thousand in 2012. Interest expenses
came in at EUR 1,242 thousand in 2013, while 2012 saw EUR 656 thousand.
118
Related party transaction contractual interest rates (including government and government related
entities) in % p.a.:
31 December 2013
RECEIVABLES
Interest Rate
Premium
- Reference Interest Rate
- Nominal Interest Rate
Euribor 1 Month - 6 Months
1.3% - 8.5%
0.3% - 5.5%
Securities
Euribor 3 Months - 6 Months
1.0% - 8.0%
0.1% - 0.2%
Due to customers
- Base Interest Rate
Euribor 6 Months
0.01% - 4.8%
Base Interest Rate
0.1% - 2.2%
Deposits from banks
0.4%
LIABILITIES
0.0% - 3.0%
Borrowings
Euribor 6 Months
6.3%
0.6% - 3.1%
Euribor 6 Months
3.1% - 8.0%
2.0%
RECEIVABLES
Interest Rate
Premium
Euribor 1 Month - 6 Months
1.2% - 7.7%
0.3% - 4.2%
Securities
Euribor 3 Months - 6 Months
3.0% - 6.0%
0.3% - 4.0%
Due to customers
- Base Interest Rate
Euribor 6 Months
0.4% - 4.8%
Base Interest Rate
0.3% - 1.5%
Deposits from banks
0.3% - 0.6%
Bonds and Certificates of deposit
31 December 2012
LIABILITIES
3.0%
Borrowings
Euribor 6 Months
6.3%
0.6% - 3.1%
Euribor 6 Months
3.1% - 8.0%
2.0%
Bonds and Certificates of deposit
119
4.32
Information on the results of organisational units abroad
The Group has no subsidiaries or associated companies abroad.
4.33
Events after reporting date
In accordance with the requirement from the order dated 17 January 2014 the Bank reported to the
Bank of Slovenia on its position pertaining to the findings of the AQR report and presented the Bank
of Slovenia with the Programme of attaining and maintaining the capital adequacy ratio on 31
January 2014, which includes a detailed action plan aimed at reducing and eliminating the capital
shortfall.
Events after the reporting date pertain to the recapitalization process, which is described in detail in
Note 4.27.1.
5
RISK MANAGEMENT
In its operations, the Bank and the Group assume a number of different types of risk, the amount of
which depends on the type of transaction and the readiness to assume risk. The Bank mainly focuses
on the performance of traditional banking operations and provides its clients with services pertaining
to treasury and other financial transactions. It conducts most of its operations within the Republic of
Slovenia, whereas it is also present in the interbank markets of other EU member states as well as
other low credit risk countries throughout the world. The Bank is also active, to a limited extent, in
South East Europe, lending to corporate and retail clients.
To achieve strategic goals in operations and risk management, the Bank and the Group pay
particular attention to capital risk, profitability risk, liquidity risk, credit risk, market risks, strategic,
operational and interest rate risk as well as reputation risk. The organisation of the Bank and the
Group ensures the separation of commercial organisational units or the units that enter into
transactions and assume risk (front office) from back office operations, where transactions are
booked and accounts kept. The risk monitoring and management function is also separated from the
aforementioned two functions. The organisation of the Bank and the Group is such as to provide for
independent operations of individual organisational units up to managerial level, and for an adequate
flow of information up and down as well as between organisational units.
The Bank and the Group utilise a strategy and policies of assuming and managing risk per respective
risk type. The strategy of assuming and managing risk reflects the Bank’s and the Group's
fundamental relation to risk within the framework of operations and includes the objectives and
general principles or policies pertaining to assuming and managing risk, the approach to the
management of individual risk types and the approach to the process of assessing adequate internal
capital. A policy on assuming risk and risk management has been prepared for each individual risk
type, detailing the capability to assume risk, the risk management process (organisation rules on the
implementation of the process, the identification, measurement or evaluation, management and
monitoring procedures, the system of internal controls), and the responsibility of the Management
Board and senior management and other. The strategy and policies are updated annually and are
confirmed by the Bank's Management Board and the Supervisory Board.
By developing internal reporting procedures and the consideration and decision-making process at
a number of different bodies within the Bank and the Group, the Management Board and the entire
senior management are actively involved in the risk management process. By managing risk well, it
is the goal of the Bank and the Group to be more responsive and efficient when it comes to changes
120
in the environment, to get closer to client needs and to ensure long-term financial stability. Assuming
and managing risk has become an important element of the Bank's and the Group’s comprehensive
strategy due to the development and characteristics of the financial system.
Risk management is directly monitored:
- by the Risk Management Division: all risks;
- at Credit Committees (once a week): credit risk;
- at the Liquidity Committees (three times a week, in extraordinary conditions daily): liquidity
risk;
- on a monthly basis at the Assets and Liabilities Committee (ALCO): credit, market, liquidity,
interest rate, capital and profitability risk;
- at the Management Board level or the Management Committee: operational and strategic
risk as well as reputation risk;
- at the Risk Committee: all types of risk.
5.1 Credit risk
Credit risk is the risk of loss resulting from a debtor’s inability to meet, for any reason, its financial or
contractual obligations in their entirety. This type of risk includes subcategories, namely country risk,
risk of concentration and residual risk. The Risk Management Division, being an organisationally
independent unit in relation to commercial units and answering directly to the Bank's Management
Board, manages the implementation of the policy of assuming and managing credit risk, and
regularly reports to the ALCO on the exposure to credit risk and limit consideration.
The granting of loans includes commercial organisational units, the Risk Management Division and
the Operational Support Division. Granting loans and other transactions is subject to authorisations
and legal limitations. Authorisations depend on the rating of the debtor, the size of the total exposure,
loan size, the total limit, collateral and deviation from other conditions. The loan granting process
includes different decision-making levels within the Bank.
The Bank and the Group manage credit risk related to a single debtor or investment (standalone
risk), as well as the risk related to the entire credit portfolio (portfolio risk).
5.1.1 Measuring and managing credit risk
The Bank and the Group measure credit risk for active on-balance sheet items and for commitments
and contingent liabilities. Credit risk is assessed for financial assets measured at amortised cost, for
financial assets designated at fair value and for assumed liabilities from commitments and contingent
liabilities. Credit risk is the result of business, commercial and housing loans, credit card operations,
transaction account overdrafts, guarantees and granted undrawn loans, as well as a consequence
of the investments in debt securities and the exposure from transactions with derivatives.
Exposure to credit risk depends on three elements: (1) The probability of default or exposure to the
debtor’s rating class, (2) Current exposure from statement of financial position and commitment and
contingent liability items, and (3) The amount of outstanding debt paid off, in case of default.
(1) The probability of default or exposure to the debtor’s rating class
Internal rating systems have been developed for the classification of the Bank’s debtors into rating
classes and for the measurement of probability of default for different debtor groups (legal entities,
individual entrepreneurs and banks). Debtor classification is based on the estimated qualitative and
quantitative elements. In the classification of banks and sovereigns (states), external ratings are
121
usually considered (Moody’s Investor Service, Fitch Ratings, Standard & Poor’s). Prior to every
individual private loan or investment approval, each individual’s creditworthiness is assessed and
the settlement of existing liabilities checked. Before approving a loan, as a rule, an inquiry is made
with the use of the SISBON system (Slovenski Informacijski Sistem BONitet fizičnih oseb – the
Slovene Information System on the Rating of Retail Clients), which includes data on indebtedness
and settlement of liabilities by retail clients in the Slovene banking environment.
Prior to approving a transaction, the Bank classifies a debtor into a rating class, determining the
probability of default and expected loss. On an ongoing - or at least on a quarterly basis – it verifies
the adequacy of an individual classification in relation to the debtor’s financial standing, the
settlement of due liabilities and the assessment of qualitative factors, on the basis of which the
classification is retained or the debtor is classified into a higher or lower rating class. Transitional
matrices are prepared regularly, showing the transitions between rating classes and measuring the
number of defaults in an observed period. Estimates on the probability of default for an individual
rating class are then adjusted on the basis of data pertaining to defaults.
The internal ratings system with the description of rating classes and the comparison with external
ratings:
Internal
rating class
Internal rating
description
Risk level
A1, A2, A3
Prime
Investment grade
B1, B2, B3
Standard
C1, C2
Substandard
D
Default
Default recovery
E
Comparison with the
Bank of Slovenia
ratings
A
Comparison with Moody’s Investors Service*
from Aaa to Aa3, from A1 to A3, from Baa1 to
Baa3
Investment grade
B
from Ba1 to Ba3, from B1 to B3
Sub-investment grade
C
from Caa1 and lower
Default
D
Default
Default
E
Default
* Comparison prepared for banks.
(2) Current exposure from statement of financial position and commitment and contingent liability
items
The level exposure in items of the statement of financial position (loans) and the level of commitment
and contingent liability exposures equal their carrying amount.
(3) The amount of outstanding debt paid off, in case of default
The loss amount in case of default depends on the amount of exposure and the collateral obtained.
The Bank and the Group strive toward securing their receivables to minimise loss. It is important for
the Bank and the Group to begin procedures for the settlement of overdue, unpaid receivables as
soon as possible.
Debt securities
In managing credit risk from debt securities, the Bank utilises the external ratings (Moody's Investor
Service, Fitch Ratings, Standard & Poor's) of securities and issuers. In cases where the fair value of
an individual security is significantly lower than the original cost and the drop in value is attributable
to reasons pointing to objective evidence of impairment, the Bank recognises the impairment charge
for the investment.
Assumed commitments and contingent liabilities
Assumed commitments and contingent liabilities (off-balance sheet items) include the undrawn part
of loans granted, guarantees and letters of credit. By issuing these instruments, the Bank and the
Group commit to providing cash to the counterparty, when so instructed. The potential exposure to
loss from these instruments pertains to credit risk. The same methodologies are applied in
122
measuring credit risk from assumed commitments and contingent liabilities as are used in measuring
credit risk pertaining to loans.
Derivatives
The exposure to credit risk from derivatives pertains to exposure to counterparty risk, namely the
risk of a counterparty defaulting prior to final settlement of cash flow from the transaction. The
exposure to credit risk equals the credit replacement value, calculated on the basis of the current
exposure method. The Bank enters into derivative instrument agreements with prime debtors, mainly
in foreign currency transactions, and interest rate swaps. In the event of increased credit risk, the
Bank tries to acquire additional collateral. The exposure to credit risk is managed within the
framework of limits pertaining to lending agreements, which are confirmed by the Credit Committee.
Limit definition and monitoring
The Bank calculates limits for loans to individual debtors and to groups of related entities on the
basis of data on the existing and future operations. In doing so, it takes into consideration the legal
requirements in connection with the largest exposure limits related to an individual entity or a group
of related entities, which must not exceed 25% of the Bank’s capital, while taking into
account its policies as well. The diversification of exposure to individual debtors or groups of
related entities is one of the objectives the Bank is working toward, which is why it is reducing the
number and value of exposures to individual debtors or groups of related entities. Limits are
monitored on an ongoing basis and are adjusted in relation to the risk profile of the debtor or a group
of related entities and the sector in which the debtor is active. Total limits and their possible increases
or decreases are confirmed by the Bank’s Credit Committee. Exposures exceeding 10% of the
Bank's capital require the approval of the Supervisory Board. The Bank has prepared an
indebtedness ceiling calculation methodology for corporates, for banks and for large exposures to
private entrepreneurs. For lower exposure to private entrepreneurs and for exposures to private
individuals, creditworthiness is assessed prior to the approval of a new loan.
Based on past experience the Bank regularly updates the methodologies of indebtedness ceiling
calculation. In 2013 it checked individual debtor indebtedness ceilings more frequently, with greater
emphasis given to the company cash flow, available for debt repayment.
In addition to limits set for individual debtors or groups of related entities, the Bank also implements
structural limits according to sector or category of debtor, according to geographic area and
according to type of activity - thus limiting the risk of portfolio concentration and of exposure to high
risk activities or regions. Structural limits are usually confirmed annually at ALCO meetings, with their
consideration and trends monitored on the basis of monthly reports. If required, due to economic
conditions and exposure to risk, these limits may also be modified.
Collateral
The Bank and the Group’s exposure to credit risk is reduced with the implementation of policies
regarding collateral. To minimise loss in the event of default, the Bank and the Group tend to acquire
adequate collateral from the debtor, such as a mortgage on commercial or residential real estate,
pledges of financial property (bank deposits, securities) or the acquisition of personal credit
insurance by an adequate provider. Other forms of collateral, such as physical collateral, inventories
and cash claims, are considered to be of lesser quality. Usually long-term loans are collateralised,
with a large portion of short-term loans collateralised as well, with the only ones not requiring
collateral being those granted to debtors exhibiting a higher credit rating. Should a debtor's credit
rating worsen or the fair value of collateral decrease, the Bank and the Group begin negotiations to
obtain additional collateral or to decrease exposure.
123
The significant types of appropriate collateral that the Bank and the Group utilise and the related
valuation:
- financial assets used as collateral (bank deposits with the Group or cash-assimilated
instruments, debt securities, issued by sovereigns, the central bank or institution, equity and
other securities, listed on stock exchanges), which is valued at market and is revalued on a
daily basis;
- pledged commercial or residential property, valued at fair value;
- personal assurances given by: sovereigns and central banks, regional or local authorities,
public sector entities, institutions, insurance companies and companies with a high credit
rating (100 % percent of the value).
The macroeconomic conditions and the circumstances prevailing in the real estate and capital
markets in 2013 required a great deal of attention to be directed at monitoring the fair value of
collateral, especially commercial and residential real estate, while exposures collateralised with
securities continue to decrease with loans maturing and collateral being liquidated in the collection
process.
To reduce credit risk, the Bank and the Group do not execute balance sheet netting or use credit
derivatives.
Estimating credit risk losses
A methodology for the estimation of credit risk losses has been prepared in accordance with IFRS,
which is updated at least once a year and adapted to the economic conditions. Continuously, or at
least on a quarterly basis, estimations are made as to whether there is objective evidence of
impairment relating to financial assets and liabilities assumed on the basis of commitments and
contingent liabilities. Should such evidence exist, the Bank must calculate the amount of loss due to
impairment and make provisions for commitments and contingent liabilities. The methodology of
estimating impairment charges is set up according to type of debtor: legal entities and private
entrepreneurs, retail clients, banks and savings banks and prime debtors.
(1) Assessment of impairment charges for exposure to legal entities and private entrepreneurs
The impairment charge may be calculated individually on the basis of the estimated future cash flows
or collectively on the basis of historical data on defaults and losses for groups of exposures with
similar characteristics, adjusted to account for current conditions, thus reflecting the effects of recent
operating conditions. Individual estimates pertain to assets individually exhibiting significant
characteristics (exposures above EUR 650,000) and showing signs of impairment (exposures
classified lower than D and E). If there are no signs of impairment, the exposure is classified into a
group of financial assets with similar characteristics and the impairment is assessed collectively.
Impairment is also assessed individually for financial assets which have already been recognised as
impaired (exposures classified D and E). Impairment is appraised on the basis of estimated future
cash flow, including expected repayment from liquidation of collateral.
For exposures not exhibiting signs of impairment (exposures classified A1, A2 and A3, B2 and B3,
C1 and C2), the charge is assessed collectively on the basis of historical default data and loss
estimates. The estimation percentage includes a general risk factor, reflecting current economic
conditions and thus impacting the probability of defaults. The value of the general risk factor is
assessed at least once a year on the basis of fluctuations in the general price levels, interest rates,
the settlement of liabilities, fluctuations in the financial and capital markets as well as the real estate
market conditions, economic activity, conditions in the job market and the trends in the energy and
raw material markets.
124
(2) Assessment of impairment charges for exposure to retail
The Bank and the Group classify financial assets in rating groups A, B, C, D and E on the basis of
the settlement of liabilities. Individually significant financial assets (exposures above EUR 400,000),
where there is objective evidence to suggest there is a need for the establishment of an impairment,
are impaired individually. The same applies to financial assets already recognised as impaired
(exposures classified C, D and E). For the purpose of collective impairment, financial assets are
divided into homogenous groups on the basis of the settlement of liabilities and in accordance with
product groups (housing loans, consumer loans, quick loans, account overdrafts). Impairment
charge percentages are based on past data and adjusted to current conditions, thus differing for
every product group and each rating class. Impairment charge percentages are reviewed once a
year.
(3) Assessment of impairment charges for exposure to banks and prime debtors
For banks, impairment is estimated solely on an individual basis. Exposures to prime debtors
(sovereigns and central banks) are assessed using the collective or individual approaches.
Managing credit risk during a crisis
The continuation of unfavourable conditions in the domestic economy and uncertainty in the
European financial markets require the Bank and the Group to continue to implement measures
aimed at reducing the effect of the crisis on the financial position and the profitability of the Bank and
the Group. Thus lending to financially unstable debtors and to debtors from riskier industries is
limited, while exposure to the CEE region is being reduced. The Bank and the Group are trying to
obtain additional collateral, keep in contact with borrowers, and monitor their operations and cash
flow for the repayment of debt, so adjusting debtor classification and limits. Efforts are directed at
the recovery of receivables due and in some cases collateral is being liquidated. New investments
are granted to debtors mainly for the financing of regular business operations with good quality
collateral. In retail lending, more stringent criteria for the assessment of creditworthiness are being
applied. The Bank and the Group continued to follow their goal of diversifying the credit portfolio
according to debtors or groups of related entities and activities.
The Bank has set up a loan monitoring process, which allows it to detect increased credit risk in time.
Based on the assessment of qualitative and quantitative criteria, which show increased credit risk,
the Bank rates debtors into four groups (PKT1 – watch list, PKT2 – problem exposure, PKT3 –
debtors in recovery procedure, PKT4 – restructured exposure). Determining the group of increased
credit risk is the basis for defining the Bank’s further activities aimed at reducing exposure to credit
risk. In the event of default, the Bank then ascertains direct and indirect responsibility.
It is the Bank’s and the Group's assessment that conditions in the economy and on the financial
markets will not stabilise in 2014, which is why exposure to credit risk remains high. Positive impact
on the domestic economy is expected to come from government measures aimed at increasing
payment discipline, regulating the job market, stimulating investment activity and raising the
competitiveness of the domestic economy, as well as from economic activity in European countries
and the stabilisation of conditions in the financial markets. The Bank and the Group will continue to
monitor closely debtor rating and the credit portfolio, while adjusting lending policies and credit risk
management to the current conditions. They will also reduce exposure to individual clients or groups
of related parties and limit investments in high risk industries and regions. They will direct their
attention to early identification of increased credit risk and continue to work actively on recovery and
foreclose on bad debt.
125
5.1.2 Maximum credit risk exposure
Bank
31 Decem ber 2013
31 Decem ber 2012
Maxim um
Fair value of
exposure to
collateral3
credit risk
Statem ent of financial position assets
Loans
Loans and advances to state1
Loans and advances to private individuals
- housing loans
- consumer and other loans
Loans to companies 2
- large companies
- small and medium sized enterprises (SME)
- other
Held to m aturity investm ents
Debt securities
Derivative financial intrum ents designated for
hedging
Com m itm ents and contingent liabilities
Financial guarantees
Other off-balance sheet exposures
Total
1
Fair value of
collateral3
1,589,492
1,260,213
10,136
17,867
309,578
35,896
170,270
102,893
519
920,343
399,001
427,016
94,326
2,289
1,506,631
1,418,398
5,000
522,960
28,457
366,158
128,092
253
890,438
314,664
512,175
63,599
-
2,092,602
1,615,610
10,151
22,043
325,027
35,358
171,781
117,392
496
1,255,675
546,075
634,551
75,049
2,714
1,765,946
1,677,713
524,409
28,142
357,143
138,869
255
1,153,304
400,532
714,632
38,140
-
7,921
5,934
1,987
-
22,003
10,786
11,217
-
-
-
5,064
5,064
-
317,921
317,921
73,222
73,222
170,167
170,167
73,222
73,222
-
15,011
15,011
270,152
270,152
15,011
15,011
3,437
117,796
26,003
91,793
1,707,288
44,740
14,180
30,560
1,551,371
6,892
131,271
24,144
107,127
2,223,873
52,120
13,719
38,401
1,818,066
Derivatives
Debt securities
Financial assets designated at fair value through
P&L
Debt securities
Debt securities
Maxim um
exposure to
credit risk
State (sovereigns) includes direct beneficiaries of the Republic of Slovenia budget and foreign central state level units (sovereigns)
2
Size of companies defined in accordance with the Companies Act; the micro, small and medium size enterprises (SME) comprise those
which fulfil two of the following criteria:
average number of employees is less than 250,
net sales income does not exceed EUR 35,000 thousand,
value of assets does not exceed EUR 17,500 thousand.
Large companies are defined as those which do not fit the SME criteria.
’’Other’’ shows regional and local state levels, public sector entities, new companies, companies in receivership, societies and other
debtors, which do not provide information on their size.
3
-
Fair value of collateral equals:
market value of financial assets held as collateral,
100% of the value of insurance company guarantees, bank guarantees, state and municipal guarantees and prime rated companies,
values of residential and commercial real estate are equal to market values of comparable real estate.
126
Group
31 Decem ber 2013
31 Decem ber 2012
Maxim um
Fair value of
exposure to
collateral3
credit risk
Statem ent of financial position assets
Loans
Loans and advances to state1
Loans and advances to private individuals
- housing loans
- consumer and other loans
Loans to companies 2
- large companies
- small and medium sized enterprises (SME)
- other
Maxim um
exposure to
credit risk
Fair value of
collateral3
1,584,331
1,255,052
10,136
17,867
309,640
35,896
170,332
102,893
519
914,681
407,515
412,840
94,326
2,728
1,506,631
1,418,398
5,000
522,960
28,457
366,158
128,092
253
890,438
314,664
512,175
63,599
-
2,085,092
1,610,814
10,151
22,043
325,092
35,358
171,846
117,392
496
1,250,434
555,504
619,881
75,049
3,094
1,765,946
1,677,713
524,409
28,142
357,143
138,869
255
1,153,304
400,532
714,632
38,140
-
7,921
-
22,003
-
Derivatives
Debt securities
Financial assets designated at fair value
through P&L
5,934
1,987
-
10,786
11,217
-
-
-
5,064
-
Debt securities
317,921
73,222
5,064
170,167
73,222
Debt securities
317,921
73,222
170,167
73,222
-
15,011
270,152
15,011
Debt securities
-
15,011
270,152
15,011
3,437
-
6,892
-
Derivative financial intrum ents designated for
hedging
Com m itm ents and contingent liabilities
117,686
44,740
131,271
52,120
Financial guarantees
26,003
14,180
24,144
13,719
Other off-balance sheet exposures
91,683
30,560
107,127
38,401
1,702,017
1,551,371
2,216,363
1,818,066
Total
1
State (sovereigns) includes direct beneficiaries of the Republic of Slovenia budget and foreign central state level units (sovereigns)
2
Size of companies defined in accordance with the Companies Act; the micro, small and medium size enterprises (SME) comprise those
which fulfil two of the following criteria:
average number of employees is less than 250,
net sales income does not exceed EUR 35,000 thousand,
value of assets does not exceed EUR 17,500 thousand.
Large companies are defined as those which do not fit the SME criteria.
’’Other’’ shows regional and local state levels, public sector entities, new companies, companies in receivership, societies and other
debtors, which do not provide information on their size.
3
-
Fair value of collateral equals:
market value of financial assets held as collateral,
100% of the value of insurance company guarantees, bank guarantees, state and municipal guarantees and prime rated companies,
values of residential and commercial real estate are equal to market values of comparable real estate.
The table shows the Group’s maximum credit risk exposure from loans, investments in securities
and commitments and contingent liabilities as at 31 December 2013 and 31 December 2012. In
2013, the exposure to credit risk decreased in comparison with the previous year. Loans decreased
by 22% due to a drop in lending to corporates and to a lesser extent to banks and retail, with exposure
from debt financial instruments decreasing by 30% and exposure from derivatives by 47%.
127
Commitments and contingent liabilities went down by 10% due to a reduced volume of unused
approved loans.
The continuation of the economic and financial crisis also had an impact on the credit portfolio. By
carefully managing investment policies during the crisis and by responsibly managing credit risk, the
Group achieved the following results in 2013:
- as at 31 December 2013 loans that were classified into the highest of investment grade rating
classes, namely A and B, represented 57.30% of all loans (31 December 2012: 74.43%),
impairment charge coverage increased to 21.74% (31 December 2012: 8.78%);
- the coverage of exposure with adequate collateral increased and reached 69% of all loans
as at 31 December 2013 (31 December 2016: 66%);
- the Group holds 37% of debt security investments rated at least A3, while 57% of investments
is rated at least Ba1;
- the consolidated income statement shows impairment charges amounting to EUR 213,999
thousand (2012: EUR 65,400 thousand), wherein impairment charges for loans measured at
amortised cost represent EUR 207,840 thousand (2012: EUR 54,558 thousand) and
securities impairment charges amount to EUR 6,159 thousand (2012: EUR 10,842
thousand). Provisions for commitments and contingent liabilities were made in an amount of
EUR 57 thousand (2012: EUR 800 thousand release). Increased impairment charges reflect
the economic and financial crisis, which resulted in increased defaults and in a drop in the
fair value of collateral and financial assets.
5.1.3 Exposure to credit risk according to type of collateral
The following is a disclosure of all loans (to the state, banks, private individuals and companies),
except other financial assets.
Exposure from loans
The table below lists loans according to type of collateral. Secured loans are the ones where the fair
value of collateral is greater or equal to the carrying amount of the loan. Unsecured loans are
represented by loans which are entirely unsecured and by the parts of loans where the fair value of
collateral is not sufficient for their repayment.
Bank
2013
2012
Loans
Loans
Collateral:
- deposits
- government guarantee
- insurance company and bank
guarantee
- securities
- residential real estate
- commercial real estate
- other*
Secured loans - carrying amount
Unsecured loans - carrying amount
Loans - carrying amount
Group
2013
2012
Loans
Loans
4,524
52,498
6,717
50,792
4,524
52,498
6,717
50,792
120,256
40,867
188,168
443,391
19,877
869,581
388,343
119,093
69,705
179,191
595,831
43,533
1,064,862
548,034
120,256
40,867
188,168
443,391
19,877
869,581
382,743
119,093
69,705
179,191
595,831
43,533
1,064,862
542,858
1,257,924
1,612,896
1,252,324
1,607,720
*Other collateral mainly refers to guarantees by guarantors - companies, rated A and to physical collateral to a lesser extent.
128
For the most part, loans are secured with commercial real estate, followed by residential real estate
as well as insurance company and bank guarantees. The latter are mainly used to secure retail
loans. In 2013 the share of loans, secured with commercial real estate decreased due to the reduced
fair value of real estate and the share of loans secured with bank deposits and securities. An increase
was recorded in the shares of loans insured by insurance companies and banks and the loans
secured with residential real estate.
The Bank and the Group liquidated collateral (securities, real estate, other assets) in 2013 for the
repayment of loans granted. Securities were sold on the regulated market, while real estate and
other assets were sold in the recovery process (court and out-of-court proceedings, bankruptcies).
The Bank does not have repossessed collateral in its books of accounts.
According to loan type
Bank
31 Decem ber 2013
Loans to com panies
Overdraft
accounts
Unauthorised
and
Housing Consumer
account
cards
loans
loans
overdrafts
Large
companies
SME
Other
Loans
and
Loans and
adv ances adv ances
to state
to banks
Total
Collateral:
- deposits
- government
guarantee
- insurance
company and bank
guarantee
14
288
1,750
-
-
2,454
18
-
-
4,524
-
-
-
-
45,143
1,064
1,291
-
5,000
52,498
28,302
20,002
70,345
237
12
1,316
41
-
-
120,255
- securities
- residential real
estate
- commercial real
estate
-
35
1,628
-
19,682
6,852
12,670
-
-
40,867
- 132,259
7,444
-
-
40,289
8,176
-
-
188,168
-
8,436
4,455
-
174,726
233,053
22,721
-
-
443,391
- other
Secured loans carrying amount
Unsecured loans carrying amount
Loans - carrying
amount
-
352
3,093
-
2,041
11,710
2,681
-
-
19,877
28,316 161,372
88,715
237
241,604
296,738
47,598
-
5,000
869,581
8,898
14,178
282
157,397
130,278
46,728
10,136
12,867
388,343
35,896 170,270
102,893
519
399,001
427,016
94,326
10,136
17,867 1,257,924
28,001 160,682
94,828
229
317,098
439,346
24,678
-
- 1,064,862
11,099
22,564
267
228,977
195,205
50,371
10,151
22,043
35,358 171,781
117,392
496
546,075
634,551
75,049
10,151
22,043 1,612,896
31 Decem ber 2012
Loans - carrying
amount
7,580
7,357
129
548,034
Group
31 Decem ber 2013
Overdraft
accounts
and
Housing Consumer
cards
loans
loans
Loans to com panies
Unauthorised account
overdrafts
Large
companies
SME
Other
Loans
Loans
and
and
advances advances
to state to banks
Total
Collateral:
- deposits
- government
guarantee
- insurance
company and bank
guarantee
14
288
1,750
-
-
2,454
18
-
-
4,524
-
-
-
-
45,143
1,064
1,291
-
5,000
52,498
28,302
20,002
70,345
237
12
1,316
41
-
-
120,255
-
35
1,628
-
19,682
6,852
12,670
-
-
40,867
- 132,259
7,444
-
-
40,289
8,176
-
-
188,168
-
8,436
4,455
-
174,726 233,053
-
352
3,093
-
28,316 161,372
88,715
8,960
- securities
- residential real
estate
- commercial real
estate
- other
Loans - carrying
amount
31 Decem ber 2012
Loans - carrying
amount
22,721
-
-
443,391
11,710
2,681
-
-
19,877
237
241,604 296,738
47,598
-
5,000
869,581
14,178
282
165,911 116,102
46,728
10,136
12,867
382,743
35,896 170,332
102,893
519
407,515 412,840
94,326
10,136
17,867 1,252,324
28,001 160,682
94,828
229
317,098 439,346
24,678
-
- 1,064,862
11,164
22,564
267
238,406 180,535
50,371
10,151
22,043
35,358 171,846
117,392
496
555,504 619,881
75,049
10,151
22,043 1,607,720
7,580
7,357
2,041
5.1.4 Credit risk exposure according to rating class
Exposure from loans
Bank
Group
31 Decem ber 2013
Loan
Impairment
amount
amount
31 Decem ber 2012
Loan
Impairment
amount
amount
31 Decem ber 2013
Loan
Impairment
amount
amount
31 Decem ber 2012
Loan
Impairment
amount
amount
1,605,796
(347,872)
1,767,654
(154,758)
1,600,196
(347,872)
1,762,478
Prime (A)
36.11%
0.33%
44.88%
0.82%
35.89%
0.33%
44.69%
0.82%
Standard (B)
21.33%
1.68%
29.65%
5.83%
21.41%
1.68%
29.74%
5.83%
Substandard (C)
11.30%
6.74%
6.68%
9.12%
11.34%
6.74%
6.70%
9.12%
Default (D)
10.44%
24.11%
4.67%
14.41%
10.47%
24.11%
4.69%
14.41%
Default (E) - recovery
20.81%
67.14%
14.13%
69.82%
20.89%
67.14%
14.18%
69.82%
100%
100%
100%
100%
100%
100%
100%
100%
Total
Structure
Total
(154,758)
Structure
Gross exposure to loans as at 31 December 2013 amounted to EUR 1,600,196 thousand,
representing a 9% drop as compared with the previous year (31 December 2012: EUR 1,762,478
thousand). After accounting for impairment charges, the loan carrying amount is EUR 1,252,324
thousand, being 22% less in comparison to the previous year (31 December 2012: EUR 1,607,720
thousand). Portfolio quality deteriorated due to the continuing unfavourable economic conditions,
130
542,858
with the percentage of loans in the highest rating classes (classes A and B) decreased to 57.30%
(31 December 2012: 74.43%). Exposure to loans, classified as substandard and default increased
to 42.70% (31 December 2012: 25.57%), with the Group establishing additional impairment charges
on these loans.
According to loan class
Bank
31 December 2013
Rating class
Prime (A)
Ov erdraf t
accounts
and cards
Housing
loans
Loans to com panies
Unauthorised
account
Consumer
loans
overdrafts
Large
companies
Loans
Loans and
and
advances
advances
to banks
to state
SME
Total
Other
36,102
162,042
94,867
340
128,460
91,369
41,186
10,136
15,399
579,901
Standard (B)
-
4,597
2,370
143
144,717
184,822
3,438
-
2,468
342,555
Substandard (C)
-
4,537
4,582
86
84,294
76,358
11,669
-
-
181,526
Default (D)
-
790
4,168
16
102,439
59,933
225
-
-
167,571
Default (E) recovery
-
3,560
6,038
299
19,838
147,354
157,154
-
-
334,243
Impairments
(206)
(5,256)
(9,132)
(365)
(80,747) (132,820) (119,346)
-
- (347,872)
35,896
170,270
102,893
519
10,136
17,867 1,257,924
Total
399,001
427,016
94,326
Bank
31 December 2012
Rating class
Prime (A)
Ov erdraf t
accounts
and cards
Housing
loans
Loans to com panies
Unauthorised
account
Consumer
loans
overdrafts
Large
companies
Loans and Loans and
advances advances
to state
to banks
SME
Total
Other
35,561
163,294
105,019
298
277,350
143,820
41,193
10,151
16,588
793,274
Standard (B)
-
4,711
2,827
150
214,837
290,090
6,001
-
5,455
524,071
Substandard (C)
-
5,141
5,792
79
28,323
78,624
84
-
-
118,043
Default (D)
-
733
6,776
56
28,008
46,601
347
-
-
82,521
-
2,124
3,726
309
9,152
181,050
53,384
-
-
249,745
Impairments
(203)
(4,222)
(6,748)
(396)
(11,595) (105,634) (25,960)
-
- (154,758)
35,358
171,781
117,392
496
10,151
22,043 1,612,896
Total
131
546,075
634,551
75,049
Group
31 December 2013
Rating class
Prime (A)
Overdraft
accounts
and
Housing
cards
loans
36,102 162,104
Loans to com panies
Consumer
loans
Unauthorised
account
overdrafts
Large
companies
Loans
Loans and
and
advances
advances
to banks
to state
SME
Total
Other
94,867
340
136,974
77,135
41,186
10,136
15,399
574,243
Standard (B)
-
4,597
2,370
143
144,717
184,880
3,438
-
2,468
342,613
Substandard (C)
-
4,537
4,582
86
84,294
76,358
11,669
-
-
181,526
Default (D)
-
790
4,168
16
102,439
59,933
225
-
-
167,571
-
3,560
6,038
299
19,838
147,354
157,154
-
-
334,243
Impairments
(206)
(5,256)
(9,132)
(365)
(80,747) (132,820) (119,346)
-
-
(347,872)
35,896 170,332
102,893
519
Total
407,515
412,840
94,326
10,136
17,867 1,252,324
Group
31 December 2012
Rating class
Prime (A)
Overdraft
accounts
and
Housing Consumer
cards
loans
loans
Unauthorised
account
overdrafts
Large
companies
Loans
Loans and
and
advances
advances
to banks
to state
SME
Total
Other
105,019
298
286,656
128,944
41,193
10,151
16,588
787,738
Standard (B)
-
4,711
2,827
150
214,837
290,154
6,001
-
5,455
524,135
Substandard (C)
-
5,141
5,792
79
28,323
78,624
84
-
-
118,043
Default (D)
-
764
6,776
56
28,131
46,601
347
-
-
82,675
-
2,124
3,726
309
9,152
181,192
53,384
-
-
249,887
Impairments
(203)
(4,222)
(6,748)
(396)
(11,595) (105,634) (25,960)
-
-
(154,758)
35,358 171,846
117,392
496
Total
35,561 163,328
Loans to com panies
555,504
619,881
75,049
10,151
22,043 1,607,720
Loans to retail decreased by 5% as compared to the previous year due to the decrease of personal
consumption loans, while housing loans decreased only by 1%. Loan quality remains high (31
December 2013: 92.58% of loans were classified A and B; 31 December 2012: 92.64%).
Lending to the corporate sector decreased by 27% compared with the previous year, with the quality
of these loans decreasing on account of the increase in insolvency proceedings and defaults. The
exposure to others increased, due to new companies in bankruptcy proceedings, for which AJPES
(Agency of the Republic of Slovenia for Public Legal Records and Related Services) no longer
publishes the data regarding size as at 31 December 2013.
Credit exposure to banks decreased in 2013, while exposure to sovereigns remains low. The Bank
mainly deals with low risk sovereign entities and banks.
132
5.1.5 Credit risk exposure according to impairment and maturity
Loans according to impairment and maturity
Bank
31 Decem ber 2013
Loans to
private
individuals
Loans neither past
due - nor impaired
Loans not past due impaired
Loans past due individually impaired
Loans past due - not
impaired
31 Decem ber 2012
Loans to Loans to Loans to
companies
state
banks
Loans to
private
individuals
companies
state
banks
308,354
742,954
10,136
17,867
321,470
1,054,628
10,151
22,041
1,246
118,347
-
-
5,577
28,378
-
-
13,625
368,595
-
-
8,554
311,447
-
2
1,312
23,360
-
-
995
4,411
-
-
Impairments
(14,959)
(332,913)
-
-
(11,569)
(143,189)
-
-
Total
309,578
920,343
10,136
17,867
325,027
1,255,675
10,151
22,043
Group
31 Decem ber 2013
Loans to
private
individuals
Loans neither past
due - nor impaired
Loans not past due impaired
31 Decem ber 2012
companies
state
banks
Loans to
private
individuals
companies
state
banks
308,414
737,285
10,136
17,867
321,533
1,049,154
10,151
22,041
1,246
118,347
-
-
5,577
28,378
-
-
13,625
368,595
-
-
8,554
311,677
-
2
1,314
23,367
-
-
997
4,414
-
-
Impairments
(14,959)
(332,913)
-
-
(11,569)
(143,189)
-
-
Total
309,640
914,681
10,136
17,867
325,092
1,250,434
10,151
22,043
Loans past due individually impaired
Loans past due - not
impaired
The increase in defaulting loans and unmatured impaired loans is the result of unfavourable
economic conditions and the increase in the number of insolvency proceedings.
Loans and advances neither past due nor impaired
Bank
Rating class
Prime (A)
31 Decem ber 2013
31 Decem ber 2012
Loans
Loans to
and
Loans and
private
Loans to advances advances
individuals com panies to state
to banks
292,788
260,819
10,136
17,867
Standard (B)
6,691
331,034
-
Substandard (C)
8,875
151,101
-
308,354
742,954
10,136
Total
Loans
Loans to
and
Loans and
private
to banks
303,593
461,734
10,151
16,588
-
7,249
499,930
-
5,453
-
10,628
92,964
-
-
17,867
321,470
1,054,628
10,151
22,041
133
Group
Rating class
31 Decem ber 2013
Loans to
private
Loans to
individuals com panies
31 Decem ber 2012
Loans and Loans and
advances advances
to state
to banks
Loans
Loans
Loans to
and
and
private
to banks
Prime (A)
Standard (B)
Substandard (C)
292,848
6,691
8,875
255,098
331,086
151,101
10,136
-
17,867
-
303,656
7,249
10,628
456,260
499,930
92,964
10,151
-
16,588
5,453
-
Total
308,414
737,285
10,136
17,867
321,533
1,049,154
10,151
22,041
Loans and advances not past due but impaired
Bank
Rating class
31 Decem ber 2013
Loans to
private
Loans to
31 Decem ber 2012
Loans and Loans and
advances advances
to state
to banks
Loans
Loans
Loans to
and
and
private
to banks
Default (D)
1,246
118,347
-
-
5,577
28,378
-
-
Total
1,246
118,347
-
-
5,577
28,378
-
-
Group
Rating class
31 Decem ber 2013
Loans to
private
Loans to
31 Decem ber 2012
Loans and Loans and
advances advances
to state
to banks
Loans
Loans
Loans to
and
and
private
to banks
Default (D)
1,246
118,347
-
-
5,577
28,378
-
-
Total
1,246
118,347
-
-
5,577
28,378
-
-
The item mainly includes restructured loans, where the Bank and the Group recognised significant
impairment (loss).
Loans and advances past due and individually impaired
Bank
31 Decem ber 2013
Loans to
private
individuals
Receivables up to 30
overdue
31 Decem ber 2012
Loans to Loans to
companies
banks
Total
Loans to
private
individuals
Loans to Loans to
companies
banks
Total
52
5,523
-
5,574
111
20,283
2
20,396
Receivables over 30 to 90
days overdue
116
22,396
-
22,512
460
15,557
-
16,017
Receivables over 90 days
overdue
13,456
340,676
-
354,133
7,983
275,607
-
283,590
Total
13,625
368,595
-
382,220
8,554
311,447
2
320,003
134
Group
31 Decem ber 2013
Loans to
private
individuals
31 Decem ber 2012
Loans to Loans to
companies
banks
Total
Loans to
private
individuals
Loans to Loans to
companies
banks
Total
overdue
days overdue
52
5,523
-
5,575
111
20,285
2
20,398
116
22,396
-
22,512
461
15,561
-
16,022
overdue
13,456
340,676
-
354,132
7,982
275,831
-
283,813
Total
13,625
368,595
-
382,220
8,554
311,677
2
320,233
Loans and advances past due but not impaired
Bank
31 Decem ber 2013
Loans to
private
individuals
31 Decem ber 2012
Loans to Loans to
companies
banks
Total
Loans to
private
individuals
Loans to Loans to
companies
banks
Total
overdue
655
8,883
-
9,538
399
3,169
-
3,568
days overdue
413
11,110
-
11,523
596
1,111
-
1,707
244
3,367
-
3,612
-
131
-
131
1,312
23,360
-
24,673
995
4,411
-
5,406
overdue
Total
Group
31 Decem ber 2013
Loans to
private
individuals
31 Decem ber 2012
Loans to Loans to
companies banks
Total
Loans to
private
individuals
Loans to Loans to
companies banks
Total
overdue
655
8,883
-
9,538
399
3,170
-
3,569
days overdue
413
11,110
-
11,523
596
1,112
-
1,708
246
3,374
-
3,620
2
132
-
134
1,314
23,367
-
24,681
997
4,414
-
5,411
overdue
Total
135
5.1.6 Credit risk exposure according to impairment approach
Exposure from loans
Bank
31 Decem ber 2013
Collective approach
Rating class
Loans
Impairments
Prime (A)
564,502
Standard (B)
340,087
(5,854)
Substandard (C)
165,558
(22,064)
(1,153)
31 Decem ber 2012
Individual approach
Loans
Collective approach
Impairments
15,399
Loans
Impairments
Individual approach
Loans
Impairments
-
776,687
(1,270)
16,587
2,468
-
474,705
(7,656)
15,969
(1,378)
17,574
-
49,366
(1,360)
(2,528) 100,469
(11,586)
Default (D)
3,700
(1,477) 163,871
(82,386)
3,518
(1,450)
79,003
(20,852)
12,640
(10,471) 321,602
(223,089)
8,970
(7,837) 240,775
(100,219)
1,086,487
(41,019) 519,309
(306,853) - 1,281,454
(20,741) 486,200
(134,017)
Total
Fair value of
collateral
1,180,705
Group
237,704
1,369,321
31 Decem ber 2013
Collective approach
31 Decem ber 2012
Individual approach
Prime (A)
558,843
(1,153)
15,399
-
771,149
(1,270)
16,587
-
Standard (B)
340,146
(5,854)
2,468
-
474,769
(7,656)
49,366
(1,360)
Substandard (C)
165,558
(22,064)
15,969
(1,378)
17,574
(2,528)
100,469
(11,586)
3,700
(1,477)
163,871
(82,386)
3,550
(1,450)
79,126
(20,852)
12,640
(10,471)
321,602
(223,089)
9,113
(7,837)
240,775
(100,219)
1,080,887
(41,019)
519,309
(306,853)
1,276,155
(20,741)
486,323
(134,017)
Fair value of
collateral
1,180,705
Impairments
237,704
Loans
Impairments
Individual approach
Loans
Total
Loans
Collective approach
Rating class
Default (D)
Impairments
308,393
1,369,321
Loans
Impairments
308,393
The Bank and the Group recognise impairment charges in accordance with the internal methodology
on creation of impairment charges and provisions in line with IFRS. Individually significant exposures
and exposures, where there is objective evidence for impairment are impaired individually on the
basis of estimated future cash flows, while other exposures are impaired collectively. As at 31
December 2013, individual assessment was conducted on 32% of the loan portfolio of the Group,
representing 88% of impairment charges (31 December 2012: 28% of the loan portfolio or 87% of
impairment charges).
136
According to loan type
Bank
31 Decem ber 2013
Ov erdraf t
accounts
and card
limits
Collective approach
Housing
loans
Consumer
loans
36,102 174,733
- Impairments
Loans to companies
ov erdraf ts
Large
companies
SME
102,124
884
351,489
352,911
Loans
Loans and
and
advances
advances
to banks
to state
Other
58,107
10,136
Total
- 1,086,487
(206)
(4,934)
(4,080)
(365)
(14,381)
(13,855)
(3,196)
-
-
(41,019)
Individual approach
-
793
9,901
-
128,259
206,925
155,565
-
17,867
519,309
- Impairments
Impairment
compared to loan
value
-
(322)
(5,052)
-
(66,366) (118,965) (116,150)
-
- (306,853)
0.57%
2.99%
8.15%
41.29%
16.83%
23.72%
55.85%
-
-
Total
35,896 170,270
102,893
519
399,001
427,016
94,326
10,136
21.66%
17,867 1,257,924
Bank
31 Decem ber 2012
Ov erdraf t
accounts
and card
limits
Collective approach
- Impairments
Housing
loans
Consumer
loans
35,561 175,792
Loans to companies
ov erdraf ts
113,758
892
Large
companies
SME
488,307 408,553
(2,765)
Other
Loans
Loans and
and
advances
advances
to banks
to state
48,440
10,151
Total
- 1,281,454
(203)
(4,194)
(4,010)
(396)
(8,037)
(1,136)
-
-
(20,741)
Individual approach
-
211
10,382
-
69,363 331,632
52,569
-
22,043
486,200
- Impairments
Impairment
compared to loan
value
-
(28)
(2,738)
-
(8,830) (97,597) (24,824)
-
- (134,017)
0.57%
2.40%
5.44%
44.39%
-
Total
35,358 171,781
117,392
496
2.08%
14.27%
25.70%
-
546,075 634,551
75,049
10,151
8.75%
22,043 1,612,896
Group
31 December 2013
Ov erdraf t
accounts
and card
limits
Collective
approach
- Impairments
Housing
loans
Consumer
loans
Loans to companies
ov erdraf ts
Large
companies
SME
Other
Loans
and
advances
to state
Loans
and
advances
to banks
36,102
174,795
102,124
884
360,003
338,735
58,107
10,136
(206)
(4,934)
(4,080)
(365)
(14,381)
(13,855)
(3,196)
-
-
206,925
Total
- 1,080,887
(41,019)
Individual approach
-
793
9,901
-
128,259
155,565
-
17,867
519,309
- Impairments
Impairment
compared to loan
value
-
(322)
(5,052)
-
(66,366) (118,965) (116,150)
-
-
(306,853)
0.57%
2.99%
8.15%
41.29%
16.54%
24.34%
55.85%
-
-
21.74%
Total
35,896
170,332
102,893
519
407,515
412,840
94,326
10,136
137
17,867 1,252,324
Group
31 December 2012
Ov erdraf t
accounts
and card
limits
Collective approach
- Impairments
Housing
loans
Consumer
loans
Loans to companies
ov erdraf ts
35,561
175,857
113,758
892
Large
companies
SME
Other
497,613 393,883
(2,765)
Loans
and
advances
to state
48,440
10,151
Loans
and
advances
to banks
Total
- 1,276,155
(203)
(4,194)
(4,010)
(396)
(8,037)
(1,136)
-
-
(20,741)
Individual approach
-
211
10,382
-
69,486 331,632
52,569
-
22,043
486,323
- Impairments
Impairment
compared to loan
value
-
(28)
(2,738)
-
(8,830) (97,597) (24,824)
-
-
(134,017)
0.57%
2.40%
5.44%
44.39%
-
8.78%
Total
35,358
171,846
117,392
496
2.04%
14.56%
25.70%
-
555,504 619,881
75,049
10,151
22,043 1,607,720
Loans to banks are assessed individually, while loans to other borrowers are assessed individually
and collectively, depending on the amount of exposure and on the classification or assessment,
whether there is objective evidence for impairment.
5.1.7 Concentration of exposures according to region and activity
Credit risk exposure according to region
The table below shows credit exposure according to geographical regions. The exposure according
to region is determined in accordance with the address of the debtor's headquarters.
Bank
31 Decem ber 2013
Loans and advances to private
individuals
Loans to companies:
- large companies
- small and medium sized enterprises
(SME)
- other
Slovenia
EU
SE Europe
Other regions
Total
10,136
-
-
-
10,136
6,773
6,921
43
4,130
17,867
319,659
4,861
14
3
324,537
1,146,846
76,431
25,970
4,009
1,253,256
469,703
6,036
-
4,009
479,748
463,471
70,395
25,970
-
559,836
213,672
-
-
-
213,672
1,483,414
88,213
26,027
8,142
1,605,796
Impairments
(314,829)
(21,692)
(11,299)
(52)
(347,872)
Total net loans
1,168,585
66,521
14,728
8,090
1,257,924
Loans and advances
1,629,026
17,872
115,845
4,911
1,767,654
Impairments
(136,259)
(31)
(18,444)
(24)
(154,758)
Total net loans
1,492,767
17,841
97,401
4,887
1,612,896
Total loans
31 Decem ber 2012
138
Group
31 Decem ber 2013
Slovenia
Loans and advances to private
individuals
Loans to companies:
EU
SE Europe
Other regions
Total
10,136
-
-
-
10,136
6,773
6,921
43
4,130
17,867
319,721
4,861
14
3
324,599
1,141,184
76,431
25,970
4,009
1,247,594
478,217
6,036
-
4,009
488,262
449,295
213,672
70,395
-
25,970
-
-
545,660
213,672
- large companies
- small and medium sized enterprises
(SME)
- other
Total loans
1,477,814
88,213
26,027
8,142
1,600,196
Impairments
(314,829)
(21,692)
(11,299)
(52)
(347,872)
Total net loans
1,162,985
66,521
14,728
8,090
1,252,324
Loans and advances
1,623,850
17,872
115,845
4,911
1,762,478
Impairments
(136,259)
(31)
(18,444)
(24)
(154,758)
Total net loans
1,487,591
17,841
97,401
4,887
1,607,720
31 Decem ber 2012
The exposure to Slovenia - as well as the exposure outside Slovenia - decreased in 2013. Credit
exposure to the EU also includes exposure to Croatia, which is why it increased, while the exposure
to SE Europe dropped significantly. Risk in the SE European markets is high, which is why the Group
formed additional impairment charges, with further reduction of exposure to the region to be
undertaken in 2014. A target limit is in place for the highest allowed exposure to the region.
Credit risk exposure according to industry
Bank
31 December 2013
state
banks
private individuals
Loans to companies:
- large companies
- small and medium
sized enterprises (SME)
- other
Total loans
Impairments
Total net loans
31 December 2012
Loans and advances
Impairments
Total net loans and
advances
Manuf acturing
Commerce
and motor
v ehicle
repairs
Construction
Finance
Prof essional,
scientif ic and
business
industry
Real estate
Priv ate
indiv iduals
Other
Total
-
-
-
-
-
-
10,136
-
10,136
-
-
-
17,867
-
-
-
-
17,867
263,562
155,445
191,490
83,070
131,996
20,982
161,547
46,278
96,059
10,130
165,297
47,011
- 324,537 324,537
243,305
- 1,253,256
116,832
- 479,748
86,113
22,004
263,562
(54,538)
209,024
94,673
13,747
191,490
(39,217)
152,273
82,410
28,604
131,996
(67,147)
64,849
56,164
59,105
179,414
(83,621)
95,793
72,036
13,893
96,059
(26,787)
69,272
88,394
29,892
165,297
(47,072)
118,225
80,046
- 559,836
46,427
- 213,672
253,441 324,537 1,605,796
(14,531) (14,959) (347,872)
238,910 309,578 1,257,924
300,959
(13,145)
208,622
(8,155)
150,202
(26,263)
195,385
(53,366)
98,978
(12,284)
165,441
(17,711)
311,471 336,596 1,767,654
(12,265) (11,569) (154,758)
287,814
200,467
123,939
142,019
86,694
147,730
299,206 325,027 1,612,896
139
Group
31 Decem ber 2013
state
banks
private individuals
Loans to companies:
- large companies
- small and medium
sized enterprises (SME)
- other
Total loans
Impairments
Total net loans
31 Decem ber 2012
Loans and advances
Impairments
Total net loans and
advances
Manuf acturing
Commerce
and motor
v ehicle
repairs
Construction
Finance
Prof essional,
scientif ic and
business
industry
Real estate
Priv ate
indiv iduals
Other
Total
-
-
-
-
-
-
10,136
-
10,136
-
-
-
17,867
-
-
-
-
17,867
272,076
163,959
191,490
83,070
131,996
20,982
161,546
46,278
81,884
10,130
165,297 243,305
47,011 116,832
324,599
-
324,599
1,247,594
488,262
86,113
94,673
82,410
56,164
57,860
-
545,660
-
213,672
88,394
80,046
29,892
46,427
22,004
13,747
28,604
59,104
13,894
272,076
(54,538)
217,538
191,490
(39,217)
152,273
131,996
(67,147)
64,849
179,413
(83,621)
95,792
81,884
(26,787)
55,097
165,297 253,441
(47,072) (14,531)
118,225 238,910
324,599 1,600,196
(14,959) (347,872)
309,640 1,252,324
310,407
(13,145)
208,622
(8,155)
150,325
(26,263)
195,385
(53,366)
84,166
(12,284)
165,441 311,471
(17,711) (12,265)
336,661 1,762,478
(11,569) (154,758)
297,262
200,467
124,062
142,019
71,882
147,730 299,206
325,092 1,607,720
In terms of exposure by industry, exposure remains highest to the manufacturing industry, being
quite a diversified group in itself. In 2013, the Bank was able to decrease exposure to manufacturing
the most, followed by construction, financial mediation and commerce. In 2014, the Bank and the
Group will continue to pursue the objective of diversified investments according to industry and limit
or reduce investments in the higher risk industries.
140
5.1.8 Exposure to credit risk from debt financial instruments
The table below features the carrying value of debt financial instruments classified according to
issuer and rating by Moody’s Investor Service.
Bank and Group
31 December 2013
Rating by
Moody's
Issuer
Governments
Financial assets
held for trading
Available for sale
financial assets
Total financial assets
Aaa to Aa3
Baa1
-
47,388
176,576
47,388
176,576
Aaa
-
8,173
8,173
Regional units and public
sector entities
Aaa to Aa1
unrated *
Banks
Aaa to Aa3
A3
Ba1
Caa2
Companies
unrated *
1,987
-
12,088
13,523
46,646
4,840
4,651
4,037
12,088
13,523
46,646
4,840
4,651
1,987
4,037
Total
1,987
317,921
319,907
Multilateral development
banks
* All unrated exposures have been classified into the highest rating class A in accordance w ith internal methodologies, w ith
the exception of one bond, w hich has been impaired.
Bank and Group
31 Decem ber 2012
Rating by
Moody's
Issuer
Governm ents
Financial
assets held for
trading
Financial assets
designated at fair
value through
P&L
Available for sale
financial assets
Held to maturity
investments
Total
financial
assets
Aaa to Aa3
-
-
27,270
26,305
53,575
A1 to A3
-
-
18,457
9,972
28,429
Baa2
-
-
14,695
187,881
202,576
Multilateral
developm ent banks
Aaa
-
-
5,230
-
5,230
Regional units and
public sector
entities
Aaa to Aa1
-
-
15,655
5,079
20,734
unrated *
-
-
6,634
10,211
16,845
Aaa to Aa3
-
-
19,746
19,875
39,621
A1 to A3
-
1,839
20,054
6,213
28,106
Banks
Baa1 to Baa3
-
2,093
30,584
4,616
37,293
B1 to B3
4,701
-
4,887
-
9,588
Caa1 to Caa3
6,516
-
-
-
6,516
-
1,132
-
-
1,132
Ca
Com panies
Total
unrated *
-
-
6,955
-
6,955
11,217
5,064
170,167
270,152
456,600
* All unrated securities have been classified into the highest rating class A in accordance w ith internal methodology. More
than quarter of the investments is government guaranteed.
141
The Bank impaired one debt financial instrument in 2013 due to increased credit risk. All exposures
from debt financial instruments are unmatured, with a single financial instrument having been
impaired (unrated corporate bond: EUR 513 thousand carrying amount).
The Bank holds 37% of investments in sovereign, bank and public sector debt securities with a rating
no lower than A3, with 57% of investments rated at least Ba1. As at 31 December 2013 the Bank
holds investments in Slovenia (59% of all investments) and in the low risk EU countries as well as
Norway (41% of all investments).
5.1.9 Exposure to credit risk from derivatives
Bank and Group
31 Decem ber 2013
31 Decem ber 2012
Fair value
Fair value
Derivatives - trading
Futures and forw ards
Interest rate sw aps
Currency sw aps
Options - interest rate cap
Option - FX
126
5,782
26
-
2,724
7,886
166
1
9
Total
5,934
10,786
Interest rate sw aps
3,437
6,892
Total
3,437
6,892
Exposure to credit risk from derivatives is based on the possibility of a counterparty failing to deliver.
The Bank enters into interest rate swap transactions with foreign banks with high credit ratings (at
least Baa2 according to Moody’s rating). The volume of these transactions decreased in 2013.
Currency swaps are also done with foreign banks and, to a lesser extent, with corporates.
The Bank no longer enters into securities forwards. As at 31 December 2013 only two futures
transactions remain on the books. Fair value was down in 2013 due to a decrease in the volume of
said operations and due to the revaluation of some futures and forward transactions to fair value.
5.2 Market risk
Market risk is the risk of change in the fair value of financial instruments due to changes in risk
factors, being interest rates, currency rates and financial instrument prices. The most significant risk
type within market risk is positional risk pertaining to equity and debt financial instruments and
derivatives. Exposure to currency risk is low.
The Bank assesses market risk as the risk it is exposed to when performing trading activities and
the risks it is exposed to in non-trading activities pertaining to market risk factors.
Monitoring and reporting on the amount of exposure to market risk is done using limit systems and
using a number of different methods to measure market risk.
5.2.1 Measuring and managing market risk
Positional risk (the risk of change in value of financial investments) in equity and debt securities is
present across the whole of the portfolio as well as at the level of individual transactions. The Bank
monitors exposure to positional risk using sensitivity analyses, whereby the effect of changes in
different risk factors (e.g. interest rates) on the value of a financial instrument or a portfolio of financial
142
instruments is measured. The Bank also applies extraordinary conditions stress scenarios, which
reflect the effect such conditions in the financial markets have on the value of financial instruments.
The Bank manages exposure to positional risk by also utilising a system of limits, which it regularly
updates. These are basically separated into trading and banking book limits and then further from
the aspect of financial instrument type, region and issuer. Exposure to positional risk is also
measured at individual transaction level, which is why stop limits have been put in place within the
limit system, defined on the basis of the Group’s preparedness to assume risk.
Currency risk is measured daily by monitoring net positions according to individual foreign
currencies. The exposure to currency risk is monitored with the use of foreign currency position limits,
which define the maximum level of an open net position according to an individual currency.
The Bank also enters into currency and interest rate derivative transactions. Its basic policy in the
area of derivatives’ trading is to enter into transactions to hedge own positions and the positions of
customers, whereby the latter transactions are hedged with counter positions. Transactions are
entered into with prime foreign banks.
In measuring market risk, the Bank calculates the capital requirements pertaining to market risk for
all items held for trading in line with the Decision on the calculation of market risk capital requirements
for banks and savings banks. The Bank also calculates the capital requirement for currency risk
when the total open position exceeds 2% of regulatory capital.
On 31 December 2013, the Bank performed an analysis of reasonable possible shift, where it
simulated the effect a decrease of the carrying amounts of all equity instruments from the trading
and banking book by 20% and all debt instruments from the trading and banking book by 10% would
have on the income statement and equity. The simulation did not include forward sold instruments.
The results of the analysis are shown in the table below.
Bank and Group
Effect on income statement
31 Decem ber 2013
Debt
Equity
securities
securities
(198)
(64)
Total
31 Decem ber 2012
Debt
Equity
securities
securities
Total
(262)
(714)
(65)
(779)
Effect on equity
(31,145)
(1,917) (33,062)
(17,000)
(3,243)
(20,242)
Total
(31,343)
(1,981) (33,324)
(17,714)
(3,307)
(21,021)
The reclassification of securities from held to maturity to available for sale had the largest effect on
the changes in equity in 2013.
5.2.2 Sensitivity analysis for financial instruments included in the banking book
The interest rate sensitive financial instruments in the banking book are analysed using the method
of interest rate gaps, where the amount of the gap in an individual time frame is also limited.
Exposure to interest rate risk is also measured using sensitivity analyses and stress tests, prepared
on the basis of the estimated duration gap. Based on these two methods, different analyses of
interest rate sensitivity are performed, including stress scenarios.
The sensitivity analysis of all interest rate sensitive financial instruments in the banking book as at
31 December 2013 shows that with a parallel increase of the interest curve by 50 basis points, the
net present value of the said financial instruments would increase by EUR 2,789 thousand (31
December 2012: EUR 3,251 thousand). The effect on the net present value of financial instruments
143
is calculated using the method of duration gaps between financials assets and liabilities in the
banking book.
The simulation of the effect of a change in the interest rate on the income statement shows than an
increase of the interest rate by 50 basis points increases the asset side interest income by EUR
6,546 thousand (31 December 2012: EUR 6,304 thousand) per year, while the liabilities side interest
expenses increase by EUR 5,493 thousand per year (31 December 2012: EUR 5,591 thousand).
The net interest income thus increases by EUR 1,053 thousand (31 December 2012: EUR 713
thousand) should the interest rate increase by 50 basis points. The analysis includes all interest
sensitive transactions maturing or subject to interest fixing within a one year interval. On the liabilities
side, at sight deposits have been excluded as the Bank or the Group estimate that these pertain to
liabilities not sensitive to interest rates. A change in the interest rate is anticipated, not however in
the credit premium. A parallel increase of interest by 50 basis points is reasonably due to the current
low level of interest rate and the uncertainty of recovery conditions in the EU economy and on
financial markets.
5.2.3 Currency risk
Foreign currency risk is financial risk and represents the danger of financial loss due to changes in
currency rates. It is based on the open foreign currency positions. Thus a change in rates directly
affects asset value as well as foreign currency denominated liabilities, expressed in the reporting
currency. The Bank encounters foreign currency risk in international operations, being the result of:
- the assets and the liabilities of the Group are denominated in different currencies;
- the Group trades foreign currencies for its own account.
The risk of foreign currency exposure depends on the net foreign currency positions, on portfolio
structure, the volatility of foreign currencies and on the correlation between these variables.
The table below shows exposure to currency risk on 31 December 2013. It shows the carrying
amounts of assets and liabilities according to currency.
144
Exposure to foreign currency risk
Bank
31 Decem ber 2013
USD
CHF
Other
EUR
Total
Cash and balances w ith Central Bank
Loans and advances
Derivative financial instruments designated for hedging
101
6,624
3,871
2,753
-
157
19,526
404
19,122
-
520
2,998
2,966
32
-
191,217
10,961
327,895
1,231,065
10,626
1,218,150
2,289
3,437
191,995
10,961
327,895
1,260,213
17,867
1,240,057
2,289
3,437
TOTAL ASSETS
6,725
19,683
3,518
1,764,575
1,794,501
Financial liabilities designated at fair value through P&L
- due to customers
- borrow ings from banks
- borrow ings from other customers
8,029
715
7,233
81
6,103
145
5,886
72
3,111
63
3,045
3
152,091
1,125
1,000
1,591,581
10,353
1,255,854
184,135
2,134
133,841
5,264
152,091
1,125
1,000
1,608,824
11,276
1,272,018
184,135
2,134
133,841
5,420
TOTAL LIABILITIES
8,029
6,103
3,111
1,745,797
1,763,040
(1,304)
13,580
407
18,778
31,461
1,361 (13,733)
(95)
12,412
(55)
31,653
8,319
23,334
4,262
3,387
875
2,194,663
2,082,686
111,977
2,238,085
2,102,067
136,018
233 (26,270)
(326)
26,509
146
Net balance sheet position on 31 December 2013
Net off-balance sheet position on 31 December 2013 - FX
Derivatives
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
Derivatives
7,507
7,675
(168)
145
Group
31 Decem ber 2013
USD
CHF
Other
EUR
Total
Available-for-sale financial assets
Loans and advances
101
6,624
3,871
2,753
-
157
19,526
404
19,122
-
520
2,998
2,966
32
-
191,217
10,961
327,895
1,225,904
10,626
1,212,550
2,728
3,437
191,995
10,961
327,895
1,255,052
17,867
1,234,457
2,728
3,437
TOTAL ASSETS
6,725
19,683
3,518
1,759,414
1,789,340
Financial liabilities designated at fair value through P&L
- due to customers
8,029
715
7,233
81
6,103
145
5,886
72
3,111
63
3,045
3
152,091
1,125
1,000
1,591,732
10,353
1,255,851
184,135
2,134
133,841
5,418
152,091
1,125
1,000
1,608,975
11,276
1,272,015
184,135
2,134
133,841
5,574
TOTAL LIABILITIES
8,029
6,103
3,111
1,745,948
1,763,191
(1,304)
13,580
407
13,466
26,149
1,361 (13,733)
(95)
12,412
(55)
31,653
8,319
23,334
4,262
3,387
875
2,189,867
2,082,840
107,027
2,233,289
2,102,221
131,068
233 (26,270)
(326)
26,509
146
Derivatives
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
Derivatives
7,507
7,675
(168)
The table makes evident the relatively high level of the open long CHF balance position. The Bank
manages it using foreign currency derivatives (e.g. foreign currency swaps) and by FX trading. On
31 December 2013, the off-balance sheet position in CHF derivatives was short in the amount of
EUR 13,733 thousand.
Taking into account the foreign currency derivative transactions and the purchases and sales,
currency positions are nearly closed, which is why the effects of changes in exchange rates are
negligible.
146
5.2.4 Interest rate risk
Interest rate risk represents the exposure of the Bank’s and the Group’s financial position to
unfavourable interest rate fluctuations, thus impacting the income statement as well as the economic
value of receivables, liabilities and commitments and contingent liabilities or the economic value of
the Bank's and Group's capital. For the most part, exposure is derived from interest rate sensitive
assets with different maturities and dynamics of interest rate changes as compared to interest
sensitive liabilities.
The interest rate risk the Bank and the Group were exposed to in 2013 was based on the unmatched
maturities and interest rate fixings between interest rate sensitive assets and liabilities. This was the
result of acquiring long-term fixed interest rate funding and its use for variable and fixed interest rate
investments with differing maturities to the maturity of the funding. The Bank and the Group are
reducing exposure to interest rate risk with interest rate derivatives using hedge accounting to close
larger transactions, which had a significant effect on the size of the interest rate gap. The plan is to
continue closing interest rate gaps in 2014 with the use of balance sheet instruments and interest
rate derivatives, while maintaining low levels of exposure to interest rate risk.
147
Exposure to interest rate risk
Bank
3 - 12
m onths
1-5
years
Over 5
years
Noninterest
bearing
Total
31 Decem ber 2013
Up to 1
1-3
m onth m onths
178,744
-
-
-
-
13,251
191,995
6
1
-
7,761
-
3,193
10,961
23,508
25,274
108,153
106,552
54,434
9,974
327,895
391,508
321,576
500,946
35,613
8,491
2,079
1,260,213
Loans and advances
Derivative financial instruments designated
for hedging
TOTAL ASSETS
Financial liabilities designated at fair value
through P&L
- due to customers
- other financial liabiltities
17,867
-
-
-
-
-
17,867
373,431
321,576
500,946
35,613
8,491
-
1,240,057
210
-
-
-
-
2,079
2,289
-
-
1,232
2,205
-
-
3,437
593,766
346,851
610,331
152,131
62,925
28,497
1,794,501
-
2,091
-
-
150,000
-
-
152,091
-
4
-
1,045
-
76
1,125
-
-
161
543
296
-
1,000
686,601
266,256
462,527
186,565
1,516
5,359
1,608,824
1,025
10,186
65
-
-
-
11,276
662,655
208,745
321,496
79,018
104
-
1,272,018
15,000
38,000
124,076
5,647
1,412
-
184,135
12
2,122
-
-
-
-
2,134
7,848
7,203
16,890
101,900
-
-
133,841
61
-
-
-
-
5,359
5,420
TOTAL LIABILITIES
688,692
266,260
462,688
338,153
1,812
5,435
1,763,040
GAP on 31 December 2013
(94,926)
80,591
147,643 (186,022)
61,113
23,062
31,461
602,544
450,424
785,903
290,342
69,051
39,821
2,238,085
713,226
339,850
685,718
326,166
30,580
6,527
2,102,067
(110,682)
110,574
100,185
(35,824)
38,471
33,294
136,018
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
148
Group
Over 5
years
Noninterest
bearing
Total
191,995
31 Decem ber 2013
178,744
-
-
-
-
13,251
6
1
-
7,761
-
3,193
10,961
23,508
25,274
108,153
106,552
54,434
9,974
327,895
391,463
322,432
494,535
35,613
8,491
2,518
1,255,052
17,867
-
-
-
-
-
17,867
373,386
322,432
494,535
35,613
8,491
-
1,234,457
210
-
-
-
-
2,518
2,728
Loans and advances
Derivative financial instruments designated
for hedging
TOTAL ASSETS
Financial liabilities designated at fair value
through P&L
- due to customers
1-3
3 - 12
m onths m onths
1-5
years
Up to 1
m onth
-
-
1,232
2,205
-
-
3,437
593,721
347,707
603,920
152,131
62,925
28,936
1,789,340
2,091
-
-
150,000
-
-
152,091
-
4
-
1,045
-
76
1,125
-
-
161
543
296
-
1,000
686,598
266,256
462,527
186,565
1,516
5,513
1,608,975
1,025
10,186
65
-
-
-
11,276
662,652
208,745
321,496
79,018
104
-
1,272,015
15,000
38,000
124,076
5,647
1,412
-
184,135
12
2,122
-
-
-
-
2,134
7,848
7,203
16,890
101,900
-
-
133,841
61
-
-
-
-
5,513
5,574
TOTAL LIABILITIES
688,689
266,260
462,688
338,153
1,812
5,589
1,763,191
(94,968)
81,447
141,232 (186,022)
61,113
23,347
26,149
602,463
448,782
782,831
290,342
69,051
39,820
2,233,289
713,225
339,850
685,718
326,166
30,580
6,682
2,102,221
(110,762)
108,932
97,113
(35,824)
38,471
33,138
131,068
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
The Bank sorts its positions into different time intervals depending on the time remaining until
repricing for variable interest rate transactions and in accordance with remaining maturities for fixed
interest rate transactions.
In the up-to 1 month interval, the Bank includes all at sight deposits on the liabilities side, which is
why the interest rate gap is negative. By entering into interest rate swaps, the Bank reduces exposure
to interest rate risk.
The sensitivity analysis to reasonably possible shifts and impact on income statement and the equity
of the Bank and the Group is included in Note 5.2.2.
149
5.3 Liquidity risk
Liquidity risk is the risk that the Bank and the Group will not be able to settle all due liabilities or they
are forced to acquire funding at significantly higher cost and the market liquidity risk, which arises
when it is not possible to sell a position in a financial instrument or replace it in a short period of time
without significantly influencing market prices. From a timing point of view, it is possible to distinguish
between the management of operational liquidity and the management of structural liquidity.
In banks, the duration gaps in assets and liabilities are common, as transforming short-term funding
into long-term loans is a core role they play, however the Bank and the Group expose themselves
to liquidity risk in doing so. Due to this fact, the Bank and the Group have set up an efficient liquidity
management system, which includes:
- analysis and planning of future cash flows,
- maintaining very liquid assets within liquidity reserves,
- monitoring target values and limits pertaining to operational and structural liquidity through
the system of internal and external reporting,
- ensuring an adequate diversification of liquidity sources and
- preparing scenarios simulating extraordinary liquidity conditions.
On a quarterly basis, the Bank prepares three different scenarios of extraordinary liquidity conditions,
which are based on a dynamic analysis of liquidity gaps:
- a scenario adapted to its own liquidity position (an idiosyncratic scenario), which assumes
the impossibility of renewing liquidity sources,
- a scenario based on the market situation (market scenario), which provides for a drop in the
liquidity of assets, and
- scenarios based on a combination of the above two scenarios.
Based on the results of the scenarios dealing with extreme liquidity conditions, the Bank determined
the minimum amount of liquidity reserves and its structure. The Bank has set up procedures of early
liquidity shortage detection, whereby it also regularly monitors the trends related to individual
products and the market situation. Additionally, it pays special attention to warning signals pointing
to extreme liquidity conditions. At the onset of possible warning signs, the Bank implements a crisis
plan which defines the most efficient ways of managing the positions in extraordinary liquidity
conditions. In such conditions, the Bank's activity would be twofold, namely it would work to acquire
additional, alternative funding and communicate with the public in an appropriate way.
150
Exposure to liquidity risk
Bank
31 Decem ber 2013
Loans and advances
Derivative financial instruments
designated for hedging
TOTAL ASSETS
Financial liabilities designated at fair
value through profit or loss
- due to customers
TOTAL LIABILITIES
Up to 1
month
1-3
months
3 - 12
months
1 - 5 y ears
Ov er 5
y ears
191,995
10,961
191,999
20,197
191,999
3,307
245
2,598
13,889
158
327,895
1,260,213
17,867
1,240,057
2,289
370,255
1,371,998
17,869
1,351,839
2,290
25,867
241,557
17,869
221,612
2,076
24,221
117,838
117,627
211
113,958
327,673
327,671
2
140,838
473,640
473,639
1
65,371
211,290
211,290
-
Total cash flow
(undiscounted)
Carrying
am ount
3,437
7,580
784
232
2,852
3,712
-
1,794,501
1,962,029
463,514
142,536
447,081
632,079
276,819
152,091
1,125
153,252
3,156
63
259
730
153,252
2,100
4
1,000
1,608,824
11,276
1,272,018
184,135
2,134
133,841
5,420
1,763,040
1,000
1,660,404
11,288
1,296,354
199,456
2,312
145,574
5,420
1,817,812
656,598
958
646,069
288
7
4,304
4,972
656,661
218,327
10,264
189,624
4,583
340
13,426
90
218,586
161
446,199
66
372,082
53,612
376
20,054
9
447,090
543
291,615
86,116
96,484
1,225
107,790
447,510
296
47,665
2,463
44,489
364
349
47,965
144,217 (193,147)
(76,050)
(9)
184,569
228,854
31,461
Com m itm ents and Contingent Liabilities
103,823
Guarantees
91,286
Other commitments
103,823
91,286
103,823
91,286
-
-
-
-
195,109
195,109
195,109
-
-
-
-
2,433,009 474,565
2,207,303 677,156
225,706 (202,591)
207,663
290,588
(82,925)
550,724
473,189
77,535
866,362
676,441
189,921
333,695
89,929
243,766
TOTAL on 31 Decem ber 2013
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
2,238,085
2,102,067
136,018
Guarantees
Other commitments
95,104
108,207
95,104
108,207
95,104
108,207
-
-
-
-
203,311
203,311
203,311
-
-
-
-
151
Group
31 Decem ber 2013
Carrying
am ount
Loans and advances
Derivative financial instruments
designated for hedging
Total cash flow
(undiscounted)
Up to 1
month
1-3
months
3 - 12
months
1 - 5 y ears
Ov er 5
y ears
191,995
10,961
191,999
20,197
191,999
3,307
245
2,598
13,889
158
327,895
1,255,052
17,867
1,234,457
2,728
370,255
1,366,057
17,869
1,345,459
2,729
25,867
241,971
17,869
221,587
2,515
24,221
117,653
113,958
321,390
140,838
473,719
65,371
211,324
117,442
211
321,388
2
473,718
1
211,324
-
3,437
7,580
784
232
2,852
3,712
-
1,789,340
1,956,088
463,928
142,351
440,798
632,158
276,853
152,091
153,252
-
-
-
153,252
-
1,125
3,156
63
259
730
2,100
4
1,000
1,000
-
-
161
543
296
- due to customers
1,608,975
11,276
1,272,015
184,135
2,134
133,841
5,574
1,660,555
11,288
1,296,351
199,456
2,312
145,574
5,574
656,749
958
646,066
288
7
4,304
5,126
218,327
10,264
189,624
4,583
340
13,426
90
446,199
66
372,082
53,612
376
20,054
9
291,615
86,116
96,484
1,225
107,790
-
47,665
2,463
44,489
364
TOTAL LIABILITIES
1,763,191
1,817,962
656,812
218,586
447,090
447,510
47,965
26,149
138,125
(192,884)
(76,235)
(6,292)
184,648
228,888
Guarantees
103,844
Other commitments
91,396
195,240
103,844
91,396
195,240
103,844
91,396
195,240
-
-
-
-
2,233,289
2,102,221
131,068
2,428,676
2,207,458
221,218
474,929
677,311
(202,382)
204,606
290,588
(85,982)
547,656
473,189
74,467
867,211
676,441
190,770
334,274
89,929
244,345
Guarantees
95,104
Other commitments
108,207
203,311
95,104
108,207
203,311
95,104
108,207
203,311
-
-
-
-
TOTAL ASSETS
Financial liabilities designated at fair
value through profit or loss
31 Decem ber 2012
TOTAL ASSETS
TOTAL LIABILITIES
349
The above table discloses non-discounted cash flow in relation to residual maturity on 31 December
2013, which, in addition to the carrying values of financial instruments, includes the anticipated future
interest cash flows. The amounts disclosed are based on spot rates and on interest rates at the
reporting date. Innovative subordinated bonds do not mature at any certain date; they are, however,
callable in 2017. This is why these instruments have been included in the ‘’over 1 to 5 years’’
category. The interest cash flow has been calculated for 5 years.
The liquidity gap within the up-to-one month time frame is negative, however the fact must be taken
into account that it includes all at sight deposits under financial liabilities, even though the main
portion of the deposits exhibits a high level of stability. Financial assets feature securities included
in liquidity reserves recorded at remaining maturity, not in the up-to-one month interval. Taking the
aforementioned into account, the Bank and the Group actually recorded a liquidity surplus in the upto-one month interval.
152
Liquidity gaps changed as compared with 31 December 2012 due to the decreasing total assets of
the Bank and the decrease in assets as well as liabilities. In comparison with the previous year
liquidity gaps are smaller.
Bank
31 December 2013
Loans and advances
TOTAL ASSETS
Carrying amount
Up to 1 year
191,995
191,995
-
10,961
3,199
7,762
327,895
151,189
176,706
1,260,213
17,867
1,240,057
2,289
650,483
17,867
630,328
2,288
609,730
609,729
1
Over 1 year
3,437
1,232
2,205
1,794,501
998,098
796,403
152,091
-
152,091
1,125
79
1,046
1,000
161
839
- due to customers
1,608,824
11,276
1,272,018
184,135
2,134
133,841
5,420
1,291,258
11,276
1,188,109
54,193
668
31,941
5,071
317,566
83,909
129,942
1,466
101,900
349
TOTAL LIABILITIES
1,763,040
1,291,498
471,542
31,461
(293,400)
324,861
TOTAL ASSETS
2,238,085
1,154,585
1,083,500
TOTAL LIABILITIES
2,102,067
136,018
1,397,497
(242,912)
704,570
378,930
31 Decem ber 2012
153
Group
31 Decem ber 2013
Loans and advances
TOTAL ASSETS
Carrying am ount
Up to 1 year
Over 1 year
191,995
191,995
-
10,961
3,199
7,762
327,895
151,189
176,706
1,255,052
17,867
1,234,457
2,728
644,583
17,867
623,989
2,727
610,469
610,468
1
3,437
1,232
2,205
1,789,340
992,198
797,142
152,091
-
152,091
1,125
79
1,046
1,000
161
839
- due to customers
1,608,975
11,276
1,272,015
184,135
2,134
133,841
5,574
1,291,409
11,276
1,188,106
54,193
668
31,941
5,225
317,566
83,909
129,942
1,466
101,900
349
TOTAL LIABILITIES
1,763,191
1,291,649
471,542
26,149
(299,451)
325,600
TOTAL ASSETS
2,233,289
1,148,497
1,084,792
TOTAL LIABILITIES
2,102,221
131,068
1,397,651
(249,154)
704,570
380,222
31 Decem ber 2012
The above table show carrying values according to remaining maturity. The Bank exhibits a deficit
in assets related to liabilities in the up-to one year interval due to at sight and other short-term
deposits.
5.4 Capital and capital adequacy
In its operations, the Bank and the Group must always exhibit an appropriate level of capital to be
able to secure the assets of its clients and investors. An adequate capital base is security for the
different types of risks the Bank and the Group are exposed to in their ordinary course of business.
They must have sufficient capital to suit the risk of their operations and their business strategy.
The Bank's and the Group's capital risk management activities include the following:
- developing and implementing the capital risk management strategy;
- devising and updating the policy of capital risk taking and risk management;
- monitoring changes in legislation;
- developing medium- and long-term projections of capital, capital requirements, and relevant
capital adequacy ratios, and updating such projections in case of major changes in
operations, in order to identify and monitor future capital requirements;
- running quarterly scenarios of extraordinary situations considering the specific position;
- notifying the Bank's managerial and supervisory bodies on relevant capital risk taken by the
Bank in the course of its operations;
- establishing and maintaining a system of capital risk management and establishing and
controlling the limits of capital adequacy ratio, core capital ratio, and ratio between the
internal capital assessment and capital requirements according to the 1st pillar of Basel II.
154
In capital risk, the Bank and the Group have specified limit and target ratios presented in the following
table:
Limit value
Capital adequacy ratio
Tier 1 capital ratio
Internal capital assessment to 1st pillar capital requirements ratio
11.0
8.8
137.4
- in %
Target value
12.0
9.0
150.0
In 2013 the Bank recorded reducing capital adequacy ratios, which, toward the end of the year, were
no longer reaching target values and decreased under the limit values at the end of the year. In 2013
the Bank continued with activities to reduce capital risk, which include measures to reduce exposure
to risk and subsequently reduce capital requirements as well as measures aimed at increasing
capital. Based on the decision on authorised capital, which was adopted at the regular annual
Meeting of Shareholders on 30 May 2013, it started recapitalization activities. An appraisal of
shareholder’s equity was performed by KPMG. After having acquired the appraisal, the Bank
conducted talks with existing owners on the possibility of a recapitalization, while at the same time
looking for a new strategic partner.
Based on the changes in the legislation (termination or conversion of qualified obligations of the
Bank) and the inclusion of the derivative in the subordinated debt, the Bank revalued its liabilities to
fair value in accordance with IAS 39. The valuation was performed by the company P & S Capital,
d.o.o. The Bank accounted for the effects of the revaluation of subordinated debt in the income
statement and included the fair value of the said equity instruments in the calculation of regulatory
capital.
In 2013 the Bank was included in the asset quality review at the level of the entire banking system
and subjected to stress test, based on which a shortfall in capital was established. The Bank
concluded the financial year with a negative result and exhibited inadequate capital. It prepared a
detailed plan of activities and measures aimed at the elimination of the capital shortfall. The Bank
will coordinate further activities pertaining to recapitalization and the acquisition of state aid with the
Bank of Slovenia and the Ministry of Finance. Activites have been presented in more detail in the
Notes to the financial statements under Chapter 2 – Significant accounting policies.
In accordance with the provisions of Basel II and the Decision on the calculation of bank and savings
bank capital, it is divided into three categories:
- Tier 1 capital,
- Tier 2 capital,
- Tier 3 capital.
Tier 1 capital represents the highest quality of capital and may be used, together with Tier 2 capital,
for the fulfilment of capital requirements relating to credit, market and operational risk. Tier 3 capital
may only be used for the fulfilment of capital requirements relating to market risk, except the capital
requirements for settlement risk and counterparty credit risk.
The Bank and the Group must fulfil certain ratios and adhere to certain limits in connection with
individual capital components at all times. The more significant ratios and limits comprise:
- Tier 2 capital may not exceed the level of Tier 1 capital,
- the sum of preferential cumulative shares with a fixed return and subordinated debt included
in the Tier 2 capital may not exceed 50% of the Tier 1 capital.
Despite the abovementioned ratios and limits between individual categories or capital components,
hybrid instruments, which may be included in Tier 1 capital, carry additional limitations.
155
Potential surpluses in individual categories or capital components above the limits set may not be
considered in the calculation of capital.
Tier 1 capital
The components of Tier 1 capital:
- paid up share capital and capital reserves from ordinary shares,
- reserves and retained profit, free from potential future liabilities and approved at the General
Meeting of Shareholders in the amount which is assumed to remain part of capital and will
not be distributed; retained loss is included under this item as well as hybrid instruments
based on Tier 1 capital within limits, namely transitional period hybrid instruments with
incentive for pay-out (the issued innovative registered bond).
Deductibles from the Bank’s and the Group’s Tier 1 capital:
- own shares, with the characteristics of Tier 1 capital,
- intangible long-term assets,
- revaluation surpluses – rating filters including negative effects from revaluation surpluses in
connection with equities and shares, available-for-sale and designated at fair value (included
in the banking and trading book) and available-for-sale debt securities as well as those
recognised at fair value (included in the trading book),
hybrid instrument surpluses above the prescribed Tier 1 limit.
Tier 2 capital
The Bank’s and the Group’s Tier 2 capital comprises:
- 80% of the amount of positive surplus effects from the revaluation of available-for-sale
equities and interests, recognised at fair value (included in the banking and trading book) and
available-for-sale debt securities as well as those recognised at fair value (included in the
trading book),
- surplus from hybrid instruments in the part exceeding the limit for inclusion in Tier 1 capital
(innovative registered bond in issue),
- subordinated debt for inclusion in Tier 2 capital (which is gradually discounted from Tier 2
capital at a 20% cumulative discount during the last five years prior to maturity or redemption).
Deductions from Tier 1 and Tier 2 capital
As at 31 December 2013 and 31 December 2012, the Bank and the Group did not exhibit any
deduction from Tier 1 and Tier 2 capital, as stipulated under Article 30 of the Decision on the
calculation of own funds, capital requirements and capital adequacy of banks and savings banks.
Tier 3 capital
As at 31 December 2013 and 31 December 2012, the Bank and the Group did not have any debt
instruments in issue which would merit inclusion into Tier 3 capital.
156
Capital and capital requirements
Bank
Group
31 December 31 December 31 December 31 December
2013
2012
2013
2012
I. TOTAL CAPITAL for capital adequacy
requirements (1+2)
34,298
230,628
35,055
231,487
1. TIER 1 capital
24,656
165,410
25,413
166,268
Paid-up share capital (regular shares)
16,980
16,980
16,980
16,980
Share premium (regular shares)
51,380
51,380
51,542
51,542
Profit reserves and retained profit
86,759
111,735
87,323
112,410
(126,257)
(24,984)
(126,221)
(24,956)
161
14,937
161
14,937
161
14,937
161
14,937
(4,367)
(4,638)
(4,372)
(4,644)
(91)
(198)
(91)
(198)
(4,108)
(4,415)
(4,113)
(4,421)
(168)
(25)
(168)
(25)
2. TIER 2 capital
9,642
65,218
9,642
65,218
Tier 1 capital adjustments, transferable to Tier 2
capital - prudential filter
9,047
1,439
9,047
1,439
595
63,779
595
63,779
109,975
141,805
110,214
141,964
93,964
128,375
94,050
128,445
5,046
2,199
5,046
2,199
10,965
11,231
11,118
11,320
III. CAPITAL ADEQUACY RATIO (I / II x 8) (in %)
2.49%
13.01%
2.54%
13.04%
IV. TIER 1 CAPITAL RATIO (I.1. / II x 8) (in %)
1.79%
9.33%
1.84%
9.37%
Net profit / (loss) for the year
Hybrid instruments
Transitory period hybrid instruments, with payout incentives
Deductibles from TIER 1 capital:
(-) Own shares
(-) Intangib le long-term assets
(-) Revaluation reserves (RR) - availab le for sale
- prudential filters
Subordinated debt
II. CAPITAL REQUIREMENTS
Capital requirements for credit and counterparty
risks
Capital requirements for position and foreign
exchange risks
Capital requirement for operational risk
The capital for capital adequacy purposes decreased in 2013 due to the loss of the Bank and the
Group and due to the inclusion of hybrid and subordinated instruments in the calculation of capital
at fair value, being the result of the restating of financial instruments. Lower capital requirements for
credit risk are the consequence of additional impairment costs and lower loan values, which
decreased the Group’s exposure to credit risk. Positional risk capital requirements increased due to
the transfer of part of the financial instruments from the banking to the trading book. The drop in
capital also impacted a decrease of capital adequacy and Tier 1 capital ratios.
The new Basel III capital accord came into force in 2014. The Bank will need to prepare the first
calculation of capital and capital adequacy for the purpose of reporting to the regulatory institution in
accordance with the balances on 31 March 2014. The new capital accord introduces a new definition
of capital, based on core and additional capital. Core capital comprises common equity Tier 1 capital
and additional Tier 1 capital, where the emphasis lies on the common equity Tier 1 capital or share
capital, which is intended for the cover of loss from the bank’s regular operations. The new legislation
also includes additional effects on the calculation of bank capital pertaining to stricter criteria on the
inclusion of capital instruments in the calculation of capital, deductions from capital, additional
disclosures related to capital and the introduction of capital buffers.
157
5.5 Fair value of financial assets and liabilities
a) Financial instruments not measured at fair value
Bank
Carrying am ount
31 Decem ber 31 Decem ber
2013
2012
Fair value
2013
2012
Financial assets
Loans
1,260,213
17,867
1,240,057
2,289
1,615,610
22,043
1,590,853
2,714
1,325,716
17,867
1,305,560
2,289
1,646,571
22,042
1,621,812
2,717
-
270,152
-
277,306
1,260,213
1,885,762
1,325,716
1,923,877
152,091
151,431
146,084
147,424
- due to customers
- borrow ings from costumers
1,608,824
11,276
1,272,018
184,135
2,134
133,841
5,420
1,915,156
10,567
1,413,621
255,286
3,278
170,880
55,275
6,249
1,607,235
11,189
1,280,059
171,509
2,073
137,310
5,095
1,919,514
10,497
1,419,284
253,902
3,262
170,372
56,450
5,747
TOTAL
1,760,915
2,066,587
1,753,319
2,066,938
TOTAL
Deposits from the Central bank
Group
Carrying am ount
2013
2012
Fair value
2013
2012
Financial assets
Loans
1,255,052
17,867
1,234,457
2,728
1,610,814
22,043
1,585,677
3,094
1,320,371
17,867
1,299,775
2,729
1,637,934
22,042
1,612,796
3,096
-
270,152
-
277,306
1,255,052
1,880,966
1,320,371
1,915,240
TOTAL
Deposits from the Central bank
152,091
151,431
146,084
147,424
- due to customers
- borrow ings from costumers
1,608,975
11,276
1,272,015
184,135
2,134
133,841
5,574
1,915,310
10,567
1,413,620
255,286
3,278
170,880
55,275
6,404
1,607,386
11,189
1,280,056
171,509
2,073
137,310
5,249
1,919,668
10,497
1,419,284
253,902
3,262
170,372
56,450
5,901
TOTAL
1,761,066
2,066,741
1,753,470
2,067,092
To calculate the fair values of held-to-maturity financial assets, the Bank and the Group used the
quoted market prices and the methodology based on discounting future cash flows for all other items.
Discount factors for financial assets are calculated on the basis of the reference zero coupon curve
according to respective currency without a credit mark-up. The discount factors for financial liabilities
158
are calculated on the basis of the interest rate curve with a credit mark-up of 4 basis points,
representing issuer risk.
The statement of financial position shows loans and other receivables in net amounts, meaning that
these have been decreased by the impairment charges.
b) Fair value hierarchy
The Bank defines a hierarchy of valuation techniques based on whether the inputs for those
valuations are published or not. Published inputs reflect market data obtained from independent
sources; non-published inputs reflect the Bank's market assumptions.
These two types of inputs have created the following fair value hierarchy:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges (for example, on the Ljubljana
Stock Exchange).
Level 2 – inputs other than quoted prices included under Level 1 that are observable for a respective
asset or liability, either directly (that is, as prices) or indirectly (derived from prices). This level
includes most OTC derivative contracts, issued structured debt, certificates of deposit and financial
liabilities (BCE10 series subordinated bonds and certificates of deposit). The sources of input
parameters like the EURIBOR yield curve or counterparty credit risk are Bloomberg and Reuters.
Level 3 - inputs other than quoted prices observable for assets or liabilities. This level includes
investments in equity securities with significant, non-published components. To assess the market
values of investments the Bank used the income approach (discounting future cash flows and the
capitalization of normalized cash flow method), while using the market approach in a single case
(the comparable listed companies method).
This hierarchy requires the use of published market data when available. The Bank considers
relevant and published market prices in its valuations where possible.
159
The table below show the description of significant input elements and the sensitivity analysis
(disclosing the valuation of significant financial investments in amount of EUR 1,844 thousand):
Category
Activity
Significant input
Valuation method elements
Input element
value
Sensitivity analysis effects
- ordinary,
non-listed
share
funeral
services
Income approach:
Discounted cash long-term growth
flow method
rate
3%
If the value of the EBITDA margin
decreases(increases ) by 10%, the
fair value of the investment
decreases (increases) by EUR
8.4% - 11.5% 122 thousand.
EBITDA (margin)
- preferene
share, not
listed
- ordinary,
non-listed
share
5%
If the long-term growth rate
decreases (increases) by 20%, the
fair value of the investment
decreases (increases) by EUR
168 thousand.
8.46%
If the value of the MVIC/EBITDA
multiple idecreases (increases) by
10%, the fair value of the
investment decreases (increases)
by EUR 53 thousand.
expected longIncome approach: term growth rate
Capitalization
(part of
casino activity method
capitalization rate)
electricity
If the value of the long-term growth
rate increases (decreases) by 1 %,
the fair value of the investment
increases (decreases) by EUR 25
thousand.
Market approach:
Comparable listed
companies
Market multiple:
method
MVIC/EBITDA
Assets and liabilities measured at fair value
Bank
31 Decem ber 2013
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value:
Debt instruments
Equity instruments
Derivatives
5,027
1,987
3,040
-
5,934
5,934
-
10,961
1,987
3,040
5,934
323,958
316,994
6,964
414
414
-
3,523
513
3,010
327,895
317,921
9,974
-
3,437
-
3,437
-
1,260,213
-
1,260,213
328,985
1,269,998
3,523
1,602,506
-
1,125
-
1,125
-
-
1,000
1,000
Financial liabilities at am ortised cost
(including financial liabilities to the Central Bank)
-
1,760,915
-
1,760,915
Total liabilities
-
1,762,040
1,000
1,763,040
Debt instruments
Equity instruments
Financial assets at amortised cost:
Loans
Total assets
Financial liabilities measured at fair value:
Financial liabilities held for trading (Derivatives)
Financial liabilities designated at fair value through profit or
loss
Financial liabilities at amortised cost:
160
Bank
31 Decem ber 2012
Level 1
Level 2
Level 3
Total
Debt instruments
Equity instruments
Derivatives
Financial assets designated at fair value through profit or
loss
7,168
3,048
4,120
-
18,955
8,169
10,786
-
26,123
11,217
4,120
10,786
2,093
2,093
2,971
2,971
-
5,064
5,064
178,222
169,763
8,459
404
404
-
8,132
8,132
186,758
170,167
16,591
-
1,615,610
-
1,615,610
270,152
-
-
270,152
-
6,892
-
6,892
457,635
1,644,832
8,132
2,110,599
loss
-
1,888
-
1,888
-
33,592
-
33,592
-
2,066,587
-
2,066,587
Total liabilities
-
2,102,067
-
2,102,067
Debt instruments
Debt instruments
Equity instruments
Loans
Total assets
Group
31 Decem ber 2013
Level 1
Level 2
Level 3
Total
Debt instruments
Equity instruments
Derivatives
Debt instruments
Equity instruments
5,027
1,987
3,040
-
5,934
5,934
-
10,961
1,987
3,040
5,934
323,958
316,994
6,964
-
414
414
3,437
3,523
513
3,010
-
327,895
317,921
9,974
3,437
Financial assets at amortised cost
Loans
Total assets
-
1,255,052
-
1,255,052
328,985
1,264,837
3,523
1,597,345
-
1,125
-
1,125
1,000
1,000
loss
-
-
Financial liabilities at amortised cost:
-
1,761,066
-
1,761,066
Total liabilities
-
1,762,191
1,000
1,763,191
161
Group
31 Decem ber 2012
Level 1
Level 2
Level 3
Total
Debt instruments
Equity instruments
Derivatives
Financial assets designated at fair value through profit or
loss
7,168
3,048
4,120
-
18,955
8,169
10,786
-
26,123
11,217
4,120
10,786
2,093
2,093
2,971
2,971
-
5,064
5,064
178,222
169,763
8,459
404
404
-
8,132
8,132
186,758
170,167
16,591
-
1,610,814
-
1,610,814
270,152
-
-
270,152
-
6,892
-
6,892
457,635
1,640,036
8,132
2,105,803
loss
-
1,888
-
1,888
-
33,592
-
33,592
-
2,066,741
-
2,066,741
Total liabilities
-
2,102,221
-
2,102,221
Debt instruments
Debt instruments
Equity instruments
Loans
Total assets
Reconciliation for Level 3 items:
Profit
Impairments
Sale
Purchase
11,988
86
(7,453)
(824)
4,335
8,132
Transfer between levels
(Loss)
Impairments
1,027
(171)
(5,465)
3,523
The Bank transferred a single debt financial instrument between the fair value levels (from level 2 to
level 3) as the result of impairment of the financial instrument.
The Bank and the Group performed a sensitivity analysis, where it simulated the effect a 3rd level
decrease in the carrying amount of equity instruments has on the income statement. Should the fair
value of these financial instruments decrease by 50%, this would have a negative effect on the
income statement in the amount of EUR 1,762 thousand (2012: EUR 2,440 thousand).
162
6
SEGMENT REPORTING
The Group's operations comprise three segments:
- retail, incorporating private client accounts, savings, deposits, certificates of deposit,
insurance brokerage products, credit and debit cards, loans, mainly small businesses and
private individuals;
- corporates, incorporating current accounts, deposits, loans and other credit facilities and
payment operations, mainly small and large companies;
- financial markets, incorporating trading in financial instruments, securities issued and
interbank relations.
In its operations, the Group primarily performs credit and deposit operations. Segments are disclosed
according to the methodology used in the preparation of an internal report and are discussed at the
ALCO, which also comprises Management Board members. The heads of individual areas of
operation receive detailed reports on the operation of their units during the year. Throughout the year
there have been no significant changes in reportable segments.
Liabilities and assets are shown according to segment, based on the segment they were acquired
from or the segment in which they were invested.
Transactions between segments for the purpose of internal accounting are based on harmonised
transfer bases (internal transfers of income effects between segments, keys for the transfer of
service costs and administrative unit costs to profit centres). Net interest is included in the report in
accordance with transfer prices from the market, whereby transfer income is applied to some
transactions and transfer expenses to others as well as transfer interest margins, indicating the
contribution of an individual transaction to the net interest of the Bank.
The transfer pricing system for the allocation of net interest revenue was methodologically designed
and confirmed by the Assets and Liabilities Management Committee which receives, together with
individual segment heads, reports on the transfer prices of interest bearing assets and liabilities on
a monthly basis.
163
The report on operations according to segments for 2013:
Group
2013
Retail
Corporates
Financial
markets
Not allocated
Total
Total income
- external income
- income from other segments
43,031
43,031
-
127,056
126,458
598
15,233
15,233
-
-
185,320
184,722
598
Income from financial transactions
Net other operating (loss)
Administrative expenses with
depreciation and amortisation
Provisions
Impairment charges
(Loss) before income tax
Deferred tax
15,670
10,463
8,762
(1,051)
14,526
5,571
73,455
(144)
7,048
(217)
(1,403)
(380)
-
37,244
15,817
80,814
(1,575)
(23,098)
(138)
(14,863)
(4,255)
-
(8,305)
(315)
(192,988)
(108,200)
-
(2,526)
396
(6,148)
(3,230)
-
(10,673)
(33,929)
(57)
(213,999)
(115,685)
(10,673)
Net (loss)
Segment assets
Not allocated
(126,358)
496,023
-
889,191
-
422,446
-
8,728
Total assets
Segment liabilities
Not allocated
Equity
1,807,660
8,728
1,816,388
739,813
-
554,444
-
468,644
-
11,967
41,520
1,762,901
11,967
41,520
1,816,388
Other segment items
Investments in property and equipment
290
894
103
-
1,287
Investments in intangible assets
Depreciation
Amortisation
164
418
234
2,042
1,291
750
58
148
83
-
2,264
1,857
1,067
164
The report on operations according to segments in 2012:
Group
2012
Retail
Corporates
Financial
markets
Not allocated
Total
Total income
- external income
- income from other segments
42,357
42,357
-
64,534
62,573
1,961
31,767
31,767
-
-
138,658
136,697
1,961
Income from financial transactions
Net other operating (loss) / income
Administrative expenses with depreciation
and amortisation
Provisions
Impairment charges
Profit / (loss) before income tax
Deferred tax
24,180
10,422
221
(46)
16,109
5,573
292
1,571
6,267
(263)
8,656
(65)
-
46,556
15,732
9,169
1,460
(24,687)
901
(8,908)
2,083
-
(9,558)
344
(44,056)
(29,725)
-
(2,579)
554
(12,436)
134
-
2,552
(36,824)
1,799
(65,400)
(27,508)
2,552
Net (loss)
Segment assets
Subsidiary
Not allocated
(24,956)
534,444
-
1,178,788
14,877
-
520,198
-
23,048
Total assets
Segment liabilities
Not allocated
Equity
2,233,430
14,877
23,048
2,271,355
773,990
-
667,746
-
659,514
-
11,297
158,808
2,101,250
11,297
158,808
2,271,355
Other segment items
Investments in property and equipment
357
530
267
-
1,154
Investments in intangible assets
Depreciation
Amortisation
212
681
367
315
1,015
577
159
510
276
-
686
2,206
1,220
165
Reconciliation of results by geographic area:
2013
Revenues
Non current assets
Slovenia
Croatia
Cyprus
Germany
Belgium
Austria
Serbia
Bosnia and Herzegovina
France
Netherlands
Sweden
Switzerland
Russia
Denmark
United Kingdom
Finland
Luxembourg
Italy
Poland
Greece
Slovakia
USA
Norway
Japan
Kosovo
Canada
Jersey
Australia
Other - EU countries
Other
172,183
3,801
3,492
1,371
872
800
572
488
404
318
237
166
156
150
132
100
66
56
26
21
11
8
6
(8)
(21)
(32)
(34)
(37)
4
12
1,031,126
27,361
36,506
12,669
27,319
7,406
6,979
16,051
15,586
9,366
1,976
4,840
3,128
12,590
1,046
435
224
3,021
2
8
Total
185,320
1,217,639
166
2012
Revenues
Non current assets
Slovenia
Germany
Croatia
Austria
Bosnia and Herzegovina
Serbia
France
Italy
United Kingdom
Sweden
Russia
Finland
Kosovo
Denmark
Poland
Luxembourg
Spain
Slovakia
Cyprus
Switzerland
Norway
Ukraine
Japan
Greece
USA
Netherlands
Belgium
Other - EU countries
Other
122,019
7,722
5,178
2,423
713
651
477
370
347
239
200
94
63
46
29
25
24
19
16
15
15
14
(12)
(141)
(142)
(366)
(1,392)
6
6
1,338,043
42,818
39,073
40,182
10,180
9,211
22,716
5,233
7,885
9,452
2,634
3,142
2,996
10,057
2
351
1,893
623
15,836
13,965
2
27
Total
138,658
1,576,321
The total income and non-current assets are classified according to the customer’s residence. The
Group makes the structurally largest portion of its revenue in the domestic market. It did not make
10% or more of total revenue from operations with any one single client. The same applies to the
previous reporting period.
167

ANNUAL REPORT 2013 BANKA CELJE, d.d., AND THE BANKA

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