Annual Report 2007

Transcription

Annual Report 2007

Annual Report
2007
Contents
4 Bank’s Profile
5 Financial Highlights
9 Statement by the First General Manager
12 Management Team
13 Corporate Governance, Equity, and Ownership Structure
18 Overview of the Bank’s Financial Results for the Year 2007
21 Risk Management
23 Retail Banking
25 Branch Network
27 Corporate Banking
29 Banking Services
31 Internal Audit
31 Prevention of Money-Laundering
32 Information System Security
32 Human Resources and Organization
36 Consolidated Financial Statements
for the Year ended 31 December 2007
104 Unconsolidated Financial Statements
107 Consolidated Financial Statements prepared
in accordance with International Financial Reporting Standards
174 Unconsolidated Financial Statements prepared
in accordance with International Financial Reporting Standards
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Vision
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Bank’s Profile
Bank’s Profile
NLB Tutunska banka AD Skopje is one of the leading banking institutions in the Republic of
Macedonia, with a constant growth trend and positive results since its establishment. It was founded in
1985 and has been operating as a commercial bank since 1993, performing all financial and banking
services for its customers, both in the country and abroad. The Bank is classified as a large bank and,
according to its total net assets, it is the third largest bank in the Republic of Macedonia.
The Bank’s strategic partners are Nova Ljubljanska banka d.d. Ljubljana, LHB Internationale
Handelsbank AG Frankfurt, and NLB InterFinanz AG Zurich, i.e. the NLB Group. The Group owns
85.84% of the Bank’s overall capital, while the remaining portion of 14.16% is owned by domestic and
foreign legal entities and individuals. Membership in the NLB Group and the Bank’s corporate brand
bring a new quality of operation, which ensures the transfer of knowledge, experience and technology,
as well as access to foreign capital markets.
NLB Tutunska banka is one of the most successful banks in the Group. The Bank’s success is due
to the implementation of high quality standards of operation, its modern Information Technology
(IT) infrastructure, successful market strategy, as well as its professional management, altogether
strengthened by the NLB brand. The Bank stress particular importance of the Group’s corporate values
and its corporate social responsibility.
The Bank is strategically committed to support and finance the development of small and mediumsized companies, which are entities with a high potential to grow into leaders of economic
development. The Bank is a significant player in all financial developments in the Republic of
Macedonia and a promoter of Macedonian business in international markets, thus directly influencing
the development of the national economy.
The Bank pays special attention to the enhancement and segmentation of its products and services
offer for the retail segment, as well as to facilitating access to them by investing in a modern branch
network comprised of 33 modern branches organised as small banks. The Bank also invests in the
development of depersonalized sales channels, the promotion of card operations, and e-banking.
The Bank has been active on the capital market since 1996 through its brokerage house NLB Tutunska
broker AD Skopje, which is one of the founders of the Macedonian Stock Exchange and one of the
leading brokerage houses in the Republic of Macedonia.
NLB Tutunska banka, along with Nova Ljubljanska banka d.d. Ljubljana, is owner and founder of the
pension fund management company - Nov penziski fond AD Skopje, as part of the second pillar of the
pension system of the Republic of Macedonia.
In recognition of its success, NLB Tutunska banka AD Skopje has won a number of international and
national awards, the most outstanding of which are the recognition for Bank of the Year for 2003,
2006 and 2007 in the Republic of Macedonia, awarded by the financial magazine “The Banker”, as
well as recognitions from Finance Central Europe for Best Bank by Gross Profit in Macedonia for
2002, 2003, 2004 and 2006 and Best Bank by ROE (return on equity) in 2005, the Good Corporate
Governance Certificate from Transparency - No Corruption, as well as the 2006 Recognition Award
from Deutsche Bank London.
Mission Statement
Our goal is to be among the leading financial institutions in the country.
To provide a higher level of service quality, a modern offer of new products, and to build the Bank’s
tradition.
To make profit through efficient and cost-effective operation.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Financial Highlights
Table 1: Selected financial data for the Bank, derived on the basis of its non-consolidated audited
financial statements, prepared in accordance with legislative applied in Republic of Macedonia
in thousands of MKD
Income (for the period)
2007
2006¹
2005
1,478,371
1,182,374
935,977
Net fee and commission income
464,418
361,433
325,308
Profit before provisions and taxes
1,086,877
917,886
760,847
Profit before taxes
626,989
484,110
416,909
Net profit for the period
552,581
406,082
361,291
Net interest income
Balance (end of year)
2007
2006
2005
Total assets
42,474,928
29,460,698
22,440,242
Loans and advances to customers
22,699,921
15,707,331
11,659,229
Deposits from customers
27,354,371
18,542,382
12,737,369
Other borrowed funds
8,513,645
5,959,529
6,037,506
Capital and reserves
3,761,918
2,833,279
2,760,064
Equity
2,396,328
1,662,288
1,662,288
Operational ratios²
2007
2006
2005
ROA return on total assets (before taxes)
1.74%
1.87%
2.14%
ROA return on total assets (after taxes)
1.54%
1.56%
1.86%
ROE return on equity (before taxes)
22.87%
20.63%
18.13%
ROE return on equity (after taxes)
19.61%
16.83%
15.41%
Net interest margin³
3.67%
4.44%
4.56%
Equity / Total assets
6.16%
6.39%
8.39%
Capital adequacy
12.90%
12.17%
14.44%
Cost / Income Ratio
48.81%
45.58%
46.52%
Facts and figures
2007
2006
2005
532
532
295
Number of shareholders
785,621
693,866
693,866
Dividend per share (in MKD)
Number of shares
713
537
484
Dividend / Nominal value per share
71%
54%
48%
21.21%
22.42%
20.20%
Net profit / Number of shares
775
585
521
Number of employees
564
436
359
Branches and counters
33
24
22
Official Central Bank rate (end of year)
2007
2006
2005
EUR 1=MKD
61.20
61.17
61.18
USD 1=MKD
41.66
46.45
51.86
Dividend / Equity
Note: 1) According to the application of IFRS in Macedonia, certain items of the income statement were reconciled
2) Operational ratios have been calculated on the average balance of the Bank’s capital and assets 3) Net interest margin has been calculated on the average balance of gross assets less trust assets and common
consumption fund NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Table 2: Selected financial data for the Group, derived on the basis of its consolidated audited financial
statements, prepared in accordance with legislative applied in Republic of Macedonia
in thousands MKD
2007
2006¹
2005
1,484,459
1,185,901
937,200
499,621
379,997
343,734
1,123,261
943,531
781,413
Net interest income
Profit before taxes
664,283
508,235
422,481
587,306
427,533
365,839
2007
2006
2005
Total assets
42,705,889
29,580,934
22,533,701
22,699,921
15,707,331
11,659,229
27,376,943
18,546,295
12,745,816
8,513,645
5,959,529
6,037,506
3,985,660
2,944,040
2,841,762
2007
2006
2005
1.84%
1.95%
2.16%
1.62%
1.64%
1.87%
23.08%
20.94%
17.94%
19.86%
17.13%
15.24%
2007
2006
2005
Number of employees
572
440
363
Branches and counters
33
24
22
2007
2006
2005
EUR 1=MKD
61.20
61.17
61.18
USD 1=MKD
41.66
46.45
51.86
Facts and figures
Note:
1) According to the application of IFRS in Macedonia, certain items of the income statement were reconciled 2) Operational ratios have been calculated on the average balance of the Group’s capital and assets
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Table 3: Selected financial data for the Bank, derived on the basis of its non-consolidated audited
financial statements, prepared in accordance with the International Financial Reporting Standards
in thousands MKD
2007
2006¹
2005
1,478,371
1,182,374
935,977
464,418
361,433
325,308
1,087,249
917,832
754,889
Profit before taxes
631,183
482,305
419,032
556,775
404,277
363,096
2007
2006
2005
Total assets
42,468,411
29,450,265
22,436,504
22,699,921
15,707,331
11,659,229
Net interest income
27,354,371
18,542,382
12,737,369
8,513,645
5,959,529
6,037,506
3,755,434
2,822,846
2,755,322
Equity
2,396,328
1,662,288
1,662,288
2007
2006
2005
1.76%
1.86%
2.15%
1.55%
1.56%
1.87%
23.10%
20.63%
18.21%
19.82%
16.81%
15.47%
Equity / Total assets
6.16%
6.23%
8.17%
Capital adequacy
12.90%
12.17%
14.44%
Cost / Income Ratio
48.80%
46.28%
47.06%
Facts and figures
2007
2006
2005
532
532
295
785,621
693,866
693,866
Dividend per share (in MKD)
713
537
484
Dividend / Nominal value per share
71%
54%
48%
21.21%
22.42%
20.20%
Net profit / Number of shares
781
583
523
Number of employees
564
436
359
33
24
22
2007
2006
2005
EUR 1=MKD
61.20
61.17
61.18
USD 1=MKD
41.66
46.45
51.86
Number of shareholders
Number of shares
Dividend / Equity
Number of Branches and Counters
Note:
1) According to the application of IFRS in Macedonia, certain items of the income statement were reconciled
2) Operational ratios have been calculated on the average balance of the Bank’s capital and assets
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Table 4: Selected financial data for the Group, derived on the basis of its consolidated audited financial
statements, prepared in accordance with the International Financial Reporting Standards
in thousands MKD
2007
2006¹
2005
1,484,459
1,185,901
937,201
499,621
379,997
343,733
1,123,633
943,572
774,838
Net interest income
Profit before taxes
667,567
506,525
422,467
590,590
425,823
367,984
2007
2006
2005
Total assets
42,698,462
29,570,501
22,528,443
22,699,921
15,707,331
11,659,229
27,376,943
18,546,295
12,745,816
8,513,645
5,959,529
6,037,506
3,978,266
2,933,607
2,836,925
2007
2006
2005
1.85%
1.94%
2.16%
1.63%
1.63%
1.88%
23.27%
20.92%
17.92%
Facts and figures
20.04%
17.11%
15.32%
2007
2006
2005
572
440
363
Number of employees
Number of Branches and counters
33
24
22
2007
2006
2005
EUR 1=MKD
61.20
61.17
61.18
41.66
46.45
51.86
USD 1=MKD
Note: 1) According to the application of IFRS in Macedonia, certain items of the income statement were reconciled 2) Operational ratios have been calculated on the average balance of the Group’s capital and assets
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Statement by the First General Manager
Dear shareholders,
The year 2007 was exceptionally dynamic and
successful for NLB Tutunska banka. In the course
of positive market trends, the Bank achieved
44% annual operations growth and 36% of profit
increase, resulting in high return on equity (ROE) of
23.3% and 775 MKD earnings per share. With total
assets of 42,475 thousand MKD, the Bank’s market
share grew up to 19%.
During 2007, the Bank’s capital was increased by
additional 734 million MKD thus, the Bank’s total
capital reached 3,761,918 thousand MKD. The
deposits increased by 47.5%, loans to customers
rose 45%, while the trade finance operations
increased by 55%.
The results were expected, given the projects we
implemented in 2006 and 2007 as part of the Bank’s
strategic activities geared toward achieving longterm growth and development. The new integral
software solution yielded the first results in 2007,
producing a significant growth of operations in all
market segments, as well as a 20% increase in the
number of customers.
In the corporate banking segment, we continued to
financially support the business sector, whereby the
loan portfolio in the respective segment increased
by 26%, reaching 14,384,774 thousand MKD.
We continued to provide active financial support to the companies’ current needs, as well as funds
from several foreign credit lines and second syndicated loan from EBRD and 11 commercial banks
for the long-term financing of investment projects and export arrangements. The Bank also actively
supported the large Macedonian companies bidding on major domestic and international projects,
whereby new guarantees were issued in the amount of 7.9 billion MKD or 28% more than the previous
year. At the end of the year, the Bank joined the Ministry of Finance project for extending loans to the
agriculture sector via IFAD and PSLD credit lines, which provides credit support to primary production
and processing facilities.
Gjorgji Jancevski
First General Manager
In the retail banking segment, last year we completed the segmentation and transfer of services for
small and medium-sized companies to the branch network, where they are directly served along with
individuals throughout the territory of the Republic of Macedonia. This has additionally facilitated and
reduced their costs for access to the Bank’s services. We worked intensively on the expansion of the
branch network, which now includes 9 new branch offices. The range of services was significantly
enriched with new products and services that were additionally segmented and specialized for
different groups of customers. Special attention was given to loans and deposit products and service
packages offer for the retail segment, as well as to development of the cross-selling offer. In the
course of one year, retail loans increased by 95%, reaching 8,315,147 thousand MKD. The Bank’s
market share in this segment grew from 15.4% to 18.7%.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
The year 2007 was marked by substantial investments in the development of depersonalized sales
channels. The Bank invested in the expansion of the POS and ATM network, and obtained a license
from the VISA card program, thus making three card brands - VISA, MasterCard, and Diners available to customers. Placements in the card operations segment alone grew by 149%.
The Bank also made investments in the e-banking segment, which is to provide full services for
individuals and legal entities in the international payment operations as well.
In addition to regular financial activities, as of 01.06.2007, we introduced a new organizational
structure, which is an extension of the 2003 organization. The new organization provides a closer
definition of the work processes, a division and specialisation of the business activities, a more
detailed differentiation of the levels of responsibility and authorization, while directing customer
services to “single counter”, thus providing clients with fast, extensive, and efficient services.
Dear shareholders, in 2007, the Bank received several recognition awards for different aspects of its
work, which add to the Bank’s achieved success and significantly raise its value, both domestically
and abroad. We were the first company to be awarded the Good Corporate Governance
Certificate from Transparency - No Corruption. As a model company practicing Social Corporate
Responsibility, we entered the 2007 Reference Study on Enterprises’ Social Responsibility,
conducted by UNDP among companies from the new EU member states and EU membership
candidate counties.
The Bank received a recognition award from Deutsche Bank London for excellence of the quality
of Euro SWIFT payments to Deutsche Bank for 2006, which emphasizes the quality of NLB Tutunska
banka operations to the benefit of its customers and business partners. Furthermore, for the third
time overall and the second consecutive time, the Bank was awarded the prestigious Bank of the
Year Award for 2007 in Macedonia, which confirms the success of the achieved financial results,
the increased market share, the development projects and market initiatives, the overall strategy, and
the activities that the Bank undertakes to increase its shareholders’ profit. This is a continuity of the
previous awards for Best bank by gross profit in Macedonia for 2002, 2003, 2004 and 2006, and
Best bank by ROE for 2005, from Finance Central Europe.
Finally, allow me to conclude that, in 2007, in fast economic growth conditions and strong competition,
the Bank operated very dynamically and successfully, accomplishing all designated objectives, which
contributes to the implementation of the Bank’s long-term strategy and, integrally, the long-term
strategy of the NLB Group in the Republic of Macedonia.
Sincerely,
Gjorgji Jancevski
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Team
Management Team
Management Team
EXECUTIVE BODY
Gjorgji Jancevski
Mitre Koliševski
Second General Manager
Ljube Rajevski
General Manager
Tome Perinski
General Manager
INTERNAL AUDIT DIVISION
Tihomir Trajkovski, Manager
LEGAL CENTRE
Nadica Ceneva, Assistant Manager
Andrej Ilievski, Assistant Manager
RISK MANAGEMENT CENTRE
Bogoja Kitancev, Manager
LOGISTICS DIVISION
Jordanka Grujoska, Manager
FINANCE AND TREASURY
MANAGEMENT DIVISION
Stojna Stojkoska, Manager
CORPORATE BANKING DIVISION
Ljiljana Nastoska, Manager
BRANCH NETWORK DIVISION
Antonio Argir, Manager
PAYMENT SYSTEM AND SALES
LOGISTICS DIVISION
Slagjana Beleva, Manager
CASH SERVICES AND DEPOT DIVISION
Dragan Panovski, Manager
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Corporate Governance, Equity,
and Ownership Structure
Corporate Governance
NLB Tutunska banka has a clear organizational structure that precisely defines the rights and
responsibilities of the members of the supervisory and management bodies, the other Bank
employees, as well as the lines of control and checks in the performance of daily duties.
Relations among the Executive Body, the individuals with special rights and responsibilities who
perform managerial duties at the Bank, the Management Board and the Bank’s shareholders, as well
as the other stakeholders, are regulated by and defined in the Bank’s Statute.
In 2007, the Bank was managed by statutorily established bodies with the following rights and
obligations, stipulated by the Law on Banks and the Law on Trade Companies:
• Shareholders’ Assembly - Three meetings were held in 2007. In addition to the regular Annual
Shareholders’ Assembly, the Bank held two more meetings, the outcome of which was the decision to
proceed with a thirteenth issue of shares and to adopt amendments and supplements to the Bank’s
Statute in compliance with the new Law on Banks.
• Management Board - The Bank’s Management Board consists of four members with a four-year
term of office. In the course of 2007, the Bank’s Management Board held 12 meetings, making lawful
decisions as authorized.
President
Mr. Matej Narat
Nova Ljubljanska banka d.d. Ljubljana
Vice President
Mr. Alojz Jamnik
Nova Ljubljanska banka d.d. Ljubljana
Members
Mr. Boris Zakrajsek
LHB Internationale Handelsbank АG Frankfurt
Mr. Janko Gedrih
Authorized representative of the Management of Nova Ljubljanska banka d.d. Ljubljana
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
• Executive Body - General Managers - The Executive Body consists of four general managers,
appointed by the Bank’s Management Board. During 2007, the Executive Body held 29 meetings, at
which lawful decisions were made, as well as three meetings in the presence of the Bank’s Collegium.
• Risk Management Committee - The Risk Management Committee has three members with fouryear terms of office. The Risk Management Committee held 45 meetings in 2007, making lawful
decisions as authorized.
• Audit Committee - In 2007, a new structure of the Audit Committee was elected at a meeting of the
Shareholders’ Assembly. The Committee members are elected for a two-year term of office. The Audit
Committee held four meetings in 2007, at which it made lawful decisions as authorized.
• IT Steering Commitee - The Commitee was established in compliance with NBRM regulations, the
Basel Principles, and the International Standards on Information System Security. The Commitee’s
competencies and responsibilities are delegated by the Bank’s Management Board. In the course of
2007, the Commitee held one meeting, making lawful decisions as authorized. The mandate of the
Supervisory Board over the PEXIM project ended in June 2007. The Board was established in 2006
with the purpose of ensuring the successful implementation of the project and launching the software
operation. All activities related to the software’s operation and maintenance were converted to a line
organization, for which purpose an IT Users’ Collegium was set up.
In accordance with the new Law on Banks, the Bank filed a request with the NBRM for consent to
the Statute’s adjustment, a request for consent for the Supervisory Board members, a request for
consent to harmonize the financial activities that require prior consent and a request for consent to the
existing shareholders with qualified participation in the Bank. At the end of 2007, the Bank received
the NBRM’s consent to adjust the Bank’s Statute, consent for existing shareholders with qualified
participation in the Bank, and in the 2008 the Bank received consent for harmonization of the financial
activities with the new Law on Banks.
In order to increase the efficiency of its daily operations, the Bank’s Executive Body worked through
several committees, which are in charge of monitoring individual areas of Bank operations, such as:
• Development Committee
• Asset and Liability Management Committee
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Equity and ownership structure
In the course of 2007, the Bank increased its capital throught one issue of shares. According to the
decision of the Shareholders’ Assembly for thirteenth issue of shares, the Bank issued 91,755 ordinary
shares by a private offer to a known buyer. The total value of the issue was 734,040 thousand MKD.
Following the change, the Bank’s equity consists of 735,400 ordinary shares and 50,221 preferred
shares. The nominal value per share is 1,000 MKD or 785,621,000 MKD in total. The shares are
registered with and held in custody at the Central Securities Depository of the Republic of Macedonia.
The ordinary shares provide the owners with dividend payment right and voting right at the
Shareholders’ Assembly meeting. One vote at the Bank’s Assembly is given for an equivalent of one
ordinary share. The preferred shares provide the owners with a priority right in dividend payment
and no voting right. All shares give right to portion of the Bank’s assets remain in the winding up or
bankruptcy estate.
During 2007, the Bank did not repurchase any of its shares.
The Bank’s total capital as at 31 December 2007 amounted 3,761,918 thousand MKD, of which:
- 785,621 thousand MKD, share capital;
- 1,610,707 thousand MKD, share premium;
- 778,814 thousand MKD, retained earnings;
- 477,566 thousand MKD, reserves, and
- 109,210 thousand MKD, revaluation reserves.
Compared to 31 December 2006, the total capital was increased by 32.8% based on distribution of
the profit from Year 2006 and the reported effect of the valuation at fair value of the Bank’s investment
securities, in accordance with the IFRS and the thirteenth issue of shares. The Bank’s reserve fund,
in accordance with regulation and the Decision of the Bank’s Management Board, was increased by
33,476 thousand MKD.
The Bank’s guarantee capital, as at 31 December 2007, amounts to 3,796,233 thousand MKD (2006:
2,624,244 thousand MKD).
The capital adequacy, as at 31 December 2007, is 12.90% and is above the legal minimum of 8%.
Capital adequacy (%)
20
18
16
14
12
10
14.44
12.17
2005
2006
12.90
2007
As at 31.12.2007 inclusive, the number of Bank’s shareholders is 532, of which 391 are individuals,
while 141 are legal entities. At the end of 2007, the ten largest shareholders of the Bank own 92.12%
of the total shares, i.e. 94.20% of the voting shares.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Shareholders with over 5% of
shares as at 31.12.2007
% per number of
ordinary shares
LHB Internationale Handelsbank
AG Frankfurt
30.81
NLB InterFinanz AG Zurich
28.49
Nova Ljubljanska banka d.d.
Ljubljana
28.31
On the basis of an Agreement and Annex 1, 2, 3, and 4 to the agreement on the transfer of voting
rights from the shares owned by NLB InterFinanz AG Zurich in NLB Tutunska banka, the voting rights
of the shareholder NLB InterFinanz AG Zurich (28.5%) were transferred to Nova Ljubljanska banka
d.d. Ljubljana. Thus, the participation of Nova Ljubljanska banka d.d. Ljubljana in the total voting rights
as at 31 December 2007 is 56.80%.
In March 2007, at the regular annual assembly of the Bank’s shareholders, the Decision on the use
and allocation of the 2006 profit was proposed and adopted, of which 372,606,042 MKD, i.e 537 MKD
per share were allocated for dividends payment to the Bank’s shareholders.
The Bank’s shares are not listed on the Macedonian Stock Exchange. The Bank’s shares are traded
on the secondary market of the stock exchange through authorized brokerage houses.
The Bank is registered with the Registry of joint stock companies having special reporting obligations
maintained at the Securities Exchange Commission of the Republic of Macedonia. Pursuant to the
Securities Law, the Bank regularly informs the Securities Exchange Commission of the Republic of
Macedonia of its operation, the members of the management board, the management, and its legal
relations with third parties, and events and information significant for the Bank’s operation.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Reaching the goal
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
Bank’s Financial Results
Overview of the Bank’s Financial
Results for the Year 2007
The analysis of the Bank’s financial results in 2007 is based on the Audited Financial Statements
prepared in accordance with the legal regulations applicable in the Republic of Macedonia.
Regarding the financial reporting, according to existing legislation, the Bank applies the International
Financial Reporting Standards (IFRS), which are published and accepted in Macedonia.
Income Statement
The year 2007 has been exceptionally successful for the Bank, both in terms of exceeding the planned
volume of activities in all segments and in terms of a significant increase of profitability.
The net profit amounts to 552,581 thousand MKD or 36% more than in 2006, wherein the return on
equity (ROE) increased to 19.61% (2006: 16.83%). The high annual profitability is attributed to the
growth in the volume of operations in all market segments, which contributed, even in conditions of the
Bank’s additional recapitalization with 734,040 thousand MKD in September 2007, to increase of net
profit per share by 32.5% than the previous year, amounting to 775 MKD.
Return on equity ROE and
profit per share MKD
Net profit (000) MKD
1000
600,000
500,000
400,000
300,000
200,000
100,000
0
552,581
361,291
2005
406,082
2006
800
800
600
600
2007
15.41%
16.83%
19.61%
25%
20%
15%
400
400
10%
200
200
5%
0
0
Net profit (000) MKD
Dividend per share in MKD
2005
2006
2007
0%
Profit per share
ROE
The operating profit amounts 626,989 thousand MKD or 29.5% higher than in 2006, whereby the
largest portion of the profit was generated from interests and fees.
The net interest income amounts 1,478,371 thousand MKD or 25% more than in 2006. In terms of
continuing reduction of active interest rates and narrowing of interest margins, the increase in interest
income was secured through the increased dynamics of crediting volume, especially in the retail
segment, as well as the continued maintenance of a high level of interest-bearing assets throughout
the entire year. The average net interest-bearing assets increased by 38% on an annual basis, while
the average net interest margin simultaneously decreased by 17.3%. At the end of 2007, the average
net interest margin was 3.67%.
The net non interest income is 644,819 thousand MKD or 22.5% more than the previous year. The
largest portion of the latter or 72% arise from fee and commission income.
NLB TUTUNSKA BANKA
18
ANNUAL REPORT 2007
Interest-bearing assets and
liabilities (000) MKD
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
-
2005
2006
2007
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Average net interest-bearing assets
Average net interest-bearing liabilities
Average net interest-bearing margin in %
In 2007, the Bank generated a net fee and commission income of 464,418 thousand MKD, which
is 28.5% higher than in 2006 and is mainly the result of the increased volume of operations in all
segments: domestic and international payment operations, trade finance, services to customers and
credit operations, card operations, e-banking and Cash-Centre services. From its capital investments,
both in financial and non-financial legal entities, in 2007, the Bank generated income from dividends
in the amount of 1,715 thousand MKD. Net foreign exchange gains of 125,730 thousand MKD were
earned, and the net income from trading in securities in 2007 amounted to 17,273 thousand MKD.
Other income amounts 35,683 MKD.
In the course of 2007, the Bank continued to pursue its policy of rationalizing costs in keeping with
the need to ensure unobstructed work processes, the expansion of the branch network, the increase
in number of employees, and rising market prices. In 2007, the Bank’s operating expenses reached
1,036,313 thousand MKD. Its Cost/Income ratio was 48.8%, while the operating expenses accounted
for 2.88% of the Bank’s total assets and were covered by non-interest income up to 62%.
In 2007, the Bank allocated provisions for risk placements in the amount of 459,888 thousand MKD
or 6% more than in 2006, which corresponds to the growth of the loan portfolio and the significant
increase of the off-balance activities during the year along with an improved portfolio quality.
NLB TUTUNSKA BANKA
19
ANNUAL REPORT 2007
Balance Sheet
The Bank achieved a net balance sum of 42,474,928 thousand MKD, which represents the highest
annual growth of 44%, surpassing the plan by 29%.
Net balance sum (000) MKD
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
42,474,928
29,460,698
22,440,242
2005
2006
2007
The Bank attributes its main operations growth to crediting the non-financial sector, where the loan
portfolio was increased by 44.5%, reaching 22,699,921 thousand MKD.
Simultaneously, the deposits from the non-financial sector increased by 47.5%, amounting to
27,354,371 thousand MKD. Furthermore, the Bank drew on foreign credit lines designated for
financing the business sector and micro-financing, as well as a second syndicated loan from EBRD in
the amount of 55 million EUR, which was fully invested in the private sector.
NLB TUTUNSKA BANKA
20
ANNUAL REPORT 2007
Risk Management
Risk Management
The Bank employs a highly conservative policy of anticipating operational risks by maintaining an
effective system of integrated risk management. This enables high loans collectibility, a satisfactory
level of capital adequacy, protection against contingencies, and possible threats of failure to implement
the planned policy.
Risks are managed by the Bank’s Risk Management Centre. Risk management within the Bank is
divided into two areas: credit risk management and non-credit risk management.
Credit Risk Management
Credit Risk Management comprises continuous analysis of the Bank’s credit portfolio in terms of
sector diversification and credit portfolio concentration, analysis and assessment of customers’
financial performance, monitoring of regularity in the fulfilment of obligations, and allocation of a
satisfactory level of provisions for the loans.
In 2007, the average level of credit portfolio coverage, expressed as the ratio between the calculated
potential losses and the total credit exposure, amounted to 8.03%. This corresponds to a B-risk
category quality and is reduced in relation to 2006 due to the improvement in portfolio quality (2006:
9.58%). Namely, amid an increase of the total credit portfolio, on which allowances are calculated, by
46% during the year 2007, the participation of A and B placements in the total portfolio increased to
95.85% (2006: 94.14%).
The coverage of placements qualified in the C, D, and E risk category with the total fund for potential
losses at the end of 2007 amounts to 193.49%.
Structure of the total credit
portfolio by risk categories
Movement of the total credit portfolio on
which provisions are calculated in (000) MKD
D
1.2%
40,000,000
C
2.7%
31,690,542
30,000,000
21,748,313
20,000,000
10,000,000
16,473,023
2005
NLB TUTUNSKA BANKA
E
0.2%
A
39.1%
B
56.8%
2006
2007
21
ANNUAL REPORT 2007
Risk Management
Non-Credit Risk Management
With the development of the financial markets in Macedonia, especially the capital market, the shortterm securities market, the investment funds, the development of the mortgage market and the
operation with financial derivatives, the Bank devotes special attention to non-credit risk management:
liquidity risk, interest risk, currency risk, and operational risk.
• During the year 2007, liquidity risk management was performed by meeting the obligation to
maintain a mandatory reserve in denars and foreign currency, maintaining a portfolio of high liquid
assets, coordinating the inflows and outflows on the Bank’s account, monitoring the residual and
expected term structure, and monitoring the changes in assets necessary to achieve the goals set
forth in the Bank’s strategy. The Bank enforces a Liquidity Risk Management Policy with a defined
methodology for calculating a stable level of deposits. On the basis of the adopted Liquidity Risk
Management Policy, the Bank has set several limits, which are fully met.
• Interest risk management refers to the optimization of the net interest income, with market
interest rates that are consistent with the Bank’s business strategy. The Bank follows an Interest
Risk Management Policy that complies with the minimum standards of the NLB Group and the
regulatory requirements of the Basel Committee.
• Currency risk management refers to the permanent monitoring of the Bank’s net exposure
to individual currencies, thus maintaining an optimal level of required assets by purchasing and
selling foreign currencies. In this context, the Bank follows the Foreign Currency Risk Management
Policy, which uses the methodology of calculating foreign currency limits and continuous optimized
monitoring and management of the Bank’s foreign currency position. As at 31 December 2007, the
aggregate open foreign currency position of the Bank and the exposure to individual currencies is
within the framework of the established internal limits, as well as the limits defined by NBRM.
• Operational risk management involves the establishment of a system of recording, monitoring,
control, and management of possible or real harmful events arising from current Bank operations,
as well as the external factors that have a negative effect on the financial results. Operational risk
management is implemented via an established organizational structure, methodology of analysis
and management of possible and past harmful events, their management and control. Operational
risk management provides for the minimization of the possibility of occurrence of harmful events,
restricting the range of potential losses and the probability of their occurrence to a level which
is acceptable to the Bank, improving the quality of the Bank’s services, improving the work
processes, and the total efficiency of the activities.
NLB TUTUNSKA BANKA
22
ANNUAL REPORT 2007
Retail Banking
Retail Banking
In the course of 2007, the Bank significantly intensified its activities in the retail banking segment with
the purpose of providing a high-quality and inclusive offer of products and services to all customers,
individuals, and SMEs operating in the Republic of Macedonia.
Segmentation was carried out and services for SMEs were transferred to the branch network where,
along with individual clients, they are served directly, which further facilitates and makes their access
to the Bank less expensive.
The product portfolio was enriched with new products, while the existing offer was segmented and
adjusted to the needs of separate groups of clients.
Nine new branch offices and counters were opened, part of the existing ones were expanded and
reorganized, and preparatory activities for opening new branch offices were undertaken. The Bank’s
branch offices operate as small banks, offering a full range of products from the Bank’s product
portfolio and fast, quality, and efficient services by the commercial team. With its branch network of
33 branch offices in 19 cities throughout the Republic of Macedonia, the Bank has a larger dispersion
on the market and easy accessibility to customers, while simultaneously working on the development
of depersonalized sales channels for this segment, which will additionally make services easier and
cheaper.
Significant investments were made in the expansion of the network for serving Bank card holders,
which was expanded to include 53 new ATMs and 2,962 POS terminals. This enabled en masse use
of the Bank’s cards at 99 ATMs and 4,051 POS terminals throughout the country.
Product Portfolio and New Products Offering
Staying abreast of market trends, market potential, and client’s needs, in the course of 2007, the
Bank enriched its portfolio with new loan products for the retail segment: consumer mortgage loan,
mortgage draft loan, and consumer loan “2 for 1” for special purposes, whereas in the savings
segment, the Bank introduced new savings products with different terms and purposes: children’s
saving (for children below 18 years of age), gold deposit (term deposit with stimulative interest rates)
and scale deposit (demand deposit with progressive interest rates).
Within the services segment, “Personal Banking” was introduced as a higher-level service of bank
operations for the Bank’s VIP customers.
As part of the cross-selling activities within the branch network, the “Violet Package” was offered,
combining several Bank products and services, depending on the needs of different customer groups.
In parallel with the introduction of new products and services, the Bank reduced the interest rates
on the existing loans and introduced new favourable terms relating to fees, repayment terms, and
collateral.
With regard to the SMEs segment, the Bank lowered the interest rates on loans to SMEs, in addition
to introducing facilities and adjustments to the micro-lending terms and conditions, designed to
encourage the faster development of the small and medium-sized companies, as carriers of overall
economic growth. Two new products, originating from the Bank’s own sources, were also introduced:
agro-micro credit and auto-micro credit for micro and small businesses.
NLB TUTUNSKA BANKA
23
ANNUAL REPORT 2007
Retail Banking
Business Activities in the Retail Segment
The Bank continuously records progress in retail banking, increasing the number of customers, the
range of activities, and the market share in this segment.
Deposit operation notes a growth in all savings-deposit Bank products. The total deposits of individuals
amount to 13,178,415 thousand MKD, which is an increase of 58% compared to the year 2006. Of the
total individuals’ deposits, 66.3% are term deposits, of which 51.8% are foreign currency deposits.
In 2007, the share of individuals’ deposits in the total deposits from customers increased to 48.2%
(2006: 45%).
Deposits from individuals
(000) MKD
20,000,000
15,000,000
13,178,415
8,341,336
10,000,000
5,000,000
0
5,681,924
2005
2006
2007
The retail credit portfolio reached 8,315,147 thousand MKD in 2007, increasing by a record-high
94.7%, i.e. by 4,045,417 thousand MKD compared to 2006.
Net retail loans
(000) MKD
10,000,000
9,000,000
8,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
8,315,147
4,269,730
2,568,160
2005
2006
2007
In the segment of card operations, remarkable results were achieved, both in terms of the increase
in the number of existing Bank card users, as well as the successful introduction of the new card
program of VISA International. Thus, the Bank clients were offered the opportunity to work with cards
from the three card brands: Master, Visa, and Diners. The number of cards issued by the Bank during
the year 2007 rose by 102%, whereas, in a matter of one year, the market share in the card segment
went up from 19.3% to 22.8%. The total turnover made via the Bank cards during the year 2007
increased by 292.5%, whereas the number of transactions made via these cards grew by 363.7%.
Total number of active plastic
cards of the Bank
NLB TUTUNSKA BANKA
190,000
170,000
150,000
130,000
110,000
90,000
70,000
50,000
30,000
10,000
24
163,184
80,799
25,730
2005
2006
2007
ANNUAL REPORT 2007
Branch Network
Branch Network
Kumanovo
Tetovo
Kriva Palanka
Skopje
Kocani
Gostivar
Veles
Stip
Radovis
Negotino
Kicevo
Prilep
Strumica
Kavadarci
Valandovo
Struga
Ohrid
Gevgelija
Bitola
Skopje * Head Office
12 Makedonska brigada 20
T: 02 / 3105 674
F: 02 / 3126 154
E: [email protected]
Skopje * Aerodrom
Bul.Jane Sandanski 26/9
T: 02 / 2403 627
F: 02 / 2403 630
Skopje * EURM
Kliment Ohridski 68
T: 02 / 3290 024
F: 02 / 3290 071
Skopje * GTC
Kej 13 Noemvri 3-TC GTC
T: 02 / 3297 575
F: 02 / 3226 665
Skopje * Avtokomanda
Jani Lukrovski 2
T: 02 / 3103 450 F: 02 / 3172 330
Skopje * Katastar
Drezdenska bb
T: 02 / 3079 488
F: 02 / 3079 488
Skopje * Sobranie
Gradski zid blok 2
T: 02 / 3107 630
F: 02 / 3114 289
Skopje * Tri Biseri
Bul. Jane Sandanski
TC Tri Biseri
T: 02 / 2403 896 F: 02 / 2403 898 E: [email protected]
Skopje * Cair
Ferid Bajram 43
T: 02 / 2601 668
F: 02 / 2601 672
Skopje * Karpos 3
Partizanski odredi
TC Leptokarija
T: 02 / 3099 814
F: 02 / 3069 577 E: [email protected]
Skopje * Centar
Vasil Glavinov 3/5
T: 02 / 3219 535
F: 02 / 3219 530
NLB TUTUNSKA BANKA
Skopje * Kapistec
Franklin Ruzvelt 1
T: 02 / 3089 090
F: 02 / 3083 509
Skopje * Gjorce Petrov
Isaija Mazovski 42
T: 02 / 2034 903
F: 02 / 2034 909 E: [email protected] 25
Skopje * Stara Carsija
Bitpazarska 58
T: 02 / 3293 053
F: 02 / 329 30 58 E: [email protected]
Skopje * Univerzalna sala
Partizanski Odredi 43
T: 02/ 3248 911
F: 02/ 3246 830
ANNUAL REPORT 2007
Branch Network
Prilep
Bul. Goce Delcev bb
T: 048 / 419 755
F: 048 / 419 756
Veles
Marsal Tito 80
T: 043 / 221 911
F: 043 / 221 282
Gostivar
Borce Jovanovski
T: 042 / 221 330
F: 042 / 221 494
Bitola
Josiv Hristovski bb
T: 047 / 202 755
Valandovo
Mosa Pijade 2
T: 034 / 383 355
F: 034 / 383 355
Kavadarci
Ilindenska 81
T: 043 / 400 436
F: 043 / 400 437
Ohrid
Partizanska bb
T: 046 / 251 360
F: 046 / 251 350
Radovis
22 oktomvri bb
T: 032 / 633 771
F: 032 / 633 771
Kicevo
Osloboduvanje bb
T: 045 / 224 460
F: 045 / 224 466
Tetovo
TC Merdzan vlez 1 kat
T: 044 / 356 705
F: 044 / 331 566
Struga
Proleterski brigadi bb
T: 046 / 788 640
Kriva Palanka
Marsal Tito 172
T: 031 / 475-280
F: 031 / 475 285
Kumanovo
Marsal Tito bb
T: 031 / 475 240
F: 031 / 438 424
Negotino
Marsal Tito bb
T: 043 / 364 010
F: 043 / 362 657
Strumica
Blagoj Muceto 4
T: 034 / 326 780
F: 034 / 334 468
Gevgelija
Marsal Tito bb
T: 034 / 215 441
F: 034 / 215 241
Stip
Toso Arsov bb
T: 032 / 391 663
Kocani
Trgovski centar blok А
T: 033 / 276 910
F: 033 / 277 910
NLB TUTUNSKA BANKA
26
ANNUAL REPORT 2007
Corporate Banking
Corporate Banking
Corporate banking comprises the largest portion of the Bank’s activities and is the key generator of
its growth. The Bank applies a concept of integrated customer relationship management of corporate
customers, which ensures a higher-quality business relationship with regard to anticipating the needs
of the legal entities and a possibility of offering financial counselling. In the segment of working with
corporate clients, the principle of “account manager” was introduced, thus, each corporate client
received a personal bank officer responsible for monitoring all of the customer’s activities in the Bank.
For its corporate clients, the Bank practised a cross-selling offer of products and services, which
enabled the creation of package products in accordance with the needs of individual customers.
Investment-Credit Activities
In 2007, the volume of credit activities was increased by 25.8%, mainly by attracting new customers,
introducing new products, and providing new credit lines favourable for financing large companies, for
SMEs development projects, for micro-financing and for support of export arrangements, as well as for
approval of credits to individual farmers.
The Bank executed the Second syndicated loan from EBRD and 11 renowned international banks
in the amount of 55 million EUR, earmarked for financing SMEs and retail customers. Additionally,
the Bank executed loan agreements with Erste Bank in the amount of 5 million EUR and with
Raiffeisen Bank in the amount of 10 million EUR for funding SMEs and large corporations. With a
view to meeting the financing needs of the strategic clients’ large projects, the Bank signed a Risk
Participation Agreement (Master Participation Agreement) with Nova Ljubljanska banka d.d. Ljubljana.
For the purposes of financing the development projects of small and medium-sized companies from
the private sector, the Bank used funds from several foreign credit lines, including the following:
1. Private Sector Development Project Macedonia, funded by the World Bank;
2. Private Sector Development Project and Local self-government projects, funded by the
European Investment Bank (EIB);
3. Credit program funded by the EAR Program for SMEs;
4. Credit line from the Macedonian Bank for Development Promotion (MBDP), aimed for financing
investment projects;
5. Credit line from the Macedonian Bank for Development Promotion, aimed for financing exports
arrangements;
6. Program for micro and small-sized companies from the Macedonian Enterprise Development
Foundation, intended for small businesses and individual farmers;
7. Credit line form the KfW development Bank from Germany;
8. Italian credit line for revolving funds (Revolving fund);
9. Micro credit line from the German-Macedonian Fund, provided by the funds from the KfW
development Bank from Germany;
10. IFAD credit line for financing development programs in the field of agriculture;
11. Credits from the Syndicated Loan funds by EBRD;
12. Credits for support of Macedonian SMEs from sources provided by the NLB Group;
13. Credits for support of Macedonian SMEs and large companies, provided by other commercial
banks (Erste Bank, Raiffeisen Bank).
NLB TUTUNSKA BANKA
27
ANNUAL REPORT 2007
Corporate Banking
In 2007, the loans to non-financial legal entities increased by 25.8% amounting to 14,384,774
thousand MKD.
Net loans to enterprises
(000) MKD
18,000,000
15,000,000
12,000,000
18,000,000
9,000,000
6,000,000
3,000,000
0
9,091,069
2005
11,437,601
2006
14,384,774
2007
In terms of maturity, 43.7% of the placed loans are short-term, whereas 56.3% are long-term loans.
Compared to 2006, the maturity structure has changed in favour of short-term loans.
In terms of activities, the loans were placed in quality projects of existing and new customers in the
fields of manufacture (37%), trade (35%), real estate (13%), public sector (1%) and other activities
(14%).
Retail and
wholesale
trade 35%
Public
sector
1%
Real
estate
13%
Other
industries
14%
Manufacture
37%
Deposits
Exceptionally favourable results were achieved in the field of the deposit operations in terms of
attracting deposits from as many as possible domestic companies with good financial standing, as well
as acquiring new customers in the payment operations.
The total deposits from non-financial legal entities placed with the Bank as at 31.12.2007 amounted to
14,175,956 thousand MKD, which, compared to 2006, represents an increase of 39%.
Deposits from non-financial legal
entities in (000) MKD
20,000,000
14,175,956
15,000,000
10,000,000
7,055,445
10,201,046
5,000,000
0
NLB TUTUNSKA BANKA
28
2005
2006
2007
ANNUAL REPORT 2007
Banking Services
Banking Services
The Bank offers services to legal entities and individuals in all segments. The Bank’s customers
can receive all services at one counter in any Bank branch office, which eases customer access to
Bank services and enables a better overview of the overall activities of each customer, as well as an
opportunity to better combine products and services.
Trade Finance
In the segment of trade finance, the Bank noted significant results in terms of issuing LC’s and
guarantees for small end medium-sized businesses, export arrangements, and support for tender bids
of larger Macedonian companies in domestic and foreign projects.
For this purpose, in 2007, the Bank issued 713 new LCs in the amount of 3,711 million MKD and 1,807
new Guarantees in the amount of 7,873 million MKD, thus increasing operations in this segment by
14% and 28% accordingly.
Domestic and International Payment Operations, and Cash Operations
During the year 2007, there was a significant increase in domestic payment operations conducted via
the Bank, which is attributed to the increase in the number of accounts and customer transactions.
The total annual turnover amounts to 389 billion MKD, i.e. 38% more than in 2006, whereas the
number of accounts increased to 19,086 or 20.5% more than in 2006. The Bank’s market share in the
total payment activities in the country in 2007 is 14.93% (2006: 14.7%).
In the international payment operations segment, a total annual turnover of 868.8 billion MKD was
registered, which is 29.9% more than in 2006. In 2007, 872 new foreign currency accounts were open.
Through its Cash Centre, the Bank engaged in purchase and sale activities, transportation, and
providing cash for other banks and non-financial legal entities.
Electronic Banking (E-Banking)
In the field of e-banking, during 2007, the Bank made a turnover of 61,262 million MKD, which,
compared to 2006, represents an increase of 60.6%. The number of executed electronic orders
of legal entities rose by 50.4% in relation to 2006, and the number of companies using e-banking
services increased by 11.5%.
During 2007, the Bank embarked on developing the project “E-banking in foreign currency payment
operations for legal entities,” while the project “E-banking for individuals” was in its final stages.
NLB TUTUNSKA BANKA
29
ANNUAL REPORT 2007
Banking Services
Trust activities
The Bank provides commission services for customers, which includes management of assets on
behalf of and for the account of the legal entities and individuals, which are further placed as loans for
companies with no specific purpose and securities. These assets are kept separately from the Bank’s
assets.
The Bank also provides custodian services for non-resident individuals and legal entities that trade
with securities in the Republic of Macedonia. The Bank’s share in this segment in the year 2007
reached 13.10%.
Custodian bank
With the establishment of the first companies for managing open investment funds in the Republic
of Macedonia, the Bank launched the service “Custodian bank” for the three investment funds in the
Republic of Macedonia (Ilirika South-East Europe, Ilirika Global Emerging Markets, and Innovo Status
Shares). These are the first investment funds in the Republic of Macedonia, and according to the
service that it is providing, the Bank is currently unique among domestic banks.
Long - Term Securities Trading
The Bank, through its brokerage house NLB Tutunska broker, enables its customers to realize their
interests on the capital market in Macedonia by providing consultancy services and information
regarding the selection of the most favourable offers for investing their assets in long-term securities.
NLB Tutunska broker is one of the most successful brokerage houses in the Republic of Macedonia
and is second overall according to its activities on the capital market, with a share of up to 12% in the
turnover on the stock market.
NLB TUTUNSKA BANKA
30
ANNUAL REPORT 2007
Internal Audit
Prevention of Money-Laundering
Internal Audit
The Internal Audit in NLB Tutunska banka AD Skopje is organized as an independent organization
section, functionally and organizationally separated from the other Bank sections, directly responsible
to the Management Board of the Bank.
The essential goal of the Internal Audit is to ensure an objective and independent assessment of the
adequacy and efficacy of the internal controls system, the accuracy of the accounting records and the
financial statements, and the compliance of internal Bank policies and procedures with the existing
legal regulations, the general effectiveness of the Bank’s operation and risk management.
During 2007, the Internal Audit Division conducted a total of 23 planned and 2 extraordinary audits,
and monitored the implementation of the recommendations from the Internal Audit Division, as well as
the recommendations from the External auditor and the National Bank of the Republic of Macedonia.
The Sector regularly reported the results of its audits to the Bank’s Management Board, the Bank’s
management, the Audit Board, and the Internal Audit Centre in Nova Ljubljanska banka d.d.
Ljubljana.
The audits were conducted in the following segments of operation:
1. Compliance of the Bank’s operation with the legal regulations and the internal policies
and procedures
2. Risk management inside the Bank
3. Payment operations in the country
4. Card operations system
5. Securities
6. Accounting function of NLB Tutunska banka
7. Implementation of an integral software system – migration and verification of accounting data
8. Operation with retail customers, small and medium-sized companies in the business network
9. The operation of NLB Tutunska broker
10. The operation of Nov Penziski Fond AD Skopje
Prevention of Money-Laundering
The Bank has an Authorized Person for the prevention of money-laundering, who carries out activities
in accordance with the Law on the prevention of money-laundering. The Bank has adopted a Program
on the prevention of money-laundering and has enacted several internal acts that regulate this area.
The Bank has fully implemented all instruments that arise from the legal regulations that concern the
efficient detection and prevention of money-laundering.
NLB TUTUNSKA BANKA
31
ANNUAL REPORT 2007
Information System Security
Human Resources
Information System Security
The Bank has an Authorized Person for the security of the information system (OSIS), who monitors
the Bank’s information security.
The Bank’s information security is in accordance with Circular 9 of NBRM and in accordance with the
ISO17799-2005 and ISO27001 international standards.
In accordance with these standards, a system of information security has been set up within the Bank,
which is comprised of the following entities:
1. Risk assessment
2. Information system security policy
3. Implementation of security controls
4. Security testing
5. System monitoring and upgrade
Human Resources and Organization
The Bank recognizes and emphasizes the significant contribution of its employees to the
accomplishment of the results and the creation of the Bank’s positive image. It employs highlyqualified staff, with skills specialized in separate areas of banking operations.
The total number of Bank employees is 564. Of these, 75.7% are with university education. The
majority of employees, 72.2%, are up to the age of 35.
In the course of 2007, the number of employees grew by 128 persons, which represents an increase
of 29.4% in relation to 2006. Of these, 110 were hired in the commercial segment, thus strengthening
sales and services for customers.
Structure of employees
according to age, as at 31.12.2007
Structure of employees according to
education, as at 31.12.2007
Above 45 years
14.01%
Secondary education 21.99%
From 35 to 45
years
13.83%
Postsecondary
education
2.30%
University
education
75.71%
NLB TUTUNSKA BANKA
Up to 25 years
10.99%
From 25 to 35 years
61.17%
32
ANNUAL REPORT 2007
Human Resources
During 2007, several development projects were carried out, the main objective of which was
motivation, improvement, and optimal utilization of the potential of the Bank’s employees. In order
to achieve these objectives, training sessions, seminars, and workshops were organized, especially
emphasizing the training of the Bank’s salesmen on the topic “Sale of financial products and services,”
as well as the training conducted for managers to improve their management skills.
Throughout 2007, the established procedures and practices for human resources development were
implemented continually:
• Mentor system and examinations for trainees - to ensure the successful introduction of the
newly-employed Bank personnel, a mentor is appointed for each newly-employed person, who
takes care of his/her trainee i.e. introductory period of work. The system of examinations for
trainees includes a professional part focused on the knowledge related to the specific work position
or work assignment, which provides a critical analysis of a work process or Bank product, and a
general part, which deals with the legal regulations, procedures, policies, and other acts of the
Bank. This rounds off the period of trainee induction with regard to Bank operations.
• Banking school of NLB Tutunska banka - during 2007, internal and external trainings were
organized as part of the Banking school, which were attended by over 300 Bank employees. The
induction trainings for the newly employed and for existing staff were enriched with new contents
and topics from the field of banking operations, sales skills, and management abilities, with the
purpose of broadening the employees’ knowledge and acquiring new skills required for efficient
work completion, which will ensure the maintenance of long-term quality of performance and
increased productivity.
• Internal labor market - the Bank continued to implement the employment system of internal
advertisements and interviews in a bid to encourage Bank employees with special interests and
potential for a further career development.
• Student internships - the Bank supports the development of young personnel interested in
working in the banking sector in the Republic of Macedonia, enabling them to gain practical
banking experience by organizing work internships in different sectors of the Bank. Last year, the
Bank organized internships for 245 students from the Faculty of Economics and the Law Faculty
at “Sts. Cyril and Methodius University” Skopje, the Business and Economics Faculty at the South
Eastern European University, and the European University - FON.
NLB TUTUNSKA BANKA
33
ANNUAL REPORT 2007
Organization
Organization
As of 01.06.2007, the Bank introduced a new organization, which is built upon the organization of the
year 2003 and in effect provides a closer definition of the work processes, division and specialization
of the business activities, a more detailed distinction between the levels of responsibility and authority.
ASSEMBLY
RISK MANAGEMENT
COMMITTEE
MANAGEMENT BOARD
INTERNAL AUDIT
DIVISION
EXECUTIVE BODY
GENERAL MANAGERS
FINANCIAL
ACCOUNTING
DEPARTMENT
BUSINESS
PLANNING AND
CONTROL
DEPARTMENT
HUMAN
RESOURCES
AND ORGANIZATION
DEPARTMENT
INVESTMENTS
PROCUREMENT
AND
GENERAL AFFAIRS
DEPARTMENT
ASSETS AND LIABILITIES
MANAGEMENT COMMITTEE
LEGAL CENTRE
CREDIT COMMITTEE
RISK MANAGEMENT
CENTRE
FINANCE AND
TREASURY
MANAGEMENT
DIVISION
ASSETS AND
LIABILITIES
MANAGEMENT
DEPARTMENT
SECURITIES
CUSTODY
DEPARTMENT
F/X MONEY
MARKET
& DERIVATES
DEPARTMENT
CORPORATE
BANKING
DIVISION
CRM DEPARTMENT
INDUSTRY AND
AGRICULTURE
SECTOR
BRANCH
NETWORK
DIVISION
CONTROL
COORDINATION AND
MARKETING
DEPARTMENT
SMALL AND MICRO
BUSINESS
DEPARTMENT
CRM DEPARTMENT
TRADE AND
SERVICES SECTOR
BRANCHES
CREDIT LINES AND
CONSORTIUM
DEPARTMENT
PAYMENT
SYSTEMS
AND SALES
LOGISTICS
DIVISION
CASH SERVICE
CENTER AND
DEPOT
DIVISION
INTERNATIONAL
PAYMENT SYSTEMS
AND TRADE
FINANCE
DEPARTMENT
DOMESTIC
PAYMENTS
DEPARTMENT
CASH AND
DEPOT SERVICES
DEPARTMENT
DEPARTMENT FOR
SECURITY AND
CASH
TRANSPORTATIONS
SELF SERVICE
BANKING
DEPARTMENT
PROJECT FINANCE
DEPARTMENT
PRIVATE
CUSTOMERS
ADMINISTRATION
DEPARTMENT
BUSINESS
CUSTOMERS
ADMINISTRATION
DEPARTMENT
INFORMATION
TECHNOLOGY
DEPARTMENT
NLB TUTUNSKA BANKA
IT STEERING COMMITTEE
OFFICE OF
THE EXECUTIVE BOARD
DEVELOPMENT COMMITTEE
LOGISTICS
DIVISION
AUDIT COMMITTEE
34
ANNUAL REPORT 2007
Moving forward
Consolidated Financial Statements
NLB Tutunska banka AD Skopje
NLB TUTUNSKA BANKA
36
ANNUAL REPORT 2007
PricewaterhouseCoopers dooel
ul.Marsal Tito 12,
“Palata Makedonija” IV floor
Republic of Macedonia
Telephone + 389 (02) 3116 638
+ 389 (02) 3111 012
+ 389 (02) 3110 623
Facsimile + 389 (02) 3116 525
www.pwc.com/mk
Independent auditors’ report
Тo the Shareholders’ of NLB Tutunska banka AD Skopje
We have audited the accompanying consolidated financial statements of NLB Tutunska banka A.D. - Skopje
and its subsidiary NLB Tutunska Broker AD Skopje, (together “the Group”), which comprise the consolidated balance sheet as of 31 December 2007, and the consolidated income statement, consolidated
statement of changes in equity and consolidated cash flow statement for the year then ended and a
summary of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Accounting Standards accepted in the Republic of Macedonia. This
responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether
due to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditors judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for
our audit opinion.
NLB TUTUNSKA BANKA
37
ANNUAL REPORT 2007
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects,the financial position of the Group as of 31 December 2007, and its financial performance
and its cash flows for the year then ended in accordance with Accounting Standards accepted in the
Republic of Macedonia.
Manager
Ljube Gjorgjievski
Certified Auditor
Ljube Gjorgjievski
Skopje,
10 March 2008
NLB TUTUNSKA BANKA
38
ANNUAL REPORT 2007
Consolidated Income statement
All amounts in MKD thousands unless stated otherwise
31 December
Notes
2007
2006
Interest income
5
2,629,716
1,840,695
Interest expense
5
(1,145,257)
(654,794)
1,484,459
1,185,901
Net interest income
Fee and commission income
6
593,270
458,270
Fee and commission expense
6
(93,649)
(78,273)
499,621
379,997
Dividend income
7
8,069
4,172
Net trading income
8
17,273
1,246
14
(458,978)
(435,296)
9
125,730
135,885
Net income from the sale of available-for-sale investment securities
10
794
12,773
Administrative expenses
12
(579,758)
(468,924)
Other operating expenses
13
(470,777)
(332,553)
Other operating income
11
35,193
27,858
661,626
511,059
2,657
(2,824)
664,283
508,235
(76,977)
(80,702)
587,306
427,533
Impairment losses for credit losses
Net foreign exchange gain
Operating profit
Share of the profit/loss of associates
Profit before income tax
Profit tax
15
Profit for the year
The notes on pages 8 to 71 are an integral part of these consolidated financial statements
NLB TUTUNSKA BANKA
39
ANNUAL REPORT 2007
Consolidated Balance sheet
31 December
Notes
2007
2006
Cash and balances with central bank
16
4,218,346
3,046,291
Treasury bills and other eligible bills
17
8,206,838
4,956,513
Loans and advances to banks
18
4,396,169
3,579,625
20
22,699,921
15,707,331
Trading assets
19
647,949
91,159
– Available for sale
21
1,481,517
1,145,280
Investment property
22
-
52,949
Investment in associates
23
43,447
40,790
Property, plant and equipment
24
684,667
548,410
Intangible assets
25
70,229
58,391
Other assets
26
256,806
354,195
42,705,889
29,580,934
Assets
Investment securities:
Total assets
Liabilities
Deposits from financial institutions
27
2,146,872
1,606,883
Due to customers
28
27,376,943
18,546,295
29
7,727,525
5,645,454
Subordinated liability
30
786,120
314,075
Other liabilities
31
292,153
177,966
Provisions for off-balance sheet items
32
356,296
299,337
5,229
25,627
29,091
21,257
38,720,229
26,636,894
785,621
693,866
1,610,707
968,422
Retained earnings
841,367
660,143
Other reserves
747,965
621,609
Total equity
3,985,660
2,944,040
42,705,889
29,580,934
Current income tax liabilities
Deferred income tax liabilities
33
Total liabilities
Equity
Share capital
36
Share premium
Total equity and liabilities
NLB TUTUNSKA BANKA
40
ANNUAL REPORT 2007
Consolidated Statement of
changes in equity
Attributed to the equity holders
Share
Capital
Share
Premium
Retained
Earnings
693,866
968,422
596,900
472,692
109,882
2,841,762
Net changes in available for sale investments, net of tax
-
-
-
-
10,576
10,576
Net income recognised in equity
-
-
-
-
10,576
10,576
Net profit
-
-
427,533
-
-
427,533
Total recognised income for 2006
-
-
427,533
-
10,576
438,109
Dividend relating to 2005
-
-
(335,831)
-
-
(335,831)
Transfer to statutory reserve
-
-
(28,459)
28,459
-
-
693,866
968,422
660,143
501,151
120,458
2,944,040
91,755
642,285
-
-
-
734,040
-
-
-
-
92,880
92,880
91,755
642,285
-
-
92,880
826,920
-
-
587,306
-
-
587,306
91,755
642,285
587,306
-
92,880
1,414,226
-
-
(372,606)
-
-
(372,606)
-
-
(33,476)
33,476
-
-
785,621
1,610,707
841,367
534,627
213,338
3,985,660
As at 1 January 2006
As at 1 January 2007
Increase of capital
Net change in available for sale investments, net of tax
Net income recognised in equity
Net profit
As at 31 December 2007
Statutory Revaluation
Reserve
Reserve
Total
Detailed information is provided in Note 36
NLB TUTUNSKA BANKA
41
ANNUAL REPORT 2007
Consolidated Cash flow statement
31 December
Notes
2007
2006
664,283
508,235
Cash flows from operating activities
Profit before tax
Adjustments for:
Amortization of property, plant and equipment
24
82,856
66,441
Amortization of intangible assets
25
13,998
8,656
Amortization of investment property
22
967
1,659
427
1,791
458,978
435,296
Written-off property and equipment
Impairment loss
Decrease in value of assets acquired through foreclosure procedure
13,704
8,910
Dividend income
(8,069)
(4,172)
Interest income
5
(2,629,715)
(1,840,695)
Interest expense
5
1,145,256
654,794
2,577,204
1,779,223
(1,122,370)
(627,667)
1,197,519
992,471
-
(1,481)
Interest received
Interest paid
Operating profit before changes in operating assets
(Increase)/Decrease in operating assets:
Restricted accounts
Balances with NBRM
(116,437)
(390,630)
2,289,572
1,240,966
(7,377,016)
(4,435,526)
80,610
(69,732)
538,818
1,124,048
8,789,110
5,774,635
114,187
71,654
5,516,363
4,306,405
Other assets
Increase/(Decrease) in operating liabilities:
Due to customers
Other liabilities
Net cash flow from operating activities before income tax
Income tax paid
Profit tax paid
Net cash flow from operating activities
(97,374)
(73,498)
5,418,989
4,232,907
Cash flow from investing activities
Acquisitions of property, plant and equipment
24
(167,563)
(77,633)
Acquisition of intangible assets
25
(25,836)
(49,610)
(1,077,694)
(1,179,209)
511,487
382,250
6
-
8,069
4,172
(751,531)
(920,030)
Investment in securities
Sale of securities
Increase from sale of property, plant and equipment
Dividends received
Net cash flow from investing activities
NLB TUTUNSKA BANKA
42
ANNUAL REPORT 2007
(continued)
Cash flows from financing activities
Increase of subordinated liabilities
469,190
314,075
Proceeds from borrowings
30
9,000,458
5,927,413
Repayment of borrowings
(6,895,708)
(6,304,060)
(372,606)
(335,831)
734,040
-
Net cash flow from financing activities
2,935,374
(398,403)
Net increase/(decrease) in cash and cash equivalents
7,602,832
2,914,474
Cash and cash equivalents as at 1 January
6,923,727
4,009,253
14,526,559
6,923,727
Dividends paid
Issuance of ordinary shares
Cash and cash equivalents as at 31 December
NLB TUTUNSKA BANKA
43
ANNUAL REPORT 2007
1. General Information
NLB Tutunska banka AD Skopje (“the Bank”) is a joint stock company registered and domiciled in the
Republic of Macedonia. The Bank is a subsidiary of the NLB Group (“NLB”), which controls 87.6%
(2006: 83.4%) of the Bank’s voting shares.
The address of its registered office is as follows:
Bulevar Dvanaesetta Makedonska brigada, No. 20 Skopje - Aerodrom,
1000 Skopje,
The consolidated financial statements of the Bank as at and for the year ended 31 December 2007
comprise the financial statements of the Bank and its wholly owned subsidiary NLB Tutunska broker
A.D. Skopje, (together referred to as the “Group”), and the interest of the Group in their associate Nov
Penziski Fond A.D. Skopje.
The Group is licensed to perform all banking activities in accordance with the law. Its main activities include
commercial lending, collection of deposits, provision of foreign credit lines, domestic and foreign payment
operations, foreign exchange services, as well as retail banking services. Furthermore, it provides trade
finance facilities to companies for export and import purposes.
These consolidated financial statements have been approved for issue by the Board of Directors on 5
March 2008.
Directors
The names of the Bank Directors performing managerial responsibilities during the financial year and up
to the date of this report are as follows:
Gjorgji Jancevski
Mitre Kolishevski
General Manager
Ljube Rajevski
General Manager
Tome Perinski
Manager of Internal Audit Division
Tihomir Trajkovski
Manager of Finance and Treasury Management Division
Stojna Stojkoska
Manager of Corporate Banking Division
Ljiljana Nastoska
Manager of Logistics Division
Jordanka Grujoska
Manager of Cash Services
Dragan Panovski
Manager of Payment System and Sales Logistics Division
Slagjana Beleva
Manager of Branch Network Division
Antonio Argir
Manager of Risk Management Centre
Bogoja Kitanchev
NLB TUTUNSKA BANKA
44
ANNUAL REPORT 2007
2. Accounting Policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless stated otherwise.
2.1 Basis of preparation of financial statements
The Group’s financial statements have been prepared in accordance with the Law on Trade Companies
and the Accounting Rulebook (Official Gazette of the Republic of Macedonia No. 94/2004, No. 11/2005
and No. 116/2005), and are expressed in thousands of Macedonian Denars (MKD).
The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of available for sale financial assets.
The preparation of these separate financial statements for the Group is required by the local legislation.
The Group owns 49% of Nov Penziski Fond AD Skopje, which is domiciled in the Republic of Macedonia
and represents an investment in an associate. In the Bank’s separate financial statements, the investment in the associate is accounted at cost. The Group also owns 100% of the capital of NLB Tutunska
broker AD Skopje, which is domiciled in the Republic of Macedonia and represents a subsidiary. In the
Bank’s separate financial statements, the investment in the subsidiary is accounted at cost.
The preparation of the financial statements in accordance with the generally accepted accounting standards requires the use of certain critical accounting estimates based on a high level of knowledge of
the management of current events and actions. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimations are of significance to the consolidated financial
statements are disclosed in Note 4.
(a) Basis of consolidation
(I) Subsidiaries
Subsidiaries are entities managed (controlled) by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and business policies of the subsidiaries in order to
obtain benefits from those activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date the control commences until the date that control ceases.
(II) Associates
An associate is an entity in which the Group has significant influence, but not control, over the financial
and operating policies. The investment in associate is accounted for using the equity method.
The consolidated financial statements include the Group’s share of total recognised gains and losses
of associates on an equity accounting basis from the date that significant influence commences until
the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an
associate, the Group’s carrying amount is reduced to nil and the recognition of further losses is discontinued.
Future losses are considered only to the extent to which the Group has incurred obligations or made
payments on behalf of the associate.
(III) Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealised gains arising from intra-group transactions
are eliminated upon preparation of the consolidated financial statements. Unrealised gains and losses
arising from transactions with equity accounted investees are eliminated against the investment to the
extent of the Group’s stake in the associate.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there
is no evidence of impairment.
NLB TUTUNSKA BANKA
45
ANNUAL REPORT 2007
2. Accounting Policies (continued)
2.2 Foreign currency
(a) Functional and presentation currency
Items included in the Group’s financial statements are measured using the currency of the primary economic environment in which the Group operates (‘functional currency’).
The financial statements are presented in MKD thousands, which is the Group’s functional and presentation currency.
(b) Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Changes in the fair value of monetary securities denominated in foreign currency classified as available
for sale are analysed between translation differences resulting from changes in the amortised cost of
the security and other changes in the carrying amount of the security. Translation differences related to
changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount
are recognised in equity.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss,
are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such
as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.
The foreign currencies the Group deals with are predominantly Euro (EUR) and United States Dollars
(USD) based. The exchange rates used for translation at 31 December 2007 and 2006 were as follows:
NLB TUTUNSKA BANKA
2007
2006
MKD
MKD
1 EUR
61.20
61.17
1 USD
41.66
46.45
46
ANNUAL REPORT 2007
2.3 Financial assets
The Group classifies its financial assets according to the following categories: loans and receivables,
financial instruments held for trading and financial assets available for sale. The Group determines the
classification of its investments at initial recognition.
(a) Loans and receivables approved by the Group
Loans and receivables approved by the Group are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
The Group’s loans and receivables arise when the Group provides funds to a customer with no intention
of trading or making short-term profit.
The loans and receivables approved by the Group are carried according to the amortized cost by applying
the effective interest rate.
(b) Financial instruments held for trading
Financial assets are classified as held for trading if they are acquired principally for the purpose of selling or repurchasing in the near term and for which there is evidence of a recent actual pattern of making
short-term profit. The only trading assets held by the Group are government treasury bills and government
bonds.
(c) Available-for-sale financial assets
Available-for-sale financial assets are assets intended to be held for an indefinite period of time, which may
be sold in response to needs for liquidity.
Financial assets at fair value through profit and loss, held to maturity and available for sale are recognised
on the trade date - the date on which the Group is obligated to purchase or sell the assets.
Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried
at fair value through the profit and loss. Financial assets carried at fair value through the profit and loss are
initially recognised at fair value, and the transaction costs are recognized in the income statement.
Available for sale financial assets and financial assets at fair value through the profit and loss are subsequently carried at fair value. Loans, receivables and held to maturity investments are carried at amortised
cost using the effective interest rate method. The gains and losses arising from changes in the fair value of
the “financial assets at fair value through the profit and loss” category are included in the income statement
in the period in which they arise. The gains and losses arising from changes in the fair value of available for
sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired.
At this time, the cumulative gain or loss previously recognised in equity is recognised in the profit and loss.
However, the interest calculated using the effective interest rate method and the foreign currency gains
and losses on monetary assets classified as available-for-sale are recognised in the income statement.
Dividends on available-for-sale equity instruments are recognised in the income statement when the entity’s right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices, except for investments that do not have a quoted market price in an active market and whose fair value cannot be reliably
measured are stated at cost, less impairment losses.
Financial assets are derecognised by the Group when the rights to receive cash flows from the financial
assets have expired or where the Group has transferred all cash flow right over the transaction asset
whereby all risks and rewards of ownership have been transferred to another entity. Financial liabilities are
derecognised when they are extinguished − that is, when the liability is settled, cancelled or expired.
NLB TUTUNSKA BANKA
47
ANNUAL REPORT 2007
2.4 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when the
Group has a legally enforceable right to offset the recognised amounts and there is an intention to settle
on a net basis, or realise the asset and settle the liability simultaneously.
2.5 Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classified
as held for trading or designated at fair value through profit and loss, are recognised within “interest
income” and “interest expense” in the income statement using the effective interest method.
The effective interest method is a method for calculating the amortised cost of financial assets or financial liabilities and for allocating the interest income or interest expense over the period of the expected
maturity of the financial instruments.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the the expected life of the financial instrument or, when appropriate, a shorter period to the
net carrying amount of the financial asset or financial liability. When calculating the effective interest
rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for
example, prepayment options), but does not consider future loan losses. The calculation includes all
fees and points paid or received between parties to the contract that are an integral part of the effective
interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written off because of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows
for the purpose of measuring the impairment loss.
2.6 Fee and commission income
Fees and commissions consist mainly of financial services performed by the Group including the issuance of guarantees, letters of credit, domestic and foreign payment operations, and other services. Fees
and commissions are generally recognised on an accrual basis when the service has been provided.
2.7 Dividend income
Dividends are recognised in the income statement when the Group’s right to receive payments is established.
2.8 Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at each balance sheet date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired
and impairment losses have incurred only if there is objective evidence of impairment as a result of one
or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
NLB TUTUNSKA BANKA
48
ANNUAL REPORT 2007
2.8 Impairment of financial assets (continued)
(a) Assets carried at amortised cost (continued)
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
• Delinquency in contractual payments of principal or interest;
• Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage
of sales);
• Breach of loan covenants or conditions;
• Initiation of bankruptcy proceedings;
• Deterioration of the borrower’s competitive position;
• Deterioration in the value of collateral.
The estimated period between a loss occurring and its identification is determined by the management
for each identified portfolio. In general, the period used is three months.
The Group first assesses whether objective evidence of impairment exists individually for financial assets
that are individually significant, and individually or collectively for financial assets that are not individually
significant. If the Group determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial assets
with similar credit risk characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is or continues to be recognised
are not included in a collective assessment of impairment.
The amount of Impairment loss is measured as difference between the asset’s carrying amount and
the present value of estimated future cash flows (excluding future credit losses that have not incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is
reduced through the use of allowance account and the amount of the loss is recognised in the income
statement. If a loan or a held-to-maturity investment has a variable interest rate, discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the expected future cash flows of a collateralised financial asset
reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral,
whether or not the foreclosure is probable.
For the purposes of a collective evaluation and impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e., on the basis of the Group’s grading process that considers asset
type, industry, geographical location, collateral type, past-due status and other relevant factors). Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets
being evaluated.
Estimates of changes in future cash flows for groups of assets should reflect and be directly consistent
with changes in related observable data from period to period (for example, changes in unemployment
rates, property prices, payment status, or other factors indicative of changes in the probability of losses
in the Group and their magnitude). The methodology and assumptions used for estimating future cash
flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual
loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans
are written off after all the necessary procedures have been completed and the amount of the loss has
been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement
in the debtor’s credit rating), the previously recognised impairment loss is reversed from the allowance
account and the amount is recognised in the income statement in net impairment losses.
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ANNUAL REPORT 2007
(b) Assets classified as available for sale
asset or a group of financial assets is impaired. In the case of equity investments classified as available
for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in
determining whether the assets are impaired. If any such evidence exists for available-for-sale financial
assets, the cumulative loss – measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is
removed from equity and recognised in the income statement. Impairment losses recognised in the
income statement on equity investments, consequently are not reversed through the income statement.
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 recognised in the income statement, the impairment loss is reversed through the income statement.
(c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose
terms have been renegotiated are no longer considered to be past due but are treated as new loans.
In the subsequent year, the assets should be considered to be past due and such loans are to be disclosed.
2.9 Investment property
Investment property is property held either to earn rental income or for capital appreciation or both. The
Group holds investment property that has been acquired through the enforcement of security over loans
and receivables. Rental income from investment property is recognized in the income statement on a
straight-line basis over the term of the lease. Investment property is measured at cost less accumulated
depreciation and any accumulated impairment losses.
The depreciation of the investment property is charged to the income statement using the straight-line
method to allocate their cost to their residual values over their estimated useful lives. Investment property
is periodically reviewed for impairment.
The Group has made a decision to use these assets for its own purposes.
The estimated useful life is as follow:
Building
NLB TUTUNSKA BANKA
2007
2006
40 years
40 years
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ANNUAL REPORT 2007
2.10 Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and
impairment losses.
Subsequent expenditures are capitalised only when the future economic benefits increase arising from
the assets to which they are related. All other expenditures are recognized in the income statement as
incurred.
Amortisation is recognized in the income statement on a straight-line basis by writing off the cost for
the assets during their useful lives. Intangible assets are amortised from the date they are available for
use.
The estimated useful life is as follow:
2007
2006
Software
5 years
5 years
Patents and licenses
5 years
5 years
Other
5 years
5 years
2.11 Property and equipment
Property and buildings comprise mainly branches and offices. All property, plant and equipment are
stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance to the
property, plant and equipment are recognized in the income statement as to other operating expenses
during the period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to
allocate their cost to their residual values over their estimated useful lives. The estimated useful life
is as follows:
Buildings
Furniture and equipment
2007
2006
40 years
40 years
4-10 years
4-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, by the Group at
each balance sheet date. Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carring amount may not be recoverable. An asset’s
carring amount is written down immediately to its recoverable amount if the asset’s accounting value
is greater than its estimated recoverable amount. The recoverable amount is the higher amount of the
asset’s net sales value and its value in use.
Gains and losses from disposals are determined according to the assets’ carring amount and these are
included in other operating expenses in the income statement.
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ANNUAL REPORT 2007
2.12 Leases
(a) The Group as the lessee
The leases entered into by the Group are primarily operating leases. The total payments made under
operating leases are charged to other operating expenses in the income statement on a straight-line
basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to
be made to the lessor by way of penalty is recognised as an expense in the period in which termination
takes place.
2.13 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less
than three months’ maturity from the date of acquisition, including cash and non-restricted balances with
central banks, treasury bills and other eligible bills, loans and advances to banks.
2.14 Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it is probable that there will be an outflow from the Group
for the settlement of the obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax discount rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
A provision for onerous contract is recognised when the expected benefits to be derived by it are lower
than the unavoidable cost of meeting its obligations under the contract. The provision is measured at
the present value of the lower of the expected cost of terminating the contract and the expected net cost
of continuing with the contract. Before a provision for the onerous contract is established, the Group
recognises any impairment loss on the assets associated with that contract.
2.15 Employee benefits
(a) Defined contribution plans
The Group contributes to its employees’ post retirement plans as prescribed by the Macedonian legislation. Contributions, based on salaries, are made to the pension funds responsible for the payment of
pensions. There is no additional liability for the Group, in respect to these plans. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement
when calculated.
(b) Short-term employee benefits
Short-term employee benefits are measured on an undiscounted basis and are recognized when the
related service is provided.
An obligation is recognised by the Group for the amount expected to be paid as bonus or profit-sharing
if the Group has a present legal or constructive obligation to pay this amount as a result of past services
provided by the employee and the obligation can be estimated reliably.
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ANNUAL REPORT 2007
2.15 Employee benefits (continued)
(c) Other long-term employee benefits
The Group’s net obligation in respect to long-term employee benefits, except to the pension plans, is
the amount of future benefits that employees have earned in return for their service in the current and
prior periods; that bonus is discounted to determine its present value, and the objective to any related
assets is deducted. Any actuarial gains or losses are recognised in profit or loss in the period in which
they arise. Other long-term employee benefits include jubilee awards, retirement indemnity bonuses
and similar. Valuations of these obligations are carried out by independent qualified actuaries. The main
actuarial assumptions included in the calculation of the obligation for long-term employee benefits are:
• Discount rate of 2.75%
• Number of employees eligible to claim benefits and
• Future salary increases using general salary inflation index, promotions and increases in salaries
according to past years of service.
2.16 Deferred income tax
Deferred income tax is acknowledged by using the balance sheet method, arising from the time difference between the carrying amount of assets and liabilities for the needs of financial reporting and the
amounts used for tax purposes. Deferred income tax is determined using tax rates that are expected to
be applied when the related time differences are realised on the basis of the adopted laws or have been
significantly adopted on the day of reporting.
Deferred tax assets are recognised only for the amount for which it is probable that future taxable profit
will be available against the asset that will be utilised. Deferred tax assets are reduced by the amount
that is no longer probable to be utilised.
2.17 Deposits, borrowings and subordinated liabilities
Deposits, borrowings, and subordinated liabilities are the main sources for financing the Group’s activities.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with
the substance of the contractual terms of the instrument.
The Group initially recognises deposits, borrowings, and subordinated liabilities on their date of origination.
Deposits, borrowings, and subordinated liabilities are initially measured at cost net of transaction costs,
and subsequently measured at their amortised cost using the effective interest method, except where
the Group chooses to carry the liabilities at fair value through the profit and loss.
2.18 Share capital
(a) Preference share capital
Preference share capital that is non-redeemable is classified as equity.
(b) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net
of tax, from the proceeds.
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ANNUAL REPORT 2007
2.18 Share capital (continued)
(c) Dividends on ordinary shares
Dividends on ordinary shares are recognised in eqity in the period in which they are approved by the
Group’s shareholders.
Dividends for the year that are declared after the balance sheet date are dealt within the subsequent
events note.
(d) Treasury shares
When the Group purchases the Group’s shares, the consideration paid is deducted from total shareholders equity as treasury shares until they are cancelled. When such shares are subsequently sold or
reissued, any consideration received is included in Group’s shareholders equity.
2.19 Fiduciary activities
The Group acts as trustee and in other fiduciary capacities that result in the holding or placing of assets
on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income
arising thereon are excluded from these financial statements, as they are not assets of the Group.
2.20 Comparatives
Where necessary, comparative figures have been adjusted to conform with changes in presentation in
the current year.
2.21 Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reemburse the guarantee holder for a loss it incurs because a specified debtor fails to make payments when
due. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of
customers to secure loans, allowed overdrafts and other banking instruments.
Financial guarantees are initially recognised in the financial statements at fair value on the date the
guarantee was issued. Subsequent to initial recognition, the Group’s liabilities under such guarantees
are measured at the higher of the initial measurement, less amortization calculated to recognize, in the
income statement, the fee income earned on a straight line basis over the life of the guarantee and the
best estimate of the expenditures required to settle any financial obligation arising at the balance sheet
date.
These estimates are determined based on experience with similar transactions and history of past
losses, supplemented by the judgment of the management. Any increase in the liability relating to guarantees is included in the income statement under other operating expenses.
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ANNUAL REPORT 2007
3. Financial risk management
The Group’s activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is
core to the financial business, and the operational risks are an inevitable consequence of being in business. The Group’s aim is therefore to achieve an appropriate balance between risk and return of assets
and to minimise potential adverse effects to the Group’s financial performance.
The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adhere to the limits by means of reliable and
up-to-date information systems. The Group regularly reviews its risk management policies and systems
to reflect changes in markets, products and emerging best practice.
Risk management is carried out by the risk management department in the Group under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as
well as written policies covering specific areas, such as credit risk, currency risk, interest rate risk, and
liquidity risk. In addition, internal audit is responsible for the independent review of risk management and
the control environment.
The most important types of risk that the Group is exposed to, are credit risk, liquidity risk, market risk
and other operational risks. The market risk includes the currency risk, interest rate and other price
risk.
3.1 Credit risk
The Group takes on exposure to credit risk, which is the risk that a customer will cause a financial loss
for the Group by failing to discharge an obligation. Credit risk is the most important risk for the Group’s
business; management therefore carefully manages its exposure to credit risk. Credit exposures arise
principally in lending activities, i.e., loans and advances, and investment activities in debt securities and
other securities in the Group’s assets. There is also credit risk in the off-balance sheet financial instruments. The credit risk management and control are centralised in credit risk management team within
the risk department and reported to the Board of Directors.
3.1.1 Credit risk measurement
(a) Loans and advances
In measuring the credit risk related to loans and advances to customers and to banks, three components
are relevant:
1)
2)
3)
the probability of default arising from the agreement between the contractual parties;
the current exposure to the customer and the possibility of monitoring its future development;
the recovery ratio of uncollected receivables of the Group.
These credit risk measurements, which reflect expected loss (the ‘expected loss model’) and are required by the Basel Committee on Banking Regulations and the Supervisory Practices (the Basel Committee), are embedded in the Group’s operational management.
The operational measurements can be contrasted with impairment allowances required under IAS 39,
which are based on losses that have been incurred at the balance sheet date of the Group, rather than
expected losses (Note 3.1.3).
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ANNUAL REPORT 2007
3. Financial risk management (continued)
3.1.1 Credit risk measurement (continued)
(a) Loans and advances (continued)
(I) The Group assesses the probability of default between contractual parties using internal rating tools
tailored to the various categories of clients. They have been developed internally and combine statistical
analysis with loan officer judgment and are validated, where appropriate, by comparison with externally
available data. The customers of the Group are segmented into four risk categories. The Group’s rating
scale, which is shown below, reflects the range of default probabilities defined for each category. This
means that, in principle, exposures migrate between categories as the assessment of their probability
of default changes. The methodology is kept under review and upgraded as necessary. The Group
regularly validates the performance of the rating system taking into consideration the occurred defaults
by the contractual parties.
Group’s classification system
Description of the category
Group’s categories
A
Investment grade
B
Standard monitoring
C
Special monitoring
D+E
Sub-standard
The criterion for classification of financial assets or contingent liabilities into the risk categories A, B, C,
D and E is as follows:
Financial assets or contingent liabilities are classified into the risk category A if they refer to receivables
from:
• National Bank of the Republic of Macedonia and the Republic of Macedonia;
• clients which are not likely to default and who repay their obligations within the maturity, or with a
delay of 15 days;
• and exposure secured by pledging collateral graded as first class collateral.
Financial assets or contingent liabilities are classified into the risk category B if they refer to receivables
from:
• clients whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless if its
present financial position is assessed as weak, without signs of further deterioration in the future;
• clients who settle their liabilities with delay of up to 30 days, occasionally with delay of between 31
and 90 days.
Financial assets or contingent liabilities are classified into the risk category C if they refer to receivables
from:
• clients whose cash flows will not be sufficient for regular repayment of matured liabilities;
• clients that settle their liabilities with delay of up to 90 days, occasionally with delay between 91 to
180 days;
• clients that are clearly undercapitalized;
• clients that do not have sufficient long term capital resources for financing long term investments;
• clients from whom the Group does not receive currently satisfactory information or adequate documentation concerning settlement of liabilities.
Financial assets or contingent liabilities are classified into risk category D and E if they refer to receivables from:
• clients for which there has been a strong likelihood of loss of part of the financal assets or of payment of the contingent liabilities for a longer period;
• clients that settle their liabilities with delay of more than 90 to 180 days, and occasionally with delay
between 181 to 360 days;
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ANNUAL REPORT 2007
• clients which are insolvent;
• clients for which a motion for commencement of a liquidation process has began;
• clients that are in the process of reform or in the process of liquidation;
• clients that declared bankruptcy;
• client from whom no repayment is expected;
• clients with questionable legal grounds.
(II) The exposure to default enterprises does not surpass the amount the Group expects to own up to the
time of default. For example, for a loan, it is its principal. The Group includes any amount already drawn
plus the further amount that may have been drawn by the time of default, as liabilities of the enterprise.
(III) The given rate of default or loss severity represents the Group’s expectations on the extent of loss
in case default occur. This indicator is expressed as percentage of loss per unit of exposure and typically varies in accordance with the classification of the client, type and seniority of claim and liquidity of
collateral or other loan mitigation.
(b) Debt securities and other securities
For debt securities and other securities, the department for managing the credit risk exposure uses
classifications depending on the issuer: the National Bank of the Republic of Macedonia, Republic of
Macedonia and banks. The investments in those securities are viewed as a way to gain a higher credit
quality and to simultaneously maintain available asset sources to meet the funding requirements.
Investments are allowed only in liquid securities that have high credit rating. Given their high credit raiting, the management of the Group does not expect any contractual party to fail to meet its obligations.
The maximum exposure to credit risk is represented by the carring amount of each financial asset in the
balance sheet.
3.1.2 Risk limit control and mitigation policies
The Group manages, limits and controls concentrations of credit risk wherever they are identified − in
particular, with individual customers and groups, as well as with industrial and geographical risks.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments.
Such risks are continuously monitored and subject to an annual or more frequent review, when considered necessary. The limit levels of credit risk by product and industry sector are approved by the Board
of Directors.
The exposure to credit risk is also managed through regular analysis of the ability of borrowers and
potential borrowers to meet interest and principal repayment obligations and by changing these loan
approval limits where appropriate.
Some other specific control and mitigation measures are outlined below.
(a) Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these
is the taking of security for funds advances, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral
types for loans and advances are:
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ANNUAL REPORT 2007
3.1.2 Risk limit control and mitigation policies (continued)
(a) Collateral (continued)
• Cash, bank’s and first class companies’ guarantees;
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equity.
Loans to corporate entities and individuals are generally secured; account overdrafts and credit cards
issued to individuals are secured by bills of exchange at the full amount of principal, interest and other
charges. In addition, in order to minimise the credit loss, the Group will seek additional collateral from
the customers as soon as impairment indicators are noticed for the relevant individual loans and advances.
Debt securities, treasury and other eligible bills are generally unsecured.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and letters of credit carry the same credit risk as loans and are secured with same
collateral as loans.
3.1.3 Impairment and provisioning policies
The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the
inception of the credit approval and investment activities. In contrast, impairment provisions are recognised in the financial statements only for losses that have been incurred at the balance sheet based on
objective evidence of impairment (see Note 2.8).
The impairment provision shown in the balance sheet is derived from each of the four internal rating
grades. However, the majority of the impairment provisions come from middle two categories. The table
below shows the percentage of the Group’s on- and off-balance sheet items relating to loans and advances,
as well as the associated impairment provision for each of the Group’s internal rating categories:
Bank’s rating
2007
2006
Loans and
advances (%)
Impairment
provisions (%)
Loans and
advances (%)
Impairment
provisions (%)
95
1
94
1
2.Standard monitoring
2
10
1
10
3.Special monitoring
2
25
4
25
4.Sub-standard
1
57
1
58
100
7.4
100
8.6
1.Investment grade
The internal rating tools assists management to determine whether objective evidence of impairment
exist under IAS 39, based on the following criteria set out by the Group:
• Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of
sales);
• Breach of the contract and loan terms;
• Deterioration of the borrower’s competitive position; and
• Deterioration in the value of collateral.
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ANNUAL REPORT 2007
3.1.3 Impairment and provisioning policies (continued)
The Group’s policy requires the review of individual financial assets that are above materiality thresholds,
at least annually or more regularly, when it is required by individual circumstances. Impairment allowances
on individually assessed accounts are determined by an evaluation of the incurred loss at the balance
sheet date on a case-by-case basis, and are applied to all individually significant accounts.
The assessment normally encompasses the received collateral (including the re-confirmation of its
enforceability) and the anticipated receipts for that individual account.
Collectively assessed impairment allowances refer to: (i) portfolios of homogenous assets that are individually below materiality thresholds; and (ii) losses that have incurred but have not yet been identified,
by using the available historical experience, experienced judgment and statistical techniques.
3.1.4 Maximum exposure to credit risk before providing collateral or other credit
enhancements
Maximum exposure
2007
2006
8,206,838
4,956,513
Loans, and advances to banks
4,396,169
3,579,625
− Overdrafts
623,728
86,222
− Credit cards
472,513
266,053
− Term loans
5,242,391
2,346,378
− Mortgages
1,976,515
1,571,077
2,272,675
722,292
12,112,099
10,715,309
647,949
91,159
1,285,867
1,043,022
256,806
354,195
7,219,545
4,941,851
44,713,095
30,673,696
Credit risk exposures relating to on-balance sheet items are as follows:
Loans, and advances to customers
Loans to individuals:
Loans to corporate entities:
− Large corporate entities
− Small and medium sized enterprises (SMEs)
Trading assets
Investment securities
− Debt securities
Other assets
Credit risk exposures relating to off-balance sheet items are as follows:
Financial guarantees
At 31 December 2007
The above table represents a worse case scenario of credit risk exposure to the Group at 31 December
2007 and 2006, without taking account of any provided collateral or other credit enhancements attached.
For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as
reported in the balance sheet.
As shown above, 61% of the total maximum exposure is derived from loans and advances to banks and
customers (2006: 63%); 23% represents investments in debt securities (2006: 20%).
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ANNUAL REPORT 2007
3.1.4 Maximum exposure to credit risk before providing collateral or other credit
enhancements (continued)
The management is confident in its ability to continue to control and sustain minimal exposure to credit
risk of the Group, resulting from both its loans and advances portfolio and debt securities, based on the
following:
• 96% of the loans and advances portfolio are categorized in the first two grades of the intern rating
system (2006: 95%);
• The loans granted to SMEs, that represent the largest portfolio of the Group, are secured by a
collateral;
• 87% of the loans to individuals are secured by a collateral;
• 93% of the loans and advances portfolio of the Group are considered to be neither past due nor
impaired (2006: 92%);
• An improvement in the portfolio of loans and advances has resulted in a lower impairment loss in
the income statement, showing a 8,04% decrease;
• The Group has introduced a more stringent selection process upon granting loans and advances;
• More than 97% of the investments in debt securities and other securities are issued by the Republic
of Macedonia and the National Bank of the Republic of Macedonia.
3.1.5 Loans and advances
Loans and advances are summarised as follows:
31 December 2007
31 December 2006
Loans to customers
Loans to banks
Loans to customers
Loans to banks
22,996,121
4,137,493
16,026,019
3,366,271
628,429
263,382
312,698
214,275
1,238,872
637
1,140,105
312
Gross
24,863,422
4,401,512
17,478,822
3,580,858
Less: allowance for impairment
(2,163,501)
(5,343)
(1,771,491)
(1,233)
Net
22,699,921
4,396,169
15,707,331
3,579,625
Neither past due nor impaired
Past due but, not impaired
Impaired
The total impairment allowance for loans and advances is MKD 2,168,844,000 (2006: MKD
1,772,724,000). Further information of the impairment allowance for loans and advances to banks and
to customers is provided in Notes 17 and 19.
During the year ended on 31 December 2007, the Group’s total loans and advances increased by 40%
as a result of the expansion of the business with loans, especially in the retail customers section. When
entering into new markets or new industries, in order to minimise the potential increase of credit risk
exposure, the Group focused more on the business with large corporate enterprises or banks with good
credit rating or retail customers providing sufficient collateral.
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ANNUAL REPORT 2007
3.1.5 Loans and advances (continued)
(a) Loans and advances neither past due not impaired
The credit quality of the portfolio of loans and advances neither past due nor impaired may be assessed
with the use of the intern rating system accepted by the Group.
31 December 2007
Loans
Individuals (retail customers)
Legal entities
Over drafts
Credit
cards
Term
loans
Mortgages
Large
corporate
customers
SMEs
Total
Loans
Loans
to banks
1. Investment grade
310,507
468,377
5,346,820
2,058,698
2,319,303
12,492,416
22,996,121
4,137,493
Total
310,507
468,377
5,346,820
2,058,698
Categories:
2,319,303 12,492,416 22,996,121 4,137,493
31 December 2006
Loans
Individuals (retail customers)
Legal entities
Over drafts
Credit
cards
Term
loans
Mortgages
Large
corporate
customers
SMEs
Total
Loans
Loans
to banks
1. Investment grade
41,782
275,044
2,418,510
1,667,290
764,837
10,858,556
16,026,019
3,366,271
Total
41,782
275,044
2,418,510
1,667,290
Categories:
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764,837 10,858,556 16,026,019 3,366,271
ANNUAL REPORT 2007
(b) Loans and advances past due but not impaired
The Gross amount of loans and advances to customers that are due but not impaired, is the following:
(I) Loans and advances
31 December 2007
Individuals
Overdrafts
Term loans
Mortgages
Total
Past due up to 30 days
114,322
18,911
3,792
137,025
Past due of 30-60 days
41,906
8,677
1,433
52,016
175,217
5,284
862
181,363
Total
331,445
32,872
6,087
370,404
-
37,108
13,545
50,653
Fair value of collateral
Legal entities
SMEs
Total
170,509
170,509
42,410
42,410
45,106
45,106
Total
258,025
258,025
415,102
415,102
Past due of up to 30 days
31 December 2006
Individuals
Overdrafts
Term loans
Mortgages
Total
16,203
10,845
3,565
30,613
5,939
6,190
1,638
13,767
31,787
27,553
5,411
64,751
Total
53,929
44,588
10,614
109,131
-
50,362
23,641
74,003
NLB TUTUNSKA BANKA
62
ANNUAL REPORT 2007
(I) Loans and advances (continued)
Legal entities
SMEs
Total
128,193
128,193
21,780
21,780
53,594
53,594
Total
203,567
203,567
328,292
328,292
Past due of up to 30 days
(II) Loans and advances to banks
The gross value of past due but not impaired loans and advances with banks on 31st December 2007
amount to MKD 263,382,000 (2006: MKD 214,275,000). Generally, the Group does not hold collateral
on the basis of loans and advances to banks.
(c) Loans and advances individually impaired
(I) Loans and advances to customers
The individually impaired loans and advances to customers before taking into consideration the cash
flows from collateral held is MKD 444,708,000 (2006: MKD 286,331,000).
The breakdown of the gross amount of individually impaired loans and advances by class, along with
the fair value of related collateral held by the Group as security, are as follows:
Individuals
Corporate entities
Credit cards
Other loans
SMEs
Total
49,443
4,812
390,453
444,708
-
-
781,519
781,519
9,368
3,425
273,538
286,331
-
-
547,506
547,506
31 December 2007
Individually impaired loans
31 December 2006
The fair value of the collateral displayed above is determined by the local certified assessors and represents value realisable by the legal funds’ owners. The management considers the loan covered by
a collateral to be impaired, since former experience has shown that a significant part of the collateral
cannot be used due to administrative and legal difficulties. Loan impairment is due to the management
not being able to use the rights that arise from the collateral and cannot undertake the collateral to their
ownership.
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ANNUAL REPORT 2007
The total gross amount of individually impaired loans and advances to banks, as at 31 December 2007
was MKD 637,000 (2006: 312,000). Generally, no collateral is held by the Group on the basis of loans
and advances to banks.
3.1.6 Debt securities, treasury bills and other eligible bills
The table below presents an analysis of debt securities, treasury bills and other eligible bills.
Issuer of the investment securities is the National Bank of the Republic of Macedonia and Republic of
Macedonia. Standard & Poor’s Ratings Services assigned its ‘BBB-’ foreign currency and ‘BBB-’ local
currency sovereign credit ratings to the Republic of Macedonia. Issuers of the trading securities are
Banks who are BB+ rated from Fitch Rating Agency.
2007
Treasury bills and
other bills
Trading securities
Investment
securities
Total
NBRM
6,060,092
-
-
6,060,092
2,146,746
350,949
1,285,867
3,783,562
Banks
-
297,000
-
297,000
Total
8,206,838
647,949
1,285,867
10,140,654
2006
Treasury bills and
other bills
Trading securities
Investment
securities
Total
NBRM
3,289,001
-
-
3,289,001
1,667,512
91,159
1,043,022
2,801,693
4,956,513
91,159
1,043,022
6,090,694
Total
3.1.7 Repossessed collateral
During 2007, the Group obtained assets by taking possession of collateral held as security, as follows:
Nature of assets
Property
2007
2006
Carring amount
Carring amount
6,997
20,107
Property includes apartments, equipment and business property that is not in use by the Group for its
business purposes.
Repossessed properties of the Group are sold as soon as practicable with the purpose of reducing the
outstanding indebtedness of the Group. Repossessed property of the Group is classified in the balance
sheet within other assets.
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ANNUAL REPORT 2007
3.1.8 Concentration of risks of financial assets with credit risk exposure
(a) Geographical sectors
The following table breaks down the Group’s main credit exposure at their carring amount, as categorised
by geographical region as of 31 December 2007. For this table, the Group has allocated exposures to
regions based on the country of domicile of its clients.
EU countries
Outside EU
Republic of
Macedonia
Other
countries
Total
-
-
8,206,838
-
8,206,838
3,002,307
659,845
685,626
48,391
4,396,169
Loans and advances to customers:
− Overdrafts
11
130
623,585
2
623,728
− Credit cards
144
94
472,272
3
472,513
− Term loans
-
-
5,242,391
-
5,242,391
− Mortgages
-
-
1,976,515
-
1,976,515
-
-
2,272,675
-
2,272,675
− SMEs
-
-
12,111,899
200
12,112,099
Trading assets
-
-
647,949
-
647,949
Investment securities – debt
securities
-
-
1,285,867
-
1,285,867
13,494
78
243,232
2
256,806
3,015,956
660,147
33,768,849
48,598
37,493,550
Other assets
At 31 December 2007
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
3.1.8 Concentration of risks of financial assets with credit risk exposure (continued)
(a) Geographical sectors (continued)
EU countries
Outside EU
Republic of
Macedonia
Other
countries
Total
-
-
4,956,513
-
4,956,513
2,206,846
937,945
350,269
84,565
3,579,625
-
-
-
-
-
6
-
86,216
-
86,222
− Credit cards
332
134
265,444
143
266,053
− Term loans
1
-
2,346,377
-
2,346,378
− Mortgages
-
-
1,571,077
-
1,571,077
-
-
722,292
-
722,292
− SMEs
3
-
10,715,294
12
10,715,309
Trading assets
-
-
91,159
-
91,159
Investment securities – debt
securities
-
-
1,043,022
-
1,043,022
Other assets
-
-
354,195
-
354,195
2,207,188
938,079
22,501,858
84,720
25,731,845
Loans and advanes to banks
− Overdrafts
On 31 December 2006
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
(b) Industry sectors
The following table breaks down the Group’s main credit exposure at their carring amounts, as categorised by the industry sectors of our clients.
Financial
institutions
Manufacturing
Real
estate
Whole sale
and retail
trade
Public
Other
sector industries
Individuals
Total
Treasury bills and other
eligible bills
8,206,838
-
-
-
-
-
-
8,206,838
Loans and advances to
banks
4,396,169
-
-
-
-
-
-
4,396,169
− Overdrafts
-
-
-
-
-
-
623,728
623,728
− Credit cards
-
-
− Term loans
-
-
-
-
-
-
472,513
472,513
-
-
-
-
5,242,391
5,242,391
− Mortgages
-
-
-
-
-
-
1,976,515
1,976,515
-
991,794
-
1,040,833
-
240,048
-
2,272,675
− SMEs
-
4,285,565
1,836,277
4,016,507
205,954
1,767,796
-
12,112,099
647,949
-
-
-
-
-
-
647,949
1,232,187
-
-
-
53,680
-
-
1,285,867
-
-
-
-
-
256,806
-
256,806
customers:
Loans to corporate
entities:
Trading assets
Investment securities −
debt securities
Other assets
At 31 December 2007
NLB TUTUNSKA BANKA
14,483,143
5,277,359 1,836,277
67
5,057,340 259,634 2,264,650 8,315,147 37,493,550
ANNUAL REPORT 2007
(b) Industry sectors (continued)
Financial
institutions
Manufacturing
Real
estate
Whole sale
and retail
trade
Public
Other
sector industries
Individuals
Total
eligible bills
4,956,513
-
-
-
-
-
-
4,956,513
banks
3,579,625
-
-
-
-
-
-
3,579,625
− Overdrafts
-
-
-
-
-
-
86,222
86,222
− Credit cards
-
-
-
-
-
-
266,053
266,053
− Term loans
-
-
-
-
-
-
2,346,378
2,346,378
− Mortgages
-
-
-
-
-
-
1,571,077
1,571,077
-
429,988
-
50,517
-
241,787
-
722,292
− SMEs
-
3,782,160
668,550
3,984,948
-
2,279,651
-
10,715,309
91,159
-
-
-
-
-
-
91,159
982,475
-
-
-
60,547
-
-
1,043,022
155
-
-
-
-
354,040
-
354,195
9,609,927
4,212,148
668,550
4,035,465
customers:
Loans to corporate
entities:
Trading assets
Investment securities −
debt securities
Other assets
At 31 December 2006
60,547 2,875,478 4,269,730 25,731,845
3.2 Market risk
Market risk represents the risk of change in market prices, such as the change in the interest rates, the
price of capital, change of the exchange rates and the credit spread (with the exception of the changes
between the creditor and debtor) that shall influence the Group incomes, or the value of the financial
instruments. The purpose of market risk management is to control the credit exposure within acceptable
limits, for the purposes of optimization of the risk return.
3.2.1 Foreign exchange risk
The Group is exposed to a currency risk through the foreign currency transactions. The Group is
convinced that the net exposure is held to a satisfying level by purchasing and selling currencies for the
purposes of compensation of short-term deviations.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
3.2.1 Foreign exchange risk (continued)
Concentrations of currency risk-on and off-balance sheet financial instruments:ments
EUR
USD
MKD
Other
Total
1,777,854
49,478
1,862,242
528,772
4,218,346
-
-
8,206,838
-
8,206,838
2,295,597
1,910,413
68,641
121,518
4,396,169
13,381,500
6,418
7,974,246
1,337,757
22,699,921
282,654
-
365,295
-
647,949
1,033,611
-
447,906
-
1,481,517
-
-
43,447
-
43,447
Other assets
32,569
13,798
210,439
-
256,806
Total assets
18,803,785
1,980,107
19,179,054
1,988,047
41,950,993
799,745
55,980
870,042
421,105
2,146,872
11,109,326
1,868,917
14,142,839
255,861
27,376,943
7,401,512
73,313
9,734
242,966
7,727,525
-
-
-
786,120
786,120
20,596
-
270,944
613
292,153
-
-
5,229
-
5,229
-
-
29,091
-
29,091
19,331,179
1,998,210
15,327,879
1,706,665
38,363,933
Net on-balance sheet financial position
(527,394)
(18,103)
3,851,175
281,382
3,587,060
Off-balance sheet
3,196,965
444,520
3,578,060
-
7,219,545
Total assets
14,852,583
1,535,940
11,695,747
836,914
28,921,184
Total liabilities
15,898,064
1,647,981
8,125,292
666,220
26,337,557
(1,045,481)
(112,041)
3,570,455
170,694
2,583,627
2,011,095
239,976
2,690,005
775
4,941,851
At 31 December 2007
Assets
Cash and balances with NBRM
Trading assets
Liabilities
Due to customers
Subordinated liabilities
Other liabilities
Total liabilities
At 31 December 2006
Off-balance sheet
On the 31st December 2007, should MKD devaluate in 5% in relation to the foreign currencies, whereas
the remaining variables remain unaltered, the profit before tax for the twelve-month-period, up to the
31st December 2007, shall decrease in around 18,576,000 MKD (2006: 52,481,000 MKD). Otherwise,
should MKD revaluate in 5% in relation to the foreign currencies, whereas the remaining variables remain
unaltered, the profit before tax shall increase in around MKD 20,176,000 (2006: MKD 57,681,000).
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
3.2.2 Interest rate risk
The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interestearning assets (including investments) and interest-bearing liabilities mature or reprice at different times
or in differing amounts. In the case of floating rate assets and liabilities, the Group is also exposed to
basis risk, which is the difference in repricing characteristics of the various floating rate indices, such as
the savings rate, LIBOR and different types of interest.
Risk management activities are aimed at optimising net interest income, given market interest rate
levels consistent with the Group’s business strategies.
Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to interest
rate changes. In general, the Group is asset sensitive because of the majority of the interest-earning
assets and liabilities, the Group has the right simultaneously to change the interest rates.
Analysis of the total assets and liabilities of the Group into relevant maturity groupings based on the
remaining period to the next date at which interest rates may be changed, is set out below
Up to 1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Non- interest bearing
Total
Cash and balances with NBRM
1,494,376
-
-
-
-
2,723,970
4,218,346
6,649,846
1,112,225
396,120
-
-
48,647
8,206,838
3,782,398
67,693
95,673
414,139
6,225
30,041
4,396,169
6,633,822
3,519,005
5,378,860
4,429,077
2,052,262
686,895
22,699,921
647,949
-
-
-
-
-
647,949
205,598
790,635
273,550
211,734
1,481,517
Assets
Trading assets
-
-
-
-
-
43,447
43,447
Other assets
-
-
-
-
-
256,806
256,806
Total assets
19,208,391
4,698,923
6,076,251
5,633,851
2,332,037
302,885
1,139,107
176,856
201,200
69,400
257,424
2,146,872
14,796,070
5,367,551
5,426,501
1,363,917
9,163
413,741
27,376,943
636,952
3,147,421
3,641,580
239,314
16,103
46,155
7,727,525
-
783,265
-
-
-
2,855
786,120
Other liabilities
-
-
-
-
-
292,153
292,153
-
-
-
-
-
5,229
5,229
-
-
-
-
-
29,091
29,091
4,001,540 41,950,993
Liabilities
Due to customers
NLB TUTUNSKA BANKA
70
ANNUAL REPORT 2007
3.2.2 Interest rate risk (continued)
Up to 1
month
1-3
months
3-12
months
1-5
years
Over 5 Non- interyears est bearing
Total
15,735,907
10,437,344
9,244,937
1,804,431
94,666
3,472,484 (5,738,421) (3,168,686)
3,829,420
2,237,371
2,954,892
3,315,057
1,405,943
3,520,986 28,921,184
Total liabilities
Net interest risk
1,046,648 38,363,933
3,587,060
Total assets
11,589,875
4,113,083
Total liabilities
11,452,738
9,297,379
3,447,551
902,906
337,914
137,137 (5,184,296)
1,528,689
2,412,151
1,068,029
Net interest risk
4,976,240
899,069 26,337,557
2,621,917
2,583,627
The interest rate sensitivity analysis has been determined based on the exposure to interest rate risk
at the reporting date. At 31 December 2007, if interest rates had been 50 basis points higher/lower with
all other variables were held constant, the Group’s pre-tax profit for the twelve month period ended 31
December 2007 would respectively increase/decrease by approximately MKD 8,869,000 (2006: MKD
2,718,000) and other equity components would respectively decrease/increase by MKD 6,566,000
(2006: MKD 5,402,000)
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
3.3 Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence
may be the failure to meet obligations to repay depositors and fulfil commitments to lend.
3.3.1 Liquidity risk management process
The Group’s liquidity management process, as carried out within the Group, and monitored by a team in
Risk Management Centre, includes:
• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be
met. This includes replenishment of funds as they mature or are borrowed by customers. The Group
maintains an active presence in global money markets to enable this to happen;
• Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against
any unforeseen interruption to cash flow;
• Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and
• Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for the next day, week
and month respectively, as these are key periods for liquidity management. The starting point for those
projections is an analysis of the contractual maturity of the financial liabilities and the expected collection
date of the financial assets (Notes 3.3.3-3.3.4).
The Risk Management Centre also monitors unmatched medium-term assets, the level and type of
undrawn credit liabilities, the usage of overdraft facilities and the impact of potential and contingent
liabilities such as letters of credit and guarantees.
3.3.2 Funding approach
Sources of liquidity are regularly reviewed by a team in the Risk Management Centre to maintain a wide
diversification by currency, geography, provider, product and term.
3.3.3 Non-derivative cash flows
The table below presents the cash flows payable by the Group under non-derivative financial liabilities
by remaining contractual maturity at the balance sheet date. The amounts disclosed in the table are the
contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on
expected undiscounted cash flows.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
3.3.3 Non-derivative cash flows (continued)
Up to
1 month
1-3
months
3-12
months
1-5
years
Over 5
years
Total
595,030
1,162,473
179,137
254,473
107,852
2,298,965
15,137,462
5,404,970
5,452,605
1,553,624
12,504
27,561,165
278,114
303,765
3,340,218
4,057,668
195,805
8,175,570
-
2,855
-
-
1,065,160
1,068,015
292,153
-
-
-
-
292,153
5,229
-
-
-
-
5,229
29,091
-
-
-
-
29,091
16,337,079
6,874,063
8,971,960
5,865,765
1,381,321 39,430,188
17,235,304
2,727,954
8,586,500
10,394,071
3,007,164 41,950,993
538,990
424,718
632,341
23,316
-
1,619,365
10,061,770
5,107,193
2,521,474
685,750
357,877
18,734,064
40,799
430,581
1,133,796
4,171,931
272,247
6,049,354
-
-
-
-
427,375
427,375
177,966
-
-
-
-
177,966
25,627
-
-
-
-
25,627
21,257
-
-
-
-
21,257
10,866,409
5,962,492
4,287,611
4,880,997
1,057,499 27,055,008
10,884,365
2,295,480
7,385,138
6,830,524
1,525,677 28,921,184
Liabilities
Due to customers
Other liabilities
Total liabilities
(contractual maturity dates)
Total assets
(expected maturity dates)
Liabilities
Due to customers
Other liabilities
Total liabilities
Total assets
Assets available to meet all of the liabilities include cash, central bank funds, items in the course of
collection, treasury and other eligible bills, loans and advances to banks, and loans and advances to
customers.
The Group would also be able to meet unexpected net cash outflows by selling securities and accessing
additional funding sources such as asset-backed markets.
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ANNUAL REPORT 2007
3.3.4 Off-balance sheet items
Up to 1 year
1-5 years
Over 5 years
Total
4,090,732
3,078,407
50,406
7,219,545
4,090,732
3,078,407
50,406
7,219,545
4,353,629
381,248
206,974
4,941,851
4,353,629
381,248
206,974
4,941,851
At 31 December 2007
Letters of credit and guarantees
Total
At 31 December 2006
Letters of credit and guarantees
Total
3.4 Fair value of financial assets and liabilities
(a) Financial instruments not measured at fair value
The table below summarises the carring amounts and fair values of those financial assets and liabilities
not presented on the Group’s balance sheet at their fair value.
Carring value
Fair value
2007
2006
2007
2006
4,396,169
3,579,625
4,413,614
3,579,625
22,699,921
15,707,331
25,185,648
17,948,051
− Retail customers (individuals)
8,315,147
4,269,730
9,309,519
5,119,514
− Large corporate customers
2,272,675
722,292
2,508,298
810,131
12,112,099
10,715,309
13,367,832
12,018,406
2,146,872
1,606,883
2,146,872
1,606,883
Due to customers
27,376,943
18,546,295
27,376,943
18,546,295
− Retail customers (individuals)
13,199,948
8,345,249
13,199,948
8,345,249
− SMEs
14,176,995
10,201,046
14,176,995
10,201,046
7,727,525
5,645,454
7,727,525
5,645,454
786,120
314,075
786,120
314,075
Financial assets
− SMEs
Financial liabilities
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ANNUAL REPORT 2007
3.4 Fair value of financial assets and liabilities (continued)
(a) Financial instruments not measured at fair value (continued)
(I) Loans and advances to banks
Loans and advances to banks include inter-bank placements.
The fair value of placements and overnight deposits is their carring amount.
The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.
(II) Loans and advances to customers
Loans and advances to customers are presented at their amortized cost net of impairment allowances.
The estimated fair value of loans and advances represents the discounted amount of estimated future
cash inflows expected to be received. So as to establish the fair value, the expected cash inflows are
discounted at the interest rates prevailing on the date of preparation of the balance sheet.
(III) Due to other financial institutions and customers, other deposits, other borrowings and subordinated liabilities
The estimated fair value of demand deposits, including non-interest-bearing deposits, is the amount
repayable on demand.
The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining
maturity.
Subordinated liabilities carry variable interest rates and their market value is represented by the carrying
value on the day of the balance sheet.
3.5 Capital management
The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face
of balance sheet, are:
• to comply with the capital requirements set by the regulators;
• to safeguard the Group’s ability to maintain the working continuity, so as to continue to provide returns
for shareholders and benefits for other stakeholders; and
• to maintain a strong capital base to support the development of its business.
Capital adequacy and the regulatory capital are monitored daily by the Group’s management, employing
techniques based on the guidelines developed by the Basel Committee and the European Community
Directives, as implemented by the Macedonian authorities (NBRM), for supervisory purposes. The required information is filed with the NBRM on a quarterly basis.
NBRM requires each bank or banking group to: (a) hold the minimum level of the regulatory capital of
EUR 5,000,000; (b) the ratio of total regulatory capital in relation to the risk-weighted asset (the ‘Basel
ratio’) to be at or above the internationally agreed minimum of 8%.
The Group’s regulatory capital as managed by its Risk Management Centre is divided into two tiers:
• Tier 1 capital: share capital (net of any book values of the treasury shares), retained earnings and
reserves created by appropriations of retained earnings; and
• Tier 2 capital: qualifying subordinated loan capital and unrealised gains arsing from the fair value of
equity and debt instruments held as available-for-sale.
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ANNUAL REPORT 2007
3.5 Capital management (continued)
The risk-weighted assets are calculated by means of a hierarchy of five risk weights, classified according to the nature of − and reflecting an estimate of credit, market and other risks associated with each
asset and contracting party, taking into account any eligible collateral or guarantees. A similar treatment
is adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature
of the potential losses.
The table below summarises the composition of regulatory capital and the ratios of the Group for the
years ended on 31st December. During those two years, the Group complied with all prescribed capital
requirements.
2007
2006
2,396,328
1,662,288
Statutory reserve
477,565
444,089
Retained earnings
226,234
226,234
3,100,127
2,332,611
783,265
314,075
Revaluation reserve
87,368
94,587
Total qualifying Tier 2 capital
870,633
408,662
Deduction from regulatory capital
(174,527)
(60,128)
3,796,233
2,681,145
On-balance sheet
23,717,092
17,170,949
Off-balance sheet
5,719,039
4,450,957
29,436,131
21,621,906
12.90%
12.40%
Tier 1 capital
Share capital (net of treasury shares)
Tier 2 capital
Total regulatory capital
Risk-weighted assets:
Total risk-weighted assets
Basel ratio
Deductions from regulatory capital, represent investments in financial institutions where the Group’s
ownership is over 10%, insurance companies and intangible assets. As a result of the changes in the
local legislation which have occurred during 2007, the intangible assets are also deductible amount from
Tier I and Tier II capital.
The increase of the regulatory capital in the year of 2007 is mainly due to the additional paid in capital
and additional subordinated loan. The increase of the risk-weighted assets reflects the expansion of the
activities related to crediting the retail customers and SMEs in 2007.
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ANNUAL REPORT 2007
4. Critical accounting estimates and judgments
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities
within the next financial year. Estimates and judgments are continually evaluated and based on historical
experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
(a) Impairment losses on loans and advances
The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining
whether an impairment loss should be recorded in the income statement, the Group makes judgments as
to whether there is any observable data indicating that there is a measurable decrease in the estimated
future cash flows from a portfolio of loans before the decrease can be identified with an individual loan
in that portfolio. This evidence may include observable data indicating that there has been an adverse
change in the payment status of borrowers in a Group, or national or local economic conditions that
correlate with defaults on assets in the Group.
The management uses estimates based on historical loss experience for assets exposed to credit risk
and to objective evidence of impairments similar to those in the portfolio when scheduling its future cash
flows. The methodology and assumptions used for estimating both the amount and timing of future cash
flows are reviewed regularly so as to reduce any differences between loss estimates and actual loss
experience. In cases of total change of expected cash flows of +/- 5%, the estimated allowances would
increase/decrease by MKD 108,000,000 (2006: MKD 88,636,000).
(b) Impairment of available-for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has been a
significant or prolonged decline in the fair value below its cost. This determination of what is significant
or prolonged requires judgment. In making this judgment, the Group evaluates among other factors,
the normal volatility in share price. In addition, impairment may be appropriate when there is evidence
of deterioration in the financial health of the investee, industry and sector performance, changes in
technology, and operational and financial cash flows.
If the fair value of available-for-sale equity investments displays a significant and constant decline below
its cost, the Group shall have an additional loss of MKD 5,394,000 in its financial statements for the year
2007, by transfer of revaluated reserves in the Income statement (2006: MKD 3,248,000).
(c) Impairment of foreclosed assets
The process of calculating impairment loss requires that the management make significant and complex
assumptions regarding the projected period of sale of foreclosed assets, their estimated net sales values
and the corresponding discount rate, in order to discount to net present value the expected cash flow
from sale of specific items of foreclosed properties.
Management of the Group are confident that the foreclose assets will be sold in a reasonable time
frame, with no loss. On the contrary, adjustments will be made in future periods if future market activity
indicates that such adjustments are appropriate.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
5. Net interest income
2007
2006
206,821
143,525
1,904,919
1,404,553
2,111,740
1,548,078
21,000
13,683
496,976
278,934
2,629,716
1,840,695
55,220
14,429
633,742
356,488
688,962
370,917
456,295
283,877
1,145,257
654,794
Interest income
Loans and advances:
– To banks
– To customers
Cash and short term funds
Interest expense
Due to customers
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
6. Net fee and commission income
2007
2006
Letter of credit and guarantees
120,305
216,616
Payment transaction
275,718
120,862
4,238
6,040
70,402
50,451
Trust and other fiduciary fees
Administrative services
Custody accounts
1,962
307
Brokerrage services
36,299
18,962
Other fees
84,346
45,032
593,270
458,270
Banking services
38,055
49,413
Payment transaction
11,331
8,620
Other fees paid
44,263
20,240
93,649
78,273
The Group provides custody, trustee, corporate administration, investment management and advisory
services to third parties, which involve the Group making allocation and purchase and sale decisions in
relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are
not included in these financial statements. Some of these arrangements involve the Group accepting
targets for benchmark levels of returns for the assets under the Group’s care. These services give rise
to the risk that the Group will be accused of maladministration or under-performance.
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ANNUAL REPORT 2007
7. Dividend income
Available-for-sale securities
2007
2006
8,069
4,172
8,069
4,172
2007
2006
16,822
(159)
451
1,405
17,273
1,246
8. Net trading income
Net trading (expense)/income
Interest income from assets held for trading
Net trading income includes gains and losses from government bills and bonds. Interest rate instruments include the results of making market instruments in government bills and bonds.
9. Net foreign exchange gain
2007
2006
Foreign exchange gains
3,766,777
1,195,894
Foreign exchange losses
(3,641,047)
(1,060,009)
125,730
135,885
10. Net income from sale of available-for-sale investment securities
Income from sale of available-for-sale investment securities
2007
2006
794
12,773
794
12,773
2007
2006
6,292
8,942
663
4,436
28,238
14,480
35,193
27,858
11. Other operating income
Rental income
Capital gain
Other
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
12. Administrative expenses
2007
2006
Wages and salaries
223,074
178,341
Social security costs
148,509
133,770
19,720
16,555
6,907
4,580
Compensation benefits to the members of the Managing Board, and management
70,908
54,913
Depreciation
97,821
76,757
Unused annual leaves
8,991
-
Other expenses
3,828
4,008
579,758
468,924
2007
2006
257,371
182,778
Insurance premiums for deposits
69,563
47,927
Insurance premiums for assets
18,663
15,544
3,716
7,713
13,704
8,910
-
164
Rental expense
57,602
37,357
Other
50,158
32,160
470,777
332,553
Staff costs
Food allowances and transportation
Holiday allowances
13. Other operating expenses
Administration and marketing costs
Actuarial benefits (Note 31)
Decrease in value of assets acquired through foreclose procedure
Charges under court decisions
NLB TUTUNSKA BANKA
81
ANNUAL REPORT 2007
14. Impairment charge for credit losses
2007
2006
4,110
(592)
392,010
431,359
Investments (Note 21)
(88)
(231)
Trading assets (Note 19)
3,000
-
Other assets (Note 26)
2,987
2,896
Contingencies (Note 32)
56,959
28,333
-
(26,469)
458,978
435,296
2007
2006
76,977
80,702
76,977
80,702
Loans and advances to banks (Note 18)
Loans and advances to customers (Note 20)
Collected written-off receivables
15. Income tax
Current tax
The income tax calculated on the profit before tax, that differs from the amount reached by use of the
profit rate belonging to shareholders, is as follows:
2007
2006
664,283
508,235
Tax calculated at a tax rate of 12% (2006:15%)
79,714
76,235
Expenses not deductible for tax purposes
14,386
32,972
(13,547)
(11,301)
-
(16,337)
(3,332)
-
(244)
(867)
76,977
80,702
Profit before tax
Income not subject to tax
Investment tax credit
Released provisions
Tax incentives for unused bonuses
Income tax expense
The Public Revenue Office is responsible authority to make full tax control for the year ended 31 December 2007.
The Group’s tax liabilities are based on the tax returns filed to the tax authorities and are finalized when
audited by the Central Tax Authorities, or a five year period has elapsed from the year they are filed.
The Group’s management is not aware of any circumstances, which may give rise to a potential material
liability in this respect.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
16. Cash and cash equivalents
2007
2006
1,555,982
1,130,143
Current account with domestic banks
38,538
5,684
Current accounts with foreign banks
7,349
379
Cash in hand
Balances with NBRM other than mandatory reserve deposits
Included in cash and cash equivalents (Note 37)
Mandatory reserve deposits with NBRM
1,443,718
853,763
3,045,587
1,989,969
1,172,759
1,056,322
4,218,346
3,046,291
The Group has to provide mandatory reserve in MKD and in foreign currency with the National Bank of
the Republic of Macedonia.
The mandatory reserve in MKD in the amount of MKD 1,494,376,000 as at 31 December 2007, represents 10% of the average monthly amount of demand deposits, time deposits up to three months and
time deposits with maturity over three months. The effective interest rate on the mandatory reserve in
MKD is 2% (2006: 2%). Mandatory reserve funds are maintained on the current account with NBRM.
The mandatory reserve in foreign currency as at 31 December 2007 represents 10% of the average
daily balances over the accounts expressed in Euros, at NBRM’s middle exchange rate ruling on the
balance sheet date. The Group does not receive interest on the mandatory reserves in foreign currency.
The banks are obliged to transfer the Euro amount of the calculated mandatory reserve to NBRM’s
account with Deutsche Bundesbank Frankfurt.
17. Treasury bills and other eligible bills
2007
2006
Treasury bills
6,060,092
3,289,001
Government bills with maturity of up to 90 days
1,696,689
1,032,429
7,756,781
4,321,430
450,057
635,083
8,206,838
4,956,513
Government bills with maturity over 90 days
Treasury bills are debt securities issued by the National bank of the Republic of Macedonia with maturity
of up to 28 days. The Group receives an effective interest at the rates from 4.71% - 4.86% (2006: 5.52%
- 5.92%) per annum. The total amount of the treasury bills includes the interest in the amount of MKD
15,654,000 (2006: MKD 7,471,000).
Government bills with maturity of up to and over 90 days, are with effective interest rates from 5.19% 8.39% (2006: 5.99% - 8.80%) per annum. The total amount of the government bills includes the interest
in the amount of MKD 32,992,000 (2006: MKD 26,408,000).
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
18. Loans and advances to banks
2007
2006
Placements with other banks
3,724,191
612,328
3,724,191
612,328
Loans and advances to other banks
677,321
2,968,530
(5,343)
(1,233)
4,396,169
3,579,625
3,883,070
3,295,278
513,099
284,347
Current
Non-current
Reconciliation of allowance account for losses on loans and advances to other banks:
2007
2006
Balance at 1 January
1,233
1,825
Provision for loan impairment
4,110
(592)
At 31 December
5,343
1,233
Loans and advances to banks and other financial institutions are with effective interest rates from 5.87%
to 10.38% (2006: 5.7% to 8.75%) per annum. The placements with foreign banks are with effective interest rates from 0.47% to 5.60% (2006: 3% to 5.52 %) per annum, and the placements with domestic
banks are with an effective rate of 4.88% (2006: 3.66%) per annum.
As at 31 December 2007, a part of the Group’s placements with foreign banks in the amount of MKD
116,463,000 (2006: MKD 246,026,000) represents a deposit held with LHB Internationale Handelsbank
AG Frankfurt as a collateral for the borrowings from the same bank (Note 29).
19. Trading assets
2007
2006
68,295
46,587
Other government bonds
282,654
44,572
Corporate bonds
300,000
-
Less : Allowance for impairment
(3,000)
-
647,949
91,159
Government bills
Total debt securities
Government bills are with maturity up to 1 year and with an effective interest rate from 5.24% to 8.39%
(2006: 9%) per annum. The total amount of the government bills held for trading includes interest in the
amount of 0 МКD (2006: MKD 1,169,000).
Government bonds are with maturity of 1 months and with an effective interest rate of 2% (2006: 9%)
per annum. The total amount of the government bonds held for trading includes interest in the amount
of МКD- nil (2006: 415,000 MKD).
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
20. Loans and advances to customers
2007
2006
Loans to individual (retail) customers:
- Overdrafts
691,017
97,937
- Credit cards
545,637
299,064
- Term loans
5,617,190
2,595,366
- Mortgages
2,177,540
1,766,727
9,031,384
4,759,094
2,319,304
764,837
13,512,734
11,911,069
15,832,038
12,675,906
-
43,822
Gross loans and placements
24,863,422
17,478,822
(2,163,501)
(1,771,491)
Net
22,699,921
15,707,331
Current
11,061,232
8,601,122
Non-current
11,638,689
7,106,209
- Large corporate customers
- SMEs
Public entities
Loans are with effective rates from 2.74% to 24.92% (2006: 2.6% to 25.4%) per annum.
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
20. Loans and advances to customers (continued)
Allowance for impairment
Reconciliation of allowance accounts for losses on loans and advances by class is as follows:
Loans to retail customers
Overdrafts
Credit cards
Term loans
Mortgages
Total
At 1 January 2007
11,715
33,011
248,988
195,650
489,364
55,574
40,113
125,811
5,375
226,873
At 31 December 2007
67,289
73,124
374,799
201,025
716,237
Total
Loans to retail customers
Overdrafts
At 1 January 2006
At 31 December 2006
Credit cards
Term loans
Mortgages
12,144
8,158
173,164
104,696
298,162
(429)
24,853
75,824
90,954
191,202
11,715
33,011
248,988
195,650
489,364
Loans to corporate
At 1 January 2007
At 31 December 2007
Large
SMEs
Total
42,545
1,239,582
1,282,127
4,084
161,053
165,137
46,629
1,400,635
1,447,264
Loans to corporate
Large
SMEs
Total
37,372
1,009,566
1,046,938
5,173
234,984
240,157
Written-off allowances
-
(4,968)
(4,968)
At 31 December 2006
42,545
1,239,582
1,282,127
At 1 January 2006
NLB TUTUNSKA BANKA
86
ANNUAL REPORT 2007
21. Investment securities
2007
2006
1,285,867
966,056
-
76,966
Securities available for sale
Debt securities – at fair value:
- Listed
- Unlisted
Equity securities – at fair value:
– Listed
153,382
79,265
– Unlisted
51,770
32,583
(9,502)
(9,590)
1,481,517
1,145,280
330,430
220,425
1,151,087
924,855
Total securities available for sale
Current
Non-current
Terms and conditions of government bonds available-for-sale are as follows:
• Bonds issued by the Government on the old saving deposits in foreign currency in the amount of
MKD 212,440,000 (2006: MKD 252,366,000), with an interest rate of 2% (2006: 2%) per annum. The
principal amount is paid in 20 semi-annual instalments on each 1st April and 1st October beginning
from 1st April 2002 until 1st October 2011.
• Bonds for denationalisation (01) in the amount of MKD 1,752,000 (2006: MKD 2,102,000), with
an interest rate of 2% (2006: 2%) per annum. The principal amount is paid in 10 equal annual
instalments on each 1st June, beginning from 1st June 2003 until 1st June 2012.
• Bonds for denationalisation (02) in the amount of MKD 140,879,000 (2006: MKD 153,968,000),
with an interest rate of 2% (2006: 2%) per annum. The principal amount is paid in 10 equal annual
instalments on each 1st June beginning from 1st June 2004 until 1st June 2013.
• Bonds for denationalisation (05) in the amount of MKD 79,694,000 (2006: 51,800,000 MKD), with
instalments on each 1st June, beginning from 1st June 2007 until 1st June 2016.
• Bonds for denationalisation (06) in the amount of MKD 115,473,000, with an interest rate of 2% per
annum. The principal amount is paid in 10 equal annual instalments on each 1st June beginning from
1st June 2008 until 1st June 2017.
• Continuous long-term bonds in the amount of MKD 244,958,000 (2006: MKD 34,857,000), with an
interest rate from 6.50% to 9.00% (2006: 9%) per annum. The payment of interest is made annually,
whereas the total amount is paid on the maturity date.
Тhe total amount of the bonds on old foreign currency deposits, denationalisation and the continuous
long-term bonds includes an interest in the amount of MKD 16,560,000 (2006: MKD 13,119,000).
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
21. Investment securities (continued)
Movement of allowance for empairment for investments:
2007
2006
9,590
9,821
(88)
(231)
9,502
9,590
Available-for-sale
Total
1,145,280
1,145,280
496,664
496,664
Disposals (sale and redemption)
(261,847)
(261,847)
Gaines from changes in fair value
101,508
101,508
(88)
(88)
1,481,517
1,481,517
At 1 January 2006
982,690
982,690
Additions
475,231
475,231
(338,087)
(338,087)
Gains from changes in fair value
25,215
25,215
231
231
1,145,280
1,145,280
At 1 January
At 31 December
The movement of the investment securities may be summarised as follows:
At 1 January 2007
Additions
At 31 December 2007
Increase in allowance for impairment
At 31 December 2006
NLB TUTUNSKA BANKA
88
ANNUAL REPORT 2007
22. Investment property
2007
2006
Cost
66,369
66,369
Accumulated depreciation
13,420
11,761
Net book amount
52,949
54,608
52,949
54,608
(66,369)
-
(967)
(1,659)
14,387
-
-
52,949
Cost
-
66,369
-
13,420
Net book amount
-
52,949
Balance at January 1st
Balance at December 31st
Opening net book amount
Transfer to property, plant and equipment
Depreciation
Transfer of depreciation of property, plant and equipment
Closing net book amount
Balance at December 1st
The fair value of investment property is nil (2006: MKD 55,000,000).
NLB TUTUNSKA BANKA
89
ANNUAL REPORT 2007
23. Investment in associates
Nov Penziski Fond
2007
2006
43,447
40,790
43,447
40,790
% of participation
Nov Penziski Fond AD - Skopje
Country
2007
2006
49%
49%
Summary of financial information for equity accounted investee, not adjusted for percentage ownership
held by the Group:
Assets
Liabilities
Share holders’
equity
Income
Profit
/ Loss
92,984
9,741
83,243
58,113
(5,762)
Balance at 31 December
92,984
9,741
83,243
58,113
(5,762)
99,350
10,714
88,636
84,599
5,423
99,350
10,714
88,636
84,599
5,423
2006
2007
NLB TUTUNSKA BANKA
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ANNUAL REPORT 2007
24. Property and equipment
Buildings
Furniture &
equipment
Assets in
course of
construction
Other
Total
Cost
401,183
316,461
42,805
8,302
768,751
(43,731)
(182,560)
-
(4,161)
(230,452)
Net book amount
357,452
133,901
42,805
4,141
538,299
357,452
133,901
42,805
4,141
538,299
-
75,674
1,959
2,196
79,829
29,548
250
(29,798)
-
-
-
(1,789)
-
-
(1,789)
Depreciation charge
(10,413)
(56,028)
-
(1,488)
(67,929)
376,587
152,008
14,966
4,849
548,410
At 1 January 2006
At 31 December 2006
Additions
Transfer
Disposals
At 1 January 2007
Cost
430,731
377,521
14,966
10,498
833,716
(54,144)
(225,513)
-
(5,649)
(285,306)
Net book amount
376,587
152,008
14,966
4,849
548,410
376,587
152,008
14,966
4,849
548,410
120
154,216
5,710
7,517
167,563
66,369
-
-
-
66,369
-
(433)
-
-
(433)
Depreciation charge for the year
(11,290)
(69,379)
-
(2,186)
(82,855)
Transfer from lnvestment property
(14,387)
-
-
-
(14,387)
417,399
236,412
20,676
10,180
684,667
Cost
497,220
521,132
20,676
18,015
1,057,043
(79,821)
(284,720)
-
(7,835)
(372,376)
Net book amount
417,399
236,412
20,676
10,180
684,667
At 31 December 2007
Additions
Transfer from investment property
Disposals
At 31 December 2007
As at 31 December 2007 the Group does not have any property pledged as collateral (2006: nil).
NLB TUTUNSKA BANKA
91
ANNUAL REPORT 2007
25. Intangible assets
2007
2006
78,344
31,004
Additions
25,836
47,415
-
(75)
104,180
78,344
19,953
12,859
Amortisation for the year
13,998
7,169
-
(75)
Disposal and write-offs
Amortisation
Disposal and write-offs
33,951
19,953
Carrying amount at 31 December
70,229
58,391
2007
2006
Forclosed assets
113,609
280,908
Pre-payments
51,417
12,804
26. Other assets
Other
97,663
63,379
(5,883)
(2,896)
256,806
354,195
201,893
354,195
54,913
-
2,896
-
Net increase in allowance for impairment (Note 13)
2,987
2,896
5,883
2,896
Current
Non-current
Movement in allowance for impairment
Assets acquired through foreclosure procedure include apartments, equipment and business premises
which are not used by the Group for its core operations.
The market for certain types of collateral in Republic of Macedonia is in an early stage of development.
Management has made an estimate of the expected recoverable amount net of cost, discounted by the
expenditures for realisation of assets, based on a number of factors, including independent assessment.
However, given the foregoing, actual amounts realised may differ from the estimates made.
NLB TUTUNSKA BANKA
92
ANNUAL REPORT 2007
27. Deposits from financial institutions
2007
2006
314,677
280,941
- Insurance companies
60,406
21,824
- Other financial institutions
84,507
57,972
1,038,510
1,070,874
32,274
16,550
616,498
158,722
2,146,872
1,606,883
1,875,502
1,589,541
271,370
17,342
Demand deposits:
- Banks and saving houses
Term deposits:
- Banks and savings houses
-Other financial institutions
Current
Non-current
The effective interest rates on deposits from banks and other financial institutions are from 1% to 1.5%
(2006: 1% - 1.5%) per annum, while the effective interest rates on term deposits are from 1% to 9.50%
(2006: 1% - 9.3%) per annum.
28. Due to customers
2007
2006
6,020
416,071
217,271
122,454
- Current/Settlement accounts
8,466,398
4,648,912
-Term deposits
5,339,431
4,851,226
-Current/Demand accounts
4,462,232
3,210,146
-Term deposits
8,737,716
5,135,103
147,875
162,383
27,376,943
18,546,295
25,995,038
17,690,437
1,381,905
855,858
Public institutions
-Current/Settlement accounts
-Term deposits
Companies
Retail customers
Restricted deposits
Companies
Current
Non-current
The effective interest rates of current accounts are from 0 to 1% (2006: 0% to 1%) per annum, while the
effective interest rates of term deposits are from 0.10% to 9.40% (2006: 1% to 8.75%) per annum.
NLB TUTUNSKA BANKA
93
ANNUAL REPORT 2007
29. Other borrowed funds
Interest rate (%)
2007
2006
4 - 5.5%
323,107
387,247
4.25% - 6.3%
102,270
114,448
3 months EURIBOR + 0.061-0.078%
1,010,077
814,585
6 months EURIBOR 1.20% + 1.45%
3,172,343
1,249,219
3 months EURIBOR + 0.75%
1,618,931
2,386,129
73,313
94,330
129,424
225,876
1%
165,604
159,418
Adria bank
214,237
214,202
Raiffeisen Bank
612,016
-
Erste Bank
306,203
-
7,727,525
5,645,454
Current
3,922,100
1,605,176
Non-current
3,805,425
4,040,278
Domestic borrowings:
Macedonian Bank for Development
Promotion
7 - 8%
3 months EURIBOR + 1%
3 months EURIBOR + 1%
Macedonian Enterprise Development
Foundation
Foreign borrowings:
EIB (European Investment Bank)
European Investment Bank (via the
NBRM)
EBRD (European Bank for Reconstruction
and Development)
NLB Group
3 months EURIBOR + 1.5 to 2.25%
1 months CHFLIBOR + 2.25%
3 months EURLIBOR + 2.15%-2.75%
International Cooperation and Development Fund (ICDF) Taiwan
6 months USDLIBOR - 0.5%
4%
World bank
6 months EURIBOR
International fund for agricultural
development
NLB TUTUNSKA BANKA
94
ANNUAL REPORT 2007
29. Other borrowed funds (continued)
The loans granted by the Macedonian Bank for Development Promotion, Macedonian Enterprise
Development Foundation, International fund for agricultural development, International Cooperation
and Development Fund Taiwan and the World Bank are secured with bills of exchange of NLB Tutunska
banka AD.
The loan from the European Bank for Reconstruction and Development, Adria Bank and RZB Bank is
secured with a Comfort Letter by NLB d.d. Ljubljana. (The loan from Adria Bank has been paid on 7
January 2008).
European Investment Bank’s loan is secured with a Bank Guarantee by NLB d.d. Ljubljana.
The loan granted by LHB Internationale Handelsbank AG Frankfurt in the amount of MKD 116,463,000
(2006: MKD 246,026,000), included in loans from NLB Group, is with an interest rate of three-month
EURIBOR+0.75% and is secured with a deposit (Note 18).
Syndicated loan
On 19 December 2006 the Group has concluded a Syndicated Loan Agreement with European Bank for
Reconstruction and Development on 55,000,000 EUR consisting of A and B parts:
Amount in EUR
Interest rate
Repayment date
Loan A
19,000,000
6 months EURIBOR
+ 1.45 %
Two years with
option to prolong it
for one year
Loan B
36,000,000
6 months EURIBOR
+1.20%
EUR 3,272,727.27
were paid on
19 December 2007;
EUR 32,727,272.73
were prolonged up
to 19 January 2008
Loan from European Investment Bank
On 23 November 2006 the Group has concluded an agreement with European Investment Bank
on 10,000,000 EUR. The conditions for each individual disbursement will be determined at each
disbursement of separate tranche. On 21 December 2006 the Group has drawn an amount of EUR
8,560,000 in 4 allocations, under the following conditions:
Amount in EUR
Interest rate
Repayment date
Allocation 1
2,810,000
3 months EURIBOR
+0.073%
8 years including
2 years of grace
period.
Allocation 2
2,750,000
3 months EURIBOR
+0.078%
7 years including
1 year of grace
period.
Allocation 3
1,500,000
3 months EURIBOR
+0.061%
5 years including
1 year of grace
period.
Allocation 4
1,500,000
3 months EURIBOR
+0.044%
7 years including
1 year of grace
period.
NLB TUTUNSKA BANKA
95
ANNUAL REPORT 2007
Loan from ERSTE BANK AG VIENNA
On the 21st May 2007 the Group concluded an agreement with ERSTE BANK AG VIENNA for a loan
of 5,000,000 EUR:
Loan
Amount in EUR
Interest rate
Repayment date
5,000,000
3 months EURIBOR
+ 0.95%
Two years
Loan from RZB AUSTRIA
On 18th December 2007 the Group concluded an agreement with RZB AUSTRIA in the amount of EUR
10,000,000:
Loan
Amount in EUR
Interest rate
Repayment date
10,000,000
3 months EURIBOR
+ 0.75%
One year with the
option to prolong for
another year
2007
2006
786,120
314,075
786,120
314,075
2,855
-
783,265
314,075
30. Subordinated liability
Subordinated loan
Current
Non-current
The Subordinated loan from NLB InterFinanz was granted with an interest rate of 3 month CHF Libor
+ 3.25%, and maturity of 7 years. Conversion into capital will be determined with a separate Annex
Agreement after a separate approval by the relevant board of the Group.
31. Other liabilities
Dividends declared and payable
Prepayment of liabilities
2007
2006
2,359
1,862
119,894
74,336
Suppliers payables
30,029
16,338
Compensation benefits to the members of the Managing Board, management and employees
60,450
51,738
Long-term employee benefits
15,997
12,282
8,867
-
54,557
21,410
292,153
177,966
Liabilities for unused annual leaves
Other
NLB TUTUNSKA BANKA
96
ANNUAL REPORT 2007
31. Other liabilities (continued)
Actuary calculation (Note 13)
2007
2006
12,281
4,568
3,716
7,713
15,997
12,281
Long-term employee benefits include jubilee rewards and retirement indemnity bonuses.
32. Contingencies
The Group issues bank guarantees and letters of credit on behalf of its customers to third parties. These
agreements have fixed limits and are generally extended for a period of up to three years. Expirations
are not concentrated in any period.
The following table indicates the contractual amounts of the Group`s contingencies by category:
2007
2006
- in MKD currency
2,068,136
1,138,040
- in foreign currency
2,407,667
1,453,019
857,794
798,828
1,885,948
1,551,964
7,219,545
4,941,851
(356,296)
(299,337)
6,863,249
4,642,514
Guarantees
Letters of credit
Limits on cheques and cards
Less: Allowance for impairment
These contingent liabilities have off balance-sheet credit risk because only origination fees and accruals
for probable losses are recognised in the balance sheet, until the commitments are fulfilled or expire.
Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the
amounts do not represent the expected future cash flows.
Movement of contingencies:
Separate impairment allowance (Note 14)
NLB TUTUNSKA BANKA
97
2007
2006
299,337
271,004
56,959
28,333
356,296
299,337
ANNUAL REPORT 2007
33. Deferred tax liability
2007
2006
21,257
19,391
Recognised in equity
7,834
1,866
29,091
21,257
29,091
21,257
Deferred tax liabilities are attributable to the following:
Deferred tax liabilities
Financial assets available-for- sale
34. Related party transactions
According to the Articles of Association, the supreme body is the Group Assembly, constituted of all
the holders of the Group’s registered ordinary shares. The overall control of the Group is with the nonexecutive Board of Directors (“the Managing Board”) who are appointed by shareholders.
The Group is controlled by Nova Ljubljanska Bank Group (“NLB”) which owns 87.6% (2006: 83.4%) of
the voting shares.
The volume of related party transactions, and outstanding balances at the year-end, are as follows:
NLB TUTUNSKA BANKA
98
ANNUAL REPORT 2007
34. Related party transactions (continued)
For the year ended on 31 December 2007:
Parent company
and subsidiaries
Investment in
associates
Other related
parties
54,812
1
1,347
205,322
2,335
1,418
6,253
64
296
19,562
-
-
Income statement
Interest income
Interest expense
Balance sheet
Cash and cash equivalents
Loans issued during the year
Loans repayments during the year
37,784
-
-
86,610,545
-
-
(86,539,730)
-
-
108,599
-
-
Loans
549,930
-
4,265
51,233,720
525
55,759
(50,614,298)
(525)
(30,896)
1,169,352
-
29,128
Deposits
1,034,631
31,578
341,165
Deposits received during the year
28,702,612
267,463
598,252
Deposits repaid during the year
(28,543,531)
(193,481)
(826,344)
1,193,712
105,560
113,073
Borrowings (loans)
Balance at1 January
2,700,204
-
-
1,014,368
-
-
(1,095,579)
-
-
2,618,993
-
-
NLB TUTUNSKA BANKA
99
ANNUAL REPORT 2007
Parent company
and subsidiaries
Investment in
associates
Other related
parties
42,298
-
366
1,222
14
5,690
26,647
206
25,909
7,962
-
8,620
Income statement
Interest income
Interest expense
Balance sheet
75,327
-
-
70,336,378
-
-
(70,373,921)
-
-
37,784
-
-
Loans
Balance at1 January
2,487,591
-
5,534
6,539,282
141
18,116
(8,476,943)
(141)
(19,385)
549,930
-
4,265
Loan repayments during the year
Deposits
285,559
12,267
641,202
5,377,710
537,575
27,973,197
(4,628,638)
(518,264)
(28,273,234)
1,034,631
31,578
341,165
Borrowings (loans)
2,930,098
-
-
2,185,795
-
-
(2,415,689)
-
-
2,700,204
-
-
NLB TUTUNSKA BANKA
100
ANNUAL REPORT 2007
Transactions with key management personnel
The total compensations to the key management personnel are as follows:
Executive directors
Non-executive directors
2007
2006
43,919
73,803
2,404
3,064
46,323
76,867
2007
2006
863,423
1,063,472
82,004
82,190
525,406
45,841
1,470,833
1,191,503
35. Trust activities
Companies
Citizens
Other
The Group manages assets on behalf of third parties, which are mainly in the form of loans to various
clients. The Group receives fee income for providing these services. Trust assets are not assets of the
Group and are not recognised in the balance sheet. The Group is not exposed to any credit risk related
to such placements, as it does not guarantee these investments.
36. Share capital
Number of
shares
Ordinary
shares
Share premium
Preference
shares
Total
At 1 January 2006
693,866
643,645
968,422
50,221
1,662,288
At 31 December 2006
693,866
643,645
968,422
50,221
1,662,288
91,755
91,755
642,285
-
734,040
785,621
735,400
1,610,707
50,221
2,396,328
- Proceeds from shares issued
At 31 December 2007
The authorized share capital of the Group consists of 735,400 (2006: 643,645) ordinary shares and
50,221(2006: 50,221) preference shares. Ordinary and preference shares have a par value of MKD
1,000 (2006: MKD 1,000). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Group. Preference shares give right to priority in the
dividend payment, but do not carry the right to vote. All shares rank equally with regard to the Group’s
residual assets.
NLB TUTUNSKA BANKA
101
ANNUAL REPORT 2007
36. Share capital (continued)
The below stated shareholders have more than 5% of the Group’s issued voting share capital.
% of voting share capital
Shareholders
2007
2006
LHB AG – Frankfurt
30.8%
35.2%
NLB InterFinanz AG - Zurich
28.5%
30.1%
Nova Ljubljanska banka d.d. - Ljubljana
28.3%
18.1%
Hrvatska Postanska banka d.d. - Zagreb
-
5.5%
On the basis of Agreement and Annex No. 1, 2, 3 and 4 to the Agreement on transfer of voting share
rights owned by NLB InterFinanz AG Zurich in NLB Tutunska banka, the voting rights of the shareholder
NLB InterFinanz AG Zurich (28.5%) have been transferred to Nova Ljubljanska banka d.d. Ljubljana.
Thus, the share of Nova Ljubljanska banka d.d. Ljubljana in the total voting rights in the Group as on 31
December 2007 amounts to 56.80%.
Statutory reserve
The reserve assets are the Group’s own assets that serve the purposes of covering the losses that arise
from the risks the Group faced to in its operation. Under statutory legislation, the Group is required to
calculate and set aside 15 percent of its net profit for the year in a statutory reserve until the level of the
reserve reaches 1/5 of the court registered capital.
When the minimum level is reached, and after covering all losses of the annual balance sheet, with
a decision by the Assembly, the surplus of the statutory reserve can also be used for distribution of
dividends, but only if the amount of the statutory reserve for that business year has not reached the
minimum prescribed in the Trade Company Law or by the Group’s Statute.
Revaluation Reserve
The revaluation reserve includes the cumulative net effect of the changes in the fair value of investments
available-for-sale until the moment of their derecognising or damaging.
2007
2006
213,338
120,458
213,338
120,458
2007
2006
At 1st January
120,458
109,882
Net profit from changes in fair value
101,508
25,215
(794)
(12,773)
(12,085)
(1,866)
4,251
-
213,338
120,458
Revaluation reserves for available-for-sale securities
Movement of the revaluation reserves:
Revaluation reserves for available-for-sale securities
Realized income
Deferred tax
Correction for deferred tax
At 31 December
NLB TUTUNSKA BANKA
102
ANNUAL REPORT 2007
Dividends
After the balance sheet date for the year 2007, the following dividends were proposed by the Managing
Board and they have not been provided for:
2007
2006
МКD - (2006: МКD 537) per ordinary share
-
345,637
МКD - (2006: МКD 537 ) per preference share
-
26,969
-
372,606
For the cash flow purposes, cash, as well as the cash equivalents comprise the following items with
maturity of less than 90 days from the date of acquisition:
2007
2006
Cash and balances with the NBRM (Note 16)
3,045,587
1,989,969
Treasury bills (Note17)
7,756,781
4,321,430
Placements in other banks (Note 18)
3,724,191
612,328
14,526,559
6,923,727
38. Subsequent event
No material events requiring additional disclosure in the financial statements have occurred after the
day of preparation of the balance sheet.
NLB TUTUNSKA BANKA
103
ANNUAL REPORT 2007
Unconsolidated Financial Statements
NLB TUTUNSKA BANKA
104
ANNUAL REPORT 2007
Income statement
31 December
Note
2007
2006
Interest income
5
2,623,860
1,837,182
Interest expense
5
(1,145,489)
(654,808)
1,478,371
1,182,374
Net interest income
6
557,101
439,341
6
(92,683)
(77,908)
464,418
361,433
Dividend income
7
1,715
688
Net trading income
8
17,273
1,246
Impairment losses
13
(459,888)
(433,776)
9
125,730
135,869
11
(569,733)
(460,096)
12
(466,580)
(330,719)
10
35,683
27,091
Operating profit
626,989
484,110
626,989
484,110
(74,408)
(78,028)
552,581
406,082
Income tax expense
14
Profit for the year
NLB TUTUNSKA BANKA
105
ANNUAL REPORT 2007
Unconsolidated
Balance sheet
31 December
Note
2007
2006
Cash and balances with central banks
15
4,190,623
3,042,320
Treasury bills and government bills
16
8,206,838
4,956,513
17
4,396,169
3,579,625
19
22,699,921
15,707,331
Trading assets
18
647,949
91,159
20
1,262,473
1,009,108
Investment property
21
-
52,949
Investment in subsidiary
22
30,555
30,864
Investments in associates
23
59,527
60,128
Property and equipment
24
654,329
518,627
Intangible assets
25
69,692
57,948
Other assets
26
256,852
354,126
42,474,928
29,460,698
Assets
Total assets
Liabilities
Deposits from banks
27
2,177,441
1,610,137
Due to customers
28
27,354,371
18,542,382
29
7,727,525
5,645,454
30
786,120
314,075
Other liabilities
31
291,584
175,043
Provisions
32
356,296
299,337
4,781
24,299
14,892
16,692
38,713,010
26,627,419
785,621
693,866
33
Total liabilities
Equity
Share capital
36
Share premium
1,610,707
968,422
Retained earnings
778,814
632,315
Other reserves
586,776
538,676
Total equity
3,761,918
2,833,279
42,474,928
29,460,698
NLB TUTUNSKA BANKA
106
ANNUAL REPORT 2007
prepared in accordance with
International Financial Reporting Standards
NLB TUTUNSKA BANKA
107
ANNUAL REPORT 2007
ul.Marsal Tito 12,
“Palata Makedonija” IV floor
Telephone + 389 (02) 3116 638
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Independent auditor’s report
Тo the Shareholders of NLB Tutunska Banka AD – Skopje
We have audited the accompanying consolidated balance sheet of NLB Tutunska Banka AD - Skopje
and its subsidiary NLB Tutunska Broker AD Skopje, (together “the Group”) which comprise the consolidated balance sheet as of 31 December 2007 and the consolidated income statement, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended and a
summary of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards. This responsibility includes:
designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for
our audit opinion.
NLB TUTUNSKA BANKA
108
ANNUAL REPORT 2007
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2007 and its financial performance and its
cash flows for the year then ended in accordance with International Financial Reporting Standards.
Skopje,
10 March 2008
NLB TUTUNSKA BANKA
109
ANNUAL REPORT 2007
Consolidated Income statement
Year ended 31 December
Note
2007
2006
Interest and similar income
5
2,629,716
1,840,695
Interest expense and similar charges
5
(1,145,257)
(654,794)
1,484,459
1,185,901
Net interest income
6
593,270
458,270
6
(93,649)
(78,273)
499,621
379,997
Dividend income
7
8,069
4,172
Net trading income
8
17,273
1,246
14
(456,066)
(437,047)
9
125,730
135,885
Net income from selling available-for-sale investment securities
10
794
12,773
12
(579,758)
(468,924)
13
(470,777)
(332,512)
11
35,565
27,858
2,657
(2,824)
667,567
506,525
(76,977)
(80,702)
590,590
425,823
Impairment charge for credit losses
Share of loss of associates
Income tax expense
15
Profit for the year
NLB TUTUNSKA BANKA
110
ANNUAL REPORT 2007
Consolidated Balance sheet
Note
2007
2006
16
4,218,346
3,046,291
17
8,206,838
4,956,513
18
4,396,169
3,579,625
20
22,699,921
15,707,331
Trading assets
19
650,949
91,159
21
1,481,523
1,145,280
Investment property
22
-
52,949
23
43,447
40,790
Property, plant and equipment
24
674,574
538,317
Intangible assets
25
69,889
58,051
Other assets
26
256,806
354,195
42,698,462
29,570,501
Assets
Total assets
Liabilities
27
2,146,872
1,606,883
Due to customers
28
27,376,943
18,546,295
29
7,727,525
5,645,454
30
786,120
314,075
Other liabilities
31
292,153
177,966
Provisions
32
356,296
299,337
5,229
25,627
29,058
21,257
38,720,196
26,636,894
785,621
693,866
1,610,707
968,422
Retained earnings
833,658
649,150
Other reserves
748,280
622,169
Total equity
3,978,266
2,933,607
42,698,462
29,570,501
33
Total liabilities
Equity
Share capital
36
Share premium
NLB TUTUNSKA BANKA
111
ANNUAL REPORT 2007
Consolidated Statement of
changes in equity
Attributed to the equity holders
At 1 January 2006
Share
capital
Share
premium
Retained
earnings
Statutory
Revalua- Total equity
reserve tion reserve
693,866
968,422
587,617
473,252
113,768
2,836,925
Net change in available for sale investments,
net of tax
-
-
-
-
6,690
6,690
Net income recognised directly in equity
-
-
-
-
6,690
6,690
Net profit
-
-
425,823
-
-
425,823
-
-
425,823
-
6,690
432,513
-
-
(335,831)
-
-
(335,831)
-
-
(28,459)
28,459
-
-
693,866
968,422
649,150
501,711
120,458
2,933,607
Net change in available-for-sale investments,
net of tax
-
-
-
-
92,635
92,635
Net income recognised directly in equity
-
-
-
-
92,635
92,636
At 1 January 2007
Net profit
-
-
590,590
-
-
590,590
91,755
642,285
590,590
-
92,635
1,417,265
-
-
(372,606)
-
-
(372,606)
-
-
(33,476)
33,476
-
-
91,755
642,285
-
-
-
734,040
785,621
1,610,707
833,658
535,187
213,093
3,978,266
Increase of capital
At 31 December 2007
Detailed information is provided in Note 36.
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Note
2007
2006
667,567
506,525
Cash flows from operating activities
Profit before tax
Adjustments for non cash items:
Depreciation of property and equipment
24
82,856
66,441
Amortization of intangible assets
25
13,998
8,656
Depreciation of investments property
967
1,659
Written off property and equipment
427
1,791
456,066
437,047
Decrease in value of assets acquired through foreclosure
procedure
13,704
8,910
Dividends income
(8,069)
(4,172)
Impairment loss
Interest income
5
(2,629,715)
(1,840,695)
Interest expense
5
1,145,256
654,794
Interest received
2,577,205
1,779,223
Interest paid
(1,122,369)
(627,667)
Operating profit before changes in operating assets
1,197,893
992,512
-
(1,481)
Balances with NBRM
(116,437)
(390,630)
2,289,572
1,240,966
(7,377,016)
(4,435,526)
80,610
(69,732)
538,818
1,124,048
8,789,110
5,774,635
114,275
72,763
5,516,825
4,307,555
(97,374)
(73,498)
5,419,451
4,234,057
(Increase)/decrease in operating assets:
Restricted accounts
Other assets
Increase/(decrease) in operating liabilities:
Other liabilities
Net cash from operating activities before income tax
Taxation paid
Income tax paid
Net cash flow from operating activities
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Consolidated Cash flow
statement (continued)
Cash flows from investing activities
Purchase of property and equipment
24
(167,563)
(77,635)
Purchase of intangible assets
25
(25,836)
(49,610)
Purchase of investments
(1,078,156)
(1,183,181)
Disposal of investments
511,487
385,074
6
-
8,069
4,172
(751,993)
(921,180)
469,190
314,075
Proceeds from borrowings
9,000,458
5,927,413
Repayment of borrowings
(6,895,708)
(6,304,060)
(372,606)
(335,831)
734,040
-
2,935,374
(398,403)
Net increase in cash and cash equivalents
7,602,832
2,914,474
Cash and cash equivalents at 1 January
6,923,727
4,009,253
14,526,559
6,923,727
Proceeds from sale of property and equipment
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from subordinated liabilities
30
Dividends paid
Issue of ordinary shares
Net cash from financing activities
Cash and cash equivalents at 31 December
37
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1. General information
NLB Tutunska Banka AD Skopje (“the Bank”) is a joint stock company incorporated and domiciled in the
Republic of Macedonia. The Bank is a subsidiary of NLB Group, which controls 87.6% (2006: 83.4%) of
the voting shares of the Bank.
The address of its registered office is as follows:
St. Bulevar Dvanaesetta Makedonska Brigada br. 20 Skopje - Aerodrom,
1000 Skopje,
Republika Makedonija
The consolidated financial statements of the Bank for the year ended 31 December 2007 comprise the
financial statements of the Bank and its wholly owned subsidiary NLB Tutunskabroker A.D. Skopje,
together referred to as the “Group”, and the interest of the Group in their associate Nov Penziski Fond
A.D. Skopje.
The Group is licensed to perform all banking activities in accordance with the law and the main activities
include commercial lending, receiving of deposits, foreign exchange deals, and payment operation
services in the country and abroad and retail banking services. In addition, it provides trade finance
facilities to companies for export and import purposes, intermediate operations with trading securities,
stock exchange operations on behalf of third parties and trading with investment securities managed on
its own behalf. These consolidated financial statements have been approved for issue by the Board of
Directors on 5 March 2008.
Directors
The names of the Directors of the Group serving during the financial year and to the date of this report
are as follows:
Gjorgji Jancevski
Mitre Kolishevski
General Manager
Ljube Rajevski
General Manager
Tome Perinski
Director of Internal Audit Division
Tihomir Trajkovski
Manager of Finance and Treasury Management Division
Stojna Stojkoska
Manager of Corporate Banking Division
Ljiljana Nastoska
Manager of Logistic Division
Jordanka Grujoska
Manager of Cash Services Division
Dragan Panovski
Manager of Payment System and Sales Logistics Division
Slagjana Beleva
Manager of Branch Network Division
Antonio Argir
Manager of Risk Management Centre
Bogoja Kitancev
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2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and are stated in Macedonian Denars (MKD).
2.1 Basis of preparation
The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of available-for-sale financial assets.
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process of
applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity,
or areas where assumptions and estimates are significant to the financial statements are disclosed in
Note 4.
(a) Adoption of New or Revised Standards and Interpretations
Certain new IFRSs became effective for the Group from 1 January 2007. Listed below are those new
or amended standards or interpretations which are or in the future could be relevant to the Group’s
operations and the nature of their impact on the Group’s accounting policies. All changes in accounting
policies were applied retrospectively with adjustments made to the retained earnings at 1 January 2006,
unless otherwise described below.
IFRS 7, Financial Instruments: Disclosures and a complementary Amendment to IAS 1 Presentation
of Financial Statements - Capital Disclosures (effective from 1 January 2007). The IFRS introduced
new disclosures to improve the information about financial instruments, including about quantitative
aspects of risk exposures and the methods of risk management. The new quantitative disclosures
provide information about the extent of exposure to risk, based on information provided internally to the
entity’s key management personnel. Qualitative and quantitative disclosures cover exposure to credit
risk, liquidity risk and market risk including sensitivity analysis to market risk. IFRS 7 replaced IAS 30,
Disclosures in the Financial Statements of Group’s and Similar Financial Institutions, and some of the
requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The Amendment to IAS
1 introduced disclosures about the level of an entity’s capital and how it manages capital. The new
disclosures are made in these financial statements.
Other new standards or interpretations. The Group has adopted the following other new standards
or interpretations which became effective from 1 January 2007:
• IFRIC 7, Applying the Restatement Approach under IAS 29 (effective for periods beginning on or
after 1 March 2006);
• IFRIC 8, Scope of IFRS 2 (effective for periods beginning on or after 1 May 2006);
• IFRIC 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or
after 1 June 2006);
• IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or
after 1 November 2006).
The new IFRIC interpretations 7 to 10 did not significantly affect the Group’s financial statements.
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2. Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
(b) New Accounting Pronouncements
Certain new standards and interpretations have been published that are mandatory for the Group’s
accounting periods beginning on or after 1 January 2008 or later periods and which the Group has not
early adopted:
IFRS 8, Operating Segments (effective for annual periods beginning on or after 1 January 2009). The
Standard applies to entities whose debt or equity instruments are traded in a public market or that file,
or are in the process of filing, their financial statements with a regulatory organisation for the purpose
of issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and
descriptive information about its operating segments and specifies how an entity should report such
information. Management does not expect IFRS 8 to affect the Group’s financial statements.
IAS 23, Borrowing Costs (revised March 2007; effective for annual periods beginning on or after 1
January 2009). The revised IAS 23 was issued in March 2007. The main change to IAS 23 is the removal
of the option of immediately recognizing as an expense borrowing costs that relate to assets that take a
substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalize such
borrowing costs as part of the cost of the asset. The revised Standard applies prospectively to borrowing
costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1
January 2009.
Puttable financial instruments and obligations arising on liquidation—IAS 32 and IAS 1 Amendment
(effective from 1 January 2009). The amendment requires classification as equity of some financial
instruments that meet the definition of a financial liability. The Group does not expect the amendment to
affect its financial statements.
IAS 1, Presentation of Financial Statements (revised September 2007; effective for annual periods
beginning on or after 1 January 2009). The main change in IAS 1 is the replacement of the income
statement by a statement of comprehensive income which will also include all non-owner changes in
equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities will be allowed
to present two statements: a separate income statement and a statement of comprehensive income.
The revised IAS 1 also introduces a requirement to present a statement of financial position (balance
sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives
due to reclassifications, changes in accounting policies, or corrections of errors. The Group expects
the revised IAS 1 to affect the presentation of its financial statements but to have no impact on the
recognition or measurement of specific transactions and balances.
IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual
periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total
comprehensive income to the owners of the parent and to the non-controlling interests (previously
“minority interests”) even if this results in the non-controlling interests having a deficit balance (the
current standard requires the excess losses to be allocated to the owners of the parent in most cases).
The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not
result in the loss of control must be accounted for as equity transactions. It also specifies how an entity
should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control
is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The
Group is currently assessing the impact of the amended standard on its financial statements.
IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
1 July 2009). The revised IFRS 3 will allow entities to choose to measure non-controlling interests using
the existing IFRS 3 method (proportionate share of the acquirer’s identifiable net assets) or on the
same basis as US GAAP (at fair value). The revised IFRS 3 is more detailed in providing guidance on
the application of the purchase method to business combinations. The requirement to measure at fair
value every asset and liability at each step in a step acquisition for the purposes of calculating a portion
of goodwill has been removed. Instead, goodwill will be measured as the difference at acquisition date
between the fair value of any investment in the business held before the acquisition, the consideration
transferred and the net assets acquired. Acquisition-related costs will be accounted for separately from
the business combination and therefore recognized as expenses rather than included in goodwill. An
acquirer will have to recognize at the acquisition date a liability for any contingent purchase consideration.
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2.1 Basis of preparation (continued)
(b) New Accounting Pronouncements (continued)
Changes in the value of that liability after the acquisition date will be recognized in accordance with other
applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its
scope business combinations involving only mutual entities and business combinations achieved by
contract alone. The Group is currently assessing the impact of the amended standard on its financial
statements.
• IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for annual periods beginning
on or after 1 March 2007);
• IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after 1
January 2008);
• IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July
2008);
• IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction (effective for annual periods beginning on or after 1 January 2008).
The new standards and interpretations are not expected to significantly affect the Group’s financial
statements.
2.2 Basis of consolidation
a) Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power,
directly or indirectly, to govern the financial and operating policies of an entity in order to obtain benefits
from its activities. The financial statements of subsidiaries are included in the consolidated financial
statements from the date the control commences until the date that control ceases.
The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The
cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable
net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognized directly in the income statement.
b) Investment in associates
Associates are those entities in which the Group has significant influence, but not control, over the
financial and operating policies. The investment in associate is accounted for using the equity method.
The financial statements include the Group’s share of total recognised gains and losses of associates
on an equity accounting basis, from the date that the significant influence commences until the date that
the significant influences ceases. When the Group’s share of losses exceeds its interest in an associate,
the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to
the extend that the Group has incurred legal or constructive obligations or made payments on behalf of
an associate.
c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions
between the Bank and subsidiaries, are eliminated in preparing the consolidated financial statements.
Unrealised gains and losses arising from transactions with the associate are eliminated to the extent
of the Group’s interest in the enterprise. Unrealised gains arising from transactions with associate are
eliminated against the investment in the associate. Unrealised losses are eliminated in the same way as
unrealized gains, but only to the extent that there is no evidence of impairment.
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2.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which the Group operates (‘the functional currency’). The financial statements are
presented in MKD thousands, which is the Banks’s functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the income statement.
Changes in the fair value of monetary securities denominated in foreign currency classified as available
for sale are analysed between translation differences resulting from changes in the amortised cost of
the security and other changes in the carrying amount of the security. Translation differences related to
changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount
are recognised in equity.
Translation differences on non-monetary items, such as equities held at fair value through profit or
loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items,
such as equities classified as available-for-sale financial assets, are included in the fair value reserve
in equity.
The foreign currencies the Group deals with are predominantly Euro (EUR) and United States Dollars
(USD) based. The exchange rates used for translation at 31 December 2007 and 2006 were as
follows:
NLB TUTUNSKA BANKA
2007
2006
MKD
MKD
1 EUR
61.20
61.17
1 USD
41.66
46.45
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ANNUAL REPORT 2007
2.4 Financial assets
The Group classifies its financial assets in the following categories: financial assets at fair value through
profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets.
Management determines the classification of its investments at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They arise when the Group provides money to a debtor with no intention
of trading the receivable.
Loans are recognized when cash is advanced to the borrowers and are carried at amortized cost using
the effective interest method.
(b) Held for trading
A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or
repurchasing it in the near term and for which there is evidence of a recent actual pattern of short-term
profit-taking. The only trading assets held by the Group are Treasury bills and government treasury
bills.
(c) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, which may
be sold in response to needs for liquidity.
Regular-way purchases and sales of financial assets at fair value through profit or loss, held to maturity
and available for sale are recognised on trade-date – the date on which the Group commits to purchase
or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial assets carried at fair value through profit and loss are
initially recognised at fair value, and transaction costs are expensed in the income statement.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently
carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised
cost using the effective interest method. Gains and losses arising from changes in the fair value of the
‘financial assets at fair value through profit or loss’ category are included in the income statement in the
period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale
financial assets are recognised directly in equity, until the financial asset is derecognised or impaired.
At this time, the cumulative gain or loss previously recognised in equity is recognised in profit or loss.
However, interest calculated using the effective interest method and foreign currency gains and losses
on monetary assets classified as available for sale are recognised in the income statement. Dividends
on available-for-sale equity instruments are recognised in the income statement when the entity’s right
to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices, except that any
instrument that does not have a quoted market price in an active market and whose fair value cannot be
reliably measured is stated at cost, less impairment losses.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or where the Group has transferred substantially all risks and rewards of ownership. Financial
liabilities are derecognised when they are extinguished − that is, when the obligation is discharged,
cancelled or expires.
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2.5 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net
basis, or realise the asset and settle the liability simultaneously.
2.6 Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classified as
held for trading or designated at fair value through profit or loss, are recognised within ‘interest income’
and ‘interest expense’ in the income statement using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the
Group estimates cash flows considering all contractual terms of the financial instrument (for example,
prepayment options) but does not consider future credit losses. The calculation includes all fees and
points paid or received between parties to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down because of an
impairment loss, interest income is recognised using the rate of interest used to discount the future cash
flows for the purpose of measuring the impairment loss.
2.7 Fee and commission income
Fees and commissions consist mainly of fees received from entities arising from guarantees and letter of
credits and fees arising from domestic and foreign payment traffic. Fees and commissions are generally
recognised on an accrual basis when the service has been provided.
2.8 Dividend income
Dividends are recognised in the income statement when the entity’s right to receive payment is
established and inflow of economic benefits is probable.
2.9 Impairment of financial assets
(a) Assets carried at amortised cost
asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired
and impairment losses are incurred only if there is objective evidence of impairment as a result of one
or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
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The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
• Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage
of sales);
• Deterioration in the value of collateral;
• Legal and other difficulties in enforcing the bank’s rights to repossess collateral;
The estimated period between a loss occurring and its identification is determined by local management
for each identified portfolio. In general, the period used is three months.
The Group first assesses whether objective evidence of impairment exists individually for financial assets
that are individually significant, and individually or collectively for financial assets that are not individually
significant. If the Group determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial assets
with similar credit risk characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is or continues to be recognised
are not included in a collective assessment of impairment.
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 (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recognised in the income
statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset
reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral,
whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e., on the basis of the Group’s grading process that considers asset
type, industry, geographical location, collateral type, past-due status and other relevant factors). Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets
being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated
on the basis of the contractual cash flows of the assets in the Group and historical loss experience for
assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted
on the basis of current observable data to reflect the effects of current conditions that did not affect the
period on which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not currently exist.
Estimates of changes in future cash flows for groups of assets should reflect and be directionally
consistent with changes in related observable data from period to period (for example, changes in
unemployment rates, property prices, payment status, or other factors indicative of changes in the
probability of losses in the Group and their magnitude). The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss
estimates and actual loss experience.
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When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans
are written off after all the necessary procedures have been completed and the amount of the loss has
been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised (such as an improvement
in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the
allowance account. The amount of the reversal is recognised in the income statement in impairment
charge for credit losses.
(b) Assets classified as available for sale
asset or a group of financial assets is impaired. In the case of equity investments classified as available
for sale, a significant or prolonged decline in the fair value of the security below its cost is considered
in determining whether the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the cumulative loss – measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial asset previously recognised in profit or
loss – is removed from equity and recognised in the income statement. Impairment losses recognised
in the income statement on equity instruments are not reversed through the income statement. 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 recognised in
profit or loss, the impairment loss is reversed through the income statement.
(c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose
terms have been renegotiated are no longer considered to be past due but are treated as new loans. In
subsequent years, the asset is considered to be past due and disclosed only if renegotiated.
2.10 Investment property
Investment property is property held either to earn rental income or for capital appreciation or both. The
Group holds investment property that has been acquired through the enforcement of security over loans
and advances. Rental income from investment property is recognized in the income statement on a
straight- line basis over the term of the lease.
Investment property is measured at cost less accumulated depreciation and any accumulated impairment
losses.
The depreciation of the investment property is charged to the income statement using the straightline method to allocate their cost to their residual values over their estimated useful lives. Investment
property is periodically reviewed for impairment.
When the Group makes a decision to use the assets for its own purposes, they are reclassified to
property and equipment.
The estimated period of depreciation is as follow:
Building
2007
2006
40 years
40 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
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2.11 Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and
impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in
the specific assets to which it relates. All other expenditure is expensed as incurred.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives
of intangible assets. Intangible assets are amortised from the date they are available for use.
2007
2006
Software
5 years
5 years
Patents and licenses
5 years
5 years
Other
5 years
5 years
2.12 Property and equipment
Land and buildings comprise mainly branches and offices. All property, plant and equipment are stated
at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to other operating expenses during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to
allocate their cost to their residual values over their estimated useful lives, as follows:
Buildings
Furniture and equipment
2007
2006
40 years
40 years
4-10 years
4-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date. Assets that are subject to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying
amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value
less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in other operating expenses in the income statement.
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2.13 Leases
(a) Group is the lessee
The leases entered into by the Group are primarily operating leases. The total payments made under
operating leases are charged to other operating expenses in the income statement on a straight-line
basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to
be made to the lessor by way of penalty is recognised as an expense in the period in which termination
takes place.
2.14 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less
than three months’ maturity from the date of acquisition, including cash and non-restricted balances with
central banks, treasury bills and other eligible bills, loans and advances to banks.
2.15 Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group
from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The
provision is measured at the present value of the lower of the expected cost of terminating the contract
and the expected net cost of continuing with the contract. Before a provision is established, the Group
recognises any impairment loss on the assets associated with that contract.
2.16 Employee benefits
Defined contribution plans
The Group contributes to its employees’ post retirement plans as prescribed by the national legislation.
Contributions, based on salaries, are made to the national organisations responsible for the payment of
pensions. There is no additional liability in respect of these plans. Obligations for contributions to defined
contribution pension plans are recognised as an expense in profit and loss when they are due.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided.
A provision is recognised for the amount expected to be paid under short-term cash bonus or profitsharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of
past service provided by the employee and the obligation can be estimated reliably.
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2.16 Employee benefits (continued)
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit
that employees have earned in return for their service in the current and prior periods; that benefit is
discounted to determine its present value. Any actuarial gains or losses are recognised in profit or loss
in the period in which they arise. Long-term employee benefits include jubilee awards and retirement
indemnity bonuses. Valuations of these obligations are carried out by independent qualified actuaries.
The main actuarial assumptions included in the calculation of the obligation for long-term employee
benefits are:
• Discount rate of 2.75%
• Number of employees eligible to claim benefits and
• Future salary increases using general salary inflation index, promotions and increases in salaries
according to past years of services.
2.17 Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled.
The principal temporary differences arise from depreciation of property, plant and equipment, revaluation
of certain financial assets and liabilities including, provisions for long-term benefits and tax losses carried
forward; and, in relation to acquisitions, on the difference between the fair values of the net assets
acquired and their tax base. The rates enacted or substantively enacted at the balance sheet date are
used to determine deferred income tax. However, the deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognised where it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising from investments in subsidiaries and
associates, except where the timing of the reversal of the temporary difference is controlled by the
Group and it is probable that the difference will not reverse in the foreseeable future.
The tax effects of income tax losses available for carry-forward are recognised as an asset when it is
probable that future taxable profits will be available against which these losses can be utilised.
Deferred tax related to fair value re-measurement of available-for-sale investments and cash flow
hedges, which are charged or credited directly to equity, is also credited or charged directly to equity
and subsequently recognised in the income statement together with the deferred gain or loss.
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2.18 Deposits, borrowings and subordinated liabilities
Deposits, borrowings and subordinated liabilities are the Group’s sources of debt funding.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with
the substance of the contractual terms of the instrument.
The Group initially recognises deposits, borrowings and subordinated liabilities on the date that they are
originated.
Deposits, borrowings and subordinated liabilities are initially measured at fair value net of transaction
costs, and subsequently measured at their amortised cost using the effective interest method, except
where the Group chooses to carry the liabilities at fair value through profit or loss where certain conditions
are met.
2.19 Share capital
(a) Preference share capital
Preference share capital that is non-redeemable is classified as equity.
(b) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net
of tax, from the proceeds.
(c) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the
Group’s shareholders.
Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent
events note.
(d) Treasury shares
Where the Group purchases the Group’s equity share capital, the consideration paid is deducted
from total shareholders’ equity as treasury shares until they are cancelled. Where such shares are
subsequently sold or reissued, any consideration received is included in shareholders’ equity.
2.20 Fiduciary activities
The Group acts as trustees and in other fiduciary capacities that result in the holding or placing of assets
on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income
arising thereon are excluded from these financial statements, as they are not assets of the Group.
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2.21 Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when
due. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of
customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognised in the financial statements at fair value on the date the
guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees
are measured at the higher of the initial measurement, less amortisation calculated to recognize in the
income statement the fee income earned on a straight line basis over the life of the guarantee and the
best estimate of the expenditure required to settle any financial obligation arising at the balance sheet
date.
These estimates are determined based on experience of similar transactions and history of past losses,
supplemented by the judgment of management. Any increase in the liability relating to guarantees is
taken to the income statement under other operating expenses.
3. Financial risk management
The Group’s activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk
is core to the financial business, and the operational risks are an inevitable consequence of being in
business. The Group’s aim is therefore to achieve an appropriate balance between risk and return and
minimise potential adverse effects on the Group’s financial performance.
The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate
risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and upto-date information systems. The Group regularly reviews its risk management policies and systems to
reflect changes in markets, products and emerging best practice.
Risk management is carried out by a risk department in the Group under policies approved by the
Board of Directors. The Board provides written principles for overall risk management, as well as written
policies covering specific areas, such as, credit risk, foreign exchange risk, interest rate risk and liquidity
risk. In addition, internal audit is responsible for the independent review of risk management and the
control environment.
The most important types of risk are credit risk, liquidity risk, market risk and other operational risk.
Market risk includes currency risk, interest rate and other price risk.
3.1 Credit risk
The Group takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss
for the Group by failing to discharge an obligation. Credit risk is the most important risk for the Group’s
business; management therefore carefully manages its exposure to credit risk. Credit exposures arise
principally in lending activities that lead to loans and advances, and investment activities that bring debt
securities and other bills into the Group’s asset portfolio. There is also credit risk in off-balance sheet
financial instruments. The credit risk management and control are centralised in credit risk management
team of risk department and reported to the Board of Directors.
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3.1.1 Credit risk measurement
(a) Loans and advances
In measuring credit risk of loans and advances to customers and to groups at a counterparty level, the
Group reflects the ‘probability of default’ by the client or counterparty on its contractual obligations.
These credit risk measurements, which reflect expected loss (the ‘expected loss model’) and are required
by the Basel Committee on Banking Regulations and the Supervisory Practices (the Basel Committee),
are embedded in the Group’s daily operational management. The operational measurements can be
contrasted with impairment allowances required under IAS 39, which are based on losses that have
been incurred at the balance sheet date (the ‘incurred loss model’) rather than expected losses (Note
3.1.3).
(I) The Group assesses the probability of default of individual counterparties using internal rating tools
tailored to the various categories of counterparty. They have been developed internally and combine
statistical analysis with credit officer judgment and are validated, where appropriate, by comparison
with externally available data. Clients of the Group are segmented into four rating classes. The Group’s
rating scale, which is shown below, reflects the range of default probabilities defined for each rating
class. This means that, in principle, exposures migrate between classes as the assessment of their
probability of default changes. The rating tools are kept under review and upgraded as necessary. The
Group regularly validates the performance of the rating and their predictive power with regard to default
events.
Group’s internal ratings scale
Group’s rating
Description of the grade
A
Investment grade
B
Standard monitoring
C
Special monitoring
D+E
Sub-standard
Criterion for classification of Financial Assets or Contingent liabilities into groups A, B, C, D and E are
as follows:
Financial Assets or Contingent liabilities are classified into Group A if they are towards:
• National Bank of the Republic of Macedonia and the Republic of Macedonia
• debtors which is not likely to default and who repays its obligations within the maturity, or with a
delay of 15 days;
• exposures secured by pledging collateral graded as first class collateral.
Financial Assets or Contingent liabilities are classified into Group B if they are towards debtors:
• whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless its present
financial position is assessed as weak, without signs of further deterioration in the future;
• who settle their liabilities with delay of up to 30 days, occasionally with delay between 31 and 90
days.
Financial Assets or Contingent liabilities are classified into Group C if they are towards debtors:
• for which it is assessed, that cash flows will not be sufficient for regular repayment of matured
liabilities,
• that settle their liabilities with delay of up to 90 days, occasionally with delay between 91 to 180
days,
• that are clearly undercapitalized,
• that do not have sufficient long term capital resources for financing long term investments,
• from whom group does not receive currently satisfactory information or adequate documentation
concerning repayment of liabilities.
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Financial Assets or Contingent liabilities are classified into Group D and E if they are towards debtors:
• for which exists a strong likelihood of loss of part of financial asset or of payment for Contingent
liabilities,
• that settle their liabilities with delay of more than 90 to 180 days, occasionally with delay between
181 to 360 days,
• which are insolvent,
• for which a motion for commencement of process of liquidation or declaration of bankruptcy began
and was filed at the provisional court,
• that are in the process of reform or in the process of liquidation,
• that declared bankruptcy,
• from whom no repayment is expected,
• with questionable legal grounds.
(II) Exposure at default is based on the amounts the Group expects to be owed at the timeof default.
For example, for a loan this is the face value. For a commitment, the Bank includes any amount already
drawn plus the further amount that may have been drawn by the time of default, should it occur.
(III) Loss given default or loss severity represents the Group’s expectation of the extent of loss on a claim
should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type
of counterparty, type and seniority of claim and availability of collateral or other credit mitigation.
(b) Debt securities and other bills
For debt securities and other bills, risk department for managing of the credit risk exposures uses ratings
depending on the issuer: Central bank of the Republic of Macedonia, Republic of Macedonia and Banks.
The investments in those securities and bills are viewed as a way to gain a better credit quality mapping
and maintain a readily available source to meet the funding requirement at the same time.
Investment is allowed only in liquid securities that have high credit rating. Given their high credit ratings
management of the Group does not expect any counterpart to fail to meet its obligations. The maximum
exposure to credit risk is represented by the carrying amount of each financial asset in the balance
sheet.
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3.1.2 Risk limit control and mitigation policies
The Group manages, limits and controls concentrations of credit risk wherever they are identified − in
particular, to individual counterparties and groups, and to industries and countries.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments.
Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when
considered necessary. Limits on the level of credit risk by product and industry sector are approved by
the Board of Directors.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits
where appropriate.
Some other specific control and mitigation measures are outlined below.
(a) Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of
these is the taking of security for funds advances, which is common practice. The Group implements
guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal
collateral types for loans and advances are:
• Cash, bank’s and first class companies’ guarantees,
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equities.
Loans to corporate entities and individuals are generally secured; over drafts and credit cards issued to
individuals are secured by bills of exchange at the full amount of principal, interest and other charges. In
addition, in order to minimise the credit loss the Group will seek additional collateral from the counterparty
as soon as impairment indicators are noticed for the relevant individual loans and advances.
Debt securities, treasury and other eligible bills are generally unsecured.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds are available to a customer as required.
Guarantees and standby letters of credit carry the same credit risk as loans and are secured with same
collateral as loans.
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3.1.3 Impairment and provisioning policies
The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the
inception of the lending and investment activities. In contrast, impairment provisions are recognised for
financial reporting purposes only for losses that have been incurred at the balance sheet date based on
objective evidence of impairment (see Note 2.8).
The impairment provision shown in the balance sheet at year-end is derived from each of the four internal
rating grades. However, the majority of the impairment provision comes from bottom two gradings. The
table below shows the percentage of the Group’s on- and off-balance sheet items relating to loans and
advances and the associated impairment provision for each of the Group’s internal rating categories:
Group’s rating
2007
2006
Loans and
advances (%)
Impairment
provision (%)
Loans and
advances (%)
Impairment
provision (%)
95
1
94
1
2.Standard monitoring
2
10
1
10
3.Special monitoring
2
25
4
25
1.Investment grade
4.Sub-standard
1
57
1
58
100
7.4
100
8.6
The internal rating tool assists management to determine whether objective evidence of impairment
exists under IAS 39, based on the following criteria set out by the Group:
• Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of
sales);
• Deterioration in the value of collateral;
• Legal and other difficulties in enforcing the bank’s rights to repossess collateral;
The Group’s policy requires the review of individual financial assets that are above materiality thresholds
at least annually or more regularly when individual circumstances require. Impairment allowances on
individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet
date on a case-by-case basis, and are applied to all individually significant accounts. The assessment
normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated
receipts for that individual account.
Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets
that are individually below materiality thresholds; and (ii) losses that have been incurred but have not
yet been identified, by using the available historical experience, experienced judgment and statistical
techniques.
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3.1.4 Maximum exposure to credit risk before collateral held or other credit
enhancements
Maximum exposure
2007
2006
Credit risk exposures relating to on-balance sheet assets
are as follows:
8,206,838
4,956,513
4,396,169
3,579,625
− Overdrafts
623,728
86,222
− Credit cards
472,513
266,053
− Term loans
5,242,391
2,346,378
− Mortgages
1,976,515
1,571,077
2,272,675
722,292
12,112,099
10,715,309
650,949
91,159
1,285,867
1,043,022
256,806
354,195
− Small and medium size entities (SMEs)
− Other
Trading assets
− Debt securities
Other assets
Credit risk exposures relating to off-balance sheet items
are as follows:
Financial guarantees
At 31 December
7,219,545
4,941,851
44,716,095
30,673,696
The above table represents a worse case scenario of credit risk exposure to the Group at 31 December
2007 and 2006, without taking account of any collateral held or other credit enhancements attached. For
on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported
in the balance sheet.
As shown above, 61% of the total maximum exposure is derived from loans and advances to banks and
customers (2006: 63%); 23% represents investments in debt securities (2006: 20%).
Management is confident in its ability to continue to control and sustain minimal exposure of credit
risk to the Group resulting from both its loan and advances portfolio and debt securities based on the
following:
• 96% of the loans and advances portfolio is categorised in the top two grades of the internal rating
system (2006: 95%);
• Loans to SMEs, which represents the biggest group in the portfolio, are backed by collateral;
• 87% of loans to individuals are backed by collateral;
• 93% of the loans and advances portfolio are considered to be neither past due nor impaired (2006:
92%);
• An improvement in the credit quality of loans and advances has resulted in a lower impairment
charge in the income statement, showing a 8.04% decrease;
• The Group has introduced a more stringent selection process upon granting loans and advances;
and
• More than 97% of the investments in debt securities and other bills are in securities issued by the
Republic of Macedonia and Central bank.
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3.1.5 Loans and advances
Loans and advances are summarised as follows:
31 December 2007
Neither past due nor impaired
Past due but not impaired
31 December 2006
Loans and advances
to customers
Loans and advances
to banks
Loans and advances
to customers
Loans and advances
to banks
22,996,121
4,137,493
16,026,019
3,366,271
628,429
263,382
312,698
214,275
1,238,872
637
1,140,105
312
Gross
24,863,422
4,401,512
17,478,822
3,580,858
(2,163,501)
(5,343)
(1,771,491)
(1,233)
Net
22,699,921
4,396,169
15,707,331
3,579,625
Impaired
The total impairment provision for loans and advances is MKD 2,168,844,000 (2006: MKD 1,772,724,000).
Further information of the impairment allowance for loans and advances to banks and to customers is
provided in Notes 18 and 20.
During the year ended 31 December 2007, the Group’s total loans and advances increased by 40 % as
a result of the expansion of the lending business, especially in retail segment. When entering into new
markets or new industries, in order to minimise the potential increase of credit risk exposure, the Group
focused more on the business with large corporate entities or banks with good credit rating or retail
customers providing sufficient collateral.
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(a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be
assessed by reference to the internal rating system adopted by the Group.
31 December 2007
Individual (retail customers)
Over-drafts
Credit
cards
Corporate entities
Term
loans
Mortgages
Large
corporate
customers
SMEs
Total
Loans and
advances to
customers
Loans
and
advances
to banks
Grades:
1.Investment grade
310,507
468,377
5,346,820
2,058,698
2,319,303
12,492,416
22,996,121
4,137,493
Total
310,507
468,377
5,346,820
2,058,698
2,319,303
12,492,416
22,996,121
4,137,493
31 December 2006
Corporate entities
Over-drafts
Credit
cards
Term
loans
Mortgages
Large
corporate
customers
SMEs
Total
Loans and
advances to
customers
Loans
and
advances
to banks
1.Investment grade
41,782
275,044
2,418,510
1,667,290
764,837
10,858,556
16,026,019
3,366,271
Total
41,782
275,044
2,418,510
1,667,290
764,837
10,858,556
16,026,019
3,366,271
Grades:
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(b) Loans and advances past due but not impaired
Gross amount of loans and advances that are past due but not impaired:
31 December 2007
Over-drafts
Term loans
Mortgages
Total
114,322
18,911
3,792
137,025
Past due 30-60 days
41,906
8,677
1,433
52,016
Past due 60-90 days
175,217
5,284
862
181,363
Total
331,445
32,872
6,087
370,404
-
37,108
13,545
50,653
Corporate entities
SMEs
Total
170,509
170,509
Past due 30-60 days
42,410
42,410
Past due 60-90 days
45,106
45,106
Total
258,025
258,025
415,102
415,102
31 December 2006
Over-drafts
Term loans
Mortgages
Total
16,203
10,845
3,565
30,613
Past due 30-60 days
5,939
6,190
1,638
13,767
Past due 60-90 days
31,787
27,553
5,411
64,751
Total
53,929
44,588
10,614
109,131
-
50,362
23,641
74,003
Corporate entities
SMEs
Total
128,193
128,193
Past due 30-60 days
21,780
21,780
Past due 60-90 days
53,594
53,594
Total
203,567
203,567
328,292
328,292
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The total gross amount of past due but not impaired loans and advances to banks as at 31 December
2007 is MKD 263,382,000 ( 2006: 214,275,000). Generally no collateral is held by the Group.
(c) Loans and advances individually impaired
The breakdown of the carrying amount of individually impaired loans and advances by class, along with
the fair value of related collateral held by the Group as security, are as follows:
Individual
Corporate entities
Credit cards
Term loans
SMEs
Total
49,443
4,812
390,453
444,708
-
-
781,519
781,519
9,368
3,425
273,538
286,331
-
-
547,506
547,506
31 December 2007
31 December 2006
The disclosed fair value of collateral is determined by local certified evaluators and represents value
realisable by the legal owners of the assets. Management considers the loans covered by collateral as
impaired because experience shows that a significant proportion of the collateral cannot be enforced due
to administrative and legal difficulties. The impairment provisions reflect the probability that management
will not be able to enforce its rights and repossess collateral on defaulted loans. Despite difficulties in
enforcing repossession of collateral, the Group’s management will vigorously pursue the outstanding
debts with all possible means at their disposal.
The total gross amount of individually impaired loans and advances to banks as at 31 December 2007
is MKD 637,000 (2006: MKD 312,000). Generally no collateral is held by the Group.
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3.1.6 Debt securities, treasury bills and other eligible bills
The table below presents an analysis of debt securities, treasury bills and other eligible bills.
Issuer of the investment securities is the National Bank of the Republic of Macedonia and Republic of
Macedonia. Standard & Poor’s Ratings Services assigned its ‘BBB-’ foreign currency and ‘BBB-’ local
currency sovereign credit ratings to the Republic of Macedonia. Issuers of the trading securities are
Banks who are BB+ rated from Fitch Rating Agency.
2007
Treasury bills and
other bills
Trading securities
Investment
securities
Total
NBRM
6,060,092
-
-
6,060,092
RM
2,146,746
350,949
1,285,867
3,783,562
Banks
-
300,000
-
300,000
Total
8,206,838
650,949
1,285,867
10,143,654
2006
Treasury bills and
other bills
Trading securities
Investment
securities
Total
NBRM
3,289,001
-
-
3,289,001
RM
1,667,512
91,159
1,043,022
2,801,693
4,956,513
91,159
1,043,022
6,090,694
The assets are neither past due nor impaired
3.1.7 Repossessed collateral
During 2007, the Group obtained assets by taking possession of collateral held as security, as follows:
Nature of assets
Residential property
2007
2006
Carrying amount
Carrying amount
6,997
20,107
Repossessed collateral include apartments, equipment and business premises which are not used
by the Group for its core operations. Repossessed properties are sold as soon as practicable with
the proceeds used to reduce the outstanding indebtedness. Repossessed property is classified in the
balance sheet within other assets.
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3.1.8 Concentration of risks of financial assets with credit risk exposure
(a) Geographical sectors
The following table breaks down the Group’s main credit exposure at their carrying amounts, as
categorised by geographical region as of 31 December 2007. For this table, the Group has allocated
exposures to regions based on the country of domicile of its counterparties.
EU countries
Non EU
countries
in Europe
Republic of
Macedonia
Other
countries
Total
-
-
8,206,838
-
8,206,838
3,002,307
659,845
685,626
48,391
4,396,169
− Overdrafts
11
130
623,585
2
623,728
− Credit cards
144
94
472,272
3
472,513
− Term loans
-
-
5,242,391
-
5,242,391
− Mortgages
-
-
1,976,515
-
1,976,515
-
-
2,272,675
-
2,272,675
− SMEs
-
-
12,111,899
200
12,112,099
Trading assets – debt securities
-
-
650,949
-
650,949
Investment securities – debt securities
-
-
1,285,867
-
1,285,867
13,494
78
243,232
2
256,806
3,015,956
660,147
33,771,849
48,598
37,496,550
EU countries
Non EU
countries
in Europe
Republic of
Macedonia
Other
countries
Total
-
-
4,956,513
-
4,956,513
2,206,846
937,945
350,269
84,565
3,579,625
-
-
-
-
-
6
-
86,216
-
86,222
Other assets
− Overdrafts
− Credit cards
332
134
265,444
143
266,053
− Term loans
1
-
2,346,377
-
2,346,378
− Mortgages
-
-
1,571,077
-
1,571,077
-
-
722,292
-
722,292
− SMEs
3
-
10,715,294
12
10,715,309
Trading assets – debt securities
-
-
91,159
-
91,159
Investment securities – debt securities
-
-
1,043,022
-
1,043,022
Other assets
-
-
354,195
-
354,195
2,207,188
938,079
22,501,858
84,720
25,731,845
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(b) Industry sectors
The following table breaks down the Group’s main credit exposure at their carrying amounts, as
categorised by the industry sectors of our counterparties.
Financial
institutions
Manufacturing
Real
estate
Whole-sale
and retail
trade
Public
sector
Other industries
Individuals
Total
eligible bills
8,206,838
-
-
-
-
-
-
8,206,838
4,396,169
-
-
-
-
-
-
4,396,169
- Overdrafts
-
-
-
-
-
-
623,728
623,728
- Credit cards
-
-
-
-
-
-
472,513
472,513
- Term loans
-
-
-
-
-
-
5,242,391
5,242,391
- Mortgages
-
-
-
-
-
-
1,976,515
1,976,515
-
991,794
-
1,040,833
-
240,048
-
2,272,675
- SMEs
-
4,285,565
1,836,277
4,016,507
205,954
1,767,796
-
12,112,099
- Other
-
-
-
-
-
-
-
-
650,949
-
-
-
-
-
-
650,949
1,232,187
-
-
-
53,680
-
-
1,285,867
-
-
-
-
-
256,806
-
256,806
customers:
Trading assets - debt
securities
Investment securities debt securities
Other assets
NLB TUTUNSKA BANKA
14,486,143
5,277,359 1,836,277
140
5,057,340 259,634 2,264,650
8,315,147 37,496,550
ANNUAL REPORT 2007
(b) Industry sectors (continued)
Financial
institutions
Manufacturing
Real
estate
Whole-sale
and retail
trade
Public
sector
Other industries
Individuals
Total
eligible bills
4,956,513
-
-
-
-
-
-
4,956,513
3,579,625
-
-
-
-
-
-
3,579,625
- Overdrafts
-
-
-
-
-
-
86,222
86,222
- Credit cards
-
-
-
-
-
-
266,053
266,053
- Term loans
-
-
-
-
-
-
2,346,378
2,346,378
- Mortgages
-
-
-
-
-
-
1,571,077
1,571,077
-
429,988
-
50,517
-
241,787
-
722,292
- SMEs
-
3,782,160
668,550
3,984,948
-
2,279,651
-
10,715,309
- Other
-
-
-
-
-
-
-
-
91,159
-
-
-
-
-
-
91,159
982,475
-
-
-
60,547
-
-
1,043,022
155
-
-
-
-
354,040
-
354,195
9,609,927
4,212,148
668,550
4,035,465
customers:
Trading assets - debt
securities
Investment securities debt securities
Other assets
60,547 2,875,478
4,269,730 25,731,845
3.2 Market risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign
exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will
affect the Group’s income or the value of its holdings of financial instruments. The objective of market
risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return on risk.
3.2.1 Foreign exchange risk
The Group is exposed to currency risk through transactions in foreign currencies. The Group ensures
that the net exposure is kept to an acceptable level by buying or selling foreign currency at spot when
necessary to address short-term imbalances.
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3.2.1 Foreign exchange risk (continued)
Concentrations of currency risk - on and off-balance sheet financial instruments:
ЕUR
USD
MKD
Оther
Total
1,777,854
49,478
1,862,242
528,772
4,218,346
-
-
8,206,838
-
8,206,838
2,295,597
1,910,413
68,641
121,518
4,396,169
13,381,500
6,418
7,974,246
1,337,757
22,699,921
282,654
-
368,295
-
650,949
1,033,611
-
447,912
-
1,481,523
-
-
43,447
-
43,447
32,569
13,798
210,439
-
256,806
18,803,785
1,980,107
19,182,060
1,988,047
41,953,999
799,745
55,980
870,042
421,105
2,146,872
11,109,326
1,868,917
14,142,839
255,861
27,376,943
7,401,512
73,313
9,734
242,966
7,727,525
-
-
-
786,120
786,120
20,596
-
270,944
613
292,153
Current income tax
-
-
5,229
-
5,229
-
-
29,058
-
29,058
19,331,179
1,998,210
15,327,846
1,706,665
38,363,900
(527,394)
(18,103)
3,854,214
281,382
3,590,099
Off balance sheet
3,196,965
444,520
3,578,060
-
7,219,545
Total financial assets
14,852,583
1,535,940
11,695,747
836,914
28,921,184
Total financial liabilities
15,898,064
1,647,981
8,125,292
666,220
26,337,557
(1,045,481)
(112,041)
3,570,455
170,694
2,583,627
2,011,095
239,976
2,690,005
775
4,941,851
Assets
Trading assets
- Available for sale
Other assets
Liabilities
Due to customers
Other liabilities
At 31 December 2006
Off balance sheet
At 31 December 2007, if the MKD had weakened 5 per cent against the foreign currencies with all other
variables held constant, the pre-taxed profit for the twelve month period ended 31 December 2007
would have been approximately MKD 18,576,000 (2006: MKD 52,481,000) lower. Conversely, if the
MKD had strengthened 5 per cent against the foreign currencies with all other variables held constant,
pre-taxed profit would have been approximately MKD 20,176,000 (2006: MKD 57,681,000) higher.
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3.2.2 Interest rate risk
The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interestearning assets (including investments) and interest-bearing liabilities mature or reprice at different times
or in differing amounts. In the case of floating rate assets and liabilities, the Group is also exposed to
basis risk, which is the difference in repricing characteristics of the various floating rate indices, such as
the savings rate, LIBOR and different types of interest.
Risk management activities are aimed at optimising net interest income, given market interest rate
levels consistent with the Group’s business strategies.
Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to interest
rate changes. In general, the Group is asset sensitive because of the majority of the interest-earning
assets and liabilities, the Group has the right simultaneously to change the interest rates.
In decreasing interest rate environments, margins earned will narrow as liabilities interest rates will
decrease with a lower percentage compared to assets interest rates. However the actual effect will
depend on various factors, including stability of the economy, environment and level of the inflation.
Analysis of the total assets and liabilities of the Group into relevant maturity groupings based on the
remaining period to the next date at which interest rates may be changed, is set out below:
Up to1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Non- interest
bearing
Total
Cash and central banks
balances
1,494,376
-
-
-
-
2,723,970
4,218,346
Treasury and other eligible bills
6,649,846
1,112,225
396,120
-
-
48,647
8,206,838
3,782,398
67,693
95,673
414,139
6,225
30,041
4,396,169
6,633,822
3,519,005
5,378,860
4,429,077
2,052,262
686,895
22,699,921
650,949
-
-
-
-
-
650,949
-
-
205,598
790,635
273,556
211,734
1,481,523
Investment in associate
-
-
-
-
-
43,447
43,447
Other assets
-
-
-
-
-
256,806
256,806
19,211,391
4,698,923
6,076,251
5,633,851
2,332,043
4,001,540
41,953,999
Assets
Trading assets
NLB TUTUNSKA BANKA
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3.2.2 Interest rate risk (continued)
Up to1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Non- interest
bearing
Total
302,885
1,139,107
176,856
201,200
69,400
257,424
2,146,872
14,796,070
5,367,551
5,426,501
1,363,917
9,163
413,741
27,376,943
636,952
3,147,421
3,641,580
239,314
16,103
46,155
7,727,525
-
783,265
-
-
-
2,855
786,120
Other liabilities
-
-
-
-
-
292,153
292,153
Liabilities
Deposits from financial
institutions
Due to customers
-
-
-
-
-
5,229
5,229
-
-
-
-
-
29,058
29,058
15,735,907
10,437,344
9,244,937
1,804,431
94,666
1,046,615
38,363,900
Total interest repricing gap
3,475,484 (5,738,421) (3,168,686)
3,829,420
2,237,377
2,954,925
3,590,099
11,589,875
4,113,083
4,976,240
3,315,057
1,405,943
3,520,986
28,921,184
11,452,738
9,297,379
3,447,551
902,906
337,914
899,069
26,337,557
137,137 (5,184,296)
1,528,689
2,412,151
1,068,029
2,621,917
2,583,627
Total interest repricing gap
The interest rate sensitivity analysis has been determined based on the exposure to interest rate risk
at the reporting date. At 31 December 2007, if interest rates had been 50 basis points higher/lower with
all other variables were held constant, the Group’s pre-tax profit for the twelve month period ended
31 December 2007 would respectively increase/decrease by approximately MKD 8,869,000 (2006:
MKD 2,718,000) and other equity components would respectively decrease/increase by MKD 6,566,000
(2006: MKD 5,402,000).
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3.3 Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence
may be the failure to meet obligations to repay depositors and fulfil commitments to lend.
3.3.1 Liquidity risk management process
The Group’s liquidity management process, as carried out within the Group and monitored by a team in
Risk Department, includes:
• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be
met. This includes replenishment of funds as they mature or are borrowed by customers. The Group
maintains an active presence in money markets to enable this to happen;
• Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against
any unforeseen interruption to cash flow;
• Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and
• Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for the next day, week
and month respectively, as these are key periods for liquidity management. The starting point for those
projections is an analysis of the contractual maturity of the financial liabilities and the expected collection
date of the financial assets (Notes 3.3.3-3.3.4).
Risk Department also monitors unmatched medium-term assets, the level type and the usage of overdraft
facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.
3.3.2 Funding approach
Sources of liquidity are regularly reviewed by a team in Risk Department to maintain a wide diversification
by currency, geography, provider, product and term.
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3.3.3 Non-derivative cash flows
The table below presents the cash flows payable by the Group under non-derivative financial liabilities
by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are
the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based
on expected undiscounted cash inflows.
Up to 1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Total
564,461
1,142,399
179,137
254,473
107,852
2,248,322
15,137,463
5,404,970
5,452,605
1,553,624
12,504
27,561,166
278,115
303,767
3,340,218
4,057,668
195,805
8,175,573
-
2,855
-
-
1,065,160
1,068,015
Liabilities
Deposits from financial Institutions
Due to customers
Other liabilities
Current income tax
293,292
-
-
-
-
293,292
5,229
-
-
-
-
5,229
29,058
-
-
-
-
29,058
16,307,618
6,853,991
8,971,960
5,865,765
1,381,321 39,380,655
17,238,392
2,727,954
8,586,500
10,394,072
3,007,081 41,953,999
Total liabilities
Total assets
Liabilities
535,736
424,718
632,341
23,316
-
1,616,111
10,061,770
5,107,193
2,521,474
685,750
357,877
18,734,064
40,799
430,581
1,133,796
4,171,931
272,247
6,049,354
-
-
-
-
427,375
427,375
179,104
-
-
-
-
179,104
Current tax liabilities
25,627
-
-
-
-
25,627
21,257
-
-
-
-
21,257
10,864,293
5,962,492
4,287,611
4,880,997
1,057,499 27,052,892
10,884,365
2,295,480
7,385,138
6,830,524
1,525,677 28,921,184
Due to customers
Other liabilities
Total liabilities
Total assets
Assets available to meet all of the liabilities include cash, central bank balances, items in the course of
collection and treasury and other eligible bills; loans and advances to banks; and loans and advances
to customers. The Group would also be able to meet unexpected net cash outflows by selling securities
and accessing additional funding sources such as asset-backed markets.
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ANNUAL REPORT 2007
3.3.4 Off-balance sheet items
No later than 1 year
1-5 years
Over 5 years
Total
4,090,732
3,078,407
50,406
7,219,545
4,090,732
3,078,407
50,406
7,219,545
4,353,629
381,248
206,974
4,941,851
4,353,629
381,248
206,974
4,941,851
At 31 December 2007
Acceptances and other financial facilities
Total
At 31 December 2006
Acceptances and other financial facilities
Total
3.4 Fair value of financial assets and liabilities
Financial instruments not measured at fair value
The table below summarises the carrying amounts and fair values of those financial assets and liabilities
not presented on the Group’s balance sheet at their fair value.
Carrying value
Fair value
2007
2006
2007
2006
4,396,169
3,579,625
4,413,614
3,579,625
22,699,921
15,707,331
25,185,648
17,948,051
− Retail customers (individual)
8,315,147
4,269,730
9,309,519
5,119,514
2,272,675
722,292
2,508,298
810,131
12,112,099
10,715,309
13,367,832
12,018,406
2,146,872
1,606,883
2,146,872
1,606,883
Due to customers
27,376,943
18,546,295
27,376,943
18,546,295
− Retail customers
13,199,948
8,345,249
13,199,948
8,345,249
− SMEs
14,176,995
10,201,046
14,176,995
10,201,046
7,727,525
5,645,454
7,727,525
5,645,454
786,120
314,075
786,120
314,075
Financial assets
− SMEs
Financial liabilities
(I) Due from financial institutions
(II) Due from financial institutions includes inter-bank placements
The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated
fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and remaining maturity.
(III) Loans and advances to customers
Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances
represents the discounted amount of estimated future cash flows expected to be received. Expected
cash flows are discounted at current market rates to determine fair value.
(IV) Due to other banks and customers, other deposits, other borrowings and subordinated liabilities
NLB TUTUNSKA BANKA
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3.4 Fair value of financial assets and liabilities (continued)
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits,
is the amount repayable on demand.
The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active
market is based on discounted cash flows using interest rates for new debts with similar remaining
maturity.
The fair value of the term deposits at variable interest rates approximates their carrying values as of the
balance sheet date.
Subordinated liabilities carry variable interest rates and the fair value approximates their carrying value
as of the balance sheet date.
3.5 Capital management
The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face
of balance sheets, are:
• to comply with the capital requirements set by the regulators;
• to safeguard the Group’s ability to continue as a going concern so that it can continue to provide
returns for shareholders and benefits for other stakeholders; and
• to maintain a strong capital base to support the development of its business.
Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management,
employing techniques based on the guidelines developed by the Basel Committee and the European
Community Directives, as implemented by the Central Bank of the Republic of Macedonia for supervisory
purposes. The required information is filed with Central Bank of the Republic of Macedonia on a quarterly
basis.
Central Bank of the Republic of Macedonia requires each bank or banking Group to: (a) hold the minimum
level of the regulatory capital of EUR 5,000,000 and (b) maintain a ratio of total regulatory capital to the
risk-weighted asset (the ‘Basel ratio’) at or above the internationally agreed minimum of 8%.
The Group’s regulatory capital as managed by its Risk Department is divided into two tiers:
• Tier 1 capital: share capital (net of any book values of the treasury shares), retained earnings and
reserves created by appropriations of retained earnings; and
• Tier 2 capital: qualifying subordinated loan capital, unrealised gains arising on the fair valuation of
equity and debt instruments held as available for sale.
The risk-weighted assets are measured by means of a hierarchy of four risk weights classified according
to the nature of − and reflecting an estimate of credit, market and other risks associated with − each
asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is
adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature of
the potential losses.
The table below summarises the composition of regulatory capital and the ratios of the Group for the
years ended 31 December. During those two years, the Group entities complied with all of the externally
imposed capital requirements to which they are subject.
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3.5 Capital management (contunied)
2007
2006
2,396,328
1,662,288
Statutory reserve
477,565
444,089
Retained earnings
226,234
226,234
3,100,127
2,332,611
783,265
314,075
Revaluation reserve
87,368
94,587
870,633
408,662
Deductions from regulatory capital
(174,527)
(60,128)
3,796,233
2,681,145
On-balance sheet
23,717,092
17,170,949
Off-balance sheet
5,719,039
4,450,957
29,436,131
21,621,906
12.90%
12.40%
Tier 1 capital
Share capital (net of the treasury shares)
Tier 2 capital
Total regulatory capital
Risk-weighted assets:
Total risk-weighted assets
Basel ratio
Deductions from regulatory capital, represent investments in financial institutions where the Group’s
ownership is over 10%, insurance companies and intangible assets. As a result of the changes in the
local legislation which have occurred during 2007, the intangible assets are also deductible amount from
Tier I and Tier II capital.
The increase of the regulatory capital in 2007 is mainly due to additional paid in capital, and additional
subordinated loan. The increase of the risk-weighted assets reflects the expansion of the business in
retail segment and in SMEs in 2007.
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4. Critical accounting estimates and judgments
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities
within the next financial year. Estimates and judgments are continually evaluated and based on historical
experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
(a) Impairment losses on loans and advances
The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining
whether an impairment loss should be recorded in the income statement, the Group makes judgments as
to whether there is any observable data indicating that there is a measurable decrease in the estimated
future cash flows from a portfolio of loans before the decrease can be identified with an individual loan
in that portfolio. This evidence may include observable data indicating that there has been an adverse
change in the payment status of borrowers in a Group, or national or local economic conditions that
correlate with defaults on assets in the Group.
Management uses estimates based on historical loss experience for assets with credit risk characteristics
and objective evidence of impairment similar to those in the portfolio when scheduling its future cash
flows. The methodology and assumptions used for estimating both the amount and timing of future cash
flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
To the extent that the net present value of estimated cash flows differs by +/-5%, the provision would be
estimated MKD 108,000,000 higher or MKD 108,000,000 lower (2006: MKD 88,636,000).
(b) Impairment of available for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has been a
significant or prolonged decline in the fair value below its cost. This determination of what is significant
or prolonged requires judgment. In making this judgment, the Group evaluates among other factors,
the normal volatility in share price. In addition, impairment may be appropriate when there is evidence
of deterioration in the financial health of the investee, industry and sector performance, changes in
technology, and operational and financing cash flows.
Had all the declines in fair value below cost been considered significant or prolonged, the Group would
suffer an additional MKD 5,394,000 loss in its 2007 financial statements, being the transfer of the total
fair value reserve to the income statement (2006: 3,248,000).
(c) Impairment of foreclosed assets
The process of calculating impairment loss requires that the management make significant and complex
assumptions regarding the projected period of sale of foreclosed assets, their estimated net sales value
and the corresponding discount rate, in order to discount to net present value the expected cash flow
from sale of specific items of foreclosed properties. Management of the Group are confident that the
foreclosed assets will be sold in a reasonable period, with no loss. On the contrary, adjustments will be
made in future periods if future market activity indicates that such adjustments are appropriate.
NLB TUTUNSKA BANKA
150
ANNUAL REPORT 2007
5. Net interest income
2007
2006
206,821
143,525
1,904,919
1,404,553
2,111,740
1,548,078
21,000
13,683
496,976
278,934
2,629,716
1,840,695
55,220
14,429
633,742
356,488
688,962
370,917
456,295
283,877
1,145,257
654,794
2007
2006
Letter of credit and guarantees
120,305
216,616
Payment transaction
275,718
120,862
4,238
6,040
70,402
50,451
1,962
307
Brokerage services
36,299
18,962
Other fees
84,346
45,032
593,270
458,270
38,055
49,413
Interest income
Loans and advances:
– To banks
– To customers
Cash and short term funds
Interest expense
Due to customers
6. Net fee and commission income
Trust and other fiduciary fees
Administrative service
Custody of items
Banking service
Payment transaction
11,331
8,620
Other fees paid
44,263
20,240
93,649
78,273
The Group provides custody, trustee, corporate administration, investment management, brokerage
and advisory services to third parties, which involve the Group making allocation and purchase and sale
decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary
capacity are not included in these financial statements. Some of these arrangements involve the Group
accepting targets for benchmark levels of returns for the assets under the Group’s care. These services
give rise to the risk that the Group will be accused of maladministration or under-performance.
NLB TUTUNSKA BANKA
151
ANNUAL REPORT 2007
7. Dividend income
Available-for-sale securities
2007
2006
8,069
4,172
8,069
4,172
2007
2006
16,822
(159)
451
1,405
17,273
1,246
8. Net trading income
Net trading (expense)/income
Interest income from assets held for trading
Net trading income includes gains and losses from government bills and bonds. The income includes
the results of making markets in government bills and bonds.
9. Net foreign exchange gain
2007
2006
Foreign exchange gains
3,766,777
1,195,894
Foreign exchange losses
(3,641,047)
(1,060,009)
125,730
135,885
10. Net income from selling available for sale investment securities
Net income from selling available-for-sale investment securities
2007
2006
794
12,773
11. Other operating income
2007
Rental income
Capital gain
Other
NLB TUTUNSKA BANKA
152
2006
6,292
8,942
663
4,436
28,610
14,480
35,565
27,858
ANNUAL REPORT 2007
12. Administrative expenses
2007
2006
Staff costs
Wages and salaries
223,074
178,341
Pension cost
79,442
66,866
Social security costs
69,067
66,904
Food allowances and transportation
19,720
16,555
6,907
4,580
70,908
54,913
Unused annual leaves
8,991
-
Other
3,828
4,008
97,821
76,757
579,758
468,924
2007
2006
257,371
182,778
Insurance premiums for deposits
69,563
47,840
Insurance premiums for assets
18,663
15,631
3,716
7,713
13,704
8,910
Holiday allowances
Compensation benefits to the members of the Managing
Board, and management
Depreciation
13. Other operating expenses
Administration and marketing costs
Actuarial benefits (Note 31)
Decrease in value of assets acquired through foreclosure procedure
Charges under court decision
-
164
Rental expense
57,602
37,357
Other
50,158
32,119
470,777
332,512
NLB TUTUNSKA BANKA
153
ANNUAL REPORT 2007
14. Impairment charge for credit losses
Loans and advances to banks (Note 18)
Loans and advances to customers (Note 20)
Other assets (Note 26)
Other investments
Contingencies (Note 32)
Collected written-off receivables
2007
2006
4,110
(592)
392,010
431,359
2,987
2,896
-
1,520
56,959
28,333
-
(26,469)
456,066
437,047
2007
2006
76,977
80,702
76,977
80,702
15. Income tax expense
Current tax
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the
basic tax rate of the parent as follows:
Profit before tax
2007
2006
667,567
506,525
Tax calculated at a tax rate of 12% (2006: 15%)
80,108
75,978
Expenses not deductible for tax purposes
13,992
33,229
(13,547)
(11,301)
-
(16,337)
(3,332)
-
(244)
(867)
76,977
80,702
Income not subject to tax
Investment tax credit
Released provisions
Other
Income tax expense
The Public Revenue Office is responsible authority to make full tax control for the year ended 31
December 2007.
The Group’s tax liabilities are based on the tax returns filed to the tax authorities and are finalized when
audited by the Central Tax Authorities, or a five year period has elapsed from the year they are filed.
The Group’s management is not aware of any circumstances, which may give rise to a potential material
liability in this respect.
NLB TUTUNSKA BANKA
154
ANNUAL REPORT 2007
16. Cash and balances with central banks
Cash in hand
Current account with domestic banks
Other short-term highly liquid investments
Balances with central banks other than mandatory reserve deposits
Mandatory reserve deposits with central banks
2007
2006
1,555,982
1,130,143
38,538
5,684
7,349
379
1,443,718
853,763
3,045,587
1,989,969
1,172,759
1,056,322
4,218,346
3,046,291
The Group has to provide obligatory reserve in MKD and in foreign currencies with the National Bank of
the Republic of Macedonia.
The obligatory reserve in MKD in amount of MKD 1,494,376,000 as at 31 December 2007 presents
10% of the average monthly amount of demand and time deposits. The effective interest rate on the
obligatory reserve in MKD is 2% (2006: 2%). Obligatory reserve funds are maintained on the current
account with NBRM.
The obligatory reserve in foreign currency as at 31 December 2007 presents 10% of the average daily
balances over the accounts expressed in Euros at NBRM’s middle exchange rate ruling on the balance
sheet date. The Group does not receive interest on the obligatory reserves in foreign currency. The
Group is obliged to transfer the Euro amount of the calculated obligatory reserve to NBRM’s account
with Deutsche Bundesbank Frankfurt.
17. Treasury bills and other eligible bills
2007
2006
Treasury bills
6,060,092
3,289,001
Government bills with maturity up to 90 days
1,696,689
1,032,429
7,756,781
4,321,430
450,057
635,083
8,206,838
4,956,513
Included in cash and cash equivalents ( Note 37)
Government bills with maturity over 90 days
Treasury bills are debt securities issued by the National bank of the Republic of Macedonia with maturity
of up to 28 days. The Group receives an effective interest at the rates from 4.71% - 4.86 % (2006:
5.52% - 5.92%) per annum. Treasury bills are categorised as assets held for trading and carried at
their fair value. The total amount of the treasury bills includes interest of MKD 15,654,000 (2006: MKD
7,471,000).
Government bills are with maturity up to 90 days and over 90 days, are with effective interest rates from
5.19% - 8.39% (2006: 5.99% - 8.80%) per annum. The total amount of the government bills includes the
interest in the amount of MKD 32,992,000 (2006: MKD 26,408,000).
NLB TUTUNSKA BANKA
155
ANNUAL REPORT 2007
18. Loans and advances to banks
2007
2006
Placements with other banks
3,724,191
612,328
Included in cash and cash equivalents ( Note 37)
3,724,191
612,328
Loans and advances to other banks
677,321
2,968,530
(5,343)
(1,233)
4,396,169
3,579,625
3,883,070
3,295,278
513,099
284,347
Current
Non-current
Reconciliation of allowance account for losses on loans and advances to other banks
2007
2006
1,233
1,825
4,110
(592)
At 31 December
5,343
1,233
Loans and advances to banks and other financial institutions are with effective interest rates from 5.87%
to 10.38% (2006: 5.7% to 8.75%) per annum. The placements with foreign banks are with effective
interest rates of 0.47% to 5.60% (2006: 3% to 5.52%) per annum, and the placements with domestic
banks are with an effective rate of 4.88% (2006: 3.66%) per annum.
As at 31 December 2007 a part of the Group’s placements with foreign banks in the amount of MKD
116,463,000 (2006: MKD 246,026,000) represents a deposit held with LHB Internationale Handelsbank
AG Frankfurt as a collateral for the borrowings from the same bank (Note 29).
19. Trading assets
2007
2006
68,295
46,587
Other government bonds
282,654
44,572
Corporate bonds
300,000
-
Total debt securities
650,949
91,159
Government bills
Government bills are with maturity up to 1 year and with an effective interest rate of 5.24 – 8.39% (2006:
9%) per annum. The total amount of the government bills held for trading includes interest in the amount
of МКD - nil (2006: MKD 1,169,000). Other government bonds are with maturity of 1 month and with an
effective interest rate of 2% (2006: 9%) per annum. The total amount of the government bonds held for
trading includes interest in the amount of МКD – nil (2006: MKD 415,000).
NLB TUTUNSKA BANKA
156
ANNUAL REPORT 2007
20. Loans and advances to customers
2007
2006
- Overdrafts
691,017
97,937
- Credit cards
545,637
299,064
- Term loans
5,617,190
2,595,366
- Mortgages
2,177,540
1,766,727
9,031,384
4,759,094
2,319,304
764,837
13,512,734
11,911,069
15,832,038
12,675,906
-
43,822
Gross loans and advances
24,863,422
17,478,822
(2,163,501)
(1,771,491)
Net
22,699,921
15,707,331
Current
11,061,232
8,601,122
Non-current
11,638,689
7,106,209
Individual (retail customers):
Corporate entities:
- SMEs
Public entities
Loans are with effective rates from 2.74% to 24.92% (2006: 2.6% to 25.4%) per annum.
NLB TUTUNSKA BANKA
157
ANNUAL REPORT 2007
20. Loans and advances to customers (continued)
Reconciliation of allowance account for losses on loans and advances by class is as follows:
Retail customers
Overdraft
Credit card
Term loans
Mortgages
Total
At 1 January 2007
11,715
33,011
248,988
195,650
489,364
55,574
40,113
125,811
5,375
226,873
At 31 December 2007
67,289
73,124
374,799
201,025
716,237
Retail customers
Overdraft
Credit card
Term loans
Mortgages
Total
Balance at 1 January 2006
12,144
8,158
173,164
104,696
298,162
(429)
24,853
75,824
90,954
191,202
11,715
33,011
248,988
195,650
489,364
At 31 December 2006
Corporate entities
At 1 January 2007
At 31 December 2007
Large corporate
customers
SMEs
Total
42,545
1,239,582
1,282,127
4,084
161,053
165,137
46,629
1,400,635
1,447,264
Corporate entities
At 1 January 2006
Loans written off
At 31 December 2006
NLB TUTUNSKA BANKA
158
Large corporate
customers
SMEs
Total
37,372
1,009,566
1,046,938
5,173
234,984
240,157
-
(4,968)
(4,968)
42,545
1,239,582
1,282,127
ANNUAL REPORT 2007
21. Investment securities
2007
2006
1,285,867
966,056
-
76,966
Securities available for sale
Debt securities – at fair value:
- Listed
- Unlisted
Equity securities – at fair value:
- Listed
- Unlisted
Total securities available for sale
Current
Non-current
153,274
79,265
42,382
22,993
1,481,523
1,145,280
330,430
220,425
1,151,093
924,855
Terms and conditions of government bonds available-for-sale are as follows:
• Bonds issued by the government on the old saving deposits in foreign currency in the amount of
MKD 212,440,000 (2006: MKD 252,366,000), with an interest rate of 2% (2006: 2%) per annum. The
principal amount is paid in 20 semi-annual instalments on each 1 April and 1 October beginning from
1 April 2002 until 1 October 2011.
• Bonds for denationalisation (01) in the amount of MKD 1,752,000 (2006: MKD 2,102,000), with
instalments on each 1 June, beginning from 1 June 2003 until 1 June 2012;
instalments on each 1 June, beginning from 1 June 2004 until 1 June 2013.
• Bonds for denationalisation (03) of MKD 198,838,000 (2006: MKD 191,715,000), with an interest
rate of 2% (2006: 2%) per annum. The principal amount is paid in 10 equal annual instalments on
each 1 June beginning from 1 June 2005 until 1 June 2014.
• Bonds for denationalisation (04) of MKD 275,273,000 (2006: MKD 266,129,000), with an interest
rate of 2% (2006: 2%) per annum. The principal amount is paid in 10 equal annual instalments on
each 1 June beginning from 1 June 2006 until 1 June 2015.
• Bonds for denationalisation (05) of MKD 79,694,000 (2006: MKD 51,800,000), with interest rate of
2% (2006: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1
June, beginning from 1 June 2007 until 1 June 2016.
• Bonds for denationalization (06) of MKD 115,473,000, with interest rate 2% per annum. The principal
amount is paid in 10 equal annual instalments on each 1 June, beginning from 1 June 2008 until 1
June 2017.
• Long-term bonds of MKD 244,958,000 (2006: MKD 34,857,000), with coupon at an interest rate
6.50% - 9.00% (2006: 9%) per annum. The payment of interest is annually and principal amount is
paid at the maturity date.
Тhe total amount of the bonds on old foreign currency deposits, denationalisation and the continuous
long-term bonds includes interest of MKD 16,560,000 (2006: MKD 13,119,000).
NLB TUTUNSKA BANKA
159
ANNUAL REPORT 2007
21. Investment securities (continued)
The movement in investment securities may be summarised as follows:
Available for sale
Total
1,145,280
1,145,280
497,232
497,232
(262,219)
(262,219)
101,230
101,230
1,481,523
1,481,523
At 1 January 2006
987,865
987,865
Additions
475,231
475,231
(338,459)
(338,459)
20,643
20,643
1,145,280
1,145,280
2007
2006
Cost
66,369
66,369
13,420
11,761
Net book amount
52,949
54,608
52,949
54,608
(66,369)
-
(967)
(1,659)
14,387
-
-
52,949
Cost
-
66,369
-
13,420
Net book amount
-
52,949
At 1 January 2007
Additions
At 31 December 2007
At 31 December 2006
22. Investment property
At 1 January
Year ended December
Transfer to property plant and equipment (cost)
Depreciation charge
Transfer of depreciation to property plant and equipment
At 31 December
The fair value of the investment property is MKD nil (2006: MKD 55,000,000)
NLB TUTUNSKA BANKA
160
ANNUAL REPORT 2007
23. Investment in associates
Nov penziski fond
2007
2006
43,447
40,790
43,447
40,790
% of participation
Nov penziski fond AD - Skopje
Country
2007
2006
49%
49%
Summary financial information for equity accounted investee, not adjusted for percentage ownership
held by the Group:
Assets
Liabilities
Share-holders’
equity
Income
Profit / Loss
2006
Nov penziski fond A.D. – Skopje
92,984
9,741
83,243
58,113
(5,762)
92,984
9,741
83,243
58,113
(5,762)
2007
Nov penziski fond A.D. – Skopje
99,350
10,229
89,121
84,599
5,423
99,350
10,229
89,121
84,599
5,423
NLB TUTUNSKA BANKA
161
ANNUAL REPORT 2007
24. Property and equipment
Buildings
Furniture & Assets in course
equipment of construction
Other
Total
At 1 January 2006
Cost
391,645
315,906
42,805
8,302
758,658
(43,731)
(182,560)
-
(4,161)
(230,452)
Net book amount
347,914
133,346
42,805
4,141
528,206
347,914
133,346
42,805
4,141
528,206
-
75,674
1,959
2,196
79,829
29,548
250
(29,798)
-
-
-
(1,789)
-
-
(1,789)
Depreciation charge
(10,413)
(56,028)
-
(1,488)
(67,929)
367,049
151,453
14,966
4,849
538,317
Cost
421,193
376,966
14,966
10,498
823,623
(54,144)
(225,513)
-
(5,649)
(285,306)
Net book amount
367,049
151,453
14,966
4,849
538,317
367,049
151,453
14,966
4,849
538,317
120
154,216
5,710
7,517
167,563
66,369
-
-
-
66,369
-
(433)
-
-
(433)
Depreciation charge
(11,290)
(69,379)
-
(2,186)
(82,855)
Transfer from investment property (accumulated depreciation)
(14,387)
-
-
-
(14,387)
407,861
235,857
20,676
10,180
674,574
Cost
487,682
520,577
20,676
18,015
1,046,950
(79,821)
(284,720)
-
(7,835)
(372,376)
Net book amount
407,861
235,857
20,676
10,180
674,574
Year ended December 2006
Additions
Transfer
Disposals
At 31 December 2006
Year ended December 2007
Additions
Transfer from investment
property (at cost)
Disposals
At 31 December 2007
As at 31 December 2007 the Group does not have any property pledged as collateral (2006: nil).
NLB TUTUNSKA BANKA
162
ANNUAL REPORT 2007
25. Intangible assets
2007
2006
78,004
30,664
Additions
25,836
47,415
-
(75)
103,840
78,004
19,953
12,859
Amortisation for the year
13,998
7,169
-
(75)
33,951
19,953
Carrying amount at 31 December
69,889
58,051
2007
2006
113,609
280,908
Pre-payments
51,417
12,804
Other
97,663
63,379
(5,883)
(2,896)
256,806
354,195
201,893
354,195
54,913
-
Disposals and write offs
Amortisation
Disposals and write offs
26. Other assets
Foreclosed assets
Current
Non-current
Movement in allowance for impairment
2,896
-
Net increase in allowance for impairment (Note 14)
2,987
2,896
5,883
2,896
Assets acquired through foreclosure procedure include apartments, equipment and business premises
which are not used by the Group for its core operations.
The market for certain types of collateral in Republic of Macedonia is in an early stage of development.
Management has made an estimate of the expected recoverable amount net of cost to realise the assets,
based on a number of factors, including independent assessment. However, given the foregoing, actual
amounts realised may differ from the estimates made.
NLB TUTUNSKA BANKA
163
ANNUAL REPORT 2007
27. Deposits from financial institutions
2007
2006
314,677
280,941
60,406
21,824
84,507
57,972
1,038,510
1,070,874
32,274
16,550
616,498
158,722
2,146,872
1,606,883
1,875,502
1,589,541
271,370
17,342
Demand deposit:
- Banks and saving houses
Term deposits:
- Banks and savings houses
Current
Non-current
The effective interest rates on deposits from banks and other financial institutions are from 1% to 1.5%
(2006: 1% - 1.5%) per annum, while the effective interest rates on term deposits are from 1% to 9.50%
(2006: 1% - 9.3%) per annum.
28. Due to customers
2007
2006
6,020
416,071
217,271
122,454
- Current/settlement accounts
8,466,398
4,648,912
- Term deposits
5,339,431
4,851,226
- Current / demand accounts
4,462,232
3,210,146
- Term deposits
8,737,716
5,135,103
147,875
162,383
27,376,943
18,546,295
25,995,038
17,690,437
1,381,905
855,858
Public institutions
- Current/settlement accounts
- Term deposits
Companies
Retail customers
Restricted deposits
Companies
Current
Non-current
The effective interests rates of current accounts are from nil to 1% (2006: nil to 1%) per annum, while the
effective interests rate of term deposits are from 0.10% to 9.40% (2006: 1% to 8.75%) per annum.
NLB TUTUNSKA BANKA
164
ANNUAL REPORT 2007
29. Other borrowed funds
Interest rate (%)
2007
2006
4 - 5.5%
7 - 8%
3 months EURIBOR+1%
3 months EURIBOR +1%
323,107
387,247
4.25% - 6.3%
102,270
114,448
3 months LIBOR +0.061 - 0.078%
1,010,077
814,585
6 months EURIBOR +1.45%
3,172,343
1,249,219
3 months EURIBOR + 0,75%
3 months EURIBOR + 1,5 – 2,25%
1 months CHFLIBOR + 2,25%
3 months EURLIBOR + 2,15% - 2,75%
3months CHFLIBOR + 2,25%
3 months CHFLIBOR + 3,25%
1.618.931
2.386.129
ICDF Taiwan
6 months USDLIBOR - 0.5%;
4%
73,313
94,330
World bank
6 months EURIBOR
129,424
225,876
1%
165,604
159,418
Adria bank
214,237
214,202
Raiffeisen Central Bank
612,016
-
Erste Bank
3months EURIBOR + 0.95%
306,203
-
7,727,525
5,645,454
Current
3,922,100
1,605,176
Non-current
3,805,425
4,040,278
Domestic borrowings:
Macedonian Bank for development Promotion
Macedonian enterprise development foundation
Foreign borrowings:
EIB
EBRD
NLB Group
International fund for agricultural development
(IFAD2, IFAD1)
The loans granted by the MBDP, MEDF, IFAD, ICDF Taiwan and EIB (through NBRM) and the World
Bank are secured with bills of exchange of NLB Tutunska Banka AD.
EBRD’s, ADRIA BANK’s and RZB’s loans are secured with a Comfort Letter by NLB d.d. Ljubljana (the
Loan from ADRIA BANK was repaid on 07 January 2008).
EIB’s loan is secured with a Bank Gaurantee issued by NLB d.d. Ljubljana.
The loan granted by LHB Internationale Handelsbank AF Frankfurt in the amount of MKD 116,463,000
(2006: MKD 246,026,000), included in loans from NLB - Group, is with interest rate of three - month
EURIBOR + 0.75 and is secured with deposit (Note 18).
NLB TUTUNSKA BANKA
165
ANNUAL REPORT 2007
Syndicated loan
On 19 December 2006 the Bank has concluded a Syndicated Loan Agreement with EBRD on EUR
55,000,000 consisting of A and B part:
Amount in EUR
Interest rate
Repayment date
Loan A
19,000,000
6 months EURIBOR + 1.45 %
Two years with option to prolong
it for one year
Loan B
36,000,000
6 months EURIBOR +1.20%
EUR 3,272,727.27 were repaid on
19 December 2007
EUR 32,727,272.73 were prolonged until
19 January 2008
Loan from EIB
On 23 November 2006 the Group has concluded an agreement with EIB on EUR 10,000,000. The
conditions for each individual disbursement will be determined at each disbursement of separate tranche.
With value date 31 December 2007 the Group has withdrawn a total amount of EUR 8,560,000, in 4
allocations, under the following conditions
Amount in EUR
Interest rate
Repayment date
Allocation 1
2,810,000
8 years including 2 years of grace period
Allocation 2
2,750,000
7 years including 1 year of grace period
Allocation 3
1,500,000
Allocation 4
1,500,000
Loan from ERSTE BANK AG WIEN
On 21 May 2007 the Group has concluded a Loan Agreement with ERSTE BANK AG WIEN on EUR
5,000,000:
Loan
Amount in EUR
Interest rate
Repayment date
5,000,000
Two years
Loan from RZB AUSTRIA
On 18 December 2007 the Group has concluded a Loan Agreement on EUR 10,000,000:
Loan
NLB TUTUNSKA BANKA
Amount in EUR
Interest rate
Repayment date
10,000,000
One year with option to prolong it for one year
166
ANNUAL REPORT 2007
30. Subordinated liability
Subordinated loan
Current
Non-current
2007
2006
786,120
314,075
786,120
314,075
2,855
-
783,265
314,075
The Subordinated loans from NLB Interfinanz were granted with an interest rate of 3 month CHF Libor
+ 3.25%, and maturity of 7 years. Conversion into capital will be determined with a separate Annex
Agreement after a separate approval by the relevant board of the Group.
31. Other liabilities
Dividends declared and payable
Prepayment of liabilities
2007
2006
2,359
1,862
119,894
74,336
Suppliers payables
30,029
16,338
Compensation benefits to the members of the Managing Board, management and employees
60,450
51,738
15,997
12,282
8,867
-
54,557
21,410
292,153
177,966
2007
2006
12,281
4,568
3,716
7,713
15,997
12,281
Liabilities for unused annual leaves
Other
Movement in long – term employee benefits is presented below:
Balance 1 January
Actuarial losses (Note 13)
Long-term employee benefits include jubilee awards and retirement indemnity bonuses.
NLB TUTUNSKA BANKA
167
ANNUAL REPORT 2007
32. Contingencies
The Group issues bank guarantees and letters of credit on behalf of its customers to third parties. These
agreements have fixed limits and are generally extended for a period of up to three years. Expirations
are not concentrated in any period.
The following table indicates the contractual amounts of the Group contingencies by category:
2007
2006
- in MKD currency
2,068,136
1,138,040
2,407,667
1,453,019
857,794
798,828
1,885,948
1,551,964
7,219,545
4,941,851
(356,296)
(299,337)
6,863,249
4,642,514
Guarantees
Letters of credit
Limits on cheques and cards
Less: Provision for impairment
These contingent liabilities have off balance-sheet credit risk because only origination fees and accruals
for probable losses are recognized in the balance sheet until the contingencies are fulfilled or expire.
Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the
amounts do not represent expected future cash flows.
Movement in provisions for contingencies
Net increase in impairment allowance (Note 14)
2007
2006
299,337
271,004
56,959
28,333
356,296
299,337
2007
2006
21,257
20,077
7,801
1,180
29,058
21,257
29,058
21,257
33. Deferred tax liability
Balance 1 January
Recognised in equity
Deferred tax liabilities are attributable to the following:
Financial assets available-for- sale
NLB TUTUNSKA BANKA
168
ANNUAL REPORT 2007
34. Related party transactions
According to the Bank’s Articles of Association, the supreme body is the assembly of the Bank, constituted
of all the holders of the Bank’s registered ordinary shares. The overall control of the Group is with the
non-executive Board of Directors (“the Managing Board”) who are appointed by shareholders.
The Group is controlled by Nova Ljubljanska Bank Group (“NLB”) which owns 87.6% (2006: 83.4%) of
the voting shares. A number of banking transactions are entered into with related parties in the normal
course of business. These transactions were carried out on commercial terms and at market rates. The
volumes of related party transactions, and outstanding balances at the year-end, are as follows:
Fellow subsidiaries
Associate
Other related parties
Income statement
Interest income
54,812
1
1,347
205,322
2,335
1,418
6,253
64
296
19,562
-
-
-
-
-
37,784
-
-
86,610,545
-
-
(86,539,730)
-
-
108,599
-
-
549,930
-
4,265
51,233,720
525
55,759
(50,614,298)
(525)
(30,896)
1,169,352
-
29,128
1,034,631
31,578
341,165
28,702,612
267,463
598,252
(28,543,531)
(193,481)
(826,344)
1,193,712
105,560
113,073
Interest expense
Other
Balance sheet
Loans
Deposits
Borrowings
2,700,204
-
-
1,014,368
-
-
(1,095,579)
-
-
2,618,993
-
-
NLB TUTUNSKA BANKA
169
ANNUAL REPORT 2007
Fellow subsidiaries
Associate
Other related parties
42,298
-
366
Income statement
Interest income
1,222
14
5,690
26,647
206
25,909
7,962
-
8,620
-
-
-
75,327
-
-
70,336,378
-
-
(70,373,921)
-
-
37,784
-
-
2,487,591
-
5,534
6,539,282
141
18,116
(8,476,943)
(141)
(19,385)
549,930
-
4,265
285,559
12,267
641,202
5,377,710
537,575
27,973,197
(4,628,638)
(518,264)
(28,273,234)
1,034,631
31,578
341,165
2,930,098
-
-
Interest expense
Other
Balance sheet
Loans
Deposits
Borrowings
2,185,795
-
-
(2,415,689)
-
-
2,700,204
-
-
2007
2006
43,919
73,803
2,404
3,064
46,323
76,867
Transaction with key management personnel
The total compensation to the key management personnel are as follows:
Executive directors
Non-executive directors
All compensation to the key management are short-term employee benefit.
NLB TUTUNSKA BANKA
170
ANNUAL REPORT 2007
35. Trust activities
Companies
Citizens
Other
2007
2006
863,423
1,063,472
82,004
82,190
525,406
45,841
1,470,833
1,191,503
The Group manages assets on behalf of third parties, which are mainly in the form of loans to various
clients. The Group receives fee income for providing these services. Trust assets are not assets of the
Group and are not recognised in the balance sheet. The Group is not exposed to any credit risk relating
to such placements, as it does not guarantee these investments.
36. Share capital
Number of
shares
Ordinary shares
Share premium
Preference
shares
Total
At 1 January 2006
693,866
643,645
968,422
50,221
1,662,288
At 31 December 2006
693,866
643,645
968,422
50,221
1,662,288
91,755
91,755
642,285
-
734,040
785,621
735,400
1,610,707
50,221
2,396,328
- Proceeds from shares issued
At 31 December 2007
The authorized share capital of the Group consists of 735,400 (2006: 643,645) ordinary shares and
50,221 (2006: 50,221) preference shares. Ordinary and preference shares have a par value of MKD
1,000 (2006: MKD 1,000). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at general meetings of the Bank’s shareholders. Preference shares give
right to priority in the dividend payment, but do not carry the right to vote. All shares rank equally with
regard to the Group’s residual assets.
The below stated shareholders have more than 5% of the Group’s issued voting share capital
% of voting share capital
Shareholders
2007
2006
LHB AG – Frankfurt
30.8%
35.2%
NLB Interfinanz AG – Zurich
28.5%
30.1%
Nova Ljubljanska banka d.d. – Ljubljana
28.3%
18.1%
Hrvatska postanska Banka d.d. – Zagreb
-
5.5%
Based on the Contract and Annex No. 1, 2, 3 and 4 of the contract for transfer of the voting rights that
are owned by NLB InterFinanz AG Zurich in NLB Tutunska banka, the voting rights belonging to NLB
InterFinanz AG Zurich (28.5%), were transferred to Nova Ljubljanska banka d.d. Ljubljana, by which
the share in the Bank’s total voting rights of Nova Ljubljanska banka d.d. on 31 December 2007 is
56.80%.
NLB TUTUNSKA BANKA
171
ANNUAL REPORT 2007
Statutory reserve
Under local statutory legislation, the Group is required to set aside 15% of its net profit for the year in a
statutory reserve until the level of the reserve reaches 1/5 of the court registered capital. Until reaching
the minimum required level statutory reserve could only be used for loss recovery. When the minimum
level is reached statutory reserve can also be used for distribution of dividends, based on a decision
of the shareholders’ meeting, but only if the amount of the dividends for the current business year has
not reached the minimum for distribution as prescribed in the Trade Company Law or by the Group’s
Statute.
Revaluation Reserve
The revaluation reserve includes the cumulative net effect of the changes in the fair value of investments
available-for-sale until the moment of their derecognition or damaging.
2007
2006
213,093
120,458
213,093
120,458
2007
2006
At 1 January
120,458
113,768
Net gains from changes in fair value
101,230
20,643
(794)
(12,773)
(12,052)
(1,180)
4,251
-
213,093
120,458
Revaluation reserve for available for sale securities
Movements in revaluation reserves were as follows:
Revaluation reserve for available for sale securities
Recycled to income statement on realisation
Deferred income tax
Correction of deferred income tax
At 31 December
Dividends
After the balance sheet date the following dividends were proposed by the Managing Board. The
dividends have not been provided for.
2007
2006
МКD nil (2006: МКD 537) per ordinary share
-
345,637
МКD nil (2006: МКD 537 ) per preference share
-
26,969
-
372,606
NLB TUTUNSKA BANKA
172
ANNUAL REPORT 2007
For the cash flow purposes, cash, as well as the cash equivalents comprise the following balances
with less than three months maturity from the date of acquisition:
2007
2006
Cash and balances with the NBRM (Note 16)
3,045,587
1,989,969
Treasury bills (Note17)
7,756,781
4,321,430
Placements with other banks ( Note 18)
3,724,191
612,328
14,526,559
6,923,727
38. Subsequent event
No material events subsequent to the balance sheet date have occurred which require disclosure in the
financial statements.
NLB TUTUNSKA BANKA
173
ANNUAL REPORT 2007
prepared in accordance with
International Financial Reporting Standards
NLB TUTUNSKA BANKA
174
ANNUAL REPORT 2007
Income statement
Note
2007
2006
Interest and similar income
5
2,623,860
1,837,182
Interest expense and similar charges
5
(1,145,489)
(654,808)
1,478,371
1,182,374
Net interest income
6
557,101
439,341
6
(92,683)
(77,908)
464,418
361,433
Dividend income
7
1,715
688
Net trading income
8
17,273
1,246
Impairment losses
13
(456,066)
(435,527)
9
125,730
135,869
11
(569,733)
(460,096)
12
(466,580)
(330,773)
10
36,055
27,091
Operating profit
631,183
482,305
631,183
482,305
(74,408)
(78,028)
556,775
404,277
Income tax expense
14
Profit for the year
NLB TUTUNSKA BANKA
175
ANNUAL REPORT 2007
Balance sheet
31 December
Note
2007
2006
15
4.190.623
3.042.320
Treasury bills and governmеnt bills
16
8.206.838
4.956.513
17
4.396.169
3.579.625
19
22.699.921
15.707.331
Trading assets
18
650.949
91.159
20
1,262,479
1,009,108
Investment property
21
-
52,949
Investment in subsidiary
22
30,864
30,864
23
60,128
60,128
Property and equipment
24
644,236
508,534
Intangible assets
25
69,352
57,608
Other assets
26
256,852
354,126
42,468,411
29,450,265
Assets
Total assets
Liabilities
Deposits from banks
27
2,177,441
1,610,137
Due to customers
28
27,354,371
18,542,382
29
7,727,525
5,645,454
30
786,120
314,075
Other liabilities
31
291,584
175,043
Provisions
32
356,296
299,337
4,781
24,299
14,859
16,692
38,712,977
26,627,419
785,621
693,866
33
Total liabilities
Equity
Share capital
37
Share premium
1,610,707
968,422
Retained earnings
772,575
621,882
Other reserves
586,531
538,676
Total equity
3,755,434
2,822,846
42,468,411
29,450,265
NLB TUTUNSKA BANKA
176
ANNUAL REPORT 2007

Annual Report 2007

Transcription

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