NLB

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2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:NoncontrollingInterestsMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember ifrs-full:IssuedCapitalMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember ifrs-full:SharePremiumMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember nlb:OtherAccumulatedOtherComprehensiveIncomeMemberMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember ifrs-full:StatutoryReserveMember 5493001BABFV7P27OW30 2021-12-31 ifrs-full:SeparateMember ifrs-full:RetainedEarningsMember iso4217:EUR iso4217:EUR xbrli:shares W e belie v e in this r egion’s potential NLB Gr oup Annual R epor t 2021 2 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C onten t s Forward-looking st atemen ts The ex pe c t at io ns , f ore cas t s an d s ta te me nt s r ega rdi ng f u t ure develo pm en t s t ha t ar e con tai ne d in t hi s rep or t ar e ba se d on as s um pt io ns a nd a re con t in gen t on a n u mb er of f ac tor s t ha t wil l com e in to p lay i n th e f u t ure. Co ns e qu en tl y , t h e ac t u al si t ua ti on m ay t ur n o u t to be d if fere nt. Statemen t by t he Managem ent Board of NLB ................ 6 Sta te me nt by t h e Cha ir m an of t h e Su pe r vis or y B o ard of N LB 8 Strategic Member s Over view ................................. 11 K ey Highlight s ............................................... 12 Ke y Ev e n t s ................................................... 17 Ma rket P er for m an ce o f NLB ’s Sh are s an d GD R s ............. 18 Macroeconomic Envir on ment ............................... 21 Regulat or y E nvir onment ..................................... 26 BUSINES S REPORT .......................................... 28 Strategy ..................................................... 29 Ri sk Fac tor s a nd O u tl oo k .................................... 31 Imp ac t of COVID - 19 on O pe ra tio ns .......................... 34 Sus tain abilit y ................................................ 35 Over view of Financial Per for man ce ........................ 40 Segme nt Analys is ............................................ 61 Ret ail B a nk in g in S loven ia ................................... 62 Cor po rat e an d Inves tm en t B ank in g in S loven ia .............. 67 Strategic Foreign Markets ................................... 71 Financial M arkets in Slovenia ................................ 91 Non- Core M ember s ......................................... 94 Risk Man agement ........................................... 96 IT an d Cyb er S ec ur it y ....................................... 105 Human Res ources .......................................... 108 Cor p or a te G ove r n an ce ...................................... 111 Compliance and Integr it y ................................... 119 Intern al Audit ................................................ 12 1 Corporate Governance Statement s ......................... 12 2 Di sc los u re on S h are s an d Sh ar eh old er s o f NLB ............ 14 4 E ve nt s A f ter t he En d of t h e 2021 Fin an ci al Y e ar ............. 14 6 Rec on cil ia tio n of F in an cia l St at em en t s in B u si ne s s an d Financial Par t of the Repor t ................................ 147 Alter n ative Per form ance Indica tors ........................ 149 NLB G rou p Ch ar t ........................................... 1 67 Organis ation al Str uc t ure of NLB ............................ 168 FINANCIAL RE P ORT ........................................ 170 NLB G rou p Di rec tor y ....................................... 342 Def i ni tio n s an d Gl os s ar y of S el ec ted T e rm s ................ 345 NLB Bank a, Prishtina NLB Bank a, Saraje vo NLB Bank a, Banja Luka NLB Bank a, Beograd K omercijalna Bank a, Beogr ad NLB Bank a, Skopje NLB Bank a, Podgoric a NLB, Ljubljana W e ar e – wher e y ou ar e. Our home is her e. Her e ar e our families, friends, colleagues, neighbours, our favourit e athletes, hosts, who know what kind of coffee w e like … All this is our home and we belie ve in it with all our hearts. Since w e ar e where y ou ar e, we know y our potential and understand your c ommitment – ev en when no one else understands it. Wher e others mer ely see a spot on the map, we see a r egion full of opportunities. And we belie ve you deserv e each and every one of them. 4 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sou t hea s t Eur ope, a r egion of oppor t un it ies . Sou t hea s t Eur ope, a r egion of oppor t un it ies . Sou t hea s t Eur ope, a r egion of oppor t un it ies . Who we a re Vision Our str ategic focus Sustainable banking The Gr oup, headquarter ed in Ljubljana, is the lar gest banking and financial gr oup in Slovenia with a str ategic focus on selected c ountries in SEE, which have a population of appr o ximately 17 million people – our home r egion. The Gr oup is comprised of the leading and sy stemically most important bank in Slov enia, NLB , sev en subsidiary banks in SEE , sev er al companies pr oviding ancillary services (asset management, r eal estate management, leasing, etc.), and a limited number of non-cor e subsidiaries in a contr olled wind-down. 1 The Gr oup utilises a universal banking model and supports its clients thr ough ret ail, corpor ate, and investment banking servic es. On six out of sev en markets wher e the Gr oup oper ates, the mark et shar e of member banks e xc eeds 10% (measur ed by total assets). 1 On 1 M a rc h 20 2 2 N LB ac q ui re d th e S l oven i an S b er b an k b an ka d .d . Fur th e r in fo r ma t io n i s pr es en t ed i n ch a pt er Eve nt s A f ter t h e En d of t h e 2 02 1 F i na n ci al Ye a r . The Group will t ake care of the fin ancial need s of it s clien ts and improv e t he qualit y of life i n it s home SE E region. In 2021, the Gr oup set the dir ection of sustainability activities by publishing the NLB Gr oup Sustainability F r amew ork and aligning its business model with UN’s Sustainable Dev elopment Goals. The focus was on decisive implement ation of activities in the three pillar s: • Contrib ution t o societ y • Sus tain able f inance • Sus tainable operation s As the first bank fr om Slov enia to commit to the UN P rinciples for Responsible Banking, the Bank performed an impact analysis and published r egional sustainability tar gets ( NLB Gr oup Sustainability Report 2021 ). The envir onmental dimension of the ESG w as addr essed by upgr ading our climate-r elated and envir onmental risk management, integr ation of EU T ax onomy r egulation, and measuring the carbon footprint of the Gr oup’s own oper ations in 2021. F ocus was put on the social dimension, supported by continuing CSR activities and the #HelpF r ame pr oject. Become a regional cham pion Put ting client s f irs t Grow our mar ket positio n Mon et ize oppor t unities and s ynergies R atings NLB has an inv estment grade r ating fr om S&P and Moody’s. Note: Moody's: unsolicited r ating. 2021 S&P: BBB- Moody's: Baa1 2020 S&P: BBB- Fitch: BB+ Moody's: ↑Baa1 2019 S&P: ↑ BBB- Fitch: BB+ Moody's: Baa2 2018 S&P: ↑BB+ Fitch: ↑BB+ Moody's: ↓Baa2 CI: BBB- 2017 S&P: ↑BB Fitch: ↑BB Moody's: ↑Ba1 CI: ↑BBB- 2016 S&P: BB - Fitch: B B - Moody' s: Ba3 CI: B B + Hedvik a Usenik Me mb er o f th e Managem ent Board (i) Blaž Brodnjak CEO and C MO Andreas B urkhardt Me mb er o f th e Managem ent Board (CRO ) Antonio Argir Me mb er o f th e Managem ent Board (i) Archibald Kr emser Me mb er o f th e Managem ent Board (CF O) Andrej Lasič Me mb er o f th e Managem ent Board (i) Note: (i) Appointed by the Supervisory Board of NLB on 20 January 2022; Mr. Argir, Ms. Usenik and Mr. Lasič ar e waiting for the r elev ant consent by the ECB to assume the office of the Management Boar d member. 6 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Enco ura ge d by th e eco n om ic rec over y , dr i ven by he al th y pr iva te co ns u mp tio n an d s t ron g lo an de m an d, t h e Gro up ret ur n ed t o rob us t grow t h , an d ac hi eved excell en t res u lt s wh ich exce ede d s et g uid an ce. Th is g row t h wa s ba se d on t he s tr on g un der l yin g p er for m an ce of a ll b us in es s s eg me nt s, me an ing f ul co nt r ib ut io n fro m Kome rcij aln a B an ka, B e ogr ad , wh ile ro bu s t r i sk m an a gem en t s up po r tin g G rou p’s bus in es s ope ra tio n s res ul te d al so i n s t ron g as s et q ua lit y. The G rou p gen er at ed EUR 236.4 m il lio n in pro f it a f t er t ax an d in cr ea se d ma rket s h are s in al l se gm en t s , w it h all b an ki ng m em b er s ope ra ti ng in o ur h om e re gio n , SEE , re por t in g so lid ly p os it ive ne t ear n in gs an d co nt r ib ut in g 39% to t he a f ter t ax re s ul t. The r es ul t s of t h e ba nk in g me mb er s p rove onc e aga in t ha t th ey are b eco mi ng a n in cre as in gly i mp or t ant f ac tor in G ro up bu si ne s s op era t ion s , a s well a s in t he ir res p ec ti ve mar ket s – i n fi ve ou t of s ix m ar ket s w he re t he G ro up op er at es , t he m ar ket sh ar e (by tot al a s se t s) of me m ber b an k s excee ds 10 p erce nt. W e firmly be liev e that fur ther intr agroup consolidati on , whi ch is in f u ll s wi ng fo llow in g th e s ucc es s f ul m e rge r of NLB B a nka , Podgorica and K om ercijalna Banka, Podgorica in No vember , as wel l as t he s al e of Kom erci jal na B a nka , Ba nj a Luka in De cem be r , an d th e exp ec ted m er ge r of NLB B an ka, B e og rad an d Komerc ij aln a B an ka, B eo gra d in A pr il 2022, w ill b r ing additional oppor tunit ies to leverage synergies. The G ro up’s s tro ng b u sin e s s pe r for ma nc e, to get h er w it h th e expir at ion o f th e B oS ’s de cis io n on re s t r ic t in g th e di vi den d s pa ym en t, en abl ed t he B a nk t o fu lf i l s takeh o lde r exp ec tat io ns wi th a s ub s ta nt ia l div id en d pa you t. Keepin g it s p rom is e, t h e Ba nk p ai d ou t a tot al of EU R 92.2 mi llio n as d iv ide nd s in 2021, th ere by rea f f i r min g t he G ro up' s s t abl e an d s ucce s s f ul b u sin e s s ope ra tio n s , s t ron g cap ita l po si ti on , an d s oli d div id en d pa ym en t cap aci t y als o for t h e f ut ur e. M ore s p eci f ical ly, the B an k ’s amb it io n is a to tal di vi de nd p ay me nt t o th e s ha reh ol de r s of EUR 2 1 0 mi llio n in t he 2 02 2–202 3 pe r iod . In Febr u ar y 20 2 2 t he S loven ia n par l iam en t ad opt ed l aw con cer n in g loa n agr ee me nt s i n Swi s s fra nc s con cl ud ed by ban k s op era t ing i n Sl oveni a (i nc lu din g NLB ) an d in div id ual s . N LB ha s us e d leg al re m edi es ag ain s t t h e la w. The i mp le me nt at io n of t he l aw i s cu rr en tl y s us pe n ded by Con s ti t ut io na l Cou r t wh ile i t s f in al de ci s ion o n th e con fo rm i t y Dear Stakeholders , Are yo u well? H ow ma ny ti me s h ave you h ea rd or a s ked th is qu es t io n in 2021, a year m a rke d on ce ag ain by t he g ri p of COVID -19 a nd i t s con s eq ue nt i mp ac t on t he gl ob al e con omy an d qu ali t y of lif e? W e si nce rel y h ope t h at yo u were a bl e to do as we i n th e G rou p did: l ea ve th e ep ide mic b eh in d you a nd an s wer wi th “ we a re mo re t ha n ju s t wel l – ac tu all y , we a re s tr on ger t h an ever .” of th e CH F Law w it h th e Con s t it u t ion i s pe nd in g. I f le ga l rem ed ies a re un s ucc es s f u l, t he e s t im at ed ef fe c t s o n pre - ta x res ul t w ill b e ma te r ial b ut m a na ge abl e. 2 In a rem ar kab le m ile s to ne d es er v ing s p ec ial a t ten ti on , t he Ba nk ’s sha re pr ic e gai ne d 67.2 percen t Y o Y o n th e Lo nd on Sto ck E xch an ge , 66.4 pe rcen t on t he L ju blj an a St oc k Exc ha ng e, an d re cei ved th e ‘ Pr im e M ar ket S ha re of t h e Y ear ’ award by t h e Lju bl jan a St oc k E xcha ng e. Comb in ing d iv ide n d pa you t s , pr i vat is at io n pro cee ds , a n d th e res id ua l valu e of t he R oS e qu it y s ta ke in NLB , t h e B an k ha s fu lly r ep aid t he a mo un t i t rece ived f or t he 2013 r eca pit aliza ti on . F ro m h ere o n ou t, we are cr ea ti ng n ew valu e for a ll o ur shareholders . The G ro up w ill c on tin u e to pr ude nt ly g row an d in cre as e it s ma rket s h are s or gan ica lly, however , we are cl os el y mo ni tor in g develo pm en t s in o ur h om e re gio n an d wi ll an al ys e an d address any value accretiv e oppor tunities for new M& A- ba se d grow th . Th e B an k h as t h e cap aci t y to bu y ba nk s a nd/or por t fol ios i n any of o ur ex is t in g , as wel l as ot h er m ar ket s in t h e reg ion , t h us b eco mi ng a t r ue r egi on al c ha mp ion . Ac cord in gly, ba se d on t he S R B ’s reso lu t ion s ch e me fo r S loveni an S be r ban k ban ka d.d . an d d eci s ion o f Bo S re gard in g th e s ale o f th is b an k , NLB on 1 M ar ch 2022 bo ug ht 100% o f sh ar es of S b er ba nk ban ka d.d . W it h t hi s acq ui si t ion NL B con tr i bu te d to t he finan cial st abilit y of the Slovenian banking sec tor and fur ther imp roved NL B’s m ar ket po si ti on in S love nia . In t h e foll owin g mo nt h s Sb er b ank b an ka d.d . w ill b e in teg rat ed i n NLB G ro up. In spite of prevail ing global geopolitical challe n ges, macroe conomic e nvironment , and other impacts influenc ing our bu si ne s s env iro nm en t in a S loven ian a nd w id er G ro up’s regio n conte x t, our outlook for the f uture is positive . T ur nin g o ur gaze to t h e f ut u re, o ur fo cu s wi ll be o n prov idi ng our cl ients with i nnovativ e solutions and the best use r expe r ien ce, 2 4 ho ur s a d ay, ever y da y. Curre nt ly i n Sl oveni a, our c li en t s can f ul f il al mo s t al l th eir b an k ing n e ed s wi th ou t ha vin g to v is it a b ran c h, a n d we s tr i ve to app ly t hi s di git al 2 Fur th er i n fo rm a t io n is a va il ab le i n c ha pt e rs Event s a f te r th e e n d of t h e 2021 finan cial year a n d Outlook 2022 . Sta tement b y the Managemen t Boar d of NL B EU R 236.4 million net prof it of NLB Group. 7 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report lea de r sh ip p os it ion t o oth e r ma rket s in wh ich o ur G ro up ope ra tes by wo rk in g on f ron te nd s ol u ti on s to co ns ol ida te e - an d m - ban k in g pla t for m s . D es pi te m any pr edi c t io ns i n th e pa s t d eca des t h at b an k s wi ll ce as e to exi s t, we are h er e s tr on ger t h an ever , s in ce we ha ve don e o ur h om ewor k , ada pte d, a n d s tar t ed to i nves t h ea vi ly in d igi tal izat ion , a nd fi nt ec h tec hn o log ie s . Nowad ay s , th e G ro up is n o lo ng er j us t a ban k ing g rou p, bu t on e of t h e lar ge s t IT an d da ta s ci en ce com pa nie s in t he r egi on w it h an am bi ti on to f os t er t he evolu ti on of a l oc al fl exib le d igi tal e cos y s te m th a t of fer s c lie nt s tail or m ad e pro du c t s a nd s er v ice s . Th e G rou p is a ware of a c yb er s ec ur it y r is k s an d co nt in u ou sl y im proves t h e res il ien ce of it s o pe ra tio n s . All o f th is f i lls u s wi th c on f ide nc e an d se t s goo d pr os pe c t s for t he f u t ure . O ur m os t i mp or ta nt s takeh ol der s , o ur c li ent s, un der s tan d wh a t we of fer t he m an d valu e ou r con t ri bu t ion to so ci et y . U l tim a te ly, they are r ea dy to r eco mm en d o ur so lu ti on s , s er vi ces , k n owle dg e, an d ad vic e to th ei r fam il ies , frien ds , acquaintances , and th eir communi t y. Thi s , h owever , cou ld n ot be s e cu red w it h ou t a de dica te d tea m of co lle ag ue s wh o tr uly ca re ab ou t o ur m is s ion a nd go th e ex tra m ile w h en n ee ded . T ha t is w hy we s t r ive to at tr ac t, e du cat e, deve lop, a nd r eta in be s t ta le nt s t hi s re gio n ha s to of fer . We are no t on ly fo cu s ed o n th e f iel d of IT w he re con s ide rab le ef for t h a s be en m ad e to at t rac t th e br ig ht es t an d be s t IT ta len t by bu ild in g a te ch no lo gica l hu b in B el gra de th at w il l develo p s ol ut ion s fo r th e w ho le gro up, b u t als o in oth er vo ca tio n s of wh ic h an in s t it u ti on s uc h as N LB G rou p ha s no s h or ta ge. W e b el ieve, th a t on ly a s a ti s f ie d em ploye e, on e wh o fe el s th e f ir m’s tr u s t an d car e for h is o r he r wor k / lif e ba lan ce a nd pot en tia l, w ill h e lp us a dd res s t he o pp or t un it ie s th a t awai t us . T ha t is w hy we co nt in ue t o devel op o ur em pl oyees a nd se arch f or n ew app roa ch es t h at w ill c on fi r m ou r care fo r th eir we ll -b ei ng . Th is i s why t h e T op Emp loyer In s t it u te h a s als o re cog nized u s , a wardi ng t h e Ba nk t h e pre s t igio u s ‘T op Empl oyer ’ ce r ti f ica te fo r th e seve nt h con s ec u ti ve year . W e are also happ y to report that in F ebruary 2022 the Supervisory Boar d decided to expand the Bank’s Management Boar d by adding thr ee new members. After they r eceiv e their r espective licenc es, the Management Board will c onsist of six members which will, in our firm opinion, significantly contribut e to the succ essful management of the Group and to meeting the str ategic commitments given t o you, our stakeholder s. Never t he les s, i t is n ot o nl y th e wel fa re of o ur c lie nt s , o ur em ploye es , an d t he r es t o f th e s t akeh old er s t h at i s on o ur min d s an d in o ur fo cu s , b ut a ls o th e pr os pe ri t y an d th e qu ali t y of li fe in t he e nt ir e reg ion . Con s eq ue nt ia lly, the s u s ta in abi lit y of ou r bu s in es s o per at io ns a nd p rac tic es i s in cre as in gl y be com in g ou r pr io ri t y . T he G ro up i s am on g th e f ir s t i n th e fi na nc ial i nd u s tr y i n th e SEE to s e t amb it io us E SG g oa ls , to wi th dr aw s up po r t for p roje c t s u s in g exclu si vel y coa l tec hn o log ies , to foc us o n be co min g p ape r les s, t o ac tive ly red uce i t s car b on fo ot pr in t, an d to wor k on i nt ro du cin g pro du c t s t h at p rom ote s u s ta in abi lit y an d en er gy e f f ic ien c y. In the Gr oup, we do not say in vain that this is our home. Her e ar e our families, friends, colleagues, neighbour s, favourite athletes, hosts who know what kind of c of fee we lik e . . . her e we can br eathe with full lungs, cr eate, experience ups and do wns, and expand our ties t ogether. Here ar e our thoughts and our hearts. That’s why w e can see what this r egion is capable of firsthand and r ecognise its potential befor e any one else. Because wher e others see just a spot on the map, we see a r egion of opportunities. Y ours tr uly, Managemen t Board of NLB Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 8 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report rel en tl es s ly p ur s u e th e be s t b rain a vail abl e o ut t he re, s o we can kee p up wi th t h e fa s t-p ac ed deve lop me nt t o wh ich we a re commit ted. Gro up fo un d at ion s ar e s t ron g an d rob us t, and we o n th e Su pe r vis or y B o ard ar e of t he o pin ion t h at t h e Gro up w ill on ly grow s tron ge r . If we ar e to co me o u t of t he se u nce r tai n tim e s fee lin g pr ou d of o ur s elve s an d ou r dec is io ns , s tro ng fou nd at io ns a re an a bs ol ut e mu s t. At t h e ti me t h is l et ter wa s cre at ed , we ha ve alre ad y acq ui red t h e Sl oveni an Sb er b an k ban ka d.d ., w h ich , al be it e ar ly d ay s , I dar e to s ay, has a pot en tia l to t ur n i nto a t ex t bo ok ca s e of h ow th e Gr oup c an ac t rapi dly, wit h lo gica l con s is t en c y, and fl aw le s s de liver y o f it s busines s strategy . St ill , wh il e th e pa s t i s be hin d u s , wi th t h e me m or y fad in g qui ck ly in l igh t of t h e rece nt d evelo pm en t s , we h ave to ack n owle dg e th e G rou p's r em ar kabl e b us in es s p er for m an ce in 2021 wh ic h led t o a rec ord h igh p rof i t s . S uc h an excell en t res ul t pr oved th a t even in t im es of e co no mic d if f icu lt ie s , kn owl edg e, exp er ie nc e, an d s oun d b us in es s d ec is io ns b as e d on s us tain ab le p r inc ip les c an ge ne ra te s uc ces s . W e b el ieve th e G rou p’s bus in es s re s ul t s prove th a t it s obj ec tive s are s et p r ud en tl y an d s t rat eg ical ly, focu si ng o n th e in nova ti ve, hig he r re cur r in g gr ow t h f in an cia l pro du c t s , add res s in g dig it al in n ovati on ac ros s o ur key m ar ket s . Mo reover , t he p a s t year h a s on ce ag ain r ea f f ir m e d th e imp or t an ce of b an kin g m em be r s , wh ic h are key fac tor not o nl y in t he G ro up’s bu sin e s s op era ti on s , b ut al s o in th eir r es pe c t ive m ar ket s , w h ere t he m a jor i t y o f th em h ol d sy s t em ical ly im po r tan t po si t ion s . We fir m ly b el ieve th at f u r th er int ra gro up co ns ol ida t ion w ill b r in g add it ion al o pp or t un it ie s to levera ge t he se s y ne rgi es an d f ur t h er s t ren g th en o ur p os it ion . Thi s way we w ill d o ever y t hi ng n ee de d to ac t ual ly s pe ar h ead th e in nova tio n t ren ds i n ban k in g, a nd n ot m er ely d efe n d ou r ma rket p os it io ns i n th e f u tu re a t ti me s wh en s om e wor l dw ide tre nd s in di cat e th a t dig ita lizat io n is s et t o dis r u pt t he c la s si cal ban k ing m o del i n th e s egm e nt o f con s um er reve nu e. The a cq ui si ti on of Kom erc ija ln a Ba nka , B eo gra d at t he e n d of 2020 exemp lif i es t ha t we are a bl e to exec ut e on t he c om pl ex ha rm on i sa ti on pr oce s s wi th N LB s t an dar ds w it h reg ard t o th e ali gn me nt o f se r vice s , f in an ci al pro d uc t s, a nd s u pp or t Dear Shareholders , The t im e s we fi nd o ur s el ves in m ake m e th in k of t h e foll owin g qu ote w hic h ad eq ua te ly re fl ec ts t h e lo gic we ar e tr yi ng t o pur s u e at o ur N LB G rou p: “In t h es e un cer t ain t im es , we d on’ t ne ces s ar il y n ee d mo re com m an d an d co nt rol over w h at we alre ad y exerci se i n ou r reg ul ar b us in es s o pe ra tio ns , bu t we do n eed a ll po s s ibl e m ean s to e ng age eve r yone’s int ell ige nce whilst solving and addressing busin ess challenges as they ar is e.” Spe cif i call y , a f ter t h e vi si ble e as e of t h e COVID -19 imp ac t on b us in es s p er fo r ma nce a nd t h e s t ron g eco no mi c reb ou nd a cros s our e nt ire r egi on w hic h lif te d o ur G rou p per fo r ma nc e on a re cord l evel , we are n ow awaken in g to a wor ld w he re wor ld wi de s an c t ion s i mp os ed o n Ru s s ia h ave dram a ti call y in cre as ed t h e m ar ket s’ vol at ili t y , an d a ll th e w hil e sp ill - over s ec tor - s pe cif i c ef fec t s are re - calc ul at ed over an d over aga in . U nce r tai nt y lo om s all over t h e ci vil is ed wor l d. Wh en i t com es t o ou r bu s ine s s , we n ee d a calm a nd f oc us ed min d , s wi f t exe cu t ion a bili t y , an d t he d et er mi na t ion t o no t s tr ay a way fr om o ur co re bu s in es s gr ow t h s t rat eg y , ke epi ng th e pro mi s es to a ll ou r s ta keho ld er s . We als o ne ed to sy s t em s . Ha vi ng s ai d th at, we ar e loo ki ng f or ward to t h e f in al me rge r of o ur t wo ban k s in S er bi a (Komerc ij aln a B an ka, Be og rad a nd N LB B an ka, B eo gra d) i n Ap ri l 2022, en ab lin g us fu r th er p us h i nto t h e org an ic grow th o n th a t ma r ket. W e a re awa re th e ro ad ah ea d is f i lle d wi th c h all en ges . However , th e G rou p wi ll con t in ue to p ur s u e it s s tra te gic obj ec tive s , foc u si ng m ai nl y on in te ns i ve digi tal is at io n an d provi din g to p qu ali t y u s er exp er ie n ce, as we ll a s su s t ain ab le ope ra tio n s an d devel opm e nt, wh il s t ju s t if yi ng t he ex pe c t at ion s of it s s h are ho ld er s t hro ug h div id en d pa ym en t s . Ou r foc u s on EP S an d DP S val ue ac cre ti ve bu si ne s s de ci si on s rem ain s in ta c t, an d we wi ll n ever lo ok in a ny ot he r dire c t io n . Ref er r in g to th e ab ove, we on t he S u per v is or y B oa rd can on ly as su re you t he G ro up i s tr an si ti on ing t oward s th e cor e of our s tra te gy, to be th e ta len t m ag ne t for t ech a nd c on s um er beh a vio ur - s av v y jo bs ee ker s , wh o ar e an d wi ll be a bl e to gra sp w it h t he c ha lle ng es d ef in ing t h e f ut u re of b an kin g . 2021 Bu sines s Development s Followi ng a p an de mi c-i nd uc ed co nt rac ti on in 2020, t h e glo bal e con o my rec overed s tron gl y in 2021. Th e re bo un d was pa r ti cul ar l y s tr on g af ter t h e re - o pe nin g of e con om ie s , but then the momentum eased throughout the year due to ri s ing h e adw in ds i n th e fo r m of s up ply c h ain b ot tl en ec ks , inf la t ion ar y pr es s ur es , a nd n ew COVID - 19 ou tb rea k s . However , th e im pa c t o f th e pa n dem ic o n eco no mi c ac t iv it y fad ed over t he c ou r se o f th e year . Sim il ar to g lob al e con om ic t ren d s , th e G rou p’s region rebou n ded sturdi ly from the pandemic -induced c ontraction. Pr ivat e con s um pt io n was t he m ai n grow th dr i ver , an d it wa s prop el le d by cre dit g row t h , re mi t t an ces , and p en t- up d em an d. T our is m- d ependen t countr ies benef it te d in par tic ular from lif ti ng r es t r ic t io ns a t h om e an d ab roa d, w hi ch re s ul ted i n th e reb ou nd i n th e to ur is m s ec tor over t h e su mm e r . Non et h ele s s , th e G rou p’s region wa s no t im mu ne t o th e gl ob al s urg e in com mo di t y pr ice s , r is in g en erg y pr ice s an d s up pl y- ch a in bot tl en ec k s , wh ic h cou pl ed w it h revi val in d om es t ic d em an d resulted in increasing inflationar y pressures . Never t he les s, t h e eco no mi c reb ou nd i n 2021 ha d a po si ti ve imp ac t on b an kin g s ys tem s in t h e Gro up’s regi on w it h len di ng Sta tement b y the Chairman of the Super visor y B oar d of N L B Primož K arpe Pr esident of the Supervisory Boar d of NLB 9 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ac t iv it y re cor din g a no tab le rev ival i n cor p ora te, a s well a s ho us eh ol d lo an s wh il e s tr on g inf low o f dep os it s c on ti nu ed als o in 2021. Po si t ive devel op me nt s r ef lec te d als o in t h e prof i tab ili t y of th e b an kin g s ys tem s of t h e Gro up’s regi on , wh ich re co rde d a no tab le im pr oveme nt. 2021 Bu sines s Per form ance The r em ar kabl e pe r for m an ce of t h e Gro up i n 2021 le d to a reco rd h igh p rof it o f EUR 236.4 m ill ion – a s u bs t ant ia l grow th fro m th e prev io us ye ar wh en exc lu din g th e ef fe c t s f rom t h e acquisit ion of K om ercijalna Banka, Beo grad, as unaudi ted 2021 da ta s how s . T op lin e grow th co nt in u ed t hro ug ho u t 2021, ne t int ere s t inc om e grow ing by 37% Yo Y b as ed o n s t ron g lo an grow th als o co nt r ib ut ed by Kome rci jaln a B an ka gro up, ad din g EUR 98.5 mil lio n to t ha t reven ue l in e. W it h re ali se d hi gh er lo an volu me s , t he G ro up re cor ded g row th in n et i nt ere s t in com e in mo s t of i t s m ar ket s in t he r egi on de s pit e th e s t ill c h all en gin g ma rgin e nvi ron m ent. I mp res s ive g row t h in n et f ee an d com mi s s ion i nco m e, up 39% Y oY , f ur t h er ad de d to t he G ro up’s per fo r ma nc e in 2021. St ron g de m an d for in ves t me nt p rod uc t s , su ch a s as s et m an a gem en t p rod uc t s an d ban ca s s ura nce , an d at t he s am e t im e s t ron g in com e g en era ti on f rom in cr ea se d bu si ne s s ac ti vi tie s (su ch a s pa ym en t s), le d to i nc rea se i n fe e an d com mi s s ion i nco m e. Th e G rou p ma na ge d to keep c os t s wi th in t he g uid an ce, a ls o con s id er in g an im po r tan t pa r t of K om ercijalna Banka group integration cos ts . The B ank rem ain s a h igh ly d es ire d em pl oyer in t he r egi on , wh il e th e s t af f cos t i s ti gh tl y ma na ge d by pro ac tive ap pro ac h to em pl oym en t th rou gh s ou rci ng e mp loyee s fro m all over t h e reg ion . The G ro up r eco rde d 9% lo an grow th i n 2021, th u s exceed in g the full year guidance. Loans to individuals recorded doubl e digi t grow th t h rou gh ou t th e gr ou p (12% o r 13% exclu di ng impac t of Komercijalna Banka, Banja Luka sale ), dr iven by s tro ng p rod uc ti on of h o us in g lo an s in S loven ia an d t he he al thy d em an d for c on s um er lo an s in s tra te gic fo reig n ma rket s . De pos i t s in cre as ed by EU R 1,243.6 milli on in 2021 on t he G ro up leve l. D ep os it s f rom i nd iv idu al s in cre as ed by a me re 5% , ind ica ti ng t h at in di vi du al s mig ra ted p ar t of t h eir sa vin g s to al ter n a ti ve inves t m en t s (e.g. , mu t ua l f un ds). Th e s tr en gt he ne d li qu idi t y a nd c api tal p os it io n , wi th a CE T 1 rat io at 15.5% an d TCR at 17.8% , en s ure a co mf or tab le c apa ci t y f or an am bi tio u s sh ar eh ol der p ay - ou t an d co nt in ue d dr i ve for growt h oppor t unit ies . Despit e subs tantial grow th , the Group ha s m an age d to m ain ta in RWA clos e to 2020 l evels , h el pe d by inc lu s ion o f Bi H an d M ace don ia o n EBA's thi rd pa r t y eq uival en t li s t, an d by con cl us io n of M IG A gu ara nt ee s . Net i nt ere s t m arg in of 2.07% an d op era ti on al b us in es s ma rgin o f 3.28% h ave s ta bil is ed w it h TL TRO re co gni t ion o f int ere s t in co me i n Q4 h av in g a m argi na l po si ti ve im pac t in th e la s t q ua r ter . T he co s t-t o - in com e ra ti o in cre as ed by fou r pe rcen ta ge po in t s Y o Y , t o 62.3% , acc ou nt in g for t h e cost s of K om ercijalna B anka group integration process . The ex tr aor din ar y re s ul t s fro m wor kou t of t he l eg ac y NP L bo ok and mater ial contr ibut ions from K om ercijalna Ban ka gr o up on to p, led t o a EUR 35.8 m ill ion n et re le as e of i mp air m en t s an d provi s ion s fo r cre dit r i s k – en din g t he ye ar at - 41 bp s cos t o f r is k . Th e G rou p es t ab lis h ed EU R 27.1 mi llio n of ot h er imp ai rm e nt s a nd p rovi si on s , of w hic h EUR 14.8 m il lion f or HR res tr u c t u ri ng c ha rge s in S er bi a an d th e re s t m os t ly f rom lit ig at ion c h arg es in S er b ia – al th o ugh t h e rec en t dy na mic i n th e la t ter i s mo re fa vou rab le. NLB Group mai ntain s it s corpo rate gov er nan ce princ iples in line w ith t he high es t st andards The Supervisory Boar d performed its work in acc ordanc e with applicable laws (pr edominantly, but not e xclusively with r ecently changed the Companies Act (Z GD-1) and the Banking Act (ZBan-3), as well as po wers and pr ocedur es as set by the Articles of Association of NLB and the Rules of Pr ocedur e of the Supervisory Boar d of NLB. It carried out its function of assuring efficient and active supervision ov er the management of NLB and the Gr oup in its duty of car eful and scrupulous performance, while adhering to the internal acts of the Bank. In pe r for mi ng i t s d ut ie s , th e S up er vi so r y Bo ard f oll owed t he reco mm e nd at io ns o f th e Cor p ora te G over na nc e Code f or Lis ted Companies. The Corporate Governance Statem ent of NLB transparentl y rev eals de viations from the m entioned cod e, as we ll as ex pl ain s key as pe c t s o f th e B an k ’s cor p ora te gover na nc e, pa r tic ul ar ly t h e com po si t ion a nd wo rk o f th e Ba nk ’s Man age m ent B o ard a nd S u per v is or y B oa rd an d it s co mm it te es , i nt er n al co nt rol m e ch an is m s , an d in ter n al con tro l f un c t io ns . It is p ub li sh e d in t he b us in es s p ar t o f th is Annu al repor t. The Management Bo ard adopted mentioned s ta tem e nt o n it s s es s io n da te d 1 Febr ua r y 2022 an d th e Su pe r vis or y B o ard on i t s s es s io n da ted 24 Febr ua r y 2022 an d ha d no c om me nt s t o it (reco m me nd at io n 5 of t he afo rem en t ion ed Co de). Nex t year , th e S up er vi s or y B oar d wil l rep or t on i mp le me nt in g new r eco mm en d at ion s m ad e wi th re newe d ver si on of t h e Cor po ra te G over na nce Co de fo r Lis ted Co mp an ies , t h at w ill b e f ir s t u s ed fo r pre pa rat io n of t he Cor po rat e Gover n an ce S ta tem e nt fo r th e b us in es s ye ar 2022. At th e en d o f 2021, th e S up er vi so r y Bo ard wa s com p os ed of 12 me mb er s , o f wh ich e igh t were r epr es en ta ti ves of s h are ho ld er s (in a dd it ion t o Pr im ož Karp e an d An dre as K li ng en , m em be r s were al so G re go r Ro k Kas tel ic , M ar k W il liam L an e Ri ch ard s , Sh ren ik D hi raj lal D avd a, D av id Er ic S im on , Veric a T rs ten jak , an d Is la m Os am a Zekr y) an d fo ur we re rep res en ta t ives o f employees (Sergeja K očar , Bojana Šteblaj , Janja Žabjek Dol in š ek , an d T ad eja Žb on tar R em s). In 2021, the Supervisory Boar d held seven r egular and 12 corr espondence sessions. In its w ork, the Supervisory Board of NLB r eceived pr ofessional assistanc e from fiv e operational committees, namely: The Audit Committee, the Risk Committee, the Nomination Committee, the Remuner ation Committee, and the Oper ations and Information T echnology Commit tee. These committees function as consulting bodies of the Supervisory Boar d and in great det ail discuss the materials and proposals of the Management Boar d relat ed to a par ticular ar ea. Based on their findings the Supervisory Boar d passed appropriate r esolutions. Each of the five c ommit tees is composed of at least thr ee members of the Supervisory Board. Thr ou gh th e yea r , th e S up er vi s or y Bo ar d mo ni tore d t he imp le me nt at io n an d ef fec ti vene s s of t h e NLB G rou p’s st ra teg y. The S u pe r vis or y B o ard i s s ued a pp rovals to t h e Ma na ge me nt Bo ard r ela te d to t he B a nk ’s b us in es s p oli c y, the Fi na nc ial P lan , an d th e B ud get o f th e NL B Gro up, a dop te d th e NLB G ro up An n ual R ep or t, th e NLB G ro up S u s tai na bil it y Re por t, t he N LB Group Sus tain abilit y Framew or k, Pillar 3 disclos ures for the NLB G rou p, pe ri odi c bu s in es s re po r ts , ado pte d de ci sio n s rel at ed to m an ag em en t of r i sk , repo r ted o n cos t opt im is a tio n ac t iv it ie s , p ubl is h ed t he a nn u al (and p er io dic) In ter n al A udi t Plan a n d Plan o f Com pl ian ce & In te gr it y, adopt ed yea r ly comprehens ive opinion o f th e Internal Audit, adopted per fo r ma nc e as s es s m en t s an d ap poi nt m en t s of di rec tor s o f Comp li anc e & In teg r it y , a nd t h e Int er n al Au di t. The S u pe r vis or y B o ard ad op ted d ec is ion s w it h re gard s to t h e convoc at io n of th e t wo Ge ne ral M ee ti ng s of s h are ho lde r s , gave co n se nt to t er m in at io n of of f ice of t h e Ma na ge me nt Bo ard (Pe tr B r unc lí k , COO w it h t he t er mi na t ion o f of fi ce wi th ef fe c t o n 30 J un e 2021) an d gave co n se nt t o no min a ti on of a can di da te fo r a me mb er o f a S upe r vi so r y Bo ard . Th e Su pe r vis or y B o ard ga ve con s en t to re nova tio n of in te r na l pol ic y on I nt er n al Con tr ols Sy s t em; R ul es an d Pr oce du res f or th e S us t ain ab ili t y Comm it te e; Rev iew of t h e Dive r si t y Poli c y ; New Re m un era ti on Po lic y f or Emp loyee s for t h e NLB a nd th e NLB G ro up; Th e Re mu ne ra tio n Pol ic y o f th e M em ber s of S up er vi so r y Bo ard o f NLB ; an d th e M em be r s of t he Ma na gem e nt B oa rd of N LB . I t als o g ave con s en t to an n ua l 10 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report se lf- a s s es s m en t of em pl oyees p er fo r min g s pe cia l wor k an d app roved ac hi eveme nt s o f th e M an ag em en t B oar d an d prop os ed n ew go al s for t he M an a gem en t B oa rd . The S u pe r vis or y B o ard was a c t ive i n ado pt in g dec is io ns on es tabl is h me nt o f new c om pan ie s (i n Se r bia a nd N or t h Macedonia), cross- border fin ancing and inter na tional sy n dica te d f in an cin g , tr an sa c t ion s w it h MI GA , l arg e exposures , sale of receivables, claim wri te- of fs , the dives tmen t of th e G ro up co mp an ies , l eg al pr oce ed ing s invo lvi ng N LB an d th e G rou p me mb er s , t ra ns ac tio n s wi th p er s on s in s p eci al rel at ion s w it h th e B an k , Worker ’s Cou nc il 2021 re por t, et c . On t he s e s si on of t h e Su pe r vis o r y Bo ard d at ed 20 J an ua r y 2022, foll owin g t he b es t prac tic e se le c t ion a nd eva lu at ion pro ces s , t h e S upe r vi so r y Bo ard a ppo in ted t h ree a dd it ion al new m em be r s of t he M an ag em en t B oa rd, n a me ly : H edv ika Us en ik , An to nio A rg ir , an d An dr ej La si č, t h us ex pa nd ing it to s ix m em b er s in t otal . Th ey al l com e fr om NLB o r NLB Gro up, h ave ex ten s ive exp er ie nce a nd p roven val ue cre at in g a po si ti ve tra ck re co rd. We bel ieve th a t th e B an k ' s Managem ent Board, sup plemented wit h three new members , is pr op er ly e qu ipp ed fo r ch al len ge t h at a wai t us an d of fe r s th e be s t co mb in at ion o f var io us k now le dg e, exp er ien ce , an d com pe ten ci es . A f i ve -yea r ter m o f of fi ce for t h e new m em b er s wil l s ta r t af ter t h ey ha ve obt ain ed c on se nt f rom r eg ula to r . Un ti l th en , t hey w ill c on tin u e to p er for m t he f u nc tio n s of execu t ive as s i s ta nt s t o th e M an age me nt B o ard . Thr ou gh th e yea r , we ack n owle dg ed re gu lar r ep or t s on doc um en t s re cei ved f rom t he r eg ula to r (s), na me ly t he B o S an d th e ECB, a nd o n th e im pl em en ta t ion o f th e re qui rem en t s of me nt ion e d reg ul at or s an d ad opt ed o th er am e nd me nt s t o th e int er n al po lic ie s . With the aim of ensuring sustainable dev elopment, the Gr oup strives to actively c ontribute to a mor e balanced and inclusive ec onomic and social system thr ough three lines of actions: sustainable oper ations, sustainable finance, and Corpor ate Social Responsibility. In 2021, the Gr oup mov ed fr om the awar eness-r aising phase, to the phase of actively implementing sustainability elements into the business model. Ther efor e, in 2021, the Bank adopted the NLB Gr oup Sustainability F r amework and put in plac e the 4-level NLB Gr oup Sustainability Governanc e Structure, which is as follo ws: ( i) the Supervisory Boar d; ( ii) the Sustainability Committee (consultativ e body and a decision-making body of the Management Boar d), ( iii) the Sustainability T eam, and ( iv) the NLB Gr oup W orking Gr oups. The Supervisory Boar d adopts decisions r elated to sustainability issues in almost every session. Wh ile m em b er s of t h e Su pe r vis o r y Bo ard h ave t he p rop er a nd complemen tar y knowledge, experience, and skills to per for m th eir d u ti es , t hey a ll h ave di f f ere nt p rofe s s ion al , n at ion al , an d ed uca ti on al b ackgro un d s . Al l th e m em be r s of t he S up er v is or y Bo ard h a ve th e ne ces s ar y p er s on al in te gr i t y a nd p rof es s ion al eth ic s to ho ld t he ir po si t ion s , w hic h was co nf i rm e d by th e pos it i ve Fit & P rop er a s se s s me nt. Th is p rovi des t h e as s u ran ce th at we c an car r y o ut o ur s u per v is or y ro les i n a res p on si bl e ma nn er a nd m ake de ci si on s th a t be ne f it NL B an d add valu e to t he G ro up. T he d eli ver y of c ri t ical a nd a s s er ti ve opin io ns h a s be en an d w ill al way s rem ai n at t h e core o f ou r dec is io n - ma kin g pr i nc ipl es t h rou gh t he ex pe c te d en ga ge d par t ici pa t ion o f all t he m em b er s . I c an as s u re you we a ls o reg ul ar ly u pgra de t h e sk ill s an d t he k n owle dg e req uir ed fo r the fulfilme nt of our duties. The S u pe r vis or y B o ard co nt in ue d to ac t in ac cor dan ce w it h th e hi gh es t e th ical s tan da rds o f ma n age me nt, co ns id er in g th e preve nt ion o f con f lic t of in ter es t. Th e S up er vi s or y B oar d me mb er s to ok p rec au ti on ar y m ea s ure s to avoi d any con fl ic t s o f in ter es t t h at m igh t h ave in f lu en ced t h eir d eci s ion s . Thr ou gh ou t th e yea r , th ere we re 1 0 pot en tia l con f lic ts o f int ere s t id en ti f ied a t s es s io ns o f th e S up er vi so r y Bo ar d, an d th ey were al l ha nd le d wi th u t mo s t pro fes sio na l du e care . Thr ou gh ou t th e yea r , th e S up er vi so r y Bo ard h a s ma in tai ne d a well-balanced prof es sional relationship with the Managemen t Bo ard a nd e nj oyed ti me ly, comp reh en s ive, an d d at a- su pp or te d in pu t s f rom t he l at te r , en ab lin g th e S up er vi so r y Bo ard t o ado pt al l it s d ec is ion s in l in e wi th t h e prof es s io na l int ere s t s of t h e B an k , wh il s t al ways a dh er in g to b an kin g regulati ons and its s tatutor y po wers . De sp ite ex tre m ely d em an di ng t im es d ur in g s eco nd ye ar of COVID - 19 pan d em ic , t he S up er v is or y B oa rd m em be rs as s es s t h at t he M a na gem e nt B oa rd m an ag ed to s u cces s fu lly imp le me nt t h e NLB G ro up St ra te gy. The ver y s oli d f in an cia l res ul t s of N LB G rou p in 20 2 1 en ab le d th e B an k to p ay o ut a tota l of EUR 9 2 . 2 m ill ion i n div id en ds to t h e sh a reh ol der s , th ere by rea f f i r min g NLB G ro up’s s tab le an d s uc ces s f u l bu si ne s s op era t ion s an d s t ron g cap it al po si t ion . T he Su pe r vis or y B o ard a s se s se s t ha t th e NL B Gro up h a s su cce s s f ull y ut il is ed t h e opp or t un it ie s of fere d to i t by th e su pp or t ive eco n om ic env iron m en t of s t ro ng G DP g row t h in th e re gio n , an d th a t pe r for ma nc e an d res u lt s o f th e NLB Ma na gem e nt B oa rd pr oved aga in we can h a ve fu ll t r us t in ou r exec u t ive t e am . Pur s u an t to Ar t ic le 2 7 2 of t h e Comp an ie s Ac t ( ZGD -1) a nd th e ab ove repo r t th e S up er vi so r y Bo ard o f NLB e s ta bli s he d an d en s ure d th at i t re gu lar l y an d th oro ug hl y m oni to red t h e Ba nk ’s and th e G ro up’s opera t ion s in 2 02 1 w it h in it s p ower s an d ef fic ie nt ly s up er v is ed t he B a nk ’s and NLB G ro up’s managem ent and operations . Revie w o f the N LB Group Ann ual Rep or t 2 0 2 1 Pursuant to Article 282 of the Companies A ct (ZGD-1), Article 50 of the Banking Act (ZBan-3), it is the obligation of the Supervisory Boar d to ex amine the Annual Report together with the auditor's r eport and the proposal for the alloc ation of distributable pr ofit pr esented by the Management Boar d. The NLB Gr oup Annual Report 2021 and unaudited financial statements of NLB Gr oup wer e ex amined by the Audit Committee and the Supervisory Boar d at its meetings on 23 F ebruary and 24 F ebruary 2022. Wi th in t h e leg al d ead lin e, t h e Ma na gem e nt B oa rd of N LB su bm it te d to t he S up er v is or y B oa rd th e NL B Gro up A n nu al Rep or t 2 02 1 , in cl u din g th e B u si ne s s Re por t a nd t h e Fin an c ial Rep or t, wi th t h e au di ted s ep ar ate f i na nc ial s tat em en t s of NLB an d t he co n so lid at ed f in an ci al s t at em en t s of t he N LB and its s ubsidiar ies , and the auditor 's opinion. According to th e au di tor 's o pin ion , i n all m a ter i al res p ec t s , th e s ep ara te an d con s oli da ted f i na nc ial s tat em en t s en cl os ed g ive a tr ue an d fair v iew of t h e f in an cia l pos i tio n of N LB an d th e NLB Gro up a s of 3 1 De cem b er 20 2 1 , th e s ep ara te an d co ns o lid at ed income s tatemen t, the separate and consolidated sta tement of ot he r com pr eh en si ve in com e, t he s e par at e an d th e con s oli da ted s tat em en t of c ha ng es in e q uit y an d t he s ep ara te an d th e con s ol ida te d s ta te me nt o f ca sh f low s for t he ye ar th en e nd ed , in ac cord an ce w it h th e In te rn a ti on al F in anc ial Rep or t in g Sta nd ard s as a do pte d by th e Euro pe an Un io n . It wa s als o es tab lis h ed b as ed o n th e rev iew of t h e bu si ne s s rep or t th a t th e in fo rm a ti on co nt ain ed i n th e bu s in es s s ec tio n of th e A nn u al Re po r t is co ns i s te nt w it h th e a udi te d f in an cia l s ta tem e nt s o f th e B an k an d th e NL B Gro up . Y ours tr uly, Super visor y Board of N LB Primo ž K arpe Chairm an 11 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Str a tegic Member s Ov er vie w Slov enia Serbia Bosnia and Herzegovina Koso vo Montenegr o NLB Gr oup NLB, Ljubljana NLB Lease&Go, Ljubljana NLB Skladi, Ljubljana Komer cijalna Banka, Beogr ad NLB Banka, Beogr ad KomBank Inv est, Beogr ad NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a (vii) Market position in 2021 Br anches 479 (i) 75 - - 190 28 - 48 47 36 33 22 Active clients 1,891,064 (ii) 675,310 - - 975,033 142,964 - 415,368 213,112 129,954 230,014 84,342 T otal assets ( in EUR million) 21,577 12,700 120 2,128 (iii) 4,165 715 2 1,771 927 728 931 751 Net loans to customers ( in EUR million) 10,587 5,153 100 - 1,796 512 - 1,084 471 453 635 492 Deposits fr om customers ( in EUR million) 17,641 9,660 - - 3,425 449 - 1,400 76 0 593 799 610 Result after tax (in EUR million) 236.4 208.4 -0.9 9.0 34.8 4.3 0.0 39.0 18.2 10.0 24.4 10.1 Market shar e by tot al assets - 26.3% - 37.3% (iv) 9.7% 1.6% (vi) - 16.9% 19.1% (viii) 5.4% (v) 16.3% 14.1% Macr oeconomic indicators f or 2021 GDP (r eal gr owth in %) 7.6 8.1 7.4 4.0 5.9 10.4 12.0 A ver age inflation ( in %) 2.9 2.0 4.1 3.2 2.0 3.3 2.4 Unemployment r ate ( in %) 10.7 4.8 11.1 15.7 15.5 24.0 16.6 Curr ent account of the balanc e of payments (as a % of GDP) -1.4 4.8 -4.4 -3.5 -2.8 -6.8 -16.4 Budget deficit/surplus (as a % of GDP) -4.8 -6.5 -4.1 -5.4 -2.7 -3.6 -4.7 (i) Including Komer cijalna Banka, Beogr ad. (ii) Number of active clients of K omercijalna Bank a, Beograd not included in total number of NLB Gr oup active clients due to differ ent definitions. (iii) Assets under management. (iv) Market shar e of assets under management in mutual funds. (v) Market shar e in the F eder ation of BiH as at 30 September 2021. (vi) Market shar e as at 30 September 2021. (vii) Mer ger of NLB Banka, P odgorica and Komer cijalna Banka, P odgorica on 12 November 2021. (viii) Market shar e in the Republic of Srpsk a. T a bl e 1: Strategic member s ov er view North Macedonia 12 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K e y Highligh ts Finan cial Per for man ce Str ong business performance mark ed by continuous loan gr owth, incr eased fee and commission income, one-off effects and negative c ost of risk Business Ov er view Lead in g pl ayer i n SEE A sset Q uali t y Go od a s se t qu ali t y tre nd s with well diversif ied por t folio, prudent credit standards an d dec is ive wo rko ut approach C api tal & Liqu idi t y Strengt hene d capital and liquidit y pos ition ens urin g capital return and cont inued growt h oppor t unit ies Str ategy Comm i t t ed t o pur s u e th e st rategic objec ti ves • P rofit a.t. amounted to EUR 236.4 million. • Str ong loan gr owth of 12% Y oY to individuals, with the high pr oduction of new loans (especially housing loans) and 8% Y oY to corpor ates, c ompensated r eduction in inter est rates, and supported net inter est income. • The economic r ebound led to the optimisation of the inv estment por tfolios of households, and the gr owth of housing loans, mutual funds, and bancassur ance, henc e incr easing net fee and commission inc ome (39% Y oY; 14% Y oY without the Komer cijalna Bank a gr oup contribution). • Continuous c ost discipline . • Non-r ecurring valuation income in the amount of EUR 14.8 million fr om r epayment of exposur e, classified as non-performing, EUR 9.0 million of other oper ational income fr om the settlement of legal dispute, and EUR 8.1 million loss fr om the sale of Komer cijalna Bank a, Banja L uka. • P ositive impact of the r elease of impairments and pr ovisions for cr edit risk (EUR 35.8 million), mostly due to succ essful r epayment of on- and off-balance e xposures and changed par ameters r elated to mor e favour able macr oeconomic for ecasts. EUR 27.1 million net established other impairments and pr ovisions , due to r estructuring pr ovisions and pr ovisions for legal risk, mostly r elated to Komer cijalna Banka, Beogr ad. • A rob us t and s ust ainable universal business model with increased foc us o n dig ita li sa ti on an d E SG . • St ri vi ng t o be com e a regional champion . • Higher availability and use of digital channels – awid er ra ng e of 24/7 d igi tal so lu ti on s of fere d to c lie nt s . • The i nt eg rat ion p roces s o f th e K om ercijalna Banka ban ks wit h th e NLB b an k s in S er bi a an d Mo nt en egro i s pr ogr es s in g as pla nn ed . In P odg or ic a, t he m e rge r was s ucc es s f u lly co mp le te d in Novem ber 2021, w h ile i n Se r bia th e m erg er is o n s ch ed ul e to be co mp le ted i n th e Q2 2022. Komerc ija ln a B an ka in Bi H was su cce s s f ull y so ld i n De cem be r 2021. • Pos it ive tren ds i n as se t q ual it y con ti nu ed , re s ult in g in a f u r th er dec lin e of t h e NPL r at io, an d t he ne ga ti ve cos t o f r is k . • W e ll - di ver s if ie d, s tab le, a nd ro bu s t credit por t folio qualit y . • Proactive approach to wor kout s a n d mo re fa vour abl e macroe conom ic predic tio ns th an exp ec te d con tr i bu te d to t he negative cost o f ri s k (- 41 bp s). • The s tab le an d low l evel of NPE (EBA def.) of 1.7% wi th a com for t abl e NPL c overag e rat io o f 57.9% . • No as s e t qu ali t y dete r ior at ion wa s obs er ved i n lo an s wi th expi red moratorium s. • The capital positio n was com for t abl y ab ove regu la tor y req uir em en t s ( TCR of 17.8% , 1.2 p.p. h igh er Y oY). I nc lu s ion o f th e negative goodwil l recognised at th e acq ui si t ion o f Komerc ij aln a Ba nka , B eo grad a s of 30 J u ne 2021, an d par t ia l inc l us ion o f th e 2021 res ul t on o ne s id e an d s ucc es s f ul RW A o ptimisation measur es un der t aken on t h e oth e r , ha d a pos it i ve imp ac t on t he ca pi tal position. • In 2021, th e B an k pa id o ut acum u la ti ve dividend of EUR 92.2 m illi on . • The liquidit y pos ition of t he G ro up rem ain e d ver y s tr on g, w it h a hi gh level of unen cumb ered liquid as s et s in t ota l as s et s ( 38.3%). Th e strong deposit b as e de mo ns tra te d cli en t con f ide nc e in t he G ro up. • The B a nk p ar t ici pa te d in th e EC B TL TR O II I op era ti on . Th e po si ti ve lending per form ance will par t ially compensate the negativ e outcome from holding liquidit y reser ves . • The B a nk c on tin u es to exe c u t e its s trate gic initia tives as well a s explo re new b us in es s oppor tun ities on bot h do m es t ic an d oth er r egi on al m ar ket s w he re th e G rou p is n ot yet p res en t. • The digital leadership position in S loveni a is b ein g ap pl ied to ot he r ma r ket s in w hic h th e Gro up o pe rat es . The v is io n is to be com e o ne o f th e be s t da ta sc ien ce co mp an ie s in th e re gio n to pro du c t ive ly u se c us tom er da ta an d to evolve a lo cal f lexi ble digital ecosystem of fer ing pro du c t s an d s er vi ces f or cl ien t s . • Cont in u e to s er ve th e com m un it y aim in g to im prove th e qu ali t y of li fe i n th e G rou p’s region . Dr iv in g bu si ne ss val ue t h roug h sus tainabili t y and c ommitment to en ha nc e th e m an ag em en t of environmental and social ri s k s of it s o pe ra tio n s , an d me et in g s ta keho lde r s’ n ee ds an d expec tations . 13 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K ey Per form ance Indicat ors 2021 2020 2019 NLB Gr oup NLB NLB Gr oup NLB NLB Gr oup NLB Income statement data (in EUR million) Net inter est income 409 139 300 139 318 158 Net non-inter est income (i) 258 222 205 173 199 197 Net non-inter est income (BoS) (i) 2 94 232 360 180 219 204 T otal costs (i) -415 -184 -29 4 -180 -305 -191 Oper ating costs (BoS) (i) -451 -193 -311 -188 -321 -198 Result befor e impairments and pro visions (ii) 252 178 211 131 212 164 Impairments and pr ovisions 9 34 -71 -17 -1 14 Gains less losses fr om capital investments in subsidiaries, associates, and joint ventur es 1 - 1 - 4 - Result befor e tax 261 211 278 114 215 178 Result of non-c ontrolling inter ests 11 - 3 - 8 - Result after tax 236 208 270 114 1 94 1 76 Financial position statement data (in EUR million) T otal assets 21,577 12,700 19,566 11,027 14,17 4 9,802 Gr oss loans to customers 10,903 5,250 10,033 4,753 7,938 4,718 Impairments and deviations fr om FV -316 -97 -388 -158 -334 -129 Net loans to customers 10,587 5,153 9,645 4,595 7,605 4,589 Financial assets 5,208 3,034 5,120 3,017 3,830 3,169 Deposits fr om customers 17,641 9,660 16,397 8,851 11,612 7,7 61 Equity 2,079 1,552 1,953 1,451 1,686 1,333 Non-contr olling interests 137 - 170 - 45 - T otal off-balance sheet items 4,655 3,489 4,671 3,684 4,222 3,644 Ke y financial indicators a) Capital adequacy T otal capital r atio 17.8% 2 4.6% 16.6% 27.1% 16.3% 22.6% T ier 1 ratio 15.5% 20.3% 14.2% 22.3% 15.8% 21.8% CET 1 r atio 15.5% 20.3% 14.1% 22.3% 15.8% 21.8% T otal RW A ( in EUR million) 12,66 7 6,709 12,421 6,029 9,186 5,225 RW A / T otal assets 58.7% 52.8% 63.5% 54.7% 64.8% 53.3% b) Asset quality NPL co ver age ratio 1 (co verage of gr oss non-performing loans with impairments for all loans) 86.1% 75.1% 81.8% 7 6.0% 89.2% 76.2% NPL co ver age ratio 2 (co verage of gr oss non-performing loans with impairments for non-performing loans) 57.9% 60.6% 57.3% 57.9% 65.0% 56.7% NPL co ver age ratio (EBA definition) (iii) 58.4% 60.8% 56.9% 55.3% 64.5% 55.5% NPL co ver age ratio (EBA definition) (BoS) (iv) 58.4% 60.8% 56.9% 55.3% 64.5% 55.5% NPL volume (in EUR million) 367 130 475 208 375 169 NPL r atio ( internal def.; NPL / T otal loans) 2.4% 1.5% 3.5% 3.0% 3.8% 2.8% Net NPL r atio ( internal def.; net NPL / T otal net loans) 1.0% 0.6% 1.5% 1.3% 1.4% 1.3% NPL r atio (EBA definition) (iii) 3.4% 2.4% 4.5% 4.0% 4.6% 3.3% NPL r atio (EBA definition) (BoS) (iv) 2.4% 1.5% 3.4% 2.8% 3.8% 2.7% NPE r atio (EBA definition) 1.7% 1.1% 2.3% 1.9% 2.7% 2.0% NPE r atio (EBA definition) (BoS) (v) 1.7% 1.1% 2.3% 1.9% 2.7% 2.0% Rec eived collater als / NPL 61.7% 60.0% 60.7% 65.8% 66.6% 72.0% NPL collat eral r eceived / NPL (EB A definition) 58.8% 63.1% 42.4% 43.5% 35.4% 33.6% Cr edit impairments and provisions / RW A -0.3% -0.4% 0.5% 0.1% -0.1% -0.3% T a bl e 2: Key fi n an ci al i n dic at or s f or N LB G ro up a n d NL B F urther details on the definition of certain indicators in this table ar e available in the chapter Alternativ e Performance Indic ators . (i) Data for 2019 ar e adjusted to the changed schemes as pr escribed by the BoS (reloc ation of some items from net other inc ome to other general and administr ative e xpenses). (ii) Result befor e impairments and pr ovisions of NLB Gr oup for the year 2020 does not include negative goodwill. (iii) Loans and advanc es without loans and advances classified as held for sale, c ash balances at CBs and other demand deposits. (iv) Loans and advanc es including cash balances at CBs and other demand deposits. (v) The carrying amount of debt instruments measur ed at fair value thr ough other compr ehensive income (FV OCI) is increased b y value adjustments due to impairments. (vi) Calculated on the basis of av erage total assets. (vii) Calculated as Net income fr om oper ational business (NII - T ier 2 bonds expenses + Net fee and c ommission income + Recurring net income fr om financial oper ations) / Av erage t otal assets. (viii) As per shar e register of KDD. The shares ar e listed on Ljubljana Stock Exchange. The Bank of New Y ork Mellon (the 'GDR Depositary') repr esented in the shar e register of KDD as one holder is not the beneficial o wner of shares, it holds shar es in its capacity as the depositary for the GDR holders. The GDRs r epresenting shar es are issued against the deposit of shar es and ar e listed on London Stock Ex change. Theref ore, the number in the shar e regist er of KDD does not repr esent all final beneficial owners of the Bank shar es. The rights under the deposited shar es can be ex ercised b y the GDR holders only through the GDR Depositary and individual GDR holders do not hav e any dir ect right to either at tend the gener al meeting of bank's shareholders or to ex er cise any voting rights under the deposited shar es. (ix) Including Komer cijalna Banka, Beogr ad. (x) Including Komer cijalna Banka, Beogr ad, Komer cijalna Banka, Banja L uka and K omercijalna Bank a, Podgoric a. (xi) Unsolicited r ating. 14 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 2021 2020 2019 NLB Gr oup NLB NLB Gr oup NLB NLB Gr oup NLB c) Pr ofitability Net inter est margin (BoS) (vi) 2.0% 1.2% 2.0% 1.3% 2.4% 1.7% Financial intermediation mar gin (BoS) (i) 3.4% 3.1% 4.4% 3.1% 4.0% 3.9% Oper ational business margin (vii) 3.3% 2.3% 3.2% 2.5% 3.8% 2.9% ROE b.t. 11.8% 14.0% 15.4% 8.2% 12.7% 13.4% RO A b.t. 1.3% 1.8% 1.8% 1.1% 1.6% 1.9% ROE a.t. 11.4% 13.8% 15.4% 8.2% 11.7% 13.3% RO A a.t. 1.1% 1.8% 1.8% 1.1% 1.5% 1.9% d) Business costs Oper ating costs / A verage t otal assets (BoS) (i) 2.2% 1.6% 2.1% 1.8% 2.4% 2.2% CIR (i) 62.3% 50.8% 58.3% 57.9% 59.0% 53.9% T otal costs / RW A (i) 3.3% 2.7% 2.4% 3.0% 3.3% 3.7% T otal costs / T otal assets (i) 1.9% 1.4% 1.5% 1.6% 2.2% 2.0% e) Liquidity Liquidity assets / Short-term financial liabilities to non-banking sector 48.9% 59.4% 56.1% 65.8% 54.7% 63.8% Liquidity assets / A ver age total assets 40.2% 47.4% 51.8% 54.9% 44.7% 52.1% Liquidity Cov erage Ratio (L CR) 252.6% 314.5% 257.5% 336.3% 324.9% 362.1% Net stable funding r atio (NSFR) 185.2% 171.4% 165.7% 162.1% 159.5% 158.9% f) Lever age ratio Lev erage r atio 10.2% 13.6% 7.8% 10.3% 8.7% 9.7% g) Other Market shar e in terms of total assets - 26.3% - 2 4.7% - 23.8% LT D 60.0% 53.3% 58.8% 51.9% 65.5% 59.1% T otal re venues / RW A (i) 5.3% 5.4% 4.1% 5.2% 5.6% 6.8% Ke y indicators per shar e Shar eholders (viii) - 2,571 - 2,455 - 2,100 Shar es - 20,000,000 - 20,000,000 - 20,000,000 The corr esponding value of one shar e ( in EUR) - 10 - 10 - 10 Book value (in EUR) 103.9 77.6 97.6 72.5 84.3 66.7 Br anches Number of br anches 479 (ix) 75 530 (x)  80 318 93 Employees Number of employees 8,185 2,510 8,792 2,591 5,87 8 2,659 International cr edit ratings Rating Outlook Rating Outlook Rating Outlook S&P BBB- Stable BBB- Negative BBB- Stable Fitch - - BB+ Negative BB+ Stable Moody's (xi) Baa1 Stable Baa1 Stable Baa2 P ositive F urther details on the definition of certain indicators in this table ar e available in the chapter Alternativ e Performance Indic ators . (i) Data for 2019 ar e adjusted to the changed schemes as pr escribed by the BoS (reloc ation of some items from net other inc ome to other general and administr ative e xpenses). (ii) Result befor e impairments and pr ovisions of NLB Gr oup for the year 2020 does not include negative goodwill. (iii) Loans and advanc es without loans and advances classified as held for sale, c ash balances at CBs and other demand deposits. (iv) Loans and advanc es including cash balances at CBs and other demand deposits. (v) The carrying amount of debt instruments measur ed at fair value thr ough other compr ehensive income (FV OCI) is increased b y value adjustments due to impairments. (vi) Calculated on the basis of av erage total assets. (vii) Calculated as Net income fr om oper ational business (NII - T ier 2 bonds expenses + Net fee and c ommission income + Recurring net income fr om financial oper ations) / Av erage tot al assets. (viii) As per shar e register of KDD. The shares ar e listed on Ljubljana Stock Exchange. The Bank of New Y ork Mellon (the 'GDR Depositary') repr esented in the shar e register of KDD as one holder is not the beneficial o wner of shares, it holds shar es in its capacity as the depositary for the GDR holders. The GDR s repr esenting shar es are issued against the deposit of shar es and ar e listed on London Stock Exchange. Therefor e, the number in the shar e register of KDD does not r epr esent all final beneficial owners of the Bank shar es. The rights under the deposited shar es can be ex ercised b y the GDR holders only through the GDR Depositary and individual GDR holders do not hav e any direct right t o either at tend the gener al meeting of bank's shareholders or to e xer cise any voting rights under the deposited shar es. (ix) Including Komer cijalna Banka, Beogr ad. (x) Including Komer cijalna Banka, Beogr ad, Komer cijalna Banka, Banja L uka and K omercijalna Bank a, Podgoric a. (xi) Unsolicited r ating. 15 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report O u tlook T a bl e 3: M ar ke t pe r for m a nc e an d o u tl o ok fo r t h e pe r io d 2022-2 02 3 2021 Guidance Performanc e in 2021 2022 (iv) 2023 Regular inc ome Exc eeding EUR 600 million EUR 640.9 million ~ EUR 670 million > EUR 700 million Costs Initial incr ease in cost base in the year 2021, costs pr ojected ar ound EUR 430million including integr ation costs EUR 421.4 million (i) Costs at 2021 lev el ~ EUR 400 million Cost of risk Ar ound -20 bps -41 bps 20-30 bps 30-50 bps Loan gr owth Mid-single digit loan gr owth 9% High single digit loan growth High single-digit loan gr owth Dividend EUR 92.2 million EUR 92.2 million (ii) EUR 100 million EUR 110 million ROE a.t. > 10% 11.4% ~ 10%, (ROE normalized (iii) : 12%) > 10% (ROE normalized (iii) : > 12%) (i) Including integr ation costs: EUR 7.8 million G&A costs and EUR 5.9 million HR pr ovisions. (ii) F urther information is available in the chapter Outlook 2022 . (iii) ROE normalized = R esult a.t. w/o minority shareholder pr ofit divided by consumed c apital. Consumed capital comput ed as 13.06% of average R WA r educed for minority shar eholder capital c ontribution. (iv) If legal r emedies against the adopted law in F ebruary 2022 concerning loan agr eements in Swiss francs c oncluded by banks oper ating in Slovenia (including NLB) and individuals are unsucc essful, the Bank estimated a negative pr e-tax effect on the operations of NLB and NLB Gr oup should not exc eed EUR 70 - 75 million. This would have a limit ed (up to 55 bps) negative impact on the capital position. 16 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T a bl e 4: NL B ’s ma in s h a reh o ld e r s as a t 31 D ec em b er 2021 (i) Shar eholder Number of shar es Per centage of shar es Bank of New Y ork Mellon on behalf of the GDR holders (ii) 11,357,368 56.79 of which Br andes Investment P artners, L.P. (iii) / >5 and <10 of which EBRD (iii) / >5 and <10 of which Schr oders plc (iii), (iv) / >5 and <10 Republic of Slo venia (RoS) 5,000,001 25.00 Other shar eholders 3,642,631 18.21 T otal 20,000,000 100.00 (i) Information is sour ced fr om NLB’s shareholders book acc essible at the web services of CSD (Centr al Security Depository, Slov enian: KDD - Centralna klirinšk o depotna družba) and available to CSD members. The information on major holdings is based on the self-declarations b y individual holders pursuant to the applicable pr ovisions of Slovenian legislation which r equires that the holders of shar es in a listed company notify the c ompany whenever their dir ect and/or indir ect holdings pass the set thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, or 75%. The table lists all self-declar ed major holders whose notifications have been r eceived. In r eliance of this obligation v ested with the holders of major holdings, the Bank postulates that no other entities nor any natur al person holds directly and/or indir ectly 10 or mor e perc ent of the Bank’s shares. (ii) The Bank of New Y ork Mellon holds shares in its c apacity as the depositary (the GDR Depositary) for the GDR holders, and is not the beneficial owner of such shar es. The GDR holders have the right to c onvert their GDRs into shar es. The rights under the deposited shar es can be e xer cised by the GDR holders only thr ough the GDR Depositary and individual GDR holders do not have any dir ect right to either attend the shar eholder’s meeting or to ex ercise any v oting rights under the deposited shares. (iii) The information on GDR owner ship is based on self-declarations by individual GDR holders as r equir ed pursuant to the applicable pr ovisions of Slovenian law. (iv) F urther information is available in chapter E vents after the end of the 2021 financial year . The B a nk ’s sha res a re li s te d on t he P ri m e Ma rket s u b - se gm en t of t he L ju blj an a Sto ck E xc ha ng e (IS IN S I0 02 11 17 34 4 , Lju bl jan a St oc k E xcha ng e tr adi ng s y mb ol: N LBR ) an d th e GD Rs , repr es en ti ng s h are s , are l is t ed o n th e M ain M ar ket of th e Lo nd on S toc k E xch ang e (IS IN : US 6 6980N 20 36 a nd US 6698 0N 10 4 6 , Lon don S to ck E xch an ge G DR t ra din g s ym bo l: NLB an d 55V X ). F ive GD R s rep res en t on e s h are of N LB . Shareholder s tr uc t ure of NLB 17 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K ey E ve n t s Januar y New member of the Super visor y Board: T ad eja Žbontar Rem s wa s ele c t ed a s th e m em be r of t he S u per v is or y B oa rd of th e B an k – rep res en ta t ive of wor ker s . ‘T op Em ploy er ’ cer tificate: Th e T op Emp loyer s In s t it u te award ed t h e Ba nk t h e pre s t igio u s ‘T op Em pl oyer ’ ce r ti fi ca te for t he 6 th consecutive y ear . F ebr uar y Quick loans: In cre as e d acce s si bil it y of q uic k lo an s for individu als via video call. April Fee for cus tomer s balances: The Bank introdu ced a mo nthly fee fo r ave rag e mo nt hl y ba lan ce s of in di vi du al s’ as s et s over a cer ta in t hre s ho ld (cur re nt ly EU R 100,000). Increased shareholding in KB, Beograd: Af ter t he B a nk acquired additional s hares , its s hareholdin g in K omercijaln a Ba nka , B eo grad i nc re as ed to 88.28% . Change in Management Board: Pet r B r un cl í k , me mb er o f th e Ma na gem e nt B oa rd an d COO, ag ree d wi th t h e Su pe r vis o r y Bo ard o n th e te r mi na ti on of h is o f fic e tak in g ef fec t on 30 J un e. May New payment methods: NLB, a s t he f ir s t ban k in S loven ia , int ro du ced t h e Flik P 2M p aym e nt m et h od an d i s of fer in g a new de bi t Ma s t erca rd for i nd iv id ual s an d le gal p er s on s . Jun e New member of the Super visor y Board: Is lam O s am a Zekr y was co nf ir m ed a s a n ew me mb er o f th e S up er vi so r y Bo ard . Dividend paymen t: Th e B an k pa id t he f ir s t ins talm e nt o f div ide n ds in t h e am ou nt o f EUR 12.0 m illi on . Bankarium: The f i r s t ba nk in g m us eu m in S loven ia was ope ne d fo r th e pu bl ic . July ECB stress tes ts : The re s ul t s of s t re s s te s t s car r i ed o ut fo r imp or t ant b an k s by th e ECB to as s es s t h e res il ien ce o f fi na nc ial i ns ti t ut ion s wer e dis c los ed . Th e re s ul t ran k s th e Gro up a mo ng b an k s wi th s ol id re si lie nc e. 3 Avg u s t Adver tis er of t h e Y ear : Sl ovenia n Ch am ber o f Adve r ti si ng h a s award ed N LB th e t it le Ad ver t is er of t h e Y ea r for 2020. N LB was th e on ly b an k in h is t or y to re cei ve su ch a ward in S l ovenia . September New pr od uct s in offer ing: The B a nk b eg an of fer i ng an ex tr aor din ar y overd raf t w it h a gra du al de cre as e an d au tom a ti c ren ewal fo r in div id ual s , a s well a s a new h ea lt h ins urance op tion . Oc tober Dividend paymen t: Th e B an k pa id t he s ec on d in s ta lm en t of div ide n ds in t h e am ou nt o f EUR 12.8 m illi on . Marketing award: T he M ar ket in g A s s oci at io n of S loven ia award ed t h e Ba nk w it h t he m ai n awar d in th e ca te go r y ‘Determinatio n of Mark eting Str ategies’ for the project ‘Strategic Initiativ e of C us tomer Focus. ’ 3 For m o re i nf or m a ti on s e e t he c h ap te r Risk Managem ent . N ove m b e r Consolidation of operations in Montenegro: The me rge r of NLB B an ka, Po dg or ica a nd Kom erc ija ln a Ba nka , Pod go ri ca was completed. 4 December Sale of KB, Banja Luk a: Th e B an k s ucc es s f ul ly s ol d 100% of it s ordinar y shares of K om ercijalna Banka, Ban ja Luka to Ban ka Poš tan ska št edionica , Be ograd . Expan ding leasin g act ivities: Th e G rou p in it ia ted a c t iv it ie s for expa nd in g lea s in g ope ra tio n s in S er bia a nd N or t h Ma ced on ia . M -bank Klikpro: M -b an k Kl ikp ro was u pg rad ed w it h a new digital signing solu tion . NLB s ha re award ed : NLB s h are s (NLB R) rec eive d th e Lju bl jan a St oc k E xcha ng e Award, ‘ P ri me M ar ket S h are o f th e Ye a r. ’ Super visor y and Management board transaction s with NLB R s ha res : Pr im ož Karp e, Ch air m an o f th e S up er vi so r y boa rd , bo ugh t 200 or din ar y s h ares o f NLB . Bl až B ro dnj ak , CEO & CMO an d A rch iba ld K rem s er , CFO bot h bo ug ht 100 ordinar y shares of NLB. Dividend paymen t: The B ank paid an additional increm ental div ide n d in th e am o un t of EUR 67.4 mi llio n , con t ri bu t ing t o th e 2021 cum u la ti ve pa you t of EUR 92.2 m il lio n . 4 F o r m or e in fo r m at i on s e e th e c ha p te r Strategic Foreign Mar ket s . January F ebruary Mar ch April May June July August September October November December 18 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report hig he r in co mp ar is on t o th e bo t tom of 2020. S in ce p eak in g in Novem ber 2021, t h e B an k ’s s toc k m oved sl igh t ly lower ove r th e rem ain in g pa r t of t he ye ar . In 2021, th e Lj ub lja na S to ck E xch an ge m od if ie d it s me th od ol og y for ca lc ula t ion o f key indi ces w it h w hic h a sh a re of NLB R in cr ea se d fro m 8.71% on 21 D ece m ber 2020 t o 18.05% on 20 D ece mb er 2021. Th e in cr ea se d weig ht i n loc al in dic es an d th e s t ron g cap ita l m ar ket ac tiv it y wi t h NLB R in 2021 l ed to NLB wi nn in g th e ‘ Pr im e M ar ket S ha re of t he ye ar ’ a ward fo r th e f ir s t t im e. In O c tob er , th e B an k s ign ed a n agre em en t w it h Int er Ca pit al to p rovid e th e s er vi ce of m ar ket m ak in g in NLB R sh ar es wi t h th e in ten t ion o f na r rowin g t he b id - as k s pr ead a nd increas ing liquidit y of sh ares . NL B S har es and GDR s In 2021, Europ ea n ba nk in g se c t or s t ock s c on ti nu ed t h eir recover y t h at wa s ini t iat ed t owards t h e en d of 2020. In gen er al, Eu rop ean b an ki ng s ec tor s toc k s ma na ge d to grad u all y recover a ll of t h e pa nd em ic- in du ced d rop f rom Ma rch 2020 over t he c ou r se o f th e year , w it h s om e of t he ban k s be in g am on g th e be t ter p er for m er s o f th e s t oc k ma rket rall y si nc e th e en d of 2020. Eur ope an b an ki ng s ec tor s tock s reco rde d an i nc rea se i n val ue of a rou nd 34% i n 2021. However , Europ ean b an k ing s e c to r s to ck s f in is h ed t h e year b elow t h e 2021 pe ak re ach ed i n Novem be r an d even s lig ht ly b elow t h e 2020 pre - p an dem ic p ea k rea ch ed in Feb r ua r y 2020. The B a nk ’s sto ck s m or e th an re covere d th e p an dem ic- in du ced d rop in t h e Ba nk ’s sto ck p r ice f rom M arc h 2020. The B a nk ’s sto ck p r ice re cor ded a n in cre as e of a rou nd 66% in 2021, con t ras tin g t he ap prox im at ely 40% g row t h in t h e Sl ovenia n B lu e Chi p In dex S BI T op, a nd t h e 34% grow th in Europ ean b an k ing s e c to r s to ck s in t h e year . I n fac t, the B a nk ’s s to ck en t irel y re covere d th e pa nd em ic- in du ced d rop f rom 2020 by th e be gin ni ng o f th e s um m er 2021, an d t he n con ti n ued to gra du all y move h igh er over t h e rem ai nin g pa r t of t he ye ar . A s s uch , t h e B an k ’s s toc k pr ic e en ded t h e year a pp roxim at el y 17% hig he r in co mp ar is on t o th e p eak o f 2020, an d 123% Mark et Pe r formanc e of N L B’ s Shar es and GDRs T a bl e 5: NL B s ha re i n for m a t io n Shar e information 31 Dec 2021 T otal number of shar es issued 20,000,000 Highest closing price (in 2021) EUR 80.6 Low est closing price ( in 2021) EUR 42.0 Closing price as at 30 Dec ember 2021 (i) EUR 7 6.2 NLB Gr oup book value per shar e EUR 103.9 NLB Gr oup earnings per share (EPS) EUR 11.8 Pric e/NLB Group book v alue (P/B) 0.73 Dividend per shar e (for the pre vious business year) EUR 4.61 Market c apitalisation (i) EUR 1,524,000,000 (i) No market on 31 Dec ember 2021. NLB Shares (NLBR) received the Lj ubljana Sto ck E xchange Aw ard: Pr i m e Mark et Shar e of the Y ear . 19 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report In vestor R ela tions’ f unc tion The B a nk p ar t ici pa te s in var ie d for m s of e ng age m ent, s uc h as inve s to r me et in gs , c all s , con fe ren ces , and r oad s how s , ref le c t in g th e di ver se n a t ure o f th e B an k ’s owne r s hip s tr uc t u re. T ran s pa ren t co mm un ica t ion w it h inves tor s an d an aly s t s al lowed fo r dia lo gu e pro mo tio n on s tra te gic develo pm en t s , a s well a s on t h e rece nt f i na nc ial p er fo rm an ce of th e G ro up. T he B an k pr om ote d gre at er a waren es s a n d un der s tan din g of o pe rat in g b us in es s es , d evelo pm en t s , an d event s w hi ch h ave an i nf lu en ce on t h e pe r for m an ce of t he Ba nk ’s sha re pr ic e. Si nc e th e li s t ing , s ix an a lys t s rel ea se d res ea rch re po r t s abo u t th e G rou p. Pe r for m anc e of t he B a nk i s covered by a na ly s t s fr om J P Mo rga n , De ut s c he B an k , Wood & Company , Citi, Inter Capital, and Raif feis en Bank Inter na tional . IR pre s ent at io ns , fi na nc ial re po r t s , an d im po r tan t in for m at io n are ava ila bl e on t he B an k ’s webs i te in l in e wi th IR ’s Financial Calendar . Ind ices The B a nk ’s sha res a re in cl ud ed in s evera l in dic es : th e SB ITOP in dex , SB ITOP TR in dex , a nd A DR IA pr i me i nd ex of th e Lj ubl jan a S toc k E xch an ge; t he F T S E Fronti er In dex , M SC I F ro nt ie r , an d M SCI S loven ia; t he S &P Eas ter n Euro pe B M I, S&P Em er gin g Fronti er S up er Com p os ite B M I , S& P Ex ten d ed F ro nt ie r 150, S& P F ro nt ie r B MI , S &P Fronti er E x- G CC BM I , S&P Sl ovenia B M I; a s well a s th e S TOXX A ll Eur ope T ot al M ar ket, STOX X B alkan T ot al M ar ket, STOX X B alkan T ot al M ar ket ex- Gre ec e & T ur key , S TO X X EU Enl arg ed T ota l Ma r ket, STOX X Eas te r n Europ e 300, S TO X X Eas t er n Euro pe 300 B an k s , STOX X Eas t er n Euro pe La rge 100, S TOX X Eas te r n Europ e T otal M ar ket, S TO X X Eas t er n Europ e T otal M ar ket S m all , STOX X G lob al T ot al M ar ket, and S TOX X S loven ia T otal M ar ket. Fig u re 1: NL B sh a re s’ p r ic e mov em e nt o n t he L j ub lj an a S to ck E xc h an g e an d N LB G DR ’s p r ic e m ovem e nt o n t h e Lon d on S to c k E xch a ng e ( in EU R) Shar es (NLBR) GDR (NLB) GDR Shar es 18.00 17.00 16.00 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Jan 2021 F eb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021 Sour ce: Ljubljana Stock Exchange, Bloomber g. W e ar e y our lo y al par tner s. Gr eat-gr andfathers built bridges. Gr andfathers built fact ories. F athers built the internet. Y our goal is to build the futur e. New builders of the futur e ar e driven b y the same pioneer spirit that has accompanied this r egion for decades. Y ou also are not going to sit and w ait for better times to come along, instead y ou want to cr eate them yourself. W e are right her e by your side, follo wing the trends and alw ays dev eloping new solutions which will inspire and encour age you to cr eate change. The same way w e helped others befor e you. 21 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report G lobal and European econom y Since the str ong r ebound r esulting from the r e-opening, the momentum has eased thr oughout the year because the global r ebound has faced se ver al headwinds that have influenced the momentum. The sur ge in demand for goods has fac ed pr oduction chain bottlenecks, and has result ed in supply- demand imbalances. As a c onsequence, inflation pr essur es have emer ged in all economies with disruptions in ener gy, food, and commodity mark ets that have been r eflected in incr eased prices. Inflationary pr essur es have been passed on to consumers and lasted longer than initially e xpected. The labour market is still y et to r ecov er completely, but labour shortages hav e been evident in sev eral ec onomic sectors. The pandemic c ontinued its grasp on economic activity also in 2021, but to a much lesser e xtent than in the pr evious year. Ne w outbreak s weighed on economic activity by e xtending existing and originating ne w supply constr aints. As such, business surve y measures of output and ne w order s moved below their peaks r ec orded in Q2, while c onsumer confidence deterior ated in many c ountries in the last months of the year. Nev er theless, global industrial pr oduction and r etail sales r emained above pr e-pandemic lev els, although they have also r ecor ded easing momentum ov er the course of the year. In the Eur o ar ea, economic activity r ebounded sharply in H1 in line with the impr ovement in the health situation. The main driver of the r ebound has been private c onsumption that was fuelled by the pent-up demand and a r eduction in the household saving r atio. These have been driv en by diminishing for ced savings when the r estrictions started to be gr adually lif ted in spring. This pr opelled the r ecov ery in services which follow ed the rec overy in manufacturing. Nev ertheless, a sharp resumption in ec onomic activity has r esulted in supply-demand imbalances and has cr eated vast supply disruptions and bottlenecks. The latter has influenced momentum slo wing down the r ebound and causing economic activity to ease after peaking in the summer. Global supply chain bottlenecks have been a signific ant constr aint on industrial pr oduction and goods tr ade throughout the y ear. Supply bottlenecks, incr easing produc er prices, c oupled with a sur ge in ener gy prices, and str onger demand as a result of the r eopening of the economy hav e caused a str ong incr ease in inflationary pr essur es. The latter has resulted in a sur ge in In 2021, following a pande mic-ind uced contrac tion in 2020, t he globa l economy recorded a strong al tho ugh imb alanced reco very . In gen eral, global economic activi t y has m anaged t o sur pas s pre -pa ndemic l ev els , but t he recov er y has remain ed incom plete a nd unev en a cross count ries as well as se c tors . headline, as well as c ore inflation r ates as inflationary pressur es have bec ome more and mor e broad-based and hav e been mainly passed on to consumer s over the c ourse of the year. The str ength of the labour market in 2021 w as reflect ed in the decr easing unemployment r ate thr oughout the year, while pock ets of labour shor tages have emer ged and have bec ome a sector-specific issue. Monetary policy authorities kept the notion of tr ansitory inflation for the lar ge majority of the year, but r apid resumption in economic activity, rising inflation r ates, and labour market conditions impr ov ement forc ed them to r econsider monetary policy stances. In the Eur o ar ea, the ECB has maintained very favour able financing conditions in 2021 with TL TRO-III and the P andemic emergency pur chase pr ogr amme (PEPP) playing their parts in supporting the Euro ar ea r ecov ery. Nevertheless, the pace of pur chases under the PEPP hav e decreased thr oughout the year, and at the December meeting, the ECB outlined the discontinuation plan for the pr ogr amme. The net pur chases under the progr amme disc ontinued in March 2022, which was in ac cor dance with its design. How ever, the ECB has also decided to tempor arily incr ease purchases under the r egular asset purchases pr ogramme in or der to pr ovide some sort of a tr ansitional period, but subsequently implement ed a quick er slowdown of the pr ogr amme. In the US, asset pur chases tapering was announced and outlined in No vember, but sustained price pr essur es pr ompted the F ed to dr op the notion of tr ansitory inflation and to double the tapering pace, which also r esulted in moving forwar d the timeline of r ate hik es. At the Mar ch meeting, the F ed actually r aised the rate b y 25 bps, with additional r ate hikes set to follo w. The global econom y is expected to c ontinue with the rec overy in 2022. The impact of pandemic on ec onomic activity has consider ably waned o ver time, and it should further wane o ver the coming y ears, r esulting in a restor ation of demand patterns and an easing of supply disruptions and inflationary pr essur es. How ever, the r eco very may quite possibly r emain unbalanced acr oss countries and sectors. In the Eur o ar ea, the str ong output r ecov ery that is underway is e xpected to continue in 2022. GDP gr owth is e xpected to moderat e to 3.6% in 2022, with for ces of the r e-opening set to fade out. Gr owth in the Eur o ar ea will be primarily driven b y strong priv ate consumption in light of households r educing the saving r ate to normal levels on the back Macr oec onom ic En vir onm en t eco n om ic g row t h in t he E ur o - a rea in 2021. 5.3% eco n om ic g row t h in S love ni a in 2021. 8.1% 7.6% eco n om ic g row t h in t he G ro u p’s reg io n in 2021. 22 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in particular, will push up inflation in the coming months. In fact, inflation could rise e ven further and r emain elevated for longer due to commodity pric e sur ge and additionally due to second r ound effects, in terms of the impact on the underlying inflation, wage gr owth and higher inflation e xpectations. This er odes household pur chasing power and together with a squee ze on compan y profits, and deterior ated business and c onsumer confidenc e will weigh on economic gr owth. C onsequently, with elev ated downside risks to gr owth and upside risks to inflation, the risks of stagflation hav e increased. The ec onom y in the Group ’ s region The Gr oup’s r egion rebounded str ongly fr om the pandemic- induced ec onomic crisis, in line with global economic tr ends. Priv ate consumption has been the main driv er of the gro wth in the Gr oup’s r egion. Private c onsumption has been spurr ed by cr edit gr owth, r emit tances, a str ong tourism season, and pent-up demand despite the fact that labour mark ets in some countries have still not esc aped the impact of the pandemic-induced crisis. Priv ate investment has solidified although ther e have been some differ ences in dynamics between c ountries. Strong e xport demand fr om the EU market and industrial pr oduction supported gr owth in BiH, North Macedonia, and Serbia, while Montenegr o and Koso vo benefited in particular fr om the r ebound in the tourism sector ov er the summer. Nevertheless, the Gr oup’s r egion was not able to cir cumvent the global sur ge in c ommodity prices, rising ener gy prices and supply-chain bottlenecks. Coupled with firming domestic demand, this r esulted in inflation incr easing over the course of the y ear. Fiscal policy r emained acc ommodative and monetary policy r ates wer e k ept at historical lows. of further diminishing for ced and pr ecautionary savings. Another driver is business in vestment, which is expected t o rec over substantially, and which will be additionally supported by the Next Gener ation EU funds. The withdr awal of emer gency support measur es tar geting firms and households should result in a tighter fiscal policy st ance, while the ECB gives the impr ession of being headed for the e xit from the ac commodative monet ary policy. Supply chain bottlenecks and the sur ge in energy pric es ar e expected to sust ain inflationary pressur es in 2022 with inflation being pr ojected to be higher. Str ong labour demand and lik ely fur ther impr ovement in the labour mark et is expected to drive the unemplo yment lower. Ho wev er, there ar e still some risks to the outlook. Despite the w eakened impact of the pandemic on economic activity, it still r epr esents some degr ee of risk. F urthermore, supply bottlenecks c ould be mor e sever e, pr olonged, and widespr ead than expected, while the emer gence of new sour ces of supply bottlenecks is also possible. P r otracted staff shortages could dr ag on economic activity and e xac erbate supply chain issues. Inflation could c ontinue to surprise on the upside and turn out higher than expect ed. If inflation expect ations become entr enched at higher levels, mor e br oad- based price incr eases could not be e x cluded. Moreo ver, with costs pr essur es being passed-thr ough to consumers, inflationary pr essur es could become e ven mor e widespread. The lat ter could undermine households‘ pur chasing power and impact the main gr owth driver. Geopolitic al tensions in Eastern Eur ope adds yet another layer to the o ver all pile of risks to the outlook. The w ar in Ukr aine has sever al ec onomic implications r esulting in a rene wed downside risks to global gr owth, with Eur ope being the most exposed in this r egard. Ele vated uncertainty, potential ener gy supply disruptions, mor e widespr ead commodity shortages and new supply chain disruptions will w eigh on the economy. A sur ge in commodity pric es, with oil and gas prices acc eler ating higher A macroeconomic s napsh ot for th e NLB Group ’s r egion In Slo venia , economic activity surpassed its pr e-pandemic lev el in 2021 on the back of a r evival in priv ate consumption, inv estment, and str ong international demand. The econom y expanded r apidly in H1. Since then, import gr owth has outpac ed export gr owth and ext ernal trade made a negativ e contribution to the ec onomic gro wth. Nev er theless, this negative c ontribution was mor e than offset by continued gr owth in priv ate consumption and inv estment, while the fiscal policy stanc e also played its part in supporting the economic activity. Similarly, to other the Eur o ar ea economies, the econom y has not been immune to supply chain bottlenecks and inflationary pr essur es. Inflation acceler ated in Q3, and continued with ac celer ation in Q4, with ener gy prices being the main driver. In Serbia , after e xperiencing a mild contr action in 2020, the economy ex ceeded the pr e-pandemic output lev el and r ebounded strongly in 2021 on the back of a str ong incr ease in private consumption and inv estment, both more than offsetting the negative c ontribution of net exports and lo wer gov ernment consumption. Robust w age gro wth in the year pr opelled household spending, while a sharp r ebound in oil prices and incr ease in food pric es resulted in an ac celer ation of inflation ov er the course of the year. In North Mac edonia , after contr action in Q1, a mark ed increase in private c onsumption pr opelled a buoyant Q2. R emit tance inflo w also played its part in boosting priv ate consumption r esumption by bolstering households’ disposable incomes. Str engthened foreign demand turned out beneficial for the e xternal sector of the economy. Inflation incr eased over the c ourse of the year with pr essur es arising mainly due to rising global ener gy and goods prices, as w ell as supply chain disruptions. In BiH , a r eco very in e xternal markets and the e xpansion of domestic private c onsumption pr opelled the gro wth in 2021. Privat e consumption w as supported by cr edit gro wth, wages gr owth, and r emittances. How ever, in H2 the r ebound in private c onsumption lost some momentum, but high public and capital spending bolst ered the domestic econom y somewhat. Inflation incr eased throughout the year due to r ekindled domestic demand and global tr ends in price pr essur es. In K osov o , the economy r eco ver ed due to strong gr owth in domestic and ext ernal demand. Lif ted r estrictions on trav el acr oss Europe boosted tourism inflow s. The r ebound in the hospitality sector, while str ong r emit tances inflo w upheld private consumption. Sur ging exports of goods and servic es buoyed the ec onomy when private and public consumption lost momentum in H2. Higher pric es for food and ener gy have driven up pric e pr essures o ver the course of the y ear. T a bl e 6: M ovem e n t of key m a cr oe co n om ic i n di ca to r s in t h e Eur o ar ea a n d NL B Gr o up re g io n GDP (r eal gro w th in %) A ver age inflation ( in %) Unemployment r ate ( in %) 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Eur o area 1.6 -6.5 5.3 3.6 2.7 1.2 0.3 2.6 5.3 2.2 7.6 8.0 7.7 7.2 7.2 Slov enia 3.3 -4.2 8.1 3.5 3.4 1.7 -0.3 2.0 5.7 2.4 4.5 5.0 4.8 4.4 4.4 Serbia 4.3 -0.9 7.4 3.9 4.1 1.8 1.6 4.1 7.8 4.1 11.2 9.7 11.1 10.0 9.4 N. Macedonia 3.9 -6.1 4.0 3.4 3.7 0.8 1.2 3.2 6.1 2.5 17.3 16.4 15.7 15.1 14.7 BiH 2.8 -3.2 5.9 3.2 3.2 0.6 -1.1 2.0 6.0 2.5 15.7 15.9 15.5 15.1 14.7 Koso vo 4.8 -5.3 10.4 3.9 4.2 2.7 0.2 3.3 6.3 2.6 25.7 25.9 24.0 23.0 22.2 Montenegr o 4.1 -15.3 12.0 4.8 3.9 0.6 -0.3 2.4 5.0 2.0 15.1 17.9 16.6 15.8 15.2 Sour ce: Statistical offices, F ocus E conomics. Note: NLB F or ecasts ar e highlighted in grey. 23 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report form of the pandem ic uncer tain ties , s turdier and prolonge d eleva ted i nf la t ion , an d t he l on g -t er m im pa c t o f su pp ly- s ide bot tl en ec k s . Econ om ic im pl ica ti on s of t he wa r in Uk ra in e add yet another layer of uncer taint y. In Nor th Macedonia , th e grow th i n 202 2 sh o uld b e m ain ly dr iven by p ri vat e con s um pt ion , b ei ng t he key p ar t of t he fi r min g do m es t ic d em an d. Co up le d wi th s t re ng th e nin g for eig n demand, it should lead to solid expansion . Nev er theless , pan d emi c- rel at ed un ce r tain t y , h igh e ne rg y pr ice s , an d prol on ge d di sr upt ion o f su pp ly c ha in s rep res en t t he m ai n down s ide r i sk s t o th e o ut lo ok . Econ om ic i mp lica t ion s of t h e war in U kra in e rep res en t an a ddi ti on al r is k to t h e ou t loo k . In BiH , eco no mi c grow th s ho ul d rem ai n so lid , b ein g suppor ted by higher capital and public spending . That said , th e pa nd em ic- rel a ted u nc er tai nt y, slower re cover y in exp or t ma rket s, a nd p ol it ica l s tal em a te re pre se nt t h e down s ide r i s ks to the outlook. Hig her inflatio n and eco nomic impl ications o f th e war in U kr ain e rep res e nt an a dd it ion al r i s k to th e o ut lo ok . In Ko s o vo , th e e con omy s h ou ld s ee ro bu s t, b ut co ol ed - d own eco no mic g row th in 2 02 2 d ue t o th e lower b a se e f f ec t. Fir mi ng capital expenditure grow th and a tighter labour mar ket are se en a s su pp or t ing f ac tor s fo r ac tiv it y wi th t h e ad dit io na l benef icial ef fec t of a healthier ex ter nal backdrop. Pandemic- rel at ed un ce r tain t y an d lin ge ri ng p ol it ical u nc er ta int y ar e down s ide r i sk s t o th e o ut lo ok . A ddi ti on al dow ns id e r is k ar i se s du e to th e overa ll ec on om ic im pl ica ti on s of t he war i n Uk rai ne . In Mont enegro , fur t he r grow th in t h e to ur is m s ec tor s h oul d prop el t h e eco no my to re cover t he p re - pa nd em ic l evel, b u t th e In Mont enegro , the e con omy r ebo un d ed s t ron gl y wi th t h e imp rovem en t of t he e pid em iol og ical s i t ua tio n an d th e o pen in g of bo rde r s wh ich p rop el led a r es um pt io n of to ur i sm . A f ter a sl ug gis h s tar t, tou r is m pic ked - up s tron gl y in t he s u mm er mo nt h s . Th e reb ou n d in th e to ur i sm s e c to r bo os t ed a s ur ge of pr i vate c on s um pt ion w hic h was t h e ma in dr i ver of t he recover y. Infl a tio n acc ele ra ted over t h e co ur s e of th e yea r wi th hig he r com m odi t y pr ice s an d f ir mi ng d em an d dr iv in g pr ice pressures . Macroeconomic ou tlo ok for NLBGroup ’s r egion In S l oven i a , eco no mi c ac tiv it y i s expe c t ed to c on ti nu e growi ng , wi th d om es tic d em an d env is io ne d as b ein g t he ma in dr ive r . Pr iva te co ns um pt io n an d inves tm en t, prop el led by EU fun d s , s ho ul d be key dr ive r s of G DP grow th . T he l ab ou r ma rket w il l dr ive t he u ne mp loym e nt ra te l ower . Af ter t h e 202 1 pic k-up in i nf la t ion , t he a cce ler at io n of in fl at io n is exp ec te d to con t in ue in 2 02 2 wit h h igh en e rgy p r ices c on ti nu in g to dr ive t he h ea dli ne i nf la ti on fo r mo s t of t h e upc om ing ye ar . B uoyan t im por t s g row t h s ho ul d ou t pa ce exp or t s , re s ul tin g in a ne ga t ive con t r ibu t ion t o th e G DP grow th o f ne t expo r t s . Pandemi c-related uncer taintie s , although wani ng , co ntinue to weig h on t he o ut lo ok . Eco no mi c imp lic at io ns o f th e war in Uk rain e re pre se nt a n even gre at er r is k to t h e ou t lo ok . In Serb ia , grow th i s pro jec te d to ret u r n toward s th e pr e - pan d emi c pa th . Grow th s h ou ld be m a inl y dr i ven by pr iva te con s um pt ion a nd i nves t m en t, as well a s by mo re p os it ive ne t expo r t s con tr i bu ti on . H owever , down si de r i sk s a re in t he lab ou r ma r ket is s ee n as re qu ir in g s om e mo re t im e to le ave th e m em or y of t he c r is is c om pl ete ly b eh in d. D own s ide r i sk t o the outloo k relates to the pandemic-re lated unce r tainty and pos s ib le i mp lica t ion s on t h e to ur is m s ec tor , al t ho ug h it s ef fe c t is fa din g . Down s id e ri s k ar is e s du e to th e overa ll ec on om ic imp lic at io ns o f th e war in U kr ain e. The e co no mic g row th in t he G roup’ s region coul d be aro un d 3 .7 % in 202 2 . Th e rec over y is exp ec ted t o los e s om e mo me nt u m as t he ex ter n al b oo s t gra du all y fa des a nd t h e ba se e f f ec ts wa ne s . Never t h ele s s , gr ow t h s ho ul d be m ain l y dr iven by f ir m in g pr iva te co n su mp ti on an d inve s t me nt. Th e tig ht er la bo ur m ar ket co ul d pro pe l ho us eh o ld s pe nd in g an d wage g row t h . Fur th er im pr oveme nt i n th e to ur is m s ec tor sho uld be beneficial , especially for touri sm - depen dent countries of the Gr oup’ s reg ion. In the mid-term, countrie s of th e G ro up’s regio n sh o uld a ls o be ne f it f rom t he Eco no mic an d Inves t m en t Pla n ado pt ed by t he EU, wh ic h aim s to b oo s t more sus tain able, green, digital, and peop le -focus ed growth . However , s upp ly di s r up tio n s , an d r is in g com m odi t y an d en erg y pr ice s , wh ic h are s et t o be ad di ti on all y af fec te d by th e war in U kr ain e, re pre se nt d own si de r i sk s t o th e ec on om ic outlook of the Grou p’ s regi on. Persistently hig her inflatio n level s cou ld un d er mi ne h o us eh ol ds’ p ur ch as in g power a nd by th at p r iva te co ns u mp tio n . Th is wo uld h in de r th e m ain g row t h dr iver t h us i mp ac tin g grow th . M or eover , p oli ti cal t en si on s an d un cer ta in t y i n so me c ou nt r ies o f th e G ro up’s regio n can no t be di s reg ard ed d ue to i t s im p ac t o n ec on om ic con f id en ce, wh ile e con om ic a c t iv it y in to ur i sm - dep en de nt c ou nt r ies i s par t ic ula r ly d epe n den t on t h e pa th o f th e p an dem ic , i n th e Gro up’s regi on as we ll a s abro ad , de s pit e pa nd em ic’s wan in g ef f ec t on ec on om ic ac ti vi t y i n ge ne ral . T a bl e 7: M ovem e n t of t h e ba la n ce o f pa y me n t an d f i sc al i n dic a to r s in t h e Eur o ar ea a nd N LB G r ou p re gi on Curr ent account balanc e (% GDP) Fiscal balanc e (% GDP) Public debt (% GDP) 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Eur o area 2.3 1.9 2.7 2.5 2.6 -0.6 -7.2 -6.8 -4.0 -2.7 83.6 97.3 99.0 97.5 96.5 Slov enia 6.0 7.4 4.8 4.9 4.7 0.4 -7.7 -6.5 -4.5 -3.2 65.6 79.8 78.7 77.3 7 6.0 Serbia -6.9 -4.1 -4.4 -4.3 -4.4 -0.2 -8.0 -4.1 -2.9 -1.7 51.9 57.0 55.6 55.5 53.4 N. Macedonia -3.3 -3.4 -3.5 -2.8 -2.7 -2.0 -8.2 -5.4 -4.6 -3.9 40.7 51.2 53.8 55.4 56.3 BiH -2.7 -3.6 -2.8 -2.9 -2.9 1.9 -5.3 -2.7 -1.9 -1.4 32.5 36.7 37.3 37.2 36.9 Koso vo -5.7 -7.0 -6.8 -6.8 -6.3 -2.6 -7.1 -3.6 -2.2 -2.1 17.6 22.4 23.8 25.5 26.3 Montenegr o -14.3 -26.0 -16.4 -14.4 -13.5 -2.9 -10.2 -4.7 -3.7 -2.9 76.5 105.1 92.3 85.7 81.5 Sour ce: Statistical offices, F ocus E conomics. Note: Consensus F or ecasts ar e highlighted in gre y. 24 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report af ter r eco rdin g n eg at ive gr ow t h in 2020. In S er b ia, g row th in cor po ra te lo an s s lig ht ly m od era te d, b u t rem ai ne d f ir m , wh il e in Kosovo f ur th er i mp rovem en t in co r por at e loa ns g row th was re cord ed . M on ten e gro an d No r th M ac edo ni a rec ord ed rob us t cor po rat e lo an s grow th , re pre se nt in g a rem ar kab le imp rovem en t in co mp ar i so n to th e l as t ye ar . Con s ide r ing ho us eh ol d lo an s , t he d yn am ic s we re s imi lar t o th e co rp or at e loa ns . Bi H an d Sl oveni a reco rde d a s ign if ica nt r ebo un d in ho us eh ol d lo an s . M on ten e gro al so r eco rde d an im p roveme nt, wh ile S er b ia an d No r th M ace do ni a reta in ed ro bu s t gr ow t h The ba n king system in the G roup ’ s region The e co no mic r eb oun d in 2021 a ls o h ad a p os it ive im pa c t o n th e ba nk in g s ys t em in t h e Gr ou p’s region . Le nd in g ac tiv it y reco rde d a n otab le r eviva l in bo th , co r por at e an d ho us eh o ld loa ns . The m a jor i t y o f co un tr ie s of t he G ro up’s regio n reco rde d a n otab le i mp rovem en t in co rp ora te l oa ns g row t h , wi th S loven ia an d B iH b ou nc in g int o th e po si t ive te rr i tor y T a bl e 8: M ovem e n t of key b a nk in g s y s t em s in d ic at or s i n t he N LB G ro u p re gi on , 2021 Corpor ate loans Household loans C orporate deposits Household deposits Net inter est margin NPL CAR in EUR million ∆ % Y oY in EUR million ∆ % Y oY in EUR million ∆ % Y oY in EUR million ∆ % Y oY 2020, in % 2021, in % in % ∆ pp Y oY in % ∆ pp Y oY Slov enia 9,302 6.3 11,263 5.1 8,998 12.0 23,953 6.8 1.8 1.4 1.6 -1.0 18.2 -0.1 Serbia 16,166 8.8 10,606 11.1 10,845 13.0 16,919 13.6 3.0 2.7 3.5 -0.2 21.7 -0.7 N. Macedonia 3,003 8.7 3,256 7.8 2,237 11.6 4,966 7.1 3.3 3.2 (i) 3.6 (i) 0.2 17.3 (i) 0.4 BiH 4,486 2.2 5,336 5.5 2,830 17.6 7,513 6.8 2.4 2.4 (i) 5.5 (i) -1.1 19.2 (i) 0.9 Koso vo 2,335 13.7 1,399 18.6 1,129 19.7 3,237 13.8 4.5 4.5 2.3 -0.4 15.2 -1.2 Montenegr o 1,277 7.3 1,456 3.2 1,616 26.6 2,193 25.3 3.7 4.0 6.2 0.7 18.5 0.0 Sour ce: Statistical offices, CBs, NLB. Note: Net inter est margin c alculated on interest-bearing assets; (i) Q3 2021 data. Fig u re 2: L TD r a ti o in t h e Eur o ar ea a n d NLB G r ou p re gi on 2021 2020 Montenegr o Koso vo BiH N. Macedonia Serbia Slov enia Eur o area 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sour ce: ECB, National CBs, NLB. rat es f rom t he p revi ou s yea r . Kosovo reco rde d a m ar ked imp rovem en t in t he h o us eh ol d lo an s grow th . However , des p ite a n ot abl e im provem en t in t h e cre di t ac t iv it y, a st ron g in fl ow of de pos i t s con ti n ued i n 2021. De s pit e rem ain in g rob u s t, cor po ra te an d h ou s eh old d ep os it s g row t h mo der at ed to s om e ex ten t in S loven ia an d p ar ti all y in S er bi a. In Mo nt en eg ro, grow th i n cor po ra te an d h ou s eh old d ep os it s su rge d af te r la s t yea r ’s ou t f low of d ep os it s . In Kosovo, alre ad y hig h grow th in h o us eh ol d an d cor p ora te d epo s it s in cr ea se d fu r th er , w hi le No r th M ac edo ni a an d Bi H rec ord ed a s om ewh a t les s s ig ni f ican t in cr eas e in t h e grow th ra te o f cor p ora te an d household deposit s . The n e t int ere s t m arg in of t h e Gro up’s regi on b an kin g s ys tem s exhi bit s om e d if fere nc es . In g en er al, n et i nt ere s t in co me wa s dr iven by t he i nc re as e in grow th o f le nd in g con tr ib u ti ng to pos it i ve qua nt it y ef fe c t s o n th e m oveme nt o f ne t in ter es t, an d by th e ne ga ti ve im pa c t of p r ice ef fe c t s . The n et i nt ere s t m arg in of th e b an kin g s ys tem s in t h e Gro up’s regi on i s lar gel y a ref le c t ion o f th e t wo fac tor s . The c api tal a de qu ac y o f th e b ank in g s ys tem s rem a in s so lid , well - ca pit ali s ed , an d th e ge ne ral i mp rovem en t of th e NP L rat io s ug ge s t s om e im provem en t in t h e qu ali t y of ba nk s’ por t fo lios . The L TD ra t io de cre as ed i n so m e of t he G ro up’s regio n ban k ing s y s t em s si nce t h e in fl ow of de pos i t s rem ai ne d s t ron g. In ge ne ral , th e grow th i n dep os it s ou tp ace d th e grow th i n 25 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 4: Lo an s to n o n -f i n an c ia l co rp o ra t io ns a n d ho u s eh o ld l oa n s in t h e Eur o ar ea a nd N LB G r ou p re gi on i n 2021 Household loans, % GDP Loans to non-financial c orporations, % GDP Montenegr o Koso vo BiH N. Macedonia Serbia Slov enia Eur o area 0% 10% 20% 30% 40% 50% 60% Sour ce: National CBs, National Statistical Offices. Note: Q3 2021 annualised data for BiH and K osovo. loa ns , hen ce o f f s et t ing t h e ef fec t of th e rev ival i n th e cr edi t ac t iv it y. The pro f ita bil it y of t he b an ki ng s y s te m s of th e G ro up’s reg ion im p roved, w it h R OE in cr ea si ng i n all co un tr i es of th e G rou p’s region . P rof it abi lit y im pr oveme nt wa s to t he grea t ex t en t dr ive n by th e ne t rel ea s e of im pa ir m en t s an d prov i s io n s . Loans potential ou tlook for th e G roup ’ s region Loan s to n on -f in an cia l cor p ora ti on s an d h ou se ho ld l oan s as a p erce nt age o f GD P level s of t he G ro up’s regi on s ug ges t th at t h e wh ol e Gr ou p ha s th e p ote nt ial f or f ur t he r grow th wh en co mp are d to t he l evels o f th e s am e ca teg or ie s in t he Euro are a. T he c on ti nu ed s ol id ec on om ic grow th i n th e Gro up’s regi on bo de s well f or lo an s’ po ten t ial . Th e grow th in th e G ro up’s regio n sh o uld b e pr edo mi na nt ly d ri ven by pr iva te co ns u mp tio n an d f ixed i nves t m en t s , bo th im p or ta nt com po ne nt s o f lo an s’ pot en ti al , an d bot h exp ec ted t o exh ibi t rob us t grow t h in 2022. Pr i vat e con s um pt ion , a s th e m os t imp or t ant c om po ne nt o f GD P , is exp ec ted to r an ge f rom aro un d 3 .0 % in B iH to 5 .9% in M on ten eg ro. F ixed i nves t m ent i s expe c t ed to b e s om ewh ere b et wee n 3 . 4% in M on te ne gro an d 8. 6% in No r th M ace do nia , w it h th e grow th r at e in t he G ro up' s reg ion in t h e upp er h al f of t h at r ang e. In g en era l, s tabi lis in g pr iva te co ns u mp tio n an d f ixed i nves t m en t sh o uld h a ve a pos it i ve imp ac t on le nd in g ac tiv it y in t he G ro up’s regi on . Fig u re 3: RO E ra t io i n t he Eu ro a re a an d N LB G ro u p re gi on 2021 2020 Montenegr o Koso vo BiH N. Macedonia Serbia Slov enia Eur o area 0% 3% 6% 9% 12% 15% 18% Sour ce: ECB, National CBs. Note: Return on av erage equity (RO AE) used for BiH; Q3 2021 data for BiH, N. Macedonia and Eur o ar ea. 26 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The regula tor y en vironmen t in S lo venia The Bank is s ubjec t to capital adequac y and liquidit y r ules imp os ed by t h e EU (CRR /CRD), wh ic h gover n t he a c t iv it ies i n wh ich b an k s ma y en ga ge in , a nd a re de si gn ed to m ai nt ain t h e sa fet y an d s ou nd ne s s of b an k s , as we ll as l im it t he ir exp os ur e to r is k . Th e CR D V was f u r th er t ran s po se d in to th e n ew Ba nk in g Ac t ( ZB an - 3), w hi ch al so r eg ula te s t he p ar t icip a tio n of em pl oyees i n th e m an age m en t of t he B an k , s om et hi ng t h e Ban k already en courag es . A s a f in an cia l in s t it u tio n of fer in g b en ch ma r k-ba se d pro du c t s , th e B an k me et s i t s ob lig at io ns u nd er t he R eg ul at io n 2016/ 1011 (BM R) an d re gu lar l y mo ni tor s d evelo pm en t s in t hi s are a by ada pt ing i t s op er at ion s to t h e req ui rem en t s of r eg ula to r s an d industr y. Du e to t he c on s ta nt ca re fo r th e in te res t s o f it s c u s to me r s , es pe cia lly t h e prot ec tio n of t he ir d ata , t he l eg is la t ion in t h e fi el d of pe r so n al da ta p rote c t io n is a ls o im por t an t for t h e Ba nk . The B an k s t r ic tly a dh ere s to i t s ob lig at ion s im p os ed on it by G DPR i n bot h S loven ia an d th e G ro up. A s t h e Sl oveni an law, whi ch wo uld f u r th er s up pl em en t th e re gu la tio n , was n ot ado pte d ei th er i n 2021, further ob lig at io ns f or t he B an k m ay ar is e wh en t h e la w wil l be a dop te d. In th e f ie ld of f i na nc ial m ar ket s t h ere wer e no s ig ni fi can t ch an ges i n reg ul at or y env iron m en t in 2021. L imi te d imp lic at io ns o f la tes t upg rad es of t h e Sh ar eh ol der s’ R ig ht s Dir ec tive (S R D II) th a t was t ran s po se d in to th e am e nd ed Comp an ie s Ac t, h ave b een d ul y im pl em en te d in th e B an k ’s pro ces s es . The B a nk co mp li es wi t h th e prov is io ns o f MI FIR / MIFI D II an d EM IR re ga rdin g f in an ci al m ar ket s t ran sa c t io ns , en ha nce d inves tor p rote c t io n , tra ns p are nc y, and re po r tin g obligat ions . The G ro up a ls o takes i nt o acco un t an d co mp lie s wi th t h e reg ul at ion s in t h e f iel d of p revent in g m on ey la un de ri ng a nd Dur ing 2021, m ore than 100 chan ges in th e EU and Slov en ian regulator y environment s wer e adopted wi th ma terial ef f ec ts on th e Ban k and th e Group. The G roup st rives to be fully com pliant wi th th e existin g and new requiremen ts . D isclos ure of the m os t relev ant changes of legisl ation and regulation which h ave an ef fe c t on th e Group is presen ted h erein. ter ro ri s t f in an c ing . At t h e en d of 2021, an a m en dm en t to t he Preven ti on of M on ey La un der i ng an d T er ro r is t F in an ci ng Ac t was pro po se d th a t wi ll f ur t he r rem ove cer ta in in co ns is ten ci es and ambiguit ies , relax cer tain requirement s , and introd uce add it ion al t oo ls or o pt ion s fo r th e im pl em en ta t ion o f me as ur es by obl ige d pe r so ns . Comp li anc e wi th t h e Pay m en t s Ac t (P S D2) an d reg ul at or y tec hn ica l s ta nd ard s , wh ic h bro ug ht o pen b an k ing i nt o th e fi na nc ial e nvi ron me nt, re qu ire d m ajo r ch an ges t o th e B an k ’s inf or m at ion s y s te m s . Th e B an k is co n s tan t ly m on it or in g new reg ul ato r y req ui rem en t s im po se d by th e re gu la tor , i s ada pt in g to th em , a nd t ak in g int o acco un t t he b es t us er exp er ie nc e. Du e to t he COVID -19 ep ide mic i n 2021, th e R oS ad op ted s evera l int er ven ti on la ws a nd m e as ur es w hic h m ain ly a f f ec ted t h e Ba nk i n th e are a of c red it m or ato r ium s a nd d ail y op era ti on s . An on go in g ac tiv it y fr om 2019 in cl u ded t h e am en dm en t of pol ici es an d co nt ra c t s d ue to EB A G uid eli ne s on o ut s o urc ing ar ran ge me nt s , th at p rovid e a cl ea r def in it io n of o ut s o urc ing an d sp ec if y th e cr i ter i a to as s e s s wh et he r or n ot an ou t so ur ced a c t iv it y , s er v ice, p roc es s , o r f un c t ion (or pa r t of i t) is cr i ti cal o r im por t an t. In th e EU ’s pol ic y co nt ex t un d er t he Eur ope an G re en De al, ‘ su s t ain ab le f in an ce’ is u nd er s too d as f in an ce to su pp or t ec on om ic grow th w hi le re du cin g pr es s ur es on t h e envi ron m en t, and t ak ing i nt o acco un t s oci al an d gove rn an ce as pe c t s . The B a nk i s ap pro ach in g th e deve lop m ent o f a com pre he n si ve pol ic y on s u s t ain ab le f in an ce, c om pr is in g t he ac t io n pl an on f in a nc ing t ra ns it io n to low - car b on ec on omy. Reg ard in g th e up com in g le gis l at io n in th e co r por at e gover na nc e are a, a n am en dm en t to t he Co mp an ies A c t (ZGD - 1) is in t h e pro ces s o f ad opt io n wh ich w ill h a ve an im pa c t on t he B an k m ain ly i n th e ar ea of r ela t ion s w it h sh ar eh ol der s an d th e exerci s e of s ha reh ol de r s’ r igh t s , a s well a s in for m at io n on corporate action s (f ollowing SRD2). Regula tor y E n vir on m ent 27 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report In th e Republic of Srpska , a n ew De cis io n on t he B a nk ’s ma na gem e nt s y s te m was p ub lis h ed by t he B a nk in g Age nc y o f th e Re pu bli c of S rp s ka, wh ic h ha s re pla ced f i ve prev io us by- law s an d t he refo re re qu ired t h oro ug h ch an ge s of th e B an k ’s int er n al ac t s . A ls o, th e La w on t he P rote c t io n fro m ha ras sm en t at wor k wa s pu bli s he d in O c to be r 2021. Nex t to th es e, t h e loc al re gu la tor p ub lis h ed s evera l by-l aw s re la ted t o liq ui dit y, repor t ing, credit ris k managemen t, etc. In Ko s o vo , th e l oca l CB ad opt ed t he I ns tr u c t ion s fo r us in g th e for m on t h e or igi n of f un d s an d det er m ini ng t h e ho ld er of t h e prop er t y r igh t an d t he G ui de lin e on l oan r es t r u c t ur i ng d ue to COVID -19. T he g overn m en t of t he R ep ub lic o f Kosovo, an d th e Mi ni s tr y o f Fin an ce La bo ur an d T ran s f er s ad opt ed t h e pro du c t ‘D ia sp or a Bo nd s’; th e De po si t In s ura nce Fun d of Kosovo (DIFK) a do pte d th e R ul es o n rep or t ing , ca lc ula t ion , an d coll ec tio n of p rem iu ms , tes t in g t he d epo si to r com pe n sa ti on sy s t em , an d on a dm ini s t ra ti ve sa nc tio n s for m em be r s of t he DIFK . The A ss e mb ly of t h e Re pu bli c of Kosovo ad opt ed t he Law on Elec tro nic i de nt if ic at ion a nd t r u s t s er vi ces i n ele c t ro nic transactions. In Mont enegro , the m ai n ac t iv it ie s in 2021 wer e ded ica te d to th e im pl em en ta t ion o f Law o n Cred it In s t it u t ion s , B an k Rec over y an d Res o lu ti on La w , t og et he r wi th a n um b er of by-l aw s for b ot h le gal a c t s . Als o im po r tan t i s th a t so me o f th e by-l aw s h ave be en c ha ng ed b efo re th e s t ar t of i t s ap pli cat io n . No le s s im po r tan t were t h e ac t iv it ie s on i mp lem e nt at ion o f by-l aw s for D ep os it P rote c t io n Ac t, a s well a s th e Cen tr al B an k of Mo nt en eg ro De ci si on on t h e Cen tr al Re gi s te r of T ran s ac tio n Account s . Regula t or y envir onm en t in the Group ’ s r egion The r eg ul ato r y envi ron m en t in t he re s t of t h e reg ion w h ere t he Gro up o pe rat es wa s dom in a ted by l eg is la ti ve an d reg ul at or y ch an ges r ela te d to t he COVID -19 pa nd em ic an d m in imi s in g it s con s eq uen ce s in t he f in an c ial s ec tor a nd e con om ie s . Th er e were al so l oc al re gul at or y (p r ud en ti al an d m ac roe con om ic) me as ur es a dop ted t o en s ure s tabl e f un c t io nin g of t h e finan cial sys tem s . Serbia co nt in ue d h ar mo nizi ng t h e bu si ne s s env iro nm en t with the EU fr amewo r k throu gh the ad option/ amendments of th e n ew Law o n Capi tal M ar ket, t he La w on El ec tron ic Invoic ing , a nd t h e Law on Co mp an ie s (all th es e to b e en force d su cce s si vely) . Th e Na tio n al B an k of S er bi a pu t m ore s cr ut iny on t he c lie nt s’ c om pl ain t s an d t he p roce s s of r ef in an cin g lo an s in th e b an ks . Reg ul at or y ac ti vi tie s on COVID -19 con t in ue d wi th th e aim o f mi ti ga ti ng t he c on se q uen ce s of t he p an de mi c bot h for t he e con om y an d cit izen s . In Nor th Macedonia , COVID -19 p an de mi c-r ela te d la ws focuse d mos tly on social supp or t for vuln erable social groups , an d fi na nc ial h e lp for t h e af fec te d com pa nie s . Th e A M L la w was am en d ed to t ran s po se t h e EU leg is la t ion i n th e rel evan t area s o t h at B an k s co ul d us e el ec tron ic i den t if ica t ion in i t s day -to - da y ac tiv it ie s . Th e Na t ion al B a nk of t h e Re pu bli c of Nor t h M ace don ia a dop te d th e de ci sio n s , mo s t ly in o rde r to ha r mo nize w it h EU leg is l at ion a nd s tan da rds i n th e area o f re qui red r es er ves , t h e me th od ol og y for id en ti f yin g sys tem ically significant ban ks , and sub mit ting and publis hing da ta on t h e per fo r me d ac ti vi tie s in t he p ay m en t op era ti on s . In th e Federation of BiH the m os t i mp or ta nt d ec is ion o f th e reg ul ato r in 2021 wa s th e De ci si on o n Int er n al G over na nc e Sys t em in t he B a nk , w hi ch re pre se nt s an alig nm e nt of l oc al reg ul at ion s w it h EBA G uid el in es on I nt er n al G over na nce . Anew ‘ Law o n Acco un t in g an d Aud it in g in t he Fed era ti on of Bi H’ m u s t al s o be e mp ha s ized as i t br i ng s new a cco un tin g fra me i n Feder at ion o f B iH . In t he a rea o f le gal e nt it y leg is la t ion , t h ere ar e new re gu la ti on s rel at ed t o th e po s si bil it y of us in g di git all y si gn ed do c um en t s in t he re gi s t rat io n of a leg al en t it y , b u t in t hi s ver y mo m ent t ec hn ica l an d le gal su pp or t on t h e level of t h e s ta te i s n ot yet pr ovid ed . 28 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report BUS IN E SS RE PORT 29 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Despi te th e challen ging an d uncer tain economic environmen t, the G roup has contin ued to du ly ex ecu te i ts m edium -ter m st rategy . Thi s inclu des focu s on protec tin g and s treng the ning i ts m arket posi tion in it s home region , an d ac tively par tic ipati ng in the growt h and cons olida tion of th e mar ket . Digitalization , client centrici t y , and cost ef f icienc y remain some of ke y st rategic orient ations to ens ure deliver y of th e Group’ s vis ion . Str a tegy Finishing integr ation of K om ercijalna banka, Beo grad Prom ot in g th e E SG ag en da Crea t ing n ew b us in es s ex pan s ion oppor tunit ies Digiti zing d is tribution c h annels Suppor ting clien ts ' expansion Adding new financial produ c t s B uil din g s t ron g c us t om er s up po r t Mo ni tor in g an d in cr ea si ng stakeholder v al ue Be com in g a gre a t pla ce to wo rk Conti nuing strategi c transformation initiativ es Es tablis hing divers ified ho rizontal busines ses Be come a regional cham pion The G ro up a im s to f ur t he r s t ren gt h en it s role a s a s ys tem ical ly imp or t ant f i na nc ial i ns ti tu t ion i n th e S EE regi on , an d s t r ives to be com e a m ar ket l ead er in a ll of i t s co re m ar ket s an d to ha ve a prom in en t ro le in t h e reg ion’s develo pm en t. W it h th e com pl et ion o f th e acq ui s it ion o f Komer cij aln a B an ka, B e ogr ad in 2020, th e G ro up m ade a n im po r tan t s te p in t hi s dir ec tio n . The G ro up b el ieves t he re is s ig ni fi can t po ten t ial f rom t he dea l for t h e wh ol e reg ion g iven t he c om pl em en tar y p rod uc t of fer in gs o f Komerc ij aln a B an ka, B eo gra d th a t en ab le t he Gro up t o ex te nd a n u mb er of p ro du c t s an d s er vi ces i n th e Se rb ian m ar ket a nd i nc rea s e it s c ros s - bo rde r ac tiv it y. In addition , cost- and capabilit y- related bu sines s sy nergies will be de r ived f rom i t s in te gra t ion w it hi n th e G rou p an d wh ich w ill be f in is h ed in 2022. I t i s es t im a ted t h at t h e com bin e d s yn erg y ef f ec t s cou ld re s ul t in over EU R 20 mil lio n an nu all y fr om 2023 onward s . Fur th er b us in e s s s yn erg ies a re exp ec ted f rom t h e int eg rat io n of S be rb an k ba nka d .d. i n th e G rou p. Pu t tin g c lien t s fir s t In ret ail b an ki ng , t he G ro up co nt in ue s to s t r ive to b ec om e clo se r to i t s cli en t s by of fer in g an ch or p rod uc t s an d th e mo s t acc es s ib le an d p er s on ali se d dig it al s er vic es (e.g. , om nic h ann e l, m ar ket pl ace) th at s u it t he ir li fes t y le s . In cor po ra te b ank in g , th e B an k is l oo kin g to p rovid e m ore com pl ex, c ros s - bo rd er pro d uc t s and s er v ice s , an d to f in d new en t r y poi nt s in o rd er to s ui t all i t s c lie nt s’ f i na nc ial n ee ds . On e of t he key ef for t s i s im proved a vail abi li t y f or al l cli en t s . The G ro up h a s ma de i t se lf a vail abl e any wh ere a nd a ny tim e by bui ldi ng a s tron g c us t om er ca ll ce nt re an d up gra din g i t s por t fol io of d igi tal s al es c ha nn el s . Th es e n ow of fer a gr owin g se t of ba nk in g pro du c t s a n d se r vice s , bo th fo r ret ail a nd corp orate cli ent s . Put ting clients first Grow ou r ma rket posit ion Be com e a regional champion Monetize opportunities and syner gies 30 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The G ro up r eg ula r ly en ga ge s wi th al l of i t s s ta keho ld er s in def in in g wh a t is m a ter ia l to b oth t h em an d t he G ro up. Ava ri et y of com m un ica ti on c ha nn el s are u s ed fo r an op en a nd trans parent dialogue on su st ainabilit y related iss ues . Som e of th e m os t i mp or t ant c h an ne ls fo r com m un ica ti on s wi th t h e stakeholders (in addition to th e regular publi cly available per i odi c rep or t s , p res en ta ti on s , an d web cas t s on t he G ro up per fo r ma nc e) are th e NLB G ro up S us tain ab ili t y Rep or t, th e C SR a nd S u s ta in abi lit y e - m ail b ox, t h e cor po ra te web si te, a n d social media ch annels . The G ro up’s emp loyee s rep res en t i t s key res ou rce: h um an capi tal a n d are on e of i t s m ain d r iver s fo r cre at in g val ue. Thr ou gh th e fo cu s on r ec r ui tm en t, ma na ge me nt, an d t he con ti nu al d evelo pm en t of em p loyees , th ey are gi ven t he opp or t un it y to t hr i ve by ma kin g t he m os t of th ei r tal en t an d expe r ien ce s an d ada pt to a f as t- cha ng in g wor ld . Th ey are en cou rag ed to a c t i n a res p on si ve, res p ec t f ul , an d re s ul t- dr iven m an n er w it hin a n d ou t si de t h eir wor k e f fo r t s . Th e amb it io n is to t r ul y invo lve th e w ho le or gan is a ti on in r eal is in g the Group’s s us tain abilit y ambit ions . Mon etize oppor t uni ties and s yn ergies Sig ni fi can t s t ra teg ic b us in es s e f fo r t s are u nd er ta ken to ach ieve b us in es s s y ne rgi es ac ros s t h e Gro up, b ot h in co s t s an d ope ra ti on al ef f ici en c y. The Gro up b el ieves t he se c an h elp of fs et s ig ni fi can t ne ga t ive eco n om ic ef fec t s of t he COVID -19 pan d emi c on t he G ro up’s fu t ure b us in e s s res ul t s . T he G ro up is f ul ly en ga ge d in re - es ta bli s hin g s om e of t h e key fin an ci al se r vice s (l ea si ng , fa c to r ing , e tc .), t hu s di ver s if yin g it s s er v ice s on a h or izon tal l evel . The B a nk i s s im ul tan eo u sl y m oni to ri ng a ddi t ion al M & A oppor t unities (within c on solidation processes in banking se c to r s in t he S EE) t h at c ou ld ad d val ue to t h e Ba nk ’s sh ar eh old er s . I t m akes s en s e to ac ti vely p ar t ici pa te in t h e expe c t ed gr ow t h an d con s ol ida t ion o f th e m ar ket. C on tin uing t ra n s for m a tion T o facil it at e th e af ore me nt io ne d s t rat egi c foc u s an d s upp or t continuous transformation in an e ver changing e nvironment , th e G rou p is fo llow in g an el ab ora te d, co mp reh en s ive, a nd det ail ed p rogr am pl an to d el iver i t s mi s s ion a nd f i na nc ial targ et s . The G ro up h as i den t if ie d a se r ies o f pro jec t s an d ini ti at ive s , an d h as al s o ded ica te d con s ide rab le inve s t me nt Dig i ta liza tio n The G ro up c ont in u es to i mp le me nt c om pre he ns ive a nd subs tant ial st rategic ef for ts toward di gi tal dist rib ution and ope ra ti ng m od el s th a t ha ve be en ac cel era te d by th e COVID -19 pan d emi c . Th e n ew circ um s t an ces r ela te d to t he p an de mi c an d th e eco n om ic un cer t ain t y con ti nu e to a f f ec t th e grow th an d acce pta nc e of dig it al ch an n el s by our c u s tom e r s . Th e Gro up wa s pre pa red fo r s uc h a ma r ket tre nd , s in ce it wa s alre ad y th e le ad ing p rovi der a nd i nn ovat or in i t s cor e ma r ket s befor e the outbr eak. At th e s am e ti m e, th e G rou p is s tr iv in g to s im pli f y a n d au tom a te p roce s s es in o rde r to m ini mi se t h eir t im e an d cos t s . The f oc us o n dig ita liza tio n is t o en abl e qu icke r an d bet te r cu s to m er s er vi ce, a h igh er l evel of in te rn a l pro ces s es ef ficien c y , and conse quent ly addition al cost savin gs . The G ro up w ill c on tin u e to inve s t s ub s tan t ial ly in IT inf ra s t r uc tu re an d it s capa bil it ies . The f oc us w ill b e on imp rovi ng t he s p ee d IT can d eli ver re s ul t s by ado pt ing a gil e me th od ol og y pr in cip le s , t he p rovi sio n an d im pl em en ta ti on of th e b es t o nl in e expe r ien ce fo r cu s t om er s in t h e SEE , an d en ha nc ing c ap abil it ie s for p roce s s ing d at a, m o de llin g , an d th e rel evan ce of s er vi ces t o cli en t s . O ne s u ch exam pl e is th e alr ead y es tab lis h ed t ech n ol ogi cal h ub i n Be lg rad e th a t dev elops solut ions for the whole G roup. Du e to t he p os it ive e f f ec ts o f wor ki ng r em ote ly d ur in g th e pan d emi c , t he G ro up h as d evelo pe d a hyb ri d wor ki ng m od el (combi na ti on of wo r k-from -h om e an d wor k f rom t he o f f i ce) ini ti at ive, t h us o f f er in g m ore f lexi bil it y to i t s wor k for ce an d ach iev ing c os t b en ef i t s at t he s am e t im e. Gro w our mark et position The G ro up i s wor ki ng t o prot ec t an d s t ren gt h en it s mar ket pos it io n as a s y s te mi c pla yer in i t s h om e re gion . In ord er to do th i s , th e G rou p is m on it or in g how we ll it i s ad din g val ue to th ree t yp es o f it s m ai n s ta keho ld er s : sh ar eh ol der s , c u s to me r s , an d em ploye es . W i th re s pe c t to s h are ho ld er s , t h e Gro up view s it s d ec is ion s t hro ug h a le ns o f ma xim i si ng i t s ret u rn on eq ui t y . W i th re s pe c t to c u s tom e r s , a ne t pro mo ter s co re (NP S) is m on ito re d an d tra cked . W it h re sp ec t to em pl oyees , an em ploye e eng ag em en t m et ri c is m ea s ure d an d an al ys ed . In add it ion t o th e m en ti on ed key pe r for ma nc e in dica to r s , ot he r su pp or t ing i nd ica tor s a nd b en ch m ar k s are t ra cked i n ord er to con t in ual ly reval ua te c ur re nt p roj ec ts a n d ut ili s e th os e in sig ht s f or f u t ure de ci s ion s . fu nd s fo r th eir i mp le me nt at io n . W it h th e pro je c t s , a ll m ajo r r un nin g c ha ng e ef for t s are c h ann e lle d in to on e overal l strategic transformation pr ogram. The b ac kb on e of t h e s tr at eg y is s t re ng th en in g cu s t om er - cen tr ic it y by es t ab lis h in g cu s to me r - ba se d m ar ket ma na gem e nt, im prov in g th e un de r s ta nd in g of cl ien t s , reimagining digital client jour neys , and accelerating inn ovat io n to prov ide l if es t yl e an d valu e ch ai n se r vice s to strengthen r elationships. The t ra ns f or m at io n pro gram a ls o fo cu se s ef for t s in to inc re as ed o pe rat io na l ef fi cie nc y, cos t m an ag em en t, an d th e im proved u t ili sa t ion o f th e G rou p’s capita l. Simul taneou sly, overall operational capabilities are bei ng e nh an ce d by imp rovi ng h um an c api tal , op ti mi si ng IT inf ra s t r uc tu re, d igi tal izin g int er n al pr oce s se s , an d levera gin g in for m at io n cap ita l. T o dr i ve th e tra n s for m at io n , a new c ha ng e ma na ge me nt p la t f or m was s et u p. Bre xit ’ s impac t on the Group ’s per for m ance Du e to t he l im ite d fo cu s of t he G ro up’s ope rat io ns b eyon d th e SEE re gio n, B r exit d id n ot h ave any s ig nif i can t im pa c t o n th e Group ’ s business performance . 31 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sp ec ial a t ten ti on i s pai d to co nt in uo us p rovi s ion o f se r vice s to cli en t s , th ei r mo ni tor i ng , h eal t h prot ec tio n m ea su res , and t h e preven ti on of c ybe r at ta ck s an d p ote nt ial f ra ud even t s . T he Gro up h a s es t abl is h ed in te r na l con tr ols a nd o th er m e as ur es to facilitate their adequate managem ent. How ever , thes e me as ur es m ay n ot a lway s f ull y preve nt p ote nt ial a dver s e ef fec t s . The G ro up i s s ubj ec t to a wi de var ie t y o f re gul at io ns a n d law s re la tin g to b an ki ng , in s ura nc e an d f in anc ia l se r vice s . Res p ec ti vely, it face s th e r is k of s ig ni f ican t in te r vent ion s by a nu mb er o f reg ul ato r y an d en force m en t au th o ri ti es i n eac h of th e ju ri s dic tio n s in wh ic h it op er at es . The S EE re gio n is t he G ro up' s m os t s ig nif i can t ge ogr aph ic area o f op era t ion s o ut s id e of t he R oS a nd t h e eco no mi c con di tio n s in t hi s reg ion a re th er efor e im po r tan t to t he G ro up' s res ul t s of o pe ra tio n s an d fi na nc ial c on di tio n . A s a re s ul t of any in s tab ili t y or ec on om ic de ter io ra ti on in t hi s re gio n, t h e Gr ou p's fi na nc ial c on di tio n co uld b e ad ver s ely a f fec ted . In th is r eg ard , th e G rou p cl os ely f oll ows t he m ac ro eco no mi c indic ators rele vant to its ope rations: • GD P tre n ds an d fo rec as t s • E conomic se ntiment • Unemploymen t rate • Cons umer con fi dence • Construc tion se ntiment • Dep os it s tabi li t y a nd g row t h of l oa ns i n th e ba nk in g s ec tor • Credit sp reads an d relate d fu ture fore cas t s • Int ere s t ra te d evelo pm en t an d rel at ed f u t ure fo re cas ts • F X ra tes • O th er re levan t m ar ket in dic ato r s Du r ing 2021, t h e Gr ou p reviewe d IFR S 9 prov is io nin g by te s tin g a set of r elevant macroeconomic scenarios to adequa tely ref le c t t he c ur re nt c irc um s t anc es an d t he r ela te d im pa c t s i n th e f ut u re. Th e G ro up es tabl is h ed an d d evelop ed m u lt ip le sce na r ios ( i .e. ba s eli ne, m il d an d seve re) on th e level o f ECL calcul ation: • The b aseline scenario pre se nt s a c om mo n for eca s t ma cro eco no mi c view f or al l cou nt r ies t h at a re pr es en t in th e G rou p. Th is s cen a ri o is co ns tr u c t ed w it h th e p ur po se to cu lm in at e var iou s o ut lo ok s in to a u nif i ed p roje c t io n of macroecon omic and fin ancial variables for the Group. This is in l in e wi th t he c on cep t th a t th e B an k ha s a co ns ol ida te d view o n th e f ut u re of e con om ic d evelo pm en t in S EE. T he Ris k fac tor s Ri sk f ac t or s af fec tin g th e bu si ne ss outloo k are (among others): • T he e con om ie s’ s en si t ivi t y to a po ten ti al sl owdown in t h e Euro ar ea or g lob al ly • Widening credit spreads • Potential liquidit y out flows • W orsened int erest rate outlook • Potential cyber - at tacks • Reg ul at or y, other l eg is la t ive an d ta x me as ur es im p ac tin g th e b an ks • Geopoli tical uncer tain ties The e co no mic m o me nt u m in t he re gio n wh er e th e G rou p ope ra tes wa s af fe c t ed by th e COVID - 19 pa nd em ic . I n 2021, th e G rou p’s region re t ur n ed to g row t h on t h e ba ck of r eviva l in pr i vate a nd i nves t m en t con s um pt ion . H owever , it i s not pos s ib le to a s s um e w it h a hig h de gre e of co nf id en ce t ha t s uc h eco no mic m o me nt u m wil l con ti n ue. Lending gr owth in the c orporate segment r emained r elatively moder ate, especially in the curr ent circumstanc es. On the other hand, the Gr oup benefited from incr eased demand for mortgage loan financing, especially in Slovenia, as w ell as in banking subsidiaries. During 2021 impacts of the CO VID-19 pandemic did not have a meaningful impact on the cr edit portfolio quality. The Gr oup faced a fav ourable NPL movement r esulting in lower per cent age of NPLs and positive effects fr om on- and of f-balance sheet c ollection. Credit risk is usually materially incr eased in times of economic slow down. Notwithstanding the established pr ocedur es in the Gr oup's cr edit risk management, there c an be no assuranc e that they will be sufficient to ensur e that the Group's quality of cr edit portfolio or the corr esponding impairments will remain at the adequate lev el in the future. The i nves t m en t s t rat eg y of t he G ro up, re fer r in g to t he Gro up’s bon d po r t f oli o kept fo r liq uid it y pu r pos e s , ad apt s to th e exp ec ted m a rket t re nd s in a ccor dan ce w it h th e s et ri s k app et it e. W hil e th e G ro up m on ito r s it s li qu idi t y pos it io n an d cor re sp on di ng t ren d s , im pa c t s o f cre di t sp rea d an d int ere s t ra te f lu c t u at io ns o n it s p os it io ns , a ny s ign if ica nt a nd un ant ic ip at ed m oveme nt s on th e m ar ket s or va ri et y of fa c to r s , su ch a s com p et it ive pr es s ure s , c us tom er ’s con f id en ce or ot h er cer ta in fa c to r s ou t s ide t h e Gr ou p's c on tro l, c ou ld ad ver s ely af fec t th e G rou p's o pe ra tio n s an d f in an cia l con di tio n . IFR S 9 ba se lin e s cen ar io i s b as ed o n th e NLB m on t hl y Econo mi c Ou t lo ok t ha t was c rea te d in A pr il 2021. • The m a cro eco no mi c rat io na le b eh in d th e alter native scenarios i s rel at ed to a r ang e of p la us ib le im p ac ts o f th e COVID -19 p an de mic o n ec on om ic devel op me nt d ur in g th e nex t 3 year s . T he b a si s for t h e al ter n at ive s ce na ri os i s rel at ed to t h e ECB' s vi ew of ec on om ic devel op me nt a f ter th e cor on av ir u s ou tb re ak s in ce ear l y 2020. B as ed o n th e ECB illu s tr at ion o f a mi ld a nd s evere s cen a ri o res ol u tio n of th e pa nd em ic cr i si s t hro ug h th e le ns o f po s si bl e expe c t ed imp ac t on e con om ic ac ti vi t y in th e Euro ar ea , th e G ro up develo pe d bo th al te r na t ive s cen ar io s . In g en eral , t he mil d s cen ar io e nvi si on s a res ol u ti on of t h e he al th c r is is by th e en d of 2021 an d a lo ng - te rm r eviv in g pro ces s o f th e eco n omy, while a s evere s ce na r io as s u me s a m ore prot rac te d cr is i s an d pe rm a ne nt l os s es in e con om ic pot en tia l. T he s e sce n ar ios we re in cl ud ed in t h e cal cu la tio n of ECL in acco rda nce w it h IFR S 9 a s of 30 J un e 2021. A par t fro m th is t he G ro up h ad kep t tr ack o f th e l ate s t e con om ic development s and changing of f icial projec tion s . • The l a tes t set o f IFR S 9 s cen ar io s for m ac roe co no mic var iab les i s ap pli ed i n th e m ode lli ng p roc es s fo r th e probabilit y of default (PD) and loss given default (L GD) est imates . Nev er theles s, the focus in macroeconomic sce na r ios i s on t he t ra jec tor y o f rea l GD P an d th e un em ploy me nt r at e over th e pro je c t ion h or izo n fro m 2021 to 2023. Bo th var i abl es ar e in cl ud ed in t h e mo de llin g p roce s s of PD and L GD, resp ec tively . The Gr oup established a compr ehensive internal str ess-testing fr amework and early w arning systems in various risk ar eas with built-in risk factors r elev ant to the Group’s business model. The str ess-testing fr amework is integr ated into Risk Appetite, ICAAP , IL AAP , and Rec overy Plan to determine ho w sever e and unexpect ed changes in the business and macro envir onment might affect the Gr oup’s capital adequacy or liquidity position. Both the str ess-testing frame work and r ecov ery plan indicators support pr oactive management of the Gr oup’s over all risk pr ofile in these circumst ances, including capital and liquidity positions fr om a forwar d-looking perspective. Ri sk M a na gem e nt ac ti on s th a t mi gh t be u se d by th e G rou p are de te rm in ed by var i ou s in ter n al p oli cie s an d ap pli ed wh en n ece s s ar y . M or eover , t he s el ec ti on an d ap pli cat io n Ris k F ac tors and O u tlook 32 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report of mi t iga ti on m ea s ure s fol lows a t h ree - l ayer a ppr oac h , con s ide ri ng t h e fea s ibi lit y an al ys is o f th e m ea s ure, i t s im pa c t on t he G ro up’s bus in es s m o del , an d t he s tren g th o f avai lab le mea sure. O u tlook The i ndicated outlook constitutes f or ward-looki ng statements wh ich a re s ubj ec t to a n umb er o f r is k fa c to r s an d are n ot a guarantee of fu ture fin ancial per forman ce. The G ro up i s pu r s uin g a ran ge o f s t rat eg ic ac ti vi tie s to en ha nce i t s b us in es s p er fo rm an ce . Int ere s t ra te o u tl ook i s un cer ta in gi ven th e a dap ti ve mo ne tar y p oli c y of t he ECB to th e ge ne ral e con om ic s en ti me nt. T he B an k i s com mi t ted t o delivering soun d fin ancial per forman ce. The m e as ur es an d p ote nt ial s o ut lin ed i n th e ab ove s tr at egy are re fl ec ted in t h e G rou p’s outl oo k for t h e 2022 to 2023 pe r iod ( T abl e 9). Poten t ial e f f ec ts o f acq ui s it ion o f Sb er b an k ban ka d.d . ar e no t in cl ud ed in t h e ou tl oo k . Ou tlook 2022 Macroeconomic The global econom y is expected to c ontinue with the rec overy in 2022. The impact of pandemic on economic activity has consider ably waned o ver time, and it should further wane ov er the coming y ears. In the Euro ar ea, output r eco very is expected to continue in 2022. GDP gro wth is expected to moder ate to 3.6% in 2022, with the r e-opening ef fects set to fade out. Gr owth in the Eur o area will be primarily driv en by str ong private consumption and business inv estment, which is expected to r ecov er substantially, additionally supported by the Next Gener ation EU funds. The withdr awal of emer gency support measur es tar geting firms and households should result in a tighter fiscal policy stanc e, while the ECB gives the impr ession of being headed for the e xit from the ac commodative monetary policy. Supply chain bottlenecks and the sur ge in energy prices ar e e xpected to sustain inflationary pr essures in 2022 with inflation being pr ojected to be higher. Howe ver, ther e ar e still some risks to the outlook. Despite the weak ened impact of the pandemic on economic activity, it still r epr esents some degr ee of risk. F ur thermor e, supply bot tlenecks could be mor e sev ere, pr olonged, and widespr ead than expected, while the emer gence of new sour ces of supply bottlenecks is also possible. Pr otracted staff shortages could dr ag on economic activity and ex acerbate supply chain issues. Inflation c ould continue to surprise on the upside and e ven mor e broad- based price incr eases could not be e xcluded. The lat ter could undermine households‘ pur chasing power. Geopolitic al tensions in Eastern Eur ope adds yet another layer to the ov erall pile of risks t o the outlook. The war in Ukr aine has sev eral ec onomic implications r esulting in a rene wed downside risks to global gr owth, with Eur ope being the most exposed in this r egard. Ele vated unc er tainty, potential ener gy supply disruptions, mor e widespread c ommodity shortages and new supply chain disruptions will weigh on the econom y. A surge in commodity pric es, with oil and gas prices acc elerating higher in particular, will push up inflation in the coming months. In fact, inflation could rise e ven further and remain ele vated for longer due to commodity pric e surge and additionally due to sec ond r ound effects, in terms of the impact on the underlying inflatio n, wage gr owth and higher inflation e xpectations. This er odes household pur chasing power and together with a squee ze on compan y profits, and deterior ated business and consumer confidenc e will weigh on economic gr owth. Consequently, with elev ated downside risks to gr owth and upside risks to inflation, the risks of stagflation have incr eased. Regar ding the Gr oup’s region, the ec onomic gr owth could be at ar ound 3.7% in 2022. The r eco very is expected t o lose some momentum. Nev er theless, gr owth should be mainly driven by firming private c onsumption and investment. T ighter labour market could pr opel household spending and wage gr owth while further impr ovement in the tourism sector should be beneficial especially for tourism-dependent countries. That said, supply disruptions, and rising commodity and ener gy prices, which ar e set to be be additionally affected by ec onomic implications of the war in Ukr aine, r epr esents downside risks to the economic outlook of the Gr oup’s region bec ause persistently higher inflation lev els could undermine households’ pur chasing power. Mor eover, politic al tensions and uncertainty in some countries of the Gr oup’s region c annot be disr egarded due to its impact on economic c onfidence while economic activity in tourism- dependent countries is particularly dependent on the path of the pandemic, despite its waning effect on ec onomic activity. Re venues and lo an gro w th On the back of continuing ec onomic rebound with str ong private c onsumption and business investment, the Gr oup expects high single digit loan gr owth in 2022. R etail Banking in Slov enia is expected so see continuation of str ong loan gr owth also in 2022, with a healthy demand for mortgage loans. Corpor ate and Inv estment Banking in Slovenia is also expect ed to gr ow on the back of cr oss-bor der lending and re vival in inv estment spending. Strategic F oreign Mark ets will maintain r obust performance with loan gr owth expect ed to reach double digit gr owth. Ther efor e, inter est income gr owth is expect ed to be primarily driven b y loan book gro wth, and productiv e use of liquid assets. P ost COVID-19 opening of the ec onomies and intr oduction of high balance fees stimulated demand for fee gener ating products and inc ome. All of the above should r esult in total r egular r evenues of ar ound EUR 670 million in2022. T a bl e 9: O u tl oo k fo r t h e pe r io d 2022-2 02 3 2022 (ii) 2023 Regular inc ome ~ EUR 670 million > EUR 700 million Costs Costs at 2021 lev el ~ EUR 400 million Cost of risk 20-30 bps 30-50 bps Loan gr owth High single digit loan gr owth High single-digit loan gro wth Dividend EUR 100 million EUR 110 million ROE a.t. ~ 10%, (ROE normalized (i) : 12%) > 10% (ROE normalized (i) : > 12%) (i) ROE normalized = R esult a.t. w/o minority shareholder pr ofit divided by consumed c apital. Consumed capital comput ed as 13.06% of average R WA r educed for minority shar eholder capital contribution. (ii) If legal r emedies against the adopted law in F ebruary 2022 concerning loan agr eements in Swiss francs c oncluded by banks oper ating in Slovenia (including NLB) and individuals ar e unsuccessful, the Bank estimated a negative pr e-tax effect on the oper ations of NLB and NLB Group should not e xceed EUR 70 - 75 million. This would have alimited (up to 55 bps) negative impact on the c apital position. 33 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C os ts and cost of r isk The G ro up w ill c on tin u e to p ur s ue a s tron g co s t co nta in me nt age nd a ad dre s si ng b ot h lab ou r an d no n - lab o ur cos t ele me nt s . T otal co s t s co nt in ue t o be im p ac ted by a b us in es s envi ronment with a visible labour cost inflation throughout th e reg ion . A ddi t ion all y, the G rou p con t in ue s wi th i t s inv es tm ent act ivities into information technology upgrades, amid the growing relev an ce of digital banking. Impor tantly, int eg rat io n cos t s as s oci at ed w it h th e ac qu ire d Komerc ij aln a Ba nka , B eo grad w il l con tr ib u te to t ota l cos t s i n 2022. B as ed on t hi s , cos ts i nc lu din g in te gra t ion exp en s es ar e exp ec ted to rem ain a t 2021 leve l. The r eal is ed c os t o f ri s k in 2021 a t - 41 b ps o ut pe r for m ed prev iou s o ut lo ok g uid an ce fo r 2021 (aroun d -20 bp s) due t o ver y s tro ng d evelo pm en t in N PL re so lu ti on . I t is ex pe c t ed th at r es ol ut io ns w ill c on ti nu e to p os it ivel y im pa c t co s t of ri s k in 2022, b ut w it h a dim in is h ed i mp or ta nce . B as ed o n as s es s ed e nvi ron me nt t h e exp ec ted co s t of r i sk w il l be in th e ran ge o f 20 bp s to 30 bp s , an d s om ewh at l ower t ha n expe c t ed in t h e 2023 ( 30-5 0 bp s). Loan por t folio qualit y The G ro up a nt ici pa te s len d ing g row t h in a ll key se gm en t s . Sp ec ial fo cu s w ill b e give n to t he re tai l se gm en t wh er e th e Gro up ex per i en ced s tro ng gr ow t h in t he p revi ou s year . T he Gro up i s ver y pr u de nt i n ide nt if yi ng a ny in cre as e in c red it ri s k , as we ll as p roa c t ive in t h e are a of NP L ma na ge me nt. On t hi s ba s is wel l dive r si f ied a nd s tab le q ual it y of c red it por t fol io is ex pe c t ed d ur in g th e yea r 2022. Pot en tia l mo der at io n of c ur ren t po si t ive eco n om ic tr en ds d ue t o COVID -19 u nce r tai nt ie s mig ht h a ve a ne ga ti ve imp ac t on t he exis tin g lo an po r t f oli o qu ali t y , b ut i t s im pa c t s h ou ld n ot b e ex ces sive. Liquidi t y F ro m liq ui di t y p er s p ec tive, d ep os it s a t th e G ro up level are s t ill i nc re as in g (i n th e B an k an d in b an kin g m em be r s), alt h ou gh grow th o f ret ail d ep os it s h as m o der at ed in H 2 2021. The l iq uid it y po si ti on of t h e Gr oup i s exp ec ted t o remain solid even i f a highly unfavourable liquidit y scenar io ma te ri ali s es , a s th e G rou p ho ld s s uf f ici en t liq uid it y res er ve s in th e fo r m of pl ace me nt s a t t he ECB , pr i me d ebt s e cu ri ti es , an d mo ney m ar ket p lac em en t s . S ign if ica nt a t ten t ion i s give n to th e s t r u c t ur e an d con cen t rat io n of li qu idi t y res er ves , by inc or po ra tin g e ar ly war n in g s ys t em s , keep in g in m in d th e pot en tia l ad ver s e ne ga ti ve ma rket m ovem en t s by f ur t he r sh or t eni ng o f th e po r t f oli o du rat io n an d cl as s if ic at ion o f n ew inves t m en t s wi th l on ge r du rat io n as h ol d to co lle c t i n ord er to de cre as e s en si t ivi t y to reg ul at or y cap it al . High l evels o f deposit inf lows are put ting an addition al st rain on profitabilit y. In J un e 2021 th e B an k pa r tic ip at ed in t h e ECB TL TR O op era ti on an d ha s dra wn a c red it t ran ch e of EU R 750 mi lli on . Th e B an k is co ns id er in g ea r ly re pa ym en t in J un e 2022. I f ma te ri alize d, th is w ill n ot h ave a m a ter ia l im pa c t o n th e G rou p’s liqui dit y position. C api tal The c api tal p os it io n rep res en t s a s t ron g b as e to cover a ll regulator y capital requirement s , includin g capital buf fer s an d oth er c ur re nt ly k n own re qu ire me nt s , as well a s t he Pi lla r 2 Gu ida nc e. If l eg al re me di es ag ain s t t h e ado pt ed la w in Febr ua r y 2022 con cer n in g loa n agr ee me nt s i n Swi s s fra nc s con cl ud ed by b an ks o pe ra tin g in S love nia ( in cl u din g NLB) a nd in div id ual s are u ns u cce s s f ul , th e B an k es t im a te d a ne ga ti ve pre - ta x ef fec t on th e op er at ion s of N LB an d NLB G ro up s h ou ld not exce ed EU R 70 - 75 mil lio n . Thi s wou ld h ave a l imi te d (up to 55 bp s) neg a ti ve imp ac t on t he ca pi tal p os it ion , l ea vin g the Ban k ’s capital pos ition comfor tably above all cur rent require men ts . The B a nk i s exp lor i ng o ppo r t uni t ies f or M REL f un di ng , is s ua nc e of T ier 2 , a nd p ote nt ia l is s u anc e of Ad di tio na l Ti er 1 in s tr ume nt (s) to f ur t he r s t ren gt h en an d o pt imize i t s cap ita l on so lo an d co ns ol id ate d level . B a se d on t ran s it ion al i nc re as e of MR EL re qu irem e nt, t he B an k in 2 02 2 int en ds to s tre ng th e n MR EL eli gib le li abi lit ie s in t he a mo un t of a rou nd EU R 40 0 mil lio n . Al so , in 2022 th e G ro up con t in ue s wi th a c t iv it ie s to opt im is e RWAs . M& A oppor tun ities The G ro up m igh t exp lo re f ur t he r valu e acc ret ive M & A opp or t un it ie s in i t s dom e s ti c an d ot he r reg ion al m ar ket s wh ere t h e Gro up i s n ot yet pr es en t wi th t h e aim to i nc re as e shareholders’ value. Divi dends The B a nk ’s gene ral in te nt io n is to d is tr ib ut e div id en ds o n year ly b a si s in li ne w it h it s c ap aci t y , w hil e at t h e sa me t im e fu lf i llin g al l reg ul ato r y req uir em en t s , in cl u din g th e Pi lla r 2 Gu ida nc e an d r is k ap pet i te. 2021 Y E capi tal c alc ul at io n doe s not i nc lu de p ar t of t h e 2021 res u lt i n th e am ou nt o f EUR 1 0 0 mil lio n . Th ere fore , th ere w ill b e n o ef fec t on t he ca pi tal in c as e th e di vid en ds a re pa id . Th e div id en d pa ym en t in t h e year 202 2 mig ht b e s pli t in t wo in s ta lm en t s . Th e B an k env is ag es cum u la ti ve div id en d pa you t of EUR 2 10 m ill ion in t h e pe r iod 202 2-2023. C O VID -19 De sp ite t h e COVID -19 r ela te d ci rcu ms tan ces t h e Gr oup en su re d con ti nu it y of s er vi ce prov is io n to it s c li en t s by adj us tin g t he G ro up’s of fe r , in cre as ed u s e of dig it al ch an n el s , an d en ha nc ing c u s to me r exp er ien ce . Th e Gro up i s ai min g to fu r th er s u ppo r t it s c lie nt s , by con s tan t deve lop m en t in cl udi ng cre at in g fl exib le l oca l digi ta l eco s ys t em of o f f er in g pro du c t s an d se r vice s . Su s tain abilit y The Gr oup has committed to sustainability, and has been enhancing the management of envir onmental and social risks of its oper ations, among others to meet EBRD and MIGA standar ds. It also substantially incr eased the use of digital channels, impr oved customer e xperience, and aims to cr eate a flexible loc al digital ecosyst em for of fering pr oducts and services. In 2022, th e G ro up in ten d s to m ake s us t ain ab ili t y mo re tangi ble throug hout the Group . The r esources are shifting toward s a low- c ar bo n eco no my an d en ga gin g wi th c u s tom e r s is key in f in an cin g t he t ran s it io n . An i mp or ta nt s tep fo r ward wil l be do n e by expa nd ing t h e pro du c t p or t foli o wi th l oan s ded ica te d to s up por t in g en erg y ef f icie n c y an d ren ewabl e en erg y pro du c t ion a n d int ro du cin g dig it al on ly c ard . Th e Gro up s u ppo r t s glo ba l de car bo niza ti on go al s an d aim s to expa nd t h e Gro up’s me as ur em en t s of e mi s si on s to S cop e 3. Implemen tation of climate related and environmental ris k ma na gem e nt fo llow s ECB and EBA g ui del in es . M or eover , par t ici pa t ion in ECB cl im at e - ri s k s t res s t es t exer cis e w ill provi de a ddi ti on al im po r tan t in s igh t s , w hic h wi ll s ure ly ha ve an ef fec t on f ur t he r ad apt at io n of t he exi s t in g Gr ou p’s bu si ne s s m ode l . Ef fe c t ive in te gra t ion o f su s t ain ab ili t y - rel at ed reg ul ato r y req ui rem en t s wi ll b e imp or t ant i n 2022 for E SG dis c los ur es an d re po r tin g (e.g. EU T axon omy, BA SEL Pi lla r III). The G ro up p lan s to m a ke req uire d s te ps i n ord er to o bta in o ur fi r s t E SG ra ti ng . However , al l of t he a bove m ent io ne d can n ot be achiev ed withou t highly motiv ated and adequately skilled tea ms , hen ce re levan t t rain in gs w ill b e an i mp or ta nt p ar t of th e wor ki ng a gen d a. 34 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Impac t on credit por t fol io q uali t y COVID -19 d id n ot h ave a m ean in gf ul i mp ac t on t he q ua li t y o f th e cre di t po r t fo lio . Th e su pp or t s ch em es i nt rod uc ed by t he go vernments in the Group c ountries pro viding moratoriums to eli gib le c lie nt s a s pa r t of t he COVID -19 pa nd em ic m ea s ure s ph as ed o u t du ri ng 2021. A s at 31 D ece mb er 2021, t he ex po su res wh ere COVID -19 mo ra tor ia we re gra nt ed am o un te d to EUR 1,681.5 m illi on an d re pre se nt ed 10.8% o f th e G rou p’s cre dit p or t fol io. Th e exp os ur e wi th t he r em ain in g COVID - 19 mo rat or ia wa s ne gli gib le an d am o un te d to EUR 24.8 mil lion , wh ile 98.5% o f th os e m ora tor i a alre ad y expi red by 2021 Y E. A tota l of 86.4% of ex pos u re wi th t h e expi red m or ato r ia h ave n o del ay s , wh il e 2.1% ha d de lay s excee din g 90 da ys . The B a nk i s ver y pr u den t in i den t if yin g any i nc rea s e in cre di t r is k . M e a s u res The Gr oup continued to tak e necessary measur es to pr otect its customers and employ ees by ensuring safety c onditions and making sur e services offer ed by the Gr oup wer e pr ovided without disruption. The v ast majority of the products and servic es of fer ed by the Gr oup banks ar e available to clients in digital f orm without the need to visit a br anch – and 24/7 client support by enhancing the availability of digital channels w as ensur ed. The ‘ W ork from Hom e’ ini tia tiv e In pa rall el , th e p lan s to i nt rod uc e a ‘ wor k fro m ho m e’ ini tia t ive wh ich p re - d at es t he COVID -19 pa nd em ic was s o me how acce ler at ed by t he over all ci rcu m s ta nce s in t he l as t t wo yea r s , an d was wel l rece ived by t h e em ploye es . I n th is re s pe c t, th e pa nd em ic pr ovid ed a f ur t he r pu s h in t he d ire c t ion o f digi ta lis a tio n of t he G ro up’s bu sin e s s mo de l. Resil ience of strategi c ini tia t iv es The r esilience of the Gr oup’s str ategic initiatives was w ell demonstr ated thr oughout the outbreak of the C OVID-19 pandemic. The ne w ways of working enabled the av oidance F o llowing a very de mand ing year due to th e worldwide impa c t of th e CO VID -19 ou tbreak having unprec edent ed ef fec ts around the globe , the year 2021 was in general a retur n to new norm al and grow th . Nevert heles s , th e disea se is s till present an d will contin ue to a f fe c t the economies to variou s degrees des pite in creased medical capabili ties and an im pro ved toolbox agains t the s tr uggle with th e pandemic . Tho u gh th e COVID - 19 pa nd em ic , co up le d wi th i t s im pl ica ti on s on all a s pe c t s o f lif e an d in p ar ti cu lar o n th e b us in es s envi ron m en t, was s t ill t he r egi on’s and wo rl d ’s buz z word , t he Gro up m an ag ed t o s ta y well c api tal is ed , ver y liq ui d, a nd a s th e bu s in es s re s ul t s sh ow, also h igh ly p rof i tab le . of any signific ant delays in the envisaged ex ecution timelines, which should positively impact the Gr oup’s futur e financial and oper ational performance. Im pac t on s us tain abilit y The CO VID-19 pandemic has had a substantial influence on thr ee of the most significant aspects of sustainability: the society, economy, and en vironment. Its heavy ec onomic burden on societies is likely t o leave persistent social scars, such as gr eater inequality and poverty, as w ell as challenges regar ding affor dability and access to basic needs. By understanding that the pandemic has had dir ect ef fect on the econom y, we have decided to further support vulnerable gr oups and ex empt humanitarian or ganisations from paying c ommissions. 5 Al th o ugh COVID -19 res tr ic tio ns o f move me nt a nd c ha ng es of com m u tin g p at te rn s h ave a lt ere d in th e p as t t wo yea r s , wi th t he e con o my recove r y in 2021 glo bal e mi s s ion s ar e ri s ing b ac k to t he p re - COVID level, w hi ch m akes t h e fi gh t aga in s t cl im at e ch an ge even m or e urg en t. 6 T hi s al so re s ul te d in im po r tan t an d de ci si ve s te ps in d evelo pm en t of t he su s t ain ab ili t y r eg ul ato r y fra mewor k . In th is re ga rd, t h e Gr ou p s tr en gt he ne d t he ro le o f su s t ain ab ili t y w it h in t he G ro up an d amp li f ied i t s ac ti vi ti es : en ha nce d env iro nm en ta l an d cli ma te ri s k ma na ge me nt, p er for m ed i mp ac t an d ma te ri ali t y an aly si s , be gan m ea s ur in g car b on fo ot pr in t of ow n op era ti on s , an d s tr en gt he ne d co rp ora te g over na nc e by es t abl is hi ng N LB Gro up S u s ta in abi lit y Com m it tee . For mo re in for m a tio n , pl ea se refe r to t he N LB Gr ou p Su s t ain ab ili t y R ep or t 2021 . The year 2021 has pr ov ed that the Group adapted t o ‘new normal’ with distinction. Digitalization, inclusion, and envir onmental pr otection have been some of the most important drivers for us. W e have used them to c ontinue dev eloping progr essive and digitaliz ed services, and pr oducts that support ener gy ef ficiency and thus a tr ansition to a low- carbon society. 7 5 For m or e in fo r m at i on , p le a se r ef er t o ch a pt er S us tainabilit y and subch apter Corporate Social Respon sibilit y . 6 IE A , 2021: https:/ /ww w . iea . org/ repor t s/ global- energy-review- 2021 /c o 2 - emiss ions. 7 Fo r m or e in fo r m at i on , p le a se r ef er t o ch a pt er C or p or at e an d I nve s t me n t Ba n ki n g in S lo ven ia . Impac t of C O VID -19 on Oper at ions 35 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Implem en ta tion of su s t aina bilit y in to th e Group busi n ess model Wi th l es s t h an a de ca de le f t to th e 2030 de adl in e for a ch ievi ng glo bal ly s et co mm i tm en t s toward s E SG , s evera l key piec es of th e EU s us tain ab le f i na nce l eg is la t ion e nt ere d int o force , an d th e EU Fi t for 55 (EUp lan t o red uceg ree nh o us e gas e mi s s ion sby 55% by 2030) un le as h ed w ide - re ac hi ng in du s t ri al c ha ng es t ha t n ee d to be i mp le me nt ed . Th e Gr ou p ha s s ha pe d a nu mb er o f im por t an t devel opm en t s , w it h re su lt s su ch a s: Sus tain abilit y F ramework The NLB Group Sus tainabilit y F ramework was p ub lis h ed as a s t ra te gic do c um en t th a t hig hl igh t s th e am bi t ion s an d com mi tm e nt s t o th e in te gra ti on of s u s ta in abi lit y in t h e Gro up’s bu si ne s s m ode l . Be s ide s prov idi ng an a lig nm en t of t h e Gro up’s su s ta in abi lit y ap pro ac h wi th t h e U N ’s Sus tain able Devel opm e nt G oa ls (U N S DG) , it of fer s s takeh ol de rs a l is t of s us tain ab le e con om ic a c t iv it ies p rom ot ed by t he G ro up an d th ere for e se t s ou t th e b as is f or c las sif yi ng f in an c ing a s su s t ain ab le. M or eover , t he d oc um en t ad dre s se s in d eta il ES G ri s k ma na ge me nt, t he p r in cip les o f re sp on s ibl e ba nk in g an d bu si ne s s et hi c s , an d t he G ro up’s cor por at e s us t ain ab ili t y gove r n an ce s tr uc t ur e. Alignmen t of the Group’ s s us tainabilit y app roa ch w it h th e U N SD G: SD G 3: Ens ur e he al thy l ives a nd p rom ot e well - bei ng f or al l at al l age s Sus tain abilit y , with a fo cus on clim at e iss ues an d co vering o the r aspe c ts o f the environme nt as well as broader E SG asp ec t s , is an oppor tun it y for the G roup to me et socie tal expec ta tions , ada pt to a chan ging environmen t, and mitiga te cer tain ris ks . This h as been d emon s trated a lready in the wid espread ac tion s taken b y t he G roup. SD G 7: Ens ur e acce s s to a f fo rd abl e, re liab le , su s t ain ab le, a nd m o der n e ne rgy f or all SD G 8: Prom ot e su s t ain ed , in cl u si ve, an d s us tain ab le eco no mic g row th , f ull a nd p rod uc ti ve em ploy me nt, an d d ece nt wor k f or all SD G 12: Ensure sus tain able cons umption and produc tion SD G 13: T ake urge nt a c t ion t o com ba t c lim a te ch an ge a nd i t s im pa c t s Sus ta inabilit y 36 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Pri nc ipl e 5: Governance & Culture Pri nc ipl e 6: T ran sparen cy & Accountabilit y The B a nk w ill f u lly i mp le me nt a ll s ix pr in c ipl es an d t he ref ore th e req ui red s tep s reg ard ing i mp ac t an aly si s , t arg et-s et t ing & imp le me nt at io n , an d acco un ta bil it y by th e en d of 2024. In 2021, th e G ro up con d uc ted a n im pac t an al ys is wh ich re s ul te d in ta rge t-s et ti ng , wh ic h rep res en t s t he imp le me nt at io n of t he s ec on d pr in ci pl e for re s pon s ib le ban k ing . Th e im p ac t a n aly si s id en ti f ies t h e mo s t re levan t an d sig ni f ican t po si t ive an d n ega t ive im pa c t s o f a ba nk ’s po r t f oli o on t he s oc iet ie s , ec on om ies , and e nvi ron me nt s t h at t h e ba nk ope ra tes i n . It i s al so t h e es s en ti al gro un d wor k ne ed ed fo r meanin gful target-set ting. Mat erialit y analysi s Wi th t h e aim t o keep t he ‘do ubl e m ate r ial it y ’ con ce pt in t h e foc us f or t he ye ar 2021, t he G ro up al so d ec ide d fo r a tra di tio n al (GR I) ma te ri ali t y ana ly si s as a c om pl em en t to t he im p ac t an aly si s , s in ce G RI m a ter i ali t y and s takeh ol der i de nt if ic at ion can b e us ed t o fu r th er co r rob ora te i mp ac t ana ly si s f in din g s an d so h el p wi th t he s et t in g of pr io r it ie s . Carbon footprint In H2 2021, ‘ T he N LB Gr oup Ca r bon Foo tp r int M e as ur em en t an d Rep or t in g Pol ic y ’ was a do pte d as a n in ter n al p oli c y on t he ca lc ula t ion o f th e car b on fo ot pr in t of t h e Gro up’s own op era t ion s , an d s o prov ide s th e key me th o dol og ical app roa ch fo r why a nd h ow th e ca rb on fo ot pr in t re por t in g for t he G ro up w ill b e car r ie d ou t. W it h ref ere nc e th ere to, Impac t analysis & targe t-s et t ing In 2020, th e B an k s ign ed t h e Un ite d Na t ion s Envi ron me nt Prog ram m e Fin an ce I ni tia t ive’s Prin c ipl es fo r Re sp on s ibl e Ba nk in g (U NEP FI PR B) wh ic h aim s to al ign b an k ’s s tr at eg y an d pra c t ice w it h th e U N SD G an d th e Pa ri s Cli ma te Agreement. Pr in cip le s for R es po ns ib le B an k in g are a s foll ows : Pri nc ipl e 1: Alig nm ent Pri nc ipl e 2: Imp ac t & T arge t Se t tin g Pri nc ipl e 3: Clie nt s & Cu s t om er s Pri nc ipl e 4: Stakeholders th e G rou p con s ide r s th e G ree n Ho us e G as Pr oto col (G HG Proto col ), w hi ch re pre se nt s t h e wor ld ’s mos t wid el y us ed G HG accoun ting s ta ndard . Sus tain able f inancin g In 2021, over EUR 60 m ill ion o f EU T axono my el igi ble l on g -te r m loa ns we re ap proved by t he B a nk ( la rge co r po rat es s eg me nt) : th e B an k f in an ced in ves t me nt s i n en erg y in fr as t r u c t ur e, a tel eco mm u nic at ion s n et wor k , wat er s up pl y ne t wor k , con s t r uc tio n of c ul t ura l an d sc ho ol f aci li tie s , an d en er gy ef f i cie nc y . W it h in th e S M E se gm en t, su s t ain ab le f in an ci ng was a t mo de s t level s . A t th e en d of 2021, t h e Ba nk a nd t h e Gro up b an ki ng m em b er s s et am bi ti ou s s us t ain ab le f i na nc ing goa ls fo r th e yea r s 2022–2025. Ba s ed on t h e an aly s is , t h e foc us w ill b e on r en ewabl e en erg y so urc es , s ol u tio n s for t he car bo n foo tp r int r ed uc tio ns , imp rovin g en er gy ef f ici en c y, and suppor ting a circular econ omy . EU T axonomy The u nf old in g of t he EU T axon omy r eg ul at ion wa s cl os el y mo ni tore d by th e G ro up rep re se nt at ive in t h e Europ ea n Ba nk in g Fede rat io n’s Sus tain ab le F in an ce wor k ing g rou p, wh ich cover ed am o ng ot h er ta s k s th e UN EP FI an d EBA proj ec t ‘T he A pp lic at ion o f th e EU T axon omy t o Ba nk Le n din g.’ In 2022, th e EU T axon omy r eg ula t ion w ill b e f ull y im pl em en te d in th e G ro up f in an cin g pr oce s s . ESG Ri sk managem ent In 2021, s ubs tan ti al ef for t wa s ma de i n imp le me nt in g cl im at e, environmental, and social ris k managem ent requirement s in lin e w it h ECB and EBA g uid el in es . I n rece nt ye ar s , t he Ba nk s ig ne d Framewor k Agr eem e nt s w it h th e EB RD a nd t h e Cont ra c t of G u ara nt ee s wi th M IG A . It wa s th er efor e req ui red to devel op a m ec ha ni s m for e nviro nm e nt al an d s oci al sc ree nin g of c ur re nt a n d pot en tia l f in an cin g ap pli cat io ns aga in s t M IG A an d EBR D E xcl us io n Lis t and a pp lica bl e envi ron m en tal an d s oc ial l aw s . Con s eq ue nt ly, the G ro up’s exis tin g r is k m an ag em en t fra mewo rk i s co ns tan tl y upg rad ed wi th en viro nm e nta l an d s oci al el em en t s . A s a sy s te mi call y imp or t ant i ns ti t ut ion , t h e Gr oup i s in cl u ded i nt o 2022 ECB Clim a te St re s s te s t exerci s e. M ore in fo rm a ti on i s avai lab le in Risk Man agement c ha pte r of t hi s rep or t. Sus tain abilit y training The Group’ s ‘ S us tainabilit y on- line training program’ was care fu lly p rep ar ed on t h e mo de l of s im ila r tr ain in g pro gram s of th e In te r na t ion al F in an ce Cor po ra ti on (IFC) an d is implement ed throughout the Group . In the f uture, the Group wil l con d uc t S u s t ain abi li t y t ra ini ng o n a year l y ba si s . 37 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sus tainabilit y w or king groups Ad ho c wor ki ng gr oup s are b ei ng s et u p in th e b an k to introduce various elem ent s of sus tainabili t y. Th eir composit ion varies according to the area of s us tain abilit y cons idered. ES M S O f f ic er s h ave b een a pp oin te d in o ur ba nk in g me mb er s w ho r eg ula r ly re por t t o th e lo cal b oa rds . They a re rep res en ta ti ves of r i s k ma na gem e nt li ne w h o en s ure t he E S M S is properly implemented organisation wide. Ot her s us tainabil it y- relat ed topic s Ma ny of t he se o u tcom e s ref le c t o ng oin g, l on g -t er m ch all en ges , bu t at t h e sa me t im e t hey re fl ec t th e Gr ou p’s abilit y to rea ch t an gib le re s ult s in th is a rea . I t sh o uld b e m en tio n ed th at i n 2021 seve ral ot h er s us tain ab ili t y-r el ate d to pic s we re addressed, such as: • digitalization and paperles s operat ions • remun erat ion polic y • C SR p roje c t s c or re sp on di ng to U N S DG • inc l us ion & d iver s i t y a t t he l evel of e mp loyee s an d cli en t s • bu ild ing p ar t ne r s hip s & cap ac it ies by b ein g invo lved w it h relev ant representatives from academia, NGOs , and the real economy sector • tal en t devel opm en t an d ca re for e mp loyee s . Roadma p for 2022 The G ro up s u s ta in abi lit y ro adm ap f or t he ye ar 2022 is f u ll of new c ha lle ng es . A s a UN PR B s ign a tor y, the B an k wi ll con s id er join in g th e U NEP FI ’s Net Zero B an ki ng A lli an ce, s in ce it i s an acce ler at or t ha t prov id es a de dic at ed fo r um to s h ap e th e n et zero jo ur n ey of th e b an kin g in d us t r y. The Gr ou p is re sp on s ive to th e de s ire of i nves t or s , s up er vi s or s , an d i t s pe er s an d oth er s takeh ol der s t o ali gn it s b u si ne s s mo de l wi th n et ze ro obj ec tive s . Th e pro gre s s in a ch ievi ng ta rge t s for 2030 a n d 2050, at t he l at es t, in lin e wi th c red ibl e 1.5°C s cen ar i os , i s however , n ot on ly d ep en de nt o n th e wi llin gn es s and c apa ci t y of a ba nk , b u t to a la rge ex ten t on a c om plex s u m of fa c to r s , su ch a s th e a vaila bil it y of s us tain a ble i nves t m en t s an d activities, transiti on proj ec ts , transformation capaciti es of the in du s t r y , a s well a s pu bli c an d in du s t r ial p oli cie s s upp or t in g transitio n . The G ro up' s s u s ta in abil it y am bi tio n is a nc ho re d in it s m i s si on . Thi s is s e en as a n op por t u ni t y t o he lp b us in es s es n ot o nl y su r vive, b u t al so to t ake in it ia ti ve an d pos i tio n th em s el ves fo r fu t ur e grow th . S us tain ab ili t y is a t th e cen t re of o ur b us in es s mo de l an d a pill ar fo r th e t ran s fo rm a ti on of t h e Gr oup . NLB Group Su s tainabili t y G ov er nance St r uc ture The N LB G rou p S us t ain ab ili t y Gover n an ce St r u c t ur e is anc h ore d at d if fere nt l evels w it hi n th e B an k an d t he G ro up th us g u aran te ein g t ha t it r ece ives a t ten t ion f rom t h e hig he s t dec is io n - ma kin g b odi es w hil e al so b ein g br oad ly in te gra te d in our o perations. In th e Q3 2021, t he N LB G rou p ‘ S us tain ab ili t y Comm it te e’ was es t abl is h ed a s par t o f cor p ora te s u s ta in abil it y gover n an ce develo pm en t s an d t he f i r s t m eet in g was h el d in D ece mb er 2021. It i s ch air ed by t he CEO an d over se es t he i nt egr at io n of th e E SG fa c t or s to t h e Gro up b u si ne s s mo de l in a fo cu s ed an d coo rdin a te d way ac ros s t h e Gro up a nd i s s ue s opi ni on s , recommendations , initiatives, and takes relevant decis ions wh en n ee de d. T he co mm i t t ee h a s th e au t ho r it y to di sc u s s , develop , an d approv e su s tainabilit y stra tegies , policies , initiatives, methodologies , KPIs, targets, and other relev ant pro ced ure s of t he N LB G rou p, an d ha s in fl ue nc e over sus tain abilit y- related s trate gic objec tives . Ap ar t fro m an ch or in g s u s tai na bil it y at d if fere nt l evels w it h in th e B an k in it s d ai ly op er at ion s (on th e M an ag em en t Bo ard lev el, E xecutive Management le vel, Group lev el, and Bus iness & Coun t r y level) , NLB h as p u t in p lac e a 4-l evel NLB G ro up Sus tain abilit y Governan ce Str uc t ure, namely : Su per vi sor y B oard o f th e NLB The B a nk h a s es t abl is h ed a co mp reh en s ive f ram ewor k for su s t ain ab le m an ag em en t, s tar t in g by sp on s or in g th e m at te r at t he l evel of t h e NLB S B , wh ic h , si gni f ican t ly co nt r ib ut es to th e im pl em en ta t ion o f su s t ain ab ili t y. The S B re gu lar l y mo ni tor s t h e imp le me nt at io n of E SG fa c t or s an d di sc u s se s th e topi c on re gu lar b a si s . Sus tainabilit y Commit tee It i s com po se d of t he h ig he s t- level of f ice r s an d provi de s th e overal l vi si on an d s us tain ab ili t y s tr ate gy, it def i ne s key policies, revie ws progress on major i ni tiatives, decides on sp ec if ic ex ter n al p ar tn er s h ips a nd a gre em en t s , an d en s ur es coh es io n of th e overa ll pr ogr am wi th t h e B an k ’s mis s io n . Sus tainabilit y T e am The S u s t ain abi li t y T e am wi t hin S tr at eg y an d B us in es s Devel opm e nt D iv is ion o f th e NL B over se es G ro up -w id e su s t ain ab ili t y a ge nd a an d is t as ked w it h dr iv in g th e c ult u re, monitoring implementati on of the s trategy , coord inating ini ti at ive s , m ea su r in g th e im pa c t, an d re por t in g on t he pro gres s to th e S us tain ab ili t y Comm it te e, t he M B , an d t he S B . For mor e in for m at io n , ple as e re fer t o : • the chapter Ris k Managem ent , subchapter Incor pora ting ES G Ri s ks • Not e 6 of th e F in an cia l par t o f th e re por t • the chapter Statem ent of M an age m ent o f R is k • th e Pil lar 3 D isclos ures • th e NLB G ro up S us tain ab ili t y Rep or t 2021 C or porate S ocial Res pon s ibilit y The G ro up c ont r ib u tes t owards w id er s oc io - e con o mic develo pm en t t hro ug h it s C S R ac ti vi ti es an d i s res po n sib le t o it s c lie nt s , e mp loyee s , an d t he s oc ial e nvi ron m en t. The G ro up pa ys s pe cia l at te nt io n to kn owl ed ge an d li fe lon g le ar n ing . The key pi lla r s of t he s oc ial ly re s pon s ib le op era t ion s of t h e Gro up a re car e for i t s em pl oyees an d p rote c t io n of la w fu lne s s an d int eg ri t y , a s well a s th e p rom ot ion o f en tre pre ne ur s h ip, inc re as in g f in an cia l lit era c y , s u pp or t to p rofe s s ion al an d youth spor t s, h umanitar ian ac tivi ties , the protec tion of cult ural he ri ta ge, a nd ca re fo r th e env iro nm en t. E ve r y year , t he G ro up s t r ives t o in cre as e t he s h are o f C SR ac t iv it ie s th a t pu r s ue U N SD G . Th e t arge t for 2021 – a t l eas t 30% of all C S R ac ti vi ti es in eve r y ban k m em be r sh o uld b e alig ne d wi th U N S DG – wa s ach ieved , even m ore , so me me mb er b an k s even excee ded i t. At t he s am e t im e, t he G ro up pla ns , not o nl y to al ign key C SR t opi c s wi t hin G ro up m em b er s , bu t al so t o car r y ou t m ore j oin t Gr ou p wid e C SR p roj ec t s . In 2021, th e m ain t wo pro jec t s were # H elp F r am e an d He ar t fu l oppor tunit ies . Understanding smal l ent repr ene urs’ c hallenges - # H elpF rame projec t co n tinued in 2021 The G ro up’s so cia lly re s pon s ib le ac ti on s ha ve be en con ti nu ou s ly u pgr ade d wi th p roj ec t s th at f oll ow th e UN S D G . The G ro up’s fi rs t su ch r egi on al pro je c t wa s la un ch ed in s p r ing 2020. The COVID -19 cr i si s cl os ed t h e doo r to m any d rea ms in prev io us ye ar s . Th a t is w hy th e d eci s ion wa s ma de t o give a glim m er o f ho pe w it h th e # He lpFram e pro jec t for a not h er 38 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB B an ka, B an ja Luka fo cu se d on b ot h you th a nd t h e eld er ly by p rovid in g 500 ch ild ren w it h di sa bil it ies a nd s o cia lly en dan ge red f am ili es wi t h New Y e ar ’s pre se nt s , a nd 500 elderly visitors from elderly centres with Chr is tmas lunch and bedding . Followi ng i t s tr adi t ion o f th e pa s t yea r s , NLB B a nka, S ara jevo su pp or te d an or p ha na ge i n T uzla to h el p ch ild ren w it h ou t par en t s an d fam ili es . T he p ub lic i ns ti t ut ion , ‘ H om e for Chil dre n wi th o ut P aren ta l Care T uzl a’ de als w it h t he c are and upbrin ging of children witho ut parental care, children from dysf unc tional families , and children found beggin g an d wand er in g t he s tre et s . T hey p rovid e all o f th em w it h a ho me , he al th car e, reg ul ar e du cat io n , cl oth es , and f oo d. T hey cur r en tl y ha ve 56 ch ild ren o f all ag es – f rom b ab ies t o hig h school st udent s . NLB B an ka, Pr is h tin a al so d ec ide d on a d oub le d on at io n . Th e fi r s t wen t to t he N at io na l Au ti s m A s s oci at io n in Kosovo (AN AK) wh ich d eal s wi t h th e id en ti fi ca tio n an d s upp or t o f ch ild ren with autism and their familie s . This time, the o rganisation is pr omoting the talents of childre n with autism through pai nt in gs . The s ec on d do na ti on wa s don a ted t o th e Id ea s Par t ne r sh ip, an o rga ni sa t ion t h at wo rk s m ai nl y wi th R om a , A s hkali , an d Egyp tia n com m un it ie s in t he f ie ld o f ed uca ti on , he al th , s oc ial wo rk , and t h e envi ron m en t. NLB Banka, Podgorica ’ s do n at ion s u pp or te d th e R igh t s Cent re fo r Chi ld ren , a n on - gover nm en ta l org ani s at ion th at i s , am o ng ot h er s , h elp in g ch ild ren t owards s tron g er par t ici pa t ion in t h e de ci sio n - m aki ng p roc es s an d en s ur i ng th eir vo ices a re h ear d, b u t als o wor k in g wi th s en s it ive gro up s , su ch a s ch ild ren f rom f os t er fa mi lie s an d so cia lly v u ln erab le groups . year in 2021. T he p roj ec t is o ur way o f giv in g a he lpi ng h an d to loc al s ma ll en t rep ren eu r s wh o h ave be en m os t af fec ted by t he si t ua ti on in re ce nt yea r s . A s p ar t of t h e cam pa ign , a dver t is in g sp ace wa s do na te d to 73 s el ec ted en t rep ren e ur s in S loven ia an d 258 acro s s th e w ho le NL B Gro up . Th e par t ic ipa nt s fro m 2020 were inv it ed to b ec om e am ba s s ado r s of l as t year 's p roje c t a nd t o sh ar e th ei r pos i ti ve expe ri en ces i n th e #HelpF rame. A w orld full of hear t is a w or ld f ull of oppor t unities The wo r ld i s mu ch m or e be au ti f ul an d co lo ur f ul w he n we s tan d by ea ch ot h er an d w it h f ull h ea r t s cre at e new opp or t un it ie s – op por t u ni ti es s uc h as t h os e th at a ls o ar i se wi th o ur s up po r t. In all m ar ket s w he re t he G ro up op era te s , org ani s at ion s t h at p rom ote i nc lu s ion w h eth er f or c hil dre n , th e eld er ly, or bot h wi th a c h ar it abl e do na t ion a re s upp or te d . In S l oven ia , N LB don ated to t wo humanitar ian organisa tions , Bo tr s t vo an d H um ani ta rček . The N LB don a ti on to B ot r s t vo wil l en abl e 200 di sa dvan ta ge d ch ild ren t he o pp or t un it y to develo p th ei r tal en t. In con t ras t, as ma ny as 97,000 e ld er ly pe opl e li ve bel ow th e pover t y lin e in S loven ia . W it h t he h el p of a do na t ion , t he H um an it arč ek as s o cia t ion w ill b e ab le to provi de t he m wi th 21,000 h ot m e als . NLB B an ka, B eo grad a nd Komercijalna Bank a , Beograd donated to the c entre fo r youth integratio n ‘SOS dečij a sela,’ a n on -governm ental, h umanitar ian , and non -prof it org ani s at ion t h at h a s be en wor k in g to im prove t he q ua lit y of lif e of ch il dren a n d you th w it ho u t pa ren tal c are, e mp ower in g fam ili es a t r is k , s up por t in g th e e con om ic in de pe nd en ce of young people from vulnerable groups , and providing em erg en c y as s i s ta nce t o lo cal p op ula t ion s an d re fu ge es . NLB B an ka, S kopje al so d ec ide d to s up po r t bot h ch il dre n an d th e el der l y by don a ti ng to a h e alt h care c en tr e for t he eld er ly i n Skop je an d t he Fou nd at io n for Ed uca ti on al an d Cul t ural I ni ti at ives ‘ Ste p by Ste p,’ and th e Pro jec t ‘B e I N, B e Inc l us ive, B e In c lu ded ,’ tha t s t r ive to i mp rove th e ed uca t ion al oppor tunit ies for children with disabilit ies and contr ibutes to th e deve lop m en t of an in c lu si ve, n on - se gre ga te d pr im ar y educati on subsystem. W e ar e y our neighbour s. Gr eat-gr andmothers sav ed up for har d times. F or gr andmothers, education w as the best inv estment. Mothers in vest ed in their own c ompanies. As modern w omen, you in v est in dr eams. W e suppor t you thr ough all life periods, help y ou successfully tackle challenges the y bring, of fer you useful solutions and a r eliable path tow ards r ealising the biggest and the most daring of goals. And even though your priorities change thr oughout the years, ours r emain the same: we help y ou with the best advice and pr ovide y ou with new opportunities at every st ep. 40 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The G ro up’s res ul t is b as e d on t he fo llow in g key dri ver s : • Integration of Komercijalna Banka, Beograd , acquired at t he e nd o f 2020, m erg er of N LB B an ka, Po dgo r ica an d Komerc ija ln a B an ka, Po dgo r ica in N ovemb er 2021, a nd t h e sa le of Kom erc ija ln a Ba nka , B anj a Luka in D ec em be r 2021; • St ron g 12% lo an grow th t o in div id ual s an d s oli d 8% to cor po ra te, a bove 10% grow th even w it ho u t Komer cij aln a Banka, Ban ja Luka ; • Net i nt ere s t in com e in c rea se d EUR 109.8 m il lion o n th e bac k of t he Kom erc ija ln a B an ka grou p con tr i bu ti on (EUR 98.5 mil lio n). Net i nt ere s t in com e w it ho u t th e Kome rci jal na Ba nka gro up c on tr ib u tio n al so i nc rea s ed , ba se d on h igh er volu me s an d in cr eas e d ma r ket sh ar es in t h e loa n bo ok com pe ns a ti ng fo r th e re du c t io n in in ter es t r at es . I n gen er al, ne t int ere s t in co me wa s im pa c t ed by exces s l iq uidi t y , wh ich d ete r mi ne d a con s eq ue nt ly h igh er vo lum e o f cas h an d bal an ces w it h CB s , w it h low or n e ga ti ve int ere s t ra te s; however , ad di tio n al in ter es t i nc om e was re co gni s ed b as ed on lower i nt ere s t ra te s for TL TRO i n th e B an k in D ece m ber ; • The e co no mic r eb oun d l ed to t h e opt im is a tio n of i nves t me nt por t fol io of h o us eh ol ds , g row t h of h o us in g lo an s , m ut u al fu nd s , an d b an cas s u ran ce, w hi ch in cr ea se d ne t fe e an d com mi s s ion i nco m e (h igh b ala nc e dep os it f ee s an d ne t fee s from ass et managem ent and banca ss urance); • Lower no n - rec ur r in g in com e, w hi ch in 2021 i nc lu de d valu at io n in com e in t he a mo un t of EU R 14.8 mi llio n fr om t he rep ay me nt o f expo s ure, c la s s if ie d as n on - p er for m in g , EUR 9.0 mil lio n of ot h er op era t ion i nco m e fro m th e s et tl em en t of a le gal d is p ut e, an d EUR 8.1 m il lion l os s f rom t h e sa le of Komerc ija ln a B an ka, B an ja Lu ka; in 2020, th e s ale o f NLB Vi ta an d d ebt s e cur i ti es h ad a p os it ive e f fe c t o n t he re s ul t in th e am ou nt o f EUR 28.1 m ill ion; • Cont in u ou s cos t dis cip li ne; co s t s hi gh er d ue to i nt egr at ion cos t s a nd e mp loyee c os t s ; • Net i mp air m en t s an d p rovis io ns f or c red it r is k wer e rel ea se d in t he a mo un t of EU R 35.8 mi llio n , mo s t ly d ue to th e s uc ces s f u l rep ay me nt o f on - and o f f- b ala nc e expo su res a n d ch an ged p ar am ete r s rel at ed to m o re favo ura ble m a cro eco no mi c fore ca s t s . O t he r im pa ir m en t s an d provi s ion s were e s ta bl is he d in t he a mo un t of EU R 27.1 mil lio n , mo s t ly d ue to r es t r uc t ur in g prov is ion s a nd provi s ion s fo r leg al r i sk , m os tly r el at ed to Kom erci ja ln a Banka, Beo grad; The Group ach iev ed a p rofit a f ter t ax in the amoun t of EU R 236.4 millio n, 67.3% or EUR 95.1 million m ore than th e year before (2020: EUR 141.3 million), if the p ositive impac t of the acqui sit ion of K om ercijalna Ban ka, Beograd in 2020 is excluded. • NLB S kl adi a ch ieved 79.8% Y oY grow th o f gros s i nf low s in m ut u al f un ds (EU R 252.4 mi llio n) an d th e as s et s u n der ma na gem e nt f rom N LB cl ien t s is a pp roa chi ng EU R 1.3 billion; • A s tr on g TCR of 17.8%; • The n e ga ti ve CoR of - 41 bps , g iven g oo d as s et q ua li t y t re nd s and a decisive workout approach ; • The m u lt i -year d ec lin in g tr en d of t he n on -p er for m in g cre dit p or t fol io s to ck c on tin u ed , m os t ly d ue t o rep ay me nt s , coll ec tio n , th e s al e of cl aim s , a nd c ur ed cl ien t s . T he com bin a ti on of s u cces s fu l res ol u tio n of N PL an d cr edi t grow th of a h igh - qu ali t y por t foli o res u lt ed in t h e de cre as e of gro s s NPL ra t io (EBA de f.) from 4.5% t o 3.4% Y o Y , an d t he NPE ra t io (EBA de f.) by 0.6 p.p. Y o Y to 1.7% ; • Unenc umbered liquidit y reser ves por t folio amoun ted to EUR 8,280.6 m illi on ( 38.3% of to tal a s s et s). Ov er vie w o f Financial Per form ance EU R 236.4mill ion of net prof it. Fig u re 5: Pro f i t af te r ta x of N LB G ro u p (i n EU R m il lio n) / R OE a f te r ta x (i n %) (i) ROE a.t. 225.1 203.6 193.6 269.7 236.4 2017 2018 2019 2020 2021 14.4% 11.8% 11.7% CAGR 1% 8.1% 11.4% Compounded Annual Gr owth Rate. (i) Komer cijalna Banka gr oup included fr om 2021 on. 41 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Income s ta tem ent T a bl e 10: In c om e s t at e me n t of N LB G ro up a n d NL B NLB Gr oup in EUR million 2021 2020 Change Y oY Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Change QoQ o/w KB contribution Net inter est income 409.4 299.6 109.8 98.5 37% 107.0 103.7 101.1 97.5 75.1 3.4 3% Net fee and commission inc ome 237.2 170.3 66.9 42.5 39% 64.6 58.6 59.9 54.1 45.1 6.0 10% Dividend income 0.2 0.1 0.1 0.2 101% 0.0 0.1 0.0 0.0 0.0 -0.1 -65% Net income fr om financial tr ansactions 38.4 32.0 6.5 8.1 20% 5.0 7.4 20.8 5.3 2.0 -2.4 -32% Net other income -18.3 2.6 -20.8 -17.9 - -9.6 -3.8 -2.0 -2.8 -1.0 -5.8 -154% Net non-inter est income 257.6 204.9 52.6 32.8 26% 60.0 62.3 78.7 56.5 46.1 -2.3 -4% T otal net operating inc ome 666.9 504.5 162.4 131.3 32% 167.0 166.0 179.9 154.0 121.2 1.1 1% Employ ee costs -231.3 -165.0 -66.4 -54.9 -40% -63.1 -56.5 -56.5 -55.1 -42.0 -6.6 -12% Other gener al and administrativ e expenses -137.5 -97.3 -40.3 -38.3 -41% -43.4 -31.7 -32.6 -29.8 -27.6 -11.7 -37% Depr eciation and amortisation -46.5 -31.7 -14.8 -13.4 -47% -11.7 -11.6 -11.6 -11.6 -8.0 -0.1 -1% T otal costs -415.4 -293.9 -121.4 -106.6 -41% -118.2 -99.9 -100.7 -96.6 -77.7 -18.4 -18% Result befor e impairments and pr ovisions 251.5 210.5 41.0 24.7 19% 48.8 66.1 79.1 57.5 43.5 -17.3 -26% Impairments and pr ovisions for cr edit risk 35.8 -62.3 98.1 3.4 - 1.8 3.3 14.8 16.0 -13.2 -1.6 -47% Other impairments and pr ovisions -27.1 -9.1 -18.0 -2 4.0 -198% -18.3 2.9 -11.3 -0.5 -7.9 -21.2 - Impairments and pr ovisions 8.8 -71.4 80.1 -20.6 - -16.5 6.3 3.5 15.5 -21.1 -22.8 - Gains less losses fr om capital investments in subsidiaries, associates, and joint ventur es 1.1 0.9 0.2 0.0 27% 0.2 0.5 0.3 0.1 0.0 -0.4 -68% Negative goodwill 0.0 137.9 -137.9 0.0 - 0.0 0.0 0.0 0.0 137.9 0.0 - Result befor e tax 261.4 277.9 -16.5 4.2 -6% 32.5 72.9 82.9 73.1 160.2 -40.4 -55% Income tax -13.5 -5.2 -8.4 2.5 -162% -0.6 -3.3 -4.8 -4.7 3.8 2.7 81% Result of non-c ontrolling inter ests 11.5 3.0 8.4 1.5 - 1.0 3.9 2.9 3.8 -1.1 -2.9 -75% Result after tax 236.4 26 9.7 -33.3 5.2 -12% 30.9 65.7 75.2 64.6 165.1 -34.8 -53% 42 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB in EUR million 2021 2020 Change Y oY Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Change QoQ Net inter est income 139.1 138.9 0.3 0% 37.4 34.2 33.8 33.7 34.5 3.2 9% Net fee and commission inc ome 119.6 104.5 15.1 14% 31.2 30.0 30.8 27.6 27.3 1.2 4% Dividend income 79.6 6.3 73.4 - 7 4.7 0.4 0.0 4.5 5.5 7 4.2 - Net income fr om financial tr ansactions 19.0 28.1 -9.2 -33% 0.8 1.8 14.7 1.6 3.0 -1.0 -55% Net other income 4.2 33.9 -29.8 -88% 0.9 0.3 0.8 2.2 1.5 0.5 160% Net non-inter est income 222.4 172.8 49.6 29% 107.5 32.6 46.3 35.9 37.4 7 4.9 - T otal net operating inc ome 361.5 311.7 49.8 16% 144.9 66.8 80.1 69.6 72.0 78.2 117% Employ ee costs -107.0 -102.6 -4.4 -4% -28.4 -26.8 -26.0 -25.8 -25.4 -1.6 -6% Other gener al and administrativ e expenses -59.1 -60.0 0.9 2% -19.2 -13.0 -13.8 -13.1 -17.0 -6.2 -48% Depr eciation and amortisation -17.5 -17.8 0.3 2% -4.3 -4.4 -4.4 -4.4 -4.3 0.0 1% T otal costs -183.6 -180.5 -3.1 -2% -52.0 -44.1 -44.3 -43.2 -46.8 -7.8 -18% Result befor e impairments and pr ovisions 177.9 131.2 46.7 36% 93.0 22.6 35.9 26.4 25.2 70.4 - Impairments and pr ovisions for cr edit risk 26.1 -9.0 35.1 - 4.9 6.3 3.3 11.7 8.5 -1.4 -22% Other impairments and pr ovisions 7.5 -8.3 15.8 - 5.7 0.1 -0.1 1.8 -7.9 5.5 - Impairments and pr ovisions 33.6 -17.4 50.9 - 10.6 6.4 3.2 13.5 0.6 4.2 66% Result befor e tax 211.5 113.9 97.6 86% 103.6 29.0 39.0 39.9 25.8 7 4.5 - Income tax -3.0 0.1 -3.1 - -1.1 -0.2 -1.2 -0.6 2.6 -0.9 - Result after tax 208.4 114.0 9 4.5 83% 102.5 28.8 37.9 39.3 28.4 73.7 - 43 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 6: Pro f i t af te r ta x of N LB G ro u p (i n EU R m il lio n) – evo l ut i on Yo Y 98.5 42.5 -106.6 -20.6 -137.9 24.4 100.7 2.5 11.3 -4.6 -9.6 -14.9 0.2 -9.9 1.5 5.4 -10.8 2020 269.7 109.8 66.9 -14.2 -121.4 80.1 0.2 -137.9 -8.4 -8.4 236.4 Net inter est income Net fee and commission inc ome Other net non- inter est income T otal costs Impairments and pr ovisions Gains and losses (i) Negative goodwill Income tax Result of non- contr olling inter ests 2021 NLB Gr oup w/o KB KB (i) Gains less losses fr om capital investments in subsidiaries, associates, and joint v entures. EU R 666.9mill ion of total net operat ing incom e. Result reflec ts great per formance and imp or tant miles tones achiev ed The G ro up g en era te d EUR 236.4 m ill ion o f pro fi t a f t er ta x , EUR 33.3 mil lio n or 12% l es s Y o Y, and was b as ed o n th e fo llow ing key dri ver s an d Y o Y evol u tio n: • Net i nt ere s t in com e in c rea se d EUR 109.8 m il lion , b ac ked by th e Komerc ij aln a B an ka grou p con t ri bu t ion (EU R98.5 mil lio n). Inc re as in g ne t in ter es t i nco m e wi th ou t t he Komerc ija ln a B an ka grou p con tr i bu t ion wa s im pac te d by exces s liq ui di t y w hi ch d ete rm in ed a c on se q uen t ly h igh er volu me o f ca sh a nd b al an ces w it h CB s , w it h low or n eg at ive int ere s t ra te s . In te res t i nc om e wi th o ut t h e Komerc ij aln a Ba nka gro up c on tr ib u tio n was h igh er Yo Y, base d on h igh er volu me s an d in cr eas e d ma r ket sh ar es in t h e loa n bo ok , com pe ns a ti ng fo r th e re du c t io n in in ter es t r at es ; • Net f ee an d co mm is sio n in com e in cr ea se d in al l ban k s , in th e B an k mo s t ly d ue to r epr ic in g of p ackag es , f ee s for h igh bal an ces , high er n et f ee s fro m as s et m an ag em en t an d ban ca s s ura nce , an d ar ran ge me nt f ee s for t h e org ani s at io n of syndicat ed loans; • Non - re c ur r ing va lu at ion i nc om e in t he a mo un t of EU R 14.8 mil lio n fro m rep ay m ent o f exp os ure , cl as s if ie d as n on - per fo r mi ng , EUR 9.0 m ill ion o f ot he r op era ti on in co me f rom th e se t tle m en t of a le ga l dis p ut e, an d EUR 8.1 m il lio n los s fro m th e s ale o f Komerc ij aln a B an ka, B an ja Lu ka; Y o Y lower , wi th t he s al e of NL B Vi ta a nd d ebt s e cu ri t ies i mp ac tin g t he 2020 res ul t in t h e tota l am ou nt o f EUR 28.1 m ill ion; • Cont in u ou s cos t dis cip li ne; co s t s hi gh er d ue to i nt egr at ion an d em ploye e cos t s ; • Net i mp air m en t s an d p rovis io ns f or c red it r is k wer e rel ea se d in th e am o un t of EUR 35.8 m il lio n, m o s tl y du e to s u cces s fu l repaymen t of on- and of f-b alance exposures and chan ged par am ete r s rel at ed to m o re fa vour abl e ma cro ec on om ic forecas t s; • O th er im p air m en t s an d prov is io ns we re es tabl is h ed in th e am ou nt o f EUR 27.1 m ill ion , m os tly d ue t o res tr u c t ur i ng provi s ion s an d pr ovis io ns f or le ga l ri s k , m os t ly re la te d to K om ercijalna Ban ka, Beograd. 44 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 2020 2021 +83% +103% +80% +70% +83% +625% +65% NLB, Ljubljana NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, P odgorica NLB Banka, Beogr ad KB, Beogr ad KB, Banja Lu ka KB, P odgorica 114.0 208.4 19.2 39.0 10.1 18.2 5.9 10.0 13.3 24.4 1.4 10.1 2.6 4.3 34.8 0.5 -5.8 Fig u re 7: Pro f i t af te r ta x of N LB G ro u p ba n k s (i) (on a s t an d - al o ne b a si s , i n EU R mi ll io n) (i) NLB Banka, P odgorica and K omercijalna Bank a, Podgorica mer ged in November 2021; K omercijalna Bank a, Banja Luk a was sold on 9 December 2021. De sp ite t h e un s ta bl e envi ron m en t du e to COVID - 19 pa nd em ic , all b an ks (ac ti ve at t he e nd o f th e yea r) rep or te d a pro f it. High er p rof i t Y o Y was r eco rde d in al l th e b ank s , mai nl y du e to th e es tab lis h m en t of cr edi t im pa ir m ent s and p rovi si on s rel at ed to COVID -19 ou t bre ak in 2020 a nd s u cces sf u l ope ra tio n s in t he re po r tin g yea r . The r es ul t of t h e B ank i nc re as ed by 83% Y o Y t o EUR 208.4 mil lio n fro m EUR 114.0 m ill ion a ch ieved in 2020, m os tl y du e to higher dividend pay- ou t, since banking subs idiaries were re fra in ed f rom p ay ing o u t div id en ds d ue t o COVID -19 res t r ic tio ns i n 2020, an d th e n et re le as e of im p air m en t s an d provi s ion s fo r cre dit r i s k (es tab li sh m en t in 2020 d ue to COVID -19 o ut br eak w h ich m a ter i ally l owere d th e f in al re s ul t). Non - re c ur r ing va lu at ion i nc om e fro m rep ay m en t of exp os ur e, cla s s if ie d as n on -p er for m in g in t he a mo un t of EU R 12.9 mi llio n an d fro m th e s et tl em en t of le ga l dis p ut e in t he a mo un t of EU R 8.6 mil lio n inf l uen ce d 2021 res u lt, w hil e th e s ale o f NLB V i ta in th e am ou nt o f EUR 35.5 m ill ion a nd t h e sa le of d ebt s e cu ri t ies in th e am o un t of EUR 17.1 m il lio n ha d a po si ti ve im pac t on t he 2020 res ul t. Rec ur r in g pr of it b efo re im pa ir m en t s an d prov is ion s o f th e Gro up t otal le d EUR 2 2 5 .5 m il lio n , EUR 4 8 . 7 mi llio n or 28% hig he r Y o Y . In Q 2 202 1, t he r es ul t b efor e im pai r me nt s a nd provi s ion s was h igh er d u e to no n - rec ur r in g n et n on - in te res t inc om e (EUR 14 .8 m ill ion val ua t ion i nc om e fro m th e re pa ym en t of exp os ure c la s s if ie d as n on - p er for m in g, a n d EUR 9 .0 m il lion of ot he r op era ti on in co me f rom t h e se t tle m en t of a le ga l dis p ut e), bu t pa r tia lly o f f s et by r eg ula to r y cos t s i n th e B an k (EUR 2 .0 m ill ion fo r S RF a nd EU R 7 .5 m illi on fo r DG S). Figur e 8: Result before impairments and pr ovisions of NLB Gr oup ( in EUR million) Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 47.1 61.1 -5.8 70.9 67.2 61.4 -6.5 -6.3 -15.9 -6.4 43.5 -1.1 -2.4 57.5 2.4 79.1 27.8 66.1 1.6 48.8 Result befor e impairments and pr ovisions w/o non- r ecurring income and r egulatory costs Non-r ecurring net non-interest inc ome Regulatory c osts 45 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Net inter est margin - quarterly Oper ational business margin - quarterly 3.25% 2.03% 3.25% 2.09% 3.32% 2.08% 3.18% 2.02% 3.35% 2.07% Fig u re 10: Ne t in t er es t m a rg in a n d Op e ra ti on a l bu s in e s s m ar gi n of N LB Grou p (i) (qu ar te r ly d a ta , in %) (i) Calculated on the basis of av erage inter est-bearing assets. Komer cijalna Banka gr oup included from 2021 on. The q u ar ter l y ne t in ter es t m ar gin o f 2.07% , as we ll a s th e ope ra tio n al b us in es s m ar gin (OB M) o f 3.35% in Q4 f or t he Gro up wa s 0.1 p.p. a nd 0.04 p .p. hi gh er Y o Y. Desp it e th e dec lin in g tr en d of in te res t rat es o n loa ns , th e in tere s t ra te on co rp ora te a nd s tat e lo an s in t he B an k s lig ht ly i nc re as ed , du e to th e s y nd ica ted l oa n wi th a n at tr ac tive in te res t rat e, rep ay me nt o f so m e expo su res w it h low i nt ere s t ra te s , an d th e hi gh er vol um e of Cro s s -b or der c or po rat e lo an s be ar in g hig he r in tere s t ra te s . In te res t rat e on lo an s to in di vi du al s is in th e de cl in ing t re nd m ai nl y du e to c ha ng ed p or t folio m ix i n favo ur of h o us in g lo an s be ar in g lower i nt ere s t ra te. O n t he Qo Q ba si s , t he m ar gin s wer e hig he r du e to TL TRO re pr ic in g. KB inter est income Inter est income Inter est expenses KB inter est expenses Fig u re 9: Ne t in t er es t i n co me o f N LB G ro up ( i n EUR m i ll io n) 2020 2021 Q4 2020 Q3 2021 Q4 2021 299.6 409.4 75.1 -14.2 103.7 107.0 355.2 -55.6 89.3 366.7 111.1 -55.8 92.5 28.6 97.0 26.7 -14.3 -3.1 -12.6 -2.6 -14.1 Net i nt ere s t in com e o f th e G rou p acco un te d for 61% o f th e Gro up’s total n e t reven ue s (2020: 59%), an d tota lle d to EUR 409.4 mil lio n . O ut o f th e EUR 109.8 m ill ion i nc re as e, EUR 98.5 mil lio n was co nt r ib ut ed by Kome rci jal na B an ka gro up. Without Komer cijalna Bank a group c ontribution, higher level of net inter est income was achie ved Y oY , due to higher volume of securities and loans, despite low er yields, but par tially offset by higher c ash volumes and balances with the CB (bearing negative inter est in line with the e xpansionary monetary policy). The n e t int ere s t in co me wa s al so a f f ec ted by h igh er l iq uid it y pos it io n s t rea mi ng f rom TL TRO - III s ec ur ed b or rowi ng an d add it ion al i nt ere s t in co me , ba se d on lowe r in tere s t ra te s , was reco gn is ed a t t he e nd o f th e yea r in t he B an k . Int ere s t exp en s es in m os t me mb er b an k s were d ecr ea si ng du e to lower i nt ere s t ra te s for c us tom er d epo si t s . T he p res s u re on t he n et in te res t ma rgin s in t h e B an k an d me mb er b an k s in SEE c on tinues . Net int eres t incom e Net n on - inte rest income Net n on -in te res t inco m e rea ch ed EU R 257.6 mi llio n of w hic h EUR 32.8 m illi on wer e con tr i bu te d by Komerc ija ln a B an ka gro up. A m aj or p ar t of t he n et n on -in te res t inc om e ha s be en der i ved fr om t he n et f ee an d co mm is s io n in com e, w hi ch gr ew Y o Y , m os t ly i n th e B an k d ue to t h e rep ri cin g of t h e pac kage s , fee fo r hi gh b ala nce s in t he a mo un t of EU R 8.1 mi llio n (fro m Apr i l on al s o for in di vi du al s 8 ), hi gh er n et fe es f rom a s s et ma na gem e nt ( 79.8% Yo Y gr ow t h of g ros s in f lows i n mu t ua l fu nd s , to tal o f EUR 252.4 m ill ion in 2021) a n d ban ca s s ura nce (h igh er Y o Y i nf low s wi th n ew di s t ri bu t ion t er m s), an d ar ran ge me nt f ee s for o rga ni sa ti on of s y n dica te d lo an s . The n e t no n -i nt ere s t in co me wa s s t ron gly a f fec ted by n on - rec ur r in g valu a tio n in com e in t h e am ou nt o f EUR 14.8 m illi on fro m th e rep ay m en t of exp os ur e cla s s if ie d as n on -p er for m in g, EUR 9.0 m illi on of o th er o pe rat io n in com e f rom t he s et t lem e nt of a le gal d is p ut e, an d EUR 8.1 m il lion l os s f rom t h e sa le of K om ercijalna Ban ka, Banja Luka. The non- recur ring item s were h igh er in 2020 w it h t he s al e of NL B Vi ta a nd d ebt se cu ri t ies i n tota l am ou nt o f EUR 28.1 m ill ion . 8 Fur t h er i nf or m a ti on i s a vai la b le u n de r th e c h ap te r Ke y Ev e n t s . Fig u re 11: Ne t n on - i nt er es t in co m e of N LB G ro up ( i n EUR m i ll io n) Net fee and commission inc ome Recurring other net non-inter est income KB net fee and commission inc ome Non-r ecurring other net non-interest inc ome Dividend income 2020 2021 Q4 2020 Q3 2021 Q4 2021 204.9 257.6 46.1 62.3 60.0 -5.8 -1.1 -5.9 12.9 1.2 2.0 2.1 1.6 0.1 0.1 0.8 0.2 0.0 8.8 45.1 170.3 33.7 19 4.7 42.5 26.0 49.8 51.7 0.0 One - of f pos itive ef fe c t s in thetotal am ount of EUR 23.8million due to pos itive valuation ef fec t f rom the repaym ent of exposure, cl as sif ied as non -p er forming an d other op eration income f rom the s et tleme nt of a legal dis pu te. 46 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T otal c os t s Fig u re 12: T o ta l co s t s of N LB G r ou p ( in EU R m il li on) 165.0 97.3 31.7 42.0 27.6 47.1 16.0 30.8 44.1 12.5 22.7 17 6.4 54.9 99.3 38.3 33.2 13.4 Employ ee costs KB employ ee costs Other gener al and administrativ e expenses KB other gener al and administrativ e expenses Depr eciation and amortisation KB depr eciation and amortisation 2020 2021 Q4 2020 Q3 2021 Q4 2021 293.9 415.4 77.7 99.9 118.2 3.3 3.3 9.0 8.0 12.6 8.4 8.3 T otal co s t s am o unt ed t o EUR 415.4 m illi on of w h ich EU R 106.6 million from Komercijalna Banka group. Wit hout Komercijal n a Ba nka gro up c on tr ib u tio n th e co s t s in cr ea se d Y o Y fo r EUR 14.9 mil lio n du e to in te gra ti on co s t s an d em p loyee co s t s . CIR s to od a t 62.3% , a 4.0 p .p. in cre as e Y o Y. Impair men t s and pro vis ions The G ro up r ele as ed n et i mp ai rm e nt s a nd p rovi si on s for cre dit r i s k (EUR 35.8 mi lli on in 2021) m os tly d u e to s ucce s s f ul repaymen t of on- and of f-b alance exposures and chan ged par am ete r s rel at ed to m o re fa vour abl e ma cro ec on om ic forecas t s . O th er im p air m en t s an d prov is io ns we re es tabl is h ed in t h e am oun t of EU R 27.1 mi lli on , of w hi ch t he re were p rovi si on s for leg al r is k (EU R 16.6 mil lio n , to a la rge ex ten t at t ri bu ta bl e to pro ces s in g fe es in S er b ia) and r es t r uc t ur in g prov is ion s (EU R 14.8 mil lio n). 9 The G ro up’s cos t o f ri s k was n eg at ive (- 41 b ps), a s it wa s in mo s t G rou p ban k m em be r s . 9 Mo re d et ai ls a re a vai l ab le i n No te 5.16. o f t he F in a n ci al p ar t of t h e re p or t. EU R 35.8mill ion release d impair men t s and provision s for credit ri sk . KB other impairments and pr ovisions Other impairments and pr ovisions Impairments and pr ovisions for cr edit risk KB impairments and pr ovisions for cr edit risk & expected cr edit losses 2020 2021 Q4 2020 Q3 2021 Q4 2021 Fig u re 13: NL B Gr o up i mp ai r m en t s a nd p rov i si o ns ( i n EUR m i ll io n) -71.4 8.8 -21.1 6.3 -16.5 -13.4 -48.9 -9.1 -13.4 -7.9 3.4 3.6 2.8 -4.2 -14.1 32.4 3.4 -3.1 -24.0 Establishment R elease 62 -41 CoR (bps) 0.2 -1.0 -0.3 -0.4 47 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t of f inan cial posi tion T a bl e 11: S ta te m en t o f fi n an c ia l po s it io n of N LB G ro u p an d N LB NLB Gr oup in EUR million 31 Dec 2021 31 Dec 2020 Change Y oY 31 Dec 2021 30 Sep 2021 30 Jun 2021 31 Mar 2021 31 Dec 2020 Change QoQ ASSETS Cash, cash balanc es at centr al banks, and other demand deposits at banks 5,005.1 3,961.8 1,043.2 26% 5,005.1 4,9 47.0 4,739.4 3,918.2 3,961.8 58.1 1% Loans to banks 140.7 197.0 -56.3 -29% 140.7 211.7 243.4 205.0 197.0 -71.0 -34% Net loans to customers 10,587.1 9,644.9 942.2 10% 10,587.1 10,267.0 10,071.4 9,82 4.5 9,644.9 320.2 3% Gr oss loans to customers 10,903.5 10,033.3 870.1 9% 10,903.5 10,593.7 10,421.8 10,208.2 10,033.3 309.8 3% - Corpor ate 4,996.0 4,631.7 364.3 8% 4,996.0 4,783.9 4,772.7 4,720.8 4,631.7 212.1 4% - Individuals 5,621.1 5,027.6 593.5 12% 5,621.1 5,487.4 5,304.8 5,126.6 5,027.6 133.7 2% - State 286.3 37 4.0 -8 7.7 -23% 286.3 322.3 344.4 360.8 37 4.0 -36.0 -11% Impairments and valuation of loans to customers -316.3 -388.4 72.1 19% -316.3 -326.7 -350.4 -383.7 -388.4 10.4 3% Financial assets 5,208.3 5,119.5 88.8 2% 5,208.3 5,264.7 5,490.9 5,37 6.4 5,119.5 -56.4 -1% - T rading book 7.7 84.9 -77.2 -91% 7.7 10.5 13.5 75.1 84.9 -2.8 -27% - Non-tr ading book 5,200.6 5,034.7 166.0 3% 5,200.6 5,254.2 5,477.4 5,301.3 5,034.7 -53.6 -1% Investments in subsidiaries, associates, and joint v entures 11.5 8.0 3.5 44% 11.5 8.5 8.4 8.1 8.0 3.0 36% Pr operty and equipment 247.0 249.1 -2.1 -1% 247.0 242.1 243.8 247.3 249.1 4.9 2% Investment pr operty 47.6 54.8 -7.2 -13% 47.6 54.1 53.3 54.4 54.8 -6.5 -12% Intangible assets 59.1 61.7 -2.6 -4% 59.1 53.0 55.7 58.2 61.7 6.1 12% Other assets 271.1 268.9 2.1 1% 271.1 249.0 281.1 266.9 268.9 22.1 9% T OT AL ASSETS 21,577.5 19,565.9 2,011.6 10% 21,577.5 21,296.9 21,187.3 19,959.0 19,565.9 280.6 1% LIABILITIES Deposits fr om customers 17,640.8 16,397.2 1,243.6 8% 17,640.8 17,248.6 17,143.0 16,732.1 16,397.2 392.2 2% - Corpor ate 4,463.7 3,949.1 514.5 13% 4,463.7 4,27 6.6 4,130.2 4,011.0 3,9 49.1 187.1 4% - Individuals 12,680.8 12,023.5 657.2 5% 12,680.8 12,495.2 12,477.8 12,254.4 12,023.5 185.5 1% - State 496.4 424.5 71.8 17% 496.4 47 6.8 535.0 466.7 42 4.5 19.6 4% Deposits form banks and centr al banks 71.8 72.6 -0.8 -1% 71.8 82.0 78.0 71.9 72.6 -10.1 -12% Borr owings 932.6 2 49.8 682.8 - 932.6 975.6 97 6.6 251.1 249.8 -43.0 -4% Other liabilities 427.6 434.9 -7.3 -2% 427.6 412.5 466.8 428.5 434.9 15.1 4% Subor dinated liabilities 288.5 288.3 0.2 0% 288.5 290.2 287.6 286.8 288.3 -1.7 -1% Equity 2,078.7 1,952.8 125.9 6% 2,078.7 2,140.5 2,091.4 2,014.1 1,952.8 -61.8 -3% Non-contr olling inter ests 137.4 170.3 -32.9 -19% 137.4 147.6 143.8 17 4.5 170.3 -10.2 -7% T OT AL LIABILITIES AND EQUITY 21,577.5 19,565.9 2,011.6 10% 21,577.5 21,296.9 21,187.3 19,959.0 19,565.9 280.6 1% 48 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB in EUR million 31 Dec 2021 31 Dec 2020 Change Y oY 31 Dec 2021 30 Sep 2021 30 Jun 2021 31 Mar 2021 31 Dec 2020 Change QoQ ASSETS Cash, cash balanc es at centr al banks, and other demand deposits at banks 3,250.4 2,261.5 988.9 44% 3,250.4 3,049.8 2,961.4 2,127.3 2,261.5 200.6 7% Loans to banks 199.3 158.3 41.0 26% 199.3 176.5 162.8 164.3 158.3 22.7 13% Net loans to customers 5,153.0 4,595.1 557.9 12% 5,153.0 4,903.5 4,787.8 4,677.5 4,595.1 249.5 5% Gr oss loans to customers 5,250.4 4,753.1 497.3 10% 5,250.4 5,001.0 4,916.3 4,828.4 4,753.1 2 49.3 5% - Corpor ate 2,411.1 2,168.5 242.6 11% 2,411.1 2,2 44.9 2,2 45.4 2,213.4 2,168.5 166.2 7% - Individuals 2,69 4.4 2,411.9 282.4 12% 2,69 4.4 2,609.8 2,514.4 2,452.3 2,411.9 84.6 3% - State 144.9 172.6 -27.7 -16% 144.9 146.3 156.5 162.7 172.6 -1.4 -1% Impairments and valuation of loans to customers -97.4 -158.0 60.6 38% -97.4 -97.5 -128.5 -150.9 -158.0 0.2 0% Financial assets 3,034.3 3,017.2 17.1 1% 3,034.3 3,160.2 3,398.6 3,365.2 3,017.2 -125.9 -4% - T rading book 7.7 18.8 -11.1 -59% 7.7 10.4 13.6 23.8 18.8 -2.8 -26% - Non-tr ading book 3,026.6 2,998.4 28.2 1% 3,026.6 3,149.8 3,385.0 3,341.4 2,998.4 -123.2 -4% Investments in subsidiaries, associates, and joint v entures 786.0 750.7 35.3 5% 786.0 775.5 775.5 750.7 750.7 10.6 1% Pr operty and equipment 86.1 91.7 -5.6 -6% 86.1 88.1 89.3 89.7 91.7 -2.0 -2% Investment pr operty 9.2 8.3 0.9 11% 9.2 9.1 8.3 8.3 8.3 0.1 1% Intangible assets 29.5 28.1 1.3 5% 29.5 25.3 26.1 26.8 28.1 4.1 16% Other assets 151.7 115.6 36.1 31% 151.7 125.4 121.2 128.6 115.6 26.2 21% T OT AL ASSETS 12,699.5 11,026.6 1,672.9 15% 12,699.5 12,313.5 12,330.9 11,338.4 11,026.6 386.0 3% LIABILITIES Deposits fr om customers 9,659.6 8,850.8 808.9 9% 9,659.6 9,243.3 9,272.2 9,056.6 8,850.8 416.3 5% - Corpor ate 2,436.7 1,916.6 520.1 27% 2,436.7 2,158.4 2,070.0 1,996.8 1,916.6 278.3 13% - Individuals 7,078.9 6,812.4 266.5 4% 7,078.9 6,99 4.2 7,060.3 6,924.9 6,812.4 84.6 1% - State 144.0 121.8 22.2 18% 144.0 90.7 142.0 134.9 121.8 53.4 59% Deposits form banks and centr al banks 109.3 41.6 67.7 163% 109.3 158.3 142.0 124.0 41.6 -49.0 -31% Borr owings 873.9 143.5 730.4 - 873.9 863.6 866.3 143.4 143.5 10.3 1% Other liabilities 216.3 251.4 -35.2 -14% 216.3 233.5 252.5 2 42.0 251.4 -17.2 -7% Subor dinated liabilities 288.5 288.3 0.2 0% 288.5 290.2 28 7.6 286.8 288.3 -1.7 -1% Equity 1,551.9 1,451.0 100.9 7% 1,551.9 1,52 4.6 1,510.3 1,485.5 1,451.0 27.4 2% T OT AL LIABILITIES AND EQUITY 12,699.5 11,026.6 1,672.9 15% 12,699.5 12,313.5 12,330.9 11,338.4 11,026.6 386.0 3% 49 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Ba lan ce s h ee t volu me o f th e G ro up in cr ea se d by EUR 2,011.6 mil lio n Y o Y to tall in g to EUR 21,577.5 m ill ion , m ai nl y du e to th e con t in ue d inf low o f dep os it s f ro m in div id ual s (EUR 657.2 mil lio n Y o Y ) , cor p ora te (EU R 514.5 mi llio n Y o Y ), an d par t ici pa t ion in a l iq uid it y- prov idi ng o per at io n by th e ECB in th e am o un t of EUR 750 m il lio n ( TL TRO -I II). E xces s l iq uid it y was in l arg e ex te nt p la ced o n th e ac cou nt a t t he CB (EU R 1,043.2 mil lio n Y o Y in cr ea se) an d in gro s s lo an s to c us t om er s (EUR 364.3 mi lli on to co r po rat e an d EUR 593.5 m ill ion t o in div id ual c li en t s). However , de sp ite t h e de pos it g row th , th e tre nd o f red is tr ib ut io n of de po si t s to al te r na t ive inves tm en t s (e.g., m u t ual f u nd s an d ba nc as s ur an ce) is vi si bl e. Th e s ha re of cu s to me r s’ de pos i t s acc oun te d for 82% o f th e to tal f un d ing , 2.0 p.p. l es s a s at t he e nd o f 2020. As sets 54.3% of th e to tal a s s et s were r el at ed to G ro up m em be r s loc at ed in S loven ia (2020: 51.8%) an d 22.2% in S er bi a (2020:23.4%). Fig u re 14: T o ta l as s e t s of N LB G ro u p (i n EU R mi ll io n) – s t r u c t u re Fig u re 15: NL B Gr o up to ta l a s se t s by l oc a ti on o f NL B G ro up e nt i t ie s (i n %) (i) Slov enia Serbia North Macedonia BiH Koso vo Montenegr o Other 51.8% 54.3% 23.4% 22.2% 8.1% 8.1% 8.5% 7.4% 4.5% 4.3% 3.6% 3.6% 0.1% 0.1% 31 Dec 2020 31 Dec 2021 31 Dec 2019 31 Dec 2020 31 Dec 2021 Cash equivalents, plac ements with banks and loans to banks Net loans to customers Financial Assets Other Assets +10% Yo Y 5,145.7 4,158.8 2,19 4.7 10,587.1 9,644.9 7,604.7 5,208.3 5,119.5 3,829.7 14,17 4.1 544.9 642.6 636.3 19,565.9 21,577.5 (i) The geogr aphical analysis includes a br eakdown of it ems with respect to the country in which individual NLB Gr oup members are loc ated. Komer cijalna Banka gr oup is divided between the countries based on each entity location fr om 30 September 2021 on, with YE data adjusted t o the new methodology. 50 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The l en di ng a c t iv it y sp iked an d re co rde d a si gni f ican t grow th in all t h e ban k s in 2021. G ro s s lo an s to in di vid ua ls re co rde d th e hig he s t, 17% Y o Y in cr ea se i n St rat eg ic for eig n ma rket s (wit ho u t K om ercijalna Ban ka group banks , but includ ed K om ercijalna Ba nka , Pod gor i ca on 31 D ec em ber 2021 d u e to th e m erg er wi th NL B Ba nka , Pod go ri ca), wh ile t h e hig he s t in c rea se of gro s s lo an s to th e co r por at e an d s ta te wa s rec ord ed in Komerc ija ln a B an ka, B eo gra d, i .e. , 16% Y o Y . Gro s s lo an s to in di vi du als i n th e B an k grew by EUR 282.4 mil lio n Y o Y , m os tly d ue t o an in cr ea si ng vol um e of h o us in g loa ns (EU R 280.9 mi llio n Y o Y , w it h env ia ble h ig h new pro du c t ion o f EUR 557.6 m ill ion i n 2021, com pa red t o EUR 303.1 mil lio n in t he p revi ou s year) r el ate d to m or e at tr ac t i ve of fer s fo r cli en t s an d in ten s ive m ar ket ing c am pai gn s . Th e volu me o f con s um er l oa ns wa s s ligh t ly l ower Y o Y (EUR 16.1 mil lio n); however , th e n ew pro du c t io n in 2021 am ou nt ed to EUR 229.1 m illi on an d wa s hig he r com pa red t o 2020 (EUR 196.7 millio n). Gro s s lo an s to co r por at e an d s ta te re cor de d a EUR 214.9 m illi on grow th Yo Y, where g row t h de r ived f rom t h e cor po ra te s egm e nt (EUR 242.6 mi llio n), wh il e th e s ta te s e gm en t expo su res s h ran k by EUR 27.7 m ill ion . Co r por at e lo an grow th was distr ibu ted across all sub -s egmen ts . The volume of gr oss loans to customers in Str ategic for eign mark ets increased, with a r emark able new pr oduction in lending to individuals, with all the Gr oup member banks r ecor ding a double-digit Y oY gr owth in outstanding loan balances. (i) On stand alone basis; (ii) NLB Banka, P odgorica and K omercijalna Bank a, Podgorica mer ged in Nov ember 2021; Komercijalna Bank a, Banja Luk a sold on 9 December 2021; the gr owth in Str ategic foreign mark et is impacted by the mer ger of NLB Banka, P odgorica and Komer cijalna Banka, P odgorica (the latter was not included in this segment as at 31 December 2020). 1,726.1 De sp ite t h e de cli nin g t ren d of i nt ere s t ra te s on lo an s , th e aver age i nt ere s t ra te o n cor p ora te an d s t at e loa n bo ok po r t folio i n th e B an k s lig ht ly in c rea se d du e to ch an ge d po r t fo lio s tr u c t u re (conc lu s ion o f new s yn d ica ted l oa n wi th a n at tr ac t i ve int ere s t ra te, rep ay me nt o f so m e expo su res w it h low i nt ere s t ra te s an d hig he r vol um e of Cro s s- b ord er co r por at e loa ns) , be ar in g hig he r in ter es t ra te s . Th e in te res t rat e on loa ns t o in div id ua ls i s in a de cl ini ng t ren d m ai nl y du e to th e ch a ng ed po r t f oli o mi x in fa vour o f ho u si ng l oan s be ar in g lower in te res t rat es . Fig u re 16: NL B Gr o up g ros s l o an s to c u s t om e r s dy n am ic s ( i n EU R mi ll io n) NLB Gr oup NLB (i) Str ategic foreign mark ets w/o KB (i)( ii) KB Beogr ad (i)( ii) +12% Yo Y +13% w/o KB BL +6% Yo Y +8% w/o KB BL +12% Y oY +9% Y oY +16% Y oY +9% Y oY +17% Yo Y +14% w/o KB PG +10% Yo Y +7% w/o KB PG 5,027.6 34.6 120.8 50.4 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 4.92% 2.72% 2.98% 1.85% 1.91% 4,884.9 4,993.0 1,992.5 4.90% 5,005.7 5,621.1 5,282.3 2,411.9 4.05% 6.28% 5.83% 2,341.1 2,69 4.4 3.84% 2,556.0 1,7 43.5 1,613.9 4.11% 4.01% 2,036.9 44.3 1,77 6.5 770.2 846.1 840.4 978.4 5.87% 3.52% Gr oss loans to individuals Gr oss loans to corpor ate & state Inter est rates Gr oss loans KB Banja Luk a KB Podgoric a 51 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 17: Loan por t folio (i) by se g me n t, ge o gra p hy, cur r en c y, an d ra t e t y pe ( i n EU R mi ll io n) De sp ite s ig ni f ican t po r t f oli o grow th in a ll NLB G ro up b an k s in 2021, th ere we re n o ma jor c h ang es i n th e cor p ora te a nd r eta il cre dit p or t fol io s t r uc t ure. T he c re dit p or t fol io rem ai ns we ll - diver s i fi ed , an d th e re is n o la rge c on cen tr at ion i n any s pe ci f ic in du s t r y or cl ien t s egm en t. Th e s ha re of re tai l po r t fo lio i n th e wh ol e cre dit p or t fol io is q ui te s ub s t ant ia l, w it h th e s eg me nt of m or tg age l oa ns s til l prevai lin g. T he m a jor i t y o f th e lo an por t fol io ref er s to e uro c ur re nc y , w hil e th e re s t or i gin at es fro m loc al c ur ren ci es of t h e G rou p ban k in g me mb er s . From int ere s t ra te t yp e, m ore t h an 63% of t h e lo an po r t f olio i s lin ked to a f ixe d in ter es t ra te , an d th e re s t to a f lo at in g ra te (mos t ly to t h e Eur ib or ref ere nc e rat e). Len din g grow th in th e cor p ora te s eg me nt r em ain e d rel at ivel y m od era te, w hi le the retail segment, namely mor tgage lending, experien ced con s ide rab le grow th i n 2021. Institutions 539 3% Other (iii) 730 5% Slov enia 7,871 51% BiH 1,262 8% N. Macedonia 1,309 8% Montenegr o 618 4% Koso vo 796 5% Serbia 2,956 19% SME 2,881 19% Corpor ates 2,298 15% Retail consumer 2,427 16% State (ii) 4,202 27% Retail mortgages 3,195 21% EUR 81% Other 2% BAM 5% MKD 5% RSD 7% EUR 15.5 billion EUR 15.5 billion EUR 15.5 billion EUR 15.5 billion (i) Loan portfolio also includes r eserves at CBs and demand deposits at banks. (ii) State includes e xposures to CBs. (iii) The lar gest part repr esents EU members. (iv) Segmentation in acc ordance with the c ompany size defined in the Companies Act of an individual country in the r egion. by segment (iv) Curr ency by geogr aphy Inter est rate Fixed 63% Floating 37% 52 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Liabilit ies Fig u re 18: T otal liabilities of NLB Group – str uc t ure (in E U R million) 31 Dec 2019 31 Dec 2020 31 Dec 2021 Deposits fr om individuals Corpor ate deposits State deposits Borr owings and Deposits fr om banks and centr al banks Subor dinated liabilities Other liabilities T otal equity +10% Yo Y 14,17 4.1 342.6 434.9 427.6 257.4 322.4 1,004.4 210.6 288.3 288.5 277.7 424.5 496.4 19,565.9 21,577.5 8,582.9 12,023.5 12,680.8 4,463.7 3,9 49.1 2,772.0 1,730.9 2,123.1 2,216.1 T otal li abi lit ie s of t he G ro up in c rea se d an d am ou nt ed t o EUR 19,361.4 mil lio n . Th e Gr ou p’s fun din g ba se i s do mi na te d by cu s to me r de pos i t s acco un t ing f or 82% in w hi ch s igh t de pos i t s prevail (87% , co mp are d to 85% a s at 2020 Y E an d 81% as a t 2019 YE) . Th e ma jo ri t y of cu s t om er d epo si t s ( 72%) were f rom in div id ual s . 55% o f dep os it s we re co lle c t ed in S loven ia (54% a t 2020 YE) , 22% in S er bi a (24% at 2020 YE ), an d t he r es t i n oth er Gro up b an ki ng m em b er s in S EE . 53 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 19: NL B Gr o up d ep os i t s fr om c u s t om er s d y n am ic s ( i n EU R mi ll io n) (i) On stand alone basis; (ii) NLB Banka, P odgorica and K omercijalna Bank a, Podgorica mer ged in Nov ember 2021; Komercijalna Bank a, Banja Luk a sold on 9 December 2021; the gr owth in Str ategic foreign mark et is impacted by the mer ger of NLB Banka, Podgoric a and Komer cijalna Banka, P odgorica (the latter was not included in this segment as at 31 December 2020). NLB Gr oup NLB (i) Str ategic foreign mark ets w/o KB (i)( ii) KB Beogr ad (i)( ii) +5% Yo Y +6% w/o KB BL +13% Yo Y +16% w/o KB BL +4% Y oY +10% Y oY +2% Y oY +27% Y oY +11% Yo Y +8% w/o KB PG +15% Yo Y +11% w/o KB PG 12,023.5 59.7 78.5 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 31 Dec 2020 31 Dec 2020 31 Dec 2021 31 Dec 2021 4.90% 4,373.7 95.0 12,680.8 4,960.1 2,411.9 6,812.4 2,7 64.9 3,058.1 2,038.4 2,69 4.4 7,078.9 2,580.7 1,355.4 1,552.4 44.0 2,307.7 860.8 2,543.7 880.9 Deposits fr om individuals Deposits fr om corpor ate & state Inter est rates Deposits KB Banja Luk a KB P odgorica 0.31% 0.18% 11,963.8 0.17% 0.17% 0.16% 0.13% 0.05% 0.03% 0.35% 1,508.4 0.22% 0.05% 0.04% 0.47% 0.31% 2,979.6 4,278.7 Dep os it s from c u s tom e r s in cre as ed by 8% Y oY . T he l arg es t inc re as e of EU R 542.3 mil lio n was re cor de d in th e co r por at e an d s ta te d epo si t s in t h e Ba nk , d u e to var io us re as o ns , i .e. , th e inc re as e of b ala nc es in i nves t m en t an d pen s io n fu nd s , in f lows fro m takeover s o n th e m ar ket, an d in cen ti ves d ue to COVID -19 pan d emi c . D epo si t s f rom in di vi du als i nc re as ed t he m o s t in t he Komerc ija ln a B an ka, B eo gra d, EU R 236.0 mi lli on . The i nt ere s t ra te fo r de pos i t s ha s b een d ec rea s ing d u e to rep ri cin g at l ower in te res t rat e an d sh or t er m at u r it y (due ter m d epo si t s are m o s tl y pl ace d on t he a cco un t s). G row t h of dep os it b as e was r ef lec te d in hi gh er co s t s of l iq uid it y s ur pl us , wh ich wa s s ucce s s f ul ly m it iga te d wi th a h igh b al an ce de po si t fee, c h arg ed by t he B an k to c or po rat e an d fr om Ap r il on a ls o to i ndividual clients . C onsequently , the trend of redistribution of de pos i t s to al te rn a ti ve inves tm en t s (e.g., m u t ua l f un ds an d ban ca s s ura nce) was v is ib le. 54 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 20: De p os i t s fr om c u s to m er s by t yp e a s at 31 D e ce m be r 2021 93.0% 79.4% 7.0% 20.6% T erm deposits Sight deposits International Slovenia Fig u re 22: NL B Gr ou p o f f- b al an c e sh e et i t em s ( in EU R m il li on) 31 Dec 2019 31 Dec 2020 31 Dec 2021 Guar antees Letters of cr edit - risk bearing Commitments to e xtend credit and other risky c ommitments Derivativ es 0% Yo Y 4,221.7 22.9 21.8 35.6 4,672.7 4,655.3 1,490.8 1,697.7 1,927.5 1,892.2 1,826.7 1,354.8 916.5 1,236.7 1,126.4 Of f- bal an ce s he et i tem s o f th e G rou p am ou nt ed to EU R 4,655.3 mil lio n an d were co mp r is ed o f gu ara nt ees ( 27%), let te r s of cr edi t ( 1%), com mi tm e nt s t o ex te nd c red it a nd o th er ri s k y co mm it m en t s (41% ) , an d de ri vat ive s (32%). Comm i tm en t s to ex ten d cre di t an d ot he r r is k y co mm it m en t s were di vi ded b et wee n loa n s (99% corp ora te), overd raf t s (59% reta il an d 41% co r por at e), and c ard s (89% reta il) . A ma jor i t y of th e G rou p's d er i vat ives we re con c lu ded by t h e Ba nk e it he r for th e he dg ing o f th e b an kin g bo ok o r tr adi ng w it h cu s t om er s . Fig u re 21: L TD ratio mo vement 7,604.7 31 Dec 2019 31 Dec 2020 31 Dec 2021 65.5% 11,612.3 58.8% 9,644.9 60.0% 16,397.2 10,587.1 17,640.8 L TD Net loans ( in EUR million) Deposits ( in EUR million) The L TD ra t io (net) wa s 60.0% at t h e Gro up l evel; a 1.2 p.p. Yo Y inc re as e, d ue to f avou rab le h igh er g row t h of l oa ns co m par ed to deposits. 55 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C apital and capit al adequacy C api tal 31 Dec 2019 31 Dec 2020 31 Dec 2021 T ier 1 T ier 2 Fig u re 23: NLB Group capital (in EUR million) 1,966 1,7 68 1,451 287 297 1,496 45 2,065 2,252 In 2021, NLB wa s req ui red t o ma int ain t h e OCR a t t he l evel of 14.25% on a co ns ol ida te d ba s is , co n si s t in g of 10 : • 10.75% TS CR (8% P 1R an d 2.75% P 2 R); a nd • 3.5% CBR ( 2.5% Capi tal Co ns er va tio n B u f f er , 1% O - S II b uf fer 11 an d 0% Coun te rc ycl ical b u f f er). P 2G am o un t s to 1.0% of CE T 1 . The B a nk a nd G ro up’s capi tal cover s a ll t he c ur re nt a nd announ ced regulator y capital requirement s , includin g capital bu f f er s an d ot h er c ur ren t ly k now n req ui rem en t s , a s well a s th e P 2G . 10 F u r th e r in fo r ma t io n on d eve l op m en t s in 2022 a re a va il ab le i n ch a pt er Event s af ter t h e en d o f t he 2021 f inancial year . 11 Th e O - S II B u f fer w i ll a s of 1 J an u ar y 2 02 3 a mo u nt t o 1 . 25% . 16.28% 15.75% 15.25% 15.25% 14.75% 14.25% 14.25% 15.80% 16.63% 14.12% 17.78% 15.47% 31 Dec 2019 31 Dec 2020 31 Dec 2021 T otal capital r atio CET1 r atio OCR = MDA thr eshold (T otal capital) OCR+P2G (T otal capital) Fig u re 24: NLB G ro u p ca pi ta l ra t io s an d re g ul at or y t hr e sh o ld s ( in %) 2.00% 2.69% 2.6 9% 1.50% 0.69% 2.02% 3.50% 1.00% 2.02% 4.50% 0.52% 6.05% 10.55% 1.55% 8.00% Pillar 1 Pillar 2 TSCR P2G OCR+P2G (T otal capital) Combined Buffer CET1 AT 1 T2 2.75% 10.75% 15.25% Fig u re 25: NL B Gr ou p ca pi t al r eq ui re m en t s a s at 31 D e ce m be r 2021 56 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T a bl e 12: NLB Group Capital Requirements and buf fer s (i) 2021 fr om 12 March 2020 onw ards as at 1 January till 11 Mar ch 2020 2019 Pillar 1 (P1R) CET1 4.5% 4.5% 4.5% 4.5% AT 1 1.5% 1.5% 1.5% 1.5% T2 2.0% 2.0% 2.0% 2.0% Pillar 2 (SREP r eq. - P2R) CET1 1.55% 1.55% 2.75% 3.25% T ier 1 2.06% 2.06% 2.75% 3.25% T otal Capital 2.75% 2.75% 2.75% 3.25% T otal SREP Capital R equirement (T SCR) CET1 6.05% 6.05% 7.25% 7.75% T ier 1 8.06% 8.06% 8.75% 9.25% T otal Capital 10.75% 10.75% 10.75% 11.25% Combined Buffer r equirement (CBR) Conservation buffer CET1 2.5% 2.5% 2.5% 2.5% O-SII buffer CET1 1.0% 1.0% 1.0% 1.0% Counter cyclical buffer CET1 0.0% 0.0% 0.0% 0.0% Over all capital r equir ement (OCR) = MDA thr eshold CET1 9.55% 9.55% 10.75% 11.25% T ier 1 11.56% 11.56% 12.25% 12.75% T otal Capital 14.25% 14.25% 14.25% 14.75% Pillar 2 Guidance (P2G) CET1 1.0% 1.0% 1.0% 1.0% OCR + P2G CET1 10.55% 10.55% 11.75% 12.25% (i) F urther information on developments in 2022 ar e available in the chapter E vents After the End of the 2021 Financial Y ear . 57 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A s at 3 1 De cem b er 2 02 1 t he TCR for t h e Gr oup s too d at 17.8% (or 1.2 p.p. hig he r th an a s a t 31 D ece mb er 2 02 0), an d fo r NLB at 24.6% ( o r 2.5 p.p. l ower th a n as a t 31 D ece mb er 2 02 0). A s a t 31 De cem be r 2021, th e CE T 1 rat io s t oo d at 15.5% ( 1.4 p.p . Y o Y inc re as e). The h igh er G ro up t otal c api tal a de qu ac y c om par ed to th e en d of 2020 d er i ves fro m hi gh er ca pit al ( in cre as e of EU R 187.0 millio n Y o Y ) whi ch co mp en s at ed RWA inc rea se o f EUR 246.4 millio n Y o Y fo r th e G ro up. Hi gh er RWA der ives f rom t h e inc re as e of RWA for op era ti on al r i sk . T ot al cap it al in cr eas e d ma in ly d ue to i nc lu s ion o f ne ga ti ve goo dw ill i n ret ain ed ear n in gs in t h e am ou nt o f EUR 137.9 m illi on an d p ar ti al inc l us ion o f 2021 pro f it (EUR 136.0 m il lio n). Fig u re 26: Cap i ta l of N LB G ro up ( i n EU R mi ll io n) – evo lu t io n Yo Y 16.6% 17.8% 2,065 138 136 13 -63 -37 n.a. 2,252 31 Dec 2020 NGW Pr ofit inclusion KB BG buyout NCI OCI and other RW A impact 31 Dec 2021 1.1% 1.1% 0.1% -0.5% -0.3% -0.3% 58 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Divi dend pay-ou t Pur s u an t to t he ECB reg ul at ion /B oS d eci s ion val id t ill 30 Se pte mb er 2021, t h e div ide n d pa you t in 2021 was s p lit i nt o t wo tra nc he s . Th e f ir s t ins talm en t in t h e am ou nt o f EUR 12.0 m illi on was pa id o n 22 Ju ne 2021, w hi le t he s e con d in t he a mo un t of EUR 12.8 m illi on a f t er exp ir y of t he B o S de ci sio n on 18 O c t ob er 2021. Be s ide s th a t, th e B ank p ai d on 24 Dec em ber 2021 add it ion al i nc rem e nta l di vid en d in t he a mo un t of EU R 67.4 mil lio n , con tr i bu ti ng t o th e 2021 cu m ula t ive pa y- o u t of EUR 92.2 million . T otal risk e xposure dy n amic T a bl e 13: T o ta l r is k ex p os u re fo r N LB G ro up in EUR million 31 Dec 2021 30 Sep 2021 31 Dec 2020 Change Yo Y Change QoQ T otal risk exposur e amount (RW A) 12,667.4 12,824.4 12,421.0 246.4 -157.0 RW A for credit risk 10,205.2 10,648.0 10,222.9 -17.8 -442.8 Centr al governments or c entral banks 1,158.5 1,842.8 1,892.2 -733.7 -684.3 Regional go vernments or local authorities 99.8 126.0 135.5 -35.6 -26.2 Public sector entities 47.0 212.7 2 48.8 -201.8 -165.8 Institutions 310.2 355.1 311.7 -1.4 -44.8 Corpor ates 2,7 48.7 2,312.4 2,224.2 524.5 436.3 Retail 4,171.0 4,190.7 3,891.8 279.2 -19.7 Secur ed by mortages on immov able property 453.0 397.1 355.7 97.4 56.0 Exposur es in default 179.4 191.8 231.5 -52.0 -12.4 Items associated with particulary high risk 442.5 444.1 344.2 98.3 -1.5 Cov ered bonds 41.1 40.3 40.9 0.2 0.8 Claims in the form of CU 19.4 17.6 18.7 0.8 1.8 Equity e xposures 88.5 79.7 47.1 41.4 8.8 Other items 446.0 437.7 480.9 -34.9 8.2 RW A for market risk + CV A 1,218.2 1,229.0 1,250.8 -32.6 -10.8 RW A for operational risk 1,244.0 9 47.3 9 47.3 296.7 296.7 59 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The R W A f or c redi t r is k d ecr ea se d by EUR 17.8 m ill ion . O n on e ha nd , t he f ac t or s to i nc rea s e were lo an g row t h to t he cor po ra tes a nd r eta il , new in ves t me nt s i n s ubo rdi na te d, s tat e an d EU ins ti t ut ion s b on ds . O n t he o th er h an d , th e in cr ea se was co mp en s ate d by reg ul at or y ch an ge s n am ely i nc l us ion of B iH an d M ace do nia o n EBA's th ird p ar t y eq uival en t li s t, legislation criteria changes for the CRR col la teral adequacy , sig ni ng of g u aran te e ag ree me nt s w it h M IG A as we ll as ch an ged i nves t m en t po lic y s u ch a s sh if t of s om e li qu id as s et s f rom t h e cen tr al gover n me nt s to lower r is k-weigh te d cou nt er pa r ti es (NLB B an ka, P r is ht in a , NLB B an ka, Po dg or ica) or op ti miza tio n of d epo si t s w it h ba nk s (Kome rci jal na B an ka, Be og rad ). Fur th er m ore , su cce s s f ul re cover y of N PL cl ien t s , wh ere t h e bigg es t par t re pre se nt ed re pa ym en t s by a la rge cli en t, con tr ib u ted t o th e RWA decre as e, w hi le o n th e ot he r ha nd RWA for hi gh - r is k exp os ur es i s hig he r ma in ly d ue to n ew projec t finan ce loans . The R W A f or m ar ket r is k d ecr ea se d by EUR 32.6 m ill ion Y oY du e to a lower f i xed in com e p os it ion i n th e t rad ing b oo k . In con tr as t, RWA for F X r is k in cr ea se d by EUR 35.3 m ill ion Y oY an d RWA for CVA incr ea se d by EUR 10.7 m illi on , of w hi ch EUR 10.6 m illi on a s a res ul t of n ew re gu la tor y re qu ire me nt s wh ich b eca m e ef fec tive f rom J u ne 2021 o nward (calc ula t ion o f original exposure me thod (OEM) with residual ma tur it y). The incr ease in the RW A for oper ational risks (EUR 29 6.7 million Y oY) derives fr om the higher thr ee-year av erage of r elev ant income, as defined in Article 316 of CRR, which r epr esents the basis for the calculation. The main ef fect for incr eased r elevant income w as acquisition of K omercijalna Bank a, Beogr ad in 2020. Fur t he r in for m at io n on ca pit al an d ca pit al a deq ua c y i s avail ab le in t h e Note 5.22 to th e Au dit ed A nn u al Fi na nc ial Statemen ts and in Pill ar 3 Dis clos ures . MREL The M R EL req ui rem en t for t h e Gr ou p is b as ed o n th e M ul ti pl e Poin t of En tr y (M PE ) ap pro ach . A s of 1 J an uar y 2 024 , NLB m us t com pl y wi th M R EL req uir em en t on a co ns ol id at ed b as is a t resoluti on group lev el (i.e. , NLB Resolution Grou p, c onsis ting of NLB a nd o th er m em b er s of t h e Gro up excl ud in g ba nk s) wh ich a mo un t s to 3 1 . 3 8% of T ota l Ri s k E xpo s ure A m oun t ( TR E A) (exclud in g CBR ) an d 9 . 9 7 % of t he Leve rag e Ra ti o Ex po s ure (LR E ). NLB h as t o en s ure a l in ear b ui ld - up o f own fund s and eligible liabilities towar d s MREL requirement and it s co mp lia nc e wi th 2 5. 19 % of t he TR E A (exclu din g CB R) an d 8. 03% o f th e LR E on 1 J an ua r y 202 2 . MR EL req ui rem en t for m s p ar t of G ro up’s ris k ap pe ti te a nd MR EL req ui rem en t is r eg ula r ly an al ys ed a nd m o ni tore d by th e Gro up . 60 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A s at 3 1 De cem b er 2 02 1 t he G ro up’s une nc um be re d liq uid it y res er ves co r res p on de d to EUR 8,280.6 m ill ion ( 2020: EUR 8,327.0million) com pr i se d of ca s h , bal an ces w i th CB w it h ou t min im um r es er ve req ui rem en t, deb t se c ur it ie s por t fol io, an d cre dit c la im s eli gib le fo r CB -s ec ure d f un din g op era t ion s . Am on g ot he r th es e li qu idi t y res er ves pr ovid e th e ba s is fo r fut ure s trategic grow th . Encumbered liquidit y reser ves (EUR 877.6 milli on; excl ud in g obl iga to r y res er ves), u se d fo r ope ra tio n al an d re gu la tor y p ur po se s , are exc lu ded f ro m th e liquidit y res er ves por t folio. 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 EUR million 31 Dec 2020 31 Mar 2021 30 Jun 2021 30 Sep 2021 31 Dec 2021 ECB eligible cr edit claims Cash & CB r eserves T rading book debt securities Banking book debt securities 8,327.0 8,203.1 8,366.1 8,191.1 8,280.6 43.1% 42.0% 39.1% 29.6% 32.2% 55.9% 57.7% 59.7% 63.4% 59.9% 7.0% 0.8% 6.3% 0.7% 1.2% 0.0% 0.4% 0.0% 1.0% 0.0% Figur e 28: Evolution of NLB Gr oup unencumbered liquidity r eserves (in EUR million) Liquidi t y pos i tio n The Gr oup’s liquidity remains str ong, with a high lev el of unencumber ed liquidity reserv es in total assets (38.3%) that is r eflected in the LCR r atio standing at 252.6% (31 December 2020: 257.5%). The Gr oup holds a comfortable liquidity position, with liquidity r atios standing well abov e the risk appetite limit at the Gr oup and individual banking member level. Fig u re 27: LCR qu a r t er l y d yn a mi c of N LB G ro u p 5,367 5,286 5,453 4,915 5,003 2,125 1,9 41 2,000 1,87 6 1,9 43 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - EUR million 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% 31 Dec 2020 31 Mar 2021 30 Jun 2021 30 Sep 2021 31 Dec 2021 Stock of HQLA Net liquidity outflow LCR 257.5% 262.0% 272.6% 272.4% 252.6% 61 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Segmen t Analy sis T a bl e 14: Co re a nd N on - Co re S eg m en t s o f NL B Gr ou p Cor e Segments Non-Cor e Segment Retail Banking in Slo venia Corpor ate and Investment Banking in Slov enia Str ategic For eign Mark ets Financial Markets in Slov enia Other Non-Cor e Members includes banking with individuals and micr o companies, asset management (NLB Skladi), and one part of the subsidiary NLB Lease&Go that deals with r etail clients, as well as the contribution to the r esult from the associated company Bank art. includes banking with Ke y corpor ate clients and SMEs, Cr oss-border c orporate financing, Investment Banking and Custody, Restructuring and W ork out, and one part of the subsidiary NLB Lease&Go that r enders services to corpor ate clients. includes the oper ations of str ategic Group banks in the str ategic markets (Serbia, North Macedonia, BiH, K osovo and Montenegr o). co vers tr easury activities and tr ading in financial instruments, while it also pr esents the results of asset and liabilities management (ALM). acc ounts for the Bank’s categories of which the oper ating results cannot be alloc ated to specific segments as well as the subsidiary NLB Cultur al Heritage Management Institute. includes the oper ations of non-cor e Gr oup members, namely REAM and leasing entities (ex cept NLB Lease&Go), NLB Srbija, and NLB Crna Gor a. ( in EUR million) NLB Group Pr ofit b.t. 261.4 49.0 86.8 113.2 15.8 -4.7 1.3 Contribution to Gr oup’s pr ofit b.t. 100% 19% 33% 43% 6% -2% 0% T otal assets 21,577 2,823 2,334 9,798 6,190 337 96 % of total assets 100% 13% 11% 45% 29% 2% 0% CIR 6 2.3% 68.1% 44.4% 63.0% 35.8% 177.5% 157.4% Cost of risk (bps) -41 26 -141 -11 / / / NLB G rou p’s main in di ca tor o f a se gm en t ’s ef f ici en c y i s ne t prof i t be fore t ax . N o reven ue s were ge n era te d fro m tra ns ac ti on s wi th a s in gl e ex te r na l cu s to m er th a t wou ld am o un t to 10% or m or e of G rou p' s rev enues . 62 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 15: Pe r for m a nc e of t h e R et ai l B an ki n g in S l oven i a se gm e n t in EUR million consolidated 2021 2020 Change Y oY Net inter est income 79.5 81.4 -1.9 -2% Net inter est income fr om Assets (i) 82.7 78.4 4.3 5% Net inter est income fr om Liabilities (i) -3.1 3.0 -6.1 - Net non-inter est income 91.5 89.0 2.5 3% o/w Net fee and commmission inc ome 96.6 82.7 13.8 17% T otal net operating inc ome 171.0 170.4 0.7 0% T otal costs -116.5 -114.1 -2.4 -2% Result befor e impairments and pr ovisions 54.5 56.2 -1.7 -3% Impairments and pr ovisions -6.7 -15.1 8.4 56% Net gains fr om investments in subsidiaries, associates, and JV s' 1.1 0.9 0.2 27% Result befor e tax 49.0 42.0 6.9 17% 31 Dec 2021 31 Dec 2020 Change Y oY Net loans to customers 2,731.6 2,415.4 316.2 13% Gr oss loans to customers 2,7 69.7 2,450.7 319.0 13% Housing loans 1,815.5 1,534.7 280.9 18% Inter est rat e on housing Loans 2.34% 2.51% -0.17 p.p. Consumer loans 635.6 651.7 -16.1 -2% Inter est rat e on consumer Loans 6.70% 6.43% 0.27 p.p. Other 318.6 264.3 54.3 21% Deposits fr om customers 7,703.6 7,356.8 346.8 5% Inter est rat e on deposits 0.03% 0.04% -0.01 p.p. Non-performing loans (gr oss) 58.1 52.4 5.7 11% 2021 2020 Change Y oY Cost of risk (in bps) 26 63 -38 CIR 68.1% 67.0% 1.1 p.p. Inter est margin 1.55% 1.75% -0.20 p.p. (i) Net inter est income fr om assets and liabilities with the use of F TP . The Ban k contin ues to be t he m arket leader in retail bank ing by knowing cus tomer s’ nee ds . Through anch or loan produc ts and b est -s uite d of fers to dif ferent segmen ts , th e Bank again pro ved it s ef f icienc y and g ained n ew client s . The bankin g environment i s chang ing cons iderably and new approaches an d sales ch anne ls are emerging . The B ank con tinues t o be available through it s traditional branch of fices, bu t also through i ts m obile branch . T e chno logy enab les the availabilit y of the B ank’s ser v ices to client s 24/7 via th e Contac t Cent re and digital ban king . Retail B ankin g in Slo v en ia Contrib ution t o NLB Group Fig u re 29: Contribution to NL B Group Re su l t b.t. 19% Ne t in t ere s t in co m e 19% 36% Ne t no n - in t er es t incom e 63 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Net in terest i ncome The n e t int ere s t in co me f rom l oa ns t o in div id ua ls was EU R 4.3 mil lio n hig he r Y o Y; th e hig he r volu m e of h ou si ng l oan s a nd hig he r in tere s t m ar gin s on co n su m er lo an s was d ue t o hig he r volu me s of n ew pro du c t io n an d a hig he r s ha re of l oan s w it h a ri s k pre mi um an d q uic k lo an s in t he p or t foli o; lower vol um es on overdr af t s h ad a n eg at ive im p ac t o n th e in te res t inc om e. The re was a ls o a re du c t ion o f th e re tai l dep os it s m a rgin a f ter tra ns fer pr ic e (F TP) in t he a mo un t of EU R 6.1 mi llio n Y o Y . Net no n -in teres t income High er n et n o n -i nt ere s t in com e i n th e am ou nt o f EUR2.5m illi on Y o Y wa s d ue to EU R 13.8 mi llio n or 17% h igh er ne t fee a nd c om mi s si on in co me r ela te d m os t ly t o pac kage rep ri cin g an d hi gh er n et fe es f rom a s s et m an ag em en t (h igh ne t inf low s in m ut u al f un d s of NLB S k la di, EU R 192.8 mi lli on) an d ban ca s s ura nce . In A pr il , th e B an k s t ar te d ch arg ing a f ee for h igh b ala nc es fo r in div id ua ls to r es t rai n th e de po si t in fl ow wh ich d iver te d ex t ra li qu idi t y to ot he r fi na nc ial p rod uc t s (mut u al f un d s , inves tm en t s) an d com pe ns a te d for t he n e ga ti ve int ere s t ra te s ch arg ed fo r t he b ala nc es a t th e CB . Net im pairm ent s an d pro vi sion s Net i mp air m en t s an d p rovis io ns we re es tab lis h ed i n th e am oun t of EU R 6.7 mi lli on , d ue to c ha ng es in r i s k par am ete r s . Loans to customers The p ro du c t ion o f new h o us in g lo an s was re cor d hig h , EUR 557.6 mil lio n in 2021 (2020: EU R 303.1 mil lio n). Deposit s from cus tomers The d ep os it s b as e in cr ea se d by EUR 346.8 m ill ion (5%) Y o Y , wi th s igh t de po si t s prevai lin g (95% in 2021, com pa red t o 93% in 2020). Business pe r formanc e The mark et leader in r e tail banking i n S l ove n i a Leader in Slov enia Ba nk r em ain s t he l ea der i n th e S loven ian m ar ket i n reta il len di ng a nd d epo s it-t ak ing . A n en co urag in g in cre as e of t h e ma rket s h are i s n oti ced i n th e ca te gor y o f ho us in g lo an s , na me ly to 24.4% (31 D ec em be r 2020: 22.5%), whi ch i s th e res u lt of a ver y im pre s s ive pro d uc t io n of n ew ho us in g lo an s in 2021 (mar ket s ha re of 32.2% ; 2020: 28.3%). The B a nk r em ain s t he l ea der b ec au se o f th ei r ver y well - es t abl is h ed br an ch an d A TM ne t wo r k , th e 24/7 Co nt ac t cent re, and c ontinuous di gitali zation i mprov ements . The B a nk r eta in s it s ro le a s a ma r ket le ade r in p ay me nt s by bei ng a re lia bl e an d tr u s t wor t hy provi de r of pa ym e nt s se r vice s wi th a fo c us o n provi din g a po si t ive us er ex pe ri en ce. The p r iva te b ank in g ar m of t h e B an k ha s be en p os it ion e d as a lea de r in t hi s se gm en t in S loven ia fo r over 20 year s . NLB S kl adi i s a m ar ket-l ea din g as set m an ag em en t co mp any, wh os e ma r ket sh ar e an d an nu al n et i nf lows a re in cr ea sin g e v e r y y e a r. Market shar e in loans to customers Market shar e in deposits fr om customers Market shar e in housing loans Market shar e in consumer loans 33.0% 31.0% 29.0% 27.0% 25.0% 23.0% 21.0% 19.0% 17.0% 15.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 Dis tr ibu tion chan nels Branch of fice and A TMs n et work The B a nk ’s main s al es ch a nn el re m ain s it s b ran c h ne t wo rk in S loveni a wi th 75 b ran ch es , and i s s up por t ed w it h th e A TM ne t wo rk (538 o r a 37.6% m ar ket sh ar e in S loven ia) of wh ich 89% are co nt ac t l es s . A hig he r dai ly li mi t of ca s h wi th dr awal s on A TMs wa s en abl ed t o en cou rag e cl ien t s to in c rea se u s e of A TMs , and con s eq uen t ly to s tre ng th en t h e ad vi so r y role o f bra nc h of f ices . Mobile ban k: N LB Bank&Go The m o bil e bra nc h NLB B an k&Go, en ga ge d in pr om ot ing th e B an k in var io us c it ie s in S loven ia, i s b ein g in cre as in gl y recognised. Uniq ue 24/7 ban king s er v ice in Slov en ia Ex ten di ng t h e us e of v ide o cal lin g for s al es a nd c on tra c t con cl us io ns f or al mo s t al l of t he B an k ’s pro du c t s (con s um er an d ho us in g lo an s wi th s tra igh t for ward co lla te ral , V it a an d Ge ne rali i ns u ran ce p rod uc t s , dep os it s, s a vin gs a n d card s , on boa rdi ng o f e - an d m - ban k) wa s an im p or tan t s t ep towar ds s tr en gt he ni ng t he r ole o f th e Con ta c t Ce nt re a s a 24/7 s ale s channel. The Co nt ac t Cent re exp er i en ced a Y oY incre as es o f 11% in to tal con tac t s , m ain ly d ue t o th e 57% in cr ea se i n vid eo ca ll s . De sp ite t h e bro ad er s cop e of wor k , t h e cli en t exp er ien ce rem ain e d at a ver y h igh l evel, w it h an a vera ge 2021 NP S fo r vid eo ca ll an d ch a t of 71. Fig u re 30: NL B ’s ma r ket s h ar e in R et ai l B an k in g i n Sl ove ni a The Bank strengthe ned it s posit ion in Lending and As set Managem en t . 30.5% 26.2% 23.1% 21.8% 31.3% 26.4% 23.4% 22.5% 30.7% 26.9% 24.7% 24.4% 64 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sus tain abilit y Followi ng t h e ES G or ie nt at ion o f th e G rou p, sp ec ial f i na nc in g for t he p urc h as e of s ol ar p an els , power s to rag e an d h ea t pum p s was ag ree d to b e of fere d to c lie nt s by on e of t h e Slovenian r etailer s , selling technical produc t s . Digital b ankin g The n u mb er o f digi ta l us er s co nt in u ed to i nc rea s e (13% Y o Y ) , wi th t h e nu mb er o f ac tive u se r s s ur pa s s in g 300,000. The n u mb er o f m - ban k K lik in an d e - ba nk N LB Kl ik us er s inc re as ed by 23% ( 72,07 6 new u s er s) an d 6% (22,771 n ew us er s) Y o Y res p ec ti vely, whic h is we ll de mo ns tra te d by th e dig it al pen et ra ti on (se e th e f ig ure b el ow). The t ota l vol um e an d nu mb er o f pa ym en t s pr oce s se d in th e e - ba nk an d m - b an k in cre as ed by 32% a nd 14% Y oY , respec tively . Fig u re 33: Online and mobile bankin g penetration 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 E-bank M-bank 35% 35% 27% 38% 40% 36% 42% 52% Digitalisa tion an d impro ved client experien ce High lev el of client sa tisfac t ion The B a nk m ai nt ain ed a h igh l evel of c lie nt s a ti s fa c t ion , a s me as ur ed t hr ou gh th e Cu s to me r S at is f ac tio n In dex (C SI). T he C SI re m ain s s t abl e an d well a bove com p eti t ion . Fur th er m or e, cli en t s als o exp res s a high l evel of t r u s t an d loyal t y . The B a nk a ls o m an age d to c ha ng e pr ice p erc ept io n in se gm en t of you ng p eo pl e, wh er e sa t is f ac t io n im proved (f rom 7 4 t o 77; 2021 Valicon Cli en t Sa t is f ac tio n Su r vey). Fig u re 31: NL B Con t ac t Cen t re n o. o f co nt a c t s 43,289 100,397 158,099 863,717 999,460 1,112,933 2019 2020 2021 2019 2020 2021 Video c all T otal contacts Competitor banks' av erage 2021 NLB 2021 NLB 2020 NLB 2019 NLB 2018 75 81 83 77 77 Fig u re 32: Satisfaction with the at titude to wards cus tomers Sour ce: 2021 V alicon Client Satisfaction Surv ey. Mobile wallet - NLB Pay M -wal let N LB Pa y us ag e is in cr ea si ng a t a s ign if ica nt p ace an d th e ap pli cat io n is co ns tan tl y be in g upg rad ed . Th e m os t rece nt u pd at es h ave b een m a de in l in e wi th re g ula to r y requi rements for Strong C us tomer A uthentication and include Flik I ns tan t Pay m en t s for p er s on to p er s on (P 2 P), p er s on to me rch an t (P 2 M), an d p er s on to e - m erc h ant (P 2 eM) p ay m ent s . The a pp lica t ion h a s be com e a m us t-h ave, e sp ec ial ly a s it i s an eas y wa y to co nf ir m e - com me rce p urc ha s es . 2 4.4% mar ket share in ho usin g loans . Digital banks NLB Klik ’ s an d Klikin’ s p enet ration an d sh are of ac tive us ers s ubs t antially increased. +57% +11% Fig u re 34: NL B Pa y in n u mb e r s 12,827 18,402 44,097 7,722 12,577 36,218 2019 2020 2021 2019 2020 2021 # of users V olume of transactions (in EUR thousand) +140% +188% 65 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Ancillar y bu sines ses complem en ting banking produc t s NLB Skladi – Slov enia’s lar g est asse t managemen t company The m a rket s h are o f NLB S kl ad i in cre as ed t o 37.3% (31 De cem be r 2020: 34.9%). Wi th EU R232.8 mi lli on of n et i nf low s in 2021, wh ich i s th e co mp any ’s hi gh es t a nn ua l am ou nt o f inf low s ever reco rd ed , th e com p any ra nked f i rs t am on g it s p eer s i n Sl ovenia , ac co unt in g fo r 50.4% of all n et i nf low s in t he m ar ket. Fees for h ig h bal an ces o f cl ien t s’ a s se t s in tro d uce d in Ap r il 2021 als o t ri gge re d a par t ial r eal lo cat io n of c lien t a s se t s fro m dep os it s a nd c on tr ib u ted t o an ad di ti on al in cr ea se o f int ere s t occ ur re d on a s se t m an age me nt p rod uc t s . The t ota l as s et s u nd er m an ag em en t am ou nt ed t o EUR 2,128.0 mil lio n (31D ec em be r2020: EUR 1,625.6 mil lio n) of wh ich EUR1,610.4 m illi on co ns i s te d of m u t ual f u nd s ( 31De cem be r 2020: EUR 1,125.5 m illi on) an d EUR 517.6 m ill ion o f th e dis cr et ion ar y p or t folio ( 31 D ec em ber 2020: EU R 500.1 m illi on). Vit a - ins urance company The i n su ran ce co mp any V i ta re ma in s th e B an k ’s s tr at egi c par tner . Its produ c t s are sold thr ough the Bank’ s distribution ne t wo rk , su ch a s sa vi ng s an d inves tm en t in s uran ce p rod uc t s , ri s k , an d he al th i ns u ran ce pr od uc ts . Vi ta in t rod uc ed a n ew he al th i ns ur an ces p rod uc t – NLB V it a Sp ec iali s t, wh ic h am on g ot he r s cover s th e co s t s of m e dica l speciali st s and more compl ex diagnostic examination s . Stable card market share The B a nk ’s card ma rket s h ar e rem ain e d s ta ble w it h 26.1% (2020: 26.5%) in th e Sl oveni an m ar ket. New de bit M a s te rcar ds (NLB D eb it M as terc ard , NLB D ebi t Ma s te rcar d W o r ld , an d NLB M as terc ard Worl d Elit e) were int ro du ced t o rep lac e th e M aes tro ca rd , an d are p ar t of th e cl ien t ’s wallet a nd m o bil e walle t NLB P ay. The de bit Ma s te rcar d of fer s ad de d valu e to c lie nt s a t a t im e wh en m os t purchases are made online. SM S In s t alm en t s fo r pe r so na l pa y- la te r pa ym en t car ds were in tr od uce d. T he o nl y co nd it ion t o ac tiva te t hi s opt io n is t he a c t iva ti on of S M S A lar m s er vi ce. Th i s new s er vi ce com pl em en t s in s ta lm en t pu rch a se s for a ll po s si bl e card tra ns ac ti on s (PO S an d e - co mm er ce pu rch a se s , A TM withdrawals ). Flik Ins tan t paymen t s The i nt ro du c t ion o f a new p ay m en t me th od w it h in th e l oca l Sl ovenia n in s ta nt p ay m en t sc he m e Flik P 2 M p rom ote s f ur t he r mig rat io n fro m ca sh t o digi ta l pa ym en t s . Fl ik P 2 M is i nt egr at ed in th e m - walle t NLB Pa y an d al so p rovi des s u pp or t for i OS user s . Priv ate banking Leading pr ivate bank ing provider in Slov enia Pr ivat e ba nk in g h as p os it ion ed i t s el f am on g th e le adi ng pr iva te b an kin g pr ovid er s in S loven ia fo r over 20 year s . In 2021, it s l ead in g pos i tio n was f u r th er s t re ng th en ed w it h a s se t s un der m an a gem en t re ac hin g EUR 1.2 b ill ion ( 16% Y o Y ), an d t he nu mb er o f cli en t s in cre as ed by 14% Yo Y . Thr ou gh ou t th e yea r , pr iva te b an ker s ma na ge d to m ain ta in sa les a c t iv it ie s on a h igh l evel. R es u lt s wer e so lid i n all a rea s , bu t th e b es t we re in m u t ual f u nd s al es . T hi s can b e at t r ibu te d to ou r de dica te d te am , t he p os it ive e con om ic an d ca pit al ma rket e nvi ron m ent, a nd i nt rod uc ti on of t h e fee fo r hi gh balances for individu al clients . By o f f er in g care f ull y se le c te d an d ta ilo red p rod uc t s an d se r vice s , th e B an k de mo n s tr at es t ha t i t is ab le to t ake go od care of their clients’ wealth . GE NE R ALI Zav arov alnica - Non - life in surance produc t s Non - l ife i ns ur an ce pro d uc t s, i nc l udi ng ca r an d ho m e in su ran ce, a re prov ide d to c lie nt s i n coo pe rat io n wi th t h e GEN ER A LI Za varova ln ic a . Despite challenging circumstances, excel lent result s were ach ieved , n am el y gros s w r it te n pre mi um s in cr ea se d Y o Y by 19% , a nd t h e nu mb er o f car in s ur an ce an d ho m e in s uran ce pol ici es by 19% an d 23% . Figur e 35: Assets under management and the number of private banking clients A ne w Deb i t Master c ar d was introduced to replace the M aes t ro card. Fig u re 36: Custom ers’ penetration of ancillary busines s 31 Dec 2016 31 Dec 2017 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 NLB Skladi Vit a Gener ali 1.2% 3.7% 12.9% 13.4% 14.0% 14.9% 15.2% 15.6% 4.9% 6.5% 7.5% 8.3% 9.1% 1.5% 1.5% 1.7% 1.9% 2.2% 31 Dec 2016 31 Dec 2017 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 AuM (million EUR) # of Clients 554.0 7 46.9 752.5 911.1 1,075.1 1,242.9 1,077 1,168 1,231 1,309 1,580 1,800 W e ar e y our right hand. The gr eat-gr andfather had the first stor e on the str eet. The gr andfather e xpanded his business onto the entir e to wn. The father built a national stor e chain. F or them, ther e ar e no limits. E ven small companies hav e big plans. Y et, business gro wth demands creativity, passion and har d work. W e want t o cooper ate with companies that boast such qualities and support them on their path. That is why w e of fer much mor e than just banking services – w e shar e our knowledge with you to build a str onger, mor e pr ofitable futur e in the region wher e determination and entr epr eneurial cour age know no limits. 67 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The Ban k is s treng the ning i ts m arket posi tion as a sys tem ic player in its h ome region , and ac tively par ticipat es in the grow th of market s by suppor ting su st ainable p roject s . As a l eading pl ayer , th e Ban k also s uppor t s the m ore complex, cross -b order need s of it s client s an d diversif ies ser vices for them . Client s’ tr us t and s ati sfa c tion are solid founda tion s for fu t ure sus tainab le growth . C orpor a te and In v est men t B an king in Slo v en ia 31.5% mar ket share in g uarante es and let ters of credi t. Contrib ution t o NLB Group Fig u re 37: Contribution to NL B Group Re su l t b.t. 33% Ne t in t ere s t in co m e 9% 26% Ne t no n - in t er es t incom e Finan cial per for m ance T a bl e 16: Pe r for m a nc e of t h e Co r po ra te a n d Inv es t m e nt B a nk i ng i n S lov en ia s e gm e nt in EUR million consolidated 2021 2020 Change Y oY Net inter est income 35.7 34.0 1.7 5% Net inter est income fr om Assets (i) 41.1 36.8 4.3 12% Net inter est income fr om Liabilities (i) -5.4 -2.8 -2.6 -93% Net non-inter est income 65.8 41.2 24.6 60% o/w Net fee and commmission inc ome 38.9 33.2 5.7 17% T otal net operating inc ome 101.5 75.2 26.3 35% T otal costs -45.1 -41.8 -3.3 -8% Result befor e impairments and pr ovisions 56.4 33.4 23.0 69% lmpairments and pr ovisions 30.5 9.0 21.5 - Result befor e tax 86.8 42.4 44.5 105% 31 Dec 2021 31 Dec 2020 Change Y oY Net loans to customers 2,332.4 2,047.1 285.2 14% Gr oss loans to customers 2,390.7 2,167.5 223.1 10% Corpor ate 2,258.5 2,006.4 252.1 13% Ke y/SME/Cross Bor der Corpor ates 2,110.6 1,827.6 283.1 15% Inter est rat e on Key/SME/Cr oss Bor der Corporat es loans 1.79% 1.79% 0.00 p.p. Investment banking 0.1 0.2 -0.1 -38% Restructuring and W ork out 88.2 160.8 -72.6 -45% NLB Lease&Go 59.6 17.8 41.7 - State 131.9 160.7 -28.8 -18% Inter est rat e on State loans 2.07% 2.20% -0.13 p.p. Deposits fr om customers 1,938.2 1,487.4 450.7 30% Inter est rat e on deposits 0.03% 0.06% -0.03 p.p. Non-performing loans (gr oss) 72.5 156.0 -83.5 -53% 2021 2020 Change Y oY Cost of risk (in bps) -141 -44 -97 CIR 44.4% 55.6% -11.1 p.p. Inter est margin 1.7 6% 1.90% -0.15 p.p. (i) Net inter est income fr om assets and liabilities with the use of F TP , 68 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Net in terest i ncome The i nt ere s t in co me f rom l oa ns t o cor p ora te an d s t at e was EUR 4.3 m illi on h igh er Y oY , d ue t o hig he r vol um es , m os tly i n Key and Cros s - B or der Co r por at es . T he re was a ls o a red uc ti on of th e d epo si t s m arg in af te r tr an s fer p r ice (F TP) in t h e am ou nt of EUR 2.6 m ill ion Yo Y . Non - recurr ing ne t non - int erest incom e Non - re c ur r ing n et n o n -i nt ere s t val ua ti on in co me i n th e am oun t of EU R 13.0 mi lli on f rom re pa ym en t of ex pos u re, cla s s if ie d as n on -p er for m in g, a nd EU R 8.6 mi lli on ot he r ope ra tio n in com e f rom t h e se t t le m en t of a le ga l dis p ut e. Net fe e and comm iss ion income High er n et f ee a nd co m mi s si on in co me Yo Y , m os tl y du e to a hig he r fee f or h igh b ala nc es on c u s tom e r s as s et s (EU R 6.6 mil lio n in 2021, EUR 3.3 m il lio n hig he r Y o Y ) a n d ar ran ge me nt fee s for o rga ni sa t ion o f s yn dic ate d lo an s . Net im pairm ent s an d pro vi sion s Net i mp air m en t s an d p rovis io ns we re re le as ed in t h e am ou nt of EUR 30.5 m ill ion d ue t o th e re pa ym en t of s everal ex po su res , ch an ges i n cre di t ra tin g s , an d ch an ge d pa ram et er s for coll ec ti ve imp ai rm e nt s a nd p rovi si on s rel at ed to m o re favour able macroeconomic for ecas ts . Loans to customers The vo lu me o f lo an s to co rp ora te i nc re as ed by EUR 252.1 mil lio n Y o Y , m os tly d ue t o new ly a pprove d s yn dic ate d lo an s an d inc re as ed vo lum e s in t he Cro s s -b or der Co rp or at es an d NLB L ease&Go. The Inv es t men t Ban king an d Custo dy The I nves t m en t B ank in g an d Cu s to dy re cor de d no n -i nt ere s t inc om e in t he a mo un t of EU R 10.8 mi llio n an d in cre as e d by EUR 1.4mi lli on Y o Y, mos t ly d ue to a rr an gem en t fe es fo r org ani s at ion o f s yn di cat ed l oan s . T he t otal va lu e of a s se t s un der c u s to dy de cr ea se d Y o Y an d am o un ted t o EUR 15.9 bill ion ( 31D ece mb er 2020: EU R 16.2 bil lio n). Business pe r formanc e Market leader focu sing on cus tomers’ needs Leading ba nk ser vicing corp orate client s in Sl ov enia NLB is t h e le adi ng b an k in s er vi cin g cor p ora te c lie nt s in Sl ovenia w it h a gr owin g cl ien t ba s e, an d it h a s an 18.3% ma rket s h are i n cor p ora te l oan s ( 31 D ece mb er 2020: 17.3%). The B a nk a ls o rem ai ns a r eli abl e pa r tn er t o Sl oveni an com pa nie s wh en t h ey want t o exp an d th eir a c t iv it ie s abr oad . De sp ite s u bs t an ti al lo an re pa ym en t s , t he e nt ire p or t fol io grew as s everal n ew hi gh - q ua li t y t ra ns ac tio n s were co nc lu de d in f in an cin g exp or t s an d m an u fac tu r in g, t h e s ta te, p roj ec t fi na nc e, acq ui s it ion s , fa c t or in g, a nd i nt er n at io na l fi na nc e. In 2021, EUR 1,281.5 m illi on of l oa ns we re ap proved to c or po ra te an d s ta te c lie nt s p res en t in g a 23% Y o Y in cre as e. M ar ket pre se nce a n d a pro ac t i ve appr oac h are a ls o ref le c t ed i n th e Y o Y grow th o f th e lo an p or t folio i n all c or po rat e s egm en t s , na me ly in Key by 7% , S M E by 9% , a nd Cr os s - bor der even by 79% . G row th i s rec ord ed ac ros s a ll pro d uc ts a nd s er v ice s . A s th e le ad in g ban k in t h e Sl oveni an m ar ket for t h e org ani s at ion o f s yn di cat ed l oan s , t h e Ba nk c on tin u es to su cce s s f ull y s upp or t an d f in an ce t h e expa ns io n of S loven ian com pa nie s in t he r egi on . The B a nk i s al so a l ea din g S loveni an b an k in t he f ie ld o f tra de fi na nc e wi th p rod uc t s th a t su pp or t t he ex por t e con om y . Gro up c lie nt s a re s up po r ted w it h le t t er s o f gu aran te es , let ter s of credit, and purchases of receivables through digital ch an ne ls in a s a fe an d fa s t wa y , w it h a m ar ket s ha re of 31.5% (31 D ec em ber 2020: 31.4%) in g ua ran te es an d le t ter s of c re dit (incl uding guaran tee lines). Div er si fied produc t mix Bank’s off er The B a nk ’s of fe r of f in an cia l se r vic es , in c lu din g le nd ing , ca s h ma na gem e nt, pa ym en t s er vi ces , a s wel l as ca pit al m ar ket s’ advisor y ser vices suppor t s various cli ent s’ needs. Clie nt s c an ge t sh or t- ter m o r lon g -t er m f in an cin g fa cil it ie s an d adv is or y s er vi ces t o f in d a be s t-s ui te d f in an cin g s t r uc t ure. I n th is way, the B an k s upp or t s key pro jec t s th a t are i mp or ta nt fo r th e develo pm en t of t h e cou nt r y , a s well a s t he G ro up’s hom e re gio n . Market shar e in loans to customers Market shar e in deposits fr om customers Market shar e in guar antees and letters of credit 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 Fig u re 38: NL B ’s ma r ket s h ar e in Co r p or at e B an k in g in S l ove ni a 30.0% 17.5% 16.5% 31.4% 17.3% 17.0% 31.5% 18.9% 18.3% C lie n t base e xp anded with ad dition al s table an d well per form ing groups of com panies . 69 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Bas ic produc t s & Cards busines s New de bit M a s te rcar d pro du c t s (NL B Deb it M a s te rcard B us in es s a nd N LB De bi t Ma s te rcar d World B u s in es s) are n ow als o ava ila ble t o bu s in es s ac cou nt h o lde r s , rep la cin g t he Ma es t ro b us in es s c ard . New de bit c ard s are i nc lu de d in t he re newe d pa ckage o f f er for l ega l en ti ti es , n am el y NLB B usi ne s s Pa ckage B a s ic , Advan ce d, a nd Co mp reh en s ive, w it h a s pe cia l of fer fo r th e target group of newly establish ed and non -p rofit client s . SM S In s t alm en t s fo r bu s in es s p ay- l at er pa ym e nt ca rds we re int ro du ced , t he o nl y con di ti on b ein g th e ac ti vat ion o f an S M S Ala r m se r vice . Th is n ew se r vice c om pl em en t s th e in s t alm en t pur ch as e fo r all p os s ibl e car d tra ns ac ti on s (PO S an d e - com m erc e pu rch as es , A TM w it h dra wals). T rade fin ance sol ution s The B a nk i s a le adi ng S loven ia n ba nk in t h e f iel d of t rad e fi na nc e wi th p rod uc t s th a t als o s up po r t th e expo r t eco no my, an d rep res en t an im p or ta nt p ar t of t h e Sl ovenia n eco n omy. The t ra de f in an ce p rod uc t ran ge an d t ail or - m ade s ol u ti on s are co mp reh en s ive an d ra ng e fro m tra di ti on al t rad e f in an ce pro du c t s , t o oth er m o der n s tr u c t ur es w hic h prov ide s a fe financing throughout the supply chai ns . A s a m em ber o f th e Fac t or Ch ai n Int er n at io na l, t h e Ba nk a im s to of fer exp or t er s an d im po r ter s i nt er n at ion al p ur ch as e of rece ivab le s , th u s prov idi ng t he m wi th a m o der n , fa s t, an d eas y wa y of f in an ci ng , w hic h is a n add it io na l inc en ti ve for int er n at io na l bu si ne s s . S pe ci al at te nt io n is g iven to l et te r of gu aran te es by w hic h th e B an k s up por t s m a jor i nf ras tr u c t ur e proj ec t s in S loven ia an d th e w ide r ho m e reg ion . T he s tron ge r ma rket p os it io n ref le c t s t h e Gro up’s ac t ive a dv is or y ap pro ac h toward s it s c us tom er s . Sus tain abilit y In th e pr oce s s of ac ti vel y int eg rat in g th e E SG f ac t or s , t he B a nk is devot in g in cr ea sin g ef for t s t o ide nt if yi ng n ew bu s in es s opp or t un it ie s ar is in g f rom i t s tra ns i tio n to s up po r t circ ul ar an d carbo n neu tral econ omy. #H el pFrame, a s oc ial e nvi ron m en t proj ec t wi th a c le ar ly def in e d su s t ain ab ili t y c om po ne nt, co nt in ue d in 2021. In add it ion t o kn ow- h ow , a dv ice, a nd s er v ices , adver t is in g sp ace wa s al so m ad e avai lab le t o th e s ele c t ed e nt rep ren e ur s , far m er s an d s m all an d m icr o com pa ni es , t h us h elp in g th em pre se nt t he ir p rod uc t s an d se r vice s to po ten t ial b uye r s an d cu sto mer s. Project f inancin g Rec en t devel opm e nt s i n th e rea l es t at e m ar ket ha ve ope ne d up n ew op po r tu ni ti es fo r pro jec t f in an cin g. W i th com pre he n si ve fi na nc ial s ol u ti on s , s upp or t ed by a s t ron g tea m of exp er t s , t h e Ba nk i s ab le to m e et even t he m os t demanding challenges in this a rea. Each pro je c t i s revi ewed fr om di f f ere nt p er s pe c t ive s – fea si bil it y , c os t s , a n d sa le, t h us t r yin g to m in imi s e ri s k for b ot h , th e B an k an d th e cl ien t. Cli en t s are al s o s upp or te d in t he t ra de fi na nc e are a, a s s ucce s s f ul c om ple ti on of t h e tr an sa c t ion a ls o req uir es g uar an tee s to e lim in at e hi dde n def ec t s to en d u se r s . Favoura bl e f in an cin g con di t ion s are o f f ere d to t he b uye r of th e pro pe r t y, and a te am o f mo bil e ba nker s i s invol ved to en su re a s uc ces s f u l im ple m en tat io n . The p la t for m prov id es s ec ur it y an d s im pli ci t y, a comp et it ive edge to pro vider s , and good user experience. Ins tant p ayment s Sin ce 2 02 0, th e B an k gra du all y in tro d uce d in s ta nt p ay me nt s , inc l udi ng in s t an t in ter n al t ran s f er s an d Fli k pa ym en t s in t h e NLB Pa y. Ins tan t o ut goi ng p ay m en t s are n ow als o a vaila bl e to cli en t s (fre e of ch ar ge) in th e m - b an kin g s ol ut io ns K lik in a nd Klikpro. Flik payment s Wi th t h e m ain go al o f de cre as in g th e u se o f cas h , t he Fl ik P 2 M pa ym en t me th o d is b ein g gra du all y im pl em en te d in al l sh op s wi th NL B PO S ter m in al s . NLB wa s th e f ir s t ban k in S loven ia to en abl e cl ien t s s uc h a se r vice . Global Paymen ts In nov ation (GPI) full on - boarding The G ro up, a s a f ir s t b an kin g gr oup i n th e re gio n , f ull y on boa rde d th e G PI (G lob al Pa ym en t In it ia ti ve), i.e. , s er vic e fro m SW IF T , w hi ch en ab le s mo re ef f ici en t pro ces s in g an d eas ie r tr ac kin g of i nt er n at ion al p ay m en t ord er s , t h us e na bli ng considerable improvement and smoother inter nat ional pa ym en t s exp er ie nce f or c us t om er s in volve d in in ter n a tio n al business. Fig u re 39: T r an s ac ti on vo l um e i n ac qu ir i ng ( i n EU R mi ll io n) 14 47 55 2,247 2,348 2,535 2019 2020 2021 2019 2020 2021 e-commer ce (in EUR million) POS ( in EUR million) +17% +8% A leader in m erchant - acquir ing The B a nk i s a le ad er in m er ch an t- acq uir i ng by ac cep tin g al l ma jor p ay m en t card s , t he l oca l Flik i ns tan t pa ym en t s ch em e an d a mo de rn c on tac tl es s P OS n et wor k , w it h a 36.7% ma r ket sh ar e in m erch a nt ac qu ir in g. Us er s of e - com me rce exp ec t se c ure an d s im pl e on lin e pur ch as es , whi ch i s why t he B a nk o f f er s NLB E- co mm er ce, a mo der n p ay m en t pla t for m , to i t s prov ide r s an d th ei r cli en t s . C r oss bor der financ ing is be comin g incre as ingly im por t ant. 70 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report loa ns , whi ch in c lu des a ls o s om e of wor l d- re now ne d br an ds an d lea de r s in t he ir in du s t r ies . Th e EEA l en di ng p or t foli o exceed s EUR 150 m ill ion a t YE , an d i s als o exp ec te d to grow fu r th er d ue t o ver y well - e s ta bli s he d rel at io ns h ips w it h s om e of the European par t ner ship bank s . Digitalisa tion of produc t of ferin g M -b ank Klik pro The n u mb er o f m - ban k K lik pro u se r s is co n s ta nt ly in c rea si ng ( Y o Y by 17%), wh ic h proves t h at c lie nt s a re ad opt in g th e process of digital bankin g. The lates t upgrade also incl uded digital signing of docum ent s for a d ef in ed li s t o f pro du c t s , w hi ch w ill b e f ur th er ex ten d ed in th e fol lowi ng p er io ds . Mobile wallet NLB Pay The B a nk ’s mobi le wall et N LB Pay a pp lica t ion e na ble s cl ien t s to m ake con tac tl es s , s im pl e, fa s t, an d s ec ure p ay m ent s on th e con ta c t le s s PO S ( in S loveni a an d ab roa d) w it h th e NLB B us in es s M a s te rcard a nd N LB B u sin e s s Ma es t ro ca rds , and also enables ins talmen t payment s . In ve s t ment banking and sec ur ities ser vices Arranger of sev eral transac tions In 2021, th e B an k or gan is ed s ix s y n dica te d fac ili t ies i n th e tota l am ou nt o f EUR 652.1 m illi on , w he re it a ls o ac ted a s th e ma nd at ed l ead a r ran ge r , as an a gen t, an d al so a s th e le ad in g ban k w it h EUR 275.7 m ill ion p ar t icip a tio n . Inter na tional corp orate bu sines s Collaboration wit hin th e Group Exce s s li qui di t y, a rat he r lim it ed S loven ian m ar ket, an d t he wi sh t o expa nd o pe rat io ns w it h exi s t in g an d new c lie nt s a re th e m ain re as on s w hy cro s s -b ord er f in an ci ng i s be com in g inc re as in gly i mp or ta nt. In t h e West er n B alkan s , t h e Ba nk i s am on g oth er s c ur re nt ly s u pp or ti ng s el ec ted p roj ec ts m a inl y in th e te le com m un ica ti on s an d foo d in d us t r y , a s wel l as ren ewabl e en erg y s ou rces . At YE , t he p or t foli o, in cl ud ing p ar t ici pa ti ng s h are s of G ro up subs idiaries lendin g in such a transac t ion, already well exceed s EUR 150 m ill ion . T he n ot abl e po ten t ial in t h e reg ion can b e obs er ved e s pe cia lly i n cor p ora te f in an ci ng f oc us in g on renewable energy , infras tr uc t ure, and residential projec t fin ance. Corporate len ding in E E A The B a nk a ls o en te red in to d if fere nt EU m ar ket s a nd diver s i fi ed i t s cro s s -b ord er p or t foli o acr os s t he EE A . M os t not ab le t ran s ac t io ns we re con c lu de d in G er m any, F ran ce, Aus tr ia , an d t he N et he rl an ds . De als a re pr im a r y mad e t hro ug h par t ic ipa t ion i n s yn dica te d internationa l facil ities or through pa r ticipati on in S chuldschei n The B a nk h el pe d ma ny com p ani es b roa den f u nd in g ba se an d ar ran ge d th e is su an ce of b ot h lon g -t er m an d s ho r t-te rm in s tr ume nt s in th e tot al of EU R 44.3 mi lli on on d ebt c api tal m ar ket s . The B a nk wa s ac tive i n M& A an d oth er f i na nc ial a dv is or y eng ag em en t s . A s t h e so le f in an ci al a dvi s or , it s u cce s s f ull y org ani s ed t he s al es p roce s s of a l ea din g Sl oveni an co mp any in th e pr od uc tio n of p ain t s . Th e B an k s ucc es s f u lly o rga ni se d t wo t akeover bi ds a s well . Brok erage ser vices and Financial Inst rum ent s In th e br okera ge s er vi ces in 2021, t h e B an k execu te d cl ien t s’ bu y an d se ll or der s i n th e tot al am o un t of EUR 902.9 m il lio n (2020: EUR 941.3 millio n), wh il e in th e ar ea of d ea lin g in finan cial ins tr ume nt s, th e Bank executed foreign ex ch ange sp ot de al s in t he to tal o f EUR 946.6 millio n (2020: EUR 724.0 mil lio n) and fo r EUR 382.5 m il lion ( 2020: EUR 242.6 mill ion) wor th of transact ions inv olving derivatives. Go od e con om ic co n dit io ns i n 2021 res ul te d in m or e ac t iv it ie s in for eign , n on -Eu ro ma r ket s , by th e cl ien t s . A t th e s am e ti me , du e to hi gh er in fl at io n exp ec tat ion s , m or e dem a nd fo r in ter es t rat e he dgi ng wa s no ti ced . Cust odian se r vices The B a nk r em ain s on e of t h e top S loven ia n pl ayer s in cu s to dia n se r vice s for S l ovenia n an d in ter n a tio n al cu s t om er s . The t ota l valu e of a s se t s un de r cu s to dy o n 31 De cem b er 2021 was , to ge th er w it h th e f un d a dmi ni s t rat io n se r vice s , EUR 15.9 bill ion ( 31 D ece mb er 2020: EU R 16.2 bil lio n). Ar ranging EU R 652.1 mill ion of syn dicated lo ans . 71 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 17: R es u lt s o f t he S t ra te g ic For ei gn M a r ket s s e gm en t in EUR million consolidated 2021 2020 Change Y oY o/w KB contribution Net inter est income 266.8 159.3 107.5 98.8 68% Inter est income 299.6 182.6 117.0 111.5 64% Inter est expense -32.8 -23.3 -9.5 -12.8 -41% Net non-inter est income 95.1 49.8 45.3 33.2 91% o/w Net fee and commmission inc ome 101.6 54.1 47.5 42.3 88% T otal net operating inc ome 361.9 209.1 152.9 132.0 73% T otal costs -227.9 -109.0 -118.9 -107.3 -109% Result befor e impairments and pr ovisions 134.0 100.1 34.0 24.7 34% Impairments and pr ovisions -20.8 -59.1 38.3 -20.6 65% Negative goodwill (KB) 137.9 -137.9 - Result befor e tax 113.2 178.8 -65.6 4.2 -37% o/w Result of minority shar eholders 11.5 3.0 8.4 1.5 - 31 Dec 2021 31 Dec 2020 (i) Change Y oY Net loans to customers 5,441.9 5,052.4 389.5 8% Gr oss loans to customers 5,632.2 5,234.8 397.4 8% Individuals 2,877.3 2,592.9 284.4 11% Inter est rat e on retail loans 5.83% - -0.45 p.p. Corpor ate 2,613.5 2,443.7 169.8 7% Inter est rat e on corporat e loans 3.96% - -0.20 p.p. State 141.4 198.1 -56.7 -29% Inter est rat e on state loans 3.35% - -0.18 p.p. Deposits fr om customers 7,998.8 7,552.2 446.6 6% Inter est rat e on deposits 0.29% - -0.14 p.p. Non-performing loans (gr oss) 191.7 195.0 -3.3 -2% 2021 2020 Change Y oY Cost of risk (in bps) (ii) -11 140 -151 CIR 63.0% 52.1% 10.8 p.p. Inter est margin (ii) 2.86% 3.33% -0.47 p.p. (i) Inter est rates f or 2020 are calculated without K omercijalna Bank a gr oup. (ii) Komer cijalna Banka, Beogr ad is ex cluded fr om the calculation. Wi th th e merger of t wo banks in Mo nten egro and th e final ised s ale of one b ank in th e Republic o f Srps ka in 2021, the core par t of t he Group in foreign mar kets now consis t s of seven bank s and on e inv es tm ent f und comp any . They are locally e ven st ronger embe dded as impor tan t finan cial ins ti tu tion s and mar ket leader s in various bus ines s segm ent s . All Group s ubsidiar y bank s have a stab le mar ket posi tion and s trong repu ta tion . The ma rket shares by total as set s of s ubsidiar y bank s ex ceed 10% in f ive out of six m arkets . The bank s in th e Group s tra tegic foreign mar kets of fer a f ull range of f inancial s er vices to retail and corpora te clien ts . I n 2021, the G roup bank s marked remark able do uble - digit growth of gross loans to c us tom ers , esp ecially in ho usin g loans segm ent s wit h raised dem and for h ous ing loan s , reaching up to 41% Y o Y (NLB B anka, Sarajev o) to 55% Y o Y gro w th rates (NLB B anka, Beograd) . In 2021 the G roup ban ks accelerate d their digi tal transfor ma tion b y of fering e - identif ication (NLB Banka, Skopje ), pay m obile card solu tion , end -to - end au tom at ed loan process ing (K ome rcijalna Banka, B eograd) to robotic s solu tion s in sev eral in tern al processes (NLB Ban ka, Saraje vo ), and im plem ent ed SWIF T G PI ser vices to enable fas t er , more trans parent, and reliable interna tional transac tions to it s client s . Str a tegic F or ei gn Mark et s Contrib ution t o NLB Group Fig u re 40: Contribution to NL B Group Re su l t b.t. 43% Ne t in t ere s t in co m e 65% 37% Ne t no n - in t er es t incom e 72 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Net in terest i ncome Net i nt ere s t in com e in c rea se d by EUR 8.8 m ill ion (6%) Y o Y without the Kome rcijalna Banka g roup c ontribution, due t o hig he r volu m es de s pit e a lower i nt ere s t m argi n . Net no n -in teres t income Net n on -in te res t inco m e in cre as ed EU R 12.1 mi llio n Y o Y without the Kome rcijalna Banka g roup c ontribution, of which EUR 5.1 m illi on in n et f ee an d co mm i s si on in co me d ue t o no rm al is a tio n of b us in es s af ter COVID -19 ou tb re ak in 2020. Net n on -in te res t inco m e in 2021 was n eg at i vely a f f ec ted w it h th e sa le o f Komerc ij aln a B an ka, B an ja Lu ka (EUR 8.1 mi llio n), wh ile i n 2020 wi th m od if ica t ion l os s es ca u se d by ch an ges of con t rac t ual ca s h fl ows fo r lo an s su bje c t t o COVID -19 mo rat or ia i n 2020. To t a l c o s t s T otal co s t s in cr ea se d Y o Y (EUR 11.6 m ill ion o r 11%) due t o a hig he r volu m e of b us in es s i n all b an k s an d add it ion a lly d ue t o integration cos t s on the Serbian an d Montenegr in mar kets . Net im pairm ent s an d pro vi sion s Net i mp air m en t s an d p rovis io ns we re es tab lis h ed i n th e am oun t of EU R 20.8 mi lli on , m os t ly r ela te d to le ga l an d res t r u c t ur i ng p rovi si on s , wh il e im pai r me nt s a nd p rovi si on s for cre dit r i s k of t he s eg me nt we re n et re lea s ed . Fig u re 41: G ros s l o an s vo lu m e an d i nt er es t ra te s in S t ra te gi c For ei gn M ar ke t s S eve n subs idiar y ban k s and on e inv e s tm ent f und c o m p a n y. Gross lo ans to cu s tomer s Gro s s lo an s to c us t om er s in c rea se d by EUR397.4 m ill ion (8%) Y o Y , d es pit e EUR 155.4 m ill ion d ec rea s e at tr i bu ta ble t o th e sale of K om ercijalna Ban ka, Banja Luka. The most ma terial inc re as e was in h o us in g lo an s . Th e in cr ea se o f th e lo an por t fol io was v is ib le in a ll of t h e me mb er b an k s; t h e lar ges t inc re as es wer e rec ord ed in Kom erc ija ln a B an ka, B eo gra d (EUR 202.5 mi lli on) an d NLB B an ka, S kopje (EU R 123.1 mi llio n). 1,604.0 3,162.0 6.71% 4.46% 1,558.0 31 Dec 2019 31 Dec 2020 31 Dec 2021 2019 2020 w/o KB 2021 Individuals Corpor ate & state +8% Y oY 2,592.9 5,234.8 6.28% 4.11% 2,641.9 2,877.3 5,632.2 5.83% 3.92% 2,754.9 Profit before tax EU R 113.2mill ion only 37% lower compared to las t year , when t he res ult was higher d ue to acquisi tion of Komercijalna Ban ka, Beograd. 73 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fig u re 42: De p os i t vol um e a n d in te re s t r at es i n S tr at e gi c Fore ig n M ar ke t s Deposit s from cus tomers Dep os it s from c u s tom e r s in cre as ed by EU R 446.6 mi llio n Y o Y , d es pit e EUR 154.7 m ill ion d ec rea s e du e to t he s al e of Komerc ija ln a B an ka, B an ja Lu ka. Th e grow th wa s re cord ed i n all m em be r ba nk s , exce pt NLB B a nka , Be og rad . 2,598.0 3,856.7 0.58% 0.41% 1,258.7 31 Dec 2019 31 Dec 2020 31 Dec 2021 2019 2020 w/o KB 2021 Individuals Corpor ate & state +6% Y oY 5,211.1 7,552.2 0.47% 0.35% 2,341.1 5,601.9 7,998.8 0.32% 0.22% 2,397.0 The m arket sh ares (by total ass ets) of s ubsidiar y banks ex ceed 10% in five out of s ix m arkets . 74 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K om ercijalna B ank a , Beograd The acquisit ion of K om ercijalna Banka, Be ograd fur ther s tr en gt he ne d t he G ro up’s st ra te gic p os it ion i n Se r bia a nd ha s pl ace d NLB a s on e of t he l ea din g (and s y s te mic) b an ks on t he m ar ket. Th e ba nk i s s t ron gl y pos i ti on ed a s a lea de r on ret ail m a rket w it h m ore t h an 1.1 m illi on c lie nt s , a nd a h ig h ma rket s h are b ot h in l en din g (cons u me r an d ho u si ng) an d dep os it s . In cor p ora te s eg me nt, t he b an k was m ai nl y bu ild in g rel at ion s hi ps w it h pu bli c an d lar ge d om es t ic co m pan ie s . Never t he les s, t h e Gr ou p reco gn is es t h at Kom erc ija ln a Ba nka , B eo grad h a s s t ill im p or ta nt gr ow t h po ten ti al in a ll t he se gm en t s , wh ic h is exp ec te d to be r eal is ed i n th e fo llow ing per i od . NLB f in ali s ed h ar m on is at io n of Kome rci jal na B a nka, B e og rad wi th NL B Gro up s tan da rds w it hi n si x mo nt h s fro m acq ui s it ion , wh ile t h e me rge r of Kome rci jal na B a nka , Be og rad w it h NLB B an ka, B eo gra d is p la nn ed f or t he e nd o f Ap r il 2022. It i s expe c t ed t h at t h e me rge r of t he t wo ba nk s co ul d br in g imp or t ant s y n erg y ef fec t s on co s t an d on reve nu e s ide . Af ter fi na li sa ti on of t h e me rg er , th e B an k wi ll fo cu s on d igi tal izat ion an d mo de rn is a ti on of s er v ices t o es t ab lis h t he b an k as o ne o f th e le ad er s in s er vi ce q ual it y . D es p ite o ng oin g h ar m oni s at io n ac t iv it ie s an d m erg er pr oce s s wi th t h e NLB B an ka, B e ogr ad , th e ba nk a ch ieved in 2021 r eco rd s ale s grow th in b ot h ret ail an d cor po ra te b an kin g s egm e nt an d al rea dy i nt rod uc ed so me m o der n di gi tal s ol u tio ns (Kom ba nk p ay m ob ile c ard so lu ti on , en d -t o - e nd a u tom a ted l oa n pro ces s in g , etc .). Macroeconomic Snapsho t In Se r bia , t he e con omy l os t s o me s team i n Q4 d ue t o ri s ing p r ice p res s u res w hi le s of ter m er ch an di se i mp or t grow th s ug ges tin g a s lig ht co ol down i n do me s t ic de ma nd . Never t he les s, t h e eco no my re bo un de d fro m a mi ld con tr ac t io n in 2020 w it h inves tm en t an d pr iva te co n su mp ti on prop el lin g ec on om ic ac ti vit y in 2021. Fig u re 43: GDP gr ow th, Inflati on, Unemployment 8.0 6.0 4.0 2.0 0.0 -2.0 8.0 6.0 4.0 2.0 0.0 12.0 10.0 8.0 6.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook Econo mi c grow th is ex pe c t ed to r et ur n towar ds t he p re - pan d emi c pa th , a nd s o, g row t h is ex pe c t ed a t a s lower p ace in 2022. Th e eco n omy s ho ul d grow on t h e ba ck of p r iva te consumpti on and i nvestment, while g overnment inve s tment an d EU fu nd s s ho ul d f ur th er a id t he g row t h . D own si de r is k s are in t h e for m of p an de mi c-r el ate d un ce r tain t y , s tu rdie r an d prolonged ele vated inflation, the long-ter m impac t of supply- si de bo t tle ne ck s a nd e con om ic i mp lica t ion s of t h e war in Ukraine. Contrib ution t o NLB Group Fig u re 44: Contribution to NL B Group 18% Ne t no n - in t er es t incom e Re su l t b.t. 10% Ne t in t ere s t in co m e 22% Banking services p rovi ded throug h: 190 br anche s 281 A T Ms 4 th larges t ban k in the co untr y . 75 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Business pe r formanc e Retail banking The r eta il s egm e nt, wi t h th e la rge s t cl ien t b as e on t he l oc al ma rket, re pre se nt s th e pre dom in an t s t ren g th o f Komerc ij aln a Ba nka , B eo grad . S in ce th e a cqu is it io n , th e ba nk f oc us es s tr on gly o n bo os t in g ac tiv it y in r eta il are a th ro ugh s e ri es o f st r uc t ural initiatives . Thes e initiati ves resulted in significan t grow th in g ros s lo an s (9% Y o Y ). T he B a nk re co rde d th e hi s tor i call y hi gh es t l oan p rod uc ti on grow th (cas h lo an s 62% Y o Y grow t h , re tail h o us in g lo an s 34% Y o Y gr ow t h) and grow th in to tal i nc om e (9% high er Y oY) an d gr ow t h in n et fee s (18% h ig he r Y o Y ) . Th e ban k f in al ly m an ag ed to d efe nd th e ret ail l oan m a rket s h are d es pi te t he o ng oin g in te gra t ion pro ces s . Conver se ly, depo si t s grow th wa s 10% Y o Y of w hi ch fore ign c ur re nc y s a vin gs g rew EUR 169 mill ion . T he b an k al so develo pe d ‘ KomB an k Pa y ,’ a mobi le wal let f or co nt ac tle s s payment s. C or porate banking Cor po rat e ba nk in g in t he b an k was h is t or ica lly c on cen tr at ed on s er vic in g pu bli c an d dom e s t ic com p ani es an d wa s ho ldi ng a les s d om in an t m ar ket po si ti on co mp are d to t he re tai l se gm en t. In th e co r por at e se gm en t, th e ba nk im p roved it s ma na gem e nt s t r u c t u re an d pro ces s e s . Th is g en era te d 18% Y o Y grow th i n gros s l oa ns . In add it io n, 2021 wa s a re cord ye ar in th e b an k in te rm s o f new l oan p rod uc ti on wh ic h am ou nt ed to EUR 524.7 mil lion , r epr es en ti ng 39% g row t h Y o Y, and ma in ly coming from l arge segme nt clients, notic eably outperforming th e m ar ket grow th . Ad di ti on all y , c or po rat e de pos i t s no ted a grow th of 8% . Th e key dr iver s of i nc om e grow th wer e lar ge cor po ra te an d S M E loa ns . Net n on - in te res t inc om e in cre as e d by 3% Y o Y an d ne t fe es re cor ded g row t h by 11% Y o Y. Add it ion al ly, the b ank r ed es ign ed o f f er of ex is t in g lo an s for li qu idi t y and wo r kin g cap it al ( 18 an d 36 mo nt h s), an d int ro du ced r ever se f ac t or in g (p rod uc ti on of EU R 7.4 mi llio n).  Finan cial per for m ance T a bl e 18: Key p er fo rm a n ce in d ic at or s o f Kom e rc ij al na B a n ka, B e o gra d (i) in EUR thousand 2021 Ke y performance indicators Net inter est income 88,570 Net non-inter est income 40,110 T otal costs -87,979 Impairments and pr ovisions -7,637 Result befor e tax 33,064 Result after tax 34,818 Financial position statement indicator s T otal assets 4,165,2 49 Net loans to customers 1,795,882 Gr oss loans to customers 1,818,793 Deposits fr om customers 3,424,633 Equity 634,643 Ke y financial indicators T otal capital r atio 28.6% Net inter est margin 2.4% ROE a.t. 5.5% RO A a.t. 0.9% CIR 68.4% NPL v olume 36,329 NPL r atio ( internal def.: NPL/T otal loans) 1.4% Market shar e by tot al assets 9.7% LT D 52.4% (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. F or year 2020, compar able data are not av ailable. The b an k re ali se d a pro f it a f ter ta x in t he a mo un t of EUR 34.8m illi on , R OE a .t. 5.5% an d CIR 68.4% . TCR was s tab le a t 28.6% . The r es ul t was d r iven by t he h igh l oa n pro du c t ion g row t h in r eta il an d cor p ora te . Net i nt ere s t inc om e re ach ed EU R 88.6 mi lli on , wh il e ne t no n - int ere s t inc om e was EU R40.1mi llio n . Th e tot al a s se t s am ou nt ed to EUR4,165.2m illi on . Th e NP L ra tio wa s 1.4% . 9.7% mar ket share in total as set s . EU R 33.1 mill ion resul t b.t. Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 31 Dec 2020 31 Dec 2021 11.8% 10.0% 6.3% 8.5% 11.2% 9.7% 6.3% 8.4% Fig u re 45: 2-ye ar m a r ket s h ar e evo lu t io n 76 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NL B B ank a, Beogr ad In 2021, on e of t he c r u cia l ac t iv it ie s for N LB B an ka, B eo gra d was pa r ti cip at io n an d f ull s up po r t for t he o ng oin g in te gra ti on proj ec t wit h Kom erci jal na B a nka , Be og rad w h ere t he me rge r is p lan n ed in Q 2 2022. Af ter t h e me rge r , NLB B an ka, Be og rad w ill c ea se t o exis t. The b an k was f ul ly en ga ge d in al l ini ti at ive s of t he i nt egr at ion p roc es s . I n sp it e of de ma n din g int eg rat io n pro ces s , t h e B an k ma na ge d to m ain ta in dy n ami c sa les a c t iv it y, where t h e ret ail an d a gro s egm e nt s p rod uce d ou t s ta nd in g res u lt s . The b an k in cre as ed m a rket s h are s in ho us in g an d co ns um e r loa n s , an d in t he a gro s eg me nt t h e ban k m an ag ed to s tre ng th en i t s m ar ket po si t ion to 14.1% (2020: 13.6%). Ma cro eco no mi c Sn ap sh ot a nd O u t loo k for S e rb ia s ee un d er K om ercijalna Ban ka, Beograd. Finan cial per for m ance T a bl e 19: Key p er fo rm a n ce in d ic at or s o f NL B B an ka , B eo g ra d (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 23,359 21,822 7.0% Net non-inter est income 6,954 4,812 44.5% T otal costs -22,170 -20,351 -8.9% Impairments and pr ovisions -3,202 -3,591 10.8% Result befor e tax 4,941 2,692 83.5% Result after tax 4,293 2,598 65.2% Financial position statement indicator s T otal assets 715,375 686,6 93 4.2% Net loans to customers 511,693 472,170 8.4% Gr oss loans to customers 520,518 482,552 7.9% Deposits fr om customers 449,476 496,288 -9.4% Equity 77,918 7 4,205 5.0% Ke y financial indicators T otal capital r atio 19.2% 19.1% 0.2 p.p. Net inter est margin 3.4% 3.4% 0.1 p.p. ROE a.t. 5.5% 3.5% 2.0 p.p. RO A a.t. 0.6% 0.4% 0.2 p.p. CIR 73.1% 7 6.4% -3.3 p.p. NPL v olume 9,489 8,718 8.8% NPL r atio ( internal def.: NPL/T otal loans) 1.5% 1.4% 0.1 p.p. Market shar e by t otal assets (ii) 1.6% 1.9% -0.2 p.p. LT D 113.8% 95.1% 18.7 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. (ii) Data for 2021 as at 30 September 2021. The b an k re ali se d a pro f it a f ter ta x in t he a mo un t of EUR 4.3m illi on (2020: EU R 2.6 mi llio n) an d prof i t be fore imp ai rm e nt s a nd p rovi si on s in t he a mo un t of EU R 8.1 mi llio n (2020: EUR 6.3 m ill ion). R OE a .t. was 5.5% (2020: 3.5%), w hi le CIR de cre as e d to 73.1% (2020: 7 6.4%). Th e res u lt wa s ma in ly dr iven by t he i nc re as e in b us in es s vo lu me . Th e tota l as s et s of th e b an k ros e by 4% , t h e ma in fa c to r be in g new lo an pro du c t ion . N PL ra ti o in cre as ed t o 1.5% (2020: 1.4%). Contrib ution t o NLB Group Fig u re 46: Contribution to NL B Group Re su l t b.t. 2% Ne t in t ere s t in co m e 6% 3% Ne t no n - in t er es t incom e 16 th larges t ban k in the co untr y . Banking services p rovi ded throug h: 28 br anche s 63 A T Ms 77 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C or porate banking A s a pa r t of th e in te gra t ion s tra te gy fo r Se r bia , la rge co mp any pro du c t ion h a s be en m oved fro m NLB B a nka, B e og rad t o Komerc ija ln a B an ka, B eo gra d, t o be ne fi t fr om t he l arg er capi tal b a se a nd l ower cos t of f un din g , wh ich f in a lly re s ul te d in th e de cl in e in overa ll gro s s lo an s (-1.4%) in NLB B anka , Be og rad . Th u s , th e co r por at e por t fol io was d r iven m ai nl y by pro du c t ion i n S ME s eg me nt, w hic h was o n a sa t is fa c t or y level . In ad dit io n , in t he in te gra t ion p roc es s i t ha s be en d eci de d to move co r por at e sa les f orce a nd p rod uc ti on co mp let el y to Kome rcij aln a B an ka, B e ogr ad a t th e be gin n in g of 2022 (in c lu din g th e m icr o an d agro s eg m en t s in ret ail ), w hi ch was on e of t he m aj or or gan is a ti on al in it ia ti ves im p ac tin g th e cor po ra te te am a t th e en d of 2021. Dep os it vo lu me s al so d ec lin ed d ur in g t he ye ar (-3.1%), dr iven o n on e si de by t he t ran s f er of l arg e cor p ora te s to Komerc ija ln a B an ka, B eo gra d, w hi le o n th e ot he r si de t he re was on e ad di tio n al m ajo r im pa c t co mi ng f rom a s y ne rgy ini ti at ive b et ween b ot h ba nk s e na bli ng N LB B an ka, B eo gra d to of fer l oan s a t hig he r pr ic in g com pa red t o th e co s t of dep os it s N LB B an ka, B eo gra d pa id on t h e ma r ket. Du e to t hi s , NLB B an ka, B eo gra d was i n th e po si t ion to g rad ua lly r el eas e expe ns i ve dep os it s , w hi ch re s ul ted i n a de cli ne o f de pos it volumes. Business pe r formanc e Retail banking Retail banking recorded doubl e- digit grow th in gross loans (22.3%), wh ile d epo s it s d ecl in ed by 13.8% co mp are d to 2020. Ret ail d ep os it s wer e ma in ly in EU R . In 2021, th e re tai l loa n po r t fo lio wa s do mi na te d by con s um er loa ns (62.4% of gros s r eta il lo an s), wh il e ho u si ng lo an s occ upi ed 36.1% o f gros s r eta il lo an s . T he re tai l lo an po r t f oli o is dr i ven by cas h l oan s (R S D) wit h s t ill a t tra c t ive in te res t rat es (b elow 7.6%). Th e in ter es t m ar gin o n cas h l oan s wa s hig h , bu t un de r si gni f ica nt p res s ur e com in g fro m com p et it ion a nd falling interes t rates in RS D and increa sing dinar is ation 12 in gen er al . In 2021, th e b an k pu t m ore ef for t s o n h ou si ng l oan s an d ach ieved a s ig ni fi can t 55% Y o Y gr ow t h in t hi s se gm en t, wh ere t h e ma rket i s ver y ac ti ve an d com pe ti ti ve wi th b an k s were of fer i ng in te res tin g pr od uc ts a t a t t ra c t ive p ri ces . Fig u re 47: 3-ye ar m a r ket s h ar e evo lu t io n (i) Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 2.0% 2.0% 2.0% 2.2% 1.9% 1.8% 1.8% 1.8% 1.6% 1.4% 1.9% 1.9% (i) Market shar e data for 2021 as at 30 September 2021. 12 Din ar i sa t io n – S tr at e gy o f Di n ar i s at io n o f th e S er b ia n Fi n an c ia l Sys te m as pe r M em or an d um , s i gn e d be t w ee n Na t io n al B a nk o f S er b ia (N B S) a n d th e Gov er n m en t of t h e R ep ub l ic o f Se r bi a , exp e c t ed t o be i m pl em e nt e d in 2022. 1.6% mar ket share in total as set s . EU R 4.9 mill ion resul t b.t. 78 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Macroeconomic Snapsho t In No r th M ace do nia , e con om ic grow th s l owed con s id erab ly in Q3 as t h e ba se e f f ec t fad ed . G row t h in p r ivat e con s um pt io n an d inves t m en t de cel era te d, w hi le t he ex ter n al s ec tor su pp or te d eco no mi c ac tiv it y. In Q4 2021, grow th in r eta il sa les e as ed a s in fl a tio n f ur th e r inc re as ed , at t h e sa m e tim e as in d us tr ial p rod uc ti on f ig ure s im pl y s tr on ger p r iva te s ec tor dynamics . Fig u re 48: GDP gr ow th, Inflati on, Unemployment 7.0 3.5 0.0 -3.5 -7.0 8.0 6.0 4.0 2.0 0.0 17.0 15.0 13.0 11.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook GD P sh o uld r eco rd a s oli d expa ns io n in 2022 on t h e ba ck of pr iva te co ns u mp tio n . Th is s h ou ld b e th e m ain g row t h dr ive r of th e f ir m in g dom e s ti c de ma nd , wh il e for eign d em an d sh o uld a ls o be s u ppo r ti ve of t he a c t iv it y. Pande mi c-r ela te d un cer ta in t y, high e ne rgy p r ices , and p rol on ge d dis r u pt ion of s up ply c h ain s rep re se nt t he m a in dow ns id e r is k s to th e ou t loo k . Econ om ic im pl ica ti on s of t he wa r in Uk ra in e rep res en t an a ddi ti on al dow ns i de r is k to t h e ou tl oo k . NL B B ank a, Sk opj e On i t s lo cal m ar ket, th e b an k is in t h e gro up of s y s te mi call y imp or t ant b an k s . T he p red om in an t s tr en gt h of t he b an k is th e ret ail s eg m ent. H owever , th e ba nk p rovid es a f ul l ran ge of f in an cia l se r vice s to re tai l an d cor p ora te c lie nt s . Hav in g a con ti nu ou s pr ogr es s in d igi tal izat ion , t h e ban k ac hi eved in 2021 gre at s u cce s s in t hi s fi el d, b ein g t he f ir s t ban k in the cou ntr y b y intro ducing e-identific ation, upgr ading, an d adj us tin g t he m Kl ik ap pli cat io n for v is u all y im pai red cli en t s an d by ope ni ng a n ew, compl et ely d igi tal b ran ch , of fer in g cas h le s s se r vice s . Th e p os it ion o f a m ar ket le ade r in ba nc as s ur an ce was o nce a ga in con f ir m ed by exp an di ng the offer , intro ducing v oluntar y priv ate health insurance an d a new un iq ue l ife i ns u ran ce pr od uc t in coo pe rat io n wi th par t n er in s ura nc e com pa ny. Bes ide s th is , th e ban k in t rod uce d as s et s m an ag em en t pro d uc t s for cl ien t s , t he s al e an d trading of shares and f unds for individu als and legal entit ies in co ope ra tio n wi th a n as s et m an a gem en t an d inve s t me nt ser vices com pany . Contrib ution t o NLB Group Fig u re 49: Contribution to NL B Group Re su l t b.t. 17% Ne t in t ere s t in co m e 13% 7% Ne t no n - in t er es t incom e 3 rd larges t ban k in the co untr y . Banking services p rovi ded throug h: 48 br anche s 170 A T Ms 79 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report provi s ion s an d hi gh er co lle c t ed w r it ten - of f rece ivab les . The t ota l as s et s o f th e ba nk ro se by 12% , wi th a 12% g row t h in g ros s lo an s to cu s to m er s , an d a 9% gr ow t h in de po si t s fr om c us t om er s . T he NPL ra t io am ou nt ed to 4.3% ( 2020: 5.1%). Business pe r formanc e Retail banking Ret ail b an ki ng re co rde d a si gni f ican t gr ow t h in gro s s lo an s (12%) s ubs tan ti all y over th e m ar ket ave rag e grow th , dr i ven by th e grow th in h o us in g lo an s ( 17.5%) and in t h e dep os it b as e (9% ). T he r eta il lo an p or t foli o was do mi na te d by con s um er loa ns (54.4% o f gros s r eta il lo an s), w hil e ho u si ng l oan s occ upi ed 37.5% o f gros s r eta il lo an s . T he in te res t ma rgin in th e re tai l se gm en t is s til l hig h , bu t un de r s t ron g pre s s ure fro m com pe ti ti on an d exp an s ive m on eta r y pol ic y. The key dr iver s o f in com e grow th we re do me s t ic an d fo reig n pa ym en t operati ons , ac count manage m ent , and ca rd oper ations. Fig u re 50: 3-ye ar m a r ket s h ar e evo lu t io n Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 20.5% 20.8% 21.6% 17.3% 16.0% 18.1% 14.4% 16.9% 14.9% 18.0% 14.2% 16.5% C or porate banking The u pward t ren d in t h e cor po ra te s eg me nt w hi ch s t ar te d in Ma y , r es ul te d in a 12% grow th i n gros s loan s a t th e 2021 YE . Cor po rat e dep os it s not ed a grow th o f 8% . The key dr ive r s of in com e gr ow t h were l on g- te r m loa ns , inves t m en t, loan s for working capital and the liquidit y needs of the companies , as wel l as d om es t ic a nd fo rei gn pa ym e nt o per at ion s a nd account managem ent. A s at 31 D ec em be r 2021, th e ba nk h a d a ma rket s h are o f 14.9% in cor p ora te g ros s l oan s . T he b an k in cre as e d th e po r t fo lio , es pe cia lly i n th e s egm e nt o f lon g -t er m f in an cin g to h igh - rat ed c lie nt s , w h o se cu red t h e lon g -t er m s t abi lit y of t h e por t fol io an d s t abl e reven ue g en era t ion . T he b an k app roved tota l of EUR 55 m il lio n in pro je c t f in an ci ng , o ut o f wh ich alm os t EU R 20 mi lli on was a pp roved so le ly fo r gre en e ne rgy inves t m en t s , wh il e als o p rovid in g sy n dica te d f in an cin g fo r severa l la rge c lie nt s . The b an k h as s uc ces s f u lly c on cl ud ed t he int er n at io na lly f in a nce d s yn di cat ed fa ci lit y for t h e s ho ppi ng ma ll in S kopje , op en ed an d op er at ion al s in ce O c t ob er 2021, as on e of t h e mo s t im po r tan t pr oje c t s f or t he b an k an d th e Gro up . Th e proj ec t tota lli ng EU R 72 mi llio n , was s up po r ted wi th p ar ti cip a tio n of f ive b an k s – th re e lo cal b an ks a n d t wo internationa l banks. Finan cial per for m ance T a bl e 20: Key pe r fo rm a n ce in d ic at or s o f NL B B an ka . S kop je (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 50,386 48,140 4.7% Net non-inter est income 18,043 14,518 24.3% T otal costs -28,619 -26,497 -8.0% Impairments and pr ovisions 3,244 -15,373 - Result befor e tax 43,054 20,788 107.1% Result after tax 39,000 19,222 102.9% Financial position statement indicator s T otal assets 1,770,587 1,585,652 11.7% Net loans to customers 1,084,075 956,931 13.3% Gr oss loans to customers 1,144,420 1,021,27 6 12.1% Deposits fr om customers 1,399,501 1,288,82 4 8.6% Equity 243,26 7 229,777 5.9% Ke y financial indicators T otal capital r atio 18.0% 15.7% 2.3 p.p. Net inter est margin 3.1% 3.3% -0.2 p.p. ROE a.t. 15.9% 8.8% 7.1 p.p. RO A a.t. 2.4% 1.3% 1.1 p.p. CIR 41.8% 42.3% -0.5 p.p. NPL v olume 59,728 63,177 -5.5% NPL r atio ( internal def.: NPL/T otal loans) 4.3% 5.1% -0.8 p.p. Market shar e by tot al assets 16.9% 16.5% 0.4 p.p. LT D 77.5% 7 4.2% 3.2 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. The b an k re ali se d a pro f it a f ter ta x in t he a mo un t of EU R 39.0 mil lio n (2020: EUR 19.2 m ill ion), a nd p rof i t bef ore i mp air m en t s an d provi s ion s in t h e am oun t of EU R 39.8 mi lli on (2020: EU R 36.2 mil lio n). Thi s ver y go od re s ul t in t he f ir s t pos t CO V ID -19 year ref le c te d in R OE a .t., w hic h in cr eas e d to 15.9% (2020: 8.8%), an d CIR , w hi ch de cr eas e d to 41.8% (2020: 42.3%). TCR inc rea se d to 18.0% (2020: 15.7%). The r es ul t was d ri ven m os t ly by re tai l le nd ing , pa ym en t se r vice s , an d ad di ti on all y by lower im pa ir m en t s an d 16.9% mar ket share in total as set s . EU R 43.1 mill ion resul t b.t. 80 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Macroeconomic Snapsho t In B iH , th e ec on omy exp an de d a t a so f t er p ace i n Q3 , par t ly du e to a le s s fa voura bl e ba se e f f ec t. Pri vat e con s um pt ion reco rde d t he l arg es t s lowd own in g row t h ra te am id r i si ng inflat ion. Higher grow th in public and capital spendin g prop el le d th e do me s t ic ec on omy. In Q4 , a f ur t he r r is e in con s um er p ri ces a nd p an de mi c-r el at ed re s tr i c t ion s f ur t h er weigh ed o n pr i vate c on s um pti on . Fig u re 51: GDP gr ow th, Inflati on , Unempl oyment 6.0 3.0 0.0 -3.0 -6.0 6.0 4.0 2.0 0.0 -2.0 16.0 14.0 12.0 10.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook The e co no my is exp ec te d to re cord a s o lid gr ow t h in 2022, su pp or te d by hig he r cap ita l an d pu bli c sp en di ng w hi le t he relaxation of rest ric tive pandemic-related measures at ho me a nd a bro ad s h oul d f ur t he r bo ls t er e con om ic ac ti vi t y . Pandemic-related uncer taint y, s lower recover y in expor t ma rket s, a nd p ol it ica l ten s ion s re pre se nt t h e down s ide r i s k s to th e ou t loo k . Ad di tio n al dow ns id e r is k to t he o u tl ook h a s ar is en du e to th e war i n Uk rai ne. NL B B ank a, Banja Lu k a The b an k in 2021 ce le bra te d it s 2 5 th annivers ar y. The pre dom in an t s t ren g th o f th e ba nk i s it s m ar ket p os it io n in th e cor p ora te a nd r eta il s egm en t s , a nd a ver y s tron g de po si t ba se . Th e ban k in tr od uce d new b an ki ng s ol u tio n s an d pro du c t s fo r cl ien t s la rge ly co nt r ib ut in g to a h igh s h are o f ne t no n -i nt ere s t in co me ( 37.7% of f ee an d co mm i s si on s in com e in net i ncome ). Contrib ution t o NLB Group Fig u re 52: Contribution to NL B Group Re su l t b.t. 7% Ne t in t ere s t in co m e 5% 5% Ne t no n - in t er es t incom e 2 nd larges t ban k in the R epublic of S rps ka. Banking services p rovi ded throug h: 47 br anche s 71 A T Ms 81 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report rel ea se d im pai r me nt s a nd p rovi s ion s as a r es ul t of s u cces s fu l NPL m an ag em en t. Net n on -in te res t inc om e rep res en t s 39.5% of tot al in co me , th e hi gh es t a mo ng N LB Gr oup b an k ing su bs idi ar ie s . Th e tot al a s se t s of t he b an k ros e by 16% , wit h a 9% grow th in n et l oan s to c u s to me r s , pre do mi na nt ly t o in div id ual s , an d a 20% gr ow t h in de po si t s fr om c us t om er s , res pe c t ive ly. The NP L rat io d ec rea s ed to 1.3% (2020: 2.3%). Business pe r formanc e Retail banking Ret ail b an ki ng re co rde d do ubl e dig it gr ow t h in gr os s lo an s (14%) an d de pos i t s (10%). Th e re tai l loa n po r t fo lio wa s dom in at ed by h ou s in g loa ns (51.9% o f gro s s ret ail lo an s), w hil e con s um er l oan s p ar ti cip a ted w it h 43.5% of g ros s re tai l lo an s . Grow th i n gros s r eta il lo an s was r eco rde d, m ai nl y du e to grow th in co n su m er lo an s (8%) and h ou s ing l oa ns ( 13%). Th e key dri ver s of i nco m e grow th were n ew lo an p rod uc tio n an d card operat ion s . The f oc us r em ain s in f u r th er gr ow t h of re tai l po r t fo lio, w it h sp ec ial e mp ha s is o n int ro du cin g ad di tio n al s er vic es fo r cu s to me r s , es p eci all y in t he f i eld o f dig ita li sa ti on . Fig u re 53: 3-ye ar m a r ket s h ar e evo lu t io n Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 20.1% 20.1% 20.4% 18.8% 16.4% 19.1% 14.8% 18.4%% 14.3% 13.8% 17.5% 18.6% C or porate banking Cor po rat e ba nk in g rec ord ed a grow th i n de pos it s (22%), as wel l as in g ros s l oan s to c or po ra te ( 3%). The p an de mi c si t ua ti on h ad a h ug e in fl ue nce i n red uc in g th e de m an d for inves t m en t s an d new p roj ec ts f or t he s ec on d year i n th e row , w hi ch al s o ef fec ted t he l oa n por t fol io in t hi s s egm e nt. The B a nk in g Age nc y of Rep ub lic o f Sr p s ka (BAR S) m ain tai ns reli ef s , m or ato r ium s , a nd g rac e per i od s for c lie nt s d ire c t ly an d in dire c t ly a f fec ted by t he n e ga ti ve ef f ec t s fro m th e pa nd em ic . Finan cial per for m ance T a bl e 21: Key pe r fo rm a n ce in d ic at or s o f NL B B an ka , B an ja L uka (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 20,087 18,589 8.1% Net non-inter est income 13,128 11,477 14.4% T otal costs -15,182 -13,87 4 -9.4% Impairments and pr ovisions 1,379 -5,009 - Result befor e tax 19,412 11,183 73.6% Result after tax 18,180 10,122 79.6% Financial position statement indicator s T otal assets 927,152 79 6,486 16.4% Net loans to customers 471,144 430,713 9.4% Gr oss loans to customers 488,672 450,708 8.4% Deposits fr om customers 759,915 633,507 20.0% Equity 97,149 99,872 -2.7% Ke y financial indicators T otal capital r atio 16.9% 17.3% -0.5 p.p. Net inter est margin 2.4% 2.5% -0.1 p.p. ROE a.t. 17.0% 10.8% 6.2 p.p. RO A a.t. 2.1% 1.3% 0.8 p.p. CIR 45.7% 46.1% -0.4 p.p. NPL v olume 9,371 13,703 -31.6% NPL r atio ( internal def.: NPL/T otal loans) 1.3% 2.3% -1.0 p.p. Market shar e by tot al assets 19.1% 18.6% 0.4 p.p. LT D 6 2.0% 68.0% -6.0 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. The b an k re ali se d a pro f it a f ter ta x in t he a mo un t of EU R 18.2 mil lio n (2020: EUR 10.1 m ill ion), a nd p rof i t be fore i mp air m en t s an d provi s ion s in t h e am oun t of EU R 18.0 mi lli on (2020: EU R 16.2 mil lio n). RO E a.t. wa s 17.0% (2020: 10.8%) and CI R drop pe d to 45.7% (2020: 46.1%). TCR also d rop pe d to 16.9% (2020: 17.3%). The m ai n dr iver s o f th e re su lt we re hi gh er in co me a nd 19.1% mar ket share in total as set s . EU R 19.4 mill ion resul t b.t. 82 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K om ercijalna B ank a , Ban ja Luk a The s al e pro ce s s of Kome rci jal na B a nka, B a nj a Luka was con cl ud ed o n 9De cem be r2021, t he refo re af te r th a t da te t he ban k was n o lo ng er p ar t of N LB G rou p. Un t il 9 D ece mb er 2021 Komerc ija ln a B an ka, B an ja Lu ka was pa r t of th e co re se gm en t, one o f th e s t an d - alo n e me mb er b an k s of t he G ro up, th ere fore t h e key per fo rm an ce i nd ica tor s o f th e b ank f or 2021 are re pre se nt ed in t h e tab le b el ow . T a bl e 22: Key pe r fo rm a n ce in d ic at or s o f Kom e rci j al na B a n ka, B a nj a Lu ka (i) in EUR thousand 2021 Ke y performance indicators Net inter est income 4,885 Net non-inter est income 1,655 T otal costs -5,393 Impairments and pr ovisions -607 Result befor e tax 540 Result after tax 495 (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. F or year 2020 compar able data are not av ailable. 83 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NL B B ank a, Sar aje v o The p re dom in an t s t ren g th o f th e ba nk i s in co ns u me r le nd in g and the dev elopment of innovativ e retail product s largely con tr ib u ti ng to a h ig h sh ar e of n et n on - in ter es t i nc om e (33% of fe e an d com m is s ion i nc om e in n et in co me). Im prov in g cu s to me r exp er ien ce wa s ac hieve d wi th t h e int ro du c t ion o f new di git al pr od uc ts a n d robo ti c pro ces s a u tom a tio n (RPA) solutions. Macroeconomic Snapsho t In B iH , th e ec on omy exp an de d a t a so f t er p ace i n Q3 , par t ly du e to a le s s fa voura bl e ba se e f f ec t. Pri vat e con s um pt ion reco rde d t he l arg es t s lowd own in g row t h ra te am id r i si ng inflat ion. Higher grow th in public and capital spendin g prop el le d th e do me s t ic ec on omy. In Q4 , a f ur t he r r is e in con s um er p ri ces a nd p an de mi c-r el at ed re s tr i c t ion s f ur t h er weigh ed o n pr i vate c on s um pti on . Fig u re 54: GDP gr ow th, Inflati on, Unemployment 6.0 3.0 0.0 -3.0 -6.0 6.0 4.0 2.0 0.0 -2.0 16.0 14.0 12.0 10.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook The e co no my is exp ec te d to re cord a s o lid gr ow t h in 2022, su pp or te d by hig he r cap ita l an d pu bli c sp en di ng w hi le relaxation of rest ric tive pandemic-related measures at ho me a nd a bro ad s h oul d f ur t he r bo ls t er e con om ic ac ti vi t y . Pandemic-related uncer taint y, s lower recover y in expor t ma rket s, a nd p ol it ica l ten s ion s re pre se nt t h e down s ide r i s k s to th e ou t loo k . Ad di tio n al dow ns id e r is k to t he o u tl ook h a s ar is en du e to th e war i n Uk rai ne. Contrib ution t o NLB Group Fig u re 55: Contribution to NL B Group Re su l t b.t. 4% Ne t in t ere s t in co m e 4% 4% Ne t no n - in t er es t incom e Banking services p rovi ded throug h: 36 br anche s 84 A T Ms 7 th larges t ban k in the Federation of B iH . 84 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 23: Key pe r fo rm a n ce in d ic at or s o f NL B B an ka . S ar aj evo (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 17,795 17,826 -0.2% Net non-inter est income 10,256 8,902 15.2% T otal costs -16,183 -15,113 -7.1% Impairments and pr ovisions -920 -5,063 81.8% Result befor e tax 10,948 6,552 67.1% Result after tax 10,012 5,895 69.8% Financial position statement indicator s T otal assets 727,860 647,150 12.5% Net loans to customers 452,977 399,146 13.5% Gr oss loans to customers 473,118 420,27 4 12.6% Deposits fr om customers 593,026 521,639 13.7% Equity 87,838 89,808 -2.2% Ke y financial indicators T otal capital r atio 16.9% 17.9% -1.1 p.p. Net inter est margin 2.8% 2.9% -0.2 p.p. ROE a.t. 10.7% 7.0% 3.7 p.p. RO A a.t. 1.5% 0.9% 0.6 p.p. CIR 57.7% 56.5% 1.1 p.p. NPL v olume 19,046 24,691 -22.9% NPL r atio ( internal def.: NPL/T otal loans) 3.1% 4.5% -1.4 p.p. Market shar e by tot al assets (ii) 5.4% 5.2% 0.2 p.p. LT D 7 6.4% 7 6.5% -0.1 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. (ii) Data for 2021 as at 30 September 2021. The b an k re ali se d a pro f it a f ter ta x in t he a mo un t of EU R 10.0 mil lio n (2020: EUR 5.9 m ill ion), a nd p rof i t be fore i mp air m en t s an d provi s ion s in t h e am oun t of EU R 11.9 m illi on (2020: EU R 11.6 mil lio n). Th e hig he r prof i t was t h e res ul t of h ig he r ne t no n - int ere s t in co me a nd r ele as e of i mp ai rm e nt s a nd p rovi si on s . RO E a.t. in cr ea se d to 10.7% (2020: 7.0%), an d CIR i nc re as ed to 57.7% (2020: 56.5%). Net in te res t inc om e was a t th e s am e level as in 2020, w hi le n et in te res t ma rgin d rop pe d to 2.8% (2020: 2.9%). Net n on - in te res t i nc om e was h igh er t h an pr evio us ye ar , ma in ly d ue to h igh er n et i nc om e fro m f in an cia l op era ti on s . The b an k in te ns if i ed ac ti vi ti es o n les s r i s k y pro d uc t s su ch a s tra de f in an ce a nd w it h go od re s ul t s com p en sa te d mi s s in g int ere s t in co me . TCR st oo d at 16.9% an d wa s above t he reg ul ato r y req ui red m in im um . T ota l as s et s o f th e b ank r os e by 12% , w it h 13% grow th i n ne t loa ns a n d 14% grow th in d ep os it s . The N PL ra t io de cre as ed t o 3.1% (2020: 4.5%). Business pe r formanc e Retail banking Ret ail b an ki ng re co rde d grow th in g ros s l oan s ( 12%) and dep os it s (8%). G row t h in gr os s re tai l loa ns wa s dr i ven by grow th of h o us in g an d con s um er l oa ns . Sign if i can t grow th of h ou si ng l oan s of 41% wa s t he re s ul t of in cr ea se d de ma nd , ma ny cam pa ign s an d in cr ea se d en gag em en t of e mp loyee s . The s h are o f h ou si ng l oan s in t ota l ret ail l oan s in cr ea se d by 4p.p. , to 20.5% . The a vera ge in te res t r at e in t he re tai l se gm en t is de cr ea si ng (2021: 5.73% ; 2020: 6.26%). The b an k co nt in ue d wi th a c t iv it ie s aim e d to in cre as e t he ac t ive n um b er of e - a n d m -b an k ing u s er s ; th e n um be r of ac t ive u s er s for e - and m -B a nk in 2021 i nc re as ed by 60% , an d th e n um ber o f tr an sa c t io ns by 72% . Fig u re 56: 3-ye ar m a r ket s h ar e evo lu t io n (i) Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 6.1% 6.3% 6.6% 5.3% 5.3% 5.1% 5.5% 5.4% 5.4% 5.0% 5.2% 5.2% (i) Ma r ket s h ar e da t a fo r 2021 as a t 30 S ep t em b er 2021. C or porate banking The c or po ra te b ank in g s egm en t re cor de d a grow th in g ros s loa ns ( 14%) an d dep os it s (9% ). Foc us wa s on i nc rea s ing t h e cli en t loa n po r t fo lio w it h ac qu is it io n of n ew cre dit wor t hy cli en t s . A ls o, a po si ti ve tre n d was in t h e volu m e of gu ara nt ee s por t fol io, m ain ly d u e to th e in t rod uc tio n of a n ew pro du c t ‘G uar ant ee L in e.’ Dep os it s from c or po ra tes i nc rea s ed . In D ece mb er , t he b an k int ro du ced a f ee fo r vi s ta d ep os it s ab ove EUR 0.3 m illi on fo r leg al en t it ie s , wi th t h e except ion o f th e gover n m en t an d pu bli c ent er pr i s es . T he a im was t o red uce t h e con ce nt ra tio n of a vista corporate deposits . 5.4% 13 mar ket share in total as set s . 13 D at a fo r 2021 a s at 30Se pt e mb er 2021. EU R 10.9 mill ion resul t b.t. 85 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NL B B ank a, Prishtina On i t s m ar ket, th e ba nk i s th e m ar ket le ad er an d h ad a bove avera ge gr ow t h in 2021. Th e p red om in ant s tre ng t h of t he b an k is in p rovi din g a f ull s pe c t r u m of f in an ci al s er vic es to r eta il an d cor po ra te c lien t s , a nd b ein g a m ar ket le ad er in i nn ovat io ns on t he l oca l ban k ing s e c to r . A no tic eab le b oo s t h as b ee n obs er ved i n e - ban k in g us ag e res ul t in g in an in c rea se d nu mb er o f e -b an k ing u s er s by 17.8% . Macroeconomic Snapsho t In Kosovo, th e p ace o f eco no mi c expa ns io n so f ten ed in Q 3, alt h ou gh i t rem ain e d s tr on g. T he d ece le rat io n ref le c t ed so f t er do m es t ic d em an d wi th p r iva te an d p ubl ic con s um pt io n inc re as in g at a s lowe r pac e. E xp or t s of g oo ds a nd s er v ice s prop el le d th e eco n omy in Q3 . I n Q4 , dom es tic d em an d se em s to h ave co ol ed am id r i si ng i nf la ti on an d fa llin g rem it tan ce s in fl ows . N ever th el es s , i n 2021 rem it ta nc es in fl ows largely surpass ed pre-pandem ic le vels , thus representing a con s ide rab le do m es t ic d em an d aid . D ias p ora in f lows we re in gen er al a s ign if ica nt d ri ver of t h e eco no mi c grow th , e sp ec ial ly when pandemic-related restric tive measures were ea sed. Fig u re 57: GDP gr ow th, Inflati on, Unemployment 12.0 6.0 0.0 -6.0 8.0 6.0 4.0 2.0 0.0 26.0 24.0 22.0 20.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook The e co no my sh o uld r eco rd a rob u s t al t ho ug h coo le d- down eco no mic g row th in 2022 d ue t o th e lower b as e ef fe c t. Fi r min g capital expenditure grow th and a tighter labour mar ket are se en s up po r tin g ac ti vi t y, as si s t ed by th e b en ef ic ial e f fe c t o f health ier extern al backdrop. Pandem ic-related uncer taint y an d lin ge ri ng p oli t ical u nc er tai nt y are d own s ide r i sk s t o th e ou t loo k . Th e war i n Uk rain e an d i t s overal l eco no mi c imp lic at io n rep res en t s ad di tio n al dow ns id e r is k s to t he outlook. Contrib ution t o NLB Group Fig u re 58: Contribution to NL B Group Re su l t b.t. 10% Ne t in t ere s t in co m e 9% 3% Ne t no n - in t er es t incom e Banking services p rovi ded throug h: 33 br anche s 99 A T Ms 2 nd larges t ban k in the co untr y . 86 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 24: Key pe r f or m a nc e in d ica t or s o f NL B B an ka , Pr i sh t in a (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 34,459 32,286 6.7% Net non-inter est income 7,37 4 6,392 15.4% T otal costs -13,546 -12,289 -10.2% Impairments and pr ovisions -1,064 -11,345 90.6% Result befor e tax 27,223 15,044 81.0% Result after tax 24,436 13,334 83.3% Financial position statement indicator s T otal assets 930,545 879,064 5.9% Net loans to customers 634,529 559,223 13.5% Gr oss loans to customers 672,37 6 596,07 6 12.8% Deposits fr om customers 798,790 7 48,315 6.7% Equity 98,856 98,335 0.5% Ke y financial indicators T otal capital r atio 17.3% 17.8% -0.5 p.p. Net inter est margin 3.8% 3.9% -0.1 p.p. ROE a.t. 22.4% 14.5% 8.0 p.p. RO A a.t. 2.7% 1.6% 1.1 p.p. CIR 32.4% 31.8% 0.6 p.p. NPL v olume 15,614 17,519 -10.9% NPL r atio ( internal def.: NPL/T otal loans) 1.9% 2.3% -0.3 p.p. Market shar e by tot al assets 16.3% 17.2% -0.9 p.p. LT D 79.4% 7 4.7% 4.7 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. The finan cial result of the ban k remained solid , altho ugh inf l uen ce d by COVID -19. T he n et p rof i t am ou nte d to EU R 24.4 millio n (2020: EUR 13.3 m il lio n), wh ile t h e pro fi t be for e imp ai rm e nt s a nd p rovi si on s in cre as ed t o EUR 28.3 m ill ion (2020: EUR 26.4 m ill ion). R OE a .t. was 22.4% (2020: 14.5%), w hil e CIR m ini ma lly i nc rea s ed to 32.4% ( 2020: 31.8%). T C R de cre as ed to 17.3% (2020: 17.8%) due t o div id en d pa you t. Th e res u lt wa s ma in ly dr i ven by th e in cre as e of t h e bu s in es s vol um es . Th e tota l as s et s o f th e b ank r os e by 6% , t he m ai n fac tor s we re th e am ou nt o f ne t lo an s to c us t om er s an d d epo si t s f rom cu s to me r s . Th e NP L rat io d ec rea se d to 1.9% (2020: 2.3%). Business pe r formanc e Retail banking In 2021, th e b an k reco rde d grow th i n gros s l oa ns ( 17%) an d dep os it s ( 12%). Th e ret ail l oa n por t fol io was d om in at ed by ho us in g lo an s ( 70.7% of g ros s re tai l lo an s), wh ile c on s um er loa ns o cc upi ed 26.3% o f gros s r eta il lo an s . G row th in g ros s reta il lo an s was r eco rde d, m ai nl y du e to t he i nc re as ed vol um e of h ou si ng l oan s (21% g row t h). Th e key dr iver s o f in com e grow th were h o us in g lo an s . The g row th in re tai l was m ai nl y dr iven by s evera l par t n er s hip agre em en t s w it h con s t r uc ti on an d t rad e com p ani es to f i na nce it s pr od uc ts . New m - K lik fe at u res we re al so i nt ro du ced . Fig u re 59: 3-ye ar m a r ket s h ar e evo lu t io n Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 19.5% 19.0% 18.5% 18.0% 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 18.8% 18.9% 18.7% 18.3% 17.9% 17.6% 16.9% 16.7% 16.3% 17.2% 17.5% 17.4% C or porate banking Cor po rat e ba nk in g rec ord ed grow th i n gros s loa ns ( 10%), wh ich wa s ma in ly d ue to t h e cro s s -s ell in g of pr od uc ts t h rou gh exis tin g cor p ora te c lie nt s t arg et in g new re tai l an d S ME c lie nt s as wel l. A d is co ura gin g app roa ch o n de pos it s was ref le c t ed in a 7% de cre as e co mp are d to 2020 YE . T he key dr ive r s of inc om e grow th wer e lo an s for f ixe d as s et s a nd over dra f ts . The b an k of fer ed fa s t, s afe , an d rel iab le exec u tio n of pa ym en t s , an d co mp et it ive p ri cin g le d to an i nc rea s ed nu mb er o f pa ym en t s con t r ibu t in g to th e n on - in te res t inc om e grow th . Coo pe rat io n on t he G ro up l evel res u lt ed in t h e fi na nc in g of t he c on s t r uc tio n of a m ajo r lo call y re cog ni se d proj ec t con tr ib u ti ng l arg ely t o cl ean e ne rg y pro du c t ion f rom ren ewab l e so u rce s . 16.3% mar ket share in total as set s . EU R 27.2 mill ion resul t b.t. 87 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB Ban k a, Podgorica On 12 N ovemb er 2021, t he m e rge r of NLB B a nka , Pod gor i ca an d Komerc ij aln a B an ka, Po dgo r ica wa s com pl ete d an d t he ban k co nt in ue s to op er at e un der t h e fra nc hi s e of NLB B a nka , Pod gor ic a. O n i t s loc al m ar ket, th e ba nk i s ca te gor i se d as o ne of th e s y s te mic all y im por t an t ban k s . T he m er ge d ban k (NLB Ba nka , Pod gor i ca) is th e s eco nd l arg es t fi na nc ial i ns tit u t ion in Mo nt en eg ro. A s t he f i r s t po si t ive ef fec t of t he m er ger , N LB Kli k , web an d e - ba nk in g ap p are of fer i ng n ew an d up gra ded func tionalit ies to the clients . The p re dom in an t s t ren g th o f th e ba nk i s s een i n th e s egm en t of ret ail h o us in g an d con s um er l oa ns , wh ere t he b an k is a n imp or t ant p la yer on t h e lo cal m ar ket. I t ach ieved t h e hig he s t ho us in g lo an s grow th i n 202 1 amo ng s t a ll ba nk in g me mb er s . The year w a s marked by sev eral campaigns promot ing digital ch an ne ls , w it h a fo cu s on ca rds , pac kage s , an d NLB P ay. Al so, ex pan d ing t h e nu mb er o f pa r tn er s , t h e ‘N LB Loa n on th e s pot ’ ca mp aig n con ti n ued . A f t er im pl em en t in g th e new pa ym en t se r vice S WI F T G PI , th e b an k be cam e th e on l y ban k in Mo nt en eg ro con n ec ted to t h e SW IF T G PI p la t f or m wi t h th e aim of i mp rovi ng S WIF T pay m en t s for b ot h ba nk s an d c lie nt s , providing faster implementa tion, tran sparenc y of transac t ion cost s , and real-t ime trans ac tion s tatus inf ormation. Macroeconomic Snapsho t In Mo nt en eg ro, th e e con omy a ccel era te d in Q3 d ue t o rob us t pub li c con s um pt ion a nd s u rgin g exp or t grow th a s t he t our i s m se c to r far ed wel l. I n Q4 , i nd u s t ri al o ut p ut gr ow t h ga in ed s om e s te am , wh il e th e to ur i sm s ec tor c on tin u ed to r eco rd s t ron g inc re as es i n ar r ival s . R is in g inf l at ion r es ul te d in ea s ed re tai l sales . Fig u re 60: GDP gr ow th, Inflati on , Unempl oyment 16.0 8.0 0.0 -8.0 -16.0 6.0 4.0 2.0 0.0 -2.0 18.0 16.0 14.0 12.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 GDP (r eal gr owth in %) A ver age inflation ( in %) Unemployment r ate (in %) Ou tlook The e co no mic g row th is ex pe c t ed to e as e in 2022 d ue t o a fad ing b as e ef fe c t. Fur th er gr ow t h in t he t ou ri s m se c t or s ho ul d prop el t h e eco no my to re cover towar ds t he p re - pa n dem ic level w it h th e ea s in g of pa nd em ic- re la ted r es t r ic tio ns a ls o su pp or t ing d om es tic a nd fo rei gn de ma n d. T he key down s id e ri s k to t he o ut lo ok i s rel at ed t o th e pa nd em ic- u nce r tai nt y an d it s ef fe c t o n th e to ur is m s ec tor d ue t o Mo nt en egr i n eco no my ’s con s ide rab le de pe nd en ce o n th is s ec tor o f th e ec on omy. The war in U kra in e ha s em er ged a s an a ddi t ion al n eg at ive r i sk t o the outloo k . Contrib ution t o NLB Group Fig u re 61: Contribution to NL B Group Re su l t b.t. 4% Ne t in t ere s t in co m e 5% 2% Ne t no n - in t er es t incom e 2 nd larges t ban k in the co untr y . Banking services p rovi ded throug h: 22 br anche s 65 A T Ms 88 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 25: Key pe r fo rm a n ce in d ic at or s o f NL B B an ka , Po dg o ri ca (i) in EUR thousand 2021 2020 Change Y oY Ke y performance indicators Net inter est income 21,953 20,598 6.6% Net non-inter est income 6,161 3,7 41 64.7% T otal costs -17,351 -13,6 22 -27.4% Impairments and pr ovisions 613 -8,887 - Result befor e tax 11,376 1,830 - Result after tax 10,050 1,387 - Financial position statement indicator s T otal assets 751,351 537,6 29 39.8% Net loans to customers 491,579 367,168 33.9% Gr oss loans to customers 514,308 386,525 33.1% Deposits fr om customers 609,792 431,657 41.3% Equity 92,643 68,556 35.1% Ke y financial indicators T otal capital r atio 16.3% 16.2% 0.1 p.p. Net inter est margin 4.0% 4.1% -0.1 p.p. ROE a.t. 13.1% 2.0% 11.1 p.p. RO A a.t. 1.7% 0.3% 1.4 p.p. CIR 61.7% 56.0% 5.7 p.p. NPL v olume 42,166 27,280 54.6% NPL r atio ( internal def.: NPL/T otal loans) 7.0% 5.8% 1.2 p.p. Market shar e by tot al assets 14.1% 11.7% 2.4 p.p. LT D 80.6% 85.1% -4.4 p.p. (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. The b an k re ali se d pro f it a f ter ta x in t he a mo un t of EU R 10.1 mil lio n (2020: EUR 1.4 m ill ion) an d pr of it b efo re im pa ir m en t s an d provi s ion s in t h e am oun t of EU R 10.8 mi lli on (2020: EU R 10.7 mil lio n). Comp ar ed to p revi ou s year , p os it ive d evelop m en t is v is ibl e in t he s e gm en t of n et im pa ir m en t s an d prov is ion s cos t. R OE a .t. in cre as ed t o 13.1% (2020: 2.0%), wh il e CIR inc re as ed to 61.7% ( 2020: 56.0%). TCR was sli ght ly h ig he r com pa red t o la s t year a nd r ea ch ed 16 . 3% (2020: 16.2%). Ther es ul t was d r iven by t he d ou bl e - di git g row t h of t h e loa n por t fol io to in d ivi du al s bei ng t h e ma in n et in te res t inco m e dr iver . T he to tal a s s et s in cr ea se d by 40% , m ai nl y du e to me rge r . In 2021, m ain ly d ue t o th e m erg er , t he b an k in cre as ed th e vol um e of n ew NPL . The N PL ra ti o in cre as ed t o 7.0% (2020:5.8%). Business pe r formanc e Retail banking Ret ail b an ki ng re co rde d grow th in g ros s l oan s ( 30%) and dep os it s (41%) main l y du e to m erg er ef fe c t, an d th e p os it ive ef f ec t of t he to ur i s t s ea so n in J ul y an d Au gu s t. A m ajo r pa r t of th e ret ail l oan p or t fol io was d om in at ed by h ou s ing l oa ns (60% of gro s s ret ail l oan s), w hi le co ns u me r lo an s occ up ied 40% o f gros s r eta il lo an s . G row th in g ros s re tai l loa ns wa s re cord ed ma in ly by in cre as e in h o us in g lo an s vol um e by 36% , w he rea s con s um er l oan s gr ew by 23% , b oos ted by t he m e rge r an d Q4 campaign period . The b an k exp an de d it s o f f er to c it izen s by la un ch ing t h e ban ca s s ura nce p rod uc t, th us e n abl in g th e cl ien t s to b uy online quickly , easily , cheaply , and completely s afely , accident an d prop er t y in s ura nc e pol ici es . T he b an k of fere d a ca sh l oa n to in di vid ua ls in t h e ma xi mu m am ou nt o f EUR 25,000 fo r up to 10 year s an d in t h is way o f f ere d th e m ar ket a ca s h loa n wi th th e la rge s t am o unt a n d th e lo ng es t r epa ym en t p er io d. I n a join t pr oje c t, t he b an k an d Ma s t erca rd prov ide d th e f ir s t sel f- ser v ice payment termin al in Montenegro. Fig u re 62: 3-ye ar m ar ke t s h are e vol u t io n Market shar e by tot al assets Market shar e in loans to c orporate Market shar e in loans to individuals Market shar e in deposits fr om customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 2019 31 Dec 2020 31 Dec 2021 16.9% 18.1% 22.9% 11.9% 12.6% 8.3% 14.5% 14.1% 11.9% 8.7% 11.7% 12.8% C or porate banking Cor po rat e ba nk in g se gm en t rec ord ed g row t h in gr os s loa ns (42%) and d epo si t s ( 36%) due t o me rge r ef fec t. The loa n po r t fo lio p red om in an tl y con s is ted o f lar ge co rp ora te s por t fol io, w hic h in cre as e d by 40% Y o Y . Th e grow th i n gros s loa ns wa s re cord ed m ai nl y du e to m erg er e f fe c t a n d an inc re as e of S M E loa n s an d us ed overd ra f t s by 47% . Th e inc re as e in overa ll in te res t i nc om e in co r por at e se gm en t com es f rom i nc rea s e in vol um es . Du r ing 2021, a c re dit l in e fro m th e EBR D wa s la un ch ed fo r th e pur p os e of im p lem e nt in g th e pro je c t ‘ W o m en in B u s ine s s’ ( W iB) , wh ich a im s to s up por t wo me n in b us in es s a nd t h eir business. 14.1% mar ket share in total as set s . EU R 11.4 mill ion resul t b.t. 89 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K om ercijalna B ank a , Podgorica On 12 N ovemb er 2021, t he m e rge r of Kome rci jal na B a nka, Pod gor ic a wi th N LB B an ka, Po dgo r ica was c om pl ete d. U n til 12 Novem ber 2021 Kom erc ija ln a B an ka, Po dgo r ica was p ar t o f th e cor e se gm en t, on e of t he s t an da lon e m em be r ba nk s of t h e Gro up, s o, t he key pe r for m an ce in dic at or s of t h e ban k fo r 2021 are re pre se nt ed in t h e be low ta ble . T a bl e 26: Key per for mance indicators of K omercijalna Banka, Podgorica (i) in EUR thousand 2021 Ke y performance indicators Net inter est income 5,306 Net non-inter est income 537 T otal costs -6,049 Impairments and pr ovisions -5,658 Result befor e tax -5,864 Result after tax -5,7 61 (i) Data on a stand-alone basis as included in the consolidated financial st atements of the Gr oup. F or year 2020 compar able data are not av ailable. W e ar e alw ays av ailable. Gr eat-gr andmothers paid with c ash. Gr andmothers paid with cheques. Mothers pay digitally. What will the ne xt gener ation c ome up with? In or der to k eep up with the ever faster global changes, w e develop solutions with the same featur es as the modern world: the y are f ast, ef ficient, handy and smart. With innovativ e digital solutions, we ensur e that all banking services ar e available anyplac e, anytime, while at the same time we use adv anced safety technology t o help prot ect privacy. 91 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The segm ent i s focus ed on th e Group’ s ac tivities o n inter na tional f inan cial mar kets , inclu ding treas ur y operations . I n the challen ging environmen t of low interes t rates on finan cial ma rkets , contin uou s focus was on pruden t liquidit y reser ves managemen t. Financial Mark e ts in Slo v enia Contrib ution t o NLB Group Fig u re 63: Contribution to NL B Group Finan cial per for m ance T a bl e 27: Pe r for m a nc e of t h e F in an c ia l Ma r ket s i n S lov en ia s e gm e nt in EUR million consolidated 2021 2020 Change Y oY Net inter est income 26.4 23.5 2.9 12% o/w ALM (i) 17.1 16.5 0.6 4% Net non-inter est income -2.3 16.2 -18.4 - T otal net operating inc ome 24.1 39.6 -15.5 -39% T otal costs -8.6 -7.6 -1.0 -14% Result befor e impairments and pr ovisions 15.5 32.0 -16.6 -52% lmpairrr ents and pro visions 0.3 -1.3 1.6 - Result befor e tax 15.8 30.8 -15.0 -49% 31 Dec 2021 31 Dec 2020 Change Y oY Balances with Centr al banks 2,982.2 1,998.1 984.2 49% Banking book securities 2,977.5 2,9 45.8 31.7 1% Inter est rat e on banking book securities 0.68% 0.77% -0.09 p.p. Wholesale funding 873.5 143.5 730.0 - Inter est rat e on wholesale funding -0.46% 0.54% -1.00 p.p. Subor dinated liabilities 288.5 288.3 0.2 0% Inter est rat e on subordinated liabilities 3.70% 3.64% 0.06 p.p. (i) Net inter est income fr om assets and liabilities with the use of F TP . Net in terest i ncome Net i nt ere s t in com e wa s EUR 2.9 m ill ion ( 12%) high e r Y o Y , mo s tl y d ue to t he c h an ged F TP pol ic y w hic h pa r ti all y tra ns fer red t h e cos ts o f pl aci ng t h e exces s li qui di t y f rom tre as u r y to th e ret ail a nd c or po ra te s egm e nt s to d e - s ti m ula te th e de pos i t coll ec ti on . O t he r wis e, t h e reven ue s fro m tre as u r y ac t iv it ie s were Y o Y l ower d ue to s ig nif i can tl y lower reinve s t me nt y iel ds o f ba nk in g bo ok s ec ur i tie s an d exces s liq uid it y , a dd it ion al ly re fl ec ted i n th e ne ga t ive ef fec t fro m hig he r pl acem e nt s w it h th e CB a t n ega t ive in te res t rate s . Re su l t b.t. 6% Ne t in t ere s t in co m e 6% Net no n -in teres t income Lower ne t no n - int ere s t in co me , EUR 18.4 m ill ion Y oY , d ue t o th e on e - of f ef fec t fro m th e s ale o f deb t se c ur it ie s , wh ich p os it i vely imp ac te d per fo r ma nc e in 2020. As se ts in crease m ost ly of f se t by wholesale funding Inc re as e in b ala nce s wi t h CB s (EUR 984.2 m illi on Y o Y ) mo s t ly du e to in cre as e in w h ole s ale f u nd ing by EU R 730.0 mi llio n der i ved fr om pa r ti cip at io n in t he ECB‘ s liq uid it y prov idi ng ope ra tio n TL TRO - III (EUR 750 m il lion). B a nk in g bo ok s ec ur it ie s reg is t ere d a mi no r in cre as e by EUR 31.7 m ill ion o r 1% . 92 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Business pe r formanc e The Group ’ s ALM F ocus The p ur p os e of t he G ro up A L M pro ces s i s to s t ra te gica lly ma na ge t he G ro up’s bala nc e sh e et wi th r es pe c t t o th e int ere s t ra te, c ur r en c y , a nd l iq uid it y r is k con s id er in g th e ma cro eco no mi c env iron m en t an d f in an cia l ma r ket s dev elopm ent. Organisa tion Mo ni tor in g an d m an ag em en t of t he G ro up’s expos ur e to ma rket r i s k is d ece nt ral is ed . Un if or m gu id eli ne s an d lim it s for e ach t yp e of r i sk a re s et fo r in div id ua l Gro up m em b er . The exposure of an individual Group mem ber is regularl y mo ni tore d an d re por t ed to t h e Gr oup A LCO . Balance she et managem ent F ro m th e in te res t rat e r is k pe r sp ec ti ve, th e s ur p lu s liq ui dit y pos it io n of t he G ro up co nt r ib ut ed t o fu r th er g row t h of f i xed int ere s t ra te l oan s , m os tly h o us in g lo an s , an d inve s tm e nt s in hi gh q ual it y deb t se c ur it ie s . In t er ms o f f un din g , th e n on - ban k ing s e c to r de pos i t s con ti n ued t o in cre as e in t h e for m of s igh t dep os it s and s a vin gs a cco un t s , p ar tl y as a r es ul t of th e in c rea se d pro pe ns i t y t o sa ve du e to t he COVID -19 pan d emi c . Th e G rou p m an age s it s p os it io ns a nd s tabi lis e s it s in te res t mar gin by a c t ivel y ad ju s t ing p r ici ng p oli c y an d by ch arg ing m a int en an ce fe es , w h ere as fo r m an agin g in te res t rat e r is k exp os ure t h e Gro up ke eps o u t s ta nd in g pla in van ill a derivatives. Active profitabilit y management has been su pp or te d by a hig hl y di sc ipl in ed de po si t pr ic in g po lic y, en abl in g th e res p on se t o a ver y com p eti t ive lo an m ar ket al l over th e G rou p’s st rat eg ic m ar ket s . The G ro up’s F X ri s k is m ea s ure d an d m an age d wi t h th e us e of a com bi na t ion o f a se ns i ti vi t y a na ly si s , VaR , an d s tr es s t es t sce na r ios . In ter m s of t h e liq uid it y r is k m an ag em en t, eac h Gro up m em b er i s res po ns ib le f or en s ur in g ad eq ua te l iq uid it y via the neces sar y sources of funding and th eir appropriate diversif ication , and for managing liquid as set s and ful filling the requirem ent s of regulations governing liquidit y . Liquidit y manag emen t F ocus The G ro up’s liq uid it y ma na ge me nt fo c us es o n en s ur in g a suf ficient level of liquidit y reser ves to set t le all due liabilities, minimi sing th e cost of main taining liq uidit y an d optimis ing the s tr uc t ure of liquidit y reser ves. T o ensure an appropriate level of l iq uid it y for d if fere nt s i tu a tio ns , em erg en cie s an d cr i si s con di tio n s are an t ici pa te d an d th ere for e des c ri be d in t he liquidit y cont ingenc y plan . Organisa tion Liq uid it y m an age m en t in th e G ro up is d ec en tra lis e d. Eac h Gro up m em b er m an ag es it s own liq ui dit y on o pe ra tio na l an d s tr at egi c level s , wh il e Fin an ci al M ar ket s in S loven ia m an ag e liquidit y of the B ank . Finland Austria Netherlands Germany Belgium F ranc e N. Macedonia Slov enia Serbia Other 0% 5% 10% 15% 20% 25% 30% 3% 3% 4% 4% 4% 7% 7% 13% 24% 30% Corpor ate Subodrinated debt Agency GGB Cov ered bond Senior Unsecur ed Gov ernment sec. 0% 10% 20% 30% 40% 50% 60% 70% 80% 7% 10% 77% 0% 1% 2% 3% Fig u re 64: B an k in g bo o k se c ur i t ie s po r t fo l io of N LB G r ou p by a s se t c la s s an d g e og ra ph ic al s t r u c t u re a s a t 31 De ce m be r 2021 77% gov er nm ent s ecur it ies in the G roup’ s banking book por t folio . Geogr aphical structur e Asset class distribution 93 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Liquid as se ts For set t lin g du e li abil it ie s , th e G rou p us es i t s li qu id as s e t s , wh ich a re com pr i se d of l iq uid it y res er ves (s ee t he s ub ch ap ter Liquidit y Position in th e ch ap te r Over view of Financial Per form ance ) an d ot he r liq ui d as s et s . T he l at te r in cl ud es fu nd s h eld o n acc ou nt s w it h ot he r ba nk s a nd m on ey m ar ket pla cem en t s w hic h are a cco rdin g to LCR calc ul at io n tr ea ted a s inf low s . Li kewis e, li qu id as set s a re m an age d by ea ch G ro up me mb er o n it s ow n . Banking book securities por t folio At year-en d , th e ba nk in g bo ok d ebt s ec ur i ti es p or t foli o con s t it u te d 23.7% of t he G ro up’s total a s s et s . T he p ur po s e of th e b an kin g b ook s e cu ri ti es i s to pr ovid e liq uid it y, along wi th s t abi lis a ti on of t h e in tere s t m ar gin , an d in te res t rat e ri s k ma na ge me nt. Th e p or t foli o is wel l dive r si f ied f rom t h e geo gra ph ical , a s se t cl as s an d m a tu r it y pro f ile p er s pe c t ive . F ro m 2020, th e G ro up t ur n ed i t s at te nt io n to t he n ew an d fa s t- develo pin g m ar ket of E SG b on d s . Cur re nt ly, the se b on d s ha ve a sm al l sh ar e in th e w ho le p or t foli o (EUR 106.2 m illi on), b ut i t is expe c t ed to g row in t he f u t ure . in EUR million  2022 2023-2024 2025-2026 2027+ T otal Domestic securities (the Gr oup strategic mark ets) 489.3 77 4.4 7 41.9 498.2 2,503.8 - Slov enia 53.3 100.7 172.4 329.4 655.9 - Other SEE 435.9 673.7 569.5 168.8 1,847.9 International securities 498.8 706.3 541.4 810.1 2,556.5 T otal 988.0 1,480.7 1,283.3 1,308.3 5,060.3 3.5 y ear s average mat uri t y of the G roup’ s bank ing book securities por t folio. Charact eris tic s o f bankin g book secur it ies por t fol io The a vera ge m a tu r it y of b an kin g b ook s e cu ri ti es i s app roxim a tel y 3.5 year s a s a t year - e n d. The a vera ge y iel d ac hieve d in 2021 on t h e Gro up’s ban ki ng boo k s ec ur it ie s po r t fo lio wa s 0.68% (2020: 0.77%). Wholesale fundin g Purpose Wh ol es ale f u nd in g ac tiv it ie s in t he G ro up ar e con du c t ed w it h th e aim o f ac hiev in g dive r si f ica tio n , im prov in g s tr uc t u ral liquidit y an d capital position , and fulf illing regulator y req uir em en t s , es p ec iall y en s ur in g co mp lia nce w it h t he M R EL require men t. The B a nk wa s no t ac tive o n th e wh o les al e m ar ket in 2021, b ut ha s in s te ad o pt im ized it s l on g -te r m f un din g s t r uc t ure w it h th e rep ay me nt o f cer ta in c red it li ne s . T a bl e 28: M at u r it y pr of i le o f NL B G ro up’s b an k in g bo o k se c ur i t ie s as a t 31D ec em b er 2021 94 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Finan cial per for m ance T a bl e 29: R es u lt s o f t he N o n - Co re M e mb e r s se g me n t in EUR million consolidated 2021 2020 Change Y oY Net inter est income 1.3 1.2 0.1 11% Net non-inter est income 5.9 4.2 1.6 39% T otal net operating inc ome 7.2 5.4 1.8 33% T otal costs -11.4 -12.9 1.5 12% Result befor e impairments and pr ovisions -4.1 -7.4 3.3 44% lmpairrr ents and pro visions 5.4 2.9 2.5 89% Result befor e tax 1.3 -4.6 5.8 - 31 Dec 2021 31 Dec 2020 Change Y oY Segment assets 95.9 131.2 -35.3 -27% Net loans to customers 24.3 45.0 -20.7 -46% Gr oss loans to customers 53.9 95.0 -41.1 -43% Investment pr operty and pr operty & equipment r eceived for r epayment of loans 65.6 70.2 -4.6 -7% Other assets 6.0 16.0 -10.0 -63% Non-performing loans (gr oss) 45.0 71.3 -26.3 -37% Resul t bef ore tax The s e gm en t rec ord ed EUR 1.3 mil lio n pro fi t be for e tax . T he hig he r ne t no n - int ere s t in co me wa s ac hi eved als o d ue to t h e pos it i ve ef f ec t at tr ib u tab le t o th e se gm en t f rom t he s et t lem en t of a le gal d is p ut e (EUR 0.4 m illi on). T otal asset s decreased A dec re as e of t he t ota l as s et s o f th e s egm en t Y o Y (EU R 35.3 mil lio n) was in li ne w it h th e di ves t m en t s t rat eg y of t he n on - core segm ent. The Non - Core Members s egmen t inc ludes the operations of non - core G roup member s . The main obje c tive in the Non - Core segment remains a rigorous wind- down of all non- core por t folios and t he cons eque nt reduc t ion of cost s . The im plemen ta tion of th e wind - down has bee n purs ued wi th a variet y o f meas ures , including th e sales of por t folios, sales of non - core entities , sal es of individ ual as set s , th e collec tion or res tr uc t uring o f individua l ass et s , and ac tive manag emen t of real- est ate a sse t s. Non - C or e Mem bers EU R 41.1 million reduc tion of gross lo ans to cus tom er s in 2021. 95 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Business pe r formanc e The wind - down of the N on - Cor e segm ent in 2021 in clude d: • Dive s t me nt o f no n - co re G rou p m em ber s • Sale o f the Bank’s equit y participations • Act ive management of real- es tate as set s Div es t men t of n on - cor e Group mem ber s Liquida tion process A liq uid at io n pro ces s wa s in it ia te d in all n on - core l ea s ing and trade fin ance subs idiaries and som e real esta te subs idiaries . In 202 1, the liquida tion process es of BH- R E d.o.o. Sa rajevo an d Pr v i fak tor d .o.o . Sa rajevo wer e com pl et ed , an d th e com p ani es wer e de let ed f rom t he c ou r t reg is t er . Th e dive s tm e nt p roce s s h as b ee n r un ni ng w it h th o ugh t fu l cos t management and well-es tablished collec tion procedures. Decrease of non - core por t folio New b us in es s h as b ee n s us p en de d in all n on - core G ro up me mb er s w hic h are i n th e pr oce s s of b ein g wou nd - d own . T he decrease of the cum ulat ive non- core subs idiaries’ por t folio rem ain s o ng oin g th ro ugh r eg ula r rep ay m en t s an d col lec ti on mea sure s . Sale of N LB’ s eq uit y par ticipa tions Numb ers At th e 2021 YE , t h e overall a s s et vol um e of e qu it y pa r tic ip at ion s is a t EUR 0.20 m ill ion (2020: EU R 0.28 mi lli on). EU R 25.1 million the total s ales value of real- e s tate transac tions executed or s uppor ted by the real- e s tate team in 2021. Active managem ent of real esta te assets Divestm en t process The d ives tm en t pro ce s s of s t ill r em ain in g NPL ex po su res a t t he Ba nk o r at t h e no n - co re s ub si dia ri es’ l evel is b ei ng fa cil it at ed th rou gh a s pe ci ali se d te am fo r rep os s es s in g , ma na gin g , an d dive s ti ng co ll at eral r eal e s t ate . Re al es tat e exp er ti s e an d se r vice s are o f f ere d to th e G ro up m em be r s as s is tin g th em i n imp le me nt at io n of t he m os tef f i cie nt d ives t m en t m an ne r of t he rem ain in g n on - pe r for m ing p or t fol io or t h e rep os s es s ion o f the collateral real- es tates . V alue -preser ving strat egies The m a in ta sk i s to e ns u re val ue - pr es er vi ng s t ra te gie s for t h e real estate management, respect ively t he collateral value of NPL c lai ms by e it he r tem p orar i ly re pos ses s in g re al - es tat e or en su r in g a valu e - pre se r vin g di ves t m ent p ro ces s o f th e re al - es t at e or a cl aim . F ro m 20 15 to 2 02 1 , re al - e s ta te t ran s ac tio ns wi th a to tal s al es val ue o f EUR 193 . 8 mi llio n were exe cu te d or s up por t ed , an d dir ec tly o r in dir ec tly c on tr ib u te d to a EUR 62 2 . 6 m illi on of N PL re du c t io n, o f wh ic h EUR 1 2 2 . 5 mi lli on in 2021 alone. 96 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The G ro up h a s a well - di ver s if ie d b us in es s m od el . In acco rda nc e wit h i t s s t rat eg ic or ie nt at io ns , i t in te nd s to b e a su s t ain ab ly p rof it ab le, p red om in an tl y wor ki ng w it h cl ien t s on it s co re m ar ket s , pr ovid ing i nn ovat ive b ut s im p le c us t om er - oriented solutions, and a c tively contributing t o a more bal an ced a nd i nc lu s ive ec on om ic an d s oc ial s y s te m . Ef f ic ien t ma na gin g of r i sk s a nd c api tal i s cr u ci al for t h e Gr ou p to sus tain long- term profitable operat ions . Risk Man agement in th e G ro up is i n ch arg e of m an ag in g, a s s es s in g, a nd mo ni tor in g r is k s w it hin t h e B an k as t he m ai n en ti t y in Sl oveni a, an d th e com p ete nc e cen tr e for s even ba nk in g s ub si diar i es . Fig u re 65: Ri s k p rof i le o f N LB G ro up a s a t 31 De c em b er 2021 Cr edit risk Concentr ation risk Cr edit spread risk Inter est rat e risk in banking book Oper ational risk Market risk Business and Str ategic risk Ba s ed on t h e Gr ou p’s busi ne s s s t ra teg y, credi t ri s k is t h e dom in an t r is k ca te gor y, followed by c red it s pre ad a nd int ere s t ra te r i sk i n th e b ank in g bo ok a nd o pe rat io na l r is k . Ma na gem e nt o f cre dit r i s k foc us e s on m od era te r is k-ta ki ng , s tr i vin g to a s s ure a d iver s if i ed cr edi t po r t f oli o, ad eq ua te c red it por t fol io q ual it y , t h e su s t ain ab le co s t of r i s k , an d opt im al ret ur n co n si der i ng t he r i s ks a s s um ed . T he G ro up h as l imi te d expo su re to o th er a for em en ti on ed r is k s , w hi le m ar ket r is k an d 0.8% 2.2% 63.2% 3.1% 13.2% 10.4% 7.1% The sel f-f unde d model , s trong liqu idit y, and a solid capi tal posi tion cont inued in 2021, demon s tratin g the G roup’ s fin ancial resilience . Ef ficient manag ement of r isks and capital is c ru cial for th e Group to sus tain long -ter m profitable operations . A robus t Ris k Manag emen t framework is comprehen sively integrat ed int o decis ion - makin g, s tee ring , and m itiga tion processes with in the G roup, with t he aim of p roac tively suppo r tin g it s bus ines s operat ions . The G roup is engage d in contr ibu ting to s us tain able finan ce by incorporating environmen tal , social , and gov er nan ce risk s in to it s bus ines s st rategies, r isk man agemen t framew ork , and inter nal gov ernan ce arrangement s . oth er n on -f in an cia l r is k s are l es s i mp or ta nt f rom m a ter i ali t y per s p ec tive . Th e Gro up i nt egr at es an d m an ag es E SG r i sk s wi th in t he a for em en ti on ed t yp es of r i s ks , nam e ly cr edi t an d ope ra tio n al r is k , a s pa r t of it s r i sk m a na gem e nt f ram ewor k . Liq uid it y r is k to ler an ce is l ow. The Gro up m u s t m ain ta in an appropriat e lev el of liquidit y at all times, and als o purs ue an appropriat e str uc ture of the sources of finan cing. T a bl e30: NL B G ro up’s Key R is k A p pe ti t e in di ca t or s (K R Is) KRIs 31 Dec 2021 TC R 17.8% CET1 r atio 15.5% LCR 252.6% NSFR 185.2% Cost of Risk -41 bps NPL (EBA def.) 3.4% NPE (EBA def.) 1.7% Inter est rate risk (EVE) -6.4% COVID -19 d id n ot h ave a m ean in gf ul i mp ac t on t he q ua li t y o f th e cre di t po r t fo lio . It s i mp ac ts c au s ed m od era te c red it q ual it y det er io rat io n , wh ich r es ul te d in an in c rea se o f St age 2 a nd Sta ge 3 exp os ur es . I n Q2 2021, a rever s al was o bs er ved , m ain ly du e to s ucc es s f ul r ecover y of o n - an d of f- bal an ce s he et N PL s . Res p ec ti vely, the G ro up’s credi t po r t f oli o qu ali t y rem ain ed so lid , wi th s tab le ra t ing s tr u c t ur e an d po r t fo lio d iver s if i cat io n . Len din g grow th i n th e cor p ora te s eg m en t rem ain e d rel at ive ly mo der at e, wh il e th e ret ail s e gm en t, nam e ly m or tg ag e len di ng , expe r ien ce d a con s ide rab le gr ow t h in 2021. The G ro up i s com p lian t w it h EBA gu id eli ne s on p ay me nt mo rat or ia a nd i s ver y pr u de nt i n ide nt if yi ng a ny in cre as e in cre dit r i s k . Th e vas t s ch e me s in tro du ce d by th e gover n me nt s in th e G ro up co un tr ie s prov idi ng m or ato r ium s to e lig ib le cli en t s as p ar t of t h e COVID -19 p an de mic m e as ur es wer e ph as in g ou t d ur in g th e 2021. A par t f rom t h e mo ra tor ia , t he Group provided additional liquidit y by g ran ting new loans to cre dit wor t hy cl ien t s to h el p th em w it h th e s pe ci f ic s it ua t ion du e to th e COVID - 19 cr i si s . The c os t o f r is k was n eg at ive (- 41 b ps) d ue to ve r y s tro ng develo pm en t in N PL re so lu ti on an d m ore f avo urab le ma cro eco no mi c si t ua ti on co mp are d to t he 2020 Y E . Th e Ris k Man agemen t - 41 b p s nega tive Cost of r is k on Group level. 97 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Gro up f ace d favo ura bl e NPL m ovem en t du e to re pa ym en t s in th e se gm en t of l arg e cor p ora te c lie nt s , and o th er s u cces s fu lly res ol ved s ma lle r exp os ure s in t he r egi on . D ur in g t he ye ar , th e Gro up r eviewed I FR S 9 provi s ion in g by tes tin g a s et of r elevan t ma cro eco no mi c sc en ar ios t o ad eq ua tel y ref le c t t h e cu r ren t circ um s t an ces a nd t h e rel at ed im p ac t s i n th e f u t ure. T he Gro up e s ta bli s he d an d devel op ed m ul t ipl e sc en ar ios o n t he level of ECL cal cu la tio n . Tho u gh COVID - 19 cou pl ed w it h it s i mp lica t ion s on t h e bu si ne s s env iro nm en t, th e G rou p fac ed grow in g exces s liquidit y an d managed to s tay well capitalised. The Group is p erce ived a s s afe h ea ven an d t he ref ore fa ced g rowi ng exces s liq ui di t y, and im p ac ts o f th e p an dem ic d id no t ca us e any material l iquidity out flows. Si gnificant at tentio n was put int o th e s t r uc t ure a nd co n cen tr at ion o f liq ui dit y re se r ves by inc or po ra tin g e ar ly war n in g s ys t em s , wh il e keep ing i n mi nd th e pot en ti al ad ver s e ne ga t ive m ar ket movem e nt s . Exce s s liq uid it y an d m ar ket de ma nd f or f ixed i nt ere s t ra te p rod uc t s res ul te d in m od era te i nt ere s t ra te an d c red it s pre ad r i sk expo su re, w hi ch s t ayed w it h in th e r is k a ppe ti te t ole ran ce towar d th is ris k. The G roup’ s liquidit y and capital position rem ain e d s tr on g in bo th t he G ro up a nd b an ki ng m em b er lev els . In 2021, th e G ro up was i nc lu de d in to ECB Stre s s te s t exerc is e. On 30 J ul y, the re su lt s o f s t res s t es t s car r ied o u t for im p or ta nt ban k s by th e ECB to as s es s t h e res il ien ce o f th e f in an cia l in s ti t ut io ns h a ve be en di sc lo se d. U n der t h e ad ver se s ce na r io, CET 1 ra ti o (fu lly l oad ed ) wou ld fa ll by m axi mu m 483 bp s (p ubl is h ed ra ng e 300- 599 bp s) af ter t h ree ye ar s wi th o ut mi tig at io n m eas u res f rom t h e 2020 YE . Th e G rou p’s resu lt s o f adve r se d epl et io n were lower t h an fo r pe er gr oup a n d S SM sa mp le b an ks . Be s ide s , th e G ro up’s data q ua lit y an d ac cu rac y were a s se s se d as a bove aver ag e. Fi na l res ul t s o f th e bo t t om - up s t res s t es t sh owed t ha t even in a ver y u nfa vou rab le m ar ket con di tio n s def i ne d by th e EBA an d ECB , th e G rou p ho ld s su f fi cie nt re s ili en ce in te r ms o f cap ita li sa ti on . Th e q ual it at ive ou tco me s were i nc lu de d in t he d ete r min a ti on of c api tal req uir em en t s by ECB, n am el y s et tin g Pi lla r 2 Gu id an ce. 14 14 Fur th e r in fo r ma t io n i s ava il ab l e in c h ap te r Even t s Af te r th e En d o f 2021 Financial Y ear . The B a nk i s , a s a sy s t em ic ba nk , i nvolve d in t he S in gle Super visor y Mechanism. Su pe r vis io n is u nd er t he j ur i sd ic t io n of t he J oi nt S up er vi s or y T e am of: EC B BoS ECB regul at io ns a re fo llowed by t h e Gro up, w he re t he G ro up subs idiaries operat ing out side Sl ovenia are complian t with th e r ul es s et by t he l oca l reg ul at or s . T hir d par t y eq u viva len t are ap proved i n Se r bia , B iH an d No r th M ac edo ni a, r es ul ti ng in ali gn me nt o f lo cal re gu la ti on wi t h CRR r ule s . Acro s s th e G rou p, ri s k s are a s se s s ed , mo ni tor ed , m an age d, or m it iga te d in a un ifo r m m ann er , a s de f ine d in t h e Gro up’s Ri sk m a na gem e nt s t an da rds , a ls o co ns id er in g th e s pe ci f ic s of th e m ar ket s in w hi ch in d ivi du al G ro up m em be r s op era te. Ri sk M a na gem e nt an d co nt ro l is p er for m ed t h rou gh a cle ar o rga ni sa t ion al s t r u c t u re wi th d ef in ed r ole s an d res po ns ib ili ti es . T he o rg ani s at ion a nd d el in ea tio n of com pe ten ci es i s de si gne d to p reven t con fl ic t s o f in ter es t, en su re a t ran s par en t an d do cu me nt ed d eci s ion - m ak in g process , subje c t to an appropriate upwar d and downward flow o f in for m at io n . B us in es s l in e Ri sk M a na gem e nt in N LB is , by enco mp a s si ng several pr ofes s ional areas , in charge of: • for m ul at in g an d con tr oll ing t h e Gr ou p’s Ris k Ma na gem e nt policies, • set ting limit s , • over se ein g th e h ar m on is at io n , • reg ul ar m oni to ri ng o f r is k exp os ure s an d lim i t s ba se d on cen tr ali se d rep or t in g at t he G ro up l evel . The G ro up p u t s gre at e mp ha s is o n th e r is k c ul tu re an d aware ne s s ac ros s t h e en tir e Gro up . Th e Gr oup’s Ri sk Ma na gem e nt f ram ewor k i s for ward - lo ok in g an d tai lor ed to i t s bu si ne s s m ode l an d cor r es po nd in g ri s k pro fi le. T he m ai n r is k pr in cip le s an d lim it s are se t for t h by th e G ro up’s Ris k Ap pe ti te an d Ri sk S t rat eg y , a nd d es ign e d in acc ord an ce wi t h bu si ne s s s tr at eg y . T he G ro up p er for m s r is k id en ti f ica ti on pr oce s s on reg ul ar ba s is , a s pa r t of t he I C A A P an d IL A A P fra mewo rk s . In th is p roce s s all t opi cal r i sk s , i nc lu din g E SG re la te d on es , a re com pre he n si vely a s s es s ed , m oni to red a nd m it ig at ed w he re ne ces s ar y. Spe cia l foc us i s pl ace d on t h e in cl us io n of r is k an aly si s in to t he d ec is ion -m ak in g pro ces s a t s t ra te gic an d operati ng lev els, div ersif icati on to a void l arge c oncentration, optimal capital usage and allocat ion, appropr iate ri sk- adj us ted p r icin g , an d overal l com pl ian ce w it h in ter n al r u le s and r egulations. Ri sk M a na gem e nt fo cu s es on m a na gin g an d mi t iga ti ng ri s k s in lin e w it h th e G rou p’s Ris k Ap pe ti te an d R is k S tra te gy, repr esenting the foundation of the Grou p’ s Risk Manage ment fra mewor k . Wi th in t he se f ram ewor k s , t h e Gro up m o ni tor s a ran ge of r i s k me tr ic s in ord er to a s s ure t h e Gr ou p’s ris k prof i le i s in lin e w it h it s R is k A pp et it e. In a ddi ti on , t he G ro up is co ns tan tl y en ha nc in g it s R is k M an ag em en t s ys tem , w he re con s is t en t in cor p ora ti on of I C A AP , IL A AP , Re cover y pl an , an d oth er i nt er n al s t res s- tes tin g ca pab ili ti es in to t h e Ri s k Ma na gem e nt s y s te m is e s se nt ial . M ore over , th e G ro up p ut s grea t em p ha si s on t h eir i nt egr at ion i nt o th e overal l Ri s k Ma na gem e nt s y s te m in or der t o as s ur e pro ac tive s up po r t for informed decision -m aking. Fig u re 66: NL B Gr o up’s R is k M an a ge m en t f ra m ewor k Business str ategy ICAAP & ILAAP inputs Risk identification Risk Appetite (Limit system) Capital and Financial planning Results Rec overy plan Assessment of liquidity and capital (signific ant deterior ation) ILAAP • Economic and normativ e assessment of liquidity • Stress tests • Liquidity contingency plan (LCP) ICAAP • Economic and normative assessment of capital • Stress tests The uniform stress -tes ting programme, which incl udes int er n all y devel op ed m od el s , s t res s s ce na ri os , a nd s en s it iv it y an aly si s , wa s fu r th er c om ple m en ted . In 2021, t h e Gro up 98 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report es t abl is h ed it s own ES G s t res s t es t in g co nce pt to i de nt if y the mos t relevant financial v ulnerabilities s temm ing from cli ma te r i sk . Su ch a s t re s s -te s t in g fra mewo rk i s t he s ub je c t of a re gul ar i nte r na l valid a tio n c ycl e an d rel at ed p roce du res wh ere t h e Gro up e s ta bli s he d com p reh en s ive vali da tio n fra mewor k . Nam el y , t h e Gro up s u ppo r t s a s t ron g vali da tio n gover na nc e pro ces s a nd c on tro ls over a pp lie d se le c te d r is k approaches and i n ternal models . The b u si ne s s an d op era t ing e nvi ron m ent, re levan t for th e G rou p op era ti on s is c ha ng ing , w it h tr en ds s u ch a s ch an gin g cu s to m er b eh av iou r , em erg in g new t ech n ol ogi es an d com pe ti tor s , ac t ive ly co nt r ib ut in g to a m ore b al an ced an d inc l us ive e con om ic an d s oc ial s y s te m , an d in cre as in g new re gu la tor y re qu ire me nt s . It s h oul d be n ot ed t h at R is k Ma na gem e nt i s con ti n uo us ly a da pti ng w it h t he a im of detec ting and man aging new potential emerging risk s . Pr oac tiv e Ris k Management in 2021 Pruden t capital lev el pos ition and achie v ed inter im MRE L targets On e of t he key ai ms o f Ri s k Ma na ge me nt i s to p res er ve a pr u den t leve l of t he G ro up’s capit al po si t ion . T he G ro up mo ni tor s i t s cap ita l po si ti on a t th e G rou p an d in div id ua l su bs idi ar y ba nk l evel in a ccor dan ce w it h th e R is k A pp et ite , als o in co rp ora t in g no rm a ti ve an d eco no mi c pe r sp ec ti ves as p ar t of t he e s ta bl is he d IC A AP p roce s s . A s a t 31 D ece mb er 2021, th e G rou p ha d a ver y so lid c api tal p os it io n an d TCR of 17.8% ( 1.2 p.p. h igh er t h an a t th e 2020 YE ). Th e CE T 1 rat io, rep res en ti ng t h e capi ta l of hi gh es t q ua lit y, sto od a t 15.5% ( 1.4 p.p. Y o Y i nc re as e). The h ig he r Gro up t ota l capi ta l ade qu ac y c om pa red to th e prev io us ye ar de r ives f rom h igh er c api tal ( in cr ea se o f EUR 186.8 m illi on Y o Y, main ly d ue to i nc l us ion o f ne ga ti ve goo dw ill i n ret ain ed e ar ni ng s) wh ich c om pe ns a ted t h e RWA inc re as e of EU R 58.2 mil lio n Y o Y fo r th e G rou p. Loa n grow th to th e co rp or at es an d re tai l an d new inve s t me nt s i n bo nd s con tr ib u te d to an in c rea se o f RWA for cre dit r i sk . On t he o th er ha nd , t he in c rea se wa s com p en sa te d by col la ter al ad eq ua c y du e to th ird p ar t y eq ui vale nt, ag ree me nt s w it h M IG A , ch an ged i nves t m en t po lic y a nd s u cces s fu l rec over y of NPL s . Additionally, the closing trading posit ion of K omercijaln a Ba nka , B eo grad r es ul te d in a d ecr ea se i n RWA for mar ket ri s k s . RWA for ope ra tio n al r is k in cr ea se d du e to h igh er in co me of th e G ro up ar i si ng f rom t he a cq ui si ti on of Kom erc ija ln a Ba nka , B eo grad . A s at 31 D ec em be r 2021, th e G rou p me et s a ll f ull y lo ad ed regula tor y requirem en ts . M oreover , enhan ced overall cor po ra te gover n an ce in t h e rec en t year s l ed to a l ower P 2 R , wh ich d ec rea se d fr om 3.5% in 2018 t o 2.75% app lica bl e in 2021 an d 2.60% app lica bl e as o f 1 Ma rch 2022, w hil e Pil lar 2 Gu ida nc e rem ai ns a t low l evel of 1% . Fig u re67: NLB G ro up’s Pi ll a r 2 Re q ui rem e n t evo lu t io n 2017 2018 2019 2020 2021 2022 (i) 2.60% 2.75% 2.75% 3.25% 3.50% 3.50% (i) Applicable as of 1 Mar ch 2022. MR EL req ui rem en t for m s p ar t of G ro up’s ris k ap pe ti te, wh ere by it s f ul f ilm en t i s reg ul ar ly a na lys e d an d mo ni tor ed . NLB co mp lie s all i nt er im ta rge t s . M ore i nfo r ma t ion o n MR EL is avail ab le in t h e ch apt er Capital and Capital Adequac y . Maintaining a solid le v el and s tr uc t ure of liquidit y Maintainin g a solid lev el and s tr uc ture of liquidit y represen ts th e nex t ver y im por t an t ri s k tar get. T he li qu idi t y pos it io n of th e G rou p rem ai ne d s ta ble , an d th e im pa c t s o f th e p an dem ic did not cause any material liquidit y out f lows. St rong liquidit y posit ion is held at the Group and individ ual subs idiar y bank level s . G rou p LCR slig ht ly d ec rea se d to 252.6% ( by 4.9 p.p. Y o Y ), bu t rem ai ne d well a bove th e r i sk a pp eti te l im it ( 130%). Th e level of t h e un en cu mb ere d el igib le l iq uid re s er ves re ma in ed a t a hig h level , rep res en t in g 38.3% of tot al a s se t s . Th e G rou p h as su f fi cie nt l iqu idi t y res er ves i n th e for m o f pl acem e nt s w it h th e ECB, p ri me d eb t se cu r it ies , and m on ey m ar ket pl ace m ent s . E ve n in t he even t of t h e com bin e d adve r se s tre s s sc en ar io, t he Gro up wo ul d su r vive a t le as t th ree m on t hs u nd er s uc h s t res s con di tio n s . Th e cor e f un din g ba s e of t he G ro up pr edo mi na te ly rep res en t s ret ail c u s to me r dep os it s w i th ver y s t ab le an d con s ta nt ly g rowin g b as e. L TD in cre as ed t o 60.0% (31 De cem be r 2020: 58.8%), rem ain in g at ve r y com for ta bl e level . In J un e, th e B an k p ar ti cip at ed in t h e 8. ECB oper at ion , n am e ly TL TRO III a nd h ad d raw n a cr edi t t ran ch e of EU R 750 mi llio n ma t ur in g in t hr ee yea r s . W it h TL TRO, t he ECB con ti n ues t o su pp or t le nd in g to en te rp r is es a nd h o us eh ol ds . The B a nk wa s su cce s s f ul in a ch ievi ng t h e len di ng p er for m an ce t h res h old in th e s pe ci al ref ere nce p er i od , th e po si ti ve ef fec t fro m th is transaction w ill partially c ompensate the ne gative out come from holding liquidit y reser ves . LCR NLB Gr oup 450% 400% 350% 300% 250% 200% 150% 100% 31 Dec 2020 31 Jan 2021 28 F eb 2021 31 Mar 2021 30 Apr 2021 31 May 2021 30 Jun 2021 31 Jul 2021 31 Aug 2021 30 Sep 2021 31 Oct 2021 30 Nov 2021 31 Dec 2021 Fig u re 68: NL B Gr o up’s LCR 99 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Main taining t he ade qua te credit por t folio qualit y Ma int ain in g th e ad eq ua te c re dit p or t foli o qu ali t y is t he mo s t im po r tan t go al , wi th t he f oc us o n ca ut io us r i sk-ta ki ng an d qu ali t y of new l oan s l ead in g to a di ver si f ie d por t fol io of cu s t om er s . T he G ro up i s con s t ant l y develo pin g a w ide ran ge of a dvan ce d app ro ach es i n th e s egm e nt o f cre dit r i s k as s es s m en t in li ne w it h be s t b an ki ng p rac tice s to f ur t h er en ha nce t h e exis tin g r is k m an ag em en t to ols , whi le a t th e sa me t im e en ab lin g gre a ter c us tom er r es po ns ive ne s s . Th e res t r u c t ur i ng a ppro ac h in t he G ro up i s foc u se d on t he e ar ly detec tion of client s with potent ial finan cial dif fic ulties and th eir proa c tive tr eatment. The G ro up i s ac ti vely p res en t on S EE m ar ket s by f in an cin g th e exi s ti ng a nd n ew cr edi t wor thy c lie nt s . The G ro up’s len di ng s tra te gy fo cu s es on i t s co re m ar ket s of re tai l, S M E, an d se le c te d cor p ora te b u si ne s s ac tiv it ie s wi th in t he r egi on an d EU. On t he S l ovenia n ma r ket, th e foc us i s on p rovi din g appropriat e solut ions for retail, medium -sized companies , an d sm al l en ter p ri s e se gm en t s , w he rea s on t he c or po ra te se gm en t, th e B an k es t abl is h ed co op era ti on w it h se le c t ed cor po ra te c lien t s (t hro ug h dif fe ren t t ype s of l en din g or inves t m en t in s t r um en t s). A ll ot he r ba nk in g me mb er s i n th e SEE re gio n, w h ere t h e Gro up i s pre s en t, are un iver s al b an k s , ma in ly fo cu se d on t h e ret ail , m edi um - s ized com p an ies , a nd sm al l en ter p ri s e se gm en t s . Th ei r pr im ar y g oal i s to p rovid e com pre he n si ve se r vice s to cl ien t s by ap pl yin g pr ude nt R is k Management principles . Len din g grow th i n th e cor p ora te s eg m en t rem ain e d rel at ive ly mo der at e, wh il e th e S ME a nd r eta il s egm e nt exp er i en ced a con s ide rab le grow th i n 2021 af te r a tem po rar y s lowdow n in 2020 du e to COVID - 19 circ um s t an ces . The c ur re nt s tr u c t ur e of cr edi t po r t fo lio ( gro s s lo an s) con si s t s o f 36.2% reta il c lie nt s , 14.8% larg e co rp ora te c li ent s, a n d 18.5% SM E s an d m icro com pa nie s , w hil e th e re ma in de r of t he p or t foli o con s is t s of ot he r liq ui d as s et s . The c red it p or t foli o rem ai ns we ll diver s i fi ed , an d th e re is n o la rge c on cen tr at ion i n any s pe ci f ic in du s t r y or cl ien t s egm en t. Th e s ha re of re tai l po r t fo lio i n th e wh ol e cre dit p or t fol io is q ui te s ub s t ant ia l wi th s till p revail in g se gm en t of m or tg ag e lo an s . The m a jor i t y o f th e G ro up’s loan p or t foli o is c la s si f ied a s Sta ge 1 (9 4.2%), th e re ma ini ng p or t foli o as S tag e 2 ( 3.4%), and Sta ge 3 an d F V TPL ( 2.4%). The p or t foli o qu ali t y rem ain s ver y s tab le w it h in cr ea si ng S tag e 1 expo s ure s an d a rel at ive ly low per cen tag e of N PL s . T he p erc en tag e of S tag e 1 lo an po r t f oli o Fig u re 69: NLB G ro up s tr u c t u re o f th e c re di t p or t f ol io (i) (g ros s loa n s) by s eg m en t ( in EU R m il li on) a n d ra t in g (ii) Institutions 539 SME 2,881 Corpor ates 2,298 Retail consumer 2,427 State (iii) 4,202 Retail housing 3,195 A B C D E 61% 63% 65% 60% 63% 28% 30% 28% 33% 3% 32% 4% 4% 3% 3% 3% 2% 2% 2% 1% 4% 2% 2% 2% 1% 31 Dec 2018 31 Dec 2019 31 Dec 2020 w/o KB 31 Dec 2020 31 Dec 2021 Highest quality Default NPLs EUR 15.5 billion (i) Loan portfolio also includes r eserves at CBs and demand deposits at banks. (ii) Rating A, B and C ar e performing exposur es. Rating A: inv estment grade clients with high financial stability; R ating B: clients with high ability to repay their obligations, a signific ant aggrav ation of the economic envir onment would cause pr oblems to them; Rating C: performing clients with incr eased level of risk who may encounter pr oblems with settlement of liabilities in the futur e; Ratings D and E are NPLs: Def ault clients (article 178 of CRR), including clients in delay >90days and other clients consider ed ‘unlikely to pay’ with delays below 90 days. The numbers may not add up t o 100% due to rounding. (iii) State includes e xposures to CBs. P r oac tiv e ris k ma nagem en t in 2021. 100 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR million Corpor ate sector by industry NLB Gr oup % ∆ 2021 Acc ommodation and food service activities 156.3 3.0% 15.1 Administr ative and support service activities 108.1 2.1% -13.6 Agricultur e, for estry and fishing 310.7 6.0% 22.0 Arts, entertainment and r ecreation 22.7 0.4% 1.7 Construction industry 434.6 8.4% 60.9 Educ ation 13.3 0.3% -0.8 Electricity, gas, steam and air conditioning 318.2 6.1% 60.1 Finance 120.2 2.3% -47.5 Human health and social work activities 37.9 0.7% -12.1 Information and communic ation 244.1 4.7% 10.2 Manufacturing 1,091.1 21.1% 105.0 Mining and quarrying 50.4 1.0% -29.6 Pr ofessional, scientific and techn. act. 175.4 3.4% 3.7 Public admin., defenc e, compulsory social. 172.4 3.3% -47.0 Real estat e activities 251.3 4.9% 29.7 Services 12.0 0.2% -1.9 T ransport and stor age 573.3 11.1% -18.8 W ater supply 43.9 0.8% 2.8 Wholesale and r etail trade 1,043.1 20.1% 120.0 Other 0.5 0.0% -1.3 T otal Corpor ate sector 5,179.5 100.0% 258.4 T a bl e 31: O ver vi ew o f NL B Gr o up l oa n po r t fo l io by i nd u s t r y as a t 31 D ec em b er 2021 Institutions 3% Retail 37% Retail consumer 43% Stage 2 3% Stage 1 94 % Stage 3 2% FVTPL 0% State 29% Retail mortgages 57% Corporate sec tor Retail s ec tor EU R 5.6 billion Fig u re 70: NL B Gr ou p l oa n po r t fo l io (m ea s ur ed a t a mo r ti s ed c os t) by s t ag es a s at 31 D e ce mb e r 2021 Corpor ates 31% rem ain s al mo s t a t th e s am e level a s at 2020 Y E , i.e. , at 95.6% in th e R eta il s egm en t, wh il e in th e Cor p ora te s eg me nt, d es pi te th e ad ver s e eco no mic c on di tio n s , im proved t o th e level of 87.4% , wh ich i s a re s ult o f ca ut io us l en din g po lic y and succes s ful clos ure of NPL. COVID -19 d id n ot h ave a m ean in gf ul i mp ac t on t he q ua li t y of th e c red it p or t folio . Th e vas t s ch em e s in tro du ced by t h e go vernments in the Group c ountries pro viding moratoriums to eli gib le c lie nt s a s pa r t of t he COVID -19 pa nd em ic m ea s ure s ha d be en ph a si ng o u t dur i ng t h e 2021. A s at 31 D ec em be r 2021, th e exp os ure s wh er e COVID -19 mo rat or ia h ave b ee n gran te d am o unt ed t o EUR 1,681.5 mil lio n , rep res en ti ng 10.8% o f th e G rou p’s credi t po r t fo lio . Th e expo su re w it h rem ai nin g COVID - 19 mo ra tor ia i s n egl igi ble a nd am oun t s to EU R 24.8 milli on , w hil e 98.5% of t ho se m o rat or ia ha ve alre ad y expi red by 2021 YE . A t ota l of 86.4% of exp os u re 101 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report wi th exp ire d mo ra tor ia h a ve no d ela ys , w hi le 2.1% h ad d el ay s exceed ing 90 d ay s . Th e B an k is ve r y pr u den t in i den t if yin g any inc re as e in c red it r is k . In ad dit io n to m ora tor i a, t h e gover nm e nt s i n Se r bia an d Sl ovenia p rovi de d pu bli c gu aran te e s ch em es fo r new fi na nc in g of c lien t s w ho se b u si ne s s ha s b een m a ter i all y imp ac te d du e to th e COVID - 19 pa nd em ic . A s at 31 D ece mb er 2021, th es e lo an s am ou nt ed to EU R 177.2 m illi on; n on e of t h e gu aran te es h ave b ee n exerci se d . T a bl e 32: NL B G ro up l oa n p or t f ol io by s tag e s as a t 31 D ec em b er 2021 in EUR million Cr edit por tfolio Pr ovisions and FV changes for credit portfolio Stage1 Stage2 Stage3 & FVTPL Stage1 Stage2 Stage3 & FVTPL Cr edit port folio Shar e of T otal YTD change Cr edit port folio Shar e of T otal YTD change Cr edit port folio Shar e of T otal YTD change Pr ovision V olume Pr ovision Co verage Pr ovision V olume Pr ovision Co verage Pr ovisions & FV changes Co verage with pr ovisions and FV changes T otal NLB Group 14,638.0 9 4.2% 1,987.2 532.4 3.4% -27.6 371.4 2.4% -104.3 70.4 0.5% 34.0 6.4% 212.1 57.1% o/w Corpor ate 4,525.5 87.4% 389.9 412.2 8.0% -14.6 241.7 4.7% -116.8 50.6 1.1% 26.6 6.5% 136.0 56.3% o/w Retail 5,371.1 95.6% 591.9 120.2 2.1% -13.1 129.7 2.3% 12.6 18.3 0.3% 7.4 6.2% 7 6.0 58.6% o/w State 4,202.4 100.0% 912.3 - - - - - - 1.3 0.0% - - - - o/w Institutions 538.9 100.0% 93.2 - - - - - - 0.2 0.0% - - - - Fig u re 71: NL B Gr ou p Co r po ra t e an d Re t ai l lo an p or t fol io (v al ue d a t am o r t i s ed c os t ) by s t ag es +9% Yo Y +12% Yo Y 2,811 3,207 3,170 4,136 4,526 3,492 3,822 4,779 427 5,371 427 445 412 367 133 104 133 133 120 520 286 324 359 242 101 87 111 117 130 3,936 St age 1 by s egm en t (in EUR million) St age 2 by s egm en t (in EUR million) S ta ge 3 by se gm en t (in EUR million) 31 Dec 2018 31 Dec 2019 31 Dec 2020 w/o KB 31 Dec 2020 31 Dec 2021 Corpor ate Corpor ate Corporate Retail Retail Retail -3% Yo Y -10% Yo Y +11% Yo Y -33% Yo Y Ne w N PLs form ation and NPL managem en t At th e en d o f 2020, Komerc ij aln a B an ka grou p was a cqu ire d an d th eir N PL wer e inc l ude d as a n ad dit io na l NPL fo r ma t ion in ne t val ue ( ba se d on co ns o lid at ion r ule s), wh ich , a lon g w it h th e COVID -19 r el at ed ci rcu ms tan ces , res ul te d in t he N PL for m at io n of EUR 148 m il lion o r 1.1% of t h e tota l po r t fo lio . In 2021, NPL fo r ma t ion am o un te d to EUR 143 m ill ion o r 0.9% 1.7% NPE (E BA def.) 102 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report of th e to tal p or t foli o an d was in f lu en ced by h ar m on is a tio n pro ces s i n Komerc ij aln a B an ka grou p. Neve r th el es s , t he tota l am ou nt o f NPL d ec rea se d du r in g 2021. Proa c t ive n on - per fo r mi ng m an ag em en t, inc l udi ng s uc ces s ful r ep ay me nt o f on- an d of f-balance sh eet exposures , and more favourable ma cro eco no mi c si t ua ti on ac ros s t h e reg ion t h an in it ia lly expe c t ed , res u lt ed in a n e ga ti ve cos t o f r is k . Fig u re 73: NL B Gr ou p g ros s N PL f or m a t io n (i n EU R m ill io n) 58 80 60 78 2017 2018 2019 2020 2021 F ormation / gross loans (stock) 20 21 16 35 36 37 60 2 12 10 5 64 56 148 143 Corpor ate SME Retail 0.9% 1.1% 0.6% 0.7% 0.7% Pr ecisely set targets in the Gr oup’s NPL Str ategy and various pr oactive work out appr oaches facilitated the management of the non-performing port folio. The Gr oup’s appr oach to NPL management puts a str ong emphasis on restructuring and use of other active NPL management tools, such as foreclosur e of collater al, the sale of claims, and pledged assets. In 2021, the multi-year declining tr end of the non-performing cr edit portfolio stock continued, mostly due to r epayments, collection, sale of claims, and cur ed clients. The non-performing cr edit portfolio stock in the Group decr eased at 2021 YE in comparison with 2020 YE to EUR 36 7.4 million (2020 YE: EUR 47 4.7 million). The combined r esult of contr action in non-performing cr edit portfolio stock and cr edit gro wth of a higher quality por tfolio led to 2.4% of NPLs, while the internationally mor e compar able NPE r atio, based on the EBA methodology, stood at 1.7%. The Gr oup’s indicator gr oss NPL r atio, defined by the EBA, is equal to 3.4% and is below the r egulatory defined thr eshold for establishment of NPL str ategy fr amework. Fig u re 7 4: NL B Gr o up N PL , N PL r at i o an d Cove ra g e ra ti o 1 (i) (i n EU R mi ll io n) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 100 90 80 70 60 50 40 30 20 10 0 31 Dec 2016 31 Dec 2017 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 Cov erage r atio 1 NPL ratio NPLs 7 6.1% 1,299 13.8% 77.5% 844 9.2% 77.1% 622 6.9% 89.2% 375 3.8% 81.8% 475 3.5% 86.1% 367 2.4% (i) By internal definition. Du e to ex t en s ive exp er ie nc e gai ne d in t he l as t f ew year s in dealing with client s with fin ancial dif f icult ies , result ing pr im ar il y fro m le gac y por t fol ios , t h e Gro up h a s devel op ed an ex t en si ve kn owl edg e ba s e bot h in t h e preven ti on of finan cial dif f iculties for client s , to restr uc ture viable client s in ca se o f ne ed , an d to ef f ici en tl y wor k ou t exp os ur es w it h no re ali s t ic re cover y pro sp ec t s . Th is ex ten s ive k now le dge ba se i s avai lab le t h rou gh ou t th e G ro up, an d r is k un it s , as well a s res tr u c t ur in g an d wor kou t te am s are p rop er l y s ta f f ed an d ha ve th e cap ac it y to de al , if n ee de d, w it h co ns id era bly inc re as ed vol um e s in a pro fe s si on al an d ef f ici en t ma nn er . An im po r tan t G ro up s t ren g th i s th e NP L coverag e ra tio 1 (coverage of g ros s NP L s w it h im pa ir me nt s for all l oa ns), wh ich re m ain s hi gh a t 86.1% . Fur th er m or e, th e G ro up’s NPL coverag e ra tio 2 (coverag e of g ros s NP L s w it h im pa ir me nt s for NP L) s ta nd s a t 57.9% , w hi ch is we ll ab ove th e EU aver age as p ubl is h ed by t he EBA (45.1% for Q3 2021) . A s s uc h , it en abl es a f ur t h er re du c t ion i n NPL s wi th ou t s ign if ic an tl y inf l uen ci ng t h e cos t o f r is k in t h e com in g year s . T he d ec rea s e in covera ge in di cat or s a t th e en d of 2020 wa s in fl ue nc ed by th e sp ec ial t re at m en t of NP L s f rom t he a cq uire d en ti t ies . NPL s of K omercijaln a Banka group are i n itially recognis ed at fair value, without any additional credit los s allowances. The la t t er i s als o re fl ec ted i n th e lower c overag e rat io CR 2 th an t he NLB G rou p ba nk s a verag e at t h e en d of 2021 in Kom erc ija ln a Ba nka , B eo grad a nd N LB B an ka, Po dg or ica , wh ic h me rge d wi th Kom erci jal na B a nka , Pod gor ic a in Novem b er 2021. The G ro up s tr ives t o en s ure t h e be s t po s si bl e coll a tera l for lon g -t er m lo an s , n am ely m o r tga ge s in m os t ca s es . T hu s , th e rea l - es tat e mo r tga ge i s th e m os t f re qu en t for m of l oa n coll at era l for co r po rat e an d ret ail c lie nt s . In th e co r por at e loa ns , it is f oll owed by gover n me nt a nd c or po rat e gu ara nt ee s . In ret ail l oan s , t h e oth e r mo s t fr eq ue nt t yp es o f loa n col la ter al are loan insurances by insurance compan ies and guarantor s . The Gr oup is following the ECB guidelines to banks on NPLs with r egards t o the evaluation of collat eral. The establishment of mark et values for collater al for NPLs is by means of individual ev aluation when NPL status is established. The value of collater al is then r egularly monitor ed on a yearly lev el and updated by either independent e valuation (over pr escribed thr eshold) or with the use of statistical r e-evaluation for smaller values of NPL. F or statistical r e-evaluation the inde xes fr om the gov ernment agency or other rele vant official data sourc es ar e used. The v alue of collater al is with statistical appr oach always updated only down war ds, never upw ar ds. Only if the individual appr aisal shows a higher value of c ollater al, the upwar ds r e- ev aluation would be performed. If the data fr om statistics would show signific ant decline in the real estate mark et, individual ev aluations for such types of real estat e would be performed and values c orrect ed accor dingly. NO DELA YS 1-30 DPD 31-90 DPD >90 DPD 30 Sep 2020 31 Dec 2020 30 Sep 2021 31 Dec 2021 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 81.8% 88.9% 84.8% 86.4% 14.1% 7.4% 11.5% 9.3% 2.4% 1.7% 2.2% 1.5% 1.6% 2.1% 2.1% 2.1% Fig u re 72: % of D a ys p a s t du e fo r ex pi re d COVI D - 19 m or at or i a in N LB G ro u p 103 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Lo w market risk in the trad ing book Reg ard in g ma r ket ri s k s in t he t rad in g bo ok , t he G ro up pur s u es a l ow- ri s k app et it e for m ar ket r i sk i n th e t rad ing b oo k . The ex po su re to t ra din g (accord in g to t he CR R) i s on ly a llowed to be c ar r ied by t he p are nt B a nk a s th e m ain e nt i t y o f th e Gro up a nd i s ver y lim i ted . D ur in g t he ye ar 2021, t he p os it ion o f tra din g bo ok o f Komer cij aln a B an ka, B eo gra d de cre as e d to th e mi nim u m ex te nt. T he B an k in te nd s to f ur t h er m ain ta in a sm al l tra din g po r t folio , ma in ly to m on it or m ar ket s ign al s in t he glo bal m ar ket s . Res p ec tive ly, it doe s no t con s t it u te a m a ter i al ri s k to t he G ro up’s oper at ion s , w hi le it s tole ran ce fo r in ter es t rat e an d cre di t sp re ad r is k in t ra din g bo ok i s ver y low. The G ro up c ar r ies i t s m ain b us in es s ac t iv it ie s in eu ros , a nd t h e subs idiar y bank s , in addition to their domes tic cur rencies , also ope ra te in e uro s , wh ic h is t he r epo r ti ng c ur re nc y o f th e G ro up. The G ro up’s net o pe n F X po si ti on f rom t ran s ac tio na l r is k is low, and at l es s t h an 1.10% of capital. Regarding s tr uc t ural FX pos it io ns o n a con s ol ida te d level , as set s a nd l iab ili ti es h el d in for eign o pe ra tio n s are co nver te d in to eu ro c ur ren c y a t th e clo si ng F X r at e on t he b al an ce s he et da te . F X di f f ere nce s of no n - e uro a s se t s an d lia bil it ies a re re cog ni se d in t he o th er com pre he n si ve inc om e, an d t he refo re a f f ec t sh are ho ld er ’s equit y and CET 1 capital. Pr oac tiv e manag emen t of in terest rate risk in the banking book The G ro up’s expos u re to in te res t rat e r is k is m od er ate a n d ar is es m ai nl y fro m ba nk in g bo ok p os it ion s . I n th e re cen t year s , th e G rou p reco rd ed t he g row t h of f ixe d in ter es t r at e loa ns a nd th e lo ng -t er m b an kin g bo ok s ec ur i ti es o n th e as s et s sid e, an d th e tr an s for m a tio n of d epo si t s f rom te r m to s igh t as a r es ul t of th e low in te res t rate e nvi ron m en t an d exces s ive liq ui di t y. The G ro up’s int ere s t ra te p os it ion s wer e sl igh tl y af fe c te d by mo rat or iu m s dur i ng t he ye ar 2021, w hic h were m os tly s h or t- ter m , f rom 3 to 6 m o nt hs , and c on se q uen t ly n ot ver y m at er ial . The G ro up p la ces exces s liq uidi t y ma in ly in to b an ki ng b ook se cu ri t ies w it h f ixed I R , w hil e in c ur re nt n eg at ive in te res t rat e envi ron m en t th ere i s al so h igh er d em an d fo r pro du c t s w it h fi xed IR . The i nt ere s t ra te exp os u re to in te res t rat e ri s k rem ai ns mo de s t, wi th in t he r i sk a pp et ite l im it s . I f m ar ket in te res t rat es woul d in cre as e, t he n e t int ere s t in co me o f th e G rou p wou ld b e positively affec ted, whereas if t hey decr eas ed, negative effec ts woul d be l ower du e to zero f lo or c la us e s inc l ude d in a n um b er of lo an co nt rac t s . W he n as s es s in g E VE s en s it iv it y, the G rou p me mb er s ap pl y di f f eren t s cen ar io s . For m os t m em b er s , t he wor s t- ca se r eg ul ato r y sce n ar io is i n th e ca se o f in cre as e of I R by 200 bps . From th e E VE p er s p ec tive , th e es t im a te d capi ta l se ns it i vit y of 200 b ps e qu al s - 6.4% o f th e G rou p’s capita l. Robus t op erational r isk managem en t In th e ar ea of o pe rat io na l r is k m an age m en t, whe re t he G ro up ha s es t ab lis h ed ro bu s t o pe rat io na l r is k cu lt u re, t he m ai n qu ali ta ti ve ac t iv it ie s ref er to t h e rep or ti ng o f los s eve nt s a nd identific ation, assessment, a nd management of operati onal ri s k s . O n th is b as is , con s ta nt i mp rovem en t s of co nt rol ac t iv it ie s , pro ce s se s , an d/ o r org an is at io n are p er for m ed . Be s ide s th a t, th e Gro up a ls o fo cu se s on p roa c t ive m it iga t ion , pre vention, and minimisati on of po tential damage. Spec ial at ten t ion i s de dic ate d to t he s tre s s -t es t in g s ys t em , b as ed o n Fig u re75: NL B Gr ou p’s E VE e vol u ti o n T a bl e 33: NP L , N PL r at io (i) an d Cove ra ge r a ti o by NL B G ro up m e mb e r s in EUR thousands NLB Gr oup member NPL 31 Dec 2021 % NPL 31 Dec 2021 NPL CR 1 31 Dec 2021 NPL CR 2 31 Dec 2021 NLB, Ljubljana 130,392.1 1.5% 75.1% 60.6% NLB Banka, Sk opje 59,728.3 4.3% 101.2% 64.7% NLB Banka, P odgorica 42,165.7 7.0% 54.0% 39.1% NLB Banka, Sar ajev o 19,045.5 3.1% 106.3% 87.6% NLB Banka, P rishtina 15,613.7 1.9% 243.2% 91.6% NLB Banka, Banja L uka 9,371.2 1.3% 189.3% 61.0% NLB Banka, Beogr ad 9,489.0 1.5% 93.4% 57.6% Komer cijalna Bank a, Beograd 36,342.9 1.4% 63.5% 21.7% T otal NLB Group bank s 322,148.4 2.0% 89.7% 57.2% T otal NLB Group 367,409.1 2.4% 86.1% 57.9% (i) By internal definition. -3.7% -4.8% -5.5% -6.1% -6.1% -6.4% -7.0% -7.1% -7.1% -7.2% -7.2% -7.3% -8.1% -9.0% -8.0% -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 31 Dec 2018 31 Mar 2019 30 Jun 2019 30 Sep 2019 31 Dec 2019 31 Mar 2020 30 Jun 2020 30 Sep 2020 31 Dec 2020 31 Mar 2021 30 Jun 2021 30 Sep 2021 31 Dec 2021 104 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report a sce na r io an al ys is r efe rr i ng to t h e pot en ti al hi gh s ever it y , low fre q uen c y even t s , an d m od ell in g da ta on l os s even t s . Fur t he r mo re, key r is k in dic at or s , s er vi cin g as a n ear l y war ni ng sy s t em fo r th e bro ad er f ie ld of o pe ra tio n al r is k s (su ch a s HR , pro ces s es , s y s t em s , an d ex t er n al con d it ion s) are re g ula rl y mo ni tore d , an aly se d , an d rep or te d, w it h t he a im to im p rove th e exi s ti ng i nt er n al con t rol s an d en ab lin g rea c t in g on t im e. Du r ing t h e COVID -19 p an de mi c in S loven ia an d t he S EE, t h e Gro up h a s taken n ec es s ar y m ea s ures t o pro tec t it s c us tom er s an d em ploye es by en s ur in g t he re levan t s afe t y con dit io ns an d ma kin g s ur e th at t h e se r vice s of fer ed by th e G ro up are pro vided wi thout any disr uption. The Group continuously of fered neces sar y ser v ices to clients , espec ially through digital ch an ne ls (mo bil e ba nk in g, v id eo ca lls , t el eb ank in g), wh ich th e G rou p con ti n ues t o devel op a t an acc el era te d pac e. A cr is i s ma na gem e nt t eam i s es tabl is h ed in t h e B an k an d oth er banking mem bers wit h full engagement of the Man agement Bo ard m em b er s . S pe ci al a t t en ti on was p ai d to co nt in uo us provi s ion o f se r vice s to c lien t s , t h eir m on it or in g, h e alt h prot ec tio n me as u res , a n d th e preve nt ion o f c yb er f ra ud . In ad dit io n , th e G rou p was al s o dili gen t ly m an ag in g oth er , no n -f in an ci al r is k s , r efe rr i ng to t h e Gr oup’s bu si ne s s m ode l or ar i si ng f rom ot h er ex t er n al ci rc um s ta nce s , w it hin t h e es t abl is h ed IC A AP p roc es s . Incorporating E SG ris ks The G ro up i s en ga ged i n con t ri bu t ing t o s us t ain ab le fi na nc e by inc or po ra tin g E SG r is k s in to i t s b us in es s s tr at egi es , r i sk m an a gem en t f ram ewor k , an d in te r na l gover na nc e ar ran ge m ent s . Wi t h th e ad opt io n of t he N LB Group Sus tain abilit y programm e, the Group impl emente d su s t ain ab ili t y e le me nt s i nt o it s b us in es s mod el . NLB G ro up Su s t ain abi li t y Co mm it te e over s ees t h e in teg ra tio n of t h e ES G fac tor s in to t h e NLB G rou p bu s in es s m od el . Th us , su s t ain ab le fi na nc e int eg rat es E SG c r ite r ia in to G ro up’s bus in es s a nd inves t m en t de ci sio n s for t he l as tin g be ne f it o f Gro up’s cli ent s an d so cie t y . ES G ri s k s do n ot re pre se nt a n ew r is k ca te gor y, but ra t he r an agg rava ti ng fa c t or fo r th e exi s t ing t yp es o f r is k s . Th e G ro up int eg rat es an d m an ag es t he m wi th in t h e es t abl is h ed r is k ma na gem e nt f ram ewor k , n am el y in t he a rea o f cre di t an d ope ra tio n al r is k . T he m an ag em en t of E SG r i sk s f oll ows ECB an d EBA gu ide lin es w it h te n den c y o f th eir c om pre he ns i ve int eg rat io n in to all r elevan t pr oce s se s . Th e a vaila bil it y of E SG da ta in t he r egi on w he re th e G ro up op era te s is s til l lac ki ng . Never t he les s, t h e Gr ou p s tr i ves to o bta in re levan t cli en t s’ da ta as p rer eq ui si te fo r ad eq ua te de ci s ion - m ak in g an d cor re sp on di ng p roa c t ive m an ag em en t of E SG r is k s . In rec en t year s , t h e B ank s ig ne d Framewor k Ag ree me nt s wi th t he EB R D, th e Cont ra c t o f Gu ara nt ee s wi th M IG A an d com mi t ted t o th e UN P r in cip les o f Re s pon s ib le B an ki ng . Con se qu en tl y , t h e Gr oup e s t abl is h ed m ec ha ni sm f or envi ron m en tal an d s oc ial s c ree nin g of c ur re nt o r pot en ti al fi na nc in g app lic at ion s a gai ns t th e MI GA a nd EB R D E xclu s ion Lis t and a pp lica bl e envi ron m en tal a nd s oc ial l aw s . Th e ma na gem e nt o f ES G ri s k s ad dres ses t h e Gr ou p’ s ove rall c red it appro val process and related credit por t folio m anagement. Su s t ain ab le f in an ci ng i s im pl em en te d in acc ord an ce wi th t he G ro up’s ES MS . B es ide a dd res s in g ES G r is k s in a ll relev ant s tages of the cr edit-granting process relev ant ESG cr it er ia wer e als o co ns i der ed in t h e coll at era l evalu at io n pro ces s . On po r t f oli o level t he G ro up d oe s not f ace a ny lar ge con cen t rat io n toward s sp ec if ic N ACE ind u s t ri al s ec tor s expo se d to c lim at e r is k , w he reby t he ro le o f tra ns i tio n al r is k i s more prevailing. The Group carefully cons iders potent ial reputat ion and liab ili t y ri s ks w h ich co ul d ar is e f rom s u s ta in abl e f in an cin g of it s c lie nt s . Spe ci al a t t en ti on i s given t o th e ap proval o f new pro du c t s an d m on it or in g of f ul f ilm en t of r elevan t c ri te ri a by th e cli en t s . Ad di tio n al key ri s k in dica to r s ha ve be en add res s e d, s er vi cin g as a n ea rl y war ni ng s y s te m in t he a rea of ES G r is k s . B e si des , phys ica l r is k s , as p ar t o f ES G r is k s in th e are a of o per at ion a l ri s k , are a ddr es s ed i n th e G rou p’s bu si ne s s con t in ui t y m an a gem en t (B CM) . BC M is c ar r ie d ou t to prot ec t lives , goo ds , a nd r ep ut at ion . Bu s in es s co nt in ui t y pla ns are pr ep are d to be u s ed in t h e event o f na t ur al di sa s t er s , IT dis a s te r s , an d th e un de s ire d ef fec ts o f th e env iro nm en t to mitigate their c onsequences. A s s ys t em ica lly i mp or ta nt i ns tit u t ion , t he G ro up i s in cl ud ed in to 2022 ECB Clima te S tr es s te s t exerc is e. Pr ep ara ti on ac ti vi ti es in th e G rou p for t he p ur p os e of t hi s exerci s e, con s is tin g of t hr ee mo du les , are al rea dy un d er way. By pe r for mi ng t hi s exerci s e ECB inten d s to as ses s h ow b ank s a re pr ep are d for d eal ing wi th f in an ci al an d ec on om ic s ho ck s s tem mi ng f rom c lim a te ri s k . Th e exerci s e wil l be co n du c te d in t he f i r s t h al f of 2022 af ter w hi ch t he ECB wi ll pu bl is h ag gre ga te re su lt s i n J uly 2022. Fur t he r in for m at io n on r i sk m an ag em en t is a vail ab le in t h e Note 6 of th e Fi na nc ial p ar t of t h e rep or t, Pill ar 3 Di sclos ures an d NLB G rou p S us t ain ab ili t y Rep or t 2021 . 105 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report IT infrastr uc ture and reliabilit y High per form ance conf irm ed wit h num bers IT per fo r ma nc e is m on ito re d th ro ugh a s et o f rel evant in dica to rs t h at a re li nked t o th e B ala nc ed S cor eca rd (B SC ) sy s t em . Th e in di cat or s s how a h igh p er fo rm a nce o f IT ope ra tio n s an d s ucce s s f ul r i sk m an ag em en t in t hi s are a . The a vail abi li t y o f th e in for m a tio n s ys tem in t h e B ank i s a t ver y hig h level of 99.98% ( 2020: 99.92%), an d th e s ha re of unp la nn ed i nt er r up ti on s is ver y l ow , 0.02% ( 2020: 0.08%). In 2021, th e n um be r of da ys w it h ou t s ys t em /ser vice i nt er r up ti on s were a t 83.6% (2020: 78.5%). Har mo ni se d S er vic e Level Agre em en t s (SL A) ar e in pl ace w it h u se r s of t he in fo rm a ti on sy s t em , wh ic h th e B an k m an age d to f ul f il in a ve r y high prop or t ion . High IT o per at io na l per fo r ma nc e was al so reco rde d in t he G ro up m em b er s (b et wee n 99.90% an d 99.99%). Main IT initia tives T ransfor ma tion The m a in fo cu s was t he t ra ns f or m at ion o f IT in t er m s of org ani s at ion , a g rou p pe r sp ec ti ve, pro ces ses , peo pl e, an d tec hn o log y. IT supp or t ed a m ore a gil e way of d el iver y, to bet te r pa r tn er in g wi t h bu si ne s s , an d a s a res ul t b e mo re ef f i cie nt a nd e f f ec tive . It al s o hir ed n ew le ade r s an d exp er t s es pe cia lly i n th e ar eas o f IT s ec ur it y an d di git al b ank in g . Change of delivery approach The t ea m ma na ge d to re ach i mp or ta nt a ch ievem en t s in foll owin g n ew s tr at egi c dire c t io ns i n te rm s of s o lu ti on d eli ver y . Ma na ge d to mi gra te f ir s t app lica ti on s fr om m ain fr am e to dis tr ib ut ed s y s te ms , sel ec ted m u lt ip le n ew clo u d so lu ti on s in s te ad of o n - pre mi s e, an d s t ren gt h en ed re s our ces in d igi ta l and front-end delive r y . Cor e s ystem s consolidation IT foll owed t he co re b an kin g s ys tem s tra te gy an d s uc ces s f u lly del ivere d t he p roo f of co nce pt fo r con s oli da te d core b an k ing sy s t em . B as e d on t he s u cces s o f th e p roof o f con ce pt, th e co re sy s t em co ns ol ida t ion p roje c t i n S loveni a bu s in es s en t it y was initiated. The Group con tinues t o pro vid e it s clien ts sus tainable and ef ficient ser vices suppor ted through h ighly reliable and s ecure tech nolo gy plat form s . The B ank contin ues to ac tively pursue it s tech nology t rans form atio n programme. In line wit h th e refreshed IT s trate gy introd uced in 2020, the IT team b egan delivering on out lined roadm aps and al so su ccessf ully deliver ed a proof of concept for a c on solidat ed core banking s yst em . The Group i s aiming t o centralise and uni f y gov er nance, applications , and inf rast ruc ture. The Bank al so contin ued t o rollout an e f fec t ive online collaboration s olu tion throug hou t the Grou p and enabled a majorit y of employees to work from home wit hou t inter r uption to op eration s . Due t o the g eneral cyb er secur it y risk s inc rease, special f ocus , ext ra resources, and investm ent s were made to raise the over all level of cyber s ecur it y resilien ce. Application archite c ture App lic at io n arch it ec t ure i s foc us e d on t he G ro up s ol ut io n an d ma jor i t y of new s ol u tio n se le c t io ns a re do ne a s a G rou p s tan d ard w it h rel at ed G ro up ro adm ap s . Th e IT t eam h a s ma de s ign if ic an t pro gre s s in s im pli f yin g app lic at ion s w it h th e key achi evem en t bei ng t h e ret ire me nt o f th e KR A T c ore s y s te m for syndicated loans . Group -wide capa bilities ext ended Group -wide capabilities were signif icantly ext ended (mainly in th e G rou p com pe ten ce c en tre i n B elg rad e, S er bia) for t h e new digi tal banking plat form, ente r prise int egration plat form, the busines s process management plat form development within th e reg ion , a nd t h e c yb er s ec ur i t y a n d inf ra s t r uc tu re gro up . The c om pe ten ce ce nt re h a s 46 em ploye es . Data m anagemen t The B a nk a ch ieved s everal n ew m ile s to ne s in t he imp le me nt at io n of a G rou p -w id e da ta m an age m en t pla t for m wh ich e nco m pa s se s an en te r pr is e d ata wa reh o us e, ad van ced analy t ic s, r isk man agemen t analy t ic s, prof itabilit y, d ata gover na nc e, an d co ns ol ida te d G rou p reg ul at or y rep or t in g. In Oc tob er 2021, t h e NLB in it ia ti ve Leverag in g inf or m at io n capi tal : Fin - te ch a rch it ec tu re at t h e he ar t of t h e tra di ti on al I T and C ybe r Securit y 99.98% the a vailabilit y in NLB . 1,366,984 digital user s in th e Group. 106 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ban k , d evelop ed a s pa r t of t he D a ta M an age m en t Proj ec t of th e G ro up, was s el ec ted a s on e of t h e top 6 f in al is ts i n Gar tner’s E ye on Innov ation A wards competitio n . Ou tlook In th e co mi ng yea r s , th e B an k is ex pe c t ed to c on ti nu e to inves t i n new ly a dop te d tec hn o log ies t o s upp or t t he b u si ne s s s tr at eg y , e sp ec ial ly in t h e are as o f digi ta l, d ata , an d c us tom er relati onship management (CRM ), consoli dating the Gr oup’ s inf ra s t r uc tu re, s im pl if yin g cor e s ys t em s an d to a chi evin g su pe r ior c lie nt ex per i en ce in t er m s of q ual it y , i nn ovat ion , reliabilit y , an d secur it y. Strengthe ning the te am and ex tra invest men t s in c yb e r securit y . 16% 25% 11% 19% 10% 59% 22% 50% NLB Banka, Beogr ad NLB Banka, Sar ajevo NLB Banka, P odgorica NLB Banka, Prishtina NLB Banka, Banja Luk a NLB Banka, Skopje Komer cijalna Banka, Beogr ad NLB Fig u re 7 6: D ig it al p e ne t ra t io n of t h e Gr o up’s b an k s as a t 31 D e ce mb e r 2021 C yber securit y Strengthening team and implem ent ing new sol ution s The G ro up i s gi vin g s pe cia l foc u s to c yb er s ec ur i t y ,an d consequentl y assuring the co nf identia lit y , integ r it y , and th e avai lab ili t y of da ta , in for m at io n , an d IT s ys t em s t ha t su pp or t ba nk in g s er vic es an d pr od uc ts f or c lie nt s . Cy be r se cu ri t y in th e G ro up is c on s ta nt ly t es t ed a nd u pgr ade d by se cu ri t y as s es s m en t s , in de pe nd en t revi ews , a nd p en et ra ti on tes tin g . Cybe r s ec ur it y is r eg ula r ly di s cu s se d a t th e B an k ’s Inf or m at ion S e cu ri t y Ste er in g Com mi t tee , Op era t ion al R is k Comm i t t ee, a nd M a na gem e nt B oa rd m ee tin g s . D ur in g 2021, th e G rou p in cre as ed i t s cap ac it y in te r ms o f h um an res ou rce s by hir in g s pe cia lis t s in di f f ere nt d om ain s . T he G ro up now h as a g rou p tea m on t wo loc at io ns , i n Lj ubl jan a an d Belgrade. Beside increasing capacity in human resources, imp rovem en t was m ad e in d ete c t io n cap abi lit ie s by fi ne t u nin g det ec tio n s ys t em s , a s well a s by per fo r mi ng h ard en in g on ne t wo rk d evic es ac ros s t h e Gr ou p. Th e th re at i nt ell ige nce pro ces s wa s es t ab lis h ed an d n ew IT S ec ur it y s t ra teg y was ado pte d fo cu si ng o n un if ica t ion o f IT se cu r it y s ys t em s an d cen tr ali sa t ion o f pro ces s es . A new G rou p v uln era bil it y ma na gem e nt p la t f or m was s el ec ted . A t ech n ical m e as ur es gui de lin e, a s th e G rou p s ta nd ard fo r to ol s an d pro ces s es , was als o ad opt ed a nd ro ll ed o ut t o th e G rou p. All empl oy ees ed ucated , contin uou s infor ma tion exchange All e mp loyee s in t he G ro up ar e con ti n uo us ly e du ca ted a bo ut th e im po r tan ce of i nfo r ma t ion / c yb er s e cur i t y , a s well a s so ci al engineer ing techn iques . The Group ban ks are providing em ploye es an d c us t om er s w it h se c ur it y n oti f ica ti on s , es pe cia lly f or t he o cc ur ren ce o f th re at s in t h e (gl ob al ) envi ron m en t wi th p ote nt ial i mp ac t on t he b an k s’ IT s ys tem s , se r vice s , pro du c t s , and c li en t s . Th e B an k is a ls o tes tin g t he aware ne s s of i t s em pl oyees w it h s oci al en gi ne er in g at ta ck sim u la ti on s . Th re at in te lli gen ce d at a is s h are d by th e G rou p tea m to all G ro up m em b er s wi t h inf or m at ion o n th e l at es t threats and recommendati ons on miti gation measure s . Vision Mission Main principles • increase client satisfaction in all segments with new digital omnichannel platform, digitize client journeys and inter actions (CRM), and achieve oper ational ex cellence; • have an effective IT ar chitectur e using cloud solutions and open-sour ce softwar e where possible; • introduce a ne w way of agile dev elopment and DevOps tr ansformation leading to shorter r eleases cycles, automated testing, and less manual task s; • ensure the necessary de velopment capacity - hir e right talents with the digital skills and looking forwar d to ex ecute change; • introduce modern c ollaboration tools and digitize internal pr ocesses; • lever age the investment made in the data platform; • assure quality, security, and availability of the IT systems and applic ations; • have a highly motivated, effective, and satisfied IT team working closely with the business side. IT Str a tegy 2020-2024 At th e en d o f th e 2020, a ref re sh ed IT S t rat eg y was a dop ted t h at a ls o in cor p ora te s th e G rou p dim e ns io n . Build the best digital banking IT team in the SEE r egion. Enable the best client and employ ee experiences thr ough reliable, effective, secur e, accessible, and scalable IT solutions. W e ar e on y our team. The first gener ation opened clubs. The ne xt gener ation w on all the national championships. The thir d gener ation r aised r egional champions. W e will help this gener ation r each for the stars. Nothing connects, str engthens the bonds of cooper ation or teaches how to win and lose with dignity as w ell as spor t does. Especially in a r egion with such diversely rich sporting history. Sinc e we believ e that spor t boasts an immense pow er for connecting, enhancing physic al and spiritual well-being and inclusion, we ar e proud to support top athletes and young sports pr odigies on a r egional level, among those ar e girls from U13 football team NK R adomlje. This way, we ar e becoming one of the lar gest sponsors of spor t in the r egion. 108 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Empl o y ee Headcoun t Number of em ploy ees reduced The G ro up c ont in u ed w it h opt im is a ti on of p roc es s es a nd r ig ht sizi ng i t s s ta f fi ng l evel. D u e to t he a cqu is i tio n of Kom erci jal na Ba nka , B eo grad a nd i t s s ub si dia r ies i n De cem be r 2020, th e nu mb er o f em ploye es a t th e 2020 YE ro se t o 8,792 bu t h as down s ized t hro ug ho u t th e year t o rea ch 8,185 a t th e 2021 YE . W ork from hom e Du r ing t h e year , t h e COVID -19 p an de mic s til l in fl ue nce d bu si ne s s op era t ion s an d wor k wa s org ani s ed in a wa y to min im is e t he r i sk o f in fec ti on s . Th e G rou p con t in uo us ly en abl ed e mp loyee s , wh os e pr es en ce in t h e Gro up’s prem i se s was n ot es s en t ial to b u si ne s s pro ces s, t o wor k fr om h om e (remot el y) (th e Gro up: 32% , NLB: 47%). A ll de ci si on s rel at ed to he al th a nd s a fet y were m a de on t im e an d fo llow in g th e epidemiological circums tan ces . Striv e to Be ‘T op Emplo y er’ The G ro up i s con t in uin g to s tren g th en i t s HR p rac ti se s ba se d on fe edb ac k fro m rep u tab le i ns tit u t ion s an d b en ch ma r k s As a m arket leader , t he G roup realises th at inv es ting in e mployees is crucial . Enga ged employees contribu te s ignif icant ly to bus ines s goals an d result s . Tha t ’s why the Group con tinue d with i ts l ong -l as ting tradi tion of inv es tin g in employ ee development, along with searching for new approaches and in troducin g new practices to impro ve organisational cul ture, leadership, and emp loy ee experien ce. C OVID -19 p andem ic impac t s were felt th roughou t th e year and so th e heal th an d saf et y e nvironment was of the h ighes t prior it y . The Group con tinuo usly enabled the m ajorit y of non- branch employ ees to work from home, and on average 32% of employees did so. Due to th e CO VID -19 si tua tion , the development a c tivities t ook place in an online e nvironment an d remained f ocuse d on the ch alleng es of remote work and l eader ship. Hum an Resour ces ‘ To p Empl o y e r ’ for the 7 th consecutive y ear . T a bl e 34: NL B G ro up h e ad co un t by c ou n tr i es a s a t 31 D ec em b er 2021 a nd 2020 Country 31 Dec 2021 31 Dec 2020 Changes Y oY Slov enia 2,619 (NLB: 2,510, other: 109) 2,691 (NLB: 2,591, other: 100) -72 (NLB: -81, other: 9) Serbia 2,901 3,198 -297 North Macedonia 877 877 0 BiH (i) 94 2 1,086 -144 Koso vo 463 463 0 Montenegr o (ii) 3 74 467 -93 Germany 1 1 0 Switzerland 2 2 0 Cr oatia 6 7 -1 Gr oup T otal 8,185 8,792 -607 (i) The sale pr ocess of Komer cijalna Banka, Banja L uka w as concluded in December 2021. (ii) The mer ger of NLB Banka, P odgorica and Komer cijalna Banka, P odgorica was c ompleted in November 2021. 109 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Employment – Hackathon The s tra te gic d ire c t ion o f th e B an k de f ine s em pl oym en t of n ew prof i les n e ede d on a G ro up l evel. A s a tre nd se t ter , t he B a nk org ani s ed t wo NLB Ha ckat h on s (one fo r Da ta S ci en ce, an d se con d on e fo r Op en F in an ce) to reco gn is e ta len t s in i t s h om e reg ion an d p rom ote t h e B an k as a de s irab le e mp loyer . Engagemen t of employ ees A cr u cia l par t o f s ucce s s is t h e mo ti vat ion a nd e ng ag em en t of em ploye es . In 2021, a t ota l of 72% of e mp loyee s pa r tic ip at ed in th e s ur vey. 15 Comp ar ed to t h e year 2020, t he p erc en tag e of eng ag ed e mp loyee s (loyal a n d ps ych ol ogi call y com m it te d to th e org an is at io n) ros e by 10% to 53% . Fig u re 77: NL B Gr ou p Em p loye e En ga g em e nt 2021 Engaged 53% Not engaged 36% Actively disengaged 11% Pr epar ed to T ackle F u ture Challen ges V ariou s training ac t ivities to em brace changes The G ro up s tr ives f or h igh q ua lit y an d s t an dar ds of a mo der n l ea rn in g org an is a tio n . D ue to t h e rap idl y ch an gin g envi ron m en t, th e Gro up ex pan d ed i t s of fer of t ra ini ng s wi th acce s s to f u t ure s ki lls t opi c s , m ad e tr ain in g mo re acc es s ib le an d on de ma n d, w hil e al so s til l of fer in g cl as s ica l ch an ne ls o f tra ini ng a nd wo rk s h op s . T rainings , e -lear nin g Du e to COVID - 19, m os t o f th e tr ain in gs wer e con d uc ted o nli ne . The e m ph as is o f on lin e pr ogr am me s was fo cu s ed o n var iou s topi c s f rom t he B a nk in g & Fin an c ial ar ea , Lea de rs h ip & Ma na gem e nt, S ale s , IT , to P er s on al D evelo pm en t, Comp lia nc e an d th e Work Envi ron m en t, and E SG & S o cia l Res p on si bil it y. Alo ng w it h t he se a rea s , t he G ro up al s o ma de s ub s t ant ia l inves t m en t in t rain in g em pl oyees i n Da ta A na ly ti c s & S cie nc e acro s s th e G ro up. Onlin e lear ning wi th access to 7,000+ cou rses On 1 M arc h , th e G rou p en ab le d em ploye es’ a cces s t o th e on lin e le ar ni ng p la t f or m Ud emy fo r B us in e s s . Th e aim wa s to em power em p loyee s over th eir ow n devel op me nt a nd g ive th em o ppo r t un it ies t o ups k ill o r res k ill , an d be b et te r pre pa red for upco m ing challenges. 15 N LB B a nka , B e og ra d an d P od go r ic a wer e exe m pt f ro m th e s u r v ey d ue t o th e integr ation activities with Ko mercijalna B anka. wi th b es t- in - cla s s HR p rac ti se s . Th e B an k was o nce a ga in reco gn is ed a s a ‘ T op Emp loyer ’ by t he D u tc h T op Emp loyer Ins ti t ut e for t he 7 th con s ec ut ive yea r , dem o ns tra ti ng a h igh level of ex pe r ti se a nd c on tr ib u tio n in t he a rea s fr om p eop le strategy , le adership, d igitali zation, talent ac quisition a nd development, per form ance manag ement, sus tain abilit y, an d a lot m ore . Th e B an k wil l con ti n ue en s ur in g an even m o re stimulating w ork env ironment i n the future. C on tin uing a lon gs t anding tradition of inv es ting in employ ees Organisa tional cult ure Org an is at io na l cu lt u re is a n im po r tan t dr iv in g forc e of com pa ny devel opm e nt an d s uc ces s , th at ’s why t he G ro up h as dec id ed to t ake an ac ti ve and c om pre he ns i ve app roa ch to develo p it. M ea s ure me nt o f th e or gan is a ti on al c ul t ure g ave a roa dm ap on h ow to gr ow and f u r th er e nh an ce co ns tr u c t ive organisational st yles. This includes inv olv ing employ ees fro m all b ackgro un d s , are as , a nd l evels i n foc u s gro ups , and provi de s in - d ept h in s igh t s on t h e ac tio ns t h at n ee d to b e taken to en s ure even h igh er e ng ag em en t an d s ucc es s in t h e are as of leadersh ip, employ ee empowerment, and interper son al coopera tion . Leadership development Sig ni fi can t in fl ue nc e on em pl oyee s at is fac tio n der i ves fr om th eir wo r kin g env iro nm en t, an d le ade r s on a ll level s h ave a sig ni f ican t ro le in c rea t ing a p ro du c t ive a tm os ph er e. Th e Group is actively dev eloping leadership competencies of se nio r ma n age me nt t o ali gn wi th t h e ac tiv it ie s of c ha ng ing org ani s at ion al c ul t ur e. Ens u r ing t h e s ucce s s ion fo r ma na ger i al po si t ion s is a ls o of key im po r tan ce t hro ug ho u t th e Gro up a nd o ne o f th e s t ra te gic ac ti vi ti es . Dev eloping talen t Am on g it s e mp loyee s , t he G ro up id en ti f ied t al ent s in th e fi el ds of l ea de r sh ip, pr ofe s si on al , an d youn g ta len t s . T hey are pr ovided additional oppor tunities , knowledge, and skills ne ed ed to m an ag e an d le ad in c h all en ges o f th e f u t ure, a s well as individual dev elopm ent act ivities . Dev elo ping NLB Em ploy er B rand T o at tract top talent thr oughout the region, the Group has ide nt if ie d t he n ee d to deve lop t h e Emp loyer B ran d a c t ivel y. The G ro up h a s don e in te rn al a n d ex te rn a l su r veys , in ter v iews , an d mu lt ip le fo cu s gro up s to id en ti f y th e rel evant e mp loyer valu e pro pos i tio n . In f ir s t 10 m on th s , t h e mo s t of te n en roll ed c our s e s were f rom area s of IT D evel opm en t, Da ta A n aly ti c s & S cie nc e, O f f i ce Produc tivit y and Pers onal Development. W ell - bein g & He al th Creating a work environmen t The G ro up i s al ways c om mi t ted to o f f er in g kn owl ed ge o n goo d h eal t h, c re at in g a wor k env iron m en t th a t en ab les q u ali t y interpersonal relationship s , and p romoting ac tivities that en ha nce t h e go od h eal t h an d sa t is f ac t io n of em p loyee s . Promoting h ealt hy habit s and new heal th an d saf et y m eas ures Du r ing t h e pa nd em ic , e mp ha s is was p la ced o n devel opi ng he al thy h ab it s . H ea lt h tr ain in gs wer e org an is ed to h e lp em ploye es co pe w it h me nt al s id e of n ew real it y an d em ph as is e b en ef it s o f reg ul ar p hys ical a c t iv it y. The G ro up c ont in u ed to m ake s ur e th a t pre sc r ibe d pro tec ti ve me as ur es ar e fol lowed an d e qu ipm en t (ma sk s , g loves , a nd dis in fe c t ant s) was avail ab le to e mp loyee s an d cl ien t s . I t al so en cou rag ed wor k in g fro m ho m e. On average 32% of the G roup's em ployees worked from home in th e per iod of pandem ic . 110 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Remuneration polic y for mem bers of the S uper visor y Boa rd and Manag emen t Bo ard of NLB Me mb er s of t h e S up er vi so r y Bo ard m a y rece ive re mu ne ra tio n that is compliant with the r elev ant resoluti ons of the B ank’s General Meetin g. Me mb er s of t h e M an age me nt B o ard re cei ve rem un e rat io n con s is t in g of a f ixe d pa r t of th e s al ar y an d a var iab le p ar t of the salar y . The variable par t of remuneration is allocated and pai d in t he fo r m of ca s h an d/ or i ns tr u me nt s . Remuneration polic y for employees in NLB and in th e Group In 2021, a ref res h ed R em un er at ion P oli c y for e mp loyee s in NLB an d in t h e Gro up wa s ad opt ed w he re t he b as ic p ri nc ip les rep res en t th e f ram ewor k fo r rewardi ng e mp loyee s in NLB a nd th e G rou p. Th e rem u ne rat io n po lic y d ef in es f i xed an d var ia ble remunerat ion, the goal- set t ing sys tem and per formance cr it er ia (KP Is), an d s et s o u t th e con di t ion s fo r th e all oca t ion and paym ent of the variable par t of remuneration . Divers it y Polic y Fra m ew o r k The p ol ic y s et s t he f ra mewor k i n th e are a of d iver s it y an d rep re se nt at ion o f bot h ge n der s i n th e S up er vi so r y Bo ard a nd Ma na gem e nt B oa rd an d t he s en ior m a na gem e nt. W it h t he p oli c y, the B an k als o s et s t h e fra mewor k f or di ver s it y wi th re ga rds t o education , range of knowledge, skills and experience, age, gen der , and internat ional experience. Objec t ives • Cover an ad eq ua te ly wi de ra ng e of k now le dge , sk ill s , an d exp er t exp er i en ce of i t s me m ber s , and b e com p os ed w it h reg ard t o th e foll owin g cr i te ri a: exp er ie nce , rep ut at io n , ma na ge me nt o f any co nf lic t s of in te res t, inde pe nd en ce, a vail abl e ti m e, an d col le c t ive su it abi lit y of t h e bod y as a w h ol e. • Intern ational experience of its mem ber s in different areas . • Diversit y as regards gender representation. • Dive r si t y as re gar ds t he a ge s t r u c t u re, wh ic h sh o uld r ef lec t th e ag e s t r uc t ure in t h e B an k to th e l arg es t ex ten t po s si ble . The g oa ls of t h e Pol ic y s h all al s o be re as on ab ly a pp lie d to th e p rovi sio n of di ver s it y of t he w id er m an ag em en t. T a bl e 35: D ive r s it y - rev ie w of m an a ge m en t b od ie s an d s e ni or m a na g em en t i n 2021 an d p la n fo r 2022 Supervisory Boar d of NLB Management Board of NLB Senior Management of NLB 2021 Plan for 2022 2021 Plan for 2022 2021 Plan for 2022 Wide r ange of knowledge, skills and pr ofessional experience High High High High High High International experienc e of the members in differ ent areas High High High High Medium High Medium High Age structur e 20-30 = 0 0 20-30 = 0 0 20-30 = 1 1 30-40 = 0 0 30-40 = 0 0 30-40 = 5 5 40-50 = 1 1 40-50 = 3 5 40-50 = 19 19 50-60 = 8 6 50-60 = 0 1 50-60 = 13 13 60+ = 3 5 60+ = 0 0 60+ = 0 0 Shar e of women 42% 42% 0% 16.7% 45% 45% Remuner a tion sy s tem as a motiv ation for engaged and comm it te d em plo y e es F or an employee w orking in the companies within the Gr oup, salary is composed of: Fixed part Determined ac cor ding to the complexity of the w ork for which the employ ee has concluded a contr act of employment. V ariable part Depends on the employee’s performance for r eaching set goals. Empoy ees are awar ded: 1. quarterly or half-y early compensation and 2. annual r ewar ds r elated to the business performance of the bank in which they w ork. P er formance assessment is done by the head of the emplo yee’s or ganisational unit using a top- down appr oach to ev aluate the employee’s achiev ements in relation to goals set for a particular assessment period (quarter or half-year). The goals ar e set acc ording to the ‘SMART’ method, meaning that they have t o be specific, measurable, achiev able, rele vant, and time-bound. 8,185 employees in the G roup family . 111 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Rul es and Pr o cedures Cor po rat e gover n an ce of t he B a nk i nc lu de s th e pro ce s se s th rou gh w hic h B an k obj ec ti ves are s et a nd p ur s u ed (dire c t ed an d con tro ll ed ), an d la te ly i t is b eco mi ng a n ef fi cie nt wa y to channel investor - driven initiatives related to sus tainabilit y . Cor po rat e gover n an ce wi th i t s pr i nc ipl es i den t if ie s th e dis trib ution of righ ts and resp onsibili ties among dif fe rent s takeh o lde r s in t he B a nk (M an ag em en t an d S up er vi so r y Bo ard , s ha reh ol de r s , cre di tor s , a u dit or s , re gu la tor s , and oth ers takeh ol der s) , an d in cl ude t h e r ul es an d p roce du res f or ma kin g de ci si on s in co r por at e af fai r s . Th e mo s t im p or tan t r ule s an d pro ce du res a re: Ar ticles of A ss ociation of NLB In acc ord an ce wi th t h e app lic abl e B an kin g Ac t (ZB an - 3) an d Comp an ie s Ac t ( ZGD -1) , th e A r tic le s of A s s oc ia ti on of N LB th e Ba nk h a s a t wo -ti er g overn an ce s y s te m , acc ordi ng t o wh ich th e B an k is m an ag ed by t he M an ag em en t B oa rd an d it s ope ra tio n s are s up er v is ed by t he S up er v is or y B oa rd ( ht tps:/ / www . n lb . si/ cor porat e - governan ce ), wh ile shareholders exerci se t h eir r ig ht s o n me et in gs o f sh ar eh ol der s . Corporate Gov ernan ce Statem ent of NLB Ap ar t fro m th e bi nd in g le gal f ram ewor k , t he B a nk a ls o fol lows th e Cor po ra te G over na nce Co de fo r Li s te d Com pa ni es (valid sin ce 1 J an u ar y 2017). Th e Cod e def i ne s th e gover n an ce, ma na gem e nt, an d le ad er s hi p pr in cip le s ba s ed on t h e ‘comp ly or exp lai n’ pr in cip le o f com pa ni es li s te d on t h e Sl oveni an reg ul at ed m ar ket ( ht tps:/ /w w w . ljse . si ). Devi at ion s f rom t he reco mm e nd at io ns o f th e m en ti on ed co de ar e pu bli s he d in t he Corporate Governance Statement of NLB, which is adopted by th e NLB S up er vi s or y B oar d. T he m en t ion ed s tat em en t is pr ep are d acco rdi ng to A r ti cl e 70 (p ara grap h 5) of t he Comp an ie s Ac t ( ZGD -1) a nd i s pa r t of t he B u s in es s R epo r t in th e NLB G ro up A nn ua l Re por t. T he m en t ion ed s tat em en t is als o p ubl is h ed on t h e B an k ’s webp age ( ht tps:/ /w w w . nlb .s i/ corp orate - govern ance ), a s well a s on t he we bp age o f th e Lju bl jan a St oc k E xcha ng e – SEOn et ( ht tps:/ / seo net . ljse . si ). Corporate G ov er nance Polic y of th e NLB and NLB Group Corporat e Gov e rnan ce Policy The c or po ra te gover n an ce f ram ewor k of t h e B ank , bein g th e Cor po ra te G over na nce P oli c y of N LB (Novem be r 2020), Corporate governance of th e Ban k is base d on legis lat ion of th e RoS , par ticular ly (bu t not ex clu sively) the pro vi sion s of the c hange d Companies Ac t (ZGD -1) and th e Ba nking Ac t (ZB an - 3), the D ecision o f the B oS on In ter nal Gov er nan ce, the Mana gemen t Bo dy and the Adeq uat e Inte rnal Capital A s ses sm ent Procedure for Bank s and Sa vings B ank s , the rele vant EBA Guidelin es on internal governance , the E BA Gu idelines on t he as ses sm ent of t he sui tabilit y of mem bers of t he m anagem ent body and key func tion hol ders , th e EBA Guidelines on remuneration prac tices, and the E U regula tions regarding E SG . is de s ign ed j oin tl y by th e M an age m en t Bo ard a nd t h e Super viso r y Bo ard of the Bank . Therein are publicly disclos ed com mi tm e nt s t o sh ar eh old er s , c lie nt s, c re dit or s , em p loyee s , an d oth er s takeh ol der s a s a w ho le, h ow th e B an k wi ll be su pe r vis e d an d ma na ge d, a s well a s de ci si on w hic h cor p ora te gover na nc e cod e th e B an k s ho ul d fol low ( ht tps:/ /w w w . n lb .si/ corp orate - govern ance ). Th e Cor po ra te G over na nc e Pol ic y of NLB s ho ul d be r ead t og et he r wi th t he N LB G rou p Cor po ra te Gover n an ce Po lic y i n wh ich t h e cor p ora te g overn an ce pr in cip le s an d m ech an is m s of t h e Gro up m e mb er s (NLB exclu de d) ar e def i ne d an d gover n ed . NLB Group Code of Conduc t In th e NLB G ro up Co de of Co nd uc t (Code), val ue s , mi s s ion , an d core p r in cip le s of co nd uc t are d ef in ed to ge th er w it h se t gu ide lin es t o wh ich t h e Gro up i s co mm it te d. T he Co de des cr i be s th e val ues a n d th e ba s ic pr in ci pl es of e th ica l bu si ne s s con d uc t th at t h e Gr ou p res pe c t s, p rom ot es , a nd expe c t s t o be fo llowe d in t he w ho le G ro up ( ht tps:/ /ww w . nlb .si/ code - of- con duc t ). O p era ti ng w it h in te gr it y an d re sp on s ibi lit y is a key ele m en t of th e G ro up’s corp or ate c ul t ur e. It i s imp or t ant t o ac hieve b us in es s g oa ls a s well a s th e way t o ach ieve th e m . Th e Gro up d em an ds t h at eve r y emp loyee , reg ardl es s o f th ei r job o r lo cat io n of wor k an d ever y ot h er s takeh o lde r of t he G ro up, co mp lie s wi t h th e hi gh es t s tan dar ds of in te gr it y. The key for ac hiev in g th es e s t an dar ds i s s t ron g cul t ur e of co mp lia nce p rac ti ced by t he G ro up . Remuneration Polic y for the mem bers of the S uper visor y Boa rd and Manag emen t Bo ard of NLB In acc ord an ce wi th t h e f if th p ara grap h of A r ti cle 2 94a of t h e Comp an ie s Ac t, t he B an k p ub lic ly po s te d on i t s web si te t he Rem u ne rat io n Pol ic y fo r th e M em be rs o f th e S up er vi s or y Bo ard o f NLB an d t he M e mb er s of t h e Ma na ge me nt B o ard of NLB (ver s io n 1), wh ic h was a dop ted by t h e Su pe r vis o r y Bo ard o f NLB o n 15 Oc tob er 2021 an d ap proved by t h e Ge ne ral M ee ti ng o f Sh are ho ld er s of N LB on i t s s es s ion o n 16 De cem be r 2021 ( ht tps:/ /w w w . n lb . si/ cor pora te - governa nce ). The r es ol ut io n was l egi ti ma te ly p as s e d wi th t he n e ces s ar y ma jor i t y o f th e vot es ca s t. C orpor a te G o v ernan c e 112 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Du r ing t h e year , t h e Ba nk a ls o gra du all y b uil t m ech a ni sm s to as s ur e ver y imp or t ant a n d com pre he n si ve s te ps in i nt egra t in g su s t ain ab ili t y i nt o ban k in g ope ra ti on s , th e s o - ca lle d E SM S . The E S M S is a s et o f po lic ies , p roc ed ure s , to ol s , an d in ter n al cap aci t y to ide nt if y an d m an ag e a fi na nc ial i ns ti t ut ion’s expo su re to t h e envi ron m en tal a nd s oc ial r i s k s of it s c li en t s/ inves t ee s . Si gn if ica nt c ha ng es in t h e le nd ing p roc es s o f th e Gro up a re on e of t h e mo s t im po r tan t con s eq ue nc es of t h e int ro du c t ion o f th e E S MS . The r i s k pol ici es wer e upg rad ed to follo w EC B and EBA guidel in es. The B a nk a nc ho red E S M S at d if fere nt l evels w it h in th e B an k and the Group thus guaranteei ng that it receiv es at tention fro m th e hi gh es t d ec is ion -m ak in g bo die s in t he B an k an d in th e G ro up m em be r s . W it h th e e s tab li sh m en t of t he Su s t ain abi li t y Co mm it te e in t h e fall o f 2021, wh ich i s a n ew adv is or y B o dy to t h e Ma na gem e nt B o ard , th e B an k bu il t a 4-l evel NLB G ro up S u s tai na bil it y G overn an ce S tr uc t u re, a s fol low s : Mo re in for m at io n is a vail abl e on ht tps:/ /w w w . n lb .si/ nlb -s us tain abilit y - f ram ewo r k . pdf an d in t hi s rep or t, in Sus tain abilit y chapter . Supervisory Boar d of the NLB Sustainability T eam Sustainability Committee Sustainability working gr oups Policy on t he Provision of Diversit y of the Managem ent Body and S enior Managem ent Poli c y on t h e Provi si on of D ive r si t y of th e M an age m en t Bo dy an d Se nio r M an age me nt r eg ardi ng s el ec tio n of m em be r s of th e S up er vi s or y B oar d, t h e Ma na gem e nt B o ard an d B -1 level was c on f ir me d on G en er al M ee tin g of S h are ho ld er s on 10 Ju ne 2019. W i th m e nt ion e d pol ic y t he B a nk fo llow s hi gh s tan d ard s of ad eq ua te r epr es en ta tio n of b ot h sexes i n th e managin g bodies . In 2020 an d Ja n uar y 2021, t he Wor ker s’ Cou nc il of N LB el ec ted and appointed employee repr es entat ives as members of th e S up er vi s or y B oar d of NLB , th us f ou r em ploye e rep res en ta ti ves wer e app oin te d. A s par t o f em ploye e par ticipati on in the Bank ’s management , the app ointment of four repr es entatives brings additional div er sit y at all le vels, inc l udi ng t he a ch ievem en t of g en de r qu ota s in t he B a nk ’s gover ni ng b odi es , a nd e mp loyee s’ re pre se nt at ive s wi th t he ir diver s e wor k exp er i en ce wi ll be a bl e to con t r ib ut e to be t ter em ploye e invol vem ent i n gover n ing b od ies . The S u pe r vis or y Bo ard ye ar ly fo ll ows th e im p lem en ta t ion o f th e go al s se t by ment ione d polic y . NLB Group Su s tainabili t y G ov er nance St r uc ture NLB b ecam e t h e fi r s t b ank i n Sl oveni a to co mm it t o th e UN Pr in cip le s for R es po ns ib le B an k in g (Se pte mb er 2020) . The s e pr in cip le s rep res en t a s in gle f ram ewor k fo r a s us tain ab le ban k ing i nd u s t r y and a re ali gn ed w it h th e 2015 Pa ri s Cli ma te Agre em en t an d wi th t h e obj ec ti ves of t he U N S us tain ab le Development Goals (UN SD G s) th at c over th ree d im en s ion s of sus tainabilit y: econ omic , social, and environm ental. In th a t res p ec t, the B a nk u pgr ade d th e Cor p ora te S oc ia l Res p on si bil it y (CS R) a c t iv it ies w it h m ore c on si s t en t adh er en ce to th e 2030 Ag en da of t h e UN S DG s . In 2021, however , t he G ro up m oved f rom ra is in g awar en es s to ac tive ly im p lem en t in g su s t ain ab ili t y elem e nt s i nto t h e bu si ne s s m ode l an d es tabl is h ed s u s ta in abl e op era ti on s in th e Framewor k fo r Su s t ain ab le O pe ra tio ns o f th e NL B Gro up ( ht tps:/ /w w w . n lb . si/ s us tain abilit y ). T he f ram ewor k d ef in es t he Ba nk ’s corp ora te s u s ta in abi lit y s t ra te gy, visi on an d m is s io n , com mi tm e nt to t h e UN S DG , su s t ain ab le e con om ic ac ti vi ti es , ES G ri s k ma na ge me nt, s u s tai na bil it y gover n an ce s t r uc t ure, res po ns ib le b an ki ng , an d b us in es s e th ic s . ES G fac tor s an d in d irec t eco n om ic fac tor s a re compreh en sively reco gnis ed and m ana ged accordin g to GR I (Gl ob al Re po r tin g In it ia ti ve – G lob al S tan da rds (G R I GS)) s tan d ard s . Key ESG in fo rm a ti on i s pu bli s he d in t he f oll owin g chapter s of this repor t or other related webpages: Environment (E ): - In Su s tainabilit y chapter - In se pa rat el y pu bli s he d NLB G ro up S us tainabi lit y Repo r t 2021 pub li s he d on t he B a nk ’s web pag e - th e ch ap ter R isk Man agement , subchapter In corp orat ing ES G Ri s ks - th e ch ap ter Sta tement of Managem ent of Risk in Not e 6 of t he F in an ci al pa r t of t he r epo r t Social (S): - In Hum an Resources chapter - In th e di ver s it y an d rem u ne rat io n ch apt er s in a s ep ar at e rep or t on Pi lla r 3 Dis closures ac cor din g to B as el S ta nd ard s G ove r n a n c e (G ) : - In th is c h apt er of r epo r t - In th e Corporate Governan ce Statement of NLB of thi s rep or t an d on t h e Ba nk ’s webpag e ht tps:/ /w w w . nlb .s i/ corp orate - govern ance a nd o n th e web pa ge of t h e Lj ubl jan a Stock Exchange https:/ / seonet . ljse . si 113 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The re wer e t wo G en er al M eet in gs o f Sh ar eh ol der s i n 2021. Thes h are h old er s of t h e B an k ga th ere d on 3 6 th General Me et in g on 14 J un e. D ue t o COVID -19 p an de mi c , for t h e f ir s t tim e t he G e ne ral M ee ti ng wa s hybr i d, a s it wa s he ld l ive an d on lin e. Th e s h areh o lde r s too k no te of t h e app roved NL B Gro up A nn u al R epo r t 2020, th e Re po r t of t he S up er v is or y Bo ard o f NLB o n th e res u lt s o f th e exam in at io n of t he N LB Gro up A nn u al R epo r t 2020, an d In for m at io n on t he i nco m e ofm em be r s of th e M an ag em en t B oar d an d S upe r vi so r y Bo ard o f th e B an k for t h e prev io us b us in es s ye ar . The s h are h old er s d eci de d on t he a llo ca tio n of di s t r ib ut abl e prof i t for 2020. T he d is t r ib ut ab le pr of it o f th e B an k as a t 31 De cem be r 2020 was EU R 341,992,219.43. The G e ne ral M ee ti ng o f NLB gr ant ed d is ch arg e to t he me mb er s o f th e m an age m ent a nd s u pe r vis or y b odi es fo r th e 2020 fi na nc ial ye ar , ad opt ed a me nd m ent s and s u ppl em en t s to th e A r tic le s of A s s o cia ti on , an d ap po int ed I s lam O s am a Zekr y as a n ew m em be r of t he S up er v is or y B oa rd. At th e 37 th Ge ne ral M ee ti ng o f Sh are ho ld er s t ha t was su mm on e d for 16 D ece m ber 2021, t h e sh ar eh ol der s d ec ide d on ad di tio n al all oca t ion o f dis tr ib u tab le p rof it f or 2020. The B a nk p ai d ou t in t hr ee in s t alm en t s a to tal o f EUR 92.2 mil lio n of di vi den d s to th e s h areh o lde r s in 2021. At th e G en era l Me et in g, t h e s ha reh ol der s a ls o vote d on th eRe m une ra ti on Po lic y fo r th e M em be r s of t he S u pe r vis or y Bo ard o f NLBan d t he M e mb er s of t h e Ma na ge me nt B o ard ofNLB . Mo re in for m at io n on t he wo rk o f th e G en era l Me et in g of t he Shareholders ac tivities is available in Cor p o ra te Gove r n an c e Statemen t of NLB . B ank ’ s G o vern ing B odi es The B a nk ’s corp ora te g over na nce i s b as ed o n a t wo -ti er sy s t em in w hi ch t he M an ag em en t B oar d ma n age s th e B an k , wh ile i t s da ily o pe rat io ns a re s up er vi s ed by th e S up er vi s or y Bo ard . Gener al Meeting of Shareholder s Supervisory Boar d Management Boar d Gen eral Meeting of Shareholder s The sha reholder s ex ercise t heir righ t s relate d to the B ank ’s operations at G ene ral Meetin gs . The Ban k’s General Mee ting pas ses de cision s in accor dance wit h the legis lation and th e Bank’s Ar ticles of A ss ociation . Decis ions adopted by the General Meeting in clude, among oth ers: adopt and ame nd th e Ar ticles of A ss ociatio n, u se of dis trib ut able profi t, gr an t a dis charge from liabilit y to the M anage men t and S uper visor y Board, chang es to the B ank ’s share capital, appoin t and discharge mem bers of the S uper vis or y B oard, remuneration of member s of the S uper visor y and Managem ent Board and au thor isation regarding the ch arac teri st ics o f iss ues of se curi ties . The Sup er visor y B oard The Sup er vi sor y Board supe r vis es the manag emen t of th e Ban k and it s d ut y of diligent and pr uden t conduc t in l ine wit h pow e rs def ined in Companies Ac t (ZGD -1) and according to pro vi sions o f the B ank ing ac t ( ZBan - 3), ot her regulat ions , and in ter nal r ules of t he B ank (the Ar t icles of A ss ocia tion of NLB and R ules of Procedures of the Sup er vi sor y Board of NLB). In accor dance with A r ticles of A ss ociation the Super visor y Bo ard consis t s of 12 mem bers , of which eigh t mem bers represen t the in teres ts of shareholders , and four m embers represent the in teres ts of e mployees. Mem bers o f the Super visor y Bo ard of the B ank represent ing th e interes t s of sha reholder s are elec ted an d recalled by the Bank ’s General Meetin g from pers ons proposed b y sh areholders or the S uper vis or y Board of th e Ban k . Mem bers of t he S uper visor y Board of th e Ban k representin g the in teres ts of employees are elect ed and recalled by the W orkers’ Council of th e Ban k . All Su per v isor y Board mem ber s mus t be in depen dent exper ts . 12 (8 are repr esen tatives of cap it a l, w hi le 4 a re repr esen tatives of wo rke r s) In S B 5 ou t o f 12 members are fem ale (41.6 7%) Number of members: Diver sity: The re wer e t wo c ha ng es in t h e com po si t ion o f th e S up er vi so r y Bo ard i n 2021. Th e W o r ker s Cou nc il of t h e Ba nk e le c t ed T adej a Žbon ta r Re ms a s a m em be r of t he S up er v is or y B oa rd (repre se nt at ive of wo rker s). H er t er m of o f f ic e r un s fr om 22 Ja nu ar y 2021. Is la m Os am a Zek r y was el ec ted a s a n ew me mb er o f th e S up er vi so r y Bo ard o n th e G en era l Me et in g of Sh are ho ld er s on 14 J u ne 2021. 114 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Representatives of capital Primo ž Karpe, M.Sc. Chairman T erm of of fice: 2016-2020, r enewed term 2020-202 4 Andr eas Klingen Deputy Chairman T erm of of fice: 2015-2019, r enewed term 2019-2023 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Nomination Commit tee (Chairman) • Audit Commit tee (Member) • Operations and IT Committee (Member) Membership in NLB Supervisory Boar d committees: • Nomination Commit tee (Deputy Chairman) • Risk Commit tee (Chairman) • Operations and IT Committee (Member) Membership in management bodies of r elated or unr elated companies: • Angler d.o.o. - Director Membership in management bodies of r elated or unr elated companies: • Credit Bank of Mosco w - Member of the Supervisory Boar d (i) • Kyr gyz Investment and Cr edit Bank CISC - Member of the Boar d of Directors • Nepi Rockc astle plc - Member of the Boar d of Directors (i ) Ti ll 14 M a rc h 20 2 2 . David Eric Simon Member T erm of of fice: 2016-2020, r enewed term 2020-202 4 Islam Osama Zekry, Ph.D. Member T erm of of fice: 2021-2025 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Audit Commit tee (Chairman) • Risk Commit tee (Member) Membership in management bodies of r elated or unr elated companies: • Jihlavan a.s. - Chairman of the Supervisory Boar d • Czech Aer ospace industries sr o - Legal r epresentativ e • Central Eur ope Industry P ar tners a.s. - Sole Member of the Supervisory Boar d Membership in NLB Supervisory Boar d committees: • Operations and IT Committee (Deputy Chairman) • Risk Commit tee (Member) Membership in management bodies of r elated or unr elated companies: • CIB Housing association, Egypt - P resident of the Supervisory Boar d • Egyptian AI Council (Ministry of Communication and Information T echnology) – Member of the Supervisory Boar d Shr enik Dhirajlal Davda, M.Sc. Member T erm of of fice: 2019-2023 Mark William Lane Richar ds, M.Sc. Member T erm of of fice: 2019-2023 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Risk Commit tee (Deputy Chairman) • Remuner ation Committee (Member) • Audit Commit tee (Deputy Chairman) Membership in NLB Supervisory Boar d committees: • Operations and IT Committee (Chairman) • Remuner ation Commit tee (Deputy Chairman) • Risk Commit tee (Member) Membership in management bodies of r elated or unr elated companies: • V encap International pic Ukr aine (UK) - Director • BPL Global (Lloyds of London insur ance Br oker) - Non-Executiv e Director • Shef field Haworth Ltd - Non-Executiv e Director Membership in management bodies of r elated or unr elated companies (i) : • P JSC Ukr gasbank - Independent Member of the Supervisory Boar d (i ) Si nc e 8 M arc h 2 02 2 als o: I P SO, UK - L ay M e mb e r of t h e Bo a rd . Gr egor Rok Kastelic Member T erm of of fice: 2019-2023 V erica T rstenjak, Ph.D. Member T erm of of fice: 2020–202 4 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Remuner ation Commit tee (Chairman) • Audit Commit tee (Member) • Risk Commit tee (Member) Membership in NLB Supervisory Boar d committees: • Nomination Commit tee (Member) Membership in management bodies of r elated or unr elated companies: • European Union Agency for fundamental rights – Member of the Management Boar d Membership in management bodies of r elated or unr elated companies: • None Representative of employ ees Bojana Šteblaj, M.Sc. Member T erm of of fice: 2020–202 4 Ser geja Kočar, M.Sc. Member T erm of of fice: 2020–202 4 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Nomination Commit tee (Member) • Remuner ation Committee (Member) Membership in NLB Supervisory Boar d committees: • Nomination Commit tee (Member) • Remuner ation Committee (Member) Membership in management bodies of r elated or unr elated companies: • None Membership in management bodies of r elated or unr elated companies: • None Janja Žabjek Dolinšek, M.Sc. Member T erm of of fice: 2020–202 4 T adeja Žbontar Rems, M.Sc. Member T erm of of fice: 2020–202 4 Link to CV Link to CV Membership in NLB Supervisory Boar d committees: • Operations and IT Committee (Member) Membership in NLB Supervisory Boar d committees: • Operations and IT Committee (Member) Membership in management bodies of r elated or unr elated companies: • None Membership in management bodies of r elated or unr elated companies: • None Fur t he r in for m at io n ab ou t th e wor k an d co mp os it io n of t he Su pe r vis or y B o ard i s avail ab le in t h e ch apt er Corporate Governance Statemen t of NLB . At 31 Decemb er 2021, the S uper visor y Bo ard had the f ollowing memb ers: 115 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Audit Committee Risk Commit tee Nomination Committee Remuner ation Committee Oper ations and Information T echnology (IT) Committee Commit tees of th e Supe r vis or y B oard The Sup er vi sor y Board appoin ts com mit tees th at prepare proposals for resolu tion s pas sed by the Super visor y Bo ard, ens ures their im plem enta tion , and per form s oth er exper t ta sk s . The Ban k’s Super visor y Bo ard has five collec tive decision - makin g and advis or y com mit tees , nam ely: Fur t he r in for m at io n ab ou t th e wor k an d co mp os it io n of t he Comm i t t ee s of t he S up er v is or y B oa rd is a vail abl e in t he chapter Corporate Governance Statemen t of NLB . Dav id E ri c Simon , Chairm an Shrenik Dhirajlal Davda , Deputy Chairm an Primož K arpe , Member Gregor R ok Ka s t el ic , Member Andre as Klingen , Chairm an Shrenik Dhirajlal Davda , Deputy Chairm an Islam Osama Zekr y , Member Ma rk W il li am Lane Richar ds , Member Dav id E ri c Simon , Member Gregor R ok Ka s t el ic , Member Primož K arpe , Chairm an Gregor R ok Ka s t el ic , Chairm an Ma rk W il li am Lane Richar ds , Chairm an Andre as Klingen , Deputy Chairm an Ma rk W il li am Lane Richar ds , Deputy Chairm an Islam Osama Zekr y , Deputy Chairm an Ve r i c a Trstenjak , Member Shrenik Dhirajlal Dav da , Member Andre as Klingen , Member Bojana Šteblaj , Member Sergeja K oča r , Member Bojana Šteblaj , Member Sergeja K oča r , Member Primož K arpe , Member Ja nj a Žab je k Dolinšek , Member T adeja Žbontar Rems , Member Audit Committee Risk Commit tee Nomination Committee Remuner ation Committee Oper ations and Information T echnology (IT) Committee 116 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The Man agemen t B oard The Man agemen t B oard represents t he B ank and man ages it s daily op eration s, in depen dent ly and at i t s own discretion , as provided for b y t he applicable laws and t he Ar ticles of A s socia tion of NLB . In accordance with th e Ar ticles of As soc iation , t he Man agem ent B oard has th ree to sev e n mem bers (the p resident an d up to six mem bers) which are appoin ted an d dism iss ed by the Super visor y Bo ard. The presiden t and mem ber s of the M anag emen t Boa rd are appoint ed for a f ive-year term of of fice and may be reappoint ed or dis mis sed ear ly in accordance with t he law an d Ar ticles of A ss ocia tion . three members fi ve - ye ar te r m of office Number of members: Mandate: The S u pe r vis or y B o ard of N LB an d , me mb er o f th e Ma na gem e nt B oa rd an d Ch ief O p era ti ng O f fi cer (COO) Pet r Br unc lí k , a gre ed on t h e ter m in at io n of of f ice w it h ef fec t on 30 Ju ne 2021. T he d ec is io n was bro ug ht a bo ut by p er s on al rea so n s . A s of 22 A pr i l 2021, hi s tas k s wer e taken over by o th er me mb er s o f th e NLB ’s Ma na gem e nt B o ard . Fur t he r in for m at io n ab ou t th e wor k an d co mp os it io n of t he Ma na gem e nt B oa rd i s avail ab le in t h e ch apt er Corporate Governance Statemen t of NLB . At the en d of 2021, th e compos ition of t he Ma nagem ent B oard was as follows 16 : 16 Fur t he r in f or m a ti on i s a vai la bl e i n th e c ha pt e r Event s Af t e r th e En d o f th e 2021 Fin ancial Y ear . Blaž Br odnjak CEO & CM O T erm of of fice: 2016-2021, r enewed term 2021-2026 Andr eas Burkhardt CRO T erm of of fice: 2016-2021, r enewed term 2021-2026 Ar chibald Kremser CFO T erm of of fice: 2016-2021, r enewed term 2021-2026 Link to CV Link to CV Link to CV Other important functions and achiev ements: • Mor e than 21 years of e xperience at managerial positions on all levels of international banking gr oups. • W as a chairman or member of the supervisory boar ds of 13 commer cial banks in six c ountries, thr ee insuranc e companies in thr ee countries, leading asset management compan y in Slovenia and multinational pr oduction group. Other important functions and achiev ements: • 20 years of e xperience in the ar ea of banking, especially in the ar ea of Centr al Europe. Other important functions and achiev ements: • Mor e than 21 years of e xperience in the financial services industry in Austria, CEE, and SEE focusing on finance and asset management, str ategy, and corpor ate dev elopment, as well as performanc e impr ovement assignments. Dir ect responsibility: • Str ategy and Business Development • Legal and Secr etariat • Communication • HR and Or ganisation Development • Inv estment Banking and Custody • Retail and P rivate Banking, Corpor ate Banking • P ayment Pr ocessing • Cash P roc essing Dir ect responsibility: • Internal Audit • Compliance and Int egrity • Global Risk and Cr edit Risk – Corpor ate and Retail • W orkout and Legal Support • Restructuring • E valuation and Contr ol • Financial Instruments Pr ocessing • Corpor ate Customer Delivery • Retail Banking P r ocessing Dir ect responsibility: • Financial Acc ounting • Contr olling • Financial Markets • Gr oup Real Estat e Management • Gr oup Steering • IT Ar chitectur e • IT Deliv ery • Data Management • IT Shar ed Service Centr e • NLB Gr oup IT Security Gov ernance • IT Infr astructur e • Pr ocurement Membership in management or supervisory bodies of r elated or unr elated companies: • Chairman of the Supervisory Boar d: NLB Bank a, Skopje • Chairman of the Boar d of Director s: NLB Bank a, Prishtina • Member of the Boar d of Direct ors: Komer cijalna Banka, Beogr ad • Pr esident of the Association of Banks in Slov enia • Pr esident of the Board of Gov ernors: AmCham Slovenia • Member of Ex ecutive Committee of the Handball F eder ation of Slovenia • Member of the Boar d of Direct ors: Cedevit a Olimpija (from 1 F ebruary 2022) Membership in management or supervisory bodies of r elated or unr elated companies: • Chairman of the Boar d of Director s: NLB Lease&Go NLB Bank, Banja Luk a NLB Bank, Sar ajevo Membership in management or supervisory bodies of r elated or unr elated companies: • Chairman of the Boar d of Dir ectors: NLB Bank a, Podgorica Komer cijalna Banka, Beogr ad 117 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The M a na gem e nt B oa rd al so a pp oin te d wor ki ng b od ies t h at o pe rat e at a l ower level: Committee for New and Existing Pr oducts Gr oup Real Estate Management Sub Committee Committee for Business IT Ar chitecture Data Management Committee Anti - Money L aundering Commission Corpor ate Customer Acc eptability Committee Advisor y bodies of th e B ank’s Managemen t B oard The W atch List Commit tee The Risk Committee NLB Group Non-P erforming Assets Divestment Committee NLB Gr oup Sustainability Commit tee Chairman: CRO Chairman: CRO Chairman: Dir ector of W orkout and L egal Suppor t Chairman: CEO Number of members: 7 Number of members: 12 Number of members: 7 Number of members: 17 The W atch List Committee is a body which monitors the pr ogress of activities for clients on the W atch list. As a rule, committee meetings ar e conv ened quar terly. The Risk Committee monitors and periodically r eviews matters r elated to risk and commer cial risk and pr epares materials for the Management Boar d to obtain decisions. As a rule, committee meetings ar e convened quarterly. The NLB Gr oup Non-Performing Assets Divestment Committee monitors oper ations of Non-Core Gr oup Members and issues opinions, r ecommendations, and initiatives. The C ommit tee shall discuss the str ategies regar ding optimal management of the Gr oup members and shall monitor r ealisation of their strategic objectiv es. As a rule, committee meetings ar e conv ened quarterly. Committee ov ersees the integration of the ESG factors to the NLB Gr oup business model in a focused and coor dinated way acr oss the compan y and issues opinions, r ecommendations, initiatives and tak es relev ant decisions when needed. As a rule, committee meetings ar e conv ened quar terly. C ollec tive decision- making bodies Dif fe ren t com m it te es , co mm i s si on s , bo ard s , an d wor k in g bo die s ma y be a pp oin te d by th e Ma n age me nt B o ard fo r exec ut io n of in di vid u al ta sk s w it h in power s o f th e M an age m en t Bo ard . Corpor ate Cr edit Commit tee Assets and Liabilities Management Committee of the NLB Gr oup NLB Oper ational Risk Committee The Change the Bank Committee The Gr oup Real Estate Management Committee The Sales Committee Priv ate Individual Credit Committee Chairman: CRO Chairman: CF O Chairman: CRO Chairman: CEO Chairman: CF O Chairman: Executive Assistant to MB for CIB ar ea Chairman: Dir ector of Cr edit Risk – Retail Number of members: 8 Number of members: equal to the number of the appointed members of the Management Boar d Number of members: 16 Number of members: equal to the number of the appointed members of the Management Boar d Number of members: 3 Number of members: 13 Number of members: 5 The Committee determines cr edit ratings and mak es decisions on the r eclassification of clients and appr oves commer cial banking investment tr ansactions and limits that are bey ond the competencies of the dir ectors. The Committee adopts decisions on investment tr ansactions in commer cial banking within the statutory pow ers in the areas of c orporate banking in the Bank (all companies, banks, and financial institutions), oper ations with clients in intensive c are, and NPL. As a rule, committee meetings ar e convened onc e a week. The Committee monitors conditions in the macr oeconomic envir onment and analyses the balance, changes to and tr ends in the assets and liabilities of the Bank and the Gr oup companies, dr af ts r esolutions and issues guidelines for achieving the structur e of the Bank’s and the Gr oup’s balance sheet. Committee meetings ar e generally con vened once amonth. The Committee is r esponsible for monitoring, guiding, and supervising oper ational risk management in the Bank, and for tr ansferring this methodology to the Gr oup members. As a rule, the Committee meets once e very two months. The Committee is r esponsible for adopting decisions r elated to the dev elopment por tfolio with the aim of tr ansforming the Bank and decisions r elated to adopting the dev elopment guidelines. As a rule, the Committee meetings ar e convened once a month. The Committee is in char ge of giving opinions on acquisition/pur chase price of r eal pr operty and additional investments in r eal property pr ovided as collater al for NPL, the selling price of own r eal property, and the acquisition/pur chase price for the r eal pr operty mortgaged in the sale of r eceivables. As a rule, Committee meetings ar e con vened once a week. The Sales Committee adopts decisions on the management of the r ange of products and services and the r elations with the clients in the ar ea of sales. As a rule, Committee meetings ar e con vened once a week. The Committee decides on the appr oval of loans and other investment pr oposals, the conditions of which deviate fr om standar d banking products and services, and which r epresent additional risks for the Bank. As a rule, meetings ar e convened when necessary. 118 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NL B G rou p ’ s C orporate Go v ernan ce As t he paren t bank , NLB im plemen t s the corporate gov ernan ce of the Group mem bers in compliance wi th EU an d BoS l egisl ation , t he local legislation , and regulat or y requirement s applicable to respe c tive Group mem bers , while als o consid ering i nter nal r ules , ECB Guidelines , and oth er applicable regulations . The roles, au thor is ation s, and res pons ibilities of individu al bod ie s an d org ani s at io na l uni t s , a s well a s th e m an ne r to coo rdin a te t he ir op er at ion s to a ch ieve th e s et b us in es s goa ls , a re s t ip ula te d com p reh en s ivel y in t he N LB Gr oup Cor po rat e Gover n an ce Po lic y . In t h e B ank , th e Gro up Ste er in g D epa r tm en t i s th e pr in ci pa l par t n er of t h e Ba nk ’s Ma na gem e nt B oa rd in t h e gover n an ce of s t ra te gic an d n on - s tr at egi c Gro up c om pa nie s , an d is r es po ns ib le f or ap pro pr ia te cor po ra te gover n an ce, t h e alig nm e nt o f s tr at egi es , a nd t h e objec tives achieved b y s ubsidiar ies . In rec en t year s , t h e con ce pt of co r po rat e gover n an ce of t h e Gro up h a s be en up gra de d, a nd t h e role o f m em be rs o f th e Ma na gem e nt B oa rd of t h e B ank i n m an age me nt o f ot he r Gro up m em b er s s t ren g th en ed . Th e ta rge t com p os it ion o f su pe r vis or y b od ies i n th e G rou p me mb er s wa s es t ab lis h ed , th e f un c t ion in g of t he s u pe r vis or y b odi es o pt imi s ed , an d th e rep or t in g an d s ta nd ard s rel at ed t o th e h ar mo ni s at ion o f ope ra tio n s si mp lif i ed . In lin e w it h s t rat egi c as pi rat io ns , th e con cep t of ‘cou nt r y ma na ger s ’ was f ull y in tr od uce d wi th t h e ma in go al to s u pp or t an d s te er t he G ro up m em be r s , as we ll a s to be a s tro ng li nk bet wee n Gr ou p me mb er s an d t he B a nk . T hey a ls o fac ili ta te bes t pra c t ice s h ar in g on di f f ere nt l evels . Str eam c oo rdin a tor s were in tr od uce d to ad dre s s t he fa ci lit at io n of m ore in - dep th kn owl edg e of co mp et en ce lin e s an d gre at er in te gra ti on bet wee n s t rea ms a nd t h e Gr oup m e mb er s , t h e inc re as in g tra ns m is s io n of c ur ren t in for m a ti on , n eed s , an d ot h er req uir em en t s fro m th e G ro up m em be r s , an d exp loi ta ti on of sy n erg ies a t t he G ro up leve l an d coo rdin a ti on of r egi on al projec t s . Lega l an d org an is a tio na l s t r uc t ure of t h e ba nk in g gro up, in cl ud ing a d es cr i pt ion o f th e in ter n al gov er nan ce arrangement s , the arrangem ent s with reg ard to c lo se l in ks a n d th e ar ran ge m en t s reg ard ing the governance of subs idiaries are available on the Ba nk ’s webpag e ( ht tp :/ /w w w . nlbgroup . si/ profile ) . The Gr oup is go v erned: In accor dance with f undamen tal corporate r ules through various b odies of th e Group m emb ers: • By vot in g at g en era l me et in gs o f th e G rou p me mb er s • By exerc is in g s up er vi si on t hro ug h th e s up er vi s or y bo die s of th e G rou p me mb er s • Wi th p rop os al s for a ppo in ti ng t he m a na gem e nt of t h e Group member s • Wi th p rop os al s for a ppo in ti ng re pre s ent at ive s of t he B a nk to super vis or y bodies • Throug h par ticipati on of Bank’ s repr esentatives in v arious com mi t tee s an d com m is s io ns o f th e G rou p me m ber s Through mec hanis ms t ha t ens ure ef ficien t busi ness m oni tori ng and governance, such as : • Har m on is a tio n of o per at ion s i n acco rda nc e wi th t he s o - call ed ‘com pe ten ce l ine p r in cip le’ • NLB G rou p Ma n age me nt B o ard M ee ti ng s , NLB G ro up Lead er s hi p m eet in gs , NLB Gr ou p ALCO meet in gs , e tc . • Development ac tivi ties carr ied out via cross -f unc tion al wor kin g gro up s , gro up p roj ec ts , com pe ten ce ce nt re s , centre s of excellence, etc . • Thr ou gh ad di tio n al s up er vi si on of N LB G rou p me mb er s car r ie d ou t by con tr ol f un c t io ns (r is k m an age m en t, int er n al au dit, co mp lia nc e, A M L , in for m a tio n , an d phy si cal s ec ur i t y) an d ex te r na l su pe r vis in g a ut h or it ie s (ECB, lo cal r eg ula to r s , ext ern al audito rs). 119 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A cul t ur e of co mp lia nce i s in te gra te d in to th e d ay- to d ay bu si ne s s of t he B a nk t o su pp or t it s ope rat io ns , to con tr i bu te to it s s tron g in te r na l con tr ol env iro nm en t, an d to en s ur e th at com pl ian ce r is k s ar e mi ti ga ted . Group-wide ethics and int egr it y s t andards Wi th in t h e fra mewo rk o f th e pr ogr am me o f en s ur in g bu s in es s com pl ian ce, t h e Gro up a ls o de als w it h t he e th ic s a nd i nt egr i t y The Group add resses th e challe nges of high regulation and s tric t regula tor y requirement s with a s ys tema tic approach t o mitiga ting compliance r isk s . It i s impor tan t to ens ure tha t employ ees and decis ion -m ak er s kno w and understand the pu r pose and objec tives of the regul ation s . The G roup is contin uous ly s trengt hen ing th e complian ce func tion and diligen ce of it s operation s . of th e o rga ni sa ti on . For t ha t re as on , a ll of t he e mp loyee s are inc l ude d in ye ar ly t rai nin g an d awa ren es s - ra is in g ac t i vi tie s in th e ar ea s of ge ne ral e th ic s , a nt ico r r up tio n , an ti - mo n ey la un der i ng , in for m a tio n se c ur it y, etc. T he va lu es of t h e Gro up, em be dde d in t he G ro up Co de of Co nd uc t, provi de g uid an ce an d pr in cip le s of exp ec te d beh a vio ur r ega rdi ng e th ical con du c t a nd r eq uir e app rop r iat e con d uc t fro m all em p loyee s at any l evel of t h e org an is at io n , in cl udi ng i t s con t rac tor s . The r egime on inside inf or ma t ion (M AR) In lin e w it h th e M ar ket Ab u se R eg ul at ion (M AR), an d ot h er rel evant re gu la ti on s , t he B an k h as a s y s te m in pl ace o n th e level of t h e B an k an d it s en t ire G ro up fo r ma na gin g an d pub lic ly d is cl os in g in si de in fo rm a ti on in a m an n er t ha t en ab le s it to co m ply w it h t he o bli ga ti on s rel at ed to i ns id e in for m at io n ide nt if ic at ion a nd d is cl os ur e in acc ord an ce wi t h th e r ul es an d reg ul at ion s ap pl icab le a t any t im e. A ls o, t he B an k h as a s y s te m in pl ace i mp lem e nt in g th e m ar ket ab us e pr event io n reg im e in acc ord an ce wi th M AR to pr event i ns id er t rad ing , m ar ket manipul ation , and illegal disclos ure of inside inform ation . C ompliance and In tegri t y The Compliance and Integrity in the Bank addr esses the following risk ar eas: F raud pr ev ention and investigation AML/CTF Priv acy data pr otection and information security Regulatory c ompliance Corruption pr evention Fit and pr oper assessment pr ocedur es (as part of assessing r eputation, financial str ength, time availability, and conflict of inter ests) Conflict of inter ests, gifts and hospitality management Identification, assessment, and management of complianc e, and integrity risks at the Bank and the Gr oup levels Oversight, monitoring, steering, and managing the Gr oup compliance function and pr ogramme (i) Business ethics and corpor ate integrity Physic al / technical security (i) Established b y standards for c ompliance and integrity for the Gr oup and implementation of monitoring by off-site data analysis and onsite visits. 537 new laws , draf t laws , reg ulat ions , and oth er infor mat ion regarding regulator y environm ent of t he B an k rev i ewed . 120 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Information securit y and pers onal da ta protec tion The i nf or m at ion s e cur i t y area , in te r ali a, fo c us ed o n imp le me nt at io n of m ea s ure s for in c rea si ng t h e level o f inf or m at ion / c y be r se cu r it y , a s well t es t in g t he c y be r se cu r it y resilience of information s ys tems (pen -tes t s). Fur t he r mo re, i n lin e wi th t h e pl an , seve ral in te r na l as s es s m en t s/ c om pli an ce ch ec k s acc ordi ng t o IS O/IE C 27001 s tan d ard wer e car r ie d ou t in 2021, in c lu din g as s e s sm en t of in for m at io n se c ur it y at o u t so urc in g prov ide r s . S pe cia l obl iga to r y e- t rain in gs f or al l em ploye es in t h e are a of inf or m at ion s e cu ri t y an d so cia l en gin ee r ing we re pr ep ared an d execu te d all a s pa r t of pr event io n me as u res i n th is a rea . The Bank runs its oper ations in line with GDPR r equirements, including the r etention and pr ocessing of personal data, dedic ated Data P rivacy Officer, education, and tr aining of employ ees. The new Slo venian P ersonal Data Pr otection Act (ZV OP-2) w as not adopted in 2021 as e xpected. If necessary, further alignments will be made when the national legislation is in place. Pr ev en tion Based on the assessment of complianc e risks (so-called ECRA – Enterprise Complianc e Risk Assessment ) the management of the Bank and in particular Compliance and Integrity c an plan its activities; all with the aim to r educe or mitigate the complianc e and integrity risks. As part of complianc e progr amme, Compliance and Int egrity is also involved, inter alia, in risk assessments r egarding ne w and changed products, fit and pr oper assessments for ke y function holders, outsourcing, and other changes materially affecting the Bank’s business. A s a s ta nd ard Co mp lia nc e fu nc ti on , s everal wor k s h op s an d com pu ls or y e - edu ca tio n on e th ic s , t h e preven t ion o f cor r u pti on , co nf lic t s of in te res t, prote c t io n of pe r so n al da ta , A ML /C TF , Info r ma t ion S ec ur i t y, Phys ical S e cu ri t y , an d ot h er rel evant to pic s rel at ed to ever yda y wor k were p rep ar ed . For all em pl oyees , year ly e - t rain in gs a re m an da tor y on su bje c t s s u ch a s preven t ion o f in si der t ra din g an d m ar ket manipulati on, ethics, anti-corruption, miti gation of conflict of in ter es t s , per s on al d at a pro tec ti on , in for m a tio n se c ur it y, an d si mil ar t he m es . T he G ro up s ee k s to pro mo te a co rp or at e cul t ur e th a t fac ili ta tes c om pli an ce, an d by co nt in uo u sl y rai si ng a waren es s, f or exam pl e th ro ugh c om mu ni cat io n via i t s mo nt hl y com p lia nce n ews l et ter , d eta ili ng n ot o nl y im por t an t reg ul ato r y ch an ge s , bu t al so c ur re nt i nfo r ma t ion a nd c as e st udies on dif feren t compliance and ethic s topic s . Pr ev en tion of Mon e y Launder ing an d T er rorism Finan cing and F inan cial San c tion s Complian ce The Bank complies with nationa l regulati ons on Anti-Money Lau nd er in g an d Com ba t ing t h e Fin a nc ing o f T er ror i sm (A M L /CFT ), in cl udi ng t h e Europ ea n Ba nk in g Au th or i t y (EBA), B oS a nd o th er c om pet en t au t ho r it ies ’ gu ide lin es a nd s tan d ard s . Th e Ro S is a m e mb er of t h e EU, an d th us s u bje c t to th e Euro pe an A M L /CF T Dir ec tive s , th e m ea ns by w hi ch th e EU tra n sp os es t he F in an ci al Ac tio n T as k Force (F A TF ) reco mm e nd at io ns t h rou gh ou t th e EU. For t he B an k , i t is o f par am ou nt im p or tan ce t o ef fec tive ly m it ig at e th e r is k of mo ney l au nd er in g , fi na nc in g of te r ror i sm a nd b rea ch es o f fi na nc ial s an c tio ns . For th es e rea s on s , th e r u les , proc ed ure s , an d tec hn o log y in A M L /CF T are a are s u bje c t to s tr ic t an d unifie d policies and stan dards . The same pr inciples are also app lie d for s et t in g ou t th e B an k ’s fra mewo rk o n f in an cia l sa nc tio ns . In th e pr evio us ye ar , t he B an k up gra de d an d int ro du ced f u r th er en h an cem en t s of A ML gover n an ce in lin e wi th d ire c t ion s s et by t he B o S . Th ro ugh t h e s ys t em of reg ul ar rep or t in g an d con s t an t on si te a nd o f f- s ite c on tro l, t h e headquar ters effec tively m onitors the implementation and ex ecution o f s tandar ds throug hout the Group . The B a nk r eg ula r ly p er for m s c us t om er d ue di lig en ce, foll owin g t he r i sk-b as e d app roa ch an d , in t he c as e of en ha nce d r is k , p er for m s ad di tio n al m ea su res b ot h in th e se gm en t of ‘ K now yo ur c us t om er ,’ as well a s on goi ng mo ni tor in g of t h e tra ns a c t ion al a c t iv it ie s . In t he c as e of det ec ted d evia t ion s , al s o con s ide r ing t h e A M L /CTF in di cat or s , th e A M L uni t of t h e Ba nk e n su res t h e revi ew an d, i f req ui red by A ML /CF T l egi s la tio n , rep or t s t h e cu s to me r s an d tr an sa c t ion s to th e co mp et en t Fin an ci al In te llig en ce U ni t. In it s Ac cep tan ce Poli c y, the B an k ha s al so a do pte d ad dit io na l me as u res t o preven t on bo ard in g of c us t om er s t ha t do n ot c or re sp on d to i t s ri s k app et it e. Th e B an k al so e ns u res a h igh l evel of a ware ne s s on t he A M L /CF T are a an d th e ar ea of f i na nc ial s an c t io ns w it h reg ul ar tr ain in g of al l em ploye es of t h e B an k . 39 cases inv es tigated . 16 9 comp liance proces s es an d ot her rev iew s . 121 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Int er n al Au di t is t he i nd ep en de nt, ob jec ti ve, an d ad vi so r y con tro l bo dy r es po ns ib le fo r a s ys t em a tic a nd p rof es s ion al as s es s m en t of t he e f f ec tive ne s s of r i sk m an ag em en t pro ced ure s , co mp let en es s , a n d fu nc ti on ali t y of in ter n al con tro l s ys tem s , an d t he m an ag em en t of t h e Gro up ope ra tio n s on an o ng oin g ba s is . T he I nt er n al Au di t provi de d impar tial ass urance to the Man agemen t Board and Su pe r vis or y B o ard on t h e ma n age me nt o f r is k s in key are as , i.e. , c yb er s e cu ri t y , Li n ux an d W in dow s se r ver pl at for m s , res t r u c t ur i ng – re tai l, I C A AP pro ces s , per s on al a cco un t s , out so urcing process , liquidit y and credit risk man agemen t, len di ng p roce s s es ( loa ns t o ret ail – over dra f t f aci li tie s , cre dit c ard s fac ili ti es , n on -p er for m in g lo an s , levera ge d transac t ions), corporate real estate man agement, cash ma na gem e nt in b ran c he s , an d ot he r s . Per for med audi t s The I nt er n al Au di t per fo r ms i t s ta s k s an d res po n si bili t ies o n it s own di sc ret io n an d in co mp lia nce w it h t he a nn u al au di t pl an as ap proved by t h e Ma na gem e nt B o ard an d co nf ir m e d by th e Su pe r vis or y B o ard . B as ed o n it s i nt er na l m et ho dol og y an d com pre he n si ve ri s k an aly s is fo r 2021, th e In te rn al A ud it of N LB con du c t ed 43 a ud it a s si gn me nt s (of t ha t, th ree a u dit s o n a Gro up l evel) , seven we re po s t po ne d du e to ob jec ti ve rea s on s . Fur t he r mo re, a ud ito r s con d uc ted 27 b ran ch i ns p ec tio ns , on e join t a udi t wi t h th e lo cal a ud ito r s , an d t wo int er n al au di t qu ali t y r eview s , bo th i n th e G rou p. Au di tor s wer e als o invo lved in seve ral s t ra te gic p roje c t s a s ad vi s or . Th e m ajo ri t y of t he reco mm e nd at io ns g iven i n 2021 were im pl em en te d wi th in t he agreed deadli n es. Implem en ta tion of uni for m r ules Int er n al Au di t in cre as es e f f ic ie nc y. It foc u se s on m on it or in g the impl ementation o f audit r ecommendations, tr aining a nd ed uca ti on , up da ti ng t h e in ter n al a ud it ch a r ter an d m an u al, adv is in g m an ag em en t, and e ns u r ing h ig h qu ali t y a n d prof es s io na l ope ra ti on s of t he i nt er na l au di t f un c t ion w it hi n th e G rou p. Th e In ter n al A udi t al so i nt ro du ces un if or m r ul es o f ope ra tio n of t h e int er n al a udi t f un c t io n an d reg ul ar ly m on it or s th e com p lian ce w it h t he se r u le s wi th in t he G ro up. Inte rnal Aud it revie ws ke y r isk s in th e Group’ s operations , advises managem ent a t all lev els , and deep ens und ers tand ing of th e Ban k’s operation s . It p ro vides i ndepen dent a nd imp ar tia l ass urance regarding the m anage men t of ke y risk s , managem ent of the B ank , operation of intern al controls, and t hereb y s treng thens and protec t s th e value of the B ank . The h ighes t s tan dards we r e f o l l owe d Int er n al Au di t an d oth e r int er n al a udi t s er vic es in t h e Gr oup ope ra te in a ccor dan ce w it h t he: Internal Audit 69 planned and ex traordinary audit s cond uc ted in t he B ank . 28 Inter nal Audit exper ts . Ba nk in g Ac t (Z B an - 3) o r ot h er relevan t laws w hic h reg ul at e t he operations of a Group member Code o f Et h ic s of an Internal Auditor Code o f Internal Auditing Principles International Standards for t h e Pr o fessional Pra c t ic e of I nt er na l Auditing 122 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C orpor a te Go v ernanc e Sta temen ts 123 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t of M anagem en t ’ s Res pon s ibilit y In acc ord an ce wi th t h e provi s ion s of A r ti cl e 134 (2 nd paragraph) of t he Mar ket and Financial Ins tr umen ts Ac t 17 , theManagem ent Board hereby confirms th e statem ent s ma de in t h e bu s in es s re por t, w hic h are i n acco rda nc e wi th th e at ta ch ed f in a nc ial s t at em en t s as a t 31 D ece mb er 2021, a nd rep res en t th e ac t ual a n d fair f i na nc ial s tan din g of t h e Ba nk an d th e NLB G ro up a s well a s th ei r ope ra ti ng re s ul t s in t he year t ha t en d ed 31D ece mb er 2021. The M a na gem e nt B oa rd co nf ir m s t ha t t he b us in es s r ep or t give s a fair v iew of d evelo pm en t s an d op er at in g res u lt s o f th e Bank and th e Group and their f inancial s tandin gs , includin g a des cr i pt ion o f th e key t y pe s of r is k s an d G ro up co mp an ies inc l ude d in t he c on so li da tio n are ex pos e d as a w ho le. Lju bl jan a , 11 April 2022 17 ( Z TF I -1, O f fi ci al G az z et e of t h e Ro S , N o. 77 / 18, 17 / 19 – c or r., 66/ 19 in 123/ 21). Managemen t Board of NLB Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 124 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report  Corporate cons ultanc y regarding capital s tr uc t ure  ope ra tio n al s t ra teg y an d re la ted m a t ter s  an d con s ul tan c y an d s er vi ces i n con n ec tio n wi th co r po rat e me rge r s an d acq ui si t ion s   Monetar y interm ediation on interban k markets   Advice o n po r t f olio m a na gem e nt   Sa fe keepi ng o f se cu r it ies a nd o th er r ela te d s er vic es   Cr edi t ra ti ng s er v ices : co lle c t in g  a na ly sin g an d disseminating information regardi ng creditworthiness   Lea si ng of s a fe de po si t boxes   In ves t me nt s er v ice s an d tra ns a c t ion s  an d anc ill ar y inves t m en t se r vice s in a ccor dan ce w it h th e M ar ket an d Fin an ci al In s t r um e nt s Ac t (Z TFI) It m ay p er fo rm t h e fol lowi ng a ddi ti on al f in an ci al s er vi ces , pur s u an t to A r tic le 6 o f th e ZBa n - 3:  in su ran ce a gen c y s er vi ce p ur s uan t to t h e la w gover ni ng th e in s ura nce i nd u s tr y  c us t od ian s er vi ces a cco rdin g to t he l aw g over nin g investm ent fun ds and managem ent compan ies  cred it b rokera ge fo r con s um er a n d oth er t yp es o f lo an s Aut h or i sa ti on to p er fo rm b an ki ng s er v ice s is p ub lis h ed o n th e of fic ial we b pa ge of t h e Bo S ( ht tps:/ /w w w . bsi . si/ en/fin ancial- s tabilit y/ins tit ution s- under - super vis ion/bank s -in -slovenia /8 / nova-ljubljans ka-ban ka- dd- ljubljana ). Aut hor isa tion to Per for m B ank in g S er vices In acc ord an ce wi th t h e provi s ion s of A r ti cl e 14 (1 st paragraph) of th e R eg ula t ion o n B ook s o f Acco un t s an d A nn ua l Re por t s of B an k s an d Sa vi ng s B an k s ( Of f i cia l Gaze t te of t he R o S , No . 184/21) ad op ted by t he B o S on t he b a si s of t he a u th or i sa t ion fro m Ar t icl e 109 of t he B a nk in g Ac t, 18 (ZB an - 3), N LB he reby lis ts a ll t yp es of f i na nc ial s er v ices w hi ch , in a cco rda nce w it h th e au t ho r is at io n of t he B o S , to ok pl ace d ur i ng t he p er io d for wh ich t h e bu si ne s s rep or t wa s pre par ed . NLB h as t he a u th or i sa t ion t o per fo r m ba nk in g se r vice s pur s u an t to A r tic le 5 o f th e ZBa n - 3. B ank in g s er vic es ar e th e acce pta nc e of de pos i t s an d ot he r rep ayab le f u nd s fro m th e pub li c an d th e gra nt in g of c red it s fo r it s ow n acco un t. The b an k h as a n au th or i s at ion t o pe r for m m ut u all y recognised an d additional f inancial ser vices . It m ay p er fo rm t h e fol lowi ng m u t ual ly re co gni s ed f in an ci al se r vice s , pu r s uan t to A r ti cl e 5 of t he ZB an - 3, n am el y :  Accep ti ng d ep os it s an d ot h er re pa yabl e f un ds f rom t h e pub li c  Gran ting of loans  including: • cons umer loan s • mor tgage loans • pu rch a se o f rec eivab le s wi th o r wi th o ut re co ur s e (factor ing) • f in an cin g of c om me rci al tr an sa c t io ns , i nc lu din g exp or t fi na nc in g ba se d on t h e pu rch as e of n on - cu rr en t no n - pa s t- d ue re cei vabl es a t a di sco un t an d w it ho u t reco ur s e, secured by finan cial ins tr umen ts (for feitin g)  Payment ser vices  Is s uin g an d m an agi ng o th er p ay me nt i ns tr u me nt s (e g  tra vell er s’ c he qu es a nd b an k bil ls o f excha ng e)  in s ofa r as s uc h se r vic es are n ot i nc lu de d in t he s er v ice s refe r red to in t he p revi ou s po int  Issuing of guara ntees and other commitme nt s  T radi ng fo r own ac co unt o r for t h e acc oun t of c li en t s: • in mo ney-ma rket instr uments • in fo reig n le gal t en de r , inc l udi ng c ur re nc y exc ha ng e transactions • in stan dardized futures and opt ions • in currenc y and interes t-rate ins tr ument s • in trans ferable sec urit ies  Par t icip a tio n in s ec ur i ti es is su es an d t he p rovi si on of associated ser vices 18 O f f i ci al G aze t te of t h e R oS , No. 92/ 21 an d 123/ 21. 125 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report C or porate G ov er nan ce Sta tem en t of N LB Pur s u an t to Ar t ic le 70, p ara grap h 5, of t h e Comp an ie s Ac t ( ZGD -1) 19 NLB h ere by gives t h e fol lowi ng Cor p ora te Gover n an ce S tat em en t of N LB as a p ar t of t h e B us in es s Rep or t of t h e NLB G ro up A nn ua l Re por t 2021. T he m ai n fu nc ti on of t hi s s t at em en t is t he p rom pt i nfo r mi ng o f inves t or s on t he co he ren ce o f th e B an k ’s cor po ra te gover n an ce s y s te m . 1. ST A TEMENT OF C OM PLI ANCE WITH TH E CO R P O R A TE GO VE R NANCE CODE NLB, as a public compan y whose shares ar e listed on P rime Mark et of the Ljubljana Stock Exchange, her eby discloses the complianc e with the Slovenian Corpor ate Gov ernance Code for Listed Companies, adopted b y the Ljubljana Stock Exchange and Slov ene Director s’ Association, on 27 Oct ober 2016 (valid fr om 1 January 2017) as the code that applies for the bank. Information contained in this point r epr esents a 'Statement of Compliance with the C orporate Go vernance C ode' as defined in Article 24 of the Ljubljana Stock Ex change Rules, dated 27 May 2020 ( https:/ /ljse.si/en/rules-and-regulations/252 ). 1.1. References to t he Code on Corporate Gov ernan ce The r ecommended best corpor ate go vernance pr actices contribute to a tr ansparent and understandable c orporat e gov ernance system, which pr omotes both domestic and for eign inv estor confidence, as w ell as the confidence of emplo yees, other stak eholders (regulat ors, suppliers, etc.), and the general public. A decision on which code the Bank will follo w was made jointly by the Management Boar d and the Supervisory Boar d of the Bank by adopting the Corpor ate Gov ernance P olicy of NLB (Nov ember 2020). In 2022, the Group will activ ely analyse the changes made with a r enewed v ersion of the Slovenian Corpor ate Gov ernance Code for Listed Companies, that will be the first used for pr epar ation of the Corporat e Governance Statement of NLB for the business year 2022. NLB al so h a s it s ow n cor p ora te gove rn an ce co de . Th e NLB Gro up Co de of Co nd uc t is a s tan dar di se d do cum e nt fo r all me mb er s o f th e G rou p th a t def in e s valu es , l ay s down t h e 19 T he C om p an ie s La w ( ZGD - 1; O f fi ci al G az et te o f th e R oS , No. 65/09 a n d consecutive changes). s tan d ard s of et hi cal b us in e s s con d uc t, an d s er ves a s th e gui de lin e for a ll o ur re la tio n sh ip s reg ard les s o f wh et h er it invo lves c lie nt s , com pe ti tor s , b u si ne s s pa r tn er s , s tat e authorities, re gulators, shareholde r s, or i nternal relati onships bet wee n em pl oyees . A t th e s am e ti me , it i s th e b as is o f th e Gro up val ue s an d ba s ic pr i nc ipl es o f con du c t w hi ch p rovid e sp ec if ic co n du c t g uid el ine s to i t s em pl oyees . T he a im of t h is app roa ch i s to en s ure c om pli an ce wi t h all ap pl icab le l aw s , reg ul at ion s , a nd s tan dar ds . It is p ub li sh e d on t he B an k ’s web pag e ( ht tps:/ /w w w .nlb.si/ compl iance- and-integrity ). Complianc e with the aforementioned C ode is explained in the Corpor ate Gov ernance Statement of NLB on ‘c omply or explain basis,’ in which the Bank pr ovides explanation r egar ding deviations, r easoning for non-complianc e with a certain r ecommendation, or alternativ e practic es performed mostly due to stricter banking r egulation. The statement r efers to the Bank’s system of c orporate go vernance fr om the beginning to the end of financial year, which also c orresponds t o the beginning and the end of the calendar y ear (from 1 January until 31 December). Cor po rat e Gover n an ce S ta tem e nt of N LB is i nc l ude d in t he B us in es s R ep or t of t h e NLB G rou p An n ua l Rep or t ( pu bli s he d on ht tps:/ /w w w .nlb.si/financi al-repor ts ), an d i s als o p ubl is h ed as a s ep ara te re po r t on th e B an k ’s webs i te un de r ch ap ter on Cor p ora te G over na nc e ( ht tps:/ /w w w .nlb.si/ corpor ate - gove r n an ce ), a s well a s on t he we bs it e of t he L ju blj an a Sto ck Exchange ( https:/ / seonet .ljse.si ). NLB strives to incr ease the lev el of its business transpar ency and informs the shar eholders and other expert community in line with Guidelines on Disclosur e for Listed Companies (Ljubljana Stock Ex change, 18 December 2020) on electr onic communic ations system of the Ljubljana Stock Exchange ( https:/ /ljse.si/en/rules-and-regulations/252 ) and in line with Rules and Regulation of the L uxembour g Stock Ex change, as well as in line with Rules of the London Stock Ex change thr ough Regulatory Ne ws Services (RNS) of the London Stock Ex change. The Corpor ate Gov ernance system of the Bank and all r elevant information on Bank’s management that e x ceeds the r equir ements of ar ticle 70 of the Companies Act (ZGD-1) ar e published in the chapter of Risk Management of this annual r eport, where ESG Risk Management for the y ear 2021 is described, as well as in the Sustainability chapter of this annual r eport, and the NLB Group Sustainability R eport 2021 ( ht tps:/ /www. nlb.si/sustainability ). Some other aspects about the functioning of the Bank’s managing bodies ar e described in the chapter of Corpor ate Gov ernance of this annual r eport, as well as in the Corpor ate Gov ernance P olicy of NLB (November 2020) published on the NLB’s website ( https:/ /www.nlb.si/corpor ate-gov ernance ). Information on the Diver sity Policy and R emuneration P olicy is also described in the Pillar 3 Disclosur es accor ding to Basel standards ( https:/ /www.nlb.si/financial-reports ). 2. C OM PLI ANCE WIT H THE SLO VEN IAN CORP OR A TE GO VERNANCE C ODE FOR LIST E D C OM P ANIE S The B a nk d oe s no t foll ow or p ar ti all y im pl em en t s or a dh ere to di f fe ren t, in m os t c as es s tr ic ter , ba nk in g re gul a tio ns w i th reg ard to t h e fol lowi ng re com m en da t ion s : Rec ommendation no. 8.5 : In the reasoning of the pr oposals for the Gener al Meeting, NLB does not cite eventual c onflicts of inter est because the y are alr eady included into the Fit & P r oper proc edure. Rec om me nda t ion n o. 10.1 : In a s se s s in g can did at e’s eligib ili t y for a S up er vi s or y B oar d me mb er , s tat u tor y c r ite r ia are app lie d, h owever can di da te s don’ t h ave a ce r ti f ica te evid en cin g t hei r s pe cia lis e d prof es s ion a l com pe ten ce fo r me mb er s hi p on a S up er vi s or y B oar d, s u ch a s th e Cer t if ica te of th e S loven ian D ire c t or s’ A s soc ia ti on , or a ny ot he r rel evant cer t if ica te . However , all s tr ic t con dit io ns m u s t b e f ul fi lle d according to ban kin g legis lat ure. Rec ommendation no. 12.2 : The Rules of Pr ocedur e of the Supervisory Boar d of NLB do not include the list of all types of tr ansactions for which the Management Board needs prior appr oval of the Supervisory Boar d, but r efer to Article 24 of the Articles of Association. The mentioned rules also do not include the Supervisory Boar d evaluation, educ ation, and training of the members of the Supervisory Boar d. The mentioned pr ovisions ar e part of other internal documents or decisions o f the managing bodies. Rec om me nda t ion n o. 12.3 : Th e R ul es of P roce d ure of t h e Su pe r vis or y B o ard of N LB do n ot in c lu de t he s co pe o f topi c s an d tim e fra me t o be re s pe c te d by th e M an ag em en t B oar d in it s p er io dic re po r tin g of t h e Su pe r vis or y B o ard . However , t he sco pe o f top ic s a nd t im e fr am es of p er i odi c rep or ti ng t o th e Su pe r vis or y B o ard ar e in cl ude d in a nn ua l Ac t io n Pla n of t he Su pe r vis or y B o ard an d A r tic le s of A s s o cia ti on . Pr ofe s si on al 126 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report se r vice s of t he B a nk t ake care t h at t im el y in for m at io n is provi de d to th e S up er vi s or y B oar d. Rec om me nda t ion n o. 15.3 : NLB d oe s no t fol low th is reco mm e nd at io n be cau s e th e Pre si de nt o f th e S up er vi so r y Bo ard i s at t h e sa m e tim e Pr es ide nt o f th e No mi na t ion s Commit tee. Rec om me nda t ion n o. 17.1 : In 2021, t h e Su pe r vis or y B o ard member s (repr es entat ives of capital and representa tives of wor ker s) did n ot re cei ve at te nd an ce fe es , b u t rec eive d pa ym en t s for p er fo rm in g t he ir f un c t ion b a se d on t he d ec is ion s of th e G en era l Me et in g of s h are ho lde r s da te d 21 Oc tob er 2019 an d 15 Ju ne 2020. R em un e rat io n of t he m em b er s of t h e Su pe r vis or y B o ard i s reg ul at ed by t he R em un era t ion P oli c y for t he M em b er s of t h e S upe r vis o r y Bo ard o f NLB an d t he Me mb er s of t h e M an age me nt B o ard o f NLB ad op ted by t h e Su pe r vis or y B o ard on 15 O c tob er 2021 an d by th e G en era l Me et in g of s ha reh ol de r s on 16 D ece mb er 2021. Th e vot in g on me nt ion e d po lic y by t he G en er al M ee tin g of s h are ho ld er s was consultativ e. Rec om me nda t ion s no . 21.4 to 21.6 : In 2021, N LB did n ot p ay var iab le re mu ne ra tio n in t he f or m of N LB ’s sh ares t o any me mb er o f th e NLB M an ag em en t B oa rd, n or d o s to ck o pt ion plans and comparabl e finan cial ins tr umen ts make up most of th e var ia bl e rem un er at ion o f any m em b er of t h e NLB Ma na gem e nt B oa rd . In re la tio n to t he p ay m en t of var ia bl e rem un er at ion i n ord in ar y or p refe ren ce s h are s of NLB , or sh ar e lin ked in s t r um en t s , o r eq ui valen t n on - cas h in s t r um en t s NLB co mp lie s wi th t h e rec ent c h an ges i nt ro du ced by t he Ba nk in g Ac t ( ZB an - 3) 20 th at c am e in to for ce on 23 J un e 2021. In acc ord an ce wi th p oin t 3 of t h e se con d p ara grap h of Ar t ic le 190 of t h e ZBa n -3, a t l ea s t 50% of t he va ri ab le rem un er at ion o f (amon g ot h er) e ach m em b er of t h e NLB Ma na gem e nt B oa rd s ha ll co mp r is e ord in ar y or p refe ren ce sh ar es of N LB , or s h are l in ked in s t r um en t s , o r eq uiva len t no n - ca sh i ns tr u me nt s ( h ere in af ter c oll ec ti vely : In s t r u me nt s). Thi s re qui rem en t ap pl ies t o bot h t he n on - def er red a nd t h e deferred par t of variable remuneration (which are dif ferent fro m reco m me nd at io ns 21.4 a nd 21.6, w hi ch p rovid e th a t var iab le re mu ne ra tio n gi ven as s h are s , as we ll a s th e execu t ion o f s to ck op ti on s an d any ot h er r ig ht s to a cq uire sh ar es or b e rem u ne ra ted b as e d on s ha re pr ic e movem e nt s , mu s t n ot b e ma de p os s ib le fo r at l ea s t t hre e year s a f ter s u ch ri gh t s were a warde d) . Wh en t h e var iab le re mu ne ra ti on of a n in div id ual I de nt if ie d St af f for a p ar t ic ula r year d oe s not exce ed 20 Ba n ki n g Ac t ( ZB a n - 3; O f f ic i al G aze t t e o f th e R S , N o 92/ 21). EUR 50,000 an d do es n ot excee d on e t hir d of h is/ h er tot al rem un er at ion f or s uc h year , ZB an - 3 al lows f or an excep ti on fro m th e re qui rem en t t ha t a p ar t of var ia bl e rem un er at ion mu s t b e pa id in In s t r u me nt s . On 15 O c t obe r 2021, th e Su pe r vis or y B o ard of t h e ba nk a dop ted a n ew R em un era t ion Poli c y of M em b er s of t he M a na gem e nt B oa rd of N LB an d th e Me mb er s of t h e S up er vi so r y Bo ard o f NLB , w hi ch was a ls o ado pte d by th e G en era l Me et in g of s ha reh ol de r s of t he B an k on 16 D ece mb er 2021. Th e vot in g on m en ti on ed p oli c y by th e Ge ne ral M ee ti ng o f sh ar eh old er s wa s con s ul ta ti ve. Rec ommendation no. 25.3 : The Bank does not follow the r ecommendation on r otation of audit companies (at least onc e ev ery seven y ears); howe ver, the Bank complies with the Banking Law (ZBan-3) that allow s longer period. Howev er, the audit firm did r eplace the audit partner r esponsible for the audit of NLB and the Gr oup financial statements for year 2020 and 2021. Rec om me nda t ion n o. 27.4 : NLB d raw s up i t s f in an cia l cale n dar w hi ch i s pu bli s he d on B an k s’ web si te ( ht tps:/ /ww w . nlb. si/finan cial- calen dar ) an d in cl ude s t he d at e of t he A nn u al Ge ne ral M ee ti ng , h owever , it do es n’ t provi de in fo rm a ti on on th e di vid en d pa ym en t da te . Th e div id en d pa ym en t da te i s ann o un ced i n th e p ubl ica ti on of t h e Age nd a an d Prop os ed Res o lu ti on s to b e pa s se d at t h e An n ual G e ne ral M ee ti ng ( ht tps :/ /www . nlb . si/ general- meetin gs ). The d iv ide n d pa ym en t da te is d et er mi ne d ba s ed on K DD O pe rat io ns R u le s (Cent ral Securities Clearing Co r poration) . Rec om me nda t ion n o. 29.2 : Th e B an k pe r for m s th e co rp ora te su s t ain ab ili t y r epo r ti ng a ccor din g to G lo ba l Rep or t in g Ini ti at ive S tan da rd s (GR I). An ot he r in s t it u ti on s ui tab le f or independ ent exter nal ass es smen t of corporate sus tainabilit y rep or ti ng w ill ve ri f y th e cor re c t n es s of i nf or m at ion i n th e cor po ra te s us tain ab ili t y rep or t pre s um ab ly fo r bu s in es s yea r 2022 (th is al so i nc l ude s G RI s tan dar ds). H owever , th e ban k alre ad y ado pt ed a de ci si on t ha t in 2022 a n in de pen d en t ex te rn a l ver if ica t ion o f th e wor k of c alc ul at in g th e car b on foot pr i nt w ill b e pe r for m ed by re now ne d na t ur al s cie nc e an d technology research ins tit ute in Slo venia. Rec ommendation no. 29.9 : NLB does not publish the rules of pr ocedur e of its bodies (Management Boar d and Supervisory Boar d and its committees) on its website. Ho wever, each y ear the Bank discloses the composition, c ompetences, and work of its managing bodies in the Corpor ate Governanc e Statement of NLB and publishes it in the NLB Gr oup Annual Report, on Bank's website ( https:/ /www.nlb.si/corpor ate-governanc e ), as well as on the web page of the Ljubljana Stock Ex change ( https:/ /seonet.ljse.si ). 3. M AIN FEA TUR E S OF INT ER NAL C ONTROL A N D RIS K M ANA GEM ENT SY STEMS IN REL A T IO N T O FINANCI AL REPORTING NLB is g over ne d by th e pr ovis io ns o f th e Cap ita l Re qu ire me nt s Reg ul at io n (CRR) , wi th a me n dm en t, toge th er w it h al l app lica bl e del eg at ed a c t s , B a nk in g Ac t ( ZBa n - 3) an d th e Reg ul at io n on In te r na l Gover n an ce A r ran gem e nt s , t h e Ma na gem e nt B od y an d t he In te r na l Capi tal A de qu ac y A s s es s me nt P roc es s fo r B ank s a nd S a vin gs B a nk s r eg ula t ing , an d rel evant EBA G u ide lin es , amo ng o th er , t he B a nk ’s obl iga t ion to s et u p, m ain tai n app rop r ia te in te rn al c on tro l, an d ri s k ma na ge me nt s y s te m s . D ue to t h e above, t h e NLB h as develo pe d a s te ad y an d re liab le i nt er n al gover n an ce s ys tem en com pa s s ing t h e fol lowi ng: • a cle ar o rga ni sa t ion al s t r u c t u re wi th p rec is el y de f ine d tra ns p are nt an d co n si s te nt i nt er n al re la tio ns i n th e ar ea of respon sibilit y; • ef fec tive risk management processes for identif ying, me as ur i ng o r as s es s in g , ma na gin g , an d mo ni to ri ng r i sk s , inc l udi ng r i sk a pp et ite , ri s k s t rat eg y , I C A AP , IL A AP , rec over y pla n , an d th e re por t in g of r i sk s to w hi ch t he G ro up i s expo se d or co ul d be ex pos ed i n it s o pe rat io ns ; • inc or po ra tin g m ain s tra te gic r i sk g ui de lin es i nto a nn u al bu si ne s s pl an rev iew, budg et ing p ro ces s , a nd o th er r elevan t decision -makin g; • su it abl e in ter n al c on tro l me ch an is m s t ha t in cl ud e appr opriate admi nis trativ e and ac counting p rocedure s; • th e ap prop r ia te re mu ne ra tio n po lic ies a nd p rac ti ces t h at are in l in e wi th p r ud en t an d ef fec ti ve ri s k ma na gem e nt, an d thus promote ris k managem ent. 3.1. Intern al control mechanisms Su it abil it y of t he i nt er n al co nt rol m e ch an is m s are d ete rm in e d by th e in dep en de n ce, q ual it y an d valid it y of : • th e r ul es fo r an d con t rol s of t he i mp lem e nt at ion o f th e Bank 's organisat ional procedur es , busines s procedures, an d wor k pro ced ur es ( in ter n al co nt ro ls) an d • the int ernal contr ol func tions a nd depar tments (internal contr ol func tions ). 127 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 3.1.1. Intern al Controls In Au gu s t 2021, t he B an k up gra de d a s ys t em of i nt er n al con tro ls by a dop ti ng a rev is ed P oli c y In ter n al Co nt rol Sy s te m that is harmonized with inte r national regulatory requi rements an d s tan d ard s (CRR , Ba nk in g Ac t, B IS , COSO, reg ul at io n of t he Bo S , EBA e t al) . A s ys t em of i nt er n al co nt rol s m ean s a s et o f rul es, proced ures, and organi sat ional s tr uc t ures aimed at : • en su r in g ef fic ie nt an d co n si s te nt i mp le me nt at ion o f NLB 's strategies and oper ations, • en su r in g ef fic ie nt an d co n si s te nt p roc es s es an d p roce d ure s in th e NL B , • prot ec tio n of t he val u e of NLB 's a s se t s , • ens uring th e reliabilit y and integr it y of accountin g and managem ent data and informa tion, • en su r in g th e op era t ion a nd o pe rat io n of t he N LB in accordance with all applicable rules and regula tions . The s y s t em of i nt er n al con t rol s in NLB i s de si gn ed to e ns u re th at f or e ach key r is k t he re is a p roc es s o r oth er m e as ur e to red uce o r m an age t h at r i sk a n d th at p roc es s o r me as u re is ef f ec ti ve for t ha t p ur po se . The a fo rem en t ion ed p oli c y in tr od uce s a new d es cr ip ti on of th e th re e lin es o f def en ce, n am el y :  Fir s t l evel (or lin e) cont rol s are i mp lem e nt ed in to b us in es s an d no nbu si ne s s or gan is a ti on al un it s (O U): co nt rol s are de s ign ed to e n su re t he p rop er im p lem en ta t ion of b us in es s a c t iv it ies  i e   th e Ba nk 's o pe rat io ns  Su pe r vis io n in ea ch i nd iv idu al b us in es s area i s car r ie d ou t by th e com p ete nt o rga ni sa t ion al u ni t (OU)  w hi ch i s res po ns ib le f or t he im p lem e nta t ion o f pro ced ur es ;  S eco n dlevel co nt rol s are d iv ide d be t we en R is k Ma na gem e nt an d Com p lia nce c on tro l f un c t ion s (in c lu din g A M L /CTF a nd I nfo r ma t ion s ec ur i t y ma na gem e nt) t h at ca r r y ou t in dep en de nt c on tro ls a nd su pe r vis io n over th e op er at ion o f th e f ir s t l in e of d efen ce  The b u si ne s s com p lian ce f u nc tio n se es t o th e s up er vi si on of th e co r rec t im ple m en tat io n an d en s ur in g com p lian ce (li ne co nt ro ls) wi th t h e reg ul at or y fr am ewor k  i t s con s is t en t in ter p ret at ion a t t he G ro up leve l  as we ll a s to id ent i f y in g  a s se s si ng  preven ti ng  and m on it or in g overall r i sk s t o com pl ian ce an d in te gr i t y i n th e NLB  Th e ri s k ma na ge me nt f u nc tio n dir ec ts r i s k ma na gem e nt a nd con tro l by def i nin g p olic ie s an d me th o dol og ies fo r r is k ass ess men t and managemen t;  The t hi rd leve l of co nt rol s is p er fo rm e d by th e in ter n al audit func tion  which asses ses and regularly checks th e com p let en es s  f un c t ion al it y  and a de qu ac y of t h e intern al control sys tem  Intern al audit is completely in dep en de nt o f bot h t he f ir s t lin e an d th e s eco n dlevel contr ol func tions  In th e even t of d ef ici en cie s , ir re gu la ri ti es o f bre ach e s ide nt if ie d in t h e pro ces s o f im ple m en tat io n of in te r na l con tro ls t h e bre ac he s are di s cu s s ed a t th e O per at io na l Ri sk Co mm i t t ee (w hic h is co ll ec tive d ec is ion - m ak in g bo dy app oin te d by th e M an age m en t Bo ard o f th e B an k th a t is es t abl is h ed fo r execu t ion o f in div id ua l tas k s w it hi n power s of th e M an ag em en t B oar d of t he B an k) . Th e me nt ion e d com mi t tee a do pt s de ci si on s so t h at a pp ropr i at e ac tio ns a re taken a nd i nfo r ms t h e Ma na gem e nt B o ard of t h e B an k abo u t def ic ien c ies a nd a c t ion s t aken on t h at b eh al f. 3.1.2. Inter nal Control F unc tions The i nt er n al co nt rol f u nc tio n s are p ar t of t he s y s t em of t h e int er n al gover n an ce in t h e B an k . In ter n al co nt ro l f un c t ion s include: a) The Int ernal Audit Function The I nt er n al Au di t fu nc ti on i s org ani s ed ac cor din g to th e Ch ar te r on t he I nte r na l Au dit o f NLB a dop te d by th e Ma na gem e nt B oa rd on 13 N ovemb er 2018 (an d s upp le me nt ed on 13 Au gu s t 2019), t o wh ich t h e S up er vi so r y Bo ard o f NLB gave i t s ap proval ( 30 Novem be r 2018 an d 6 Se pt em ber 2019) . The C ha r ter o f th e In te rn al A ud it of N LB is t h e um bre lla doc um en t ab ou t t he u nd er s t an din g an d ro le of t h e Int er n al Au di t in NLB , whi ch d ef in es t he p ur p os e, power s , res po ns ib ili ti es , a nd t as k s of t h e Int er n al Au di t in li ne w it h th e In ter n a tio n al St an dar ds fo r th e Pro fes sio na l Prac ti ce of Int er n al Au di tin g . Th e Ch ar te r lay s dow n th e po si ti on of t h e Int er n al Au di t in t he o rga ni sa ti on , in c lu din g th e n at u re of th e rel at io ns h ip b et ween t he f u nc tio n al re sp on s ibil it y of t he Hea d of t he I nt er n al Au di t to th e s up er vi s or y bo dy, grant s au th or i sa t ion s to i nt er n al au di tor s fo r acc es s in g rec ord s , em ploye es , p rem is es , a n d eq uip me nt r elevan t fo r pe r for mi ng th eir t as k s , an d d ef in es t he a rea a nd a c t iv it ie s of t he I nt er n al Au di t. The M a na gem e nt B oa rd h as s et u p an in de pe nd en t in ter n al au dit f u nc tio n wh ic h give s as s ur an ces a nd a dv ice ab ou t r is k managem ent, internal controls sys tem , and managem ent of th e NLB . The m is s io n an d th e p ri nc ip al ta sk o f th e In te r na l Aud it i s to co ns ol ida te a nd s e cur e th e val ue of t h e B an k by is s ui ng o bje c t ive a s s uran ce s ba se d on r i sk a s s es s m en t, wi th co ns u lt an c y an d de ep un d er s ta n din g of t he B a nk ’s ope ra tio n s . In a ddi ti on to t h at, t he In te r na l Au dit c ar r ies o u t reg ul ar con t rol o f th e qu al it y of op era t ion o f th e ot h er in te rn al au dit d ep ar t me nt s i n th e G rou p an d takes c are o f con s t ant dev elopment of the i nternal auditing func tion. Pur s u an t to t he p rovi si on s of t he l aw, the B a nk h as o rg ani s ed th e in ter n al a ud it a s an in de pe nd en t or gan is a tio n al un it, pr im ar y re sp on s ibl e to t he S up er v is or y B oa rd of t he N LB an d se con da r y to th e M an ag em en t B oar d of th e B an k . The S u pe r vis or y B o ard of N LB m us t is s ue i t s ap proval of t h e app oin t me nt, re mu ne ra tio n , an d di sm i s sa l to th e H ead o f th e Int er n al Au di t, whi ch en s ur es t he ir in de pe nd en ce an d s o, th e in dep en de nc e of t he wor k o f th e In te rn al A ud it. b) The Ris k Management Function The Risk Management F unction is or ganised accor ding to the Charter of the Risk Management F unction of NLB adopted by the Management Boar d, in agr eement with the Supervisory Board of NLB. The Charter on F unctioning of the Risk Management F unction of NLB is the fr amework document on understanding and r ole of the risk management function; it defines the purpose, validity, and method of oper ation, as well as the authorisations and r esponsibilities of the risk management function acc ording t o the requir ements of the Banking Act (ZBan- 3) and the Regulation on Internal Management Arr angements, Management Body, and Internal Capital Adequacy Assessment Pr ocess for Banks and Savings Banks. The r i s k ma na ge me nt f u nc tio n rep res en t s an i mp or ta nt p ar t of overal l ma na ge me nt a nd g over na nc e sy s t em in t h e Gro up . Thi s f un c t io n in NLB i s or gan is ed w it h in th e R is k s t re am , covered by t h e me mb er o f th e M an age m en t Bo ard i n ch arg e of r is k (Chi ef r is k of f ice r - CRO). T he r i sk s tre am cover s t h e follo wing organisational unit s: • Gl ob al R is k • Cred it R is k – Cor p ora te • Cred it R is k - R eta il • E valuati on and C ontrol • Res tr u c t u ri ng • W o r k-o ut a nd Le ga l s upp or t The r i s k ma na ge me nt f u nc tio n is p er for m e d by th e Gl ob al Ri sk . In acco rda nc e wi th t h e com pe ten ce s , au t ho r is at io ns , an d res po n sib ili ti es G lo ba l Ri s k is re pre se nt ed by i t s Ge ne ral Ma na ger . T he G lo ba l Ri s k is in f u nc ti on al an d or gan is a ti on al ter m s s epa ra te fr om ot h er f un c t io ns w h ere b us in es s d ec is io ns are ad op ted a nd w h ere p ote nt ial c on fl ic t o f in ter es t m ay ar is e wi th t h e r is k m an age m en t fu nc ti on . Th e h ea d of t he r i sk 128 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ma na gem e nt f un c tio n ha s di rec t acce s s to t he M an ag em en t Bo ard o f th e NLB a nd a t t he s am e t im e un hi nd ere d an d in dep en de nt a cce s s to t he S up er v is or y B oar d of NL B an d th e Ri sk Co mm i t t ee o f th e S up er vi so r y Bo ard o f th e NLB . In m em ber s o f th e G ro up, th e r is k m an ag em en t f un c t io n is org ani s ed ac cord in g to t he l oca l leg is la t ion , co n si der i ng th e ba s es fo r se t- up, org an is at io n , an d ac tiv it ie s in r is k ma na gem e nt in t h e m em ber s , as de fi ne d in t he d oc um en t ' Ri s k Ma na ge me nt S tan d ard s in t he NL B Gro up .' The des cr i be d s ta nd ard s on r i sk m an ag em en t pr ovid e th e me mb er s o f th e G rou p th e ba s es w it h wh ich t h ey ha ve to ali gn their organis ation , s trategic ri sk-taking guidelines , inter nal policies, met hodologies , and repor ting sys tem . Ri sk m a na gem e nt an d co nt ro l is p er for m ed t h rou gh a cle ar o rga ni sa t ion al s t r u c t u re wi th d ef in ed r ole s an d res po ns ib ili ti es . T he o rg ani s at ion a nd d el in ea tio n of com pe ten ci es i s de si gne d to p reven t con fl ic t s o f in ter es t, en su re a t ran s par en t an d do cu me nt ed d eci s ion - m ak in g process , subje c t to an appropriate upwar d and downward flow o f in for m at io n . Th e com pe te nce l in e Ri s k Ma na ge me nt i n NLB , e nco mp a s si ng s everal p rof es s ion al a rea s , i s in ch ar ge for fo r mu la ti ng a nd co nt ro llin g t he G ro up’s ri sk m an ag em en t pol ici es , s et t ing l im it s , over s ee in g th e h ar m oni s at ion , r eg ula r mo ni tor in g of r i sk ex po su res , and l im it s b as ed o n cen t rali s ed rep or ti ng a t t he G ro up leve l. The G ro up p u t s gre at e mp ha s is o n th e r is k c ul tu re an d aware ne s s ac ros s t h e en tir e Gro up . Gr oup’s Ri sk M a na gem e nt fra mewor k i s for war d- l ook in g an d ta ilo red t o it s b us in es s mo de l an d cor re sp on di ng r i sk p rof il e. c) The Compliance Function, Infor mation Secur it y Function , and A M L /CTF Fun c ti on Comp li anc e an d In teg r it y in t he G ro up in i t s rol e as i nt er n al con tro l f un c t io n per fo r ms c on tro l ac ti vit ie s wi th r es pe c t t o th e ma in fo llowi ng a rea s: • ant i -m o ney l au nd er in g an d co un ter - te rr or is t fi na nc in g (sep ara te ly fo r NLB an d t he G ro up) • inf or m at ion s e cu ri t y an d da ta pro te c t ion , • pers onal data protec tion, • regulator y compliance man agement, • pre vention of frau d and int ern al i nvestigatio ns , • securit y , • develo pm en t of c om pli an ce r is k m et ho do lo gie s , an d se t tin g an d mo ni tor in g et h ic s an d in te gr it y s t an dar ds ; • ha rm on i sa ti on of p ol ici es an d pr ac tice s wi th in t h e Gro up ( Competenc e line Compli ance a nd Integrity). Comp li anc e an d In teg r it y is a n org ani s at ion al u ni t of t he B a nk , pla ced d ire c t ly u nd er t he B a nk ’s Man age me nt B o ard i n th e org ani s at ion al s tr u c t u re. Th e B an k ad opt ed I nte gr i t y a nd Comp li anc e Pol ic y of t h e NLB an d t he N LB G rou p ( Vers io n 1, De cem be r 2016), w hic h re gul at es t h e me th od a nd s co pe o f th e ac tiv it ie s of t he c om pli an ce f un c t io n in t he B an k . S ep ara te pol ici es re gu la te di f fere nt ar ea s wh ich a re or gan is ed w it h in th e Com pli an ce an d In te gr it y in N LB . S up er vi s ion over com pl ian ce of o pe rat io ns i s w it hin t h e com p ete nce o f th e Comp li anc e an d In teg r it y . T hi s en ab le s th e Com pl ian ce an d Int eg ri t y to op era te i nd ep en den t ly f rom ot h er B an k ’s depar t ment s . The d ire c t or of Co mp lia nc e an d Int eg ri t y doe s no t pe r for m any ot he r f un c t ion a t t he B a nk t h at co ul d po s si bly l ea d to con fl ic t o f in ter es t s . T o e n su re hi s in de pe nd en ce, t h e dire c t or rep or t s to t he M an a gem en t B oa rd an d to a s p eci f ic m em be r of th e B an k ’s Ma na ge me nt B o ard re s pon s ib le fo r com pl ian ce area ( in c lu din g in for m at io n se c ur it y , p er s on al d at a pro tec ti on , an d A ML / C TF fu nc tio n s), wh ich a dd it ion al ly en s ur es in dep en de nc e of op era t ion o f th e Com pl ian ce an d In te gr i t y. A s in for m at io n se cu r it y , A ML /CT F , a nd G ro up A M L f un c t io ns are or gan is e d wi th in Com pl ian ce a nd In te gr i t y, CISO f or NLB , Gro up CI S O, DPO (D at a Prot ec tio n O f f ic er), h e ad of A ML / C TF are a for N LB an d h ead o f Gr ou p A ML a re en s ure d f ull in dep en de nc e th ro ugh e qu al re po r tin g li ne s as t he d ire c to r of Com pl ian ce an d In te gr it y an d h ave di rec t acce s s an d se par at e rep or t ing l in e to t he B an k ’s S up er vi so r y Bo ard . Followi ng N LB ’s mod el , th e co mp lia nce f u nc ti on h as b ee n es t abl is h ed in t h e core m e mb er s of t h e Gr oup, a s wel l ba se d on t he G ro up s t an dar ds fo r th e co mp lia nce a n d int eg ri t y area . Through spec ific binding s tan dards in the area of compliance an d int eg ri t y , t he re i s a ha rm o ni se d s ys t em of s tan da rds a nd pra c t ice s in th e ar ea of c om pli an ce an d in te gr it y in p la ce in th e en ti re NLB G ro up, in c ore an d n on - core m em b er s . 3.2. Finan cial repor ting Wi th t h e aim o f en s ur in g ap prop r ia te f in an ci al rep or t in g pro ced ure s , NLB p ur s u es t he a do pte d Pol ic y o n Acco un ti ng Contr ols. The ac counting c ontrols a re pro vided through the ope ration of the comple te acc ounting function with the pur pose of ens uring qu alit y and reliable accountin g inf or m at ion , a nd t h ere by acc ura te an d t im el y f in an cia l rep or ti ng . Th e pr i nc ipa l ide nt if i ed r i sk s i n th is a rea ar e ma na ge d wi th an a pp rop ri at e s ys t em of a u th or i sa t ion s , a segreg ation of duties, complia nce with accounting r ules, doc um en t in g of all b u si ne s s event s, a c u s to dy s y s te m , pos tin g on t he d ay of a b u si ne s s event, in -b uil t co nt rol m e ch an is m s in so urce a pp lica t ion s , an d ar ch ivi ng p ur s u an t to th e l aws a n d int er n al re gu la ti on s . Fur th er m ore, t h e po lic y p rec is el y de fi ne s pr im ar y acc ou nt in g con t rol s , pe r for m ed in t h e sc ope o f analy t ical bookkeeping, and secon dar y account ing controls , i.e. , ch ec ki ng t h e ef fi cie nc y o f im pl em en ta tio n of p r im ar y acc ounting contr ols. With an ef f icie nt mechanism of control s in a ccounting repor ting, NL B ensures: • A reli ab le de ci si on - m ak in g an d ope ra ti on s up por t s y s te m • Accu ra te, co mp le te, a nd t im el y acc ou nt in g da ta , th e res ul t ing a cco un ti ng , an d ot h er re por t s o f th e B an k • Comp li anc e wi th l eg al an d ot he r re qui rem en t s . Financial s tatem ent s of NLB and consolidated f inancial s ta tem e nt s o f th e NLB G ro up ar e au di ted by t h e au dit in g com pa ny Ern s t & Young d .o.o. , Lj ubl jan a . Th e m en tio ne d au dit in g com p any was a pp oin te d as t h e au dit or of N LB by th e Ge ne ral M ee ti ng o f sh ar eh old er s o f th e B an k for t h e fi na nc ial year s 2018 to 2022 ( 27 Ju ne 2018) . Th e au di tin g co mp any ver if ie s th e b us in es s re po r t in acc ord an ce wi th t h e prov is ion s of th e Com p ani es Ac t (ZGD - 1). 4. INF OR M A TION ON POINT 4, P AR A G R APH 5, OF T HE ARTICL E 70 OF THE Z GD -1 regar ding points 3, 4, 6, 8, and 9 of paragr aph 6 of the same ar ticle Explana tion regarding s ignificant direct and indirect owne rs hi p of t he co mp any ’s sec ur it ies in t h e se ns e of ach ievi ng a q ual if ie d s take as d et er m ine d by th e ac t regulating acquisitions (Poi nt 3 o f th e si x th p ara grap h of Ar ti cle 70 o f th e ZG D - 1) 129 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sig ni fi can t dir ec t and i nd ire c t ow ne r sh ip o f th e com p any ’s se cu ri t ies i n ter m s of a ch ievi ng a q ua lif yi ng h ol din g as d ef in e d in th e T akeover s Ac t (as of 31 D ece mb er 2021). Shar eholder Number of shar es Per centage of shar es Natur e of ownership RoS 5,000,001 25.00 shares Br andes Investment P ar tners, L.P . (i) / >5 and <10 GDRs EBRD (i) / >5 and <10 GDRs Schr oders plc (i), ( ii) / >5 and <10 GDRs (i) In the form of GDRs. (ii) F urther information is available in chapter E vents after the end of the 2021 financial year . Mo re in for m at io n on t he B a nk ’s S ha re Capi ta l is a vaila bl e on th e webs i te: ht tps:/ /w w w . nlb . s i /s h a r e s . Explana tion regarding th e holders of securities tha t carr y sp eci al con t rol r igh t s (Poi nt 4 o f th e si x th p ara grap h of Ar ti cle 70 o f th e ZG D - 1) The Bank did not is sue any secur ities car r yin g special contr olling ri ght s. Explanation r egarding r estrictions r elated to voting rights, in particular: ( i) restrictions of v oting rights to a certain stake or certain number of vot es, ( ii) deadlines for ex ecuting voting rights, and ( iii) agr eements in which, based on the company’s cooper ation, the financial rights arising fr om securities are separ ated from the rights of o wnership of such securities (Poi nt 6 o f th e si x th p ara grap h of Ar ti cle 70 o f th e ZG D - 1) The s h are s of t h e Ba nk a re fr ee ly t ran s fe rab le, s u bje c t to t h e provi s ion s of t h e Ar t icl es o f A s s oci at io n of t he B an k w hic h req uir e th e ap proval of t h e S up er vi so r y Bo ard , n am el y for t he tra ns fer of s h are s of t he B a nk by w hic h th e ac qu irer , t og eth e r wi th t he s h are s he ld by t he h o lde r be fore s u ch an a cq ui si ti on an d th e s ha res h el d by th ird p ar t ies f or t he a cco un t of th e acq uir er , excee ds t he s h are o f 25% of t he B a nk ’s vot ing sh ar es . A pp roval for t h e tra ns fer of s h are s is i s s ue d by th e Super viso r y Bo ard. The B a nk r eje c t s t h e req ue s t fo r app roval of t ran s f er s ha res if t he a cqu ire r , tog et he r wi th t h e sh ar es h el d by th e acq uir er bef ore t he a cq uis i tio n an d t he s h are s he ld by t hir d par t ie s for th e acc ou nt of t h e acq ui rer , excee de d th e 25% s ha re of t h e Ba nk w it h vot in g ri gh t s , in cre as e d by one s h are . Not wi th s t an din g t he p rovi sio n m en tio n ed in t h e fi r s t par agra ph , ap proval f or t he t ran s f er of s h are s is n ot re qu ire d if t he a cqu ire r of t he s h are s ha s ac qui red t h em fo r th e ac cou nt of th ird p ar t ie s , so t h at i t is n ot e nt it le d to exerc is e vot in g ri gh t s fro m th es e s ha res a t it s sol e di sc ret io n , wh ile a t t he s am e t im e com mi t tin g to t h e Ba nk , i t wi ll n ot exerc is e voti ng r ig ht s o n th e ba s is of t h e in s t r uc tio ns o f an in di vi du al t hir d pa r t y fo r wh os e acco un t i t ha s acq ui red t h e sh ar es if, to ge th er w it h t he in s tr uc t io ns fo r vot ing , i t do es n ot re cei ve a wr it te n gu ara nte e fro m th at p er s on t h at t h is p er s on h as s h are s for h is ow n acco un t, an d th a t th is p er s on i s no t, dire c t ly o r in dire c t ly, a ho lde r of m ore t h an 25% of t h e B an k ’s votin g r igh t s . The a cq uir er wh o excee ds t h e sh ar e of 25% of t h e B ank ’s sh ar es wi t h voti ng r ig ht s a nd d oe s not r eq uir e th e is s u an ce of ap proval fo r th e t ran s fe r of s ha res , or do es n ot re cei ve th e app roval of t he B a nk , m a y exerci se t h e voti ng r ig ht f rom 25% of th e s h are s wi th t he vo tin g r igh t s . The re ar e no r es t r ic t io ns o th er t h an t ho se m en t ion ed a nd those that are re gulator y . Explana tion on the (i) company’ s r ules on appointment or replacement of members of the managemen t or super visor y bodies, and (ii) changes to company’s A r ticles of Associa tion (Poi nt 8 o f th e si x th p ara grap h of Ar ti cle 70 o f th e ZG D - 1) The appointment or replacement of members of the managemen t or super visor y bodies The Management B oard The M a na gem e nt B oa rd of t h e B ank i s co mp r is ed o f th ree to seve n me mb er s , o ne o f wh om i s ap poi nt ed Pr es ide nt of th e M an ag em en t B oar d of t he B an k . T he n um b er of Ma na gem e nt B oa rd m em be r s is d ete r min e d by a res ol ut io n of th e B an k ’s S upe r vi so r y Bo ard . Th e Pre si de nt a nd ot h er me mb er s o f th e M an age me nt B o ard a re ap poi nt ed an d reca lle d by th e S up er vi s or y B oar d of th e B an k ; t he Pr es id en t of th e M an ag em en t B oar d ma y pro po se t o th e Ch air o f th e S up er vi so r y Bo ard o f th e B an k to ap po int o r re call an in di vid ua l m em ber o r th e re ma in ing m e mb er s of t h e Ma na gem e nt B oa rd of t h e B ank . The P res id en t an d m em be rs o f th e M an ag em en t B oar d sh al l be ap po in ted f or a pe r iod o f f ive yea r s an d ma y be re - ap po in ted f or an ot he r te rm o f of fi ce. T he Pr es ide nt an d me mb er s o f th e M an age me nt B o ard m a y be re cal led pr ior t o th e exp ir y of t he ir te rm o f of f ice in a ccor dan ce w it h app lica bl e la ws an d A r tic le s of A s s o cia ti on . Eac h me mb er of th e M an ag em en t B oar d of t he B an k m ay p rem a t ure ly res ign h er/his t er m of o f f ic e wi th a p er io d of n ot ice of t h ree mo nt h s . A wr i t ten n ot ice s h all b e del iver ed to t h e Cha ir of th e S up er vi so r y Bo ard o f th e B an k . Th e n oti ce te r m ma y be s ho r ter t h an t hr ee m on th s i f req ue s te d by th e re si gni ng me mb er o f th e M an age m ent B o ard o f th e B an k in h is/ h er not ice a n d is s ub jec t to t he a ppr oval of th e S up er vi s or y B oar d of th e B an k . A me mb er o f th e B an k ’s Man a gem en t B oa rd m ay o nl y be a per s on w h o f ulf i ls t he l eg all y pre sc r ib ed co nd it ion s fo r a ma na gem e nt b oar d me mb er u nd er t h e law o n ba nk in g an d wh o obt ain e d a lice nce f ro m th e B oS o r th e ECB, i f exec ut in g th e com p ete nc es an d ta s k s fro m It em (e) of parag rap h 1 of Ar t icl e 4 of R eg ula t ion (EU) n o. 1024/2013 for t h e pe r for m an ce of th e f un c tio n of a ba nk ’s man age m en t bo ard m em be r un der t h e la w reg ul at in g ba nk in g. T he B an k a s se s s es ever y can did at e fol lowi ng t he B a nk ’s Po lic y g over nin g t he Fi t & Prop er a s se s s me nt p r ior t o th e ap poi nt m en t. The Super visor y Bo ard The S u pe r vis or y B o ard of t h e B ank c on s is t s o f a tot al of 12 me mb er s , o f wh ich e igh t m em be r s rep res en t th e in te res t s of s ha reh ol de rs a n d fou r me mb er s r epr es en t th e in te res t s of em pl oyees . Mem b er s re pre se nt in g th e in te res ts o f sh ar eh old er s s h all b e el ec ted an d re cal le d by th e B ank ’s Ge ne ral M ee ti ng f rom p er s on s pro po se d by sh ar eh ol der s o r th e S up er vi so r y Bo ard o f th e B an k an d m em be rs r epr es en ti ng th e in ter es t s o f em pl oyees s h all b e el ec ted a nd re cal le d by th e Worker s’ Co un cil o f th e B an k . M em be r s of t he S up er v is or y Bo ard r epr es en ti ng t he i nt ere s t s of s h are ho ld er s ar e ele c t ed by an ord in ar y ma jor i t y of vote s cas t by sh are ho ld er s . The t er m of o f f i ce of t he S u pe r vis or y B oa rd m em be r s com m en ces o n th e da y th ei r app oin t me nt e nt er s in to fo rce (st ar t of t er m of o f f ic e) and la s t s u p un til t h e en d of t he B a nk 's An n ual G en er al M eet in g of s h are ho ld er s wh ic h de cid es o n th e us e of ac cu mu la te d pro fi t fo r th e fo ur th b u si ne s s year s in ce th e s ta r t of t he ir te rm o f of fi ce, un l es s ot h er wi se s tip ul at ed at t he t im e of a pp oin tm e nt of i n div id ual m e mb er s . I n th is con tex t, t he f i r s t yea r is de em e d th e bu s in es s yea r in w hic h th e me mb er s o f th e S up er vi so r y Bo ard o f th e B an k s ta r ted t h eir ter m of o f f i ce. The g en er al m eet in g of t h e Ba nk m a y dis m is s a n in div id ua l or all m e mb er s of t h e S upe r vi so r y Bo ard (rep res en ta t ives o f sh ar eh old er s) even b efor e th e exp ira tio n of t he ir te r m of of f ice. 130 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A res ol ut io n on a di s mi s s al s ha ll be va lid i f ado pt ed w it h at lea s t a t hr ee - qua r ter m aj or it y of a ll vote s ca s t. The S u pe r vis or y B o ard of t h e B ank s h al l at i t s f ir s t m ee ti ng af ter a n app oin t me nt e le c t f rom a mo ng i t s m em be r s a Cha ir an d at l ea s t on e D ep ut y Ch air o f th e S up er vi so r y Bo ard o f th e B an k . A m em ber r ep res en ti ng t h e int ere s t s o f em ploye es can no t be e lec te d Cha ir or D ep u t y C ha ir of t h e Su pe r vis o r y Bo ard o f th e B an k . A ll th e s up er vi s or y bo ard m em b er s s ha ll be in de pe nd en t pro fe s sio n als a s de f ine d by th e A r tic le s of As socia tion. A me mb er o f th e B an k ’s Su pe r vis or y B oa rd m ay o nl y be a per s on w h o f ulf i ls t he l eg all y pre sc r ib ed co nd it ion s fo r a su pe r vis or y b oa rd me m ber u nd er t h e law o n ba nk in g an d wh o obt ain e d a lice nce f ro m th e B oS o r th e ECB, i f exec ut in g th e com p ete nc es an d ta s k s fro m It em (e) of parag rap h 1 of Ar t icl e 4 of R eg ula t ion (EU) n o. 1024/2013 for t h e pe r for m an ce of th e f un c tio n of a ba nk ’s sup er vi so r y bo ard m em be r un der t h e la w reg ul at in g ba nk in g. T he B an k a s se s s es ever y can did at e fol lowi ng t h e Ba nk ’s Polic y g overn in g Fi t & Pro pe r assessm ent p r ior t o the app ointment. Amendmen ts to Ar ticles of Ass ociation A qu ali f ied m aj or it y of a t le as t 75% (sevent y- f ive pe r cen t) of th e vot es ca s t by s ha reh ol de r s at t he g en era l m eet in g of th e B an k ’s sh are ho ld er s i s req uir ed fo r th e ad op tio n of any am en dm en t s of t he A r ti cl es of A ss o cia t ion . Explana tion regarding th e author isation of the memb ers of the managemen t, particularly au thoris ations to iss ue or purc ha se own s h ares (Poi nt 9 o f th e si x th p ara grap h of Ar ti cle 70 o f th e ZG D - 1) Wi th t h e aim o f en s ur in g NLB t re as ur y s h ares f or t he p ay m en t of var iab le p ar t of t h e rem un e rat io n to th e e mp loyee s of NLB i n th e for m o f NLB s h are s , th e G en era l Me et in g of s ha reh ol de rs o f NLB o n 10 J un e 2019, au th o ri s ed t he Ma na gem e nt B oa rd fo r red ee min g t rea s ur y s ha res i n th e per i od of 36 m on t hs f rom t h e ad opt io n of t he re so l ut ion a t t he Ge ne ral M ee ti ng . Th e au t ho r is at io n is val id fo r acq uir in g up to 36,542 NLB t re as ur y s h ares , whi le t he t ota l pe rcen tag e of shares acquire d based on this authorisation, t ogether with th e tr ea su r y sh ar es al rea dy in p os s es sio n of NLB , ma y no t exceed 10% o f NLB s h are ca pit al (2,000,000 s h are s). Wh en dis p os ing i t s t rea s ur y s ha res w hi ch NLB a cq uire d b as ed on this authorisation, the p re -emptive right of the existing sh ar eh old er s to a cq uire s h are s is exc lu ded i n f ull i n cas e tre as u r y sh are s are d is po se d of fo r th e p ur po se o f pa yin g t he var iab le p ar t of re m un era ti on to t h e em ploye es of N LB in t he for m of N LB ’s sh are s . In 2021, h owever , NLB di d not p ur ch as e treas ur y sh ares . 5. INF OR M A TION ON T H E W ORK AND KEY PO WER S OF THE SHAREHOLDERS’ MEETING AND OF IT S KE Y PO WER S , AND A DESCRIPTION OF SHAREHOLDERS’ RIG HT S AND T H E METHOD OF THEIR E XE RCI S IN G Competenc es of the Bank’s General Meeting ar e stipulated in the Companies Act (Z GD-1), the Banking Act (ZBan-3), and the Articles of Association of the Bank. The Gener al Meeting is a body of the Bank thr ough which shareholders e xer cise their rights, which include among others: decisions on corpor ate changes (amendments of the Articles of Association, increase or decr ease of share c apital) and legal r estructuring (mergers, acquisitions), adopting decisions on all statutory issues in r espect of appointing and discharging members of the Supervisory Boar d (repr esentativ es of shareholders), and appointment of an auditor, distribution decisions (appr opriation of distributable pr ofit ), and the granting of dischar ge fr om liability to the Management and Supervisory Boar d. The G e ne ral M ee ti ng i s conve ne d by th e M an age me nt B o ard . The G e ne ral M ee ti ng m ay b e co nvene d by th e S up er vi s or y Bo ard i n cas es w h ere t h e Ma na gem e nt B oa rd fa ils t o conven e th e G en eral M e et ing o r wh er e a convo cat io n is n ec es s ar y to en su re un h in der ed op er at ion s of t h e B an k . Th e S upe r vi so r y Bo ard m a y am en d th e ag en da o f th e G en era l Me et in g conven ed i n lin e w it h th e byl aw s . A s a r ul e, t he G en er al M eet in g of t h e Ba nk s h all b e co nvene d at t he r egi s t ere d of fic e of t he B a nk , yet i t m ay a ls o be conven ed a t an ot h er ven ue s p ec if ie d by th e conve no r . Th e Ma na gem e nt B oa rd m ay s tip ul at e th at s h are h old er s m ay at ten d o r vote b efor e or a t th e G en era l Me et in g by ele c t ron ic me an s wi th o ut p hys ica l pre se nc e. Th e G en era l Me et in g of sh ar eh old er s s h all a dop t res ol u ti on s by si mp le m ajo r it y of t he votes c as t, un l es s t he a ppl ica ble l aw s or t he B a nk ’s Ar t ic le s of A s s oc ia tio n s t ip ula te a l arg er m aj or it y or o th er c on dit io ns (adopt io n an d am en dm en t s of t h e Ar t icl es o f A s s oci at io n , is s ue o f conve r tib le b on ds o r ot he r eq ui t y s e cu ri ti es , exc lu si on of pre - em pt ive r igh t of ex is t in g s ha reh ol de rs , dec rea s e in s ha re cap ita l, t h e s ta t us r es t r u c t ur in g of t h e B an k , or liquidation of the B ank and disch arge of Super visor y Board member s). The s h are h old er s h ave t he r i ght t o pa r tic ip at e at t he g en era l me et in g of t he B an k , t he vot in g r igh t, pre - em pti ve r igh t to su bs cr ib e fo r new s h are s in ca se o f sh ar e capi ta l in cre as e, t he ri gh t to pro f it p ar ti cip at io n (divi den d s), an d th e r igh t to a s h are in s ur pl us i n th e even t of li qu ida t ion o r ba nk r up tc y of t h e B an k an d th e r igh t to b e in for m ed . Accor din g to A r tic le 296 of th e Com p ani es Ac t, NLB in for m s sh ar eh old er s o n th eir r i ght s as s ha reh ol der s i n an In for m a ti on on t he R igh t s of S h are ho ld er s t ha t is p ub li sh e d am on g th e doc um en t s fo r convo cat io n of e ach G en er al M ee tin g ( i.e ., on expa ns io n of t he a gen d a, p rop os als by s h are ho ld er s , vot in g prop os al s by sh ar eh old er s , a nd t h e sh ar eh ol der s r ig ht t o be informed). The re wer e t wo G en er al M eet in gs o f s ha reh ol der s i n 2021. Th e sh ar eh old er s of N LB ga t he red o n 36 th G en er al M eet in g on 14 Ju ne 2021. D u e to COVID - 19 pa nd em ic , fo r th e f ir s t t im e t he Ge ne ral M ee ti ng wa s hyb ri d, a s it wa s h eld l ive an d on li ne . The sh ar eh old er s to ok n ot e of t he a pprove d NLB G ro up An n ua l Rep or t 2020, t he R ep or t of t h e S upe r vis o r y Bo ard o f NLB on t he re s ul t s of t he exam in a ti on of t h e NLB G rou p An n ua l Rep or t 2020, an d In fo rm a ti on on t h e in com e of m em b er s of th e M an age me nt B o ard a nd S up er v is or y B oa rd of N LB for t h e prev iou s b us in es s ye ar . The s h are h old er s d eci de d on t he a llo ca tio n of di s t r ib ut abl e prof i t for 2020. T he d is t r ib ut ab le pr of it o f NLB a s of 31 De cem be r 2020 was EU R 341,992,219.43. Di s t ri bu ta bl e prof i t in th e am ou nt o f EUR 24,800,000.00 was ab ou t to b e pai d to t he sh ar eh old er s a s div id en ds i n t wo i ns talm en t s . I n acco rda nc e wi th t he r eco mm en d at ion o f th e ECB , th e Re gu la ti on of t h e Bo S an d ad opt ed re s ol ut ion o f th e G en era l Me et in g th e f ir s t in s tal me nt o f di vid en ds i n th e tot al am o un t of EUR 12 m il lio n was pa id o n 22 Ju ne 2021 (EU R 0.60 pe r sh ar e), whi le t he se con d in s t alm en t of d iv ide nd s in t he t ota l am ou nt o f EUR 12.8 mil lio n (EUR 0.64 pe r s ha re) was pa id on 18 O c t ob er 2021. The G e ne ral M ee ti ng o f NLB gr ant ed d is ch arg e to t he me mb er s o f th e M an age me nt B o ard a nd S u per v is or y 131 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Bo ard f or t he 2020 f in an ci al yea r an d ad opt ed am e nd me nt s an d su pp lem e nt s t o th e Ar t ic les o f A s s oc ia tio n of N LB an d app oin te d Is la m Os am a Zek r y as a n ew me mb er o f th e Super viso r y Bo ard. At the 37th Gener al Meeting of shar eholders on 16 December 2021, the shar eholders decided on additional allocation of distributable pr ofit for 2020, as the BoS's decision r estricting the payment of dividends expir ed at the end of September 2021. Ther efore, an additional EUR 67.4 million of distribut able profit (EUR 3.37 per shar e) was paid to the shar eholders on 24 Dec ember 2021. NLB p aid o ut a t ota l of EUR 92.2 m il lion a s di vi den d s (or 4.61 EUR pe r s ha re) to sh are ho ld er s in 2021 (EU R 12 mi llio n on 22 Ju ne , EUR 12.8 m ill ion o n 18 Oc tob er an d EUR 67.4 mi llio n on 24 Decem b er), t h ere by rea f f i rm in g NLB G ro up' s s t abl e an d su cce s s f ul b us in es s o pe ra tio ns a n d s tr on g capi tal p os it io n . At th e G en era l Me et in g, t h e s ha reh ol der s a ls o vote d on th e Re m une ra ti on Po lic y fo r th e M em be r s of t he S u pe r vis or y Bo ard o f NLB an d t he M e mb er s of t h e Ma na ge me nt B o ard o f NLB req uir ed by t he l at es t a me n dm en t s to t he Com p ani es Ac t, app lica bl e to all t h e com p ani es w ho se s ec ur i ti es ar e tra de d on an o rga ni se d m ar ket. In th e f u t ure, N LB wi ll p ut i t for ward to vote a t th e G en era l Me et in g up on any m a ter i al am en dm en t or a t lea s t ever y fo ur ye ar s . 6. IN F OR M A TION ABOUT T HE C OM POSIT ION AND W OR K OF THE MANA GE MENT AND SUPE RV I SOR Y BOD Y AND I TS CO M M IT T E E S 6.1. The Man agement B oard Composition of the Management Bo ard The Management Boar d is the decision-making and r epr esentation body of the Bank. It manages the company, mak es business decisions autonomously and independently, adopts the dev elopment strategy, ensur es sound and ef fective risk management, acts with the highest pr ofessional integrity, pr otects business secr ets, and is held account able for the legality of the Bank’s oper ations within the limits set by the r elevant r egulations. At th e b egi nn in g of 2021, t he M an a gem en t B oa rd of t h e Ba nk con s is t ed of B l až B ro dn jak , CEO, Arch ib ald K re ms er , CFO, An dre as B u r kh ard t, CR O, and P etr B r unc lí k , COO, s in ce th e Su pe r vis or y B o ard re app oi nt ed t he p res id en t an d m em ber s of th e S up er vi s or y B oar d (Bl až B ro dn jak a s th e CEO, Arch iba ld Kre ms er a s t he CFO, an d An dre as B u r kh ar dt a s th e CR O of NLB) o n it s s es s io n on 12 Novem b er 2020. On 21 A pr il 2021, t h e Su pe r vis o r y Bo ard of N LB an d Pe tr Br unc lí k ag ree d on t h e ter m in at io n of of f ice t ha t wen t in to ef f ec t on 30 J un e 2021. A s a t 22 Ap r il 2021, hi s ta s k s were ta ken over by oth er m em b er s of t h e NLB M an ag em en t B oar d. Ma te ri al ch a ng es t ha t oc cu rr ed in t h e Ma na ge me nt B o ard af ter t h e en d of t he b u si ne s s year 2021 a re de sc r ib ed in s p eci al sta tement at the end of this Corporate Governance Statem ent of NLB . W ork of the Managem ent Board In 2021, the Management Boar d continued to work on the implementation of the NLB Gr oup Strat egy. The very solid financial r esults of NLB Group in 2021 enabled the Bank to pay out a total of EUR 92.2 million as dividends to the shar eholders in 2021 (EUR 12 million on 22 June, EUR 12.8 million on 18 October, and EUR 67.4 million on 2 4 December), ther eby r eaffirming NLB Gr oup's stable and successful business oper ations and str ong capital position. Combining these dividend pay-outs, privatisation pr oceeds, and the r esidual value of the R oS, NLB has fully r epaid the amount it rec eived for the 2013 r ecapitalisation. After succ essful acquisition of Komer cijalna Bank a, Beograd in Dec ember 2020, the Management Board immediately started working on its harmonisation with NLB Gr oup's standar ds. The Management Board w orked on intensive digitalisation and emphasis on top quality user experienc e, as well as a c ommitment to sustainable operations and dev elopment. The Management Boar d worked on a commitment to sustainable oper ations and dev elopment and implementation of the ESG factors and their inclusion in the NLB Gr oup business model. All year long, the Management Boar d took all necessary actions in or der to low er the impact and consequenc es of CO VID-19 epidemic in the Group. A det ail ed in fo rm a ti on on c om po si ti on an d t he a mo un t of rem un er at ion o f th e M an ag em en t Bo ard c an b e fou nd i n App en di ces C .1 an d C .3 of t h is s t at em en t. 6.2. The Supe r vis or y B oard In acc ord an ce wi th t h e t wo -t ier g overn an ce s y s te m , th e B an k ’s Su per v is or y B oa rd is s u es a ppr ovals to t h e Ma na gem e nt B oa rd re la ted t o th e B an k s’ b us in es s p ol ic y an d fi na nc ial p la n , app roves t he s tra te gy of t h e B ank a n d th e G rou p, th e in ter n al co nt ro l s ys t em or gan i sa ti on , an d give s con s ent t o th e A nn ua l Pla n of t he I nt er n al Au dit a n d to f in an cia l tra n sa c t ion s d ef in ed in A r ti cl es of A s so cia t ion . The S u pe r vis or y B o ard ac t s in ac cord an ce w it h th e hi gh es t eth ica l s ta nd ard s of m an ag em en t, con s ide r ing t h e preven t ion of con f lic t s of in te res t. T he S up er v is or y B oa rd pe r for m s it s tas k s in a cco rda nce w it h t he p rovi si on s of t he a pp lica ble leg is la t ion g over nin g t he o pe rat io ns o f ba nk s an d co mp an ie s , th e B an k ’s Ar ti cl es of A ss o cia t ion , an d i t s R ule s of Pr oce du re of th e S up er vi s or y B oar d of NLB . Th e Su pe r vis or y B o ard m ay eng ag e le gal a nd o th er co n su lt an t s an d in s t it u ti on s req ui red by it s el f or it s com mi t tee s to pe r for m t he ir ta sk s . Composition of the Super visor y Bo ard In acc ord an ce wi th c h ang es m ad e to t he A r t icl es of A s s oci at io n of NLB (J un e 2020) t ha t en ab le d wor ker s’ par t ici pa t ion in t h e B an k ’s man ag em en t bo di es , t he Su pe r vis or y B o ard co ns i s t s of 12 m em b er s , o ut o f wh ich e igh t are re pre se nt at ive s of t he ca pi tal , an d fo ur are e mp loyee rep res en ta ti ves (ele c t ed an d ap po int ed by t he Wor ker s Coun ci l of NL B). At th e b egi nn in g of 2021, t he S u per v is or y B oa rd of N LB con s is t ed of 11 m e mb er s , o f wh ich e igh t were r epr es en ta ti ves of s ha reh ol de rs ( in a dd it ion t o Pr im ož Karp e, Pre si de nt an d An dre as K lin ge n , De pu t y me mb er s wer e als o M ar k W il liam Lan e Ri ch ard s , S hre ni k Dh ira jla l Da vda , Pet er G roznik , D av id Eric S im on , G re go r Rok Kas teli c , an d Verica T r s ten jak) , an d th ree we re rep re se nt at ives o f em pl oyees (S er gej a Kočar , Bo jan a Št ebl aj , an d J an ja Žabje k Do lin š ek) . In J an uar y 2021, however , t he Worker s Co un ci l of NLB e le c t ed T ad eja Žb on tar Rem s a s a me mb er o f th e S up er vi s or y B oar d of th e NL B – th e repr esentative of the w orkers. With the mentioned el ec tion, th e com p os it ion o f th e S up er vi so r y Bo ard wa s com p let e. Be ca us e t he t er m of o f f ic e of m em be r of t he S up er v is or y Bo ard P ete r Gr oznik exp ire d in th e m id dle o f th e year , t h e Ge ne ral M ee ti ng o f sh ar eh old er s o n 14 Ju ne 2021 e le c t ed I sl am Os am a Zekr y a s a new m em b er of t h e S upe r vi so r y Bo ard . Statem ent of Independence of the Member s of the Super visor y Board In acc ord an ce wi th t h e Ar t icl e 20 of t he A r t icl es of A s s oci at io n of t he N LB all S up er v is or y B oa rd, m e mb er s mus t be indepen dent exper t s . Person s representing the int ere s t s of e m ploye es in t h e Su pe r vis or y B o ard of t h e B an k are co ns id ere d in de pe nd en t de sp ite t h e exis ten ce of a n em ploy me nt r ela t ion s hi p wi th t he B a nk u po n fu lf i llin g ce r tain ter m s an d co nd it ion s . 132 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A s ta tem e nt o f in dep en de nc e, in w hic h t hey d ecl are th em s elve s on t he ir m ee tin g of t h e cr it er ia o f con f lic t of int ere s t, is p rovid ed by a ca nd id ate f or a f un c tio n of a m em be r of th e S up er vi s or y B oar d, u pon e ac h ch an ge t h at wo uld me an ch a ng e of hi s/ he r in de pe nd en ce s t at u s on ce yea rl y. It i s pu bli s he d on t he B a nk ’s webpag e ( ht tps:/ /w w w .nlb.si/ corp orate - govern ance ). W ork of the Super vis or y Board In 2021, th e S up er vi s or y B oar d me t at s even re gu lar a nd 12 cor re sp on de nc e se s si on s . U pon r ece iv ing r epo r t s fr om it s co mm it te es , t h e S upe r vi so r y Bo ard a cqu ai nte d it s e lf o r ado pte d th e fo llow in g mo s t im po r tan t de ci si on s: • NLB Gr o up Strategy Implem entation Pr ogres s Repor t; • An n ual N LB Gr ou p Rep or t fo r 2020; Re por t o f th e Su pe r vis or y B o ard of N LB on t h e Res u lt s o f E xami ni ng t he An n ual N LB Gr ou p Rep or t fo r 2020; Cor po ra te G over na nce Statemen t of NLB; R isk Man agement Statem ent of NLB; An n ual R ep or t of In te r na l Au dit f or 2020; Com pr eh en si ve Opi ni on of t h e Int er n al Au di t for 2020; • The Co r por at e So ci al Re s pon s ibi lit y R epo r t for 2020; The NLB Group Sus tainabilit y Programme; ESC Intern al Do cum e nt ar y Framewor k (Len din g Po lic ies); N LB Gr ou p Su s t ain abi li t y Fram ewor k ; Conf i rm a ti on of P ill ar III dis c los ur es of t h e NLB G ro up fo r 2020; • Prop os al s to conve ne t h e reg ul ar G en era l Me et in g of sh ar eh old er s fo r14 J un e 2021 an d ex t rao rdin ar y m e eti ng f or 16 De cem be r 2021; • Inf or m at ion o n th e S up er vi s or y B oar d ele c t io n; M em ber s h ip in th e co mm it te es o f th e S up er vi so r y Bo ard; Co nf li c t of int ere s t M an ag em en t ; In for m at io n of d epa r t ure of t h e me mb er o f th e M an age m ent B o ard; S el f- a s s es s me nt o f th e col le c t ive s ui tab ili t y of th e m em be r s of t he S up er v is or y Bo ard; S u per v is or y B oa rd s el f- as s es sm en t an d Ac t io n Plan ; Ach ievem en t s of t h e goa ls o f th e M an age m ent B o ard in 2020; An n ua l se lf- a s s es s m en t of em pl oyees p er fo r min g sp ec ial wo rk ; I nfo r ma t ion o n awar d of var ia ble p ar t of sa lar y of t h e me mb er s o f th e M an age m en t Bo ard a nd em ploye es p er for m in g sp ec ial wo rk ; Fut u re se t up of t h e Gover n in g Bo dy ; F it & P rop er as ses s m en t fo r can did at es fo r me mb er s hi p of t he S u per v is or y B oa rd – rep re se nt at ives o f employ ees; • App oi nt m en t s of t he D ire c t or of G lo ba l Ri s k an d th e Di rec tor of Com pl ian ce & In te gr it y an d t he ir pe r for m an ce; • NLB G rou p Fi na nc ial P lan 2021 a nd f in an c ial p roje c t io ns 2022-202 5; Int er im R ep or t s on t h e NLB G ro up O pe rat io ns ; Be nc h ma rk a na ly si s of t h e NLB G rou p; NLB G rou p B ud get 2022 an d Fin an ci al Pro je c t ion s 2023 – 2025; In for m a ti on on cost op timisation; • NLB G rou p Ri s k Ap pe ti te; NLB G ro up R is k S tra te gy ; R eg ul ar ri s k rep or t s fo r NLB an d NL B Gro up; O u tcom e o f th e Prag ma t ic SR EP 2020; NLB G ro up R ecover y Pl an fo r 2021; Rep or t o n th e T op 50 gro up s of cl ien t s by exp os ure i n th e NLB G rou p, Re s tr uc t u r ing TOP 20; R evis e d IL A AP – I nt er n al liq uid it y ad eq ua c y pro ces s ; Rev is ed I C A AP – In ter n al Capital Adequacy Process; Repu tation Ris k Managemen t; Forec los ed S t rat eg y for 2021 – 2025; • Int er n al Au di t ’s Ann ua l Rep or t fo r 2020; In ter n al A udi t Plan ( 2022 & lon g - te r m pl an , Ac t io n Pla n for Co mp lia nc e &Int eg ri t y for 2022; R eg ula r pe r iod ic rep or t s o n Int er n al Aud it ; Co mp lia nce a nd S e cu ri t y , a nd o n Inf or m at io n Se cu r it y A s s ura nce i n NLB ; • Rep or t s o n th e Do cu m en t s rec eive d fro m th e B oS a nd t h e ECB; Rep or t s on t h e im pl em en ta ti on of t h e req uir em en t s of th e B oS a nd ECB an d on t h e imp le me nt at io n of t he require men ts ; • Ren ovat io n of In te rn al A c t on I nt er n al Con tr ols Sy s t em; R ul es an d Proc ed ure s for t h e Su s t ain abi li t y Co mm it te e; Rev iew of th e Di ver s it y Pol ic y ; New R em un er at ion Poli c y for e m ploye es for t he N LB an d th e NL B Gro up; Th e R em un era t ion Po lic y of th e M em be r s of S up er vi s or y B oar d of NLB a nd t h e Ma na gem e nt B oa rd of N LB; • Inves t m en t Re la tio n s pe ri odi c Re por t s ; NLB Worke rs ’ Council Repor t ; • Implement ation of IT Str ategy; Data C entres i n the NL B Gro up; St ra te gy u pd ate; IT S e cu ri t y KPI ’s upd at e; Sta t us o f IT – per i odi c Rep or t s ; Cor B an k ing Sy s te m Con so li da tio n; • Con se nt to l eg al t ran s ac tio ns w it h MI G A , Was hin g ton , Se rb ia M erg er S ce na ri os ; Inf or m at ion o n Pro jec t Ma t th ew ; Expe c ted sale of a subsidiar y bank ; large exposures, sale of receivables, wr ite -of fs of claims , approvals of tra ns ac ti on s wi th p er s on s in s p eci al re la ti on s wi th t h e B ank ; es t abl is h me nt o f new co mp an ie s in S er bia a nd M a ced oni a, etc . Comp os it io n an d th e am o un t of re mu ne ra tio n of t he Su pe r vis or y B o ard m em be r s is d es cr ib ed i n th e Ap pe n dice s C .2 an d C .4 of th is s tat em en t. 6.3. T h e Sup er vi sor y Board Commit tees All f i ve Comm i t t ee s for t h e Su pe r vis or y B o ard f un c tio n as con s ul ti ng b odi es o f th e S up er vi so r y Bo ard o f NLB an d discu ss th e mater ial and proposals of Managem ent Bo ard of NLB fo r t he S up er v is or y B oar d me et in gs r ela te d to a par t ic ula r are a. T he S u pe r vis or y B oa rd h as t h e foll owin g commit tees . • The Audit Commit tee • The R i sk Co mm it te e • The N omination C ommit tee • The Remunerat ion Commit tee • The O p era ti on s an d IT Com mi t tee Comm i t t ee s are co mp os ed o f at l ea s t t hr ee m em be r s of t he Su pe r vis or y B o ard . Th e Worker ’s Coun ci l can n om in a te on e Su pe r vis or y B o ard m em be r – a rep res en ta t ive of t h e wor ker s int o eac h co mm it te e. Th e m em be r of t he Co mm it te e m ay on l y be ap po int ed f rom a mo ng t h e me mb er s o f th e S up er vi so r y Bo ard . Th e te r m of of f ice of C ha ir , th e D ep ut y Ch air , a nd me mb er s o f th e Com mi t tee s h ou ld n ot excee d th ei r ter m o f of fic e as S up er vi s or y B oar d me mb er s . The r es po ns ib ili ti es of com mi t tee s are d ef in ed i n R ule s of Pro ce du re of t he p ar t ic ula r Comm i t t ee o f th e S up er vi so r y Bo ard o f NLB . Comp os it io n of t he a for em en ti on ed Com m it te es in 2021 i s des cr i be d in de tai l in t he A pp en di x C .2 of t h is s t at em en t. 6.3.1. The Audit Commit tee of the Super visor y Bo ard of N LB The A ud it Com m it te e mo ni tor s a nd p rep are s dra f t res ol ut io ns for t he S u per v is or y B oa rd on a cco un ti ng re po r tin g , in ter n al con tro l an d r is k m an ag em en t, int er n al a udi t, com pl ian ce, a nd ex te rn a l au dit, an d a s well m on it or s t he i mp lem e nta t ion o f reg ul ato r y me as u res . At th e en d o f 2021, th e com p os it ion o f th e co mm it te e was as fo llow s: D av id Er ic S im on (Ch air m an), S hr eni k Dh ira jl al Da vda (De pu t y Cha ir m an), Pr im ož Karp e, G re gor R ok Kas tel ic (mem b er s). Ch an ge s in m em be r sh ip of t h e com m it te e th at o cc ur re d du ri ng t h e year a re ref le c t ed in t h e ch ar t o n Su pe r vis or y B o ard Com m it te es (C4 b el ow). The A ud it Com m it te e’s task s a re de fi ne d by rel evant l aw, th e Ba nk ’s Ar tic les o f A s s oc ia tio n , R ule s of P roce du re of t h e Aud it Comm i t t ee o f th e S up er vi so r y Bo ard o f NLB , r es ol ut io ns o f th e S up er vi so r y Bo ard a nd o th er re g ula t ion s , f rom w hic h th e Comm i t t ee e sp ec ial ly m on ito r s an d pr epa res p rop os al s of res ol ut io ns f or t he S u per v is or y B oa rd for t h e are a: • Accounting and f inancial repor ting • Intern al control and risk managem ent • Intern al audit • Compliance of operations • Ex ter nal audi t 133 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The re wer e seven r eg ula r se s s ion s an d t hre e cor r es po nd en ce se s si on s of t he A udi t Com m it tee i n 2021. Th e fol lowi ng i s a su mm ar y o f key topic s con si de red by t he A udi t Com m it te e: • NLB G rou p 2020 An n ua l Rep or t, Ove rall O pi nio n of In te r na l Aud it fo r 2020; Cor po ra te G over na nce S ta te me nt o f NLB ; Sta te me nt o n M an age me nt o f R is k of t he N LB , NL B Gro up on S us tain ab le O pe ra tio n s in 2020; • Reg ul ar in te r im rep or t s o n th e op er at ion s of t h e NLB G ro up, B us in es s P er for m an ce In di cat or y for N LB an d NLB G ro up, qu ar te rl y In ter n al A udi t Re po r t s , Com pli an ce an d In te gr it y Rep or t s , R ep or t s on I nfo r ma t ion s ec ur i t y as s ura nc e in NLB ; • Aud it Pl an 2021, In te r na l Aud it Pl an (2022 & l on g- te r m), Ac t io n Plan f or Com pl ian ce a nd I nte gr i t y f or 2022; • Reg ul ar re po r t s on overd ue m a ter i al re com m en da ti on s of th e In te r na l Aud it ; R ep or t s on t h e do cu me nt s r ece ived fro m th e B oS an d ECB an d on t he im p lem e nta t ion o f th e req uir em en t s of t he B o S an d ECB; Pol ic y of t h e In ter n al Cont ro ls Sys tem; R u les o f Pro ced ur e of th e NL B Gro up Sus tainable C omm it tee; • Per for m an ce a s s es s m ent o f th e D ire c to r of t he Co mp lia nc e an d Int eg ri t y an d th e Di rec tor o f th e In ter n al A udi t ; • Se lf- a s s es s m en t of t he A udi t Com mi t tee . 6.3.2. The R is k Com mi t tee o f th e S upe r v is or y Boa rd of N LB The Risk Committee monitors and dr afts resolutions for the Supervisory Boar d in all risk areas r elev ant to the Bank’s oper ations. It is consulted on the Gr oup’s curr ent and future risk appetite, the corr esponding risk pr ofile and risk management str ategy, and helps carry out contr ol over senior management conc erning implementation of the risk management strategy. At th e en d o f 2021, th e com p os it ion o f th e co mm it te e was a s foll ows : An dr eas K li ng en (Cha ir m an), S hre ni k Dh ira jla l Da vda (Deput y Chairman), Islam Osam a Zekr y , Mar k William Lane Ric h ard s , G reg or R ok Kas te lic , Dav id Er ic S im on (me mb er s). Cha ng es in m e mb er s hi p of t he co m mi t t ee t h at o cc ur red dur i ng t he ye ar ar e ref le c t ed in t h e ch ar t on S u per v is or y Bo ard Co mm it te es (C 4 be low). The re wer e fi ve reg ul ar s es s io ns o f th e R is k Com mi t tee i n 2021. Followi ng i s a s um ma r y of key topi c s co ns id ere d by th e R is k Commit tee: • Sta te me nt o f M an age me nt o f Ri s k of t he N LB • NLB G rou p Ri s k Ap pe ti te • Reg ul ar q ua r ter ly r i s k rep or t s of N LB an d th e NL B Gro up • NLB G rou p Ri s k St ra teg y ; • Intern al liquidit y adeq uac y process (IL A AP), The Intern al Capi tal Ad eq ua c y A s s es s m en t Pro ces s (I C A AP) in NLB G ro up • NLB G rou p Re cover y pl an fo r 2021 • NLB G rou p No n -p er fo r min g E xp os ur e an d Forec los e d A s s et s St ra te gy fo r 2020 -2024 and se mi - a nn u al implemen tation repor t s • Reputat ion risk man agement – man agement mech anis ms • Inf or m at ion o n Pil lar I II Di s clo s ure s of t he N LB Gr oup for 2020; an d Ac kn owl ed gem en t of q u ar ter l y Pil lar I II Discl osures • Qu ar te r ly In for m a ti on on s tat u s of i nfo r ma t ion s ec ur i t y i n NLB an d NLB G ro up • Rep or t o n T op 50 gro ups o f cli en t s by expo s ure i n th e NLB Gro up; Re po r t on T op 20 la rge s t re s t r uc t ur in g cas es • Ini ti at io n of pro c urem e nt p roce s s fo r se le c t ion o f s ta t u tor y au dit or fo r f in an cia l year s f rom 2023 o nward s; Au di ti ng o f th e el ec tron ic (E SEF ) fo r ma t of f i na nc ial s tat em en t s • Is s ui ng s ub ord in at ed T ier 2 b on d s • Prop os al s for t he i s s ua nce o f pr io r con s en t of t he Su pe r vis or y B o ard of N LB for a l eg al t ran s ac tio n ba se d on wh ic h th e B an k ’s tota l expo s ure to i nd iv id ual c lie nt o r a gro up of re la te d cl ien t s wou ld re ac h or excee d 10% of th e B an k ’s elig ibl e cap ita l; con s en t s to e ar ly re pa ym en t s ; app roval of overd raf t on b u si ne s s acc oun t of a c li en t an d final wr ite - of f s of receivables • Rep or t o n th e m at er ial c ou r t proc ee din gs f or NLB a nd N LB Group member s 6.3.3. Th e No min a tio n Com mi t t ee o f th e Super visor y Board of N LB The N om in at io n Com mi t tee d raf t s pr opo se d res o lu ti on s for th e S up er vi so r y Bo ard c on cer n ing t h e app oi nt me nt a nd dis m is s al o f th e M an age m en t Bo ard m em b er s ; reco mm e nd s can did at es fo r S up er vi so r y Bo ard m em b er s ; reco mm e nd s to th e S up er vi s or y B oar d th e di sm i s sa l of m em be r s of th e M an age me nt B o ard a nd t h e Su pe r vis or y B o ard (repre se nt at ives o f cap ita l); p rep ar es t he co nt en t of exec u ti ve em ploy me nt c on tra c t s f or t he P res id en t an d me mb er s o f th e M an age me nt B o ard; eval ua te s th e p er for m an ce of t h e Ma na gem e nt B oa rd an d t he S up er v is or y B oa rd; an d as s e s se s th e kn owl ed ge, s k ill s , an d exp er ie nce o f in di vid ua l me mb er s of th e M an ag em en t B oar d an d S upe r vis o r y Bo ard an d t he bod ie s as a w ho le. At th e en d o f 2021, th e com p os it ion o f th e co mm it te e was a s foll ows : Pr im ož Karp e (Cha ir ma n), An dr ea s Kli ng en (De p ut y Chairm an), V erica T r s tenjak , Sergeja Kočar , Bojana Šteblaj (mem be r s). Cha ng es in m e mb er s hi p of t he co m mi t t ee th at o cc ur re d du ri ng t h e year a re ref le c t ed in t h e ch ar t o n Su pe r vis or y B o ard Com m it te es (C4 b el ow). The re wer e seven r eg ula r se s s ion s an d on e co rr es po nd en t se s si on of t h e Nom in a tio n Com mi t tee i n 2021. Th e fol lowi ng is a s um m ar y of key top ic s co n si der ed by th e N om in at ion Commit tee: • The Supervisory Boar d election proc ess and candidate selection; Bases for the Fit & Pr oper assessments of candidates; The suitability matrix – the self-assessment of the collectiv e suitability of the Members of the Supervisory Board; • The M a na gem e nt B oa rd exp an s ion p roce s s; N ew organisa tional s tr uc t ure; • Revi ew of t he D iver s i t y P oli c y ; R ule s an d Pro ced ure s for t h e selec t ion of candidates . 6.3.4. The Remuneration Commit tee of the Super visor y Board of N LB The R em u ne rat io n Com mi t tee ca r ri es o ut ex pe r t an d in dep en de nt a s s es s m en t s of t he re m un era ti on p oli cie s an d pract ices and for mulates initiatives for m easures related to im prov ing t h e ma n age me nt o f th e B an k ’s ri s k s , cap ita l, and liquidit y; prepares proposals for remunera tion -relat ed dec is io ns o f th e S up er vi s or y B oar d; an d su pe r vis e s th e rem un er at ion o f se ni or m an ag em en t pe r for mi ng t h e ri s k manage ment and comp liance func tions . At th e en d o f 2021, th e com p os it ion o f th e co mm it te e was a s foll ows : Gr ego r Ro k Kas te lic (Ch air m an), M ar k W il lia m Lan e Ric h ard s (De pu t y Cha ir ma n), Sh re nik D h ira jla l Da vda, S e rge ja Kočar , an d B oja na Š teb la j (mem be r s). Cha ng es in m e mb er s hi p of th e co mm it te e t ha t oc cu rr ed d ur in g th e yea r are re fl ec ted i n th e ch ar t o n Su pe r vis or y B o ard Com m it te es (C 3 be low). The re wer e fou r reg ul ar an d f ive co r res p on den ce s es sio ns of th e R em un era t ion Co mm it te e in 2021. Th e fo llow in g is a su mm ar y o f key topic s con si de red by t he R em un er at io n Commit tee: • An n ual s el f- a s se s s me nt o f em pl oyees p er for m in g s pe cia l wor k in acc ord an ce wi t h th e Re m un era ti on Po lic y ; • Rea li sa ti on of g oa ls of M an a gem en t B oa rd of N LB for 2020 an d prop os al fo r go als f or 2021; • Inf or m at ion o n th e a ward of var i abl e pa r t of s ala r y to me mb er s o f th e M an age me nt B o ard a nd e mp loyee s per fo r mi ng s pe ci al wor k in c on tro l f un c t ion f or t he ye ar 2020; • Prop os al fo r th e pa ym e nt of t h e no n - d efe r red p ar t of t h e var iab le p ay fo r 2019 an d pa ym en t of t h e def er red va ri ab le par t o f sa lar y fo r 2016 an d 2017 for t h e B ank 's M an a gem en t Bo ard; 134 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report • Prop os al of n ew Re m un era ti on Po lic y o f m em be rs o f th e S up er vi so r y Bo ard o f NLB an d m em be r s of t he Ma na gem e nt B oa rd of N LB . 6.3.5. Th e O pe rat ion s an d IT Com mi t t ee o f the Super vis or y Board of NLB The Co mm i t t ee s h all m on it or an d pr ep are dr af t res o lu ti on s for t he S u per v is or y B oa rd , wh ere by th e m ain t as k s th a t it per fo r ms a re t he fo llow in g: mo ni tor s t h e im ple m en ta tio n of the I T Strategy , Informatio n Securit y Strat egy , and Oper ations St rat eg y ; mo ni tor s key op era t ion s an d IT KP I’s an d s er vic e qu ali t y i n dica to rs ; m on ito r s key ope rat io ns a nd I T proj ec t s an d ini ti at ive s; m on it or s op era t in g ri s k s in t he a rea o f Op era t ion s , IT an d S ec ur i t y ; m on it or s t he r eco mm en d at ion s for en s ur i ng an d in c rea si ng t h e level o f inf or m at ion / c y be r se cu ri t y is s ue d by CI SO, ad dre s se s th e re por t o n pot en ti al vio la ti on s , even t s , an d in cid en t s in t he a rea o f IT s ec ur it y ; an d mo ni tor s t h e T arge t Op era t in g Mo de l imp le me nt at io n in th e are as o f IT , th e S ec ur i t y O p era ti ng Sy s te m , Com pe ten ce Centr e, and Operations. At th e en d o f 2021, th e com p os it ion o f th e co mm it te e was a s follows: Mark William Lane Rich ards (C h airm an), Islam Osama Zekr y (De pu t y Cha ir m an), An dr ea s Kli ng en , Pr im ož Kar pe, T ad eja Žbontar Rems, J anja Žabjek D olinšek (member s). The re wer e fi ve se s s ion s of t h e Op era t ion s an d IT Com m it te e 2021. The O p era ti on s an d IT Com mi t tee a ck now le dg ed it sel f with: • IT Strategy progress update; IT Strategy implementation ac tivities • Cash Processing Optimisation u pdate; Cost optimisati on update • Rep or t o n fu r th er p rog res s o f th e Levera gin g In for m a tio n Capital project • New dig it al pl at for m D EM O; In for m a tio n on p roje c t s • KB IT S ec ur it y up da te; GCC B el gra de – s t at u s of a c t iv it ie s and plan • Da te ce nt re s in B el grad e; Pro of on c on cep t on Core B a nk in g Sys t em; Con s oli da ti on of t h e Core B an k in g Sys t em • Budgeting Group ac tivities 6.4. R emun eration Polic y for t he Me mber s of th e Super visor y Bo ard of NLB and Mem bers of the M anage men t Board of NLB The G e ne ral M ee ti ng o f sh ar eh old er s o n 16 De cem be r 2021 ado pte d th e R em un era t ion Po lic y of th e m em be r s of t he Su pe r vis or y B o ard of N LB an d m em be r s of t he M an ag em en t Bo ard o f NLB (for t h e S upe r vi so r y Bo ard m em b er s t he p oli c y is b as ed o n prev io us ly a dop te d res ol u tio n s of t he G en er al Me et in g) tha t was c h ang ed d ue t o rec ent a m en dm en t s to th e Com pa nie s Ac t (ZGD -1) , an d is t o be fo llowe d by all t he com pa nie s wh os e s ec ur i tie s are t ra de d on t he re g ula te d m ar ket. In acc ord an ce wi th t h e Com pan ie s Ac t ( ZGD -1) m e nt ion e d pol ic y i s pu bli s he d on t he N LB web si te ( ht tps:/ /ww w.nlb . si/ corp orate - govern ance ), to ge th er w it h th e da te a nd vo tin g res ul t s . R em un er at ion o f th e m em be r s of t he M an a gem en t Bo ard a nd t h e me mb er s o f th e S up er vi so r y Bo ard f or 2021 ca n be fo un d in A pp en dic es C 3 an d C .4 of th is s tat em en t an d in th e ch ap ter o n th e Related Par t y T ransac tion s of th is a nn ua l rep or t (Fi na nc ial re po r t). 7. DESCRIPTION POL IC Y ON THE PRO VISION OF DIVERS ITY OF THE MANA GE MENT BOD Y AND SENIOR M ANA GEMENT Poli c y on t h e Provi si on of D ive r si t y of th e M an age m en t Bo dy and Senior Managem ent was adopted b y th e General Meeting of s ha reh ol de rs o n 10 J un e 2019. W it h m en tio ne d Po lic y, NLB defines target div ers it y purs ued with respec t to adequate rep res en ta ti on of m em b er s of t h e Ma na ge me nt B o ard an d th e S up er vi so r y Bo ard a nd S en io r Ma na ge me nt f rom t h e per s p ec tive o f ed uca t ion , ra ng e of k now le dge , sk ill s an d experience, age, gender , and inter nat ional experience, as app rop ri at e for t h e NLB w it h reg ard t o it s c ha rac ter i s ti c s . The Bank implements the principles of this policy thr ough other policies and pr ocedur es, namely P olicy on the selection of suitable candidat es for members of the Supervisory Board and the P olicy on the selection of suitable candidates for members of the Management Boar d, as well as pr ocedur es of the Nomination Committee of the Supervisory Boar d. Ke y criteria for the selection of candidates w er e supplemented by criteria that include experienc e, r eputation, management of potential conflict of inter ests, independence, time av ailability, and conditions for achieving c ollective suitability of the Supervisory Boar d. Me nt ion e d dive rs i t y p ol ic y i s pe ri odi call y revi ewed by t he Nom in a tio n Com mi t tee o f th e S up er vi so r y Bo ard . Implemen tation and the result s achiev ed by the div ers it y pol ic y du ri ng t he re po r t in g per io d: a) The Sup er visor y Board W e e s t im at e th a t th e go al s for 2021 wer e ach ieved , a s th e me mb er s o f th e S up er vi so r y Bo ard a s a wh ol e m et a t a hig h level t he r eq uire m en t s rel at ed to t h e se t of k now le dge , sk ill s , prof es s io na l expe r ien ce, a nd r eq uir em en t s rel at ed to r eleva nt int er n at io na l expe r ien ce in va r iou s f ie ld s; w hic h is m ai nt ain ed in 2022. It i s al so e s t im at ed t h at t he r epr es en ta tio n of wo me n is 42% of th e s h are, a nd i t is p la nn ed i n th is a mo un t for 2022. Reg ard in g th e ag e s t r uc tu re, i t is a ls o con s ide red a pp rop ri at e, as t he m em b er s of t h e Su pe r vis o r y Bo ard ar e rep res en te d in th e ag e gro up s fro m 40 to 60+, whic h is a ls o pl an ne d for 2022, wi th a s lig ht i nc rea s e in t he s h are o f me mb er s i n th e ag e gro up ab ove 60 year s (fro m 3 m em ber s t o 5). b) The Managem ent Board W e e s t im at e th a t th e go al s for 2021 h ave b een a ch ieved a s th e me mb er s o f th e M an age me nt B o ard a s a wh ol e m eet a t a h igh level t he r eq uire m en t s rel at ed to t h e se t of k now le dge , sk ill s , prof es s io na l expe r ien ce, a nd r eq uir em en t s rel at ed to r eleva nt int er n at io na l expe r ien ce in va r iou s f ie ld s; t hi s is a ls o pl an ne d for 2022. There were n o women represented in the Management Bo ard i n 2021, however , t he p la n for 2022 wa s th at t h e s ha re of wom en wou ld in c rea se t o 16.7% or on e wom an wa s exp ec ted to be r epr es en ted a mo ng t h e me mb er s o f th e M an ag em en t Bo ard . A s s tat ed b elow t hi s go al wa s rea lis ed a lre ad y in Ja nu ar y 2022. Reg ard in g th e ag e s t r uc tu re, in 2021 a ll m em be r s of t he Ma na gem e nt B oa rd were i n th e ag e gro up o f 40 to 50, however , in 2022 w it h ad dit io na l m em ber s e le c t ed to t h e Management Board c aused that the r epresentati on of th is c la s s in cre as ed (f rom 3 to 5) , an d on e m em be r of t he Ma na gem e nt B oa rd w ill m ove to th e ag e gro up f rom 50 to 60 yea r s . c) S enior Managemen t For 2021, we es t im at e th a t th e go als we re ac hi eved, a s se nio r ma n age me nt a t a h igh l evel me t th e re qu ire me nt s rel at in g to t he ra ng e of k now le dge , sk ill s , an d p rofe s si on al expe r ien ce. R eg ard ing t h e req ui rem en t s re la te d to int er n at io na l expe r ien ce in va r iou s f ie ld s , it i s es t im a ted 135 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report th at s e nio r ma na ge me nt h a s lar gel y re levan t in ter n at io na l expe r ien ce, w hi ch i s pla nn e d to th e s am e ex t en t in 20 2 2 . I t is als o es tim a te d th at 4 5% of wo me n in s en ior m an ag em en t app rop ri at e an d wi ll be m ai nt ain ed a s s uc h in 20 2 2 . Reg ard in g th e ag e s t r uc tu re, i t is a ls o con s ide red a pp rop ri at e, as s en ior m an ag em en t in t h e age s tr u c t ur e is ver y di s pe r se d an d is t hu s re pre se nt ed in a ll ag e gro up s fro m 20 to 6 0 year s , wh ich i s m ain tai ne d in t he s am e ra t io in 2 02 2 . Add it ion al i nfo r ma t ion o n th e fr am ewor k , obj ec ti ves , an d ch ar t wi th s e t goa ls o f th e Di ver s it y Pol ic y ca n be fo un d in t h e chapter Human Res ources of th is a nn u al re por t. St at em en t on c ha ng es th a t occ ur red b et ween th e en d of accounting period up to the publication of t his sta temen t In acc ord an ce wi th G u ide lin es o n Di s clo s ure fo r Li s te d Companies , Point 6. 3 . 2 (Ljubljana Stock Exchange, 18 De cem be r 20 20) NLB h e reby s t at es t ha t t he fo llow in g ch an ge s occ ur re d be t we en t he e n d of acc ou nt in g pe ri od u p to th e publi cation of this statement . On 2 0 Ja nu ar y 2 02 2 , t h e Su pe r vis or y B o ard ap po int ed t h ree new m em be r s to t he M an ag em en t B oa rd, n am e ly He dv ika Us en ik , An to nio A rg ir , an d An dr ej La si č . Th ey all co me f rom NLB or t h e Gro up, h a ve ex ten s ive exp er i en ce an d proven valu e cre at in g a t rac k reco rd . Al l th ree o f th em a re c ur ren t ly execu t ive as s i s ta nt s t o th e NLB M an ag em en t B oa rd: He dv ika Us en ik for R et ail a nd P ri vat e B ank in g , An ton io A rgi r for t h e NLB G rou p, an d An dr ej Las ič f or Cor p ora te a nd In ves t me nt Banking. The r ea so ns t h at t h e S upe r vi so r y Bo ard a dop te d a dec is io n to en lar ge t he M an a gem en t B oa rd fr om t hre e to s ix me mb er s ar e th e fa c t t h at NL B ha s s ucc es s f ul ly ac qu ire d th e Komerc ija ln a B an ka, B eo gra d, t h at t h e Gro up 's s tra te gy al so foc us es o n in ten s ive di gi tali s at ion a n d em ph as is o n top q ua li t y us er exp er ie nc e. A ls o, th e fa c t t h at t h e ban k i s imp le me nt in g it s co mm it m en t to s us tain ab le o pe rat io ns a n d develo pm en t, wh ich a ll req ui re an d wi ll re qu ire al s o in t he f u t ure even m or e comprehens ive, coordi n ated, and ef f icient managem ent, both of in di vid ua l bu s in es s ar ea s an d th e G rou p as a w ho le, a s wel l as exp loi ta t ion o f all t he s y ne rgi es w it hi n th e G rou p. The B a nk 's M an ag em en t B oa rd, s u pp lem en te d wi t h th ree n ew me mb er s , i s pro pe r ly eq ui pp ed fo r th is c h all eng e an d of fer s th e be s t co mb in at ion o f var io us k now le dg e, exp er ien ce , an d com pe ten ci es . A f i ve -yea r ter m o f of fi ce for t h e new m em b er s wil l s ta r t af ter t h ey ha ve obt ain ed a l icen ce o f th e ba nk in g reg ul ato r , so u nt il t h en t hey w ill co nt in u e to pe r for m t he fu nc ti on s of exec u ti ve as s is t an t s to t he M an ag em en t B oa rd . Lju bl jan a , 11 Ap ri l 2022 Super visor y Board of N LB Managem ent Board of NLB Primo ž K arpe Chairm an Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 136 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T a bl e 36: Co mp o si t io n of M a na g em en t i n f in an c ia l ye ar 2021 (C .1) Name and Surname Position held (Pr esident, Member) Ar ea of work co ver ed within the Management Boar d First appointment to the position Conclusion of the position/term of office Citizenship Y ear of bir th Qualification Pr ofessional profile Membership in supervisory bodies in companies not r elated to the company Blaž Br odnjak Pr esident CEO 6 July 2016 6 July 2026 Slovene 197 4 MBA Banking/Finance Banks' Association of Slov enia, AMCham Slo venia, Handball F eder ation of Slov enia Andr eas Burkhardt Member CRO 18 September 2013 6 July 2026 German 1971 M BA Banking/Finance  Ar chibald Kremser Member C FO 31 July 2013 6 July 2026 Austrian 1971 M BA Banking/Finance  P etr Brunclík Member CO O 18 May 2020 30 June 2021 Czech 1979 MSc Information technologies and applied informatics 137 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T a bl e 37: Co mp o si t io n of S u pe r vi so r y Bo a rd a nd C om m it te es i n f in a nc i al ye ar 2021 (C .2) Name and Surname Position held (Chairman, Deputy Chairman, Member) First appointment to the position Conclusion of the position / term of office Repr esentative of the compan y's capital structur e / employ ees Attendance at SB session in r egard to the total number of SB session (for ex ample 5/7) applicable on his/her mandate Gender Citizenship Y ear of bir th Qualification Pr ofessional pr ofile Independence under Article 23 of the Code (YES/NO) Existence of conflict of inter est, in the business year (YES/NO) Membership in supervisory bodies in other companies or institutions Primo ž Karpe Chairman 10 F ebruary 2016 2024 Repr esentative of the company's capital structur e 7/ 7 male Slovene 1970 MSc Banking/ Finance YES YES An gler d.o.o. Andr eas Klingen Deputy Chairman 22 June 2015 2023 Repr esentative of the company's capital structur e 7/ 7 male German 1964 University Degr ee Banking/ Finance YES NO K yrgyz In vestment and Cr edit Bank CISC, Cr edit Bank of Moscow (i) , Nepi Rock castle plc David Eric Simon Member 4 August 2016 2024 Repr esentative of the company's capital structur e 7/ 7 male British 1948 Higher National Diploma in Business Studies Banking/ Finance YES NO Jihlavan a.s., Cz ech Aer ospace industries sr o, Central Eur ope Industry Partners a.s. P eter Groznik Member 8 September 2017 14 June 2021 Repr esentative of the company's capital structur e 3/3 male Slovene 1971 PhD Finance, industry, investment banking YES NO MSIN d.o.o., Ljubljana, CETIS d.d., Ljubljana Mark William Lane Richar ds Member 10 June 2019 2023 Repr esentative of the company's capital structur e 7/ 7 male British 1966 MSc Banking/ Finance YES NO BPL Global (Lloy ds of London insur ance Br oker), Sheffield Haworth Ltd, V encap International pic Ukr aine (UK) Shr enik Dhir ajlal Davda Member 10 June 2019 2023 Repr esentative of the company's capital structur e 7/ 7 male British 1960 MSc Finance YES NO P JSC Ukr gasbank (ii) Gr egor Rok Kastelic Member 10 June 2019 2023 Repr esentative of the company's capital structur e 7/ 7 male Slovene 1968 MSc Banking/ Finance YES NO  V erica T rstenjak Member 15 June 2020 2024 Repr esentative of the company's capital structur e 7/ 7 female Slov ene 1962 PhD Law YES NO EU Agency for F undamental Rights, Vienna Ser geja Kočar Member 17 June 2020 2024 Repr esentative of the company’s employ ees 7/ 7 female Slov ene 19 68 MSc Management YES NO  Bojana Šteblaj Member 17 June 2020 2024 Repr esentative of the company’s employ ees 7/ 7 female Slov ene 1962 MSc Management YES NO  Janja Ž abjek Dolinšek Member 20 November 2020 2024 Repr esentative of the company’s employ ees 7/ 7 female Slov ene 1957 MSc IT YES NO  T adeja Žbontar Rems Member 22 January 2021 2025 Repr esentative of the company’s employ ees 7/ 7 female Slov ene 1957 MSc IT YES NO Islam Osama Z ekry Member 14 June 2021 2025 Repr esentative of the company's capital structur e 4 /4 male Egyptian 1977 PhD IT YES NO CIB Housing association, Egypt, E gyptian AI Council (Ministry of Communication and Information T echnology) (i) T ill 14 Mar ch 2022. (ii) Since 8 Mar ch also: IPSO, UK. 138 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Name and Surname Membership in committees (audit, nominal, income c ommit tee, etc.) First appointment to the position Conclusion of the position/term of office Chairman/Deputy Chairman/ Member Attendance at sessions of SB's Committees in regar d to the total number of SB's session (applicable on his/her mandate) Shr enik Dhirajlal Dav da Remuner ation Commit tee 28 June 2019 2023 Member 4 /4 Gr egor Rok Kastelic Remuner ation Committee 28 June 2019 2023 Member/Chairman 4 /4 Mark William Lane Richar ds Remuner ation Committee 26 June 2020 2024 Deputy Chairman 4 /4 P eter Gro znik Remuner ation Committee 26 June 2020 14 June 2021 Member 4 /4 Bojana Šteblaj Remuner ation Commit tee 8 April 2021 2024 Member 2/2 Ser geja Kočar Remuner ation Committee 26 June 2020 2024 Member 3/3 Primo ž Karpe Nomination Committee 15 April 2016 202 4 Chairman 7/ 7 Andr eas Klingen Nomination Committee 19 F ebruary 2016 2023 Deputy Chairman 7/ 7 P eter Gro znik Nomination Committee 6 October 2017 14 June 2021 Member 3/7 V erica T rstenjak Nomination Committee 26 June 2020 2024 Member 7/ 7 Ser geja Kočar Nomination Committee 26 June 2020 2024 Member 7/ 7 Bojana Šteblaj Nomination Commit tee 8 April 2021 2024 Member 2/2 David Eric Simon Audit Committee 7 April 2016 2024 Chairman 7/ 7 Primo ž Karpe Audit Committee 15 April 2016 2024 Member 7/ 7 Shr enik Dhirajlal Dav da Audit Commit tee 28 June 2019 2023 Member/Deputy Chairman 7/ 7 Gr egor Rok Kastelic Audit Committee 28 June 2019 2023 Member 7/ 7 Janja Ž abjek Dolinšek Audit Committee 28 January 2021 12 August 2021 Member 4 /4 Andr eas Klingen Risk Committee 19 F ebruary 2016 2023 Chairman 6 /6 P eter Gro znik Risk Committee 6 October 2017 14 June 2021 Member/Deputy Chairman 3/3 Shr enik Dhirajlal Dav da Risk Commit tee 8 July 2021 2025 Deputy Chairman 2/2 David Eric Simon Risk Committee 7 April 2016 202 4 Member 6 /6 Mark William Lane Richar ds Risk Committee 28 June 2019 2023 Member 6 /6 Gr egor Rok Kastelic Risk Committee 26 June 2020 2023 Member 6 /6 Islam Osama Z ekry Risk Committee 8 July 2021 2025 Member 2/2 T adeja Žbontar Rems Risk Committee 28 January 2021 12 August 2021 Member 2/2 Mark William Lane Richar ds Operational and IT C ommit tee 28 June 2019 2023 Chairman 5/5 Shr enik Dhirajlal Dav da Operational and IT C ommit tee 28 June 2019 8 July 2021 Deputy Chairman 5/5 Andr eas Klingen Oper ational and IT Committee 28 June 2019 2023 Member 4/5 Primo ž Karpe Oper ational and IT Committee 15 April 2016 2024 Member 5/5 Bojana Šteblaj Operational and IT C ommit tee 26 June 2020 12 April 2021 Member 2/2 T adeja Žbontar Rems Oper ational and IT Committee 8 April 2021 2024 Member 3/3 Janja Ž abjek Dolinšek Oper ational and IT Committee 8 April 2021 2025 Member 3/3 Islam Osama Z ekry Oper ational and IT Committee 8 July 2021 2025 Deputy Chairman 2/2 External member in committees (audit, nominal, income c ommit tee, etc.) - The Banking Act (ZBan-2) that came into effect on 13 May 2015 contains pr ovision stipulating that, irr espective of pr ovision of Companies Act (ZGD-1) only members of the Supervisory Boar d can be appointed to Supervisory committees. Name and Surname Attendance at sessions of SB's Committees in regar d to the total number of SB's session (for ex ample 5/7) Gender Qualification Y ear of bir th Pr ofessional pr ofile Membership in supervisory bodies in companies not r elated to the company none       139 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T a bl e 38: Co mp o si t io n an d a mo u nt o f re m un e ra ti on o f t he M a n ag em e nt B o ar d m em b er s i n th e f i na n ci al ye a r 2021 (C .3) Name and Surname Position held (Pr esident, Member) Fixed inc ome - gr oss (1) V ariable income - gr oss Deferr ed income (3) Sev eranc e pay (4) Bonuses (5) ‘Dr aw- back’ (6) T otal gr oss (1+2+3+4+5-6) T otal net (i) on the basis of quantity criteria on the basis of quality criteria T otal (2) Blaž Br odnjak Pr esident 441,770.20 43,750.00 43,750.00 87,500.00 42,710.85 0.00 2,310.19 0.00 57 4,291.24 2 41,568.49 Ar chibald Kr emser Member 420,808.88 41,666.67 41,666.67 83,333.34 42,710.85 0.00 34,116.83 0.00 580,96 9.90 2 44,905.39 Andr eas Burkhar dt Member 405,091.54 40,104.17 40,104.17 80,208.34 42,710.85 0.00 32,6 71.82 0.00 560,682.55 237,273.57 P etr Brunclík Member 221,963.09 7,316.72 7,316.72 14,633.44 0.00 385,000.00 30,091.68 0.00 651,688.21 327,310.24 (i) This chart does not include other benefits and cost r efunds.         T a bl e 39: Co mp o si t io n an d a mo u nt o f re m un e ra ti on o f m em b er s o f t he S u pe r vi s or y B oa rd a nd c om m i t t ee m e m be r s in t h e f in a nc ia l ye ar 2021 ( in E UR ) (C .4) Name and Surname Position held (Chairman, deputy Chairman, member, external member of Committee) Payment for the performance of services - gr oss per year (1) Attendance fees for SB and committees - gr oss per year (2) T otal gr oss (1+2) T otal net (i) T ravel e xpenses Benefits Primo ž Karpe Chairman 96,000.00 - 96,000.00 7 4,400.00 4,629.06 447.47 Andr eas Klingen Deputy Chairman 90,000.00 - 90,000.00 90,000.00 4,946.99 447.47 Islam Osama Z ekry Member 38,607.52 - 38,607.52 25,432.70 5,704.85 447.47 David Eric Simon Member 81,000.00 - 81,000.00 62,775.00 5,251.42 447.47 P eter Gro znik Member 32,800.00 - 32,800.00 23,855.44 0.00 0.00 Mark William Lane Richar ds Member 81,000.00 - 81,000.00 53,358.72 2,642.98 447.47 Shr enik Dhirajlal Dav da Member 72,000.00 - 72,000.00 47,430.00 2,367.17 447.47 Gr egor Rok Kastelic Member 81,000.00 - 81,000.00 53,358.72 758.31 447.47 V erica T rstenjak Member 65,790.32 - 65,790.32 43,339.32 0.00 447.47 Ser geja Kočar Member 11,855.7 6 - 11,855.7 6 8,622.6 9 0.00 447.47 Bojana Šteblaj Member 15,655.26 - 15,655.26 11,386.05 0.00 447.47 Janja Ž abjek Dolinšek Member 6,839.40 - 6,839.40 4,97 4.27 0.00 447.47 T adeja Žbontar Rems Member 26,656.31 - 26,656.31 19,387.12 0.00 447.47 (i) After the pr epayment of income taxes which is not tak en into acc ount in potential subsequent balancing payments of personal income taxes. 140 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t of Manag emen t of Ris k NLB ’s Man ag em en t B oa rd an d S up er vi so r y Bo ard p rovi de he rewi th a co n cis e s t at em en t of t he R i sk M an a gem en t acco rdin g to A r ti cl e 17 of t he D ec is io n on In ter n al G over n an ce Ar ran ge m en t s , th e M an ag em en t bo dy an d t he I nt er n al Capi tal A deq ua c y A s s es s m en t Pro ces s f or B an k s an d S av ing s ban k s (Of f ici al G azet te of t h e Ro S , n o. 73/2015 a nd 115/ 2021), Reg ul at io n (EU) 575/2013, a r tic le 435 (R is k m an ag em en t obj ec tive s an d po lici es), p oin t (e) and (f ) , as we ll as EB A Gu ide lin e s on In te rn al G over n an ce (EBA /GL / 2021/05), and EB A Gu ide lin e s on D is cl os ure r eq uire m en t s (EBA GL /2016/ 11). Ri sk M a na gem e nt in t h e Gr ou p, repr es en ti ng a n imp or t ant ele me nt o f th e G ro up’s overall cor p ora te g overn a nce , is imp le me nt ed i n acco rda nc e wi th t he s et s tra te gic g ui del in es , es t abl is h ed in te rn a l pol ici es , a nd p roc ed ure s wh ich t ake in to acc ount the E uropean banking r egulations, the r egulations ado pte d by th e B oS , th e cu rr en t EBA gu id elin e s , an d th e rel evant g oo d ban k ing p rac ti ces . EU regu la ti on s are f oll owed by th e Gro up, w h ere t he G ro up s ub s idia r ies o pe rat in g ou t s ide S loven ia a re al so co mp li ant w it h t he r ule s se t by th e loc al re gu la tor s . T he G ro up g ives h igh i mp or ta nc e to th e ri s k cu lt u re an d awar en es s of a ll re levan t r is k s wi th in t h e ent ir e Gro up . Ma in tai nin g r is k- aware n es s i s en grai ne d in t he bu si ne s s s t ra teg y of t he G ro up . Th e bu si ne s s an d op era t in g envi ron m en t, relevan t fo r th e G rou p’s opera ti on s , is c h an gin g wi th t ren d s su ch a s ch an gi ng c us tom er b eh av io ur , em er gin g new te ch n olo gi es an d co mp et it or s , s us tain a ble f i na nc in g, a nd inc re as in g new re g ula to r y req uire m en t s . Re s pe c t ivel y , R i sk Ma na gem e nt i s con ti n uo us ly a da pti ng w it h ai m to de tec t an d manage new potential emerging ris ks . The G ro up u s es t he ‘ th re e lin es o f def en ce fr am ewor k ’ a s an impor tant element of its inter nal gov er nan ce, whereby t he Ri sk M a na gem e nt f un c tio n ac t s as a s eco nd l in e of de fen ce . The G ro up’s ha s en ha nce d overa ll cor p ora te g over na nce wh ich re fl ec t s in t he l ower ing o f th e S REP re q uire me nt i n rece nt ye ar s . A ro bu s t a nd c om pre he ns ive R is k M an ag em en t fra mewor k i s de f ine d an d or gan is e d wit h re ga rd to t he Gro up’s bu si ne s s an d r is k pro f ile , ba se d on a fo r ward -l oo ki ng per s p ec tive t o me et in te r na lly s et s tra te gic o bje c t ive s an d all extern al requirement s. A proac tive Risk Man agement an d con tro l s ys tem i s pr im ar il y ba s ed on t h e Ri s k app et it e an d Ri sk s tra te gy, whic h are co n si s te nt w it h t he G ro up’s B us in es s s tra te gy, and foc u se d on e ar ly r i sk i de nt if ic at ion a nd ef ficient Ri sk Managem ent. Set gov er nance and dif ferent Ris k Ma na gem e nt to ol s en ab le a deq ua te over s ig ht o f th e G rou p’s ri s k pro fi le, p roa c t ive ly s up po r t it s b us in es s o pe rat io ns , and it s m an ag em en t by in cor po ra ti ng e sca la ti on pr oce du res an d us in g dif fer en t mi ti ga ti on m ea s ure s wh en n ece s s ar y. In th is r es pe c t, t he G ro up i s con s t an tl y en ha nc in g an d com pl em en ti ng t h e exis tin g m et ho ds a nd p roc es s es in a ll R is k Managem ent segmen ts . The G ro up i s en ga ged i n con t ri bu t ing t o s us t ain ab le f i na nce by inc or po rat in g env iro nm en ta l, s oc ial a nd g over na nc e (ESG ) ri s k s in to it s b u si ne s s s t rat eg ies , r i s k ma na ge me nt fra mewor k , a nd i nt er n al gover n an ce ar r ang em en t s . W i th t h e ado pt ion o f th e NLB G ro up S u s ta in abil it y pro gra mm e, t h e Gro up i mp le me nt ed s u s tai na bil it y el em en t s in to it s b u si ne s s mo de l. T he g oal o f th is s tra te gic , o rg ani s at ion -wid e in it ia ti ve is to e ns u re s us tain ab le f in an ci al p er for m an ce of t h e Gr ou p by con si der i ng E SG r i sk s a nd o pp or t un it ie s in it s ope rat io ns , an d to ac ti vely co nt r ib ut e to a m ore b al an ced a nd i nc lu s ive eco no mic a n d so cia l s ys t em . T hu s , s u s tai na bl e f in an ce int eg rat es E SG c r ite r ia in to G ro up’s bus in es s a nd i nves t m en t dec is io ns f or t he l as t in g be n ef it o f Gro up’s cli en t s an d so cie t y . Th e NL B Gro up S u s ta in abi lit y Com m it te e over se es th e in te gra tio n of t h e ES G fac tor s to t h e Gr oup b u si ne s s mo de l. T he m an ag em en t of E SG r i sk s a dd res s es t h e Gro up’s ov erall credit appr oval proces s and related credit por t folio ma na gem e nt. I t fol lows ECB an d EBA gu ide lin e s wi th t en den c y of th ei r com pr eh en si ve in teg ra tio n in to al l rel evant p roce s s es . The a vail abi li t y o f ES G da ta in t h e reg ion w h ere t he G ro up ope ra tes i s s t ill l ac ki ng , neve r th el es s t he G ro up s t r ive s to obt ain re levan t cl ien t s’ d at a as p rere qu is it e for a de qu at e decision -makin g. The G ro up p lan s a p r ud en t r is k pro f ile , opt im al ca pi tal u sa ge, an d prof i tab le o pe rat io ns i n th e lo ng r un , con s ide r in g th e ri s k s as s um e d. T he B u s in es s s t ra te gy, the R is k ap pe ti te, t h e Ri sk s tra te gy, and t he key in ter n al r i sk p ol ici es of t h e Gr ou p, app roved by th e M an ag em en t Bo ar d an d th e S up er vi so r y Bo ard o f NLB , s p ec if y th e s t rat eg ic ob jec ti ves an d g uid eli ne s con cer n in g ri s k as s u mp tio n , an d th e ap pro ac he s an d me th od ol ogi es of m o ni tor in g , me as u ri ng , m it iga t in g, an d ma na gin g all t y pes o f r is k a t dif fer en t rel evant l evels . Mo reover , t he m a in s t ra teg ic r is k g uid eli ne s are c on si s t ent l y int eg rat ed in to t h e reg ul ar b us in es s s tra te gy rev iew, the bu dge ti ng p roce s s , an d ot h er s t ra te gic d eci s ion s , w he reby inf or m ed de ci si on - m ak in g is a s s ure d. T he G ro up i s reg ul ar ly mo ni tor in g it s targ et r is k ap pe ti te p rof il e an d in ter n al c api tal allo ca ti on , re pre se nt in g th e key com po ne nt o f pro ac tive ma na gem e nt. R is k li mi t s us ag e an d po ten ti al dev ia ti on s fro m lim it s o r tar get val u es are r eg ul ar ly re po r ted t o th e res p ec ti ve com mi t tee s an d/ o r th e M an age me nt B o ard o f th e B an k , th e Ri sk Co mm i t t ee o f th e S up er vi so r y Bo ard , an d t he S u per v is or y Bo ard o f th e B an k . Additionally, the Gr oup established a compr ehensive str ess testing fr amework and other early w arning systems in different risk ar eas, with the intention to contribute to setting and pursuing the Gr oup’s business strat egy, to suppor t decision- making on an ongoing basis, to str engthen the existing internal contr ols, and to enable a timely r esponse when necessary. The str ess-testing fr amework includes all material types of risk and differ ent rele vant str ess scenarios or sensitivity analysis, acc ording t o the vulnerability of the Gr oup’s business model. Str ess-testing has an important role when assessing the Gr oup’s resilienc e to str essed circumstanc es, namely fr om pr ofitability, capital adequacy, and forw ard-looking perspectiv e about liquidity. As such, it is embedded into the Gr oup’s Risk Management system, namely Risk appetite, ICAAP , ILA AP , and the Rec overy plan, as an important c omponent of sound Risk Management. Beside internal str ess-testing, the Group as a systemic ally impor tant bank also participates in the r egulatory str ess test ex er cises carried out by the ECB. The G ro up i s on e of t h e larg es t Slove nia n ba nk in g an d fi na nc ial g rou ps w it h an im p or tan t p res en ce in t h e SEE reg ion . In a cco rda nce w it h i t s s t rat egi c or ie nt at ion s i nte n ds to be a s u s ta in abl y pro f it abl e, pr edo mi na nt ly wo rk in g wi t h cli en t s on i t s core m a rket s , provi din g in nova ti ve bu t si mp le customer - oriented so lutions and a c tively contributing t o a mo re ba lan ce d an d in cl us ive e con om ic a nd s oc ial s y s t em . The G ro up h a s a well - di ver s if ie d b us in es s m od el . Ef f ic ien t ma na gin g of r i sk s a nd c api tal i s cr u ci al for t h e Gr ou p to su s t ain l on g- te rm p rof i tab le o pe rat io ns . Ba s ed on t h e Gr oup’s bu si ne s s s t ra teg y, credit r i s k is t he d om in an t r is k ca te gor y, foll owed by cre di t sp re ad r is k o n ban k ing b oo k po r t f olio , int ere s t ra te r i sk i n ba nk in g bo ok , op er at ion al r i s k , liq ui dit y ri s k , ma r ket r is k , an d ot he r n on - fi na nc ial r i s ks . Reg ul ar r i sk ide nt if ic at ion a n d th eir a s s es s m en t is p er for m ed w it h in IC A AP pro ces s w it h th e ai m of a s s ur in g th ei r overall c on tro l an d ef f ec ti ve Ri sk M an a gem en t on a n on goi ng b as i s . Managin g risk s and capital ef ficie ntly at all levels is c ru cial for t he G ro up’s su s ta in ed lo ng - ter m p rof i tab le op er at ion s . Ma na gem e nt o f cre dit r i s k , rep res en t ing t h e Gr ou p’s mos t imp or t ant r i s k , foc u se s on t he t ak ing o f mo de ra te r is k s – diversified credit por t folio, adequate cr edit por t folio quality , su s t ain ab le co s t of r i sk a nd e n su r in g an op tim a l ret ur n 141 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report con s ide ri ng t h e r is k s as s u me d. T he l iq uid it y r is k to ler an ce is low . The Group mus t main tain an appropriate level of liq uidit y at al l ti me s to m ee t it s s h or t-t er m lia bil it ie s , even if a s p eci f ic s tr es s s cen ar i o is re ali s ed . Fur t h er , wi t h th e aim o f mi nim i si ng th is r i sk , t h e Gr oup p ur s u es an a pp rop ri at e s t r uc tu re of so urce s of f in an ci ng . Th e G rou p lim it ed ex pos u re to c red it sp rea d r is k , ar i si ng f rom t h e valu at io n ri s k of d ebt s ec ur i ti es por t fol io s er vic in g as l iqu idi t y res er ves , t o th e m od era te l evel. The G ro up’s bas ic o r ien ta ti on in t h e ma na ge me nt o f in ter es t rat e r is k is t o lim it u nex pe c t ed n eg at ive ef fe c t s o n reven ue s an d capi ta l th at wo ul d ar is e f rom c ha ng ed m ar ket in te res t rat es an d , th er efo re, a m od era te to le ran ce fo r th is r i sk i s s ta te d. W h en as s u mi ng o pe rat io na l ri s k , th e G ro up p ur s ue s th e or ie nt at io n th at s u ch r i sk m u s t n ot s ign if ic ant ly i mp ac t it s op er at ion s . R i sk a pp et ite f or op er at ion al r i s k s is low t o mo der at e, wi th a f oc us o n mi ti ga ti on ac ti on s for i mp or ta nt ri s k s an d key ri sk i nd ica tor s s er v ici ng a s an ea r ly war n in g sy s t em . Th e co nc lu s ion o f tra ns a c t ion s in d er iva ti ve f in an cia l in s tr ume nt s at NLB i s pr im a ri ly li mi te d to s er vic in g cu s to m er s an d he dgi ng B an k ’s own p os it ion s . I n th e are a of c ur re nc y ri s k , th e G rou p th u s pu r s ue s th e go als o f low to m od era te expo su re. T he t ole ran ce fo r all o th er r i sk t yp es , inc lu din g n on - fi na nc ial r i s ks , is low w it h a foc u s on m ini mi s ing t h eir p os s ib le imp ac t s on t he G ro up’s ope rat io ns . ESG r i s k s do n ot rep res e nt a new r is k ca te go r y , b ut r at he r an ag gra vat in g fac tor f or t he exis tin g t ype s of r i sk s , s u ch a s cre di t an d op era ti on al r is k . T he Gro up i nt egr at es an d m an ag es t he m wi th in t he e s ta bli s he d risk ma nagement frame wo rk . The m a in NLB G ro up R is k A pp et ite S ta te me nt o bje c t ive s are fol low i ng : • preser vation of r eg ulator y capital adequacy , • preser vation of internal capital adequac y, • fu lf i lm ent o f th e M R EL req uire m ent, • maintenan ce of lo w leverage, • imp rovem en t in t he q ua lit y of t h e cre di t po r t fo lio, s u f fic ie nt NPL cover age , su s t ain ab le c red it r is k vol at il it y , s u s t ain ab le cos t o f r is k ac ros s t he e co no mic c ycle, s u s ta in abl e in du s t r y concentra tion, s us tainabl e exposure to project fin ancing , • mainten ance of a solid liquidit y posit ion, main taining s table cu s to me r s’ de pos i t s as t h e ma in f un din g b as e, • diver s if ic at ion o f r is k in exp os ur es to b an k s an d sove re ig n s , • limited e xposure to cred it spread risk , • lim it ed exp os ur e to in ter es t r at e ri s k , • lim it ed exp os ur e to for eign exc ha ng e ri s k , • su s t ain ab le to le ran ce to n et l os s es f rom o pe rat io na l ri s k . Su s t ain ab le E SG f in an ci ng i n acco rda nc e wi th Env iron m en tal an d So cia l Ma n age me nt Sy s te m (ES M S) w ill b e in teg ra ted in th e G ro up' s Ri s k app et it e s ta te me nt i n th e yea r 2022. Add it ion al key r is k in di cat or s an d ta rge t s in t he a rea o f ES G are go in g to be a dd res s ed b as e d on NLB G ro up S u s ta in abi lit y pro gram m e an d ES M S . The va lu es of t h e mo s t im po r tan t r is k ap pe ti te i nd ica tor s of th e G ro up, as a t t he e nd o f year 2021, r efl ec ti ng t he inter connection between s trategic business orientati ons , risk s tr at eg y , an d t arg ete d r is k ap pe ti te pr of ile , were fo llow in g: • T otal ca pit al ra ti o 17.8% , • Tie r 1 cap ita l ra tio 15.5% , • Comm o n Equi t y T ie r 1 ra tio (CE T 1) 15.5% , • Leverag e rat io 10.2% , • Cos t of r i s k - 41 bp s , • The s h are o f n on - pe r for m ing ex pos u re (NPE %) by EBA 1.7% , • Non - p er for m in g lo an s covera ge ra ti o 2 (NPL CR 2) 57.9% , • Loan - to - dep os it r at io (L TD) 60.0% , • LCR 252.6%, • NS FR 185.2% , • E VE s en si ti vi t y (of 200 bps) - 6.4% o f capi ta l, • T ran sa c t ion al F X ri s k 1.10% of cap it al, • Net l os s es f rom o pe rat io na l ri s k 1.6% of ca pit al re qu ire me nt for operational risk . COVID -19 d id n ot h ave a m ean in gf ul i mp ac t on t he q ua li t y of th e c red it p or t folio . Th e Gr oup i s co mp lia nt w it h EBA gui de lin es o n pa ym en t m ora tor i a an d is ver y p r ud en t in ide nt if yi ng any i nc re as e in c red it r is k . T he va s t s ch em es introdu ced b y the go vernments in the Group countries provi din g m ora tor i um s to e ligi bl e cli en t s as p ar t of t h e COVID -19 p an de mic m e as ur es h ad b ee n ph as in g ou t d ur in g th e 2021. W it h res p ec t to th e COVID - 19 pa nd em ic an d it s imp lic at io ns o n th e b us in es s e nvir on me nt, t he G ro up fa ced growing e xces s liquidit y and man aged to sta y well c api talised . Con se qu en tl y , t h e Gr oup c on cl ud ed t he ye ar 2 02 1 a s se lf- fund ed, with a s trong liquidit y and solid capital position , dem on s t ra ti ng t h e Gro up’s fi na nc ial r es ili en ce. Th e ac qu ire d Komerc ija ln a B an ka grou p ha s a s im ila r bu si ne s s m ode l to th e G rou p’s, an d so , it s im p ac t on th e G ro up’s ris k pr of il e at th e en d of t he ye ar 2 020 wa s m od era te w it h no o th er m aj or imp ac t s du r ing t h e year 2 02 1 . O t h er wi se , th ere we re n o ot he r tra ns ac ti on s of s u f f ic ien t ly m at er ia l na t ure t o im pa c t o n th e Gro up’s ri sk p rof i le or d is t r ib u tio n of t he r i s ks o n th e G ro up lev el . A Con den s ed S ta tem en t of t h e ma n age me nt o f r is k is als o p ubl is h ed on t h e B an k ’s int ran et w it h t he a im of s tr ic t adh ere n ce of t he B a nk s’ e mp loyee s at d ail y op era t ion s of t h e Ba nk , a s re gar ds t he d ef in it io n an d im por t an ce of a co n si s te nt ten de nc y of th e ad opt ed r i sk s , and wa ys to t ake in to acc ou nt wh en ad op tin g i t s dai ly b us in es s d ec is io ns . Lju bl jan a , 11 Ap ri l 2022 Super visor y Board of N LB Managem ent Board of NLB Primo ž K arpe Chairm an Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 142 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t on N on - finan cial O peration In lin e w it h Ar t icl e 70.c of t he Co mp an ie s Ac t ( ZGD -1) , 21 th e Ba nk r epo r t s on n on - f in an cia l op era ti on s ep ara te ly f rom t he NLB G rou p An n ua l Rep or t 2021. Th e B an k ’s dis c los u res o f no n - finan cial operation are prepared in NLB Group Sus tainabilit y Rep or t 2021 ( ht tps:/ /w w w.nlb.s i/ s us tainabili t y ), by ap pl yin g th e GR I S u s ta in abil it y Re po r tin g St an da rds (G RI) a nd t h us en su r in g com pl ian ce w it h th e re qu irem e nt s o f th e re gu la tio n s regarding the discl osure of non -fin ancial infor mat ion. A s pa r t of th e NL B Gro up S u s ta in abi lit y R epo r t 2021, th e B an k pub li s he s UNEP FI PR B S el f- A s s es s m en t Rep or t o n how t he Ba nk i s im pl em en ti ng t h e UN Pr i nc ipl es fo r Re sp on s ibl e Ba nk in g (U N PR B). Th e U N PR B se t ou t t he b an ki ng in d us tr y ’s role a n d res po ns ib ili t y in s ha pin g a s us t ain ab le f u t ure a nd i n alig nin g t he b an ki ng s ec tor w it h t he o bje c t ive s of t he U N SD G s an d th e 2015 Par i s Clim a te Ag ree me nt. Ljubljana , 11 April 202 2 21 Of f ic ia l Ga zet te o f t he R o S , N o. 65/0 9 , 3 3/ 11 , 9 1/ 1 1 , 32 / 1 2 , 57/1 2 , 4 4 / 13 – Re s ol u ti on o f t he C on s t it u t io n al Co u r t 82 / 13 , 5 5/ 15 , 1 5/ 17, 22 / 19 – B u s in e s s Se c ret A c t, 1 5 8/2 0 – In t eg r it y an d Co r r up t io n Pre ven t io n Ac t- C an d 1 8/2 1). Managemen t Board of NLB Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO W e ar e at tentiv e to what y ou cherish the most. 52 y ears ago, w e celebr ated E arth Day for the first time. 40 y ears ago, w e intr oduced r ecy cling. 2 y ears ago, w e committed to lo w-c arbon econom y. What will the ne xt gener ations c ommit to? The rising importance of envir onmental and social issues plays an important role in the quality of life in our loc al r egion. By incorpor ating sustainability in our banking services, w e not only strengthen r elations with our clients, employ ees, suppliers, investors and br oader communities, but also tak e car e of pr esent and future gener ations. W e do not perc eive sustainability as mer ely a letter on a piece of paper, but as a string of decisions, measur es and actions that will pr ovide new opportunities for the gener ations to follow. 144 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ri gh t s on t he b as i s of t he in s t r u c t ion s o f an in di vid u al th ird par t y for w h os e acco un t it h a s acq ui red t h e sh are s if, to ge th er wi th t he i ns tr u c t ion s fo r voti ng , i t doe s n ot rec eive a w r it ten gu aran te e fro m t ha t pe r so n th a t th is p er s on h a s sh ar es on h i s own acc ou nt a nd t h at t hi s pe r so n is n ot, di rec tl y or in di rec tl y , a ho lde r of m ore t h an 25% of t h e B an k ’s votin g r igh t s . The a cq uir er wh o excee ds t h e sh ar e of 25% of t h e B ank ’s sh ar es wi t h voti ng r ig ht s , a nd d oe s no t req ui re th e i s s uan ce of ap proval fo r th e t ran s fe r of s ha res , or do es n ot re cei ve th e app roval of t he B a nk , m a y exerci se t h e voti ng r ig ht f rom 25% of th e s h are s wi th t he vo tin g r igh t s . The re ar e no r es t r ic t io ns o th er t h an t ho se m en t ion ed a nd those that are re gulator y . 1. 3 Quali f yin g holdin gs Thi s in for m a tio n is i nc lu de d in t he c ha pte r Corporate Governance Statemen t of NLB . 1. 4 S ecur ities carr ying sp ecial cont rolling righ ts Thi s in for m a tio n is i nc lu de d in t he c ha pte r Corporate Governance Statemen t of NLB. 1. 5 T h e empl oy ee s hare sche me, if use d by the company , for sh ares to which th e sch eme relates an d abou t the m et hod of exer ci sing control ov er t his sc hem e, if the con trolling right s are not exercised direct ly by employ ees The R em u ne rat io n po lic y fo r em pl oyees p er fo rm in g s pe cia l wor k def i ne s th e pa ym e nt s w it h f in an cia l in s t r um en t s acco rdin g to t h e app lic abl e ba nk in g la w , h owever , th er e was no p ayo ut i n in s tr um en t s in 2021. 1. 6 Expl ana tion regarding res tr ic tion s related t o voting right s Thi s in for m a tio n is i nc lu de d in t he c ha pte r Corporate Governance Statemen t of NLB . 1. 7 All agreements am ong sh areholders which are known to th e company and could resul t in restr ic tion s relating t o the trans fer of se curi ties or voting righ ts The B a nk i s n ot awar e of s uc h agr eem e nt s . 1. In form ation purs uant to th e C ompanies Act (ZGD -1), Ar ticle 70, paragr aph 6 1.1 S tr uc t ure of the B ank’s share capital The B a nk h a s is s u ed on ly o rdi na r y regi s t ere d no -p ar val ue sh ar es , t he h ol de r s of w hic h ha ve a voti ng r ig ht a nd t h e ri gh t to pa r tic ip at e at t he G e ne ral M ee ti ng of t h e B an k ’s sh ar eh old er s , t h e pre - emp ti ve ri gh t to s ub sc r ibe f or n ew sh ar es in ca s e of a s ha re ca pit al in cr ea se, t h e r igh t to pr of it par t ici pa t ion (div ide n ds), t he r i ght t o a sh a re in t he s u rp lu s in th e event o f liq ui da ti on or b an kr uptc y o f th e B an k , an d t he ri gh t to be i nfo r me d . All s h are s be lo ng to a s in gl e cl as s an d are i s s ued i n bo ok- en tr y fo rm . Inf or m at ion r ega rdi ng t he s h are ho ld er s t r u c t ur e of NLB (as a t 31 De cem be r 2021) is a vail abl e in t he s u bc ha pte r Shareholder St r uc tu re of N LB in the chapter Ke y Highlight s . 1. 2 A ll restr ic tion s relatin g to the t rans fer of shares and t he rest ric t ions on voting righ t s The shar es of the Bank ar e freely tr ansfer able, subject to the pr ovisions of the Articles of Association of the Bank which r equire the appr oval of the Supervisory Boar d, namely for the tr ansfer of shar es of the Bank by which the acquir er, together with the shar es held by the holder befor e such an acquisition and the shar es held by thir d parties for the account of the ac quir er, ex ceeds the shar e of 25% of the Bank’s v oting shares. Appr ov al for the tr ansfer of shar es is issued by the Supervisory Boar d. The B a nk r eje c t s t h e req ue s t fo r app roval of t ran s f er s ha res if t he a cqu ire r , tog et he r wi th t h e sh ar es h el d by th e acq uir er bef ore t he a cq uis i tio n an d t he s h are s he ld by t hir d par t ie s for th e acc ou nt of t h e acq ui rer , excee de d th e 25% s ha re of t h e Ba nk w it h vot in g ri gh t s , in cre as e d by one s h are . Not wi th s t an din g t he p rovi sio n m en tio n ed in t h e fi r s t par agra ph , ap proval f or t he t ran s f er of s h are s is n ot re qu ire d if t he a cqu ire r of t he s h are s ha s ac qui red t h em on t h e acc oun t of th ird p ar t ie s , so t h at i t is n ot e nt it le d to exerc is e vot in g ri gh t s fro m th es e s h ares a t i t s so le di s cre ti on , wh il e at t h e sa me t im e co mm it t ing t o th e B an k , it w ill n ot exe rci se vot in g 1. 8 The com pany’s rules on th e appoin tmen t or replacement of managemen t and super visor y board mem ber s and chan ges of th e ar ticles of a ss ocia tion Thi s in for m a tio n is i nc lu de d in t he c ha pte r Corporate Governance Statemen t of NLB . 1 .9 Aut horisa tions given to managemen t, par ticularly a ut hor isa tions to i ss ue or purchas e own shares Thi s in for m a tio n is i nc lu de d in t he c ha pte r Corporate Governance Statemen t of NLB . 1.1 0 All m ajor agreemen t s to whic h the com pany is a par t y and wh ich take ef fec t, are chang ed or cancelled foll owing a change in control ov er t he comp any resulting f rom a bid, as laid d own b y th e Ac t gov er ning M& A , and t he ef f ec t s of su ch agreemen t s The re ar e no m aj or ag ree m en t s to wh ic h th e B an k is a p ar t y , an d wh ich wo ul d take ef fec t, be ch an ge d, o r can ce lle d foll owin g a ch an ge i n con t rol over t he B a nk r es ul ti ng f rom a bid. 1.1 1 A ll agreemen t s bet ween th e Ban k and i ts managem ent or super vision bodies or it s employ ees which envisage compensa tion if, due to a bid as laid d own b y th e Ac t gov er ning M& A , t hes e pers ons resign , are dism iss ed wit hou t a well-f ounde d reason , or their em ploymen t is ter mina ted In lin e w it h th e em pl oym en t con t rac t s of t he m em b er s of t h e Ma na gem e nt B oa rd , in ca se t h e Su pe r vis o r y Bo ard re cal ls a me mb er o f th e M an age m ent B o ard ‘ for ot h er b us in es s a n d eco no mic r ea so ns , ’ s u ch a m em be r of t he M an ag em en t B oa rd of NLB i s en ti t led t o com pe n sa ti on fo r ear l y te rm in a tio n of hi s ter m of o f fic e. Th e m em be r of t he M an ag em en t B oar d sh al l not b e en t it le d to com p en sa t ion fo r ea r ly te r min a ti on of th e te r m of of f ice i f he i s em pl oyed in t he B a nk o r in t he Gro up a f ter t he t er m in at io n of th e t er m of of f ice . In th e even t of res ig na t ion , t h e me mb er o f th e M an age m ent B o ard s h all Disclosur e on Shar es an d Sh ar eholders of NL B 145 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report not b e en t it le d to any co mp en s at io n for e ar ly d is con t in ua ti on of th e te r m of of f ice, u nl es s o th er wi s e de cid ed by t he Super viso r y Bo ard. 2 . N umber of sh ares held b y mem bers of the Super vis or y Board and M anagem ent B oard T a bl e 40: N um b er o f s ha re s h el d by m em b er s o f t he S u pe r vi s or y B oa rd a nd Management Board Shar es held as at 31 December 2021 Name of member of Supervisory Boar d Number % Primo ž Karpe 1,136 0.006% Andr eas Klingen 1,198 0.006% David Eric Simon (i) 582 0.003% Islam Osama Z ekry — — Gr egor Rok Kastelic — — Shr enik Dhirajlal Dav da — — Mark William Lane Richar ds — — V erica T rstenjak — — Ser geja Kočar 61 0.000% Bojana Šteblaj — — Janja Ž abjek Dolinšek — — T adeja Žbontar Rems — — Name of member of Management Boar d Number % Blaž Br odnjak 1,500 0.008% Ar chibald Kremser 791 0.004% Andr eas Burkhardt 451 0.002% P etr Brunclík 278 0.001% (i) David Eric Simon holds 2,910 GDRs, which is equal to 582 shar es (as 1 shar e r epresents 5 GDR s). 3. Stoc k option agreemen t s The B a nk h a s no s toc k opt io n agre em en t s in r ela t ion w it h li ste d s ha res. 4 . Divid end taxation Wi thh olding tax In 2021 a Slov enian payer was r equir ed to deduct and withhold the amount of Slov enian corpor ate or personal income tax fr om dividend payments made to the certain c ategories of payees: • Ind iv id ual s: 27.5% • Int er m edi ar ie s: 27.5% • Lega l en ti ti es (oth er t h an In te rm e dia ri es): 15% In 20 2 2 , t he t ax ra te fo r in di vid ua ls an d in te r me di ar ies h a s ch an ged f ro m 27 .5% t o 25% . There are some exemptions if div idends are paid to in term ediar ies and legal e nti ties For th e pu rp os es o f Sl oveni an ta x le gis l at io n, t h e GD R depositar y will qualif y as an interm ediar y . Therefore, the div ide n ds p aid by t he c u s to dia n to th e G DR d epo si ta r y will be s ub jec t to t he d ed uc tio n an d wi th h old in g of S loven ian tax a t th e ra te o f 25% ( in 20 2 1 2 7 .5%). A ho lde r , an own er o f a GD R or a b en ef ici al own er w ill b e en t it le d, i f an d to t he ex ten t app lica bl e, to c lai m a ref un d of t h e wi th h ol din g tax . In th e ca se o f le gal e nt it ie s , t he exem pt io ns a re re la ted t o th e characteristics of the legal e ntities . Applicatio n of Doubl e T ax T rea ties If t he p aye e is n ot an i nt er m edi ar y, Sloveni an ta x au th o ri ti es ma y app rove th e ap pli cat io n of a lowe r tax r at e sp ec if ie d in th e do ub le ta x tr ea t y b et wee n th e Ro S an d t he co un t r y of res id en ce of t he p aye e if t he S l ovenia n pa yer pr ovid es ce r tain inf or m at ion o n th e p ayee a nd a c on f ir ma t ion t h at t he p aye e is a res id en t for t axat io n pu rp os es i n s uch a c ou nt r y , i s s ue d by the ta x authorities o f such a c ountr y. Refun d of W ith holdin g T ax If t he S loven ia n tax wa s de du c t ed an d w it hh el d at a h igh e r tax rat e th an i t wou ld b e pai d if a S loven ia n pa yer wou ld m ake th e div ide n d pa ym en t dir ec tly t o s uch p er s on a s a pa yee o r hig he r tax ra te , th an t h e on e sp ec if ie d in t he d ou bl e tax t re at y, the pa yee of t he d iv ide n d is en t it le d to th e re f un d of t he over p aid tax . T he t ax ref u nd i s en for ced by f il ing a c la im to t h e Fin an ci al Admin is tration of the RoS. Legal persons Div id en ds w it h re sp ec t to t he s h are s rec eive d by a leg al per s on w h o is a S loven ian r es id ent a re exem pt f rom S loven ian cor po ra te in co me t ax ( davek od doho dko v pravnih oseb ). Individuals The a mo un t of t ax w it hh el d fr om a di vid en d p aym e nt re cei ved by an in dividual cons t it utes the f inal amoun t of Slov en ian Per s on al In co me T a x ( dohodnina ) wit h res pe c t t o s uch a dividend payment. 146 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report assessment of the CHF Law and if outlined legal r emedies ar e unsucc essful, the Bank estimated a negative pr e-tax effect on the oper ations of NLB and NLB Group should not e xc eed EUR 70 - 75 million. The Bank consider s this as anon-adjusting event after the r epor ting period. New SRE P Deci sion On 2 Febr uar y, the ECB is s ue d a new S R EP dec is io n for t he Ba nk u nd er w hi ch it h a s red uc ed t he P 2 R f rom 2.75% to 2.60% , wh ile P 2 G rem ai ns a t 1.00% . Th e new S R EP dec is ion a pp lie s as of 1 M arch . Co ns e qu en tl y , t h e B ank i s a s of t hi s da te re qu ire d to m ain tai n th e OC R at t h e level of 14.10% o n a con s ol ida te d ba si s , co ns is tin g of ( i ) 10.60% TS CR , an d ( ii ) 3.5% CB R . Geop olitical ten sion s in Ukraine In Febr u ar y , R u s s ian Fed era ti on b eg an a mi li tar y inva si on of Uk rain e. G ro up h as l im ite d exp os ure t o R us s ia n Feder at ion an d Uk rain e w hic h m ain ly d er ive s fro m NLB ’s inves t m en t in R us s ia n sover eign b on d s in th e ap prox im at e am oun t of EUR20 m il lio n . Th e ma nn er a nd t im in g of t he ir s et tl em en t in th e gi ven ci rcu m s tan ce s is n ot d ete r min e d yet. Sin ce t h e be gin ni ng of t h e te ns io ns , t h e cre di t sp re ads w id en ing wa s obs er ved , w hic h is c ur re nt ly i mp ac tin g t he B a nk ’s F VOC I pos it io ns . Fur t he r in for m a tio n is a vail abl e in Note 9 of th e Financial par t of this repor t. Sberban k banka d.d. acquisition On 1 M arc h , th e S ing le R es ol ut io n Bo ard (S R B) in c oor din a tio n wi th lo cal r eg ul ato r B oS d eci de d to ad opt a r es ol ut io n sc he m e in res p ec t of S loven ian S be r ban k b an ka d.d . (Sb er b ank ). Res o lu ti on s ch em e env is ag ed t h e app lica t ion o f th e s ale o f bu si ne s s to ol fo r Sb er b an k an d Bo S is s u ed a d ec is ion f or t he sa le of 100% s h are s is s u ed by S be rb an k . U nd er t he r es ol ut io n sc he me , an d fol lowi ng a m ar ket in g pro ced ure , th e S RB h a s dec id ed to t ran s f er al l th e s ha res i s s ue d by th e Sb er b an k to NLB . T he refo re as o f 1 M arch N LB be cam e a 100% own e r of Sb er ba nk . In th e fol lowi ng m on t hs a c t iv it ie s for i nt egr at ion o f Sb er ba nk w it h in NLB G ro up w ill b e car r ie d ou t. Managem ent B oard change On 20 J an ua r y , t he S u pe r vis or y B oa rd ap po int ed H ed vika Us en ik , An to nio A rg ir an d A nd rejLa si č as m em b er s of t h e Ma na gem e nt B oa rd , th u s expa nd in g it to s ix m e mb er s in t ota l. The ir f ive - year t er m of o f f ic e wil l s ta r t af ter t h ey ha ve obt ain ed th eir r es pe c t ive l icen ce s . Un t il t he n, t h ey wi ll con t in ue to a c t a s execu t ive as s i s ta nt s t o th e M an age me nt B o ard . Swiss F ranc s Law adopted On 2 F ebruary, the Slov enian National Assembly adopted the Law on limitation and distribution of for eign ex change risk between cr editors and borr ow ers concerning loan agr eements in Swiss fr ancs (CHF Law). The CHF L aw af fects all loan agr eements denominated in Swiss fr ancs (regar dless of whether the agr eements are still in for ce) concluded betw een banks oper ating in Slovenia (including NLB) as lenders and individuals as borr owers in the period fr om 28 June 2004 to 31 December 2010, and pr ovides for a c ap on the ex change r ate between Swiss fr ancs and the Eur o to be set at 10% volatility and shall be applied fr om the conclusion of any of the affected loan agr eements. NLB intends to use all legal r emedies against the CHFLaw befor e the Constitutional Court and, if necessary, in fr ont of rele vant Eur opean forums. In this r espect, the banks ( including NLB) on 28 F ebruary filed an initiative with the Constitutional Court of the RoS to initiat e proc eedings to assess the constitutionality of the CHF L aw and a proposal for its tempor ary suspension of enfor cement. The Constitutional Court of the RoS adopted a decision on 10 Mar ch to suspend in whole the implementation of the CHF Law. The implementation of the law has been suspended until the final decision of the Constitutional Court on the conformity of the CHF Law with the Constitution. During this time the deadlines set for individual liabilities of the banks do not apply. Until the final decision of the Constitutional Court on the constitutionality of the CHF L aw is made, the NLB will act in acc ordanc e with the applicable legislation and courts’ decisions, and will, at the same time, ex er cise all legal r emedies at its disposal. Based on the Key infor m at io n of t he a cqu ire d ba nk in EUR million  2020 2021 Unaudited Income Statement Net inter est income 30 26 Net fee and commission inc ome 12 14 Other income -1 2 T otal income 43 43 Expenses -29 -30 Pr e-pr ovision income 13 13 Pr ovisions and impairments -11 1 Pr ofit befor e tax 1 13 Pr ofit after tax 1 10 Balance Sheet T otal assets 1,839 1,721 Loans and advanc es to customers 1,200 1,153 Deposits fr om non-bank customers 1,340 1,27 4 Shar eholders' equity 184 195 Ratios (i) in % Net inter est margin (ii) 1.61 1.49 Business oper ating margin (ii) 2.29 2.49 ROE a.t. 0.52 5.4 NPL r atio (iii) 5.5 4.4 CET1 r atio 18.8 18.7 Sour ce: Sberbank banka d.d. r eports: for 2020 Annual r eport, for 2021 data from Sberbank banka d.d. Notes: (i) Ratios as calculated by Sberbank bank a d.d. (ii) Based on total assets. (iii) Non-per forming loans and other financial assets / classified loans and other financial assets (ex cluding balances with centr al bank accounts and sight deposits with banks). F ur ther informatio n about the acquisition of Sberbank banka d.d . is a vail ab le on t h e B ank ’s websi te u nd er Inves tor News . Super visor y and Managem ent b oard transac t ions wi th NLBR s hares Be t ween 25 Febr uar y an d 23 M arc h, P r im ož Karp e, Pre si den t of th e S up er vi s or y B oar d, S er gej a Kočar , M em be r of t he Su pe r vis or y B o ard , B laž B ro dn jak , C EO and CM O, an d An dre as B u r kh ard t, CR O tog et he r acq ui red 468 o rdin ar y sh ar es of N LB IS IN : SI 0 02 1 117 3 4 4 , L J S E t icker N LBR . Notif ication of major holdings On 7 M arc h th e s h areh ol di ng of S c hro de r s in t he B an k ch an ged f ro m 5.061% to 4.95% . Ev en ts Af ter t he End o f the 2021 Financial Y ear 147 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Rec oncilia tion of Financial Sta t emen t s in B us iness an d Finan cial P ar t of t h e Repor t Business r epor t in EUR million Financial report in EUR thousands Notes Net inter est income 409.4 Inter est and similar income 477,829 4.1. Inter est and similar expenses (68,469) 4.1. Net fee and commission inc ome 237.2 F ee and commission inc ome 332,589 4.3. F ee and commission e xpenses (95,413) 4.3. Dividend income 0.2 Dividend income 223 4.2. Net income fr om financial tr ansactions 38.4 Gains less losses fr om financial assets and liabilities not measur ed at fair value thr ough profit or loss 167 4.4. Gains less losses fr om financial assets and liabilities held for trading 21,19 4 4.5. Gains less losses fr om non-trading financial assets mandatorily at fair value thr ough pr ofit or loss 16,838 4.6. F air value adjustments in hedge acc ounting 167 5.5.a) F or eign ex change translation gains less losses 345 4.7. Gains less losses fr om modification of financial assets (263) 4.12. Net other income (18.3) Gains less losses on der ecognition of non-financial assets 2,681 Other net oper ating income 23,221 4.8. Cash contributions to r esolution funds and deposit guar antee schemes (35,140) 4.10. Gains less losses fr om non-current assets held for sale 248 4.15. Net gains or losses on der ecognition of investments in subsidiaries, associates and joint ventur es (9,298) 5.12.b) Net non-inter est income 257.6 257,559 T otal net operating inc ome 666.9 666,919 Employ ee costs (231.3) Administr ative e xpenses (368,851) 4.9. Other gener al and administrativ e expenses (137.5) Depr eciation and amortisation (46.5) Depr eciation and amortisation (46,528) 4.11. T otal costs (415.4) (415,379) Result befor e impairments and pr ovisions 251.5 251,540 Impairments and pr ovisions for cr edit risk 35.8 Pr ovisions for cr edit losses 8,504 4.13. Impairment of financial assets 27,331 4.14. Other impairments and pr ovisions (27.1) Pr ovisions for other liabilities and char ges (22,6 70) 4.13. Impairment of non-financial assets (4,407) 4.14. Impairments and pr ovisions 8.8 8,758 Gains less losses fr om capital investment in subsidiaries, associates, and joint ventur es 1.1 Shar e of profit fr om investments in associates and joint ventur es (acc ounted for using the equity method) 1,108 5.12.d) Result befor e tax 261.4 Pr ofit before inc ome tax 261,406 Income tax (13.5) Income tax (13,538) 4.16. Result of non-c ontrolling inter ests 11.5 At tributable to non-contr olling inter ests 11,464 Result after tax 236.4 At tributable to owners of the par ent 236,404 T a bl e 41: In c om e S ta te m en t o f NLB G r ou p fo r t he a n nu a l pe r io d en d ed 31 D e ce mb e r 2021 148 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Business r epor t in EUR million Financial report in EUR thousands Notes ASSETS Cash, cash balanc es at centr al banks, and other demand deposits at banks 5,005.1 Cash, cash balances at c entral bank s and other demand deposits at banks 5,005,052 5.1. Loans to banks 140.7 Financial assets measured at amortised c ost - loans and advances to banks 140,683 5.6.b) Net loans to customers 10,58 7.1 Financial assets measur ed at amor tised cost - loans and advanc es to customers 10,587,121 5.6.c) Non-tr ading financial assets mandatorily at fair value thr ough profit or loss - part (only loans) - 5.3.a) Financial assets 5,208.3 5,208,325 - T rading book 7.7 Financial assets held for trading 7,67 8 5.2.a) - Non-tr ading book 5,200.6 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss - part (without loans) 21,161 5.3.a) Financial assets measur ed at fair value thr ough other compr ehensive income 3,461,860 5.4. Financial assets measur ed at amor tised cost - debt securities 1,717,6 26 5.6.a) Investments in subsidiaries, associates, and joint v entures 11.5 Investments in associates and joint v entures 11,525 5.12.d) Pr operty and equipment, investment pr operty 294.6 Pr operty and equipment 247,014 5.8. Investment pr operty 47,6 24 5.9. Intangible assets 59.1 Intangible assets 59,07 6 5.10. Other assets 271.1 Financial assets measur ed at amor tised cost - other financial assets 122,229 5.6.d) Derivativ es - hedge accounting 568 5.5.b) F air value changes of the hedged items in portfolio hedge of inter est rate risk 7,082 5.5.c) Curr ent income tax assets 3,948 Deferr ed income tax assets 38,977 5.17. Other assets 91,221 5.13. Non-curr ent assets held for sale 7,051 5.7. T OT AL ASSETS 21,577.5 T otal assets 21,577,496 LIABILITIES Deposits fr om customers 17,640.8 Financial liabilities measured at amortised c ost - due to customers 17,640,809 5.15.a) Deposits fr om banks and centr al banks 71.8 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 71,828 5.15.a) Borr owings 932.6 Financial liabilities measur ed at amor tised cost - borr owings fr om banks and centr al banks 858,531 5.15.b) Financial liabilities measur ed at amor tised cost - borr owings fr om other customers 7 4,051 5.15.b) Other liabilities 427.6 Financial liabilities held for tr ading 7,585 5.2.b) Financial liabilities measur ed at amor tised cost - other financial liabilities 206,878 5.15.d) Derivativ es - hedge accounting 35,377 5.5.b) Pr ovisions 119,404 5.16. Curr ent income tax liabilities 5,87 8 Deferr ed income tax liabilities 3,045 5.17. Other liabilities 49,468 5.19. Subor dinated liabilities 288.5 Financial liabilities measured at amortised cost - subor dinated liabilities 288,519 5.15.c) Equity 2,078.7 Equity and r eserves attributable to owners of the par ent 2,078,733 Non-contr olling inter ests 137.4 Non-controlling int erests 137,390 T OT AL LIABILITIES AND EQUITY 21,577.5 T otal liabilities and equity 21,577,496 T a bl e 42: St a te m en t of F i na n ci al P os i ti on o f NL B G ro up a s a t 31 De ce m be r 2021 149 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Alterna tiv e Per form anc e Indic a tors The B a nk h a s ch os en to p res en t t he se A PI s , eit h er b eca us e th ey are in c om mo n us e w it hin t h e in du s t r y or b eca us e t hey are co mm on ly u s ed by inve s to rs a n d as s uc h are u s ef ul for di s clo s ure . Th e API s are u se d in ter n al ly to m on it or an d ma na ge op er at ion s o f th e B an k an d th e G rou p, an d are not c on si de red to b e di rec tl y com pa rab le w it h s imi lar K PIs pre se nt ed by ot he r com p ani es . T he B a nk ’s APIs are d es cr ib ed bel ow tog et he r wi th d ef in it io ns . Cos t of r is k – Calc ul at ed a s th e ra ti o be t we en c red it imp ai rm e nt s a nd p rovi si on s an nu al ized fro m t he in co me sta tement and average net loans to custom ers . T a bl e 43: NL B G ro up c os t o f r i sk c al c ul at i on (iii) in EUR million NLB Gr oup 2021 2020 Numer ator Cr edit impairments and pro visions (i) -40.8 47.6 Denominator A ver age net loans to customers (ii) 10,080.9 7,6 96.1 Cost of risk (bps) -41 62 (i) NLB internal information. Cr edit impairments and pro visions are annualiz ed, calculated as all established and r eleased impairments on loans and pr ovisions for off balance (fr om the income statement) in the period divided by the number of months for r eporting period and multiplied by 12. The net established Cr edit impairments and pr ovisions are sho wn with a positive sign, and the net r eleased Cr edit impairments and provisions ar e shown with a negativ e sign. (ii) NLB internal information. A ver age net loans to customers ar e calculated as sum of the balance of the pr evious year end (31 Dec ember) and monthly balances of the last day of each month fr om January to month t divided by (t+1). (iii) Komer cijalna Banka gr oup included fr om 2021 on. Cost-to -income ratio (CIR) – In dica to r of co s t ef fi cie nc y , calc ul at ed a s th e ra ti o be t we en t he t ota l cos t s a n d tota l ne t operat ing income. T able 44a: NLB Gro up and NLB CIR calculation in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator T otal costs 415.4 293.9 305.0 183.6 180.5 191.1 Denominator T otal net oper ating income 666.9 504.5 517.2 361.5 311.7 354.7 Cost to inc ome ratio (CIR) 62.3% 58.3% 59.0% 50.8 % 57.9% 53.9% CIR is adjusted for 2019 to changed schemes pr escribed by the BoS. T able 44b: NLB Group’s banking subsidiaries CIR calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Numer ator T otal cost 28.6 26.5 15.2 13.9 16.2 15.1 13.5 12.3 17.4 13.6 22.2 20.4 88.0 Denominator T otal net oper ating income 68.4 62.7 33.2 30.1 28.1 26.7 41.8 38.7 28.1 2 4.3 30.3 26.6 128.7 Cost to inc ome r atio (CIR) 41.8% 42.3% 45.7% 46.1% 57.7% 56.5% 32.4% 31.8% 61.7% 56.0% 73.1% 76.4% 68.4% 150 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T able 45a: NLB G ro u p St ag e 1 ca lc u la t io n in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 1 14,638.0 Denominator T otal gr oss loans and advances 15,541.8 IFRS 9 classification into Stage 1 9 4.2% T able 45b: N LB G ro u p St ag e 2 ca lc u la t io n in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 2 532.4 Denominator T otal gr oss loans and advances 15,541.8 IFRS 9 classification into Stage 2 3.4% T able 45c: NLB Gr ou p S ta ge 3 c al cu la t io n in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 3 371.1 Denominator T otal gr oss loans and advances 15,541.8 IFRS 9 classification into Stage 3 2.4% T able 45d: NLB G r ou p St a ge 1 i n th e Co r po ra t e se g me n t ca lc ul a ti on in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 1 to Corporat es 4,525.5 Denominator T otal gr oss loans to Corpor ates 5,179.5 Corpor ates - IFRS 9 classification into Stage 1 87.4% T able 45e: N LB G ro u p St ag e 2 in t h e Co r po ra t e se gm e n t cal c ul a ti on in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 2 to Corporat es 412.2 Denominator T otal gr oss loans to Corpor ates 5,179.5 Corpor ates - IFRS 9 classification into Stage 2 8.0% T able 45f: NLB G ro u p St ag e 3 in t h e Co rp o ra te s e gm e nt c al c ul at i on in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 3 to Corporat es 241.4 Denominator T otal gr oss loans to Corpor ates 5,179.5 Corpor ates - IFRS 9 classification into Stage 3 4.7% T able 45g: N LB G ro u p St ag e 1 in t h e R et ai l se g me n t ca lc ul a ti on in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 1 to Retail 5,371.1 Denominator T otal gr oss loans to Retail 5,621.1 Retail - IFRS 9 classific ation into Stage 1 95.6% T able 45h: N LB G ro u p St ag e 2 in t h e R et ai l se g me n t ca lc ul a ti on in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 2 to Retail 120.2 Denominator T otal gr oss loans to Retail 5,621.1 Retail - IFRS 9 classific ation into Stage 2 2.1% T able 45i: N LB G r ou p St ag e 3 i n th e R et ai l s eg me n t ca lc u la t io n in EUR million NLB Gr oup 2021 Numer ator T otal (A C) loans in Stage 3 to Retail 129.7 Denominator T otal gr oss loans to Retail 5,621.1 Retail - IFRS 9 classific ation into Stage 3 2.3% F V TP L – Fin an c ial a s se t s m ea su red m a nd at or il y at fa ir valu e th ro ugh p rof i t or lo s s (F V TPL) re pre se nt t h e min o r par t (0.002% Dec em be r 2021; 0.30% De cem b er 2020) of t h e loa n por t fol io (b efo re t he d ed uc tio n of fa ir val ue fo r cre di t r is k ; loa ns w it h co nt rac t ual c as h f lows t h at a re no t so le ly p ay me nt s of pr in ci pa l an d in tere s t o n th e pr in c ipa l am ou nt o ut s tan di ng). Cla s si f ica ti on in to s t ag es is c alc ul at ed i n th e in ter n al d at a so urce , by wh ich t h e NLB G rou p m ea su res t h e lo an po r t f olio qu ali t y, and w hi ch is a ls o p ubl is h ed in t h e B us in es s R ep or t of An n ual a nd I nt er im R epo r t s . IFR S 9 cl as s if ic at io n int o s ta ge s for l oan p or t foli o: IFR S 9 req ui res a n expe c t ed l os s m od el , wh ere a n all owanc e for t he ex pe c t ed cr edi t lo s se s (ECL) are for m ed . Loa n s me as ur ed a t am or t is ed c os t s (AC) a re cl as s if i ed in to t h e foll owin g s t age s (b efo re de du c t io n of lo an l os s al lowan ces): • St age 1 – A p er fo r min g po r t folio: n o si gni f ica nt in c rea se o f cre dit r i s k si nce i ni ti al re cog ni ti on , NLB G ro up re cog ni s es an allowan ce b as e d on a 12- mo nt h p er io d; • St age 2 – A n un de r pe r for mi ng p or t foli o: a sign if i can t inc re as e in c red it r is k s in ce in it ia l reco gn it ion , N LB G rou p reco gn is es a n all owanc e for a li fet im e p er io d; • St age 3 – A n im pa ire d po r t fo lio: NLB G ro up re co gni s es lif eti m e allowa nce s for t h es e f in an cia l as s et s . The d ef in it io n of de fau lt i s h ar m oni s ed w it h th e EBA g uid el in es . A sig ni f ican t in cr ea se i n cre dit r i s k is a s s um ed: w he n a cre di t rating significantl y deterio rates at the reporting date in com pa ri s on to t h e cre di t rat in g at i ni ti al re cog ni ti on; w he n a fi na nc ial a s s et h as m a ter i al de la ys over 30 d ays (da ys p as t du e are al s o in cl ude d in t h e cre dit r at in g as s es s m en t); i f NLB Gro up ex pe c t s to g ran t t he c lie nt fo r be ara nce o r if t h e cli en t is pla ced o n th e wa tch l is t. 151 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Leverag e ra ti o – it s ca lc ul at ion u s es T ier 1 a s th e n um er ato r , an d th e de no mi na to r is t he t otal ex po su re of a ll ac ti ve bal an ce sh ee t an d of f-b al an ce -s h ee t it em s af ter t h e ad ju s t me nt s a re ma de in t h e con tex t of wh ic h th e exp os ure s fro m in di vid ua l der i vat ives , ex po su res f ro m tra ns ac ti on s of s ec ur i t y f u nd in g, an d oth er o f f- b ala nc e sh ee t it em s are e s pe cia lly p oin te d ou t. Th e levera ge ra t io is a n on -r is k b as ed s u ppl em en ta r y me as ur e to t he r i sk-b as e d capi ta l req uir em en t s . A m in im um levera ge ra ti o req ui rem en t is 3% . Th e p ur po se o f th e lever age rat io i s to li mi t th e s ize of th e B an k b ala nce s h ee t s , an d wi t h a sp ec ial e mp ha s is o n expo s ure s wh ich a re no t weigh te d wi t hin the framework of the exis ting capital requiremen t calculation s . T a bl e 46: NL B an d N LB G ro up l eve ra ge r a ti o in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator T ier I 1,362.7 1,347.0 1,137.6 1,965.6 1,7 68.1 1,451.2 Denominator T otal Lev erage R atio exposur e measur e 10,041.1 13,058.8 11,705.2 19,229.5 22,603.9 16,671.3 Lev erage r atio 13.6% 10.3% 9.7% 10.2% 7.8% 8.7% Liquidit y co verage r a tio – LCR refer s to h igh l iqu id a s se t s he ld by th e f in an cia l in s ti t u tio n to cover i t s n et li qui di t y o u t f low s over a 30- cal en da r day s tre s s pe r iod . The LCR req ui res f i na nc ial i ns tit u t ion s to m ai nt ain a s u f f ic ie nt res er ve of h igh - qua li t y l iq uid a s s et s (HQ L A) t o wi th s t an d a cr is i s th at p u t s th ei r cas h f low s un der p res s u re. T he a s se t s to ho ld m u s t eq u al to or g rea te r th an t h eir n et c as h ou t fl ow over a 30- cal en da r - da y s t res s p er io d (h a vin g a t lea s t 100% coverag e). The p ara me te r s of th e s t re s s sc en ar io ar e def i ne d under Basel III guideli n es . The ca lc ulations presented below are b as ed o n in ter n al d at a so urce s . T a bl e 47: NLB Group L CR calculation in EUR million NLB Gr oup NLB 31 Dec 2021 30 Nov 2021 31 Oct 2021 30 Sep 2021 31 Aug 2021 31 Jul 2021 30 Jun 2021 31 May 2021 30 Apr 2021 31 Mar 2021 29 F eb 2021 31 Jan 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 Numer ator Stock of HQLA 5,36 7.1 5,333.4 5,222.9 5,285.7 5,346.8 5,350.7 5,452.8 4,97 6.0 4,9 41.4 4,915.3 4,871.5 5,027.8 5,003.0 3,985.0 4,698.7 4,323.4 3,701.3 Denominator Net liquidity outflow 2,125.0 2,064.7 1,993.4 1,9 40.5 1,899.7 1,9 66.5 2,000.2 1,915.8 1,918.6 1,87 6.4 1,889.0 1,945.5 1,943.1 1,226.4 1,493.9 1,285.4 1,022.1 LCR 252.6% 258.3% 262.0% 272.4% 281.4% 272.1% 272.6% 259.7% 257.6% 262.0% 257.9% 258.4% 257.5% 32 4.9% 314.5% 336.3% 362.1% Based on the Eur opean Commission’s Delegated Act on LCR. 152 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Net loan-to-deposit r atio (L TD) – Calculated as the r atio between net loans to customers and deposits fr om customers. Ther e is no r egulatory defined limitation on the L TD, howe ver, the aim of this measur e is to r estrict extensiv e gro wth of the loan por tfolio. T able 48a: NL B Group and NLB L TD calculat ion in EUR million NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 Numer ator Net loans to customers 10,587.1 9,644.9 7,604.7 5,153.0 4,595.1 4,589.2 Denominator Deposits fr om customers 17,640.8 16,397.2 11,612.3 9,659.6 8,850.8 7,7 60.7 Net loan to deposit r atio (L TD) 60.0% 58.8% 65.5% 53.3% 51.9% 59.1% T able 48b: NLB Group’s banking subsidiaries L TD calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 Numer ator Net loans to customers 1,084.1 956.9 471.1 430.7 453.0 399.2 634.5 559.2 491.6 367.3 511.7 472.2 1,795.9 Denominator Deposits fr om customers 1,399.5 1,288.8 759.9 633.5 593.0 521.6 798.8 7 48.3 609.8 431.7 449.5 496.3 3,42 4.6 Net loan to deposit r atio (L TD) 77.5% 7 4.2% 62.0% 68.0% 76.4% 7 6.5% 79.4% 7 4.7% 80.6% 85.1% 113.8% 95.1% 52.4% 153 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Ne t in tere s t ma rgin o n th e ba s is of i nt ere s t- be ar in g as se t s – Calc ul at ed a s th e ra tio b et wee n ne t in ter es t i nco m e annualized and aver age interes t-bear ing ass et s. in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Numer ator Net inter est income (i) 50.4 48.1 20.1 18.6 17.8 17.8 34.5 32.3 22.0 20.6 23.4 21.8 88.6 Denominator A ver age inter est bearing assets (ii) 1,605.3 1,453.0 844.3 756.7 645.0 611.9 900.6 817.7 550.2 499.9 678.3 643.1 3,7 42.6 Net inter est margin on inter est bearing assets 3.1% 3.3% 2.4% 2.5% 2.8% 2.9% 3.8% 3.9% 4.0% 4.1% 3.4% 3.4% 2.4% Ne t in tere s t ma rgin o n th e ba s is of i nt ere s t- be ar in g as se t s ( q uar terly) – Calc ul at ed a s th e ra tio b et wee n th e n et in te res t inc om e an n ual ized an d ave rag e in tere s t- be ar in g as s et s . in EUR million NLB Gr oup Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Numer ator Net inter est income (i) 424.6 411.3 405.7 395.4 298.7 Denominator A ver age inter est bearing assets (ii) 20,526.7 20,314.4 19,459.1 18,902.8 14,739.7 Net inter est margin on inter est bearing assets (quarterly) 2.07% 2.02% 2.08% 2.09% 2.03% T a bl e 49: NL B G ro up’s b an k in g s ub s id ia r ie s ne t in t er es t ma rg in o n th e b a si s of i n te re s t b ea r in g a s se t s ca l cu la t io n T a bl e 50: NL B G ro up n e t in te re s t m ar gi n on t h e b as i s of i nt e re s t b ea r in g as s e t s ca lc u la t io n (qu ar te r ly ) (iii) (i) Net inter est income is annualized, and calculat ed as the sum of interest income and int erest e xpenses in the period divided by the number of days in the period and multiplied by the number of days in the y ear. (ii) NLB internal information. A ver age inter est-bearing assets for individual bank members are c alculated as the sum of balance of pr evious year end (31 December) and monthly balanc es of the last day of each month from January to r eporting month t divided by (t+1). (i) Net inter est income (quarterly) is annualized, calculat ed as the sum of interest income and int erest e xpenses in the period divided by the number of days in the quarter and multiplied by the number of days in the y ear. (ii) NLB internal information. A ver age inter est-bearing assets (quarterly) for the NLB Group ar e calculated as the sum of monthly balanc es (t ) for the corr esponding quarter and monthly balance at the end of the pr evious quarter divided by (t+1). (iii) Komer cijalna Banka gr oup included fr om 2021 on. Ne t in tere s t ma rgin o n to ta l as se t s – Calc ul at ed a s th e ra ti o be t we en n et in te res t inc om e an n ual ized , an d avera ge to tal a s s et s . T a bl e 51: NL B G ro up a n d NLB n e t in te re s t m a rg in o n to ta l as s e t s ca lc ul a ti o n in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator Net inter est income (i) 409.4 299.6 318.5 139.1 138.9 158.1 Denominator A ver age total assets (ii) 20,659.0 15,086.2 13,311.7 11,853.9 10,336.2 9,206.3 Net inter est margin on total assets 2.0% 2.0% 2.4% 1.2 % 1.3 % 1.7 % (i) Net inter est income is annualized, and calculat ed as sum of interest income and int erest e xpenses in the period divided by the number of days in the period and multiplied by the number of days in the year. (ii) NLB internal information. A ver age total assets for the NLB Gr oup are c alculated as sum of balance of the pr evious year end (31 December) and monthly balanc es of the last day of each month fr om January to month t divided by (t+1). A ver age total assets for NLB ar e calculated as the sum of total assets of the pr evious year end (31 Dec ember) and daily balances in the period (fr om 1 January to day d – the last day in r eporting month) divided by (d+1). 154 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NPE – NPE in cl ud es r i sk ex pos u re to D - an d E-ra ted c li ent s (incl udes loans and advances , debt secur ities , and of f-b alance expo su res , whi ch ar e in cl ud ed in r epo r t Fin re p 18; be fore th e de du c t ion o f all owanc es fo r th e ECL). Non - p er fo rm in g expo su res m e as ur ed by fa ir val ue lo an s t hro ug h P&L (F V TPL) are ta ken in to acc ou nt a t fai r valu e in cr ea se d by th e am ou nt of n ega t ive fai r ch an ge s for c red it r i sk . NP E per ce nt. (on- balance and of f-bal ance) /Classi fied on - ba lan ce a nd o f f- b ala nce ex po su res – N PE p er ce nt. in acco rda nc e wit h EBA m et h od olo gy : N PE as a p erc en tag e NPE – NPE in dic at or acc ord in g to th e B oS c alc ul at ion dif fer s f rom t h e EBA m et ho do log y in t he t re at m en t of de bt in s tr ume nt s me as ure d a t F VOCI . Th e ca r r yin g am ou nt o f deb t in s t r um en t s m ea s ure d at F VOCI is in c rea se d by valu e adjustments due t o impairments. T a bl e 53: NL B an d N LB G ro up N PE ( Eba d e f.) (B os) c al c ul at i on in EUR million NLB NLB Gr oup 2021 2020 2019 2021 2020 2019 Numer ator T otal Non-P er forming on-balance and off-balance Exposur e in Finrep18 159.5 235.1 221.0 415.5 513.0 432.7 Denominator T otal on-balance and off-balance exposur es in Finr ep18, where c arrying amount of FVOCI is incr eased by v alue adjustments due to impairments 13,872.1 12,225.5 11,089.5 2 4,339.2 22,051.0 16,233.3 NPE per cent. 1.1% 1.9% 2.0% 1.7% 2.3% 2.7% T able 52: NLB an d NLB G roup NPE ( Eba def.) c alc ulation in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator T otal Non-P er forming on-balance and off-balance Exposur e in Finrep18 159.5 235.1 221.0 415.5 513.0 432.7 Denominator T otal on-balance and off-balance exposur es in Finr ep18 13,869.9 12,223.1 11,087.8 24,328.0 22,042.3 16,228.5 NPE per cent. 1.1% 1.9% 2.0% 1.7% 2.3% 2.7% of all ex pos u res t o cli en t s in F in rep18 , b efo re de du c t io n of allowan ce s for t h e ECL; th e ra t io is i n gros s t er m s . Wh ere N on - P er for m in g E xpo s ure in c lu de s ri s k expo s ure to D - an d E-r ate d cl ien t s ( in cl ud es lo an s an d ad van ces , debt secur ities , and of f-b alance exposures , which are included in rep or t F in rep 18; b efo re th e de d uc t io n of al lowan ces f or th e ECL). The s h are o f NPE s i s cal cu la ted o n th e b as is o f an int er n al da ta s o urce , wi th w hic h t he NL B Gro up m o ni tor s t he por t fol io q ual it y . T he c alc ul at io ns p res en te d be low ar e ba se d on in te rn al d at a so ur ces . 155 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NPL – Non - p er for m in g loa ns i nc lu de l oa ns t o D - an d E-r at ed cli en t s , n am ely l oa ns a t le as t 90 day s pa s t d ue, o r lo an s unl ikel y to be r ep aid w it ho u t rec our s e to c oll at era l (b efo re deduc t ion of loan loss allow an ces). NP L per ce nt. – T he s h are o f no n - pe r for mi ng l oan s in t ota l loa ns : n on - p er for m in g loa ns a s a p erce nt age o f tot al lo an s to cl ien t s be for e ded uc ti on of l oa n los s a llowan ce s; ra t io in gros s t er m s . W he re no n - pe r for mi ng l oa ns a re de fi ne d as loa ns t o D - a nd E-r at ed c lie nt s , n am e ly lo an s a t le as t 90 d ay s pa s t du e, o r loa ns u nl ikel y to be r epa id w it ho u t rec our s e to coll at era l (b efo re de du c t io n of lo an lo s s all owanc es). Th e sh ar e of n on - pe r for m ing l oa ns i s cal cu la te d on t he b as is o f an int er n al da ta s o urce , wi th w hic h t he NL B Gro up m o ni tor s t he loan port folio qualit y . T able 54a: NL B NPL calculation in EUR million NLB 2021 2020 2019 Numer ator T otal Non-P er forming Loans 130.4 208.4 169.5 Denominator T otal gr oss loans 8,522.5 6,980.8 5,989.9 NPL per c ent. 1.5% 3.0% 2.8% T able 54b: NLB Group NPL calculation in EUR million NLB Gr oup 2021 2020 2019 2018 2017 2016 Numer ator T otal Non-P er forming Loans 367.4 47 4.7 37 4.7 622.3 844.5 1,299.2 Denominator T otal gr oss loans 15,541.8 13,686.6 9,793.5 9,017.2 9,130.4 9,443.7 NPL per c ent. 2.4% 3.5% 3.8% 6.9% 9.2% 13.8% T able 54c: NL B Group’s banking subsidiaries NPL calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad NLB Gr oup’s banking subsidiaries 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2021 Numer ator T otal Non- P er forming Loans 59.7 63.2 9.4 13.7 19.0 24.7 15.6 17.5 42.2 27.3 9.5 8.7 36.3 322.1 Denominator T otal gr oss loans 1,383.8 1,239.1 734.7 590.2 621.0 553.4 802.0 768.2 602.0 470.0 618.1 605.5 2,610.1 15,894.4 NPL per c ent. 4.3% 5.1% 1.3% 2.3% 3.1% 4.5% 1.9% 2.3% 7.0% 5.8% 1.5% 1.4% 1.4% 2.0% 156 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NPL c over age r atio 1 – The cov er age of the gross non- performing loans portfolio with loan loss allowances on the entir e loan port folio - loan impairment in r espect of non- performing loans. It shows the le vel of cr edit pro visions that the entity has alr eady absorbed into its profit and loss ac counts with r espect to the total of impair ed loans. The NPL co ver age r atio 1 is calculated on the basis of an internal data sour ce, with which the NLB Gr oup monitors the quality of loan port folio. T able 55a: N LB N PL c ove rag e r at io 1 c al c ul at i on in EUR million NLB 2021 2020 2019 Numer ator Loan loss allow ances entir e loan port folio 97.9 158.4 129.2 Denominator T otal Non-P er forming Loans 130.4 208.4 169.5 NPL c over age ratio 1 (NPL CR 1) 75.1% 76.0% 7 6.2% T able 55b: N LB G ro u p NP L cove ra ge r a ti o 1 ca lc ul a t io n in EUR million NLB Gr oup 2021 2020 2019 2018 2017 2016 Numer ator Loan loss allow ances entir e loan port folio 316.5 388.4 334.2 479.6 654.8 988.7 Denominator T otal Non-P er forming Loans 367.4 47 4.7 37 4.7 622.3 844.5 1,299.2 NPL c over age ratio 1 (NPL CR 1) 86.1% 81.8% 89.2% 77.1% 77.5% 76.1% T able 55c: NLB Group's bank ing subsidiar ies NPL co verage ratio 1 calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Bank a, Beogr ad NLB Gr oup’s banking subsidiaries 2021 Numer ator Loan loss allow ances entir e loan port folio 60.5 17.7 20.3 38.0 22.8 8.9 23.1 289.0 Denominator T otal Non-P er forming Loans 59.7 9.4 19.0 15.6 42.2 9.5 36.3 322.1 NPL c over age ratio 1 (NPL CR 1) 101.2% 189.3% 106.3% 243.2% 54.0% 93.4% 63.5% 89.7% 157 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NP L coverage ra tio 2 – T he c overag e of t he g ros s n on - per fo r mi ng lo an s po r t f oli o wi th l oan l os s a llowan ce s on t he no n -p er fo r min g lo an s po r t f oli o. Th e NPL c overag e rat io 2 i s calc ul at ed o n th e ba s is of a n in ter n al d at a so urc e, wi th w h ich th e NLB G ro up m on ito r s th e lo an p or t foli o qu ali t y . T able 56a: N LB a nd N LB G r ou p NP L cov er ag e ra t io 2 ca lc u la t io n in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator Loan loss allow ances non-performing loan portfolio 79.0 120.7 96.2 212.9 272.1 243.7 Denominator T otal Non-P er forming Loans 130.4 208.4 16 9.5 367.4 47 4.7 37 4.7 NPL c over age ratio 2 (NPL CR 2) 60.6% 57.9% 56.7% 57.9% 57.3% 65.0% T able 56b: NLB Group’s ban king subsidiar ies NPL co verage ratio 2 calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad NLB Gr oup’s banking subsidiaries 2021 Numer ator Loan loss allow ances non-performing loan portfolio 38.7 5.7 16.7 14.3 16.5 5.5 7.9 184.2 Denominator T otal Non-P er forming Loans 59.7 9.4 19.0 15.6 42.2 9.5 36.3 322.1 NPL c over age ratio 2 (NPL CR 2) 64.7% 61.0% 87.6% 91.6% 39.1% 57.6% 21.7% 57.2% 158 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Ne t NP L Ra ti o – Th e sh ar e of n et n on - pe r for m in g loa ns i n tota l ne t lo an s: n on - p er for m in g lo an s af te r ded uc ti on of los s a llowan ce s on t he n on - p er for m in g lo an s po r t fo lio a s a per cen tag e of to tal l oa ns t o cli en t s af te r th e de du c t ion o f loa n los s a llowan ce s; t h e rat io i s in n et t er ms . The calculation s pre se nt ed b elow a re ba se d on i nt er n al da ta s o urce s . T a bl e 57: NL B an d N LB G ro up N e t NP L Ra t io c al cu la t io n in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator Net volume of non-performing loans 51.4 87.8 73.3 154.5 202.7 131.0 Denominator T otal Net Loans 8,42 4.7 6,822.4 5,860.7 15,225.4 13,298.2 9,459.2 Net NPL r atio per cent. (%Net NPL) 0.6% 1.3% 1.3% 1.0% 1.5% 1.4% Received colla terals for NPLs/NPL – The c overag e of t he gros s n on -p er for m in g lo an s por t fol io w it h col la ter al for n on - per fo r mi ng lo an s . T he co ll at eral m a rket va lu e is u se d for t h is calc ul at io n . Th e cal cu la tio n s pre se nt ed b elow a re ba s ed on intern al data sources. T a bl e 58: NLB and NLB G roup Received collaterals for NPL s/NPL calculation in EUR million NLB NLB Gr oup 2021 2020 2019 2021 2020 2019 Numer ator Gr oss volume of Non-Performing Loans co ver ed by collater als 78.2 137.2 122.1 226.6 288.1 249.7 Denominator T otal Non-P er forming Loans 130.4 208.4 169.5 367.4 47 4.7 37 4.7 Rec eived collater als for NPLs / NPL 60.0% 65.8% 72.0% 61.7% 60.7% 66.6% 159 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Non- per for ming loans and advances (E BA def. ) – No n - per fo r mi ng lo an s in cl u de lo an s an d ad van ces in a cco rda nce wi th EBA M et h odo lo gy t h at a re cl as s if i ed a s to D an d E , na me ly l oan s a t le as t 90 d ay s pa s t d ue, o r lo an s un likel y to b e rep aid w it h ou t rec ou r se t o coll at era l (b efo re de du c t io n of lo an loss allowances). Gro s s NP L ra ti o (E BA d e f.) – Th e gr os s NP L rat io i s th e rat io o f th e gro s s car r yi ng am o un t of n on - p er for m in g lo an s an d adva nce s to t he t ota l gros s c ar r yin g am o unt o f lo an s an d adva nce s , in a cco rdan ce w it h t he EBA m et h od olo gy (repor t F in rep18) . For th e pu r pos e of t h is ca lc ula t ion , lo an s an d adva nce s cl as s if i ed a s he ld fo r sa le, c as h ba lan ce s at CB s , an d ot he r dem an d d epo si t s ar e exclu de d fro m bot h t he den om in a tor a nd t h e nu me ra tor . Th e ca lc ula t ion s pr es en te d bel ow are b as ed o n in ter n al d at a so urc es . T a bl e 59: NL B an d N LB G ro up G r os s N PL r at i o (EBA d e f.) ca lc ul a ti on in EUR million NLB NLB Gr oup 2021 2020 2019 2021 2020 2019 Numer ator Gr oss volume of Non-Performing L oans and advanc es without loans held for sale, cash balances at CBs and other demand deposits 131.2 199.1 164.3 375.1 466.0 372.9 Denominator Gr oss volume of Loans and advanc es in Finrep18 without loans held for sale, cash balanc es at CBs and other demand deposits 5,498.9 4,958.8 4,923.3 11,128.8 10,340.6 8,127.5 Gr oss NPL ratio per c ent. (% NPL) 2.4% 4.0% 3.3% 3.4% 4.5% 4.6% Gros s N PL ra ti o (E BA de f.) (Bo S) – Th e gro s s NPL r at io i s th e rat io o f th e gro s s car r yi ng am o un t of n on - p er for m in g lo an s an d adva nce s to t he t ota l gros s c ar r yin g am o unt o f lo an s an d adva nce s , in a ccor dan ce w it h th e EBA m et h od olo gy (rep or t Fin re p18). Cas h b ala nc es a t CB s an d ot he r dem an d d epo si t s are in cl u ded i n th e cal cu la ti on . Th e in di ca tor fo r th e b an kin g se c to r in t he EU i s pu bl is he d q uar t er ly by t he EB A in th e R is k dashboard. The c alc ul at ion s p res en te d be low are b a se d on intern al data sources. T a bl e 60: NL B an d N LB G ro up G r os s N PL r at i o (EBA d e f.) (B oS ) ca lc ul a ti on in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator Gr oss volume of Non-Performing L oans and advances 131.2 199.1 164.3 375.1 466.0 372.9 Denominator Gr oss volume of Loans and advanc es in Finrep18 8,615.3 7,028.2 6,050.9 15,668.8 13,795.3 9,888.1 Gr oss NPL ratio per c ent. (% NPL) 1.5% 2.8% 2.7% 2.4% 3.4% 3.8% 160 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NP L coverage ra tio ( EB A de f.) – The N PL covera ge ra t io is the rati o of the amount of accumulated impairment , negativ e ch an ges i n fai r valu e du e to c red it r is k to t h e no n - pe r for mi ng loa ns a nd a dvan ce s , in a ccor dan ce w it h th e EBA m et h odo lo gy (repor t F in rep18) . Loan s an d a dvan ces c la s s if ie d as h el d for sa le, ca s h bal an ces a t CB s an d ot h er d em an d dep os it s are exclu de d bot h fr om t he d en om in at or an d f rom t he n um e rat or . T a bl e 61: NL B an d N LB G ro up N PL c ove ra ge r at i o (EBA d e f.) ca lc ul a ti on in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator V olume of allow ances and value adjustments for cr edit losses on Non-Performing loans and adv ances (i) 79.8 110.1 91.2 219.1 265.3 240.4 Denominator Gr oss volume of Non-Performing loans and adv ances (i) 131.2 199.1 164.3 375.1 466.0 372.9 NPL c over age ratio per c ent. (% CR) 60.8% 55.3% 55.5% 58.4% 56.9% 64.5% NP L coverage ra tio ( EB A de f.) (Bo S) – Th e NPL c overag e rat io i s th e ra ti o of t he a mo un t of a ccu m ula te d im pa ir me nt, ne ga ti ve ch an ges i n fai r valu e du e to c red it r is k t o th e no n - per fo r mi ng lo an s an d ad van ces , in acco rda nc e wi th t he EB A me th od ol og y (repor t F in rep1 8). Cas h ba lan ce s at CB s a nd oth er d em an d de po si t s are i nc lu de d in t he c alc ul at ion . T a bl e 62: NLB a n d NL B Gr o up N PL co ver ag e ra t io (EB A d ef.) (B o S) c al c ul at i on in EUR million NLB NLB Gr oup 2021 2020 2019 2021 2020 2019 Numer ator V olume of allow ances and value adjustments for cr edit losses on Non-Performing loans and adv ances 79.8 110.1 91.2 219.1 265.3 240.4 Denominator Gr oss volume of Non-Performing loans and adv ances 131.2 199.1 164.3 375.1 466.0 372.9 NPL c over age ratio per c ent. (% CR) 60.8% 55.3% 55.5% 58.4% 56.9% 64.5% (i) Without loans and advanc es classified as held for sale, cash balances at CBs, and other demand deposits. 161 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Collatera l receiv ed/NPL (EBA def .) – The N PL co lla te ral ra t io is t he r at io of t h e col la ter al rec eive d for n on -p er for m in g lo an s an d adva nce s to t he g ros s ca r r yin g am ou nt o f col la ter alized no n -p er fo r min g lo an s an d ad van ces , i n acc ord an ce wi th th e EBA m et ho do log y (repo r t Fin re p18). Th e ca lc ula ti on i s provi de d on s in gle l oan b a si s . Th e NP L s wh e re th e am o un t of coll at era l rec eive d exceed s t he n et n on - p er for m in g of e ach loan exposure are the subjec t of calculat ion. T a bl e 63: NL B an d N LB G ro up N PL c ove ra ge r at i o (EBA d e f.) ca lc ul a ti on in EUR million NLB NLB Group 2021 2020 2019 2021 2020 2019 Numer ator V olume of collater al r eceived up to the c arrying amount of each loan or advanc e 12.2 38.6 12.9 36.7 61.3 23.9 Denominator Gr oss volume of collater alized Non- P er forming loans and advanc es 19.4 88.8 38.2 62.5 144.6 67.4 NPL c over age ratio per c ent. (% CR) 63.1% 43.5% 33.6% 58.8% 42.4% 35.4% Ne t s tab le f un din g ra tio ( NS FR) – T he n et s tab le f un di ng ra t io is a liquidit y ris k s tandard requirin g finan cial ins tit ution s to ho ld en o ugh s tab le f un di ng to c over th e d ura ti on of t h eir l on g- term as set s . NS FR is d ef in ed a s th e am o un t of a vaila bl e s ta ble f u nd in g rel at ive to t h e am ou nt of r eq uir ed s t ab le f un din g , an d is ba se d on t he c ur re nt B a s el Com mi t tee g ui de lin es . T hi s ra ti o sh o uld b e eq ua l to a t lea s t 100% o n an on - goin g b as is . ‘ Availa bl e s tab le f u nd in g’ is d ef in ed a s th e po r ti on of c api tal an d liab ili ti es ex pe c te d to b e rel iab le over t he t im e h or izon con s ide red by t he N S FR , w hic h ex te n ds to o ne ye ar . Th e am oun t of s u ch s t ab le f un di ng re qu ire d of a s pe ci f ic in s t it u ti on is a func t ion of the liquidit y charac teris tic s and resid ual ma t ur i tie s of t h e var iou s as set s h el d by th a t in s t it u ti on , as well a s th os e of i t s of f-b al an ce -s h ee t (OB S) exp os ure s . Th e calc ul at io ns p res en te d be low ar e ba se d on in te r na l da ta so urces . T a bl e 64: NLB Group NSFR calculation in EUR million NLB NLB Gr oup 31 Dec 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 Numer ator Amount of available stable funding 10,815.8 9,455.7 8,251.6 18,446.7 16,514.6 11,957.9 Denominator Amount of r equired stable funding 6,309.5 5,833.7 5,193.9 9,9 60.8 9,966.8 7,495.5 NSFR 171.4% 162.1% 158.9% 185.2% 165.7% 159.5% 162 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report EV E (Eco nom ic Value o f Equ it y) me th od – E V E me th od i s a me as ur e of s en s it iv it y of ch an ge s in m ar ket in te res t rat es on th e eco n om ic valu e of f in a nc ial in s t r u me nt s . EV E rep res e nt s th e pre s ent va lu e of n et f u t ure ca s h fl ows an d prov id es a com pre he n si ve view o f th e po s si bl e lon g -t er m ef fec t s of ch an gin g in ter es t r at es a t lea s t u nd er t he s ix p re sc r ibe d s tan d ardi s ed in te res t rat e sh oc k s cen ar io s or m ore i f ne ces s ar y, accord ing t o th e s it u at ion o n f in an cia l ma r ket s . Cal culations ta ke i nto acc ount behaviou ral and automatic opt ion s , a s well a s t he a llo ca tio n of n on - m at u r in g dep os it s . The a s s es s m en t of t he i mp ac t of a ch an ge i n in ter es t ra te s of 200 bps o n th e ec on om ic val ue o f th e ba nk in g bo ok p os it ion : T a bl e 65: NLB Group EVE calculation in EUR thousand NLB Gr oup 31 Dec 2021 30 Sep 2021 30 Jun 2021 31 Mar 2021 31 Dec 2020 30 Sep 2020 30 Jun 2020 31 Mar 2020 31 Dec 2019 30 Sep 2019 30 Jun 2019 31 Mar 2019 31 Dec 2018 Numer ator Inter est risk in banking book – EVE -126,651 -135,133 -134,173 -140,567 -128,370 -98,185 -59,547 -68,129 -88,355 -102,319 -77,841 -105,256 -102,397 Denominator Equity (T ier I) 1,972,485 1,903,800 1,879,365 1,734,545 1,765,000 1,622,9 45 1,616,921 1,426,936 1,451,17 6 1,42 4,020 1,425,298 1,460,078 1,458,318 EVE as % of Equity -6.4% -7.1% -7.1% -8.1% -7.3% -6.1% -3.7% -4.8% -6.1% -7.2% -5.5% -7.2% -7.0% Operational busin ess margin (OBM) – Calcul at ed a s th e ra ti o bet wee n op era ti on al b us in es s n et i nc om e an n ual ized an d average asset s . T a bl e 66: NLB Group and NLB OB M calculation in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator Oper ational business net income (i) 67 8.1 490.3 502.1 27 4.3 257.7 268.6 Denominator A ver age total assets (ii) 20,659.0 15,086.2 13,311.7 11,87 6.0 10,336.3 9,215.3 OBM (cumulative) 3.3% 3.2% 3.8% 2.3% 2.5% 2.9% (i) Oper ational business net income is annualized, and calculated as oper ational business income in the period divided b y the number of days in the period and multiplied by the number of days in the year. Oper ational business income consists of net inter est income (e xcluding inter est expenses fr om subor dinated securities), net fees and commissions and net gains and losses fr om financial assets and liabilities held for trading that deriv e from for eign ex change trading. (ii) NLB internal information. A ver age total assets is calculated as a sum of balanc e as at the end of the previous y ear end (31 December) and monthly balances of the last day of each month fr om January to month t divided by (t+1). 163 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Operational busin ess margin (OBM) ( quar ter ly) – Calcul at ed as t he r at io b et ween o pe rat io na l bu si ne s s n et in co me ann u alize d an d aver age a s s et s . T a bl e 67: NLB G roup OBM (quarter ly) calculation (iii) in EUR million NLB Gr oup Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Numer ator Oper ational business net income (i) 718.0 675.1 67 6.3 642.1 499.8 Denominator A ver age total assets (ii) 21,414.5 21,232.1 20,357.0 19,7 49.0 15,378.5 OBM (quarterly) 3.35% 3.18% 3.32% 3.25% 3.25% (i) Oper ational business net income (quarterly) is annualized, and calculated as oper ational business income in the period divided b y the number of days in the quarter and multiplied by the number of days in the y ear. Operational business income c onsists of net interest inc ome (excluding int erest e xpenses from subor dinated securities), net fees and commissions and net gains and losses fr om financial assets and liabilities held for tr ading that derive from f oreign e xchange tr ading. (ii) NLB internal information. A ver age total assets is calculated as a sum of balanc e as at the end of the previous y ear end (31 December) and monthly balances of the last day of each month fr om January to month t divided by (t+1). (iii) Komer cijalna Banka gr oup included fr om 2021 on. Re tu rn o n eq ui t y be fo re tax ( RO E b.t.) – Calc ul at ed a s th e ra ti o bet wee n res u lt b efo re ta x an nu alize d an d aver age t ota l eq uit y (incl uding non - con trolling intere s ts). T a bl e 68: NL B G ro up a n d NLB R O E b.t. c al c ul at i on in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator Result befor e tax (i) 261.4 277.9 215.4 211.5 113.9 177.7 Denominator A ver age total equity (ii) 2,222.8 1,808.1 1,700.7 1,507.2 1,384.6 1,328.7 ROE b.t. 11.8% 15.4% 12.7% 14.0% 8.2% 13.4% (i) The r esult befor e tax is annualized, and calculated as the r esult befor e tax in the period divided by the number of months for the r eporting period and multiplied by 12. (ii) NLB internal information. A ver age total equity (including non-controlling int erests) is calculated as the sum of the balanc e as at end of the pre vious year end (31 December) and monthly balances of the last day of each month fr om January to month t divided by (t+1). 164 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Re tu rn o n eq ui t y a f t er ta x (RO E a .t.) – Calc ul at ed a s th e ra ti o bet wee n res u lt a f ter ta x an n ual ized an d ave rag e eq ui t y. T able 6 9a: NLB G ro u p an d NL B R OE a .t. c al cu la t io n in EUR million NLB Gr oup NLB 2021 2020 2019 2018 2017 2021 2020 2019 Numer ator Result after tax (i) 236.4 269.7 193.6 203.6 225.1 208.4 114.0 17 6.1 Denominator A ver age equity (ii) 2,069.9 1,751.2 1,658.0 1,729.9 1,566.7 1,507.2 1,384.6 1,328.7 ROE a.t. 11.4% 15.4% 11.7% 11.8% 14.4% 13.8% 8.2% 13.3% (i) The r esult after tax is annualized, and calculated as the r esult after tax in the period divided by the number of months for the r eporting period and multiplied by 12. (ii) NLB internal information. A ver age equity is calculated as the sum of the balance as at the end of the pr evious y ear end (31 December) and monthly balances of the last day of each month fr om January to month t divided by (t+1). T able 6 9b: NLB G ro up ( w/ o Kom e rci j al na B a n ka gro u p) RO E a .t. ca lc ul a t io n in EUR million NLB Gr oup (w/o Komer cijalna Banka gr oup) 2020 Numer ator Result after tax (i) 141.3 Denominator A ver age equity (ii) 1,7 41.1 ROE a.t. 8.1% (i)( ii) Please r efer to the notes under T able 69a. T able 6 9c: NLB Group’ s banking subs idiaries ROE a.t. calc ulation in EUR million NLB Banka, Sk opje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, P rishtina NLB Banka, P odgorica NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Numer ator Result after tax (i) 39.0 19.2 18.2 10.1 10.0 5.9 24.4 13.3 10.1 1.4 4.3 2.6 34.8 Denominator A ver age equity (ii) 245.4 219.4 106.7 93.3 93.5 84.3 108.9 92.1 7 6.5 68.2 77.4 7 4.2 630.2 ROE a.t. 15.9% 8.8% 17.0% 10.8% 10.7% 7.0% 22.4% 14.5% 13.1% 2.0% 5.5% 3.5% 5.5% (i)( ii) Please r efer to the notes under T able 69a. 165 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Re tu rn o n as se t s (ROA b.t.) – Calc ul at ed a s th e ra t io be t ween res ul t b efor e tax a nn u alize d an d avera ge to tal a s s et s . T a bl e 70: NL B G ro up a n d NLB R OA b .t. ca lc ul a t io n in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator Result befor e tax (i) 261.4 277.9 215.4 211.5 113.9 177.7 Denominator A ver age total assets (ii) 20,659.0 15,086.2 13,311.7 11,87 6.0 10,336.3 9,215.3 RO A b.t. 1.3% 1.8% 1.6% 1.8% 1.1% 1.9% (i) The r esult befor e tax is annualized, and calculated as the r esult befor e tax in the period divided by the number of months for the r eporting period and multiplied by 12. (ii) NLB internal information. A ver age total assets is calculated as the sum of the balanc e as at the end of the previous y ear end (31 December) and the monthly balances of the last day of each month fr om January to month t divided by (t+1). Re tu rn o n as se t s (ROA a .t.) – Calc ul at ed as t h e ra tio b et wee n result af ter tax annualiz ed and average total asset s. T able 71a: NLB G ro up a n d NLB R OA a .t. c al cu la t io n in EUR million NLB Gr oup NLB 2021 2020 2019 2021 2020 2019 Numer ator Result after tax (i) 236.4 269.7 193.6 208.4 114.0 17 6.1 Denominator A ver age total assets (ii) 20,659.0 15,086.2 13,311.7 11,87 6.0 10,336.3 9,215.3 RO A a.t. 1.1% 1.8% 1.5% 1.8% 1.1% 1.9% (i) The r esult after tax is annualized, and calculated as the r esult after tax in the period divided by the number of months f or the reporting period and multiplied by 12. (ii) NLB internal information. A ver age total assets is calculated as the sum of balanc e as at the end of the previous y ear end (31 December) and monthly balances of the last day of each month fr om January to month t divided by (t+1). T able 71b: NLB Gro up’ s bankin g subsidiarie s ROA a .t. calcula tion in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Numer ator Result after tax (i) 39.0 19.2 18.2 10.1 10.0 5.9 24.4 13.3 10.1 1.4 4.3 2.6 34.8 Denominator A ver age total assets (ii) 1,658.6 1,507.2 87 4.5 784.9 673.5 639.3 906.0 824.9 593.5 541.0 696.3 662.8 4,029.4 RO A a.t. 2.4% 1.3% 2.1% 1.3% 1.5% 0.9% 2.7% 1.6% 1.7% 0.3% 0.6% 0.4% 0.9% (i)( ii) Please r efer to the notes under T able 71a. 166 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T o tal capital ratio (TCR) – T C R is t he ow n f un ds o f th e in s ti t ut io n expr es s ed a s a pe rcen ta ge of t h e tot al r is k exposure amount. T able 72a: NLB Gro up and NLB TCR calculation in EUR million NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 Numer ator T otal capital (Own funds) 2,252.5 2,065.5 1,495.8 1,647.3 1,631.6 1,182.2 Denominator T otal risk exposur e Amount (T otal RW A) 12,667.4 12,421.0 9,185.5 6,708.5 6,028.8 5,225.1 T otal capital r atio 17.8% 16.6% 16.3% 24.6% 27.1% 22.6% T able 72b: NLB Gro up’ s bank ing subsidiarie s T CR calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luk a NLB Banka, Sar ajevo NLB Banka, Prishtina NLB Banka, Podgoric a NLB Banka, Beogr ad Komer cijalna Banka, Beogr ad 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 Numer ator T otal capital 243.6 190.6 77.1 78.4 75.0 7 4.6 112.3 103.2 70.0 52.1 87.7 84.5 555.8 Denominator T otal risk exposur e Amount (T otal RW A) 1,354.4 1,212.5 456.7 452.3 445.0 416.4 647.9 579.7 429.3 321.5 456.3 443.1 1,946.7 T otal capital r atio 18.0% 15.7% 16.9% 17.3% 16.9% 17.9% 17.3% 17.8% 16.3% 16.2% 19.2% 19.1% 28.6% 1 67 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NL B G r oup Char t Companies Companies Financial institutions Financial institutions Slov enia Slov enia Slov enia Slov enia Nov a Ljubljanska banka d.d., Ljubljana CORE MEMBERS NON-CORE MEMBERS Banks F oreign countries F oreign countries F oreign countries NLB Banka, Beogr ad 100% 100% NLB InterFinanz, Zürich in liquidation 100% 100% NLB InterFinanz, Beogr ad in liquidation 100% 100% NLB Leasing, Beogr ad in liquidation 100% 100% LHB A G, Fr ankfur t 100% 100% REAM, Beogr ad 100% 100% REAM, Podgoric a 100% 100% T ara Hotel, Budv a 12.71% 100% SPV 2, Beogr ad 100% 100% NLB Srbija, Beogr ad 100% 100% NLB Crna Gor a, Podgorica 100% 100% NLB Skladi, Ljubljana 100% 100% Bankart, Ljubljana (ii) 45.64% 45.64% NLB Banka, Sar ajev o 97.35% 97.35% NLB Lease&Go, Ljubljana 100% 100% NLB Cultur al Heritage Management Institute 100% 100% NLB Banka, P odgorica (iii) 75.90% 99.87% NLB Banka, P rishtina 82.377% 82.377% NLB Banka, Banja L uka 99.85% 99.85% NLB Banka, Sk opje 86.97% 86.97% Komer cijalna Banka, Beogr ad 88.28% 88.28% NLB Leasing Ljubljana- in liquidation (iv) 100% 100% P rvi faktor, Ljubljana in liquidation 50% 50% PRO-REM, Ljubljana in liquidation 100% 100% S-REAM, Ljubljana 100% 100% ARG-Nepr emičnine, Horjul 75% 75% KomBank In vest, Beogr ad 100% 100% Optima Leasing, Zagr eb in liquidation 100% 100% P rvi faktor, Beograd in liquidation (i) 90% 95% P rvi faktor, Zagreb in liquidation 100% 100% OL Nekr etnine, Zagr eb in liquidation 100% 100% REAM, Zagr eb 100% 100% Subsidiary % direct shar e % indirect shar e at the group le vel Associate % direct shar e % indirect shar e at the group le vel Joint ventur e % direct shar e % indirect shar e at the group le vel Legend: The chart shows v oting rights shares.The Gr oup includes entities accor ding to the definition in the Financial Conglomer ates Act (Article 2). Notes: (i) 90% dir ect ownership Prvi F aktor, Ljubljana in liquidation, 5% NLB, 5% SID bank a d.d. (ii) Abanka mer ged into Nov a KBM, which currently has a 29.22% shar e in Bankart. This is o ver the 25% thr eshhold set in the F ounding agr eement - no shareholder other than NLB can hav e more than 25% c apital share in Bank art. (iii) 75.90% dir ect ownership NLB; 23.97% Komer cijalna Banka, Beogr ad. (iv) 100% dir ect ownership NLB Lease&Go d.o.o., Ljubljana 168 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Understanding of the tasks and r esponsibilities of Global Risk, Compliance and Integrity and Internal Audit is tak en into account in acc ordanc e to the definitions of the (curr ently valid) Banking Act (ZBan-3). (i) W ork er´s Council is independent organisational unit with no subor dinate or superior or ganisational units and it operates in ac cordanc e with ZSDU. Organisa tional St r uc t ur e of N L B SUPERVISOR Y BOARD MANA GEMENT BOARD Internal Audit W orker´s C ouncil (i) Complianc e and Integrity Strategy and Business De velopment Global Risk Credit Risk - C orporate Credit Risk - R etail Ev aluation and Control Restructuring W orkout and Legal support Group R eal Estate Management Sales Dev elopment and Management Contr olling CSA & Cross-bor der Financing Financial Acc ounting and Administration Large Corpor ates Financial Markets Small and Mid Corporates T r ade Finance Services Investment Banking and Custody Priv ate Banking K C 24/7 Area Br anch Ljubljana Area Br anch Northwest and Centr al Slovenia Area Br anch Northeast Slovenia Area Br anch Southeast Slovenia Area Br anch Southwest Slo venia Micro Enterprises Mobile Banking IT Ar chitecture IT Delivery Data Management IT Shar ed Service Centr e NLB Group IT Security Governance IT Infr astructure Pr ocurement Payments P roc essing Cash P roc essing Financial Instruments Pr ocessing Corpor ate Customer Delivery Retail Banking P roc essing Distribution Network CRO CFO CMO COO Group Steering Legal and Secretariat Communic ation Human Resour ces and Or ganization Development W e belie v e y ou deserv e e v ery oppor tunity. First, w e lik ed y our r ésumé. Then, y ou fascinated us with y our enthusiasm. After that, we saw gr eat potential in y ou. No w, we will mak e sur e you utilise it to the fullest. W e believe that a satisfied and efficient employ ee is one who successfully aligns their priv ate and prof essional life, while at the same time pr eserves the feeling that their potential is r ecognised and r espected. With intensive inv estments into the upgr ading of the potential of our employ ees, we have r aised a compan y of enthusiastic experts fr om acr oss the r egion who firmly believe in their w ork and mission. Just like Nino, Ljubic a and Matej fr om our Ljubljana IT office. 170 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report FI NANCIAL R E P O RT 171 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Independen t auditor’s report ............................ 173 Statem ent of managemen t ’s r esp onsibilit y .............. 17 7 Statem ent of comprehensive income for the annual period ended 31 December ................ 179 Statem ent of financial position as at 31 December ........ 180 St at em en t of c ha ng es in e qu it y for the annual period ended 31 December ................ 182 St at em en t of ca s h flows for the annual period ended 31 December ................ 184 Notes to the financial sta temen ts ......................... 186 1. General informa tion ............................... 186 2. Summar y of significant accounting policies ........ 1 86 2.1. Sta te me nt o f com pl ian ce ............................ 186 2.2. B a si s for p res en t in g th e f in an cia l s ta te me nt s . . . . . . . . 186 2.3. Co mp ara t ive am o unt s ............................... 186 2.4. Con so lid at io n ........................................ 1 87 2.5. B us ine s s co mb in at ion s , g oo dw ill , and bargain purchas es .............................. 187 2.6. Inve s t me nt s i n s ubs id iar ie s , ass ociates an d joint ventures ........................ 188 2.7. A co mb in at ion o f en ti t ies o r busines ses under common control .................. 188 2.8. Fore ign c ur re nc y t ra ns l at ion ........................ 188 2.9. In te res t inc om e an d exp en se s ....................... 188 2.10. Fee an d co mm is sio n in com e ........................ 189 2.11. D iv ide nd i nc om e ..................................... 1 89 2.12. Fi na nc ial i ns tr um e nt s ............................... 1 89 2.13. Allowan ces fo r f in an cia l as s et s ...................... 19 2 2.14. For b or n e loa ns ...................................... 194 2.15. Rep os s es sed a s s et s ................................. 195 2.16. Of f se t tin g ............................................ 195 2.17. Sa le an d re pu rch as e ag ree m en t s ................... 195 2 .18 . Prop er t y an d eq uip m en t ............................. 195 2.19. I nt an gib le a s se t s ..................................... 1 95 2.20. Inve s t me nt p rop er t ies ............................... 196 2.21. No n - c ur ren t as set s a nd d is po sa l groups classified as held for sale .................... 196 2.22. A cco unt in g fo r lea s es ................................ 1 96 2.23. Cas h an d cas h e qu ival en t s .......................... 197 2.24. B or rowi ng s , de po si t s , an d i s su ed debt securi ties with charac ter is tic s of debt .......... 197 2.25. Ot he r is s u ed f in an ci al in s t r um e nt s wi th c ha rac ter i s ti c s of e qu it y ........................ 197 2.26. Provi si on s ........................................... 197 2.27. Co nt in gen t li abi lit ie s an d com m it me nt s .............. 197 2.28. T axes ................................................ 197 2.29. Fidu cia r y ac t iv it ie s ................................... 198 2.30. Empl oyee be ne f it s ................................... 198 2.31. Shar e capi ta l ........................................ 198 2.32. Se gm en t rep or t ing .................................. 198 2.33. C ri t ical a cco un ti ng e s ti ma te s an d jud gm en t s in a ppl yi ng a cco un tin g p oli cie s .......... 199 2.34. Impl em en ta ti on of t h e new a nd rev is ed Intern ation al Financial Repor tin g Standards ........ 201 3. C han ge s in t he co mp os it ion o fth eNLB G ro up ..... 203 4. Not es to t h e in com e s ta te me nt .................... 2 04 4.1. In te res t inco m e an d expe n se s ...................... 204 4.2. D iv ide nd i nc om e .................................... 205 4.3. Fee a nd co m mi s si on in co me a nd ex pe ns es ......... 205 4.4. G ain s le s s lo s se s fro m f in an cia l as s et s and liabilities not mea sured at fair value th rou gh p rof it o r lo s s ............................... 2 07 4.5. Gain s l es s l os s es f rom f in an ci al a s se t s and liabilities held for trading ....................... 207 4.6. Gain s le s s lo s se s fro m no n -t ra din g fi na nc ial a s s et s m an da to ri ly a t fai r valu e th rou gh p rof it o r lo s s ............................... 208 4.7. Forei gn exch an ge t ran s la ti on ga in s le s s los ses ..... 208 4.8. O t he r ne t op era ti ng i nc om e ........................ 209 4.9. Admin is tra ti ve expe n se s ............................. 210 4.10. Cas h con t r ibu t ion s to r es ol ut io n fu n ds and deposit gu arantee schem es ...................... 2 11 4.11. D ep rec ia tio n an d am or t is a tio n ....................... 211 4.12. G ai ns l es s l os s es f rom m o dif ic at ion of financ ial ass ets .................................... 212 4.13. Provi si on s ........................................... 2 12 4.14. Im p air m en t ch ar ge .................................. 2 13 4.15. Gai ns l es s l os s es f rom n on - cu rr en t as s et s h el d for s al e .................................. 2 13 4.16. Inco me t ax .......................................... 2 14 4.17. Ear n ing s p er s ha re .................................. 215 C on ten t s 172 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5. No te s to t he s t at em en t of f in an ci al po si ti on ........ 2 15 5.1. Cash , c as h ba la nce s at c en tra l ba nk s , an d oth er d em an d de po si t s at b an k s ................ 215 5.2. F in an ci al in s t r um e nt s h el d for t ra din g .............. 216 5.3. Non - t radi ng f i na nc ial i ns tr um e nt s me as ur ed a t fai r valu e th ro ug h prof i t or l os s ........ 2 17 5.4. Fin an cia l as s et s m e as ur ed a t fair va lu e through other c omprehensiv e income ............... 218 5.5. Der i vat ive s for h ed gin g pu r pos e s ................... 220 5.6. Fin an cia l as s et s m e as ur ed a t am or ti s ed co s t ........ 223 5.7. N on - cur re nt a s s et s h eld f or s ale .................... 2 26 5.8. P rop er t y an d eq uip me nt ............................. 2 26 5.9. Inves t me nt p rop er t y ................................. 2 29 5.10. Intan gi ble a s s et s .................................... 2 30 5.11. Lea se s ............................................... 2 32 5.12. Inves t m en t s in s ub s idia r ies , ass ociates an d joint ventures ........................ 234 5.13. O th er a s s et s ......................................... 24 3 5.14. Movem en t s in a llowan ce for t he i mp air m en t of f i na nc ial a s s et s . . . . . . . . . . . . . . . 244 5.15. F in an cia l lia bil it ies , me as ur ed a t am or t is ed c os t ........................ 255 5.16. Provi si on s ........................................... 258 5.17. Def er re d in com e ta x ................................ 265 5.18. Inc om e ta x rel at in g to co mp on en t s of o ther comp rehensiv e income .................... 2 69 5.19. O th e r liab ili ti es ...................................... 269 5.20. Sh are c api tal ....................................... 2 70 5.21. Acc um ul at ed ot h er com p reh en s ive inc om e an d res e r ves ............................... 270 5.22. Capit al ad eq ua c y ra tio s ............................. 27 1 5.23. O f f-b ala nc e sh ee t lia bil it ies .......................... 273 5.24. F un ds m an a ged o n be ha lf o f th ird p ar t ies ........... 275 6. Ri s k ma nag em en t ................................ 2 76 6.1. Credit r i s k ma na ge me nt ............................. 2 78 6.2. M ar ket r is k .......................................... 297 6.3. L iq uid it y r is k ....................................... 30 4 6.4. M an age m en t of n on - f in an cia l ri s k s .................. 316 6.5. Fair value h ie rarc hy of f in an ci al an d non -f inancial as set s and liabilities ................... 317 6.6. Of f set ting f inancial as set s and fin ancial liabilities ... 328 7. A na lys is by se gm en t fo r NLB G ro up ................ 329 8. Related -par t y transaction s ........................ 333 9. Event s a f t er t he re po r t in g da te .................... 341 173 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Indepen den t audi tor ’s r epor t 1 74 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 175 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 1 76 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 177 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t of m anag emen t ’ s respon sibil it y The M a na gem e nt B oa rd h ere by con f ir ms i t s re sp on s ibi lit y for p rep ar in g th e co ns ol ida te d f in an cia l s ta te me nt s of NLB Gro up a nd t h e f in anc ia l s ta tem e nt s o f NLB fo r th e yea r en din g on 31 D ece mb er 2021, an d fo r th e ac com pa nyi ng ac co unt in g pol ici es an d n ote s to t he f i na nc ial s tat em en t s . The M a na gem e nt B oa rd is r es po ns ib le f or t he p rep ara ti on an d fair p re se nt at ion o f th es e f in an ci al s t at em en t s in acco rda nc e wit h t he I nt er n at ion al F in an ci al Re po r tin g Sta nd ard s as a do pte d by th e Europ ea n Un ion , a nd w it h th e req ui rem en t s of t h e Sl oveni an Com pa ni es Ac t an d th e Ba nk in g Ac t s o a s to gi ve a tr u e an d fai r vi ew of th e f in an ci al pos it io n of NL B Gro up a nd N LB as a t 31 D ece mb er 2021, a nd th eir f i na nc ial r es ul t s an d ca sh f low s for t h e year t he n en de d . The M a na gem e nt B oa rd al so c on f ir ms t h at t h e app rop r ia te acco un ti ng p ol icie s were c on si s t en tl y app lie d, a n d th at the acco unt ing es t ima tes were prepared accord ing to th e pr in ci pl es of p r ud en ce an d g ood m a na gem e nt. Th e Ma na gem e nt B oa rd f ur t he r con f ir m s th a t th e f in an ci al s ta tem e nt s o f NLB G ro up an d NLB , tog eth e r wi th t he acco mp any in g no tes , h a ve bee n pr epa red o n a go ing - con cer n b as is f or NL B Gro up a nd N LB , an d in l in e wi th valid legislation and th e Intern ation al Financial Repor ting Sta nd ard s as a do pte d by th e Europ ea n Un ion . The M a na gem e nt B oa rd is a ls o re sp on s ibl e for a pp ropr i at e acco un ti ng p rac ti ces , t h e ado pt ion o f app rop r ia te m ea s ure s for s af eg uar din g as s et s, a n d th e preve nt ion a nd i de nt if ic at ion of fr au d an d ot he r ir reg ul ar it ie s or i lle gal a c t s . Managemen t Board of NLB Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 178 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Inco m e s tatement for the ann ual peri od ended 31 Decembe r in EUR thousands NLB Gr oup NLB Notes 2021 2020 2021 2020 Inter est income calculated using the effectiv e interest method 467,500 347,636 170,002 167,611 Other inter est and similar income 10,329 7,552 9,183 7,493 Inter est and similar income 4.1. 477,829 355,188 179,185 175,104 Inter est expense s calculat ed using the ef fective inter est method (53,171) (41,208) (25,142) (21,883) Other inter est and similar expenses (15,298) (14,407) (14,904) (14,334) Inter est and similar expenses 4.1. (68,469) (55,615) (40,046) (36,217) Net inter est income 409,360 299,573 139,139 138,887 Dividend income 4.2. 223 111 79,616 6,259 F ee and commission inc ome 4.3. 332,589 232,432 155,217 136,691 F ee and commission e xpenses 4.3. (95,413) (62,152) (35,623) (32,234) Net fee and commission inc ome 237,176 170,280 119,594 104,457 Gains less losses fr om financial assets and liabilities not measured at fair value thr ough pr ofit or loss 4.4. 167 17,689 24 16,970 Gains less losses fr om financial assets and liabilities held for trading 4.5. 21,194 9,794 4,596 4,741 Gains less losses fr om non-trading financial assets mandatorily at fair v alue through pr ofit or loss 4.6. 16,838 6,598 13,492 6,815 F air value adjustments in hedge acc ounting 5.5.a) 167 720 167 720 F or eign ex change translation gains less losses 4.7. 345 739 700 (1,108) Net gains or losses on der ecognition of investments in subsidiaries, associates and joint ventur es 5.12.b) (9,298) (471) - - Gains less losses on der ecognition of non-financial assets 2,681 1,300 53 12 Other net oper ating income 4.8. 23,221 7,549 13,747 5,794 Administr ative e xpenses 4.9. (368,851) (262,226) (166,079) (162,613) Cash contributions to r esolution funds and deposit guar antee schemes 4.10. (35,140) (16,674) (9,535) (7,103) Depr eciation and amortisation 4.11. (46,528) (31,715) (17,522) (17,848) Gains less losses fr om modification of financial assets 4.12. (263) (3,577) - - Pr ovisions for cr edit losses 4.13. 8,504 (482) 8,028 599 Pr ovisions for other liabilities and char ges 4.13. (22,670) (8,077) (72) (7,645) Impairment of financial assets 4.14. 27,331 (61,799) 18,067 (9,633) Impairment of non-financial assets 4.14. (4,407) (996) 7,547 (685) Negative goodwill 5.12.c) - 137,858 - - Shar e of profit fr om investments in associates and joint v entures (ac counted for using the equity method) 5.12.d) 1,108 874 - - Gains less losses fr om non-current assets held for sale 4.15. 248 10,853 (94) 35,234 Pr ofit befor e income tax 261,406 277,921 211,468 113,853 Income tax 4.16. (13,538) (5,165) (3,047) 99 Pr ofit for the year 247,868 272,756 208,421 113,952 Attributable to owners of the par ent 236,404 269,707 208,421 113,952 Attributable to non-contr olling inter ests 11,464 3,049 - - Earnings per shar e/diluted earnings per shar e ( in EUR per share) 4.17. 11.8 13.5 10.4 5.7 The notes are an integral par t of these f inancial s tatem ent s . 179 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Sta tem en t of comprehen siv e income for th e an nual period ended 31 D ecember The notes are an integral par t of these f inancial s tatem ent s . in EUR thousands NLB Gr oup NLB Notes 2021 2020 2021 2020 Net pr ofit for the year after tax 247,868 272,756 208,421 113,952 Other compr ehensive inc ome af ter tax (30,168) (2,147) (15,281) 3,817 Items that will not be r eclassified to income statement Actuarial gains/(losses) on defined benefit pensions plans 5.16.c) (1,377) 878 (115) 700 F air value changes of equity instruments measur ed at fair value thr ough other comprehensiv e income 5.4.c) 3,072 3,809 (383) 202 Shar e of other compr ehensive income/(losses) of entities acc ounted for using the equity method (30) (41) - - Income tax r elating to components of other c omprehensiv e income 5.18. (1) (534) 94 (171) Items that have been or may be r eclassified subsequently to income statement F oreign curr ency tr anslation 611 (703) - - T ranslation gains/(losses) tak en to equity 611 (703) - - Debt instruments measur ed at fair value through other c omprehensiv e income (37,394) 6,555 (17,359) 3,810 V aluation gains/(losses) tak en to equity 5.4.c) (40,081) 7,733 (17,187) 7,522 T ransferr ed to income statement 4.4., 4.14. 2,687 (1,178) (172) (3,712) Shar e of other compr ehensive income/(losses) of entities acc ounted for using the equity method - (11,026) - - Income tax r elating to components of other c omprehensiv e income 5.18. 4,951 (1,085) 2,482 (724) T otal compr ehensive income for the y ear af ter tax 217,700 270,609 193,140 117,769 Attributable to owners of the par ent 207,854 266,907 193,140 117,769 Attributable to non-contr olling inter ests 9,846 3,702 - - 180 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Statement of f inanci al position as at 31 Dec ember The notes are an integral par t of these f inancial s tatem ent s . in EUR thousands NLB Gr oup NLB Notes 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Cash, cash balanc es at centr al banks, and other demand deposits at banks 5.1. 5,005,052 3,961,812 3,250,437 2,261,533 Financial assets held for tr ading 5.2.a) 7,678 84,855 7,682 18,831 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 5.3.a) 21,161 42,393 12,360 35,106 Financial assets measur ed at fair value thr ough other compr ehensive income 5.4. 3,461,860 3,514,290 1,585,751 1,716,351 Financial assets measur ed at amor tised cost - debt securities 5.6.a) 1,717,626 1,503,087 1,436,424 1,277,880 - loans and advanc es to banks 5.6.b) 140,683 197,005 199,287 158,320 - loans and advanc es to customers 5.6.c) 10,587,121 9,619,860 5,145,153 4,564,178 - other financial assets 5.6.d) 122,229 113,138 92,404 54,503 Derivativ es - hedge accounting 5.5.b) 568 - 568 - F air value changes of the hedged items in portfolio hedge of inter est rate risk 5.5.c) 7,082 13,844 7,082 13,844 Investments in subsidiaries 5.12.a) - - 781,540 749,060 Investments in associates and joint v entures 5.12.d) 11,525 7,988 4,483 1,662 T angible assets Pr operty and equipment 5.8. 247,014 249,117 86,122 91,675 Investment pr operty 5.9. 47,624 54,842 9,181 8,300 Intangible assets 5.10. 59,076 61,668 29,453 28,105 Curr ent income tax assets 3,948 4,369 3,761 1,923 Deferr ed income tax assets 5.17. 38,977 31,789 31,902 29,214 Other assets 5.13. 91,221 97,140 11,853 11,664 Non-curr ent assets held for sale 5.7. 7,051 8,658 4,089 4,454 T otal assets 21,577,496 19,565,855 12,699,532 11,026,603 Financial liabilities held for tr ading 5.2.b) 7,585 15,485 7,602 15,500 Financial liabilities measur ed at fair value thr ough profit or loss 5.3.b) - - 352 - Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 5.15.a) 71,828 72,633 109,329 41,635 - borr owings fr om banks and centr al banks 5.15.b) 858,531 158,225 873,479 143,464 - due to customers 5.15.a) 17,640,809 16,397,167 9,659,605 8,850,755 - borr owings fr om other customers 5.15.b) 74,051 91,560 406 13 - subor dinated liabilities 5.15.c) 288,519 288,321 288,519 288,321 - other financial liabilities 5.15.d) 206,878 182,095 102,527 88,969 Derivativ es - hedge accounting 5.5.b) 35,377 61,161 35,377 61,161 Pr ovisions 5.16. 119,404 125,059 49,363 63,790 Curr ent income tax liabilities 5,878 1,002 - - Deferr ed income tax liabilities 5.17. 3,045 4,475 - - Other liabilities 5.19. 49,468 45,632 21,039 22,001 T otal liabilities 19,361,373 17,442,815 11,147,598 9,575,609 Equity and r eserves attributable to owners of the par ent Shar e capital 5.20. 200,000 200,000 200,000 200,000 Shar e premium 5.21.a) 871,378 871,378 871,378 871,378 Accumulat ed other comprehensiv e income 5.21.b) (10,552) 21,127 8,768 24,102 Pr ofit r eserves 5.21.a) 13,522 13,522 13,522 13,522 Retained earnings 1,004,385 846,762 458,266 341,992 2,078,733 1,952,789 1,551,934 1,450,994 Non-contr olling inter ests 137,390 170,251 - - T otal equity 2,216,123 2,123,040 1,551,934 1,450,994 T otal liabilities and equity 21,577,496 19,565,855 12,699,532 11,026,603 181 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The M a na gem e nt B oa rd h as a ut h or i se d for i s s ue t he f i na nc ial s tat em en t s an d th e a ccom p anyi ng n ot es . Lju bl jan a , 11 Ap ri l 2022 Archibald Kremser CFO Andreas Burkh ardt CRO Blaž Brodnjak CEO & CMO 182 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Statement of changes in equit y for the annual period e n ded 31 Dec ember in EUR thousands Ac cumulated other comprehensiv e income NLB Gr oup Shar e capital Shar e pr emium F air value r eserve of financial assets measur ed at FV OCI F oreign curr ency tr anslation r eserve Other Pr ofit r eserves Retained earnings Equity attributable to owners of the par ent Equity attributable to non-contr olling inter ests T otal equity Notes 5.20. 5.21.a) 5.21.b) 5.21.b) 5.21.b) 5.21.a) Balance as at 1 January 2021 200,000 871,378 42,496 (17,724) (3,645) 13,522 846,762 1,952,789 170,251 2,123,040 - Net pr ofit for the year - - - - - - 236,404 236,404 11,464 247,868 - Other compr ehensive inc ome - - (28,005) 540 (1,085) - - (28,550) (1,618) (30,168) T otal compr ehensive inc ome af ter tax - - (28,005) 540 (1,085) - 236,404 207,854 9,846 217,700 Dividends paid - - - - - - (92,200) (92,200) (7,710) (99,910) T ransactions with non-contr olling inter ests (note 3.) - - 149 - - - 10,168 10,317 (34,997) (24,680) T ransfer of fair v alues reserv e - - (3,274) - (4) - 3,278 - - - Other - - - - - - (27) (27) - (27) Balance as at 31 Dec ember 2021 200,000 871,378 11,366 (17,184) (4,734) 13,522 1,004,385 2,078,733 137,390 2,216,123 in EUR thousands Ac cumulated other comprehensiv e income NLB Gr oup Shar e capital Shar e pr emium F air value r eserve of financial assets measur ed at FV OCI F oreign curr ency tr anslation r eserve Other Pr ofit r eserves Retained earnings Equity attributable to owners of the par ent Equity attributable to non-contr olling inter ests T otal equity Notes 5.20. 5.21.a) 5.21.b) 5.21.b) 5.21.b) 5.21.a) Balance as at 1 January 2020 200,000 871,378 47,880 (17,055) (4,332) 13,522 574,489 1,685,882 45,015 1,730,897 - Net pr ofit for the year - - - - - - 269,707 269,707 3,049 272,756 - Other compr ehensive inc ome - - (2,833) (669) 702 - - (2,800) 653 (2,147) T otal compr ehensive inc ome af ter tax - - (2,833) (669) 702 - 269,707 266,907 3,702 270,609 Acquisition of subsidiaries - - - - - - - - 121,534 121,534 T ransfer of fair v alues reserv e - - (2,551) - (15) - 2,566 - - - Balance as at 31 Dec ember 2020 200,000 871,378 42,496 (17,724) (3,645) 13,522 846,762 1,952,789 170,251 2,123,040 183 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The notes are an integral par t of these f inancial s tatem ent s . in EUR thousands Ac cumulated other comprehensiv e income NLB Shar e capital Shar e pr emium F air value r eserve of financial assets measur ed at FVOCI Other Pr ofit r eserves Retained earnings T otal equity Notes 5.20. 5.21.a) 5.21.b) 5.21.b) 5.21.a) 5.20. Balance as at 1 January 2021 200,000 871,378 27,694 (3,592) 13,522 341,992 1,450,994 - Net pr ofit for the year - - - - - 208,421 208,421 - Other compr ehensive inc ome - - (15,177) (104) - - (15,281) T otal compr ehensive inc ome af ter tax - - (15,177) (104) - 208,421 193,140 Dividends paid - - - - - (92,200) (92,200) T ransfer of fair v alues reserv e - - (53) - - 53 - Balance as at 31 Dec ember 2021 200,000 871,378 12,464 (3,696) 13,522 458,266 1,551,934 in EUR thousands Ac cumulated other comprehensiv e income NLB Shar e capital Shar e pr emium F air value r eserve of financial assets measur ed at FVOCI Other Pr ofit r eserves Retained earnings T otal equity Notes 5.20. 5.21.a) 5.21.b) 5.21.b) 5.21.a) 5.20. Balance as at 1 January 2020 200,000 871,378 24,444 (4,159) 13,522 228,040 1,333,225 - Net pr ofit for the year - - - - - 113,952 113,952 - Other compr ehensive inc ome - - 3,250 567 - - 3,817 T otal compr ehensive inc ome af ter tax - - 3,250 567 - 113,952 117,769 Balance as at 31 Dec ember 2020 200,000 871,378 27,694 (3,592) 13,522 341,992 1,450,994 184 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Statement of cash flo ws fo r th e annual period e nded 31 December in EUR thousands NLB Gr oup NLB Notes 2021 2020 2021 2020 CASH FLO WS FRO M OPERA TING ACTIVITIES Inter est rec eived 541,219 372,903 214,866 207,188 Inter est paid (69,578) (52,921) (43,343) (31,881) Dividends r eceived 635 787 56,606 6,261 F ee and commission r eceipts 332,575 232,607 152,288 133,743 F ee and commission payments (92,102) (65,728) (33,927) (32,972) Realised gains fr om financial assets and financial liabilities not at fair value thr ough pr ofit or loss 171 17,993 24 17,274 Net gains/(losses) fr om financial assets and liabilities held for trading 21,563 10,919 5,404 5,634 P ayments to employees and suppliers (382,529) (260,259) (170,986) (164,558) Other r eceipts 27,516 13,642 17,723 8,627 Other payments (51,129) (20,629) (16,026) (9,490) Income tax (paid)/r eceiv ed (8,617) (6,645) (1,603) 3,779 Cash flow s from oper ating activities before changes in oper ating assets and liabilities 319,724 242,669 181,026 143,605 (Incr eases)/decreases in oper ating assets (964,998) (366,831) (469,788) (105,859) Net ( incr ease)/decrease in tr ading assets 68,965 1,838 2,471 1,838 Net ( incr ease)/decrease in non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss 36,500 (12,667) 35,792 (12,564) Net ( incr ease)/decrease in financial assets measur ed at fair value thr ough other compr ehensive income (57,015) (150,006) 90,215 (77,098) Net ( incr ease)/decrease in loans and r eceiv ables measured at amortised cost (1,020,944) (207,260) (598,138) (18,357) Net ( incr ease)/decrease in other assets 7,496 1,264 (128) 322 Incr eases/(decreases) in oper ating liabilities 2,108,374 1,338,778 1,589,861 1,043,991 Net incr ease/(decrease) in deposits and borr owings measur ed at amortised cost 2,106,985 1,338,591 1,589,415 1,044,255 Net incr ease/(decrease) in other liabilities 1,389 187 446 (264) Net cash flo ws from oper ating activities 1,463,100 1,214,616 1,301,099 1,081,737 CASH FLO WS FRO M INVESTING ACTIVITIES Rec eipts from inv esting activities 495,174 478,251 478,851 402,729 Pr oceeds fr om sale of pr operty, equipment, and investment pr operty 5,077 5,341 12 2,258 Pr oceeds fr om sale of subsidiaries, net of cash and c ash equivalents 5.12.b) (47,832) - 15,310 - Pr oceeds fr om non-curr ent assets held for sale 966 39,078 791 39,078 Pr oceeds fr om disposals of debt securities measur ed at amor tised cost 536,963 433,832 462,738 361,393 Payments fr om inv esting activities (832,512) 108,232 (697,976) (602,939) Pur chase of pr operty, equipment, and investment pr oper ty (23,013) (27,626) (9,093) (15,089) Pur chase of intangible assets (12,704) (15,020) (6,889) (10,663) Pur chase of subsidiaries, net of cash acquir ed and incr ease in subsidiaries’ equity 3., 5.12.c) (24,437) 452,770 (40,046) (397,729) Incr ease in associates and joint ventur es’ equity (2,900) (326) (2,900) (326) Pur chase of debt securities measur ed at amor tised cost (769,458) (301,566) (639,048) (179,132) Net cash flo ws from in vesting activities (337,338) 586,483 (219,125) (200,210) CASH FLO WS FRO M FINANCING ACTIVITIES Pr oceeds fr om financing activities - 119,222 - 119,222 Issuance of subor dinated debt 5.15.c) - 119,222 - 119,222 Payments fr om financing activities (100,503) (45,000) (92,200) (45,000) Dividends paid (100,503) - (92,200) - Repayments of subor dinated debt 5.15.c) - (45,000) - (45,000) Net cash flo ws from financing activities (100,503) 74,222 (92,200) 74,222 Effects of ex change rat e changes on cash and cash equivalents 14,640 (2,176) 3,219 (2,080) Net incr ease/(decrease) in c ash and cash equivalents 1,025,259 1,875,321 989,774 955,749 Cash and c ash equivalents at beginning of year 4,136,412 2,263,267 2,261,791 1,308,122 Cash and c ash equivalents at end of year 5,176,311 4,136,412 3,254,784 2,261,791 The notes are an integral par t of these f inancial s tatem ent s . 185 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup NLB Notes 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Cash and c ash equivalents comprise: Cash, cash balanc es at centr al banks, and other demand deposits at banks 5.1. 5,005,946 3,962,686 3,250,784 2,261,791 Loans and advanc es to banks with original maturity up to thr ee months 142,319 146,223 4,000 - Debt securities measur ed at fair value thr ough other compr ehensive income with original maturity up to thr ee months 28,046 27,503 - - T otal 5,176,311 4,136,412 3,254,784 2,261,791 186 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Notes to the financi al s ta tem en t s 1. General infor ma tion Nova Ljub ljanska banka d.d. Ljubljana (hereina f ter : ‘ NLB’ or ‘ th e B ank ’) i s a Sl oveni an jo in t-s to ck e nt it y pr ovid ing uni ver s al ba nk in g s er vic es . N LB G rou p con s is t s o f NLB a nd its s ubsidiar ies located in nine countr ies , mainly in Slovenia an d th e SEE m ar ket. In for m a tio n on N LB Gr ou p’s str uc t u re is di s clo se d in n ote 5.12. I nfo r ma t ion o n ot he r rel at ed p ar t y rel at ion s hi ps of N LB G rou p is p rovid ed i n no te 8. NLB is i nc or po ra ted a nd d om ici le d in S loven ia . Th e add res s of it s r egi s t ere d of fi ce is T rg R ep ub like 2, 1000 Lj ub lja na . NLB ’s sh ar es are l is ted o n th e Lj ub ljan a S toc k E xch an ge, a nd t h e global depositar y receipts (‘GDR ’ ), representin g ordinar y sh ar es of N LB , are l is ted o n th e Lon do n Sto ck E xc ha ng e. Fi ve GD Rs r epr es en t on e s ha re of NL B . A s at 31 D ec em be r 2021 an d as a t 31 De cem b er 2020, t he lar ges t sh are ho ld er of N LB wi t h sig ni f ican t in fl u en ce is t h e Rep ub lic o f Sl oveni a, ow nin g 25.00% p lu s on e sh a re. All a mo un t s in t h e fi na nc ial s tat em en t s an d in t h e not es t o th e f in an cia l s ta te me nt s a re exp res s e d in th o us an ds o f eu ros unles s other w ise s tated. 2. Sum mar y of signi ficant account ing polic ies The p r in cip al a cco un tin g p oli cie s ado pt ed fo r th e pr epa ra tio n of th e s ep ara te an d co n so lid at ed f in an ci al s t at em en t s are s et ou t be low. The po lic ie s ha ve be en co ns is ten tl y ap pli ed to a ll th e year s p res en te d , except fo r ch an ge s in ac cou nt in g po lic ies res ul t ing f ro m th e ap pli cat io n of n ew s tan d ard s or c ha ng es to st andards . 2.1. Stat ement of compliance The p r in cip al a cco un tin g p oli cie s app lie d in t h e pre par at ion of th e s ep ara te an d co n so lid at ed f in an ci al s t at em en t s were pre par ed in a cco rdan ce w it h t he In te r na t ion al F in an cia l Acco un ti ng S tan da rds ( h ere in af ter : ‘ t h e IFR S ’) a s ad opt ed by th e Europ ea n Un ion ( he rei na f ter : ‘EU ’ ). A ddi ti on al requi rements under the national legislation a re include d where appropriate. The separate and cons olidate d financ ial stat ement s are com pr i se d of t he i nco m e s ta te me nt a nd s tat em en t of com pre he n si ve inc om e, t he s tat em en t of f in an ci al po si t ion , t he s ta tem e nt o f ch an ges i n eq ui t y , t he s tat em en t of ca s h fl ows , sig ni f ican t ac cou nt in g po lic ies , and t h e no tes . 2.2. Bas is for presen ting t he fin ancial s ta tem ent s The f i na nc ial s tat em en t s h ave be en p rep are d on a g oin g - con cer n b as is , und er t h e hi s tor i cal co s t co nvent io n as mo dif i ed by t he reval u at ion o f f in an cia l as s et s m e as ure d a t fair va lu e th ro ugh ot h er co mp reh en s ive in co me , f in an cia l ass et s, an d financ ial liabilities at fair v al ue through profi t or los s , i nc l udi ng al l der i vat ive co nt rac t s , h ed ged i te ms i n fai r va lue hedge accounting relationships, non -current assets he ld fo r sa le, a nd i nves t me nt p rop er t y. The p re par at ion o f f in an cia l s ta te me nt s i n acc ord an ce wi th th e IFR S re qu ires t h e us e of e s t im at es an d a s s um pt ion s t ha t af fec t th e rep or t ed am o un t s of a s se t s an d lia bil it ies , th e dis c los ur e of co nt in ge nt a s se t s an d lia bil it ie s on t he d at e of th e f in an ci al s t at em en t s , an d t he re po r ted a mo un t s of reven ue an d exp en s es d ur in g th e re po r tin g pe r iod . A lt h ou gh th es e es tim a tes a re ba s ed o n ma na gem e nt ’s bes t kn owle dg e of cu r ren t even t s an d ac tiv it ie s , ac t ual re s ul t s m ay ul t im at ely differ fr om those estimates. A ccounting es timates a nd un der l yin g a s su mp ti on s are r eviewed o n an o ng oin g ba s is . Revi s ion s of a cco un ti ng e s ti ma te s are r eco gn is ed i n th e per i od in w hi ch t he e s t im at e is rev is ed . Cr i tic al acc ou nt in g es t im at es a nd j ud gem e nt s i n app ly in g acco un ti ng p ol icie s are dis c los ed i n no te 2.33. Thi s do cu me nt c on tai ns b ot h th e s epa ra te f in an ci al sta tement s of NLB, and the consolida ted finan cial statem ent s of NLB G ro up. T he p res en te d acc ou nt in g po lic ies a pp ly to bot h s et s o f fi na nc ial s tat em en t s , w it h th e excep tio n of pol ici es d es cr ib ed in n ot es 2.4. a nd 2.5. , wh ich o nl y ap pl y to th e con s ol ida te d f in an cia l s ta te me nt s a nd p ol ici es de sc r ib ed in no te 2.6., w h ere d if fere nc es in t h e acco un ti ng t re at m en t for investm ent s in subsidiar ies, an d ass ociated and joint ventures bet ween separate and consolida ted financial s tatem ent s are des cr i be d. D a ta re la tin g to s ep ara te f i na nc ial s tat em en t s is ma rke d ‘N LB ,’ whil e da ta re la ti ng to c on s oli da ted f i na nc ial s ta tem e nt s i s m ar ked ‘ NLB G ro up.’ 2.3. Comparative amount s Exce pt w he n a s ta nd ard o r an in te r pret at io n pe rm i t s or req uir es ot h er wi se , all am o un t s are r epo r te d or di sc lo se d wi th co mp ara t ive am o unt s . Wh ere I A S 8 app lie s , co mp ara t ive fi gu res h ave b ee n adj u s te d to co nfo r m to th e c ha ng es in pre se nt at ion i n th e c ur ren t yea r . Comp ar ed to t h e pre se nt at ion o f th e f in an ci al s t at em en t s for th e year e n ded 31 D ec em be r 2020, th e cl as s i fi cat io n of ce r tain lin e it em s in t he S ta tem e nt o f Fin an ci al Po si ti on c ha ng ed d ue to ch an ge s pre sc r ib ed by th e B an k of S loven ia . Ad di tio na lly, th ere wa s a ch an ge i n th e lin e i tem ‘ In te res t and s im il ar expe ns e s’ in t he I nco m e s ta te me nt, wh er e t wo line s were added with more det ailed presentation of interest expenses. Comp ar at ive am o un t s ha ve be en ad ju s t ed to r efl ec t th es e changes in the presentation. in EUR thousands 31 Dec 2020 NLB Gr oup NLB Notes Old pr esentation Curr ent pr esentation Change Old pr esentation Curr ent pr esentation Change Statement of financial position: Other financial liabilites 5.15.d) Accrued salaries 19,068 - (19,068) 9,807 - (9,807) Unused annual leave 6,137 - (6,137) 2,497 - (2,497) Other liabilities 5.19. Accrued salaries - 19,068 19,068 - 9,807 9,807 Unused annual leave - 6,137 6,137 - 2,497 2,497 Income statement: Inter est expenses calculat ed using the effective inter est method - (41,208) (41,208) - (21,883) (21,883) Other inter est and similar expenses - (14,407) (14,407) - (14,334) (14,334) Inter est and similar expenses 4.1. (55,615) (55,615) - (36,217) (36,217) - 1 87 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ‘ Acc r ue d sa lar i es’ a nd ‘ U n us ed a nn u al le ave’ are i nc lu de d un der t h e lin e it em ‘O t h er li abi lit ie s’; befo re ch an gi ng t he cla s s if ica t ion , t h es e lin e it em s were i nc lu de d un de r th e lin e item ‘Oth er finan cial liabilities . ’ ‘I nt ere s t exp en se s cal cu la te d us in g th e ef fec ti ve in tere s t me th od ’ an d ‘O t h er in te res t and s im il ar exp en s es’ wer e no t dis c los ed s ep ara te ly b efo re t he c ha ng e, t hey wer e sh own un der t h e lin e it em ‘ In te res t a nd s im il ar exp en s es .’ 2.4. C on solidation In th e co ns ol id ate d f in an ci al s ta te m en t s (NLB G rou p), su bs idi ar ie s wh ich a re di rec tl y or in di rec tl y con tr oll ed by NLB have been fully conso lidated. S ubsidiar ies are consolidated fro m th e da te o n wh ich e f f ec tive c on tro l is t ran s fe r red t o NLB Gro up . NLB co nt rol s an en t it y wh en a ll t hre e el em en t s of co nt ro l are me t : • i t h as p ower over th e en t it y ; • i t is ex pos e d or h as r ig ht s t o var iab le re t ur n s fro m it s invol veme nt w it h t he e nt it y ; an d • i t h as t he a bil it y to us e i t s power over t h e en ti t y to af fec t th e am oun t of t h e en ti t y’s ret u r ns . NLB re as s es s es w h et he r it co nt ro ls an e nt it y if f ac ts a n d circ um s t an ces i nd ica te t he re are c h ang es t o on e or m ore of th e t hr ee el em en t s of c on tro l. I f t he l os s of c on tro l of a subs idiar y occur s , the subs idiar y is no lon ger consolida ted fro m th e da te t h at t he c on tro l cea s es . Where neces sar y , the accoun ting policies of subsidiar ies ha ve be en am en de d to e ns u re con s is ten c y wi th t h e po lic ies ado pte d by NLB . T he f i na nc ial s tat em en t s of co n so lid at ed su bs idi ar ie s are p rep are d as a t t he p are nt e nt it y ’s repo r ti ng da te. N on - c on tro lli ng in te res t s are di s clo se d in t h e con s oli da ted s tat em en t of c ha ng es in e q uit y. Non - co nt rol lin g int ere s t i s th a t par t o f th e n et re su lt s , and o f th e e qui t y of a su bs idi ar y, at t r ibu ta bl e to in te res t s whi ch NLB d oe s no t own , ei th er d ire c t ly o r in dire c t ly. NLB Gr ou p me as u res non- contr olling i nterest on a transaction-by-tra ns action ba si s , ei th er a t fa ir val ue, o r by th e no n - co nt ro llin g in te res t ’s prop or t ion a te s h are of n et a s s et s o f th e acq ui ree . Inter -com pany transac tions , balances , and unrealis ed gains on t ran sa c t io ns b et wee n NLB G rou p en ti ti es a re eli mi na te d . Un rea lis e d los s es a re al so e lim in a ted u nl es s t h e tra ns a c t ion provi de s evid en ce of i mp air m en t of t h e as s et t ran s fe r red . NLB Group tr eat s tra n sactions with non -controlli ng inter es ts as t ran s ac t io ns w it h e qui t y own er s of N LB Gr ou p. For purchas es of subsidiar ies from non - controlling interes t s , the dif fer en ce be t ween any c on si der at io n pai d an d th e re levan t sh ar e acq uir ed of t h e car r yi ng val ue o f ne t as s et s o f th e su bs idi ar y is d ed uc ted f rom t h e eq ui t y. For sal es to n on - con tro lli ng i nt ere s t s , t he d if fere nc es b et ween a ny pro cee ds rece ived a nd t h e rel evant s h are o f no n - co nt ro llin g in te res ts are al so r eco rde d in t he e q uit y. All ef fec ts a re pr es en te d in th e lin e it em ‘ Equi t y At tr ib ut ab le to N on - c on tro lli ng In te res t. ’ 2.5. B usin ess com bina tions , goo dwill, and bargain purcha ses NLB G rou p acc oun t s fo r bu s in es s co mb in at io ns u s ing t h e acq ui si ti on m et ho d wh en t h e acq uir ed s et o f ac t i vit ie s an d as s et s m ee t s th e d ef in it ion o f a bu s ine s s an d co nt rol i s tra ns fer red t o th e G rou p. In d et er mi nin g w he th er a p ar t icu lar se t of ac ti vi ti es an d as set s i s a b us in es s , t h e Gr oup a s s es s es wh et he r th e s et of a s s et s an d ac ti vi ti es ac qu ire d in cl ud es , a t a min im um , a n in pu t an d s ub s ta nt ive pr oce s s an d wh et h er t he acq uir ed s et h as t h e abil it y to p rod uce o u tp u t s . Th e acq ui red pro ces s i s con s id ere d su bs tan ti ve if it i s cr i ti cal to t h e abi lit y to continue produci ng outputs; and the input s ac quired include an org an is ed wo rk force w it h t he n ec es s ar y s kil ls , k n owle dg e, or exp er ie nc e to pe r for m th a t pro ces s or it s ign if i can tl y contribute s to the ability to c ontinue pr oducing outputs and is co ns id ere d un iq ue or s ca rce or c an not b e re pla ce d wi th ou t sig ni f ican t co s t, ef for t, or de la y in t he ab ili t y to con t in ue produ cing outputs . The c on s ide rat io n tr an s fer re d is m e as ur ed a t th e fa ir val ue of th e a s se t s tr an s fer r ed , eq ui t y i nt ere s t is su ed , lia bil it ies inc ur r ed or a s s um ed , in cl u din g th e fa ir val ue of a s s et s o r liabilities from contingen t considerat ion arrangem ent s and fair value of any pre - exist ing equit y interest in subs idiar y. However , th is excl ud es a mo un t s re la ted t o th e s et tl em en t of pre - exis tin g re la tio n sh ip s wh ich a re re cog ni se d in pr of it or lo s s . Acq ui si t ion - re la te d cos t s su ch a s adv is or y, lega l, valu at io n, a n d si mil ar p rofe s s ion al s er vi ces a re re cog ni se d in pro f it or l os s a s well . T ran s ac tio n cos ts i nc ur re d for i s s ui ng eq uit y in s t r um e nt s a re de du c t ed f rom t he e qu it y, and all oth er t ra ns ac tio n cos t s as s oc ia ted w it h t he a cq uis i tio n are expensed. Identif iable as set s acquired and liabilities as sum ed in a bu si ne s s com bi na t ion a re, w it h lim it ed excep ti on s , m ea su red initia lly at the ir fair value s at the a cquisition date. A con ti ng en t con s ide ra tio n cl as s if i ed a s eq ui t y i s n ot re - me as ur ed an d i t s s ubs e qu en t se t t l em en t is a cco unt ed f or wi th in eq ui t y . A co nt in ge nt c on si der at io n cla s s if ie d as a n as s et or li abil it y th a t is a f in a nc ial in s t r u me nt a nd w it h in th e s cop e of IFR S 9 Fin a nc ial In s t r u me nt s , is m ea su red a t fa ir val ue a t ea ch rep or ti ng d at e an d ch an ge s in fa ir val ue ar e reco gn is ed i n th e s ta tem e nt o f prof i t or l os s in a cco rdan ce w it h IFR S 9. O t he r con ti ng en t con s ide ra tio n s th at a re n ot wi t hin t h e sc ope o f IFR S 9 are m ea s ure d at f air va lu e at e ach r epo r ti ng d at e an d ch an ges i n fai r valu e are r eco gn is ed in p rof i t or l os s . For eac h bu s ine s s co mb in at ion , N LB G rou p ele c t s whe th er t o me as ur e th e n on - c on tro lli ng i nte res t s in t he a cqu ire e at f air valu e or a t th e pr es en t own er s hi p in s t r um en t s’ pr opo r ti on at e sh ar e in th e re cog ni se d am o unt s of th e ac qui ree’s ide nt if i abl e ne t as s et s a t th e d at e of acq ui s it ion . A ll ot h er co mp on en t s of n on - c on tro lli ng in te res t s are m ea s ure d at t h eir acqui s ition-date fa ir va lues , unle s s anothe r measurement ba si s is r eq uire d by IFR Ss . Go od wi ll is m e as ure d as t h e exces s of t h e agg reg at e of t he con s ide rat io n tr an s fer re d m ea s ure d at fa ir val ue, t h e am ou nt of any n on - con tro lli ng i nte res t in th e ac qu ire e, an d th e fa ir valu e of an i nt ere s t in t h e acq uir ee h eld i mm e dia te ly b efo re th e acq ui si t ion d at e over th e n et am o un t s of t he i den t if ia ble as s et s a cqu ire d, a s well a s t he l iabi li tie s as s u me d . Any ne ga ti ve am oun t, a ga in on a b arg ain p urc h as e (or ‘neg at i ve goo dw ill ’ ), i s rec ogn is ed i n pro f it or l os s a f ter m an ag em en t rea s se s s es w he th er i t ha s id en ti f ied a ll t he a s s et s ac qui red and all the liabilities and contin gent liabilities as sum ed, and reviews the appropriatenes s of their mea surem ent. Go od wi ll is t es t ed an n ua lly f or im pa ir m en t. For th e pu rp os e of im pa ir m en t tes tin g , goo dw ill a r is in g fro m a bu s in es s com bin a ti on is , from t h e acq ui si t ion d at e, all oca te d to t he Gro up’s cas h - g en era ti ng u ni t s (CGUs) or g rou ps of CG Us t h at are exp ec ted t o be ne fi t f rom t he s y ne rgi es of t h e com bi na t ion . Wh ere g oo dw ill h as b ee n all oca te d to a ca s h - ge n era ti ng u ni t (CGU) an d pa r t of t he o per at io n wi th in t ha t un it i s di sp os ed of, th e go od wil l as s oc ia te d wi th t he d is p os ed op er at ion is in cl u ded i n th e ca rr y ing a mo un t of t h e op era ti on w he n det er mi ni ng t he g ain o r lo s s on di s pos al . G oo dw ill d is po se d in th es e c irc um s ta nce s is m e as ur ed b as ed o n th e re la ti ve valu es of t h e di sp os ed o pe rat io n an d th e po r ti on of t h e cas h - generating unit retained . The g oo dw ill o f as s oc ia te s an d join t ven t ure s is i nc lu de d in t he car r yin g val ue o f inves t m en t s . 188 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report In a bu s in es s co mb in at io n ach ieved i n s ta ge s , NLB G ro up rem ea s ure s it s p revi ou sl y h eld e qu it y in te res t i n th e ac qu ire e at i t s acq ui si ti on - dat e fai r valu e an d re cog ni se s th e re su lt in g gai n or lo s s , if a ny , i n pro fi t or l os s . 2.6. Investme nt s in s ubsidia ries , ass ociat es and join t ventures In th e s ep ara te f in an ci al s t at em en t s (NLB) , inves t m en t s in subs idiaries , as socia tes and joint ventures are accounted for w it h th e co s t m et ho d. D iv id en ds f rom s u bs idi ar ies , join t ven t ure s , or a s s oci at es ar e rec ogn is e d in th e in co me s ta tem e nt w he n NLB ’s ri gh t to re ceive t h e div id en d ha s be en established . In th e co ns ol id ate d f in an ci al s ta te m en t s , inves tm en t s in as s oc ia tes , are acc ou nt ed fo r us in g th e eq ui t y me th od o f acco un ti ng . Th es e ar e gen er all y un der t ak ing s in w hi ch NL B Gro up h ol ds b et wee n 20% an d 50% of t he vot in g r igh t s , an d over wh ich N LB Gr ou p exerci se s si gn if ica nt i nf lu en ce, b ut d oe s not h a ve con tro l . Joint ventur es ar e entities over whose activities NLB Gr oup has joint contr ol, established by c ontractual agr eement. In the consolidated financial stat ements, investments in joint ventur es ar e account ed for using the equity method of accounting. NLB G rou p’s sha re of i t s as s oc ia te s’ an d joi nt ven t ur es’ p os t- acq ui si ti on pr of it s o r los ses i s re cog ni se d in t he c on so lid at ed inc om e s ta te m en t, and i t s s ha re of ot h er co mp reh en s ive inc om e is r eco gn is ed in o th er c om pre he ns i ve inc om e. Th e cum u la ti ve pos t- acq ui si ti on m oveme nt s a re ad ju s t ed ag ain s t th e car r yi ng a mo un t of t he i nves t m en t. Wh en NL B Gro up’s sh ar e of lo s se s in an a s s oci at e an d joi nt ve nt ur e eq ual s or excee ds i t s in ter es t i n th e as s o cia te a nd j oin t ven t ure, inc l udi ng an y oth er u n se cu red r ecei vab les , NLB Gr ou p doe s not r eco gn is e f ur t he r los s es u nl es s i t h as in c ur re d obl iga t ion s or m ad e pa ym en t s on b eh al f of t he a s s oci at e an d joi nt vent u re. NL B Gro up r es um es r eco gn is in g it s s h are o f th os e prof i t s on ly a f ter i t s s ha re of t he p rof i t s eq ua ls t he s h are o f los s es n ot r eco gn is ed (not e 5.12.d) . NLB Group’ s subs idiaries , as socia tes and joint ventures are pre se nt ed in n ot e 5.12. 2.7. A combina tion of en tities o r busi ness es under common control A me rge r of en t it ies w i th in NLB G ro up i s a bu s in es s combi nation in volving entities u nder common control. For su ch m er ger s , m e mb er s of N LB G rou p app ly m er ge r acco un ti ng p r in cip le s , an d us e t he ca r r yin g am ou nt s o f me rge d en ti ti es a s rep or te d in t he c on so li da ted f i na nc ial s ta tem e nt s . No go od wil l is re cog ni s ed on m er ge r s of NLB Group entities. Me rge r s of en t it ies w it h in NLB G ro up do n ot a f fec t th e consolidated f inancial s tatemen ts . 2.8. Forei gn cur rency transla tion Functional and presentation currenc y Ite m s in cl ud ed in t h e fi na nc ial s tat em en t s of e ac h of NLB Gro up’s ent it ie s are m e as ure d us in g t he c ur re nc y of th e pr im ar y ec on om ic env iro nm en t in w hi ch t he e nt it y op era te s (i .e. , th e f un c t ion al c ur r en c y). Th e f in an cia l s ta te me nt s a re pre se nt ed in e uro s , wh ic h is NL B Gro up’s pre se nt at ion currency . T ransactions and balances Foreign c ur re n c y tr an sa c t ion s ar e tra ns l at ed in to t h e fu nc ti on al c ur ren c y a t th e exch an ge ra te s preva ilin g a t th e da tes o f th e t ran s ac t io ns . Foreign exch an g e gai ns a nd l os s es res ul t ing f ro m th e s et tl em en t of s uc h tr an sa c t ion s , a nd f rom th e tr an sl at io n of m on et ar y as s et s a nd l iab ili ti es de no mi na te d in for eign c ur r en cie s , are r eco gn is ed in t h e in com e s t at em en t, except w he n def er re d in ot he r com pr eh en si ve in com e a s qu ali f y in g cas h f low h ed ges . T ran sl at io n dif fer en ces r es ul ti ng f rom c h an ges i n th e am or ti s ed co s t of m on et ar y it em s de no mi na te d in fo reig n cur r en c y an d cl as s if i ed a s fi n anc ial a s s et s m ea s ure d at f air valu e th ro ugh o th er co m pre he ns ive i nco m e, are r eco gni s ed in the income s tatemen t. T ranslation differ ences on non-monetary items, such as equity instruments at fair value thr ough pr ofit or loss, are r epor ted as part of the fair value gain or loss in the income st atement. T ranslation differ ences on non-monetary items, such as equity instruments classified as financial assets, measur ed at fair value thr ough other compr ehensive income, ar e included together with valuation r eserves in the v aluation (losses)/gains taken to other compr ehensive inc ome and accumulated in the equity. Ga in s an d los s es r es ul t ing f ro m fore ign c ur re nc y p ur ch as es an d sa les f or t rad ing p ur p os es ar e in cl ud ed in t h e in com e s ta tem e nt a s gai n s les s l os s es f rom f i na nc ial a s s et s an d liabilities held for trading. NLB G rou p en ti tie s The f i na nc ial s tat em en t s of a ll NLB G ro up en t it ie s th at h a ve a fu nc ti on al c ur ren c y d if fere nt f rom t h e pre se nt at ion c ur r en c y are translated i nto the pr esentation currency as fo llows: • a ss ets and liabilit ies for each statem ent of finan cial posit ion pre se nt ed ar e tra ns l at ed a t th e cl os in g ra te on t h e rep or t ing da te; • i nc om e an d exp en se s for e ac h in com e s t ate m en t are tra ns l at ed a t aver age exch an ge r at es ; an d • c om pon en t s o f eq uit y ar e tra ns l at ed a t th e hi s to r ica l rat e. Goodwill and fair value adjustments arising fr om the acquisition of a for eign entity ar e treated as assets and liabilities of the for eign entity and tr anslated at the closing rate. In th e co ns ol id ate d f in an ci al s ta te m en t s , exch ang e di f f ere nce s ar is in g fro m th e t ran s la ti on of t h e ne t inves tm en t in fo reig n ope ra tio n s are re co gni s ed in o th er co mp reh en s ive in co me . Wh en co nt ro l over a fore ign o pe rat io n is lo s t, th e p revio u sl y reco gn is ed exch an ge d if fer en ces o n tra ns l at io ns t o a dif fer en t pre se nt at ion c ur r en c y are re cl as s i fi ed f rom o th er com pre he n si ve inc om e to pr of it a nd l os s fo r th e yea r . On the par tial dispos al of a subsidiar y wi thou t loss of control, th e rel at ed p or t ion o f acc um ul at ed c ur re nc y t ra ns la t ion dif fer en ces i s rec la s s if ie d as a n on - con tro lli ng i nt ere s t wi th in th e eq ui t y . 2.9. Int erest in come and expens es Int ere s t in co me a nd ex pe ns es f or al l fi na nc ial i ns tr u me nt s me as ur ed a t am or t is ed c os t, an d f in an cia l as s et s m e as ur ed at fa ir val ue t hr ou gh ot he r com pr eh en si ve in com e ar e reco gn is ed i n th e in com e s tat em en t for a ll in te res t- b ear in g in s tr ume nt s on an ac cr u al b as is u s ing t h e ef fec ti ve int ere s t me th od . In te res t inc om e on al l tra din g a s se t s an d f in an cia l as s et s m an da to r ily re q uire d to b e me as u red a t fa ir val ue th rou gh p rof it o r lo s s is re co gni s ed u si ng t he c on tra c t u al int ere s t ra te . Th e ef fec tive i nte res t me th od i s us e d to cal cu la te the amor tis ed cost of a finan cial ass et or finan cial liabilit y , an d to all oca te t h e in ter es t i nco m e or in te res t expen s es over th e rel evant p er i od . Th e ef fec ti ve int ere s t ra te i s th e ra te t ha t exac t ly d is co unt s es t im at ed f u t ure ca s h pa ym en t s or r ece ipt s over th e exp ec ted l ife o f th e f in an ci al in s t r um en t, or a s h or te r per i od (wh en a ppr opr i at e) to the g ros s c ar r yin g am ou nt o f th e finan cial ass et or to the amor t ised cos t of a financial liabilit y . Int ere s t in co me i nc lu de s co upo ns e ar n ed o n f ixed -y iel d inves t m en t s an d tr adi ng s ec ur i ti es , a nd a ccr u ed d is co un t s an d pre mi um s on s ec ur i ti es . T he ca lc ul at ion o f th e ef fe c t ive int ere s t ra te i nc lu de s all fe es a nd p oin t s p aid o r rec eive d by par t ie s to th e co nt ra c t an d al l tr an sa c t ion c os t s , b u t exclu de s fu t ur e cre dit r i s k los s es . Int ere s t in co me i s cal cu la te d by app ly ing t h e ef fec ti ve int ere s t rat e to t he g ros s ca rr y in g am ou nt of f i na nc ial a s s et s ot h er than credit-imp aired ass ets . 189 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report When a financial asset becomes cr edit-impair ed and is, ther efor e, classified in Stage 3, inter est income is calculated b y applying the effective inter est r ate to the net amortised cost of the financial asset. If the financial asset cur es and is no longer cr edit- impair ed, inter est income is again calculated on a gr oss basis. In the case of pur chased or originated cr edit-impair ed financial assets (POCI), the cr edit-adjusted effective inter est r ate is applied to the amortised cost of the financial asset fr om initial r ecognition. The cr edit-adjusted effective int erest r ate is the inter est r ate that, at initial rec ognition, discounts the estimated futur e cash flow s ( including cr edit losses) to the amortised cost of the pur chased or originated cr edit-impaired financial asset. At NLB Gr oup level, most POCI e xposur es relat e to initial rec ognition of non-performing exposur es in case of business combination. 2.10. Fee and commis sion in come Fees an d co mm is s io ns m a inl y in cl ud e fe es re cei ved fr om cre dit c ard s an d A TMs , c us tom er t ran s ac tio n acc oun t s , pa ym en t se r vice s , inve s t me nt f u nd s , an d co mm is s io ns f rom gu aran te es . Fee and c om mi s si on in co me a re re cog ni se d at an am ou nt t h at r efl ec t s th e co ns id era t ion to w h ich t he G ro up expe c t s t o be e nt it le d in exch an ge fo r prov idi ng t he s er v ice s . The p er fo r ma nc e obl iga t ion s , a s well a s th e t imi ng o f th ei r satisfaction, are identified, a nd determined, at the inc eption of th e co nt ra c t. Th e G rou p’s revenue co nt ra c t s d o no t in cl ud e multiple per formance obligations . Wh en t he G ro up p rovid es a s er v ice to i t s cu s t om er s , con s ide rat io n is i nvoice d an d gen er all y du e im me di at ely upo n sa t is f ac t io n of a s er vi ce prov ide d at a p oi nt in t im e. Wh en t he s er v ice i s prov ide d over ti me , th e co ns id era ti on i s invoice d an d d ue in l in e wi th co nt ra c t u al prov is io ns . The G ro up h a s gen er all y con cl ud ed t h at i t is t h e pr in cip al i n it s reven u e ar ran ge me nt s beca u se i t t ypic all y con tr ols t h e se r vice s be fore t ran s f er r in g th em t o th e cu s to m er . Fees an d co mm is s io ns t h at a re in te gral t o th e ef fec ti ve in tere s t rate of financial as set s and liabilities are presen ted within int ere s t in co me o r exp en se s . 2.11. D ividend in come Div id en ds a re re cog ni se d in t he i nco m e s ta te me nt w it hi n th e lin e it em ‘ Di vi den d in co me’ w he n NLB G ro up’s righ t to re cei ve pa ym en t ha s b een e s ta bli s he d an d an i nf low of e con om ic ben ef i t s is p rob ab le. I n th e con s ol ida te d f in an cia l s ta te me nt s , div ide n ds re cei ved f rom a s so ci at es an d jo int ve nt u res re d uce th e car r yi ng val ue o f th e inve s t me nt. 2.12. Fin ancial in st r umen ts a) Clas sifica tion and measurement Financial in st r ument s are initially mea sured at fair value plus or m in us , i n th e ca se o f a f in an cia l in s tr um ent n ot m e as ur ed at fa ir val ue t hr ou gh pro f it o r los s , t ra ns ac ti on co s t s t ha t are dire c t ly a t tr ib u tab le to t h e acq ui si t ion o r is s u e of th e f in an ci al in s tr ume nt. S ub s eq uen t m ea s ure me nt d ep en ds o n th e classificatio n of the ins trument. Financial asset s All d ebt f i na nc ial a s s et s n ee d to be a s s es s ed b as e d on a com bin a ti on of t h e Gro up’s bu si ne s s mo de l for m an a gin g th e as s et s a n d th e in s t r um en t s’ co nt ra c t u al ca sh f low charac teri s tic s . Measurem ent categories of finan cial ass ets are a s foll ows : • F inancial as set s , meas ured at amor tise d cost s (AC); • F in an ci al as s et s at fai r val ue t hro ug h ot he r com pre he n si ve in c o m e (F VO CI ); • F in an ci al as s et s hel d for t ra din g (F V TPL); an d • N on - tr adi ng f in an c ial a s se t s , m an da tor i ly a t fai r valu e th rou gh p rof it o r lo s s (F V TPL). Fin an ci al a s se t s are m ea s ure d at AC if t h ey are h el d wi th in a bu si ne s s m ode l for t h e pu r pos e of c oll ec tin g co nt rac t ual c as h flow s (‘ he ld t o coll ec t ’) , an d if ca sh f low s are s ol el y pa ym en t s of pr in ci pa l an d in tere s t o n th e pr in c ipa l am ou nt o ut s tan di ng . Af ter in i tia l rec ogn it io n , th ey are m e as ur ed a t th e am or t is ed cos t u s ing t h e ef fec ti ve int ere s t m et ho d an d are s u bje c t t o imp ai rm e nt. In te res t inco m e calc ul at ed u s ing t h e ef fec ti ve int ere s t m et ho d , fore ign exch an ge g ain s an d l os s es , a nd imp ai rm e nt a re rec ogn is e d in pro f it o r los s . Each of t he m is pre se nt ed a s a se par at e lin e it em in t h e in com e s t at em en t. Any gai n or lo s s on d ere cog ni tio n is r eco gn is ed i n prof i t or l os s in lin e it em ‘G ai ns l es s l os s es f rom f in an ci al a s se t s an d lia bil it ies not c la s s if ie d at f air val ue t h rou gh p rof it o r lo s s .’ Deb t f in an cia l in s t r um en t s ar e me as ur ed a t F VOCI i f t hey ar e he ld wi t hin a b u si ne s s mo de l for t h e pu rp os e of b oth c oll ec tin g con tr ac t u al ca s h fl ows an d s ell in g (‘ he ld to co ll ec t and s e ll’ ), an d if ca sh f low s are s ol el y pa ym en t s of p r in cip al an d in te res t on t he p ri nc ip al am o unt o u t s ta nd in g. F VOCI res u lt s i n th e de bt in s tr ume nt s bein g re cog ni se d at f air va lu e in th e s t at em en t of f in an cia l po si ti on an d a t th e AC in th e in co me s tat em en t. Int ere s t in co me i s cal cu la te d us in g th e ef fec ti ve in ter es t me th od , fo reig n excha ng e ga in s an d los s es , and i mp ai rm en t s are re cog ni se d s epa ra tel y in t he i nc om e s ta te me nt. O t h er ne t gai ns a nd l os s es a re rec ogn is e d in ot he r com pr eh en s ive inc om e, un t il th e in s t r u me nt i s de rec ogn is ed . A t der eco gn it ion of th e d ebt f in an c ial in s t r u me nt, t he c um ul at i ve gain s an d los s es p revi ou s ly re cog ni se d in ot h er co mp reh en s ive in co me are re cl as s if i ed to t h e in com e s t ate m en t un der t h e lin e it em ‘Gains les s loss es from finan cial ass ets and liabilit ies not cla s s if ie d at f air val ue t h rou gh p rof it o r lo s s .’ Equi t y i ns tr u me nt s t h at a re n ot he ld f or t radi ng m a y be ir revoca bly d es ig na te d as F VOCI , wi th n o s ubs e qu en t rec la s si f ica ti on of g ain s o r los s es t o th e in co me s tat em en t. Div id en ds a re re cog ni se d as i nco m e in pro f it o r los s u nl es s th e di vid en d cl ea rl y rep res e nt s a re cover y of p ar t of t h e cos t of th e inve s t me nt, in w hi ch ca se , s uch g ain s ar e rec ord ed in ot he r com pr eh en si ve in com e. O t h er n et ga in s an d los ses are re cog ni se d in ot h er co mp reh en s ive in co me a nd a re never r ecl as s i fi ed t o prof i t or l os s . I n NLB G rou p, th e m os t ma te ri al e qui t y in s tr um en t ir revoca bl y des ig na te d as F VOCI is inve s t me nt i n Na tio n al Re so lu t ion Fun d (note 5.4.a). NLB Gro up d ec ide d to u se t hi s pr es en ta tio n al te rn a ti ve be cau s e th e f un d was e s ta bli s he d ba se d on t h e law a nd i t h as a h igh ly reg ul at ed inve s tm e nt s t ra te gy i n ord er to e ns u re sa fe t y, low ris k, an d the high liquidit y of the f und. All o th er f in an ci al a s se t s are m an d ato r ily m e as ur ed a t F V TPL , inc l udi ng f in an ci al a s se t s wi th in ot h er b us in es s m o del s s uc h as f in an ci al as set s m an a ged a t fa ir val ue or h e ld fo r tra din g an d fi na nc ial a s s et s w it h con t rac tu al ca s h fl ows t ha t are n ot so lel y pa ym e nt s o f pr in cip al a nd i nt ere s t on t h e pr in cip al amount ou ts tan ding. Net gains an d losse s, inc luding any int ere s t or d iv ide n d inc om e, ar e reco gn is ed i n pro fi t or l os s . IFR S 9 in cl ud es an o pt ion t o des ig na te f i na nc ial a s s et s at fa ir val ue t hr ou gh pro f it o r los s i f doi ng s o el im in at es or s ign if ica nt ly r ed uce s a me as u rem en t or r eco gn it ion inc on si s t en c y th a t wou ld ot h er wi se a r is e fro m m eas u r ing as s et s o r lia bili t ies o r rec ogn is in g t he g ain s or l os s es o n th em on di f f ere nt b as es . Financial liabilit ies Financial liabilit ies are subseque ntly mea sured at th e am or ti s ed co s t or a t fa ir val ue t hro ug h pro fi t or l os s , w he n th ey are h el d for t ra din g, d er i vat ive in s t r um en t s , o r th e fa ir valu e de sig na t ion i s ap pli ed . Upon initial recognit ion, f inancial liabilit y may be irrevocably des ig na te d as m e as ure d a t fair va lu e th ro ugh p rof i t or lo s s if t ha t el imi n ate s or s ig ni fi can tl y re du ces a m ea s ure me nt o r reco gn it ion i nc on si s t en c y th a t wou ld ot he r wi se a ri s e fro m me as ur i ng a s se t s or l iab ili ti es or r eco gn is in g th e ga in s or 190 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report los s es o n th em o n di f f ere nt b as es , o r if t h e lia bili t ies a re pa r t of a group of financial ins tr um ent s which are managed and th eir per fo r ma nc e evalu at ed on a f air val u e ba si s in ac cord an ce wi th a do c um en ted r i s k ma na ge me nt o r inves tm en t s t rat eg y. Changes in the fair value of financial liabilities des ignated as me as ur ed a t fai r valu e th ro ug h prof i t or l os s ar e reco gn is ed in pro f it or l os s , w it h t he exce pti on of m ovem en t in t h e fair valu e du e to ch an g es of N LB Gr ou p’s o w n cr edi t r is k . S uc h ch an ges a re pr es en te d in ot he r com pr eh en si ve in com e w it h no subseque nt reclassificati on to the income statement . Oth er fin ancial liabilities are subse quent ly meas ured at am or ti s ed co s t us in g t he e f f ec tive i nte res t me th od . In te res t expe ns e s an d fore ign exch an ge g ain s an d l os s es ar e reco gn is ed i n pro fi t or l os s . A ny ga in or l os s o n der eco gn it ion of f in an cia l lia bil it y is re co gni s ed in p rof i t or lo s s . In t h e event of derecognition of a financ ial liabilit y meas ured at amor tise d cos t, t he g ain s an d l os s es ar e reco gn is ed i n th e li ne i tem ‘Gains les s loss es from finan cial ass ets and liabilit ies not cla s s if ie d at f air val ue t h rou gh p rof it o r lo s s .’ Gain s an d lo s se s on disposal s of financial liabilities des ignate d as measured at fair va lu e th ro ugh p rof i t or lo s s are a ls o pre se nt ed s ep ara te ly fro m th os e h eld f or t rad ing . Assessment of NL B Group ’s busi ness model NLB G rou p ha s de te rm in ed i t s b us in es s m od el s ep ara te ly for e ach r epo r ti ng u ni t wi th in NLB G ro up, an d i s ba se d on obs er vab le fa c t or s fo r dif fer en t por t fol ios t h at b es t refl ec t how th e G rou p ma na ge s gro ups o f f in an cia l as s et s t o ach ieve it s bu si ne s s ob jec ti ve, s uch a s : • h ow th e p er for m an ce of t h e bu s in es s m od el an d t he fi na nc ial a s s et s h el d wi th in t ha t b us in es s m od el a re ev al uated and repor te d to k ey managemen t perso nnel; • t h e ri s k s th a t af fec t th e p er for m an ce of t h e bu s ine s s m od el an d, in p ar t ic ula r , th e way t h os e ri s k s are m an ag ed; • h ow th e m an ag er s of t h e bu s ine s s ar e com pe ns a te d (e.g., wh et he r th e co mp en s at ion i s ba s ed o n th e fai r valu e of t he as s et s o r on co lle c t io n of co nt rac t ual c as h fl ows); an d • t h e expe c t ed f req u en c y , va lu e, an d ti mi ng o f sa les . The b u si ne s s m ode l as s e s sm en t i s ba se d on re as on a bly expe c t ed s cen ar i os wi t ho ut t ak in g wor s t- ca s e an d s tr es s ca s e sce na r ios i nto c on si de rat io n . In ge ne ral , th e b us in es s m o del as s es s m en t of t he G ro up ca n be s um m ar i se d as fo llow s: • Lo an s an d de po si t s gi ven are i nc lu de d in a b us in es s m od el ‘h eld t o col le c t ’ s inc e th e pr i ma r y obje c t ive o f NLB G ro up for th e lo an po r t f oli o is to c oll ec t th e con t rac tu al ca s h fl ows ; • D eb t se cu r it ies a re di vi ded i nt o th ree b u si ne s s m ode ls : • t h e f ir s t gro up o f de bt s ec ur it ie s pre se nt s ‘he ld fo r tr adi ng’ categor y ; • d ebt s e cu ri t ies i n th e s eco nd g rou p are h el d un de r a bu si ne s s m ode l ‘h el d to co lle c t a nd s al e’ wi th t he i nt en ti on of col le c t in g th e co nt rac t ual c as h fl ows an d s al e of finan cial ass et s, an d forms par t of the Group’ s liquidit y reser ves; • t h e th ird p ar t of d ebt s e cu ri t ies i s h eld w it hi n th e bu si ne s s m ode l for h o ldi ng t he m wi th o bje c t i ve to col lec t contra c t ual cas h flows . Wi th r eg ard to d ebt s e cu ri t ies w it hi n th e ‘h e ld to co ll ec t ’ bu si ne s s m ode l, t h e sa le s wh ich a re rel at ed t o th e in cre as e of th e is s u er s’ c red it r i sk , c on cen tr at ion s r i sk , s al es m ad e cl os e to th e f in al m a t ur it y, or sale s in o rde r to m eet l iq uid it y ne ed s in a s tr es s ca s e sce n ar io are p er m it te d. O t h er s al es , w hic h are not d u e to an in cr ea se i n cre di t ri s k ma y s t ill b e co ns is ten t wi th a he ld to co ll ec t bu si ne s s mo de l if s uc h s ale s are i nc ide nt al to th e overal l bu si ne s s m od el , an d: • a re in s ign if ica nt i n valu e bo th in di vi du all y an d in ag gre ga te, even wh en s uc h s ale s are f req u en t ; • a re in fre q uen t even w he n th ey are s ig nif i can t in val ue . A review of i ns tr um en ts’ co nt rac tua l cas h fl ow charac t eri s tic s (th e SP PI t es t – so le ly pa yme nt o f pri nci pal and interes t on the principal amount out sta nding) The s e con d s t ep in t h e cla s s if ic at ion o f th e f in an ci al as s e t s in por t folios being ‘held to collect ’ and ‘held to collect and sell’ rel at es to t h e as s es s m en t of w he th er t h e con tr ac t u al ca s h flow s are c on si s t en t wi th t he S PP I tes t. The p r in cip al am o un t ref le c t s t he f air val u e at in it ia l rec ogn it io n les s any s ubs eq u ent ch an ges , e.g. , du e to re pa ym en t. Th e in ter es t m u s t re pre se nt on ly t he co n si der at ion f or t he t im e val ue of m o ney, credi t r is k , oth er b as ic l en di ng r is k s , a nd a p rof i t ma rgi n con s is t en t wi th ba si c len di ng f ea t ure s . If t h e cas h f lows i nt ro du ce mo re t ha n de minimis expos ure to r i s k or vol at ili t y th at i s n ot co ns is ten t wi th b as ic l en din g fe at ur es , t h e fi na nc ial a s s et i s ma nd at or il y me as ur ed a t fai r valu e th ro ug h prof i t or l os s . NLB G rou p revi ews t he p or t foli o wi th in ‘ he ld to c oll ec t ’ and ‘h eld t o col lec t an d s ale’ fo r s tan d ardi s ed p rod uc ts o n a level of a pro du c t a nd f or n on - s ta n dard is ed p rod uc t s on a s in gl e expo su re leve l. T he G ro up h as e s ta bli s he d a pro ce dur e for SPP I ide nt if i cat io n as p ar t of r eg ula r inves tm en t pro ces s w it h def in e d res po n sib ili ti es fo r pr im ar y a nd s ec on dar y co nt ro ls . Sp ec ial e mp ha s is i s pu t on n ew an d n on - s ta nd ard is ed charac teri s tic s of loan agr e ement s . Account in g pol icy f or m od if ie d fi nan cial a ss et s Wh en co nt ra c t ua l ca sh f low s of a f in an ci al as s et a re m odi f ie d, NLB G rou p as s es ses i f th e te r ms a nd c on di tio n s ha ve be en mo dif i ed to t h e ex te nt t h at, s ub s ta nt ial ly, it bec om es a n ew fi na nc ial a s s et. Th e fol lowi ng f ac t or s ar e, am on gs t oth er s , con s ide red w he n m aki ng s u ch a s se s s me nt : • r ea so n for m od if ica t ion o f cas h f low s (comm erc ial o r cli en t ’s finan cial dif f iculties); • c h ang e in c ur re nc y o f th e lo an; • introduction of an equity feature ; • r epl ace m ent o f in it ial ly ag ree d de bto r wi th a n ew de bto r th at i s n ot re la ted p ar t y to in it ia l deb tor ; an d • i f th e m od if ica t ion c ha ng es t he r es ul t of t h e SPP I te s t. If t he m o dif ic at ion r es ul t s in d ere co gni ti on of a f i na nc ial a s s et, th e new f i na nc ial a s s et is i ni ti all y rec ogn is ed a t fa ir val ue, w it h th e di f fe ren ce r eco gn is ed a s a der eco gn it ion g ain o r lo s s , to th e ex t en t th a t an im p air m en t los s ha s not a lre ad y be en reco rde d . If t he m o dif i cat io n doe s n ot res u lt i n cas h f lows t h at are s ub s ta nt ial ly di f fere nt, t he m od if ica t ion d oe s no t res ul t in de reco gn it io n . In s uc h cas es , NLB G rou p rec alc ul at es t he gross carr ying amoun t of the finan cial ass et and recognises mo dif i cat io n gai n or lo s s in t he i nc om e s ta te m ent. T he g ros s car r yin g am o un t is re cal cu la ted a s t he p res en t val ue o f th e ren eg oti at ed o r mo di fi ed co nt ra c t u al ca sh f low s th a t are dis co un te d at t he f i na nc ial a s s et ’s ori gin al e f f ec tive i nt ere s t rat e (or cred it- a dj us t ed e f f ec tive i nt eres t rat e for p urc h as ed o r origina ted credit-impaired f inancial as set s). b) Recl as si f ica ti on Fin an ci al a s se t s can b e rec la s s if ie d wh en a nd o nl y wh en N LB Gro up’s bu si ne s s mo de l for m an ag in g th os e as s e t s ch an ge s . The r ec la s si f ica ti on ta kes pl ace f rom t h e s ta r t of th e re por t in g per i od fo llow ing t h e ch an ge . Su ch c ha ng es ar e exp ec ted to be ver y in fr eq ue nt, an d n on e occ ur re d du r ing t h e pre s ent ed period s . Financial liabilities sh all not be reclas sif ied. c) Day on e ga in s or lo ss es The best evidenc e of fair value at initial r ecognition is the tr ansaction price ( i.e., the fair value of the c onsideration giv en or r eceived), unless the fair v alue of that instrument is evidenced by a c omparison with other observable curr ent market tr ansactions in the same instrument ( i.e., without modification or r epackaging), or based on a v aluation technique whose variables only include data fr om observable mark ets. If t he t ran s ac tio n pr ic e on a n on - a c t ive m ar ket i s dif fe ren t th an t he f air val ue f ro m oth er o bs er vab le c ur re nt m ar ket tra ns ac ti on s in t he s am e in s t r um e nt o r is b as ed o n a val ua tio n 191 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report technique whose variables only inc lude data from obser vable ma rket s, t h e dif fe ren ce b et ween t he t ra ns ac ti on pr i ce an d fai r valu e is re co gni s ed im m ed iat el y in t he i nco m e s ta te me nt ( ‘day on e gai ns o r los ses ’) . In cas e s wh ere t h e da ta u se d for val ua t ion a re no t f ull y obs er vab le in f i na nc ial m ar ket s , day o ne g ain s or l os s es a re not r eco gn is ed i mm ed ia tel y in t he i nc om e s ta te m ent. T he tim in g of re co gni t ion o f def er re d day o ne g ain s o r los s e s is det er mi ne d in di vid u all y . I t is e it h er am or t is ed over t h e lif e of th e tr an sa c t ion , d efe r red u nt il t h e in s tr ume nt ’s fai r valu e can be de te rm in ed u s in g ma rket o bs er vab le in p ut s , or rea li se d through set tlement. d) Derecognition A fi na nc ial a s s et i s der eco gn is ed w he n th e co nt rac t ual r i ght s to th e ca s h fl ows fr om t he f in an ci al a s se t expi re, or w h en t he fi na nc ial a s s et i s tra ns fer re d, an d t he t ra ns f er q ua lif ie s for der eco gn it ion . A f i na nc ial l iabi li t y i s de rec ogn is e d on ly w he n it i s ex t ing ui s he d, i .e. , wh en t h e obl iga t ion s p eci f ie d in th e con tr ac t i s di sc h arg ed , can ce lle d, o r expi res . e ) W rit e-off s NLB Gr oup writes off financial assets in their entirety or a portion ther eof when it has exhausted all pr actical r eco very efforts and has no reasonable e xpectations of r ecov ery. Criteria indicating that ther e is no r easonable expectation of r eco very include default period, quality of collater al, and differ ent stages of enfor cement pr ocedur es. NLB Gr oup may write off financial assets that ar e still subject to enfor cement activities, but this does not affect its rights in the enfor cement pr ocedur es. NLB Gr oup still seeks to r ecov er all amounts it is legally entitled to in full. A write-off r educes the gr oss carrying amount of a financial asset and allow ance for the impairment. Any subsequent r ecov eries are cr edited to credit loss e xpenses. W rite-offs and r ecov eries are disclosed in note 5.14.a). f ) F air value measurement prin ciples The f air va lu e of f in an ci al in s t r um en t s t rad ed o n ac tive ma rket s is ba s ed on t h e pr ice t h at wo ul d be re cei ved to s el l th e as s et s o r tr an s fe r liab ili t y (exit pr ice) be ing m e as ur ed a t th e rep or t in g da te, excl ud in g tra ns ac ti on co s t s . I f th er e is n o ac t ive m ar ket, t he f air val ue o f th e in s t r um en t s i s es t im a ted us in g dis co un te d cas h f low te ch ni qu es o r pr ic in g mo de ls . If di s cou nt ed ca s h fl ow tec hn iq ue s are u se d , es t im a ted f u t ure cas h f lows a re ba s ed on m a na gem en t ’s bes t es t im at es ; an d th e di sco un t ra te i s a m ar ket-b as ed r at e at t h e rep or t ing da te for a n in s t r um en t w it h si mi lar t er m s an d con di ti on s . I f pr ici ng m o del s are u s ed , in pu t s are b as e d on m ar ket- ba se d measurements at the repo r ting dat e. g) D erivative f inancial inst rum ents and hedge accounting Der i vat ive f in an ci al in s t r um e nt s – i nc lu din g fo r ward an d fu t ur es co nt rac t s , s wap s , an d opt io ns – a re in it ia lly reco gn is ed i n th e s t at em en t of f in an ci al po si ti on a t fai r va lue. Deriv ative financ ial instruments are s ubsequently re- me as ur ed a t th ei r fai r valu e. Fair val ue s are o bta in ed f rom qu ote d ma r ket pr ice s , di sc ou nt ed ca sh f low m od el s , or p r ici ng mo de ls , a s app rop r ia te. A ll de r iva ti ves are c ar r ied a t t he ir fai r valu e wi th in a s se t s wh en t h e der i vat ive po s it ion i s fa vour abl e to NLB G ro up, an d wi t hin l iab ili ti es w he n th e de r ivat ive pos it io n is u nfa vou rab le to N LB G rou p. The m e th od o f rec ogn is in g t he re s ul ti ng f air val ue g ain o r los s dep en ds o n wh et h er t he d er iva ti ve is d es ign a ted a s a h edg in g in s tr ume nt a nd , i f so, t h e na t ur e of th e i tem b ei ng h ed ged . N LB Group designates cer tain derivativ es as either : • h ed ge s of t he f air val ue o f rec ogn is e d as s et s o r lia bil it ies o r fi r m com mi t me nt s (fa ir val ue h ed ge); • h ed ge s of h igh ly p rob abl e f ut u re ca sh f low s at t ri bu ta bl e to a reco gn is ed a s s et or l iab ili t y , or a h igh l y prob ab le fo rec as t ed tra ns ac ti on (cas h fl ow he dge); or • h ed ge s of a n et inve s t me nt i n a fore ign o pe rat io n (net inves t m en t he dg e). Hed ge a cco un tin g i s us ed w he n cer t ain c r ite r ia are m e t. NLB G rou p an d NLB h ave exerc is e d th e op tio n to co nt in ue app ly ing t h e exi s ti ng I A S 39 he dg e acco un ti ng r eq uire m en t s in acc ord an ce wi th t h e po lic y c ho ice p er m it ted u n der I FR S 9. However , dis c los u res t h at ar e req ui red by t he I FR S 9 rel at ed amendm ent s to IFRS 7 ‘Financial Ins tr um ent s: Dis closures’ are implemen ted. At th e in ce pt ion o f th e tr an sa c t io n, N LB G rou p do cu me nt s t h e rel at ion s hi p be t we en h ed ge d ite ms a n d he dgi ng i ns tr um e nt s , as wel l as i t s r is k m an age m en t obj ec tive, va lu at ion me th od ol og y , an d s t ra te gy fo r un de r tak in g var io us h ed ge tra ns ac ti on s . NLB G ro up a ls o do cu me nt s i t s as s e s sm e nt, bo th at t he h e dge i nce pt ion a nd o n an o ng oin g ba si s , of w h et he r th e de ri vat ive s us ed i n he dgi ng t ran s ac tio ns a re h igh ly ef f ec ti ve in of f se t t in g ch an ge s in fa ir val ue s or ca s h fl ows of he dge d it em s . Th e ac t ua l res ul t s of a h e dge m u s t al way s fall wi th in a ran ge o f 80–125% . Fair v alue hedge Cha ng es in t h e fai r valu e of d er iva ti ves t ha t are d es ig na te d an d qu ali f y a s fa ir val ue h ed ges a re re cog ni se d in t he i nco m e s ta tem e nt to ge th er w it h any c h ang es i n th e fai r val ue of t h e he dge d as s et o r li abil it y th a t are a t tr ib u tab le to t h e he dg ed ri s k . Ef fe c t i ve ch ang es i n th e fai r valu e of h ed gin g in s t r um e nt s an d rel at ed h ed ged i te ms a re ref le c t ed i n ‘Fai r V a lu e Adj us tm en t s in He dg e Acco un ti ng’ i n th e in com e s tat em en t. Any in ef fe c t iven es s from d er iva ti ves i s rec ord ed in ‘ Ga in s Les s Losses on Finan cial As s ets and Liabilit ies Held for T rading.’ If a h ed ge n o lon ge r m eet s t h e he dg e acco un t ing c r it er ia , th e ad ju s t me nt t o th e car r yi ng a mo un t of t h e he dge d it em for w hic h th e ef fe c t ive in te res t met h od i s us ed i s am or t is ed to pro f it or l os s over t h e rem ai nin g pe r iod t o ma t ur i t y . Th e adj us tm en t to t he c ar r yin g am ou nt o f a he dg ed e qu it y se cu ri t y is in c lu ded i n th e in co me s tat em en t up on di s pos al o f the equit y securit y. Cash f low he dg e The e f f ec ti ve por t ion o f ch an ge s in t he f air val ue o f de ri vat ive s th at a re de s ign at ed a nd q ua lif y as c as h f low he dg es i s reco gn is ed i n ot he r com pre he n si ve inc om e. Th e g ain o r los s rel at in g to t he in ef fe c t ive p or ti on i s im me dia te ly re co gni s ed in the income s tatemen t. Am ou nt s a cc um ul at ed in e qu it y are r ec ycl ed a s a rec la s si f ica ti on f rom ot h er co mp reh en s ive in com e t o th e inc om e s ta te m en t in th e p er io ds w he n th e h edg ed i te m af fec t s th e pro f it or l os s . Wh en a h ed gin g in s t r um en t exp ire s or is s o ld , or w he n a he dge n o lo ng er m ee t s h edg e acc ou nt in g cr it er ia , any cum u la ti ve gai n or lo s s exi s ti ng i n ot he r com pre he n si ve inc om e an d prev io us ly a cc um ul at ed in e qu it y at t h at t im e rem ain s in o th er c om pre he ns i ve inc om e an d in eq ui t y , an d is re cog ni se d in p rof it o r lo s s on ly w he n th e fo reca s t ed tra ns ac ti on is u lt im a tel y re cog ni se d in t he i nc om e s ta te me nt. Wh en a fo rec as t ed t ran s ac tio n is n o lo ng er exp ec ted t o occ ur , t he c um u la ti ve gain o r lo s s th a t was re por t ed in o th er com pre he n si ve inc om e is i mm ed ia tel y t ran s fe rr ed to t h e income s tatemen t. Hed ge o f a ne t inves tm en t in a f orei gn op era ti on Hed ge s of n et inve s tm e nt s i n fore ign o pe rat io ns a re acco un te d for i n con s oli da ted f i na nc ial s tat em en t s s im ila r to cas h f low he dg es . A ny ga in or l os s o n th e h edg in g in s t r um en t rel at in g to t he e f fe c t i ve por t ion o f th e h edg e is r eco gn is ed dire c t ly i n eq ui t y. The g ain o r los s r el at in g to t he in ef fe c t ive por t io n is re cog ni se d im m edi at ely i n th e co ns o lid at ed in co me s ta tem e nt i n ‘Ga in s Les s Lo s se s on F in an ci al A s s et s a nd Liabilities Held for T radin g. ’ Gain s and loss es accumula ted in 192 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report oth er c om pre he ns i ve inc om e are i nc lu de d in t he co ns o lid at ed inc om e s ta te m en t wh en t he f orei gn op er at ion i s di sp os ed o f as p ar t of t he g ain o r lo s s on t he d is po sa l. 2.13. A llow an ces for finan cial as set s a) E xpec te d credit losses for collec tive allow an ces IFR S 9 app lie s an ex pe c te d lo s s mo de l th a t prov ide s an unbiase d and probabilit y-weighted es tima te of credit losses by evalua t in g a ran ge of p os s ib le o ut com es t h at i nc or po rat es fore cas t s of f ut u re ec on om ic co nd it ion s . T he ex pe c t ed lo s s mo de l req uir es NL B Gro up t o rec ogn is e n ot on ly c re dit l os s es th at h a ve alre ad y occ ur re d, b u t al so l os s es t ha t ar e expe c t ed to occ ur i n th e f u t ure. A n all owan ce for ex pe c t ed cr edi t lo s se s (ECL) is req uire d for a ll lo an s an d ot he r de bt f in an ci al as s et s not m e as ur ed a t F V TPL , to ge th er w it h lo an co mm i tm en t s an d finan cial guarantee cont rac ts . In the gener al model, the allowanc e is based on the expected cr edit losses associated with the probability of def ault in the next 12 months unless ther e has been a significant incr ease in cr edit risk since initial r ecognition, in which case, the allow ance is based on the pr obability of default over the life of the financial asset (LECL). When determining whether the risk of default incr eased significantly since initial r ecognition, the Gr oup considers r easonable and supportable information that is r elevant and av ailable without undue cost or effort. This includes both quantitative and qualitativ e information and analysis, based on the Gr oup’s historical data, e xperience, expert cr edit assessment, and incorpor ation of forwar d-looki ng information. In 2021, the NLB Gr oup made impro vements to the SICR (significant incr ease of cr edit risk) identification conc ept by including additional qualitativ e indicators as well as b y dev elopment of numeric LPD (lifetime probability of default) conc ept for part of the por tfolio wher e this was feasible Classification int o stages NLB G rou p pre pa red a m et h od olo gy fo r ECL def in in g th e cr it er ia fo r cl as s if i cat io n in to s ta ge s , tr an si ti on c ri te r ia bet wee n s ta ge s , mo de ls fo r r is k in di cat or s cal cu la ti on , for ward - lo ok in g sce n ar ios , a nd t h e vali da tio n of m od el s . Th e Gro up c la s si f ie s fi na nc ial i ns tr u me nt s i nt o Sta ge 1, S tag e 2, an d Sta ge 3, b as ed o n th e ap pl ied ECL all owance m e th od ol ogy a s described below: • S ta ge 1 – p er for m in g por t fol io: no s ign if i can t in cre as e of cre dit r i s k si nce i ni ti al re cog ni ti on , NLB G ro up re cog ni s es an allowan ce b as e d on 12- mo nt h p er io d; • S ta ge 2 – un de r pe r for mi ng p or t foli o: sig nif i can t in cre as e in cre di t r is k (SI CR) s in ce in it ia l reco gn it io n, N LB G rou p reco gn is es a n all owanc e for li fet im e p er io d; an d • S ta ge 3 – im pa ire d po r t fo lio: NLB G ro up re co gni s es li fet im e allowances f or th ese defaul ted finan cial ass et s . The B a nk h a s alig ne d it s d ef in it io n of cr edi t im pa ire d as s et s un der I FR S 9 to th e n ew Europ ea n Ba nk in g Au th o ri t y (EBA) def in it io n of n on - p er for m in g loa n s (NPL s) a s at 31 D ec em be r 2020. The B a nk u s es a un if i ed de f ini t ion of p a s t du e an d def aul t exp os ur es ; def au lt ed c lie nt s a re ra ted D, DF , or E ba se d on t he i nt er n al ra ti ng s y s te m an d con ta in s th e cl ien t s wi th m at er ia l de lay s over 90 da ys , a s wel l as t he c lie nt s t h at were a s se s se d as u nl ikely t o pa y. All faci li tie s of r eta il cl ien t s obt ain a u nif i ed c red it ra t ing . A sig ni f ican t in cr ea se i n cre dit r i s k is a s s um ed: • w h en a cr edi t ra ti ng s ign if ic an tl y det er io rat es a t th e rep or ti ng d at e in co mp ar is o n to th e c red it ra ti ng a t in it ial reco gn it ion (w hi ch is a cco mp an ied w it h t he i nc rea s e of Probabilit y of default (PD) in dicator), • w h en t hre efo ld in c rea se o f LPD s in ce in it ia l reco gn it io n is detec ted, • w h en a f in an cia l as s et h a s ma te r ial d ela ys over 30 d ay s (days p as t due a re al so i nc lu de d in t he c red it ra t in g assessment ), • i f NLB G ro up gr ant s th e for b ear an ce to t he b or rower , • i f th e fa cil it y is p la ced o n th e wat ch li s t o r int en s ive car e lis t, • i f a ret ail c lie nt o bta in ed COVID -19 mo ra tor ia a nd i s pl ace d on t he wa tch l is t. A s COVID -19 m o rat or ia gr an ted t o th e b ank c li en t s in t he p as t year s h ave m os t l y expir ed , th es e exp os ur es n o lo ng er n eed sp ec if ic t re at me nt, an d s o S ICR id en ti f ica ti on i s car r ie d ou t in th e sa m e ma nn er a s for a ny ot he r expo s ure s . The m e th od ol ogy o f cr edi t ra ti ng fo r ba nk s an d s overei gn cla s s if ica t ion d ep en ds o n th e exi s te nc e or n on - exis t en ce of a rat in g fro m in te rn a ti on al cr edi t ra ti ng a gen ci es F itc h , Mo od y ’s , or S &P . Rat in gs a re s et on a b as i s of t he a vera ge in te rn a ti on al cre dit r at in g. I f t he re are n o in te r na ti on al c red it ra ti ng s , t he cla s s if ica t ion i s ba s ed on t h e in ter n al m et h odo lo gy o f NLB Gro up. The c la s s if ica t ion i nto s tag es i s ba se d on t he f ac ili t y l evel , never t he le s s occ ur r in g de la ys o n on e fac ili t y ma y tr ig ge r th e Sta ge d ete ri ora t ion o f oth er f ac ili ti es of t h e sa me c lie nt. W h en th e SI CR cr i te ri a no l on ge r exis t, the f aci li t y m a y be t ran s fe r red to a mo re fa vou rab le s t age s u bje c t t o th e pre s cr ib ed c ure period of three months . The ECL for S ta ge 1 f in an ci al as set s i s cal cu la te d ba se d on 12-m on t h PDs o r s ho r ter p er io d PD s , if t h e rem ain in g m at u ri t y of th e f in an ci al a s se t is s h or te r th an 1 ye ar . Th e 12- mo nt h PD alr ead y in cl ud es t h e ma cro eco no mi c im pa c t ef fe c t. All owanc es in S ta ge 1 are d es ig ne d to re fl ec t expe c t ed cr edi t los s es t h at h a d be en in cu r red i n th e pe r for m in g por t fol io b ut ha ve not b ee n id en ti fi ed . The ECL for S ta ge 2 f in an ci al as set s i s cal cu la te d ba se d on lif eti m e PDs (LP D) bec au se t h eir c red it r i sk h a s in cre as ed signif icantly sin ce their initial recognition . This calcula tion is als o b as ed o n a for ward - lo ok in g as s es s m en t th a t con s id er s a nu mb er o f eco no mi c sce n ar ios i n ord er to r eco gn is e th e prob ab ili t y of los s e s as s oc ia ted w it h t he p red ic ted m ac ro - econo mic forecas ts . For fi na nc ial i ns tr um e nt s i n Sta ge 3, t h e sa me t re at m ent is ap pl ied a s for t h os e con s ide re d to be c red it i mp air ed . Exposures below the materialit y threshold obtain c ollec t ive allowan ce s us in g a PD o f 100% . F in an ci al in s t r um en t s w ill b e tra ns fer red o u t of S tag e 3 if t hey n o lo ng er m ee t th e cr i te ri a of be in g cre di t-im pa ire d af te r a pro ba ti on p er iod . S pe ci al tre at m en t app li es fo r pu rch as ed o r or ig in at ed c red it- im pai red fi na nc ial i ns tr u me nt s (P OC I), wh er e on ly t he c um u la ti ve ch an ges i n lif et im e exp ec ted l os s es s in ce t he i ni tia l rec ogn it io n are re cog ni se d as a l os s a llowan ce. The c alc ul at io n of co lle c t ive al lowan ces i s p er for m ed by mu lt ip ly ing t h e E AD (expo s ure a t def au lt) a t t he e nd o f eac h mo nt h wi th a n app rop r ia te PD a nd LGD ( los s - g iven d efa ul t). The o bt ain ed r es ul t for e ac h mo nt h i s dis co un te d to th e pre se nt t im e us in g t he o r igin al e f f ec tive i nt ere s t ra te of t h e fac ili t y. For Stag e 1 exp os ure s , t he ECL on ly ta kes a 12- mo nt h per i od in to a cco un t, whi le fo r Sta ge 2 o r 3 all p ote nt ial l os s es unt il t h e ma t ur i t y d at e are i nc lu de d. R i sk p ar am ete r s are calc ul at ed s ep ara te ly fo r ea ch of t h e th re e pos s ib le s ce na ri os . The f i na l ECL for eac h fa cil it y is ca lc ula te d as a we igh te d avera ge ECL for e ach s ce na r io. The EAD represents the anticipate d outs tanding amount owed by th e ob lig or , wh ic h is d ete r min e d as t he s u m of on - ba lan ce ex pos u re an d exp ec ted f u t ure d raw in gs o f th e of f-balan ce exposure. The drawings are asses s ed by a p plying th e CCF (credi t conve r sio n fa c to r) ba s ed on t h e B an k ’s his tor ic expe r ien ce w it h si mi lar t yp es o f fac ili ti es . 193 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The P D is t h e es t im a tio n of li kelih o od of d efa ul t over a gi ven tim e h or izon . T he e s t im at io n is p er for m ed s ep ara te ly fo r ea ch unique segment ( corpor ate clients by siz e, i ns titutions , ce ntral gover nm e nt) o r by prod uc t gro up (mo r tga ge, co n s um er loa ns a nd o th er r eta il pro d uc t s). Thro ug h th e c ycl e, t he P D is su pp lem e nt ed wi t h th e for war d- l ook in g as p ec t us in g th re e poss ible scenar ios . The LGD p ara me te r ref le c t s t he ex pe c t ed lo s s t he fa ci lit y wil l in cur i n ca se o f th e even t of de fa ul t. The LGD val ue i s as s es s ed b as e d on t he B an k ’s hi s to r ic da ta o n rep ay m ent s fro m dif fer en t t y pe s of co ll at eral ( h air - cu t s are ca lc ula te d for h om og en ic gro up s of co lla te ral ), a s well a s ot he r t y pe s of repayments such as regular /partial repayments , repayments fro m leg al p roce ed in gs , t he s al e of re cei vabl es , a n d oth er s . Thr ou gh th e c yc le, t h e LGD is s upp le m ent ed w it h t he fo r ward - loo ki ng a sp ec t to re fl ec t th e exp ec ted c ha ng es in t h e ma cro eco no mi c pa ram et er s us in g t hre e po s si bl e sce n ar ios . Ri sk p ar am ete r cal cu la tio n s are b as ed o n th e da ta f rom each subs idiar y, wh ile the calculat ions and mode lling are per fo r me d cen t rall y. In the ca s e wh ere t h e da ta s am pl es ar e not s u f fic ie nt ly l arg e, h urdl e ra te s are ap pl ied b as e d on t he regulat or y or othe r benchmarks. Expected Life Wh en m ea s ur in g ECL, t h e B an k mu s t co n si der t h e ma xim u m con tr ac t u al p er io d over wh ich t h e B an k is exp os ed t o cre di t ri s k . For cer ta in revol vi ng c red it fa ci lit ie s th a t do n ot h ave a fi xed m at u r it y , t h e expe c t ed l ife i s es tim a ted b as e d on th e pe r iod over w hi ch t he B a nk i s expo se d to c red it r i sk an d wh ere t h e cre dit l os s es wo ul d no t be m it iga te d by managem ent ac tions . Forward-looking informa tion In 2021, the Gr oup re viewed IFRS 9 pr ovisioning b y testing a set of r elevant macr oeconomic sc enarios to adequately r eflect the curr ent circumst ances and the r elated impacts in the future. NLB G rou p es t ab lis h ed a nd d evelo pe d mu lt ip le s cen ar i os (i .e. , ba se lin e, m ild , an d s evere) on th e l evel of ECL calc ul at io n . The b a se lin e s cen ar io p res en t s o ur fo rec as t m ac ro eco no mic view fo r all c ou nt r ies p res en t in t h e NLB G ro up. Th i s sce n ar io is co ns tr u c t ed to c ulm in a te var io us o u tl oo k s int o a un if ie d projec tion of macroecono mic and finan cial variables for the NLB G rou p. Th is a pp roa ch is i n lin e w it h th e co nce pt t ha t t he NLB G rou p ha s a co ns ol ida te d vi ew of t he f u t ure o f eco no mi c develo pm en t in S o ut h eas t Europ e (SEE ). Th e IFR S 9 b as el in e sce na r io re lie s on t he N LB mo nt h ly Econ om ic O u tl oo k cre at ed in Ap r il 2021. The macr oeconomic r ationale behind the alternative sc enarios is r elated to a r ange of plausible effects of the COVID-19 pandemic on economic de velopment during the next thr ee years (the so-called ‘post-C OVID-19 period’). The basis f or the alternative scenarios is r elated to the E CB’s view of economic dev elopment after the cor onavirus outbr eak in early 2020. Based on the ECB illustr ation of a mild and sev ere sc enario r esolution of the pandemic crisis thr ough the lens of the possible expected impact on economic activity in the eur o ar ea, the Gr oup developed both alternative sc enarios. In gener al, the mild scenario envisions a r esolution of the health crisis by the end of 2021 and a long- term r eviving pr ocess of the ec onomy, while a sever e scenario assumes a mor e pr otracted crisis and permanent losses in economic potential. These scenarios ar e included in the calculation of e xpected cr edit losses under IFRS 9. Apart from this important innov ation, we had to k eep track of the latest economic de velopments and changing official pr ojections. Thi s la te s t s et of I FR S 9 sce n ar ios fo r m acr oe con om ic var iab les i s ap pli ed i n th e m ode lli ng p roc es s fo r th e probabilit y of default (PD) and loss given default (L GD) est imates . Nev er theles s, our focus in macroeconomic sce na r ios i s on t he t ra jec tor y o f rea l GD P an d th e un em ploy me nt r at e over th e pro je c t ion h or izo n fro m 2021 to 2023. Bo th var i abl es ar e in cl ud ed in t h e mo de llin g p roce s s of PD and L GD, resp ec tively . Macroecono mic scenar ios for explanator y variables , develo pe d for e ac h co unt r y in t he N LB G rou p (i n %): Mild scenario Baseline scenario Sever e scenario Slov enia 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 7.2 4.4 3.7 4.5 4 3.5 2.3 2.1 4.2 Unemployment r ate 4.8 4.4 3.9 5 5 4.5 5.2 5.7 5.2 Mild scenario Baseline scenario Sever e scenario Bosnia and Herzegovina 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 4.8 3.8 3.1 3 3.5 3 1.5 1.9 3.6 Unemployment r ate 16.7 14.7 13.9 17.5 16.5 16 18.3 18.9 18.3 Mild scenario Baseline scenario Sever e scenario Montenegr o 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 10.4 5.5 3.7 6.5 5 3.5 3.3 2.7 4.2 Unemployment r ate 15.7 14.2 13.5 16.5 16 15.5 17.3 18.4 17.7 Mild scenario Baseline scenario Sever e scenario North Macedonia 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 6.4 4.4 3.7 4 4 3.5 2 2.1 4.2 Unemployment r ate 16.2 14.7 13.9 17 16.5 16 17.8 18.9 18.3 Mild scenario Baseline scenario Sever e scenario Serbia 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 8 4.9 4.2 5 4.5 4 2.5 2.4 4.8 Unemployment r ate 9.1 8 7.4 9.5 9 8.5 9.9 10.3 9.7 Mild scenario Baseline scenario Sever e scenario Koso vo 2021 2022 2023 2021 2022 2023 2021 2022 2023 Real GDP 7.2 4.9 4.2 4.5 4.5 4 2.3 2.4 4.8 Unemployment r ate 24.3 22.2 21.3 25.5 25 24.5 26.7 28.7 28 1 94 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB G rou p for m ed t h ree p rob ab le s cen ar io s wi th a n as s oc ia ted p rob abi li t y o f occ ur r en ce for f or ward - lo ok ing as s es s m en t of r is k p rovi si oni ng i n th e co ntex t of IFR S 9. Th e sce na r ios a re weig ht ed 20- 60 -2 0, wh er e bot h al te rn a ti ve on es (i .e. , mil d an d s evere) recei ve a weigh t of 20% . Th e as sig ne d weigh t for t h e ba se lin e s cen ar i o is 60% . Rec alc ul at io n is p er for m ed a nn u all y of al l ri s k pa ram et er s . IFR S 9 ma cro ec on om ic s cen ar io s in cor po ra te t he fo r ward - loo ki ng a nd p rob abi lit y- weigh te d as p ec ts o f ECL imp air m en t calc ul at io n . B oth f ea t ure s ma y ch an ge w h en m at er ial c h an ges in th e f u t ure d evelop m en t of t he e con omy a re re cog ni se d an d not e mb ed de d in p revio us f ore cas t s . Th en a ll th e p aram e ter s are recalculated according to new w eight and projec t ions . The f avo ura ble m a cro eco no mi c envi ron m en t ha s th e m os t sig ni f ican t im pa c t o n exp ec ted c red it l os s es in 2021. T hi s ch an ge in m ac roe co no mic s ce na r ios a f f ec t s for ward - lo ok in g valu es of r i s k par am ete r s du r ing t h e po s t- COVID -19 pe ri od . Risk parameter o verlays and mark - ups NLB G rou p im pl em en te d overl ay s an d m ar k-up s on fo r ward - loo ki ng P D an d LGD, resp ec ti vely. PD overl ay m e as ur es ar e imp le me nt ed t o add res s p red ic tio n er ror s f rom t h e ba ck- tes tin g exerci s e in pa r ti cul ar s eg me nt s a n d rat in g ca teg or ie s . In ad dit io n , ma r k-up s on t he LGD r i sk p ara me ter a re ap pl ied by NLB G rou p me mb er s d ue t o th e pa r tic ul ar i tie s of t h e loc al m ar ket. Ef fects of changed risk parameters Ef fe c t s o f ch an ge d ri s k par am ete r s on t he a mo un t of ex pe c t ed cre dit l os s es a re di sc lo se d in n ote s 5.14. an d 5.16.b). b) Individual as sessm ent of allow ances for impaired financial asse ts NLB G rou p as s es ses i mp air m en t s of f i na nc ial a s s et s se par at ely f or al l in div id ua lly s ign if i can t as s et s c la s s if ie d in Sta ge 3. Th e m at er ia lit y t hr es ho ld i s se t at EU R 0.5 mi lli on expo su re fo r le gal e nt it ie s an d EUR 0.1 m ill ion fo r pr i vate per s on s o n th e level o f NLB , w hi le t he G ro up m em b er s ap pl y lower t hre s ho ld s app lic abl e to t he ir po r t f oli o size. A ll ot h er finan cial ass et s obtain collect ive allow ances . The a mo un t of l os s i s m eas u red a s t he d if fere nce b et wee n th e as s et ’s car r yin g am ou nt a nd t h e pre se nt va lu e of es tim a te d fu t ur e cas h f lows , w h ich a re di sco un te d to t he e s t im at io n da te. T he s cen ar i o of exp ec ted c as h fl ows ca n be b as ed o n th e ‘goin g con ce rn’ a s s um pt ion , w he re t he ca s h fl ow fro m ope ra tio n s is co ns id ere d al on g wi th t he s al e of co ll at eral th at i s n ot cr ucia l for f u t ure b u si ne s s . In t he c as e of t h e ‘gone con cer n’ pr i nc ipl e, t he re pa ym en t s ar e ba se d on ex pe c te d cas h f lows f rom t h e sa le of c oll at era l. T he ex pe c te d pa ym e nt fro m th e col la ter al i s calc ul at ed f rom t h e app rai se d m ar ket valu e of t he c oll at eral , t he h ai rcu t u se d as d ef in ed i n th e Hai rcu t M et ho do log y, and dis co un te d. O f f-b al an ce s he et liabilities are also ass es sed individ ually and, whe re necess ar y, related allowances are recogn ised as liabilities . The carr ying amount of fin ancial as set s meas ured at am or ti s ed co s t is r ed uce d th ro ugh a n all owanc e acco un t an d th e lo s s is re co gni s ed in t h e in com e s t ate m en t lin e it em ‘Impair men t of financial as set s .’ If th e amount of allowances for ECL dec rea s es s ub se qu en tl y d ue to a n event o cc ur r in g af ter t h e im pai r me nt wa s rec ogn is e d (e.g., r epa ym e nt in t h e collection process e xceeds the assess ed e xpec ted payment fro m coll at era l) , th e rever s al of t h e los s is re cog ni se d as a red uc tio n in t he a llowan ce a cco unt, a nd t h e gai n is re cog ni se d in th e s am e in com e s t at em en t it em . For of f- bal an ce expo su res , th e am ou nt o f ECL is reco gn is ed i n th e s t ate m en t of f in an cia l po si ti on in t h e lin e it em ‘ Prov is ion s’ a nd i n th e inc om e s ta te m en t in th e li ne i te m ‘P rovi si on s for c red it l os s es .’ The ECL s fo r de bt in s t r um e nt s m ea s ure d at f air val u e th ro ugh oth er c om pre he ns i ve inc om e do n ot re du ce t he ca r r yin g am oun t of t h es e f in an cia l as s et s i n th e s t at em en t of f in an ci al pos it io n , wh ich r em ain s a t fai r valu e. In s t ea d, an a mo un t eq u al to th e al lowan ce th a t wou ld ar i se i f th e a s se t s were m e as ure d at am or t i se d cos t i s re cog ni se d in ot h er co mp reh en s ive inc om e as a n acc um ul at ed i mp air m en t am o unt, w it h a cor re sp on di ng c ha rge t o prof i t or l os s . T he a cc um ula te d lo s s reco gn is ed i n ot he r com pre he n si ve inc om e is r ec yc led t o th e pro f it or l os s u pon d ere co gni t ion o f th e as s et s, o r wh en th e am ou nt o f all owanc es fo r ECL decre as e s du e to an even t occ ur r in g af te r th e im pa ir m en t was re cog ni se d . 2.14. Forborne loans A for bo r ne l oa n (or res t r uc t ure d fi na nc ial a s s et) ar i se s as a res ul t of a d ebt or ’s in abi lit y to r epa y a de bt un d er t he or igi na lly a gre ed t er ms , eit he r by mo di f y in g th e te r ms o f th e or igi na l con tr ac t (via an a nn ex) or by s ign in g a new co nt ra c t un der w hi ch t he c on tra c t in g pa r tie s ag ree t h e par t ia l or tota l rep ay me nt o f th e or i gin al d ebt. Lo an s wi th d efe r ral of pa ym en t app roved in l in e wi th t h e na ti on al l egi s la ti on on int er ven ti on m ea s ure s in re sp on s e to SA R S - Co V-2 (CO V ID - 19) pan d emi c un ti l 30 Se pte mb er 2020 a re no t for b or n e loa ns . Loan s w it h def er ral s of p ay m en t un der COVID -19 m ea s ures app roved af te r 30 Se pt em ber 2020 a re s ub jec t of a s si gnm e nt of for b ea ran ce s t at u s , except i n cas e s , wh er e det ail ed rev iew an d an aly si s s uf f ici en tl y ju s t if y th a t th e cl ien t is n ot i n f in an cia l dif f icu lt ie s . I f to re ceiva bl es d ue f rom t he c lie nt t h e s ta t us o f res t r u c t ur i ng i s in tro du ce d, t he d eb tor m u s t be c la s s if ie d in th e ra tin g gr oup C o r lower . The d ef in it io ns o f for b or n e loa ns c lo se ly fo llow d ef in it io ns t h at were deve lop ed by t he Eu rop ean B a nk in g Au th or i t y (EBA). The s e def i ni tio ns a im to a ch ieve com pr eh en si ve covera ge of exp os ure s to w hic h for b ea ran ce m ea s ure s ha ve be en exten ded. The a cco un ti ng t re at m en t of for b or n e lo an s dep en d s on t he t yp e of re s t r uc t ur in g. W h en NLB G ro up e mb ar k s on a for b or n e lo an vi a th e m odi f ie d ter m s of r epa ym en t pro cee din g fr om ex t en din g t he d ea dlin e fo r th e re pa ym en t of th e p ri nc ip al an d/ o r in tere s t, an d/ o r a for b ear an ce of t he rep ay me nt o f th e pr i nc ipa l, a nd/or inte res t or a re du c t ion in th e in te res t rat e, an d/ o r oth er ex pe ns es , it ad ju s t s t he car r yin g am o un t of t he fo r bor n e lo an o n th e ba s is of t h e dis co un te d valu e of t he e s t im at ed f u t ure ca s h fl ows un d er th e mo di f ied t er m s , an d re cog ni se s th e re s ul tin g ef fe c t in prof i t or l os s . I n th e event o f th e re du c t io n of a cl aim a ga in s t th e de bto r via t h e red uc tio n in t he a mo un t of t h e cl aim s as a res ul t of a c on tra c t u all y agr ee d deb t waive r an d own er s hip res t r u c t ur i ng o r deb t to e qui t y s wap, NLB G ro up de rec ogn is es th e cl aim i n th e pa r t rel at in g to t he w r it e - dow n or t he con tr ac t u all y ag ree d upo n de bt wai ver . Th e new e s t im at e of th e f ut u re ca sh f low s for t he r es id ua l cla im , n ot yet w r it ten down , i s ba se d on a n upd a ted e s t im at e of t he p rob abi lit y of los s . NLB G rou p con s ide r s th e de bto r ’s mo dif i ed po si t ion , t he eco no mic ex pe c t at io ns , a nd t h e col la ter al of t h e for bo r ne loa n . Wh en N LB G rou p is em b ar ki ng o n th e fo rb or n e lo an by tak ing p os s es sio n of ot he r as s et s (i .e., p rop er t y , p la nt an d equipme nt, securit ies , and other fin ancial as set s), including inves t m en t s in t he e qu it y of d ebt or s ob tai ne d vi a deb t- to - e qu it y s waps , it re cog ni se s th e ac qui red a s s et s in t h e s ta tem e nt o f fi na nc ial p os it io n at f air val ue , reco gn is in g th e dif fer en ce be t ween t he f air val ue o f th e a s se t an d th e car r y ing am oun t of t h e eli mi na te d cl aim i n prof i t or l os s . Forb or n e expo s ure s ma y be i den t if ie d in b oth t h e pe r for mi ng an d no n - per fo r mi ng p ar t s of t h e por t fol io. W he re t he for bo r ne l oan i s c las sif i ed in t h e no n - pe r for mi ng p ar t of th e po r t fo lio , it ca n be re cl as s if i ed to t h e pe r for mi ng p ar t if expo su re i s no l on ger c on si de red a s im pa ired o r de fa ult ed , if det er mi ne d am o unt s were rep ai d, i f on e year h a s pa s se d fro m th e la te s t of t h e event s d ef in ed ( in tr od uc tio n of fo rb ea ran ce, 195 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report cla s s if ica t ion i n th e n on - pe r for m ing p ar t, re pa ym en t of th e la s t overd ue a mo un t, en d of t he g race p er io d) a n d af ter t h e in tro du c t io n of for b ea ran ce t he re h ave be en n o overdu e am ou nt s o r do ub t s con cer n in g th e re pa ym en t of th e en ti re exp os ure , un der t h e ter m s an d co nd it io ns a f ter t he for be ara nc e. Th e ab se nc e of do ub t is co nf ir m e d by ana ly si s of th e f in an cia l si t ua ti on of t h e de bto r . The f or bo r ne s tat u s is w it h dra wn w he n: • a t le as t a 2-year p rob at io n pe ri od h as p as sed s in ce t h e latest of : • the moment of extending the r estructuring measures or • th e for b or n e expo s ure wa s dee m ed p er for m in g; • r eg ula r pa ym en t s of t h e pr in ci pal o r in ter es t we re m ade , in a su bs t an ti al tot al am o un t, dur in g a t le as t h al f t he p rob at io n per io d; • n o exp os ur e, in t he p rob at io n pe ri od , is m or e th an 30 d ay s in de fau lt o f mo re t ha n EUR 100; • t he client ful fils deter mine d finan cial indicators . In th e ca se o f a de fer ra l of pa ym e nt ap prove d du e to th e COVID -19 c r is is , t h e pro ba ti on p er iod i s ex t en de d for t h e period of deferral . 2.15. Repossessed assets In certain cir cumstances, assets ar e r epossessed following the for eclosur e on loans that are in default. R epossessed assets are initially r ecognised in the financial statements at their fair value and classified in the appr opriate category ac cor ding to their purpose and ar e sold as soon as it is feasible in order t o reduc e exposur e (note 6.1.l). Af ter initial r ecognition, r epossessed assets ar e measured and ac counted for in ac cor dance with the policies applicable to the r elev ant asset categories. Repossessed assets mainly r epr esent items of r eal estate that NLB Gr oup classifies within investment pr operties measured in acc ordanc e with an IAS 40 Investment pr operty (note 2.20.), and other assets measur ed in accor dance with IAS 2 In ventories. Rea l es t at e ob tain e d as co lla te ral f rom t h e fore cl os ur e of loa ns a nd r ece ivab le s , cl as s if i ed a s oth er a s s et s ar e ini t iall y reco gn is ed a t fa ir val ue le s s co s t s to s el l (reali sa bl e valu e), wh ere in on ly t h e dire c t c os t s o f sa le s can b e con s ide red . A t su bs eq ue nt m e as ur em en t, th e rea lis ab le val ue i s ver if i ed at l ea s t an n ual ly. V al ua tio n s of t he fa ir val ue o f rea l es t at e are p er for m ed by ce r ti f ied r eal e s ta te a pp rai se r s . Th e re al es t at e is im p aire d wh en t h e car r yi ng val ue exce ed s th e real is ab le val ue . Th e ef fec t of im pa ir m ent i s re cog ni se d as t h e imp ai rm e nt o f oth er a s s et s an d t he r ever sa l of im p air m en t as inc om e fro m th e rever s al o f th e im p air m en t of ot h er a s se t s . 2.16. O f fset ting Financial as set s and liabilities are of f set, and the net amoun t rep or te d in t he s tat em en t of f in an ci al po si t ion w he n th er e is a leg all y en forc eab le r ig ht t o of fs et t h e rec ogn is e d am oun t s , an d th ere i s an i nte nt io n to s et tl e on a n et b as is , or to re ali se th e as s et a nd s et t le t he l iab ili t y sim ul ta ne ou s ly. 2.17. Sale an d repurchase agreements Se cu r it ies s ol d un de r sa le an d re pu rch a se a gre em en t s (repos) ar e reta in ed in t h e f in an cia l s ta te me nt s , and t h e counter par t y liabilit y is recognis ed in financial liabilitie s me as ur ed a t an am or t is e d cos t. S ec ur i ti es s ol d s ubj ec t to sa le an d rep urc ha s e agre em en t s ar e rec la s si f ie d in t he f in an ci al s ta tem e nt s a s pl ed ged a s s et s w he n th e t ran s fe ree h a s th e ri gh t by con tra c t o r cu s to m to s ell o r re - pl ed ge t he c oll at era l. Se cu r it ies p urc h as ed u nd er ag ree m en t s to re se ll (rever se rep os) are p res en te d as l oan s to o th er b an k s or c us tom er s , a s appropriate. In f in an cia l s ta te me nt s , th e dif fer en ce be t ween t he s al e an d rep urc ha s e pr ice i s tr ea te d as in te res t and a ccr ued over th e li fe of t he r epo a gre em en t s u sin g t he e f f ec tive i nt ere s t metho d. 2 .1 8. Proper t y and eq uipment All i te ms o f pro pe r t y a nd e qu ipm e nt ar e ini t iall y re cog ni se d at co s t. Th ey are s ub s eq uen t ly m ea s ure d at c os t l es s any accumula ted depreciation an d any accumulated impair ment loss . Each yea r , NLB G rou p as s es s e s wh et he r th er e are in di ca tio ns th at p rop er t y an d eq ui pm en t ma y be i mp ai red . If a ny s uc h in dica ti on exi s t s , t h e rec overab le am o un t s are e s t im at ed . Th e recover abl e am ou nt i s t he h igh er o f th e fa ir val ue le s s co s t s to se ll an d val ue i n us e. I f th e re coverab le a mo un t excee ds th e car r yi ng val ue , th e as set s a re n ot im pa ire d. I f th e ca r r yin g am oun t excee ds t h e rec overab le am o un t, th e dif fer en ce is reco gn is ed a s an i mp air m en t lo s s in t he i nco m e s ta te me nt. Ite m s of a la rge ly i nd ep en den t p rop er t y and e q uip me nt wh ich d o no t gen er at e cas h f lows a re in cl ud ed i n th e ca sh - gen er at in g uni t an d la te r te s te d for p os s ib le im p air m en t. Dep re cia ti on i s cal cu la ted o n a s t raig ht- li ne b as is ove r th e as s et s ’ es t im a ted u s ef ul li ves . T he f oll owin g an n ual depreciation rates were applied : NLB Gr oup and NLB in % Buildings 2 - 5 Leasehold impr ovements 5 - 25 Computers 14.3 - 50 F urniture and equipment 10 - 33.3 Motor vehicles 12.5 - 25 Depr eciation does not begin until the assets ar e available for use. The a s s et s’ r es id ual val u es an d u se fu l live s are r eviewed a nd adj us ted i f app rop r ia te on e ac h rep or t ing d at e. G ain s an d los s es o n th e di s pos al o f it em s of p rop er t y and e q uip me nt are de te rm in ed a s t he d if fere nc e bet wee n th e s ale p roc ee ds an d th eir c ar r yin g am o unt a n d are re cog ni se d in t he i nc om e sta tement. Ma int en an ce an d re pa ir s are c ha rge d to t he i nc om e s ta tem e nt d ur in g t he f in an ci al p er io d in wh ic h th ey are inc ur r ed . S ubs eq ue nt c os t s t h at i nc rea s e f ut ur e eco no mi c ben ef i t s are r eco gn is ed i n th e car r yi ng a mo un t of a n as s et, an d th e rep la ced p ar t, if a ny , i s de reco gn is ed . 2.19. I ntan gible as set s Int an gib le a s se t s in cl ud e so f t war e lice ns es , goo dw ill (no te 2.5.), and i de nt if ia bl e in tan gib le a s s et s ac qui red i n a bu s in es s com bin a ti on . In ta ngi bl e as s et s o th er t h an go od wil l, h ave a fi ni te u se f ul li fe an d are i n th e s t at em en t of f in an ci al po si t ion s ta te d at co s t, le s s acc um ul at ed a mo r ti sa t ion an d i mp air m en t los s es . Am or t is at io n is ca lc ula te d on a s trai gh t-l ine b a si s at rat es d es ign ed t o wr it e - d own t he co s t of a n in tan gi ble a s s et over it s e s ti ma te d us ef u l lif e. Th e co re ba nk in g s ys t em i s am or ti s ed over a p er io d of 10 yea r s , an d ot he r so f t ware ove r a per i od of t h ree t o fi ve year s . Am or t is at io n doe s n ot be gin u nt il th e as s et s a re ava ila bl e for u se . The i de nt if ia bl e in tan gib le a s s et s ac qui red i n a bu s in es s com bin a ti on an d re cog ni se d s epa ra tel y fro m go od wil l, a re reco rde d at f air va lu e on t he a cqu is it io n da te i f th e in tan gi ble as s et i s se pa rab le or a r is es f rom co nt ra c t u al or o th er l ega l ri gh t s . Af te r ini ti al re cog ni ti on , in ta ngi bl e as s et s a cq uire d in a 196 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report bu si ne s s com bi na t ion a re m ea su red i n acc ord an ce wi th I A S 38 Int an gib le A s s et s . Add it ion al ly id en ti f ied i nt an gib le a s se t s acq uir ed in a b u sin e s s com bin a ti on in D ec em be r 2020 (note 5.12.c) rela te to c ore d epo si t s an d t rad e na m e. Th eir u s ef ul lif e is a s se s se d to b e 5 year s . Am or t is at io n of a t rad e na me is ca lc ula te d on a s t ra igh t-l in e ba si s , wh il e for c ore d epo si t s acce ler at ed am o r ti sa ti on i s app lie d , sin ce i t be t ter re fl ec t s th e pat ter n of asset ’s c on sum ption . 2.20. Investment proper ties Inv estment properties include pr operties held to earn rent als, or to incr ease the value of a long-term inv estment, rather than to be used by NLB Gr oup. Inv estment properties ar e carried at fair value determined b y a certified appr aiser. F air value is based on curr ent market pric es. Any gain or loss arising from a change in the fair value is r ecognised in the inc ome statement. 2.21. Non - current a ss et s and dis posal groups classif ied as held for sale Non - cur re nt a s s et s an d di s po sa l gro ups a re cl as s if i ed a s he ld for s al e if t he ir car r yi ng a mo un t wi ll b e recover ed t hro u gh a sal e transaction rathe r than thr ough conti n uing use. This con di tio n is d ee me d to b e me t on ly w he n th e s al e is h igh ly prob ab le, a nd t h e as s et i s avai lab le f or im m edi at e sa le in i t s pre se nt co n dit io n . Ma na ge me nt m u s t b e com mi t ted t o th e sa le, w hic h s ho ul d be exp ec te d to q ual if y for re cog ni ti on a s a com pl ete d s ale w it hi n on e year f rom t h e da te of c la s s if ica t ion . Non - cur re nt a s s et s an d di s po sa l gro ups c la s s if ie d as h el d for s al e are m ea s ure d at t h e lower of t h e as s et s ’ prev iou s car r yin g am o un t an d fair va lu e le s s cos t s to se ll . In th e ca se o f bu s in es s co mb in at io ns , N LB G rou p me as u res an acq ui red n on - cur r en t as s et (or di sp os al gr oup) th a t is c las sif i ed a s he ld fo r sa le a t th e ac qu is it ion d a te in acco rda nc e wit h IFR S 5 N on - c ur re nt A s se t s Hel d for S a le an d Di sco nt in u ed O pe rat io ns a t fa ir val ue l es s co s t s to s el l. Dur ing subs equent m eas urement, cer tain as set s and liabilities of a di sp os al g rou p th a t are o ut s id e th e s cop e of IFR S 5 mea sure men t requirem en ts are m eas ured in accorda nce wi th t he a pp lica bl e s tan d ard s (e.g., d efe r red t ax a s se t s , as s et s a ri s ing f rom e m ploye e ben ef i t s , f in an ci al in s t r um en t s , inves t m en t pro pe r t y m e as ure d a t fair va lu e, an d con t rac t ual right s under ins urance contrac t s). T angible an d intangible as s et s a re no t dep re cia te d. T he e f f ec ts o f s ale a nd val ua t ion are in cl u ded i n th e in co me s tat em en t as a g ain o r los s from no n - c ur ren t a s se t s he ld fo r sa le. Liabilities direc tly as so ciated with dis posal groups are rec la s si f ied a n d pre se nt ed s ep ara te ly in t h e s ta te me nt o f finan cial posit ion. 2.22. Accounting f or leases A lea s e is a co nt ra c t, or p ar t of a c ont ra c t, wh ic h cre at es enf orce ab le r igh t s an d ob lig a tio ns a n d conveys t h e r igh t to con t rol t he u s e of an i den t if ie d as s et f or a pe r iod o f tim e in exc ha ng e for co n si der at ion . T h us , I FRS 16 r eq uir es det er mi na t ion w h eth e r a con tr ac t i s , o r con tai ns , a lea se . NLB G roup a s a le ss ee NLB G rou p rec ogn is e s a lia bili t y to m ake lea s e pa ym en t s an d an as s et r epr es en ti ng t h e ri gh t to us e t he u nd er ly in g as s et (i .e. , th e r igh t- of- u se a s s et) d ur in g th e l eas e t er m for a ll le as es , except fo r sh or t- ter m l ea se s an d le as es o f low-va lu e. S ho r t- ter m l ea se s are d ef in ed a s th os e w hic h at t h e com m en cem en t da te h ave a le as e te r m of 12 m on th s or l es s w it h ou t th e o pti on to pu rch a se t he u n der l yin g as set. Le as es o f un de rl yi ng a s se t s wi th a val ue, w h en n ew , l ower or e qu al to EU R 5 th o us an d are de f in ed a s low val ue le as e s , an d are t h us re co gni s ed a s expe ns e s on a s t rai gh t-li ne b as i s over th e le as e te r m . Right- o f- use assets At th e co mm en ce me nt d a te, NL B Gro up m e as ur es t he ri gh t- of- u se a s se t at c os t, re du ced by a ny acc um ul at ed dep rec ia ti on an d im pa ir m en t los s e s , an d ad ju s te d for a ny remeas uremen t of lease liabilities . The cost of righ t-of-u se as s et s co n si s t s of t h e am ou nt o f le as e lia bil it ies r eco gn is ed , ini ti al di rec t cos t s inc ur re d, a n es t im a te of c os t s t o be in c ur re d by th e les see i n di sm an t lin g, a n d rem ovin g t he u nd er ly in g as s et to t h e con di ti on re qu ire d by th e te rm s an d co nd it io ns of th e l ea se a nd l ea se p ay m en t s ma de a t or b efo re th e com m en cem en t da te l es s an y lea s e in cen ti ves re cei ved . Af ter th e com m en cem e nt d at e, NLB G ro up m ea s ure s th e r igh t- of- us e as s et u s ing a c os t m o del a nd r eco gn is es d epr eci at io n of th e r ig ht- o f- us e as s et s , on a s t raig ht- li ne b as is ove r th e lea s e ter m , an d (se pa rat el y) int ere s t on t h e le as e lia bil it ie s . In th e s t at em en t of f in an ci al po si t ion , r ig ht- o f- us e as s et s are pre se nt ed in t h e lin e it em ‘ Pro pe r t y a nd e qu ipm e nt.’ Lease li abili ties At th e co mm en ce me nt d a te, NL B Gro up m e as ur es t he l ea se liab ili t y at t he p res en t val ue o f th e le as e pa ym en t s t h at ar e not p ai d at t h at d at e. Th e le as e pa ym e nt s co n si s t of f i xed pa ym en t s , var ia ble l ea s e pa ym en t s th a t de pen d o n an in dex or a ra te , am ou nt s ex pe c t ed to b e pa id un de r res id u al valu e gu ara nt ees , th e exerci se p r ice o f a pu rch as e op ti on if th ere ex is t s a r ea so n abl e cer t ain t y for it t o be exerc is ed , an d pa ym en t s of p en al ti es fo r ter m in at in g t he l ea se , if t he l ea se ter m re fl ec t s exerci si ng t he o pt ion t o ter m in a te. S ub s eq uen t ly (af t er t he co mm e nce m en t da te), NLB G ro up m ea s ure s th e lea s e lia bili t y by: • i nc rea s in g th e car r yi ng a mo un t to re fl ec t int ere s t on t h e lease liabilit y; • r ed uci ng t h e car r yin g am o un t to ref le c t t h e le as e pa ym en t s made; • r em ea s ur in g th e car r y ing a mo un t to re fl ec t any rea s se s s me nt o r le as e m odi f ica ti on s . In the sta temen t of financial pos ition , lease liabilities are presen ted in line item ‘Oth er fin ancial liabiliti es . ’ NLB G roup a s a le sso r Pay me nt s und er o per at in g le as es a re rec ogn i se d as in co me on a s t rai ght- li ne b as i s over th e pe r iod o f th e le as e. A ss e t s lea s ed un d er op era t in g lea s es ar e pre se nt ed in t h e s ta te me nt of f in an cia l po si ti on a s inves t m en t pro pe r t y o r as p rop er t y an d eq uip me nt. NLB G rou p cl as s if i es a le as e a s a f in an ce le as e wh en t h e ri s k s an d reward s in cid en tal t o own er s hi p of a le as ed a s s et lie w it h th e le s s ee. W h en as set s a re le as ed u n der a f i na nce lea s e, th e pr es en t val ue of t h e lea s e pa ym en t s is r eco gn is ed as a re cei vabl e. In com e f rom f in a nce l ea se t ra ns ac ti on s is am or ti s ed over t he l ife ti me o f th e le as e u si ng t he e f f ec ti ve int ere s t m et ho d . Fin an ce l ea se r ece ivab les a re re cog ni se d at an am ou nt e qu al to t h e ne t inves tm en t in t he l ea se , in cl udi ng the ungu aranteed residual value. Sale- and -leaseback transactions NLB G rou p al so e nt er s in to s ale - an d- l ea se ba ck t ran s ac tio ns (in w hi ch N LB Gro up i s pr i ma ri ly a l es s or) u nd er w hic h t he lea s ed a s se t s are p urc h as ed f rom , a nd t h en le as ed b ac k to th e le s se e. Th e se co nt ra c t s a re cl as s if i ed a s fi na nc e le as es o r ope ra ti ng l ea se s , de pen d ing o n th e co nt rac t ual t er m s of t he leaseback agreemen t. Leases r ecognised in a business c ombinat ion In all l ea se s acq ui red i n a bu s ine s s co mb in at ion , t h e acq uir ee is t he l es s ee . For su ch l ea se s , NLB G ro up ap pl ies t h e IFR S 16 ini ti al m ea s ure me nt p rovi si on s (wi th excep ti on s for l ea se s wi th rem ain in g te rm o f 12 m on th s or l es s an d l ow valu e lea s es) an d reco gn is es t h e acq uir ed l ea se li abi li t y a s if t h e lea s e con tr ac t 197 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report was a n ew lea s e at t he a cq ui si ti on da te . Th e ri gh t- of- u se a s s et is m ea s ure d at a n am ou nt e qu al to t h e reco gn is ed l iab ili t y . The re ar e no f avou rab le o r un favo ura ble t er m s of t he l ea s es rel at ive to m ar ket t er m s , wh ic h woul d req ui re th e a dju s t m en t of th e r ig ht- o f- us e as s et s . 2.23. Cash and cas h equivalent s For th e pu rp os e of t h e s ta te me nt o f cas h f lows , cas h an d cas h eq ui vale nt s c om pr is e ca s h an d ba lan ce s wi th ce nt ra l ban k s an d ot he r de ma nd d ep os it s a t ba nk s , d eb t se cu r it ies he ld fo r tra din g , lo an s to ba nk s , and d ebt s e cu ri t ies n ot h el d for t rad in g wi th an o r igi na l ma t ur i t y o f up to t h ree m on t hs . Cas h an d ca sh e qu ival en t s are d is cl os ed un d er t he ca s h fl ow sta tement. 2.24. Borrowings, de posi ts , an d iss ued deb t securi ties with charac teris tic s of debt Loan s an d d epo si t s re cei ved an d is s u ed d ebt s e cu ri ti es a re ini ti all y rec ogn is e d at f air val ue . Bo r rowin g s are s ub se qu en tl y me as ur ed a t th e am or t is e d cos t. T he d if fere nc e bet wee n th e valu e at i ni ti al re cog ni tio n an d th e f in al val ue i s re cog ni se d in th e in co me s tat em en t as i nt ere s t exp en s es , ap pl yi ng t he ef f ec ti ve int ere s t ra te. Rep urc h as ed ow n deb t is d is cl os ed a s a red uc ti on of liabilities in the s tateme nt of financ ial position . The dif ference bet wee n th e bo ok val u e an d th e pr ic e at w hic h own d ebt wa s rep urc ha s ed i s dis cl os ed i n th e in com e s tat em en t. 2.25. Ot her is su ed fin ancial in st r umen ts with charac teris tic s of equi t y Upo n in it ial r eco gn it ion , o th er i s s ue d fi na nc ial i ns tr u me nt s are c las sif i ed in p ar t o r in f ull a s eq ui t y ins tr u me nt s i f th e con tr ac t u al c ha rac ter i s t ic s of t h e in s t r um en t s are s u ch th at N LB G rou p m us t c la s s if y th em a s eq ui t y i ns tr u me nt s i n acco rda nc e wit h IA S 32 F in an ci al In s t r um en t s : Pre se nt at ion . An i s s ued f i na nc ial i ns tr u me nt i s on ly c on si der ed an e q uit y in s tr ume nt i f t ha t in s t r um en t do es n ot re pr es en t a con tr ac tu al obligation for payment. Is s ue d f in an cia l in s t r um en t s wi t h ch ara c t er is tic s o f eq ui t y are reco gn is ed i n eq ui t y i n th e s t at em en t of f in an ci al po si t ion . T ran sa c t ion c os t s i nc ur re d for i s s uin g s uc h in s t r um en t s ar e ded uc te d fro m eq ui t y r es er ves . T he c or res p on din g in te res t i s reco gn is ed d ire c t ly i n prof i t res e r ves . The c ar r yin g val ue o f an is s u ed f in an ci al in s t r u me nt w it h ch ara c te r is t ic s of eq ui t y is pre s en ted i n th e s t at em en t of ch an ges i n eq ui t y i n th e li ne i te m ‘O th er Eq uit y In s t r um e nt s . ’ 2.26. Pr ov isions Provi si on s are re co gni s ed w he n NLB G ro up h as a p res en t leg al o r con s t r uc ti ve obl iga t ion a s a res u lt o f pa s t even t s , an d it i s pro bab le t h at an o u t f low o f res o urce s em bo dy ing eco no mic b en ef i t s wi ll be r eq uir ed to s et t le t he o bli ga ti on , an d a reli ab le es tim a te of t h e am ou nt o f th e ob lig at io n can be m ad e. Th ey are r eco gn is ed in t h e am ou nt t h at i s th e b es t es t im at e of t he ex pe nd it ur e req ui red t o se t t le t h e pre se nt obl iga t ion a t th e en d o f th e rep or t in g pe ri od . Wh en t h e ef fec t of th e t im e val ue of m on ey is m a te ri al , NLB G ro up de ter m in es th e level o f prov is ion s by di sc ou nt in g th e exp ec ted c as h f lows at a p re -t ax ra te r efl ec ti ng t he c ur re nt r at es s pe ci f ic to t he liabilit y. 2.27. Conting ent liabili ties and com mit men ts Financial and non- financial guarantees Fin an ci al g uar an tee s are c on tra c t s t h at re q uire t h e is s u er to ma ke sp eci f ic pa ym e nt s to r eim b ur s e th e h old er fo r a lo s s it inc ur s b ec au se a s p ec if ic d ebt or fa ils t o ma ke pay m en t s wh en du e, in ac cord an ce w it h th e te r ms o f deb t in s t r um en t s . S u ch finan cial guarantees are given to banks , finan cial ins tit ution s , an d oth er b od ies o n be h alf o f th e c us t om er to s e cu re lo an s , overdra f ts , and o th er b an ki ng f aci lit ie s . The i s s ue d gu ara nt ee s cover in g no n -f i na nc ial o bli ga tio n s of th e cl ien t s re pre se nt t h e obl iga t ion o f th e B an k (g uar an tor) t o pa y if t he c lie nt f ail s to p er for m ce r tai n wor k s in acc ord an ce wi th t he t er m s of t he c om me rci al con t rac t. Financial an d non- fin ancial guarantees are initially reco gn is ed a t fa ir val ue, w hi ch is u s ua lly ev id en ced by t he f ee s rece ived . Th e fe es a re am or t is ed t o th e in com e s tat em en t over th e con t rac t ter m u si ng t h e s tr aigh t- lin e m et ho d. N LB G rou p’s liabilities under guaran tees are subseq uently m easure d at the greater of: • t h e ini t ial m ea s ure me nt, l es s am or t is a ti on ca lc ula te d to reco gn is e fe e in com e over t he p er io d of g ua ran tee; o r • ECL prov is ion s a s se t ou t in n ot e 2.13. Documen tar y let ters of credit Do cum e nt ar y (and s t an dby) let te r s of c red it co ns ti t ut e a wr it te n an d ir revoc abl e com m it me nt o f th e i s s uin g (open in g) ban k on b eh al f of t h e is s ue r (i mp or t er) to p ay t h e be nef i cia r y (expor te r) th e val ue s et o ut i n th e do c um en t s by a def in e d deadline: • i f th e le t ter o f cre dit i s p ayab le on s ig ht ; a n d • i f th e le t ter o f cre dit i s p ayab le fo r def er re d pa ym en t, th e ban k w ill p ay ac cord in g to t he co nt ra c t u al ag ree me nt w h en an d if t he b en ef ic iar y (expo r ter) p res en t s t he b an k wi th doc um en t s t ha t ar e in lin e w it h th e co nd it ion s an d d ead lin es se t ou t in t he l et te r of cr edi t. A com mi tm e nt m ay a ls o ta ke th e for m of a l et ter o f cr edi t con f ir ma t ion , w hi ch i s us ua lly d on e at t h e req ue s t o r au th or i sa t ion o f th e is su ing (op eni ng) ba nk an d co n s ti t u tes a fi r m com mi t me nt by t he c on fi r mi ng b an k , in ad di tio n to t ha t of th e is s u ing b an k , w hic h in de pen d en tl y as s um e s a com mi t me nt to the benef iciar y und er cer tain condit ions . Oth er contingent liabilities and commitment s Other conti ngent lia bilities and commitments represent un dra wn lo an co m mi tm en t s to ex ten d cr edi t, un covered let te r s of cr edi t, an d ot he r com mi t me nt s . The n o min al c on tr ac t u al val ue s of g uar an tee s , le t ter s of cre dit, an d u nd raw n lo an co mm it m en t s wh ere t h e lo an agre ed t o be p rovid ed i s on m ar ket te r ms , are n ot rec ogn i se d in th e s t at em en t of f in an ci al po s it ion . Contingen t liabilities recognised in a busin ess combina tion A con ti ng en t lia bili t y reco gn is ed i n a bu s in es s co mb in at ion i s ini ti all y m eas u red a t i t s fair va lu e. Af te r ini t ial re co gni ti on , i t is me as ur ed a t th e h igh er of : • t h e am ou nt t h at wo uld b e re cog ni se d in ac cord an ce w it h IA S 37 Provi s ion s , Con t in gen t Li abi lit ie s an d Con ti ng ent A s s et s; o r • t h e am ou nt in it ia lly r eco gn is ed l es s , i f ap prop r ia te, t h e cum u la ti ve am ou nt of i nc om e rec ogn i se d in ac cord an ce wi th t he p r in cip le s of IFR S 15 R even ue f rom Con t rac ts w i th Cus t om er s . T hi s re qui rem en t do es n ot a ppl y to co nt ra c t s acco un te d for i n acco rda nc e wi th IFR S 9. 2.28. Ta x e s Income tax e xpenses comprises curr ent and deferr ed income tax. Cur ren t co rp or at e inc om e ta x in NLB G ro up i s cal cul a ted o n taxab le p rof i t s at t he a pp lica bl e tax r at e in th e re s pe c t ive jur i sd ic tio n . Th e cor p ora te in co me t ax ra te f or 2021 in S loven ia was 19% (2020: 19%). Cur ren t an d de fer r ed ta xes ar e reco gn is ed i n pro fi t or l os s , except to t h e ex te nt t h at t h ey rel ate t o a bu s in es s co mb in at io n or ta xes re la ted t o ef fec t s reco gn is ed d ire c t ly i n eq uit y (defer re d tax r el at ed to t h e fair va lu e re - me as u rem en t of f in an cia l as s et s m e as ur ed a t fai r valu e th ro ugh o th er com pre he n si ve inc om e, ca sh f low h ed ge s , an d ac tu ar ia l gai ns an d los s es o n de fi ne d be ne f it p en si on p lan s i s ch arg ed o r cre dit ed d ire c t ly to o th er c om pre he ns ive i nco m e). 198 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Def er re d in com e ta x is ca lc ula te d us in g t he b al an ce sh e et liab ili t y me th od fo r te mp ora r y dif fere n ces ar i s ing b et wee n th e tax bases of ass et s and liabilities , and their carr ying amoun ts for financ ial repor tin g purpos es . Def er re d tax a s s et s ar e reco gn is ed i f it i s pro ba bl e th a t fu t ur e taxab le p rof i t wil l be a vaila bl e in t he fo res e eab le f u t ure aga in s t wh ic h th e te mp ora r y dif fer en ces ca n be u t ili se d. Def er re d tax a s s et s an d li abi lit ie s are m e as ure d a t tax r ate s en ac ted or s u bs t an ti vely e n ac t ed a t th e e nd o f th e rep or t in g per i od t ha t are ex pe c t ed to a pp ly to t h e per i od w he n th e as s e t is re ali s ed , or t he l iab ili t y i s s et tl ed . At e ach r ep or ti ng d at e, NLB G rou p revi ews t he c ar r yin g am ou nt o f def er re d tax a s s et s an d as s es s es f u t ure t axab le p rof it s agai ns t whi ch t em por ar y taxab le d if fere nc es ca n be u ti lis e d. Def er re d tax a s s et s fo r tem p orar y d if fere nce s ar i si ng f rom impair ment s of investmen t s in subsidiarie s, as so ciates and join t ven t ure s are r eco gni s ed o nl y to th e ex ten t th a t it i s prob ab le t h at : • t h e tem po rar y di f fere nce s wi ll be r ever se d in t he foreseeable f ut ure; and • t axab le p rof it w ill b e ava ila bl e. Sl ovenia n ta x law d oe s no t se t de adl in es by wh ic h un covered tax l os s es m u s t be u t ili se d . In th e ca se o f bu s in es s co mb in at io n def er re d tax b al anc es ar e reco gn is ed i f rel at ed t o tem po rar y di f fere nce s an d car r y- for ward s of an a cq uir ee t ha t exi s t a t th e acq ui s it ion d at e or if t hey ar i se a s a re s ult o f th e ac qu is it io n . In com e ta xes are me as ur ed in a cco rda nce w it h IA S 12 I nco m e T axes . A tax o n f in an cia l se r vice s is a t ax on f ee s , pa id for p re sc r ibe d fi na nc ial s er v ice s ren de red (f in an ci al s er vi ces , exem pt f rom valu e ad ded t ax (wi t h th e except io n of s ec ur it ie s tr an sa c t ion s) an d th e se r vic es of i ns u ran ce br oker s an d ag en t s), pa id in Sl ovenia . Th e t ax ra te i s 8.5% (2020: 8.5%) and t he t ax i s pa id mo nt hl y. Given t ha t th e t ax on f in a nc ial s er vi ces i s cl as s i fi ed as a s ale s ta x, i t re du ces a ccr ued reve nu es i n th e f in an cia l sta tement s . 2.29. Fiduciar y ac tiv ities NLB G rou p prov ide s as s et m an a gem en t s er vi ces t o it s c lie nt s . A s s et s h eld i n a f id uci ar y cap ac it y are n ot re po r ted i n NLB Gro up’s fi na nc ial s tat em en t s as t h ey do n ot rep res en t a s se t s of NLB G ro up. Fee a nd c om mi s si on in co me a nd ex pe ns e s rel at in g to f id uc iar y ac ti vi ti es ar e gen er all y reco gn is ed i n th e inc om e s ta te m en t wh en t he s er v ice h as b ee n prov ide d (see als o n ote 2.10.). Fee an d co mm is s io n in com e c ha rge d for t hi s t y pe o f se r vice i s br oken dow n by ite m s in no te 4.3.b). Fur t h er det ail s on t ran s ac tio ns m an ag ed o n be ha lf o f th ird p ar t ies a re dis c los ed i n no te 5.24. Ba s ed on t h e req ui rem en t s of S love nia n le gis l at ion , N LB Gro up h a s , in n ote 5.24., ad di tio n all y dis c los ed t h e as s et s a nd liab ili ti es o n acco un t s u se d to m an ag e fi na nc ial a s s et s f rom fi du cia r y ac t iv it ie s , i .e., i nfo r ma t ion re la te d to t he re cei pt, pro ces s in g , an d execu t ion o f ord er s an d re la te d cu s to dy ac tivities . 2.30. Emplo yee benefit s Emplo yee benefits include: • s h or t-t er m em pl oyee b en ef it s (s uc h as s al ar ies , compens ation s , annual holida y allow an ce, separation allowance, an d non -mo netar y benefit s); • reim bur semen t of commut ing cost s , meal allowance, com pe ns a ti on fo r us e of own r es ou rces); • retirem ent indemni t y bonus es (pos t-employm ent benefi ts); • o th er e mp loym e nt b en ef it s ( j ub ile e lo ng - se r vice b en ef i t s , voluntar y s upplem entar y pension ins urance); • variable remuneration . Sh or t-t er m em p loyee b en ef it s a re re cog ni se d in t he p er io d to wh ich t h ey rela te a nd i nc l ude d in t he i nc om e s ta te me nt l in e ite m ‘ Ad mi ni s tr at ive exp en s es .’ Amo ng o th er s t h ey inc l ude t h e pa ym en t of co nt r ib ut io ns f or pe n sio n an d di sa bil it y in s uran ce , wh ich a ccor din g to lo cal l eg is la t ion (fo r em ploye r) am ou nt to 8.85% of th e gr os s s ala r ies . Accor din g to l egi s la ti on , em pl oyees r eti re a f t er t hey f u lf il cer ta in co nd it ion s ac cord in g to Pe ns io n an d Di sa bil it y Ins u ran ce Ac t (ZPIZ) , th ey are e nt it l ed to a l um p - s um severa nc e pa ym en t. Emp loyee s are al s o en ti tl ed to a l on g - se r vice b on us f or ever y 10 yea r s of s er vic e in NLB . The s e obl iga t ion s ar e me as ur ed a t th e pr es en t val ue of f u t ure cas h o ut fl ows co ns id er in g f ut u re s ala r y inc re as es an d ot h er con di tio n s , an d th en a pp or t ion ed t o pa s t an d f ut u re em pl oyee se r vice b as ed o n th e b en ef it p la n’s term s a nd co n dit io ns . Se r vice co s t s a re in cl ud ed in t h e in com e s t at em en t in t he lin e it em ‘ A dmi ni s t ra ti ve expe ns es ’ as d ef in ed b en ef it c os t s , wh ile i nt ere s t exp en se s on t h e def in e d ben ef i t lia bil it y are reco gn is ed i n th e li ne i tem ‘ In te res t an d si mil ar exp en s es .’ The s e int ere s t exp en s es re pre s ent t h e ch an ge d ur in g t he per i od in t h e def i ne d be ne fi t li abil it y th a t ar is e s fro m th e pa s sa ge of t im e. For p os t- e mp loy me nt b en ef i t s , ac t uar ia l gai ns a nd l os s es f rom t h e ef fec t of ch an ge s in ac t uar i al ass umption s and experience adjus tmen ts (differences bet ween the r ealised and expected payments) are recognised in ot he r com pr eh en si ve in com e un de r th e li ne i te m ‘ Ac tu ar ia l Ga in s/(Loss e s) on De fi ne d B en ef i t Pen s ion s Pl an s ,’ and wi ll not b e re c ycl ed to t h e in com e s t ate m en t. Ac t ua r ial g ain s an d los s es t h at r ela te t o ot he r em ploy me nt b en ef i t s are reco gn is ed i n th e in com e s tat em en t as d ef in ed b en ef i t cos t s . In the sta temen t of financial pos ition , liabilities for shor t- ter m em p loyee b en ef it s a re in cl u ded i n th e li ne i tem ‘ O th er liabilities , ’ whil e liabilities for post- employmen t benef its an d oth er e mp loy me nt b en ef i t s ( jub il ee lo ng - se r vice b en ef i t s) are inc l ude d in t he l in e it em ‘ Provi s ion s .’ In th e ca se o f a bu s in es s co mb in at io n em ploye e ben ef i t s are re cog ni se d an d m ea s ure d in acc ord an ce wi th I A S 19 Empl oyee B en ef i t s , i .e., n ot a t fai r valu e. 2.31. S hare capital Dividends on ordinary shares Div id en ds o n ord in ar y s ha res ar e rec ogn is e d in eq ui t y in th e per i od in w hi ch t hey a re app roved by NLB ’s s ha reh ol der s . T reas u r y s h ares If NL B or an ot he r m em ber o f NLB G ro up p urc ha s es NLB ’s sh ar es , t he c on si der at io n pai d is d ed uc ted f rom t h e tota l sh ar eh old er s’ e qu it y as t re as ur y s h are s . If s u ch s h are s are subsequen tly sold, any cons ideration rece ived is included in eq uit y. If NLB ’s sh are s are p urc ha s ed by NLB i t s el f or ot h er NLB G rou p en ti ti es , N LB cre a tes r es er ves fo r tre as u r y sh are s in equity. Sh are is s ue co s ts Cos t s di rec tl y at t ri bu ta bl e to th e i s s ue of n ew s ha res a re reco gn is ed i n eq ui t y a s a re du c t ion i n th e s ha re pr em ium accoun t. 2.32. Segm ent repor tin g Op era t ing s e gm en t s are re po r ted i n a ma nn er c on si s t en t wi th int er n al re por t in g to t he M an a gem en t B oa rd , wh ich i s th e execu t ive bo dy t h at m akes d ec is ion s re ga rdin g t he a llo ca tio n of res o urce s an d as s e s se s th e p er for m an ce of a s p ec if ic se gm e n t. T ran sa c t ion s b et ween o rga ni sa t ion al u ni t s (OUs) a re ma na ge d un der n or m al o pe rat in g co nd it ion s . I nt ere s t in com e am on g in div id ual O Us i n th e p are nt b an k (NLB) i s all oca te d us in g a f un d tra ns fer pr i cin g m et ho d an d sh own w i th in t he 199 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report ne t int ere s t in co me o f ea ch O U. Ne t no n -i nt ere s t in co me i s allo ca te d to th e O U th a t ac tu all y prov ide s th e s er vi ce th a t gen er at es in co me . Dir ec t cos t s a re at t r ibu te d to t he s e gm en t th at i s di rec tl y rel at ed to t h e provi de d se r vice a nd i nd ire c t cos t s (cos t s whi ch s er vi ce cen t res p rovid e for p rof i t cen tr es) are a t tr ib ut ed to t h e se gm en t for w hi ch t he s er v ice i s provi de d, wh ere as over h ea d cos ts a re all oc at ed ac cord in g to ge ne ral keys . E x t er n al n et in com e i s th e n et in co me o f NLB G ro up fro m th e con s ol ida te d in com e s t at em en t. Inc om e ta x is n ot allo ca te d bet wee n se gm en t s . A n aly si s by s egm en t fo r NLB Gro up i s pre s en ted i n no te 7.a). In acc ord an ce wi th I FR S 8, NLB G rou p h as t he fo ll owin g rep or tab le s e gm en t s: R eta il B an ki ng i n Sl oveni a, Co rp ora te an d Inves t m en t B an kin g in S loven ia , St ra te gic Fore ign Ma rket s , Fin an ci al M ar ket s in S loven ia , No n - co re m em ber s , and Other Ac tivities. 2.33. Cr itical accountin g es tima tes and judgme nt s in applyin g accounting p olicies NLB G rou p’s fin an cia l s ta te me nt s a re in fl u en ced by acc ounting poli cies, assumptions, estimates, and ma na gem e nt ’s jud gm en t. NLB G ro up m akes es tim a te s an d as s um pt io ns t h at a f f ec t th e rep or t ed am o un t s of as set s a nd liab ili ti es w it hi n th e n ex t f in an ci al year . A ll e s ti m ate s an d as s um pt io ns r eq uire d in co nf or mi t y wit h t he I FR S are b es t es t im at es u nd er ta ken in ac cord an ce w it h th e ap pli cab le s tan d ard . E s t im at es an d j udg me nt s are evalu at ed o n a con ti nu in g ba si s , an d ar e ba se d on p as t expe ri en ce an d ot h er fac tor s , i nc lu din g exp ec tat io ns w it h re gar d to f ut u re even t s . a) Allowan ces fo r expe c te d cre di t los se s on lo an s an d advances NLB G rou p mo ni to rs a n d ch ec ks t h e qu ali t y of th e l oan por t fol io a t th e in di vid ua l an d po r t fo lio l evels t o con t in uo us ly es t im at e th e n ece s s ar y all owanc es fo r ECL. N LB G rou p creates individ ual allowances f o r individually signi ficant fi na nc ial a s s et s a t tr ib ut ed to S ta ge 3. S uc h an a s si gn me nt i s ba se d on in fo rm a ti on re gar din g th e f ul f ilm en t of c on tr ac t u al obl iga t ion s or o th er f in an ci al di f fic ul t ies o f th e de bto r , an d oth er i mp or ta nt f ac ts . Ind iv id ual a s s es s m en t s are b as ed o n th e exp ec ted d is co unt ed c as h fl ows f rom o per at io ns a nd/or th e as s es sed ex pe c t ed p ay me nt f rom c oll at era l. All owanc es ar e as s es s ed c oll ec ti vely fo r f in an cia l as s et s as s ign ed t o St age 1 o r 2, or fo r f in an cia l as s et s i n Sta ge 3 wi th exp os ur e be low th e m at er ia lit y t hr es ho ld . Th e ECL in th is gr ou p of as s et s are es tim a ted b as e d on exp ec ted va lu e of r is k p aram et er s co mb in ing t h e hi s to r ic movem e nt s w it h th e f ut u re m acro ec on om ic pr edi c t ion s fo r th re e se pa rat e sce na r ios . Them od el s us ed t o es t im a te f u t ure r is k p ara me ter s are vali da te d an d ba ck-te s te d on a re gu lar b a si s to m ake los s es t im at io ns a s re ali s t ic as p os s ib le. NLB G rou p pe r for m s reg ul ar s t re s s- te s t in g as p ar t of t he IC A AP pro ces s nor m a ti ve app roa ch , w he re th e 3-ye ar b udg et is te s te d fo r adve r se c irc um s ta nc es . T he s el ec ted s tre s s sce na r io pr edi c t s a dver s e ec on om ic ci rcu ms tan ces a s a re su lt of th e p rolo ng ed COVID -19 pa nd em ic . In terms of cr edit risk, the scenario has an unfavour able impact on default r ates (tr ansfer of assets from performing to default) and loss r ates (expected losses after oc currenc e of default ). F urthermore, a tr ansfer of assets within the performing sub- portfolio to r ating classes with worse default pr obabilities is envisaged. Based on the e xisting exposur es (static balance sheet assumption), additional allowanc es for expected cr edit losses ar e assessed on existing default e xposures and ne w default flows, as w ell as on the remaining performing portfolio. The r es ul t s of t h e s t res s s ce na ri o for N LB Gr ou p sh ows a n inc re as e of c red it r is k im p air m en t s in t h e fi r s t yea r of s t re s s by EUR 139.6 mi lli on (2020: EU R 134.7 mi llio n), an d an in cr ea se in th e cover age o f th e cr edi t po r t f oli o by imp air m en t s by 0.98 per cen tag e po in t s (2020: 0.90 pe rcen ta ge p oin t s). b) Fair v alue of financial ins tr ument s The f air va lu es of f i na nc ial i nves t me nt s t ra de d on t he a c t ive ma rket a re b as ed o n cu rr en t bid p r ices (f in an ci al a s se t s) or of fer prices (finan cial liabilities). The fair values of financial instruments that ar e not tr aded on the active mark et ar e determined by using valuation models. These include a comparison with r ecent tr ansaction prices, the use of a discounted c ash flow model, valuation based on compar able entities, and other fr equently used valuation models. These valuation models at their best estimate r eflect curr ent mark et conditions at the measur ement date, which may not be r epr esentative of mark et conditions either befor e or after the measur ement date. Management r eview ed all applied models as at the r eporting date to ensur e they appr opriately reflect curr ent market c onditions, including the relativ e liquidity of the mark et and the applied credit spr ead. Changes in assumptions r egar ding these factors could affect the r eported fair values of financial instruments held for tr ading, and financial assets measur ed at fair value thr ough other compr ehensive inc ome. In year 2020, t h e vola t ili t y o f pr ic es on va ri ou s m ar ket s inc re as ed a s a res u lt o f th e s pre ad of COVID -19. Th er efor e, NLB G rou p de cid ed to s e ll s om e se cu r it ies w i th in c rea se d cre dit s p rea ds a s pa r t of it s s tra te gy to m a na ge t he c red it ri s k . Mo s t of t h es e se c ur it ie s were c la s si f ied a s m ea s ure d at fair va lu e th ro ugh ot h er co mp reh en s ive in co me (EU R 250,297 th ou s an d at N LB Gr ou p an d EUR 222,586 t ho us an d a t NLB) , wh ile EU R 120,131 th o us an d of s ol d se c ur it ie s were m ea s ure d at am or t i se d cos t. T he t otal r eal is ed g ain s d ue to s al es o f se cu ri t ies a mo un t to EU R 17,815 th ou s an d at N LB G rou p an d EUR 17,096 tho us an d a t NLB (no te 4.4.). Du e to in c rea se d fr eq uen c y a nd val u es of s al es o f se cu ri t ies me as ur ed a t am or t is ed c os t, NLB G ro up re as s es sed w h et he r th ere h a s be en a ch an ge i n it s b u si ne s s mo de l for m an ag in g fi na nc ial a s s et s . S al es wer e ma de d ue t o an in cr ea se i n th e as s et s’ c red it r i sk , and a re th er efo re con s is ten t wi th a h el d to coll ec t bu s ine s s m od el be ca us e t he c red it q ua lit y of f i na nc ial as s et s i s rel evant t o NLB G ro up’s abili t y t o col le c t co nt ra c t ua l cas h f lows . Credi t r is k m an ag em en t ac tiv it ie s th a t are a im ed at m in imi s in g pot en tia l cre di t los ses d ue t o cre di t det er io rat io n are in te gra l to s uc h a mo de l. Fur t he r mo re, t he s al es we re m ade a s a re sp on s e to COVID - 19 si t ua ti on an d t he i nc rea s ed vol um e of s al es i s no t expe c t ed to per s i s t. It i s exp ec ted , t ha t f ut u re s ale s vol um es w ill b e lower in fre qu en c y an d val ue. S o, n o ch an ge i n ou r bu s in es s m od el h as been made. The fair values of derivative financial ins tr um ent s are det er mi ne d on t h e ba si s of m ar ket d at a (mar k-to - m ar ket), in acco rda nc e wit h NL B Gro up’s me th od olo gy f or t he val ua t ion of f in an cia l in s t r um en t s . T he m ar ket exch an ge r at es , in te res t rat es , y iel d , an d vola ti li t y c ur ves u s ed in va lu at ion s ar e ba se d on t he m ar ket s n aps h ot pr i nc ipl e. M ar ket da ta a re s aved d ail y at 4 p.m . , an d la te r us ed f or t he ca lc ul at ion o f th e fa ir val ue s (mar ket val ue, N PV ) o f f in an cia l in s t r um en t s . N LB Gr oup app lie s ma r ket yie ld c ur ves fo r val ua ti on , an d fa ir val ues a re add it ion al ly a dju s t ed fo r cre di t r is k of t he c ou nt er pa r t y. The fair value hierarch y of fin ancial ins tr um ent s is disclos ed in not e 6.5. c) Im pairmen t of inv est ment s in subsidiaries, ass ociates and joint ventures The pr ocess of identifying and assessing the impairment of inv estments in subsidiaries, associat es and joint ventur es is inher ently uncertain, as the for ecasting of cash flo ws r equires 200 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report the significant use of estimates, which themselv es are sensitiv e to the assumptions used. The r eview of impairment r epr esents management’s best estimate of the facts and assumptions suchas: • Fut ur e cas h f low s fro m in div id ua l inves t m en t s pre s en t th e es t im at ed c as h fl ow for p er io ds fo r wh ic h ado pte d b us in es s pla ns a re ava ila ble . For core m e mb er s , e s t im at ed ca s h flow s are b as e d on a f ive - year b us in es s p la n . For no n - co re me mb er s , e s t im at ed ca s h fl ows are b a se d on a p er io d in lin e wi th t h e s t rat eg y of di ves t m en t. The b u si ne s s pl an s of in div id ual e nt i tie s are b as e d on an a s s es s m en t of f ut u re eco no mic c on di tio n s th a t wil l im pac t an in di vi du al m em be r ’s bu si ne s s an d th e q ua lit y of t h e cre dit p or t fol io; • T he g row t h ra te in c as h f lows fo r th e p er io d fol lowi ng t he ado pte d b us in es s p lan i s be t ween 2.6 an d 3.7% ; • Th e target capital adequac y ratio of an individual bank is bet wee n 14 an d 17%; • T he d is co un t rat e de ri ved f rom t he c api tal a s s et pr i cin g mo de l th at i s u se d to di sc ou nt f u t ure ca s h fl ows i s ba se d A sensitivit y analysis of significant ac tuar ial assumption s for post- employment benef it: NLB Gr oup NLB 2021 2020 2021 2020 Actuarial assumptions Discount factor 0.5% - 4.3% 0.3% - 4.0% 0.6% 0.3% W age gr owth based on inflation, pr omotions, and wage gr owth based on past year s of service 1.8% - 4.8% 1.0% - 4.0% 2.5% - 3.0% 2.6% - 3.0% Other assumptions Number of employees eligible f or benefits 7,014 7,996 2,444 2,572 NLB Gr oup NLB 31 Dec 2021 Discount r ate F uture salary incr eases Discount r ate F uture salary incr eases +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. Impact on pr ovisions for employee benefits - post-employment benefits (in %) (5.3) 5.7 5.5 (5.1) (5.1) 5.5 5.5 (5.2) NLB Gr oup NLB 31 Dec 2020 Discount r ate F uture salary incr eases Discount r ate F uture salary incr eases +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. +0.5 b.p. -0.5 b.p. Impact on pr ovisions for employee benefits - post-employment benefits (in %) (4.9) 3.8 5.3 (4.8) (5.2) 3.4 5.6 (5.3) on t he co s t of e qu it y all oc ate d to a n in div id ual i nves t m en t. The d is co un t ra te ref l ec ts t h e im pac t of a ra ng e of f in an ci al an d eco no mi c var iab les , inc lu din g t he r i sk-f ree r at e an d ri s k pre mi um . Th e val ue o f var iab le s us ed i s s ubj ec t to fluct uations out side manag ement ’s c ontrol. The pre-tax dis co un t ra te is b et wee n 9.66 an d 15.88% (31 D e cem be r 2020: bet wee n 9.66 an d 15.88%). For s tra te gic N LB G rou p me m ber s i n 2021 an d 2020, th er e were n o in dica t ion s of i mp air m en t fo r eq ui t y i nves t m en t s . In 2021, NLB i mp air ed eq ui t y inves t m en t s in n on - core me mb er s in t h e am ou nt o f EUR 458 t ho u sa nd (2020: EU R 582 thousand). d) Em p loyee be ne fi t s Liabilities for cer tain employee benefi ts are calculated by an in dep en de nt a c t u ar y. The ma in as su mp tio ns i nc l ude d in t he ac tu arial calculat ion are as follo ws : The m in im um d is co un t rat e is c on si de red to b e 0% . Ind iv id ual a na ly si s is d on e by ch an gin g on e as su mp tio n for +/-0.5 pe rcen ta ge po in t s , wh il e all ot h er a s s um pti on s s ta y th e sa m e. 201 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report fre e ra te. T he Ph a se 2 a me nd m en t s in cl ud e a pra c t ical expe die nt t o req ui re con t rac tu al c ha ng es , o r ch an ge s to cas h f lows t h at a re dir ec tly r eq uir ed by th e re for m , to b e tre at ed a s ch an ge s to a f loa t in g int ere s t ra te e qu ival en t to a movem e nt i n a ma rket r at e of in te res t. The p rac tic al expe die nt i s al so r eq uir ed fo r en ti ti es ap pl yin g IFR S 4 – Insurance C ont ract s th at a re us in g t he exem pt io n fro m IFR S 9 – Financial Inst rument s (and t h ere fore, a pp ly IA S 39 – Finan cial Instruments: Rec ognition and Measurement ) an d for IFR S 16 – Le as e s , to l ea se m od if ica t ion s re qu ire d by th e IB OR re for m . T he am e nd me nt s p er m it c ha ng es re q uire d by th e IB OR re for m to b e m ade t o he dg e des ig na t ion s an d he dge d oc um en ta t ion u nd er b oth I FR S 9 an d IA S 39 wi th o ut th e he dg ing r el at ion s hi p bei ng d is con t in ue d. U n der I FR S 7 – Fi nan cia l in s tr u me nt : D is clo sur es am e nd me nt s a n en ti t y wil l be re qu ire d to di sc lo se i nfo r ma t ion a bo ut n ew r is k s ar is in g fro m th e re for m an d h ow it m an ag es t he t ra ns it io n to al ter n a ti ve ben c hm ar k ra te s . Th e Ph as e 2 am e nd me nt s app ly o nl y to ch an ge s req ui red by t h e int ere s t ra te bench mar k reform to financial ins t rum ent s and hedging relati onships. Additio nal informatio n about i nterest rate ben c hm ar k re for m i s provi de d in n ote 5.5.d ). in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Actuarial gains and losses due to changed financial assumptions 251 606 292 473 Actuarial gains and losses due to changes in demogr aphic assumptions (1,211) 134 151 200 Actuarial gains and losses due to e xperience (417) 138 (558) 27 T otal actuarial gains and losses for the year (1,377) 878 (115) 700 NLB Gr oup NLB 2021 2020 2021 2020 P ost-employment benefit 9.4 - 19.0 10.5 - 18.7 11.0 11.1 e) T axes NLB G rou p op era te s in co un tr i es gover n ed by d if fere nt law s . Th e d efe rr ed ta x as s et s reco gni s ed a s at 31 D ec em be r 2021 are b as ed o n pro fi t for eca s t s a nd t ake th e exp ec ted ma nn er o f recove r y of th e as s e t s in to acc ou nt. Ch an ge s in as s u mp tio n s reg ard ing t h e likel y m ann er o f re cover in g as s et s o r ch an ge s in pro f it fo rec as t s c an le ad t o th e reco gn it ion o f cu r ren tl y un re cog ni se d def er re d tax a s s et s or de rec ogn it io n of pr evio us l y cre at ed d efe rr ed ta x as s et s . If NL B prof i t pro jec ti on s us ed f or es tim a ti on of t h e am ou nt of de fer re d ta x as s et s w hic h are ex pe c t ed to b e rever s ed i n fore se ea bl e fu t ur e (i .e. , wi th in 5 yea r s) woul d ch an ge by 10% , th e es t im a te d am ou nt of d ef er red t ax a s se t s wou ld c ha ng e by app roxim a tel y EUR 3.2 m ill ion (no tes 4.16. a nd 5.17.). 2.34. Implemen ta tion of th e new and revised Inter national Fin ancial Repor ting Standards Du r ing t h e cu r ren t year , N LB G rou p ado pte d all n ew an d revi se d s ta nd ard s an d in te rp ret at io ns i s s ue d by th e Intern ation al Accounting Standard s Board (hereina f ter : ‘ t he I A SB ’ ) an d t he I nte r na t ion al F in an ci al Re po r tin g Interpretat ions Commit tee (h ereinaf ter : ‘ t he IFRIC’ ), and th at a re en do r se d by th e EU t ha t are e f f ec tive f or an n ual acco un ti ng p er io ds b eg in nin g on 1 J an u ar y 2021. Accounting standards and amendment s to e xis ting standards ef fec tive for annual periods beginning on 1Jan u ar y 2021 t h at were e nd or se d by th e EU an d ad op ted by NLB G ro up • I FRS 4 (am en dm en t) – Insurance Contracts – de fe r ral o f IFR S 9 is e f fe c tive fo r an nu al p er io ds b eg inn in g on o r af te r 1 Ja nu ar y 2021. Cur re nt ly I FR S 4 req uir es in s ur an ce en ti ti es to app ly I FR S 9 – Financial Instr ument s fro m 1 Ja nu ar y 2021, an d am en dm en t s all ow th em t o def er t he a ppl ica ti on of IFR S 9 un t il th e an n ua l pe ri od b egi nn in g on o r af ter 1Ja nu ar y 2023. Th e am en dm en t w ill n ot im p ac t N LB G rou p’s con s oli da ted f i na nc ial s tat em en t s . Th er e is n o im pa c t o n NLB G rou p’s and NLB ’s f in an cia l s ta tem e nt s . • I FRS 9 (am en dm en t), I A S 39 (amen dm e nt) , IFR S 7 (amen dm en t), I FR S 4 (amen dm en t) an d IFR S 16 (am en dm en t) – Int er es t R at e B en chma rk R e fo rm – Ph as e 2 are e f f ec tive for an n ua l pe ri od s be gin ni ng o n or a f t er 1 J an ua r y 2021 wi th ear li er ap pl ica ti on pe r mi t ted . Un li ke Pha s e 1, wh ich fo c us ed on is s u es o f th e im pa c t o f th e ref or m on f in a nc ial re po r tin g in th e p er io d bef ore t he r ep lac em en t of t he ex is t in g in ter es t rat e be nc hm ar k w it h a r is k-fr ee in te res t rate , Ph as e 2 foc us es o n is s u es t h at a f f ec t fi na nc ial r epo r ti ng w he n an exis tin g in ter es t r at e ben c hm ar k i s rep la ced w it h a r is k- The wei gh te d averag e du rat ion o f lia bil it ies in ye ar s The break down of actuarial gains and losses for post- employment bene fit by c a uses 202 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Accounting standards and amendment s to e xis ting st an da rds th a t were en do rs ed by th e E U, bu t no t ad opt ed ear ly by NLB G ro up New an d revi s ed ac co unt in g s t an dar ds an d in te r pre ta tio n s en dor s ed by t h e EU th at a re n ot m an da tor y fo r an nu al acco un ti ng p er io ds b eg in nin g on 1 J an u ar y 2021, were not a do pte d ea rl y by NLB G ro up. T he se s tan dar ds a nd am en dm en t s are n ot ex pe c te d to h ave a m a ter ia l im pa c t on t he co ns o lid at ed f in an ci al s t at em en t s of NL B Gro up in th e f u t ure re po r tin g pe r iod s an d on f ore se eab le f u t ure tra ns ac ti on s . NLB G ro up p lan s to a do pt t he a cco un tin g s tan d ard s an d am en dm en t s li s te d be low fo r rep or t ing p er io ds com m en cin g on o r af ter t h e ef fec ti ve dat e. • I FRS 3 (am en dm en t) – Business Combinati ons – Refer ence to t he Con cep tu al Fram ewor k is ef fe c t ive fo r an nu al p er io ds be gin ni ng o n or a f t er 1 J an ua r y 2022. The a me n dm en t s upd at e a ref ere nce i n IFR S 3 to t he Co nc ept u al Framewor k for Financial Repor ting without changing the accounting req uir em en t s for b u si ne s s com bi na t ion s . Fur th er m ore , th e am en dm en t s ad d an except io n to t he r eco gni t ion p r inc ip le for li abi lit ie s an d con t in gen t li abil it ie s wi th in t he s co pe of I A S 37 Provi si on s , Con ti ng en t Lia bil it ies a nd Co nt in ge nt A ss et s or IFR IC 21 Lev ies . The a m en dm en t s als o c lar i f y ex is tin g guida nce for contingent as sets . • IAS 16 (amendment ) – Pr operty, Plant and Equipment: Pr oceeds befor e Intended Use is effective for annual periods beginning on or after 1 January 2022. The amendment pr ohibits the deduction fr om the cost of an item of pr operty, plant and equipment of any pr oceeds fr om the sale of pr oduced items while the asset is being pr epar ed for its intended use. The pr oceeds fr om selling such items, and the cost of pr oducing those items, ar e r ecognised in pr ofit or loss. It also clarifies that an entity is ‘testing whether the asset is functioning pr operly’ when it assesses the technical and ph ysical performance of the asset. The financial performanc e of the asset is not rele vant to this assessment. The amendment further r equir es separat e disclosur e of the amounts of pr oceeds and costs r elating toitems pr oduced that ar e not an output of the entity’s or dinary activities. It is also necessary to disclose theline it em in the statement of c omprehensiv e income wher e the pr oceeds ar e included. NLB Gr oup and NLB do not expect an impact on their financial statements. • I A S 37 (amen dm en t s) – Provisions , Contingent Liabilities and Cont in ge nt A s se t s : On ero us Co nt rac t s – Cos t o f Fulf il li ng a Con t ra c t i s ef fec ti ve for an n ua l pe ri od s be gin ni ng o n or af ter 1 J an u ar y 2022. Th e am en dm en t s m odi f y th e s ta nd ard reg ardi ng c os t s a co mp any s h ou ld in c lu de a s th e cos t of fu lf i llin g a co nt rac t wh en a s se s s in g wh et he r a con t rac t is on ero us . T he a m en dm en t s sp ec if y th a t th e ‘cos t o f fu lf i llin g’ a con tr ac t c om pr i se s th e ‘cos t s t ha t re la te di rec tl y to t he con tr ac t.’ The co s t s t ha t re la te di rec tl y to a con t rac t can eit h er b e inc rem e nt al cos t s of f ul f illi ng t h at co nt ra c t o r an all oca t ion o f ot he r cos t s t h at r el ate d ire c t ly t o f ulf i llin g con tr ac t s . NLB G rou p an d NLB d o no t expe c t a n im pa c t o n their fin ancial s tatem ent s . • Annual Impro vements to IFRS Standar ds 2018-2020 (amendments) ar e ef fective for annual periods beginning on or after 1 January 2022. The amendments to IFRS 9 clarify which fees and costs should be included in the ‘10 per c ent’ test for der ecognition of a financial liability. The amendment to IFRS 16 – Leases r emov es from the e xample the illustr ation of the r eimbursement of leasehold impro vements by the lessor in or der to r esolve any potential confusion r egar ding the tr eatment of lease incentives. The amendments to IFRS 1 – First-time Adoption of International Financial Reporting Standar ds permits a subsidiary that becomes a first-time adopter of IFRS Standar ds later than its par ent to measure cumulative tr anslation differ ences at amounts included in the consolidated financial stat ements of the parent, based on the par ent’s date of tr ansition to IFRS Standards. The amendments to IAS 41 – Agricultur e r emove the r equir ement to e xclude cash flo ws for tax ation when measuring fair value under IAS 41. This amendment is intended to align with the r equir ement in the standard to disc ount cash flows on a post- tax basis. This will ensur e consistency with the r equir ements in IFRS 13 – F air V alue Measur ement . NLB Group and NLB do not expect an impact on their financial statements. • IFRS 17 (new standar d including amendments) – Insuranc e Contr acts is effective for annual periods beginning on or after 1 January 2023. The ne w standar d pro vides a compr ehensive principle-based fr amework for the measur ement and pr esentation of all insur ance contr acts. The new st andard will r eplace IFRS 4 Insur ance Contr acts and r equir es insuranc e contr acts to be measur ed using curr ent fulfilment cash flows, and for r ev enue to be r ecognised – as the service is pr ovided ov er the cov erage period. The additionally issued amendments to IFRS 17 simplify some r equirements and explanation of financial performanc e, and pro vide additional tr ansition reliefs t o reduc e the complexity of applying standar d for the first time. NLB Gr oup and NLB do not expect an impact on their financial statements. • I FRS 16 (am en dm en t) – Covi d- 19- Re la te d R en t Conce s si ons beyon d 30 Ju ne 2021 i s ef fec ti ve for an n ua l pe ri od s be gin ni ng o n or a f t er 1 A pr il 2021. T he am e nd me nt ex ten de d th e avai lab ili t y of th e pr ac tica l exp edi en t by on e year s o th at i t ap pli es to r en t con ce s si on s for w hi ch any r ed uc tio n in le as e pa ym en t s a f f ec t s on ly p aym e nt s o r igin al ly d ue o n or be for e 30 Ju ne 2022, p rovi de d th e ot he r con di ti on s for app ly ing t h e pra c t ica l expe di en t are m et. Th er e is n o im pa c t on NLB G ro up’s and N LB ’s fin an ci al s t at em en t s . Accounting standards and amendment s to e xis ting st an da rds , bu t n ot e nd ors ed by t he E U • I A S 1 (amen dm en t an d d efe rr al of e f f ec tive d at e) – Presentati on of Finan cial Statements: Cl as sification of Li ab il it ie s a s Curre nt o r No n- curre n t is ef fe c t ive fo r ann u al p er io ds b egi nn in g on or a f ter 1 J an u ar y 2023. Th e amendm ent s clarif y that liabilitie s are classi fied as eith er cur r en t or n on - c ur re nt, d epe n din g on t he r i ght s t h at ex is t at th e en d of t he r ep or ti ng p er io d . Cla s si f ica ti on is u n af fec ted by th e expe c t at io ns o f th e en t it y or even t s af te r th e re por t in g da te. T he am e nd me nt a ls o cl ar if i es w ha t IA S 1 m ea ns w h en it refe r s to t he ‘s et t lem en t ’ of a l iabi li t y. NLB Gr oup a n d NLB do not ex pe c t a n im pac t on t he ir f in an ci al s t at em en t s . • I A S 1 (amen dm en t) – Presentation of Financi al Statements and I FR S Prac t ice S ta t em en t 2 – Di scl osu re of Accou nt in g policies is ef fec ti ve for an n ua l per i od s be gin ni ng o n or a f t er 1 Ja nu ar y 2023. Th e am en dm en t s to I A S 1 req ui re com p ani es to di sc los e t he ir m at er ia l acco un t ing p ol ic y in for m a ti on rather than their significant accounti ng polici es . The am en dm en t s to IFR S Pr ac tice S ta te me nt 2 p rovid e g uid an ce on h ow to app ly t h e con cep t of m at er ia lit y to a cco un ti ng pol ic y di s clo s ure s . NLB G ro up a nd N LB do n ot exp ec t an impac t on their finan cial statem ent s . • I A S 8 (amen dm en t) – Accou nt in g pol ici es , Cha nge s i n Account i ng E s ti ma te s an d Erro rs : D ef i ni ti on o f Accoun ti ng Estimates is ef fec tive fo r an n ual p er io ds b eg in nin g on or af te r 1 Ja n uar y 2023. Th e am e nd me nt s c la ri f y how companies sh ould dis tin guish ch anges in accounting pol ici es f rom c ha ng es in a cco un ti ng e s t im at es . T ha t dis tin c t io n is i mp or ta nt b eca u se c ha ng es in a cco un ti ng est imates are appl ied prospec tively only to f ut ure tra ns ac ti on s an d ot he r f ut ur e event s , bu t ch an ge s in acc ou nt in g po lici es a re ge ne rall y al so a ppl ie d ret ros pe c t ive ly to p as t tra ns ac ti on s an d ot he r pa s t even t s . NLB G rou p an d NLB d o no t expe c t a n im pa c t o n th eir finan cial statem ent s . 203 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report • I A S 12 (amen dm en t) - I ncome T a xes : De f er red T ax re la te d to A s se t s a nd Li ab il it ie s a ri si ng f rom a S in gl e T rans ac t ion i s ef f ec ti ve for an n ua l per i od s be gin ni ng o n or a f t er 1 J an ua r y 2023. IA S 12s pe cif i es h ow a com pa ny acco un t s fo r in com e tax, includin g deferred tax, which represent s tax payable or re coverab le i n th e f ut u re. In s p ec if ie d circ um s t an ces , com pa nie s are exe mp t fro m rec ogn is in g de fer re d ta x wh en th ey rec ogn is e a s se t s or li abi lit ie s for t h e f ir s t t im e. Th e am en dm en t s cl ar if y th a t th e exem pt ion d oe s no t app ly a nd th at c om pa nie s are r eq uire d to re co gni s e def er re d tax o n su ch t ran s ac tio ns . NLB G rou p an d NLB d o no t expe c t a n impac t on their finan cial statem ent s . • I FRS 17 (am en dm en t) – Insurance contracts : Initial App li cat io n of IFR S 17 a nd I FRS 9 – Co mp ara t ive Information is e f f ec tive fo r an n ual p er io ds b eg in nin g on o r af ter 1 J an u ar y 2023. Th e am en dm en t is a t ra ns it io n opt io n relati ng to c omparative information about financi al assets pre se nt ed on i ni ti al ap pli ca tio n of IFR S 17. T he a me nd me nt is ai me d at h e lpin g en t it ies t o avoi d tem po rar y a cco un tin g mi sm a tch es b et wee n f in an cia l as s et s a nd i ns u ran ce contrac t liabilities , and th erefore improv e th e usefuln es s of com pa rat ive i nfo r ma t ion fo r us er s o f f in an cia l s ta te me nt s . NLB G rou p an d NLB d o no t expe c t a n im pa c t o n th eir finan cial statem ent s . 3. Changes i n th e composition oftheNLB Group Cha nge s in 2021 Capital changes: • I n Ap ri l 2021, NLB in c rea se d t he s h are o f voti ng r ig ht s in th e take over bid fo r th e re ma in ing s h are s of Kom erci ja ln a ban ka a.d . B eo gra d fr om 83.23% to 87.999% and a ls o acq uir ed 15.328% of p ref ere nce s h are s . Th is i nc re as ed NLB ’s sh are i n tota l s ha reh ol din g of t he b an k fr om 81.42% to 86.42% . T he i nc rea s e in cap ita l inves tm en t was re co gni s ed in th e am o un t of EUR 23,098 t h ou s an d. • I n Ma y 2021, NLB i nc rea s ed t he s h are o f voti ng r ig ht s i n th e public of fer ing of ordinar y sh ares of K omercijaln a banka a.d . B eo gra d fro m 87.999% to 88.28% . Th is i nc rea s ed NL B’s sh ar e in tot al s ha reh ol din g of t h e ban k f rom 86.42% to 86.70% . T he i nc rea s e in cap ita l inves tm en t was re co gni s ed in th e am o un t of EUR 1,337 t h ou s an d. • I n Ma y 2021, NLB a cqu ire d th e re ma ini ng s h are s of m in or it y sh ar eh old er s of N LB B an ka a.d ., B e ogr ad an d in c rea se d it s own er s h ip f rom 99.997% to 100% . Th e in cre as e in capi tal i nves t m en t was re co gni s ed in t h e am ou nt of EU R 2 thousand. • A n in cr eas e in e q uit y re se r ves in t he fo r m of a ca s h con tr ib u ti on in t h e am ou nt of EU R 300 t ho us an d in R E A M d.o.o ., B eo gra d to e ns ur e reg ul ar b us in es s o pe ra tio ns . • I n Oc tob er 2021, NL B in cre as ed i t s b us in es s s h are in B a nkar t d.o.o ., Lj ub lja na f ro m 40.08% to 45.64% . • I n Novem be r 2021, Komerc ij aln a ba nka a .d. P odg or ic a me rge d wi th N LB B an ka a.d . Pod go ri ca . Af ter t hi s m erg er , Komerc ija ln a ba nka a .d. B e ogr ad h as 23.97% s h are ho ld ing of NLB B a nka a .d. Po dg or ica , w hil e NLB d .d . ha s 75.90% . • I n De cem be r 2021, an in c rea se i n sh ar e cap ita l in t he fo r m of a cas h co nt r ib ut ion i n th e am o un t of EUR 15,309 t h ou s an d in NLB Le as e&G o, le as in g, d .o.o ., Lj ub lja na f or t he p ur p os e of ach iev ing N LB G rou p’s leas in g s t rat eg y. • I n De cem be r 2021, NLB i nc rea s ed i t s own er s hip i n se t tle m en t agre em en t in re la t ion to t h e pu t an d ca ll op tio n of s h are s of NLB B a nka s h .a. , Pr is h ti na f rom 81.21% t o 82.38% . T he inc re as e in ca pit al inve s t me nt wa s rec ogn is e d in th e am o un t of EUR 223 t h ou sa nd . Oth er changes: • I n Ap ri l 2021 com p any B H - RE d .o.o ., S ara jevo – u lik vid aci ji was li qu ida te d. I n acco rda nc e wi th a co ur t o rde r , com pa ny was re moved f rom t h e co ur t reg is ter . • I n Se pte mb er 2021, N LB so ld i t s 0.002% own er s hi p in ter es t i n Komerc ija ln a ba nka a .d. B a nja L uka to Kome rci jal na b an ka a.d. Beograd. • I n Novem be r 2021, Pr vi Fak to r d .o.o., S ar ajevo - u li k v ida cij i was li qu ida te d. I n acco rda nc e wi th a co ur t o rde r , th e com pa ny was re move d fro m th e co ur t re gis ter . • I n De cem be r 2021, Kome rcij aln a b an ka a.d . B eo grad s o ld it s subs idiar y Komercijalna banka a.d. Banja Luka. • I n De cem be r 2021, NLB s ol d it s s u bs idi ar y NLB Le as in g d.o.o ., Lj ub lja na – v l ik v id aci ji to N LB Lea s e&Go , lea s ing , d.o.o., Ljubljana. Cha nge s in 2020 Capital changes: • I n De cem be r 2020, NLB a cqu ire d an 83.23% or din ar y sh ar eh old in g in Kome rci jaln a b an ka a.d . B eo gra d, w hic h rep res en t s 81.42% of to tal s h are ho ld ing i n th e b an k . • I n De cem be r 2020, NLB a cqu ire d 1 ord in ar y s ha re of Komerc ija ln a ba nka a .d. B a nja L uka wh ich r epr es en t s a 0.002% sh ar e of th ei r cap ita l. • I n De cem be r 2020, NLB a cqu ire d ad dit io na l sh ar es of B an kar t d.o.o ., L jub lja n a an d th ere by in cre as ed i t s own er s hip f rom 39.44% t o 40.08% . • A n in cr eas e in s h are c api tal i n th e fo rm o f a de bt-to - eq ui t y conver s io n in t he a mo un t of EU R 1,800 th ou s an d in NLB Lea si ng Po dg or ica d .o.o. – u l ik v id aci ji . Oth er changes: • I n Ap ri l 2020, NLB e s ta bli s he d th e n on - f in an cia l cu lt ur al he ri ta ge in s t it u te n am e d ‘N LB Zavod za u pra vlj an je ku lt u rn e dedišč ine, Ljubljana . ’ • I n Ma y 2020, NLB e s ta bli s he d f in an cia l com pa ny n am ed ‘N LB Lea s e&Go , lea s in g, d .o.o. , Lj ub ljan a .’ • I n Ma y 2020, all t h e s us pe ns i ve con di tio ns u n der t h e joi nt NLB an d KB C In s ura nc e NV s ale a gre em en t si gn ed in De cem be r 2019 were m et, t he refo re t he s al e of NL B’s 50% s take in t h e sh ar e cap ita l of NLB V i ta d .d ., Lj ub lja na wa s com pl ete d (note 4.15.). • I n De cem be r 2020, B H - RE d .o.o ., S ara jevo – be gin ni ng o f the li quidation procedur e entere d in the cour t register . • I n De cem be r 2020, NLB s ol d it s s u bs idi ar ie s NLB Le as in g d.o.o ., S ara jevo - u lik vid aci ji an d NL B Lea si ng Po dg or ica d.o.o ., Po dg or ica - u l ik v ida ci ji. 204 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4. Notes to the income sta tement 4.1. Interes t incom e and expenses Analys is by ty pe of asset s and liabilities in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Inter est and similar income Inter est income calculated using the effectiv e interest method 467,500 347,636 170,002 167,611 Loans and advanc es to customers at amortised cost 412,449 312,695 144,081 140,203 Securities measur ed at amor tised cost 14,049 16,165 10,150 12,736 Financial assets measur ed at fair value thr ough other compr ehensive income 40,347 18,180 11,733 10,704 Loans and advanc es to banks measur ed at amor tised cost 416 383 3,937 3,882 Deposits with banks and centr al banks 239 213 101 86 Other inter est and similar income 10,329 7,552 9,183 7,493 Financial assets held for tr ading 4,757 5,408 4,455 5,408 Negative inter est (note 5.15.b) 3,980 3 3,981 5 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 780 1,800 74 4 1,739 Other 812 341 3 341 T otal 477,829 355,188 179,185 175,104 Inter est and similar expenses Inter est expenses calculat ed using the ef fective inter est method 53,171 41,208 25,142 21,883 Due to customers 25,575 20,541 3,067 3,835 Borr owings fr om banks and centr al banks 1,797 880 1,647 7 74 Borr owings fr om other customers 1,205 94 1 - - Subor dinated liabilities 10,548 10,040 10,548 10,040 Deposits fr om banks and centr al banks 865 78 6 27 Lease liabilities (note 5.11.a) 470 294 29 39 Other inter est and similar expenses 15,298 14,407 14,904 14,334 Derivativ es - hedge accounting 10,279 9,439 10,279 9,439 Negative inter est 12,711 8,434 9,845 7,168 Financial liabilities held for tr ading 4,222 4,789 4,222 4,789 Inter est expenses on defined employ ee benefits (note 2.30., 5.16.c) 202 100 48 30 Other 595 79 355 76 T otal 68,46 9 55,615 40,046 36,217 Net inter est income 409,360 299,573 139,139 138,887 The i te m ‘ Neg at i ve int ere s t ’ cl as s if i ed un de r th e li ne i te m ‘O th er i nt ere s t an d s im ila r in com e’ ma in ly in cl u des t h e in ter es t fro m targ et ed lo ng er - te rm r ef in an ci ng o per at ion s i n th e am oun t of EU R 3 , 9 79 th o us an d for N LB G rou p an d NLB (not e 5.15. b) . The i te m ‘ Neg at i ve int ere s t ’ cl as s if i ed un de r th e li ne i te m ‘O th er i nt ere s t an d s im ila r expe n se s’ in cl ud es t he i nt ere s t f rom dep os it s w it h b ank s a nd c en tra l ba nk s in t h e am ou nt o f EUR 11 , 692 t ho us an d fo r NLB G ro up (2 020 : EUR 7 ,178 th o us an d) , an d EUR 8 , 826 t ho us an d fo r NLB (2 02 0: EUR 5 ,912 t h ou sa nd ). I t al so inc l ude s in ter es t f rom d ep os it s w it h f in an ci al or gan is a tio n s in th e am o un t of EUR 3 3 6 t ho us an d fo r NLB G ro up an d NLB (20 20: EU R 41 1 t ho us an d ) an d in tere s t f rom s ec ur i ti es w it h a ne ga ti ve yie ld d ue to t h e pu rch a se w it h a pre mi um i n th e am oun t of EU R 68 3 t h ou sa nd f or NLB G ro up a nd N LB (20 20 : EUR 8 4 5 th ou s an d) . O th er in te res t inc om e in yea r 2021 for N LB G rou p in th e am oun t of EU R 809 th o us an d re la tes t o in ter es t s i n rel at io n to a ref un d of VA T f rom t h e Sl oveni an T ax Au t ho r it y , w hi le EUR 341 th ou s an d in yea r 2020 for N LB Gr oup a n d NLB re la tes t o aref un d of c or po ra te in com e t ax fr om t he I ta lian T a x Au th or i t y (note 4.16.). 205 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.2. Dividend incom e 4.3. Fee and commis sion i ncome an d expenses a) Fee and com m is si on in com e an d expe ns es re la tin g to a c ti vi tie s of NLB G ro up an d N LB in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 F ee and commission income F ee and commission income r elating to financial instruments not at fair value thr ough pr ofit or loss Cr edit car ds and A TMs 93,644 63,9 40 38,389 35,634 Customer tr ansaction accounts 90,212 66,311 57,147 49,566 Other fee and commission inc ome P ayments 77,248 50,325 22,751 21,109 Investment funds 27,095 19,286 8,6 94 5,931 Guar antees 13,918 11,781 7,831 7,282 Agency of insur ance pr oducts 8,642 6,338 7,010 5,241 Other services 10,445 4,639 4,484 3,434 T otal 321,204 222,620 146,306 128,197 F ee and commission e xpenses F ee and commission e xpenses relating to financial instruments not at fair value thr ough pr ofit or loss Cr edit car ds and A TMs 67,860 46,473 27,952 25,581 Other fee and commission e xpenses P ayments 11,56 7 6,134 917 909 Insur ance for holders of personal acc ounts and gold car ds 3,650 1,034 1,015 760 Investment banking 3,468 2,272 664 5 24 Guar antees 1,026 778 957 712 Other services 4,535 2,528 808 817 T otal 92,106 59,219 32,313 29,303 Net fee and commission inc ome related to banking activities 229,098 163,401 113,993 98,89 4 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Financial assets measur ed at fair value thr ough other compr ehensive inc ome 184 83 - - - r elated to investments held at the end of r eporting period 184 83 - - Investments in subsidiaries - - 79,136 5,561 Investments in associates and joint v entures - - 441 67 0 Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss 39 28 39 28 T otal 223 111 79,616 6,259 206 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Fee and commission income and e xpen ses relating to fiduciar y activities in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 F ee and commission income r elated to fiduciary activities Rec eipt, proc essing, and ex ecution of orders 1,9 42 1,583 1,655 1,435 Management of financial instruments portfolio 2,118 1,237 - - Initial or subsequent underwriting and/or placing of financial instruments without a firm commitment basis 264 327 264 327 Custody and similar services 5,290 4,842 5,247 4,909 Management of clients’ acc ount of non-materialised securities 1,595 1,797 1,595 1,797 Safe-k eeping of clients’ financial instruments 26 - - - Advice t o companies on capital structur e, business str ategy, and related matters and advic e, and services r elating to mergers and ac quisitions of companies 150 26 150 26 T otal 11,385 9,812 8,911 8,494 F ee and commission e xpenses related to fiduciary activities F ee and commission r elated to Centr al Securities Clearing Corpor ation and similar organisations 3,188 2,87 6 3,191 2,8 7 4 F ee and commission r elated to stock e xchange and similar or ganisations 119 57 119 57 T otal 3,307 2,933 3,310 2,931 Net fee income r elated to fiduciary activities 8,078 6,879 5,601 5,563 T otal fee and commission inc ome 332,589 232,432 155,217 136,691 T otal fee and commission e xpenses 95,413 62,152 35,623 32,234 T otal a) and b) 237,17 6 170,280 119,59 4 104,457 207 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.4. Gain s less l osses f rom finan cial ass et s and liabili ties not m eas ured at fai r value through profi t or loss Du r ing 2020, N LB G rou p an d NLB s ol d se c ur it ie s me as u red a t am or ti s ed co s t in t he a mo un t of EU R 120,131 th o us an d d ue to inc re as ed c red it r i sk c au se d by COVID -19 (no te 2.33.b). 4.5. G ains l ess los ses from f inancial a ss et s and liabilit ies held for t rading in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Debt instruments measur ed at fair value thr ough other compr ehensive income - gains 171 5,244 24 4,525 - losses (4) (178) - (178) Debt instruments measur ed at amor tised cost - gains - 12,7 49 - 12,7 49 Financial liabilities measur ed at amor tised cost - losses - (126) - (126) T otal 1 67 17,689 24 16,970 Int ere s t in co me f rom f i na nc ial a s s et s h eld f or t rad in g is inc l ude d in t he i nc om e s ta te m ent l in e it em ‘ In ter es t a nd s im il ar inc om e’ an d int ere s t exp en s es f rom f in an ci al li abi lit ie s he ld fo r tra din g in l in e ite m ‘ Int ere s t an d s im ila r exp en se s’ (not e 4.1.). in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 F or eign ex change trading - gains 28,160 31,628 10,799 23,022 - losses (7,114) (21,139) (5,795) (18,623) Debt instruments - gains 7 76 797 460 797 - losses (616) (392) (571) (392) Derivativ es - curr ency (199) (170) (484) 8 67 - inter est rate 74 9 (909) 74 9 (909) - securities (562) (21) (562) (21) T otal 21,19 4 9,794 4,596 4,7 41 208 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.6. G ains les s los ses from non - trading f inan cial ass et s man dat orily a t fair value through p rofit or los s Ma te ri al exp os ur e th a t was re s t r uc tu red i n 2014, an d cl as s if i ed as n on - p er for m in g, wa s rep ai d in Ap r il 2021. Th is r es ul te d in pos it i ve valu at ion e f f ec t in th e am o un t of EUR 14,837 t h ou s an d at NL B Gro up l evel an d EUR 13,033 t h ou s an d at t he N LB leve l. in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Equity securities - gains 2,208 4,003 1,157 3,043 - losses (1,049) (2,656) (855) (1,587) Debt securities - gains 5 14 - - - losses (63) (49) - - Loans and advanc es to customers - gains 15,737 5,286 13,190 5,359 T otal 16,838 6,598 13,492 6,815 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Financial assets and liabilities not measur ed as at fair value thr ough pr ofit or loss 359 836 714 (1,011) Financial assets measur ed at fair value thr ough profit or loss 37 (131) 37 (131) Other (51) 34 (51) 34 T otal 345 739 700 (1,108) Int ere s t in co me f rom n on -t radi ng f i na nc ial a s se t s m an da tor i ly at fa ir val ue t hr ou gh pro f it o r los s i s in cl ud ed i n th e in com e s ta tem e nt l ine i te m ‘ Int ere s t an d s im ila r in com e’ (note 4.1.). 4.7. F oreign ex ch ange t ransla tion gain s less l osses 209 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.8. Ot her n et operat ing incom e in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Other oper ating income Income fr om non-banking services 6,528 6,390 5,884 5,595 - cash tr ansportation 3,241 2,99 4 3,250 2,994 - oper ating leases of movable pr operty 1,07 4 1,003 471 470 - IT services 426 438 1,098 891 - other 1,787 1,955 1,065 1,240 Rental inc ome from in vestment pr oper ty 3,558 2,572 567 471 Re valuation of investment pr operty to fair value (note 5.9.) 4,447 1,006 411 884 Sale of investment pr operty 778 234 - 164 Other oper ating income 14,335 2,728 10,633 1,508 T otal 29,646 12,930 17,495 8,622 Other oper ating expenses Expenses r elated to issued service guar antees 453 1,328 453 1,328 Re valuation of investment pr operty to fair value (note 5.9.) 858 136 105 87 Other oper ating expenses 5,114 3,917 3,190 1,413 T otal 6,425 5,381 3,7 48 2,828 Other net oper ating income 23,221 7,549 13,7 47 5,79 4 O th er o per at in g in com e in ye ar 2021 in cl u des s et t lem e nt o f leg al di s pu te i n th e am o unt o f EUR 8,978 t ho us an d in t h e NLB Gro up a nd EU R 8,559 th o us an d in N LB . O th er o per at in g exp en se s m ain ly i nc lu de exp en s es a s so ci at ed wi th do n at ion s , p en al ti es a nd d am ag es , an d li cen ce s . 210 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.9. Admin is trative expenses in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Employ ee costs Gr oss salaries, compensations, and other short-term benefits 205,821 145,87 8 9 4,433 90,063 Defined contribution scheme 15,065 10,297 6,891 6,689 Social security contributions 10,363 8,236 5,715 5,546 Defined benefit expenses (note 5.16.c) 73 545 (59) 304 P ost-employment benefits 126 423 (27) 239 Other employ ee benefits (53) 122 (32) 65 T otal 231,322 164,956 106,980 102,602 Other gener al and administrative e xpenses Material 5,806 4,529 1,521 2,117 Services 40,193 28,136 17,89 6 18,484 Intellectual services 16,504 10,17 6 5,468 6,194 Costs of supervision 4,628 3,926 2,493 2,257 Costs of other services 19,061 14,034 9,935 10,033 T ax expenses 7,584 2,688 932 1,002 Membership fees and similar 823 852 307 337 Business tr avel 502 399 129 136 Marketing 11,407 8,131 5,641 5,086 Buildings and equipment 27,085 20,996 11,67 6 11,952 Electricity 5,960 4,045 2,357 2,277 Rents and leases 1,928 1,916 283 390 Maintainance c osts 7,450 6,500 4,347 4,714 Costs of security 6,015 3,599 1,821 1,791 Insur ance for tangible assets 851 930 166 1 67 Other costs r elated to buildings and equipment 4,881 4,006 2,702 2,613 T echnology 30,599 21,979 15,107 14,655 Maintainance of softwar e and har dwar e 12,9 49 10,184 6,053 7,164 Licenc es 9,895 7,961 6,332 5,054 Data assets and subscription costs 2,518 1,998 1,655 1,383 Other technology costs 5,237 1,836 1,067 1,054 Communications 11,377 8,259 4,770 5,509 P ostal services 4,859 4,027 2,935 3,581 T elecommunic ation and internet 4,131 2,152 6 69 7 24 Other communic ation costs 2,38 7 2,080 1,166 1,204 Other gener al and administrativ e costs 2,153 1,301 1,120 733 T otal 137,529 97,270 59,099 60,011 T otal administrativ e expenses 368,851 262,226 166,079 162,613 Number of employees 8,185 8,792 2,510 2,591 Cos t s of o th er s er v ice s inc l ude c os t s f or ca sh t ra ns p or t an d insuran ce, archiving ser vices, per son al insurance cos t s , leg al co s t s an d fe es , a nd s e s si on fe es to t h e me mb er s o f th e Su pe r vis or y B o ard . 211 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Add it ion al ly, to the s er vi ces i nc lu de d in t he t abl e ab ove, th e s ta t ut or y au di tor i n 2021 per fo r me d al so s om e s er vi ces r ela te d to th e exp ec ted i s s ua nc e of s ub ord in at ed in s t r um e nt in t h e am oun t of EU R 325 th o us an d (2020: EU R 75 th o us an d) . in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 External audit services Audit of annual r epor t 679 542 232 211 Other audit services 161 55 119 55 Other non-audit services 34 42 34 42 T otal 8 74 639 385 308 4.10. C as h contr ibu tions t o resolu tion fun ds and de posi t guarante e sch emes in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Cash contributions to deposit guar antee schemes 33,148 15,022 7,543 5,451 Cash contributions to r esolution funds 1,992 1,652 1,992 1,652 T otal 35,140 16,67 4 9,535 7,103 4.11. D epreciation and amor tisation in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Amortisation of intangible assets (note 5.10.) 16,211 10,112 6,022 6,908 Depr eciation of property and equipment: - own pr operty and equipment (note 5.8.b) 21,607 17,062 10,610 10,092 - right-of-use assets (note 5.11.a) 8,710 4,541 890 848 T otal 46,528 31,715 17,522 17,848 In th e pr es en te d year s , N LB G rou p an d NLB p aid t h e foll owin g exp en s es re la te d to th e s er vi ces o f th e s ta t u tor y a udi to r : 212 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.12. Gain s less l osses f rom modi ficatio n of fin ancial as set s 4.13. Pr ovi sions in EUR thousands 2021 2020 NLB Gr oup 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed T otal Financial assets modified during the period Amortised cost befor e modification 15,569 5,259 4,435 25,263 416,341 27,798 8,756 452,895 Net modification gains/(losses) (48) (12) (203) (263) (3,09 4) (357) (126) (3,577) in EUR thousands NLB Gr oup 31 Dec 2021 31 Dec 2020 Financial assets modified since initial r ecognition Gr oss carrying amount of financial assets for which loss allowanc e has changed to 12-month measur ement during the period 162 1,6 90 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Guar antees and commitments (note 5.16.b) (8,504) 482 (8,028) (599) Restructuring pr ovisions (note 5.16.d) 14,797 3,500 - 3,500 Pr ovisions for legal risks (not e 5.16.e) 7,873 4,69 6 72 4,230 Other pr ovisions (note 5.16.f ) - (119) - (85) T otal 14,166 8,559 (7,956) 7,046 213 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.14. Impa irm ent ch arge In 2021, NLB i mp air ed eq ui t y inves t m en t s in n on - core subs idiaries and an as sociate in total amount of EUR 458 th ou s an d (2020: EUR 582 t h ou sa nd ). T he re le as e of imp ai rm e nt s i n am ou nt of EU R 7,901 t ho us an d re la te s to s ale of n on - c ore s ub si dia r y (note 3.). In 2020, N LB did n ot re le as e any im pa ir m en t s of eq ui t y inves t m en t s . Impair ment s of investmen ts in sub sidiarie s and ass ociates are inc l ude d in t he s e gm en t ‘N on - core m em b er s .’ In 2020, im pa ir me nt o f f in an cia l as s et s i nc lu de s EUR 13,447 th ou s an d of 12- mo nt h exp ec te d cre dit l os s es f or St ag e 1 fi na nc ial a s s et s , a cqu ire d th ro ugh a b u si ne s s com bi na t ion (note 5.12.c). O f th a t, EUR 10,434 t ho us an d re la te s to f in an cia l as s et s m ea s ure d at a mo r ti s ed co s t, EUR 2,932 t ho us an d to f in an cia l as s et s m e as ur ed a t fair va lu e th ro ugh o th er com pre he n si ve inc om e, an d EUR 81 t h ou s an d to ca sh bal an ces a t ce nt ral b an k s an d ot he r dem a nd d ep os it s a t ban k s . in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Impairment of financial assets Cash balances at c entral bank s, and other demand deposits at banks 117 344 89 1 24 Loans and advanc es to banks measur ed at amor tised cost (note 5.14.a) 57 47 27 14 Loans and advanc es to individuals measured at amortised c ost (note 5.14.a) 13,414 29,007 6,830 13,219 Loans and advanc es to other customers measur ed at amor tised cost (note 5.14.a) (44,639) 25,972 (2 4,840) (4,611) Debt securities measur ed at fair value thr ough other compr ehensive income (note 5.14.b) 2,854 3,888 (148) 635 Debt securities measur ed at amor tised cost (note 5.14.b) (383) 547 (17) 224 Other financial assets measur ed at amor tised cost (note 5.14.a) 1,249 1,994 (8) 28 T otal impairment of financial assets (27,331) 61,799 (18,067) 9,633 Impairment of investments in subsidiaries, associates and joint v entures Investments in subsidiaries - - (7,522) 552 Investments in associates and joint v entures - - 79 30 T otal - - (7,443) 582 Impairment of other assets Pr operty and equipment (note 5.8.) 216 204 - - Intangible assets (note 5.10.) 936 - - - Other assets 3,255 792 (104) 103 T otal 4,407 996 (104) 103 T otal impairment of non-financial assets 4,407 9 96 (7,547) 685 T otal impairment (22,92 4) 62,795 (25,614) 10,318 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Gains less losses on der ecognition of subsidiaries, associates and joint ventur es - 11,006 - 35,454 Gains less losses fr om property and equipment 248 (153) (94) (220) T otal 24 8 10,853 (9 4) 35,234 4.15. G ains less los ses from non - current as set s held for sale In Ma y 2020, al l th e s us p en si ve con di ti on s un de r th e joi nt N LB an d KBC I ns u ran ce NV s al e agr eem e nt s ign e d in D ece mb er 2019 were m et, th er efo re, t he s al e of NLB ’s 50% s ta ke in th e sh ar e capi tal o f NLB V i ta was c om pl ete d. T he e f f ec t of s ale i s inc l ude d in t he s e gm en t ‘R et ail B an k in g in S loven ia . ’ 214 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.16. In come tax Inc om e ta x dif fer s f rom t h e am ou nt o f tax d ete r mi ne d by app ly in g th e S loveni an s t at u to r y tax ra te a s fol lows : Each m em be r of NLB G ro up (dis c los ed i n no te 5.12.a) is ta xabl e as re qu ire d by loc al ta x leg is l at ion . I nc om e tax r at es w it hin NLB G rou p ran ge f rom 9– 32% . A tax ra te o f 19% was a ppl ie d in S loveni a in 2021 (2020: 19%). For th e year 2021, N LB rea li se d tax l os s d ue t o th e ut il is at io n of prev iou s ly t ax n on - d ed uc tib le ex pe ns es f or im pa ir m en t s in t he su bs idi ar y, which wa s di ves te d in 2021. T he ef fe c t s o f th e s ale of the subs idiar y are include d into the ef fec t of unrecognis ed deferred tax as set s on impairm ent s of subsidiar ies and as s oc ia tes , and t h e ef fec ts o f n ew tax l os s are i nc l ude d in to ef f ec t of un re cog ni se d def er re d tax a s s et s o n tax l os s es . Non - ta xabl e in com e of N LB rel at es m os tly t o div id en ds . Non - ta xabl e div id en d in com e in 2021 a mo un t s to EU R 75,635 th ou s an d (2020: EUR 5,947 tho us an d) . in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Curr ent income tax 16,961 11,972 3,159 4,010 Income tax r elated to pr evious period - (3,569) - (3,569) Deferr ed income tax (note 5.17.) (3,423) (3,238) (112) (540) T otal 13,538 5,165 3,047 (99) in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Pr ofit befor e tax 261,406 277,921 211,468 113,853 T ax calculated at pr escribed r ate of 19% 49,66 7 52,805 40,179 21,632 Income not assessable for tax purposes (12,685) (26,300) (14,900) (4,359) Expenses not deductible for tax purposes 6,510 3,838 1,160 1,662 Effect of unr ecognised deferr ed tax assets on impairments of subsidiaries and associates (32,036) (9,016) (36,446) (8,652) T ax r eliefs (463) (1,902) - (1,649) Effect of unr ecognised deferr ed tax assets on tax losses 10,675 (4,351) 9,886 (4,985) Effects of different tax r ates in other countries (11,345) (6,273) - - Withholding tax suffer ed in other countries for which no tax cr edit was available in Slo venia 3,156 114 3,156 114 Adjustment to tax in r espect of prior periods 50 (3,457) 3 (3,569) Other 9 (293) 9 (293) T otal 13,538 5,165 3,047 (99) Non - ta xabl e in com e of N LB G rou p for 2020 m os tly r ela te s to th e ga in f rom a b arg ain p urc h as e (neg at ive go od wi ll) o f K om ercijalna banka Beograd . In 2020, NLB re cei ved EU R 3,569 tho us an d cor p ora te i nco m e tax re f un d an d EUR 341 t ho u sa nd i nt ere s t fr om t he I ta lian T a x Aut h or it y. The ref u nd i s re la ted t o th e cl os in g of T r ie s te B ra nc h (of f ici all y clo se d in 2017) a nd i s th e co ns e qu en ce of t ax n on - ded uc ti ble i mp ai rm e nt s o f fi n anc ial a s s et s , r eco gn is ed by t he T ri es t e Br an ch in t h e year 2013. T he r ef un d pro ced ur e s ta r ted in 2016 an d was s u cces s fu lly co n cl ude d in 2020. NLB r ecognised deferr ed tax assets accrued on the basis of tempor ary differenc es in an amount that, given futur e pr ofit estimates, is e xpected to be r eversed in the for eseeable futur e ( i.e., within five y ears). Due to some uncertainties r egar ding external factors (r egulatory envir onment, mark et situation, etc.), a lower r ange of expected outc omes was c onsidered for the purposes of deferr ed tax assets calculation. The estimated amount of deferred tax assets, e xpected to be r eversed in for eseeable futur e, was not changed in 2021 and stays the same as in 2020. NLB did not r ecognise deferr ed tax assets arising fr om tax losses and tax r eliefs. NLB r ecognised deferr ed tax assets on all tempor ary differenc es, ex cept for impairments of non-str ategic capital in vestments and valuation of financial instruments wher e deferr ed tax assets ar e rec ognised in the amount that, taking into acc ount other rec ognised deferr ed tax assets r eaches the total amount of deferr ed tax assets, for which a r eversal is e xpected within five y ears. The deferr ed tax assets with r espect to which simultaneously deferr ed tax liabilities ar e r ecognised ar e ex cluded fr om this calculation (e.g., deferr ed tax assets for tempor ary non- deductible expenses f or impairment of debt securities measured at fair value thr ough other c omprehensiv e income and deferr ed tax assets r elated to fair value hedge ac counting). NLB Gr oup members did not r ecognise deferr ed tax assets for tax losses if ther e is uncertainty about whether the tax losses c an be utilised, because it is not pr obable that futur e tax able profits will be available against which the deferr ed tax assets c an be utilised. The tax authorities may audit oper ations of NLB Group entities. In gener al, tax inspection, which may result in the emer genc e of additional tax liability, default inter est, and penalties, may be initiated at any time within four to six y ears from the dat e of tax statement or fr om the year in which tax should hav e been assessed. NLB is not awar e of any cir cumstances that c ould give rise to a potential mat erial tax liability in this respect. In 2018, th e F in an cia l Adm in is t ra ti on of t h e Rep ub lic o f Sl ovenia (F UR S) g ran te d NLB s pe cia l tax s tat u s fo r a per i od of th re e year s . Thi s s ta t u s was ex t en de d in M arc h 2021 for ano th er t h ree ye ar s . Th e p ur po se o f th e s t at u s is t o es t abl is h coo pe rat io n bet wee n FU R S an d th e ta xp ayer s , w it h t he a im of encouraging voluntar y compliance and reduce adminis t rative bur de ns o n f in an cia l su pe r vis io n . FU R S coo pe rat es w it h NLB an d res po n ds q uic kl y to re so lve NLB ’s tax c om pl ian ce i s su es , wh ich re d uce s NLB ’s tax r is k s an d u nce r tai n tax p os it io ns . The effective tax r ate of NLB Gr oup r elating to operations in 2021, calculated as a r atio of the tax e xpenses and profit befor e tax is 5.2% (2020: 1.9%). NLB Gr oup pr ofit before tax f or the year 2020 includes non-tax able gain fr om a bargain pur chase (negative goodwill) of EUR 137,858 thousand. Without this one- off event, the effectiv e tax rate of NLB Gr oup in 2020 would be 3.7%. The effective tax r ate for NLB is 1.4% (2020: -0.1%). 215 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 4.17. Earni ngs per s hare Earn in gs p er s h are ar e cal cu la ted by d ivi din g t he n et p rof i t by th e weig ht ed ave rag e nu mb er o f ord in ar y sh a res in i s s ue , les s tre as u r y sh are s . 5. Notes to the s tatemen t of financial position 5.1. Cash , cash b alances a t central bank s , and ot her de mand d eposi ts a t ban ks NLB Gr oup NLB 2021 2020 2021 2020 Net pr ofit at tributable to the owners of the par ent ( in EUR thousands) 236,404 269,70 7 208,421 113,952 W eighted aver age number of or dinary shares (in thousands) 20,000 20,000 20,000 20,000 Basic earnings per shar e ( in EUR per share) 11.8 13.5 10.4 5.7 Diluted earnings per shar e ( in EUR per share) 11.8 13.5 10.4 5.7 Sl ovenia n ba nk s a re req ui red t o ma in tai n a com pu ls or y res er ve wi th t h e B an k of S loven ia rel a ti ve to th e vol um e an d s tr uc t u re of t he ir c us tom er de po si t s . O t he r ba nk s i n NLB in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Balances and obligatory r eserves with c entral banks 4,133,104 3,149,775 2,982,57 6 1,998,297 Cash 509,596 507,970 178,045 192,405 Demand deposits at banks 363,246 304,941 90,163 71,089 5,005,9 46 3,96 2,686 3,250,784 2,261,791 Allow ance for impairment (89 4) (87 4) (347) (258) T otal 5,005,052 3,961,812 3,250,437 2,261,533 Gro up m ai nt ain a co mp ul s or y res er ve in a cco rdan ce w it h loc al le gi sl at io n . NLB an d ot h er b an k s in NLB G ro up f ul f il t he ir comp ulso r y res er ve deposit re quirem ent s . Dil u ted e ar n ing s p er s ha re are t h e sa me a s b as ic ea r nin g s per sh ar e for NL B Gro up a nd N LB , s in ce s ub ord in at ed lo an s an d is s ue d de bt s ec ur it ie s h ave n o fu t ur e conver s io n opt io ns , and consequentl y there a re no d ilutive potential ordinary shares. 216 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.2. Finan cial ins t rum en ts h eld for tradin g a) Fin ancial asset s held for trading The n ot io na l am ou nt s o f der i vat ive f in an ci al in s t r um e nt s a re di sc los e d in n ote 5.23.b). in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Derivativ es. excluding hedging instruments Swap c ontracts 6,665 13,597 6,675 13,932 - curr ency swaps 438 400 448 735 - inter est rate s waps 6,227 13,197 6,227 13,197 Options 54 786 54 786 - inter est rate options 53 - 53 - - securities options 1 786 1 786 F orwar d contr acts 959 1,666 953 1,663 - curr ency forwar d 959 1,666 953 1,663 T otal derivatives 7,67 8 16,049 7,682 16,381 Securities Bonds - 68,806 - 2,450 - Republic of Serbia - 66,356 - - - other non-EU members - 2,450 - 2,450 T otal securities - 68,806 - 2,450 T otal 7,67 8 84,855 7,682 18,831 - quoted securities - 68,806 - 2,450 of these debt instruments - 68,806 - 2,450 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Derivativ es. excluding hedging instruments Swap c ontracts 6,609 13,932 6,626 13,9 47 - curr ency swaps 716 777 733 792 - inter est rate s waps 5,893 13,155 5,893 13,155 Options 53 - 53 - - inter est rate options 53 - 53 - F orwar d contr acts 923 1,553 923 1,553 - curr ency forwar d 923 1,553 923 1,553 T otal 7,585 15,485 7,602 15,500 b) Finan cial liabilities held for t rading The n ot io na l am ou nt s o f der i vat ive f in an ci al in s t r um e nt s a re di sc los e d in n ote 5.23.b). 217 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Assets Shar es 4,472 4,171 4,472 4,171 Investment funds 12,428 10,989 - - Bonds 4,261 2,157 - - Loans and advanc es to companies - 25,07 6 7,888 30,935 T otal 21,161 42,393 12,360 35,106 - quoted securities 4,261 2,157 - - of these debt instruments 4,261 2,157 - - - unquoted securities 16,900 15,160 4,472 4,171 of these equity instruments 16,900 15,160 4,472 4,171 5.3. Non- trading f inancia l ins tr ume nt s mea sured a t fair value through p rofit or los s a) Fin ancial asset s mandator ily at fair v alue th rough profit or los s b) Finan cial liabilities measured at fair v alue through profit or loss in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Liabilities Loans and advanc es to companies - - 352 - 218 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.4. F inancia l ass et s mea sured a t fair value through o ther com prehens ive income a) An alysis by t ype of financial as sets mea sured at fair v alue th rough other comprehensive inc om e in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Bonds 3,251,826 3,260,9 40 1,526,237 1,598,760 - gov ernments 2,477,285 2,527,240 7 66,688 879,856 - Republic of Slo venia 314,929 417,238 270,423 334,819 - other EU members 46 2,459 384,47 4 331,67 6 370,484 - Republic of Serbia 1,196,72 4 1,258,775 5,021 - - other non-EU members 503,173 466,753 159,568 17 4,553 - banks 739,935 716,459 724,9 43 701,663 - other issuers 34,606 17,241 34,606 17,241 Shar es 22,109 22,925 219 273 National Resolution F und 44,490 44,87 4 44,490 44,87 4 T reasury bills 105,866 135,102 14,805 72,444 - Republic of Slo venia 6,475 57,531 - 45,007 - other EU members 69,836 24,015 14,805 7,011 - Republic of Serbia - 8,483 - - - other non-EU members 29,555 45,073 - 20,426 Commer cial bills 37,569 50,449 - - T otal 3,461,860 3,514,290 1,585,751 1,716,351 of these debt securities 3,395,261 3,446,491 1,541,042 1,671,204 of these equity securities 66,599 67,799 44,709 45,147 Allow ance for impairment (note 5.14.b) (12,016) (9,482) (3,001) (3,141) - quoted securities 3,205,277 3,307,103 1,541,042 1,671,204 of these debt instruments 3,204,7 45 3,306,400 1,541,042 1,671,204 of these equity instruments 532 703 - - - unquoted securities 256,583 207,187 44,709 45,147 of these debt instruments 190,516 140,091 - - of these equity instruments 66,067 67,09 6 44,709 45,147 The c re dit q ua li t y a na ly si s for f i na nc ial a s s et s an d co nt in ge nt liab ili ti es i s di sc los e d in n ote 6.1.j ) an d m oveme nt s i n all owanc e for t he i mp air m en t of d eb t se cu r it ies i n no te 5.14.b). 219 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Movements of financial ass ets meas ured at fair v alue through other comprehens ive in come in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Debt securities Equity securities Debt securities Equity securities Debt securities Equity securities Debt securities Equity securities Balance as at 1 January 3,446,491 67,799 2,091,805 49,623 1,671,204 45,147 1,611,711 44,9 46 Effects of tr anslation of foreign oper ations to pr esentation currency 1,19 4 31 (406) 94 - - - - Acquisition of subsidiaries (note 5.12.c) - - 1,267,281 17,614 - - - - Additions 1,455,823 - 1,856,445 - 219,733 - 1,045,700 - Der ecognition (1,468,2 40) (4,297) (1,790,053) (3,341) (338,929) (55) (999,844) - Net inter est income 40,310 - 17,370 - 11,6 96 - 9,894 - Exchange differ ences on monetary assets 8,367 - (10,895) - 8,452 - (11,007) - Changes in fair values (52,085) 3,066 14,9 44 3,809 (31,114) (383) 14,750 201 Disposal of subsidiary (note 5.12.b) (36,599) - - - - - - - Balance as at 31 Dec ember 3,395,261 66,599 3,446,491 67,799 1,541,042 44,709 1,671,204 45,147 A s at 31 D ec em be r 2021 an d as a t 31 De cem b er 2020, NLB Gro up a nd N LB do n ot h ave any e q uit y in s t r um e nt s m ea s ure d at fa ir val ue t hr ou gh ot he r com pr eh en si ve in com e ob tai ne d by tak ing p os s es sio n of co lla te ral in t h e s ta te me nt o f f in an cia l pos it io n (note 6.1.l ). By s el lin g eq ui t y s e cu ri t ies m e as ure d a t fair va lu e th ro ugh oth er c om pre he ns i ve inc om e in 2021, NLB G ro up re al is ed a ne t gai n in th e am o un t of EUR 3,362 t ho us an d , an d NLB a n et gai n in th e am o un t of EUR 53 t h ou s an d (2020: NLB G ro up an d NLB di d no t rea lis e any g ain o r lo s s by se llin g eq ui t y se cu ri t ies me as ur ed a t fai r valu e th ro ug h oth er c om pre he ns i ve inc om e). Rea li se d gai n in yea r 2021 was t ran s fe r red t o ret ain ed ear n in gs (not e 5.4.c). Equi t y i nves t m en t obt ain ed by t ak ing p os s es s io n of co lla te ral in am ou nt o f EUR 3,289 t ho u sa nd wa s du r ing ye ar 2020 conver t ed b ack t o th e li ne i tem ‘ F in an cia l as s et s m e as ur ed at am or t i se d cos t ’ b eca u se t h e con di ti on s of t he b an kr uptc y pro cee din gs we re n ot m et. At t he t im e of c onver s io n, N LB Gro up t ran s f er re d EUR 1,002 t ho us an d f rom a ccu m ula te d oth er c om pre he ns i ve inc om e in to ret ain e d ear n in gs (note5.4.c). 220 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Accumula ted other comprehensive income related to financial assets mea sured at fair v alu e through other comprehensive income 5.5. Der ivatives for hedging p urpos es NLB G rou p en ti ti es m ea s ure ex pos u re to in te res t rat e r is k us in g rep ri cin g ga p an al ys is an d by ca lc ula t ing t h e se ns i ti vi t y of the st atemen t of financial pos ition and of f-bal ance -sh eet ite ms i n te rm s o f th e eco n om ic valu e of e qu it y. The por t fol io dur at io n is u se d as a m e as ure o f r is k in t h e ma na gem e nt o f se cu ri t ies i n th e ba nk in g bo ok . NLB G rou p en ti ti es u se va ri ou s de ri vat ive s s uch a s in te res t rat e s waps (IR S) a n d cur r en c y in ter es t r ate s wa ps (CIR S) to clo se o pe n po si ti on s in an i nd iv idu al m a t ur it y bu cket. M ic ro an d ma cro f air val ue h ed ge s are u se d for t h at p ur p os e, i .e., th e s wapp in g of a f ixed i nt ere s t ra te o n a he dg ed it em fo r a var iab le in te res t rat e. M icro c as h fl ow he dg es ar e als o occa s ion al ly u se d, i .e. t h e swa ppi ng o f a var iab le in te res t rat e on a h edg ed i tem f or a f ixe d in ter es t ra te . Al l cas h f low he dg es are m ad e on li abi lit y it em s , w hil e fai r val ue h edg es a re us e d on as s e t ite m s . Hedge acc ounting principles (fair value and cash flo w hedging) wer e applied in the hedging of inter est r ate risk using interest r ate swaps. These hedge r elationships ar e designated in such a way that the char acteristics of the hedging instrument and those of the hedged item match ( i.e., the principal terms match), while the dollar-offset method is used to regularly measur e hedge effectiveness r etr ospectively. Pr ospective testing of hedge effectiveness is carried out r egularly for macro hedges wher e the charact eristics of both items in the hedge relationship do not fully match by c omparing the change in the fair value of both items to the shift in the yield curve. in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Debt securities Equity securities Debt securities Equity securities Debt securities Equity securities Debt securities Equity securities Balance as at 1 January 39,924 3,726 45,480 2,836 27,242 452 24,156 288 Effects of tr anslation of foreign oper ations to pr esentation currency (7) 6 16 32 - - - - Disposal of subisidiaries (note 5.12.b) - valuation and impairment (1,916) - - - - - - - - deferr ed income tax (note 5.17.) 193 - - - - - - - Net gains/(losses) fr om changes in fair value (38,158) 3,066 7,717 3,809 (17,187) (383) 7,522 202 Gains/losses tr ansferred to net pr ofit on disposal (note 4.4.) (167) - (5,066) - (24) - (4,347) - Impairment (note 4.14.) 2,854 - 3,888 - (148) - 635 - T ransfer of gains/losses to r etained earnings (5.4.b) - (3,362) - (1,002) - (53) - - Deferr ed income tax (note 5.17.) 4,758 (179) (1,085) (401) 2,482 83 (724) (38) Shar e of other compr ehensive income of associates and joint ventur es - - (11,026) (1,548) - - - - Balance as at 31 Dec ember 7,481 3,257 39,924 3,726 12,365 99 27,242 452 Hed ge a cco un tin g pr i nc ipl es we re no t app lie d in e con om ic he dge s us in g CIR S . Th us , t h e ef fec ts o f val ua tio n are d is cl os ed in th e in co me s tat em en t in t he l in e it em ‘G ain s l es s lo s s es f rom finan cial ass et s and liabilities held for trading.’ So urce s of h ed ge in ef fe c t iven e s s ma y ar is e, b u t are n ot li mi te d to th e di s cou nt r at es us e d for val ua t ion o f der i vat ives a t fa ir valu e, an d n oti on al an d t im in g dif fer en ces , a s wel l dif fer en ces in th e am or t is a ti on pl an b et ween h e dge d it em s an d th e he dgi ng in s t r u me nt. H edg e ef fec ti ven es s i s as s es s e d mo nt hl y, by com par i ng c ha ng es in t h e fai r valu e of t he h e dge d it em th at a re a t t r ib ut ab le to a h ed ge d r is k wi th c h ang es i n th e fa ir valu e of t he h ed gin g in s t r um e nt. 221 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report a) Fair value a dju s tm en t i n he dge a ccou nt in g reco gni se d in p rof it o r los s In both years pr esented, all fair v alue hedges wer e effective, with actual r esults of the hedge r atio within a range of 80–125%, ther efor e, no discontinuation of the hedge acc ounting was r equir ed. A s at 31 D ec em be r 2021 an d 2020, NLB G ro up an d NLB h a d no re la ti on s hip s de si gn at ed fo r cas h f low h edg e acc ou nt in g or for h e dge o f a ne t inves tm en t in a fo reig n op era ti on . in EUR thousands NLB Gr oup and NLB 2021 2020 F air value hedge 167 720 Net effects fr om hedging instruments 26,406 (12,348) - inter est rate s wap for micr o hedge 19,547 (7,537) - inter est rate s wap for macr o hedge 6,859 (4,811) Net effects fr om hedged items (26,239) 13,068 - loans measur ed at amor tised cost - micr o hedge (105) (128) - bonds measur ed at amor tised cost - micr o hedge (5,443) 1,116 - bonds measur ed at fair value thr ough OCI - micro hedge (13,929) 7,227 - loans measur ed at amor tised cost- macr o hedge (6,7 62) 4,853 in EUR thousands NLB Gr oup and NLB Notional amount F air value Asset Liability F air value hedge 31 Dec 2021 572,455 568 35,377 31 Dec 2020 573,753 - 61,161 in EUR thousands 2021 2020 NLB Gr oup and NLB Carrying amount of hedged items Ac cumulated amount of FV adjustments on the hedged item Carrying amount of hedged items Ac cumulated amount of FV adjustments on the hedged item Micr o fair value hedges 479,57 4 23,783 498,397 43,571 Fixed r ate c orporate loans measur ed at AC 1,66 2 60 2,667 165 Fixed r ate bonds measur ed at AC 117,368 8,426 117,839 14,182 Fixed r ate bonds measur ed at FVOCI 360,544 15,297 377,891 29,224 Macr o fair value hedges 145,638 7,082 154,050 13,844 Fixed r ate r etail loans 145,638 7,082 154,050 13,844 NLB G rou p app li ed a h ed ge of a n et i nves t m en t in a for eign ope ra tio n in ye ar s 2011 an d 2012, an d at t h at t im e re cog ni se d a EUR 754 t ho us an d g ain o n th e he dg ing i ns tr u me nt i n ot he r com pre he n si ve inc om e (note 5.21.b). Th is g ain w il l be in c lu ded in th e co ns o lid at ed in co me s tat em en t wh en t h e fore ign ope ra tio n is d is po se d of a s a pa r t of t he g ain o r los s o n th e dispos al. c) Accum ul at ed f air val ue a dj us t me nt s ar i si ng f rom th e corresponding continuing hedge relationsh ips The t ab le b elow p res en t s ac cu mu la te d fair va lu e adj u s tm e nt s ar is in g fro m th e co r res po n din g con t in uin g h edg e rel at ion s hi ps , i rr es pe c t ive o f wh et he r th er e ha s be en a c ha ng e in th e h ed ge de s ign at io n du ri ng t h e year . Th e ac cu m ula te d fair va lu e adj us tm en t is p res en te d in t he s am e l ine o f s ta tem e nt o f fi na nc ial p os it io n as a h ed ge d ite m , except f or ma cro fa ir val ue h ed ge s . In s uc h re la tio n sh ip s , he dg ed i tem s are pr es en te d in th e li ne i te m ‘F in an ci al as set s m e as ur ed a t am or ti s ed co s t, ’ w hi le t he a cc um ul at ed fa ir val ue a dju s t m en t is pr es en te d in a s epa ra te li ne i tem ‘ Fair val u e ch an ges o f th e he dge d it em s in p or t foli o he dg e of in te res t r at e ri s k .’ b) Notion al amount s of interest rate swaps 222 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report d) IB O R refo r m NLB G rou p cl os ely m o ni tor s t h e develo pm en t of B e nc hm ar k Int ere s t R at e Ref or m an d is a c t ive ly pr ep ar in g for t h e ch an ges imp os ed by t h e reg ul at ion . I n 2018, NLB fo r me d a s pe cia l wor kin g gro up w hi ch d eal s wi th t h e pre pa rat io n for t h e dis co nt in ua t ion o f so me i mp or ta nt r efe ren ce in te res t rat es an d rep or t s on t hi s to N LB Gr ou p ALCO . NLB G rou p no l on ge r of fer s n ew pro du c t s t h at wo uld b e tie d to re fer en ce ra tes i n ter m in a tio n . Th e except io n are pro du c t s re la te d to EUR IB OR , wh ich i s no t sc he d ule d for disconti nuation. There fore, NLB Grou p’ s at tention was f ocused on t he m od if ica t ion o f new co nt ra c t u al re la tio n sh ips w it h cu s to me r s in w hic h EUR IB OR o cc ur s an d t he a me nd me nt o f exis tin g con t rac tu al re la t ion s hip s wi th c u s to me r s in w hic h oth er b en ch m ar k s in t er mi na t ion a pp ear . EUR IBOR (likely ) discontin uation Due to timely tr ansition to the new hybrid EURIBOR methodology which meet the BMR r equir ements, EURIBOR can continue to be used in new and legacy c ontracts f or the foreseeable futur e. EU su per v is ed e nt it ie s are b ou nd t o in cl ud e rob us t fall bac k clauses into contr ac tual docu m entation with the c lients . In Novem ber 2019, t h e Euro r is k-fr ee ra te s (RFR) Wor ki ng G ro up pub li s he d hig h level re co mm en da t ion s fo r fall ba ck p rovis io n s for p rod uc t s refe ren ci ng EU RI BO R . Th e in c lu si on of r ob us t fall ba ck la ng ua ge i s a req ui rem en t in co nt ra c t s s ub je c t to t h e EU Be nc hm ar k R eg ul at ion . The B an k al rea dy i nco r po rat ed th e ge ne ri c fal lba ck c la us e in to al l new EU RI BO R (b ot h reta il and cor pora te) contrac t s . In Ma y 20 2 1 , th e Euro R FR Work in g Gr ou p pro du ced i t s reco mm e nd at io ns o n EUR IB OR f allb ac k tr ig ge r event s an d € ST R- b as ed EU RI BO R fal lba ck r ate s . O ur m id - ter m ac t iv it ie s are ex pe c t ed to u nd er ta ke on th e im pl em en ta ti on of m ore p rec is e fal lba ck p rovi si on ing , b as ed o n th es e reco mm endations. NL B identifie d potentia l €STR-based fall ba ck s fo r EUR IB OR , i n lin e wi t h th e cu r ren t m ar ket con s en s us on t h os e fal lba ck s an d i nte n ds to p roc ee d wi th t he a c t iv it ie s for i nc lu s ion o n EUR IB OR fa llb ac ks i nt o all n ew EUR IB OR - ba se d con t rac t s . In t he n ex t s tep, t h e Ba nk i s exp ec ted t o in cl ude f all ba ck pr ovis io ns a ls o in leg ac y c on tra c t s . The exac t ti mi ng d ep en ds o n reg ul ato r y dev elopm ent and best market practice. NLB as a s u pe r vis e d ent i t y, is req ui red t o com pl y wi th t h e Be nc h ma rk r eg ula t ion a nd , a s a us er of b en c hm ar k s , m u s t pro du ce an d m ain tai n a rob us t wr it te n pl an s et tin g o ut th e ac tio ns N LB wou ld ta ke in th e even t th a t a be nc hm ar k ma te ri all y ch an ge s or ce as es t o be p rovid ed . NLB h a s pre par ed a p lan , w hic h s et s o ut a n in exh au s t ive/summ a r y ac t io n lis t, and w ill c on tin u e to cl os el y fol low m ar ket s ta nd ard s to id ent i f y a lt er n at ive b en ch ma r k s th at c ou ld b e refe ren ce d in su bs t i t ute o f exi s t ing b en ch m ar k s . LIBOR (imminen t) discontinuation . Sin ce m any LI BO R se t tin gs c ea se d to exi s t a t th e b egi nn in g of 2022, th e B an k ac cel era te d th e pro ce s s of wi nd in g- down th e exp os ure s in a m os t e f f i cie nt wa y . I nc rem en ta l LIB OR trans ac t ions were not allowed uncondit ionall y . NLB G rou p ac tiv it ie s for i mp le me nt at io n of LIB OR t ran s it io n were a s foll ows : • review of ou ts tan ding LIBOR referencing loans , • ide nt if ic at ion o f al ter n a ti ve refe ren ce ra te t o be u se d for loan por t folio, • an aly si s of h ow th e al te r na t ive ref ere nce r at e wil l be calc ul at ed a nd h ow to ca lc ula te a ny eco no mi c dif fer en ce bet wee n LIB OR s an d t he s el ec ted a lt er n at ive re fer en ce rates , • con s ide rat io n of IT s y s te m acco mm o da tio n wi th a lt er n at ive reference ra tes , • doc um en ta t ion o f th e tr an si t ion o f th e lo an s . In Febr u ar y 2021; th e Euro pe an Com m is s ion a do pte d an am en dm en t to t he ex is t in g EU B MR an d i n Oc tob er 2021; th e Europ ea n Com mi s s ion p ub lis h ed t h e Imp le m ent in g Reg ul at io n on t he d es ign a ti on of a s tat u to r y repl ace m en t for cer ta in s et tin g s of CHF L IB OR an d fo r EONIA . CHF LIB OR t ra ns i tio n to S ARO N Com po un d R at e was su cce s s f ull y im pl em en te d in du e t im e. The t ab le b elow i nd ica tes t h e no mi na l am ou nt a nd wei gh ted avera ge m a tu r it y of d er iva ti ves in h ed gin g re la tio n sh ip s th at wil l be a f f ec ted by t he I BO R refo r m , an aly s ed on a n in ter es t rat e ba si s . T he d er iva ti ve he dgi ng i ns tr u me nt s p rovid e a cl os e app roxim a tio n to t he ex ten t of t he r i s k expo s ure NL B Gro up manages through hedging relationships. NLB Gr oup and NLB 2021 2020 Nominal amount ( in EUR thousands) W eighted aver age maturity (years) Nominal amount ( in EUR thousands) W eighted aver age maturity (years) Inter est rate sw aps EURIBOR (3 months) 186,472 4.23 186,471 5.18 EURIBOR (6 months) 371,866 7.00 37 4,254 7.83 USD LIBOR (6 months) 14,117 0.98 13,028 1.99 A s can b e s een f rom t h e tab le, t h e ma jor i t y of lo ng -t er m der i vat ives i n he dgi ng r ela t ion s hi ps are ex po se d to EUR IB OR , t h ere fore, t h e un cer t ain t y ar is in g fro m in ter es t ra te benchmar k reform deriv es mainly from derivatives wit h longer ma t ur i tie s , w he n a ch an ge of EU R IBO R co ul d be exp ec ted . A s at 31 D ec em be r 2021, der i vat ives w it h re ma in ing m a t ur it y of f ive or m o re year s a mo un t to EU R 272,730 th o us an d (31D ec em ber 2020: EU R 310,730 t ho us an d ). 223 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.6. Finan cial as set s me asured a t amor tis ed cost Analysis by type The c re dit q ua li t y a na ly si s for f i na nc ial a s s et s an d co nt in ge nt li abi lit ie s is d is cl os ed in n ot e 6.1.j) . a) Deb t sec ur i ties in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Debt securities 1,717,626 1,503,087 1,436,42 4 1,277,880 Loans and advanc es to banks 140,683 197,005 199,287 158,320 Loans and advanc es to customers 10,58 7,121 9,619,860 5,145,153 4,564,178 Other financial assets 122,229 113,138 92,404 54,503 T otal 12,567,659 11,433,090 6,873,268 6,054,881 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Gov ernments 1,317,248 1,173,718 1,041,78 7 953,881 Companies 79,852 86,9 46 72,632 79,732 Banks 295,653 220,988 295,653 220,988 Financial or ganisations 28,17 8 25,120 28,178 25,120 1,720,931 1,506,772 1,438,250 1,279,721 Allow ance for impairment (note 5.14.b) (3,305) (3,685) (1,826) (1,841) T otal 1,717,626 1,503,087 1,436,424 1,277,880 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Loans 10,200 9,809 117,490 95,070 T ime deposits 130,602 128,07 4 81,900 63,405 Re verse sale and r epurchase agr eements - 59,263 - - Pur chased r eceivables 79 - 79 - 140,881 197,146 199,469 158,475 Allow ance for impairment (note 5.14.a) (198) (141) (182) (155) T otal 140,683 197,005 199,287 158,320 b) Loan s and a dvan ces t o ban k s 224 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Loan s an d advan ces t o cu s to me rs Ana lys is o f loa ns a nd ad vance s to cus t om ers by s ec to r in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Loans 10,310,300 9,490,734 5,006,8 71 4,501,991 Over dr af ts 352,018 322,622 17 4,063 152,487 Finance lease r eceiv ables (note 5.11.b) 108,715 49,517 - - Cr edit car d business 129,330 125,725 59,305 52,156 Called guar antees 2,731 3,542 1,333 916 10,903,09 4 9,992,140 5,241,572 4,707,550 Allow ance for impairment (note 5.14.a) (315,973) (372,280) (96,419) (143,372) T otal 10,587,121 9,619,860 5,145,153 4,564,178 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Gov ernments 281,010 368,400 143,864 170,7 42 Financial or ganisations 141,709 158,871 226,144 177,198 Companies 4,645,112 4,159,496 2,118,210 1,838,468 Individuals 5,519,290 4,933,093 2,656,935 2,377,770 T otal 10,587,121 9,619,860 5,145,153 4,564,178 225 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report d) Other finan cial asset s Ana lys is by t y pe o f ot he r fi nan cial a ss et s Rec eiva ble s in t he c ou r se o f se t tle me nt a re te mp ora r y bal an ces w hi ch w ill b e tr an s fer re d to t he a pp rop ri at e it em in th e da ys fo llow in g th eir o cc ur re nce . in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Rec eivables in the course of settlement and other tempor ary accounts 40,436 32,484 23,945 15,906 Cr edit car d rec eivables 22,670 20,260 15,270 11,383 Debtors 8,227 6,316 1,311 1,307 F ees and commissions 7,303 6,563 3,041 2,871 Rec eivables to br oker age firms and others for the sale of securities and custody services 613 611 610 610 Accrued inc ome 1,715 1,327 1,690 1,29 6 Dividends - - 20,493 - Pr epayments 1,526 447 - - Other financial assets 45,9 65 50,683 27,197 22,460 128,455 118,691 93,557 55,833 Allow ance for impairment (note 5.14.a) (6,226) (5,553) (1,153) (1,330) T otal 122,229 113,138 92,404 54,503 O th er f in an ci al a s se t s in cl ud e rec eivab le s to p en si on f un ds for e ar ly re ti rem en t p aym e nt s , r ece ivab les f ro m in su ran ce com pa nie s , c lai ms i n en force m en t pro ced ure s , c lai ms f rom refund s, claim s for subsidies from related tran sac t ions , paid duties, and cour t fees. Ana lys is o f ot he r fi nan cial a ss et s by se c to r in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Banks 33,325 35,431 34,131 8,069 Gov ernment 43,432 41,57 6 23,7 69 22,537 Financial or ganisations 15,979 14,488 12,818 7,257 Companies 5,994 3,912 647 580 Individuals 23,499 17,731 21,039 16,060 T otal 122,229 113,138 92,404 54,503 226 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report e) Movement of called n on- financial guarantees 5.7. Non - cur rent asse ts h eld for sale The l in e it em ‘ No n - c ur ren t a s se t s he ld fo r sa le’ in cl ud es bu si ne s s pre mi s es an d a s se t s rec eive d as co ll at eral t h at a re in th e pr oce s s of b ein g s old . A s a t 31 D ece mb er 2021, t he va lu e of as s et s recei ved by ta ki ng p os s es s io n of co lla te ral an d inc l ude d in n on - cur re nt a s s et s h el d for s al e by NLB G rou p am oun te d to EU R 699 tho us an d( 31 De cem be r 2020: EUR 699 th ou s an d). A s at 31 D ece mb er 2021 a nd a s at 31 D e cem be r 2020, NLB di d no t ha ve any n on - c ur re nt a s s et s ob tai ne d by tak in g pos s e s si on of c oll at era l an d in cl ude d in n on - cur r ent as s et s h el d for s al e (note 6.1.l ). in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 1,838 1,859 440 365 Effects of tr anslation of foreign oper ations to pr esentation currency (1) (2) - - Called guar antees 1,541 2,37 6 1,207 2,261 P aid guarantees (1,904) (1,932) (470) (1,723) W rite-offs (757) (463) (757) (463) Balance as at 31 Dec ember 717 1,838 420 440 Ana lys is o f moveme nt s o f non - curren t as se t s hel d fo r sa le in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 8,658 43,191 4,454 5,532 Effects of tr anslation of foreign oper ations to pr esentation currency 3 (3) - - Acquisition of subsidiaries (note 5.12.c) - 1,96 9 - - Additions 97 89 - - T ransfer fr om/(to) pr operty and equipment (note 5.8.) 605 2,779 518 2,626 T ransfer fr om/(to) other assets 20 - - - T ransfer fr om/(to) investment pr operty (note 5.9.) (22) (17) - - Disposals (1,952) (39,089) (547) (3,484) V aluation (358) (261) (336) (220) Balance as at 31 Dec ember 7,051 8,658 4,089 4,454 In Ma y 2020, al l th e s us p en si ve con di ti on s un de r th e joi nt N LB an d KBC I ns u ran ce NV s al e agr eem e nt s ign e d in D ece mb er 2019 were m et, th er efo re, t he s al e of NLB ’s 50% s ta ke in th e sh ar e capi tal o f NLB V i ta was c om pl ete d. T he e f f ec t of s ale in year 2020 i s in cl ud ed i n th e s egm en t ‘ Re tai l B an kin g in Sl oven i a . ’ 5.8. Proper t y and equipmen t a) Anal ys is by t yp e in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Own pr operty and equipment 223,593 223,598 82,905 88,495 Right-of-use assets (note 5.11.) 23,421 25,519 3,217 3,180 T otal 247,014 249,117 86,122 91,675 227 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup NLB Land & Buildings Computers Other equipment T otal Land & Buildings Computers Other equipment T otal for own use in oper ating lease for own use in oper ating lease Cost Balance as at 1 January 2021 345,76 9 81,729 98,838 4,309 530,645 197,043 49,580 49,355 3,514 299,492 Effects of tr anslation of foreign oper ations to pr esentation currency 62 17 30 - 109 - - - - - Additions 3,98 7 7,29 6 4,871 1,948 18,102 3,321 1,513 1,510 9 6,353 Disposals (1,385) (8,710) (8,393) (648) (19,136) - (7,194) (4,722) (4) (11,920) Impairment (note 4.14.) (126) - - - (126) - - - - - T ransfer to/fr om investment pr operty (note 5.9.) 4,377 - - - 4,377 (2,423) - - - (2,423) T ransfer to/fr om non-curr ent assets held for sale (note 5.7.) (5,707) - - - (5,707) (2,089) - - - (2,089) Disposal of subsidiary (note 5.12.b) (119) (201) (617) - (937) - - - - - Balance as at 31 Dec ember 2021 346,858 80,131 94,729 5,609 527,327 195,852 43,899 46,143 3,519 289,413 Depr eciation and impairment Balance as at 1 January 2021 173,404 53,822 7 6,897 2,924 307,047 135,343 32,905 39,944 2,805 210,997 Effects of tr anslation of foreign oper ations to pr esentation currency 7 10 26 - 43 - - - - - Disposals (684) (8,634) (7,577) (152) (17,047) - (7,19 4) (4,248) (3) (11,445) Depr eciation (note 4.11.) 7,124 8,733 5,19 6 554 21,607 3,825 4,376 2,086 323 10,610 Impairment (note 4.14.) 90 - - - 90 - - - - - T ransfer to/fr om investment pr operty (note 5.9.) (2,67 6) - - - (2,67 6) (2,083) - - - (2,083) T ransfer to/fr om non-curr ent assets held for sale (note 5.7.) (5,102) - - - (5,102) (1,571) - - - (1,571) Disposal of subsidiary (note 5.12.b) (3) (98) (127) - (228) - - - - - Balance as at 31 Dec ember 2021 172,160 53,833 7 4,415 3,326 303,734 135,514 30,087 37,782 3,125 206,508 Net carrying v alue Balance as at 31 Dec ember 2021 17 4,698 26,298 20,314 2,283 223,593 60,338 13,812 8,361 3 94 82,905 Balance as at 1 January 2021 172,365 27,907 21,941 1,385 223,598 61,700 16,6 75 9,411 709 88,495 b) Movement of o wn proper t y and equipmen t 228 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A s at 31 D ec em be r 2021, th e val ue of a s s et s re cei ved by tak in g pos s e s si on of c oll at era l an d in cl ude d in p rop er t y an d eq uip me nt by N LB Gr oup a mo un te d to EU R 13,559 th o us an d (31 D ec em ber 2020: EU R 13,268 t ho us an d ), an d in N LB to EUR 7 th ou s an d (31 D ec em be r 2020: EUR 7 t ho u san d ) (note 6.1.l ). in EUR thousands NLB Gr oup NLB Land & Buildings Computers Other equipment T otal Land & Buildings Computers Other equipment T otal for own use in oper ating lease for own use in oper ating lease Cost Balance as at 1 January 2020 313,168 70,7 44 95,673 6,186 485,771 198,313 44,635 51,6 28 5,441 300,017 Effects of tr anslation of foreign oper ations to pr esentation currency (101) (20) (40) - (161) - - - - - Acquisition of subsidiaries (note 5.12.c) 40,173 1,773 3,249 - 45,195 Additions 5,888 10,254 6,945 1,255 2 4,342 5,299 5,378 3,356 104 14,137 Disposals (5,843) (961) (6,955) (3,132) (16,891) (13) (433) (5,629) (2,031) (8,106) Impairment (note 4.14.) (43) - - - (43) - - - - - T ransfer to/fr om investment pr operty (note 5.9.) (756) - - - (756) - - - - - T ransfer to/fr om non-curr ent assets held for sale (note 5.7.) (6,717) - - - (6,717) (6,556) - - - (6,556) Disposal of subsidiary (note 3.) - (61) (34) - (95) - - - - - Balance as at 31 Dec ember 2020 345,76 9 81,729 98,838 4,309 530,645 197,043 49,580 49,355 3,514 299,492 Depr eciation and impairment Balance as at 1 January 2020 173,7 63 48,808 79,515 4,625 306,711 135,328 29,440 43,7 62 4,367 212,897 Effects of tr anslation of foreign oper ations to pr esentation currency (25) (17) (40) - (82) - - - - - Disposals (2,427) (9 48) (6,651) (2,349) (12,375) - (431) (5,600) (2,031) (8,062) Depr eciation (note 4.11.) 6,271 6,040 4,103 648 17,062 3,945 3,89 6 1,782 469 10,092 Impairment (note 4.14.) 161 - - - 161 - - - - - T ransfer to/fr om investment pr operty (note 5.9.) (401) - - - (401) - - - - - T ransfer to/fr om non-curr ent assets held for sale (note 5.7.) (3,938) - - - (3,938) (3,930) - - - (3,930) Disposal of subsidiary (note 3.) - (61) (30) - (91) - - - - - Balance as at 31 Dec ember 2020 173,404 53,822 7 6,897 2,924 307,047 135,343 32,905 39,9 44 2,805 210,997 Net carrying v alue Balance as at 31 Dec ember 2020 172,365 27,90 7 21,9 41 1,385 223,598 61,700 16,675 9,411 709 88,495 Balance as at 1 January 2020 139,405 21,936 16,158 1,561 179,060 62,985 15,195 7,866 1,07 4 87,120 229 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.9. Inv es tmen t proper t y in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 54,842 52,316 8,300 9,303 Effects of tr anslation of foreign oper ations to pr esentation currency 19 (24) - - Acquisition of subsidiaries (note 5.12.c) - 19,643 - - Additions - 717 - - Disposals (4,075) (2,493) - (2,031) T ransfer fr om/(to) pr operty and equipment (note 5.8.) (7,053) 355 340 - T ransfer fr om/(to) non-curr ent assets held for sale (note 5.7.) 22 17 - - T ransfer fr om/(to) other assets 1,397 (16,559) 137 231 Net valuation to fair v alue (note 4.8.) 3,589 87 0 306 797 Disposals of subisidiaries (note 5.12.b) (1,215) - - - Other 98 - 98 - Balance as at 31 Dec ember 47,624 54,842 9,181 8,300 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Leased to others 1,103 1,157 291 383 Not leased to others 231 24 2 183 1 94 T otal 1,334 1,399 4 74 577 A s at 31 D ec em be r 2021, th e val ue of a s s et s re cei ved by tak in g pos s e s si on of c oll at era l an d in cl ude d in i nves t me nt prop er t y by NLB G ro up am o un ted t o EUR 36,009 t ho u sa nd ( 31 De cem be r 2020: EUR 36,130 t ho u sa nd ), a nd i n NLB am o un ted to EUR 4,17 6 t ho u sa nd ( 31 D ece mb er 2020: EU R 4,079 th ou s an d) (not e 6.1.l) . Operating expenses arising fr om inv estm ent pr oper ties: 230 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.10. Intan gible as se ts in EUR thousands NLB Gr oup NLB Softwar e licenses Other intangible assets Goodwill T otal Softwar e licenses Cost Balance as at 1 January 2021 246,687 13,200 32,336 292,223 201,614 Effects of tr anslation of foreign oper ations to pr esentation currency 13 11 - 24 - Additions 14,866 - - 14,866 7,370 W rite-offs (15,527) - - (15,527) (7,956) Disposal of subsidiary (note 5.12.b) (432) - - (432) - Balance as at 31 Dec ember 2021 245,607 13,211 32,336 291,154 201,028 Amortisation and impairment Balance as at 1 January 2021 201,7 48 - 28,807 230,555 173,509 Effects of tr anslation of foreign oper ations to pr esentation currency 8 7 - 15 - Amortisation (note 4.11.) 11,9 44 4,26 7 - 16,211 6,022 Impairments (note 4.14.) 936 - - 936 - W rite-offs (15,435) - - (15,435) (7,956) Disposal of subsidiary (note 5.12.b) (204) - - (204) - Balance as at 31 Dec ember 2021 198,997 4,27 4 28,807 232,078 171,575 Net carrying v alue Balance as at 31 Dec ember 2021 46,610 8,937 3,529 59,07 6 29,453 Balance as at 1 January 2021 44,939 13,200 3,529 61,668 28,105 231 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Oth er intangible as set s represent additionally ident ified int an gib le a s se t s in a b us in es s c om bin a tio n , n am ely c ore dep os it s a nd t ra de n am e (not e 5.12.c). in EUR thousands NLB Gr oup NLB Softwar e licenses Other intangible assets Goodwill T otal Softwar e licenses Cost Balance as at 1 January 2020 228,692 - 32,336 261,028 192,581 Effects of tr anslation of foreign oper ations to pr esentation currency (34) - - (34) - Acquisition of subsidiaries (note 5,12.c) 4,921 13,200 - 18,121 - Additions 14,150 - - 14,150 9,033 W rite-offs (844) - - (844) - Disposal of subsidiary (note 3.) (198) - - (198) - Balance as at 31 Dec ember 2020 246,687 13,200 32,336 292,223 201,614 Amortisation and impairment Balance as at 1 January 2020 192,679 - 28,807 221,486 166,601 Effects of tr anslation of foreign oper ations to pr esentation currency (22) - - (22) - Amortisation (note 4,11.) 10,112 - - 10,112 6,908 W rite-offs (826) - - (826) - Disposal of subsidiary (note 3.) (195) - - (195) - Balance as at 31 Dec ember 2020 201,7 48 - 28,807 230,555 173,509 Net carrying v alue Balance as at 31 Dec ember 2020 44,939 13,200 3,529 61,668 28,105 Balance as at 1 January 2020 36,013 - 3,529 39,542 25,980 232 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.11. Leas es a) NLB Gro up a s a les s ee In the statement of financial position, right-of-use assets ar e included in the line item ‘Pr oper ty and equipment’ and lease liabilities ar e included in the line item ‘Other financial liabilities.’ Add it ion s to t h e ri gh t- of- u se a s se t s d ur in g 2021 in NLB G ro up am oun te d to EU R 10,172 th o us an d (2020: EUR 4,736 t h ou s an d) an d in NLB EU R 1,245 tho us an d (2020: EU R 1,808 th o us an d) . Du e to t he a cq uis i tio n of s ub s idia r ies i n 2020, th e r igh t- of- u s e as s et s in N LB G rou p in cre as ed by EU R 9,57 6 th o us an d . The i nc om e s ta te m en t sh ows t h e foll owin g am o un t s rel at in g to leases: in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Right-of-use assets Land and buildings 19,545 22,758 2,244 2,2 40 V ehicles 390 959 960 912 F urniture and equipment 3,486 1,802 13 28 T otal 23,421 25,519 3,217 3,180 Lease liabilities 2 4,324 26,359 3,256 3,212 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Depr eciation of right-of-use assets (note 4.11.) Land and buildings 7,159 3,299 465 441 V ehicles 444 571 410 391 F urniture and equipment 1,107 671 15 16 T otal 8,710 4,541 890 848 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Inter est expenses on lease liabilities (note 4.1.) (470) (294) (29) (39) Expenses r elating to short-term leases ( included in administrative e xpenses) (606) (719) (179) (266) Expenses r elating to leases of low-value assets that ar e not shown abov e as shor t-term leases ( included in administrativ e expenses) (1,050) (771) (157) (151) Income fr om sub-leasing right-of-use assets ( included in other oper ating income) 108 92 - - The t ota l cas h o ut fl ow for l ea se s in 2021 in N LB G rou p was EU R 9,397 th ou s an d (2020: EUR 4,865 t h ou sa n d) an d in N LB EUR 933 th ou s an d (2020: EUR 897 t h ou sa n d). 233 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB G rou p le as es var i ou s of fi ces , b ran ch e s , vehi cl es , an d oth er e qu ip me nt u s ed in i t s bu s in es s . R en ta l con tr ac t s for of fic es an d b ran ch es g en era lly h ave l ea se t er m s be t we en 5 to 20 year s , whi le s om e con t rac t s are m ad e for i nd ef in it e per i od s . Con tr ac t s for in de f ini te p er io ds a re in cl ud ed in me as ur em en t of t he l iab ili t y in acco rda nc e wi th p lan n ing proj ec tio ns . Nor m all y, a leas e ter m o f 5 year s i s as s u me d, w it h th e exem pt ion of b u si ne s s pre mi s es on s tra te gic l oca t ion s where managem ent ass es ses a dif ferent (longer) lease term . V e hic le s an d ot he r eq uip m en t gen er all y ha ve le as e ter m s bet wee n 1 to 5 yea r s . Th ere a re s everal l ea se c on tra c t s t h at inc l ude ex ten s ion a nd t er m in at ion o pt ion s . T he s e opt io ns a re ne got ia te d by ma na gem e nt to a lig n wi th t he G ro up’s bu sin e s s ne ed s . Lea s e pa ym en t s to b e ma de u nd er re as on ab ly c er ta in ex te ns io n opt io ns a re in cl ud ed i n me as u rem en t of t h e liab ili t y . Lea se t er m s are n eg oti at ed o n an in di vi du al ba s is an d con tai n a ran ge o f dif fer en t ter m s an d co nd it ion s . T he lea s e agre em en t s do n ot i mp os e any coven an t s ot h er t ha n th e se c ur it y in ter es t s i n th e le as e d as s et s t h at a re he ld by th e le s so r . Lea se d as s et s ma y not b e u se d as s ec ur i t y for borrowing pur poses . NLB G rou p al so h as c er ta in le as es o f ot he r eq uip m en t wi th lea s e ter m o f 12 mo nt h s or le s s , an d e qu ipm en t wi t h low val ue. For th es e le as es , N LB G rou p app lie s t he s h or t-t er m le as e an d lea s e of low -valu e as s et s r eco gn it ion exe mp tio n s . Lea s e pa ym en t s on s h or t-t er m le as es a nd l ea se s of l ow-val ue a s se t s are re cog ni se d as a n exp en se s on a s t ra igh t-l in e ba si s over th e le as e te rm . For calc ul at ion o f th e n et p res en t val ue of t h e f ut ur e le as e pa ym en t s , NLB G ro up a ppl ies t h e in ter n al t ran s f er pr ic e for reta il de po si t s as a d is co un t ra te. NLB G rou p an d NLB d o no t ha ve expe ns e s rel at in g to var ia bl e pa ym en t s an d ga in s or lo s se s ar i si ng f rom s al e an d le as eb ack transactions. A ma t ur i t y a na ly si s of l ea se l iabi li tie s is d is cl os ed i n not e 6.3.f ). b) NLB Gro up a s a les so r Fin an ce a nd o pe rat in g le as es o f mo tor ve hic le s an d op era ti ng lea s es of b u si ne s s pre mi s es an d P OS te r mi na ls re pre se nt t h e ma jor i t y o f ag ree me nt s i n wh ich N LB G rou p ac ts a s a le s s or . Mo s t of t he l ea se a gre em en t s en te red i nt o by NLB G rou p as le s s or co nt rac t s are f i na nce l ea s e agre em en t s . M os t of th e f in an ce l ea se a gre em en t s are c on cl ud ed fo r a no n - can cel lab le p er io d of b et ween 48 a nd 60 m on t hs . By p ayi ng th e la s t in s t alm en t a t th e en d of t h e con tr ac t, the l ea si ng obj ec t bec om es t he l es s ee’s pro per t y. The f in an cia l le as in g rece ivab le s are s ec ure d by th e ob je c t of f i na nc in g. N LB Gr ou p doe s no t ha ve f in an ce le as e co nt rac t s wi th var i abl e pa ym en t s not i nc lu de d in t he m e as ur em en t of t he n et i nves t m en t in th e lea s e. The i nves t m en t pro pe r tie s are l ea se d to l es s ee u nd er ope ra ti ng l ea se s wi th re nt al s pa yabl e mo nt h ly. There a re n o var iab le le as e p ay me nt s t h at d ep en d on an i n dex or ra te . Th e inves t m en t pro pe r tie s ge ne rall y h ave le as e te r ms b et wee n 2 to 10 year s . Som e co nt ra c t s a re m ade f or in de f ini te p er io d . A s at 31 D ec em be r 2021, th e all owan ce for u nr ecovera bl e fi na nc e lea s e rec eivab le s in cl ud ed in t h e all owanc e for loa n im pai r me nt a mo un te d to EUR 436 t h ou s an d (as at 31 De cem be r 2020 EUR 884 t ho u sa nd ). Finance leases Loan s an d a dvan ces t o cu s to m er s in N LB Gr oup i nc l ude finance lease receiv ables . The f oll owin g ta bl e se t s ou t a m at u ri t y an aly si s of l ea se rece ivab le s , s how ing t h e un di sco un te d le as e pa ym e nt s to b e rece ived a f ter t h e rep or t ing d at e. in EUR thousands NLB Gr oup 2021 2020 Less than one year 36,465 23,287 One to two y ears 25,723 11,506 T wo to thr ee years 21,27 6 7,734 Thr ee to four years 16,435 5,159 F our to five y ears 10,375 3,243 Mor e than five years 8,604 2,719 T otal undiscounted lease r eceivable 118,87 8 53,648 Unearned finance inc ome (10,163) (4,131) Net investment in the lease 108,715 49,517 Du r ing 2021, N LB G rou p rec ogn is e d int ere s t in co me o n le as e rece ivab le s in t he am o un t of EU R 3,452 th ou s an d (2020: EUR 1,957 th ou s an d). 234 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Operating lease A ma t ur i t y a na ly si s of l ea se p ay me nt s, s h owin g t he u nd is co un ted l ea s e pa ym en t s to b e rec eive d af ter t h e rep or t in g da te: NLB G rou p rea li se d ren ta l inc om e ar i sin g f rom: i nves t m en t prop er t ie s in t he am o un t of EU R 3,558 th ou s an d (2020: EUR 2,572 th ou s an d); a nd m ovab le pr ope r t y in th e am o unt o f EUR 1,07 4 t ho u san d (2020: EU R 1,003 th o us an d ). in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Less than one year 2,757 3,082 375 399 One to two y ears 1,396 1,863 348 364 T wo to thr ee years 817 1,497 346 341 Thr ee to four years 597 1,411 342 333 F our to five y ears 430 1,308 301 331 Mor e than five years 1,211 1,759 1,029 243 T otal 7,208 10,920 2,7 41 2,011 in EUR thousands NLB 31 Dec 2021 31 Dec 2020 Banks 69 6,538 671,880 Other financial or ganisations 29,720 21,819 Enterprises 55,282 55,361 T otal 781,540 7 49,060 5.12. Inv es tm en ts in subs idiar ies , as socia tes an d join t ventures a) Anal ys is by t yp e of i nvest me n t in s ubs id iar ies NLB re ali se d ren ta l in com e ar i si ng f rom : inves t m en t prop er t ie s in t he am o un t of EU R 567 tho us an d (2020: EUR471t ho us an d ); an d m ovable p rop er t y in t he a mo un t of EUR 471t ho us an d (2020: EU R 470 th o us an d) (no te 4.8.). 235 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Da ta of s u bs idi ar ie s as in c lu de d in th e co ns o lid at ed f in an ci al s t at em en t s of NLB G ro up a s at 31 D e cem be r 2021: in EUR thousands Natur e of Business Country of Incorpor ation Equity as at 31 Dec 2021 Pr ofit/(loss) for 2021 NLB’s shar eholding % NLB’s voting rights % NLB Gr oup’s shar eholding % NLB Gr oup’s voting rights % Cor e members NLB Banka a.d., Sk opje Banking North Macedonia 2 43,267 39,000 86.97 86.97 86.97 86.97 NLB Banka a.d., P odgorica Banking Montenegr o 92,643 10,050 75.90 75.90 99.87 99.8 7 NLB Banka a.d., Banja L uka Banking Bosnia and Herzegovina 97,149 18,180 99.85 99.85 99.85 99.85 NLB Banka sh.a., P rishtina Banking Koso vo 98,856 24,436 82.38 82.38 82.38 82.38 NLB Banka d.d., Sar ajev o Banking Bosnia and Herzegovina 87,838 10,012 97.34 97.35 97.34 97.35 NLB Banka a.d., Beogr ad Banking Serbia 77,918 4,293 100 100 100 100 Komer cijalna bank a a.d., Beograd Banking Serbia 634,643 34,818 86.70 88.28 86.70 88.28 KomBank In vest a.d., Beogr ad Finance Serbia 1,345 4 - - 100 100 NLB Skladi d.o.o., Ljubljana Finance Slovenia 14,966 8,96 9 100 100 100 100 NLB Lease&Go, leasing, d.o.o., Ljubljana Finance Slovenia 16,342 (921) 100 100 100 100 NLB Zav od za upravljanje k ulturne dediščine, Ljubljana Cultur al heritage management Slov enia 814 436 100 100 100 100 Non-cor e members NLB Leasing d.o.o., Beogr ad - u likvidaciji Finance Serbia 5,985 40 100 100 100 100 NLB Leasing d.o.o., Ljubljana - v likvidaciji Finance Slov enia 18,058 2,545 - - 100 100 Optima Leasing d.o.o., Z agreb - "u likvidaciji" Finance Croatia 1,258 (94) - - 100 100 T ara Hot el d.o.o., Budva Real estate Montenegr o 16,802 (223) 12.71 12.71 100 100 PRO-REM d.o.o., Ljubljana - v likvidaciji Real estate Slovenia 19,966 154 100 100 100 100 OL Nekr etnine d.o.o., Zagr eb - u likvidaciji Real estate Croatia 1,319 (93) - - 100 100 REAM d.o.o., Podgoric a Real estat e Montenegro 1,69 6 44 100 100 100 100 REAM d.o.o., Beogr ad Real est ate Serbia 1,844 (217) 100 100 100 100 SPV 2 d.o.o., Beogr ad Real estate Serbia 831 9 100 100 100 100 S-REAM d.o.o., Ljubljana Real estate Slovenia 2,197 850 100 100 100 100 REAM d.o.o., Z agreb Real estate Croatia 1,025 5 - - 100 100 NLB Srbija d.o.o., Beogr ad Real estat e Serbia 32,259 188 100 100 100 100 NLB Crna Gor a d.o.o., Podgorica Finance Montenegr o 3,130 2,375 100 100 100 100 NLB InterFinanz A G, Zürich in Liquidation Finance Switzerland 12,395 1,725 100 100 100 100 NLB InterFinanz d.o.o., Beogr ad Finance Serbia 3 - - - 100 100 LHB A G, Fr ankfurt Financ e Germany 2,221 489 100 100 100 100 100% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana. 236 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Da ta of s u bs idi ar ie s as in c lu de d in th e co ns o lid at ed f in an ci al s t at em en t s of NLB G ro up a s at 31 D e cem be r 2020: in EUR thousands Natur e of Business Country of Incorpor ation Equity as at 31 Dec 2020 Pr ofit/(loss) for 2020 NLB’s shar eholding % NLB’s voting rights % NLB Gr oup’s shar eholding % NLB Gr oup’s voting rights % Cor e members NLB Banka a.d., Sk opje Banking North Macedonia 229,777 19,222 86.97 86.97 86.97 86.97 NLB Banka a.d., P odgorica Banking Montenegro 68,556 1,387 99.83 99.83 99.83 99.83 NLB Banka a.d., Banja L uka Banking Bosnia and Herzegovina 99,872 10,122 99.85 99.85 99.85 99.85 NLB Banka sh.a., P rishtina Banking Kosov o 98,335 13,334 81.21 81.21 81.21 81.21 NLB Banka d.d., Sar ajev o Banking Bosnia and Herzegovina 89,808 5,895 97.34 97.35 97.34 97.35 NLB Banka a.d., Belgr ade Banking Serbia 7 4,205 2,598 99.997 99.997 99.997 99.997 Komer cijalna bank a a.d., Belgrade Banking Serbia 609,9 43 (9,050) 81.42 83.23 81.42 83.23 Komer cijalna bank a a.d., Banja Luka Banking Bosnia and Herzegovina 31,045 (1,309) 0.002 0.002 100 100 Komer cijalna bank a a.d., Podgorica Banking Montenegro 20,689 (1,224) - - 100 100 KomBank In vest a.d., Belgr ade Financ e Serbia 1,342 - - - 100 100 NLB Skladi d.o.o., Ljubljana Finance Slovenia 10,487 5,490 100 100 100 100 NLB Lease&Go, leasing, d.o.o., Ljubljana Finance Slovenia 1,938 (1,062) 100 100 100 100 NLB Zav od za upravljanje k ulturne dediščine, Ljubljana Cultur al heritage management Slov enia 3 78 368 100 100 100 100 Non-cor e members NLB Leasing d.o.o., Ljubljana - v likvidaciji Finance Slovenia 17,568 720 100 100 100 100 Optima Leasing d.o.o., Z agreb - "u likvidaciji" Finance Croatia 1,346 (99 6) - - 100 100 NLB Leasing d.o.o., Belgr ade - u likvidaciji Financ e Serbia 5,940 19 100 100 100 100 T ara Hot el d.o.o., Budva Real estate Montenegro 17,025 (204) 12.71 12.71 100 100 PRO-REM d.o.o., Ljubljana - v likvidaciji Real estate Slovenia 20,870 353 100 100 100 100 OL Nekr etnine d.o.o., Zagr eb - u likvidaciji Real estate Croatia 1,409 (127) - - 100 100 BH-RE d.o.o., Sar ajevo - u likvidaciji Real estate Bosnia and Herzegovina 7 (14) - - 100 100 REAM d.o.o., Podgoric a Real estat e Montenegr o 1,652 (166) 100 100 100 100 REAM d.o.o., Belgr ade Real estate Serbia 1,7 62 (145) 100 100 100 100 SPV 2 d.o.o., Belgr ade Real est ate Serbia 820 8 100 100 100 100 S-REAM d.o.o., Ljubljana Real estate Slovenia 1,349 (236) 100 100 100 100 REAM d.o.o., Z agreb Real estate Croatia 2,108 92 - - 100 100 NLB Srbija d.o.o., Belgr ade Real estate Serbia 32,046 1,149 100 100 100 100 NLB Crna Gor a d.o.o., Podgorica Real estate Montenegro 755 139 100 100 100 100 NLB InterFinanz A G, Zürich in Liquidation Finance Switzerland 10,783 986 100 100 100 100 NLB InterFinanz d.o.o., Belgr ade Finance Serbia 3 (3) - - 100 100 LHB A G, Fr ankfurt Financ e Germany 1,732 (432) 100 100 100 100 Cha ng es in ow ne r s hip i nt ere s t in s ub s idia r ies o f NLB G ro up in 2021 a nd 2020 a re pre s en ted i n no te 3. 237 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Data of subs idiaries wit h significant n on- con trolling interes t s , before intercompany elimination s in EUR thousands Komer cijalna bank a, Beogr ad NLB Banka, Skopje NLB Banka, Prishtina 2021 2020 2021 2020 2021 2020 Non-contr olling inter est in equity in % 13.30 18.58 13.03 13.03 17.62 18.79 Non-contr olling inter est's voting rights in % 11.72 16.77 13.03 13.03 17.62 18.79 Income statement and statement of compr ehensive inc ome Re venues 156,710 - 8 7,864 81,673 51,509 47,699 Pr ofit/(loss) for the year 34,818 (9,050) 39,000 19,222 24,436 13,334 Attributable to non-contr olling inter est 4,631 (1,681) 5,082 2,505 4,306 2,505 Other compr ehensive inc ome (10,117) 2,145 (759) 898 (311) 74 T otal compr ehensive income 24,701 (6,905) 38,241 20,120 24,125 13,408 Attributable to non-contr olling inter est 3,285 (1,283) 4,983 2,622 4,252 2,519 P aid dividends to non-contr olling interest - - 3,222 - 4,160 - Statement of financial position Curr ent assets 1,859,605 1,455,793 719,846 690,387 446,182 443,289 Non-curr ent assets 2,305,644 2,441,29 4 1,050,7 42 895,265 484,363 435,775 Curr ent liabilities 3,266,253 2,978,959 1,335,444 1,17 6,539 756,702 689,77 6 Non-curr ent liabilities 264,353 308,185 191,8 77 179,336 7 4,987 90,953 Equity 634,643 609,9 43 243,267 229,777 98,856 98,335 Attributable to non-contr olling inter est 84,408 113,327 31,698 29,9 40 17,421 18,477 Since the acquisition of K omercijalna bank a, Beograd w as concluded on 30 December 2020, only 12-month e xpected credit losses and attributable deferr ed tax es are included in NLB Gr oup’s income statement for 2020. 238 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Dis posal of K omercijalna banka a.d. Banja Luk a In De cem b er 2021, Kome rci jal na b an ka a.d . B eo gra d so ld its s ubsidiar y K om ercijalna banka a.d. Banja Luka. The in EUR thousands Cash, cash balanc es at centr al banks, and other demand deposits at banks 75,699 Financial assets measur ed at fair value thr ough other compr ehensive income 36,599 Financial assets measur ed at amor tised cost - loans and advanc es to customers 131,928 - other financial assets 381 T angible assets Pr operty and equipment 2,438 - own pr operty and equipment (note 5.8.b) 709 - right-of-use assets 1,729 Investment pr operty (note 5.9.) 1,215 Intangible assets (note 5.10.) 228 Curr ent income tax assets 29 Other assets 1,026 T otal assets 249,543 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 15,514 - due to customers 172,900 - borr owings fr om other customers 25,120 - other financial liabilities 2,289 Pr ovisions 361 Deferr ed income tax liabilities 61 Other liabilities 277 T otal liabilities 216,522 Net assets of subsidiary 33,021 T otal disposal consider ation 22,000 Cash and cash equiv alents in subisidiary sold (69,832) Cash outflow on disposal (47,832) Consider ation for disposal of the subsidiary 22,000 Carrying amount of net assets disposed of 33,021 T ransfer of FV OCI r ev aluation reserv e to P&L 1,723 Loss fr om disposal of subsidiary in consolidated financial statements (9,298) - Non-contr olling inter est (1,237) - Attributable to owners of the par ent (8,061) ass et s and liabilities derecognis ed from NLB Group financial s ta tem e nt s a s a res u lt o f th e di s pos al a re as f oll ows : Ef fe c t o f sa le of Kom erc ija ln a ban ka a.d . B an ja L uka is in cl u ded i n th e s egm e nt ‘ S tr at egi c Foreig n Ma r ket s .’ 239 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Acquisi tion of K omercijalna banka a .d. Beograd On 30 D ece m ber 2020, N LB acq ui red a n 83.23% ord in ar y sh ar eh old in g in Kome rci jaln a b an ka a.d . B eo gra d, w hic h rep res en t s 81.42% of to tal s h are ho ld ing i n Kome rcij aln a b an ka a.d . B eo gra d. A t th e da te o f acq ui s it ion , t he a cq uir ed b ank h a d the following subsidiar ies: Serbia has long been a str ategically important mark et for NLB Gr oup in the conte xt of the strat egy to be the leading international bank headquarter ed in and focused on the SEE r egion. Whilst in all countries of Gr oup’s oper ations NLB has a top thr ee market position, in Serbia (the lar gest market b y population) it was, until the ex ecution of this tr ansaction, sub-scale. A s a res u lt o f th e t ran sa c t io n , NLB b eca me t h e th ird l arg es t ban k ing g rou p in S er bi a wi th t h e acq ui si ti on of Kom erc ija ln a ban ka in cre as in g NLB ’s ma r ket sh ar e fro m app roxim a tel y 2% by tota l as s et s to ove r 12% as a t 30 Se pte mb er 2020. T he bu si ne s s op era t ion s of N LB Gr ou p in S er bia w ill b e ( bes i des th e Sl oveni an m ar ket) t he l arg es t a nd m o s t im po r tan t on e, Subsidiaries Komer cijalna bank a Beogr ad’s ownership NLB’s dir ect ownership Komer cijalna bank a a.d. Podgorica, Montenegr o 100% - Komer cijalna bank a a.d. Banja Luka, Bosnia and Herz egovina 99.998% 0.002% Investment Management C ompany KomBank Inv est a.d. Beograd, Serbia 100% - add in g mo re th an 800,000 a c t ive r eta il cu s t om er s an d t he lar ges t dis tr ib ut io n ne t wo r k in th e co un tr y o f 203 bra nc he s to NLB ’s exis t in g op era t ion s . Pur ch as e con s id era ti on am o un ted t o EUR 394,718 tho us an d an d was f ull y pa id in c as h . Th ere a re n o con t ing en t con s ide rat io n ar ran ge m en t s . At a cqu is it io n da te, ca s h in acq ui red e nt it ie s am ou nt ed to EU R 847,488 th o us an d , th ere fore t h e ne t in fl ow of ca sh a mo un te d to EUR 452,770 th ou s an d (i nc lu de d in s t at em en t of ca s h fl ows wi th in pa ym en t s fro m inves tin g ac ti vi ti es). 240 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB Gr oup rec ognises non-contr olling inter ests in Komer cijalna bank a Beograd at the non-c ontrolling inter est’s pr oportionate shar e of the acquir ed entity’s net identifiable assets. Acqu is it io n of Kom erci jal na b an ka Be og rad r es ul te d in a ga in fro m a bar gai n pu rch as e (ne ga ti ve goo dw ill ) in t he a mo un t in EUR thousands Cash, cash balanc es at centr al banks and other demand deposits at banks 836,408 Financial assets held for tr ading 66,356 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 5,628 Financial assets measur ed at fair value thr ough other compr ehensive income (note 5.4.b) 1,284,895 Financial assets measur ed at amor tised cost - debt securities 7,214 - loans and advanc es to banks 46,981 - loans and advanc es to customers 1,877,349 - other financial assets 23,250 T angible assets Pr operty and equipment (notes 5.8.b and 5.11.a) 54,771 Investment pr operty (note 5.9.) 19,643 Intangible assets (note 5.10.) 18,121 Curr ent income tax assets 153 Deferr ed income tax assets 1,125 Other assets 17,604 Non-curr ent assets held for sale (note 5.7.b) 1,9 69 T otal assets 4,261,467 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 35,895 - borr owings fr om banks and centr al banks 8,788 - due to customers 3,443,478 - borr owings fr om other customers 29,295 - other financial liabilities 49,072 Pr ovisions (note 5.16.) 34,537 Curr ent income tax liabilities 4 Deferr ed income tax liabilities 2,112 Other liabilities 4,17 6 T otal liabilities 3,607,357 Net identifiable assets acquir ed (100%) 654,110 Less: non-contr olling inter ests (121,534) Net assets acquir ed (NLB Gr oup share) 532,57 6 Consider ation given 39 4,718 Bar gain purchase (negative goodwill) 137,858 The a s s et s an d l iabi li tie s re cog ni se d as a r es ul t of t he a cq uis i tio n are a s fo llows : of EUR 137,858 t h ou sa nd , w hic h is r eco gn is ed in i nc om e s ta tem e nt u nd er li ne i te m ‘N eg at ive g oo dw ill . ’ T he m a in rea so n s for n eg at ive g ood wi ll ar e cur r en t ma rke t con di ti on s , wh en b an ks a re ge ne ral ly val ue d be low th ei r ne t bo ok val ue s . 241 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report A s a res u lt o f th e acq ui s it ion , N LB Gr ou p’s of f-b al an ce s he et liab ili ti es in c rea se d by EUR 377,361 t h ou sa nd : in EUR thousands Short-term guar antees 19,431 - financial 15,437 - non-financial 3,994 Long-term guar antees 88,123 - financial 34,467 - non-financial 53,656 Commitments to e xtend credit 266,832 Letters of cr edit 1,440 Other 1,535 T otal 377,361 In 20 20, a cqu is it io n - rel at ed co s t s am o un ted t o EUR 1 , 64 3 thousand a n d ar e included within ad minis trativ e expe ns es. NLB ob tai ne d all t h e ne ces s ar y in fo rm a ti on fo r me as u r ing fair va lu es , t he ref ore n o am ou nt s i n 20 20 f in an ci al s t at em en t s were m ea s ure d an d rec ogn is e d on a prov is io na l ba si s . Assets acquir ed V aluation technique P er forming loans Discounted c ash flow appr oach: Since these ar e per forming loans, it was assumed that they w ould be repaid b y future cash flo ws in accor dance with amortisation schedules. Cr edit risk was consider ed for loans which ar e classified in Stage 2 in Komer cijalna bank a’s local financial statements, by r educing futur e cash flows ac cor dingly. Also prepayment risk was estimated for tw o retail pr oducts namely cash loans and housing loans which hav e the longest maturity. As a discount r ate, aver age weighted inter est r ate for new tr ansactions in the market for the same pr oducts, curr ency and clients (sector) wer e used. The sour ce was Serbian c entral bank (NBS) statistic al database, which pro vided a history of inter est rates dat a by various pr oducts, currencies, maturities, type of inter est r ates, and size of customer for new loans. Non-performing loans Discounted c ash flow appr oach: Since these ar e non-per forming loans, it could gener ally not be assumed that they would be r epaid with cash flo ws from client’s r egular business. Instead, gone conc ern principle was used, taking into acc ount liquidation value of collater al as expect ed cash flows. Appr opriate hair cuts for age of valuations, type of c ollateral, type of loc ation, and type of real estate w ere used to estimate the liquidation value of c ollateral, which w as then discounted for a period of 4 years, with the r equir ed yield of 20%. Only ex ceptionally, also c ash flows fr om regular business wer e consider ed, also discounted with the r equir ed yield of 20%. Debt securities F or debt securities classified in Lev el 1 of fair value hier archy, f air values wer e determined by an observable mark et price in an activ e market for an identical asset. F or valuing debt securities in Lev el 2, income appr oach was used, based on the estimation of futur e cash flows discount ed to the present v alue. The input parameter s used in the income appr oach wer e the risk-fr ee yield curve and the spread o ver the yield curve (cr edit, liquidity, country). Real estat e Thr ee approaches w ere used for estimating the v alue of real estate - the inc ome capitalisation appr oach, the sale comparison appr oach and the residual land v alue approach. E ach views the valuation fr om different perspectiv es and considers data fr om dif fer ent market sour ces. The most suitable appr oach depends on the char acteristics and use of individual real estate. The income c apitalization appr oach: V alues property b y the amount of income - cash flow that it c an potentially generate. The value of the pr operty is derived by c onverting the expected inc ome generat ed from a pr operty into a present v alue estimate using market c apitalization r ate. This method is commonly used for v aluing income-gener ating properties. The sale comparison appr oach: V alues pr operty by comparing similar pr operties that have been sold r ecently. This appr oach is sometimes r eferred to as the ‘dir ect sales comparison appr oach.’ The r eliability of an indication found by this method depends on the quality of compar able data found in the marketplac e and application of adequate adjustments for individually appr aised real estate. When sale transactions ar e not available, the dir ect sales comparison appr oach is not applicable. Residual land v alue approach: is a method for c alculating the value of development land. It is performed by subtr acting from the total v alue of a development pr oject, all costs associated with the dev elopment project, including pr ofit but ex cluding the cost of the land. It is applicable only for dev elopment/construction land. Cor e deposits Acquir ed cor e deposit acc ounts typically pr ovide a low-cost sour ce of funds to the buy er. T o r eplace these established, low-c ost deposit accounts in a timely manner, the buyer’s alternativ e would be to utilise higher- cost funds at curr ent market r ates. Cor e deposits value is measur ed by the pr esent value of the differ ence, or spr ead, between the cor e deposit’s ongoing cost and the cost of a mark et alternative r eplacement. T rade name The tr ade name was valued by applying the r elief-fr om-ro yalty method under the income appr oach. This method is based upon the application of an appr opriate r oyalty r ate on the r espective r evenues to estimate the F air V alue for the trade name. This method assumes that, by virtue of having ownership of the tr ade name r ather than licensing one for use Liabilities acquir ed V aluation technique Deposits Discounted c ash flow appr oach: Aggregat ed future cash flo ws wer e discounted by applying mark et inter est rates for term deposits. F uture c ash flows wer e gr ouped into 11 gr oups accor ding to the type of client and currency. As a discount r ate, aver age weighted inter est r ate for new tr ansactions in the market in 2020 w as applied. The va lu at io n tec hn iq ue s us ed f or m ea s ur in g th e fa ir val ue of mater ial ass et s and liabilities acquired were as f ollows: 242 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The f air va lu e of acq ui red l oa ns a nd a dvan ce s to c us t om er s is EUR 1,877,349 th o us an d, o f wh ic h EUR 1,836,970 t ho u san d rel at es to p er for m in g po r t fo lio a n d EUR 40,379 t ho us an d to no n - pe r for mi ng p or t foli o. Th e la t ter wa s rec ogn is e d as purchas ed or originat ed credit-impaired fin ancial as set s (PO CI). Th e gro s s con t rac tu al am o un t for p er fo rm in g lo an s an d adva nce s to c us tom er s i s EUR 1,827,721 t ho us an d an d fo r th is exp os ur e 12-m o nt h exp ec ted c red it l os s es in t h e am ou nt of EUR 10,349 t h ou sa nd we re re cog ni se d th ro ugh t h e in com e s ta tem e nt. Th e gro s s con t rac t ual a mo un t for n o n -p er fo r min g loa ns a nd a dvan ce s to c us tom er s i s EUR 149,654 t ho us an d , an d it i s expe c t ed t h at ap prox im at ely EU R 75 mi lli on of t h e con tr ac t u al ca s h fl ows wi ll n ot b e coll ec ted . Since the tr ansaction was closed on 30 Dec ember 2020, only 12-month expect ed credit losses for St age 1 financial assets in the amount of EUR 13,447 thousand and attributable deferr ed tax es in the amount of EUR 1,864 thousand are included in NLB Gr oup income statement. If the ac quisition has occurr ed on 1 January 2020, management estimates that consolidat ed re venue (ex cluding negative goodwill) w ould have been between EUR 750 and 7 60 million and consolidated pr ofit for the year would have been betw een EUR 260 and 265 million. The ex act r esult is difficult to assess due to some changed cir cumstances during the year, especially the C OVID-19 pandemic. By contrac t ual agreement bet ween the shareh olders , NLB doe s no t con t rol AR G -N ep rem ič nin e, H or ju l, b u t do es h ave a sig ni f ican t in fl ue n ce. Th er efor e, th e e nt it y is a cco un te d as an as socia te. 2021 2020 Natur e of Business Country of Incorpor ation Shar eholding % V oting rights % Shareholding % V oting rights % Bankart d.o.o., Ljubljana Card pr ocessing Slovenia 45.64 45.64 40.08 40.08 ARG - Nepr emičnine d.o.o., Horjul R eal estate Slovenia 75.00 75.00 75.00 75.00 in EUR thousands 2021 2020 Carrying amount of the NLB Gr oup's interest 11,525 7,988 NLB Gr oup's share of: - Pr ofit for the year 1,108 8 74 - Other compr ehensive inc ome (30) (41) - T otal compr ehensive inc ome 1,078 833 in EUR thousands NLB Gr oup NLB Carrying amount of the NLB Gr oup's interest 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Other financial or ganisations 11,525 7,988 4,282 1,382 Enterprises - - 201 280 T otal 11,525 7,988 4,483 1,662 NLB Gr oup’s associates The c ar r yin g am o un t of in te res t s in as s oc ia tes i nc l ude d in t he con s oli da ted f i na nc ial s tat em en t s of N LB Gr oup: d) Analysis by type of in vestment in associates and joint ventur es 243 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.13. O ther asset s in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Assets. r eceived as c ollateral (note 6.1.l) 75,450 7 6,017 4,827 4,926 Deferr ed expenses 10,046 9,157 6,202 5,97 6 Invent ories 2,173 7,858 42 180 Claim for tax es and other dues 1,826 2,949 62 1 4 67 Pr epayments 1,726 1,159 161 115 T otal 91,221 97,140 11,853 11,664 2021 2020 Natur e of Business Country of Incorpor ation V oting rights% V oting rights% Prvi F aktor Group, Ljubljana Finance Slovenia 50 50 in EUR thousands NLB Gr oup 2021 2020 Balance as at 1 January 7,988 7,499 Incr ease in capital shar e 2,900 326 Shar e of result befor e tax 1,339 1,036 Shar e of tax (231) (162) Net gains/(losses) r ecognised in other compr ehensive income (30) (41) Dividends r eceived (441) (670) Balance as at 31 Dec ember 11,525 7,988 In 2021, NLB G ro up di d no t reco gn is e a s ha re of p rof i t of an as s oc ia te in t h e am oun t of EU R 65 th o us an d (2020: EU R 31 th ou s an d) , as i t s ti ll h as t h e cu mu la ti ve un reco gn is ed s h are o f In 2021, NLB G ro up di d no t reco gn is e a s ha re of p rof i t of a jo int vent u re in t he a mo un t of EU R 435 th o us an d (2020: EU R 556 thou sand ). The cumula tive unrecognised sh are of losses of a join t ven t ure a s at 31 D e cem be r 2021 am ou nt ed to EU R 14,825 th ou s an d (31 D ec em be r 2020: EUR 15,259 t ho u sa nd ). los s es o f an a s so ci at e th at a s a t 31 De cem be r 2021 am ou nt ed to EUR 2,199 t h ou sa nd ( 31 D ece mb er 2020: EU R 2,264 thousand). A s s et s , re cei ved a s coll at era l on NL B Gro up i n th e am o un t of EUR 7 4,717 th o us an d ( 31 De cem b er 2020: EUR 75,151 th ou s an d) , an d on NLB i n th e am o un t of EUR 4,827 t h ou s an d (31 D ec em ber 2020: EU R 4,926 t ho us an d ) con s is t o f rea l es t at e (note 6.1.l ). NLB G roup’s joi nt ve nt ure s e) Movemen t s of i nvest me n ts i n as s oci at es 244 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup Balance as at 1 Jan 2021 Effects of tr anslation of for eign oper ations to pr esentation curr ency T ransfers Incr eases/ (Decr eases) W rite-offs Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Disposal of subsidiary Balance as at 31 Dec 2021 Repayments of written-of f r eceivables Notes 4.14. 4.14. 5.6.b), c), d) 4.14. 12-month expected cr edit losses Loans and advanc es to banks 141 - - 9 - 48 - - 198 - Loans and advanc es to individuals 25,044 5 14,152 (13,005) (164) (7,479) (3) (214) 18,336 - Loans and advanc es to other customers 49,475 20 4,036 2,47 6 (8) (4,292) 31 (777) 50,961 - Other financial assets 2 76 (2) 202 115 (54) (70) 10 (1) 4 76 - Lifetime ECL not cr edit-impair ed Loans and advanc es to individuals 8,151 1 (8,554) 6,975 (35) 898 (3) (35) 7,398 - Loans and advanc es to other customers 32,682 4 (3,515) (240) (231) (1,960) 21 (137) 26,624 - Other financial assets 30 - - 7 (7) 9 (3) - 36 - Lifetime ECL cr edit-impair ed Loans and advanc es to individuals 61,305 14 (5,598) 25,606 (15,160) 7,868 2,135 (123) 7 6,047 7,449 Loans and advanc es to other customers 195,623 5 87 (521) 8 (66,532) 1,641 6,226 (425) 136,607 42,272 Other financial assets 5,2 47 - (202) 1,770 (847) (112) (142) - 5,714 470 Of which: Pur chased or originated credit-impair ed Loans and advanc es to individuals - 1 - (1,157) (702) - 1,701 - (157) - Loans and advanc es to other customers 1,319 - - (3,243) (2,312) - 4,849 - 613 - Other financial assets 4 (1) - (602) (9) - - - (608) - 5.14. M ov em ent s in allowance for the imp airm ent of f inan cial as set s a) M ov emen ts in allow ance for the impairm ent of loans and rec eivables measured at amor tis ed cost 245 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup Balance as at 1 Jan 2020 Effects of tr anslation of for eign oper ations to pr esentation curr ency T ransfers Incr eases/ (Decr eases) W rite-offs Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Disposal of subsidiary Balance as at 31 Dec 2020 Repayments of written-of f r eceivables Notes 4.14. 4.14. 5.6.b), c), d) 4.14. 12-month expected cr edit losses Loans and advanc es to banks 95 (1) - 62 - (15) - - 141 - Loans and advanc es to individuals 21,613 (22) 12,806 (9,062) (1) (290) - - 25,044 - Loans and advanc es to other customers 35,115 (9) 5,004 7,803 (6) 1,597 (18) (11) 49,475 - Other financial assets 177 (1) 63 80 (22) (21) - - 2 76 - Lifetime ECL not cr edit-impair ed Loans and advanc es to individuals 6,103 (3) (11,149) 7,250 (3) 5,925 28 - 8,151 - Loans and advanc es to other customers 27,07 6 (2) (8,675) 4,955 (4) 9,334 (2) - 32,682 - Other financial assets 27 1 (17) (143) (4) 166 - - 30 - Lifetime ECL cr edit-impair ed Loans and advanc es to individuals 47,737 (22) (1,610) 29,353 (20,159) 1,689 4,317 - 61,305 5,858 Loans and advanc es to other customers 184,800 67 3,624 11,750 (31,254) 98 27,584 (1,046) 195,623 9,565 Other financial assets 4,702 (9) (46) 2,395 (2,258) 16 485 (38) 5,247 499 Of which: Pur chased or originated credit-impair ed Loans and advanc es to other customers 1,887 - - (568) - - - - 1,319 - Other financial assets 3 - - 1 - - - - 4 - Colu mn I nc rea s es/(De cre as es) fo r year 2020 a ls o in cl ud es 12-m on t h expe c t ed c red it l os s es re cog ni se d a t acq ui si ti on of Komerc ija ln a ba nka in t h e am oun t of EU R 2,150 th o us an d fo r Loan s an d a dvan ces t o in div id ua ls , i n th e am ou nt o f EUR 8,198 th ou s an d for Lo an s an d ad van ces to o th er c u s tom e r s an d in th e am o un t of EUR 54 t h ou s an d for O t he r f in an cia l as s et s (note s 4.14. an d 5.12.c). 246 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 T ransfers Incr eases/ (Decr eases) W rite-offs Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2021 Repayments of written-of f r eceivables Notes 4.14. 4.14. 5.6.b), c), d) 4.14. 12-month expected cr edit losses Loans and advanc es to banks 155 - 27 - - - 182 - Loans and advanc es to individuals 8,973 3,881 (4,914) (156) (4,281) - 3,503 - Loans and advanc es to other customers 16,664 4,7 40 (5,419) (1) (5,915) 32 10,101 - Other financial assets 73 14 41 (12) (57) 3 62 - Lifetime ECL not cr edit-impair ed Loans and advanc es to individuals 2,351 (2,181) 2,007 (27) 270 1 2,421 - Loans and advanc es to other customers 8,936 (2,651) (2,715) (3) (1,799) 19 1,787 - Other financial assets 2 - (1) - - - 1 - Lifetime ECL cr edit-impair ed Loans and advanc es to individuals 22,855 (1,700) 8,779 (6,020) 7,566 17 31,497 2,597 Loans and advanc es to other customers 83,593 (2,089) (659) (33,269) 349 (815) 47,110 8,682 Other financial assets 1,255 (14) 129 (280) - - 1,090 120 Of which: Pur chased or originated credit-impair ed Loans and advanc es to other customers 1,319 - 1,339 - - (1,820) 838 - Other financial assets 4 - 2 - - - 6 - 247 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The contrac t ual amoun t out s tanding on fin ancial as set s th at we re wr i t ten o f f d ur in g t he ye ar en di ng 31 D ece mb er 2021 an d th at a re s t ill s u bje c t t o en force m en t ac t i vit y fo r NLB Gro up a mo un te d to EUR 7 6,252 t h ou sa n d (31 D ec em ber 2020: EUR 42,738 t ho us an d ), an d fo r NLB am o un ted t o EUR 8,136 th ou s an d (31 D ec em be r 2020: EUR 9,773 t ho u sa nd ), o f wh ich EUR 2,251 t ho us an d in N LB G rou p (31 D ec em be r 2020: EUR 4,162 tho us an d ) an d EUR 1,265 t ho u sa nd i n NLB ( 31 De cem b er 2020: EUR 2,537 t ho us an d ) rep res en t s in te res t rece ivab les t h at ha ve not b ee n re cog ni se d in t he i nco m e s ta te me nt p r ior to t h e wr i te - of f. in EUR thousands NLB Balance as at 1 Jan 2020 T ransfers Incr eases/ (Decr eases) W rite-offs Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2020 Repayments of written-of f r eceivables Notes 4.14. 4.14. 5.6.b), c), d) 4.14. 12-month expected cr edit losses Loans and advanc es to banks 141 - 32 - (18) - 155 - Loans and advanc es to individuals 7,195 6,107 (6,509) (1) 2,181 - 8,973 - Loans and advanc es to other customers 13,529 3,254 (3,388) (6) 3,303 (28) 16,664 - Other financial assets 55 68 (22) (2) (25) (1) 73 - Lifetime ECL not cr edit-impair ed Loans and advanc es to individuals 1,39 6 (4,953) 3,422 (3) 2,491 (2) 2,351 - Loans and advanc es to other customers 9,792 (3,261) (2,516) (4) 4,925 - 8,936 - Other financial assets 9 (1) (7) - 1 - 2 - Lifetime ECL cr edit-impair ed Loans and advanc es to individuals 15,57 6 (1,154) 14,318 (6,227) (365) 707 22,855 2,319 Loans and advanc es to other customers 71,277 7 (2,677) (7,159) (119) 22,264 83,593 4,139 Other financial assets 1,777 (6 7) 411 (864) (2) - 1,255 328 Of which: Pur chased or originated credit-impair ed Loans and advanc es to other customers 1,856 - (537) - - - 1,319 - Other financial assets 3 - 1 - - - 4 - 248 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Movements in allow ance for the impairmen t of debt securities in EUR thousands NLB Gr oup Balance as at 1 Jan 2021 Effects of tr anslation of for eign oper ations to pr esentation curr ency T ransfers Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Disposal of subsidiary Balance as at 31 Dec 2021 Notes 4.14. 4.14. 5.6.a), 5.4.a) 12-month expected cr edit losses Debt securities measur ed at amor tised cost 3,685 1 (32) 997 (1,400) 2 - 3,253 Debt securities measur ed at fair value thr ough other compr ehensive income 8,656 2 - 81 2,731 18 (340) 11,148 Lifetime ECL not cr edit-impair ed Debt securities measur ed at amor tised cost - - 32 16 4 - - 52 Debt securities measur ed at fair value thr ough other compr ehensive income 28 - - 24 18 - - 70 Lifetime ECL cr edit-impair ed Debt securities measur ed at fair value thr ough other compr ehensive income 798 - - - - - - 798 in EUR thousands NLB Gr oup Balance as at 1 Jan 2020 Effects of tr anslation of for eign oper ations to pr esentation curr ency T ransfers Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2020 Notes 4.14. 4.14. 5.6.a), 5.4.a) 12-month expected cr edit losses Debt securities measur ed at amor tised cost 3,140 (2) - 343 204 - 3,685 Debt securities measur ed at fair value thr ough other compr ehensive income 4,757 2 - 4,156 (253) (6) 8,656 Lifetime ECL not cr edit-impair ed Debt securities measur ed at fair value thr ough other compr ehensive income 42 - - (6) (9) 1 28 Lifetime ECL cr edit-impair ed Debt securities measur ed at fair value thr ough other compr ehensive income 798 - - - - - 798 Colu mn I nc rea s es/(De cre as es) fo r year 2020 i nc lu de s als o 12-m on t h expe c t ed c red it l os s es re cog ni se d a t acq ui si ti on of Komerc ija ln a ba nka in t h e am oun t of EU R 32 th o us an d fo r Deb t s ec ur it ie s me as u red a t am or t is ed c os t a nd i n th e am o unt of EUR 2,932 t h ou sa nd f or D ebt s e cu ri ti es m ea s ure d at f air valu e th ro ugh o th er co m pre he ns ive i nco m e (note s 4.14. an d 5.12.c). 249 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign e xchange differenc es and other mov ements Balance as at 31 Dec 2021 Notes 4.14. 4.14. 5.6.a), 5.4.a) 12-month expected cr edit losses Debt securities measur ed at amor tised cost 1,841 456 (473) 2 1,826 Debt securities measur ed at fair value thr ough other compr ehensive income 2,343 (22) (126) 8 2,203 Lifetime ECL cr edit-impair ed Debt securities measur ed at fair value thr ough other compr ehensive income 798 - - - 798 in EUR thousands NLB Balance as at 1 Jan 2020 Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign e xchange differenc es and other mov ements Balance as at 31 Dec 2020 Notes 4.14. 4.14. 5.6.a), 5.4.a) 12-month expected cr edit losses Debt securities measur ed at amor tised cost 1,617 16 208 - 1,841 Debt securities measur ed at fair value thr ough other compr ehensive income 1,714 62 6 9 (6) 2,343 Lifetime ECL cr edit-impair ed Debt securities measur ed at fair value thr ough other compr ehensive income 798 - - - 798 250 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Explanation of how signific ant changes in the gross c arrying amount of financial instruments contributed to changes in the loss allo wance Mov ement of gross c arr ying amount of loans to banks Mov ement of gross c arr ying amount of loans and adv ances to indi viduals in EUR thousands NLB Gr oup NLB 12-month expected cr edit losses 2021 2020 2021 2020 Balance as at 1 January 197,146 93,498 158,475 144,493 Effects of tr anslation of foreign oper ations to pr esentation currency (7) (99) - - Acquisition of subsidiaries (note 5.12.c) - 46,981 - - Decr eases/Increases (61,2 45) 56,616 41,094 13,829 Exchange differ ences on monetary assets 4,987 150 (100) 153 Balance as at 31 Dec ember 140,881 197,146 199,469 158,475 in EUR thousands NLB Gr oup NLB Individuals 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2021 4,777,413 132,987 117,193 5,027,593 2,295,630 64,675 51,644 2,411,9 49 Effects of tr anslation of foreign oper ations to presentation curr ency 1,268 (8) 26 1,286 - - - - T ransfers (39,411) 4,604 34,807 - (17,729) 5,230 12,499 - Incr eases/(Decreases) 666,437 (16,708) (8,010) 641,719 291,509 (3,888) (764) 286,857 W rite-offs (164) (35) (15,160) (15,359) (156) (27) (6,020) (6,203) Exchange differ ences on monetary assets 1,930 27 32 1,989 1,671 45 37 1,753 Modification losses (note 4.12.) (31) (6) (2) (39) - - - - Disposal of subsidiary (34,891) (626) (601) (36,118) - - - - Balance as at 31 Dec ember 2021 5,372,551 120,235 128,285 5,621,071 2,570,925 66,035 57,396 2,69 4,356 in EUR thousands NLB Gr oup NLB Individuals 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2020 3,822,266 103,734 87,488 4,013,488 2,301,339 34,826 40,627 2,37 6,792 Effects of tr anslation of foreign oper ations to presentation curr ency (20) (1) - (21) - - - - Acquisition of subsidiaries (note 5.12.c) 843,675 - 5,753 849,428 - - - - T ransfers (88,975) 44,785 44,190 - (50,790) 36,066 14,724 - Incr eases/(Decreases) 203,520 (15,470) (4,342) 183,708 44,914 (6,216) 1,812 40,510 W rite-offs (1) (3) (20,159) (20,163) (1) (3) (6,227) (6,231) Exchange differ ences on monetary assets (1,983) (88) (54) (2,125) 168 2 3 173 Excluded int erest - 30 4,317 4,347 - - 705 705 Modification losses (note 4.12.) (1,069) - - (1,069) - - - - Balance as at 31 Dec ember 2020 4,777,413 132,987 117,193 5,027,593 2,295,630 64,675 51,644 2,411,9 49 251 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report In year 2021, t h e los s a llowan ce f or lo an s an d ad van ces to in div id ual s in cr ea se d by EUR 7,281 t ho us an d a t NLB G ro up level , wh ile a t NLB l evel i t in cre as ed by EU R 3,242 tho us an d . E ve n th o ugh t h e gros s c ar r yin g am ou nt i nc re as ed m ai nl y in Sta ge 1 d ue to n ew exp os ur es , t he i nc re as e of lo s s all owanc e was ob se r ved m os t ly i n Sta ge 3. Th e m ain r ea so n for t hi s were ch an ges i n r is k pa ram et er s , w hic h in cr ea se d los s a llowan ce for S tag e 3 lo an s an d ad vanc es to i nd iv idu al s in t he a mo un t of EUR 7,868 t h ou sa nd a t NLB G ro up l evel an d EUR 7,566 th ou s an d at N LB level . In year 2020, t h e los s a llowan ce f or lo an s an d ad van ces to in di vid ua ls in c rea se d by EUR 19,047 t ho u sa nd a t NLB Gro up l evel, w hi le a t NLB l evel it i nc rea s ed by EUR 10,012 th ou s an d. T he m ai n rea s on s for t h e in cre as e were c h ang ed ri s k par am ete r s , wh ic h in cre as ed l os s a llowan ce by EUR7,324tho u sa nd a t NLB G ro up l evel an d by EUR 4,307 th ou s an d at N LB level . At t h e NLB G ro up level , t he g ros s car r yin g am o un t in cre as ed by EU R 1,014,105 th ou s an d, m ai nl y du e to acq ui s it ion o f s ubs id iar ie s , w hil e at t h e NLB l evel it inc re as ed by EU R 35,157 th ou s an d. Acqu is it io n of s ub si dia r ies (no te 5.12.c) con tr i bu te d EUR 849,428 th ou s an d to t he g ros s ca rr y in g am oun t of l oa ns an d adva nce s to in di vi du al s on NLB G ro up l evel. For t h e per fo r mi ng p ar t of t hi s po r t f oli o, 12-m o nt h exp ec ted c red it los s es i n th e am o un t of EUR 2,150 t h ou sa n d were re cog ni se d . The g ros s c ar r yin g am ou nt a ls o in cre as e d du e to ch an ge d pre se nt at ion o f exclu de d in ter es t. N LB Gr oup c alc ul at es int ere s t in co me by a ppl yi ng t he e f f ec ti ve int ere s t ra te to t h e gross carr ying amoun t of financial as set s other th an credit- imp ai red a s s et s . W he n a f in an cia l as s et b ec om es c red it- imp ai red a nd i s , t he refo re, c la s si f ied i n St age 3, i nt ere s t inc om e is c alc ul at ed by ap pl yin g th e ef fe c t ive in te res t rat e to th e n et am or t is e d cos t o f th e f in an ci al as set. Pa r t of t he con tr ac t u all y du e in te res t f or S tag e 3 expo s ure s th a t is not i nc lu de d in t he i nc om e s ta te me nt (s o - ca lle d ‘exclud ed int ere s t ’ ) ha s be en i n prev iou s p er iod s pr es en te d as a decrease of gross car r yin g amount of fin ancial as set s . In year 2020, t he B a nk o f Sl oveni a ch an ge d th e in s t r uc ti on s for re po r tin g of m on et ar y f in an cia l in s t it u ti on s an d reg ard s exclu de d int ere s t a s pa r t of gro s s car r yi ng am o un t, even if n ot re cog ni se d in t he i nco m e s ta te me nt. Th er efo re, NLB Gro up c ha ng ed t h e pre se nt at ion a s a t 31 De cem be r 2020 an d inc re as ed g ros s ca rr y in g am ou nt an d im p air m en t s fo r EUR 4,347 th ou s an d on t he G ro up l evel an d EUR 705 t ho u sa nd o n th e NLB l evel. 252 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Mov ement of gross c arr ying amount of loans and adv ances to other customers In year 2021, t h e gros s car r yin g am ou nt o f lo an s an d ad vanc es to ot he r cu s to m er s in cre as e d by EUR 317,47 6 th o us an d a t NLB Gro up l evel an d EUR 251,615 t h ou sa n d at NL B level , mo s t ly in Sta ge 1 d ue to i nc re as ed exp os u re. R ega rdl es s of t h at, l os s allowan ce d ec rea s ed (for EU R 63,588 th o us an d a t NLB G rou p level an d EU R 50,195 th ou s an d) , wi th m ai n rea so n s bei ng wr it e - of f s (EUR 66,771 t ho u sa nd a t NLB G ro up l evel an d EUR 33,273 th ou s an d at N LB level ) an d ch an ge s in r i sk p ara me ter s (decre as e of l os s al lowan ce a t NLB G ro up level f or EUR 4,611 th ou s an d an d at N LB level f or EUR 7,365 t h ou sa n d). In year 2020, t h e los s a llowan ce f or lo an s an d ad van ces to oth er c u s to me r s in cre as ed by EU R 30,789 th ou sa nd a t NL B Gro up l evel, w hi le a t NLB l evel it i nc rea s ed by EUR 14,595 th ou s an d. T he m ai n rea s on s for t h e in cre as e were c h ang ed ri s k par am ete r s , wh ic h in cre as ed l os s a llowan ce by EUR in EUR thousands NLB Gr oup NLB Other customers 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2021 4,219,862 427,166 317,519 4,964,547 1,982,033 193,835 119,733 2,295,601 Effects of tr anslation of foreign oper ations to presentation curr ency 1,220 82 852 2,154 - - - - T ransfers (110,801) 85,364 25,437 - (13,004) 11,931 1,073 - Incr eases/(Decreases) 608,913 (98,209) (34,880) 475,824 379,138 (82,687) (15,037) 281,414 W rite-offs (8) (231) (66,532) (66,771) (1) (3) (33,26 9) (33,273) Exchange differ ences on monetary assets 3,620 235 159 4,014 3,109 228 137 3,47 4 Modification losses (note 4.12.) (17) (6) (201) (22 4) - - - - Disposal of subsidiary (92,304) (2,217) (3,000) (97,521) - - - - Balance as at 31 Dec ember 2021 4,630,485 412,184 239,354 5,282,023 2,351,275 123,304 72,637 2,547,216 in EUR thousands NLB Gr oup NLB Other customers 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2020 3,270,058 367,283 261,339 3,898,680 2,049,210 154,600 106,7 62 2,310,572 Effects of tr anslation of foreign oper ations to presentation curr ency (2,407) (197) (126) (2,730) - - - - Acquisition of subsidiaries (note 5.12.c) 993,295 - 34,626 1,027,921 - - - - T ransfers (169,8 71) 108,995 60,87 6 - (100,324) 77,761 22,563 - Incr eases/(Decreases) 130,986 (48,552) (35,202) 47,232 36,267 (38,342) (24,596) (26,6 71) W rite-offs (6) (4) (31,254) (31,264) (6) (4) (7,159) (7,169) Exchange differ ences on monetary assets (168) (2) (3) (173) (3,114) (180) (121) (3,415) Excluded int erest - - 27,389 27,389 - - 22,284 22,284 Modification losses (note 4.12.) (2,025) (357) (126) (2,508) - - - - Balance as at 31 Dec ember 2020 4,219,862 427,166 317,519 4,964,547 1,982,033 193,835 119,733 2,295,601 11,029th ou s an d at N LB G rou p level an d by EUR 8,109 t h ou s an d at NL B level . At t he N LB G rou p level , th e gr os s car r y ing am oun t in cr ea se d by EUR 1,065,867 th ou sa nd , m ain ly d u e to acq ui si ti on of s u bs idi ar ie s , wh ile a t t he N LB level i t de cre as e d by EUR 14,971 th o us an d . 253 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Acqu is it io n of s ub si dia r ies (no te 5.12.c) con tr i bu te d EUR 1,027,921 th ou s an d to t he g ros s ca rr y in g am ou nt o f loa ns an d adva nce s to c us tom er s on N LB G rou p level . For th e pe r for mi ng p ar t of t h is p or t foli o, 12-m o nt h exp ec ted cre dit l os s es i n th e am o unt o f EUR 8,183 t h ou sa nd we re recognised. The gr oss carrying amount also incr eased for EUR 27,389 thousand at NLB Gr oup level and for EUR 22,284 thousand at NLB lev el due to changed presentation of e x cluded interest. Mov ement of gross c arr ying amount of other financial assets The l os s a llowan ce fo r ot he r fi na nc ial a s s et s in ye ar 2021 on NLB G rou p level m oved in l in e wi th g ros s ca r r yin g am ou nt an d inc re as ed by EU R 673 tho us an d . At NLB l evel, g ros s car r yin g am o un t in cre as ed by EU R 37,724 tho us an d , bu t mo s t of t hi s in cre as e re la te s to rec eiva ble s wi th ve r y sh or t ma t ur i t y (of th a t EUR 20,492 t h ou sa nd t o rec eivab le s toward s a su bs idi ar y for d iv ide n ds de cl are d in 2021). T he refo re, th e lo s s allowa nce i n 2021 sl igh t ly de cr ea se d (by EUR 177 th ou s an d) , wi th m ai n rea so n be in g wr it e - of f s in t he a mo un t of EUR 292 t h ou sa nd . The l os s a llowan ce fo r ot he r f in anc ia l as s et s in ye ar 2020 moved i n lin e wi th g ros s c ar r yin g am ou nt a nd i nc re as ed by EUR 647 t ho us an d a t NLB G ro up leve l, w hil e at t h e NLB l evel it dec re as ed by EUR 511 t h ou s an d. in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 12-month expected cr edit losses Lifetime ECL not cr edit - impaired 12-month expected cr edit losses 12-month expected cr edit losses 12-month expected cr edit losses Balance as at 1 January 1,506,772 - 1,656,988 1,279,721 1,486,783 Effects of tr anslation of foreign oper ations to pr esentation currency 74 11 (325) - - Acquisition of subsidiaries (note 5.12.c) - - 7,214 - - Additions 7 6 9,067 - 303,670 639,735 181,235 Der ecognition (564,041) - (477,592) (486,630) (401,685) Net inter est income 13,144 - 16,130 9,504 12,701 Exchange differ ences on monetary assets 1,348 - (429) 1,364 (429) Other (5,444) - 1,116 (5,444) 1,116 T ransfers (7,209) 7,209 - - - Balance as at 31 Dec ember 1,713,711 7,220 1,506,772 1,438,250 1,279,721 Moveme nt o f gro ss car r yi ng am oun t of d eb t se curi ti es m ea sure d at a mo r t ise d cos t 254 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Mov ement of gross c arr ying amount of debt securities measur ed at fair value through other c omprehensiv e income in EUR thousands NLB Gr oup NLB 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2021 3,40 7,394 203 798 3,408,395 1,639,915 - 798 1,640,713 Effects of tr anslation of foreign oper ations to presentation curr ency 1,204 - - 1,204 - - - - Additions 1,455,823 - - 1,455,823 219,733 - - 219,733 Der ecognition (1,481,97 4) (19) - (1,481,993) (352,824) - - (352,824) Net inter est income 40,310 - - 40,310 11,6 96 - - 11,69 6 Exchange differ ences on monetary assets 8,367 - - 8,367 8,452 - - 8,452 Disposal of subisidiary (35,023) - - (35,023) - - - - Balance as at 31 Dec ember 2021 3,396,101 184 798 3,397,083 1,526,972 - 798 1,527,770 in EUR thousands NLB Gr oup NLB 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2020 2,055,362 220 798 2,056,380 1,583,603 - 798 1,584,401 Effects of tr anslation of foreign oper ations to presentation curr ency (421) - - (421) - - - - Acquisition of subsidiaries (note 5.12.c) 1,267,281 - - 1,267,281 - - - - Additions 1,856,445 - - 1,856,445 1,045,700 - - 1,045,700 Der ecognition (1,777,7 48) (17) - (1,777,765) (988,275) - - (988,275) Net inter est income 17,370 - - 17,370 9,894 - - 9,89 4 Exchange differ ences on monetary assets (10,895) - - (10,895) (11,007) - - (11,007) Balance as at 31 Dec ember 2020 3,407,39 4 203 798 3,408,395 1,639,915 - 798 1,640,713 255 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.15. Financ ial liabilities , m eas ured at am or t ised cos t Ana lys is by t y pe o f fi nan cial l ia bi li ti es , m ea sure d a t the a mo r t is ed cos t a) D eposit s from banks and c en tral banks and amount s due to customer s in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Deposits fr om banks and centr al banks 71,828 72,633 109,329 41,635 Borr owings fr om banks and centr al banks 858,531 158,225 873,479 143,464 Due to customers 17,640,809 16,397,16 7 9,659,605 8,850,755 Borr owings fr om other customers 7 4,051 91,560 406 13 Subor dinated liabilities 288,519 288,321 288,519 288,321 Other financial liabilities 206,8 78 182,095 102,527 88,96 9 T otal 19,140,616 17,190,001 11,033,865 9,413,157 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Deposit on demand - banks and centr al banks 56,427 52,250 94,323 41,635 - other customers 15,319,112 13,633,889 8,982,546 8,128,950 - gov ernments 401,295 307,082 109,228 86,27 6 - financial or ganisations 303,858 192,22 4 265,900 137,204 - companies 3,653,713 3,223,612 1,8 70,118 1,551,952 - individuals 10,960,246 9,910,971 6,737,300 6,353,518 Other deposits - banks and centr al banks 15,401 20,383 15,006 - - other customers 2,321,697 2,7 63,278 6 77,059 721,805 - gov ernments 95,062 117,428 34,801 35,515 - financial or ganisations 125,310 134,716 71,582 34,47 4 - companies 380,815 398,595 229,093 192,955 - individuals 1,720,510 2,112,539 341,583 458,861 T otal 17,712,637 16,469,800 9,7 68,934 8,892,390 256 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) B orrowings fr om bank s and central banks and other customer s A s at 31 D ec em be r 2021, NLB G ro up an d NLB h a d EUR 9 4,115 th ou s an d in un dr aw n bor row in gs ( 31 De ce mb er 2020: EU R 140,713 th ou s an d). In J un e 2021, th e B an k pa r tic ip at ed in t h e ECB TL TR O III .8 ope ra tio n an d h ad dr aw n a cre dit t ra nc he o f EUR 750,000 th ou s an d for t hr ee ye ar s . W it h ta rge te d lon ge r -t er m ref in an ci ng o per at io ns , t h e ECB cont in ue s to s up po r t th e acce s s of e nte r pr i se s an d ho us e ho ld s to ba nk l oan s . The Ba nk wa s s ucc es s f ul i n ach iev in g th e le nd in g per fo r ma nc e th res h ol d in t he s p eci al re fere nc e pe ri od an d w ill u se t h e pos it i ve ef f ec t from t h is t ran s ac tio n to pa r ti all y com pe ns a te for t he n e ga ti ve car r y of li qui di t y r es er ves . B a s ed on cur r en tl y avail ab le in fo rm a ti on , t he B an k p lan s to o pt fo r ear l y rep ay me nt i n J un e 2022. NLB G rou p acc oun t s fo r th is l oa n acco rdi ng to t h e req uir em en t s of IFR S 9. E x pe c t ed ef fe c t ive in te res t rat e was es t im at ed b as ed o n t he exp ec ta ti on s of e ar ly re pa ym en t in J un e 2022 an d ac hiev in g th e le nd in g pe r f or m an ce in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Loans - banks and centr al banks 858,531 158,225 873,479 143,464 - other customers 7 4,051 91,560 406 13 - gov ernments 20,607 20,183 - - - financial or ganisations 52,958 70,956 - - - companies 486 421 406 13 T otal 932,582 249,785 873,885 143,477 in EUR thousands NLB Gr oup and NLB 31 Dec 2021 31 Dec 2020 Curr ency Due date Inter est rate Carrying amount Nominal value Carrying amount Nominal value Subor dinated bonds EUR 06.05.2029 4.2% to 06.05.2024, ther eafter 5Y MS + 4.159% p.a. 45,903 45,000 45,867 45,000 EUR 19.11.2029 3.65% to 19.11.2024, ther eafter 5Y MS + 3.833% p.a. 119,577 120,000 119,480 120,000 EUR 05.02.2030 3.4% to 05.02.2025, thereafter 5Y MS + 3.658% p.a. 123,039 120,000 122,97 4 120,000 T otal 288,519 285,000 288,321 285,000 th res h ol d. S in ce t he t h res h old wa s ac hi eved an d ea rl y rep ay me nt i n J un e 2022 is s t ill ex pe c t ed , no c h an ges i n es t im at es o f pa ym en t s d ue to rev is ed a s s es s m en t were ne ed ed . By a pp lyi ng t h e ef fec tive i nt ere s t ra te of - 1% , N LB Gro up r eco gn is ed in 2021 i nt ere s t in co me i n th e am o unt o f EUR 3,979 t ho us an d (not e 4.1.). Th e car r yi ng am o un t of t he loa n as a t 31 De cem b er 2021 am o un t s to EUR 7 46,021 th o us an d . c) Subordinated liabilit ies 257 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Mov ement of subordinated liabilities af ter o bta in ing a pp roval fro m th e ECB . A s s uc h , app roval ha d no t be en gra nt ed by 23 D ece mb er 2019, a nd i t was n ot rea so n abl y exp ec ted to b e gra nt ed i n th e ne ar f u t ure, N LB ann o un ced t h e pre pa ym en t of t h e loa n , wh ich wa s exerci s ed in Ja n uar y 2020. in EUR thousands NLB Gr oup and NLB 2021 2020 Balance as at 1 January 288,321 210,569 Cash flow items: (10,350) 67,383 - new issued subor dinated liabilities - 119,222 - r epayment of subordinated liabilities - (45,000) - r epayment of interest (10,350) (6,839) Non-Cash flow items: 10,548 10,369 - accrued inter est 10,548 10,243 - other - 126 Balance as at 31 Dec ember 288,519 288,321 In Se pt em ber 2019, N LB en te red i nto a l oa n agr eem e nt rel at in g to a EUR 45 m il lion o f s ub ordi na te d lo an in te nd ed fo r th e in cl us io n in to ad di tio na l cap ita l to s t ren g th en a nd o pt im is e it s ca pit al s t r u c t ur e. NLB m a y , a ccor din g to val id le gi sl at io n , on ly in cl ud e th e l oan i n cal cul a tio n of a ddi ti on al ca pit al in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Items in the course of settlement 57,934 46,395 5,9 40 4,412 Debit or cr edit car d payables 27,325 22,883 24,638 20,135 Suppliers 17,514 20,993 12,049 15,7 68 Lease liabilities (note 5.11.a) 24,324 26,359 3,256 3,212 Accrued e xpenses 25,852 21,314 12,909 10,635 F ees and commissions 1,609 1,100 1,504 967 Liabilities to br oker age firms and others for securities pur chase and custody services 297 2,459 202 2,443 Other financial liabilities 52,023 40,592 42,029 31,397 T otal 206,8 78 182,095 102,527 88,969 d) Oth er financ ial liabilities Oth er fin ancial liabilities mainl y include liabilities to insuran ce companies , liabilities for received E IB fin ancial initiat ives, received warranties , and obligation for purcha se of secur ities . All i s s ue d s ubo rdi na te d bo nd s rep re se nt n on - conver t ibl e Tie r 2 in s t r um en t s (not e 5.22.). In th e even t of b an kr u ptc y or li qui da ti on of t h e is s u er , ob lig at io ns a ri s in g fro m Ti er 2 ins tr ume nt s shall be repaid: a) af t er re pa ym en t of al l un s ubo rdi na te d ob lig at io ns of th e I s s uer , a s well a s at a ll s ub ord in at ed ob lig a tio ns (i f any) wh ic h are exp res s e d to ran k in p r ior i t y t o Ti er 2 instr uments; b) with t h e sa m e pr ior i t y ( pa ri passu ) as, a nd p rop or t ion al ly wi th t he o bl iga ti on s ar is in g f rom ot h er in s t r um e nt s w hi ch qu ali f y a s T ier 2 i ns tr um e nt s o r ha ve th e s am e pr io ri t y of rep ay me nt a s th e T ier 2 i ns tr u me nt s ; c) in pr ior i t y t o th e ob lig at io ns a r is in g fro m sh a res o r oth er in s tr ume nt s whi ch q ual if y as Com m on Equ it y Ti er 1 ca pi tal in s tr ume nt s or ad dit io na l Ti er 1 in s t r um en t s o r ha ve th e s am e pr ior i t y of rep ay m en t as t he se i ns tr u me nt s . 258 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.16. Pr ov isions a) Anal ys is by t yp e of p rovis ion s in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Pr ovisions for guar antees and commitments (note 5.23.a) 33,441 42,17 4 20,560 28,543 Stage 1 12,912 15,796 3,909 7,510 Stage 2 1,640 2,7 67 141 732 Stage 3 18,889 23,611 16,510 20,301 Employ ee benefit provisions 21,447 20,707 14,206 14,220 Restructuring pr ovisions 19,217 15,565 11,131 15,354 Pr ovisions for legal risks 45,288 46,602 3,466 5,673 Other pr ovisions 11 11 - - T otal 119,404 125,059 49,363 63,790 Provi si on s for g ua ran te es an d co mm it m en t s rep re se nt expe c t ed c red it lo s s es in a ccor dan ce w it h IFR S 9, em p loyee ben ef i t s are r eco gn is ed i n acco rda nc e wi th IA S 19, w hi le a ll oth er p rovi si on s are r eco gn is ed a ccor din g to IA S 37. Legal risks Provi si on s for l eg al r is k s ar e for m ed b as ed o n exp ec tat io ns reg ardi ng t h e pro bab le o u tcom e of l eg al di s pu te s . A s a t 31 De cem be r 2021, NLB G ro up was i nvolve d in 38 ( 31 De cem b er 2020: 39) leg al di s pu te s wi th m a te ri al c lai ms a gai ns t Gro up me mb er s in t h e tot al am o unt o f EUR 404,001 t h ou sa nd , exclu din g acc r u ed in te res t (31 D ece mb er 2020: EU R 292,098 th ou s an d). A s at 31 D ece mb er 2021, N LB was i nvolve d in 16 ( 31 De cem be r 2020: 18) le gal d is p ut es wi t h ma te r ial m on et ar y cla im s ag ain s t N LB . Th e tot al am o un t of t he se c la im s , exclu din g acc r u ed in te res t, was EUR 180,077 th ou s an d (31 De cem be r 2020: EUR 179,996 th ou sa nd ). In con n ec tio n wi th l eg al r is k s , t he l arg es t amo un t of m a ter i al mo ne tar y c lai ms r ela te s to ci vi l cl aim s f il ed by Pr iv re dn a ban ka Zagreb (t h e PBZ ) an d Zagre ba čka ba nka (th e ZaB a) aga in s t NLB , refe rr i ng to t h e ol d sa vin g s of LB B ran c h Zagreb sa ver s , wh ic h were t ran s f er red t o th es e t wo ban k s in a pr in cip al a mo un t of ap prox im at ely EU R 171 mi lli on (as pe r 31 De cem be r 2021). D ue t o th e fac t th e p roce ed ing s h ad b een pen di ng f or s uc h a lon g t im e, t he p en al t y int ere s t alr ea dy exceed s th e p ri nc ip al am ou nt. A s N LB is n ot l iab le fo r th e ol d fore ign c ur re nc y s a vin gs , bas e d on n um ero u s pro ces s a nd con ten t- rel at ed re as on s , N LB ha s al l alo ng o bje c t ed to t h es e cla im s . T wo key reas on s NL B is n ot li abl e for t h e ol d fore ign cur r en c y sa vi ng s are t h at i t was o nl y fou n ded o n th e b as is o f th e Con s t it u ti on al Ac t on 27 J ul y 199 4 (at t he t im e th e s av in gs were de po si te d wi th LB B ra nc h Zagre b, NLB d id n ot yet exi s t) , an d NLB di d no t as s um e any s u ch o bli ga tio n s . Mo reover , t hi s is a fo r m er Yugos la vi a su cce s si on m at te r , as t he gover nm e nt s o f th e Re pu bli c of S loven ia an d t he R ep ub lic of Croa ti a agr ee d in a M em ora nd um o f Un de r s ta nd ing s ig ne d in 2013 wh os e in te nt wa s to f in d a s ol ut ion t o th e t ran s fe r red foreign currenc y savin gs of Ljubljanska banka in C roa tia (LB) on t he b as i s of t he Ag ree m ent o n S ucc es s ion I s s ue s . Th e Me mo ran d um al so s ai d th a t th e Re pu bli c of Cro at ia wo ul d en su re t he s tay o f all t he p roc ee din gs co m me nc ed by th e PB Z an d th e ZaB a in re la tio n to t he t ra ns f er re d fore ign c ur re nc y sa vin g s unt il t h e is s u e was f in all y re so lved . Despite the agr eement in the Memor andum of Understanding to stay all of the pr oceedings c ommenced, the Court of Appeal, the County Court of Z agreb, ruled in six claims (as e xplained below in detail) in fav our of the plaintif f. In four of those cases, NLB filed a constitutional suit after e xtraor dinary legal measur e of NLB with the Supr eme Court of the Republic of Cr oatia was not succ essful, and in two NLB filed an extr aor dinary legal measur e with the Supreme C our t of the Republic of Cr oatia. 259 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Cont ra r y to th e de ci si on s of t he c our t d es cr i be d above in ano th er c as e, a cl ai m fi le d by th e PBZ wa s ref u se d an d th e jud gm en t be cam e f in al i n favo ur o f NLB . T he ex tra ord in ar y leg al m ea s ure w it h t he S up rem e Co ur t of t h e Rep ub lic o f Croa ti a, f i le d by th e pla in ti f f, wa s dis m is s ed by t h e Su pre m e Cour t o n 16 J un e 2015. Date of the ruling Plaintif f Principal amount Costs of the pr oceedings Measur es taken by NLB May 2015 PBZ 254.7 6 EUR 15,7 81.25 HRK Constitutional suit against the final judgement, as NLB found the court decision contr ary to the legislation in for ce and constitutional principles and as well c ontrary t o the Memorandum concluded betw een the Republic of Slov enia and the Republic of Cr oatia. Constitutional Court of the Republic of Cr oatia rejected the c onstitutional appeal of NLB d.d. on 21 May 2018. April 2018 PBZ 222,426.39 EUR 253,283.37 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Cr oatia in the r evision pr oceeding), as NLB found the court decision contr ary to the legislation in for ce and constitutional principles, and as well c ontrary to the Memor andum concluded betw een the Republic of Slovenia and the R epublic of Croatia. Constitutional Court of the Republic of Cr oatia r ejected the constitutional appeal of NLB d.d. on 5 October 2021. September 2017 Z aBa 492,430.53 EUR 7 48,583.75 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Cr oatia in the r evision pr oceeding), as NLB found the court decision contr ary to the legislation in for ce and constitutional principles, and as well c ontrary to the Memor andum concluded betw een the Republic of Slovenia and the R epublic of Croatia. Constitutional Court of the Republic of Cr oatia r ejected the constitutional appeal of NLB d.d. on 5 October 2021. Nov ember 2017 PBZ 220,115.98 EUR 688,268.12 HRK NLB challenged the judgments with the extr aor dinary legal measure (r evision) on the Supr eme Count of the Republic of Cr oatia and later, if necessary, will challenge the judgments with all other available r emedies of the obligations of the old for eign currency savings in ac cor dance with Slovenian C onstitutional Law are not the liabilities of NLB. December 2018 PBZ 3,855,173.35 SEK 6 79,926.08 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Cr oatia in the r evision pr oceeding), as NLB found the court decision contr ary to the legislation in for ce and constitutional principles and as well c ontrary to the Memor andum concluded betw een the Republic of Slovenia and the R epublic of Croatia. Mar ch 2019 PBZ 9,185,141.7 6 USD 3,198,7 60.00 HRK NLB challenged the judgment with the extr aor dinary legal measure (r evision) on the Supr eme Count of the Republic of Cr oatia and later, if necessary, will challenge the judgment with all other available r emedies of the obligations of the old for eign currency savings in ac cor dance with Slovenian C onstitutional Law are not the liabilities of NLB. In the other cases, with r espect to which court pr ocedur es described abov e are pending, final c ourt decisions have not yet been issued. The t ab le b elow s um m ar i se s th e am o unt s accor din g to f in al cou r t dec is io ns (no t in cl ud ing p en al t y int ere s t). The N LB S ha reh ol de rs ’ Me et in g prov ide d th e M an ag em en t Bo ard o f NLB w it h in s t r uc tio n s how to a c t i n th e even t of exis tin g or p ote nt ia l new f in al d ec is ion s by Cro at ia n cou r t s aga in s t LB an d NL B reg ardi ng t h e tra ns fer re d fore ign cur r en c y de pos i t s , es pe ci all y no t to vol un tar il y s et tl e th e adj ud ica ted a mo un t s , a nd a ls o ga ve so me a ddi t ion al in s tr uc t io ns o n th e u sa ge of l eg al re me die s an d re gard in g th e ma na gem e nt o f th e pro pe r t y f rom t h at p er s p ec tive. On 19 J ul y 2018, th e N at ion al A s se mb ly of t h e Re pu bli c of Sl ovenia p a s se d th e ‘ Ac t for Valu e Prot ec tio n of Re pu bl ic of Slovenia’ s Capital Inv es t men t in No va Ljubljans ka banka d.d., Ljubljan a’ (Zak on za z a ščito vrednos t i kapitalske na ložb e Rep ub like S loven ije v N ovi L jub lj an sk i ba nk i d .d. , Lju bl jan a , he rein a f t er : ‘ t he Z VKNNL B’ ) w hic h en te red i nto force o n 14 Au gu s t 2018. In a ccor dan ce w it h th e Z V KNNL B , th e S ucce s s ion Fun d of t he R ep ubl ic of S love nia (S k lad Rep ub like S loven ije za n a sl ed s t vo, jav ni s k la d, h ere in af te r : ‘ t he Fun d’ ) , sh al l com pe ns a te NL B for t he s u ms r ecover ed fro m NLB by en forc em en t of f in al j ud gem e nt s d eli vere d by Croa ti an co ur t s w it h reg ard t o th e tr an s fe rr ed fo reig n cur r en c y de pos i t s , th a t is t he p r in cip le a mo un t, acc r ue d int ere s t, exp en se s of co ur t, a t t or n ey ’s expen s es an d ot h er expe ns e s of th e p lai nt if f, and ex pe ns es r el at ed to e nfo rcem e nt wi th t he a ccr ued i nt ere s t, an d sh al l no t com pe ns a te NL B for it s own c os t s o r for t h e dif fer en ce be t ween t he b oo k valu e of it s a s s et s s ol d in en for cem en t pro ce edi ng s an d th e pr i ce obt ain ed fo r s uc h as s et s i n en force m en t pro cee din gs . The re sh al l be n o com p en sa t ion fo r any vol un ta ri ly m ad e pa ym en t s by NLB . In a cco rdan ce w it h t he Z V KNN LB an d pu r s uan t to th e agr eem e nt b et ween N LB an d t he Fun d, a s env is ag ed by th e Z VKN NLB (w hic h was co nc l ude d on 14 A ug us t 2018) , NLB ha s to co nt es t t h e cl aim s m ade a ga in s t it i n co ur t pro cee di ng s in rel at io n to t ran s fe r red fo rei gn cu r ren c y d epo si t s , an d u se aga in s t co ur t de ci si on s th a t are d is ad vant ag eo us fo r NLB , all re as on ab le l eg al rem e die s an d to co nt in ue t o ac tive ly ch all en ge t he j ud ici al de ci si on s of t he c our t s o f th e R ep ubl ic of Cro at ia in r ela t ion t o tra ns fer re d fore ign c ur re nc y d ep os it s on t he b as is o f wh ic h enf orce me nt t oo k pla ce, l ea din g, o n th e ba s is of Z VKNNL B , to t he c om pe ns a tio n of t he s u ms recover ed f rom N LB by enf orce me nt. In t h e afo rem e nt ion e d cas e fr om M ay 2015, t he S u cce s si on Fund o f th e Re pu bli c of Sl ovenia h a s alr ead y com p en sa te d t he s um s re covere d fro m NLB b y enforcement. All p roc ed ure s rel at in g to t he r ece ivab les o f PBZ an d ZaB a , as well a s NLB ’s view on t h is m a t t er wer e als o di s cu s s ed wi t h th e ECB as th e s upe r vi so r of bo th Cr oa ti an ba nk s . 260 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup Balance as at 1 Jan 2021 Effects of tr anslation of for eign operations to pr esentation curr ency T ransfer Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Disposal of subsidiary Balance as at 31 Dec 2021 Notes 4.13. 4.13. 5.16.a) 12-month expected cr edit losses Guar antees and commitments 15,796 1 1,388 (1,337) (2,810) (4) (122) 12,912 Lifetime ECL not cr edit-impair ed Guar antees and commitments 2,7 67 - (730) (358) (37) 4 (6) 1,640 Lifetime ECL cr edit-impair ed Guar antees and commitments 23,611 1 (659) (4,239) 277 48 (150) 18,889 Of which: Pur chased or originated credit-impair ed Guar antees and commitments 5,057 - - (755) - 42 - 4,344 b) Provisions for guarantees and c om mitmen ts Mov ement s in pr ovisions for guarantees and commitments Provi si on s for l eg al r is k s fo r cl aim s f il ed by PBZ a nd ZaB a ar e not f or m ed , si nc e NLB b eli eves th a t ba se d on t h e fac t ual a nd leg al eval ua ti on t he re are g rea te r pro sp ec t s for t h e cou r t pro cee din gs t o en d in fa vou r of NLB t h an t he o pp os it e. Reg ard le s s of t he n eg at ive j ud gem e nt s , i n th e f in an ci al s ta tem e nt s N LB Gr ou p did n ot re cog ni se t h e ne ga t ive imp ac t du e to pr ote c t ion p rovi ded by t h e Z VKN NLB . For f in al jud ge me nt s , NLB G rou p rec ogn is ed t h e lia bil it ies a nd r el ate d as s et s w hic h c ur ren t ly am o un t to ap proxi ma te ly EU R 22 mil lio n . Th ey are in c lu ded w it h in ot he r f in an cia l as s et s (no te 5.6.d) an d ot h er f in an ci al lia bil it ie s (note 5.15.d ). in EUR thousands NLB Gr oup Balance as at 1 Jan 2020 Effects of tr anslation of for eign operations to pr esentation curr ency Ac quisition of subsidiaries T ransfer Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2020 Notes 4.13. 4.13. 5.16.a) 12-month expected cr edit losses Guar antees and commitments 12,909 (4) 1,049 659 1,863 (67 6) (4) 15,79 6 Lifetime ECL not cr edit-impair ed Guar antees and commitments 2,444 (5) - (300) (99) 727 - 2,7 67 Lifetime ECL cr edit-impair ed Guar antees and commitments 24,068 1 1,249 (359) (1,293) (40) (15) 23,611 Of which: Pur chased or originated credit-impair ed Guar antees and commitments 1,984 - 1,249 - 1,838 - (14) 5,057 261 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 T ransfer Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2021 Notes 4.13. 4.13. 5.16.a) 12-month expected cr edit losses Guar antees and commitments 7,510 530 (1,451) (2,683) 3 3,909 Lifetime ECL not cr edit-impair ed Guar antees and commitments 732 (123) (340) (129) 1 141 Lifetime ECL cr edit-impair ed Guar antees and commitments 20,301 (407) (3,6 98) 273 41 16,510 Of which: Pur chased or originated credit-impair ed Guar antees and commitments 3,808 - 186 - 47 4,041 in EUR thousands NLB Balance as at 1 Jan 2020 T ransfer Incr eases/ (Decr eases) Changes in models/risk par ameters F oreign ex change differenc es and other mov ements Balance as at 31 Dec 2020 Notes 4.13. 4.13. 5.16.a) 12-month expected cr edit losses Guar antees and commitments 6,145 193 94 7 228 (3) 7,510 Lifetime ECL not cr edit-impair ed Guar antees and commitments 653 136 (418) 363 (2) 732 Lifetime ECL cr edit-impair ed Guar antees and commitments 22,365 (329) (1,622) (97) (16) 20,301 Of which: Pur chased or originated credit-impair ed Guar antees and commitments 1,984 - 1,838 - (14) 3,808 262 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Mov ement of contractual amount s of guar an tees and c ommit ments in off -balance sheet in EUR thousands NLB Gr oup NLB 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2021 2,824,750 103,950 46,270 2,97 4,970 1,896,418 73,255 34,907 2,004,580 Effects of tr anslation of foreign oper ations to presentation curr ency 687 24 9 720 - - - - Incr eases/(Decreases) 219,688 (4,666) (9,309) 205,713 4,7 6 9 (14,315) (8,16 7) (17,713) F or eign ex change dif fer ences 2,733 101 51 2,885 2,570 92 48 2,710 T ransfers (685) (1,752) 2,437 - 9,815 (9,930) 115 - Disposal of subsidiary (19,202) (121) (460) (19,783) - - - - Balance as at 31 Dec ember 2021 3,027,971 97,536 38,998 3,164,505 1,913,572 49,102 26,903 1,989,577 in EUR thousands NLB Gr oup NLB 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impaired Lifetime ECL cr edit-impaired T otal Balance as at 1 January 2020 2,108,271 112,616 73,19 6 2,294,083 1,575,211 62,429 6 9,640 1,707,280 Effects of tr anslation of foreign oper ations to presentation curr ency (543) (56) (3) (602) - - - - Acquisition of subsidiaries (note 5.12.c) 369,847 - 7,514 377,361 - - - - Incr eases/(Decreases) 368,553 (16,936) (43,564) 308,053 346,086 (6,9 40) (37,834) 301,312 F or eign ex change dif fer ences (3,615) (147) (163) (3,925) (3,702) (147) (163) (4,012) T ransfers (17,7 63) 8,473 9,290 - (21,177) 17,913 3,264 - Balance as at 31 Dec ember 2020 2,824,750 103,950 46,270 2,97 4,970 1,896,418 73,255 34,907 2,004,580 263 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) M ov em ents in employee b enefit provisions Post- employment benefit s Ot her employee benefit s in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 18,162 15,320 12,6 95 13,165 Effects of tr anslation of foreign oper ations to pr esentation currency - (2) - - Acquisition of subsidiaries (note 5.12.c) - 3,37 4 - - Disposal of subsidiaries (83) - - - Additional pr ovisions (note 4.9.) 1,957 983 723 672 Pr ovisions r eleased (note 4.9.) (1,831) (560) (750) (433) Inter est expenses (note 4.1.) 177 76 43 27 Utilised during year (payments) (532) (151) (45) (36) Actuarial gains and losses 1,377 (878) 115 (700) Balance as at 31 Dec ember 19,227 18,162 12,781 12,6 95 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 2,545 2,384 1,525 1,578 Effects of tr anslation of foreign oper ations to pr esentation currency - (1) - - Acquisition of subsidiaries (note 5.12.c) - 179 - - Additional pr ovisions (note 4.9.) 222 234 100 103 Pr ovisions r eleased (note 4.9.) (275) (112) (132) (38) Inter est expenses (note 4.1.) 25 24 5 3 Utilised during year (297) (163) (73) (121) Balance as at 31 Dec ember 2,220 2,545 1,425 1,525 O th er e mp loyee b en ef it s inc lu de N LB Gr oup’s obl iga t ion s for j ub ile e lo ng - se r vice b en ef i t s . 264 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report d) Mov emen ts in restruc t uring provisions Followi ng t h e acq ui si ti on of Kom erc ija ln a ba nka a .d. Be og rad i n De cem be r 2020, NLB G ro up p rep are d a pl an for optimisati on of o perations, includ ing antici pated merg er of ba nk s i n Se r bia an d d ecr ea se d n um be r of em pl oyees . The ref ore in 2021, S e rb ian b an k s rec og ni se d res tr u c t ur i ng provi s ion s in t h e am oun t of EU R 14,797 t ho us an d , of w hic h EUR 6,868 th ou s an d were al rea dy u t ili se d du r ing t h e year . T he re s t is exp ec ted t o be p aid t o em pl oyees l ea vin g th e b an k wi th in th e nex t t we lve m on th s . in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 15,565 14,500 15,354 14,182 Effects of tr anslation of foreign oper ations to pr esentation currency 11 (1) - - Disposal of subsidiaries - (50) - - Additional pr ovisions (note 4.13.) 14,797 3,500 - 3,500 Utilised during year (11,156) (2,384) (4,223) (2,328) Balance as at 31 Dec ember 19,217 15,565 11,131 15,354 in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 46,602 16,627 5,673 2,211 Effects of tr anslation of foreign oper ations to pr esentation currency 40 (8) - - Acquisition of subsidiaries (note 5.12.c) - 28,686 - - Disposal of subsidiaries - (119) - - Additional pr ovisions (note 4.13.) 16,632 6,355 1,881 4,411 Pr ovisions r eleased (note 4.13.) (8,759) (1,659) (1,809) (181) Utilised during year (9,227) (3,280) (2,279) (7 68) Balance as at 31 Dec ember 45,288 46,602 3,466 5,673 Sig ni fi can t am ou nt o f res tr u c t u ri ng p rovi si on s rel at es al s o to NLB , w hi ch h as i n prev io us p er io ds a dop te d a bu si ne s s strategy a nd initiated ke y strategic initiative s , aimi ng am on g oth er s t owards a l ea ne r org an is at io n , opt im is a tio n of pro ce s se s , im pl em en ta ti on of a n ew IT s t ra teg y wi t h a foc us o n dig ita li sa ti on an d s im pl if ica t ion , an d a dj us t m en t of th e org an is at io na l s t r uc t ure. T he se i ni ti at ive s wil l res u lt in dec re as ed n um b er of e mp loyee s in t he co mi ng ye ar s . e) Movements in pro vis ions for legal risks 265 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report f ) Mov em ents in other provisions 5.17. Defer red income t ax a) Anal ys is by t yp e of d ef er red in com e t axes in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Balance as at 1 January 11 162 - 85 Additional pr ovisions (note 4.13.) - 34 - - Pr ovisions r eleased (note 4.13.) - (153) - (85) Utilised during year - (32) - - Balance as at 31 Dec ember 11 11 - - in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Deferr ed income tax assets V aluation of financial instruments and capital inv estments 33,002 37,729 31,6 96 37,650 Impairment of financial assets 5,879 3,190 917 94 7 Pr ovisions for liabilities and char ges 10,128 8,489 2,660 3,138 Depr eciation and valuation of non-financial assets 3,505 4,063 112 140 F air value adjustments of financial assets measur ed at amortised cost 320 938 - - Unpaid dividends 3,87 6 - 3,87 6 - T ax losses 253 - - - T ax r eliefs 94 5 1,179 - - Other 62 111 - - T otal deferr ed income tax assets 57,970 55,699 39,261 41,875 Deferr ed income tax liabilities V aluation of financial instruments 12,026 21,023 6,620 11,871 Depr eciation and valuation of non-financial assets 1,37 4 1,515 169 193 Impairment of financial assets 3,960 3,271 570 597 F air value adjustments of financial assets measur ed at amortised cost 3,338 592 - - Other 1,340 1,984 - - T otal deferr ed income tax liabilities 22,038 28,385 7,359 12,661 Net deferr ed income tax assets 38,977 31,789 31,902 29,214 Net deferr ed income tax liabilities (3,045) (4,475) - - 266 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report T emp ora r y dif fer en ces o n wh ich N LB did n ot r eco gn is e def er red t ax a s se t s , a s rel at ed de fer r ed ta x as s et s wo ul d exceed t h e am oun t of d ef er red t ax a s se t s exp ec ted t o be in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Included in the income statement 3,423 3,238 112 540 - valuation of financial instruments and capit al investments (1,02 4) 308 (3,241) 308 - impairment of financial assets 2,260 3,108 (30) 163 - pr ovisions for liabilities and char ges 1,453 54 (489) 75 - depr eciation and valuation of non-financial assets (338) (336) (4) (6) - tax losses 253 - - - - unpaid dividends 3,87 6 - 3,87 6 - - tax r eliefs (234) - - - - fair value adjustments of financial assets measur ed at amortised cost (3,413) - - - - other 590 104 - - Included in other compr ehensive inc ome 4,950 (1,619) 2,576 (895) - valuation and impairment of financial assets measured at fair value thr ough other compr ehensive inc ome 4,772 (1,486) 2,565 (7 62) - actuarial assumptions and experienc e 1 78 (133) 11 (133) Included in equity - tr ansfer of fair value r eserve 368 - - - - valuation of financial assets measur ed at fair value thr ough other compr ehensive income 368 - - - in EUR thousands 31 Dec 2021 31 Dec 2020 NLB T emporary differenc e Non-r ecognised deferr ed tax assets T emporary differenc e Non-r ecognised deferr ed tax assets T ax loss 97 4,902 185,231 922,898 175,351 T ax r eliefs 4,329 823 - - Impairments and valuation of capit al investments and financial instruments 73,359 13,938 242,861 46,144 rever se d in f i ve year s ar e pre se nt ed in t h e tab le b el ow , together with non - recognised deferred tax as set s. T ax los s o n wh ic h NLB di d no t reco gn is e de fer re d ta x as s et s , as a t 31 De cem b er 2021 am o unt s to EUR 97 4,902 th ou s an d (31D ec em ber 2020: 922,898 t h ou s an d). S l ovenia n tax l aw doe s no t se t de adl in es by wh ic h un covere d tax l os s es m u s t be ut ili s ed , bu t t he u se o f tax l os s i s lim it ed t o 50% of t he a c t u al tax b as e. O t h er ba nk in g m em be rs h a ve no u nre co gni s ed deferred tax asset s for tax losses . NLB G rou p did n ot r eco gn is e def er re d tax a s s et s on tem po rar y di f f ere nc es ar i si ng f rom t h e im pai r me nt s o f inves t m en t s in s ub si dia r ies a nd a s s oci at es w he re it i s n ot prob ab le t h at t he t em po rar y di f f ere nce w il l rever se i n th e fore se ea bl e fu t ur e. Th es e te mp ora r y dif fer en ces am o un t to EUR 315,531 t ho us an d a s at 31 D ec em be r 2021 (31 D ec em ber 2020: EUR 347,040 t ho us an d ). 2 67 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup Pr ovisions for liabilities and char ges V aluation of financial instruments and capital in vestments Depr eciation and valuation of non- financial assets Impairment of financial assets Unpaid dividends T ax losses T ax relief F air value adjustments of financial assets measur ed at amortised cost Other T otal Balance as at 1 January 2020 4,109 36,286 1,087 910 - - - - - 42,392 Effects of tr anslation of foreign oper ations to pr esentation currency 4 - - 2 - - - - - 6 (Char ged)/credited to pr ofit and loss 54 188 (156) 2,247 - - - - 104 2,437 (Char ged)/credited to other c omprehensiv e income (133) 1,240 - - - - - - - 1,107 Acquisition of subsidiaries 4,455 15 3,132 31 - - 1,179 938 7 9,757 Balance as at 31 Dec ember 2020 8,489 37,729 4,063 3,190 - - 1,179 938 111 55,699 Effects of tr anslation of foreign oper ations to pr esentation currency 8 - 1 4 - - - - 2 15 (Char ged)/credited to pr ofit and loss 1,453 (3,368) (480) 2,791 3,87 6 253 (234) (618) (51) 3,622 (Char ged)/credited to other c omprehensiv e income 178 (1,359) - - - - - - - (1,181) Disposal of subisidiaries - - (79) (106) - - - - - (185) Balance as at 31 Dec ember 2021 10,128 33,002 3,505 5,879 3,87 6 253 94 5 320 62 57,970 in EUR thousands NLB Pr ovisions for liabilities and char ges V aluation of financial instruments and capital in vestments Depr eciation and valuation of non- financial assets Impairment of financial assets Unpaid dividends T otal Balance as at 1 January 2020 3,196 36,244 154 784 - 40,378 (Char ged)/credited to pr ofit and loss 75 188 (14) 163 - 412 (Char ged)/credited to other compr ehensive inc ome (133) 1,218 - - - 1,085 Balance as at 31 Dec ember 2020 3,138 37,650 140 94 7 - 41,875 (Char ged)/credited to pr ofit and loss (489) (3,367) (28) (30) 3,87 6 (38) (Char ged)/credited to other compr ehensive inc ome 11 (2,587) - - - (2,57 6) Balance as at 31 Dec ember 2021 2,660 31,69 6 112 917 3,87 6 39,261 b) Movemen t s in d ef er red in com e ta xes De fe rred i ncom e ta x as se ts 268 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup Impairment of financial assets V aluation of financial instruments and capital in vestments Depr eciation and valuation of non- financial assets Other F air value adjustments of financial assets measur ed at amortised cost T otal Balance as at 1 January 2020 3,270 11,159 1,296 - - 15,725 Effects of tr anslation of foreign oper ations to pr esentation currency (7) - (2) - - (9) Char ged/(credited) to pr ofit and loss (861) (120) 180 - - (801) Char ged/(credited) to other c omprehensiv e income 696 2,030 - - - 2,726 Acquisition of subsidiaries 173 7,954 41 1,984 592 10,7 44 Balance as at 31 Dec ember 2020 3,271 21,023 1,515 1,984 592 28,385 Effects of tr anslation of foreign oper ations to pr esentation currency 1 3 1 1 1 7 Char ged/(credited) to pr ofit and loss 531 (2,344) (142) (641) 2,795 199 Char ged/(credited)to other c omprehensiv e income 157 (6,656) - - - (6,499) Disposal of subisidiaries - - - (4) (50) (54) Balance as at 31 Dec ember 2021 3,960 12,026 1,37 4 1,340 3,338 22,038 in EUR thousands NLB Impairment of financial assets V aluation of financial instruments and capital in vestments Depr eciation and valuation of non- financial assets T otal Balance as at 1 January 2020 477 10,131 201 10,809 Char ged/(credited) to pr ofit and loss - (120) (8) (128) Char ged/(credited) to other c omprehensiv e income 120 1,860 - 1,980 Balance as at 31 Dec ember 2020 597 11,871 193 12,661 Char ged/(credited) to pr ofit and loss - (126) (24) (150) Char ged/(credited) to other c omprehensiv e income (27) (5,125) - (5,152) Balance as at 31 Dec ember 2021 570 6,620 1 69 7,359 De fe rred i ncom e ta x lia bi li t ies 269 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.18. Income tax relating to compon ent s of other comprehens ive income in EUR thousands 2021 NLB Gr oup NLB Befor e tax T ax expense Net of tax Befor e tax T ax expense Net of tax Actuarial gains and losses (1,377) 178 (1,199) (115) 11 (104) Financial assets measur ed at fair value thr ough other compr ehensive inc ome (34,322) 4,772 (29,550) (17,7 42) 2,565 (15,177) Shar e of associates and joint ventur es (30) - (30) - - - T otal (35,729) 4,950 (30,779) (17,857) 2,57 6 (15,281) in EUR thousands 2020 NLB Gr oup NLB Befor e tax T ax expense Net of tax Befor e tax T ax expense Net of tax Actuarial gains and losses 878 (133) 74 5 700 (133) 567 Financial assets measur ed at fair value thr ough other compr ehensive inc ome 10,364 (1,486) 8,878 4,012 (7 62) 3,250 Shar e of associates and joint ventur es (11,067) - (11,067) - - - T otal 175 (1,619) (1,444) 4,712 (895) 3,817 5.19. Ot her liab ilities in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Accrued salaries 18,615 19,068 9,050 9,807 Unused annual leave 6,032 6,137 2,425 2,497 Deferr ed income 11,37 4 12,364 5,257 5,391 T axes pay able 9,450 5,009 3,999 4,107 P ayments rec eived in advance 3,997 2,195 308 199 Other liabilities - 859 - - T otal 49,468 45,632 21,039 22,001 270 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.20. Sh are capital The shar e capital of NLB amounts to EUR 200,000 thousand and did not change in 2021. It is comprised of 20,000,000 no- par-value or dinary r egister ed shares, with the c orr esponding value of EUR 10.0 for one shar e. All issued shar es ar e fully paid and ther e ar e no un-issued authorised shares. As at 31 Dec ember 2021, the major shar eholder of NLB with significant influence is the Republic of Slo venia, owning 25.00% plus one shar e. The b oo k val ue of a N LB s ha re on a co n so lid at ed l evel as a t 31 De cem be r 2021 was EU R 103.9 (31 D ec em be r 2020: EUR 97.6), an d on s olo l evel was EU R 77.6 ( 31 De cem be r 2020: EUR 72.5). It i s cal cul a ted a s th e ra t io of n et a s se t s’ b ook va lu e exclu din g oth er e qu it y in s t r um en t s i s s ue d an d th e n um be r of s ha res . Di s tr i bu ta ble p rof i t as a t 31 De cem b er 2021 am o un t s to EUR 458,266 th ou s an d (31 D ec em be r 2020: EUR 341,992 t ho u san d ), con s is t s o f NLB n et p rof it f or 2021 in t h e am ou nt o f EUR 208,421 th ou s an d (2020: EUR 113,952 t h ou sa nd ), t h e tra n s fer o f fair va lu e res er ve in t he a mo un t of EU R 53 th o us an d on t h e derecognition of equit y finan cial ins tr umen ts m easure d at fair va lu e th ro ugh O CI an d ret ain e d ear n in gs f rom p revio u s year s in t h e am ou nt o f EUR 249,792 th ou sa nd . I t s all oca t ion wil l be s ub jec t to a de ci s ion by t he B a nk ’s G en era l A s se m bly. The p rop os al fo r th e G en era l A s s em bl y wil l be p rep are d by th e M an age me nt a nd t h e S upe r vi so r y Bo ard , co ns id er in g res t r ic tio ns i mp os ed by t he r eg ul ato r s , G rou p’s ris k ap pet i te, targ et ca pi tal a deq u ac y a t Gr oup’s level an d ac t ual p revail in g capi tal p os it io n at t h e ti me o f th e pro po sa l. The s h are s gi ve to th ei r ho ld er s t he r ig ht t o vote a t th e NLB ’s me et in g of s ha reh ol de r s wh ere , as a r u le, e ac h sh ar e ent i tl es its holder to one v ote. Nev er theles s, a shareholder who acq uir es s ha res w hi ch , to ge th er w it h th e s h are s alre ad y he ld by su ch s h areh o lde r or by a t hir d pe r so n on b eh al f of s uc h sh ar eh old er , re pre se nt m or e th an 25% o f th e NLB ’s s ha re capi tal , m ay o nl y exerci s e it s vot in g r igh t s un de r s uch s h are s if NLB ’s S upe r vi so r y Bo ard a ppr oves s uch a n acq ui si t ion . The S u pe r vis or y B o ard ’s approval m a y on ly b e rej ec ted i f, foll owin g s uc h an ac qu is it io n, s u ch a p er s on wo uld h ol d sh ar es re pre se nt in g mo re t ha n 25% of NLB ’s is s u ed s h are capi tal p l us on e s h are. T he a pp roval sh al l be co n si der ed given i f n ot exp res s ly r eje c t ed in 20 d ay s . N o su ch a ppr oval is n ece s s ar y in re sp ec t of t he s h are s acq ui red by a p er s on on be h alf o f th ird p er s on s p rovid ed t ha t s uc h a pe r so n is not e nt i tl ed to exerc is e t he vot in g r igh t s ar i si ng o ut o f s uc h sh ar es a t it s own d is cr et ion a nd u nd er ta kes to NLB t h at i t wi ll not exe rci se t h e votin g r igh t s b as ed o n voti ng i ns tr u c t ion s unl es s s u ch vot in g in s t r uc tio ns a re ac com pa ni ed w it h a con f ir ma t ion t h at t h e per s on g iv in g s uch i ns tr u c t ion s i s th e ben ef i cia l own er of t h e sh ar es in r es pe c t o f wh ich vot es a re to be exer cis e d an d doe s n ot ho ld i n th e ag gre ga te, d irec tl y or in di rec tl y 25% or m ore N LB sh ar es w it h voti ng r ig ht s . The shar es also give their holders the right to be informed, as well as the pr e-emptive right t o subscribe for new shar es on a pr o r ata basis in case of a shar e capital incr ease, the right to a pr o-r ata share of r emaining assets in c ase of bankruptcy or liquidation or NLB and the right to r eceiv e a dividend. In 2021, NLB paid dividends for pr evious year in the amount of 4.61 EUR per shar e (2020: NLB did not pay out any dividends for pr evious year), which decr eased r etained earnings for EUR 92,200 thousand. A s at 31 D ec em be r 2021 an d 31 De cem be r 2020, NLB h ol ds no ow n sh ar es . I n Ju ne 2019, t h e Ge ne ral A ss em b ly of N LB au th or i se d t he M an ag em en t B oar d th a t in t he p er io d of 36 mo nt h s fro m th e ad opt io n of t he s h are ho ld er s’ re so lu t ion , i t can b uy ow n sh ar es of t h e Ba nk f or t he p ay m en t of var ia ble rem un er at ion t o cer ta in em p loyee s as re qu ire d by th e Ba nk in g Ac t a n d oth er r eleva nt re gu la ti on s . NLB d id n ot b uy any own s h are s ba se d on t hi s au t ho r is at io n . in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Financial assets measur ed at fair value thr ough other compr ehensive inc ome - debt securities 8,540 38,852 12,365 27,242 Financial assets measur ed at fair value thr ough other compr ehensive inc ome - equity securities 2,826 3,644 99 452 Actuarial defined benefit pension plans (5,488) (4,399) (3,69 6) (3,592) F or eign currency tr anslation (17,184) (17,724) - - Hedge of a net investment in a for eign oper ation 754 754 - - T otal (10,552) 21,127 8,768 24,102 b) Accumulat ed other comprehensive income 5.21. Accumulated oth er comprehensive income and reserves a) R eser ves The s h are p rem i um ac cou nt a s at 3 1 D ece mb er 2 02 1 a nd 3 1 De cem be r 20 20 co mp r is es p aid - u p pre mi um s in t he a mo un t of EUR 8 2 2 ,17 3 t h ou sa nd a n d th e reval ua ti on of s h are ca pi tal fro m prev iou s yea r s in t he am o un t of EU R 49 , 20 5 th o us an d . A s at 3 1 De cem b er 2 02 1 an d 3 1 De cem b er 20 20, p rof i t res er ves in th e am o un t of EUR 1 3 ,5 2 2 t ho us an d re la te e nt ire ly to l eg al res er ves i n acco rda nc e wi th t he Co mp an ies A c t. In 20 2 1 , NLB re cor ded a n et p rof i t in t he a mo un t of EU R 20 8, 42 1 th ou s an d (20 20 : ne t prof i t EUR 1 13 ,952 tho us an d ) wh ich i s inc l ude d in t he r eta in ed e ar ni ng s as a t 31 D ec em ber2 02 1. 271 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.22. Capital adequacy ratios in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 P aid up capital instruments 200,000 200,000 200,000 200,000 Shar e premium 871,378 871,378 8 71,378 871,37 8 Retained earnings - fr om pr evious years 7 67,152 552,146 249,845 228,040 Pr ofit eligible - fr om current y ear 135,9 68 63,635 39,613 21,658 Accumulat ed other comprehensiv e income (10,091) 21,588 8,7 68 24,102 Other r eserves 13,522 13,522 13,522 13,522 Minority inter est 27,905 71,562 - - Prudential filter s: Additional V aluation Adjustments (A V A) (3,498) (3,632) (1,606) (1,755) (-) Goodwill (3,529) (3,529) - - (-) Other intangible assets (39,116) (33,222) (18,829) (9,914) (-) Insufficient cov erage for non-performing e xposures (90) - (10) - CO MMON EQUITY TIER 1 CAPIT AL (CET1) 1,959,601 1,753,448 1,362,681 1,347,031 Minority inter est 5,950 14,614 - - Additional T ier 1 capital 5,950 14,614 - - TIER 1 CAPIT AL 1,965,551 1,7 68,062 1,362,681 1,347,031 Capital instruments and subor dinated loans eligible as T ier 2 capital 284,595 284,595 284,595 284,595 Minority inter est 2,344 12,806 - - TIER 2 CAPIT AL 286,939 297,401 284,595 284,595 T OT AL CAPIT AL 2,252,490 2,065,463 1,647,27 6 1,631,626 RW A for credit risk 10,205,172 10,222,923 5,411,433 4,805,127 RW A for market risks 1,206,363 1,250,563 6 98,463 657,088 RW A for credit v aluation adjustment risk 11,850 200 11,850 200 RW A for operational risk 1,244,023 9 47,342 586,781 566,385 T OT AL RISK EXPOSURE AMOUNT (RW A) 12,667,408 12,421,028 6,708,527 6,028,800 Common Equity T ier 1 Ratio 15.5% 14.1% 20.3% 22.3% T ier 1 Ratio 15.5% 14.2% 20.3% 22.3% T otal Capital R atio 17.8% 16.6% 24.6% 27.1% Europ ean b an k ing c api tal l eg is la ti on – CR D IV , i s ba s ed o n th e Ba s el III g ui de lin es . The l egi s la ti on de f in es t hr ee ca pit al ra ti os reflec tin g a dif ferent qualit y of capital : • Co mm on Eq uit y T ier 1 r at io (rat io b et ween co m mo n or CE T 1 capital and risk-weighted exposure amount or RW A), which mu s t b e at l ea s t 4.5% ; • T ie r 1 capi ta l rat io ( T ie r 1 cap ita l to RWA), wh ich m u s t b e at lea s t 6% ; an d • T ot al cap ita l ra tio (t ota l capi tal t o RWA), whi ch m us t be a t lea s t 8% . In ad dit io n to t he a for em en tio n ed ra ti os w hic h for m t h e Pill ar 1 re qu ire me nt, NLB m u s t m ee t ot he r req ui rem en t s an d reco mm e nd at io ns t h at a re im po se d by th e s up er vi so r y institutions or by the legislation: • T he P ill ar 2 Re qu ire me nt (S R EP req uir em en t): b an k-sp eci f ic , obl iga to r y req uire m en t se t by th e s up er vi so r y in s ti t ut io n th rou gh t he S R EP pro ces s (to ge th er w it h t he Pi lla r 1 req uir em en t it re pre s en t s th e m ini mu m tot al S REP ca pit al req uir em en t – TS CR); • T he a pp lica ble c om bin ed b u f f er re qu ire me nt (CB R): a sy s t em of ca pi tal b uf fe r s to be a dd ed on t op of T S CR – bre ach in g of t he C BR i s n ot a bre ac h of ca pit al re qu ire me nt, bu t tr i gge r s lim it at io ns i n th e pa ym en t of d iv ide nd s an d oth er d is tr ib ut io ns f rom c api tal . S om e of t he b u f f er s ar e pre sc r ibe d by la w for a ll ba nk s an d s om e of t h em ar e ban k- sp ec if ic , s et by t h e su pe r vis o r y ins tit u t ion (CB R an d TS CR tog et he r for m t he over all ca pi tal re qu ire me nt – O CR); • Pillar 2 Capital Guidance: capital recommenda tion set by th e s upe r vi so r y ins ti tu t ion t h rou gh t he S R EP pro ces s . It i s ban k-s pe ci fi c an d is a re com m en da t ion , a nd n ot obl iga to r y . A ny no n - co mp li anc e do es n ot af fe c t d ivi de nd s or ot he r di s tr i bu t ion s fr om cap it al; h owever , it mi gh t lea d to int en s if ie d s upe r vi sio n an d t he im p os it ion o f me as u res t o re - e s tab li s h a pr u den t leve l of cap it al ( inc l udi ng p rep ara ti on of capital restoration plan). 272 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB’s o verall capital requirement on the cons olida ted lev el The O ver all Cap ita l Re qu ire me nt (OC R) am ou nt ed to 14.25% for NL B on t he co n so lid at ed b as is , con si s t in g of : • 10.75% T SC R (8% Pill ar 1 Re qu ire me nt a nd 2.75% P ill ar 2 Req ui rem en t); a nd • 3.5% C BR (2.5% Ca pi tal Con s er vat io n bu f fer , 1% O - S II b uf fer an d 0% Coun te rc ycl ical b u f f er). Pill ar 2 G ui dan ce (P 2 G) wh ich s h ou ld b e com pr i se d en t irel y of CET 1 cap it al, r em ain s a t a rel at ive ly low l evel 1.0% . The P ill ar 2 R eq uire m en t for 2022 d ecr ea se d by 0.15 p.p. to 2.60% , a s a res u lt o f bet te r overal l SR EP as s e s sm en t. The capital adequacy of NLB and NLB Gr oup at the end of year 2021 r emains str ong in accor dance with risk appetite orient ations, at a lev el which cov ers all the current and announc ed r egulatory capital r equirements, including c apital buffers and other curr ently known r equir ements, as well as the P2G. A s at 31 D ec em be r 2021, NLB G ro up cap it al ra ti os on a con s oli da ted b as i s s ta nd a t : • 15.5% C ET 1 ra tio, • 15.5% T ie r 1 rat io, • 17.8% T ot al Capi ta l rat io. In th e s cop e of re gu la tor y r i sk s , w h ich i nc lu de c red it ri s k , op era ti on al r is k , a nd m ar ket r i sk , NLB G rou p us es a s tan d ardi s ed ap pro ac h for c red it an d m ar ket r i sk s , w hi le th e cal cu la ti on of ca pi tal re q uire me nt f or op er at ion al r i s ks is m ad e acco rdi ng to a b a sic i n dica to r app roa ch . Th e s am e app roa ch es ar e us ed f or cal cu la ti ng t h e capi ta l req uir em en t s for NL B on a s t an dal on e ba s is , excep t for t h e cal cul at io n of th e ca pit al re qu ire me nt f or op era t ion al r i sk s w h ere t he st andardise d approach is used. As at 31 December 2021, the T otal Capital R atio for NLB Group stood at 17.8% (or 1.2 p.p. higher than at the end of 2020), and SREP r equirement 2021 F rom 12 Mar ch 2020 onw ards As at 1 January till 11 Mar ch 2020 CET1 4.5% 4.5% 4.5% Pillar 1 (P1R) AT 1 1.5% 1.5% 1.5% T2 2.0% 2.0% 2.0% CET1 1.55% 1.55% 2.75% Pillar 2 (P2R) T ier 1 2.06% 2.06% 2.75% T otal Capital 2.75% 2.75% 2.75% CET1 6.05% 6.05% 7.25% T otal SREP Capital R equirement (T SCR) T ier 1 8.06% 8.06% 8.75% T otal Capital 10.75% 10.75% 10.75% Combined buffer r equirement (CBR) Conservation buffer CET1 2.5% 2.5% 2.5% O-SII buffer CET1 1.0% 1.0% 1.0% Counter cyclical buffer CET1 0.0% 0.0% 0.0% CET1 9.55% 9.55% 10.75% Over all capital r equir ement (OCR) = MDA thr eshold T ier 1 11.56% 11.56% 12.25% T otal Capital 14.25% 14.25% 14.25% Pillar 2 Guidance (P2G) CET1 1.0% 1.0% 1.0% OCR + P2G CET1 10.55% 10.55% 11.75% for NLB at 2 4.6% (or 2.5 p.p. lower than at the end of 2020). As at 31 December 2021, the CET1 r atio stood at 15.5% (1.4 p.p. higher than at the end of 2020). The higher NLB Gr oup total c apital adequacy compar ed to the end of 2020 deriv es from higher capital (incr ease of EUR 187.0 million compar ed to 31Dec ember 2020) which compensated R W A incr ease of EUR 246.4 million compar ed to 31 Dec ember 2020 for the Group. Higher R W A derives mainly fr om the incr ease of RW A for operational risk. T otal capital incr eased mainly due to inclusion of Negative goodwill in r etained earnings in the amount of EUR 137.9 million and partial inclusion of 2021 pr ofit (EUR 136.0 million). The capital calculation as at 31 Dec ember 2021 does not include part of the 2021 r esult in the amount of EUR 100.0 million. Ther efor e, there will be no effect on the capital in c ase the dividends are paid. The RW A for credit risk decr eased by EUR 17.8 million c ompar ed to 31 December 2020. On one hand, the fact ors for increase wer e loan gr owth to the c orporates and r etail, new in vestments in subor dinated, state, and EU institutions bonds. On the other hand, the incr ease was compensated b y regulat ory changes, namely the inclusion of Bosnia and Herzegovina and Macedonia on EBA ’s thir d par ty equivalent list, legislation criteria changes for the CRR collat eral adequacy, signing of agr eements with MIGA as well as changed inv estment policy such as the shift of some liquid assets from the c entral gov ernments to lower risk w eighted counterparties (NLB Banka, Prishtina, NLB Bank a, P odgorica) or optimisation of deposits with banks (K omercijalna bank a, Beogr ad). Furthermor e, succ essful rec overy of NPL clients, where the biggest part r epr esented repayments b y a large client, c ontributed to the RW A decrease, while in c ontrast, the R W A for high-risk exposur es is higher mainly due to new pr oject finance loans. The R W A f or m ar ket r is k d ecr ea se d by EUR 32.6 m ill ion com pa red t o 31 De cem be r 2020 du e to t he l ower f ixed inc om e po si ti on in t h e tra din g b ook . An d yet, RWA for FX r i s k inc re as ed by EU R 35.3 mil lio n com pa red t o 31 De cem b er 2020, an d RWA for CVA incr ea se d by EUR 10.7 m illi on – of w h ich EUR 10.6 m illi on a s a res ul t of n ew re gu la tor y re qu ire me nt s wh ich b eca m e ef fec tive f rom J u ne 2021 o nward (calc ula t ion of or ig in al exp os ur e me th od (OE M) w it h res id ua l ma t ur i t y). The i nc re as e in t he R W A fo r op era t in g ri s k s (EUR 296.7 milli on com pa red t o 31 De cem be r 2020) de ri ves f rom t h e hig he r th ree -year a verag e of re levan t in com e, a s de f in ed in A r ti cl e 316 of CR R , w hic h rep re se nt s t h e ba si s for t h e cal cu la tio n . The m a in re as on fo r in cre as ed r el evant in co me wa s t he acq ui si ti on of Kom erc ija ln a ban ka B eo gra d in 2020. 273 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The most important goal of internal capital adequacy assessment pr ocess (ICAAP) in NLB Gr oup, set up in accor danc e with ECB Guidelines, is ensuring adequate capit al and sustainability on an ongoing basis. The purpose of this pr ocess is to hav e in place sound, effective, and c omprehensiv e strat egies and proc esses to assess and maintain c apital on an ongoing basis, as well the adequate distribution of internal capit al for cov ering the nature and lev el of the risks to which NLB Gr oup is or might be exposed. In addition, NLB Gr oup gives str ong emphasis on its integr ation into the ov erall risk management sy stem in order t o assure pr oactive support for informed decision-making. F ro m an e con om ic p er s pe c t ive, N LB G rou p ma na ge s it s capi tal a de qu ac y by e ns u ri ng t h at a ll it s r i sk s a re ad eq ua te ly covered by i nt er n al cap ita l. A n o rm a ti ve pe rs p ec ti ve is a mu lt iye ar fo r ward -l oo kin g a s se s s me nt o f NLB G ro up wh ic h sh ows i t s abi li t y t o f ulf i l all o f it s ca pit al - rel at ed re gu la tor y an d su pe r vis or y r eq uire m en t s an d ri s k app et it e of NL B F ee income fr om issued non-financial guar antees amounted to EUR 7,578 thousand (2020: EUR 4,910 thousand) in NLB Gr oup, and to EUR 4,547 thousand (2020: EUR 4,397 thousand) in NLB. In ad dit io n to t he in s t r u me nt s p re se nt ed in t h e tab le ab ove, NLB G rou p an d NLB h ave a ls o so m e low- r is k of f-b al an ce sh ee t it em s , for w h ich 0% c red it co nver s ion f ac t or i s app lie d in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Short-term guar antees 258,975 222,440 112,758 122,136 - financial 139,732 119,309 63,188 61,322 - non-financial 119,243 103,131 49,570 60,814 Long-term guar antees 977,759 904,002 614,343 567,532 - financial 393,901 359,787 226,7 47 196,681 - non-financial 583,858 544,215 387,59 6 370,851 Loan commitments 1,8 78,988 1,816,441 1,259,489 1,306,791 Letters of cr edit 35,615 21,794 1,950 2,256 Other 13,167 10,293 1,037 5,865 3,164,504 2,97 4,970 1,989,577 2,004,580 Pr ovisions (note 5.16.b) (33,441) (42,17 4) (20,560) (28,543) T otal 3,131,063 2,932,796 1,96 9,017 1,976,037 in acc ord an ce wi th t h e Capi tal R eq ui rem en t s Re g ula t ion (credi t an d ot he r lin es w hi ch can b e ir revo cab ly ca nce ll ed by a ban k). A s at 31 D ece mb er 2021 t h es e it em s at t h e NLB G rou p level am o un t to EUR 372,403 t h ou s an d (31 D ec em ber 2020: EUR 307,093 th ou s an d) , an d at t h e NLB leve l EUR 302,063 th ou s an d (31 D ec em be r 2020: EUR 236,542 t ho u sa nd ). 5.23. Of f-bal ance sh eet liabili ties a) Contr actual amounts of off-balance sheet financial instruments Gro up . Wi t hin t h es e cap ita l con s t rai nt s , NLB G rou p def i ne s it s ma na gem e nt b uf fe rs i n th e R is k ap pe ti te ab ove th e re gul at or y an d su pe r vis or y r eq uire m en t an d int er n al ca pit al n ee ds t ha t allow i t to s u s tai na bl y fol low it s b u si ne s s s t rat eg y. A norm a ti ve per s p ec tive i nc lu de s sever al s t res s sce na ri os w hic h are int eg rat ed in to N LB G rou p’s annu al b us in es s p la n revi ew an d budgeting process. 2 74 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Analysi s of deriv a tive financial instr ument s by n otional amount s The notion al amount s of derivative finan cial ins tr umen ts th at qu ali f y f or h edg e acc ou nt in g at N LB G rou p an d NLB am o un t to EUR 572,455 t ho u sa nd ( 31 D ece mb er 2020: EU R 573,753 th ou s an d) (not e 5.5.b). Der i vat ives t h at q u ali f y fo r h edg e acco un ti ng a re us e d to he dg e in ter es t r ate r i s k . in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Capital c ommitments for purchase of: - pr operty and equipment 1,6 96 2,433 1,623 2,429 - intangible assets 4,243 9,566 4,094 9,403 T otal 5,939 11,999 5,717 11,832 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Short-term Long-term Short-term Long-term Shor t-term Long-term Short-term Long-term Swaps 99,349 1,284,832 99,420 1,425,765 109,137 1,284,832 78,413 1,425,7 65 - curr ency swaps 99,349 16,844 99,420 6,068 109,137 16,844 78,413 6,068 - inter est rate s waps - 1,267,988 - 1,419,697 - 1,267,988 - 1,419,697 Options 9,880 30,9 45 12,811 27,000 9,880 30,9 45 12,811 27,000 - inter est rate options - 30,9 45 - 27,000 - 30,945 - 27,000 - securities options 9,880 - 12,811 - 9,880 - 12,811 - F orwar d contr acts 38,825 26,921 91,309 41,423 37,511 26,921 93,846 41,423 - curr ency forwar d 38,825 26,921 91,309 41,423 37,511 26,921 93,846 41,423 T otal 148,054 1,342,698 203,540 1,494,188 156,528 1,342,698 185,070 1,49 4,188 1,490,752 1,697,728 1,499,226 1,679,258 The fair values of derivative financial ins tr um ent s are dis c los ed i n no tes 5.2. a nd 5.5. c) Capital commitm ent s 275 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 5.24. F und s mana ged on beh alf of t hird par ties Funds m an ag ed o n be ha lf o f th ird p ar t ies a re acc ou nt ed se par at ely f rom N LB G rou p’s fun ds . Inco m e an d expe n se s ar is in g wi th r es pe c t t o th es e f un ds a re ch ar ge d to th e Fiduciar y ac tivi ties in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Fiduciary activities 26,165,580 25,713,799 24,806,89 4 24,466,910 Settlement and other services 1,079,500 971,600 977,197 907,132 T otal 27,245,080 26,685,399 25,784,091 25,37 4,042 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Assets Clearing or tr ansaction account claims for client assets 26,071,589 25,633,706 24,7 41,052 24,396,203 - fr om financial instruments 26,024,700 25,630,244 24,6 94,275 24,392,773 - r eceipt, pr ocessing, and ex ecution of order s 10,085,409 9,19 4,539 9,346,002 8,502,331 - management of financial instruments port folio 588,7 61 528,206 - - - custody services 15,350,530 15,907,499 15,348,273 15,890,442 - to Centr al Securities Clearing Corpor ation or bank settlement account for sold financial instrument 180 49 68 17 - to other settlement systems and institutions for bought financial instrument (debtors) 46,709 3,413 46,709 3,413 Clients' money 9 4,934 80,09 4 65,842 70,707 - at settlement account for client assets 75,151 42,029 46,059 32,642 - at bank tr ansaction accounts 19,783 38,065 19,783 38,065 Liabilities Clearing or tr ansaction liabilities for client assets 26,165,580 25,713,799 24,806,89 4 24,466,910 - to client fr om cash and financial instruments 26,129,503 25,707,581 24,797,057 2 4,461,033 - r eceipt, pr ocessing, and ex ecution of order s 10,110,124 9,230,406 9,371,707 8,538,198 - management of financial instruments port folio 591,772 537,283 - - - custody services 15,427,60 7 15,939,892 15,425,350 15,922,835 - to Centr al Securities Clearing Corpor ation or bank settlement account for bought financial instrument 3,865 72 134 72 - to other settlement systems and institutions for bought financial instrument (cr editors) 31,825 5,755 9,316 5,414 - to bank or settlement bank account for f ees and costs, etc. 3 87 391 387 391 res pe c t ive f u nd , an d n o lia bili t y fall s on N LB Gr ou p in con ne c t io n wi th t h es e tra n sa c t ion s . N LB G rou p ch arg es f ees for i t s se r vice s . Funds managed on behalf of third par ties 2 76 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fee inco me f or f un ds m an ag ed on b eh al f of t hi rd par ti es Ri sk m a na gem e nt f un c tio n ac ts a s a s eco nd l in e of de fen ce . Set gov er nan ce and different r isk man agement tools enable ade qu at e over s igh t of t he G ro up’s ri sk p rof il e. M ore over , th ey s upp or t b us in es s o pe ra tio n s an d en abl e ef fi cie nt r i s k ma na gem e nt by in co rp or at in g es cal at io n pro ced ure s an d dif fer en t mi ti ga tio n m ea su res w h en n ece s sa r y . a) R isk managem ent strate gies and pr o cesses The key go al o f NLB G rou p’s Ris k M an age me nt i s to pro ac t ive ly m an ag e, as ses s , and m o ni tor r i sk s w it hi n th e Gro up . So un d an d h oli s t ic un d er s ta n din g of r is k m an ag em en t is em b edd ed i nt o th e en ti re or gan is a tio n , foc u si ng o n ri s k ide nt if ic at ion a t a ver y e ar ly s t ag e, ef fi cie nt r i sk m a na gem e nt, an d mi tig a tio n of t he m wi th t h e aim o f en s ur in g th e pr ude nt use of its capital and adeq uate liquidit y str uc ture to suppor t th e f in an cia l res il ien ce of t h e G rou p. Key st rat eg ic r is k m an ag em en t pr in ci ple s of N LB Gr oup a re def in e d by it s R is k A ppe ti te a nd R i sk S tr at egy, des ign ed i n acco rda nc e wit h t he G ro up’s bus in es s mo del , in te gra ti ng for ward - lo ok in g per s p ec ti ve. Th e St ra teg y of N LB Gr oup, th e Ri s k Ap pe ti te, R i sk S tr at egy, and t h e key inte r na l pol ici es of NLB G ro up – w hic h are a pp roved by th e M an age m en t an d Su pe r vis or y B o ard s – sp ec if y th e s t ra te gic go al s , r is k appetite guidelines, approaches, and methodologies for mo ni tor in g , me as u r ing , an d m an ag in g all t yp es of r i s k in ord er to m e et in te r na l s tr at egi c obj ec ti ves an d f ul fi l all ex te rn a l req uir em en t s . Th e m ain s tra te gic r i sk g ui de lin es a re comprehensively integrated into decision -making , including th e bu s in es s p lan r eview an d b ud get in g pro ce s s . NLB G rou p pl an s a pr u de nt r i sk p rof il e an d op tim a l capi ta l us ag e, rep res en t in g an im po r tan t el em en t of i t s bu s in es s s tr at eg y an d rel at ed m id -t er m f in an cia l tar get s . Th e ma na gem e nt o f cre dit r i s k , wh ich i s t he m os t imp or ta nt r i sk cat eg or y in NLB G ro up, co nc en tra te s on t aki ng m o der at e ri s k s – a dive rs i f ied c red it p or t foli o, ad eq ua te c red it p or t folio qu ali t y, the s u s t ain ab le co s t s of r i sk , and e ns u r ing a n opt im al ret ur n co n si der i ng t he r i s ks a s s um ed . A s r eg ard s liq ui dit y r is k , th e tol era nc e is l ow , w hi le t he a c t iv it ie s are g eare d toward s en su r in g an ad eq ua te l iqu idi t y pos it io n on an o ng oin g b as is . The G ro up l imi te d exp os ure t o cre di t sp rea d r is k , ar i si ng fro m th e val ua tio n r is k of d ebt s e cu ri t ies p or t foli o se r vic in g as li qu idi t y res er ves , to m o der at e level . Th e f un da me nt al or ien ta t ion i n th e m an age m en t of in te res t r at e r is k is t o lim it u nexp ec te d ne ga ti ve ef fec t s on reven u es an d cap it al , th ere fore , a mo de rat e to ler an ce for t hi s r is k i s s ta te d. W h en assuming ope rational risk, the Group pursues the orientation th at s u ch a r i sk m u s t n ot s ign if ic ant ly i mp ac t it s o pe rat io ns . On this basis , changes of c ont rol activities , processes , and/ or or gan is a tio n are p er fo rm e d. B e si de s th e G rou p als o focuses on proa c tive miti gation, pre venti on , and minimisation of po ten t ial d am age . Th e con cl u si on of t ran s ac tio ns w it h der i vat ive f in an cia l in s t r um en t s a t NLB i s pr im ar il y lim i ted t o se r vici ng c us tom er s a nd h ed gin g B an k ’s own po si t ion s . In th e are a of c ur re nc y r i sk , NLB G rou p pu r su es t h e goa ls o f low to mo de ra te exp os ure . Th e tol era nc e for ot h er r is k t yp es i s low an d foc u se s on m in imi s in g th eir p os s ib le im p ac ts o n NLB Group ’s entire operations. Enviro nm en ta l, s oc ial , an d gover n an ce (E SG) r i sk s d o no t rep res en t a new r i s k cat eg or y , b u t rat h er an a ggr ava tin g fac tor fo r th e t yp es of r i sk s , not l ea s t cr edi t an d op era t ion al ri s k . Th e G rou p int eg rat es a nd m an ag es t h em wi t hin t h e es tablished r isk man agement framework . The managemen t of ES G r is k s fo llow s ECB and EBA g uid el in es wi t h th e ten de nc y to com pr eh en si vely i nt egr at e th em i nto a ll re levan t pro ces s es . The a vail abi lit y of E SG d at a in t he r egi on w he re NLB G rou p op era te s is s t il l lac ki ng . Neve r th el es s , t he G ro up s tr i ves to o bta in re levan t cli en t s’ da ta a s pr ere qui s it e for adequate decision- making and the corresponding proactive ma na gem e nt o f ES G ri s k s . Ri sk m a na gem e nt fo cu s es o n ma na gin g an d m it iga ti ng r i sk s in lin e w it h th e G rou p’s Ris k Ap pe ti te an d R is k S tra te gy. Wi th in th es e fr am ewor k s , th e G ro up m oni to r s a ran ge of r i s k me tr ic s , inc l udi ng in te r na l cap ita l all oca t ion , in o rde r to a s s ure G ro up’s ri s k pro fi le i s in li ne w it h it s r i s k app et it e. Th e us ag e of r i sk lim it s a nd p ote nt ia l devi at io ns f rom l im it s an d ta rge t val ues are re gu lar l y rep or te d to t he r es pe c t ive co mm i t t ee s an d/ or the Man agemen t Board of the Bank . The bank ing subs idiaries wi th in NLB G ro up a dap te d a cor re sp on di ng ap pro ac h to mo ni tor a nd m an ag e th ei r tar get r i s k prof i le s . in EUR thousands NLB Gr oup NLB 2021 2020 2021 2020 Fiduciary activities (note 4.3.b) 11,385 9,812 8,911 8,494 Settlement and other services 1,56 7 925 1,552 864 T otal 12,952 10,737 10,463 9,358 6. R isk manag emen t Ri sk m a na gem e nt in N LB G rou p is im p lem en te d in a ccor dan ce wi th t he s et s tra te gic g ui del in es , e s ta bli s he d in ter n al p oli cie s , an d pro ced ure s wh ic h take in to ac cou nt Eu rop ean b an ki ng reg ul at ion s , t h e reg ul at ion s a dop te d by th e B an k of S loven ia, th e cu r ren t EBA g uid eli ne s , an d re levan t goo d b ank in g pra c t ice s . In a ddi ti on , t he G ro up i s con s ta nt ly e nh an c ing a nd complementing the existing approaches, meth odologies, and pro ces s es i n all r i sk m an ag em en t s egm e nt s w it h t he ai m to proact ively s uppor t decision-making . Managing risks and capital efficiently is crucial for NLB Gr oup sustained long-term pr ofitable operations. R obust Risk Management fr amework is c omprehensiv ely integr ated into decision-making, steering, and mitigation pr ocesses within the Gr oup. NLB Group giv es high importance to the risk cultur e and awar eness of all r elevant risk s within the entire Gr oup. NLB G rou p’s Ris k m an age me nt f ra mewor k s u ppo r t s bu si ne s s de ci si on - m ak ing o n s t ra teg ic an d op era t in g level s , comprehens ive steerin g, proac tive risk man agement, and mitigati on by incorporating : • r isk appet ite statem ent and ris k st rategy orienta tions; • ye ar ly rev iew of s tra te gic b us in e s s goa ls , b u dge ti ng , an d capital planning proces s; • i nt er n al cap it al ad eq ua c y as s es s m en t pro ce s s (IC A AP) an d intern al liquidit y adeq uac y ass es smen t process (IL A AP); • recove r y plan activities; • ot her inter nal s tres s-tes t ing capabilities , earl y warning sys tem s , and regular ris k analysi s; • reg ulator y and inter nal manag ement repor ting. NLB G rou p us es t h e ‘ t h ree l in es of d efe nc e fra mewo rk ’ as an impor tant element of its inter nal gov er nan ce, whereby t he 277 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB Gr oup established a compr ehensive str ess-testing fr amew ork and other early warning syst ems in dif fer ent risk areas with the intention to str engthen the existing int ernal contr ols and timely r esponse when necessary. R obust and uniform stress-testing pr ogr amme includes all material types of risk and rele vant str ess scenario analysis, ac cor ding to the vulner ability of the Gr oup’s business model. In 2021, the Gr oup established own ESG str ess testing conc ept to identify most r elevant financial vulner abilities stemming fr om climate risk. Str ess-testing is integr ated into the risk appetite, ICAAP , ILA AP , Rec overy Plan, and budgeting pr ocess t o support pr oactive management of the Gr oup’s risk profile, namely the capital and liquidity positions in a f orwar d-looking perspective. In addition, the Gr oup also performs re verse str ess tests with the aim to test its maximum r eco very capacity. Other partial risk assessments ar e cov er ed by other risk analysis, based on r elevant risk par ameters, and integr ated into the pr ocess of setting a risk management limit system. For th e pu rp os e of a n ef fi cie nt r i sk m it ig at io n pro ces s , NLB G rou p app li es a s in gle s et o f s ta nd ard s to re tai l an d corp orate lo an collate ral, repres ent ing a se conda r y s ource of rep ay m en t wi th t h e aim of e f f i cie nt c red it r i sk m an a gem en t an d opt im al ca pi tal co n su mp ti on . Th e G ro up h as a s y s te m for m on ito r in g an d rep or t ing c oll at era l at f air (ma rket) va lu e in a ccorda nce with the International V aluation St andards (IVS). T he e lig ibil it y of co ll ate ral , by t ype s an d ra ti os ref er r in g to pr u de nt l en din g cr i ter i a, i s s et wi th in i nt er n al le nd in g gui de lin es . Credi t r is k m it iga t ion p r in cip le s an d r ul es in N LB Gro up a re de sc r ibe d in m or e rel evant d eta ils i n th e s ec tio n ‘Cre dit r i sk m a na gem e nt.’ When h e dgin g m ar ket r is k s , n am el y int ere s t ra te r i sk a nd f ore ign exch an ge r i sk , i n lin e wi t h th e s et ri s k app et it e, NLB G ro up fo llow s th e pr i nc ipl e of n a tu ral h ed ge or us in g de r iva ti ves in li ne w it h h edg e acc ou nt in g pr in ci pl es . b) Ri sk managemen t str uc ture and organisation NLB G rou p’s corp ora te g over na nce f ra mewor k i s ba s ed on t he p ri nc ip les o f so un d an d re s pon s ib le gover n an ce, i n acco rda nc e wit h t he a pp lica bl e leg is la t ion o f th e Re pu bl ic of S loveni a, p ar t ic ula r ly t he p rovi si on s of t he Co mp an ies A c t (ZGD - 1) an d th e B an ki ng Ac t (ZB an - 3), R eg ul at io n on In te rn al Gover n an ce A rr an gem en t s , t h e Ma na ge me nt B o dy, and th e Int er n al Cap ita l Ade qu ac y A s se s sm e nt Pr oce s s for B a nk s an d Sa vin g s Ba nk s , th e EBA G uid eli ne s on in te r na l gover n an ce, th e EBA G ui del in es on t h e as s es s m en t of t h e su it abi lit y of me mb er s o f th e m an age m ent b od y, and key fun c tio n ho ld er s , as wel l as t he EB A Gu id eli ne s on re mu ne ra ti on pr ac t ic es . Sever al la yer s of m an ag em en t prov id e coh es ive r i sk managem ent governance in NLB G roup. NLB G rou p es t ab lis h ed t hr ee li ne s of a d efe nce f ra mewor k wi th t he a im of m an ag in g r is k s ef fec ti vely. The t hr ee li ne s of def en ce con ce pt pr ovid es a c lea r div is io n of a c t iv it ies a nd def in e s role s an d re sp on s ibi lit ie s for r i sk m an a gem en t a t dif fer en t level s wi th in t he G ro up. R i sk m an ag em en t in t h e Gro up a c t s a s a se co nd l in e of de fen ce, a cco un tab le fo r app rop ri at e m an agin g , as s es sin g , mo ni tor in g , an d rep or t in g of r is k s in t he B a nk a s th e m ain e nt i t y i n Sl oveni a, a nd a s th e com pe ten ce ce nt re i n ch arg e of s even ba nk in g m em ber s a n d oth er n on - core s u bs idi ar ie s wh ich a re in a co nt ro lle d wi nd - out. Over all , th e or gan is a ti on an d de lin ea t ion o f com p ete nc ies in NLB G ro up’s ris k m an ag em en t s t r uc t ure i s de si gne d to preven t co nf lic t s of in te res t an d en s ure a t ran s pa ren t an d doc um en te d de ci si on - m ak ing p roc es s , s u bje c t t o an app rop ri at e upward a nd d ownwar d fl ow of in for m at io n . Ri sk m a na gem e nt in N LB G rou p is m an ag ed w it hi n th e Ri sk m a na gem e nt co mp et en ce li ne, w hi ch i s a sp ec ial is ed com pe ten ce l in e en com pa s s ing s evera l pro fes s io na l are as for w hic h th e G lo ba l Ri sk D ep ar t m en t, th e Cred it R is k – Cor po rat e De pa r tm en t, th e Cre dit R i sk – R et ail D ep ar tm e nt and the E valuation and C ontrol Depa r tment ar e responsibl e wi th in NLB , and w hi ch re po r t s to th e A s s et s a n d Lia bili t ies Comm i t t ee (A LCO ) o f th e M an age m ent B o ard a nd t h e Ri s k Comm i t t ee o f th e S up er vi so r y Bo ard . Th e r is k m an ag em en t com pe ten ce l in e is in c h arg e of for m ul at in g an d co nt rol lin g th e r is k m an age m en t pol ici es of N LB G rou p, se t tin g lim i t s , es t abl is hi ng m et h od olo gie s , over s eei ng t h e ha r mo ni sa t ion o f ri s k ma na ge me nt p ol icie s wi th in t h e NLB G ro up, mo ni to ri ng NLB G rou p’s ris k exp os ure s , an d p rep ar in g ex te r na l an d intern al repor t s . All m em b er s of N LB G rou p th a t are in c lu ded i n th e f in an ci al s ta tem e nt s o f NLB G ro up, rep or t t he ir exp os ur e to r is k s to t he com pe ten t or gan is a ti on al un it s w it h in th e R is k m an ag em en t com pe ten ce l in e. Th es e or gan is a tio n al un it s t h en re por t all re levan t r is k in for m a tio n to t he A ss et s a n d Lia bili t ies Comm i t t ee (A LCO ) o f th e M an age m ent B o ard a nd t h e Ri s k Comm i t t ee o f th e S up er vi so r y Bo ard , w hic h is w he re t he Ma na gem e nt B oa rd an d t he S up er v is or y B oa rd, a do pt appropriate measures . The c re dit r at in gs o f cli en t s th a t are m a ter i all y imp or t an t to NLB G ro up an d t he i s s uin g of c red it r i sk o pin io ns a re cen tr ali se d vi a th e Cre dit Co mm it te e of N LB . Th e pr oce s s foll ows t he c o - d eci s ion p r in cip le, i n wh ich t h e cre di t com mi t tee o f th e re sp ec ti ve Gro up m em b er f ir s t a pp roves th eir d ec is ion , f oll owin g wh ic h th e Cre di t Comm i t t ee o f NLB give s th eir o pin io n . Th e res ol u tio n of t he C red it Com m it te e of NLB i s m ade o n th e b as is o f all a vail abl e do cu me nt at io n, inc l udi ng a n on - bi nd in g ra tin g op in ion p rep are d by th e un der w ri t ing d ep ar t me nt o f NLB . T hi s s am e pr in cip le a nd pro ces s i s se t al so fo r th e i s s uin g of c red it exp os ur es fo r th e mater ially impor tant client s of NLB Group. Ri sk m o ni tor in g in N LB Gr ou p me mb er s i s op era ti ng w it hi n an in de pe nd en t an d/ or s ep ar ate o rg ani s at ion al u ni t. Thi s way, moni tor in g of r i s k s is es tab lis h ed b as e d on s t an dar dis ed an d sy s t em ic r is k m an ag em en t app roa ch es . Thi s mo ni tor i ng en abl es a co mp reh e ns ive over vi ew of t he G ro up’s and o f eac h me mb er ’s s ta te m en t of f in an ci al po si ti on . In c om pli an ce wi th th e r is k ap pe ti te, r i sk m an ag em en t s t ra te gy an d p olic ie s of NLB G rou p, r is k mo ni to ri ng i n eac h NLB G ro up m em be r is se par at ed f rom i t s ma na ge me nt a nd / or b us in es s f u nc tio n to ma int ain t h e obj ec ti vi t y r eq uire d wh en a s s es s in g bu s in es s dec is io ns . The o rga ni sa t ion al u ni t for m an ag in g r is k s dir ec tly rep or t s to t he M an a gem en t B oa rd an d it s com mi t tee s (Credi t Comm i t t ee, A LCO and th e O per at io na l Ri s k Comm i t t ee), wh ic h rep or t to t he S u per v is or y B oa rd (th e R is k Com m it te e of t he Su pe r vis or y B o ard or B o ard o f Dir ec tor s). c) R isk meas urement and reportin g system s A s a s ys t em ic b an kin g gro up, N LB Gr ou p is s ub jec t to t he Sin gl e S upe r vi so r y Me ch an is m (S S M), w hi ch is s u pe r vis e d by th e Jo int S u pe r vis or y T ea m (JS T ) of th e ECB and t h e Ba nk o f Sl oveni a. T he G ro up m em be r com p lie s wi th t h e ECB regulat ion, while NLB Group subs idiaries opera ting out s ide Sl ovenia a re al so c om pli an t wi th t h e r ul es s et by t he l oca l reg ul ato r s . A t hir d- p ar t y eq uiva len t was a pp roved in S er bi a, Bo sn ia a nd H er zegovi na , an d No r th M ac edo ni a, r es ul ti ng i n alig nm en t of l oca l reg ul at io n wi th CR R r u le s . W it h re gar ds to capi tal a de qu ac y, bas ed o n th e prov is io ns o f th e D ire c t ive (CRD), D ec is ion (CR R), N LB G rou p app li es a s t an dar dis e d app roa ch to c red it a nd m ar ket r i sk , a n d th e ba s ic ap pro ach (a simp li f ied a ppr oac h wi t h les s d at a gra nu la ri t y) to ope ra tio n al r is k s , w it h th e excep tio n of NL B wh ich a pp lie s th e st andardise d approach. Acro s s th e G rou p, ri s k s are a s se s s ed , mo ni tor ed , m an age d, or m it iga te d in a un ifo r m m ann er , a s de f ine d in t h e Gro up’s Ri sk m a na gem e nt s t an da rds , c on si de ri ng a ls o th e s pe ci f ic s of th e m ar ket s in w hi ch in d ivi du al NL B Gro up m em b er s ope ra te. For t he p ur p os es o f me as u ri ng ex pos u re to c red it ri s k , liq ui dit y r is k , i nt ere s t ra te, a nd c red it s pr ead r i s k in th e ba nk in g bo ok , o per at io na l ri s k , m ar ket r is k , an d n on - 278 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report fi na nc ial r i s ks , in ad dit io n to th e p res cr ib ed r eg ul at ion s , N LB Gro up u s es in te rn al m e th od ol ogi es an d ap pro ac he s th a t en abl e mo re d eta ile d mo ni tor i ng a nd m an ag em en t of r i sk s . The s e int er n al m et ho do lo gie s are a lign ed w it h ECB , EBA , an d Ba s el g uid eli ne s , as we ll a s be s t pr ac t ice s in b an ki ng meth odologies . A s for r i sk r ep or ti ng , NLB G ro up’s int er n al gu id eli ne s ref le c t, in ad dit io n to in te rn al r eq uir em en t s , t he s ub s t anc e an d fre qu en c y of r epo r ti ng re qu ire d by th e B an k of S loven ia an d th e ECB. I n ad dit io n , eac h m em be r of NLB G ro up al s o com pl ies w it h t he re qu ire me nt s o f it s l oca l reg ul at io ns . Ri sk r ep or ti ng i s car r ie d ou t in t h e for m of s tan da rdi se d rep or t s , p ur s ua nt t o ri s k ma na ge me nt p ol ici es b as ed o n com mo n m et ho do log ies f or m ea s ur in g exp os ure t o ri s k s , uni for m d at aba s e s t r uc tu re wi t hin D a ta Wareho u se (DWH), com pre he n si ve da ta qu al it y as s ur an ce, an d a ut om at ed rep or t pre pa ra tio n , wh ich e n su res t h e qu ali t y of rep or t s a nd red uce s th e p os s ibi lit y of e r ror s . d) Da t a an d IT sys t em Ri sk d a ta are c alc ul at ed an d s t ore d in NLB G ro up DWH , coll ec ted f rom N LB an d ot h er G rou p me mb er ’s D WH . T he es t abl is h ed pr oce s s prov ide s an in te gra te d in for m at io n in com m on re fer en ce s t r uc t ure w he re b us in es s u se r s can acce s s in a co ns i s te nt a nd s u bje c t- o ri en te d for m at. D at a are reg ul ar ly c he cked a nd val id ate d . Da ta u se d for i nt er n al r is k as s es s m en t, ma na gem e nt, an d rep or t in g are t he s am e a s da ta wh ic h NLB G ro up us e s for re gu la tor y re po r tin g . e) Main e mp ha si s of r is k m ana ge me nt i n 2021 Eff icient man aging of risk s and capital remains cr ucial for NL B Gro up t o s us t ain l on g- te r m prof i ta ble o pe ra tio ns . The G ro up f u r th er en h an ced t h e rob us tn es s o f it s r is k ma na gem e nt s y s te m in al l res pe c t ive r i sk c at ego r ies i n order to man age them proactively , comprehensively , an d pr u den t ly. Ris k id en ti f ica tio n in a ver y e ar ly s t ag e, it s ef f ici en t ma na gin g , an d th e co rr es po nd in g mi ti ga tio n pro ces s es r epr es en t es s en ti al s t eps i n s uc h a sy s t em . Th e bu si ne s s an d op era t ing e nvi ron m en t rel evant fo r NLB G ro up ope ra tio n s is c ha ng ing w it h t ren ds , su ch a s: c ha ng in g cu s to me r be ha vi ou rs , em ergi ng n ew te ch no lo gie s an d com pe ti tor s , su s ta in abl e f in an cin g , ac tive ly co nt r ib ut in g to a mo re ba lan ce d an d in cl us ive e con om ic a nd s oc ial s y s t em , an d inc re as in g new re g ula to r y req uire m en t s . Re s pe c t f ull y , th e r is k m an age m en t fra mewo rk i s re gu lar l y ada pte d wi th t he a im of d ete c t in g an d m an agi ng n ew po ten t ial em erg ingr i s k s . The N LB G rou p give s s pe cia l foc us o n th e in c lu si on of r i sk an aly si s in to t he d ec is ion -m ak in g pro ces s o n s t ra teg ic an d ope ra ti ng l evels , d iver s if ic at io n in ord er t o avoid a l arg e concentra tion, optim al usage of inter nal capital, appropria te ri s k-a dju s t ed p ri cin g , reg ul ar ed u cat io n/t rai ni ng s at a ll level s of m an age m en t, and t h e as s ur an ce of overa ll co mp lia nce w it h intern al policies/rules and relevant r e gulation s . CO VID-19 did not have a meaningful impact on the quality of the cr edit port folio. NLB Gr oup is compliant with EBA guidelines on payment mor atoria and is very prudent in identifying any incr ease in credit risk. The vast schemes intr oduced by the gov ernments in the Group c ountries pro viding moratoriums to eligible clients as part of the CO VID-19 pandemic measures had been phasing out during the 2021. Though CO VID-19 coupled with its implic ations on the business environment the Gr oup faced gr owing e xc ess liquidity and managed to stay well capitalised. Besides, the Gr oup has tak en necessary measur es to pr otect its customers and employ ees by ensuring the r elevant safety conditions and making sur e that the services offer ed by the Gr oup are pr ovided without any disruption. NLB G rou p is e ng age d in co nt r ib ut in g to s u s ta in abl e f in an ce by inc or po rat in g env iro nm en ta l, s oc ial , an d gover n an ce (ESG ) ri s k s in to it s b u si ne s s s t rat eg ies , r i s k ma na ge me nt fra mewor k , a nd i nt er n al gover n an ce ar r ang em en t s . W i th t h e ado pt ion o f th e NLB G ro up S u s ta in abil it y pro gra mm e, N LB Gro up i mp le me nt ed s u s tai na bil it y el em en t s in to it s b u si ne s s mo de l. T hu s , s u s tai na bl e f in an ce in teg ra tes E SG c r it er ia in to th e G rou p’s bus ine s s an d inve s tm e nt d eci s ion s fo r th e la s t in g ben ef i t of t he G ro up’s clie nt s a nd s o cie t y . Th e NL B Gro up Su s t ain abi li t y Co mm it te e over s ees t h e in teg ra tio n of t h e ES G fac tor s to t h e NLB G ro up b us in es s m od el . Th e m an age m en t of ES G r is k s ad dre s s es t he N LB Gr oup’s overall c red it appro val process and related credit por t folio m anagement. It fo llow s ECB and EBA g ui del in es w it h a ten d en c y of t he ir com pre he n si ve int eg rat io n int o all r elevan t pr oce s se s . Th e avail abi li t y o f ES G da ta in t h e reg ion w h ere NL B Gro up ope ra tes i s s t ill l ac ki ng , neve r th el es s , t he N LB G rou p s t ri ves to obt ain r el evant c lie nt s’ d a ta as p rer eq ui si te fo r ad eq ua te dec is io n - ma kin g . In ad di tio n , th e NL B Gro up c aref u lly con s ide r s pot en ti al rep u ta ti on an d li abi lit y r is k s w hic h co uld ar is e fr om s us tain ab le f in an c ing o f it s c lie nt s . 6.1. Credit risk m anagemen t a) Int rod uc t ion In it s o pe rat io ns , NLB G rou p is exp os ed t o cre di t ri s k , or th e r is k of l os s es d ue to t h e fai lu re of a d ebt or to s et tl e it s liab ili ti es to N LB G rou p. For th a t re as on , i t pro ac tive ly an d com pre he n si vely m on it or s an d a s se s s es t he a for em en ti on ed ri s k . In t ha t pr oce s s , NLB G ro up fo llow s th e In te rn a ti on al Fin an ci al Re po r ti ng S tan da rds , reg ula t ion s is su ed by t he Europ ean Ce nt ra l Ba nk o r B an k of S loven ia , an d th e EBA gui de lin es . Thi s are a is g overn e d in gre at er d eta il by th e int er n al m et ho do lo gie s an d pro ced ur es s et o ut i n int er n al ac ts . Thr ou gh re gu lar rev iew s of t he b us in es s p ra c t ice s an d th e cre dit p or t fol ios o f NLB en t it ies , NLB en s ure s th a t th e cr edi t ri s k ma na ge me nt o f th os e en t it ies f u nc tio n in a ccor dan ce wi th NL B Gro up’s ri s k ma na gem e nt s tan dar ds to e na bl e meaningfully uniform procedures at th e consolidated lev el. NLB G rou p m an age s cre di t r is k at t wo level s : • A t th e leve l of th e in di vi du al c us tom er /group of c u s tom e r s app rop ri at e pro ced ur es ar e foll owed in var i ou s ph as e s of th e rel at io ns h ip wi t h a cu s to me r pr io r to, d ur in g , an d af ter th e con c lu si on of a n agr eem e nt. Pr io r to co nc lu din g an agre em en t, a cu s to m er ’s per fo r ma nc e, f in an cia l pos i ti on , an d pa s t co op era ti on wi t h NLB ar e as s es s ed . T o obj ec ti vely as s es s a c lie nt ’s op era ti on , in te rn al s co r ing m o del s fo r par t ic ula r cl ien t s egm en t s o r pro du c t t yp es h ave b ee n develo pe d . It i s als o im p or tan t to s ec ur e hig h - q ua lit y coll at era l even th o ugh i t do es n ot a f f ec t a cu s to me r ’s cred it rat in g. T hi s is f oll owed by var io us fo r ms o f mo ni tor i ng a cu s to me r , in p ar ti cu lar a n as s es s m en t of i t s abi lit y to gen er at e su f fi cie nt ca s h fl ows fo r th e re gu lar s et t lem en t of it s li abi lit ie s an d con t rac tu al o bli ga tio n s . In t hi s pa r t of t he cre dit p roc es s , r eg ula r mo ni tor i ng o f cli en t s wi th in t he Ear l y W a r nin g Sys tem (E WS) i s im po r tan t. In t he ca s e of c lien t def aul t, res tr u c t u ri ng o r wor k-o u t is in it ia te d de pen di ng o n th e seve ri t y of th e c lie nt ’s pos it io n . • T he q ua lit y an d t ren d s in th e c red it p or t folio , in cl udi ng on- balan ce and off- balance sh eet exposures , are acti vely mo ni tore d an d an al ys ed a t t he l evel of t he over all p or t foli o of NLB G ro up an d s in gle b an ki ng e nt it ie s . Comp reh en s ive an al ys es a re re gu lar l y pe r for m ed to a s s ure mo ni tor in g of t h e por t fol io q ual it y th ro ugh t im e an d to ide nt if y any b rea ch of l im it s o r tar get s . Gre at e mp h as is i s pla ced o n th e evol ut io n of p or t folio s tr u c t u re in te r ms o f cl ien t se gm en ta tio n , cr edi t ra tin g s t r u c t ur e, s t r uc t ure by s t age s (b as ed o n IFR S 9), an d N PL ra tio s . Fur th er m ore , th e covera ge of NPL i s an i mp or ta nt i nd ica tor o f pot en ti al f ut u re lo s se s th a t is closely monitored. 279 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Ap ar t fro m an al ys in g th e po r t f oli o as a w ho le, v in tag e an aly si s is u s ed to m o ni tor t he q u ali t y o f new l oa ns p rod uc tio n an d tes t th e con s er vat iv it y of t he l en di ng s t an da rds , w hi ch sh o uld e ns u re th e p or t foli o qu ali t y i s m ain ta in ed w it hin t h e Gro up R i sk A pp et it e. Ap ar t fro m de fa ult r i s k , th e po r t f oli o ma na ge me nt i s als o fo cu se d on m on it or in g s ing le n am e an d in d us t r y con cen t rat io n , mig ra tio n , an d F X le nd in g r is k . In cr ea si ng em ph as is i s al so p la ced o n s t res s t es t s t h at f ore cas t th e ef f ec t s of n eg at ive m ac roe con om ic m ovem en t s on t he por t fol io, on t h e level o f im pai r me nt s a nd p rovi si on s , an d on capi tal a de qu ac y. Capit al re qu irem e nt s fo r cr edi t r is k a t NLB Gro up l evel wi th in t h e fi r s t pi lla r are ca lc ula te d acc ord ing t o th e St an dar dis e d app roa ch , w hil e wi th in t h e se con d pi lla r an int er n al IR B ap pro ac h is u se d to e s ti ma te t h e RWA for defa ul t, mig rat io n , an d F X le nd in g ri s k . In a ddi ti on , a s in gle n am e con cen t rat io n add - on is b as ed o n th e G ran ul ar i t y a dj us tm en t me th od ol og y an d an in d us t r y con ce nt ra tio n ad d- on is estimated based on the H HI conc entration i ndexes. NLB an d ot h er NLB G ro up m em be r s as s es s th e level of c re dit ri s k los s e s on an i nd ivi du al b as is f or m at er ia l cl aim s , an d a t th e col le c t ive leve l for t he r es t o f th e po r t f oli o. An in di vi du al rev iew is p er fo rm e d for m a ter i al St age 3 fi na nc ial a s s et s w hic h h ave be en ra te d as n on -p er for m in g ba se d on t he i nfo r ma t ion r ega rdi ng s ign if ic an t fi na nc ial prob le ms e nc ou nt ere d by a cu s to me r , reg ard ing a c t u al bre ach e s of con t rac t ual o bli ga ti on s s uch a s ar re ar s in th e se t tle m en t of li abil it ie s , wh et h er f in an ci al as s et s will be re s t r uc tu red f or e con om ic or l eg al re as on s , a nd t h e likeli ho od t h at a c u s tom e r wil l en ter b an kr uptc y o r a f in an cia l reo rga ni sa t ion . E x pe c te d f ut u re ca sh f low s (fro m ord in ar y ope ra tio n s an d pos sib le re de mp tio n of co ll at eral ) are as s es s ed f oll owin g an in d ivi du al rev iew. If th eir d is co un ted valu e dif fe rs f ro m th e bo ok val ue o f th e f in an ci al as s et i n qu es t io n, i mp ai rm e nt m u s t be r eco gn is ed . Coll ec tive ECL allowan ce s are m ad e for t h e rem ai nd er o f th e po r t fo lio , wh ich i s no t as s es s e d on an i nd iv id ual b as i s . Ba s ed on I FR S 9 req ui rem en t s , f in an ci al a s se t s me as u red a t am or ti s ed co s t or a t fa ir val ue t hro ug h ot he r com pre h en si ve inc om e are a t tr ib u ted t o th e ap pro pr ia te s t ag e ba se d on t h e es t im at ed i nc rea s e of cr edi t r is k of a s in gl e expo s ure s in ce ini ti al re cog ni ti on . Th e s t age o f f in an cia l as s et s d et er mi ne s wh et he r a 12-m o nt h or li fe tim e ECL mu s t b e con s id ere d. T he ECL calcu la ti on is b a se d on t he f or ward - lo ok ing p rob ab ili t y of de fau lt (P D) and l os s gi ven d efa ul t (LGD), whi ch ar e calc ul at ed u si ng h is tor ic d at a an d s ta ti s t ica l mo de llin g , as well a s pre dic ted m a cro eco no mi c par am ete r s for d if fere nt scenar ios . F o r of f-balance fin ancial as set s , the probabilit y of th e red em pt ion o f gu ara nt ee s is co ns id ere d wh en c re at in g coll ec ti ve provi s ion s . Th e m od el s us ed t o es t im a te f ut u re r is k par am ete r s are val ida te d an d ba ck-te s te d on a r eg ula r ba si s to m ake los s e s t im at ion s a s rea li s ti c as p os s ib le. The m a na gem e nt o f ES G ri s k s ad dres ses t h e Gr oup’s ov erall credit appr oval proces s and related credit por t folio managem ent. Sus tainable fin ancing is implemen ted through amende d documen tar y fram ework: • Le n din g Pol ic y fo r Non -F in an cia l Com pa nie s in NL B d.d . an d NLB G rou p wh er e in s pe cia l Cha pte r Envir on me nt al an d So cia l Framewor k t hre e ca teg or ie s are d ef in ed ( pro hi bit ed , restr ic ted, normal ac tivities) • P oli c y Enviro nm e nt al an d S oci al T ran s ac tio n Framewor k in NLB d .d. a nd N LB G rou p app lie s to ce r tai n tra ns a c t ion s w it h grea te s t p ote nt ial f or s ign if ic an t E&S imp ac t (ex c l us ion l is t, reg ul ato r y com pl ian ce c he ck , ca te go r y A lis t) . • M et h od olo gy Env iron m en ta l an d So cia l T ran sa c t io n Cate go r is at io n Me th od ol og y F r am ewor k in NLB d .d . an d NLB G rou p th a t prov ide s a gu ide t o th e t ypi cal l evel of inh er en t env iron m en tal a nd s o cia l ri s k acco rdi ng t o NACE codes. Be s ide a ddr es s in g ES G r is k s in al l rel evant s tag es of t h e credit-granting process rele vant ESG criteria we re considered als o in t h e coll at era l evalu at io n pro ces s . On p or t foli o level t he Gro up d oe s no t face a ny lar ge co nc en tra t ion t owards s p eci f ic NACE in du s t r ial s ec tor s exp os ed t o cli m ate r i s k , wh ere by th e role o f tr an si ti on al r i sk i s m ore p revaili ng . Th e ava ila bili t y of ES G da ta i n th e re gio n wh ere N LB Gr ou p ope ra tes i s s t ill lacking, neverth eless the Group st rives to obtain relev ant cli en t s’ da ta a s pre req ui s ite f or ad eq ua te d ec is ion -m ak in g. b) Main e mp ha si s in 2021 In th e pr oce s s of co ns tan tl y com p lem en t in g an d en ha nc in g cre dit r i s k ma na ge me nt, NLB G ro up fo c us es o n tak in g mo der at e r is k s , an d a t th e s am e tim e e ns u ri ng a n opt im al ret ur n co n si der i ng t he r i s ks a s s um ed . Pr es er vi ng h igh c red it por t fol io q ual it y rep res en t s t he m os t imp or ta nt key ai m , wi th a fo cu s on t h e qu ali t y of new p la cem en t s le ad ing t o a diver s i fi ed p or t foli o of c us t om er s . T he G ro up i s ac tive ly pre se nt o n th e m ar ket in t he r egi on , f in an ci ng exi s t in g an d new c redi t wor thy c lie nt s . T o fur t h er en h an ce exi s t ing r i s k ma na gem e nt to ol s , t he G ro up i s con s t ant l y develo pin g a w ide ran ge of a dvan ce d app ro ach es s u pp or te d by ma th em a ti cal an d s ta ti s t ica l mo de ls in c red it r i sk a s s es s m en t in li ne w it h bes t ban k ing p rac ti s es , w hil e at t h e sa m e tim e e na bli ng f as t er responsiveness towar ds client s. Len din g grow th i n th e cor p ora te s eg m en t rem ain e d rel at ive ly mo der at e, wh il e th e S ME a nd r eta il s egm e nt exp er i en ced a con s ide rab le grow th i n 2021 af te r a tem po rar y s lowdow n in 2020 du e to COVID - 19 circ um s t an ces . Af ter t he a cqu is it io n of Kome rcij aln a b an ka as at 30 D e cem be r 2020, th e B an k wor ked ac tive ly o n ha rm o ni sa ti on of r i s k ma na ge me nt me th od ol ogi es w it h th e NLB G ro up . Cred it p or t foli o rem ai ns well - di ver s if ie d, t h ere i s n o lar ge co nce nt ra ti on in a ny sp ec if ic in du s t r y or cl ien t s egm en t. Th e s ha re of re tai l po r t fo lio i n th e wh ol e cre dit p or t fol io is q ui te s ub s t ant ia l wi th s till p revail in g se gm en t of m or tg ag e lo an s . COVID -19 d id n ot h ave a m ean in gf ul i mp ac t on t he q ua li t y of th e c red it p or t folio . Th e vas t s ch em e s in tro du ced by t h e go vernments in the Group c ountries pro viding moratoriums to eli gib le c lie nt s a s pa r t of t he COVID -19 pa nd em ic m ea s ure s ha d be en ph a si ng o u t dur i ng t h e 2021. In ad dit io n to m ora tor i a, t h e gover nm e nt s i n Se r bia an d Sl ovenia p rovi de d pu bli c gu aran te e s ch em es fo r new fi na nc in g of c lien t s w ho se b u si ne s s ha s b een m a ter i all y imp ac te d du e to th e COVID - 19 pa nd em ic ; no n e of th e gu aran te es h ave b ee n exerci se d . In 2021, th e G ro up’s credi t po r t fo lio q u ali t y r em ain e d so lid wi th a s t ab le ra ti ng s tr u c t ur e an d dive rs i f ied p or t foli o. G rea t em ph as is wa s pl ace d on in te n si ve an d pro ac t ive h an dl in g of pro bl em at ic c us tom er s a nd e ar ly wa rn in g s ys t em fo r det ec tin g in cr ea se d cre di t ri s k at a ver y e ar ly s tag e. Th e s to ck of N PE vol um e de cre as e d, a s a res u lt o f ac tive wor kou t ma na gem e nt. A s a t 31 D ece mb er 2021, t he s h are o f no n - per fo r mi ng exp os ur e by EBA me th o dol og y in NLB G ro up wa s 1.7% (2.8% at t h e en d of 2020). M or eover , t he cover age r at io rem ain s h igh a t 57.9% , whi ch i s well ab ove th e EU aver age pub li s he d by th e EBA (45.1% in 3Q 2021). 280 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Maxi mu m expo su re to cre di t ri s k in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Cash. cash balanc es at centr al banks. and other demand deposits at banks 5,005,052 3,9 61,812 3,250,437 2,261,533 Financial assets held for tr ading 7,678 84,855 7,682 18,831 Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss 4,261 27,233 7,888 30.935 Financial assets at fair value thr ough other compr ehensive inc ome 3,395,261 3,446,491 1,541,042 1,671,204 Financial assets at amortised cost Debt securities 1,717,6 26 1,503,08 7 1,436,42 4 1,277,880 Loans to gov ernments 281,010 368,400 143,864 170,7 42 Loans to banks 140,683 197,005 199,287 158,320 Loans to financial or ganisations 141,709 158,8 71 226,144 177,198 Loans to individuals 5,519,290 4,933,093 2,656,935 2,377,770 Loans to other customers 4,645,112 4,159,49 6 2,118,210 1,838,468 Other financial assets 122,229 113,138 92,404 54,503 Derivativ es - hedge accounting 568 - 568 - T otal net financial assets 20,980,479 18,953,481 11,680,885 10,037,384 Guar antees 1,236,734 1,126,442 727,101 689,668 Financial guar antees 533,633 479,096 289,935 258,003 Non-financial guar antees 703,101 647,346 437,166 431,665 Loan commitments 1,878,988 1,816,441 1,259,489 1,306,791 Other potential liabilities 48,782 32,08 7 2,987 8,121 T otal contingent liabilities 3,164,504 2,97 4,970 1,989,577 2,004,580 T otal maximum exposur e to cr edit risk 24,144,983 21,928,451 13,670,462 12,041,964 Ma xim um ex po su re to c red it r i sk i s a pre s en ta tio n of NL B Gro up’s expos u re to c red it r is k s ep ara te ly by in di vi du al t ype s of financ ial ass ets and cont ingent liabilities . E xpos ures sta ted in th e ab ove tab le ar e sh own f or t he b ala nc e sh e et it em s in th eir n et b oo k val ue as r ep or te d in t he s tat em en t of f in an ci al pos it io n , an d for o f f- b ala nce s h ee t it em s in t he a mo un t of t h eir no min al va lu e. 281 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report d) Collateral fr om finan cial assets th at are credit-impaired in EUR thousands 31 Dec 2021 NLB Group F ully/over c ollateralised financial assets Financial assets not or not fully co vered with collater al Net value of financial assets F air value of collater al Net value of financial assets F air value of collater al Financial assets at amortised cost Loans to individuals 32,372 122,205 18,718 7,645 Loans to other customers 79,120 446,308 23,364 23,69 4 Other financial assets 127 6,661 2,098 32 T otal 111,619 575,17 4 44,180 31,371 in EUR thousands 31 Dec 2020 NLB Group F ully/over c ollateralised financial assets Financial assets not or not fully co vered with collater al Net value of financial assets F air value of collater al Net value of financial assets F air value of collater al Financial assets at amortised cost Loans to individuals 33,375 132,532 20,822 5,922 Loans to other customers 78,426 532,990 45,161 55,545 Other financial assets 149 2,338 1,478 89 T otal 111,950 667,860 67,461 61,556 in EUR thousands 31 Dec 2021 NLB F ully/over c ollateralised financial assets Financial assets not or not fully co vered with collater al Net value of financial assets F air value of collater al Net value of financial assets F air value of collater al Financial assets at amortised cost Loans to individuals 17,785 49,518 8,114 3,924 Loans to other customers 21,490 117,86 2 4,037 4,478 Other financial assets 6 408 22 5 T otal 39,281 16 7,788 12,173 8,407 in EUR thousands 31 Dec 2020 NLB F ully/over c ollateralised financial assets Financial assets not or not fully co vered with collater al Net value of financial assets F air value of collater al Net value of financial assets F air value of collater al Financial assets at amortised cost Loans to individuals 17,359 45,756 11,431 2,672 Loans to other customers 30,058 116,073 6,081 20,757 Other financial assets 7 448 70 44 T otal 47,424 162,277 17,582 23,473 282 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report e) Collateral from loans mandatorily at fair value through profi t or loss in EUR thousands NLB Gr oup F ully/over c ollateralised loans 31 Dec 2021 31 Dec 2020 Net value of loans F air value of collater al Net value of loans F air value of collater al Loans mandatorily at fair v alue through pr ofit or loss - - 25,07 6 47,725 in EUR thousands 31 Dec 2021 NLB F ully/over c ollateralised loans Loans not or not fully co ver ed with collater al Net value of loans F air value of collater al Net value of loans F air value of collater al Loans mandatorily at fair v alue through pr ofit or loss 4,198 4,500 3,6 90 2,050 in EUR thousands 31 Dec 2020 NLB F ully/over c ollateralised loans Loans not or not fully co ver ed with collater al Net value of loans F air value of collater al Net value of loans F air value of collater al Loans mandatorily at fair v alue through pr ofit or loss 22,989 43,620 7,946 1,78 7 f ) Cre di t prot ec t io n pol ic y NLB G rou p app li es a s in gle s et o f s ta nd ard s to re tai l an d cor po ra te lo an co ll ate ral , as d evelo pe d by NLB G ro up me mb er s in a cco rda nce w it h re gu la tor y re qu ire me nt s . The ma s te r do cu me nt r eg ula t in g loa n col la ter al in t he N LB G rou p is t he Lo an Col la ter al Po lic y i n NLB d .d . an d NLB G rou p. Th e Poli c y h as b een a do pte d by th e M an ag em en t Bo ard o f NLB Gro up . Th e Pol ic y re pre se nt s t h e ba si c pr in cip le s th a t NLB Gro up’s emp loyee s m us t t ake in to ac cou nt w he n s ign in g, evalu at in g, m on it or in g , an d rep or t ing c oll at era l, w it h th e ai m of re du cin g cre di t r is k . In lin e w it h th e po lic y, the p r im ar y s ou rce of l oan r epa ym e nt is t he d ebt or ’s so lven c y, and t he a ccep te d col la tera l is a se con da r y so urce o f rep ay m en t in ca se t h e deb tor c ea se s to repay the contr ac t ual obligations. NLB G rou p pr im ar i ly ac cept s coll at era l com pl yin g w it h th e B as el I I req uir em en t s wi th t h e aim o f im provi ng c re dit ri s k ma na ge me nt a nd c on s umi ng c api tal e con om ic all y . I n acco rda nc e wit h B a se l II , col la ter al m ay co ns i s t of p le dge d deposit s , gov er nmen t guarantees , bank guarantees , debt se cu ri t ies i s s ue d by cen tr al gover n m ent s and c en tra l ba nk s , ban k de bt s ec ur i ti es , an d re al - e s ta te m or t gag es (t he r eal es t at e mu s t b e, b es ide o th er c r ite r ia , loc at ed in t h e Europ ea n Econo mi c Are a or in c ou nt r y rec ogn is ed i n EBA ’s th ird p ar t y eq uival en t li s t fo r th e ef fec t on ca pit al to b e re cog ni se d) . Loan s m ad e to co mp an ies a nd s ol e pro pr ie tor s m a y be se cu red by ot h er fo rm s o f col la tera l, a s well (e.g ., a li en o n movab le pr op er t y , a p led ge o f an eq ui t y s take, inve s t me nt cou po ns , c oll at era l by ple dg ed/ a s s ign ed r ece ivab les , etc .) if i t is a s se s se d t ha t th e co lla te ral c oul d ge ne ra te a ca sh f low i f it were n ee ded a s a s eco nd ar y s ou rce of p ay m ent. I f th e re is o f a lower pr oba bil it y th a t th is t yp e of c oll at era l woul d ge ne rat e a cas h f low, NLB Gro up ta kes a con s er vat ive ap pro ac h an d acce pt s t he c oll at era l wh ile r epo r ti ng i t s valu e as ze ro. g) The processes for v al uing collateral In com pl ian ce w it h re levan t reg ul at ion s , N LB G rou p ha s es t abl is h ed a s ys tem fo r mo ni to ri ng a nd r epo r ti ng co lla te ral at fa ir (mar ket) val u e. The m a rket va lu e of re al es tat e us ed a s co lla te ral i s obt ain ed fro m valu at io n rep or t s of l icen s ed a ppr ai se r s . Th e m ar ket valu e of m ovabl e pro per t y is o bt ain ed f rom val u at ion r epo r t s of lic en se d ap pra is er s or f rom s al es a gre em en t s . B ot h , valu at io n rep or t s an d s ale s ag ree me nt s m u s t n ot b e old er th an o ne ye ar . In NLB a nd m e mb er s of N LB G rou p, mo s t 283 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report rep or t s of ex ter n al re al es tat e ap prai s er s ar e con tro ll ed . Cont ro ls ar e per fo r me d by in ter n al a ppr ais er s . The s u bje c t o f con tro l is t h e con te nt, val ue, s co pe, a nd f or m at o f th e rep or t, it s co mp lia nc e wi th in te r na t ion al val ua t ion s tan dar ds , a nd the estimated value. If they notice deviatio n s, they es timate ne ed ed co rr ec tio n of t he val ue o f th e ex ter n al val ua ti on ( in %) and co rr ec t th e valu e of t h e ex te rn a l valu at io n . Th e valu e adj us tm en t can o nl y be n eg at i ve and c an be a pp lie d on ly in a lim it ed ra ng e. For th e p ur po se s of b us in es s d ec is io ns a nd th e cal cu la ti on of t h e ne ces s ar y im p air m en t s an d prov is io ns , add it ion al d ed uc tio n s (h air cu t s) are ap pl ied t o th e even t ual adj us ted m ar ket val ue , dep en di ng o n th e t ype o f col la te ral . These haircu t s for purpose of liquidat ion value are for real es t at e in th e ra ng e of 30 to 70% , de pen di ng o n th e t yp e of re al es t at e an d loc at ion , a nd f or m ovabl es t hey ra ng e be t we en 50 an d 100% , d ep en din g on t h e t y pe o f movab le . The m a rket va lu e of f in an ci al in s t r um en t s h el d by NLB G rou p is ob tai ne d fro m t he o rga ni se d ma r ket – s uch a s t he s tock excha ng e, for l is ted f in an ci al in s t r um e nt s o r det er m in ed in acc ord an ce wi th t h e in ter n al m et h odo lo gy fo r un li s te d fi na nc ial i ns tr u me nt s (s uc h col la ter al is u s ed excep tio n all y an d on a s ma ll s cal e in lo an s gra nt ed to c om pan ie s an d so le propri etor s). NLB h as co mp il ed a re fere nc e lis t of lic en se d re al es tat e app rai se r s for r eal e s ta te . All a pp rai sa ls m us t be m ad e for th e pu r pos e of s e cu red l en din g an d in a ccor dan ce w it h th e in ter n a tio n al val ua ti on s t an dar ds (IV S , E VS , a nd R I C S). App rai s als r ela te d to re tai l lo an s are g en eral ly o rde red o nl y fro m app rai se r s wi th w h om t he N LB ha s a co nt rac t for re al - es t at e valu at io ns . For cor po rat e lo an s , app rai s als a re u su all y su bm it te d by cli en t s . I f a cli en t s ubm it s a n ap pra is al t ha t is not m a de by an a ppr ais er i nc l ude d on t h e NLB ’s refe ren ce lis t, the N LB ’s exper t d ep ar tm en t w hic h em pl oys ce r ti fi ed re al es t at e app rai se r s in co ns tr u c t ion w it h li cen ces g ran te d by th e Sl ovenia n M ini s t r y of J us tice , an d cer t if ie d re al - es tat e valu e app rai se r s wi th l icen ce s gra nt ed by th e S loven ian I ns ti t ute o f Aud ito r s , wi ll ver if y t he a ppr ais al . Th e exp er t d ep ar tm en t i s als o re sp on s ibl e for r eview in g valu at io ns o f rea l es t at e se r vin g as co lla te ral fo r la rge l oan s . Other NLB Gr oup members obtain valuations fr om in-house appr aisers and outsour ced appr aisers, all possessing the necessary lic ences. NLB Gr oup has compiled a r efer ence list of appr aisers for valuations of r eal estate loc ated outside the Republic of Slo venia. Appr aisals must be made in acc ordanc e with the international valuation st andards, and for lar ger exposur es, real-estate e valuations must also be r eview ed by an internal licensed appr aiser with knowledge of the local r eal-estate mark et. If the appraisal does not c orrespond to the international valuation st andards or if the v alue adjustment is gr eater than certain limit, the appr aisal is r ejected as inadequate. Wh en a s s ur in g col la ter al, N LB G rou p fol lows t h e int er n al reg ul at ion s w hic h de f ine t h e mi nim u m se cu r it y or p led ge rat io s . NLB G ro up s t r ive s to ob tain c oll at era l wi th a h igh er valu e th an t h e un der l yi ng exp os ur e (depe nd in g on t he bor rower ’s rati ng , lo an m at u r it y , e tc .) wi th t h e aim o f red uc in g ne ga ti ve con s eq uen ce s res u lt in g fro m any m aj or s wi ng s in m ar ket pr ice s of t h e as s et s u se d as c oll at era l. I f re al es t at e, movab le p rop er t y , a nd f i na nc ial in s tr um e nt s s er ve as co lla te ral , NLB G ro up’s lien on s u ch a s s et s s ho ul d be t op ran ki ng . E xcept io na lly, whe re th e val ue o f th e m or tg ag ed re al es t at e is la rge e no u gh , th e li en ca n ha ve a dif fer en t pr io ri t y o r d e r. NLB G rou p mo ni to rs t h e valu e of c oll at eral d ur i ng t he l oa n rep ay me nt p er io d in ac cor dan ce w it h th e m an da tor y p er io ds an d int er n al in s t r u c t ion s . For exam pl e, t he val u e of co lla te ral us in g mo r tga ge d rea l es t at e is m on it ore d an nu all y by eit h er pre par i ng in di vi du al a s se s s me nt s o r us in g th e in te r na l me th od ol og y for p rep ar in g an own va lu e app rai sa l of re al es t at e (whi ch ap pl ies t o Rep ub lic o f Sl oveni a, a nd p ar t ly, for th e ho u si ng s eg me nt t o Se r bia , Mo nt en eg ro, an d B os ni a an d Her zegov in a) bas ed o n pu bli c reco rd s an d in dexes o f rea l- estate v alue publ ished by the rele vant gove r nment authoritie s (th e S ur veyin g an d Ma ppi ng A ut h or it y in t h e Rep ub lic of S loveni a). The va lu e of pl ed ge d movab le p rop er t y is mo ni tore d on ce a ye ar (i n NLB a ut om at ed , wi t h a s tr aig ht- lin e dep rec ia ti on over t he p er io d of t he r em ain in g us ef u l lif e). h) The m ain t ype s of co lla t eral t aken by th e NLB G ro up NLB G rou p acc ept s d if fere nt f or m s of m at er ia l an d per s on a l se cu ri t y as lo an co ll at eral . Ma te ri al lo an co ll at eral g ives t h e r igh t in t he c as e of a de bto r (bo r rower) de fa ul ti ng o n th eir c on tra c t u al ob lig a tio ns t o se ll a sp ec if ic p rop er t y to re cover cl aim s , kee p sp ec if ic n on - cas h prop er t y or ca s h , or re du ce or o f f s et t h e am ou nt o f expo s ure aga in s t t he co un te r par t y ’s deb t to th e B an k . NLB G rou p acc ept s t h e foll owin g m at er ia l t y pe s of l oan collat eral: • Co lla te ral in t h e for m o f bu si ne s s an d re si den t ial re al es tate: land, building s, an d individual par ts of buildin gs in a s tor eyed pro pe r t y i nt en de d for l ivi ng i n or p er for m in g a bu si ne s s ac ti vi t y, suc h as l an d in t he a rea f ore se en fo r cons tr uc t ion, apar tmen ts , reside ntial building s, garages an d ho lid ay h om es , bu sin e s s pre mi se s , in d us t r ia l bu ild in gs , of fices, sh ops, hotels , branches and w arehous es, forest s , par k in g sp ac es , et c . O bje c t s c an be c om pl ete d or u nd er con s t r uc tio n . Pr io r it y is gi ven to p rop er t y wh ere t h e pl edg e ri gh t of t he B an k i s en tere d in t h e fi r s t pl ace a nd r eal e s ta te is al rea dy ow ne d by th e de bto r an d/ or t h e ple dg er . For re al es t at e, th er e mu s t b e a m ar ket, an d it m us t be re de em abl e wi th in a re as on ab le t im e; • Co lla te ral in t h e for m o f movab le p rop er t y: p r ior i t y is gi ven to th e t yp es of m ovab le pr ope r t y , t ha t are h ig hl y likel y to b e so ld in t h e event o f exec ut ion , a nd t h e f un ds re cei ved ar e us ed to r ep ay t he c oll at era lis ed c la im s (th eir m a rket va lu e mu s t b e es t im a te d wi th co ns id era bl e rel iab ili t y) . Am on g th e appropriate ty pes of mo vable proper t y , the Bank includes mot or veh ic les , agr ic ul t ura l ma ch in er y , c on s t r uc tio n machiner y, produc t ion lines an d series-produced machines , an d so me c u s tom -m ad e pro du c t io n ma ch in es ; • Co lla te ral by a p led ge o f fi na nc ial a s s et s (B an k de pos i t s or cas h - li ke ins t r u me nt s , debt s e cu ri t ies o f dif fer en t is s u er s , inves t m en t f un d un it s , e qu it y se c ur it ie s , or co nver ti bl e bo n d s): • Cas h rec eiva ble c oll at era l: ban k d epo si t s an d s av in gs w it h Bank are appropria te in domes tic and foreign currenc y ; • Deb t s ec ur it ie s: s h are s an d bo nd s wh ic h , acco rdi ng to t h e Ba nk ’s ass e s sm en t, are s u ita bl e for s ec ur in g inve s tm e nt s an d are t rad ed o n a reg ul at ed m ar ket (mar ket abl e secur ities of higher - quali t y Slovenian and foreign issuer s); • The p le dg e of inve s tm e nt co up on s of m u t ual f u nd s ma na ge d by man a gem en t co mp an ies (a pr io r it y com pa ny NLB S kl adi ) an d ar e, acc ordi ng t o th e B an k ’s as s es s m en t, suitabl e for insurance of inv e st men ts . • A pledg e of an equit y stake: non- mar ketable capital shares wi th a c red it ra ti ng o f at l ea s t B ar e ade qu a te; • A p le dge o r as s ig nm en t of r ece ivab le s as co lla te ral: ca s h rece ivab le s mu s t h ave l on ger m a t ur it ie s th an t h e m at ur i t y of th e inves tm en t an d th ey m us t not b e du e an d n ot be p ai d; • O t h er m at er ia l for m s of l oan c oll at eral (e.g ., li fe i ns ur an ce pol ici es p led ge d to NLB ): Th e B an k acce pt s p rod uc t s of Vi ta , li fe in s ura nc e com pa ny d.d . Lj ub lja na – a p le dg e of an inves t m en t lif e in s ura nce p ol ic y an d a li fe in s ur anc e po lic y wi th a g uar an tee d ret u r n th a t in cl ude s s av ing , in a dd it ion t o ins urance . 284 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Per s on al l oan c oll at era l is a m et ho d fo r red uc in g cre dit r i s k wh ere by a th ird p ar t y un der t akes to p ay t h e deb t in ca se o f th e pr im ar y d ebt or (b or rower ) def aul t in g. NLB G rou p acc ept s t h e foll owin g t yp es of p er s on al l oa n collat eral: • J oi nt a nd s evera l gu aran te es by re tai l an d cor p ora te cli en t s: fo r th e co lla te ral is at io n of pr i vat e in div id ual s’ lo an s , em ploye es , o r pen s ion e rs a re ad eq ua te g ua ran tor s . They mu s t n ot b e in t he p roce s s of p er s on al b an kr uptc y. They ar e res po ns ib le f or f ul f illi ng t h e deb tor ’s oblig at ion s fo r lo an s wi th a re pa ym en t pe r iod n ot exce edi ng 60 m on t hs . For th e coll ateralisatio n of le gal entities inv es tments , leg al entities, individuals, or private individuals ar e adequate guarantors . • Bank guarantees ; • G over n me nt g ua ran te es (e.g. , of t he R ep ub lic o f Sl oveni a); • G u ara nte es by n a tio n al an d re gion a l develo pm en t ag en ci es wi th w hic h th e B an k h as a co nt ra c t o n th e acc ept an ce of gu aran te es (e.g . Sl ovene En te rp r is e Fund ); • O t h er t yp es of p er s on al l oa n coll at era l. Loan s ar e ver y of ten s ec ur ed by a com bi na t ion o f col la ter al t y pe s . Th e ge ne ral r eco mm en d at ion s o n loa n col la ter al are sp ec if ie d in t he i nt er n al in s t r uc ti on s an d in cl ud e th e el em en t s sp ec if ie d be low. The de ci si on on t h e t ype o f col la ter al an d th e covera ge of l oa n by coll at era l dep en d s on t he c lie nt ’s credit wor thines s (credit rating), loan m atur it y , and varies dep en di ng o n wh et he r th e lo an i s gra nte d to re tai l or a cor po ra te c lien t. NLB h as a ls o cre at ed , in t he a rea o f re al - es tat e lo an col la te ral , an ‘onli ne’ co nn ec ti on w it h th e S ur veyin g an d M app in g Aut h or it y in t h e Re pu bli c of S loven ia, w h ich a llows d ire c t a nd imm e dia te ver i f ica ti on of t h e exis ten ce of p rop er t y. NLB G rou p s t r ives to e n su re t he b es t pos s ib le co lla te ral fo r lon g -t er m lo an s , in p ar t icu lar m o r tga ges w h ere p os s ib le. A s a res ul t, th e m or tg agi ng o f rea l es t at e is t h e mo s t fr eq uen t fo r m of lo an co lla te ral o f cor po ra te an d re tai l cli en t s . In c or po rat e expo su res , th e nex t mo s t fr eq uen t fo r ms o f col la ter al are gover nm e nt an d co r por at e gu ara nt ees , whi le in r eta il lo an s , i t is guarantor s . i) Risks , deriving from valuation of received c olla teral Clie nt/ cou nt er p ar t y cred it r i sk i s th e key de ci sio n pa ram et er wh en ap prov in g expo s ures . Coll at eral i s a s eco nd ar y s ou rce of rep ay m en t, and t h ere fore d ec is ion s o n app rovals o f expo su res s h o uld n ot p ri m ar ily b e b as ed o n th e prov ide d coll at era l. H owever , coll at era l is a n imp or t ant c om for t e lem en t in th e ap proval p roc es s an d , de pen di ng o n th e cr edi t ra ti ng of th e c lie nt, a pr ere qu is it e. NLB G ro up h as p res c ri be d th e min im um r at ios b et wee n th e val ue of c oll at era l an d th e lo an am oun t, de pen d ing o n th e t yp e of co lla te ral , lo an m at u ri t y an d th e cl ien t ra ti ng . Th e ra ti os are b as e d on exp er ie nc e an d regulator y guidelines. NLB G rou p pa ys p ar t icu la r at te nt ion t o cl os ely m on it or in g th e fai r valu e of co ll at eral , an d to r ecei vi ng r eg ula r an d independe nt rev aluations by a pplying the International V alua tion Standards . Throu gh a detailed ex amin ation of all coll at era l rec eive d, N LB ha s en s ur ed t ha t on ly c oll at era l fro m wh ich p ay me nt c an b e rea lis tica lly ex pe c t ed i f it i s liq uid at ed , is co ns id ere d . NLB G rou p ha s t he l arg es t c on cen tr at io n of co lla te ral s ar is in g from mor tgages on real es tate, which is a relatively reliable an d qu ali t y t y pe of c oll at era l. D u e to t he p os s ib le de cr eas e of re al es tat e ma r ket pr ice s , t he B an k c los el y mo ni to rs t h e real - es ta te c oll at era l valu es an d , wh er e req uir ed , es t ab lis h es hig he r am ou nt s o f im pai r me nt s a nd p rovi si on s for n on - per fo r mi ng lo an s s ec ure d by rea l es t at e, ba s ed on e s t im at ed dis co un t s of t he r eal - es ta te val ue , wh ich a re exp ec ted t o be ach ieved i n a sa le (expe c t ed p ay me nt f rom c oll at era l). P ri or it y is gi ven to p rop er t y wh ere t h e pl edg e r igh t of t he B a nk i s ent ere d in t he f i r s t pl ace a nd t h e rea l es t at e is a lrea dy ow ne d by th e deb tor a nd / or t he p le dg er . For rea l es t at e, t he re m us t be a m ar ket, an d it m u s t be r ed eem ab le w it hi n a rea s on ab le time. Coll ate ral c on si s t in g of s ec ur it ie s en tai ls m ar ket r i sk , sp ec if ica lly t h e r is k of c ha ng es in t h e pr ice s of s ec ur i ti es on capi tal m a rket s . T o limi t s uc h ri s k s an d res tr ic t th e pos sib ili t y of th e val ue o f in s t r um en t s re cei ved as c oll at era l fall in g be low app roved lim i t s , th e R ul es d ete r min e m in im um pl ed ge ra t ios for securing loans ba sed on pledged secur ities and equity sh ar es in N LB . D evia ti on s fr om t he R ul es a re s ubj ec t to th e pr ior a pp roval of t he r es pe c t ive d eci s ion b od ies o f th e B an k . The r at io b et ween t h e lo an am ou nt a nd t h e se cu r it ie s’ valu e is determin ed regarding the sec urit ies’ liquidit y, m at urit y , cor re la tio n wi th c h an ges i n ma r ket in dexes , i .e. , by con s ide r ing th e key fea t ure s ref le c t in g th e leve l of vol at ili t y of m ar ket pr ice s , an d th e ab ili t y to se ll t he s ec ur i ti es a t th e m ar ket pr i ce. Coll ate ral c on si s t in g of t he s u ret ies o f cor p ora te c lie nt s , sureties of pri vate individuals , and bank gu arantees entail th e cre di t r is k of t he p rovi der o f th e co lla te ral . NLB G ro up inc l ude s th e am o un t of t he g ua ran te es re cei ved in t h e expo su re of t h e gu ara nto r , an d gu ara nt ee s are on l y taken i nto acco un t as c oll at era l if t he g ua ran tor h a s s uf f icie nt over all credit wor thines s . The B us in es s R ul es – Col la ter al fo r Ret ail a nd Co r por at e Loan s re gu la te w hic h for m s of c oll at era l are ac cep tab le, a nd wh ich p rec on dit io ns a t y pe of c oll at era l ne ed s to f ul f il to b e abl e to b e con s ide red . 285 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report j) Credit quality analysis for financial ass ets and contingent liabilities in EUR thousands NLB Gr oup NLB 31 Dec 2021 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed Pur chased cr edit-impaired financial assets T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed Pur chased cr edit-impaired financial assets T otal Debt securities at amortised cost A 1,218,597 - - - 1,218,597 1,183,578 - - - 1,183,578 B 495,114 - - - 495,114 254,6 72 - - - 254,672 C - 7,220 - - 7,220 - - - - - Loss allow ance (3,253) (52) - - (3,305) (1,826) - - - (1,826) Carrying amount 1,710,458 7,168 - - 1,717,626 1,436,424 - - - 1,436,424 Loans and advanc es to banks at amortised cost A 89,499 - - - 89,499 199,390 - - - 199,390 B 51,382 - - - 51,382 79 - - - 79 Loss allow ance (198) - - - (198) (182) - - - (182) Carrying amount 140,683 - - - 140,683 199,287 - - - 199,287 Loans and advanc es to individuals at amortised cost A 5,305,833 46,972 - 24 9 5,353,054 2,554,006 26,634 - - 2,580,640 B 60,891 23,933 - 16 84,840 16,919 15,108 - - 32,027 C 5,827 49,330 - 293 55,450 - 24,293 - - 2 4,293 D and E - - 125,297 2,430 127,727 - - 57,396 - 57,396 Loss allow ance (18,336) (7,398) (7 6,204) 157 (101,781) (3,503) (2,421) (31,497) - (37,421) Carrying amount 5,354,215 112,837 49,093 3,145 5,519,290 2,567,422 63,614 25,899 - 2,656,935 Loans and advanc es to other customers at amortised cost A 1,172,770 59 - 3 1,172,832 875,912 26 - - 875,938 B 3,333,087 198,824 - 26 3,531,937 1,421,398 85,402 - - 1,506,800 C 124,6 28 213,301 - 17 337,9 46 53,965 37,87 6 - - 91,841 D and E - - 209,229 30,079 239,308 - - 68,782 3,855 72,637 Loss allow ance (50,9 61) (26,6 24) (135,99 4) (613) (214,192) (10,101) (1,787) (46,272) (838) (58,998) Carrying amount 4,579,52 4 385,560 73,235 29,512 5,067,831 2,341,17 4 121,517 22,510 3,017 2,488,218 Other financial assets at amortised cost A 92,430 37 - - 92,467 83,9 43 1 - - 83,944 B 26,908 128 - - 27,036 5,223 19 - - 5,242 C 319 6 94 - - 1,013 3,224 29 - - 3,253 D and E - - 6,703 1,236 7,939 - - 1,107 11 1,118 Loss allow ance (47 6) (36) (6,322) 608 (6,226) (62) (1) (1,084) (6) (1,153) Carrying amount 119,181 823 381 1,844 122,229 92,328 48 23 5 92,404 Debt instruments at fair value thr ough other compr ehensive inc ome A 1,587,032 - - - 1,587,032 1,308,690 - - - 1,308,690 B 1,809,06 9 - - - 1,809,069 218,282 - - - 218,282 C - 184 - - 184 - - - - - D and E - - 798 - 798 - - 798 - 798 Loss allow ance (11,148) (70) (798) - (12,016) (2,203) - (798) - (3,001) Contingent liabilities A 1,405,533 6,451 - 38 1,412,022 1,041,295 5,657 - - 1,046,952 B 1,57 4,401 67,514 - 11 1,641,926 844,526 34,180 - - 878,706 C 48,037 23,571 - 18 71,626 27,751 9,265 - - 37,016 D and E - - 2 4,565 14,366 38,931 - - 19,252 7,651 26,903 Loss allow ance (12,912) (1,640) (14,545) (4,344) (33,441) (3,909) (141) (12,469) (4,041) (20,560) Carrying amount 3,015,059 95,896 10,020 10,089 3,131,064 1,909,663 48,9 61 6,783 3,610 1,96 9,017 286 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup NLB 31 Dec 2020 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed Pur chased cr edit-impaired financial assets T otal 12-month expected cr edit losses Lifetime ECL not cr edit - impair ed Lifetime ECL cr edit- impair ed Pur chased cr edit-impaired financial assets T otal Debt securities at amortised cost A 1,118,700 - - - 1,118,700 1,118,700 - - - 1,118,700 B 388,072 - - - 388,072 161,021 - - - 161,021 Loss allow ance (3,685) - - - (3,685) (1,841) - - - (1,841) Carrying amount 1,503,087 - - - 1,503,087 1,277,880 - - - 1,277,880 Loans and advanc es to banks at amortised cost A 67,86 2 - - - 67,86 2 158,475 - - - 158,475 B 128,784 - - - 128,784 - - - - - C 500 - - - 500 - - - - - Loss allow ance (141) - - - (141) (155) - - - (155) Carrying amount 197,005 - - - 197,005 158,320 - - - 158,320 Loans and advanc es to individuals at amortised cost A 4,739,470 7 6,080 - - 4,815,550 2,290,498 42,642 - - 2,333,140 B 34,415 9,471 - - 43,886 5,132 460 - - 5,592 C 3,528 47,436 - - 50,9 64 - 21,573 - - 21,573 D and E - - 111,118 6,075 117,193 - - 51,644 - 51,644 Loss allow ance (25,044) (8,151) (61,305) - (9 4,500) (8,973) (2,351) (22,855) - (34,179) Carrying amount 4,752,369 124,836 49,813 6,075 4,933,093 2,286,657 62,324 28,789 - 2,377,770 Loans and advanc es to other customers at amortised cost A 1,070,36 7 373 - - 1,070,7 40 820,241 120 - - 820,361 B 2,930,393 188,641 - - 3,119,034 1,127,454 111,223 - - 1,238,677 C 219,102 238,152 - - 457,254 34,338 82,492 - - 116,830 D and E - - 279,803 37,716 317,519 - - 117,392 2,341 119,733 Loss allow ance (49,475) (32,682) (19 4,298) (1,325) (277,780) (16,664) (8,936) (82,27 4) (1,319) (109,193) Carrying amount 4,170,387 39 4,484 85,505 36,391 4,686,7 67 1,965,36 9 184,899 35,118 1,022 2,186,408 Other financial assets at amortised cost A 64,691 28 - - 64,719 48,99 4 1 - - 48,995 B 46,382 55 - - 46,437 5,386 28 - - 5,414 C 223 438 - - 661 56 36 - - 92 D and E - - 5,655 1,219 6,87 4 - - 1,324 8 1,332 Loss allow ance (27 6) (30) (5,243) (4) (5,553) (73) (2) (1,251) (4) (1,330) Carrying amount 111,020 491 412 1,215 113,138 54,363 63 73 4 54,503 Debt instruments at fair value thr ough other compr ehensive inc ome A 1,568,201 - - - 1,568,201 1,422,777 - - - 1,422,777 B 1,839,16 7 229 - - 1,839,396 217,138 - - - 217,138 D and E - - 798 - 798 - - 798 - 798 Loss allow ance (8,656) (28) (798) - (9,482) (2,343) - (798) - (3,141) Contingent liabilities A 1,285,492 843 - - 1,286,335 984,496 238 - - 984,734 B 1,490,929 53,326 - - 1,544,255 889,66 9 41,654 - - 931,323 C 48,329 49,781 - - 98,110 22,253 31,363 - - 53,616 D and E - - 31,47 4 14,796 46,270 - - 27,855 7,052 34,907 Loss allow ance (15,79 6) (2,7 67) (18,554) (5,057) (42,17 4) (7,510) (732) (16,493) (3,808) (28,543) Carrying amount 2,808,954 101,183 12,920 9,739 2,932,796 1,888,908 72,523 11,36 2 3,244 1,976,037 2 87 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The N LB G rou p’s clien t cr edi t ra ti ng c la s si f ica ti on is b a se d on an i nte r na lly developed methodology, dr awing fr om internal statistical analy ses, good banking practic es, as well as Bank of Slov enia regulations, and ECB and EB A guidelines and r equir ements. The aligned rating methodology is used acr oss the entire NLB Gr oup. It includes a uniform cr edit gr ade scale of 12 r ating classes, out of which nine repr esent performing clients and thr ee non-per forming clients. Rating Gr oup A (AAA to A r ating classes) includes the best clients with a low degr ee of default pr obability, charact erised by high c over age of financial liabilities with fr ee cash flow. The Rating Gr oup A is consider ed as inv estment grade classification. Rating Gr oup B (BBB to B r ating classes) includes clients with a low cr edit risk, starting one notch low er than ‘A’ r ating gr oup clients. These clients show stable performance, acc eptable financial r atios, and qualitative elements, and have sufficient cash flo w to settle their obligations, but may be mor e sensitive to changes in the industry or the econom y. The Rating Gr oup B classification is an in vestment gr ade for BBB, and an ‘invest with c ar e’ for BB and B. Ra ti ng G ro up C (CCC to C rat in g cla s s es) in cl ud es c lie nt s w h o are exp os ed t o a hig he r an d above - avera ge level o f cr edi t ri s k . CCC rate d cl ien t s ar e fi na nc ed by t he B an k on ly i n th e cas e wh en s u ch s up po r t br in gs m or e pos i ti ve ef f ec t s for t he Ba nk ; h owever , th e R at in g Gr oup C i s overa ll con s id ere d as a su bs t an ti al r is k . T he B an k re as on ab ly re s t r ic t s coop er at ion wi th s uc h cl ien t s an d de cr ea se s it s ex pos u re to t he m . Rating Gr oups D (D and DF r ating classes) and E r epr esent non-performing clients that ar e treated as def aulted. D, DF, and E r ating classified clients are or dinarily tr ansferr ed to the specialised units for r estructuring (which performs business and financial r estructuring with a goal of minimising losses an d r estoring the client to a performing status) or work out and legal support (with the goal of minimising losses due to default ). In 2020, NLB Gr oup applied a new default definition based on the EBA guidelines, wher e the materiality thr eshold for delays is determined in absolute and r elative terms (EUR 100 for r etail and EUR 500 for non-r etail segment and 1% of the total on-balance e xposur e on the client level). At the same time, the assessment of r ating for private individuals was impr ov ed by establishing a common r ating on the client lev el. A standar d corpor ate r ating methodology, with the prescribed set of par ameters (qualitative and quantitativ e) applies to all the NLB Gr oup bank entities. Groups of c onnected clients ar e tr eated as materially important for the NLB Gr oup whenever exposur e ex ceeds EUR 7 million or EUR 15 million for NLB Gr oup members with total assets gr eater than EUR 1 billion. Materially important clients ar e submit ted to the NLB Cr edit Committee. NLB r egularly re views the business pr actices and cr edit portfolios of NLB Group entities to mak e sur e they ar e oper ating in acc ordanc e with the minimum risk management standards of NLB Gr oup. This ensur es appropriate st andard pr ocesses for managing and r eporting credit risks at the c onsolidated level. in EUR thousands NLB Gr oup 31 Dec 2021 All forborne exposur es Impairment, pr ovisions and value adjustments Collater al and financial guar antees r eceived on forborne exposur es Non - performing Performing forborne exposur es Non-performing forborne exposur es Gr oss carrying amount Performing Impaired Defaulted Loans and advanc es ( including at amor tised cost and fair v alue) 239,208 57,058 182,09 4 182,150 (4,602) (100,963) 109,177 Gov ernments 1,093 828 265 265 (11) (265) - Other financial or ganisations 2,7 44 213 2,531 2,531 (8) (2,531) 12 Non-financial or ganisations 180,754 35,422 145,27 6 145,332 (3,268) (83,243) 79,260 Households 54,617 20,595 34,022 34,022 (1,315) (14,92 4) 29,905 Debt instruments other than held for tr ading 239,208 57,058 182,09 4 182,150 (4,602) (100,963) 109,177 Loan commitments giv en 718 96 622 622 - (37 4) 2 94 T otal exposur es with forbear ance measures 239,926 57,154 182,716 182,772 (4,602) (101,337) 109,471 k) F orborne loans 288 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 All forborne exposur es Impairment, pr ovisions and value adjustments Collater al and financial guar antees r eceived on forborne exposur es Non - performing Performing forborne exposur es Non-performing forborne exposur es Gr oss carrying amount Performing Impaired Defaulted Loans and advanc es ( including at amor tised cost and fair v alue) 109,6 7 4 25,485 84,133 84,189 (1,130) (48,898) 51,837 Other financial or ganisations 2,7 44 213 2,531 2,531 (8) (2,531) 12 Non-financial or ganisations 6 9,299 13,100 56,143 56,199 (291) (35,930) 31,564 Households 37,631 12,172 25,459 25,459 (831) (10,437) 20,261 Debt instruments other than held for tr ading 109,67 4 25,485 84,133 84,189 (1,130) (48,898) 51,837 Loan commitments giv en 688 96 592 592 - (344) 2 94 T otal exposur es with forbear ance measures 110,362 25,581 84,725 84,781 (1,130) (49,242) 52,131 in EUR thousands NLB Gr oup 31 Dec 2020 All forborne exposur es Impairment, pr ovisions and value adjustments Collater al and financial guar antees r eceived on forborne exposur es Non - performing Performing forborne exposur es Non-performing forborne exposur es Gr oss carrying amount Performing Impaired Defaulted Loans and advanc es ( including at amor tised cost and fair v alue) 303,802 55,354 223,37 6 248,448 (5,761) (141,372) 142,714 Gov ernments 1,342 1,050 292 292 (5) (292) - Other financial or ganisations 2,425 50 2,375 2,375 - (2,375) 50 Non-financial or ganisations 254,947 33,882 195,993 221,065 (4,739) (129,550) 114,395 Households 45,088 20,372 24,716 24,716 (1,017) (9,155) 28,269 Debt instruments other than held for tr ading 303,802 55,354 223,37 6 248,448 (5,761) (141,372) 142,714 Loan commitments giv en 1,586 94 2 644 644 (4) (37) 1,332 T otal exposur es with forbear ance measures 305,388 56,296 224,020 249,092 (5,7 65) (141,409) 144,046 289 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report For b orne e xposures of debt ins truments by periods of forbearance in EUR thousands NLB 31 Dec 2020 All forborne exposur es Impairment, pr ovisions and value adjustments Collater al and financial guar antees r eceived on forborne exposur es Non - performing Performing forborne exposur es Non-performing forborne exposur es Gr oss carrying amount Performing Impaired Defaulted Loans and advanc es ( including at amor tised cost and fair v alue) 148,251 21,97 6 103,287 126,275 (1,522) (73,298) 7 6,210 Other financial or ganisations 2,397 22 2,375 2,375 - (2,375) 22 Non-financial or ganisations 117,671 9,522 85,161 108,149 (7 42) (66,055) 58,447 Households 28,183 12,432 15,751 15,751 (780) (4,868) 17,7 41 Debt instruments other than held for tr ading 148,251 21,97 6 103,287 126,275 (1,522) (73,298) 7 6,210 Loan commitments giv en 1,560 920 640 640 (2) (35) 1,332 T otal exposur es with forbear ance measures 149,811 22,896 103,927 126,915 (1,524) (73,333) 77,542 in EUR thousands NLB Gr oup 31 Dec 2021 Up to 3 months 3 to 6 months 6 to 12 months Over 12 months P er forming exposur es 7,411 5,055 9,860 30,130 Non-performing exposur es 26,835 4,856 18,540 30,956 T otal exposur es with forbear ance measures 34,246 9,911 28,400 61,086 31 Dec 2020 P er forming exposur es 13,455 9,963 1,858 24,317 Non-performing exposur es 32,950 1,786 7,140 65,200 T otal exposur es with forbear ance measures 46,405 11,7 49 8,998 89,517 in EUR thousands NLB 31 Dec 2021 Up to 3 months 3 to 6 months 6 to 12 months Over 12 months P er forming exposur es 2,819 3,898 7,008 10,630 Non-performing exposur es 7,46 7 2,410 13,863 11,551 T otal exposur es with forbear ance measures 10,286 6,308 20,871 22,181 31 Dec 2020 P er forming exposur es 8,304 931 1,398 9,821 Non-performing exposur es 3,96 9 94 2 5,513 42,553 T otal exposur es with forbear ance measures 12,273 1,873 6,911 52,37 4 The m a in for b ea ran ce m ea s ure me nt s u s ed by NLB G ro up an d NLB ar e: defe r ral o f pa ym en t, red uc tio n of in te res t rat es , acq ui si ti on of c oll at era l for p ar ti al re pa ym en t of c lai m s , an d oth er s , eit he r as a s in gl e for b ear anc e me as u rem en t or a s a combinat ion of those. 290 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report l) Repossessed ass ets NLB G rou p an d NLB re cei ved t he f oll owin g as set s by t aki ng p os s es s io n of co lla te ral h el d as s ec ur i t y and h el d th em a t t he r epo r ti ng d at e: in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Natur e of assets Net value Net v alue Investment pr operty (note 5.9.) 36,009 36,130 4,17 6 4,079 Pr operty and equipment (note 5.8.) 13,559 13,268 7 7 Investments in subsidiaries and associates - - 2,333 2,412 Real estat es (note 5.13.) 7 4,717 75,151 4,827 4,926 Other assets (note 5.13.) 733 866 - - Non-curr ent assets held for sale (note 5.7.) 69 9 69 9 - - T otal 125,717 126,114 11,343 11,424 m) Ana lys is o f loa ns a nd a dvan ces by ind us t r y sec t or s in EUR thousands NLB Gr oup 31 Dec 2021 31 Dec 2020 Industry sector Gr oss loans Impairment pr ovisions Net loans (%) Gross loans Impairment pr ovisions Net loans (%) Banks 140,881 (198) 140,683 1.30 197,146 (141) 197,005 1.98 Finance 90,538 (2,851) 87,687 0.81 116,593 (3,126) 113,467 1.14 Electricity, gas, and water 361,520 (5,392) 356,128 3.28 298,612 (6,971) 291,641 2.93 Construction industry 420,173 (29,459) 390,714 3.60 361,49 4 (27,548) 333,9 46 3.35 Heavy industry 1,059,77 4 (30,352) 1,029,422 9.49 952,671 (44,446) 908,225 9.12 Educ ation 12,888 (1,358) 11,530 0.11 13,883 (1,111) 12,772 0.13 Agricultur e, for estry, and fishing 91,735 (3,530) 88,205 0.81 91,780 (7,023) 84,757 0.85 Public sector 231,488 (5,269) 226,219 2.08 301,205 (5,737) 295,468 2.97 Individuals 5,621,071 (101,781) 5,519,290 50.87 5,027,648 (9 4,555) 4,933,093 49.55 Mining 49,936 (1,604) 48,332 0.45 79,662 (1,230) 78,432 0.79 Entr epreneurs 341,670 (7,554) 334,116 3.08 314,27 6 (7,268) 307,008 3.08 Services 778,569 (34,587) 7 43,982 6.86 725,020 (71,133) 653,887 6.57 T ransport and communic ations 798,822 (25,902) 772,920 7.12 811,517 (25,029) 786,488 7.90 T rade industry 1,008,369 (64,364) 9 44,005 8.70 87 4,235 (75,309) 798,926 8.03 Health car e and social security 36,541 (1,970) 34,571 0.32 48,620 (1,794) 46,826 0.47 Other financial assets 128,455 (6,226) 122,229 1.13 118,691 (5,553) 113,138 1.14 T otal 11,172,430 (322,397) 10,850,033 100.00 10,333,053 (377,97 4) 9,955,079 100.00 291 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 31 Dec 2020 Industry sector Gr oss loans Impairment pr ovisions Net loans (%) Gross loans Impairment pr ovisions Net loans (%) Banks 199,46 9 (182) 199,287 3.66 158,475 (155) 158,320 3.29 Finance 169,6 79 (3,109) 166,570 3.06 135,040 (4,405) 130,635 2.72 Electricity, gas, and water 228,423 (724) 227,699 4.18 157,515 (2,892) 154,6 23 3.22 Construction industry 71,989 (9,8 70) 6 2,119 1.14 63,025 (8,463) 54,562 1.13 Heavy industry 583,658 (6,7 47) 57 6,911 10.60 519,880 (14,445) 505,435 10.51 Educ ation 4,045 (27) 4,018 0.07 5,197 (38) 5,159 0.11 Agricultur e, for estry, and fishing 13,073 (100) 12,973 0.24 15,099 (865) 14,234 0.30 Public sector 9 4,17 6 (97 4) 93,202 1.71 95,930 (1,793) 94,137 1.96 Individuals 2,69 4,356 (37,421) 2,656,935 48.80 2,411,9 49 (34,179) 2,377,770 49.46 Mining 22,316 (514) 21,802 0.40 8,580 (7 4) 8,506 0.18 Entr epreneurs 54,600 (1,942) 52,658 0.97 52,216 (3,014) 49,202 1.02 Services 482,17 6 (11,421) 470,755 8.65 454,154 (44,827) 409,327 8.51 T ransport and communic ations 556,786 (5,459) 551,327 10.13 589,269 (4,965) 584,304 12.15 T rade industry 2 48,823 (16,492) 232,331 4.27 204,343 (22,190) 182,153 3.79 Health car e and social security 25,360 (1,619) 23,7 41 0.44 26,288 (1,222) 25,066 0.52 Other financial assets 93,557 (1,153) 92,404 1.70 55,833 (1,330) 54,503 1.13 T otal 5,542,486 (97,754) 5,444,732 100.00 4,952,793 (144,857) 4,807,936 100.00 n) Analysis of ne t loans and adv an ces b y geographical sector s in EUR thousands NLB Gr oup NLB Country 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Slov enia 4,861,968 4,360,051 4,856,305 4,354,155 Other Eur opean Union members 249,772 157,557 156,425 73,252 Serbia 2,320,491 2,146,793 136,696 134,303 Other countries 3,417,802 3,290,678 295,306 246,226 T otal 10,850,033 9,955,079 5,444,732 4,807,936 A s at 31 D ec em be r 2021, O th er co un t r ies i nc lu de di rec t expo su re to R u s s ia in t he a mo un t of EU R 9 4 t ho u sa nd a t NLB G rou p level a nd EU R 84 th o us an d a t NLB leve l. D ire c t expo su re to U kr ain e am ou nt t o EUR 4 t ho u sa nd a t NLB G ro up level an d EU R 2 th ou s an d at N LB level . 292 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report o) Analysi s of debt securities and derivativ e finan cial instr ument s by geogr aph ical sectors in EUR thousands 31 Dec 2021 NLB Gr oup NLB Country Financial assets measur ed at amortised cost Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at FV thr ough profit or loss Derivativ e financial instruments Financial assets measur ed at amortised cost Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Derivativ e financial instruments Slov enia 324,705 - 331,155 - 6,835 32 4,705 - 280,17 4 6,835 Other members of Eur opean Union 1,07 6,225 - 1,180,521 2,428 1,388 1,041,207 - 970,192 1,388 - Austria 7 6,628 - 81,063 - - 7 6,628 - 56,551 - - Belgium 126,828 - 93,404 - 642 126,828 - 59,830 642 - Bulgaria 43,37 4 - 3,173 - - 43,37 4 - 3,173 - - Czech R epublic - - 12,795 - - - - 12,795 - - C yprus 12,447 - 1,755 - - 12,447 - 1,755 - - Denmark - - 20,234 - - - - 20,234 - - Finland 45,899 - 107,633 - - 45,899 - 99,578 - - F ranc e 170,425 - 193,668 - 528 160,423 - 162,625 528 - Germany 105,368 - 115,180 - 1 67 95,361 - 92,622 1 67 - Gr eece - 14,805 - - - 14,805 - - Hungary 21,719 - 6,547 - - 21,719 - 6,547 - - Ir eland 51,906 - 100,689 - - 51,906 - 32,639 - - Italy 26,190 - 10,910 107 - 26,190 - 10,910 - - Latvia 24,929 - - - - 24,929 - - - - Lithuania 15,321 - 27,226 - - 15,321 - 27,226 - - Lux embour g 78,097 - 30,087 - - 78,097 - 30,087 - - Netherlands 67, 67 8 - 143,546 2,321 51 57,670 - 135,529 51 - P oland 17,829 - 18,989 - - 17,829 - 18,989 - - P or tugal 47,842 - 18,704 - - 47,842 - 18,704 - - Romania 23,365 - 5,484 - - 23,365 - 5,484 - - Slov akia 21,603 - 34,627 - - 21,603 - 34,627 - - Spain 70,347 - 64,377 - - 65,346 - 49,857 - - Sweden 15,128 - 75,625 - - 15,128 - 75,625 - - Other 13,302 - - - - 13,302 - - - United States of America 5,061 - 75,498 1,833 - 5,061 - 8,66 7 - Other countries 311,635 - 1,808,08 7 - 23 65,451 - 282,009 27 - Bosnia and Herzego vina 4,048 - 145,522 - - 4,048 - 3,204 - - Koso vo - - 7 6,533 - 1 - - - 1 - Montenegr o 37,349 - 23,578 - - 6,799 - 3,073 - - North Macedonia 221,697 - 152,886 - 6 13,230 - 57,867 - - Serbia 7,167 - 1,196,724 - - - - 5,021 10 - Albania - - 29,823 - - - - 29,823 - - Canada 14,026 - 27,247 - - 14,026 - 27,247 - - Gr eat Britain - - 81,218 - 16 - - 81,218 16 - Iceland 5,7 68 - 8,857 - - 5,7 68 - 8,857 - - Isr ael - - 10,468 - - - - 10,468 - - Kaz akhstan - - 14,254 - - - - 14,254 - - Norway 14,606 - 16,210 - - 14,606 - 16,210 - - Russia - - 20,105 - - - - 20,105 - - Other 6,97 4 - 4,662 - - 6,97 4 - 4,66 2 - T otal 1,717,626 - 3,395,261 4,261 8,246 1,436,42 4 - 1,541,042 8,250 O th er m em be r s of t he Eu rop ean U ni on in c lu ded i n th e li ne ite m ‘O t he r ’ are M al ta a nd E s toni a. O th er m em be r s of t he ‘ O th er c oun t r ies’ i n th e li ne i te m ‘O th er ’ are Egyp t, Uzbek is tan , an d O m an . 293 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands 31 Dec 2020 NLB Gr oup NLB Country Financial assets measur ed at amortised cost Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at FV thr ough profit or loss Derivativ e financial instruments Financial assets measur ed at amortised cost Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Derivativ e financial instruments Slov enia 305,6 97 - 484,875 - 14,498 305,697 - 389,932 14,498 Other members of Eur opean Union 930,258 - 978,504 111 67 2 930,258 - 932,714 67 2 - Austria 78,720 - 73,959 - - 78,720 - 59,163 - - Belgium 121,657 - 78,858 - - 121,657 - 57,167 - - Bulgaria 36,910 - 3,255 - - 36,910 - 3,255 - - Czech R epublic 1,025 - 16,420 - - 1,025 - 16,420 - - C yprus 12,662 - 1,826 - - 12,662 - 1,826 - - Denmark - - 15,97 6 - - - - 15,976 - - Finland 38,515 - 81,905 - - 38,515 - 80,827 - - F ranc e 151,981 - 155,580 - 80 151,981 - 149,673 80 - Germany 63,155 - 104,96 7 - 120 63,155 - 104,96 7 120 - Gr eece - - 7,001 - - - - 7,001 - - Hungary 20,907 - 9,924 - - 20,907 - 9,924 - - Ir eland 45,57 6 - 36,464 - - 45,57 6 - 34,146 - - Italy 7,088 - 11,048 111 - 7,088 - 11,048 - - Latvia 22,112 - 74 9 - - 22,112 - 74 9 - - Lithuania 11,626 - 18,385 - - 11,6 26 - 18,385 - - Lux embour g 71,821 - 37,853 - - 71,821 - 37,853 - - Netherlands 50,409 - 133,360 - 90 50,409 - 133,360 90 - P oland 26,432 - 17,023 - - 26,432 - 17,023 - - P or tugal 45,937 - 19,377 - - 45,937 - 19,377 - - Romania 23,600 - 5,599 - - 23,600 - 5,599 - - Slov akia 21,662 - 36,350 - - 21,662 - 36,350 - - Spain 66,622 - 53,201 - - 66,622 - 53,201 - - Sweden 8,0 72 - 59,424 - - 8,072 - 59,424 - - Other 3,7 69 - - - 382 3,7 69 - - 382 United States of America 9,786 2,450 79,543 2,046 - 9,786 2,450 56,7 42 - Other countries 257,346 66,356 1,903,569 - 87 9 32,139 - 291,816 1,211 - Bosnia and Herzego vina - - 167,131 - - - - - 4 - Koso vo - - 75,223 - 78 6 - - - 786 - Montenegr o 20,386 - 18,649 - - 6,816 - 3,134 - - North Macedonia 204,455 - 143,059 - 7 - - 56,433 - - Serbia 7,182 66,356 1,26 7,258 - 30 - - - 365 - Albania - - 30,548 - - - - 30,548 - - Canada 14,037 - 27,514 - - 14,037 - 27,514 - - Gr eat Britain - - 104,493 - 56 - - 104,493 56 - Iceland 4,993 - 8,988 - - 4,993 - 8,988 - - Isr ael - - 9,511 - - - - 9,511 - - Kaz akhstan - - 12,261 - - - - 12,261 - - Norway 6,293 - 20,526 - - 6,293 - 20,526 - - Russia - - 18,408 - - - - 18,408 - T otal 1,503,08 7 68,806 3,446,491 2,157 16,049 1,277,880 2,450 1,671,204 16,381 O th er m em be r s of t he Eu rop ean U ni on in c lu ded i n th e li ne ite m ‘O t he r ’ are M al ta a nd Cr oa ti a. 2 94 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report p) In ternal rating of derivatives count erpar ties in % NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 A 7 4.08 73.56 7 4.25 73.75 B 25.69 15.35 25.53 15.24 C 0.03 10.90 0.03 10.82 D and E 0.19 0.19 0.19 0.19 T otal 100.00 100.00 100.00 100.00 in EUR thousands 31 Dec 2021 NLB Group NLB Internal r ating A B C D T otal A B C D T otal Financial assets measur ed at fair value thr ough other compr ehensive inc ome 48,099 - - - 48,099 33,107 - - - 33,107 Financial assets measur ed at amor tised cost - loans and advanc es to banks - - - - - 84,399 - - - 84,399 - loans and advanc es to customers - - - - - - - 6,522 - 6,522 T otal 48,099 - - - 48,099 117,506 - 6,522 - 124,028 in EUR thousands 31 Dec 2020 NLB Gr oup NLB Internal r ating A B C D T otal A B C D T otal Financial assets measur ed at fair value thr ough other compr ehensive inc ome - 14,79 6 - - 14,796 - - - - - Financial assets measur ed at amor tised cost - loans and advanc es to banks - - - - - 67,128 - - - 67,128 - loans and advanc es to customers - - - - - - - 5,858 - 5,858 T otal - 14,796 - - 14,796 67,128 - 5,858 - 72,986 All d er iva ti ves in t h e ba nk in g bo ok ar e en tere d in to w it h counte r par ties wi th an e x ternal in vestment-grade rating. Wh en d er iva ti ves are e nt ere d in to on b eh al f of N LB G rou p’s cu s to me r s , s uc h cu s to me r s us u all y do n ot h ave an ex ter n al rat in g , bu t all s u ch t ran s ac tio ns a re covere d th ro ugh b ac k- to - ba ck t ran s ac tio ns i nvolv in g th ird p ar t ies w it h an ex ter n al inv estment-grade rating. r) De bt s ecu ri ti es in N LB G roup’s an d NLB ’s por t fo li o th at re pres en t s ubo rdin a te d lia bil it ies f or t he i ss ue r 295 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report s) P resent ation of net financial inst rum ents by measurement categor y in EUR thousands NLB Gr oup 31 Dec 2021 Financial assets held for tr ading Non-tr ading financial assets mandatorily at FV thr ough P&L Financial assets measur ed at FV thr ough OCI Financial assets measur ed at amortised cost Financial leases Derivativ es for hedge acc ounting T otal Cash and obligatory r eserves with centr al banks, and other demand deposits at banks - - - 5,005,052 - - 5,005,052 Securities - 21,161 3,461,860 1,717,626 - - 5,200,647 - Bonds - 4,261 3,251,826 1,707,960 - - 4,964,047 - Shar es - 4,472 66,599 - - - 71,071 - Commer cial bills - - 37,569 - - - 37,569 - T reasury bills - - 105,866 9,666 - - 115,532 - Investment funds - 12,428 - - - - 12,428 Derivativ es 7,678 - - - - 568 8,246 Loans and r eceivables - - - 10,619,525 108,279 - 10,727,804 - Loans to gov ernments - - - 280,9 61 49 - 281,010 - Loans to banks - - - 140,683 - - 140,683 - Loans to financial or ganisations - - - 141,6 98 11 - 141,709 - Loans to individuals - - - 5,473,278 46,012 - 5,519,290 - Loans to other customers - - - 4,582,906 62,206 - 4,645,112 Other financial assets - - - 122,229 - - 122,229 T otal financial assets 7,6 78 21,161 3,461,860 17,464,432 108,279 568 21,063,978 in EUR thousands NLB Gr oup 31 Dec 2020 Financial assets held for tr ading Non-tr ading financial assets mandatorily at FV thr ough P&L Financial assets measur ed at FV thr ough OCI Financial assets measur ed at amortised cost Financial leases T otal Cash and obligatory r eserves with centr al banks, and other demand deposits at banks - - - 3,961,812 - 3,961,812 Securities 68,806 17,317 3,514,290 1,503,08 7 - 5,103,500 - Bonds 68,806 2,157 3,260,940 1,480,478 - 4,812,381 - Shar es - 4,171 67,799 - - 71,970 - Commer cial bills - - 50,449 - - 50,449 - T reasury bills - - 135,102 22,609 - 157,711 - Investment funds - 10,989 - - - 10,989 Derivativ es 16,049 - - - - 16,049 Loans and r eceivables - 25,07 6 - 9,768,232 48,633 9,841,941 - Loans to gov ernments - - - 365,339 3,061 368,400 - Loans to banks - - - 197,005 - 197,005 - Loans to financial or ganisations - - - 158,845 26 158,871 - Loans to individuals - - - 4,913,793 19,300 4,933,093 - Loans to other customers - 25,07 6 - 4,133,250 26,246 4,184,572 Other financial assets - - - 113,138 - 113,138 T otal financial assets 84,855 42,393 3,514,290 15,346,269 48,633 19,036,440 296 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 Financial assets held for tr ading Non-tr ading financial assets mandatorily at FV thr ough P&L Financial assets measur ed at FV thr ough OCI Financial assets measur ed at amortised cost Derivativ es for hedge acc ounting T otal Cash and obligatory r eserves with centr al banks, and other demand deposits at banks - - - 3,250,437 - 3,250,437 Securities - 4,472 1,585,751 1,436,424 - 3,026,647 - Bonds - - 1,526,237 1,436,42 4 - 2,962,661 - Shar es - 4,472 44,709 - - 49,181 - T reasury bills - - 14,805 - - 14,805 Derivativ es 7,682 - - - 568 8,250 Loans and r eceivables - 7,888 - 5,344,440 - 5,352,328 - Loans to gov ernments - - 143,864 - 143,864 - Loans to banks - - 199,287 - 199,287 - Loans to financial or ganisations - - 226,144 - 226,144 - Loans to individuals - - - 2,656,935 - 2,656,935 - Loans to other customers - 7,888 - 2,118,210 - 2,126,098 Other financial assets - - - 92,404 - 92,404 T otal financial assets 7,682 12,360 1,585,751 10,123,705 568 11,730,066 in EUR thousands NLB 31 Dec 2020 Financial assets held for tr ading Non-tr ading financial assets mandatorily at FV thr ough P&L Financial assets measur ed at FV thr ough OCI Financial assets measur ed at amortised cost T otal Cash and obligatory r eserves with centr al banks, and other demand deposits at banks - - - 2,261,533 2,261,533 Securities 2,450 4,171 1,716,351 1,277,880 3,000,852 - Bonds 2,450 - 1,598,760 1,277,880 2,879,090 - Shar es - 4,171 45,147 - 49,318 - T reasury bills - - 72,444 - 72,444 Derivativ es 16,381 - - - 16,381 Loans and r eceivables - 30,935 - 4,722,498 4,753,433 - Loans to gov ernments - - - 170,7 42 170,7 42 - Loans to banks - - - 158,320 158,320 - Loans to financial or ganisations - - - 177,198 177,198 - Loans to individuals - - - 2,377,770 2,377,770 - Loans to other customers - 30,935 - 1,838,468 1,86 9,403 Other financial assets - - - 54,503 54,503 T otal financial assets 18,831 35,106 1,716,351 8,316,414 10,086,702 A s at 31 D ec em be r 2021 an d 31 De cem be r 2020, all o f NLB Group’ s f inancial liabilitie s, except for der ivatives designa ted as hedging ins tr um ent s , trading liabilities , and fin ancial liab ili ti es m ea s ure d at f air val u e th ro ugh p rof it o r lo s s , were carrie d at amor t ised cos t. 297 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 6.2. Mark et risk NLB de f in es m ar ket r is k a s th e r is k of p ote nt ia l f in an cia l los s es du e to ch an ge s in ra te s an d/ or m a rket p r ice s (exchan ge rat es , c red it s pr ead s , an d e qu it y pr ice s), or i n pa ram et er s th at a f fec t pr ice s (vola ti lit ie s an d cor r ela t ion s). Los s es m a y imp ac t pro fi t or l os s di rec tl y , f or exam pl e in t he ca s e of t rad ing boo k po si ti on s . However , fo r th e b an kin g bo ok p os it io ns t h ey are re fl ec ted in t h e reval ua ti on re se r ve. The ex po su re to t h e ma rket r i s k is to a c er tai n de gre e in teg ra ted i nto t h e ba nk in g in du s t r y and o f f er s an o pp or t un it y to c rea te f in an ci al re s ul t s and value. The G l ob al R is k De pa r tm en t of N LB is i nd ep en den t f rom th e tr adi ng a c t iv it ies a n d rep or t s to t he B a nk ’s As s et s a nd Liab ili t ies Co mm it te e (ALCO). Glo bal R i sk a ls o m oni to r s an d ma na ge s expo s ure to m ar ket r i sk s s ep ara te ly fo r th e b an kin g an d tra din g bo ok s . Ex pos u res a nd l im it s ar e mo ni tor ed d ail y an d rep or te d to t he A LC O c om mi t tee o n a reg ul ar ba s is . The B a nk u s es a w ide s el ec tio n of q ua nt it at ive an d q ual it at ive too ls fo r m eas u r ing , m an ag in g, a nd r epo r ti ng m ar ket r is k s su ch a s val ue - a t- ri s k ( VaR), se ns i ti vi t y ana lys i s , s t res s - tes tin g , bac k-tes tin g , sc en ar ios , oth er m ar ket r i sk m it ig an t s (conce nt ra tio n of exp os ur es , g ap li mi t s , s to p - lo s s lim it s , etc .), ne t int ere s t in co me s en s it iv it y, econo mi c valu e of e qu it y , a nd eco no mic c api tal . S tre s s -t es t in g prov ide s an in d ica tio n of t he pot en tia l lo s se s th a t cou ld o cc ur in s evere m ar ket co nd it ion s . In the ar ea of curr ency risk, NLB Group pursues the goal of lo w to medium e xposure. NLB monitor s the open position of NLB Gr oup on an ongoing basis. The orientation of NLB Gr oup in inter est r ate risk management is to pr event negativ e ef fects on the net r evenues arising fr om changed mark et inter est rates. The conclusion of tr ansactions inv olving derivatives at NLB is limited to the servicing of the clients’ and hedging of the Gr oup’s own open positions. In acc ordanc e with the pr ovisions of the Str ategy on tr ading with financial instruments in NLB Gr oup, the trading activities in other NLB Gr oup members ar e very r estricted. For mon it or in g an d m an agi ng N LB Gr oup’s expo s ure to ma rket r i s k s uni for m g ui del in es an d exp os ur e lim it s f or ea ch t y pe o f r is k are s et f or in di vi du al NLB G ro up e nt it ie s . Th e me th od ol ogi es ar e in li ne w it h reg ul at or y re qui rem en t s o n in div id ual a nd c on so li da ted l evels , whi le re po r tin g to t he reg ul ato r on t he c on s oli da ted l evel is c ar r ie d ou t us in g th e standardised approach. Purs uant to the rele vant policies, NLB G rou p en ti ti es m u s t m on ito r an d ma na ge ex pos u re to ma rket r i s k s an d rep or t to NL B acco rdi ng ly. The exp os ure of an in di vi du al NL B Gro up e nt it y i s reg ul ar ly m on it ore d an d rep or te d to t he A s set s a nd L iab ili ti es Com m it te e of NLB G ro up (NL B G r o up ALCO). 6.2.1. Cur renc y r is k (F X ) Foreign c ur re n c y r is k (F X ) is a r i s k of t he p ote nt ia l los s es fro m th e op en F X p os it io ns d ue t o th e ch an ge s of t he f ore ign cur r en c y ra tes . The ex pos u res o f NLB to t h e movem e nt of t h e F X ra tes h a ve imp ac t on t he f in an ci al p os it ion a nd c as h fl ows of th e B an k . Th e B an k m ea s ure s an d ma na ge s th e F X r is k w it h a us ag e of com bi na t ion o f se ns i ti vi t y a n aly si s , VaR , sce n ar ios , and stres s-tes ting. In th e t rad ing b oo k , s im ila r to th e ot h er m ar ket r is k s , r i sk i s ma na ge d on t he b as is o f VaR limi t s wh ic h are ap proved by th e M an age me nt B o ard o f th e B an k an d in ac cord an ce to t h e ado pte d po lic y o f m an agi ng m ar ket r is k i n th e tr adi ng b oo k of NLB . T ra din g F X r is k i s m an age d on a n int eg rat ed b as is a t a por t folio level. NLB m on ito r s an d ma n age s F X r is k in t h e ban k in g bo ok acco rdin g to t h e po lic y o f ma na gin g F X r is k i n NLB . T he pol ic y i s pr im ar il y com p os ed to p rot ec t Comm on Eq uit y Tie r 1 ag ain s t t he n e ga ti ve ef fec ts o f th e vol at il it y of t he F X rat es , w hi ls t l im it in g th e vol at ili t y in th e in co me s tat em en t. F X expo su res i n ba nk in g bo ok re s ul t fro m core b an k ing b u si ne s s ac tivities . Each m em be r is re s pon s ib le fo r it s ow n cur r en c y r is k po lic y, wh ich a ls o in cl ud es a li mi t s ys t em a nd i s in li ne w it h t he p are nt Ba nk ’s guid eli ne s an d s ta nd ard s , as we ll a s loc al re gu la tor y req uir em en t s . Po lic ies a re co nf ir m ed by e it he r th e lo cal Ma na gem e nt B oa rd or S u pe r vis or y B oa rd . NLB m on ito r s an d ma na ge s NLB G rou p cu r ren c y r is k exp os ur e on a m on th ly ba si s for e ac h me mb er a nd o n th e co ns o lid at ed leve l. NLB G rou p ba nk s fo llow t h e gu ide lin es f or m an agi ng F X len di ng i n NLB G rou p. Th e g uid eli ne s’ go al i s to ad dre s s ri s k s s te mm in g fro m th e p ote nt ial exce s si ve grow th of F X len di ng , to i den t if y hid de n ri s k s , an d tai l - even t ri s k s rel at ed to F X le nd in g, t o mi ti ga te t he re s pe c t ive r is k , t o int er n ali s e th e res pe c t ive c os t s , a nd t o ho ld a de qu at e capi ta l wi th re s pe c t to F X len d ing . The p os it io ns o f all c ur re nc ie s in th e s t at em en t of f in an ci al pos it io n of NL B , for w hi ch a d ail y lim it i s s et, are m on ito re d dai ly. FX p os it ion s ar e ma na ge d on t he c ur re nc y l evel s o th a t th ey are al way s wi th in t he l im it s . Reg ard in g s tr uc t u ral F X p os it io ns o n a con s ol ida ti on l evel, as s et s , a nd l iab ili ti es h el d in for eig n ope ra ti on s are t ran s la te d int o eu ro cu r ren c y a t th e cl os in g F X ra te on t h e rep or t ing da te. Fore ign exch an ge d if fere nc es of n on - eu ro as s et s a nd liabilities agains t euro are recognised in OCI, and therefore af fec t sh ar eh old er ’s eq ui t y and C ET 1 cap ita l. N LB G rou p AL M em ploy s s t rat eg ies t o ma na ge t hi s for eign c ur re n c y expo s ure, includin g matche d funding of as set s and liabilities . Ex po s ure to c ur re nc y ri sk s i s di sc u s se d at d ail y li qu idi t y me et in gs an d m on th l y me et in gs of t h e ALCO comm it te e of t he NLB G rou p, an d qu ar te r ly on t h e con s oli da te d level . 298 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report a) An alysis of financial instr umen ts by currency ex pos ure in EUR thousands NLB Gr oup 31 Dec 2021 EUR RSD USD CHF Other T otal Financial assets Cash, cash balanc es at centr al banks, and other demand deposits at banks 4,035,603 29 4,459 58,36 7 112,880 503,7 43 5,005,052 Financial assets held for tr ading 7,678 - - - - 7,678 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 11,000 5,689 4,472 - - 21,161 Financial assets measur ed at fair value thr ough other compr ehensive income 2,349,722 802,321 206,583 14,992 88,242 3,461,860 Financial assets measur ed at amor tised cost - debt securities 1,489,279 7,168 19,172 - 202,007 1,717,626 - loans and advanc es to banks 79,530 145 37,070 17,293 6,645 140,683 - loans and advanc es to customers 8,582,987 7 63,856 19,478 68,284 1,152,516 10,587,121 - other financial assets 61,713 12,463 20,813 48 27,192 122,229 Derivativ es - hedge accounting 568 - - - - 568 F air value changes of the hedged items in portfolio hedge of inter est rate risk 7,082 - - - - 7,082 T otal financial assets 16,625,162 1,886,101 365,955 213,497 1,980,345 21,071,060 Financial liabilities Financial liabilities held for tr ading 7,585 - - - - 7,585 Derivativ es - hedge accounting 35,377 - - - - 35,377 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 49,351 1,456 6,370 2,114 12,537 71,828 - borr owings fr om banks and centr al banks 845,649 - 12,882 - - 858,531 - due to customers 14,295,198 1,244,161 358,851 179,934 1,562,665 17,640,809 - borr owings fr om other customers 73,645 - 406 - - 7 4,051 - subor dinated liabilities 288,519 - - - - 288,519 - other financial liabilities 133,555 2 4,471 26,131 2,641 20,080 206,878 T otal financial liabilities 15,728,879 1,270,088 404,640 184,689 1,595,282 19,183,578 Net on-balance sheet financial position 896,283 616,013 (38,685) 28,808 385,063 1,887,482 Derivativ e financial instruments (27,149) 2,002 44,115 (24,12 4) (13,568) (18,724) Net financial position 869,134 618,015 5,430 4,684 371,495 1,868,758 31 Dec 2020 T otal financial assets 14,728,76 7 1,921,270 376,572 17 6,890 1,846,785 19,050,284 T otal financial liabilities 13,962,729 1,254,761 371,229 175,275 1,502,653 17,266,647 Net on-balance sheet financial position 766,038 666,509 5,343 1,615 344,132 1,783,637 Derivativ e financial instruments 30,7 48 - 651 (2,303) (43,314) (14,218) Net financial position 796,786 666,509 5,994 (688) 300,818 1,76 9,419 299 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 EUR RSD USD CHF Other T otal Financial assets Cash, cash balanc es at centr al banks, and other demand deposits at banks 3,165,604 1,212 24,185 13,648 45,788 3,250,437 Financial assets held for tr ading 7,682 - - - - 7,682 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 7,888 - 4,472 - - 12,360 Financial assets measur ed at fair value thr ough other compr ehensive income 1,477,6 70 - 82,038 - 26,043 1,585,751 Financial assets measur ed at amor tised cost - debt securities 1,40 7,226 - 19,172 - 10,026 1,436,424 - loans and advanc es to banks 199,287 - - - - 199,287 - loans and advanc es to customers 5,060,091 - 13,932 69,808 1,322 5,145,153 - other financial assets 50,515 7 20,755 1 21,126 92,404 Derivativ es - hedge accounting 568 - - - - 568 F air value changes of the hedged items in portfolio hedge of inter est rate risk 7,082 - - - - 7,082 T otal financial assets 11,383,613 1,219 164,554 83,457 104,305 11,737,148 Financial liabilities Financial liabilities held for tr ading 7,602 - - - - 7,602 Financial liabilities measur ed at fair value thr ough profit or loss 352 - - - - 352 Derivativ es - hedge accounting 35,377 - - - - 35,377 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 75,149 13 10,878 2,416 20,873 109,329 - borr owings fr om banks and centr al banks 860,597 - 12,882 - - 873,479 - due to customers 9,412,452 5 148,364 55,391 43,393 9,659,605 - borr owings fr om other customers - - 406 - - 406 - subor dinated liabilities 288,519 - - - - 288,519 - other financial liabilities 79,050 - 22,17 4 153 1,150 102,527 T otal financial liabilities 10,759,098 18 19 4,704 57,960 65,416 11,077,196 Net on-balance sheetfinancial position 624,515 1,201 (30,150) 25,497 38,889 659,952 Derivativ e financial instruments (15,358) - 35,825 (25,132) (14,07 6) (18,7 41) Net financial position 609,157 1,201 5,6 75 365 24,813 641,211 31 Dec 2020 T otal financial assets 9,780,372 2,289 177,771 63,153 7 6,961 10,100,546 T otal financial liabilities 9,199,7 63 13 171,281 60,015 58,7 46 9,489,818 Net on-balance sheet financial position 580,609 2,27 6 6,490 3,138 18,215 610,728 Derivativ e financial instruments 4,136 - (2,491) (3,299) (12,169) (13,823) Net financial position 584,7 45 2,27 6 3,999 (161) 6,046 596,905 300 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) FX s en si tiv it y ana lys is NLB Gr oup and NLB Scenarios 31 Dec 2021 31 Dec 2020 USD +/-5.7 4% +/-7.89% CHF +/-4.23% +/-4.02% CZK +/-4.55% +/-8.57% RSD +/-0.35% +/-0.97% MKD +/-1.34% +/-3.46% JPY +/-5.66% +/-8.56% AUD +/-6.77% +/-10.70% HUF +/-6.53% +/-9.63% HRK +/-1.38% +/-2.02% BAM +/-0% +/-0% in EUR thousands NLB Gr oup NLB 31 Dec 2021 Effects on income statement Effects on other compr ehensive inc ome Effects on income statement Effects on other compr ehensive inc ome Appr eciation of USD 454 - (132) 42 CHF (358) 566 6 - CZK 11 - 11 - RSD 2 2,501 4 - MKD 2 3,570 285 - Other 23 70 (17) - Effects on compr ehensive income 134 6,707 157 42 Depr eciation of USD (405) - 117 (38) CHF 329 (520) (5) - CZK (10) - (10) - RSD (2) (2,484) (4) - MKD (2) (3,47 6) (277) - Other (21) (69) 15 - Effects on compr ehensive income (111) (6,549) (164) (38) 301 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report The e f f ec t on t he ot h er co mp reh en s ive in co me s tat em en t of NLB G rou p ha s de cr ea se d by ha lf d ue to t h e lower t ran s la t ion pos it io ns i n MK D an d R SD c ur re nc ies a n d du e to th e lowe r vola ti lit y gr ow t hs ’ sc en ar ios f or M KD an d R SD c ur re n cie s . 6.2.2. M an ag in g ma rket r is k s in t he t radi ng b oo k Ma rket r i s k expo s ure in t h e tr adi ng b ook a r is es m os tly a s a res ul t of t h e ch an ge s in in ter es t r at es , c red it s pr ead s , F X r ate s , an d eq uit y pr i ces . The Managem ent Board determin es low total ris k appetite an d lim it s by t he r i s k t y pe . Th e lim it s a re m on ito red d ail y by the Globa l Risk Department. NLB u se s an in te rn al VaR mo de l ba se d on t h e var ian ce - covar ian ce m et ho d fo r oth er m ar ket r i sk s . The d ail y calc ul at io n of t he VAR valu e is ad ju s t ed to B a se l s ta n dard s (99% conf id en ce in te r val, a m on ito red p er io d of 250 b u si ne s s day s , a 10- d ay h ol din g po si ti on p er io d). 6.2.3. In te res t ra te r is k Int ere s t ra te r i sk i s th e r i sk t o NLB G rou p’s capit al an d pro f it or lo s s ar is in g fr om ch an g es in m ar ket in te res t rat es . I nt ere s t rat e r is k m an age m ent o f NLB G ro up in c lu des a ll in te res t rat e - se ns it i ve on an d of f-b al anc e sh e et as set s a nd l iab ili ti es w hic h are di vi ded i nt o th e tr adi ng a nd b an ki ng b oo k acco rdi ng to reg ul at or y s ta n dard s . I t ta kes in to acc ou nt t he p os it io ns in ea ch c ur ren c y. Inte res t rat e ri s k m an age me nt i n NLB Gro up i s ad opt ed in a cco rda nce w it h t he r i sk a pp et it e an d ri s k s t rat eg y , b as e d on ge ne ral B a se l s ta nd ard s on i nt ere s t rat e ma na ge me nt i n th e b ank in g bo ok (IR R B B; h ere in af te r : ‘S tandards’) and European Bank ing Auth orit y guidelines . In the tr ading book, inter est rate risk is measur ed on the basis of the V aR method and BPV method, in acc or dance with the adopted policy for managing mark et risk in the trading book of NLB. The i nt ere s t ra te r i sk i n th e b ank in g bo ok i s m ea su red an d mo ni tor ed wi t hin a f ram ewor k o f int ere s t ra te ri s k ma na ge me nt p ol ic y t ha t es tabl is h es co ns i s te nt me th od ol ogi es , m od el s , an d li mi t s ys t em s . NL B Gro up ma na ge s int ere s t ra te r i sk ex pos u re t hro ug h app lic at ion o f t wo m ai n me as u res : • Econo mi c valu e se ns i ti vi t y – u s in g BP V m et ho d (Ba s is Po in t V a lu e), whi ch m ea s ure s th e ex t en t to w hic h th e ec on om ic valu e of t he b an ki ng b oo k woul d ch an ge i f in ter es t r at es chan ge accordin g to the scen ar io. • Se ns it i vit y of n et i nt ere s t in co me – u s ing EaR m e th od (Earn in gs a t Ri s k), w hi ch m ea s ure s th e im pa c t o f th e in te res t rat e ch an ge o n fu t ur e ne t in tere s t i nco m e over a on e -yea r per i od , as s um in g co ns tan t bal an ce s he et vo lum e a nd s tr uc t ure. NLB Gr oup regularly measur es inter est r ate risk exposur e in the banking book under various standar dised and additional scenarios of changes in the le vel and shape of inter est rate yield curve, including all signific ant sourc es of risk, taking into acc ount behavioural and modelling assumptions. P art of non-maturing deposits, which is consider ed as a cor e part is allocated long-t erm by using replic ating port folio. Optionality risk is mainly derived fr om behaviour al options, reflected in pr epayments and withdraw als, and embedded options such as caps and floors. Mor eov er, considering e xpected cash flows, non-performing exposur es, as well as off-balanc e sheet items ar e consider ed when measuring inter est rate risk e xposur e. The i nt ere s t ra te r i sk i s cl os el y me as u red , m on ito red , an d ma na ge d wi th in ap proved r i sk l im it s a nd co nt ro ls . T he G ro up ma na ge s int ere s t ra te p os it io ns a nd s tabi lis es i t s in te res t rat e ma rgin p r im ar il y wi th t h e pr ic ing p ol ic y an d a f un d t ran s fe r pr ici ng p ol ic y. An imp or ta nt p ar t of t h e in ter es t ra te r i s k ma na gem e nt i s pre se nt ed by t he b an ki ng b oo k se cu r it ies por t fol io, w ho se p r im ar y pu r pos e i s to m ain tai n ad eq ua te liq uid it y res er ves , whi le i t als o co nt r ib ut es to t h e s ta bil it y of th e in ter es t r at e ma rgin , w hi ch i s why val ua t ion r i sk h a s be en inc l ude d in t he G ro up’s int ere s t ra te r is k m an ag em en t m ode l . in EUR thousands NLB Gr oup NLB 31 Dec 2020 Effects on income statement Effects on other compr ehensive inc ome Effects on income statement Effects on other compr ehensive inc ome Appr eciation of USD (345) - (97) (11) CHF (293) 231 (32) - CZK (4) - (4) - RSD 9 7,096 22 - MKD 4 7,663 19 - Other 85 91 89 - Effects on compr ehensive income (544) 15,081 (3) (11) Depr eciation of USD 295 - 83 10 CHF 270 (213) 29 - CZK 3 - 3 - RSD (9) (6,959) (22) - MKD (4) (7,151) (18) - Other (68) (89) (70) - Effects on compr ehensive income 4 87 (14,412) 5 10 302 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB G rou p al so m an ag es i nte res t rat es r i sk by u si ng p lai n vanil la d er iva ti ve fi na nc ial i ns tr u me nt s ( in te res t rat e s waps , overn igh t in d ex swa ps , c ros s c ur re nc y s wa ps , an d fo r ward rat e agr eem e nt s), m os t of wh ich a re t rea te d acc ordi ng t o he dge a cco un ti ng r u le s . In te res t r at e r is k exp os ure a ri s es ma in ly fr om b ank in g bo ok p os it io ns ; pa r tic ul ar ly i n a cu r ren t low in ter es t r ate e nvi ron m en t, whe re NLB G ro up re co rde d an inc re as ed vol um e o f fi xed in te res t rat e loa ns a n d lon g -t er m ban k ing b oo k se c ur it ie s on t he a s s et s s ide a nd t ra ns f or m at ion of de pos i t s fro m ter m t o si ght. Each m em be r of NLB G ro up i s res p on si bl e for i t s own in te res t rat e r is k po lic y, whic h in cl ud es t he l im it s y s te m an d is in l in e wi th t he p are nt B a nk ’s guide lin e s an d s ta nd ard s , as we ll as w it h th e lo cal r eg ula to r y req uir em en t s . NLB r eg ula r ly mo ni tor s t h e int ere s t ra te r i sk ex pos u re of e ac h in div id ual me mb er o f NLB G rou p in ac cor dan ce w it h th e St an da rds for R is k M an ag em en t in NLB G ro up . Th e afo rem en t ion ed doc um en t co mp r is es g ui del in es fo r uni for m a nd e f f ec tive int ere s t ra te r i sk m an a gem en t w it hin i n div id ual N LB G rou p member s . in EUR thousands 31 Dec 2021 NLB Gr oup Curr ency 1 - 3 years 3 - 5 years 5 - 10 years Over 10 Y ears EUR (2,404,620) 1,211,248 1,573,325 446,585 RSD 203,340 341,214 62,458 1,912 MKD 141,261 21,9 60 13,835 9,378 Other (32,296) 124,132 66,726 3,234 in EUR thousands 31 Dec 2020 NLB Group Curr ency 1 - 3 years 3 - 5 years 5 - 10 years Over 10 Y ears EUR (1,856,327) 816,980 1,397,446 279,265 RSD 216,751 175,362 167,139 - MKD 7 4,788 43,725 5,224 11,032 Other (134,917) 49,451 16,095 (2,886) in EUR thousands 31 Dec 2021 NLB Curr ency 1 - 3 years 3 - 5 years 5 - 10 years Over 10 Y ears EUR (1,803,603) 815,356 1,203,636 389,570 Other 1,626 32,325 1,242 6,627 in EUR thousands 31 Dec 2020 NLB Curr ency 1 - 3 years 3 - 5 years 5 - 10 years Over 10 Y ears EUR (1,479,227) 451,008 1,0 71,925 227,828 Other (9,471) 9,171 5,628 (7) Int ere s t ra te r i sk i n th e ba nk in g bo ok i s m eas u red , m on ito red , an d rep or te d by th e G lob al R is k D ep ar t me nt (wee kl y in t he cas e of N LB an d mo nt h ly o n Gro up l evel) , wh il e pos i tio ns a re ma na ge d by Fin an ci al M ar ket s . E x pos u re to in te res t rat e ri s k is di s cu s se d on A LC O m on t hl y on NL B’s in di vi du al level a nd quar ter ly on the co n solidated lev el . a) An alysis of financial instr umen ts according to th e expos ure t o in te res t ra te r is k The f oll owin g ta bl e pre se nt s o pe n ne t in ter es t ra te r i s k pos it io ns by t h e mo s t im po r tan t c ur ren ci es of N LB G rou p. Fin an ci al in s t r um e nt s w it h ou t m at ur i t y su ch a s si gh t dep os it s are pr es en te d in th e f ir s t gap ir re s pe c t ive of t h eir b eh av io ura l ch ara c te r is t ic s and t h e NLB G ro up’s expec ta tio n s . 303 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Net in te res t in com e s en si ti vit y an alys is a nd a n eco nom ic view of i nt eres t ra t e ri sk i n th e ba nk in g boo k The a n aly si s of i nt ere s t in com e s en s it iv it y for t h e ho rizo n of t he nex t 12 mon t hs a s s um es a s u dd en pa ral lel i nt ere s t ra te s h ock down by 50 b as is p oin t s o r 100 ba si s po int s . Th e an aly si s as s um es t h at t h e po si ti on s us ed r em ain u nc h ang ed . The a s s es s m en t of t he i mp ac t of a ch an ge i n in ter es t ra te s of 50/ 100 ba si s po in t s on t he a mo un t of n et i nt ere s t in com e o f the banking book po s ition: in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Net inter est income sensitivity 18,520 13,852 6,668 7,493 Net inter est income sensitivity - as % of Equity 0.94% 0.78% 0.49% 0.55% in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Inter est risk in banking book - EVE 126,651 128,370 84,130 82,116 Inter est risk in banking book - EVE as % of Equity 6.42% 7.27% 6.14% 5.98% The va lu es in t h e tab le a re cal cu la ted o n s ho r t-te rm i nt ere s t rat e gap s , w he re th e ap pl ied p ara lle l in ter es t r at e sh oc k dow n by 50/ 100 ba si s po int s repr es en t s a rea lis tic a nd p rac ti cal sce na r io. Th e ca lc ula t ion s of t h e se ns i ti vi t y o f ne t in ter es t inc om e are i mp le me nt ed in t ec hn ol og ical s u ppo r t. The ‘ E V E’ (Econ om ic Value of Eq uit y) m et ho d is a m ea s ure of th e s en s it iv it y of ch an g es in m ar ket in te res t rat es o n th e eco no mic va lu e of f in an ci al in s t r um en t s . T he E V E rep res en t s th e pre s ent va lu e of n et f u t ure ca s h fl ows an d prov id es a com pre he n si ve view o f th e po s si bl e lon g -t er m ef fec t s of ch an gin g in ter es t r at es a t lea s t u nd er t he s ix p re sc r ibe d s tan d ardi s ed in te res t rat e sh oc k s cen ar io s or m ore i f ne ces s ar y, accord ing t o th e s it u at ion o n f in an cia l ma r ket s . Calculation s are considerin g behavioural and au tomat ic opt ion s , a s well a s t he a llo ca tio n of n on - m at u r in g dep os it s . The a s s es s m en t of t he i mp ac t of a ch an ge i n in ter es t ra te s of 200 ba si s po int s on th e ec on om ic val ue of t h e ba nk in g bo ok position: The a pp lie d s ud den p ara lle l in ter es t r at e sh oc k up i s by 200 ba si s po int s, w hi ch re pre s ent s a “wo rs t cas e” sc en ar io fo r NLB Gro up . Th e calc ul at io n takes i nt o th e acc ou nt a llo cat io n of t he core p ar t of n on -m a tu r in g dep os it s a nd o th er b eh av io ura l as sum ption s . Ex po s ure to t h e in ter es t ra te r i s k of t he b an ki ng b ook m a inl y ar is es f rom i nves t m en t s in lo ng - ter m d ebt s e cur i ti es an d loa ns w it h f ixe d int ere s t ra te , as wel l as f rom t ran s fo r ma t ion o f ter m to s ig ht d epo s it s d ue to a l ow in tere s t ra te e nvi ron me nt. Lon g- te rm i nt ere s t po s it ion s of o th er m em b er s in N LB Gr oup, wh ich p res en t a m ajo r it y of t he ir exp os ur e to in ter es t- ra te r is k (an econ om ic p oin t of v iew), m ain l y ar is e fr om a po r t f oli o of mo r tga ge lo an s w it h a f ixed in te res t rat e. 304 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 6.3. L iq uidi t y r isk Liq uid it y r is k i s th e r is k of t h e NLB G rou p be in g un abl e to f ul fi l cu r ren t or f u t ure exp ec te d an d un expe c t ed c as h req uir em en t s , ac ros s a ll ti m e ho rizo ns . The r i s k ma y s te m fro m th e red uc ti on in f u nd ing s o urce s or a re d uc t io n in t he l iq uid it y of cer tain ass ets . Liq uid it y r is k i s rel at ed to f un d ing l iq uid it y r is k (th e NLB Group’ s liquidit y on the liabilities -side) and market liquidit y ri s k (coun ter b ala nc in g cap aci t y on t he a s s et s -s id e). On the liabilities -sid e, liquidit y ris k can result in a loss if the Ba nk i s un ab le to s et t le al l it s l iabi li tie s or w he n th e B an k , be cau s e of it s i nc apa ci t y to provi de s u f f ic ie nt f un d s to s et tl e it s ob lig at io ns , is for ced to r ai se t he n e ces s ar y f un d s at a cos t w hi ch s ign if ic an tl y exceed s th e n or m al co s t. On t h e as s et s - si de, t h e liq uid it y r is k is r ela te d to t he m a rket va lu e of counter balancin g capacit y and ari ses in case of significan t reduc tion of mar ket v al ue of an individual finan cial ins tr ume nt an d ma y res u lt i n in s uf fi cie nt val u e of co un ter b al anc in g cap aci t y to cover t he N LB Gr oup’s liq uid it y ne ed s . Int ra da y liq uid it y r is k is t h e cap ac it y req ui red d ur in g th e bu s in es s d ay to e na bl e fi na nc ial i ns ti t ut ion s to m a ke payments and set tle obli gations. In th e r is k id en ti f ica ti on p roce s s , f ir s t t h e rea s on s for t h e realisat ion of each identifie d mater ial risk are analys ed and gro upe d to get h er in s h or t r is k d es cr ip tio n s . M at er ial r i s ks are t he n cl as s if i ed in to t hr ee gro up s ba s ed on w h at p ar t of liq uid it y is a f fec ted by t he r eal is at io n of t he m a ter i al r is k s : liab ili ti es s id e, as s et s sid e, in tr ada y li qu idi t y r i s k . B as ed o n th e identif ied mat erial ris k s, key liquidit y risk dr ivers are defined . Key ris k dr ive r s of t he l iqu idi t y pos i tio n are f ac t or s t ha t ar e expe c t ed to t r ig ger a s u bs t an tia l de ter io ra tio n of t he G ro up’s liq uid it y po si ti on . Th is d et er ior at io n ma y take p lac e in th e fo r m of an in c rea se i n ou t flow s , a de cr eas e in i nf low s or a de cr ea se in the liquidit y value of the counter balanc ing capacit y. Liquidity risk is defined as an important risk type for NLB Gr oup, and one which must be managed car efully. NLB Gr oup has a liquidity risk management fr amework in plac e that enables maintaining a low risk toler ance f or liquidity risk. NLB Group formulated a set of liquidity risk metrics and limits to manage liquidity position within the r equirements set b y the regulator. By maintaining a smooth long-term maturity pr ofile, limiting dependence on wholesale funding, and holding a solid liquidity buffer, the NLB Gr oup maintains a sound and robust liquidity position, ev en under sever ely adverse c onditions. The Manage ment Bo ard approv es th e Liquidit y Ri sk Ma na gem e nt Po lic y, whi ch o ut lin es t h e key pr in cip le s for the Ban k ’s liq uidit y m anagem ent. AL CO receiv es a regular rep or t on t h e liq uid it y po si ti on an d t he p er fo rm a nce a gai ns t app roved lim i t s an d tar get s . ALCO o ve r se es t he d evelo pm en t of the Bank ’s funding and liquidi t y posit ion and decides on liq uid it y r is k-re la ted i s s ue s in NLB G ro up . Ri sk t ol eran ce f or li qu idi t y r i s k is low, th eref ore N LB Gr oup mu s t b e ab le to p rovid e s uf f ici en t fu nd s fo r se t tlin g i t s lia bili t ies at al l ti me s , even if a s p ec if ic s t re s s sc en ar io i s rea lis e d. N LB Gro up m e as ure s an d m an ag es it s liq uid it y in t wo s tag es : • S tatic view ( cur rent exposure), • For ward - lo ok in g an d s t res s - tes tin g . The objec tives of monitor ing and man aging liquidit y r isk in NLB G rou p are a s fol lows : • e ns u r ing a s u f fic ie nt am o un t of li qu idi t y for t he s et tl em en t of all NLB Group ’s liabilities; • m inimis ing the cos ts of main taining liquidit y; • det ermin ing an adequate amo unt of counterb alancing capacit y and opt imal liquidit y managemen t ; • ens uring a dequate co ntrol en vironment; • en sur ing an appropriat e lev el of liquidit y for differen t si t ua ti on s an d s t res s s ce na ri os ; • a nt ici pa t ing e m erg en cie s or c ri s is co n dit io ns , a nd imp le me nt in g co nt in gen c y p lan s in t h e event o f ext raordinar y circum s tances; • e ns u r ing r eg ula r pro jec ti on s of f u t ure ca s h fl ows an d s t res s- tes ting of liquidit y r isk ; • prep aring propos als for establis hing addit ional fin ancial as s et s a s col la ter al for s o urce s of f un di ng . Over all a s se s s me nt o f th e li qu idi t y p os it io n of NL B Gro up is a s se s se d in t he I nt er n al Li qu idi t y Adeq u ac y A s s es sm en t Proc es s (IL A A P) at l ea s t on ce p er yea r for N LB Gr oup, a nd it in cl u des a c le ar fo r ma l s ta te me nt o n liq ui dit y ad eq ua c y, su pp or te d by an an al ys is o f IL A AP o u tco me s . Th e IL A AP pro ces s i s in te gral t o ri s k ma n age me nt f ram ewor k s an d i s alig ne d wi th t h e NLB G ro up’s ris k ap pe ti te w hic h is c on si s t en t wi th t he b u si ne s s mo de l an d app roved by t he m an ag em en t boa rd . B as ed o n th e R is k Ap pe ti te, t h e NLB G ro up pr ep ares a bu si ne s s pl an an d f in an ci al fo reca s t s w hi ch ar e cr u cia l for def in in g in ter n al c api tal n ee ds (I C A AP pro ces s) an d in te r na l liq uid it y as s es sm en t (IL A AP p ro ces s). B ot h pro ce s se s are con du c t ed f rom t h e no rm a ti ve an d eco no mi c pe r sp ec ti ves an d su pp lem e nt ed by th e s t re s s -te s t in g pro gra mm e. NLB G rou p pe r for m s s t res s t es t s o n a reg ul ar b as is f or a variet y of bank-specif ic and market-wide stres s scen arios (in di vi du all y an d in co mb in at io n) to ide nt if y so urc es of potential liquidit y st rain and to ensure that cur rent exposures rem ain i n acc ord an ce wi th t h e NLB G ro up’s es tab li sh ed liq uid it y r is k to ler an ce. S tre s s te s t o utc om es a re us ed t o adjus t it s liquidit y r isk man agemen t st rategies , policies , and posit ions , define min imum amoun t of counterbal ancing cap aci t y , an d to d evelo p ef fec ti ve con tin g en c y pl an s . The N LB G rou p ha s a fo rm a l liq uid it y con t ing en c y p lan (LCP) th at c le ar ly s et s ou t th e pro ce dur es fo r ad dre s si ng li qu idi t y sh or t fal ls in s tre s se d s it ua t ion s . T he p lan o u tl in es pr oce du res to m an age a r ang e of s tre s s envi ron m en t s , es tabl is h c lea r lin es o f res po ns ib ili t y , in c lu de c lea r invoc at ion a nd e s cal at ion pro ced ure s , an d i s reg ul ar ly t es t ed an d up da te d to en s ur e th at i t is o pe ra tio n all y rob us t. NLB Group maintains a suf ficien t amount of liquidit y res er ves i n th e for m o f hig h cre di t qu ali t y deb t se cu ri t ies th at a re el igi ble f or re fi na nc in g via t h e ECB/ cent ral b an k or on t h e ma r ket. In th e c ur ren t s it u at ion , N LB G rou p als o s tr i ves to fo llow a s cl os el y as p os s ibl e th e l on g- te rm t re nd of di ver si f ica ti on on b ot h th e li abi lit y an d a s se t si de s of th e ba lan ce s h eet. N LB Gr ou p reg ul ar ly p er for m s s t re s s tes ts w it h t he a im of t es t in g th e li qu idi t y s tab ili t y and t h e availabilit y of liquidit y reser ves in v ar ious s tres s sit uation s . In ad dit io n , sp ec ial a t ten t ion i s give n to t he f ul f ilm e nt o f th e liq ui dit y re gu la ti on (CR R/CRD), w it h m on ito r in g an d rep or ti ng o f th e li qu idi t y c overag e ra tio (LCR) acc ordi ng t o th e De le ga te d Ac t a nd n et s tabl e f un din g ra ti o (NS FR). T hi s also inclu des monitor ing and repor ting of Additional Liquidi t y Mo ni tor in g M et ri c s (A L MM ) on s olo a n d con s oli da ted l evels . In a ccorda nce with the Commission Implementing Regulation (EU), NLB G ro up re gu lar l y mo ni to rs a n d is s ue s q uar t er ly rep or t s on a s s et en c um bra nce . The Group man ages its liquidi t y posit ion (liquidit y within one day) d ail y , f or a p er iod o f s everal d ays o r wee k s in ad van ce, ba se d on t he p la nn in g an d mo ni tor i ng of c as h f lows . Each NLB G rou p m em ber i s re sp on s ibl e for i t s own l iq uid it y pos i tio n and c arries out the follo wing activities: • m anaging int raday liquidit y; • p la nn in g an d mo ni tor in g ca s h fl ows; • m on it or in g an d com p lyi ng w it h t he l iqu idi t y reg ul at ion s o f the ce ntral bank; • a do pti ng b u si ne s s de cis io n s; • for ming and m anaging liquidit y reser ves; and 305 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report • p er fo rm in g li qui di t y s tre s s te s t to d ef in e th e li qu idi t y bu f f er for s m oot h f un c t io nin g of t h e pa ym en t s ys tem in s tre s se d circums tances . NLB G rou p m em ber s a c t ive ly m an ag e liq ui dit y over t he cou r se o f a da y , t aki ng i nto a cco un t th e c ha rac ter i s ti c s of pa ym en t s et tl em en t s to e ns u re th e t im el y se t t le m en t of liabilities in norm al and st ress ed circums tan ces . Liq uid it y r is k m an ag em en t in NLB G ro up i s un de r s t ri c t mo ni tor in g by NLB a s a pa ren t ba nk . Rep or t ing t o NLB by all G ro up m em be r s is p er for m ed d ail y. Glob al R is k gi ves gui de lin es a nd d ef in es m in im al s t an da rds fo r G rou p me mb er s reg ardi ng l iq uid it y ri s k m an age me nt i n NLB G ro up R is k Ma na gem e nt S tan da rds . Each G rou p m em ber i s re sp on s ibl e for en s ur i ng a deq u at e liq uid it y vi a th e n ece s sa r y so urce s of fundin g and their appropria te diversif ication and ma tur it y , and by managing liquidit y reser ves and fulf illing the requiremen ts of regulat ions governing liquidit y . The exposure of an individual NLB Group member towards liquidit y ris k is reg ul ar ly m on it ore d an d rep or te d to ALCO, and to l oca l A s s et s and Liabilities Commit tees . a) M anaging NLB Group’ s liquidit y reserves NLB Group has liquidit y res er ves available to co ver liabilities th at f all o r ma y be co me d ue . Liq ui dit y re se r ves m us t b ec om e avail ab le on s h or t n ot ice. L iq uid it y res er ves a re co mp r is ed of ca sh , t h e se t t le m en t acco un t a t th e cen t ral b an k above res er ve req ui rem en t, de bt s ec ur it ie s , an d lo an s eli gib le a s collateral for the Eurosyst em’ s liquidit y providing operations , on t he b as is o f wh ic h th e B an k ma y ge ne ra te t he re qu is it e liquidit y at any time. The available liquidit y reser ves are liq uid it y res er ves d ec re as ed by t he r eq uire d ba lan ce s for the co ntinuous performance of payment tra ns actions, en cu mb ere d se c ur it ie s , an d/ or c re dit c la im s for d if fere nt purp oses (secured fundin g). The m in im um a mo un t of l iq uid it y res er ves i s de ter m in ed o n th e ba s is of t h e me th o dol og y pe r tain in g to li qu idi t y ri s k s tr es s tes ts . The a mo un t re pre se nt s a s u m of li qu idi t y r es er ves t h at woul d en ab le t he s u r vival o f a sever e s t res s over a p er io d of on e mo nt h in a co mb in ed s t re s s sc en ar io an d co mp r is es h igh qu ali t y l iq uid a s s et s ac cord in g to LCR met h odo lo gy, spe ci fi ed in Com mi s s ion D el eg at ed Re g ula t ion (EU) 2015/61 and th e later amendm ent s. in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Liquidity r eserves Cash, cash balanc es at centr al banks 3,56 7,873 2,683,851 3,068,123 2,106,517 T rading book securities - 68,809 - 2,450 Banking book securities 4,615,37 4 4,946,632 2,479,952 2,89 6,7 47 ECB eligible loans 80,043 582,986 80,043 582,986 T otal available liquidity r eserves 8,263,290 8,282,278 5,628,118 5,588,700 Encumber ed liquidity reserves 87 4,827 52,336 87 4,827 52,336 abov e reserve r equir ement A s at 31 D ec em be r 2021, 79.8% (31 D ec em be r 2020: 81.8%) of de bt s ec ur it ie s in t he b an ki ng b oo k of NLB G ro up we re go vernment securitie s (including gov ernment guara nteed bon d s – GG B), a nd 10.0% ( 31 D ece mb er 2020: 8.4%) were se nio r un se c ure d bon d s . The purp ose of banking book se curi ties is to provide liquidit y , alo ng w it h s ta bil is at io n of t he i nt ere s t m arg in an d th e in te res t rat e r is k m an age m ent, s im ul ta ne ou s ly. Whe n ma na gin g t he por t folio , NLB Group uses co n ser vativ e prin ciples, par t icularly wi th re s pe c t to t h e por t fol io’s st r uc t ure i n ter m s of i s s ue r s’ rat in gs a nd a s s et cl as s . Th e fra mewor k f or m an agi ng t h e ban k ing b oo k se c ur it ie s is t he P oli c y for m an a gin g deb t se cu ri t ies i n th e Fi na nc ial M ar ket s ’ ban k ing b oo k an d th e Poli c y for M an a gin g Do me s t ic (S loven ian) Cor p ora te D ebt Se cu r it ies i n Larg e Cor po ra tes , whi ch c lea r ly de f in e th e obj ec tive s an d ch ara c t er is tic s of th e as soc ia te d por t fol io. The ECB - elig ib le cr edi t cl aim s co mp r is e lo an s wh ic h fu lf i l th e hig h eli gibi li t y c r it er ia s et by t he ECB it s el f an d for d om es tic loa ns a re s pe ci fi ed in t h e ge ne ral te r ms a bo ut exe cu t ion o f mo ne tar y p olic y fram ewor k (Pa r t 4) ado pt ed by th e B an k of Sl ovenia . NL B is t he o nl y m em be r of NLB G ro up t h at co mp lie s wi th t he c on di tio ns s e t by th e Euros y s te m to cl as s i f y a s an elig ib le co un ter p ar t y . A s su ch , t he s e ECB credi t cl aim s ar e includ ed among liquidit y reser ves . Me mb er s of N LB G rou p m an age t h eir l iqu id a s se t s on a dec en tra li se d ba si s in co mp li an ce wi th t h e loc al li qu idi t y regulat ion and valid p olicies of NLB Group. The s tr u c t u re of li qu idi t y res er ves i s sh own i n th e fo llow in g tab le. 306 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) En cumbered/unencumbered assets in EUR thousands NLB Gr oup NLB 31 Dec 2021 Carrying amount of encumber ed assets F air value of encumber ed securities Carrying amount of unencumber ed assets F air value of unencumber ed securities Carrying amount of encumber ed assets F air value of encumber ed securities Carrying amount of unencumber ed assets F air value of unencumber ed securities Loans on demand 1,083,713 - 3,411,7 43 - 101,854 - 2,970,538 - Equity instruments 780 780 82,719 82,719 - - 49,181 49,181 Debt securities 454,939 455,631 4,662,209 4,689,116 497,515 500,328 2,479,951 2,501,899 Loans and advanc es other than loans on demand 471,556 - 10,378,477 - 464,027 - 4,980,705 - Other assets - - 1,031,360 - - - 1,155,7 61 - T otal 2,010,988 19,566,508 1,063,39 6 11,636,136 in EUR thousands NLB Gr oup NLB 31 Dec 2020 Carrying amount of encumber ed assets F air value of encumber ed securities Carrying amount of unencumber ed assets F air value of unencumber ed securities Carrying amount of encumber ed assets F air value of encumber ed securities Carrying amount of unencumber ed assets F air value of unencumber ed securities Loans on demand 991,649 - 2,462,193 - 102,458 - 1,966,6 70 - Equity instruments 708 708 82,251 80,9 49 - - 49,318 49,318 Debt securities 52,336 55,519 4,968,205 5,017,867 52,336 55,519 2,899,197 2,951,975 Loans and advanc es other than loans on demand 80,204 - 9,87 4,875 - 72,943 - 4,734,993 - Other assets - - 1,053,435 - - - 1,148,687 - T otal 1,124,897 18,440,959 227,737 10,798,865 307 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) Collateral receiv ed – unencum bered The n o min al a mo un t of c oll at era l rece ive d, o r own de bt se cu ri t ies i s s ue d no t avai lab le fo r en cu mb ran ce a re sh ow n in th e tab le b el ow : d) Source of enc umbrance in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Equity instruments 2 42,682 268,249 203,620 198,87 4 Debt securities - 10,438 - - Loans and advanc es other than loans on demand 140,751 146,750 20,245 20,165 Other assets 9,839,848 10,6 79,630 4,120,9 40 3,809,244 T otal 10,223,281 11,105,06 7 4,344,805 4,028,283 in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Collater alised liability Assets given as collater al Collater alised liability Assets given as collater al Collater alised liability Assets given as collater al Collater alised liability Assets given as collater al Derivativ es 42,292 53,7 44 76,18 7 91,250 42,292 53,7 44 76,18 7 91,250 Deposits 7 46,021 835,066 5,978 12,055 790,505 877,641 5,978 12,055 Other sour ces of encumbr ance 3,698 1,122,179 3,875 1,021,592 - 132,010 - 124,433 T otal 792,011 2,010,989 86,040 1,124,897 832,797 1,063,395 82,165 227,738 A s at 31 D ec em be r 2021, NLB G ro up an d NLB h a d a lar ge s ha re of u nencumbered assets . Other sour ces o f encumbra nce mo s tl y re la te to t he o bl iga tor y r es er ve. O n th e NLB G ro up level , th e am o unt o f en c um ber ed a s se t s eq ua lle d EUR 2,011 mil lio n (31 D ec em be r 2020: EUR 1,125 m ill ion), re la ti ng t o th e deposit guarantee sch eme and to targeted longer - term refinancing operations ( TL TRO). 308 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report e) Non - d er ivat ive cas h fl ows The t ab les b el ow ill us tra te t he c as h f lows f rom n on - der i vat ive fi na nc ial i ns tr u me nt s by re s id ual m a t ur it ie s at t h e en d of t he year . The amo unt s disclose d in the table are the undiscounte d con tr ac t u al ca s h fl ows de ter m in ed o n th e b as is o f sp ot ra te s at t he e nd o f th e re po r tin g pe r iod . in EUR thousands NLB Gr oup 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Financial liabilities and cr edit-related c ommitments Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 56,073 173 684 15,448 - 72,378 - borr owings fr om banks and centr al banks 954 480 7 48,496 99,842 6,048 855,820 - due to customers 15,772,513 270,238 859,204 7 43,77 4 22,543 17,668,272 - borr owings fr om other customers 614 1,929 6,824 29,554 40,862 79,783 - subor dinated liabilities - 4,427 6,803 41,400 318,201 370,831 - other financial liabilities 120,69 4 11,678 17,866 55,321 1,319 206,878 Cr edit risk related c ommitments 578,233 166,473 838,890 470,308 407,499 2,461,403 Non-financial guar antees 30,426 72,983 195,917 342,426 61,349 703,101 T otal 16,559,507 528,381 2,67 4,684 1,798,073 857,821 22,418,466 T otal financial assets 6,179,369 820,022 2,704,322 8,110,038 5,031,99 4 22,845,7 45 in EUR thousands NLB Gr oup 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Financial liabilities and cr edit-related c ommitments Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 52,434 19,813 558 491 - 73,296 - borr owings fr om banks and centr al banks 666 727 18,146 130,821 10,273 160,633 - due to customers 14,111,895 379,127 1,080,487 848,237 19,059 16,438,805 - borr owings fr om other customers 1,041 2,899 9,719 43,382 39,7 43 96,784 - subor dinated liabilities - 4,426 6,803 41,400 328,352 380,981 - other financial liabilities 112,258 8,7 62 14,402 42,917 3,756 182,095 Cr edit risk related c ommitments 563,821 226,551 703,691 408,880 424,681 2,327,62 4 Non-financial guar antees 25,177 67,127 154,7 66 334,078 66,198 647,346 T otal 14,867,292 709,432 1,988,572 1,850,206 892,062 20,307,564 T otal financial assets 5,228,895 651,541 2,434,589 7,867,386 4,621,083 20,803,494 309 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Financial liabilities and cr edit-related c ommitments Financial liabilities measur ed at fair value thr ough pr ofit or loss - - - 352 - 352 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 9 4,326 - - 15,197 - 109,523 - borr owings fr om banks and centr al banks 44,56 9 - 7 42,584 82,882 - 870,035 - due to customers 9,303,784 65,7 45 125,834 158,637 8,706 9,66 2,706 - borr owings fr om other customers - - - 406 - 406 - subor dinated liabilities - 4,427 6,803 41,400 318,201 370,831 - other financial liabilities 71,9 42 4,041 616 25,501 427 102,527 Cr edit risk related c ommitments 503,492 96,52 4 451,614 280,201 220,580 1,552,411 Non-financial guar antees 16,714 45,786 100,102 2 40,7 61 33,803 437,166 T otal 10,034,827 216,523 1,427,553 845,337 581,717 13,105,957 T otal financial assets 3,6 78,758 308,197 1,061,588 4,150,714 3,280,846 12,480,103 in EUR thousands NLB 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Financial liabilities and cr edit-related c ommitments Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 41,635 - - - - 41,635 - borr owings fr om banks and centr al banks 85 704 13,547 121,751 9,561 145,648 - due to customers 8,412,546 108,9 42 184,159 143,115 4,775 8,853,537 - borr owings fr om other customers - - 13 - - 13 - subor dinated liabilities - 4,426 6,803 41,400 328,352 380,981 - other financial liabilities 57,913 6,134 582 23,813 527 88,969 Cr edit risk related c ommitments 478,872 143,56 2 418,866 261,282 270,333 1,572,915 Non-financial guar antees 18,203 41,599 90,299 245,158 36,406 431,665 T otal 9,009,254 305,367 714,269 836,519 649,954 11,515,363 T otal financial assets 2,800,273 217,309 1,008,108 3,878,926 2,904,506 10,809,122 Wh en d ete rm in in g th e g ap be t ween t he f in an c ial li abi lit ie s an d fi na nc ial a s s et s in t h e ma t ur i t y buc ket of up t o on e m on th , it i s ne ces s ar y to b e awa re of t he f ac t th at f i na nc ial l iabi li ti es inc l ude t ota l dem an d d epo si t s , an d t h at NL B ma y ap ply a s tab ili t y weigh t of 60% to d em an d de po si t s wh en e ns u r ing compl iance with the centr al bank’s regulatio n s co ncerning calculation of the liquidi t y posit ion . T o ens ure NLB Group ’s an d NLB ’s liq uid it y , a nd b as e d on it s a pp roa ch to r i sk , in previous years NLB Group compiled a subs tantial amo unt of high- q ualit y liquid invest ment s , mos tly governm ent secur itie s an d se le c te d lo an s , wh ic h are a ccep te d as ad eq ua te f i na nc ial as s et s by t he ECB . Liab ili t ies a nd c red it- rel at ed co m mi tm en t s ar e in cl ude d in ma t ur i t y b uc ket s ba s ed o n th eir r es id ual c on tra c t u al m at u r it y , wi th t he exce pt ion o f th e TL TRO lo an , w hi ch is i nc l ude d ba s ed on exp ec ted e ar ly r ep aym e nt in J u ne 2022 (no te 5.15.b). 310 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Cash, cash balanc es at centr al banks, and other demand deposits at banks 5,005,052 - - - - 5,005,052 Financial assets held for tr ading 7,67 8 - - - - 7,678 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 6,739 - 921 3,340 10,161 21,161 Financial assets measur ed at fair value thr ough other compr ehensive income 401,080 163,233 400,588 1,888,222 608,737 3,461,860 Financial assets measur ed at amor tised cost - debt securities 38,317 19,107 124,9 48 783,028 752,226 1,717,626 - loans and advanc es to banks 119,930 16,827 2,37 4 1,552 - 140,683 - loans and advanc es to customers 466,930 547,238 1,912,038 4,519,726 3,141,189 10,58 7,121 - other financial assets 92,505 3,309 773 25,538 104 122,229 Derivativ es - hedge accounting 568 - - - - 568 F air value changes of hedged items in portfolio hedge of inter est rate risk - - - 1,330 5,752 7,082 Non-curr ent assets held for sale - - 7,051 - - 7,051 Pr operty and equipment - - - 89,813 157,201 247,014 Investment pr operty - - - 43,693 3,931 47,62 4 Intangible assets - - - 29,259 29,817 59,07 6 Investments in associates and joint v entures - - - - 11,525 11,525 Curr ent income tax assets - - 3,9 48 - - 3,9 48 Deferr ed income tax assets - - 62 0 31,934 6,423 38,977 Other assets 23,983 9,655 19,859 37,563 161 91,221 T otal assets 6,162,782 759,369 2,473,120 7,454,998 4,727,227 21,577,496 Financial liabilities held for tr ading 7,585 - - - - 7,585 Derivativ es - hedge accounting 35,377 - - - - 35,377 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 56,053 - 521 15,254 - 71,828 - borr owings fr om banks and centr al banks 889 442 751,773 99,418 6,009 858,531 - due to customers 15,771,461 268,484 852,57 6 727,308 20,980 17,640,809 - borr owings fr om other customers 535 1,770 6,186 27,07 4 38,486 7 4,051 - subor dinated liabilities - 3,689 1,759 - 283,071 288,519 - other financial liabilities 120,182 10,655 13,817 37,643 257 182,554 - lease liabilities 512 1,023 4,049 17,678 1,062 24,324 Pr ovisions 7,314 1,183 39,914 69,863 1,130 119,404 Curr ent income tax liabilities 2,722 3,156 - - - 5,878 Deferr ed income tax liabilities - - - 3,045 - 3,045 Other liabilities 36,495 74 8 5,7 49 4,867 1,609 49,468 T otal liabilities 16,039,125 291,150 1,67 6,344 1,002,150 352,604 19,361,373 Cr edit risk related c ommitments 578,233 166,473 838,890 470,308 407,499 2,461,403 Non-financial guar antees 30,426 72,983 195,917 342,426 61,349 703,101 T otal liabilities and credit-r elated commitments 16,647,784 530,606 2,711,151 1,814,884 821,452 22,525,877 f ) An analysis of the statemen t of financial position by r esidual contrac tual ma turit y 311 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Cash, cash balanc es at centr al banks, and other demand deposits at banks 3,961,812 - - - - 3,961,812 Financial assets held for tr ading 16,046 15,173 1 47,223 6,412 84,855 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 6,067 120 24,954 1,171 10,081 42,393 Financial assets measur ed at fair value thr ough other compr ehensive income 352,47 4 57,055 337,298 1,960,192 807,271 3,514,290 Financial assets measur ed at amor tised cost - debt securities 7 4,540 47,087 7 6,672 6 95,030 609,758 1,503,087 - loans and advanc es to banks 154,686 36,706 4,375 1,238 - 197,005 - loans and advanc es to customers 538,078 421,665 1,733,251 4,252,968 2,673,898 9,619,860 - other financial assets 80,692 8,319 3,380 20,597 150 113,138 F air value changes of hedged items in portfolio hedge of inter est rate risk - - - 885 12,959 13,844 Non-curr ent assets held for sale - - 8,658 - - 8,658 Pr operty and equipment - - - 78,847 170,270 249,117 Investment pr operty - - - 41,501 13,341 54,842 Intangible assets - - - 32,27 4 29,394 61,668 Investments in associates and joint v entures - - - - 7,988 7,988 Curr ent income tax assets 1,656 22 2,6 91 - - 4,369 Deferr ed income tax assets 327 - - 28,759 2,703 31,789 Other assets 2 4,548 9,109 54,992 8,337 154 97,140 T otal assets 5,210,926 595,256 2,246,272 7,169,022 4,344,379 19,565,855 Financial liabilities held for tr ading 15,485 - - - - 15,485 Derivativ es - hedge accounting 61,161 - - - - 61,161 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 52,434 19,813 163 223 - 72,633 - borr owings fr om banks and centr al banks 658 717 17,468 129,215 10,167 158,225 - due to customers 14,109,959 375,751 1,069,785 825,07 6 16,596 16,397,16 7 - borr owings fr om other customers 977 2,731 9,120 41,072 37,660 91,560 - subor dinated liabilities - 3,690 1,759 - 282,872 288,321 - other financial liabilities 111,166 7,703 9,552 25,970 1,345 155,736 - lease liabilities 1,092 1,059 4,850 16,9 47 2,411 26,359 Pr ovisions 8,50 7 1,183 32,785 79,159 3,425 125,059 Curr ent income tax liabilities 644 358 - - - 1,002 Deferr ed income tax liabilities 76 3 - - 3,301 411 4,475 Other liabilities 31,914 412 4,505 2,464 6,337 45,632 T otal liabilities 14,39 4,7 60 413,417 1,149,987 1,123,427 361,224 17,442,815 Cr edit risk related c ommitments 563,821 226,551 703,691 408,880 424,681 2,327,624 Non-financial guar antees 25,177 67,127 154,7 66 334,078 66,198 647,346 T otal liabilities and credit-r elated commitments 14,983,758 707,095 2,008,444 1,866,385 852,103 20,417,785 312 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Cash, cash balanc es at centr al banks, and other demand deposits at banks 3,250,437 - - - - 3,250,437 Financial assets held for tr ading 7,682 - - - - 7,682 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 614 29 306 6,939 4,472 12,360 Financial assets measur ed at fair value thr ough other compr ehensive income 24,773 57,473 141,428 918,421 443,656 1,585,751 Financial assets measur ed at amor tised cost - debt securities 2,825 18,182 90,27 6 608,223 716,918 1,436,424 - loans and advanc es to banks 916 40,463 50,129 32,066 75,713 199,287 - loans and advanc es to customers 317,315 171,605 67 6,938 2,183,239 1,796,056 5,145,153 - other financial assets 66,454 658 3,100 22,192 - 92,404 Derivativ es - hedge accounting 568 - - - - 568 F air value changes of hedged items in portfolio hedge of inter est rate risk - - - 1,330 5,752 7,082 Non-curr ent assets held for sale - - 4,089 - - 4,089 Pr operty and equipment - - - 19,304 66,818 86,122 Investment pr operty - - - 9,181 - 9,181 Intangible assets - - - 14,255 15,198 29,453 Investments in subsidiaries, associates and joint v entures - - 24,282 37,984 723,757 786,023 Curr ent income tax assets - - 3,7 61 - - 3,7 61 Deferr ed income tax assets - - - 31,902 - 31,902 Other assets 6,984 - 4,86 9 - - 11,853 T otal assets 3,6 78,568 288,410 999,178 3,885,036 3,848,340 12,699,532 Financial liabilities held for tr ading 7,602 - - - - 7,602 Financial liabilities measur ed at fair value thr ough profit or loss - - - 352 - 352 Derivativ es - hedge accounting 35,377 - - - - 35,377 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 9 4,326 - - 15,003 - 109,329 - borr owings fr om banks and centr al banks 44,569 - 7 46,028 82,882 - 873,479 - due to customers 9,303,755 65,612 125,287 156,322 8,6 29 9,659,605 - borr owings fr om other customers - - - 406 - 406 - subor dinated liabilities - 3,689 1,759 - 283,071 288,519 - other financial liabilities 71,866 3,895 2 23,495 13 99,271 - lease liabilities 76 146 614 2,006 414 3,256 Pr ovisions 544 67 2 18,501 29,646 - 49,363 Other liabilities 14,216 166 1,442 3,683 1,532 21,039 T otal liabilities 9,572,331 7 4,180 893,633 313,795 293,659 11,147,598 Cr edit risk related c ommitments 503,492 96,52 4 451,614 280,201 220,580 1,552,411 Non-financial guar antees 16,714 45,786 100,102 240,7 61 33,803 437,166 T otal liabilities and credit-r elated commitments 10,092,537 216,490 1,445,349 834,757 548,042 13,137,175 313 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal Cash, cash balanc es at centr al banks, and other demand deposits at banks 2,261,533 - - - - 2,261,533 Financial assets held for tr ading 16,381 - 1 2,449 - 18,831 Non-tr ading financial assets mandatorily at fair value thr ough profit or loss 526 158 26,084 3,885 4,453 35,106 Financial assets measur ed at fair value thr ough other compr ehensive income 91,312 19,936 185,583 867,67 4 551,846 1,716,351 Financial assets measur ed at amor tised cost - debt securities 66,893 13,792 41,502 556,444 599,249 1,277,880 - loans and advanc es to banks 392 22,824 50,27 4 28,990 55,840 158,320 - loans and advanc es to customers 322,669 141,9 46 609,404 2,029,791 1,460,368 4,564,178 - other financial assets 33,661 218 40 20,584 - 54,503 F air value changes of hedged items in portfolio hedge of inter est rate risk - - - 885 12,959 13,844 Non-curr ent assets held for sale - - 4,454 - - 4,454 Pr operty and equipment - - - 22,173 6 9,502 91,675 Investment pr operty - - - 8,300 - 8,300 Intangible assets - - - 13,058 15,047 28,105 Investments in subsidiaries, associates and joint v entures - - 1,719 65,140 683,863 750,722 Curr ent income tax assets - - 1,923 - - 1,923 Deferr ed income tax assets - - - 29,214 - 29,214 Other assets 6,558 - 5,106 - - 11,664 T otal assets 2,799,925 198,8 7 4 926,090 3,648,58 7 3,453,127 11,026,603 Financial liabilities held for tr ading 15,500 - - - - 15,500 Derivativ es - hedge accounting 61,161 - - - - 61,161 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 41,635 - - - - 41,635 - borr owings fr om banks and centr al banks 85 704 12,9 48 120,260 9,467 143,464 - due to customers 8,412,510 108,772 183,709 141,077 4,687 8,850,755 - borr owings fr om other customers - - 13 - - 13 - subor dinated liabilities - 3,690 1,759 - 282,870 288,319 - other financial liabilities 57,840 6,006 - 21,899 12 85,757 - lease liabilities 73 128 582 1,914 515 3,212 Pr ovisions 495 669 19,463 41,533 1,630 63,790 Other liabilities 14,610 94 2,236 2,430 2,631 22,001 T otal liabilities 8,603,909 120,063 220,710 329,113 301,812 9,575,607 Cr edit risk related c ommitments 478,872 143,562 418,866 261,282 270,333 1,572,915 Non-financial guar antees 18,203 41,599 90,299 245,158 36,406 431,665 T otal liabilities and credit-r elated commitments 9,100,984 305,224 729,875 835,553 608,551 11,580,187 314 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report g) Der ivat ive cas h fl ows The t ab le b elow i llu s t ra tes c as h f lows f rom d er iva ti ves , broken d own i nto t h e rel evant m a t ur it y b ucket s bas ed o n in EUR thousands NLB Gr oup 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal F oreign e xchange deriv atives - F orwar ds - Outflow (26,202) (10,460) (16,853) (12,180) - (65,695) - Inflow 26,214 10,465 16,865 12,199 - 65,7 43 - Swaps - Outflow (9 6,7 42) (2,362) (17,335) - - (116,439) - Inflow 96,483 2,364 17,346 - - 116,193 Inter est rate deriv atives - Inter est rate s waps and cross-curr ency swaps - Outflow (1,116) (2,107) (10,153) (26,901) (12,053) (52,330) - Inflow 34 237 3,321 7,179 7,287 18,058 - Caps and floors - Outflow - - (1) (51) - (52) - Inflow - - 2 52 - 54 T otal outflow (124,060) (14,929) (44,342) (39,132) (12,053) (234,516) T otal inflow 122,731 13,066 37,534 19,430 7,287 200,048 residual ma tur ities . The amo unt s disclos ed in the table are the con tr ac t u al un d is co unt ed c as h fl ows p rep are d on t he b as i s of sp ot ra te s on t he re po r tin g d ate . in EUR thousands NLB Gr oup 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Ov er 5 Y ears T otal F oreign e xchange deriv atives - F orwar ds - Outflow (24,456) (28,334) (65,97 6) (13,817) - (132,583) - Inflow 24,49 4 28,368 66,041 13,828 - 132,731 - Swaps - Outflow (20,709) (49,105) (36,055) - - (105,869) - Inflow 20,297 49,112 36,034 - - 105,443 Inter est rate deriv atives - Inter est rate s waps and cross-curr ency swaps - Outflow (692) (2,96 2) (11,378) (42,239) (18,643) (75,914) - Inflow 73 718 4,39 4 8,777 2,348 16,310 T otal outflow (45,857) (80,401) (113,409) (56,056) (18,643) (314,366) T otal inflow 44,864 78,198 106,469 22,605 2,348 254,484 315 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB 31 Dec 2021 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal F oreign e xchange deriv atives - F orwar ds - Outflow (2 4,891) (10,460) (16,853) (12,180) - (64,384) - Inflow 24,902 10,465 16,865 12,199 - 64,431 - Swaps - Outflow (102,036) (6,8 75) (17,335) - - (126,246) - Inflow 101,772 6,864 17,346 - - 125,982 Inter est rate deriv atives - Inter est rate s waps and cross-curr ency swaps - Outflow (1,116) (2,107) (10,153) (26,901) (12,053) (52,330) - Inflow 34 237 3,321 7,179 7,287 18,058 - Caps and floors - Outflow - - (1) (51) - (52) - Inflow - - 2 52 - 54 T otal outflow (128,043) (19,442) (44,342) (39,132) (12,053) (243,012) T otal inflow 126,708 17,566 37,534 19,430 7,287 208,525 in EUR thousands NLB 31 Dec 2020 Up to 1 Month 1 Month to 3 Months 3 Months to 1 Y ear 1 Y ear to 5 Y ears Over 5 Y ears T otal F oreign e xchange deriv atives - F orwar ds - Outflow (23,685) (31,650) (65,976) (13,817) - (135,128) - Inflow 23,715 31,685 66,041 13,828 - 135,26 9 - Swaps - Outflow (24,8 7 4) (53,580) (6,063) - - (84,517) - Inflow 24,821 53,592 6,068 - - 84,481 Inter est rate deriv atives - Inter est rate s waps and cross-curr ency swaps - Outflow (692) (2,962) (11,378) (42,239) (18,643) (75,914) - Inflow 73 718 4,394 8,777 2,348 16,310 T otal outflow (49,251) (88,192) (83,417) (56,056) (18,643) (295,559) T otal inflow 48,609 85,995 76,503 22,605 2,348 236,060 316 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 6.4. Man agement of non -f inancial ris ks a) Ope ra tio n al r is k Wh en a s s um ing o pe ra tio n al r is k s , NLB G ro up fo ll ows t he gui de lin e th a t s uc h ri s k s ma y n ot m at er ial ly im p ac t i t s ope ra tio n s an d, t h eref ore, t h e r is k ap pet i te fo r ope ra ti on al ri s k s is low t o mo de rat e. Th e r is k i s als o gr ad ual ly d ecr ea si ng du e to th e re du ced c om pl exit y of o pe rat io ns i n NLB G ro up, wi th di s inves t m en t pro ces s of no n - co re ac ti vi ti es an d opt im is a tio n of in te r na l pro ces s es . NLB G rou p h as s et up a sy s t em of co ll ec tin g lo s s event s , iden t if ica t ion , a s s es s m ent, an d ma na gem e nt o f op era ti on al r is k s , a ll wi th t h e aim o f en su r in g qu ali t y man ag em en t of o pe rat io na l r is k s . Th is i s par ticularl y valid in s trate gic banking mem ber s . All NLB Gr oup banking members monitor risk appetite limits for oper ational risk. The upper toler ance limit is defined as the limit amount of net loss that an individual member still allows in its oper ations. If the sum of net loss ex ceeds the toler ance limit, a special tr eatment of major loss events is r equir ed and, if necessary, tak es additional measur es for the pr evention or mitigation of the same or similar loss ev ents are tak en. The warning and critic al limit of loss events ar e also defined, which in case of e xc eeding r equire esc alation proc edur es an acceptanc e of possible additional risk management measur es. In addition, the Bank does not allow c ertain risks in its business – for them a so-called ‘z ero t oleranc e’ was defined. F or monitoring some specific mor e important ke y risk indicators, that could sho w a possible incr ease of an oper ational risk, the Bank developed a specific methodology as an early warning syst em. Such risks ar e periodically monitor ed in differ ent business areas, and the r esults ar e discussed at the Operational Risk Committee. The latter was named as the highest decision-making authority in the ar ea of oper ational risk management. Relev ant operational risk committees w ere also appointed at other NLB Gr oup banks. The Management Boar d serves in this r ole at other subsidiaries. The main task of the afor ementioned bodies is to discuss the most significant oper ational risks and loss e vents, and to monitor and support the effective management of oper ational risks including their mitigation within an individual entity. All NLB Gr oup entities, which ar e included in the consolidation, have adopt ed rele vant documents that ar e in line with NLB standar ds. In banking members, these documents ar e in line with the development of oper ational risk management and r egularly updated. The whole NLB Gr oup uses uniform softwar e support, which is also r egularly upgr aded. In NLB G ro up, t he re po r ted i nc ur re d ne t lo s s ar is in g fr om los s even t s in 2 02 1 wa s hi gh er t ha n in t he p revi ou s year , mo s tl y d ue to i nc lu si on of t h e ne t lo s se s ar is in g fr om ac qu ired Komerc ija ln a ba nka G rou p. Neve r th el es s , t he r ep or te d inc ur r ed n et lo s s rem ai ne d wi th in t h e se t tol era nce l im it s fo r operational ris k. In ge ne ral , con s ide rab le a t ten ti on i s pai d to re por t in g lo s s ev ents , their mitigation measures, and d efining oper ational ri s k s in all s e gm en t s . T o tre at m a jor l os s even t s ap prop r ia tel y an d as s oo n as p os s ibl e, t he B a nk i nt rod uc ed an e sc ala t ion sca le fo r rep or t in g bigg er o r mo re im po r tan t lo s s event s t o th e top l evels o f de ci si on - m aki ng a t NLB a nd t h e S upe r vi so r y Bo ard o f NLB . A ddi t ion al a t ten ti on i s pai d to t he re po r tin g of pot en tia l lo s s event s i n ord er to i mp rove th e in ter n al c on tro ls , an d th u s min im is e t ho se a nd s im il ar even t s . Fur th er m ore, th e m eth o dol og y to m on ito r , an aly s e, an d rep or t key r is k in dica to rs i s es tab lis h ed , s er vic in g as a n ear l y war ni ng sy s t em . Th e ai m is to i mp rove bu si ne s s an d s up por t in g processes , as w ell enabling prompt response. Throug h compr ehensive i dentification of oper ational ri s k s , po s si ble f u t ure l os s es a re id en ti f ied , es tim a te d, an d appropriately managed. Ea ch year , special emphasi s is pla ced o n cu r ren t r is k s as a r es ul t of r i sk i de nt if ic at ion pro ces s , i nc lu din g E SG r i sk s . Addi ti on al KR Is h a ve bee n add res s e d for E SG r i sk s , s er v ici ng a s an e ar ly war n in g sy s t em . Th e m ajo r op era t ion al r i sk s a re ac ti vely m an ag ed wi th t he m e as ur es ta ken to re du ce th e m . An o per at io na l ri s k pro fi le i s pre pa red o nce a ye ar on t h e ba s is of t h e ope ra tio n al r is k id en ti f ica ti on . S pe cia l em ph as i s is p ut o n th e mo s t to pic al r is k s , am on g w hic h in p ar ti cu lar a re t ho se wi th a low p rob abi li t y o f occ ur re nc e an d ver y hig h po ten ti al fi na nc ial i nf lu en ce. For t hi s p ur po se, t h e B an k ha s devel op ed th e m eth o dol og y of s t re s s -te s t in g for o pe rat io na l r is k . Th e me th od ol og y is a co mb in at ion o f m ode lli ng l os s even t da ta an d sce n ar io an al ys is f or excep tio na l, b u t pl au si bl e event s . Sce n ar io an al ys es a re m ade b as e d on exp er ie nc e an d kn owl edg e of exp er t s f rom var i ou s cr i tic al are as . The c api tal r eq uir em en t for o pe rat io na l r is k is c alc ul at ed us in g th e ba s ic in dic at or ap pro ach a t t he N LB G rou p level an d us in g th e s t an dar dis ed a pp roa ch a t th e NLB l evel . b) B usines s Continuit y Managemen t (BCM) In NLB G ro up, b us in es s co nt in u it y ma na ge me nt i s car r ie d ou t to pro tec t live s , go od s , an d re pu ta ti on . B u si ne s s con t in ui t y pla ns a re pr ep ared t o be u s ed in t h e event o f na t ura l dis a s te r s , IT di sa s te r s , ep ide mi c/pan de mic , and t h e un de si red ef f ec t s of t he e nvir on me nt t o mi ti ga te t he ir con s eq ue nc es . The c on cep t of t he a c t ion p la n th a t is p rep are d ea ch yea r is s uc h th a t th e ac ti vi ti es co nt r ib ut e to t he u pgr adi ng o r imp rovem en t of t he B usi ne s s Con ti n uit y M an ag em en t Sys t em . In 2021, B us in es s Cont in ui t y Man ag em en t was u pg rad ed Sys t em acc ord in g to ex t er na l in fl ue nc e – we add ed s cen ar i os for m os t l ikel y event s w hi ch co ul d af fec t th e b ank (ea r th qu ake, fire, floods , sleet, epidemic, terror ism , IT disaster , cyb er - at tack). The b a si s for m o der n is in g th e b us in es s c on ti nu it y pl an s is t he reg ul ar an n ual B u s in es s Im p ac t An aly si s (B IA). O n it s bas i s , th e ad eq ua c y of t he p lan s fo r of fi ce b uil din gs , HR pl an s an d IT pla ns i s ch e cked . Th e be s t in di cat or of t h e ad eq uac y of th e bu si ne s s con t in ui t y p la ns i s te s t ing . In 2021, o nl y ex t er n al te s t s an d an IT te s t were c ar r ied o u t at N LB (no evac ua tio n an d ma nu al p roce du res t es t bec au se o f th e COVID - 19 pa nd em ic). No m ajo r dev iat io ns we re id en ti f ied . In NLB G ro up, kn ow- h ow an d me th o dol ogi es a re tr an s fer r ed to th e m em be r s (except no n - co re m em be rs w h ich a re in th e pro ces s of liq ui da tio n). Th e me mb er s h a ve ado pte d app rop ri at e do cu me nt s w hi ch ar e in li ne w it h th e s t an dar ds of NLB a nd r evis e d in acc ord an ce wi th t h e devel opm e nt o f bu si ne s s con t in ui t y m an a gem en t. Th e ac ti vi t y o f th e m em be r s is m on ito red t h rou gh ou t t he ye ar , an d exp er t as si s tan ce i s provided if necess ar y. For mor e ef fi cie nt f un c tio ni ng of t h e bu s in es s co nt in ui t y ma na gem e nt s y s te m in NLB G ro up, t rai nin g co ur s es an d v is it s to in di vid ua l ba nk in g me mb er s a re al so p rovid ed . In 2021, visit s of NLB Group banking sub sidiarie s were s us pende d du e to COVID - 19 si t ua ti on , n ever th el es s al l preven t ive an d res po ns e m ea s ure s wi th r ega rd to b us in e s s con ti n uit y were se nt to t h e me mb er s w it h t he p ur p os e to h elp a nd a c t in t h e uni for m wa y . B e si de s , wor k s ho ps wer e per fo r me d to p res en t develo pm en t of B u s in es s Con t in ui t y M an a gem en t Sys tem to all t h e NLB G ro up m em be rs t o be m or e res il ien t in t he epidemic/pandemic circums tan ces . Wi th r eg ard s to IT fa ilu res , th e B ank s u cce s s f ull y us ed t h e IT pla ns a nd i ns tr u c t io ns fo r m an ual p ro ced ure s , an d t hu s al so en su re d bu si ne s s op era t ion s in e me rge nc y si t ua tio n s . Du r ing COVID -19 pa n dem ic in S l ovenia a nd S EE , NLB G ro up ha s taken m e as ur es to p rot ec t it s cu s t om er s an d em p loyee s , su ch a s (b u t not l im it ed to) en s ur in g th e rel evan t sa fet y con di tio n s an d ma ki ng s ur e th a t th e s er vic es of fer ed by t he Gro up a re prov ide d wi th o ut a ny di sr upt ion . T he N LB Gr ou p 317 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report con ti nu ou s ly o f f ere d ne ces s ar y s er vi ces t o cli en t s , es p eci all y through digital chan nels (mobile banking , video calls and tel eb an kin g), wh ich t h e NLB G ro up co nt in ue s to d evelop a t an accelerated pace. A Cr isis Man agement T eam was activated in th e B an k an d ot he r ba nk in g m em ber s w it h f ul l en gag em en t of th e M an ag em en t B oar d me mb er s . Sp eci al a t t en ti on was pai d to co nt in uo us p rovi si on of s e r vice s to cl ien t s , t h eir mo ni tor in g , he al th p rot ec tio n me as u res , a nd p reven ti on of c yb er f rau d . c) M anagemen t of other types of non -finan cial risks – capi ta l ri sk , s t ra teg ic r is k s , repu t at io n ri sk , a nd profitabilit yrisk Ri sk s n ot i nc lu de d in t he r eg ula to r y capi tal r eq uire m en t s (st an dar dis e d app roa ch) bu t h ave o r mig ht h a ve an im por t an t inf l uen ce o n th e r is k pr of il e of NLB G ro up, ar e reg ul ar ly as s es s ed , m on ito red , an d m an ag ed . In a ddi ti on , t hey ar e int eg rat ed in to i nt er n al cap it al ad eq ua c y as s es s m en t pro ce s s (IC A AP). NLB G ro up es tab lis h ed in te r na l me th o dol og ies f or ide nt if yi ng an d a s se s s ing s p ec if ic t yp es o f ri s k , ref er r in g to th e G rou p’s bus ine s s m od el or a r is in g fro m ot he r ex te r na l circ um s t an ces . If a cer t ain r i sk i s as s e s se d as a m a ter i all y important risk, rele vant disposable prev entive and mitigatio n meas ures are applied, includin g regular monitor ing of their ef f ec ti vene s s . O n t hi s ba si s , in te rn a l capi tal i s co ns id ere d an d its cons umption regularly monitored. 6.5. Fair v alue h ierarchy of financial an d non - finan cial as set s and lia bilities Fair valu e is t h e pr ice t h at wo ul d be re cei ved wh e n se llin g an as s et o r pai d to t ran s fe r a lia bili t y in an o rde rl y t ran sa c t io n bet wee n ma r ket pa r tic ipa nt s a t t he m e as ur em en t da te. N LB Gro up u s es var io us va lu at ion t ec hn iq ue s to de ter m in e fai r valu e. IFR S 13 s pe ci f ies a f air val ue h ie rarc hy wi th r es pe c t t o th e in pu t s an d a s s um pti on s us e d to m ea su re f in an ci al an d non -f inancial as set s and liabilities at fair value. Obser vable inp u t s ref le c t m ar ket d at a obt ain e d fro m in dep en de nt so urce s , w hil e un ob se r vable i np u t s ref le c t t h e as s um pt io ns of NLB G ro up. T hi s hi erar chy gi ves t he h igh e s t pr io r it y to obs er vab le m ar ket d ata w h en ava ila bl e, an d th e lowe s t pr ior i t y to un obs e r vable m ar ket d at a. N LB G rou p con s ide r s rel evant a nd o bs er vabl e m ar ket pr ic es in i t s val ua ti on s , wh er e pos s ib le . Th e fair va lu e hie rarc hy co mp ri s es t he f oll owin g lev els : • Leve l 1 – Qu ote d pr ic es (un adj us ted ) on a c t ive m ar ket s . T hi s lev el includes lis ted equities, debt instr umen ts , derivatives, uni t s of i nves t m ent f u nd s , an d ot h er un a dju s t ed m ar ket pr ice s of a s se t s an d lia bil it ies . Wh en an a s s et or l iab ili t y ma y be exch an ge d in m ul t ipl e ac tive m ar ket s , t h e pr in ci pal ma rket f or t he a s s et or l iab ili t y m u s t b e de ter m in ed . In t he abs en ce of a p r in cip al m ar ket, t he m os t advan ta ge ou s ma rket f or t he a s s et or l iab ili t y m u s t b e det er m in ed . • Leve l 2 – A valu at io n tec h niq ue w h ere in p ut s a re obs er vab le, e it he r dir ec tly ( i .e., p r ice s) or in dir ec tly ( i .e., derived from pr ices) . Lev el 2 includes prices quoted f or sim il ar a s se t s or l iabi li tie s in a c t ive m ar ket s an d pr i ces qu ote d for i den t ical o r si mi lar a s s et s , an d li abi li tie s in ma rket s th at a re no t ac tive . Th e so urce s of i np ut p ar am ete r s for f in an ci al in s t r um e nt s , s u ch a s yie ld c ur ves , c re dit sp rea ds , f ore ign exch an ge ra te s , an d t he vo la ti lit y of i nt ere s t rat es an d fo rei gn exch an ge ra te s , is B l oom b erg . • Leve l 3 – A valu at io n tec h niq ue w h ere in p ut s a re n ot ba s ed on ob se r vabl e ma rket d a ta . Un ob se r vable i np u t s are us ed to t h e ex te nt t h at r elevan t ob s er vabl e in pu t s ar e not avail ab le. U no bs er vab le in p ut s m u s t re fl ec t th e as s u mpt io ns th at m a rket p ar t ici pa nt s wo uld u s e wh en p r icin g an a s s et or liability. This level incl udes non-tradable shares and bonds, an d der i vat ives a s s oc iat ed w it h th e se i nves t me nt s and oth er a s s et s an d li abi lit ie s for w hi ch fa ir val ue ca nn ot b e det er mi ne d wi t h obs er vab le m ar ket in p ut s . Wh erever p os s ib le, f air val ue i s de ter m in ed a s an o bs er vabl e ma rket p r ice in a n ac ti ve mar ket fo r an i den t ical a s s et or liab ili t y . A n ac ti ve mar ket i s a m ar ket in w hic h tr an sa c t ion s fo r an as s et o r lia bil it y are exe cu te d wi th s u f f i cie nt f req ue n c y an d volu me t o prov ide p r ici ng in fo rm a ti on on a n on goi ng b as i s . A s s et s an d li abil it ie s me as u red a t fai r val ue in a c t ive m ar ket s are de te rm in ed a s t he m ar ket p ri ce of a u ni t (e.g., s h are) at t h e me as ur em en t da te, m u lt ip lie d by th e qu an ti t y of un it s ow ne d by NLB G rou p. Th e fai r val ue of a s s et s an d li abi lit ie s wh os e ma rket i s n ot ac ti ve is de ter m in ed u s ing va lu at io n tec hn iq ue s . The s e tec hn iq ue s be ar a di f fere nt in te n si t y level of e s t im at es an d as s um pt io ns , d ep en din g on t h e avai lab ili t y of ob se r vable ma rket i np u t s as s oc ia te d wi th t he a s s et or l iab ili t y th at i s t he su bje c t o f th e val ua ti on . U no bs er vabl e in pu t s s h all re fl ec t th e estimates and ass umptions that other m arke t par ticipants woul d us e wh en p r ici ng t h e as s et o r lia bili t y . F or non-financial assets measur ed at fair value and not classified at Lev el 1, fair value is determined based on v aluatio n r eports pro vided by certified valuat ors. V aluations ar e pr epared in acc ordanc e with the International V aluation Standards (IV S). 318 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report a) Fin ancial and non- financial ass ets and liabilities measured at fair v al ue in the financial stat ement s in EUR thousands 31 Dec 2021 NLB Gr oup NLB Lev el 1 Lev el 2 Level 3 T otal fair value Lev el 1 Lev el 2 Level 3 T otal fair value Financial assets Financial instruments held for tr ading - 7,677 1 7,67 8 - 7,681 1 7,682 Derivativ es - 7,677 1 7,678 - 7,681 1 7,682 Derivativ es - hedge accounting - 568 - 568 - 568 - 568 Financial assets measur ed at fair value thr ough other compr ehensive income 2,010,485 1,449,888 1,487 3,461,860 1,533,797 51,735 219 1,585,751 Debt instruments 2,009,699 1,385,211 351 3,395,261 1,533,797 7,245 - 1,541,042 Equity instruments 78 6 64,677 1,136 66,599 - 44,490 219 44,709 Non-tr ading financial assets mandatorily at fair value thr ough profit and loss 16,689 - 4,472 21,161 - 7,888 4,472 12,360 Debt instruments 4,261 - - 4,261 - - - - Equity instruments 12,428 - 4,472 16,900 - - 4,472 4,472 Loans - - - - - 7,888 - 7,888 Financial liabilities Financial instruments held for tr ading - 7,585 - 7,585 - 7,602 - 7,602 Derivativ es - 7,585 - 7,585 - 7,602 - 7,602 Derivativ es - hedge accounting - 35,377 - 35,377 - 35,377 - 35,377 Financial liabilities measur ed at fair value thr ough profit or loss - - - - - 352 - 352 Non-financial assets Investment pr operties - 19,982 27,642 47,624 - 9,181 - 9,181 Non-curr ent assets held for sale - 7,051 - 7,051 - 4,089 - 4,089 Non-financial assets impair ed during the year Rec over able amount of pr oper ty and equipment - - 2,990 2,990 - - - - Rec over able amount of intangible assets - - 87 2 872 - - - - Rec over able amount of investments in subsidiaries, associates and joint ventur es - - - - - 201 2,618 2,819 319 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands 31 Dec 2020 NLB Gr oup NLB Lev el 1 Lev el 2 Level 3 T otal fair value Lev el 1 Lev el 2 Level 3 T otal fair value Financial assets Financial instruments held for tr ading 2,450 81,619 786 84,855 2,450 15,595 786 18,831 Debt instruments 2,450 66,356 - 68,806 2,450 - - 2,450 Derivativ es - 15,263 786 16,049 - 15,595 786 16,381 Financial assets measur ed at fair value thr ough other compr ehensive income 2,068,317 1,444,146 1,827 3,514,290 1,663,619 52,458 2 74 1,716,351 Debt instruments 2,060,346 1,385,245 900 3,446,491 1,663,619 7,585 - 1,671,204 Equity instruments 7,971 58,901 927 67,799 - 44,873 2 74 45,147 Non-tr ading financial assets mandatorily at fair value thr ough profit and loss 13,146 - 29,247 42,393 - 7,947 27,159 35,106 Debt instruments 2,157 - - 2,157 - - - - Equity instruments 10,989 - 4,171 15,160 - - 4,171 4,171 Loans - - 25,07 6 25,07 6 - 7,947 22,988 30,935 Financial liabilities Financial instruments held for tr ading - 15,485 - 15,485 - 15,500 - 15,500 Derivativ es - 15,485 - 15,485 - 15,500 - 15,500 Derivativ es - hedge accounting - 61,161 - 61,161 - 61,161 - 61,161 Non-financial assets Investment pr operties - 22,632 32,210 54,842 - 8,300 - 8,300 Non-curr ent assets held for sale - 8,658 - 8,658 - 4,454 - 4,454 Non-financial assets impair ed during the year Rec over able amount of pr oper ty and equipment - - 3,897 3,897 - - - - Rec over able amount of investments in subsidiaries, associates and joint ventur es - - - - - 280 4,670 4,950 320 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report b) Signi ficant transfers of financial ins tr ument s bet ween le vels of v al uation NLB G rou p’s polic y o f tr an s fer s o f f in an cia l in s t r um en t s be t ween l evels of va lu at io n is il lu s t rat ed i n th e tab le b el ow. Derivativ es F air value hier arch y Equities Equity stake F unds Debt securities Loans Equities Currency Inter est 1 market v alue from ex change market r egular valuation by fund management company market v alue from ex change market 2 v aluation model valuation model valuation model (underlying in level 1) valuation model valuation model 3 valuation model valuation model valuation model valuation model valuation model valuation model (underlying instrument in lev el 3) T ransfers fr om level 1 to 3 fr om level 1 t o 3 fr om level 1 to 2 from le vel 2 to 3 from le vel 2 to 3 equity ex cluded fr om ex change market fund management company st ops publishing r egular valuation debt securities ex cluded fr om ex change market counterparty r eclassified from performing to NPL underlying instrument ex cluded fr om ex change market fr om level 1 to 3 fr om level 3 t o 1 fr om level 1 to 2 from le vel 3 to 2 from le vel 3 to 2 companies in insolvency pr oceedings fund management company st ar ts publishing r egular valuation debt securities not liquid (not tr ading for 6 months) counterparty r eclassified from NPL to performing underlying instrument included in ex change market fr om level 1 to 3 fr om level 1 to 3 and fr om 2 to 3 equity not liquid (not tr ading for 2 months) companies in insolvency pr oceedings fr om level 3 to 1 fr om level 2 to 1 and fr om 3 to 1 equity included in ex change market start tr ading with debt securities on ex change market fr om level 3 to 2 until valuation par ameters are confirmed on AL CO (at least on quarterly basis) For 2021 and 2020, n ei th e r NLB G rou p no r NLB h ad a ny signif icant trans fer s bet ween levels of valuat ion of financial in s tr ume nt s me as ure d a t fair va lu e in f in an ci al s ta te m en t s . 321 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report c) F inancial and non- financial ass ets and liabilities at Lev el 2 regarding the fair value hierarch y Fin an ci al in s t r um e nt s o n Level 2 of t h e fair va lu e hie rarc hy a t NLB G rou p an d NLB i nc lu de: • d ebt s e cu ri t ies : m os t ly b on ds n ot q uo ted o n ac ti ve mar ket s an d valu at ed by a val ua ti on m od el; • der ivatives: deriv a tives e xcept f or ward der ivatives an d opt ion s o n eq ui t y i ns tr u me nt s t h at a re n ot qu ote d on a c t ive m ar ket s ; • p er fo rm in g lo an s m ea su red a t fa ir val ue, w hi ch ac cor din g to IFR S 9 do n ot p as s S PP I tes t. Fair valu e is ca lc ula te d on th e ba s is of t h e dis co un te d exp ec ted f u t ure ca s h fl ows w it h th e req ui red r at e of ret u r n; an d • the National Resolution F und. Non - f in an ci al as s et s o n Level 2 of t h e fai r valu e hi era rchy a t NLB G rou p an d NLB i nc lu de inve s t me nt p rop er t ies . Wh en val uin g b on ds c la s si f ied o n Level 2, NL B Gro up p r im ar il y us es t he i nc om e app roa ch b as e d on an e s t im at ion o f f ut u re cas h f lows d is co un ted t o th e pr es en t valu e. The i np u t pa ram et er s us e d in th e in co me a pp roa ch ar e th e ri s k-fre e yie ld c ur ve an d th e s pre ad over t h e yie ld c ur ve ( credi t, liquidit y , countr y). Fair valu es fo r de ri vat ive s are d ete r min e d us in g a dis co un te d cas h f low m ode l ba s ed on t h e r is k-fre e yi eld c ur ve. Fair va lu es for op ti on s are d ete r mi ne d us in g val ua tio n m ode ls f or op ti on s (th e Ga r ma n an d Kohlh ag en m od el , bin om ia l mo de l, an d Black-Scholes model). At le as t one o f th e t hre e val ua ti on m et ho ds a re us e d for t he valu at io n of inves tm en t pro pe r t y. The m aj or it y of i nves t m en t prop er t y is val u ed u si ng t he i nc om e app roa ch w he re t he pre se nt val ue o f f ut u re exp ec ted re t ur n s is a s se s s ed . Wh en valu ing a n inves tm en t pro pe r t y, averag e ren t s a t si mil ar loc at ion s an d ca pi tali s at io n rat io s su ch a s: t h e r is k-fre e yie ld , r is k pr em ium , a nd t h e r is k pre mi um t o acco un t for capi tal p re se r vati on ar e us ed . Re nt s a t s im ila r lo cat io ns a re gen er at ed f rom var io us s o urce s , li ke dat a fro m le s so r s an d les s e es , web d at ab as es , a nd ow n da tab a se s . NLB G ro up h as obs er vab le d at a for al l inves tm en t pro per t y a t it s di s po sa l. If ob s er vabl e da ta fo r si mi lar l oca t ion s are n ot a vail ab le, NLB G rou p us es d at a fro m wi der l oc at ion s an d a dj us t s i t appropriately . d) Financial and non- financial asse ts and liabilities at Lev el 3 of the fair v alue hierarchy Fin an ci al in s t r um e nt s o n Level 3 of t h e fair va lu e hie rarc hy in NLB G rou p an d NLB i nc lu de: • e qu it ie s: m ai nl y f in an cia l eq uit ie s th a t are n ot q uot ed o n ac t ive m ar ket s ; • derivative financial instruments: forwar d derivatives and options on equity instruments that ar e not quoted on an active or ganised mark et. F air values for forwar d derivatives ar e determined using the discounted c ash flow model. F air values for equity options ar e determined using valuation models for options (the Garman and Kohlhagen model, binomial model, and Black-Scholes model). Unobservable inputs include the fair values of underlying instruments determined using valuation models. The sourc e of observable mark et inputs is the Bloomberg information system; and • n on -p er for m in g lo an s me as u red a t fai r valu e, w hic h acco rdin g to I FR S 9 do n ot pa s s S PPI t es t. Fair val ue i s calc ul at ed o n th e ba s is of t h e di sco un te d exp ec ted f u t ure cas h f lows w it h t he re qu ire d ra te of r et ur n . In d ef in in g th e expe c t ed ca s h fl ows fo r no n - per fo r mi ng l oan s , t he va lu e of coll at era l an d ot he r pa y of f es t im at es ca n be u se d . Non - f in an ci al as s et s o n Level 3 of t h e fai r valu e hi era rchy a t NLB Group incl ude inv es tmen t proper ties. NLB Group uses three v aluation m ethods f or the v aluation of eq uit y f in an ci al as s e t s me nt io ne d in f ir s t b ul let : th e in com e, market, and cost approaches . NLB G rou p se le c t s va lu at ion m o del a nd va lu es of un obs er vab le in p ut d at a wi th in a re as on ab le p os s ib le ra ng e, bu t us es m o del a nd i np u t da ta t ha t ot h er m ar ket pa r tic ip an t s woul d us e. At le as t one o f th e t hre e val ua ti on m et ho ds a re us e d for t he valu at io n of inves tm en t pro pe r t y. The m aj or it y of i nves t m en t prop er t y is val u ed u si ng t he i nc om e app roa ch w he re t he pre se nt val ue o f f ut u re exp ec ted re t ur n s is a s se s s ed . Wh en valu ing a n inves tm en t pro pe r t y, averag e ren t s a t si mil ar loc at ion s an d ca pi tali s at io n rat io s su ch a s: t h e r is k-fre e yie ld , r is k pr em ium a nd t h e r is k pre mi um t o acco un t for capi tal p re se r vati on ar e us ed . Re nt s a t s im ila r lo cat io ns a re gen er at ed f rom var io us s o urce s , li ke dat a fro m le s so r s an d les s e es , web d at ab as es , a nd ow n da tab a se s . NLB G ro up h as obs er vab le d at a for al l inves tm en t pro per t y a t it s di s po sa l. If ob s er vabl e da ta fo r si mi lar l oca t ion s are n ot a vail ab le, NLB G rou p us es d at a fro m wi der l oc at ion s an d a dj us t s i t appropriately . 322 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Moveme nt s o f fi na ncia l as se t s and l ia bil i tie s a t Level 3 in EUR thousands Financial instruments held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss T otal financial assets Financial liabilities measur ed at fair value thr ough profit or loss NLB Gr oup Derivatives Debt instruments Equity instruments Equity instruments Loans and other financial assets Loans and other financial liabilities Balance as at 1 January 2020 807 - 4,109 2,716 14,961 22,593 7,998 Effects of tr anslation of foreign oper ations to presentation curr ency - - 53 - - 53 - Acquisition of subsidiaries - 900 85 - - 985 V aluation: - thr ough profit or loss (21) - - 1,642 (2,720) (1,099) (8,006) - r ecognised in other compr ehensive income - - 21 - - 21 - F or eign ex change dif fer ences - - - (187) (48) (235) 8 Incr eases - - - - 20,399 20,399 - Decr eases - - (3,341) - (7,516) (10,857) - Balance as at 31 Dec ember 2020 78 6 900 927 4,171 25,07 6 31,860 - Effects of tr anslation of foreign oper ations to presentation curr ency - - (2) - - (2) - V aluation: - thr ough profit or loss (785) - - (56) 15,7 47 14,906 - - r ecognised in other compr ehensive income - - 266 - - 266 - F or eign ex change dif fer ences 357 9 366 - Incr eases - 63 - - 3,017 3,080 - Decr eases - (612) (55) - (43,849) (44,516) - Balance as at 31 Dec ember 2021 1 351 1,136 4,472 - 5,960 - 323 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands Financial instruments held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss T otal financial assets Financial liabilities measur ed at fair value thr ough profit or loss NLB Derivatives Equity instruments Equity instruments Loans and other financial assets Loans and other financial liabilities Balance as at 1 January 2020 807 259 2,716 13,055 16,837 7,7 46 V aluation: - thr ough profit or loss (21) - 1,642 (2,831) (1,210) (7,754) - r ecognised in other compr ehensive income - 15 - - 15 - F or eign ex change dif fer ences - - (18 7) (48) (235) 8 Incr eases - - - 19,833 19,833 - Decr eases - - - (7,021) (7,021) - Balance as at 31 Dec ember 2020 786 2 74 4,171 22,988 28,219 - V aluation: - thr ough profit or loss (785) - (56) 13,7 49 12,908 - F or eign ex change dif fer ences - - 357 9 366 - Incr eases - - - 3,005 3,005 - Decr eases - (55) - (39,751) (39,806) - Balance as at 31 Dec ember 2021 1 219 4,472 - 4,692 - NLB G rou p an d NLB re co gni s e th e ef fec t s fro m val ua ti on of tra din g in s t r um e nt s i n inc om e s ta te m en t lin e it em ‘G ai ns l es s loss es from finan cial ass ets and liabilit ies held for trading,’ ef f ec t s fro m valu at io n of n on - tr adi ng e qu it y in s t r um en t s an d loa ns m a nd at or il y me as ur ed a t fai r valu e th ro ug h prof i t or l os s in i nco m e s ta te me nt l in e ite m ‘G ain s l es s lo s se s fro m no n -t ra din g f in an cia l as s et s m an d ato r ily a t fa ir val ue th rou gh p rof it o r lo s s ,’ and ef fec t s fro m valu at io n of f in an ci al as s et s m ea s ure d at f air val u e th ro ugh ot h er co mp reh en s ive inc om e in t he a cc um ul at ed ot he r com p reh en s ive in com e li ne ite m ‘ Fin an ci al a s se t s m eas u red a t fa ir val ue t hro ug h ot he r compreh en sive incom e.’ 324 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report In 2021 an d in 2020, NL B Gro up a nd N LB re cog ni se d th e fo llow ing u nr eal is ed g ain s or l os s es f or f in an ci al in s t r um en t s t ha t wer e at Level 3 a s at 31 D e cem be r : in EUR thousands NLB Gr oup Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss Financial liabilities measur ed at fair value thr ough profit or loss 2021 Derivativ es E quity instruments E quity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses fr om non-trading assets mandatorily at fair value thr ough pr ofit or loss - - (56) - - F or eign ex change translation gains less losses - - 357 - - Item of Other compr ehensive inc ome Financial assets measur ed at fair value thr ough other compr ehensive income - 266 - - - in EUR thousands NLB Gr oup Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss Financial liabilities measur ed at fair value thr ough profit or loss 2020 Derivativ es Equity instruments Equity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses fr om financial assets and liabilities held for tr ading (21) - - - - Gains less losses fr om non-trading assets mandatorily at fair value thr ough pr ofit or loss - - 1,642 (2,720) 8,006 F or eign ex change translation gains less losses - - (187) (48) (8) Item of Other compr ehensive inc ome Financial assets measur ed at fair value thr ough other compr ehensive income - 21 - - - 325 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss Financial liabilities measur ed at fair value thr ough profit or loss 2021 Derivativ es E quity instruments E quity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses fr om non-trading assets mandatorily at fair value thr ough pr ofit or loss - - (56) - - F or eign ex change translation gains less losses - - 357 - - in EUR thousands NLB Financial assets held for tr ading Financial assets measur ed at fair value thr ough OCI Non-tr ading financial assets mandatorily at fair value thr ough pr ofit or loss Financial liabilities measur ed at fair value thr ough profit or loss 2020 Derivativ es Equity instruments Equity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses fr om financial assets and liabilities held for tr ading (21) - - - - Gains less losses fr om non-trading assets mandatorily at fair value thr ough pr ofit or loss - - 1,642 (2,831) 7,754 F or eign ex change translation gains less losses - - (187) (48) (8) Item of Other compr ehensive inc ome Financial assets measur ed at fair value thr ough other compr ehensive income - 15 - - - Moveme nt s o f no n- f in anci al a ss et s a t Level 3 in EUR thousands NLB Gr oup Inv estment property 2021 2020 Balance as at 1 January 32,210 28,933 Effects of tr anslation of foreign oper ations to pr esentation currency 19 (24) Acquisition of subsidiaries (note 5.12.c) - 19,643 Additions - 609 Disposals (502) (189) T ransfer fr om/(to) pr operty and equipment (7,568) (62) T ransfer fr om/(to) non-curr ent assets held for sale 22 17 T ransfer fr om/(to) other assets 1,260 (16,790) Net valuation to fair v alue 3,416 73 Disposal of subsidiary (note 5.12.b) (1,215) - Balance as at 31 Dec ember 27,642 32,210 326 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report e) F a ir val ue of f in an cia l in s tr u me nt s n ot m ea su red a t fa ir value in f inancial sta temen ts Financial in st r ument s not mea sured at fair value in financial s ta tem e nt s a re no t m an age d on a fa ir val ue b as i s . For res pe c t ive i ns tr u me nt s f air val ue s are c alc ul at ed fo r dis c los ur e pu r pos es o nl y an d do n ot i mp ac t NLB G rou p sta tement of finan cial position or income s tatement. The t ab le b elow s h ows es tim a te d fair va lu es of f i na nc ial in s tr ume nt s not m ea s ure d at f air va lu e in th e s t at em en t of finan cial posit ion. in EUR thousands NLB Gr oup NLB 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Carrying v alue F air value Carrying v alue F air value Carrying v alue F air value Carrying v alue F air value Financial assets measur ed at amor tised cost - debt securities 1,717,626 1,7 45,225 1,503,087 1,563,103 1,436,424 1,461,185 1,277,880 1,333,840 - loans and advanc es to banks 140,683 140,843 197,005 197,220 199,287 204,7 43 158,320 165,966 - loans and advanc es to customers 10,58 7,121 10,751,051 9,619,860 9,873,137 5,145,153 5,235,839 4,564,178 4,67 4,069 - other financial assets 122,229 122,229 113,138 113,138 92,404 92,404 54,503 54,503 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks 71,828 69,720 72,633 72,648 109,329 109,522 41,635 41,635 - borr owings fr om banks and centr al banks 858,531 849,834 158,225 155,673 873,479 863,970 143,464 140,702 - due to customers 17,640,809 17,658,686 16,397,167 16,414,382 9,659,605 9,664,607 8,850,755 8,860,267 - borr owings fr om other customers 7 4,051 73,7 44 91,560 93,020 406 406 13 13 - subor dinated liabilities 288,519 292,130 288,321 281,001 288,519 292,130 288,321 281,001 - other financial liabilities 206,8 78 206,878 182,095 182,095 102,527 102,527 88,96 9 88,969 Loans and advanc es to banks The e s t im at ed f air val ue o f dep os it s is ba s ed on d is co un te d cas h f lows u s ing p revail in g ma r ket int ere s t ra te s for in s tr ume nt s wit h s imi la r cre dit r i s k an d res id ua l ma t ur i ti es . The f air va lu e of over ni gh t dep os it s e qu al s th ei r car r yin g val ue . Loans and advanc es to customers The e s t im at ed f air val ue o f lo an s an d ad vanc es re pre se nt s t h e dis co un te d am ou nt o f es t im at ed f u t ure c as h fl ows exp ec te d to be r ece ived . E xp ec ted c as h f lows a re di sco un te d at c ur r ent ma rket r at es fo r deb t s wi th s im il ar c red it r is k a nd re s idu al ma t ur i tie s to d ete r min e t he ir fa ir val ue. Deposit s and borr owings The f air va lu e of s igh t de pos i t s an d over nig ht d epo s it s e qu als th eir c ar r yin g val ue. H owever , th eir a c t u al val ue fo r NLB Gro up d ep en ds o n th e t imi ng a nd a mo un t s of c as h fl ows , cur r en t ma rket r at es , a nd t h e cre dit r i s k of t he d epo s ito r y in s ti t ut io n it s el f. A po r tio n of s igh t de po si t s is s tab le, s im il ar to ter m d epo si t s . T he refo re, t he ir ec on om ic val ue fo r NLB G ro up dif fer s f rom t h e car r yi ng am o un t. The e s t im at ed f air val ue o f ot he r dep os it s a nd b or row in gs fro m cu s to me r s is b as ed o n di sc ou nt ed ca sh f low s us in g int ere s t ra te s for n ew de pos i t s wi th s im il ar re si du al m at u ri t ies . Other financial assets and li abil ities The carr ying amount of other f inancial as set s and liabilities is a rea so n abl e app roxim a ti on of t h eir fa ir val ue a s th ey m ain ly relate to s hor t-term r eceivables and pay ables . 327 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Fair value hier archy of financial instruments not measur ed at fair value in financial statements in EUR thousands 31 Dec 2021 NLB Gr oup NLB Lev el 1 Level 2 Level 3 T otal fair value Lev el 1 Level 2 Level 3 T otal fair value Financial assets measur ed at amor tised cost - debt securities 1,434,411 303,647 7,167 1,7 45,225 1,358,293 102,892 - 1,461,185 - loans and advanc es to banks - 140,843 - 140,843 - 204,7 43 - 204,7 43 - loans and advanc es to customers - 10,751,051 - 10,751,051 - 5,235,839 - 5,235,839 - other financial assets - 122,229 - 122,229 - 92,404 - 92,404 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks - 69,720 - 69,720 - 109,522 - 109,522 - borr owings fr om banks and centr al banks - 849,834 - 849,834 - 863,970 - 863,970 - due to customers - 17,658,686 - 17,658,686 - 9,664,607 - 9,664,607 - borr owings fr om other customers - 73,7 44 - 73,7 44 - 406 - 406 - subor dinated liabilities 245,700 46,430 - 292,130 245,700 46,430 - 292,130 - other financial liabilities - 206,878 - 206,878 - 102,527 - 102,527 in EUR thousands 31 Dec 2020 NLB Group NLB Lev el 1 Level 2 Level 3 T otal fair value Lev el 1 Level 2 Level 3 T otal fair value Financial assets measur ed at amor tised cost - debt securities 1,267,437 288,484 7,182 1,563,103 1,254,337 79,503 - 1,333,840 - loans and advanc es to banks - 197,220 - 197,220 - 165,966 - 165,966 - loans and advanc es to customers - 9,873,137 - 9,873,137 - 4,67 4,06 9 - 4,6 7 4,069 - other financial assets - 113,138 - 113,138 - 54,503 - 54,503 Financial liabilities measur ed at amor tised cost - deposits fr om banks and centr al banks - 72,648 - 72,648 - 41,635 - 41,635 - borr owings fr om banks and centr al banks - 155,673 - 155,673 - 140,702 - 140,702 - due to customers - 16,414,382 - 16,414,382 - 8,860,267 - 8,860,267 - borr owings fr om other customers - 93,020 - 93,020 - 13 - 13 - subor dinated liabilities 234,629 46,372 - 281,001 234,629 46,372 - 281,001 - other financial liabilities - 182,095 - 182,095 - 88,96 9 - 88,96 9 328 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 6.6. Of fse t tin g finan cial as set s and fin ancial liabili ties NLB G rou p ha s en te red i nt o bil at eral f ore ign exch an ge n et ti ng ar ran ge me nt s w it h ce r tain b an k s an d co rp ora te s . Ca sh flow s fro m s uc h tra n sa c t ion s t ha t ar e du e on t he s am e da y in th e s am e cu r ren c y, are set t led o n a n et ba s is , i .e. , a si ng le cas h f low for e ac h cu r ren c y. The se t tle m en t of all i nt ere s t rat es d er iva ti ves is a ls o car r i ed o ut by n et ti ng o f bot h le gs of tr an sa c t io n . A s s et s an d li abi lit ie s rel at ed to t h es e n et tin g ar ran ge me nt s a re n ot pre s en ted i n a ne t am ou nt i n th e s ta tem e nt o f fi na nc ial p os it io n be ca us e ne t tin g r ul es a ppl y to cas h f lows a nd n ot t o th e en ti re f in an cia l in s t r um en t. In 2013, NLB G ro up al so n ovat ed ce r tai n s ta nd ard is ed der i vat ives (s om e in ter es t ra te s wa ps) to a c lea r in g ho us e or cen tr al co un ter p ar t y . A s y s te m of d ail y ma rgi ns a s s ure s th e in EUR thousands NLB Gr oup 31 Dec 2021 Amounts not set off in the statement of financial position Financial assets/liabilities Gr oss amounts of rec ognised financial assets/liabilities Impact of master netting agreements Financial instruments collateral Net amount Derivativ es - assets 8,239 998 445 6,796 Derivativ es - liabilities 42,961 998 41,121 842 in EUR thousands NLB Gr oup 31 Dec 2020 Amounts not set of f in the statement of financial position Financial assets/liabilities Gr oss amounts of rec ognised financial assets/liabilities Impact of master netting agreements Financial instruments collateral Net amount Derivativ es - assets 15,820 608 5 94 14,618 Derivativ es - liabilities 7 6,646 608 7 4,861 1,177 in EUR thousands NLB 31 Dec 2021 Amounts not set off in the statement of financial position Financial assets/liabilities Gr oss amounts of rec ognised financial assets/liabilities Impact of master netting agreements Financial instruments collateral Net amount Derivativ es - assets 8,249 1,008 445 6,796 Derivativ es - liabilities 42,978 1,008 41,121 849 in EUR thousands NLB 31 Dec 2020 Amounts not set of f in the statement of financial position Financial assets/liabilities Gr oss amounts of rec ognised financial assets/liabilities Impact of master netting agreements Financial instruments collateral Net amount Derivativ es - assets 16,189 62 3 5 94 14,972 Derivativ es - liabilities 7 6,661 62 3 7 4,861 1,177 mi tig at io n an d col la ter ali sa t ion o f expo s ure s , as we ll as t h e dai ly s et tl em en t of ca s h fl ows fo r eac h cu r ren c y. All d er iva ti ves ar e con d uc ted un d er t he co n dit io ns o f si gn ed Ma s te r Agre em en t s (M A ), wi th i nt er n at io na l ban k s I SDA M A i s in pl ace a lon g wi t h C SA an n ex an d for co r po rat es d om es t ic M A is in p la ce, w hic h en ab le d ail y evalu at io n an d excha ng e of marginin g. NLB Group and NLB have n o finan cial ass et s/liabilities set of f in th e s t at em en t of f in an ci al po s it ion . 329 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 7. Analysis b y segment for NLB Group a) S e g m en t s in EUR thousands NLB Gr oup 2021 Retail Banking in Slov enia Corpor ate and Inv estment Banking in Slov enia Str ategic F oreign Markets Financial Markets in Slov enia Non-Cor e Members Other activities Unallocated T otal T otal net income 171,046 101,505 361,9 45 24,10 7 7,223 6,127 - 671,953 Net income fr om external customer s 188,629 110,588 363,452 (8,855) 7,014 6,091 - 666,919 Intersegment net income (17,583) (9,083) (1,50 7) 32,962 209 36 - 5,034 Net inter est income 79,535 35,714 266,804 26,377 1,331 (401) - 409,360 Net inter est income fr om external customers 98,898 44,481 270,839 (6,188) 1,751 (421) - 409,360 Intersegment net inter est income (19,363) (8,7 67) (4,035) 32,565 (420) 20 - - Administr ative e xpenses (104,844) (40,829) (198,589) (7,9 63) (10,534) (10,259) - (373,018) Depr eciation and amortisation (11,659) (4,278) (29,329) (677) (833) (619) - (47,395) Reportable segment pr ofit/(loss) befor e impairment and pr ovision charge 54,543 56,398 134,027 15,467 (4,144) (4,751) - 251,540 Other net gains/(losses) fr om equity investments in subsidiaries, associates and joint ventur es 1,108 - - - - - - 1,108 Impairment and pr ovisions charge (6,684) 30,450 (20,779) 329 5,403 39 - 8,758 Pr ofit/(loss) befor e income tax 48,967 86,848 113,248 15,796 1,259 (4,712) - 261,406 Owners of the par ent 48,9 67 86,848 101,784 15,796 1,259 (4,712) - 249,9 42 Non-contr olling inter ests - - 11,464 - - - - 11,464 Income tax - - - - - - (13,538) (13,538) Pr ofit for the year 236,404 Reportable segment assets 2,811,209 2,333,76 9 9,797,839 6,190,193 95,905 337,056 - 21,565,971 Investments in associates and joint v entures 11,525 - - - - - - 11,525 Reportable segment liabilities 7,720,693 1,9 66,530 8,315,316 1,231,66 9 7,7 49 119,416 - 19,361,373 Additions to non-curr ent assets 9,972 4,218 26,608 264 (10,036) 2,039 - 33,065 330 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup 2020 Retail Banking in Slov enia Corpor ate and Inv estment Banking in Slov enia Str ategic F oreign Markets Financial Markets in Slov enia Non-Cor e Members Other activities Unallocated T otal T otal net income 170,358 75,185 209,091 39,633 5,445 7,958 - 507,670 Net income fr om external customer s 184,758 81,124 213,881 12,713 4,537 7,472 - 504,484 Intersegment net income (14,400) (5,939) (4,790) 26,921 908 486 - 3,186 Net inter est income 81,395 34,007 159,261 23,471 1,199 24 0 - 299,573 Net inter est income fr om external customers 9 6,357 40,873 163,255 (3,126) 2,012 203 - 299,573 Intersegment net inter est income (14,96 2) (6,866) (3,994) 26,598 (813) 37 - - Administr ative e xpenses (102,089) (37,878) (94,86 2) (6,972) (11,848) (11,047) - (264,696) Depr eciation and amortisation (12,043) (3,911) (14,162) (619) (1,011) (685) - (32,431) Reportable segment pr ofit/(loss) befor e impairment and pr ovision charge 56,226 33,396 100,067 32,042 (7,414) (3,77 4) - 210,543 Other net gains/(losses) fr om equity investments in subsidiaries, associates and joint ventur es 8 74 - - - - - - 8 74 Negative goodwill - - 137,858 - - - - 137,858 Impairment and pr ovisions charge (15,06 9) 8,982 (59,084) (1,267) 2,854 (7,770) - (71,354) Pr ofit/(loss) befor e income tax 42,031 42,378 178,841 30,775 (4,560) (11,544) - 277,921 Owners of the par ent 42,031 42,378 175,792 30,775 (4,560) (11,544) - 27 4,872 Non-contr olling inter ests - - 3,049 - - - - 3,049 Income tax - - - - - - (5,165) (5,165) Pr ofit for the year 269,70 7 Reportable segment assets 2,545,714 2,043,324 9,346,255 5,218,038 131,204 273,332 - 19,557,867 Investments in associates and joint v entures 7,988 - - - - - - 7,988 Reportable segment liabilities 7,367,145 1,519,067 7,879,089 557,402 4,571 115,540 - 17,442,815 Additions to non-curr ent assets 15,679 6,047 13,517 418 69 5 2,9 41 - 39,298 Se gm en t rep or t in g is pr es en te d in acc ord an ce wi t h th e s tr at eg y on t he b as is o f th e or gan i sa ti on al s t r u c t ur e us ed i n ma na gem e nt re po r tin g of N LB G rou p’s resu lt s . NLB Gr ou p’s se gm en t s are b us in e s s uni t s t ha t fo cu s on d if fere nt c us tom er s an d ma rket s . Th ey are m an ag ed s ep ara te ly b eca us e ea ch bu si ne s s un it re q uire s di f fe ren t s t ra te gie s an d se r vice l evels . The business activities of NLB ar e divided into sever al segments. Inter est income and e xpenses are alloc ated between segments on the basis of fund tr ansfer prices (FTP). Other NLB Gr oup members ar e, based on their business activity, included in only one segment ex cept NLB Lease&Go which is ac cor ding to its business activities divided into two segments. The s e gm en t s of NL B Gro up a re di vid ed i nto c ore a nd n on - core s eg m en t s . The c ore s eg m ent s are th e fo llow in g: • Ret ail B a nk in g in S loven ia , wh ich i nc lu de s ban k in g wi th individu als and ass et manage ment (NLB Skladi), and par t of new s ub si dia r y NLB Lea s e&G o th at i nc l ude s op era t ion s wi t h reta il c lie nt s , a s well a s t he co nt r ib ut io n to t he r es ul t of t he ass ociate d company Bankar t. • Cor po rat e an d Inves tm en t B ank in g in S loven ia , wh ic h inc l ude s ba nk in g wi th Key Cor po rat e Cli en t s , S ME s , Cr os s - bor der c or po ra te f in an cin g , Inves tm en t B an kin g an d Cus t od y , R es tr u c t ur in g an d Workou t, an d pa r t of t he n ew su bs idi ar y NLB Le as e &Go t ha t in cl ud es o pe rat io ns w it h corp orate cli ent s . 331 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report • St rat eg ic Foreig n Ma r ket s , wh ic h con s is t o f th e op er at ion s of s t ra teg ic G rou p ba nk s in t h e s t rat eg ic m ar ket s (No r th Ma ced on ia, B o sn ia a nd H er zegovi na , Kosovo, M on ten e gro, an d Se rb ia). A s a re s ult o f th e ac qu is it io n of Kome rci jal na ban ka B eo grad a t t he e nd o f th e yea r 2020, NLB G ro up acq uir ed t hre e ba nk s : Kome rci jal na b an ka Be og rad , K om ercijalna banka Podgorica, and Komercijalna banka Ba nj a Luka , as wel l as an i nves t m en t f un d com pa ny KomB an k Inves t B e og rad . In N ovemb er 2021, t h e me rge r of NLB B an ka Pod gor ic a an d Komerc ij aln a ba nka Po dgo r ica was f in alize d. Kom erc ija ln a ba nka B an ja Lu ka was so ld ou t s ide t h e NLB G rou p on 9 D ece mb er 2021, s o i t is in c lu ded in th e re s ul t of t he s eg me nt f or 2021 wi t h it s o per at io ns u nt il th e s pe cif i ed da te . • Fin an ci al M ar ket s in S loven ia i nc lu de t rea s ur y ac ti vi ti es an d tra din g in f in an c ial in s t r u me nt s , whi le t hey a ls o pre se nt t h e result s of ass et and liabilities man agemen t (ALM). • O th er a cco un t s for t he B a nk ’s categ or ie s wh os e op era t in g res ul t s ca nn ot b e all oca te d to s pe ci fi c se gm en t s a s well a s subs idiar y NLB Cultural Heri tage Managem ent Ins ti tu te. Non - Core M em b er s in cl ud e th e op er at ion s o f no n - co re G rou p me mb er s , n am e ly R E A M an d l eas in g en t it ies (except N LB Lea se &Go), NLB S r bij a, a nd N LB Cr n a Go ra . NLB Le as in g Lju bl jan a was s ol d to t he s tra te gic co m pany L eas e &Go w it hin th e NLB G ro up in 2021. D es pi te t h e ch an ge in ow ne r sh ip, i t s ope ra tio n s con ti n ue to b e mo ni to red w it hi n th e s egm en t of non - core m emb ers . NLB G rou p is p r im ar il y a fi na nc ial g rou p, an d ne t in ter es t inc om e rep res e nt s t he m a jor i t y o f it s n et r even ues . NLB Gro up’s mai n in dica to r of a s eg me nt ’s ef fic ien c y i s ne t pro f it before tax. No reven ue s were g en era te d fr om t ran sa c t io ns w it h a s in gle ex te rn a l cu s to me r th a t wou ld am o unt t o 10% or m ore o f Group’ s rev enues . b) G eographical information Ge ogr aph ica l an aly s is in c lu des a b re akdown o f it em s wi th res pe c t t o th e co un tr y in w hi ch in d ivi du al NL B Gro up e nt it ie s are locate d. in EUR thousands Re venues Net income Pr ofit/(loss) before inc ome tax Income tax NLB Gr oup 2021 2020 2021 2020 2021 2020 2021 2020 Slov enia 352,053 322,128 301,021 290,37 6 137,857 93,362 (5,043) (1,154) South East Eur ope 458,571 265,600 365,649 214,486 121,301 184,266 (8,462) (3,9 63) North Macedonia 87,936 81,710 70,157 64,466 43,277 21,008 (4,054) (1,566) Serbia 192,048 35,240 165,199 28,046 29,405 130,912 2,077 1,323 Montenegr o 43,983 31,291 34,756 25,033 6,508 2,7 41 (1,484) (426) Cr oatia 5 42 207 454 (181) (1,019) (1) (12) Bosnia and Herzego vina 83,087 69,616 52,735 57,079 15,236 15,77 6 (2,213) (1,572) Koso vo 51,512 47,701 42,595 39,408 27,056 14,848 (2,78 7) (1,710) W estern Eur ope 17 3 249 (378) 2,2 48 293 (33) (48) Germany 1 2 499 80 488 (433) - - Switzerland 16 1 (250) (458) 1,7 60 726 (33) (48) T otal 810,641 587,731 666,919 504,484 261,406 277,921 (13,538) (5,165) The c ol um n ‘ Reven ue s’ in cl ud es i nt ere s t an d s im ila r in com e, div ide n d in com e, an d fe e an d co mm is s io n in com e. The c ol um n ‘ Net I nco m e’ inc lu de s ne t in ter es t i nco m e, div ide n d in com e, n et fe e an d co mm is s io n in com e, t he n et ef fec t of fin ancial ins tr um ent s, foreign exchange transla tion , th e ef fec t on t he d ere cog ni ti on of a s s et s , n et o pe rat in g inc om e, an d ga in l es s lo s se s fr om n on - c ur re nt a s s et s h el d fors al e. 332 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands Non-curr ent assets T otal assets Number of employ ees NLB Gr oup 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Slov enia 150,829 153,671 11,716,270 10,142,675 2,619 2,691 South East Eur ope 214,380 219,886 9,845,128 9,411,671 5,563 6,098 North Macedonia 37,384 37,181 1,758,269 1,576,9 41 87 7 87 7 Serbia 108,515 109,167 4,780,843 4,587,600 2,901 3,198 Montenegr o 18,328 17,934 775,238 709,797 3 74 467 Cr oatia 383 381 4,025 4,390 6 7 Bosnia and Herzego vina 34,782 39,57 6 1,596,370 1,654,026 94 2 1,086 Koso vo 14,988 15,647 930,383 8 78,917 463 463 W estern Eur ope 30 58 16,098 11,509 3 3 Germany 30 58 971 1,648 1 1 Switzerland - - 15,127 9,861 2 2 T otal 365,239 373,615 21,577,496 19,565,855 8,185 8,792 in EUR thousands Re venues Net income Pr ofit/(loss) befor e income tax Income tax NLB Gr oup 2021 2020 2021 2020 2021 2020 2021 2020 Slov enia 448,559 341,092 387,6 92 328,302 225,706 120,806 (5,252) (1,221) South East Eur ope 459,405 265,889 37 4,77 6 211,337 146,496 44,271 (8,9 40) (3,9 49) North Macedonia 87,864 81,6 73 68,429 62,658 43,054 20,788 (4,054) (1,566) Serbia 192,77 6 35,318 161,017 28,386 37,536 (6,7 61) 1,599 1,337 Montenegr o 43,978 31,37 6 35,417 24,356 7,96 9 1 87 (1,484) (426) Cr oatia 3 145 2 74 468 (181) (1,019) (1) (12) Bosnia and Herzego vina 83,275 69,6 78 67,806 56,791 30,895 16,032 (2,213) (1,572) Koso vo 51,509 47,6 99 41,833 38,678 27,223 15,044 (2,78 7) (1,710) W estern Eur ope 19 335 86 (144) 2,2 47 588 (33) (34) Germany 1 2 493 81 489 (432) - - Switzerland 18 333 (407) (225) 1,758 1,020 (33) (34) T otal 907,983 607,316 7 62,554 539,495 37 4,449 165,665 (14,225) (5,204) The t ab le b elow p res en t s da ta o n NLB G ro up m em be r s be fore i nt erco mp any e lim in at io ns a nd c on so li da tio n jo ur n als . 333 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 8. Rela ted - par t y transac tions A rel at ed p ar t y is a pe r so n or e nt it y th a t is r ela te d to NLB G rou p in s uc h a m an ne r th at i t h as co nt ro l or jo in t con tro l, h a s a si gni f ica nt in f lu en ce, o r is a m em be r of th e key man ag em en t p er s on ne l of t he r epo r ti ng en t it y. Rel at ed p ar t ies o f NLB G ro up an d NLB i nc lu de: key managem ent pers onnel (Manag ement Board , other ke y ma na gem e nt p er s on ne l an d th ei r fam il y me mb er s); t h e Su pe r vis or y B o ard; co mp an ies i n wh ich m e mb er s of the Managem ent Board, key management per sonn el, or t hei r fam il y me m ber s h a ve con tro l, j oin t con t rol , or a sig ni f ican t in fl ue n ce; a ma jor s h are ho ld er of N LB wi th signif icant influen ce, subsidiar ies , ass ociates and joint ven t ur es . in EUR thousands NLB Gr oup and NLB Management Boar d and other Ke y management personnel F amily members of the Management Boar d and other ke y management personnel Companies in which members of the Management Boar d, ke y management personnel or their family members have contr ol, joint contr ol or a significant influenc e Supervisory Boar d 2021 2020 2021 2020 2021 2020 2021 2020 Loans issued Balance at 1 January 2,284 2,119 444 520 - 130 305 248 Incr ease 1,041 1,47 6 228 184 891 90 55 109 Decr ease (1,228) (1,311) (257) (260) (359) (220) (300) (52) Balance at 31 Dec ember 2,097 2,284 415 444 532 - 60 305 Inter est income 39 40 7 8 6 1 4 7 Deposits r eceived Balance at 1 January 1,610 1,579 956 87 1 136 193 323 198 Incr ease 2,048 1,392 595 826 1,625 207 321 277 Decr ease (1,488) (1,361) (833) (7 41) (1,171) (264) (139) (152) Balance at 31 Dec ember 2,170 1,610 718 956 590 136 505 323 Inter est expenses (4) (4) - - - - (1) - Other financial assets - 2 - - - - - - Other financial liabilities 2,268 2,759 1 - 14 8 - - Guar antees issued and loan commitments 215 242 72 78 1 94 6 23 33 F ee income 12 15 6 7 83 101 2 1 Other income 13 16 - - - - - - Other expenses - (11) - - (78) (7 6) - - Related -par t y transaction s with Managemen t Board and other ke y managem ent person nel, their family member s and co mp an ies t h ese re la te d pa r t ies h ave con tro l, j oin t control, or significant influen ce A nu mb er o f ban k in g tra ns ac ti on s are e nt ere d in to wi th rel at ed p ar ti es w it hin r eg ul ar co ur s e of b us in es s . The vo lu me of related- par t y trans ac tion s and the out s tandin g balances are a s foll ows : 334 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report K ey managemen t compensation The r em un er at ion f or t he m em b er s of t h e Su pe r vis or y Bo ard o f NLB d .d . an d th e M an age m ent B o ard o f NLB d .d . is re gu la te d in Re m un era ti on Po lic y fo r t he M em be r s of th e S up er vi so r y Bo ard o f NLB d .d . an d th e M em ber s o f th e Ma na gem e nt B oa rd of N LB d .d. T he re m un era ti on fo r th e ide nt if ie d em pl oyees a nd o th er e mp loyee s is r eg ula te d in Rem u ne rat io n Pol ic y fo r em ploye es of N LB d .d. a nd N LB Gro up. In 2021, NLB d .d . in ac cord an ce wi t h th e Com pa nie s Ac t (ZGD - 1) an d th e B an ki ng Ac t (ZB an - 3), a do pte d a new R em un er at ion Poli c y for m e mb er s of t h e S upe r vi so r y Bo ard o f NLB d .d . an d me mb er s o f th e M an age me nt B o ard o f NLB d .d ., wh ic h was ad opt ed by t he S u pe r vis or y B oa rd of N LB d.d . an d t he n su bm it te d to t he G en er al M eet in g of S h are ho ld er s of N LB d.d ., wh ere i t was vot ed in D ec em be r 2021. Pu r su an t to A r tic le 294.a of th e Com p ani es Ac t (ZGD - 1), t he B a nk m u s t in ca s e of ever y sig ni f ican t ch an ge s u bm it t h e Rem u ne rat io n Pol ic y to t h e Ge ne ral M ee ti ng o f Sh are ho ld er s fo r voti ng , an d in a ny cas e a t lea s t ever y fo ur ye ar s . In th e R em un era t ion Po lic y a n d ba se d th er eon , t h e B an k designates identified employees. In desig n ating identified em ploye es , t he i nt er n al or gan is a tio n an d t he n a tu re, s co pe an d com pl exit y of t h e B an k ’s ac t iv it ie s are ta ken in to acc ou nt. The c r it er ia f ul ly ta ke int o acco un t t he r i sk s t h at t h e Ba nk o r th e NLB G ro up i s or co ul d be exp os ed t o it s gi ven r is k p rof il e an d ri s k app et it e. Th e R em un era t ion Po lic y i nc l ude s m em be r s of th e S up er vi s or y B oar d, m em b er s of t h e Ma na gem e nt Bo ard , s en ior m an ag em en t an d ot he r id en ti fi ed e mp loyee s wh o are i nc lu de d in t he Po lic y on th e ba s is o f th e B an k ’s sel f- assessment . Me mb er s of t h e S up er vi so r y Bo ard m a y , in r el at ion t o th ei r fu nc ti on of a m em b er of t h e S upe r vis o r y Bo ard , on ly r ecei ve remuner ation that i s complia nt with the relev ant re s olutions of th e B an k ’s Gen er al M ee tin g . The S u pe r vis or y B o ard m em be r s are e nt it le d to a rem un er at ion f or p er for m in g th eir f u nc tio n an d/ o r at te nd an ce fee s for t h eir m em be r s hip i n th e S up er vi so r y Bo ard o f th e Ba nk a nd t h e com m it tee s of t h e Su pe r vis or y B o ard of t h e Ba nk , w hi ch ar e det er m in ed in a cco rda nce w it h re sp ec ti ve app lica bl e res ol u tio n by th e G en era l Me et in g of t he B a nk , an d to rei mb ur s em en t of t ra vel exp en se s , da il y allowa nce s , an d acco mm o da tio n cos t s up to t he a mo un t pr ovid ed by th e reg ul at ion s g overn in g rei mb ur s em en t of c os t s r ela te d to wor k an d oth er i nc om e no t in cl ud ed in t h e tax b as e. The B a nk ’s Gen eral M e et in g ma y de ter m in e an d ch an ge th e rem u ne rat io n of t he m em b er s of t h e Su pe r vis or y B o ard in dep en de nt ly f rom t h e Re mu ne ra tio n Po lic y, and m ay ch an ge, re pe al , or re pl ace any o f it s r es ol ut io ns i n rel at io n to th e rem u ne rat io n of t he S up er v is or y B oa rd m em be rs a t any tim e, o r ad opt a n ew re so lu ti on in r ela t ion t o th e rem u ne rat io n of th e S up er vi s or y B oar d me mb er s . The p er fo r ma nc e of key ma na gem e nt i s def i ne d by fi na nc ial an d no n -f in an c ial c ri te r ia . In ad dit io n to t he s al ar y de ter m in ed in th ei r em pl oym en t con tr ac t, they ar e en ti tl ed t o th e an n ual var iab le p ar t of t he s al ar y ba s ed on t h eir a ch ievem en t of the fin ancial and non -f inan cial per for man ce criter ia, which en com pa s s t he g oal s of N LB Gr oup o r NLB , th e goa ls o f th e org ani s at ion al u ni t, an d th e pe r so n al go als o f th e em p loyee per fo r mi ng s pe ci al wor k . The objectives and criteria of each member of the Management Boar d shall be determined each year by the Supervisory Boar d NLB d.d. at the time of adoption of the Bank’s annual business plan. The objectiv es and criteria for the identified employees ar e determined by the Management Boar d. The variable por t ion of receipts for a giv en f inanc ial year ma y no t exceed e igh t s ala ri es fo r th e p er io d in cl udi ng 5 J u ly 2021, wh ile fo r th e p er io d as o f 6 Ju ly 2021 o nward s it s h all be s even s ala ri es o f a me mb er o f th e M an age m ent B o ard i n th e f in an cia l year . O t he r id en ti f ied e mp loyee s are e nt it le d to a var iab le p ar t of re m un era ti on ac cord in g to th e ca te gor y of em pl oyee in t he m a xim um a mo un t of t h ree to s i x sa lar ie s . Key man age me nt s h all b e en t it le d to a var iab le p ar t of t h e per fo r ma nc e ben ef i t on ly i n pro por t io na l par t t o th e ac tu al per i od of e mp loy me nt (du rat io n of t he t er m of o f f ic e) of th e Ba nk d ur in g t he p er io d to w hic h th e var ia bl e par t o f th e per for mance benef it relates . The non - deferred par t of variable remunerat ion is paid no la ter t h an t hre e m on th s af te r th e ad op tio n of t he A n nu al Rep or t of N LB G rou p for t h e bu si ne s s yea r to wh ic h th e variable remunerat ion relates . V ar iable remunera tion par t of pa ym en t of a n ide nt i fi ed e mp loyee i s awar ded a n d pai d in ca sh , p rovid ed t h at t he a mo un t do es n ot exce ed EUR 50 th ou s an d or /and is h igh er t h an on e - th ird o f hi s/ he r tota l rem un er at ion f or ea ch f in an c ial yea r , an d if t hi s is p er m is s ib le in accordance w ith th e relevant regul atio n. If the variable remun eration par t of payment of an identif ied em ploye e exceed s EUR 50 t ho u sa nd o r / a nd i s hi gh er t ha n on e -t hi rd of h is /h er to tal r em un era t ion fo r ea ch f in an ci al year an d i f th is i s pe r mi s si bl e in acc ord an ce wi th t h e rel evant reg ul at ion , t h en a t lea s t 50% o f th e var iab le r em un era t ion m u s t consis t of ins tr um ent s . The par t of the v ar iable remun eration of an id en ti f ie d em ploye e con s is t in g of i ns tr um e nt s s h all b e award ed a nd p aid , un d er t he t er m s an d con di ti on s in t he val id Rem u ne rat io n Pol ic y, in ins t r um e nt s w ho se va lu e is b as ed o n th e val ue of t h e sh ar e of NLB d .d . (wi th t he se i n s tr ume nt s n ot giv in g any di vid en d s or ot he r yi eld s). The d ef er red p ar t o f th e var iab le p ar t of t h e sa lar y m u s t be def er red f or a p er io d of a t lea s t f i ve year s of t h e da y on wh ic h th e no n - d efe r red p ar t of s u ch var ia bl e rem un er at ion i s p aid an d it i s pai d in pr opo r ti on al s ha res , accor din g to t he r el evant legislation . in EUR thousands NLB Gr oup and NLB Management Boar d Other ke y management personnel Supervisory Boar d 2021 2020 2021 2020 2021 2020 Short-term benefits 1,589 1,401 5,480 5,501 705 649 Cost r efunds 4 4 83 95 26 34 Long-term bonuses: - sev eranc e pay 385 259 5 108 - - - other benefits 5 4 70 49 - - - variable part of payments 3 94 - 2,898 - - - T otal 2,377 1,668 8,536 5,753 731 683 The t ab le b elow s h ows p aym e nt s i n pre se nt ed p er io ds . Shor t-te rm benefits inclu de: • m onetar y benef its (gros s salaries , s upplemen tar y insuran ce, holiday allowances and other bonuses); • n on -m on et ar y be ne fi t s (comp any c ar s , h eal t h care , resident ial facilities , etc.). The r eim b ur s em en t of co s t co mp ri s es fo od allowan ce s , t ravel ex pe ns es , and u s e of own reso urces . 335 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR Member 2021 2020 Blaž Br odnjak Short-term benefits: 01.12.2012 - gr oss salary and holiday allowanc e 441,770 384,734 - benefits and other short-term bonuses 2,310 2,250 Costs r efunds 1,302 1,304 Long-term bonuses: - other benefits 1,410 94 0 - variable part of payments 130,211 - T otal 577,003 389,228 Andr eas Burkhardt Short-term benefits: 18.09.2013 - gross salary and holiday allow ance 405,092 352,796 - benefits and other short-term bonuses 32,672 17,861 Costs r efunds 1,290 1,212 Long-term bonuses: - other benefits 1,410 94 0 - variable part of payments 122,919 - T otal 563,383 372,809 Ar chibald Kremser Short-term benefits: 31.07.2013 - gr oss salary and holiday allowanc e 420,809 366,484 - benefits and other short-term bonuses 34,117 24,331 Costs r efunds 1,249 1,248 Long-term bonuses: - other benefits 1,410 94 0 - variable part of payments 126,044 - T otal 583,629 393,003 P etr Brunclík Short-term benefits: 18.05.2020 - 30.06.2021 - gr oss salary and holiday allowance 221,963 170,517 - benefits and other short-term bonuses 30,092 20,647 Costs r efunds 4 76 710 Long-term bonuses: - sev eranc e payments 385,000 - - other benefits 705 705 - variable part of payments 14,633 - T otal 652,86 9 192,579 László P elle Short-term benefits: 26.10.2016 - 31.01.2020 - gr oss salary and holiday allowance - 57,624 - benefits and other short-term bonuses - 4,343 Costs r efunds - 129 Long-term bonuses: - sev eranc e payments - 258,750 - other benefits - 117 - variable part of payments - - T otal - 320,963 Payment s to individual members of the Management Bo ard 336 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Payment s to individual members of the Super visor y Bo ard in EUR Member 2021 2020 Andr eas Klingen Session fees - - 22.06.2015 Annual compensation 90,000 84,000 Other bonuese - benefit 447 388 Costs r efunds 4,9 47 2,690 Primo ž Karpe Session fees - - 11.02.2016 Annual compensation 96,000 89,583 Other bonuese - benefit 447 388 Costs r efunds 4,629 8,235 David Eric Simon Session fees - - 04.08.2016 Annual compensation 81,000 75,000 Other bonuese - benefit 447 388 Costs r efunds 5,251 6,455 Gr egor Rok Kastelic Session fees - - 10.06.2019 Annual compensation 81,000 70,625 Other bonuese - benefit 447 388 Costs r efunds 758 4,239 Shr enik Dhirajlal Dav da Session fees - - 10.06.2019 Annual compensation 72,000 66,000 Other bonuese - benefit 447 388 Costs r efunds 2,367 3,917 Mark William Lane Richar ds Session fees - - 10.06.2019 Annual compensation 81,000 75,000 Other bonuese - benefit 447 388 Costs r efunds 2,643 3,617 V erica T rstenjak Session fees - - 15.06.2020 Annual compensation 65,790 33,933 Other bonuese - benefit 447 388 Costs r efunds - - Ser geja Kočar Session fees - - 17.06.2020 Annual compensation 11,856 5,662 Other bonuese - benefit 447 500 Costs r efunds - 153 in EUR Member 2021 2020 Bojana Šteblaj Session fees - - 17.06.2020 Annual compensation 15,655 5,255 Other bonuese - benefit 447 500 Costs r efunds - 457 Janja Ž abjek Dolinšek Session fees - - 20.11.2020 Annual compensation 6,839 1 69 Other bonuese - benefit 447 - Costs r efunds - - Islam Osama Bahgat Z ekry Session fees - - 14.06.2021 Annual c ompensation 38,608 - Other bonuese - benefit 447 - Costs r efunds 5,705 - T adeja Žbontar Rems Session fees - - 22.01.2021 Annual compensation 26,656 - Other bonuese - benefit 447 - Costs r efunds - - P eter Gro znik Session fees - - 08.09.2017 - 14.06.2021 Annual compensation 32,800 66,000 Other bonuese - benefit - 388 Costs r efunds - 429 P etra K akovič Bizjak Session fees - - 17.06.2020 - 10.09.2020 Annual compensation - 7,302 Other bonuese - benefit 112 Costs r efunds - 178 László Z oltan Urbán Session fees - - 11.02.2016 - 15.06.2020 Annual compensation - 31,875 Other bonuese - benefit - Costs r efunds - 1,456 Alex ander Bayr Session fees - - 04.08.2016 - 15.06.2020 Annual compensation - 36,000 Other bonuese - benefit - Costs r efunds - 2,799 337 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Related -par t y transaction s with subsidiaries , associat es and joint v ent ures in EUR thousands NLB Gr oup Associates Joint ventur es 2021 2020 2021 2020 Loans issued Balance at 1 January 1,106 1,066 851 1,205 Incr ease 89 165 7 11 Decr ease (184) (125) (657) (365) Balance at 31 Dec ember 1,011 1,106 201 851 Inter est income 38 32 4 11 Impairment 26 27 69 (23) Deposits r eceived Balance at 1 January 3,973 842 3,434 8,455 Effects of tr anslation of foreign oper ations to pr esentation currency - - 3 (3) Incr ease 7,610 4,461 7,706 90,966 Decr ease (3,616) (1,330) (7,651) (95,984) Balance at 31 Dec ember 7,96 7 3,973 3,492 3,434 Inter est expenses - - (59) (62) Other financial assets 20 19 - 1 Other financial liabilities 1,148 596 1 - Guar antees issued and loan commitments 2,032 38 - 21 F ee income 38 15 1 983 F ee expenses (13,583) (13,977) - (952) Other income 1 62 177 2 144 Other expenses (726) (6 99) - (37) 338 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Subsidiaries Associates Joint ventur es 2021 2020 2021 2020 2021 2020 Loans issued Balance at 1 January 16 9,17 6 160,634 1,106 1,066 851 1,17 4 Incr ease 170,308 98,221 89 165 7 10 Decr ease (89,181) (89,679) (184) (125) (657) (333) Balance at 31 Dec ember 250,303 16 9,176 1,011 1,106 201 851 Inter est income 4,906 5,007 38 32 4 10 Impairment 1,075 (1,835) 26 27 69 (23) Deposits Balance at 1 January 69,386 70,469 - - - - Incr ease 433,380 658,253 - - - - Decr ease (418,818) (659,336) - - - - Balance at 31 Dec ember 83,948 69,386 - - - - Inter est income 3 21 - - - - Impairment 2 4 - - - - Loans r eceived Balance at 1 January - - - - - - Incr ease 44,484 - - - - - Balance at 31 Dec ember 44,484 - - - - - Inter est income 1 - - - - - Deposits r eceived Balance at 1 January 19,415 80,806 3,973 842 284 5,418 Incr ease 7,558,162 7,934,453 7,610 4,461 213 86,850 Decr ease (7,509,205) (7,995,844) (3,616) (1,330) (470) (91,984) Balance at 31 Dec ember 68,372 19,415 7,96 7 3,973 27 284 Inter est expenses (2) (21) - - - - Derivativ es F air value (7) 354 - - - - Contr actual amount 9,789 12,424 - - - - Other financial assets 25,491 94 8 20 19 - 1 Impairment (8) - - - - - Other financial liabilities 1,860 800 1,001 480 - - Guar antees issued and loan commitments 31,003 55,068 2,032 38 - 21 Income/(e xpenses) pro visions for guar anties and commitments 584 (53) - - - - Rec eived loan commitments and financial guar antees 14,541 6,692 - - - - F ee income 9,720 6,857 38 15 1 925 F ee expenses (21) (25) (10,782) (11,140) - (332) Other income 1,07 8 780 162 177 2 144 Other expenses (2,133) (1,065) (708) (664) - (37) Gains less losses fr om financial assets and liabilities held for tr ading (298) 1,208 - - - - Gains less losses fr om non-trading financial assets mandatorily at fair value thr ough pr ofit or loss (558) 436 - - - - 339 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Related -par t y transaction s with major shareholder with significant infl uence The vo lu me s of re la te d pa r t y t ran s ac tio ns w it h m aj or s ha reh ol de r are a s fol lows : in EUR thousands NLB Gr oup NLB Shar eholder Shar eholder 2021 2020 2021 2020 Loans issued Balance at 1 January 23,219 28,206 23,219 28,206 Incr ease 13,199 1,607 13,199 1,607 Decr ease (15,884) (6,594) (15,884) (6,594) Balance at 31 Dec ember 20,534 23,219 20,534 23,219 Inter est income 713 720 713 720 Inv estments in securities Balance at 1 January 691,868 850,965 597,123 778,088 Incr ease 1,247,211 866,414 947,581 758,140 Decr ease (1,392,356) (1,026,883) (1,049,482) (940,97 4) V aluation (12,201) 1,372 (11,566) 1,869 Balance at 31 Dec ember 534,522 691,868 483,656 597,123 Inter est income 6,021 9,024 6,389 9,486 Inter est expenses (652) (805) (652) (805) Other financial assets 659 807 659 807 Other financial liabilities 4 6 4 6 Guar antees issued and loan commitments 1,184 1,241 1,184 1,241 F ee income 309 1 94 309 1 94 F ee expenses (27) (30) (27) (30) Other income 212 206 212 206 Other expenses (5) (6) (5) (6) Gains less losses fr om financial assets and liabilities not measur ed at fair value thr ough pr ofit or loss - 14,660 - 14,660 Gains less losses fr om financial assets and liabilities held for tr ading (158) 43 (158) 43 NLB G rou p an d NLB d is cl os e all t ran s ac tio ns w it h t he m aj or sh ar eh old er w it h s ign if ica nt i nf lu en ce. For t ran s ac tio ns w it h other gove r nment-r elated entiti es , NL B Group discloses individu ally significan t transac t ions . 340 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report in EUR thousands NLB Gr oup and NLB Amount of significant tr ansactions concluded during the year Number of significant tr ansactions concluded during the year 2021 2020 2021 2020 Guar antees issued and loan commitments 70,000 112,500 1 1 in EUR thousands NLB Gr oup and NLB Y ear-end balance of all significant tr ansactions Number of significant tr ansactions at year-end 2021 2020 2021 2020 Loans 507,159 516,058 7 6 Debt securities measur ed at amor tised cost 72,633 7 6,396 1 1 Borr owings, deposits and business accounts 184,267 70,006 3 1 Guar antees issued and loan commitments 152,500 152,500 2 2 in EUR thousands NLB Gr oup and NLB Effects in income statement during the year 2021 2020 Inter est income fr om loans 3,141 3,706 F ees and commissions inc ome 241 27 Inter est income fr om debt securities measured at amortised cost and net valuation effects fr om hedge accounting (990) 1,166 Inter est expenses fr om borro wings, deposits, and business accounts (213) (290) 341 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report 9. Ev ent s a f ter th e repor ting da te The Swiss F r ancs Law On 2 F ebruary 2022, the Slov enian Parliament passed the ‘L aw on limitation and distribution of for eign ex change risk between cr editors and borr owers c oncerning loan agr eements in Swiss fr ancs’ (her e and af ter the CHF Law). The CHF Law affects all loan agr eements denominated in Swiss fr ancs (regar dless of whether the agr eements ar e still in forc e) concluded between bank s operating in Slov enia ( including NLB) as lenders and individuals as borro wers in the period fr om 28 June 2004 to 31 December 2010, and pr ovides for a cap on the e x change rate betw een Swiss fr ancs and the Euro to be set at 10% volatility (the ‘FX c ap’) and shall be applied fr om the conclusion of an y of the af fected loan agr eements. During the validity of the FX c ap, the value of instalments and other payments under such loans shall equal the amount at which the FX cap has been trigger ed and the lender would be r equir ed to repay an y ov erpayment to the rele vant borr ower. F ur ther, any ov erpayment on such loans by the r elev ant borro wers shall be subject to default inter est to be paid by the lender. Since the CHF Law affects civil law contr actual r elationships r etr oactively, the constitutionality of the Law has been e xtensively debated during the legislative pr oc ess with a number of national and Eur opean authorities considering the Law to violat e the Slov enian Constitution. The shar eholders of affected Slovenian banks (including NLB) submit ted a joint letter to sever al Slovenian and Eur opean authorities expr essing gr eat concern r egarding the Law. On 28 F ebruary 2022, the banks filed an initiative with the Constitutional Court of the R epublic of Slovenia to initiate pr oceedings to assess the c onstitutionality of the CHF Law and a pr oposal for its tempor ary suspension of enfor cement. The Constitutional Court of the R epublic of Slovenia adopted a decision on 10 Mar ch 2022 to suspend in whole the implementation of the CHF Law. The decision has been adopted unanimously. The implementation of the law has been suspended until the final decision of the Constitutional Court on the conf ormity of the CHF Law with the C onstitution. During this time the deadlines set for individual liabilities of banks do not apply. Until the final decision of the Constitutional Court on the c onstitutionality of the CHF Law is made, the NLB will act in ac cor dance with the applicable legislation and c ourts’ decisions, and will, at the same time, ex er cise all legal r emedies at its disposal. Based on the assessment of the CHF Law, NLB estimat ed that negative pr e-tax effect on the oper ations of NLB and NLB Gr oup should not ex ceed EUR 70 – 75 million. Impact on NLB and NLB Gr oup is material but manageable given the historic ally limited ext ent to which NLB engaged in Swiss fr ancs lending. NLB considers this as a non-adjusting e vent after the r eporting period. Ac quisition of Sberbank banka d.d., Ljubljana On the lev el of the European C entral Bank and the Single Resolution Boar d, a decision w as made on 28 F ebruary 2022 to suspend the business oper ations of the banking gr oup Sberbank Eur ope AG, which also had a subsidiary bank in Slo venia. At the same time, a tr ansitional period or short-term morat orium was adopted, during which a solution for the Slov enian subsidiary, Sberbank bank a d.d., was found with the aim to ensur e the continuity of the business oper ations for all of its clients. On 1Mar ch 2022, in or der to maintain financial stability in Slovenia, the Single Resolution Boar d, in c ooperation with the Bank of Slo venia, adopted a scheme and r esolution plan for Sberbank banka d.d., Ljubljana. Based on this r esolution, the Bank of Slovenia issued a decision using the instrument of sale of oper ation in a way that all shar es ar e transferr ed fr om the shar eholders to the tr ansferee. In the pr ocess of finding a new o wner of Sberbank banka d.d., Ljubljana, a sale agr eement was concluded with NLB d.d., which became an o wner of 100% of the bank's shares as at 1 Mar ch 2022. The pur chase price for the bank w as EUR 5,109 thousand and was fully paid in c ash. Ther e are no c ontingent consider ation arr angements. Initial accounting f or the business combination has not yet been c ompleted, ther efore assets, liabilities, and gain on a bar gain pur chase (negative goodwill) r ecognised as a r esult of the acquisition ar e not disclosed. Russian-Ukr ainian conflict In F ebruary 2022, Russia began a military inv asion of Ukr aine. The Russian-Ukr ainian conflict has led to quite c onsiderable v olatility in the financial mark ets, in par ticular shifts in credit spr eads, interest r ates and for eign ex change r ates. Special at tention is given to the mark ets in the Balkans, neighbouring countries t o Ukraine and Russia and international banks with oper ations in Russia. The NLB Gr oup is closely monitoring its major bond port folio positions, mostly sov ereigns, with a str onger c onnection to the Russian crisis. Besides, the Gr oup holds EUR 20 million of Russian government bonds maturing in April 2022 and in September 2023. The fair value of these securities has decr eased by appr o ximately 30% by 31 Mar ch 2022. The manner and timing of their settlement in the given cir cumstanc es is not determined yet. Since the beginning of the crisis, the Bank has observed cr edit spr eads widening fr om 50 to 200 bps for selected positions (with the e xc eption of Russia wher e the escalation is mor e sev ere), which is curr ently impacting the Bank’s FVOCI positions. C ompared to 31 Dec ember 2021, the fair value r ev aluation r eserve has decr eased by mor e than EUR 50 million at the NLB Gr oup level and EUR 40 million at the NLB le vel (analysis of debt securities by geogr aphic al sectors as at year- end is disclosed in note 6.1.o). Regar ding the Group’s major FX positions, no material mov ements wer e observed so far. Curr ent dev elopments, market observ ations and potential mitigations are discussed at daily monitoring meetings. Dependence on Russia and Ukr aine within the country tr ade balance in the NLB Gr oup r egion is moder ate; the highest volume of tr ade is done with the EU. Country Export to Russia Impor t from Russia Bosnia and Herzegovina 1.10% 2.10% Montenegr o 0.00% 0.00% North Macedonia 0.91% 1.70% Koso vo no data available no data available Serbia 3.90% 5.30% Slov enia 2.60% 1.20% Dir ect and indir ect exposur es of NLB tow ard Russia and Ukr aine is moder ate, but on the other hand Russia's invasion of Ukr aine has incr eased risks globally. Effects on the global economy will oc cur thr ough thr ee major channels: • commodity price shocks, • financial reper cussions (new sanctions against Russia and mark et risk aversion), and • security challenges associated with military conflict or thr ough cyber attacks. In particular, commodity pric es will have effects on the whole corpor ate output leading to an incr eased inflation r ate in NLB Gr oup markets. With r egar ds to the credit portfolio, the NLB Gr oup car efully monitors its clients being pr esent or having dir ect and indirect connection with Russia, Ukr aine, Belarus or its neighbouring countries. These clients are closely monitor ed with t he intention of identifying any signific ant increase in cr edit risk at a very early stage. Corpor ate clients ar e still assessing the possible impacts of this conflict on their business model and financial performanc e, how ever at this stage these effects ar e not very e xc essive. Mor eover, the length and intensity of the Russian-Ukr ainian conflict might c ause additional spill-over effects in the mid- term period, such as r aising the price of ener gy sour ces or their availability, which may at a later period hav e some impact also on other segments of the cr edit port folio. Sberbank d.d. Slov enia with its entire portfolio become a member of the NLB Gr oup in Mar ch 2022. The Bank str ategy was focused on the Slov enian SME segment, so the NLB Group does not e xpect major dir ect exposur es tow ar d Russia or Ukraine. All identified risks will be appr opriately consider ed when assessing fair v alues of assets, liabilities and contingent liabilities and final c alculation of gain on a bar gain pur chase (negative goodwill). 342 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report Pr i va t e B a n k i n g T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 23 66 Micro Enter pris es T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 50 01 Mobile banking T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 44 39 Small and M id- corporates Small Enter prises I 23 T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el. : +386 1 47 6 49 52 Small Enter prises II 24 Ti tova ces t a 2 2000 Ma ri bo r , Sl ovenia T el. : +386 2 234 45 09 Central r egion T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el. : +386 1 47 6 26 11 Nor thwest region Ljubljans ka cesta 62 1230 Dom žal e, S loven ia T el. : +386 1 72 4 54 75 Southw es t r egion Ces t a Zore Pere ll o - Go din a 7 6000 Koper , S loven ia T el. : +386 5 610 30 29 23 U nt i l 31 De ce m be r 2021. 24 U n ti l 31 D ec em b er 2021. Nova Ljub lja ns ka ban ka d.d ., L jub lja na T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 39 00, +386 1 477 20 00 E-mail: [email protected] w w w.nlb.s i Bl až B ro dn jak , CEO & CM O Arc hib al d Kre m se r , CFO Andreas B urk hardt, CRO Pet r B r un cl í k , COO 22 Slov enian ne t work Ljubljana Area Branch T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 23 30 Nor thwest and Central S lov enia Area Branch Ljubljans ka cesta 62 1230 Dom žal e, S loven ia T el: +386 1 72 4 55 01 Nor the ast Slovenia Ar ea Branch Ti tova ce s t a 2 2000 Ma ri bo r , Sl ovenia T el: +386 2 234 45 04 Southeast Slov enia Ar ea Branch Seidlova cesta 3 8000 Novo me s to, S love nia T el: +386 7 339 14 56 Southw es t Slo venia A rea B ran c h Ces t a Zore Pere ll o - Go din a 7 6000 Koper , S loven ia T el: +386 5 610 30 10 22 Unt i l 30 Ju n e 2021. Podravsk o - Pomurs ka region Ti tova ce s t a 2 2000 Ma ri bo r , Sl ovenia T el. : +386 2 234 45 00 Savinjsko- Korošk a region Koce nova 1 3000 Celj e, Sl oveni a T el. : +386 3 42 4 01 11 CSA & Cross -b order Financing T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 26 18 Large corporates Insti tutional Inve s tors T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 24 92 Large C or porates T rg rep ub like 2 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 26 92 Mem bers of NLB Group K om ercijalna Banka a .d. Beograd Svetog S a ve 14, 11000 Be lgr ade , Se r bia T el: +381 11 20 18 600 Email:k ontak tni.centar@kombank .com w w w.k o mb an k .co m Vla s t im ir Vuković , Pr es ide nt o f th e M an ag em en t B oar d Dejan Janjatović, Dep ut y of the president of th e M an ag em en t B oar d Dragiša Stan ojević, Memb er of the Managem ent Board Du bra vka Dj ed ović N egr e Me mb er o f th e M an age m en t Bo ard NL B G r oup Dir ec tor y 343 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB B an ka a.d . , Be og rad B ulevar M ih a jla P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 71 51 522 E-mail: [email protected] s w w w.nlb.r s Je len a Ži vković , Pr es ide nt o f th e M an ag em en t B oar d Vla di mir Ča pr ić , M em be r of t he M an a gem en t B oa rd NLB B an ka AD Skopj e Ma jka T ereza 1 1000 Skopj e, No r th M ac edo ni a T el: +389 2 15 600 E-mail: [email protected] w w w.nlb.m k An ton io A rgi r , Pres id en t of t he M an ag em en t B oa rd 25 Günter F r iedl, Memb er of the Managemen t Board Peter Z elen , Member of the Man agement B oard Igor Davče v ski, Mem ber of the Managem ent Board NLB B an ka a.d . B anj a Luka Mi lan a T epi ća 4 78000 Ban ja L uka, R ep ubl ic of S r ps ka, Bosn ia and Her zegovina T el: +38 7 51 248 588 E - mail: [email protected] w w w.nlb - r s .ba Goran Babić , President of the Man agemen t Board Ma rj an a Us en ik , M em b er of t h e Ma na gem e nt B oa rd Dragan Injac, Mem ber of the Managemen t Board NLB B an ka d.d . , Sara jevo Ul . Koševo br . 3, 71000 S ara jevo - Cen tar 71000 Sa rajevo, B os n ia an d H er ze govi na T el: +38 7 33 720 300 E-mail: [email protected] w w w.nlb.ba Lidija Žigić, President of the Mana gement B oard Den i s Has an ić , M em be r of t he M an a gem en t B oa rd Ju re Pe ljh an , M em b er of t h e Ma na gem e nt B o ard 25 B ra nko G re g an ov ić , P re si de n t of t h e M an ag e me n t B oa rd f ro m 1 J an u ar y 2022 NLB B an ka sh .a ., P ri sh ti na Rr . U k sh in H oti n r . 124 10000 Pr is ht in a , Kosovo T el: +383 38 7 44 000 E-mail: info@nlb - kos.com ht tps:/ / nlb-kos.com / Alb er t Lu m ezi, P res id en t of t he M an ag em en t B oa rd Ge m Ma lok u, M e mb er o f th e M an age me nt B o ard Lavdi m Kosh ut ova, M em be r of t he M an ag em en t B oar d NLB B an ka a.d . , Pod gor ica Bulevar Stanka Dragojevića 46 81000 Pod gor ic a, M on te ne gro T el: +382 20 402 000 E-mail: [email protected] w w w.nlb.m e Ma r tin Le be r le, CEO 26 Ma r ko Po pov i č , E xe cu t i ve O f f ice r 27 Dino Redžepagić, Execut ive Of ficer 28 Lan a Đ u ra s ovi ć , E xe c ut i ve O f f ic er 29 K omBank Inv est a. d. Beog rad Kra lja Pe tr a 19, 11000 B elg rad e, S er bia T el. : +381 11 330 8310 E - mail: vladimir .garic@kombankinv es t.com w w w.kom ba n ki nve s t.c om Vladimir G arić , Direc tor NLB Le as e&G o, le as in g, d .o.o. , Lj ub ljan a Šla nd rova ulic a 2, 1231 Lj ubl jan a - Čr n uč e, Sl oveni a T el: +386 1 586 29 10 E-mail: info@nlbl ease go.si w w w.nlbl ea se go.s i An dre j Pu cer , D ire c to r Anže Pogačnik, Director Claus- Peter Mar tin Mueller , Director NLB Le as in g d .o.o., L jub lja na – v l ik vi dac iji Šlandrova ulic a 2 1231 Lju bl jan a - Čr n uče , Sl oveni a T el: +386 1 586 29 10 E-mail: info@nlbl easin g.si Anže Pogačnik , Liquidator 26 M a r ti n Le be r le i s a Pr es i de n t of t h e Ma n ag em e nt B o a rd f ro m 1 Ja n ua r y 2022. 27 Dra žen Vu jo š ev ić i s a M em b er o f th e M an a ge m en t B o ar d fr om 1 J an u ar y 2022. 28 D i no R e dže p ag ić i s a M em b er o f th e M an a ge m en t B o ar d fr om 1 J an u ar y 2022. 29 T i ll 31 D e ce mb er 2021. NLB Le as in g d .o.o. Be og rad – u li k vid aci ji B ulevar M ih a jla P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 222 01 01 E-mail: info@nlbl easin g.rs V eljko T anić , Liquidator Op tim a Le as in g d.o .o. u lik v ida cij i, Za greb Miramar ska 2 4 10000 Zagreb , Croa t ia T el: +385 1 61 77 225 E-mail: info@optim a- leas ing .hr Vjekoslav B udimir , Liquidator Pr v i fak t or d .o.o. , v li k vid aci ji , Lju blj ana 30 Sl ovens ka ces ta 17 1000 Lju bl jan a , Sl oveni a E-mail: france.zupan@pr vifak tor .si iztok .zupanc@ pr v ifak tor .si F rance Zupan, Liquida tor Iztok Zupanc , Liquidator Pr v i fak t or – f ak to ri ng d .o.o. , B eo grad – u l ik vi dac iji B ulevar M ih a jla P upi na 165 v 11070 Beo gra d , Se rb ia T el: +381 11 222 54 00 E-mail: z eljko.atanas ko vic@ pr v ifak tor .rs Željk o Atanas ko v ić, Liquidator Pr v i fak t or d .o.o. u li k vid ac iji , Zag reb 31 Mi ram ar s ka ces t a 24 10000 Zagreb , Croa t ia T el: +385 1 6165 000 E-mail: info@pr vifak tor .hr Vjekoslav B udimir , Liquidator 30 France Zupan and Iztok Zupanc are liq uidators from 1 Ma rc h 2021. 31 V je kos l av B u di m ir i s li q ui da to r f ro m 1 Ma rc h 2021. 344 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report NLB InterFinanz AG in Liquidation , Zürich B ee t hove n s t ra s s e 4 8 8002 Züri ch , Sw it zer l an d T el: +41 44 283 17 15 E-mail: info@nlbin ter f in anz.ch Jean - David Bar nezet Llor t, Liquidator Polona Žižmund , Liquidator NLB I nt er Fin an z d.o.o ., B eo gra d – u lik v ida cij i B ulevar M ih a jla P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 22 25 351 Liljana Zoraja, Liquidator NLB Skladi, upravljanje premoženja, d.o.o., Ljubljana Ti vols ka ces ta 48 1000 Lju bl jan a , Sl oveni a T el: +386 1 47 6 52 70 E-mail: info@nlbs kladi .si w w w. nlbs kladi.si Kr u no A bra mov ič , Pre si de nt o f th e Managem ent Board Bl až B ra čič , M em b er of t h e Managem ent Board Ba nkar t d.o.o. , Lj ub ljan a Celov ška ce s ta 150 1000 Lju bl jan a , Sl oveni a T el: +386 1 583 42 02 E-mail: info@bankar t.si w w w.bankar t.s i Aleks ander Kur tevski, Direc tor Ju re K va ter n ik , D ire c t or LHB Aktiengesellsch af t, F rank fur t am Main Gro ße B o cken he im er St r . 33- 35 60313 F r an k f ur t, Ge r ma ny T el: +49 69 21 65 7 8 20 E-mail: [email protected] Ma tj až J evn iš ek , P res id en t of t he M an a gem en t B oa rd PRO - R E M d.o.o ., Lj ub lja na - v li k vid ac iji Čop ova 3 1000 Lju bl jan a , Sl oveni a T el: +386 1 586 29 16 E-ma il: in fo @p rore m .s i w w w. nlbreales tate.com Jovica Jako vac, Liquid ator Nataš a Batagelj , Liquidator RE A M d .o.o. , Po dgo ri ca B ul . Džord ža Vašin gt on a br . 102, I . s pra t/20, 81000 Pod gor ic a, M on te ne gro T el: +382 20 6 7 4 900 E-mail: gligor .bojic@ nlb.me Gligor Bojić , Direc tor Mark o F urlan, Authorised Re presentativ e RE A M d .o.o. , Zag reb Mi ram ar s ka 24/ 6 10000 Zagreb , Croa t ia T el: +385 1 56 25 914 E-mail: josip.zurga@ream- cro.com E-mail: julijana.mi [email protected] Jos ip Žu rga , Di rec tor Julijan a Milić , Direc tor OL N ekre tn in e d .o.o. u lik vida cij i, Za greb Miramar ska 2 4 10000 Zagreb , Croa t ia T el: +385 1 56 25 914 E-mail: vjek os lav. b udimir@ream - cro.com E-mail: ivan.s t rek@ream - cro.com Vjekoslav B udimir , Liquidator Ivan Š t rek, Liquid ator RE A M d .o.o. , B eo grad – N ovi B eog rad B ulevar M ih ai la P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 22 25 37 4 E-mail: vladimir .vasilijevic@ream -s rb.com Vladimir Vasilijević, Direc tor V eljko T anić , Direc tor SP V2 d .o.o. , B eog rad – N ovi Be og rad B ulevar M ih ai la P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 22 25 37 4 E-mail: of f ice@ ream -s rb .com Vladimir Vasilijević, Direc tor T ara Hot el d .o.o. , B ud va B ulevar D žord ža V a š in gto na 102, P od gor ic a 81000 Pod gor ic a, M on te ne gro T el: +:382 20 67 4 900 E-mail: gligor .bojic@ nlb.me Gligor Bojić , Direc tor NLB S rb ija d .o.o. , B eo grad B ulevar M ih a jla P upi na 165 v 11070 Bel gra de, S er b ia T el: +381 11 22 25 366 E-mail: off ice@nlb srbi ja.co.rs w w w.nlbs r bij a.c o.r s V eljko T anić , Direc tor NLB Cr na G ora d .o.o. , Po dgo r ica B ulevar D žord ža V a š in gto na 102, I s p rat/20 81000 Pod gor ic a, M on te ne gro T el: +382 68 886 441 E-ma il: go ran .l ali cevi c@n lb .me Goran Laličević, Execu tive Direc tor Barbara Šink, Authorised Re presentativ e Marko Čelebić, Authoris ed Representat ive S - R E A M d .o.o. , Lj ubl jan a Čop ova 3 1000 Lju bl jan a , Sl oveni a T el: +386 (0)41 307 759 E -mail: info @s-ream.c om w w w. nlbreales tate.com Jov ic a J akova c , D ir ec to r Lamija Hadžiosman ović, Direc tor Branches and representative of f ices of NLB Gr oup mem bers out side th eir countr y of residence NLB InterFinanz AG in liquidation Ljubljana B ranch in liquidation Puhar jeva ulica 3 1000 Lju bl jan a , Sl oveni a Ma rko Čel ebi ć , Dir ec tor K om ercijalna bank a , branch K osovsk a Mitrovica Čika Jov in a 11, 38 220 Kosovs ka Mi trov ica Goran Dželajlij a , Director 345 Contents MB Statement SB Statement Ke y Highlights Str ategy Risk F actors & Outlook Sustainability Performanc e Overview Risk Management Ev ents Af ter 2021 Financial Report EU European Union EVE Economic V alue of Equity EVS European V aluation Standar ds EWS Early W arning System FAT F Financial Action T ask F or ce FTP Fund T ransfer P ricing FURS Financial Administr ation of the Republic of Slovenia FVOCI F air V alue Thr ough Other Comprehensiv e Income FVTPL F air V alue Thr ough Pr ofit or Loss FX F or eign Exchange GDP Gross Domestic P roduct GDPR General Data P r otection Regulation GDR Global Depositary Receipts GGB Gov ernment Guaranteed Bonds GRI GS Global Reporting Initiative - Global St andards HHI Herfindahl-HirschmanIndex HR Human Resour ces IAS International Acc ounting Standard IASB International Acc ounting Standards Boar d ICAAP Internal Capital Adequacy Assessment P roc ess IFRIC International Financial Reporting Interpr etations Committee IFRS International Financial Reporting Standar d ILAAP Internal Liquidity Adequacy Assessment Pr ocess IRRBB Inter est Rate Risks for Banking Book IRS Inter est Rat e Swaps ISD A International Swaps and Derivativ es Association IVS International V aluation Standards JST Joint Supervisory T eam JV Joint V enture KB Komer cijalna Banka KDD Central Securities Clearing Corpor ation KPI Ke y Performance Indic ator KRI Ke yRiskI ndicators LCP Liquidity Contingency Plan LCR Liquidity Cover age Ratio LECL Lifetime Expected Credit Losses LGD Loss Given Default LPD Lifetime Pr obability of a Default LRE Lever age Ratio Exposur e LT D Loan-to-Deposit R atio M&A Mergers and Ac quisitions MA Master Agr eements MAR Market Abuse Regulation MiFID II Markets in Financial Instruments Dir ective MiFIR Mark ets in Financial Instruments Regulation Rules MIGA Multilater al Investment Guar antee Agency (part of the W orld Bank Gr oup) MREL Minimum Requir ement of Own F unds and Eligible Liabilities NA CE Statistical Classific ation of Economic Activities in the Eur opean Community NLB or the Bank NLB d.d. NPE Non-Performing Exposur es NPL Non-Performing L oans NPS Net Pr omoter Scor e NPV Net Pr esent V alue NSFR Net stable funding r atio AC Amortised Costs ALCO Asset and Liability Committee ALM Asset and Liability Management ALMM Additional Liquidity Monitoring Metrics AML/CTF Anti-Money Laundering and Counter- T err orism Fin ancing BARS The Banking Agency of Republic of Srpsk a BCM Business Continuity Management BIA Business Impact Analysis BiH Bosnia and Herzegovina BIS Bank for International Settlements BMR Benchmarks Regulation BoS Bank of Slovenia bps Basis Points BPV Basis Point V alue CA GR Compound Annual Gr owth Rate CB Centr al Bank CBR Combined Buffer Requir ement CCF Credit Con version F actor CEE Central E astern Europe CEO Chief Ex ecutive Officer CET1 Common Equity T ier 1 CFO Chief Financial Of ficer CGU Cash-Generating Units CIR Cost-to-Income R atio CIRS Currency Int erest Rat e Swaps CISO Chief Information Security Of ficer CMO Chief Mark eting Of ficer COO Chief Operating Offic er CoR Cost of Risk COSO Committee of Sponsoring Or ganizations of the T readw ay Commission CRD Capital Requir ements Dir ective CRM Customer Relationship Management CRO Chief Risk Officer CRR Capital Requir ements Regulation CSA Credit SupportAnne x CSD Centr al Security Depository CSI Customer Satisfaction Index CSR Corpor ate Social Responsibility C VA Credit V alue Adjustments DGS Deposit Guarant ee Scheme DPS Dividend per Shar e DW H Data W arehouse EAD Exposure at Default EaR Earnings at Risk EBA Eur opean Banking Authority EBRD Eur opean Bank for Reconstruction and De velopment ECB Eur opean Centr al Bank ECL Expected Credit Losses ECRA Enterprise Compliance Risk Assessment EEA European E conomic Ar ea EIB Eur opean Investment Bank EMIR Eur opean Market Infr astructure R egulation EPS Earnings Per Shar e ESEF Eur opean Single Electronic F ormat ESG Envir onmental, Social and Governanc e ESMS Environmental and Social Management Sy stem OBM Oper ational Business Margin OCR Over all Capital Requir ement OEM Original Exposure Method O-SII Other Systemically Important Institutions OU Or ganisational Units p.p. Per centage P oint(s) P1R Pillar 1 Requir ement P2eM Person to e-Mer chant P2G Pillar 2 Guidance P2M Person t o Merchant P2P Person to P erson P2R Pillar 2 Requir ements PD Pr obability of Default PEPP Pandemic Emer gency Pur chase Pr ogramme POCI Pur chased or Orig inated Cr edit-Impaired POS Point of Sale PSD2 Payments Servic es Directiv e REAM Real Estat e Asset Management RFR Risk-Fr ee Rates RICS Roy al Institution of Char ter ed Surveyor s ROA Return on Assets ROE Return on E quity RoS Republic of Slovenia R PA Robotic Pr ocess Automation RSD Serbian Dinar R WA Risk W eighted Assets SDG Sustainable Development Goals SEE South Eastern Eur ope SICR Significant Incr ease of Credit Risk SLA Service Lev el Agreements SME Small and Medium-sized Enterprises SPPI Solely Payment of P rincipal and Interest SRB Single Resolution Boar d SRD II Shar eholders Rights Directiv e SREP Supervisory Review and E valuation P rocess SRF Single Resolution F und SSM Single Supervisory Mechanism TC R T otal Capital Ratio The Gr oup NLB Group TL TRO T arget ed Longer-T erm Refinancing Operations TREA T otal Risk Exposure Amount TSCR T otal SREP Capital R equirement UN United Nations UN SDG United Nations Sustainable Development Goals UNEP FI PRB United Nations Envir onment Pr ogramme Financ e Initiative's P rinciples for Responsible Banking Va R V alue-at-Risk VAT V alue Added T ax ZBan-3 Slov enian Banking Act ZGD-1 Companies Act ZPIZ Slovenian P ension and Disability I nsur ance Act ZTFI-1 Financial Instruments Market Act ZVKNNLB Slov enian Act for V alue Pr otection of Republic of Slovenia’s C apital Investment in Nov a Ljubljanska bank a d.d., Ljubljana ZV OP-2 Slo venian Personal Data P rot ection Act Defini t ions and G lossar y of Selec ted T erms NLB d .d ., Lj ub lja na nlb.si NLB d.d. Prod uc ti on: S aa tc hi & S aa tch i Lj ub lja na Pho tog rap hs : A rch ive NLB , Ur š a Prem ik , i St oc k Copyright: NLB d.d., Ljub ljana Ljubljana , April 202 2

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