![]() We believe in this region’s potential NLB Group Annual Report 2021 ![]() 2 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Contents Forward-looking statements The expectations, forecasts and statements regarding future developments that are contained in this report are based on assumptions and are contingent on a number of factors that will come into play in the future. Consequently, the actual situation may turn out to be different. Statement bythe Management Board of NLB ................ 6 Statement by the Chairman of the Supervisory Board of NLB8 Strategic Members Overview ................................. 11 Key Highlights ............................................... 12 KeyEvents ................................................... 17 Market Performance of NLB’s Shares and GDRs ............. 18 Macroeconomic Environment ............................... 21 Regulatory Environment ..................................... 26 BUSINESS REPORT .......................................... 28 Strategy ..................................................... 29 Risk Factors and Outlook .................................... 31 Impact of COVID-19 on Operations .......................... 34 Sustainability ................................................ 35 Overview of Financial Performance ........................ 40 Segment Analysis ............................................ 61 Retail Banking in Slovenia ................................... 62 Corporate and Investment Banking in Slovenia .............. 67 Strategic Foreign Markets ................................... 71 Financial Markets in Slovenia ................................ 91 Non-CoreMembers ......................................... 94 Risk Management ........................................... 96 IT and Cyber Security ....................................... 105 Human Resources .......................................... 108 Corporate Governance ...................................... 111 Compliance and Integrity ................................... 119 Internal Audit ................................................ 121 Corporate Governance Statements ......................... 122 Disclosure on Shares and Shareholders of NLB ............ 144 Events After the End of the 2021 Financial Year ............. 146 Reconciliation of Financial Statements in Business and Financial Part of the Report ................................ 147 Alternative Performance Indicators ........................ 149 NLB Group Chart ........................................... 167 Organisational Structure of NLB ............................ 168 FINANCIAL REPORT ........................................ 170 NLB Group Directory ....................................... 342 Definitions and Glossary of Selected Terms ................ 345 ![]() NLB Banka, Prishtina NLB Banka, Sarajevo NLB Banka, Banja Luka NLB Banka, Beograd Komercijalna Banka, Beograd NLB Banka, Skopje NLB Banka, Podgorica NLB, Ljubljana We are – where you are. Our home is here. Here are our families, friends, colleagues, neighbours, our favourite athletes, hosts, who know what kind of coffee we like … All this is our home and we believe in it with all our hearts. Since we are where you are, we know your potential and understand your commitment – even when no one else understands it. Where others merely see a spot on the map, we see a region full of opportunities. And we believe you deserve each and every one of them. ![]() 4 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Southeast Europe, a region ofopportunities.Southeast Europe, a region ofopportunities.Southeast Europe, a region ofopportunities. Who we are Vision Our strategic focus Sustainable banking The Group, headquartered in Ljubljana, is the largest banking and financial group in Slovenia with a strategic focus on selected countries in SEE, which have a population of approximately 17 million people – our home region. The Group is comprised of the leading and systemically most important bank in Slovenia, NLB , seven subsidiary banks in SEE , several companies providing ancillary services (asset management, real estate management, leasing, etc.), and a limited number of non-core subsidiaries in a controlled wind-down. 1 The Group utilises a universal banking model and supports its clients through retail, corporate, and investment banking services. On six out of seven markets where the Group operates, the market share of member banks exceeds 10% (measured by total assets). 1On 1 March 2022 NLB acquired the Slovenian Sberbank banka d.d. Further information is presented in chapter Events After the End of the 2021 Financial Year . The Group will take care of the financial needs of its clients and improve the quality of life in its home SEE region. In 2021, the Group set the direction of sustainability activities by publishing the NLB Group Sustainability Framework and aligning its business model with UN’s Sustainable Development Goals. The focus was on decisive implementation of activities in the three pillars: • Contribution to society • Sustainable finance • Sustainable operations As the first bank from Slovenia to commit to the UN Principles for Responsible Banking, the Bank performed an impact analysis and published regional sustainability targets ( NLB Group Sustainability Report 2021 ). The environmental dimension of the ESG was addressed by upgrading our climate-related and environmental risk management, integration of EU Taxonomy regulation, and measuring the carbon footprint of the Group’s own operations in 2021. Focus was put on the social dimension, supported by continuing CSR activities and the #HelpFrame project. Become a regional champion Putting clients first Grow our market position Monetize opportunities and synergies Ratings NLB has an investment grade rating from S&P and Moody’s. Note: Moody's: unsolicited rating. 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:BB- Moody's: Ba3 CI: BB+ ![]() Hedvika Usenik Member of the Management Board (i) Blaž Brodnjak CEO and CMO AndreasBurkhardt Member of the Management Board (CRO) Antonio Argir Member of the Management Board (i) Archibald Kremser Member of the Management Board (CFO) AndrejLasič Member of the Management Board (i) Note: (i) Appointed by the Supervisory Board of NLB on 20January 2022; Mr. Argir, Ms. Usenik and Mr. Lasič are waiting for the relevant consent by the ECB to assume the office of the Management Board member. ![]() 6 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Encouraged by the economic recovery, driven by healthy private consumption and strong loan demand, the Group returned to robust growth, and achieved excellent results which exceeded set guidance. This growth was based on the strong underlying performance of all business segments, meaningful contribution from Komercijalna Banka, Beograd, while robust risk management supporting Group’s business operations resulted also in strong asset quality. The Group generated EUR 236.4 million in profit after tax and increased market shares in all segments, with all banking members operating in our home region, SEE, reporting solidly positive net earnings and contributing 39% to the after tax result. The results of the banking members prove once again that they are becoming an increasingly important factor in Group business operations, as well as in their respective markets – in five out of six markets where the Group operates, the market share (by total assets) of member banks exceeds 10 percent. We firmly believe that further intragroupconsolidation, which is in full swing following the successful merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica in November, as well as the sale of Komercijalna Banka, Banja Luka in December, and the expected merger of NLB Banka, Beograd and Komercijalna Banka, Beograd in April 2022, will bring additional opportunities toleverage synergies. The Group’s strong business performance, together with the expiration of the BoS’s decision on restricting the dividends payment, enabled the Bank to fulfil stakeholder expectations with a substantial dividend payout. Keeping its promise, the Bank paid out a total of EUR 92.2 million as dividends in 2021, thereby reaffirming the Group's stable and successful business operations, strong capital position, and solid dividend payment capacity also for the future. More specifically, the Bank’s ambition is a total dividend payment to the shareholders of EUR 210 million in the 2022–2023 period. In February 2022 the Slovenian parliament adopted law concerning loan agreements in Swiss francs concluded by banks operating in Slovenia (including NLB) and individuals. NLB has used legal remedies against the law. The implementation of the law is currently suspended by Constitutional Court while its final decision on the conformity Dear Stakeholders, Are you well? How many times have you heard or asked this question in 2021, a year marked once again by the grip of COVID-19 and its consequent impact on the global economy and quality of life? We sincerely hope that you were able to do as we in the Group did: leave the epidemic behind you and answer with “we are more than just well – actually, we are stronger than ever.” of the CHF Law with the Constitution is pending. If legal remedies are unsuccessful, the estimated effects on pre-tax result will be material but manageable. 2 In a remarkable milestone deserving special attention, the Bank’s share price gained 67.2 percent YoY on the London Stock Exchange, 66.4 percent on the Ljubljana Stock Exchange, and received the ‘Prime Market Share of the Year’ award by the Ljubljana Stock Exchange. Combining dividend payouts, privatisation proceeds, and the residual value of the RoS equity stake in NLB, the Bank has fully repaid the amount it received for the 2013 recapitalization. From here on out, we are creating new value for all our shareholders. The Group will continue to prudently grow and increase its market shares organically, however, we are closely monitoring developments in our home region and will analyse and address anyvalue accretive opportunities for newM&A- based growth. The Bank has the capacity to buy banks and/or portfolios in any of our existing, as well as other markets in the region, thus becoming a true regional champion. Accordingly, based on the SRB’s resolution scheme for Slovenian Sberbank banka d.d. and decision of BoS regarding the sale of this bank, NLB on 1 March 2022 bought 100% of shares of Sberbank banka d.d. With this acquisition NLB contributed to the financial stability of the Slovenian banking sector and further improved NLB’s market position in Slovenia. In the following months Sberbank banka d.d. will be integrated in NLB Group. In spite ofprevailing global geopolitical challenges, macroeconomic environment, andother impacts influencing our business environment in a Slovenian and wider Group’s region context,our outlookfor thefuture ispositive. Turning our gaze to the future, our focus will be on providing our clients with innovative solutionsand the best user experience, 24 hours a day, every day. Currently in Slovenia, our clients can fulfil almost all their banking needs without having to visit a branch, and we strive to apply this digital 2Further information is available in chapters Events after the end of the 2021 financial year and Outlook 2022 . Statement by the Management Board of NLB EUR 236.4 million net profit of NLB Group. ![]() 7 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report leadership position to other markets in which our Group operates by working on frontend solutions to consolidate e- and m-banking platforms. Despite many predictions in the past decades that banks will cease to exist, we are here stronger than ever, since we have done our homework, adapted, and started to invest heavily in digitalization, and fintech technologies. Nowadays, the Group is no longer just a banking group, but one of the largest IT and data science companies in the region with an ambition to foster the evolution of a local flexible digital ecosystem that offers clients tailormade products and services. The Group is aware of a cyber security risks and continuously improves the resilience of its operations. All of this fills us with confidence and sets good prospects for the future. Our most important stakeholders, our clients, understand what we offer them and value our contribution to society. Ultimately, they are ready to recommend our solutions, services, knowledge, and advice to their families, friends, acquaintances, and their community. This, however, could not be secured without a dedicated team of colleagues who truly care about our mission and go the extra mile when needed. That is why we strive to attract, educate, develop, and retain best talents this region has to offer. We are not only focused on the field of IT where considerable effort has been made to attract the brightest and best IT talent by building a technological hub in Belgrade that will develop solutions for the whole group, but also in other vocations of which an institution such as NLB Group has no shortage. We believe, that only a satisfied employee, one who feels the firm’s trust and care for his or her work/life balance and potential, will help us address the opportunities that await us. That is why we continue to develop our employees and search for new approaches that will confirm our care for their well-being. This is why the Top Employer Institute has also recognized us, awarding the Bank the prestigious ‘Top Employer’ certificate for the seventh consecutive year. We are also happy to report that in February 2022 the Supervisory Board decided to expand the Bank’s Management Board by adding three new members. After they receive their respective licences, the Management Board will consist of six members which will, in our firm opinion, significantly contribute to the successful management of the Group and to meeting the strategic commitments given to you, our stakeholders. Nevertheless, it is not only the welfare of our clients, our employees, and the rest of the stakeholders that is on our minds and in our focus, but also the prosperity and the quality of life in the entire region. Consequentially, the sustainability of our business operations and practices is increasingly becoming our priority. The Group is among the first in the financial industry in the SEE to set ambitious ESG goals, to withdraw support for projects using exclusively coal technologies, to focus on becoming paperless, to actively reduce its carbon footprint, and to work on introducing products that promote sustainability and energy efficiency. In the Group, we do not say in vain that this is our home. Here are our families, friends, colleagues, neighbours, favourite athletes, hosts who know what kind of coffee we like . . . here we can breathe with full lungs, create, experience ups and downs, and expand our ties together. Here are our thoughts and our hearts. That’s why we can see what this region is capable of firsthand and recognise its potential before anyone else. Because where others see just a spot on the map, we see a region of opportunities. Yours truly, Management Board of NLB Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 8 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report relentlessly pursue the best brain available out there, so we can keep up with the fast-paced development to which we are committed. Group foundations are strong and robust, and we on the Supervisory Board are of the opinion that the Group will only grow stronger. If we are to come out of these uncertain times feeling proud of ourselves and our decisions, strong foundations are an absolute must. At the time this letter was created, we have already acquired the Slovenian Sberbank banka d.d., which, albeit early days, I dare to say, has a potential to turn into a textbook case of how the Group can act rapidly, with logical consistency, and flawless delivery of its business strategy. Still, while the past is behind us, with the memory fading quickly in light of the recent developments, we have to acknowledge the Group's remarkable business performance in 2021 which led to a record high profits. Such an excellent result proved that even in times of economic difficulties, knowledge, experience, and sound business decisions based on sustainable principles can generate success. We believe the Group’s business results prove that its objectives are set prudently and strategically, focusing on the innovative, higher recurring growth financial products, addressing digital innovation across our key markets. Moreover, the past year has once again reaffirmed the importance of banking members, which are key factor not only in the Group’s business operations, but also in their respective markets, where the majority of them hold systemically important positions. We firmly believe that further intragroup consolidation will bring additional opportunities to leverage these synergies and further strengthen our position. This way we will do everything needed to actually spearhead the innovation trends in banking, and not merely defend our market positions in the future at times when some worldwide trends indicate that digitalization is set to disrupt the classical banking model in the segment of consumer revenue. The acquisition of Komercijalna Banka, Beograd at the end of 2020 exemplifies that we are able to execute on the complex harmonisation process with NLB standards with regard to the alignment of services, financial products, and support Dear Shareholders, The times we find ourselves in make me think of the following quote which adequately reflects the logic we are trying to pursue at our NLB Group: “In these uncertain times, we don’t necessarily need more command and control over what we already exercise in our regular business operations, but we do need all possible means to engage everyone’s intelligence whilst solving and addressing business challenges as they arise.” Specifically, after the visible ease of the COVID-19 impact on business performance and the strong economic rebound across our entire region which lifted our Group performance on a record level, we are now awakening to a world where worldwide sanctions imposed on Russia have dramatically increased the markets’ volatility, and all the while spill-over sector-specific effects are re-calculated over and over again. Uncertainty looms all over the civilised world. When it comes to our business, we need a calm and focused mind, swift execution ability, and the determination to not stray away from our core business growth strategy, keeping the promises to all our stakeholders. We also need to systems. Having said that, we are looking forward to the final merger of our two banks in Serbia (Komercijalna Banka, Beograd and NLB Banka, Beograd) in April 2022, enabling us further push into the organic growth on that market. We are aware the road ahead is filled with challenges. However, the Group will continue to pursue its strategic objectives, focusing mainly on intensive digitalisation and providing top quality user experience, as well as sustainable operations and development, whilst justifying the expectations of its shareholders through dividend payments. Our focus on EPS and DPS value accretive business decisions remains intact, and we will never look in any other direction. Referring to the above, we on the Supervisory Board can only assure you the Group is transitioning towards the core of our strategy, to be the talent magnet for tech and consumer behaviour-savvy jobseekers, who are and will be able to grasp with the challenges defining the future of banking. 2021 Business Developments Following a pandemic-induced contraction in 2020, the global economy recovered strongly in 2021. The rebound was particularly strong after the re-opening of economies, but thenthe momentum easedthroughoutthe yeardue to rising headwinds in the form of supply chain bottlenecks, inflationary pressures, and new COVID-19 outbreaks. However, the impact of the pandemic on economic activity faded over the course of the year. Similar to global economic trends, the Group’s region rebounded sturdily fromthe pandemic-induced contraction. Private consumption was the main growth driver, and it was propelled by credit growth, remittances, and pent-up demand. Tourism-dependent countries benefitted in particular from lifting restrictions at home and abroad, which resulted in the rebound in the tourism sector over the summer. Nonetheless, the Group’s region was not immune to the global surge in commodity prices, rising energy prices and supply-chain bottlenecks, which coupled with revival in domestic demand resulted in increasing inflationary pressures. Nevertheless, the economic rebound in 2021 had a positive impact on banking systems in the Group’s region with lending Statement by the Chairman of the Supervisory Board of NLB Primož Karpe President of the Supervisory Board of NLB ![]() 9 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report activity recording a notable revival in corporate, as well as household loans while strong inflow of deposits continued also in 2021. Positive developments reflected also in the profitability of the banking systems of the Group’s region, which recorded a notable improvement. 2021 Business Performance The remarkable performance of the Group in 2021 led to a record high profit of EUR 236.4 million – a substantial growth from the previous year when excluding the effects from the acquisition of Komercijalna Banka, Beograd, as unaudited 2021 data shows. Top line growth continued throughout 2021, net interest income growing by 37% YoY based on strong loan growth also contributed by Komercijalna Banka group, adding EUR 98.5 million to that revenue line. With realised higher loan volumes, the Group recorded growth in net interest income in most of its markets in the region despite the still challenging margin environment. Impressive growth in net fee and commission income, up 39% YoY, further added to the Group’s performance in 2021. Strong demand for investment products, such as asset management products and bancassurance, and at the same time strong income generation from increased business activities (such as payments), led to increase in fee and commission income. The Group managed to keep costs within the guidance, also considering an important part of Komercijalna Banka group integration costs. The Bank remains a highly desired employer in the region, while the staff cost is tightly managed by proactive approach to employment through sourcing employees from all over the region. The Group recorded 9% loan growth in 2021, thus exceeding the full year guidance. Loans to individuals recorded double digit growth throughout the group (12% or 13% excluding impact of Komercijalna Banka, Banja Luka sale), driven by strong production of housing loans in Slovenia and the healthy demand for consumer loans in strategic foreign markets. Deposits increased by EUR 1,243.6 million in 2021 on the Group level. Deposits from individuals increased by a mere 5%, indicating that individuals migrated part of their savings to alternative investments (e.g., mutual funds). The strengthened liquidity and capital position, with a CET1 ratio at 15.5% and TCR at 17.8%, ensure a comfortable capacity for an ambitious shareholder pay-out and continued drive for growth opportunities. Despite substantial growth, the Group has managed to maintain RWA close to 2020 levels, helped by inclusion of BiH and Macedonia on EBA's third party equivalent list, and by conclusion of MIGA guarantees. Net interest margin of 2.07% and operational business margin of 3.28% have stabilised with TLTRO recognition of interest income in Q4 having a marginal positive impact in the last quarter. The cost-to-income ratio increased by four percentage points YoY, to 62.3%, accounting for the costs of Komercijalna Banka group integration process. The extraordinary results from workout of the legacy NPL book and material contributions from Komercijalna Banka group on top, led to a EUR 35.8 million net release of impairments and provisions for credit risk – ending the year at -41 bps cost of risk. The Group established EUR 27.1 million of other impairments and provisions, of which EUR 14.8 million for HR restructuring charges in Serbia and the rest mostly from litigation charges in Serbia – although the recent dynamic in the latter is more favourable. NLB Group maintains its corporate governance principles in line with the highest standards The Supervisory Board performed its work in accordance with applicable laws (predominantly, but not exclusively with recently changed the Companies Act (ZGD-1) and the Banking Act (ZBan-3), as well as powers and procedures as set by the Articles of Association of NLB and the Rules of Procedure of the Supervisory Board of NLB. It carried out its function of assuring efficient and active supervision over the management of NLB and the Group in its duty of careful and scrupulous performance, while adhering to the internal acts of the Bank. In performing its duties, the Supervisory Board followed the recommendations of the Corporate Governance Code for Listed Companies. The Corporate Governance Statement of NLBtransparently reveals deviationsfrom thementioned code, as well as explains key aspects of the Bank’s corporate governance, particularly the composition and work of the Bank’s Management Board and Supervisory Board and its committees, internal control mechanisms, and internal control functions. It is published in the business part of this Annual report. The Management Board adopted mentioned statement on its session dated 1 February 2022 and the Supervisory Board on its session dated 24 February 2022 and had no comments to it (recommendation 5 of the aforementioned Code). Next year, the Supervisory Board will report on implementing new recommendations made with renewed version of the Corporate Governance Code for Listed Companies, that will be first used for preparation of the Corporate Governance Statement for the business year 2022. At the end of 2021, the Supervisory Board was composed of 12 members, of which eight were representatives of shareholders (in addition to Primož Karpe and Andreas Klingen, members were also Gregor Rok Kastelic, Mark William Lane Richards, Shrenik Dhirajlal Davda, David Eric Simon, Verica Trstenjak, and Islam Osama Zekry) and four were representatives of employees (Sergeja Kočar, Bojana Šteblaj, Janja Žabjek Dolinšek, and Tadeja Žbontar Rems). In 2021, the Supervisory Board held seven regular and 12 correspondence sessions. In its work, the Supervisory Board of NLB received professional assistance from five operational committees, namely: The Audit Committee, the Risk Committee, the Nomination Committee, the Remuneration Committee, and the Operations and Information Technology Committee. These committees function as consulting bodies of the Supervisory Board and in great detail discuss the materials and proposals of the Management Board related to a particular area. Based on their findings the Supervisory Board passed appropriate resolutions. Each of the five committees is composed of at least three members of the Supervisory Board. Through the year, the Supervisory Board monitored the implementation and effectiveness of the NLB Group’s strategy. The Supervisory Board issued approvals to the Management Board related to the Bank’s business policy, the Financial Plan, and the Budget of the NLB Group, adopted the NLB Group Annual Report, the NLB Group Sustainability Report, the NLB Group Sustainability Framework, Pillar 3 disclosures for the NLB Group, periodic business reports, adopted decisions related to management of risk, reported on cost optimisation activities, published the annual (and periodic) Internal Audit Plan and Plan of Compliance & Integrity, adopted yearly comprehensive opinion of the Internal Audit, adopted performance assessments and appointments of directors of Compliance & Integrity, and the Internal Audit. The Supervisory Board adopted decisions with regards to the convocation of the two General Meetings of shareholders, gave consent to termination of office of the Management Board (Petr Brunclík, COO with the termination of office with effect on 30 June 2021) and gave consent to nomination of a candidate for a member of a Supervisory Board. The Supervisory Board gave consent to renovation of internal policy on Internal Controls System; Rules and Procedures for the Sustainability Committee; Review of the Diversity Policy; New Remuneration Policy for Employees for the NLB and the NLB Group; The Remuneration Policy of the Members of Supervisory Board of NLB; and the Members of the Management Board of NLB. It also gave consent to annual ![]() 10 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report self-assessment of employees performing special work and approved achievements of the Management Board and proposed new goals for the Management Board. The Supervisory Board was active in adopting decisions on establishment of new companies (in Serbia and North Macedonia), cross-border financing and international syndicated financing, transactions with MIGA, large exposures, sale of receivables, claim write-offs, the divestment of the Group companies, legal proceedings involving NLB and the Group members, transactions with persons in special relations with the Bank, Worker’s Council 2021 report, etc. On the session of the Supervisory Board dated 20 January 2022, following the best practice selection and evaluation process, the Supervisory Board appointed three additional new members of the Management Board, namely: Hedvika Usenik, Antonio Argir, and Andrej Lasič, thus expanding it to six members in total. They all come from NLB or NLB Group, have extensive experience and proven value creating a positive track record. We believe that the Bank's Management Board, supplemented with three new members, is properly equipped for challenge that await us and offers the best combination of various knowledge, experience, and competencies. A five-year term of office for the new members will start after they have obtained consent from regulator. Until then, they will continue to perform the functions of executive assistants to the Management Board. Through the year, we acknowledged regular reports on documents received from the regulator(s), namely the BoS and the ECB, and on the implementation of the requirements of mentioned regulators and adopted other amendments to the internal policies. With the aim of ensuring sustainable development, the Group strives to actively contribute to a more balanced and inclusive economic and social system through three lines of actions: sustainable operations, sustainable finance, and Corporate Social Responsibility. In 2021, the Group moved from the awareness-raising phase, to the phase of actively implementing sustainability elements into the business model. Therefore, in 2021, the Bank adopted the NLB Group Sustainability Framework and put in place the 4-level NLB Group Sustainability Governance Structure, which is as follows: (i) the Supervisory Board; (ii) the Sustainability Committee (consultative body and a decision-making body of the Management Board), (iii) the Sustainability Team, and (iv) the NLB Group Working Groups. The Supervisory Board adopts decisions related to sustainability issues in almost every session. While members of the Supervisory Board have the proper and complementary knowledge, experience, and skills to perform their duties, they all have different professional, national, and educational backgrounds. All the members of the Supervisory Board have the necessary personal integrity and professional ethics to hold their positions, which was confirmed by the positive Fit & Proper assessment. This provides the assurance that we can carry out our supervisory roles in a responsible manner and make decisions that benefit NLB and add value to the Group. The delivery of critical and assertive opinions has been and will always remain at the core of our decision-making principles through the expected engaged participation of all the members. I can assure you we also regularly upgrade the skills and the knowledge required for the fulfilment of ourduties. The Supervisory Board continued to act in accordance with the highest ethical standards of management, considering the prevention of conflict of interest. The Supervisory Board members took precautionary measures to avoid any conflicts of interest that might have influenced their decisions. Throughout the year, there were 10 potential conflicts of interest identified at sessions of the Supervisory Board, and they were all handled with utmost professional due care. Throughout the year, the Supervisory Board has maintained a well-balanced professional relationship with the Management Board and enjoyed timely, comprehensive, and data- supported inputs from the latter, enabling the Supervisory Board to adopt all its decisions in line with the professional interests of the Bank, whilst always adhering to banking regulations and itsstatutory powers. Despite extremely demanding times during second year of COVID-19 pandemic, the Supervisory Board members assess that the Management Board managed to successfully implement the NLB Group Strategy. The very solid financial results of NLB Group in 2021 enabled the Bank to pay out a total of EUR 92.2 million in dividends to the shareholders, thereby reaffirming NLB Group’s stable and successful business operations and strong capital position. The Supervisory Board assesses that the NLB Group has successfully utilised the opportunities offered to it by the supportive economic environment of strong GDP growth in the region, and that performance and results of the NLB Management Board proved again we can have full trust in our executive team. Pursuant to Article 272 of the Companies Act (ZGD-1) and the above report the Supervisory Board of NLB established and ensured that it regularly and thoroughly monitored the Bank’s and the Group’s operations in 2021 within its powers and efficiently supervised the Bank’s and NLB Group’s management and operations. Review of the NLB Group Annual Report 2021 Pursuant to Article 282 of the Companies Act (ZGD-1), Article 50 of the Banking Act (ZBan-3), it is the obligation of the Supervisory Board to examine the Annual Report together with the auditor's report and the proposal for the allocation of distributable profit presented by the Management Board. The NLB Group Annual Report 2021 and unaudited financial statements of NLB Group were examined by the Audit Committee and the Supervisory Board at its meetings on 23 February and 24 February 2022. Within the legal deadline, the Management Board of NLB submitted to the Supervisory Board the NLB Group Annual Report 2021, including the Business Report and the Financial Report, with the audited separate financial statements of NLB and the consolidated financial statements of the NLB and its subsidiaries, and the auditor's opinion. According to the auditor's opinion, in all material respects, the separate and consolidated financial statements enclosed give a true and fair view of the financial position of NLB and the NLB Group as of 31 December 2021, the separate and consolidated income statement, the separate and consolidated statement of other comprehensive income, the separate and the consolidated statement of changes in equity and the separate and the consolidated statement of cash flows for the year then ended, in accordance with the International Financial Reporting Standards as adopted by the European Union. It was also established based on the review of the business report that the information contained in the business section of the Annual Report is consistent with the audited financial statements of the Bank and the NLB Group. Yours truly, Supervisory Board ofNLB Primož Karpe Chairman ![]() 11 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Strategic Members Overview SloveniaSerbia Bosnia and Herzegovina KosovoMontenegro NLB Group NLB, Ljubljana NLB Lease&Go, Ljubljana NLB Skladi, Ljubljana Komercijalna Banka, Beograd NLB Banka, Beograd KomBank Invest, Beograd NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica (vii) Market position in 2021 Branches479 (i) 75--19028-4847363322 Active clients1,891,064 (ii) 675,310--975,033142,964-415,368213,112129,954230,01484,342 Total assets (in EUR million)21,57712,7001202,128 (iii) 4,16571521,771927728931751 Net loans to customers (in EUR million) 10,5875,153100-1,796512-1,084471453635492 Deposits from customers (in EUR million) 17,6419,660--3,425449-1,400 760 593799610 Result after tax (in EUR million)236.4208.4-0.99.034.84.30.039.018.210.024.410.1 Market share by total assets-26.3%-37.3% (iv) 9.7%1.6% (vi) -16.9%19.1% (viii) 5.4% (v) 16.3%14.1% Macroeconomic indicators for 2021 GDP (real growth in %)7.68.17.44.05.910.412.0 Average inflation (in %)2.92.04.13.22.03.32.4 Unemployment rate (in %)10.74.811.115.715.524.016.6 Current account of the balance of payments (as a % of GDP) -1.44.8-4.4-3.5-2.8-6.8-16.4 Budget deficit/surplus (as a % of GDP) -4.8-6.5-4.1-5.4-2.7-3.6-4.7 (i) Including Komercijalna Banka, Beograd. (ii) Number of active clients of Komercijalna Banka, Beograd not included in total number of NLB Group active clients due to different definitions. (iii) Assets under management. (iv) Market share of assets under management in mutual funds. (v) Market share in the Federation of BiH as at 30 September 2021. (vi) Market share as at 30 September 2021. (vii) Merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica on 12 November 2021. (viii) Market share in the Republic of Srpska. Table 1: Strategic members overview North Macedonia ![]() 12 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Key Highlights Financial Performance Strong business performance marked by continuous loan growth, increased fee and commission income, one-off effects and negative cost of risk Business Overview Leading player in SEE Asset Quality Good asset quality trends with welldiversified portfolio, prudent credit standards and decisive workout approach Capital & Liquidity Strengthened capital and liquidity position ensuring capital return and continued growth opportunities Strategy Committed to pursue the strategic objectives • Profit a.t. amounted to EUR 236.4 million. •Strong loan growth of 12% YoY to individuals, with the high production of new loans (especially housing loans) and 8% YoY to corporates, compensated reduction in interest rates, and supported net interest income. • The economic rebound led to the optimisation of the investment portfolios of households, and the growth of housing loans, mutual funds, and bancassurance, hence increasing net fee and commission income (39% YoY; 14% YoY without the Komercijalna Banka group contribution). •Continuous cost discipline . • Non-recurring valuation income in the amount of EUR 14.8 million from repayment of exposure, classified as non-performing, EUR 9.0 million of other operational income from the settlement of legal dispute, and EUR 8.1 million loss from the sale of Komercijalna Banka, Banja Luka. • Positive impact of the release of impairments and provisions for credit risk (EUR 35.8 million), mostly due to successful repayment of on- and off-balance exposures and changed parameters related to more favourable macroeconomic forecasts. EUR 27.1 million net established other impairments and provisions , due to restructuring provisions and provisions for legal risk, mostly related to Komercijalna Banka, Beograd. •A robust and sustainable universal business model with increased focus on digitalisation and ESG. •Striving to become a regional champion . • Higher availability and use of digital channels – awider range of 24/7 digital solutions offered to clients. • The integration process of the Komercijalna Bankabanks with the NLB banks in Serbia and Montenegro is progressing as planned. In Podgorica, the merger was successfully completed in November 2021, while in Serbia the merger is on schedule to be completed in the Q2 2022. Komercijalna Banka in BiH was successfully sold in December 2021. • Positive trends in asset quality continued, resulting in a further decline of the NPL ratio, and the negative cost of risk. •Well-diversified, stable, and robust credit portfolio quality . • Proactive approachto workouts and more favourable macroeconomic predictions than expected contributed to the negative cost of risk (-41 bps). •The stable and low level of NPE (EBA def.) of 1.7% with a comfortable NPL coverage ratio of 57.9%. •No asset quality deterioration was observed in loans with expired moratoriums. • The capital position was comfortably above regulatory requirements (TCR of 17.8%, 1.2 p.p. higher YoY). Inclusion of the negative goodwill recognised at the acquisition of Komercijalna Banka, Beograd as of 30 June 2021, and partial inclusion of the 2021 result on one side and successful RWA optimisation measures undertaken on the other, had a positive impact on the capital position. •In 2021, the Bank paid out acumulative dividend of EUR 92.2 million. • The liquidity position of the Group remained very strong, with a high levelof unencumbered liquid assets in total assets (38.3%). The strong deposit base demonstrated client confidence in the Group. •The Bank participated in the ECB TLTRO III operation . The positive lending performance will partially compensatethe negative outcome from holding liquidity reserves. •The Bank continues to execute its strategic initiatives as well as explore new business opportunities on both domestic and other regional markets where the Group is not yet present. • The digital leadership position in Slovenia is being applied to other markets in which the Group operates. The vision is to become one of the best data science companies in the region to productively use customer data and to evolve a local flexible digital ecosystem offering products and services for clients. •Continue to serve the community aiming to improve the quality of life in the Group’s region. Driving business value through sustainability and commitment to enhance the management of environmental and social risks of its operations, and meeting stakeholders’ needs and expectations. ![]() 13 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Key Performance Indicators 202120202019 NLB GroupNLBNLB GroupNLBNLB GroupNLB Income statement data (in EUR million) Net interest income409139300139318158 Net non-interest income (i) 258222205173199197 Net non-interest income (BoS) (i) 294 232360180219204 Total costs (i) -415-184-294-180-305-191 Operating costs (BoS) (i) -451-193-311-188-321-198 Result before impairments and provisions (ii) 252 178 211131212164 Impairments and provisions934-71-17-114 Gains less losses from capital investments in subsidiaries, associates, and joint ventures1-1-4- Result before tax261211 278 114215 178 Result of non-controlling interests11-3-8- Result after tax236208270114 194 176 Financial position statement data (in EUR million) Total assets21,57712,70019,56611,02714,1749,802 Gross loans to customers10,9035,25010,0334,7537,9384,718 Impairments and deviations from FV-316-97-388-158-334-129 Net loans to customers10,5875,1539,6454,5957,6054,589 Financial assets5,2083,0345,1203,0173,8303,169 Deposits from customers17,6419,66016,3978,85111,6127,761 Equity2,0791,5521,9531,4511,6861,333 Non-controlling interests137-170-45- Total off-balance sheet items4,6553,4894,6713,6844,2223,644 Key financial indicators a) Capital adequacy Total capital ratio17.8%24.6%16.6%27.1%16.3%22.6% Tier 1 ratio15.5%20.3%14.2%22.3%15.8%21.8% CET 1 ratio15.5%20.3%14.1%22.3%15.8%21.8% Total RWA (in EUR million)12,6676,70912,4216,0299,1865,225 RWA / Total assets58.7%52.8%63.5%54.7%64.8%53.3% b) Asset quality NPL coverage ratio 1 (coverage of gross non-performing loans with impairments for all loans)86.1%75.1%81.8%76.0%89.2%76.2% NPL coverage ratio 2 (coverage of gross non-performing loans with impairments for non-performing loans)57.9%60.6%57.3%57.9%65.0%56.7% NPL coverage ratio (EBA definition) (iii) 58.4%60.8%56.9%55.3%64.5%55.5% NPL coverage ratio (EBA definition) (BoS) (iv) 58.4%60.8%56.9%55.3%64.5%55.5% NPL volume (in EUR million) 367 130475208375 169 NPL ratio (internal def.; NPL / Total loans)2.4%1.5%3.5%3.0%3.8%2.8% Net NPL ratio (internal def.; net NPL / Total net loans)1.0%0.6%1.5%1.3%1.4%1.3% NPL ratio (EBA definition) (iii) 3.4%2.4%4.5%4.0%4.6%3.3% NPL ratio (EBA definition) (BoS) (iv) 2.4%1.5%3.4%2.8%3.8%2.7% NPE ratio (EBA definition)1.7%1.1%2.3%1.9%2.7%2.0% NPE ratio (EBA definition) (BoS) (v) 1.7%1.1%2.3%1.9%2.7%2.0% Received collaterals / NPL61.7%60.0%60.7%65.8%66.6%72.0% NPL collateral received / NPL (EBA definition)58.8%63.1%42.4%43.5%35.4%33.6% Credit impairments and provisions / RWA-0.3%-0.4%0.5%0.1%-0.1%-0.3% Table 2: Key financial indicators for NLB Group and NLB Further details on the definition of certain indicators in this table are available in the chapter Alternative Performance Indicators . (i) Data for 2019 are adjusted to the changed schemes as prescribed by the BoS (relocation of some items from net other income to other general and administrative expenses). (ii) Result before impairments and provisions of NLB Group for the year 2020 does not include negative goodwill. (iii) Loans and advances without loans and advances classified as held for sale, cash balances at CBs and other demand deposits. (iv) Loans and advances including cash balances at CBs and other demand deposits. (v) The carrying amount of debt instruments measured at fair value through other comprehensive income (FVOCI) is increased by value adjustments due to impairments. (vi) Calculated on the basis of average total assets. (vii) Calculated as Net income from operational business (NII - Tier 2 bonds expenses + Net fee and commission income + Recurring net income from financial operations) / Average total assets. (viii) As per share register of KDD.The shares are listed on Ljubljana Stock Exchange.The Bank of New York Mellon (the 'GDR Depositary') represented in the share register of KDD as one holder is not the beneficial owner of shares, it holds shares in its capacity as the depositary for the GDR holders.The GDRs representing shares are issued against the deposit of shares and are listed on London Stock Exchange. Therefore, the number in the share register of KDD does not represent all final beneficial owners of the Bank shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the general meeting of bank's shareholders or to exercise any voting rights under the deposited shares. (ix) Including Komercijalna Banka, Beograd. (x) Including Komercijalna Banka, Beograd, Komercijalna Banka, Banja Luka and Komercijalna Banka, Podgorica. (xi) Unsolicited rating. ![]() 14 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 202120202019 NLB GroupNLBNLB GroupNLBNLB GroupNLB c) Profitability Net interest margin (BoS) (vi) 2.0%1.2%2.0%1.3%2.4%1.7% Financial intermediation margin (BoS) (i) 3.4%3.1%4.4%3.1%4.0%3.9% Operational 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% ROA 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% ROA a.t.1.1%1.8%1.8%1.1%1.5%1.9% d) Business costs Operating costs / Average total 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% Total costs / RWA (i) 3.3%2.7%2.4%3.0%3.3%3.7% Total costs / Total 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 sector48.9%59.4%56.1%65.8%54.7%63.8% Liquidity assets / Average total assets40.2%47.4%51.8%54.9%44.7%52.1% Liquidity Coverage Ratio (LCR)252.6%314.5%257.5%336.3%324.9%362.1% Net stable funding ratio (NSFR)185.2%171.4%165.7%162.1%159.5%158.9% f) Leverage ratio Leverage ratio10.2%13.6%7.8%10.3%8.7%9.7% g) Other Market share in terms of total assets-26.3%-24.7%-23.8% LTD 60.0%53.3%58.8%51.9%65.5%59.1% Total revenues / RWA (i) 5.3%5.4%4.1%5.2%5.6%6.8% Key indicators per share Shareholders (viii) -2,571-2,455-2,100 Shares-20,000,000-20,000,000-20,000,000 The corresponding value of one share (in EUR)-10-10-10 Book value (in EUR)103.977.697.672.584.366.7 Branches Number of branches479 (ix) 75530 (x) 8031893 Employees Number of employees8,1852,5108,7922,5915,8782,659 International credit ratingsRatingOutlookRatingOutlookRatingOutlook S&PBBB-StableBBB-NegativeBBB-Stable Fitch--BB+NegativeBB+Stable Moody's (xi) Baa1StableBaa1StableBaa2Positive Further details on the definition of certain indicators in this table are available in the chapter Alternative Performance Indicators . (i) Data for 2019 are adjusted to the changed schemes as prescribed by the BoS (relocation of some items from net other income to other general and administrative expenses). (ii) Result before impairments and provisions of NLB Group for the year 2020 does not include negative goodwill. (iii) Loans and advances without loans and advances classified as held for sale, cash balances at CBs and other demand deposits. (iv) Loans and advances including cash balances at CBs and other demand deposits. (v) The carrying amount of debt instruments measured at fair value through other comprehensive income (FVOCI) is increased by value adjustments due to impairments. (vi) Calculated on the basis of average total assets. (vii) Calculated as Net income from operational business (NII - Tier 2 bonds expenses + Net fee and commission income + Recurring net income from financial operations) / Average total assets. (viii) As per share register of KDD.The shares are listed on Ljubljana Stock Exchange.The Bank of New York Mellon (the 'GDR Depositary') represented in the share register of KDD as one holder is not the beneficial owner of shares, it holds shares in its capacity as the depositary for the GDR holders. The GDRs representing shares are issued against the deposit of shares and are listed on London Stock Exchange.Therefore, the number in the share register of KDD does not represent all final beneficial owners of the Bank shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the general meeting of bank's shareholders or to exercise any voting rights under the deposited shares. (ix) Including Komercijalna Banka, Beograd. (x) Including Komercijalna Banka, Beograd, Komercijalna Banka, Banja Luka and Komercijalna Banka, Podgorica. (xi) Unsolicited rating. ![]() 15 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Outlook Table 3: Market performance and outlook for the period 2022-2023 2021 GuidancePerformance in 20212022 (iv) 2023 Regular incomeExceeding EUR 600 millionEUR 640.9 million~ EUR 670 million > EUR 700 million Costs Initial increase in cost base in the year 2021, costs projected around EUR 430million including integration costs EUR 421.4 million (i) Costs at 2021 level~ EUR 400 million Cost of riskAround -20 bps-41 bps20-30 bps30-50 bps Loan growthMid-single digit loan growth9%High single digit loan growthHigh single-digit loan growth DividendEUR 92.2 millionEUR 92.2 million (ii) EUR 100 millionEUR 110 million ROE a.t.> 10%11.4% ~ 10%, (ROE normalized (iii) : 12%) > 10% (ROE normalized (iii) : > 12%) (i) Including integration costs: EUR 7.8 million G&A costs and EUR 5.9 million HR provisions. (ii) Further information is available in the chapter Outlook 2022 . (iii) ROE normalized = Result a.t. w/o minority shareholder profit divided by consumed capital. Consumed capital computed as 13.06% of average RWA reduced for minority shareholder capital contribution. (iv) If legal remedies against the adopted law in February 2022 concerning loan agreements in Swiss francs concluded by banks operating in Slovenia (including NLB) and individuals are unsuccessful, the Bank estimated a negative pre-tax effect on the operations of NLB and NLB Group should not exceed EUR 70 - 75 million. This would have a limited (up to 55 bps) negative impact on the capital position. ![]() 16 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 4: NLB’s main shareholders as at 31 December 2021 (i) ShareholderNumber of sharesPercentage of shares Bank of New York Mellon on behalf of the GDR holders (ii) 11,357,36856.79 of which Brandes Investment Partners, L.P. (iii) />5 and <10 of which EBRD (iii) />5 and <10 of which Schroders plc (iii), (iv) />5 and <10 Republic of Slovenia (RoS)5,000,00125.00 Other shareholders3,642,63118.21 Total20,000,000100.00 (i) Information is sourced from NLB’s shareholders book accessible at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) and available to CSD members.The information on major holdings is based on the self-declarations by individual holders pursuant to the applicable provisions of Slovenian legislation which requires that the holders of shares in a listed company notify the company whenever their direct and/or indirect holdings pass the set thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, or 75%. The table lists all self-declared major holders whose notifications have been received. In reliance of this obligation vested with the holders of major holdings, the Bank postulates that no other entities nor any natural person holds directly and/or indirectly 10 or more percent of the Bank’s shares. (ii) The Bank of NewYork Mellon holds shares in its capacity as the depositary (the GDR Depositary) for the GDR holders, and is not the beneficial owner of such shares. The GDR holders have the right to convert their GDRs into shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the shareholder’s meeting or to exercise any voting rights under the deposited shares. (iii) The information on GDR ownership is based on self-declarations by individual GDR holders as required pursuant to the applicable provisions of Slovenian law. (iv) Further information is available in chapter Events after the end of the 2021 financial year . The Bank’s shares are listed on the Prime Market sub- segment of the Ljubljana Stock Exchange (ISIN SI0021117344, Ljubljana Stock Exchange trading symbol: NLBR) and the GDRs, representing shares, are listed on the Main Market of the London Stock Exchange (ISIN: US66980N2036 and US66980N1046, London Stock Exchange GDR trading symbol: NLB and 55VX). Five GDRs represent one share of NLB. Shareholder structure of NLB ![]() 17 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report KeyEvents January New member of the Supervisory Board: Tadeja Žbontar Rems was elected as the member of the Supervisory Board of the Bank – representative of workers. ‘Top Employer’ certificate: The Top Employers Institute awarded the Bank the prestigious ‘Top Employer’ certificate for the 6 th consecutive year. February Quick loans: Increased accessibility of quick loans for individuals via video call. April Feefor customers balances: TheBank introduced a monthly fee for average monthly balances of individuals’ assets over a certain threshold (currently EUR 100,000). Increased shareholding in KB, Beograd: After the Bank acquired additional shares, its shareholding in Komercijalna Banka, Beograd increased to 88.28%. Change in Management Board: Petr Brunclík, member of the Management Board and COO, agreed with the Supervisory Board on the termination of his office taking effect on 30 June. May Newpayment methods: NLB, as the first bank in Slovenia, introduced the Flik P2M payment method and is offering a new debit Mastercard for individuals and legal persons. June New member of the Supervisory Board: Islam Osama Zekry was confirmed as a new member of the Supervisory Board. Dividend payment: The Bank paid the first instalment of dividends in the amount of EUR 12.0 million. Bankarium: The first banking museum in Slovenia was opened for the public. July ECB stress tests: The results of stress tests carried out for important banks by the ECB to assess the resilience of financial institutions were disclosed. The result ranks the Group among banks with solid resilience. 3 Avgust Advertiser of the Year: Slovenian Chamber of Advertising has awarded NLB the title Advertiser of the Year for 2020. NLB was the only bank in history to receive such award in Slovenia. September New products in offering: The Bank began offering an extraordinary overdraft with a gradual decrease and automatic renewal for individuals, as well as a new health insurance option. October Dividend payment: The Bank paid the second instalment of dividends in the amount of EUR 12.8 million. Marketing award: The Marketing Association of Slovenia awarded the Bank with the main award in the category ‘Determination of Marketing Strategies’for theproject ‘StrategicInitiative of CustomerFocus.’ 3For more information see the chapter Risk Management . November Consolidation of operations in Montenegro: The merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica was completed. 4 December Sale of KB, Banja Luka: The Bank successfully sold 100% of its ordinary shares of Komercijalna Banka, Banja Lukato Banka Poštanska štedionica, Beograd. Expanding leasing activities: The Group initiated activities for expanding leasing operations in Serbia and North Macedonia. M-bank Klikpro: M-bank Klikpro was upgraded with a new digital signing solution. NLB share awarded: NLB shares (NLBR) received the Ljubljana Stock Exchange Award, ‘Prime Market Share of the Year.’ Supervisory and Management board transactions with NLBR shares: Primož Karpe, Chairman of the Supervisory board, bought 200 ordinary shares of NLB. Blaž Brodnjak, CEO & CMO and Archibald Kremser, CFO both bought 100 ordinary shares of NLB. Dividend payment: The Bank paid an additional incremental dividend in the amount of EUR 67.4 million, contributing to the 2021 cumulative payout of EUR 92.2 million. 4For more information see the chapter Strategic Foreign Markets . JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember ![]() 18 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report higher in comparison to the bottom of 2020. Since peaking in November 2021, the Bank’s stock moved slightly lower over the remaining part of the year. In 2021, the Ljubljana Stock Exchange modified its methodology for calculation of key indices with which a share of NLBR increased from 8.71% on 21 December 2020 to 18.05% on 20 December 2021. The increased weight in local indices and the strong capital market activity with NLBR in 2021 led to NLB winning the ‘Prime Market Share of the year’ award for the first time. In October, the Bank signed an agreement with InterCapital to provide the service of market making in NLBR shares with the intention of narrowing the bid-ask spread and increasing liquidity of shares. NLB Shares and GDRs In 2021, European banking sector stocks continued their recovery that was initiated towards the end of 2020. In general, European banking sector stocks managed to gradually recover all of the pandemic-induced drop from March 2020 over the course of the year, with some of the banks being among the better performers of the stock market rally since the end of 2020. European banking sector stocks recorded an increase in value of around 34% in 2021. However, European banking sector stocks finished the year below the 2021 peak reached in November and even slightly below the 2020 pre-pandemic peak reached in February 2020. The Bank’s stocks more than recovered the pandemic- induced drop in the Bank’s stock price from March 2020. The Bank’s stock price recorded an increase of around 66% in 2021, contrasting the approximately 40% growth in the Slovenian Blue Chip Index SBI Top, and the 34% growth in European banking sector stocks in the year. In fact, the Bank’s stock entirely recovered the pandemic-induced drop from 2020 by the beginning of the summer 2021, and then continued to gradually move higher over the remaining part of the year. As such, the Bank’s stock price ended the year approximately 17% higher in comparison to the peak of 2020, and 123% Market Performance of NLB’s Shares and GDRs Table 5: NLB share information Share information31 Dec 2021 Total number of shares issued20,000,000 Highest closing price (in 2021)EUR 80.6 Lowest closing price (in 2021)EUR 42.0 Closing price as at 30 December 2021 (i) EUR 76.2 NLB Group book value per shareEUR 103.9 NLB Group earnings per share (EPS)EUR 11.8 Price/NLB Group book value (P/B)0.73 Dividend per share (for the previous business year)EUR 4.61 Market capitalisation (i) EUR 1,524,000,000 (i) No market on 31 December 2021. NLB Shares(NLBR) received the Ljubljana Stock Exchange Award: Prime Market Share of the Year. ![]() 19 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Investor Relations’ function The Bank participates in varied forms of engagement, such as investor meetings, calls, conferences, and roadshows, reflecting the diverse nature of the Bank’s ownership structure. Transparent communication with investors and analysts allowed for dialogue promotion on strategic developments, as well as on the recent financial performance of the Group. The Bank promoted greater awareness and understanding of operating businesses, developments, and events which have an influence on the performance of the Bank’s share price. Since the listing, six analysts released research reports about the Group. Performance of the Bank is covered by analysts from JP Morgan, Deutsche Bank, Wood & Company, Citi, InterCapital, and Raiffeisen Bank International. IR presentations, financial reports, and important information are available on the Bank’s website in line with IR’s Financial Calendar . Indices The Bank’s shares are included in several indices: the SBITOP index, SBITOP TR index, and ADRIA prime index of the Ljubljana Stock Exchange; the FTSE Frontier Index, MSCI Frontier, and MSCI Slovenia; the S&P Eastern Europe BMI, S&P Emerging Frontier Super Composite BMI, S&P Extended Frontier 150, S&P Frontier BMI, S&P Frontier Ex-GCC BMI, S&P Slovenia BMI; as well as the STOXX All Europe Total Market, STOXX Balkan Total Market, STOXX Balkan Total Market ex- Greece & Turkey, STOXX EU Enlarged Total Market, STOXX Eastern Europe 300, STOXX Eastern Europe 300 Banks, STOXX Eastern Europe Large 100, STOXX Eastern Europe Total Market, STOXX Eastern Europe Total Market Small, STOXX Global Total Market, and STOXX Slovenia Total Market. Figure 1: NLB shares’ price movement on the Ljubljana Stock Exchange and NLB GDR’s price movement on the London Stock Exchange (in EUR) Shares (NLBR)GDR (NLB) GDR Shares 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 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021 Source: Ljubljana Stock Exchange, Bloomberg. ![]() We are your loyal partners. Great-grandfathers built bridges. Grandfathers built factories. Fathers built the internet. Your goal is to build the future. New builders of the future are driven by the same pioneer spirit that has accompanied this region for decades. You also are not going to sit and wait for better times to come along, instead you want to create them yourself. We are right here by your side, following the trends and always developing new solutions which will inspire and encourage you to create change. The same way we helped others before you. ![]() 21 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Globaland European economy Since the strong rebound resulting from the re-opening, the momentum has eased throughout the year because the global rebound has faced several headwinds that have influenced the momentum. The surge in demand for goods has faced production chain bottlenecks, and has resulted in supply- demand imbalances. As a consequence, inflation pressures have emerged in all economies with disruptions in energy, food, and commodity markets that have been reflected in increased prices. Inflationary pressures have been passed on to consumers and lasted longer than initially expected. The labour market is still yet to recover completely, but labour shortages have been evident in several economic sectors. The pandemic continued its grasp on economic activity also in 2021, but to a much lesser extent than in the previous year. New outbreaks weighed on economic activity by extending existing and originating new supply constraints. As such, business survey measures of output and new orders moved below their peaks recorded in Q2, while consumer confidence deteriorated in many countries in the last months of the year. Nevertheless, global industrial production and retail sales remained above pre-pandemic levels, although they have also recorded easing momentum over the course of the year. In the Euro area, economic activity rebounded sharply in H1 in line with the improvement in the health situation.The main driver of the rebound has been private consumption that was fuelled by the pent-up demand and a reduction in the household saving ratio. These have been driven by diminishing forced savings when the restrictions started to be gradually lifted in spring. This propelled the recovery in services which followed the recovery in manufacturing. Nevertheless, a sharp resumption in economic activity has resulted in supply-demand imbalances and has created vast supply disruptions and bottlenecks. The latter has influenced momentum slowing down the rebound and causing economic activity to ease after peaking in the summer. Global supply chain bottlenecks have been a significant constraint on industrial production and goods trade throughout the year. Supply bottlenecks, increasing producer prices, coupled with a surge in energy prices, and stronger demand as a result of the reopening of the economy have caused a strong increase in inflationary pressures. The latter has resulted in a surge in In 2021, following a pandemic-induced contraction in 2020, the global economy recorded a strong although imbalanced recovery. In general, global economic activity has managed to surpass pre-pandemic levels, but the recovery has remained incomplete and uneven across countries as well as sectors. headline, as well as core inflation rates as inflationary pressures have become more and more broad-based and have been mainly passed on to consumers over the course of the year. The strength of the labour market in 2021 was reflected in the decreasing unemployment rate throughout the year, while pockets of labour shortages have emerged and have become a sector-specific issue. Monetary policy authorities kept the notion of transitory inflation for the large majority of the year, but rapid resumption in economic activity, rising inflation rates, and labour market conditions improvement forced them to reconsider monetary policy stances. In the Euro area, the ECB has maintained very favourable financing conditions in 2021 withTLTRO-III and the Pandemic emergency purchase programme (PEPP) playing their parts in supporting the Euro area recovery. Nevertheless, the pace of purchases under the PEPP have decreased throughout the year, and at the December meeting, the ECB outlined the discontinuation plan for the programme. The net purchases under the programme discontinued in March 2022, which was in accordance with its design. However, the ECB has also decided to temporarily increase purchases under the regular asset purchases programme in order to provide some sort of a transitional period, but subsequently implemented a quicker slowdown of the programme. In the US, asset purchases tapering was announced and outlined in November, but sustained price pressures prompted the Fed to drop the notion of transitory inflation and to double the tapering pace, which also resulted in moving forward the timeline of rate hikes. At the March meeting, the Fed actually raised the rate by 25 bps, with additional rate hikes set to follow. The global economy is expected to continue with the recovery in 2022. The impact of pandemic on economic activity has considerably waned over time, and it should further wane over the coming years, resulting in a restoration of demand patterns and an easing of supply disruptions and inflationary pressures. However, the recovery may quite possibly remain unbalanced across countries and sectors. In the Euro area, the strong output recovery that is underway is expected to continue in 2022. GDP growth is expected to moderate to 3.6% in 2022, with forces of the re-opening set to fade out. Growth in the Euro area will be primarily driven by strong private consumption in light of households reducing the saving rate to normal levels on the back Macroeconomic Environment economic growth in the Euro-area in 2021. 5.3% economic growth in Slovenia in 2021. 8.1% 7.6% economic growth in the Group’s region in 2021. ![]() 22 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in particular, will push up inflation in the coming months. In fact, inflation could rise even further and remain elevated for longer due to commodity price surge and additionally due to second round effects, in terms of the impact on the underlying inflation, wage growth and higher inflation expectations. This erodes household purchasing power and together with a squeeze on company profits, and deteriorated business and consumer confidence will weigh on economic growth. Consequently, with elevated downside risks to growth and upside risks to inflation, the risks of stagflation have increased. The economy in the Group’s region The Group’s region rebounded strongly from the pandemic- induced economic crisis, in line with global economic trends. Private consumption has been the main driver of the growth in the Group’s region. Private consumption has been spurred by credit growth, remittances, a strong tourism season, and pent-up demand despite the fact that labour markets in some countries have still not escaped the impact of the pandemic-induced crisis. Private investment has solidified although there have been some differences in dynamics between countries. Strong export demand from the EU market and industrial production supported growth in BiH, North Macedonia, and Serbia, while Montenegro and Kosovo benefited in particular from the rebound in the tourism sector over the summer. Nevertheless, the Group’s region was not able to circumvent the global surge in commodity prices, rising energy prices and supply-chain bottlenecks. Coupled with firming domestic demand, this resulted in inflation increasing over the course of the year. Fiscal policy remained accommodative and monetary policy rates were kept at historical lows. of further diminishing forced and precautionary savings. Another driver is business investment, which is expected to recover substantially, and which will be additionally supported by the Next Generation EU funds. The withdrawal of emergency support measures targeting firms and households should result in a tighter fiscal policy stance, while the ECB gives the impression of being headed for the exit from the accommodative monetary policy. Supply chain bottlenecks and the surge in energy prices are expected to sustain inflationary pressures in 2022 with inflation being projected to be higher. Strong labour demand and likely further improvement in the labour market is expected to drive the unemployment lower. However, there are still some risks to the outlook. Despite the weakened impact of the pandemic on economic activity, it still represents some degree of risk. Furthermore, supply bottlenecks could be more severe, prolonged, and widespread than expected, while the emergence of new sources of supply bottlenecks is also possible. Protracted staff shortages could drag on economic activity and exacerbate supply chain issues. Inflation could continue to surprise on the upside and turn out higher than expected. If inflation expectations become entrenched at higher levels, more broad- based price increases could not be excluded. Moreover, with costs pressures being passed-through to consumers, inflationary pressures could become even more widespread.The latter could undermine households‘ purchasing power and impact the main growth driver. Geopolitical tensions in Eastern Europe adds yet another layer to the overall pile of risks to the outlook. The war in Ukraine has several economic implications resulting in a renewed downside risks to global growth, with Europe being the most exposed in this regard. Elevated uncertainty, potential energy supply disruptions, more widespread commodity shortages and new supply chain disruptions will weigh on the economy. A surge in commodity prices, with oil and gas prices accelerating higher A macroeconomic snapshot for the NLB Group’s region In Slovenia , economic activity surpassed its pre-pandemic level in 2021 on the back of a revival in private consumption, investment, and strong international demand. The economy expanded rapidly in H1. Since then, import growth has outpaced export growth and external trade made a negative contribution to the economic growth. Nevertheless, this negative contribution was more than offset by continued growth in private consumption and investment, while the fiscal policy stance also played its part in supporting the economic activity. Similarly, to other the Euro area economies, the economy has not been immune to supply chain bottlenecks and inflationary pressures. Inflation accelerated in Q3, and continued with acceleration in Q4, with energy prices being the main driver. In Serbia , after experiencing a mild contraction in 2020, the economy exceeded the pre-pandemic output level and rebounded strongly in 2021 on the back of a strong increase in private consumption and investment, both more than offsetting the negative contribution of net exports and lower government consumption. Robust wage growth in the year propelled household spending, while a sharp rebound in oil prices and increase in food prices resulted in an acceleration of inflation over the course of the year. In North Macedonia , after contraction in Q1, a marked increase in private consumption propelled a buoyant Q2. Remittance inflow also played its part in boosting private consumption resumption by bolstering households’ disposable incomes. Strengthened foreign demand turned out beneficial for the external sector of the economy. Inflation increased over the course of the year with pressures arising mainly due to rising global energy and goods prices, as well as supply chain disruptions. In BiH , a recovery in external markets and the expansion of domestic private consumption propelled the growth in 2021. Private consumption was supported by credit growth, wages growth, and remittances. However, in H2 the rebound in private consumption lost some momentum, but high public and capital spending bolstered the domestic economy somewhat. Inflation increased throughout the year due to rekindled domestic demand and global trends in price pressures. In Kosovo , the economy recovered due to strong growth in domestic and external demand. Lifted restrictions on travel across Europe boosted tourism inflows. The rebound in the hospitality sector, while strong remittances inflow upheld private consumption. Surging exports of goods and services buoyed the economy when private and public consumption lost momentum in H2. Higher prices for food and energy have driven up price pressures over the course of the year. Table 6: Movement of key macroeconomic indicators in the Euro area and NLB Group region GDP (real grow th in %) Average inflation (in %) Unemployment rate (in %) 201920202021202220232019202020212022202320192020202120222023 Euro area1.6-6.55.33.62.71.20.32.65.32.27.68.07.77.27.2 Slovenia3.3-4.28.13.53.41.7-0.32.05.72.44.55.04.84.44.4 Serbia4.3-0.97.43.94.11.81.64.17.84.111.29.711.110.09.4 N. Macedonia3.9-6.14.03.43.70.81.23.26.12.517.316.415.715.114.7 BiH2.8-3.25.93.23.20.6-1.12.06.02.515.715.915.515.114.7 Kosovo4.8-5.310.43.94.22.70.23.36.32.625.725.924.023.022.2 Montenegro4.1-15.312.04.83.90.6-0.32.45.02.015.117.916.615.815.2 Source: Statistical offices, Focus Economics. Note: NLB Forecasts are highlighted in grey. ![]() 23 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report form of the pandemic uncertainties, sturdier and prolonged elevated inflation, and the long-term impact of supply-side bottlenecks. Economic implications of the war in Ukraine add yet another layerof uncertainty. In North Macedonia , the growth in 2022 should be mainly driven by private consumption, being the key part of the firming domestic demand. Coupled with strengthening foreign demand, it should lead to solidexpansion. Nevertheless, pandemic-related uncertainty, high energy prices, and prolonged disruption of supply chains represent the main downside risks to the outlook. Economic implications of the war in Ukraine represent an additional risk to the outlook. In BiH , economic growth should remain solid, being supported by higher capital and public spending. That said, the pandemic-related uncertainty, slower recovery in export markets, and political stalemate represent the downside risks to theoutlook. Higher inflation and economic implications of the war in Ukraine represent an additional risk to the outlook. In Kosovo , the economy should see robust, but cooled-down economic growth in 2022 due to the lower base effect. Firming capital expenditure growth and a tighter labour market are seen as supporting factors for activity with the additional beneficial effect of a healthier external backdrop. Pandemic- related uncertainty and lingering political uncertainty are downside risks to the outlook. Additional downside risk arises due to the overall economic implications of the war in Ukraine. In Montenegro , further growth in the tourism sector should propel the economy to recover the pre-pandemic level, but the In Montenegro , the economy rebounded strongly with the improvement of the epidemiological situation and the opening of borders which propelled a resumption of tourism. After a sluggish start, tourism picked-up strongly in the summer months. The rebound in the tourism sector boosted a surge of private consumption which was the main driver of the recovery. Inflation accelerated over the course of the year with higher commodity prices and firming demand driving price pressures. Macroeconomic outlook for NLBGroup’s region In Slovenia , economic activity is expected to continue growing, with domestic demand envisioned as being the main driver. Private consumption and investment, propelled by EU funds, should be key drivers of GDP growth. The labour market will drive the unemployment rate lower. After the 2021 pick-up in inflation, the acceleration of inflation is expected to continue in 2022 with high energy prices continuing to drive the headline inflation for most of the upcoming year. Buoyant imports growth should outpace exports, resulting in a negative contribution to the GDP growth of net exports. Pandemic-relateduncertainties, althoughwaning, continue to weigh on the outlook. Economic implications of the war in Ukraine represent an even greater risk to the outlook. In Serbia , growth is projected to return towards the pre- pandemic path. Growth should be mainly driven by private consumption and investment, as well as by more positive net exports contribution. However, downside risks are in the labour market is seen as requiring some more time to leave the memory of the crisis completely behind. Downside risk to the outlook relatesto thepandemic-related uncertainty and possible implications on the tourism sector, although its effect is fading. Downside risk arises due to the overall economic implications of the war in Ukraine. The economic growth in the Group’s region could be around 3.7% in 2022. The recovery is expected to lose some momentum as the external boost gradually fades and the base effects wanes. Nevertheless, growth should be mainly driven by firming private consumption and investment. The tighter labour market could propel household spending and wage growth. Further improvement in the tourism sector should be beneficial, especially for tourism-dependent countriesof the Group’s region. In themid-term, countries of the Group’s region should also benefit from the Economic and Investment Plan adopted by the EU, which aims to boost more sustainable, green, digital, and people-focused growth. However, supply disruptions, and rising commodity and energy prices, which are set to be additionally affected by the war in Ukraine, represent downside risks to the economic outlookof the Group’s region. Persistently higher inflation levels could undermine households’ purchasing power and by that private consumption. This would hinder the main growth driver thus impacting growth. Moreover, political tensions and uncertainty in some countries of the Group’s region cannot be disregarded due to its impact on economic confidence, while economic activity in tourism-dependent countries is particularly dependent on the path of the pandemic, in the Group’s region as well as abroad, despite pandemic’s waning effect on economic activity in general. Table 7: Movement of the balance of payment and fiscal indicators in the Euro area and NLB Group region Current account balance (% GDP) Fiscal balance (% GDP) Public debt (% GDP) 201920202021202220232019202020212022202320192020202120222023 Euro area2.31.92.72.52.6-0.6-7.2-6.8-4.0-2.783.697.399.097.596.5 Slovenia6.07.44.84.94.70.4-7.7-6.5-4.5-3.265.679.878.777.376.0 Serbia-6.9-4.1-4.4-4.3-4.4-0.2-8.0-4.1-2.9-1.751.957.055.655.553.4 N. Macedonia-3.3-3.4-3.5-2.8-2.7-2.0-8.2-5.4-4.6-3.940.751.253.855.456.3 BiH-2.7-3.6-2.8-2.9-2.91.9-5.3-2.7-1.9-1.432.536.737.337.236.9 Kosovo-5.7-7.0-6.8-6.8-6.3-2.6-7.1-3.6-2.2-2.117.622.423.825.526.3 Montenegro-14.3-26.0-16.4-14.4-13.5-2.9-10.2-4.7-3.7-2.976.5105.192.385.781.5 Source: Statistical offices, Focus Economics. Note: Consensus Forecasts are highlighted in grey. ![]() 24 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report after recording negative growth in 2020. In Serbia, growth in corporate loans slightly moderated, but remained firm, while in Kosovo further improvement in corporate loans growth was recorded. Montenegro and North Macedonia recorded robust corporate loans growth, representing a remarkable improvement in comparison to the last year. Considering household loans, the dynamics were similar to the corporate loans. BiH and Slovenia recorded a significant rebound in household loans. Montenegro also recorded an improvement, while Serbia and North Macedonia retained robust growth The banking system in theGroup’s region The economic rebound in 2021 also had a positive impact on the banking system in the Group’s region. Lending activity recorded a notable revival in both, corporate and household loans. The majority of countries of the Group’s region recorded a notable improvement in corporate loans growth, with Slovenia and BiH bouncing into the positive territory Table 8: Movement of key banking systems indicators in the NLB Group region, 2021 Corporate loansHousehold loansCorporate depositsHousehold depositsNet interest marginNPLCAR in EUR million ∆ % YoY in EUR million ∆ % YoY in EUR million ∆ % YoY in EUR million ∆ % YoY 2020, in %2021, in %in % ∆ pp YoY in % ∆pp YoY Slovenia9,3026.311,2635.18,99812.023,9536.81.81.41.6-1.018.2-0.1 Serbia16,1668.810,60611.110,84513.016,91913.63.02.73.5-0.221.7-0.7 N. Macedonia3,0038.73,2567.82,23711.64,9667.13.33.2 (i) 3.6 (i) 0.217.3 (i) 0.4 BiH4,4862.25,3365.52,83017.67,5136.82.42.4 (i) 5.5 (i) -1.119.2 (i) 0.9 Kosovo2,33513.71,39918.61,12919.73,23713.84.54.52.3-0.415.2-1.2 Montenegro1,2777.31,4563.21,61626.62,19325.33.74.06.20.718.50.0 Source: Statistical offices, CBs, NLB. Note: Net interest margin calculated on interest-bearing assets; (i) Q3 2021 data. Figure 2: LTD ratio in the Euro area and NLB Group region 20212020 Montenegro Kosovo BiH N. Macedonia Serbia Slovenia Euro area 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: ECB, National CBs, NLB. rates from the previous year. Kosovo recorded a marked improvement in the household loans growth. However, despite a notable improvement in the credit activity, a strong inflow of deposits continued in 2021. Despite remaining robust, corporate and household deposits growth moderated to some extent in Slovenia and partially in Serbia. In Montenegro, growth in corporate and household deposits surged after last year’s outflow of deposits. In Kosovo, already high growth in household and corporate deposits increased further, while North Macedonia and BiH recorded a somewhat less significant increase in the growth rate of corporate and household deposits. The net interest margin of the Group’s region banking systems exhibit some differences. In general, net interest income was driven by the increase in growth of lending contributing to positive quantity effects on the movement of net interest, and by the negative impact of price effects. The net interest margin of the banking systems in the Group’s region is largely a reflection of the two factors. The capital adequacy of the banking systems remains solid, well-capitalised, and the general improvement of the NPL ratio suggest some improvement in the quality of banks’ portfolios. The LTD ratio decreased in some of the Group’s region banking systems since the inflow of deposits remained strong. In general, the growth in deposits outpaced the growth in ![]() 25 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 4: Loans to non-financial corporations and household loans in the Euro area and NLB Group region in 2021 Household loans, % GDPLoans to non-financial corporations, % GDP Montenegro Kosovo BiH N. Macedonia Serbia Slovenia Euro area 0% 10% 20% 30% 40% 50% 60% Source: National CBs, National Statistical Offices. Note: Q3 2021 annualised data for BiH and Kosovo. loans, hence offsetting the effect of the revival in the credit activity. The profitability of the banking systems of the Group’s region improved, with ROE increasing in all countries of the Group’s region. Profitability improvement was to the great extent driven by the net release of impairments and provisions. Loans potential outlook for the Group’s region Loans to non-financial corporations and household loans as a percentage of GDP levels of the Group’s region suggest that the whole Group has the potential for further growth when compared to the levels of the same categories in the Euro area. The continued solid economic growth in the Group’s region bodes well for loans’ potential. The growth in the Group’s region should be predominantly driven by private consumption and fixed investments, both important components of loans’ potential, and both expected to exhibit robust growth in 2022. Private consumption, as the most important component of GDP, is expected to range from around 3.0% in BiH to 5.9% in Montenegro. Fixed investment is expected to be somewhere between 3.4% in Montenegro and 8.6% in North Macedonia, with the growth rate in the Group's region in the upper half of that range. In general, stabilising private consumption and fixed investment should have a positive impact on lending activity in the Group’s region. Figure 3: ROE ratio in the Euro area and NLB Group region 20212020 Montenegro Kosovo BiH N. Macedonia Serbia Slovenia Euro area 0% 3% 6% 9% 12% 15% 18% Source: ECB, National CBs. Note: Return on average equity (ROAE) used for BiH; Q3 2021 data for BiH, N. Macedonia and Euro area. ![]() 26 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The regulatory environment in Slovenia The Bank is subject to capital adequacy and liquidity rules imposed by the EU (CRR/CRD), which govern the activities in which banks may engage in, and are designed to maintain the safety and soundness of banks, as well as limit their exposure to risk. The CRD V was further transposed into the new Banking Act (ZBan-3), which also regulates the participation of employees in the management of the Bank, something the Bank already encourages. As a financial institution offering benchmark-based products, the Bank meets its obligations under the Regulation 2016/1011 (BMR) and regularly monitors developments in this area by adapting its operations to the requirements of regulators and industry. Due to the constant care for the interests of its customers, especially the protection of their data, the legislation in the field of personal data protection is also important for the Bank. The Bank strictly adheres to its obligations imposed on it by GDPR in both Slovenia and the Group. As the Slovenian law, which would further supplement the regulation, was not adopted either in 2021, further obligations for the Bank may arise when the law will be adopted. In the field of financial markets there were no significant changes in regulatory environment in 2021. Limited implications of latest upgrades of the Shareholders’ Rights Directive (SRD II) that was transposed into the amended Companies Act, have been duly implemented in the Bank’s processes. The Bank complies with the provisions of MIFIR/ MIFID II and EMIR regarding financial markets transactions, enhanced investor protection, transparency, and reporting obligations. The Group also takes into account and complies with the regulations in the field of preventing money laundering and During 2021, more than 100 changes in the EU and Slovenian regulatory environments were adopted with material effects on the Bank and the Group. The Group strives to be fully compliant with the existing and new requirements. Disclosure of the most relevant changes of legislation and regulation which have an effect on the Group is presented herein. terrorist financing. At the end of 2021, an amendment to the Prevention of Money Laundering and Terrorist Financing Act was proposed that will further remove certain inconsistencies and ambiguities, relax certain requirements, and introduce additional tools or options for the implementation of measures by obliged persons. Compliance with the Payments Act (PSD2) and regulatory technical standards, which brought open banking into the financial environment, required major changes to the Bank’s information systems. The Bank is constantly monitoring new regulatory requirements imposed by the regulator, is adapting to them, and taking into account the best user experience. Due to the COVID-19 epidemic in 2021, the RoS adopted several intervention laws and measures which mainly affected the Bank in the area of credit moratoriums and daily operations. An ongoing activity from 2019 included the amendment of policies and contracts due to EBA Guidelines on outsourcing arrangements, that provide a clear definition of outsourcing and specify the criteria to assess whether or not an outsourced activity, service, process, or function (or part of it) is critical or important. In the EU’s policy context under the European Green Deal, ‘sustainable finance’ is understood as finance to support economic growth while reducing pressures on the environment, and taking into account social and governance aspects. The Bank is approaching the development of a comprehensive policy on sustainable finance, comprising the action plan on financing transition to low-carbon economy. Regarding the upcoming legislation in the corporate governance area, an amendment to the Companies Act (ZGD-1) is in the process of adoption which will have an impact on the Bank mainly in the area of relations with shareholders and the exercise of shareholders’ rights, as well as information on corporate actions (following SRD2). Regulatory Environment ![]() 27 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report In the Republic of Srpska , a new Decision on the Bank’s management system was published by the Banking Agency of the Republic of Srpska, which has replaced five previous by- laws and therefore required thorough changes of the Bank’s internal acts. Also, the Law on the Protection from harassment at work was published in October 2021. Next to these, the local regulator published several by-laws related to liquidity, reporting, credit risk management, etc. In Kosovo , the local CB adopted the Instructions for using the form on the origin of funds and determining the holder of the property right and the Guideline on loan restructuring due to COVID-19. The government of the Republic of Kosovo, and the Ministry of Finance Labour and Transfers adopted the product ‘Diaspora Bonds’; the Deposit Insurance Fund of Kosovo (DIFK) adopted the Rules on reporting, calculation, and collection of premiums, testing the depositor compensation system, and on administrative sanctions for members of the DIFK. The Assembly of the Republic of Kosovo adopted the Law onElectronic identification and trust services in electronic transactions. In Montenegro , the main activities in 2021 were dedicated to the implementation of Law on Credit Institutions, Bank Recovery and Resolution Law, together with a number of by-laws for both legal acts. Also important is that some of the by-laws have been changed before the start of its application. No less important were the activities on implementation of by-laws for Deposit Protection Act, as well as the Central Bank of Montenegro Decision on the Central Register of Transaction Accounts. Regulatory environment in the Group’s region The regulatory environment in the rest of the region where the Group operates was dominated by legislative and regulatory changes related to the COVID-19 pandemic and minimising its consequences in the financial sector and economies. There were also local regulatory (prudential and macroeconomic) measures adopted to ensure stable functioning of the financial systems. Serbia continued harmonizing the business environment with theEU framework through the adoption/amendments of the new Law on Capital Market, the Law on Electronic Invoicing, and the Law on Companies (all these to be enforced successively). The National Bank of Serbia put more scrutiny on the clients’ complaints and the process of refinancing loans in the banks. Regulatory activities on COVID-19 continued with the aim of mitigating the consequences of the pandemic both for the economy and citizens. In North Macedonia , COVID-19 pandemic-related laws focused mostly on social support for vulnerable social groups, and financial help for the affected companies. The AML law was amended to transpose the EU legislation in the relevant area so that Banks could use electronic identification in its day-to-day activities. The National Bank of the Republic of North Macedonia adopted the decisions, mostly in order to harmonize with EU legislation and standards in the area of required reserves, the methodology for identifying systemically significant banks, and submitting and publishing data on the performed activities in the payment operations. In the Federation of BiH the most important decision of the regulator in 2021 was the Decision on Internal Governance System in the Bank, which represents an alignment of local regulations with EBA Guidelines on Internal Governance. Anew ‘Law on Accounting and Auditing in the Federation of BiH’ must also be emphasized as it brings new accounting frame in Federation of BiH. In the area of legal entity legislation, there are new regulations related to the possibility of using digitally signed documents in the registration of a legal entity, but in this very moment technical and legal support on the level of the state is not yet provided. ![]() 28 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report BUSINESS REPORT ![]() 29 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Despite the challenging and uncertain economic environment, the Group has continued to duly execute its medium-term strategy. This includes focus on protecting and strengthening its market position in its home region, and actively participating in the growth and consolidation of the market. Digitalization, client centricity, and cost efficiency remain some of key strategic orientations to ensure delivery of the Group’s vision. Strategy Finishing integration of Komercijalna banka, Beograd Promoting the ESG agenda Creating new business expansion opportunities Digitizing distribution channels Supporting clients' expansion Adding new financial products Building strong customer support Monitoring and increasing stakeholder value Becoming a great place to work Continuing strategic transformationinitiatives Establishing diversified horizontal businesses Become a regional champion The Group aims to further strengthen its role as a systemically important financial institution in the SEE region, and strives to become a market leader in all of its core markets and to have a prominent role in the region’s development. With the completion of the acquisition of Komercijalna Banka, Beograd in 2020, the Group made an important step in this direction. The Group believes there is significant potential from the deal for the whole region given the complementary product offerings of Komercijalna Banka, Beograd that enable the Group to extend a number of products and services in the Serbian market and increase its cross-border activity. In addition, cost- and capability-related business synergies will be derived from its integration within the Group and which will be finished in 2022. It is estimated that the combined synergy effects could result in over EUR 20 million annually from 2023 onwards. Further business synergies are expected from the integration of Sberbank banka d.d. in the Group. Putting clientsfirst In retail banking, the Group continues to strive to become closer to its clients by offering anchor products and the most accessible and personalised digital services (e.g., omnichannel, marketplace) that suit their lifestyles. In corporate banking, the Bank is looking to provide more complex, cross-border products and services, and to find new entry points in order to suit all its clients’ financial needs. One of the key efforts is improved availability for all clients. The Group has made itself available anywhere and anytime by building a strong customer call centre and upgrading its portfolio of digital sales channels. These now offer a growing set of banking products and services, both for retail and corporate clients. Putting clients first Grow our market position Become a regional champion Monetize opportunities and synergies ![]() 30 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Group regularly engages with all of its stakeholders in defining what is material to both them and the Group. Avariety of communication channels are used for an open and transparent dialogue on sustainability related issues. Some of the most important channels for communications with the stakeholders (in addition tothe regular publicly available periodic reports, presentations, and webcasts on the Group performance) are the NLB Group Sustainability Report, the CSR and Sustainability e-mail box, the corporate website, and social media channels. The Group’s employees represent its key resource: human capital and are one of its main drivers for creating value. Through the focus on recruitment, management, and the continual development of employees, they are given the opportunity to thrive by making the most of their talent and experiences and adapt to a fast-changing world. They are encouraged to act in a responsive, respectful, and result- driven manner within and outside their work efforts. The ambition is to truly involve the whole organisation in realising the Group’ssustainability ambitions. Monetize opportunities andsynergies Significant strategic business efforts are undertaken to achieve business synergies across the Group, both in costs and operational efficiency. The Group believes these can help offset significant negative economic effects of the COVID-19 pandemic on the Group’s future business results. The Group is fully engaged in re-establishing some of the key financial services (leasing, factoring, etc.), thus diversifying its services on a horizontal level. The Bank is simultaneously monitoring additional M&A opportunities (within consolidation processes in banking sectors in the SEE) that could add value to the Bank’s shareholders. It makes sense to actively participate in the expected growth and consolidation of the market. Continuing transformation To facilitate the aforementioned strategic focus and support continuoustransformationin an everchanging environment, the Group is following an elaborated, comprehensive, and detailed program plan to deliver its mission and financial targets. The Group has identified a series of projects and initiatives, and has also dedicated considerable investment Digitalization The Group continues to implement comprehensive and substantial strategic efforts toward digital distribution and operating models that have been accelerated by the COVID-19 pandemic. The new circumstances related to the pandemic and the economic uncertainty continue to affect the growth and acceptance of digital channels by our customers. The Group was prepared for such a market trend, since it was already the leading provider and innovator in its core markets before the outbreak. At the same time, the Group is striving to simplify and automate processes in order to minimise their time and costs. The focus on digitalization is to enable quicker and better customer service, a higher level of internal processes efficiency, and consequently additional cost savings. The Group will continue to invest substantially in IT infrastructure and its capabilities. The focus will be on improving the speed IT can deliver results by adopting agile methodology principles, the provision and implementation of the best online experience for customers in the SEE, and enhancing capabilities for processing data, modelling, and the relevance of services to clients. One such example is the already established technological hub in Belgrade that develops solutions for the wholeGroup. Due to the positive effects of working remotely during the pandemic, the Group has developed a hybrid working model (combination of work-from-home and work from the office) initiative, thus offering more flexibility to its workforce and achieving cost benefits at the same time. Grow our market position The Group is working to protect and strengthen its market position as a systemic player in its home region. In order to do this, the Group is monitoring how well it is adding value to three types of its main stakeholders: shareholders, customers, and employees. With respect to shareholders, the Group views its decisions through a lens of maximising its return on equity. With respect to customers, a net promoter score (NPS) is monitored and tracked. With respect to employees, an employee engagement metric is measured and analysed. In addition to the mentioned key performance indicators, other supporting indicators and benchmarks are tracked in order to continually revaluate current projects and utilise those insights for future decisions. funds for their implementation. With the projects, all major running change efforts are channelled into one overall strategictransformation program. The backbone of the strategy is strengthening customer- centricity by establishing customer-based market management, improving the understanding of clients, reimagining digital client journeys, and accelerating innovation to provide lifestyle and value chain services to strengthen relationships. The transformation program also focuses efforts into increased operational efficiency, cost management, and the improved utilisation of the Group’s capital. Simultaneously,overall operational capabilities are being enhanced by improving human capital, optimising IT infrastructure, digitalizing internal processes, and leveraging information capital. To drive the transformation, a new change management platform was set up. Brexit’s impact on the Group’s performance Due to the limited focus of the Group’s operations beyond the SEE region, Brexit did not have any significant impact on the Group’s business performance. ![]() 31 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Special attention is paid to continuous provision of services to clients, their monitoring, health protection measures, and the prevention of cyber attacks and potential fraud events. The Group has established internal controls and other measures to facilitate their adequate management. However, these measures may not always fully prevent potential adverse effects. The Group is subject to a wide variety of regulations and laws relating to banking, insurance and financial services. Respectively, it faces the risk of significant interventions by a number of regulatory and enforcement authorities in each of the jurisdictions in which it operates. The SEE region is the Group's most significant geographic area of operations outside of the RoS and the economic conditions in this region are therefore important to the Group's results of operations and financial condition. As a result of any instability or economic deterioration in this region, the Group's financial condition could be adversely affected. In this regard, the Group closely follows the macroeconomic indicators relevantto its operations: •GDP trends and forecasts • Economic sentiment • Unemployment rate • Consumer confidence • Construction sentiment •Deposit stability and growth of loans in the banking sector • Credit spreads and related future forecasts •Interest rate development and related future forecasts •FX rates •Other relevant market indicators During 2021, the Group reviewed IFRS 9 provisioning by testing a set of relevant macroeconomic scenarios toadequately reflect the current circumstances and the related impacts in the future. The Group established and developed multiple scenarios (i.e. baseline, mild and severe) on the level of ECL calculation: •The baseline scenario presents a common forecast macroeconomic view for all countries that are present in the Group. This scenario is constructed with the purpose to culminate various outlooks into a unified projection of macroeconomic and financial variables for the Group. This is in line with the concept that the Bank has a consolidated view on the future of economic development in SEE. The Risk factors Risk factors affecting the business outlook are(among others): •The economies’ sensitivity to a potential slowdown in the Euro area or globally • Widening credit spreads • Potential liquidity outflows • Worsened interest rateoutlook • Potential cyber-attacks •Regulatory, other legislative and tax measures impacting the banks • Geopolitical uncertainties The economic momentum in the region where the Group operates was affected by the COVID-19 pandemic. In 2021, the Group’s region returned to growth on the back of revival in private and investment consumption. However, it is not possible to assume with a high degree of confidence that such economic momentum will continue. Lending growth in the corporate segment remained relatively moderate, especially in the current circumstances. On the other hand, the Group benefited from increased demand for mortgage loan financing, especially in Slovenia, as well as in banking subsidiaries. During 2021 impacts of the COVID-19 pandemic did not have a meaningful impact on the credit portfolio quality. The Group faced a favourable NPLmovement resulting in lower percentage of NPLs and positive effects from on- and off-balance sheet collection. Credit risk is usually materially increased in times of economic slowdown. Notwithstanding the established procedures in the Group's credit risk management, there can be no assurance that they will be sufficient to ensure that the Group's quality of credit portfolio or the corresponding impairments will remain at the adequate level in the future. The investment strategy of the Group, referring to the Group’s bond portfolio kept for liquidity purposes, adapts to the expected market trends in accordance with the set risk appetite. While the Group monitors its liquidity position and corresponding trends, impacts of credit spread and interest rate fluctuations on its positions, any significant and unanticipated movements on the markets or variety of factors, such as competitive pressures, customer’s confidence or other certain factors outside the Group's control, could adversely affect the Group's operations and financial condition. IFRS 9 baseline scenario is based on the NLB monthly Economic Outlook that was created in April 2021. •The macroeconomic rationale behind the alternative scenarios is related to a range of plausible impacts of the COVID-19 pandemic on economic development during the next 3 years. The basis for the alternative scenarios is related to the ECB's view of economic development after the coronavirus outbreak since early 2020. Based on the ECB illustration of a mild and severe scenario resolution of the pandemic crisis through the lens of possible expected impact on economic activity in the Euro area, the Group developed both alternative scenarios. In general, the mild scenario envisions a resolution of the health crisis by the end of 2021 and a long-term reviving process of the economy, while a severe scenario assumes a more protracted crisis and permanent losses in economic potential. These scenarios were included in the calculation of ECL in accordance with IFRS 9 as of 30 June 2021. Apart from this the Group had kept track of the latest economic developments and changing official projections. •The latest set of IFRS 9 scenarios for macroeconomic variables is applied in the modelling process for the probability of default (PD) and loss given default (LGD) estimates. Nevertheless, the focus in macroeconomic scenarios is on the trajectory of real GDP and the unemployment rate over the projection horizon from 2021 to 2023. Both variables are included in the modelling process of PD and LGD,respectively. The Group established a comprehensive internal stress-testing framework and early warning systems in various risk areas with built-in risk factors relevant to the Group’s business model. The stress-testing framework is integrated into Risk Appetite, ICAAP, ILAAP, and Recovery Plan to determine how severe and unexpected changes in the business and macro environment might affect the Group’s capital adequacy or liquidity position. Both the stress-testing framework and recovery plan indicators support proactive management of the Group’s overall risk profile in these circumstances, including capital and liquidity positions from a forward-looking perspective. Risk Management actions that might be used by the Group are determined by various internal policies and applied when necessary. Moreover, the selection and application Risk Factors and Outlook ![]() 32 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report of mitigation measures follows a three-layer approach, considering the feasibility analysis of the measure, its impact on the Group’s business model, and the strength of available measure. Outlook The indicatedoutlook constitutes forward-looking statements which are subject to a number of risk factors and are not a guarantee of future financial performance. The Group is pursuing a range of strategic activities to enhance its business performance. Interest rate outlook is uncertain given the adaptive monetary policy of the ECB to the general economic sentiment. The Bank is committed to delivering sound financial performance. The measures and potentials outlined in the above strategy are reflected in the Group’s outlook for the 2022 to 2023 period (Table 9). Potential effects of acquisition of Sberbank banka d.d. are not included in the outlook. Outlook 2022 Macroeconomic The global economy is expected to continue with the recovery in 2022. The impact of pandemic on economic activity has considerably waned over time, and it should further wane over the coming years. In the Euro area, output recovery is expected to continue in 2022. GDPgrowth is expected to moderate to 3.6% in 2022, with the re-opening effects set to fade out. Growth in the Euro area will be primarily driven by strong private consumption and business investment, which is expected to recover substantially, additionally supported by the Next Generation EU funds. The withdrawal of emergency support measures targeting firms and households should result in a tighter fiscal policy stance, while the ECB gives the impression of being headed for the exit from the accommodative monetary policy. Supply chain bottlenecks and the surge in energy prices are expected to sustain inflationary pressures in 2022 with inflation being projected to be higher. However, there are still some risks to the outlook. Despite the weakened impact of the pandemic on economic activity, it still represents some degree of risk. Furthermore, supply bottlenecks could be more severe, prolonged, and widespread than expected, while the emergence of new sources of supply bottlenecks is also possible. Protracted staff shortages could drag on economic activity and exacerbate supply chain issues. Inflation could continue to surprise on the upside and even more broad- based price increases could not be excluded.The latter could undermine households‘ purchasing power. Geopolitical tensions in Eastern Europe adds yet another layer to the overall pile of risks to the outlook. The war in Ukraine has several economic implications resulting in a renewed downside risks to global growth, with Europe being the most exposed in this regard. Elevated uncertainty, potential energy supply disruptions, more widespread commodity shortages and new supply chain disruptions will weigh on the economy. A surge in commodity prices, with oil and gas prices accelerating higher in particular, will push up inflation in the coming months. In fact, inflation could rise even further and remain elevated for longer due to commodity price surge and additionally due to second round effects, in terms of the impact on the underlying inflation, wage growth and higher inflation expectations. This erodes household purchasing power and together with a squeeze on company profits, and deteriorated business and consumer confidence will weigh on economic growth. Consequently, with elevated downside risks to growth and upside risks to inflation, the risks of stagflation have increased. Regarding the Group’s region, the economic growth could be at around 3.7% in 2022. The recovery is expected to lose some momentum. Nevertheless, growth should be mainly driven by firming private consumption and investment. Tighter labour market could propel household spending and wage growth while further improvement in the tourism sector should be beneficial especially for tourism-dependent countries.That said, supply disruptions, and rising commodity and energy prices, which are set to be be additionally affected by economic implications of the war in Ukraine, represents downside risks to the economic outlook of the Group’s region because persistently higher inflation levels could undermine households’ purchasing power. Moreover, political tensions and uncertainty in some countries of the Group’s region cannot be disregarded due to its impact on economic confidence while economic activity in tourism- dependent countries is particularly dependent on the path of the pandemic, despite its waning effect on economic activity. Revenues and loan growth On the back of continuing economic rebound with strong private consumption and business investment, the Group expects high single digit loan growth in 2022. Retail Banking in Slovenia is expected so see continuation of strong loan growth also in 2022, with a healthy demand for mortgage loans. Corporate and Investment Banking in Slovenia is also expected to grow on the back of cross-border lending and revival in investment spending. Strategic Foreign Markets will maintain robust performance with loan growth expected to reach double digit growth. Therefore, interest income growth is expected to be primarily driven by loan book growth, and productive use of liquid assets. Post COVID-19 opening of the economies and introduction of high balance fees stimulated demand for fee generating products and income. All of the above should result in total regular revenues of around EUR 670 million in2022. Table 9: Outlook for the period 2022-2023 2022 (ii) 2023 Regular income~ EUR 670 million> EUR 700 million CostsCosts at 2021 level~ EUR 400 million Cost of risk20-30 bps30-50 bps Loan growthHigh single digit loan growthHigh single-digit loan growth DividendEUR 100 millionEUR 110 million ROE a.t.~ 10%, (ROE normalized (i) : 12%)> 10% (ROE normalized (i) : > 12%) (i) ROE normalized = Result a.t. w/o minority shareholder profit divided by consumed capital. Consumed capital computed as 13.06% of average RWA reduced for minority shareholder capital contribution. (ii) If legal remedies against the adopted law in February 2022 concerning loan agreements in Swiss francs concluded by banks operating in Slovenia (including NLB) and individuals are unsuccessful, the Bank estimated a negative pre-tax effect on the operations of NLB and NLB Group should not exceed EUR 70 - 75 million.This would have alimited (up to 55 bps) negative impact on the capital position. ![]() 33 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Costs and cost of risk The Group will continue to pursue a strong cost containment agenda addressing both labour and non-labour cost elements. Total costs continue to be impacted by a business environment witha visiblelabourcost inflationthroughout the region. Additionally, the Group continues with its investment activities into information technology upgrades, amid the growing relevance of digital banking. Importantly, integration costs associated with the acquired Komercijalna Banka, Beograd will contribute to total costs in 2022. Based on this, costs including integration expenses are expected to remain at 2021 level. The realised cost of risk in 2021 at -41 bps outperformed previous outlook guidance for 2021 (around -20 bps) due to very strong development in NPL resolution. It is expected that resolutions will continue to positively impact cost of risk in 2022, but with a diminished importance. Based on assessed environment the expected cost of risk will be in the range of 20 bps to 30 bps, and somewhat lower than expected in the 2023 (30-50 bps). Loan portfolio quality The Group anticipates lending growth in all key segments. Special focus will be given to the retail segment where the Group experienced strong growth in the previous year. The Group is very prudent in identifying any increase in credit risk, as well as proactive in the area of NPL management. On this basis well diversified and stable quality of credit portfolio is expected during the year 2022. Potential moderation of current positive economic trends due to COVID-19 uncertainties might have a negative impact on the existing loan portfolio quality, but its impact should not be excessive. Liquidity From liquidity perspective, deposits at the Group level are still increasing (in the Bank and in banking members), although growth of retail deposits has moderated in H2 2021. The liquidity position of the Group is expected to remain solid evenif a highly unfavourable liquidity scenario materialises, as the Group holds sufficient liquidity reserves in the form of placements at the ECB, prime debt securities, and money market placements. Significant attention is given to the structure and concentration of liquidity reserves, by incorporating early warning systems, keeping in mind the potential adverse negative market movements by further shortening of the portfolio duration and classification of new investments with longer duration as hold to collect in order to decrease sensitivity to regulatory capital. High levels of deposit inflows are putting an additional strain on profitability. In June 2021 the Bank participated in the ECB TLTRO operation and has drawn a credit tranche of EUR 750 million. The Bank is considering early repayment in June 2022. If materialized, this will not have a material impact on the Group’s liquidity position. Capital The capital position represents a strong base to cover all regulatory capital requirements, including capital buffers and other currently known requirements, as well as the Pillar 2 Guidance. If legal remedies against the adopted law in February 2022 concerning loan agreements in Swiss francs concluded by banks operating in Slovenia (including NLB) and individuals are unsuccessful, the Bank estimated a negative pre-tax effect on the operations of NLB and NLB Group should not exceed EUR 70 - 75 million. This would have a limited (up to 55 bps) negative impact on the capital position, leaving the Bank’scapital position comfortably aboveall current requirements. The Bank is exploring opportunities for MREL funding, issuance of Tier 2, and potential issuance of Additional Tier 1 instrument(s) to further strengthen and optimize its capital on solo and consolidated level. Based on transitional increase of MREL requirement, the Bank in 2022 intends to strengthen MREL eligible liabilities in the amount of around EUR 400 million. Also, in 2022 the Group continues with activities to optimise RWAs. M&A opportunities The Group might explore further value accretive M&A opportunities in its domestic and other regional markets where the Group is not yet present with the aim to increase shareholders’ value. Dividends The Bank’s general intention is to distribute dividends on yearly basis in line with its capacity, while at the same time fulfilling all regulatory requirements, including the Pillar 2 Guidance and risk appetite. 2021 YE capital calculation does not include part of the 2021 result in the amount of EUR 100 million. Therefore, there will be no effect on the capital in case the dividends are paid. The dividend payment in the year 2022 might be split in two instalments. The Bank envisages cumulative dividend payout of EUR 210 million in the period 2022-2023. COVID-19 Despite the COVID-19 related circumstances the Group ensured continuity of service provision to its clients by adjusting the Group’s offer, increased use of digital channels, and enhancing customer experience. The Group is aiming to further support its clients, by constant development including creating flexible local digital ecosystem of offering products and services. Sustainability The Group has committed to sustainability, and has been enhancing the management of environmental and social risks of its operations, among others to meet EBRD and MIGA standards. It also substantially increased the use of digital channels, improved customer experience, and aims to create a flexible local digital ecosystem for offering products and services. In 2022, the Group intends to make sustainability more tangible throughout the Group. The resourcesare shifting towards a low-carbon economy and engaging with customers is key in financing the transition. An important step forward will be done by expanding the product portfolio with loans dedicated to supporting energy efficiency and renewable energy production and introducing digital only card. The Group supports global decarbonization goals and aims to expand the Group’s measurements of emissions to Scope 3. Implementation of climate related and environmental risk management follows ECB and EBA guidelines. Moreover, participation in ECB climate-risk stress test exercise will provide additional important insights, which will surely have an effect on further adaptation of the existing Group’s business model. Effective integration of sustainability-related regulatory requirements will be important in 2022 for ESG disclosures and reporting (e.g. EU Taxonomy, BASEL Pillar III). The Group plans to make required steps in order to obtain our first ESG rating. However, all of the above mentioned cannot be achieved without highly motivated and adequately skilled teams, hence relevant trainings will be an important part of the working agenda. ![]() 34 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Impact oncredit portfolio quality COVID-19 did not have a meaningful impact on the quality of the credit portfolio. The support schemes introduced by the governments in theGroup countries providingmoratoriums to eligible clients as part of the COVID-19 pandemic measures phased out during 2021. As at 31 December 2021, the exposures where COVID-19 moratoria were granted amounted to EUR 1,681.5 million and represented 10.8% of the Group’s credit portfolio. The exposure with the remaining COVID-19 moratoria was negligible and amounted to EUR 24.8 million, while 98.5% of those moratoria already expired by 2021 YE. A total of 86.4% of exposure with the expired moratoria have no delays, while 2.1% had delays exceeding 90 days. The Bank is very prudent in identifying any increase in credit risk. Measures The Group continued to take necessary measures to protect its customers and employees by ensuring safety conditions and making sure services offered by the Group were provided without disruption. The vast majority of the products and services offered by the Group banks are available to clients in digital form without the need to visit a branch – and 24/7 client support by enhancing the availability of digital channels was ensured. The ‘Work from Home’ initiative In parallel, the plans to introduce a ‘work from home’ initiative which pre-dates the COVID-19 pandemic was somehow accelerated by the overall circumstances in the last two years, and was well received by the employees. In this respect, the pandemic provided a further push in the direction of digitalisation of the Group’s business model. Resilience of strategic initiatives The resilience of the Group’s strategic initiatives was well demonstrated throughout the outbreak of the COVID-19 pandemic. The new ways of working enabled the avoidance Following a very demanding year due to the worldwide impact of the COVID-19 outbreak having unprecedented effects around the globe, the year 2021 was in general a return to new normal and growth. Nevertheless, the disease is still present and will continue to affect the economies to various degrees despite increased medical capabilities and an improved toolbox against the struggle with the pandemic. Though the COVID-19 pandemic, coupled with its implications on all aspects of life and in particular on the business environment, was still the region’s and world’s buzzword, the Group managed to stay well capitalised, very liquid, and as the business results show, also highly profitable. of any significant delays in the envisaged execution timelines, which should positively impact the Group’s future financial and operational performance. Impact onsustainability The COVID-19 pandemic has had a substantial influence on three of the most significant aspects of sustainability: the society, economy, and environment. Its heavy economic burden on societies is likely to leave persistent social scars, such as greater inequality and poverty, as well as challenges regarding affordability and access to basic needs. By understanding that the pandemic has had direct effect on the economy, we have decided to further support vulnerable groups and exempt humanitarian organisations from paying commissions. 5 Although COVID-19 restrictions of movement and changes of commuting patterns have altered in the past two years, with the economy recovery in 2021 global emissions are rising back to the pre-COVID level, which makes the fight against climate change even more urgent. 6 This also resulted in important and decisive steps in development of the sustainability regulatory framework. In this regard, the Group strengthened the role of sustainability within the Group and amplified its activities: enhanced environmental and climate risk management, performed impact and materiality analysis, began measuring carbon footprint of own operations, and strengthened corporate governance by establishing NLB Group Sustainability Committee. For more information, please refer to the NLB Group Sustainability Report 2021 . The year 2021 has proved that the Group adapted to ‘new normal’ with distinction. Digitalization, inclusion, and environmental protection have been some of the most important drivers for us.We have used them to continue developing progressive and digitalized services, and products that support energy efficiency and thus a transition to a low- carbon society. 7 5For more information, please refer to chapter Sustainability and subchapter Corporate Social Responsibility . 6IEA, 2021: https://www . iea . org/reports/global-energy-review- 2021 /co2- emissions. 7For more information, please refer to chapter Corporate and Investment Banking in Slovenia . Impact of COVID-19 on Operations ![]() 35 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Implementation of sustainability intothe Group business model With less than a decade left to the 2030 deadline for achieving globally set commitments towards ESG, several key pieces of the EU sustainable finance legislation entered into force, and the EU Fit for 55 (EUplan to reducegreenhouse gas emissionsby 55% by 2030) unleashed wide-reaching industrial changes that need to be implemented. The Group has shaped a number of important developments, with results such as: Sustainability Framework The NLB Group Sustainability Framework was published as a strategic document that highlights the ambitions and commitments to the integration of sustainability in the Group’s business model. Besides providing an alignment of the Group’s sustainability approach with the UN’s Sustainable Development Goals (UN SDG) , it offers stakeholders a list of sustainable economic activities promoted by the Group and therefore sets out the basis for classifying financing as sustainable. Moreover, the document addresses in detail ESG risk management, the principles of responsible banking and business ethics, and the Group’s corporate sustainability governance structure. Alignment of the Group’s sustainability approach with the UN SDG: SDG 3: Ensure healthy lives and promote well-being for all at all ages Sustainability, with a focus on climate issues and covering other aspects of the environment as well as broader ESG aspects, is an opportunity for the Group to meet societal expectations, adapt to a changing environment, and mitigate certain risks. This has been demonstrated already in the widespread actions taken by the Group. SDG 7: Ensure access to affordable, reliable, sustainable, and modern energy for all SDG 8: Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all SDG 12: Ensure sustainable consumption and production SDG 13: Take urgent action to combat climate change and its impacts Sustainability ![]() 36 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Principle 5: Governance & Culture Principle 6: Transparency & Accountability The Bank will fully implement all six principles and therefore the required steps regarding impact analysis, target-setting & implementation, and accountability by the end of 2024. In 2021, the Group conducted an impact analysis which resulted in target-setting, which represents the implementation of the second principle for responsible banking. The impact analysis identifies the most relevant and significant positive and negative impacts of a bank’s portfolio on the societies, economies, and environments that the bank operates in. It is also the essential groundwork needed for meaningful target-setting. Materiality analysis With the aim to keep the ‘double materiality’ concept in the focus for the year 2021, the Group also decided for a traditional (GRI) materiality analysis as a complement to the impact analysis, since GRI materiality and stakeholder identification can be used to further corroborate impact analysis findings and so help with the setting of priorities. Carbon footprint In H2 2021, ‘The NLB Group Carbon Footprint Measurement and Reporting Policy’ was adopted as an internal policy on the calculation of the carbon footprint of the Group’s own operations, and so provides the key methodological approach for why and how the carbon footprint reporting for the Group will be carried out. With reference thereto, Impact analysis & target-setting In 2020, the Bank signed the United Nations Environment Programme Finance Initiative’s Principles for Responsible Banking (UNEP FI PRB) which aims to align bank’s strategy and practice with the UN SDG and the Paris Climate Agreement. Principles for Responsible Banking are as follows: Principle 1: Alignment Principle 2: Impact & Target Setting Principle 3: Clients & Customers Principle 4: Stakeholders the Group considers the Green House Gas Protocol (GHG Protocol), which represents the world’s most widely used GHG accounting standard. Sustainable financing In 2021, over EUR 60 million of EU Taxonomy eligible long-term loans were approved by the Bank (large corporates segment): the Bank financed investments in energy infrastructure, a telecommunications network, water supply network, construction of cultural and school facilities, and energy efficiency. Within the SME segment, sustainable financing was at modest levels. At the end of 2021, the Bank and the Group banking members set ambitious sustainable financing goals for the years 2022–2025. Based on the analysis, the focus will be on renewable energy sources, solutions for the carbon footprint reductions, improving energy efficiency, and supporting a circulareconomy. EU Taxonomy The unfolding of the EU Taxonomy regulation was closely monitored by the Group representative in the European Banking Federation’s Sustainable Finance working group, which covered among other tasks the UNEP FI and EBA project ‘The Application of the EU Taxonomy to Bank Lending.’ In 2022, the EU Taxonomy regulation will be fully implemented in the Group financing process. ESG Risk management In 2021, substantial effort was made in implementing climate, environmental, and social risk management requirements in line with ECB and EBA guidelines. In recent years, the Bank signed Framework Agreements with the EBRD and the Contract of Guarantees with MIGA. It was therefore required to develop a mechanism for environmental and social screening of current and potential financing applications against MIGA and EBRD Exclusion List and applicable environmental and social laws. Consequently, the Group’s existing risk management framework is constantly upgraded with environmental and social elements. As a systemically important institution, the Group is included into 2022 ECB Climate Stress test exercise. More information is available in Risk Management chapter of this report. Sustainability training The Group’s ‘Sustainability on-line training program’ was carefully prepared on the model of similar training programs of the International Finance Corporation (IFC) and is implemented throughoutthe Group. In thefuture,the Group will conduct Sustainability training on a yearly basis. ![]() 37 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Sustainability working groups Ad hoc working groups are being set up in the bank to introduce various elements of sustainability.Their composition varies according to the area ofsustainability considered. ESMS Officers have been appointed in our banking members who regularly report to the local boards. They are representatives of risk management line who ensure the ESMS is properly implemented organisation wide. Other sustainability-related topics Many of these outcomes reflect ongoing, long-term challenges, but at the same time they reflect the Group’s ability to reach tangible results in this area. It should be mentioned that in 2021 several other sustainability-related topics were addressed, such as: • digitalization and paperless operations • remuneration policy •CSR projects corresponding to UN SDG •inclusion & diversity at the level of employees and clients •building partnerships & capacities by being involved with relevant representatives fromacademia, NGOs, and the real economy sector •talent development and care for employees . Roadmap for 2022 The Group sustainability roadmap for the year 2022 is full of new challenges. As a UN PRB signatory, the Bank will consider joining the UNEP FI’s Net Zero Banking Alliance, since it is an accelerator that provides a dedicated forum to shape the net zero journey of the banking industry. The Group is responsive to the desire of investors, supervisors, and its peers and other stakeholders to align its business model with net zero objectives. The progress in achieving targets for 2030 and 2050, at the latest, in line with credible 1.5°C scenarios, is however, not only dependent on the willingness and capacity of a bank, but to a large extent on a complex sum of factors, such as the availability of sustainable investments and activities, transition projects, transformationcapacities of the industry, as well as public and industrial policies supporting transition. The Group's sustainability ambition is anchored in its mission. This is seen as an opportunity to help businesses not only survive, but also to take initiative and position themselves for future growth. Sustainability is at the centre of our business model and a pillar for the transformation of the Group. NLB Group Sustainability Governance Structure The NLB Group Sustainability Governance Structure is anchored at different levels within the Bank and the Group thus guaranteeing that it receives attention from the highest decision-making bodies while also being broadly integrated in our operations. In the Q3 2021, the NLB Group ‘Sustainability Committee’ was established as part of corporate sustainability governance developments and the first meeting was held in December 2021. It is chaired by the CEO and oversees the integration of the ESG factors to the Group business model in a focused and coordinated way across the Group and issues opinions, recommendations, initiatives, and takesrelevantdecisions when needed. The committee has the authority to discuss, develop, and approve sustainability strategies, policies, initiatives, methodologies, KPIs, targets, and other relevant procedures of the NLB Group, and has influence over sustainability-related strategic objectives. Apart from anchoring sustainability at different levels within the Bank in its daily operations (on the Management Board level, Executive Management level, Group level, and Business & Country level), NLB has put in place a 4-level NLB Group Sustainability Governance Structure, namely: Supervisory Board of the NLB The Bank has established a comprehensive framework for sustainable management, starting by sponsoring the matter at the level of the NLB SB, which, significantly contributes to the implementation of sustainability. The SB regularly monitors the implementation of ESG factors and discusses the topic on regular basis. Sustainability Committee It is composed of the highest-level officers and provides the overall vision and sustainability strategy, it defines key policies, reviews progress on major initiatives, decides on specific external partnerships and agreements, and ensures cohesion of the overall program with the Bank’s mission. Sustainability Team The Sustainability Team within Strategy and Business Development Division of the NLB oversees Group-wide sustainability agenda and is tasked with driving the culture, monitoringimplementation of thestrategy, coordinating initiatives, measuring the impact, and reporting on the progress to the Sustainability Committee, the MB, and the SB. For more information, please refer to : • the chapter Risk Management , subchapter Incorporating ESG Risks • Note 6 of the Financial part of the report • the chapter Statement of Management of Risk • the Pillar 3 Disclosures •the NLB Group Sustainability Report 2021 Corporate Social Responsibility The Group contributes towards wider socio-economic development through its CSR activities and is responsible to its clients, employees, and the social environment. The Group pays special attention to knowledge and lifelong learning. The key pillars of the socially responsible operations of the Group are care for its employees and protection of lawfulness and integrity, as well as the promotion of entrepreneurship, increasing financial literacy, support to professional and youth sports, humanitarian activities, the protection of cultural heritage, and care for the environment. Every year, the Group strives to increase the share of CSR activities that pursue UN SDG. The target for 2021 – at least 30% of all CSR activities in every bank member should be aligned with UN SDG – was achieved, even more, some member banks even exceeded it. At the same time, the Group plans, not only to align key CSR topics within Group members, but also to carry out more joint Group wide CSR projects. In 2021, the main two projects were #HelpFrame and Heartful opportunities. Understanding small entrepreneurs’ challenges- #HelpFrameproject continued in 2021 The Group’s socially responsible actions have been continuously upgraded with projects that follow the UN SDG. The Group’s first such regional project was launched in spring 2020. The COVID-19 crisis closed the door to many dreams in previous years. That is why the decision was made to give a glimmer of hope with the #HelpFrame project for another ![]() 38 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka, Banja Luka focused on both youth and the elderly by providing 500 children with disabilities and socially endangered families with New Year’s presents, and 500 elderly visitors from elderly centres withChristmas lunch and bedding. Following its tradition of the past years, NLB Banka, Sarajevo supported an orphanage in Tuzla to help children without parents and families. The public institution, ‘Home for Children without Parental Care Tuzla’ deals with the care and upbringing of children without parental care, children from dysfunctional families, and children found begging and wandering the streets. They provide all of them with a home, healthcare, regular education, clothes, and food. They currently have 56 children of all ages – from babies to high school students. NLB Banka, Prishtina also decided on a double donation. The first went to the National Autism Association in Kosovo (ANAK) which deals with the identification and support of children with autismand theirfamilies. Thistime, the organisation is promoting thetalents ofchildren with autismthrough paintings. The second donation was donated to the Ideas Partnership, an organisation that works mainly with Roma, Ashkali, and Egyptian communities in the field of education, health, social work, and the environment. NLB Banka, Podgorica ’s donation supported the Rights Centre for Children, a non-governmental organisation that is, among others, helping children towards stronger participation in the decision-making process and ensuring their voices are heard, but also working with sensitive groups, such as children from foster families and socially vulnerable groups. year in 2021. The project is our way of giving a helping hand to local small entrepreneurs who have been most affected by the situation in recent years. As part of the campaign, advertising space was donated to 73 selected entrepreneurs in Slovenia and 258 across the whole NLB Group. The participants from 2020 were invited to become ambassadors of last year's project and to share their positive experiences in the #HelpFrame. A world full of heart is a world full of opportunities The world is much more beautiful and colourful when we stand by each other and with full hearts create new opportunities – opportunities such as those that also arise with our support. In all markets where the Group operates, organisations that promote inclusion whether for children, the elderly, or both with a charitable donation are supported. In Slovenia, NLB donated to two humanitarian organisations, Botrstvo and Humanitarček. The NLB donation to Botrstvo will enable 200 disadvantaged children the opportunity to develop their talent. In contrast, as many as 97,000 elderly people live below the poverty line in Slovenia. With the help of a donation, the Humanitarček association will be able to provide them with 21,000 hot meals. NLB Banka, Beograd and Komercijalna Banka, Beograd donatedto the centre for youthintegration ‘SOS dečija sela,’ anon-governmental, humanitarian, and non-profit organisation that has been working to improve the quality of life of children and youth without parental care, empowering families at risk, supporting the economic independence of young people from vulnerable groups, and providing emergency assistance to local populations and refugees. NLB Banka, Skopje also decided to support both children and the elderly by donating to a healthcare centre for the elderly in Skopje and the Foundation for Educational and Cultural Initiatives ‘Step by Step,’ and the Project ‘Be IN, Be Inclusive, Be Included,’ that strive to improve the educational opportunities for children with disabilities and contributes to the development of an inclusive, non-segregated primary education subsystem. ![]() We are your neighbours. Great-grandmothers saved up for hard times. For grandmothers, education was the best investment. Mothers invested in their own companies. As modern women, you invest in dreams. We support you through all life periods, help you successfully tackle challenges they bring, offer you useful solutions and a reliable path towards realising the biggest and the most daring of goals. And even though your priorities change throughout the years, ours remain the same: we help you with the best advice and provide you with new opportunities at every step. ![]() 40 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Group’s result is based on the following key drivers: • Integration of Komercijalna Banka, Beograd, acquired at the end of 2020, merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica in November 2021, and the sale of Komercijalna Banka, Banja Luka in December 2021; •Strong 12% loan growth to individuals and solid 8% to corporate, above 10% growth even without Komercijalna Banka, Banja Luka; •Net interest income increased EUR 109.8 million on the back of the Komercijalna Banka group contribution (EUR 98.5 million). Net interest income without the Komercijalna Banka group contribution also increased, based on higher volumes and increased market shares in the loan book compensating for the reduction in interest rates. In general, net interest income was impacted by excess liquidity, which determined a consequently higher volume of cash and balances with CBs, with low or negative interest rates; however, additional interest income was recognised based on lower interest rates for TLTRO in the Bank in December; •The economic rebound led to the optimisation of investment portfolio of households, growth of housing loans, mutual funds, and bancassurance, which increased net fee and commission income (high balance deposit fees and net fees from asset management and bancassurance); •Lower non-recurring income, which in 2021 included valuation income in the amount of EUR 14.8 million from the repayment of exposure, classified as non-performing, EUR 9.0 million of other operation income from the settlement of a legal dispute, and EUR 8.1 million loss from the sale of Komercijalna Banka, Banja Luka; in 2020, the sale of NLB Vita and debt securities had a positive effect on the result in the amount of EUR 28.1 million; •Continuous cost discipline; costs higher due to integration costs and employee costs; •Net impairments and provisions for credit risk were released in the amount of EUR 35.8 million, mostly due to the successful repayment of on-and off-balance exposures and changed parameters related to more favourable macroeconomic forecasts. Other impairments and provisions were established in the amount of EUR 27.1 million, mostly due to restructuring provisions and provisions for legal risk, mostly related to Komercijalna Banka, Beograd; The Group achieved a profit after tax in the amount of EUR 236.4 million, 67.3% or EUR 95.1 million more than the year before (2020: EUR 141.3 million), if the positive impact of the acquisition of Komercijalna Banka, Beograd in 2020 is excluded. •NLB Skladi achieved 79.8% YoY growth of gross inflows in mutual funds (EUR 252.4 million) and the assets under management from NLB clients is approaching EUR 1.3 billion; •A strong TCR of 17.8%; •The negative CoR of -41 bps, given good asset quality trends and a decisiveworkout approach; •The multi-year declining trend of the non-performing credit portfolio stock continued, mostly due to repayments, collection, the sale of claims, and cured clients. The combination of successful resolution of NPL and credit growth of a high-quality portfolio resulted in the decrease of gross NPL ratio (EBA def.) from 4.5% to 3.4% YoY, and the NPE ratio (EBA def.) by 0.6 p.p. YoY to 1.7%; • Unencumbered liquidity reserves portfolio amounted to EUR 8,280.6 million (38.3% of total assets). Overview of Financial Performance EUR 236.4million of net profit. Figure 5: Profit after tax of NLB Group (in EUR million) / ROE after tax (in %) (i) ROE a.t. 225.1 203.6 193.6 269.7 236.4 20172018201920202021 14.4%11.8%11.7% CAGR\* 1% 8.1%11.4% \*Compounded Annual Growth Rate. (i) Komercijalna Banka group included from 2021 on. ![]() 41 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Income statement Table 10: Income statement of NLB Group and NLB NLB Group in EUR million 20212020 Change YoY Q4 2021Q3 2021Q2 2021Q1 2021Q4 2020Change QoQ o/w KB contribution Net interest income409.4299.6109.898.537%107.0103.7101.197.575.13.43% Net fee and commission income237.2170.366.942.539%64.658.659.954.145.16.010% Dividend income0.20.10.10.2101%0.00.10.00.00.0-0.1-65% Net income from financial transactions38.432.06.58.120%5.07.420.85.32.0-2.4-32% Net other income-18.32.6-20.8-17.9--9.6-3.8-2.0-2.8-1.0-5.8-154% Net non-interest income257.6204.952.632.826%60.062.378.756.546.1-2.3-4% Total net operating income666.9504.5162.4131.332%167.0166.0179.9154.0121.21.11% Employee costs-231.3-165.0-66.4-54.9-40%-63.1-56.5-56.5-55.1-42.0-6.6-12% Other general and administrative expenses-137.5-97.3-40.3-38.3-41%-43.4-31.7-32.6-29.8-27.6-11.7-37% Depreciation and amortisation-46.5-31.7-14.8-13.4-47%-11.7-11.6-11.6-11.6-8.0-0.1-1% Total costs-415.4-293.9-121.4-106.6-41%-118.2-99.9-100.7-96.6-77.7-18.4-18% Result before impairments and provisions251.5210.541.024.719%48.866.179.157.543.5-17.3-26% Impairments and provisions for credit risk35.8-62.398.13.4-1.83.314.816.0-13.2-1.6-47% Other impairments and provisions-27.1-9.1-18.0-24.0-198%-18.32.9-11.3-0.5-7.9-21.2- Impairments and provisions8.8-71.480.1-20.6--16.56.33.515.5-21.1-22.8- Gains less losses from capital investments in subsidiaries, associates, and joint ventures 1.10.90.20.027%0.20.50.30.10.0-0.4-68% Negative goodwill0.0137.9-137.90.0-0.00.00.00.0137.90.0- Result before tax261.4277.9-16.54.2-6%32.572.982.973.1160.2-40.4-55% Income tax-13.5-5.2-8.42.5-162%-0.6-3.3-4.8-4.73.82.781% Result of non-controlling interests11.53.08.41.5-1.03.92.93.8-1.1-2.9-75% Result after tax236.4269.7-33.35.2-12%30.965.775.264.6165.1-34.8-53% ![]() 42 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB in EUR million 20212020 Change YoY Q4 2021Q3 2021Q2 2021Q1 2021Q4 2020Change QoQ Net interest income139.1138.90.30%37.434.233.833.734.53.29% Net fee and commission income119.6104.515.114%31.230.030.827.627.31.24% Dividend income79.66.373.4-74.70.40.04.55.574.2- Net income from financial transactions19.028.1-9.2-33%0.81.814.71.63.0-1.0-55% Net other income4.233.9-29.8-88%0.90.30.82.21.50.5160% Net non-interest income222.4172.849.629%107.532.646.335.937.474.9- Total net operating income361.5311.749.816%144.966.880.169.672.078.2117% Employee costs-107.0-102.6-4.4-4%-28.4-26.8-26.0-25.8-25.4-1.6-6% Other general and administrative expenses-59.1-60.00.92%-19.2-13.0-13.8-13.1-17.0-6.2-48% Depreciation and amortisation-17.5-17.80.32%-4.3-4.4-4.4-4.4-4.30.01% Total costs-183.6-180.5-3.1-2%-52.0-44.1-44.3-43.2-46.8-7.8-18% Result before impairments and provisions177.9131.246.736%93.022.635.926.425.270.4- Impairments and provisions for credit risk26.1-9.035.1-4.96.33.311.78.5-1.4-22% Other impairments and provisions7.5-8.315.8-5.70.1-0.11.8-7.95.5- Impairments and provisions33.6-17.450.9-10.66.43.213.50.64.266% Result before tax211.5113.997.686%103.629.039.039.925.874.5- Income tax-3.00.1-3.1--1.1-0.2-1.2-0.62.6-0.9- Result after tax208.4114.094.583%102.528.837.939.328.473.7- ![]() 43 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 6: Profit after tax of NLB Group (in EUR million) – evolution YoY 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 interest incomeNet fee and commission income Other net non- interest income Total costsImpairments and provisions Gains and losses (i) Negative goodwill Income taxResult of non- controlling interests 2021 NLB Group w/o KBKB (i) Gains less losses from capital investments in subsidiaries, associates, and joint ventures. EUR 666.9million of total net operating income. Result reflects great performance and importantmilestonesachieved The Group generated EUR 236.4 million of profit after tax, EUR 33.3 million or 12% less YoY, and was based on the following key drivers and YoY evolution: •Net interest income increased EUR 109.8 million, backed by the Komercijalna Banka group contribution (EUR98.5 million). Increasing net interest income without the Komercijalna Banka group contribution was impacted by excess liquidity which determined a consequently higher volume of cash and balances with CBs, with low or negative interest rates. Interest income without the Komercijalna Banka group contribution was higher YoY, based on higher volumes and increased market shares in the loan book, compensating for the reduction in interest rates; •Net fee and commission income increased in all banks, in the Bank mostly due to repricing of packages, fees for high balances, higher net fees from asset management and bancassurance, and arrangement fees for the organisation of syndicated loans; •Non-recurring valuation income in the amount of EUR 14.8 million from repayment of exposure, classified as non- performing, EUR 9.0 million of other operation income from the settlement of a legal dispute, and EUR 8.1 million loss from the sale of Komercijalna Banka, Banja Luka; YoY lower, with the sale of NLB Vita and debt securities impacting the 2020 result in the total amount of EUR 28.1 million; •Continuous cost discipline; costs higher due to integration and employee costs; •Net impairments and provisions for credit risk were released in the amount of EUR 35.8 million, mostly due to successful repayment of on-and off-balance exposures and changed parameters related to more favourable macroeconomic forecasts; •Other impairments and provisions were established in the amount of EUR 27.1 million, mostly due to restructuring provisions and provisions for legal risk, mostly related to Komercijalna Banka, Beograd. ![]() 44 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 20202021 +83% +103% +80% +70% +83% +625% +65% NLB, Ljubljana NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd KB, Beograd KB, Banja Luka KB, Podgorica 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 Figure 7: Profit after tax of NLB Group banks (i) (on a stand-alone basis, in EUR million) (i) NLB Banka, Podgorica and Komercijalna Banka, Podgorica merged in November 2021; Komercijalna Banka, Banja Luka was sold on 9 December 2021. Despite the unstable environment due to COVID-19 pandemic, all banks (active at the end of the year) reported a profit. Higher profit YoY was recorded in all the banks, mainly due to the establishment of credit impairments and provisions related to COVID-19 outbreak in 2020 and successful operations in the reporting year. The result of the Bank increased by 83% YoY to EUR 208.4 million from EUR 114.0 million achieved in 2020, mostly due to higher dividend pay-out, since banking subsidiaries were refrained from paying out dividends due to COVID-19 restrictions in 2020, and the net release of impairments and provisions for credit risk (establishment in 2020 due to COVID-19 outbreak which materially lowered the final result). Non-recurring valuation income from repayment of exposure, classified as non-performing in the amount of EUR 12.9 million and from the settlement of legal dispute in the amount of EUR 8.6 million influenced 2021 result, while the sale of NLB Vita in the amount of EUR 35.5 million and the sale of debt securities in the amount of EUR 17.1 million had a positive impact on the 2020 result. Recurring profit before impairments and provisions of the Group totalled EUR 225.5 million, EUR 48.7 million or 28% higher YoY. In Q2 2021, the result before impairments and provisions was higher due to non-recurring net non-interest income (EUR 14.8 million valuation income from the repayment of exposure classified as non-performing, and EUR 9.0 million of other operation income from the settlement of a legal dispute), but partially offset by regulatory costs in the Bank (EUR 2.0 million for SRF and EUR 7.5 million for DGS). Figure 8: Result before impairments and provisions of NLB Group (in EUR million) Q42020 Q12021 Q22021Q32021 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 before impairments and provisions w/o non- recurring income and regulatory costs Non-recurring net non-interest income Regulatory costs ![]() 45 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Q42020 Q12021 Q22021 Q32021 Q4 2021 Net interest margin - quarterly Operational business margin - quarterly 3.25% 2.03% 3.25% 2.09% 3.32% 2.08% 3.18% 2.02% 3.35% 2.07% Figure 10: Net interest margin and Operational business margin of NLB Group (i) (quarterly data, in %) (i) Calculated on the basis of average interest-bearing assets. Komercijalna Banka group included from 2021 on. The quarterly net interest margin of 2.07%, as well as the operational business margin (OBM) of 3.35% in Q4 for the Group was 0.1 p.p. and 0.04 p.p. higher YoY. Despite the declining trend of interest rates on loans, the interest rate on corporate and state loans in the Bank slightly increased, due to the syndicated loan with an attractive interest rate, repayment of some exposures with low interest rates, and the higher volume of Cross-border corporate loans bearing higher interest rates. Interest rate on loans to individuals is in the declining trend mainly due to changed portfolio mix in favour of housing loans bearing lower interest rate. On the QoQ basis, the margins were higher due to TLTRO repricing. KB interest incomeInterest income Interest expensesKB interest expenses Figure 9: Net interest income of NLB Group (in EUR million) 20202021Q4 2020Q3 2021Q4 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 interest income of the Group accounted for 61% of the Group’s total net revenues (2020: 59%), and totalled to EUR 409.4 million. Out of the EUR 109.8 million increase, EUR 98.5 million was contributed by Komercijalna Banka group. Without Komercijalna Banka group contribution, higher level of net interest income was achieved YoY, due to higher volume of securities and loans, despite lower yields, but partially offset by higher cash volumes and balances with the CB (bearing negative interest in line with the expansionary monetary policy). The net interest income was also affected by higher liquidity position streaming from TLTRO-III secured borrowing and additional interest income, based on lower interest rates, was recognised at the end of the year in the Bank. Interest expenses in most member banks were decreasing due to lower interest rates for customer deposits. The pressure on the net interest margins in the Bank and member banks in SEE continues. Netinterest income Net non-interest income Net non-interest income reached EUR 257.6 million of which EUR 32.8 million were contributed by Komercijalna Banka group. A major part of the net non-interest income has been derived from the net fee and commission income, which grew YoY, mostly in the Bank due to the repricing of the packages, fee for high balances in the amount of EUR 8.1 million (from April on also for individuals 8 ), higher net fees from asset management (79.8% YoY growth of gross inflows in mutual funds, total of EUR 252.4 million in 2021) and bancassurance (higher YoY inflows with new distribution terms), and arrangement fees for organisation of syndicated loans. The net non-interest income was strongly affected by non- recurring valuation income in the amount of EUR 14.8 million from the repayment of exposure classified as non-performing, EUR 9.0 million of other operation income from the settlement of a legal dispute, and EUR 8.1 million loss from the sale of Komercijalna Banka, Banja Luka. The non-recurring items were higher in 2020 with the sale of NLB Vita and debt securities in total amount of EUR 28.1 million. 8Further information is available under the chapter Key Events . Figure 11: Net non-interest income of NLB Group (in EUR million) Net fee and commission income Recurring other net non-interest income KB net fee and commission income Non-recurring other net non-interest income Dividend income 20202021Q4 2020Q3 2021Q4 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 33.7 194.7 42.5 26.0 49.8 51.7 0.0 One-off positive effects in thetotal amount of EUR 23.8million due to positive valuation effect from the repayment of exposure, classified as non-performing and other operation income from the settlement of a legal dispute. ![]() 46 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Total costs Figure 12: Total costs of NLB Group (in EUR million) 165.0 97.3 31.7 42.0 27.6 47.1 16.0 30.8 44.1 12.5 22.7 176.4 54.9 99.3 38.3 33.2 13.4 Employee costs KB employee costs Other general and administrative expenses KB other general and administrative expenses Depreciation and amortisation KB depreciation and amortisation 20202021Q4 2020Q3 2021Q4 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 Total costs amounted to EUR 415.4 million of which EUR 106.6 million fromKomercijalna Bankagroup. Without Komercijalna Banka group contribution the costs increased YoY for EUR 14.9 million due to integration costs and employee costs. CIR stood at 62.3%, a 4.0 p.p. increase YoY. Impairments and provisions The Group released net impairments and provisions for credit risk (EUR 35.8 million in 2021) mostly due to successful repayment of on-and off-balance exposures and changed parameters related to more favourable macroeconomic forecasts. Other impairments and provisions were established in the amount of EUR 27.1 million, of which there were provisions for legal risk (EUR 16.6 million, to a large extent attributable to processing fees in Serbia) and restructuring provisions (EUR 14.8 million). 9 The Group’s cost of risk was negative (-41 bps), as it was in most Group bank members. 9More details are available in Note 5.16. of the Financial part of the report. EUR 35.8million released impairments and provisions for credit risk. KB other impairments and provisions Other impairments and provisions Impairments and provisions for credit risk KB impairments and provisions for credit risk & expected credit losses 2020 2021 Q42020 Q32021 Q4 2021 Figure 13: NLB Group impairments and provisions (in EUR million) -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 Release 62 -41 CoR (bps) 0.2 -1.0 -0.3 -0.4 ![]() 47 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of financial position Table 11: Statement of financial position of NLB Group and NLB NLB Group in EUR million 31 Dec 202131 Dec 2020 Change YoY 31 Dec 202130 Sep 2021 30 Jun 2021 31 Mar 202131 Dec 2020Change QoQ ASSETS Cash, cash balances at central banks, and other demand deposits at banks 5,005.13,961.81,043.226%5,005.14,947.04,739.43,918.23,961.858.11% Loans to banks140.7197.0-56.3-29%140.7211.7243.4205.0197.0-71.0-34% Net loans to customers10,587.19,644.9942.210%10,587.110,267.010,071.49,824.59,644.9320.23% Gross loans to customers10,903.510,033.3870.19%10,903.510,593.710,421.810,208.210,033.3309.83% - Corporate4,996.04,631.7364.38%4,996.04,783.94,772.74,720.84,631.7212.14% - Individuals5,621.15,027.6593.512%5,621.15,487.45,304.85,126.65,027.6133.72% - State286.3374.0-87.7-23%286.3322.3344.4360.8374.0-36.0-11% Impairments and valuation of loans to customers-316.3-388.472.119%-316.3-326.7-350.4-383.7-388.410.43% Financial assets5,208.35,119.588.82%5,208.35,264.75,490.95,376.45,119.5-56.4-1% - Trading book7.784.9-77.2-91%7.710.513.575.184.9-2.8-27% - Non-trading book5,200.65,034.7166.03%5,200.65,254.25,477.45,301.35,034.7-53.6-1% Investments in subsidiaries, associates, and joint ventures11.58.03.544%11.58.58.48.18.03.036% Property and equipment247.0249.1-2.1-1%247.0242.1243.8247.3249.14.92% Investment property47.654.8-7.2-13%47.654.153.354.454.8-6.5-12% Intangible assets59.161.7-2.6-4%59.153.055.758.261.76.112% Other assets271.1268.92.11%271.1249.0281.1266.9268.922.19% TOTAL ASSETS21,577.519,565.92,011.610%21,577.521,296.921,187.319,959.019,565.9280.61% LIABILITIES Deposits from customers17,640.816,397.21,243.68%17,640.817,248.617,143.016,732.116,397.2392.22% - Corporate4,463.73,949.1514.513%4,463.74,276.64,130.24,011.03,949.1187.14% - Individuals12,680.812,023.5657.25%12,680.812,495.212,477.812,254.412,023.5185.51% - State496.4424.571.817%496.4476.8535.0466.7424.519.64% Deposits form banks and central banks71.872.6-0.8-1%71.882.078.071.972.6-10.1-12% Borrowings932.6249.8682.8-932.6975.6976.6251.1249.8-43.0-4% Other liabilities427.6434.9-7.3-2%427.6412.5466.8428.5434.915.14% Subordinated liabilities288.5288.30.20%288.5290.2287.6286.8288.3-1.7-1% Equity2,078.71,952.8125.96%2,078.72,140.52,091.42,014.11,952.8-61.8-3% Non-controlling interests137.4170.3-32.9-19%137.4147.6143.8174.5170.3-10.2-7% TOTAL LIABILITIES AND EQUITY21,577.519,565.92,011.610%21,577.521,296.921,187.319,959.019,565.9280.61% ![]() 48 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB in EUR million 31 Dec 202131 Dec 2020 Change YoY 31 Dec 202130 Sep 2021 30 Jun 2021 31 Mar 202131 Dec 2020Change QoQ ASSETS Cash, cash balances at central banks, and other demand deposits at banks 3,250.42,261.5988.944%3,250.43,049.82,961.42,127.32,261.5200.67% Loans to banks199.3158.341.026%199.3176.5162.8164.3158.322.713% Net loans to customers5,153.04,595.1557.912%5,153.04,903.54,787.84,677.54,595.1249.55% Gross loans to customers5,250.44,753.1497.310%5,250.45,001.04,916.34,828.44,753.1249.35% - Corporate2,411.12,168.5242.611%2,411.12,244.92,245.42,213.42,168.5166.27% - Individuals2,694.42,411.9282.412%2,694.42,609.82,514.42,452.32,411.984.63% - State144.9172.6-27.7-16%144.9146.3156.5162.7172.6-1.4-1% Impairments and valuation of loans to customers-97.4-158.060.638%-97.4-97.5-128.5-150.9-158.00.20% Financial assets3,034.33,017.217.11%3,034.33,160.23,398.63,365.23,017.2-125.9-4% - Trading book7.718.8-11.1-59%7.710.413.623.818.8-2.8-26% - Non-trading book3,026.62,998.428.21%3,026.63,149.83,385.03,341.42,998.4-123.2-4% Investments in subsidiaries, associates, and joint ventures786.0750.735.35%786.0775.5775.5750.7750.710.61% Property and equipment86.191.7-5.6-6%86.188.189.389.791.7-2.0-2% Investment property9.28.30.911%9.29.18.38.38.30.11% Intangible assets29.528.11.35%29.525.326.126.828.14.116% Other assets151.7115.636.131%151.7125.4121.2128.6115.626.221% TOTAL ASSETS12,699.511,026.61,672.915%12,699.512,313.512,330.911,338.411,026.6386.03% LIABILITIES Deposits from customers9,659.68,850.8808.99%9,659.69,243.39,272.29,056.68,850.8416.35% - Corporate2,436.71,916.6520.127%2,436.72,158.42,070.01,996.81,916.6278.313% - Individuals7,078.96,812.4266.54%7,078.96,994.27,060.36,924.96,812.484.61% - State144.0121.822.218%144.090.7142.0134.9121.853.459% Deposits form banks and central banks109.341.667.7163%109.3158.3142.0124.041.6-49.0-31% Borrowings873.9143.5730.4-873.9863.6866.3143.4143.510.31% Other liabilities216.3251.4-35.2-14%216.3233.5252.5242.0251.4-17.2-7% Subordinated liabilities288.5288.30.20%288.5290.2287.6286.8288.3-1.7-1% Equity1,551.91,451.0100.97%1,551.91,524.61,510.31,485.51,451.027.42% TOTAL LIABILITIES AND EQUITY12,699.511,026.61,672.915%12,699.512,313.512,330.911,338.411,026.6386.03% ![]() 49 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Balance sheet volume of the Group increased by EUR 2,011.6 million YoY totalling to EUR 21,577.5 million, mainly due to the continued inflow of deposits from individuals (EUR 657.2 million YoY), corporate (EUR 514.5 million YoY), and participation in a liquidity-providing operation by the ECB in the amount of EUR 750 million (TLTRO-III). Excess liquidity was in large extent placed on the account at the CB (EUR 1,043.2 million YoY increase) and in gross loans to customers (EUR 364.3 million to corporate and EUR 593.5 million to individual clients). However, despite the deposit growth, the trend of redistribution of deposits to alternative investments (e.g., mutual funds and bancassurance) is visible. The share of customers’ deposits accounted for 82% of the total funding, 2.0 p.p. less as at the end of 2020. Assets 54.3% of the total assets were related to Group members located in Slovenia (2020: 51.8%) and 22.2% in Serbia (2020:23.4%). Figure 14: Total assets of NLB Group (in EUR million) – structure Figure 15: NLB Group total assets by location of NLB Group entities (in %) (i) Slovenia Serbia North Macedonia BiH Kosovo Montenegro 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 202031 Dec 2021 31 Dec 201931 Dec 202031 Dec 2021 Cash equivalents, placements with banks and loans to banks Net loans to customers Financial Assets Other Assets +10% YoY 5,145.7 4,158.8 2,194.7 10,587.1 9,644.9 7,604.7 5,208.3 5,119.5 3,829.7 14,174.1 544.9 642.6 636.3 19,565.9 21,577.5 (i) The geographical analysis includes a breakdown of items with respect to the country in which individual NLB Group members are located. Komercijalna Banka group is divided between the countries based on each entity location from 30 September 2021 on, with YE data adjusted to the new methodology. ![]() 50 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The lending activity spiked and recorded a significant growth in all the banks in 2021. Gross loans to individuals recorded the highest, 17% YoY increase in Strategic foreign markets (without Komercijalna Banka group banks, but included Komercijalna Banka, Podgorica on 31 December 2021 due to the merger with NLB Banka, Podgorica), while the highest increase of gross loans to the corporate and state was recorded in Komercijalna Banka, Beograd, i.e., 16% YoY. Gross loans to individuals in the Bank grew by EUR 282.4 million YoY, mostly due to an increasing volume of housing loans (EUR 280.9 million YoY, with enviable high new production of EUR 557.6 million in 2021, compared to EUR 303.1 million in the previous year) related to more attractive offers for clients and intensive marketing campaigns. The volume of consumer loans was slightly lower YoY (EUR 16.1 million); however, the new production in 2021 amounted to EUR 229.1 million and was higher compared to 2020 (EUR 196.7 million). Gross loans to corporate and state recorded a EUR 214.9 million growth YoY, where growth derived from the corporate segment (EUR 242.6 million), while the state segment exposures shrank by EUR 27.7 million. Corporate loan growth was distributed across all sub-segments. The volume of gross loans to customers in Strategic foreign markets increased, with a remarkable new production in lending to individuals, with all the Group member banks recording a double-digit YoY growth in outstanding loan balances. (i) On stand alone basis; (ii) NLB Banka, Podgorica and Komercijalna Banka, Podgorica merged in November 2021; Komercijalna Banka, Banja Luka sold on 9 December 2021; the growth in Strategic foreign market is impacted by the merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica (the latter was not included in this segment as at 31 December 2020). 1,726.1 Despite the declining trend of interest rates on loans, the average interest rate on corporate and state loan book portfolio in the Bank slightly increased due to changed portfolio structure (conclusion of new syndicated loan with an attractive interest rate, repayment of some exposures with low interest rates and higher volume of Cross-border corporate loans), bearing higher interest rates. The interest rate on loans to individuals is in a declining trend mainly due to the changed portfolio mix in favour of housing loans bearing lower interest rates. Figure 16: NLB Group gross loans to customers dynamics (in EUR million) NLB GroupNLB (i) Strategic foreign markets w/o KB (i)(ii) KB Beograd (i)(ii) +12% YoY +13% w/o KB BL +6% YoY +8% w/o KB BL +12% YoY +9% YoY +16% YoY +9% YoY +17% YoY +14% w/o KB PG +10% YoY +7% w/o KB PG 5,027.6 34.6 120.8 50.4 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 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 2,694.4 3.84% 2,556.0 1,743.5 1,613.9 4.11% 4.01% 2,036.9 44.3 1,776.5 770.2 846.1 840.4 978.4 5.87% 3.52% Gross loans to individuals Gross loans to corporate & state Interest ratesGross loansKB Banja LukaKB Podgorica ![]() 51 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 17: Loan portfolio (i) by segment, geography, currency, and rate type (in EUR million) Despite significant portfolio growth in all NLB Group banks in 2021, there were no major changes in the corporate and retail credit portfolio structure. The credit portfolio remains well- diversified, and there is no large concentration in any specific industry or client segment. The share of retail portfolio in the whole credit portfolio is quite substantial, with the segment of mortgage loans still prevailing. The majority of the loan portfolio refers to euro currency, while the rest originates from local currencies of the Group banking members. From interest rate type, more than 63% of the loan portfolio is linked to a fixed interest rate, and the rest to a floating rate (mostly to the Euribor reference rate). Lending growth in the corporate segment remained relatively moderate, while the retail segment, namely mortgage lending, experienced considerable growth in 2021. Institutions 539 3% Other (iii) 730 5% Slovenia 7,871 51% BiH 1,262 8% N. Macedonia 1,309 8% Montenegro 618 4% Kosovo 796 5% Serbia 2,956 19% SME 2,881 19% Corporates 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 reserves at CBs and demand deposits at banks. (ii) State includes exposures to CBs. (iii) The largest part represents EU members. (iv) Segmentation in accordance with the company size defined in the Companies Act of an individual country in the region. by segment (iv) Currency by geography Interest rate Fixed 63% Floating 37% ![]() 52 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Liabilities Figure 18: Total liabilities of NLBGroup – structure (in EUR million) 31 Dec 201931 Dec 202031 Dec 2021 Deposits from individuals Corporate deposits State deposits Borrowings and Deposits from banks and central banks Subordinated liabilities Other liabilities Total equity +10% YoY 14,174.1 342.6 434.9 427.6 257.4 322.4 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 3,949.1 2,772.0 1,730.9 2,123.1 2,216.1 Total liabilities of the Group increased and amounted to EUR 19,361.4 million. The Group’s funding base is dominated by customer deposits accounting for 82% in which sight deposits prevail (87%, compared to 85% as at 2020 YE and 81% as at 2019 YE). The majority of customer deposits (72%) were from individuals. 55% of deposits were collected in Slovenia (54% at 2020 YE), 22% in Serbia (24% at 2020 YE), and the rest in other Group banking members in SEE. ![]() 53 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 19: NLB Group deposits from customers dynamics (in EUR million) (i) On stand alone basis; (ii) NLB Banka, Podgorica and Komercijalna Banka, Podgorica merged in November 2021; Komercijalna Banka, Banja Luka sold on 9 December 2021; the growth in Strategic foreign market is impacted by the merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica (the latter was not included in this segment as at 31 December 2020). NLB GroupNLB (i) Strategic foreign markets w/o KB (i)(ii) KB Beograd (i)(ii) +5% YoY +6% w/o KB BL +13% YoY +16% w/o KB BL +4% YoY +10% YoY +2% YoY +27% YoY +11% YoY +8% w/o KB PG +15% YoY +11% w/o KB PG 12,023.5 59.7 78.5 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 31Dec2021 31Dec2021 31Dec2020 31Dec2020 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 2,764.9 3,058.1 2,038.4 2,694.4 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 from individuals Deposits from corporate & state Interest ratesDepositsKB Banja LukaKB Podgorica 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 Deposits from customers increased by 8% YoY. The largest increase of EUR 542.3 million was recorded in the corporate and state deposits in the Bank, due to various reasons, i.e., the increase of balances in investment and pension funds, inflows from takeovers on the market, and incentives due to COVID-19 pandemic. Deposits from individuals increased the most in the Komercijalna Banka, Beograd, EUR 236.0 million. The interest rate for deposits has been decreasing due to repricing at lower interest rate and shorter maturity (due term deposits are mostly placed on the accounts). Growth of deposit base was reflected in higher costs of liquidity surplus, which was successfully mitigated with a high balance deposit fee, charged by the Bank to corporate and from April on also to individualclients. Consequently, thetrend ofredistribution of deposits to alternative investments (e.g., mutual funds and bancassurance) was visible. ![]() 54 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 20: Deposits from customers by type as at 31 December 2021 93.0% 79.4% 7.0% 20.6% Term depositsSight deposits InternationalSlovenia Figure 22: NLB Group off-balance sheet items (in EUR million) 31 Dec 201931 Dec 202031 Dec 2021 Guarantees Letters of credit - risk bearing Commitments to extend credit and other risky commitments Derivatives 0% YoY 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 Off-balance sheet items of the Group amounted to EUR 4,655.3 million and were comprised of guarantees (27%), letters of credit (1%), commitments to extend credit and other risky commitments (41%), and derivatives (32%). Commitments to extend credit and other risky commitments were divided between loans (99% corporate), overdrafts (59% retail and 41% corporate), and cards (89% retail). A majority of the Group's derivatives were concluded by the Bank either for the hedging of the banking book or trading with customers. Figure 21: LTDratio movement 7,604.7 31 Dec 201931 Dec 202031 Dec 2021 65.5% 11,612.3 58.8% 9,644.9 60.0% 16,397.2 10,587.1 17,640.8 LTDNet loans (in EUR million)Deposits (in EUR million) The LTD ratio (net) was 60.0% at the Group level; a 1.2 p.p. YoY increase, due to favourable higher growth of loans compared to deposits. ![]() 55 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Capital and capital adequacy Capital 31 Dec 201931 Dec 202031 Dec 2021 Tier 1 Tier2 Figure 23: NLB Group capital (inEUR million) 1,966 1,768 1,451 287 297 1,496 45 2,065 2,252 In 2021, NLB was required to maintain the OCR at the level of 14.25% on a consolidated basis, consisting of 10 : •10.75% TSCR (8% P1R and 2.75% P2R); and •3.5% CBR (2.5% Capital Conservation Buffer, 1% O-SII buffer 11 and 0% Countercyclical buffer). P2G amounts to 1.0% of CET1. The Bank and Group’s capital covers all the current and announced regulatory capital requirements, including capital buffers and other currently known requirements, as well as the P2G. 10 Further information on developments in 2022 are available in chapter Events after the end of the 2021 financial year . 11The O-SII Buffer will as of 1 January 2023 amount to 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 201931 Dec 202031 Dec 2021 Total capital ratioCET1 ratioOCR = MDA threshold (Total capital)OCR+P2G (Total capital) Figure 24: NLB Group capital ratios and regulatory thresholds (in %) 2.00% 2.69%2.69% 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 1Pillar 2TSCRP2GOCR+P2G (Total capital)Combined Buffer CET1 AT1 T2 2.75% 10.75% 15.25% Figure 25: NLB Group capital requirements as at 31 December 2021 ![]() 56 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 12: NLB Group Capital Requirements and buffers (i) 2021 from 12 March 2020 onwards as at 1 January till 11 March 2020 2019 Pillar 1 (P1R) CET14.5%4.5%4.5%4.5% AT1 1.5%1.5%1.5%1.5% T22.0%2.0%2.0%2.0% Pillar 2 (SREP req. - P2R) CET11.55%1.55% 2.75% 3.25% Tier 12.06%2.06%2.75%3.25% Total Capital2.75%2.75%2.75%3.25% Total SREP Capital Requirement (TSCR) CET16.05%6.05%7.25%7.75% Tier 18.06%8.06%8.75%9.25% Total Capital10.75%10.75%10.75%11.25% Combined Buffer requirement (CBR) Conservation bufferCET12.5%2.5%2.5%2.5% O-SII bufferCET11.0%1.0%1.0%1.0% Countercyclical bufferCET10.0%0.0%0.0%0.0% Overall capital requirement (OCR) = MDA threshold CET19.55%9.55%10.75%11.25% Tier 111.56%11.56%12.25%12.75% Total Capital14.25%14.25%14.25%14.75% Pillar 2 Guidance (P2G)CET11.0%1.0%1.0%1.0% OCR + P2GCET110.55%10.55%11.75%12.25% (i) Further information on developments in 2022 are available in the chapter Events After the End of the 2021 Financial Year . ![]() 57 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report As at 31 December 2021 the TCR for the Group stood at 17.8% (or 1.2 p.p. higher than as at 31 December 2020), and for NLB at 24.6% (or 2.5 p.p. lower than as at 31 December 2020). As at 31 December 2021, the CET1 ratio stood at 15.5% (1.4 p.p. YoY increase). The higher Group total capital adequacy compared to the end of 2020 derives from higher capital (increase of EUR 187.0 million YoY) which compensated RWA increase of EUR 246.4 million YoY for the Group. Higher RWA derives from the increase of RWA for operational risk. Total capital increased mainly due to inclusion of negative goodwill in retained earnings in the amount of EUR 137.9 million and partial inclusion of 2021 profit (EUR 136.0 million). Figure 26: Capital of NLB Group (in EUR million) – evolution YoY 16.6% 17.8% 2,06513813613-63-37n.a.2,252 31 Dec 2020NGWProfit inclusionKB BG buyoutNCIOCI and otherRWA impact31 Dec 2021 1.1% 1.1% 0.1% -0.5% -0.3% -0.3% ![]() 58 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Dividend pay-out Pursuant to the ECB regulation/BoS decision valid till 30 September 2021, the dividend payout in 2021 was split into two tranches. The first instalment in the amount of EUR 12.0 million was paid on 22 June 2021, while the second in the amount of EUR 12.8 million after expiry of the BoS decision on 18 October 2021. Besides that, the Bank paid on 24 December 2021 additional incremental dividend in the amount of EUR 67.4 million, contributing to the 2021 cumulative pay-out of EUR 92.2 million. Total risk exposure dynamic Table 13: Total risk exposure for NLB Group in EUR million 31 Dec 202130 Sep 202131 Dec 2020 Change YoY Change QoQ Total risk exposure amount (RWA)12,667.412,824.412,421.0246.4-157.0 RWA for credit risk10,205.210,648.010,222.9-17.8-442.8 Central governments or central banks1,158.51,842.81,892.2-733.7-684.3 Regional governments or local authorities99.8126.0135.5-35.6-26.2 Public sector entities47.0212.7248.8-201.8-165.8 Institutions310.2355.1311.7-1.4-44.8 Corporates2,748.72,312.42,224.2524.5436.3 Retail4,171.04,190.73,891.8279.2-19.7 Secured by mortages on immovable property 453.0397.1355.797.456.0 Exposures in default179.4191.8231.5-52.0-12.4 Items associated with particulary high risk442.5444.1344.298.3-1.5 Covered bonds41.140.340.90.20.8 Claims in the form of CU19.417.618.70.81.8 Equity exposures88.579.747.141.48.8 Other items446.0437.7480.9-34.98.2 RWA for market risk + CVA1,218.21,229.01,250.8-32.6-10.8 RWA for operational risk1,244.0947.3947.3296.7296.7 ![]() 59 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The RWA for credit risk decreased by EUR 17.8 million. On one hand, the factors to increase were loan growth to the corporates and retail, new investments in subordinated, state and EU institutions bonds. On the other hand, the increase was compensated by regulatory changes namely inclusion of BiH and Macedonia on EBA's third party equivalent list, legislation criteria changes for the CRR collateral adequacy, signing of guarantee agreements with MIGA as well as changed investment policy such as shift of some liquid assets from the central governments to lower risk-weighted counterparties (NLB Banka, Prishtina, NLB Banka, Podgorica) or optimization of deposits with banks (Komercijalna Banka, Beograd). Furthermore, successful recovery of NPL clients, where the biggest part represented repayments by a large client, contributed to the RWA decrease, while on the other hand RWA for high-risk exposures is higher mainly due to new project finance loans. The RWA for market risk decreased by EUR 32.6 million YoY due to a lower fixed income position in the trading book. In contrast, RWA for FX risk increased by EUR 35.3 million YoY and RWA for CVA increased by EUR 10.7 million, of which EUR 10.6 million as a result of new regulatory requirements which became effective from June 2021 onward (calculation of original exposure method (OEM) with residual maturity). The increase in the RWA for operational risks (EUR 296.7 million YoY) derives from the higher three-year average of relevant income, as defined in Article 316 of CRR, which represents the basis for the calculation.The main effect for increased relevant income was acquisition of Komercijalna Banka, Beograd in 2020. Further information on capital and capital adequacy is available in the Note 5.22 to the Audited Annual Financial Statements and in Pillar 3 Disclosures . MREL The MREL requirement for the Group is based on the Multiple Point of Entry (MPE) approach. As of 1 January 2024, NLB must comply with MREL requirement on a consolidated basis at resolution grouplevel (i.e., NLBResolution Group, consisting of NLB and other members of the Group excluding banks) which amounts to 31.38% of Total Risk Exposure Amount (TREA) (excluding CBR) and 9.97% of the Leverage Ratio Exposure (LRE). NLB has to ensure a linear build-up of own funds and eligible liabilities towards MREL requirement and its compliance with 25.19% of the TREA (excluding CBR) and 8.03% of the LRE on 1 January 2022. MREL requirement forms part of Group’s risk appetite and MREL requirement is regularly analysed and monitored by the Group. ![]() 60 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report As at 31 December 2021 the Group’s unencumbered liquidity reserves corresponded to EUR 8,280.6 million (2020: EUR 8,327.0million) comprised of cash, balances with CB without minimum reserve requirement, debt securities portfolio, and credit claims eligible for CB-secured funding operations. Among other these liquidity reserves provide the basis for future strategic growth. Encumbered liquidity reserves (EUR 877.6 million; excluding obligatory reserves), used for operational and regulatory purposes, are excluded from the liquidity reserves portfolio. 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 202031 Mar 2021 30 Jun2021 30 Sep 202131 Dec 2021 ECB eligible credit claimsCash & CB reserves Trading book debt securitiesBanking 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% Figure 28: Evolution of NLB Group unencumbered liquidity reserves (in EUR million) Liquidityposition The Group’s liquidity remains strong, with a high level of unencumbered liquidity reserves in total assets (38.3%) that is reflected in the LCR ratio standing at 252.6% (31 December 2020: 257.5%). The Group holds a comfortable liquidity position, with liquidity ratios standing well above the risk appetite limit at the Group and individual banking member level. Figure 27: LCR quarterly dynamic of NLB Group 5,367 5,286 5,453 4,915 5,003 2,125 1,941 2,000 1,876 1,943 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 202031 Mar 2021 30 Jun2021 30 Sep 202131 Dec 2021 Stock of HQLANet liquidity outflowLCR 257.5% 262.0% 272.6% 272.4% 252.6% ![]() 61 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Segment Analysis Table 14: Core and Non-Core Segments of NLB Group Core SegmentsNon-Core Segment Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Strategic Foreign Markets Financial Markets in Slovenia OtherNon-Core Members includes banking with individuals and micro companies, asset management (NLB Skladi), and one part of the subsidiary NLB Lease&Go that deals with retail clients, as well as the contribution to the result from the associated company Bankart. includes banking with Key corporate clients and SMEs, Cross-border corporate financing, Investment Banking and Custody, Restructuring and Workout, and one part of the subsidiary NLB Lease&Go that renders services to corporate clients. includes the operations of strategic Group banks in the strategic markets (Serbia, North Macedonia, BiH, Kosovo and Montenegro). covers treasury activities and trading in financial instruments, while it also presents the results of asset and liabilities management (ALM). accounts for the Bank’s categories of which the operating results cannot be allocated to specific segments as well as the subsidiary NLB Cultural Heritage Management Institute. includes the operations of non-core Group members, namely REAM and leasing entities (except NLB Lease&Go), NLB Srbija, and NLB Crna Gora. (in EUR million) NLB Group Profit b.t. 261.449.086.8113.215.8-4.71.3 Contribution to Group’s profit b.t. 100%19%33%43%6%-2%0% Total assets 21,5772,8232,3349,7986,190337 96 % of total assets 100%13%11%45%29%2%0% CIR 62.3%68.1%44.4%63.0%35.8%177.5%157.4% Cost of risk (bps) -4126-141-11/// NLB Group’s main indicator of a segment’s efficiency is net profit before tax. No revenues were generated from transactions with a single external customer that would amount to 10% or more of Group's revenues. ![]() 62 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 15: Performance of the Retail Banking in Slovenia segment in EUR million consolidated 20212020 Change YoY Net interest income79.581.4-1.9-2% Net interest income from Assets (i) 82.778.44.35% Net interest income from Liabilities (i) -3.13.0-6.1- Net non-interest income91.589.02.53% o/w Net fee and commmission income96.682.713.817% Total net operating income171.0170.40.70% Total costs-116.5-114.1-2.4-2% Result before impairments and provisions54.556.2-1.7-3% Impairments and provisions-6.7-15.18.456% Net gains from investments in subsidiaries, associates, and JVs'1.10.90.227% Result before tax49.042.06.917% 31 Dec 202131 Dec 2020 Change YoY Net loans to customers2,731.62,415.4316.213% Gross loans to customers2,769.72,450.7319.013% Housing loans1,815.51,534.7280.918% Interest rate on housing Loans2.34%2.51%-0.17 p.p. Consumer loans635.6651.7-16.1-2% Interest rate on consumer Loans6.70%6.43%0.27 p.p. Other318.6264.354.321% Deposits from customers7,703.67,356.8346.85% Interest rate on deposits0.03%0.04%-0.01 p.p. Non-performing loans (gross)58.152.45.711% 20212020 Change YoY Cost of risk (in bps)2663-38 CIR68.1%67.0%1.1 p.p. Interest margin1.55%1.75%-0.20 p.p. (i) Net interest income from assets and liabilities with the use of FTP. The Bank continues to be the market leader in retail banking by knowing customers’ needs. Through anchor loan products and best-suited offers to different segments, the Bank again proved its efficiency and gained new clients. The banking environment is changing considerably and new approaches and sales channels are emerging. The Bank continues to be available through its traditional branch offices, but also through its mobile branch. Technology enables the availability of the Bank’s services to clients 24/7 via the Contact Centre and digital banking. Retail Banking in Slovenia Contribution to NLB Group Figure 29: Contributionto NLB Group Result b.t. 19% Net interest income 19% 36% Net non-interest income ![]() 63 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net interest income The net interest income from loans to individuals was EUR 4.3 million higher YoY; the higher volume of housing loans and higher interest margins on consumer loans was due to higher volumes of new production and a higher share of loans with a risk premium and quick loans in the portfolio; lower volumes on overdrafts had a negative impact on the interest income. There was also a reduction of the retail deposits margin after transfer price (FTP) in the amount of EUR 6.1 million YoY. Net non-interest income Higher net non-interest income in the amount of EUR2.5million YoY was due to EUR 13.8 million or 17% higher net fee and commission income related mostly to package repricing and higher net fees from asset management (high net inflows in mutual funds of NLB Skladi, EUR 192.8 million) and bancassurance. In April, the Bank started charging a fee for high balances for individuals to restrain the deposit inflow which diverted extra liquidity to other financial products (mutual funds, investments) and compensated for the negative interest rates charged for the balances at the CB. Net impairments and provisions Net impairments and provisions were established in the amount of EUR 6.7 million, due to changes in risk parameters. Loans to customers The production of new housing loans was record high, EUR 557.6 million in 2021 (2020: EUR 303.1 million). Deposits from customers The deposits base increased by EUR 346.8 million (5%) YoY, with sight deposits prevailing (95% in 2021, compared to 93% in 2020). Business performance The market leader in retail banking inSlovenia Leader in Slovenia Bank remains the leader in the Slovenian market in retail lending and deposit-taking. An encouraging increase of the market share is noticed in the category of housing loans, namely to 24.4% (31 December 2020: 22.5%), which is the result of a very impressive production of new housing loans in 2021 (market share of 32.2%; 2020: 28.3%). The Bank remains the leader because of their very well- established branch and ATM network, the 24/7 Contact centre, and continuous digitalization improvements. The Bank retains its role as a market leader in payments by being a reliable and trustworthy provider of payments services with a focus on providing a positive user experience. The private banking arm of the Bank has been positioned as a leader in this segment in Slovenia for over 20 years. NLB Skladi is a market-leading asset management company, whose market share and annual net inflows are increasing everyyear. Market share in loans to customers Market share in deposits from customers Market share in housing loans Market share 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 201931 Dec 202031 Dec 2021 Distribution channels Branch office and ATMs network The Bank’s main sales channel remains its branch network in Slovenia with 75 branches, and is supported with the ATM network (538 or a 37.6% market share in Slovenia) of which 89% are contactless. A higher daily limit of cash withdrawals on ATMs was enabled to encourage clients to increase use of ATMs, and consequently to strengthen the advisory role of branch offices. Mobile bank: NLB Bank&Go The mobile branch NLB Bank&Go, engaged in promoting the Bank in various cities in Slovenia, is being increasingly recognised. Unique 24/7 banking service in Slovenia Extending the use of video calling for sales and contract conclusions for almost all of the Bank’s products (consumer and housing loans with straightforward collateral, Vita and Generali insurance products, deposits, savings and cards, onboarding of e- and m-bank) was an important step towards strengthening the role of the Contact Centre as a 24/7 sales channel. The Contact Centre experienced a YoY increases of 11% in total contacts, mainly due to the 57% increase in video calls. Despite the broader scope of work, the client experience remained at a very high level, with an average 2021 NPS for video call and chat of 71. Figure 30: NLB’s market share in Retail Banking in Slovenia The Bank strengthened its position in Lending and Asset Management. 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 Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Sustainability Following the ESG orientation of the Group, special financing for the purchase of solar panels, power storage and heat pumps was agreed to be offered to clients by one of the Slovenian retailers, selling technical products. Digital banking The number of digital users continued to increase (13% YoY), with the number of active users surpassing 300,000. The number of m-bank Klikin and e-bank NLB Klik users increased by 23% (72,076 new users) and 6% (22,771 new users) YoY respectively, which is well demonstrated by the digital penetration (see the figure below). The total volume and number of payments processed in the e-bank and m-bank increased by 32% and 14% YoY, respectively. Figure 33: Online and mobile banking penetration 31 Dec 201831 Dec 201931 Dec 202031 Dec 2021 E-bankM-bank 35% 35% 27% 38% 40% 36% 42% 52% Digitalisation and improved client experience High level of client satisfaction The Bank maintained a high level of client satisfaction, as measured through the Customer Satisfaction Index (CSI). The CSI remains stable and well above competition. Furthermore, clients also express a high level of trust and loyalty. The Bank also managed to change price perception in segment of young people, where satisfaction improved (from 74 to 77; 2021 Valicon Client Satisfaction Survey). Figure 31: NLB Contact Centre no. of contacts 43,289 100,397 158,099 863,717 999,460 1,112,933 201920202021201920202021 Video call Totalcontacts Competitor banks' average 2021 NLB 2021 NLB 2020 NLB 2019 NLB 2018 75 81 83 77 77 Figure 32: Satisfaction withthe attitude towardscustomers Source: 2021 Valicon Client Satisfaction Survey. Mobile wallet - NLB Pay M-wallet NLB Pay usage is increasing at a significant pace and the application is constantly being upgraded. The most recent updates have been made in line with regulatory requirements forStrong Customer Authenticationand include Flik Instant Payments for person to person (P2P), person to merchant (P2M), and person to e-merchant (P2eM) payments. The application has become a must-have, especially as it is an easy way to confirm e-commerce purchases. 24.4% market share in housing loans. Digital banks NLB Klik’s and Klikin’s penetration and share of active users substantially increased. +57% +11% Figure 34: NLB Pay in numbers 12,827 18,402 44,097 7,722 12,577 36,218 201920202021201920202021 # of usersVolume of transactions (in EUR thousand) +140% +188% ![]() 65 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Ancillary businesses complementing bankingproducts NLB Skladi – Slovenia’s largest asset management company The market share of NLB Skladi increased to 37.3% (31 December 2020: 34.9%). With EUR232.8 million of net inflows in 2021, which is the company’s highest annual amount of inflows ever recorded, the company ranked first among its peers in Slovenia, accounting for 50.4% of all net inflows in the market. Fees for high balances of clients’ assets introduced in April 2021 also triggered a partial reallocation of client assets from deposits and contributed to an additional increase of interest occurred on asset management products. The total assets under management amounted to EUR 2,128.0 million (31December2020: EUR 1,625.6 million) of which EUR1,610.4 million consisted of mutual funds (31December 2020: EUR 1,125.5 million) and EUR 517.6 million of the discretionary portfolio (31 December 2020: EUR 500.1 million). Vita - insurance company The insurance company Vita remains the Bank’s strategic partner. Its products aresold through the Bank’s distribution network, such as savings and investment insurance products, risk, and health insurance products. Vita introduced a new health insurances product – NLB Vita Specialist, which among others covers the costs of medical specialists and more complex diagnostic examinations. Stable card market share The Bank’s card market share remained stable with 26.1% (2020: 26.5%) in the Slovenian market. New debit Mastercards (NLB Debit Mastercard, NLB Debit Mastercard World, and NLB Mastercard World Elite) were introduced to replace the Maestro card, and are part of the client’s wallet and mobile wallet NLB Pay. The debit Mastercard offers added value to clients at a time when most purchases are made online. SMS Instalments for personal pay-later payment cards were introduced. The only condition to activate this option is the activation of SMS Alarm service. This new service complements instalment purchases for all possible card transactions (POS and e-commerce purchases, ATM withdrawals). Flik Instant payments The introduction of a new payment method within the local Slovenian instant payment scheme Flik P2M promotes further migration from cash to digital payments. Flik P2M is integrated in the m-wallet NLB Pay and also provides support for iOS users. Private banking Leading private banking provider in Slovenia Private banking has positioned itself among the leading private banking providers in Slovenia for over 20 years. In 2021, its leading position was further strengthened with assets under management reaching EUR 1.2 billion (16% YoY), and the number of clients increased by 14% YoY. Throughout the year, private bankers managed to maintain sales activities on a high level. Results were solid in all areas, but the best were in mutual fund sales. This can be attributed to our dedicated team, the positive economic and capital market environment, and introduction of the fee for high balances for individual clients. By offering carefully selected and tailored products and services, the Bank demonstrates that it is able to take good care of their clients’ wealth. GENERALI Zavarovalnica - Non-life insurance products Non-life insurance products, including car and home insurance, are provided to clients in cooperation with the GENERALI Zavarovalnica. Despite challenging circumstances, excellent results were achieved, namely gross written premiums increased YoY by 19%, and the number of car insurance and home insurance policies by 19% and 23%. Figure 35: Assets under management and the number of private banking clients A new Debit Mastercard was introduced to replace the Maestro card. Figure 36: Customers’ penetration of ancillary business 31 Dec 201631 Dec 201731 Dec 201831 Dec 2019 31 Dec 202031 Dec 2021 NLB SkladiVitaGenerali 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 201631 Dec 201731 Dec 201831 Dec 201931 Dec 2020 31 Dec 2021 AuM (million EUR)# of Clients 554.0 746.9 752.5 911.1 1,075.1 1,242.9 1,077 1,168 1,231 1,309 1,580 1,800 ![]() We are your right hand. The great-grandfather had the first store on the street. The grandfather expanded his business onto the entire town. The father built a national store chain. For them, there are no limits. Even small companies have big plans. Yet, business growth demands creativity, passion and hard work.We want to cooperate with companies that boast such qualities and support them on their path. That is why we offer much more than just banking services – we share our knowledge with you to build a stronger, more profitable future in the region where determination and entrepreneurial courage know no limits. ![]() 67 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Bank is strengthening its market position as a systemic player in its home region, and actively participates in the growth of markets by supporting sustainable projects. As a leading player, the Bank also supports the more complex, cross-border needs of its clients and diversifies services for them. Clients’ trust and satisfaction are solid foundations for future sustainable growth. Corporate andInvestment Banking in Slovenia 31.5% market share in guarantees and letters of credit. Contribution to NLB Group Figure 37: Contributionto NLB Group Result b.t. 33% Net interest income 9% 26% Net non-interest income Financial performance Table 16: Performance of the Corporate and Investment Banking in Slovenia segment in EUR million consolidated 20212020 ChangeYoY Net interest income35.734.01.75% Net interest income from Assets (i) 41.136.84.312% Net interest income from Liabilities (i) -5.4-2.8-2.6-93% Net non-interest income65.841.224.660% o/w Net fee and commmission income38.933.25.717% Total net operating income101.575.226.335% Total costs-45.1-41.8-3.3-8% Result before impairments and provisions56.433.423.0 69% lmpairments and provisions30.59.021.5- Result before tax86.842.444.5105% 31 Dec 202131 Dec 2020 Change YoY Net loans to customers2,332.42,047.1285.214% Gross loans to customers2,390.72,167.5223.110% Corporate2,258.52,006.4252.113% Key/SME/Cross Border Corporates2,110.61,827.6283.115% Interest rate on Key/SME/Cross Border Corporates loans 1.79%1.79%0.00 p.p. Investment banking0.10.2-0.1-38% Restructuring and Workout 88.2160.8-72.6-45% NLB Lease&Go59.617.841.7- State 131.9160.7-28.8-18% Interest rate on State loans2.07%2.20%-0.13 p.p. Deposits from customers1,938.21,487.4450.730% Interest rate on deposits0.03%0.06%-0.03 p.p. Non-performing loans (gross)72.5156.0-83.5-53% 20212020 Change YoY Cost of risk (in bps)-141-44-97 CIR44.4%55.6%-11.1 p.p. Interest margin1.76%1.90%-0.15 p.p. (i) Net interest income from assets and liabilities with the use of FTP, ![]() 68 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net interest income The interest income from loans to corporate and state was EUR 4.3 million higher YoY, due to higher volumes, mostly in Key and Cross-Border Corporates. There was also a reduction of the deposits margin after transfer price (FTP) in the amount of EUR 2.6 million YoY. Non-recurring net non-interest income Non-recurring net non-interest valuation income in the amount of EUR 13.0 million from repayment of exposure, classified as non-performing, and EUR 8.6 million other operation income from the settlement of a legal dispute. Net fee and commission income Higher net fee and commission income YoY, mostly due to a higher fee for high balances on customers assets (EUR 6.6 million in 2021, EUR 3.3 million higher YoY) and arrangement fees for organisation of syndicated loans. Net impairments and provisions Net impairments and provisions were released in the amount of EUR 30.5 million due to the repayment of several exposures, changes in credit ratings, and changed parameters for collective impairments and provisions related to more favourable macroeconomic forecasts. Loans to customers The volume of loans to corporate increased by EUR 252.1 million YoY, mostly due to newly approved syndicated loans and increased volumes in the Cross-border Corporates and NLB Lease&Go. The Investment Banking and Custody The Investment Banking and Custody recorded non-interest income in the amount of EUR 10.8 million and increased by EUR 1.4million YoY, mostly due to arrangement fees for organisation of syndicated loans. The total value of assets under custody decreased YoY and amounted to EUR 15.9 billion (31December 2020: EUR 16.2 billion). Business performance Market leader focusingon customers’ needs Leading bank servicing corporate clients in Slovenia NLB is the leading bank in servicing corporate clients in Slovenia with a growing client base, and it has an 18.3% market share in corporate loans (31 December 2020: 17.3%). The Bank also remains a reliable partner to Slovenian companies when they want to expand their activities abroad. Despite substantial loan repayments, the entire portfolio grew as several new high-quality transactions were concluded in financing exports and manufacturing, the state, project finance, acquisitions, factoring, and international finance. In 2021, EUR 1,281.5 million of loans were approved to corporate and state clients presenting a 23% YoY increase. Market presence and a proactive approach are also reflected in the YoY growth of the loan portfolio in all corporate segments, namely in Key by 7%, SME by 9%, and Cross-border even by 79%. Growth is recorded across all products and services. As the leading bank in the Slovenian market for the organisation of syndicated loans, the Bank continues to successfully support and finance the expansion of Slovenian companies in the region. The Bank is also a leading Slovenian bank in the field of trade finance with products that support the export economy. Group clients are supported with letters of guarantees, letters of credit, and purchases of receivables through digital channels in a safe and fast way, with a market share of 31.5% (31 December 2020: 31.4%) in guarantees and letters of credit (including guarantee lines). Diversified product mix Bank’s offer The Bank’s offer of financial services, including lending, cash management, payment services, as well as capital markets’ advisory services supports various clients’ needs. Clients can get short-term or long-term financing facilities and advisory services to find a best-suited financing structure. In this way, the Bank supports key projects that are important for the development of the country, as well as the Group’s home region. Market share in loans to customers Market share in deposits from customers Market share in guarantees and letters of credit 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 31 Dec 201931 Dec 202031 Dec 2021 Figure 38: NLB’s market share in Corporate Banking in Slovenia 30.0% 17.5% 16.5% 31.4% 17.3% 17.0% 31.5% 18.9% 18.3% Client base expanded with additional stable and well performing groups of companies. ![]() 69 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Basic products & Cards business New debit Mastercard products (NLB Debit Mastercard Business and NLB Debit Mastercard World Business) are now also available to business account holders, replacing the Maestro business card. New debit cards are included in the renewed package offer for legal entities, namely NLB Business Package Basic, Advanced, and Comprehensive, with a special offer for the target group of newly established and non-profit clients. SMS Instalments for business pay-later payment cards were introduced, the only condition being the activation of an SMS Alarm service. This new service complements the instalment purchase for all possible card transactions (POS and e-commerce purchases, ATM withdrawals). Trade finance solutions The Bank is a leading Slovenian bank in the field of trade finance with products that also support the export economy, and represent an important part of the Slovenian economy. The trade finance product range and tailor-made solutions are comprehensive and range from traditional trade finance products, to other modern structures which provide safe financingthroughout thesupply chains. As a member of the Factor Chain International, the Bank aims to offer exporters and importers international purchase of receivables, thus providing them with a modern, fast, and easy way of financing, which is an additional incentive for international business. Special attention is given to letter of guarantees by which the Bank supports major infrastructure projects in Slovenia and the wider home region. The stronger market position reflects the Group’s active advisory approach towards its customers. Sustainability In the process of actively integrating the ESG factors, the Bank is devoting increasing efforts to identifying new business opportunities arising from its transition to support circular and carbon neutral economy. #HelpFrame, a social environment project with a clearly defined sustainability component, continued in 2021. In addition to know-how, advice, and services, advertising space was also made available to the selected entrepreneurs, farmers and small and micro companies, thus helping them present their products and services to potential buyers and customers. Project financing Recent developments in the real estate market have opened up new opportunities for project financing. With comprehensive financial solutions, supported by a strong team of experts, the Bank is able to meet even the most demanding challenges in this area. Each project is reviewed from different perspectives – feasibility, costs, and sale, thus trying to minimise risk for both, the Bank and the client. Clients are also supported in the trade finance area, as successful completion of the transaction also requires guarantees to eliminate hidden defects to end users. Favourable financing conditions are offered to the buyer of the property, and a team of mobile bankers is involved to ensure a successful implementation. The platform provides security and simplicity, a competitive edge to providers, and good user experience. Instant payments Since 2020, the Bank gradually introduced instant payments, including instant internal transfers and Flik payments in the NLB Pay. Instant outgoing payments are now also available to clients (free of charge) in the m-banking solutions Klikin and Klikpro. Flik payments With the main goal of decreasing the use of cash, the Flik P2M payment method is being gradually implemented in all shops with NLB POS terminals. NLB was the first bank in Slovenia to enable clients such a service. Global Payments Innovation (GPI) full on-boarding The Group, as a first banking group in the region, fully onboarded the GPI (Global Payment Initiative), i.e., service from SWIFT, which enables more efficient processing and easier tracking of international payment orders, thus enabling considerable improvement and smoother international payments experience for customers involved in international business. Figure 39: Transaction volume in acquiring (in EUR million) 14 47 55 2,247 2,348 2,535 201920202021201920202021 e-commerce (in EUR million)POS (in EUR million) +17% +8% A leader in merchant-acquiring The Bank is a leader in merchant-acquiring by accepting all major payment cards, the local Flik instant payment scheme and a modern contactless POS network, with a 36.7% market share in merchant acquiring. Users of e-commerce expect secure and simple online purchases, which is why the Bank offers NLB E-commerce, a modern payment platform, to its providers and their clients. Cross border financing is becoming increasingly important. ![]() 70 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report loans, which includes also some of world-renowned brands and leaders in their industries. The EEA lending portfolio exceeds EUR 150 million at YE, and is also expected to grow further due to very well-established relationships with some of the European partnership banks. Digitalisation ofproduct offering M-bank Klikpro The number of m-bank Klikpro users is constantly increasing (YoY by 17%), which proves that clients are adopting the process of digital banking. The latest upgrade also included digital signing of documents for a defined list of products, which will be further extended in the following periods. Mobile wallet NLB Pay The Bank’s mobile wallet NLB Pay application enables clients to make contactless, simple, fast, and secure payments on the contactless POS (in Slovenia and abroad) with the NLB Business Mastercard and NLB Business Maestro cards, and also enables instalment payments. Investment banking and securitiesservices Arranger of several transactions In 2021, the Bank organised six syndicated facilities in the total amount of EUR 652.1 million, where it also acted as the mandated lead arranger, as an agent, and also as the leading bank with EUR 275.7 million participation. International corporate business Collaboration within the Group Excess liquidity, a rather limited Slovenian market, and the wish to expand operations with existing and new clients are the main reasons why cross-border financing is becoming increasingly important. In the Western Balkans, the Bank is among others currently supporting selected projects mainly in the telecommunications and food industry, as well as renewable energy sources. At YE, the portfolio, including participating shares of Group subsidiaries lending in such a transaction, already well exceeds EUR 150 million. The notable potential in the region can be observed especially in corporate financing focusing on renewable energy, infrastructure, and residential project finance. Corporate lending in EEA The Bank also entered into different EU markets and diversified its cross-border portfolio across the EEA. Most notable transactions were concluded in Germany, France, Austria, and the Netherlands. Deals are primary made through participation in syndicated international facilities orthrough participation inSchuldschein The Bank helped many companies broaden funding base and arranged the issuance of both long-term and short-term instruments in the total of EUR 44.3 million on debt capital markets. The Bank was active in M&A and other financial advisory engagements. As the sole financial advisor, it successfully organised the sales process of a leading Slovenian company in the production of paints. The Bank successfully organised two takeover bids as well. Brokerage services and Financial Instruments In the brokerage services in 2021, the Bank executed clients’ buy and sell orders in the total amount of EUR 902.9 million (2020: EUR 941.3 million), while in the area of dealing in financial instruments, the Bank executed foreign exchange spot deals in the total of EUR 946.6 million (2020: EUR 724.0 million) and for EUR 382.5 million (2020: EUR 242.6 million) worth of transactions involving derivatives. Good economic conditions in 2021 resulted in more activities in foreign, non-Euro markets, by the clients. At the same time, due to higher inflation expectations, more demand for interest rate hedging was noticed. Custodian services The Bank remains one of the top Slovenian players in custodian services for Slovenian and international customers. The total value of assets under custody on 31 December 2021 was, together with the fund administration services, EUR 15.9 billion (31 December 2020: EUR 16.2 billion). Arranging EUR 652.1 million of syndicated loans. ![]() 71 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 17: Results of the Strategic Foreign Markets segment in EUR million consolidated 20212020 Change YoY o/w KB contribution Net interest income266.8159.3107.598.868% Interest income299.6182.6117.0111.564% Interest expense-32.8-23.3-9.5-12.8-41% Net non-interest income95.149.845.333.291% o/w Net fee and commmission income101.654.147.542.388% Total net operating income361.9209.1152.9132.073% Total costs-227.9-109.0-118.9-107.3-109% Result before impairments and provisions134.0100.134.024.734% Impairments and provisions-20.8-59.138.3-20.665% Negative goodwill (KB)137.9-137.9- Result before tax113.2178.8-65.64.2-37% o/w Result of minority shareholders11.53.08.41.5- 31 Dec 202131 Dec 2020 (i) Change YoY Net loans to customers5,441.95,052.4389.58% Gross loans to customers5,632.25,234.8397.48% Individuals2,877.32,592.9284.411% Interest rate on retail loans5.83%--0.45 p.p. Corporate2,613.52,443.7169.87% Interest rate on corporate loans3.96%--0.20 p.p. State 141.4198.1-56.7-29% Interest rate on state loans3.35%--0.18 p.p. Deposits from customers7,998.87,552.2446.66% Interest rate on deposits0.29%--0.14 p.p. Non-performing loans (gross)191.7195.0-3.3-2% 20212020 Change YoY Cost of risk (in bps) (ii) -11140-151 CIR63.0%52.1%10.8 p.p. Interest margin (ii) 2.86%3.33%-0.47 p.p. (i) Interest rates for 2020 are calculated without Komercijalna Banka group. (ii) Komercijalna Banka, Beograd is excluded from the calculation. With the merger of two banks in Montenegro and the finalised sale of one bank in the Republic of Srpska in 2021, the core part of the Group in foreign markets now consists of seven banks and one investment fund company. They are locally even stronger embedded as important financial institutions and market leaders in various business segments. All Group subsidiary banks have a stable market position and strong reputation. The market shares by total assets of subsidiary banks exceed 10% in five out of six markets. The banks in the Group strategic foreign markets offer a full range of financial services to retail and corporate clients. In 2021, the Group banks marked remarkable double-digit growth of gross loans to customers, especially in housing loans segments with raised demand for housing loans, reaching up to 41% YoY (NLB Banka, Sarajevo) to 55% YoY growth rates (NLB Banka, Beograd). In 2021 the Group banks accelerated their digital transformation by offering e-identification (NLB Banka, Skopje), pay mobile card solution, end-to-end automated loan processing (Komercijalna Banka, Beograd) to robotics solutions in several internal processes (NLB Banka, Sarajevo), and implemented SWIFT GPI services to enable faster, more transparent, and reliable international transactions to its clients. Strategic Foreign Markets Contribution to NLB Group Figure 40: Contributionto NLB Group Result b.t. 43% Net interest income 65% 37% Net non-interest income ![]() 72 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net interest income Net interest income increased by EUR 8.8 million (6%) YoY without theKomercijalnaBanka group contribution, due to higher volumes despite a lower interest margin. Net non-interest income Net non-interest income increased EUR 12.1 million YoY without theKomercijalnaBanka group contribution, ofwhich EUR 5.1 million in net fee and commission income due to normalisation of business after COVID-19 outbreak in 2020. Net non-interest income in 2021 was negatively affected with the sale of Komercijalna Banka, Banja Luka (EUR 8.1 million), while in 2020 with modification losses caused by changes of contractual cash flows for loans subject to COVID-19 moratoria in 2020. Totalcosts Total costs increased YoY (EUR 11.6 million or 11%) due to a higher volume of business in all banks and additionally due to integration costs on the Serbian and Montenegrin markets. Net impairments and provisions Net impairments and provisions were established in the amount of EUR 20.8 million, mostly related to legal and restructuring provisions, while impairments and provisions for credit risk of the segment were net released. Figure 41: Gross loans volume and interest rates in Strategic Foreign Markets Seven subsidiary banks and one investment fund company. Gross loans to customers Gross loans to customers increased by EUR397.4 million (8%) YoY, despite EUR 155.4 million decrease attributable to the sale of Komercijalna Banka, Banja Luka. The most material increase was in housing loans. The increase of the loan portfolio was visible in all of the member banks; the largest increases were recorded in Komercijalna Banka, Beograd (EUR 202.5 million) and NLB Banka, Skopje (EUR 123.1 million). 1,604.0 3,162.0 6.71% 4.46% 1,558.0 31 Dec 201931 Dec 202031 Dec 202120192020 w/o KB 2021 IndividualsCorporate & state +8% YoY 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 EUR 113.2million only 37% lower compared to last year, when the result was higher due to acquisition of Komercijalna Banka, Beograd. ![]() 73 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Figure 42: Deposit volume and interest rates in Strategic Foreign Markets Deposits from customers Deposits from customers increased by EUR 446.6 million YoY, despite EUR 154.7 million decrease due to the sale of Komercijalna Banka, Banja Luka. The growth was recorded in all member banks, except NLB Banka, Beograd. 2,598.0 3,856.7 0.58% 0.41% 1,258.7 31 Dec 201931 Dec 202031 Dec 202120192020 w/o KB 2021 IndividualsCorporate & state +6% YoY 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 market shares (by total assets) of subsidiary banks exceed 10% in five out of six markets. ![]() 74 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Komercijalna Banka, Beograd The acquisition of Komercijalna Banka, Beograd further strengthened the Group’s strategic position in Serbia and has placed NLB as one of the leading (and systemic) banks on the market. The bank is strongly positioned as a leader on retail market with more than 1.1 million clients, and a high market share both in lending (consumer and housing) and deposits. In corporate segment, the bank was mainly building relationships with public and large domestic companies. Nevertheless, the Group recognises that Komercijalna Banka, Beograd has still important growth potential in all the segments, which is expected to be realised in the following period. NLB finalised harmonisation of Komercijalna Banka, Beograd with NLB Group standards within six months from acquisition, while the merger of Komercijalna Banka, Beograd with NLB Banka, Beograd is planned for the end of April 2022. It is expected that the merger of the two banks could bring important synergy effects on cost and on revenue side. After finalisation of the merger, the Bank will focus on digitalization and modernisation of services to establish the bank as one of the leaders in service quality. Despite ongoing harmonisation activities and merger process with the NLB Banka, Beograd, the bank achieved in 2021 record sales growth in both retail and corporate banking segment and already introduced some modern digital solutions (Kombank pay mobile card solution, end-to-end automated loan processing, etc.). Macroeconomic Snapshot In Serbia, the economy lost some steam in Q4 due to rising price pressures while softer merchandise import growth suggesting a slight cooldown in domestic demand. Nevertheless, the economy rebounded from a mild contraction in 2020 with investment and private consumption propelling economic activity in 2021. Figure 43: GDP growth, Inflation, 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook Economic growth is expected to return towards the pre- pandemic path, and so, growth is expected at a slower pace in 2022. The economy should grow on the back of private consumption and investment,while governmentinvestment and EU funds should further aid the growth. Downside risks are in the form of pandemic-related uncertainty, sturdier and prolonged elevated inflation, the long-term impact of supply- side bottlenecks and economic implications of the war in Ukraine. Contribution to NLB Group Figure 44: Contributionto NLB Group 18% Net non-interest income Result b.t. 10% Net interest income 22% Banking services provided through: 190 branches 281 ATMs 4 th largest bank in the country. ![]() 75 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Business performance Retail banking The retail segment, with the largest client base on the local market, represents the predominant strength of Komercijalna Banka, Beograd. Since the acquisition, the bank focuses strongly on boosting activity in retail area through series of structural initiatives. These initiatives resulted in significant growth in gross loans (9% YoY). The Bank recorded the historically highest loan production growth (cash loans 62% YoY growth, retail housing loans 34% YoY growth) and growth in total income (9% higher YoY) and growth in net fees (18% higher YoY). The bank finally managed to defend the retail loan market share despite the ongoing integration process. Conversely, deposits growth was 10% YoY of which foreign currency savings grew EUR 169 million. The bank also developed ‘KomBank Pay,’ a mobile wallet for contactless payments. Corporatebanking Corporate banking in the bank was historically concentrated on servicing public and domestic companies and was holding a less dominant market position compared to the retail segment. In the corporate segment, the bank improved its management structure and processes. This generated 18% YoY growth in gross loans. In addition, 2021 was a record year in the bank in terms of new loan production which amounted to EUR 524.7 million, representing 39% growth YoY, and mainly comingfrom large segment clients, noticeably outperforming the market growth. Additionally, corporate deposits noted a growth of 8%. The key drivers of income growth were large corporate and SME loans. Net non-interest income increased by 3% YoY and net fees recorded growth by 11% YoY. Additionally, the bank redesigned offer of existing loans for liquidity and working capital (18 and 36 months), and introduced reverse factoring (production of EUR 7.4 million).  Financial performance Table 18: Key performance indicators of Komercijalna Banka, Beograd (i) in EUR thousand 2021 Key performance indicators Net interest income88,570 Net non-interest income40,110 Total costs-87,979 Impairments and provisions-7,637 Result before tax33,064 Result after tax34,818 Financial position statement indicators Total assets4,165,249 Net loans to customers1,795,882 Gross loans to customers1,818,793 Deposits from customers3,424,633 Equity634,643 Key financial indicators Total capital ratio28.6% Net interest margin2.4% ROE a.t.5.5% ROA a.t.0.9% CIR68.4% NPL volume36,329 NPL ratio (internal def.: NPL/Total loans)1.4% Market share by total assets9.7% LTD 52.4% (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. For year 2020, comparable data are not available. The bank realised a profit after tax in the amount of EUR 34.8million, ROE a.t. 5.5% and CIR 68.4%. TCR was stable at 28.6%. The result was driven by the high loan production growth in retail and corporate. Net interest income reached EUR 88.6 million, while net non-interest income was EUR40.1million. The total assets amounted to EUR4,165.2million. The NPL ratio was 1.4%. 9.7% market share in total assets. EUR 33.1 million result b.t. Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 31 Dec 202031 Dec 2021 11.8% 10.0% 6.3% 8.5% 11.2% 9.7% 6.3% 8.4% Figure 45: 2-year market share evolution ![]() 76 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka, Beograd In 2021, one of the crucial activities for NLB Banka, Beograd was participation and full support for the ongoing integration project with Komercijalna Banka, Beograd where the merger is planned in Q2 2022. After the merger, NLB Banka, Beograd will cease to exist. The bank was fully engaged in all initiatives of the integration process. In spite of demanding integration process, the Bank managed to maintain dynamic sales activity, where the retail and agro segments produced outstanding results. The bank increased market shares in housing and consumer loans, and in the agro segment the bank managed to strengthen its market position to 14.1% (2020: 13.6%). Macroeconomic Snapshot and Outlook for Serbia see under Komercijalna Banka, Beograd. Financial performance Table 19: Key performance indicators of NLB Banka, Beograd (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income23,35921,8227.0% Net non-interest income6,9544,81244.5% Total costs-22,170-20,351-8.9% Impairments and provisions-3,202-3,59110.8% Result before tax4,9412,69283.5% Result after tax4,2932,59865.2% Financial position statement indicators Total assets715,375686,6934.2% Net loans to customers511,693472,1708.4% Gross loans to customers520,518482,5527.9% Deposits from customers449,476496,288-9.4% Equity77,91874,2055.0% Key financial indicators Total capital ratio19.2%19.1%0.2 p.p. Net interest margin3.4%3.4%0.1 p.p. ROE a.t.5.5%3.5%2.0 p.p. ROA a.t.0.6%0.4%0.2 p.p. CIR73.1%76.4%-3.3 p.p. NPL volume9,4898,7188.8% NPL ratio (internal def.: NPL/Total loans) 1.5%1.4%0.1 p.p. Market share by total assets (ii) 1.6%1.9%-0.2 p.p. LTD 113.8%95.1%18.7 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. (ii) Data for 2021 as at 30 September 2021. The bank realised a profit after tax in the amount of EUR 4.3million (2020: EUR 2.6 million) and profit before impairments and provisions in the amount of EUR 8.1 million (2020: EUR 6.3 million). ROE a.t. was 5.5% (2020: 3.5%), while CIR decreased to 73.1% (2020: 76.4%). The result was mainly driven by the increase in business volume. The total assets of the bank rose by 4%, the main factor being new loan production. NPL ratio increased to 1.5% (2020: 1.4%). Contribution to NLB Group Figure 46: Contributionto NLB Group Result b.t. 2% Net interest income 6% 3% Net non-interest income 16 th largest bank in the country. Banking services provided through: 28 branches 63 ATMs ![]() 77 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Corporatebanking As a part of the integration strategy for Serbia, large company production has been moved from NLB Banka, Beograd to Komercijalna Banka, Beograd, to benefit from the larger capital base and lower cost of funding, which finally resulted in the decline in overall gross loans (-1.4%) in NLB Banka, Beograd. Thus, the corporate portfolio was driven mainly by production in SME segment, which was on a satisfactory level. In addition, in the integration process it has been decided to move corporate sales force and production completely to Komercijalna Banka, Beograd at the beginning of 2022 (including the micro and agro segments in retail), which was one of the major organisational initiatives impacting the corporate team at the end of 2021. Deposit volumes also declined during the year (-3.1%), driven on one side by the transfer of large corporates to Komercijalna Banka, Beograd, while on the other side there was one additional major impact coming from a synergy initiative between both banks enabling NLB Banka, Beograd to offer loans at higher pricing compared to the cost of deposits NLB Banka, Beograd paid on the market. Due to this, NLB Banka, Beograd was in the position to gradually release expensive deposits, which resulted in a decline of deposit volumes. Business performance Retail banking Retail banking recorded double-digit growth in gross loans (22.3%), while deposits declined by 13.8% compared to 2020. Retail deposits were mainly in EUR. In 2021, the retail loan portfolio was dominated by consumer loans (62.4% of gross retail loans), while housing loans occupied 36.1% of gross retail loans. The retail loan portfolio is driven by cash loans (RSD) with still attractive interest rates (below 7.6%). The interest margin on cash loans was high, but under significant pressure coming from competition and falling interest rates in RSD and increasing dinarisation 12 in general. In 2021, the bank put more efforts on housing loans and achieved a significant 55% YoY growth in this segment, where the market is very active and competitive with banks were offering interesting products at attractive prices. Figure 47: 3-year market share evolution (i) Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 31 Dec 201931 Dec 202031 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 share data for 2021 as at 30 September 2021. 12Dinarisation – Strategy of Dinarisation of the Serbian Financial System as per Memorandum, signed between National Bank of Serbia (NBS) and the Government of the Republic of Serbia, expected to be implemented in 2022. 1.6% market share in total assets. EUR 4.9 million result b.t. ![]() 78 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Macroeconomic Snapshot In North Macedonia, economic growth slowed considerably in Q3 as the base effect faded. Growth in private consumption and investment decelerated, while the external sector supported economic activity. In Q4 2021, growth in retail sales eased as inflation further increased, at the same time as industrial production figures imply stronger private sector dynamics. Figure 48: GDP growth, Inflation, 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook GDP should record a solid expansion in 2022 on the back of private consumption. This should be the main growth driver of the firming domestic demand, while foreign demand should also be supportive of the activity. Pandemic-related uncertainty, high energy prices, and prolonged disruption of supply chains represent the main downside risks to the outlook. Economic implications of the war in Ukraine represent an additional downside risk to the outlook. NLB Banka, Skopje On its local market, the bank is in the group of systemically important banks. The predominant strength of the bank is the retail segment. However, the bank provides a full range of financial services to retail and corporate clients. Having a continuous progress in digitalization, the bank achieved in 2021 great success in this field, being the first bank in the country by introducing e-identification, upgrading, and adjusting the mKlik application for visually impaired clients and by opening a new, completely digital branch, offering cashless services. The position of a market leader in bancassurance was once again confirmed by expanding the offer, introducing voluntary private healthinsurance and a new unique life insurance product in cooperation with partner insurance company. Besides this, the bank introduced assets management products for clients, the sale and trading of shares and funds for individuals and legal entities in cooperation with an asset management and investment services company. Contribution to NLB Group Figure 49: Contributionto NLB Group Result b.t. 17% Net interest income 13% 7% Net non-interest income 3 rd largest bank in the country. Banking services provided through: 48 branches 170 ATMs ![]() 79 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report provisions and higher collected written-off receivables. The total assets of the bank rose by 12%, with a 12% growth in gross loans to customers, and a 9% growth in deposits from customers. The NPL ratio amounted to 4.3% (2020: 5.1%). Business performance Retail banking Retail banking recorded a significant growth in gross loans (12%) substantially over the market average growth, driven by the growth in housing loans (17.5%) and in the deposit base (9%). The retail loan portfolio was dominated by consumer loans (54.4% of gross retail loans), while housing loans occupied 37.5% of gross retail loans. The interest margin in the retail segment is still high, but under strong pressure from competition and expansive monetary policy. The key drivers of income growth were domestic and foreign payment operations, account management, and card operations. Figure 50: 3-year market share evolution Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 201931 Dec 202031 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% Corporatebanking The upward trend in the corporate segment which started in May, resulted in a 12% growth in gross loans at the 2021 YE. Corporate deposits noted a growth of 8%. The key drivers of income growth were long-term loans, investment, loans for working capital and the liquidity needs of the companies, as well as domestic and foreign payment operations and account management. As at 31 December 2021, the bank had a market share of 14.9% in corporate gross loans. The bank increased the portfolio, especially in the segment of long-term financing to high- rated clients, who secured the long-term stability of the portfolio and stable revenue generation. The bank approved total of EUR 55 million in project financing, out of which almost EUR 20 million was approved solely for green energy investments, while also providing syndicated financing for several large clients. The bank has successfully concluded the internationally financed syndicated facility for the shopping mall in Skopje, opened and operational since October 2021, as one of the most important projects for the bank and the Group. The project totalling EUR 72 million, was supported with participation of five banks – three local banks and two international banks. Financial performance Table 20: Key performance indicators of NLB Banka. Skopje (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income50,38648,1404.7% Net non-interest income18,04314,51824.3% Total costs-28,619-26,497-8.0% Impairments and provisions3,244-15,373- Result before tax43,05420,788107.1% Result after tax39,00019,222102.9% Financial position statement indicators Total assets1,770,5871,585,65211.7% Net loans to customers1,084,075956,93113.3% Gross loans to customers1,144,4201,021,27612.1% Deposits from customers1,399,5011,288,8248.6% Equity243,267229,7775.9% Key financial indicators Total capital ratio18.0%15.7%2.3 p.p. Net interest margin3.1%3.3%-0.2 p.p. ROE a.t.15.9%8.8%7.1 p.p. ROA a.t.2.4%1.3%1.1 p.p. CIR41.8%42.3%-0.5 p.p. NPL volume59,72863,177-5.5% NPL ratio (internal def.: NPL/Total loans) 4.3%5.1%-0.8 p.p. Market share by total assets16.9%16.5%0.4 p.p. LTD 77.5%74.2%3.2 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. The bank realised a profit after tax in the amount of EUR 39.0 million (2020: EUR 19.2 million), and profit before impairments and provisions in the amount of EUR 39.8 million (2020: EUR 36.2 million). This very good result in the first post COVID-19 year reflected in ROE a.t., which increased to 15.9% (2020: 8.8%), and CIR, which decreased to 41.8% (2020: 42.3%). TCR increased to 18.0% (2020: 15.7%). The result was driven mostly by retail lending, payment services, and additionally by lower impairments and 16.9% market share in total assets. EUR 43.1 million result b.t. ![]() 80 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Macroeconomic Snapshot In BiH, the economy expanded at a softer pace in Q3, partly due to a less favourable base effect. Private consumption recorded the largest slowdown in growth rate amid rising inflation. Higher growth in public and capital spending propelled the domestic economy. In Q4, a further rise in consumer prices and pandemic-related restrictions further weighed on private consumption. Figure 51: GDP growth, Inflation, 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook The economy is expected to record a solid growth in 2022, supported by higher capital and public spending while the relaxationof restrictive pandemic-related measures at home and abroad should further bolster economic activity. Pandemic-related uncertainty,slowerrecovery in export markets, and political tensions represent the downside risks to the outlook. Additional downside risk to the outlook has arisen due to the war in Ukraine. NLB Banka, Banja Luka The bank in 2021 celebrated its 25 th anniversary. The predominant strength of the bank is its market position in the corporate and retail segments, and a very strong deposit base. The bank introduced new banking solutions and products for clients largely contributing to a high share of net non-interest income (37.7% of fee and commissions income in net income). Contribution to NLB Group Figure 52: Contributionto NLB Group Result b.t. 7% Net interest income 5% 5% Net non-interest income 2 nd largest bank in the Republic of Srpska. Banking services provided through: 47 branches 71 ATMs ![]() 81 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report released impairments and provisions as a result of successful NPL management. Net non-interest income represents 39.5% of total income, the highest among NLB Group banking subsidiaries. The total assets of the bank rose by 16%, with a 9% growth in net loans to customers, predominantly to individuals, and a 20% growth in deposits from customers, respectively. The NPL ratio decreased to 1.3% (2020: 2.3%). Business performance Retail banking Retail banking recorded double digit growth in gross loans (14%) and deposits (10%). The retail loan portfolio was dominated by housing loans (51.9% of gross retail loans), while consumer loans participated with 43.5% of gross retail loans. Growth in gross retail loans was recorded, mainly due to growth in consumer loans (8%) and housing loans (13%). The key drivers of income growth were new loan production and card operations. The focus remains in further growth of retail portfolio, with special emphasis on introducing additional services for customers, especially in the field of digitalisation. Figure 53: 3-year market share evolution Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 201931 Dec 202031 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% Corporatebanking Corporate banking recorded a growth in deposits (22%), as well as in gross loans to corporate (3%). The pandemic situation had a huge influence in reducing the demand for investments and new projects for the second year in the row, which also effected the loan portfolio in this segment. The Banking Agency of Republic of Srpska (BARS) maintains reliefs, moratoriums, and grace periods for clients directly and indirectly affected by the negative effects from the pandemic. Financial performance Table 21: Key performance indicators of NLB Banka, Banja Luka (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income20,08718,5898.1% Net non-interest income13,12811,47714.4% Total costs-15,182-13,874-9.4% Impairments and provisions1,379-5,009- Result before tax19,41211,18373.6% Result after tax18,18010,12279.6% Financial position statement indicators Total assets927,152796,48616.4% Net loans to customers471,144430,7139.4% Gross loans to customers488,672450,7088.4% Deposits from customers759,915633,50720.0% Equity97,14999,872-2.7% Key financial indicators Total capital ratio16.9%17.3%-0.5 p.p. Net interest margin2.4%2.5%-0.1 p.p. ROE a.t.17.0%10.8%6.2 p.p. ROA a.t.2.1%1.3%0.8 p.p. CIR45.7%46.1%-0.4 p.p. NPL volume9,37113,703-31.6% NPL ratio (internal def.: NPL/Total loans) 1.3%2.3%-1.0 p.p. Market share by total assets19.1%18.6%0.4 p.p. LTD 62.0%68.0%-6.0 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. The bank realised a profit after tax in the amount of EUR 18.2 million (2020: EUR 10.1 million), and profit before impairments and provisions in the amount of EUR 18.0 million (2020: EUR 16.2 million). ROE a.t. was 17.0% (2020: 10.8%) and CIR dropped to 45.7% (2020: 46.1%). TCR also dropped to 16.9% (2020: 17.3%). The main drivers of the result were higher income and 19.1% market share in total assets. EUR 19.4 million result b.t. ![]() 82 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Komercijalna Banka, Banja Luka The sale process of Komercijalna Banka, Banja Luka was concluded on 9December2021, therefore after that date the bank was no longer part of NLB Group. Until 9 December 2021 Komercijalna Banka, Banja Luka was part of the core segment, one of the stand-alone member banks of the Group, therefore the key performance indicators of the bank for 2021 are represented in the table below. Table 22: Key performance indicators of Komercijalna Banka, Banja Luka (i) in EUR thousand 2021 Key performance indicators Net interest income4,885 Net non-interest income1,655 Total costs-5,393 Impairments and provisions-607 Result before tax540 Result after tax495 (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. For year 2020 comparable data are not available. ![]() 83 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka, Sarajevo The predominant strength of the bank is in consumer lending and the development of innovative retail products largely contributing to a high share of net non-interest income (33% of fee and commission income in net income). Improving customer experience was achieved with the introduction of new digital products and robotic process automation (RPA) solutions. Macroeconomic Snapshot In BiH, the economy expanded at a softer pace in Q3, partly due to a less favourable base effect. Private consumption recorded the largest slowdown in growth rate amid rising inflation. Higher growth in public and capital spending propelled the domestic economy. In Q4, a further rise in consumer prices and pandemic-related restrictions further weighed on private consumption. Figure 54: GDP growth, Inflation, 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook The economy is expected to record a solid growth in 2022, supported by higher capital and public spending while relaxationof restrictive pandemic-related measures at home and abroad should further bolster economic activity. Pandemic-related uncertainty,slowerrecovery in export markets, and political tensions represent the downside risks to the outlook. Additional downside risk to the outlook has arisen due to the war in Ukraine. Contribution to NLB Group Figure 55: Contributionto NLB Group Result b.t. 4% Net interest income 4% 4% Net non-interest income Banking services provided through: 36 branches 84 ATMs 7 th largest bank in the Federation of BiH. ![]() 84 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 23: Key performance indicators of NLB Banka. Sarajevo (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income17,79517,826-0.2% Net non-interest income10,2568,90215.2% Total costs-16,183-15,113-7.1% Impairments and provisions-920-5,06381.8% Result before tax10,9486,55267.1% Result after tax10,0125,89569.8% Financial position statement indicators Total assets727,860647,15012.5% Net loans to customers452,977399,14613.5% Gross loans to customers473,118420,27412.6% Deposits from customers593,026521,63913.7% Equity87,83889,808-2.2% Key financial indicators Total capital ratio16.9%17.9%-1.1 p.p. Net interest margin2.8%2.9%-0.2 p.p. ROE a.t.10.7%7.0%3.7 p.p. ROA a.t.1.5%0.9%0.6 p.p. CIR57.7%56.5%1.1 p.p. NPL volume19,04624,691-22.9% NPL ratio (internal def.: NPL/Total loans) 3.1%4.5%-1.4 p.p. Market share by total assets (ii) 5.4%5.2%0.2 p.p. LTD 76.4%76.5%-0.1 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. (ii) Data for 2021 as at 30 September 2021. The bank realised a profit after tax in the amount of EUR 10.0 million (2020: EUR 5.9 million), and profit before impairments and provisions in the amount of EUR 11.9 million (2020: EUR 11.6 million). The higher profit was the result of higher net non- interest income and release of impairments and provisions. ROE a.t. increased to 10.7% (2020: 7.0%), and CIR increased to 57.7% (2020: 56.5%). Net interest income was at the same level as in 2020, while net interest margin dropped to 2.8% (2020: 2.9%). Net non-interest income was higher than previous year, mainly due to higher net income from financial operations. The bank intensified activities on less risky products such as trade finance and with good results compensated missing interest income. TCR stood at 16.9% and was above the regulatory required minimum. Total assets of the bank rose by 12%, with 13% growth in net loans and 14% growth in deposits. The NPL ratio decreased to 3.1% (2020: 4.5%). Business performance Retail banking Retail banking recorded growth in gross loans (12%) and deposits (8%). Growth in gross retail loans was driven by growth of housing and consumer loans. Significant growth of housing loans of 41% was the result of increased demand, many campaigns and increased engagement of employees. The share of housing loans in total retail loans increased by 4p.p., to 20.5%. The average interest rate in the retail segment is decreasing (2021: 5.73%; 2020: 6.26%). The bank continued with activities aimed to increase the active number of e- and m-banking users; the number of active users for e- and m-Bank in 2021 increased by 60%, and the number of transactions by 72%. Figure 56: 3-year market share evolution (i) Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 31 Dec 201931 Dec 202031 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) Market share data for 2021 as at 30 September 2021. Corporatebanking The corporate banking segment recorded a growth in gross loans (14%) and deposits (9%). Focus was on increasing the client loan portfolio with acquisition of new creditworthy clients. Also, a positive trend was in the volume of guarantees portfolio, mainly due to the introduction of a new product ‘Guarantee Line.’ Deposits from corporates increased. In December, the bank introduced a fee for vista deposits above EUR 0.3 million for legal entities, with the exception of the government and public enterprises. The aim was to reduce the concentration of a vista corporate deposits. 5.4% 13 market share in total assets. 13 Data for 2021 as at 30September 2021. EUR 10.9 million result b.t. ![]() 85 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka, Prishtina On its market, the bank is the market leader and had above average growth in 2021. The predominant strength of the bank is in providing a full spectrum of financial services to retail and corporate clients, and being a market leader in innovations on the local banking sector. A noticeable boost has been observed in e-banking usage resulting in an increased number of e-banking users by 17.8%. Macroeconomic Snapshot In Kosovo, the pace of economic expansion softened in Q3, although it remained strong. The deceleration reflected softer domestic demand with private and public consumption increasing at a slower pace. Exports of goods and services propelled the economy in Q3. In Q4, domestic demand seems to have cooled amid rising inflation and falling remittances inflows. Nevertheless, in 2021 remittances inflows largely surpassed pre-pandemic levels, thus representing a considerable domestic demand aid. Diaspora inflows were in general a significant driver of the economic growth, especially when pandemic-related restrictive measures wereeased. Figure 57: GDP growth, Inflation, 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook The economy should record a robust although cooled-down economic growth in 2022 due to the lower base effect. Firming capital expenditure growth and a tighter labour market are seen supporting activity, assisted by the beneficial effect of healthier external backdrop.Pandemic-related uncertainty and lingering political uncertainty are downside risks to the outlook. The war in Ukraine and its overall economic implication represents additional downside risks to the outlook. Contribution to NLB Group Figure 58: Contributionto NLB Group Result b.t. 10% Net interest income 9% 3% Net non-interest income Banking services provided through: 33 branches 99 ATMs 2 nd largest bank in the country. ![]() 86 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 24: Key performance indicators of NLB Banka, Prishtina (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income34,45932,2866.7% Net non-interest income7,3746,39215.4% Total costs-13,546-12,289-10.2% Impairments and provisions-1,064-11,34590.6% Result before tax27,22315,04481.0% Result after tax24,43613,33483.3% Financial position statement indicators Total assets930,545879,0645.9% Net loans to customers634,529559,22313.5% Gross loans to customers672,376596,07612.8% Deposits from customers798,790748,3156.7% Equity98,85698,3350.5% Key financial indicators Total capital ratio17.3%17.8%-0.5 p.p. Net interest margin3.8%3.9%-0.1 p.p. ROE a.t.22.4%14.5%8.0 p.p. ROA a.t.2.7%1.6%1.1 p.p. CIR32.4%31.8%0.6 p.p. NPL volume15,61417,519-10.9% NPL ratio (internal def.: NPL/Total loans) 1.9%2.3%-0.3 p.p. Market share by total assets16.3%17.2%-0.9 p.p. LTD 79.4%74.7%4.7 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. The financial result of the bank remained solid, although influenced by COVID-19. The net profit amounted to EUR 24.4 million (2020: EUR 13.3 million), while the profit before impairments and provisions increased to EUR 28.3 million (2020: EUR 26.4 million). ROE a.t. was 22.4% (2020: 14.5%), while CIR minimally increased to 32.4% (2020: 31.8%). TCR decreased to 17.3% (2020: 17.8%) due to dividend payout. The result was mainly driven by the increase of the business volumes. The total assets of the bank rose by 6%, the main factors were the amount of net loans to customers and deposits from customers. The NPL ratio decreased to 1.9% (2020: 2.3%). Business performance Retail banking In 2021, the bank recorded growth in gross loans (17%) and deposits (12%). The retail loan portfolio was dominated by housing loans (70.7% of gross retail loans), while consumer loans occupied 26.3% of gross retail loans. Growth in gross retail loans was recorded, mainly due to the increased volume of housing loans (21% growth). The key drivers of income growth were housing loans. The growth in retail was mainly driven by several partnership agreements with construction and trade companies to finance its products. New m-Klik features were also introduced. Figure 59: 3-year market share evolution Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 19.5% 19.0% 18.5% 18.0% 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 31 Dec 201931 Dec 202031 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% Corporatebanking Corporate banking recorded growth in gross loans (10%), which was mainly due to the cross-selling of products through existing corporate clients targeting new retail and SME clients as well. A discouraging approach on deposits was reflected in a 7% decrease compared to 2020 YE. The key drivers of income growth were loans for fixed assets and overdrafts. The bank offered fast, safe, and reliable execution of payments, and competitive pricing led to an increased number of payments contributing to the non-interest income growth. Cooperation on the Group level resulted in the financing of the construction of a major locally recognised project contributing largely to clean energy production from renewable sources. 16.3% market share in total assets. EUR 27.2 million result b.t. ![]() 87 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka,Podgorica On 12 November 2021, the merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica was completed and the bank continues to operate under the franchise of NLB Banka, Podgorica. On its local market, the bank is categorised as one of the systemically important banks. The merged bank (NLB Banka, Podgorica) is the second largest financial institution in Montenegro. As the first positive effect of the merger, NLB Klik, web and e-banking app are offering new and upgraded functionalities to the clients. The predominant strength of the bank is seen in the segment of retail housing and consumer loans, where the bank is an important player on the local market. It achieved the highest housing loans growth in 2021 amongst all banking members. The year was marked by several campaigns promoting digital channels, with a focus on cards, packages, and NLB Pay. Also, expanding the number of partners, the ‘NLB Loan on the spot’ campaign continued. After implementing the new payment service SWIFT GPI, the bank became the only bank in Montenegro connected to the SWIFT GPI platform with the aim of improving SWIFT payments for both banks and clients, providing faster implementation, transparency of transaction costs, and real-time transaction status information. Macroeconomic Snapshot In Montenegro, the economy accelerated in Q3 due to robust public consumption and surging export growth as the tourism sector fared well. In Q4, industrial output growth gained some steam, while the tourism sector continued to record strong increases in arrivals. Rising inflation resulted in eased retail sales. Figure 60: GDP growth, Inflation, Unemployment 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 202020212022202020212022202020212022 GDP (real growth in %)Average inflation (in %)Unemployment rate (in %) Outlook The economic growth is expected to ease in 2022 due to a fading base effect. Further growth in the tourism sector should propel the economy to recover towards the pre-pandemic level with the easing of pandemic-related restrictions also supporting domestic and foreign demand. The key downside risk to the outlook is related to the pandemic-uncertainty and its effect on the tourism sector due to Montenegrin economy’s considerable dependence on this sector of the economy. The war in Ukraine has emerged as an additional negative risk to the outlook. Contribution to NLB Group Figure 61: Contributionto NLB Group Result b.t. 4% Net interest income 5% 2% Net non-interest income 2 nd largest bank in the country. Banking services provided through: 22 branches 65 ATMs ![]() 88 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 25: Key performance indicators of NLB Banka, Podgorica (i) in EUR thousand 20212020 Change YoY Key performance indicators Net interest income21,95320,5986.6% Net non-interest income6,1613,74164.7% Total costs-17,351-13,622-27.4% Impairments and provisions613-8,887- Result before tax11,3761,830- Result after tax10,0501,387- Financial position statement indicators Total assets751,351537,62939.8% Net loans to customers491,579367,16833.9% Gross loans to customers514,308386,52533.1% Deposits from customers609,792431,65741.3% Equity92,64368,55635.1% Key financial indicators Total capital ratio16.3%16.2%0.1 p.p. Net interest margin4.0%4.1%-0.1 p.p. ROE a.t.13.1%2.0%11.1 p.p. ROA a.t.1.7%0.3%1.4 p.p. CIR61.7%56.0%5.7 p.p. NPL volume42,16627,28054.6% NPL ratio (internal def.: NPL/Total loans) 7.0%5.8%1.2 p.p. Market share by total assets14.1%11.7%2.4 p.p. LTD 80.6%85.1%-4.4 p.p. (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. The bank realised profit after tax in the amount of EUR 10.1 million (2020: EUR 1.4 million) and profit before impairments and provisions in the amount of EUR 10.8 million (2020: EUR 10.7 million). Compared to previous year, positive development is visible in the segment of net impairments and provisions cost. ROE a.t. increased to 13.1% (2020: 2.0%), while CIR increased to 61.7% (2020: 56.0%). TCR was slightly higher compared to last year and reached 16.3% (2020: 16.2%). Theresult was driven by the double-digit growth of the loan portfolio to individuals being the main net interest income driver. The total assets increased by 40%, mainly due to merger. In 2021, mainly due to the merger, the bank increased the volume of new NPL. The NPL ratio increased to 7.0% (2020:5.8%). Business performance Retail banking Retail banking recorded growth in gross loans (30%) and deposits (41%) mainly due to merger effect, and the positive effect of the tourist season in July and August. A major part of the retail loan portfolio was dominated by housing loans (60% of gross retail loans), while consumer loans occupied 40% of gross retail loans. Growth in gross retail loans was recorded mainly by increase in housing loans volume by 36%, whereas consumer loans grew by 23%, boosted by the merger and Q4 campaign period. The bank expanded its offer to citizens by launching the bancassurance product, thus enabling the clients to buy online quickly, easily, cheaply, and completelysafely, accident and property insurance policies. The bank offered a cash loan to individuals in the maximum amount of EUR 25,000 for up to 10 years and in this way offered the market a cash loan with the largest amount and the longest repayment period. In a joint project, the bank and Mastercard provided the first self- service payment terminal in Montenegro. Figure 62: 3-year market share evolution Market share by total assets Market share in loans to corporate Market share in loans to individuals Market share in deposits from customers 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 31 Dec 201931 Dec 202031 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% Corporatebanking Corporate banking segment recorded growth in gross loans (42%) and deposits (36%) due to merger effect. The loan portfolio predominantly consisted of large corporates portfolio, which increased by 40% YoY. The growth in gross loans was recorded mainly due to merger effect and an increase of SME loans and used overdrafts by 47%. The increase in overall interest income in corporate segment comes from increase in volumes. During 2021, a credit line from the EBRD was launched for the purpose of implementing the project ‘Women in Business’ (WiB), which aims to support women in business and their business. 14.1% market share in total assets. EUR 11.4 million result b.t. ![]() 89 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Komercijalna Banka, Podgorica On 12 November 2021, the merger of Komercijalna Banka, Podgorica with NLB Banka, Podgorica was completed. Until 12 November 2021 Komercijalna Banka, Podgorica was part of the core segment, one of the standalone member banks of the Group, so, the key performance indicators of the bank for 2021 are represented in the below table. Table 26: Keyperformance indicators of Komercijalna Banka, Podgorica (i) in EUR thousand 2021 Key performance indicators Net interest income5,306 Net non-interest income537 Total costs-6,049 Impairments and provisions-5,658 Result before tax-5,864 Result after tax-5,761 (i) Data on a stand-alone basis as included in the consolidated financial statements of the Group. For year 2020 comparable data are not available. ![]() We are always available. Great-grandmothers paid with cash. Grandmothers paid with cheques. Mothers pay digitally. What will the next generation come up with? In order to keep up with the ever faster global changes, we develop solutions with the same features as the modern world: they are fast, efficient, handy and smart. With innovative digital solutions, we ensure that all banking services are available anyplace, anytime, while at the same time we use advanced safety technology to help protect privacy. ![]() 91 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The segment is focused on the Group’s activities on international financial markets, including treasury operations. In the challenging environment of low interest rates on financial markets, continuous focus was on prudent liquidity reserves management. Financial Markets inSlovenia Contribution to NLB Group Figure 63: Contributionto NLB Group Financial performance Table 27: Performance of the Financial Markets in Slovenia segment in EUR million consolidated 20212020 Change YoY Net interest income26.423.52.912% o/w ALM (i) 17.116.50.64% Net non-interest income-2.316.2-18.4- Total net operating income24.139.6-15.5-39% Total costs-8.6-7.6-1.0-14% Result before impairments and provisions15.532.0-16.6-52% lmpairrrents and provisions0.3-1.31.6- Result before tax15.830.8-15.0-49% 31 Dec 202131 Dec 2020 Change YoY Balances with Central banks2,982.21,998.1984.249% Banking book securities2,977.52,945.831.71% Interest rate on banking book securities0.68%0.77%-0.09 p.p. Wholesale funding873.5143.5730.0- Interest rate on wholesale funding-0.46%0.54%-1.00 p.p. Subordinated liabilities288.5288.30.20% Interest rate on subordinated liabilities3.70%3.64%0.06 p.p. (i) Net interest income from assets and liabilities with the use of FTP. Net interest income Net interest income was EUR 2.9 million (12%) higher YoY, mostly due to the changed FTP policy which partially transferred the costs of placing the excess liquidity from treasury to the retail and corporate segments to de-stimulate the deposit collection. Otherwise, the revenues from treasury activities were YoY lower due to significantly lower reinvestment yields of banking book securities and excess liquidity, additionally reflected in the negative effect from higher placements with the CB at negative interest rates. Result b.t. 6% Net interest income 6% Net non-interest income Lower net non-interest income, EUR 18.4 million YoY, due to the one-off effect from the sale of debt securities, which positively impacted performance in 2020. Assets increase mostly offset by wholesale funding Increase in balances with CBs (EUR 984.2 million YoY) mostly due to increase in wholesale funding by EUR 730.0 million derived from participation in the ECB‘s liquidity providing operation TLTRO-III (EUR 750 million). Banking book securities registered a minor increase by EUR 31.7 million or 1%. ![]() 92 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Business performance The Group’s ALM Focus The purpose of the Group ALM process is to strategically manage the Group’s balance sheet with respect to the interest rate, currency, and liquidity risk considering the macroeconomic environment and financial markets development. Organisation Monitoring and management of the Group’s exposure to market risk is decentralised. Uniform guidelines and limits for each type of risk are set for individual Group member. The exposure of an individual Group member is regularly monitored and reported to the Group ALCO. Balance sheet management From the interest rate risk perspective, the surplus liquidity position of the Group contributed to further growth of fixed interest rate loans, mostly housing loans, and investments in high quality debt securities. In terms of funding, the non- banking sector deposits continued to increase in the form of sight deposits and savings accounts, partly as a result of the increased propensity to save due to the COVID-19 pandemic. The Group manages its positions and stabilises its interest margin by actively adjusting pricing policy and by charging maintenance fees, whereas for managing interest rate risk exposure the Group keeps outstanding plain vanilla derivatives. Active profitability management has been supported by a highly disciplined deposit pricing policy, enabling the response to a very competitive loan market all over the Group’s strategic markets. The Group’s FX risk is measured and managed with the use of a combination of a sensitivity analysis, VaR, and stress test scenarios. In terms of the liquidity risk management, each Group member is responsible for ensuring adequate liquidity via the necessary sources of funding and their appropriate diversification, and for managing liquid assets and fulfilling the requirements of regulations governing liquidity. Liquiditymanagement Focus The Group’s liquidity management focuses on ensuring a sufficient level of liquidity reserves to settle all due liabilities, minimising the cost of maintaining liquidity and optimising the structure of liquidity reserves. To ensure an appropriate level of liquidity for different situations, emergencies and crisis conditions are anticipated and therefore described in the liquidity contingency plan. Organisation Liquidity management in the Group is decentralised. Each Group member manages its own liquidity on operational and strategic levels, while Financial Markets in Slovenia manage liquidity of the Bank. Finland Austria Netherlands Germany Belgium France N. Macedonia Slovenia Serbia Other 0% 5% 10% 15% 20% 25% 30% 3% 3% 4% 4% 4% 7% 7% 13% 24% 30% Corporate Subodrinated debt Agency GGB Covered bond Senior Unsecured Government sec. 0% 10% 20% 30% 40% 50% 60% 70% 80% 7% 10% 77% 0% 1% 2% 3% Figure 64: Banking book securities portfolio of NLB Group by asset class and geographical structure as at 31 December 2021 77% government securities in the Group’s banking book portfolio. Geographical structure Asset class distribution ![]() 93 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Liquid assets For settling due liabilities, the Group uses its liquid assets, which are comprised of liquidity reserves (see the subchapter Liquidity Position in the chapter Overview of Financial Performance ) and other liquid assets. The latter includes funds held on accounts with other banks and money market placements which are according to LCR calculation treated as inflows. Likewise, liquid assets are managed by each Group member on its own. Banking book securities portfolio At year-end, the banking book debt securities portfolio constituted 23.7% of the Group’s total assets. The purpose of the banking book securities is to provide liquidity, along with stabilisation of the interest margin, and interest rate risk management. The portfolio is well diversified from the geographical, asset class and maturity profile perspective. From 2020, the Group turned its attention to the new and fast- developing market of ESG bonds. Currently, these bonds have a small share in the whole portfolio (EUR 106.2 million), but it is expected to grow in the future. in EUR million  20222023-20242025-20262027+Total Domestic securities (the Group strategic markets) 489.3774.4741.9498.22,503.8 - Slovenia53.3100.7172.4329.4655.9 - Other SEE435.9673.7569.5168.81,847.9 International securities498.8706.3541.4810.12,556.5 Total988.01,480.71,283.31,308.35,060.3 3.5 years average maturity of the Group’s banking book securities portfolio. Characteristics of banking book securities portfolio The average maturity of banking book securities is approximately 3.5 years as at year-end. The average yield achieved in 2021 on the Group’s banking book securities portfolio was 0.68% (2020: 0.77%). Wholesalefunding Purpose Wholesale funding activities in the Group are conducted with the aim of achieving diversification, improving structural liquidity and capital position, and fulfilling regulatory requirements, especially ensuring compliance with the MREL requirement. The Bank was not active on the wholesale market in 2021, but has instead optimized its long-term funding structure with the repayment of certain credit lines. Table 28: Maturity profile of NLB Group’s banking book securities as at 31December 2021 ![]() 94 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Financial performance Table 29: Results of the Non-Core Members segment in EUR million consolidated 20212020 Change YoY Net interest income1.31.20.111% Net non-interest income5.94.21.639% Total net operating income7.25.41.833% Total costs-11.4-12.91.512% Result before impairments and provisions-4.1-7.43.344% lmpairrrents and provisions5.42.92.589% Result before tax1.3-4.65.8- 31 Dec 202131 Dec 2020 Change YoY Segment assets 95.9131.2-35.3-27% Net loans to customers24.345.0-20.7-46% Gross loans to customers53.995.0-41.1-43% Investment property and property & equipment received for repayment of loans 65.670.2-4.6-7% Other assets6.016.0-10.0-63% Non-performing loans (gross)45.071.3-26.3-37% Result before tax The segment recorded EUR 1.3million profit before tax. The higher net non-interest income was achieved also due to the positive effect attributable to the segment from the settlement of a legal dispute (EUR 0.4 million). Total assets decreased A decrease of the total assets of the segment YoY (EUR 35.3 million) was in line with the divestment strategy of the non- core segment. The Non-Core Members segment includes the operations of non-coreGroup members. The main objective in the Non-Core segment remains a rigorous wind-down of all non-core portfolios and the consequent reduction of costs. The implementation of the wind-down has been pursued with a variety of measures, including the sales of portfolios, sales of non- core entities, sales of individual assets, the collection or restructuring of individual assets, and active management of real-estate assets. Non-Core Members EUR 41.1 million reduction of gross loans to customers in 2021. ![]() 95 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Business performance The wind-down of the Non-Core segment in 2021 included: •Divestment of non-core Group members • Sale of the Bank’sequity participations • Active management of real-estate assets Divestment of non-core Group members Liquidation process A liquidation process was initiated in all non-core leasing and trade finance subsidiaries and some real estate subsidiaries. In 2021, the liquidation processes of BH-RE d.o.o. Sarajevo and Prvi faktor d.o.o. Sarajevo were completed, and the companies were deleted from the court register. The divestment process has been running with thoughtful cost management and well-established collection procedures. Decrease of non-core portfolio New business has been suspended in all non-core Group members which are in the process of being wound-down. The decrease of the cumulative non-core subsidiaries’ portfolio remains ongoing through regular repayments and collection measures. Sale of NLB’s equity participations Numbers At the 2021 YE, the overall asset volume of equity participations is at EUR 0.20 million (2020: EUR 0.28 million). EUR 25.1 million the total sales value of real-estate transactions executed or supported by the real-estate team in 2021. Active managementof real estate assets Divestment process The divestment process of still remaining NPL exposures at the Bank or at the non-core subsidiaries’ level is being facilitated through a specialised team for repossessing, managing, and divesting collateral real estate. Real estate expertise and services are offered to the Group members assisting them in implementation of the mostefficient divestment manner of the remaining non-performing portfolio or the repossession of the collateral real-estates. Value-preserving strategies The main task is to ensure value-preserving strategies for the real estate management, respectivelythe collateralvalue of NPL claims by either temporarily repossessing real-estate or ensuring a value-preserving divestment process of the real- estate or a claim. From 2015 to 2021, real-estate transactions with a total sales value of EUR 193.8 million were executed or supported, and directly or indirectly contributed to a EUR 622.6 million of NPL reduction, of which EUR 122.5 million in 2021 alone. ![]() 96 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Group has a well-diversified business model. In accordance with its strategic orientations, it intends to be a sustainably profitable, predominantly working with clients on its core markets, providing innovative but simple customer- orientedsolutions, and activelycontributing to a more balanced and inclusive economic and social system. Efficient managing of risks and capital is crucial for the Group to sustain long-term profitable operations. Risk Management in the Group is in charge of managing, assessing, and monitoring risks within the Bank as the main entity in Slovenia, and the competence centre for seven banking subsidiaries. Figure 65: Risk profile of NLB Group as at 31 December 2021 Credit risk Concentration risk Credit spread risk Interest rate riskin banking book Operational risk Market risk Business and Strategic risk Based on the Group’s business strategy, credit risk is the dominant risk category, followed by credit spread and interest rate risk in the banking book and operational risk. Management of credit risk focuses on moderate risk-taking, striving to assure a diversified credit portfolio, adequate credit portfolio quality, the sustainable cost of risk, and optimal return considering the risks assumed. The Group has limited exposure to other aforementioned risks, while market risk and 0.8%2.2% 63.2% 3.1% 13.2% 10.4% 7.1% The self-funded model, strong liquidity, and a solid capital position continued in 2021, demonstrating the Group’s financial resilience. Efficient management of risks and capital is crucial for the Group to sustain long-term profitable operations. A robust Risk Management framework is comprehensively integrated into decision- making, steering, and mitigation processes within the Group, with the aim of proactively supporting its business operations. The Group is engaged in contributing to sustainable finance by incorporating environmental, social, and governance risks into its business strategies, risk management framework, and internal governance arrangements. other non-financial risks are less important from materiality perspective. The Group integrates and manages ESG risks within the aforementioned types of risks, namely credit and operational risk, as part of its risk management framework. Liquidity risk tolerance is low. The Group must maintain an appropriate level of liquidity at all times, and also pursue an appropriate structure of the sources of financing. Table30: NLB Group’s Key Risk Appetite indicators (KRIs) KRIs31 Dec 2021 TCR 17.8% CET1 ratio15.5% LCR 252.6% NSFR185.2% Cost of Risk-41 bps NPL (EBA def.)3.4% NPE (EBA def.)1.7% Interest rate risk (EVE)-6.4% COVID-19 did not have a meaningful impact on the quality of the credit portfolio. Its impacts caused moderate credit quality deterioration, which resulted in an increase of Stage 2 and Stage 3 exposures. In Q2 2021, a reversal was observed, mainly due to successful recovery of on- and off-balance sheet NPLs. Respectively, the Group’s credit portfolio quality remained solid, with stable rating structure and portfolio diversification. Lending growth in the corporate segment remained relatively moderate, while the retail segment, namely mortgage lending, experienced a considerable growth in 2021. The Group is compliant with EBA guidelines on payment moratoria and is very prudent in identifying any increase in credit risk. The vast schemes introduced by the governments in the Group countries providing moratoriums to eligible clients as part of the COVID-19 pandemic measures were phasing out during the 2021. Apart from the moratoria, the Group provided additional liquidity by granting new loans to creditworthy clients to help them with the specific situation due to the COVID-19 crisis. The cost of risk was negative (-41 bps) due to very strong development in NPL resolution and more favourable macroeconomic situation compared to the 2020 YE. The Risk Management -41 bps negative Cost of risk on Group level. ![]() 97 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Group faced favourable NPL movement due to repayments in the segment of large corporate clients, and other successfully resolved smaller exposures in the region. During the year, the Group reviewed IFRS 9 provisioning by testing a set of relevant macroeconomic scenarios to adequately reflect the current circumstances and the related impacts in the future. The Group established and developed multiple scenarios on the level of ECL calculation. Though COVID-19 coupled with its implications on the business environment, the Group faced growing excess liquidity and managed to stay well capitalised. The Group is perceived as safe heaven and therefore faced growing excess liquidity, and impacts of the pandemic did not cause anymaterial liquidity outflows. Significantattention wasput into the structure and concentration of liquidity reserves by incorporating early warning systems, while keeping in mind the potential adverse negative market movements. Excess liquidity and market demand for fixed interest rate products resulted in moderate interest rate and credit spread risk exposure, which stayed within the risk appetite tolerance toward this risk. The Group’s liquidity and capital position remained strong in both the Group and banking member levels. In 2021, the Group was included into ECB Stress test exercise. On 30 July, the results of stress tests carried out for important banks by the ECB to assess the resilience of the financial institutions have been disclosed. Under the adverse scenario, CET1 ratio (fully loaded) would fall by maximum 483 bps (published range 300-599 bps) after three years without mitigation measures from the 2020 YE. The Group’s results of adverse depletion were lower than for peer group and SSM sample banks. Besides, the Group’s data quality and accuracy were assessed as above average. Final results of the bottom- up stress test showed that even in a very unfavourable market conditions defined by the EBA and ECB, the Group holds sufficient resilience in terms of capitalisation. The qualitative outcomes were included in the determination of capital requirements by ECB, namely setting Pillar 2 Guidance. 14 14Further information is available in chapter Events After the End of 2021 Financial Year . The Bank is, as a systemic bank, involved in the Single Supervisory Mechanism. Supervision is under the jurisdiction of the Joint Supervisory Team of: ECB BoS ECB regulations are followed by the Group, where the Group subsidiaries operating outside Sloveniaare compliant with the rules set by the local regulators. Third party equvivalent are approved in Serbia, BiH and North Macedonia, resulting in alignment of local regulation with CRR rules. Across the Group, risks are assessed, monitored, managed, or mitigated in a uniform manner, as defined in the Group’s Risk management standards, also considering the specifics of the markets in which individual Group members operate. Risk Management and control is performed through a clear organisational structure with defined roles and responsibilities. The organisation and delineation of competencies is designed to prevent conflicts of interest, ensure a transparent and documented decision-making process, subject to an appropriate upward and downward flow of information. Business line Risk Management in NLB is, by encompassing several professional areas, in charge of: •formulating and controlling the Group’s Risk Management policies, • setting limits, •overseeing the harmonisation, •regular monitoring of risk exposures and limits based on centralised reporting at the Group level. The Group puts great emphasis on the risk culture and awareness across the entire Group. The Group’s Risk Management framework is forward-looking and tailored to its business model and corresponding risk profile. The main risk principles and limits are set forth by the Group’s Risk Appetite and Risk Strategy, and designed in accordance with business strategy. The Group performs risk identification process on regular basis, as part of the ICAAP and ILAAP frameworks. In this process all topical risks, including ESG related ones, are comprehensively assessed, monitored and mitigated where necessary. Special focus is placed on the inclusion of risk analysis into the decision-making process at strategic and operating levels, diversification to avoid large concentration, optimal capital usage and allocation, appropriate risk- adjusted pricing, and overall compliance with internal rules and regulations. Risk Management focuses on managing and mitigating risks in line with the Group’s Risk Appetite and Risk Strategy, representing thefoundationof the Group’s Risk Management framework. Within these frameworks, the Group monitors a range of risk metrics in order to assure the Group’s risk profile is in line with its Risk Appetite. In addition, the Group is constantly enhancing its Risk Management system, where consistent incorporation of ICAAP, ILAAP, Recovery plan, and other internal stress-testing capabilities into the Risk Management system is essential. Moreover, the Group puts great emphasis on their integration into the overall Risk Management system in order to assure proactive support for informed decision-making. Figure 66: NLB Group’s Risk Management framework Business strategy ICAAP & ILAAP inputs Risk identification Risk Appetite (Limit system) Capital and Financial planning Results Recovery plan Assessment of liquidity and capital (significant deterioration) ILAAP • Economic and normative assessment of liquidity • Stress tests • Liquidity contingency plan (LCP) ICAAP • Economic and normative assessment of capital • Stress tests The uniform stress-testing programme, whichincludes internally developed models, stress scenarios, and sensitivity analysis, was further complemented. In 2021, the Group ![]() 98 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report established its own ESG stress testing concept to identify the most relevant financial vulnerabilities stemming from climate risk. Such a stress-testing framework is the subject of a regular internal validation cycle and related procedures where the Group established comprehensive validation framework. Namely, the Group supports a strong validation governance process and controls over applied selected risk approaches and internal models. The business and operating environment, relevant for the Group operations is changing, with trends such as changing customer behaviour, emerging new technologies and competitors, actively contributing to a more balanced and inclusive economic and social system, and increasing new regulatory requirements. It should be noted that Risk Management is continuously adapting with the aim of detecting and managing new potential emerging risks. Proactive Risk Management in 2021 Prudent capital level position and achieved interim MREL targets One of the key aims of Risk Management is to preserve a prudent level of the Group’s capital position. The Group monitors its capital position at the Group and individual subsidiary bank level in accordance with the Risk Appetite, also incorporating normative and economic perspectives as part of the established ICAAP process. As at 31 December 2021, the Group had a very solid capital position and TCR of 17.8% (1.2 p.p. higher than at the 2020 YE). The CET1 ratio, representing the capital of highest quality, stood at 15.5% (1.4 p.p. YoY increase). The higher Group total capital adequacy compared to the previous year derives from higher capital (increase of EUR 186.8 million YoY, mainly due to inclusion of negative goodwill in retained earnings) which compensated the RWA increase of EUR 58.2 million YoY for the Group. Loan growth to the corporates and retail and new investments in bonds contributed to an increase of RWA for credit risk. On the other hand, the increase was compensated by collateral adequacy due to third party equivalent, agreements with MIGA, changed investment policy and successful recovery of NPLs. Additionally, the closing trading position of Komercijalna Banka, Beograd resulted in a decrease in RWA for market risks. RWA for operational risk increased due to higher income of the Group arising from the acquisition of Komercijalna Banka, Beograd. As at 31 December 2021, the Group meets all fully loaded regulatory requirements. Moreover, enhanced overall corporate governance in the recent years led to a lower P2R, which decreased from 3.5% in 2018 to 2.75% applicable in 2021 and 2.60% applicable as of 1 March 2022, while Pillar 2 Guidance remains at low level of 1%. Figure67: NLB Group’s Pillar 2 Requirement evolution 201720182019202020212022 (i) 2.60% 2.75%2.75% 3.25% 3.50%3.50% (i) Applicable as of 1 March 2022. MREL requirement forms part of Group’s risk appetite, whereby its fulfilment is regularly analysed and monitored. NLB complies all interim targets. More information on MREL is available in the chapter Capital and Capital Adequacy . Maintaining a solid level and structure of liquidity Maintaining a solid level and structure of liquidity represents the next very important risk target. The liquidity position of the Group remained stable, and the impacts of the pandemic did not cause any material liquidity outflows. Strong liquidity position is held at the Group and individual subsidiary bank levels. Group LCR slightly decreased to 252.6% (by 4.9 p.p. YoY), but remained well above the risk appetite limit (130%). The level of the unencumbered eligible liquid reserves remained at a high level, representing 38.3% of total assets. The Group has sufficient liquidity reserves in the form of placements with the ECB, prime debt securities, and money market placements. Even in the event of the combined adverse stress scenario, the Group would survive at least three months under such stress conditions. The core funding base of the Group predominately represents retail customer deposits with very stable and constantly growing base. LTD increased to 60.0% (31 December 2020: 58.8%), remaining at very comfortable level. In June, the Bank participated in the 8. ECB operation, namely TLTRO III and had drawn a credit tranche of EUR 750 million maturing in three years. With TLTRO, the ECB continues to support lending to enterprises and households. The Bank was successful in achieving the lending performance threshold in the special reference period, the positive effect from this transaction will partially compensate the negative outcome from holding liquidity reserves. LCR NLB Group 450% 400% 350% 300% 250% 200% 150% 100% 31 Dec 2020 31 Jan 2021 28 Feb 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 Figure 68: NLB Group’s LCR ![]() 99 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Maintaining the adequate credit portfolio quality Maintaining the adequate credit portfolio quality is the most important goal, with the focus on cautious risk-taking and quality of new loans leading to a diversified portfolio of customers. The Group is constantly developing a wide range of advanced approaches in the segment of credit risk assessment in line with best banking practices to further enhance the existing risk management tools, while at the same time enabling greater customer responsiveness. The restructuring approach in the Group is focused on the early detection of clients with potential financial difficulties and their proactive treatment. The Group is actively present on SEE markets by financing the existing and new creditworthy clients. The Group’s lending strategy focuses on its core markets of retail, SME, and selected corporate business activities within the region and EU. On the Slovenian market, the focus is on providing appropriate solutions for retail, medium-sized companies, and small enterprise segments, whereas on the corporate segment, the Bank established cooperation with selected corporate clients (through different types of lending or investment instruments). All other banking members in the SEE region, where the Group is present, are universal banks, mainly focused on the retail, medium-sized companies, and small enterprise segments. Their primary goal is to provide comprehensive services to clients by applying prudent Risk Management principles. Lending growth in the corporate segment remained relatively moderate, while the SME and retail segment experienced a considerable growth in 2021 after a temporary slowdown in 2020 due to COVID-19 circumstances. The current structure of credit portfolio (gross loans) consists of 36.2% retail clients, 14.8% large corporate clients, and 18.5% SMEs and micro companies, while the remainder of the portfolio consists of other liquid assets. The credit portfolio remains well diversified, and there is no large concentration in any specific industry or client segment. The share of retail portfolio in the whole credit portfolio is quite substantial with still prevailing segment of mortgage loans. The majority of the Group’s loan portfolio is classified as Stage 1 (94.2%), the remaining portfolio as Stage 2 (3.4%), and Stage 3 and FVTPL (2.4%). The portfolio quality remains very stable with increasing Stage 1 exposures and a relatively low percentage of NPLs. The percentage of Stage 1 loan portfolio Figure 69: NLB Group structure of the credit portfolio (i) (gross loans) by segment (in EUR million) and rating (ii) Institutions 539 SME 2,881 Corporates 2,298 Retail consumer 2,427 State (iii) 4,202 Retail housing 3,195 ABCDE 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 reserves at CBs and demand deposits at banks. (ii) Rating A, B and C are performing exposures. Rating A: investment grade clients with high financial stability; Rating B: clients with high ability to repay their obligations, a significant aggravation of the economic environment would cause problems to them; Rating C: performing clients with increased level of risk who may encounter problems with settlement of liabilities in the future; Ratings D and E are NPLs: Default clients (article 178 of CRR), including clients in delay >90days and other clients considered ‘unlikely to pay’ with delays below 90 days. The numbers may not add up to 100% due to rounding. (iii) State includes exposures to CBs. Proactive risk management in 2021. ![]() 100 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR million Corporate sector by industryNLB Group%∆ 2021 Accommodation and food service activities156.33.0%15.1 Administrative and support service activities108.12.1%-13.6 Agriculture, forestry and fishing310.76.0%22.0 Arts, entertainment and recreation22.70.4%1.7 Construction industry434.68.4%60.9 Education13.30.3%-0.8 Electricity, gas, steam and air conditioning318.26.1%60.1 Finance120.22.3%-47.5 Human health and social work activities37.90.7%-12.1 Information and communication244.14.7%10.2 Manufacturing1,091.121.1%105.0 Mining and quarrying50.41.0%-29.6 Professional, scientific and techn. act.175.43.4%3.7 Public admin., defence, compulsory social.172.43.3%-47.0 Real estate activities251.34.9%29.7 Services12.00.2%-1.9 Transport and storage573.311.1%-18.8 Water supply43.90.8%2.8 Wholesale and retail trade1,043.120.1%120.0 Other0.50.0%-1.3 Total Corporate sector5,179.5100.0%258.4 Table 31: Overview of NLB Group loan portfolio by industry as at 31 December 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 sector Retail sector EUR 5.6 billion Figure 70: NLB Group loan portfolio (measured at amortised cost) by stages as at 31 December 2021 Corporates 31% remains almost at the same level as at 2020 YE, i.e., at 95.6% in the Retail segment, while in the Corporate segment, despite the adverse economic conditions, improved to the level of 87.4%, which is a result of cautious lending policy and successful closure of NPL. COVID-19 did not have a meaningful impact on the quality of the credit portfolio. The vast schemes introduced by the governments in theGroup countries providingmoratoriums to eligible clients as part of the COVID-19 pandemic measures had been phasing out during the 2021. As at 31 December 2021, the exposures where COVID-19 moratoria have been granted amounted to EUR 1,681.5 million, representing 10.8% of the Group’s credit portfolio. The exposure with remaining COVID-19 moratoria is negligible and amounts to EUR 24.8 million, while 98.5% of those moratoria have already expired by 2021 YE. A total of 86.4% of exposure ![]() 101 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report with expired moratoria have no delays, while 2.1% had delays exceeding 90 days. The Bank is very prudent in identifying any increase in credit risk. In addition to moratoria, the governments in Serbia and Slovenia provided public guarantee schemes for new financing of clients whose business has been materially impacted due to the COVID-19 pandemic. As at 31 December 2021, these loans amounted to EUR 177.2 million; none of the guarantees have been exercised. Table 32: NLB Group loan portfolio by stages as at 31 December 2021 in EUR million Credit portfolioProvisions and FVchanges for credit portfolio Stage1Stage2Stage3 & FVTPLStage1Stage2Stage3 & FVTPL Credit portfolio Share of Total YTD change Credit portfolio Share of Total YTD change Credit portfolio Share of Total YTD change Provision Volume Provision Coverage Provision Volume Provision Coverage Provisions & FV changes Coverage with provisions and FV changes Total NLB Group14,638.094.2%1,987.2532.43.4%-27.6371.42.4%-104.370.40.5%34.06.4%212.157.1% o/w Corporate4,525.587.4%389.9412.28.0%-14.6241.74.7%-116.850.61.1%26.66.5%136.056.3% o/w Retail5,371.195.6%591.9120.22.1%-13.1129.72.3%12.618.30.3%7.46.2%76.058.6% o/w State4,202.4100.0%912.3------1.30.0%---- o/w Institutions538.9100.0%93.2------0.20.0%---- Figure 71: NLB Group Corporate and Retail loan portfolio (valued at amortised cost) by stages +9% YoY +12% YoY 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 133133 120 520 286 324 359 242 101 87 111 117 130 3,936 Stage 1 by segment (in EUR million) Stage 2 by segment (in EUR million) Stage 3 by segment (in EUR million) 31 Dec 201831 Dec 201931 Dec 2020 w/o KB31 Dec 202031 Dec 2021 CorporateCorporateCorporateRetailRetailRetail -3% YoY -10% YoY +11% YoY -33% YoY New NPLs formation and NPL management At the end of 2020, Komercijalna Banka group was acquired and their NPL were included as an additional NPL formation in net value (based on consolidation rules), which, along with the COVID-19 related circumstances, resulted in the NPL formation of EUR 148 million or 1.1% of the total portfolio. In 2021, NPL formation amounted to EUR 143 million or 0.9% 1.7% NPE (EBA def.) ![]() 102 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report of the total portfolio and was influenced by harmonisation process in Komercijalna Banka group. Nevertheless, the total amount of NPL decreased during 2021. Proactive non- performing management, including successful repayment of on- and off-balance sheet exposures, and more favourable macroeconomic situation across the region than initially expected, resulted in a negative cost of risk. Figure 73: NLB Group gross NPL formation (in EUR million) 58 80 60 78 20172018201920202021 Formation / gross loans (stock) 20 21 16 35 36 37 60 212105 64 56 148 143 CorporateSMERetail 0.9%1.1%0.6%0.7%0.7% Precisely set targets in the Group’s NPL Strategy and various proactive workout approaches facilitated the management of the non-performing portfolio. The Group’s approach to NPL management puts a strong emphasis on restructuring and use of other active NPLmanagement tools, such as foreclosure of collateral, the sale of claims, and pledged assets. In 2021, the multi-year declining trend of the non-performing credit portfolio stock continued, mostly due to repayments, collection, sale of claims, and cured clients. The non-performing credit portfolio stock in the Group decreased at 2021 YE in comparison with 2020 YE to EUR 367.4 million (2020 YE: EUR 474.7 million). The combined result of contraction in non-performing credit portfolio stock and credit growth of a higher quality portfolio led to 2.4% of NPLs, while the internationally more comparable NPE ratio, based on the EBA methodology, stood at 1.7%. The Group’s indicator gross NPL ratio, defined by the EBA, is equal to 3.4% and is below the regulatory defined threshold for establishment of NPL strategy framework. Figure 74: NLB Group NPL, NPL ratio and Coverage ratio 1 (i) (in EUR million) 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 Coverage ratio 1NPLratioNPLs 76.1% 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. Due to extensive experience gained in the last few years in dealing with clients with financial difficulties, resulting primarily from legacy portfolios, the Group has developed an extensive knowledge base both in the prevention of financial difficulties for clients, to restructure viable clients in case of need, and to efficiently work out exposures with no realistic recovery prospects. This extensive knowledge base is available throughout the Group, and risk units, as well as restructuring and workout teams are properly staffed and have the capacity to deal, if needed, with considerably increased volumes in a professional and efficient manner. An important Group strength is the NPL coverage ratio 1 (coverage of gross NPLs with impairments for all loans), which remains high at 86.1%. Furthermore, the Group’s NPL coverage ratio 2 (coverage of gross NPLs with impairments for NPL) stands at 57.9%, which is well above the EU average as published by the EBA (45.1% for Q3 2021). As such, it enables a further reduction in NPLs without significantly influencing the cost of risk in the coming years. The decrease in coverage indicators at the end of 2020 was influenced by the special treatment of NPLs from the acquired entities. NPLs of Komercijalna Banka group are initially recognised at fair value, without any additional credit loss allowances. The latter is also reflected in the lower coverage ratio CR2 than the NLB Group banks average at the end of 2021 in Komercijalna Banka, Beograd and NLB Banka, Podgorica, which merged with Komercijalna Banka, Podgorica in November 2021. The Group strives to ensure the best possible collateral for long-term loans, namely mortgages in most cases. Thus, the real-estate mortgage is the most frequent form of loan collateral for corporate and retail clients. In the corporate loans, it is followed by government and corporate guarantees. In retail loans, the other most frequent types of loan collateral are loan insurances by insurance companies and guarantors. The Group is following the ECB guidelines to banks on NPLs with regards to the evaluation of collateral.The establishment of market values for collateral for NPLs is by means of individual evaluation when NPL status is established. The value of collateral is then regularly monitored on a yearly level and updated by either independent evaluation (over prescribed threshold) or with the use of statistical re-evaluation for smaller values of NPL. For statistical re-evaluation the indexes from the government agency or other relevant official data sources are used. The value of collateral is with statistical approach always updated only downwards, never upwards. Only if the individual appraisal shows a higher value of collateral, the upwards re- evaluation would be performed. If the data from statistics would show significant decline in the real estate market, individual evaluations for such types of real estate would be performed and values corrected accordingly. NO DELAYS1-30 DPD31-90 DPD>90 DPD 30 Sep 202031 Dec 202030 Sep 202131 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% Figure 72: % of Days past due for expired COVID-19 moratoria in NLB Group ![]() 103 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Low market risk in the trading book Regarding market risks in the trading book, the Group pursues a low-risk appetite for market risk in the trading book. The exposure to trading (according to the CRR) is only allowed to be carried by the parent Bank as the main entity of the Group and is very limited. During the year 2021, the position of trading book of Komercijalna Banka, Beograd decreased to the minimum extent. The Bank intends to further maintain a small trading portfolio, mainly to monitor market signals in the global markets. Respectively, it does not constitute a material risk to the Group’s operations, while its tolerance for interest rate and credit spread risk in trading book is very low. The Group carries its main business activities in euros, and the subsidiary banks, in addition to their domestic currencies, also operate in euros, which is the reporting currency of the Group. The Group’s net open FX position from transactional risk is low, and at less than 1.10% of capital. Regarding structural FX positions on a consolidated level, assets and liabilities held in foreign operations are converted into euro currency at the closing FX rate on the balance sheet date. FX differences of non-euro assets and liabilities are recognised in the other comprehensive income, and therefore affect shareholder’s equity and CET1 capital. Proactivemanagement of interest rate risk in the banking book The Group’s exposure to interest rate risk is moderate and arises mainly from banking book positions. In the recent years, the Group recorded the growth of fixed interest rate loans and the long-term banking book securities on the assets side, and the transformation of deposits from term to sight as a result of the low interest rate environment and excessive liquidity. The Group’s interest rate positions were slightly affected by moratoriums during the year 2021, which were mostly short- term, from 3 to 6 months, and consequently not very material. The Group places excess liquidity mainly into banking book securities with fixed IR, while in current negative interest rate environment there is also higher demand for products with fixed IR. The interest rate exposure to interest rate risk remains modest, within the risk appetite limits. If market interest rates would increase, the net interest income of the Group would be positively affected, whereas ifthey decreased, negative effects would be lower due to zero floor clauses included in a number of loan contracts. When assessing EVE sensitivity, the Group members apply different scenarios. For most members, the worst-case regulatory scenario is in the case of increase of IR by 200 bps. From the EVE perspective, the estimated capital sensitivity of 200 bps equals -6.4% of the Group’s capital. Robust operational risk management In the area of operational risk management, where the Group has established robust operational risk culture, the main qualitative activities refer to the reporting of loss events and identification, assessment, and managementof operational risks. On this basis, constant improvements of control activities, processes, and/or organisation are performed. Besides that, the Group also focuses on proactive mitigation, prevention,and minimisation of potentialdamage. Special attention is dedicated to the stress-testing system, based on Figure75: NLB Group’s EVE evolution Table 33: NPL, NPL ratio (i) and Coverage ratio by NLB Group members in EUR thousands NLB Group member NPL 31 Dec 2021 % NPL 31 Dec 2021 NPL CR 1 31 Dec 2021 NPL CR 2 31 Dec 2021 NLB, Ljubljana130,392.11.5%75.1%60.6% NLB Banka, Skopje59,728.34.3%101.2%64.7% NLB Banka, Podgorica42,165.77.0%54.0%39.1% NLB Banka, Sarajevo19,045.53.1%106.3%87.6% NLB Banka, Prishtina15,613.71.9%243.2%91.6% NLB Banka, Banja Luka9,371.21.3%189.3%61.0% NLB Banka, Beograd9,489.01.5%93.4%57.6% Komercijalna Banka, Beograd36,342.91.4%63.5%21.7% Total NLB Group banks322,148.42.0%89.7%57.2% Total NLB Group367,409.12.4%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 Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report a scenario analysis referring to the potential high severity, low frequency events, and modelling data on loss events. Furthermore, key risk indicators, servicing as an early warning system for the broader field of operational risks (such as HR, processes, systems, and external conditions) are regularly monitored, analysed, and reported, with the aim to improve the existing internal controls and enabling reacting on time. During the COVID-19 pandemic in Slovenia and the SEE, the Group has taken necessary measures to protect its customers and employees by ensuring the relevant safety conditions and making sure that the services offered by the Group are provided without anydisruption.The Groupcontinuously offered necessary services to clients, especially through digital channels (mobile banking, video calls, telebanking), which the Group continues to develop at an accelerated pace. A crisis management team is established in the Bank and other banking members with full engagement of the Management Board members. Special attention was paid to continuous provision of services to clients, their monitoring, health protection measures, and the prevention of cyber fraud. In addition, the Group was also diligently managing other, non-financial risks, referring to the Group’s business model or arising from other external circumstances, within the established ICAAP process. IncorporatingESG risks The Group is engaged in contributing to sustainable finance by incorporating ESG risks into its business strategies, risk management framework, and internal governance arrangements. With the adoption of the NLB Group Sustainability programme, the Group implemented sustainability elements into its business model. NLB Group Sustainability Committee oversees the integration of the ESG factors into the NLB Group business model. Thus, sustainable finance integrates ESG criteria into Group’s business and investment decisions for the lasting benefit of Group’s clients and society. ESG risks do not represent a new risk category, but rather an aggravating factor for the existing types of risks. The Group integrates and manages them within the established risk management framework, namely in the area of credit and operational risk. The management of ESG risks follows ECB and EBA guidelines with tendency of their comprehensive integration into all relevant processes. The availability of ESG data in the region where the Group operates is still lacking. Nevertheless, the Group strives to obtain relevant clients’ data as prerequisite for adequate decision-making and corresponding proactive management of ESG risks. In recent years, the Bank signed Framework Agreements with the EBRD, the Contract of Guarantees with MIGA and committed to the UN Principles of Responsible Banking. Consequently, the Group established mechanism for environmental and social screening of current or potential financing applications against the MIGA and EBRD Exclusion List and applicable environmental and social laws. The management of ESG risks addresses the Group’s overall credit approval process and relatedcredit portfoliomanagement. Sustainable financing is implemented in accordance with the Group’s ESMS. Beside addressing ESG risks in all relevant stages of the credit-granting process relevant ESG criteria were also considered in the collateral evaluation process. On portfolio level the Group does not face any large concentration towards specific NACE industrial sectors exposed to climate risk, whereby the role of transitional risk is more prevailing. The Group carefully considers potential reputation and liability risks which could arise from sustainable financing of its clients. Special attention is given to the approval of new products and monitoring of fulfilment of relevant criteria by the clients. Additional key risk indicators have been addressed, servicing as an early warning system in the area of ESG risks. Besides, physical risks, as part of ESG risks in the area of operational risk, are addressed in the Group’s business continuity management (BCM). BCM is carried out to protect lives, goods, and reputation. Business continuity plans are prepared to be used in the event of natural disasters, IT disasters, and the undesired effects of the environment to mitigatetheir consequences. As systemically important institution, the Group is included into 2022 ECB Climate Stress test exercise. Preparation activities in the Group for the purpose of this exercise, consisting of three modules, are already underway. By performing this exercise ECB intends to assess how banks are prepared for dealing with financial and economic shocks stemming from climate risk. The exercise will be conducted in the first half of 2022 after which the ECB will publish aggregate results in July 2022. Further information on risk management is available in the Note 6 of the Financial part of the report, Pillar 3 Disclosures and NLB Group Sustainability Report 2021 . ![]() 105 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report IT infrastructure and reliability High performance confirmed with numbers IT performance is monitored through a set of relevant indicators that are linked to the Balanced Scorecard (BSC) system. The indicators show a high performance of IT operations and successful risk management in this area. The availability of the information system in the Bank is at very high level of 99.98% (2020: 99.92%), and the share of unplanned interruptions is very low, 0.02% (2020: 0.08%). In 2021, the number of days without system/service interruptions were at 83.6% (2020: 78.5%). Harmonised Service Level Agreements (SLA) are in place with users of the information system, which the Bank managed to fulfil in a very high proportion. High IT operational performance was also recorded in the Group members (between 99.90% and 99.99%). MainIT initiatives Transformation The main focus was the transformation of IT in terms of organisation, a group perspective, processes, people, and technology. IT supported a more agile way of delivery, to better partnering with business, and as a result be more efficient and effective. It also hired new leaders and experts especially in the areas of IT security and digital banking. Change of delivery approach The team managed to reach important achievements in following new strategic directions in terms of solution delivery. Managed to migrate first applications from mainframe to distributed systems, selected multiple new cloud solutions instead of on-premise, and strengthened resources in digital and front-end delivery. Core systems consolidation IT followed the core banking system strategy and successfully delivered the proof of concept for consolidated core banking system. Based on the success of the proof of concept, the core system consolidation project in Slovenia business entity was initiated. The Group continues to provide its clients sustainable and efficient services supported through highly reliable and secure technology platforms. The Bank continues to actively pursue its technology transformation programme. In line with the refreshed IT strategy introduced in 2020, the IT team began delivering on outlined roadmaps and also successfully delivered a proof of concept for a consolidated core banking system. The Group is aiming to centralise and unify governance, applications, and infrastructure. The Bank also continued to rollout an effective online collaboration solution throughout the Group and enableda majority of employees to work from home without interruption to operations. Due to the general cyber security risks increase, special focus, extra resources, and investments were made to raise the overall level of cyber security resilience. Application architecture Application architecture is focused on the Group solution and majority of new solution selections are done as a Group standard with related Group roadmaps. The IT team has made significant progress in simplifying applications with the key achievement being the retirement of the KRAT core system for syndicatedloans. Group-wide capabilities extended Group-wide capabilities were significantly extended (mainly in the Group competence centre in Belgrade, Serbia) for the new digital bankingplatform, enterprise integrationplatform, the business process management platform development within the region, and the cyber security and infrastructure group. The competence centre has 46 employees. Data management The Bank achieved several new milestones in the implementation of a Group-wide data management platform which encompasses an enterprise data warehouse, advanced analytics, risk management analytics, profitability,data governance, and consolidated Group regulatory reporting. In October 2021, the NLB initiative Leveraging information capital: Fin-tech architecture at the heart of the traditional IT and Cyber Security 99.98% the availabilityin NLB. 1,366,984 digital users in the Group. ![]() 106 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report bank, developed as part of the Data Management Project of the Group, was selected as one of the top 6 finalists in Gartner’s Eye onInnovation Awardscompetition. Outlook In the coming years, the Bank is expected to continue to invest in newly adopted technologies to support the business strategy, especially in the areas of digital, data, and customer relationship management(CRM), consolidating the Group’s infrastructure, simplifying core systems and to achieving superior client experience in terms of quality, innovation, reliability, and security. Strengthening the team and extra investments in cyber security. 16% 25% 11% 19% 10% 59% 22% 50% NLB Banka, Beograd NLB Banka, Sarajevo NLB Banka, Podgorica NLB Banka, Prishtina NLB Banka, Banja Luka NLB Banka, Skopje Komercijalna Banka, Beograd NLB Figure 76: Digital penetration of the Group’s banks as at 31 December 2021 Cyber security Strengtheningteam and implementing new solutions The Group is giving special focus to cyber security,and consequently assuring the confidentiality, integrity, and the availability of data, information, and IT systems that support banking services and products for clients. Cyber security in the Group is constantly tested and upgraded by security assessments, independent reviews, and penetration testing. Cyber security is regularly discussed at the Bank’s Information Security Steering Committee, Operational Risk Committee, and Management Board meetings. During 2021, the Group increased its capacity in terms of human resources by hiring specialists in different domains. The Group now has a group team on two locations, in Ljubljana and Belgrade. Beside increasing capacity in human resources, improvement was made in detection capabilities by fine tuning detection systems, as well as by performing hardening on network devices across the Group. The threat intelligence process was established and new IT Security strategy was adopted focusing on unification of IT security systems and centralisation of processes. A new Group vulnerability management platform was selected. A technical measures guideline, as the Group standard for tools and processes, was also adopted and rolled out to the Group. All employees educated, continuous information exchange All employees in the Group are continuously educated about the importance of information/cyber security, as well as social engineering techniques. The Group banks are providing employees and customers with security notifications, especially for the occurrence of threats in the (global) environment with potential impact on the banks’ IT systems, services, products, and clients. The Bank is also testing the awareness of its employees with social engineering attack simulations. Threat intelligence data is shared by the Group team to all Group members with information on the latest threats andrecommendations on mitigation measures. Vision Mission Main principles •increase client satisfaction in all segments with new digital omnichannel platform, digitize client journeys and interactions (CRM), and achieve operational excellence; •have an effective IT architecture using cloud solutions and open-source software where possible; •introduce a new way of agile development and DevOps transformation leading to shorter releases cycles, automated testing, and less manual tasks; •ensure the necessary development capacity - hire right talents with the digital skills and looking forward to execute change; •introduce modern collaboration tools and digitize internal processes; •leverage the investment made in the data platform; •assure quality, security, and availability of the IT systems and applications; •have a highly motivated, effective, and satisfied IT team working closely with the business side. IT Strategy 2020-2024 At the end of the 2020, a refreshed IT Strategy was adopted that also incorporates the Group dimension. Build the best digital banking IT team in the SEE region. Enable the best client and employee experiences through reliable, effective, secure, accessible, and scalable ITsolutions. ![]() We are on your team. The first generation opened clubs. The next generation won all the national championships. The third generation raised regional champions. We will help this generation reach for the stars. Nothing connects, strengthens the bonds of cooperation or teaches how to win and lose with dignity as well as sport does. Especially in a region with such diversely rich sporting history. Since we believe that sport boasts an immense power for connecting, enhancing physical and spiritual well-being and inclusion, we are proud to support top athletes and young sports prodigies on a regional level, among those are girls from U13 football team NK Radomlje. This way, we are becoming one of the largest sponsors of sport in the region. ![]() 108 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report EmployeeHeadcount Number of employees reduced The Group continued with optimisation of processes and right sizing its staffing level. Due to the acquisition of Komercijalna Banka, Beograd and its subsidiaries in December 2020, the number of employees at the 2020 YE rose to 8,792 but has downsized throughout the year to reach 8,185 at the 2021 YE. Work from home During the year, the COVID-19 pandemic still influenced business operations and work was organised in a way to minimise the risk of infections. The Group continuously enabled employees, whose presence in the Group’s premises was not essential to business process, to work from home (remotely) (the Group: 32%, NLB: 47%). All decisions related to health and safety were made on time and following the epidemiological circumstances. Strive to Be ‘Top Employer’ The Group is continuing to strengthen its HR practises based on feedback from reputable institutions and benchmarks As a market leader, the Group realises that investing in employees is crucial. Engaged employees contribute significantly to business goals and results. That’s why the Group continued with its long-lasting tradition of investing in employee development, along with searching for new approaches and introducing new practices to improve organisational culture, leadership, and employee experience. COVID-19 pandemic impacts were felt throughout the year and so the health and safety environment was of the highest priority. The Group continuously enabled the majority of non-branch employees to work from home, and on average 32% of employees did so. Due to the COVID-19 situation, the development activities took place in an online environment and remained focused on the challenges of remote work and leadership. Human Resources ‘Top Employer’ for the 7 th consecutive year. Table 34: NLB Group headcount by countries as at 31 December 2021 and 2020 Country31 Dec 202131 Dec 2020 Changes YoY Slovenia 2,619 (NLB: 2,510, other: 109) 2,691 (NLB: 2,591, other: 100) -72 (NLB: -81, other: 9) Serbia2,9013,198-297 North Macedonia 877877 0 BiH (i) 942 1,086-144 Kosovo4634630 Montenegro (ii) 374 467 -93 Germany110 Switzerland220 Croatia67-1 Group Total 8,1858,792-607 (i) The sale process of Komercijalna Banka, Banja Luka was concluded in December 2021. (ii) The merger of NLB Banka, Podgorica and Komercijalna Banka, Podgorica was completed in November 2021. ![]() 109 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Employment – Hackathon The strategic direction of the Bank defines employment of new profiles needed on a Group level. As a trendsetter, the Bank organised two NLB Hackathons (one for Data Science, and second one for Open Finance) to recognise talents in its home region and promote the Bank as a desirable employer. Engagement of employees A crucial part of success is the motivation and engagement of employees. In 2021, a total of 72% of employees participated in the survey. 15 Compared to the year 2020, the percentage of engaged employees (loyal and psychologically committed to the organisation) rose by 10% to 53%. Figure 77: NLB Group Employee Engagement 2021 Engaged53% Not engaged36% Actively disengaged11% Preparedto Tackle Future Challenges Various training activities to embrace changes The Group strives for high quality and standards of a modern learning organisation. Due to the rapidly changing environment, the Group expanded its offer of trainings with access to future skills topics, made training more accessible and on demand, while also still offering classical channels of training and workshops. Trainings, e-learning Due to COVID-19, most of the trainings were conducted online. The emphasis of online programmes was focused on various topics from the Banking & Financial area, Leadership & Management, Sales, IT, to Personal Development, Compliance and the Work Environment, and ESG & Social Responsibility. Along with these areas, the Group also made substantial investment in training employees in Data Analytics & Science across the Group. Online learning with access to 7,000+ courses On 1 March, the Group enabled employees’ access to the online learning platform Udemy for Business. The aim was to empower employees over their own development and give them opportunities to upskill or reskill, and be better prepared for upcoming challenges. 15NLB Banka, Beograd and Podgorica were exempt from the survey due to the integration activitieswith KomercijalnaBanka. with best-in-class HR practises. The Bank was once again recognised as a ‘Top Employer’ by the Dutch Top Employer Institute for the 7 th consecutive year, demonstrating a high level of expertise and contribution in the areas from people strategy, leadership, digitalization,talent acquisition and development, performance management, sustainability,and a lot more. The Bank will continue ensuring an even more stimulating work environment in the future. Continuing a longstanding tradition of investing in employees Organisational culture Organisational culture is an important driving force of company development and success, that’s why the Group has decided to take an active and comprehensive approach to develop it. Measurement of the organisational culture gave a roadmap on how to grow and further enhance constructive organisational styles. This includes involving employees from all backgrounds, areas, and levels in focus groups, and provides in-depth insights on the actions that need to be taken to ensure even higher engagement and success in the areas of leadership, employee empowerment, and interpersonal cooperation. Leadership development Significant influence on employee satisfaction derives from their working environment, and leaders on all levels have a significant role in creating a productive atmosphere. The Group is actively developing leadership competencies of senior management to align with the activities of changing organisational culture. Ensuring the succession for managerial positions is also of key importance throughout the Group and one of the strategic activities. Developing talent Among its employees, the Group identified talents in the fields of leadership, professional, and young talents. They are provided additional opportunities, knowledge, and skills needed to manage and lead in challenges of the future, as wellas individual development activities. Developing NLB Employer Brand To attract toptalent throughout theregion, theGroup has identified the need to develop the Employer Brand actively. The Group has done internal and external surveys, interviews, and multiple focus groups to identify the relevant employer value proposition. In first 10 months, the most often enrolled courses were from areas of IT Development, Data Analytics & Science, Office Productivity and Personal Development. Well-being &Health Creating a work environment The Group is always committed to offering knowledge on good health, creating a work environment that enables quality interpersonalrelationships, and promotingactivities that enhance the good health and satisfaction of employees. Promoting healthy habits and new health and safety measures During the pandemic, emphasis was placed on developing healthy habits. Health trainings were organised to help employees cope with mental side of new reality and emphasise benefits of regular physical activity. The Group continued to make sure that prescribed protective measures are followed and equipment (masks, gloves, and disinfectants) was available to employees and clients. It also encouraged working from home. On average 32% of the Group's employees worked from home in the period of pandemic. ![]() 110 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Remuneration policy for members of the Supervisory Board and Management Board of NLB Members of the Supervisory Board may receive remuneration that iscompliantwith the relevant resolutions of theBank’s General Meeting. Members of the Management Board receive remuneration consisting of a fixed part of the salary and a variable part of the salary. The variable part of remuneration is allocated and paid in the form of cash and/or instruments. Remuneration policy for employees in NLB and in the Group In 2021, a refreshed Remuneration Policy for employees in NLB and in the Group was adopted where the basic principles represent the framework for rewarding employees in NLB and the Group. The remuneration policy defines fixed and variable remuneration, the goal-setting system and performance criteria (KPIs), and sets out the conditions for the allocation and payment of the variable part of remuneration. Diversity Policy Framework The policy sets the framework in the area of diversity and representation of both genders in the Supervisory Board and Management Board and the senior management. With the policy, the Bank also sets the framework for diversity with regards to education, range of knowledge, skills and experience, age,gender, and international experience. Objectives •Cover an adequately wide range of knowledge, skills, and expert experience of its members, and be composed with regard to the following criteria: experience, reputation, management of any conflicts of interest, independence, available time, and collective suitability of the body as a whole. • International experience of its members in different areas. • Diversity as regards gender representation. •Diversity as regards the age structure, which should reflect the age structure in the Bank to the largest extent possible. The goals of the Policy shall also be reasonably applied to the provision of diversity of the wider management. Table 35: Diversity - review of management bodies and senior management in 2021 and plan for 2022 Supervisory Board of NLBManagement Board of NLBSenior Management of NLB 2021Plan for 20222021Plan for 20222021Plan for 2022 Wide range of knowledge, skills and professional experience HighHighHighHighHighHigh International experience of the members in different areas HighHighHighHighMedium HighMedium High Age structure 20-30 = 0020-30 = 0020-30 = 11 30-40 = 0030-40 = 0030-40 = 55 40-50 = 1140-50 = 3540-50 = 1919 50-60 = 8650-60 = 0150-60 = 1313 60+ = 3560+ = 0060+ = 00 Share of women42%42%0%16.7%45%45% Remuneration system as a motivation for engagedand committed employees For an employee working in the companies within the Group, salary is composed of: Fixed part Determined according to the complexity of the work for which the employee has concluded a contract of employment. Variable part Depends on the employee’s performance for reaching set goals. Empoyees are awarded: 1.quarterly or half-yearly compensation and 2.annual rewards related to the business performance of the bank in which they work. Performance assessment is done by the head of the employee’s organisational unit using a top- down approach to evaluate the employee’s achievements in relation to goals set for a particular assessment period (quarter or half-year). The goals are set according to the ‘SMART’ method, meaning that they have to be specific, measurable, achievable, relevant, and time-bound. 8,185 employees in the Group family. ![]() 111 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Rules andProcedures Corporate governance of the Bank includes the processes through which Bank objectives are set and pursued (directed and controlled), and lately it is becoming an efficient way to channel investor-driven initiatives relatedto sustainability. Corporate governance with its principles identifies the distribution of rights and responsibilities among different stakeholders in the Bank (Management and Supervisory Board, shareholders, creditors, auditors, regulators, and otherstakeholders), and include the rules and procedures for making decisions in corporate affairs. The most important rules and procedures are: Articles of Association of NLB In accordance with the applicable Banking Act (ZBan-3) and Companies Act (ZGD-1), the Articles of Association of NLB the Bank has a two-tier governance system, according to which the Bank is managed by the Management Board and its operations are supervised by the Supervisory Board ( https:// www . nlb . si/corporate-governance ),while shareholders exercise their rights on meetings of shareholders. Corporate Governance Statement of NLB Apart from the binding legal framework, the Bank also follows the Corporate Governance Code for Listed Companies (valid since 1 January 2017). The Code defines the governance, management, and leadership principles based on the ‘comply or explain’ principle of companies listed on the Slovenian regulated market ( https://www . ljse . si ). Deviations from the recommendations of the mentioned code are published in the Corporate Governance Statement of NLB, which is adopted by the NLB Supervisory Board. The mentioned statement is prepared according to Article 70 (paragraph 5) of the Companies Act (ZGD-1) and is part of the Business Report in the NLB Group Annual Report. The mentioned statement is also published on the Bank’s webpage ( https://www . nlb .si/ corporate-governance ), as well as on the webpage of the Ljubljana Stock Exchange – SEOnet ( https:// seonet . ljse . si ). Corporate Governance Policy of the NLB and NLB Group Corporate Governance Policy The corporate governance framework of the Bank, being the Corporate Governance Policy of NLB (November 2020), Corporate governance of the Bank is based on legislation of the RoS, particularly (but not exclusively) the provisions of the changed Companies Act (ZGD-1) and the Banking Act (ZBan-3), the Decision of the BoS on Internal Governance, the Management Body and the Adequate Internal Capital Assessment Procedure for Banks and Savings Banks, the relevant EBA Guidelines on internal governance, the EBA Guidelines on the assessment of the suitability of members of the management body and key function holders, the EBA Guidelines on remuneration practices, and the EU regulations regarding ESG. is designed jointly by the Management Board and the Supervisory Board of the Bank. Therein are publicly disclosed commitments to shareholders, clients, creditors, employees, and other stakeholders as a whole, how the Bank will be supervised and managed, as well as decision which corporate governance code the Bank should follow ( https://www . nlb .si/ corporate-governance ). The Corporate Governance Policy of NLB should be read together with the NLB Group Corporate Governance Policy in which the corporate governance principles and mechanisms of the Group members (NLB excluded) are defined and governed. NLB Group Code of Conduct In the NLB Group Code of Conduct (Code), values, mission, and core principles of conduct are defined together with set guidelines to which the Group is committed. The Code describes the values and the basic principles of ethical business conduct that the Group respects, promotes, and expects to be followed in the whole Group ( https://www . nlb .si/ code-of-conduct ). Operating with integrity and responsibility is a key element of the Group’s corporate culture. It is important to achieve business goals as well as the way to achieve them. The Group demands that every employee, regardless of their job or location of work and every other stakeholder of the Group, complies with the highest standards of integrity. The key for achieving these standards is strong culture of compliance practiced by the Group. Remuneration Policy for the members of the Supervisory Board and Management Board of NLB In accordance with the fifth paragraph of Article 294a of the Companies Act, the Bank publicly posted on its website the Remuneration Policy for the Members of the Supervisory Board of NLB and the Members of the Management Board of NLB (version 1), which was adopted by the Supervisory Board of NLB on 15 October 2021 and approved by the General Meeting of Shareholders of NLB on its session on 16 December 2021 ( https://www . nlb . si/corporate-governance ). The resolution was legitimately passed with the necessary majority of the votes cast. Corporate Governance ![]() 112 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report During the year, the Bank also gradually built mechanisms to assure very important and comprehensive steps in integrating sustainability into banking operations, the so-called ESMS. The ESMS is a set of policies, procedures, tools, and internal capacity to identify and manage a financial institution’s exposure to the environmental and social risks of its clients/ investees. Significant changes in the lending process of the Group are one of the most important consequences of the introduction of the ESMS. The risk policies were upgraded to follow ECB and EBA guidelines. The Bank anchored ESMS at different levels within the Bank and theGroup thusguaranteeing that itreceives attention from the highest decision-making bodies in the Bank and in the Group members. With the establishment of the Sustainability Committee in the fall of 2021, which is a new advisory Body to the Management Board, the Bank built a 4-level NLB Group Sustainability Governance Structure, as follows: More information is available on https://www . nlb .si/ nlb-sustainability -framework . pdf and in this report, in Sustainability chapter. Supervisory Board of the NLB Sustainability Team Sustainability Committee Sustainability working groups Policy on the Provision of Diversity of the Management Body and Senior Management Policy on the Provision of Diversity of the Management Body and Senior Management regarding selection of members of the Supervisory Board, the Management Board and B-1 level was confirmed on General Meeting of Shareholders on 10 June 2019. With mentioned policy the Bank follows high standards of adequate representation of both sexes in the managing bodies. In 2020 and January 2021, the Workers’ Council of NLB elected and appointed employee representatives as members of the Supervisory Board of NLB, thus four employee representatives were appointed. As part of employee participation in theBank’smanagement, the appointment of four representatives brings additional diversity at all levels, including the achievement of gender quotas in the Bank’s governing bodies, and employees’ representatives with their diverse work experience will be able to contribute to better employee involvement in governing bodies. The Supervisory Board yearly follows the implementation of the goals set by mentioned policy. NLB Group Sustainability Governance Structure NLB became the first bank in Slovenia to commit to the UN Principles for Responsible Banking (September 2020). These principles represent a single framework for a sustainable banking industry and are aligned with the 2015 Paris Climate Agreement and with the objectives of the UN Sustainable Development Goals (UN SDGs) that cover three dimensions of sustainability: economic, social, and environmental. In that respect, the Bank upgraded the Corporate Social Responsibility (CSR) activities with more consistent adherence to the 2030 Agenda of the UN SDGs. In 2021, however, the Group moved from raising awareness to actively implementing sustainability elements into the business model and established sustainable operations in the Framework for Sustainable Operations of the NLB Group ( https://www . nlb . si/sustainability ). The framework defines the Bank’s corporate sustainability strategy, vision and mission, commitment to the UN SDG, sustainable economic activities, ESG risk management, sustainability governance structure, responsible banking, and business ethics. ESG factors and indirect economic factors are comprehensively recognised and managed according to GRI (Global Reporting Initiative – Global Standards (GRI GS)) standards. Key ESG information is published in the following chapters of this report or other related webpages: Environment (E): - In Sustainability chapter - In separately published NLB Group Sustainability Report 2021 published on the Bank’s webpage - the chapter Risk Management , subchapter Incorporating ESG Risks - the chapter Statement of Management of Risk in Note 6 of the Financial part of the report Social (S): - In Human Resources chapter - In the diversity and remuneration chapters in a separate report on Pillar 3 Disclosures according to Basel Standards Governance(G): - In this chapter of report - In the Corporate Governance Statement of NLB of this report and on the Bank’s webpage https://www . nlb .si/ corporate-governance and on the webpage of the Ljubljana Stock Exchange https://seonet . ljse . si ![]() 113 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report There were two General Meetings of Shareholders in 2021. Theshareholders of the Bank gathered on 36 th General Meeting on 14 June. Due to COVID-19 pandemic, for the first time the General Meeting was hybrid, as it was held live and online. The shareholders took note of the approved NLB Group Annual Report 2020, the Report of the Supervisory Board of NLB on the results of the examination of the NLB Group Annual Report 2020, and Information on the income ofmembers of the Management Board and Supervisory Board of the Bank for the previous business year. The shareholders decided on the allocation of distributable profit for 2020. The distributable profit of the Bank as at 31 December 2020 was EUR 341,992,219.43. The General Meeting of NLB granted discharge to the members of the management and supervisory bodies for the 2020 financial year, adopted amendments and supplements to the Articles of Association, and appointed Islam Osama Zekry as a new member of the Supervisory Board. At the 37 th General Meeting of Shareholders that was summoned for 16 December 2021, the shareholders decided on additional allocation of distributable profit for 2020. The Bank paid out in three instalments a total of EUR 92.2 million of dividends to the shareholders in 2021. At the General Meeting, the shareholders also voted on theRemuneration Policy for the Members of the Supervisory Board of NLBand the Members of the Management Board ofNLB. More information on the work of the General Meeting of the Shareholders activities is availablein CorporateGovernance Statement of NLB . Bank’sGoverningBodies The Bank’s corporate governance is based on a two-tier system in which the Management Board manages the Bank, while its daily operations are supervised by the Supervisory Board. General Meeting of Shareholders Supervisory Board Management Board General Meeting ofShareholders The shareholders exercise their rights related to the Bank’s operations at General Meetings. The Bank’s General Meeting passes decisions in accordance with the legislation and the Bank’s Articles of Association. Decisions adopted by the General Meeting include, among others: adopt and amend the Articles of Association, use of distributable profit, grant a discharge from liability to the Management and Supervisory Board, changes to the Bank’s share capital, appoint and discharge members of the Supervisory Board, remuneration of members of the Supervisory and Management Board and authorisation regarding the characteristics of issues of securities. The Supervisory Board The Supervisory Board supervises the management of the Bank and its duty of diligent and prudent conduct in line with powers defined in Companies Act (ZGD-1) and according to provisions of the Banking act (ZBan-3), other regulations, and internal rules of the Bank (the Articles of Association of NLB and Rules of Procedures of the Supervisory Board of NLB). In accordance with Articles of Association the Supervisory Board consists of 12 members, of which eight members represent the interests of shareholders, and four members represent the interests of employees. Members of the Supervisory Board of the Bank representing the interests of shareholders are elected and recalled by the Bank’s General Meeting from persons proposed by shareholders or the Supervisory Board of the Bank. Members of the Supervisory Board of the Bank representing the interests of employees are elected and recalled by the Workers’ Council of the Bank. All Supervisory Board members must be independent experts. 12 (8 are representatives of capital, while 4 are representatives of workers) In SB 5 out of 12 members arefemale (41.67%) Number of members:Diversity: There were two changes in the composition of the Supervisory Board in 2021. The Workers Council of the Bank elected Tadeja Žbontar Rems as a member of the Supervisory Board (representative of workers). Her term of office runs from 22 January 2021. Islam Osama Zekry was elected as a new member of the Supervisory Board on the General Meeting of Shareholders on 14 June 2021. ![]() 114 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Representatives of capital Primož Karpe, M.Sc. Chairman Term of office: 2016-2020, renewed term 2020-2024 Andreas Klingen Deputy Chairman Term of office: 2015-2019, renewed term 2019-2023 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Nomination Committee (Chairman) •Audit Committee (Member) •Operations and IT Committee (Member) Membership in NLB Supervisory Board committees: •Nomination Committee (Deputy Chairman) •Risk Committee (Chairman) •Operations and IT Committee (Member) Membership in management bodies of related or unrelated companies: •Angler d.o.o. - Director Membership in management bodies of related or unrelated companies: •Credit Bank of Moscow - Member of the Supervisory Board (i) •Kyrgyz Investment and Credit Bank CISC - Member of the Board of Directors •Nepi Rockcastle plc - Member of the Board of Directors (i)Till 14 March 2022. David Eric Simon Member Term of office: 2016-2020, renewed term 2020-2024 Islam Osama Zekry, Ph.D. Member Term of office: 2021-2025 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Audit Committee (Chairman) •Risk Committee (Member) Membership in management bodies of related or unrelated companies: •Jihlavan a.s. - Chairman of the Supervisory Board •Czech Aerospace industries sro - Legal representative •Central Europe Industry Partners a.s. - Sole Member of the Supervisory Board Membership in NLB Supervisory Board committees: •Operations and IT Committee (Deputy Chairman) •Risk Committee (Member) Membership in management bodies of related or unrelated companies: •CIB Housing association, Egypt - President of the Supervisory Board •Egyptian AI Council (Ministry of Communication and Information Technology) – Member of the Supervisory Board Shrenik Dhirajlal Davda, M.Sc. Member Term of office: 2019-2023 Mark William Lane Richards, M.Sc. Member Term of office: 2019-2023 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Risk Committee (Deputy Chairman) •Remuneration Committee (Member) •Audit Committee (Deputy Chairman) Membership in NLB Supervisory Board committees: •Operations and IT Committee (Chairman) •Remuneration Committee (Deputy Chairman) •Risk Committee (Member) Membership in management bodies of related or unrelated companies: •Vencap International pic Ukraine (UK) - Director •BPL Global (Lloyds of London insurance Broker) - Non-Executive Director •Sheffield Haworth Ltd - Non-Executive Director Membership in management bodies of related or unrelated companies (i) : •PJSC Ukrgasbank - Independent Member of the Supervisory Board (i)Since 8 March 2022 also: IPSO, UK - Lay Member of the Board. Gregor Rok Kastelic Member Term of office: 2019-2023 Verica Trstenjak, Ph.D. Member Term of office: 2020–2024 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Remuneration Committee (Chairman) •Audit Committee (Member) •Risk Committee (Member) Membership in NLB Supervisory Board committees: •Nomination Committee (Member) Membership in management bodies of related or unrelated companies: •European Union Agency for fundamental rights – Member of the Management Board Membership in management bodies of related or unrelated companies: •None Representative of employees Bojana Šteblaj, M.Sc. Member Term of office: 2020–2024 Sergeja Kočar, M.Sc. Member Term of office: 2020–2024 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Nomination Committee (Member) •Remuneration Committee (Member) Membership in NLB Supervisory Board committees: •Nomination Committee (Member) •Remuneration Committee (Member) Membership in management bodies of related or unrelated companies: •None Membership in management bodies of related or unrelated companies: •None Janja Žabjek Dolinšek, M.Sc. Member Term of office: 2020–2024 Tadeja Žbontar Rems, M.Sc. Member Term of office: 2020–2024 Link to CVLink to CV Membership in NLB Supervisory Board committees: •Operations and IT Committee (Member) Membership in NLB Supervisory Board committees: •Operations and IT Committee (Member) Membership in management bodies of related or unrelated companies: •None Membership in management bodies of related or unrelated companies: •None Further information about the work and composition of the Supervisory Board is available in the chapter Corporate Governance Statement of NLB . At 31 December 2021, the Supervisory Board had the following members: ![]() 115 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Audit CommitteeRisk CommitteeNomination Committee Remuneration Committee Operations and Information Technology (IT) Committee Committees of the Supervisory Board The Supervisory Board appoints committees that prepare proposals for resolutions passed by the Supervisory Board, ensures their implementation, and performs other expert tasks. The Bank’s Supervisory Board has five collective decision- making and advisory committees, namely: Further information about the work and composition of the Committees of the Supervisory Board is available in the chapter Corporate Governance Statement of NLB . David Eric Simon , Chairman Shrenik Dhirajlal Davda , Deputy Chairman Primož Karpe , Member Gregor Rok Kastelic , Member Andreas Klingen , Chairman Shrenik Dhirajlal Davda , Deputy Chairman Islam Osama Zekry , Member Mark William Lane Richards , Member David Eric Simon , Member Gregor Rok Kastelic , Member Primož Karpe , Chairman Gregor Rok Kastelic , Chairman Mark William Lane Richards , Chairman Andreas Klingen , Deputy Chairman Mark William Lane Richards , Deputy Chairman Islam Osama Zekry , Deputy Chairman Verica Trstenjak , Member Shrenik Dhirajlal Davda , Member Andreas Klingen , Member Bojana Šteblaj , Member Sergeja Kočar , Member Bojana Šteblaj , Member Sergeja Kočar , Member Primož Karpe , Member Janja Žabjek Dolinšek , Member Tadeja Žbontar Rems , Member Audit CommitteeRisk CommitteeNomination Committee Remuneration Committee Operations and Information Technology (IT) Committee ![]() 116 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Management Board The Management Board represents the Bank and manages its daily operations, independently and at its own discretion, as provided for by the applicable laws and the Articles of Association of NLB. In accordance with the Articles of Association, the Management Board has three to seven members (the president and up to six members) which are appointed and dismissed by the Supervisory Board. The president and members of the Management Board are appointed for a five-year term of office and may be reappointed or dismissed early in accordance with the law and Articles of Association. three members five-yearterm of office Number of members:Mandate: The Supervisory Board of NLB and, member of the Management Board and Chief Operating Officer (COO) Petr Brunclík, agreed on the termination of office with effect on 30 June 2021. The decision was brought about by personal reasons. As of 22 April 2021, his tasks were taken over by other members of the NLB’s Management Board. Further information about the work and composition of the Management Board is available in the chapter Corporate Governance Statement of NLB . At the end of 2021, the composition of the Management Board was as follows 16 : 16Further information is available in the chapter Events After the End of the 2021 Financial Year . Blaž Brodnjak CEO & CMO Term of office: 2016-2021, renewed term 2021-2026 Andreas Burkhardt CRO Term of office: 2016-2021, renewed term 2021-2026 Archibald Kremser CFO Term of office: 2016-2021, renewed term 2021-2026 Link to CVLink to CVLink to CV Other important functions and achievements: •More than 21 years of experience at managerial positions on all levels of international banking groups. •Was a chairman or member of the supervisory boards of 13 commercial banks in six countries, three insurance companies in three countries, leading asset management company in Slovenia and multinational production group. Other important functions and achievements: •20 years of experience in the area of banking, especially in the area of Central Europe. Other important functions and achievements: •More than 21 years of experience in the financial services industry in Austria, CEE, and SEE focusing on finance and asset management, strategy, and corporate development, as well as performance improvement assignments. Direct responsibility: •Strategy and Business Development •Legal and Secretariat •Communication •HR and Organisation Development •Investment Banking and Custody •Retail and Private Banking, Corporate Banking •Payment Processing •Cash Processing Direct responsibility: •Internal Audit •Compliance and Integrity •Global Risk and Credit Risk – Corporate and Retail •Workout and Legal Support •Restructuring •Evaluation and Control •Financial Instruments Processing •Corporate Customer Delivery •Retail Banking Processing Direct responsibility: •Financial Accounting •Controlling •Financial Markets •Group Real Estate Management •Group Steering •IT Architecture •IT Delivery •Data Management •IT Shared Service Centre •NLB Group IT Security Governance •IT Infrastructure •Procurement Membership in management or supervisory bodies of related or unrelated companies: •Chairman of the Supervisory Board: NLB Banka, Skopje •Chairman of the Board of Directors: NLB Banka, Prishtina •Member of the Board of Directors: Komercijalna Banka, Beograd •President of the Association of Banks in Slovenia •President of the Board of Governors: AmCham Slovenia •Member of Executive Committee of the Handball Federation of Slovenia •Member of the Board of Directors: Cedevita Olimpija (from 1 February 2022) Membership in management or supervisory bodies of related or unrelated companies: •Chairman of the Board of Directors: NLB Lease&Go NLB Bank, Banja Luka NLB Bank, Sarajevo Membership in management or supervisory bodies of related or unrelated companies: •Chairman of the Board of Directors: NLB Banka, Podgorica Komercijalna Banka, Beograd ![]() 117 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Management Board also appointed working bodies that operate at a lower level: Committee for New and Existing Products Group Real Estate Management Sub Committee Committee for Business IT Architecture Data Management CommitteeAnti - Money Laundering Commission Corporate Customer Acceptability Committee Advisorybodies of the Bank’s Management Board The Watch List CommitteeThe Risk CommitteeNLB Group Non-Performing Assets Divestment Committee NLB Group Sustainability Committee Chairman: CROChairman: CROChairman: Director of Workout and Legal SupportChairman: CEO Number of members: 7Number of members: 12Number of members: 7Number of members: 17 The Watch List Committee is a body which monitors the progress of activities for clients on the Watch list. As a rule, committee meetings are convened quarterly. The Risk Committee monitors and periodically reviews matters related to risk and commercial risk and prepares materials for the Management Board to obtain decisions. As a rule, committee meetings are convened quarterly. The NLB Group Non-Performing Assets Divestment Committee monitors operations of Non-Core Group Members and issues opinions, recommendations, and initiatives. The Committee shall discuss the strategies regarding optimal management of the Group members and shall monitor realisation of their strategic objectives. As a rule, committee meetings are convened quarterly. Committee oversees the integration of the ESG factors to the NLB Group business model in a focused and coordinated way across the company and issues opinions, recommendations, initiatives and takes relevant decisions when needed. As a rule, committee meetings are convened quarterly. Collective decision-making bodies Different committees, commissions, boards, and working bodies may be appointed by the Management Board for execution of individual tasks within powers of the Management Board. Corporate Credit CommitteeAssets and Liabilities Management Committee of the NLB Group NLB Operational Risk Committee The Change the Bank Committee The Group Real Estate Management Committee The Sales CommitteePrivate Individual Credit Committee Chairman: CROChairman: CFOChairman: CROChairman: CEOChairman: CFOChairman: Executive Assistant to MB for CIB area Chairman: Director of Credit Risk – Retail Number of members: 8Number of members: equal to the number of the appointed members of the Management Board Number of members: 16Number of members: equal to the number of the appointed members of the Management Board Number of members: 3Number of members: 13Number of members: 5 The Committee determines credit ratings and makes decisions on the reclassification of clients and approves commercial banking investment transactions and limits that are beyond the competencies of the directors. The Committee adopts decisions on investment transactions in commercial banking within the statutory powers in the areas of corporate banking in the Bank (all companies, banks, and financial institutions), operations with clients in intensive care, and NPL. As a rule, committee meetings are convened once a week. The Committee monitors conditions in the macroeconomic environment and analyses the balance, changes to and trends in the assets and liabilities of the Bank and the Group companies, drafts resolutions and issues guidelines for achieving the structure of the Bank’s and the Group’s balance sheet. Committee meetings are generally convened once amonth. The Committee is responsible for monitoring, guiding, and supervising operational risk management in the Bank, and for transferring this methodology to the Group members. As a rule, the Committee meets once every two months. The Committee is responsible for adopting decisions related to the development portfolio with the aim of transforming the Bank and decisions related to adopting the development guidelines. As a rule, the Committee meetings are convened once a month. The Committee is in charge of giving opinions on acquisition/purchase price of real property and additional investments in real property provided as collateral for NPL, the selling price of own real property, and the acquisition/purchase price for the real property mortgaged in the sale of receivables. As a rule, Committee meetings are convened once a week. The Sales Committee adopts decisions on the management of the range of products and services and the relations with the clients in the area of sales. As a rule, Committee meetings are convened once a week. The Committee decides on the approval of loans and other investment proposals, the conditions of which deviate from standard banking products and services, and which represent additional risks for the Bank. As a rule, meetings are convened when necessary. ![]() 118 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group’s Corporate Governance As the parent bank, NLB implements the corporate governance of the Group members in compliance with EU and BoS legislation, the local legislation, and regulatory requirements applicable to respective Group members, while also considering internal rules, ECB Guidelines, and other applicable regulations. The roles, authorisations, and responsibilities of individual bodies and organisational units, as well as the manner to coordinate their operations to achieve the set business goals, are stipulated comprehensively in the NLB Group Corporate Governance Policy. In the Bank, the Group Steering Department is the principal partner of the Bank’s Management Board in the governance of strategic and non- strategic Group companies, and is responsible for appropriate corporate governance, the alignment of strategies, and the objectives achieved by subsidiaries. In recent years, the concept of corporate governance of the Group has been upgraded, and the role of members of the Management Board of the Bank in management of other Group members strengthened. The target composition of supervisory bodies in the Group members was established, the functioning of the supervisory bodies optimised, and the reporting and standards related to the harmonisation of operations simplified. In line with strategic aspirations, the concept of ‘country managers’ was fully introduced with the main goal to support and steer the Group members, as well as to be a strong link between Group members and the Bank. They also facilitate best practice sharing on different levels. Stream coordinators were introduced to address the facilitation of more in-depth knowledge of competence lines and greater integration between streams and the Group members, the increasing transmission of current information, needs, and other requirements from the Group members, and exploitation of synergies at the Group level and coordination of regional projects. Legal and organisational structure of the banking group, including a description of the internal governance arrangements, the arrangements with regard to close links and the arrangements regarding the governance of subsidiaries are available on the Bank’s webpage ( http://www . nlbgroup . si/profile ). The Group is governed: In accordance with fundamental corporate rules through various bodies of the Group members: •By voting at general meetings of the Group members •By exercising supervision through the supervisory bodies of the Group members •With proposals for appointing the management of the Group members •With proposals for appointing representatives of the Bank to supervisory bodies • Through participation of Bank’s representativesin various committees and commissions of the Group members Through mechanisms that ensure efficient business monitoring and governance, such as: •Harmonisation of operations in accordance with the so- called ‘competence line principle’ •NLB Group Management Board Meetings, NLB Group Leadership meetings, NLB Group ALCO meetings, etc. • Development activities carried out via cross-functional working groups, group projects, competence centres, centres of excellence, etc. •Through additional supervision of NLB Group members carried out by control functions (risk management, internal audit, compliance, AML, information, and physical security) and external supervising authorities (ECB, local regulators, external auditors). ![]() 119 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report A culture of compliance is integrated into the day-to day business of the Bank to support its operations, to contribute to its strong internal control environment, and to ensure that compliance risks are mitigated. Group-wide ethics and integritystandards Within the framework of the programme of ensuring business compliance, the Group also deals with the ethics and integrity The Group addresses the challenges of high regulation and strict regulatory requirements with a systematic approach to mitigating compliance risks. It is important to ensure that employees and decision-makers know and understand the purpose and objectives of the regulations. The Group is continuously strengthening the compliance function and diligence of its operations. of the organisation. For that reason, all of the employees are included in yearly training and awareness-raising activities in the areas of general ethics, anticorruption, anti-money laundering, information security, etc. The values of the Group, embedded in the Group Code of Conduct, provide guidance and principles of expected behaviour regarding ethical conduct and require appropriate conduct from all employees at any level of the organisation, including its contractors. The regime on inside information (MAR) In line with the Market Abuse Regulation (MAR), and other relevant regulations, the Bank has a system in place on the level of the Bank and its entire Group for managing and publicly disclosing inside information in a manner that enables it to comply with the obligations related to inside information identification and disclosure in accordance with the rules and regulations applicable at any time. Also, the Bank has a system in place implementing the market abuse prevention regime in accordance with MAR to prevent insider trading, market manipulation, and illegal disclosure of inside information. Compliance and Integrity The Compliance and Integrity in the Bank addresses the following risk areas: Fraud prevention and investigation AML/CTF Privacy data protection and information security Regulatory compliance Corruption prevention Fit and proper assessment procedures (as part of assessing reputation, financial strength, time availability, and conflict of interests) Conflict of interests, gifts and hospitality management Identification, assessment, and management of compliance, and integrity risks at the Bank and the Group levels Oversight, monitoring, steering, and managing the Group compliance function and programme (i) Business ethics and corporate integrity Physical / technical security (i) Established by standards for compliance and integrity for the Group and implementation of monitoring by off-site data analysis and onsite visits. 537 new laws, draft laws, regulations, and other information regarding regulatory environment of the Bankreviewed. ![]() 120 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Information security and personal dataprotection The information security area, inter alia, focused on implementation of measures for increasing the level of information/cyber security, as well testing the cyber security resilience of information systems (pen-tests). Furthermore, in line with the plan, several internal assessments/compliance checks according to ISO/IEC 27001 standard were carried out in 2021, including assessment of information security at outsourcing providers. Special obligatory e-trainings for all employees in the area of information security and social engineering were prepared and executed all as part of prevention measures in this area. The Bank runs its operations in line with GDPR requirements, including the retention and processing of personal data, dedicated Data Privacy Officer, education, and training of employees. The new Slovenian Personal Data Protection Act (ZVOP-2) was not adopted in 2021 as expected. If necessary, further alignments will be made when the national legislation is in place. Prevention Based on the assessment of compliance risks (so-called ECRA – Enterprise Compliance Risk Assessment) the management of the Bank and in particular Compliance and Integrity can plan its activities; all with the aim to reduce or mitigate the compliance and integrity risks. As part of compliance programme, Compliance and Integrity is also involved, inter alia, in risk assessments regarding new and changed products, fit and proper assessments for key function holders, outsourcing, and other changes materially affecting the Bank’s business. As a standard Compliance function, several workshops and compulsory e-education on ethics, the prevention of corruption, conflicts of interest, protection of personal data, AML/CTF, Information Security, Physical Security, and other relevant topics related to everyday work were prepared. For all employees, yearly e-trainings are mandatory on subjects such as prevention of insider trading and market manipulation, ethics, anti-corruption, mitigation ofconflict of interests, personal data protection, information security, and similar themes. The Group seeks to promote a corporate culture that facilitates compliance, and by continuously raising awareness, for example through communication via its monthly compliance newsletter, detailing not only important regulatory changes, but also current information and case studies on different compliance and ethics topics. Prevention ofMoney Laundering and Terrorism Financingand Financial SanctionsCompliance The Bankcomplieswith national regulations on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), including the European Banking Authority (EBA), BoS and other competent authorities’ guidelines and standards. The RoS is a member of the EU, and thus subject to the European AML/CFT Directives, the means by which the EU transposes the Financial Action Task Force (FATF) recommendations throughout the EU. For the Bank, it is of paramount importance to effectively mitigate the risk of money laundering, financing of terrorism and breaches of financial sanctions. For these reasons, the rules, procedures, and technology in AML/CFT area are subject to strict and unified policies and standards. The same principles are also applied for setting out the Bank’s framework on financial sanctions. In the previous year, the Bank upgraded and introduced further enhancements of AML governance in line with directions set by the BoS. Through the system of regular reporting and constant onsite and off-site control, the headquarters effectivelymonitors the implementation and execution of standards throughout the Group. The Bank regularly performs customer due diligence, following the risk-based approach and, in the case of enhanced risk, performs additional measures both in the segment of ‘Know your customer,’ as well as ongoing monitoring of the transactional activities. In the case of detected deviations, also considering the AML/CTF indicators, the AML unit of the Bank ensures the review and, if required by AML/CFT legislation, reports the customers and transactions to the competent Financial Intelligence Unit. In its Acceptance Policy, the Bank has also adopted additional measures to prevent onboarding of customers that do not correspond to its risk appetite. The Bank also ensures a high level of awareness on the AML/CFT area and the area of financial sanctions with regular training of all employees of the Bank. 39 cases investigated. 169 complianceprocesses and other reviews. ![]() 121 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Internal Audit is the independent, objective, and advisory control body responsible for a systematic and professional assessment of the effectiveness of risk management procedures, completeness, and functionality of internal control systems, and the management of the Group operations on an ongoing basis. The Internal Audit provided impartial assurance to the Management Board and Supervisory Board on the management of risks in key areas, i.e., cyber security, Linux and Windows server platforms, restructuring – retail, ICAAP process, personal accounts, outsourcing process, liquidity and credit risk management, lending processes (loans to retail – overdraft facilities, credit cards facilities, non-performing loans, leveraged transactions), corporate real estate management, cash management in branches, and others. Performedaudits The Internal Audit performs its tasks and responsibilities on its own discretion and in compliance with the annual audit plan as approved by the Management Board and confirmed by the Supervisory Board. Based on its internal methodology and comprehensive risk analysis for 2021, the Internal Audit of NLB conducted 43 audit assignments (of that, three audits on a Group level), seven were postponed due to objective reasons. Furthermore, auditors conducted 27 branch inspections, one joint audit with the local auditors, and two internal audit quality reviews, both in the Group. Auditors were also involved in several strategic projects as advisor. The majority of the recommendations given in 2021 were implemented within the agreed deadlines. Implementation of uniform rules Internal Audit increases efficiency. It focuses on monitoring the implementation of audit recommendations, training and education, updating the internal audit charter and manual, advising management, and ensuring high quality and professional operations of the internal audit function within the Group. The Internal Audit also introduces uniform rules of operation of the internal audit function and regularly monitors the compliance with these rules within the Group. Internal Audit reviews key risks in the Group’s operations, advises management at all levels, and deepens understanding of the Bank’s operations. It provides independent and impartial assurance regarding the management of key risks, management of the Bank, operation of internal controls, and thereby strengthens and protects the value of the Bank. The higheststandards werefollowed Internal Audit and other internal audit services in the Group operate in accordance with the: Internal Audit 69 planned and extraordinary audits conducted in the Bank. 28 Internal Audit experts. Banking Act (ZBan-3) or other relevant laws which regulate the operations of aGroup member Code of Ethics of an Internal Auditor Code of Internal Auditing Principles International Standards for the Professional Practice of Internal Auditing ![]() 122 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Corporate Governance Statements ![]() 123 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of Management’s Responsibility In accordance with the provisions of Article 134 (2 nd paragraph) ofthe Market and Financial Instruments Act 17 , theManagement Board hereby confirms the statements made in the business report, which are in accordance with the attached financial statements as at 31 December 2021, and represent the actual and fair financial standing of the Bank and the NLB Group as well as their operating results in the year that ended 31December 2021. The Management Board confirms that the business report gives a fair view of developments and operating results of the Bank and the Group and their financial standings, including a description of the key types of risks and Group companies included in the consolidation are exposed as a whole. Ljubljana, 11 April 2022 17(ZTFI-1, Official Gazzete of the RoS, No. 77/18, 17/19 – corr., 66/19 in 123/21). Management Board of NLB Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 124 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report  Corporate consultancy regarding capital structure operational strategy and related matters and consultancy and services in connection with corporate mergers and acquisitions  Monetary intermediation on interbank markets  Advice on portfolio management  Safekeeping of securities and other related services  Credit rating services: collecting analysing and disseminatinginformationregarding creditworthiness  Leasing of safe deposit boxes  Investment services and transactions and ancillary investment services in accordance with the Market and Financial Instruments Act (ZTFI) It may perform the following additional financial services, pursuant to Article 6 of the ZBan-3:  insurance agency service pursuant to the law governing the insurance industry  custodian services according to the law governing investment funds and management companies  credit brokerage for consumer and other types of loans Authorisation to perform banking services is published on the official web page of the BoS ( https://www . bsi . si/en/financial-stability/institutions-under- supervision/banks-in-slovenia /8 /nova-ljubljanska-banka- dd-ljubljana ). Authorisation toPerform Banking Services In accordance with the provisions of Article 14 (1 st paragraph) of the Regulation on Books of Accounts and Annual Reports of Banks and Savings Banks ( Official Gazette of the RoS , No. 184/21) adopted by the BoS on the basis of the authorisation from Article 109 of the Banking Act, 18 (ZBan-3), NLB hereby lists all types of financial services which, in accordance with the authorisation of the BoS, took place during the period for which the business report was prepared. NLB has the authorisation to perform banking services pursuant to Article 5 of the ZBan-3. Banking services are the acceptance of deposits and other repayable funds from the public and the granting of credits for its own account. The bank has an authorisation to perform mutually recognised and additional financial services. It may perform the following mutually recognised financial services, pursuant to Article 5 of the ZBan-3, namely:  Accepting deposits and other repayable funds from the public  Granting of loans including: • consumer loans • mortgage loans •purchase of receivables with or without recourse (factoring) •financing of commercial transactions, including export financing based on the purchase of non-current non- past-due receivables at a discount and without recourse, secured by financial instruments (forfeiting)  Payment services  Issuing and managing other payment instruments (eg travellers’ cheques and bank bills of exchange) insofar as such services are not included in the services referred to in the previous point  Issuingof guarantees andother commitments  Trading for own account or for the account of clients: • in money-marketinstruments •in foreign legal tender, including currency exchange transactions • in standardized futures and options • in currency and interest-rate instruments • in transferable securities  Participation in securities issues and the provision of associated services 18Official Gazette of the RoS, No. 92/21 and 123/21. ![]() 125 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Corporate Governance Statement of NLB Pursuant to Article 70, paragraph 5, of the Companies Act (ZGD-1) 19 NLB hereby gives the following Corporate Governance Statement of NLB as a part of the Business Report of the NLB Group Annual Report 2021. The main function of this statement is the prompt informing of investors on the coherence of the Bank’s corporate governance system. 1.STATEMENT OF COMPLIANCE WITHTHECORPORATE GOVERNANCE CODE NLB, as a public company whose shares are listed on Prime Market of the Ljubljana Stock Exchange, hereby discloses the compliance with the Slovenian Corporate Governance Code for Listed Companies, adopted by the Ljubljana Stock Exchange and Slovene Directors’ Association, on 27 October 2016 (valid from 1 January 2017) as the code that applies for the bank. Information contained in this point represents a 'Statement of Compliance with the Corporate Governance Code' as definedin Article 24 of the Ljubljana Stock Exchange Rules, dated 27 May 2020 ( https://ljse.si/en/rules-and-regulations/252 ). 1.1.References to the Code on Corporate Governance The recommended best corporate governance practices contribute to a transparent and understandable corporate governance system, which promotes both domestic and foreign investor confidence, as well as the confidence of employees, other stakeholders (regulators, suppliers, etc.), and the general public. A decision on which code the Bank will follow was made jointly by the Management Board and the Supervisory Board of the Bank by adopting the Corporate Governance Policy of NLB (November 2020). In 2022, the Group will actively analyse the changes made with a renewed version of the Slovenian Corporate Governance Code for Listed Companies, that will be the first used for preparation of the Corporate Governance Statement of NLB for the business year 2022. NLB also has its own corporate governance code. The NLB Group Code of Conduct is a standardised document for all members of the Group that defines values, lays down the 19The Companies Law (ZGD- 1; Official Gazette of the RoS, No. 65/09 and consecutive changes). standards of ethical business conduct, and serves as the guideline for all our relationships regardless of whether it involves clients, competitors, business partners, state authorities, regulators, shareholders, or internal relationships between employees. At the same time, it is the basis of the Group values and basic principles of conduct which provide specific conduct guidelines to its employees. The aim of this approach is to ensure compliance with all applicable laws, regulations, and standards. It is published on the Bank’s web page ( https://www.nlb.si/compliance-and-integrity ). Compliance with the aforementioned Code is explained in the Corporate Governance Statement of NLB on ‘comply or explain basis,’ in which the Bank provides explanation regarding deviations, reasoning for non-compliance with a certain recommendation, or alternative practices performed mostly due to stricter banking regulation. The statement refers to the Bank’s system of corporate governance from the beginning to the end of financial year, which also corresponds to the beginning and the end of the calendar year (from 1January until 31 December). Corporate Governance Statement of NLB is included in the Business Report of the NLB Group Annual Report (published on https://www.nlb.si/financial-reports ), and is also published as a separate report on the Bank’s website under chapter on Corporate Governance ( https://www.nlb.si/corporate- governance ), as well as on the website of the Ljubljana Stock Exchange ( https://seonet.ljse.si ). NLB strives to increase the level of its business transparency and informs the shareholders and other expert community in line with Guidelines on Disclosure for Listed Companies (Ljubljana Stock Exchange, 18 December 2020) on electronic communications system of the Ljubljana Stock Exchange ( https://ljse.si/en/rules-and-regulations/252 ) and in line with Rules and Regulation of the Luxembourg Stock Exchange, as well as in line with Rules of the London Stock Exchange through Regulatory News Services (RNS) of the London Stock Exchange. The Corporate Governance system of the Bank and all relevant information on Bank’s management that exceeds the requirements of article 70 of the Companies Act (ZGD-1) are published in the chapter of Risk Management of this annual report, where ESG Risk Management for the year 2021 is described, as well as in the Sustainability chapter of this annual report, and the NLB Group Sustainability Report 2021 ( https://www. nlb.si/sustainability ). Some other aspects about the functioning of the Bank’s managing bodies are described in the chapter of Corporate Governance of this annual report, as well as in the Corporate Governance Policy of NLB (November 2020) published on the NLB’s website ( https://www.nlb.si/corporate-governance ). Information on the Diversity Policy and Remuneration Policy is also described in the Pillar 3 Disclosures according to Basel standards ( https://www.nlb.si/financial-reports ). 2.COMPLIANCE WITH THE SLOVENIAN CORPORATE GOVERNANCE CODE FOR LISTED COMPANIES The Bank does not follow or partially implements or adhere to different, in most cases stricter, banking regulations with regard to the following recommendations: Recommendation no. 8.5 : In the reasoning of the proposals for the General Meeting, NLB does not cite eventual conflicts of interest because they are already included into the Fit & Proper procedure. Recommendation no. 10.1 : In assessing candidate’s eligibility for a Supervisory Board member, statutory criteria are applied, however candidates don’t have a certificate evidencing their specialised professional competence for membership on a Supervisory Board, such as the Certificate of the Slovenian Directors’ Association, or any other relevant certificate. However, all strict conditions must be fulfilled according to banking legislature. Recommendation no. 12.2 : The Rules of Procedure of the Supervisory Board of NLB do not include the list of all types of transactions for which the Management Board needs prior approval of the Supervisory Board, but refer to Article 24 of the Articles of Association. The mentioned rules also do not include the Supervisory Board evaluation, education, and training of the members of the Supervisory Board. The mentioned provisions are part of other internal documents or decisions of the managing bodies. Recommendation no. 12.3 : The Rules of Procedure of the Supervisory Board of NLB do not include the scope of topics and timeframe to be respected by the Management Board in its periodic reporting of the Supervisory Board. However, the scope of topics and time frames of periodic reporting to the Supervisory Board are included in annual Action Plan of the Supervisory Board and Articles of Association. Professional ![]() 126 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report services of the Bank take care that timely information is provided to the Supervisory Board. Recommendation no. 15.3 : NLB does not follow this recommendation because the President of the Supervisory Board is at the same time President of the Nominations Committee. Recommendation no. 17.1 : In 2021, the Supervisory Board members (representatives ofcapital and representatives of workers) did not receive attendance fees, but received payments for performing their function based on the decisions of the General Meeting of shareholders dated 21 October 2019 and 15 June 2020. Remuneration of the members of the Supervisory Board is regulated by the Remuneration Policy for the Members of the Supervisory Board of NLB and the Members of the Management Board of NLB adopted by the Supervisory Board on 15 October 2021 and by the General Meeting of shareholders on 16 December 2021. The voting on mentioned policy by the General Meeting of shareholders was consultative. Recommendations no. 21.4 to 21.6 : In 2021, NLB did not pay variable remuneration in the form of NLB’s shares to any member of the NLB Management Board, nor do stock option plans and comparable financial instruments make up most of the variable remuneration of any member of the NLB Management Board. In relation to the payment of variable remuneration in ordinary or preference shares of NLB, or share linked instruments, or equivalent non-cash instruments NLB complies with the recent changes introduced by the Banking Act (ZBan-3) 20 that came into force on 23 June 2021. In accordance with point 3 of the second paragraph of Article 190 of the ZBan-3, at least 50% of the variable remuneration of (among other) each member of the NLB Management Board shall comprise ordinary or preference shares of NLB, or share linked instruments, or equivalent non-cash instruments (hereinafter collectively: Instruments). This requirement applies to both the non-deferred and the deferred part of variable remuneration (which are different from recommendations 21.4 and 21.6, which provide that variable remuneration given as shares, as well as the execution of stock options and any other rights to acquire shares or be remunerated based on share price movements, must not be made possible for at least three years after such rights were awarded). When the variable remuneration of an individual Identified Staff for a particular year does not exceed 20 Banking Act (ZBan-3; Official Gazette of the RS, No 92/21). EUR 50,000 and does not exceed one third of his/her total remuneration for such year, ZBan-3 allows for an exception from the requirement that a part of variable remuneration must be paid in Instruments. On 15 October 2021, the Supervisory Board of the bank adopted a new Remuneration Policy of Members of the Management Board of NLB and the Members of the Supervisory Board of NLB, which was also adopted by the General Meeting of shareholders of the Bank on 16 December 2021. The voting on mentioned policy by the General Meeting of shareholders was consultative. Recommendation no. 25.3 : The Bank does not follow the recommendation on rotation of audit companies (at least once every seven years); however, the Bank complies with the Banking Law (ZBan-3) that allows longer period. However, the audit firm did replace the audit partner responsible for the audit of NLB and the Group financial statements for year 2020 and 2021. Recommendation no. 27.4 : NLB draws up its financial calendar which is published on Banks’ website ( https://www. nlb.si/financial-calendar ) and includes the date of the Annual General Meeting, however, it doesn’t provide information on the dividend payment date. The dividend payment date is announced in the publication of the Agenda and Proposed Resolutions to be passed at the Annual General Meeting ( https ://www . nlb . si/general-meetings ). The dividend payment date is determined based on KDD Operations Rules (Central Securities Clearing Corporation). Recommendation no. 29.2 : The Bank performs the corporate sustainability reporting according to Global Reporting Initiative Standards (GRI). Another institution suitable for independent external assessment of corporate sustainability reporting will verify the correctness of information in the corporate sustainability report presumably for business year 2022 (this also includes GRI standards). However, the bank already adopted a decision that in 2022 an independent external verification of the work of calculating the carbon footprint will be performed by renowned natural science and technology researchinstitute in Slovenia. Recommendation no. 29.9 : NLB does not publish the rules of procedure of its bodies (Management Board and Supervisory Board and its committees) on its website. However, each year the Bank discloses the composition, competences, and work of its managing bodies in the Corporate Governance Statement of NLB and publishes it in the NLB Group Annual Report, on Bank's website ( https://www.nlb.si/corporate-governance ), as well as on the web page of the Ljubljana Stock Exchange ( https://seonet.ljse.si ). 3.MAIN FEATURES OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO FINANCIAL REPORTING NLB is governed by the provisions of the Capital Requirements Regulation (CRR), with amendment, together with all applicable delegated acts, Banking Act (ZBan-3) and the Regulation on Internal Governance Arrangements, the Management Body and the Internal Capital Adequacy Assessment Process for Banks and Savings Banks regulating, and relevant EBA Guidelines, among other, the Bank’s obligation to set up, maintain appropriate internal control, and risk management systems. Due to the above, the NLB has developed a steady and reliable internal governance system encompassing the following: •a clear organisational structure with precisely defined transparent and consistent internal relations in the area of responsibility; • effective risk management processes for identifying, measuring or assessing, managing, and monitoring risks, including risk appetite, risk strategy, ICAAP, ILAAP, recovery plan, and the reporting of risks to which the Group is exposed or could be exposed in its operations; •incorporating main strategic risk guidelines into annual business plan review, budgeting process, and other relevant decision-making; •suitable internal control mechanisms that include appropriate administrative and accounting procedures; •the appropriate remuneration policies and practices that are in line with prudent and effective risk management, and thus promote risk management. 3.1. Internal control mechanisms Suitability of the internal control mechanisms are determined by the independence, quality and validity of: •the rules for and controls of the implementation of the Bank's organisational procedures, business procedures, and work procedures (internal controls) and • the internal control functions and departments (internal control functions). ![]() 127 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 3.1.1. Internal Controls In August 2021, the Bank upgraded a system of internal controls by adopting a revised Policy Internal Control System that isharmonizedwith internationalregulatory requirements and standards (CRR, Banking Act, BIS, COSO, regulation of the BoS, EBA et al). A system of internal controls means a set of rules, procedures, and organisational structures aimed at: •ensuring efficient and consistent implementation of NLB's strategiesand operations, •ensuring efficient and consistent processes and procedures in the NLB, •protection of the value of NLB's assets, • ensuring the reliability and integrity of accounting and management data and information, •ensuring the operation and operation of the NLB in accordance with all applicable rules and regulations. The system of internal controls in NLB is designed to ensure that for each key risk there is a process or other measure to reduce or manage that risk and that process or measure is effective for that purpose. The aforementioned policy introduces a new description of the three lines of defence, namely:  Firstlevel (or line) controls are implemented into business and nonbusiness organisational units (OU): controls are designed to ensure the proper implementation of business activities ie the Bank's operations Supervision in each individual business area is carried out by the competent organisational unit (OU) which is responsible for the implementation of procedures;  Secondlevel controls are divided between Risk Management and Compliance control functions (including AML/CTF and Information security management) that carry out independent controls and supervision over the operation of the first line of defence The business compliance function sees to the supervision of the correct implementation and ensuring compliance (line controls) with the regulatory framework its consistent interpretation at the Group level as well as to identifying assessing preventing and monitoring overall risks to compliance and integrity in the NLB The risk management function directs risk management and control by defining policies and methodologies for risk assessment and management;  The third level of controls is performed by the internal audit function which assesses and regularly checks the completeness functionality and adequacy of the internal control system Internal audit is completely independent of both the first line and the secondlevel control functions In the event of deficiencies, irregularities of breaches identified in the process of implementation of internal controls the breaches are discussed at the Operational Risk Committee (which is collective decision-making body appointed by the Management Board of the Bank that is established for execution of individual tasks within powers of the Management Board of the Bank). The mentioned committee adopts decisions so that appropriate actions are taken and informs the Management Board of the Bank about deficiencies and actions taken on that behalf. 3.1.2. Internal Control Functions The internal control functions are part of the system of the internal governance in the Bank. Internal control functions include: a)The Internal Audit Function The Internal Audit function is organised according to the Charter on the Internal Audit of NLB adopted by the Management Board on 13 November 2018 (and supplemented on 13 August 2019), to which the Supervisory Board of NLB gave its approval (30 November 2018 and 6 September 2019). The Charter of the Internal Audit of NLB is the umbrella document about the understanding and role of the Internal Audit in NLB, which defines the purpose, powers, responsibilities, and tasks of the Internal Audit in line with the International Standards for the Professional Practice of Internal Auditing. The Charter lays down the position of the Internal Audit in the organisation, including the nature of the relationship between the functional responsibility of the Head of the Internal Audit to the supervisory body, grants authorisations to internal auditors for accessing records, employees, premises, and equipment relevant for performing their tasks, and defines the area and activities of the Internal Audit. The Management Board has set up an independent internal audit function which gives assurances and advice about risk management, internal controls system, and management of the NLB. The mission and the principal task of the Internal Audit is to consolidate and secure the value of the Bank by issuing objective assurances based on risk assessment, with consultancy and deep understanding of the Bank’s operations. In addition to that, the Internal Audit carries out regular control of the quality of operation of the other internal audit departments in the Group and takes care of constant developmentof the internal auditingfunction. Pursuant to the provisions of the law, the Bank has organised the internal audit as an independent organisational unit, primary responsible to the Supervisory Board of the NLB and secondary to the Management Board of the Bank. The Supervisory Board of NLB must issue its approval of the appointment, remuneration, and dismissal to the Head of the Internal Audit, which ensures their independence and so, the independence of the work of the Internal Audit. b)The Risk Management Function The Risk Management Function is organised according to the Charter of the Risk Management Function of NLB adopted by the Management Board, in agreement with the Supervisory Board of NLB. The Charter on Functioning of the Risk Management Function of NLB is the framework document on understanding and role of the risk management function; it defines the purpose, validity, and method of operation, as well as the authorisations and responsibilities of the risk management function according to the requirements of the Banking Act (ZBan- 3) and the Regulation on Internal Management Arrangements, Management Body, and Internal Capital Adequacy Assessment Process for Banks and Savings Banks. The risk management function represents an important part of overall management and governance system in the Group. This function in NLB is organised within the Risk stream, covered by the member of the Management Board in charge of risk (Chief risk officer - CRO). The risk stream covers the following organisationalunits: •Global Risk •Credit Risk – Corporate •Credit Risk - Retail • Evaluation and Control •Restructuring •Work-out and Legal support The risk management function is performed by the Global Risk. In accordance with the competences, authorisations, and responsibilities Global Risk is represented by its General Manager. The Global Risk is in functional and organisational terms separate from other functions where business decisions are adopted and where potential conflict of interest may arise with the risk management function. The head of the risk ![]() 128 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report management function has direct access to the Management Board of the NLB and at the same time unhindered and independent access to the Supervisory Board of NLB and the Risk Committee of the Supervisory Board of the NLB. In members of the Group, the risk management function is organised according to the local legislation, considering the bases for set-up, organisation, and activities in risk management in the members, as defined in the document 'Risk Management Standards in the NLB Group.' The described standards on risk management provide the members of the Group the bases with which they have to align their organisation, strategic risk-taking guidelines, internal policies, methodologies, and reporting system. Risk management and control is performed through a clear organisational structure with defined roles and responsibilities. The organisation and delineation of competencies is designed to prevent conflicts of interest, ensure a transparent and documented decision-making process, subject to an appropriate upward and downward flow of information. The competence line Risk Management in NLB, encompassing several professional areas, is in charge for formulating and controlling the Group’s risk management policies, setting limits, overseeing the harmonisation, regular monitoring of risk exposures, and limits based on centralised reporting at the Group level. The Group puts great emphasis on the risk culture and awareness across the entire Group. Group’s Risk Management framework is forward-looking and tailored to its business model and corresponding risk profile. c)The Compliance Function, Information Security Function, and AML/CTF Function Compliance and Integrity in the Group in its role as internal control function performs control activities with respect to the main following areas: •anti-money laundering and counter-terrorist financing (separately for NLB and the Group) •information security and data protection, • personal data protection, • regulatory compliance management, • preventionof fraud and internal investigations, • security, •development of compliance risk methodologies, and setting and monitoring ethics and integrity standards; •harmonisation of policies and practices within the Group (Competence lineCompliance and Integrity). Compliance and Integrity is an organisational unit of the Bank, placed directly under the Bank’s Management Board in the organisational structure. The Bank adopted Integrity and Compliance Policy of the NLB and the NLB Group (Version 1, December 2016), which regulates the method and scope of the activities of the compliance function in the Bank. Separate policies regulate different areas which are organised within the Compliance and Integrity in NLB. Supervision over compliance of operations is within the competence of the Compliance and Integrity. This enables the Compliance and Integrity to operate independently from other Bank’s departments. The director of Compliance and Integrity does not perform any other function at the Bank that could possibly lead to conflict of interests. To ensure his independence, the director reports to the Management Board and to a specific member of the Bank’s Management Board responsible for compliance area (including information security, personal data protection, and AML/CTF functions), which additionally ensures independence of operation of the Compliance and Integrity. As information security, AML/CTF, and Group AML functions are organised within Compliance and Integrity, CISO for NLB, Group CISO, DPO (Data Protection Officer), head of AML/ CTF area for NLB and head of Group AML are ensured full independence through equal reporting lines as the director of Compliance and Integrity and have direct access and separate reporting line to the Bank’s Supervisory Board. Following NLB’s model, the compliance function has been established in the core members of the Group, as well based on the Group standards for the compliance and integrity area. Through specific binding standards in the area of compliance and integrity, there is a harmonised system of standards and practices in the area of compliance and integrity in place in the entire NLB Group, in core and non-core members. 3.2. Financial reporting With the aim of ensuring appropriate financial reporting procedures, NLB pursues the adopted Policy on Accounting Controls. The accounting controls are providedthrough the operation ofthe complete accounting function with the purpose of ensuring quality and reliable accounting information, and thereby accurate and timely financial reporting. The principal identified risks in this area are managed with an appropriate system of authorisations, a segregation ofduties, compliance withaccountingrules, documenting of all business events, a custody system, posting on the day of a business event, in-built control mechanisms in source applications, and archiving pursuant to the laws and internal regulations. Furthermore, the policy precisely defines primary accounting controls, performed in the scope of analytical bookkeeping, and secondary accounting controls, i.e., checking the efficiency of implementation of primary accounting controls. With anefficient mechanism ofcontrols in accountingreporting, NLB ensures: •A reliable decision-making and operation support system •Accurate, complete, and timely accounting data, the resulting accounting, and other reports of the Bank •Compliance with legal and other requirements. Financial statements of NLB and consolidated financial statements of the NLB Group are audited by the auditing company Ernst & Young d.o.o., Ljubljana. The mentioned auditing company was appointed as the auditor of NLB by the General Meeting of shareholders of the Bank for the financial years 2018 to 2022 (27 June 2018). The auditing company verifies the business report in accordance with the provisions of the Companies Act (ZGD-1). 4.INFORMATION ON POINT 4, PARAGRAPH 5, OF THE ARTICLE 70 OF THE ZGD-1 regarding points 3, 4, 6, 8, and 9 of paragraph 6 ofthesamearticle Explanation regardingsignificant direct and indirect ownership of the company’s securities in the sense of achieving a qualified stake as determined by the act regulating acquisitions (Point 3 of the sixth paragraph of Article 70 of the ZGD-1) ![]() 129 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Significant direct and indirect ownership of the company’s securities in terms of achieving a qualifying holding as defined in the Takeovers Act (as of 31 December 2021). Shareholder Number of shares Percentage of shares Nature of ownership RoS 5,000,00125.00shares Brandes Investment Partners, L.P. (i) />5 and <10GDRs EBRD (i) />5 and <10GDRs Schroders plc (i), (ii) />5 and <10GDRs (i) In the form of GDRs. (ii) Further information is available in chapter Events after the end of the 2021 financial year . More information on the Bank’s Share Capital is available on the website: https://www . nlb . si/shares . Explanation regardingthe holders of securities that carry special control rights (Point 4 of the sixth paragraph of Article 70 of the ZGD-1) The Bank did not issue any securities carrying special controlling rights. Explanation regarding restrictions related to voting rights, in particular: (i) restrictions of voting rights to a certain stake or certain number of votes, (ii) deadlines for executing voting rights, and (iii) agreements in which, based on the company’s cooperation, the financial rights arising from securities are separated from the rights of ownership of such securities (Point 6 of the sixth paragraph of Article 70 of the ZGD-1) The shares of the Bank are freely transferable, subject to the provisions of the Articles of Association of the Bank which require the approval of the Supervisory Board, namely for the transfer of shares of the Bank by which the acquirer, together with the shares held by the holder before such an acquisition and the shares held by third parties for the account of the acquirer, exceeds the share of 25% of the Bank’s voting shares. Approval for the transfer of shares is issued by the Supervisory Board. The Bank rejects the request for approval of transfer shares if the acquirer, together with the shares held by the acquirer before the acquisition and the shares held by third parties for the account of the acquirer, exceeded the 25% share of the Bank with voting rights, increased by one share. Notwithstanding the provision mentioned in the first paragraph, approval for the transfer of shares is not required if the acquirer of the shares has acquired them for the account of third parties, so that it is not entitled to exercise voting rights from these shares at its sole discretion, while at the same time committing to the Bank, it will not exercise voting rights on the basis of the instructions of an individual third party for whose account it has acquired the shares if, together with the instructions for voting, it does not receive a written guarantee from that person that this person has shares for his own account, and that this person is not, directly or indirectly, a holder of more than 25% of the Bank’s voting rights. The acquirer who exceeds the share of 25% of the Bank’s shares with voting rights and does not require the issuance of approval for the transfer of shares, or does not receive the approval of the Bank, may exercise the voting right from 25% of the shares with the voting rights. There are no restrictions other than those mentioned and those thatare regulatory. Explanation on the (i) company’s rules on appointment or replacement of members of the management or supervisory bodies, and (ii) changes to company’sArticles of Association (Point 8 of the sixth paragraph of Article 70 of the ZGD-1) The appointment or replacement of members of the management or supervisory bodies The Management Board The Management Board of the Bank is comprised of three to seven members, one of whom is appointed President of the Management Board of the Bank. The number of Management Board members is determined by a resolution of the Bank’s Supervisory Board. The President and other members of the Management Board are appointed and recalled by the Supervisory Board of the Bank; the President of the Management Board may propose to the Chair of the Supervisory Board of the Bank to appoint or recall an individual member or the remaining members of the Management Board of the Bank. The President and members of the Management Board shall be appointed for a period of five years and may be re-appointed for another term of office. The President and members of the Management Board may be recalled prior to the expiry of their term of office in accordance with applicable laws and Articles of Association. Each member of the Management Board of the Bank may prematurely resign her/his term of office with a period of notice of three months. A written notice shall be delivered to the Chair of the Supervisory Board of the Bank. The notice term may be shorter than three months if requested by the resigning member of the Management Board of the Bank in his/her notice and is subject to the approval of the Supervisory Board of the Bank. A member of the Bank’s Management Board may only be a person who fulfils the legally prescribed conditions for a management board member under the law on banking and who obtained a licence from the BoS or the ECB, if executing the competences and tasks from Item (e) of paragraph 1 of Article 4 of Regulation (EU) no. 1024/2013 for the performance of the function of a bank’s management board member under the law regulating banking. The Bank assesses every candidate following the Bank’s Policy governing the Fit & Proper assessment prior to the appointment. The Supervisory Board The Supervisory Board of the Bank consists of a total of 12 members, of which eight members represent the interests of shareholders and four members represent the interests of employees. Members representing the interests of shareholders shall be elected and recalled by the Bank’s General Meeting from persons proposed by shareholders or the Supervisory Board of the Bank and members representing the interests of employees shall be elected and recalled by the Workers’ Council of the Bank. Members of the Supervisory Board representing the interests of shareholders are elected by an ordinary majority of votes cast by shareholders. The term of office of the Supervisory Board members commences on the day their appointment enters into force (start of term of office) and lasts up until the end of the Bank's Annual General Meeting of shareholders which decides on the use of accumulated profit for the fourth business year since the start of their term of office, unless otherwise stipulated at the time of appointment of individual members. In this context, the first year is deemed the business year in which the members of the Supervisory Board of the Bank started their term of office. The general meeting of the Bank may dismiss an individual or all members of the Supervisory Board (representatives of shareholders) even before the expiration of their term of office. ![]() 130 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report A resolution on a dismissal shall be valid if adopted with at least a three-quarter majority of all votes cast. The Supervisory Board of the Bank shall at its first meeting after an appointment elect from among its members a Chair and at least one Deputy Chair of the Supervisory Board of the Bank. A member representing the interests of employees cannot be elected Chair or Deputy Chair of the Supervisory Board of the Bank. All the supervisory board members shall be independent professionals as defined by the Articles of Association. A member of the Bank’s Supervisory Board may only be a person who fulfils the legally prescribed conditions for a supervisory board member under the law on banking and who obtained a licence from the BoS or the ECB, if executing the competences and tasks from Item (e) of paragraph 1 of Article 4 of Regulation (EU) no. 1024/2013 for the performance of the function of a bank’s supervisory board member under the law regulating banking. The Bank assesses every candidate following the Bank’s Policy governing Fit & Proper assessment prior to the appointment. Amendments to Articles of Association A qualified majority of at least 75% (seventy-five per cent) of the votes cast by shareholders at the general meeting of the Bank’s shareholders is required for the adoption of any amendments of the Articles of Association. Explanation regardingthe authorisation of the members of the management, particularly authorisations to issue or purchase own shares (Point 9 of the sixth paragraph of Article 70 of the ZGD-1) With the aim of ensuring NLB treasury shares for the payment of variable part of the remuneration to the employees of NLB in the form of NLB shares, the General Meeting of shareholders of NLB on 10 June 2019, authorised the Management Board for redeeming treasury shares in the period of 36 months from the adoption of the resolution at the General Meeting. The authorisation is valid for acquiring up to 36,542 NLB treasury shares, while the total percentage of sharesacquired based onthis authorisation, together with the treasury shares already in possession of NLB, may not exceed 10% of NLB share capital (2,000,000 shares). When disposing its treasury shares which NLB acquired based on thisauthorisation, the pre-emptiveright ofthe existing shareholders to acquire shares is excluded in full in case treasury shares are disposed of for the purpose of paying the variable part of remuneration to the employees of NLB in the form of NLB’s shares. In 2021, however, NLB did not purchase treasury shares. 5.INFORMATION ON THE WORK AND KEY POWERS OF THE SHAREHOLDERS’ MEETING AND OF ITS KEY POWERS, AND A DESCRIPTION OF SHAREHOLDERS’ RIGHTS AND THE METHOD OF THEIR EXERCISING Competences of the Bank’s General Meeting are stipulated in the Companies Act (ZGD-1), the Banking Act (ZBan-3), and the Articles of Association of the Bank. The General Meeting is a body of the Bank through which shareholders exercise their rights, which include among others: decisions on corporate changes (amendments of the Articles of Association, increase or decrease of share capital) and legal restructuring (mergers, acquisitions), adopting decisions on all statutory issues in respect of appointing and discharging members of the Supervisory Board (representatives of shareholders), and appointment of an auditor, distribution decisions (appropriation of distributable profit), and the granting of discharge from liability to the Management and Supervisory Board. The General Meeting is convened by the Management Board. The General Meeting may be convened by the Supervisory Board in cases where the Management Board fails to convene the General Meeting or where a convocation is necessary to ensure unhindered operations of the Bank. The Supervisory Board may amend the agenda of the General Meeting convened in line with the bylaws. As a rule, the General Meeting of the Bank shall be convened at the registered office of the Bank, yet it may also be convened at another venue specified by the convenor. The Management Board may stipulate that shareholders may attend or vote before or at the General Meeting by electronic means without physical presence. The General Meeting of shareholders shall adopt resolutions by simple majority of the votes cast, unless the applicable laws or the Bank’s Articles of Association stipulate a larger majority or other conditions (adoption and amendments of the Articles of Association, issue of convertible bonds or other equity securities, exclusion of pre-emptive right of existing shareholders, decrease in share capital, the status restructuring of the Bank, or liquidation of the Bank and discharge of Supervisory Board members). The shareholders have the right to participate at the general meeting of the Bank, the voting right, pre-emptive right to subscribe for new shares in case of share capital increase, the right to profit participation (dividends), and the right to a share in surplus in the event of liquidation or bankruptcy of the Bank and the right to be informed. According to Article 296 of the Companies Act, NLB informs shareholders on their rights as shareholders in an Information on the Rights of Shareholders that is published among the documents for convocation of each General Meeting (i.e., on expansion of the agenda, proposals by shareholders, voting proposals by shareholders, and the shareholders right to be informed). There were two General Meetings of shareholders in 2021. The shareholders of NLB gathered on 36th General Meeting on 14 June 2021. Due to COVID-19 pandemic, for the first time the General Meeting was hybrid, as it was held live and online. The shareholders took note of the approved NLB Group Annual Report 2020, the Report of the Supervisory Board of NLB on the results of the examination of the NLB Group Annual Report 2020, and Information on the income of members of the Management Board and Supervisory Board of NLB for the previous business year. The shareholders decided on the allocation of distributable profit for 2020. The distributable profit of NLB as of 31 December 2020 was EUR 341,992,219.43. Distributable profit in the amount of EUR 24,800,000.00 was about to be paid to the shareholders as dividends in two instalments. In accordance with the recommendation of the ECB, the Regulation of the BoS and adopted resolution of the General Meeting the first instalment of dividends in the total amount of EUR 12 million was paid on 22 June 2021 (EUR 0.60 per share), while the second instalment of dividends in the total amount of EUR 12.8 million (EUR 0.64 per share) was paid on 18 October 2021. The General Meeting of NLB granted discharge to the members of the Management Board and Supervisory ![]() 131 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Board for the 2020 financial year and adopted amendments and supplements to the Articles of Association of NLB and appointed Islam Osama Zekry as a new member of the Supervisory Board. At the 37th General Meeting of shareholders on 16 December 2021, the shareholders decided on additional allocation of distributable profit for 2020, as the BoS's decision restricting the payment of dividends expired at the end of September 2021. Therefore, an additional EUR 67.4 million of distributable profit (EUR 3.37 per share) was paid to the shareholders on 24 December 2021. NLB paid out a total of EUR 92.2 million as dividends (or 4.61 EUR per share) to shareholders in 2021 (EUR 12 million on 22 June, EUR 12.8 million on 18 October and EUR 67.4 million on 24 December), thereby reaffirming NLB Group's stable and successful business operations and strong capital position. At the General Meeting, the shareholders also voted on the Remuneration Policy for the Members of the Supervisory Board of NLB and the Members of the Management Board of NLB required by the latest amendments to the Companies Act, applicable to all the companies whose securities are traded on an organised market. In the future, NLB will put it forward to vote at the General Meeting upon any material amendment or at least every four years. 6.INFORMATION ABOUT THE COMPOSITION AND WORK OF THE MANAGEMENT AND SUPERVISORY BODY AND ITS COMMITTEES 6.1. The Management Board Composition of the Management Board The Management Board is the decision-making and representation body of the Bank. It manages the company, makes business decisions autonomously and independently, adopts the development strategy, ensures sound and effective risk management, acts with the highest professional integrity, protects business secrets, and is held accountable for the legality of the Bank’s operations within the limits set by the relevant regulations. At the beginning of 2021, the Management Board of the Bank consisted of Blaž Brodnjak, CEO, Archibald Kremser, CFO, Andreas Burkhardt, CRO, and Petr Brunclík, COO, since the Supervisory Board reappointed the president and members of the Supervisory Board (Blaž Brodnjak as the CEO, Archibald Kremser as the CFO, and Andreas Burkhardt as the CRO of NLB) on its session on 12 November 2020. On 21 April 2021, the Supervisory Board of NLB and Petr Brunclík agreed on the termination of office that went into effect on 30 June 2021. As at 22 April 2021, his tasks were taken over by other members of the NLB Management Board. Material changes that occurred in the Management Board after the end of the business year 2021 are described in special statement at the end of this Corporate Governance Statement of NLB. Work of the Management Board In 2021, the Management Board continued to work on the implementation of the NLB Group Strategy. The very solid financial results of NLB Group in 2021 enabled the Bank to pay out a total of EUR 92.2 million as dividends to the shareholders in 2021 (EUR 12 million on 22 June, EUR 12.8 million on 18 October, and EUR 67.4 million on 24 December), thereby reaffirming NLB Group's stable and successful business operations and strong capital position. Combining these dividend pay-outs, privatisation proceeds, and the residual value of the RoS, NLB has fully repaid the amount it received for the 2013 recapitalisation. After successful acquisition of Komercijalna Banka, Beograd in December 2020, the Management Board immediately started working on its harmonisation with NLB Group's standards. The Management Board worked on intensive digitalisation and emphasis on top quality user experience, as well as a commitment to sustainable operations and development. The Management Board worked on a commitment to sustainable operations and development and implementation of the ESG factors and their inclusion in the NLB Group business model. All year long, the Management Board took all necessary actions in order to lower the impact and consequences of COVID-19 epidemic in the Group. A detailed information on composition and the amount of remuneration of the Management Board can be found in Appendices C.1 and C.3 of this statement. 6.2. The Supervisory Board In accordance with the two-tier governance system, the Bank’s Supervisory Board issues approvals to the Management Board related to the Banks’ business policy and financial plan, approves the strategy of the Bank and the Group, the internal control system organisation, and gives consent to the Annual Plan of the Internal Audit and to financial transactions defined in Articles of Association. The Supervisory Board acts in accordance with the highest ethical standards of management, considering the prevention of conflicts of interest. The Supervisory Board performs its tasks in accordance with the provisions of the applicable legislation governing the operations of banks and companies, the Bank’s Articles of Association, and its Rules of Procedure of the Supervisory Board of NLB. The Supervisory Board may engage legal and other consultants and institutions required by itself or its committees to perform their tasks. Composition of the Supervisory Board In accordance with changes made to the Articles of Association of NLB (June 2020) that enabled workers’ participation in the Bank’s management bodies, the Supervisory Board consists of 12 members, out of which eight are representatives of the capital, and four are employee representatives (elected and appointed by the Workers Council of NLB). At the beginning of 2021, the Supervisory Board of NLB consisted of 11 members, of which eight were representatives of shareholders (in addition to Primož Karpe, President and Andreas Klingen, Deputy members were also Mark William Lane Richards, Shrenik Dhirajlal Davda, Peter Groznik, David Eric Simon, Gregor Rok Kastelic, and Verica Trstenjak), and three were representatives of employees (Sergeja Kočar, Bojana Šteblaj, and Janja Žabjek Dolinšek). In January 2021, however, the Workers Council of NLB elected Tadeja Žbontar Rems as a member of the Supervisory Board of the NLB – the representativeof the workers. With thementioned election, the composition of the Supervisory Board was complete. Because the term of office of member of the Supervisory Board Peter Groznik expired in the middle of the year, the General Meeting of shareholders on 14 June 2021 elected Islam Osama Zekry as a new member of the Supervisory Board. Statement of Independence of the Members of the Supervisory Board In accordance with the Article 20 of the Articles of Association of the NLB all Supervisory Board, members must be independent experts. Persons representing the interests of employees in the Supervisory Board of the Bank are considered independent despite the existence of an employment relationship with the Bank upon fulfilling certain terms and conditions. ![]() 132 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report A statement of independence, in which they declare themselves on their meeting of the criteria of conflict of interest, is provided by a candidate for a function of a member of the Supervisory Board, upon each change that would mean change of his/her independence status once yearly. It is published on the Bank’s webpage ( https://www.nlb.si/ corporate-governance ). Work of the Supervisory Board In 2021, the Supervisory Board met at seven regular and 12 correspondence sessions. Upon receiving reports from its committees, the Supervisory Board acquainted itself or adopted the following most important decisions: • NLB Group StrategyImplementation Progress Report; •Annual NLB Group Report for 2020; Report of the Supervisory Board of NLB on the Results of Examining the Annual NLB Group Report for 2020; Corporate Governance Statement of NLB;Risk Management Statement of NLB; Annual Report of Internal Audit for 2020; Comprehensive Opinion of the Internal Audit for 2020; •The Corporate Social Responsibility Report for 2020; The NLB Group Sustainability Programme; ESC Internal Documentary Framework (Lending Policies); NLB Group Sustainability Framework; Confirmation of Pillar III disclosures of the NLB Group for 2020; •Proposals to convene the regular General Meeting of shareholders for14 June 2021 and extraordinary meeting for 16 December 2021; •Information on the Supervisory Board election; Membership in the committees of the Supervisory Board; Conflict of interest Management; Information of departure of the member of the Management Board; Self-assessment of the collective suitability of the members of the Supervisory Board; Supervisory Board self-assessment and Action Plan; Achievements of the goals of the Management Board in 2020; Annual self-assessment of employees performing special work; Information on award of variable part of salary of the members of the Management Board and employees performing special work; Future setup of the Governing Body; Fit & Proper assessment for candidates for membership of the Supervisory Board – representatives of employees; •Appointments of the Director of Global Risk and the Director of Compliance & Integrity and their performance; •NLB Group Financial Plan 2021 and financial projections 2022-2025; Interim Reports on the NLB Group Operations; Benchmark analysis of the NLB Group; NLB Group Budget 2022 and Financial Projections 2023 – 2025; Information on cost optimisation; •NLB Group Risk Appetite; NLB Group Risk Strategy; Regular risk reports for NLB and NLB Group; Outcome of the Pragmatic SREP 2020; NLB Group Recovery Plan for 2021; Report on the Top 50 groups of clients by exposure in the NLB Group, Restructuring TOP 20; Revised ILAAP – Internal liquidity adequacy process; Revised ICAAP – Internal Capital Adequacy Process; Reputation Risk Management; Foreclosed Strategy for 2021 – 2025; •Internal Audit’s Annual Report for 2020; Internal Audit Plan (2022 & long - term plan, Action Plan for Compliance &Integrity for 2022; Regular periodic reports on Internal Audit; Compliance and Security, and on Information Security Assurance in NLB; •Reports on the Documents received from the BoS and the ECB; Reports on the implementation of the requirements of the BoS and ECB and on the implementation of the requirements; •Renovation of Internal Act on Internal Controls System; Rules and Procedures for the Sustainability Committee; Review of the Diversity Policy; New RemunerationPolicy for employees for the NLB and the NLB Group; The Remuneration Policy of the Members of Supervisory Board of NLB and the Management Board of NLB; •Investment Relations periodic Reports; NLB Workers’ Council Report; • Implementation ofIT Strategy; Data Centres in the NLB Group; Strategy update; IT Security KPI’s update; Status of IT – periodic Reports; Cor Banking System Consolidation; •Consent to legal transactions with MIGA, Washington, Serbia Merger Scenarios; Information on Project Matthew; Expected sale of a subsidiary bank; large exposures, sale of receivables, write-offs of claims, approvals of transactions with persons in special relations with the Bank; establishment of new companies in Serbia and Macedonia, etc. Composition and the amount of remuneration of the Supervisory Board members is described in the Appendices C.2 and C.4 of this statement. 6.3.The Supervisory Board Committees All five Committees for the Supervisory Board function as consulting bodies of the Supervisory Board of NLB and discuss the material and proposals of Management Board of NLB for the Supervisory Board meetings related to a particular area. The Supervisory Board has the following committees. • The AuditCommittee •The Risk Committee • The Nomination Committee • The Remuneration Committee •The Operations and IT Committee Committees are composed of at least three members of the Supervisory Board. The Worker’s Council can nominate one Supervisory Board member – a representative of the workers into each committee. The member of the Committee may only be appointed from among the members of the Supervisory Board. The term of office of Chair, the Deputy Chair, and members of the Committee should not exceed their term of office as Supervisory Board members. The responsibilities of committees are defined in Rules of Procedure of the particular Committee of the Supervisory Board of NLB. Composition of the aforementioned Committees in 2021 is described in detail in the Appendix C.2 of this statement. 6.3.1. The Audit Committee of the Supervisory Board ofNLB The Audit Committee monitors and prepares draft resolutions for the Supervisory Board on accounting reporting, internal control and risk management, internal audit, compliance, and external audit, and as well monitors the implementation of regulatory measures. At the end of 2021, the composition of the committee was as follows: David Eric Simon (Chairman), Shrenik Dhirajlal Davda (Deputy Chairman), Primož Karpe, Gregor Rok Kastelic (members). Changes in membership of the committee that occurred during the year are reflected in the chart on Supervisory Board Committees (C4 below). The Audit Committee’s tasks are defined by relevant law, the Bank’s Articles of Association, Rules of Procedure of the Audit Committee of the Supervisory Board of NLB, resolutions of the Supervisory Board and other regulations, from which the Committee especially monitors and prepares proposals of resolutions for the Supervisory Board for the area: • Accounting and financial reporting • Internal control and risk management • Internal audit • Compliance of operations • External audit ![]() 133 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report There were seven regular sessions and three correspondence sessions of the Audit Committee in 2021. The following is a summary of key topics considered by the Audit Committee: •NLB Group 2020 Annual Report, Overall Opinion of Internal Audit for 2020; Corporate Governance Statement of NLB; Statement on Management of Risk of the NLB, NLB Group on Sustainable Operations in 2020; •Regular interim reports on the operations of the NLB Group, Business Performance Indicatory for NLB and NLB Group, quarterly Internal Audit Reports, Compliance and Integrity Reports, Reports on Information security assurance in NLB; • Audit Plan 2021, Internal Audit Plan (2022 & long-term), Action Plan for Compliance and Integrity for 2022; •Regular reports on overdue material recommendations of the Internal Audit; Reports on the documents received from the BoS and ECB and on the implementation of the requirements of the BoS and ECB; Policy of the Internal Controls System; Rules of Procedure of the NLB Group Sustainable Committee; •Performance assessment of the Director of the Compliance and Integrity and the Director of the Internal Audit; •Self-assessment of the Audit Committee. 6.3.2.The Risk Committee of the Supervisory Board of NLB The Risk Committee monitors and drafts resolutions for the Supervisory Board in all risk areas relevant to the Bank’s operations. It is consulted on the Group’s current and future risk appetite, the corresponding risk profile and risk management strategy, and helps carry out control over senior management concerning implementation of the risk management strategy. At the end of 2021, the composition of the committee was as follows: Andreas Klingen (Chairman), Shrenik Dhirajlal Davda (Deputy Chairman), Islam Osama Zekry, Mark William Lane Richards, Gregor Rok Kastelic, David Eric Simon (members). Changes in membership of the committee that occurred during the year are reflected in the chart on Supervisory Board Committees (C4 below). There were five regular sessions of the Risk Committee in 2021. Following is a summary of key topics considered by the Risk Committee: •Statement of Management of Risk of the NLB •NLB Group Risk Appetite •Regular quarterly risk reports of NLB and the NLB Group •NLB Group Risk Strategy; • Internal liquidity adequacy process (ILAAP), The Internal Capital Adequacy Assessment Process (ICAAP) in NLB Group •NLB Group Recovery plan for 2021 •NLB Group Non-performing Exposure and Foreclosed Assets Strategy for 2020 -2024 and semi-annual implementation reports • Reputation risk management – management mechanisms •Information on Pillar III Disclosures of the NLB Group for 2020; and Acknowledgement of quarterly Pillar III Disclosures •Quarterly Information on status of information security in NLB and NLB Group •Report on Top 50 groups of clients by exposure in the NLB Group; Report on Top 20 largest restructuring cases •Initiation of procurement process for selection of statutory auditor for financial years from 2023 onwards; Auditing of the electronic (ESEF) format of financial statements •Issuing subordinated Tier 2 bonds •Proposals for the issuance of prior consent of the Supervisory Board of NLB for a legal transaction based on which the Bank’s total exposure to individual client or a group of related clients would reach or exceed 10% of the Bank’s eligible capital; consents to early repayments; approval of overdraft on business account of a client and final write-offs of receivables •Report on the material court proceedings for NLB and NLB Group members 6.3.3.The Nomination Committee of the Supervisory Board ofNLB The Nomination Committee drafts proposed resolutions for the Supervisory Board concerning the appointment and dismissal of the Management Board members; recommends candidates for Supervisory Board members; recommends to the Supervisory Board the dismissal of members of the Management Board and the Supervisory Board (representatives of capital); prepares the content of executive employment contracts for the President and members of the Management Board; evaluates the performance of the Management Board and the Supervisory Board; and assesses the knowledge, skills, and experience of individual members of the Management Board and Supervisory Board and the bodies as a whole. At the end of 2021, the composition of the committee was as follows: Primož Karpe (Chairman), Andreas Klingen (Deputy Chairman), Verica Trstenjak, Sergeja Kočar, Bojana Šteblaj (members). Changes in membership of the committee that occurred during the year are reflected in the chart on Supervisory Board Committees (C4 below). There were seven regular sessions and one correspondent session of the Nomination Committee in 2021. The following is a summary of key topics considered by the Nomination Committee: •The Supervisory Board election process and candidate selection; Bases for the Fit & Proper assessments of candidates;The suitability matrix – the self-assessment of the collective suitability of the Members of the Supervisory Board; •The Management Board expansion process; New organisational structure; •Review of the Diversity Policy; Rules and Procedures for the selection of candidates. 6.3.4. The Remuneration Committee of the Supervisory Board ofNLB The Remuneration Committee carries out expert and independent assessments of the remuneration policies and practices andformulates initiatives formeasures related to improving the management of the Bank’s risks, capital, and liquidity; prepares proposals for remuneration-related decisions of the Supervisory Board; and supervises the remuneration of senior management performing the risk management and compliance functions. At the end of 2021, the composition of the committee was as follows: Gregor Rok Kastelic (Chairman), Mark William Lane Richards (Deputy Chairman), Shrenik Dhirajlal Davda, Sergeja Kočar, and Bojana Šteblaj (members). Changes in membership of the committee that occurred during the year are reflected in the chart on Supervisory Board Committees (C3 below). There were four regular and five correspondence sessions of the Remuneration Committee in 2021. The following is a summary of key topics considered by the Remuneration Committee: •Annual self-assessment of employees performing special work in accordance with the Remuneration Policy; •Realisation of goals of Management Board of NLB for 2020 and proposal for goals for 2021; •Information on the award of variable part of salary to members of the Management Board and employees performing special work in control function for the year 2020; •Proposal for the payment of the non-deferred part of the variable pay for 2019 and payment of the deferred variable part of salary for 2016 and 2017 for the Bank's Management Board; ![]() 134 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report •Proposal of new Remuneration Policy of members of the Supervisory Board of NLB and members of the Management Board of NLB. 6.3.5.The Operations and IT Committee of the Supervisory Board of NLB The Committee shall monitor and prepare draft resolutions for the Supervisory Board, whereby the main tasks that it performs are the following: monitors the implementation of the IT Strategy, Information Security Strategy, and Operations Strategy; monitors key operations and IT KPI’s and service quality indicators; monitors key operations and IT projects and initiatives; monitors operating risks in the area of Operations, IT and Security; monitors the recommendations for ensuring and increasing the level of information/cyber security issued by CISO, addresses the report on potential violations, events, and incidents in the area of IT security; and monitors the Target Operating Model implementation in the areas of IT, the Security Operating System, Competence Centre, andOperations. At the end of 2021, the composition of the committee was as follows: Mark William Lane Richards (Chairman), Islam Osama Zekry (Deputy Chairman), Andreas Klingen, Primož Karpe, Tadeja Žbontar Rems, Janja ŽabjekDolinšek (members). There were five sessions of the Operations and IT Committee 2021. The Operations and IT Committee acknowledged itself with: • IT Strategyprogress update;IT Strategy implementation activities • CashProcessingOptimisation update;Cost optimisation update •Report on further progress of the Leveraging Information Capital project •New digital platform DEMO; Information on projects •KB IT Security update; GCC Belgrade – status of activities and plan •Date centres in Belgrade; Proof on concept on Core Banking System; Consolidation of the Core Banking System • Budgeting Group activities 6.4.Remuneration Policy for the Members of the Supervisory Board of NLB and Members of the Management Board of NLB The General Meeting of shareholders on 16 December 2021 adopted the Remuneration Policy of the members of the Supervisory Board of NLB and members of the Management Board of NLB (for the Supervisory Board members the policy is based on previously adopted resolutions of the General Meeting) that was changed due to recent amendments to the Companies Act (ZGD-1), and is to be followed by all the companies whose securities are traded on the regulated market. In accordance with the Companies Act (ZGD-1) mentioned policy is published on the NLB website ( https://www.nlb.si/ corporate-governance ), together with the date and voting results. Remuneration of the members of the Management Board and the members of the Supervisory Board for 2021 can be found in Appendices C3 and C.4 of this statement and in the chapter on the Related Party Transactions of this annual report (Financial report). 7. DESCRIPTION POLICY ON THE PROVISION OF DIVERSITY OF THE MANAGEMENT BODY AND SENIORMANAGEMENT Policy on the Provision of Diversity of the Management Body and Senior Management was adopted by the General Meeting of shareholders on 10 June 2019. With mentioned Policy, NLB defines target diversity pursued with respect to adequate representation of members of the Management Board and the Supervisory Board and Senior Management from the perspective of education, range of knowledge, skills and experience, age, gender, and international experience, as appropriate for the NLB with regard to its characteristics. The Bank implements the principles of this policy through other policies and procedures, namely Policy on the selection of suitable candidates for members of the Supervisory Board and the Policy on the selection of suitable candidates for members of the Management Board, as well as procedures of the Nomination Committee of the Supervisory Board. Key criteria for the selection of candidates were supplemented by criteria that include experience, reputation, management of potential conflict of interests, independence, time availability, and conditions for achieving collective suitability of the Supervisory Board. Mentioned diversity policy is periodically reviewed by the Nomination Committee of the Supervisory Board. Implementation and the results achieved by the diversity policy during the reporting period: a)The Supervisory Board We estimate that the goals for 2021 were achieved, as the members of the Supervisory Board as a whole met at a high level the requirements related to the set of knowledge, skills, professional experience, and requirements related to relevant international experience in various fields; which is maintained in 2022. It is also estimated that the representation of women is 42% of the share, and it is planned in this amount for 2022. Regarding the age structure, it is also considered appropriate, as the members of the Supervisory Board are represented in the age groups from 40 to 60+, which is also planned for 2022, with a slight increase in the share of members in the age group above 60 years (from 3 members to 5). b)The Management Board We estimate that the goals for 2021 have been achieved as the members of the Management Board as a whole meet at a high level the requirements related to the set of knowledge, skills, professional experience, and requirements related to relevant international experience in various fields; this is also planned for 2022. There wereno women represented in the Management Board in 2021, however, the plan for 2022 was that the share of women would increase to 16.7% or one woman was expected to be represented among the members of the Management Board. As stated below this goal was realised already in January 2022. Regarding the age structure, in 2021 all members of the Management Board were in the age group of 40 to 50, however, in 2022 with additional members elected to the ManagementBoard caused that the representation of this class increased (from 3 to 5), and one member of the Management Board will move to the age group from 50 to 60 years. c)Senior Management For 2021, we estimate that the goals were achieved, as senior management at a high level met the requirements relating to the range of knowledge, skills, and professional experience. Regarding the requirements related to international experience in various fields, it is estimated ![]() 135 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report that senior management has largely relevant international experience, which is planned to the same extent in 2022. It is also estimated that 45% of women in senior management appropriate and will be maintained as such in 2022. Regarding the age structure, it is also considered appropriate, as senior management in the age structure is very dispersed and is thus represented in all age groups from 20 to 60 years, which is maintained in the same ratio in 2022. Additional information on the framework, objectives, and chart with set goals of the Diversity Policy can be found in the chapter Human Resources of this annual report. Statement on changes that occurred between the end of accounting period up to the publication ofthis statement In accordance with Guidelines on Disclosure for Listed Companies, Point 6.3.2 (Ljubljana Stock Exchange, 18 December 2020) NLB hereby states that the following changes occurred between the end of accounting period up to the publication ofthis statement. On 20 January 2022, the Supervisory Board appointed three new members to the Management Board, namely Hedvika Usenik, Antonio Argir, and Andrej Lasič. They all come from NLB or the Group, have extensive experience and proven value creating a track record. All three of them are currently executive assistants to the NLB Management Board: Hedvika Usenik for Retail and Private Banking, Antonio Argir for the NLB Group, and Andrej Lasič for Corporate and Investment Banking. The reasons that the Supervisory Board adopted a decision to enlarge the Management Board from three to six members are the fact that NLB has successfully acquired the Komercijalna Banka, Beograd, that the Group's strategy also focuses on intensive digitalisation and emphasis on top quality user experience. Also, the fact that the bank is implementing its commitment to sustainable operations and development, which all require and will require also in the future even more comprehensive, coordinated, and efficient management, both of individual business areas and the Group as a whole, as well as exploitation of all the synergies within the Group. The Bank's Management Board, supplemented with three new members, is properly equipped for this challenge and offers the best combination of various knowledge, experience, and competencies. A five-year term of office for the new members will start after they have obtained a licence of the banking regulator, so until then they will continue to perform the functions of executive assistants to the Management Board. Ljubljana, 11 April 2022 Supervisory Board ofNLBManagement Board of NLB Primož Karpe Chairman Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 136 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 36: Composition of Management in financial year 2021 (C.1) Name and Surname Position held (President, Member) Area of work covered within the Management Board First appointment to the position Conclusion of the position/term of office CitizenshipYear of birthQualificationProfessional profile Membership in supervisory bodies in companies not related to the company Blaž BrodnjakPresident CEO 6 July 20166 July 2026 Slovene1974 MBA Banking/Finance Banks' Association of Slovenia, AMCham Slovenia, Handball Federation of Slovenia Andreas BurkhardtMember CRO 18 September 2013 6 July2026 German1971 MBA Banking/Finance Archibald KremserMember CFO 31 July 20136 July 2026 Austrian1971 MBA Banking/Finance Petr BrunclíkMember COO 18 May 2020 30 June 2021 Czech1979MSc Information technologies and applied informatics ![]() 137 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 37: Composition of Supervisory Board and Committees in financial year 2021 (C.2) Name and Surname Position held (Chairman, Deputy Chairman, Member) First appointment to the position Conclusion of the position / term of office Representative of the company's capital structure / employees Attendance at SB session in regard to the total number of SB session (for example 5/7) applicable on his/her mandate GenderCitizenshipYear of birthQualification Professional profile Independence under Article 23 of the Code (YES/NO) Existence of conflict of interest, in the business year (YES/NO) Membership in supervisory bodies in other companies or institutions Primož KarpeChairman 10 February 2016 2024 Representative of the company's capital structure 7/7 maleSlovene1970MSc Banking/ Finance YESYESAngler d.o.o. Andreas Klingen Deputy Chairman 22 June 2015 2023 Representative of the company's capital structure 7/7 maleGerman1964 University Degree Banking/ Finance YESNO Kyrgyz Investment and Credit Bank CISC, Credit Bank of Moscow (i) , Nepi Rockcastle plc David Eric Simon Member4 August 20162024 Representative of the company's capital structure 7/7 maleBritish1948 Higher National Diploma in Business Studies Banking/ Finance YESNO Jihlavan a.s., Czech Aerospace industries sro, Central Europe Industry Partners a.s. Peter GroznikMember 8 September 2017 14 June 2021 Representative of the company's capital structure 3/3maleSlovene1971PhD Finance, industry, investment banking YESNO MSIN d.o.o., Ljubljana, CETIS d.d., Ljubljana Mark William Lane Richards Member 10 June 2019 2023 Representative of the company's capital structure 7/7 maleBritish1966MSc Banking/ Finance YESNO BPL Global (Lloyds of London insurance Broker), Sheffield Haworth Ltd, Vencap International pic Ukraine (UK) Shrenik Dhirajlal Davda Member 10 June 2019 2023 Representative of the company's capital structure 7/7 maleBritish1960MScFinanceYESNOPJSC Ukrgasbank (ii) Gregor Rok Kastelic Member 10 June 2019 2023 Representative of the company's capital structure 7/7 maleSlovene1968MSc Banking/ Finance YESNO Verica Trstenjak Member 15 June 2020 2024 Representative of the company's capital structure 7/7 femaleSlovene 1962 PhD Law YESNO EU Agency for Fundamental Rights, Vienna Sergeja KočarMember 17 June 2020 2024 Representative of the company’s employees 7/7 femaleSlovene1968MScManagementYESNO Bojana ŠteblajMember 17 June 2020 2024 Representative of the company’s employees 7/7 femaleSlovene 1962 MScManagementYESNO Janja Žabjek Dolinšek Member 20 November 2020 2024 Representative of the company’s employees 7/7 femaleSlovene1957MScITYESNO Tadeja Žbontar Rems Member 22 January 2021 2025 Representative of the company’s employees 7/7 femaleSlovene1957MScITYESNO Islam Osama Zekry Member 14 June 2021 2025 Representative of the company's capital structure 4/4 maleEgyptian1977PhDITYESNO CIB Housing association, Egypt, Egyptian AI Council (Ministry of Communication and Information Technology) (i) Till 14 March 2022. (ii) Since 8 March also: IPSO, UK. ![]() 138 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Name and Surname Membership in committees (audit, nominal, income committee, 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 regard to the total number of SB's session (applicable on his/her mandate) Shrenik Dhirajlal DavdaRemuneration Committee 28 June 2019 2023Member 4/4 Gregor Rok KastelicRemuneration Committee 28 June 2019 2023Member/Chairman 4/4 Mark William Lane RichardsRemuneration Committee 26 June2020 2024Deputy Chairman 4/4 Peter GroznikRemuneration Committee 26 June 202014 June2021 Member 4/4 Bojana ŠteblajRemuneration Committee8 April 20212024Member2/2 Sergeja KočarRemuneration Committee 26 June2020 2024Member3/3 Primož KarpeNomination Committee15 April 20162024Chairman 7/7 Andreas KlingenNomination Committee19 February 20162023Deputy Chairman 7/7 Peter GroznikNomination Committee6 October 2017 14 June 2021 Member3/7 Verica Trstenjak Nomination Committee 26 June 2020 2024Member 7/7 Sergeja KočarNomination Committee 26 June 2020 2024Member 7/7 Bojana ŠteblajNomination Committee8 April 20212024Member2/2 David Eric SimonAudit Committee7 April 20162024Chairman 7/7 Primož KarpeAudit Committee15 April 20162024Member 7/7 Shrenik Dhirajlal DavdaAudit Committee28 June 20192023Member/Deputy Chairman 7/7 Gregor Rok KastelicAudit Committee 28 June2019 2023Member 7/7 Janja Žabjek DolinšekAudit Committee 28 January2021 12 August 2021Member 4/4 Andreas KlingenRisk Committee19 February 20162023Chairman 6/6 Peter GroznikRisk Committee6 October 2017 14 June 2021 Member/Deputy Chairman3/3 Shrenik Dhirajlal DavdaRisk Committee 8 July 2021 2025Deputy Chairman2/2 David Eric SimonRisk Committee7 April 20162024Member 6/6 Mark William Lane RichardsRisk Committee 28 June2019 2023Member 6/6 Gregor Rok KastelicRisk Committee 26 June 2020 2023Member 6/6 Islam Osama ZekryRisk Committee 8 July 2021 2025Member2/2 Tadeja Žbontar RemsRisk Committee 28 January 2021 12 August 2021Member2/2 Mark William Lane RichardsOperational and IT Committee 28 June 2019 2023Chairman5/5 Shrenik Dhirajlal DavdaOperational and IT Committee 28 June20198 July 2021 Deputy Chairman5/5 Andreas KlingenOperational and IT Committee 28 June2019 2023Member4/5 Primož KarpeOperational and IT Committee15 April 20162024Member5/5 Bojana ŠteblajOperational and IT Committee 26 June2020 12 April 2021Member2/2 Tadeja Žbontar RemsOperational and IT Committee8 April 20212024Member3/3 Janja Žabjek DolinšekOperational and IT Committee8 April 20212025Member3/3 Islam Osama ZekryOperational and IT Committee 8 July 2021 2025Deputy Chairman2/2 External member in committees (audit, nominal, income committee, etc.) - The Banking Act (ZBan-2) that came into effect on 13 May 2015 contains provision stipulating that, irrespective of provision of Companies Act (ZGD-1) only members of the Supervisory Board can be appointed to Supervisory committees. Name and Surname Attendance at sessions of SB's Committees in regard to the total number of SB's session (for example 5/7) GenderQualificationYear of birthProfessional profile Membership in supervisory bodies in companies not related to the company none  ![]() 139 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 38: Composition and amount of remuneration of the Management Board members in the financial year 2021 (C.3) Name and Surname Position held (President, Member) Fixed income - gross (1) Variable income - gross Deferred income (3) Severance pay (4) Bonuses (5)‘Draw- back’ (6) Total gross (1+2+3+4+5-6) Total net (i) on the basis of quantity criteria on the basis of quality criteria Total (2) Blaž BrodnjakPresident441,770.2043,750.0043,750.0087,500.0042,710.850.002,310.190.00574,291.24241,568.49 Archibald Kremser Member420,808.8841,666.6741,666.6783,333.3442,710.850.0034,116.830.00580,969.90244,905.39 Andreas Burkhardt Member405,091.5440,104.1740,104.1780,208.3442,710.850.0032,671.820.00560,682.55237,273.57 Petr BrunclíkMember221,963.097,316.727,316.7214,633.440.00385,000.0030,091.680.00651,688.21327,310.24 (i) This chart does not include other benefits and cost refunds.  Table 39: Composition and amount of remuneration of members of the Supervisory Board and committee members in the financial year 2021 (in EUR) (C.4) Name and Surname Position held (Chairman, deputy Chairman, member, external member of Committee) Payment for the performance of services - gross per year (1) Attendance fees for SB and committees - gross per year (2) Total gross (1+2)Total net (i) Travel expensesBenefits Primož KarpeChairman96,000.00-96,000.0074,400.004,629.06447.47 Andreas KlingenDeputy Chairman90,000.00-90,000.0090,000.004,946.99447.47 Islam Osama ZekryMember38,607.52-38,607.5225,432.705,704.85447.47 David Eric SimonMember81,000.00-81,000.0062,775.005,251.42447.47 Peter GroznikMember32,800.00-32,800.0023,855.440.000.00 Mark William Lane Richards Member81,000.00-81,000.0053,358.722,642.98447.47 Shrenik Dhirajlal DavdaMember72,000.00-72,000.0047,430.002,367.17447.47 Gregor Rok KastelicMember81,000.00-81,000.0053,358.72758.31447.47 Verica Trstenjak Member65,790.32-65,790.3243,339.320.00447.47 Sergeja KočarMember11,855.76-11,855.768,622.690.00447.47 Bojana ŠteblajMember15,655.26-15,655.2611,386.050.00447.47 Janja Žabjek DolinšekMember6,839.40-6,839.404,974.270.00447.47 Tadeja Žbontar RemsMember26,656.31-26,656.3119,387.120.00447.47 (i) After the prepayment of income taxes which is not taken into account in potential subsequent balancing payments of personal income taxes. ![]() 140 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of Management ofRisk NLB’s Management Board and Supervisory Board provide herewith a concise statement of the Risk Management according to Article 17 of the Decision on Internal Governance Arrangements, the Management body and the Internal Capital Adequacy Assessment Process for Banks and Savings banks (Official Gazette of the RoS, no. 73/2015 and 115/2021), Regulation (EU) 575/2013, article 435 (Risk management objectives and policies), point (e) and (f), as well as EBA Guidelines on Internal Governance (EBA/GL/2021/05), and EBA Guidelines on Disclosure requirements (EBA GL/2016/11). Risk Management in the Group, representing an important element of the Group’s overall corporate governance, is implemented in accordance with the set strategic guidelines, established internal policies, and procedures which take into account the Europeanbanking regulations, the regulations adopted by the BoS, the current EBA guidelines, and the relevant good banking practices. EU regulations are followed by the Group, where the Group subsidiaries operating outside Slovenia are also compliant with the rules set by the local regulators. The Group gives high importance to the risk culture and awareness of all relevant risks within the entire Group. Maintaining risk-awareness is engrained in the business strategy of the Group. The business and operating environment, relevant for the Group’s operations, is changing with trends such as changing customer behaviour, emerging new technologies and competitors, sustainable financing, and increasing new regulatory requirements. Respectively, Risk Management is continuously adapting with aim to detect and manage new potential emerging risks. The Group uses the ‘three lines of defence framework’ as an important element of its internal governance, wherebythe Risk Management function acts as a second line of defence. The Group’s has enhanced overall corporate governance which reflects in the lowering of the SREP requirement in recent years. A robust and comprehensive Risk Management framework is defined and organised with regard to the Group’s business and risk profile, based on a forward-looking perspective to meet internally set strategic objectives and all external requirements. A proactive Risk Management and control system is primarily based on the Risk appetite and Risk strategy, which are consistent with the Group’s Business strategy, and focused on early risk identification and efficient Risk Management. Set governance and different Risk Management tools enable adequate oversight of the Group’s risk profile, proactively support its business operations, and its management by incorporating escalation procedures and using different mitigation measures when necessary. In this respect, the Group is constantly enhancing and complementing the existing methods and processes in all Risk Management segments. The Group is engaged in contributing to sustainable finance by incorporating environmental, social and governance (ESG) risks into its business strategies, risk management framework, and internal governance arrangements. With the adoption of the NLB Group Sustainability programme, the Group implemented sustainability elements into its business model. The goal of this strategic, organisation-wide initiative is to ensure sustainable financial performance of the Group by considering ESG risks and opportunities in its operations, and to actively contribute to a more balanced and inclusive economic and social system. Thus, sustainable finance integrates ESG criteria into Group’s business and investment decisions for the lasting benefit of Group’s clients and society. The NLB Group Sustainability Committee oversees the integration of the ESG factors to the Group business model. The management of ESG risks addresses the Group’s overall credit approvalprocess and relatedcredit portfolio management. It follows ECB and EBA guidelines with tendency of their comprehensive integration into all relevant processes. The availability of ESG data in the region where the Group operates is still lacking, nevertheless the Group strives to obtain relevant clients’ data as prerequisite for adequate decision-making. The Group plans a prudent risk profile, optimal capital usage, and profitable operations in the long run, considering the risks assumed. The Business strategy, the Risk appetite, the Risk strategy, and the key internal risk policies of the Group, approved by the Management Board and the Supervisory Board of NLB, specify the strategic objectives and guidelines concerning risk assumption, and the approaches and methodologies of monitoring, measuring, mitigating, and managing all types of risk at different relevant levels. Moreover, the main strategic risk guidelines are consistently integrated into the regular business strategy review, the budgeting process, and other strategic decisions, whereby informed decision-making is assured. The Group is regularly monitoring its target risk appetite profile and internal capital allocation, representing the key component of proactive management. Risk limits usage and potential deviations from limits or target values are regularly reported to the respective committees and/or the Management Board of the Bank, the Risk Committee of the Supervisory Board, and the Supervisory Board of the Bank. Additionally, the Group established a comprehensive stress testing framework and other early warning systems in different risk areas, with the intention to contribute to setting and pursuing the Group’s business strategy, to support decision- making on an ongoing basis, to strengthen the existing internal controls, and to enable a timely response when necessary. The stress-testing framework includes all material types of risk and different relevant stress scenarios or sensitivity analysis, according to the vulnerability of the Group’s business model. Stress-testing has an important role when assessing the Group’s resilience to stressed circumstances, namely from profitability, capital adequacy, and forward-looking perspective about liquidity. As such, it is embedded into the Group’s Risk Management system, namely Risk appetite, ICAAP, ILAAP, and the Recovery plan, as an important component of sound Risk Management. Beside internal stress-testing, the Group as a systemically important bank also participates in the regulatory stress test exercises carried out by the ECB. The Group is one of the largest Slovenian banking and financial groups with an important presence in the SEE region. In accordance with its strategic orientations intends to be a sustainably profitable, predominantly working with clients on its core markets, providing innovative but simple customer-oriented solutions and activelycontributing to a more balanced and inclusive economic and social system. The Group has a well-diversified business model. Efficient managing of risks and capital is crucial for the Group to sustain long-term profitable operations. Based on the Group’s business strategy, credit risk is the dominant risk category, followed by credit spread risk on banking book portfolio, interest rate risk in banking book, operational risk, liquidity risk, market risk, and other non-financial risks. Regular risk identification and their assessment is performed within ICAAP process with the aim of assuring their overall control and effective Risk Management on an ongoing basis. Managing risks and capital efficiently at all levels iscrucial for the Group’s sustained long-term profitable operations. Management of credit risk, representing the Group’s most important risk, focuses on the taking of moderate risks – diversified credit portfolio, adequate credit portfolio quality, sustainable cost of risk and ensuring an optimal return ![]() 141 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report considering the risks assumed. The liquidity risk tolerance is low. The Group must maintain an appropriate level ofliquidity at all times to meet its short-term liabilities, even if a specific stress scenario is realised. Further, with the aim of minimising this risk, the Group pursues an appropriate structure of sources of financing. The Group limited exposure to credit spread risk, arising from the valuation risk of debt securities portfolio servicing as liquidity reserves, to the moderate level. The Group’s basic orientation in the management of interest rate risk is to limit unexpected negative effects on revenues and capital that would arise from changed market interest rates and, therefore, a moderate tolerance for this risk is stated. When assuming operational risk, the Group pursues the orientation that such risk must not significantly impact its operations. Risk appetite for operational risks is low to moderate, with a focus on mitigation actions for important risks and key risk indicators servicing as an early warning system. The conclusion of transactions in derivative financial instruments at NLB is primarily limited to servicing customers and hedging Bank’s own positions. In the area of currency risk, the Group thus pursues the goals of low to moderate exposure. The tolerance for all other risk types, including non- financial risks, is low with a focus on minimising their possible impacts on the Group’s operations. ESG risks do not represent a new risk category, but rather an aggravating factor for the existing types of risks, such as credit and operational risk. The Group integrates and manages them within the established risk managementframework. The main NLB Group Risk Appetite Statement objectives are following: • preservation of regulatory capital adequacy, • preservation of internal capital adequacy, •fulfilment of the MREL requirement, • maintenance of low leverage, •improvement in the quality of the credit portfolio, sufficient NPL coverage, sustainable credit risk volatility, sustainable cost of risk across the economic cycle, sustainable industry concentration, sustainable exposure to project financing, • maintenance of a solid liquidity position, maintaining stable customers’ deposits as the main funding base, • diversification of risk in exposures to banks and sovereigns, • limited exposure to credit spread risk, •limited exposure to interest rate risk, •limited exposure to foreign exchange risk, •sustainable tolerance to net losses from operational risk. Sustainable ESG financing in accordance with Environmental and Social Management System (ESMS) will be integrated in the Group's Risk appetite statement in the year 2022. Additional key risk indicators and targets in the area of ESG are going to be addressed based on NLB Group Sustainability programme and ESMS. The values of the most important risk appetite indicators of the Group, as at the end of year 2021, reflecting the interconnection betweenstrategicbusiness orientations, risk strategy, and targeted risk appetite profile, were following: •Total capital ratio 17.8%, •Tier 1 capital ratio 15.5%, •Common Equity Tier 1 ratio (CET1) 15.5%, •Leverage ratio 10.2%, •Cost of risk -41 bps, •The share of non-performing exposure (NPE%) by EBA 1.7%, •Non-performing loans coverage ratio 2 (NPL CR 2) 57.9%, •Loan-to-deposit ratio (LTD) 60.0%, •LCR 252.6%, •NSFR 185.2%, •EVE sensitivity (of 200 bps) -6.4% of capital, •Transactional FX risk 1.10% of capital, •Net losses from operational risk 1.6% of capital requirement for operational risk. COVID-19 did not have a meaningful impact on the quality of the credit portfolio. The Group is compliant with EBA guidelines on payment moratoria and is very prudent in identifying any increase in credit risk. The vast schemes introduced by the governments inthe Groupcountries providing moratoriums to eligible clients as part of the COVID-19 pandemic measures had been phasing out during the 2021. With respect to the COVID-19 pandemic and its implications on the business environment, the Group faced growing excess liquidity and managed to stay well capitalised. Consequently, the Group concluded the year 2021 as self- funded, with a strong liquidity and solid capital position, demonstrating the Group’s financial resilience. The acquired Komercijalna Banka group has a similar business model to the Group’s, and so, its impact on the Group’s risk profile at the end of the year 2020 was moderate with no other major impacts during the year 2021. Otherwise, there were no other transactions of sufficiently material nature to impact on the Group’s risk profile or distribution of the risks on the Group level. A Condensed Statement of the management of risk is also published on the Bank’s intranet with the aim of strict adherence of the Banks’ employees at daily operations of the Bank, as regards the definition and importance of a consistent tendency of the adopted risks, and ways to take into account when adopting its daily business decisions. Ljubljana, 11 April 2022 Supervisory Board ofNLBManagement Board of NLB Primož Karpe Chairman Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 142 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement on Non- financial Operation In line with Article 70.c of the Companies Act (ZGD-1), 21 the Bank reports on non-financial operation separately from the NLB Group Annual Report 2021. The Bank’s disclosures of non- financial operation are prepared in NLB Group Sustainability Report 2021 ( https://www.nlb.si/sustainability ), by applying the GRI Sustainability Reporting Standards (GRI) and thus ensuring compliance with the requirements of the regulations regarding the disclosure of non-financial information. As part of the NLB Group Sustainability Report 2021, the Bank publishes UNEP FI PRB Self-Assessment Report on how the Bank is implementing the UN Principles for Responsible Banking (UN PRB). The UN PRB set out the banking industry’s role and responsibility in shaping a sustainable future and in aligning the banking sector with the objectives of the UN SDGs and the 2015 Paris Climate Agreement. Ljubljana, 11 April 2022 21 Official Gazette of the RoS, No. 65/09, 33/11, 91/11, 32/12, 57/12, 44/13 – Resolution of the Constitutional Court 82/13, 55/15, 15/17, 22/19 – Business Secret Act, 158/20 – Integrity and Corruption Prevention Act-C and 18/21). Management Board of NLB Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() We are attentive to what you cherish themost. 52 years ago, we celebrated Earth Day for the first time. 40 years ago, we introduced recycling. 2 years ago, we committed to low-carbon economy. What will the next generations commit to? The rising importance of environmental and social issues plays an important role in the quality of life in our local region. By incorporating sustainability in our banking services, we not only strengthen relations with our clients, employees, suppliers, investors and broader communities, but also take care of present and future generations. We do not perceive sustainability as merely a letter on a piece of paper, but as a string of decisions, measures and actions that will provide new opportunities for the generations to follow. ![]() 144 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report rights on the basis of the instructions of an individual third party for whose account it has acquired the shares if, together with the instructions for voting, it does not receive a written guarantee from that person that this person has shares on his own account and that this person is not, directly or indirectly, a holder of more than 25% of the Bank’s voting rights. The acquirer who exceeds the share of 25% of the Bank’s shares with voting rights, and does not require the issuance of approval for the transfer of shares, or does not receive the approval of the Bank, may exercise the voting right from 25% of the shares with the voting rights. There are no restrictions other than those mentioned and those thatare regulatory. 1.3Qualifying holdings This information is included in the chapter Corporate Governance Statement of NLB . 1.4Securities carrying special controlling rights This information is included in the chapter Corporate Governance Statement of NLB. 1.5The employee share scheme, if used by the company, for shares to which the scheme relates and about the method of exercising control over this scheme, if the controlling rights are not exercised directly by employees The Remuneration policy for employees performing special work defines the payments with financial instruments according to the applicable banking law, however, there was no payout in instruments in 2021. 1.6 Explanation regarding restrictions related to voting rights This information is included in the chapter Corporate Governance Statement of NLB . 1.7 All agreements among shareholders which are known to the company and could result in restrictions relating to the transfer of securities or voting rights The Bank is not aware of such agreements. 1. Informationpursuantto the Companies Act (ZGD-1), Article 70, paragraph 6 1.1Structure of the Bank’s share capital The Bank has issued only ordinary registered no-par value shares, the holders of which have a voting right and the right to participate at the General Meeting of the Bank’s shareholders, the pre-emptive right to subscribe for new shares in case of a share capital increase, the right to profit participation (dividends), the right to a share in the surplus in the event of liquidation or bankruptcy of the Bank, and the right to be informed. All shares belong to a single class and are issued in book-entry form. Information regarding the shareholder structure of NLB (as at 31 December 2021) is available in the subchapter Shareholder Structure of NLB in the chapter Key Highlights . 1.2All restrictions relating to the transfer of shares and the restrictions on voting rights The shares of the Bank are freely transferable, subject to the provisions of the Articles of Association of the Bank which require the approval of the Supervisory Board, namely for the transfer of shares of the Bank by which the acquirer, together with the shares held by the holder before such an acquisition and the shares held by third parties for the account of the acquirer, exceeds the share of 25% of the Bank’s voting shares. Approval for the transfer of shares is issued by the Supervisory Board. The Bank rejects the request for approval of transfer shares if the acquirer, together with the shares held by the acquirer before the acquisition and the shares held by third parties for the account of the acquirer, exceeded the 25% share of the Bank with voting rights, increased by one share. Notwithstanding the provision mentioned in the first paragraph, approval for the transfer of shares is not required if the acquirer of the shares has acquired them on the account of third parties, so that it is not entitled to exercise voting rights from these shares at its sole discretion, while at the same time committing to the Bank, it will not exercise voting 1.8The company’s rules on the appointment or replacement of management and supervisory board members and changes of the articles of association This information is included in the chapter Corporate Governance Statement of NLB . 1.9 Authorisations given to management, particularly authorisations to issue or purchase own shares This information is included in the chapter Corporate Governance Statement of NLB . 1.10All major agreements to which the company is a party and which take effect, are changed or cancelled following a change in control over the company resulting from a bid, as laid down by the Act governing M&A, and the effects of such agreements There are no major agreements to which the Bank is a party, and which would take effect, be changed, or cancelled following a change in control over the Bank resulting from a bid. 1.11All agreements between the Bank and its management or supervision bodies or its employees which envisage compensation if, due to a bid as laid down by the Act governing M&A, these persons resign, are dismissed without a well-founded reason, or their employment is terminated In line with the employment contracts of the members of the Management Board, in case the Supervisory Board recalls a member of the Management Board ‘for other business and economic reasons,’ such a member of the Management Board of NLB is entitled to compensation for early termination of his term of office. The member of the Management Board shall not be entitled to compensation for early termination of the term of office if he is employed in the Bank or in the Group after the termination of the term of office. In the event of resignation, the member of the Management Board shall Disclosure onShares and Shareholders ofNLB ![]() 145 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report not be entitled to any compensation for early discontinuation of the term of office, unless otherwise decided by the Supervisory Board. 2. Numberof shares held by members oftheSupervisory Board and Management Board Table 40: Number of shares held by members of the Supervisory Board and Management Board Shares held as at 31 December 2021 Name of member of Supervisory Board Number% Primož Karpe1,1360.006% Andreas Klingen1,1980.006% David Eric Simon (i) 5820.003% Islam Osama Zekry—— Gregor Rok Kastelic—— Shrenik Dhirajlal Davda—— Mark William Lane Richards—— Verica Trstenjak —— Sergeja Kočar610.000% Bojana Šteblaj—— Janja Žabjek Dolinšek—— Tadeja Žbontar Rems—— Name of member of Management Board Number% Blaž Brodnjak1,5000.008% Archibald Kremser7910.004% Andreas Burkhardt4510.002% Petr Brunclík 278 0.001% (i) David Eric Simon holds 2,910 GDRs, which is equal to 582 shares (as 1 share represents 5 GDRs). 3. Stock option agreements The Bank has no stock option agreements in relation with listed shares. 4. Dividendtaxation Withholding tax In 2021 a Slovenian payer was required to deduct and withhold the amount of Slovenian corporate or personal income tax from dividend payments made to the certain categories of payees: •Individuals: 27.5% •Intermediaries: 27.5% •Legal entities (other than Intermediaries): 15% In 2022, the tax rate for individuals and intermediaries has changed from 27.5% to 25%. There are some exemptions if dividends are paid to intermediaries and legal entities For the purposes of Slovenian tax legislation, the GDR depositary will qualify as an intermediary. Therefore, the dividends paid by the custodian to the GDR depositary will be subject to the deduction and withholding of Slovenian tax at the rate of 25% (in 2021 27.5%). A holder, an owner of a GDR or a beneficial owner will be entitled, if and to the extent applicable, to claim a refund of the withholding tax. In the case of legal entities, the exemptions are related to the characteristics of thelegal entities. Application of Double Tax Treaties If the payee is not an intermediary, Slovenian tax authorities may approve the application of a lower tax rate specified in the double tax treaty between the RoS and the country of residence of the payee if the Slovenian payer provides certain information on the payee and a confirmation that the payee is a resident for taxation purposes in such a country, issued by the tax authorities of such a country. Refund of Withholding Tax If the Slovenian tax was deducted and withheld at a higher tax rate than it would be paid if a Slovenian payer would make the dividend payment directly to such person as a payee or higher tax rate, than the one specified in the double tax treaty, the payee of the dividend is entitled to the refund of the overpaid tax. The tax refund is enforced by filing a claim to the Financial Administrationof the RoS. Legal persons Dividends with respect to the shares received by a legal person who is a Slovenian resident are exempt from Slovenian corporate income tax ( davek oddohodkov pravnih oseb ). Individuals The amount of tax withheld from a dividend payment received by anindividual constitutes the final amount of Slovenian Personal Income Tax ( dohodnina ) with respect to such a dividend payment. ![]() 146 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report assessment of the CHF Law and if outlined legal remedies are unsuccessful, the Bank estimated a negative pre-tax effect on the operations of NLB and NLB Group should not exceed EUR 70 - 75 million. The Bank considers this as anon-adjusting event after the reporting period. New SREP Decision On 2 February, the ECB issued a new SREP decision for the Bank under which it has reduced the P2R from 2.75% to 2.60%, while P2G remains at 1.00%. The new SREP decision applies as of 1 March. Consequently, the Bank is as of this date required to maintain the OCR at the level of 14.10% on a consolidated basis, consisting of (i) 10.60% TSCR, and (ii) 3.5% CBR. Geopolitical tensions in Ukraine In February, Russian Federation began a military invasion of Ukraine. Group has limited exposure to Russian Federation and Ukraine which mainly derives from NLB’s investment in Russian sovereign bonds in the approximate amount of EUR20 million. The manner and timing of their settlement in the given circumstances is not determined yet. Since the beginning of the tensions, the credit spreads widening was observed, which is currently impacting the Bank’s FVOCI positions. Further information is available in Note 9 of the Financial part of this report. Sberbank banka d.d. acquisition On 1 March, the Single Resolution Board (SRB) in coordination with local regulator BoS decided to adopt a resolution scheme in respect of Slovenian Sberbank banka d.d. (Sberbank). Resolution scheme envisaged the application of the sale of business tool for Sberbank and BoS issued a decision for the sale of 100% shares issued by Sberbank. Under the resolution scheme, and following a marketing procedure, the SRB has decided to transfer all the shares issued by the Sberbank to NLB. Therefore as of 1 March NLB became a 100% owner of Sberbank. In the following months activities for integration of Sberbank within NLB Group will be carried out. Management Board change On 20 January, the Supervisory Board appointed Hedvika Usenik, Antonio Argir and AndrejLasič as members of the Management Board, thus expanding it to six members in total. Their five-year term of office will start after they have obtained their respective licences. Until then, they will continue to act as executive assistants to the Management Board. Swiss Francs Law adopted On 2 February, the Slovenian National Assembly adopted the Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs (CHF Law). The CHF Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia (including NLB) as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010, and provides for a cap on the exchange rate between Swiss francs and the Euro to be set at 10% volatility and shall be applied from the conclusion of any of the affected loan agreements. NLB intends to use all legal remedies against the CHFLaw before the Constitutional Court and, if necessary, in front of relevant European forums. In this respect, the banks (including NLB) on 28 February filed an initiative with the Constitutional Court of the RoS to initiate proceedings to assess the constitutionality of the CHF Law and a proposal for its temporary suspension of enforcement. The Constitutional Court of the RoS adopted a decision on 10 March 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 CHFLaw 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 Law is made, the NLB will act in accordance with the applicable legislation and courts’ decisions, and will, at the same time, exercise all legal remedies at its disposal. Based on the Key information of the acquired bank in EUR million 2020 2021 Unaudited Income Statement Net interest income3026 Net fee and commission income1214 Other income-12 Total income4343 Expenses-29-30 Pre-provision income1313 Provisions and impairments-111 Profit before tax113 Profit after tax110 Balance Sheet Total assets1,8391,721 Loans and advances to customers1,2001,153 Deposits from non-bank customers1,3401,274 Shareholders' equity184195 Ratios (i) in % Net interest margin (ii) 1.611.49 Business operating margin (ii) 2.292.49 ROE a.t.0.525.4 NPL ratio (iii) 5.54.4 CET1 ratio18.818.7 Source: Sberbank banka d.d. reports: for 2020 Annual report, for 2021 data from Sberbank banka d.d. Notes: (i) Ratios as calculated by Sberbank banka d.d. (ii) Based on total assets. (iii) Non-performing loans and other financial assets / classified loans and other financial assets (excluding balances with central bank accounts and sight deposits with banks). Further information about theacquisitionof Sberbankbanka d.d. is available on the Bank’s website under Investor News . Supervisory and Management board transactions with NLBR shares Between 25 February and 23 March, Primož Karpe, President of the Supervisory Board, Sergeja Kočar, Member of the Supervisory Board, Blaž Brodnjak, CEO and CMO, and Andreas Burkhardt, CRO together acquired 468 ordinary shares of NLB ISIN: SI0021117344, LJSE ticker NLBR. Notification of major holdings On 7 March the shareholding of Schroders in the Bank changed from 5.061% to 4.95%. Events After the End of the 2021 Financial Year ![]() 147 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Reconciliation ofFinancial Statements in Business and Financial Part of the Report Business reportin EUR millionFinancial reportin EUR thousandsNotes Net interest income409.4 Interest and similar income477,8294.1. Interest and similar expenses(68,469)4.1. Net fee and commission income237.2 Fee and commission income332,5894.3. Fee and commission expenses(95,413)4.3. Dividend income0.2Dividend income2234.2. Net income from financial transactions38.4 Gains less losses from financial assets and liabilities not measured at fair value through profit or loss 167 4.4. Gains less losses from financial assets and liabilities held for trading21,1944.5. Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss 16,8384.6. Fair value adjustments in hedge accounting 167 5.5.a) Foreign exchange translation gains less losses3454.7. Gains less losses from modification of financial assets(263)4.12. Net other income(18.3) Gains less losses on derecognition of non-financial assets2,681 Other net operating income23,2214.8. Cash contributions to resolution funds and deposit guarantee schemes(35,140)4.10. Gains less losses from non-current assets held for sale 248 4.15. Net gains or losses on derecognition of investments in subsidiaries, associates and joint ventures (9,298)5.12.b) Net non-interest income257.6257,559 Total net operating income666.9666,919 Employee costs(231.3) Administrative expenses(368,851)4.9. Other general and administrative expenses(137.5) Depreciation and amortisation(46.5)Depreciation and amortisation(46,528)4.11. Total costs(415.4)(415,379) Result before impairments and provisions251.5251,540 Impairments and provisions for credit risk35.8 Provisions for credit losses8,5044.13. Impairment of financial assets27,3314.14. Other impairments and provisions(27.1) Provisions for other liabilities and charges(22,670)4.13. Impairment of non-financial assets(4,407)4.14. Impairments and provisions8.88,758 Gains less losses from capital investment in subsidiaries, associates, and joint ventures 1.1 Share of profit from investments in associates and joint ventures (accounted for using the equity method) 1,1085.12.d) Result before tax261.4Profit before income tax261,406 Income tax(13.5)Income tax(13,538)4.16. Result of non-controlling interests11.5Attributable to non-controlling interests11,464 Result after tax236.4Attributable to owners of the parent236,404 Table 41: Income Statement of NLB Group for the annual period ended 31 December 2021 ![]() 148 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Business reportin EUR millionFinancial reportin EUR thousandsNotes ASSETS Cash, cash balances at central banks, and other demand deposits at banks 5,005.1Cash, cash balances at central banks and other demand deposits at banks5,005,0525.1. Loans to banks140.7Financial assets measured at amortised cost - loans and advances to banks140,6835.6.b) Net loans to customers10,587.1 Financial assets measured at amortised cost - loans and advances to customers10,587,1215.6.c) Non-trading financial assets mandatorily at fair value through profit or loss - part (only loans) -5.3.a) Financial assets5,208.35,208,325 - Trading book 7.7Financial assets held for trading7,6785.2.a) - Non-trading book5,200.6 Non-trading financial assets mandatorily at fair value through profit or loss - part (without loans) 21,1615.3.a) Financial assets measured at fair value through other comprehensive income3,461,8605.4. Financial assets measured at amortised cost - debt securities1,717,6265.6.a) Investments in subsidiaries, associates, and joint ventures11.5Investments in associates and joint ventures11,5255.12.d) Property and equipment, investment property294.6 Property and equipment247,0145.8. Investment property47,6245.9. Intangible assets59.1Intangible assets59,0765.10. Other assets271.1 Financial assets measured at amortised cost - other financial assets122,2295.6.d) Derivatives - hedge accounting5685.5.b) Fair value changes of the hedged items in portfolio hedge of interest rate risk7,0825.5.c) Current income tax assets3,948 Deferred income tax assets38,9775.17. Other assets91,2215.13. Non-current assets held for sale7,0515.7. TOTAL ASSETS21,577.5Total assets21,577,496 LIABILITIES Deposits from customers17,640.8Financial liabilities measured at amortised cost - due to customers17,640,8095.15.a) Deposits from banks and central banks71.8 Financial liabilities measured at amortised cost - deposits from banks and central banks 71,8285.15.a) Borrowings932.6 Financial liabilities measured at amortised cost - borrowings from banks and central banks 858,5315.15.b) Financial liabilities measured at amortised cost - borrowings from other customers74,0515.15.b) Other liabilities427.6 Financial liabilities held for trading7,5855.2.b) Financial liabilities measured at amortised cost - other financial liabilities206,8785.15.d) Derivatives - hedge accounting35,3775.5.b) Provisions119,4045.16. Current income tax liabilities5,878 Deferred income tax liabilities3,0455.17. Other liabilities49,4685.19. Subordinated liabilities288.5Financial liabilities measured at amortised cost - subordinated liabilities288,5195.15.c) Equity2,078.7Equity and reserves attributable to owners of the parent2,078,733 Non-controlling interests137.4Non-controlling interests137,390 TOTAL LIABILITIES AND EQUITY21,577.5Total liabilities and equity21,577,496 Table 42: Statement of Financial Position of NLB Group as at 31 December 2021 ![]() 149 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Alternative Performance Indicators The Bank has chosen to present these APIs, either because they are in common use within the industry or because they are commonly used by investors and as such are useful for disclosure. The APIs are used internally to monitor and manage operations of the Bank and the Group, and are not considered to be directly comparable with similar KPIs presented by other companies. The Bank’s APIs are described below together with definitions. Cost of risk – Calculated as the ratio between credit impairments and provisions annualized from the income statement and average net loans to customers. Table 43: NLB Group cost of risk calculation (iii) in EUR million NLB Group 20212020 Numerator Credit impairments and provisions (i) -40.847.6 Denominator Average net loans to customers (ii) 10,080.97,696.1 Cost of risk (bps)-41 62 (i) NLB internal information. Credit impairments and provisions are annualized, calculated as all established and released impairments on loans and provisions for off balance (from the income statement) in the period divided by the number of months for reporting period and multiplied by 12. The net established Credit impairments and provisions are shown with a positive sign, and the net released Credit impairments and provisions are shown with a negative sign. (ii) NLB internal information. Average net loans to customers are calculated as sum of the balance of the previous year end (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). (iii) Komercijalna Banka group included from 2021 on. Cost-to-income ratio (CIR) – Indicator of cost efficiency, calculated as the ratio between the total costs and total net operating income. Table 44a: NLBGroup and NLBCIR calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Total costs415.4293.9305.0183.6180.5191.1 Denominator Total net operating income666.9504.5517.2361.5311.7354.7 Cost to income ratio (CIR)62.3%58.3%59.0%50.8 %57.9%53.9% CIR is adjusted for 2019 to changed schemes prescribed by the BoS. Table 44b: NLBGroup’s banking subsidiaries CIR calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd 2021202020212020202120202021202020212020202120202021 Numerator Total cost28.626.515.213.916.215.113.512.317.413.622.220.488.0 Denominator Total net operating income 68.462.733.230.128.126.741.838.728.124.330.326.6128.7 Cost to income ratio (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 Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Table 45a: NLB Group Stage 1 calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 114,638.0 Denominator Total gross loans and advances15,541.8 IFRS 9 classification into Stage 194.2% Table 45b: NLB Group Stage 2 calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 2532.4 Denominator Total gross loans and advances15,541.8 IFRS 9 classification into Stage 23.4% Table 45c: NLB Group Stage 3 calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 3371.1 Denominator Total gross loans and advances15,541.8 IFRS 9 classification into Stage 32.4% Table 45d: NLB Group Stage 1 in the Corporate segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 1 to Corporates4,525.5 Denominator Total gross loans to Corporates5,179.5 Corporates - IFRS 9 classification into Stage 1 87.4% Table 45e: NLB Group Stage 2 in the Corporate segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 2 to Corporates412.2 Denominator Total gross loans to Corporates5,179.5 Corporates - IFRS 9 classification into Stage 2 8.0% Table 45f: NLB Group Stage 3 in the Corporate segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 3 to Corporates241.4 Denominator Total gross loans to Corporates5,179.5 Corporates - IFRS 9 classification into Stage 3 4.7% Table 45g: NLB Group Stage 1 in the Retail segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 1 to Retail5,371.1 Denominator Total gross loans to Retail5,621.1 Retail - IFRS 9 classification into Stage 195.6% Table 45h: NLB Group Stage 2 in the Retail segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 2 to Retail120.2 Denominator Total gross loans to Retail5,621.1 Retail - IFRS 9 classification into Stage 22.1% Table 45i: NLB Group Stage 3 in the Retail segment calculation in EUR million NLB Group 2021 Numerator Total (AC) loans in Stage 3 to Retail129.7 Denominator Total gross loans to Retail5,621.1 Retail - IFRS 9 classification into Stage 32.3% FVTPL – Financial assets measured mandatorily at fair value through profit or loss (FVTPL) represent the minor part (0.002% December 2021; 0.30% December 2020) of the loan portfolio (before the deduction of fair value for credit risk; loans with contractual cash flows that are not solely payments of principal and interest on the principal amount outstanding). Classification into stages is calculated in the internal data source, by which the NLB Group measures the loan portfolio quality, and which is also published in the Business Report of Annual and Interim Reports. IFRS 9 classification into stages for loan portfolio: IFRS 9 requires an expected loss model, where an allowance for the expected credit losses (ECL) are formed. Loans measured at amortised costs (AC) are classified into the following stages (before deduction of loan loss allowances): • Stage 1 – A performing portfolio: no significant increase of credit risk since initial recognition, NLB Group recognises an allowance based on a 12-month period; • Stage 2 – An underperforming portfolio: a significant increase in credit risk since initial recognition, NLB Group recognises an allowance for a lifetime period; • Stage 3 – An impaired portfolio: NLB Group recognises lifetime allowances for these financial assets. The definition of default is harmonised with the EBA guidelines. A significant increase in credit risk is assumed: when a credit ratingsignificantly deteriorates atthe reporting datein comparison to the credit rating at initial recognition; when a financial asset has material delays over 30 days (days past due are also included in the credit rating assessment); if NLB Group expects to grant the client forbearance or if the client is placed on the watch list. ![]() 151 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Leverage ratio – its calculation uses Tier 1 as the numerator, and the denominator is the total exposure of all active balance sheet and off-balance-sheet items after the adjustments are made in the context of which the exposures from individual derivatives, exposures from transactions of security funding, and other off-balance sheet items are especially pointed out. The leverage ratio is a non-risk based supplementary measure to the risk-based capital requirements. A minimum leverage ratio requirement is 3%. The purpose of the leverage ratio is to limit the size of the Bank balance sheets, and with a special emphasis on exposures which are not weighted within the framework of the existing capital requirement calculations. Table 46: NLB and NLB Group leverage ratio in EUR million NLBNLB Group 202120202019202120202019 Numerator Tier I1,362.71,347.01,137.61,965.61,768.11,451.2 Denominator Total Leverage Ratio exposure measure10,041.113,058.811,705.219,229.522,603.916,671.3 Leverage ratio13.6%10.3%9.7%10.2%7.8%8.7% Liquidity coverage ratio – LCR refers to high liquid assets held by the financial institution to cover its net liquidity outflows over a 30-calendar day stress period. The LCR requires financial institutions to maintain a sufficient reserve of high-quality liquid assets (HQLA) to withstand a crisis that puts their cash flows under pressure. The assets to hold must equal to or greater than their net cash outflow over a 30-calendar-day stress period (having at least 100% coverage). The parameters of the stress scenario are defined under Basel III guidelines. The calculations presented below are based on internal data sources. Table 47: NLB Group LCR calculation in EUR million NLB GroupNLB 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 Feb 2021 31 Jan 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 Numerator Stock of HQLA5,367.15,333.45,222.95,285.75,346.85,350.75,452.84,976.04,941.44,915.34,871.55,027.85,003.03,985.04,698.74,323.43,701.3 Denominator Net liquidity outflow2,125.02,064.71,993.41,940.51,899.71,966.52,000.21,915.81,918.61,876.41,889.01,945.51,943.11,226.41,493.91,285.41,022.1 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%324.9%314.5%336.3%362.1% Based on the European Commission’s Delegated Act on LCR. ![]() 152 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net loan-to-deposit ratio (LTD) – Calculated as the ratio between net loans to customers and deposits from customers. There is no regulatory defined limitation on the LTD, however, the aim of this measure is to restrict extensive growth of the loan portfolio. Table 48a: NLB Group and NLB LTD calculation in EUR million NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 201931 Dec 202131 Dec 202031 Dec 2019 Numerator Net loans to customers10,587.19,644.97,604.75,153.04,595.14,589.2 Denominator Deposits from customers17,640.816,397.211,612.39,659.68,850.87,760.7 Net loan to deposit ratio (LTD)60.0%58.8%65.5%53.3%51.9%59.1% Table 48b: NLB Group’s banking subsidiaries LTD calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd 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 Numerator Net loans to customers1,084.1956.9471.1430.7453.0399.2634.5559.2491.6367.3511.7472.21,795.9 Denominator Deposits from customers1,399.51,288.8759.9633.5593.0521.6798.8748.3609.8431.7449.5496.33,424.6 Net loan to deposit ratio (LTD)77.5%74.2%62.0%68.0%76.4%76.5%79.4%74.7%80.6%85.1%113.8%95.1%52.4% ![]() 153 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net interest margin on the basis of interest-bearing assets – Calculated as the ratio between net interest income annualized and average interest-bearing assets. in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd 2021202020212020202120202021202020212020202120202021 Numerator Net interest income (i) 50.448.120.118.617.817.834.532.322.020.623.421.888.6 Denominator Average interest bearing assets (ii) 1,605.31,453.0844.3756.7645.0611.9900.6817.7550.2499.9678.3643.13,742.6 Net interest margin on interest bearing assets3.1%3.3%2.4%2.5%2.8%2.9%3.8%3.9%4.0%4.1%3.4%3.4%2.4% Net interest margin on the basis of interest-bearing assets (quarterly) – Calculated as the ratio between the net interest income annualized and average interest-bearing assets. in EUR million NLB Group Q4 2021Q3 2021Q2 2021Q1 2021Q4 2020 Numerator Net interest income (i) 424.6411.3405.7395.4298.7 Denominator Average interest bearing assets (ii) 20,526.720,314.419,459.118,902.814,739.7 Net interest margin on interest bearing assets (quarterly)2.07%2.02%2.08%2.09%2.03% Table 49: NLB Group’s banking subsidiaries net interest margin on the basis of interest bearing assets calculation Table 50: NLB Group net interest margin on the basis of interest bearing assets calculation (quarterly) (iii) (i) Net interest income is annualized, and calculated as the sum of interest income and interest expenses 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. Average interest-bearing assets for individual bank members are calculated as the sum of balance of previous year end (31 December) and monthly balances of the last day of each month from January to reporting month t divided by (t+1). (i) Net interest income (quarterly) is annualized, calculated as the sum of interest income and interest expenses in the period divided by the number of days in the quarter and multiplied by the number of days in the year. (ii) NLB internal information. Average interest-bearing assets (quarterly) for the NLB Group are calculated as the sum of monthly balances (t) for the corresponding quarter and monthly balance at the end of the previous quarter divided by (t+1). (iii) Komercijalna Banka group included from 2021 on. Net interest margin on total assets – Calculated as the ratio between net interest income annualized, and average total assets. Table 51: NLB Group and NLB net interest margin on total assets calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Net interest income (i) 409.4299.6318.5139.1138.9158.1 Denominator Average total assets (ii) 20,659.015,086.213,311.711,853.910,336.29,206.3 Net interest margin on total assets2.0%2.0%2.4%1.2 %1.3 %1.7 % (i) Net interest income is annualized, and calculated as sum of interest income and interest expenses 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. Average total assets for the NLB Group are calculated as sum of balance of the previous year end (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). Average total assets for NLB are calculated as the sum of total assets of the previous year end (31 December) and daily balances in the period (from 1 January to day d – the last day in reporting month) divided by (d+1). ![]() 154 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NPE – NPE includes risk exposure to D- and E-rated clients (includes loans and advances, debt securities, and off-balance exposures, which are included in report Finrep 18; before the deduction of allowances for the ECL). Non-performing exposures measured by fair value loans through P&L (FVTPL) are taken into account at fair value increased by the amount of negative fair changes for credit risk. NPE per cent. (on-balance and off-balance)/Classified on-balance and off-balance exposures – NPE per cent. in accordance with EBA methodology: NPE as a percentage NPE – NPE indicator according to the BoS calculation differs from the EBA methodology in the treatment of debt instruments measured at FVOCI. The carrying amount of debt instruments measured at FVOCI is increased by value adjustments due to impairments. Table 53: NLB and NLB Group NPE (Eba def.) (Bos) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Total Non-Performing on-balance and off-balance Exposure in Finrep18 159.5235.1221.0415.5513.0432.7 Denominator Total on-balance and off-balance exposures in Finrep18, where carrying amount of FVOCI is increased by value adjustments due to impairments 13,872.112,225.511,089.524,339.222,051.016,233.3 NPE per cent.1.1%1.9%2.0%1.7%2.3%2.7% Table 52: NLBand NLBGroup NPE (Eba def.) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Total Non-Performing on-balance and off-balance Exposure in Finrep18 159.5235.1221.0415.5513.0432.7 Denominator Total on-balance and off-balance exposures in Finrep18 13,869.912,223.111,087.824,328.022,042.316,228.5 NPE per cent.1.1%1.9%2.0%1.7%2.3%2.7% of all exposures to clients in Finrep18, before deduction of allowances for the ECL; the ratio is in gross terms. Where Non-Performing Exposure includes risk exposure to D- and E-rated clients (includes loans and advances, debt securities, and off-balance exposures, which are included in report Finrep 18; before the deduction of allowances for the ECL). The share of NPEs is calculated on the basis of an internal data source, with which the NLB Group monitors the portfolio quality. The calculations presented below are based on internal data sources. ![]() 155 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NPL – Non-performing loans include loans to D- and E-rated clients, namely loans at least 90 days past due, or loans unlikely to be repaid without recourse to collateral (before deduction of loan loss allowances). NPL per cent. – The share of non-performing loans in total loans: non-performing loans as a percentage of total loans to clients before deduction of loan loss allowances; ratio in gross terms. Where non-performing loans are defined as loans to D- and E-rated clients, namely loans at least 90 days past due, or loans unlikely to be repaid without recourse to collateral (before deduction of loan loss allowances). The share of non-performing loans is calculated on the basis of an internal data source, with which the NLB Group monitors the loan portfolioquality. Table 54a: NLB NPL calculation in EUR million NLB 202120202019 Numerator Total Non-Performing Loans130.4208.4169.5 Denominator Total gross loans8,522.56,980.85,989.9 NPL per cent.1.5%3.0%2.8% Table 54b: NLB Group NPL calculation in EUR million NLB Group 202120202019201820172016 Numerator Total Non-Performing Loans367.4474.7374.7622.3844.51,299.2 Denominator Total gross loans15,541.813,686.69,793.59,017.29,130.49,443.7 NPL per cent.2.4%3.5%3.8%6.9%9.2%13.8% Table 54c: NLB Group’s banking subsidiaries NPL calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd NLB Group’s banking subsidiaries 20212020 202120202021 20202021 20202021 202020212020 2021 2021 Numerator Total Non- Performing Loans 59.763.29.413.719.024.715.617.542.227.39.58.736.3322.1 Denominator Total gross loans1,383.81,239.1734.7590.2621.0553.4802.0768.2602.0470.0618.1605.52,610.115,894.4 NPL per cent.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 Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NPL coverage ratio 1 – The coverage of the gross non- performing loans portfolio with loan loss allowances on the entire loan portfolio - loan impairment in respect of non- performing loans. It shows the level of credit provisions that the entity has already absorbed into its profit and loss accounts with respect to the total of impaired loans. The NPL coverage ratio 1 is calculated on the basis of an internal data source, with which the NLB Group monitors the quality of loan portfolio. Table 55a: NLB NPL coverage ratio 1 calculation in EUR million NLB 202120202019 Numerator Loan loss allowances entire loan portfolio 97.9158.4129.2 Denominator Total Non-Performing Loans130.4208.4169.5 NPL coverage ratio 1 (NPLCR 1)75.1%76.0%76.2% Table 55b: NLB Group NPL coverage ratio 1 calculation in EUR million NLB Group 202120202019201820172016 Numerator Loan loss allowances entire loan portfolio 316.5388.4334.2479.6654.8988.7 Denominator Total Non-Performing Loans367.4474.7374.7622.3844.51,299.2 NPL coverage ratio 1 (NPLCR 1)86.1%81.8%89.2%77.1%77.5%76.1% Table 55c: NLB Group's banking subsidiaries NPL coverage ratio 1 calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd NLB Group’s banking subsidiaries 2021 Numerator Loan loss allowances entire loan portfolio 60.517.720.338.022.88.923.1289.0 Denominator Total Non-Performing Loans59.79.419.015.642.29.536.3322.1 NPL coverage ratio 1 (NPLCR 1)101.2%189.3%106.3%243.2%54.0%93.4%63.5%89.7% ![]() 157 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NPL coverage ratio 2 – The coverage of the gross non- performing loans portfolio with loan loss allowances on the non-performing loans portfolio. The NPL coverage ratio 2 is calculated on the basis of an internal data source, with which the NLB Group monitors the loan portfolio quality. Table 56a: NLB and NLB Group NPL coverage ratio 2 calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Loan loss allowances non-performing loan portfolio79.0120.796.2212.9272.1243.7 Denominator Total Non-Performing Loans130.4208.4169.5367.4474.7374.7 NPL coverage ratio 2 (NPLCR 2)60.6%57.9%56.7%57.9%57.3%65.0% Table 56b: NLB Group’sbanking subsidiaries NPL coverage ratio 2 calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd NLB Group’s banking subsidiaries 2021 Numerator Loan loss allowances non-performing loan portfolio38.75.716.714.316.55.57.9184.2 Denominator Total Non-Performing Loans59.79.419.015.642.29.536.3322.1 NPL coverage ratio 2 (NPLCR 2)64.7%61.0%87.6%91.6%39.1%57.6%21.7%57.2% ![]() 158 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Net NPL Ratio – The share of net non-performing loans in total net loans: non-performing loans after deduction of loss allowances on the non-performing loans portfolio as a percentage of total loans to clients after the deduction of loan loss allowances; the ratio is in net terms. The calculations presented below are based on internal data sources. Table 57: NLB and NLB Group Net NPL Ratio calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Net volume of non-performing loans51.487.873.3154.5202.7131.0 Denominator Total Net Loans8,424.76,822.45,860.715,225.413,298.29,459.2 Net NPL ratio per cent. (%Net NPL)0.6%1.3%1.3%1.0%1.5%1.4% Receivedcollaterals for NPLs/NPL – The coverage of the gross non-performing loans portfolio with collateral for non- performing loans. The collateral market value is used for this calculation. The calculations presented below are based on internal data sources. Table 58: NLB and NLBGroup Received collaterals forNPLs/NPL calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Gross volume of Non-Performing Loans covered by collaterals 78.2137.2122.1226.6288.1249.7 Denominator Total Non-Performing Loans130.4208.4169.5367.4474.7374.7 Received collaterals for NPLs / NPL60.0%65.8%72.0%61.7%60.7%66.6% ![]() 159 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Non-performing loans and advances(EBA def.) – Non- performing loans include loans and advances in accordance with EBA Methodology that are classified as to D and E, namely loans at least 90 days past due, or loans unlikely to be repaid without recourse to collateral (before deduction of loan loss allowances). Gross NPL ratio (EBA def.) – The gross NPL ratio is the ratio of the gross carrying amount of non-performing loans and advances to the total gross carrying amount of loans and advances, in accordance with the EBA methodology (report Finrep18). For the purpose of this calculation, loans and advances classified as held for sale, cash balances at CBs, and other demand deposits are excluded from both the denominator and the numerator. The calculations presented below are based on internal data sources. Table 59: NLB and NLB Group Gross NPL ratio (EBA def.) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Gross volume of Non-Performing Loans and advances without loans held for sale, cash balances at CBs and other demand deposits 131.2199.1164.3375.1466.0372.9 Denominator Gross volume of Loans and advances in Finrep18 without loans held for sale, cash balances at CBs and other demand deposits 5,498.94,958.84,923.311,128.810,340.68,127.5 Gross NPL ratio per cent. (% NPL)2.4%4.0%3.3%3.4%4.5%4.6% Gross NPL ratio (EBA def.) (BoS) – The gross NPL ratio is the ratio of the gross carrying amount of non-performing loans and advances to the total gross carrying amount of loans and advances, in accordance with the EBA methodology (report Finrep18). Cash balances at CBs and other demand deposits are included in the calculation.The indicator for the banking sector in the EU is published quarterly by the EBA in the Risk dashboard. The calculations presented below are based on internal data sources. Table 60: NLB and NLB Group Gross NPL ratio (EBA def.) (BoS) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Gross volume of Non-Performing Loans and advances131.2199.1164.3375.1466.0372.9 Denominator Gross volume of Loans and advances in Finrep188,615.37,028.26,050.915,668.813,795.39,888.1 Gross NPL ratio per cent. (% NPL)1.5%2.8%2.7%2.4%3.4%3.8% ![]() 160 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NPL coverage ratio (EBA def.) – The NPL coverage ratio is the ratio of theamount ofaccumulatedimpairment, negative changes in fair value due to credit risk to the non-performing loans and advances, in accordance with the EBA methodology (report Finrep18). Loans and advances classified as held for sale, cash balances at CBs and other demand deposits are excluded both from the denominator and from the numerator. Table 61: NLB and NLB Group NPL coverage ratio (EBA def.) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Volume of allowances and value adjustments for credit losses on Non-Performing loans and advances (i) 79.8110.191.2219.1265.3240.4 Denominator Gross volume of Non-Performing loans and advances (i) 131.2199.1164.3375.1466.0372.9 NPL coverage ratio per cent. (% CR)60.8%55.3%55.5%58.4%56.9%64.5% NPL coverage ratio (EBA def.) (BoS) –The NPL coverage ratio is the ratio of the amount of accumulated impairment, negative changes in fair value due to credit risk to the non- performing loans and advances, in accordance with the EBA methodology (report Finrep18). Cash balances at CBs and other demand deposits are included in the calculation. Table 62: NLB and NLB Group NPL coverage ratio (EBA def.) (BoS) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Volume of allowances and value adjustments for credit losses on Non-Performing loans and advances 79.8110.191.2219.1265.3240.4 Denominator Gross volume of Non-Performing loans and advances131.2199.1164.3375.1466.0372.9 NPL coverage ratio per cent. (% CR)60.8%55.3%55.5%58.4%56.9%64.5% (i) Without loans and advances classified as held for sale, cash balances at CBs, and other demand deposits. ![]() 161 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Collateral received/NPL (EBA def.) – The NPL collateral ratio is the ratio of the collateral received for non-performing loans and advances to the gross carrying amount of collateralized non-performing loans and advances, in accordance with the EBA methodology (report Finrep18). The calculation is provided on single loan basis. The NPLs where the amount of collateral received exceeds the net non-performing of each loan exposure are the subject of calculation. Table 63: NLB and NLB Group NPL coverage ratio (EBA def.) calculation in EUR million NLBNLB Group 202120202019202120202019 Numerator Volume of collateral received up to the carrying amount of each loan or advance 12.238.612.936.761.323.9 Denominator Gross volume of collateralized Non- Performing loans and advances 19.488.838.262.5144.667.4 NPL coverage ratio per cent. (% CR)63.1%43.5%33.6%58.8%42.4%35.4% Net stable funding ratio (NSFR) – The net stable funding ratio is a liquidity risk standard requiring financial institutions to hold enough stable funding to cover the duration of their long- term assets. NSFR is defined as the amount of available stable funding relative to the amount of required stable funding, and is based on the current Basel Committee guidelines. This ratio should be equal to at least 100% on an on-going basis. ‘Available stable funding’ is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of such stable funding required of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution, as well as those of its off-balance-sheet (OBS) exposures. The calculations presented below are based on internal data sources. Table 64: NLB Group NSFR calculation in EUR million NLBNLB Group 31 Dec 202131 Dec 202031 Dec 201931 Dec 202131 Dec 202031 Dec 2019 Numerator Amount of available stable funding10,815.89,455.78,251.618,446.716,514.611,957.9 Denominator Amount of required stable funding6,309.55,833.75,193.99,960.89,966.87,495.5 NSFR171.4%162.1%158.9%185.2%165.7%159.5% ![]() 162 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report EVE (Economic Value of Equity) method – EVE method is a measure of sensitivity of changes in market interest rates on the economic value of financial instruments. EVE represents the present value of net future cash flows and provides a comprehensive view of the possible long-term effects of changing interest rates at least under the six prescribed standardised interest rate shock scenarios or more if necessary, according to the situation on financial markets. Calculations take into account behavioural andautomatic options, as well as the allocation of non-maturing deposits. The assessment of the impact of a change in interest rates of 200 bps on the economic value of the banking book position: Table 65: NLB Group EVE calculation in EUR thousand NLB Group 31 Dec 202130 Sep 2021 30 Jun 2021 31 Mar 202131 Dec 202030 Sep 2020 30 Jun 2020 31 Mar 202031 Dec 201930 Sep 2019 30 Jun 2019 31 Mar 201931 Dec 2018 Numerator Interest 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 (Tier I)1,972,4851,903,8001,879,3651,734,5451,765,0001,622,9451,616,9211,426,9361,451,1761,424,0201,425,2981,460,0781,458,318 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 business margin (OBM) – Calculated as the ratio between operational business net income annualized and average assets. Table 66: NLB Group and NLBOBM calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Operational business net income (i) 678.1490.3502.1274.3257.7268.6 Denominator Average total assets (ii) 20,659.015,086.213,311.711,876.010,336.39,215.3 OBM (cumulative)3.3%3.2%3.8%2.3%2.5%2.9% (i) Operational business net income is annualized, and calculated as operational business income in the period divided by the number of days in the period and multiplied by the number of days in the year. Operational business income consists of net interest income (excluding interest expenses from subordinated securities), net fees and commissions and net gains and losses from financial assets and liabilities held for trading that derive from foreign exchange trading. (ii) NLB internal information. Average total assets is calculated as a sum of balance as at the end of the previous year end (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). ![]() 163 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Operational business margin (OBM) (quarterly) – Calculated as the ratio between operational business net income annualized and average assets. Table 67: NLBGroup OBM (quarterly) calculation (iii) in EUR million NLB Group Q4 2021Q3 2021Q2 2021Q1 2021Q4 2020 Numerator Operational business net income (i) 718.0675.1676.3642.1499.8 Denominator Average total assets (ii) 21,414.521,232.120,357.019,749.015,378.5 OBM (quarterly)3.35%3.18%3.32%3.25%3.25% (i) Operational business net income (quarterly) is annualized, and calculated as operational business income in the period divided by the number of days in the quarter and multiplied by the number of days in the year. Operational business income consists of net interest income (excluding interest expenses from subordinated securities), net fees and commissions and net gains and losses from financial assets and liabilities held for trading that derive from foreign exchange trading. (ii) NLB internal information. Average total assets is calculated as a sum of balance as at the end of the previous year end (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). (iii) Komercijalna Banka group included from 2021 on. Return on equity before tax (ROE b.t.) – Calculated as the ratio between result before tax annualized and average total equity (including non-controlling interests). Table 68: NLB Group and NLB ROE b.t. calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Result before tax (i) 261.4277.9215.4211.5113.9177.7 Denominator Average total equity (ii) 2,222.81,808.11,700.71,507.21,384.61,328.7 ROE b.t.11.8%15.4%12.7%14.0%8.2%13.4% (i) The result before tax is annualized, and calculated as the result before tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total equity (including non-controlling interests) is calculated as the sum of the balance as at end of the previous year end (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). ![]() 164 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Return on equity after tax (ROE a.t.) – Calculated as the ratio between result after tax annualized and average equity. Table 69a: NLB Group and NLB ROE a.t. calculation in EUR million NLB GroupNLB 20212020201920182017202120202019 Numerator Result after tax (i) 236.4269.7193.6203.6225.1208.4114.0176.1 Denominator Average equity (ii) 2,069.91,751.21,658.01,729.91,566.71,507.21,384.61,328.7 ROE a.t.11.4%15.4%11.7%11.8%14.4%13.8%8.2%13.3% (i) The result after tax is annualized, and calculated as the result after tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average equity is calculated as the sum of the balance as at the end of the previous year end (31 December) and monthly balances of the last day of each month from January to month tdivided by (t+1). Table 69b: NLB Group (w/o Komercijalna Banka group) ROE a.t. calculation in EUR million NLB Group (w/o Komercijalna Banka group) 2020 Numerator Result after tax (i) 141.3 Denominator Average equity (ii) 1,741.1 ROE a.t.8.1% (i)(ii) Please refer to the notes under Table 69a. Table 69c: NLB Group’s banking subsidiaries ROE a.t.calculation in EUR million NLB Banka, SkopjeNLB Banka, Banja LukaNLB Banka, SarajevoNLB Banka, PrishtinaNLB Banka, PodgoricaNLB Banka, Beograd Komercijalna Banka, Beograd 2021202020212020202120202021202020212020202120202021 Numerator Result after tax (i) 39.019.218.210.110.05.924.413.310.11.44.32.634.8 Denominator Average equity (ii) 245.4219.4106.793.393.584.3108.992.176.568.277.474.2630.2 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 refer to the notes under Table 69a. ![]() 165 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Return on assets (ROA b.t.) – Calculated as the ratio between result before tax annualized and average total assets. Table 70: NLB Group and NLB ROA b.t. calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Result before tax (i) 261.4277.9215.4211.5113.9177.7 Denominator Average total assets (ii) 20,659.015,086.213,311.711,876.010,336.39,215.3 ROA b.t.1.3%1.8%1.6%1.8%1.1%1.9% (i) The result before tax is annualized, and calculated as the result before tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total assets is calculated as the sum of the balance as at the end of the previous year end (31 December) and the monthly balances of the last day of each month from January to month t divided by (t+1). Return on assets (ROA a.t.) – Calculated as the ratio between result after tax annualized and average total assets. Table 71a: NLB Group and NLB ROA a.t. calculation in EUR million NLB GroupNLB 202120202019202120202019 Numerator Result after tax (i) 236.4269.7193.6208.4114.0176.1 Denominator Average total assets (ii) 20,659.015,086.213,311.711,876.010,336.39,215.3 ROA a.t.1.1%1.8%1.5%1.8%1.1%1.9% (i) The result after tax is annualized, and calculated as the result after tax in the period divided by the number of months for the reporting period and multiplied by 12. (ii) NLB internal information. Average total assets is calculated as the sum of balance as at the end of the previous yearend (31 December) and monthly balances of the last day of each month from January to month t divided by (t+1). Table 71b: NLBGroup’s banking subsidiaries ROAa.t.calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd 2021202020212020202120202021202020212020202120202021 Numerator Result after tax (i) 39.019.218.210.110.05.924.413.310.11.44.32.634.8 Denominator Average total assets (ii) 1,658.61,507.2874.5784.9673.5639.3906.0824.9593.5541.0696.3662.84,029.4 ROA 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 refer to the notes under Table 71a. ![]() 166 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Total capital ratio (TCR) – TCR is the own funds of the institution expressed as a percentage of the total risk exposure amount. Table 72a: NLBGroup and NLBTCR calculation in EUR million NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 201931 Dec 202131 Dec 202031 Dec 2019 Numerator Total capital (Own funds)2,252.52,065.51,495.81,647.31,631.61,182.2 Denominator Total risk exposure Amount (Total RWA)12,667.412,421.09,185.56,708.56,028.85,225.1 Total capital ratio17.8%16.6%16.3%24.6%27.1%22.6% Table 72b: NLBGroup’s banking subsidiaries TCR calculation in EUR million NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd Komercijalna Banka, Beograd 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 Numerator Total capital243.6190.677.178.475.074.6112.3103.270.052.187.784.5555.8 Denominator Total risk exposure Amount (Total RWA)1,354.41,212.5456.7452.3445.0416.4647.9579.7429.3321.5456.3443.11,946.7 Total capital ratio18.0%15.7%16.9%17.3%16.9%17.9%17.3%17.8%16.3%16.2%19.2%19.1%28.6% ![]() 167 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB GroupChart CompaniesCompaniesFinancial institutionsFinancial institutions SloveniaSloveniaSloveniaSlovenia Nova Ljubljanska banka d.d., Ljubljana CORE MEMBERSNON-CORE MEMBERS Banks Foreign countries Foreign countriesForeign countries NLB Banka, Beograd 100% 100% NLB InterFinanz, Zürich in liquidation 100%100% NLB InterFinanz, Beograd in liquidation 100% 100% NLB Leasing, Beograd in liquidation 100% 100% LHB AG, Frankfurt 100% 100% REAM, Beograd 100% 100% REAM, Podgorica 100% 100% Tara Hotel, Budva 12.71% 100% SPV 2, Beograd 100% 100% NLB Srbija, Beograd 100% 100% NLB Crna Gora, Podgorica 100% 100% NLB Skladi, Ljubljana 100% 100% Bankart, Ljubljana (ii) 45.64% 45.64% NLB Banka, Sarajevo 97.35% 97.35% NLB Lease&Go, Ljubljana 100% 100% NLB Cultural Heritage Management Institute 100% 100% NLB Banka, Podgorica (iii) 75.90% 99.87% NLB Banka, Prishtina 82.377% 82.377% NLB Banka, Banja Luka 99.85% 99.85% NLB Banka, Skopje 86.97% 86.97% Komercijalna Banka, Beograd 88.28% 88.28% NLB Leasing Ljubljana- in liquidation (iv) 100% 100% Prvi faktor, Ljubljana in liquidation 50% 50% PRO-REM, Ljubljana in liquidation 100% 100% S-REAM, Ljubljana 100% 100% ARG-Nepremičnine, Horjul 75% 75% KomBank Invest, Beograd 100% 100% Optima Leasing, Zagreb in liquidation 100% 100% Prvi faktor, Beograd in liquidation (i) 90% 95% Prvi faktor, Zagreb in liquidation 100% 100% OL Nekretnine, Zagreb in liquidation 100% 100% REAM, Zagreb 100% 100% Subsidiary % direct share % indirect share at the group level Associate % direct share % indirect share at the group level Joint venture % direct share % indirect share at the group level Legend: The chart shows voting rights shares.The Group includes entities according to the definition in the Financial Conglomerates Act (Article 2). Notes: (i) 90% direct ownership Prvi Faktor, Ljubljana in liquidation, 5% NLB, 5% SID banka d.d. (ii) Abanka merged into Nova KBM, which currently has a 29.22% share in Bankart. This is over the 25% threshhold set in the Founding agreement - no shareholder other than NLB can have more than 25% capital share in Bankart. (iii) 75.90% direct ownership NLB; 23.97% Komercijalna Banka, Beograd. (iv) 100% direct ownership NLB Lease&Go d.o.o., Ljubljana ![]() 168 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Understanding of the tasks and responsibilities of Global Risk, Compliance and Integrity and Internal Audit is taken into account in accordance to the definitions of the (currently valid) Banking Act (ZBan-3). (i) Worker´s Council is independent organisational unit with no subordinate or superior organisational units and it operates in accordance with ZSDU. Organisational Structure of NLB SUPERVISORY BOARD MANAGEMENT BOARD Internal Audit Worker´s Council (i) Compliance and IntegrityStrategy and Business Development Global Risk Credit Risk - Corporate Credit Risk - Retail Evaluation and Control Restructuring Workout and Legal support Group Real Estate ManagementSales Development and Management ControllingCSA & Cross-border Financing Financial Accounting and AdministrationLarge Corporates Financial MarketsSmall and Mid Corporates Trade Finance Services Investment Banking and Custody Private Banking KC 24/7 Area Branch Ljubljana Area Branch Northwest and Central Slovenia Area Branch Northeast Slovenia Area Branch Southeast Slovenia Area Branch Southwest Slovenia Micro Enterprises Mobile Banking IT Architecture IT Delivery Data Management IT Shared Service Centre NLB Group ITSecurity Governance IT Infrastructure Procurement Payments Processing Cash Processing Financial Instruments Processing Corporate Customer Delivery Retail Banking Processing Distribution Network CRO CFO CMO COO Group SteeringLegal and Secretariat Communication Human Resources and Organization Development ![]() We believe you deserve every opportunity. First, we liked your résumé. Then, you fascinated us with your enthusiasm. After that, we saw great potential in you. Now, we will make sure you utilise it to the fullest. We believe that a satisfied and efficient employee is one who successfully aligns their private and professional life, while at the same time preserves the feeling that their potential is recognised and respected.With intensive investments into the upgrading of the potential of our employees, we have raised a company of enthusiastic experts from across the region who firmly believe in their work and mission. Just like Nino, Ljubica and Matej from our Ljubljana IT office. ![]() 170 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report FINANCIALREPORT ![]() 171 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Independent auditor’s report ............................ 173 Statement of management’s responsibility .............. 177 Statement of comprehensive income for the annual period ended 31 December ................ 179 Statement of financial position as at 31 December ........ 180 Statement of changes in equity for the annual period ended 31 December ................ 182 Statement of cash flows for the annual period ended 31 December ................ 184 Notes to the financial statements ......................... 186 1.General information ............................... 186 2.Summary of significant accounting policies ........ 186 2.1.Statement of compliance ............................ 186 2.2.Basis for presenting the financial statements . . . . . . . . 186 2.3.Comparative amounts ............................... 186 2.4. Consolidation ........................................ 187 2.5.Business combinations, goodwill, and bargain purchases .............................. 187 2.6.Investments in subsidiaries, associates and joint ventures ........................ 188 2.7.A combination of entities or businesses under common control .................. 188 2.8.Foreign currency translation ........................ 188 2.9.Interest income and expenses ....................... 188 2.10.Fee and commission income ........................ 189 2.11.Dividend income ..................................... 189 2.12.Financial instruments ............................... 189 2.13.Allowances for financial assets ...................... 192 2.14.Forborne loans ...................................... 194 2.15.Repossessed assets ................................. 195 2.16. Offsetting ............................................ 195 2.17.Sale and repurchase agreements ................... 195 2.18.Property and equipment ............................. 195 2.19.Intangible assets ..................................... 195 2.20.Investment properties ............................... 196 2.21.Non-current assets and disposal groups classified as held for sale .................... 196 2.22.Accounting for leases ................................ 196 2.23.Cash and cash equivalents .......................... 197 2.24.Borrowings, deposits, and issued debt securities with characteristics of debt .......... 197 2.25.Other issued financial instruments with characteristics of equity ........................ 197 2.26. Provisions ........................................... 197 2.27.Contingent liabilities and commitments .............. 197 2.28. Taxes ................................................ 197 2.29.Fiduciary activities ................................... 198 2.30.Employee benefits ................................... 198 2.31.Share capital ........................................ 198 2.32.Segment reporting .................................. 198 2.33.Critical accounting estimates and judgments in applying accounting policies .......... 199 2.34.Implementation of the new and revised International Financial Reporting Standards ........ 201 3.Changes in the composition oftheNLB Group ..... 203 4.Notes to the income statement .................... 204 4.1.Interest income and expenses ...................... 204 4.2.Dividend income .................................... 205 4.3.Fee and commission income and expenses ......... 205 4.4.Gains less losses from financial assets and liabilities not measured at fair value through profit or loss ............................... 207 4.5.Gains less losses from financial assets and liabilities held for trading ....................... 207 4.6.Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss ............................... 208 4.7.Foreign exchange translation gains less losses ..... 208 4.8.Other net operating income ........................ 209 4.9.Administrative expenses ............................. 210 4.10.Cash contributions to resolution funds and deposit guarantee schemes ...................... 211 4.11.Depreciation and amortisation ....................... 211 4.12.Gains less losses from modification of financial assets .................................... 212 4.13. Provisions ........................................... 212 4.14.Impairment charge .................................. 213 4.15.Gains less losses from non-current assets held for sale .................................. 213 4.16.Income tax .......................................... 214 4.17.Earnings per share .................................. 215 Contents ![]() 172 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.Notes to the statement of financial position ........ 215 5.1.Cash, cash balances at central banks, and other demand deposits at banks ................ 215 5.2.Financial instruments held for trading .............. 216 5.3.Non-trading financial instruments measured at fair value through profit or loss ........ 217 5.4.Financial assets measured at fair value throughother comprehensive income ............... 218 5.5.Derivatives for hedging purposes ................... 220 5.6.Financial assets measured at amortised cost ........ 223 5.7.Non-current assets held for sale .................... 226 5.8.Property and equipment ............................. 226 5.9.Investment property ................................. 229 5.10.Intangible assets .................................... 230 5.11. Leases ............................................... 232 5.12.Investments in subsidiaries, associates and joint ventures ........................ 234 5.13.Other assets ......................................... 243 5.14.Movements in allowance for the impairment of financial assets . . . . . . . . . . . . . . . 244 5.15.Financial liabilities, measured at amortised cost ........................ 255 5.16. Provisions ........................................... 258 5.17.Deferred income tax ................................ 265 5.18.Income tax relating to components of other comprehensive income .................... 269 5.19.Other liabilities ...................................... 269 5.20.Share capital ....................................... 270 5.21.Accumulated other comprehensive income and reserves ............................... 270 5.22.Capital adequacy ratios ............................. 271 5.23.Off-balance sheet liabilities .......................... 273 5.24.Funds managed on behalf of third parties ........... 275 6.Risk management ................................ 276 6.1.Credit risk management ............................. 278 6.2.Market risk .......................................... 297 6.3.Liquidity risk ....................................... 304 6.4.Management of non-financial risks .................. 316 6.5.Fair value hierarchy of financial and non-financial assets and liabilities ................... 317 6.6.Offsetting financial assets and financial liabilities ... 328 7.Analysis by segment for NLB Group ................ 329 8.Related-party transactions ........................ 333 9.Events after the reporting date .................... 341 ![]() 173 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Independent auditor’s report ![]() 174 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report ![]() 175 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report ![]() 176 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report ![]() 177 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of management’s responsibility The Management Board hereby confirms its responsibility for preparing the consolidated financial statements of NLB Group and the financial statements of NLB for the year ending on 31 December 2021, and for the accompanying accounting policies and notes to the financial statements. The Management Board is responsible for the preparation and fair presentation of these financial statements in accordance with the International Financial Reporting Standards as adopted by the European Union, and with the requirements of the Slovenian Companies Act and the Banking Act so as to give a true and fair view of the financial position of NLB Group and NLB as at 31 December 2021, and their financial results and cash flows for the year then ended. The Management Board also confirms that the appropriate accounting policies were consistently applied, and that the accounting estimates were prepared according to the principles of prudence and good management. The Management Board further confirms that the financial statements of NLB Group and NLB, together with the accompanying notes, have been prepared on a going- concern basis for NLB Group and NLB, and in line with valid legislation and the International Financial Reporting Standards as adopted by the European Union. The Management Board is also responsible for appropriate accounting practices, the adoption of appropriate measures for safeguarding assets, and the prevention and identification of fraud and other irregularities or illegal acts. Management Board of NLB Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 178 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Income statement for the annual period ended 31 December in EUR thousands NLB GroupNLB Notes2021202020212020 Interest income calculated using the effective interest method 467,500 347,636170,002167,611 Other interest and similar income10,3297,5529,1837,493 Interest and similar income4.1.477,829355,188179,185175,104 Interest expense s calculated using the effective interest method(53,171)(41,208)(25,142)(21,883) Other interest and similar expenses(15,298)(14,407)(14,904)(14,334) Interest and similar expenses4.1.(68,469)(55,615)(40,046)(36,217) Net interest income409,360299,573139,139138,887 Dividend income4.2.22311179,6166,259 Fee and commission income4.3.332,589232,432155,217136,691 Fee and commission expenses4.3.(95,413)(62,152)(35,623)(32,234) Net fee and commission income 237,176 170,280 119,594 104,457 Gains less losses from financial assets and liabilities not measured at fair value through profit or loss4.4. 167 17,689 24 16,970 Gains less losses from financial assets and liabilities held for trading4.5. 21,194 9,794 4,596 4,741 Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss4.6.16,8386,59813,4926,815 Fair value adjustments in hedge accounting5.5.a) 167 720 167 720 Foreign exchange translation gains less losses4.7.345739700(1,108) Net gains or losses on derecognition of investments in subsidiaries, associates and joint ventures5.12.b)(9,298)(471)-- Gains less losses on derecognition of non-financial assets2,6811,3005312 Other net operating income4.8.23,2217,549 13,747 5,794 Administrative expenses4.9.(368,851)(262,226)(166,079)(162,613) Cash contributions to resolution funds and deposit guarantee schemes4.10.(35,140) (16,674) (9,535)(7,103) Depreciation and amortisation4.11.(46,528)(31,715)(17,522)(17,848) Gains less losses from modification of financial assets4.12.(263)(3,577)-- Provisions for credit losses4.13.8,504(482)8,028599 Provisions for other liabilities and charges4.13.(22,670)(8,077)(72)(7,645) Impairment of financial assets4.14.27,331(61,799)18,067(9,633) Impairment of non-financial assets4.14.(4,407) (996) 7,547(685) Negative goodwill5.12.c)-137,858-- Share of profit from investments in associates and joint ventures (accounted for using the equity method)5.12.d)1,108 874 -- Gains less losses from non-current assets held for sale4.15. 248 10,853 (94) 35,234 Profit before income tax261,406277,921211,468113,853 Income tax4.16.(13,538)(5,165)(3,047)99 Profit for the year247,868272,756208,421113,952 Attributable to owners of the parent236,404 269,707 208,421113,952 Attributable to non-controlling interests11,4643,049-- Earnings per share/diluted earnings per share (in EUR per share)4.17.11.813.510.45.7 The notes are an integral part of these financial statements. ![]() 179 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of comprehensiveincome forthe annualperiodended31 December The notes are an integral part of these financial statements. in EUR thousands NLB GroupNLB Notes2021202020212020 Net profit for the year after tax247,868272,756208,421113,952 Other comprehensive income after tax(30,168)(2,147)(15,281)3,817 Items that will not be reclassified to income statement Actuarial gains/(losses) on defined benefit pensions plans 5.16.c) (1,377) 878 (115)700 Fair value changes of equity instruments measured at fair value through other comprehensive income 5.4.c) 3,0723,809(383)202 Share of other comprehensive income/(losses) of entities accounted for using the equity method(30)(41)-- Income tax relating to components of other comprehensive income 5.18. (1)(534) 94 (171) Items that have been or may be reclassified subsequently to income statement Foreign currency translation611(703)-- Translation gains/(losses) taken to equity611(703)-- Debt instruments measured at fair value through other comprehensive income (37,394) 6,555(17,359)3,810 Valuation gains/(losses) taken to equity5.4.c)(40,081)7,733(17,187)7,522 Transferred to income statement4.4., 4.14.2,687(1,178)(172)(3,712) Share of other comprehensive income/(losses) of entities accounted for using the equity method-(11,026)-- Income tax relating to components of other comprehensive income 5.18. 4,951(1,085)2,482(724) Total comprehensive income for the year after tax217,700270,609193,140 117,769 Attributable to owners of the parent 207,854 266,907193,140 117,769 Attributable to non-controlling interests9,8463,702-- ![]() 180 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of financial position as at 31 December The notes are an integral part of these financial statements. in EUR thousands NLB GroupNLB Notes31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Cash, cash balances at central banks, and other demand deposits at banks5.1.5,005,0523,961,8123,250,4372,261,533 Financial assets held for trading5.2.a) 7,678 84,8557,68218,831 Non-trading financial assets mandatorily at fair value through profit or loss5.3.a)21,16142,39312,36035,106 Financial assets measured at fair value through other comprehensive income5.4.3,461,8603,514,2901,585,7511,716,351 Financial assets measured at amortised cost - debt securities5.6.a)1,717,6261,503,0871,436,4241,277,880 - loans and advances to banks5.6.b)140,683197,005199,287158,320 - loans and advances to customers5.6.c)10,587,1219,619,8605,145,1534,564,178 - other financial assets5.6.d)122,229113,13892,40454,503 Derivatives - hedge accounting5.5.b)568-568- Fair value changes of the hedged items in portfolio hedge of interest rate risk5.5.c)7,08213,8447,08213,844 Investments in subsidiaries5.12.a)--781,540 749,060 Investments in associates and joint ventures5.12.d)11,5257,9884,4831,662 Tangible assets Property and equipment5.8.247,014249,11786,12291,675 Investment property5.9. 47,624 54,8429,1818,300 Intangible assets5.10. 59,076 61,66829,45328,105 Current income tax assets 3,948 4,369 3,761 1,923 Deferred income tax assets5.17.38,97731,78931,90229,214 Other assets5.13.91,22197,14011,85311,664 Non-current assets held for sale5.7.7,0518,6584,0894,454 Total assets21,577,49619,565,85512,699,53211,026,603 Financial liabilities held for trading5.2.b)7,58515,4857,60215,500 Financial liabilities measured at fair value through profit or loss5.3.b)--352- Financial liabilities measured at amortised cost - deposits from banks and central banks5.15.a)71,82872,633109,32941,635 - borrowings from banks and central banks5.15.b)858,531158,225873,479143,464 - due to customers5.15.a)17,640,80916,397,1679,659,6058,850,755 - borrowings from other customers5.15.b) 74,051 91,56040613 - subordinated liabilities5.15.c)288,519288,321288,519288,321 - other financial liabilities5.15.d)206,878182,095102,527 88,969 Derivatives - hedge accounting5.5.b)35,37761,16135,37761,161 Provisions5.16.119,404125,05949,36363,790 Current income tax liabilities 5,878 1,002-- Deferred income tax liabilities5.17.3,0454,475-- Other liabilities5.19.49,46845,63221,03922,001 Total liabilities19,361,37317,442,81511,147,5989,575,609 Equity and reserves attributable to owners of the parent Share capital5.20.200,000200,000200,000200,000 Share premium5.21.a)871,378871,378871,378 871,378 Accumulated other comprehensive income5.21.b)(10,552)21,127 8,768 24,102 Profit reserves5.21.a)13,52213,52213,52213,522 Retained earnings1,004,385 846,762 458,266341,992 2,078,7331,952,7891,551,934 1,450,994 Non-controlling interests137,390170,251-- Total equity2,216,1232,123,0401,551,9341,450,994 Total liabilities and equity21,577,49619,565,85512,699,53211,026,603 ![]() 181 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The Management Board has authorised for issue the financial statements and the accompanying notes. Ljubljana, 11 April 2022 Archibald Kremser CFO Andreas Burkhardt CRO Blaž Brodnjak CEO & CMO ![]() 182 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of changes in equity for the annual period ended 31 December in EUR thousands Accumulated other comprehensive income NLB Group Share capital Share premium Fair value reserve of financial assets measured at FVOCI Foreign currency translation reserve Other Profit reserves Retained earnings Equity attributable to owners of the parent Equity attributable to non-controlling interests Total equity Notes5.20.5.21.a)5.21.b)5.21.b)5.21.b)5.21.a) Balance as at 1 January 2021200,000 871,378 42,496(17,724)(3,645)13,522 846,762 1,952,789170,2512,123,040 - Net profit for the year------236,404236,40411,464 247,868 - Other comprehensive income--(28,005)540(1,085)--(28,550)(1,618)(30,168) Total comprehensive income after tax--(28,005)540(1,085)-236,404 207,854 9,846217,700 Dividends paid------(92,200)(92,200)(7,710)(99,910) Transactions with non-controlling interests (note 3.) --149---10,16810,317(34,997)(24,680) Transfer of fair values reserve-- (3,274) -(4)-3,278--- Other------(27)(27)-(27) Balance as at 31 December 2021200,000 871,378 11,366(17,184)(4,734)13,5221,004,385 2,078,733 137,3902,216,123 in EUR thousands Accumulated other comprehensive income NLB Group Share capital Share premium Fair value reserve of financial assets measured at FVOCI Foreign currency translation reserve Other Profit reserves Retained earnings Equity attributable to owners of the parent Equity attributable to non-controlling interests Total equity Notes5.20.5.21.a)5.21.b)5.21.b)5.21.b)5.21.a) Balance as at 1 January 2020200,000871,37847,880(17,055)(4,332)13,522 574,489 1,685,88245,0151,730,897 - Net profit for the year------ 269,707 269,7073,049272,756 - Other comprehensive income--(2,833)(669)702--(2,800)653(2,147) Total comprehensive income after tax--(2,833)(669)702-269,707266,9073,702270,609 Acquisition of subsidiaries--------121,534121,534 Transfer of fair values reserve--(2,551)-(15)-2,566--- Balance as at 31 December 2020200,000 871,378 42,496(17,724)(3,645)13,522 846,762 1,952,789170,2512,123,040 ![]() 183 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The notes are an integral part of these financial statements. in EUR thousands Accumulated other comprehensive income NLB Share capital Share premium Fair value reserve of financial assets measured at FVOCI Other Profit reserves Retained earnings Total equity Notes5.20.5.21.a)5.21.b)5.21.b)5.21.a)5.20. Balance as at 1 January 2021200,000871,378 27,694 (3,592)13,522341,992 1,450,994 - Net profit for the year-----208,421208,421 - Other comprehensive income--(15,177)(104)--(15,281) Total comprehensive income after tax--(15,177)(104)-208,421193,140 Dividends paid-----(92,200)(92,200) Transfer of fair values reserve--(53)--53- Balance as at 31 December 2021200,000871,37812,464 (3,696) 13,522458,2661,551,934 in EUR thousands Accumulated other comprehensive income NLB Share capital Share premium Fair value reserve of financial assets measured at FVOCI Other Profit reserves Retained earnings Total equity Notes5.20.5.21.a)5.21.b)5.21.b)5.21.a)5.20. Balance as at 1 January 2020200,000871,37824,444(4,159)13,522228,0401,333,225 - Net profit for the year-----113,952113,952 - Other comprehensive income--3,250 567 --3,817 Total comprehensive income after tax--3,250 567 -113,952 117,769 Balance as at 31 December 2020200,000871,378 27,694 (3,592)13,522341,992 1,450,994 ![]() 184 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Statement of cash flows for the annual period ended 31 December in EUR thousands NLB GroupNLB Notes2021202020212020 CASH FLOWS FROM OPERATING ACTIVITIES Interest received541,219372,903214,866207,188 Interest paid (69,578) (52,921)(43,343)(31,881) Dividends received635 787 56,6066,261 Fee and commission receipts332,575232,607152,288 133,743 Fee and commission payments(92,102)(65,728)(33,927)(32,972) Realised gains from financial assets and financial liabilities not at fair value through profit or loss 17117,993 24 17,274 Net gains/(losses) from financial assets and liabilities held for trading21,56310,9195,4045,634 Payments to employees and suppliers(382,529)(260,259)(170,986)(164,558) Other receipts27,51613,64217,7238,627 Other payments(51,129)(20,629)(16,026)(9,490) Income tax (paid)/received(8,617)(6,645)(1,603)3,779 Cash flows from operating activities before changes in operating assets and liabilities319,724 242,669 181,026143,605 (Increases)/decreases in operating assets(964,998)(366,831)(469,788)(105,859) Net (increase)/decrease in trading assets68,9651,8382,4711,838 Net (increase)/decrease in non-trading financial assets mandatorily at fair value through profit or loss 36,500(12,667)35,792(12,564) Net (increase)/decrease in financial assets measured at fair value through other comprehensive income (57,015)(150,006)90,215(77,098) Net (increase)/decrease in loans and receivables measured at amortised cost (1,020,944) (207,260)(598,138)(18,357) Net (increase)/decrease in other assets7,4961,264(128)322 Increases/(decreases) in operating liabilities 2,108,374 1,338,7781,589,8611,043,991 Net increase/(decrease) in deposits and borrowings measured at amortised cost2,106,9851,338,5911,589,4151,044,255 Net increase/(decrease) in other liabilities1,389 187 446(264) Net cash flows from operating activities1,463,1001,214,6161,301,0991,081,737 CASH FLOWS FROM INVESTING ACTIVITIES Receipts from investing activities 495,174 478,251478,851402,729 Proceeds from sale of property, equipment, and investment property5,0775,341122,258 Proceeds from sale of subsidiaries, net of cash and cash equivalents5.12.b)(47,832)-15,310- Proceeds from non-current assets held for sale 966 39,07879139,078 Proceeds from disposals of debt securities measured at amortised cost536,963433,832462,738361,393 Payments from investing activities(832,512)108,232 (697,976) (602,939) Purchase of property, equipment, and investment property(23,013)(27,626)(9,093)(15,089) Purchase of intangible assets(12,704)(15,020)(6,889)(10,663) Purchase of subsidiaries, net of cash acquired and increase in subsidiaries’ equity3., 5.12.c)(24,437)452,770(40,046)(397,729) Increase in associates and joint ventures’ equity(2,900)(326)(2,900)(326) Purchase of debt securities measured at amortised cost (769,458) (301,566)(639,048)(179,132) Net cash flows from investing activities(337,338)586,483(219,125)(200,210) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from financing activities-119,222-119,222 Issuance of subordinated debt5.15.c)-119,222-119,222 Payments from financing activities(100,503)(45,000)(92,200)(45,000) Dividends paid(100,503)-(92,200)- Repayments of subordinated debt5.15.c)-(45,000)-(45,000) Net cash flows from financing activities(100,503) 74,222 (92,200) 74,222 Effects of exchange rate changes on cash and cash equivalents14,640 (2,176) 3,219(2,080) Net increase/(decrease) in cash and cash equivalents1,025,2591,875,321 989,774 955,749 Cash and cash equivalents at beginning of year4,136,4122,263,2672,261,7911,308,122 Cash and cash equivalents at end of year 5,176,311 4,136,4123,254,7842,261,791 The notes are an integral part of these financial statements. ![]() 185 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB GroupNLB Notes31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Cash and cash equivalents comprise: Cash, cash balances at central banks, and other demand deposits at banks5.1. 5,005,946 3,962,686 3,250,7842,261,791 Loans and advances to banks with original maturity up to three months142,319146,2234,000- Debt securities measured at fair value through other comprehensive income with original maturity up to three months28,04627,503-- Total 5,176,311 4,136,4123,254,7842,261,791 ![]() 186 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Notes to the financial statements 1. General information NovaLjubljanska banka d.d. Ljubljana (hereinafter: ‘NLB’ or ‘the Bank’) is a Slovenian joint-stock entity providing universal banking services. NLB Group consists of NLB and its subsidiaries located in nine countries, mainly in Slovenia and the SEE market. Information on NLB Group’s structure is disclosed in note 5.12. Information on other related party relationships of NLB Group is provided in note 8. NLB is incorporated and domiciled in Slovenia. The address of its registered office is Trg Republike 2, 1000 Ljubljana. NLB’s shares are listed on the Ljubljana Stock Exchange, and the global depositary receipts (‘GDR’), representing ordinary shares of NLB, are listed on the London Stock Exchange. Five GDRs represent one share of NLB. As at 31 December 2021 and as at 31 December 2020, the largest shareholder of NLB with significant influence is the Republic of Slovenia, owning 25.00% plus one share. All amounts in the financial statements and in the notes to the financial statements are expressed in thousands of euros unless otherwise stated. 2. Summary ofsignificant accountingpolicies The principal accounting policies adopted for the preparation of the separate and consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, except for changes in accounting policies resulting from the application of new standards or changes to standards. 2.1. Statement of compliance The principal accounting policies applied in the preparation of the separate and consolidated financial statements were prepared in accordance with the International Financial Accounting Standards (hereinafter: ‘the IFRS’) as adopted by the European Union (hereinafter: ‘EU’). Additional requirements underthe nationallegislation are included where appropriate. The separate and consolidated financial statements are comprised of the income statement and statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows, significant accounting policies, and the notes. 2.2.Basis for presenting the financial statements The financial statements have been prepared on a going- concern basis, under the historical cost convention as modified by the revaluation of financial assets measured at fair value through other comprehensive income, financial assets, and financial liabilities at fair value through profit or loss, including all derivative contracts, hedged items in fair value hedgeaccountingrelationships,non-current assets held for sale, and investment property. The preparation of financial statements in accordance with the IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and activities, actual results may ultimately differ from those estimates. Accountingestimates and underlying assumptions are reviewed on an ongoing basis. Revisions of accounting estimates are recognised in the period in which the estimate is revised. Critical accounting estimates and judgements in applying accounting policies are disclosed in note 2.33. This document contains both the separate financial statements of NLB, and the consolidated financial statements of NLB Group. The presented accounting policies apply to both sets of financial statements, with the exception of policies described in notes 2.4. and 2.5., which only apply to the consolidated financial statements and policies described in note 2.6., where differences in the accounting treatment for investments in subsidiaries, and associated and joint ventures between separate and consolidated financial statements are described. Data relating to separate financial statements is marked ‘NLB,’ while data relating to consolidated financial statements is marked ‘NLB Group.’ 2.3. Comparative amounts Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed with comparative amounts. Where IAS 8 applies, comparative figures have been adjusted to conform to the changes in presentation in the current year. Compared to the presentation of the financial statements for the year ended 31 December 2020, the classification of certain line items in the Statement of Financial Position changed due to changes prescribed by the Bank of Slovenia. Additionally, there was a change in the line item ‘Interest and similar expenses’ in the Income statement, where two lines were added with more detailed presentation of interest expenses. Comparative amounts have been adjusted to reflect these changes in the presentation. in EUR thousands 31 Dec 2020NLB GroupNLB Notes Old presentation Current presentation Change Old presentation Current presentation Change Statement of financial position: Other financial liabilites5.15.d) Accrued salaries19,068-(19,068)9,807-(9,807) Unused annual leave6,137-(6,137)2,497-(2,497) Other liabilities5.19. Accrued salaries-19,06819,068-9,8079,807 Unused annual leave-6,1376,137-2,4972,497 Income statement: Interest expenses calculated using the effective interest method -(41,208)(41,208)-(21,883)(21,883) Other interest and similar expenses -(14,407)(14,407)-(14,334)(14,334) Interest and similar expenses4.1.(55,615)(55,615)-(36,217)(36,217)- ![]() 187 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report ‘Accrued salaries’ and ‘Unused annual leave’ are included under the line item ‘Other liabilities’; before changing the classification, these line items were included under the line item ‘Other financial liabilities.’ ‘Interest expenses calculated using the effective interest method’ and ‘Other interest and similar expenses’ were not disclosed separately before the change, they were shown under the line item ‘Interest and similar expenses.’ 2.4. Consolidation In the consolidated financial statements (NLB Group), subsidiaries which are directly or indirectly controlled by NLB have been fully consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to NLB Group. NLB controls an entity when all three elements of control are met: •it has power over the entity; •it is exposed or has rights to variable returns from its involvement with the entity; and •it has the ability to use its power over the entity to affect the amount of the entity’s returns. NLB reassesses whether it controls an entity if facts and circumstances indicate there are changes to one or more of the three elements of control. If the loss of control of a subsidiary occurs, the subsidiary is no longer consolidated from the date that the control ceases. Where necessary, the accounting policies of subsidiaries have been amended to ensure consistency with the policies adopted by NLB. The financial statements of consolidated subsidiaries are prepared as at the parent entity’s reporting date. Non-controlling interests are disclosed in the consolidated statement of changes in equity. Non-controlling interest is that part of the net results, and of the equity of a subsidiary, attributable to interests which NLB does not own, either directly or indirectly. NLB Group measures non-controlling interest ona transaction-by-transaction basis, either at fair value, or by the non-controlling interest’s proportionate share of net assets of the acquiree. Inter-company transactions, balances, and unrealised gains on transactions between NLB Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. NLBGroup treats transactions withnon-controlling interests as transactions with equity owners of NLB Group. For purchases of subsidiaries from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from the equity. For sales to non- controlling interests, the differences between any proceeds received and the relevant share of non-controlling interests are also recorded in the equity. All effects are presented in the line item ‘Equity Attributable to Non-controlling Interest.’ 2.5.Business combinations, goodwill, and bargain purchases NLB Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The acquired process is considered substantive if it is critical to the ability to continueproducing outputs; and theinputs acquiredinclude an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to theability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs. The consideration transferred is measured at the fair value of the assets transferred, equity interest issued, liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements and fair value ofany pre-existing equity interest in subsidiary. However, this excludes amounts related to the settlement of pre-existing relationships which are recognised in profit or loss. Acquisition-related costs such as advisory, legal, valuation, and similar professional services are recognised in profit or loss as well. Transaction costs incurred for issuing equity instruments are deducted from the equity, and all other transaction costs associated with the acquisition are expensed. Identifiable assets acquired and liabilities assumed in a business combination are, with limited exceptions, measured initially at their fairvalues at the acquisitiondate. A contingent consideration classified as equity is not re- measured and its subsequent settlement is accounted for within equity. A contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value at each reporting date and changes in fair value are recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent considerations that are not within the scope of IFRS 9 are measured at fair value at each reporting date and changes in fair value are recognised in profit or loss. For each business combination, NLB Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets at the date of acquisition. All other components of non-controlling interests are measured at their acquisition-date fair values, unless another measurement basis is required by IFRSs. Goodwill is measured as the excess of the aggregate of the consideration transferred measured at fair value, the amount of any non-controlling interest in the acquiree, and the fair value of an interest in the acquiree held immediately before the acquisition date over the net amounts of the identifiable assets acquired, as well as the liabilities assumed. Any negative amount, a gain on a bargain purchase (or ‘negative goodwill’), is recognised in profit or loss after management reassesses whether it has identified all the assets acquired and all the liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill arising from a business combination is, from the acquisition date, allocated to the Group’s cash-generating units (CGUs) or groups of CGUs that are expected to benefit from the synergies of the combination. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash- generating unit retained. The goodwill of associates and joint ventures is included in the carrying value of investments. ![]() 188 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report In a business combination achieved in stages, NLB Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognises the resulting gain or loss, if any, in profit or loss. 2.6. Investments in subsidiaries, associates and joint ventures In the separate financial statements (NLB), investments in subsidiaries, associates and joint ventures are accounted for with the cost method. Dividends from subsidiaries, joint ventures, or associates are recognised in the income statement when NLB’s right to receive the dividend has been established. In the consolidated financial statements, investments in associates, are accounted for using the equity method of accounting. These are generally undertakings in which NLB Group holds between 20% and 50% of the voting rights, and over which NLB Group exercises significant influence, but does not have control. Joint ventures are entities over whose activities NLB Group has joint control, established by contractual agreement. In the consolidated financial statements, investments in joint ventures are accounted for using the equity method of accounting. NLB Group’s share of its associates’ and joint ventures’ post- acquisition profits or losses is recognised in the consolidated income statement, and its share of other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When NLB Group’s share of losses in an associate and joint venture equals or exceeds its interest in the associate and joint venture, including any other unsecured receivables, NLB Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate and joint venture. NLB Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised (note 5.12.d). NLB Group’s subsidiaries, associates and joint ventures are presented in note 5.12. 2.7.A combination of entities or businesses under common control A merger of entities within NLB Group is a business combination involvingentities under commoncontrol. For such mergers, members of NLB Group apply merger accounting principles, and use the carrying amounts of merged entities as reported in the consolidated financial statements. No goodwill is recognised on mergers of NLB Groupentities. Mergers of entities within NLB Group do not affect the consolidated financial statements. 2.8. Foreign currency translation Functional and presentation currency Items included in the financial statements of each of NLB Group’s entities are measured using the currency of the primary economic environment in which the entity operates (i.e., the functional currency). The financial statements are presented in euros, which is NLB Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences resulting from changes in the amortised cost of monetary items denominated in foreign currency and classified as financial assets measured at fair value through other comprehensive income, are recognised in the income statement. Translation differences on non-monetary items, such as equity instruments at fair value through profit or loss, are reported as part of the fair value gain or loss in the income statement. Translation differences on non-monetary items, such as equity instruments classified as financial assets, measured at fair value through other comprehensive income, are included together with valuation reserves in the valuation (losses)/gains taken to other comprehensive income and accumulated in the equity. Gains and losses resulting from foreign currency purchases and sales for trading purposes are included in the income statement as gains less losses from financial assets and liabilities held for trading. NLB Group entities The financial statements of all NLB Group entities that have a functional currency different from the presentation currency aretranslated into the presentationcurrency as follows: • assets and liabilities for each statement of financial position presented are translated at the closing rate on the reporting date; •income and expenses for each income statement are translated at average exchange rates; and •components of equity are translated at the historical rate. Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. In the consolidated financial statements, exchange differences arising from the translation of the net investment in foreign operations are recognised in other comprehensive income. When control over a foreign operation is lost, the previously recognised exchange differences on translations to a different presentation currency are reclassified from other comprehensive income to profit and loss for the year. On the partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified as a non-controlling interest within the equity. 2.9.Interest income and expenses Interest income and expenses for all financial instruments measured at amortised cost, and financial assets measured at fair value through other comprehensive income are recognised in the income statement for all interest-bearing instruments on an accrual basis using the effective interest method. Interest income on all trading assets and financial assets mandatorily required to be measured at fair value through profit or loss is recognised using the contractual interest rate. The effective interest method is used to calculate the amortised cost of a financial asset or financial liability, and to allocate the interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, or a shorter period (when appropriate) to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. Interest income includes coupons earned on fixed-yield investments and trading securities, and accrued discounts and premiums on securities. The calculation of the effective interest rate includes all fees and points paid or received by parties to the contract and all transaction costs, but excludes future credit risk losses. Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets other than credit-impaired assets. ![]() 189 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report When a financial asset becomes credit-impaired and is, therefore, classified in Stage 3, interest income is calculated by applying the effective interest rate to the net amortised cost of the financial asset. If the financial asset cures and is no longer credit- impaired, interest income is again calculated on a gross basis. In the case of purchased or originated credit-impaired financial assets (POCI), the credit-adjusted effective interest rate is applied to the amortised cost of the financial asset from initial recognition. The credit-adjusted effective interest rate is the interest rate that, at initial recognition, discounts the estimated future cash flows (including credit losses) to the amortised cost of the purchased or originated credit-impaired financial asset. At NLB Group level, most POCI exposures relate to initial recognition of non-performing exposures in case of business combination. 2.10.Fee and commission income Fees and commissions mainly include fees received from credit cards and ATMs, customer transaction accounts, payment services, investment funds, and commissions from guarantees. Fee and commission income are recognised at an amount that reflects the consideration to which the Group expects to be entitled in exchange for providing the services. The performance obligations, as well as the timing of their satisfaction, areidentified, and determined,at the inception of the contract. The Group’s revenue contracts do not include multiple performance obligations. When the Group provides a service to its customers, consideration is invoiced and generally due immediately upon satisfaction of a service provided at a point in time. When the service is provided over time, the consideration is invoiced and due in line with contractual provisions. The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the services before transferring them to the customer. Fees and commissions that are integral to the effective interest rate of financial assets and liabilities are presented within interest income or expenses. 2.11.Dividend income Dividends are recognised in the income statement within the line item ‘Dividend income’ when NLB Group’s right to receive payment has been established and an inflow of economic benefits is probable. In the consolidated financial statements, dividends received from associates and joint ventures reduce the carrying value of the investment. 2.12.Financial instruments a)Classification and measurement Financial instruments are initially measured at fair value plus or minus, in the case of a financial instrument not measured at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Subsequent measurement depends on the classification of theinstrument. Financial assets All debt financial assets need to be assessed based on a combination of the Group’s business model for managing the assets and the instruments’ contractual cash flow characteristics. Measurement categories of financial assets are as follows: • Financial assets, measured at amortised costs (AC); •Financial assets at fair value through other comprehensive income(FVOCI); •Financial assets held for trading (FVTPL); and •Non-trading financial assets, mandatorily at fair value through profit or loss (FVTPL). Financial assets are measured at AC if they are held within a business model for the purpose of collecting contractual cash flows (‘held to collect’), and if cash flows are solely payments of principal and interest on the principal amount outstanding. After initial recognition, they are measured at the amortised cost using the effective interest method and are subject to impairment. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment are recognised in profit or loss. Each of them is presented as a separate line item in the income statement. Any gain or loss on derecognition is recognised in profit or loss in line item ‘Gains less losses from financial assets and liabilities not classified at fair value through profit or loss.’ Debt financial instruments are measured at FVOCI if they are held within a business model for the purpose of both collecting contractual cash flows and selling (‘held to collect and sell’), and if cash flows are solely payments of principal and interest on the principal amount outstanding. FVOCI results in the debt instruments being recognised at fair value in the statement of financial position and at the AC in the income statement. Interest income is calculated using the effective interest method, foreign exchange gains and losses, and impairments are recognised separately in the income statement. Other net gains and losses are recognised in other comprehensive income, until the instrument is derecognised. At derecognition of the debt financial instrument, the cumulative gains and losses previously recognised in other comprehensive income are reclassified to the income statement under the line item ‘Gains less losses from financial assets and liabilities not classified at fair value through profit or loss.’ Equity instruments that are not held for trading may be irrevocably designated as FVOCI, with no subsequent reclassification of gains or losses to the income statement. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment, in which case, such gains are recorded in other comprehensive income. Other net gains and losses are recognised in other comprehensive income and are never reclassified to profit or loss. In NLB Group, the most material equity instrument irrevocably designated as FVOCI is investment in National Resolution Fund (note 5.4.a). NLB Group decided to use this presentation alternative because the fund was established based on the law and it has a highly regulated investment strategy in order to ensure safety, low risk, and the high liquidity of the fund. All other financial assets are mandatorily measured at FVTPL, including financial assets within other business models such as financial assets managed at fair value or held for trading and financial assets with contractual cash flows that are not solely payments of principal and interest on the principal amount outstanding. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. IFRS 9 includes an option to designate financial assets at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on them on different bases. Financialliabilities Financial liabilities are subsequently measured at the amortised cost or at fair value through profit or loss, when they are held for trading, derivative instruments, or the fair value designation is applied. Upon initial recognition, financial liability may be irrevocably designated as measured at fair value through profit or loss if that eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or ![]() 190 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report losses on them on different bases, or if the liabilities are part of a group of financial instruments which are managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy. Changes in the fair value of financial liabilities designated as measured at fair value through profit or loss are recognised in profit or loss, with the exception of movement in the fair value due to changes of NLB Group’s own credit risk. Such changes are presented in other comprehensive income with no subsequent reclassification to theincome statement. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expenses and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition of financial liability is recognised in profit or loss. In the event of derecognition of a financial liability measured at amortised cost, the gains and losses are recognised in the line item ‘Gains less losses from financial assets and liabilities not classified at fair value through profit or loss.’ Gains and losses on disposals of financial liabilities designated as measured at fair value through profit or loss are also presented separately from those held for trading. Assessment of NLB Group’s business model NLB Group has determined its business model separately for each reporting unit within NLB Group, and is based on observable factors for different portfolios that best reflect how the Group manages groups of financial assets to achieve its business objective, such as: •how the performance of the business model and the financial assets held within that business model are evaluated and reported to key management personnel; •the risks that affect the performance of the business model and, in particular, the way those risks are managed; •how the managers of the business are compensated (e.g., whether the compensation is based on the fair value of the assets or on collection of contractual cash flows); and •the expected frequency, value, and timing of sales. The business model assessment is based on reasonably expected scenarios without taking worst-case and stress case scenarios into consideration. In general, the business model assessment of the Group can be summarised as follows: •Loans and deposits given are included in a business model ‘held to collect’ since the primary objective of NLB Group for the loan portfolio is to collect the contractual cash flows; •Debt securities are divided into three business models: •the first group of debt securities presents ‘held for trading’ category; •debt securities in the second group are held under a business model ‘held to collect and sale’ with the intention of collecting the contractual cash flows and sale of financial assets, and forms part of the Group’s liquidity reserves; •the third part of debt securities is held within the business model for holding them with objective to collect contractual cash flows. With regard to debt securities within the ‘held to collect’ business model, the sales which are related to the increase of the issuers’ credit risk, concentrations risk, sales made close to the final maturity, or sales in order to meet liquidity needs in a stress case scenario are permitted. Other sales, which are not due to an increase in credit risk may still be consistent with a held to collect business model if such sales are incidental to the overall business model, and: •are insignificant in value both individually and in aggregate, even when such sales are frequent; •are infrequent even when they are significant in value. A review of instruments’ contractual cash flow characteristics (the SPPI test – solely payment of principal and interest on the principal amount outstanding) The second step in the classification of the financial assets in portfoliosbeing ‘held to collect’ and ‘held to collect and sell’ relates to the assessment of whether the contractual cash flows are consistent with the SPPI test. The principal amount reflects the fair value at initial recognition less any subsequent changes, e.g., due to repayment. The interest must represent only the consideration for the time value of money, credit risk, other basic lending risks, and a profit margin consistent with basic lending features. If the cash flows introduce more than de minimis exposure to risk or volatility that is not consistent with basic lending features, the financial asset is mandatorily measured at fair value through profit or loss. NLB Group reviews the portfolio within ‘held to collect’ and ‘held to collect and sale’ for standardised products on a level of a product and for non-standardised products on a single exposure level. The Group has established a procedure for SPPI identification as part of regular investment process with defined responsibilities for primary and secondary controls. Special emphasis is put on new and non-standardised characteristics of loan agreements. Accounting policy for modified financial assets When contractual cash flows of a financial asset are modified, NLB Group assesses if the terms and conditions have been modified to the extent that, substantially, it becomes a new financial asset. The following factors are, amongst others, considered when making such assessment: •reason for modification of cash flows (commercial or client’s financial difficulties); •change in currency of the loan; • introduction ofan equity feature; •replacement of initially agreed debtor with a new debtor that is not related party to initial debtor; and •if the modification changes the result of the SPPI test. If the modification results in derecognition of a financial asset, the new financial asset is initially recognised at fair value, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. In such cases, NLB Group recalculates the gross carrying amount of the financial asset and recognises modification gain or loss in the income statement. The gross carrying amount is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets). b) Reclassification Financial assets can be reclassified when and only when NLB Group’s business model for managing those assets changes. The reclassification takes place from the start of the reporting period following the change. Such changes are expected to be very infrequent, and none occurred during the presented periods. Financial liabilities shall not be reclassified. c) Day one gains or losses The best evidence of fair value at initial recognition is the transaction price (i.e., the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by a comparison with other observable current market transactions in the same instrument (i.e., without modification or repackaging), or based on a valuation technique whose variables only include data from observable markets. If the transaction price on a non-active market is different than the fair value from other observable current market transactions in the same instrument or is based on a valuation ![]() 191 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report technique whose variables onlyinclude data fromobservable markets, the difference between the transaction price and fair value is recognised immediately in the income statement (‘day one gains or losses’). In cases where the data used for valuation are not fully observable in financial markets, day one gains or losses are not recognised immediately in the income statement. The timing of recognition of deferred day one gains or losses is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised throughsettlement. d) Derecognition A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset is transferred, and the transfer qualifies for derecognition. A financial liability is derecognised only when it is extinguished, i.e., when the obligation specified in the contract is discharged, cancelled, or expires. e)Write-offs NLB Group writes off financial assets in their entirety or a portion thereof when it has exhausted all practical recovery efforts and has no reasonable expectations of recovery. Criteria indicating that there is no reasonable expectation of recovery include default period, quality of collateral, and different stages of enforcement procedures. NLB Group may write off financial assets that are still subject to enforcement activities, but this does not affect its rights in the enforcement procedures. NLB Group still seeks to recover all amounts it is legally entitled to in full. A write-off reduces the gross carrying amount of a financial asset and allowance for the impairment. Any subsequent recoveries are credited to credit loss expenses. Write-offs and recoveries are disclosed in note 5.14.a). f) Fair value measurement principles The fair value of financial instruments traded on active markets is based on the price that would be received to sell the assets or transfer liability (exit price) being measured at the reporting date, excluding transaction costs. If there is no active market, the fair value of the instruments is estimated using discounted cash flow techniques or pricing models. If discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates; and the discount rate is a market-based rate at the reporting date for an instrument with similar terms and conditions. If pricing models are used, inputs are based on market-based measurements atthe reporting date. g)Derivativefinancial instruments and hedge accounting Derivative financial instruments – including forward and futures contracts, swaps, and options – are initially recognised in the statement of financial position at fair value. Derivative financial instruments aresubsequentlyre- measured at their fair value. Fair values are obtained from quoted market prices, discounted cash flow models, or pricing models, as appropriate. All derivatives are carried at their fair value within assets when the derivative position is favourable to NLB Group, and within liabilities when the derivative position is unfavourable to NLB Group. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. NLB Group designates certain derivatives as either: •hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); •hedges of highly probable future cash flows attributable to a recognised asset or liability, or a highly probable forecasted transaction (cash flow hedge); or •hedges of a net investment in a foreign operation (net investment hedge). Hedge accounting is used when certain criteria are met. NLB Group and NLB have exercised the option to continue applying the existing IAS 39 hedge accounting requirements in accordance with the policy choice permitted under IFRS 9. However, disclosures that are required by the IFRS 9 related amendments to IFRS 7 ‘Financial Instruments: Disclosures’ are implemented. At the inception of the transaction, NLB Group documents the relationship between hedged items and hedging instruments, as well as its risk management objective, valuation methodology, and strategy for undertaking various hedge transactions. NLB Group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The actual results of a hedge must always fall within a range of 80–125%. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Effective changes in the fair value of hedging instruments and related hedged items are reflected in ‘Fair Value Adjustments in Hedge Accounting’ in the income statement. Any ineffectiveness from derivatives is recorded in ‘Gains Less Losses on Financial Assets and Liabilities Held for Trading.’ If a hedge no longer meets the hedge accounting criteria, the adjustment to the carrying amount of the hedged item for which the effective interest method is used is amortised to profit or loss over the remaining period to maturity. The adjustment to the carrying amount of a hedged equity security is included in the income statement upon disposal of the equity security. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is immediately recognised in the income statement. Amounts accumulated in equity are recycled as a reclassification from other comprehensive income to the income statement in the periods when the hedged item affects the profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets hedge accounting criteria, any cumulative gain or loss existing in other comprehensive income and previously accumulated in equity at that time remains in other comprehensive income and in equity, and is recognised in profit or loss only when the forecasted transaction is ultimately recognised in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement. Hedge of a net investment in a foreign operation Hedges of net investments in foreign operations are accounted for in consolidated financial statements similar to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement in ‘Gains Less Losses on Financial Assets and Liabilities Held for Trading.’ Gains and losses accumulated in ![]() 192 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report other comprehensive income are included in the consolidated income statement when the foreign operation is disposed of as part of the gain or loss on the disposal. 2.13.Allowances for financial assets a)Expected credit losses for collective allowances IFRS 9 applies an expected loss model that provides an unbiased and probability-weighted estimate of credit losses by evaluating a range of possible outcomes that incorporates forecasts of future economic conditions. The expected loss model requires NLB Group to recognise not only credit losses that have already occurred, but also losses that are expected to occur in the future. An allowance for expected credit losses (ECL) is required for all loans and other debt financial assets not measured at FVTPL, together with loan commitments and financial guarantee contracts. In the general model, the allowance is based on the expected credit losses associated with the probability of default in the next 12 months unless there has been a significant increase in credit risk since initial recognition, in which case, the allowance is based on the probability of default over the life of the financial asset (LECL). When determining whether the risk of default increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical data, experience, expert credit assessment, and incorporation of forward-looking information. In 2021, the NLB Group made improvements to the SICR (significant increase of credit risk) identification concept by including additional qualitative indicators as well as by development of numeric LPD (lifetime probability of default) concept for part of the portfolio where this was feasible Classification into stages NLB Group prepared a methodology for ECL defining the criteria for classification into stages, transition criteria between stages, models for risk indicators calculation, forward-looking scenarios, and the validation of models. The Group classifies financial instruments into Stage 1, Stage 2, and Stage 3, based on the applied ECL allowance methodology as described below: •Stage 1 – performing portfolio: no significant increase of credit risk since initial recognition, NLB Group recognises an allowance based on 12-month period; •Stage 2 – underperforming portfolio: significant increase in credit risk (SICR) since initial recognition, NLB Group recognises an allowance for lifetime period; and •Stage 3 – impaired portfolio: NLB Group recognises lifetime allowances for these defaulted financial assets. The Bank has aligned its definition of credit impaired assets under IFRS 9 to the new European Banking Authority (EBA) definition of non-performing loans (NPLs) as at 31 December 2020. The Bank uses a unified definition of past due and default exposures; defaulted clients are rated D, DF, or E based on the internal rating system and contains the clients with material delays over 90 days, as well as the clients that were assessed as unlikely to pay. All facilities of retail clients obtain a unified credit rating. A significant increase in credit risk is assumed: •when a credit rating significantly deteriorates at the reporting date in comparison to the credit rating at initial recognition (which is accompanied with the increase of Probability of default (PD)indicator), •when threefold increase of LPD since initial recognition is detected, •when a financial asset has material delays over 30 days (days past due are also included in the credit rating assessment), •if NLB Group grants the forbearance to the borrower, •if the facility is placed on the watch list or intensive care list, •if a retail client obtained COVID-19 moratoria and is placed on the watch list. As COVID-19 moratoria granted to the bank clients in the past years have mostly expired, these exposures no longer need specific treatment, and so SICR identification is carried out in the same manner as for any other exposures. The methodology of credit rating for banks and sovereign classification depends on the existence or non-existence of a rating from international credit rating agencies Fitch, Moody’s, or S&P. Ratings are set on a basis of the average international credit rating. If there are no international credit ratings, the classification is based on the internal methodology of NLB Group. The classification into stages is based on the facility level, nevertheless occurring delays on one facility may trigger the Stage deterioration of other facilities of the same client. When the SICR criteria no longer exist, the facility may be transferred to a more favourable stage subject to the prescribed cure periodof threemonths. The ECL for Stage 1 financial assets is calculated based on 12-month PDs or shorter period PDs, if the remaining maturity of the financial asset is shorter than 1 year. The 12-month PD already includes the macroeconomic impact effect. Allowances in Stage 1 are designed to reflect expected credit losses that had been incurred in the performing portfolio but have not been identified. The ECL for Stage 2 financial assets is calculated based on lifetime PDs (LPD) because their credit risk has increased significantly since their initial recognition. This calculation is also based on a forward-looking assessment that considers a number of economic scenarios in order to recognise the probability of losses associated with the predicted macro- economic forecasts. For financial instruments in Stage 3, the same treatment is applied as for those considered to be credit impaired. Exposures below the materiality threshold obtain collective allowances using a PD of 100%. Financial instruments will be transferred out of Stage 3 if they no longer meet the criteria of being credit-impaired after a probation period. Special treatment applies for purchased or originated credit-impaired financial instruments (POCI), where only the cumulative changes in lifetime expected losses since the initial recognition are recognised as a loss allowance. The calculation of collective allowances is performed by multiplying the EAD (exposure at default) at the end of each month with an appropriate PD and LGD (loss-given default). The obtained result for each month is discounted to the present time using the original effective interest rate of the facility. For Stage 1 exposures, the ECL only takes a 12-month period into account, while for Stage 2 or 3 all potential losses until the maturity date are included. Risk parameters are calculated separately for each of the three possible scenarios. The final ECL for each facility is calculated as a weighted average ECL for each scenario. The EADrepresents theanticipated outstandingamount owed by the obligor, which is determined as the sum of on-balance exposure and expected future drawings of the off-balance exposure. The drawings are assessed by applying the CCF (credit conversion factor) based on the Bank’s historic experience with similar types of facilities. ![]() 193 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The PD is the estimation of likelihood of default over a given time horizon. The estimation is performed separately for each uniquesegment (corporate clientsby size, institutions, central government) or by product group (mortgage, consumer loans and other retail products). Through the cycle, the PD is supplemented with the forward-looking aspect using three possible scenarios. The LGD parameter reflects the expected loss the facility will incur in case of the event of default. The LGD value is assessed based on the Bank’s historic data on repayments from different types of collateral (hair-cuts are calculated for homogenic groups of collateral), as well as other types of repayments such as regular/partial repayments, repayments from legal proceedings, the sale of receivables, and others. Through the cycle, the LGD is supplemented with the forward- looking aspect to reflect the expected changes in the macroeconomic parameters using three possible scenarios. Risk parameter calculations are based on the data from each subsidiary,while the calculations and modelling are performed centrally. In the case where the data samples are not sufficiently large, hurdle rates are applied based on the regulatory or other benchmarks. Expected Life When measuring ECL, the Bank must consider the maximum contractual period over which the Bank is exposed to credit risk. For certain revolving credit facilities that do not have a fixed maturity, the expected life is estimated based on the period over which the Bank is exposed to credit risk and where the credit losses would not be mitigated by management actions. Forward-looking information In 2021, the Group reviewed IFRS 9 provisioning by testing a set of relevant macroeconomic scenarios to adequately reflect the current circumstances and the related impacts in the future. NLB Group established and developed multiple scenarios (i.e., baseline, mild, and severe) on the level of ECL calculation. The baseline scenario presents our forecast macroeconomic view for all countries present in the NLB Group. This scenario is constructed to culminate various outlooks into a unified projection of macroeconomic and financial variables for the NLB Group. This approach is in line with the concept that the NLB Group has a consolidated view of the future of economic development in Southeast Europe (SEE). The IFRS 9 baseline scenario relies on the NLB monthly Economic Outlook created in April 2021. The macroeconomic rationale behind the alternative scenarios is related to a range of plausible effects of the COVID-19 pandemic on economic development during the next three years (the so-called ‘post-COVID-19 period’). The basis for the alternative scenarios is related to the ECB’s view of economic development after the coronavirus outbreak in early 2020. Based on the ECB illustration of a mild and severe scenario resolution of the pandemic crisis through the lens of the possible expected impact on economic activity in the euro area, the Group developed both alternative scenarios. In general, the mild scenario envisions a resolution of the health crisis by the end of 2021 and a long- term reviving process of the economy, while a severe scenario assumes a more protracted crisis and permanent losses in economic potential.These scenarios are included in the calculation of expected credit losses under IFRS 9. Apart from this important innovation, we had to keep track of the latest economic developments and changing official projections. This latest set of IFRS 9 scenarios for macroeconomic variables is applied in the modelling process for the probability of default (PD) and loss given default (LGD) estimates. Nevertheless, our focus in macroeconomic scenarios is on the trajectory of real GDP and the unemployment rate over the projection horizon from 2021 to 2023. Both variables are included in the modelling process of PD and LGD,respectively. Macroeconomic scenarios for explanatory variables, developed for each country in the NLB Group (in %): Mild scenarioBaseline scenarioSevere scenario Slovenia202120222023202120222023202120222023 Real GDP7.24.43.74.543.52.32.14.2 Unemployment rate 4.8 4.43.9 5 54.5 5.25.7 5.2 Mild scenarioBaseline scenarioSevere scenario Bosnia and Herzegovina202120222023202120222023202120222023 Real GDP4.83.83.133.531.51.93.6 Unemployment rate16.714.713.917.516.51618.318.918.3 Mild scenarioBaseline scenarioSevere scenario Montenegro202120222023202120222023202120222023 Real GDP10.45.53.76.553.53.32.74.2 Unemployment rate15.714.213.516.51615.517.318.417.7 Mild scenarioBaseline scenarioSevere scenario North Macedonia202120222023202120222023202120222023 Real GDP6.44.43.7443.522.14.2 Unemployment rate16.214.713.91716.51617.818.918.3 Mild scenarioBaseline scenarioSevere scenario Serbia202120222023202120222023202120222023 Real GDP84.94.254.542.52.44.8 Unemployment rate9.187.49.598.59.910.39.7 Mild scenarioBaseline scenarioSevere scenario Kosovo202120222023202120222023202120222023 Real GDP7.24.94.24.54.542.32.44.8 Unemployment rate24.322.221.325.52524.526.728.728 ![]() 194 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group formed three probable scenarios with an associated probability of occurrence for forward-looking assessment of risk provisioning in the context of IFRS 9. The scenarios are weighted 20-60-20, where both alternative ones (i.e., mild and severe) receive a weight of 20%. The assigned weight for the baseline scenario is 60%. Recalculation is performed annually of all risk parameters. IFRS 9 macroeconomic scenarios incorporate the forward- looking and probability-weighted aspects of ECL impairment calculation. Both features may change when material changes in the future development of the economy are recognised and not embedded in previous forecasts. Then all the parameters are recalculated according to new weight and projections. The favourable macroeconomic environment has the most significant impact on expected credit losses in 2021. This change in macroeconomic scenarios affects forward-looking values of risk parameters during the post-COVID-19 period. Risk parameter overlaysand mark-ups NLB Group implemented overlays and mark-ups on forward- looking PD and LGD, respectively. PD overlay measures are implemented to address prediction errors from the back- testing exercise in particular segments and rating categories. In addition, mark-ups on the LGD risk parameter are applied by NLB Group members due to the particularities of the local market. Effects of changedrisk parameters Effects of changed risk parameters on the amount of expected credit losses are disclosed in notes 5.14. and 5.16.b). b)Individual assessment of allowances for impaired financial assets NLB Group assesses impairments of financial assets separately for all individually significant assets classified in Stage 3. The materiality threshold is set at EUR 0.5 million exposure for legal entities and EUR 0.1 million for private persons on the level of NLB, while the Group members apply lower thresholds applicable to their portfolio size. All other financial assets obtain collective allowances. The amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, which are discounted to the estimation date. The scenario of expected cash flows can be based on the ‘going concern’ assumption, where the cash flow from operations is considered along with the sale of collateral that is not crucial for future business. In the case of the ‘gone concern’ principle, the repayments are based on expected cash flows from the sale of collateral. The expected payment from the collateral is calculated from the appraised market value of the collateral, the haircut used as defined in the Haircut Methodology, and discounted. Off-balance sheet liabilities are also assessed individually and, where necessary, related allowances arerecognised as liabilities. The carrying amount of financial assets measured at amortised cost is reduced through an allowance account and the loss is recognised in the income statement line item ‘Impairment of financial assets.’If the amount of allowances for ECL decreases subsequently due to an event occurring after the impairment was recognised (e.g., repayment in the collection process exceeds the assessed expected payment from collateral), the reversal of the loss is recognised as a reduction in the allowance account, and the gain is recognised in the same income statement item. For off-balance exposures, the amount of ECL is recognised in the statement of financial position in the line item ‘Provisions’ and in the income statement in the line item ‘Provisions for credit losses.’ The ECLs for debt instruments measured at fair value through other comprehensive income do not reduce the carrying amount of these financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in other comprehensive income as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in other comprehensive income is recycled to the profit or loss upon derecognition of the assets, or when the amount of allowances for ECL decreases due to an event occurring after the impairment was recognised. 2.14. Forborne loans A forborne loan (or restructured financial asset) arises as a result of a debtor’s inability to repay a debt under the originally agreed terms, either by modifying the terms of the original contract (via an annex) or by signing a new contract under which the contracting parties agree the partial or total repayment of the original debt. Loans with deferral of payment approved in line with the national legislation on intervention measures in response to SARS-CoV-2 (COVID-19) pandemic until 30 September 2020 are not forborne loans. Loans with deferrals of payment under COVID-19 measures approved after 30 September 2020 are subject of assignment of forbearance status, except in cases, where detailed review and analysis sufficiently justify that the client is not in financial difficulties. If to receivables due from the client the status of restructuring is introduced, the debtor must be classified in the rating group C or lower. The definitions of forborne loans closely follow definitions that were developed by the European Banking Authority (EBA). These definitions aim to achieve comprehensive coverage of exposures to which forbearance measures have been extended. The accounting treatment of forborne loans depends on the type of restructuring. When NLB Group embarks on a forborne loan via the modified terms of repayment proceeding from extending the deadline for the repayment of the principal and/or interest, and/or a forbearance of the repayment of the principal, and/or interest or a reduction in the interest rate, and/or other expenses, it adjusts the carrying amount of the forborne loan on the basis of the discounted value of the estimated future cash flows under the modified terms, and recognises the resulting effect in profit or loss. In the event of the reduction of a claim against the debtor via the reduction in the amount of the claims as a result of a contractually agreed debt waiver and ownership restructuring or debt to equity swap, NLB Group derecognises the claim in the part relating to the write-down or the contractually agreed upon debt waiver. The new estimate of the future cash flows for the residual claim, not yet written down, is based on an updated estimate of the probability of loss. NLB Group considers the debtor’s modified position, the economic expectations, and the collateral of the forborne loan. When NLB Group is embarking on the forborne loan by taking possession of other assets (i.e., property, plant and equipment, securities, and other financial assets), including investments in the equity of debtors obtained via debt- to-equity swaps, it recognises the acquired assets in the statement of financial position at fair value, recognising the difference between the fair value of the asset and the carrying amount of the eliminated claim in profit or loss. Forborne exposures may be identified in both the performing and non-performing parts of the portfolio. Where the forborne loan is classified in the non-performing part of the portfolio, it can be reclassified to the performing part if exposure is no longer considered as impaired or defaulted, if determined amounts were repaid, if one year has passed from the latest of the events defined (introduction of forbearance, ![]() 195 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report classification in the non-performing part, repayment of the last overdue amount, end of the grace period) and after the introduction of forbearance there have been no overdue amounts or doubts concerning the repayment of the entire exposure, under the terms and conditions after the forbearance. The absence of doubt is confirmed by analysis of the financial situation of the debtor. The forborne status is withdrawn when: •at least a 2-year probation period has passed since the latest of: •the moment of extending the restructuring measures or •the forborne exposure was deemed performing; •regular payments of the principal or interest were made, in a substantial total amount, during at least half the probation period; •no exposure, in the probation period, is more than 30 days in default of more than EUR 100; • the client fulfils determined financial indicators. In the case of a deferral of payment approved due to the COVID-19 crisis, the probation period is extended for the period of deferral. 2.15. Repossessed assets In certain circumstances, assets are repossessed following the foreclosure on loans that are in default. Repossessed assets are initially recognised in the financial statements at their fair value and classified in the appropriate category according to their purpose and are sold as soon as it is feasible in order to reduce exposure (note 6.1.l). After initial recognition, repossessed assets are measured and accounted for in accordance with the policies applicable to the relevant asset categories. Repossessed assets mainly represent items of real estate that NLB Group classifies within investment properties measured in accordance with an IAS 40 Investment property (note 2.20.), and other assets measured in accordance with IAS 2 Inventories. Real estate obtained as collateral from the foreclosure of loans and receivables, classified as other assets are initially recognised at fair value less costs to sell (realisable value), wherein only the direct costs of sales can be considered. At subsequent measurement, the realisable value is verified at least annually. Valuations of the fair value of real estate are performed by certified real estate appraisers. The real estate is impaired when the carrying value exceeds the realisable value. The effect of impairment is recognised as the impairment of other assets and the reversal of impairment as income from the reversal of the impairment of other assets. 2.16. Offsetting Financial assets and liabilities are offset, and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. 2.17. Sale and repurchase agreements Securities sold under sale and repurchase agreements (repos) are retained in the financial statements, and the counterparty liability is recognised in financial liabilities measured at an amortised cost. Securities sold subject to sale and repurchase agreements are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral. Securities purchased under agreements to resell (reverse repos) are presented as loans to other banks or customers, as appropriate. In financial statements, the difference between the sale and repurchase price is treated as interest and accrued over the life of the repo agreements using the effective interest method. 2.18. Property and equipment All items of property and equipment are initially recognised at cost. They are subsequently measured at cost less any accumulated depreciation and any accumulated impairment loss. Each year, NLB Group assesses whether there are indications that property and equipment may be impaired. If any such indication exists, the recoverable amounts are estimated. The recoverable amount is the higher of the fair value less costs to sell and value in use. If the recoverable amount exceeds the carrying value, the assets are not impaired. If the carrying amount exceeds the recoverable amount, the difference is recognised as an impairment loss in the income statement. Items of a largely independent property and equipment which do not generate cash flows are included in the cash- generating unit and later tested for possible impairment. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives. The following annual depreciation rateswere applied: NLB Group and NLBin % Buildings2-5 Leasehold improvements5-25 Computers14.3-50 Furniture and equipment10-33.3 Motor vehicles12.5-25 Depreciation does not begin until the assets are available for use. The assets’ residual values and useful lives are reviewed and adjusted if appropriate on each reporting date. Gains and losses on the disposal of items of property and equipment are determined as the difference between the sale proceeds and their carrying amount and are recognised in the income statement. Maintenance and repairs are charged to the income statement during the financial period in which they are incurred. Subsequent costs that increase future economic benefits are recognised in the carrying amount of an asset, and the replaced part, if any, is derecognised. 2.19.Intangible assets Intangible assets include software licenses, goodwill (note 2.5.), and identifiable intangible assets acquired in a business combination. Intangible assets other than goodwill, have a finite useful life and are in the statement of financial position stated at cost, less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis at rates designed to write-down the cost of an intangible asset over its estimated useful life. The core banking system is amortised over a period of 10 years, and other software over a period of three to five years. Amortisation does not begin until the assets are available for use. The identifiable intangible assets acquired in a business combination and recognised separately from goodwill, are recorded at fair value on the acquisition date if the intangible asset is separable or arises from contractual or other legal rights. After initial recognition, intangible assets acquired in a ![]() 196 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report business combination are measured in accordance with IAS 38 Intangible Assets. Additionally identified intangible assets acquired in a business combination in December 2020 (note 5.12.c) relate to core deposits and trade name. Their useful life is assessed to be 5 years. Amortisation of a trade name is calculated on a straight-line basis, while for core deposits accelerated amortisation is applied, since it better reflects the pattern of asset’s consumption. 2.20. Investment properties Investment properties include properties held to earn rentals, or to increase the value of a long-term investment, rather than to be used by NLB Group. Investment properties are carried at fair value determined by a certified appraiser. Fair value is based on current market prices. Any gain or loss arising from a change in the fair value is recognised in the income statement. 2.21.Non-current assets and disposal groups classified as held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuinguse. This condition is deemed to be met only when the sale is highly probable, and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell. In the case of business combinations, NLB Group measures an acquired non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations at fair value less costs to sell. During subsequent measurement, certain assets and liabilities of a disposal group that are outside the scope of IFRS 5 measurement requirements are measured in accordance with the applicable standards (e.g., deferred tax assets, assets arising from employee benefits, financial instruments, investment property measured at fair value, and contractual rights under insurance contracts). Tangible and intangible assets are not depreciated. The effects of sale and valuation are included in the income statement as a gain or loss from non-current assets held for sale. Liabilities directly associated with disposal groups are reclassified and presented separately in the statement of financial position. 2.22.Accounting for leases A lease is a contract, or part of a contract, which creates enforceable rights and obligations and conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Thus, IFRS 16 requires determination whether a contract is, or contains, a lease. NLB Group as a lessee NLB Group recognises a liability to make lease payments and an asset representing the right to use the underlying asset (i.e., the right-of-use asset) during the lease term for all leases, except for short-term leases and leases of low-value. Short- term leases are defined as those which at the commencement date have a lease term of 12 months or less without the option to purchase the underlying asset. Leases of underlying assets with a value, when new, lower or equal to EUR 5 thousand are defined as low value leases, and are thus recognised as expenses on a straight-line basis over the lease term. Right-of-use assets At the commencement date, NLB Group measures the right-of-use asset at cost, reduced by any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets consists of the amount of lease liabilities recognised, initial direct costs incurred, an estimate of costs to be incurred by the lessee in dismantling, and removing the underlying asset to the condition required by the terms and conditions of the lease and lease payments made at or before the commencement date less any lease incentives received. After the commencement date, NLB Group measures the right-of- use asset using a cost model and recognises depreciation of the right-of-use assets, on a straight-line basis over the lease term, and (separately) interest on the lease liabilities. In the statement of financial position, right-of-use assets are presented in the line item ‘Property and equipment.’ Lease liabilities At the commencement date, NLB Group measures the lease liability at the present value of the lease payments that are not paid at that date. The lease payments consist of fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, the exercise price of a purchase option if there exists a reasonable certainty for it to be exercised, and payments of penalties for terminating the lease, if the lease term reflects exercising the option to terminate. Subsequently (after the commencement date), NLB Group measures the lease liability by: •increasing the carrying amount to reflect interest on the lease liability; •reducing the carrying amount to reflect the lease payments made; •remeasuring the carrying amount to reflect any reassessment or lease modifications. In the statement of financial position, lease liabilities are presented in line item ‘Other financial liabilities.’ NLB Group as a lessor Payments under operating leases are recognised as income on a straight-line basis over the period of the lease. Assets leased under operating leases are presented in the statement of financial position as investment property or as property and equipment. NLB Group classifies a lease as a finance lease when the risks and rewards incidental to ownership of a leased asset lie with the lessee. When assets are leased under a finance lease, the present value of the lease payments is recognised as a receivable. Income from finance lease transactions is amortised over the lifetime of the lease using the effective interest method. Finance lease receivables are recognised at an amount equal to the net investment in the lease, including the unguaranteed residual value. Sale-and-leaseback transactions NLB Group also enters into sale-and-leaseback transactions (in which NLB Group is primarily a lessor) under which the leased assets are purchased from, and then leased back to the lessee. These contracts are classified as finance leases or operating leases, depending on the contractual terms of the leaseback agreement. Leases recognised in a business combination In all leases acquired in a business combination, the acquiree is the lessee. For such leases, NLB Group applies the IFRS 16 initial measurement provisions (with exceptions for leases with remaining term of 12 months or less and low value leases) and recognises the acquired lease liability as if the lease contract ![]() 197 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report was a new lease at the acquisition date. The right-of-use asset is measured at an amount equal to the recognised liability. There are no favourable or unfavourable terms of the leases relative to market terms, which would require the adjustment of the right-of-use assets. 2.23.Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and balances with central banks and other demand deposits at banks, debt securities held for trading, loans to banks, and debt securities not held for trading with an original maturity of up to three months. Cash and cash equivalents are disclosed under the cash flow statement. 2.24. Borrowings, deposits, and issued debt securities with characteristics of debt Loans and deposits received and issued debt securities are initially recognised at fair value. Borrowings are subsequently measured at the amortised cost. The difference between the value at initial recognition and the final value is recognised in the income statement as interest expenses, applying the effective interest rate. Repurchased own debt is disclosed as a reduction of liabilities in the statement of financial position. The difference between the book value and the price at which own debt was repurchased is disclosed in the income statement. 2.25. Other issued financial instruments with characteristics of equity Upon initial recognition, other issued financial instruments are classified in part or in full as equity instruments if the contractual characteristics of the instruments are such that NLB Group must classify them as equity instruments in accordance with IAS 32 Financial Instruments: Presentation. An issued financial instrument is only considered an equity instrument if that instrument does not represent a contractual obligation for payment. Issued financial instruments with characteristics of equity are recognised in equity in the statement of financial position. Transaction costs incurred for issuing such instruments are deducted from equity reserves. The corresponding interest is recognised directly in profit reserves. The carrying value of an issued financial instrument with characteristics of equity is presented in the statement of changes in equity in the line item ‘Other Equity Instruments.’ 2.26. Provisions Provisions are recognised when NLB Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. They are recognised in the amount that is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. When the effect of the time value of money is material, NLB Group determines the level of provisions by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability. 2.27.Contingent liabilities and commitments Financial and non-financial guarantees Financial guarantees are contracts that require the issuer to make specific payments to reimburse the holder for a loss it incurs because a specific debtor fails to make payments when due, in accordance with the terms of debt instruments. Such financial guarantees are given to banks, financial institutions, and other bodies on behalf of the customer to secure loans, overdrafts, and other banking facilities. The issued guarantees covering non-financial obligations of the clients represent the obligation of the Bank (guarantor) to pay if the client fails to perform certain works in accordance with the terms of the commercial contract. Financial and non-financial guarantees are initially recognised at fair value, which is usually evidenced by the fees received. The fees are amortised to the income statement over the contract term using the straight-line method. NLB Group’s liabilities under guarantees are subsequently measured at the greater of: •the initial measurement, less amortisation calculated to recognise fee income over the period of guarantee; or •ECL provisions as set out in note 2.13. Documentary letters of credit Documentary (and standby) letters of credit constitute a written and irrevocable commitment of the issuing (opening) bank on behalf of the issuer (importer) to pay the beneficiary (exporter) the value set out in the documents by a defined deadline: •if the letter of credit is payable on sight; and •if the letter of credit is payable for deferred payment, the bank will pay according to the contractual agreement when and if the beneficiary (exporter) presents the bank with documents that are in line with the conditions and deadlines set out in the letter of credit. A commitment may also take the form of a letter of credit confirmation, which is usually done at the request or authorisation of the issuing (opening) bank and constitutes a firm commitment by the confirming bank, in addition to that of the issuing bank, which independently assumes a commitment to the beneficiary under certain conditions. Other contingent liabilities and commitments Other contingent liabilitiesand commitmentsrepresent undrawn loan commitments to extend credit, uncovered letters of credit, and other commitments. The nominal contractual values of guarantees, letters of credit, and undrawn loan commitments where the loan agreed to be provided is on market terms, are not recognised in the statement of financial position. Contingent liabilities recognised in a business combination A contingent liability recognised in a business combination is initially measured at its fair value. After initial recognition, it is measured at the higher of: •the amount that would be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; or •the amount initially recognised less, if appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers. This requirement does not apply to contracts accounted for in accordance with IFRS 9. 2.28. Taxes Income tax expenses comprises current and deferred income tax. Current corporate income tax in NLB Group is calculated on taxable profits at the applicable tax rate in the respective jurisdiction. The corporate income tax rate for 2021 in Slovenia was 19% (2020: 19%). Current and deferred taxes are recognised in profit or loss, except to the extent that they relate to a business combination or taxes related to effects recognised directly in equity (deferred tax related to the fair value re-measurement of financial assets measured at fair value through other comprehensive income, cash flow hedges, and actuarial gains and losses on defined benefit pension plans is charged or credited directly to other comprehensive income). ![]() 198 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Deferred income tax is calculated using the balance sheet liability method for temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised if it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates enacted or substantively enacted at the end of the reporting period that are expected to apply to the period when the asset is realised, or the liability is settled. At each reporting date, NLB Group reviews the carrying amount of deferred tax assets and assesses future taxable profits against which temporary taxable differences can be utilised. Deferred tax assets for temporary differences arising from impairments of investments in subsidiaries, associates and joint ventures are recognised only to the extent that it is probable that: •the temporary differences will be reversed in the foreseeable future; and •taxable profit will be available. Slovenian tax law does not set deadlines by which uncovered tax losses must be utilised. In the case of business combination deferred tax balances are recognised if related to temporary differences and carry- forwards of an acquiree that exist at the acquisition date or if they arise as a result of the acquisition. Income taxes are measured in accordance with IAS 12 Income Taxes. A tax on financial services is a tax on fees, paid for prescribed financial services rendered (financial services, exempt from value added tax (with the exception of securities transactions) and the services of insurance brokers and agents), paid in Slovenia. The tax rate is 8.5% (2020: 8.5%) and the tax is paid monthly. Given that the tax on financial services is classified as a sales tax, it reduces accrued revenues in the financial statements. 2.29. Fiduciary activities NLB Group provides asset management services to its clients. Assets held in a fiduciary capacity are not reported in NLB Group’s financial statements as they do not represent assets of NLB Group. Fee and commission income and expenses relating to fiduciary activities are generally recognised in the income statement when the service has been provided (see also note 2.10.). Fee and commission income charged for this type of service is broken down by items in note 4.3.b). Further details on transactions managed on behalf of third parties are disclosed in note 5.24. Based on the requirements of Slovenian legislation, NLB Group has, in note 5.24., additionally disclosed the assets and liabilities on accounts used to manage financial assets from fiduciary activities, i.e., information related to the receipt, processing, and execution of orders and related custody activities. 2.30. Employee benefits Employee benefits include: •short-term employee benefits (such as salaries, compensations, annual holiday allowance, separation allowance,and non-monetary benefits); • reimbursement of commuting costs, meal allowance, compensation for use of own resources); • retirement indemnity bonuses (post-employment benefits); •other employment benefits (jubilee long-service benefits, voluntary supplementary pension insurance); • variableremuneration. Short-term employee benefits are recognised in the period to which they relate and included in the income statement line item ‘Administrative expenses.’ Among others they include the payment of contributions for pension and disability insurance, which according to local legislation (for employer) amount to 8.85% of the gross salaries. According to legislation, employees retire after they fulfil certain conditions according to Pension and Disability Insurance Act (ZPIZ), they are entitled to a lump-sum severance payment. Employees are also entitled to a long- service bonus for every 10 years of service in NLB. These obligations are measured at the present value of future cash outflows considering future salary increases and other conditions, and then apportioned to past and future employee service based on the benefit plan’s terms and conditions. Service costs are included in the income statement in the line item ‘Administrative expenses’ as defined benefit costs, while interest expenses on the defined benefit liability are recognised in the line item ‘Interest and similar expenses.’ These interest expenses represent the change during the period in the defined benefit liability that arises from the passage of time. For post-employment benefits, actuarial gains and losses from the effect of changes in actuarial assumptions and experience adjustments (differences between the realised and expected payments) arerecognised in other comprehensive income under the line item ‘Actuarial Gains/(Losses) on Defined Benefit Pensions Plans,’ and will not be recycled to the income statement. Actuarial gains and losses that relate to other employment benefits are recognised in the income statement as defined benefit costs. In the statement of financial position, liabilities for short- term employee benefits are included in the line item ‘Other liabilities,’ while liabilities for post-employment benefits and other employment benefits (jubilee long-service benefits) are included in the line item ‘Provisions.’ In the case of a business combination employee benefits are recognised and measured in accordance with IAS 19 Employee Benefits, i.e., not at fair value. 2.31.Share capital Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by NLB’s shareholders. Treasury shares If NLB or another member of NLB Group purchases NLB’s shares, the consideration paid is deducted from the total shareholders’ equity as treasury shares. If such shares are subsequently sold, anyconsideration received is included in equity. If NLB’s shares are purchased by NLB itself or other NLB Group entities, NLB creates reserves for treasury shares in equity. Share issue costs Costs directly attributable to the issue of new shares are recognised in equity as a reduction in the share premium account. 2.32. Segment reporting Operating segments are reported in a manner consistent with internal reporting to the Management Board, which is the executive body that makes decisions regarding the allocation of resources and assesses the performance of a specific segment. Transactions between organisational units (OUs) are managed under normal operating conditions. Interest income among individual OUs in the parent bank (NLB) is allocated using a fund transfer pricing method and shown within the ![]() 199 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report net interest income of each OU. Net non-interest income is allocated to the OU that actually provides the service that generates income. Direct costs are attributed to the segment that is directly related to the provided service and indirect costs (costs which service centres provide for profit centres) are attributed to the segment for which the service is provided, whereas overhead costs are allocated according to general keys. External net income is the net income of NLB Group from the consolidated income statement. Income tax is not allocated between segments. Analysis by segment for NLB Group is presented in note 7.a). In accordance with IFRS 8, NLB Group has the following reportable segments: Retail Banking in Slovenia, Corporate and Investment Banking in Slovenia, Strategic Foreign Markets, Financial Markets in Slovenia, Non-core members, and OtherActivities. 2.33.Critical accounting estimates and judgments in applying accounting policies NLB Group’s financial statements are influenced by accounting policies, assumptions, estimates, and management’s judgment. NLB Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with the IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgments are evaluated on a continuing basis, and are based on past experience and other factors, including expectations with regard to future events. a) Allowances for expected credit losses on loans and advances NLB Group monitors and checks the quality of the loan portfolio at the individual and portfolio levels to continuously estimate the necessary allowances for ECL. NLB Group creates individual allowances for individually significant financial assets attributed to Stage 3. Such an assignment is based on information regarding the fulfilment of contractual obligations or other financial difficulties of the debtor, and other important facts. Individual assessments are based on the expected discounted cash flows from operations and/or the assessed expected payment from collateral. Allowances are assessed collectively for financial assets assigned to Stage 1 or 2, or for financial assets in Stage 3 with exposure below the materiality threshold. The ECL in this group of assets are estimated based on expected value of risk parameters combining the historic movements with the future macroeconomic predictions for three separate scenarios. Themodels used to estimate future risk parameters are validated and back-tested on a regular basis to make loss estimations as realistic as possible. NLB Group performs regular stress-testing as part of the ICAAP process normative approach, where the 3-year budget is tested for adverse circumstances. The selected stress scenario predicts adverse economic circumstances as a result of the prolonged COVID-19 pandemic. In terms of credit risk, the scenario has an unfavourable impact on default rates (transfer of assets from performing to default) and loss rates (expected losses after occurrence of default). Furthermore, a transfer of assets within the performing sub- portfolio to rating classes with worse default probabilities is envisaged. Based on the existing exposures (static balance sheet assumption), additional allowances for expected credit losses are assessed on existing default exposures and new default flows, as well as on the remaining performing portfolio. The results of the stress scenario for NLB Group shows an increase of credit risk impairments in the first year of stress by EUR 139.6 million (2020: EUR 134.7 million), and an increase in the coverage of the credit portfolio by impairments by 0.98 percentage points (2020: 0.90 percentage points). b)Fair value of financial instruments The fair values of financial investments traded on the active market are based on current bid prices (financial assets) or offer prices (financial liabilities). The fair values of financial instruments that are not traded on the active market are determined by using valuation models. These include a comparison with recent transaction prices, the use of a discounted cash flow model, valuation based on comparable entities, and other frequently used valuation models. These valuation models at their best estimate reflect current market conditions at the measurement date, which may not be representative of market conditions either before or after the measurement date. Management reviewed all applied models as at the reporting date to ensure they appropriately reflect current market conditions, including the relative liquidity of the market and the applied credit spread. Changes in assumptions regarding these factors could affect the reported fair values of financial instruments held for trading, and financial assets measured at fair value through other comprehensive income. In year 2020, the volatility of prices on various markets increased as a result of the spread of COVID-19. Therefore, NLB Group decided to sell some securities with increased credit spreads as part of its strategy to manage the credit risk. Most of these securities were classified as measured at fair value through other comprehensive income (EUR 250,297 thousand at NLB Group and EUR 222,586 thousand at NLB), while EUR 120,131 thousand of sold securities were measured at amortised cost. The total realised gains due to sales of securities amount to EUR 17,815 thousand at NLB Group and EUR 17,096 thousand at NLB (note 4.4.). Due to increased frequency and values of sales of securities measured at amortised cost, NLB Group reassessed whether there has been a change in its business model for managing financial assets. Sales were made due to an increase in the assets’ credit risk, and are therefore consistent with a held to collect business model because the credit quality of financial assets is relevant to NLB Group’s ability to collect contractual cash flows. Credit risk management activities that are aimed at minimising potential credit losses due to credit deterioration are integral to such a model. Furthermore, the sales were made as a response to COVID-19 situation and the increased volume of sales is not expected to persist. It is expected, that future sales volumes will be lower in frequency and value. So, no change in our business model has been made. The fair values of derivative financial instruments are determined on the basis of market data (mark-to-market), in accordance with NLB Group’s methodology for the valuation of financial instruments. The market exchange rates, interest rates, yield, and volatility curves used in valuations are based on the market snapshot principle. Market data are saved daily at 4 p.m., and later used for the calculation of the fair values (market value, NPV) of financial instruments. NLB Group applies market yield curves for valuation, and fair values are additionally adjusted for credit risk of the counterparty. The fair value hierarchy of financial instruments is disclosed in note 6.5. c)Impairment of investments in subsidiaries, associates and joint ventures The process of identifying and assessing the impairment of investments in subsidiaries, associates and joint ventures is inherently uncertain, as the forecasting of cash flows requires ![]() 200 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report the significant use of estimates, which themselves are sensitive to the assumptions used. The review of impairment represents management’s best estimate of the facts and assumptions suchas: •Future cash flows from individual investments present the estimated cash flow for periods for which adopted business plans are available. For core members, estimated cash flows are based on a five-year business plan. For non-core members, estimated cash flows are based on a period in line with the strategy of divestment. The business plans of individual entities are based on an assessment of future economic conditions that will impact an individual member’s business and the quality of the credit portfolio; •The growth rate in cash flows for the period following the adopted business plan is between 2.6 and 3.7%; • The target capital adequacy ratio of an individual bank is between 14 and 17%; •The discount rate derived from the capital asset pricing model that is used to discount future cash flows is based A sensitivity analysis of significant actuarial assumptions for post-employment benefit: NLB GroupNLB 2021202020212020 Actuarial assumptions Discount factor0.5% - 4.3%0.3% - 4.0%0.6%0.3% Wage growth based on inflation, promotions, and wage growth based on past years of service 1.8% - 4.8%1.0% - 4.0%2.5% - 3.0%2.6% - 3.0% Other assumptions Number of employees eligible for benefits7,0147,9962,4442,572 NLB GroupNLB 31 Dec 2021Discount rate Future salary increases Discount rate Future salary increases +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 provisions for employee benefits - post-employment benefits (in %) (5.3)5.75.5(5.1)(5.1)5.55.5(5.2) NLB GroupNLB 31 Dec 2020Discount rate Future salary increases Discount rate Future salary increases +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 provisions for employee benefits - post-employment benefits (in %) (4.9)3.85.3(4.8)(5.2)3.45.6(5.3) on the cost of equity allocated to an individual investment. The discount rate reflects the impact of a range of financial and economic variables, including the risk-free rate and risk premium. The value of variables used is subject to fluctuationsoutside management’s control. Thepre-tax discount rate is between 9.66 and 15.88% (31 December 2020: between 9.66 and 15.88%). For strategic NLB Group members in 2021 and 2020, there were no indications of impairment for equity investments. In 2021, NLB impaired equity investments in non-core members in the amount of EUR 458 thousand (2020: EUR 582 thousand). d) Employee benefits Liabilities for certain employee benefits are calculated by an independent actuary. The main assumptions included in the actuarial calculation are as follows: The minimum discount rate is considered to be 0%. Individual analysis is done by changing one assumption for +/-0.5 percentage points, while all other assumptions stay the same. ![]() 201 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report free rate. The Phase 2 amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate equivalent to a movement in a market rate of interest. The practical expedient is also required for entities applying IFRS 4 – Insurance Contracts that are using the exemption from IFRS 9 – Financial Instruments (and therefore, apply IAS 39 – Financial Instruments: Recognition andMeasurement ) and for IFRS 16 –Leases , to lease modifications required by the IBOR reform. The amendments permit changes required by the IBOR reform to be made to hedge designations and hedge documentation under both IFRS 9 and IAS 39 without the hedging relationship being discontinued. Under IFRS 7 – Financial instrument: Disclosures amendments an entity will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates. The Phase 2 amendments apply only to changes required by the interest rate benchmark reform to financial instruments and hedging relationships. Additional information about interest rate benchmark reform is provided in note 5.5.d). in EUR thousands NLB GroupNLB 2021202020212020 Actuarial gains and losses due to changed financial assumptions251606292473 Actuarial gains and losses due to changes in demographic assumptions(1,211)134151200 Actuarial gains and losses due to experience(417)138(558)27 Total actuarial gains and losses for the year(1,377) 878 (115)700 NLB GroupNLB 2021202020212020 Post-employment benefit9.4 - 19.010.5 - 18.711.011.1 e)Taxes NLB Group operates in countries governed by different laws. The deferred tax assets recognised as at 31 December 2021 are based on profit forecasts and take the expected manner of recovery of the assets into account. Changes in assumptions regarding the likely manner of recovering assets or changes in profit forecasts can lead to the recognition of currently unrecognised deferred tax assets or derecognition of previously created deferred tax assets. If NLB profit projections used for estimation of the amount of deferred tax assets which are expected to be reversed in foreseeable future (i.e., within 5 years) would change by 10%, the estimated amount of deferred tax assets would change by approximately EUR 3.2 million (notes 4.16. and 5.17.). 2.34.Implementation of the new and revised International Financial Reporting Standards During the current year, NLB Group adopted all new and revised standards and interpretations issued by the International Accounting Standards Board (hereinafter: ‘the IASB’) and the International Financial Reporting Interpretations Committee (hereinafter: ‘the IFRIC’), and that are endorsed by the EU that are effective for annual accounting periods beginning on 1 January 2021. Accounting standards and amendments to existing standards effective for annual periods beginning on 1January 2021 that were endorsed by the EU and adopted by NLB Group •IFRS 4 (amendment) – Insurance Contracts – deferral of IFRS 9 is effective for annual periods beginning on or after 1 January 2021. Currently IFRS 4 requires insurance entities to apply IFRS 9 – Financial Instruments from 1 January 2021, and amendments allow them to defer the application of IFRS 9 until the annual period beginning on or after 1January 2023. The amendment will not impact NLB Group’s consolidated financial statements. There is no impact on NLB Group’s and NLB’s financial statements. •IFRS 9 (amendment), IAS 39 (amendment), IFRS 7 (amendment), IFRS 4 (amendment) and IFRS 16 (amendment) – Interest Rate Benchmark Reform – Phase 2 are effective for annual periods beginning on or after 1 January 2021 with earlier application permitted. Unlike Phase 1, which focused on issues of the impact of the reform on financial reporting in the period before the replacement of the existing interest rate benchmark with a risk-free interest rate, Phase 2 focuses on issues that affect financial reporting when an existing interest rate benchmark is replaced with a risk- The weighted average duration of liabilities in years The breakdown of actuarial gains and losses for post-employment benefit by causes ![]() 202 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Accounting standards and amendments to existing standards that were endorsed by the EU, but not adopted early by NLB Group New and revised accounting standards and interpretations endorsed by the EU that are not mandatory for annual accounting periods beginning on 1 January 2021, were not adopted early by NLB Group. These standards and amendments are not expected to have a material impact on the consolidated financial statements of NLB Group in the future reporting periods and on foreseeable future transactions. NLB Group plans to adopt the accounting standards and amendments listed below for reporting periods commencing on or after the effective date. •IFRS 3 (amendment) – Business Combinations – Reference to the Conceptual Framework is effective for annual periods beginning on or after 1 January 2022. The amendments update a reference in IFRS 3 to the Conceptual Framework forFinancialReporting withoutchanging theaccounting requirements for business combinations. Furthermore, the amendments add an exception to the recognition principle for liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies. The amendments also clarify existing guidance forcontingentassets. • IAS 16 (amendment) – Property, Plant and Equipment: Proceeds before Intended Use is effective for annual periods beginning on or after 1 January 2022. The amendment prohibits the deduction from the cost of an item of property, plant and equipment of any proceeds from the sale of produced items while the asset is being prepared for its intended use. The proceeds from selling such items, and the cost of producing those items, are recognised in profit or loss. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment. The amendment further requires separate disclosure of the amounts of proceeds and costs relating toitems produced that are not an output of the entity’s ordinary activities. It is also necessary to disclose theline item in the statement of comprehensive income where the proceeds are included. NLB Group and NLB do not expect an impact on their financial statements. •IAS 37 (amendments) – Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts – Cost of Fulfilling a Contract is effective for annual periods beginning on or after 1 January 2022. The amendments modify the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendments specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract.’ The costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. NLB Group and NLB do not expect an impact on their financial statements. •Annual Improvements to IFRS Standards 2018-2020 (amendments) are effective 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 cent’ test for derecognition of a financial liability. The amendment to IFRS 16 – Leases removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives.The amendments to IFRS 1 – First-time Adoption of International Financial Reporting Standards permits a subsidiary that becomes a first-time adopter of IFRS Standards later than its parent to measure cumulative translation differences at amounts included in the consolidated financial statements of the parent, based on the parent’s date of transition to IFRS Standards.The amendments to IAS 41 – Agriculture remove the requirement to exclude cash flows for taxation when measuring fair value under IAS 41. This amendment is intended to align with the requirement in the standard to discount cash flows on a post- tax basis. This will ensure consistency with the requirements in IFRS 13 – Fair ValueMeasurement . NLB Group and NLB do not expect an impact on their financial statements. •IFRS 17 (new standard including amendments) – Insurance Contracts is effective for annual periods beginning on or after 1 January 2023. The new standard provides a comprehensive principle-based framework for the measurement and presentation of all insurance contracts. The new standard will replace IFRS 4 Insurance Contracts and requires insurance contracts to be measured using current fulfilment cash flows, and for revenue to be recognised – as the service is provided over the coverage period.The additionally issued amendments to IFRS 17 simplify some requirements and explanation of financial performance, and provide additional transition reliefs to reduce the complexity of applying standard for the first time. NLB Group and NLB do not expect an impact on their financial statements. •IFRS 16 (amendment) – Covid-19-Related Rent Concessions beyond 30 June 2021 is effective for annual periods beginning on or after 1 April 2021. The amendment extended the availability of the practical expedient by one year so that it applies to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022, provided the other conditions for applying the practical expedient are met. There is no impact on NLB Group’s and NLB’s financial statements. Accounting standards and amendments to existing standards, but not endorsed by the EU •IAS 1 (amendment and deferral of effective date) – Presentation of Financial Statements: Classification of Liabilities as Current or Non-current is effective for annual periods beginning on or after 1 January 2023. The amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date. The amendment also clarifies what IAS 1 means when it refers to the ‘settlement’ of a liability. NLB Group and NLB do not expect an impact on their financial statements. •IAS 1 (amendment) – Presentationof Financial Statements and IFRS Practice Statement 2 – Disclosure of Accounting policies is effective for annual periods beginning on or after 1 January 2023. The amendments to IAS 1 require companies to disclose their material accounting policy information ratherthan theirsignificantaccounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures. NLB Group and NLB do not expect an impact on their financial statements. •IAS 8 (amendment) – Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates is effective for annual periods beginning on or after 1 January 2023. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. That distinction is important because changes in accounting estimates are applied prospectively only tofuture transactions and other future events, but changes in accounting policies are generally also applied retrospectively to past transactions and other past events. NLB Group and NLB do not expect an impact on their financial statements. ![]() 203 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report •IAS 12 (amendment) - Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction is effective for annual periods beginning on or after 1 January 2023. IAS 12specifies how a company accounts for income tax, including deferred tax, which represents tax payable or recoverable in the future. In specified circumstances, companies are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. The amendments clarify that the exemption does not apply and that companies are required to recognise deferred tax on such transactions. NLB Group and NLB do not expect an impact on their financial statements. •IFRS 17 (amendment) – Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information is effective for annual periods beginning on or after 1 January 2023. The amendment is a transition option relating to comparativeinformationabout financial assets presented on initial application of IFRS 17. The amendment is aimed at helping entities to avoid temporary accounting mismatches between financial assets and insurance contract liabilities, and therefore improve the usefulness of comparative information for users of financial statements. NLB Group and NLB do not expect an impact on their financial statements. 3.Changes in the composition oftheNLB Group Changes in 2021 Capital changes: •In April 2021, NLB increased the share of voting rights in the takeover bid for the remaining shares of Komercijalna banka a.d. Beograd from 83.23% to 87.999% and also acquired 15.328% of preference shares. This increased NLB’s share in total shareholding of the bank from 81.42% to 86.42%. The increase in capital investment was recognised in the amount of EUR 23,098 thousand. •In May 2021, NLB increased the share of voting rights in the public offering of ordinary shares of Komercijalna banka a.d. Beograd from 87.999% to 88.28%. This increased NLB’s share in total shareholding of the bank from 86.42% to 86.70%. The increase in capital investment was recognised in the amount of EUR 1,337 thousand. •In May 2021, NLB acquired the remaining shares of minority shareholders of NLB Banka a.d., Beograd and increased its ownership from 99.997% to 100%. The increase in capital investment was recognised in the amount of EUR 2 thousand. •An increase in equity reserves in the form of a cash contribution in the amount of EUR 300 thousand in REAM d.o.o., Beograd to ensure regular business operations. •In October 2021, NLB increased its business share in Bankart d.o.o., Ljubljana from 40.08% to 45.64%. •In November 2021, Komercijalna banka a.d. Podgorica merged with NLB Banka a.d. Podgorica. After this merger, Komercijalna banka a.d. Beograd has 23.97% shareholding of NLB Banka a.d. Podgorica, while NLB d.d. has 75.90%. •In December 2021, an increase in share capital in the form of a cash contribution in the amount of EUR 15,309 thousand in NLB Lease&Go, leasing, d.o.o., Ljubljana for the purpose of achieving NLB Group’s leasing strategy. •In December 2021, NLB increased its ownership in settlement agreement in relation to the put and call option of shares of NLB Banka sh.a., Prishtina from 81.21% to 82.38%. The increase in capital investment was recognised in the amount of EUR 223 thousand. Other changes: •In April 2021 company BH-RE d.o.o., Sarajevo – u likvidaciji was liquidated. In accordance with a court order, company was removed from the court register. •In September 2021, NLB sold its 0.002% ownership interest in Komercijalna banka a.d. Banja Luka to Komercijalna banka a.d.Beograd. •In November 2021, Prvi Faktor d.o.o., Sarajevo - u likvidaciji was liquidated. In accordance with a court order, the company was removed from the court register. •In December 2021, Komercijalna banka a.d. Beograd sold its subsidiary Komercijalna banka a.d. Banja Luka. •In December 2021, NLB sold its subsidiary NLB Leasing d.o.o., Ljubljana – v likvidaciji to NLB Lease&Go, leasing, d.o.o., Ljubljana. Changes in 2020 Capital changes: •In December 2020, NLB acquired an 83.23% ordinary shareholding in Komercijalna banka a.d. Beograd, which represents 81.42% of total shareholding in the bank. •In December 2020, NLB acquired 1 ordinary share of Komercijalna banka a.d. Banja Luka which represents a 0.002% share of their capital. •In December 2020, NLB acquired additional shares of Bankart d.o.o., Ljubljana and thereby increased its ownership from 39.44% to 40.08%. •An increase in share capital in the form of a debt-to-equity conversion in the amount of EUR 1,800 thousand in NLB Leasing Podgorica d.o.o. – u likvidaciji. Other changes: •In April 2020, NLB established the non-financial cultural heritage institute named ‘NLB Zavod za upravljanje kulturne dediščine, Ljubljana.’ •In May 2020, NLB established financial company named ‘NLB Lease&Go, leasing, d.o.o., Ljubljana.’ •In May 2020, all the suspensive conditions under the joint NLB and KBC Insurance NV sale agreement signed in December 2019 were met, therefore the sale of NLB’s 50% stake in the share capital of NLB Vita d.d., Ljubljana was completed (note 4.15.). •In December 2020, BH-RE d.o.o., Sarajevo – beginning of the liquidationprocedure entered in thecourt register. •In December 2020, NLB sold its subsidiaries NLB Leasing d.o.o., Sarajevo - u likvidaciji and NLB Leasing Podgorica d.o.o., Podgorica - u likvidaciji. ![]() 204 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.Notes to the income statement 4.1.Interest income and expenses Analysis by type of assets and liabilities in EUR thousands NLB GroupNLB 2021202020212020 Interest and similar income Interest income calculated using the effective interest method 467,500347,636170,002167,611 Loans and advances to customers at amortised cost412,449312,695144,081140,203 Securities measured at amortised cost14,04916,16510,15012,736 Financial assets measured at fair value through other comprehensive income40,34718,18011,73310,704 Loans and advances to banks measured at amortised cost4163833,9373,882 Deposits with banks and central banks23921310186 Other interest and similar income 10,3297,5529,1837,493 Financial assets held for trading4,7575,4084,4555,408 Negative interest (note 5.15.b)3,98033,9815 Non-trading financial assets mandatorily at fair value through profit or loss 780 1,800 744 1,739 Other8123413341 Total477,829355,188179,185175,104 Interest and similar expenses Interest expenses calculated using the effective interest method 53,17141,20825,14221,883 Due to customers25,57520,5413,0673,835 Borrowings from banks and central banks1,7978801,647 774 Borrowings from other customers1,205 941 -- Subordinated liabilities10,54810,04010,54810,040 Deposits from banks and central banks865 78 627 Lease liabilities (note 5.11.a)470 294 2939 Other interest and similar expenses 15,29814,40714,90414,334 Derivatives - hedge accounting10,2799,43910,2799,439 Negative interest12,7118,4349,8457,168 Financial liabilities held for trading4,2224,7894,2224,789 Interest expenses on defined employee benefits (note 2.30., 5.16.c)2021004830 Other59579355 76 Total68,46955,61540,04636,217 Net interest income409,360299,573139,139138,887 The item ‘Negative interest’ classified under the line item ‘Other interest and similar income’ mainly includes the interest from targeted longer-term refinancing operations in the amount of EUR 3,979 thousand for NLB Group and NLB (note 5.15.b). The item ‘Negative interest’ classified under the line item ‘Other interest and similar expenses’ includes the interest from deposits with banks and central banks in the amount of EUR 11,692 thousand for NLB Group (2020: EUR 7,178 thousand), and EUR 8,826 thousand for NLB (2020: EUR 5,912 thousand). It also includes interest from deposits with financial organisations in the amount of EUR 336 thousand for NLB Group and NLB (2020: EUR 411 thousand) and interest from securities with a negative yield due to the purchase with a premium in the amount of EUR 683 thousand for NLB Group and NLB (2020: EUR 845 thousand). Other interest income in year 2021 for NLB Group in the amount of EUR 809 thousand relates to interests in relation to a refund of VAT from the Slovenian Tax Authority, while EUR 341 thousand in year 2020 for NLB Group and NLB relates to arefund of corporate income tax from the Italian Tax Authority (note 4.16.). ![]() 205 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.2.Dividend income 4.3.Fee and commission income and expenses a) Fee and commission income and expenses relating to activities of NLB Group and NLB in EUR thousands NLB GroupNLB 2021202020212020 Fee and commission income Fee and commission income relating to financial instruments not at fair value through profit or loss Credit cards and ATMs93,64463,94038,38935,634 Customer transaction accounts90,21266,31157,14749,566 Other fee and commission income Payments77,24850,32522,75121,109 Investment funds27,09519,2868,6945,931 Guarantees13,91811,7817,8317,282 Agency of insurance products8,6426,3387,0105,241 Other services10,4454,6394,4843,434 Total321,204222,620146,306128,197 Fee and commission expenses Fee and commission expenses relating to financial instruments not at fair value through profit or loss Credit cards and ATMs67,86046,47327,95225,581 Other fee and commission expenses Payments11,5676,134917909 Insurance for holders of personal accounts and gold cards3,6501,0341,015 760 Investment banking3,4682,272664 524 Guarantees1,026 778 957712 Other services4,5352,528808817 Total92,10659,21932,31329,303 Net fee and commission income related to banking activities229,098163,401113,99398,894 in EUR thousands NLB GroupNLB 2021202020212020 Financial assets measured at fair value through other comprehensive income 18483-- - related to investments held at the end of reporting period18483-- Investments in subsidiaries--79,1365,561 Investments in associates and joint ventures--441 670 Non-trading financial assets mandatorily at fair value through profit or loss 39283928 Total22311179,6166,259 ![]() 206 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Fee and commission income and expenses relating to fiduciary activities in EUR thousands NLB GroupNLB 2021202020212020 Fee and commission income related to fiduciary activities Receipt, processing, and execution of orders1,9421,5831,6551,435 Management of financial instruments portfolio2,1181,237-- Initial or subsequent underwriting and/or placing of financial instruments without a firm commitment basis 264327264327 Custody and similar services5,2904,8425,2474,909 Management of clients’ account of non-materialised securities1,5951,7971,5951,797 Safe-keeping of clients’ financial instruments26--- Advice to companies on capital structure, business strategy, and related matters and advice, and services relating to mergers and acquisitions of companies 1502615026 Total11,3859,8128,9118,494 Fee and commission expenses related to fiduciary activities Fee and commission related to Central Securities Clearing Corporation and similar organisations 3,1882,8763,1912,874 Fee and commission related to stock exchange and similar organisations1195711957 Total3,3072,9333,3102,931 Net fee income related to fiduciary activities8,0786,8795,6015,563 Total fee and commission income332,589232,432155,217136,691 Total fee and commission expenses95,41362,15235,62332,234 Total a) and b)237,176170,280119,594104,457 ![]() 207 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.4.Gains less losses from financial assets and liabilities not measured at fair value through profit or loss During 2020, NLB Group and NLB sold securities measured at amortised cost in the amount of EUR 120,131 thousand due to increased credit risk caused by COVID-19 (note 2.33.b). 4.5.Gains less losses from financial assets and liabilities held for trading in EUR thousands NLB GroupNLB 2021202020212020 Debt instruments measured at fair value through other comprehensive income - gains 1715,244 24 4,525 - losses (4)(178)-(178) Debt instruments measured at amortised cost - gains -12,749-12,749 Financial liabilities measured at amortised cost - losses -(126)-(126) Total 167 17,689 24 16,970 Interest income from financial assets held for trading is included in the income statement line item ‘Interest and similar income’ and interest expenses from financial liabilities held for trading in line item ‘Interest and similar expenses’ (note 4.1.). in EUR thousands NLB GroupNLB 2021202020212020 Foreign exchange trading - gains 28,16031,62810,79923,022 - losses (7,114)(21,139)(5,795)(18,623) Debt instruments - gains 776 797460797 - losses (616)(392)(571)(392) Derivatives - currency (199)(170)(484) 867 - interest rate 749 (909) 749 (909) - securities (562)(21)(562)(21) Total21,1949,7944,5964,741 ![]() 208 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.6.Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss Material exposure that was restructured in 2014, and classified as non-performing, was repaid in April 2021. This resulted in positive valuation effect in the amount of EUR 14,837 thousand at NLB Group level and EUR 13,033 thousand at the NLB level. in EUR thousands NLB GroupNLB 2021202020212020 Equity securities - gains 2,2084,0031,1573,043 - losses (1,049)(2,656)(855)(1,587) Debt securities - gains 514-- - losses (63)(49)-- Loans and advances to customers - gains 15,7375,28613,1905,359 Total16,8386,59813,4926,815 in EUR thousands NLB GroupNLB 2021202020212020 Financial assets and liabilities not measured as at fair value through profit or loss 359836714(1,011) Financial assets measured at fair value through profit or loss37(131)37(131) Other(51)34(51)34 Total345739700(1,108) Interest income from non-trading financial assets mandatorily at fair value through profit or loss is included in the income statement line item ‘Interest and similar income’ (note 4.1.). 4.7.Foreign exchange translation gains less losses ![]() 209 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.8.Other net operating income in EUR thousands NLB GroupNLB 2021202020212020 Other operating income Income from non-banking services6,5286,3905,8845,595 - cash transportation 3,2412,9943,2502,994 - operating leases of movable property 1,0741,003471470 - IT services 4264381,098891 - other 1,7871,9551,0651,240 Rental income from investment property3,5582,572 567 471 Revaluation of investment property to fair value (note 5.9.)4,4471,006411884 Sale of investment property 778 234-164 Other operating income14,3352,72810,6331,508 Total29,64612,93017,4958,622 Other operating expenses Expenses related to issued service guarantees4531,3284531,328 Revaluation of investment property to fair value (note 5.9.)858136105 87 Other operating expenses5,1143,9173,1901,413 Total6,4255,3813,7482,828 Other net operating income23,2217,54913,7475,794 Other operating income in year 2021 includes settlement of legal dispute in the amount of EUR 8,978 thousand in the NLB Group and EUR 8,559 thousand in NLB. Other operating expenses mainly include expenses associated with donations, penalties and damages, and licences. ![]() 210 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.9.Administrative expenses in EUR thousands NLB GroupNLB 2021202020212020 Employee costs Gross salaries, compensations, and other short-term benefits205,821145,87894,43390,063 Defined contribution scheme15,06510,2976,8916,689 Social security contributions10,3638,2365,7155,546 Defined benefit expenses (note 5.16.c)73545(59)304 Post-employment benefits 126423(27)239 Other employee benefits (53)122(32)65 Total231,322164,956106,980102,602 Other general and administrative expenses Material5,8064,5291,5212,117 Services40,19328,13617,89618,484 Intellectual services 16,50410,1765,4686,194 Costs of supervision 4,6283,9262,4932,257 Costs of other services 19,06114,0349,93510,033 Tax expenses7,5842,6889321,002 Membership fees and similar823852 307 337 Business travel502399129136 Marketing11,4078,1315,6415,086 Buildings and equipment27,08520,99611,67611,952 Electricity 5,9604,0452,3572,277 Rents and leases 1,9281,916283390 Maintainance costs 7,4506,5004,3474,714 Costs of security 6,0153,5991,8211,791 Insurance for tangible assets 851930166 167 Other costs related to buildings and equipment 4,8814,0062,7022,613 Technology30,59921,97915,10714,655 Maintainance of software and hardware 12,94910,1846,0537,164 Licences 9,8957,9616,3325,054 Data assets and subscription costs 2,5181,9981,6551,383 Other technology costs 5,2371,8361,0671,054 Communications11,3778,2594,7705,509 Postal services 4,8594,0272,9353,581 Telecommunication and internet 4,1312,152 669 724 Other communication costs 2,3872,0801,1661,204 Other general and administrative costs2,1531,3011,120733 Total137,52997,27059,09960,011 Total administrative expenses368,851262,226166,079162,613 Number of employees8,1858,7922,5102,591 Costs of other services include costs for cash transport and insurance, archiving services, personal insurance costs, legal costs and fees, and session fees to the members of the Supervisory Board. ![]() 211 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Additionally, to the services included in the table above, the statutory auditor in 2021 performed also some services related to the expected issuance of subordinated instrument in the amount of EUR 325 thousand (2020: EUR 75 thousand). in EUR thousands NLB GroupNLB 2021202020212020 External audit services Audit of annual report 679 542232211 Other audit services1615511955 Other non-audit services34423442 Total 874 639385308 4.10. Cash contributions to resolution funds and deposit guarantee schemes in EUR thousands NLB GroupNLB 2021202020212020 Cash contributions to deposit guarantee schemes33,14815,0227,5435,451 Cash contributions to resolution funds1,9921,6521,9921,652 Total35,14016,6749,5357,103 4.11. Depreciation and amortisation in EUR thousands NLB GroupNLB 2021202020212020 Amortisation of intangible assets (note 5.10.)16,21110,1126,0226,908 Depreciation of property and equipment: - own property and equipment (note 5.8.b)21,60717,06210,61010,092 - right-of-use assets (note 5.11.a)8,7104,541890848 Total46,52831,71517,52217,848 In the presented years, NLB Group and NLB paid the following expenses related to the services of the statutory auditor: ![]() 212 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.12.Gains less losses from modification of financial assets 4.13. Provisions in EUR thousands 20212020 NLB Group 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Total Financial assets modified during the period Amortised cost before modification15,5695,2594,43525,263416,34127,7988,756452,895 Net modification gains/(losses)(48)(12)(203)(263)(3,094)(357)(126)(3,577) in EUR thousands NLB Group31 Dec 202131 Dec 2020 Financial assets modified since initial recognition Gross carrying amount of financial assets for which loss allowance has changed to 12-month measurement during the period 162 1,690 in EUR thousands NLB GroupNLB 2021202020212020 Guarantees and commitments (note 5.16.b)(8,504)482(8,028)(599) Restructuring provisions (note 5.16.d)14,7973,500-3,500 Provisions for legal risks (note 5.16.e)7,8734,696724,230 Other provisions (note 5.16.f)-(119)-(85) Total14,1668,559(7,956)7,046 ![]() 213 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.14.Impairment charge In 2021, NLB impaired equity investments in non-core subsidiaries and an associate in total amount of EUR 458 thousand (2020: EUR 582 thousand). The release of impairments in amount of EUR 7,901 thousand relates to sale of non-core subsidiary (note 3.). In 2020, NLB did not release any impairments of equity investments. Impairments of investments in subsidiaries and associates are included in the segment ‘Non-core members.’ In 2020, impairment of financial assets includes EUR 13,447 thousand of 12-month expected credit losses for Stage 1 financial assets, acquired through a business combination (note 5.12.c). Of that, EUR 10,434 thousand relates to financial assets measured at amortised cost, EUR 2,932 thousand to financial assets measured at fair value through other comprehensive income, and EUR 81 thousand to cash balances at central banks and other demand deposits at banks. in EUR thousands NLB GroupNLB 2021202020212020 Impairment of financial assets Cash balances at central banks, and other demand deposits at banks11734489 124 Loans and advances to banks measured at amortised cost (note 5.14.a)57472714 Loans and advances to individuals measured at amortised cost (note 5.14.a)13,41429,0076,83013,219 Loans and advances to other customers measured at amortised cost (note 5.14.a)(44,639)25,972(24,840)(4,611) Debt securities measured at fair value through other comprehensive income (note 5.14.b)2,8543,888(148)635 Debt securities measured at amortised cost (note 5.14.b)(383)547(17) 224 Other financial assets measured at amortised cost (note 5.14.a)1,2491,994(8)28 Total impairment of financial assets(27,331)61,799(18,067)9,633 Impairment of investments in subsidiaries, associates and joint ventures Investments in subsidiaries--(7,522)552 Investments in associates and joint ventures--7930 Total--(7,443)582 Impairment of other assets Property and equipment (note 5.8.)216204-- Intangible assets (note 5.10.)936--- Other assets3,255792(104)103 Total4,407 996 (104)103 Total impairment of non-financial assets4,407 996 (7,547)685 Total impairment(22,924)62,795(25,614)10,318 in EUR thousands NLB GroupNLB 2021202020212020 Gains less losses on derecognition of subsidiaries, associates and joint ventures-11,006-35,454 Gains less losses from property and equipment 248 (153)(94)(220) Total 248 10,853(94)35,234 4.15. Gains less losses from non-current assets held for sale In May 2020, all the suspensive conditions under the joint NLB and KBC Insurance NV sale agreement signed in December 2019 were met, therefore, the sale of NLB’s 50% stake in the share capital of NLB Vita was completed. The effect of sale is included in the segment ‘Retail Banking in Slovenia.’ ![]() 214 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.16.Income tax Income tax differs from the amount of tax determined by applying the Slovenian statutory tax rate as follows: Each member of NLB Group (disclosed in note 5.12.a) is taxable as required by local tax legislation. Income tax rates within NLB Group range from 9–32%. A tax rate of 19% was applied in Slovenia in 2021 (2020: 19%). For the year 2021, NLB realised tax loss due to the utilisation of previously tax non-deductible expenses for impairments in the subsidiary, which was divested in 2021. The effects of the sale of the subsidiary are included into the effect of unrecognised deferred tax assets on impairments of subsidiaries and associates, and the effects of new tax loss are included into effect of unrecognised deferred tax assets on tax losses. Non-taxable income of NLB relates mostly to dividends. Non-taxable dividend income in 2021 amounts to EUR 75,635 thousand (2020: EUR 5,947 thousand). in EUR thousands NLB GroupNLB 2021202020212020 Current income tax16,96111,9723,1594,010 Income tax related to previous period-(3,569)-(3,569) Deferred income tax (note 5.17.)(3,423)(3,238)(112)(540) Total13,5385,1653,047(99) in EUR thousands NLB GroupNLB 2021202020212020 Profit before tax261,406277,921211,468113,853 Tax calculated at prescribed rate of 19%49,66752,80540,17921,632 Income not assessable for tax purposes(12,685)(26,300)(14,900)(4,359) Expenses not deductible for tax purposes6,5103,8381,1601,662 Effect of unrecognised deferred tax assets on impairments of subsidiaries and associates (32,036)(9,016)(36,446)(8,652) Tax reliefs(463)(1,902)-(1,649) Effect of unrecognised deferred tax assets on tax losses10,675(4,351)9,886(4,985) Effects of different tax rates in other countries(11,345)(6,273)-- Withholding tax suffered in other countries for which no tax credit was available in Slovenia 3,1561143,156114 Adjustment to tax in respect of prior periods50(3,457)3(3,569) Other9(293)9(293) Total13,5385,1653,047(99) Non-taxable income of NLB Group for 2020 mostly relates to the gain from a bargain purchase (negative goodwill) of Komercijalna banka Beograd. In 2020, NLB received EUR 3,569 thousand corporate income tax refund and EUR 341 thousand interest from the Italian Tax Authority. The refund is related to the closing of Trieste Branch (officially closed in 2017) and is the consequence of tax non- deductible impairments of financial assets, recognised by the Trieste Branch in the year 2013. The refund procedure started in 2016 and was successfully concluded in 2020. NLB recognised deferred tax assets accrued on the basis of temporary differences in an amount that, given future profit estimates, is expected to be reversed in the foreseeable future (i.e., within five years). Due to some uncertainties regarding external factors (regulatory environment, market situation, etc.), a lower range of expected outcomes was considered for the purposes of deferred tax assets calculation.The estimated amount of deferred tax assets, expected to be reversed in foreseeable future, was not changed in 2021 and stays the same as in 2020. NLB did not recognise deferred tax assets arising from tax losses and tax reliefs. NLB recognised deferred tax assets on all temporary differences, except for impairments of non-strategic capital investments and valuation of financial instruments where deferred tax assets are recognised in the amount that, taking into account other recognised deferred tax assets reaches the total amount of deferred tax assets, for which a reversal is expected within five years. The deferred tax assets with respect to which simultaneously deferred tax liabilities are recognised are excluded from this calculation (e.g., deferred tax assets for temporary non- deductible expenses for impairment of debt securities measured at fair value through other comprehensive income and deferred tax assets related to fair value hedge accounting). NLB Group members did not recognise deferred tax assets for tax losses if there is uncertainty about whether the tax losses can be utilised, because it is not probable that future taxable profits will be available against which the deferred tax assets can be utilised. The tax authorities may audit operations of NLB Group entities. In general, tax inspection, which may result in the emergence of additional tax liability, default interest, and penalties, may be initiated at any time within four to six years from the date of tax statement or from the year in which tax should have been assessed. NLB is not aware of any circumstances that could give rise to a potential material tax liability in this respect. In 2018, the Financial Administration of the Republic of Slovenia (FURS) granted NLB special tax status for a period of three years. This status was extended in March 2021 for another three years. The purpose of the status is to establish cooperation between FURS and the taxpayers, with the aim of encouraging voluntary compliance and reduce administrative burdens on financial supervision. FURS cooperates with NLB and responds quickly to resolve NLB’s tax compliance issues, which reduces NLB’s tax risks and uncertain tax positions. The effective tax rate of NLB Group relating to operations in 2021, calculated as a ratio of the tax expenses and profit before tax is 5.2% (2020: 1.9%). NLB Group profit before tax for the year 2020 includes non-taxable gain from a bargain purchase (negative goodwill) of EUR 137,858 thousand. Without this one- off event, the effective tax rate of NLB Group in 2020 would be 3.7%. The effective tax rate for NLB is 1.4% (2020: -0.1%). ![]() 215 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 4.17.Earnings per share Earnings per share are calculated by dividing the net profit by the weighted average number of ordinary shares in issue, less treasury shares. 5.Notes to the statement of financial position 5.1.Cash, cash balances at central banks, and other demand deposits at banks NLB GroupNLB 2021202020212020 Net profit attributable to the owners of the parent (in EUR thousands)236,404269,707208,421113,952 Weighted average number of ordinary shares (in thousands)20,00020,00020,00020,000 Basic earnings per share (in EUR per share)11.813.510.45.7 Diluted earnings per share (in EUR per share)11.813.510.45.7 Slovenian banks are required to maintain a compulsory reserve with the Bank of Slovenia relative to the volume and structure of their customer deposits. Other banks in NLB in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Balances and obligatory reserves with central banks4,133,1043,149,7752,982,5761,998,297 Cash509,596507,970178,045192,405 Demand deposits at banks363,246304,94190,16371,089 5,005,9463,962,6863,250,7842,261,791 Allowance for impairment(894)(874)(347)(258) Total5,005,0523,961,8123,250,4372,261,533 Group maintain a compulsory reserve in accordance with local legislation. NLB and other banks in NLB Group fulfil their compulsory reserve deposit requirements. Diluted earnings per share are the same as basic earnings per share for NLB Group and NLB, since subordinated loans and issued debt securities have no future conversion options, and consequently there are no dilutivepotentialordinary shares. ![]() 216 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.2.Financial instruments held for trading a)Financial assets held for trading The notional amounts of derivative financial instruments are disclosed in note 5.23.b). in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Derivatives. excluding hedging instruments Swap contracts6,66513,5976,67513,932 - currency swaps 438400448735 - interest rate swaps 6,22713,1976,22713,197 Options54 786 54 786 - interest rate options 53-53- - securities options 1 786 1 786 Forward contracts9591,6669531,663 - currency forward 9591,6669531,663 Total derivatives7,67816,0497,68216,381 Securities Bonds-68,806-2,450 - Republic of Serbia- 66,356-- - other non-EU members- 2,450-2,450 Total securities-68,806-2,450 Total7,67884,8557,68218,831 - quoted securities-68,806-2,450 of these debt instruments- 68,806-2,450 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Derivatives. excluding hedging instruments Swap contracts6,60913,9326,62613,947 - currency swaps 716777733792 - interest rate swaps 5,89313,1555,89313,155 Options53-53- - interest rate options 53-53- Forward contracts9231,5539231,553 - currency forward 9231,5539231,553 Total7,58515,4857,60215,500 b)Financial liabilities held fortrading The notional amounts of derivative financial instruments are disclosed in note 5.23.b). ![]() 217 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Assets Shares4,4724,1714,4724,171 Investment funds12,42810,989-- Bonds4,2612,157-- Loans and advances to companies-25,0767,88830,935 Total21,16142,39312,36035,106 - quoted securities4,2612,157-- of these debt instruments 4,2612,157-- - unquoted securities16,90015,1604,4724,171 of these equity instruments 16,90015,1604,4724,171 5.3.Non-trading financial instruments measured at fair value through profit or loss a)Financial assets mandatorily at fair value through profit orloss b)Financial liabilities measured at fair value through profit or loss in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Liabilities Loans and advances to companies--352- ![]() 218 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.4.Financial assets measured at fair value through other comprehensive income a)Analysis bytype of financial assets measured at fair value through other comprehensive income in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Bonds3,251,8263,260,9401,526,2371,598,760 - governments 2,477,2852,527,240766,688879,856 - Republic of Slovenia 314,929417,238270,423334,819 - other EU members 462,459384,474331,676370,484 - Republic of Serbia 1,196,7241,258,7755,021- - other non-EU members 503,173466,753159,568174,553 - banks 739,935716,459724,943701,663 - other issuers 34,60617,24134,60617,241 Shares22,10922,925219273 National Resolution Fund44,49044,87444,49044,874 Treasury bills105,866135,10214,80572,444 - Republic of Slovenia 6,47557,531-45,007 - other EU members 69,83624,01514,8057,011 - Republic of Serbia -8,483-- - other non-EU members 29,55545,073-20,426 Commercial bills37,56950,449-- Total3,461,8603,514,2901,585,7511,716,351 of these debt securities 3,395,2613,446,4911,541,0421,671,204 of these equity securities 66,59967,79944,70945,147 Allowance for impairment (note 5.14.b)(12,016)(9,482)(3,001)(3,141) - quoted securities3,205,2773,307,1031,541,0421,671,204 of these debt instruments 3,204,7453,306,4001,541,0421,671,204 of these equity instruments 532703-- - unquoted securities256,583207,18744,70945,147 of these debt instruments 190,516140,091-- of these equity instruments 66,06767,09644,70945,147 The credit quality analysis for financial assets and contingent liabilities is disclosed in note 6.1.j) and movements in allowance for the impairment of debt securities in note 5.14.b). ![]() 219 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Movements of financial assets measured at fair value through other comprehensiveincome in EUR thousands NLB GroupNLB 2021202020212020 Debt securitiesEquity securitiesDebt securitiesEquity securitiesDebt securitiesEquity securitiesDebt securitiesEquity securities Balance as at 1 January3,446,49167,7992,091,80549,6231,671,20445,1471,611,71144,946 Effects of translation of foreign operations to presentation currency1,19431(406) 94 ---- Acquisition of subsidiaries (note 5.12.c)--1,267,28117,614---- Additions1,455,823-1,856,445-219,733-1,045,700- Derecognition(1,468,240)(4,297)(1,790,053)(3,341)(338,929)(55)(999,844)- Net interest income40,310-17,370-11,696-9,894- Exchange differences on monetary assets8,367-(10,895)-8,452-(11,007)- Changes in fair values(52,085)3,06614,9443,809(31,114)(383)14,750201 Disposal of subsidiary (note 5.12.b)(36,599)------- Balance as at 31 December3,395,26166,5993,446,49167,7991,541,04244,7091,671,20445,147 As at 31 December 2021 and as at 31 December 2020, NLB Group and NLB do not have any equity instruments measured at fair value through other comprehensive income obtained by taking possession of collateral in the statement of financial position (note 6.1.l). By selling equity securities measured at fair value through other comprehensive income in 2021, NLB Group realised a net gain in the amount of EUR 3,362 thousand, and NLB a net gain in the amount of EUR 53 thousand (2020: NLB Group and NLB did not realise any gain or loss by selling equity securities measured at fair value through other comprehensive income). Realised gain in year 2021 was transferred to retained earnings (note 5.4.c). Equity investment obtained by taking possession of collateral in amount of EUR 3,289 thousand was during year 2020 converted back to the line item ‘Financial assets measured at amortised cost’ because the conditions of the bankruptcy proceedings were not met. At the time of conversion, NLB Group transferred EUR 1,002 thousand from accumulated other comprehensive income into retained earnings (note5.4.c). ![]() 220 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c)Accumulated other comprehensive income related to financial assets measured at fair value through other comprehensive income 5.5.Derivatives for hedging purposes NLB Group entities measure exposure to interest rate risk using repricing gap analysis and by calculating the sensitivity of the statement of financial position and off-balance-sheet items in terms of the economic value of equity. The portfolio duration is used as a measure of risk in the management of securities in the banking book. NLB Group entities use various derivatives such as interest rate swaps (IRS) and currency interest rate swaps (CIRS) to close open positions in an individual maturity bucket. Micro and macro fair value hedges are used for that purpose, i.e., the swapping of a fixed interest rate on a hedged item for a variable interest rate. Micro cash flow hedges are also occasionally used, i.e. the swapping of a variable interest rate on a hedged item for a fixed interest rate. All cash flow hedges are made on liability items, while fair value hedges are used on asset items. Hedge accounting principles (fair value and cash flow hedging) were applied in the hedging of interest rate risk using interest rate swaps. These hedge relationships are designated in such a way that the characteristics 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 measure hedge effectiveness retrospectively. Prospective testing of hedge effectiveness is carried out regularly for macro hedges where the characteristics of both items in the hedge relationship do not fully match by comparing the change in the fair value of both items to the shift in the yield curve. in EUR thousands NLB GroupNLB 2021202020212020 Debt securitiesEquity securitiesDebt securitiesEquity securitiesDebt securitiesEquity securitiesDebt securitiesEquity securities Balance as at 1 January39,9243,72645,4802,83627,24245224,156288 Effects of translation of foreign operations to presentation currency(7)61632---- Disposal of subisidiaries (note 5.12.b) - valuation and impairment(1,916)------- - deferred income tax (note 5.17.)193------- Net gains/(losses) from changes in fair value(38,158)3,0667,7173,809(17,187)(383)7,522202 Gains/losses transferred to net profit on disposal (note 4.4.)(167)-(5,066)-(24)-(4,347)- Impairment (note 4.14.)2,854-3,888-(148)-635- Transfer of gains/losses to retained earnings (5.4.b)-(3,362)-(1,002)-(53)-- Deferred income tax (note 5.17.)4,758(179)(1,085)(401)2,48283(724)(38) Share of other comprehensive income of associates and joint ventures--(11,026)(1,548)---- Balance as at 31 December7,4813,25739,9243,72612,3659927,242452 Hedge accounting principles were not applied in economic hedges using CIRS. Thus, the effects of valuation are disclosed in the income statement in the line item ‘Gains less losses from financial assets and liabilities held for trading.’ Sources of hedge ineffectiveness may arise, but are not limited to the discount rates used for valuation of derivatives at fair value, and notional and timing differences, as well differences in the amortisation plan between hedged items and the hedging instrument. Hedge effectiveness is assessed monthly, by comparing changes in the fair value of the hedged item that are attributable to a hedged risk with changes in the fair value of the hedging instrument. ![]() 221 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report a) Fair value adjustment in hedge accounting recognised in profit or loss In both years presented, all fair value hedges were effective, with actual results of the hedge ratio within a range of 80–125%, therefore, no discontinuation of the hedge accounting was required. As at 31 December 2021 and 2020, NLB Group and NLB had no relationships designated for cash flow hedge accounting or for hedge of a net investment in a foreign operation. in EUR thousands NLB Group and NLB20212020 Fair value hedge 167 720 Net effects from hedging instruments26,406(12,348) - interest rate swap for micro hedge19,547(7,537) - interest rate swap for macro hedge6,859(4,811) Net effects from hedged items(26,239)13,068 - loans measured at amortised cost - micro hedge(105)(128) - bonds measured at amortised cost - micro hedge(5,443)1,116 - bonds measured at fair value through OCI - micro hedge(13,929)7,227 - loans measured at amortised cost- macro hedge(6,762)4,853 in EUR thousands NLB Group and NLBNotional amountFair value AssetLiability Fair value hedge 31 Dec 2021572,45556835,377 31 Dec 2020573,753-61,161 in EUR thousands 20212020 NLB Group and NLB Carrying amount of hedged items Accumulated amount of FV adjustments on the hedged item Carrying amount of hedged items Accumulated amount of FV adjustments on the hedged item Micro fair value hedges479,57423,783498,39743,571 Fixed rate corporate loans measured at AC1,662602,667165 Fixed rate bonds measured at AC117,3688,426117,83914,182 Fixed rate bonds measured at FVOCI360,54415,297377,89129,224 Macro fair value hedges145,6387,082154,05013,844 Fixed rate retail loans145,6387,082154,05013,844 NLB Group applied a hedge of a net investment in a foreign operation in years 2011 and 2012, and at that time recognised a EUR 754 thousand gain on the hedging instrument in other comprehensive income (note 5.21.b). This gain will be included in the consolidated income statement when the foreign operation is disposed of as a part of the gain or loss on the disposal. c) Accumulated fair value adjustments arising from the corresponding continuing hedge relationships The table below presents accumulated fair value adjustments arising from the corresponding continuing hedge relationships, irrespective of whether there has been a change in the hedge designation during the year. The accumulated fair value adjustment is presented in the same line of statement of financial position as a hedged item, except for macro fair value hedges. In such relationships, hedged items are presented in the line item ‘Financial assets measured at amortised cost,’ while the accumulated fair value adjustment is presented in a separate line item ‘Fair value changes of the hedged items in portfolio hedge of interest rate risk.’ b)Notional amounts of interest rate swaps ![]() 222 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report d) IBOR reform NLB Group closely monitors the development of Benchmark Interest Rate Reform and is actively preparing for the changes imposed by the regulation. In 2018, NLB formed a special working group which deals with the preparation for the discontinuation of some important reference interest rates and reports on this to NLB Group ALCO. NLB Group no longer offers new products that would be tied to reference rates in termination. The exception are products related to EURIBOR, which is not scheduled for discontinuation. Therefore,NLB Group’s attentionwas focused on the modification of new contractual relationships with customers in which EURIBOR occurs and the amendment of existing contractual relationships with customers in which other benchmarks in termination appear. EURIBOR (likely) discontinuation Due to timely transition to the new hybrid EURIBOR methodology which meet the BMR requirements, EURIBOR can continue to be used in new and legacy contracts for the foreseeable future. EU supervised entities are bound to include robust fallback clausesinto contractual documentationwith the clients. In November 2019, the Euro risk-free rates (RFR) Working Group published high level recommendations for fallback provisions for products referencing EURIBOR. The inclusion of robust fallback language is a requirement in contracts subject to the EU Benchmark Regulation. The Bank already incorporated the generic fallback clause into all new EURIBOR (both retail and corporate) contracts. In May 2021, the Euro RFR Working Group produced its recommendations on EURIBOR fallback trigger events and €STR-based EURIBOR fallback rates. Our mid-term activities are expected to undertake on the implementation of more precise fallback provisioning, based on these recommendations. NLB identified potential €STR-based fallbacks for EURIBOR, in line with the current market consensus on those fallbacks and intends to proceed with the activities for inclusion on EURIBOR fallbacks into all new EURIBOR-based contracts. In the next step, the Bank is expected to include fallback provisions also in legacy contracts. The exact timing depends on regulatory development and best market practice. NLB as a supervised entity, is required to comply with the Benchmark regulation and, as a user of benchmarks, must produce and maintain a robust written plan setting out the actions NLB would take in the event that a benchmark materially changes or ceases to be provided. NLB has prepared a plan, which sets out an inexhaustive/summary action list, and will continue to closely follow market standards to identify alternative benchmarks that could be referenced in substitute of existing benchmarks. LIBOR (imminent) discontinuation. Since many LIBOR settings ceased to exist at the beginning of 2022, the Bank accelerated the process of winding-down the exposures in a most efficient way. Incremental LIBOR transactions were not allowed unconditionally. NLB Group activities for implementation of LIBOR transition were as follows: • reviewof outstanding LIBOR referencing loans, •identification of alternative reference rate to be used for loan portfolio, •analysis of how the alternative reference rate will be calculated and how to calculate any economic difference between LIBORs and the selected alternative reference rates, •consideration of IT system accommodation with alternative reference rates, •documentation of the transition of the loans. In February 2021; the European Commission adopted an amendment to the existing EU BMR and in October 2021; the European Commission published the Implementing Regulation on the designation of a statutory replacement for certain settings of CHF LIBOR and for EONIA. CHF LIBOR transition to SARON Compound Rate was successfully implemented in due time. The table below indicates the nominal amount and weighted average maturity of derivatives in hedging relationships that will be affected by the IBOR reform, analysed on an interest rate basis. The derivative hedging instruments provide a close approximation to the extent of the risk exposure NLB Group manages through hedging relationships. NLB Group and NLB20212020 Nominal amount (in EUR thousands) Weighted average maturity (years) Nominal amount (in EUR thousands) Weighted average maturity (years) Interest rate swaps EURIBOR (3 months)186,4724.23186,4715.18 EURIBOR (6 months)371,8667.00374,2547.83 USD LIBOR (6 months)14,1170.9813,0281.99 As can be seen from the table, the majority of long-term derivatives in hedging relationships are exposed to EURIBOR, therefore, the uncertainty arising from interest rate benchmark reform derives mainly from derivativeswith longer maturities, when a change of EURIBOR could be expected. As at 31 December 2021, derivatives with remaining maturity of five or more years amount to EUR 272,730 thousand (31December 2020: EUR 310,730 thousand). ![]() 223 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.6.Financial assets measured at amortised cost Analysis by type The credit quality analysis for financial assets and contingent liabilities is disclosed in note 6.1.j). a) Debt securities in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Debt securities1,717,6261,503,0871,436,4241,277,880 Loans and advances to banks140,683197,005199,287158,320 Loans and advances to customers10,587,1219,619,8605,145,1534,564,178 Other financial assets122,229113,13892,40454,503 Total12,567,65911,433,0906,873,2686,054,881 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Governments1,317,2481,173,7181,041,787953,881 Companies79,85286,94672,63279,732 Banks295,653220,988295,653220,988 Financial organisations28,17825,12028,17825,120 1,720,9311,506,7721,438,2501,279,721 Allowance for impairment (note 5.14.b)(3,305)(3,685)(1,826)(1,841) Total1,717,6261,503,0871,436,4241,277,880 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Loans10,2009,809117,49095,070 Time deposits130,602128,07481,90063,405 Reverse sale and repurchase agreements-59,263-- Purchased receivables79-79- 140,881197,146199,469158,475 Allowance for impairment (note 5.14.a)(198)(141)(182)(155) Total140,683197,005199,287158,320 b) Loans and advances to banks ![]() 224 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c) Loans and advances to customers Analysis of loans and advances to customers by sector in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Loans10,310,3009,490,7345,006,8714,501,991 Overdrafts352,018322,622174,063152,487 Finance lease receivables (note 5.11.b)108,71549,517-- Credit card business129,330125,72559,30552,156 Called guarantees2,7313,5421,333916 10,903,0949,992,1405,241,5724,707,550 Allowance for impairment (note 5.14.a)(315,973)(372,280)(96,419)(143,372) Total10,587,1219,619,8605,145,1534,564,178 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Governments281,010368,400143,864170,742 Financial organisations141,709158,871226,144177,198 Companies4,645,1124,159,4962,118,2101,838,468 Individuals5,519,2904,933,0932,656,9352,377,770 Total10,587,1219,619,8605,145,1534,564,178 ![]() 225 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report d) Other financial assets Analysis by type of other financial assets Receivables in the course of settlement are temporary balances which will be transferred to the appropriate item in the days following their occurrence. in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Receivables in the course of settlement and other temporary accounts40,43632,48423,94515,906 Credit card receivables22,67020,26015,27011,383 Debtors8,2276,3161,3111,307 Fees and commissions7,3036,5633,0412,871 Receivables to brokerage firms and others for the sale of securities and custody services 613611610610 Accrued income1,7151,3271,6901,296 Dividends--20,493- Prepayments1,526447-- Other financial assets45,96550,68327,19722,460 128,455118,69193,55755,833 Allowance for impairment (note 5.14.a)(6,226)(5,553)(1,153)(1,330) Total122,229113,13892,40454,503 Other financial assets include receivables to pension funds for early retirement payments, receivables from insurance companies, claims in enforcement procedures, claims from refunds, claims for subsidies from related transactions, paid duties, andcourt fees. Analysis of other financial assets by sector in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Banks33,32535,43134,1318,069 Government43,43241,57623,76922,537 Financial organisations15,97914,48812,8187,257 Companies5,9943,912647580 Individuals23,49917,73121,03916,060 Total122,229113,13892,40454,503 ![]() 226 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report e)Movement of callednon-financial guarantees 5.7. Non-current assets held for sale The line item ‘Non-current assets held for sale’ includes business premises and assets received as collateral that are in the process of being sold. As at 31 December 2021, the value of assets received by taking possession of collateral and included in non-current assets held for sale by NLB Group amounted to EUR 699 thousand(31 December 2020: EUR 699 thousand). As at 31 December 2021 and as at 31 December 2020, NLB did not have any non-current assets obtained by taking possession of collateral and included in non-current assets held for sale (note 6.1.l). in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January1,8381,859440365 Effects of translation of foreign operations to presentation currency(1)(2)-- Called guarantees1,5412,3761,2072,261 Paid guarantees(1,904)(1,932)(470)(1,723) Write-offs(757)(463)(757)(463) Balance as at 31 December7171,838420440 Analysis of movements of non-current assets held for sale in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January8,65843,1914,4545,532 Effects of translation of foreign operations to presentation currency3(3)-- Acquisition of subsidiaries (note 5.12.c)-1,969-- Additions9789-- Transfer from/(to) property and equipment (note 5.8.)6052,7795182,626 Transfer from/(to) other assets20--- Transfer from/(to) investment property (note 5.9.)(22)(17)-- Disposals(1,952)(39,089)(547)(3,484) Valuation(358)(261)(336)(220) Balance as at 31 December7,0518,6584,0894,454 In May 2020, all the suspensive conditions under the joint NLB and KBC Insurance NV sale agreement signed in December 2019 were met, therefore, the sale of NLB’s 50% stake in the share capital of NLB Vita was completed. The effect of sale in year 2020 is included in the segment ‘Retail Banking in Slovenia.’ 5.8. Property and equipment a) Analysis by type in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Own property and equipment223,593223,59882,90588,495 Right-of-use assets (note 5.11.)23,42125,5193,2173,180 Total247,014249,11786,12291,675 ![]() 227 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB GroupNLB Land & Buildings ComputersOther equipmentTotal Land & Buildings ComputersOther equipmentTotal for own use in operating lease for own use in operating lease Cost Balance as at 1 January 2021345,76981,72998,8384,309530,645197,04349,58049,3553,514299,492 Effects of translation of foreign operations to presentation currency 62 1730-109----- Additions3,9877,2964,8711,94818,1023,3211,5131,51096,353 Disposals(1,385)(8,710)(8,393)(648)(19,136)-(7,194)(4,722)(4)(11,920) Impairment (note 4.14.)(126)---(126)----- Transfer to/from investment property (note 5.9.)4,377---4,377(2,423)---(2,423) Transfer to/from non-current 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 December 2021346,85880,13194,7295,609527,327195,85243,89946,1433,519289,413 Depreciation and impairment Balance as at 1 January 2021173,40453,82276,8972,924307,047135,34332,90539,9442,805210,997 Effects of translation of foreign operations to presentation currency 71026-43----- Disposals(684)(8,634)(7,577)(152)(17,047)-(7,194)(4,248)(3)(11,445) Depreciation (note 4.11.)7,1248,7335,19655421,6073,8254,3762,08632310,610 Impairment (note 4.14.)90---90----- Transfer to/from investment property (note 5.9.)(2,676)---(2,676)(2,083)---(2,083) Transfer to/from non-current 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 December 2021172,16053,83374,4153,326303,734135,51430,08737,7823,125206,508 Net carrying value Balance as at 31 December 2021174,69826,29820,3142,283223,59360,33813,8128,361 394 82,905 Balance as at 1 January 2021172,36527,90721,9411,385223,59861,70016,6759,41170988,495 b)Movement of own property and equipment ![]() 228 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report As at 31 December 2021, the value of assets received by taking possession of collateral and included in property and equipment by NLB Group amounted to EUR 13,559 thousand (31 December 2020: EUR 13,268 thousand), and in NLB to EUR 7 thousand (31 December 2020: EUR 7 thousand) (note 6.1.l). in EUR thousands NLB GroupNLB Land & Buildings ComputersOther equipmentTotal Land & Buildings ComputersOther equipmentTotal for own use in operating lease for own use in operating lease Cost Balance as at 1 January 2020313,16870,74495,6736,186485,771198,31344,63551,6285,441300,017 Effects of translation of foreign operations to presentation currency (101)(20)(40)-(161)----- Acquisition of subsidiaries (note 5.12.c)40,1731,7733,249-45,195 Additions5,88810,2546,9451,25524,3425,2995,3783,35610414,137 Disposals(5,843)(961)(6,955)(3,132)(16,891)(13)(433)(5,629)(2,031)(8,106) Impairment (note 4.14.)(43)---(43)----- Transfer to/from investment property (note 5.9.)(756)---(756)----- Transfer to/from non-current 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 December 2020345,76981,72998,8384,309530,645197,04349,58049,3553,514299,492 Depreciation and impairment Balance as at 1 January 2020173,76348,80879,5154,625306,711135,32829,44043,7624,367212,897 Effects of translation of foreign operations to presentation currency (25)(17)(40)-(82)----- Disposals(2,427)(948)(6,651)(2,349)(12,375)-(431)(5,600)(2,031)(8,062) Depreciation (note 4.11.)6,2716,0404,10364817,0623,9453,8961,782 469 10,092 Impairment (note 4.14.)161---161----- Transfer to/from investment property (note 5.9.)(401)---(401)----- Transfer to/from non-current 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 December 2020173,40453,82276,8972,924307,047135,34332,90539,9442,805210,997 Net carrying value Balance as at 31 December 2020172,36527,90721,9411,385223,59861,70016,6759,41170988,495 Balance as at 1 January 2020139,40521,93616,1581,561179,06062,98515,1957,8661,07487,120 ![]() 229 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.9. Investment property in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January54,84252,3168,3009,303 Effects of translation of foreign operations to presentation currency19(24)-- Acquisition of subsidiaries (note 5.12.c)-19,643-- Additions-717-- Disposals(4,075)(2,493)-(2,031) Transfer from/(to) property and equipment (note 5.8.)(7,053)355340- Transfer from/(to) non-current assets held for sale (note 5.7.)2217-- Transfer from/(to) other assets1,397(16,559)137231 Net valuation to fair value (note 4.8.)3,589 870 306797 Disposals of subisidiaries (note 5.12.b)(1,215)--- Other98-98- Balance as at 31 December47,62454,8429,1818,300 in EUR thousands NLB GroupNLB 2021202020212020 Leased to others1,1031,157291383 Not leased to others231 242 183 194 Total1,3341,399 474 577 As at 31 December 2021, the value of assets received by taking possession of collateral and included in investment property by NLB Group amounted to EUR 36,009 thousand (31 December 2020: EUR 36,130 thousand), and in NLB amounted to EUR 4,176 thousand (31 December 2020: EUR 4,079 thousand) (note 6.1.l). Operatingexpensesarising from investment properties: ![]() 230 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.10. Intangible assets in EUR thousands NLB GroupNLB Software licenses Other intangible assets GoodwillTotal Software licenses Cost Balance as at 1 January 2021246,68713,20032,336292,223201,614 Effects of translation of foreign operations to presentation currency1311- 24 - Additions14,866--14,8667,370 Write-offs(15,527)--(15,527)(7,956) Disposal of subsidiary (note 5.12.b)(432)--(432)- Balance as at 31 December 2021245,60713,21132,336291,154201,028 Amortisation and impairment Balance as at 1 January 2021201,748-28,807230,555173,509 Effects of translation of foreign operations to presentation currency87-15- Amortisation (note 4.11.)11,9444,267-16,2116,022 Impairments (note 4.14.)936--936- Write-offs(15,435)--(15,435)(7,956) Disposal of subsidiary (note 5.12.b)(204)--(204)- Balance as at 31 December 2021198,9974,27428,807232,078171,575 Net carrying value Balance as at 31 December 202146,6108,9373,52959,07629,453 Balance as at 1 January 202144,93913,2003,52961,66828,105 ![]() 231 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Other intangibleassets represent additionallyidentified intangible assets in a business combination, namely core deposits and trade name (note 5.12.c). in EUR thousands NLB GroupNLB Software licenses Other intangible assets GoodwillTotal Software licenses Cost Balance as at 1 January 2020228,692-32,336261,028192,581 Effects of translation of foreign operations to presentation currency(34)--(34)- Acquisition of subsidiaries (note 5,12.c)4,92113,200-18,121- Additions14,150--14,1509,033 Write-offs(844)--(844)- Disposal of subsidiary (note 3.)(198)--(198)- Balance as at 31 December 2020246,68713,20032,336292,223201,614 Amortisation and impairment Balance as at 1 January 2020192,679-28,807221,486166,601 Effects of translation of foreign operations to presentation currency(22)--(22)- Amortisation (note 4,11.)10,112--10,1126,908 Write-offs(826)--(826)- Disposal of subsidiary (note 3.)(195)--(195)- Balance as at 31 December 2020201,748-28,807230,555173,509 Net carrying value Balance as at 31 December 202044,93913,2003,52961,66828,105 Balance as at 1 January 202036,013-3,52939,54225,980 ![]() 232 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.11. Leases a) NLB Group as a lessee In the statement of financial position, right-of-use assets are included in the line item ‘Property and equipment’ and lease liabilities are included in the line item ‘Other financial liabilities.’ Additions to the right-of-use assets during 2021 in NLB Group amounted to EUR 10,172 thousand (2020: EUR 4,736 thousand) and in NLB EUR 1,245 thousand (2020: EUR 1,808 thousand). Due to the acquisition of subsidiaries in 2020, the right-of-use assets in NLB Group increased by EUR 9,576 thousand. The income statement shows the following amounts relating to leases: in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Right-of-use assets Land and buildings19,54522,7582,2442,240 Vehicles390959 960 912 Furniture and equipment3,4861,8021328 Total23,42125,5193,2173,180 Lease liabilities24,32426,3593,2563,212 in EUR thousands NLB GroupNLB 2021202020212020 Depreciation of right-of-use assets (note 4.11.) Land and buildings7,1593,299465441 Vehicles444571410391 Furniture and equipment1,107 671 1516 Total8,7104,541890848 in EUR thousands NLB GroupNLB 2021202020212020 Interest expenses on lease liabilities (note 4.1.)(470)(294)(29)(39) Expenses relating to short-term leases (included in administrative expenses)(606)(719)(179)(266) Expenses relating to leases of low-value assets that are not shown above as short-term leases (included in administrative expenses) (1,050)(771)(157)(151) Income from sub-leasing right-of-use assets (included in other operating income) 10892-- The total cash outflow for leases in 2021 in NLB Group was EUR 9,397 thousand (2020: EUR 4,865 thousand) and in NLB EUR 933 thousand (2020: EUR 897 thousand). ![]() 233 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group leases various offices, branches, vehicles, and other equipment used in its business. Rental contracts for offices and branches generally have lease terms between 5 to 20 years, while some contracts are made for indefinite periods. Contracts for indefinite periods are included in measurement of the liability in accordance with planning projections. Normally, a lease term of 5 years is assumed, with the exemption of business premises on strategic locations where management assesses a different (longer) lease term. Vehicles and other equipment generally have lease terms between 1 to 5 years. There are several lease contracts that include extension and termination options. These options are negotiated by management to align with the Group’s business needs. Lease payments to be made under reasonably certain extension options are included in measurement of the liability. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. NLB Group also has certain leases of other equipment with lease term of 12 months or less, and equipment with low value. For these leases, NLB Group applies the short-term lease and lease of low-value assets recognition exemptions. Lease payments on short-term leases and leases of low-value assets are recognised as an expenses on a straight-line basis over the lease term. For calculation of the net present value of the future lease payments, NLB Group applies the internal transfer price for retail deposits as a discount rate. NLB Group and NLB do not have expenses relating to variable payments and gains or losses arising from sale and leaseback transactions. A maturity analysis of lease liabilities is disclosed in note 6.3.f). b) NLB Group as a lessor Finance and operating leases of motor vehicles and operating leases of business premises and POS terminals represent the majority of agreements in which NLB Group acts as a lessor. Most of the lease agreements entered into by NLB Group as lessor contracts are finance lease agreements. Most of the finance lease agreements are concluded for a non- cancellable period of between 48 and 60 months. By paying the last instalment at the end of the contract, the leasing object becomes the lessee’s property. The financial leasing receivables are secured by the object of financing. NLB Group does not have finance lease contracts with variable payments not included in the measurement of the net investment in the lease. The investment properties are leased to lessee under operating leases with rentals payable monthly. There are no variable lease payments that depend on an index or rate. The investment properties generally have lease terms between 2 to 10 years. Some contracts are made for indefinite period. As at 31 December 2021, the allowance for unrecoverable finance lease receivables included in the allowance for loan impairment amounted to EUR 436 thousand (as at 31 December 2020 EUR 884 thousand). Finance leases Loans and advances to customers in NLB Group include finance lease receivables. The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date. in EUR thousands NLB Group20212020 Less than one year36,46523,287 One to two years25,72311,506 Two to three years21,2767,734 Three to four years16,4355,159 Four to five years10,3753,243 More than five years8,6042,719 Total undiscounted lease receivable118,87853,648 Unearned finance income(10,163)(4,131) Net investment in the lease108,71549,517 During 2021, NLB Group recognised interest income on lease receivables in the amount of EUR 3,452 thousand (2020: EUR 1,957 thousand). ![]() 234 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Operating lease A maturity analysis of lease payments, showing the undiscounted lease payments to be received after the reporting date: NLB Group realised rental income arising from: investment properties in the amount of EUR 3,558 thousand (2020: EUR 2,572 thousand); and movable property in the amount of EUR 1,074 thousand (2020: EUR 1,003 thousand). in EUR thousands NLB GroupNLB 2021202020212020 Less than one year2,7573,082375399 One to two years1,3961,863348364 Two to three years8171,497346341 Three to four years5971,411342333 Four to five years4301,308301331 More than five years1,2111,7591,029 243 Total7,20810,9202,7412,011 in EUR thousands NLB31 Dec 202131 Dec 2020 Banks696,538671,880 Other financial organisations29,72021,819 Enterprises55,28255,361 Total781,540749,060 5.12. Investmentsin subsidiaries, associates and joint ventures a) Analysis by type of investment in subsidiaries NLB realised rental income arising from: investment properties in the amount of EUR 567 thousand (2020: EUR471thousand); and movable property in the amount of EUR 471thousand (2020: EUR 470 thousand) (note 4.8.). ![]() 235 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Data of subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2021: in EUR thousands Nature of Business Country of Incorporation Equity as at 31 Dec 2021 Profit/(loss) for 2021 NLB’s shareholding % NLB’s voting rights % NLB Group’s shareholding % NLB Group’s voting rights % Core members NLB Banka a.d., Skopje BankingNorth Macedonia243,26739,00086.9786.9786.9786.97 NLB Banka a.d., Podgorica BankingMontenegro92,64310,05075.9075.9099.8799.87 NLB Banka a.d., Banja Luka Banking Bosnia and Herzegovina 97,14918,18099.8599.8599.8599.85 NLB Banka sh.a., Prishtina BankingKosovo98,85624,43682.3882.3882.3882.38 NLB Banka d.d., Sarajevo Banking Bosnia and Herzegovina 87,83810,01297.3497.3597.3497.35 NLB Banka a.d., Beograd BankingSerbia77,9184,293100100100100 Komercijalna banka a.d., Beograd BankingSerbia634,64334,81886.7088.2886.7088.28 KomBank Invest a.d., BeogradFinanceSerbia1,3454--100100 NLB Skladi d.o.o., Ljubljana FinanceSlovenia14,9668,969100100100100 NLB Lease&Go, leasing, d.o.o., Ljubljana FinanceSlovenia16,342(921)100100100100 NLB Zavod za upravljanje kulturne dediščine, Ljubljana Cultural heritage management Slovenia814436100100100100 Non-core members NLB Leasing d.o.o., Beograd - u likvidaciji FinanceSerbia5,98540100100100100 NLB Leasing d.o.o., Ljubljana - v likvidaciji\* FinanceSlovenia18,0582,545--100100 Optima Leasing d.o.o., Zagreb - "u likvidaciji"FinanceCroatia1,258(94)--100100 Tara Hotel d.o.o., Budva Real estateMontenegro16,802(223)12.7112.71100100 PRO-REM d.o.o., Ljubljana - v likvidaciji Real estateSlovenia19,966154100100100100 OL Nekretnine d.o.o., Zagreb - u likvidacijiReal estateCroatia1,319(93)--100100 REAM d.o.o., Podgorica Real estateMontenegro1,69644100100100100 REAM d.o.o., Beograd Real estateSerbia1,844(217)100100100100 SPV 2 d.o.o., Beograd Real estateSerbia8319100100100100 S-REAM d.o.o., Ljubljana Real estateSlovenia2,197850100100100100 REAM d.o.o., ZagrebReal estateCroatia1,0255--100100 NLB Srbija d.o.o., Beograd Real estateSerbia32,259188100100100100 NLB Crna Gora d.o.o., Podgorica FinanceMontenegro3,1302,375100100100100 NLB InterFinanz AG, Zürich in Liquidation FinanceSwitzerland12,3951,725100100100100 NLB InterFinanz d.o.o., BeogradFinanceSerbia3---100100 LHB AG, Frankfurt FinanceGermany2,221489100100100100 \*100% ownership of NLB Lease&Go, leasing, d.o.o., Ljubljana. ![]() 236 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Data of subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2020: in EUR thousands Nature of Business Country of Incorporation Equity as at 31 Dec 2020 Profit/(loss) for 2020 NLB’s shareholding % NLB’s voting rights % NLB Group’s shareholding % NLB Group’s voting rights % Core members NLB Banka a.d., Skopje BankingNorth Macedonia229,77719,22286.9786.9786.9786.97 NLB Banka a.d., Podgorica BankingMontenegro68,5561,38799.8399.8399.8399.83 NLB Banka a.d., Banja Luka Banking Bosnia and Herzegovina 99,87210,12299.8599.8599.8599.85 NLB Banka sh.a., Prishtina BankingKosovo98,33513,33481.2181.2181.2181.21 NLB Banka d.d., Sarajevo Banking Bosnia and Herzegovina 89,8085,89597.3497.3597.3497.35 NLB Banka a.d., Belgrade BankingSerbia74,2052,59899.99799.99799.99799.997 Komercijalna banka a.d., Belgrade BankingSerbia609,943(9,050)81.4283.2381.4283.23 Komercijalna banka a.d., Banja LukaBanking Bosnia and Herzegovina 31,045(1,309)0.0020.002100100 Komercijalna banka a.d., PodgoricaBankingMontenegro20,689(1,224)--100100 KomBank Invest a.d., BelgradeFinanceSerbia1,342---100100 NLB Skladi d.o.o., Ljubljana FinanceSlovenia10,4875,490100100100100 NLB Lease&Go, leasing, d.o.o., Ljubljana FinanceSlovenia1,938(1,062)100100100100 NLB Zavod za upravljanje kulturne dediščine, Ljubljana Cultural heritage management Slovenia 378 368100100100100 Non-core members NLB Leasing d.o.o., Ljubljana - v likvidaciji FinanceSlovenia17,568720100100100100 Optima Leasing d.o.o., Zagreb - "u likvidaciji"FinanceCroatia1,346(996)--100100 NLB Leasing d.o.o., Belgrade - u likvidaciji FinanceSerbia5,94019100100100100 Tara Hotel d.o.o., Budva Real estateMontenegro17,025(204)12.7112.71100100 PRO-REM d.o.o., Ljubljana - v likvidaciji Real estateSlovenia20,870353100100100100 OL Nekretnine d.o.o., Zagreb - u likvidacijiReal estateCroatia1,409(127)--100100 BH-RE d.o.o., Sarajevo - u likvidacijiReal estate Bosnia and Herzegovina 7(14)--100100 REAM d.o.o., Podgorica Real estateMontenegro1,652(166)100100100100 REAM d.o.o., Belgrade Real estateSerbia1,762(145)100100100100 SPV 2 d.o.o., Belgrade Real estateSerbia8208100100100100 S-REAM d.o.o., Ljubljana Real estateSlovenia1,349(236)100100100100 REAM d.o.o., ZagrebReal estateCroatia2,10892--100100 NLB Srbija d.o.o., Belgrade Real estateSerbia32,0461,149100100100100 NLB Crna Gora d.o.o., Podgorica Real estateMontenegro755139100100100100 NLB InterFinanz AG, Zürich in Liquidation FinanceSwitzerland10,783986100100100100 NLB InterFinanz d.o.o., BelgradeFinanceSerbia3(3)--100100 LHB AG, Frankfurt FinanceGermany1,732(432)100100100100 Changes in ownership interest in subsidiaries of NLB Group in 2021 and 2020 are presented in note 3. ![]() 237 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Data of subsidiaries with significant non-controlling interests, before intercompany eliminations in EUR thousands Komercijalna banka, Beograd NLB Banka, Skopje NLB Banka, Prishtina 20212020\*2021202020212020 Non-controlling interest in equity in %13.3018.5813.0313.0317.6218.79 Non-controlling interest's voting rights in %11.7216.7713.0313.0317.6218.79 Income statement and statement of comprehensive income Revenues156,710-87,86481,67351,50947,699 Profit/(loss) for the year34,818(9,050)39,00019,22224,43613,334 Attributable to non-controlling interest4,631(1,681)5,0822,5054,3062,505 Other comprehensive income(10,117)2,145(759)898(311) 74 Total comprehensive income24,701(6,905)38,24120,12024,12513,408 Attributable to non-controlling interest3,285(1,283)4,9832,6224,2522,519 Paid dividends to non-controlling interest--3,222-4,160- Statement of financial position Current assets1,859,6051,455,793719,846690,387446,182443,289 Non-current assets2,305,6442,441,2941,050,742895,265484,363435,775 Current liabilities3,266,2532,978,9591,335,4441,176,539756,702689,776 Non-current liabilities264,353308,185191,877179,33674,98790,953 Equity634,643609,943243,267229,77798,85698,335 Attributable to non-controlling interest84,408113,32731,69829,94017,42118,477 \*Since the acquisition of Komercijalna banka, Beograd was concluded on 30 December 2020, only 12-month expected credit losses and attributable deferred taxes are included in NLB Group’s income statement for 2020. ![]() 238 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Disposal of Komercijalna banka a.d. Banja Luka In December 2021, Komercijalna banka a.d. Beograd sold its subsidiary Komercijalna banka a.d. Banja Luka. The in EUR thousands Cash, cash balances at central banks, and other demand deposits at banks75,699 Financial assets measured at fair value through other comprehensive income36,599 Financial assets measured at amortised cost - loans and advances to customers131,928 - other financial assets381 Tangible assets Property and equipment2,438 - own property and equipment (note 5.8.b)709 - right-of-use assets1,729 Investment property (note 5.9.)1,215 Intangible assets (note 5.10.)228 Current income tax assets29 Other assets1,026 Total assets249,543 Financial liabilities measured at amortised cost - deposits from banks and central banks15,514 - due to customers172,900 - borrowings from other customers25,120 - other financial liabilities2,289 Provisions361 Deferred income tax liabilities61 Other liabilities277 Total liabilities216,522 Net assets of subsidiary33,021 Total disposal consideration22,000 Cash and cash equivalents in subisidiary sold(69,832) Cash outflow on disposal(47,832) Consideration for disposal of the subsidiary22,000 Carrying amount of net assets disposed of33,021 Transfer of FV OCI revaluation reserve to P&L1,723 Loss from disposal of subsidiary in consolidated financial statements(9,298) - Non-controlling interest(1,237) - Attributable to owners of the parent(8,061) assets and liabilities derecognised from NLB Group financial statements as a result of the disposal are as follows: Effect of sale of Komercijalna banka a.d. Banja Luka is included in the segment ‘Strategic Foreign Markets.’ ![]() 239 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c)Acquisition of Komercijalna bankaa.d. Beograd On 30 December 2020, NLB acquired an 83.23% ordinary shareholding in Komercijalna banka a.d. Beograd, which represents 81.42% of total shareholding in Komercijalna banka a.d. Beograd. At the date of acquisition, the acquired bank had the following subsidiaries: Serbia has long been a strategically important market for NLB Group in the context of the strategy to be the leading international bank headquartered in and focused on the SEE region. Whilst in all countries of Group’s operations NLB has a top three market position, in Serbia (the largest market by population) it was, until the execution of this transaction, sub-scale. As a result of the transaction, NLB became the third largest banking group in Serbia with the acquisition of Komercijalna banka increasing NLB’s market share from approximately 2% by total assets to over 12% as at 30 September 2020. The business operations of NLB Group in Serbia will be (besides the Slovenian market) the largest and most important one, Subsidiaries Komercijalna banka Beograd’s ownership NLB’s direct ownership Komercijalna banka a.d. Podgorica, Montenegro100%- Komercijalna banka a.d. Banja Luka, Bosnia and Herzegovina99.998%0.002% Investment Management Company KomBank Invest a.d. Beograd, Serbia100%- adding more than 800,000 active retail customers and the largest distribution network in the country of 203 branches to NLB’s existing operations. Purchase consideration amounted to EUR 394,718 thousand and was fully paid in cash. There are no contingent consideration arrangements. At acquisition date, cash in acquired entities amounted to EUR 847,488 thousand, therefore the net inflow of cash amounted to EUR 452,770 thousand (included in statement of cash flows within payments from investing activities). ![]() 240 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group recognises non-controlling interests in Komercijalna banka Beograd at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition of Komercijalna banka Beograd resulted in a gain from a bargain purchase (negative goodwill) in the amount in EUR thousands Cash, cash balances at central banks and other demand deposits at banks836,408 Financial assets held for trading66,356 Non-trading financial assets mandatorily at fair value through profit or loss5,628 Financial assets measured at fair value through other comprehensive income (note 5.4.b)1,284,895 Financial assets measured at amortised cost - debt securities7,214 - loans and advances to banks46,981 - loans and advances to customers1,877,349 - other financial assets23,250 Tangible assets Property and equipment (notes 5.8.b and 5.11.a)54,771 Investment property (note 5.9.)19,643 Intangible assets (note 5.10.)18,121 Current income tax assets153 Deferred income tax assets1,125 Other assets17,604 Non-current assets held for sale (note 5.7.b)1,969 Total assets4,261,467 Financial liabilities measured at amortised cost - deposits from banks and central banks35,895 - borrowings from banks and central banks8,788 - due to customers3,443,478 - borrowings from other customers29,295 - other financial liabilities49,072 Provisions (note 5.16.)34,537 Current income tax liabilities4 Deferred income tax liabilities2,112 Other liabilities4,176 Total liabilities3,607,357 Net identifiable assets acquired (100%)654,110 Less: non-controlling interests(121,534) Net assets acquired (NLB Group share)532,576 Consideration given394,718 Bargain purchase (negative goodwill)137,858 The assets and liabilities recognised as a result of the acquisition are as follows: of EUR 137,858 thousand, which is recognised in income statement under line item ‘Negative goodwill.’ The main reasons for negative goodwill are current market conditions, when banks are generally valued below their net book values. ![]() 241 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report As a result of the acquisition, NLB Group’s off-balance sheet liabilities increased by EUR 377,361 thousand: in EUR thousands Short-term guarantees19,431 - financial15,437 - non-financial3,994 Long-term guarantees88,123 - financial34,467 - non-financial53,656 Commitments to extend credit266,832 Letters of credit1,440 Other1,535 Total377,361 In 2020, acquisition-related costs amounted to EUR 1,643 thousand and are includedwithin administrative expenses. NLB obtained all the necessary information for measuring fair values, therefore no amounts in 2020 financial statements were measured and recognised on a provisional basis. Assets acquiredValuation technique Performing loans Discounted cash flow approach: Since these are performing loans, it was assumed that they would be repaid by future cash flows in accordance with amortisation schedules. Credit risk was considered for loans which are classified in Stage 2 in Komercijalna banka’s local financial statements, by reducing future cash flows accordingly. Also prepayment risk was estimated for two retail products namely cash loans and housing loans which have the longest maturity. As a discount rate, average weighted interest rate for new transactions in the market for the same products, currency and clients (sector) were used. The source was Serbian central bank (NBS) statistical database, which provided a history of interest rates data by various products, currencies, maturities, type of interest rates, and size of customer for new loans. Non-performing loans Discounted cash flow approach: Since these are non-performing loans, it could generally not be assumed that they would be repaid with cash flows from client’s regular business. Instead, gone concern principle was used, taking into account liquidation value of collateral as expected cash flows. Appropriate haircuts for age of valuations, type of collateral, type of location, and type of real estate were used to estimate the liquidation value of collateral, which was then discounted for a period of 4 years, with the required yield of 20%. Only exceptionally, also cash flows from regular business were considered, also discounted with the required yield of 20%. Debt securities For debt securities classified in Level 1 of fair value hierarchy, fair values were determined by an observable market price in an active market for an identical asset. For valuing debt securities in Level 2, income approach was used, based on the estimation of future cash flows discounted to the present value. The input parameters used in the income approach were the risk-free yield curve and the spread over the yield curve (credit, liquidity, country). Real estate Three approaches were used for estimating the value of real estate - the income capitalisation approach, the sale comparison approach and the residual land value approach. Each views the valuation from different perspectives and considers data from different market sources. The most suitable approach depends on the characteristics and use of individual real estate. The income capitalization approach: Values property by the amount of income - cash flow that it can potentially generate. The value of the property is derived by converting the expected income generated from a property into a present value estimate using market capitalization rate. This method is commonly used for valuing income-generating properties. The sale comparison approach: Values property by comparing similar properties that have been sold recently. This approach is sometimes referred to as the ‘direct sales comparison approach.’ The reliability of an indication found by this method depends on the quality of comparable data found in the marketplace and application of adequate adjustments for individually appraised real estate.When sale transactions are not available, the direct sales comparison approach is not applicable. Residual land value approach: is a method for calculating the value of development land. It is performed by subtracting from the total value of a development project, all costs associated with the development project, including profit but excluding the cost of the land. It is applicable only for development/construction land. Core deposits Acquired core deposit accounts typically provide a low-cost source of funds to the buyer. To replace these established, low-cost deposit accounts in a timely manner, the buyer’s alternative would be to utilise higher- cost funds at current market rates. Core deposits value is measured by the present value of the difference, or spread, between the core deposit’s ongoing cost and the cost of a market alternative replacement. Trade name The trade name was valued by applying the relief-from-royalty method under the income approach. This method is based upon the application of an appropriate royalty rate on the respective revenues to estimate the Fair Value for the trade name. This method assumes that, by virtue of having ownership of the trade name rather than licensing one for use Liabilities acquiredValuation technique Deposits Discounted cash flow approach: Aggregated future cash flows were discounted by applying market interest rates for term deposits. Future cash flows were grouped into 11 groups according to the type of client and currency. As a discount rate, average weighted interest rate for new transactions in the market in 2020 was applied. The valuation techniques used for measuring the fair value of material assets and liabilities acquired were as follows: ![]() 242 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The fair value of acquired loans and advances to customers is EUR 1,877,349 thousand, of which EUR 1,836,970 thousand relates to performing portfolio and EUR 40,379 thousand to non-performing portfolio. The latter was recognised as purchased or originated credit-impaired financial assets (POCI). The gross contractual amount for performing loans and advances to customers is EUR 1,827,721 thousand and for this exposure 12-month expected credit losses in the amount of EUR 10,349 thousand were recognised through the income statement. The gross contractual amount for non-performing loans and advances to customers is EUR 149,654 thousand, and it is expected that approximately EUR 75 million of the contractual cash flows will not be collected. Since the transaction was closed on 30 December 2020, only 12-month expected credit losses for Stage 1 financial assets in the amount of EUR 13,447 thousand and attributable deferred taxes in the amount of EUR 1,864 thousand are included in NLB Group income statement. If the acquisition has occurred on 1 January 2020, management estimates that consolidated revenue (excluding negative goodwill) would have been between EUR 750 and 760 million and consolidated profit for the year would have been between EUR 260 and 265 million. The exact result is difficult to assess due to some changed circumstances during the year, especially the COVID-19 pandemic. By contractual agreement between the shareholders, NLB does not control ARG-Nepremičnine, Horjul, but does have a significant influence. Therefore, the entity is accounted as an associate. 20212020 Nature of Business Country of Incorporation Shareholding %Voting rights %Shareholding %Voting rights % Bankart d.o.o., LjubljanaCard processingSlovenia45.6445.6440.0840.08 ARG - Nepremičnine d.o.o., HorjulReal estateSlovenia75.0075.0075.0075.00 in EUR thousands 20212020 Carrying amount of the NLB Group's interest11,5257,988 NLB Group's share of: - Profit for the year1,108 874 - Other comprehensive income(30)(41) - Total comprehensive income1,078833 in EUR thousands NLB GroupNLB Carrying amount of the NLB Group's interest31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Other financial organisations11,5257,9884,2821,382 Enterprises--201280 Total11,5257,9884,4831,662 NLB Group’sassociates The carrying amount of interests in associates included in the consolidated financial statements of NLB Group: d) Analysis by type of investment in associates and joint ventures ![]() 243 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.13. Other assets in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Assets. received as collateral (note 6.1.l)75,45076,0174,8274,926 Deferred expenses10,0469,1576,2025,976 Inventories2,1737,85842180 Claim for taxes and other dues1,8262,949 621 467 Prepayments1,7261,159161115 Total91,22197,14011,85311,664 20212020 Nature of Business Country of Incorporation Voting rights%Voting rights% Prvi Faktor Group, LjubljanaFinanceSlovenia5050 in EUR thousands NLB Group20212020 Balance as at 1 January7,9887,499 Increase in capital share2,900326 Share of result before tax1,3391,036 Share of tax(231)(162) Net gains/(losses) recognised in other comprehensive income(30)(41) Dividends received(441)(670) Balance as at 31 December11,5257,988 In 2021, NLB Group did not recognise a share of profit of an associate in the amount of EUR 65 thousand (2020: EUR 31 thousand), as it still has the cumulative unrecognised share of In 2021, NLB Group did not recognise a share of profit of a joint venture in the amount of EUR 435 thousand (2020: EUR 556 thousand). The cumulative unrecognised share of losses of a joint venture as at 31 December 2021 amounted to EUR 14,825 thousand (31 December 2020: EUR 15,259 thousand). losses of an associate that as at 31 December 2021 amounted to EUR 2,199 thousand (31 December 2020: EUR 2,264 thousand). Assets, received as collateral on NLB Group in the amount of EUR 74,717 thousand (31 December 2020: EUR 75,151 thousand), and on NLB in the amount of EUR 4,827 thousand (31 December 2020: EUR 4,926 thousand) consist of real estate (note 6.1.l). NLB Group’s joint ventures e) Movements of investments in associates ![]() 244 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group Balance as at 1 Jan 2021 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements Disposal of subsidiary Balance as at 31 Dec 2021 Repayments of written-off receivables Notes4.14.4.14.5.6.b), c), d)4.14. 12-month expected credit losses Loans and advances to banks141--9-48-- 198 - Loans and advances to individuals25,044514,152(13,005)(164)(7,479)(3)(214) 18,336 - Loans and advances to other customers49,475204,0362,476(8)(4,292)31(777) 50,961 - Other financial assets 276 (2)202115(54)(70)10(1) 476 - Lifetime ECL not credit-impaired Loans and advances to individuals8,1511(8,554)6,975(35)898(3)(35) 7,398 - Loans and advances to other customers32,6824(3,515)(240)(231)(1,960)21(137) 26,624 - Other financial assets30--7(7)9(3)- 36 - Lifetime ECL credit-impaired Loans and advances to individuals61,30514(5,598)25,606(15,160)7,8682,135(123) 76,047 7,449 Loans and advances to other customers195,623 587 (521)8(66,532)1,6416,226(425) 136,607 42,272 Other financial assets5,247-(202)1,770(847)(112)(142)- 5,714 470 Of which: Purchased or originated credit-impaired Loans and advances to individuals-1-(1,157)(702)-1,701- (157) - Loans and advances to other customers1,319--(3,243)(2,312)-4,849- 613 - Other financial assets4(1)-(602)(9)--- (608) - 5.14.Movements in allowance for the impairment of financial assets a)Movements in allowance for the impairment of loans and receivables measured at amortised cost ![]() 245 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group Balance as at 1 Jan 2020 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements Disposal of subsidiary Balance as at 31 Dec 2020 Repayments of written-off receivables Notes4.14.4.14.5.6.b), c), d)4.14. 12-month expected credit losses Loans and advances to banks95(1)- 62 -(15)-- 141 - Loans and advances to individuals21,613(22)12,806(9,062)(1)(290)-- 25,044 - Loans and advances to other customers35,115(9)5,0047,803(6)1,597(18)(11) 49,475 - Other financial assets177(1)6380(22)(21)-- 276 - Lifetime ECL not credit-impaired Loans and advances to individuals6,103(3)(11,149)7,250(3)5,92528- 8,151 - Loans and advances to other customers27,076(2)(8,675)4,955(4)9,334(2)- 32,682 - Other financial assets271(17)(143)(4)166-- 30 - Lifetime ECL credit-impaired Loans and advances to individuals47,737(22)(1,610)29,353(20,159)1,6894,317- 61,305 5,858 Loans and advances to other customers184,800 67 3,62411,750(31,254)9827,584(1,046) 195,623 9,565 Other financial assets4,702(9)(46)2,395(2,258)16485(38) 5,247 499 Of which: Purchased or originated credit-impaired Loans and advances to other customers1,887--(568)---- 1,319 - Other financial assets3--1---- 4 - Column Increases/(Decreases) for year 2020 also includes 12-month expected credit losses recognised at acquisition of Komercijalna banka in the amount of EUR 2,150 thousand for Loans and advances to individuals, in the amount of EUR 8,198 thousand for Loans and advances to other customers and in the amount of EUR 54 thousand for Other financial assets (notes 4.14. and 5.12.c). ![]() 246 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2021 Repayments of written-off receivables Notes4.14.4.14.5.6.b), c), d)4.14. 12-month expected credit losses Loans and advances to banks155-27--- 182 - Loans and advances to individuals8,9733,881(4,914)(156)(4,281)- 3,503 - Loans and advances to other customers16,6644,740(5,419)(1)(5,915)32 10,101 - Other financial assets731441(12)(57)3 62 - Lifetime ECL not credit-impaired Loans and advances to individuals2,351(2,181)2,007(27)2701 2,421 - Loans and advances to other customers8,936(2,651)(2,715)(3)(1,799)19 1,787 - Other financial assets2-(1)--- 1 - Lifetime ECL credit-impaired Loans and advances to individuals22,855(1,700)8,779(6,020)7,56617 31,497 2,597 Loans and advances to other customers83,593(2,089)(659)(33,269)349(815) 47,110 8,682 Other financial assets1,255(14)129(280)-- 1,090 120 Of which: Purchased or originated credit-impaired Loans and advances to other customers1,319-1,339--(1,820) 838 - Other financial assets4-2--- 6 - ![]() 247 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The contractual amount outstanding on financial assets that were written off during the year ending 31 December 2021 and that are still subject to enforcement activity for NLB Group amounted to EUR 76,252 thousand (31 December 2020: EUR 42,738 thousand), and for NLB amounted to EUR 8,136 thousand (31 December 2020: EUR 9,773 thousand), of which EUR 2,251 thousand in NLB Group (31 December 2020: EUR 4,162 thousand) and EUR 1,265 thousand in NLB (31 December 2020: EUR 2,537 thousand) represents interest receivables that have not been recognised in the income statement prior to the write-off. in EUR thousands NLB Balance as at 1 Jan 2020 Transfers Increases/ (Decreases) Write-offs Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2020 Repayments of written-off receivables Notes4.14.4.14.5.6.b), c), d)4.14. 12-month expected credit losses Loans and advances to banks141-32-(18)- 155 - Loans and advances to individuals7,1956,107(6,509)(1)2,181- 8,973 - Loans and advances to other customers13,5293,254(3,388)(6)3,303(28) 16,664 - Other financial assets5568(22)(2)(25)(1) 73 - Lifetime ECL not credit-impaired Loans and advances to individuals1,396(4,953)3,422(3)2,491(2) 2,351 - Loans and advances to other customers9,792(3,261)(2,516)(4)4,925- 8,936 - Other financial assets9(1)(7)-1- 2 - Lifetime ECL credit-impaired Loans and advances to individuals15,576(1,154)14,318(6,227)(365) 707 22,855 2,319 Loans and advances to other customers71,2777(2,677)(7,159)(119)22,264 83,593 4,139 Other financial assets1,777(67)411(864)(2)- 1,255 328 Of which: Purchased or originated credit-impaired Loans and advances to other customers1,856-(537)--- 1,319 - Other financial assets3-1--- 4 - ![]() 248 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Movements in allowance for the impairment of debt securities in EUR thousands NLB Group Balance as at 1 Jan 2021 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Disposal of subsidiary Balance as at 31 Dec 2021 Notes4.14.4.14.5.6.a), 5.4.a) 12-month expected credit losses Debt securities measured at amortised cost3,6851(32)997(1,400)2- 3,253 Debt securities measured at fair value through other comprehensive income 8,6562-812,73118(340) 11,148 Lifetime ECL not credit-impaired Debt securities measured at amortised cost--32164-- 52 Debt securities measured at fair value through other comprehensive income 28-- 24 18-- 70 Lifetime ECL credit-impaired Debt securities measured at fair value through other comprehensive income 798------ 798 in EUR thousands NLB Group Balance as at 1 Jan 2020 Effects of translation of foreign operations to presentation currency Transfers Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2020 Notes4.14.4.14.5.6.a), 5.4.a) 12-month expected credit losses Debt securities measured at amortised cost3,140(2)-343204- 3,685 Debt securities measured at fair value through other comprehensive income 4,7572-4,156(253)(6) 8,656 Lifetime ECL not credit-impaired Debt securities measured at fair value through other comprehensive income 42--(6)(9)1 28 Lifetime ECL credit-impaired Debt securities measured at fair value through other comprehensive income 798----- 798 Column Increases/(Decreases) for year 2020 includes also 12-month expected credit losses recognised at acquisition of Komercijalna banka in the amount of EUR 32 thousand for Debt securities measured at amortised cost and in the amount of EUR 2,932 thousand for Debt securities measured at fair value through other comprehensive income (notes 4.14. and 5.12.c). ![]() 249 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2021 Notes4.14.4.14.5.6.a), 5.4.a) 12-month expected credit losses Debt securities measured at amortised cost1,841456(473)2 1,826 Debt securities measured at fair value through other comprehensive income2,343(22)(126)8 2,203 Lifetime ECL credit-impaired Debt securities measured at fair value through other comprehensive income798--- 798 in EUR thousands NLB Balance as at 1 Jan 2020 Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2020 Notes4.14.4.14.5.6.a), 5.4.a) 12-month expected credit losses Debt securities measured at amortised cost1,61716208- 1,841 Debt securities measured at fair value through other comprehensive income1,714 626 9(6) 2,343 Lifetime ECL credit-impaired Debt securities measured at fair value through other comprehensive income798--- 798 ![]() 250 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c) Explanation of how significant changes in the gross carrying amount of financial instruments contributed to changes in the loss allowance Movement of gross carrying amountof loans to banks Movement of gross carrying amountof loans and advances to individuals in EUR thousands NLB GroupNLB 12-month expected credit losses2021202020212020 Balance as at 1 January197,14693,498158,475144,493 Effects of translation of foreign operations to presentation currency(7)(99)-- Acquisition of subsidiaries (note 5.12.c)-46,981-- Decreases/Increases(61,245)56,61641,09413,829 Exchange differences on monetary assets4,987150(100)153 Balance as at 31 December140,881197,146199,469158,475 in EUR thousands NLB GroupNLB Individuals 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20214,777,413132,987117,1935,027,5932,295,63064,67551,6442,411,949 Effects of translation of foreign operations to presentation currency 1,268(8)261,286---- Transfers(39,411)4,60434,807-(17,729)5,23012,499- Increases/(Decreases)666,437(16,708)(8,010)641,719291,509(3,888)(764)286,857 Write-offs(164)(35)(15,160)(15,359)(156)(27)(6,020)(6,203) Exchange differences on monetary assets1,93027321,9891,67145371,753 Modification losses (note 4.12.)(31)(6)(2)(39)---- Disposal of subsidiary(34,891)(626)(601)(36,118)---- Balance as at 31 December 20215,372,551120,235128,2855,621,0712,570,92566,03557,3962,694,356 in EUR thousands NLB GroupNLB Individuals 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20203,822,266103,73487,4884,013,4882,301,33934,82640,6272,376,792 Effects of translation of foreign operations to presentation currency (20)(1)-(21)---- Acquisition of subsidiaries (note 5.12.c)843,675-5,753849,428---- Transfers(88,975)44,78544,190-(50,790)36,06614,724- Increases/(Decreases)203,520(15,470)(4,342)183,70844,914(6,216)1,81240,510 Write-offs(1)(3)(20,159)(20,163)(1)(3)(6,227)(6,231) Exchange differences on monetary assets(1,983)(88)(54)(2,125)16823173 Excluded interest-304,3174,347--705705 Modification losses (note 4.12.)(1,069)--(1,069)---- Balance as at 31 December 20204,777,413132,987117,1935,027,5932,295,63064,67551,6442,411,949 ![]() 251 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report In year 2021, the loss allowance for loans and advances to individuals increased by EUR 7,281 thousand at NLB Group level, while at NLB level it increased by EUR 3,242 thousand. Even though the gross carrying amount increased mainly in Stage 1 due to new exposures, the increase of loss allowance was observed mostly in Stage 3. The main reason for this were changes in risk parameters, which increased loss allowance for Stage 3 loans and advances to individuals in the amount of EUR 7,868 thousand at NLB Group level and EUR 7,566 thousand at NLB level. In year 2020, the loss allowance for loans and advances to individuals increased by EUR 19,047 thousand at NLB Group level, while at NLB level it increased by EUR 10,012 thousand. The main reasons for the increase were changed risk parameters, which increased loss allowance by EUR7,324thousand at NLB Group level and by EUR 4,307 thousand at NLB level. At the NLB Group level, the gross carrying amount increased by EUR 1,014,105 thousand, mainly due to acquisition of subsidiaries, while at the NLB level it increased by EUR 35,157 thousand. Acquisition of subsidiaries (note 5.12.c) contributed EUR 849,428 thousand to the gross carrying amount of loans and advances to individuals on NLB Group level. For the performing part of this portfolio, 12-month expected credit losses in the amount of EUR 2,150 thousand were recognised. The gross carrying amount also increased due to changed presentation of excluded interest. NLB Group calculates interest income by applying the effective interest rate to the gross carrying amount of financial assets other than credit- impaired assets. When a financial asset becomes credit- impaired and is, therefore, classified in Stage 3, interest income is calculated by applying the effective interest rate to the net amortised cost of the financial asset. Part of the contractually due interest for Stage 3 exposures that is not included in the income statement (so-called ‘excluded interest’) has been in previous periods presented as a decrease of gross carrying amount of financial assets. In year 2020, the Bank of Slovenia changed the instructions for reporting of monetary financial institutions and regards excluded interest as part of gross carrying amount, even if not recognised in the income statement. Therefore, NLB Group changed the presentation as at 31 December 2020 and increased gross carrying amount and impairments for EUR 4,347 thousand on the Group level and EUR 705 thousand on the NLB level. ![]() 252 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Movement of gross carrying amountof loans and advances to othercustomers In year 2021, the gross carrying amount of loans and advances to other customers increased by EUR 317,476 thousand at NLB Group level and EUR 251,615 thousand at NLB level, mostly in Stage 1 due to increased exposure. Regardless of that, loss allowance decreased (for EUR 63,588 thousand at NLB Group level and EUR 50,195 thousand), with main reasons being write-offs (EUR 66,771 thousand at NLB Group level and EUR 33,273 thousand at NLB level) and changes in risk parameters (decrease of loss allowance at NLB Group level for EUR 4,611 thousand and at NLB level for EUR 7,365 thousand). In year 2020, the loss allowance for loans and advances to other customers increased by EUR 30,789 thousand at NLB Group level, while at NLB level it increased by EUR 14,595 thousand. The main reasons for the increase were changed risk parameters, which increased loss allowance by EUR in EUR thousands NLB GroupNLB Other customers 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20214,219,862427,166317,5194,964,5471,982,033193,835119,7332,295,601 Effects of translation of foreign operations to presentation currency 1,220828522,154---- Transfers(110,801)85,36425,437-(13,004)11,9311,073- Increases/(Decreases)608,913(98,209)(34,880)475,824379,138(82,687)(15,037)281,414 Write-offs(8)(231)(66,532)(66,771)(1)(3)(33,269)(33,273) Exchange differences on monetary assets3,6202351594,0143,1092281373,474 Modification losses (note 4.12.)(17)(6)(201)(224)---- Disposal of subsidiary(92,304)(2,217)(3,000)(97,521)---- Balance as at 31 December 20214,630,485412,184239,3545,282,0232,351,275123,30472,6372,547,216 in EUR thousands NLB GroupNLB Other customers 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20203,270,058367,283261,3393,898,6802,049,210154,600106,7622,310,572 Effects of translation of foreign operations to presentation currency (2,407)(197)(126)(2,730)---- Acquisition of subsidiaries (note 5.12.c)993,295-34,6261,027,921---- Transfers(169,871)108,99560,876-(100,324)77,76122,563- Increases/(Decreases)130,986(48,552)(35,202)47,23236,267(38,342)(24,596)(26,671) Write-offs(6)(4)(31,254)(31,264)(6)(4)(7,159)(7,169) Exchange differences on monetary assets(168)(2)(3)(173)(3,114)(180)(121)(3,415) Excluded interest--27,38927,389--22,28422,284 Modification losses (note 4.12.)(2,025)(357)(126)(2,508)---- Balance as at 31 December 20204,219,862427,166317,5194,964,5471,982,033193,835119,7332,295,601 11,029thousand at NLB Group level and by EUR 8,109 thousand at NLB level. At the NLB Group level, the gross carrying amount increased by EUR 1,065,867 thousand, mainly due to acquisition of subsidiaries, while at the NLB level it decreased by EUR 14,971 thousand. ![]() 253 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Acquisition of subsidiaries (note 5.12.c) contributed EUR 1,027,921 thousand to the gross carrying amount of loans and advances to customers on NLB Group level. For the performing part of this portfolio, 12-month expected credit losses in the amount of EUR 8,183 thousand were recognised. The gross carrying amount also increased for EUR 27,389 thousand at NLB Group level and for EUR 22,284 thousand at NLB level due to changed presentation of excluded interest. Movement of gross carrying amountof other financial assets The loss allowance for other financial assets in year 2021 on NLB Group level moved in line with gross carrying amount and increased by EUR 673 thousand. At NLB level, gross carrying amount increased by EUR 37,724 thousand, but most of this increase relates to receivables with very short maturity (of that EUR 20,492 thousand to receivables towards a subsidiary for dividends declared in 2021). Therefore, the loss allowance in 2021 slightly decreased (by EUR 177 thousand), with main reason being write-offs in the amount of EUR 292 thousand. The loss allowance for other financial assets in year 2020 moved in line with gross carrying amount and increased by EUR 647 thousand at NLB Group level, while at the NLB level it decreased by EUR 511 thousand. in EUR thousands NLB GroupNLB 2021202020212020 12-month expected credit losses Lifetime ECL not credit - impaired 12-month expected credit losses 12-month expected credit losses 12-month expected credit losses Balance as at 1 January1,506,772-1,656,9881,279,7211,486,783 Effects of translation of foreign operations to presentation currency 74 11(325)-- Acquisition of subsidiaries (note 5.12.c)--7,214-- Additions769,067-303,670639,735181,235 Derecognition(564,041)-(477,592)(486,630)(401,685) Net interest income13,144-16,1309,50412,701 Exchange differences on monetary assets1,348-(429)1,364(429) Other(5,444)-1,116(5,444)1,116 Transfers(7,209)7,209--- Balance as at 31 December1,713,7117,2201,506,7721,438,2501,279,721 Movement of gross carrying amount of debt securities measured at amortised cost ![]() 254 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Movement of gross carrying amountof debt securities measured at fair valuethrough other comprehensive income in EUR thousands NLB GroupNLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20213,407,3942037983,408,3951,639,915-7981,640,713 Effects of translation of foreign operations to presentation currency 1,204--1,204---- Additions1,455,823--1,455,823219,733--219,733 Derecognition(1,481,974)(19)-(1,481,993)(352,824)--(352,824) Net interest income40,310--40,31011,696--11,696 Exchange differences on monetary assets8,367--8,3678,452--8,452 Disposal of subisidiary(35,023)--(35,023)---- Balance as at 31 December 20213,396,1011847983,397,0831,526,972-7981,527,770 in EUR thousands NLB GroupNLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20202,055,3622207982,056,3801,583,603-7981,584,401 Effects of translation of foreign operations to presentation currency (421)--(421)---- Acquisition of subsidiaries (note 5.12.c)1,267,281--1,267,281---- Additions1,856,445--1,856,4451,045,700--1,045,700 Derecognition(1,777,748)(17)-(1,777,765)(988,275)--(988,275) Net interest income17,370--17,3709,894--9,894 Exchange differences on monetary assets(10,895)--(10,895)(11,007)--(11,007) Balance as at 31 December 20203,407,3942037983,408,3951,639,915-7981,640,713 ![]() 255 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.15.Financial liabilities, measured at amortised cost Analysis by type of financial liabilities, measured at the amortised cost a)Deposits from banks and central banks and amounts due to customers in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Deposits from banks and central banks71,82872,633109,32941,635 Borrowings from banks and central banks858,531158,225873,479143,464 Due to customers17,640,80916,397,1679,659,6058,850,755 Borrowings from other customers74,05191,56040613 Subordinated liabilities288,519288,321288,519288,321 Other financial liabilities206,878182,095102,52788,969 Total19,140,61617,190,00111,033,8659,413,157 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Deposit on demand - banks and central banks56,42752,25094,32341,635 - other customers15,319,11213,633,8898,982,5468,128,950 - governments 401,295307,082109,22886,276 - financial organisations 303,858192,224265,900137,204 - companies 3,653,7133,223,6121,870,1181,551,952 - individuals 10,960,2469,910,9716,737,3006,353,518 Other deposits - banks and central banks15,40120,38315,006- - other customers2,321,6972,763,278677,059721,805 - governments 95,062117,42834,80135,515 - financial organisations 125,310134,71671,58234,474 - companies 380,815398,595229,093192,955 - individuals 1,720,5102,112,539341,583458,861 Total17,712,63716,469,8009,768,9348,892,390 ![]() 256 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Borrowings from banks and central banks and other customers As at 31 December 2021, NLB Group and NLB had EUR 94,115 thousand in undrawn borrowings (31 December 2020: EUR 140,713 thousand). In June 2021, the Bank participated in the ECB TLTRO III.8 operation and had drawn a credit tranche of EUR 750,000 thousand for three years. With targeted longer-term refinancing operations, the ECB continues to support the access of enterprises and households to bank loans. The Bank was successful in achieving the lending performance threshold in the special reference period and will use the positive effect from this transaction to partially compensate for the negative carry of liquidity reserves. Based on currently available information, the Bank plans to opt for early repayment in June 2022. NLB Group accounts for this loan according to the requirements of IFRS 9. Expected effective interest rate was estimated based on the expectations of early repayment in June 2022 and achieving the lending performance in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Loans - banks and central banks858,531158,225873,479143,464 - other customers74,05191,56040613 - governments 20,60720,183-- - financial organisations 52,95870,956-- - companies 48642140613 Total932,582249,785873,885143,477 in EUR thousands NLB Group and NLB 31 Dec 202131 Dec 2020 CurrencyDue dateInterest rateCarrying amountNominal valueCarrying amountNominal value Subordinated bonds EUR06.05.20294.2% to 06.05.2024, thereafter 5Y MS + 4.159% p.a.45,90345,00045,86745,000 EUR19.11.20293.65% to 19.11.2024, thereafter 5Y MS + 3.833% p.a.119,577120,000119,480120,000 EUR05.02.20303.4% to 05.02.2025, thereafter 5Y MS + 3.658% p.a.123,039120,000122,974120,000 Total288,519285,000288,321285,000 threshold. Since the threshold was achieved and early repayment in June 2022 is still expected, no changes in estimates of payments due to revised assessment were needed. By applying the effective interest rate of -1%, NLB Group recognised in 2021 interest income in the amount of EUR 3,979 thousand (note 4.1.). The carrying amount of the loan as at 31 December 2021 amounts to EUR 746,021 thousand. c) Subordinated liabilities ![]() 257 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Movement of subordinated liabilities after obtaining approval from the ECB. As such, approval had not been granted by 23 December 2019, and it was not reasonably expected to be granted in the near future, NLB announced the prepayment of the loan, which was exercised in January 2020. in EUR thousands NLB Group and NLB20212020 Balance as at 1 January288,321210,569 Cash flow items:(10,350)67,383 - new issued subordinated liabilities-119,222 - repayment of subordinated liabilities-(45,000) - repayment of interest(10,350)(6,839) Non-Cash flow items:10,54810,369 - accrued interest10,54810,243 - other-126 Balance as at 31 December288,519288,321 In September 2019, NLB entered into a loan agreement relating to a EUR 45 million of subordinated loan intended for the inclusion into additional capital to strengthen and optimise its capital structure. NLB may, according to valid legislation, only include the loan in calculation of additional capital in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Items in the course of settlement57,93446,3955,9404,412 Debit or credit card payables27,32522,88324,63820,135 Suppliers17,51420,99312,04915,768 Lease liabilities (note 5.11.a)24,32426,3593,2563,212 Accrued expenses25,85221,31412,90910,635 Fees and commissions1,6091,1001,504 967 Liabilities to brokerage firms and others for securities purchase and custody services 2972,4592022,443 Other financial liabilities52,02340,59242,02931,397 Total206,878182,095102,52788,969 d) Other financial liabilities Other financial liabilities mainly include liabilities to insurance companies, liabilities for received EIB financial initiatives, received warranties, and obligation for purchase of securities. All issued subordinated bonds represent non-convertible Tier 2 instruments (note 5.22.). In the event of bankruptcy or liquidation of the issuer, obligations arising from Tier 2 instruments shall be repaid: a) after repayment of all unsubordinated obligations of the Issuer, as well as at all subordinated obligations (if any) which are expressed to rank in priority to Tier 2 instruments; b) with the same priority ( pari passu ) as, and proportionally with the obligations arising from other instruments which qualify as Tier 2 instruments or have the same priority of repayment as the Tier 2 instruments; c) in priority to the obligations arising from shares or other instruments which qualify as Common Equity Tier 1 capital instruments or additional Tier 1 instruments or have the same priority of repayment as these instruments. ![]() 258 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.16. Provisions a) Analysis by type of provisions in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Provisions for guarantees and commitments (note 5.23.a)33,44142,17420,56028,543 Stage 112,91215,7963,9097,510 Stage 21,6402,767141732 Stage 318,88923,61116,51020,301 Employee benefit provisions21,44720,70714,20614,220 Restructuring provisions19,21715,56511,13115,354 Provisions for legal risks45,28846,6023,4665,673 Other provisions1111-- Total119,404125,05949,36363,790 Provisions for guarantees and commitments represent expected credit losses in accordance with IFRS 9, employee benefits are recognised in accordance with IAS 19, while all other provisions are recognised according to IAS 37. Legalrisks Provisions for legal risks are formed based on expectations regarding the probable outcome of legal disputes. As at 31 December 2021, NLB Group was involved in 38 (31 December 2020: 39) legal disputes with material claims against Group members in the total amount of EUR 404,001 thousand, excluding accrued interest (31 December 2020: EUR 292,098 thousand). As at 31 December 2021, NLB was involved in 16 (31 December 2020: 18) legal disputes with material monetary claims against NLB. The total amount of these claims, excluding accrued interest, was EUR 180,077 thousand (31 December 2020: EUR 179,996 thousand). In connection with legal risks, the largest amount of material monetary claims relates to civil claims filed by Privredna banka Zagreb (the PBZ) and Zagrebačka banka (the ZaBa) against NLB, referring to the old savings of LB Branch Zagreb savers, which were transferred to these two banks in a principal amount of approximately EUR 171 million (as per 31 December 2021). Due to the fact the proceedings had been pending for such a long time, the penalty interest already exceeds the principal amount. As NLB is not liable for the old foreign currency savings, based on numerous process and content-related reasons, NLB has all along objected to these claims. Two key reasons NLB is not liable for the old foreign currency savings are that it was only founded on the basis of the Constitutional Act on 27 July 1994 (at the time the savings were deposited with LB Branch Zagreb, NLB did not yet exist), and NLB did not assume any such obligations. Moreover, this is a former Yugoslavia succession matter, as the governments of the Republic of Slovenia and the Republic of Croatia agreed in a Memorandum of Understanding signed in 2013 whose intent was to find a solution to the transferred foreign currency savings of Ljubljanska banka in Croatia (LB) on the basis of the Agreement on Succession Issues. The Memorandum also said that the Republic of Croatia would ensure the stay of all the proceedings commenced by the PBZ and the ZaBa in relation to the transferred foreign currency savings until the issue was finally resolved. Despite the agreement in the Memorandum of Understanding to stay all of the proceedings commenced, the Court of Appeal, the County Court of Zagreb, ruled in six claims (as explained below in detail) in favour of the plaintiff. In four of those cases, NLB filed a constitutional suit after extraordinary legal measure of NLB with the Supreme Court of the Republic of Croatia was not successful, and in two NLB filed an extraordinary legal measure with the Supreme Court of the Republic of Croatia. ![]() 259 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Contrary to the decisions of the court described above in another case, a claim filed by the PBZ was refused and the judgment became final in favour of NLB. The extraordinary legal measure with the Supreme Court of the Republic of Croatia, filed by the plaintiff, was dismissed by the Supreme Court on 16 June 2015. Date of the rulingPlaintiff Principal amount Costs of the proceedings Measures taken by NLB May 2015PBZ254.76 EUR15,781.25 HRK Constitutional suit against the final judgement, as NLB found the court decision contrary to the legislation in force and constitutional principles and as well contrary to the Memorandum concluded between the Republic of Slovenia and the Republic of Croatia. Constitutional Court of the Republic of Croatia rejected the constitutional appeal of NLB d.d. on 21 May 2018. April 2018PBZ222,426.39 EUR253,283.37 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Croatia in the revision proceeding), as NLB found the court decision contrary to the legislation in force and constitutional principles, and as well contrary to the Memorandum concluded between the Republic of Slovenia and the Republic of Croatia. Constitutional Court of the Republic of Croatia rejected the constitutional appeal of NLB d.d. on 5 October 2021. September 2017ZaBa492,430.53 EUR748,583.75 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Croatia in the revision proceeding), as NLB found the court decision contrary to the legislation in force and constitutional principles, and as well contrary to the Memorandum concluded between the Republic of Slovenia and the Republic of Croatia. Constitutional Court of the Republic of Croatia rejected the constitutional appeal of NLB d.d. on 5 October 2021. November 2017PBZ220,115.98 EUR688,268.12 HRK NLB challenged the judgments with the extraordinary legal measure (revision) on the Supreme Count of the Republic of Croatia and later, if necessary, will challenge the judgments with all other available remedies of the obligations of the old foreign currency savings in accordance with Slovenian Constitutional Law are not the liabilities of NLB. December 2018PBZ3,855,173.35 SEK679,926.08 HRK Constitutional suit against the court decisions (including the decision of the Supreme Court of the Republic of Croatia in the revision proceeding), as NLB found the court decision contrary to the legislation in force and constitutional principles and as well contrary to the Memorandum concluded between the Republic of Slovenia and the Republic of Croatia. March 2019PBZ9,185,141.76 USD3,198,760.00 HRK NLB challenged the judgment with the extraordinary legal measure (revision) on the Supreme Count of the Republic of Croatia and later, if necessary, will challenge the judgment with all other available remedies of the obligations of the old foreign currency savings in accordance with Slovenian Constitutional Law are not the liabilities of NLB. In the other cases, with respect to which court procedures described above are pending, final court decisions have not yet been issued. The table below summarises the amounts according to final court decisions (not including penalty interest). The NLB Shareholders’ Meeting provided the Management Board of NLB with instructions how to act in the event of existing or potential new final decisions by Croatian courts against LB and NLB regarding the transferred foreign currency deposits, especially not to voluntarily settle the adjudicated amounts, and also gave some additional instructions on the usage of legal remedies and regarding the management of the property from that perspective. On 19 July 2018, the National Assembly of the Republic of Slovenia passed the ‘Act for Value Protection of Republic of Slovenia’s Capital Investment in Nova Ljubljanska banka d.d., Ljubljana’ (Zakon za zaščito vrednosti kapitalske naložbe Republike Slovenije v Novi Ljubljanski banki d.d., Ljubljana, hereinafter: ‘the ZVKNNLB’) which entered into force on 14 August 2018. In accordance with the ZVKNNLB, the Succession Fund of the Republic of Slovenia (Sklad Republike Slovenije za nasledstvo, javni sklad, hereinafter: ‘the Fund’), shall compensate NLB for the sums recovered from NLB by enforcement of final judgements delivered by Croatian courts with regard to the transferred foreign currency deposits, that is the principle amount, accrued interest, expenses of court, attorney’s expenses and other expenses of the plaintiff, and expenses related to enforcement with the accrued interest, and shall not compensate NLB for its own costs or for the difference between the book value of its assets sold in enforcement proceedings and the price obtained for such assets in enforcement proceedings. There shall be no compensation for any voluntarily made payments by NLB. In accordance with the ZVKNNLB and pursuant to the agreement between NLB and the Fund, as envisaged by the ZVKNNLB (which was concluded on 14 August 2018), NLB has to contest the claims made against it in court proceedings in relation to transferred foreign currency deposits, and use against court decisions that are disadvantageous for NLB, all reasonable legal remedies and to continue to actively challenge the judicial decisions of the courts of the Republic of Croatia in relation to transferred foreign currency deposits on the basis of which enforcement took place, leading, on the basis of ZVKNNLB, to the compensation of the sums recovered from NLB by enforcement. In the aforementioned case from May 2015, the Succession Fund of the Republic of Slovenia has already compensated the sums recovered from NLB by enforcement. All procedures relating to the receivables of PBZ and ZaBa, as well as NLB’s view on this matter were also discussed with the ECB as the supervisor of both Croatian banks. ![]() 260 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group Balance as at 1 Jan 2021 Effects of translation of foreign operations to presentation currency Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Disposal of subsidiary Balance as at 31 Dec 2021 Notes4.13.4.13.5.16.a) 12-month expected credit losses Guarantees and commitments15,79611,388(1,337)(2,810)(4)(122)12,912 Lifetime ECL not credit-impaired Guarantees and commitments2,767-(730)(358)(37)4(6)1,640 Lifetime ECL credit-impaired Guarantees and commitments23,6111(659)(4,239)27748(150)18,889 Of which: Purchased or originated credit-impaired Guarantees and commitments5,057--(755)-42-4,344 b)Provisions for guarantees and commitments Movements in provisions forguarantees and commitments Provisions for legal risks for claims filed by PBZ and ZaBa are not formed, since NLB believes that based on the factual and legal evaluation there are greater prospects for the court proceedings to end in favour of NLB than the opposite. Regardless of the negative judgements, in the financial statements NLB Group did not recognise the negative impact due to protection provided by the ZVKNNLB. For final judgements, NLB Group recognised the liabilities and related assets which currently amount to approximately EUR 22 million. They are included within other financial assets (note 5.6.d) and other financial liabilities (note 5.15.d). in EUR thousands NLB Group Balance as at 1 Jan 2020 Effects of translation of foreign operations to presentation currency Acquisition of subsidiaries Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2020 Notes4.13.4.13.5.16.a) 12-month expected credit losses Guarantees and commitments12,909(4)1,0496591,863(676)(4)15,796 Lifetime ECL not credit-impaired Guarantees and commitments2,444(5)-(300)(99)727-2,767 Lifetime ECL credit-impaired Guarantees and commitments24,06811,249(359)(1,293)(40)(15)23,611 Of which: Purchased or originated credit-impaired Guarantees and commitments1,984-1,249-1,838-(14)5,057 ![]() 261 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Balance as at 1 Jan 2021 Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2021 Notes4.13.4.13.5.16.a) 12-month expected credit losses Guarantees and commitments7,510530(1,451)(2,683)3 3,909 Lifetime ECL not credit-impaired Guarantees and commitments732(123)(340)(129)1 141 Lifetime ECL credit-impaired Guarantees and commitments20,301(407)(3,698)27341 16,510 Of which: Purchased or originated credit-impaired Guarantees and commitments3,808-186-47 4,041 in EUR thousands NLB Balance as at 1 Jan 2020 Transfer Increases/ (Decreases) Changes in models/risk parameters Foreign exchange differences and other movements Balance as at 31 Dec 2020 Notes4.13.4.13.5.16.a) 12-month expected credit losses Guarantees and commitments6,145 193 947 228 (3) 7,510 Lifetime ECL not credit-impaired Guarantees and commitments653136(418)363(2) 732 Lifetime ECL credit-impaired Guarantees and commitments22,365(329)(1,622)(97)(16) 20,301 Of which: Purchased or originated credit-impaired Guarantees and commitments1,984-1,838-(14) 3,808 ![]() 262 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Movement of contractualamounts of guarantees and commitments in off-balance sheet in EUR thousands NLB GroupNLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20212,824,750103,95046,2702,974,9701,896,41873,25534,9072,004,580 Effects of translation of foreign operations to presentation currency 68724 9720---- Increases/(Decreases)219,688(4,666)(9,309)205,7134,769(14,315)(8,167)(17,713) Foreign exchange differences2,733101512,8852,57092482,710 Transfers(685)(1,752)2,437-9,815(9,930)115- Disposal of subsidiary(19,202)(121)(460)(19,783)---- Balance as at 31 December 20213,027,97197,53638,9983,164,5051,913,57249,10226,9031,989,577 in EUR thousands NLB GroupNLB 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit-impaired Total Balance as at 1 January 20202,108,271112,61673,1962,294,0831,575,21162,42969,6401,707,280 Effects of translation of foreign operations to presentation currency (543)(56)(3)(602)---- Acquisition of subsidiaries (note 5.12.c)369,847-7,514377,361---- Increases/(Decreases)368,553(16,936)(43,564)308,053346,086(6,940)(37,834)301,312 Foreign exchange differences(3,615)(147)(163)(3,925)(3,702)(147)(163)(4,012) Transfers(17,763)8,4739,290-(21,177)17,9133,264- Balance as at 31 December 20202,824,750103,95046,2702,974,9701,896,41873,25534,9072,004,580 ![]() 263 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c)Movements in employeebenefit provisions Post-employment benefits Other employee benefits in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January18,16215,32012,69513,165 Effects of translation of foreign operations to presentation currency -(2)-- Acquisition of subsidiaries (note 5.12.c)-3,374-- Disposal of subsidiaries(83)--- Additional provisions (note 4.9.)1,957983723 672 Provisions released (note 4.9.)(1,831)(560)(750)(433) Interest expenses (note 4.1.)177 76 4327 Utilised during year (payments)(532)(151)(45)(36) Actuarial gains and losses1,377(878)115(700) Balance as at 31 December19,22718,16212,78112,695 in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January2,5452,3841,5251,578 Effects of translation of foreign operations to presentation currency -(1)-- Acquisition of subsidiaries (note 5.12.c)-179-- Additional provisions (note 4.9.)222234100103 Provisions released (note 4.9.)(275)(112)(132)(38) Interest expenses (note 4.1.)25 24 53 Utilised during year(297)(163)(73)(121) Balance as at 31 December2,2202,5451,4251,525 Other employee benefits include NLB Group’s obligations for jubilee long-service benefits. ![]() 264 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report d) Movements in restructuring provisions Following the acquisition of Komercijalna banka a.d. Beograd in December 2020, NLB Group prepared a plan for optimisation of operations, including anticipated merger of banks in Serbia and decreased number of employees. Therefore in 2021, Serbian banks recognised restructuring provisions in the amount of EUR 14,797 thousand, of which EUR 6,868 thousand were already utilised during the year. The rest is expected to be paid to employees leaving the bank within the next twelve months. in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January15,56514,50015,35414,182 Effects of translation of foreign operations to presentation currency11(1)-- Disposal of subsidiaries-(50)-- Additional provisions (note 4.13.)14,7973,500-3,500 Utilised during year(11,156)(2,384)(4,223)(2,328) Balance as at 31 December19,21715,56511,13115,354 in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January46,60216,6275,6732,211 Effects of translation of foreign operations to presentation currency40(8)-- Acquisition of subsidiaries (note 5.12.c)-28,686-- Disposal of subsidiaries-(119)-- Additional provisions (note 4.13.)16,6326,3551,8814,411 Provisions released (note 4.13.)(8,759)(1,659)(1,809)(181) Utilised during year(9,227)(3,280)(2,279)(768) Balance as at 31 December45,28846,6023,4665,673 Significant amount of restructuring provisions relates also to NLB, which has in previous periods adopted a business strategy and initiatedkey strategicinitiatives, aiming among others towards a leaner organisation, optimisation of processes, implementation of a new IT strategy with a focus on digitalisation and simplification, and adjustment of the organisational structure. These initiatives will result in decreased number of employees in the coming years. e)Movements in provisions for legal risks ![]() 265 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report f) Movements in other provisions 5.17.Deferred income tax a) Analysis by type of deferred income taxes in EUR thousands NLB GroupNLB 2021202020212020 Balance as at 1 January11 162 -85 Additional provisions (note 4.13.)-34-- Provisions released (note 4.13.)-(153)-(85) Utilised during year-(32)-- Balance as at 31 December1111-- in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Deferred income tax assets Valuation of financial instruments and capital investments33,00237,72931,69637,650 Impairment of financial assets5,8793,190917 947 Provisions for liabilities and charges10,1288,4892,6603,138 Depreciation and valuation of non-financial assets3,5054,063112140 Fair value adjustments of financial assets measured at amortised cost 320938-- Unpaid dividends3,876-3,876- Tax losses253--- Tax reliefs 945 1,179-- Other 62 111-- Total deferred income tax assets57,97055,69939,26141,875 Deferred income tax liabilities Valuation of financial instruments12,02621,0236,62011,871 Depreciation and valuation of non-financial assets1,3741,515 169 193 Impairment of financial assets3,9603,271570597 Fair value adjustments of financial assets measured at amortised cost 3,338592-- Other1,3401,984-- Total deferred income tax liabilities22,03828,3857,35912,661 Net deferred income tax assets38,97731,78931,90229,214 Net deferred income tax liabilities(3,045)(4,475)-- ![]() 266 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Temporary differences on which NLB did not recognise deferred tax assets, as related deferred tax assets would exceed the amount of deferred tax assets expected to be in EUR thousands NLB GroupNLB 2021202020212020 Included in the income statement3,4233,238112540 - valuation of financial instruments and capital investments(1,024)308(3,241)308 - impairment of financial assets2,2603,108(30)163 - provisions for liabilities and charges1,45354(489)75 - depreciation and valuation of non-financial assets(338)(336)(4)(6) - tax losses253--- - unpaid dividends3,876-3,876- - tax reliefs(234)--- -fair value adjustments of financial assets measured at amortised cost (3,413)--- - other590104-- Included in other comprehensive income4,950(1,619)2,576(895) -valuation and impairment of financial assets measured at fair value through other comprehensive income 4,772(1,486)2,565(762) - actuarial assumptions and experience 178 (133)11(133) Included in equity - transfer of fair value reserve368--- -valuation of financial assets measured at fair value through other comprehensive income 368--- in EUR thousands 31 Dec 202131 Dec 2020 NLB Temporary difference Non-recognised deferred tax assets Temporary difference Non-recognised deferred tax assets Tax loss974,902185,231922,898175,351 Tax reliefs4,329823-- Impairments and valuation of capital investments and financial instruments 73,35913,938242,86146,144 reversed in five years are presented in the table below, together with non-recognised deferred tax assets. Tax loss on which NLB did not recognise deferred tax assets, as at 31 December 2021 amounts to EUR 974,902 thousand (31December 2020: 922,898 thousand). Slovenian tax law does not set deadlines by which uncovered tax losses must be utilised, but the use of tax loss is limited to 50% of the actual tax base. Other banking members have no unrecognised deferred tax assets for tax losses. NLB Group did not recognise deferred tax assets on temporary differences arising from the impairments of investments in subsidiaries and associates where it is not probable that the temporary difference will reverse in the foreseeable future. These temporary differences amount to EUR 315,531 thousand as at 31 December 2021 (31 December 2020: EUR 347,040 thousand). ![]() 267 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group Provisions for liabilities and charges Valuation of financial instruments and capital investments Depreciation and valuation of non- financial assets Impairment of financial assets Unpaid dividends Tax lossesTax relief Fair value adjustments of financial assets measured at amortised cost OtherTotal Balance as at 1 January 20204,10936,2861,087910-----42,392 Effects of translation of foreign operations to presentation currency 4--2-----6 (Charged)/credited to profit and loss54188(156)2,247----1042,437 (Charged)/credited to other comprehensive income(133)1,240-------1,107 Acquisition of subsidiaries4,455153,13231--1,17993879,757 Balance as at 31 December 20208,48937,7294,0633,190--1,17993811155,699 Effects of translation of foreign operations to presentation currency 8-14----215 (Charged)/credited to profit and loss1,453(3,368)(480)2,7913,876253(234)(618)(51)3,622 (Charged)/credited to other comprehensive income 178 (1,359)-------(1,181) Disposal of subisidiaries--(79)(106)-----(185) Balance as at 31 December 202110,12833,0023,5055,8793,876253 945 320 62 57,970 in EUR thousands NLB Provisions for liabilities and charges Valuation of financial instruments and capital investments Depreciation and valuation of non- financial assets Impairment of financial assets Unpaid dividends Total Balance as at 1 January 20203,19636,244154 784 -40,378 (Charged)/credited to profit and loss75188(14)163-412 (Charged)/credited to other comprehensive income (133)1,218---1,085 Balance as at 31 December 20203,13837,650140 947 -41,875 (Charged)/credited to profit and loss(489)(3,367)(28)(30)3,876(38) (Charged)/credited to other comprehensive income 11(2,587)---(2,576) Balance as at 31 December 20212,66031,6961129173,87639,261 b) Movements in deferred income taxes Deferred income tax assets ![]() 268 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group Impairment of financial assets Valuation of financial instruments and capital investments Depreciation and valuation of non- financial assets Other Fair value adjustments of financial assets measured at amortised cost Total Balance as at 1 January 20203,27011,1591,296--15,725 Effects of translation of foreign operations to presentation currency(7)-(2)--(9) Charged/(credited) to profit and loss(861)(120)180--(801) Charged/(credited) to other comprehensive income 696 2,030---2,726 Acquisition of subsidiaries1737,954411,98459210,744 Balance as at 31 December 20203,27121,0231,5151,98459228,385 Effects of translation of foreign operations to presentation currency131117 Charged/(credited) to profit and loss531(2,344)(142)(641)2,795199 Charged/(credited)to other comprehensive income157(6,656)---(6,499) Disposal of subisidiaries---(4)(50)(54) Balance as at 31 December 20213,96012,0261,3741,3403,33822,038 in EUR thousands NLB Impairment of financial assets Valuation of financial instruments and capital investments Depreciation and valuation of non- financial assets Total Balance as at 1 January 202047710,13120110,809 Charged/(credited) to profit and loss-(120)(8)(128) Charged/(credited) to other comprehensive income1201,860-1,980 Balance as at 31 December 202059711,87119312,661 Charged/(credited) to profit and loss-(126)(24)(150) Charged/(credited) to other comprehensive income(27)(5,125)-(5,152) Balance as at 31 December 20215706,620 169 7,359 Deferred income tax liabilities ![]() 269 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.18. Income tax relating to components of other comprehensive income in EUR thousands 2021NLB GroupNLB Before taxTax expenseNet of taxBefore taxTax expenseNet of tax Actuarial gains and losses(1,377) 178 (1,199)(115)11(104) Financial assets measured at fair value through other comprehensive income (34,322)4,772(29,550)(17,742)2,565(15,177) Share of associates and joint ventures(30)-(30)--- Total(35,729)4,950(30,779)(17,857)2,576(15,281) in EUR thousands 2020NLB GroupNLB Before taxTax expenseNet of taxBefore taxTax expenseNet of tax Actuarial gains and losses 878 (133) 745 700(133) 567 Financial assets measured at fair value through other comprehensive income 10,364(1,486)8,8784,012(762)3,250 Share of associates and joint ventures(11,067)-(11,067)--- Total175(1,619)(1,444)4,712(895)3,817 5.19. Other liabilities in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Accrued salaries18,61519,0689,0509,807 Unused annual leave6,0326,1372,4252,497 Deferred income11,37412,3645,2575,391 Taxes payable9,4505,0093,9994,107 Payments received in advance3,9972,195308199 Other liabilities-859-- Total49,46845,63221,03922,001 ![]() 270 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.20.Share capital The share 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 ordinary registered shares, with the corresponding value of EUR 10.0 for one share. All issued shares are fully paid and there are no un-issued authorised shares. As at 31 December 2021, the major shareholder of NLB with significant influence is the Republic of Slovenia, owning 25.00% plus one share. The book value of a NLB share on a consolidated level as at 31 December 2021 was EUR 103.9 (31 December 2020: EUR 97.6), and on solo level was EUR 77.6 (31 December 2020: EUR 72.5). It is calculated as the ratio of net assets’ book value excluding other equity instruments issued and the number of shares. Distributable profit as at 31 December 2021 amounts to EUR 458,266 thousand (31 December 2020: EUR 341,992 thousand), consists of NLB net profit for 2021 in the amount of EUR 208,421 thousand (2020: EUR 113,952 thousand), the transfer of fair value reserve in the amount of EUR 53 thousand on the derecognition of equity financial instruments measured at fair value through OCI and retained earnings from previous years in the amount of EUR 249,792 thousand. Its allocation will be subject to a decision by the Bank’s General Assembly. The proposal for the General Assembly will be prepared by the Management and the Supervisory Board, considering restrictions imposed by the regulators, Group’s risk appetite, target capital adequacy at Group’s level and actual prevailing capital position at the time of the proposal. The shares give to their holders the right to vote at the NLB’s meeting of shareholders where, as a rule, each share entitles its holder to one vote. Nevertheless, a shareholder who acquires shares which, together with the shares already held by such shareholder or by a third person on behalf of such shareholder, represent more than 25% of the NLB’s share capital, may only exercise its voting rights under such shares if NLB’s Supervisory Board approves such an acquisition. The Supervisory Board’s approval may only be rejected if, following such an acquisition, such a person would hold shares representing more than 25% of NLB’s issued share capital plus one share. The approval shall be considered given if not expressly rejected in 20 days. No such approval is necessary in respect of the shares acquired by a person on behalf of third persons provided that such a person is not entitled to exercise the voting rights arising out of such shares at its own discretion and undertakes to NLB that it will not exercise the voting rights based on voting instructions unless such voting instructions are accompanied with a confirmation that the person giving such instructions is the beneficial owner of the shares in respect of which votes are to be exercised and does not hold in the aggregate, directly or indirectly 25% or more NLB shares with voting rights. The shares also give their holders the right to be informed, as well as the pre-emptive right to subscribe for new shares on a pro rata basis in case of a share capital increase, the right to a pro-rata share of remaining assets in case of bankruptcy or liquidation or NLB and the right to receive a dividend. In 2021, NLB paid dividends for previous year in the amount of 4.61 EUR per share (2020: NLB did not pay out any dividends for previous year), which decreased retained earnings for EUR 92,200 thousand. As at 31 December 2021 and 31 December 2020, NLB holds no own shares. In June 2019, the General Assembly of NLB authorised the Management Board that in the period of 36 months from the adoption of the shareholders’ resolution, it can buy own shares of the Bank for the payment of variable remuneration to certain employees as required by the Banking Act and other relevant regulations. NLB did not buy any own shares based on this authorisation. in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Financial assets measured at fair value through other comprehensive income - debt securities 8,54038,85212,36527,242 Financial assets measured at fair value through other comprehensive income - equity securities 2,8263,64499452 Actuarial defined benefit pension plans(5,488)(4,399)(3,696)(3,592) Foreign currency translation(17,184)(17,724)-- Hedge of a net investment in a foreign operation754754-- Total(10,552)21,1278,76824,102 b)Accumulated other comprehensive income 5.21. Accumulated other comprehensive income and reserves a)Reserves The share premium account as at 31 December 2021 and 31 December 2020 comprises paid-up premiums in the amount of EUR 822,173 thousand and the revaluation of share capital from previous years in the amount of EUR 49,205 thousand. As at 31 December 2021 and 31 December 2020, profit reserves in the amount of EUR 13,522 thousand relate entirely to legal reserves in accordance with the Companies Act. In 2021, NLB recorded a net profit in the amount of EUR 208,421 thousand (2020: net profit EUR 113,952 thousand) which is included in the retained earnings as at 31 December2021. ![]() 271 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.22. Capital adequacy ratios in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Paid up capital instruments200,000200,000200,000200,000 Share premium871,378871,378871,378871,378 Retained earnings - from previous years767,152552,146249,845228,040 Profit eligible - from current year135,96863,63539,61321,658 Accumulated other comprehensive income(10,091)21,5888,76824,102 Other reserves13,52213,52213,52213,522 Minority interest27,90571,562-- Prudential filters: Additional Valuation Adjustments (AVA)(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 coverage for non-performing exposures(90)-(10)- COMMON EQUITYTIER 1 CAPITAL (CET1)1,959,6011,753,4481,362,6811,347,031 Minority interest5,95014,614-- Additional Tier 1 capital5,95014,614-- TIER 1 CAPITAL1,965,5511,768,0621,362,6811,347,031 Capital instruments and subordinated loans eligible as Tier 2 capital284,595284,595284,595284,595 Minority interest2,34412,806-- TIER 2 CAPITAL286,939297,401284,595284,595 TOTAL CAPITAL2,252,4902,065,4631,647,2761,631,626 RWA for credit risk10,205,17210,222,9235,411,4334,805,127 RWA for market risks1,206,3631,250,563698,463657,088 RWA for credit valuation adjustment risk11,85020011,850200 RWA for operational risk1,244,023947,342586,781566,385 TOTAL RISK EXPOSURE AMOUNT (RWA)12,667,40812,421,0286,708,5276,028,800 Common EquityTier 1 Ratio15.5%14.1%20.3%22.3% Tier 1 Ratio15.5%14.2%20.3%22.3% Total Capital Ratio17.8%16.6%24.6%27.1% European banking capital legislation – CRD IV, is based on the Basel III guidelines. The legislation defines three capital ratios reflecting a different quality of capital: •Common Equity Tier 1 ratio (ratio between common or CET1 capital and risk-weighted exposure amount or RWA), which must be at least 4.5%; •Tier 1 capital ratio (Tier 1 capital to RWA), which must be at least 6%; and •Total capital ratio (total capital to RWA), which must be at least 8%. In addition to the aforementioned ratios which form the Pillar 1 requirement, NLB must meet other requirements and recommendations that are imposed by the supervisory institutions orby thelegislation: •The Pillar 2 Requirement (SREP requirement): bank-specific, obligatory requirement set by the supervisory institution through the SREP process (together with the Pillar 1 requirement it represents the minimum total SREP capital requirement – TSCR); •The applicable combined buffer requirement (CBR): a system of capital buffers to be added on top of TSCR – breaching of the CBR is not a breach of capital requirement, but triggers limitations in the payment of dividends and other distributions from capital. Some of the buffers are prescribed by law for all banks and some of them are bank- specific, set by the supervisory institution (CBR and TSCR together form the overall capital requirement – OCR); • Pillar 2 Capital Guidance: capital recommendation set by the supervisory institution through the SREP process. It is bank-specific and is a recommendation, and not obligatory. Any non-compliance does not affect dividends or other distributions from capital; however, it might lead to intensified supervision and the imposition of measures to re-establish a prudent level of capital (including preparation of capital restoration plan). ![]() 272 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB’s overallcapital requirementon the consolidated level The Overall Capital Requirement (OCR) amounted to 14.25% for NLB on the consolidated basis, consisting of: •10.75% TSCR (8% Pillar 1 Requirement and 2.75% Pillar 2 Requirement); and •3.5% CBR (2.5% Capital Conservation buffer, 1% O-SII buffer and 0% Countercyclical buffer). Pillar 2 Guidance (P2G) which should be comprised entirely of CET1 capital, remains at a relatively low level 1.0%. The Pillar 2 Requirement for 2022 decreased by 0.15 p.p. to 2.60%, as a result of better overall SREP assessment. The capital adequacy of NLB and NLB Group at the end ofyear 2021 remains strong in accordance with risk appetite orientations, at a level which covers all the current and announced regulatory capital requirements, including capital buffers and other currently known requirements, as well as the P2G. As at 31 December 2021, NLB Group capital ratios on a consolidated basis stand at: •15.5% CET1 ratio, •15.5% Tier 1 ratio, •17.8% Total Capital ratio. In the scope of regulatory risks, which include credit risk, operational risk, and market risk, NLB Group uses a standardised approach for credit and market risks, while the calculation of capital requirement for operational risks is made according to a basic indicator approach. The same approaches are used for calculating the capital requirements for NLB on a standalone basis, except for the calculation of the capital requirement for operational risks where the standardised approach is used. As at 31 December 2021, theTotal Capital Ratio for NLB Group stood at 17.8% (or 1.2 p.p. higher than at the end of 2020), and SREP requirement2021 From 12 March 2020 onwards As at 1 January till 11 March 2020 CET14.5%4.5%4.5% Pillar 1 (P1R) AT1 1.5%1.5%1.5% T22.0%2.0%2.0% CET11.55%1.55%2.75% Pillar 2 (P2R)Tier 12.06%2.06%2.75% Total Capital2.75%2.75%2.75% CET16.05%6.05%7.25% Total SREP Capital Requirement (TSCR)Tier 18.06%8.06%8.75% Total Capital10.75%10.75%10.75% Combined buffer requirement (CBR) Conservation bufferCET12.5%2.5%2.5% O-SII bufferCET11.0%1.0%1.0% Countercyclical bufferCET10.0%0.0%0.0% CET19.55%9.55%10.75% Overall capital requirement (OCR) = MDA thresholdTier 111.56%11.56%12.25% Total Capital14.25%14.25%14.25% Pillar 2 Guidance (P2G)CET11.0%1.0%1.0% OCR + P2GCET110.55%10.55%11.75% for NLB at 24.6% (or 2.5 p.p. lower than at the end of 2020). As at 31 December 2021, the CET1 ratio stood at 15.5% (1.4 p.p. higher than at the end of 2020). The higher NLB Group total capital adequacy compared to the end of 2020 derives from higher capital (increase of EUR 187.0 million compared to 31December 2020) which compensated RWA increase of EUR 246.4 million compared to 31 December 2020 for the Group. Higher RWA derives mainly from the increase of RWA for operational risk. Total capital increased mainly due to inclusion of Negative goodwill in retained earnings in the amount of EUR 137.9 million and partial inclusion of 2021 profit (EUR 136.0 million). The capital calculation as at 31 December 2021 does not include part of the 2021 result in the amount of EUR 100.0 million. Therefore, there will be no effect on the capital in case the dividends are paid. The RWA for credit risk decreased by EUR 17.8 million compared to 31 December 2020. On one hand, the factors for increase were loan growth to the corporates and retail, new investments in subordinated, state, and EU institutions bonds. On the other hand, the increase was compensated by regulatory changes, namely the inclusion of Bosnia and Herzegovina and Macedonia on EBA’s third party equivalent list, legislation criteria changes for the CRR collateral adequacy, signing of agreements with MIGA as well as changed investment policy such as the shift of some liquid assets from the central governments to lower risk weighted counterparties (NLB Banka, Prishtina, NLB Banka, Podgorica) or optimisation of deposits with banks (Komercijalna banka, Beograd). Furthermore, successful recovery of NPLclients, where the biggest part represented repayments by a large client, contributed to the RWA decrease, while in contrast, the RWA for high-risk exposures is higher mainly due to new project finance loans. The RWA for market risk decreased by EUR 32.6 million compared to 31 December 2020 due to the lower fixed income position in the trading book. And yet, RWA for FX risk increased by EUR 35.3 million compared to 31 December 2020, and RWA for CVA increased by EUR 10.7 million – of which EUR 10.6 million as a result of new regulatory requirements which became effective from June 2021 onward (calculation of original exposure method (OEM) with residual maturity). The increase in the RWA for operating risks (EUR 296.7 million compared to 31 December 2020) derives from the higher three-year average of relevant income, as defined in Article 316 of CRR, which represents the basis for the calculation. The main reason for increased relevant income was the acquisition of Komercijalna banka Beograd in 2020. ![]() 273 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The most important goal of internal capital adequacy assessment process (ICAAP) in NLB Group, set up in accordance with ECB Guidelines, is ensuring adequate capital and sustainability on an ongoing basis. The purpose of this process is to have in place sound, effective, and comprehensive strategies and processes to assess and maintain capital on an ongoing basis, as well the adequate distribution of internal capital for covering the nature and level of the risks to which NLB Group is or might be exposed. In addition, NLB Group gives strong emphasis on its integration into the overall risk management system in order to assure proactive support for informed decision-making. From an economic perspective, NLB Group manages its capital adequacy by ensuring that all its risks are adequately covered by internal capital. A normative perspective is a multiyear forward-looking assessment of NLB Group which shows its ability to fulfil all of its capital-related regulatory and supervisory requirements and risk appetite of NLB Fee income from issued non-financial guarantees amounted to EUR 7,578 thousand (2020: EUR 4,910 thousand) in NLB Group, and to EUR 4,547 thousand (2020: EUR 4,397 thousand) in NLB. In addition to the instruments presented in the table above, NLB Group and NLB have also some low-risk off-balance sheet items, for which 0% credit conversion factor is applied in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Short-term guarantees258,975222,440112,758122,136 - financial 139,732119,30963,18861,322 - non-financial 119,243103,13149,57060,814 Long-term guarantees977,759904,002614,343567,532 - financial 393,901359,787226,747196,681 - non-financial 583,858544,215387,596370,851 Loan commitments1,878,9881,816,4411,259,4891,306,791 Letters of credit35,61521,7941,9502,256 Other13,16710,2931,0375,865 3,164,5042,974,9701,989,5772,004,580 Provisions (note 5.16.b)(33,441)(42,174)(20,560)(28,543) Total3,131,0632,932,7961,969,0171,976,037 in accordance with the Capital Requirements Regulation (credit and other lines which can be irrevocably cancelled by a bank). As at 31 December 2021 these items at the NLB Group level amount to EUR 372,403 thousand (31 December 2020: EUR 307,093 thousand), and at the NLB level EUR 302,063 thousand (31 December 2020: EUR 236,542 thousand). 5.23.Off-balance sheet liabilities a) Contractual amounts of off-balance sheet financial instruments Group. Within these capital constraints, NLB Group defines its management buffers in the Risk appetite above the regulatory and supervisory requirement and internal capital needs that allow it to sustainably follow its business strategy. A normative perspective includes several stress scenarios which are integrated into NLB Group’s annual business plan review and budgeting process. ![]() 274 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Analysis of derivative financial instruments bynotional amounts The notional amounts of derivative financial instruments that qualify for hedge accounting at NLB Group and NLB amount to EUR 572,455 thousand (31 December 2020: EUR 573,753 thousand) (note 5.5.b). Derivatives that qualify for hedge accounting are used to hedge interest rate risk. in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Capital commitments for purchase of: - property and equipment1,6962,4331,6232,429 - intangible assets4,2439,5664,0949,403 Total5,93911,9995,71711,832 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Short-termLong-termShort-termLong-termShort-termLong-termShort-termLong-term Swaps99,3491,284,83299,4201,425,765109,1371,284,83278,4131,425,765 - currency swaps 99,34916,84499,4206,068109,13716,84478,4136,068 - interest rate swaps -1,267,988-1,419,697-1,267,988-1,419,697 Options9,88030,94512,81127,0009,88030,94512,81127,000 - interest rate options -30,945-27,000-30,945-27,000 - securities options 9,880-12,811-9,880-12,811- Forward contracts38,82526,92191,30941,42337,51126,92193,84641,423 - currency forward 38,82526,92191,30941,42337,51126,92193,84641,423 Total148,0541,342,698203,5401,494,188156,5281,342,698185,0701,494,188 1,490,7521,697,7281,499,2261,679,258 The fair values of derivative financial instruments are disclosed in notes 5.2. and 5.5. c)Capital commitments ![]() 275 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 5.24.Funds managed on behalf of third parties Funds managed on behalf of third parties are accounted separately from NLB Group’s funds. Income and expenses arising with respect to these funds are charged to the Fiduciary activities in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Fiduciary activities26,165,58025,713,79924,806,89424,466,910 Settlement and other services1,079,500971,600977,197907,132 Total27,245,08026,685,39925,784,09125,374,042 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Assets Clearing or transaction account claims for client assets26,071,58925,633,70624,741,05224,396,203 - from financial instruments26,024,70025,630,24424,694,27524,392,773 - receipt, processing, and execution of orders 10,085,4099,194,5399,346,0028,502,331 - management of financial instruments portfolio 588,761528,206-- - custody services 15,350,53015,907,49915,348,27315,890,442 - to Central Securities Clearing Corporation or bank settlement account for sold financial instrument 180496817 - to other settlement systems and institutions for bought financial instrument (debtors) 46,7093,41346,7093,413 Clients' money94,93480,09465,84270,707 - at settlement account for client assets75,15142,02946,05932,642 - at bank transaction accounts19,78338,06519,78338,065 Liabilities Clearing or transaction liabilities for client assets26,165,58025,713,79924,806,89424,466,910 - to client from cash and financial instruments26,129,50325,707,58124,797,05724,461,033 - receipt, processing, and execution of orders 10,110,1249,230,4069,371,7078,538,198 - management of financial instruments portfolio 591,772537,283-- - custody services 15,427,60715,939,89215,425,35015,922,835 - to Central Securities Clearing Corporation or bank settlement account for bought financial instrument 3,8657213472 - to other settlement systems and institutions for bought financial instrument (creditors) 31,8255,7559,3165,414 - to bank or settlement bank account for fees and costs, etc. 387 391 387 391 respective fund, and no liability falls on NLB Group in connection with these transactions. NLB Group charges fees for its services. Funds managed on behalf of thirdparties ![]() 276 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Fee income for funds managed on behalf of third parties Risk management function acts as a second line of defence. Set governance and different risk management tools enable adequate oversight of the Group’s risk profile. Moreover, they support business operations and enable efficient risk management by incorporating escalation procedures and different mitigation measures when necessary. a)Risk management strategies and processes The key goal of NLB Group’s Risk Management is to proactively manage, assess, and monitor risks within the Group. Sound and holistic understanding of risk management is embedded into the entire organisation, focusing on risk identification at a very early stage, efficient risk management, and mitigation of them with the aim of ensuring the prudent use of its capital and adequate liquidity structure to support the financial resilience of the Group. Key strategic risk management principles of NLB Group are defined by its Risk Appetite and Risk Strategy, designed in accordance with the Group’s business model, integrating forward-looking perspective. The Strategy of NLB Group, the Risk Appetite, Risk Strategy, and the key internal policies of NLB Group – which are approved by the Management and Supervisory Boards – specify the strategic goals, risk appetite guidelines, approaches, and methodologies for monitoring, measuring, and managing all types of risk in order to meet internal strategic objectives and fulfil all external requirements. The main strategic risk guidelines are comprehensively integratedinto decision-making, including the business plan review and budgeting process. NLB Group plans a prudent risk profile and optimal capital usage, representing an important element of its business strategy and related mid-term financial targets. The management of credit risk, which is the most important risk category in NLB Group, concentrates on taking moderate risks – a diversified credit portfolio, adequate credit portfolio quality, the sustainable costs of risk, and ensuring an optimal return considering the risks assumed. As regards liquidity risk, the tolerance is low, while the activities are geared towards ensuring an adequate liquidity position on an ongoing basis. The Group limited exposure to credit spread risk, arising from the valuation risk of debt securities portfolio servicing as liquidity reserves, to moderate level. The fundamental orientation in the management of interest rate risk is to limit unexpected negative effects on revenues and capital, therefore, a moderate tolerance for this risk is stated. When assuming operational risk, theGroup pursues theorientation that such a risk must not significantly impact its operations. On this basis, changes of control activities, processes, and/ or organisation are performed. Besides the Group also focuseson proactive mitigation, prevention, andminimisation of potential damage. The conclusion of transactions with derivative financial instruments at NLB is primarily limited to servicing customers and hedging Bank’s own positions. In the area of currency risk, NLB Group pursues the goals of low to moderate exposure. The tolerance for other risk types is low and focuses on minimising their possible impacts on NLB Group’sentireoperations. Environmental, social, and governance (ESG) risks do not represent a new risk category, but rather an aggravating factor for the types of risks, not least credit and operational risk. The Group integrates and manages them within the established risk management framework. The management of ESG risks follows ECB and EBA guidelines with the tendency to comprehensively integrate them into all relevant processes. The availability of ESG data in the region where NLB Group operates is still lacking. Nevertheless, the Group strives to obtain relevant clients’ data as prerequisite for adequate decision-making and the corresponding proactive management of ESG risks. Risk management focuses on managing and mitigating risks in line with the Group’s Risk Appetite and Risk Strategy. Within these frameworks, the Group monitors a range of risk metrics, including internal capital allocation, in order to assure Group’s risk profile is in line with its risk appetite. The usage of risk limits and potential deviations from limits and target values are regularly reported to the respective committees and/or the Management Board of the Bank. The banking subsidiaries within NLB Group adapted a corresponding approach to monitor and manage their target risk profiles. in EUR thousands NLB GroupNLB 2021202020212020 Fiduciary activities (note 4.3.b)11,3859,8128,9118,494 Settlement and other services1,5679251,552864 Total12,95210,73710,4639,358 6. Riskmanagement Risk management in NLB Group is implemented in accordance with the set strategic guidelines, established internal policies, and procedures which take into account European banking regulations, the regulations adopted by the Bank of Slovenia, the current EBA guidelines, and relevant good banking practices. In addition, the Group is constantly enhancing and complementing the existing approaches, methodologies, and processes in all risk management segments with the aim to proactivelysupport decision-making. Managing risks and capital efficiently is crucial for NLB Group sustained long-term profitable operations. Robust Risk Management framework is comprehensively integrated into decision-making, steering, and mitigation processes within the Group. NLB Group gives high importance to the risk culture and awareness of all relevant risks within the entire Group. NLB Group’s Risk management framework supports business decision-making on strategic and operating levels, comprehensive steering, proactive risk management, and mitigation byincorporating: • risk appetite statement and risk strategy orientations; •yearly review of strategic business goals, budgeting, and capital planning process; •internal capital adequacy assessment process (ICAAP) and internal liquidity adequacy assessment process (ILAAP); • recovery plan activities; • other internal stress-testing capabilities, early warning systems, and regular risk analysis; • regulatory and internal management reporting. NLB Group uses the ‘three lines of defence framework’ as an important element of its internal governance, wherebythe ![]() 277 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group established a comprehensive stress-testing framework and other early warning systems in different risk areas with the intention to strengthen the existing internal controls and timely response when necessary. Robust and uniform stress-testing programme includes all material types of risk and relevant stress scenario analysis, according to the vulnerability of the Group’s business model. In 2021, the Group established own ESG stress testing concept to identify most relevant financial vulnerabilities stemming from climate risk. Stress-testing is integrated into the risk appetite, ICAAP, ILAAP, Recovery Plan, and budgeting process to support proactive management of the Group’s risk profile, namely the capital and liquidity positions in a forward-looking perspective. In addition, the Group also performs reverse stress tests with the aim to test its maximum recovery capacity. Other partial risk assessments are covered by other risk analysis, based on relevant risk parameters, and integrated into the process of setting a risk management limit system. For the purpose of an efficient risk mitigation process, NLB Group applies a single set of standards to retail and corporate loan collateral, representing a secondary source of repayment with the aim of efficient credit risk management and optimal capital consumption. The Group has a system for monitoring and reporting collateral at fair (market) value in accordance with theInternationalValuation Standards (IVS). The eligibility of collateral, by types and ratios referring to prudent lending criteria, is set within internal lending guidelines. Credit risk mitigation principles and rules in NLB Group are described in more relevant details in the section ‘Credit risk management.’ When hedging market risks, namely interest rate risk and foreign exchange risk, in line with the set risk appetite, NLB Group follows the principle of natural hedge or using derivatives in line with hedge accounting principles. b)Risk management structure and organisation NLB Group’s corporate governance framework is based on the principles of sound and responsible governance, in accordance with the applicable legislation of the Republic of Slovenia, particularly the provisions of the Companies Act (ZGD-1) and the Banking Act (ZBan-3), Regulation on Internal Governance Arrangements, the Management Body, and the Internal Capital Adequacy Assessment Process for Banks and Savings Banks, the EBA Guidelines on internal governance, the EBA Guidelines on the assessment of the suitability of members of the management body, and key function holders, as well as the EBA Guidelines on remuneration practices. Several layers of management provide cohesive risk management governance in NLBGroup. NLB Group established three lines of a defence framework with the aim of managing risks effectively. The three lines of defence concept provides a clear division of activities and defines roles and responsibilities for risk management at different levels within the Group. Risk management in the Group acts as a second line of defence, accountable for appropriate managing, assessing, monitoring, and reporting of risks in the Bank as the main entity in Slovenia, and as the competence centre in charge of seven banking members and other non-core subsidiaries which are in a controlled wind- out. Overall, the organisation and delineation of competencies in NLB Group’s risk management structure is designed to prevent conflicts of interest and ensure a transparent and documented decision-making process, subject to an appropriate upward and downward flow of information. Risk management in NLB Group is managed within the Risk management competence line, which is a specialised competence line encompassing several professional areas for which the Global Risk Department, the Credit Risk – Corporate Department, the Credit Risk – Retail Department and theEvaluationand Control Department are responsible within NLB, and which reports to the Assets and Liabilities Committee (ALCO) of the Management Board and the Risk Committee of the Supervisory Board. The risk management competence line is in charge of formulating and controlling the risk management policies of NLB Group, setting limits, establishing methodologies, overseeing the harmonisation of risk management policies within the NLB Group, monitoring NLB Group’s risk exposures, and preparing external and internal reports. All members of NLB Group that are included in the financial statements of NLB Group, report their exposure to risks to the competent organisational units within the Risk management competence line. These organisational units then report all relevant risk information to the Assets and Liabilities Committee (ALCO) of the Management Board and the Risk Committee of the Supervisory Board, which is where the Management Board and the Supervisory Board, adopt appropriate measures. The credit ratings of clients that are materially important to NLB Group and the issuing of credit risk opinions are centralised via the Credit Committee of NLB. The process follows the co-decision principle, in which the credit committee of the respective Group member first approves their decision, following which the Credit Committee of NLB gives their opinion. The resolution of the Credit Committee of NLB is made on the basis of all available documentation, including a non-binding rating opinion prepared by the underwriting department of NLB. This same principle and process is set also for the issuing of credit exposures for the materially important clients of NLB Group. Risk monitoring in NLB Group members is operating within an independent and/or separate organisational unit. This way, monitoring of risks is established based on standardised and systemic risk management approaches. This monitoring enables a comprehensive overview of the Group’s and of each member’s statement of financial position. In compliance with the risk appetite, risk management strategy and policies of NLB Group, risk monitoring in each NLB Group member is separated from its management and/or business function to maintain the objectivity required when assessing business decisions. The organisational unit for managing risks directly reports to the Management Board and its committees (Credit Committee, ALCO and the Operational Risk Committee), which report to the Supervisory Board (the Risk Committee of the Supervisory Board or Board of Directors). c)Risk measurement and reporting systems As a systemic banking group, NLB Group is subject to the Single Supervisory Mechanism (SSM), which is supervised by the Joint Supervisory Team (JST) of the ECB and the Bank of Slovenia. The Group member complies with the ECB regulation, while NLB Group subsidiaries operating outside Slovenia are also compliant with the rules set by the local regulators. A third-party equivalent was approved in Serbia, Bosnia and Herzegovina, and North Macedonia, resulting in alignment of local regulation with CRR rules. With regards to capital adequacy, based on the provisions of the Directive (CRD), Decision (CRR), NLB Group applies a standardised approach to credit and market risk, and the basic approach (a simplified approach with less data granularity) to operational risks, with the exception of NLB which applies the standardised approach. Across the Group, risks are assessed, monitored, managed, or mitigated in a uniform manner, as defined in the Group’s Risk management standards, considering also the specifics of the markets in which individual NLB Group members operate. For the purposes of measuring exposure to credit risk, liquidity risk, interest rate, and credit spread risk in the banking book, operational risk, market risk, and non- ![]() 278 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report financial risks, in addition to the prescribed regulations, NLB Group uses internal methodologies and approaches that enable more detailed monitoring and management of risks. These internal methodologies are aligned with ECB, EBA, and Basel guidelines, as well as best practices in banking methodologies. As for risk reporting, NLB Group’s internal guidelines reflect, in addition to internal requirements, the substance and frequency of reporting required by the Bank of Slovenia and the ECB. In addition, each member of NLB Group also complies with the requirements of its local regulations. Risk reporting is carried out in the form of standardised reports, pursuant to risk management policies based on common methodologies for measuring exposure to risks, uniform database structure within Data Warehouse (DWH), comprehensive data quality assurance, and automated report preparation, which ensures the quality of reports and reduces the possibility of errors. d) Data and IT system Risk data are calculated and stored in NLB Group DWH, collected from NLB and other Group member’s DWH. The established process provides an integrated information in common reference structure where business users can access in a consistent and subject-oriented format. Data are regularly checked and validated. Data used for internal risk assessment, management, and reporting are the same as data which NLB Group uses for regulatory reporting. e) Main emphasis of risk management in 2021 Efficient managing of risks and capital remains crucial for NLB Group to sustain long-term profitable operations. The Group further enhanced the robustness of its risk management system in all respective risk categories in order tomanage them proactively, comprehensively, and prudently. Risk identification in a very early stage, its efficient managing, and the corresponding mitigation processes represent essential steps in such a system. The business and operating environment relevant for NLB Group operations is changing with trends, such as: changing customer behaviours, emerging new technologies and competitors, sustainable financing, actively contributing to a more balanced and inclusive economic and social system, and increasing new regulatory requirements. Respectfully, the risk management framework is regularly adapted with the aim of detecting and managing new potential emergingrisks. The NLB Group gives special focus on the inclusion of risk analysis into the decision-making process on strategic and operating levels, diversification in order to avoid a large concentration, optimal usage of internal capital, appropriate risk-adjusted pricing, regular education/trainings at all levels of management, and the assurance of overall compliance with internal policies/rules and relevant regulations. COVID-19 did not have a meaningful impact on the quality of the credit portfolio. NLB Group is compliant with EBA guidelines on payment moratoria and is very prudent in identifying any increase in credit risk.The vast schemes introduced by the governments in the Group countries providing moratoriums to eligible clients as part of the COVID-19 pandemic measures had been phasing out during the 2021. Though COVID-19 coupled with its implications on the business environment the Group faced growing excess liquidity and managed to stay well capitalised. Besides, the Group has taken necessary measures to protect its customers and employees by ensuring the relevant safety conditions and making sure that the services offered by the Group are provided without any disruption. NLB Group is engaged in contributing to sustainable finance by incorporating environmental, social, and governance (ESG) risks into its business strategies, risk management framework, and internal governance arrangements. With the adoption of the NLB Group Sustainability programme, NLB Group implemented sustainability elements into its business model. Thus, sustainable finance integrates ESG criteria into the Group’s business and investment decisions for the lasting benefit of the Group’s clients and society. The NLB Group Sustainability Committee oversees the integration of the ESG factors to the NLB Group business model. The management of ESG risks addresses the NLB Group’s overall credit approval process and relatedcredit portfoliomanagement. It follows ECB and EBA guidelines with a tendency of their comprehensive integration into all relevant processes. The availability of ESG data in the region where NLB Group operates is still lacking, nevertheless, the NLB Group strives to obtain relevant clients’ data as prerequisite for adequate decision-making. In addition, the NLB Group carefully considers potential reputation and liability risks which could arise from sustainable financing of its clients. 6.1. Credit risk management a) Introduction In its operations, NLB Group is exposed to credit risk, or the risk of losses due to the failure of a debtor to settle its liabilities to NLB Group. For that reason, it proactively and comprehensively monitors and assesses the aforementioned risk. In that process, NLB Group follows the International Financial Reporting Standards, regulations issued by the European Central Bank or Bank of Slovenia, and the EBA guidelines. This area is governed in greater detail by the internal methodologies and procedures set out in internal acts. Through regular reviews of the business practices and the credit portfolios of NLB entities, NLB ensures that the credit risk management of those entities function in accordance with NLB Group’s risk management standards to enable meaningfully uniform procedures atthe consolidated level. NLB Group manages credit risk at two levels: •At the level of the individual customer/group of customers appropriate procedures are followed in various phases of the relationship with a customer prior to, during, and after the conclusion of an agreement. Prior to concluding an agreement, a customer’s performance, financial position, and past cooperation with NLB are assessed. To objectively assess a client’s operation, internal scoring models for particular client segments or product types have been developed. It is also important to secure high-quality collateral even though it does not affect a customer’s credit rating. This is followed by various forms of monitoring a customer, in particular an assessment of its ability to generate sufficient cash flows for the regular settlement of its liabilities and contractual obligations. In this part of the credit process, regular monitoring of clients within the Early Warning System (EWS) is important. In the case of client default, restructuring or work-out is initiated depending on the severity of the client’s position. •The quality and trends in the credit portfolio, including on-balance and off-balance sheet exposures, are actively monitored and analysed at the level of the overall portfolio of NLB Group and single banking entities. Comprehensive analyses are regularly performed to assure monitoring of the portfolio quality through time and to identify any breach of limits or targets. Great emphasis is placed on the evolution of portfolio structure in terms of client segmentation, credit rating structure, structure by stages (based on IFRS 9), and NPL ratios. Furthermore, the coverage of NPL is an important indicator of potential future losses that is closely monitored. ![]() 279 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Apart from analysing the portfolio as a whole, vintage analysis is used to monitor the quality of new loans production and test the conservativity of the lending standards, which should ensure the portfolio quality is maintained within the Group Risk Appetite. Apart from default risk, the portfolio management is also focused on monitoring single name and industry concentration, migration, and FX lending risk. Increasing emphasis is also placed on stress tests that forecast the effects of negative macroeconomic movements on the portfolio, on the level of impairments and provisions, and on capital adequacy. Capital requirements for credit risk at NLB Group level within the first pillar are calculated according to the Standardised approach, while within the second pillar an internal IRB approach is used to estimate the RWA for default, migration, and FX lending risk. In addition, a single name concentration add-on is based on the Granularity adjustment methodology and an industry concentration add-on is estimated basedon the HHI concentration indexes. NLB and other NLB Group members assess the level of credit risk losses on an individual basis for material claims, and at the collective level for the rest of the portfolio. An individual review is performed for material Stage 3 financial assets which have been rated as non-performing based on the information regarding significant financial problems encountered by a customer, regarding actual breaches of contractual obligations such as arrears in the settlement of liabilities, whether financial assets will be restructured for economic or legal reasons, and the likelihood that a customer will enter bankruptcy or a financial reorganisation. Expected future cash flows (from ordinary operations and possible redemption of collateral) are assessed following an individual review. If their discounted value differs from the book value of the financial asset in question, impairment must be recognised. Collective ECL allowances are made for the remainder of the portfolio, which is not assessed on an individual basis. Based on IFRS 9 requirements, financial assets measured at amortised cost or at fair value through other comprehensive income are attributed to the appropriate stage based on the estimated increase of credit risk of a single exposure since initial recognition. The stage of financial assets determines whether a 12-month or lifetime ECL must be considered. The ECL calculation is based on the forward-looking probability of default (PD) and loss given default (LGD), which are calculated using historic data and statistical modelling, as well as predicted macroeconomic parameters for different scenarios. For off-balance financial assets, the probability of the redemption of guarantees is considered when creating collective provisions. The models used to estimate future risk parameters are validated and back-tested on a regular basis to make loss estimations as realistic as possible. The management of ESG risks addresses the Group’s overall credit approvalprocess and relatedcredit portfolio management. Sustainable financing is implemented through amended documentary framework: •Lending Policy for Non-Financial Companies in NLB d.d. and NLB Group where in special Chapter Environmental and Social Framework three categories are defined (prohibited, restricted, normal activities) •Policy Environmental and Social Transaction Framework in NLB d.d. and NLB Group applies to certain transactions with greatest potential for significant E&S impact (exclusion list, regulatory compliance check, category A list). •Methodology Environmental and Social Transaction Categorisation Methodology Framework in NLB d.d. and NLB Group that provides a guide to the typical level of inherent environmental and social risk according to NACE codes. Beside addressing ESG risks in all relevant stages of the credit-granting process relevant ESG criteria were considered also in the collateral evaluation process. On portfolio level the Group does not face any large concentration towards specific NACE industrial sectors exposed to climate risk, whereby the role of transitional risk is more prevailing. The availability of ESG data in the region where NLB Group operates is still lacking, nevertheless the Group strives toobtain relevant clients’ data as prerequisite for adequate decision-making. b) Main emphasis in 2021 In the process of constantly complementing and enhancing credit risk management, NLB Group focuses on taking moderate risks, and at the same time ensuring an optimal return considering the risks assumed. Preserving high credit portfolio quality represents the most important key aim, with a focus on the quality of new placements leading to a diversified portfolio of customers. The Group is actively present on the market in the region, financing existing and new creditworthy clients. To further enhance existing risk management tools, the Group is constantly developing a wide range of advanced approaches supported by mathematical and statistical models in credit risk assessment in line with best banking practises, while at the same time enabling faster responsiveness towards clients. Lending growth in the corporate segment remained relatively moderate, while the SME and retail segment experienced a considerable growth in 2021 after a temporary slowdown in 2020 due to COVID-19 circumstances. After the acquisition of Komercijalna banka as at 30 December 2020, the Bank worked actively on harmonisation of risk management methodologies with the NLB Group. Credit portfolio remains well-diversified, there is no large concentration in any specific industry or client segment. The share of retail portfolio in the whole credit portfolio is quite substantial with still prevailing segment of mortgage loans. COVID-19 did not have a meaningful impact on the quality of the credit portfolio. The vast schemes introduced by the governments in theGroup countries providingmoratoriums to eligible clients as part of the COVID-19 pandemic measures had been phasing out during the 2021. In addition to moratoria, the governments in Serbia and Slovenia provided public guarantee schemes for new financing of clients whose business has been materially impacted due to the COVID-19 pandemic; none of the guarantees have been exercised. In 2021, the Group’s credit portfolio quality remained solid with a stable rating structure and diversified portfolio. Great emphasis was placed on intensive and proactive handling of problematic customers and early warning system for detecting increased credit risk at a very early stage. The stock of NPE volume decreased, as a result of active workout management. As at 31 December 2021, the share of non- performing exposure by EBA methodology in NLB Group was 1.7% (2.8% at the end of 2020). Moreover, the coverage ratio remains high at 57.9%, which is well above the EU average published by the EBA (45.1% in 3Q 2021). ![]() 280 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c) Maximum exposure to credit risk in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Cash. cash balances at central banks. and other demand deposits at banks 5,005,0523,961,8123,250,4372,261,533 Financial assets held for trading7,67884,8557,68218,831 Non-trading financial assets mandatorily at fair value through profit or loss 4,26127,2337,88830.935 Financial assets at fair value through other comprehensive income 3,395,2613,446,4911,541,0421,671,204 Financial assets at amortised cost Debt securities1,717,6261,503,0871,436,4241,277,880 Loans to governments281,010368,400143,864170,742 Loans to banks140,683197,005199,287158,320 Loans to financial organisations141,709158,871226,144177,198 Loans to individuals5,519,2904,933,0932,656,9352,377,770 Loans to other customers4,645,1124,159,4962,118,2101,838,468 Other financial assets122,229113,13892,40454,503 Derivatives - hedge accounting568-568- Total net financial assets20,980,47918,953,48111,680,88510,037,384 Guarantees1,236,7341,126,442727,101689,668 Financial guarantees 533,633479,096289,935258,003 Non-financial guarantees 703,101647,346437,166431,665 Loan commitments1,878,9881,816,4411,259,4891,306,791 Other potential liabilities48,78232,0872,9878,121 Total contingent liabilities3,164,5042,974,9701,989,5772,004,580 Total maximum exposure to credit risk24,144,98321,928,45113,670,46212,041,964 Maximum exposure to credit risk is a presentation of NLB Group’s exposure to credit risk separately by individual types of financial assets and contingent liabilities. Exposures stated in the above table are shown for the balance sheet items in their net book value as reported in the statement of financial position, and for off-balance sheet items in the amount of their nominal value. ![]() 281 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report d) Collateral from financial assets that are credit-impaired in EUR thousands 31 Dec 2021NLB Group Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Net value of financial assets Fair value of collateral Net value of financial assets Fair value of collateral Financial assets at amortised cost Loans to individuals32,372122,20518,7187,645 Loans to other customers79,120446,30823,36423,694 Other financial assets1276,6612,09832 Total111,619575,17444,18031,371 in EUR thousands 31 Dec 2020NLB Group Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Net value of financial assets Fair value of collateral Net value of financial assets Fair value of collateral Financial assets at amortised cost Loans to individuals33,375132,53220,8225,922 Loans to other customers78,426532,99045,16155,545 Other financial assets1492,3381,47889 Total111,950667,86067,46161,556 in EUR thousands 31 Dec 2021NLB Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Net value of financial assets Fair value of collateral Net value of financial assets Fair value of collateral Financial assets at amortised cost Loans to individuals17,78549,5188,1143,924 Loans to other customers21,490117,8624,0374,478 Other financial assets6408225 Total39,281167,78812,1738,407 in EUR thousands 31 Dec 2020NLB Fully/over collateralised financial assets Financial assets not or not fully covered with collateral Net value of financial assets Fair value of collateral Net value of financial assets Fair value of collateral Financial assets at amortised cost Loans to individuals17,35945,75611,4312,672 Loans to other customers30,058116,0736,08120,757 Other financial assets74487044 Total47,424162,27717,58223,473 ![]() 282 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report e)Collateral from loans mandatorily at fair value throughprofit or loss in EUR thousands NLB Group Fully/over collateralised loans 31 Dec 202131 Dec 2020 Net value of loans Fair value of collateral Net value of loans Fair value of collateral Loans mandatorily at fair value through profit or loss--25,07647,725 in EUR thousands 31 Dec 2021NLB Fully/over collateralised loans Loans not or not fully covered with collateral Net value of loans Fair value of collateral Net value of loans Fair value of collateral Loans mandatorily at fair value through profit or loss4,1984,5003,6902,050 in EUR thousands 31 Dec 2020NLB Fully/over collateralised loans Loans not or not fully covered with collateral Net value of loans Fair value of collateral Net value of loans Fair value of collateral Loans mandatorily at fair value through profit or loss22,98943,6207,9461,787 f) Credit protection policy NLB Group applies a single set of standards to retail and corporate loan collateral, as developed by NLB Group members in accordance with regulatory requirements. The master document regulating loan collateral in the NLB Group is the Loan Collateral Policy in NLB d.d. and NLB Group. The Policy has been adopted by the Management Board of NLB Group. The Policy represents the basic principles that NLB Group’s employees must take into account when signing, evaluating, monitoring, and reporting collateral, with the aim of reducing credit risk. In line with the policy, the primary source of loan repayment is the debtor’s solvency, and the accepted collateral is a secondary source of repayment in case the debtor ceases to repaythe contractualobligations. NLB Group primarily accepts collateral complying with the Basel II requirements with the aim of improving credit risk management and consuming capital economically. In accordance with Basel II, collateral may consist of pledged deposits, government guarantees, bank guarantees, debt securities issued by central governments and central banks, bank debt securities, and real-estate mortgages (the real estate must be, beside other criteria, located in the European Economic Area or in country recognised in EBA’s third party equivalent list for the effect on capital to be recognised). Loans made to companies and sole proprietors may be secured by other forms of collateral, as well (e.g., a lien on movable property, a pledge of an equity stake, investment coupons, collateral by pledged/assigned receivables, etc.) if it is assessed that the collateral could generate a cash flow if it were needed as a secondary source of payment. If there is of a lower probability that this type of collateral would generate a cash flow, NLB Group takes a conservative approach and accepts the collateral while reporting its value as zero. g)The processes for valuing collateral In compliance with relevant regulations, NLB Group has established a system for monitoring and reporting collateral at fair (market) value. The market value of real estate used as collateral is obtained from valuation reports of licensed appraisers. The market value of movable property is obtained from valuation reports of licensed appraisers or from sales agreements. Both, valuation reports and sales agreements must not be older than one year. In NLB and members of NLB Group, most ![]() 283 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report reports of external real estate appraisers are controlled. Controls are performed by internal appraisers. The subject of control is the content, value, scope, and format of the report, its compliance with international valuation standards, and the estimatedvalue.If theynoticedeviations, theyestimate needed correction of the value of the external valuation (in %) and correct the value of the external valuation. The value adjustment can only be negative and can be applied only in a limited range. For the purposes of business decisions and the calculation of the necessary impairments and provisions, additional deductions (haircuts) are applied to the eventual adjusted market value, depending on the type of collateral. These haircuts for purpose of liquidation value arefor real estate in the range of 30 to 70%, depending on the type of real estate and location, and for movables they range between 50 and 100%, depending on the type of movable. The market value of financial instruments held by NLB Group is obtained from the organised market – such as the stock exchange, for listed financial instruments or determined in accordance with the internal methodology for unlisted financial instruments (such collateral is used exceptionally and on a small scale in loans granted to companies and sole proprietors). NLB has compiled a reference list of licensed real estate appraisers for real estate. All appraisals must be made for the purpose of secured lending and in accordance with the international valuation standards (IVS, EVS, and RICS). Appraisals related to retail loans are generally ordered only from appraisers with whom the NLB has a contract for real- estate valuations. For corporate loans, appraisals are usually submitted by clients. If a client submits an appraisal that is not made by an appraiser included on the NLB’s reference list, the NLB’s expert department which employs certified real estate appraisers in construction with licences granted by the Slovenian Ministry of Justice, and certified real-estate value appraisers with licences granted by the Slovenian Institute of Auditors, will verify the appraisal. The expert department is also responsible for reviewing valuations of real estate serving as collateral for large loans. Other NLB Group members obtain valuations from in-house appraisers and outsourced appraisers, all possessing the necessary licences. NLB Group has compiled a reference list of appraisers for valuations of real estate located outside the Republic of Slovenia. Appraisals must be made in accordance with the international valuation standards, and for larger exposures, real-estate evaluations must also be reviewed by an internal licensed appraiser with knowledge of the local real-estate market. If the appraisal does not correspond to the international valuation standards or if the value adjustment is greater than certain limit, the appraisal is rejected as inadequate. When assuring collateral, NLB Group follows the internal regulations which define the minimum security or pledge ratios. NLB Group strives to obtain collateral with a higher value than the underlying exposure (depending on the borrower’s rating, loan maturity, etc.) with the aim of reducing negative consequences resulting from any major swings in market prices of the assets used as collateral. If real estate, movable property, and financial instruments serve as collateral, NLB Group’s lien on such assets should be top ranking. Exceptionally, where the value of the mortgaged real estate is large enough, the lien can have a different priority order. NLB Group monitors the value of collateral during the loan repayment period in accordance with the mandatory periods and internal instructions. For example, the value of collateral using mortgaged real estate is monitored annually by either preparing individual assessments or using the internal methodology for preparing an own value appraisal of real estate (which applies to Republic of Slovenia, and partly, for the housing segment to Serbia, Montenegro, and Bosnia and Herzegovina) based on public records and indexes of real- estate value published bythe relevantgovernment authorities (the Surveying and Mapping Authority in the Republic of Slovenia). The value of pledged movable property is monitored once a year (in NLB automated, with a straight-line depreciation over the period of the remaining useful life). h) The main types of collateral taken by the NLB Group NLB Group accepts different forms of material and personal security as loan collateral. Material loan collateral gives the right in the case of a debtor (borrower) defaulting on their contractual obligations to sell a specific property to recover claims, keep specific non-cash property or cash, or reduce or offset the amount of exposure against the counterparty’s debt to the Bank. NLB Group accepts the following material types of loan collateral: •Collateral in the form of business and residential real estate: land, buildings, and individual parts of buildings in a storeyed property intended for living in or performing a business activity, such as land in the area foreseen for construction, apartments, residential buildings, garages and holiday homes, business premises, industrial buildings, offices, shops, hotels, branches and warehouses, forests, parking spaces, etc. Objects can be completed or under construction. Priority is given to property where the pledge right of the Bank is entered in the first place and real estate is already owned by the debtor and/or the pledger. For real estate, there must be a market, and it must be redeemable within a reasonable time; •Collateral in the form of movable property: priority is given to the types of movable property, that are highly likely to be sold in the event of execution, and the funds received are used to repay the collateralised claims (their market value must be estimated with considerable reliability). Among the appropriate types of movable property, the Bank includes motor vehicles, agricultural machinery, construction machinery,production linesand series-produced machines, and some custom-made production machines; •Collateral by a pledge of financial assets (Bank deposits or cash-like instruments, debt securities of different issuers, investment fund units, equity securities, or convertible bonds): •Cash receivable collateral: bank deposits and savings with Bank are appropriate in domestic and foreign currency; •Debt securities: shares and bonds which, according to the Bank’s assessment, are suitable for securing investments and are traded on a regulated market (marketable securities of higher-quality Slovenian and foreign issuers); •The pledge of investment coupons of mutual funds managed by management companies (a priority company NLB Skladi) and are, according to the Bank’s assessment, suitable for insurance of investments. • A pledge of an equity stake: non-marketable capital shares with a credit rating of at least B are adequate; •A pledge or assignment of receivables as collateral: cash receivables must have longer maturities than the maturity of the investment and they must not be due and not be paid; •Other material forms of loan collateral (e.g., life insurance policies pledged to NLB): The Bank accepts products of Vita, life insurance company d.d. Ljubljana – a pledge of an investment life insurance policy and a life insurance policy with a guaranteed return that includes saving, in addition to insurance. ![]() 284 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Personal loan collateral is a method for reducing credit risk whereby a third party undertakes to pay the debt in case of the primary debtor (borrower) defaulting. NLB Group accepts the following types of personal loan collateral: •Joint and several guarantees by retail and corporate clients: for the collateralisation of private individuals’ loans, employees, or pensioners are adequate guarantors. They must not be in the process of personal bankruptcy. They are responsible for fulfilling the debtor’s obligations for loans with a repayment period not exceeding 60 months. For the collateralisation of legal entitiesinvestments, legal entities, individuals, or private individuals are adequate guarantors. • Bankguarantees; •Government guarantees (e.g., of the Republic of Slovenia); •Guarantees by national and regional development agencies with which the Bank has a contract on the acceptance of guarantees (e.g. Slovene Enterprise Fund); •Other types of personal loan collateral. Loans are very often secured by a combination of collateral types. The general recommendations on loan collateral are specified in the internal instructions and include the elements specified below. The decision on the type of collateral and the coverage of loan by collateral depends on the client’s creditworthiness (credit rating),loan maturity, and varies depending on whether the loan is granted to retail or a corporate client. NLB has also created, in the area of real-estate loan collateral, an ‘online’ connection with the Surveying and Mapping Authority in the Republic of Slovenia, which allows direct and immediate verification of the existence of property. NLB Group strives to ensure the best possible collateral for long-term loans, in particular mortgages where possible. As a result, the mortgaging of real estate is the most frequent form of loan collateral of corporate and retail clients. In corporate exposures, the next most frequent forms of collateral are government and corporate guarantees, while in retail loans, it is guarantors. i) Risks, deriving from valuation ofreceived collateral Client/counterparty credit risk is the key decision parameter when approving exposures. Collateral is a secondary source of repayment, and therefore decisions on approvals of exposures should not primarily be based on the provided collateral. However, collateral is an important comfort element in the approval process and, depending on the credit rating of the client, a prerequisite. NLB Group has prescribed the minimum ratios between the value of collateral and the loan amount, depending on the type of collateral, loan maturity and the client rating. The ratios are based on experience and regulatory guidelines. NLB Group pays particular attention to closely monitoring the fair value of collateral, and to receiving regular and independent revaluationsby applying theInternational Valuation Standards. Through a detailed examination of all collateral received, NLB has ensured that only collateral from which payment can be realistically expected if it is liquidated, is considered. NLB Group has the largest concentration of collaterals arising from mortgages on realestate, which is arelatively reliable and quality type of collateral. Due to the possible decrease of real estate market prices, the Bank closely monitors the real-estate collateral values and, where required, establishes higher amounts of impairments and provisions for non- performing loans secured by real estate, based on estimated discounts of the real-estate value, which are expected to be achieved in a sale (expected payment from collateral). Priority is given to property where the pledge right of the Bank is entered in the first place and the real estate is already owned by the debtor and/or the pledger. For real estate, there must be a market, and it must be redeemable within a reasonable time. Collateral consisting of securities entails market risk, specifically the risk of changes in the prices of securities on capital markets. To limit such risks and restrict the possibility of the value of instruments received as collateral falling below approved limits, the Rules determine minimum pledge ratios for securing loansbased on pledgedsecurities and equity shares in NLB. Deviations from the Rules are subject to the prior approval of the respective decision bodies of the Bank. The ratio between the loan amount and the securities’ value is determined regarding the securities’ liquidity,maturity, correlation with changes in market indexes, i.e., by considering the key features reflecting the level of volatility of market prices, and the ability to sell the securities at the market price. Collateral consisting of the sureties of corporate clients, sureties of private individuals, and bank guarantees entail the credit risk of the provider of the collateral. NLB Group includes the amount of the guarantees received in the exposure of the guarantor, and guarantees are only taken into account as collateral if the guarantor has sufficient overall creditworthiness. The Business Rules – Collateral for Retail and Corporate Loans regulate which forms of collateral are acceptable, and which preconditions a type of collateral needs to fulfil to be able to be considered. ![]() 285 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report j) Credit quality analysis for financial assets and contingent liabilities in EUR thousands NLB GroupNLB 31 Dec 2021 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit-impaired financial assets Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit-impaired financial assets Total Debt securities at amortised cost A1,218,597---1,218,5971,183,578---1,183,578 B495,114---495,114254,672---254,672 C-7,220--7,220----- Loss allowance(3,253)(52)--(3,305)(1,826)---(1,826) Carrying amount1,710,4587,168--1,717,6261,436,424---1,436,424 Loans and advances to banks at amortised cost A89,499---89,499199,390---199,390 B51,382---51,38279---79 Loss allowance(198)---(198)(182)---(182) Carrying amount140,683---140,683199,287---199,287 Loans and advances to individuals at amortised cost A5,305,83346,972- 249 5,353,0542,554,00626,634--2,580,640 B60,89123,933-1684,84016,91915,108--32,027 C5,82749,330-29355,450-24,293--24,293 D and E--125,2972,430127,727--57,396-57,396 Loss allowance(18,336)(7,398)(76,204)157(101,781)(3,503)(2,421)(31,497)-(37,421) Carrying amount5,354,215112,83749,0933,1455,519,2902,567,42263,61425,899-2,656,935 Loans and advances to other customers at amortised cost A1,172,77059-31,172,832875,91226--875,938 B3,333,087198,824-263,531,9371,421,39885,402--1,506,800 C124,628213,301-17337,94653,96537,876--91,841 D and E--209,22930,079239,308--68,7823,85572,637 Loss allowance(50,961)(26,624)(135,994)(613)(214,192)(10,101)(1,787)(46,272)(838)(58,998) Carrying amount4,579,524385,56073,23529,5125,067,8312,341,174121,51722,5103,0172,488,218 Other financial assets at amortised cost A92,43037--92,46783,9431--83,944 B26,908128--27,0365,22319--5,242 C319 694 --1,0133,22429--3,253 D and E--6,7031,2367,939--1,107111,118 Loss allowance(476)(36)(6,322)608(6,226)(62)(1)(1,084)(6)(1,153) Carrying amount119,1818233811,844122,22992,3284823592,404 Debt instruments at fair value through other comprehensive income A1,587,032---1,587,0321,308,690---1,308,690 B1,809,069---1,809,069218,282---218,282 C-184--184----- D and E--798-798--798-798 Loss allowance(11,148)(70)(798)-(12,016)(2,203)-(798)-(3,001) Contingent liabilities A1,405,5336,451-381,412,0221,041,2955,657--1,046,952 B1,574,40167,514-111,641,926844,52634,180--878,706 C48,03723,571-1871,62627,7519,265--37,016 D and E--24,56514,36638,931--19,2527,65126,903 Loss allowance(12,912)(1,640)(14,545)(4,344)(33,441)(3,909)(141)(12,469)(4,041)(20,560) Carrying amount3,015,05995,89610,02010,0893,131,0641,909,66348,9616,7833,6101,969,017 ![]() 286 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB GroupNLB 31 Dec 2020 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit-impaired financial assets Total 12-month expected credit losses Lifetime ECL not credit - impaired Lifetime ECL credit- impaired Purchased credit-impaired financial assets Total Debt securities at amortised cost A1,118,700---1,118,7001,118,700---1,118,700 B388,072---388,072161,021---161,021 Loss allowance(3,685)---(3,685)(1,841)---(1,841) Carrying amount1,503,087---1,503,0871,277,880---1,277,880 Loans and advances to banks at amortised cost A67,862---67,862158,475---158,475 B128,784---128,784----- C500---500----- Loss allowance(141)---(141)(155)---(155) Carrying amount197,005---197,005158,320---158,320 Loans and advances to individuals at amortised cost A4,739,47076,080--4,815,5502,290,49842,642--2,333,140 B34,4159,471--43,8865,132460--5,592 C3,52847,436--50,964-21,573--21,573 D and E--111,1186,075117,193--51,644-51,644 Loss allowance(25,044)(8,151)(61,305)-(94,500)(8,973)(2,351)(22,855)-(34,179) Carrying amount4,752,369124,83649,8136,0754,933,0932,286,65762,32428,789-2,377,770 Loans and advances to other customers at amortised cost A1,070,367373--1,070,740820,241120--820,361 B2,930,393188,641--3,119,0341,127,454111,223--1,238,677 C219,102238,152--457,25434,33882,492--116,830 D and E--279,80337,716317,519--117,3922,341119,733 Loss allowance(49,475)(32,682)(194,298)(1,325)(277,780)(16,664)(8,936)(82,274)(1,319)(109,193) Carrying amount4,170,387394,48485,50536,3914,686,7671,965,369184,89935,1181,0222,186,408 Other financial assets at amortised cost A64,69128--64,71948,9941--48,995 B46,38255--46,4375,38628--5,414 C223438--6615636--92 D and E--5,6551,2196,874--1,32481,332 Loss allowance(276)(30)(5,243)(4)(5,553)(73)(2)(1,251)(4)(1,330) Carrying amount111,0204914121,215113,13854,3636373454,503 Debt instruments at fair value through other comprehensive income A1,568,201---1,568,2011,422,777---1,422,777 B1,839,167229--1,839,396217,138---217,138 D and E--798-798--798-798 Loss allowance(8,656)(28)(798)-(9,482)(2,343)-(798)-(3,141) Contingent liabilities A1,285,492843--1,286,335984,496238--984,734 B1,490,92953,326--1,544,255889,66941,654--931,323 C48,32949,781--98,11022,25331,363--53,616 D and E--31,47414,79646,270--27,8557,05234,907 Loss allowance(15,796)(2,767)(18,554)(5,057)(42,174)(7,510)(732)(16,493)(3,808)(28,543) Carrying amount2,808,954101,18312,9209,7392,932,7961,888,90872,52311,3623,2441,976,037 ![]() 287 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The NLB Group’s client credit rating classification is based on an internally developed methodology, drawing from internal statistical analyses, good banking practices, as well as Bank of Slovenia regulations, and ECB and EBA guidelines and requirements. The aligned rating methodology is used across the entire NLB Group. It includes a uniform credit grade scale of 12 rating classes, out of which nine represent performing clients and three non-performing clients. Rating Group A (AAA to A rating classes) includes the best clients with a low degree of default probability, characterised by high coverage of financial liabilities with free cash flow. The Rating Group A is considered as investment grade classification. Rating Group B (BBB to B rating classes) includes clients with a low credit risk, starting one notch lower than ‘A’ rating group clients. These clients show stable performance, acceptable financial ratios, and qualitative elements, and have sufficient cash flow to settle their obligations, but may be more sensitive to changes in the industry or the economy. The Rating Group B classification is an investment grade for BBB, and an ‘invest with care’ for BB and B. Rating Group C (CCC to C rating classes) includes clients who are exposed to a higher and above-average level of credit risk. CCC rated clients are financed by the Bank only in the case when such support brings more positive effects for the Bank; however, the Rating Group C is overall considered as a substantial risk. The Bank reasonably restricts cooperation with such clients and decreases its exposure to them. Rating Groups D (D and DF rating classes) and E represent non-performing clients that are treated as defaulted. D, DF, and E rating classified clients are ordinarily transferred to the specialised units for restructuring (which performs business and financial restructuring with a goal of minimising losses and restoring the client to a performing status) or workout and legal support (with the goal of minimising losses due to default). In 2020, NLB Group applied a new default definition based on the EBA guidelines, where the materiality threshold for delays is determined in absolute and relative terms (EUR 100 for retail and EUR 500 for non-retail segment and 1% of the total on-balance exposure on the client level). At the same time, the assessment of rating for private individuals was improved by establishing a common rating on the client level. A standard corporate rating methodology, with the prescribed set of parameters (qualitative and quantitative) applies to all the NLB Group bank entities. Groups of connected clients are treated as materially important for the NLB Group whenever exposure exceeds EUR 7 million or EUR 15 million for NLB Group members with total assets greater than EUR 1 billion. Materially important clients are submitted to the NLB Credit Committee. NLB regularly reviews the business practices and credit portfolios of NLB Group entities to make sure they are operating in accordance with the minimum risk management standards of NLB Group. This ensures appropriate standard processes for managing and reporting credit risks at the consolidated level. in EUR thousands NLB Group 31 Dec 2021All forborne exposures Impairment, provisions and value adjustments Collateral and financial guarantees received on forborne exposures Non - performing Performing forborne exposures Non-performing forborne exposures Gross carrying amount PerformingImpairedDefaulted Loans and advances (including at amortised cost and fair value)239,20857,058182,094182,150(4,602)(100,963)109,177 Governments1,093828265265(11)(265)- Other financial organisations2,7442132,5312,531(8)(2,531)12 Non-financial organisations180,75435,422145,276145,332(3,268)(83,243)79,260 Households54,61720,59534,02234,022(1,315)(14,924)29,905 Debt instruments other than held for trading239,20857,058182,094182,150(4,602)(100,963)109,177 Loan commitments given718 96 622622 -(374) 294 Total exposures with forbearance measures239,92657,154182,716182,772(4,602)(101,337)109,471 k) Forborne loans ![]() 288 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021All forborne exposures Impairment, provisions and value adjustments Collateral and financial guarantees received on forborne exposures Non - performing Performing forborne exposures Non-performing forborne exposures Gross carrying amount PerformingImpairedDefaulted Loans and advances (including at amortised cost and fair value)109,67425,48584,13384,189(1,130)(48,898)51,837 Other financial organisations2,7442132,5312,531(8)(2,531)12 Non-financial organisations69,29913,10056,14356,199(291)(35,930)31,564 Households37,63112,17225,45925,459(831)(10,437)20,261 Debt instruments other than held for trading109,67425,48584,13384,189(1,130)(48,898)51,837 Loan commitments given688 96 592592-(344) 294 Total exposures with forbearance measures110,36225,58184,72584,781(1,130)(49,242)52,131 in EUR thousands NLB Group 31 Dec 2020All forborne exposures Impairment, provisions and value adjustments Collateral and financial guarantees received on forborne exposures Non - performing Performing forborne exposures Non-performing forborne exposures Gross carrying amount PerformingImpairedDefaulted Loans and advances (including at amortised cost and fair value)303,80255,354223,376248,448(5,761)(141,372)142,714 Governments1,3421,050292292(5)(292)- Other financial organisations2,425502,3752,375-(2,375)50 Non-financial organisations254,94733,882195,993221,065(4,739)(129,550)114,395 Households45,08820,37224,71624,716(1,017)(9,155)28,269 Debt instruments other than held for trading303,80255,354223,376248,448(5,761)(141,372)142,714 Loan commitments given1,586 942 644644(4)(37)1,332 Total exposures with forbearance measures305,38856,296224,020249,092(5,765)(141,409)144,046 ![]() 289 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Forborne exposures of debtinstruments by periodsof forbearance in EUR thousands NLB 31 Dec 2020All forborne exposures Impairment, provisions and value adjustments Collateral and financial guarantees received on forborne exposures Non - performing Performing forborne exposures Non-performing forborne exposures Gross carrying amount PerformingImpairedDefaulted Loans and advances (including at amortised cost and fair value)148,25121,976103,287126,275(1,522)(73,298)76,210 Other financial organisations2,397222,3752,375-(2,375)22 Non-financial organisations117,6719,52285,161108,149(742)(66,055)58,447 Households28,18312,43215,75115,751(780)(4,868)17,741 Debt instruments other than held for trading148,25121,976103,287126,275(1,522)(73,298)76,210 Loan commitments given1,560920640640(2)(35)1,332 Total exposures with forbearance measures149,81122,896103,927126,915(1,524)(73,333)77,542 in EUR thousands NLB Group 31 Dec 2021Up to 3 months3 to 6 months6 to 12 monthsOver 12 months Performing exposures7,4115,0559,86030,130 Non-performing exposures26,8354,85618,54030,956 Total exposures with forbearance measures34,2469,91128,40061,086 31 Dec 2020 Performing exposures13,4559,9631,85824,317 Non-performing exposures32,9501,7867,14065,200 Total exposures with forbearance measures46,40511,7498,99889,517 in EUR thousands NLB 31 Dec 2021Up to 3 months3 to 6 months6 to 12 monthsOver 12 months Performing exposures2,8193,8987,00810,630 Non-performing exposures7,4672,41013,86311,551 Total exposures with forbearance measures10,2866,30820,87122,181 31 Dec 2020 Performing exposures8,3049311,3989,821 Non-performing exposures3,969 942 5,51342,553 Total exposures with forbearance measures12,2731,8736,91152,374 The main forbearance measurements used by NLB Group and NLB are: deferral of payment, reduction of interest rates, acquisition of collateral for partial repayment of claims, and others, either as a single forbearance measurement or as a combination of those. ![]() 290 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report l) Repossessedassets NLB Group and NLB received the following assets by taking possession of collateral held as security and held them at the reporting date: in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Nature of assetsNet valueNet value Investment property (note 5.9.)36,00936,1304,1764,079 Property and equipment (note 5.8.)13,55913,26877 Investments in subsidiaries and associates--2,3332,412 Real estates (note 5.13.)74,71775,1514,8274,926 Other assets (note 5.13.)733866-- Non-current assets held for sale (note 5.7.) 699699 -- Total125,717126,11411,34311,424 m) Analysis of loans and advances by industry sectors in EUR thousands NLB Group31 Dec 202131 Dec 2020 Industry sectorGross loans Impairment provisions Net loans(%)Gross loans Impairment provisions Net loans(%) Banks140,881(198)140,6831.30197,146(141)197,0051.98 Finance90,538(2,851)87,6870.81116,593(3,126)113,4671.14 Electricity, gas, and water361,520(5,392)356,1283.28298,612(6,971)291,6412.93 Construction industry420,173(29,459)390,7143.60361,494(27,548)333,9463.35 Heavy industry1,059,774(30,352)1,029,4229.49952,671(44,446)908,2259.12 Education12,888(1,358)11,5300.1113,883(1,111)12,7720.13 Agriculture, forestry, and fishing91,735(3,530)88,2050.8191,780(7,023)84,7570.85 Public sector231,488(5,269)226,2192.08301,205(5,737)295,4682.97 Individuals5,621,071(101,781)5,519,29050.875,027,648(94,555)4,933,09349.55 Mining49,936(1,604)48,3320.4579,662(1,230)78,4320.79 Entrepreneurs341,670(7,554)334,1163.08314,276(7,268)307,0083.08 Services778,569(34,587)743,9826.86725,020(71,133)653,8876.57 Transport and communications798,822(25,902)772,9207.12811,517(25,029)786,4887.90 Trade industry1,008,369(64,364)944,0058.70874,235(75,309)798,9268.03 Health care and social security36,541(1,970)34,5710.3248,620(1,794)46,8260.47 Other financial assets128,455(6,226)122,2291.13118,691(5,553)113,1381.14 Total11,172,430(322,397)10,850,033100.0010,333,053(377,974)9,955,079100.00 ![]() 291 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB31 Dec 202131 Dec 2020 Industry sectorGross loans Impairment provisions Net loans(%)Gross loans Impairment provisions Net loans(%) Banks199,469(182)199,2873.66158,475(155)158,3203.29 Finance169,679(3,109)166,5703.06135,040(4,405)130,6352.72 Electricity, gas, and water228,423(724)227,6994.18157,515(2,892)154,6233.22 Construction industry71,989(9,870)62,1191.1463,025(8,463)54,5621.13 Heavy industry583,658(6,747)576,91110.60519,880(14,445)505,43510.51 Education4,045(27)4,0180.075,197(38)5,1590.11 Agriculture, forestry, and fishing13,073(100)12,9730.2415,099(865)14,2340.30 Public sector94,176(974)93,2021.7195,930(1,793)94,1371.96 Individuals2,694,356(37,421)2,656,93548.802,411,949(34,179)2,377,77049.46 Mining22,316(514)21,8020.408,580(74)8,5060.18 Entrepreneurs54,600(1,942)52,6580.9752,216(3,014)49,2021.02 Services482,176(11,421)470,7558.65454,154(44,827)409,3278.51 Transport and communications556,786(5,459)551,32710.13589,269(4,965)584,30412.15 Trade industry248,823(16,492)232,3314.27204,343(22,190)182,1533.79 Health care and social security25,360(1,619)23,7410.4426,288(1,222)25,0660.52 Other financial assets93,557(1,153)92,4041.7055,833(1,330)54,5031.13 Total5,542,486(97,754)5,444,732100.004,952,793(144,857)4,807,936100.00 n) Analysis ofnet loans and advances by geographical sectors in EUR thousands NLB GroupNLB Country31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Slovenia4,861,9684,360,0514,856,3054,354,155 Other European Union members249,772157,557156,42573,252 Serbia2,320,4912,146,793136,696134,303 Other countries3,417,8023,290,678295,306246,226 Total10,850,0339,955,0795,444,7324,807,936 As at 31 December 2021, Other countries include direct exposure to Russia in the amount of EUR 94 thousand at NLB Group level and EUR 84 thousand at NLB level. Direct exposure to Ukraine amount to EUR 4 thousand at NLB Group level and EUR 2 thousand at NLB level. ![]() 292 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report o)Analysis of debt securities and derivative financial instruments by geographical sectors in EUR thousands 31 Dec 2021NLB GroupNLB Country Financial assets measured at amortised cost Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at FV through profit or loss Derivative financial instruments Financial assets measured at amortised cost Financial assets held for trading Financial assets measured at fair value through OCI Derivative financial instruments Slovenia324,705-331,155-6,835324,705-280,1746,835 Other members of European Union1,076,225-1,180,5212,4281,3881,041,207-970,1921,388 - Austria 76,628-81,063--76,628-56,551- - Belgium 126,828-93,404-642126,828-59,830642 - Bulgaria 43,374-3,173--43,374-3,173- - Czech Republic --12,795----12,795- - Cyprus 12,447-1,755--12,447-1,755- - Denmark --20,234----20,234- - Finland 45,899-107,633--45,899-99,578- - France 170,425-193,668-528160,423-162,625528 - Germany 105,368-115,180- 167 95,361-92,622 167 - Greece -14,805---14,805- - Hungary 21,719-6,547--21,719-6,547- - Ireland 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- - Luxembourg 78,097-30,087--78,097-30,087- - Netherlands 67,678 -143,5462,3215157,670-135,52951 - Poland 17,829-18,989--17,829-18,989- - Portugal 47,842-18,704--47,842-18,704- - Romania 23,365-5,484--23,365-5,484- - Slovakia 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 America5,061-75,4981,833-5,061-8,667- Other countries311,635-1,808,087-2365,451-282,00927 - Bosnia and Herzegovina 4,048-145,522--4,048-3,204- - Kosovo --76,533-1---1 - Montenegro 37,349-23,578--6,799-3,073- - North Macedonia 221,697-152,886-613,230-57,867- - Serbia 7,167-1,196,724----5,02110 - Albania --29,823----29,823- - Canada 14,026-27,247--14,026-27,247- - Great Britain --81,218-16--81,21816 - Iceland 5,768-8,857--5,768-8,857- - Israel --10,468----10,468- - Kazakhstan --14,254----14,254- - Norway 14,606-16,210--14,606-16,210- - Russia --20,105----20,105- - Other 6,974-4,662--6,974-4,662- Total1,717,626-3,395,2614,2618,2461,436,424-1,541,0428,250 Other members of the European Union included in the line item ‘Other’ are Malta and Estonia. Other members of the ‘Other countries’ in the line item ‘Other’ are Egypt, Uzbekistan, and Oman. ![]() 293 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands 31 Dec 2020NLB GroupNLB Country Financial assets measured at amortised cost Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at FV through profit or loss Derivative financial instruments Financial assets measured at amortised cost Financial assets held for trading Financial assets measured at fair value through OCI Derivative financial instruments Slovenia305,697-484,875-14,498305,697-389,93214,498 Other members of European Union930,258-978,504111 672 930,258-932,714 672 - 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 Republic 1,025-16,420--1,025-16,420- - Cyprus 12,662-1,826--12,662-1,826- - Denmark --15,976----15,976- - Finland 38,515-81,905--38,515-80,827- - France 151,981-155,580-80151,981-149,67380 - Germany 63,155-104,967-12063,155-104,967120 - Greece --7,001----7,001- - Hungary 20,907-9,924--20,907-9,924- - Ireland 45,576-36,464--45,576-34,146- - Italy 7,088-11,048111-7,088-11,048- - Latvia 22,112- 749 --22,112- 749 - - Lithuania 11,626-18,385--11,626-18,385- - Luxembourg 71,821-37,853--71,821-37,853- - Netherlands 50,409-133,360-9050,409-133,36090 - Poland 26,432-17,023--26,432-17,023- - Portugal 45,937-19,377--45,937-19,377- - Romania 23,600-5,599--23,600-5,599- - Slovakia 21,662-36,350--21,662-36,350- - Spain 66,622-53,201--66,622-53,201- - Sweden 8,072-59,424--8,072-59,424- - Other 3,769---3823,769--382 United States of America9,7862,45079,5432,046-9,7862,45056,742- Other countries257,34666,3561,903,569- 879 32,139-291,8161,211 - Bosnia and Herzegovina --167,131-----4 - Kosovo --75,223- 786 --- 786 - Montenegro 20,386-18,649--6,816-3,134- - North Macedonia 204,455-143,059-7--56,433- - Serbia 7,18266,3561,267,258-30---365 - Albania --30,548----30,548- - Canada 14,037-27,514--14,037-27,514- - Great Britain --104,493-56--104,49356 - Iceland 4,993-8,988--4,993-8,988- - Israel --9,511----9,511- - Kazakhstan --12,261----12,261- - Norway 6,293-20,526--6,293-20,526- - Russia --18,408----18,408- Total1,503,08768,8063,446,4912,15716,0491,277,8802,4501,671,20416,381 Other members of the European Union included in the line item ‘Other’ are Malta and Croatia. ![]() 294 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report p)Internal rating of derivativescounterparties in % NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 A74.0873.5674.2573.75 B25.6915.3525.5315.24 C0.0310.900.0310.82 D and E0.190.190.190.19 Total100.00100.00100.00100.00 in EUR thousands 31 Dec 2021NLB GroupNLB Internal ratingABCDTotalABCDTotal Financial assets measured at fair value through other comprehensive income 48,099---48,09933,107---33,107 Financial assets measured at amortised cost - loans and advances to banks-----84,399---84,399 - loans and advances to customers-------6,522-6,522 Total48,099---48,099117,506-6,522-124,028 in EUR thousands 31 Dec 2020NLB GroupNLB Internal ratingABCDTotalABCDTotal Financial assets measured at fair value through other comprehensive income -14,796--14,796----- Financial assets measured at amortised cost - loans and advances to banks-----67,128---67,128 - loans and advances to customers-------5,858-5,858 Total-14,796--14,79667,128-5,858-72,986 All derivatives in the banking book are entered into with counterparties with an external investment-graderating. When derivatives are entered into on behalf of NLB Group’s customers, such customers usually do not have an external rating, but all such transactions are covered through back- to-back transactions involving third parties with an external investment-graderating. r) Debt securities in NLB Group’s and NLB’s portfolio that represent subordinated liabilities for the issuer ![]() 295 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report s) Presentation of net financial instruments by measurement category in EUR thousands NLB Group 31 Dec 2021 Financial assets held for trading Non-trading financial assets mandatorily at FV through P&L Financial assets measured at FV through OCI Financial assets measured at amortised cost Financial leases Derivatives for hedge accounting Total Cash and obligatory reserves with central banks, and other demand deposits at banks ---5,005,052--5,005,052 Securities-21,1613,461,8601,717,626--5,200,647 - Bonds-4,2613,251,8261,707,960--4,964,047 - Shares-4,47266,599---71,071 - Commercial bills--37,569---37,569 - Treasury bills --105,8669,666--115,532 - Investment funds-12,428----12,428 Derivatives7,678----5688,246 Loans and receivables---10,619,525108,279-10,727,804 - Loans to governments---280,96149-281,010 - Loans to banks---140,683--140,683 - Loans to financial organisations---141,69811-141,709 - Loans to individuals---5,473,27846,012-5,519,290 - Loans to other customers---4,582,90662,206-4,645,112 Other financial assets---122,229--122,229 Total financial assets7,67821,1613,461,86017,464,432108,27956821,063,978 in EUR thousands NLB Group 31 Dec 2020 Financial assets held for trading Non-trading financial assets mandatorily at FV through P&L Financial assets measured at FV through OCI Financial assets measured at amortised cost Financial leasesTotal Cash and obligatory reserves with central banks, and other demand deposits at banks ---3,961,812-3,961,812 Securities68,80617,3173,514,2901,503,087-5,103,500 - Bonds68,8062,1573,260,9401,480,478-4,812,381 - Shares-4,17167,799--71,970 - Commercial bills--50,449--50,449 - Treasury bills --135,10222,609-157,711 - Investment funds-10,989---10,989 Derivatives16,049----16,049 Loans and receivables-25,076-9,768,23248,6339,841,941 - Loans to governments---365,3393,061368,400 - Loans to banks---197,005-197,005 - Loans to financial organisations---158,84526158,871 - Loans to individuals---4,913,79319,3004,933,093 - Loans to other customers-25,076-4,133,25026,2464,184,572 Other financial assets---113,138-113,138 Total financial assets84,85542,3933,514,29015,346,26948,63319,036,440 ![]() 296 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021 Financial assets held for trading Non-trading financial assets mandatorily at FV through P&L Financial assets measured at FV through OCI Financial assets measured at amortised cost Derivatives for hedge accounting Total Cash and obligatory reserves with central banks, and other demand deposits at banks ---3,250,437-3,250,437 Securities-4,4721,585,7511,436,424-3,026,647 - Bonds--1,526,2371,436,424-2,962,661 - Shares-4,47244,709--49,181 - Treasury bills --14,805--14,805 Derivatives7,682---5688,250 Loans and receivables-7,888-5,344,440-5,352,328 - Loans to governments--143,864-143,864 - Loans to banks--199,287-199,287 - Loans to financial organisations--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 Total financial assets7,68212,3601,585,75110,123,70556811,730,066 in EUR thousands NLB 31 Dec 2020 Financial assets held for trading Non-trading financial assets mandatorily at FV through P&L Financial assets measured at FV through OCI Financial assets measured at amortised cost Total Cash and obligatory reserves with central banks, and other demand deposits at banks ---2,261,5332,261,533 Securities2,4504,1711,716,3511,277,8803,000,852 - Bonds2,450-1,598,7601,277,8802,879,090 - Shares-4,17145,147-49,318 - Treasury bills --72,444-72,444 Derivatives16,381---16,381 Loans and receivables-30,935-4,722,4984,753,433 - Loans to governments---170,742170,742 - Loans to banks---158,320158,320 - Loans to financial organisations---177,198177,198 - Loans to individuals---2,377,7702,377,770 - Loans to other customers-30,935-1,838,4681,869,403 Other financial assets---54,50354,503 Total financial assets18,83135,1061,716,3518,316,41410,086,702 As at 31 December 2021 and 31 December 2020, all of NLB Group’s financial liabilities, except forderivatives designated as hedging instruments, trading liabilities, and financial liabilities measured at fair value through profit or loss, were carried at amortised cost. ![]() 297 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 6.2. Market risk NLB defines market risk as the risk of potential financial losses due to changes in rates and/or market prices (exchange rates, credit spreads, and equity prices), or in parameters that affect prices (volatilities and correlations). Losses may impact profit or loss directly, for example in the case of trading book positions. However, for the banking book positions they are reflected in the revaluation reserve. The exposure to the market risk is to a certain degree integrated into the banking industry and offers an opportunity to create financial results and value. The Global Risk Department of NLB is independent from the trading activities and reports to the Bank’s Assets and Liabilities Committee (ALCO). Global Risk also monitors and manages exposure to market risks separately for the banking and trading books. Exposures and limits are monitored daily and reported to the ALCO committee on a regular basis. The Bank uses a wide selection of quantitative and qualitative tools for measuring, managing, and reporting market risks such as value-at-risk (VaR), sensitivity analysis, stress- testing, back-testing, scenarios, other market risk mitigants (concentration of exposures, gap limits, stop-loss limits, etc.), net interest income sensitivity, economic value of equity, and economic capital. Stress-testing provides an indication of the potential losses that could occur in severe market conditions. In the area of currency risk, NLB Group pursues the goal of low to medium exposure. NLB monitors the open position of NLB Group on an ongoing basis. The orientation of NLB Group in interest rate risk management is to prevent negative effects on the net revenues arising from changed market interest rates.The conclusion of transactions involving derivatives at NLB is limited to the servicing of the clients’ and hedging of the Group’s own open positions. In accordance with the provisions of the Strategy on trading with financial instruments in NLB Group, the trading activities in other NLB Group members are very restricted. For monitoring and managing NLB Group’s exposure to market risks uniform guidelines and exposure limits for each type of risk are set for individual NLB Group entities. The methodologies are in line with regulatory requirements on individual and consolidated levels, while reporting to the regulator on the consolidated level is carried out using the standardised approach. Pursuant to the relevant policies, NLB Group entities must monitor and manage exposure to market risks and report to NLB accordingly. The exposure of an individual NLB Group entity is regularly monitored and reported to the Assets and Liabilities Committee of NLB Group (NLB GroupALCO). 6.2.1.Currency risk (FX) Foreign currency risk (FX) is a risk of the potential losses from the open FX positions due to the changes of the foreign currency rates. The exposures of NLB to the movement of the FX rates have impact on the financial position and cash flows of the Bank. The Bank measures and manages the FX risk with a usage of combination of sensitivity analysis, VaR, scenarios, and stress-testing. In the trading book, similar to the other market risks, risk is managed on the basis of VaR limits which are approved by the Management Board of the Bank and in accordance to the adopted policy of managing market risk in the trading book of NLB. Trading FX risk is managed on an integrated basis at a portfoliolevel. NLB monitors and manages FX risk in the banking book according to the policy of managing FX risk in NLB. The policy is primarily composed to protect Common Equity Tier 1 against the negative effects of the volatility of the FX rates, whilst limiting the volatility in the income statement. FX exposures in banking book result from core banking business activities. Each member is responsible for its own currency risk policy, which also includes a limit system and is in line with the parent Bank’s guidelines and standards, as well as local regulatory requirements. Policies are confirmed by either the local Management Board or Supervisory Board. NLB monitors and manages NLB Group currency risk exposure on a monthly basis for each member and on the consolidated level. NLB Group banks follow the guidelines for managing FX lending in NLB Group. The guidelines’ goal is to address risks stemming from the potential excessive growth of FX lending, to identify hidden risks, and tail-event risks related to FX lending, to mitigate the respective risk, to internalise the respective costs, and to hold adequate capital with respect to FX lending. The positions of all currencies in the statement of financial position of NLB, for which a daily limit is set, are monitored daily. FX positions are managed on the currency level so that they are always within the limits. Regarding structural FX positions on a consolidation level, assets, and liabilities held in foreign operations are translated into euro currency at the closing FX rate on the reporting date. Foreign exchange differences of non-euro assets and liabilities against euro are recognised in OCI, and therefore affect shareholder’s equity and CET1 capital. NLB Group ALM employs strategies to manage this foreign currency exposure, including matched funding of assets and liabilities. Exposure to currency risks is discussed at daily liquidity meetings and monthly meetings of the ALCO committee of the NLB Group, and quarterly on the consolidated level. ![]() 298 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report a)Analysis of financial instruments by currency exposure in EUR thousands NLB Group 31 Dec 2021EURRSDUSDCHFOtherTotal Financial assets Cash, cash balances at central banks, and other demand deposits at banks4,035,603294,45958,367112,880503,7435,005,052 Financial assets held for trading7,678----7,678 Non-trading financial assets mandatorily at fair value through profit or loss11,0005,6894,472--21,161 Financial assets measured at fair value through other comprehensive income2,349,722802,321206,58314,99288,2423,461,860 Financial assets measured at amortised cost - debt securities1,489,2797,16819,172-202,0071,717,626 - loans and advances to banks79,53014537,07017,2936,645140,683 - loans and advances to customers8,582,987763,85619,47868,2841,152,51610,587,121 - other financial assets61,71312,46320,8134827,192122,229 Derivatives - hedge accounting568----568 Fair value changes of the hedged items in portfolio hedge of interest rate risk7,082----7,082 Total financial assets16,625,1621,886,101365,955213,4971,980,34521,071,060 Financial liabilities Financial liabilities held for trading7,585----7,585 Derivatives - hedge accounting35,377----35,377 Financial liabilities measured at amortised cost - deposits from banks and central banks49,3511,4566,3702,11412,53771,828 - borrowings from banks and central banks845,649-12,882--858,531 - due to customers14,295,1981,244,161358,851179,9341,562,66517,640,809 - borrowings from other customers73,645-406--74,051 - subordinated liabilities288,519----288,519 - other financial liabilities133,55524,47126,1312,64120,080206,878 Total financial liabilities15,728,8791,270,088404,640184,6891,595,28219,183,578 Net on-balance sheet financial position896,283616,013(38,685)28,808385,0631,887,482 Derivative financial instruments(27,149)2,00244,115(24,124)(13,568)(18,724) Net financial position869,134618,0155,4304,684371,4951,868,758 31 Dec 2020 Total financial assets14,728,7671,921,270376,572176,8901,846,78519,050,284 Total financial liabilities13,962,7291,254,761371,229175,2751,502,65317,266,647 Net on-balance sheet financial position766,038666,5095,3431,615344,1321,783,637 Derivative financial instruments30,748-651(2,303)(43,314)(14,218) Net financial position796,786666,5095,994(688)300,8181,769,419 ![]() 299 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021EURRSDUSDCHFOtherTotal Financial assets Cash, cash balances at central banks, and other demand deposits at banks3,165,6041,21224,18513,64845,7883,250,437 Financial assets held for trading7,682----7,682 Non-trading financial assets mandatorily at fair value through profit or loss7,888-4,472--12,360 Financial assets measured at fair value through other comprehensive income1,477,670-82,038-26,0431,585,751 Financial assets measured at amortised cost - debt securities1,407,226-19,172-10,0261,436,424 - loans and advances to banks199,287----199,287 - loans and advances to customers5,060,091-13,93269,8081,3225,145,153 - other financial assets50,515720,755121,12692,404 Derivatives - hedge accounting568----568 Fair value changes of the hedged items in portfolio hedge of interest rate risk7,082----7,082 Total financial assets11,383,6131,219164,55483,457104,30511,737,148 Financial liabilities Financial liabilities held for trading7,602----7,602 Financial liabilities measured at fair value through profit or loss352----352 Derivatives - hedge accounting35,377----35,377 Financial liabilities measured at amortised cost - deposits from banks and central banks75,1491310,8782,41620,873109,329 - borrowings from banks and central banks860,597-12,882--873,479 - due to customers9,412,4525148,36455,39143,3939,659,605 - borrowings from other customers--406--406 - subordinated liabilities288,519----288,519 - other financial liabilities79,050-22,1741531,150102,527 Total financial liabilities10,759,09818194,70457,96065,41611,077,196 Net on-balance sheetfinancial position624,5151,201(30,150)25,49738,889659,952 Derivative financial instruments(15,358)-35,825(25,132)(14,076)(18,741) Net financial position609,1571,2015,67536524,813641,211 31 Dec 2020 Total financial assets9,780,3722,289177,77163,15376,96110,100,546 Total financial liabilities9,199,76313171,28160,01558,7469,489,818 Net on-balance sheet financial position580,6092,2766,4903,13818,215610,728 Derivative financial instruments4,136-(2,491)(3,299)(12,169)(13,823) Net financial position584,7452,2763,999(161)6,046596,905 ![]() 300 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b) FX sensitivity analysis NLB Group and NLB Scenarios31 Dec 202131 Dec 2020 USD+/-5.74%+/-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 GroupNLB 31 Dec 2021 Effects on income statement Effects on other comprehensive income Effects on income statement Effects on other comprehensive income Appreciation of USD454-(132)42 CHF(358)5666- CZK11-11- RSD22,5014- MKD23,570285- Other2370(17)- Effects on comprehensive income1346,70715742 Depreciation of USD(405)-117(38) CHF329(520)(5)- CZK(10)-(10)- RSD(2)(2,484)(4)- MKD(2)(3,476)(277)- Other(21)(69)15- Effects on comprehensive income(111)(6,549)(164)(38) ![]() 301 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report The effect on the other comprehensive income statement of NLB Group has decreased by half due to the lower translation positions in MKD and RSD currencies and due to the lower volatility growths’ scenarios for MKD and RSD currencies. 6.2.2.Managing market risks in the trading book Market risk exposure in the trading book arises mostly as a result of the changes in interest rates, credit spreads, FX rates, and equity prices. The Management Board determines lowtotal risk appetite and limits by the risk type. The limits are monitored daily by the Global Risk Department. NLB uses an internal VaR model based on the variance- covariance method for other market risks. The daily calculation of the VAR value is adjusted to Basel standards (99% confidence interval, a monitored period of 250 business days, a 10-day holding position period). 6.2.3.Interest rate risk Interest rate risk is the risk to NLB Group’s capital and profit or loss arising from changes in market interest rates. Interest rate risk management of NLB Group includes all interest rate- sensitive on and off-balance sheet assets and liabilities which are divided into the trading and banking book according to regulatory standards. It takes into account the positions in each currency. Interest rate risk management in NLB Group is adopted in accordance with the risk appetite and risk strategy, based on general Basel standards on interest rate management in the banking book (IRRBB; hereinafter: ‘Standards’) and European Banking Authority guidelines. In the trading book, interest rate risk is measured on the basis of the VaR method and BPV method, in accordance with the adopted policy for managing market risk in the trading book of NLB. The interest rate risk in the banking book is measured and monitored within a framework of interest rate risk management policy that establishes consistent methodologies, models, and limit systems. NLB Group manages interest rate risk exposure through application of two main measures: •Economic value sensitivity – using BPV method (Basis Point Value), which measures the extent to which the economic value of the banking book would change if interest rates change according to the scenario. •Sensitivity of net interest income – using EaR method (Earnings at Risk), which measures the impact of the interest rate change on future net interest income over a one-year period, assuming constant balance sheet volume and structure. NLB Group regularly measures interest rate risk exposure in the banking book under various standardised and additional scenarios of changes in the level and shape of interest rate yield curve, including all significant sources of risk, taking into account behavioural and modelling assumptions. Part of non-maturing deposits, which is considered as a core part is allocated long-term by using replicating portfolio. Optionality risk is mainly derived from behavioural options, reflected in prepayments and withdrawals, and embedded options such as caps and floors. Moreover, considering expected cash flows, non-performing exposures, as well as off-balance sheet items are considered when measuring interest rate risk exposure. The interest rate risk is closely measured, monitored, and managed within approved risk limits and controls. The Group manages interest rate positions and stabilises its interest rate margin primarily with the pricing policy and a fund transfer pricing policy. An important part of the interest rate risk management is presented by the banking book securities portfolio, whose primary purpose is to maintain adequate liquidity reserves, while it also contributes to the stability of the interest rate margin, which is why valuation risk has been included in the Group’s interest rate risk management model. in EUR thousands NLB GroupNLB 31 Dec 2020 Effects on income statement Effects on other comprehensive income Effects on income statement Effects on other comprehensive income Appreciation of USD(345)-(97)(11) CHF(293)231(32)- CZK(4)-(4)- RSD97,09622- MKD47,66319- Other859189- Effects on comprehensive income(544)15,081(3)(11) Depreciation of USD295-8310 CHF270(213)29- CZK3-3- RSD(9)(6,959)(22)- MKD(4)(7,151)(18)- Other(68)(89)(70)- Effects on comprehensive income 487 (14,412)510 ![]() 302 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Group also manages interest rates risk by using plain vanilla derivative financial instruments (interest rate swaps, overnight index swaps, cross currency swaps, and forward rate agreements), most of which are treated according to hedge accounting rules. Interest rate risk exposure arises mainly from banking book positions; particularly in a current low interest rate environment, where NLB Group recorded an increased volume of fixed interest rate loans and long-term banking book securities on the assets side and transformation of deposits from term to sight. Each member of NLB Group is responsible for its own interest rate risk policy, which includes the limit system and is in line with the parent Bank’s guidelines and standards, as well as with the local regulatory requirements. NLB regularly monitors the interest rate risk exposure of each individual member of NLB Group in accordance with the Standards for Risk Management in NLB Group. The aforementioned document comprises guidelines for uniform and effective interest rate risk management within individual NLB Group members. in EUR thousands 31 Dec 2021NLB Group Currency1 - 3 years3 - 5 years5 - 10 years Over 10 Years EUR (2,404,620) 1,211,2481,573,325 446,585 RSD203,340341,21462,4581,912 MKD141,26121,96013,8359,378 Other(32,296)124,13266,7263,234 in EUR thousands 31 Dec 2020NLB Group Currency1 - 3 years3 - 5 years5 - 10 years Over 10 Years EUR(1,856,327)816,9801,397,446279,265 RSD216,751175,362167,139- MKD74,78843,7255,22411,032 Other(134,917)49,45116,095(2,886) in EUR thousands 31 Dec 2021NLB Currency1 - 3 years3 - 5 years5 - 10 years Over 10 Years EUR(1,803,603)815,3561,203,636389,570 Other1,62632,3251,2426,627 in EUR thousands 31 Dec 2020NLB Currency1 - 3 years3 - 5 years5 - 10 years Over 10 Years EUR(1,479,227)451,0081,071,925227,828 Other(9,471)9,1715,628(7) Interest rate risk in the banking book is measured, monitored, and reported by the Global Risk Department (weekly in the case of NLB and monthly on Group level), while positions are managed by Financial Markets. Exposure to interest rate risk is discussed on ALCO monthly on NLB’s individual level and quarterly on the consolidated level. a)Analysis of financial instruments according tothe exposure to interest rate risk The following table presents open net interest rate risk positions by the most important currencies of NLB Group. Financial instruments without maturity such as sight deposits are presented in the first gap irrespective of their behavioural characteristics and the NLB Group’s expectations. ![]() 303 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b) Net interest income sensitivity analysis and an economic view of interest rate risk in the banking book The analysis of interest income sensitivity for the horizon of the next 12 months assumes a sudden parallel interest rate shock down by 50 basis points or 100 basis points. The analysis assumes that the positions used remain unchanged. The assessment of the impact of a change in interest rates of 50/100 basis points on the amount of net interest income of the banking book position: in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Net interest income sensitivity18,52013,8526,6687,493 Net interest income sensitivity - as % of Equity0.94%0.78%0.49%0.55% in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Interest risk in banking book - EVE126,651128,37084,13082,116 Interest risk in banking book - EVE as % of Equity6.42%7.27%6.14%5.98% The values in the table are calculated on short-term interest rate gaps, where the applied parallel interest rate shock down by 50/100 basis points represents a realistic and practical scenario. The calculations of the sensitivity of net interest income are implemented in technological support. The ‘EVE’ (Economic Value of Equity) method is a measure of the sensitivity of changes in market interest rates on the economic value of financial instruments. The EVE represents the present value of net future cash flows and provides a comprehensive view of the possible long-term effects of changing interest rates at least under the six prescribed standardised interest rate shock scenarios or more if necessary, according to the situation on financial markets. Calculations are considering behavioural and automatic options, as well as the allocation of non-maturing deposits. The assessment of the impact of a change in interest rates of 200 basis points on the economic value of the banking book position: The applied sudden parallel interest rate shock up is by 200 basis points, which represents a “worst case” scenario for NLB Group. The calculation takes into the account allocation of the core part of non-maturing deposits and other behavioural assumptions. Exposure to the interest rate risk of the banking book mainly arises from investments in long-term debt securities and loans with fixed interest rate, as well as from transformation of term to sight deposits due to a low interest rate environment. Long-term interest positions of other members in NLB Group, which present a majority of their exposure to interest-rate risk (an economic point of view), mainly arise from a portfolio of mortgage loans with a fixed interest rate. ![]() 304 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 6.3. Liquidity risk Liquidity risk is the risk of the NLB Group being unable to fulfil current or future expected and unexpected cash requirements, across all time horizons. The risk may stem from the reduction in funding sources or a reduction in the liquidity of certain assets. Liquidity risk is related to funding liquidity risk (the NLB Group’s liquidity on the liabilities-side) and market liquidity risk (counterbalancing capacity on the assets-side). On the liabilities-side, liquidity risk can result in a loss if the Bank is unable to settle all its liabilities or when the Bank, because of its incapacity to provide sufficient funds to settle its obligations, is forced to raise the necessary funds at a cost which significantly exceeds the normal cost. On the assets-side, the liquidity risk is related to the market value of counterbalancing capacity and arises in case of significant reduction of market value of an individual financial instrument and may result in insufficient value of counterbalancing capacity to cover the NLB Group’s liquidity needs. Intraday liquidity risk is the capacity required during the business day to enable financial institutions to make payments andsettle obligations. In the risk identification process, first the reasons for the realisation of each identified material risk are analysed and grouped together in short risk descriptions. Material risks are then classified into three groups based on what part of liquidity is affected by the realisation of the material risks: liabilities side, assets side, intraday liquidity risk. Based on the identified material risks, key liquidity risk drivers are defined. Key risk drivers of the liquidity position are factors that are expected to trigger a substantial deterioration of the Group’s liquidity position. This deterioration may take place in the form of an increase in outflows, a decrease in inflows or a decrease in the liquidity value of the counterbalancing capacity. Liquidity risk is defined as an important risk type for NLB Group, and one which must be managed carefully. NLB Group has a liquidity risk management framework in place that enables maintaining a low risk tolerance for liquidity risk. NLB Group formulated a set of liquidity risk metrics and limits to manage liquidity position within the requirements set by the regulator. By maintaining a smooth long-term maturity profile, limiting dependence on wholesale funding, and holding a solid liquidity buffer, the NLB Group maintains a sound and robust liquidity position, even under severely adverse conditions. The Management Board approves the Liquidity Risk Management Policy, which outlines the key principles for the Bank’sliquidity management. ALCO receives a regular report on the liquidity position and the performance against approved limits and targets. ALCO oversees the development of the Bank’s funding and liquidity position and decides on liquidity risk-related issues in NLB Group. Risk tolerance for liquidity risk is low, therefore NLB Group must be able to provide sufficient funds for settling its liabilities at all times, even if a specific stress scenario is realised. NLB Group measures and manages its liquidity in two stages: • Static view (current exposure), •Forward-looking and stress-testing. The objectives of monitoring and managing liquidity risk in NLB Group are as follows: •ensuring a sufficient amount of liquidity for the settlement of all NLB Group’s liabilities; • minimising the costs of maintaining liquidity; • determining an adequate amount of counterbalancing capacity and optimal liquidity management; • ensuring adequate control environment; • ensuring an appropriate level of liquidity for different situations and stress scenarios; •anticipating emergencies or crisis conditions, and implementing contingency plans in the event of extraordinary circumstances; •ensuring regular projections of future cash flows and stress- testing of liquidity risk; • preparing proposals for establishing additional financial assets as collateral for sources of funding. Overall assessment of the liquidity position of NLB Group is assessed in the Internal Liquidity Adequacy Assessment Process (ILAAP) at least once per year for NLB Group, and it includes a clear formal statement on liquidity adequacy, supported by an analysis of ILAAP outcomes. The ILAAP process is integral to risk management frameworks and is aligned with the NLB Group’s risk appetite which is consistent with the business model and approved by the management board. Based on the Risk Appetite, the NLB Group prepares a business plan and financial forecasts which are crucial for defining internal capital needs (ICAAP process) and internal liquidity assessment (ILAAP process). Both processes are conducted from the normative and economic perspectives and supplemented by the stress-testing programme. NLB Group performs stress tests on a regular basis for a variety of bank-specific and market-wide stress scenarios (individually and in combination) to identify sources of potential liquidity strain and to ensure that current exposures remain in accordance with the NLB Group’s established liquidity risk tolerance. Stress test outcomes are used to adjust its liquidity risk management strategies, policies, and positions, define minimum amount of counterbalancing capacity, and to develop effective contingency plans. The NLB Group has a formal liquidity contingency plan (LCP) that clearly sets out the procedures for addressing liquidity shortfalls in stressed situations. The plan outlines procedures to manage a range of stress environments, establish clear lines of responsibility, include clear invocation and escalation procedures, and is regularly tested and updated to ensure that it is operationally robust. NLB Group maintains a sufficient amount of liquidity reserves in the form of high credit quality debt securities that are eligible for refinancing via the ECB/central bank or on the market. In the current situation, NLB Group also strives to follow as closely as possible the long-term trend of diversification on both the liability and asset sides of the balance sheet. NLB Group regularly performs stress tests with the aim of testing the liquidity stability and the availability of liquidity reserves in various stress situations. In addition, special attention is given to the fulfilment of the liquidity regulation (CRR/CRD), with monitoring and reporting of the liquidity coverage ratio (LCR) according to the Delegated Act and net stable funding ratio (NSFR). This also includes monitoring and reporting of Additional Liquidity Monitoring Metrics (ALMM) on solo and consolidated levels. In accordance with theCommissionImplementingRegulation (EU), NLB Group regularly monitors and issues quarterly reports on asset encumbrance. The Group manages its liquidity position (liquidity within one day) daily, for a period of several days or weeks in advance, based on the planning and monitoring of cash flows. Each NLB Group member is responsible for its own liquidity position and carries out thefollowing activities: • managing intraday liquidity; •planning and monitoring cash flows; •monitoring and complying with the liquidity regulations of the central bank; •adopting business decisions; • forming and managing liquidity reserves; and ![]() 305 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report •performing liquidity stress test to define the liquidity buffer for smooth functioning of the payment system in stressed circumstances. NLB Group members actively manage liquidity over the course of a day, taking into account the characteristics of payment settlements to ensure the timely settlement of liabilities in normal and stressed circumstances. Liquidity risk management in NLB Group is under strict monitoring by NLB as a parent bank. Reporting to NLB by all Group members is performed daily. Global Risk gives guidelines and defines minimal standards for Group members regarding liquidity risk management in NLB Group Risk Management Standards. Each Group member is responsible for ensuring adequate liquidity via the necessary sources of funding and their appropriate diversification and maturity, and by managing liquidity reserves and fulfilling the requirements of regulations governing liquidity. The exposure of an individual NLB Group member towards liquidity risk is regularly monitored and reported to ALCO, and to local Assets and Liabilities Committees. a)Managing NLB Group’s liquidity reserves NLB Group has liquidity reserves available to cover liabilities that fall or may become due. Liquidity reserves must become available on short notice. Liquidity reserves are comprised of cash, the settlement account at the central bank above reserve requirement, debt securities, and loans eligible as collateral for the Eurosystem’s liquidity providing operations, on the basis of which the Bank may generate the requisite liquidity at any time. The available liquidity reserves are liquidity reserves decreased by the required balances for the continuous performance ofpayment transactions, encumbered securities, and/or credit claims for different purposes (secured funding). The minimum amount of liquidity reserves is determined on the basis of the methodology pertaining to liquidity risk stress tests. The amount represents a sum of liquidity reserves that would enable the survival of a severe stress over a period of one month in a combined stress scenario and comprises high quality liquid assets according to LCR methodology, specified in Commission Delegated Regulation (EU) 2015/61 and the later amendments. in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Liquidity reserves Cash, cash balances at central banks\*3,567,8732,683,8513,068,1232,106,517 Trading book securities-68,809-2,450 Banking book securities4,615,3744,946,6322,479,9522,896,747 ECB eligible loans80,043582,98680,043582,986 Total available liquidity reserves8,263,2908,282,2785,628,1185,588,700 Encumbered liquidity reserves874,82752,336874,82752,336 \*above reserve requirement As at 31 December 2021, 79.8% (31 December 2020: 81.8%) of debt securities in the banking book of NLB Group were government securities (includinggovernment guaranteed bonds – GGB), and 10.0% (31 December 2020: 8.4%) were senior unsecured bonds. The purpose of banking book securities is to provide liquidity, along with stabilisation of the interest margin and the interest rate risk management, simultaneously. When managing the portfolio, NLB Group uses conservative principles, particularly with respect to the portfolio’s structure in terms of issuers’ ratings and asset class. The framework for managing the banking book securities is the Policy for managing debt securities in the Financial Markets’ banking book and the Policy for Managing Domestic (Slovenian) Corporate Debt Securities in Large Corporates, which clearly define the objectives and characteristics of the associated portfolio. The ECB-eligible credit claims comprise loans which fulfil the high eligibility criteria set by the ECB itself and for domestic loans are specified in the general terms about execution of monetary policy framework (Part 4) adopted by the Bank of Slovenia. NLB is the only member of NLB Group that complies with the conditions set by the Eurosystem to classify as an eligible counterparty. As such, these ECB credit claims are included among liquidity reserves. Members of NLB Group manage their liquid assets on a decentralised basis in compliance with the local liquidity regulation and validpolicies of NLB Group. The structure of liquidity reserves is shown in the following table. ![]() 306 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Encumbered/unencumbered assets in EUR thousands NLB GroupNLB 31 Dec 2021 Carrying amount of encumbered assets Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities Carrying amount of encumbered assets Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities Loans on demand1,083,713-3,411,743-101,854-2,970,538- Equity instruments 780780 82,71982,719--49,18149,181 Debt securities454,939455,6314,662,2094,689,116497,515500,3282,479,9512,501,899 Loans and advances other than loans on demand 471,556-10,378,477-464,027-4,980,705- Other assets--1,031,360---1,155,761- Total2,010,98819,566,5081,063,39611,636,136 in EUR thousands NLB GroupNLB 31 Dec 2020 Carrying amount of encumbered assets Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities Carrying amount of encumbered assets Fair value of encumbered securities Carrying amount of unencumbered assets Fair value of unencumbered securities Loans on demand991,649-2,462,193-102,458-1,966,670- Equity instruments70870882,25180,949--49,31849,318 Debt securities52,33655,5194,968,2055,017,86752,33655,5192,899,1972,951,975 Loans and advances other than loans on demand 80,204-9,874,875-72,943-4,734,993- Other assets--1,053,435---1,148,687- Total1,124,89718,440,959227,73710,798,865 ![]() 307 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c)Collateral received – unencumbered The nominal amount of collateral received, or own debt securities issued not available for encumbrance are shown in the table below: d) Source ofencumbrance in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Equity instruments242,682268,249203,620198,874 Debt securities-10,438-- Loans and advances other than loans on demand140,751146,75020,24520,165 Other assets9,839,84810,679,6304,120,9403,809,244 Total10,223,28111,105,0674,344,8054,028,283 in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral Collateralised liability Assets given as collateral Derivatives42,29253,74476,18791,25042,29253,74476,18791,250 Deposits746,021835,0665,97812,055790,505877,6415,97812,055 Other sources of encumbrance3,6981,122,1793,8751,021,592-132,010-124,433 Total792,0112,010,98986,0401,124,897832,7971,063,39582,165227,738 As at 31 December 2021, NLB Group and NLB had a large share of unencumberedassets. Other sources of encumbrance mostly relate to the obligatory reserve. On the NLB Group level, the amount of encumbered assets equalled EUR 2,011 million (31 December 2020: EUR 1,125 million), relating to the deposit guarantee scheme and to targeted longer-term refinancing operations (TLTRO). ![]() 308 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report e) Non-derivative cash flows The tables below illustrate the cash flows from non-derivative financial instruments by residual maturities at the end of the year. The amounts disclosed in the table are the undiscounted contractual cash flows determined on the basis of spot rates at the end of the reporting period. in EUR thousands NLB Group 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Yearto 5 YearsOver 5 Years Total Financial liabilities and credit-related commitments Financial liabilities measured at amortised cost - deposits from banks and central banks56,07317368415,448-72,378 - borrowings from banks and central banks954480748,49699,8426,048855,820 - due to customers15,772,513270,238859,204743,77422,54317,668,272 - borrowings from other customers6141,9296,82429,55440,86279,783 - subordinated liabilities-4,4276,80341,400318,201370,831 - other financial liabilities120,69411,67817,86655,3211,319206,878 Credit risk related commitments578,233166,473838,890470,308407,4992,461,403 Non-financial guarantees30,42672,983195,917342,42661,349703,101 Total16,559,507528,3812,674,6841,798,073857,82122,418,466 Total financial assets6,179,369820,0222,704,3228,110,0385,031,99422,845,745 in EUR thousands NLB Group 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to 5 YearsOver 5 Years Total Financial liabilities and credit-related commitments Financial liabilities measured at amortised cost - deposits from banks and central banks52,43419,813558491-73,296 - borrowings from banks and central banks66672718,146130,82110,273160,633 - due to customers14,111,895379,1271,080,487848,23719,05916,438,805 - borrowings from other customers1,0412,8999,71943,38239,74396,784 - subordinated liabilities-4,4266,80341,400328,352380,981 - other financial liabilities112,2588,76214,40242,9173,756182,095 Credit risk related commitments563,821226,551703,691408,880424,6812,327,624 Non-financial guarantees25,17767,127154,766334,07866,198647,346 Total14,867,292709,4321,988,5721,850,206892,06220,307,564 Total financial assets5,228,895651,5412,434,5897,867,3864,621,08320,803,494 ![]() 309 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Yearto 5 YearsOver 5 Years Total Financial liabilities and credit-related commitments Financial liabilities measured at fair value through profit or loss ---352-352 Financial liabilities measured at amortised cost - deposits from banks and central banks94,326--15,197-109,523 - borrowings from banks and central banks44,569-742,58482,882-870,035 - due to customers9,303,78465,745125,834158,6378,7069,662,706 - borrowings from other customers---406-406 - subordinated liabilities-4,4276,80341,400318,201370,831 - other financial liabilities71,9424,04161625,501427102,527 Credit risk related commitments503,49296,524451,614280,201220,5801,552,411 Non-financial guarantees16,71445,786100,102240,76133,803437,166 Total10,034,827216,5231,427,553845,337581,71713,105,957 Total financial assets3,678,758308,1971,061,5884,150,7143,280,84612,480,103 in EUR thousands NLB 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to 5 YearsOver 5 Years Total Financial liabilities and credit-related commitments Financial liabilities measured at amortised cost - deposits from banks and central banks41,635----41,635 - borrowings from banks and central banks8570413,547121,7519,561145,648 - due to customers8,412,546108,942184,159143,1154,7758,853,537 - borrowings from other customers--13--13 - subordinated liabilities-4,4266,80341,400328,352380,981 - other financial liabilities57,9136,13458223,81352788,969 Credit risk related commitments478,872143,562418,866261,282270,3331,572,915 Non-financial guarantees18,20341,59990,299245,15836,406431,665 Total9,009,254305,367714,269836,519649,95411,515,363 Total financial assets2,800,273217,3091,008,1083,878,9262,904,50610,809,122 When determining the gap between the financial liabilities and financial assets in the maturity bucket of up to one month, it is necessary to be aware of the fact that financial liabilities include total demand deposits, and that NLB may apply a stability weight of 60% to demand deposits when ensuring compliance withthe central bank’sregulations concerning calculation of the liquidity position. To ensure NLB Group’s and NLB’s liquidity, and based on its approach to risk, in previous years NLB Group compiled a substantial amount of high-quality liquid investments, mostly government securities and selected loans, which are accepted as adequate financial assets by the ECB. Liabilities and credit-related commitments are included in maturity buckets based on their residual contractual maturity, with the exception of the TLTRO loan, which is included based on expected early repayment in June 2022 (note 5.15.b). ![]() 310 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to5 YearsOver 5 Years Total Cash, cash balances at central banks, and other demand deposits at banks5,005,052----5,005,052 Financial assets held for trading7,678----7,678 Non-trading financial assets mandatorily at fair value through profit or loss6,739-9213,34010,16121,161 Financial assets measured at fair value through other comprehensive income401,080163,233400,5881,888,222608,7373,461,860 Financial assets measured at amortised cost - debt securities38,31719,107124,948783,028752,2261,717,626 - loans and advances to banks119,93016,8272,3741,552-140,683 - loans and advances to customers466,930547,2381,912,0384,519,7263,141,18910,587,121 - other financial assets92,5053,30977325,538104122,229 Derivatives - hedge accounting568----568 Fair value changes of hedged items in portfolio hedge of interest rate risk---1,3305,7527,082 Non-current assets held for sale--7,051--7,051 Property and equipment---89,813157,201247,014 Investment property---43,6933,93147,624 Intangible assets---29,25929,81759,076 Investments in associates and joint ventures----11,52511,525 Current income tax assets--3,948--3,948 Deferred income tax assets-- 620 31,9346,42338,977 Other assets23,9839,65519,85937,56316191,221 Total assets6,162,782759,3692,473,1207,454,9984,727,22721,577,496 Financial liabilities held for trading7,585----7,585 Derivatives - hedge accounting35,377----35,377 Financial liabilities measured at amortised cost - deposits from banks and central banks56,053-52115,254-71,828 - borrowings from banks and central banks889442751,77399,4186,009858,531 - due to customers15,771,461268,484852,576727,30820,98017,640,809 - borrowings from other customers5351,7706,18627,07438,48674,051 - subordinated liabilities-3,6891,759-283,071288,519 - other financial liabilities120,18210,65513,81737,643257182,554 - lease liabilities5121,0234,04917,6781,06224,324 Provisions7,3141,18339,91469,8631,130119,404 Current income tax liabilities2,7223,156---5,878 Deferred income tax liabilities---3,045-3,045 Other liabilities36,495 748 5,7494,8671,60949,468 Total liabilities16,039,125291,1501,676,3441,002,150352,60419,361,373 Credit risk related commitments578,233166,473838,890470,308407,4992,461,403 Non-financial guarantees30,42672,983195,917342,42661,349703,101 Total liabilities and credit-related commitments16,647,784530,6062,711,1511,814,884821,45222,525,877 f) An analysis of the statement of financial position by residual contractual maturity ![]() 311 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to5 YearsOver 5 Years Total Cash, cash balances at central banks, and other demand deposits at banks3,961,812----3,961,812 Financial assets held for trading16,04615,173147,2236,41284,855 Non-trading financial assets mandatorily at fair value through profit or loss6,06712024,9541,17110,08142,393 Financial assets measured at fair value through other comprehensive income352,47457,055337,2981,960,192807,2713,514,290 Financial assets measured at amortised cost - debt securities74,54047,08776,672695,030609,7581,503,087 - loans and advances to banks154,68636,7064,3751,238-197,005 - loans and advances to customers538,078421,6651,733,2514,252,9682,673,8989,619,860 - other financial assets80,6928,3193,38020,597150113,138 Fair value changes of hedged items in portfolio hedge of interest rate risk---88512,95913,844 Non-current assets held for sale--8,658--8,658 Property and equipment---78,847170,270249,117 Investment property---41,50113,34154,842 Intangible assets---32,27429,39461,668 Investments in associates and joint ventures----7,9887,988 Current income tax assets1,656222,691--4,369 Deferred income tax assets327--28,7592,70331,789 Other assets24,5489,10954,9928,33715497,140 Total assets5,210,926595,2562,246,2727,169,0224,344,37919,565,855 Financial liabilities held for trading15,485----15,485 Derivatives - hedge accounting61,161----61,161 Financial liabilities measured at amortised cost - deposits from banks and central banks52,43419,813163223-72,633 - borrowings from banks and central banks65871717,468129,21510,167158,225 - due to customers14,109,959375,7511,069,785825,07616,59616,397,167 - borrowings from other customers9772,7319,12041,07237,66091,560 - subordinated liabilities-3,6901,759-282,872288,321 - other financial liabilities111,1667,7039,55225,9701,345155,736 - lease liabilities1,0921,0594,85016,9472,41126,359 Provisions8,5071,18332,78579,1593,425125,059 Current income tax liabilities644358---1,002 Deferred income tax liabilities 763 --3,3014114,475 Other liabilities31,9144124,5052,4646,33745,632 Total liabilities14,394,760413,4171,149,9871,123,427361,22417,442,815 Credit risk related commitments563,821226,551703,691408,880424,6812,327,624 Non-financial guarantees25,17767,127154,766334,07866,198647,346 Total liabilities and credit-related commitments14,983,758707,0952,008,4441,866,385852,10320,417,785 ![]() 312 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to5 YearsOver 5 Years Total Cash, cash balances at central banks, and other demand deposits at banks3,250,437----3,250,437 Financial assets held for trading7,682----7,682 Non-trading financial assets mandatorily at fair value through profit or loss614293066,9394,47212,360 Financial assets measured at fair value through other comprehensive income24,77357,473141,428918,421443,6561,585,751 Financial assets measured at amortised cost - debt securities2,82518,18290,276608,223716,9181,436,424 - loans and advances to banks91640,46350,12932,06675,713199,287 - loans and advances to customers317,315171,605676,9382,183,2391,796,0565,145,153 - other financial assets66,4546583,10022,192-92,404 Derivatives - hedge accounting568----568 Fair value changes of hedged items in portfolio hedge of interest rate risk---1,3305,7527,082 Non-current assets held for sale--4,089--4,089 Property and equipment---19,30466,81886,122 Investment property---9,181-9,181 Intangible assets---14,25515,19829,453 Investments in subsidiaries, associates and joint ventures--24,28237,984723,757786,023 Current income tax assets--3,761--3,761 Deferred income tax assets---31,902-31,902 Other assets6,984-4,869--11,853 Total assets3,678,568288,410999,1783,885,0363,848,34012,699,532 Financial liabilities held for trading7,602----7,602 Financial liabilities measured at fair value through profit or loss---352-352 Derivatives - hedge accounting35,377----35,377 Financial liabilities measured at amortised cost - deposits from banks and central banks94,326--15,003-109,329 - borrowings from banks and central banks44,569-746,02882,882-873,479 - due to customers9,303,75565,612125,287156,3228,6299,659,605 - borrowings from other customers---406-406 - subordinated liabilities-3,6891,759-283,071288,519 - other financial liabilities71,8663,895223,4951399,271 - lease liabilities 76 1466142,0064143,256 Provisions544 672 18,50129,646-49,363 Other liabilities14,2161661,4423,6831,53221,039 Total liabilities9,572,33174,180893,633313,795293,65911,147,598 Credit risk related commitments503,49296,524451,614280,201220,5801,552,411 Non-financial guarantees16,71445,786100,102240,76133,803437,166 Total liabilities and credit-related commitments10,092,537216,4901,445,349834,757548,04213,137,175 ![]() 313 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to5 YearsOver 5 Years Total Cash, cash balances at central banks, and other demand deposits at banks2,261,533----2,261,533 Financial assets held for trading16,381-12,449-18,831 Non-trading financial assets mandatorily at fair value through profit or loss52615826,0843,8854,45335,106 Financial assets measured at fair value through other comprehensive income91,31219,936185,583867,674551,8461,716,351 Financial assets measured at amortised cost - debt securities66,89313,79241,502556,444599,2491,277,880 - loans and advances to banks39222,82450,27428,99055,840158,320 - loans and advances to customers322,669141,946609,4042,029,7911,460,3684,564,178 - other financial assets33,6612184020,584-54,503 Fair value changes of hedged items in portfolio hedge of interest rate risk---88512,95913,844 Non-current assets held for sale--4,454--4,454 Property and equipment---22,17369,50291,675 Investment property---8,300-8,300 Intangible assets---13,05815,04728,105 Investments in subsidiaries, associates and joint ventures--1,71965,140683,863750,722 Current income tax assets--1,923--1,923 Deferred income tax assets---29,214-29,214 Other assets6,558-5,106--11,664 Total assets2,799,925198,874926,0903,648,5873,453,12711,026,603 Financial liabilities held for trading15,500----15,500 Derivatives - hedge accounting61,161----61,161 Financial liabilities measured at amortised cost - deposits from banks and central banks41,635----41,635 - borrowings from banks and central banks8570412,948120,2609,467143,464 - due to customers8,412,510108,772183,709141,0774,6878,850,755 - borrowings from other customers--13--13 - subordinated liabilities-3,6901,759-282,870288,319 - other financial liabilities57,8406,006-21,8991285,757 - lease liabilities731285821,9145153,212 Provisions495 669 19,46341,5331,63063,790 Other liabilities14,610 94 2,2362,4302,63122,001 Total liabilities8,603,909120,063220,710329,113301,8129,575,607 Credit risk related commitments478,872143,562418,866261,282270,3331,572,915 Non-financial guarantees18,20341,59990,299245,15836,406431,665 Total liabilities and credit-related commitments9,100,984305,224729,875835,553608,55111,580,187 ![]() 314 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report g) Derivative cash flows The table below illustrates cash flows from derivatives, broken down into the relevant maturity buckets based on in EUR thousands NLB Group 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1Year 1 Year to5 YearsOver 5 Years Total Foreign exchange derivatives - Forwards - Outflow(26,202)(10,460)(16,853)(12,180)-(65,695) - Inflow26,21410,46516,86512,199-65,743 - Swaps - Outflow(96,742)(2,362)(17,335)--(116,439) - Inflow96,4832,36417,346--116,193 Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow(1,116)(2,107)(10,153)(26,901)(12,053)(52,330) - Inflow342373,3217,1797,28718,058 - Caps and floors - Outflow--(1)(51)-(52) - Inflow--252-54 Total outflow(124,060)(14,929)(44,342)(39,132)(12,053)(234,516) Total inflow122,73113,06637,53419,4307,287200,048 residual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows prepared on the basis of spot rates on the reporting date. in EUR thousands NLB Group 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to 5 YearsOver5 Years Total Foreign exchange derivatives - Forwards - Outflow(24,456)(28,334)(65,976)(13,817)-(132,583) - Inflow24,49428,36866,04113,828-132,731 - Swaps - Outflow(20,709)(49,105)(36,055)--(105,869) - Inflow20,29749,11236,034--105,443 Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow(692)(2,962)(11,378)(42,239)(18,643)(75,914) - Inflow737184,3948,7772,34816,310 Total outflow(45,857)(80,401)(113,409)(56,056)(18,643)(314,366) Total inflow44,86478,198106,46922,6052,348254,484 ![]() 315 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB 31 Dec 2021Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to 5 YearsOver 5 Years Total Foreign exchange derivatives - Forwards - Outflow(24,891)(10,460)(16,853)(12,180)-(64,384) - Inflow24,90210,46516,86512,199-64,431 - Swaps - Outflow(102,036)(6,875)(17,335)--(126,246) - Inflow101,7726,86417,346--125,982 Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow(1,116)(2,107)(10,153)(26,901)(12,053)(52,330) - Inflow342373,3217,1797,28718,058 - Caps and floors - Outflow--(1)(51)-(52) - Inflow--252-54 Total outflow(128,043)(19,442)(44,342)(39,132)(12,053)(243,012) Total inflow126,70817,56637,53419,4307,287208,525 in EUR thousands NLB 31 Dec 2020Up to 1 Month1 Month to 3 Months3 Months to 1 Year 1 Year to 5 YearsOver 5 Years Total Foreign exchange derivatives - Forwards - Outflow(23,685)(31,650)(65,976)(13,817)-(135,128) - Inflow23,71531,68566,04113,828-135,269 - Swaps - Outflow(24,874)(53,580)(6,063)--(84,517) - Inflow24,82153,5926,068--84,481 Interest rate derivatives - Interest rate swaps and cross-currency swaps - Outflow(692)(2,962)(11,378)(42,239)(18,643)(75,914) - Inflow737184,3948,7772,34816,310 Total outflow(49,251)(88,192)(83,417)(56,056)(18,643)(295,559) Total inflow48,60985,99576,50322,6052,348236,060 ![]() 316 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 6.4. Management of non-financial risks a) Operational risk When assuming operational risks, NLB Group follows the guideline that such risks may not materially impact its operations and, therefore, the risk appetite for operational risks is low to moderate. The risk is also gradually decreasing due to the reduced complexity of operations in NLB Group, with disinvestment process of non-core activities and optimisation of internal processes. NLB Group has set up a system of collecting loss events, identification, assessment, and management of operational risks, all with the aim of ensuring quality management of operational risks. This is particularly validin strategic banking members. All NLB Group banking members monitor risk appetite limits for operational risk. The upper tolerance limit is defined as the limit amount of net loss that an individual member still allows in its operations. If the sum of net loss exceeds the tolerance limit, a special treatment of major loss events is required and, if necessary, takes additional measures for the prevention or mitigation of the same or similar loss events are taken. The warning and critical limit of loss events are also defined, which in case of exceeding require escalation procedures an acceptance of possible additional risk management measures. In addition, the Bank does not allow certain risks in its business – for them a so-called ‘zero tolerance’ was defined. For monitoring some specific more important key risk indicators, that could show a possible increase of an operational risk, the Bank developed a specific methodology as an early warning system. Such risks are periodically monitored in different business areas, and the results are discussed at the Operational Risk Committee.The latter was named as the highest decision-making authority in the area of operational risk management. Relevant operational risk committees were also appointed at other NLB Group banks.The Management Board serves in this role at other subsidiaries. The main task of the aforementioned bodies is to discuss the most significant operational risks and loss events, and to monitor and support the effective management of operational risks including their mitigation within an individual entity. All NLB Group entities, which are included in the consolidation, have adopted relevant documents that are in line with NLB standards. In banking members, these documents are in line with the development of operational risk management and regularly updated. The whole NLB Group uses uniform software support, which is also regularly upgraded. In NLB Group, the reported incurred net loss arising from loss events in 2021 was higher than in the previous year, mostly due to inclusion of the net losses arising from acquired Komercijalna banka Group. Nevertheless, the reported incurred net loss remained within the set tolerance limits for operational risk. In general, considerable attention is paid to reporting loss events, theirmitigationmeasures, and defining operational risks in all segments. To treat major loss events appropriately and as soon as possible, the Bank introduced an escalation scale for reporting bigger or more important loss events to the top levels of decision-making at NLB and the Supervisory Board of NLB. Additional attention is paid to the reporting of potential loss events in order to improve the internal controls, and thus minimise those and similar events. Furthermore, the methodology to monitor, analyse, and report key risk indicators is established, servicing as an early warning system. The aim is to improve business and supporting processes, as well enabling prompt response. Through comprehensive identificationof operational risks, possible future losses are identified, estimated, and appropriately managed. Each year, special emphasis is placed on current risks as a result of risk identification process, including ESG risks. Additional KRIs have been addressed for ESG risks, servicing as an early warning system. The major operational risks are actively managed with the measures taken to reduce them. An operational risk profile is prepared once a year on the basis of the operational risk identification. Special emphasis is put on the most topical risks, among which in particular are those with a low probability of occurrence and very high potential financial influence. For this purpose, the Bank has developed the methodology of stress-testing for operational risk. The methodology is a combination of modelling loss event data and scenario analysis for exceptional, but plausible events. Scenario analyses are made based on experience and knowledge of experts from various critical areas. The capital requirement for operational risk is calculated using the basic indicator approach at the NLB Group level and using the standardised approach at the NLB level. b)Business Continuity Management (BCM) In NLB Group, business continuity management is carried out to protect lives, goods, and reputation. Business continuity plans are prepared to be used in the event of natural disasters, IT disasters, epidemic/pandemic, and the undesired effects of the environment to mitigate their consequences. The concept of the action plan that is prepared each year is such that the activities contribute to the upgrading or improvement of the Business Continuity Management System. In 2021, Business Continuity Management was upgraded System according to external influence – we added scenarios for most likely events which could affect the bank (earthquake, fire, floods, sleet, epidemic, terrorism, IT disaster, cyber- attack). The basis for modernising the business continuity plans is the regular annual Business Impact Analysis (BIA). On its basis, the adequacy of the plans for office buildings, HR plans and IT plans is checked. The best indicator of the adequacy of the business continuity plans is testing. In 2021, only external tests and an IT test were carried out at NLB (no evacuation and manual procedures test because of the COVID-19 pandemic). No major deviations were identified. In NLB Group, know-how and methodologies are transferred to the members (except non-core members which are in the process of liquidation). The members have adopted appropriate documents which are in line with the standards of NLB and revised in accordance with the development of business continuity management. The activity of the members is monitored throughout the year, and expert assistance is providedif necessary. For more efficient functioning of the business continuity management system in NLB Group, training courses and visits to individual banking members are also provided. In 2021, visits of NLB Group banking subsidiaries weresuspended due to COVID-19 situation, nevertheless all preventive and response measures with regard to business continuity were sent to the members with the purpose to help and act in the uniform way. Besides, workshops were performed to present development of Business Continuity Management System to all the NLB Group members to be more resilient in the epidemic/pandemic circumstances. With regards to IT failures, the Bank successfully used the IT plans and instructions for manual procedures, and thus also ensured business operations in emergency situations. During COVID-19 pandemic in Slovenia and SEE, NLB Group has taken measures to protect its customers and employees, such as (but not limited to) ensuring the relevant safety conditions and making sure that the services offered by the Group are provided without any disruption. The NLB Group ![]() 317 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report continuously offered necessary services to clients, especially through digital channels (mobile banking, video calls and telebanking), which the NLB Group continues to develop at an accelerated pace. ACrisis Management Team was activated in the Bank and other banking members with full engagement of the Management Board members. Special attention was paid to continuous provision of services to clients, their monitoring, health protection measures, and prevention of cyber fraud. c)Management of other types of non-financial risks – capital risk, strategic risks, reputation risk, and profitabilityrisk Risks not included in the regulatory capital requirements (standardised approach) but have or might have an important influence on the risk profile of NLB Group, are regularly assessed, monitored, and managed. In addition, they are integrated into internal capital adequacy assessment process (ICAAP). NLB Group established internal methodologies for identifying and assessing specific types of risk, referring to the Group’s business model or arising from other external circumstances. If a certain risk is assessed as a materially important risk, relevantdisposablepreventiveand mitigation measures are applied, including regular monitoring of their effectiveness. On this basis, internal capital is considered and its consumption regularly monitored. 6.5.Fair value hierarchy of financial and non-financial assets and liabilities Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. NLB Group uses various valuation techniques to determine fair value. IFRS 13 specifies a fair value hierarchy with respect to the inputs and assumptions used to measure financial and non-financial assets and liabilities at fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the assumptions of NLB Group. This hierarchy gives the highest priority to observable market data when available, and the lowest priority to unobservable market data. NLB Group considers relevant and observable market prices in its valuations, where possible. The fair value hierarchy comprises the following levels: •Level 1 – Quoted prices (unadjusted) on active markets. This level includes listed equities, debt instruments, derivatives, units of investment funds, and other unadjusted market prices of assets and liabilities. When an asset or liability may be exchanged in multiple active markets, the principal market for the asset or liability must be determined. In the absence of a principal market, the most advantageous market for the asset or liability must be determined. •Level 2 – A valuation technique where inputs are observable, either directly (i.e., prices) or indirectly (i.e., derived fromprices). Level 2 includes prices quoted for similar assets or liabilities in active markets and prices quoted for identical or similar assets, and liabilities in markets that are not active. The sources of input parameters for financial instruments, such as yield curves, credit spreads, foreign exchange rates, and the volatility of interest rates and foreign exchange rates, is Bloomberg. •Level 3 – A valuation technique where inputs are not based on observable market data. Unobservable inputs are used to the extent that relevant observable inputs are not available. Unobservable inputs must reflect the assumptions that market participants would use when pricing an asset or liability.This levelincludes non-tradable shares and bonds, and derivatives associated with these investments and other assets and liabilities for which fair value cannot be determined with observable market inputs. Wherever possible, fair value is determined as an observable market price in an active market for an identical asset or liability. An active market is a market in which transactions for an asset or liability are executed with sufficient frequency and volume to provide pricing information on an ongoing basis. Assets and liabilities measured at fair value in active markets are determined as the market price of a unit (e.g., share) at the measurement date, multiplied by the quantity of units owned by NLB Group. The fair value of assets and liabilities whose market is not active is determined using valuation techniques. These techniques bear a different intensity level of estimates and assumptions, depending on the availability of observable market inputs associated with the asset or liability that is the subject of the valuation. Unobservable inputs shall reflect the estimates andassumptionsthat othermarket participants would use when pricing the asset or liability. For non-financial assets measured at fair value and not classified at Level 1, fair value is determined based on valuation reports provided by certified valuators. Valuations are prepared in accordance with the International Valuation Standards (IVS). ![]() 318 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report a)Financial and non-financial assets and liabilities measured at fair value in the financial statements in EUR thousands 31 Dec 2021NLB GroupNLB Level 1Level 2Level 3Total fair valueLevel 1Level 2Level 3Total fair value Financial assets Financial instruments held for trading-7,67717,678-7,68117,682 Derivatives -7,67717,678-7,68117,682 Derivatives - hedge accounting-568-568-568-568 Financial assets measured at fair value through other comprehensive income2,010,4851,449,8881,4873,461,8601,533,79751,7352191,585,751 Debt instruments 2,009,6991,385,2113513,395,2611,533,7977,245-1,541,042 Equity instruments 786 64,6771,13666,599-44,49021944,709 Non-trading financial assets mandatorily at fair value through profit and loss16,689-4,47221,161-7,8884,47212,360 Debt instruments 4,261--4,261---- Equity instruments 12,428-4,47216,900--4,4724,472 Loans -----7,888-7,888 Financial liabilities Financial instruments held for trading-7,585-7,585-7,602-7,602 Derivatives -7,585-7,585-7,602-7,602 Derivatives - hedge accounting-35,377-35,377-35,377-35,377 Financial liabilities measured at fair value through profit or loss-----352-352 Non-financial assets Investment properties-19,98227,64247,624-9,181-9,181 Non-current assets held for sale-7,051-7,051-4,089-4,089 Non-financial assets impaired during the year Recoverable amount of property and equipment--2,9902,990---- Recoverable amount of intangible assets-- 872872 ---- Recoverable amount of investments in subsidiaries, associates and joint ventures-----2012,6182,819 ![]() 319 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands 31 Dec 2020NLB GroupNLB Level 1Level 2Level 3Total fair valueLevel 1Level 2Level 3Total fair value Financial assets Financial instruments held for trading2,45081,619 786 84,8552,45015,595 786 18,831 Debt instruments 2,45066,356-68,8062,450--2,450 Derivatives -15,263 786 16,049-15,595 786 16,381 Financial assets measured at fair value through other comprehensive income2,068,3171,444,1461,8273,514,2901,663,61952,458 274 1,716,351 Debt instruments 2,060,3461,385,2459003,446,4911,663,6197,585-1,671,204 Equity instruments 7,97158,90192767,799-44,873 274 45,147 Non-trading financial assets mandatorily at fair value through profit and loss13,146-29,24742,393-7,94727,15935,106 Debt instruments 2,157--2,157---- Equity instruments 10,989-4,17115,160--4,1714,171 Loans --25,07625,076-7,94722,98830,935 Financial liabilities Financial instruments held for trading-15,485-15,485-15,500-15,500 Derivatives -15,485-15,485-15,500-15,500 Derivatives - hedge accounting-61,161-61,161-61,161-61,161 Non-financial assets Investment properties-22,63232,21054,842-8,300-8,300 Non-current assets held for sale-8,658-8,658-4,454-4,454 Non-financial assets impaired during the year Recoverable amount of property and equipment--3,8973,897---- Recoverable amount of investments in subsidiaries, associates and joint ventures-----2804,6704,950 ![]() 320 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report b)Significant transfers of financial instruments between levels of valuation NLB Group’s policy of transfers of financial instruments between levels of valuation is illustrated in the table below. Derivatives Fair value hierarchyEquitiesEquity stakeFundsDebt securitiesLoansEquitiesCurrencyInterest 1 market value from exchange market regular valuation by fund management company market value from exchange market 2 valuation modelvaluation model valuation model (underlying in level 1) valuation modelvaluation model 3 valuation modelvaluation modelvaluation modelvaluation modelvaluation model valuation model (underlying instrument in level 3) Transfers from level 1 to 3from level 1 to 3from level 1 to 2from level 2 to 3from level 2 to 3 equity excluded from exchange market fund management company stops publishing regular valuation debt securities excluded from exchange market counterparty reclassified from performing to NPL underlying instrument excluded from exchange market from level 1 to 3from level 3 to 1from level 1 to 2from level 3 to 2from level 3 to 2 companies in insolvency proceedings fund management company starts publishing regular valuation debt securities not liquid (not trading for 6 months) counterparty reclassified from NPL to performing underlying instrument included in exchange market from level 1 to 3 from level 1 to 3 and from 2 to 3 equity not liquid (not trading for 2 months) companies in insolvency proceedings from level 3 to 1 from level 2 to 1 and from 3 to 1 equity included in exchange market start trading with debt securities on exchange market from level 3 to 2 until valuation parameters are confirmed on ALCO (at least on quarterly basis) For 2021 and 2020, neither NLB Group nor NLB had any significant transfers between levels ofvaluation of financial instruments measured at fair value in financial statements. ![]() 321 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report c)Financial and non-financial assets and liabilities at Level 2 regarding the fairvalue hierarchy Financial instruments on Level 2 of the fair value hierarchy at NLB Group and NLB include: •debt securities: mostly bonds not quoted on active markets and valuated by a valuation model; • derivatives: derivatives except forwardderivativesand options on equity instruments that are not quoted on active markets; •performing loans measured at fair value, which according to IFRS 9 do not pass SPPI test. Fair value is calculated on the basis of the discounted expected future cash flows with the required rate of return; and • the NationalResolution Fund. Non-financial assets on Level 2 of the fair value hierarchy at NLB Group and NLB include investment properties. When valuing bonds classified on Level 2, NLB Group primarily uses the income approach based on an estimation of future cash flows discounted to the present value. The input parameters used in the income approach are the risk-free yield curve and the spread over the yield curve (credit, liquidity, country). Fair values for derivatives are determined using a discounted cash flow model based on the risk-free yield curve. Fair values for options are determined using valuation models for options (the Garman and Kohlhagen model, binomial model, and Black-Scholes model). At least one of the three valuation methods are used for the valuation of investment property. The majority of investment property is valued using the income approach where the present value of future expected returns is assessed. When valuing an investment property, average rents at similar locations and capitalisation ratios such as: the risk-free yield, risk premium, and the risk premium to account for capital preservation are used. Rents at similar locations are generated from various sources, like data from lessors and lessees, web databases, and own databases. NLB Group has observable data for all investment property at its disposal. If observable data for similar locations are not available, NLB Group uses data from wider locations and adjusts it appropriately. d) Financial and non-financial assets and liabilities at Level 3 of the fair value hierarchy Financial instruments on Level 3 of the fair value hierarchy in NLB Group and NLB include: •equities: mainly financial equities that are not quoted on active markets; •derivative financial instruments: forward derivatives and options on equity instruments that are not quoted on an active organised market. Fair values for forward derivatives are determined using the discounted cash flow model. Fair values for equity options are 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 source of observable market inputs is the Bloomberg information system; and •non-performing loans measured at fair value, which according to IFRS 9 do not pass SPPI test. Fair value is calculated on the basis of the discounted expected future cash flows with the required rate of return. In defining the expected cash flows for non-performing loans, the value of collateral and other pay off estimates can be used. Non-financial assets on Level 3 of the fair value hierarchy at NLB Groupinclude investment properties. NLBGroup usesthree valuationmethods for the valuationof equity financial assets mentioned in first bullet: the income, market, and cost approaches. NLB Group selects valuation model and values of unobservable input data within a reasonable possible range, but uses model and input data that other market participants would use. At least one of the three valuation methods are used for the valuation of investment property. The majority of investment property is valued using the income approach where the present value of future expected returns is assessed. When valuing an investment property, average rents at similar locations and capitalisation ratios such as: the risk-free yield, risk premium and the risk premium to account for capital preservation are used. Rents at similar locations are generated from various sources, like data from lessors and lessees, web databases, and own databases. NLB Group has observable data for all investment property at its disposal. If observable data for similar locations are not available, NLB Group uses data from wider locations and adjusts it appropriately. ![]() 322 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Movements of financial assets and liabilities at Level 3 in EUR thousands Financial instruments held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Total financial assets Financial liabilities measured at fair value through profit or loss NLB GroupDerivativesDebt instrumentsEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Balance as at 1 January 2020 807 -4,1092,71614,96122,5937,998 Effects of translation of foreign operations to presentation currency --53--53- Acquisition of subsidiaries-90085--985 Valuation: - through profit or loss (21)--1,642(2,720)(1,099)(8,006) - recognised in other comprehensive income --21--21- Foreign exchange differences---(187)(48)(235)8 Increases----20,39920,399- Decreases--(3,341)-(7,516)(10,857)- Balance as at 31 December 2020 786 9009274,17125,07631,860- Effects of translation of foreign operations to presentation currency --(2)--(2)- Valuation: - through profit or loss (785)--(56)15,74714,906- - recognised in other comprehensive income --266--266- Foreign exchange differences3579366- Increases-63--3,0173,080- Decreases-(612)(55)-(43,849)(44,516)- Balance as at 31 December 202113511,1364,472-5,960- ![]() 323 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands Financial instruments held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Total financial assets Financial liabilities measured at fair value through profit or loss NLBDerivativesEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Balance as at 1 January 2020 807 2592,71613,05516,8377,746 Valuation: - through profit or loss (21)-1,642(2,831)(1,210)(7,754) - recognised in other comprehensive income -15--15- Foreign exchange differences--(187)(48)(235)8 Increases---19,83319,833- Decreases---(7,021)(7,021)- Balance as at 31 December 2020 786 274 4,17122,98828,219- Valuation: - through profit or loss (785)-(56)13,74912,908- Foreign exchange differences--3579366- Increases---3,0053,005- Decreases-(55)-(39,751)(39,806)- Balance as at 31 December 202112194,472-4,692- NLB Group and NLB recognise the effects from valuation of trading instruments in income statement line item ‘Gains less losses from financial assets and liabilities held for trading,’ effects from valuation of non-trading equity instruments and loans mandatorily measured at fair value through profit or loss in income statement line item ‘Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss,’ and effects from valuation of financial assets measured at fair value through other comprehensive income in the accumulated other comprehensive income line item ‘Financial assets measured at fair value through other comprehensive income.’ ![]() 324 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report In 2021 and in 2020, NLB Group and NLB recognised the following unrealised gains or losses for financial instruments that were at Level 3 as at 31 December: in EUR thousands NLB Group Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Financial liabilities measured at fair value through profit or loss 2021DerivativesEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses from non-trading assets mandatorily at fair value through profit or loss --(56)-- Foreign exchange translation gains less losses--357-- Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income -266--- in EUR thousands NLB Group Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Financial liabilities measured at fair value through profit or loss 2020DerivativesEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses from financial assets and liabilities held for trading (21)---- Gains less losses from non-trading assets mandatorily at fair value through profit or loss --1,642(2,720)8,006 Foreign exchange translation gains less losses--(187)(48)(8) Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income -21--- ![]() 325 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Financial liabilities measured at fair value through profit or loss 2021DerivativesEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses from non-trading assets mandatorily at fair value through profit or loss --(56)-- Foreign exchange translation gains less losses--357-- in EUR thousands NLB Financial assets held for trading Financial assets measured at fair value through OCI Non-trading financial assets mandatorily at fair value through profit or loss Financial liabilities measured at fair value through profit or loss 2020DerivativesEquity instrumentsEquity instruments Loans and other financial assets Loans and other financial liabilities Items of Income statement Gains less losses from financial assets and liabilities held for trading (21)---- Gains less losses from non-trading assets mandatorily at fair value through profit or loss --1,642(2,831)7,754 Foreign exchange translation gains less losses--(187)(48)(8) Item of Other comprehensive income Financial assets measured at fair value through other comprehensive income -15--- Movements of non-financial assets at Level 3 in EUR thousands NLB Group Investment property20212020 Balance as at 1 January32,21028,933 Effects of translation of foreign operations to presentation currency19(24) Acquisition of subsidiaries (note 5.12.c)-19,643 Additions-609 Disposals(502)(189) Transfer from/(to) property and equipment(7,568)(62) Transfer from/(to) non-current assets held for sale2217 Transfer from/(to) other assets1,260(16,790) Net valuation to fair value3,41673 Disposal of subsidiary (note 5.12.b)(1,215)- Balance as at 31 December27,64232,210 ![]() 326 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report e) Fair value of financial instruments not measured at fair value infinancial statements Financial instruments not measured at fair value in financial statements are not managed on a fair value basis. For respective instruments fair values are calculated for disclosure purposes only and do not impact NLB Group statement of financial position or income statement. The table below shows estimated fair values of financial instruments not measured at fair value in the statement of financial position. in EUR thousands NLB GroupNLB 31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Carrying valueFair valueCarrying valueFair valueCarrying valueFair valueCarrying valueFair value Financial assets measured at amortised cost - debt securities1,717,6261,745,2251,503,0871,563,1031,436,4241,461,1851,277,8801,333,840 - loans and advances to banks140,683140,843197,005197,220199,287204,743158,320165,966 - loans and advances to customers10,587,12110,751,0519,619,8609,873,1375,145,1535,235,8394,564,1784,674,069 - other financial assets122,229122,229113,138113,13892,40492,40454,50354,503 Financial liabilities measured at amortised cost - deposits from banks and central banks71,82869,72072,63372,648109,329109,52241,63541,635 - borrowings from banks and central banks858,531849,834158,225155,673873,479863,970143,464140,702 - due to customers17,640,80917,658,68616,397,16716,414,3829,659,6059,664,6078,850,7558,860,267 - borrowings from other customers74,05173,74491,56093,0204064061313 - subordinated liabilities288,519292,130288,321281,001288,519292,130288,321281,001 - other financial liabilities206,878206,878182,095182,095102,527102,52788,96988,969 Loans andadvances to banks The estimated fair value of deposits is based on discounted cash flows using prevailing market interest rates for instruments with similar credit risk and residual maturities. The fair value of overnight deposits equals their carrying value. Loans andadvances to customers The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates for debts with similar credit risk and residual maturities to determine their fair value. Deposits and borrowings The fair value of sight deposits and overnight deposits equals their carrying value. However, their actual value for NLB Group depends on the timing and amounts of cash flows, current market rates, and the credit risk of the depository institution itself. A portion of sight deposits is stable, similar to term deposits. Therefore, their economic value for NLB Group differs from the carrying amount. The estimated fair value of other deposits and borrowings from customers is based on discounted cash flows using interest rates for new deposits with similar residual maturities. Other financial assets and liabilities The carrying amount of other financial assets and liabilities is a reasonable approximation of their fair value as they mainly relate toshort-term receivables and payables. ![]() 327 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Fairvalue hierarchyof financial instruments not measured at fair valuein financial statements in EUR thousands 31 Dec 2021NLB GroupNLB Level 1Level 2Level 3Total fair valueLevel 1Level 2Level 3Total fair value Financial assets measured at amortised cost - debt securities1,434,411303,6477,1671,745,2251,358,293102,892-1,461,185 - loans and advances to banks-140,843-140,843-204,743-204,743 - loans and advances 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 measured at amortised cost - deposits from banks and central banks-69,720-69,720-109,522-109,522 - borrowings from banks and central banks-849,834-849,834-863,970-863,970 - due to customers-17,658,686-17,658,686-9,664,607-9,664,607 - borrowings from other customers-73,744-73,744-406-406 - subordinated liabilities245,70046,430-292,130245,70046,430-292,130 - other financial liabilities-206,878-206,878-102,527-102,527 in EUR thousands 31 Dec 2020NLB GroupNLB Level 1Level 2Level 3Total fair valueLevel 1Level 2Level 3Total fair value Financial assets measured at amortised cost - debt securities1,267,437288,4847,1821,563,1031,254,33779,503-1,333,840 - loans and advances to banks-197,220-197,220-165,966-165,966 - loans and advances to customers-9,873,137-9,873,137-4,674,069-4,674,069 - other financial assets-113,138-113,138-54,503-54,503 Financial liabilities measured at amortised cost - deposits from banks and central banks-72,648-72,648-41,635-41,635 - borrowings from banks and central banks-155,673-155,673-140,702-140,702 - due to customers-16,414,382-16,414,382-8,860,267-8,860,267 - borrowings from other customers-93,020-93,020-13-13 - subordinated liabilities234,62946,372-281,001234,62946,372-281,001 - other financial liabilities-182,095-182,095-88,969-88,969 ![]() 328 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 6.6.Offsetting financial assets and financial liabilities NLB Group has entered into bilateral foreign exchange netting arrangements with certain banks and corporates. Cash flows from such transactions that are due on the same day in the same currency, are settled on a net basis, i.e., a single cash flow for each currency. The settlement of all interest rates derivatives is also carried out by netting of both legs of transaction. Assets and liabilities related to these netting arrangements are not presented in a net amount in the statement of financial position because netting rules apply to cash flows and not to the entire financial instrument. In 2013, NLB Group also novated certain standardised derivatives (some interest rate swaps) to a clearing house or central counterparty. A system of daily margins assures the in EUR thousands NLB Group 31 Dec 2021Amounts not set off in the statement of financial position Financial assets/liabilities Gross amounts of recognised financial assets/liabilities Impact of master netting agreementsFinancial instruments collateralNet amount Derivatives - assets8,2399984456,796 Derivatives - liabilities42,96199841,121842 in EUR thousands NLB Group 31 Dec 2020Amounts not set off in the statement of financial position Financial assets/liabilities Gross amounts of recognised financial assets/liabilities Impact of master netting agreementsFinancial instruments collateralNet amount Derivatives - assets15,820608 594 14,618 Derivatives - liabilities76,64660874,8611,177 in EUR thousands NLB 31 Dec 2021Amounts not set off in the statement of financial position Financial assets/liabilities Gross amounts of recognised financial assets/liabilities Impact of master netting agreementsFinancial instruments collateralNet amount Derivatives - assets8,2491,0084456,796 Derivatives - liabilities42,9781,00841,121849 in EUR thousands NLB 31 Dec 2020Amounts not set off in the statement of financial position Financial assets/liabilities Gross amounts of recognised financial assets/liabilities Impact of master netting agreementsFinancial instruments collateralNet amount Derivatives - assets16,189 623 594 14,972 Derivatives - liabilities76,661 623 74,8611,177 mitigation and collateralisation of exposures, as well as the daily settlement of cash flows for each currency. All derivatives are conducted under the conditions of signed Master Agreements (MA), with international banks ISDA MA is in place along with CSA annex and for corporates domestic MA is in place, which enable daily evaluation and exchange of margining. NLB Group and NLB haveno financial assets/liabilities set off in the statement of financial position. ![]() 329 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 7.Analysis by segment for NLB Group a) Segments in EUR thousands NLB Group 2021 Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Strategic Foreign Markets Financial Markets in Slovenia Non-Core Members Other activitiesUnallocatedTotal Total net income171,046101,505361,94524,1077,2236,127-671,953 Net income from external customers 188,629110,588363,452(8,855)7,0146,091-666,919 Intersegment net income (17,583)(9,083)(1,507)32,96220936-5,034 Net interest income79,53535,714266,80426,3771,331(401)-409,360 Net interest income from external customers 98,89844,481270,839(6,188)1,751(421)-409,360 Intersegment net interest income (19,363)(8,767)(4,035)32,565(420)20-- Administrative expenses(104,844)(40,829)(198,589)(7,963)(10,534)(10,259)-(373,018) Depreciation and amortisation(11,659)(4,278)(29,329)(677)(833)(619)-(47,395) Reportable segment profit/(loss) before impairment and provision charge 54,54356,398134,02715,467(4,144)(4,751)-251,540 Other net gains/(losses) from equity investments in subsidiaries, associates and joint ventures 1,108------1,108 Impairment and provisions charge(6,684)30,450(20,779)3295,40339-8,758 Profit/(loss) before income tax48,96786,848113,24815,7961,259(4,712)-261,406 Owners of the parent 48,96786,848101,78415,7961,259(4,712)-249,942 Non-controlling interests --11,464----11,464 Income tax------(13,538)(13,538) Profit for the year236,404 Reportable segment assets2,811,2092,333,7699,797,8396,190,19395,905337,056-21,565,971 Investments in associates and joint ventures11,525------11,525 Reportable segment liabilities7,720,6931,966,5308,315,3161,231,6697,749119,416-19,361,373 Additions to non-current assets9,9724,21826,608264(10,036)2,039-33,065 ![]() 330 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group 2020 Retail Banking in Slovenia Corporate and Investment Banking in Slovenia Strategic Foreign Markets Financial Markets in Slovenia Non-Core Members Other activitiesUnallocatedTotal Total net income170,35875,185209,09139,6335,4457,958-507,670 Net income from external customers 184,75881,124213,88112,7134,5377,472-504,484 Intersegment net income (14,400)(5,939)(4,790)26,921908486-3,186 Net interest income81,39534,007159,26123,4711,199 240 -299,573 Net interest income from external customers 96,35740,873163,255(3,126)2,012203-299,573 Intersegment net interest income (14,962)(6,866)(3,994)26,598(813)37-- Administrative expenses(102,089)(37,878)(94,862)(6,972)(11,848)(11,047)-(264,696) Depreciation and amortisation(12,043)(3,911)(14,162)(619)(1,011)(685)-(32,431) Reportable segment profit/(loss) before impairment and provision charge 56,22633,396100,06732,042(7,414)(3,774)-210,543 Other net gains/(losses) from equity investments in subsidiaries, associates and joint ventures 874 ------ 874 Negative goodwill--137,858----137,858 Impairment and provisions charge(15,069)8,982(59,084)(1,267)2,854(7,770)-(71,354) Profit/(loss) before income tax42,03142,378178,84130,775(4,560)(11,544)-277,921 Owners of the parent 42,03142,378175,79230,775(4,560)(11,544)-274,872 Non-controlling interests --3,049----3,049 Income tax------(5,165)(5,165) Profit for the year269,707 Reportable segment assets2,545,7142,043,3249,346,2555,218,038131,204273,332-19,557,867 Investments in associates and joint ventures7,988------7,988 Reportable segment liabilities7,367,1451,519,0677,879,089557,4024,571115,540-17,442,815 Additions to non-current assets15,6796,04713,517418 695 2,941-39,298 Segment reporting is presented in accordance with the strategy on the basis of the organisational structure used in management reporting of NLB Group’s results. NLB Group’s segments are business units that focus on different customers and markets. They are managed separately because each business unit requires different strategies and service levels. The business activities of NLB are divided into several segments. Interest income and expenses are allocated between segments on the basis of fund transfer prices (FTP). Other NLB Group members are, based on their business activity, included in only one segment except NLB Lease&Go which is according to its business activities divided into two segments. The segments of NLB Group are divided into core and non- core segments. The core segments are the following: •Retail Banking in Slovenia, which includes banking with individuals and asset management (NLB Skladi), and part of new subsidiary NLB Lease&Go that includes operations with retail clients, as well as the contribution to the result of the associated company Bankart. •Corporate and Investment Banking in Slovenia, which includes banking with Key Corporate Clients, SMEs, Cross- border corporate financing, Investment Banking and Custody, Restructuring and Workout, and part of the new subsidiary NLB Lease&Go that includes operations with corporate clients. ![]() 331 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report •Strategic Foreign Markets, which consist of the operations of strategic Group banks in the strategic markets (North Macedonia, Bosnia and Herzegovina, Kosovo, Montenegro, and Serbia). As a result of the acquisition of Komercijalna banka Beograd at the end of the year 2020, NLB Group acquired three banks: Komercijalna banka Beograd, Komercijalna banka Podgorica, and Komercijalna banka Banja Luka, as well as an investment fund company KomBank Invest Beograd. In November 2021, the merger of NLB Banka Podgorica and Komercijalna banka Podgorica was finalized. Komercijalna banka Banja Luka was sold outside the NLB Group on 9 December 2021, so it is included in the result of the segment for 2021 with its operations until the specified date. •Financial Markets in Slovenia include treasury activities and trading in financial instruments, while they also present the results of asset and liabilities management (ALM). •Other accounts for the Bank’s categories whose operating results cannot be allocated to specific segments as well as subsidiary NLB Cultural Heritage Management Institute. Non-Core Members include the operations of non-core Group members, namely REAM and leasing entities (except NLB Lease&Go), NLB Srbija, and NLB Crna Gora. NLB Leasing Ljubljana was sold to the strategic company Lease&Go within the NLB Group in 2021. Despite the change in ownership, its operations continue to be monitored within the segment of non-core members. NLB Group is primarily a financial group, and net interest income represents the majority of its net revenues. NLB Group’s main indicator of a segment’s efficiency is net profit before tax. No revenues were generated from transactions with a single external customer that would amount to 10% or more of Group’s revenues. b)Geographical information Geographical analysis includes a breakdown of items with respect to the country in which individual NLB Group entities are located. in EUR thousands RevenuesNet incomeProfit/(loss) before income taxIncome tax NLB Group20212020202120202021202020212020 Slovenia352,053322,128301,021290,376137,85793,362(5,043)(1,154) South East Europe458,571265,600365,649214,486121,301184,266(8,462)(3,963) North Macedonia 87,93681,71070,15764,46643,27721,008(4,054)(1,566) Serbia 192,04835,240165,19928,04629,405130,9122,0771,323 Montenegro 43,98331,29134,75625,0336,5082,741(1,484)(426) Croatia 542 207 454(181)(1,019)(1)(12) Bosnia and Herzegovina 83,08769,61652,73557,07915,23615,776(2,213)(1,572) Kosovo 51,51247,70142,59539,40827,05614,848(2,787)(1,710) Western Europe173 249 (378)2,248293(33)(48) Germany 1249980488(433)-- Switzerland 161(250)(458)1,760726(33)(48) Total810,641587,731666,919504,484261,406277,921(13,538)(5,165) The column ‘Revenues’ includes interest and similar income, dividend income, and fee and commission income. The column ‘Net Income’ includes net interest income, dividend income, net fee and commission income, the net effect of financial instruments, foreign exchange translation, the effect on the derecognition of assets, net operating income, and gain less losses from non-current assets held forsale. ![]() 332 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands Non-current assetsTotal assetsNumber of employees NLB Group31 Dec 202131 Dec 202031 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Slovenia150,829153,67111,716,27010,142,6752,6192,691 South East Europe214,380219,8869,845,1289,411,6715,5636,098 North Macedonia 37,38437,1811,758,2691,576,941 877877 Serbia 108,515109,1674,780,8434,587,6002,9013,198 Montenegro 18,32817,934775,238709,797 374 467 Croatia 3833814,0254,39067 Bosnia and Herzegovina 34,78239,5761,596,3701,654,026 942 1,086 Kosovo 14,98815,647930,383878,917463463 Western Europe305816,09811,50933 Germany 30589711,64811 Switzerland --15,1279,86122 Total365,239373,61521,577,49619,565,8558,1858,792 in EUR thousands RevenuesNet income Profit/(loss) before income tax Income tax NLB Group20212020202120202021202020212020 Slovenia448,559341,092387,692328,302225,706120,806(5,252)(1,221) South East Europe459,405265,889374,776211,337146,49644,271(8,940)(3,949) North Macedonia 87,86481,67368,42962,65843,05420,788(4,054)(1,566) Serbia 192,77635,318161,01728,38637,536(6,761)1,5991,337 Montenegro 43,97831,37635,41724,3567,969 187 (1,484)(426) Croatia 3145 274 468(181)(1,019)(1)(12) Bosnia and Herzegovina 83,27569,67867,80656,79130,89516,032(2,213)(1,572) Kosovo 51,50947,69941,83338,67827,22315,044(2,787)(1,710) Western Europe1933586(144)2,247588(33)(34) Germany 1249381489(432)-- Switzerland 18333(407)(225)1,7581,020(33)(34) Total907,983607,316762,554539,495374,449165,665(14,225)(5,204) The table below presents data on NLB Group members before intercompany eliminations and consolidation journals. ![]() 333 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 8. Related-party transactions A related party is a person or entity that is related to NLB Group in such a manner that it has control or joint control, has a significant influence, or is a member of the key management personnel of the reporting entity. Related parties of NLB Group and NLB include: key management personnel (Management Board, other key management personnel and their family members); the Supervisory Board; companies in which members of the Management Board, key management personnel, or their family members have control, joint control, or a significant influence; a major shareholder of NLB with significant influence, subsidiaries, associates and joint ventures. in EUR thousands NLB Group and NLB Management Board and other Key management personnel Family members of the Management Board and other key management personnel Companies in which members of the Management Board, key management personnel or their family members have control, joint control or a significant influence Supervisory Board 20212020202120202021202020212020 Loans issued Balance at 1January2,2842,119444520-130305 248 Increase1,0411,4762281848919055109 Decrease(1,228)(1,311)(257)(260)(359)(220)(300)(52) Balance at 31 December2,0972,284415444532-60305 Interest income3940786147 Deposits received Balance at 1January1,6101,579956 871 136193323198 Increase2,0481,3925958261,625 207 321277 Decrease(1,488)(1,361)(833)(741)(1,171)(264)(139)(152) Balance at 31 December2,1701,610718956590136505323 Interest expenses(4)(4)----(1)- Other financial assets-2------ Other financial liabilities2,2682,7591-148-- Guarantees issued and loan commitments 215 242 72 78 194 62333 Fee income1215678310121 Other income1316------ Other expenses-(11)--(78)(76)-- Related-party transactions with Management Board and other key management personnel, their family members and companies these related parties have control, joint control, or significant influence A number of banking transactions are entered into with related parties within regular course of business. The volume of related-party transactions and the outstanding balances are as follows: ![]() 334 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Key management compensation The remuneration for the members of the Supervisory Board of NLB d.d. and the Management Board of NLB d.d. is regulated in Remuneration Policy for the Members of the Supervisory Board of NLB d.d. and the Members of the Management Board of NLB d.d. The remuneration for the identified employees and other employees is regulated in Remuneration Policy for employees of NLB d.d. and NLB Group. In 2021, NLB d.d. in accordance with the Companies Act (ZGD- 1) and the Banking Act (ZBan-3), adopted a new Remuneration Policy for members of the Supervisory Board of NLB d.d. and members of the Management Board of NLB d.d., which was adopted by the Supervisory Board of NLB d.d. and then submitted to the General Meeting of Shareholders of NLB d.d., where it was voted in December 2021. Pursuant to Article 294.a of the Companies Act (ZGD-1), the Bank must in case of every significant change submit the Remuneration Policy to the General Meeting of Shareholders for voting, and in any case at least every four years. In the Remuneration Policy and based thereon, the Bank designates identified employees. In designating identified employees, the internal organisation and the nature, scope and complexity of the Bank’s activities are taken into account. The criteria fully take into account the risks that the Bank or the NLB Group is or could be exposed to its given risk profile and risk appetite. The Remuneration Policy includes members of the Supervisory Board, members of the Management Board, senior management and other identified employees who are included in the Policy on the basis of the Bank’s self- assessment. Members of the Supervisory Board may, in relation to their function of a member of the Supervisory Board, only receive remuneration that is compliant with therelevant resolutionsof the Bank’s General Meeting. The Supervisory Board members are entitled to a remuneration for performing their function and/or attendance fees for their membership in the Supervisory Board of the Bank and the committees of the Supervisory Board of the Bank, which are determined in accordance with respective applicable resolution by the General Meeting of the Bank, and to reimbursement of travel expenses, daily allowances, and accommodation costs up to the amount provided by the regulations governing reimbursement of costs related to work and other income not included in the tax base. The Bank’s General Meeting may determine and change the remuneration of the members of the Supervisory Board independently from the Remuneration Policy, and may change, repeal, or replace any of its resolutions in relation to the remuneration of the Supervisory Board members at any time, or adopt a new resolution in relation to the remuneration of the Supervisory Board members. The performance of key management is defined by financial and non-financial criteria. In addition to the salary determined in their employment contract, they are entitled to the annual variable part of the salary based on their achievement of the financial and non-financial performance criteria, which encompass the goals of NLB Group or NLB, the goals of the organisational unit, and the personal goals of the employee performing special work. The objectives and criteria of each member of the Management Board shall be determined each year by the Supervisory Board NLB d.d. at the time of adoption of the Bank’s annual business plan. The objectives and criteria for the identified employees are determined by the Management Board. The variable portion of receipts for a given financial year may not exceed eight salaries for the period including 5 July 2021, while for the period as of 6 July 2021 onwards it shall be seven salaries of a member of the Management Board in the financial year. Other identified employees are entitled to a variable part of remuneration according to the category of employee in the maximum amount of three to six salaries. Key management shall be entitled to a variable part of the performance benefit only in proportional part to the actual period of employment (duration of the term of office) of the Bank during the period to which the variable part of the performance benefit relates. The non-deferred part of variable remuneration is paid no later than three months after the adoption of the Annual Report of NLB Group for the business year to which the variable remuneration relates. Variable remuneration part of payment of an identified employee is awarded and paid in cash, provided that the amount does not exceed EUR 50 thousand or/and is higher than one-third of his/her total remuneration for each financial year, and if this is permissible in accordance with the relevant regulation. If the variable remuneration part of payment of an identified employee exceeds EUR 50 thousand or/and is higher than one-third of his/her total remuneration for each financial year and if this is permissible in accordance with the relevant regulation, then at least 50% of the variable remuneration must consist of instruments. The part of the variable remuneration of an identified employee consisting of instruments shall be awarded and paid, under the terms and conditions in the valid Remuneration Policy, in instruments whose value is based on the value of the share of NLB d.d. (with these instruments not giving any dividends or other yields). The deferred part of the variable part of the salary must be deferred for a period of at least five years of the day on which the non-deferred part of such variable remuneration is paid and it is paid in proportional shares, according to the relevant legislation. in EUR thousands NLB Group and NLB Management Board Other key management personnel Supervisory Board 202120202021202020212020 Short-term benefits1,5891,4015,4805,501705649 Cost refunds4483952634 Long-term bonuses: - severance pay3852595108-- - other benefits547049-- - variable part of payments 394 -2,898--- Total2,3771,6688,5365,753731683 The table below shows payments in presented periods. Short-term benefits include: • monetary benefits (gross salaries, supplementary insurance, holiday allowances and other bonuses); •non-monetary benefits (company cars, health care, residential facilities, etc.). The reimbursement of cost comprises food allowances, travel expenses, and use of own resources. ![]() 335 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR Member20212020 Blaž BrodnjakShort-term benefits: 01.12.2012- gross salary and holiday allowance441,770384,734 - benefits and other short-term bonuses2,3102,250 Costs refunds1,3021,304 Long-term bonuses: - other benefits1,410 940 - variable part of payments130,211- Total577,003389,228 Andreas BurkhardtShort-term benefits: 18.09.2013- gross salary and holiday allowance405,092352,796 - benefits and other short-term bonuses32,67217,861 Costs refunds1,2901,212 Long-term bonuses: - other benefits1,410 940 - variable part of payments122,919- Total563,383372,809 Archibald KremserShort-term benefits: 31.07.2013- gross salary and holiday allowance420,809366,484 - benefits and other short-term bonuses34,11724,331 Costs refunds1,2491,248 Long-term bonuses: - other benefits1,410 940 - variable part of payments126,044- Total583,629393,003 Petr BrunclíkShort-term benefits: 18.05.2020 - 30.06.2021- gross salary and holiday allowance221,963170,517 - benefits and other short-term bonuses30,09220,647 Costs refunds 476 710 Long-term bonuses: - severance payments385,000- - other benefits705705 - variable part of payments14,633- Total652,869192,579 László PelleShort-term benefits: 26.10.2016 - 31.01.2020- gross salary and holiday allowance-57,624 - benefits and other short-term bonuses-4,343 Costs refunds-129 Long-term bonuses: - severance payments-258,750 - other benefits-117 - variable part of payments-- Total-320,963 Payments to individual members of the Management Board ![]() 336 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Payments to individual members of the Supervisory Board in EUR Member 20212020 Andreas KlingenSession fees-- 22.06.2015Annual compensation90,00084,000 Other bonuese - benefit447388 Costs refunds4,9472,690 Primož KarpeSession fees-- 11.02.2016Annual compensation96,00089,583 Other bonuese - benefit447388 Costs refunds4,6298,235 David Eric SimonSession fees-- 04.08.2016Annual compensation81,00075,000 Other bonuese - benefit447388 Costs refunds5,2516,455 Gregor Rok KastelicSession fees-- 10.06.2019Annual compensation81,00070,625 Other bonuese - benefit447388 Costs refunds7584,239 Shrenik Dhirajlal DavdaSession fees-- 10.06.2019Annual compensation72,00066,000 Other bonuese - benefit447388 Costs refunds2,3673,917 Mark William Lane RichardsSession fees-- 10.06.2019Annual compensation81,00075,000 Other bonuese - benefit447388 Costs refunds2,6433,617 Verica Trstenjak Session fees-- 15.06.2020Annual compensation65,79033,933 Other bonuese - benefit447388 Costs refunds-- Sergeja KočarSession fees-- 17.06.2020Annual compensation11,8565,662 Other bonuese - benefit447500 Costs refunds-153 in EUR Member 20212020 Bojana ŠteblajSession fees-- 17.06.2020Annual compensation15,6555,255 Other bonuese - benefit447500 Costs refunds-457 Janja Žabjek DolinšekSession fees-- 20.11.2020Annual compensation6,839 169 Other bonuese - benefit447- Costs refunds-- Islam Osama Bahgat ZekrySession fees-- 14.06.2021Annual compensation38,608- Other bonuese - benefit447- Costs refunds5,705- Tadeja Žbontar RemsSession fees-- 22.01.2021Annual compensation26,656- Other bonuese - benefit447- Costs refunds-- Peter GroznikSession fees-- 08.09.2017 - 14.06.2021Annual compensation32,80066,000 Other bonuese - benefit-388 Costs refunds-429 Petra Kakovič BizjakSession fees-- 17.06.2020 - 10.09.2020Annual compensation-7,302 Other bonuese - benefit112 Costs refunds- 178 László Zoltan UrbánSession fees-- 11.02.2016 - 15.06.2020Annual compensation-31,875 Other bonuese - benefit- Costs refunds-1,456 Alexander BayrSession fees-- 04.08.2016 - 15.06.2020Annual compensation-36,000 Other bonuese - benefit- Costs refunds-2,799 ![]() 337 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Related-party transactions with subsidiaries, associates and joint ventures in EUR thousands NLB Group AssociatesJoint ventures 2021202020212020 Loans issued Balance at 1January1,1061,0668511,205 Increase89165711 Decrease(184)(125)(657)(365) Balance at 31 December1,0111,106201851 Interest income3832411 Impairment2627 69 (23) Deposits received Balance at 1January3,9738423,4348,455 Effects of translation of foreign operations to presentation currency --3(3) Increase7,6104,4617,70690,966 Decrease(3,616)(1,330)(7,651)(95,984) Balance at 31 December7,9673,9733,4923,434 Interest expenses--(59)(62) Other financial assets2019-1 Other financial liabilities1,148 596 1- Guarantees issued and loan commitments2,03238-21 Fee income38151983 Fee expenses(13,583)(13,977)-(952) Other income 162 1772144 Other expenses(726)(699)-(37) ![]() 338 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB SubsidiariesAssociatesJoint ventures 202120202021202020212020 Loans issued Balance at 1January169,176160,6341,1061,0668511,174 Increase170,30898,22189165710 Decrease(89,181)(89,679)(184)(125)(657)(333) Balance at 31 December250,303169,1761,0111,106201851 Interest income4,9065,0073832410 Impairment1,075(1,835)2627 69 (23) Deposits Balance at 1January69,38670,469---- Increase433,380658,253---- Decrease(418,818)(659,336)---- Balance at 31 December83,94869,386---- Interest income321---- Impairment24---- Loans received Balance at 1January------ Increase44,484----- Balance at 31 December44,484----- Interest income1----- Deposits received Balance at 1January19,41580,8063,9738422845,418 Increase7,558,1627,934,4537,6104,46121386,850 Decrease(7,509,205)(7,995,844)(3,616)(1,330)(470)(91,984) Balance at 31 December68,37219,4157,9673,97327284 Interest expenses(2)(21)---- Derivatives Fair value(7)354---- Contractual amount9,78912,424---- Other financial assets25,491 948 2019-1 Impairment(8)----- Other financial liabilities1,8608001,001480-- Guarantees issued and loan commitments31,00355,0682,03238-21 Income/(expenses) provisions for guaranties and commitments 584(53)---- Received loan commitments and financial guarantees 14,5416,692---- Fee income9,7206,85738151925 Fee expenses(21)(25)(10,782)(11,140)-(332) Other income1,078 780 162 1772144 Other expenses(2,133)(1,065)(708)(664)-(37) Gains less losses from financial assets and liabilities held for trading (298)1,208---- Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss (558)436---- ![]() 339 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Related-party transactions with major shareholder with significant influence The volumes of related party transactions with major shareholder are as follows: in EUR thousands NLB GroupNLB ShareholderShareholder 2021202020212020 Loans issued Balance at 1January23,21928,20623,21928,206 Increase13,1991,60713,1991,607 Decrease(15,884)(6,594)(15,884)(6,594) Balance at 31 December20,53423,21920,53423,219 Interest income713720713720 Investments in securities Balance at 1January691,868850,965597,123778,088 Increase1,247,211866,414947,581758,140 Decrease(1,392,356)(1,026,883)(1,049,482)(940,974) Valuation(12,201)1,372(11,566)1,869 Balance at 31 December534,522691,868483,656597,123 Interest income6,0219,0246,3899,486 Interest expenses(652)(805)(652)(805) Other financial assets659 807 659 807 Other financial liabilities4646 Guarantees issued and loan commitments1,1841,2411,1841,241 Fee income309 194 309 194 Fee expenses(27)(30)(27)(30) Other income212206212206 Other expenses(5)(6)(5)(6) Gains less losses from financial assets and liabilities not measured at fair value through profit or loss -14,660-14,660 Gains less losses from financial assets and liabilities held for trading (158)43(158)43 NLB Group and NLB disclose all transactions with the major shareholder with significant influence. For transactions with othergovernment-related entities, NLB Groupdiscloses individually significant transactions. ![]() 340 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report in EUR thousands NLB Group and NLB Amount of significant transactions concluded during the year Number of significant transactions concluded during the year 2021202020212020 Guarantees issued and loan commitments70,000112,50011 in EUR thousands NLB Group and NLB Year-end balance of all significant transactions Number of significant transactions at year-end 2021202020212020 Loans507,159516,05876 Debt securities measured at amortised cost72,63376,39611 Borrowings, deposits and business accounts184,26770,00631 Guarantees issued and loan commitments152,500152,50022 in EUR thousands NLB Group and NLB Effects in income statement during the year 20212020 Interest income from loans3,1413,706 Fees and commissions income 241 27 Interest income from debt securities measured at amortised cost and net valuation effects from hedge accounting (990)1,166 Interest expenses from borrowings, deposits, and business accounts(213)(290) ![]() 341 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report 9. Events after the reporting date The Swiss Francs Law On 2 February 2022, the Slovenian Parliament passed the ‘Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs’ (here and after the CHF Law).The CHF Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia (including NLB) as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010, and provides for a cap on the exchange rate between Swiss francs and the Euro to be set at 10% volatility (the ‘FX cap’) and shall be applied from the conclusion of any of the affected loan agreements. During the validity of the FX cap, the value of instalments and other payments under such loans shall equal the amount at which the FX cap has been triggered and the lender would be required to repay any overpayment to the relevant borrower. Further, any overpayment on such loans by the relevant borrowers shall be subject to default interest to be paid by the lender. Since the CHFLaw affects civil law contractual relationships retroactively, the constitutionality of the Law has been extensively debated during the legislative process with a number of national and European authorities considering the Law to violate the Slovenian Constitution. The shareholders of affected Slovenian banks (including NLB) submitted a joint letter to several Slovenian and European authorities expressing great concern regarding the Law. On 28 February 2022, the banks filed an initiative with the Constitutional Court of the Republic of Slovenia to initiate proceedings to assess the constitutionality of the CHF Law and a proposal for its temporary suspension of enforcement. The Constitutional Court of the Republic of Slovenia adopted a decision on 10 March 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 conformity of the CHF Law with the Constitution. During this time the deadlines set for individual liabilities of banks do not apply. Until the final decision of the Constitutional Court on the constitutionality of the CHF Law is made, the NLB will act in accordance with the applicable legislation and courts’ decisions, and will, at the same time, exercise all legal remedies at its disposal. Based on the assessment of the CHF Law, NLB estimated that negative pre-tax effect on the operations of NLB and NLB Group should not exceed EUR 70 – 75 million. Impact on NLB and NLB Group is material but manageable given the historically limited extent to which NLB engaged in Swiss francs lending. NLB considers this as a non-adjusting event after the reporting period. Acquisition of Sberbank banka d.d., Ljubljana On the level of the European Central Bank and the Single Resolution Board, a decision was made on 28 February 2022 to suspend the business operations of the banking group Sberbank Europe AG, which also had a subsidiary bank in Slovenia. At the same time, a transitional period or short-term moratorium was adopted, during which a solution for the Slovenian subsidiary, Sberbank banka d.d., was found with the aim to ensure the continuity of the business operations for all of its clients. On 1March 2022, in order to maintain financial stability in Slovenia, the Single Resolution Board, in cooperation with the Bank of Slovenia, adopted a scheme and resolution plan for Sberbank banka d.d., Ljubljana. Based on this resolution, the Bank of Slovenia issued a decision using the instrument of sale of operation in a way that all shares are transferred from the shareholders to the transferee. In the process of finding a new owner of Sberbank banka d.d., Ljubljana, a sale agreement was concluded with NLB d.d., which became an owner of 100% of the bank's shares as at 1 March 2022. The purchase price for the bank was EUR 5,109 thousand and was fully paid in cash. There are no contingent consideration arrangements. Initial accounting for the business combination has not yet been completed, therefore assets, liabilities, and gain on a bargain purchase (negative goodwill) recognised as a result of the acquisition are not disclosed. Russian-Ukrainian conflict In February 2022, Russia began a military invasion of Ukraine. The Russian-Ukrainian conflict has led to quite considerable volatility in the financial markets, in particular shifts in credit spreads, interest rates and foreign exchange rates. Special attention is given to the markets in the Balkans, neighbouring countries to Ukraine and Russia and international banks with operations in Russia. The NLB Group is closely monitoring its major bond portfolio positions, mostly sovereigns, with a stronger connection to the Russian crisis. Besides, the Group holds EUR 20 million of Russian government bonds maturing in April 2022 and in September 2023. The fair value of these securities has decreased by approximately 30% by 31 March 2022. The manner and timing of their settlement in the given circumstances is not determined yet. Since the beginning of the crisis, the Bank has observed credit spreads widening from 50 to 200 bps for selected positions (with the exception of Russia where the escalation is more severe), which is currently impacting the Bank’s FVOCI positions. Compared to 31 December 2021, the fair value revaluation reserve has decreased by more than EUR 50 million at the NLB Group level and EUR 40 million at the NLB level (analysis of debt securities by geographical sectors as at year- end is disclosed in note 6.1.o). Regarding the Group’s major FX positions, no material movements were observed so far. Current developments, market observations and potential mitigations are discussed at daily monitoring meetings. Dependence on Russia and Ukraine within the country trade balance in the NLB Group region is moderate; the highest volume of trade is done with the EU. CountryExport to Russia Import from Russia Bosnia and Herzegovina 1.10%2.10% Montenegro0.00%0.00% North Macedonia0.91%1.70% Kosovono data availableno data available Serbia3.90%5.30% Slovenia2.60%1.20% Direct and indirect exposures of NLB toward Russia and Ukraine is moderate, but on the other hand Russia's invasion of Ukraine has increased risks globally. Effects on the global economy will occur through three major channels: • commodity price shocks, • financial repercussions (new sanctions against Russia and market risk aversion), and • security challenges associated with military conflict or through cyberattacks. In particular, commodity prices will have effects on the whole corporate output leading to an increased inflation rate in NLB Group markets. With regards to the credit portfolio, the NLB Group carefully monitors its clients being present or having direct and indirect connection with Russia, Ukraine, Belarus or its neighbouring countries.These clients are closely monitored with the intention of identifying any significant increase in credit risk at a very early stage. Corporate clients are still assessing the possible impacts of this conflict on their business model and financial performance, however at this stage these effects are not very excessive. Moreover, the length and intensity of the Russian-Ukrainian conflict might cause additional spill-over effects in the mid- term period, such as raising the price of energy sources or their availability, which may at a later period have some impact also on other segments of the credit portfolio. Sberbank d.d. Slovenia with its entire portfolio become a member of the NLB Group in March 2022. The Bank strategy was focused on the Slovenian SME segment, so the NLB Group does not expect major direct exposures toward Russia or Ukraine. All identified risks will be appropriately considered when assessing fair values of assets, liabilities and contingent liabilities and final calculation of gain on a bargain purchase (negative goodwill). ![]() 342 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report Private Banking Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 23 66 Micro Enterprises Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 50 01 Mobile banking Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 44 39 Smalland Mid-corporates Small Enterprises I 23 Trg republike 2 1000 Ljubljana, Slovenia Tel.: +386 1 476 49 52 Small Enterprises II 24 Titova cesta 2 2000 Maribor, Slovenia Tel.: +386 2 234 45 09 Central region Trg republike 2 1000 Ljubljana, Slovenia Tel.: +386 1 476 26 11 Northwest region Ljubljanska cesta 62 1230 Domžale, Slovenia Tel.: +386 1 724 54 75 Southwest region Cesta Zore Perello - Godina 7 6000 Koper, Slovenia Tel.: +386 5 610 30 29 23Until 31 December 2021. 24 Until 31 December 2021. Nova Ljubljanska banka d.d., Ljubljana Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 39 00, +386 1 477 20 00 E-mail: info@nlb.si www.nlb.si Blaž Brodnjak, CEO & CMO Archibald Kremser, CFO Andreas Burkhardt, CRO Petr Brunclík, COO 22 Slovenian network Ljubljana Area Branch Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 23 30 Northwest and CentralSlovenia Area Branch Ljubljanska cesta 62 1230 Domžale, Slovenia Tel: +386 1 724 55 01 Northeast Slovenia Area Branch Titovacesta 2 2000 Maribor, Slovenia Tel: +386 2 234 45 04 Southeast Slovenia Area Branch Seidlova cesta 3 8000 Novo mesto, Slovenia Tel: +386 7 339 14 56 Southwest Slovenia Area Branch Cesta Zore Perello - Godina 7 6000 Koper, Slovenia Tel: +386 5 610 30 10 22 Until 30 June 2021. Podravsko-Pomurskaregion Titovacesta 2 2000 Maribor, Slovenia Tel.: +386 2 234 45 00 Savinjsko-Koroška region Kocenova1 3000 Celje, Slovenia Tel.: +386 3 424 01 11 CSA & Cross-border Financing Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 26 18 Large corporates Institutional Investors Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 24 92 Large Corporates Trg republike 2 1000 Ljubljana, Slovenia Tel: +386 1 476 26 92 Members ofNLB Group Komercijalna Bankaa.d. Beograd Svetog Save 14, 11000 Belgrade, Serbia Tel: +381 11 20 18 600 Email:kontaktni.centar@kombank.com www.kombank.com Vlastimir Vuković, President of the Management Board Dejan Janjatović, Deputy of the president of the Management Board Dragiša Stanojević, Member of the Management Board Dubravka Djedović Negre Member of the Management Board NLB GroupDirectory ![]() 343 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB Banka a.d., Beograd Bulevar Mihajla Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 71 51 522 E-mail: info@nlb.rs www.nlb.rs Jelena Živković, President of the Management Board Vladimir Čaprić, Member of the Management Board NLB Banka AD Skopje Majka Tereza 1 1000 Skopje, North Macedonia Tel: +389 2 15 600 E-mail: info@nlb.mk www.nlb.mk Antonio Argir, President of the Management Board 25 Günter Friedl, Member of the Management Board Peter Zelen, Member of the Management Board Igor Davčevski, Member of the Management Board NLB Banka a.d. Banja Luka Milana Tepića 4 78000 Banja Luka, Republic of Srpska, Bosnia and Herzegovina Tel: +387 51 248 588 E-mail: helpdesk@nlbbl.com www.nlb-rs.ba Goran Babić, President of the Management Board Marjana Usenik, Member of the Management Board Dragan Injac, Member of the Management Board NLB Banka d.d., Sarajevo Ul. Koševo br. 3, 71000 Sarajevo - Centar 71000 Sarajevo, Bosnia and Herzegovina Tel: +387 33 720 300 E-mail: info@nlb.ba www.nlb.ba Lidija Žigić, President of the Management Board Denis Hasanić, Member of the Management Board Jure Peljhan, Member of the Management Board 25Branko Greganović, President of the Management Board from 1 January 2022 NLB Banka sh.a., Prishtina Rr. Ukshin Hoti nr. 124 10000 Prishtina, Kosovo Tel: +383 38 744 000 E-mail: info@nlb-kos.com https://nlb-kos.com/ Albert Lumezi, President of the Management Board Gem Maloku, Member of the Management Board Lavdim Koshutova, Member of the Management Board NLB Banka a.d., Podgorica Bulevar Stanka Dragojevića46 81000 Podgorica, Montenegro Tel: +382 20 402 000 E-mail: info@nlb.me www.nlb.me Martin Leberle, CEO 26 Marko Popovič, Executive Officer 27 Dino Redžepagić, Executive Officer 28 Lana Đurasović, Executive Officer 29 KomBankInvest a.d. Beograd Kralja Petra 19, 11000 Belgrade, Serbia Tel.: +381 11 330 8310 E-mail: vladimir.garic@kombankinvest.com www.kombankinvest.com Vladimir Garić, Director NLB Lease&Go, leasing, d.o.o., Ljubljana Šlandrova ulica 2, 1231 Ljubljana - Črnuče, Slovenia Tel: +386 1 586 29 10 E-mail: info@nlbleasego.si www.nlbleasego.si Andrej Pucer, Director AnžePogačnik, Director Claus-Peter Martin Mueller, Director NLB Leasing d.o.o., Ljubljana – v likvidaciji Šlandrova ulica 2 1231 Ljubljana - Črnuče, Slovenia Tel: +386 1 586 29 10 E-mail: info@nlbleasing.si Anže Pogačnik, Liquidator 26Martin Leberle is a President of the Management Board from 1 January 2022. 27 Dražen Vujošević is a Member of the Management Board from 1 January 2022. 28Dino Redžepagić is a Member of the Management Board from 1 January 2022. 29Till 31 December 2021. NLB Leasing d.o.o. Beograd – u likvidaciji Bulevar Mihajla Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 222 01 01 E-mail: info@nlbleasing.rs Veljko Tanić, Liquidator Optima Leasing d.o.o. u likvidaciji, Zagreb Miramarska 24 10000 Zagreb, Croatia Tel: +385 1 61 77 225 E-mail: info@optima-leasing.hr Vjekoslav Budimir, Liquidator Prvi faktor d.o.o., v likvidaciji, Ljubljana 30 Slovenska cesta 17 1000 Ljubljana, Slovenia E-mail: france.zupan@prvifaktor.si iztok.zupanc@prvifaktor.si France Zupan, Liquidator Iztok Zupanc, Liquidator Prvi faktor – faktoring d.o.o., Beograd – u likvidaciji Bulevar Mihajla Pupina 165 v 11070 Beograd, Serbia Tel: +381 11 222 54 00 E-mail: zeljko.atanaskovic@prvifaktor.rs Željko Atanasković, Liquidator Prvi faktor d.o.o. u likvidaciji, Zagreb 31 Miramarska cesta 24 10000 Zagreb, Croatia Tel: +385 1 6165 000 E-mail: info@prvifaktor.hr Vjekoslav Budimir, Liquidator 30FranceZupan and Iztok Zupanc areliquidators from 1 March 2021. 31Vjekoslav Budimir is liquidator from 1 March 2021. ![]() 344 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report NLB InterFinanz AGin Liquidation, Zürich Beethovenstrasse 48 8002 Zürich, Switzerland Tel: +41 44 283 17 15 E-mail: info@nlbinterfinanz.ch Jean-David Barnezet Llort, Liquidator Polona Žižmund, Liquidator NLB InterFinanz d.o.o., Beograd – u likvidaciji Bulevar Mihajla Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 22 25 351 Liljana Zoraja, Liquidator NLB Skladi, upravljanjepremoženja, d.o.o., Ljubljana Tivolska cesta 48 1000 Ljubljana, Slovenia Tel: +386 1 476 52 70 E-mail: info@nlbskladi.si www.nlbskladi.si Kruno Abramovič, President of the Management Board Blaž Bračič, Member of the Management Board Bankart d.o.o., Ljubljana Celovška cesta 150 1000 Ljubljana, Slovenia Tel: +386 1 583 42 02 E-mail: info@bankart.si www.bankart.si Aleksander Kurtevski, Director Jure Kvaternik, Director LHB Aktiengesellschaft, Frankfurt am Main Große Bockenheimer Str. 33-35 60313 Frankfurt, Germany Tel: +49 69 21 65 78 20 E-mail: info@lhb.de Matjaž Jevnišek, President of the Management Board PRO-REM d.o.o., Ljubljana - v likvidaciji Čopova 3 1000 Ljubljana, Slovenia Tel: +386 1 586 29 16 E-mail: info@prorem.si www.nlbrealestate.com Jovica Jakovac, Liquidator Nataša Batagelj, Liquidator REAM d.o.o., Podgorica Bul. Džordža Vašingtona br. 102, I. sprat/20, 81000 Podgorica, Montenegro Tel: +382 20 674 900 E-mail: gligor.bojic@nlb.me Gligor Bojić, Director Marko Furlan, Authorised Representative REAM d.o.o., Zagreb Miramarska 24/6 10000 Zagreb, Croatia Tel: +385 1 56 25 914 E-mail: josip.zurga@ream-cro.com E-mail: julijana.milic@nlb.si Josip Žurga, Director Julijana Milić, Director OL Nekretnine d.o.o. u likvidaciji, Zagreb Miramarska 24 10000 Zagreb, Croatia Tel: +385 1 56 25 914 E-mail: vjekoslav.budimir@ream-cro.com E-mail: ivan.strek@ream-cro.com Vjekoslav Budimir, Liquidator Ivan Štrek, Liquidator REAM d.o.o., Beograd – Novi Beograd Bulevar Mihaila Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 22 25 374 E-mail: vladimir.vasilijevic@ream-srb.com Vladimir Vasilijević, Director Veljko Tanić, Director SPV2 d.o.o., Beograd – Novi Beograd Bulevar Mihaila Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 22 25 374 E-mail: office@ream-srb.com Vladimir Vasilijević, Director Tara Hotel d.o.o., Budva Bulevar Džordža Vašingtona 102, Podgorica 81000 Podgorica, Montenegro Tel: +:382 20 674 900 E-mail: gligor.bojic@nlb.me Gligor Bojić, Director NLB Srbija d.o.o., Beograd Bulevar Mihajla Pupina 165 v 11070 Belgrade, Serbia Tel: +381 11 22 25 366 E-mail: office@nlbsrbija.co.rs www.nlbsrbija.co.rs Veljko Tanić, Director NLB Crna Gora d.o.o., Podgorica Bulevar Džordža Vašingtona 102, I sprat/20 81000 Podgorica, Montenegro Tel: +382 68 886 441 E-mail: goran.lalicevic@nlb.me Goran Laličević, Executive Director BarbaraŠink, Authorised Representative Marko Čelebić, Authorised Representative S-REAM d.o.o., Ljubljana Čopova 3 1000 Ljubljana, Slovenia Tel: +386 (0)41 307 759 E-mail:info@s-ream.com www.nlbrealestate.com Jovica Jakovac, Director Lamija Hadžiosmanović, Director Branchesand representative offices of NLB Group members outside their country ofresidence NLB InterFinanz AGin liquidation Ljubljana Branch in liquidation Puharjevaulica 3 1000 Ljubljana, Slovenia Marko Čelebić, Director Komercijalna banka, branch Kosovska Mitrovica Čika Jovina 11, 38 220 Kosovska Mitrovica Goran Dželajlija, Director ![]() 345 Contents MB Statement SB Statement Key Highlights Strategy Risk Factors & Outlook Sustainability Performance Overview Risk Management Events After 2021 Financial Report EU European Union EVE Economic Value of Equity EVS European Valuation Standards EWS Early Warning System FATF Financial Action Task Force FTP Fund Transfer Pricing FURS Financial Administration of the Republic of Slovenia FVOCI Fair Value Through Other Comprehensive Income FVTPL Fair Value Through Profit or Loss FX Foreign Exchange GDP Gross Domestic Product GDPR General Data Protection Regulation GDR Global Depositary Receipts GGB Government Guaranteed Bonds GRI GS Global Reporting Initiative - Global Standards HHI Herfindahl-HirschmanIndex HR Human Resources IAS International Accounting Standard IASB International Accounting Standards Board ICAAP Internal Capital Adequacy Assessment Process IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standard ILAAP Internal Liquidity Adequacy Assessment Process IRRBB Interest Rate Risks for Banking Book IRS Interest Rate Swaps ISDA International Swaps and Derivatives Association IVS International Valuation Standards JST Joint Supervisory Team JV Joint Venture KB Komercijalna Banka KDD Central Securities Clearing Corporation KPI Key Performance Indicator KRI KeyRiskIndicators LCP Liquidity Contingency Plan LCR Liquidity Coverage Ratio LECL Lifetime Expected Credit Losses LGD Loss Given Default LPD Lifetime Probability of a Default LRE Leverage Ratio Exposure LTD Loan-to-Deposit Ratio M&A Mergers and Acquisitions MA Master Agreements MAR Market Abuse Regulation MiFID II Markets in Financial Instruments Directive MiFIR Markets in Financial Instruments Regulation Rules MIGA Multilateral Investment Guarantee Agency (part of the World Bank Group) MREL Minimum Requirement of Own Funds and Eligible Liabilities NACE Statistical Classification of Economic Activities in the European Community NLB or the Bank NLB d.d. NPE Non-Performing Exposures NPL Non-Performing Loans NPS Net Promoter Score NPV Net Present Value NSFR Net stable funding ratio 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- Terrorism Financing BARS The Banking Agency of Republic of Srpska 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 Value CAGR Compound Annual Growth Rate CB Central Bank CBR Combined Buffer Requirement CCF Credit Conversion Factor CEE Central Eastern Europe CEO Chief Executive Officer CET1 Common Equity Tier 1 CFO Chief Financial Officer CGU Cash-Generating Units CIR Cost-to-Income Ratio CIRS Currency Interest Rate Swaps CISO Chief Information Security Officer CMO Chief Marketing Officer COO Chief Operating Officer CoR Cost of Risk COSO Committee of Sponsoring Organizations of the Treadway Commission CRD Capital Requirements Directive CRM Customer Relationship Management CRO Chief Risk Officer CRR Capital Requirements Regulation CSA Credit SupportAnnex CSD Central Security Depository CSI Customer Satisfaction Index CSR Corporate Social Responsibility CVA Credit Value Adjustments DGS Deposit Guarantee Scheme DPS Dividend per Share DWH Data Warehouse EAD Exposure at Default EaR Earnings at Risk EBA European Banking Authority EBRD European Bank for Reconstruction and Development ECB European Central Bank ECL Expected Credit Losses ECRA Enterprise Compliance Risk Assessment EEA European Economic Area EIB European Investment Bank EMIR European Market Infrastructure Regulation EPS Earnings Per Share ESEF European Single Electronic Format ESG Environmental, Social and Governance ESMS Environmental and Social Management System OBM Operational Business Margin OCR Overall Capital Requirement OEM Original Exposure Method O-SII Other Systemically Important Institutions OU Organisational Units p.p. Percentage Point(s) P1R Pillar 1 Requirement P2eM Person to e-Merchant P2G Pillar 2 Guidance P2M Person to Merchant P2P Person to Person P2R Pillar 2 Requirements PD Probability of Default PEPP Pandemic Emergency Purchase Programme POCI Purchased or Originated Credit-Impaired POS Point of Sale PSD2 Payments Services Directive REAM Real Estate Asset Management RFR Risk-Free Rates RICS Royal Institution of Chartered Surveyors ROA Return on Assets ROE Return on Equity RoS Republic of Slovenia RPA Robotic Process Automation RSD Serbian Dinar RWA Risk Weighted Assets SDG Sustainable Development Goals SEE South Eastern Europe SICR Significant Increase of Credit Risk SLA Service Level Agreements SME Small and Medium-sized Enterprises SPPI Solely Payment of Principal and Interest SRB Single Resolution Board SRD II Shareholders Rights Directive SREP Supervisory Review and Evaluation Process SRF Single Resolution Fund SSM Single Supervisory Mechanism TCR Total Capital Ratio The Group NLB Group TLTRO Targeted Longer-Term Refinancing Operations TREA Total Risk Exposure Amount TSCR Total SREP Capital Requirement UN United Nations UN SDG United Nations Sustainable Development Goals UNEP FI PRB United Nations Environment Programme Finance Initiative's Principles for Responsible Banking VaR Value-at-Risk VAT Value Added Tax ZBan-3 Slovenian Banking Act ZGD-1 Companies Act ZPIZ Slovenian Pension and Disability Insurance Act ZTFI-1 Financial Instruments Market Act ZVKNNLB Slovenian Act for Value Protection of Republic of Slovenia’s Capital Investment in Nova Ljubljanska banka d.d., Ljubljana ZVOP-2 Slovenian Personal Data Protection Act Definitions andGlossary of Selected Terms ![]() NLB d.d., Ljubljana nlb.si NLBd.d. Production: Saatchi & Saatchi Ljubljana Photographs: Archive NLB, Urša Premik, iStock Copyright: NLB d.d., Ljubljana Ljubljana, April 2022