2007 - Abanka152b2246-5b1d-4f7b-80ed-65637d7a… · In the Abanka’s ownership structure Sava d.d. from Kranj held a 23.8% share at the end of 2007; Zvon Ena Holding d.d. increased

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AbankaLP07_ANG_Ovitek Front.ai 24.06.2008 12:08:11 UhrAbankaLP07_ANG_Ovitek Front.ai 24.06.2008 12:08:11 Uhr

A B A N K A A N N U A L R E P O R T 2 0 0 7 1

On our path to success, we remain true to

business ideals, explore the vast expanse

of progressive thought, persistently build

solid foundations of natural coexistence,

seek to surpass our own creativity and keep

discovering the dimensions of personal growth.

We grow better each day.

2007 ANNUAL REPORT OF THE ABANKA VIPA GROUP

ABANKA_LP07_ANG_FIN.indd 1ABANKA_LP07_ANG_FIN.indd 1 23.06.2008 17:31:29 Uhr23.06.2008 17:31:29 Uhr

2 A B A N K A A N N U A L R E P O R T 2 0 0 7



Contents

2007 ANNUAL REPORT OF THE ABANKA VIPA GROUP

CONSOLIDATED BUSINESS REPORT OF THE ABANKA VIPA GROUP 5

SIGNIFICANT DATA AND PERFORMANCE INDICATORS 6

MANAGEMENT 7

PRESENTATION OF THE ABANKA VIPA GROUP AND ITS ENVIRONMENT 13

ABOUT THE BANK 14

BANK PROFILE 14

ABOUT THE GROUP 15

VISION AND MISSION, AND STRATEGIC GOALS OF THE GROUP 21

BUSINESS EVENTS IN 2007 AND 2008 23

GENERAL ECONOMIC ENVIRONMENT 25

FINANCIAL RESULTS OF THE ABANKA VIPA GROUP 27

PERFORMANCE AS VIEWED THROUGH THE CONSOLIDATED INCOME STATEMENT

AND CONSOLIDATED BALANCE SHEET 28

PERFORMANCE OF THE ABANKA VIPA GROUP IN 2007 31

THE BANK’S DEVELOPMENT AND ITS GOALS 43

DEVELOPMENT AND MARKETING COMMUNICATIONS IN 2007 44

ABANKA’S DEVELOPMENT ORIENTATION, MARKET COMMUNICATION AND OBJECTIVES 51

SOCIAL RESPONSIBILITY 55

ORGANISATIONAL STRUCTURE 57

ORGANISATIONAL CHART AND ABANKA VIPA GROUP 58

SENIOR MANAGEMENT 60

BUSINESS NETWORK 61

CONSOLIDATED FINANCIAL STATEMENTS OF THE ABANKA VIPA GROUP 63

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES 65

FINANCIAL STATEMENTS 66

Consolidated income statement 67

Consolidated balance sheet 68

Consolidated statement of changes in equity 70

Consolidated cash fl ow statement 72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 74

INDEPENDENT AUDITOR’S REPORT 166





CONSOLIDATED

BUSINESS REPORT

OF THE ABANKA

VIPA GROUP

Success is the outcome of the game. It is the vying

of the bold, the confrontation of the brave. But even

the most intrepid among the competitors fi nd the

most ideal conditions in the shelter of a stable and secure environment.



Signifi cant data and performance indicators

EUR thousands

BALANCE SHEET 31 Dec., 2007 31 Dec., 2006

Total assets 3,517,074 2,896,946

Total deposits of the non-banking sector 1,724,689 1,701,244

Total loans to the non-banking sector 2,384,788 1,829,052

Total capital 353,182 212,055

EUR thousands

INCOME STATEMENT 2007 2006

Net interest 67,182 55,264

Net non-interest income 49,193 54,291

Labour costs, general and administrative costs (50,584) (46,091)

Depreciation (6,659) (8,296)

Impairments and provisions (11,420) (17,589)

Profit or loss before taxes from ordinary and discontinued operations 47,712 37,579

Corporate income tax from ordinary and discontinued operations (10,902) (9,963)

NUMBER OF EMPLOYEES 31 Dec., 2007 31 Dec., 2006

Number of bank employees 871 867

SHARES 31 Dec., 2007 31 Dec., 2006

Number of shareholders 1,053 1,132

Number of shares 5,500,000 5,500,000

Nominal value per share (EUR) -* -*

Book value per share (EUR) 64.36 38.74

INDICATORS 2007 2006

Capital adequacy (in %) 10.7 8.9

Profitability (in %)

- return on assets after taxes 1.1 1.0

- return on equity after taxes 11.1 13.6

Note: *data regarding the nominal value per share has changed to read 1 unit. Entry in the central register of book-entry securities

was made on 21 November 2006 based on a resolution of the general meeting (8 June 2006) regarding the introduction of no-par

value shares.



Management Board of the Bank

MANAGEMENT

mag. Aleš ŽAJDELA

President of the

management board

Gregor HUDOBIVNIK

Member of the

management board

mag. Radovan JEREB

Member of the

management board



Abanka concluded a very successful year in

2007, as we met most of our business and

fi nancial objectives. We even exceeded several

objectives, established by management

together with employees, in accordance with

our middle-term strategy until 2010. Thus with

the stability achieved, we are well prepared for

2008, which will require the bank to maintain its

excellent position and rapid responsiveness.

Our strategy, the objective of which is to be the

best banking partner in Slovenia and raise our

recognition and operations outside of Slovenia

as well, particularly in south-eastern Europe, is

being achieved. We are meeting this objective

with customers who trust us, owners, employees,

a comprehensive range of fi nancial-insurance

products, an extensive network of branches,

information capital, modern operating channels

and technological progress. In this regard, it is

important that Abanka is more than a bank; it

is a banking group. In addition to the bank, the

group includes an investment fund management

company, an investment management company,

two leasing companies, a factoring company, a

project fi nancing company, mutual fund and an

associated company and joint venture company

abroad. It gives us great satisfaction to establish

our reputation outside of Slovenia, as well. We

have proudly established ASA Abanka leasing

in Bosnia and Herzegovina in cooperation with

ASA Holding. At the end of 2007, our subsidiary

Afaktor in Serbia established the factoring

company, AFAKTOR-faktoring fi nansiranje.

The rapid growth in the size of operations and

excellent fi nancial results indicate the level at

which the bank operates; we generated pre-

tax profi ts of EUR 46,671 thousand in 2007, an

increase of nearly 33% compared to 2006. The

aforementioned gross profi t resulted in a return on

equity of 13.9%. After-tax profi ts of EUR 36,563

thousand resulted in a return on equity of 10.9%.

Abanka's total assets at the end of 2007 totalled

EUR 3,439,007 thousand (an increase of 20.2%

compared to 2006), representing an 8.2% share

of the Slovenian banking system. Shareholders'

equity amounted to EUR 353,233 thousand at

the end of December 2007, and rose by 66.2%

during the year as the result of the successful

issue of an innovative instrument, issued in the fi rst

weeks of January 2007, following exceptionally

well attended presentations in European capitals.

Thus the bank's debt capital rose by EUR 120

million. At the same time, we took great care to

ensure the economy of our operations, and remain

a model of a cost effi cient bank, with costs that

represent less than 47.7% of gross income.

In the Abanka’s ownership structure Sava d.d. from

Kranj held a 23.8% share at the end of 2007; Zvon

Ena Holding d.d. increased its share from 6.9%

to 17.2%. At the end of the year, Zavarovalnica

Triglav d.d. held 21.3% of the bank's share, so

that together the aforementioned companies

held 62.3% of shares. Our strategy has thus

brought us closer to Abanka's desired shareholder

structure. Listing our shares on the Ljubljana Stock

Exchange remains a strategic objective. At the

end of 2007, we prepared for the recapitalisation

of the bank with an issue of 1,700,000 new

shares with a total issue value of EUR 102,000

thousand. The recapitalisation of Abanka was

successfully carried out at the beginning of 2008.

Our above-average growth in the fi rst half of

2007 was accompanied by a syndicated loan at

foreign banks in the amount of EUR 260 million,

the largest such loan to date. Following our fi rst

presentation of Abanka on the Asian market, we

signed a syndicated loan agreement in the amount

of USD 55 million at the beginning of 2008.

Abanka has once again received a stable outlook

rating for its operations from the credit rating

agency Fitch. Thus our credit rating is Fitch BBB,

Moody's A3 and Capital Intelligence BBB.

We have responded to the global fi nancial crisis,

which began at the beginning of the summer

in 2007, with a more conservative approach

to assessing credit risk and the expansion

Report of the Management Board



of markets to obtaining new resources. We

remain the major provider of custody and

administrative services, a recognised player

in the investment banking sector, and an

acknowledged and respected inter-bank partner

for foreign banks. We manage the AIII pension

fund, the second most profi table fund in 2007.

In 2007, we also established the basis for the

bank's new organisational structure that will

enable us to continue achieving our strategic

objectives in 2008. We established a new

organisational unit for operations with medium-

sized and small companies and completed the

creation of the bank's management team. In

accordance with the reorganisation and the

strengthening of some functions necessary

for achieving the bank's strategic objectives,

we are fortifying key areas while maintaining

virtually the same number of employees.

With the new organisation, the personnel

restructuring of our bank has likely ended.

Throughout 2007, we fulfi lled the promises

we made to you, our business partners,

shareholders and employees. We can assure

you that we will continue to fulfi l our promises

in 2008, and once again justify your trust.

We would like to thank the members of the

Supervisory Board for monitoring and submitting

ideas and proposals to improve our operations,

and all employees who, through their dedicated

work and positive attitude, have contributed

to the excellent results achieved in 2007.

To our respective business partners, these results

are not ours alone. They are the result of good

cooperation with superior companies and individu-

als, who drive us to continue improving operations

in the future.

Gregor HUDOBIVNIK

Member of the

Management Board

mag. Radovan JEREB

Member of the

Management Board

mag. Aleš ŽAJDELA

President of the

Management Board



Tomaž TOPLAK

Kapitalska družba, d.d.

Miha DOLINAR

Sava, d.d., Kranj

Simon ZDOLŠEK

Zvon Ena Holding, fi nančna družba, d.d.

Irena VODOPIVEC JEAN

Ministry of Finance

mag. Uroš ROŽIČ

D.S.U., družba za svetovanje in upravljanje, d.o.o.

Stojan PETRIČ

Kolektor Group, d.o.o.

Andrej KLANJŠČEK

HIT, d.d.

Supervisory Board Report of the Supervisory Board

Abanka's Supervisory Board is comprised of seven

members. The composition of the supervisory

board changed in 2007. Alenka Žnidaršič

Kranjc, Ph.D., Vice President of the Supervisory

Board, resigned on 4 June 2007, while Dragiša

Milosavljevič's term expired on 19 June 2007.

On 6 June 2007, Abanka's general shareholder

meeting appointed two new Supervisory Board

members to four-year terms: Uroš Rožič, whose

term began on 6 June 2007 and Miha Dolinar,

whose term began on 20 June 2007. Tomaž Toplak

serves as President of the Supervisory Board,

with Miha Dolinar as Vice President. The following

persons serve as members of the Supervisory

Board: Simon Zdolšek, Irena Vodopivec Jean,

Uroš Rožič, Stojan Petrič and Andrej Klanjšček.

The members of the Supervisory Board are

independent. There were no confl icts of interest.

Individual members of the Supervisory Board

did not participate at the following meetings:

− 10th regular meeting (19 March 2007): Alenka

Žnidaršič Kranjc, Ph.D. and Simon Zdolšek,

− 11th regular meeting (18 April 2007):

Alenka Žnidaršič Kranjc, Ph.D.

− 12th regular meeting (20 June 2007):

Stojan Petrič and Andrej Klanjšček,

− 14th regular meeting (12 November 2007):

Simon Zdolšek and Irena Vodopivec Jean,

− 15th regular meeting (12 December

2007): Stojan Petrič.

At the 13th regular meeting of the Supervisory Board

of 15 October 2007, an audit commission was

formed. Tomaž Toplak was appointed chairman of

the audit commission, and the following persons

appointed members: Vinko Perčič, Miha Dolinar and

Simon Zdolšek. On 31 January 2008, a constitutive

session of the audit commission was held.

The results of a self-assessment of the Supervisory

Board's work in 2007 were positive and in

accordance with expectations. The assessment

of the Supervisory Board's work is based on the

fi ndings that the composition of the Supervisory

Board is appropriate in that it refl ects a competent



group of experts. The organisation and functioning

of the board's members as a group is effective, as it

facilitates the on-going monitoring and supervision

of the bank's operations and the communication

of initiatives and guidelines for the continuation

thereof. The functioning of all individual members

is also deemed effective. The Supervisory Board

has established cooperation with the audit

commission. However, it is not yet possible to offer

an assessment for 2007, as the audit commission

held its constitutive session in January 2008. The

results of the self-assessment of the Supervisory

Board's work are favourable, have a stimulating

effect on its work and confi rm the appropriateness

of the Supervisory Board's activities.

Review of the Supervisory

Board's activities in 2007

In accordance with the competencies and

obligations defi ned in the Banking Act, the

Companies Act, the Regulation on the Diligence of

Members of Management Boards and Supervisory

Boards of Banks and Savings Banks and the bank's

articles of association, the Supervisory Board

operated pursuant to the principles of modern

corporate governance, and thus, through its

supervisory function, contributed to the effi ciency

and transparency of the bank's operations. The

Supervisory Board took into account the interest

of owners, customers and employees in its work.

In 2007, the Supervisory Board held six regular

meetings and three correspondence meetings,

at which it discussed Abanka's operations

and the fi nancial results achieved, the bank's

business policy and strategy, the annual report

and other signifi cant issues regarding the

operation of the bank and its subsidiaries. At

its meetings in 2007, the Supervisory Board:

− approved the transfer of ordinary registered

shares of the third issue of ABKR, was briefed

on the share trading report and issued the

relevant approvals for the bank's share trading;

− was continually briefed on reports regarding

the fi nancial operations of Abanka in 2007;

− was briefed on Abanka Vipa d.d.’s unaudited

annual report and the Abanka Vipa Group’s

unaudited consolidated annual report for

2006, and adopted a policy for the use of

the unaudited net profi t and distributable

profi t for the 2006 fi nancial year;

− approved Abanka Vipa d.d.’s investment and

trading strategy for 2007, and the organisation

of the system of internal controls in trading;

− was briefed on the conclusion of the euro

introduction project at Abanka, on the issue of

an innovative instrument, and on the upgrading

of Abanka’s outlook rating by Fitch Ratings Ltd.;

− adopted the internal audit report for the last

quarter of 2006 and changes to the internal

audit department's rules of operation, and

amendments to Abanka's articles of association

resulting from the introduction of the euro;

− approved Abanka Vipa d.d.'s 2006 annual

report and the Abanka Vipa Group's

2006 consolidated annual report. The

certifi ed auditor was also present at the

meeting, in the role of reporting entity;

− approved the proposed agenda and resolutions

of the bank's 19th general meeting;

− approved the conclusion of legal transactions

in the scope of the bank's large exposure

limits to customers and for those exposures to

persons in special relationships with the bank;

− was briefed on the establishment of ASA

Abanka leasing d.o.o. in Sarajevo;

− adopted the quarterly internal audit report

for the fi rst nine months of 2007;

− was briefed on business cooperation with

strategic owner, Zavarovalnica Triglav d.d.;

− gave its consent to the bank's Management

Board for increasing the bank's share capital;

− approved and confi rmed the Management

Board's intention to carry out the necessary

procedures to list Abanka Vipa d.d. shares on the

stock exchange in the shortest time possible;

− adopted Abanka's draft fi nancial plan for 2008;

− approved changes to the consolidated version of

the Decision of the Management Board Regarding

the Increase of Abanka Vipa d.d.'s Share Capital;



− adopted Abanka Vipa d.d.'s business

policy and fi nancial plan for 2008;

− approved Abanka Vipa d.d.'s investment

and trading strategy for 2008;

− adopted a risk management strategy and

corresponding policy in accordance with

the provisions of the Basel II project.

Based on materials prepared by the Management

Board, reports of internal experts and its own

fi ndings, the Supervisory Board responsibly

monitored the bank's operations and the work

of the internal audit department, and supervised

the management of the bank. The Supervisory

Board has concluded that Abanka's operations

are regularly and comprehensively monitored

and are geared to the best decisions. Thus the

appropriate supervision of the bank's management

contributes to excellent results and the successful

achievement of established strategic objectives.

2007 Annual Report

At its meeting of 14 April 2008, the Supervisory

Board discussed Abanka Vipa d.d.'s 2007

annual report and the Abanka Vipa Group's

2007 consolidated annual report, including

PricewaterhouseCoopers' audit report and the

proposal of the bank's Management Board for

distribution of profi t. The Supervisory Board

has confi rmed that the annual report credibly

refl ects the bank's position, while presenting

a comprehensive view of operations in 2007,

thus supplementing information received during

the fi nancial year. Comparing the annual report

with the audited fi nancial statements for the

2007 fi nancial year, the Supervisory Board has

established that the fi nancial results presented

in the annual report were in accordance with

the audit report. The Supervisory Board is of

the opinion that the Management Board and the

Supervisory Board itself have fulfi lled all their

legal requirements during the 2007 fi nancial year.

Based on the regular monitoring of the bank’s

operations and the aforementioned reviews,

the Supervisory Board approved the annual

report on the bank’s operations in 2007.

The Supervisory Board has established that the

certifi ed external auditor, in its report, issued

a positive opinion on the fi nancial statements

which present a true and fair view of the bank's

fi nancial position, in all material aspects. The

Supervisory Board has no comments on

PricewaterhouseCoopers' audit report and

believes that the bank's operations in 2007 were

carried out in accordance with regulations, thus

confi rming the appropriate management of the

bank's operations by the Management Board.

Based on its knowledge of the bank's operations

during the year and following the diligent checking

of the audited annual report and the positive

opinion issued by the certifi ed auditor in the audit

report, the Supervisory Board hereby confi rms

and adopts Abanka's annual report for the 2007

fi nancial year. The Supervisory Board has also

studied the proposal for the distribution of the 2007

fi nancial year profi ts, the fi nal decision of which

will be made by the general meeting on 29 May

2008, and gives its full consent to the Management

Board's proposal for the distribution of profi t. The

Supervisory Board confi rms that Abanka Vipa d.d.'s

operations were very successful in 2007 and that

Abanka achieved all established annual objectives

in accordance with its valid middle-term strategy.

The Supervisory Board would like to thank the

Management Board and all employees for the

successful conclusion of the 2007 fi nancial year.

Tomaž TOPLAK

President of the Supervisory Board



Presentation of the

Abanka Vipa Group

and Its Environment

The secret of nature’s perfection reveals itself

in nature’s imperfections. They have the power

to stir the heart, alter thought dynamics and

inspire innovations.



Abanka Vipa d.d. is a bank with a long tradition in

the Slovenian banking sector. The origins of Abanka

d.d. date back to 1955 when the bank operated

as a branch of the Yugoslavian Bank for Foreign

Trade. In 1977, the branch was renamed Jugobanka

– Temeljna banka Ljubljana. Abanka began using

its current name on 1 January 1990 when it was

transformed into a public limited company. On

31 December 2002, Banka Vipa merged with

Abanka. Since that time, the bank operates

under the name Abanka Vipa d.d., abbreviated to

Abanka d.d. (hereinafter: Abanka). Following the

merger with Banka Vipa, Abanka's market share

rose by 1.7 percentage points to 8.5%, making

it the third largest bank in the Slovenian banking

sector. Abanka ended 2007 as the third largest

bank in terms of total assets. The bank's market

share as at 31 December 2007 was 8.2%.

Abanka is a universal bank with authorisation to

provide all banking and other fi nancial services.

Through our extensive network of 40 branches

throughout Slovenia, easily accessible e-banking,

our advisory services and personal approach,

we offer comprehensive fi nancial services,

ranging from traditional banking and banking-

insurance services to investment banking. In the

scope of its investment banking, Abanka also

manages the mutual retirement fund, AIII VPS.

Abanka has established its reputation internationally

as well. With regard to international operations,

Abanka successfully satisfi es its customers' needs

for international payment transactions, thanks to its

network of correspondent banks across the globe.

Abanka's range of services is further supplemented

by its subsidiaries in Slovenia: Abančna DZU d.o.o.,

Argolina d.o.o., Afaktor d.o.o., Aleasing d.o.o., Vogo

leasing d.o.o., Analožbe d.o.o. and an associated

company in Slovenia Delniški Evropa Vipa Invest

and an associated company, KDSPV1 B.V., in the

Netherlands and a joint venture company, ASA

Abanka leasing d.o.o., in Bosnia and Herzegovina.

Abanka Vipa d.d. is entered in the register of

companies at the District Court in Ljubljana under

application registration no. 1/02828/00 and has

Bank of Slovenia authorisation to provide banking

services and the following fi nancial services:

factoring, issuing guarantees and other warranties,

lending (including consumer loans, mortgage loans

and the fi nancing of commercial transactions),

trading in foreign legal tender (including exchange

transactions), derivatives trading, collecting,

analysing and disseminating information regarding

the creditworthiness of corporate clients, brokering

the sale of insurance policies (in accordance with

laws governing the insurance industry), issuing

and managing other payment instruments (e.g.

payment and credit cards, travellers' cheques,

bankers' drafts, etc.), renting of safes, securities-

related services (in accordance with laws governing

the securities market), managing retirement

funds (in accordance with laws governing

retirement funds), providing payment transaction

services and providing custodian services.

Registered offi ce:

Slovenska cesta 58, 1517 Ljubljana

Transaction account:

SI56 0100 0000 0500 021

BIC code:

ABANSI2X

VAT identifi cation no.:

SI68297530

Registration no.:

5026024

Share capital:

EUR 30,045,067.60

Telephone:(01) 47 18 100

Fax: (01) 43 25 165

Website: http://www.abanka.si

E-mail: [email protected]

ABOUT THE BANK BANK PROFILE



ABOUT THE GROUP

In addition to Abanka Vipa d.d., as parent

company, the Abanka Vipa Group (hereinafter:

the Abanka Group) includes the following:

− subsidiaries: Abančna DZU d.o.o., Afaktor

d.o.o., Argolina d.o.o., Aleasing d.o.o.,

Vogo leasing d.o.o., Analožbe d.o.o.;

− associated companies: Delniški Evropa

Vipa Invest and KDSPV1 B.V., and

− joint venture company: ASA Abanka leasing d.o.o.

The following table indicates the year the

subsidiaries, associated companies and joint

venture company were included in the Abanka

Group, their activities and Abanka's equity

shareholding as at 31 December 2007.

COMPANY

YEAR OF

INCLUSION ACTIVITY

EQUITY

SHAREHOLDING

ABANČNA DZU D.O.O. 1994

MANAGEMENT OF INVESTMENT

FUNDS 99.00%

AFAKTOR D.O.O. LJUBLJANA 2002 FACTORING 100.00%

ARGOLINA D.O.O. 2003 PROJECT FINANCING 100.00%

ALEASING D.O.O. 2003 LEASING 100.00%

VOGO LEASING D.O.O. 2005 LEASING 100.00%

ANALOŽBE D.O.O. 2006 INVESTMENT MANAGEMENT 100.00%

DELNIŠKI EVROPA VIPA INVEST 2006 MUTUAL FUND 25.54%

KDSPV1 B.V. 2006

INVESTING IN THE KD

PRIVATE EQUITY FUND 33.33%

ASA ABANKA LEASING D.O.O. 2007 LEASING 49.00%

The following changes occurred in 2007

(compared to the end of 2006):

− in January 2007, the capital investment

in the associated company, Alavits B.V.

(renamed KDSPV1 B.V. in October) was

increased by EUR 52 thousand,

− recapitalisation of Afaktor d.o.o. in March

2007 in the amount of EUR 1,460 thousand,

− recapitalisation of Aleasing d.o.o. in June

2007 in the amount of EUR 835 thousand,

− in the middle of 2007, the bank made an

equity injection in Argolina d.o.o. in the

amount of EUR 25 thousand, giving the

bank 100% ownership of the company,

− Abanka purchased a 49% stake in

ASA leasing d.o.o., Sarajevo from

ASA Holding d.o.o., Sarajevo.



Activities of Subsidiaries, Associated Companies

and Joint Venture Company

SUBSIDIARIES

Abančna DZU d.o.o.

Abančna DZU, družba za upravljanje investicijskih

skladov d.o.o. (short form: Abančna DZU d.o.o.) was

established in May 1994. The company is based in

Ljubljana.

At the end of 2007, the equity structure was:

− Abanka Vipa d.d. with 99% share and

− Mateja Gubanec with 1% share.

Abančna DZU d.o.o. engages in fi nancial activities

and manages investment funds pursuant to the

Investment Trusts and Management Companies

Act. It was granted its licence to manage investment

funds by the Securities Market Agency on 27

October 1994. Investment fund management

activities comprise:

− Managing the assets of investment funds,

− Marketing investment funds, selling investment

vouchers or shares of investment funds, and

− Administrative services.

At the end of 2007, Abančna DZU d.o.o. managed

the following mutual funds:

− Abančna DZU SHARES-ACTIVE,

− Abančna DZU MIXED,

− Abančna DZU BALANCED,

− Abančna DZU BONDS,

− SHARES WORLD,

− SHARES EUROPE VIPA INVEST,

− Abančna DZU SHARES ASIA,

− Abančna DZU SHARES USA,

− Abančna DZU CASH EURO,

− Abančna DZU SHARES PASSIVE BALTINORD.

In the area of mutual fund management, 2007

saw the continuation of restructuring of portfolios

of mutual funds, which at the end of 2005 were

compliant with the new Investment Trusts and

Management Companies Act. A portfolio was

designed for the new mutual fund Abančna DZU

SHARES PASSIVE BALTINORD; this is passively

managed, and the choice of investment is based on

a predefi ned model. The company began marketing

this fund in August.

At the start of 2007, the company successfully

undertook the transition to euros for all mutual

funds under management. Also in 2007, the

company further developed the risk-management

system, while in the management of passive mutual

funds, the company provided successful computer

support to the model of selection of investments

and monitoring and tracking selected investments.

In the marketing area, company activities were

geared towards expansion and education of the

sales network, encouraging sales of the new mutual

fund and the development of new products. The

company also actively developed and enhanced

its application to support the management of

investment funds.

In the second half of the year, the company moved

to new premises at Pražakova Ulica 8 in Ljubljana,

where it began operating on 23 July 2007.

In November 2007, Abančna DZU obtained

approval from the Securities Market Agency

to publish a second joint prospectus and to

change the names of mutual funds, which defi ne

the Abančna DZU brand and express the link

with Abanka Vipa d.d. as well as the legal and

organisational independence of the company, with

the objective of increasing awareness of Abančna

DZU products and the link with the Abanka brand.

In 2007, the management company achieved its

management objectives for most of its mutual

funds, with the majority achieving competitive

returns compared with comparable market assets

and comparable mutual funds on the Slovenian

mutual funds market. The company ended 2007

successfully, despite more challenging operating

conditions with greater domestic and foreign

competition. The net value of mutual funds under

management on 31 December 2007 was EUR

136.9 million, representing a 4.7% market share.



The development policy of Abančna DZU d.o.o.

is primarily geared towards the following strategic

goals:

− Achieving suitable return on equity,

− Achieving a competitive market position,

− Ensuring the capital strength of the company,

− Ensuring the company provides quality services,

− Ensuring investor confi dence.

The company manages numerous mutual funds

with various investment policies, allowing us to meet

the needs (balance between risks and returns) of as

many different investors as possible. The objective

of the company is to create a family of varied funds,

thereby supplementing the full service range in the

area of mutual funds. Future opportunities lie in

offering mutual funds with guaranteed principals

or returns, and mutual funds adding to the regional

range of mutual funds currently managed by the

company. The company also takes the view that

it could participate in the preparation of additional

combinations of banking/insurance/fi nancial

products of interest to investors in the Slovenian

fi nancial market.

In accordance with the Act amending and

supplementing the Investment Trusts and

Management Companies Act, Abančna DZU will

form crown funds and ensure their operations

comply with statutory and secondary regulations in

2008.

Abančna DZU will carry out the following

development projects to achieve its objectives, with

emphasis on:

− Expanding and educating the sales network for

marketing mutual funds,

− Developing two or three new products,

− Creating and increasing recognition of a strong

brand,

− Building on information support for business

processes, particularly in the area of risk

management.

Net profi ts in 2007 were EUR 1,095 thousand.

Afaktor d.o.o.

Afaktor, fi nančna družba za faktoring d.o.o. is 100%

owned by Abanka Vipa d.d. The company is based

in Ljubljana.

The main activities of Afaktor d.o.o. Ljubljana:

− factoring – sale of accounts receivable with or

without recourse,

− fi nancing commercial transactions and lending,

− agency services in credit transactions.

Recapitalisation was carried out in March 2007, with

the company’s capital increasing from EUR 146

thousand to EUR 1,606 thousand.

Accounts receivable subject to factoring largely

arise from trade and construction. In mid-2007,

the company also began introducing international

operations.

In the second half of 2007, the company joined the

largest association of factors in the world, Factors

Chain International. By doing so, the company

provided its clients with new services: export

factoring and insurance of payments in exports

under the two-factor system.

In line with our strategy of expanding operations

in south-eastern European markets, Afaktor d.o.o.

established a company in Serbia in December

2007 for factoring operations: AFAKTOR-Faktoring

Finansiranje d.o.o. Belgrade.

In 2008, Afaktor d.o.o. will operate within the

context of middle-term strategic guidelines in

which the company will expand its activities to

international factoring, while on the other hand the

company is also taking on the role of the controlling

company for newly established factoring companies

in the countries of south-eastern Europe.

Turnover in 2007 reached EUR 103,612 thousand,

28,0% higher than 2006; net profi ts in 2007 were

EUR 402 thousand.



Argolina d.o.o.

Argolina d.o.o. was established in July 2003 as

investor in the construction of the business and

residential complex entitled Argolina at the site

of the old Argo factory in Izola. The company will

continue to operate once the building has been

completed, as it will assume management of the

building until another manager is selected by the

new owners. The company's registered offi ce is in

Ljubljana.

The company was established by three partners:

− Abanka Vipa d.d. (25.1%),

− MPM Engineering d.o.o. (49.9%), and

− Relax d.o.o. (25.0%).

In June 2006, MPM Engineering d.o.o. sold its

share in Argolina d.o.o. to Abanka Vipa d.d., which

became 75% owner of the company. With Argolina

d.o.o.'s general meeting resolution in May 2007,

Relax d.o.o. was stripped of its partnership due

to breach of the partnership agreement (change

of ownership at Relax d.o.o.). Initially, Relax

d.o.o.'s share was transferred to Argolina d.o.o.

in accordance with the law. Three months later,

Abanka Vipa d.d. purchased this share and became

100% owner of the company.

Continuation of the company's commercial activities

depends to a great extent on the court's ruling

concerning the acquisition of a building permit and

the development objectives of the Municipality of

Izola.

Aleasing d.o.o.

Aleasing fi nanciranje, svetovanje, trženje d.o.o.

began operating on 11 February 2000, based in

Slovenj Gradec. At the time, the company operated

in the Slovenian market under the name of Eurofi n

Leasing. With the arrival of Abanka Vipa d.d. as

the majority owner, Eurofi n Leasing was renamed

Aleasing on 1 April 2004. The head offi ce moved in

May 2007 from Slovenj Gradec to Celje.

In 2007, Abanka Vipa d.d. as the sole partner also

provided funding for recapitalisation of Aleasing.

The subscription capital thus increased from EUR

446 thousand to EUR 1,281 thousand.

The company provides fi nancial and operational

leasing of vehicles, fi nancial leasing of equipment

and real estate. The company provides leasing

services to individuals and corporate clients. The

core product of Aleasing in 2007 remained vehicle

fi nancial leasing. In addition to classic fi nancial

and operational leasing, there is increasing market

demand for investment or project fi nancing of real

estate development, an area the company actively

entered in 2007. In cooperation with Zavarovalnica

Triglav, the company developed a new product

launched in December 2007: “fi nancial leasing of

vehicles with smaller deposit”.

In 2007, Aleasing recorded marked growth in

the scale of investments. Whereas in 2006 the

company was largely involved in organisational

changes and arrangements, a process that

continued in 2007, Aleasing in 2007 was able

to begin larger and better-quality marketing

of its services, making an active entry to the

movables and real estate markets. Newly activated

investments thus increased in 2007 by 127.0%

compared to 2006. Such growth was primarily due

to the active entry into the real estate market, with

real estate showing the greatest value growth in

2007.



The company operates in the real estate market

with the following products:

− Financial leasing of real estate for individuals and

corporate clients,

− Leasing under the sale and lease back system,

primarily with corporate clients,

− Financing new constructions under the system

of fi nancial leasing, with legal persons the

contractual partners,

− Financing new constructions as investment for

further market sales.

For Aleasing, 2007 was a year in which a number

of projects were successfully implemented. The

company modernised information technology to

Abanka standards, and a thorough overhaul of the

website. The website was updated in conjunction

with Abanka, and the new website, www.aleasing.

si, went live in its fi nal form on 1 October 2007.

The business policy of Aleasing arises from the

development strategy of the company, based on

growth, development, rationalization and the search

for synergies within the Abanka Group. Relocation

to a new business environment posed new, major

challenges for the company:

− Increase the scale of investment and increase

market share,

− Create greater awareness of the company in the

new business environment,

− Construct a risk management system in all

operational phases,

− Control operating costs,

− Ensure returns on equity in line with the guidelines

of Abanka Vipa d.d.,

− Become a customer-centred leasing company,

− Educate employees to enhance training and

professionalism,

− Actively consolidate the values of the Abanka

Group,

− Maintain a creative and stimulating working

environment.

In 2007, the balance sheet total increased by 27.1%

with net profi ts of EUR 37 thousand. At the end of

2007 the company had a 0.9% market share.

Vogo Leasing d.o.o.

Vogo leasing d.o.o. was founded in June 1990,

and is based in Šempeter pri Gorici. The company

covers the regions of Primorska, Notranjska, greater

Ljubljana and Gorenjska. The basic activity of

the company is the leasing of various equipment,

vehicles and real estate.

The basic type of transactions the company

undertakes:

− Financial and operational leasing of all types of

new and used vehicles,

− Financial leasing of new and used equipment

(machinery, mechanical equipment ...),

− Financial leasing of movables under the sale and

lease back system for legal persons,

− Financial leasing of real estate (commercial or

manufacturing premises) for legal persons, and

premises intended for the performance of taxable

activities.

In 2007, the company opened a business unit in

Koper and successfully undertook procedures to

open a business unit in Ljubljana, which opened in

November 2007. By opening new business units,

the company reached new markets, thus increasing

awareness and market share. The bulk of marketing

involves direct marketing of leasing services to

clients, which was also the most commercially

successful. The company also improved its

cooperation with suppliers by its physical presence

at the Pomurska Fair in Gornja Radgona.

The company also reduced capital in 2007

amounting of EUR 835 thousand in accordance

with the interests of the company’s owners.

In 2007, the company’s leasing business

grew by approximately 145%. This growth is a

consequence of the opening of business units in

Koper and Ljubljana, the increased staff levels and

technological improvements. Of leasing business,

real estate accounts for 36.7% of all leasing

contracts, personal vehicles 23.3%, freight vehicles

22.4% and manufacturing equipment and machines



14.1%. At the end of 2007, the company had a

market share of 1.7%, compared to less than 1% at

the end of 2006.

In 2007, the company generated EUR 385 thousand

in net profi ts, a 9.3% return on equity.

Analožbe d.o.o.

Analožbe, upravljanje z naložbami, d.o.o. (short

form: Analožbe d.o.o.) was established in October

2006. The company was founded by Abanka Vipa

d.d., which is the 100% owner. The company’s

head offi ce is in Nova Gorica.

The company offers investment management

services, the basic activity of other fi nancial agency

services. The company undertook business in

domestic and foreign markets in 2007. The largest

deals in 2007 included loans to foreign fi nancial

institutions. The company also sold investments

in the shares of Jata Emona d.d. and conducted

research into foreign markets for two clients

with the intention of establishing commercial

cooperation.

The company made a profi t of EUR 139 thousand

in 2007.

ASSOCIATED COMPANIES

Mutual fund Delniški Evropa Vipa Invest

As at December 31, 2007 Abanka held 883,373

units of the mutual fund Delniški Evropa Vipa Invest,

which represents 25.54% of the units in issue. The

fund is managed by Abančna DZU, a company

controlled by Abanka.

KDSPV1

The company Alavits B.V in the Netherlands was

established for the purposes of investing in funds

of KD Private Equity Fund B.V. It was renamed

KDSPV1 B.V. in October 2007.

JOINT VENTURE COMPANY

ASA Abanka leasing d.o.o.

On 18 May 2007, Abanka signed a letter of intent

in Sarajevo with ASA Holding d.o.o. Sarajevo

regarding the establishment of ASA ABANKA

LEASING d.o.o. Sarajevo, on the basis of which it

invested in ASA Abanka Leasing d.o.o., with a 49%

stake. Since receipt of the notice of registration of

ASA Abanka Leasing d.o.o. in the court register, the

capital investment of EUR 1,002 thousand is shown

in the fi nancial statements of Abanka as a capital

investment in ASA Abanka Leasing d.o.o.



Vision and mission

Abanka is a provider of quality banking services

in Slovenia. It is one of the three largest banks in

Slovenia, and is a recognized banking partner in

south-eastern Europe.

Abanka:

− Builds long-term partnerships with clients,

− Ensures that its services are always quality,

− Ensures clients’ security of investments,

− Ensures the long-term satisfaction of its owners

through above-average profi tability and positive

recognition,

− Ensures the long-term development, safety and

satisfaction of its employees.

Abanka realises its vision in relations with clients,

owners and employees. Above-average profi tability,

quality services and positive recognition ensure

satisfaction and create confi dence in the realisation

of business objectives.

Abanka recognises the importance of responsible

community involvement, and so it also transmits its

high business values to the wider society in which it

lives and works.

VISION AND MISSION, AND STRATEGIC GOALS OF THE GROUP

Strategic Goals

The strategic goals of Abanka are:

− To achieve a 9% market share,

− To be a universal bank in all Slovenian regions

(to be one of the three largest banks in terms

of market share in the majority of operating

segments in all Slovenian regions),

− To become the second-largest bank in Slovenia

in the SME segment and in operations with

individuals,

− To become one of the leading banks in

Slovenia dealing with companies and payment

transactions,

− To become the leading bank in Slovenia in

operations in fi nancial markets, and to retain the

leading position in the area of custody services,

− To remain the leading Slovenian bank in

technological support and the introduction of

technological innovation,

− ROE after tax of 15%,

− To reduce CIR below 46% of gross revenues,

− To build a long-term strategic partnership with

Zavarovalnica Triglav,

− Long-term stable shareholder structure for the

bank (Slovenian fi nancial agents),

− Listing on the stock exchange.

Abanka seeks to achieve these strategic goals

through the following measures:

− Providing new products and expanding sales

channels,

− Reorganisation of existing, and development of

new, sales channels for individuals,

− Continual improvement of the quality of the

bank’s credit portfolio,

− Comprehensive operational risk management,

− Reorganisation of existing, and development

of new, sales channels in the fi nancial markets

operations segment,

− Achieving synergies with companies in the

Abanka Group,

− Continuous modernisation and rationalisation of

operations,

− Targeted education, motivation and remuneration

of staff,

− Development of values with excellence in meeting

the needs of our clients, owners and staff.



In terms of operations in south-eastern Europe, the

goal of Abanka is to strengthen its market position

in the markets of south-eastern Europe through

gradual entry (ROE greater than 20%).

Abanka seeks to achieve this goal through the

following measures:

− Cooperation with banks in the markets of south-

eastern Europe,

− Acquisition of Slovenian clients,

− Acquisition of fi rst-rate clients,

− Cooperation with our strategic owner

– Zavarovalnica Triglav (in the area of investment

banking) in these markets,

− Construction of an information network,

− Establishment of a suitable organisational

structure,

− Through subsidiaries and joint venture company.

The goals for subsidiaries in the Abanka Group are

as follows:

− leasing (Aleasing and Vogo Leasing):

− - market share ≥ 8%,

− - ROE ≥ 20%;

− factoring (Afaktor):

− - retain position in domestic market (remain one

of the two leading factoring houses in Slovenia),

− - entry to foreign markets (provision of

international factoring),

− - ROE ≥ 25%;

− asset management (Abančna DZU):

− - market share ≥ 10%,

− - ROE ≥ 25%,

− - expansion of sales channels.

Strategic Goals for Subsidiaries



BUSINESS EVENTS IN 2007 AND 2008

The most important business events that affected

Abanka’s operations in 2007 were:

− From 1 January 2007, Abanka has been obliged

to report in accordance with the Financial

Conglomerates Act. Abanka is a member of a

fi nancial conglomerate, represented by the group

headed by Zavarovalnica Triglav, d.d.;

− On 18 January 2007, Abanka signed a contract

on subordinate loans, which meets the conditions

for an innovative instrument; the amount issued

was EUR 120 million;

− In January 2007 Abanka increased its capital

investment in associated company KDSPV1 B.V.

by EUR 52 thousand;

− On 12 March 2007, Abanka recapitalised Afaktor

d.o.o. by EUR 1,460 thousand;

− On 4 April 2007, Abanka signed a contract with a

consortium of foreign banks on a syndicated loan

of EUR 260 million;

− On 1 May 2007, Abanka conducted a

reorganisation in the SME segment, one of the

measures to achieve the strategic goals of the

bank;

− On 18 May 2007, Abanka signed a letter of intent

in Sarajevo with ASA Holding d.o.o. Sarajevo

regarding the establishment of ASA ABANKA

LEASING d.o.o. Sarajevo, on the basis of which it

invested in ASA Abanka Leasing d.o.o., becoming

49% owner. By doing so, the bank continues

to realise that part of the strategy envisaging

operations in south-eastern Europe;

− On 1 June 2007, the fourth issue of Abanka

bonds (AB04) matured, with a nominal value of

EUR 10 million;

Most Important Business

Events in 2007

− On 13 June 2007, Abanka recapitalised Aleasing

d.o.o. in the amount of EUR 835 thousand;

− Since receipt on 2 August 2007 of the notice

of registration of ASA Abanka Leasing d.o.o.

in the court register, the capital investment of

EUR 1,002 thousand is shown in the fi nancial

statements of Abanka as a capital investment in

ASA Abanka Leasing d.o.o.;

− On 10 August 2007, Abanka made a new capital

investment in Argolina d.o.o. of EUR 25 thousand,

thereby increasing its stake in Argolina from 75%

to 100%;

− On 30 October 2007, Abanka signed a mandate

letter to take out a syndicated loan of USD 50

million, or the euro equivalent;

− On 12 November 2007, the supervisory board of

Abanka confi rmed recapitalisation of the bank

with the issuing of 1,700,000 new shares, the total

emission value of which was EUR 102 million;

− The supervisory board of Abanka on 17

December 2007 adopted the business policy and

fi nancial plan of Abanka for 2008, issued Consent

to the Investment Strategy and Trading Strategy

of Abanka for 2008, and adopted the Risk

Management Strategy and associated policies;

− In accordance with the strategy of expanding

business in the markets of south-eastern Europe,

Afaktor d.o.o. established a factoring company,

AFAKTOR-faktoring fi nansiranje d.o.o. Belgrade,

in Serbia in December 2007.



The most important data on the business of

Abanka in 2007:

− Balance sheet total: EUR 3,439,007 thousand,

− Balance sheet total growth: 20.2%,

− Market share: 8.2%,

− Total capital: EUR 353,233 thousand,

− Net profi t: EUR 36,563 thousand,

− ROE after tax: 10.9%,

− CIR: 47.7%,

− Capital adequacy ratio: 10.5%,

− Book value of shares: EUR 64.36,

− Employees at end of 2007: 871,

− Average number of employees in 2007: 869.

Operations of Abanka Group

in 2007 in Numbers

The most important data on the operations of the

Abanka Group in 2007:





− ROE after tax: 11.1%.

The most important business events after the end

of the business year were:

− reorganisation:

− - reorganisation of the bank was carried out on 1

January 2008;

− issue of new shares:

− - subject of sale: 1,700,000 shares code ABKN,

− - sale price EUR 60;

− signing of a syndicated loan contract:

− - a syndicated loan contract was signed by

Abanka in Vienna on 16 January 2008,

amounting to USD 55 million in the Asian

market;

− SEPA project:

− - implementation of SEPA credit payments began

on 28 January 2008;

− Basel II:

− - new capital regime entered into force on 1

January 2008.

Abanka Business in 2007

in Numbers

Business Events In 2008



In 2007 the bank and its subsidiaries operated in

a general economic environment that according

to the Institute of Macroeconomic Analysis

and Development (IMAD)1 featured the highest

economic growth and the best labour market

indicators since independence, high export growth,

and high infl ation that rose more than in other

members of the euro area. The favourable export

GENERAL ECONOMIC ENVIRONMENT

trends and high investment activity had an impact

on economic growth which, according to the fi rst

estimation of the Statistical Offi ce of the Republic of

Slovenia, increased by 6.1%.

The table below gives some major macroeconomic

indicators relating to the general economic

environment over the last fi ve years.

Major macroeconomic indicators

2003 2004 2005 2006 2007

GDP growth, % 2.8 4.4 4.1 5.7 6.1*

GDP, EUR million (current prices, current exchange rates) 25,344 26,764 28,244 30,453 33,542*

GDP, EUR million (current prices, fixed exchange rates of

EUR 1 = SIT 239.64) 24,716 26,677 28,243 30,448 33,542*

GDP per capita, EUR (current prices, current exchange

rates) 12,695 13,400 14,116 15,167 16,616*

Unemployment (ILO methodology), % 6.7 6.3 6.5 6.0 5.0**

Labour productivity, % 3.2 4.1 4.0 4.5 3.4**

Inflation (year-end), % 4.6 3.2 2.3 2.8 5.6

Inflation (average), % 5.6 3.6 2.5 2.5 3.6

Note: *estimation

Note: **forecast

Source: Autumn Forecast of Economic Trends 2007, IMAD, Ljubljana, September 2007, and Statistical Offi ce of the Republic of Slovenia

1 Press release, IMAD, Ljubljana, January 2008

The quarterly growth fi gures are given in the fi gure

below, from which the rising trend is evident.

Source: Statistical Offi ce of the Republic of Slovenia

0 %

1 %

2 %

3 %

4 %

5 %

6 %

2003 2004 2005 2006 2007

GDP GROWTH, 2003-2007

%

Economic growth in the euro area was expected

to slow at the end of 2007, while there was a

signifi cant slowdown in economic growth in the

USA in the fi nal quarter of 2007.2 The Consensus

economic growth forecast for 2007 has been

unchanged since September at 2.6% for the euro

area, and 2.2% for the USA.3

According to the IMAD,4 consumer prices rose by

5.6% in 2007 (compared with 2.8% in the previous

year), while consumer prices in other euro area

members rose by 1.9% in 2006 and 3.1% in 2007.

The main factors in the high infl ation in 2007 were

2 Slovenian Economic Mirror 1/2008, IMAD, Ljubljana, February

2008

3 January 2008 Bulletin of the Bank of Slovenia, Bank of Slovenia,

Ljubljana, February 2008

4 Slovenian Economic Mirror 12/2007, IMAD, Ljubljana, January

2008



food prices and prices of liquid fuels used for

transport and heating. According to the IMAD,

food prices contributed 2.2 percentage points

towards infl ation in Slovenia in 2007 (compared

with 0.7 percentage points in 2006), while prices of

liquid fuels contributed 0.9 percentage points (0.3

percentage points in 2006). The IMAD estimates

that the introduction of the euro at the beginning

of the year contributed approx. 0.3 percentage

points towards infl ation, and adds that without the

aforementioned price increases, infl ation in 2007

would have remained comparable with that in 2006.

Source: Statistical Offi ce of the Republic of Slovenia

The IMAD5 further states that the euro’s

appreciation against the dollar in 2007 mitigated

the impact of rises in oil prices both in Slovenia

and in other euro area members, but that the

external price shock from oil prices fed through into

domestic infl ation to a greater extent than in the rest

of the euro area as a result of the higher weighting

given to liquid fuels for transport and heating in the

domestic consumer price index.

The economic growth forecasts for the international

environment are being revised downwards, while

in Slovenia too there are signs in the consumer

confi dence indicator and the economic sentiment

indicator of a gradual slowdown in economic

growth, although conditions on the labour market

remained favourable at the end of last year.6

0 %

1 %

2 %

3 %

4 %

5 %

6 %

2003 2005 20062004 2007

4.6%

3.2%

2.3%2.8%

COMULATIVE INFLATION, 2003-2007

5.6%

The slow-down in GDP growth at the end of 2007

was not refl ected in the employment growth which

was the highest in the fourth quarter (3.0 percent),

the total employment in 2007 was estimated to be

2.7 percent greater than in 2006.7

The dynamics of retail loans and deposits in

November and December 2007 were marked by

the privatisation of Slovenia’s second-largest bank;

in the year as a whole, retail savings picked up.

Bank lending activity also remained strong despite

the increase in interest rates. The strong lending

activity of domestic banks was mainly based on

corporate loans; within that, working capital loans,

which companies needed to fi nance booming

production activity, contributed the most to overall

growth. Retail loans also continued to increase at a

vigorous pace; half of the increase stemmed from

housing loans.8

The SBI20 gained 91.8% over the fi rst eight

months of 2007, but lost just under 10% between

September and November, which coincided

with movements in international capital markets

related to the international fi nancial crisis. The

privatisation of one of the banks provided palpable

new impetus at the end of 2007, but in early 2008

a negative atmosphere prevailed on the Ljubljana

Stock Exchange, in keeping with movements on

international fi nancial markets, and also partly due

to the uncertainty over the future of privatisation.9


2008

6 January 2008 Bulletin of the Bank of Slovenia, Bank of Slovenia,

Ljubljana, February 2008

7 Ljubljana: Statistical Offi ce of the Republic of Slovenia, March

2008

8 Slovenian Economic Mirror 2/2008, IMAD, Ljubljana, March

2008


2008



Financial Results

of the Abanka

Vipa Group

There is success and then there is Success.

The measure of our success is not the heights

we’ve reached, but the traces

we’ve left behind.



The Abanka Group generated a pre-tax profi t of

EUR 47,712 thousand in 2007. The consolidated net

profi t in 2007 was EUR 36,810 thousand, up one-

third on the previous year.

The Abanka Group recorded interest income of

EUR 159,638 thousand in 2007, up 29.0% on the

previous year, and interest expenses of EUR

92,456 thousand, up 35.0% on the previous year.

The group’s absolute interest margin was thus

EUR 67,182 thousand, up 21.6% on 2006.

Net fees and commission amounted to EUR

33,438 thousand in 2007, up 2.0% on the previous

year.

Other net non-interest income (excluding net

fees and commission) amounted to EUR 15,755

thousand in 2007, down just over one-quarter on

that generated in 2006. The main factors in the

decline were the larger loss from transactions in

debt securities held for trading, and the loss of

commission on payment transactions with the rest

of the world that resulted from Slovenia joining the

euro.

The Abanka Group’s operating costs stood at

EUR 57,243 thousand in 2007, up 5.3% on 2006.

Labour costs were up 9.7% on the previous year at

EUR 29,359 thousand, general and administrative

expenses were up 9.8% on the previous year at

EUR 21,225 thousand, and depreciation expenses

were down 19.7% on the previous year at EUR

6,659 thousand. Labour costs accounted for

the largest proportion of operating costs (51.3%)

in 2007, followed by general and administrative

expenses (37.1%), then depreciation expenses

(11.6%).

PERFORMANCE AS VIEWED THROUGH THE CONSOLIDATED

INCOME STATEMENT AND CONSOLIDATED BALANCE SHEET

Performance as viewed through

the Consolidated Income

Statement

The consolidated fi nancial statements for 2007

include the subsidiaries Argolina, Abančna DZU,

Afaktor, Aleasing, Vogo leasing and Analožbe

alongside Abanka as the parent bank. The

investments in the associate KDSPV1 (former

Alavits) and the joint venture ASA Abanka

leasing are included in the consolidated fi nancial

statements using the equity method. The

investment in the associated company Delniški

Evropa Vipa Invest is measured at fair value through

profi t or loss therefore it is not accounted for using

the equity method. The fund does not prepare

fi nancial statements in accordance with IFRS, but in

accordance with Slovene GAAP.

The consolidated fi nancial statements for 2006

included the subsidiaries Argolina, Abančna DZU,

Afaktor, Aleasing, Vogo leasing and Analožbe

alongside Abanka as the parent bank. The

investment in the associate Alavits was included

in the consolidated fi nancial statements using the

equity method. The investment in the associated

company Delniški Evropa Vipa Invest is measured

at fair value through profi t or loss therefore it is

not accounted for using the equity method. The

fund does not prepare fi nancial statements in

accordance with IFRS, but in accordance with

Slovene GAAP.



Net provisioning and impairment expenses

amounted to EUR 11,420 thousand, down 35.1%

on 2006. Net provisioning expenses amounted to

EUR 293 thousand in 2007, the remainder coming

from net impairment expenses. Net impairment

expenses for lending measured at amortised cost

declined by EUR 7,144 thousand in 2007.

NET INTEREST, NET FEES AND COMMISSION, OPERATING COSTS AND NET PROVISIONING AND IMPAIRMENT EXPENSES, 2006 AND 2007

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

net interest net fees and

commission

operating costs net provisioning

and impairment

expenses

2006

2007

E

UR

tho

usan

d

55,264

32,785

-54,387

-17,589

-11,420

-57,243

33,438

67,182

At EUR 201,235 thousand, the subsidiaries’

total assets accounted for 5.7% of consolidated

total assets (compared with 3.8% in 2006). After

the exclusion of mutual relationships between

Abanka and the subsidiaries, the Abanka

Group’s consolidated total assets stood at EUR

78,067 thousand, 2.3% higher than Abanka’s

unconsolidated total assets. Consolidated total

assets stood at EUR 3,517,074 thousand at the end

of 2007, up 21.4% or EUR 620,128 thousand on a

year earlier.

Lending to non-banking sectors accounted

for the largest proportion of the asset side of the

consolidated balance sheet, amounting to EUR

2,384,788 thousand at the end of 2007, or 67.8%

of consolidated total assets. This lending was up

30.4% on a year earlier, primarily as a result of the

intensive demand for lending from corporate clients.

Deposits and lending to banks amounted to

EUR 296,658 thousand, down 0.2% on the end

of 2006, and accounted for 8.4% of consolidated

total assets, this decline came largely as a result of

a decline in the deposits held at the central bank,

primarily overnight deposits.

Investments in securities amounted to EUR

707,469 thousand at the end of 2007, up 4.5% or

EUR 30,323 thousand on a year earlier. Despite

this increase, the proportion of consolidated total

assets that they account for declined from 23.4% at

the end of 2006 to 20.1% a year later. Investments

in equities amounted to EUR 73,789 thousand

at the end of the year, 10.4% of total investments

in securities. This was down just over-one fi fth

on 2006. Shares of other issuers accounted for

the largest proportion of investments in equities.

Investments in debt security amounted to EUR

633,680 thousand at the end of the year, 89.6% of

total investments in securities. This was up 8.8% on

the end of 2006, primarily as a result of an increase

in investments in Slovenian government bonds,

while there was a decline in investments in central

bank bills.

Performance as viewed through

the Consolidated Balance Sheet



At EUR 3,163,896 thousand, liabilities accounted

for 90.0% of the liability side of the consolidated

balance sheet (consolidated total liabilities) at the

end of 2007, with shareholders’ equity accounting

for the remaining 10.0% at EUR 353,182 thousand.

Deposits by non-banking sectors accounted for

the largest proportion of liabilities. These amounted

to EUR 1,724,689 thousand at the end of 2007, up

1.4% or EUR 23,445 thousand on the previous year.

Deposits by individuals were the main factor in the

increase. In total, deposits accounted for 49.0% of

consolidated total liabilities, down 9.7 percentage

points on the previous year.

Financial liabilities to banks amounted to EUR

1,155,852 thousand at the end of 2007, up two-

thirds on the previous year. This was refl ected in the

proportion of consolidated total liabilities that they

account for increasing from 23.9% at the end of

2006 to 32.9% a year later, long-term borrowing at

foreign banks being the main factor in this increase.

Liabilities for securities issued were down 13.6%

to stand at EUR 188,533 thousand at the end of

2007. Bonds and subordinated deposits accounted

for EUR 120,580 thousand of this, down 13.1%

primarily as a result of Abanka’s fourth-issue bonds

maturing. The stock of certifi cates of deposit, bills

and certifi cates issued was down 14.5% at EUR

67,953 thousand. The proportion of consolidated

total liabilities accounted for by total liabilities for

securities issued declined from 7.5% to 5.4% during

2007.

Shareholders’ equity amounted to EUR 353,182

thousand at the end of 2007, up 66.6% on a year

earlier. The main factors in this increase in equity

were an innovative instrument (disclosed at EUR

117,539 thousand at the end of the year), and

the net profi t for the current fi nancial year in the

amount of EUR 36,810 thousand, 27.8% of which

has already been allocated under a resolution by

the bank’s management board to other capital

components and to the repayment of liabilities from

the innovative instrument.

ASSET STRUCTURE AT YEAR END, 2006 AND 2007

0

10 %

20 %

30 %

40 %

50 %

60 %

70 %

otherinvestments in

securities

deposits with

and lending to

banks

lending to

non-banking

sectors

31. Dec., 2006

31. Dec., 2007

v m

ilijo

nih

SIT

LIABILITY STRUCTURE AT YEAR END, 2006 AND 2007

0

10 %

20 %

30 %

40 %

50 %

60 %

70 %

othersshareholders’

equity

liabilities for

securities

issued

financial

liabilities to

banks

deposits by

non-banking

sectors

31. Dec., 2006

31. Dec., 2007

v m

ilijo

nih

SIT



Corporate banking comprises banking operations

with corporates (including foreign corporates) and

the public sector.

The most signifi cant development in 2007 was

Slovenia joining the euro zone, while the fi rst

half of the year saw large demand for borrowing

by corporates, relatively low interest rates, and

consequently very high lending growth in the

banking system. Despite the fi nancial crisis in the

USA in the middle of the year, which triggered a

wider fi nancial crisis, limited the resources available

in the rest of the world and made these resources

more expensive, Abanka succeeded in expanding

its lending by just under one-third in 2007. The main

factors affecting lending rates were the changeover

to the euro and the unifi cation of tolar and foreign

currency lending rates, the rise in the EURIBOR,

and the fi nancial crisis. Abanka succeeded in

increasing turnover by providing excellent quality-of-

service, employing an active commercial approach,

and upgrading technology with an emphasis

on complex services for corporate clients and

e-banking. Exposure to the countries of south-

eastern Europe was increased in line with the

bank’s strategy. The focus in credit approval was on

improving the quality of placements, and achieving

higher interest margins. There was practically

no change in the maturity structure of corporate

lending in 2007 with short-term loans accounting

for approximately one-half of the total. The currency

structure at the end of 2007 was the same as that a

year earlier, with foreign currency loans accounting

for little more than 1 percent.

PERFORMANCE OF THE ABANKA VIPA GROUP IN 2007

Corporate Banking

The Abanka Group’s lending to corporate

clients amounted to EUR 1,983,849 thousand

at the end of 2007, up just over one-third or EUR

506,717 thousand on a year earlier. The proportion

of consolidated total assets accounted for by

lending to corporate clients increased from 51.0% at

the end of 2006 to 56.4% at the end of 2007.

Abanka’s guarantees stood at EUR 393,033

thousand at the end of 2007, up 10.2% on a year

earlier. The majority in 2007 consisted of service

guarantees on the domestic market, mostly in

relation to tenders in the public sector, particularly

construction projects, while there were also a

number of guarantees related to corporate mergers

and acquisitions. Service guarantees increased by

38.7%, while fi nancial guarantees declined by just

under one-third, which meant that the proportion

of total guarantees accounted for by services

guarantees rose to 74.1%, from 58.9% at the end of

2006.

GUARANTEES FOR CORPORATE CLIENTS

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

31. Dec., 2006 31. Dec., 2007

291.239

101.794

210.002

146.534

Service guarantees

Financial guarantees

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Retail banking comprises operations with domestic

and foreign individuals.

Fierce competition could be felt in the retail sector

in 2007. Given the trends in demand, Abanka

prepared a special offer of consumer and mortgage

loans. There was much activity on the saving side,

focussing on promoting traditional forms of deposits

and saving schemes, which were supplemented

by mutual funds, investment banking services and

mixed banking/insurance products.

Lending to retail clients stood at EUR 400,939

thousand at the end of 2007, of which the majority

was lending to domestic retail clients. This fi gure

was up 13.9%, but the proportion of consolidated

total assets accounted for by lending to retail clients

declined from 12.1% at the end of 2006 to 11.4% at

the end of 2007.

Deposits by retail clients stood at EUR 911,058

thousand at the end of 2007, of which just EUR

47,457 thousand was deposits by foreign retail

clients. Deposits by retail clients were up 4.7% in

2007, deposits by domestic retail clients increased

by 4.2% or EUR 35,176 thousand, and deposits

by foreign retail clients increased by 14.5% or EUR

6,021 thousand. The proportion of consolidated

total liabilities accounted for by deposits by retail

clients declined from 30.0% to 25.9%. There was

a slight change in the currency structure with the

proportion of deposits by retail clients in domestic

currency increasing from 94.9% at the end of 2006

to 95.9% at the end of 2007. There was a shift in

the maturity structure towards long-term deposits,

which accounted for 13.5% of total deposits by

retail clients at the end of 2007. The fi gure below

illustrates the breakdown by type of account as at

31 December 2007.

There was a reorganisation in Abanka’s small and

medium enterprise operations on 1 May 2007 as

it aimed to increase its presence in this segment.

The corporate unit was relocated from the Ljubljana

regional offi ce to the newly created SME section,

which now has the task of coordinating the SME

segment. The SME sector entails huge diversity,

and a large number of small transactions for a

large number of clients, and we have therefore

created several types of package to make it easier

to penetrate the market and for the sake of greater

operability. The marketing department was involved

in the media promotion of current offers for SMEs,

which made use of CDs and various forms of

training.

The bank again achieved an above-average market

share in corporate deposits in 2007. Deposits by

corporate clients stood at EUR 813,631 thousand

at the end of 2007, down 2.1% on a year earlier. The

decline in deposits by corporate clients is primarily

the result of a decline in deposits by other corporate

clients (the effect of the reclassifi cation of SID d.d.

from an other fi nancial institution to a bank from 1

January 2007). The proportion of consolidated total

liabilities accounted for by deposits by corporate

clients declined from 28.7% at the end of 2006 to

23.1% at the end of 2007.

Retail Banking



The next two fi gures show lending to and deposits

by corporate and retail clients of the Abanka Group

at the end of 2007 compared with the end of 2006.

BREAKDOWN OF DEPOSITS BY TYPE OF ACCOUNT, 31 DECEMBER 2007

69% personal accounts

30% domestic currency deposits

1% foreign currency deposits

LENDING TO NON-BANKING SECTORS

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

31 Dec., 2006 31 Dec., 2007

400,939

Lending to corporate clients

1,983,849

1,477,132

351,920

Lending to retail clients

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DEPOSITS BY NON-BANKING SECTORS

0

500,000

1,000,000

1,500,000

2,000,000

31 Dec., 2006 31 Dec., 2007

813,631

911,058

Deposits by corporate clients

1,983,849

869,861

831,383

Deposits by retail clients

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Lending to banks plus cash and balances

at the central bank amounted to EUR 296,658

thousand at the end of 2007, down 0.2% from a

year earlier as a result of a decline in balances at

the central bank, lending to banks having increased.

The proportion thus increased slightly from 6.2% at

the end of the previous year to 6.7% at the end of

2007, primarily as a result of an increase in short-

term investments in foreign banks.

Operations with other banks

Financial liabilities to banks amounted to

EUR 1,155,852 thousand at the end of 2007, up

66.8% or EUR 462,752 thousand on a year earlier.

This increase was tracked by the increase in the

proportion of consolidated total liabilities accounted

for by fi nancial liabilities to banks from 23.9% to

32.9% over the same period.

The main factors in the increase in fi nancial liabilities

to banks were the reclassifi cation of SID d.d. as

a bank, the uptake of syndicated credit, and the

repayment of foreign borrowing. Deposits by banks

accounted for 6.6% of the total, bank loans for

82.6%, and other fi nancial liabilities to banks for

10.7%, as illustrated in the fi gure below.

LENDING TO BANKS, CASH AND BALANCES AT THE CENTRAL BANK

0

50,000

100,000

150,000

200,000

250,000

300,000

31 Dec., 2006 31 Dec., 2007

60,456

cash and balances at the central bank

236,202179,398

117,817

lending to banks

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FINANCIAL LIABILITIES TO BANKS

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

31 Dec., 2006 31 Dec., 2007

76,718

Deposits by banks

123,887

955,247

584,922

108,178

Bank loans

Other financial liabilities

to banks

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Investments in securities amounted to EUR

707,469 thousand at the end of 2007, up 4.5% on

a year earlier. Given the growth in total assets, the

proportion of consolidated total assets accounted

for by investments in securities declined from

23.4% to 20.1%. The securities portfolio consists of

equities and debt securities.

Equities declined by 22.0% or EUR 20,784

thousand to EUR 73,789 thousand, and thus

accounted for 10.4% of the securities portfolio at

the end of 2007. Participating interests in non-

affi liated corporations and non-affi liated fi nancial

institutions were up EUR 4 thousand at EUR 6,253

thousand.

Debt securities amounted to EUR 633,680

thousand at the end of 2007, an increase of 8.8%

or EUR 51,107 thousand on a year earlier, and

accounted for 89.6% of the securities portfolio at

the end of 2007. The largest decline among debt

securities was in central bank bills (EUR 101,273

thousand), while Slovenian government bonds

increased by EUR 139,780 thousand and bonds

of other issuers by EUR 16,572 thousand. Bonds

of other issuers account for the largest proportion

of the debt securities portfolio (58.8%), followed by

Slovenian government bonds (40.7%).

Securities

Liabilities for securities issued include

liabilities from debt securities issued (bonds, bills

and certifi cates, and certifi cates of deposit), and

subordinated liabilities. Total liabilities for securities

issued stood at EUR 188,533 thousand at the end

of 2007, down 13.6% or EUR 29,774 thousand on

a year earlier. The proportion of consolidated total

liabilities that they account for declined from 7.5% to

5.4%. Certifi cates of deposit declined by EUR 6,294

thousand in 2007, while fi nancial liabilities from

ordinary bonds issued and subordinated liabilities

and from bills and certifi cates issued were down

EUR 23,480 thousand on the end of the previous

year. Subordinated liabilities declined by EUR 11,733

thousand in 2007, while liabilities from ordinary

bonds issued and from bills and certifi cates issued

declined by EUR 11,747 thousand, mainly as a result

of the maturity of Abanka’s fourth-issue bonds,

the issue having a nominal value of EUR 10,000

thousand.

INVESTMENTS IN SECURITIES

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

31 Dec., 2006 31 Dec., 2007

633,680

equities

73,78994,573

582,573

debt securities

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LIABILITIES FOR SECURITIES ISSUED

0

50,000

100,000

150,000

200,000

250,000

31 Dec., 2006 31 Dec., 2007

120,580

67,953

other liabilities for securities issued

1,983,849

79,493

138,814

bonds and subordinated deposits

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Abanka’s competitive advantages in payment

transactions are our electronic banking system and

the reliable processing of payments at the bank.

Abanka recorded payment transactions in the

amount of EUR 7,403,738 thousand with the rest of

the world in 2007, its market share of 12.0% placing

it third among banks in Slovenia. (The fi gures for

payments relate solely to international and cross-

border payments of sums of more than EUR

12,500.) Inward payments accounted for 46.0% of

the total, and outward payments for 54.0%.

In 2007 83.1% of the total volume of payments was

in euros, 11.7% in dollars, and 0.5% each in pounds

sterling and Swiss francs, while the remainder was

in other currencies.

Abanka recorded domestic payment transactions

of EUR 43,513,197 thousand in 2007, of which

50.6% was inward payments and 49.4% outward

payments.

Payments

Abanka’s wide range of card products allows it to

offer the right cards to a range of different types

of client. Abanka’s card operations include the

following cards:

− Visa: standard, gold, business and co-branded

AMZS cards,

− Visa Electron: debit and credit cards,

− Karanta,

− MasterCard: standard and business cards,

− BA Maestro: standard, student and children’s

cards.

Abanka’s total volume of card transactions (debit

cards, and cards with deferred payment) was up

10.3% in 2007, with growth in the volume of debit

card transactions (14.2%) outpacing growth in the

volume of deferred-payment card transactions

(3.9%). The proportion of card transaction

volume accounted for by debit card transactions

consequently increased from 62.2% to 64.4%. The

volume of debit card transactions generated by

BA Maestro increased by 8.2%, while that of Visa

Electron increased by 67.8%. The standard Visa

card accounts for the largest proportion of the

volume of deferred-payment card transactions with

64.3%, followed by the standard MC (13.7%) and

the gold Visa card (12.3%).

PAYMENT TRANSACTIONS IN 2007

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

Payment transactions with

the rest of the world

Domestic payment

transactions

22,001,038

21,512,159

outward

3,405,447

3,998,291

inward

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Card operations

BREAKDOWN OF VOLUME IN DEFERRED-PAYMENT CARD TRANSACTIONS

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

VISA,

standard

VISA,

gold

VISA,

business

AMZS

VISA

and

Karanta

VISA

Electron,

credit card

MC,

standard

MC,

business

2006

2007



There were 221,578 debit cards and deferred-

payment cards in circulation at the end of 2007,

an increase of 6.1% on the total of 208,875 a year

earlier with the number of debit cards increasing by

7.2% and the number of deferred-payment cards by

2.6%.

As well as issuing cards, Abanka has an extensive

network of POS terminals that accept Visa (9,427

terminals), BA (2,060 terminals), Karanta (1,721

terminals) MasterCard (1,650 terminals) and

Maestro (1,635 terminals).

Abanka expanded its network of ATMs from 165 at

the end of 2006 to 201 a year later. The new ATMs

brought an increase in its market share to 12.2%

(from 10.8% in 2006).

The total volume of trading generated by

members of the Ljubljana Stock Exchange was

EUR 4,453,801 thousand in 2007. Abanka was

responsible for EUR 372,312 thousand or 8.4%

of this, the highest fi gure among stock exchange

members. Abanka was ranked second in terms of

total volume on the offi cial market, the semi-offi cial

market and the market maker segment, with EUR

536 million or 10.2% of the total volume.

The positive trend in investment brokerage could be

seen on the domestic market, but was even more

evident on the foreign market, as illustrated in the

fi gure below.

Investment brokerage

INVESTMENT BROKERAGE ON THE DOMESTIC MARKET

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0

4,000

8,000

12,000

16,000

20,000

31 Dec., 2006 31 Dec., 2007

806,764

15,067

93.143

19,501

1,100,028

asse

ts,

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of

clie

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assets

number of clients

INVESTMENT BROKERAGE ON THE FOREIGN MARKET

0

10,000

20,000

30,000

40,000

50,000

0

200

400

600

800

1,000

31 Dec., 2006 31 Dec., 2007

20,046

530

93.143

865

43,829

asse

ts, E

UR

th

ou

sa

nd

nu

mb

er

of

clie

nts

assets

number of clients



At the end of 2007 Abanka’s assets under

management for individual clients were worth EUR

44,035 thousand, down one-quarter on a year

earlier. Asset management services for individuals

were highly relevant in the fi rst half of the year, as

stock markets rose inside and outside Slovenia.

The sub-prime mortgage crisis in the USA brought

great volatility and negativity to the capital markets

in the second half of the year. The decline in assets

under management from the previous year was the

result of the ending of the relationship with a single

large institutional investor, the number of asset

management clients actually increasing.

Abanka’s mutual pension fund AIII VPS again

performed well in 2007 as illustrated in the fi gure

below. Its annual return was 8.7%, the second-

highest among all mutual pension funds in Slovenia.

AIII VPS mutual pension fund

NUMBER OF INSURED AND NET ASSET VALUE OF AIII VPS MUTUAL PENSION FUND

0

2,000

4,000

6,000

8,000

10,000

0

500

1,000

1,500

2,000

2,500

3,000

31 Dec., 2006 31 Dec., 2007

2,409

7,108

1,210

2,658

9,786

ne

t a

sse

t va

lue

, E

UR

th

ou

sa

nd

nu

mb

er

of

insu

red

net asset value

number of insured



Custody and administrative

services

In terms of the net asset value of investment funds,

Abanka is still a major provider of custody services.

The bank achieved a market share of 49.2% in

terms of the number of investment funds for which

it provides custody services.

It expanded its range of custody services for

foreign securities by offering services to institutional

investors. Abanka continued to provide custody

services for foreign securities to institutional

investors in 2007. It has also begun offering custody

services for the insurance sector, for life insurance

investments.

Abanka is the sole provider of administrative

services in Slovenia to have developed its own IT

support system in addition to providing integrated

administrative services. Its in-house information

technology meets all legislative requirements,

and has received an unqualifi ed opinion from the

information system auditor every year. In 2007

Abanka became the fi rst bank in Slovenia to obtain

a licence to provide administrative services for

investment funds, and also expanded its services to

insurers’ life insurance investments.

Abanka’s good performance in custody and

administrative services in 2007 was partly the result

of a reorganisation in 2006, when the investment

fund’s custody unit was transformed into the

custody and administrative services sector, with

three organisationally separate units.



Abanka has a policy of strategic partnership with

Zavarovalnica Triglav, whose synergies are allowing

the bank to develop its profi le on the fi nancial

intermediation market in relation to banking/

insurance products.

Abanka has acted as an agent in the insurance

market since November 2003. In conjunction with

Zavarovalnica Triglav it offers the following banking/

insurance products:

− accident insurance as a supplementary service

for holders of ordinary personal accounts and

Akeš personal accounts,

− traditional life insurance: a combination of

insurance with saving in three forms,

− unit-linked life insurance, which combines life

insurance and saving linked to the unit prices

of selected mutual funds and the Zavarovalnica

Triglav investment fund,

− paid-up unit-linked life insurance, which combines

life insurance and saving linked to the unit prices

of selected mutual funds, the insurance premium

being paid in a lump sum when the policy is taken

out,

− mortgage life insurance, which is taken out in

combination with a mortgage loan, and provides

a diminishing payout in the event of death, the

payout reaching zero when the policy expires,

− top-up health insurance in conjunction with Triglav

Zdravstvena zavarovalnica, which is voluntary

health insurance that can be taken out by holders

of personal accounts and savings accounts at

Abanka who are covered by compulsory health

insurance and are obliged to make top-up

payments.

Abanka also had special offers on paid-up unit-

linked life insurance with a guaranteed principal in

2007: BIK, Vzhod-Zahod, Svetovne Gazele and Eko

Naložbe. This product is a form of unit-linked life

insurance with a guaranteed payout at survival. It

combines an investment linked to the performance

of three neutral investment strategies and life

insurance. The premium paid by the policyholder

is linked to units in an investment product (the

Zavarovalnica Triglav investment fund).

Banking/Insurance operations

In general, the insurance products can be divided

into two categories, personal insurance (traditional

life insurance, unit-linked life insurance, paid-up

unit-linked life insurance, mortgage life insurance,

accident insurance and health insurance) and

property insurance.

The breakdown of life insurance in terms of the

number of policies at the end of 2007 is illustrated in

the fi gure below*.

38% special offer PUUL life insurance

4% traditional life insurance

24% unit-linked life insurance

3% paid-up unit-linked life insurance

31% mortgage life insurance

BREAKDOWN OF LIFE INSURANCE BY NUMBER OF POLICIES AS AT 31 DECEMBER 2007

Note: *Special offer PUUL life insurance means

paid-up unit-linked life insurance with a guaranteed

principal.



Abanka had total shareholders’ equity of EUR

353,233 thousand at the end of 2007, up 66.2%

or EUR 140,675 thousand on a year earlier, which

accounted for 10.3% of total liabilities on the

balance sheet.

The main factor in this increase was the innovative

instrument, which amounted to EUR 117,539

thousand at the end of 2007, or one-third of total

Shareholders’ equity and ownership structure

The ten largest shareholders held 4,933,473 shares

at the end of 2007, or 89.7% of the bank’s share

capital, this proportion having stood at 73.7% at

the end of 2006. Sava d.d. acquired a holding of

almost one-quarter of Abanka in 2007. Abanka

thus acquired a strategic, stable and fi nancially

capable owner that is able and willing to use its

fi nancial and personnel potential to accelerate the

bank’s development. In 2007 Zvon ena holding d.d.

became the third-largest shareholder, with 943,748

shares, while Vipa d.d. moved up to eighth with

134,875 shares and Vipa Holding d.d. moved to

tenth with 79,798 shares.

shareholders’ equity. The book value of a share was

EUR 64.36 as at 31 December 2007, calculated on

the basis of 5,500,000 shares, less those held in

treasury.

The ten largest shareholders in Abanka at the end

of 2007 are shown below, along with their equity

holdings at the end of 2006.

Ten largest shareholders 31 Dec., 2006 31 Dec., 2007

Number

of shares Holding Rank

Number

of shares Holding Rank

SAVA D.D. 23,749 0.4 24 1,309,966 23.8 1

ZAVAROVALNICA TRIGLAV, D.D. 1,170,028 21.3 1 1,170,028 21.3 2

ZVON ENA HOLDING, D.D. 381,687 6.9 4 943,748 17.2 3

DELNIŠKI VZAJEMNI SKLAD TRIGLAV

STEBER I 402,537 7.3 3 402,537 7.3 4

HIT D.D. NOVA GORICA 335,275 6.1 5 335,275 6.1 5

ZAVAROVALNICA TRIGLAV-KRITNI

SKLAD 241,575 4.4 8 241,575 4.4 6

DAIMOND D.D. 195,373 3.6 10 195,373 3.6 7

VIPA D.D.NOVA GORICA 124,875 2.3 12 134,875 2.5 8

SLOVENSKA ODŠKODNINSKA DRUŽBA,

D.D. 120,298 2.2 13 120,298 2.2 9

VIPA HOLDING D.D. 69,236 1.3 16 79,798 1.5 10

Ten largest 4,052,227 73.7 4,933,473 89.7

Other shareholders 1,447,773 26.3 566,527 10.3

All shareholders 5,500,000 100.0 5,500,000 100.0

The total number of shareholders in the bank had

fallen to 1,053 by the end of 2007, from 1,132 a year

earlier. At the end of 2007 the bank held 11,870 own

shares in treasury (compared with 13,229 ordinary

shares at the end of 2006), equivalent to 0.2% of its

share capital. A fund of shares held in treasury was

created for the own shares repurchased.

The Abanka Group had total shareholders’ equity

of EUR 353,182 thousand at the end of 2007, up

66.6% or EUR 141,127 thousand on a year earlier,

which accounted for 10.0% of consolidated total

liabilities.





All that grows requires special care. It proceeds from raw potential to

infi nite dimensions of perfection.

The bank’s

development

and its goals



In 2007, the bank’s development and its

development goals were in line with its business

policy. The bank’s development goals are based on

the modernisation and streamlining of operations,

ongoing development of banking products and

sales channels, gaining a competitive edge and

increasing the visibility of Abanka which, building

on a solid tradition, establishes a modern banking

operations system. The development process

refl ected the bank’s commercial needs and was

geared towards meeting the needs and requests

of our clients quickly and in a quality manner. The

bank’s development policy was therefore derived

from its strategy and business policy that is based

on growth, development, streamlining of operations

and modernisation, which also resulted in the

bank’s reorganisation effective as of 1 January

2008.

As in previous years, the bank's development was

also subject to legislative change. After its adoption,

the Market and Financial Instruments Act had a

considerable impact on the bank’s operations

as did the adoption of the Prevention of Money

Laundering and Terrorist Financing Act which, in

addition to a complex technological platform and

integration of all business lines, envisages important

modifi cations to the organisation of work. Moreover,

amendments to the Payroll Tax Act, Personal

Income Tax Act, Tax Procedure Act and Corporate

Income Tax Act also entered into force in 2007.

DEVELOPMENT AND MARKETING COMMUNICATIONS IN 2007

Introduction

With its marketing communication activities in 2007,

Abanka supported new products and stimulated

demand for the entire range of new and existing

fi nancial products, thereby directly boosting sales.

The products and services offered were tailored to

the needs of our existing and prospective clients,

both corporate and individuals, and adapted to the

situation on the fi nancial market. Many activities

were focused on the design of Abanka's website

which received a bronze Netko award and the 1st

prize at the Minerva conference, of which we as a

bank particularly pride ourselves. At the Minerva

conference, an event organised by Panta Rei

Academy, the panel of experts recognised Abanka's

website as the best laid out, responsive and user-

friendly website of 124 Slovene companies.



After a successful adoption of the euro as our

national currency at the beginning of 2007, the

bank’s corporate banking division began testing

and adjusting its technological support for

integration with TARGET2 in May. Slovene banks

were integrated into TARGET2 in the fi rst migration

group which became part of TARGET2 on 19

November 2007.

Partly due to Basel II requirements and partly out

of its own needs, in 2007 the bank focused on

the centralised collateral registry which required

further upgrades to its internal applications.

The centralised collateral registry will be further

upgraded in 2008. An important breakthrough was

achieved in the area of updating the centralised

registry of clients to which internal applications will

be linked. We continued setting up the Work Flow

deposit folder and report. The internal application

for the management of transaction accounts was

upgraded with an option to open a new type of

transaction account (treasury account) and with

a new functionality for carrying out remote cash

management. In 2007 our efforts were particularly

focused on upgrades and preparations for the

establishment of the Single Euro Payments Area

(hereinafter: SEPA) and on an extra channel for

exchanging e-invoices between Abanka clients.

Both upgrades will be launched in stages in 2008.

In view of the development described above, most

attention was devoted to the marketing of corporate

transaction accounts, the electronic bank Abacom,

new payment instruments, online payment service

and other electronic channels. Our products and

services were brought closer to the needs of our

clients and by offering the benefi ts of the package

of fi ve free services, we wanted to appeal to those

companies which have not yet cooperated with

Abanka and interest them in cooperating with us.

Marketing communications were also aimed at the

marketing of the AIII VPS pension fund, investments

and loans. Legal entities and individuals were mainly

approached through direct marketing conducted

via mail, telephone calls and our electronic bulletin.

Several consultations were organised for our clients

in major Slovene towns, covering topics such as

tax breaks and funding from European Structural

Funds. Through various forms of communication,

we have established Abanka’s image of a reliable

partner in fi nancial operations.

Corporate banking



The development of banking products for retail

clients also continued to follow strategic goals in

2007 and we expanded our offer in the segments of

savings services, lending, bancassurance products

and electronic sales channels.

In the retail segment, we fi nalised the support

portion of the credit offer with a currency clause

pegged to the Swiss franc. As part of our credit

operations, we modernised and upgraded

the SISBON system. We also upgraded the

support portion of the credit dealer management

application. In the savings segment, we

successfully completed the support application

for deposit operations, while the Abacent coin

saving scheme was added to the savings account

support application. Abanka is the only provider of

this product in Slovenia, which can be used by any

holder of an Abanka personal or savings account.

In the personal accounts segment, foreign currency

management was migrated to a new system and

overall maintenance support was established. The

overall renovation of safety deposit operations

was completed in 2007, and we also continued to

renovate branch offi ces in keeping with the sales

concept (the renovated branch offi ces in Lucija).

We expanded the network of agents as a new

sales channel through which Abanka’s assistants

sell its services and products door-to-door in the

territory covered by the fi ve main branch offi ces.

We also introduced a sales network of external

Retail banking

legal entities such as insurance agencies and real

estate agencies which sell Abanka’s services as

a new sales channel. We expanded our offer of

bancassurance products with investment insurance

guaranteed by the principal of B.I.K., Vzhod-zahod,

Svetovne gazele in Eko naložbe.

Retail clients were targeted by marketing

campaigns largely aimed at winning new holders

of personal accounts and deposits. We linked

our promotion of consumer loans to the movie

Mr. Bean’s Holiday, whose comedic content and

superb cast ensured that it broke all box offi ce

records during its movie theatre run. In order to

promote environmental awareness, we introduced

ecological and housing loans in 2007 aimed

at helping construction using environmentally

friendly materials and at encouraging purchases of

energy-effi cient cars and household appliances. In

addition to the investment banking service, we also

advertised classic deposits and mutual funds, and

at the end of 2007 we attracted a lot of attention

by sponsoring the cartoon Bee Movie, through

which we promoted rent savings. Our youngest

clients were also targets of our marketing and PR

campaigns such as Ježkove igrice (Hedgehog’s

Games) in kindergartens, aimed at increasing

the visibility of children’s savings schemes, while

in primary schools we held classes where we

familiarised pupils with our personal account for

primary school pupils.



Financial Markets

At the beginning of 2007 Abanka successfully

issued an innovative instrument, and a structured

product called Depozitna naložba was introduced

to the market for the fi rst time. Abanka established

trading in the markets of Poland, Turkey and

the Ukraine, and, in Serbia and Bosnia and

Herzegovina, Abanka entered into additional

business co-operation arrangements with two

brokerage companies as secondary brokers in the

local markets. We also opened securities accounts

in Macedonia for mutual funds and investment

corporations to which Abanka provides custody

services, thus enabling them to conduct trading on

the local market.

In developing technological support, we upgraded

the application for monitoring foreign dividends

and for monitoring individual asset management

performance. In market analyses, we introduced

systematic monitoring of the markets of the Ukraine

and Turkey as an addition to other analyses of

developing markets. We successfully replaced the

administrator of Abanka’s AIII mutual pension fund

and adapted our software to doing business with

the new administrator.

For the purpose of the asset and liability

management, we developed a data framework

for the acquisition of adequate data needed for

making regular and effective business decisions

about managing the bank’s balance sheet. We

developed several new trading instruments in 2007,

such as REPO, FRA - forward rate agreements) and

began introducing several additional products (e.g.

FUTURES), which we are using both to regulate

our balance sheet and for our clients’ active trading

and marketing. We actively participated in the the

Ministry of Finance project to change the system

for issuing and trading in state securities. We

participated in the fi rst action taken by the Ministry

of Finance in the international market as a co-lead

bank. We were involved in trading on the EuroMTS-

MTS Slovenia trading platform, where we are the

offi cial administrator for securities issued by the

Republic of Slovenia.

In order to establish greater security in card

transactions, Ba Maestro magnetic cards were

replaced with chip cards in 2007. Card replacement

will also continue in 2008. In addition to introducing

the new chip cards, the pilot project to upgrade

POS terminals to make them EMV-standard

compliant was also completed, and the entire

upgrade will be completed in the fi rst half of 2008.

All activities related to the introduction of the EMV

standard mean greater security in card transactions

and adaptation to SEPA requirements in this

business segment.

An analysis of the cost-effectiveness of processing

Visa cards in our own processing centre was also

made in 2007. In order to streamline operations,

it was decided to migrate Visa card processing to

Bankart d.o.o., which provides this type of service

to banks. Activities were carried out in connection

with the beginning of the migration, which is

expected to be completed towards the end of 2008.

The development of e-banking in 2007 covered

the following segments:

− We unifi ed the design of the web pages and

Abanet on-line bank on Abanka’s web site, as the

point of entry into our electronic world, and we

upgraded our web content management system.

As part of the transition to the new technological

platform (.Net), we made it possible to add

new web sites quickly (we added the web sites

Aleasing and nakupi.si) and introduced menu

control; we also refurbished the news system and

improved integration with Abanet on-line bank,

BanKredit and the Business Review.

− As part of the revamping of our web site and

Abanet on-line bank, we gave greater exposure

to news and system messages; we introduced

the option of cross-border regulated payments,

the display of Abacent service specifi cations

and the display of the foreign-currency portion

of the current account; we upgraded the On-

Line Payment Service and made it possible to

receive payments into an account that has not

been opened with Abanka. In addition, we made

it possible for non-residents to use Abanet,

Development of products

and sales channels



with special emphasis on additional security

improvements such as mandatory password

change every 90 days.

− With regard to Abacom on-line bank, whose

primary users are corporate clients and

entrepreneurs, we made adjustments aimed

at compliance with the SEPA payment system,

prepared a channel for an exchange of e-

accounts (successfully carrying out two pilot

projects, with Mobitel and Adria Mobil), and made

it possible for non-residents to use Abacom and

offered them an English version of Abacom. We

introduced the transmission of Cash Management

information and of unposted invoice items for

fund accounts, and we adapted the client portion

of the Abacom programme to operate under

Windows Vista.

− In the market communication of Abanka’s web

site, we also placed signifi cant emphasis on the

web site’s greater sales orientation in keeping

with the trend of effi cient on-line sales. We

used different methods of presenting products

by presenting life situations and transparent

comparisons to facilitate the selection of the right

product, and we offered useful aids to visitors

and presented related products, thus increasing

cross-marketing. We will further upgrade

Abanka’s web portal so as to offer clients an

integral experience, from obtaining information to

making the fi nal purchase.

As part of the development of our ATM

operations, together with Bankart we made

payments of special payment orders at ATMs

through on-line debiting of current accounts

also available to clients of other banks. We

also launched a pilot project to facilitate direct

deposits of banknotes at ATMs with immediate

current account authorisation. All our ATMs now

feature chip technology, in compliance with SEPA

directives.

In 2007, the contact centre focused on answering

questions from both individuals and corporate

clients which were related to our products and

received on the Abafon toll-free number, 080 1

360, or by email at [email protected]. Together with

the bank’s different organisational units, we tried

to provide our current and potential clients with

quality information in connection with the bank’s

offer and thus help them make optimum business

decisions. We also began putting in place a system

of sending offers to clients at their request by email

or through the on-line portal, which we will continue

to upgrade. The contact centre also actively

participated in a number of marketing campaigns

and co-ordinated action taken on complaints in the

branch network.



In the risk management segment, we should

highlight the Group's preparations for the new

capital regime (Basel II), which requires that we

develop and improve our ability to measure and

manage risks to which the Group has been or can

be exposed.

The Group thus continued its activities related to

the Basel II project and aimed at developing an

adequate system and procedures for calculating

and monitoring capital requirements and developing

a more integrated risk monitoring and management

system. For the purpose of calculating credit

risk capital requirements, the Group opted for

a standardised approach, which entails certain

changes in the monitoring and management

of credit risk. We upgraded the limit system for

exposures to economic activities and the rest of the

world, and developed a stress-test-based model

for determining credit risk in exceptional though

likely circumstances. The Group uses worst-case

scenarios to determine the impact of a credit

portfolio impairment on the level of loss due to

credit risk, on business performance and on the

capital adequacy ratio.

Risk management

In the segment of operational risk, we set up an

intranet application up for anonymous reporting of

loss events and an application for a more detailed

listing of loss events. A database of loss events for

2007 was also prepared. Post-catastrophe recovery

plans were drawn up for selected organisational

units.

In the market risk segment, we upgraded the

system of daily monitoring of trading limits, which

was also extended to banking book securities and

subsidiaries, and we continued to implement the

Avantgard® project, which makes for the integrated

management of market risks arising from fi nancial

instrument transactions in the treasury.

In line with the requirements of the new capital

regime, we also began modernising the system

of integral interest and liquidity risk control

and developed procedures for assessing capital

requirements for different types of banking risks

(including strategic risk, reputation risk and

profi tability risk) as part of the integral capital

adequacy assessment process (ICAAP).



Personnel policy in 2007 was primarily focused on

work with our own staff, their development and

training according to our in-house programmes

adjusted to our special requirements within the

existing cost limits.

Based on an integral assessment of our human

resources situation, we strengthened the areas

where we identifi ed shortages of staff with

adequate know-how and skills by reassigning

staff and through external recruitment. We fi lled

staff gaps in the risk management service, branch

network, process support and custody services

by providing adequately skilled staff. The number

of employees was 871, four more than in the year

before. We met our periodic extra staffi ng needs

through forms of recruitment other than permanent

employment at the bank (e.g. by recruiting students

and hiring part-time staff through an authorised

agency).

We focused our training activities on providing the

know-how and skills needed to achieve and exceed

our business objectives. In 2007 we prepared

and provided in-house training, with our own

and external instructors, specifi cally designed for

Abanka. In-house training accounted for more than

70% of all training at Abanka.

A great deal of energy was invested in personnel

development. In the area of staff remuneration

we established a direct link between individual

performance and remuneration, basing

performance assessments on pre-set, measurable

and verifi able criteria. The volume of funds allocated

for the variable remuneration component increased

in 2007.

As organisational climate and employee satisfaction

are two important factors with a long-term effect

on the achievement of the bank’s objectives, we

also participated in the Slovenian Organisational

Climate project in 2007. The results for 2007 are not

known yet, and we have consequently adopted and

implemented a plan of activities based on the 2006

results in order to improve the situation in areas

where we believe improvements are needed.

The fi gure below shows the educational structure of

the bank’s employees in 2007.

Personnel policy

47% V.

47% VI. - VIII.

6% I. - IV.

EDUCATIONAL STRUCTURE OF THE BANK'S EMPLOYEES IN 2007



One of the important elements of the bank’s good

performance is its development orientation, which

gives rise to striving for continuing improvement in

the quality of existing products, the development

of new products, market communication and the

maximisation of sales. The combination of all the

above has enabled the bank to achieve the desired

growth in volume of operations and above-average

rates of return and to consolidate its competitive

position. We at Abanka will strive to establish and

preserve a stable, long-term relationship with our

clients, which will be achieved through the sale of

products tailored to individual client segments in

ways best suited to those segments.

ABANKA’S DEVELOPMENT ORIENTATION, MARKET

COMMUNICATION AND OBJECTIVES

Introduction Abanka’s main development

activities in 2008

Our main development activities planned for 2008

are presented below:

− as part of our corporate banking segment, we

will further automate documentary transactions,

complete cash management in Slovenia and

introduce cash management with the rest of

the world, while the central collateral register

module will be expanded so as to include

additional forms of collateral; we will upgrade the

automated account closing procedures in the

current account application and automate the

transfer of repayment funds; we will also begin the

preparation of packages for the SME segment;

− in the retail segment we are planning to

upgrade support to lending to individuals and

to offer new forms of loans such as loans with a

securities pledge; we will place special emphasis

on new savings products in 2008; with regard

to accounts, in accordance with legislative

amendments, we will offer new forms of personal

and savings accounts which clients will be able

to open through various sales channels; as for

banking insurance products, we are planning

to introduce special one-time investment life

insurance;

− in the fi nancial markets area, we will continue

the automation of trading operations in the

segment that concerns the linking of payment

systems, reporting, risk regulation, inter-bank

transfers and inter-bank deposits; we will continue

to develop and upgrade the securities support

application. We also plan to upgrade the capital

market management and analysis application; the

development of support to custody services for

funds will continue;



− transfer of card operations processing to the

processing centre;

− continuation of the e-banking project for the

following subprojects: upgrading the e-bank for

individuals and corporate clients and support

to the marketing of investment products, which

includes support to Abančna DZU funds and

foreign funds;

− continuation of activities related to the bank’s

preparation to meet the requirements of the new

capital regime (Basel II), more integral support

to risk management and the calculation of capital

requirements under the fi rst and second columns

of the capital agreement which introduces an

internal process of (self)evaluation of capital

adequacy;

− in the area of fi nance and process support,

we will continue the automation and streamlining

of support activities; the linking of analytical

systems into a central register of clients, services

and products; changes in the reporting system

on an unconsolidated and consolidated basis;

while in the payment transactions segment we will

continue activities within the framework of SEPA

tasks.

Using the aforementioned activities in order to

develop separate divisions Abanka wish to achieve

the following objectives in 2008:

Commercial Banking Division – the main

corporate banking aims in 2008 are the following:

− reduced growth of the amount of borrowing in

relation to previous years,

− an emphasis on the development and marketing

of non-interest income products,

− a further emphasis on custodian corporate

banking services with a comprehensive offer of

products and bank subsidiaries,

− a continuation of involvement in south-eastern

Europe and the states of former Yugoslavia,

− continued improvement of the credit portfolio,

for retail banking:

− intense marketing of new personal accounts

through offers for target groups of clients,

− customer services for existing clients through

strengthening of cross sales, training and

education of advisers,

− agency network expansion by taking advantage

of the Zavarovalnica Triglav agency network,

− credit sale increase with an emphasis on short

term borrowing,

− intense marketing of savings accounts and

different forms of deposits,

− increase non-interest income,

− development and introduction of new banking

insurance products in cooperation with

Zavarovalnica Triglav,

− private banking development.

Bank’s objectives for

the year 2008



Financial Markets Division:

− optimal management of bank balances,

− expansion of trading activities on our own

account with a full range of fi nancial instruments

and enable the clients to use and invest in the full

range of fi nancial instruments,

− development and offer of the highest level of

individual and institutional asset management and

corporate fi nance services.

Finance and Process Support Division:

− automation and rationalisation of support

processes,

− connection of all information systems to central

registers and code tables,

− migration of VISA card transaction processing to

the processing centre.

Information Technology Division:

− continuous provision of an available,

comprehensive, secure and user friendly

information and technology support for all

banking operations and other processes,

− maintenance and management of real estate

owned by the bank including investments in

tangible fi xed assets, intangible assets and

general operations,

− we plan to develop the core of the information

system ourselves, and the remaining projects

in conjunction with our strategic partners and

through outsourcing,

− continuation of automation and rationalisation of

business operations,

− development of new products and expansion of

new sales channels.

Marketing and Public Relations:

− in the fi eld of marketing communication in

accordance with our strategy we plan to largely

emphasise communication which will be directed

towards obtaining new clients and holders of

new personal accounts, for new clients as well

as existing loyal clients we intend to encourage

loyalty to Abanka by providing a wide selection of

fi nancial services and sales channels,

− public relations – in accordance with the valid

strategy we intend to actively operate in the fi eld

of information and communication with various

important public and ensure a good reputation

and representation of fi nancial services provided

by Abanka,

− media relations – we intend to continue with

proactive relations, which involve precise, correct

and timely answers to journalists' questions,

forward information to journalists through

public messages, interviews with our experts,

discussions and meetings with journalists, and

measure the media response with the help of a

semi-annual analysis of media publications,

− client relations – to support commercial activity,

product marketing and a focus on personal

relationships with clients we intend to organise

various educational and social events,

− fi nancial relations – there will be an emphasis on

the legally defi ned informing of the public,

− internal public relations – in cooperation with

Personnel Management we intend to prepare a

motivational programme for our employees that

will improve organisational culture in order to

further support the bank's strategic objectives,

− corporate image – we will complete the corporate

imaging of our subsidiaries,

− sponsorship and donations – in accordance

with the bank’s strategy we intend to direct the

sponsorship towards the support of the bank's

business operations, and the donations towards

socially responsible activities at both the local and

wider level.



Personnel Policy:

− the best use of internal human resources, with

which we will achieve the established business

objectives,

− meeting personnel requirements through internal

and external sources,

− the possibility of promotion of the best internal

personnel to key management and expert

positions,

− development and training of employees aimed

at delivering the necessary knowledge and skills

through different educational forms and at the

workplace,

− wages corresponding to the banking sector and

the labour market,

− expected bonuses in non-cash form.

FINANCIAL GOALS OF ABANKA IN 2008

Abanka wishes to achieve the following fi nancial

goals in 2008:





− ROE after tax: 10.8%,

− CIR: 49.8%,

− Capital adequacy ratio: 11.7%,

− Employees at end of 2008: 895.



Social responsibility

In each partnership, one has to learn to listen in order to understand.

Understanding entails respect. This is the measure

of the greatness of spirit.



At Abanka, we act out our responsibility to the

wider and local social environment in which

we work and live in part through donations

and sponsorships. We strive for good mutual

relations, support the development of various

sporting, cultural and educational associations

and organisations and provide the opportunity

to carry out different events. With humanitarian

donations we assist those who are less fortunate

and stimulate consciousness for tolerance and

compassion.

In this way we live out the corporate values to which

we are bound in our operations and we fulfi l our

mission of long-term partner relationships.

Shocked by the 2007 natural disaster in Železniki,

we cancelled the purchase of New Year’s business

gifts and the printing of greeting cards and

dedicated these resources to the Železniki Health

Centre, which was completely destroyed during

the autumn fl oods. The traditional humanitarian

New Year's donation was given to the Oncological

Institute in Ljubljana for the purchase of micro-

surgery equipment needed in the new sections of

the institute.

A portion of our funds went to artistic events and to

events that help to preserve the Slovenian cultural

heritage or help to increase Slovenia's recognition.

We gave fi nancial support to the 14th ‘The days of

Slovenian information technology’ conference, the

34th annual European fi nancial association EFA and

the International ‘European Union 2020: united and

unifi ed’ conference in the scope of the strategic

forum Bled, the 4th conference of the Slovenian

Corporate Treasurer Association, the 26th Lace

making Festival in Idria, the Biblical Festival in

Maribor, Veronica’s evening, the Gala Concert by

radio Ognjišče and attended the 15th December

concert, which is the main source of income

for the Gallus Foundation, which looks after the

development of musically talented individuals.

We also donated to the Franc Rozman Stane

Establishment, which works in the fi eld of social

and humanitarian activities and health care for war

veterans, victims of war violence, war invalids and

preserves the historical heritage and valuables

of domestic resistance and defence. Further

contributions were made to the construction of the

General Maistr Memorial Park, a memorial to the

people who fought in the battle for the northern

border, supported the establishment of the High

School Centre and the development of higher

education in the Goriška region, Higher Education

and Research Centre of Primorska, helped with the

construction of the Waldorf school in Ljubljana and

contributed to the Hospic association, who support

the terminally ill and their relatives.

We also supported various sporting activities.

Specifi cally, we supported the Radenska Open

tennis tournament, the activities of the Naklo

association, the Ljubljana Marathon, Triglav Alpine

skiing club, Perutnina Ptuj and Lenart cycling clubs,

Kranjska Gora basketball club, Novo mesto ladies’

handball club and others.



Organisational

structure

Creativity is not born out of the chaos of

spontaneous inspiration. It lies hidden

in premeditated moves, orderly thought

and elaborate work organisation.



ORGANISATIONAL CHART AND ABANKA VIPA GROUP

Bank’s organisational chart as at 31 December 2007

Abanka Vipa Group

ABANKA VIPA GROUP

Abančna DZU

99.00%

Afaktor

100.00%

Argolina

100.00%

Aleasing

100.00%

Vogo leasing

100.00%

Analožbe

100.00%

Delniški Evropa

Vipa Invest

25.54%

KDSPV1

33.33%

ASA Abanka

leasing

49.00%

Associated Company Joint Venture CompanySubsidiary

CORPORATE BANKING

DIVISION

LARGE CORPORATES

SMEPAYMENT

INSTRUMENTS

INVESTMENT

BANKING

PLANNING, ANALYSES

AND CONTROLLINGLEGAL

INFORMATION

DEVELOPMENTGENERAL SERVICES

MARKETING TREASURY ACCOUNTING PERSONNELINFORMATION

TECHNOLOGYCORPORATE BANKING

BRANCH NETWORK

DIVISION

FINANCIAL MARKETS

DIVISION

FINANCE AND PROCESS

SUPPORT DIVISION

GENERAL SERVICES

DIVISION

INFORMATION

AND BANKING

TECHNOLOGY DIVISIONPRIMORSKA DIVISION

MARIBOR REGIONAL

OFFICE

KRANJ REGIONAL

OFFICE

KOPER REGIONAL

OFFICE

CELJE REGIONAL

OFFICE

NOVO MESTO

REGIONAL

OFFICE

LJUBLJANA REGIONAL

OFFICE

INTERBANK

RELATIONS

CENTRAL PROCESS

SUPPORTGENERAL SERVICES

MANAGEMENT

BOARD

NOVA GORICA REGIONAL

OFFICEPAYMENTS

INTERNAL AUDIT

SECRETARIAT RISK MANAGEMENT

CUSTODY AND

ADMINISTRATIVE

SERVICES

TREASURY AND

INVESTMENT BANKING

MIDDLE OFFICE



Bank’s organisational chart as at 1 January 2008

In January 2008 a new Abanka organisational

structure entered into force representing a response

to increasing competition in the Slovenian banking

sector. The objective of the Abanka reorganisation

was to introduce modern organisational solutions

and best banking practices, which will structure the

bank to primarily enable the following objectives: to

complete the strategic objectives in their entirety, a

more effective and rational business operation and

to remain competitively effi cient.

The matrix organisation of the bank’s subsidiaries

and regional offi ces is also of important note.

MANAGEMENT

BOARD

INTERNAL AUDIT

MARKETING AND PUBLIC

RELATIONSRISK MANAGEMENT

CUSTODY AND

ADMINISTRATIVE SERVICES

DEVELOPMENT DIVISIONCOMMERCIAL BANKING

DIVISION

FINANCIAL MARKETS

DIVISION

FINANCE AND PROCESS

SUPPORT DIVISION

INFORMATION

TECHNOLOGY

DIVISION

LEGAL AND COMPLIANCE PERSONNEL

DEVELOPMENT AND

BANKING TECHNOLOGYLARGE CORPORATES TREASURY ACCOUNTING

INFORMATION

TECHNOLOGY

DEVELOPMENT

ORGANISATION AND

PROCESS MANAGEMENTSME INVESTMENT BANKING

FINANCIAL CONTROLLING

AND REPORTING

INFORMATION

TECHNOLOGY AND

GENERAL SERVICES

RETAIL COORDINATION

CORPORATE OPERATIONS

INTERBANK RELATIONS CENTRAL BANK OFFICE

BANKING OPERATIONS

TREASURY AND

INVESTMENT BANKING

MIDDLE OFFICE

LJUBLJANA REGIONAL

OFFICE

MARIBOR

REGIONAL OFFICE

NOVA GORICA REGIONAL

OFFICE

KRANJ

REGIONAL OFFICE

KOPER

REGIONAL OFFICE

CELJE REGIONAL OFFICE

NOVO MESTO REGIONAL

OFFICE



SENIOR MANAGEMENT

THE MANAGEMENT BOARD M.Sc. Aleš Žajdela President of the Management Board

Gregor Hudobivnik Member of the Management Board

M.Sc. Radovan Jereb Member of the Management Board

Marketing and Public Relations Nina Intihar Director of Marketing and Public Relations

Internal Audit Klavdija Markič Director of Internal Audit

Risk Management M.Sc. Kristijan Hvala Director of Risk Management

Custody and Administrative Services Jasmin Furlan Director of Custody and Administrative Services

Legal and Compliance Tomaž Marinček Director of Legal and Compliance

Personnel M.Sc. Alenka Sabadin Director of Personnel

DEVELOPMENT DIVISION Ph.D. Franc Bračun Division Executive Director

Matjaž Mušič Director of Development and Banking Technology

M.Sc. Andrej Grobler Director of Organisation and Process Management

COMMERCIAL BANKING DIVISION Vanja Jeraj Markoja Division Executive Director

Barbara Jagodič Director of Large Corporates

Zvonka Črmelj Director of SME

Julija Šušmelj Stevanovič Director of Retail Coordination

Eva Janžek Director of Ljubljana Regional Office and Assistant to the

Executive Director

Marijana Cvetko Director of Maribor Regional Office

Davorina Mrevlje Director of Nova Gorica Regional Office

Tatjana Ahačič Director of Kranj Regional Office

Branko Hočevar Director of Koper Regional Office

Nada Jurko Director of Celje Regional Office

M.Sc. Janja Horvat Jaklič Director of Novo mesto Regional Office

FINANCIAL MARKETS DIVISION M.Sc. Boštjan Herič Division Executive Director

M.Sc. Sabina Župec

- Kranjc

Director of Treasury

Uroš Vejnović Director of Investment Banking

Marko Flisek Director of Interbank Relations

FINANCE AND PROCESS SUPPORT

DIVISION

Nada Mertik Division Executive Director

M.Sc. Alenka Plut Assistant to Executive Director, responsible for financial

controlling and reporting

Marko Zabukovec Director of Central Back Office

Marija Kordiš Director of Banking Operations

Irena Drčič Rojc Director of Accounting

Boštjan Rupar Director of Treasury and Investment Banking Middle Office

INFORMATION TECHNOLOGY

DIVISION

Simona Kogovšek Division Executive Director

Matej Jereb Director of Information Technology and General Services

Liljana Torkar Kogovšek Director of Information Technology Development

List of senior management, valid as at 1 March 2008.



BUSINESS NETWORK

Abanka operates in seven regional offices, distributed around Slovenia.

List of Abanka’s regional offices and branches

BRANCH NETWORK DIVISION

Ljubljana regional office

Branch office Slovenska 50 Slovenska 50 Ljubljana

Branch office Šiška Celovška 106 Ljubljana

Branch office Pražakova Kolodvorska 9 Ljubljana

Branch office Bežigrad Dunajska 48 Ljubljana

Branch office Trubarjeva Trubarjeva 65 Ljubljana

Detached desk Loterija Slovenije Gerbičeva 99 Ljubljana

Branch office Smelt Dunajska 160 Ljubljana

Branch office Vič Tržaška 87 Ljubljana

Agency Logatec Notranjska 4 Logatec

Novo mesto regional office

Branch office Novo mesto Rozmanova 40 Novo mesto

Branch office Krško Cesta krških žrtev 135 B Krško

Kranj regional office

Branch office Kranj Nazorjeva 1 Kranj

Branch office Jesenice Maršala Tita 39 A Jesenice

Branch office Tržič Cankarjeva 1 A Tržič

Maribor regional office

Branch office Maribor I Glavni trg 18 Maribor

Branch office Maribor II Cankarjeva 6 B Maribor

Branch office Maribor III Kardeljeva 61 Maribor

Branch office Murska Sobota Kocljeva 16 Murska Sobota

Branch office Ptuj Osojnikova 9 Ptuj

Branch office Slovenj Gradec Rankova 4 A Slovenj Gradec

Detached desk Prevalje Trg 12 Prevalje

Agency Tezno Ptujska 95 Maribor

Celje regional office

Branch office Celje I Aškerčeva 10 Celje

Branch office Celje II Miklošičeva 1 Celje

Branch office Žalec Šlandrov trg 28 Žalec

Branch office Velenje Kersnikova 1 Velenje

Koper regional office

Branch office Koper Ferrarska 12 Koper

Agency Lucija Obala 112 Lucija

Detached desk Casino Portorož Obala 75 A Portorož

Agency Izola Sončno nabrežje 6 Izola

Branch office Sežana Partizanska 41 Sežana

Detached desk Casino Lipica Lipica 5 Lipica



PRIMORSKA DIVISION

Nova Gorica regional office

Branch office Nova Gorica Erjavčeva Erjavčeva 2 Nova Gorica

Branch office Šempeter pri Gorici C. Prekomorskih brigad 2c Šempeter

Branch office Nova Gorica Kidričeva Kidričeva 18 Nova Gorica

Branch office Ajdovščina Goriška 25 A Ajdovščina

Branch office Idrija Lapajnetova 47 Idrija

Branch office Tolmin Mestni trg 5 Tolmin

Detached desk Kobarid Markova 16 Kobarid

Agency Postojna Gregorčičev drevored 2 B Postojna

Business network table, valid as at 31 December 2007.



The objective view is only one. It is the ability to

discern the smallest parts of the whole from an

appropriate distance. Only few, however, are

endowed with this faculty.

CONSOLIDATED FINANCIAL

STATEMENTS OF THE ABANKA VIPA

GROUP


A B A N K A A N N U A L R E P O R T 2 0 0 764



The Management of the Bank confi rms the fi nancial statements of ABANKA VIPA GROUP for the year ended 31 December, 2007

(pages 67 through 73 of Consolidated fi nancial statements), the applied accounting policies, and the notes to the fi nancial statements

(pages 74 through 165 of the Consolidated fi nancial statements).

The Management of the Bank is responsible for the preparation of the Consolidated fi nancial statements which give a true and fair

view of the fi nancial position of the Group as at 31 December, 2007 and the results of its operations for the year then ended.

The Management of the Bank confi rms that the accepted accounting policies have been used on a consistent basis and that the

accounting estimates have been made in compliance with the principle of prudence. The management of the Bank also confi rms

that the consolidated fi nancial statements have been prepared under the assumption of a going concern and in compliance with the

relevant legislation and International Financial Reporting Standards as adopted by the EU.

The management is also responsible for proper management of accounting, for taking appropriate measures to protect the Group's

assets and to prevent and discover fraud, other irregularities or illegal acts.

The tax authorities may inspect the books and records at any time within 5 years subsequent to the reported tax year, and may

impose additional tax assessments and penalties. The Bank's management is not aware of any circumstances which may give rise

to a potential material liability in this respect.

Ljubljana, 26 March 2007

Radovan JEREB, M.Sc.Econ. Gregor HUDOBIVNIK Aleš ŽAJDELA, M.Sc.

Member of the Management Board Member of the Management Board President of the Management Board

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES



Page

Consolidated income statement 67

Consolidated balance sheet 68

Consolidated statement of changes in equity 70

Consolidated cash fl ow statement 72

Notes to the consolidated fi nancial statements 74

1 Summary of signifi cant accounting policies: 74

1.1 Basis of presentation 74

1.2 Consolidation 75

1.3 Segment reporting 76

1.4 Foreign currency translation 76

1.5 Financial assets 76

1.6 Offsetting fi nancial instruments 78

1.7 Derivative fi nancial instruments 78

1.8 Interest income and expense 78

1.9 Fee and commission income 78

1.10 Dividend income 79

1.11 Impairment of fi nancial assets 79

1.12 Property and equipment, intangible

assets and investment property 80

1.13 Impairment of non-fi nancial assets 81

1.14 Leases 81

1.15 Cash and cash equivalents 82

1.16 Provisions 82

1.17 Financial guarantee contracts 82

1.18 Employee benefi ts 82

1.19 Taxation 83

1.20 Borrowings 83

1.21 Share capital 84

1.22 Managed funds 84

1.23 Fiduciary activities 84

1.24 Sale and repurchase agreements 84

1.25 Equity component of compound fi nancial

instruments 85

1.26 Comparatives 85

2 Risk management 86

3 Critical accounting estimates, and judgements in applying

accounting policies 128

4 Segment analyses 129

5 Net interest income 133

6 Dividend income 133

7 Net fee and commission income and expenses 134

8 Realised gains and losses on fi nancial assets and liabilities

not measured at fair value through profi t and loss 134

9 Net gains on fi nancial assets and liabilities held for trading 135

CONSOLIDATED FINANCIAL STATEMENTS

Index to the consolidated fi nancial statements

Page

10 Net gains/losses on fi nancial assets and liabilities

designated at fair value through profi t or loss 135

11 Net other operating income 135

12 Administration cost 136

13 Depreciation 136

14 Provisions 136

15 Impairment 137

16 Income tax expense 137

17 Earnings per share 138

18 Cash and cash balances with central bank 138

19 Financial assets and liabilities held for trading 139

20 Financial assets designated at fair value through profi t

or loss 140

21 Available-for-sale fi nancial assets 141

22 Loans to and receivables from banks 142

23 Loans to and receivables from non-bank customers 143

24 Held-to-maturity investments 144

25 Property and equipment, intangible assets, investment

property and non-current assets and disposal groups

classifi ed as held for sale 145

26 Investments in associates and joint ventures 147

27 Other assets 148

28 Financial liabilities designated at fair value through profi t

or loss 149

29 Deposits from banks and non-bank customers 149

30 Loans and advances from banks and non-bank

customers 150

31 Debt instruments 151

32 Subordinated liabilities 151

33 Repurchase agreements 152

34 Provisions 152

35 Deferred income tax 153

36 Other liabilities 154

37 Basic equity, share premium and treasury shares 155

38 Equity component of compound fi nancial instruments 156

39 Reserves from profi t (including retained earnings) and

revaluation reserves 156

40 Dividends per share 158

41 Cash and cash equivalents 158

42 Contingent liabilities and commitments 158

43 Managed funds 159

44 Other items in Cash fl ow statement 160

45 Related party transactions 160

46 Subsidiaries 162

47 Acquisitions and disposals 162

48 Post balance sheet events 164



The notes on pages 74 to 165 are an integral part of these consolidated fi nancial statements.

AMOUNT

Ser.

No. ITEM DESCRIPTION NOTE

Year ended 31 December

2007 2006

1 2 3 4

1 Interest income and similar income 5 159,638 123,754

2 Interest expenses and similar expenses 5 (92,456) (68,490)

3 Net interest income (1 - 2) 67,182 55,264

4 Dividend income 6 1,644 2,020

5 Fee and commission income 7 39,695 38,412

6 Fee and commission expenses 7 (6,257) (5,627)

7 Net fee and commission income (5 - 6) 33,438 32,785

8 Realised gains and losses on financial assets and liabilities not measured

at fair value through profit and loss 8 6,884 2,069

9 Net gains and losses on financial assets and liabilities held for trading 9 83 15,470

10 Net gains and losses on financial assets and liabilities designated at fair

value through profit or loss 10 (260) –

11 Exchange differences 2,834 (1,226)

12 Gains and losses on derecognition of assets other than held for sale (122) 393

13 Net other operating income 11 4,747 2,292

14 Administration costs 12 (50,584) (46,091)

15 Depreciation 13 (6,659) (8,296)

16 Provisions 14 (293) 1,406

17 Impairment 15 (11,127) (18,995)

18 Share of the profit or loss of associates and joint ventures accounted for

using the equity method (61) –

19 Total profit or loss from non-current assets and disposal groups classified

as held for sale 6 488

20 TOTAL PROFIT OR LOSS BEFORE TAX FROM CONTINUING

OPERATIONS

(3 + 4 + 7 + 8 +9 +10 + 11 + 12 + 13 - 14 - 15 - 16 - 17 + 18 +19) 47,712 37,579

21 Tax expense (income) related to profit or loss from continuing operations 16 (10,902) (9,963)

22

TOTAL PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS

(20 - 21) 36,810 27,616

23 NET PROFIT OR LOSS for the financial year (22) 36,810 27,616

a) Profit or loss attributable to equity holders of the parent 36,799 27,612

b) Profit or loss attributable to minority interest 11 4

24 Basic earnings per share 17 5.68 5.03

25 Diluted earnings per share 17 5.68 5.03

Management Board


Member Member President

Consolidated income statement

(All amounts in EUR thousand unless otherwise stated)



Consolidated balance sheet


Item


AMOUNT

As at 31 December

2007 2006

1 2 3 4

1 Cash and cash balances with central bank 18 60,456 117,817

2 Financial assets held for trading 19 183,543 165,495

3 Financial assets designated at fair value through profit or loss 20 25,063 –

4 Available-for-sale financial assets 21 486,117 498,233

5 Loans and receivables 2,620,990 2,008,450

- loans and receivables to banks 22 236,202 179,398

- loans and receivables to non-bank customers 23 2,384,788 1,829,052

6 Held-to-maturity investments 24 13,308 13,958

7 Non-current assets and disposal groups classified as held for sale 25 1,427 544

8 Property and equipment 25 51,845 49,711

9 Investment property 25 144 368

10 Intangible assets 25 4,535 5,056

11 Investments in associates and joint ventures 26 1,001 8

12 Tax assets 3,304 3,431

- current tax assets 53 80

- deferred tax assets 35 3,251 3,351

13 Other assets 27 65,341 33,875

14 TOTAL ASSETS (from 1 to 13) 3,517,074 2,896,946





Item


AMOUNT

As at 31 December

2007 2006

1 2 3 4

15 Deposits from central bank 26 –

16 Financial liabilities held for trading 19 8,077 413

17 Financial liabilities designated at fair value through profit or loss 28 8,386 –

18 Financial liabilities measured at amortised cost 2,945,161 2,612,651

- deposits from banks 29 76,692 108,178

- deposits from non-bank customers 29 1,724,359 1,524,326

- loans and advances from banks 30 955,247 584,922

- loans and advances from non-bank customers 30 330 176,918

- debt instruments 31 134,772 152,813

- subordinated liabilities 32 53,761 65,494

19 Financial liabilities associated to transferred assets 33 123,887 –

20 Provisions 34 23,752 24,342

21 Tax liabilities 5,507 7,888

- current tax liabilities 1,238 3,120

- deferred tax liabilities 35 4,269 4,768

22 Other liabilities 36 49,096 39,597

23 TOTAL LIABILITIES (from 15 to 22) 3,163,892 2,684,891

24 Basic equity 37 22,951 22,951

25 Share premium 37 58,062 57,994

26 Equity component of compound financial instruments 38 117,539 –

27 Revaluation reserves 39 7,260 7,747

28 Reserves from profit (including retained earnings) 39 121,001 99,032

29 Treasury shares 37 (254) (267)

30 Income from current year 39 26,586 24,548

31 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENT (from 24 to 30) 353,145 212,005

32 Minority interest 47 37 50

33 TOTAL EQUITY (31 + 32) 353,182 212,055

34 TOTAL LIABILITIES AND EQUITY (23 + 33) 3,517,074 2,896,946

These fi nancial statements have been approved for issue by the Management Board on 26 March, 2008 and signed on its behalf by:

Management Board





Consolidated statement of changes in equity for the

reporting period ended 31 December 2007

Consolidated statement of changes in equity for the

reporting period ended 31 December 2006

Item

Code ITEM DESCRIPTION NOTE

Basic

equity

Share

premium

1 2 3 4

1 OPENING BALANCE FOR THE REPORTING PERIOD 22,951 57,994

Prior period errors 39

1 RESTATED OPENING BALANCE FOR THE REPORTING PERIOD 22,951 57,994

2 Net gains/losses in revaluation reserves from financial assets available for sale 39

3 Total gains/losses after tax recognised directly in equity - revaluation

reserves (2) – –

4 Net profit or loss for the financial year (from income statement) 39

5 Net profit or loss for the financial year recognised in equity (3 + 4) – –

6 Appropriation of (accounting for) dividends/rewards in form of shares 37, 45 68

7 Appropriation of (accounting for) dividends, of interests from innovative

instrument 40, 38

8 Transfer of net profit to reserves from profit 39

9 Covering of the loss brought forward 39

10 Issue of innovative instrument 38

11 Other 39, 47

12 CLOSING BALANCE FOR THE REPORTING PERIOD 22,951 58,062


Item

Code ITEM DESCRIPTION NOTE

Basic

equity

Share

premium

1 2 3 4

1 OPENING BALANCE FOR THE REPORTING PERIOD 22,951 57,994

Change of accounting policy of the subsidiary 39

1 RESTATED OPENING BALANCE FOR THE REPORTING PERIOD 22,951 57,994

2 Net gains/losses in revaluation reserves from financial assets available for sale 39

3 Total gains/losses after tax recognised directly in equity - revaluation

reserves (2) – –

4 Net profit or loss for the financial year (from income statement) 39

5 Net profit or loss for the financial year recognised in equity (3 + 4) – –

6 Appropriation of (accounting for) dividends 40

7 Transfer of net profit to reserves from profit 39

8 Other 39, 47

9 CLOSING BALANCE FOR THE REPORTING PERIOD 22,951 57,994


Management Board






Equity

component

of

compound

financial

instruments

Revaluation

reserves

Reserves

from

profit

Retained

earnings

or loss

Treasury

shares

(capital

deduction

item)

Income

from

current

year

Minority

interest

Total

equity

5 6 7 8 9 10 11 12

– 7,747 90,675 8,357 (267) 24,548 50 212,055

(1,617) (1,617)

– 7,747 90,675 6,740 (267) 24,548 50 210,438

(487) (487)

– (487) – – – (487)

36,799 11 36,810

– (487) – – – 36,799 11 36,323

13 81

(5,541) (5,630) (11,171)

21,949 5,541 (27,514) (24)

1,617 (1,617) −

117,539 117,539

20 (24) (4)

117,539 7,260 112,644 8,357 (254) 26,586 37 353,182

Equity

component

of

compound

financial

instruments

Revaluation

reserves

Reserves

from

profit

Retained

earnings

or loss

Treasury

shares

(capital

deduction

item)

Income

from

current

year

Minority

interest

Total

equity

5 6 7 8 9 10 11 12

– 5,440 75,823 11,471 (267) 18,221 429 192,062

(2,970) (2,970)

– 5,440 75,823 8,501 (267) 18,221 429 189,092

2,307 2,307

– 2,307 – – – 2,307

27,612 4 27,616

– 2,307 – – – 27,612 4 29,923

(5,037) (5,037)

16,340 4,945 (21,285) −

(1,488) (52) (383) (1,923)

– 7,747 90,675 8,357 (267) 24,548 50 212,055



Consolidated cash fl ow statement


Desig-

nation ITEM DESCRIPTION NOTE

AMOUNT


2007 2006

1 2 3 4

A. CASH FLOWS FROM OPERATING ACTIVITIES

a) Total profit or loss before tax 47,712 37,579

Depreciation 13 6,659 8,296

Impairments of tangible assets, investment property, intangible fixed assets and

other assets 15 – 692

Share of the profit or loss of associates and joint ventures accounted for using

the equity method 26 61 –

Net (gains) / losses from exchange differences (2,834) 1,226

Net (gains) / losses from financial assets held to maturity 42 –

Net (gains) / losses from sale of tangible assets and investment properties 15 (7)

Net (gains) / losses from sale of intangible fixed assets 107 –

Other (gains) / losses from investing activities 44 (2,233) (487)

Other (gains) / losses from financing activities 44 3,113 –

Unrealised (gains) / losses from financial assets measured at fair value that are

component of cash equivalents – (49)

Net unrealised gains in revaluation reserves from financial assets available for

sale (excluding effect of deferred tax) 845 (2,510)

Other adjustments to total profit or loss before tax 44 273 (1,414)

Cash flow from operating activities before changes in operating assets

and liabilities 53,760 43,326

b) (Increases) / decreases in operating assets (excl. cash & cash

equivalents) (689,517) (467,657)

Net (increase) / decrease in balances with central bank (5,165) 774

Net (increase) / decrease in financial assets held for trading (14,646) (42,602)

Net (increase) / decrease in financial assets designated at fair value through

profit or loss (25,063) –

Net (increase) / decrease in financial assets available for sale (67,955) (118,860)

Net (increase) / decrease in loans and receivables (545,281) (306,733)

Net (increase) / decrease in non-current assets held for sale 39 371

Net (increase) / decrease in other assets (31,446) (607)

c) (Increases) / decreases in operating liabilities 501,897 355,986

Net increase / (decrease) in financial liabilities to central bank 29 –

Net increase / (decrease) in financial liabilities held for trading 7,808 (323)

Net increase / (decrease) in financial liabilities designated at fair value through

profit or loss 8,386 –

Net increase / (decrease) in deposits, loans and receivables measured at

amortised cost 491,483 321,760

Net increase / (decrease) in debt instruments in issue measured at amortised

cost (18,058) 20,921

Net increase / (decrease) in other liabilities 12,249 13,628

č) Cash flow from operating activities (a+b+c) (133,860) (68,345)

d) Income taxes (paid) refunded (11,738) (10,192)

e) Net cash flow from operating activities (č+d) (145,598) (78,537)





Desig-

nation ITEM DESCRIPTION NOTE

AMOUNT


2007 2006

1 2 3 4

B. CASH FLOWS FROM INVESTING ACTIVITIES

a) Receipts from investing activities 68,401 1,751

Receipts from the sale of tangible assets and investment properties 2,861 535

Receipts from non-current assets or liabilities held for sale 6 784

Receipts from the redemption of financial assets held to maturity 64,699 432

Other receipts from investing activities 835 –

b) Cash payments on investing activities (75,933) (36,521)

(Cash payments to acquire tangible assets and investment properties) (8,314) (19,890)

(Cash payments to acquire intangible fixed assets) (1,738) (2,019)

(Cash payment for the investment in subsidiaries, associates and joint ventures) (993) (469)

(Cash payments to acquire held to maturity investments) (64,888) (14,143)

c) Net cash flow from investing activities (a-b) (7,532) (34,770)

C. CASH FLOWS FROM FINANCING ACTIVITIES

a) Cash proceeds from financing activities 120,068 11,351

Cash proceeds from subordinated liabilities issued – 11,351

Cash proceeds from issuing shares and other equity instruments 38 120,000 –

Cash proceeds from the sale of treasury shares 68 –

b) Cash payments on financing activities (27,752) (16,360)

(Dividends paid) 40 (5,541) (5,037)

(Cash repayments of subordinated liabilities) (14,119) (11,323)

(Other cash payments related to financial activities - innovative instrument) 38 (8,092) –

c) Net cash flow from financing activities (a-b) 92,316 (5,009)

D. Effects of change in exchange rates on cash and cash equivalents 1,055 2,966

E. Net increase in cash and cash equivalents (Ae+Bc+Cc) (60,814) (118,316)

F. Opening balance of cash and cash equivalents 323,498 438,848

G. Closing balance of cash and cash equivalents (D+E+F) 41 263,739 323,498


Management Board





1 Summary of signifi cant accounting policies

The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below:

1.1 Basis of presentation

The consolidated fi nancial statements of Abanka Group have been prepared in accordance with EU International Financial Reporting

Standards (IFRS). The consolidated fi nancial statements have been prepared under the historical cost convention, as modifi ed by

the revaluation of available-for-sale fi nancial assets, held for trading fi nancial assets and all derivative contracts.

The scope of information and notes included in the Annual Report of the Group at least equals the scope required by the Companies

Act (ZGD-1), EU IFRS and the Decision on the Books of Account and Annual Reports of (Savings) Banks.

The preparation of fi nancial statements in conformity with EU IFRS requires the use of certain critical accounting estimates. It

also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. Areas involving a

higher degree of judgment or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial

statements, are disclosed in Note 3.

(a) Amendments to published standards and interpretations effective 1 January, 2007

The application of the amendments and interpretations listed below did not result in substantial changes to the Group’s accounting

policies:

• IAS 1 (Amendment) – Capital disclosures (effective 1 January, 2007);

• IFRS 7, Financial instruments: Disclosures (effective 1 January, 2007);

• IFRIC 7, Applying the Restatement Approach under IAS 29 (effective 1 March, 2006);

• IFRIC 8, Scope of IFRS 2 (effective 1 May, 2006);

• IFRIC 9, Reassessment of embedded derivative (effective 1 June, 2006);

• IFRIC 10, Interim Financial Reporting and Impairment (effective 1 November, 2006);

• Revised guidance on implementing IFRS 4, ‘Insurance contracts’.

IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements –

Capital Disclosures (effective from 1 January, 2007): IFRS 7 introduces new disclosures to improve the information about fi nancial

instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from fi nancial

instruments, including specifi ed minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis

to market risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure

requirements in IAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under IFRS. The

amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group has applied

IFRS 7 and the amendment to IAS 1 from annual periods beginning 1 January 2007.

IFRIC 8, ‘Scope of IFRS 2’, requires consideration of transactions involving the issuance of equity instruments, where the identifi able

consideration received is less than the fair value of the equity instruments issued in order to establish whether or not they fall within

the scope of IFRS 2. This standard does not have any impact on the Group’s fi nancial statements.

The application of the IFRIC 7, IFRIC 9, IFRIC 10 and Revised guidance on implementing IFRS 4 have not affected the signifi cant

accounting policies of the Group’s fi nancial statements.

(b) Standards, interpretations and amendments issued but not yet effective

The Group has chosen not to early adopt the following standards and interpretations that have been issued but which do not yet

take effect for accounting periods beginning on 1 January 2007:

• IFRS 8, Operating Segments (effective 1 January 2009);

• IFRIC 11, IFRS 2 – Group Treasury Share Transactions (effective 1 March 2007);

• IFRIC 12, Service Concession Arrangements (effective 1 January 2008);

Notes to the consolidated fi nancial statements



• IFRIC 13, ‘Customer loyalty programmes’ (effective from 1 July 2008);

• IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1 January 2009);

• IFRIC 14, ‘IAS 19 – The limit on a defi ned benefi t asset, minimum funding requirements and

their interaction’ (effective from 1 January 2008).

The application of the other new interpretations mentioned above will not affect the valuation of items in the Group’s fi nancial

statements, but will affect their presentation and disclosure.

1.2 Consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the fi nancial and operating policies accompanying a

shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable

or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from

the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is

measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange,

plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities assumed in

a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority

interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifi able net assets acquired is

recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference

is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised

losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Where necessary, the

accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

(b) Transactions and minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.

Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from

minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the

carrying value of net assets of the subsidiary.

(c) Associates

Associates are all entities in which the Group has between 20% and 50% of the voting rights, and over which the Group has

signifi cant infl uence, but which it does not control. Investments in associates are accounted for by the equity method of accounting

and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment

loss) identifi ed on acquisition.

The Group’s share of the post-acquisition profi ts or losses of associates is recognised in the income statement, and its share of

post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against

the carrying amount of the investment.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the

associates; unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group. When

the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further

losses unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s principal

associated undertakings is shown in Note 26.

Notes to the consolidated fi nancial statements (continued)



(d) Joint ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint

control, whereby the standard identifi es three broad types—jointly controlled operations, jointly controlled assets and jointly

controlled entities.

Each venturer usually contributes cash or other resources to the jointly controlled entity. These contributions are included in the

accounting records of the venturer and recognised in its fi nancial statements as an investment in the jointly controlled entity.

An investor recognises its interest in a jointly controlled entity using equity method, whereby an interest in a jointly controlled entity

is initially recorded at cost. The Group’s share of the post-acquisition profi ts or losses of joint ventures is recognised in the income

statement, and increases or decreases the carrying amount of the investment.

A listing of the Group’s principal joint ventures undertakings is shown in Note 26.

1.3 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and

returns that are different from those of other business segments. A geographical segment is engaged in providing products or

services within a particular economic environment that are subject to risks and returns different from those of segments operating

in other economic environments.

1.4 Foreign currency translation

(a) Functional and presentation currency

The consolidated fi nancial statements are presented in euros, which is the entity’s functional and presentation currency. On 1

January, 2007 Slovenia adopted the euro as its domestic currency at a parity rate of SIT 239.64 for one euro. The Group’s fi nancial

statements were prepared by taking into account SIC-7 requirements.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-

end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Changes in the fair value of monetary securities denominated in foreign currency classifi ed as available-for-sale are analysed between

translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the

security. Translation differences related to changes in the amortised cost are recognised in profi t or loss, and other changes in the

carrying amount are recognised in equity.

Translation differences on non-monetary items, such as equities held at fair value through profi t or loss, are reported as part of

the fair value gain or loss. Translation differences on non-monetary items, such as equities classifi ed as available-for-sale fi nancial

assets, are included in the fair value reserve in equity.

1.5 Financial assets

The Group classifi es its fi nancial assets in the following categories: fi nancial assets at fair value through profi t or loss; loans and

receivables; held-to-maturity investments; and available-for-sale fi nancial assets. Management determines the classifi cation of its

investments at initial recognition.

(a) Financial assets at fair value through profi t or loss

This category has two sub-categories: fi nancial assets held for trading, and those designated at fair value through profi t or loss

at inception. A fi nancial asset is classifi ed as held for trading if it is acquired or incurred principally for the purpose of selling or

repurchasing in the near term or if it is part of a portfolio of identifi ed fi nancial instruments that are managed together and for which




there is evidence of a recent actual pattern of short-term profi t-taking. Derivatives are also categorised as held for trading unless

they are designated as hedging instruments.

Financial assets and fi nancial liabilities are designated at fair value through profi t or loss when:

- Doing so signifi cantly reduces measurement inconsistencies that would arise if the related instruments were classifi ed in different

groups of fi nancial instruments and therefore valued differently;

- Financial instruments, containing one or more embedded derivatives which signifi cantly modify the cash fl ows, are designated at

fair value through profi t and loss;

- Certain instruments, such as equity investments, that are managed and evaluated on a fair value basis in accordance with a

documented risk management or investment strategy and reported to key management personnel on that basis are designated

at fair value through profi t and loss.

(b) Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active

market, other than: (a) those that the entity intends to sell immediately or in the short term, which are classifi ed as held for trading,

and those that the entity upon initial recognition designates as at fair value through profi t or loss; (b) those that the enity upon initial

recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment,

other than because of credit deterioration.

(c) Held-to-maturity fi nancial assets

Held-to-maturity investments are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that the

Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignifi cant

amount of held-to-maturity assets, the entire category would be reclassifi ed as available-for-sale.

(d) Available-for-sale fi nancial assets

Available-for-sale investments are those intended to be held for an indefi nite period of time, which may be sold in response to

liquidity needs or changes in interest rates, exchange rates or equity prices.

Regular way purchases and sales of fi nancial assets at fair value through profi t or loss, held-to-maturity and available-for-sale are

recognised on trade-date – the date on which the Group commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs for all fi nancial assets not carried at fair value through

profi t or loss. Financial assets carried at fair value through profi t and loss are initially recognised at fair value, and transaction costs

are expensed in the income statement. Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial

assets have expired or where the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are

derecognised when they are extinguished – that is, when the obligation is discharged, cancelled or expires.

Available-for-sale fi nancial assets and fi nancial assets at fair value through profi t or loss are subsequently carried at fair value.

Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains

and losses arising from changes in the fair value of the ‘fi nancial assets at fair value through profi t or loss’ category are included

in the income statement in the period in which they arise. Interest earned whilst holding trading securities is reported as interest

income. Dividends received are included separately in dividend income. Gains and losses arising from changes in the fair value of

available-for-sale fi nancial assets are recognised directly in equity, until the fi nancial asset is derecognised or impaired. At this time,

the cumulative gain or loss previously recognised in equity is recognised in profi t or loss. However, interest calculated using the

effective interest method and foreign currency gains and losses on monetary assets classifi ed as available-for-sale are recognised in

the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the entity’s

right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a fi nancial

asset, the Group establishes fair value using valuation techniques. These include the use of recent arm’s length transactions,

discounted cash fl ow analysis, option pricing models and other valuation techniques commonly used by market participants.




1.6 Offsetting fi nancial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable

right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability

simultaneously.

1.7 Derivative fi nancial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently

remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market

transactions, and valuation techniques, including discounted cash fl ow models and options pricing models, as appropriate. All

effects of derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (ie, the fair value of the consideration

given or received).

All derivatives of the Group are classifi ed as held for trading and do not qualify for hedge accounting. Changes in the fair value of

derivative instruments which do not qualify for hedge accounting are recognised immediately in the income statement.

1.8 Interest income and expense

Interest income and expense for all interest-bearing fi nancial instruments are recognised within ‘interest income’ and ‘interest

expense’ in the income statement using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a fi nancial asset or a fi nancial liability and of allocating

the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter period to the

net carrying amount of the fi nancial asset or fi nancial liability. When calculating the effective interest rate, the Group estimates cash

fl ows considering all contractual terms of the fi nancial instrument (for example, prepayment options) but does not consider future

credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part

of the effective interest rate, transaction costs and all other premiums or discounts.

Once a fi nancial asset or a group of similar fi nancial assets has been written down as a result of an impairment loss, interest income

is recognised using the rate of interest used to discount the future cash fl ows for the purpose of measuring the impairment loss.

1.9 Fee and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees

for loans that are likely to be drawn down are deferred (together with related direct cost) and recognised as an adjustment to the

effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and

the Group has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other

participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party

- such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses - are recognised

on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on

the applicable service contracts, usually on a time-apportionate basis. Asset management fees related to investment funds are

recognised rateably over the period in which the service is provided. The same principle is applied for wealth management, fi nancial

planning and custody services that are continuously provided over an extended period of time. Performance linked fees or fee

components are recognised when the performance criteria are fulfi lled.




1.10 Dividend income

Dividends are recognised in the income statement when the entity’s right to receive payment is established.

1.11 Impairment of fi nancial assets

(a) Assets carried at amortised cost

At each balance sheet date the Group assesses whether there is objective evidence that a fi nancial asset or group of fi nancial

assets is impaired. A fi nancial asset or a group of fi nancial assets is impaired and impairment losses are incurred only if there is

objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss

event’) and that loss event (or events) has an impact on the estimated future cash fl ows of the fi nancial asset or group of fi nancial

assets that can be reliably estimated. The Group fi rst of all estimates if there is impartial evidence of the impairment or possibility of

loss, as follows: signifi cant fi nancial diffi culties for the debtor; actual breach of contract such as a failure to repay interest, principal,

provisions; restructuring of fi nancial assets; bankrupt or undergo fi nancial reorganisation; the possibility of bankruptcy or fi nancial

reorganisation; the existence of a measurable decline in the projected cash fl ows of a group of fi nancial assets from the initial

recognition of those assets even though the decline cannot yet be allocated to a individual assets in the group, including: negative

changes when settling debts in the group or national or local economic conditions associated with the failure to settle fi nancial

assets in the group.

The estimated period between a loss occurring and its identifi cation is determined by management for each identifi ed portfolio. In

general, the periods used vary between three months and 12 months; in exceptional cases, longer periods are warranted.

The Group fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually

signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If the Group determines that no

objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset

in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that

are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a

collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future

cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original effective interest

rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised

in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any

impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash fl ows of a collateralised fi nancial asset refl ects the cash fl ows that

may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

Homogenous groups and sub-groups are created for collective assessments of debtors. These are classifi ed by credit risk

categories, which refl ect their ability to settle obligations in accordance with contractual provisions. Classifi cation into groups and

subgroups takes place according to the following criteria:

a) type of debtor,

b) debtor’s credit rating, and

c) credit rating of the fi nancial asset or contingency and commitment including off-balance sheet items for private individuals.

The companies group is classifi ed into subgroups according to the credit rating of individual debtors. Credit risk loss is calculated

for individual subgroups of companies on the basis of an aggregate (annual) credit rating migration matrix and calculation of the

average recovery rate for individual subgroups. The annual migration matrix sets out the probability of debtor transfers from one

credit group to another credit group over one year. Past experiences with losses and factors indicating the current state are taken

into account when evaluating losses.




The Group divides the fi nancial assets of individuals into subcategories according to the credit rating of the fi nancial assets.

Classifi cation of fi nancial assets of individuals is based on objective criteria (i.e. the regularity of settling liabilities to the Group). On

the basis of the credit rating of the fi nancial assets, any necessary impairments are formed.

Exposures to general government and exposures secured with best-quality collateral are not impaired, meaning provisions are not

formed against them.

The percentage of losses from credit risk for collective assesment of companies is calculated once per year, or during the year when

signifi cant changes in circumstances within the Group and/or on the market.

The Group regularly checks the methodology and assumptions used when assesing losses. Assesment of loss must be brought

into line with changes in circumstances in the Group, on the market or to legislation.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the

necessary procedures have been completed and the amount of the loss has been determined. The Group continually monitors

all overdue balances and promptly requires defaulters to settle them. When its claims remain overdue, the Group starts collection

procedures. The fi rst step is the seizure of incoming payments to accounts with the Group and the presentation of bills of exchange

for payment from the defaulter’s account with other banks. In the event overdue balances still fail to be discharged and the defaulter’s

expected future cash fl ows are too low, the Group commences collection of pledged real property and/or other procedures for the

collection of other types of collateral. As a result, the property provided as collateral is sold by the court and the proceeds used to

settle overdue balances. Until all legal remedies and other means of recovery are not exhausted, no claims are written off.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event

occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised

impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement

in impairment losses.

(b) Assets classifi ed as available-for-sale

At each balance sheet date, the Group assesses whether there is objective evidence that a fi nancial asset or a group of fi nancial

assets is impaired. In the case of equity investments classifi ed as available-for-sale, a signifi cant or prolonged decline in the fair value

of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-

for-sale fi nancial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value,

less any impairment loss on that fi nancial asset previously recognised in profi t or loss – is removed from equity and recognised in

the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the

income statement. If, in a subsequent period, the fair value of a debt instrument classifi ed as available-for-sale increases and the

increase can be objectively related to an event occurring after the impairment loss was recognised in profi t or loss, the impairment

loss is reversed through the income statement.

(c) Renegotiated loans

Loans that are either subject to collective impairment assessment or individually signifi cant and whose terms have been renegotiated

are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due

and disclosed only if renegotiated.

1.12 Property and equipment, intangible assets and investment property

Land and buildings comprise mainly investments in branches and offi ces. All property and equipment is stated at historical cost less

depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it

is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured

reliably. All other repairs and maintenance are charged to administration cost during the fi nancial period in which they are incurred.




The Group includes licences and software among its intangible assets. Intangible assets are valued at historical cost upon initial

recognition. Subsequent valuation is made using the historical cost model. In line with this valuation model, intangible assets are

recorded at the historical cost less amortisation and the accumulated impairment loss.

Investment property includes tangible assets leased out under an operating lease. Investment property is valued at historical cost

upon initial recognition. Subsequent valuation is made using the historical cost model, as for tangible assets. The same accounting

treatment which applies to tangible assets is applied to investment property.

Land is not depreciated. Depreciation of other assets is calculated using the straight line method to allocate their cost to their

residual values over their estimated useful lives, as follows:

2006 2007

Buildings 5% 2% - 3%

Equipment 25% 20%

Vehicles 12.5% 20%

Computers 50% 10% - 50%

Intangible assets 20% 25% - 33.3%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are

subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

may not be recoverable. Property and equipment are periodically reviewed for impairment. Where the carrying amount of an asset

is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on

disposal of property and equipment are determined by comparing proceeds with carrying amount and are included in gains and

losses on derecognition of assets other than those held for sale in the income statement.

1.13 Impairment of non-fi nancial assets

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the

carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less

disposal costs and its value in use. Non-fi nancial assets that suffered an impairment are reviewed for possible reversal of the

impairment at each reporting date.

1.14 Leases

A group company is the lessor

A lease is classifi ed as a fi nance lease if it transfers all the substantial risks and rewards incidental to ownership. A lease is classifi ed

as an operating lease if it does not transfer all the substantial risks and rewards incidental to ownership.

When assets are held subject to a fi nance lease, the present value of the lease payments is recognised as a receivable. The

difference between the gross receivable and the present value of the receivable is recognised as unearned fi nance income. Lease

income is recognised over the term of the lease using the net investment method (before tax), which refl ects a constant periodic

rate of return.

Lease income from operating leases is recognised in income on a straight-line basis over the lease term. Costs, including depreciation,

incurred in earning the lease income are recognised as an expense. Initial direct costs incurred by lessors in negotiating and

arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease

term on the same basis as the lease income.




A group company is the lessee

The leases entered into by the Group are primarily operating leases. The Group rents business premises, equipment, cars and

locations for cash machines. The total payments made under operating leases are charged to administration costs. When an

operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty

is recognised as an expense in the period in which termination takes place.

1.15 Cash and cash equivalents

For the purposes of the cash fl ow statement, cash and cash equivalents comprise balances with less than three months’ maturity

from the date of acquisition, including cash and non-restricted balances with the central bank, treasury bills and other eligible bills,

amounts due from other banks, and securities.

1.16 Provisions

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable

than an outfl ow of resources embodying economic benefi ts will be required to settle the obligation; and a reliable estimate of the

amount of the obligation can be made.

Where there are a number of similar obligations, the likelihood that an outfl ow will be required in settlement is determined by

considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outfl ow with respect to any one

item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax

rate that refl ects current market assessments of the time value of money and the risks specifi c to the obligation. The increase in the

provision due to the passage of time is recognised as interest expense.

1.17 Financial guarantee contracts

Financial guarantee contracts are contracts that require the issuer to make specifi ed payments to reimburse the holder for a loss

it incurs because a specifi ed debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such

fi nancial guarantees are given to banks, fi nancial institutions and other bodies on behalf of customers to secure loans, overdrafts

and other banking facilities.

Financial guarantees are initially recognised in the fi nancial statements at fair value on the date the guarantee was given. Subsequent

to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement, less

amortisation calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the

guarantee and contingent liability or provision in accordance with IAS 37, which presents the best estimate of the expenditure

required to settle any fi nancial obligation arising at the balance sheet date. These estimates are determined based on the experience

of similar transactions and history of past losses, supplemented by the judgment of Management.

Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses.

1.18 Employee benefi ts

The Group provides benefi ts for employees as a legal obligation including jubilee rewards and retirement bonuses. These obligations

are valued by independent qualifi ed actuaries. Employee benefi ts are included in provisions for employee benefi ts. The Group sets

aside such provisions based on actuarial calculations made by independent actuaries every three years. In the meanwhile, the

Group either establishes or cancels these provisions on the basis of its own calculations - using data averages of employees under

collective agreements, under management agreements with special authorities and on the Management Board.




Major assumptions for these calculations are the following:

− a discount factor of 4%;

− number of employees eligible for benefi ts;

− rate of labour turnover;

− wage increases due to infl ation indexation and career promotion.

In accordance with the Slovene legislation employees may retire after 35-40 years of service, at which time (if they meet certain

conditions) they become eligible for an outright retirement severance payment. Furthermore, pursuant to the collective agreement,

employees are also entitled to jubilee payments.

Defi ned contributions to state social security are deducted each month from the payroll and are expensed as incurred. They are

included in administration costs.

1.19 Taxation

Taxation is provided for in the consolidated fi nancial statements in accordance with the Slovene legislation currently in force. The

charge for taxation in the income statement for the year comprises current tax and changes in deferred tax. Current tax is calculated

on the basis of the expected taxable profi t for the year, using the tax rates in effect at the balance sheet date.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets

and liabilities and their carrying amounts in the fi nancial statements. Deferred income tax is determined using tax rates (and laws)

that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred

income tax asset is realised or the deferred income tax liability is settled.

The Group has created deferred taxes on the temporary differences arising from the impairment of tangible and intangible assets,

from the revaluation of securities held for trading, available-for-sale securities and derivatives, from the provisions created for

employee benefi ts and for the repayment of premiums under the national housing savings scheme, different depreciation rates for

accounting and tax purposes, and from impairment of receivables and fi nancial investments of subsidiaries.

Deferred tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the

temporary differences can be utilised. Income tax payable on profi ts, based on the applicable tax law in each jurisdiction is

recognised as an expense in the period in which profi ts arise. The tax effects of income tax losses available for carrying forward are

recognised as an asset when it is probable that future taxable profi ts will be available against which these losses can be utilised.

Deferred tax related to fair value re-measurement of available-for-sale investments, which is charged or credited directly to equity,

is also credited or charged directly to equity and subsequently recognised in the income statement together with the deferred gain

or loss.

1.20 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised

cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement

over the period of the borrowings using the effective interest method.

If the Group purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of the

liability and the consideration paid is included in net gains and losses on fi nancial liabilities held for trading.




1.21 Share capital

(a) Share issue costs

Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity

as a deduction, net of tax, from the proceeds.

(b) Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders.

Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent events note.

(c) Treasury shares

Where the Company or other members of the Group purchase the Company’s equity share capital, the consideration paid is

deducted from total shareholders’ equity as treasury shares until they are cancelled. Where such shares are subsequently sold or

reissued, any consideration received is included in shareholders’ equity.

1.22 Managed funds

The Group manages a signifi cant amount of assets on behalf of legal entities and natural persons. A fee is charged for this service.

These assets are not shown in the consolidated fi nancial statements of the Group.

The Group does not have signifi cant investments in managed funds and as the result assets are not consolidated.

1.23 Fiduciary activities

The Group acts as trustees and in other fi duciary capacities that result in the holding or placing of assets on behalf of individuals,

trusts, retirement benefi t plans and other institutions. These assets and income arising thereon are excluded from these fi nancial

statements, as they are not assets of the Group.

1.24 Sale and repurchase agreements

Securities sold subject to repurchase agreements (‘repos’) are reclassifi ed in the fi nancial statements as fi nancial assets held for

trading, available-for-sale fi nancial assets or fi nancial assets held to maturity, even though the transferee has the right by contract or

custom to sell or repledge them as collateral. The counterparty liability is included in fi nancial liabilities linked to transferred assets.

Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and receivables to banks or customers, as

appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements

using the effective interest method. Securities lent to counterparties are also retained in the fi nancial statements.




1.25 Equity component of compound fi nancial instruments

An issued fi nancial instrument is classifi ed at initial recognition as a fi nancial asset, fi nancial liability, equity instrument or a compound

fi nancial instrument, where different elements are defi ned depending on the assessed attributes of a given fi nancial instrument.

If such an instrument does not include any contractual obligation (a) to deliver cash or other fi nancial assets to another entity or

(b) to exchange fi nancial assets or fi nancial liabilities with another entity under conditions that are potentially unfavourable to the

entity and it will or may be settled in the issuer’s own equity instruments, it is treated as a component of equity. If the Group has no

unconditional right to avoid delivery of cash or any other fi nancial asset to settle a contractual obligation, that obligation is defi ned

as a fi nancial liability.

When the initial book value of a combined fi nancial instrument is divided among its equity component and debt component, the

equity component is assigned an amount that remains after the fair value of the instrument as a whole is reduced by an amount

specifi cally set for the debt component. The sum of book values assigned to the debt components and equity components at initial

recognition always equals the fair value which would be assigned to the instrument as a whole. No profi t or loss occurs as a result

of the initial divided recognition of the components of such an instrument.

Interest, dividends, losses and profi ts related to a fi nancial instrument or its component, which is a fi nancial liability, are shown in the

income statement as income or expenses. Distributions to equity instrument holders are directly debited to own funds, net of any

related corporate income tax benefi t. Equity transaction expenses, other than equity instrument issuing costs directly attributable to

transaction costs, are netted and accounted for as a deduction from equity, excluding any related corporate income tax amounts.

1.26 Comparatives

Where necessary, comparative fi gures have been adjusted to conform with changes in presentation in the current year. Assets and

liabilities in euros cited in comparable data for 2006 were moved from foreign currency items to domestic currency items.




2 Risk management

The Groups’s operations are exposed to different types of risks that need to be managed accordingly. The ability of managing the

Group’s risks which can be further divided into credit, market, liquidity and operational risk, directly affects the long-term security

and success of the Groups’s operations. The Group therefore pays full attention to the risk management function.

An effi cient system of risk management is ensured by including the Supervisory Board, the Management Board and executive

directors into risk management processes, as well as maintaining a clear organisational structure and responsibilities. An adequate

organisational structure ensures the independence of the risk management functions; the Group furthermore assigns the necessary

human and technological resources to its implementation. Stimulation of culture which gives risk management the necessary

importance strengthens awareness about risk management for profi table and stable operations even further.

In order to limit its exposure to individual types of (measurable) risks, the Group uses limit systems and other tools, such as credit risk

mitigation techniques and hedging. Adequate attention is also placed on risks deriving from external (macroeconomic) environment

and stress tests are carried out on a regular basis.

The Group’s basic principles of risk management are outlined in risk management policies. These were reviewed in 2007 and

new documents such as risk management strategy, business risk and reputational risk management policies were approved

by the Management and Supervisory Board. This set of documents, ie. Risk management strategy and accompanying policies,

clearly defi ne procedures of prudent engagement and management of individual types of risks as well as ensuring compliance

and transparent public disclosure of the Groups’s operations. The goals of the strategy and associated policies include consistent

implementation of procedures for decreasing and limiting losses in all types of risks that the Group is or could be exposed to in its

operations, namely:

− Fundamental principles of risk management that the Group applies to its operations,

− Internal relations regarding responsibilities and organizational rules of the risk management process,

− Effi cient procedures of ascertaining, measuring or evaluating, controlling and monitoring risks as well as internal reporting on

risks,

− Adequate system of internal controls which includes corresponding administrative and accounting procedures,

Furthermore, the public disclosure policy, in which the Group defi ned the extent, method and frequency of information that must be

disclosed, was approved in 2007.

2.1 Financial risk management

2.1.1 Credit risk

Credit risk is the risk of incurring a loss due to the borrower’s failure to meet its obligations towards the Group. Credit risk includes:

country risk, concentration risk, the risk of loss of value of redeemed money claims, remaining risks and credit risk and securitised

assets exposure. Credit risk is the most important risk of the Group’s operations; the management board therefore places high

priority on its management.

The essential goal of credit risk management is maximising profi t, ensuring stable and secure operations and reaching or maintaining

a high quality credit portfolio. The Group assumes and manages credit risk according to the approved Business strategy and Risk

management strategy which set out the goals and general principles as well as guidelines for assuming and managing credit risk:

− Target markets,

− The bank’s market position,

− Portfolio structure,

− Pricing and other conditions,

− Structure of determining limits,

− The method of loan approval and procedures,

− Reporting on exceptions.


(all amounts in EUR thousand unless otherwise stated)



The process of credit risk management includes procedures for establishing, measuring, monitoring, managing and reporting on

credit risks.

The Group’s management board and executive directors are responsible for effi cient management of credit risks.

2.1.1.1 Credit risk measurement

(a) Loans

The Group has an elaborate internal methodology for the purpose of measuring credit risk, on the basis of which it sets adequate

processes for classifying debtors and the Group’s exposure to credit rating. The process is based on quantitative and qualitative

standards. Debtors are classifi ed into 9 credit rating groups (credit rating groups A, B, C, D and E; groups from A to D are divided into

2 further credit rating classes) according to an estimate of the fi nancial situation of individual debtors, the ability of ensuring suffi cient

cash fl ows for future debt settlement and according to the frequency of settling debts toward the Group.

All debtors are ranked into an adequate rating group before the claim is reinstated. The Group monitors debtors’ operations

throughout the legal procedure.

The Group evaluates losses from credit risks in accordance with regulations of the Bank of Slovenia, which do not override or confl ict

with International Financial Reporting Standards and internal documents on the basis of customer credit ratings.

(b) Debt securities

Credit risk arising from investments in debt securities is managed by a limit system which is based on internal and external ratings

(Fitch, Standard & Poor’s and Moody’s Investors Service). Investments in these securities improve the quality of the credit portfolio

and are an immediate source of fi nancing needs.

2.1.1.2 Risk limit control and mitigation policies

The Group has established credit risk exposure limits (credit limits) toward companies, banks, industries and foreign countries, as

well as large exposure limits.

The Group monitors limits of the highest allowed exposure and the amounts of large exposures of the Group’s operations in

accordance with the Resolution on large exposure of banks and saving banks. In 2007, the Group did not exceed these limits.

Each large exposure toward an individual client or a group of connected persons must have preliminary approval from the bank’s

Supervisory Board which discusses large exposure reports and Reports on exposure toward persons that are in a special relationship

with the Group.

Credit limits are set and can be changed in accordance with approved methodologies and rule books. The Group periodically

monitors limits and disperses credit portfolio risks.

(a) Collateral

As well as using the risk limit system, the Group also requires loan collateral in order to reduce credit risk. A loan collateral policy

was developed for this purpose, defi ning the individual types of collateral that the Group uses, as well as minimum requirements that

must be fulfi lled for each type of loan collateral. The most common types of collateral are real-estate collateral and fi nancial assets

(securities) collateral.

A more detailed description of loan collateral is defi ned under item 2.1.1.9.





(b) Derivatives

Limits for net open derivative positions (i.e. differences between purchase and sale contracts) are regulary monitored according to

values and maturities. The amount of credit risk exposure represents only a minor part of the contract value. Credit risk exposure is

managed within credit limits for customers, at the same time considering potential exposure due to market fl uctuations. The Group

doesn’t usually accept any type of credit risk exposure collateral that derives from these instruments.

(c) Master netting arrangements for dealing with derivatives

Exposure toward credit losses is also further restricted by entering into master netting arrangements with counterparties that have

a signifi cant volume of transactions with the Group. Those arrangements do not generally result in an offset of balance sheet assets

and liabilities as transactions are usually settled on a gross basis. However, the credit risk reduces to such extent that, if a default

occurs. all amounts with the counterparty are terminated and settled on a net basis.

(d) Credit-related commitments

The basic purpose of this type of business is to ensure fi nancial resources to the customer when needed. The Group is potentially

exposed to the same credit risk in exposure to guarantees and irrevocable stand-by letters of credit as is the case with loans.

Documentary (commercial) letters of credit are insured through delivery of goods and are therefore less risky than loans which have

been directly extended.

Credit commitments represent the undrawn portion of approved loans, guarantees or letters of credit. The Group is potentially

exposed to credit risk losses in the said amount. However, the potential amount of loss is less than the total amount of undrawn

assumed credit liabilities, because the majority of these deals depend on customer credit ratings. The Group monitors all conditions

until the assumed contractual credit liabilities expire. Long-term commitments generally have a greater degree of credit risk than

short-term commitments.

2.1.1.3 Impairment and provisioning policies

Breakdown of loans and impairment by internal credit rating

Internal

credit

rating

2007 2006

Loans (%) Impairment (%) Loans (%) Impairment (%)

A 68.61 13.35 72.52 15.61

B 20.90 26.72 17.64 26.55

C 7.61 21.28 6.35 19.05

D 1.72 16.15 2.11 15.53

E 1.16 22.50 1.38 23.26

100.00 100.00 100.00 100.00

Impairment of fi nancial assets and provisions for contingencies and commitments including off-balance sheet items are formed in

accordance with Bank of Slovenia regulations, International Financial Reporting Standards and internal documents.

On the basis of customer credit rating and estimated credit risk losses the Group impairs fi nancial assets or forms the necessary

provisions for contingencies and commitments including off-balance sheet items.





First of all, the Group estimates whether there is impartial evidence of an impairment or possibility of loss, as follows:

− Signifi cant fi nancial diffi culties of the debtor

− Actual breach of contract

− Restructuring of fi nancial assets

− The possibility of bankruptcy or fi nancial reorganisation

− The existence of a measurable decline in the projected cash fl ows of a group of fi nancial assets from the initial recognition of those

assets even though the decline cannot yet be allocated to individual assets in the group, including:

- Negative changes when settling debts in the group,

- National or local economic conditions associated with the failure to settle fi nancial assets in the group.

Where there is impartial evidence on impairment or possible losses, the Group forms impairments or provisions on the basis of

individual or collective evaluation.

The Group calculates any necessary impairment of fi nancial assets as the difference between the carrying and recoverable value

when doing individual evaluations. Recoverable value is calculated through discounting the future cash fl ows while at the same time

considering the future cash fl ows arising from foreclosure of collaterals.

In the event of a collective evaluation of debtors, the Group forms homogenous groups and establishes the level of credit risk loss for

an individual group. Homogenous groups are set according to similar characteristics of credit risks which show the debtor’s ability

for settling liabilities in accordance with contractual conditions.

The Group periodically monitors impairments and provisions in individual evaluations; when it comes to collective evaluation of

credit risk losses, this is checked once a year or when there are any important or changed circumstances in the Group and/or on

the market.





2.1.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure

2007 2006

Credit risk exposures relating to on-balance sheet assets are as follows:

1. Financial assets held for trading 165,381 139,068

- Derivatives 562 540

- Debt securities 164,819 138,528

2. Financial assets designated at fair value through profit or loss 8,386 –

- Debt securities 8,386 –

3. Available-for-sale financial assets 447,167 430,087


4. Loans and receivables 2,620,990 2,008,450

- Loans and receivables to banks 236,202 179,398

- Loans and receivables to non-bank customers 2,384,788 1,829,052

Loans and receivables to retail customers 400,939 351,920

Loans and receivables to corporate entities 1,983,849 1,477,132

5. Held-to-maturity investments 13,308 13,958


6. Other assets 64,996 32,984

Credit risk exposures relating to off-balance sheet assets are as follows: 778,264 666,684

- Financial guarantees 98,439 141,953

- Overdraft loans and other off-balance sheet

liabilities 679,825 524,731

As at 31 December 4,098,492 3,291,231

Exposures for balance sheet assets, shown above, are based on carrying values as shown in the balance sheet.

The largest part of total exposure is represented by loans to corporate entities (2007: 48.4 %, 2006: 44.9 %) and the exposure of

off-balance sheet items (2007: 19.0 %, 2006: 20.3 %).

The Group pays great attention to the quality of its credit portfolio; 90% of loan exposures are classifi ed into the highest internal

rating groups.





2.1.1.5 Loans

The following information shows a summary of loans according to their maturity and impairment.

Loans

31 December 2007

Loans and

receivables

to non-bank

customers

Loans and

receivables to

banks Total

Neither past due nor impaired 1,966,202 236,202 2,202,404

Past due but not impaired 24,620 – 24,620

Impaired 511,756 65 511,821

Gross 2,502,578 236,267 2,738,845

Less: impairments (117,790) (65) (117,855)

Net 2,384,788 236,202 2,620,990

Fair value of collateral 2,040,704 – 2,040,704

31 December 2006

Loans and

receivables

to non-bank

customers

Loans and

receivables to

banks Total

Neither past due nor impaired 1,581,782 179,398 1,761,180

Past due but not impaired 20,620 – 20,620

Impaired 334,904 840 335,744

Gross 1,937,306 180,238 2,117,544

Less: impairments (108,254) (840) (109,094)

Net 1,829,052 179,398 2,008,450

Fair value of collateral 1,283,780 – 1,283,780





(a) Loans neither past due nor impaired

31 December 2007

Loans and receivables to non-bank customers

Internal

rating Loans and receivables to retail customers

Loans and receivables to

corporate entitiesLoans and

receivables

to banksOverdrafts

Credit

cards

Housing

loans

Consumer

loans

Large cor-

porates SMEs Others

A 25,001 6,652 160,908 195,894 886,775 340,612 31,875 1,647,717 227,828

B – – 39 5,987 59,512 189,554 13,993 269,085 5,118

C – – 5 3,500 1,916 29,722 6,451 41,594 3,256

D – – 1 1,231 63 5,434 639 7,368 –

E – – 1 42 – 4 391 438 –

Total 25,001 6,652 160,954 206,654 948,266 565,326 53,349 1,966,202 236,202

31 December 2006

Loans and receivables to non-bank customers

Internal

rating Loans and receivables to retail customers

Loans and receivables to

corporate entitiesLoans and

receivables

to banksOverdrafts

Credit

cards

Housing

loans

Consumer

loans

Large cor-

porates SMEs Others

A 24,685 6,614 118,441 176,590 712,874 262,487 56,070 1,357,761 175,347

B 2 – 299 5,694 43,833 116,167 11,493 177,488 1

C – – 25 18,992 727 17,453 1,570 38,767 4,050

D – – – 2,684 1 4,600 384 7,669 –

E – – 25 1 – 70 1 97 –

Total 24,687 6,614 118,790 203,961 757,435 400,777 69,518 1,581,782 179,398





b) Loans past due but not impaired

31 December 2007 Loans and receivables

to retail customers

Loans and receivables

to corporate entitiesTotal

loans

and

receiv-

ables

Over-

drafts

Credit

cards

Housing

loans

Con-

sumer

loans Total

Large

corpo-

rates SMEs Others Total

Past due up to 30 days 90 1 214 1,044 1,349 151 1,404 540 2,095 3,444

Past due 30 to 60 days 265 1 105 538 909 247 677 500 1,424 2,333

Past due 60 to 90 days – 1 181 394 576 26 202 73 301 877

Past due over 90 days 823 2 1,351 7,373 9,549 82 5,472 2,863 8,417 17,966

Total 1,178 5 1,851 9,349 12,383 506 7,755 3,976 12,237 24,620

31 December 2006 Loans and receivables

to retail customers

Loans and receivables

to corporate entitiesTotal

loans

and

receiv-

ables

Over-

drafts

Credit

cards

Housing

loans

Con-

sumer

loans Total

Large

corpo-

rates SMEs Others Total

Past due up to 30 days 6 5 93 205 309 56 2,746 677 3,479 3,788

Past due 30 to 60 days 445 1 76 394 916 4 380 25 409 1,325

Past due 60 to 90 days – 1 46 274 321 – 185 19 204 525

Past due over 90 days 726 2 1,082 4,098 5,908 – 3,028 6,046 9,074 14,982

Total 1,177 9 1,297 4,971 7,454 60 6,339 6,767 13,166 20,620





(c) Impairment of loans

Impairment of loans by type of customers

2007 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Government 9,239 0.3 – 0.0

Banks 236,267 8.6 (65) 0.1

Corporates 2,079,576 76.0 (106,492) 90.3

Individuals 413,763 15.1 (11,298) 9.6

Total 2,738,845 100.0 (117,855) 100.0

2006 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Government 62,289 2.9 – 0.0

Banks 134,125 6.3 (840) 0.8

Corporates 1,568,929 74.2 (100,182) 91.8

Individuals 352,201 16.6 (8,072) 7.4

Total 2,117,544 100.0 (109,094) 100.0

Impairment of loans by type of assessment

2007 Loans

Struct,

(in %) Impairment

Struct,

(in %)

Collective* 1,990,822 72.7 (47,041) 39.9

Individual 748,023 27.3 (70,814) 60.1

Total 2,738,845 100.0 (117,855) 100.0

2006 Loans

Struct,

(in %) Impairment

Struct,

(in %)

Collective* 1,648,515 77.9 (47,807) 43.8

Individual 469,029 22.1 (61,287) 56.2

Total 2,117,544 100.0 (109,094) 100.0

Note: * item “Collective” includes loans granted to indiviuals, corporates and government, but in the table continued overleaf item “Total

collective impairment” doesn’t include loans granted to government, because government loans are not impaired.





Collective impairment

2007 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Corporates 1,567,820 79.1 (35,743) 76.0

Individuals 413,763 20.9 (11,298) 24.0

Total* 1,981,583 100.0 (47,041) 100.0

2006 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Corporates 1,234,025 77.8 (39,735) 83.1

Individuals 352,201 22.2 (8,072) 16.9

Total* 1,586,226 100.0 (47,807) 100.0

Individual impairment

2007 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Banks 236,267 31.6 (65) 0.1

Corporates 511,756 68.4 (70,749) 99.9

Total 748,023 100.0 (70,814) 100.0

2006 Loans

Struct.

(in %) Impairment

Struct.

(in %)

Banks 134,125 28.6 (840) 1.4

Corporates 334,904 71.4 (60,447) 98.6

Total 469,029 100.0 (61,287) 100.0

The largest share of loans found in the loan structure, is represented by loans to companies, namely 76.0%. The largest share of

loan impairments is represented by loan impairments to companies, i.e. 90.3%.

27.3% of loans are impaired individually. Individual impairments represented a 60.1% share of all impairments.

Regarding individually impaired loans, 68.4% are represented by loans to companies, and 99.9% of impairments; loans to banks

amount to 31.6% and 0.1% of impairments.





(d) Renegotiated loans

Renegotiation of fi nancial assets can also be explained as activities performed by the Group in relation to customers who had not met

their fi nancial obligations as stated in the contract. The Group estimates whether renegotiation of a debtor’s exposure is reasonable.

If it is reasonable, the Group forms an adequate restructuring method and follows its implementation as well as effects.

The Group classifi es outstanding claims to be renegotiated toward a debtor by doing one or more actions which the Group would

not undertake if the debtor’s economic and fi nancial situation were normal. The options when renegoting claims are as follows:

− Extending the term for repayment of principal,

− Moratorium on principal payment,

− Decreasing the amount of debt,

− Changing interest rates.

The share of renegotiated gross loans compared to the Group’s total gross loans approved to corporate and retail customers

decreased from 3.94% in 2006 to 3.46% in 2007.

An important share of the renegotiated loans in 2007 is represented by project fi nancing loans and loans for agreed expansion of

company investment activities and operations.

Renegotiated loans (gross)

2007 2006

Loans to retail customers 124 –

- loans without mortgage insurance 23 –

- mortgage loans 101 –

Loans to corporate entities 86,371 76,302

- loans without mortgage insurance 19,425 19,731

- mortgage loans 66,946 56,571

Total 86,495 76,302

Share of renegotiated gross loans and receivables in total gross loans and receivables

to non-bank cutomers 3.46% 3.94%





2.1.1.6 Debt securities, treasury bills and other eligible bills

Breakdown of debt securities according to credit rating is shown in the table below. External credit ratings of credit rating institutions

FITCH Ratings, Standard & Poor’s and Moody's Investors Service were considered for classifi cation.

Debt securities, treasury bills and other eligible bills

31 December 2007

Securities

held for trading

(reference to

note 19)

Securities

designated

at fair value

through profit

or loss

(reference to

note 20)

Available-for-

sale securities

(reference to

note 21)

Held-to-

maturity

securities

(reference to

note 24) Total

AAA 4,812 – 82,996 – 87,808

AA- to AA+ 54,790 8,386 216,450 13,308 292,934

A- to A+ 70,951 – 123,150 – 194,100

Lower than A- 29,789 – 1,222 – 31,011

Unrated 4,477 – 23,350 – 27,827

Total 164,819 8,386 447,167 13,308 633,680

31 December 2006

AAA 6,665 – 44,853 – 51,518

AA- to AA+ 30,959 – 294,325 13,958 339,242

A- to A+ 68,445 – 61,273 – 129,718

Lower than A- 23,309 – 7,781 – 31,090

Unrated 9,150 – 21,855 – 31,005

Total 138,528 – 430,087 13,958 582,573





2.1.1.7 Repossessed collateral

The Group acquired the following assets from corporate entites through realisation of repossessed collaterals:

Real estate owned by the Group

Carrying amount

Nature of assets 2007 2006

Business premises 117 4

Residential real-estate 145 145

Total 262 149

The value of real-estate (sales value or legal evaluation in case of execution) that falls into the ownership of the Group with the

purpose of debt repayment decreases outstanding claims toward the debtor. Real-estate acquired through this procedure is sold

as soon as possible. This kind of real-estate is shown in the balance sheet as other assets until sold.







2.1.1.8 Concentration of risks of fi nancial assets with credit risk exposure

2.1.1.8.1 Concentration of risks of fi nancial assets according to geographical sectors

The table below shows the Group’s credit risk exposure according to geographical areas.

Geographical sectors

Slovenia

Other EU

member

states

SE and

Eastern

Europe

(without

EU

member

states)

Other

countries Total

1. Financial assets held for trading 30,287 74,489 7,594 53,011 165,381

- Derivatives 115 164 – 283 562

- Debt securities 30,172 74,325 7,594 52,728 164,819

2. Financial assets designated at fair value through

profit or loss – 8,386 – – 8,386

- Debt securities – 8,386 – – 8,386

3. Available-for-sale financial assets 128,445 273,541 1,222 43,959 447,167

- Debt securities 128,445 273,541 1,222 43,959 447,167

4. Loans and receivables 2,223,737 217,803 141,220 38,230 2,620,990

- Loans and receivables to banks 19,082 193,327 8,746 15,047 236,202

- Loans and receivables to non-bank customers 2,204,655 24,476 132,474 23,183 2,384,788

Loans and receivables to retail customers 400,324 264 351 – 400,939

Loans and receivables to corporate entities 1,804,331 24,212 132,123 23,183 1,983,849

5. Held-to-maturity investments 13,308 – – – 13,308

- Debt securities 13,308 – – – 13,308

6. Other assets 42,976 21,959 – 61 64,996

As at 31 December 2007 2,438,753 596,178 150,036 135,261 3,320,228

As at 31 December 2006 2,154,741 326,901 49,993 93,803 2,625,438



2.1.1.8.2 Concentration of risks of fi nancial assets according to industries

The table below shows the Group’s exposure toward credit risk according to industries.

Industry sectors

Manufacturing

(D)

Construction

(F)

Trade

(G)

1. Financial assets held for trading 3 – 7

- Derivatives 3 – 7

- Debt securities – – –

2. Financial assets designated at fair value through profit or loss – – –


3. Available-for-sale financial assets – – –


4. Loans and receivables 498,982 140,465 415,192

- Loans and receivables to banks – – –

- Loans and receivables to non-bank customers 498,982 140,465 415,192

Loans and receivables to retail customers – – –

Loans and receivables to corporate entities 498,982 140,465 415,192

5. Held-to-maturity investments – – –


6. Other assets 5,308 7,138 3,391

As at 31 December 2007 504,293 147,603 418,590

As at 31 December 2006 449,452 162,566 296,542

Note: * data categorised by the industry sectors are not available

The highest exposure is shown toward borrowers in the manufacturing sector. This is followed by exposure toward borrowers

registered for performing activities within the Real-estate, renting and business activities sector which includes a wide spectrum of

borrowers, involved in business advisory services, holdings, research and development, real-estate management.





Transport,

storage and

communica-

tion

(I)

Financial

intermediation

(J)

Real estate,

renting and

bussiness

activities

(K) Other

Retail

customers

Foreign

entities* Total

– 5,085 1,193 23,999 – 135,094 165,381

– 87 18 – – 447 562

– 4,998 1,175 23,999 – 134,647 164,819

– – – – – 8,386 8,386

– – – – – 8,386 8,386

2,770 23,562 16,861 85,252 – 318,722 447,167

2,770 23,562 16,861 85,252 – 318,722 447,167

95,246 85,373 433,869 154,286 400,324 397,253 2,620,990

– 19,082 – – – 217,120 236,202

95,246 66,291 433,869 154,286 400,324 180,133 2,384,788

– – – – 400,324 615 400,939

95,246 66,291 433,869 154,286 – 179,518 1,983,849

– – – 13,308 – – 13,308

– – – 13,308 – – 13,308

18,511 5,256 1,769 1,177 426 22,020 64,996

116,527 119,276 453,692 278,022 400,750 881,475 3,320,228

72,054 231,930 308,053 326,166 307,978 470,697 2,625,438



2.1.1.9 Loan collateral

The Group doesn’t implement the process of on-balance-sheet netting (as defi ned in the Decision on disclosures, limited to mutual

cash balances between the bank and the obligor - that are loans and deposits), that’s why on-balance-sheet netting will not be taken

into collateral by the Group. Furthermore, the Group does not accept gold, cash on deposit or cash assimilated instruments (deposit

certifi cates) held by a third party or credit derivatives as collateral.

Process for evaluation of property collateral

Evaluation of property collateral is performed before each exposure approval and in the event of exposure changes (credit extensions

or rearrangements). Repeat real-estate valuations are undertaken in the event of larger price decreases on the real-estate market.

Slovenia has recently enjoyed a constant growth in real-estate prices. For pledged securities, revaluations or estimates of investment

banks are checked twice a year; when announcing half-year and end-of-the year results for listed and unlisted securities.

The Group periodically monitors collateral as follows:

− Periodical monitoring of the share of individual types of debt collateral (ALCO discusses the analysis of risk assets every three

months),

− Periodical monitoring of the average ratio between the amount of debt collateral and the amount of mortgage and securities

collateral.

Key types of property collateral which the Group receives for covering credit exposure refers to material and personal credit

collateral. The Group reduces its credit risk by securing collateral.

Received funded credit protection represents:

a) property collateral:

− real-estate collateral (commercial and residential),

− other physical collateral,

− receivables collateral,

− fi nancial collateral:

- Bank deposits at the Bank or cash assimilated instruments held by the Group,

- Debt securities,

- Units of investment funds,

- Equities and convertible bonds quoted on the main index,

b) master netting agreements,

c) other material credit collateral (life insurance policies).

Personal credit collateral received by the Group represents personal guarantees (joint guarantees, guarantees of companies with

good credit rating, banks, insurance company guarantees). The type and the volume depends on the customer’s credit rating and

maturity exposure at approval.

All the Group’s exposures toward corporate customers are covered at least with blank bills of exchange. Only short-term and,

occasionally, mid-term exposures toward corporate customers with good credit ratings are approved without additional collateral.

In such a case the Group, in the majority of cases with mid-term loans, defi nes fi nancial obligations in contracts. This enables

additional collateral to be obtained in the event that the customer’s credit rating worsens. For the most part, long-term loans are

additionally covered by mortgage or securities. Short-term loans are very often additionally covered by other forms of insurance,

especially guarantees of other corporate customers with a good credit rating, pledge of claims or pledge of stock that is also

considered to have suffi cient liquidity.

Through separate types of collateral one can ensure an adequate ratio between the loan amount and the value of collateral in

accordance with the decision of the credit board, credit committee or an authorised person. When securities are pledged, deadlines

are also defi ned to ensure an adequate ratio between the loan amount and the value of pledged collateral.





The Group’s exposures toward private individuals as a rule are covered by one of the following types of collateral:

− Insurance policies

− Pledge of real-estate

− Pledge of securities

− Pledge of claims from mutual fund investment ownership

− Pledge of life insurance policy

− Joint guaranty of creditworthy guarantors

− Pledge of monetary assets (deposits, life annuities, national housing saving schemes).

In accordance with the Decision on individual authorisations for retail customers, short-term and mid-term exposures can also be

extended to customers without collateral taking into consideration an individual customer’s credit rating.

The most signifi cant collateral providers for the Group are: The Republic of Slovenia by providing explicit guarantees (credit

rating according to Moody’s: Aa2, credit rating according to Fitch: AA), banks and corporates (by issuing guarantees or providing

security collateral) with good credit rating (credit rating of external institutions not available), as shown in the table below.

Type of collateral and most signifi cant providers for personal collateral accepted by the Group to cover gross

exposures

Type of collateral and collateral provider 31 December 2007 31 December 2006

Guarantees issued by local authorities 241 4.4% 258 0.6%

Explicit guarantees of The Republic of Slovenia 4,391 79.6% 39,333 92.2%

Guarantees or securities of other banks 881 16.0% 3,090 7.2%

Total 5,513 100.0% 42,681 100.0%





The Group periodically monitors concentration of credit risk in respect of accepted loan collaterals, that is, by periodical

monitoring of shares of individual types of claim collaterals (ALCO discusses the analysis of risk assets every three months).

Type of collateral accepted by the Group to cover gross exposures

Type of collateral 31 December 2007 31 December 2006

Shares of The Republic of Slovenia – 0.0% 6 0.0%

Bank deposits, certificates of deposits 9,057 0.2% 10,744 0.3%

Guarantees of domestic banks – 0.0% – 0.0%

Mortgages 777,534 17.4% 593,255 16.7%

Housing mortgages 107,389 2.4% 65,101 1.8%

Guarantees issued by local authorities 241 0.0% 258 0.0%

Explicit guarantees of The Republic of Slovenia 4,391 0.1% 39,333 1.1%

Shares and other equity investments 224,912 5.0% 119,368 3.4%

Guarantees or securities of other banks 881 0.0% 3,090 0.1%

Insurance policy 304 0.0% 209 0.0%

Guarantees and other off-balance sheet instruments

collateralised by bank deposits 5,930 0.1% 9,304 0.3%

Total 1,130,639 25.3% 840,668 23.7%

Total on and off-balance sheet exposures 4,462,561 100.0% 3,542,388 100.0%

The Group considers the exposures of subsidiaries as uncollateralized.





2.1.2 Market risk

Market risk is the risk of loss due to changes in the value of fi nancial instruments. This is an uncertainty that can lead to unfavourable

risk factor changes which affect the value of a fi nancial instrument and can consequently lead to a loss. The Group monitors market

risk exposures from the positions on its trading and banking book.

Effi cient dispersion of risk is enabled by the system of limits that are monitored on a daily basis. These limits include stop-loss limits,

credit exposure limits, Value-at–Risk (VaR) limits, limits on the type of fi nancial instrument, traders, organisational trading units, type

of listing, country of issue and credit rating.

2.1.2.1 Market risk measurement techniques

The Group uses the Value at Risk (VaR) method for measuring market risk. An historic simulation method that considers the

quantitative standards of the Bank of Slovenia is used (99-percent confi dence level, one year observation period and 10-day holding

period). The average VaR exposure for trading book positions in 2007 was EUR 1,736 thousand, and EUR 2,113 thousand for debt

fi nancial instruments in the banking book. The average VaR exposure for the trading book in 2006 was EUR 1,302 thousand, and

EUR 1,893 thousand for debt fi nancial instruments in the banking book. The Group also uses the sensitivity analysis for measuring

risks enabling evaluation of risk exposure according to different risk factors, such as interest rates and exchange rates.

2.1.2.2 VAR summary and sensitivity analysis

(a) VAR of trading portfolio

The table below shows VAR exposure at 99-percent confi dence level, with a 10-day holding period and a 1-year observation period

for the years 2006 and 2007.

12 months to 31 Dec. 2007

Average High Low

VaR 1,750 3,705 976

(b) Sensitivity analysis of trading portfolio for different risk factors

The table below shows potential losses in the trading portfolio calculated with sensitivity analysis in the case of a 10 basis point

interest rate fall and 5% USD depreciation (against the Euro).


Average High Low

Interest

rate risk 551 818 358

Foreign

exchange

risk 1,380 2,677 993

Total 1,930 3,281 1,366




Average High Low

VaR 1,302 2,025 746


Average High Low

Interest

rate risk 587 828 441

Foreign

exchange

risk 549 1,089 175

Total 1,136 1,530 956



(c) VAR of non-trading portfolio

The table below shows VAR exposure at a 99-percent confi dence level, with a 10-day holding period and a 1-year observation

period for the year 2007.


Average High Low

VaR 2,113 2,397 1,686

(d) Sensitivity analysis of non-trading portfolio for different risk factors

The table below shows potential losses in the non-trading portfolio calculated with sensitivity analysis in the case of a 10 basis point

interest rate fall and a 5% USD depreciation (against the Euro).


Average High Low

Interest

rate risk 1,095 2,214 906

(e) Ratio between the amount of potential losses, calculated through the VaR method and sensitivity analysis in respect

to net profi t and regulatory capital

2007

% of net

profit

% of

regulatory

capitalVaR

- Trading portfolio 4.75 0.53

- Banking book portfolio 5.74 0.64

Sensitivity analysis for the year 2007



Net profit = EUR 36,810 thousand

Regulatory capital = EUR 329,128 thousand

As the Group is aware of the limitation of the VAR method in cases of extreme market movement, stress testing, as a supplement to

VAR, is used. Stress testing introduces large but plausible movements in key market risk factors and estimates changes in the value

of the Group’s trading portfolio. Therefore a stress testing methodology is applied by which, through different scenarios, the impact

of stress events on fi nancial markets on the trading portfolio of the Group is assessed.

When trading in derivatives, exposures to position, interest rate and foreign exchange risks are managed by closing positions.

Market risks are covered with adequate countertransactions, while the risk of exceeding large exposures is managed by a strictly

controlled limit system.

2006

% of net

profit

% of

regulatory

capitalVaR



Sensitivity analysis for the year 2006



Net profit = EUR 27,616 thousand

Regulatory capital = EUR 213,002 thousand


Average High Low

VaR 1,893 2,147 1,511


Average High Low

Interest

rate risk 981 1,984 812





2.1.2.3 Equity investments which are not included in the trading book

Accounting guidelines for equity investments which are not included in the trading book are described in the overview of important

accounting guidelines (explanation 1.4 Financial assets).

The carrying amount of equity positions which are not included in the trading book totalled EUR 6,204 thousand as at 31 December

2007.

The Group has equity investments in companies which provide special fi nancial services and equity investments in such companies

which enable the Group to perform certain activities in cooperation with these companies. Such equity investments are the following:

Bankart, SWIFT, Mastercard, KDD, SID and the Ljubljana Stock Exchange. Other equity investments owned by the Group were

acquired with the purpose of realizing profi t when sold.

The above mentioned equity investments are not traded on a stock exchange. In 2007, the Group realized net profi t of EUR 1,538

thousand from sales of equity investments not included in the trading book. The Group didn’t book unrealised net profi t from the

sale of equity investments not included in the trading book in 2007. Consequently, there were no unrealised net profi ts from sales of

equity investments included in Tier 1 (core capital) or in Tier 2 (supplementary capital I).





2.1.2.4 Foreign exchange risk

Foreign exchange risk indicates the Group’s exposure to foreign currency exchange rate changes which, in the event of adverse

movements, reduce the Group’s income. The Group identifi es, measures, manages and controls foreign exchange risk according

to the approved policy of foreign exchange risk management. The implementation of this policy is monitored and controlled by the

Assets and Liabilities Committee and, at the operational level, the policy is carried out by the Treasury department, which makes sure

that open positions stay within approved limits. The Assets and Liabilities Committee places limits on the level of exposure that can

be taken by currency and in relation to both overnight and intra-day market positions, which is then subject to daily monitoring.

The Group is exposed to the effects of fl uctuations in the prevailing foreign currency exchange rates on its fi nancial position and

cash fl ows. The share of foreign currency items in the Group’s balance sheet decreased considerably in 2007 (compared to previous

years) due to the adoption of the Euro. Gaps between foreign currency infl ows and outfl ows, arising principally from international

payment transactions, were managed by adjustment arbitrage. The volume of differential arbitrage was limited in scope and kept

within the set limits.

The table below summarises the Group’s exposure to exchange rate risk as at 31 December, 2007 and includes the Group’s

fi nancial instruments at carrying amounts categorised by currency.

Concentration of currency risk: on- and off-balance sheet financial instruments

As at 31 December 2007 EUR USD CHF GBP Other Total

Assets

1. Cash and cash balances with central

banks 59,686 268 150 95 257 60,456

2. Financial assets held for trading 164,689 18,120 447 211 76 183,543

3. Financial assets designated at fair

value

through profit or loss 25,063 – – – – 25,063

4. Available-for-sale financial assets 483,289 1,788 135 – 905 486,117

5. Loans and receivables

- loans and receivables to banks 186,864 11,343 15,865 6,354 15,776 236,202

- loans and receivables to non-bank

customers 2,356,037 10,209 18,542 – – 2,384,788

6. Held-to-maturity investments 13,308 – – – – 13,308

7. Non-current assets and disposal

groups classified as held for sale 1,427 – – – – 1,427

8. Property, plant and equipment 51,845 – – – – 51,845

9. Investment property 144 – – – – 144

10. Intangible assets 4,535 – – – – 4,535

11. Investments in associates and joint

ventures 1,001 – – – – 1,001

12. Tax assets

- current tax assets 53 – – – – 53

- deferred tax assets 3,251 – – – – 3,251

13. Other assets 64,297 674 2 16 7 64,996

Total assets 3,415,489 42,402 35,141 6,676 17,021 3,516,729





As at 31 December 2007 EUR USD CHF GBP Other Total

Liabilities

1. Deposits from central banks – 20 – 6 – 26

2. Financial liabilities held for trading 8,063 14 – – – 8,077

3. Financial liabilities designated at fair

value through profit or loss 8,386 – – – – 8,386

4. Financial liabilities measured at amor-

tised cost

- deposits from banks 76,007 183 101 25 376 76,692

- deposits from non-bank customers 1,665,858 42,800 7,197 3,526 4,978 1,724,359

- loans and advances from banks 926,994 1,157 27,096 – – 955,247

- loans and advances from non-bank

customers 330 – – – – 330

- debt instruments 133,767 1,005 – – – 134,772

- subordinated liabilities 53,761 – – – – 53,761

5. Financial liabilities associated to trans-

ferred assets 123,887 – – – – 123,887

6. Provisions 23,121 466 18 – 147 23,752

7. Tax liabilities

- current tax liabilities 1,238 – – – – 1,238

- deferred tax liabilities 4,269 – – – – 4,269

8. Other liabilities 47,337 539 1 149 117 48,143

Total liabilities 3,073,018 46,184 34,413 3,706 5,618 3,162,939

Net on-balance sheet position 342,471 (3,782) 728 2,970 11,403 353,790

Credit commintments 734,870 20,886 329 211 21,968 778,264

As at 31 December 2006

Total assets 2,825,425 50,526 9,793 4,164 7,038 2,896,946

Total liabilities 2,614,407 50,240 9,773 4,159 6,312 2,684,891

Net on-balance sheet position 211,018 286 20 5 726 212,055

Credit commitments 632,374 21,145 480 – 12,685 666,684

2.1.2.5 Interest rate risk

Interest rate risk indicates the exposure of the Group’s fi nancial position to unfavourable changes of the market level of interest rates.

The Group is exposed to the effects of fl uctuations in the prevailing levels of market interest rates on both its fair value and cash fl ow.

Fair value interest rate risk is the risk that the value of fi nancial instruments might fl uctuate due to changes in market interest rates.

Cash fl ow interest rate risk is the risk that future cash fl ows from fi nancial instruments might fl uctuate due to changes in market

interest rates. As a consequence of these changes, interest rate margins and the Group’s income change as well.

The Group identifi es, measures, manages and controls interest rate risk in accordance with the established interest rate risk

management policy. The implementation of this policy is the responsibility of the Treasury department and is monitored by the

Assets and Liabilities Committee.





The interest rate risk that arises from trading is monitored in the framework of market risk control by applying the VaR method, stress

testing and scenario simulations. The interest rate risk arising from balance sheet mismatches in the banking book is measured

by means of gap reports. An internal methodology was used for defi ning maturity of items without maturity date; this method was

approved by the Assets and Liabilities Committee. Reports on open positions are regularly monitored.

The table below summarises the Group’s exposure toward interest rate risk. It includes the Group’s fi nancial instruments at carrying

amounts, categorised by the earlier of contractual repricing or maturity dates.

Interest rate sensitivity of assets and liabilities

As at 31 December 2007 Up to 1 month 1-3 months

Assets

1. Cash and cash balances with central banks 32,774 –

2. Financial assets held for trading 120,340 –

3. Financial assets designated at fair value through profit or loss 8,386 –

4. Available-for-sale financial assets 142,323 10,675

5. Loans and receivables

- loans and receivables to banks 227,966 1,386

- loans and receivables to non-bank customers 318,582 695,935

6. Held-to-maturity investments – –

Total assets 850,371 707,996

Liabilities

1. Deposits from central banks 26 –

2. Financial liabilities designated at fair value through profit or loss – 8,386

3. Financial liabilities measured at amortised cost

- deposits from banks 37,696 31,239

- deposits from non-bank customers 1,041,443 434,343

- loans and advances from banks 28,539 22,900

- loans and advances from non-bank customers 202 –

- debt instruments 4,734 47

- subordinated liabilities 28 125

4. Financial liabilities associated to transferred assets 123,887 –

Total liabilities 1,236,555 497,040

Interest rate sensitivity gap (386,184) 210,956


Total assets 651,336 583,396

Total liabilities 1,218,420 640,638

Interest rate sensitivity gap (567,084) (57,242)





3-12 months

1-5

years

Over

5 years

Non-interest

bearing Total

– – – 27,682 60,456

13,934 3,710 27,005 18,554 183,543

– – – 16,677 25,063

42,513 156,262 95,394 38,950 486,117

6,850 – – – 236,202

1,221,978 101,650 46,643 – 2,384,788

– 13,308 – – 13,308

1,285,275 274,930 169,042 101,863 3,389,477

– – – – 26

– – – – 8,386

5,861 413 1,483 – 76,692

207,928 35,815 4,830 – 1,724,359

902,919 889 – – 955,247

– 128 – – 330

28,376 67,405 34,210 – 134,772

12,595 41,013 – – 53,761

– – – – 123,887

1,157,679 145,663 40,523 – 3,077,460

127,596 129,267 128,519

960,500 366,524 147,109 188,081 2,896,946

452,829 208,472 92,292 72,240 2,684,891

507,671 158,052 54,817



2.1.3 Liquidity risk

Liquidity risk is the risk that the Group might not be able to meet its payment obligations associated with its fi nancial liabilities as

and when they fall due and to replace funds when they are withdrawn. Consequently, this can mean the failure to meet obligations

to repay depositors and fulfi l credit commitments.

2.1.3.1 Liquidity risk management process

Managing the Group’s liquidity is done in accordance with the approved policy on liquidity risk management. The actual execution

of this policy is controlled by the Assets and Liabilities Committee and the Liquidity Committee and managed by the Treasury

department.

Managing liquidity risk includes:

− planning and supervising future cash fl ows, including day-to-day funding with the purpose of ensuring satisfaction of the Group’s

obligations as well as replenishment of funds as they mature,

− maintaining a portfolio of highly marketable assets that can be easily liquidated as protection against unexpected cash fl ow

fl uctuations,

− monitoring balance sheet liquidity ratios according to the requirements of the Group and external regulations, and

− managing the concentration and profi le of debt maturites.

Monitoring and reporting is done through measurements and projections of cash fl ows for the next day, week and month, because

these are key periods for liquidity management. The starting point for those projections is an analysis of contractual maturity of the

fi nancial liabilities and expected maturity dates of repayment for fi nancial assets.

2.1.3.2 Funding approach

Liquidity resources are reviewed regularly by the Treasury department in order to maintain a wide dispersion according to currencies,

geographical areas, creditors, products and maturity. In 2007, the Group also acquired additional long-term resources by issuing an

innovative instrument and taking long-term loans from foreign banks.





2.1.3.3 Non-derivative cash fl ows

The table below presents cash fl ows of non-derivative instruments according to the remaining contractual maturity at the balance

sheet date. Items shown in the table represent undiscounted cash fl ows without future interest payments; the Group manages the

liquidity risk of its operations on the basis of contractual undiscounted cash fl ows using spot rates.

Non-derivative cash fl ows, management report


Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total

Liabilities

1. Deposits from central banks 26 – – – – 26


value through profit or loss – – – – 8,386 8,386


tised cost

- deposits from banks 37,660 31,344 1,484 4,721 1,483 76,692


- loans and advances from banks 26,994 24,433 105,657 705,513 92,650 955,247


customers 202 – – 128 – 330

- debt instruments 4,734 47 28,376 67,404 34,211 134,772

- subordinated liabilities 171 125 12,452 41,013 – 53,761


ferred assets 123,887 – – – – 123,887

5. Other liabilities 12,817 28,986 6,340 – – 48,143

Total liabilities

(contractual maturity dates) 1,253,889 497,240 369,600 862,513 142,361 3,125,603

Total assets

(contractual maturity dates) 675,123 277,949 724,777 998,367 840,296 3,516,512


Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total

Liabilities


tised cost

- deposits from banks 108,161 17 – – – 108,178


- loans and advances from banks 6,460 46,698 89,577 442,187 – 584,922


customers 4,895 9,280 41,909 60,069 60,765 176,918

- debt instruments 7,114 1,661 8,375 106,453 29,210 152,813



Total liabilities


Total assets






Non-derivative cash fl ows, in accordance with IFRS 7


Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total

Liabilities

1. Deposits from central banks 26 – – – – 26


value through profit or loss – – – – 8,386 8,386


tised cost

- deposits from banks 37,730 31,597 1,540 5,315 1,931 78,113


- loans and advances from banks 29,531 31,512 127,505 739,510 97,054 1,025,112


customers 202 – – 128 – 330

- debt instruments 6,177 517 34,420 76,481 40,997 158,592



ferred assets 123,887 – – – – 123,887


Total liabilities


Total assets



Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total

Liabilities


tised cost

- deposits from banks 108,361 17 – – – 108,378


- loans and advances from banks 9,309 50,284 102,902 479,485 – 641,980


customers 5,073 9,841 43,344 67,240 72,187 197,685

- debt instruments 8,312 2,131 11,505 120,438 35,311 177,697



Total liabilities


Total assets






The Group possesses an adequate volume of liquidity reserves available for settling all obligations and covering off-balance sheet

obligations for loans. Liquidity reserves include cash, central bank balances, treasury bills and other securities.

Due to the Euro adoption and new regulations about fi nancial assets it was necessary to restructure the balance sheet in 2007.

Investments in instruments of the Bank of Slovenia (bills and long-term deposits) gradually matured in the fi rst half-year, reinvestment

was primarily directed into fi rst class foreign securities. Furthermore, the surplus liquidity in the form of deposits with foreign banks

gradually changed into other forms of investments.

2.1.3.4 Derivative cash fl ows

2.1.3.4.1 Derivatives settled on a net basis

The Group’s derivatives that are settled on a net basis include:

− foreign exchange derivatives: over-the-counter (OTC) currency options,

− interest rate derivatives: interest rate swaps.

The table below shows the analysis of the Group’s derivatives that are settled on a net basis, arranged into groups according to

maturity on the basis of the outstanding contractual maturity on the date of the balance sheet. The amounts, disclosed in the table

are the contractual undiscounted cash fl ows.

Derivatives settled on a net basis


Up to 1

month 1-3 months

3-12

months

1-5

years

Over

5 years Total

Derivatives held for trading:

- Intrerest rate derivatives: 14 (280) 452 48 9 243


Up to 1

month 1-3 months

3-12

months

1-5

years

Over

5 years Total


- Intrerest rate derivatives: 13 (375) 472 178 45 333





2.1.3.4.2 Derivatives settled on a gross basis

Derivatives settled on a gross basis include foreign exchange derivatives: currency forwards, currency swaps and equity forwards.

The table below shows analysis of the Group’s fi nancial obligations, settled on a gross basis, arranged in logical groups according to

maturity on the basis of outstanding contractually set maturity on the date of the balance sheet. Items, shown in the table represent

the contractually set undiscounted cash fl ows using forward rates.

Derivatives settled on a gross basis


Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total


- Foreign exchange derivatives:

- inflow 20,682 1,116 4,589 – – 26,387

- outlow 20,675 1,115 4,584 – – 26,374

- Equity forward:

- inflow – 7,291 – – – 7,291

Total inflow 20,682 8,407 4,589 – – 33,678

Total outflow 20,675 1,115 4,584 – – 26,374


Up to 1

month

1-3

months

3-12

months

1-5

years

Over

5 years Total


- Foreign exchange derivatives:

- inflow 8,284 6,790 19,206 – – 34,280

- outlow 8,285 6,783 19,199 – – 34,267





2.1.3.5 Off-balance sheet items

Items which refer to potential obligations are presented off balance. The trigger events for those obligations haven’t occurred and

these facilities are not yet due. Those obligations for which the trigger events for obligations have already occurred, are presented

in the balance sheet statements.

(a) Loan commitments

The table below shows a summary of contractually set values of off-balance-sheet fi nancial instruments that oblige the Group to

credit customers (loan commitments) and to other arrangements.

(b) Finanancial guarantees and other fi nancial facilities

The table below includes fi nancial guarantees arranged according to contractually set maturity dates.

Off-balance sheet items

Up to

1 year

1-5

years

Over

5 years Total


Loan commitments 260,232 43,975 37,642 341,849

Financial guarantees 56,648 27,901 13,890 98,439

Service guarantees 121,611 137,579 25,081 284,271

Nostro letters of credit 31,253 8,509 – 39,762

Bills of exchange guaranteed by an aval 19 – – 19

Other 12,867 – 1,057 13,924

Total 482,630 217,964 77,670 778,264


Loan commitments 177,636 39,670 29,756 247,062

Guarantees, acceptance bill of exchange

and other financial instruments 221,774 169,494 28,354 419,622

Total 399,410 209,164 58,110 666,684





2.1.4 Fair value of fi nancial assets and liabilities

Financial instruments not measured at fair value

The table below summarises the carrying amounts and fair values of those fi nancial assets and liabilities not presented on the

banks’s balance sheet at their fair value.

Financial instruments not measured at fair value

Carrying value Fair value

2007 2006 2007 2006

Financial assets

Loans and receivables 2,620,990 2,008,450 2,546,121 1,989,389

- Loans and receivables to banks 236,202 179,398 234,511 174,272

- Loans and receivables to non-bank customers 2,384,788 1,829,052 2,311,611 1,815,116

Loans and receivables to retail customers 400,939 354,008 415,933 351,311

Loans and receivables to corporate entities 1,983,849 1,475,044 1,895,678 1,463,806

Held-to-maturity investments 13,308 13,958 12,998 16,370

Financial liabilities

Deposits from central banks 26 – 26 –

Financial liabilities measured at amortised cost 2,945,161 2,612,651 3,098,189 2,632,897

- Deposits from banks 76,692 108,178 82,027 109,001

- Deposits from non-bank customers 1,724,359 1,524,326 1,871,852 1,535,918

Deposits from retail customers 911,058 869,861 1,084,969 876,476

Deposits from corporate entites 813,301 654,465 786,883 659,442

- Loans and advances from banks 955,247 584,922 955,247 589,370

- Loans and advances from non-bank

customers - corporate entities 330 176,918 319 178,263

- Debt instruments 134,772 152,813 134,597 154,353

- Subordinated liabilities 53,761 65,494 54,146 65,992

Financial liabilities associated to transferred assets 123,887 – 123,887 –

Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis.

The following summarises the major methods and assumptions used in estimating the fair values of fi nancial instruments carried at

other than fair value in the fi nancial statements.

(i) Loans and receivables to banks

Loans and receivables to banks include inter-bank placements and items in the course of collection. The fair value of fl oating rate

placements and overnight deposits is their carrying amount. The estimated fair value of fi xed interest bearing deposits is based on

discounted cash fl ows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.

(ii) Loans and receivables to non-bank customers

Loans and receivables are net of provisions for impairment. The estimated fair value of loans and receivables represents the

discounted amount of estimated future cash fl ows expected to be received. Expected cash fl ows are discounted at current market

rates to determine fair value.





(iii) Held-to-maturity investments

Held-to-maturity investments relate to interest-bearing securities held to maturity. Fair value of held-to-maturity assets is based on

market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market

prices of securities with similar credit, maturity and yield characteristics.

(iv) Deposits and loans

The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable

on demand. The estimated fair value of fi xed interest-bearing deposits and other borrowings not quoted on an active market is

based on discounted cash fl ows using interest rates on new debts with similar remaining maturity.

(v) Debt securities in issue and subordinated securities in issue

The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not

available, a discounted cash fl ow model is used based on a current yield curve appropriate for the remaining term to maturity.

2.1.5 Capital management

2.1.5.1 Regulatory capital and capital adequacy of the Group

Capital management is an on-going process of decision making and maintaining the required level and quality of the Group capital.

The aim of capital management on the one hand is to provide for an adequate level of the Group capital, which generates confi dence

in and stability of the Group and, on the other, to guarantee a return on capital which will meet shareholders’ expectations. In any

case the Group needs to have suffi cient capital and capital adequacy as required by law and dependant on the volume and type of

services it carries and the risks it assumes.

The management and supervisory board of the Group regularly monitor and assess the effectiveness of the capital management

system.

The Group calculates its regulatory capital and capital adequacy on a half-yearly basis in accordance with the Decision on Reporting

on Capital and Capital Requirements by (Savings) Banks.

The Group capital has to be at least equal to the total sum of minimum capital requirements on a consolidated basis at all times.

According to the defi nitions in the Decision of the Calculation of Own Funds of (Savings) Banks the Group capital or own funds

consist of:

− Tier 1 capital (original own funds) which includes paid-up capital and share premium, reserves, minority interest, innovative

instruments and deduction items from Tier 1 capital (own shares, the Group’s intangible assets, impairments and provisions);

− Tier 2 capital (additional own funds) which includes any surpluses of the Group’s own funds that may be taken into consideration in

the calculation of Tier 2 capital (arising from an innovative instrument) and subordinated debt I (subordinated bonds with maturity

of over 5 years and one day); and

− Tier 3 capital (ancillary own funds) which includes subordinated debt II (subordinated bonds and subordinated deposit with

maturity of over 2 years and one day).

Tier 1 capital and Tier 2 capital are decreased by investments in other credit and fi nancial institutions that individually exceed 10%

of the share capital of those institutions.





Capital requirements, integrated according to the Decision on Reporting on Capital and Capital Requirements by (Savings) Banks,

are defi ned as:

− total capital requirements for credit, counterparty credit and dilution risks and free deliveries and

− settlement/delivery risk and total capital requirements for position, foreign exchange and commodity risks.

The table below shows the structure of the Group’s capital and the capital adequacy ratio as at 31 December. Over the two years

shown in the table the capital adequacy of the Group remained above the required regulatorly minimum.

Regulatory capital and capital adequacy

2007 2006

Paid-up capital and share premium 81,013 80,945

Reserves 131,732 106,216

Minority interest 22 43

Innovative instruments 32,416 -

Deductions from Tier 1 capital (29,077) (12,208)

Tier 1 capital 216,106 174,996

Tier 2 capital 102,667 28,696

Deductions from Tier 1 and Tier 2 capital (1,001) (640)

Tier 3 capital 11,356 9,950

Tier 2 and Tier 3 capital eligible for inclusion in capital 114,023 38,646

Regulatory capital 329,128 213,002

Total capital requirements for credit, counterparty credit and dilution risks and free deliveries 229,947 177,051

Total capital requirements for position, foreign exchange and commodity risks 15,328 13,753

Capital requirements 245,275 190,804

Tier 1 capital adequacy ratio 7.1% 7.3%

Capital adequacy ratio 10.7% 8.9%

2.1.5.2 Minimum capital requirements

(a) Capital requirements for credit risk

In 2007, capital adequacy was calculated pursuant to the Decision on Capital Adequacy of (Savings banks) by assigning a risk

weighting of 8% to risk weighted assets. These are a sum of individual banking items weighted with a certain credit risk weighting.

Banking items represent the net book values of balance sheet assets and the credit replacement values of the net value of off-

balance-sheet items and derivative fi nancial instruments which cannot be treated as trading items. Risk-weighted balance sheet

assets of the Group as at 31 December, 2007 amounted to EUR 2,596,177 thousand. The credit replacement value of classic

off-balance-sheet items is calculated by multiplying the net value of off-balance-sheet items by a certain conversion factor. Risk-

weighted off-balance-sheet assets of the Group as at 31 December, 2007 amounted to EUR 276,414 thousand. The mark-to-market

method is used for calculating the credit replacement value of derivative fi nancial instruments. Risk-weighted derivative instruments

items of the Group as at 31 December, 2007 amounted to EUR 222 thousand. Capital requirements for credit risk of the Group as

at 31 December, 2007 were calculated to 8% of total risk-weighted assets, which amounted to EUR 229,825 thousand.





(b) Capital requirements for market risk

Capital requirements for market risk includes the calculation of the requirements for position risk, settlement and counterparty risk

associated with trading business and foreign exchange risk.

Position risk is either specifi c or general. Specifi c position risk is the risk of a price change of a fi nancial instrument due to factors

related to its issuer or the issuer of the underlying instrument in the case of derivative fi nancial instruments. General position risk is

the risk of a price change of a fi nancial instrument due to changes in the interest rate level (in the case of a traded debt instrument

or debt derivative) or due to price movements on the capital market (in the case of an equity or equity derivative) that is unrelated to

any specifi c attributes of individual fi nancial instruments.

The capital requirements of the Group for market risks deriving from the trading book are calculated by applying the Standardised

Method as prescribed by the Bank of Slovenia. As at 31 December, 2007 the capital requirement for market risk amounted to EUR

13,834 thousand, 99% of which was accounted for the capital requirement for position risk and 1% for settlement and counterparty

risk. The capital requirement for foreign exchange risk equalled EUR 1,616 thousand.

2.1.5.3 Internal capital adequacy assessment process

In addition to regulatory minimum capital requirements for credit, operational and market risks, since 1 January, 2008, the Group

has been required to adopt the Internal Capital Adequacy Assessment Process (ICAAP).

The Internal Capital Adequacy Assessment Process is one of the crucial aspects in implementing the new Capital Directive (Basel II).

The Group put ICAAP in place in 2007 by setting a risk matrix. A risk profi le assessment (based on the identifi cation and assessment

of material risks and setting up controls for reducing risk) served as a basis for an internal capital adequacy assessment process

in the framework of Pillar 2 of the new Capital Directive. Based on the calculation of capital requirements the amount and quality of

capital was defi ned by the Group against a given risk profi le.

An integrated internal capital adequacy assessment process has to ensure that the assumed risks stay within the Group’s risk

bearing capacity. Towards the end of 2007 the Management Board adopted the Risk Management Strategy, Risk Management and

Assumption Policies, Public Disclosure Policy and the Rules on Employing the Internal Capital Adequacy Assessment Process.

2.2 Operational risk management

In the fi eld of operational risk management, the Group continued the activities set out in its Strategy for Development and

Implementation of the Operational Risk Management Framework. An Operational Risk Management Policy was formulated and

approved by both the Management and Supervisory Boards. This policy sets out the process of operational risk management,

internal control system, capital requirement calculation and measures for achieving the capital adequacy target as well as defi ning

the competences and responsibilities of all the stakeholders involved. The document also regulates activities related to business

continuity plans and disaster recovery plans. As required by the policy, internal instructions were prepared which stipulate the

operational risk management itself and determine the Group’s tolerance and appetite in this respect.

In 2007, the Group started using a computerised system of loss event monitoring. Two applications – for reporting and recording

loss events – were developed in-house. The fi rst application is available to all Group employees and enables anonymous reporting of

loss events by any reporting party. The second application was designed to enable recording of loss events by reporting parties. A

reporting party was appointed in all Grup’s organisational units, in charge of describing a loss event from the moment it occurs until

the fi nal consequences for the Group are established. Based on loss event records, the Risk Management Department produces

quarterly reports for the Management Board and senior management. A loss event data base for 2007 was created and the

operational risk profi les of the Group and its organisational units were updated.

In 2007, the Group continued to revise and update its business continuity plans. The fi rst disaster recovery plans were made for two

outlets and the Payments organisational unit. A new assessment was made on the possible infl uence of product discontinuation on

the operations of the Group.





2.2.1 IT system risk management

Principal tasks of the Information Division concern providing computer support to the information system (IS) of the Group, co-

ordination with external providers, offering help to IS users, supporting e-commerce and maintaining IS. The corporate policy,

streamlining of operations and process optimization to assure increased quality and competitiveness of the Group services are

taken into account in these efforts.

The Management Board requires adequate procedures. In view of this, the actual state is regularly monitored by means of operational

checks and information technology (IT) risk analysis, which serves as a basis for relevant risk reduction measures. An IT risk

analysis is carried out once a year (in line with the underlying policy and information security management system). It is based on

the assumption that every information source and group of information sources (18 in total) involves a certain level of vulnerability,

which depends on built-in controls (i.e. mechanisms designed to reduce vulnerability and improve security), and certain threats

that may affect any group of information sources. The set of controls is based on ISO 17799 standard and the set of threats on

the recommendations by the Bank Association of Slovenia (on a uniform risk analysis method). Information is collected through

questionnaires and interviews and then correlated with the availability data resulting from analyses carried out in the framework of

business continuity planning. This results in a qualitative analysis which takes into account 4 threat levels (depending on frequency

and effect) and 4 vulnerability levels of resources (in view of existence of individual controls and their weight).

Risk analysis results and requirements made by divisions together represent a basis for the improvements (additional controls) of the

IT system. The said requirements stem from the desire to develop business and expand IT analysis to cover it. Analyses performed

in divisions are used to establish the weight of each individual information resource in a work process and measure risks arising from

these resources that depend on the roles they play in different work processes and their value for the Group.

The development strategy is divided into priorities and IS development is based on:

− developing client-server applications with the use of relational SQL databases and standard accesses,

− using Oracle database,

− WindowsXP operation system installed on work stations,

− UNIX, Windows 2003 and Windows 2000 operation systems installed on data and application servers,

− communication links based on TCP/IP protocols,

− using modern, object-oriented development tools (Delphi).

Effi cient functioning of the information system is provided by several factors including:

− fi nding the right balance between the desires and opportunities for information support development (in the light of corporate

objectives),

− planning and introducing new information support mechanisms in accordance with the Group’s strategic objectives and planning

in the area of information technology,

− supporting mobilization of resources for information support (personnel, funds, time),

− control in all operating segments (inspections, audits, internal rules and control, obligatory control mechanisms and routine

implementation of control procedures, raising awareness),

− streamlining procedures (e.g. consolidation of server capacities, standardization of disc resources, collection of data into a single

database, standardized access to the system and data),

− training personnel for bringing into force new methods and technologies in the functioning of the information system.

In pursuing the policy of providing information system security the Group’s main objective is to provide optimal availability,

confi dentiality and integrity of information.

The security policy is founded on:

− Rules on Security and Protection of the Information System,

− Instructions on Protection of Personal Data Databases and Related Elements of the security policy,

− adhering to the required information protection standards (oSIST ISO/IEC 27001:2006, oSIST ISO/IEC 17799:2005 and SIST

ISO/IEC 17799:2003).





Access levels pertain to all entities, hardware and software, from which it is possible to access terminal and local networks. Access

is provided on the basis of granted rights with password protected user names. The security system applies to documents, data and

communication as well as all hardware and software. It depends on the level of exposure to unwanted external or internal factors.

The system operates by employing a suitable method for protected data back-ups and protected access to data, programmes and

communication channels.

Access to the public network is provided through doubled high-speed connections to different Internet service providers (Softnet,

Siol). Double fi rewalls create several protected segments, with external and internal segments being further protected by way of

routers.

The Group developed a data protection programme. A combination of differential and complete backups was introduced.

General, system and other controls take the form of physical and logical controls. Physical controls include physical safeguarding of

premises, video surveillance of access to buildings, alarm protection and magnetic card entries of authorised persons into certain

premises. Logical controls are performed with our own application and purchased software.

2.2.2 Operations of internal audit department

(a) Organisational position of internal audit department

The Internal Audit department performs constant and overall control over the bank’s operations and operations of subsidiaries in

relation to: controlling and evaluating the effi ciency of risk management systems and the system of internal controls; evaluation of

the process of assessing the necessary internal capital regarding its own assessment of the Group’s risk exposure; assessment of

the accuracy of the information technology system; assessment of the accuracy and reliability of accounting records and fi nancial

reports; verifi cation of compliance of the Group’s operations with regulations.

The Internal Audit department is organised as an independent department, directly subordinated to the bank’s Management

Board. Its authorizations, responsibilities, tasks and the method operations are defi ned in the Standing orders on the Internal Audit

department (March 2007) in detail. These standing orders were adopted by the bank’s Management Board with the consensus of

the Supervisory Board. The bank’s Management Board also included the orientation which the Internal Audit department has to

follow into the long-term strategy for the period 2007-2010. The annual plan of activities of the Internal Audit department is confi rmed

each year by the Management Board with the consensus of the Supervisory Board. The annual plan of activities is based on a global

assessment of the risk profi le of the audit environment in the Group. For more effi cient and qualitative execution of tasks, other

internal acts are set out for the Internal Audit department (manual for internal audit, methodology for working plans on the basis of

risk assessment, the program for ensuring and improving the quality of operations).

In accordance with the Standing orders on the Internal Audit department (March 2007), performing controls of contractual exchange

offi ces that have a contractual relationship with the bank is included among the basic areas of the department’s work in addition to

internal audit. Execution of tasks of the primary offi cer responsible for monitoring potential money laundering activities falls under

the responsibilities of the Legal and compliance department as of 1 January 2008.

The Internal Audit department employs six internal auditors with long-term experience in different areas of fi nancial operations.

Three of them have either a 'certifi ed internal auditor' or 'auditor' licence. The external audit company KMPG with its certifi ed IT

auditors is used for the purpose of auditing information technology.

(b) Operations and control of the management system

In 2007, the work of the Internal Audit department was performed in accordance with the approved Annual plan of activities for

the year 2007, with additional activites demanded by the strategic plans (implementation of new services, products, entrance into

foreign markets) and the requirements of supervising bodies, related to the Group’s adjustment to the new capital regulation Basel

II as well as in accordance with additional requirements of the bank’s Management Board.





The work focused especially on supervision and assistance in implementing the Basel II project; supervising and helping the sub-

project group for auditing and compliance, the sub-project group for public data disclosure, the sub-project group for operational

risk and the project board; auditing the operations of sub-project groups and realization of their action plans with the purpose of

implementing all elements of the management system (organisational structure, risk management systems, internal control systems)

and the process of assessing the necessary internal capital regarding its own assessment of the Group’s risk exposure.

Realized tasks in 2007 also included:

− Giving opinions on fulfi lling conditions for the beginning of marketing new services, products or entry into new markets; as well

as the adequacy of risk control procedures (Regulation on the reporting of individual facts and circumstances of the Banks and

Savings banks, Offi cial Gazette of RS; No. 28/07, 104/07).

− Assessment of reconciled operations with Minimum standards for trading and related services in banks (Bank of Slovenia,

February 2005),

− Assessment of reconciled operations when performing services with safety deposit boxes (Regulation on Risk Management and

Implementation of the Internal Capital Adequacy Assessment Process for Banks and Savings banks; Offi cial Gazette No. 135/05,

28/07, 104/07) and at operations with the bank’s loan mediators (Regulations on conditions that must be fulfi lled by the bank’s

loan mediator, Offi cial Gazette of RS, No. 28/07).

− Auditing some key programme solutions for operations support and general information technology controls, including employment

of external contractors,

− Finding reasons for irregularities in operations as well as giving advice for upgrades to management system elements,

− Performing controls of contractual exchange offi ces (The Foreign Exchange Act; Offi cial Gazette of RS, No. 110/03) and

− Fulfi lling requirements toward external auditors and supervising institutions.

(c) Reporting on performed work

All managerial levels, including the Management Board, were informed in writing about the fi ndings of the performed audit of the

Internal Audit department. A summary of all important fi ndings and recommendations of performed audit procedures as well as

fulfi lment of the Annual plan of activities for the year 2007 was given to the bank’s Management and Supervisory Boards every three

months. The Internal Audit department also monitored realization of improved measures on the basis of investigation of reports of

responsible people, at the same time reporting it to the bank’s Management and Supervisory Boards.





2.3 Risk arising from bonds issued by Abanka

The fi rst part of this section deals with outstanding bonds and their attributes and the second part describes the risk factors that are

associated with the bonds issued by the Bank.

In 2007, 13 issues of Abanka bonds were outstanding (AB04, AB06, AB07, AB08, AB09, AB10, AB11, AB12, AB13, VIP4E VIP5,

VIP6, VIP7).

List of Abanka bonds outstanding in year 2007

Issue Bond status Issue date Maturity date

Nominal value

(in ‘000 of EUR)

1 AB04 subordinated 1 June, 2000 1 June, 2007 10,000

2 AB06 subordinated 15 May, 2002 15 May, 2009 13,500

3 AB07 subordinated 21 May, 2003 21 May, 2010 17,300

4 AB08 subordinated 1 March, 2004 1 March, 2011 10,000

5 AB09 ordinary 1 March, 2004 1 March, 2011 10,000

6 AB10 ordinary 1 Oct., 2004 1 Oct., 2011 21,000

7 AB11 ordinary 1 Dec., 2005 1 Dec., 2010 20,865

8 AB12 ordinary 12 Dec., 2005 12 Dec., 2010 20,865

9 AB13 subordinated 23 June, 2006 24 June, 2008 5,097

10 VIP4E subordinated 1 August, 1997 1 August, 2007 2,046

11 VIP5 subordinated 15 July, 1998 15 July, 2008 2,000

12 VIP6 subordinated 9 Sept., 1999 9 Sept., 2009 2,000

13 VIP7 subordinated 18 Dec., 2000 18 Dec., 2010 2,000

Abanka bonds, fourth issue (AB04) are 7-year bonds which started bearing interest on 1 June 2000. The principal repayment was

made at maturity, i.e. 1 June 2007. The nominal value of the issue was EUR 10,000 thousand. One hundred thousand bonds were

issued in denominations of EUR 100 each. The bonds carried an annual interest rate of 6.25%. Interest was calculated by the

compound method and was paid semi-annually.

Abanka bonds, sixth issue (AB06) are 7-year bonds which started bearing interest on 15 May 2002. The principal repayment is made

at maturity, i.e. 15 May 2009. The nominal value of the issue is EUR 13,500 thousand. One hundred thirty-fi ve thousand bonds were

issued in denominations of EUR 100 each. The bonds carry an annual interest rate of 5.90%. Interest is calculated by the compound

method and is paid semi-annually.

Abanka bonds, seventh issue (AB07) are 7-year bonds which started bearing interest on 21 May 2003. The principal repayment is

made at maturity, i.e. 21 May 2010. The nominal value of the issue is EUR 17,300 thousand. One hundred seventy-three thousand

bonds were issued in denominations of EUR 100 each. The bonds carry an annual interest rate of 5.30%. Interest is calculated by

the compound method and is paid semi-annually.

Abanka Vipa bonds of the 8th issue (AB08) are 7-year bonds which started bearing interest on 1 March, 2004. The principal

repayment is made at maturity, i.e. 1 March, 2011. The nominal value of the issue is EUR 10,000 thousand, denominated in euros

and is comprised of 100,000 bonds of EUR 100 each. The annual interest rate on AB08 bonds is 4.90%, calculated linearly and

payable on an annual basis.

Abanka Vipa bonds of the 9th issue (AB09) are 7-year bonds which started bearing interest on 1 March, 2004. The principal

repayment is made at maturity, i.e. 1 March, 2011. The nominal value of the issue is EUR 10,000 thousand, denominated in euros

and comprising 100,000 bonds of EUR 100 each. The annual interest rate on AB09 bonds is 4.70%, calculated linearly and payable

on a yearly basis.





Abanka Vipa bonds of the 10th issue (AB10) are 7-year bonds which started bearing interest on 1 October, 2004. The principal

repayment is made at maturity, i.e. 1 October, 2011. The nominal value of the issue is EUR 21,000 thousand, denominated in euros

and comprising 21,000 bonds of EUR 1,000 each. The annual interest rate on AB10 bonds is 4.60%, calculated linearly and payable

on a yearly basis.

Abanka Vipa bonds of the 11th issue (AB11) are 5-year bonds which started bearing interest on 1 December, 2005. The principal

repayment is made at maturity, i.e. 1 December, 2010. The nominal value of the issue is EUR 20,865 thousand, denominated in

euros and comprising 500,000 bonds of EUR 41.73 each. The annual interest rate on AB11 bonds is 4.00%, calculated linearly and

payable on a yearly basis.

Abanka Vipa bonds of the 12th issue (AB12) are 5-year bonds which started bearing interest on 12 December, 2005. The principal

repayment is made at maturity, i.e. 12 December, 2010. The nominal value of the issue is EUR 20,865 thousand, denominated in

euros and comprising 500,000 bonds of EUR 41.73 each. The annual interest rate on AB12 bonds is 3.80%, calculated linearly and

payable on a yearly basis.

Abanka Vipa bonds of the 13th issue (AB13) are 2-year bonds which started bearing interest on 23 June, 2006. The principal

repayment is made at maturity, i.e. 24 June, 2008. The nominal value of the issue is EUR 5,097 thousand, denominated in euros and

comprising 50,970 bonds of EUR 100 each. The annual interest rate on AB13 bonds is 6M EURIBOR + 0.50%, calculated linearly

and payable on a semi-annual basis.

Banka Vipa bonds of the 4th issue (VIP4E) are 10-year bonds which started bearing interest on 1 August, 1997. The principal

repayment is made annually, but there was a repayment grace period until 1 February, 2000. The maturity date is 1 August, 2007.

The nominal value of the issue is EUR 2,046 thousand, denominated in euros and comprising 8,000 bonds of EUR 255.65 each. The

annual interest rate on VIP5 bonds is 7.00%, calculated linearly and payable on a semi-annual basis.

Banka Vipa bonds of the 5th issue (VIP5) are 10-year bonds which started bearing interest on 15 July, 1998. The principal repayment

is made annually, but there was a repayment grace period until 15 January, 2001. The maturity date is 15 July, 2008. The nominal

value of the issue is EUR 2,000 thousand, denominated in euros and comprising 10,000 bonds of EUR 200 each. The annual interest

rate on VIP5 bonds is 6.00%, calculated linearly and payable on a semi-annual basis.

Banka Vipa bonds of the 6th issue (VIP6) are 10-year bonds which started bearing interest on 9 September, 1999. The principal

repayment is made annually, but there was a repayment grace period until 9 March, 2002. The maturity date is 9 September, 2009.

The nominal value of the issue is EUR 2,000 thousand, denominated in euros and comprising 10,000 bonds of EUR 200 each. The

annual interest rate on VIP6 bonds is 5.50%, calculated linearly and payable on a semi-annual basis.

Banka Vipa bonds of the 7th issue (VIP7) are 10-year bonds which started bearing interest on 18 December, 1999. The principal

repayment is made annually, but there was a repayment grace period until 18 June, 2003. The maturity date is 18 December, 2010.

The nominal value of the issue is EUR 2,000 thousand, denominated in euros and comprising 10,000 bonds of EUR 200 each. The

annual interest rate on VIP7 bonds is 6.20%, compounded and payable on a semi-annual basis.

Pursuant to Commission Regulation (EC) 809/2004 of 29 April, 2004 implementing The Prospectus Directive 2003/71/EC became

fully binding on 1 July, 2005, Abanka discloses the relevant information on risk factors that arise from the securities issued

by Abanka.





a) Bond-related default risk

In 2007 there were 13 issues of Abanka bonds, of which 9 were subordinated (AB04, AB06, AB07, AB08, AB13, VIP4E, VIP5, VIP6,

VIP7), meaning that in the case of the Bank’s bankruptcy or liquidation their payment is subordinated to senior debt instruments

and effected only after meeting all non-subordinated debt obligations to regular creditors. On the other hand, regular bond holders

are in such a case repaid under the same terms and conditions as other non-subordinated creditors of the issuer. The obligations

of Abanka arising from its bond issues are not specially secured, but they are guaranteed by the total assets of the Bank. Abanka

estimates that bond default risk related to both regular and subordinated bond issues is low.

The subordinated bond issue AB13 included in the calculation of supplementary capital (tier 2) involves an additional risk of default

both on the principal and interest, in the event that their payment would reduce regulatory capital to a point below the prescribed

capital adequacy requirements.

b) Bond-related liquidity risk

In 2007, 13 bond issues of Abanka were listed on the regulated market of the Ljubljana Stock Exchange. However, there is no

guarantee that active trading in the listed bonds will actually develop and/or that it will continue until their maturity. The absence of

active trading may have a negative impact on the market price and liquidity of the bonds.

c) Bond-related market risk

Bond investments are exposed to market risk. Due to adverse market conditions caused by movements in money and foreign

exchange markets, interest rates, global capital markets as well as other factors, including the performance and credit rating of the

bond issuer, bond prices may fall below the purchase price paid by the investor, which in the case of their sale will result in a capital

loss for the bond holder. Market conditions also depend on regulatory environment changes, especially in the regulation of money

and capital markets, taxes, international operations and international capital fl ows.

Since the subordination of payments under subordinated bonds (AB04, AB06, AB07, AB08, AB13, VIP4E, VIP5, VIP6, VIP7) refl ects

their status in respect to senior debt instruments, in the event of the issuer’s bankruptcy or liquidation, the required returns on

subordinated bonds are higher than on regular bonds, all other features being the same. Consequently, subordinated bond prices

are more exposed to market changes and as a result the market risk related to subordinated bonds is estimated to be higher.

d) Bond-related interest rate risk

The interest payable on AB13 bonds – calculated on the basis of EURIBOR as the reference variable interest rate plus a (fi xed)

margin – cannot be exactly determined in advance, which means that it is exposed to interest rate risk. In the event EURIBOR, as

the variable interest rate component, decreases, interest payable on bonds will decrease accordingly and vice versa, in the event of

a rise in the latter, the former will also increase in proportion.





3 Critical accounting estimates, and judgements

in applying accounting policies

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next fi nancial

year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss

should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating

that there is a measurable decrease in the estimated future cash fl ows from a portfolio of loans before the decrease can be identifi ed

with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change

in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the

group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective

evidence of impairment similar to those in the portfolio when scheduling its future cash fl ows. The methodology and assumptions

used for estimating both the amount and timing of future cash fl ows are reviewed regularly to reduce any differences between loss

estimates and actual loss experience.

In determining impairment losses on a particular asset in the loan portfolio, credit spreads are taken into account in the process of

discounting the estimated future cashfl ows of the fi nancial instrument. For wider credit spreads the Group charges higher interest

rates which, in turn, result in increased impairment losses.

(b) Impairment of available for-sale equity investments

The Group determines that available-for-sale equity investments are impaired when there has been a signifi cant or prolonged decline

in the fair value below its cost. This determination of what is signifi cant or prolonged requires judgment. In making this judgment, the

Group evaluates, among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there

is evidence of a deterioration in the fi nancial health of the investee, industry and sector performance, changes in technology, and

operational and fi nancing cash fl ows.

(c) Fair value of derivatives and unlisted debt and equity securities available-for-sale

The fair value of fi nancial instruments that are not quoted in active markets are determined by using valuation techniques. The

valuation techniques (e.g. models) are created/reviewed and used by the risk management department, which is independent of the

trading units. All models refl ect comparative market prices and actual data.

(d) Held-to-maturity investments

The Group follows the IAS 39 guidance on classifying non-derivative fi nancial assets with fi xed or determinable payments and

fi xed maturity as held-to-maturity. This classifi cation requires signifi cant judgment. In making this judgment, the Group evaluates

its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for

the specifi c circumstances – for example, selling an insignifi cant amount close to maturity – it will be required to reclassify the entire

category as available-for-sale. The investments would therefore be measured at fair value not amortised cost.

If the entire held-to-maturity investments are tainted, the fair value would decrease by EUR 310 thousand (2006: EUR 2 thousand

increase), with a corresponding entry in the fair value reserve in shareholders’ equity.

(e) Deferred taxes

The Group created deferred taxes for the temporary differences between the tax and book values of assets. Deferred income tax is

determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected

to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Applied tax rates are

based on Corporate tax law (DDPO-2), where expected future tax rates are: 2008 (22%), 2009 (21%), 2010 (20%).





The Group forecasts future taxable profi t against which it will be possible to charge the temporary differences. For temporary

differences arising from the impairment of tangible fi xed assets and intangible assets, the Group assesses that these impairments

will be eliminated when the revaluation adjustment is eliminated; this will occur no later than at the point of total depreciation of

fi xed assets. Therefore, a 20% tax rate was applied during the calculation of these deferred taxes. For temporary differences arising

from different depreciation rates for accounting and tax purposes a 20% tax rate was applied because according to the Group,

these temporary differences can be eliminated no later than at the point of total depreciation of fi xed assets. Temporary differences

arising from the revaluation of securities held for trading, securities available-for-sale, derivatives and from created impairment of

receivables and fi nancial investments of subsidiaries may, according the Group’s assessment, be eliminated in 2008. Therefore a tax

rate of 22% was applied in the calculation of these deferred taxes. The Group expects that provisions formed for employee benefi ts

and for the repayment of National Housing Savings Scheme (NHSS) premiums will be drawn only after 2009. A 20% tax rate was

applied for these temporary differences.

4 Segment analyses

(a) By business segment

The Group provides services in three business segments:

– Retail banking – incorporating transaction accounts, saving products (deposits, investment saving products), loans (overdraft,

consumer, housing, mortage), exchange operations, bank card operations, on-line banking, mobile banking, bankassurance

products, selling mutual funds products, payment transactions, leasing;

– Corporate banking – incorporating transaction accounts, cash management, saving products (deposits, certifi cate of deposits),

loans (overdraft, short term, investment), export fi nancing in co-operation with SID, the Slovene Export Bank, guarantees and

letters of credit, documentary operations, payment transactions, factoring, corporate leasing;

– Financial markets – incorporating fi xed income trading, trading money market instruments, fi nancial derivatives trading, liquidity

management, ALM, brokerage, assets management, corporate fi nance, proprietary trading, correspondent banking, raising loans,

loan granting to foreign banks (participation in syndicated loans, bilateral facilities), investment management.

The Group’s operational activities in the fi eld of custody and administrative services, IT and banking technology are not disclosed

separately but included in the “other” segment.

For the purpose of intracompany accounting, transactions between divisions were treated on the basis of an agreed and harmonised

set of transfer instruments to account for the transfers of various effects (internal transfers/allocation of indirect costs by business

segment, debiting overheads to commercial divisions, internal transfers of earnings between divisions).

Liabilities were allocated to those business segments which generated them, which also applies to interest expenses and other non-

interest expenses from fi nancing. No other material expense items are attributed to business segments.

Assets and liabilities by business segment represent a majority of total balance sheet assets and liabilities, but they exclude tax

liabilities which are disclosed at the group level and not allocated to business segments. The Central Support Service’s activities are

not accounted for by business segment either.

Business segment results depend on the system of opportunity interest rates, which is based on alternative/opportunity interest

rates applied to interest-bearing assets and liabilities items aimed at establishing opportunity income and expenses. This serves

as a basis for calculating opportunity interest margins for individual business segments (as a difference between earned income

and opportunity income) as well as opportunity interest margins for individual segments of expenses (as a difference between

opportunity expenses and incurred expenses). This is also the basis for establishing positive and negative opportunity interest

margins and consequently positive or negative contributions to the performance of individual business segments.





Primary segment information


Retail

banking

Corporate

banking

Financial

markets Other Group

External revenues 46,856 105,449 42,764 5,907 200,977

Revenues from other segments – – – – –

Revenues 46,856 105,449 42,764 5,907 200,977

Segment result (950) 6,599 41,531 593 47,773

Operating profit – – – – 47,773

Share of results of associates, joint

ventures – – (61) – (61)

Profit before tax – – – – 47,712

Income tax expense – – – – (10,902)

Net profit for the year 36,810

Segment assets 470,292 1,991,750 1,003,871 27,434 3,493,347

Financial investments into

associates and joint ventures – – 1,001 – 1,001

Unallocated assets – – – – 22,726

Total assets 3,517,074

Segment liabilities 983,309 732,565 1,427,461 10,636 3,153,971

Unallocated liabilities – – – – 9,921

Total liabilities 3,163,892

Other segment items

Capital expenditure 3,423 1,771 460 4,398 10,052

Depreciation 2,063 411 230 3,955 6,659

Impairment charge (2,348) (9,056) 197 (213) (11,420)

Other non-cash expenses – – – – –






Retail

banking

Corporate

banking

Financial

markets Other Group

External revenues 45,149 78,002 36,073 4,962 164,186

Revenues from other segments – – – – –

Revenues 45,149 78,002 36,073 4,962 164,186

Segment result (3,533) 5,079 36,284 (251) 37,579

Operating profit – – – – 37,579

Share of results of associates – – – – –

Profit before tax – – – – 37,579

Income tax expense – – – – (9,963)

Net profit for the year 27,616

Segment assets 393,152 1,502,405 957,574 26,146 2,879,276

Financial investments into associates – – 8 – 8

Unallocated assets – – – – 17,662

Total assets 2,896,946

Segment liabilities 946,982 617,331 1,099,144 11,827 2,675,284

Unallocated liabilities – – – – 9,607

Total liabilities 2,684,891

Other segment items

Capital expenditure 4,279 14,426 881 2,323 21,909

Depreciation 2,801 84 180 5,231 8,296

Impairment charge (3,843) (13,382) 170 (534) (17,589)

Other non-cash expenses – – – – –

Segment revenues in 2007 and 2006 consist of interest and similar income, fee and commission income and dividend income.

Capital expenditure relates to purchases of tangible and intangible assets in the current business year.





(b) Geographical concentration

Country risk is also part of the credit risk assumed by the Group. In order to facilitate country risk management the Bank produced

a set of rules which stipulate procedures of establishing and monitoring risk exposures to foreign countries as well as procedures for

setting and monitoring the respective risk exposure limits. According to these rules the Bank establishes risk exposures to individual

foreign countries quarterly, in line with the credit ratings assigned by external credit assessment institutions. This serves as a basis

for classifi cation of foreign countries into seven internal rating categories which in turn determine exposure limits per country. In this

way adequate spreading of risk to achieve the highest possible return is ensured.

Geographical concentrations of assets, revenues and capital expenditure

As at 31 December 2007 Total assets Revenues

Capital

expenditure

Slovenia 2,636,402 164,077 10,052

European Union 602,221 24,563 –

Other former Yugoslavia 130,298 5,483 –

Other countries 147,152 6,854 –

Investments in associates and joint ventures 1,001 – –

Total 3,517,074 200,977 10,052

As at 31 December 2006 Total assets Revenues

Capital

expenditure

Slovenia 2,421,392 135,824 21,909

European Union 331,509 19,430 –

Other former Yugoslavia 41,983 4,270 –

Other countries 102,054 4,662 –

Investments in associates 8 – –

Total 2,896,946 164,186 21,909

Revenues consist of interest and similar income, fee and commission income and dividend income.

Capital expenditure relates to purchases of tangible and intangible assets in the current business year.

The Group operates principally in Slovenia, where it is based. Inter-bank exposures account for more than one half of all international

transactions, whilst the rest are transactions with foreign companies and at the central government level.





5 Net interest income

2007 2006

Interest income and similar income

Loans and advances 130,328 99,473

- to banks 5,152 6,313

- to customers 125,176 93,160

Available-for-sale securities 16,021 18,452

Financial assets held to maturity 1,398 292

Financial assets held for trading 9,242 4,010

Cash and short-term funds 1,569 500

Reverse repos 122 –

Other 958 1,027

159,638 123,754

Interest expenses and similar expenses

Deposits and loans 46,789 36,826

- from banks 5,398 618

- from customers 41,391 36,208

Repos 231 –

Debt securities in issue 6,056 6,462

Financial liabilities held for trading 1,735 665

Other borrowed funds 35,152 21,455

Subordinated liabilities 2,490 3,080

Other 3 2

92,456 68,490

Net interest income 67,182 55,264

Interest income accrued on impaired financial assets is EUR 7,059 thousand (2006: EUR 6,477 thousand).

6 Dividend income

2007 2006

Trading securities 521 690

Available-for-sale securities 1,123 1,330

1,644 2,020





7 Net fee and commission income and expenses

Breakdown by type of transaction: 2007 2006

Income

Payment transactions in Slovenia 18,416 16,890

International payment transactions 2,782 4,883

Lending transactions 1,409 3,661

Administrative services 4,395 3,995

Guarantees granted 3,896 3,041

Currency exchange transactions 175 441

Brokerage and commission-based transactions 2,552 372

Securities transactions for customers 6,066 5,124

Safekeeping of effects and valuables 4 5

Total 39,695 38,412

Expenses

Banking services in Slovenia 4,773 4,064

International banking services 1,195 1,377

Currency exchange transactions 33 149

Brokerage and commission-based transactions 99 37

Stock exchange transactions and other securities transactions 1 –

Fee expenses for other transactions 156 –

Total 6,257 5,627

Net fee and commission income 33,438 32,785

8 Realised gains and losses on fi nancial assets and liabilities

not measured at fair value through profi t and loss

2007 2006

Net realised gains from available-for-sale financial assets 7,053 2,435

Net realised losses from held-to-maturity investments (42) –

Realised losses from loans and other financial assets and liabilities (509) (1,460)

Realised gains from loans and other financial assets and liabilities 382 1,094

6,884 2,069





9 Net gains on fi nancial assets and liabilities held for trading

2007 2006

Foreign exchange transaction gains 813 4,962

Net losses from derivatives (1,259) (612)

Net gains/(losses) from securities:

- Interest rate instruments (3,180) (2,116)

- Equity holdings 8,661 11,493

Unrealised (losses)/gains from trading securities (4,952) 1,743

83 15,470

10 Net gains/losses on fi nancial assets and liabilities designated at fair

value through profi t or loss

2007 2006

Net income/(expense) arising on:

- Debt securities (unrealised losses) (1,142) –

- Deposits from customers (unrealised gains) 882 –

(260) –

11 Net other operating income2007 2006

Other operating income

- Income from non-banking services 108 119

- Income from debit cards and deferred payment cards 2,441 2,251

- Income from sale of vehicles, real estate and other 2,749 –

- Other operating income 738 954

6,036 3,324

Other operating expenses

- Taxes, contributions and other duties (37) (26)

- Membership fees and similar (151) (119)

- Expenses from card products (521) (589)

- Other operating expenses (580) (298)

(1,289) (1,032)

4,747 2,292





12 Administration cost

2007 2006

Staff costs 29,359 26,766

- Wages and salaries 26,323 23,951

- Social security costs 1,370 1,269

- Pension costs 1,666 1,546

Professional services 13,309 12,165

Advertising and marketing 1,984 1,955

Other administration costs 2,710 2,212

Software development costs 2,089 2,119

Rent payable 751 556

Other costs 382 318

50,584 46,091

Auditors’ fees (including VAT): 2007 2006

- for auditing of annual report 106 100

- other auditing services 403 219

- other non-auditing services 88 –

597 319

13 Depreciation

Note 2007 2006

Property and equipment 25 4,624 6,415

Investment property 25 18 30

Intangible assets 25 2,017 1,851

6,659 8,296

After having reassessed the useful life of fi xed assets, the Group changed depreciation rates in 2007. Due to a changed accounting

assessment, the annual depreciation charge in 2007 was EUR 1,240 thousand lower than it would have been without this change.

14 Provisions

Note 2007 2006

Provisions for employee benefits 34 200 272

Other provisions 34 739 (8,536)

Provisions for guarantees and commitments 34 (646) 6,858

293 (1,406)





15 Impairment

Note 2007 2006

Impairment:

- Loans and receivables to banks 22 3 (274)

- Loans and receivables to non-bank customers 23 11,179 18,424

- Other assets 27 (23) (65)

- Other (32) 218

Impairment charge of property, equipment, intangible assets and investment

property 25 – 692

11,127 18,995

16 Income tax expense

2007 2006

Current tax 10,270 9,455

Deferred tax (credit)/charge 632 508

10,902 9,963

Further information about deferred income tax is presented in Note 35 (Deferred income tax). The tax on the Group’s

profi t before tax differs from the theoretical amount that would arise using the basic tax rate of the parent as follows:

2007 2006

Profit before tax 47,723 37,579

Tax calculated at a tax rate of 23% (2006: 25%) 10,976 9,395

Income not subject to tax (1,404) (1,177)

Expenses not deductible for tax purposes 1,330 1,745

Income tax expense 10,902 9,963

The tax authorities carried out a full scope tax audit at the Bank for the years 1999 and 2000.

In accordance with local regulations, the tax authorities may at any time inspect the Bank’s books and records within 5 years

subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Bank’s management is not

aware of any circumstances which may give rise to a potential material liability in this respect.

The effective income tax rate for the year 2007 was 22.8% (2005: 26.5%).





17 Earnings per share

Basic earnings per share is calculated by dividing the net profi t attributable to equity holders of the Bank less payment of interest on

innovative instrument by the weighted average number of ordinary shares in issue during the year, excluding the average number of

ordinary shares purchased by the Bank and held as treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume

conversion of all dilutive potential ordinary shares, which the Bank does not have as at 31 December, 2007.

2007 2006

Profit attributable to equity holders of the Bank 31,169 27,612

Weighted average number of ordinary shares in issue 5,486,812 5,486,771

Number of treasury shares 11,870 13,229

Basic earnings per share (expressed in EUR per share) 5.68 5.03

Diluted earnings per share (expressed in EUR per share) 5.68 5.03

18 Cash and cash balances with central bank

2007 2006

Cash in hand 24,766 20,826

Obligatory reserve 25,773 20,609

Other (overnight deposits with central bank) 9,917 76,382

60,456 117,817

Included in cash and cash equivalents (Note 41) 34,683 97,207

The obligatory reserve is not available for fi nancing the Group’s day-to-day operations.

The fi nal adjustment to the obligatory reserve requirements of the Eurosystem was made with the introduction of the euro, when the

regulation on reserve requirements ceased to be in force, and the ECB Regulation on the application of minimum reserves entered

into force.





19 Financial assets and liabilities held for trading

Financial assets held for trading

2007 2006

Debt securities 164,819 138,528

Treasury bills and other eligible bills - listed 1,032 2,073

Government bonds – listed 34,240 4,484

Other debt securities 129,547 131,971

– listed 129,547 129,815

– unlisted – 2,156

Equity securities 18,162 26,427

– listed 16,554 25,791

– unlisted 1,608 636

Derivatives 562 540

183,543 165,495

Current 43,126 29,550

Non-current 140,417 135,945

Included in cash and cash equivalents (Note 41) 1,030 176

As at the end of 2007, no securities held for trading by the Group were provided as collateral (2006: nil).

Derivative fi nancial instruments

The Group uses the following derivative instruments for non-hedging purposes:

Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions.

Currency and interest rate swaps are commitments to exchange one set of cash fl ows for another. Swaps result in an economic

exchange of currencies or interest rates. No exchange of principal takes place, except for certain currency swaps. The Group’s

credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is

monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the

liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for

its lending activities.

Foreign currency options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but

not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specifi c amount of a

foreign currency at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption

of foreign exchange risk. Options are negotiated between the Group and a customer (OTC). The Group is exposed to credit risk on

purchased options only, and only to the extent of their carrying amount, which is their fair value.

The notional amounts of certain types of fi nancial instruments provide a basis for comparison with instruments recognised on the

balance sheet but do not necessarily indicate the amounts of future cash fl ows involved or the current fair value of the instruments

and, therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets)

or unfavourable (liabilities) as a result of fl uctuations in foreign exchange rates relative to their terms. The aggregate contractual or

notional amount of derivative fi nancial instruments on hand, the extent to which instruments are favourable or unfavourable, and

thus the aggregate fair values of derivative fi nancial assets and liabilities, can fl uctuate signifi cantly from time to time. The fair values

of derivative instruments held are set out below.






Contract/

notional

amount

Fair values

Assets Liabilities

Derivatives held for trading

Foreign exchange derivatives (OTC):

- currency forwards 20,345 119 89

- currency swaps 6,042 13 31

- OTC currency options 36,555 260 253

Interest rate derivatives (OTC): – interest rate swaps 135,420 170 485

Equity derivatives: – forwards (Note 20) 7,291 – 7,219

Total derivative assets/(liabilities) held for trading 562 8,077


Contract/

notional

amount

Fair values

Assets Liabilities

Derivatives held for trading

Foreign exchange derivatives (OTC): – currency forwards 31,149 285 272

Interest rate derivatives (OTC): – interest rate swaps 168,161 255 141

Total derivative assets/(liabilities) held for trading 540 413

20 Financial assets designated at fair value through profi t or loss

2007 2006

Debt securities 8,386 –

Equity securities 14,510 –

Unit link investments 2,167 –

25,063 –

Current 14,510 –

Non-current 10,553 –

Debt security, issued by Societe Generale Acceptance NV, guarantees a reservation of the investment’s value at maturity. The

coupon of the bond is linked to the performance of a portfolio composed of seven equally weighted international indices from

various asset classes: Equities, Real estate, Bonds, Commodities and Forex. The maturity of bond is seven years. The interest

payments of the above debt securities are equity-indexed, which results in dissimilar risks inherent in the host and embedded

derivative. The Group therefore designates the hybrid contracts as fi nancial assets at fair value through profi t or loss.

An accounting mismatch would arise if the equity securities were accounted through equity, because the related derivatives are

measured at fair value, with movements in the fair value taken through the income statement. By designating those equities at fair

value, the movement in the fair falue will be recorded in the income statement.

In 2007, the Group earned EUR 306 thousand in fees measured at fair value through profi t and loss. Accrued income recognised in

the income statement amounted to EUR 29 thousand, whilst expenses were not material.





21 Available-for-sale fi nancial assets

2007 2006

Debt securities 447,167 430,087

Treasury bills and other eligible bills – 103,213

– central bank bills - unlisted – 101,273

– treasury bills - listed – 1,940

Other debt securities – at fair value: 447,167 326,874

– listed 447,167 320,098

– unlisted – 6,776

Equities and equity holdings 38,950 68,146

Equity holdings – at fair value: 6,254 6,249

– listed – –

– unlisted 6,254 6,249

Equities – at fair value: 32,696 61,897

– listed 22,616 48,622

– unlisted 10,080 13,275

Total available-for-sale financial assets 486,117 498,233

Current 148,325 152,247

Non-current 337,792 345,986

Included in cash and cash equivalents (Note 41) – 80,383

Central bank bills are debt securities issued by the Bank of Slovenia. The whole amount was due in 2007. Treasury bills are securities

issued by the Slovene government falling due in 2007.

Securities pledged under repurchase agreements with other banks are government bonds with a market value as at 31 December,

2007 of EUR 128,951 thousand (2006: nil). All repurchase agreements fall due within 12 months.

As at 31 December, 2007 Abanka held securities issued by the Slovene government, the Bank of Slovenia and commercial banks as

collateral for the purpose of payment settlement – STEP2 and for ECB instruments. The total value of the collateral was EUR 57,978

thousand (2006: EUR 58,829 thousand).

Fixed and variable interest rate debt securities account for 78% and 22% of the total respectively. The Group has not reclassifi ed any

fi nancial assets measured at amortised cost rather than fair value during the year.





Movements in available-for-sale treasury bills and other eligible bills are as follows:

2007 2006

As at 1 January 103,213 282,573

Exchange differences on monetary assets – (125)

Additions – 1,317,123

Disposals (103,213) (1,496,358)

As at 31 December – 103,213

Movements in other available-for-sale securities are as follows:

2007 2006

As at 1 January 395,020 211,860

Exchange differences on monetary assets (184) (2,261)

Additions 399,803 272,942

Disposals (sale and redemption) (317,232) (91,681)

Gains from changes in fair value (Note 39) 8,710 4,160

As at 31 December 486,117 395,020

22 Loans to and receivables from banks

2007 2006

Placements with other banks 38,439 32,976

Loans and deposits to other banks 197,828 147,262

Gross loans 236,267 180,238

Provision for impairment (65) (840)

Net loans 236,202 179,398

Current 231,202 179,398


Included in cash and cash equivalents (Note 41) 228,026 145,731

Movements in provisions for impairment are as follows:

Note

As at 1 January 2006 1,114

Provision for impairment 15 (274)

As at 31 December 2006 840

Provision for impairment 15 3

Write-offs (778)






23 Loans to and receivables from non-bank customers

2007 2006

Corporate entities 2,090,934 1,575,800

Retail customers 411,644 361,506

Gross loans 2,502,578 1,937,306

Provision for impairment (117,790) (108,254)

Net loans 2,384,788 1,829,052

Current 1,113,412 849,986

Non-current 1,271,376 979,066

Receivables for interest are recognized together with the underlying fi nancial instrument.

The Group accepted listed securities at fair value of EUR 219,118 thousand (2006: EUR 114,649 thousand) as collateral for loans,

which it is permitted to sell or repledge.

Movements in provisions for impairment are as follows:

Note

Corporate

entities

Retail

customers Total

As at 1 January 2006 86,684 5,504 92,188

Provision for impairment 15 13,866 4,558 18,424

Write-offs (1,882) (476) (2,358)

As at 31 December 2006 98,668 9,586 108,254

Provision for impairment 15 10,006 1,173 11,179

Write-offs (1,589) (54) (1,643)

As at 31 December 2007 107,085 10,705 117,790

All loans were written down to their recoverable amounts.

Loans and advances are further analysed in the following notes: Credit risk (Note 2.1.1), Foreign exchange risk (Note 2.1.2.4), Interest

rate risk (Note 2.1.2.5), Liquidity risk (Note 2.1.3), Fair value (Note 2.1.4) and Related party (Note 45).





Loans and advances to customers include fi nance lease receivables as follows:

2007 2006

Gross investment in finance leases, receivable: 92,249 62,470

– No later than 1 year 39,388 25,674

– Later than 1 year and no later than 5 years 43,642 23,574

– Later than 5 years 9,219 3,715

Unearned future finance income on finance leases 14,783 8,975

Net investment in finance leases: 77,466 53,495

– No later than 1 year 34,451 22,460

– Later than 1 year and no later than 5 years 35,603 26,532

– Later than 5 years 7,412 4,503

24 Held-to-maturity investments

2007 2006

Debt securities – at amortised cost: – listed 13,308 13,958

Current – 719

Non-current 13,308 13,239

As at 31 December 2007 the Group held securities issued by the Slovene government as collateral for the purpose of payment

settlement – STEP2 and for ECB instruments. The total value of the collateral was EUR 9,022 thousand (2006: EUR 8,953

thousand).

Debt securities have fi xed interest rates.

The Group has not reclassifi ed any fi nancial assets to be measured at amortised cost rather than fair value during the year (2006:

nil).

Movements in held-to-maturity investments are as follows:

2007 2006

As at 1 January 13,958 –

Exchange differences on monetary assets – –

Additions (purchase, amortisation of discount) 64,398 13,990

Disposals (redemption, amortisation of premium) (65,048) –

Impairment losses – (32)

As at 31 December 13,308 13,958





25 Property and equipment, intangible assets, investment property

and non-current assets and disposal groups classifi ed as held

for sale

Land and

buildings Computers

Other

equipment

Assets

under con-

struction

Total

prop-

erty and

equip-

ment

Intangible

assets

Invest-

ment

property

Non -

current

assets

held for

sale

As at 31

December

2006

Cost 57,002 9,946 24,511 872 92,331 10,936 474 544

Accumulated

depreciation 18,438 8,639 15,543 – 42,620 5,880 106 –

Net book

amount 38,564 1,307 8,968 872 49,711 5,056 368 544

Cost

As at 1

January 2007 57,002 9,946 24,511 872 92,331 10,936 474 544

Additions 927 1,009 3,601 4,255 9,792 1,674 48 966

Disposals (1,799) (842) (2,525) – (5,166) (345) (266) (83)

As at 31

December

2007 56,130 10,113 25,587 5,127 96,957 12,265 256 1,427

Depreciation

As at 1

January 2007 18,438 8,639 15,543 – 42,620 5,880 106 –

Depreciation

(Note 13) 1,021 893 2,710 – 4,624 2,017 18 –

Additions 33 18 – – 51 – 21 –

Disposals (29) (815) (1,339) – (2,183) (167) (33) –

As at 31

December

2007 19,463 8,735 16,914 – 45,112 7,730 112 –

Net book

amount as at

31 December

2007 36,667 1,378 8,673 5,127 51,845 4,535 144 1,427

All investment property generates income and expenses. There was EUR 41 thousand of rental income from investment property

(2006: EUR 52 thousand) and EUR 31 thousand of direct expenses recognised in the income statement in 2007 (2006: EUR 42

thousand).





Property and equipment, intangible assets, investment

property and non-current assets and disposal groups

classifi ed as held for sale (continued)

Land and

buildings Computers

Other

equipment

Assets

under con-

struction

Total

prop-

erty and

equip-

ment

Intangible

assets

Invest-

ment

property

Non -

current

assets

held for

sale

As at 31

December

2005

Cost 41,660 10,293 20,596 1,954 74,503 9,591 530 915

Accumulated

depreciation 16,793 8,048 13,630 – 38,471 4,600 83 –

Net book

amount 24,867 2,245 6,966 1,954 36,032 4,991 447 915

Cost

As at 1

January 2006 41,660 10,293 20,596 1,954 74,503 9,591 530 915

Additions 16,801 828 5,512 – 23,141 2,058 36 –

Disposals (904) (1,175) (1,597) (1,082) (4,758) (233) (1) (290)

Impairment

charge (Note

15) (555) – – – (555) (480) (91) (81)

As at 31

December

2006 57,002 9,946 24,511 872 92,331 10,936 474 544

Depreciation

As at 1

January 2006 16,793 8,048 13,630 – 38,471 4,600 83 –

Depreciation

(Note 13) 1,965 1,758 2,692 – 6,415 1,851 30 –

Additions 262 1 – – 263 – 3 –

Disposals (448) (1,168) (779) – (2,395) (199) (1) –

Impairment

charge (Note

15) (134) – – – (134) (372) (9) –

As at 31

December

2006 18,438 8,639 15,543 – 42,620 5,880 106 –

Net book

amount as at

31 December

2006 38,564 1,307 8,968 872 49,711 5,056 368 544





26 Investments in associates and joint ventures

2007 2006

Associates

As at 1 January 8 25

Additions/(disposals) 52 8

Transfer to subsidiaries – (25)

Share of results (11) –


Joint ventures

As at 1 January – –

Additions/(disposals) 1,002 –

Share of results (50) –

As at 31 December 952 –

Total as at 31 December 1,001 8

The principal associates, which are unlisted are:

2007

Name

Country of

incorporation Assets

Liabili-

ties Equity

Rev-

enues

Profit/

(Loss)

% inter-

est held

KDSPV1 B.V.

(former Alavits B.V.) Netherlands 157 20 137 4 (32) 33.33

In January 2007 there was an increase of EUR 52 thousand in the capital investment in Alavits BV, Netherlands to EUR 60 thousand,

but the stake remained unchanged from the end of 2006 at 33.33%, as the other owners also increased their investments at the

same time.

On October 19, 2007 the associate Alavits B.V. was renamed KDSPV1 B.V.

2006

Name

Country of


Liabili-

ties Equity

Rev-

enues

Profit/

(Loss)

% inter-

est held

Alavits B.V. Netherlands 18 – 18 – – 33.33

2007

Name

Country of


Liabili-

ties

Liabili-

ties to

inves-

tors in

fund

units

Rev-

enues

Profit/

(Loss)

% inter-

est held

Delniški Evropa Vipa Invest Slovenia 63,031 270 62,761 21,998 17,459 25.54

2006

Name

Country of


Liabili-

ties

Liabili-

ties to

inves-

tors in

fund

units

Rev-

enues

Profit/

(Loss)

% inter-

est held

Delniški Evropa Vipa Invest Slovenia 39,113 248 38,866 10,480 8,845 28.85





As at December 31, 2007 Abanka holds 883,373 units (2006: 883,373 units) of the mutual fund Delniški Evropa Vipa Invest which

represents 25.54% of the units in issue (2006: 28.85%). The fund is managed by Abančna DZU, a company controlled by Abanka

Vipa d.d. The value per unit as at December 31, 2007 is EUR 18.15 (2006: 12.69). The investment is measured at fair value through

profi t or loss therefore it is not accounted for using the equity method. The fund does not prepare fi nancial statements in accordance

with IFRS, but in accordance with Slovene GAAP.

The principal joint ventures, which are unlisted are:

2007

Name

Country of


Liabili-

ties Equity

Rev-

enues

Profit/

(Loss)

% inter-

est held

ASA Abanka Leasing d.o.o.

Bosnia and

Herzegovina 8,317 5,197 1,944 169 (101) 49

To pursue its strategy of increasing market share in South-East Europe, Abanka Vipa d.d. purchased a 49% stake of ASA Leasing

d.o.o., Sarajevo from ASA Holding d.o.o., Sarajevo. The change of the ownership was entered in the register of companies on

13 July, 2007. Since then the company has been named ASA Abanka leasing d.o.o.

27 Other assets

2007 2006

Due from customers 882 1,858

Receivables from card operations 1,840 408

Inventories 345 891

Repossessed collateral 262 149

Prepayments 419 12,221

Receivables from factoring 35,121 13,762

Receivables from foreign exchange dealing – 202

Prepaid taxes 377 334

Other receivables:

− retail customers – 1,772

− debtors 542 312

− cheques 101 128

Receivables from sale of eurobonds 20,884 –

Other 4,568 1,838

65,341 33,875

Current 65,034 33,199

Non-current 307 676

The amount of non – fi nancial other assets is EUR 345 thousand (2006: EUR 891 thousand) and the amount of fi nancial assets is

EUR 64,996 thousand (2006: EUR 32,984 thousand).





Movements in provisions for impairment of other assets are as follows:

Note

As at 1 January 2006 5,499

Provision for impairment 15 (65)

Write-offs (1,534)

As at 31 December 2006 3,900

Provision for impairment 15 23

Write-offs (256)

As at 31 December 2007 3,667

28 Financial liabilities designated at fair value through profi t or loss

2007 2006

Structured deposit (non-current) 8,386 –

The payments of the above structured deposit are equity-indexed, which results in dissimilar risks inherent in the host and embedded

derivative. The Group therefore designates the compound fi nancial instruments as fi nancial liabilities at fair value through profi t or

loss.

The contractual undiscounted amount that will be required to be paid at maturity of the above debt securities is EUR 9,268 thousand.

The amount exceeds the book amount by EUR 882 thousand.

There were no signifi cant gains or losses attributable to changes in the credit risk for those fi nancial liabilities designated at fair value

in 2007.

Deposits classifi ed as fi nancial liabilities designated at fair value through profi t or loss are related to securities held as assets.

29 Deposits from banks and non-bank customers

2007 2006

Deposits from banks 76,692 108,178

Current 70,488 108,178


The amount of deposits from banks with fi xed interest rates is EUR 68,217 thousand at 31 December, 2007 (2006: EUR 91,929

thousand); the amount of deposits from banks with variable interest rates is EUR 8,475 thousand at 31 December, 2007 (2006: EUR

16,249 thousand).





2007 2006

Deposits from non-bank customers

Corporate entities 813,301 654,465

Retail customers 911,058 869,861

Total deposits from non-bank customers 1,724,359 1,524,326

Current 1,674,994 1,507,403


Fixed and variable interest rate deposits from non-bank customers account for 73% (2006: 78%) and 27% (2006: 22%) of the total

respectively.

Deposits and certifi cates of deposit provided as collateral for granted loans in 2007 totalled EUR 9,053 thousand (2006: EUR 10,741

thousand). The fair value of those deposits approximates the carrying amount.

30 Loans and advances from banks and non-bank customers

2007 2006

Loans and advances from banks

– in local currency (€) 926,994 582,342

– in foreign currency 28,253 2,580

Total loans and advances from banks 955,247 584,922

Current 157,084 142,735

Non-current 798,163 442,187

All loans and advances from banks have a variable interest rate.

2007 2006

Loans and advances from non-bank customers

– other financial organisation (SID d.d. - Slovene Export Corporation has on 1 January 2007

formally started operating as a bank with the name SID banka d.d. – Slovene Export and

Development Bank) – 176,522

– other long-term liabilities 330 396

Total loans and advances from non-bank customers 330 176,918

Current 202 56,083

Non-current 128 120,835

Other long-term liabilities have a fi xed interest rate.

On 1 January, 2007 SID d.d. was renamed as SID-Slovenska izvozna in razvojna banka d.d. Therefore, in 2007 it was disclosed

under loans from banks and amounted to EUR 175,669 thousand as at 31 December, 2007.

Loans and advances from banks and non-bank customers are further analysed as part of the balance sheet in the following notes:

Foreign exchange risk (Note 2.1.2.4), Interest rate risk (Note 2.1.2.5), Liquidity risk (Note 2.1.3), Fair value (Note 2.1.4) and Related

party transactions (Note 45).





31 Debt instruments

Interest rate on

31 December 2007 2006

Central bank bills and certificates 4.30% - 4.75% 1,005 6,251

Certificates of deposit (falling due: 2008 to 2013) 3.7% - 4.7% 66,948 73,242

Bonds 9th issue due 1 March, 2011 in EUR 4.7% 9,873 10,394

Bonds 10th issue due 1 October, 2011 in EUR 4.6% 21,243 21,243

Bonds 11th issue due 1 December, 2010 in EUR 4.0% 17,323 20,864

Bonds 12th issue due 12 December, 2010 in EUR 3.8% 18,380 20,819

Total debt instruments 134,772 152,813

Current 33,157 17,149

Non-current 101,615 135,664

32 Subordinated liabilities

Interest rate on

31 December 2007 2006

Issued subordinated debt securities

Short–term euro debt securities 27 24

Bonds 4th issue due 1 June, 2007 in EUR 6.25% – 10,052

Bonds 6th issue due 15 May, 2009 in EUR 5.9% 13,562 13,598

Bonds 7th issue due 21 May, 2010 in EUR 5.3% 16,739 17,398

Bonds 8th issue due 1 March, 2011 in EUR 4.9% 10,410 10,411

Bonds 13th issue due 24 June, 2008 in SIT 6M Euribor + 0.5% 5,102 5,098

Bonds 4th issue (VIP4E) due 1 August, 2007 in EUR 7% – 263

Bonds 5th issue (VIP5) due 15 July, 2008 in EUR 6% 257 514

Bonds 6th issue (VIP6) due 9 September, 2009 in EUR 5.5% 509 763

Bonds 7th issue (VIP7) due 18 December, 2010 in EUR 6.2% 752 1,002

Total issued subordinated debt securities 47,358 59,123

Subordinated deposits 6,403 6,371

Total issued subordinated debt securities 53,761 65,494

Current 12,748 10,950


Subordinated deposits are deposits with the characteristics of debt instruments and form a part of supplementary regulatory

capital.

The fourteenth and fi nal coupon of the 4th-issue AB04 bonds to the amount of EUR 103.07 matured on 1 June 2007. The coupon

consists of the principal of EUR 100, and interest of EUR 3.07. The total settled amount of the matured AB04 coupon was EUR

10,307 thousand.

The Group did not issue dividend bonds, convertible bonds or bonds with a pre-emptive right to the purchase of shares.





33 Repurchase agreements

2007 2006

Short-term financial liabilities to foreign banks – loan - repo 123,887 –

Current 123,887 –

Non-current – –

Financial liabilities are linked to fi nancial assets pledged under repurchase agreements with foreign banks. As at 31 December

2007 securities available for sale at fair value of EUR 128,951 thousand were pledged to third parties in sale and repurchase

agreements.

34 Provisions

Note

Provisions for

guarantees and

commitments Other provisions

Provisions

for employee

benefits

As at 1 January 2006 11,306 12,746 2,749

Additional provisions 14 6,858 (8,536) 272

Utilised during year (65) (810) (178)

Transfer from other provisions 328 (328) –

As at 31 December 2006 18,427 3,072 2,843

Additional provisions 14 (646) 739 200

Utilised during year (72) (553) (258)

As at 31 December 2007 17,709 3,258 2,785

The Group calculated the amount of severance payments and jubilee payments as at 31 December, 2007, using the average data of

employees under collective agreements, under management agreements with special authorities and on the Management Board.

The calculation is based on the following major assumptions:

− a discount factor of 4%,

− the number of employees eligible for benefi ts: 919,

− labour turnover: 3.67% for employees under collective agreements and 1.35% for employees under management agreements

with special authorities,

− wage increases due to infl ation indexation and promotion: 3% for employees under collective agreements and 2% for employees

under management agreements with special authorities,

− the average total number of years of service, accounting for the men to women ratio: 37.14 years for employees under collective

agreements and employees under management agreements with special authorities and 40 years for management board

members.

Employees are also entitled to jubilee payments for every decade of service.

Other provisions are disclosed in Note 43.

Other provisions include provisions for national housing savings scheme (NHSS). Whenever a saver in the NHSS fails to take up the

option of a housing loan at the NHSS terms, the Group is obliged to repay all the premiums received by the saver during the saving

period to the National Housing Fund. The Group has created EUR 3,105 thousand of provisions for that purpose. Provisions of EUR

72 thousand relate to legal proceedings and provisions of EUR 81 thousand relate to onerous contracts.





35 Deferred income tax

Deferred income tax is calculated on all temporary differences under the liability method using effective tax rates of 20% or 22%

according to the tax rate valid in the year when elimination of temporary differences is projected (2006: 20% or 23%).

Movements in the deferred income tax account are as follows:

2006 Movement 2007

Deferred income tax liabilities

Available-for-sale investments 3,267 (86) 3,181

Deferred income tax from retained earnings due to IFRS implementation 1,501 (769) 732

Different depreciation rates for accounting and tax purposes – 356 356

4,768 (499) 4,269

Deferred income tax assets

Available-for-sale investments 912 177 1,089

Trading securities 376 (250) 126

Impairment of property and equipment and investment property 117 (9) 108

Different depreciation rates for accounting and tax purposes 28 87 115

Provisions for employee benefits 571 (34) 537

Other provisions 623 (126) 497

Other 724 55 779

3,351 (100) 3,251

Included in income statement: Note 2007 2006

Trading securities (250) (336)

Impairment of property and equipment and investment property (9) 117

Different depreciation rates for accounting and tax purposes (268) 28

Provisions for employee benefits (34) (755)

Other provisions (126) 304

Other 55 134

16 (632) (508)

Included in equity: 2007 2006

Available-for-sale investments 86 (1,317)

Available-for-sale investments 177 912

Other – 53

263 (352)





Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against

current tax liabilities and when the deferred income taxes relate to the same fi scal authority.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet

date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax is determined on the basis of temporary differences using tax rates from 20% to 22%, which are the expected

tax rates when the temporary differences can be derecognized (2006: 20% or 23%).

For temporary differences arising from the impairment of tangible fi xed assets and intangible assets, a 20% tax rate was applied

during the calculation of these deferred taxes. For temporary differences arising from different depreciation rates for accounting

and tax purposes a 20% tax rate was applied. Temporary differences arising from the revaluation of securities held for trading,

securities available-for-sale, derivatives and from created impairment of receivables and fi nancial investments of subsidiaries may,

according to the Group's assessment, be eliminated in 2008. Therefore a tax rate of 22% was applied in the calculation of these

deferred taxes.

The Group expects that provisions formed for employee benefi ts and for the repayment of National Housing Savings Scheme

(NHSS) premiums will be drawn only after 2009. A 20% tax rate was applied for these temporary differences.

Further information on deferred tax charged directly to equity is presented in note 39 Reserves and retained earnings.

36 Other liabilities

2007 2006

Liabilities from other taxes – non-financial 953 1,062

Creditors 4,430 2,094

Liabilities from factoring 32,300 13,627

Liabilities from card operations 1,519 2,191

Prepayments 207 158

Liabilities to employees 1,147 1,109

Liabilities from transactions with eurobonds – 11,896

Cash in transit 7 70

Items in the course of payment 1,153 582

Other 7,380 6,808

49,096 39,597

Current 49,096 39,597





37 Basic equity, share premium and treasury shares

The Bank’s share capital is comprised of 5,500,000 registered par-value shares. All of them are ordinary shares. The number of

shares with a voting right is 5,498,664. All shares issued are fully paid. Shareholders with a holding of at least 5% of the issued share

capital as at 31 December, 2007 are as follows:

2007 Share

Sava, d.d. 23.8%

Zavarovalnica Triglav 21.3%

Zvon Ena Holding, d.d. 17.2%

Delniški vzajemni sklad Triglav steber I 7.3%

HIT, d.d., Nova Gorica 6.1%

In the normal course of its equity trading and market activities, the Group buys and sells its own shares. This is in accordance with

the Bank’s By-Laws and in compliance with all aspects of the Slovene legislation.

These shares are treated as a deduction from the shareholders’ equity. Gains and losses on sales or redemption of own shares are

credited or charged to reserves.

Own share fund was decreased by 1,359 ABKN shares or EUR 13 thousand in total on 21 December, 2007. As at 31 December,

2007 the Bank was holding 11,870 Abanka shares (9,650 ABKR shares and 2,220 ABKN shares) worth EUR 254 thousand in total.

Movement of treasury shares:

Number of

shares Total

As at 1 January 2006 13,229 267

(Sale)/purchase – –

As at 1 January 2007 13,229 267

Sale (1,359) (13)

As at 31 December 2007 11,870 254

Movements in share premium:

2007 2006

As at 1 January 57,994 57,994

Appropriation of rewards in form of shares 68 –

As at 31 December 58,062 57,994



2006 Share

Zavarovalnica Triglav 21.3%

FMR, d.d. 9.8%

Delniški vzajemni sklad Triglav steber I 7.3%

Zvon Ena Holding, d.d. 6.9%

HIT, d.d., Nova Gorica 6.1%

Poteza Naložbe, d.o.o. 5.3%

Štajerski avtodom, d.d. 5.0%



38 Equity component of compound fi nancial instruments

On 18 January, 2007 Abanka signed an agreement on a subordinated loan which classifi es as an innovative instrument according

to the defi nition in Article 11 of the Decision on Capital Calculation of (Savings) Banks (Offi cial Gazette of the RS, no. 135/2006). The

innovative instrument is a subordinated loan from VTB Europe, a bank with its head offi ce in London. The innovative instrument fulfi ls

all the Bank of Slovenia’s requirements for inclusion in the Tier 1 and Tier 2 capital of the Bank.

The subordinated loan was fi nanced by bonds issue, so called loan participation notes, issued by a Dutch company established

specifi cally for this transaction. The proceeds from the notes issue were paid to VTB Europe to fund the subordinated loan that it

provided to Abanka. Any payments of interest and principal on the subordinated loan are the sole source of funds to cover payments

of interest and principal on the notes. As such holders of the notes are exposed to Abanka’s risk, though they have no recourse to

any assets of Abanka.

Payments of principle and interest under the subordinated loan are entirely at the discretion of the management of Abanka, and as

such the subordinated loan does not meet the defi nition of a fi nancial liability in accordance with IFRS. Accordingly the subordinated

loan has been classifi ed as an equity instrument in its entirety. The nominal value of the subordinated loan is EUR 120,000 thousand

and transaction costs of EUR 2,461 thousand were incurred on issuance leading to the subordinated loan being initially recognised

at EUR 117,539 thousand within equity. As the subordinated loan is an equity instrument, payments of interest are shown as

dividends in these fi nancial statements. A dividend of EUR 5,630 thousand was paid on the loan in 2007.

39 Reserves from profi t (including retained earnings) and revaluation

reserves

2007 2006

Reserves including retained earnings 121,001 99,032

Net profit for the year 26,586 24,548

Revaluation reserve – AFS investments 7,260 7,747

Total 154,847 131,327

Movements in reserves from profi t:

2007 2006

As at 1 January 90,675 75,823

Transfer of net profit to reserves from profit 21,949 16,340

Other 20 (1,488)

As at 31 December 112,644 90,675

In accordance with a resolution by the General Meeting of Shareholders, in 2007 EUR 20 thousand of unpaid dividends, the

payment of which fell due more than fi ve years before (2006: EUR 24 thousand) was derecognized as a liability, the write back being

refl ected in equity.





Movements in retained earnings:

2007 2006

As at 1 January 8,357 11,471

Prior period errors and change in accounting policy (1,617) (2,970)

Restatement of opening balance 6,740 8,501

Transfer of net profit to retained earnings 5,541 4,945

Appropriation of dividends (5,541) (5,037)

Covering of the loss brought forward 1,617 –

Other – (52)

As at 31 December 8,357 8,357

In 2007, the Group identifi ed an error in the application of accounting policies regarding bookkeeping and controlling the events

related to commission deals from previous years. By closing an open balance of a commission deal an error was corrected by

decreasing profi t before tax in amount of EUR 170 thousand and debiting retained loss in amount of EUR 1,617 thousand (which

resulted in a loss of EUR 2,100 thousand and reduced the income tax charge by EUR 483 thousand). Due to the prior period error

the Group restated the opening balance of equity as at 1 January 2007 because it was impracticable to determine the period-

specifi c effects of the error on comparative information for one or more prior periods presented.

Due to the change of accounting policy of the subsidiary Argolina, d.o.o. relating to capitalization of interest expenses, retained

earnings of the Group as at 1 January 2006 decreased by EUR 2,970 thousand.

Movements of net profi t for the fi nancial year:

2007 2006

As at 1 January 24,548 18,221

Net profit for the financial year 36,799 27,612

Appropriation of interests from innovative instrument (5,630) –

Covering of the loss brought forward (1,617) –

Transfer of net profit to reserves from profit (27,514) (21,285)

As at 31 December 26,586 24,548

Movements in revaluation reserves:

Note 2007 2006

As at 1 January 7,747 5,440

Net gains/(losses) from changes in fair value 21 8,710 4,160

Less: addition to deferred income taxes (1,893) (767)

Net gains transferred to net profit on disposal (9,518) (1,448)

Less: released of deferred income taxes on disposal 2,214 362

As at 31 December 7,260 7,747





40 Dividends per share

Final dividends are not accounted for until they have been ratifi ed at the Annual General Meeting. At the meeting in June 2008, a

dividend in respect of 2007 of EUR 1.01 per ordinary share (2006: actual dividend EUR 1.01 per ordinary share) is to be proposed.

The consolidated fi nancial statements for the year ended 31 December, 2007 do not refl ect this resolution, which will be accounted

for in shareholders’ equity as an appropriation of retained profi ts in the year ending 31 December, 2008.

41 Cash and cash equivalents

For the purposes of the cash fl ow statement, cash and cash equivalents comprise the following balances with less than three

months maturity from the date of acquisition.

2007 2006

Cash and cash balances with central bank – Note 18 34,683 97,208

Treasury bills and other eligible bills – Note 19, 21 1,030 80,559

Loans and receivables to banks – Note 22 228,026 145,731

263,739 323,498

42 Contingent liabilities and commitments

a) Legal Proceedings

As at 31 December, 2007 and 31 December, 2006, there were some legal proceedings against the Group, however Bank

management considers that the provision booked is appropriate and no further loss is expected.

Total amount of legal proceedings for which the Group is a respondent was EUR 232 thousand (2006: EUR 163 thousand). The

Group made provisions for these legal proceedings on the basis of estimated future cashfl ow of EUR 72 thousand (2006: EUR 38

thousand). For all other legal proceedings the Group estimates that it is less than probable that a cash outfl ow will be required to

settle the proceedings.

b) Capital commitments

As at 31 December, 2007 and 31 December, 2006, the Group had no capital commitments in respect of building and equipment

purchases.

c) Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to customers upon request. Guarantees and standby

letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot

meet their obligations to third parties, carry the same credit risk as loans, documentary and commercial letters of credit, (which are

written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated

amount under specifi c terms and conditions) and are collateralised by the underlying shipments of goods to which they relate

and therefore involve signifi cantly less risk. Cash requirements under guarantees and standby letters of credit are considerably

lower than the amount of the commitment, because the Group does not generally expect the third party to draw funds under the

agreement.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or

letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in the amount

equal to the total unused commitments. However, the likely amount of loss, though not easy to quantify, is considerably lower than

the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specifi c credit

standards.





While there is some credit risk associated with the remainder of commitments, the risk is viewed as modest, since it results from the

possibility of unused portions of loan authorisations being drawn by the customer and, secondly, from these drawings subsequently

not being repaid when due. The Group monitors the term to maturity of credit commitments, because long-term commitments

generally involve greater credit risk than short-term ones. The total outstanding contractual amount of commitments to extend credit

does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being

fi nanced.

The following table indicates the contractual amounts of the Group’s guarantees and commitments to extend credit to customers:

Guarantees and commitments Note 2007 2006

Performance bonds 291,239 210,002

Financial guarantees 101,794 146,534

Letters of credit 41,107 20,200

Avals 20 60

Assumed irrevocable liabilities 347,880 268,873

Derivatives 3,017 5,405

Other 14,021 36,838

799,078 687,912

Provision for guarantees and commitments and other provisions: 34

– Guarantees and commitments (17,709) (18,427)

– Other provisions

- Legal proceedings (72) (38)

- Onerous contracts (81) –

- Euro adoption project – (233)

- National housing savings scheme (NHSS) (3,105) (2,801)

778,111 666,413

43 Managed funds

The Group manages assets totalling EUR 136,903 thousand (2006: EUR 88,764 thousand) on behalf of third parties. Managed

fund assets are accounted for separately from those of the Group. Income and expenses of these funds are for the account of the

respective fund and no liability falls on the Group in connection with these transactions. The Group is compensated for its services

by fees chargeable to the funds.





44 Other items in Cash fl ow statement

Other gain/loss from investing activities in amount of (2,233) is transferred into cash payments on investing activities in amount of

EUR 835 thousand. The amount of 1,398 relates to Held-to-maturity investments.

Other gain/loss from fi nancing activities relates to interest from subordinated liabilities (EUR 261 thousand relate to subordinated

deposits and EUR 2,852 thousand relate to Abanka’s subordinated bonds).

Other adjustments to total profi t or loss before tax relate to net provisions (6,196 new provisions less 5,923 utilised provisions).

45 Related party transactions

Parties are considered to be related, if one party has the ability to control the other party or exercise signifi cant infl uence over the

other party in making fi nancial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and

deposits. The volume of transactions involving related parties for the year-end, and related expense and income for the year are as

follows:

Type of related party

Members of the

Board of directors and

Supervisory Board

Entities with

significant influence

Associates and

joint ventures

2007 2006 2007 2006 2007 2006

Loans

Loans outstanding as at 1 January 101 65 42,732 6,430 – –

Loans issued during the year 241 91 156,373 106,397 4,500 –

Loan repayments during the year (92) (55) (114,872) (70,095) (50) –

Loans outstanding as at 31

December 250 101 84,233 42,732 4,450 –

Interest income and fee earned 10 1 4,689 1,589 38 –

Deposits

Deposits as at 1 January 334 717 26,123 12,617 – –

Deposits received during the year 1,716 573 232,670 286,181 – –

Deposits repaid during the year (1,383) (956) (233,209) (272,675) – –

Deposits as at the end of the year 667 334 25,584 26,123 – –

Interest expense on deposits 12 9 654 887 – –

Foreign exchange trading

Aggregated gain/(loss) – – (984) (82) – –

Other revenue – fee income – – – – – –

Guarantees, comfort letters issued

by the Group – – – – – –

Guarantees fee income – – – – – –

Related parties consist of members of the Board of directors and Supervisory Board, entities with signifi cant infl uence and

associates.





In December 2007, Abanka awarded remuneration to its management in the form of ABKN shares issued by Abanka, whose

fair value at the day of payment was EUR 60 per share. The fair value of the awarded shares equalled their selling price set in

the recapitalisation process described in Note 47. The difference between the book value and nominal amount per share is EUR

50.3, which was charged against the share premium account. The services acquired with equity-settled share-based payment

transactions were recognised by the Group as labour costs at the time when received.

Loans granted by the Group to members of the Supervisory Board of the Bank and to directors of subsidiaries stood at EUR 250

thousand at the end of 2007 (2006: EUR 93 thousand). The amount of loan repayments totalled EUR 84 thousand (2006: EUR 50

thousand). The average interest rate on the loans was 5.98% (2006: 5.38%).

Loans granted by the Group to members of the Management Board of the Bank and to directors of subsidiaries stood at EUR 29

thousand at the end of 2007 (2006: EUR 15 thousand). The amount of loan repayments totalled EUR 13 thousand (2006: EUR 4


Loans granted by the Group to employees not covered by the tariff section of the collective agreement stood at EUR 453 thousand

at the end of 2007 (2006: EUR 480 thousand). The amount of loan repayments totalled EUR 484 thousand (2006: EUR 194


The total of all earnings and benefi ts received by the members of the Bank’s Management Board and the directors of the subsidiaries

for their work in the Group in the 2007 fi nancial year was EUR 1,193 thousand. The salaries amounted of EUR 989 thousand (2006:

EUR 887 thousand) and renumerations of EUR 204 thousand (2006: EUR 340 thousand).

The total of all earnings and benefi ts received by employees on contracts not covered by the tariff section of the collective agreement

for their work in the Group in the 2007 fi nancial year was EUR 3,174 thousand. The salaries amounted of EUR 3,048 thousand (2006:

EUR 2,746 thousand), jubilees of EUR 1 thousand (2006: EUR 1 thousand) and retirement benefi ts or redundancy payments of EUR

125 thousand (2006: EUR 36 thousand).

The total of all earnings and benefi ts received by the members of the Supervisory Board for their duties in the Group in the 2007

fi nancial year was EUR 93 thousand (2006: EUR 133 thousand). They relate to remunerations only.





46 Subsidiaries2007 2006

Name Country % interest % interest

Abančna DZU d.o.o., Ljubljana – unlisted Slovenia 99.00 99.00

Afaktor d.o.o., Ljubljana – unlisted Slovenia 100.00 100.00

Vogo Leasing d.o.o., Šempeter pri Novi Gorici – unlisted Slovenia 100.00 100.00

Aleasing d.o.o., Celje – unlisted (former Eurofin Leasing) Slovenia 100.00 100.00

Argolina d.o.o., Ljubljana – unlisted Slovenia 100.00 75.00

Analožbe d.o.o., Nova Gorica – unlisted Slovenia 100.00 100.00

47 Acquisitions and disposals

a) Acquisitions

In accordance with the Group’s strategy Abanka Vipa d.d. acquired an additional stake of 25% of the company Argolina d.o.o.,

Slovenia from Relax d.o.o., Slovenia for EUR 25 thousand. This change was entered in the register of companies on 3 July, 2007.

The business acquired contributed revenue of EUR 1 thousand to the Group for the period from the acquisition to 31 December,

2007.

In the fi nancial statements, the Group did not recognise the difference between the paid and fair value of investment. In this respect,

the Group also did not identify any intangible assets at the aquisition.

Purchase consideration:

- cash paid 25

- direct cost relating to the acquisition –

Total purchase consideration: 25

- fair value of net identifiable assets acquired (see next page) 92







The assets and liabilities arising from the acquisition are as follows:

Acquiree’s carrying

amount

Acquiree’s fair

value

Cash and balances with central bank – –

Property and equipment 14,398 14,610

Other assets 262 262

Other borrowed funds - banks (14,507) (14,727)

Other liabilities (53) (53)

100 92

Value of an additional 25% interest 25 23

Outfl ow of cash to acquire business, net of cash acquired:

- cash consideration 25

- cash and cash equivalents in subsidiary acquired –

Cash outflow on acquisition 25

To pursue its strategy of increasing market share into South-East Europe, Abanka Vipa d.d. purchased a 49% stake of ASA Holding

d.o.o. in Bosnia which amounted to EUR 1,002 thousand. The companies agreed to establish a joint venture named ASA Abanka

leasing d.o.o. The change of the ownership was entered in the register of companies on 13 July, 2007.

Purchase consideration:

- cash paid 1,002

- direct cost relating to the acquisition –

Total purchase consideration 1,002

The Group has recognized its interest in a jointly controlled entity using the equity method. The proportion of ownership interest held

in the jointly controlled entity amounted 49%.

Acquiree’s carrying

amount as at

December 31, 2007

Cash and balances with central bank 157

Loans and receivables 3,080

Property and equipment 203

Intangible assets 18

Other assets 617

Other borrowed funds - banks (2,196)

Other liabilities (927)

952

Income 170

Expenses (271)

(101)

Outfl ow of cash to acquire business, net of cash acquired:

- cash consideration 2,001

- cash and cash equivalents in subsidiary acquired 110

Cash outflow on acquisition 1,891



Minority interest 2007 2006

As at 1 January 50 429

Share of net (loss)/profit of subsidiaries 11 4

Minority interest in subsidiaries acquired (24) (383)


b) Disposals

There were no disposals in 2007 and 2006.

48 Post balance sheet events

a) Reorganisation

Abanka has reorganised as of 1 January, 2008. For a new organisational chart see the chapter entitled Organisational structure in

the Overview of Business Operations of the 2007 Annual Report.

b) Share Issue

After the Securities Market Agency authorised the beginning of sale of newly issued Abanka shares, the Bank published a prospectus

for the public offer.

Main features of the share issue:

− number of shares and value per share: 1,700,000 shares – no-par value shares not expressed as having a nominal value;

− selling price per share: EUR 60;

− total issue value: EUR 102,000 thousand;

− share type: ordinary, freely transferable, no-par value, dematerialised share with designation ABKN;

− share rights: the same as arising from the previous issues of the ordinary registered shares with designation ABKN by the same

issuer;

− public offer start and end date: sale in three rounds of recapitalisation, started on 15 January 2008 and ended on 5 February 2008.

The outcome of the fi rst round of recapitalisation:

− the existing shareholders of Abanka with pre-emptive rights to the new shares in the ratio 1: 1 in the fi rst round of recapitalisation

subscribed and paid in 1,659,232 new shares, which represent 97.6% of the total issue.

The outcome of the second round of recapitalisation:

− on the fi rst day of the second round of recapitalisation all the remaining 40,768 new shares were subscribed and paid in.

According to the provisions of the Prospectus the public offer was successful.





c) Syndicated loan

On 16 January, 2008 in Vienna, Abanka signed an agreement with an international syndicate of banks on an international syndicated

loan of USD 55 million. This is already the 10th such syndication arrangement for Abanka and the fi rst through which any Slovene

bank raised a loan in the Asian market.

d) SEPA Project

On 28 January, 2008 all the European banks which are participants of the SEPA Credit Transfer Scheme started making SEPA

transfers. That created a single payment market in the EU for both retail and corporate clients irrespective of where they hold their

transaction accounts. The SEPA project is organised in several phases, which will gradually follow the introduction of SEPA credit

transfers.





INDEPENDENT AUDITOR’S REPORT





Published by: Abanka Vipa d.d.

Editor: Marketing and Public Relations Department

Expert advisors:

Business Report / Alenka Plut, M.Sc.Econ.

Risk management / Kristijan Hvala, M.Sc.Econ.

Consolidated Financial Statements / Nada Mertik, Irena Drčič Rojc

Produced by: Imelda Ogilvy

Creative director: Matej Silič

Design: Slavimir Stojanović / Gorazd Rovina

Photography: Getty Images

Translation and language editing: Ago d.o.o., Amidas d.o.o.

Prepress: vizualgrif d.o.o.

Print: Tiskarna Lotos d.o.o.

Circulation: 1130

July, 2008

Abanka Vipa d.d.

Slovenska cesta 58

1517 Ljubljana

Transaction account: 01000-0000500021

Identifi cation number for VAT: SI 68297530

Company registration number: 5026024

Telephone: +386 1 47 18 100

Telefax: +386 1 43 25 165

Telex: 31 228 Abanka

SWIFT: ABANSI2X

www.abanka.si

E-mail: [email protected]


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