Annual Report
2009
Stone brige, Mariovo
Contents
Profile of the Bank........................................................................................................................................ 2
Financial Highlights.................................................................................................................................... 4-5
Management Team...................................................................................................................................... 6
Statement of the President of the Management Board................................................................................ 7
Corporate Governance, Equity and Ownership Structure.......................................................................... 10
Corporate social responsibility ................................................................................................................... 13
Shareholders’ Equity and Ownership Structure.......................................................................................... 14
Overview of the Financial Results of the Bank for the Year 2009............................................................... 16
Retail Banking ............................................................................................................................................ 19
Branch Network of NLB Tutunska Banka AD Skopje.................................................................................. 21
Corporate banking and Small and Medium sized Enterprises (SMEs) banking........................................... 23
Financial Markets........................................................................................................................................ 27
Risk Management....................................................................................................................................... 30
Information technology.............................................................................................................................. 32
Human Resources and Organization.......................................................................................................... 33
Organizational chart................................................................................................................................... 35
Consolidated Financial Statements prepared in accordance with International Financial Reporting
Standards for the year ended 31 December 2009..................................................................................... 37
Unconsolidated Financial Statements prepared in accordance with International Financial Reporting
Standards for the year ended 31 December 2009................................................................................... 119
Vision
St. Jovan Kaneo, Ohrid
Profile of the Bank
NLB Tutunska banka AD Skopje is one of the leading banking institutions in the Republic of Macedonia
with a consistent trend of growth and positive results since its establishment. It was founded in 1985, and
has been operating as a commercial bank since 1993, performing all financial and banking services for its
customers in the country and abroad. The Bank belongs to a group of large banks, and according to its
total net assets, it is the third largest bank in Macedonia.
The Bank is a member of the NLB Group. Its strategic shareholders are Nova Ljubljanska Banka d.d. Ljubljana
and NLB InterFinanz AG Zurich, with a total share of 86.97% of the Bank’s capital. The membership in
the NLB Group and the NLB corporate brand, contribute towards the high quality of the Bank’s business
operations, which implies the transfer of knowledge, experience and technology among the Group
members, as well as easy access to the foreign markets.
NLB Tutunska banka is one of the most successful banks within the NLB Group. The success of the Bank is
due to the established corporate culture and tradition, combined with its modern Information Technology
(IT), its professional staff and successful market strategy, supported by the NLB brand. As part of its
success, the Bank recognizes the contribution made by the general public; therefore, the Bank’s corporate
social responsibility is of great significance.
One of the Bank’s main strategies is the determination to support and finance the development of small
and medium sized enterprises (SMEs), as the main drivers for the economic development of Macedonia; and
the Bank itself is an important participant in all domestic financial events and promotes the Macedonian
business operations in the international markets.
The Bank pays special attention to the enrichment and adjustment to its offer of products and services
to satisfy the needs of various market segments, as well as allowing easier access to those, by investing
in a modern branch network comprised of 48 modern branches organized as small banks, as well as by
investing in modern access channels to the Bank and its products and services.
NLB Tutunska banka has also been active in the capital market since 1996 through its brokerage house,
NLB Tutunska broker AD Skopje, which is also the founder of the Macedonian Stock Exchange and is one
of the leading brokerage houses in Macedonia.
NLB Tutunska banka along with NLB d.d. Ljubljana, is the owner and founder of the Pension Management
Fund - NLB Nov Penziski Fond AD Skopje.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Awards and Recognitions
An acknowledgment for the successful work of NLB Tutunska banka are the numerous international and
national awards related to its business results, the positive image and brand awareness, as well as for its
highly developed corporate social responsibility. The most outstanding of those awards are:
• The recognition for The Bank of the Year for 2003, 2006, 2007, 2008 and 2009 in Macedonia,
awarded by the financial magazine ”The Banker”,
• The recognition by the ”Finance Central Europe” for Best bank by Gross Profit in Macedonia
for 2002, 2003, 2004 and 2006 and for Best bank by ROE (return on equity) in 2005,
• The recognition for Best Investment Bank in Macedonia in 2008 by the financial magazine
”Euromoney”,
• The Certificate for Good Corporate Governance from Transparency Zero Corruption for
2007 and 2008,
• The Acknowledgement by Deutche Bank London on excellent quality in Euro SWIFT payments
to Deutsche Bank for 2006, 2007 and 2008.
• The Acknowledgement as Super Brand in Macedonia for 2009;
• Philanthropy Development Award in Macedonia for 2008.
Mission Statement
Our goal is to be among the leading financial institutions in the country.
To provide a higher level of service quality, to offer innovative and market-leading products and to build
the tradition of the Bank.
To make profit through efficient and cost-effective working.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Financial Highlights
Table 1: Selected financial data for the Bank, derived on the basis of its non-consolidated audited financial
statements, prepared in accordance with the International Financial Reporting Standards
in thousands of MKD
Income (for the period)
2009
2008
2007
Net income from interest
1,750,956
1,834,502
1,478,371
Net income from fees and commission
639,779
610,687
464,418
1,066,253
1,412,362
1,087,249
Profit before taxes
444,486
741,204
631,183
Net profit for the period
432,758
676,262
556,775
Profit before provisions and taxes
Balance (end of year)
2009
2008
2007
Total assets
55,006,631
51,049,359
42,468,411
Loans to non-banking customers
29,850,704
30,171,505
22,699,921
Non-bank customer deposits
40,382,830
36,461,227
27,354,371
Borrowings from banks
5,747,748
6,030,487
8,513,645
Capital and reserves
4,330,896
4,560,815
3,755,434
Equity
3,057,117
3,057,117
2,396,328
Total qualifying Tier 1 capital
3,797,454
3,749,311
3,020,287
Total qualifying Tier 2 capital
1,402,044
1,610,027
870,633
2009
2008
2007
ROA return on total assets (before taxes)
0.84%
1.59%
1.76%
ROA return on total assets (after taxes)
0.82%
1.45%
1.55%
ROE return on equity (before taxes)
11.54%
21.35%
23.10%
ROE return on equity (after taxes)
11.12%
19.09%
19.82%
Operational ratios1
Equity / Total assets
8.38%
8.89%
9.15%
Capital adequacy
13.05%
13.57%
12.90%
Cost / Income Ratio
59.80%
47.37%
48.80%
2009
2008
2007
Facts and figures
Number of shareholders
Number of shares
Dividend per share (in MKD)
Dividend / Nominal value per share
807
554
532
854,061
854,061
785,621
430
786
713
43%
79%
71%
12.01%
20.38%
21.21%
Net profit / Number of shares
507
853
781
Number of employees
705
699
564
48
43
33
Official Central Bank rate (at year end)
2009
2008
2007
EUR 1=MKD
61.17
61.41
61.20
USD 1=MKD
42.67
43.56
41.66
Dividend / Equity
Number of Branches and Counters
Note:
1) Operational ratios have been calculated on the average balance of the Bank’s capital and assets
NLB Tutunska Banka
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ANNUAL REPORT 2009
Financial Highlights
Table 2: Selected financial data for the Group, derived on the basis of its consolidated audited financial
statements, prepared in accordance with the International Financial Reporting Standards
in thousands of MKD
Income (for the period)
2009
2008
2007
Net income from interest
1,757,634
1,840,665
1,484,459
Net income from fees and commission
643,703
622,005
499,621
1,098,444
1,463,232
1,123,633
Profit before taxes
468,380
792,074
667,567
Net profit for the period
456,466
725,525
590,590
2009
20081
2007
Total assets
55,128,083
51,182,889
42,698,462
Loans to non-banking customers
29,850,704
30,171,505
22,699,921
Non-bank customer deposits
Profit before provisions and taxes
Balance (end of year)
40,388,538
36,469,855
27,376,943
Borrowings from banks
5,747,748
6,030,487
8,513,645
Capital and reserves
4,504,722
4,721,245
3,978,266
2009
2008
2007
ROA return on total assets (before taxes)
0.88%
1.69%
1.85%
ROA return on total assets (after taxes)
0.86%
1.55%
1.63%
ROE return on equity (before taxes)
11.76%
21.88%
23.27%
ROE return on equity (after taxes)
11.35%
19.65%
20.04%
2009
2008
2007
712
707
572
48
43
33
Official Central Bank rate (at year end)
2009
2008
2007
EUR 1=MKD
61.17
61.41
61.20
USD 1=MKD
42.67
43.56
41.66
Operational ratios2
Facts and figures
Number of employees
Number of Branches and counters
Note:
1) Due to change in presentation method of differed tax assets and liabilities, correction has been made on the
total assets for the year 2008
2) ) Operational ratios have been calculated on the average balance of the Bank’s capital and assets
NLB Tutunska Banka
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ANNUAL REPORT 2009
Management Team
MANAGEMENT BOARD
Gjorgji Jancevski
Ljube Rajevski
Tome Perinski
President of the
Management Board
Management Board
Member
Management Board
Member
COUNSELLORS OF THE MANAGEMENT BOARD
Igor Davcevski, Counsellor of the Management Board in the area of Self-Service Banking
Dusan Spikovski, Counsellor of the Management Board in the area of Cash Services and Depot
Aleksandar Misovski, Counsellor of the Management Board in the area of Information Technology
Radovan Trpkovski, Counsellor of the Management Board in the area of Investments, Procurements
and General Affairs
Trajko Mateski, Counsellor of the Management Board for BMS (Building Management System)
INTERNAL AUDIT DIVISION
Liljana Nastoska, Manager
CENTRE FOR COORDINATION AND COOPERATION BETWEEN
NLB GROUP MEMBERS AND THEIR CLIENTS
Damir Kuder, Manager
LEGAL CENTRE
Nadica Ceneva, Manager
RISK MANAGEMENT CENTRE
Bogoja Kitanchev, Manager
LOGISTICS DIVISION
Jordanka Grujoska, Manager
FINANCE AND TREASURY MANAGEMENT DIVISION
Stojna Stojkoska, Manager
CORPORATE BANKING DIVISION
Strasho Pupulkovski, Manager
BRANCH NETWORK DIVISION
Antonio Argir, Manager
PAYMENT SYSTEM AND SALES LOGISTICS DIVISION
Slagjana Beleva, Manager
CASH SERVICES AND DEPOT DIVISION
Dragan Panovski, Manager
NLB Tutunska Banka
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ANNUAL REPORT 2009
Statement of the President of
the Management Board
Dear Shareholders,
The previous year was one of the hardest years for the
domestic economy in the last decade. The pressure
of the global economic crisis, in the first half of the
year has negatively reflected the real sector and the
macroeconomic stability creating mistrust with the
economic entities and enhanced restrictive measures
of the fiscal and monetary policy. The decreased
economic activity, the downturn of the export
demand and the absence of capital investments has
led to a fall of the gross domestic product by -0.7%.
The banking sector has been stable during the whole
year, with emphasized high liquidity, but also with
narrowed credit financing and decreased profitability.
In the absence of capital inflow from the international
markets, the domestic savings has been the main pillar
of the growth and stability of the sector.
Under such circumstances, the operation of the Bank
has been adjusted to the current economic situation and regulatory limitations, continuing at the same
time with the high prudence when investing of assets. The primary determination of the business policy
has been to strengthen the deposit base, to maintain the structural liquidity and to maintain the quality of
the credit portfolio. At the end of the year the total net income has amounted 1.066 millions MKD, while
impairment and provisions amounted 621.7 millions MKD, providing 9.4% coverage of the portfolio with
reserves. The net earnings has amounted 432.8 millions MKD with a return of the capital of 11,6%. The
guarantee capital of the Bank has reached 5.104 million MKD while the adequacy of the capital amounts
13.02%.
Even besides the unfavourable operation conditions, the Bank has maintained the quality of the services
with the active participation in all business segments. The number of clients has increased by 18%, while
the balance amount has increased by 7.8% realizing the market share of 20.5%.
The total deposit base has been increased by 10,8%. The deposits from legal entities have decreased
by 7.4% reflecting the actual liquidity problems that the economy and public sector have faced. The
deposits from individuals have grown by 29.2%, thus increasing the market share in this segment to
18.7% (2008:16.7%).
As a result of the downturn of the economic activity, and especially because of the restrictive monetary
policy and absence of investment activities of the companies, the dynamics of the credit growth has been
decreased by 1.1%, while the term structure of the loans has been changed towards decreasing the share
of long term credits. Mainly short term loans were approved for current liquidity needs. In order to maintain
the development of the small and micro enterprises and of the start up businesses, the Bank besides the
current has provided new financing assets from the European Fund for Southeast Europe (EFSE), from
the program of the European Investment Bank (EIB) through the Macedonian bank for support of the
development and from the EIB credit line. Furthermore, for the needs of the large Macedonian companies
and for the bid participations in domestic and international projects, new guarantees have been issued in
the amount of 7.6 billion MKD.
In order to increase the participation and presence on the retail market, in 2009 the Bank continued with
the investments in expansion of the business network with five new branch offices, in the expansion of
the network of АТМ’s and POS terminals, in new functionalities from the electronic banking and in the
segment of card operation. At the beginning of 2009, the Bank has moved into new premises in a business
NLB Tutunska Banka
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ANNUAL REPORT 2009
building, which represents a corporate center of the members of the NLB Group in Macedonia.
Dear shareholders, in 2009 the Bank was awarded for the Bank of the year for the fifth time by the
financial magazine The Banker. This is the fourth year in a row that the Bank receives such international
recognition for the achieved financial results, the development projects and the market initiatives, but for
us this year`s award is of an exceptional importance because we have received it in terms of the greatest
global economic crisis when only the best and the strongest survive.
At the end, allow me to conclude that even besides the pessimistic expectations regarding the negative
effects of the global crisis, 2009 for the Bank and generally for the banking sector in the Republic of
Macedonia, has ended successfully. The stability and reliability of the banking sector have been maintained
and positive results have been achieved. The next year we expect to be harder than the previous considering
the fact that it is still uncertain until when the effects of the global economic crisis will end and when the
recovery of the economy will initiate. A priority of the Bank remains the maintaining of the stability of the
resources, the high liquidity, the maintaining of the quality of the credit portfolio, the improvement of the
quality of operation as well as the harmonization with the NLB Group.
Best regards,
Gjorgji Janchevski
President of the Management Board
NLB Tutunska Banka
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ANNUAL REPORT 2009
Corporate
Governance
Watchtower fortress Kale, Skopje
Corporate Governance
Corporate governance, as a sum of the interrelations among the Management Board, Supervisory Board,
other persons with special rights and responsibilities that perform managerial duties in the Bank, the
Bank’s shareholders and the rest of the interested parties of the Bank, is based on the principles of
responsibility, transparency and controlling the decision-making process, as well as the reporting of the
Bank’s operation.
The Bank has a clear organizational structure that precisely defines the duties and responsibilities of the
members of the Supervisory and Management Board and of other employees of the Bank, as well as its
control and review of the day-to-day performance of tasks.
The Bank’s corporate governance is reflected in the bodies that play a key role in the efficient operation
of the Bank:
Shareholder’s Assembly
Two meetings were held in 2009. At the annual shareholders’ meeting, which was held on 24th April,
2009, along with the usual points of discussion, a decision was made to change the location of the Bank’s
offices to No. 1, Vodnjanska St. Skopje, 1000, for which a statutory decision was made for amendments
and additions of the statute of the Bank. On 27th August, 2009, a second shareholders’ meeting was held
for the year, in which a statutory decision was made to make amendments and additions to the statute of
the Bank, in which the number of members of the Bank’s Management Board was reduced from four to
three members; a change was made in the definition for persons with special rights and responsibilities and
the person for control and accordance of the Bank’s business operations; a new member of the Supervisory
Board of the Bank was named in replacement of the member who gave his irrevocable resignation from
his duties and responsibilities as a member of the Supervisory Board of the Bank.
Supervisory Board of the Bank
In 2009, the Supervisory Board held twelve regular meetings attended by the following members:
1. Matej Narat - President of the Supervisory Board and assistant member of the Management Board
of Nova Ljubljanska banka d.d. Ljubljana, Master’s degree in Economics;
2. Alojz Jamnik - Vice President of the Supervisory Board and assistant member of the Management
Board of Nova Ljubljanska banka d.d. Ljubljana, BsC in Economics;
3. Andrej Hazabent - Member of the Supervisory Board and assistant member of the Management
Board of Nova Ljubljanska banka d.d. Ljubljana, BsC in Economics;
4. Janko Gedrih - Member of the Supervisory Board; BsC in Law;
5. Abdulmenaf Bedzeti - Independent member of the Supervisory Board and Pro-rector of the South
Eastern European University in Tetovo, Ph D in Economics;
6. Borislav Atanasovski - Independent member of the Supervisory Board and Manager of “B i Lj”
BORO i LJUPCO D.O.O. Skopje, a company for auditing, assessment and financial consulting, BsC in
Economics.
Management Board
On 5th September, 2009, Mr. Mitre Kolisevski, the vice-president of the Management Board, retired as
he had fulfilled the conditions for retirement. Consequently, the number of members of the Management
Board was reduced from four to three members as follows:
1. Gjorgji Jancevski - President of the Management Board, BsC in Economics;
2. Ljube Rajevski - Management Board Member, BsC in Economics;
NLB Tutunska Banka
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ANNUAL REPORT 2009
3. Tome Perinski - Management Board Member, BsC in Law;
Audit Committee
In 2009, the Audit Committee held five regular meetings attended by the following members:
1. Alojz Jamnik - President of the Audit Committee and assistant member of the Management Board
of Nova Ljubljanska banka d.d. Ljubljana;
2. Matej Narat - member of the Audit Committee and assistant member of the Management Board of
Nova Ljubljanska banka d.d. Ljubljana;
3. Janko Gedrih - Member of the Audit Committee;
4. Abdulmenaf Bedzeti - independent member of the Audit Committee and Pro-rector of the South
Eastern European University in Tetovo;
5. Stojan Jordanov - independent member of the Audit Committee, Authorized auditor, Manager of
the Auditing Association “Censum” DOOEL Skopje, BsC in Economics.
IT Steering Committee
This Committee was formed on the basis of NBRM’s regulations, the Basel principles and the international
standards for security of information systems. The members of the IT Steering Committee are chosen from
the group of persons with special rights and responsibilities who are employed by the Bank, including the
person responsible for the security of the IT system. The president of this Committee is the president of
the Management Board, Mr. Gjorgji Jancevski.
In order to increase its efficiency of the day-to-day operations, the Management Board of the Bank operated
through the following committees, which widely monitor separate areas of the Bank’s operations. Those
committees are as follows:
Development Management Committee
The members of the Bank’s Development Management Committee are the members of the Management
Board, the Manager for coordination and cooperation between NLB group members and their clients, and
the Manager of the Logistics Division. The president of this Committee is the president of the Management
Board, Mr. Gjorgji Jancevski.
Risk Management Committee
The members of the Bank’s Risk Management Committee are chosen from the group of persons with
special rights and responsibilities who are employed by the Bank. The president of this Committee is the
president of the Management Board, Mr. Gjorgji Jancevski.
Assets and Liabilities Management Committee
The members of the Bank’s Assets and Liabilities Management Committee are chosen from the group
of persons with special rights and responsibilities who are employed by the Bank. The president of this
Committee is the president of the Management Board, Mr. Gjorgji Jancevski.
During 2009, in accordance with the authorizations, responsibilities and engagement of the members of
the Supervisory Board, the Audit Committee, the Management Board and the persons with special rights
and responsibilities, were compensated with financial and non-financial benefits including salaries, salary
allowances, compensations for participation at meetings, award for business success, jubilee awards and
other allowances, in total amount of MKD 125.8 million.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Code for Corporate Governance
The Code for Corporate Governance of the Bank details the standards for corporate governance of the
governing bodies of the Bank. In accordance with those standards, the Bank has implemented a transparent
and easy to understand system for governing, which increases the level of trust amongst the domestic and
international investors, its employees and the public.
The principles for good corporate governing are incorporated in full in the Code for Corporate Governance
as follows:
• The Supervisory Board members who have the relevant qualifications, understand their role in
the corporate governing of the Bank and are capable of providing a realistic and fair assessment
of the Bank’s operations;
• The bodies for management and governance of the Bank establish and follow the fulfillment of
the Bank’s strategic goals and corporative values and ensure that all the Bank’s employees are
aware of the same;
• The bodies for management and governance of the Bank establish defined responsibilities and
ways of reporting amongst the Bank’s employees;
• The Supervisory Board of the Bank should ensure that the Management Board and the persons
with special rights and responsibilities, provide adequate revision and monitoring of the Bank’s
operations;
• The Supervisory Board, the Management Board and the persons with special rights and
responsibilities who have a managerial role in the Bank, should use the work of the Bank’s
Internal Audit division effectively, as well as the work of the Audit House;
• The Supervisory and Management Board should ensure that the policy for benefits and awards
and the relevant procedures are in accordance with the corporate culture, long-term goals and
strategy, as well as the controlling environment of the Bank;
• The security of the corporate governance transparency.
The Code for Corporate Governance is assessed once a year and the next assessment will be made at the
next annual Shareholders’ meeting in 2010.
Internal Audit
The Bank’s Internal Audit is organized as an independent functional and organizational division separated
from the rest of the Bank’s divisions, directly responsible to the Supervisory Board. During 2009, the
Internal Audit Division performed 30 audits, of which 21 were planned and nine were ad hoc audits.
The audits were performed in the following segments of work:
• Assets and Liabilities Management;
• Risk Management;
• Accounting and Reporting;
• Human Resources Management;
• Bank card operations;
• Bank accounts operations;
• Audits of 16 branches of the Bank.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Corporate social responsibility
One of the highest priorities as part of the Bank’s values is caring for the public good and it represents
an integral part of its strategy, whereby the Bank places great importance to the social responsibility and
protection of all stakeholders’ interests. By supporting projects of humanitarian nature and projects in the
field of culture, sport, education, protection of the human environment, children and youth, the Bank
strives to contribute to the promotion and improvement of the overall quality of life of individuals, families,
institutions and organizations in the environment in which it operates.
Sponsorships and donations
During 2009, the Bank sponsored projects of cultural, sporting and educational nature.
In 2009, the Bank was one of the sponsors for the following cultural events: the festival ”Ohridsko Leto
2009”, the poem contest ”Struski Veceri na poezijata 2009”, it also took part in sponsoring the project
”Vidi muzika, slusni slika, dobij kniga” organized by Centre for Information for Culture Skopje and the
Macedonian Philharmony.
The Bank sponsored the project of the Citizen’s Association MOST called ”Patuvame vo Evropa”, and
supported the voluntary event organized by the first donation auction for chocolate to help the Institute
for lung diseases for children - Kozle Skopje.
Since 2006, NLB Tutunska banka within the NLB Group, is the main sponsor of the regional basketball
league - NLB League, and domestically it sponsors the basketball club ”Vardar”.
Business ethics
The Bank supports organizations and initiatives that are committed to a fair and equal treatment, business
ethics and humanity, which creates value for the society and contributes to the strengthening of its core
and cohesion.
The Bank fully accepts, and in its operation fully adheres to the international declaration of human
rights, the declaration of ecology and the international conventions which refer to the social welfare and
protection of the environment.
Anti money-laundering
The Bank has adopted and consistently implements a program for anti money-laundering and has
passed several internal acts that regulate this area, and cooperates with the authorized institutions and
correspondent banks. The Bank has fully implemented all instruments arising from the legislation regarding
the efficient detection and prevention of money-laundering.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Shareholders’ Equity and Ownership
Structure
As at 31st December, 2009, the Bank’s shareholders’ equity consists of 854,061 ordinary shares, with a
nominal value of MKD 1,000 per share. The shares are registered with and held in custody at the Central
Securities Depositary, and they are traded at the secondary market of the Macedonian Stock Exchange,
via authorized brokerage houses.
The ordinary shares grant the shareholders a right to dividend payment and a right to vote for each share
at the Shareholders’ meeting. All shares have a right to an equal share in the distribution of the remaining
bankruptcy estate, i.e. the insolvency estate.
During 2009, the Bank had not repurchased any of its own shares.
As at 31st December, 2009, the number of shareholders of the Bank amounted to 807, of which 667 are
individuals and 140 are legal entities. By the end of 2009, the ten largest shareholders of the Bank owned
91.50% of the total shares.
Shareholders with over 5% share as at 31.12.2009
Nova Ljubljanska Banka d.d. Ljubljana
NLB InterFinanz AG Zurich
% share according to the No. of ordinary shares
60.26
26.71
Based on the Agreement on the Transfer of voting rights from shares and Annex 1, 2, 3, 4 and 5 of the
agreement concluded between NLB InterFinanz AG Zurich and NLB d.d. Ljubljana, the voting rights of
the shareholder NLB InterFinanz AG Zurich (26.7%), borne by the shares of NLB Tutunska banka, have
been transferred to Nova Ljubljanska Banka d.d. Ljubljana. Thus, the share of Nova Ljubljanska Banka d.d.
Ljubljana in the total voting rights as at 31st December, 2009 is 86.97%.
In April 2009, at the Bank’s Shareholders’ Annual meeting, a decision on allocation of profits for the year
2009 was proposed and adopted, of which 92%, i.e., MKD 623,110,186 were allocated for the payment
of dividends to the Bank’s shareholders. The dividend per share amounted to MKD 786, i.e. 78.6% of the
nominal value of the shares.
The Bank is registered with the Registry of joint stock companies having special reporting obligations,
which is under the authority of the Securities Exchange Commission of Macedonia. In accordance with the
Law of Securities and its bylaws, the Bank reports to the Securities Exchange Commission of Macedonia on
regular basis of its operation, the Management Board members, the management and its legal relations
with third parties, and of events and information significant for the operations of the Bank.
NLB Tutunska Banka
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ANNUAL REPORT 2009
Financial
Results
Robevci house, Ohrid
Overview of the Financial Results of the
Bank for the year 2009
Despite the negative changes in the economic environment, restrictive monetary policy, regulatory
restrictions, more expensive sources of financing, increased credit risk and the more conservative policy in
regards to taking on risks, the Bank achieved positive results.
Income Statement
The net profit equals to MKD 432.8 million or 36.01% less than 2008. This result is due to the Bank’s
decision to allocate an additional provisions for the potential risks related to the deterioration of the
business environment for legal entities in 2010, and the related potential credit risk on retail portfolio.
For that purpose, the Bank allocated provisions with a total amount of MKD 621.8 million or 62% of the
realized profit before provisions, which secured coverage of the portfolio with provisions of 9.4% (2008:
7.9%).
The return on equity (ROE) after tax is 11.12% (2008: 19.09%).
Net earnings per share are MKD 507 (2008: MKD 853).
Return on equity ROE and
earning per share
Net profit (000) MKD
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
556,775
676,262
432,758
2007
2008
900
800
700
600
500
400
300
200
100
0
2009
19.82%
20%
11.12%
5%
0%
2008
Eearning per share in MKD
2009
ROE
The net interest income is MKD 1,751 million or 4.6% less than 2008, due to increased interest
expense. In conditions of insufficient foreign funding sources, the interest rates for domestic savings in
2009 remained at a high level, which within credit and other regulatory restrictions had an impact on
the reduction of the average net interest margin of 18.8% and a decrease of the net interest income.
The Bank managed this negative impact by increasing its average interest-bearing assets by 17.0% on an
annual level. By the end of 2009, the average net interest margin was 3.30% (2008: 3.92%).
NLB Tutunska Banka
16
15%
10%
2007
Net profit
25%
19.09%
ANNUAL REPORT 2009
Interest-bearing
assets and liabilities
4.11%
60,000,000
3.92%
3.30%
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2007
2008
2009
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Average net interest-bearing
assets (in 000 MKD)
Average intereset-bearing
liabilities (in 000 MKD)
Average net interest margin in %
The net non-interest income is MKD 901.2 million or 7.0% more than the previous year, of which
71.0% is fee and commission income.
The net fee and commission income was MKD 639.8 million, which is 4.8% more than 2008. The dividend
income from the capital investments in financial and non-financial legal entities was MKD 9 million, i.e.
0.5% more than 2008.
The net foreign exchange gains of MKD 162.2 million have been realized, or an increase of 20.0% since
2008; whilst the net income from trading in securities amounted to MKD 57.4 million.
In 2009, the Bank’s operating expenses were MKD 1,586 million, whereby the rationality for spending
was closely monitored. Its cost/income ratio (CIR) was 59.8%, whilst the operating expenses of the total
assets of the Bank accounted for 2.99% (2008: 2.71%).
Balance sheet
The Bank achieved net assets of MKD 55,007 million, which represents an annual growth of 7.8% and
a market share of 20.5%. The growth was due to the increase of the retail deposits. The total deposits
from the non-banking segment had increased by 10.8%, and as at 31st December, 2009, the amount
was MKD 40,383 million.
Deposits to non-banking
segment (000) MKD
Net assets (000) MKD
51,049,359
60,000,000
50,000,000
55,006,631
42,468,411
60,000,000
50,000,000
40,000,000
40,000,000
30,000,000
30,000,000
20,000,000
20,000,000
10,000,000
10,000,000
36,461,227
40,382,830
27,354,371
0
0
2007
NLB Tutunska Banka
2008
2007
2009
17
2008
2009
ANNUAL REPORT 2009
The credit liabilities of the Bank reduced by 6% due to the matured and fully realized last trench of the
syndicated loan with EBRD worth EUR 55 million, which was fully realised.
The Bank’s total equity as at 31st December, 2009, amounted to MKD 4,331 million and it represents 8%
of the total sources of the Bank.
During 2009, due to the fall in economic activity in Macedonia, and especially because of NBRM’s restrictive
policy and more strict credit conditions, the Bank reduced the dynamic crediting of the non-banking
segment, which resulted in a decrease of the credit portfolio by 1.1%, whilst the maturity structure of the
credits change the share of the long-term credits from 63.5% in 2008 to 60.2% in 2009.
In such conditions, the largest part of the sources was used for short-term securities and short-term
deposits in banks, which increased the share of these highly liquid instruments to 24.5% (2008: 19.5%) of
the Bank’s assets. From a currency perspective, 66.3% of the financial sources and 61.3% of the financial
credits are in foreign currency or in denars with a foreign currency clause.
NLB Tutunska Banka
18
ANNUAL REPORT 2009
Retail Banking
The retail banking is provided by the Bank through its branch network consisting of 48 branches in 21 towns
in Macedonia. The Bank’s branches operate as small banks, which provide direct access for its customers
to the Bank’s product offer with a fast, quality and efficient service by the branches’ teams. For its clients,
the Bank also provide access to its modern selling channels (ATM network, POS network, e-banking), for
which significant investments in expansion of their capacity were made in 2009. Throughout the country,
the Bank’s clients can use their cards at 144 ATMs and 5,680 POS terminals.
The number of customers in this segment in 2009 is 374,161 and it is increased by 18.7%.
The retail loan portfolio includes loan products customised to the needs and opportunities of different
client groups. The loan offer for individuals is highly segmented and it is mainly divided in: consumer loans,
motor vehicle loans, mortgage loans, as well as credit card loans and overdrafts.
In 2009, the retail loan portfolio was enriched with several new products: motor vehicle loan secured by
pledge of vehicle for employees and pensioners in MKD and EUR clause, motor vehicle mortgaged loan
in MKD and EUR clause, mortgaged consumer loan with non-identified purpose in MKD and EUR clause,
mortgaged consumer loan in MKD clause and mortgage loan for purchasing, building and completion of
building, additions or renovations of houses and business buildings in EUR clause.
The retail loan portfolio in 2009 reached MKD 11,693 million.
Net loans to individuals
(000) MKD
11,688,221
11,692,726
2008
2009
12,000,000
10,000,000
8,315,147
8,000,000
6,000,000
4,000,000
2,000,000
0
2007
Deposits from individuals represent the largest source of funding for the Bank. In 2009 deposits from
individuals increased by 29.2% and reached MKD 23,348 million. Growth was realized in all of the savings
products. Of the total retail deposits 82,1% are term deposits. In 2009, the retail deposits’ share in the
total deposits from customers had increased to 57.8% (2008: 49.6%).
During 2009, the Bank’s deposit operation was directed toward increase of the deposit base. New deposit
products were introduced: TIBI gradual saving; Holiday NLB Super deposit, NLB Summer Super deposit and
Loyalty NLB Super deposit. The savings products offer is versatile and enables the customers to keep their
savings as term-deposits with wide Range of maturities at various attractive interest rates.
NLB Tutunska Banka
19
ANNUAL REPORT 2009
Deposits from individuals
(000) MKD
23,348,140
25,000,000
18,073,217
20,000,000
15,000,000
13,178,415
10,000,000
5,000,000
0
2007
2008
2009
In 2009, the number of bank cards issued by the Bank had increased by 17.4%, whereas, the realized
turnover in the bank card segment during the year had increased by 34.2%.
In 2009, the Bank was granted with a license for accepting bank cards for electronic trade transactions
from the two biggest international card systems, (MasterCard Worldwide and VISA INT), which makes
the Bank the only one on the market in the Republic Macedonia able to accept cards from those two
international card systems.
In the e-banking segment during 2009, NLB click project was implemented through which the clients
realized a turnover of MKD 70 million (2008: MKD 12 million) and 21,856 transactions (2008: 2,326
transactions).
Total number of cards of
the Bank
318,730
350,000
271,469
300,000
250,000
200,000
163,184
150,000
100,000
0
2007
2008
2009
Besides the e-banking services, the Bank’s customers can also have a personal banking, which is a service
offering customers professional advice, reporting about maturing of deposits, limits and credits, information
of news of the Bank’s operations and a large number of other favorable services to the customers by their
personal banker. Currently, this service is being provided in 17 branches.
NLB Tutunska Banka
20
ANNUAL REPORT 2009
Branch Network
of NLB Tutunska Banka AD Skopje
Kumanovo
Skopje
Tetovo
Kriva Palanka
Kochani
Sveti Nikole
Gostivar
Shtip
Veles
Radovish
Negotino
Kichevo
Strumica
Kavadarci
Prilep
Struga
Resen
Valandovo
Gevgelija
Ohrid
Bitola
Skopje
Head Office
Vodnjanska 1
Т: 02 / 3105 - 674
Е: tb.direkcija@tb.com.mk
Kisela Voda
Sava Kovachevic 1
Т: 02 / 2786 - 755
Е: tb.kiselavoda@tb.com.mk
Centar
Vasil Glavinov 3/5
Т: 02 / 3219 - 535
Е: tb.centar@tb.com.mk
Drachevo
Ratko Mitrovic 75 b
Т: 02 / 2785 - 110
Е: tb.dracevo@tb.com.mk
Star Aerodrom
12 Makedonska Brigada 20
Т: 02 / 3105 - 833
Е: tb.star-aerodrom@tb.com.mk
Avtokomanda
Jani Lukrovski 2
Т: 02 / 3103 - 450
Е: tb.avtokomanda@tb.com.mk
Karposh 4
Partizanski odredi 88-6/1
Т: 02 / 3091 - 310
Е: tb.karpos3@tb.com.mk
Univerzalna sala
Partizanski odredi 43
Т: 02 / 3248 - 911
Е: tb.univerzalnasala@tb.com.mk
Karposh 3
Partizanski odredi 66, Leptokarija
Т: 02 / 3069 - 814
Е: tb.karpos3@tb.com.mk
Sobranie
Gradski dzid blok 2
Т: 02 / 3107 - 630
Е: tb.sobranie@tb.com.mk
GTC
13 Noemvri 3 GTC
Т: 02 / 3297 - 575
E: tb.gtc@tb.com.mk
Novo Lisiche
Vidoe Smilevski Bato 55 -1/1
Т: 02 / 2445 - 991
Е: tb.novolisice@tb.com.mk
Ulica Makedonija
Marshal Tito 45
Т: 02 / 3203 - 197
Е: tb.ulicamakedonija@tb.com.mk
Kapishtec
Franklin Ruzvelt 1
Т: 02 / 3089 - 090
Е: tb.kapistec@tb.com.mk
Tri Biseri
Jane Sandanski, TC Tri Biseri
Т: 02 / 2403 - 890
Е: tb.tribiseri@tb.com.mk
Aerodrom
Jane Sandanski 26/9
Т: 02 / 2403 - 627
Е: tb.aerodrom@tb.com.mk
Klinichki Centar
Vodnjanska 17
Т: 02 / 3203 - 181
Е: tb.klinickicentar@tb.com.mk
Chair
Ferid Bajram 43
Т: 02 / 2601 - 668
Е: tb.cair@tb.com.mk
Gjorce Petrov
Isaija Madzhovski 42
Т: 02 / 2034 - 902
Е: tb.gjorcepetrov@tb.com.mk
Stara Charshija
Bitpazarska 58
Т: 02 / 3293 - 053
Е: tb.stara_carsija@tb.com.mk
NLB Tutunska Banka
21
ANNUAL REPORT 2009
Bitola
Kichevo
Resen
Josif Hristovski bb
Т: 047 / 202 - 756
Е: tb.bitola@tb.com.mk
Bul. Osloboduvanje bb
Т: 045 / 224 - 460
Е: tb.kicevo@tb.com.mk
11 Oktomvri bb
Т: 047 / 455 - 071
Е: tb.resen@tb.com.mk
Bitola - Shirok Sokak
Kochani
Marshal Tito 45 , Shirok Sokak
Т: 047 / 208 - 647
Е: tb.shiroksokak@tb.com.mk
Trgovski centar blok 17
Т: 033 / 276 - 910
Е: tb.kocani@tb.com.mk
Sveti Nikole
Valandovo
Kriva Palanka
Mosha Pijade 2
Т: 034 / 383 - 355
Е: tb.valandovo@tb.com.mk
Marshal Tito 172
Т: 031 / 475 - 280
Е: tb.krivapalanka@tb.com.mk
Veles
Kumanovo
Marshal Tito 80
Т: 043 / 221 - 282
Е: tb.veles@tb.com.mk
Ploshtad Marshal Tito bb
Т: 031 / 475 - 240
Е: tb.kumanovo@tb.com.mk
Veles 2
Kumanovo 2
Goce Delchev 26
Т: 043 / 214 - 450
Е: tb.veles@tb.com.mk
Oktomvriska Revolucija 24
Т: 031 / 475 - 274
Е: tb.kumanovo@tb.com.mk
Gevgelija
Negotino
Marshal Tito bb
Т: 034 / 215 - 441
Е: tb.gevgelija@tb.com.mk
Gevgelija 2
Marshal Tito zgrada 1
Т: 034 / 210 – 404
Е: tb.gevgelija@tb.com.mk
Gostivar
Borche Jovanovski bb
Т: 042 / 221 - 330
Е: tb.gostivar@tb.com.mk
Gostivar 2
Goce Delchev 104/1
Т: 042 / 219 - 060
Е: tb.gostivar@tb.com.mk
Kavadarci
Ilindenska 81
Т: 043 / 400 - 436
Е: tb.kavadarci@tb.com.mk
NLB Tutunska Banka
Marshal Tito bb
Т: 043 / 364 - 010
Е: tb.negotino@tb.com.mk
Ohrid
Partizanska bb
Т: 046 / 251 - 360, 251 – 350
Е: tb.ohrid@tb.com.mk
Vera Ciriviri 1
Т: 032 / 226 - 770
Е: tb.svetinikole@tb.com.mk
Struga
Proleterski brigadi bb
Т: 046 / 788 - 640
Е: tb.struga@tb.com.mk
Strumica
Marshal Tito bb
Т: 034 / 326 - 780
Е: tb.strumica@tb.com.mk
Strumica 2
Blagoj Mucheto 4
Т: 034 / 334 - 463
Е: tb.strumica@tb.com.mk
Tetovo
TC Merdzhan, vlez 1, kat 1
Т: 044 / 356 - 705
Е: tb.tetovo@tb.com.mk
Shtip
Vancho Prke bb
Т: 032 / 391 - 663
Е: tb.stip@tb.com.mk
Prilep
Goce Delchev bb
Т: 048 / 419 - 758
Е: tb.prilep@tb.com.mk
Prilep 2
Marksova 44
Т: 048 / 400 - 570
Е: tb.prilep@tb.com.mk
Radovish
22 Oktomvri bb
Т: 032 / 633 - 771
Е: tb.radovis@tb.com.mk
22
ANNUAL REPORT 2009
Corporate banking and Small and Medium
sized Enterprises (SMEs) banking
Corporate banking comprises the largest portion of the Bank’s activities and it is the key generator of its
business growth. The corporate banking operations are segmented by the size of its corporate clients to
which the Bank’s products and services are customized accordingly. The services for the large corporate
clients are performed centrally; by the concept of integrated customer Relationship management; which
implies that each corporate client has a personal bank officer responsible for monitoring of all corporate
client’s activities at the Bank. For its corporate clients, the Bank has a cross selling offer of products and
services customized to the needs of individual clients. The services for the SMEs and micro business are
performed through the branch network of the Bank. Because of the rapid growth of this segment and
the significance of the SMEs for the development of the economy, during 2009 the principle of personal
bankers for SMEs was introduced also in the branch network of the Bank.
The corporate banking includes short-term denar crediting for current needs, short-term denar and foreign
currency loans to support the export, revolving loans, long-term denar and foreign currency loans for
financing investment projects of SMEs, loans for purchasing business buildings, motor vehicle loans, microloans, loans intended for building apartments and business buildings, trust loans, trade finance, depository
operations, domestic and international payment operations, and cash transfer and cash keeping services.
For the purposes of financing large projects of strategic customers, the Bank provides joint crediting with
Nova Ljubljanska Banka d.d. Ljubljana, via the Risk Participation Agreement.
In 2009, the offer for corporate clients was expanded with new loan products, which arose from the new
credit lines: short-term and long-term loans from the credit line from the European Fund for South Eastern
Europe (EFSE), short-term and long-term loans from the program for development of SMEs and priority
projects from the credit line from EIB through MBDP, short-term and long-term loan from the credit line
through EIB.
Investment-credit activities
In 2009, in terms of the limited sources for funding available, the Bank confirmed its role as a supporter
for the business sector, by providing new sources for funding large companies, development projects of
SMEs, micro-financing and support of the export, as well as loans to individual farmers.
The Bank withdrew a new credit line from the European Fund for South Eastern Europe (EFSE) of EUR 8
million, to finance the micro and small enterprises, entrepreneurial and start-up businesses, and from the
European Investment Bank (EiB) of EUR 10 million. The Bank participated with 30% in the program of the
crediting the development of SMEs and priority projects from the credit line of EUR 100 million from EIB
through MBDP.
In addition, the corporate clients had the following available sources for funding:
1. Credit line from the Macedonian Bank for Development Promotion (MBDP) for financing the export;
2. Credit program for the development of SMEs through the Macedonian Bank for Development Promotion
(MBDP);
3. Italian credit line from the MBDP (Revolving fund);
4. Credit line arranged through the MEDF;
5. IFAD credit line for financing development projects in agriculture;
6. Credit line arranged through the European Investment Bank (EIB);
7. Credit line arranged through the European Bank for Reconstruction and Development (EBRD);
NLB Tutunska Banka
23
ANNUAL REPORT 2009
8. German credit line through the MBDP (Revolving Fund);
9. Credit line from the PHARE program through MBDP;
10. German-Macedonian fund through MBDP;
11. Revolving fund from the credit line from the International Bank for Reconstruction and Development (IBRD)
for the development of the private sector;
12. Credits from the credit program for SMEs from the KWF credit like (Revolving fund) through MBDP.
During 2009, loans to non-financial entities amounted to MKD 18,159 million. The largest portion of the
loans was approved for the clients’ current needs and for overcoming liquidity issues.
Net loans to enterprises
(000) MKD
20,000,000
18,483,284
18,158,978
2008
2009
18,000,000
16,000,000
14,384,774
14,000,000
12,000,000
10,000,000
0
2007
Regarding the industry analysis, the loans were placed in quality projects of existing and new customers in
production (25.0%), trade (36.7%), real-estate (10.4%), public sector (0.1%), individuals (0.4%) and other
industries (27.4%).
Industry structure of net
loans to enterprises
0.4% Individuals
27,4% Other industries
0,1% Public sector
36,7% Wholesale
and Retail
10,4% Real estate
NLB Tutunska Banka
25% Manufacturing
24
ANNUAL REPORT 2009
Net loans to enterprises classified
by client’s size (000 MKD)
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
15,416,107
14,068,547
4,089,430
3,067,177
2008
2009
SME’s
Large corporate clients
Within the loans to enterprises, 22.5% were loans to large enterprises (classified according to the Trade
Companies Law), which represents a growth in comparison to 2008 (2008: 16.6%). Loans to SMEs of the
total loans to enterprises represent a portion of 77.5% (2008: 83.4%).
Deposit operations
The total deposits from non-financial entities from 2009 were MKD 17,035 million. The decrease of 7.4%
is due to withdrawal of part of the deposits from the public enterprises in order to cover their current
needs.
Deposits from non-financial
entities (000) MKD
18,388,010
20,000,000
15,000,000
17,034,690
14,175,956
10,000,000
5,000,000
0,000,000
2007
2008
2009
Trade finance
In addition to the funds which the Bank provides for direct financing, the Bank also provided its corporate
clients with bank guarantees and letters of credit for the export, as well as support for participation in
tender bids in international and domestic projects.
In 2009, the Bank issued new bank guarantees of MKD 7,525 million and issued new letters of credit of
MKD 3,147 million.
Domestic and international payments and cash operations
In 2009, the total domestic and international payment turnover realized through the Bank, was decreased
NLB Tutunska Banka
25
ANNUAL REPORT 2009
in comparison to 2008, due to the significant influence from the global recession and the reduced economic
activity of the legal entities in the country and internationally. However, even in such circumstances, the
Bank significantly increased its market share in the domestic payment operations, from 16.89% in 2008
to 18.66% in 2009, whereas the number of bank accounts has increased by 11.0%.
Through it’s Cash Center, which is the only one in the country, the Bank performs services for purchasing
and sale, transport and security of cash domestically and from/to other countries for other commercial
banks and for legal entities.
Electronic banking (e-banking)
In the e-banking segment, in 2009, the total turnover through the Bank (in denars and foreign currencies)
was increased by 28%, and the number of users of this service also noted an annual increase of 62.6%.
The share of realized electronic orders via e-bank in the total orders realized via the denar payment
operations of the Bank, amounts to 21.3% (2008: 16.6%) by the number of orders, and 37.4% (2008:
30.1%) by turnover.
Trust services
On behalf of and for the legal entities and individuals, the Bank manages the assets which are placed as
loans to enterprises without any specific purpose, loans for self-employment for individuals - project of
the Employment Agency and securities for clients. These securities are separately considered from the
Bank’s assets.
At the end of 2009, the total trust operations amount to MKD 2,733 million which represents an increase
of 64.6% in comparison to 2008.
NLB Tutunska Banka
26
ANNUAL REPORT 2009
Financial Markets
Liquidity Management
During 2009, the Bank successfully managed the liquidity, whereby the excess of funds was used on the
interbank money market, through recording treasury bills from NBRM, government bills and structural
government bonds. The type, way and instruments for placing the excess of funds were being used
depending on the policy of the short and long terms, the maturity structure of the assets and liabilities,
the economic situation in the environment and movements of the markets for securities and money.
Interbank Money Market and Securities
The Bank regularly participated in the Money Market and short-term securities depending on the dayto-day needs or excess of funds, and used loans in total of MKD 23,243 million, and placed loans in
other banks of MKD 3,256 million in 337 transactions. In 2009, the Bank continued with monitoring and
managing the liquidity by providing funds on the interbank money market. The excess of funds was placed
in highly yield non-risk instruments, which are issued by the government and NBRM as instruments of
monetary policy and the policy of financing the public debt. The balance of the recorded treasury bills as
at 31st December, 2009, amounted to MKD 2,300 million, which represents 14.5% of the total recorded
bills. The interest rate of the treasury bills in December 2009 was 8.50% (2008: 7.00%). The balance of
the recorded government bills and bonds as at 31st December, 2009, was MKD 4,253 million, which
represents 47.3% of the total recorded government securities by the banks.
Foreign currency market
Despite the negative economic environment and the reduced external trading turnover, the Bank worked
on gaining new clients on the foreign markets, as well as increasing the quality of trading by controlling
the differences between support and demand.
The Bank’s total foreign currency market turnover in 2009 was USD 1,938 million traded or 26.04% (2008:
25.13%) of the total foreign currency market in Macedonia.
The total foreign currency market turnover realized through forward contracts was EUR 22.6 million which
represents an increase of 138% in comparison to 2008, whereas in 2008, the same turnover was EUR 9.5
million.
The Bank also made two swap transactions on the foreign currency market with a total amount of EUR 34
million. The total share of the derivative transactions on the foreign currency market was 4.2%.
NLB Tutunska Banka
27
ANNUAL REPORT 2009
Trading services with securities and investment banking
Trade services with securities
Through its brokerage house, NLB Tutunska broker, the Bank enables its customers to realize their interest
of operating on the capital market in Macedonia by providing them with brokerage and investment
consulting services and portfolio management. In 2009, in this segment, the Bank achieved a total turnover
of MKD 3,444 million, which are 4,863 realized transactions.
Custody services and services of the Custodian Bank (Depositary Bank)
The Bank provides custodian services for non-residents individuals and legal entities who trade with
securities in Macedonia.
For the investment funds, the Bank provides services as a depositary bank, as well as services of a custodian
bank of open mandatory and open voluntary pension funds.
NLB Tutunska Banka
28
ANNUAL REPORT 2009
Risk
Management
Ancient roman Aqueduct, Skopje
Risk Management
The Bank applies a highly conservative policy in anticipating the risks from operating by maintaining an
efficient system of integrated risk management. This enables the high probability for collection of loans,
a satisfactory level of capital adequacy, protection from contingencies and possible threats of failure to
implement the planned policy.
Credit risk management
Credit Risk Management includes a continuous analysis of the Bank’s credit portfolio, in terms of the
diversification of segments and portfolio concentration, analysis and assessment of financial performance
of the clients, monitoring the regularity in fulfillment of the obligations and allocation at a satisfactory
level of provisions for the loans.
The Bank’s total exposure in 2009 has decreased by MKD 138 million (0.3%) and amounts to MKD 40,700
million. The total provisions fund as at 31st December, 2009 was MKD 3,824 million, whereby portfolio
coverage of 9.4% (2008: 7.9%) was realized.
Credit portfolio quality
The share of A and B loans in the total portfolio at the end of 2009 amounted to 92.9% (2008: 94.8%).
The coverage of loans classified as C, D and E risk category with the total provisions is 132.7% (2008:
151.7%).
Credit portfolio on which
provisions are calculated
(000 MKD)
Structure of credit
portfolio by risk categories
D 0.6%
C 3.3%
50,000,000
40,000,000
40,838,761
E 3.2%
40,700,000
31,690,542
A 54.5%
30,000,000
20,000,000
10,000,000
B 38.4%
0
2007
2008
2009
Non-credit risk management
The Bank has established non-credit risk management policies. The Bank monitors and manages the
liquidity, currency, interest, operational, legal, strategic and reputational risk, as well as the information
system security.
In 2009, on a semi-annual basis, stress-tests on the Bank’s exposure to liquidity risk, currency risk and
interest risk were exercised, which indicated that the Bank holds a stable liquidity position.
NLB Tutunska Banka
30
ANNUAL REPORT 2009
Operational risk management
The operational risk management involves the establishment of a system of recording, monitoring,
controlling and management of potential or real harmful events arising from the current operations of the
Bank, as well as the external factors, which have a negative effect on the financial result.
During 2009, the identification and analysis of the operational risks was revised for the bigger part of
the Bank’s processes. The harmful events which occurred in the area of operational risks were actively
monitored and recorded, and reports were prepared for the same, which were presented to the Bank’s
Risk Management Committee, to the Operational Risk Commission and to NLB d.d. Ljubljana.
Capital and capital adequacy management
During 2009, the Bank’s capital adequacy ratio was maintained at a level of over 12.0%. In accordance
with the legal regulations, in the months of March and September, the Bank discounted the subordinated
loans, which reduced its guarantee capital to MKD 5,103 million (2008: MKD 5,264 million), which brought
down its capital adequacy ratio (CAR) to 13.05% (2008: 13.57%).
Capital adequacy in %
20.00
18.00
16.00
14.00
12.00
10.00
2007
NLB Tutunska Banka
2008
2009
31
ANNUAL REPORT 2009
Information technology
In 2009, many activities from an aspect of expansion and maintenance of the information infrastructure,
system adjustments and implementation of new software solutions were achieved, which enables the
building and maintenance of an effective and efficient information system. This enables the Bank to easily
monitor the volume growth of operation, organizational changes, changes in legislation, implementation
of innovative products and services and to adjust to the same, whereby supporting the profit realization
without obstructing and reducing the Bank’s profitability.
In the retail banking segment, the Bank continued upgrading and updating the information technology.
In 2009, a software solution for gradual saving was implemented, and an SMS notification was enabled
for the Bank’s cardholders and additional electronic services were implemented for users of electronic
banking.
In the corporate banking segment, the Bank invested in a license for accepting payment cards for electronic
trade by the two largest international card systems (MasterCard Worldwide and Visa INT), and for interbank
transactions which have been incurred in Macedonia with MasterCard cards, and agreement was made
that those transactions can be settled domestically, also, another agreement was made for providing
additional data of clients in accordance with the decision for the method and procedure for implementing
and application of the program for banks for anti money-laundering and financing terrorism-IPM and a
solution for automated reports for bankruptcy clients.
In the operations of the financial market segment, a solution for the Custodian Bank services was
implemented, and the software solution for working with securities was upgraded.
Amongst the major projects, which were realized in 2009, which is about the functionality of the systems,
was the implementation of a new Core Banking hardware system.
Information System Security
There is an Information System Security Department that is responsible for monitoring the information
security of the Bank.
The information security of NLB Tutunska banka is in accordance with Notice 9 of NBRM, the information
system of the Bank, and the international standards ISO 27001 and ISO 17799-2005 (ISO 27002). In
accordance with these standards, a system of information security was established within the Bank, which
is comprised of the following entities:
• Risk assessment
• Information system security policy
• Implementation of security controls
• Monitoring and upgrading the system,
• Business continuity.
NLB Tutunska Banka
32
ANNUAL REPORT 2009
Human
Resources
Monastery st. Jovan Bigorski, Rostushe
Human Resources and Organization
The Bank recognizes and emphasizes the significant contribution of the employees in accomplishing the
results and in the creation of a positive image of the Bank. It employs highly-qualified staff, with specialized
skills in different areas of the banking operations.
Structure and number of employees
The Bank’s total number of employees is 705, of which 81.0% have university degrees. The majority of the
employees or 74.2% are of the age of up to 35 years.
Structure of the
employees according to
their age, as at 31.12.2009
Structure of the employees
according to their education,
as at 31.12.2009
0.3% Primary
education
5.5% up to 25 years
12.2% above 45 years
16.7% Secondary
education
2.0% Post
Secondary
education
13.6% up to 35 to 45 years
81.0% University
education
68.7% from 25 to 35 years
Development and training for the employees
During 2009, the Bank continued with training and professional development of its employees. The types
of training conducted were based on the employees’ needs and mandatory professional development
specific to their jobs. The largest number of the conducted training were intended to improve management
capacity at a middle level (Program for management training - Part 1), improvement of sales skills and
communication in the retail banking segment, implementation of new products, services and development
solutions, mandatory knowledge and skills, risk management, procedures for employees’ voluntary
contribution and development of human resources, anti money-laundering and financing terrorism,
protection of personal details, security of the Bank’s information technology, etc. There were 98 training
sessions conducted, of which 27 were internal training sessions attended by 872 employees, and 71
external training sessions were attended by 474 employees.
Based on the established internal procedures and good practices of the professional conduct of
the employees, during 2009 there were 97 mentoring programs realized successfully by the newly
employed.
NLB Tutunska Banka
34
ANNUAL REPORT 2009
Benefits for Employees
Since 2009, the Bank began organizing and financing a professional scheme of its pension fund for
its employees, as voluntary contributions in a voluntary fund, with which the Bank fulfills its corporate
responsibility for its employees and at the same time, stimulates their loyalty.
Student work experience
As a result of the Bank’s continual cooperation with the universities in the country and abroad for
professional development and work experience of the young staff who are interested in working in
the banking industry in Macedonia, in 2009 the Bank organized internship for 217 students (2008: 221
students) within the Bank. The internship programs were conducted through the National Program for
interns and employment “Moja Kariera”, the Faculty of Economics - Skopje, the Faculty of Economics Prilep, FON University - Faculty of Economics, SEE University - Faculty of Business Administration, Faculty
for Electrotechnics and Information Technologies - Skopje.
Organization of operating
Organizational structure of the Bank
In 2009, within the existing business organization of the Bank, a Centre for coordination and cooperation
between NLB Group members and their clients was formed. The Centre is responsible for coordinating the
work of the business divisions within the Bank in dealings with their clients who have capital investments
in the Republic of Slovenia (Slovenia) or are members of the NLB Group, as well as clients who have
business dealings with the members of the NLB Group or Slovenia and coordination of the business
dealings of the Bank with members of the NLB Group, as well as the work of the members of the NLB
Group who are based in Macedonia.
In addition, there were changes made within the Bank’s Finance and Treasury Management division within
which a new organizational unit was formed, called Securities Services Department.
NLB Tutunska Banka
35
ANNUAL REPORT 2009
Organizational chart
ASSEMBLY
RISK MANAGEMENT
COMMITTEE
SUPERVISORY
BOARD
AUDIT COMMITTEE
INTERNAL AUDIT
DIVISION
MANAGING BOARD
IT STEERING
COMMITTEE
COMPANY SECRETARY
DEVELOPMENT
COMMITTEE
OFFICE OF THE Management BOARD
ASSETS AND LIABILITIES
MANAGEMENT
COMMITTEE
LEGAL CENTER
• Legal consulting and representation Segment
• Bad loan management segment
• Compliance segment (Officer)
• Security of information systems segment
• Anti money laundering segment
RISK MANAGEMENT CENTER
• Loan risk management segment
• Non loan risk management segment
CENTER FOR COORDINATION AND COOPERATION
BETWEEN NLB GROUP MEMBERS AND THEIR CLIENTS
LOGISTICS
DIVISION
FINANCE AND
TREASURY
MANAGEMENT
DIVISION
CORPORATE
BANKING DIVISION
BRANCH
NETWORK
DIVISION
PAYMENT SYSTEM
AND SALES
LOGISTIC DIVISION
CASH SERVICES
AND DEPOT
DIVISION
Financial
accounting
department
Assets and
liabilities
managements
department
CRm department
industry and
agriculture
sector
Control,
coordination
and marketing
department
International
payment systems
and trade finance
department
Cash and
depot services
department
Businesses planing
and control
department
Custody
department
CRm department
trade and services
sector
Small and
micro business
department
Domestic payment
department
Department for
security and cash
transportations
Human
resources and
organizational
department
F/x money market
and derivates
department
Credit lines and
consortium
department
Branches
Self service
banking
Investments
procurement and
general affairs
department
Securities services
department
Project finance
department
Private customers
administration
department
Information
technology
department
NLB Tutunska Banka
Business customers
administration
department
36
ANNUAL REPORT 2009
Financial
Statements
Antic amphitheatre, Ohrid
NLB Tutunska banka AD Skopje
Consolidated Financial Statements prepared in accordance with
International Financial Reporting Standards for the year ended 31
December 2009
NLB Tutunska Banka
38
ANNUAL REPORT 2009
PricewaterhouseCoopers
REVIZIJA doo - Skopje
ul. Marshal Tito 12,
“Palata Makedonija” IV floor
1000 Skopje
Republic of Macedonia
Telephone +389 (02) 3116 638
+389 (02) 3111 012
+389 (02) 3110 623
Facsimile +389 (02) 3116 525
www.pwc.com/mk
Independent auditor’s report
To the Shareholders of NLB Tutunska banka AD Skopje
We have audited the accompanying consolidated financial statements of NLB Tutunska banka AD Skopje
and its subsidiary NLB Tutunska broker AD Skopje, the (together “the Group ”), which comprise the
consolidated statement of financial position as of 31 December 2009 and the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement
for the year then ended and a summary of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards. This responsibility includes:
designing, implementing and maintaining internal control relevant to the preparation and fair presentation
of the financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
NLB Tutunska Banka
39
ANNUAL REPORT 2009
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion
Opinion
In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial
position of the Group as of 31 December 2009, and of its financial performance and its cash flows for the
year than ended in accordance with International Financial Reporting Standards.
PricewaterhouseCoopers REVIZIJA doo - Skopje
Skopje,
31 March 2010
NLB Tutunska Banka
40
ANNUAL REPORT 2009
Consolidated Income statement
All amounts in MKD thousands unless otherwise stated
Year ended 31 December
Notes
2009
2008
Interest and similar income
5
3,509,573
3,531,954
Dividend income
7
11,000
18,190
Interest expense and similar charges
5
(1,751,939)
(1,691,289)
1,768,634
1,858,855
(710,232)
(637,410)
1,058,402
1,221,445
Net interest income
Loan impairment charges
8
Net interest income after loan impairment charges
Fee and commission income
6
796,443
735,890
Fee and commission expense
6
(152,740)
(113,885)
643,703
622,005
Net fee and commission income
Net gains / (losses) on financial instruments classified as held for trading
9
53,148
56,428
Net gains / (losses) on investment securities
21
14,901
23,652
Net foreign exchange gain
11
162,133
135,318
Personal expenses
13
(602,949)
(559,979)
General and administrative expenses
14
(271,878)
(253,256)
Depreciation and amortization expense
15
(177,262)
(135,188)
Gains less losses on revaluation of investment property
16
(8,297)
-
Other operating expenses
17
(549,564)
(364,633)
Other operating income
12
135,483
35,093
457,820
780,885
10,560
11,189
468,380
792,074
(11,914)
(66,549)
456,466
725,525
Operating profit
Share of profit of associates and joint ventures
accounted for using the equity method
25
Profit before income tax
Income tax expense
18
Profit for the year
The notes on pages 47 to 114 are an integral part of these financial statements
NLB Tutunska Banka
41
ANNUAL REPORT 2009
Consolidated statement of
comprehensive income
All amounts in MKD thousands unless otherwise stated
Year ended 31 December
Notes
2009
2008
456,466
725,525
Unrealised net gains arising during the period, before tax
(40,513)
(131,769)
Net reclassification adjustments for realised net losses, before tax
(14,901)
(23,652)
5,535
20,391
(49,879)
(135,030)
406,587
590,495
Profit for the year
Net gains on available-for-sale financial assets
Income tax relating to components
of other comprehensive income
Other comprehensive income for the year, net of tax
19
Total comprehensive income for the year
The notes on pages 47 to 114 are an integral part of these financial statements
NLB Tutunska Banka
42
ANNUAL REPORT 2009
Consolidated Statement of financial position
(Balance sheet)
All amounts in MKD thousands unless otherwise stated
As at 31 December
Notes
2009
2008
ASSETS
Cash and balances with central banks
20
8,553,400
5,406,526
Loans and advances to banks
21
7,133,066
5,397,729
Loans and advances to customers
22
29,850,704
30,171,505
Financial assets held for trading
23
370,325
608,516
• Available for sale
24
7,341,741
1,244,499
• Held to maturity
24
317,030
7,131,889
Investments in associates and joint ventures for using the equity method
25
65,200
54,636
Investment properties
26
70,471
-
Property, plant and equipment
27
874,351
818,184
Intangible assets
28
93,951
98,340
Current income tax assets
29
572
-
Investment securities:
Deferred income tax assets
30
2,178
838
Other assets
31
455,094
250,227
55,128,083
51,182,889
Total assets
LIABILITIES
Deposits from banks
32
3,176,495
2,595,057
Deposits from customers
33
40,388,538
36,469,855
Other borrowed funds
34
4,127,402
4,399,724
Debt securities in issue
35
631,786
649,163
Provisions
36
287,004
386,658
Current income tax liabilities
37
-
1,468
Deferred income tax liabilities
30
5,310
9,505
Other liabilities
39
386,480
319,451
Subordinated liability
38
1,620,346
1,630,763
50,623,361
46,461,644
Total liabilities
EQUITY
Capital and reserves attributable to equity of parent entity
Share capital
43
854,061
854,061
Share premium
43
2,203,056
2,203,056
Revaluation reserve
43
28,184
78,063
Retained earnings
786,533
1,006,602
Other reserves
632,888
579,463
4,504,722
4,721,245
55,128,083
51,182,889
Total equity
Total equity and liabilities
The notes on pages 47 to 114 are an integral part of these financial statements
NLB Tutunska Banka
43
ANNUAL REPORT 2009
Consolidated Statement of changes in equity
All amounts in MKD thousands unless otherwise stated
Attributable to owners of the parent entity Total before
Balance at 1 January 2008
Share
capital
Share
premium
Retained
earnings
Other Revaluation
reserves
reserve
noncontrolling
interests
Total
equity
785,621
1,610,707
833,658
535,187
3,978,266
3,978,266
725,525
725,525
(135,030)
(135,030)
(135,030)
(135,030)
590,495
590,495
(508,305)
(508,305)
660,789
660,789
Profit
213,093
725,525
Fair value gains on available for
sale financial, net to tax
Total comprehensive income
725,525
Dividend income to 2008
(508,305)
Transfer to statutary reserve
(44,276)
44,276
Employee share option scheme:
-Proceeds from shares issued
68,440
592,349
Balance at 31 December 2008
854,061
2,203,056
1,006,602
579,463
78,063
4,721,245
4,721,245
Balance at 1 January 2009
854,061
2,203,056
1,006,602
579,463
78,063
4,721,245
4,721,245
456,466
456,466
(49,879)
(49,879)
(49,879)
(49,879)
406,587
406,587
(623,110)
(623,110)
4,504,722
4,504,722
456,466
Profit
Fair value gains on available for
sale financial, net to tax
Total comprehensive income
456,466
Dividends income to 2008
(623,110)
Transfer to statutary reserve
(53,425)
(53,425)
786,533
632,888
Balance at 31 December 2009
854,061
2,203,056
28,184
The notes on pages 47 to 114 are an integral part of these financial statements
Detailed information is provided in Note 43
NLB Tutunska Banka
44
ANNUAL REPORT 2009
Consolidated Statement of cash flow
All amounts in MKD thousands unless otherwise stated
Year ended 31 December
Note
2009
2008
468,380
792,074
Cash flows from operating activities
Profit before tax
Adjustments for non cash items:
Depreciation of property and equipment
27
146,218
108,635
Amortization of intangible assets
28
31,045
26,553
-
-
16
8,297
-
Depreciation of investments property
Losses on revaluation of investment property
Written off property and equipment
Capital loss on sale of property and equipment
Impairment loss
Decrease in value of assets acquired through foreclosure procedure
-
15
5,359
340
621,767
671,158
13,826
3,750
Dividends income
7
(11,000)
(18,190)
Interest income
5
(3,509,573)
(3,531,954)
Interest expense
5
1,751,939
1,691,289
3,516,049
3,580,156
(1,624,994)
(1,776,251)
(10,560)
-
(8,004)
-
1,398,749
1,547,575
Balances with NBRM
(177,032)
(1,261,920)
Loans and advances to banks
(176,574)
(1,750,044)
Loans and advances to customers
(391,283)
(8,180,778)
Other assets
(229,250)
(557)
547,922
449,508
3,791,559
9,163,829
67,368
27,298
4,831,459
(5,089)
(13,954)
(70,310)
4,817,505
(75,399)
Interest received
Interest paid
Share or profit of associates
Other non-cash items
Operating profit before changes in operating assets
(Increase) / decrease in operating assets:
Increase / (decrease) in operating liabilities:
Deposits from banks and other financial institutions
Deposits from customers
Other liabilities
Net cash (used in) / from operating activities before income tax
Taxation paid
Income tax paid
Net cash (used in) / from operating activities
The notes on pages 47 to 114 are an integral part of these financial statements
NLB Tutunska Banka
45
ANNUAL REPORT 2009
Consolidated Statement of cash
flow (continued)
All amounts in MKD thousands unless otherwise stated
Year ended 31 December
Notes
2009
2008
(253,091)
Cash flows from investing activities
Purchase of property and equipment
27
(282,953)
Purchase of intangible assets
28
(26,656)
(55,004)
(3,999,473)
(597,910)
Purchase of investments
Proceeds from sale of securities held for trading
Disposal of investments
Proceeds from sale of property and equipment
Dividends received
7
Net cash (used in) / investing activities
238,191
42,433
1,516,445
762,312
1,730
491
11,000
18,190
(2,541,716)
(82,579)
Cash flows from financing activities
Proceeds from subordinated liabilities
-
863,444
Proceeds from borrowed funds and debt securities
20,707,673
2,715,551
Repayment of borrowings funds and debt securities
(20,982,92)
(5,400,268)
Issue of ordinary shares
-
660,789
Dividends paid
(623,110)
(508,305)
Net cash (used in) / from financing activities
(898,366)
(1,668,789)
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
20
1,377,423
(1,826,767)
12,699,792
14,526,559
14,077,215
12,699,792
The notes on pages 47 to 114 are an integral part of these financial statements
NLB Tutunska Banka
46
ANNUAL REPORT 2009
Note to the Consolidated Financial Statements
1.
General information
1.1 Introduction
NLB Tutunska banka AD Skopje (“the Bank”) is a joint stock company incorporated and domiciled in the Republic of
Macedonia. The Bank is a subsidiary of NLB Group, which controls 86.97% (2008: 86.97%) of the voting shares of the
Bank.
The address of its registered office is as follows:
St. Vodjanska br. 1, p.fax. 702,
Skopje, principal Centar
1000 Skopje,
Republic of Macedonia
The consolidated financial statements of the Bank for the year ended 31 December 2009 comprise the financial statements
of the Bank and its wholly owned subsidiary NLB Tutunska broker AD Skopje, together referred to as the “Group”, and
the interest of the Group in their associate Nov Penziski Fond AD Skopje.
The Group is licensed to perform all banking activities in accordance with the law and the main activities include commercial
lending, receiving of deposits, foreign exchange deals, and payment operation services in the country and abroad and
retail banking services. In addition, it provides trade finance facilities to companies for export and import purposes,
intermediate operations with trading securities, stock exchange operations on behalf of third parties and trading with
investment securities managed on its own behalf. These consolidated financial statements have been approved for issue
by the Supervisory Board on 26 March 2010.
Directors
The names of the Members of the Management Board of the Group serving during the financial year and to the date of
this report are as follows:
President of Management Board
Gjorgji Jancevski
Member of Management Board
Ljube Rajevski
Member of Management Board
Tome Perinski
Manager of Finance and Treasury Management Division
Stojna Stojkoska
Manager of Logistic Division
Jordanka Grujoska
Manager of Cash Services Division
Dragan Panovski
Manager of Internal Audit Division
Ljiljana Nastoska
Manager of Payment System and Sales Logistics Division
Slagjana Beleva
Manager of Branch Network Division
Antonio Argir
Manager of Corporate Banking Division
Straso Pupulkovski
Manager of Centre for coordination of cooperation with members of the NLB Group
Manager of Risk Management Centre
Bogoja Kitancev
Manager of Legal Centre
NLB Tutunska Banka
Damir Kuder
Nadica Ceneva
47
ANNUAL REPORT 2009
1.2 Operating Environment of the Group
Operating Environment of the Group
Macedonian economy. In 2009 economic activity has slumped due to decreased export demand from EU trading partners,
weak domestic demand and decreased investments. Limited consumer financing, restricted public expenditures and lack
of capital investments decreased gross domestic product by 1.8%, while industrial production was underperforming
during whole year ending up to 7.7% below 2008. However, positive signs in industrial production in last two months
of 2009 impute possible break out from recession in early 2010. Unemployment decreased to 31.7%, although still
high. Despite unfavorable movements in real sector, decreased import activities, stable remittances and restricted public
consumption influenced on narrowing of foreign trade deficit and released the pressure on current account.
Inflation was 0.8%, moving into the zone of deflation during the year as a result of considerably restrictive monetary
policy that influenced on decrease of internal payments by 10.8% and decrease of FC market by 17.7%. At the same
time, nominal wages have grown by 24.6% (partially due to new concept of calculation and payment of salaries and
improved collection) thus preventing notable fall in real incomes.
At the beginning of 2009 the Central government budget was broadly misbalanced. Tax revenues (VAT and Excise) have
decreased owing to narrowed trade, while government fiscal policy was expansionary (aiming to replace weaker private
consumption and thus support planned growth). This led to notable budget deficit which after two supplements closed to
178.1 million EUR or 2.77% of GDP (three times higher than 2008, but still in the limits of Maastricht treaty). Deficit was
financed through increase of internal indebtedness and by issuing second Eurobond of 175 million EUR on international
market.
After expansionary monetary policy in 2008 and increased pressure on Denar, National Bank of Republic of Macedonia
(NBRM) in 2009 has tightened the policy by introducing 20% obligatory reserve for Denar with FC clause, 13% obligatory
reserve for FC clause, obligatory limits for structural liquidity on banks for domestic and foreign currency on terms of 30
and 180 days and 11% limit on annual growth of household loans. Parallel with this, NBRM was sterilizing the market
through open market operations (interest on CB bills was increased up to 9%) which resulted with lowered pressure on
Denar, but also with inhibited credit growth up to 3.5% p.a. (2008: 34,4%) which had additional negative influence on
companies performance and domestic demand.
Republic of Macedonia has euro pegged exchange rate. Macedonian Denar (MKD) has slightly appreciated (0.4%) against
Euro in 2009. The official EUR exchange rate of NBRM decreased from MKD 61.4123 at 31 December 2008 to MKD
61.1732 at December 2009 (and MKD 61.3673 at January 31, 2010), while the international reserves of Macedonia
increased by 104 million EUR. Starting from February 2010, NBRM has implemented new model for calculation of official
middle exchange rate of Denar by the means of quotations made by banks that are market makers in Macedonia.
In 2009, current account deficit remained main risk to continued growth from previous years and to macroeconomic
stability.
Export demand, which has started to fall in second half of 2008, and low foreign direct and portfolio investments, created
significant balance of payments` pressures (deficit was mostly financed through foreign currency reserves and second
issued Eurobond). From the beginning of August, deficit has started to decrease and is expected to close 8% from GDP
(2008: 13.1%). Foreign trade has decreased by 29.8%, whereby export has decreased more strong (-33.5%) than imports
(-27.6%). Foreign trade deficit closed 1.640 million EUR, decreasing by 20% compared to 2008.
Broad money at the end of the year has increased by 6% compared to 2008. Liquidity of the banking sector in Republic
of Macedonia remains strong, mostly supported by stable private savings.
Future economic direction of the Republic of Macedonia is largely dependent upon the effectiveness of economic, fiscal
and monetary measures undertaken by the Government and their timely adjustment in order to preserve external stability,
as well as ability to stimulate domestic investment with tax, legal, regulatory, and political relaxation. Protection of the
exchange rate remains priority of monetary policy in 2010.
However, management is unable to predict all developments which could have an impact on the banking sector and the
wider economy and consequently what effect, if any, they could have on the future financial position of the Group.
NLB Tutunska Banka
48
ANNUAL REPORT 2009
General
Recent volatility in global and Macedonian financial markets
The ongoing global financial and economic crisis that emerged out of the severe reduction in global liquidity which
commenced in the middle of 2007 has resulted in a lower level of capital market funding, higher interbank lending rates
and very high volatility in stock and currency markets. While liquidity levels of banking sector and wider global economy
decreased on lower levels, the liquidity levels across the banking sector in Republic of Macedonia remained high two years
in row. It is expected that there will be no liquidity shocks in domestic banking in 2010.
The full extent of the impact of the ongoing global financial an economic crisis is providing to be difficult to anticipate or
completely guard against.
Impact on liquidity
The funding of the Bank is mostly dependant on stable deposit base which has been continuously growing. The Bank
does not expect any significant negative influence on stability of deposit base and thus on liquidity. However the overall
market pressure towards decreasing interests on loans, and short term securities, may influence on possible alternative
ways of funding.
Impact on customers / borrowers
The banks clients, both the borrowers and depositors, may be adversely affected by the financial and economic environment
which could in turn impact their liquidity and their ability to repay the amounts owed. Additionally, implementation of
new model for calculation of official middle exchange rate of Denar by the means of quotations made by banks that
are market makers in Macedonia, may lead to higher exchange rate on FX market, and higher foreign currency risk
and indirect credit risk for borrowers. Deteriorating operating conditions for borrowers may also have an impact on
management’s cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the extent
that information is available, management has properly reflected revised estimates of expected future cash flows in its
impairment assessments.
Impact on collateral (especially real estate)
The amount of provision for impaired loans is based on management’s appraisals of these assets at the balance sheet
date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral. The market in Macedonia for many types of collateral, especially real estate, has not been severely affected
by the recent volatility in global financial markets since the supply of real estate especially residential is still lower than
demand. Never the less, possible lower liquidity of companies in 2010 may decrease liquidity for certain types of assets.
As a result, the actual realisable value on foreclosure may differ from the value ascribed in estimating allowances for
impairment.
Fair value of financial assets and liabilities (excluding financial assets and liabilities directly affected by the
credit crunch (e.g. mortgage backed securities) for which specific disclosures would be required)
The fair values of quoted investments in active markets are based on current bid prices (financial assets) or ask prices
(financial liabilities). If there is no active market for a financial instrument, the Group establishes fair value using valuation
techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants. The valuation models reflect current
market conditions at the measurement date which may not be representative of market conditions either before or after
the measurement date. As at the balance sheet date, management has reviewed its models to ensure they appropriately
reflect current market conditions, including the relative liquidity of the market and credit spreads.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
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2.1
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) and are stated in Macedonian Denars (MKD).
The consolidated financial statements have been prepared under the historical cost convention, as modified by the
revaluation of available-for-sale financial assets.
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant
to the financial statements are disclosed in Note 4.
a) Adoption of New or Revised Standards and Interpretations
Certain new standards and interpretations became effective for the Bank from 1 January 2009:
IFRS 8, Operating Segments. The standard applies to entities whose debt or equity instruments are traded in a public
market or that file, or are in the process of filing, their financial statements with a regulatory organisation for the purpose of
issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and descriptive information
about its operating segments, with segment information presented on a similar basis to that used for internal reporting
purposes.
IAS 23, Borrowing Costs, revised in March 2007. The main change is the removal of the option of immediately recognizing
as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale.
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily
takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) form part of the cost of that
asset, if the commencement date for capitalization is on or after 1 January 2009. Other borrowing costs are recognized
as an expense using the effective interest method.
IAS 1, Presentation of Financial Statements, revised in September 2007. The main change in IAS 1 is the replacement
of the income statement by a statement of comprehensive income which includes all non-owner changes in equity, such
as the revaluation of available-for-sale financial assets. Alternatively, entities are allowed to present two statements:
a separate income statement and a statement of comprehensive income. The Bank has elected to present a single
statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial
position (balance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives
due to reclassifications, changes in accounting policies, or corrections of errors. The revised IAS 1 had an impact on
the presentation of the Bank’s financial statements but had no impact on the recognition or measurement of specific
transactions and balances.
Improvements to International Financial Reporting Standards (issued in May 2008). In 2008, the International
Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but
non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes
in terminology in various standards. The substantive changes relate to the following areas: classification as held for sale
under IFRS 5 in case of a loss of control over a subsidiary; possibility of presentation of financial instruments held for trading
as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of
the related cash flows under IAS 7 as cash flows from operating activities; clarification of definition of a curtailment under
IAS 19; accounting for below market interest rate government loans in accordance with IAS 20; making the definition of
borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held for
sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS
28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS
38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under
IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction
in restrictions over manner of determining fair value of biological assets under IAS 41. Further amendments made to IAS
8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have
no or minimal effect on accounting. The amendments did not have an impact on the Bank except for:
IAS 16, Property, Plant and Equipment (and consequential amendments to IAS 7). Under the amended standard,
entities that routinely sell assets previously held for rental are required to classify such assets as inventories from the point
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that the assets cease to be leased and become held for sale, while the proceeds from sale are recognized as revenue. The
rent and proceeds from sale have to be classified as cash flows from operating activities. The Bank amended its accounting
policies accordingly.
IAS 40, Investment Property (and consequential amendments to IAS 16). Property that is under construction or
development for future use as investment property is brought within the scope of the revised IAS 40. Where the fair value
model is applied, such property is measured at fair value. Where the fair value of investment property under construction
is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed or the
date at which the fair value becomes reliably measurable. The Bank applies the amendment prospectively from 1 January
2009.
Puttable Financial Instruments and Obligations Arising on Liquidation - IAS 32 and IAS 1 Amendment. The
amendment requires classification as equity of some financial instruments that meet the definition of financial liabilities.
The amendment did not have an impact on these financial statements.
Vesting Conditions and Cancellations - Amendment to IFRS 2, Share-based Payment. The amendment clarified
that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment
are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties,
should receive the same accounting treatment. The amendment did not have an impact on these financial statements.
IFRIC 13, Customer Loyalty Programmes. IFRIC 13 clarifies that where goods or services are sold together with a customer
loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the
consideration receivable from the customer is allocated between the components of the arrangement using fair values.
The amendment did not have an impact on these financial statements. The Bank concluded that the revised standard does
not have any effect on its financial statements.
IFRIC 15, Agreements for the Construction of Real Estate. The interpretation applies to the accounting for revenue
and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and
provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11
or IAS 18. It also provides criteria for determining when entities should recognize revenue on such transactions. The Bank
concluded that the revised standard does not have any effect on its financial statements.
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate - IFRS 1 and IAS 27 Amendment,
(issued in May 2008). The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly
controlled entities or associates at fair value or at previous GAAP carrying value as deemed cost in the separate financial
statements. The amendment also requires distributions from pre-acquisition net assets of invests to be recognized in profit
or loss for the year rather than as a recovery of the investment. The amendment did not have an impact on these financial
statements. The Bank concluded that the revised standard does not have any effect on its financial statements.
Improving Disclosures about Financial Instruments - Amendment to IFRS 7, Financial Instruments: Disclosures,
(issued in March 2009). The amendment requires enhanced disclosures about fair value measurements and liquidity risk.
The entity is required to disclose an analysis of financial instruments using a three-level fair value measurement hierarchy.
The amendment (a) clarifies that the maturity analysis of liabilities should include issued financial guarantee contracts at
the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and (b) requires
disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an
understanding of the timing of the cash flows. An entity will further have to disclose a maturity analysis of financial assets
it holds for managing liquidity risk, if that information is necessary to enable users of its financial statements to evaluate
the nature and extent of liquidity risk. The enhanced disclosures are included in these financial statements.
Embedded Derivatives - Amendments to IFRIC 9 and IAS 39, (issued in March 2009). The amendments clarify that
on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded derivatives
have to be assessed and, if necessary, separately accounted for. The amendment did not have an impact on these financial
statements. The Bank concluded that the revised standard does not have any effect on its financial statements.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation. The interpretation explains which currency risk exposures
are eligible for hedge accounting and states that translation from the functional currency to the presentation currency
does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to
be held by any entity or entities within a group except the foreign operation that it is being hedged. The interpretation
also clarifies how the currency translation gain or loss reclassified from other comprehensive income to profit or loss is
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ANNUAL REPORT 2009
calculated on disposal of the hedged foreign operation. Reporting entities apply IAS 39 to discontinue hedge accounting
prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 did not have an
impact on these financial statements. The Bank concluded that the revised standard does not have any effect on its
financial statements.
The International Financial Reporting Standard for Small and Medium - sized Entities (issued in July 2009) is a
self-contained standard, tailored to the needs and capabilities of smaller businesses. Many of the principles of full IFRS
for recognizing and measuring assets, liabilities, income and expense have been simplified, and the number of required
disclosures have been simplified and significantly reduced. The IFRS for SMEs may be applied by entities which publish
general purpose financial statements for external users and do not have public accountability. The Bank is not eligible
to apply the IFRS for SMEs due to the public accountability of its banking business. The Bank concluded that the revised
standard does not have any effect on its financial statements.
Unless otherwise stated above, the amendments and interpretations did not have any significant effect on the Bank’s
consolidated financial statements.
b) New Accounting Pronouncements
Certain new standards and interpretations have been published that are mandatory for the Bank’s accounting periods
beginning on or after 1 January 2010 or later periods and which the Bank has not early adopted:
IFRIC 17, Distributions of Non-Cash Assets to Owners (effective for annual periods beginning on or after 1 July
2009). The interpretation clarifies when and how distribution of non-cash assets as dividends to the owners should be
recognized. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value
of the assets to be distributed. A gain or loss on disposal of the distributed non-cash assets will be recognized in profit or
loss for the year when the entity settles the dividend payable. IFRIC 17 is not relevant to the Bank’s operations because it
does not distribute non-cash assets to owners.
IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009). The
interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the
definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the
identification of the separately identifiable services (one or more services in exchange for the transferred asset); the
recognition of revenue, and the accounting for transfers of cash from customers. The Bank concluded that the standard
does not have any effect on its financial statements.
Classification of Rights Issues - Amendment to IAS 32 (issued 8 October 2009; effective for annual periods beginning
on or after 1 February 2010). The amendment exempts certain rights issues of shares with proceeds denominated in
foreign currencies from classification as financial derivatives. The Bank concluded that the revised standard does not have
any effect on its financial statements.
IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning
on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of
the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling
interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the
parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that
do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should
measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment
retained in the former subsidiary will have to be measured at its fair value. The Group concluded that the revised standard
does not have any effect on its financial statements.
IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS
3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share
of the acquire’s identifiable net assets) or at fair value. The revised IFRS 3 is more detailed in providing guidance on the
application of the purchase method to business combinations. The requirement to measure at fair value every asset and
liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead,
in a business combination achieved in stages, the acquire will have to re measure its previously held equity interest in
the acquire at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss for the year.
Acquisition-related costs will be accounted for separately from the business combination and therefore recognized as
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expenses rather than included in goodwill. An acquire will have to recognise at the acquisition date a liability for any
contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognized in
accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into
its scope business combinations involving only mutual entities and business combinations achieved by contract alone. IFRS
3 is not relevant to the Group as it does not expect a business combination to occur.
Eligible Hedged Items - Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective
with retrospective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the
principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in
particular situations. The amendment is not expected to have any impact on the Bank’s financial statements as the Bank
does not apply hedge accounting.
IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in December
2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009). The revised IFRS 1
retains the substance of its previous version but within a changed structure in order to make it easier for the reader to
understand and to better accommodate future changes. The Bank concluded that the revised standard does not have any
effect on its financial statements.
Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective
for annual periods beginning on or after 1 January 2010). The amendments provide a clear basis to determine the
classification of share-based payment awards in both consolidated and separate financial statements. The amendments
incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments expand on the
guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments
also clarify the defined terms in the Appendix to the standard. The Bank does not expect the amendments to have any
material effect on its financial statements.
Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective
for annual periods beginning on or after 1 January 2010). The amendments exempt entities using the full cost method
from retrospective application of IFRSs for oil and gas assets and also exempt entities with existing leasing contracts
from reassessing the classification of those contracts in accordance with IFRIC 4, ‘Determining Whether an Arrangement
Contains a Lease’ when the application of their national accounting requirements produced the same result. The Bank
concluded that the standard does not have any effect on its financial statements.
Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2,
IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS
5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January
2010). The improvements consist of a mixture of substantive changes and clarifications in the following standards and
interpretations: clarification that contributions of businesses in common control transactions and formation of joint
ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and other standards
for non-current assets (or disposal groups) classified as held for sale or discontinued operations; requiring to report
a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly
provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by
entity’s own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a recognized
asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as
finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing additional
guidance in IAS 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash
generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding
measurement of fair value of intangible assets acquired in a business combination; amending IAS 39 (i) to include in its
scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses
on cash flow hedging instruments from equity to profit or loss for the year and (iii) to state that a prepayment option
is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending
IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint
ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held
by the foreign operation that itself is being hedged. The Bank does not expect the amendments to have any material
effect on its financial statements.
Amendment to IAS 24, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning
on or after 1 January 2011). IAS 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying
its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure
requirements for government-related entities.
IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9 was issued in November 2009 and
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replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as
follows:
• Financial assets are required to be classified into two measurement categories: those to be measured subsequently
at fair value, and those to be measured subsequently at amortized cost. The decision is to be made at initial
recognition. The classification depends on the entity’s business model for managing its financial instruments and
the contractual cash flow characteristics of the instrument.
• An instrument is subsequently measured at amortized cost only if it is a debt instrument and both (i) the objective
of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s
contractual cash flows represent only payments of principal and interest (that is, it has only ”basic loan features”).
All other debt instruments are to be measured at fair value through profit or loss.
• All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading
will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can
be made at initial recognition, to recognise unrealized and realized fair value gains and losses through other
comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit
or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit
or loss, as long as they represent a return on investment.
• While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted.
The Bank is considering the implications of the standard, the impact on the Bank and the timing of its adoption by
the Group. Unless otherwise described above, the new standards and interpretations are not expected to significantly
affect the Bank’s financial statements.
Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the
Group’s financial statements.
2.2 Basis of consolidation
a) Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly,
to govern the financial and operating policies of an entity in order to obtain benefits from its activities. The financial
statements of subsidiaries are included in the consolidated financial statements from the date the control commences
until the date that control ceases.
The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date
of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective
of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the
identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognized directly in the income statement.
b) Investment in associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating
policies. The investment in associate is accounted for using the equity method. The financial statements include the
Group’s share of total recognized gains and losses of associates on an equity accounting basis, from the date that the
significant influence commences until the date that the significant influences ceases. When the Group’s share of losses
exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is
discontinued except to the extend that the Group has incurred legal or constructive obligations or made payments on
behalf of an associate.
c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions between the Bank
and subsidiaries, are eliminated in preparing the consolidated financial statements. Unrealized gains and losses arising
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ANNUAL REPORT 2009
from transactions with the associate are eliminated to the extent of the Group’s interest in the enterprise. Unrealized
gains arising from transactions with associate are eliminated against the investment in the associate. Unrealized losses are
eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
2.3 Foreign currency translation
a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which
the Group operates (”the functional currency”). The financial statements are presented in MKD thousands, which is the
Banks’s functional and the Group’s presentation currency.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized
in the income statement.
Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are
analyzed between translation differences resulting from changes in the amortized cost of the security and other changes
in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized in
profit or loss, and other changes in the carrying amount are recognized in equity.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as
part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as availablefor-sale financial assets, are included in the fair value reserve in equity.
The foreign currencies the Group deals with are predominantly Euro (EUR) and United States Dollars (USD) based. The
exchange rates used for translation at 31 December 2009 and 2008 were as follows:
2009
2008
MKD
MKD
1 EUR
61.17
61.41
1 USD
42.67
43.56
2.4 Financial assets
The Group classifies its financial assets in the following categories: loans and receivables; financial assets held for trading,
available-for-sale financial assets and held to maturity investments. Management determines the classification of its
investments at initial recognition.
a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They arise when the Group provides money to a debtor with no intention of trading the receivable.
Loans are recognized when cash is advanced to the borrowers and are carried at amortized cost using the effective
interest method.
b) Held for trading
A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing it in
the near term and for which there is evidence of a recent actual pattern of short-term profit-taking. Trading assets held
by the Group are treasury bills and government and corporate bonds.
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c) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in
response to needs for liquidity.
Regular-way purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for
sale are recognized on trade - date - the date on which the Group commits to purchase or sell the asset.
Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and
transaction costs are expensed in the income statement.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair
value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the interest method.
Gains and losses arising from changes in the fair value of the ”financial assets at fair value through profit or loss” category
are included in the income statement in the period in which they arise. Gains and losses arising from changes in the
fair value of available-for-sale financial assets are recognized directly in equity, until the financial asset is derogations or
impaired. At this time, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. However,
interest calculated using the interest method and foreign currency gains and losses on monetary assets classified as available
for sale are recognized in the income statement. Dividends on available-for-sale equity instruments are recognized in the
income statement when the entity’s right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices, except that any instrument that
does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at
cost, less impairment losses.
Financial assets are derogations when the rights to receive cash flows from the financial assets have expired or where the
Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derogations when they are
extinguished - that is, when the obligation is discharged, cancelled or expires.
d) Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities
that the Group’s management has the positive intention and ability to hold to maturity. If the Group was to sell other than
an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale.
2.5 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable
right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the
liability simultaneously.
2.6 Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading
or designated at fair value through profit or loss, are recognized 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 amortized cost of a financial asset or a financial liability and
of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or,
when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating
the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument
(for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points
paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs
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and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down because of an impairment loss, interest
income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss.
2.7 Fee and commission income
Fees and commissions consist mainly of fees received from entities arising from guarantees and letter of credits and fees
arising from domestic and foreign payment traffic. Fees and commissions are generally recognized on an accrual basis
when the service has been provided.
2.8 Dividend income
Dividends are recognized in the income statement when the entity’s right to receive payment is established and inflow of
economic benefits is probable.
2.9 Impairment of financial assets
a) Assets carried at amortized cost
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses 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 (”loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
• Delinquency in contractual payments of principal or interest;
• Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales);
• Breach of loan covenants or conditions;
• Initiation of bankruptcy proceedings;
• Deterioration of the borrower’s competitive position;
• Deterioration in the value of collateral;
• Legal and other difficulties in enforcing the bank’s rights to repossess collateral.
The estimated period between a loss occurring and its identification is determined by local management for each identified
portfolio. In general, the period used is three months.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant, and individually or collectively for financial assets that are not individually significant. If the Group determines
that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it
includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for
impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be
recognized are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s
original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognized 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.
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The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows
that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk
characteristics (i.e., on the basis of the Group’s grading process that considers asset type, industry, geographical location,
collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future
cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the
contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of
the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk characteristics
similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to reflect the
effects of current conditions that did not affect the period on which the historical loss experience is based and to remove
the effects of conditions in the historical period that do not currently exist.
Estimates of changes in future cash flows for groups of assets should reflect and be directly consistent with changes in
related observable data from period to period (for example, changes in unemployment rates, property prices, payment
status, or other factors indicative of changes in the probability of losses in the Group and their magnitude). The methodology
and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences
between loss estimates and actual loss experience.
When a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are written off
after all the necessary procedures have been completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously
recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in
the income statement in impairment charge for credit losses.
b) Assets classified as available for sale
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the
fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence
exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost
and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed
from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity
instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument
classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment
loss was recognized in profit or loss, the impairment loss is reversed through the income statement.
c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose terms have been
renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is
considered to be past due and disclosed only if renegotiated.
2.10 Investment property
Investment property is property held either to earn rental income or for capital appreciation or both. The Group holds
investment property that has been acquired through the enforcement of security over loans and advances. Rental income
from investment property is recognized in the income statement on a straight-line basis over the term of the lease.
Investment property is measured at fair value, which reflects market conditions at the date of the statement of financial
position. Gains or losses arising from changes in the fair value of investment properties are included in the income
statement in the year in which they arise.
When the Group makes a decision to use the assets for its own purposes, they are reclassified to property and equipment.
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2.11 Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortization and impairment losses.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific assets
to which it relates. All other expenditure is expensed as incurred.
Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of intangible
assets. Intangible assets are amortized from the date they are available for use.
2009
2008
Software
5 years
5 years
Patents and licenses
5 years
5 years
Other
5 years
5 years
2.12 Property and equipment
Property and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical
cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial
period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to
their residual values over their estimated useful lives, as follows:
2009
Buildings
Furniture and equipment
2008
40 years
40 years
4-10 years
4-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets
that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the
higher of the asset’s fair value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other
operating expenses in the income statement.
2.13 Leases
(a) Group is the lessee
The leases entered into by the Group are primarily operating leases. The total payments made under operating leases are
charged to other operating expenses in the income statement on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor
by way of penalty is recognized as an expense in the period in which termination takes place.
.
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2.14 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’
maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and
other eligible bills and placements to banks.
2.15 Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with
the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with
that contract.
2.16 Employee benefits
a) Defined contribution plans
The Group contributes to its employees’ post retirement plans as prescribed by the national legislation. Contributions,
based on salaries, are made to the national organizations responsible for the payment of pensions. There is no additional
liability in respect of these plans. Obligations for contributions to defined contribution pension plans are recognized as an
expense in profit and loss when they are due.
b) Short-term benefits
Short-term employee benefit obligations are measured on an undisclosed basis and are expensed as the related service is
provided.
A provision is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if
the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
c) Long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value.
Any actuarial gains or losses are recognized in profit or loss in the period in which they arise. Long term employee benefits
include jubilee awards and retirement indemnity bonuses. Valuations of these obligations are carried out by independent
qualified actuaries. The main actuarial assumptions included in the calculation of the obligation for long-term employee
benefits are:
• Discount rate of 10%
• Number of employees eligible to claim benefits and
• Future salary increases using general salary inflation index, promotions and increases in salaries according to past
years of services.
2.17 Taxation
Income tax on the profit or loss comprises current and deferred tax.
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Current income tax
In 2008 current income tax is recognized in the Profit for the year. Current income tax was the expected tax payable on
the taxable income for the year, using tax rates enacted at the financial statement date, and any adjustment to tax payable
in respect of previous years. From 2009 companies do not have to pay income tax on their profit before tax (earned since
1 January 2009) until that profit is distributed in a form of dividend or other forms of profit distributions. If dividend is
paid, 10% income tax is payable on the paid dividend. Tax is still payable on the non-deductable expenses in the year the
expenses are incurred, regardless of distribution of dividends (decreased by the amount of tax credits).
Deferred income tax
In 2008 deferred income tax is provided in full, using the Statement of financial position liability method, for all temporary
differences arising between the tax basis of assets and liabilities and their carrying values for financial reporting purposes.
Currently enacted tax rates were used in the determination of deferred income tax. Deferred tax assets were recognized
to extend that it is probable that future taxable profit will be available against which the temporary differences can be
utilized.
Due to the changes in the Macedonian tax legislation effective from 1 January 2009, the tax rate for undistributed profits
was effectively reduced to zero, as tax is only payable when profits are distributed. According IAS 12.52A, deferred tax
assets and liabilities should be measured using the undistributed rate.
However, tax is still payable on the non-deductable expenses in the year the expenses are incurred, regardless of
distribution of dividends. If these expenses are reversed in the future, they will create a credit that can be used against
the non-deductible expenses in the year of the reversal, i.e., the tax paid in the year related to such temporary difference
creates a deferred tax asset that can be used in future years.
Therefore, a deferred tax asset is recognized to the extent that, and only to the extent that, it is probable that the temporary
difference will reverse in the future and items will be available against which the temporary difference can be utilized.
2.18 Deposits, borrowings, subordinated liabilities and debt securities in
issue
Deposits, borrowings, subordinated liabilities and debt securities in issue are the Group’s sources of debt funding.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of
the contractual terms of the instrument.
The Group initially recognizes deposits, borrowings, subordinated liabilities and debt securities in issue on the date that
they are originated.
Deposits, borrowings, subordinated liabilities and debt securities in issue are initially measured at fair value net of
transaction costs, and subsequently measured at their amortized cost using the effective interest method, except where
the Group chooses to carry the liabilities at fair value through profit or loss where certain conditions are met.
2.19 Share capital
(a) Preference share capital
Preference share capital that is non-redeemable is classified as equity.
(b) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the
proceeds.
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(c) Dividends on ordinary shares
Dividends on ordinary shares are recognized in equity in the period in which they are approved by the Group’s
shareholders.
Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent events note.
(d) Treasury shares
Where the Group purchases the Group’s equity share capital, the consideration paid is deducted from total shareholders’
equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration
received is included in shareholders’ equity.
2.20 Fiduciary activities
The Group acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of
individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded
from these financial statements, as they are not assets of the Group.
2.21 Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for
a loss it incurs because a specified debtor fails to make payments when due. Such financial guarantees are given to banks,
financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given.
Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial
measurement, less amortization calculated to recognize in the income statement the fee income earned on a straight line
basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation
arising at the balance sheet date.
These estimates are determined based on experience of similar transactions and history of past losses, supplemented by
the judgment of management. Any increase in the liability relating to guarantees is taken to the income statement under
other operating expenses.
3. Financial risk management
The Group’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance
and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the
operational risks are an inevitable consequence of being in business. The Group’s aim is therefore to achieve an appropriate
balance between risk and return and minimise potential adverse effects on the Group’s financial performance.
The Group’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and
controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The
Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging
best practice.
Risk management is carried out by a risk department in the Group under policies approved by the Supervisory Board.
The Board provides written principles for overall risk management, as well as written policies covering specific areas, such
as, credit risk, foreign exchange risk, interest rate risk and liquidity risk. In addition, internal audit is responsible for the
independent review of risk management and the control environment.
The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes
currency risk, interest rate and other price risk.
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3.1 Credit risk
The Group takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Group by
failing to discharge an obligation. Credit risk is the most important risk for the Group’s business; management therefore
carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and
advances, and investment activities that bring debt securities and other bills into the Group’s asset portfolio. There is also
credit risk in off-balance sheet financial instruments. The credit risk management and control are centralised in credit risk
management team of risk department and reported to the Management Board.
3.1.1 Credit risk measurement
(a) Loans and advances
In measuring credit risk of loans and advances to customers and to groups at a counterparty level, the Group reflects the
”probability of default” by the client or counterparty on its contractual obligations.
These credit risk measurements, which reflect expected loss (the ”expected loss model”) and are required by the Basel
Committee on Banking Regulations and the Supervisory Practices (the Basel Committee), are embedded in the Group’s
daily operational management. The operational measurements can be contrasted with impairment allowances required
under IAS 39, which are based on losses that have been incurred at the balance sheet date (the ”incurred loss model”)
rather than expected losses (Note 3.1.3).
(i) The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the
various categories of counterparty. They have been developed internally and combine statistical analysis with credit
officer judgment and are validated, where appropriate, by comparison with externally available data. Clients of the
Group are segmented into four rating classes. The Group’s rating scale, which is shown below, reflects the range of
default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the
assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The
Group regularly validates the performance of the rating and their predictive power with regard to default events.
Group’s internal ratings scale
Group’s rating
Description of the grade
A
Investment grade
B
Standard monitoring
C
Special monitoring
D+F
Sub-standard
Criterion for classification of Financial Assets or Contingent liabilities into groups A, B, C, D and E are as follows:
Financial Assets or Contingent liabilities are classified into Group A if they are towards:
• National Bank of the Republic of Macedonia and the Republic of Macedonia;
• debtors which is not likely to default and who repays its obligations within the maturity, or with a delay of 30 days;
• exposures secured by pledging collateral graded as first class collateral.
Financial Assets or Contingent liabilities are classified into Group B if they are towards debtors:
• whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless its present financial
position is assessed as weak, without signs of further deterioration in the future;
• who settle their liabilities with delay between 31 and 60 days.
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Financial Assets or Contingent liabilities are classified into Group C if they are towards debtors:
• for which it is assessed, that cash flows will not be sufficient for regular repayment of matured liabilities;
• that settle their liabilities with delay between 61 to 120 days;
• that are clearly undercapitalized;
• that do not have sufficient long term capital resources for financing long term investments;
• from whom group does not receive currently satisfactory information or adequate documentation concerning
repayment of liabilities.
Financial Assets or Contingent liabilities are classified into Group D and E if they are towards debtors:
• for which exists a strong likelihood of loss of part of financial asset or of payment for Contingent liabilities;
• that settle their liabilities with delay of more than 121 to 270 days, occasionally with delay between 271 to 360 days;
• which are insolvent;
• for which a motion for commencement of process of liquidation or declaration of bankruptcy began and was
filed at the provisional court;
• that are in the process of reform or in the process of liquidation;
• that declared bankruptcy;
• from whom no repayment is expected;
• with questionable legal grounds.
(ii) Exposure at default is based on the amounts the Group expects to be owed at the time of default. For example, for a
loan this is the face value. For a commitment, the Group includes any amount already drawn plus the further amount that
may have been drawn by the time of default, should it occur.
(iii) Loss given default or loss severity represents the Group’s expectation of the extent of loss on a claim should default
occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority
of claim and availability of collateral or other credit mitigation.
(b) Debt securities and other bills
For debt securities and other bills, risk department for managing of the credit risk exposures uses ratings depending on the
issuer: Central bank of the Republic of Macedonia, Republic of Macedonia and Banks. The investments in those securities
and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the
funding requirement at the same time.
Investment is allowed only in liquid securities that have high credit rating. Given their high credit ratings management of the
Group does not expect any counterpart to fail to meet its obligations. The maximum exposure to credit risk is represented
by the carrying amount of each financial asset in the balance sheet.
3.1.2 Risk limit control and mitigation policies
The Group manages, limits and controls concentrations of credit risk wherever they are identified - in particular, to individual
counterparties and groups, and to industries and countries.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to
one borrower, or group of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving
basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by
product and industry sector are approved by the Management Board.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to
meet interest and capital repayment obligations and by changing these lending limits where appropriate.
Some other specific control and mitigation measures are outlined below:
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(a) Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of
security for funds advances, which is common practice. The Group implements guidelines on the acceptability of specific
classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:
• Cash, bank’s and first class companies’ guarantees;
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equities.
Loans to corporate entities and individuals are generally secured; overdrafts and credit cards issued to individuals are
secured by bills of exchange at the full amount of principal, interest and other charges. In addition, in order to minimize
the credit loss, the Group will seek additional collateral from the counterparty as soon as impairment indicators are
noticed for the relevant individual loans and advances.
Debt securities, treasury and other eligible bills are generally unsecured.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and
standby letters of credit carry the same credit risk as loans and are secured with same collateral as loans.
3.1.3 Impairment and provisioning policies
The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the inception of the
lending and investment activities. In contrast, impairment provisions are recognized for financial reporting purposes only
for losses that have been incurred at the balance sheet date based on objective evidence of impairment (see Note 2.8).
The impairment provision shown in the balance sheet at year-end is derived from each of the four internal rating grades.
However, the majority of the impairment provision comes from bottom two gradings. The table below shows the
percentage of the Group’s on- and off-balance sheet items relating to loans and advances and the associated impairment
provision for each of the Group’s internal rating categories:
Group’s rating
2009
2008
Loans and
advances (%)
Impairment
provision (%)
Loans and
advances (%)
Impairment
provision (%)
93
5
95
1
2.Standard monitoring
3
26
4
10
3.Special monitoring
1
52
1
25
4.Sub-standard
3
93
-
57
100
8.7
100
7.3
1.Investment grade
The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39,
based on the following criteria set out by the Group:
• Delinquency in contractual payments of principal or interest;
• Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales);
• Breach of loan covenants or conditions;
• Initiation of bankruptcy proceedings;
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• Deterioration of the borrower’s competitive position;
• Deterioration in the value of collateral.
The Group’s policy requires the review of individual financial assets that are above materiality thresholds at least annually
or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are
determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all
individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its
enforceability) and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually
below materiality thresholds and (ii) losses that have been incurred but have not yet been identified, by using the available
historical experience, experienced judgment and statistical techniques.
3.1.4
Maximum exposure to credit risk before collateral held or other credit enhancements
Maximum exposure
2009
2008
7,133,066
5,397,729
Credit risk exposures relating to on-balance sheet assets are as follows:
Loans and advances to banks
Loans and advances to customers:
Loans to individuals:
• Overdrafts
659,904
580,115
• Credit cards
1,114,508
1,039,915
• Term loans
6,787,170
7,582,880
• Mortgages
3,131,147
2,485,311
Loans to corporate entities:
• Large corporate customers
• Small and medium size enterprises (SMEs)
Financial assets held for trading
4,089,430
3,067,177
14,068,545
15,416,107
355,713
608,516
7,587,970
8,290,240
455,094
250,227
8,028,086
7,908,003
53,410,633
52,626,220
Investment securities:
• Debt securities
Other assets
Credit risk exposures relating to off-balance sheet items are as follows:
Financial guarantees
At 31 December
The above table represents a worse case scenario of credit risk exposure to the Group at 31 December 2009 and 2008, without
taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out
above are based on net carrying amounts as reported in the balance sheet.
As shown above, 69% of the total maximum exposure is derived from loans and advances to banks and customers (2008: 68%);
15% represents investments in debt securities (2008: 17%).
Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group resulting
from both its loan and advances portfolio and debt securities based on the following:
• 96% of the loans and advances portfolio is categorized in the top two grades of the internal rating system (2008: 99%);
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• Loans to SMEs, which represents the biggest group in the portfolio, are backed by collateral;
• 97% of loans to individuals are backed by collateral;
• 90% of the loans and advances portfolio are considered to be neither past due nor impaired (2008: 92%);
• The increments of loan portfolio has resulted in a higher impairment charge in the income statement, showing
a 10.2% increase;
• The Group has introduced a more stringent selection process upon granting loans and advances; and
• More than 97% of the investments in debt securities and other bills are in securities issued by the Republic of
Macedonia and Central bank.
3.1.5 Loans and advances
Loans and advances are summarized as follows:
31 December 2009
Loans and advances
to customers
Neither past due nor impaired
Past due but not impaired
31 December 2008
Loans and Loans and advances Loans and advances
advances to banks
to customers
to banks
29,940,192
6,417,672
30,216,607
4,962,173
597,617
723,947
703,829
450,681
2,822,760
350
2,048,964
314
Gross
33,360,569
7,141,969
32,969,400
5,413,168
Less: allowance for impairment
(3,509,865)
(8,903)
(2,797,895)
(15,439)
Net
29,850,704
7,133,066
30,171,505
5,397,729
Individually impaired
1,514,123
350
575,650
314
Portfolio allowance
1,995,742
8,553
2,222,245
15,125
Total
3,509,865
8,903
2,797,895
15,439
Impaired
The total impairment provision for loans and advances is MKD 3,518,768,000 (2008: MKD 2,813,334,000). Further information
of the impairment allowance for loans and advances to banks and to customers is provided in Notes 21 and 23.
During the year ended 31 December 2008, the Group’s total loans and advances increased by 4%. When entering into new
markets or new industries, in order to minimise the potential increase of credit risk exposure, the Group focused more on the
business with large corporate enterprises or banks with good credit rating or retail customers providing sufficient collateral.
(a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by
reference to the internal rating system adopted by the Group.
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31 December 2009
Loans and advances to customers
Individual (retail customers)
Overdrafts
Credit
cards
Corporate entities
Large
Mort- corporate
gages customers
Term
loans
SMEs
Total Loans
and adLoans and
vances to advances to
customers
banks
Grades:
1. Investment grade
692,877
873,974 6,794,524 3,099,688 3,875,611 14,603,517 29,940,192
6,417,672
Total
692,877
873,974 6,794,524 3,099,688 3,875,611 14,603,517 29,940,192
6,417,672
31 December 2008
Loans and advances to customers
Individual (retail customers)
Overdrafts
Credit
cards
Corporate entities
Large
Mort- corporate
gages customers
Term
loans
SMEs
Total Loans
and adLoans and
vances to advances to
customers
banks
Grades:
1. Investment grade
403,368
797,207 7,674,572 2,601,641 3,067,177 15,672,642 30,216,607
4,962,173
Total
403,368
797,207 7,674,572 2,601,641 3,067,177 15,672,642 30,216,607
4,962,173
(b) Loans and advances past due but not impaired
Gross amount of loans and advances by class to customers and banks that are past due but not impaired is as follows:
(i) Loans and advances to customers
(ii) Loans and advances to banks
31 December 2009
Individual (retail customers)
Overdrafts
Credit cards
Term loans
Mortgages
Total
Past due up to 30 days
804
68,143
14,665
4,829
88,441
Past due 30-60 days
378
24,406
3,529
814
29,127
Past due 60-90 days
10,950
192,657
14,273
3,372
221,252
Total
12,132
285,206
32,467
9,015
338,820
-
-
109,727
22,264
131,991
Fair value of collateral
NLB Tutunska Banka
68
ANNUAL REPORT 2009
31 December 2009
Corporate entities
Large corporate customers
SMEs
Total
Past due up to 30 days
8,760
133,442
142,202
Past due 30-60 days
6,776
71,446
78,222
Past due 60-90 days
96
38,277
38,373
Total
15,632
243,165
258,797
Fair value of collateral
46,600
705,214
751,814
31 December 2008
Individual (retail customers)
Overdrafts
Credit cards
Term loans
Mortgages
Total
118
167,998
27,158
4,507
199,781
Past due 30-60 days
-
50,337
9,506
1,507
61,350
Past due 60-90 days
164,353
-
14,837
1,086
180,276
Total
164,471
218,335
51,501
7,100
441,407
-
-
59,741
15,620
75,361
Past due up to 30 days
Fair value of collateral
31 December 2008
Corporate entities
Past due up to 30 days
SMEs
Total
206,740
206,740
Past due 30-60 days
27,274
27,274
Past due 60-90 days
28,408
28,408
Total
262,422
262,422
Fair value of collateral
406,754
406,754
The total gross amount of past due but not impaired loans and advances to banks as at 31 December 2009 is MKD
723,947,000 (2008: 450,681,000). Generally no collateral is held by the Group.
(c) Loans and advances individually impaired
(i) Loans and advances to customers
The individually impaired loans and advances to customers before taking into consideration the cash flows from collateral
held is MKD 1,514,123,000 (2008: MKD 575,650,000)
The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related
collateral held by the Group as security, are as follows:
NLB Tutunska Banka
69
ANNUAL REPORT 2009
Individual
Corporate entities
Large
Term
corporate
loans Mortgages customers
Overdrafts
Credit
cards
Gross amount
53,076
159,022
497,049
Individually impaired
loans
43,791
98,135
156,332
-
-
-
SMEs
Loans and
advances to
Total
banks
31 December 2009
Fair value of collateral
159,515 1,113,895
840,199
2,822,755
677,259
503,412
1,514,123
350
56,578 1,109,224
777,324
1,943,126
-
35,194
Individual
Overdrafts
Credit
cards
Corporate entities
Large
Term
corporate
loans Mortgages customers
SMEs
Loans and
advances to
Total
banks
31 December 2008
70,987
176,394
353,300
74,173
639,896
734,213
2,048,964
Individually impaired
loans
Gross amount
-
98,256
120,420
26,034
-
330,940
575,650
314
Fair value of collateral
-
-
-
57,275
-
661,880
719,155
-
The disclosed fair value of collateral is determined by local certified valuers and represents value realisable by the legal owners
of the assets. Management considers the loans covered by collateral as impaired because experience shows that a significant
proportion of the collateral cannot be enforced due to administrative and legal difficulties. The impairment provisions reflect
the probability that management will not be able to enforce its rights and repossess collateral on defaulted loans. Despite
difficulties in enforcing repossession of collateral, the Group’s management will vigorously pursue the outstanding debts
with all possible means at their disposal.
(ii) Loans and advances to banks
The total gross amount of individually impaired loans and advances to banks as at 31 December 2009 is MKD 350,000
(2008: MKD 314,000). Generally no collateral is held by the Group.
3.1.6 Debt securities, treasury bills and other eligible bills
The table below presents an analysis of debt securities, treasury bills and other eligible bills.
Issuer of the investment securities is the National Bank of the Republic of Macedonia and Republic of Macedonia. Standard &
Poor’s Ratings Services assigned its ‘BBB-’ foreign currency and ‘BBB-’ local currency sovereign credit ratings to the Republic
of Macedonia. Issuers of the trading securities are Banks who are BB+ rated from Fitch Rating Agency.
NLB Tutunska Banka
70
ANNUAL REPORT 2009
2009
Trading securities
Investment securities
Total
NBRM
-
2,288,009
2,288,009
RM
135,956
5,299,961
5,435,917
Banks
219,757
-
219,757
Total
355,713
7,587,970
7,943,683
Trading securities
Investment securities
Total
NBRM
198,908
6,279,519
6,478,427
RM
188,049
2,010,721
2,198,770
Banks
221,559
-
221,559
Total
608,516
8,290,240
8,898,756
2008
The assets are neither past due nor impaired.
3.1.7 Repossessed collateral
During 2009, the Group obtained assets by taking possession of collateral held as security, as follows:
Nature of assets
Residential property
2009
2008
Carrying amount
Carrying amount
9,608
12,468
Repossessed collateral include apartments, equipment and business premises which are not used by the Group for its
core operations. Repossessed properties are sold as soon as practicable with the proceeds used to reduce the outstanding
indebtedness. Repossessed property is classified in the balance sheet within other assets.
3.1.8 Concentration of risks of financial assets with credit risk exposure
(a) Geographical sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by geographical
region as of 31 December 2009. For this table, the Bank has allocated exposures to regions based on the country of domicile
of its counterparties.
NLB Tutunska Banka
71
ANNUAL REPORT 2009
Loans and advances to banks
EU countries
Non EU countries
in Europe
Republic of
Macedonia
Other
countries
Total
5,151,117
6,411
1,504,053
471,485
7,133,066
194
-
659,678
32
659,904
Loans and advances to customers:
Loans to individuals:
• Overdrafts
23
17
1,114,468
-
1,114,508
• Term loans
• Credit cards
-
-
6,786,883
287
6,787,170
• Mortgages
-
-
3,131,147
-
3,131,147
• Large corporate customers
-
-
4,089,430
-
4,089,430
• SMEs
-
-
14,068,545
-
14,068,545
Loans to corporate entities:
Financial assets held for trading
Investment securities
Other assets
As at 31 December 2009
Loans and advances to banks
355,713
355,713
7,587,970
7,587,970
455,094
455,291
5,151,334
6,428
39,752,981
471,804
45,382,547
EU countries
Non EU countries in
Europe
Republic of
Macedonia
Other
countries
Total
3,351,230
225,822
1,760,753
59,924
5,397,729
Loans and advances to customers:
Loans to individuals:
• Overdrafts
11
-
580,104
-
580,115
• Credit cards
33
-
1,039,878
4
1,039,915
• Term loans
-
-
7,582,880
-
7,582,880
• Mortgages
-
-
2,485,311
-
2,485,311
Loans to corporate entities:
-
-
-
-
-
• Large corporate customers
-
-
3,067,177
-
3,067,177
• SMEs
-
-
15,416,097
10
15,416,107
Financial assets held for trading
Investment securities
Other assets
As at 31 December 2008
3,351,274
225,822
608,516
608,516
8,290,240
8,290,240
250,227
250,227
41,081,183
59,938
44,718,217
(b) Industry sectors
The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorized by the industry
sectors of our counterparties.
NLB Tutunska Banka
72
ANNUAL REPORT 2009
31 December 2009
Financial
institutions
Loans and advances to banks
7,133,066
Manufactoring Real estate
-
-
Whole-sale
and retail
trade
Public
sector
-
-
Other
industries Individuals
-
-
Total
7,133,066
Loans and advances to customers:
Loans to individuals:
• Overdrafts
-
-
-
-
-
-
659,904
659,904
• Credit cards
-
-
-
-
-
-
1,114,508
1,114,508
• Term loans
-
-
-
-
-
-
6,787,170
6,787,170
• Mortgages
-
-
-
-
-
-
3,131,147
3,131,147
-
4,089,430
Loans to corporate entities:
• Large corporate customers
-
1,140,103
50,406
1,139,698
-
1,759,223
• SMEs
-
3,397,965
1,829,268
5,525,075
16,247
3,219,514
Financial assets held for trading
Investment securities
Other assets
As at 31 December 2009
219,757
-
-
-
135,956
-
-
355,713
2,288,009
-
-
-
5,299,961
-
-
7,587,970
-
-
-
-
-
455,094
-
455,094
9,640,832
4,538,068
1,879,674
6,664,773
5,452,164
Manufacturing Real estate
Whole-sale
and retail
trade
Public
sector
Financial
institutions
Loans and advances to banks
80,476 14,068,545
5,433,831 11,773,205 45,382,547
Other
industries Individuals
Total
5,397,729
-
-
-
-
-
-
5,397,729
-
-
-
-
-
-
580,115
580,115
Loans and advances to customers:
Loans to individuals:
• Overdrafts
• Credit cards
-
-
-
-
-
-
1,039,915
1,039,915
• Term loans
-
-
-
-
-
-
7,582,880
7,582,880
• Mortgages
-
-
-
-
-
-
2,485,311
2,485,311
Loans to corporate entities:
• Large corporate customers
-
-
-
-
-
-
-
-
-
888,739
-
1,268,438
-
910,000
-
3,067,177
4,343,828
1,577,701
4,966,100
174,053
4,237,799
-
-
-
-
-
• SMEs
• Other
Trading assets – debt securities
Investment securities - debt securities
Other assets
As at 31 December 2008
-
116,626 15,416,107
-
-
420,467
-
-
-
188,049
-
-
608,516
6,279,519
-
-
-
2,010,721
-
-
8,290,240
-
-
-
-
-
250,227
-
250,227
12,097,715
5,232,567
1,577,701
6,234,538
2,372,823
5,398,026 11,804,847 44,718,217
3.2 Market risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating
to changes in the obligor’s / issuer’s credit standing) will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the
return on risk.
NLB Tutunska Banka
73
ANNUAL REPORT 2009
3.2.1 Foreign exchange risk
The Group is exposed to currency risk through transactions in foreign currencies. The Group ensures that the net exposure is
kept to an acceptable level by buying or selling foreign currency at spot when necessary to address short-term imbalances.
Concentrations of currency risk - on and off-balance sheet financial instruments:
As at 31 December 2009
EUR
USD
MKD
Other
Total
Assets
Cash and balances with central banks
3,471,965
80,368
4,683,894
317,173
8,553,400
Loans and advances to banks
5,263,599
1,423,658
8,002
437,807
7,133,066
15,962,949
14,760
13,128,737
744,258
29,850,704
150,568
-
219,757
-
370,325
4,956,018
-
2,385,723
-
7,341,741
317,030
-
-
-
317,030
Investment in associates and joint ventures
accounted for using the equity method
-
-
65,200
-
65,200
Current income tax assets
-
-
572
-
572
Loans and advances to customers
Financial assets held for trading
Investment securities:
• Available for sale
• Held to maturity
Deferred income tax assets
Other assets
Total financial assets
184
-
1,994
-
2,178
13,316
984
440,716
78
455,094
30,135,629
1,519,770
20,934,595
1,499,316
54,089,310
Liabilities
Deposits from banks
979,327
171,787
1,873,907
151,474
3,176,495
24,426,940
1,287,723
14,365,739
308,136
40,388,538
Other borrowed funds
3,541,571
51,327
328,057
206,447
4,127,402
Debt securities in issue
631,786
-
-
-
631,786
5,325
-
(15)
-
5,310
Deposits due to customers
Deferred income tax liabilities
Other liabilities
18,709
179
367,550
42
386,480
744,753
-
-
875,593
1,620,346
30,348,411
1,511,016
16,935,238
1,541,692
50,336,357
Net on-balance sheet financial position
(212,782)
8,754
3,999,357
(42,376)
3,752,953
Contingencies and commitments
2,758,677
406,674
4,915,388
(34,772)
8,045,967
24,429,991
1,556,153
22,722,258
1,557,317
50,265,719
24,447,920
1,594,464
18,529,443
1,502,321
46,074,148
(17,929)
(38,311)
4,192,815
54,996
4,191,571
3,471,862
464,293
4,060,091
(87,659)
7,908,587
Subordinated debt
Total financial liabilities
Total financial liabilities
At 31 December 2008
Total financial assets
Net on-balance sheet financial position
Total financial liabilities
Net on-balance sheet financial position
Off balance sheet
NLB Tutunska Banka
74
ANNUAL REPORT 2009
At 31 December 2009, if the MKD had weakened 5 per cent against the foreign currencies with all other variables held
constant, the pre-taxed profit for the twelve month period ended 31 December 2009 would have been approximately
MKD 14,670,000 (2008: MKD 10,839,000) lower. Conversely, if the MKD had strengthened 5 per cent against the foreign
currencies with all other variables held constant, pre-taxed profit would have been approximately MKD 16,070,000 (2008:
MKD 11,568,000) higher.
3.2.2 Interest rate risk
The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including
investments) and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating
rate assets and liabilities, the Group is also exposed to basis risk, which is the difference in reprising characteristics of the
various floating rate indices, such as the savings rate, LIBOR and different types of interest.
Risk management activities are aimed at optimising net interest income, given market interest rate levels consistent with the
Group’s business strategies.
Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to interest rate changes. In
general, the Group is asset sensitive because of the majority of the interest-earning assets and liabilities, the Group has the
right simultaneously to change the interest rates.
In decreasing interest rate environments, margins earned will narrow as liabilities interest rates will decrease with a lower
percentage compared to assets interest rates. However the actual effect will depend on various factors, including stability of
the economy, environment and level of the inflation.
Analysis of the total assets and liabilities of the Group into relevant maturity groupings based on the remaining period to the
next date at which interest rates may be changed, is set out below:
Up to1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Non- interest bearing
Total
As at 31 December 2009
Assets
Cash and balances with
central banks
6,083,871
-
-
-
-
2,469,529
8,553,400
Loans and advances to banks
4,608,899
1,062,077
929,234
442,700
-
90,156
7,133,066
Loans and advances
to customers
6,715,525
4,429,145
7,596,056
7,088,288
3,136,671
370,325
-
-
-
-
-
370,325
• Available for sale
2,611,361
1,661,043
2,393,799
478,621
116,989
79,928
7,341,741
• Held to maturity
-
-
94,591
207,807
11,319
3,313
317,030
Financial assets
held for trading
885,019 29,850,704
Investment securities:
Investment in associates and
joint ventures accounted for
using the equity method
-
-
-
-
-
65,200
60,128
Current income tax assets
-
-
-
-
-
572
572
Differed income tax assets
-
-
-
-
-
2,178
2,178
Other assets
-
-
-
-
-
455,094
455,094
7,152,265 11,013,680
8,217,416
3,264,979
Total financial assets
NLB Tutunska Banka
20,389,981
75
4,050,989 54,089,310
ANNUAL REPORT 2009
Up to1
month
1-3
months
3-12
months
1-5
years
Over 5
years
Non- interest bearing
Total
967,116
1,402,156
354,542
397,836
9,298
45,547
3,176,495
As at 31 December 2009
Liabilities
Deposits from banks
21,432,208
5,450,535
8,184,864
4,341,204
448,692
Other borrowed funds
Deposits due to customers
1,190,253
1,751,875
308,653
824,737
34,441
531,035 40,388.538
17,443
4,127,402
Debt securities in issue
-
-
630,084
-
-
1,702
631,786
Deferred income tax liabilities
-
-
-
-
-
5,310
5,310
Other liabilities
-
-
-
-
-
386,480
386,480
Subordinated liabilities
-
1,607,805
-
-
-
12,541
1,620,346
Total financial liabilities
23,589,577 10,212,371
9,478,143
5,563,777
492,431
Total interest reprising gap
(3,199,596)
1,535,537
2,653,639
2,772,548
3,050,931
(3,060,106)
1,000,058 50,336,357
3,752,953
As at 31 December 2008
Total financial assets
18,536,028
5,689,576 10,415,524
7,674,149
3,455,053
4,495,389 50,265,719
Total financial liabilities
18,539,036 10,113,600 12,728,698
3,190,274
476,269
1,026,271 46,074,148
(3,008) (4,424,024) (2,313,174)
4,483,875
2,978,784
Total interest reprising gap
3,469,118
4,191,571
The interest rate sensitivity analysis has been determined based on the exposure to interest rate risk at the reporting date.
At 31 December 2009, if interest rates had been 50 basis points higher / lower with all other variables were held constant,
the Group’s pre-tax profit for the twelve month period ended 31 December 2009 would respectively increase / decrease
by approximately MKD 16,873,000 (2008: MKD 25,335,000) and other equity components would respectively decrease/
increase by MKD 5,585,000 (2008: MKD 8,591,000).
3.3 Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when
they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to
repay depositors and fulfil commitments to lend.
3.3.1
Liquidity risk management process
The Group’s liquidity management process, as carried out within the Group and monitored by a team in Risk Department,
includes:
• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This
includes replenishment of funds as they mature or are borrowed by customers. The Group maintains an active
presence in money markets to enable this to happen;
• Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any
unforeseen interruption to cash flow;
• Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and
• Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month
respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the
contractual maturity of the financial liabilities and the expected collection date of the financial assets (Notes 3.3.3-3.3.4).
NLB Tutunska Banka
76
ANNUAL REPORT 2009
Risk Department also monitors unmatched medium-term assets, the level type and the usage of overdraft facilities and the
impact of contingent liabilities such as standby letters of credit and guarantees.
3.3.2 Funding approach
Sources of liquidity are regularly reviewed by a team in Risk Department to maintain a wide diversification by currency,
geography, provider, product and term.
3.3.3 Non-derivative cash flows
The table below presents the cash flows payable by the Group under non-derivative financial liabilities by remaining
contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash
flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows.
Up to1
month
1-3
months
3-12
months
1-5
years
Over
5 years
Total
927,835
1,452,854
384,092
590,892
9,713
3,365,386
As at 31 December 2009
Liabilities
Deposit from banks
17,754,144
7,820,123
9,523,283
5,450,682
855,725
41,403,957
Other borrowed funds
Deposits due to customers
372,236
246,199
591,044
2,725,885
387,259
4,322,623
Debt securities in issue
1,702
-
-
663,871
-
665,573
Subordinated liabilities
-
12,541
-
1,239,966
1,017,877
2,270,384
248,952
9,237
115,254
-
13,038
386,481
5,310
-
-
-
-
5,310
Total liabilities
(contractual maturity dates)
19,310,179
9,540,954
10,613,673
10,671,296
2,283,612
52,419,714
Total assets
(contractual maturity dates)
15,905,446
5,741,458
12,997,429
15,602,507
3,842,470
54,089,310
1,089,486
658,919
387,316
206,753
271,466
2,613,940
Other liabilities
Deferred income tax liabilities
As at 31 December 2008
Liabilities
Deposits from banks
17,825,855
5,901,141
9,839,149
3,114,245
160,927
36,841,317
Other borrowed funds
Deposits due to customers
79,582
259,018
2,172,265
1,753,560
358,140
4,622,565
Debt securities in issue
276
-
4,160
724,104
-
728,540
Subordinated liabilities
173
-
4,160
714,094
-
718,427
-
21,656
-
757,778
1,603,344
2,382,778
319,451
Other liabilities
Current income tax
319,451
-
-
-
-
1,468
-
-
-
-
1,468
8,667
-
-
-
-
8,667
Total liabilities
(contractual maturity dates)
19,324,958
6,840,734
12,407,050
7,270,534
2,393,877
48,237,153
Total assets
(contractual maturity dates)
18,418,745
2,498,074
11,366,311
13,789,209
4,193,380
50,265,719
Deferred income tax liabilities
Assets available to meet all of the liabilities include cash, central bank balances, items in the course of collection and treasury
and other eligible bills, loans and advances to banks, and loans and advances to customers. The Group would also be able
to meet unexpected net cash outflows by selling securities and accessing additional funding sources such as asset-backed
markets.
NLB Tutunska Banka
77
ANNUAL REPORT 2009
3.3.4 Off-balance sheet items
No later
than 1 year
1-5 years
Over 5 years
Total
Acceptances and other financial facilities
4,561,996
1,186,898
524,686
6,273,580
Limits of credit cards
1,107,939
646,567
-
1,754,506
Total
5,669,935
1,833,465
524,686
8,028,086
At 31 December 2009
At 31 December 2008
Acceptances and other financial facilities
3,906,773
985,461
751,191
5,643,425
Limits of credit cards
1,151,015
1,010,925
102,638
2,264,578
3.4 Financial instruments
(a) Fair value of financial assets and liabilities
Financial instruments not measured at fair value
The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the
Group’s balance sheet at their fair value.
Carrying value
Fair value
2009
2008
2009
2008
7,133,066
5,397,729
7,245,052
5,410,255
Loans and advances to customers
29,850,704
30,171,505
30,896,830
32,689,508
• Retail customers (individual)
11,692,729
11,688,221
12,487,420
12,711,533
Financial assets
Loans and advances to banks
• Large corporate customers
• SMEs
4,089,430
3,067,177
4,136,864
3,315,211
14,068,545
15,416,107
14,272,546
16,662,764
Financial liabilities
Deposits from banks
Deposits due to customers
• Retail customers
3,176,495
2,595,057
3,176,495
2,595,057
40,388,538
36,469,855
40,388,538
36,469,855
23,348,140
18,073,217
23,348,140
18,073,217
• Large corporate customers
7,689,933
8,305,197
7,689,933
8,305,197
• SMEs
9,350,465
10,091,441
9,350,465
10,091,441
Other borrowed funds
4,127,402
4,399,724
4,127,402
4,399,724
Debt securities in issue
631,786
649,163
631,786
649,163
1,620,346
1,630,763
1,620,346
1,630,763
Subordinated liabilities
(i) Due from financial institutions
Due from financial institutions includes inter-bank placements.
The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed
interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with
similar credit risk and remaining maturity.
NLB Tutunska Banka
78
ANNUAL REPORT 2009
(ii) Loans and advances to customers
Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the
discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current
market rates to determine fair value.
(iii) Due to other banks and customers, other deposits, other borrowings and subordinated liabilities
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount
repayable on demand.
The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on
discounted cash flows using interest rates for new debts with similar remaining maturity.
The fair value of the term deposits at variable interest rates approximates their carrying values as of the balance sheet date.
Subordinated liabilities carry variable interest rates and the fair value approximates their carrying value as of the balance
sheet date.
(b) Fair value hierarchy
IFRS 7 specifies a hierarchy of valuation techniques on whether the inputs to those valuation techniques are observable or
unobservable. These two types of inputs have created the followings fair value hierarchy:
• Level 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities. This level includes listed
equity securities and debt instruments on exchanges and exchanges traded derivatives like futures.
• Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the assets or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3 - Inputs for the assets or liability that are not based on observable market data (unobservable inputs). This
level includes equity investments and debt instruments with significant unobservable components.
3.4.1 Assets and liabilities measured at fair value
31 December 2009
Level 1
Level 2
Level 3
Financial assets held for trading
Total
-
• Debt securities
135,956
-
219,757
-
-
-
-
14,612
-
-
14,612
• Equity securities
• Derivatives
Financial assets designated at fair value
• Debt securities
• Equity securities
355,713
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
• Investment securities - debt
763,109
-
6,507,831
7,270,940
• Investment securities - equity
39,398
-
-
39,398
953,075
0
6,727,588
7,680,663
Available for sale financial assets:
Total assets
3.5 Capital management
The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:
• to comply with the capital requirements set by the regulator;
• to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
• to maintain a strong capital base to support the development of its business.
NLB Tutunska Banka
79
ANNUAL REPORT 2009
Capital adequacy and the use of regulatory capital are monitored monthly by the Group’s management, employing techniques
based on the guidelines developed by the Basel Committee and the European Community Directives, as implemented by the
Central Bank of the Republic of Macedonia for supervisory purposes. The required information is filed with Central Bank of
the Republic of Macedonia on a quarterly basis.
Central Bank of the Republic of Macedonia requires each bank or banking Group to: (a) hold the minimum level of the
regulatory capital of EUR 5,000,000 and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel
ratio’) at or above the internationally agreed minimum of 8%.
The Group’s regulatory capital as managed by its Risk Department is divided into two tiers:
• Tier 1 capital: share capital (net of any book values of the treasury shares), retained earnings and reserves created
by appropriations of retained earnings ; and
• Tier 2 capital: qualifying subordinated loan capital, unrealised gains arising on the fair valuation of equity and
debt instruments held as available for sale.
The risk-weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of - and
reflecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any
eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure, with some adjustments to
reflect the more contingent nature of the potential losses.
The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended 31
December. During those two years, the Group entities complied with all of the externally imposed capital requirements to
which they are subject.
Tier 1 capital
2009
2008
3,057,117
3,057,117
Statutory reserve
575,826
521,841
Retained earnings
226,232
226,232
Less intangible assets (licenses, patents)
(61,721)
(55,879)
3,797,454
3,749,311
1,365,217
1,541,386
36,827
68,641
1,402,044
1,610,027
(96,039)
(95,079)
5,103,459
5,264,259
• On-balance sheet
32,421,572
32,677,722
• Off-balance sheet
6,701,472
6,108,784
39,123,044
38,786,506
13.04%
13.57%
Share capital (net of the treasury shares)
Total qualifying Tier 1 capital
Tier 2 capital
Subordinated liability
Revaluation reserve
Total qualifying Tier 2 capital
Deductions from regulatory capital
Total regulatory capital
Risk-weighted assets:
Total risk-weighted assets
Basel ratio
NLB Tutunska Banka
80
ANNUAL REPORT 2009
Capital investments in other bank or other financial institutions, exceeding 10% of the capital of such institutions, and bank’s
direct capital investments in insurance and reinsurance company and in pension fund management companies represent
deductions from Tier 1 and Tier 2 capital.
The decrease of the Tier 2 capital in 2009 is mainly due to discounting of subordinated liability.
4.
Critical accounting estimates and judgments
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
(a)Impairment losses on loans and advances
The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment
loss should be recorded in the income statement, the Group makes judgments as to whether there is any observable data
indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the
decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that
there has been an adverse change in the payment status of borrowers in a Group, or national or local economic conditions
that correlate with defaults on assets in the Group.
Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence
of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions
used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by
+/-5%, the provision would be estimated MKD 177,000,000 higher or lower (2008:MKD 141,000,000).
(b)Impairment of available for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged
decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making
this judgment, the Group evaluates among other factors, the normal volatility in share price. In addition, impairment may be
appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance,
changes in technology, and operational and financing cash flows.
Had all the declines in fair value below cost been considered significant or prolonged, the Group would suffer an additional
MKD 1,869,000 loss in its 2009 financial statements, being the transfer of the total fair value reserve to the income statement
(2008: MKD 2,317,000).
(c) Impairment of foreclosed assets
The process of calculating impairment loss requires that the management make significant and complex assumptions regarding
the projected period of sale of foreclosed assets, their estimated net sales value and the corresponding discount rate, in order
to discount to net present value the expected cash flow from sale of specific items of foreclosed properties. Management
of the Group are confident that the foreclose assets will be sold in a reasonable period, with no loss. On the contrary,
adjustments will be made in future periods if future market activity indicates that such adjustments are appropriate.
NLB Tutunska Banka
81
ANNUAL REPORT 2009
5. Net interest income
Interest income
2009
2008
140,172
275,355
2,853,990
2,642,896
2,994,162
2,918,251
49,061
40,521
• Aveilable for sale
318,838
113,832
• Held to maturity
147,512
459,350
3,509,573
3,531,954
Loans and advances:
• To banks
• To customers
Cash and short term funds
Investment securities
Interest expense
Deposits from banks
Deposits due to customers
121,028
101,892
1,389,381
1,071,350
1,510,409
1,173,242
Dept securities in issue
23,439
7,429
Other borrowed funds
136,458
425,355
81,467
85,079
166
184
1,751,939
1,691,289
Subordinated debt
Other
Interest income on impaired financial assets is MKD 228,632,000 (2008: MKD 107,588,000).
NLB Tutunska Banka
82
ANNUAL REPORT 2009
6. Net fee and commission income
2009
2008
Fee and commission income
Letter of credit and guarantees
123,523
134,210
Payment transaction
308,247
328,006
Trust and other fiduciary fees
Administrative service
Brokerage services
Other fees
10,062
7,352
172,581
103,723
4,335
11,988
177,695
150,611
796,443
735,890
10,381
43,967
Fee and commission expense
Banking service
Letters of credit and guarantees
7,550
5,166
Payment transaction
39,565
16,134
Other fees
95,244
48,618
152,740
113,885
643,703
622,005
Net fee and commission income
The Group provides custody, trustee, corporate administration, investment management and advisory services to third
parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial
instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. Some of these
arrangements involve the Group accepting targets for benchmark levels of returns for the assets under the Group’s care.
These services give rise to the risk that the Group will be accused of maladministration or under-performance.
7. Dividend income
Available-for-sale securities
NLB Tutunska Banka
83
2009
2008
11,000
18,190
11,000
18,190
ANNUAL REPORT 2009
8. Loans impairment charges
2009
2008
Increase in impairment
26,630
11,111
Reversal of impairment
(33,059)
(1,015)
Increase in impairment
1,262,106
671,702
Reversal of impairment
(545,445)
(37,308)
-
(7,080)
710,232
637,410
2009
2008
Net trading income
30,414
31,497
Interest income from assets held for trading
22,734
24,931
53,148
56,428
Loans and advances to banks
Loans and advances to customers
Collected written-off receivables
9. Net gains / (losses) on instruments
classified as held for trading
Net trading income includes gains and losses from treasury bills, government bills and bonds. Interest rate instruments
include the results of making markets in instruments in treasury bills and government bills and bonds.
10. Net gains / (losses) on investment securities
Financial assets classified as available for sale
NLB Tutunska Banka
84
2009
2008
14,901
23,652
14,901
23,652
ANNUAL REPORT 2009
11. Net foreign exchange gain
2009
2008
Foreign exchange gains
32,822,630
12,634,528
Foreign exchange losses
(32,660,497)
(12,499,210)
162,133
135,318
2009
2008
10,088
5,615
-
-
12. Other operating income
Rental income
Capital gain
Actuarial benefits
-
3,226
Contingencies
97,752
-
Other
27,643
26,252
135,483
35,093
2009
2008
Wages and salaries
369,746
279,928
Social security costs
130,992
173,682
13. Personnel expenses
Pension cost
• Defined contribution plans
Holiday allowances
Compensation benefits to the members of the Managing
Board, and management
Unused annual leaves
Other
NLB Tutunska Banka
85
2,822
-
12,372
9,741
69,800
65,988
1,508
2,189
15,709
28,451
602,949
559,979
ANNUAL REPORT 2009
14. General and administrative expences
2009
2008
IT and software costs
10,872
6,362
Occupancy, furniture and equipment
97,142
67,954
Marketing and public relations
28,902
41,473
Travel and entertainment
13,444
9,841
Telecommunication and postage
59,192
55,241
Other administrative expences
62,326
72,385
271,878
253,256
2009
2008
146,217
108,635
31,045
26,553
177,262
135,188
2009
2008
8,297
-
8,297
-
15. Depreciation and amortization
Depreciation and impairment of property and equipement
Amortization of software and other intangible assets
16. Gains less losses on revaluation of
investment property
Gains less losses on revaluation of investment property
NLB Tutunska Banka
86
ANNUAL REPORT 2009
17. Other operating expenses
Loss / (gain) on sale of intangible assets
Insurance premiums for deposits
Insurance premiums for assets
Actuarial benefits
2009
2008
5,359
(3,486)
135,801
105,717
21,048
20,242
805
-
Consalting and auditing costs
5,320
4,144
Charges under court decision
5,202
2,175
204,714
80,015
13,826
3,750
Rental expense
Decrease in value of assets acquired through foreclosure
procedure
Contingencies
-
30,362
9,287
3,386
E-banking
61,202
64,383
Sequring property
42,997
29,629
Other
44,003
24,316
549,564
364,633
Imairment of other assets
18. Income tax expense
Current taxes on income for the year
2009
2008
11,914
66,549
11,914
66,549
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the
parent as follows:
Profit before tax
Tax calculated at the weighted average
2009
2008
468,316
780,885
-
78,088
Effect of:
• Income not subject to tax
• Expences not deductible for tax purposes
• Utilisation of previously unrecognised tax losse
Income tax expense
NLB Tutunska Banka
87
-
(18,609)
11,914
12,577
-
(5,507)
11,914
66,549
ANNUAL REPORT 2009
Commencing from 1 January 2009 the Government of the Republic of Macedonia has introduced modifications and
changes in the Profit Tax Law. According to these changes the profit tax shall apply at the moment of the distribution of
the profits in a form of dividends. In addition, official amendments were made in Income tax Manual, published on 18
December 2009. According to these changes the base for computation of profit tax is non-deductible expenses incurred
during the fiscal year. Subsequently, as long as the undistributed profits are retained within the company the profit tax
would not be applied. If the Bank pays all the net profit earned in 2009 in form of dividends, the potential current income
tax excluded from the impact of the non-deductable expenses would be MKD 46,838,000.
The tax authorities may at any time inspect the books and records up to 5 to 10 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.
19. Income tax effects relating to components
of other comprehensive income
2009
Before tax
amount
Tax
(expense)
benefit
Net-of-tax
amount
Fair value gains on available-for-sale
financial assets
(55,414)
5,535
Other comprehensive income for the
year (net presentation)
(55,414)
5,535
2008
Before tax
amount
Tax
(expense)
benefit
Net-of-tax
amount
(49,879)
(155,421)
20,391
(135,030)
(49,879)
(155,421)
20,391
(135,030)
20. Cash and balances with central banks
2009
2008
Cash in hand
1,736,111
1,259,513
Balances with central banks other than mandatory reserve deposits
4,205,578
1,712,334
Included in cash and cash equivalents
5,941,689
2,971,847
Mandatory reserve deposits with central banks
2,611,711
2,434,679
8,553,400
5,406,526
Cash and cash equivalents
For the cash flow purposes, cash, as well as the cash equivalents comprise the following balances with less than three
months maturity from the date of acquisition:
NLB Tutunska Banka
88
ANNUAL REPORT 2009
2009
2008
Cash and balances with the NBRM (Note 20)
5,941,689
2,971,847
Government bonds (Note 24)
3,575,945
6,727,237
Loans and advances to banks (Note 21)
4,559,581
3,000,708
14,077,215
12,699,792
The Group has to provide obligatory reserve in MKD and in foreign currencies with the National Bank of the Republic of
Macedonia.
The obligatory reserve in MKD in amount of MKD 3,108,793,065.50 as at 31 December 2009 presents prescribed percent
of the average monthly amount of demand and time deposits with maturity up to 3 months and maturity over 3 months.
The effective interest rate on the obligatory reserve in MKD is 2% (2008: 2%). Obligatory reserve funds are maintained
on the current account with NBRM.
The obligatory reserve in foreign currency as at 31 December 2009 presents prescribed percent of the average monthly
amount of sight and time deposits expressed in Euros at NBRM’s middle exchange rate ruling on the balance sheet date.
Interest rate on the obligatory reserve in foreign currency is 0.10% (2008: 0%). The Group is obliged to transfer the Euro
amount of the calculated obligatory reserve to NBRM’s account with Deutsche Bundesbank Centrale.
21. Loans and advances to banks
2009
2008
Placements with other banks
4,559,581
3,000,708
Included in cash and cash equivalents (Note 20)
4,559,581
3,000,708
Placements with other banks with maturity over 3 months
1,689,534
1,402,541
892,854
1,009,919
(8,903)
(15,439)
7,133,066
5,397,729
Current
5,870,509
4,027,139
Non-current
1,262,557
1,370,590
Loans and advances to other banks
Less: allowance for impairment
NLB Tutunska Banka
89
ANNUAL REPORT 2009
Reconciliation of allowance account for losses on loans and advances to other banks
Specific
impairment
allowance for
impairment
2009
Collective
impairment
allowances for
impairment
Specific
impairment
allowance for
impairment
2008
Collective
impairment
allowances for
impairment
Balance at 1 January
15,439
-
5,343
-
Reversal of impairment
(6,433)
-
10,096
-
-
4
10,096
-
Foreign currency translation an other adjustments
(107)
-
-
-
At 31 December
8,899
4
15,439
-
Increase in impairment allowances
Loans and advances to banks and other financial institutions are with effective interest rates from 2.51% to 10% (2008: 3.5%
to 9.5%) per annum. The placements with foreign banks are with effective interest rates of 0.05% to 3.90% (2008: 0.1%
to 9.67%) per annum, and the placements with domestic banks are with an effective rate of 1.191% (2008: 4.51%) per annum.
As at 31 December 2009 a part of the Bank’s placements with foreign banks in the amount of MKD 1,423,167,000 (2008: MKD
45,578,000) represents a pledge deposits held with foreign banks as a collateral for the borrowings from them (Note 32).
22. Loans and advances to customers
2009
2008
705,877
638,826
• Credit cards
1,370,371
1,191,936
• Term loans
7,324,082
8,079,374
• Mortgages
3,268,218
2,682,915
12,668,548
12,593,051
Individual (retail customers):
• Overdrafts
Corporate entities:
• Large corporate customers
20,692,021
3,330,612
-
17,045,737
20,692,021
20,376,349
Less: allowance for impairment
(3,509,865)
(2,797,895)
Net
29,850,704
30,171,505
Current
15,227,003
10,732,822
Non-current
14,623,701
19,438,683
• SMEs
Gross loans and advances
NLB Tutunska Banka
90
ANNUAL REPORT 2009
Loans are with effective rates from 2.8% to 19.5% (2008: 2.6% to 19.5%) per annum.
Allowance for impairment
Reconciliation of allowance account for losses on loans and advances by class is as follows:
Loans to individuals
Specific
impairment
allowance for
impairment
2009
Collective
impairment
allowances for
impairment
Specific
impairment
allowance for
impairment
2008
Collective
impairment
allowances for
impairment
Balance at 1 January
904,830
-
716,237
-
Reversal of impairment
(343,718)
-
-
-
-
415,534
188,593
-
(660)
(164)
-
-
560,452
415,370
904,830
-
Increase in impairment allowances
Foreign currency translation
an other adjustments
At 31 December
Loans to corporate entities
Balance at 1 January
2009
2008
Specific impairment Collective impairment
allowance for
allowances for
impairment
impairment
Specific impairment Collective impairment
allowance for
allowances for
impairment
impairment
1,893,065
-
1,447,264
575,279
69,566
445,801
(3,675)
(192)
2,464,669
69,374
Reversal of impairment
Increase in impairment allowances
Foreign currency translation
an other adjustments
At 31 December
NLB Tutunska Banka
-
91
1,893,065
-
ANNUAL REPORT 2009
23. Financial assets held for trading
2009
Government bonds included in cash equivalents
Other government bonds
2008
-
-
135,956
188,049
Government bills
-
-
Treasury bills
-
198,908
Corporate bonds
219,757
221,559
Total debt securities
355,713
608,516
Equity securities:
• Listed
-
-
• Unlisted
-
-
-
-
14,612
-
370,325
608,516
Total equity securities
Total trading derivatives
Total assets held for trading
The fair values of derivative instruments are set out below:
Notional
contract
amount
Assets
2009
2008
Fair values
Fair values
Liabilities
Notional
contract
amount
Assets
Liabilities
Foreign exchange derivatives
-
-
Currency forward
-
-
-
-
-
-
Curency swaps
629,592
14,612
OTC currency options
Currency futures
Exchange traded currency options
Total OTC derivatives
NLB Tutunska Banka
14,612
92
ANNUAL REPORT 2009
24. Investment securities
2009
2008
Securities available for sale included in cash equivalents
Debt securities - at fair value:
• Unlisted
3,575,945
Total securities available for sale included in cash equivalents
3,575,945
Securities available for sale
Debt securities - at fair value:
• Listed
763,109
1,148,273
2,931,886
10,078
39,398
47,495
31,403
38,653
7,341,741
1,244,499
• Listed
-
-
• Unlisted
-
6,727,237
317,030
404,652
-
-
317,030
7,131,889
Total investment securities
7,658,771
8,376,388
Current
6,773,233
6,989,651
885,538
1,386,737
• Unlisted
Equity securities - at fair value:
• Listed
Equity securities - at cost:
• Unlisted
Total securities available for sale
Securities held to maturity included in cash equivalents
Debt securities - at amortized cost:
Securities held to maturity
Debt securities - at amortized cost:
• Listed
• Unlisted
Total securities held to maturity
Non-current
NLB Tutunska Banka
93
ANNUAL REPORT 2009
Treasury bills are debt securities issued by the National bank of the Republic of Macedonia with maturity of up to 28 days. The
Bank receives an effective interest at the rates from 7% - 9% (2008: 4.79% - 7%) per annum. Government bills are with maturity
up to 90 days and over 90 days, issued in MKD and MKD with EUR clause, and with effective interest rates from 5.25% to 9.5%
(2008: 5.23% - 7.79%). The total amount of the treasury bills includes the interest in the amount of MKD 0.00 (2008: MKD
0.00).
Terms and conditions of government bonds available-for-sale are as follows:
• Bonds issued by the government on the old saving deposits in foreign currency in the amount of MKD 96,566,000
(2008: МKD 142,669,000), with an interest rate of 2% (2008: 2%) per annum. The principal amount is paid in
20 semi-annual instalments on each 1 April and 1 October starting from 1 April 2002 until 1 October 2011;.
• Bonds for denationalisation (01) in the amount of MKD 0 (2008: MKD 1,575,000), with an interest rate of 2%
(2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June, beginning
from 1 June 2003 until 1 June 2012;
• Bonds for denationalisation (02) in the amount of MKD 100,438,000 (2008: MKD 120,608,000), with an interest
rate of 2% (2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June,
starting from 1 June 2004 until 1 June 2013;
• Bonds for denationalisation (03) in the amount of MKD 140,386,000 (2008: MKD 175,080,000), with an interest
rate of 2% (2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1st June
starting from 1 June 2005 until 1 June 2014;
• Bonds for denationalisation (04) in the amount of MKD 219,985,000 (2008: MKD 249,017,000), with an interest
rate of 2% (2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June
starting from 1 June 2006 until 1 June 2015;
• Bonds for denationalisation (05) in the amount of MKD 70,815,000 (2008: MKD 90,608,000), with interest rate
of 2% (2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June,
starting from 1 June 2007 until 1 June 2016;
• Bonds for denationalization (06) in the amount of MKD 105,589,000 (2008:MKD 117,379,000), with interest
rate 2% (2008: 2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June,
starting from 1 June 2008 until 1 June 2017;
• Bonds for denationalization (07) in the amount of MKD 19,820,000 (2008:22,937,000) with interest rate 2%
(2008:2%) per annum. The principal amount is paid in 10 equal annual instalments on each 1 June, beginning
from 1 June 2009 until 1 June 2018.
Corporate bond issued by NLB Tutunska banka AD Skopje in the amount of MKD 0 (2008:MKD 10,010,000) with an
interest rate of 6 month EURIBOR +1.2% per annum. The principal amount of the corporatie bond is paid on the day of
maturity (20 November 2011).
The total amount of bonds includes an interest in the amount of MKD 415,000 (2008: 660,000)
Тhe total amount of the bonds on old foreign currency deposits and denationalisation bonds includes an interest in the
amount of MKD 9,127,000 (2008: МKD 12,079,000).
Terms and conditions of investment securities held to maturity are as follows:
Investment securities held to maturity consist of Government bonds with maturity over 90 days, that have effective
interest rates of 2 % per annum. The total amount of the government bonds includes the interest in the amount of MKD
3,311,000 (2008: 4,166,000).
The movement in investment securities may be summarised as follows:
NLB Tutunska Banka
94
ANNUAL REPORT 2009
At 1 January 2008
Available for sale
Held to maturity
Total
1,481,523
8,206,838
9,688,361
Exchange difference on monetary assets
Additions
183,530
608,724
792,254
(288,785)
(1,683,673)
(1,972,458)
(131,769)
-
(131,769)
At 31 December 2008
1,244,499
7,131,889
8,376,388
At 1 January 2009
1,244,499
7,131,889
8,376,388
Additions
6,785,125
414,410
7,199,535
Disposals
(647,370)
(7,229,269)
(7,876,639)
(40,513)
-
(40,513)
-
-
-
7,341,741
317,030
7,658,771
Disposals (sale and redemption)
Total financial assets reclassified
Gains from changes in fair value (Note 24)
Impairment losses
Exchange difference on monetary assets
Gains from changes in fair value (Note 24)
Impairment losses
At 31 December 2009
25. Investment in associates and joint ventures
(equity method)
2009
2008
Nov Penziski Fond
65,200
54,636
Total investment in associates
65,200
54,636
Summary financial information for equity accounted investee, not adjusted for percentage ownership held by the Group:
2009
Nov Penziski Fond A.D. - Skopje
Assets
Liabilities
Revenues
Profit / (Loss)
142,773
10,233
120,867
21,551
142,773
10,233
120,867
21,551
122,488
11,271
103,652
22,835
122,488
11,271
103,652
22,835
2008
Nov Penziski Fond A.D. - Skopje
NLB Tutunska Banka
95
ANNUAL REPORT 2009
26. Investment property
Investment property at fair value as at 1 January
2009
2008
-
-
Addition resulting from acquisition
Disposal during the year
Transfer from / to property and equipment
78,768
Transfer from other assets
Net losses / gains from a fair value adjustment
(8,297)
Other change
Investment properties at fair value as at 31 December
70,471
-
As at 31 December 2009 the Group does not have any property pledged as collateral (2008: nil).
NLB Tutunska Banka
96
ANNUAL REPORT 2009
27. Property, plan and equipment
Land and
buildings
Furniture &
equipment
Assets in
course of
construction
Other
Total
At 1 January 2008
Acquisition cost
487,682
520,577
20,676
18,015
1,046,950
Accumulated depreciation
(79,821)
(284,720)
-
(7,835)
(372,376)
Net book value
407,861
235,857
20,676
10,180
674,574
407,861
235,857
20,676
10,180
674,474
59,121
152,048
38,416
3,506
253,091
33
-
(8,821)
8,788
-
Year ended 31 December 2008
Opening net book value
Additions
Transfer
Transfer to investment property
-
-
-
-
-
Disposals
-
(846)
-
-
(846)
Transferred to disposal group classified as
held for sale
-
Depreciation charge
(12,753)
(91,251)
-
(4,631)
(108,635)
Closing net book value
454,262
295,808
50,271
17,843
818,184
Acquisition cost
546,836
662,590
50,271
30,309
1,290,006
Accumulated depreciation
(92,574)
(366,782)
-
(12,466)
(471,822)
Net book value
454,262
295,808
50,271
17,843
818,184
454,262
295,808
50,271
17,843
818,184
63,665
207,273
4,969
7,046
282,953
-
23,955
(38,027)
14,072
-
(78,768)
-
-
-
(78,768)
-
(1,801)
-
-
(1,801)
At 31 December 2008
Year ended December 2009
Opening net book value
Additions
Transfer
Transfer to investment property
Disposals
Transferred to disposal group classified as held for sale
Depreciation charge
(13,209)
(124,962)
-
(8,046)
(146,217)
Closing net book value
425,950
400,273
17,213
30,915
874,351
At 31 December 2009
Acquisition cost
Accumulated depreciation
Net book value
NLB Tutunska Banka
531,733
892,017
17,213
51,427
1,492,390
(105,783)
(491,744)
-
(20,512)
(618,039)
425,950
400,273
17,213
30,915
874,351
97
ANNUAL REPORT 2009
28. Intangible assets
Computer software
licenses
Acquisition cost
Other intangible
assets
Total
60,497
43,343
103,840
(16,636)
(17,315)
(33,951)
43,861
26,028
69,889
Opening net book value
43,861
26,028
69,889
Additions
11,618
43,386
55,004
(13,549)
(13,004)
(26,553)
41,930
56,410
98,340
Accumulated depreciation
Net book amount
Year ended 31 December 2008
Disposals
Amortization charge
Acquisitions through business combination
Closing net book amount
At 31 December 2008
Acquisition cost
Accumulated depreciation
Net book amount
72,115
86,729
158,844
(30,185)
(30,319)
(60,504)
41,930
56,410
98,340
41,930
56,410
98,340
2,506
24,150
26,656
(12,725)
(18,320)
(31,045)
31,711
62,240
93,951
Year ended 31 December 2009
Opening net book value
Additions
Disposals
Amortization charge
Acquisitions through business combination
Closing net book amount
At 31 December 2008
Acquisition cost
Accumulated depreciation
Net book amount
NLB Tutunska Banka
98
74,621
110,879
185,500
(42,910)
(48,639)
(91,549)
31,711
62,240
93,951
ANNUAL REPORT 2009
29. Current income tax assets
Current income tax assets
Adjustments recognized in 2009 for current tax prior periods
2009
2008
572
-
-
-
572
-
572
-
30. Deffered income tax assets and liabilities
At 1 January
Income statement charge
2009
2008
8,667
29,058
-
-
(5,535)
(20,391)
3,132
8,667
2009
2008
2,178
838
2,178
838
2009
2008
5,310
9,505
5,310
9,505
Available for sale securities:
• Fair value remeasurement
At 31 December
Deferred income tax assets
Available for sale securities
Deferred income tax liabilities
Available for sale securities
NLB Tutunska Banka
99
ANNUAL REPORT 2009
31. Other assets
Pre-payments
Accrued income
2008
2007
97,734
39,660
-
-
83,753
99,593
Other
144,657
120,243
Pensions paid in advance
147,483
-
Less: allowance for impairment
(18,533)
(9,269)
455,094
250,227
455,094
204,611
-
45,616
Foreclosed assets
Current
Non-current
Reconciliation of allowance account for losses on other assets
Balance at 1 January
Specific impairment
allowance for
impairment
2009
Collective
impairment
allowances for
impairment
Specific impairment
allowance for
impairment
2008
Collective
impairment
allowances for
impairment
9,269
-
5,883
-
Reversal of impairment
Increase in impairment
allowances
Foreign currency translation
an other adjustments
At 31 December
9,284
-
(20)
-
18,533
-
3,386
9,269
-
Assets acquired through foreclosure procedure include apartments, equipment and business premises which are not used
by the Group for its core operations.
The market for certain types of collateral in Republic of Macedonia is in an early stage of development. Management has
made an estimate of the expected recoverable amount net of cost to realize the assets, based on a number of factors,
including independent assessment. However, given the foregoing, actual amounts realised may differ from the estimates
made.
NLB Tutunska Banka
100
ANNUAL REPORT 2009
32. Deposits from banks
2009
2008
Demand deposit:
• Banks and saving houses
• Insurance companies
• Other financial institutions
319,584
380,859
95,170
154,374
150,982
95,621
1,415,907
839,774
Term deposits:
• Banks and savings houses
• Insurance companies
375,842
176,117
• Other financial institutions
769,789
943,818
Restricted deposits:
3,138
-
• Insurance companies
• Banks and savings houses
12,018
3,405
• Other financial institutions
34,065
1,089
3,176,495
2,595,057
2,706,942
2,153,845
469,553
441,212
Current
Non-current
The effective interest rates on deposits from banks and other financial institutions are from 0.2% to 0.6% (2008: 1% - 3%)
per annum, while the effective interest rates on term deposits are from 0.1% to 9.5% (2008: 1.4% - 9.5%) per annum.
NLB Tutunska Banka
101
ANNUAL REPORT 2009
33. Deposits from customers
2009
2008
Companies
• Current/settlement accounts
6,342,827
9,497,876
• Term deposits
7,598,637
7,521,116
• Restricted deposits
2,526,576
202,533
Public institutions
566,650
577,532
• Term deposits
• Current/settlement accounts
-
588,953
• Restricted deposits
-
-
Retail customers
• Current / demand accounts
• Term deposits
• Restricted deposits
Current
Non-current
4,184,094
4,573,372
17,501,674
12,066,753
1,668,080
1,441,720
40,388,538
36,469,855
35,155,390
33,566,145
5,233,148
2,903,710
The effective interests rates of current accounts are from 0% to 1.8% (2008: 0% to 5.5%) per annum, while the effective
interests rate of term deposits are from 0.02% to 14% (2008: 0.11% to 11.6%) per annum.
NLB Tutunska Banka
102
ANNUAL REPORT 2009
34. Other borrowed funds
Interest rate (%)
2009
2008
4-5.5%
7 - 8%
3 months EURIBOR + 1%
636,397
236,168
4.25% - 6.3%
186,946
153,680
0.5%
701,447
507,090
4%
6 months USDLIBOR - 0.5%
51,319
64,430
Central Cooperative Bank
6.2%
20,003
-
Ohridska Banka
6.2%
150,026
-
Komercijalna Banka
6.2%
100,017
-
Eurostandard Banka
6.2%
40,007
-
3 months EURIBOR + 0.9%
3 months EURIBOR + 0.25%
-
307,129
3 months EURIBOR + 0.061 - 0.52%
3 months EURIBOR + 0.25%
1,078,002
562,274
European Bank for
Reconstruction and Development
6 months EURIBOR 3.20%
-
1,169,339
LHB Internationale Handelsbank
3 months EURIBOR + 0.75%
941
45,578
NLB InterFinanz AG Zurich
3 months EURIBOR + 2.15%
29,391
75,187
3 месечен EURIBOR +1,5%
-
2,719
3 months EURIBOR + 1.5% - 2.25%
6 months EURIBOR
641,415
1,004,312
6 months EURIBOR + 2.75%
-
114,935
1%
-
156,883
6 months EURIBOR 4%
491,491
-
4,127,402
4,399,724
Current
1.209.479
2,510,865
Non-current
2,917,923
1,888,859
Domestic borrowings:
Macedonian Bank for development Promotion
Macedonian enterprise development foundation
Ministry of Finance (PSDL)
National Bank of the Republic of Macedonia
Foreign borrowings:
Erste Oesterreiche Sparcasse
European Investment Bank
Nova Ljubljanska Trst
Nova Ljubljanska Banka d.d.
World Bank
International Fund for Agricultural Development
EFSE Western Balkan B.V.
NLB Tutunska Banka
103
ANNUAL REPORT 2009
The loans granted by the MBDP, MEDF, IFAD, ICDF Taiwan and the World Bank are secured with bills of exchange of NLB
Tutunska banka AD.
EIB’s loan is secured with a Bank Guarantee issued by NLB d.d. Ljubljana.
The loan granted by LHB Internationale Handelsbank AG Frankfurt in the amount of MKD 941,000 (2008: МKD 45,578,000),
included in loans from NLB Group, is with interest rate of three - month EURIBOR+0.75% and is secured with deposit (Note
21).
EFSE long term credit line EBRD loans are secured with a Comfort Letter by NLB D.D (EBRD loan A was repaid on 19
December 2009).
Loan from EIB
On 23 November 2006 the Bank has concluded an agreement with EIB in amount of EUR 10,000,000. Terms for each
individual disbursement will be determined at each disbursement of separate trenches. Starting from 21st December 2006
the Bank has withdrawn amounts in more trenches on certain dates.
The bank has concluded an agreement with EIB for a new loan in amount of EUR 10,000,000.
EIB loan approved in 2009 is secured with a Bank Guarantee issued by NLB d.d Ljubljana, but EIB new loan approved in 2008
is secured with a Bank Guarantee issued by COMMERZBANK FRANKFURT and with a Contragaurantee issued by NLB d.d.
EIB’s loan is secured with a Bank Gaurantee issued by NLB d.d. Ljubljana.
Starting from November 2009 Bank has withdrawn in three trenches on certain dates under the followings terms:
Amount in EUR
Interest rate
Repayment date
Allocation 1
4,780,000
3 months Euribor +0.528%
7 years including
1 year of grace period
Allocation 2
3,500,000
3 months Euribor +0.516%
7 years including
2 year of grace period
Allocation 3
1,720,000
3 months Euribor +0.393%
7 years including
2 year of grace period
Loan from ERSTE Bank AG Wien repaid in May 2009.
Loan from Macedonian Bank for development Promotion (micro - credit loan from German - Macedonian
fund)
During year 2008, loans from MBDP from micro-credit loan GMF2 for micro credit loan that have matured on 30th
December 2008 in amount of EUR 1,300,000 have been prolonged till 1st April 2012 and are going to be repaid in two
quarter installments.
NLB Tutunska Banka
104
ANNUAL REPORT 2009
35. Debt securities in issue
Debt securities in issue
Interest rate (%)
2009
2008
6 month Euribor +1.2%
631,786
649,163
631,786
649,163
Total
Current
Non-current
1,702
4,436
630,084
644,727
The Group issued debt securities - bonds through public offer on 17 November 2008. Issued debt securities represent nonconvertible, transferable bonds with the right of interest and right of disbursement of the nominal value of the bonds. The
cumulative quantity of the bonds is 10.663 bonds each with currency structure in the amount of EUR 1,000. The cumulative
value of the bonds issue is MKD 654,839,000 thousand with 3 years maturity period.
The interest rate is 6 month Euribor +1.2% % per year, with semi - annual payment of the interest. The nominal value of the
bonds shall be disbursed on the maturity date of the bond.
The total amount of the debt securities in issue includes the interest in the amount of MKD 1,702,000 (2008: MKD
4,436,000).
36. Provisions
At 1 January
2009
2008
386,658
356,296
149,786
45,875
(247,537)
(15,513)
Charged to income statement
• Additional provisions
• Unused amounts reversed
• Increase arising from the effect of discounting and a
change in the discount rate
Utilised during year
Exchange differences
(1,903)
At 31 December
287,004
386,658
Current
192,803
263,443
94,201
123,215
Non-current
NLB Tutunska Banka
105
ANNUAL REPORT 2009
37. Current income tax liabilities
Current income tax liabilities
2009
2008
-
1,468
-
1,468
38. Subordinated debt
Interest rate (%)
European Fund for Southеast Europe (EFSE)
NLB InterFinanz AG Zurich
2009
2008
6 months EURIBOR + 4.2% after
22.09.2013 + 6.3%
744,754
756,237
3 months CHFLIBOR + 3.25%
875,592
874,526
1,620,346
1,630,763
Current
Non-current
12,541
21,656
1,607,805
1,609,107
The Subordinated loans from NLB Interfinanz were granted with an interest rate of 3 month CHFLIBOR + 3.25%, and maturity
of 7 years. Conversion into capital will be determined according to the fulfillment of certain terms.
On 15th June 2008 the Bank has concluded an agreement with EFSE (European Fund for Southeast Europe) for subordinated
loan in amount of EUR 12.000.000 with interest rate of 6 months EURIBOR + 4.20% (from 22nd September 2013, 6 months
EURIBOR + 6.30%) with maturity of 10 years.
Conversion into capital will be determined in accordance with terms given in the Agreement signed between EFSE (European
Fund for Southeast Europe) and NLB Tutunska bank.
NLB Tutunska Banka
106
ANNUAL REPORT 2009
39. Other liabilities
Dividends declared and payable
Accruals
Prepayment of liabilities
Suppliers payables
2009
2008
5,702
3,032
36,392
3,314
149,217
149,864
41,603
40,750
Advances received
Compensation benefits to the members of the Managing
Board, management and employees
6,608
7,098
71,241
53,531
Long-term employee benefits
13,038
12,771
Liabilities for unused annual leaves
12,672
11,056
Other
50,007
38,035
386,480
319,451
2009
2008
12,771
15,997
Movement in long-term employee benefits is presented below:
Balance 1 January
Benefits paid
(538)
Actuarial losses (Note 12)
805
(3,226)
Balance at 31 December
13,038
12,771
Long-term employee benefits include jubilee awards and retirement indemnity bonuses.
NLB Tutunska Banka
107
ANNUAL REPORT 2009
40. Contingencies
The Bank issues bank guarantees and letters of credit on behalf of its customers to third parties. These agreements have fixed
limits and are generally extended for a period of up to three years. Expirations are not concentrated in any period.
The following table indicates the contractual amounts of the Bank contingencies by category.
2009
2008
• in MKD currency
3,151,524
2,509,509
• in foreign currency
2,014,100
2,581,065
1,107,956
552,851
1,754,506
2,264,578
8,028,086
7,908,003
(287,004)
(386,658)
7,741,082
7,521,345
Guarantees
Letters of credit
• in foreign currency
Limits on cheques and cards
Less: Provision for impairment
These contingent liabilities have off balance-sheet credit risk because only origination fees and accruals for probable losses are
recognized in the balance sheet until the contingencies are fulfilled or expired. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash flows.
NLB Tutunska Banka
108
ANNUAL REPORT 2009
41. Related party transactions
According to the Group’s Articles of Association, the supreme body is the assembly of the Group, constituted of all the holders
of the Group’s registered ordinary shares. The overall control of the Group is with the non-executive Board of Directors (“the
Supervisory Board”) who are appointed by shareholders.
The Group is controlled by Nova Ljubljanska Bank Group (“NLB”) which owns 86.97% (2008: 86.97%) of the voting shares.
The volumes of related party transactions, and outstanding balances at the year-end, are as follows:
For the year ended on 31 December 2009:
Associate
Other related
parties
21,800
40
6,228
1,505
262
2,243
Interest expense
94,147
17,230
18,907
Fee and commission expense
Net gains / (losses) on financial
instruments classified as held for trading
15,356
-
-
Fellow subsidiaries
Income statement
Interest income
Fee and commission income
(14,658)
Other operating income
Other operating expenses
Balance sheet
Cash and cash equivalents
Balance at 1 January
1,288,074
-
-
353,538,308
-
-
(354,274,056)
-
-
552,326
-
-
Balance at 1 January
723,047
-
35,601
Loans issued during the year
495,894
-
275,929
(293,007)
-
(274,058)
925,934
-
37,472
Loans issued during the year
Loan repayments during the year
Balance at 31 December
Loans
Loan repayments during the year
Balance at 31 December
Financial assets held for trading
Balance at 1 January
Trading assets issued during the year
Trading assets repayments during the year
Balance at 31 December
NLB Tutunska Banka
109
-
-
-
14,612
-
-
-
-
-
14,612
-
-
ANNUAL REPORT 2009
Other assets
Balance at 1 January
Other assets issued during the year
Other assets repayments during the year
Balance at 31 December
-
-
-
136,097
565
6,166
(136,022)
(622)
(6,212)
75
(57)
(46)
Deposits
Balance at 1 January
1,144,836
187,563
467,471
32,541,828
1,390,243
19,431,210
(32,432,534)
(1,387,765)
(19,528,494)
1,254,130
190,041
370,187
Balance at 1 January
2,002,322
-
-
Loans issued during the year
2,063,553
-
-
(2,519,477)
-
-
1,546,398
-
-
-
-
-
Deposits received during the year
Deposits repaid during the year
Balance at 31 December
Borrowings
Loans repayments during the year
Balance at 31 December
Other liabilities
Balance at 1 January
Other liabilities issued during the year
Other liabilities repayments during the year
Balance at 31 December
NLB Tutunska Banka
110
21,610,258
-
-
(21,609,652)
-
-
606
-
-
ANNUAL REPORT 2009
For the year ended on 31 December 2008:
Associate
Other related
parties
62,434
1
3,787
6,533
129
1,814
179,851
9,493
4,367
11,778
-
-
Fellow subsidiaries
Income statement
Interest income
Fee and commission income
Interest expense
Fee and commission expense
Balance sheet
Cash and cash equivalents
Balance at 1 January
Loans issued during the year
Loan repayments during the year
Balance at 31 December
108,599
-
-
89,160,677
-
-
(89,216,120)
-
-
53,156
-
-
1,169,352
-
29,128
Loans
Balance at 1 January
Loans issued during the year
Loan repayments during the year
Balance at 31 December
44,526,457
1,638
151,124
(43,737,844)
(1,638)
(144,651)
1,957,965
-
35,601
1,193,712
105,560
113,073
Deposits
Balance at 1 January
Deposits received during the year
35,828,991
545,242
8,968,868
(35,877,867)
(463,239)
(8,614,470)
1,144,836
187,563
467,471
2,618,993
-
-
247,488
-
-
Borrowings repayments during the year
(864,159)
-
-
Balance at 31 December
2,002,322
-
-
Deposits repaid during the year
Balance at 31 December
Borrowings
Balance at 1 January
Borrowings issued during the year
NLB Tutunska Banka
111
ANNUAL REPORT 2009
Transaction with key management personnel
The total compensation to the key management personnel are as follows:
Executive directors
2009
2008
47,228
41,535
2,439
2,544
49,667
44,079
Non-executive directors
All compensation to the key management are short-term employee benefit.
42. Trust activities
Companies
Citizens
Other
2009
2008
2,009,855
1,156,169
4,483
386,424
718,535
117,620
2,732,873
1,660,213
The Group manages assets on behalf of third parties, which are mainly in the form of loans to various clients. The Group receives
fee income for providing these services. Trust assets are not assets of the Group and are not recognized in the balance sheet.
The Group is not exposed to any credit risk relating to such placements, because it does not guarantee these investments.
43. Share capital
Number of
shares
Ordinary
shares
Share
premium
Non voting
shares
Total
At 1 January 2008
785,621
735,400
1,610,707
50,221
2,396,328
At 31 December 2008
854,061
854,061
2,203,056
-
3,057,117
At 31 December 2009
854,061
854,061
2,203,056
-
3,057,117
NLB Tutunska Banka
112
ANNUAL REPORT 2009
The authorized share capital of the Group consists of 854,061 ordinary shares (2008: 854,061 ordinary shares). Ordinary shares
have a par value of MKD 1,000 (2008: MKD 1,000). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Bank.
The below stated shareholders have more than 5% of the Bank’s issued voting share capital.
% of voting share capital
Shareholders
2009
2008
NLB InterFinanz AG - Zurich
26.7%
26.7%
Nova Ljubljanska Banka d.d. - Ljubljana
60.3%
60.3%
Based on the Contract and Annex No, 1, 2, 3, 4 and 5 of the contract for transfer of the voting rights that are owned by
NLB InterFinanz AG Zurich in NLB Tutunska banka, the voting rights belonging to NLB InterFinanz AG Zurich (26.7%), were
transferred to Nova Ljubljanska banka d.d. Ljubljana, by which the share in the Bank’s total voting rights of Nova Ljubljanska
banka d.d. on 31 December 2008 is 87%.
Statutory reserve
Under local statutory legislation, the Bank is required to set aside 15% of its net profit for the year in a statutory reserve until
the level of the reserve reaches 1/5 of the court registered capital. Until reaching the minimum required level statutory reserve
could only be used for loss recovery.
When the minimum level is reached, statutory reserve can also be used for distribution of dividends, based on a decision of the
shareholders’ meeting, but only if the amount of the dividends for the current business year has not reached the minimum for
distribution as prescribed in the Trade Company Law or by the Bank’s Statute.
Revaluation Reserve
The revaluation reserve includes the cumulative net effect of the changes in the fair value of investments available-for-sale until
the moment of their de-recognition or damaging.
Revaluation reserve of available for sale securities
NLB Tutunska Banka
113
2009
2008
28,184
78,063
28,184
78,063
ANNUAL REPORT 2009
Movements in revaluation reserves were as follows:
2009
2008
Revaluation reserve for available of sale securities
At 1 January
78,063
213,093
Net gains from changes in fair value
(40,513)
(131,769)
Recycled to income statement on realisation
(14,901)
(23,652)
5,535
15,542
Deferred income tax
Correction of deferred income tax
4,849
At 31 December
28,184
78,063
Dividends
After the balance sheet date no dividends were declared.
44.
Subsequent event
As of 28 January 2010, the Board of the Bank in December 2009 has decided to approve the liquidation of NLB Tutunska broker
AD Skopje which approved the Management Board of the Bank as the founder and the only shareholder of representative of
the Assembly of the NLB Tutunska broker to decide on liquidation and formation a separate organization unit in the Bank.
The Board of the Bank has formarded and established a plan for implementing the procedure for liquidation of NLB Tutunska
broker and obtain permission to work with securities for the Bank by the commission for Securities A.D. Skopje.
The Board of Directors of NLB Tutunska broker passed for minding up and proposed meeting of the Assembly of the shareholders
of NLB Tutunska broker for the month of february 2010.
There is an ongoing process of completing the documentation required for submission of application for obtaining permission
to work with the Securities and Exchange Commission for securities for NLB Tutunska banka.
No matters, other than those already mentioned, or occurrences have come to our attention subsequent to the balance sheet
date up to the date of this letter that would materially affect the reporting package or, although not affecting such reporting
package, have caused or are likely to cause any material change, adverse or otherwise, in the financial position or results of
operations of our Bank. The Bank’s accounting records for the periods subsequent to the audited period 31 December 2009
do not include any material entries, which you are not aware of, in relation to transactions that should have been included in
the reporting package in earlier periods.
NLB Tutunska Banka
114
ANNUAL REPORT 2009
NLB Tutunska banka AD Skopje
Unconsolidated Financial statements prepared in accordance
with International Financial Reporting Standards for the year
ended 31 December 2009
NLB Tutunska Banka
115
ANNUAL REPORT 2009
Income statement
All amounts in MKD thousands unless otherwise stated.
Year ended 31 December
Notes
2009
2008
3,526,282
Interest and similar income
5
3,505,776
Dividend income
6
3,954
3,934
Interest and similar expenses
5
(1,754,820)
(1,691,780)
1,754,910
1,838,436
(710,232)
(637,410)
1,044,678
1,201,026
Net interest income
Loan impairment charges
7
Net interest income after loan impairment charges
Fee and commission income
8
792,271
724,124
Fee and commission expense
8
(152,492)
(113,437)
639,779
610,687
Net fee and commission income
Net gains / (losses) on financial instruments
classified as held for trading
9
53,148
56,428
Net gains / (losses) on investment securities
12
4,209
3,388
Net foreign exchange gain
10
162,251
135,197
Personnel expenses
13
(595,037)
(551,746)
General and administrative expenses
14
(270,382)
(251,812)
Depreciation and amortization expense
15
(175,402)
(133,595)
Gains less losses on revaluation of investment property
17
(8,297)
-
Other operating expenses
16
(546,104)
(361,269)
Other operating income
11
135,643
32,900
Operating profit
444,486
741,204
Profit before income tax
444,486
741,204
(11,728)
(64,942)
432,758
676,262
Income tax expense
18
Profit for the year
NLB Tutunska Banka
116
ANNUAL REPORT 2009
Statement of comprehensive income
All amounts in MKD thousands unless otherwise stated
Year ended 31 December
Notes
Profit for the year
2009
2008
432,758
676,262
Net gains on available-for-sale financial assets
Unrealised net gains arising during the period, before tax
(39.748)
(25.331)
Net reclassification adjustments for realised net losses, before tax
(4.209)
(3.388)
Income tax relating to components of other comprehensive income
4,390
5,354
(39,567)
(23,365)
393,191
652,897
Other comprehensive income for the year, net of tax
19
Total comprehensive income for the year
NLB Tutunska Banka
117
ANNUAL REPORT 2009
Statement of financial position
(Balance sheet)
At 31 December
Notes
2009
2008
8,547,298
5,399,131
ASSETS
Cash and balances with central banks
20
Loans and advances to banks
21
7,133,066
5,397,729
Loans and advances to customers
23
29,850,704
30,171,505
Financial assets held for trading
22
370,325
608,516
• Available for sale
24
7,232,726
1,113,443
Investment securities:
• Held to maturity
24
317,030
7,131,889
Investment in subsidiary
25
30,864
30,864
Investments in associates for using the equity method
26
60,128
60,128
Investment properties
27
70,471
-
Property, plant and equipment
28
845,177
788,033
97,776
Intangible assets
29
93,367
Deferred income tax assets
30
184
-
Other assets
31
455,291
250,345
55,006,631
51,049,359
Total assets
LIABILITIES
Deposits from banks
32
3,234,607
2,619,869
Deposits from customers
33
40,382,830
36,461,227
Other borrowed funds
34
4,127,402
4,399,724
Debt securities in issue
35
631,786
659,276
Provisions
36
287,004
386,658
Current income tax liabilities
37
296
2,107
Deferred income tax liabilities
30
5,299
9,505
Subordinated liability
38
1,620,346
1,630,763
Other liabilities
39
386,165
319,415
50,675,735
46,488,544
Total liabilities
EQUITY
Capital and reserves attributable to equity of parent entity
Share capital
43
854,061
854,061
Share premium
43
2,203,056
2,203,056
Revaluation reserve
43
46,034
85,601
Retained earnings
651,919
896,256
Other reserves
575,826
521,841
4,330,896
4,560,815
55,006,631
51,049,359
Total equity
Total equity and liabilities
NLB Tutunska Banka
118
ANNUAL REPORT 2009