NLB Tutunska Banka
Consolidated financial statements prepared
in accordance with
International Financial Reporting Standards
For the year ended 31 December 2008
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
Content
Pages
Independent auditor’s report
1-2
Consolidated Income statement
3
Consolidated Balance sheet
4
Consolidated Statement of changes in equity
5
Consolidated Cash flow statement
6-7
Notes to the consolidated financial statements
8-77
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 A.D. – Skopje and its subsidiary NLB Tutunska broker AD Skopje, the (together “the
Group ”) which comprise the consolidated balance sheet as of 31 December 2008 and the
consolidated income statement, consolidated statement of changes in equity and
consolidated cash flows for the year then ended and a summary of significant accounting
policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards. This
responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of 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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
basis for our audit opinion.
1
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 2008 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,
1 April 2009
2
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Consolidated Income statement
Note
Interest and similar income
Interest expense and similar charges
5
5
3,531,770
(1,691,105)
2,629,716
(1,145,257)
1,840,665
1,484,459
735,890
(113,885)
593,270
(93,649)
622,005
499,621
7
8
14
9
18,190
56,428
(671,158)
135,318
8,069
17,273
(456,066)
125,730
10
12
13
11
23,652
(695,167)
(588,195)
39,147
11,189
794
(579,758)
(470,777)
35,565
2,657
792,074
667,567
(66,549)
(76,977)
725,525
590,590
Net interest income
Fee and commission income
Fee and commission expense
6
6
Net fee and commission income
Dividend income
Net trading income
Impairment charge for credit losses
Net foreign exchange gain
Net income from selling available-for-sale
investment securities
Administrative expenses
Other operating expenses
Other operating income
Share of profit of associates
Profit before income tax
Income tax expense
Profit for the year
Year ended 31 December
2008
2007
15
The notes on pages 8 to 77 are an integral part of these financial statements
3
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Consolidated Balance sheet
Notes
ASSETS
Cash and balances with central banks
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Trading assets
Investment securities:
- Available for sale
- Held to maturity
Investments in associates
Property and equipment
Intangible assets
Other assets
16
17
18
20
19
5,406,526
6,727,237
5,397,729
30,171,505
608,516
4,218,346
8,206,838
4,396,169
22,699,921
650,949
21
21
22
23
24
25
1,244,499
404,652
54,636
818,184
98,340
250,227
1,481,523
43,447
674,574
69,889
256,806
51,182,051
42,698,462
2,595,057
36,469,855
4,399,724
649,163
1,630,763
319,451
386,658
1,468
8,667
2,146,872
27,376,943
7,727,525
786,120
292,153
356,296
5,229
29,058
46,460,806
38,720,196
854,061
2,203,056
1,006,602
657,526
785,621
1,610,707
833,658
748,280
4,721,245
3,978,266
51,182,051
42,698,462
Total assets
LIABILITIES
Deposits from financial institutions
Due to customers
Other borrowed funds
Debt securities in issue
Subordinated liability
Other liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
26
27
28
29
30
31
32
33
Total liabilities
EQUITY
Capital and reserves
Share capital
Share premium
Retained earnings
Other reserve
Total equity
Total equity and liabilities
As at 31 December
2008
2007
36
The notes on pages 8 to 77 are an integral part of these financial statements
4
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Consolidated Statement of changes in equity
At 1 January 2007
Net change in available-for-sale
investments, net of tax
Net income recognised directly in
equity
Net profit
Total recognised income for
2007
Dividend relating to 2006
Transfer to statutory reserve
Increase of capital
At 1 January 2008
Share
capital
Share
premium
Retained
earnings
Statutory
reserve
Revaluation
reserve
Total equity
693,866
968,422
649,150
501,711
120,458
2,933,607
-
-
-
-
92,635
92,635
-
-
590,590
-
92,635
-
92,635
590,590
91,755
91,755
642,285
642,285
590,590
(372,606)
(33,476)
-
33,476
-
92,635
-
1,417,265
(372,606)
734,040
785,621
1,610,707
833,658
535,187
213,093
3,978,266
-
-
44,276
-
(135,030)
-
(135,030)
725,525
(508,305)
579,463
78,063
4,721,245
Net change in available-for-sale
investments, net of tax
Net profit
Dividend relating to 2007
Transfer to statutory reserve
Increase of capital
68,440
592,349
725,525
(508,305)
(44,276)
-
At 31 December 2008
854,061
2,203,056
1,006,602
660,789
Detailed information is provided in Note 36.
The notes on pages 8 to 77 are an integral part of these financial statements
5
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Consolidated Cash flow statement
Note
Cash flows from operating activities
Profit before tax
Adjustments for non cash items:
Depreciation of property and equipment
Amortization of intangible assets
Depreciation of investments 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
Dividends income
Interest income
Interest expense
Interest received
Interest paid
Operating profit before changes in operating
assets
Year ended 31 December
2008
2007
792,074
667,567
108,635
26,553
15
340
671,158
82,856
13,998
967
427
456,066
3,750
(18,190)
(3,531,770)
1,691,105
3,579,972
(1,776,067)
13,704
(8,069)
(2,629,715)
1,145,256
2,577,205
(1,122,369)
1,547,575
1,197,893
(1,261,920)
(1,750,044)
(8,180,778)
(557)
(116,437)
2,289,572
(7,377,016)
80,610
449,508
9,163,829
27,298
538,818
8,789,110
114,275
(5,089)
5,516,825
Taxation paid
Income tax paid
(70,310)
(97,374)
Net cash flow( used in)/ from operating
activities
(75,399)
5,419,451
(253,091)
(55,004)
(597,910)
42,433
263,608
498,704
491
18,190
(167,563)
(25,836)
(1,078,156)
511,487
6
8,069
(82,579)
(751,993)
23
24
5
5
(Increase)/decrease in operating assets:
Balances with NBRM
Loans and advances to banks
Loans and advances to customers
Other assets
Increase/(decrease) in operating liabilities:
Deposits from financial institutions
Deposits from customers
Other liabilities
Net cash (used in)/ from operating activities
before income tax
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Purchase of investments available for sale
Proceeds from sale of securities held for trading
Disposal of investments available for sale
Disposal of treasury bills
Proceeds from sale of property and equipment
Dividends received
Net cash used in investing activities
23
24
The notes on pages 8 to 77 are an integral part of these financial statements
6
NLB TUTUNSKA BANKA A.D. – SKOPJE
Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Cash flow statement (continued)
Cash flows from financing activities
Proceeds from subordinated liabilities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Issue of ordinary shares
863,444
2,715,551
(5,400,268)
(508,305)
660,789
469,190
9,000,458
(6,895,708)
(372,606)
734,040
Net cash (used in)/ from financing activities
(1,668,789)
2,935,374
Net (decrease)/ increase in cash and cash
equivalents
Cash and cash equivalents at 1 January
(1,826,767)
14,526,559
7,602,832
6,923,727
12,699,792
14,526,559
Cash and cash equivalents at 31 December
30
37
The notes on pages 8 to 77 are an integral part of these financial statements
7
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
1.
General information
NLB Tutunska Banka AD Skopje (“the Bank”) is a joint stock company incorporated
and domiciled in the Republic of Macedonia. The Bank is a subsidiary of NLB Group,
which controls 87% (2007: 87.6%) of the voting shares of the Bank.
The address of its registered office is as follows:
St. Bulevar Dvanaesetta Makedonska Brigada br. 20 Skopje - Aerodrom,
1000 Skopje,
Republika Makedonija
The consolidated financial statements of the Bank for the year ended 31 December
2008 comprise the financial statements of the Bank and its wholly owned subsidiary
NLB Tutunska broker A.D. Skopje, together referred to as the “Group”, and the interest
of the Group in their associate Nov Penziski Fond A.D. Skopje.
The Group is licensed to perform all banking activities in accordance with the law 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 1 April 2009.
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
Vice - president of Management Board
Mitre Kolishevski
Member of Management Board
Ljube Rajevski
Member of Management Board
Tome Perinski
Manager of Internal Audit Division
Tihomir Trajkovski
Manager of Finance and Treasury Management Division
Stojna Stojkoska
Manager of Corporate Banking Division
Ljiljana Nastoska
Manager of Logistic Division
Manager of Cash Services Division
Manager of Payment System and Sales Logistics Division
Manager of Branch Network Division
Manager of Risk Management Centre
Manager of Legal Centre
Jordanka Grujoska
Dragan Panovski
Slagjana Beleva
Antonio Argir
Bogoja Kitancev
Nadica Ceneva
8
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
1.1
Operating Environment of the Group
Macedonian economy. In 2008 strong economic growth was maintained, as a
continuous trend from 2007, led by strong domestic demand and increasing investment.
Favourable consumer financing, remittances and improved terms of trade in first 3
quartiles boosted incomes and domestic demand. In the first three quarters of 2008
GDP grew by 5.5% in relation to the same period last year, which is an excellent result
and an indicator that the positive business cycle continues in 2008 as well. This
conclusion is supported by the growth of the construction, wholesale and retail trade,
while industrial production growth reached double digits.
In fourth quarter of 2008, favourable trends have reversed, due to the turmoil in the
world economy, especially EU countries, as strategic export markets for Macedonian
companies. Reduced export demand, falling export prices, and slightly weaker
remittances boosted foreign trade deficit over 2 billion EUR and significantly pressed the
current account.
Inflation has risen despite the exchange rate anchor of central Group’s monetary policy,
mainly because of external shocks and price spill over. From 2002 to 2006 inflation
averaged less than 1%, sometimes with periods of deflation. Inflation rate have
increased approximately to 10% in early 2008, similar to other countries in the region,
mainly due to increase in oil, electricity and food price, stabilising around 8.3% at the
end of the year. Higher nominal wage increases prevented a fall in real incomes.
In 2008 the central government budget was broadly in balance, although fiscal policy
has been expansive. Tax revenue increased despite substantial tax cuts in previous
years, owing to improved tax administration, domestic demand growth (which boosts
VAT), and a near-doubling of corporate income tax revenues. Government fiscal policy
plans for 2009 are expansionary aiming to replace weaker private consumption and
thus support planned growth.
With competition intensifying, and relaxed monetary policy in early 2008, credit growth
increased to almost 40 percent annually, stimulating domestic demand and imports, and
also potentially increasing risks in the banking system. In order to manage those risks,
in 2008 National Bank of the Republic of Macedonia (NBRM) has increased CB bill
rates to 7% (5% in 2007), raised capital requirements for overdrafts and credit card
loans up to 125%, and introduced controls on household credit growth. These measures
have strongly inhibited commercial household financing in last two months of 2008. This
trend is expected to continue in 2009 as well, due to the fact that NBRM imposed
stricter limits of 11% annual growth on household loans for 2009.
Republic of Macedonia has euro-pegged exchange rate. Despite the pressure on
currency market, Macedonian denar (MKD) has slightly depreciated (0.34%) against
Euro in 2008. The official EUR exchange rate of NBRM increased from MKD 61.2016 at
31 December 2007 to MKD 61.4123 at December 2008 (and MKD 61.4090 at 26
January 2009), while the international reserves of Macedonia increased from EUR
1,524 million at 31 December 2007 to EUR 1,689 million at September 2008.
9
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
In 2009, current account deficit remains the main risk to continued growth (predicted
3%) and macroeconomic stability, as further slowdown of the world economy is
expected. Export demand, which has started to fall in second half of 2008, and lower
foreign direct investments, portfolio investments, and remittances could create
additional balance of payments pressures.
Continuing international financial turmoil poses additional uncertainties. The impact of
the global financial crisis has not reached great magnitude in Macedonia, since
Macedonian banks are not exposed to subprime lending overseas and rely mainly on
domestic deposits (around 80%) rather than international credit lines to fund lending.
However, the indirect impact through the real sector is likely to deepen. Additionally
recent increases in commercial interest rates and measures of NBRM to restrain credit
growth will have strong impact on banking growth and profits.
However, liquidity of the banking sector in Republic of Macedonia remains strong,
mostly supported by stable private savings.
Future economic growth and development of the Republic of Macedonia mainly
depends 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 2009.
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.
General
Impact of the global financial and economic crisis
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.
The full extent of the impact of the ongoing global financial an economic crisi is
providing to be difficult to anticipate or completely guard against.
In order to to preserve structural liquidity NBRM has imposed minimum 100% fulfilment
of obligatory limits for one and six month liquidity. Additionally, to preserve higher
foreign currency liquidity, starting from 2009, NBRM will organize foreign currency
deposits auctions with interest rates equal to those of central banks in euro zone,
international financial institutions and yields of government bills of countries in euro
zone.
10
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Impact on liquidity
The volume of wholesale financing has reduced in 2008 compared to 2007. Such
circumstances may affect the ability of the Group to obtain new favourable long-term
borrowings and re-finance its existing borrowings at terms and conditions similar to
those applied to earlier transactions. However, the funding base of the Group is mostly
dependant on stable deposit base. The overall market pressure towards increasing
interest on domestic savings, which began in early 2008, may influence the future costs
of funding and pricing policy.
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. 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, expected
lower incomes of households and possible lower liquidity of companies in 2009 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)
The fair values of quoted investments in active markets are based on current bid prices
(financial assets) or offer 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.
11
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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.
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 IFRSs became effective for the Group from 1 January 2008:

IFRIC 11, IFRS 2—Group and Treasury Share Transactions (effective for annual
periods beginning on or after 1 March 2007);

IFRIC 12, Service Concession Arrangements (effective for annual periods beginning
on or after 1 January 2008); and

IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective for annual periods beginning on or after
1 January 2008).
These new IFRIC interpretations 11 to 14 did not have any significant effect on the
Group’s financial statements
12
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Reclassification of Financial Assets—Amendments to IAS 39, Financial
Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments:
Disclosures and a subsequent amendment, Reclassification of Financial Assets:
Effective Date and Transition. The amendments allow entities the options (a) to
reclassify a financial asset out of the held to trading category if, in rare circumstances,
the asset is no longer held for the purpose of selling or repurchasing it in the near term;
and (b) to reclassify an available-for-sale asset or an asset held for trading to the loans
and receivables category, if the entity has the intention and ability to hold the financial
asset for the foreseeable future or until maturity (subject to the asset otherwise meeting
the definition of loans and receivables). The amendments may be applied with
retrospective effect from 1 July 2008 for any reclassifications made before 1 November
2008; the reclassifications allowed by the amendments may not be applied before 1
July 2008 and retrospective reclassifications are only allowed if made prior to 1
November 2008. Any reclassification of a financial asset made on or after 1 November
2008 takes effect only from the date when the reclassification is made. The Group has
not elected to make any of the optional reclassifications during the period.
(b) New Accounting Pronouncements
Certain new standards and interpretations have been published that are mandatory for
the Group’s accounting periods beginning on or after 1 January 2008 or later periods
and which the Group has not early adopted:

IFRS 8, Operating Segments (effective for annual periods beginning on or after 1
January 2009). The standard applies to entities whose debt or equity instruments are
traded in a public market or that file, or are in the process of filing, their financial
statements with a regulatory organisation for the purpose of issuing any class of
instruments in a public market. IFRS 8 requires an entity to report financial and
descriptive information about its operating segments and specifies how an entity should
report such information. Management does not expect IFRS 8 to affect the Group’s
financial statements.

Puttable Financial Instruments and Obligations Arising on Liquidation - IAS 32
and IAS 1 Amendment (effective from 1 January 2009). The amendment requires
classification as equity of some financial instruments that meet the definition of a
financial liability. The Group does not expect the amendment to affect its financial
statements.

IAS 23, Borrowing Costs (revised March 2008; effective for annual periods beginning
on or after 1 January 2009). The revised IAS 23 was issued in March 2008. The main
change to IAS 23 is the removal of the option of immediately recognising as an expense
borrowing costs that relate to assets that take a substantial period of time to get ready
for use or sale. An entity is, therefore, required to capitalise such borrowing costs as
part of the cost of the asset. The revised standard applies prospectively to borrowing
costs relating to qualifying assets for which the commencement date for capitalisation is
on or after 1 January 2009. The Group does not expect the amended standard to have
a material effect on its financial statements.
13
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)

IAS 1, Presentation of Financial Statements (revised September 2008; effective for
annual periods beginning on or after 1 January 2009). The main change in IAS 1 is the
replacement of the income statement by a statement of comprehensive income which
will also include all non-owner changes in equity, such as the revaluation of availablefor-sale financial assets. Alternatively, entities will be allowed to present two statements:
a separate income statement and a statement of comprehensive income. The revised
IAS 1 also introduces a requirement to present a statement of financial position (balance
sheet) at the beginning of the earliest comparative period whenever the entity restates
comparatives due to reclassifications, changes in accounting policies, or corrections of
errors. The Group expects the revised IAS 1 to affect the presentation of its financial
statements but to have no impact on the recognition or measurement of specific
transactions and balances.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008;
effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will
require an entity to attribute total comprehensive income to the owners of the parent and
to the non-controlling interests (previously “minority interests”) even if this results in the
non-controlling interests having a deficit balance (the current standard requires the
excess losses to be allocated to the owners of the parent in most cases). The revised
standard specifies that changes in a parent’s ownership interest in a subsidiary that do
not result in the loss of control must be accounted for as equity transactions. It also
specifies how an entity should measure any gain or loss arising on the loss of control of
a subsidiary. At the date when control is lost, any investment retained in the former
subsidiary will have to be measured at its fair value. The Group is currently assessing
the impact of the amended standard on its financial statements.

IFRS 3, Business Combinations (revised January 2008; effective for business
combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow
entities to choose to measure non-controlling interests using the existing IFRS 3 method
(proportionate share of the acquiree’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
acquirer will have to remeasure its previously held equity interest in the acquiree at its
acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or
loss. Acquisition-related costs will be accounted for separately from the business
combination and therefore recognised as expenses rather than included in goodwill. An
acquirer 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 recognised in accordance with other applicable IFRSs, as appropriate, rather
than by adjusting goodwill. The revised IFRS 3 brings into its scope business
combinations involving only mutual entities and business combinations achieved by
contract alone. The Group is currently assessing the impact of the amended standard
on its financial statements.
14
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)

IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on
or after 1 July 2008). 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 Group does not operate any loyalty programmes.

Improvements to International Financial Reporting Standards (issued in May 2008).
In 2007, 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 issued in May 2008 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 Group does not expect the amendments to have any material effect
on its financial statements.

IAS 20, Accounting for Government Grants and Disclosure of Government
Assistance. The amendment requires benefits arising from government loans at
below-market interest rates to be accounted for as government grants, with the benefit
calculated as the difference between the proceeds and the initial fair value of the loan,
net of transaction costs. The amendment applies prospectively to government loans
received in periods beginning on or after 1 January 2009.

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 Group will amend its accounting policies
accordingly and will apply the amendment prospectively from 1 January 2009.
15
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)

IFRIC 17, Distribution of Non-Cash Assets to Owners (effective for annual periods
beginning on or after 1 July 2009, with earlier application permitted). The amendment
clarifies when and how distribution of non-cash assets as dividends to the owners
should be recognised. 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 recognised in profit or loss when
the entity settles the dividend payable. IFRIC 17 is not relevant to the Group’s
operations because it does not distribute non-cash assets to owners.
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
recognised gains and losses of associates on an equity accounting basis, from the date
that the significant influence commences until the date that the significant influences
ceases. When the Group’s share of losses exceeds its interest in an associate, the
Group’s carrying amount is reduced to nil and recognition of further losses is discontinued
except to the extend that the Group has incurred legal or constructive obligations or made
payments on behalf of an associate.
16
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group
transactions between the Bank and subsidiaries, are eliminated in preparing the
consolidated financial statements. Unrealised gains and losses arising from transactions
with the associate are eliminated to the extent of the Group’s interest in the enterprise.
Unrealised gains arising from transactions with associate are eliminated against the
investment in the associate. Unrealised losses are eliminated in the same way as
unrealized gains, but only to the extent that there is no evidence of impairment.
2.3
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the
primary economic environment in which the Group operates (‘the functional currency’).
The financial statements are presented in MKD thousands, which is the Banks’s
functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
Changes in the fair value of monetary securities denominated in foreign currency
classified as available for sale are analysed between translation differences resulting
from changes in the amortised cost of the security and other changes in the carrying
amount of the security. Translation differences related to changes in the amortised cost
are recognised in profit or loss, and other changes in the carrying amount are
recognised in equity.
Translation differences on non-monetary items, such as equities held at fair value
through profit or loss, are reported as part of the fair value gain or loss. Translation
differences on non-monetary items, such as equities classified as available-for-sale
financial assets, are included in the fair value reserve in equity.
The foreign currencies the Group deals with are predominantly Euro (EUR) and United
States Dollars (USD) based. The exchange rates used for translation at 31 December
2008 and 2007 were as follows:
1 EUR
1 USD
2008
MKD
2007
MKD
61.41
43.56
61.20
41.66
17
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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. The only trading assets held by the
Group are Government and Treasury bills and government and corporate bonds.
(c) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of
time, which may be sold in response to needs for liquidity.
Regular-way purchases and sales of financial assets at fair value through profit or loss,
held to maturity and available for sale are recognised on trade - date - the date on
which the Group commits to purchase or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all
financial assets not carried at fair value through profit or loss. Financial assets carried at
fair value through profit and loss are initially recognised at fair value, and transaction
costs are expensed in the income statement.
Available-for-sale financial assets and financial assets at fair value through profit or loss
are subsequently carried at fair value. Loans and receivables and held-to-maturity
investments are carried at amortised cost using the interest method. Gains and losses
arising from changes in the fair value of the ‘financial assets at fair value through profit
or loss’ category are included in the income statement in the period in which they arise.
Gains and losses arising from changes in the fair value of available-for-sale financial
assets are recognised directly in equity, until the financial asset is derecognised or
impaired. At this time, the cumulative gain or loss previously recognised in equity is
recognised in profit or loss. However, interest calculated using the interest method and
foreign currency gains and losses on monetary assets classified as available for sale
are recognised in the income statement. Dividends on available-for-sale equity
instruments are recognised in the income statement when the entity’s right to receive
payment is established.
18
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The fair values of quoted investments in active markets are based on current bid prices,
except that any instrument that does not have a quoted market price in an active market
and whose fair value cannot be reliably measured is stated at cost, less impairment
losses.
Financial assets are derecognised when the rights to receive cash flows from the
financial assets have expired or where the Group has transferred substantially all risks
and rewards of ownership. Financial liabilities are derecognised when they are
extinguished − that is, when the obligation is discharged, cancelled or expires.
(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 recognised amounts and
there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
2.6
Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for
those classified as held for trading or designated at fair value through profit or loss, are
recognised within ‘interest income’ and ‘interest expense’ in the income statement using
the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial
asset or a financial liability and of allocating the interest income or interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, the
Group estimates cash flows considering all contractual terms of the financial instrument
(for example, prepayment options) but does not consider future credit losses. The
calculation includes all fees and points paid or received between parties to the contract
that are an integral part of the effective interest rate, transaction costs and all other
premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down
because of an impairment loss, interest income is recognised using the rate of interest
used to discount the future cash flows for the purpose of measuring the impairment
loss.
19
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
2.7
Fee and commission income
Fees and commissions consist mainly of fees received from entities arising from
guarantees and letter of credits and fees arising from domestic and foreign payment
traffic. Fees and commissions are generally recognised on an accrual basis when the
service has been provided.
2.8
Dividend income
Dividends are recognised in the income statement when the entity’s right to receive
payment is established and inflow of economic benefits is probable.
2.9
Impairment of financial assets
(a) Assets carried at amortised cost
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 (a ‘loss event’) and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
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 recognised are not included in a collective assessment of impairment.
20
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the income statement. If
a loan or held-to-maturity investment has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under
the contract.
The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from foreclosure
less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped
on the basis of similar credit risk characteristics (i.e., on the basis of the Group’s
grading process that considers asset type, industry, geographical location, collateral
type, past-due status and other relevant factors). Those characteristics are relevant to
the estimation of future cash flows for groups of such assets by being indicative of the
debtors’ ability to pay all amounts due according to the contractual terms of the assets
being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for
impairment are estimated on the basis of the contractual cash flows of the assets in the
Group and historical loss experience for assets with credit risk characteristics similar to
those in the Group. Historical loss experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the period
on which the historical loss experience is based and to remove the effects of conditions
in the historical period that do not currently exist.
Estimates of changes in future cash flows for groups of assets should reflect and be
directionally consistent with changes in related observable data from period to period
(for example, changes in unemployment rates, property prices, payment status, or other
factors indicative of changes in the probability of losses in the Group and their
magnitude). The methodology and assumptions used for estimating future cash flows
are reviewed regularly by the Group to reduce any differences between loss estimates
and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan
impairment. Such loans are written off after all the necessary procedures have been
completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment was
recognised (such as an improvement in the debtor’s credit rating), the previously
recognised impairment loss is reversed by adjusting the allowance account. The
amount of the reversal is recognised in the income statement in impairment charge for
credit losses.
21
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
(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 recognised
in profit or loss – is removed from equity and recognised in the income statement.
Impairment losses recognised in the income statement on equity instruments are not
reversed through the income statement. If, in a subsequent period, the fair value of a
debt instrument classified as available for sale increases and the increase can be
objectively related to an event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed through the income statement.
(c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually
significant and whose terms have been renegotiated are no longer considered to be
past due but are treated as new loans. In subsequent years, the asset is considered to
be past due and disclosed only if renegotiated.
2.10
Investment property
Investment property is property held either to earn rental income or for capital
appreciation or both. The Group holds investment property that has been acquired
through the enforcement of security over loans and advances. Rental income from
investment property is recognized in the income statement on a straight- line basis over
the term of the lease.
Investment property is measured at cost less accumulated depreciation and any
accumulated impairment losses.
The depreciation of the investment property is charged to the income statement using
the straight-line method to allocate their cost to their residual values over their
estimated useful lives. Investment property is periodically reviewed for impairment.
When the Group makes a decision to use the assets for its own purposes, they are
reclassified to property and equipment.
The estimated period of depreciation is as follow:
Building
2008
2007
40 years
40 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate,
at each balance sheet date.
22
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
2.11
Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated
amortisation and impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic
benefits embodied in the specific assets to which it relates. All other expenditure is
expensed as incurred.
Amortisation is charged to the income statement on a straight-line basis over the
estimated useful lives of intangible assets. Intangible assets are amortised from the
date they are available for use.
Software
Patents and licenses
Other
2.12
2008
2007
5 years
5 years
5 years
5 years
5 years
5 years
Property and equipment
Property and buildings comprise mainly branches and offices. All property, plant and
equipment are stated at historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance 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 straightline method to allocate their cost to their residual values over their estimated useful
lives, as follows:
Buildings
Furniture and equipment
2008
2007
40 years
4-10 years
40 years
4-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate,
at each balance sheet date. Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An asset’s carrying amount is written down
immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount. The recoverable amount is the higher of the asset’s fair
value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying
amount. These are included in other operating expenses in the income statement.
23
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
2.13
Leases
(a) Group is the lessee
The leases entered into by the Group are primarily operating leases. The total
payments made under operating leases are charged to other operating expenses in the
income statement on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any
payment required to be made to the lessor by way of penalty is recognised as an
expense in the period in which termination takes place.
2.14
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
balances with less than three months’ maturity from the date of acquisition, including
cash and non-restricted balances with central banks, treasury bills and other eligible
bills and placements to banks.
2.15
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow
of economic benefits will be required to settle the obligation. Provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks
specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be
derived by the Group from a contract are lower than the unavoidable cost of meeting its
obligations under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of
continuing with the contract. Before a provision is established, the Group recognises
any impairment loss on the assets associated with that contract.
2.16
Employee benefits
Defined contribution plans
The Group contributes to its employees' post retirement plans as prescribed by the
national legislation. Contributions, based on salaries, are made to the national
organisations responsible for the payment of pensions. There is no additional liability in
respect of these plans. Obligations for contributions to defined contribution pension
plans are recognised as an expense in profit and loss when they are due.
24
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and
are expensed as the related service is provided.
A provision is recognised for the amount expected to be paid under short-term cash
bonus or 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.
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 recognised in profit or loss in the period in which they arise. Longterm 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 longterm employee benefits are:



2.17
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.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
The principal temporary differences arise from depreciation of property, plant and
equipment, revaluation of certain financial assets and liabilities including, provisions for
long-term benefits and tax losses carried forward; and, in relation to acquisitions, on the
difference between the fair values of the net assets acquired and their tax base. The
rates enacted or substantively enacted at the balance sheet date are used to determine
deferred income tax. However, the deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable
profit or loss.
Deferred tax assets are recognised where it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising from investments in
subsidiaries and associates, except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the difference will not
reverse in the foreseeable future.
25
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The tax effects of income tax losses available for carry-forward are recognised as an
asset when it is probable that future taxable profits will be available against which these
losses can be utilised.
Deferred tax related to fair value re-measurement of available-for-sale investments and
cash flow hedges, which are charged or credited directly to equity, is also credited or
charged directly to equity and subsequently recognised in the income statement
together with the deferred gain or loss.
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 recognises 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
amortised cost using the effective interest method, except where the Group chooses to
carry the liabilities at fair value through profit or loss where certain conditions are met.
2.19
Share capital
(a) Preference share capital
Preference share capital that is non-redeemable is classified as equity.
(b) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as
a deduction, net of tax, from the proceeds.
(c) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are
approved by the Group’s shareholders.
Dividends for the year that are declared after the balance sheet date are dealt with in
the subsequent events note.
(d) Treasury shares
Where the Group purchases the Group’s equity share capital, the consideration paid is
deducted from total shareholders’ equity as treasury shares until they are cancelled.
Where such shares are subsequently sold or reissued, any consideration received is
included in shareholders’ equity.
26
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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 recognised in the financial statements at fair value on the
date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities
under such guarantees are measured at the higher of the initial measurement, less
amortisation calculated to recognize in the income statement the fee income earned on a
straight line basis over the life of the guarantee and the best estimate of the expenditure
required to settle any financial obligation arising at the balance sheet date.
These estimates are determined based on experience of similar transactions and history
of past losses, supplemented by the judgment of management. Any increase in the
liability relating to guarantees is taken to the income statement under other operating
expenses.
27
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.
Financial risk management
The Group’s activities expose it to a variety of financial risks and those activities
involve the analysis, evaluation, acceptance and management of some degree of
risk or combination of risks. Taking risk is core to the financial business, and the
operational risks are an inevitable consequence of being in business. The Group’s
aim is therefore to achieve an appropriate balance between risk and return and
minimise potential adverse effects on the Group’s financial performance.
The Group’s risk management policies are designed to identify and analyse these
risks, to set appropriate risk limits and controls, and to monitor the risks and
adherence to limits by means of reliable and 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.
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).
28
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
(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
B
C
D+E
Investment grade
Standard monitoring
Special monitoring
Sub-standard
Criterion for classification of Financial Assets or Contingent liabilities into groups A, B,
C, D and E are as follows:
Financial Assets or Contingent liabilities are classified into Group A if they are towards:
 National Bank of the Republic of Macedonia and the Republic of Macedonia
 debtors which is not likely to default and who repays its obligations within the maturity,
or with a delay of 15 days;
 exposures secured by pledging collateral graded as first class collateral.
Financial Assets or Contingent liabilities are classified into Group B if they are towards
debtors:
 whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless
its present financial position is assessed as weak, without signs of further deterioration
in the future;
 who settle their liabilities with delay of up to 30 days, occasionally with delay between
31 and 90 days.





Financial Assets or Contingent liabilities are classified into Group C if they are towards
debtors:
for which it is assessed, that cash flows will not be sufficient for regular repayment of
matured liabilities,
that settle their liabilities with delay of up to 90 days, occasionally with delay between 91
to 180 days,
that are clearly undercapitalized,
that do not have sufficient long term capital resources for financing long term
investments,
from whom group does not receive currently satisfactory information or adequate
documentation concerning repayment of liabilities.
29
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)








Financial Assets or Contingent liabilities are classified into Group D and E if they are
towards debtors:
for which exists a strong likelihood of loss of part of financial asset or of payment for
Contingent liabilities,
that settle their liabilities with delay of more than 90 to 180 days, occasionally with delay
between 181 to 360 days,
which are insolvent,
for which a motion for commencement of process of liquidation or declaration of
bankruptcy began and was filed at the provisional court,
that are in the process of reform or in the process of liquidation,
that declared bankruptcy,
from whom no repayment is expected,
with questionable legal grounds.
(ii)
Exposure at default is based on the amounts the Group expects to be owed at the 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.
30
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
(a) Collateral




The Group employs a range of policies and practices to mitigate credit risk. The most
traditional of these is the taking of security for funds advances, which is common
practice. The Group implements guidelines on the acceptability of specific classes of
collateral or credit risk mitigation. The principal collateral types for loans and advances
are:
Cash, bank’s and first class companies’ guarantees,
Mortgages over residential properties;
Charges over business assets such as premises, inventory and accounts receivable;
Charges over financial instruments such as debt securities and equities.
Loans to corporate entities and individuals are generally secured; over drafts and credit
cards issued to individuals are secured by bills of exchange at the full amount of
principal, interest and other charges. In addition, in order to minimise the credit loss the
Group will seek additional collateral from the counterparty as soon as impairment
indicators are noticed for the relevant individual loans and advances.
Debt securities, treasury and other eligible bills are generally unsecured.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds are available to a
customer as required. Guarantees and standby letters of credit carry the same credit
risk as loans and are secured with same collateral as loans.
3.1.3 Impairment and provisioning policies
The internal rating systems described in Note 3.1.1 focus more on credit-quality
mapping from the inception of the lending and investment activities. In contrast,
impairment provisions are recognised for financial reporting purposes only for losses
that have been incurred at the balance sheet date based on objective evidence of
impairment (see Note 2.8).
The impairment provision shown in the balance sheet at year-end is derived from each
of the four internal rating grades. However, the majority of the impairment provision
comes from bottom two gradings. The table below shows the percentage of the Group’s
on- and off-balance sheet items relating to loans and advances and the associated
impairment provision for each of the Group’s internal rating categories:
31
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Group’s rating
2008
Loans and
Impairment
advances (%) provision (%)
1.Investment grade
2.Standard monitoring
3.Special monitoring
4.Sub-standard







95
4
1
100
1
10
25
57
7.3
2007
Loans and
Impairment
advances (%) provision (%)
95
2
2
1
100
1
10
25
57
7.4
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;
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 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.
32
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.1.4 Maximum exposure to credit risk before collateral held or other credit
enhancements
Maximum exposure
2008
2007
Credit risk exposures relating to on-balance sheet assets are as
follows:
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers:
Loans to individuals:
− Overdrafts
− Credit cards
− Term loans
− Mortgages
Loans to corporate entities:
− Large corporate customers
− Small and medium size entities (SMEs)
− Other
Trading assets
Investment securities
− Debt securities
Other assets
6,727,237
5,397,729
8,206,838
4,396,169
580,115
1,039,915
7,582,880
2,485,311
623,728
472,513
5,242,391
1,976,515
3,067,177
15,416,107
2,272,675
12,112,099
608,516
650,949
1,563,003
250,227
1,285,867
256,806
Credit risk exposures relating to off-balance sheet items are as
follows:
Financial guarantees
7,908,003
7,219,545
At 31 December
52,626,220
44,716,095
The above table represents a worse case scenario of credit risk exposure to the Group
at 31 December 2008 and 2007, 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, 68% of the total maximum exposure is derived from loans and
advances to banks and customers (2007: 61%); 17% represents investments in debt
securities (2007: 23%).
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:






95% of the loans and advances portfolio is categorised in the top two grades of the
internal rating system (2007: 96%);
Loans to SMEs, which represents the biggest group in the portfolio, are backed by
collateral;
95 % of loans to individuals are backed by collateral;
92% of the loans and advances portfolio are considered to be neither past due nor
impaired (2007: 93%);
The incensement of loan portfolio has resulted in a higher impairment charge in the
income statement, showing a 62.7 % increase;
The Group has introduced a more stringent selection process upon granting loans and
advances; and
33
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)

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 summarised as follows:
31 December 2008
Loans and Loans and
advances to
advances
customers
to banks
31 December 2007
Loans and Loans and
advances to
advances
customers
to banks
Neither past due nor impaired
Past due but not impeared
Impaired
30,216,607
703,829
2,048,964
4,962,173
450,681
314
22,996,121
628,429
1,238,872
4,137,493
263,382
637
Gross
32,969,400
5,413,168
24,863,422
4,401,512
Less: allowance for impairment
(2,797,895)
Net
30,171,505
(15,439)
5,397,729
(2,163,501)
22,699,921
(5,343)
4,396,169
The total impairment provision for loans and advances is MKD 2,813,334,000 (2007:
MKD 2,168,844,000). Further information of the impairment allowance for loans and
advances to banks and to customers is provided in Notes 18 and 20.
During the year ended 31 December 2008, the Group’s total loans and advances
increased by 31 % as a result of the expansion of the lending business, mainly in retail
segment. When entering into new markets or new industries, in order to minimise the
potential increase of credit risk exposure, the Group focused more on the business with
large corporate 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.
31 December 2008
Loans and advances to customers
Individual (retail customers)
Corporate entities
SMEs
Total
Loans and
advances
to
customers
Loans and
advances to
banks
Overdrafts
Credit
cards
Term
loans
Mortgages
Large
corporate
customers
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
34
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
31 December 2007
Loans and advances to customers
Individual (retail customers)
Corporate entities
SMEs
Total
Loans and
advances
to
customers
Loans and
advances to
banks
Overdrafts
Credit
cards
Term
loans
Mortgages
Large
corporate
customers
Grades:
1.Investment grade
310,507
468,377
5,346,820
2,058,698
2,319,303
12,492,416
22,996,121
4,137,493
Total
310,507
468,377
5,346,820
2,058,698
2,319,303
12,492,416
22,996,121
4,137,493
(b)
Loans and advances past due but not impaired
Gross amount of loans and advances by class to customers that are past due but not
impaired is as follows:
(i) Loans and advances to customers
31 December 2008
Individual (retail customers)
Over-drafts
Credit carts
Term loans
Mortgages
Total
Past due up to 30 days
Past due 30-60 days
Past due 60-90 days
118
164,353
167,998
50,337
-
27,158
9,506
14,837
4,507
1,507
1,086
199,781
61,350
180,276
Total
Fair value of collateral
164,471
-
218,335
-
51,501
59,741
7,100
16,620
441,407
75,361
31 December 2008
Corporate entities
SMEs
Total
Past due up to 30 days
Past due 30-60 days
Past due 60-90 days
206,740
27,274
28,408
206,740
27,274
28,408
Total
Fair value of collateral
262,422
406,754
262,422
406,754
31 December 2007
Individual (retail customers)
Over-drafts
Credit carts
Term loans
Mortgages
Total
Past due up to 30 days
Past due 30-60 days
Past due 60-90 days
114,322
41,906
175,217
-
18,911
8,677
5,284
3,792
1,433
862
137,025
52,016
181,363
Total
Fair value of collateral
331,445
-
-
32,872
37,108
6,087
13,545
370,404
50,653
35
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Corporate entities
SMEs
Total
Past due up to 30 days
Past due 30-60 days
Past due 60-90 days
170,509
42,410
45,106
170,509
42,410
45,106
Total
Fair value of collateral
258,025
415,102
258,025
415,102
(ii) Loans and advances to banks
The total gross amount of past due but not impaired loans and advances to banks as at
31 December 2008 is MKD 450,681,000 (2007: 263,382,000). 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 575,650,000 (2007: MKD
444,708,000)
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:
31 December 2008
Individually impaired loans
Fair value of collateral
31 December 2007
Individually impaired loans
Fair value of collateral
Credit cards
Individual
Term loans
98,256
120,420
26,034
330,940
575,650
-
-
57,275
661,880
719,155
Credit cards
Individual
Term loans
49,443
4,812
-
390,453
444,708
-
-
-
781,519
781,519
Mortgages
Mortgages
Corporate entities
SMEs
Total
Corporate entities
SMEs
Total
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.
36
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
(ii) Loans and advances to banks
The total gross amount of individually impaired loans and advances to banks as at 31
December 2008 is MKD 314,000 (2007: MKD 637,000). 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.
2008
Treasury bills
and other bills
Trading
securities
Investment
securities
Total
NBRM
RM
Banks
6,279,519
447,718
-
198,908
188,049
221,559
1,563,003
-
6,478,427
2,198,770
221,559
Total
6,727,237
608,516
1,563,003
8,898,756
2007
Treasury bills
and other bills
Trading
securities
Investment
securities
Total
6,060,092
2,146,746
-
350,949
300,000
1,285,867
-
6,060,092
3,783,562
300,000
8,206,838
650,949
1,285,867
10,143,654
NBRM
RM
Banks
The assets are neither past due nor impaired.
3.1.7 Repossessed collateral
During 2008, the Group obtained assets by taking possession of collateral held as
security, as follows:
Nature of assets
Residential property
2008
2007
Carrying amount
Carrying amount
12,468
6,997
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.
37
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.1.8 Concentration of risks of financial assets with credit risk exposure
(a) Geographical sectors
The following table breaks down the Group’s main credit exposure at their carrying
amounts, as categorised by geographical region as of 31 December 2008. For this
table, the Group has allocated exposures to regions based on the country of domicile of
its counterparties.
EU
countries
Non EU
countries
in Europe
Republic of
Macedonia
Other
countries
Total
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers:
Loans to individuals:
− Overdrafts
− Credit cards
− Term loans
− Mortgages
Loans to corporate entities:
− Large corporate customers
− SMEs
Trading assets – debt securities
Investment securities – debt
securities
Other assets
3,351,230
225,822
6,727,237
1,760,753
59,924
6,727,237
5,397,729
11
33
-
-
580,104
1,039,878
7,582,880
2,485,311
3,067,177
15,416,097
608,516
4
10
-
580,115
1,039,915
7,582,880
2,485,311
3,067,177
15,416,107
608,516
-
-
1,563,003
250,227
-
1,563,003
250,227
As at 31 December 2008
3,351,274
225,822
41,081,183
59,938
44,718,217
EU
countries
Non EU
countries
in Europe
Republic of
Macedonia
Other
countries
Total
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers:
Loans to individuals:
− Overdrafts
− Credit cards
− Term loans
− Mortgages
Loans to corporate entities:
− Large corporate customers
− SMEs
Trading assets – debt securities
Investment securities – debt
securities
Other assets
3,002,307
659,845
8,206,838
685,626
48,391
8,206,838
4,396,169
11
144
-
130
94
-
623,585
472,272
5,242,391
1,976,515
2
3
-
623,728
472,513
5,242,391
1,976,515
-
-
2,272,675
12,111,899
650,949
200
-
2,272,675
12,112,099
650,949
13,494
78
1,285,867
243,232
2
1,285,867
256,806
As at 31 December 2007
3,015,956
660,147
33,771,849
48,598
37,496,550
38
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
(b) Industry sectors
The following table breaks down the Group’s main credit exposure at their carrying
amounts, as categorised by the industry sectors of our counterparties.
Manufacturing
Real
estate
Whole-sale
and retail
trade
Public
sector
Other industries
Individuals
Total
6,279,519
5,397,729
-
-
-
447,718
-
-
-
6,727,237
5,397,729
-
888,739
4,343,828
1,577,701
1,268,438
4,966,100
174,053
910,000
4,237,799
580,115
1,039,915
7,582,880
2,485,311
116,626
580,115
1,039,915
7,582,880
2,485,311
3,067,177
15,416,107
420,467
-
-
-
188,049
-
-
608,516
-
-
-
-
1,563,003
-
250,227
-
1,563,003
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
Financial
institutions
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers:
Loans to individuals:
− Overdrafts
− Credit cards
− Term loans
− Mortgages
Loans to corporate entities:
− Large corporate customers
− SMEs
− Other
Trading assets – debt securities
Investment securities − debt
securities
Other assets
As at 31 December 2008
39
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Manufacturing
Real
estate
Wholesale and
retail
trade
8,206,838
4,396,169
-
-
-
-
-
-
8,206,838
4,396,169
-
-
-
-
-
-
623,728
472,513
5,242,391
1,976,515
623,728
472,513
5,242,391
1,976,515
650,949
991,794
4,285,565
-
1,836,277
-
1,040,833
4,016,507
-
205,954
-
240,048
1,767,796
-
-
2,272,675
12,112,099
650,949
1,232,187
-
-
-
-
53,680
-
256,806
-
1,285,867
256,806
14,486,143
5,277,359
1,836,277
5,057,340
259,634
2,264,650
8,315,147
37,496,550
Financial
institutions
Treasury bills and other eligible
bills
Loans and advances to banks
Loans and advances to
customers:
Loans to individuals:
− Overdrafts
− Credit cards
− Term loans
− Mortgages
Loans to corporate entities:
− Large corporate customers
− SMEs
− Other
Trading assets – debt securities
Investment securities − debt
securities
Other assets
As at 31 December 2007
Public
sector
Other industries
Indivi-duals
Total
40
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.2
Market risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices,
foreign exchange rates and credit spreads (not relating to changes in the obligor’s /
issuer’s credit standing) will affect the Group’s income or the value of its holdings of
financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimising the return
on risk.
3.2.1 Foreign exchange risk
The Group is exposed to currency risk through transactions in foreign currencies. The
Group ensures that the net exposure is kept to an acceptable level by buying or selling
foreign currency at spot when necessary to address short-term imbalances.
41
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Concentrations of currency risk – on and off-balance sheet financial instruments:
EUR
USD
MKD
Other
Total
2,744,211
3,462,829
16,585,455
190,265
43,282
1,508,699
2,773
-
2,311,012
6,727,237
204,631
12,556,204
418,251
308,021
221,570
1,027,073
-
5,406,526
6,727,237
5,397,729
30,171,505
608,516
1,020,639
404,652
21,940
1,399
223,860
54,828
226,235
653
1,244,499
404,652
54,828
250,227
24,429,991
1,556,153
22,722,258
1,557,317
50,265,719
Due to customers
Other borrowed funds
Issued securities
Subordinated liabilities
Other liabilities
Current income tax
Deferred income tax liabilities
1,021,138
17,906,337
4,086,105
649,163
756,237
20,538
8,402
88,550
1,441,392
64,430
92
-
1,352,569
16,872,883
3,637
298,621
1,468
265
132,800
249,243
245,552
874,526
200
-
2,595,057
36,469,855
4,399,724
649,163
1,630,763
319,451
1,468
8,667
Total financial liabilities
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
18,803,785
19,331,179
1,980,107
1,998,210
19,182,060
15,327,846
1,988,047
1,706,665
41,953,999
38,363,900
(527,394)
3,196,965
(18,103)
444,520
3,854,214
3,578,060
281,382
-
3,590,099
7,219,545
As at 31 December 2008
Assets
Cash and balances with central banks
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Trading assets
Investment securities:
- Available for sale
- Securities held to maturity
Investment in associates
Other assets
Total financial assets
Liabilities
Deposits from financial institutions
Net on-balance sheet financial
position
Off balance sheet
At 31 December 2007
Total financial assets
Total financial liabilities
Net on-balance sheet financial
position
Off balance sheet
(87,659)
7,908,587
At 31 December 2008, 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 2008 would have been approximately MKD
10,839,000 (2007: MKD 18,576,000) 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 11,568,000 (2007: MKD 20,176,000) higher.
42
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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.
43
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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:
1-5 years
Over 5
years
Noninterest
bearing
Total
-
-
-
3,499,371
5,406,526
99,283
273,068
107,755
1,391,974
31,404
487,902
5,811
2,134
(47,024)
43,038
6,727,237
5,397,729
6,294,826
604,426
5,309,957
-
8,404,694
-
6,256,853
-
3,175,993
-
729,182
4,090
30,171,505
608,516
-
7,268
-
418,363
92,738
-
627,692
270,298
-
233,665
37,450
-
(42,489)
4,166
54,828
250,227
1,244,499
404,652
54,828
250,227
18,536,028
5,689,576
10,415,524
7,674,149
3,455,053
4,495,389
50,265,719
Deposits from financial
institutions
Due to customers
Other borrowed funds
Issued securities
Subordinated liabilities
Other liabilities
Current income tax liabilities
Deferred income tax liabilities
735,385
17,529,863
123,924
149,864
-
657,523
5,864,935
1,982,035
1,609,107
-
382,510
9,778,989
1,922,369
644,830
-
197,636
2,718,023
274,615
-
261,665
153,451
61,153
-
360,338
424,594
35,628
4,333
21,656
169,587
1,468
8,667
2,595,057
36,469,855
4,399,724
649,163
1,630,763
319,451
1,468
8,667
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
3,469,118
4,191,571
As at 31 December 2007
Total financial assets
19,211,391
4,698,923
6,076,251
5,633,851
2,332,043
4,001,540
41,953,999
Total financial liabilities
15,735,907
10,437,344
9,244,937
1,804,431
94,666
1,046,615
38,363,900
3,475,484
(5,738,421)
(3,168,686)
3,829,420
2,237,377
2,954,925
3,590,099
Up to1 month
1-3
months
3-12
months
1,907,155
-
6,530,008
3,199,613
As at 31 December 2008
Assets
Cash and central banks
balances
Treasury and other eligible
bills
Loans and advances to banks
Loans and advances to
customers
Trading assets
Investment securities:
– Available for sale
- Held to maturity
Investment in associate
Other assets
Total financial assets
Liabilities
Total interest repricing gap
Total interest repricing gap
The interest rate sensitivity analysis has been determined based on the exposure to
interest rate risk at the reporting date. At 31 December 2008, 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 2008 would respectively
increase/decrease by approximately MKD 25,335,000 (2007: MKD 8,869,000) and
other equity components would respectively decrease/increase by MKD 8,591,000
(2007: MKD 6,566,000).
44
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.3
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations
associated with its financial liabilities when they fall due and to replace funds when they
are withdrawn. The consequence may be the failure to meet obligations to repay
depositors and fulfil commitments to lend.
3.3.1 Liquidity risk management process




The Group’s liquidity management process, as carried out within the Group and
monitored by a team in Risk Department, includes:
Day-to-day funding, managed by monitoring future cash flows to ensure that
requirements can be met. This includes replenishment of funds as they mature or are
borrowed by customers. The Group maintains an active presence in money markets to
enable this to happen;
Maintaining a portfolio of highly marketable assets that can easily be liquidated as
protection against any unforeseen interruption to cash flow;
Monitoring balance sheet liquidity ratios against internal and regulatory requirements;
and
Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for
the next day, week and month respectively, as these are key periods for liquidity
management. The starting point for those projections is an analysis of the contractual
maturity of the financial liabilities and the expected collection date of the financial assets
(Notes 3.3.3-3.3.4).
Risk Department also monitors unmatched medium-term assets, the level type and the
usage of overdraft facilities and the impact of contingent liabilities such as standby
letters of credit and guarantees.
3.3.2 Funding approach
Sources of liquidity are regularly reviewed by a team in Risk Department to maintain a
wide diversification by currency, geography, provider, product and term.
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.
45
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Up to
1 month
1-3
months
3-12
months
1-5
years
Over 5
years
Total
Deposits from financial
Institutions
Due to customers
Other borrowed funds
1,089,486
17,825,855
79,582
658,919
5,901,141
259,018
387,316
9,839,149
2,172,265
206,753
3,114,245
1,753,560
271,466
160,927
358,140
2,613,940
36,841,317
4,622,565
Subordinated liabilities
173
-
4,160
714,094
-
718,427
319,451
1,468
8,667
21,656
-
-
757,778
-
1,603,344
-
2,382,778
319,451
1,468
8,667
19,324,682
6,840,734
12,402,890
6,546,430
2,393,877
47,508,613
18,418,745
2,498,074
11,366,311
13,789,209
4,193,380
50,265,719
564,461
15,137,463
278,115
1,142,399
5,404,970
303,767
179,137
5,452,605
3,340,218
254,473
1,553,624
4,057,668
107,852
12,504
195,805
2,248,322
27,561,166
8,175,573
293,292
5,229
29,058
2,855
-
-
-
1,065,160
-
1,068,015
293,292
5,229
29,058
16,307,618
6,853,991
8,971,960
5,865,765
1,381,321
39,380,655
17,238,392
2,727,954
8,586,500
10,394,072
3,007,081
41,953,999
As at 31 December 2008
Liabilities
Other liabilities
Current income tax
Deferred income tax liabilities
Total liabilities
(contractual maturity dates)
Total assets
(expected maturity dates)
As at 31 December 2007
Liabilities
Deposits from financial
Institutions
Due to customers
Other borrowed funds
Subordinated liabilities
Other liabilities
Current tax liabilities
Deferred tax liabilities
Total liabilities
(contractual maturity dates)
Total assets
(expected maturity dates)
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.
46
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.3.4 Off-balance sheet items
No later
than 1 year
1-5 years
Over 5
years
Total
Acceptances and other financial facilities
Limits of credit cards
3,906,773
1,151,015
985,461
1,010,925
751,191
102,638
5,643,425
2,264,578
Total
5,057,788
1,996,386
853,829
7,908,003
At 31 December 2007
Acceptances and other financial facilities
4,090,732
3,078,407
50,406
7,219,545
Total
4,090,732
3,078,407
50,406
7,219,545
At 31 December 2008
47
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.4
Fair value of financial assets and liabilities
Financial instruments not measured at fair value
The table below summarises the carrying amounts and fair values of those financial
assets and liabilities not presented on the Group’s balance sheet at their fair value.
Carrying value
2008
2007
Fair value
2008
2007
Financial assets
Loans and advances to banks
Loans and advances to customers
− Retail customers (individual)
− Large corporate customers
− SMEs
5,397,729
30,171,505
11,688,221
3,067,177
15,416,107
4,396,169
22,699,921
8,315,147
2,272,675
12,112,099
5,410,255
32,689,508
12,711,533
3,315,211
16,662,764
4,413,614
25,185,649
9,309,519
2,508,298
13,367,832
Financial liabilities
Deposits from financial institutions
Due to customers
− Retail customers
− SMEs
Other borrowed funds
Subordinated liabilities
2,595,057
36,469,855
18,081,845
18,388,010
4,399,724
1,630,763
2,146,872
27,376,943
13,199,948
14,176,995
7,727,525
786,120
2,595,057
36,469,855
18,081,845
18,388,010
4,399,724
1,630,763
2,146,872
27,376,943
13,199,948
14,176,995
7,727,525
786,120
(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.
(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 noninterest-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.
48
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
3.5
Capital management
The Group’s objectives when managing capital, which is a broader concept than the
‘equity’ on the face of balance sheets, are:
 to comply with the capital requirements set by the regulators;
 To safeguard the Group’s ability to continue as a going concern so that it can
continue to provide returns for shareholders and benefits for other stakeholders; and
 To maintain a strong capital base to support the development of its business.
Capital adequacy and the use of regulatory capital are monitored daily by the Group’s
management, employing techniques based on the guidelines developed by the Basel
Committee and the European Community Directives, as implemented by the Central
Bank of the Republic of Macedonia for supervisory purposes. The required
information is filed with Central Bank of the Republic of Macedonia on a quarterly
basis.
Central Bank of the Republic of Macedonia requires each bank or banking Group to:
(a) hold the minimum level of the regulatory capital of EUR 5,000,000 and (b)
maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’)
at or above the internationally agreed minimum of 8%.
The Group’s regulatory capital as managed by its Risk Department is divided into two
tiers:
 Tier 1 capital: share capital (net of any book values of the treasury shares),
retained earnings and reserves created by appropriations of retained earnings ;
and
 Tier 2 capital: qualifying subordinated loan capital, unrealised gains arising on the
fair valuation of equity and debt instruments held as available for sale.
The risk-weighted assets are measured by means of a hierarchy of four risk weights
classified according to the nature of − and reflecting an estimate of credit, market and
other risks associated with − each asset and counterparty, taking into account any
eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet
exposure, with some adjustments to reflect the more contingent nature of the
potential losses.
The table below summarises the composition of regulatory capital and the ratios of
the Group for the years ended 31 December. During those two years, the Group
entities complied with all of the externally imposed capital requirements to which they
are subject.
49
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
2008
2007
Tier 1 capital
Share capital (net of the treasury shares)
Statutory reserve
Retained earnings
Less intangible assets (licenses ,patents)
3,057,117
521,841
226,232
(55,879)
2,396,328
477,565
226,234
(79,840)
Total qualifying Tier 1 capital
3,749,311
3,020,287
Tier 2 capital
Subordinated liability
Revaluation reserve
1,541,386
68,641
783,265
87,368
Total qualifying Tier 2 capital
1,610,027
870,633
(95,079)
(94,687)
Total regulatory capital
5,264,259
3,796,233
Risk-weighted assets:
On-balance sheet
Off-balance sheet
32,677,722
6,108,784
23,717,092
5,719,039
Total risk-weighted assets
Basel ratio
38,786,506
13.57%
29,436,131
12.90%
Deductions from regulatory capital
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 increase of the regulatory capital in 2008 is mainly due to additional paid in capital,
and additional subordinated liability.
As a result of the changes in the local legislative during 2008 the placements in credit
cards are weighed with 125%. The increase of the risk-weighted assets is result of the
expansion of the business in retail segment and in SMEs in 2008.
50
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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 141,000,000 higher or MKD
141,000,000 lower (2007:MKD 108,000,000).
(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 4,455,000 loss in its 2008 financial
statements, being the transfer of the total fair value reserve to the income statement
(2007: 5,394,000).
(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.
51
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
5.
Net interest income
Interest income
Loans and advances:
– To banks
– To customers
Cash and short term funds
Investment securities
Interest expense
Deposits from financial institutions
Due to customers
Other borrowed funds
Dept securities in issue
6.
2008
2007
275,356
2,642,896
206,821
1,904,919
2,918,252
2,111,740
40,521
572,997
21,000
496,976
3,531,770
2,629,716
101,845
1,071,350
55,220
633,742
1,173,195
688,962
510,433
7,477
456,294
-
1,691,105
1,145,256
2008
2007
134,210
327,784
6,671
121,472
903
11,988
132,862
120,305
275,718
4,238
70,402
1,962
36,299
84,346
735,890
593,270
44,415
16,134
53,336
38,055
11,331
44,263
Net fee and commission income
Fee and commission income
Letter of credit and guarantees
Payment transaction
Trust and other fiduciary fees
Administrative service
Custody of items
Brokerage services
Other fees
Fee and commission expense
Banking service
Payment transaction
Other fees paid
113,885
93,649
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.
52
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
7.
Dividend income
Available-for-sale securities
8.
2008
2007
18,190
8,069
18,190
8,069
2008
2007
31,497
24,931
16,822
451
56,428
17,273
Net trading income
Net trading (expense)/income
Interest income from assets 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.
9.
Net foreign exchange gain
Foreign exchange gains
Foreign exchange losses
10.
2007
12,634,528
(12,499,210)
3,766,777
(3,641,047)
135,318
125,730
Net income from selling available for sale investment securities
Gains from investment securities
Losses from investment securities
11.
2008
2008
2007
23,748
(96)
794
-
23,652
794
2008
2007
5,615
4,054
3,226
26,252
6,292
663
28,610
39,147
35,565
Other operating income
Rental income
Capital gain
Actuarial benefits (Note 31)
Other
53
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
12.
Administrative expenses
Staff costs
Wages and salaries
Pension cost
Social security costs
Food allowances and transportation
Holiday allowances
Compensation benefits to the members of the
Managing Board, and management
Unused annual leaves
Other
Depreciation
13.
2007
279,928
94,954
78,728
26,211
9,741
223,074
79,442
69,067
19,720
6,907
65,988
2,189
2,240
135,188
70,908
8,991
3,828
97,821
695,167
579,758
2008
2007
256,996
105,717
20,242
-
257,371
69,563
18,663
3,716
3,750
2,104
80,015
568
118,803
13,704
57,602
588,195
470,777
2008
2007
10,096
634,394
3,386
30,362
(7,080)
4,110
392,010
2,987
56,959
-
671,158
456,066
Other operating expenses
Administration and marketing costs
Insurance premiums for deposits
Insurance premiums for assets
Actuarial benefits (Note 31)
Decrease in value of assets acquired through
foreclosure procedure
Charges under court decision
Rental expense
Capital losses
Other
14.
2008
50,158
Impairment charge for credit losses
Loans and advances to banks (Note 18)
Loans and advances to customers (Note 20)
Other assets (Note 25)
Contingencies (Note 32)
Collected written-off receivables
54
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
15.
Income tax expense
Current tax
2008
2007
66,549
76,977
66,549
76,977
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 a tax rate of 10% (2007: 12%)
Expenses not deductible for tax purposes
Income not subject to tax
Released provisions
Other
Income tax expense
2008
2007
792,074
79,207
11,458
(18,609)
(5,507)
-
667,567
80,108
13,992
(13,547)
(3,332)
(244)
66,549
76,977
The Public Revenue Office is responsible authority to make full tax control for the
year ended 31 December 2008.
The Group’s tax liabilities are based on the tax returns filed to the tax authorities and
are finalized when audited by the Central Tax Authorities, or a five year period has
elapsed from the year they are filed.
The Group's management is not aware of any circumstances, which may give rise to
a potential material liability in this respect.
16.
Cash and balances with central banks
2008
1,259,513
2007
1,601,869
1,712,334
1,443,718
Included in cash and cash equivalents (Note 37)
2,971,847
3,045,587
Mandatory reserve deposits with central banks
2,434,679
1,172,759
5,406,526
4,218,346
Cash in hand
Balances with central banks other than mandatory
reserve deposits
The Group has to provide obligatory reserve in MKD and in foreign currencies with
the National Bank of the Republic of Macedonia.
55
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The obligatory reserve in MKD in amount of MKD 1,907,155,000 as at 31 December
2008 presents 10% 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% (2007: 2%). Obligatory reserve funds are
maintained on the current account with NBRM.
The obligatory reserve in foreign currency as at 31 December 2008 presents 10% of
the average daily balances over the accounts expressed in Euros at NBRM’s middle
exchange rate ruling on the balance sheet date. The Group does not receive interest
on the obligatory reserves in foreign currency. The Group is obliged to transfer the
Euro amount of the calculated obligatory reserve to NBRM’s account with Deutsche
Bundesbank Centrale.
.
17.
Treasury bills and other eligible bills
2008
2007
Treasury bills
Government bills with maturity up to 90 days
6,279,519
447,718
6,060,092
1,696,689
Included in cash and cash equivalents ( Note 37)
6,727,237
7,756,781
-
450,057
6,727,237
8,206,838
Government bills with maturity over 90 days
Treasury bills are debt securities issued by the National bank of the Republic of
Macedonia with maturity of up to 28 days. The Group receives an effective interest
at the rates from 4.79% - 7% (2007: 4.71% - 4.86%) per annum. The total amount of
the treasury bills includes the interest in the amount of MKD 0,00 (2007: MKD
15,654,000).
Government bills are with maturity up to 90 days and over 90 days, are with effective
interest rates from 5.23 % - 7.79 % (2007: 5.19% - 8.39%) per annum. The total
amount of the government bills includes the interest in the amount of MKD 0,00
(2007: MKD 32,992,000).
56
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
18.
Loans and advances to banks
2008
2007
Placements with other banks
3,000,708
3,724,191
Included in cash and cash equivalents ( Note 37)
3,000,708
3,724,191
Placements with other banks over 90 days
Loans and advances to other banks
Less: allowance for impairment
1,402,541
1,009,919
(15,439)
677,321
(5,343)
5,397,729
4,396,169
4,027,139
1,370,590
3,883,070
513,099
Current
Non-current
Reconciliation of allowance account for losses on loans and advances to
other banks
2008
2007
Balance at 1 January
Provision for loan impairment
5,343
10,096
1,233
4,110
At 31 December
15,439
5,343
Loans and advances to banks and other financial institutions are with effective
interest rates from 3.5% to 9.5% (2007: 5.87% to 10.38%) per annum. The
placements with foreign banks are with effective interest rates of 0.1% to 9.67%
(2007: 0.47% to 5.60%) per annum, and the placements with domestic banks are
with an effective rate of 4.51% (2007: 4.88%) per annum.
As at 31 December 2008 a part of the Group’s placements with foreign banks in the
amount of MKD 45,578,000 (2007: MKD 116,463,000) represents a deposit held
with LHB Internationale Handelsbank AG Frankfurt as a collateral for the borrowings
from the same bank (Note 28).
57
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
19.
Trading assets
2008
2007
Government bills
Other government bonds
Corporate bonds
198,908
188,049
221,559
68,295
282,654
300,000
Total trading assets
608,516
650,949
Government bills held for trading are in the amount of MKD 0,00 for year ended 31
December 2008. Government bills for year ended 31 December 2007 are with maturity
up to 1 year and with an effective interest rate of 5.24% – 8.39% per annum. The total
amount of the government bills held for trading includes interest in the amount of МКD
– nil for year ended 31 December 2007.
Treasury bills held for trading are with maturity of 28 days and with effective interest
rate of 7% per annum.
Other government bonds held for trading are with maturity of 1 month and with an
effective interest rate of 2% (2007: 2%) per annum.
Corporate bonds are with maturity of 1 month and with effective interest rate of 8.4%
(2007: 8.4%) per annum.
58
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
20.
Loans and advances to customers
2008
2007
638,826
1,191,936
8,079,374
2,682,915
691,017
545,637
5,617,190
2,177,540
12,593,051
9,031,384
3,330,612
17,045,737
2,319,304
13,512,734
20,376,349
15,832,038
Gross loans and advances
Less: allowance for impairment
32,969,400
(2,797,895)
24,863,422
(2,163,501)
Net
30,171,505
22,699,921
Current
Non-current
10,732,822
19,438,683
11,061,232
11,638,689
Individual (retail customers):
 Overdrafts
 Credit cards
 Term loans
 Mortgages
Corporate entities:
 Large corporate customers
 SMEs
Loans are with effective rates from 2.6 % to 19.5 % (2007: 2.74% to 24.92%) per
annum.
Allowance for impairment
Reconciliation of allowance account for losses on loans and advances by class is as
follows:
Retail customers
Credit
Term
card
loans Mortgages
73,124
374,799
201,025
Total
716,237
(8,578)
78,897
121,695
(3,421)
188,593
58,711
152,021
496,494
197,604
904,830
Overdraft
Credit
card
Retail customers
Term
loans Mortgages
Total
Balance at 1 January 2007
Provision for loan
impairment
11,715
33,011
248,988
195,650
489,364
55,574
40,113
125,811
5,375
226,873
At 31 December 2007
67,289
73,124
374,799
201,025
716,237
At 1 January 2008
Provision for loan
impairment
At 31 December 2008
Overdraft
67,289
59
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Corporate entities
At 1 January 2008
Provision for loan impairment
Large corporate
customers
46,629
216,806
SMEs
1,400,635
228,995
Total
1,447,264
445,801
263,435
1,629,630
1,893,065
At 31 December 2008
Corporate entities
At 1 January 2007
Provision for loan impairment
Large corporate
customers
42,545
4,084
SMEs
1,239,582
161,053
Total
1,282,127
165,137
46,629
1,400,635
1,447,264
At 31 December 2007
21.
Investment securities
Securities available for sale
Debt securities – at fair value:
- Listed
- Unlisted
Equity securities – at fair value:
- Listed
- Unlisted
Total securities available for sale
Investment securities held to maturity
Total investment securities
Current
Non-current
2008
2007
1,148,273
10,078
1,285,867
-
47,495
38,653
153,274
42,382
1,244,499
1,481,523
404,652
-
1,649,151
512,085
1,137,066
1,481,523
330,430
1,151,093
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 142,669,000 (2007: МKD 212,440,000), with an interest rate of
2% (2007: 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 1,575,000 (2007: MKD
1,752,000), with an interest rate of 2% (2007: 2%) per annum. The principal amount
is paid in 10 equal annual instalments on each 1 June, starting from 1 June 2003
until 1 June 2012.

Bonds for denationalisation (02) in the amount of MKD 120,607,000 (2007: MKD
140,879,000), with an interest rate of 2% (2007: 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.
60
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)

Bonds for denationalisation (03) in the amount of MKD 175,080,000 (2007: MKD
198,838,000), with an interest rate of 2% (2007: 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 249,017,000 (2007: MKD
275,273,000), with an interest rate of 2% (2007: 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 90,608,000 (2007: MKD
79,694,000), with interest rate of 2% (2007: 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 117,379,000 (2007:MKD
115,473,000), with interest rate 2% (2007: 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 22,937,000 with interest rate
2% per annum. The principal amount is paid in 10 equal annual instalments on each
1 June, beginning from 1 June 2009 until 1 June 2018.

Continuous long-term bonds in the amount of MKD 200,000,000 (2007: MKD
244,958,000), with coupon at an interest rate 6.50% (2007: 6.50% - 9.00%) per
annum. The payment of interest is annually and principal amount is paid at the
maturity date.

Corporative bond issued by ProCredit Bank AD Skopje in amount of MKD
25,841,000 (with included premium in amount of MKD 101,371) and fix interest rate
8.4% per annum. The payment of principal amount is paid at the maturity date i.e.
26 December 2010.
Тhe total amount of the bonds on old foreign currency deposits, denationalisation and
the continuous long-term bonds includes an interest in the amount of MKD
12,636,000 (2007: МKD 16,560,000).
Terms and conditions of investment securities held to maturity are as follows:
Financial assets with maturity to and over 90 days including government bonds, are
with effective interest rates of 2 % per annum. The total amount of the government
bonds includes the interest in the amount of MKD 4,166,000.
61
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The movement in investment securities may be summarised as follows:
Investment
securities
Available for
held to
sale
maturity
Total
At 1 January 2008
Additions
Disposals (sale and redemption)
Losses from changes in fair value
1,481,523
181,122
(286,377)
(131,819)
405,535
(883)
-
1,481,523
586,657
(287,260)
(131,819)
At 31 December 2008
1,244,449
404,652
1,649,101
At 1 January 2007
Additions
Disposals (sale and redemption)
Gains from changes in fair value
1,145,280
497,232
(262,219)
101,230
-
1,145,280
497,232
(262,219)
101,230
At 31 December 2007
1,481,523
-
1,481,523
62
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
22.
Investment in associates
2008
Nov Penziski Fond
54,636
43,447
54,636
43,447
% of participation
2008
2007
Country
Nov Penziski Fond AD
- Skopje
2007
Republic of Macedonia
49%
49%
Summary financial information for equity accounted investee, not adjusted for
percentage ownership held by the Group:
Assets
Liabilities
Shareholders’
equity
2007
Nov Penziski Fond A.D. –
Skopje
99,350
10,229
89,121
84,599
5,423
Balance at 31 December
99,350
10,229
89,121
84,599
5,423
2008
Nov Penziski Fond A.D. –
Skopje
122,575
11,239
111,336
103,652
22,835
Balance at 31 December
122,575
11,239
111,336
103,652
22,835
Income
Profit /
(Loss)
63
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
23.
Property and equipment
Buildings
Furniture &
equipment
Assets in
course of
construction
Other
Total
421,193
(54,144)
376,966
(225,513)
14,966
-
10,498
(5,649)
823,623
(285,306)
Net book amount
Year ended December
2007
Opening net book amount
Additions
Transfer
Disposals
Depreciation charge
Transfer from investment
property (accumulated
depreciation)
367,049
151,453
14,966
4,849
538,317
367,049
120
66,369
14,966
5,710
-
4,849
7,517
-
(11,291)
151,453
154,216
(433)
(69,379)
-
(2,186)
538,317
167,563
66,369
(433)
(82,856)
(14,386)
-
-
-
(14,386)
Closing net book amount
407,861
235,857
20,676
10,180
674,574
At 31 December 2007
Cost
Accumulated depreciation
487,682
(79,821)
520,577
(284,720)
20,676
-
18,015
(7,835)
1,046,950
(372,376)
At 1 January 2007
Cost
Accumulated depreciation
Net book amount
Year ended December
2008
Opening net book amount
Additions
Transfer from investment
property (at cost)
Disposals
Depreciation charge
407,861
235,857
20,676
10,180
674,574
407,861
59,121
235,857
152,048
20,676
38,416
10,180
3,506
674,574
253,091
33
(12,753)
(846)
(91,251)
(8,821)
-
8,788
(4,631)
(846)
(108,635)
Closing net book amount
454,262
295,808
50,271
17,843
818,184
At 31 December 2008
Cost
Accumulated depreciation
546,836
662,590
50,271
30,309
1,290,006
(92,574)
(366,782)
Net book amount
454,262
295,808
50,271
(12,466)
(471,822)
17,843
818,184
As at 31 December 2008 the Group does not have any property pledged as
collateral (2007: nil).
64
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
24.
25.
Intangible assets
2008
2007
Opening net book amount
Balance at 1 January
Additions
103,840
55,004
78,004
25,836
Balance at 31 December
158,844
103,840
Amortisation
Balance at 1 January
Amortisation for the year
33,951
26,553
19,953
13,998
Balance at 31 December
60,504
33,951
Carrying amount at 31 December
98,340
69,889
2008
2007
99,593
39,660
120,243
(9,269)
113,609
51,417
97,663
(5,883)
250,227
256,806
204,611
45,616
201,893
54,913
Balance at 1 January
Net increase in allowance for impairment (Note 14)
5,883
3,386
2,896
2,987
Balance at 31 December
9,269
5,883
Other assets
Foreclosed assets
Pre-payments
Other
Less: allowance for impairment
Current
Non-current
Movement in allowance for impairment
Assets acquired through foreclosure procedure include apartments, equipment and
business premises which are not used by the Group for its core operations.
The market for certain types of collateral in Republic of Macedonia is in an early stage
of development. Management has made an estimate of the expected recoverable
amount net of cost to realise the assets, based on a number of factors, including
independent assessment. However, given the foregoing, actual amounts realised may
differ from the estimates made.
65
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
26.
Deposits from financial institutions
Demand deposit:
- Banks and saving houses
- Insurance companies
- Other financial institutions
Term deposits:
- Banks and savings houses
- Insurance companies
-Other financial institutions
Current
Non-current
2008
2007
380,859
154,374
95,621
314,677
60,406
84,507
839,774
179,522
944,907
1,038,510
32,274
616,498
2,595,057
2,146,872
2,135,721
459,336
1,875,502
271,370
The effective interest rates on demand deposits from banks and other financial
institutions are from 1% to 3% (2007: 1% - 1.5%) per annum, while the effective
interest rates on term deposits are from 1.4 % to 9.5% (2007: 1% - 9.5%) per annum.
27.
Due to customers
2008
2007
Public institutions:
-Current/settlement accounts
-Term deposits
577,532
588,953
6,020
217,271
Companies:
-Current/settlement accounts
-Term deposits
9,543,152
7,521,116
8,466,398
5,339,431
Retail customers:
-Current / demand accounts
-Term deposits
4,573,570
13,508,275
4,462,232
8,737,716
157,257
147,875
36,469,855
27,376,943
33,566,145
2,903,710
25,995,038
1,381,905
Restricted deposits
Companies
Current
Non-current
The effective interests rates of current accounts are from nil to 5.5% (2007: nil to 1%)
per annum, while the effective interests rate of term deposits are from 0.11% to
11.6 % (2007: 0.10% to 9.40%) per annum.
66
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
28.
Other borrowed funds
Interest rate (%)
2008
2007
236,168
323,107
4.25%-6.3%
153,680
102,270
0.5%
164,431
-
562,274
1,010,077
1,169,339
3,172,343
1,127,796
1,618,931
64,430
73,313
114,935
129,424
156,883
165,604
-
214,237
307,129
342,659
612,016
306,203
-
4,399,724
2,510,865
1,888,859
7,727,525
3,922,097
3,805,428
Domestic borrowings:
Macedonian Bank for development
Promotion
Macedonian enterprise development
foundation
Ministry of Finance (PSDL)
4-5.5%
7-8%
3 months EURIBOR+1%
3 months EURIBOR +1%
Foreign borrowings:
EIB
EIB (NBRM)
EBRD
NLB Group
ICDF Taiwan
World bank (Ministry of Finance)
International fund for agricultural
development (IFAD2, IFAD1)
Adria Bank
Reiffeisen Central Bank
Erste Bank
EIB (through Ministry of Finance)
Current
Non-current
3 months EURIBOR
+0.061-0.078%
3 months EURIBOR +
0.25%
6 months EURIBOR
3.20%
3 months EURIBOR
+0.75%
3 months EURIBOR +1.5
to 2.25%
6 months EURIBOR +1.8%
1 months CHFLIBOR +
2.25%
3 months EURIBOR +
1.50%
3 months EURLIBOR
+2.15%-2.75%
3 months CHFLIBOR +
2.25%
3 months CHFLIBOR
+3.25%
6 months USDLIBOR 0.5%
4%
6 months USDLIBOR-0.5%
6 months EURIBOR
+2.75%
6m EURIBOR
1%
3 months EURIBOR
+1.85%
3 months EURIBOR +
0.75%
3m EURIBOR +0.95%
0.44%-0.78%
67
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
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.
EBRD’s, ADRIA BANK’s and RZB’s loans are secured with a Comfort Letter by
NLB d.d. Ljubljana (the Loan from ADRIA BANK was repaid on 07 January 2008,
and the RZB’s loan was repaid on 18 December 2008).
EIB’s loan is secured with a Bank Gaurantee issued by NLB d.d. Ljubljana.
The loan granted by LHB Internationale Handelsbank AF Frankfurt in the amount
of MKD 45,578,000 (2007: МKD 116,462,000), included in loans from NLB – Group,
is with interest rate of three - month EURIBOR+0.75% and is secured with deposit
(Note 18).
Syndicated loan
On 19 December 2006 the Group has concluded a Syndicated Loan Agreement with
EBRD on EUR 55,000,000 consisting of A and B parts:
Amount in EUR
Interest rate
Repayment date
Loan A
19,000,000
6 months Euribor
+ 1.45 %
Prolonged until 19
December 2009
Loan B
36,000,000
6 months Euribor
+1.20%
3,272,727.27 EUR,
were repaid on 19
December 2007;
32,727,272.73 EUR,
were repaid on 19
December 2008
The Loan A is prolonged until 19 December 2009 and the interest rate is increased
from 1.45% to 3.2% and the principal will be repaid in two equal semi - annual
installments.
Loan from EIB
On 23 November 2006 the Group 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
Group has withdrawn amounts in more trenches on certain dates, under the
following terms:
68
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Amount in EUR
Allocation 1
2,810,000
Allocation 2
2,750,000
Allocation 3
1,500,000
Allocation 4
1,500,000
Allocation 5
1,440,000
Interest rate
Repayment date
3 months Euribor
+0.073%
3 months Euribor
+0.078%
3 months Euribor
+0.061%
3 months Euribor
+0.044%
3 months Euribor
+0.074%
8 years including 2
years of grace period
7 years including 1 year
of grace period.
5 years including 1 year
of grace period.
7 years including 1 year
of grace period.
7 years including 1 year
of grace period.
Loan from ERSTE BANK AG WIEN
On 21 May 2007 the Group has concluded a Loan Agreement with ERSTE BANK
AG WIEN on EUR 5,000,000:
Loan
Amount in EUR
Interest rate
Repayment date
5,000,000
3 months Euribor
+ 0.95 %
Two years
Loan from RZB AUSTRIA
On 18 December 2007 the Group has concluded a Loan Agreement in amount of
EUR 10,000,000:
Amount in EUR
Loan
10,000,000
Interest rate
Repayment date
3 months Euribor +
0.75 %
One year with option
to prolong it for one
year
The loan has been fully repaid on 18 December 2008.
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.
69
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
29.
Debt securities in issue
Debt securities
Debt securities
Interest rate
2008
6 month
Euribor
+1.2%
2007
-
Amount
2008
2007
649,163
-
Total
649,163
-
Current
Non-current
4,436
644,727
-
The Group issued debt securities – bonds through public offer on 17 November
2008. Issued debt securities represent non-convertible, 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 4,333,000.
30.
Subordinated liability
Subordinated loan
Current
Non-current
2008
2007
1,630,763
786,120
1,630,763
786,120
21,656
1,609,107
2,855
783,265
The Subordinated loans from NLB Interfinanz were granted with an interest rate of 3
month CHF Libor + 3.25%, and maturity of 7 years. Conversion into capital will be
determined according fulfillment of certain terms.
On 15th June 2008 the Group has concluded agreement with EFSE (European Fund
for Southeast Europe) for subordinated loan in amount of EUR 12.000.000 with
interest rate 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
Group.
70
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
31.
Other liabilities
Dividends declared and payable
Prepayment of liabilities
Suppliers payables
Compensation benefits to the members of the
Managing Board, management and employees
Long-term employee benefits
Liabilities for unused annual leaves
Received advances
Other
2008
2007
3,032
149,864
40,750
2,359
119,894
30,029
53,531
12,771
11,056
7,098
41,349
60,450
15,997
8,867
54,557
319,451
292,153
Movement in long – term employee benefits is presented below:
2008
2007
Balance 1 January
Actuarial losses (Note 11)
15,997
(3,226)
12,281
3,716
Balance at 31 December
12,771
15,997
Long-term employee benefits include jubilee awards and retirement indemnity
bonuses.
32.
Contingencies
The Group issues bank guarantees and letters of credit on behalf of its customers to
third parties. These agreements have fixed limits and are generally extended for a
period of up to three years. Expirations are not concentrated in any period.
The following table indicates the contractual amounts of the Group contingencies by
category:
2008
2007
Guarantees
- in MKD currency
- in foreign currency
Letters of credit
- in foreign currency
Limits on cheques and cards
Less: Provision for impairment
2,509,509
2,581,065
2,068,136
2,407,667
552,851
2,264,578
857,794
1,885,948
7,908,003
7,219,545
(386,658)
(356,296)
7,521,345
6,863,249
71
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
These contingent liabilities have off balance-sheet credit risk because only
origination fees and accruals for probable losses are recognized in the balance
sheet until the contingencies are fulfilled or expire. Many of the contingent liabilities
will expire without being advanced in whole or in part. Therefore, the amounts do not
represent expected future cash flows.
Movement in provisions for contingencies:
33.
2008
2007
Balance at 1 January
Net increase in impairment allowance (Note 14)
356,296
30,362
299,337
56,959
Balance at 31 December
386,658
356,296
2008
2008
29,058
(20,391)
21,257
7,801
8,667
29,058
8,667
29,058
Deferred tax liability
Balance 1 January
Recognised in equity
Balance at 31 December
Deferred tax liabilities are attributable to the following:
Deferred tax liabilities
Financial assets available-for- sale
72
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
34.
Related party transactions
According to the Bank's Articles of Association, the supreme body is the assembly of
the Bank, constituted of all the holders of the Bank's registered ordinary shares. The
overall control of the Group is with the non-executive Board of Directors ("the
Supervisory Board") who are appointed by shareholders.
The Group is controlled by Nova Ljubljanska Bank Group (“NLB”) which owns 87%
(2007: 87.6%) of the voting shares.
A number of banking transactions are entered into with related parties in the normal
course of business. These transactions were carried out on commercial terms at
market rates. The volumes of related party transactions, and outstanding balances
at the year-end, are as follows:
For the year ended on 31 December 2008:
Fellow
subsidiaries
Associate
Other related
parties
62,434
6,533
179,851
11,778
1
129
9,493
-
3,787
1,814
4,367
-
108,599
89,160,677
(89,216,120)
53,156
-
-
1,169,352
44,526,457
(43,737,844)
1,638
(1,638)
29,128
151,124
(144,651)
1,957,965
-
35,601
1,193,712
35,828,991
(35,877,867)
105,560
545,242
(463,239)
113,073
8,968,868
(8,614,470)
Balance at 31 December
1,144,836
187,563
467,471
Borrowings
Balance at 1 January
Loans issued during the year
Loans repayments during the year
2,618,993
247,488
(864,159)
-
-
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
Loans
Balance at 1 January
Loans issued during the year
Loan repayments during the year
Balance at 31 December
Deposits
Balance at 1 January
Deposits received during the year
Deposits repaid during the year
Balance at 31 December
2,002,322
73
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
For the year ended on 31 December 2007:
Income statement
Interest income
Fee and commission income
Interest expense
Fee and commission expense
Other
Balance sheet
Cash and cash equivalents
Balance at 1 January
Loans issued during the year
Loan repayments during the year
Balance at 31 December
Loans
Balance at 1 January
Loans issued during the year
Loan repayments during the year
Balance at 31 December
Deposits
Balance at 1 January
Deposits received during the year
Deposits repaid during the year
Balance at 31 December
Borrowings
Balance at 1 January
Loans issued during the year
Loans repayments during the year
Balance at 31 December
Fellow
subsidiaries
Associate
Other related
parties
54,812
205,322
6,253
19,562
-
1
2,335
64
-
1,347
1,418
296
-
37,784
86,610,545
(86,539,730)
-
-
108,599
-
-
549,930
51,233,720
(50,614,298)
525
(525)
4,265
55,759
(30,896)
1,169,352
-
29,128
1,034,631
28,702,612
(28,543,531)
31,578
267,463
(193,481)
341,165
598,252
(826,344)
1,193,712
105,560
113,073
2,700,204
1,014,368
(1,095,579)
-
-
2,618,993
-
-
74
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Transaction with key management personnel
The total compensation to the key management personnel are as follows:
Executive directors
Non-executive directors
2008
2007
41,535
2,544
43,919
2,404
44,079
46,323
All compensation to the key management are short-term employee benefit.
35.
Trust activities
Companies
Citizens
Other
2008
2007
1,156,169
386,424
117,620
863,423
82,004
525,406
1,660,213
1,470,833
The Group manages assets on behalf of third parties, which are mainly in the form of
loans to various clients. The Group receives fee income for providing these services.
Trust assets are not assets of the Group and are not recognised in the balance
sheet. The Group is not exposed to any credit risk relating to such placements, as it
does not guarantee these investments.
36.
Share capital
Number of
shares
At 1 January 2007
At 31 December 2007
- Conversion of shares
- Proceeds from shares issued
At 31 December 2008
639,866
785,621
68,440
854,061
Ordinary
shares
Share Non voting
premium
shares
643,645
968,422
735,400 1,610,707
Total
50,221
50,221
1,662,288
2,396,328
592,349
(50,221)
-
660,789
854,061 2,203,056
-
3,057,117
50,221
68,440
The authorized share capital of the Group consists of 854,061 ordinary shares
(2007: 735,400 ordinary shares and 50,221 non voting shares). Ordinary and non
voting shares have a par value of MKD 1,000 (2007: MKD 1,000). All issued shares
are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of the Group. Non
voting shares give right to priority in the dividend payment, but do not carry the right
to vote. All shares rank equally with regard to the Group’s residual assets.
75
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
The below stated shareholders have more than 5% of the Group’s issued voting
share capital:
% of voting share capital
Shareholders
LHB AG – Frankfurt
NLB Interfinanz AG – Zurich
Nova Ljubljanska banka A.D. – Ljubljana
2008
2007
26.7%
60.3%
30.8%
28.5%
28.3%
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
Groups's total voting rights of Nova Ljubljanska banka d.d. on 31 December 2008 is
87%.
Statutory reserve
Under local statutory legislation, the Group is required to set aside 15% of its net
profit for the year in a statutory reserve until the level of the reserve reaches 1/5 of
the court registered capital. Until reaching the minimum required level statutory
reserve could only be used for loss recovery. When the minimum level is reached
statutory reserve can also be used for distribution of dividends, based on a decision
of the shareholders’ meeting, but only if the amount of the dividends for the current
business year has not reached the minimum for distribution as prescribed in the
Trade Company Law or by the Group’s Statute.
Revaluation Reserve
The revaluation reserve includes the cumulative net effect of the changes in the fair
value of investments available-for-sale until the moment of their derecognition or
damaging.
Revaluation reserve available for sale securities
2008
2007
78,063
213,093
78,063
213,093
76
NLB TUTUNSKA BANKA A.D. – SKOPJE
Notes to the Consolidated financial statements for the year ended 31 December 2008
(All amounts in MKD thousands unless otherwise stated)
Movements in revaluation reserves were as follows:
Revaluation reserve for available for
securities
At 1 January
Net gains from changes in fair value
Recycled to income statement on realisation
Deferred income tax
Correction of deferred income tax
2008
2007
213,093
(131,769)
(23,652)
15,542
4,849
120,458
101,230
(794)
(12,052)
4,251
78,063
213,093
sale
At 31 December
Dividends
After the balance sheet date there no dividends were declared.
37.
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:
Cash and balances with the NBRM (Note 16)
Treasury bills (Note17)
Placements with other banks ( Note 18)
38.
2008
2007
2,971,847
6,727,237
3,000,708
3,045,587
7,756,781
3,724,191
12,699,792
14,526,559
Subsequent event
No material events subsequent to the balance sheet date have occurred which
require disclosure in the financial statements.
77