NOVA KREDITNA BANK MARIBOR D.D. - Nova KBM Group is preparing to raise additional capital and res...

| | POLISH FINANCIAL SUPERVISION AUTHORITY | | | | | | | | | | |
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| | | | | UNI - EN REPORT No | 5 | / | 2013 | | | | |
| | Date of issue: | 2013-03-08 | | | | | | | | | |
| | Short name of the issuer | | | | | | | | | | |
| | NOVA KREDITNA BANK MARIBOR D.D. | | | | | | | | | | |
| | Subject | | | | | | | | | | |
| | Nova KBM Group is preparing to raise additional capital and restructure its business | | | | | | | | | | |
| | Official market - legal basis | | | | | | | | | | |
| | Unofficial market - legal basis | | | | | | | | | | |
| | Contents of the report: | | | | | | | | | | |
| | In accordance with the provisions of the Ljubljana Stock Exchange Rules and the applicable legislation, the Management Board of Nova KBM, Maribor, hereby gives the following notice: The Supervisory Board of Nova KBM yesterday discussed the unaudited results of the Nova KBM Group for 2012. The Nova KBM Group´s pre-tax, pre-provision profit totalled just over ?91.2 million. After accounting for loan loss provisions and taxation charge, the Nova KBM Group incurred a net loss of ?205.5 million from continuing operations, according to unaudited data. The Bank´s Management Board informed the supervisors of the draft restructuring plan for the Nova KBM Group, and of the action plan to raise fresh capital. In addition, the supervisors were presented a forensic audit report on the operations of the Nova KBM Group under the previous Management Board. The Bank estimates that the rate of provisioning will decline this year, since a significant part of the loan portfolio has already been impaired. The strategic
priorities of the Management Board are to ensure an appropriate level of capital, to improve the performance of both the Bank and the Nova KBM Group, and to restructure the Nova KBM Group. In spite of the difficult economic environment, Nova KBM and its Group remain financially safe and sound institutions with strong liquidity positions. The reorganisation of the Bank is about to start, as is the creation of a detailed inventory of business processes, based on which a decision regarding further streamlining of operations will be made. Nova KBM, the parent company of the Group, reported a pre-tax, pre-provision profit of ?90.6 million for last year. The net loss from continuing operations was ?203.3 million. In the last quarter of 2012, the Group set aside record-high impairment losses of ?309.2 million, which was 76% above the figure posted a year earlier, and considerably more than projected for the full year 2012. One of the reasons for such a high level of provisions and impairment losses is that the Bank
is preparing intensively to raise fresh capital, which is expected to happen in the first half of the year. An accelerated 'cleaning' of the loan portfolio and thus an objective and realistic presentation of the financial position of the Group will help the Management Board hold impartial discussions with all stakeholders of Nova KBM. The exceptional high level of provisioning was also due to the deteriorating economic conditions, a large number of companies filing for bankruptcy in the last quarter of the year, and the revaluation of collateral. According to the latest facts and figures included in the Group´s unaudited report on operations for 2012, the Group´s total equity amounted to ?253.4 million at the end of last year. The Core Tier I capital ratios of the Group and the Bank were 7.54% and 7.59%, respectively, according to the EBA methodology. The Group´s Core Tier I capital ratio, as calculated at the end of 2012, was above the EBA´s required 9% level. Noticeable improvements were made in cost
management, as a result of the implementation of the RAST project, the aim of which is to reduce the operating costs across the entire Nova KBM Group. This project has been going on since the arrival of the new Management Board. Compared to a year earlier, the administration costs of the Bank and the Group decreased by 7.2% and 4.1%, respectively. At the end of 2012, the total number of staff working in the Nova KBM Group´s companies in Slovenia, Serbia, Croatia and Austria was 2,027, of which 1,280 were working at Nova KBM, a decline of approximately 5% year-on-year. The Group will continue to reduce the number of staff, at all hierarchical levels, first by implementing the so-called soft measures, and on the basis of the anticipated reorganisation and overhaul of business processes. All necessary efforts will be made to ensure the development of employees and to align the staffing structure with the needs and goals of both the Bank and the Group. ?We are ready to meet the future challenges. The Bank is
preparing to raise additional capital while at the same time implementing a number of systemic and organisational measures which will help boost its capital and the capital of the Group. The main aim of these measures is to make the risk management and the loan approval systems more efficient and to improve the monitoring of customers´ activities?, said Aleš Hauc, President of Nova KBM´s Management Board. Priority tasks and measures In accordance with the emerging strategy of the Bank, which is being drafted together with the restructuring plan, the priority goals of the Bank and the Group for 2013 are as follows: to achieve sound capital position; to restructure both the Bank and the Group; and to improve the efficiency of both the Bank and the Group by slimming down their organisational structures. Both the Bank and the Group will continue to restructure and optimise their loan portfolios, and will focus even more on the management of bad loans. The monitoring of customers´ activities will be improved,
while the provision of innovative and well thought-out services will remain at the centre of the Group´s business. Further steps will be taken to reduce costs and streamline operations. In spite of the changes, the Bank will continue to provide adequate working environment to its employees. Forensic audit report The Supervisory Board today also discussed the forensic audit report on the operations of Nova KBM and some of its subsidiaries under the previous Management Board. The main purpose of this audit, which was requested by the Management Board following the consent of the Supervisory Board, was to conduct a detailed review of past operations in order to detect any irregularities that may had taken place. ?The audit has identified certain irregularities in past operations of the Bank. The results of the audit were presented to the Supervisory Board. In the following days, the Management Board will submit the report to the competent authorities, and will at the same time examine all the possibilities to
take legal measures against the responsible persons with the purpose of protecting the interests of the Bank?, assured Aleš Hauc, President of Nova KBM´s Management Board. In order to respect confidentiality, the details of the alleged controversial business decisions and practices cannot be disclosed while the procedures are in progress. ?The forensic audit report is to serve as the basis for the Management Board´s decision to take all necessary legal actions to protect the interests of the Bank. We believe that the competent authorities will carry out their work in a professional manner and in compliance with legislation. The Management and the Supervisory Board will continue to provide support in this regard?, commented Peter Kukovica, Chairman of Nova KBM´s Supervisory Board, on the results of the forensic audit, adding that ?the measures that the present Management Board has taken to reduce exposure to all types of risk and to set up a risk management system that will not allow such irregularities to
happen are considered by the Supervisory Board as being appropriate?. Action plan to improve the capital position Already in 2012, the Bank took a number of measures to increase its Core Tier I capital, including a partial redemption of its outstanding hybrid instruments, the sale of its 51% shareholding in Zavarovalnica Maribor and the related decrease in capital deduction items, and raising a hybrid loan facility. Aside from these measures, the Bank has also taken several internal steps to reduce capital consumption, such as scaling-down its risk weighted assets and disposing of real estate. The implementation of all of these measures helped the Bank increase its capital by ?182 million. To ensure a sound financial position, the Bank plans to raise additional capital by the end of this June. The supervisors were today informed of the action plan to raise capital and of the activities that are already going on in this regard. In addition to a baseline scenario, the plan includes a stress scenario that takes
into account deterioration in the quality of the loan portfolio, as well as uncertainties in the economic and political environment that may have an impact on the operations of the Bank and the Group. Further details regarding the Bank´s capital raising activities will be provided in a timely fashion and in accordance with the rules governing the operations of public limited companies. Restructuring plan for the Nova KBM Group Along with the preparations to raise fresh capital, the Bank has started drafting the restructuring plan for the Nova KBM Group, which was requested by the European Commission due to the Bank obtaining a hybrid loan facility from the government at the end of last year. The draft restructuring plan was today presented to the Supervisory Board. Following the approval of the final plan, presumably at the end of March, the Bank will submit the restructuring plan to the Ministry of Finance, after which it will be forwarded to the European Commission for review and comment. The Bank has
identified core and non-core business segments of the Nova KBM Group, and has already started implementing the strategic directions with respect to the restructuring of the Nova KBM Group in order to make its operations more efficient. In December 2012, the Bank sold its 51% shareholding in Zavarovalnica Maribor. The company KBM Projekt, an ex-subsidiary of the Bank located in Croatia, filed for liquidation last October. A process has started of gradually merging similar activities carried out by both the Bank and KBM Invest, a subsidiary of the Bank focusing on real estate business. Also, the Bank´s Loan Recovery Department, which has been operating for a number of years, has undergone restructuring and has strengthened its staffing level. This notice will be publicly available on the Bank?s website (www.nkbm.si) from 8 March 2013, for at least five years. | | | | | | | | | | |
| | Annexes | | | | | | | | | | |
| | File | Description | | | | | | | | | |

REPORT
INFORMATION ABOUT THE ENTITY
SIGNATURE OF PERSONS REPRESENTING THE COMPANY

| | | NOVA KREDITNA BANKA MARIBOR D.D. | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | | (fullname of the issuer) | | | | | |
| | | NOVA KREDITNA BANK MARIBOR D.D. | | Banki (ban) | | | |
| | | (short name of the issuer) | | (sector according to clasification of the WSE in Warsow) | | | |
| | | 2505 | | Maribor | | | |
| | | (post code) | | (city) | | | |
| | | Vita Kraigherja | | 4 | | | |
| | | (street) | | (number) | | | |
| | | +386 2 229 22 90 | | +386 2 229 43 33 | | | |
| | | (phone number) | | | (fax) | | |
| | | (e-mail) | | | (web site) | | |
| | | SI94314527 | | 586058000 | | | |
| | | (NIP)
| | | (REGON) | | |

REPORT
INFORMATION ABOUT THE ENTITY
SIGNATURE OF PERSONS REPRESENTING THE COMPANY

REPORT
INFORMATION ABOUT THE ENTITY
SIGNATURE OF PERSONS REPRESENTING THE COMPANY