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PROSPECTUS 18 JANUARY 2007

€120,000,000 Floating Rate Perpetual Loan Participation Notes with interest rate step-up in 2017 issued by, but without A13.4.1 A13.4.5 recourse to, Afinance B.V. for the sole purpose of funding a subordinated loan by VTB Bank Europe plc to A13.4.8 Abanka Vipa d.d. (incorporated in Slovenia) Issue Price: 100 per cent. Afinance B.V., a company incorporated in the Netherlands (the “Issuer”), is issuing an aggregate principal amount of €120,000,000 Floating Rate Perpetual Loan Participation Notes with an interest rate step-up in 2017 (the “Notes”) for the sole purpose of funding a 100 per cent. participation by the Issuer (the “Sub-Participation”) in a €120,000,000 subordinated loan (the “Subordinated Loan”) to Abanka Vipa d.d. (“Abanka” or the “Bank”) by VTB Bank Europe plc (the “Lender” or “VTB”) pursuant to a sub-participation agreement dated 18 January 2007 (the “Sub-Participation Agreement”) between the Issuer and the Lender. Pursuant to the Sub-Participation Agreement, the Lender will use the proceeds of the Sub-Participation for the sole purpose of financing the Subordinated Loan which will be made under an agreement dated 18 January 2007 (the “Subordinated Loan Agreement”) between the Lender and Abanka as borrower. The Notes will be issued on 23 January 2007 (the “Closing Date”) and be constituted by a trust deed dated on or about the Closing Date (the “Trust Deed”) between the Issuer, the Lender and Deutsche Trustee Company Limited as trustee (the “Trustee”). Subject as provided in the Trust Deed, (i) the Lender will charge to the Issuer, by way of first fixed charge as security for its payment obligations under the Sub-Participation Agreement, its rights and interests as lender under the Subordinated Loan Agreement (including all sums due to the Lender thereunder, other than in respect of certain reserved rights) (all security granted by the Lender to the Issuer being referred to herein as the “Lender Security”); and (ii) the Issuer will charge to the Trustee, for the benefit of the Noteholders, by way of first fixed charge as security for its payment obligations in respect of the Notes, (a) its rights and interests under the Lender Security and (b) its rights and interests as participant under the Sub- Participation Agreement (including all sums due to the Issuer thereunder). In addition, (x) the Lender will assign its administrative rights under the Subordinated Loan Agreement to the Issuer, and (y) the Issuer will assign those rights, together with its own administrative rights under the Sub- Participation Agreement, to the Trustee. See “Terms and Conditions of the Notes” and the Trust Deed for further details. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Sub- A13.4.13 Participation Agreement or the Lender Security. The Issuer will have no other financial obligation under the Notes. Accordingly, Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the credit and financial standing of Abanka in respect of the financial servicing of the Notes. To the extent payable as described herein, interest shall accrue during the period from and including the Closing Date to but excluding 3 February 2017 (the “Reset Date”) at a floating rate equal to the sum of three month EURIBOR and 1.90 per cent. per annum, save that the first payment of interest will be made on 3 May 2007 in respect of the period from (and including) the Closing Date to (but excluding) 3 May 2007. If the Subordinated Loan has not been prepaid or the Notes have not otherwise been redeemed on or prior to the Reset Date, interest (to the extent payable as described herein) shall accrue at a floating rate equal to the sum of three month EURIBOR and 2.85 per cent. per annum from and including the Reset Date. Interest shall be payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2007. Except as set forth herein (see “Taxation”), payments in respect of the Notes will be made without any deduction or withholding for or on account of taxes of The Netherlands, except as required by law. In that event, the Issuer will only be required to pay additional amounts to the extent that it receives corresponding amounts under the Sub-Participation Agreement. Payments under the Sub-Participation Agreement shall be made without any deduction or withholding for or on account of taxes of the United Kingdom, except as required by law. In that event, VTB will only be required to pay additional amounts to the extent that it receives corresponding amounts under the Subordinated Loan Agreement. Payments under the Subordinated Loan Agreement will be made without any deduction or withholding for or on account of taxes in Slovenia, except as required by law, in which event Abanka will be obliged to increase the amounts payable under the Subordinated Loan Agreement. The Subordinated Loan is intended to qualify as an innovative instrument (“Innovative Tier 1 Capital”) forming part of Abanka’s core capital (“temeljni kapital”) under regulations of Banka Slovenije (the “Bank of Slovenia”). Under the terms of the Subordinated Loan Agreement, Abanka will have the right to prepay the Subordinated Loan in whole but not in part, subject to the consent of the Bank of Slovenia, on the business day following 3 February 2017 (the “First Optional Prepayment Date”) or on 3 February, 3 May, 3 August or 3 November in any year thereafter (each an “Optional Prepayment Date”). In addition, Abanka may at any time after 3 February 2012 and prior to the First Optional Prepayment Date, in each case subject to Bank of Slovenia consent, prepay the Subordinated Loan, in whole but not in part, upon Abanka being required to increase the amount payable or to pay additional amounts on account of taxes payable, in The Netherlands, the United Kingdom or Slovenia in respect of the Subordinated Loan, if Abanka must pay additional amounts in respect of withholding or tax payable under the Sub-Participation Agreement or the Notes, if Abanka cannot obtain a tax deduction for interest payable under the Subordinated Loan or if Abanka must pay amounts in respect of certain other increased costs of the Lender. If it becomes illegal for Abanka or the Lender to allow the Subordinated Loan or the Issuer to allow the Notes to remain outstanding, the Lender shall, following a period of consultation, assign or transfer the Subordinated Loan Agreement (subject to certain conditions). If, after 3 February 2012, such assignment has not occurred within 30 days, Abanka shall, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part. In each case, the Subordinated Loan shall be repaid at its principal amount together with any accrued and unpaid interest and, accordingly, the Sub-Participation and the Notes shall also become due and payable as described herein. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS”. The Notes, the Sub-Participation and the Subordinated Loan have not been and will not be registered under the U.S. Securities Act of 1933 (the “Securities Act”). The Notes are being offered outside the United States of America by the Managers (as defined under “Subscription and Sale”) in accordance with Regulation S under the Securities Act, and may not be offered or sold within the United States or to or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

Application has been made to the Commission de Surveillance du Secteur Financier (the “CSSF”), in its capacity as competent authority under the A13.5.1 Luxembourg Act dated 10 July 2005 relating to prospectuses for securities, for the approval of this Prospectus for the purposes of Directive 2003/71/EC (the “Prospectus Directive”). Application has also been made to the Luxembourg Stock Exchange for the Notes to be admitted to trading on the Luxembourg Stock Exchange’s regulated market and to be listed on the Luxembourg Stock Exchange. References in this Prospectus to the Notes being “listed” (and all related references) shall mean that the Notes have been “listed” on the Luxembourg Stock Exchange and admitted to trading on the Luxembourg Stock Exchange’s regulated market. The Luxembourg Stock Exchange’s regulated market is a regulated market for the purposes of the Investment Services Directive 93/22/EEC. The Notes will be issued in registered form in the denomination of €50,000 and integral multiples of €1,000 in excess thereof. The Notes will be represented by a global registered note certificate (the “Global Note Certificate”) registered in the name of BT Globenet Nominees Limited as nominee for Deutsche Bank AG, London Branch as common depositary for Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) on or about the Closing Date. Individual note certificates (“Individual Note Certificates”) evidencing holdings of Notes will be available only in certain limited circumstances described under “Summary of the Provisions Relating to the Notes in Global Form”.

Sole Bookrunner UBS Investment Bank Joint Lead Managers UBS Investment Bank VTB Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:02 pm – mac7 – 3585 Intro : 3585 Intro

Table of Contents

Risk Factors ...... 1 Important Information ...... 8 Forward-Looking Statements ...... 10 Presentation of Financial and Other Information ...... 11 Overview of Abanka and the Offering ...... 13 Description of the Transaction ...... 20 Use of Proceeds...... 22 Exchange Rates and Exchange Controls...... 23 Capitalisation ...... 24 Selected Financial Information ...... 25 Selected Financial Ratios ...... 27 Business ...... 28 Management...... 53 Related Party Transactions ...... 56 Principal Shareholders ...... 57 The Issuer ...... 58 The Lender ...... 60 The Subordinated Loan Agreement ...... 61 Terms and Conditions of the Notes ...... 89 Summary of the Provisions Relating to the Notes in Global Form ...... 106 The Banking Sector and Banking Regulation in Slovenia ...... 108 Taxation ...... 111 Subscription and Sale ...... 115 General Information ...... 118 Index to Financial Statements...... F-1

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Risk Factors A9.3.1 A13.2 Prospective investors should consider carefully, among other things, the risks set forth below and the other information contained in this Prospectus prior to making any investment decision with respect to the Notes. In a number of situations, which Abanka cannot always control, these risks may come to pass and may have a negative effect on Abanka’s ability to service payment obligations under the Subordinated Loan Agreement in which case the Lender would be unable to make payments to the Issuer under the Sub- Participation Agreement and the Issuer would be unable to pay interest or principal on the Notes. In addition, the value of the Notes could decline due to any of these risks, and you may lose some or all of your investment.

Prospective investors should note that the risks described below are not the only risks Abanka faces or which may otherwise be relevant to an investment in the Notes. Abanka has described only the risks it considers to be material. However, there may be additional risks that Abanka currently considers immaterial or of which it is not currently aware, and any of these risks could have the effect set forth above.

RISKS RELATING TO ABANKA AND ITS ABILITY TO FULFIL ITS OBLIGATIONS UNDER THE SUBORDINATED LOAN

Risks concerning competition are inherent in the Bank’s business

The market within which the Bank operates is highly competitive with several factors affecting the Bank’s ability to compete, including price, product, service, distribution and name recognition. The Bank competes with a number of other credit institutions, including domestic and foreign banks. Some of these institutions may offer a broader array of products, have more competitive pricing and have greater financial resources with which to compete. On 1 May 2004, Slovenia became a member of the European Union. Although Slovenia’s membership of the European Union may improve the Bank’s operating environment, it has intensified an already competitive market, in particular with foreign banks offering competitive pricing to gain market share. Increasing competition may have a negative effect on the Bank’s results if the Bank is unable to match the products and services of its competitors.

Risks concerning general economic conditions and other business conditions

The Bank’s results are influenced by general economic and other business conditions. If there is a slowdown in the Slovenian and/or European economies, this may have an adverse effect on the Bank’s business.

Risks concerning the introduction of the euro on 1 January 2007

The introduction of the euro on 1 January 2007 will substantially restrict the independent monetary policies and decisions of the Bank of Slovenia, since it will thereafter be unable to influence currency exchange rates. This could negatively affect Slovenia’s international competitiveness. Furthermore, the introduction of the euro will expose the Slovene economy to the EU economic cycle, which will be reflected in the euro exchange rate. As a result of the introduction of the euro, and in common with the experience of banks located in countries which have previously adopted the euro, Abanka expects a decline in revenues from certain foreign exchange and payment services. Abanka will seek to compensate any such decline with other sources of fee income. However, there can be no assurance that any additional fee income will be generated, or, if generated, that such additional fee income will fully compensate the expected loss of revenues as a result of the introduction of the euro.

Risks concerning borrower credit quality and non-performing loans

Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the Bank’s business. Adverse changes in the credit quality of the Bank’s borrowers and other counterparties could reduce the recoverability and value of the Bank’s assets and could result in credit losses for the Bank.

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RISK FACTORS

Abanka’s strategy involves further expansion into the retail and small and medium-sized enterprises (“SME”) sectors in Slovenia. Management of Abanka considers these sectors to have good growth prospects and the potential to realise higher interest rate margins. However, there is no centralised register for defaulted borrowers in Slovenia, which may negatively affect the asset quality of Abanka’s retail and SME portfolios.

The concentration of Abanka’s top 10 largest borrowers, measured as a percentage of its capital base, complies with regulatory limits. However, Abanka’s largest such exposure to a single borrower was 23.6 per cent. of its capital base as at 31 December 2005, close to the maximum permitted exposure to a single borrower or group of borrowers of 25 per cent. This and other large exposures to its borrowers may increase Abanka’s potential credit losses in case of default of such borrowers when compared to financial institutions with lower concentration levels.

The long-term strategy of Abanka envisages expansion into south-eastern Europe, primarily into the countries of the former Yugoslavia. In light of the economic, business and legal environment in this region and the quality of the available data necessary for prudent risk management and operational practices in the respective countries, there can be no assurance that such expansion through cross-border direct lending and other services could not give rise to increased risk, both operationally and in terms of increasing the percentage of non-performing loans in Abanka’s portfolio.

Risks associated with fluctuations in interest rates and other market factors are inherent in the Bank’s business

Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised by Abanka between its lending and borrowing costs.

The composition of the Bank’s assets and liabilities and the associated market risks may change over time. As at 31 December 2005, 84.2 per cent. of Abanka’s liabilities were short term in nature. This has resulted in a certain degree of structural asset and liability mismatches. However, a relatively large portion of assets (72.6 per cent. as at 31 December 2005) was also short term in nature. The main structural asset and liability mismatch arises from sight and short term deposits, which represented 63.6 per cent. of all Abanka’s liabilities as at 31 December 2005. Management of Abanka believes that the majority of these deposits represent core and stable funding from relatively non-price sensitive customers. Nevertheless, this structural mismatch does render Abanka’s balance sheet susceptible to a certain degree of interest rate risk.

The composition of the Bank’s assets and liabilities, and any related basis risk, can cause Abanka’s reported income to vary with changes in interest rates and there can be no assurance that efforts by the Bank to manage such risks will be entirely successful and any failure to do so may therefore adversely affect the financial performance of the Bank.

The Bank’s business is subject to substantial legal, regulatory and governmental requirements and oversight

The Bank is subject to extensive regulation and supervision by the Bank of Slovenia. The Bank is also exposed to changes in government policy, legislation or regulatory interpretation applying to the financial services industry in the markets in which it operates. There can be no assurance that changes to such legal and regulatory environments will not adversely affect the Bank’s business, legal form, products and services offered or the value of its assets.

Introduction of Capital Requirements Directive

The Bank has undertaken a project to comply with the new Slovene banking regulation, the Banking Act – 1 (published in the Official Gazette of the Republic of Slovenia No. 131/2006) brought into force on 1 January 2007, implementing Directive 2006/48/EC and Directive 2006/49/EC, collectively referred to as the new Capital Requirements Directive (Basel II). In accordance with paragraph 1 of Article 405 of the Banking Act – 1, the Bank will exercise the discretion to calculate capital requirements for credit risk under the new rules from 1 January 2008 onwards. The Bank has elected to adopt the standardised approach for

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RISK FACTORS calculating capital requirements for credit risk and has elected to adopt the basic indicator approach for calculating capital requirements for operational risk. Currently the Bank is assessing the likely level of change to its capital requirement that compliance with the new capital requirements will entail. However, it is not possible to provide any quantification of such change, if any, as at the date of this Prospectus, given that the effect of the Capital Requirements Directive will only be able to be measured in light of circumstances prevailing at the time of its implementation. Accordingly, although current projections indicate that the directive may only have a marginal negative impact on the Bank’s capital position, there can be no assurance that this will in fact be the case or that any failure by the Bank to address the new capital requirements adequately would not have an adverse effect on the Bank’s business.

Systemic risk could adversely affect the Bank’s business

The credit environment can be adversely affected by instances of fraud and default. Concerns about, or a default by, any financial institution could lead to liquidity problems or losses or defaults by other financial institutions, as the commercial soundness of many financial institutions are closely related as a result of credit, trading, clearing or other relationships between them. This risk is often described as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which the Bank interacts on a daily basis, and could thereby adversely effect the Bank.

Operational risks are inherent in the Bank’s business

The Bank’s business depends on the ability to process a large number of transactions efficiently and accurately. Although the Bank believes its processes and systems are sound, there can be no assurance that losses would not result from inadequate or failed internal control processes and systems, human error, fraud or external events that interrupt normal business operations.

In particular, Abanka is currently in the process of implementing a business continuity plan and other security measures to reduce its operational risks related to the use of information technology in its operations (see “Business – Technology” for further details). However, notwithstanding the measures implemented, any failure in the Bank’s IT systems could have a material adverse impact on its business and financial performance.

Significant influence may be exerted over the Bank by Zavarovalnica Triglav and other large shareholders in the Bank

The ten largest shareholders in the Bank together owned approximately 73.7 per cent. of the Bank’s share capital as at 3 January 2007. Zavarovalnica Triglav, d.d. (“Zavarovalnica Triglav”), Slovenia’s largest insurance company, is the Bank’s single largest shareholder, with a directly held stake of approximately 21.3 per cent. as at 3 January 2007 and, when taken together with shareholders affiliated with it, a total interest in the Bank of approximately 33.0 per cent. as at that date. Zavarovalnica Triglav and Abanka may qualify as a financial conglomerate pursuant to the Financial Conglomerate Act, implementing Directive 2002/87/EC. Financial conglomerates are subject to supplementary supervision by the competent authorities in Slovenia, in particular in relation to their solvency and capital adequacy position, risk concentrations and inter-group transactions. Zavarovalnica Triglav, as the entity at the head of the conglomerate, would be the subject of such supplementary supervision at the level of the conglomerate. However, given that some of the relevant rules have not yet been promulgated, the effect thereof on Abanka cannot be determined as at the date of this Prospectus. However, no decision by the competent authority on identification of Zavarovalnica Triglav and Abanka as a financial conglomerate has been issued yet. Zavarovalnica Triglav and certain shareholders affiliated with it have also entered into a shareholders’ agreement governing their shareholdings in the Bank, although the terms of such agreement have not been made available to the Bank. Together, the shareholders party to the shareholders’ agreement are believed to own 52.5 per cent. in aggregate of the Bank’s share capital. See “Principal Shareholders” for further details.

As a result of the shareholdings and shareholders’ agreement described above, Zavarovalnica Triglav and other shareholders affiliated with it may exert significant influence over the Bank and its strategy.

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RISK FACTORS

Furthermore, three members of the Bank’s supervisory board were proposed by Zavarovalnica Triglav and subsequently elected by the general meeting of shareholders, thereby increasing its ability to influence the Bank and its strategy.

Any failure by management to implement the Bank’s strategy may adversely affect the Bank

The Bank’s current management board was appointed in 2005 after the resignation of the previous members of the management board. The new management board has agreed a long-term strategy for the Bank, involving expansion into both the retail and SME sectors in Slovenia and expansion into south-eastern Europe. There can be no assurance that the new management board will be successful in implementing the Bank’s strategy, and any failure to do so may adversely affect the Bank, its financial condition and results of operations.

RISKS RELATING TO THE NOTES AND THE SUBORDINATED LOAN

Your right to receive payment on the Notes will be limited to payments received by the Issuer under the Sub-Participation Agreement and the Lender under the Subordinated Loan Agreement

The Issuer is only obliged to make payments under the Notes to Noteholders in an amount equivalent to sums of principal, interest and/or additional amounts, if any, actually received by or for the account of the Issuer from the Lender under the Sub-Participation Agreement and, in turn, the Lender is only obliged to make payments under the Sub-Participation Agreement to the Issuer in an amount equivalent to sums of principal, interest and/or Additional Amounts (as defined in the Subordinated Loan Agreement), if any, actually received by or for the account of the Lender under the Subordinated Loan Agreement. Consequently, if Abanka fails to meet its obligations under the Subordinated Loan Agreement in full and/or the Lender fails to meet its obligations under the Sub-Participation Agreement in full, you will receive less than the scheduled amount of principal, interest and/or additional amounts (if any) on the relevant due date.

Additional credit risk

Upon the Lender paying amounts due under the Sub-Participation Agreement into the Issuer Account (as defined in the Trust Deed), the Lender’s obligation to make payment under the Sub-Participation Agreement will be discharged pro tanto. As a result, Noteholders will be taking additional credit risk on the Lender (when payment has been made by the Bank under the Subordinated Loan Agreement into the Lender Account (as defined in the Subordinated Loan Agreement) but not yet paid by the Lender into the Issuer Account) and on the Issuer and Deutsche Bank AG, London Branch while such funds are held (and not disbursed) in the Issuer Account. While the payment into the Issuer Account will not discharge the Issuer’s payment obligations under the Notes, in the event that Deutsche Bank AG, London Branch were to become insolvent while such funds were in the Issuer Account, Noteholders would only be able to look to the Issuer for payments due under the Notes and the Issuer may not have sufficient assets to be able to meet its payment obligations under the Notes, given that the payment obligations of the Bank under the Subordinated Loan Agreement and of the Lender under the Sub-Participation Agreement shall have been discharged upon payment by them of amounts due thereunder into the respective accounts referred to above.

As a Noteholder, you have no direct recourse to the Bank

Except as otherwise disclosed under “Terms and Conditions of the Notes” and in the Trust Deed, no proprietary or other direct interest in the Lender’s rights under or in respect of the Subordinated Loan Agreement or the Subordinated Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions of the Subordinated Loan Agreement or have direct recourse to the Bank, except through action by the Trustee under the Note Security (as defined in the Trust Deed). Neither the Issuer nor the Trustee (under the Note Security) shall be required to enter into proceedings to enforce payment under the Subordinated Loan Agreement unless it has been indemnified and/or secured by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may

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RISK FACTORS be incurred by it in connection therewith. Payments of principal and/or interest by the Bank under the Subordinated Loan Agreement to, or to the order of, the Lender will satisfy the Lender’s obligations in respect of the Sub-Participation Agreement and, in turn, payments of principal and/or interest by the Lender under the Sub-Participation Agreement to, or to the order of, the Issuer will satisfy the Issuer’s obligations in respect of the Notes.

Consequently, other than as specified, Noteholders will have no further recourse against the Issuer, the Lender or the Bank after such payments are made.

The claims of Noteholders may be limited in the event that Abanka is declared bankrupt

As mentioned under the previous paragraphs, you have no direct recourse against the Bank except as provided in the Trust Deed. In accordance with the Bank of Slovenia’s capital adequacy regulations, the sole remedy against the Bank available to the Lender (or, pursuant to the Note Security, the Trustee), for recovery of amounts owing in respect of the Subordinated Loan will be the institution of proceedings for the winding-up in Slovenia of the Bank and/or proving in the winding-up of the Bank.

The Bank’s payment obligations under the Subordinated Loan are subordinated to the claims of unsubordinated creditors

The Bank’s obligations under the Subordinated Loan Agreement will be unsecured and subordinated and will rank junior in priority to the claims of all holders of Senior Debt (as defined in the Subordinated Loan Agreement), pari passu among themselves and with Parity Securities (as defined in the Subordinated Loan Agreement) and senior in priority only to Junior Securities (as defined in the Subordinated Loan Agreement). There is therefore a real risk that an investor in the Notes (payments on which being dependent, among other things, on payments by the Bank under the Subordinated Loan Agreement) will lose all or some of their investment should Abanka become insolvent.

Perpetual Loan Participation Notes

The Notes are perpetual securities in respect of which there is no fixed redemption date. The Issuer is under no obligation to redeem the Notes (save in the limited circumstances referred to in “Terms and Conditions of the Notes — Condition 6.2 (Mandatory Redemption)” herein) and the Noteholders will have no right to redeem the Notes at any time. Furthermore, the Subordinated Loan Agreement has no maturity date and there is no obligation on the Bank to repay the Subordinated Loan at any time (except for certain limited circumstances relating to Illegality). In addition, any prepayment of the Subordinated Loan (following which the Notes will also be redeemed, as described herein), whether at the option of the Bank or otherwise, is subject to the prior consent of the Bank of Slovenia.

The Bank will have the discretion, and in some cases, the obligation, to cancel payments of interest under the Subordinated Loan Agreement

The Bank may elect to cancel payments of interest under the Subordinated Loan Agreement and, in certain circumstances, the Bank will be obliged to do so, as more particularly described in the Subordinated Loan Agreement. If interest payments to Noteholders are cancelled, during a period of up to 12 months following such cancellation (which in some cases may be a period of substantially less than 12 months), the Bank will not, inter alia, be permitted to declare or pay dividends or other payments on any of its Parity Securities or Junior Securities and it will procure that its Subsidiaries will not declare or pay dividends or other payments on any securities benefiting from any guarantee or support in the form of Parity Securities or Junior Securities (the “Dividend/Capital Stopper”). However, the Dividend/Capital Stopper is subject to exceptions, namely certain mandatory provisions of Slovene company law which have the effect that (i) the Bank cannot defer payment of a dividend to its shareholders if the shareholders vote against such proposal and (ii) the Bank may be obliged to pay a mandatory dividend to its shareholders if certain financial conditions are met; any resolution by the Bank to defer or cancel such dividend payment is therefore likely to be unenforceable. Prospective investors in the Notes are therefore advised to consider the benefit to them

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RISK FACTORS of the Dividend/Capital Stopper, and its effect on the Bank following any cancellation of interest by the Bank, accordingly.

The Bank will have the ability to incur more debt and this could increase the risks described above

As a deposit-taking institution, the Bank intends to incur liabilities to depositors that will be senior to the Subordinated Loan Agreement. In addition, there is no restriction on the amount of loan agreements which the Bank may enter into or securities which the Bank may issue or other indebtedness which the Bank may incur, and which in each case may rank senior to, or pari passu with, its obligations under the Subordinated Loan Agreement. If new liability is added to the Bank’s current liability levels, the magnitude of the related risks described above could increase, and the foregoing factors could have an adverse effect on the Bank’s ability to pay amounts due in respect of the Subordinated Loan Agreement and may increase the likelihood of a cancellation of interest under the Subordinated Loan. This may also reduce the amount recoverable by the Noteholders on a winding-up of the Bank. As at 30 June 2006, the Bank had SIT 627,424,508 thousand (€2,618,322 thousand) of indebtedness which would rank senior to its obligations under the Subordinated Loan Agreement, and, as described above, such amount is likely to increase.

The Bank may be unable to repay the Subordinated Loan

The Bank may not have the funds to fulfil its obligations under the Subordinated Loan and it may not be able to arrange for additional financing. If it is obliged to, or it wishes to repay the Subordinated Loan at a time when other arrangements prohibit it from doing so, it would try to obtain waivers of such prohibitions from the lenders under those arrangements, or it could attempt to refinance the borrowings that contain the restrictions. If it could not obtain the waivers or refinance these borrowings, it would be unable to repay the Subordinated Loan. In most cases, repayment of the Subordinated Loan is also subject to the Bank obtaining the prior consent of the Bank of Slovenia. There can be no guarantee that the consent of the Bank of Slovenia will be forthcoming.

Redemption Risk

Upon the occurrence of certain specified tax and regulatory events, the Subordinated Loan may, subject to the prior consent of the Bank of Slovenia, be redeemed (and shall be so redeemed in certain circumstances relating to Illegality) at its principal amount plus accrued and unpaid interest to the date fixed for redemption, all as more fully set out in the Subordinated Loan Agreement. Provided that the Sub- Participation is also repaid in accordance with the terms of the Sub-Participation Agreement, the Issuer would be obliged to redeem the Notes as set out in “Terms and Conditions of the Notes — Condition 6 (Redemption)”. There is a risk that upon any such redemption, Noteholders may not be able to reinvest the redemption proceeds at an effective interest rate as at or above the interest rate under the Notes, and they may only be able to do so at a significantly lower rate, if at all.

An active trading market may not develop for the Notes

Although an application has been made to list the Notes on the Luxembourg Stock Exchange, none of the Issuer, the Lender and the Bank can assure you that an active trading market for the Notes will develop. The extent to which investor interest will lead to the development of an active trading market or how liquid that market might become (if at all) is unknown, nor can any assurances regarding the ability of Noteholders to sell their Notes, or the price at which the Notes might be sold, be given. As a result, the market price of the Notes could be adversely affected.

The market price of the Notes may be volatile

The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the Bank’s and its competitors’ operating results, adverse business developments, changes to the regulatory environment in which the Bank operates, changes in financial estimates by securities analysts, changes to the credit ratings given to the Bank, the Notes and/or Slovenia and the actual or expected sale of a large number of Notes, as well as other factors.

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RISK FACTORS

RISKS RELATED TO TAXATION OF THE NOTES

Interest payments on the Subordinated Loan may be subject to withholding tax or other taxes

Based on the professional advice it has received, Abanka believes that interest payments to the Lender under the Subordinated Loan will not be subject to withholding tax or other such deductions imposed in Slovenia. However, if the exemption from withholding tax which currently applies to payments under a loan by the Bank to a qualifying bank (such as the Lender) were no longer to be available to the Bank, Slovenian withholding tax at a rate of 25 per cent. would apply, unless another exemption or reduced rate can be applied in reliance on an applicable double taxation treaty. There can be no assurance that such an exemption will be available, in which case Abanka will be required to deduct such amounts on account of tax as are then required and to “gross up” its payments under the Subordinated Loan Agreement to the extent described therein. Any such requirement to “gross up” its payments under the Subordinated Loan Agreement will increase the cost to the Bank of the Subordinated Loan accordingly.

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Important Information

Abanka accepts responsibility for the information contained in this prospectus (the “Prospectus”), except A9.1.1 for the Issuer Information and the Lender Information (each as defined below). To the best of the knowledge A9.1.2 and belief of Abanka (having taken all reasonable care to ensure that such is the case), the information A13.1.1 contained in this Prospectus (except for the Issuer Information and the Lender Information) is in accordance A13.1.2 with the facts and does not omit anything likely to affect the import of such information.

The Issuer accepts responsibility for the information in this Prospectus only with respect to itself (the “Issuer A13.1.1 Information”). To the best of the knowledge and belief of the Issuer (having taken all reasonable care to A13.1.2 ensure that such is the case), such Issuer Information is in accordance with the facts and does not omit A9.1.1 anything likely to affect the import of such information. A9.1.2

The Lender accepts responsibility for the information in this Prospectus only with respect to itself, save for the statement at paragraph 9 of “General Information” to the extent such statement relates to the laws of Slovenia (the “Lender Information”). To the best of the knowledge and belief of the Lender (having taken all reasonable care to ensure that such is the case), such Lender Information is in accordance with the facts and does not omit anything likely to affect the import of such information.

Abanka has derived substantially all of the information contained in this Prospectus concerning the A13.7.4 Slovenian banking market and its competitors, which may include estimates or approximations, from A9.13.2 publicly available information, including press releases and filings made under various securities laws. Abanka accepts responsibility for correctly copying such information from its sources and confirms that such information has been correctly copied from its sources. However, Abanka has relied on the accuracy of such information without carrying out an independent verification. In addition, some of the information contained in this Prospectus has been derived from official data published by the Bank of Slovenia; Abanka does not accept responsibility for the accuracy of such information.

Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of Abanka or the Issuer since the date of this Prospectus.

This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Managers, the Issuer, the Lender or Abanka to subscribe for, or purchase, any Notes. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Lender, Abanka and the Managers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Prospectus, see “Subscription and Sale”.

No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of Abanka, the Issuer, the Lender, the Trustee or the Managers. The delivery of this Prospectus at any time does not imply that the information contained in it is correct as at any time subsequent to its date. Without limitation to the generality of the foregoing, the contents of Abanka’s website do not form any part of this Prospectus.

IN CONNECTION WITH THE ISSUE OF THE NOTES, UBS LIMITED (OR PERSONS ACTING ON ITS BEHALF) MAY OVER-ALLOT NOTES (PROVIDED THAT THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ALLOTTED DOES NOT EXCEED 105.0 PER CENT. OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES) OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT UBS LIMITED (OR PERSONS ACTING ON ITS BEHALF) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS

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IMPORTANT INFORMATION

AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF ALLOTMENT OF THE NOTES.

NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE MANAGERS OR THE TRUSTEE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS PROSPECTUS, AND NOTHING CONTAINED IN THIS PROSPECTUS IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE. NONE OF THE MANAGERS OR THE TRUSTEE ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS PROSPECTUS. EACH PERSON CONTEMPLATING MAKING AN INVESTMENT IN THE NOTES MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE OBLIGATIONS OF THE ISSUER AND THE LENDER DESCRIBED HEREIN AND OF THE CREDITWORTHINESS OF ABANKA, AS WELL AS ITS OWN DETERMINATION OF THE SUITABILITY OF ANY SUCH INVESTMENT, WITH PARTICULAR REFERENCE TO ITS OWN INVESTMENT OBJECTIVES AND EXPERIENCE, AND ANY OTHER FACTORS THAT MAY BE RELEVANT TO IT IN CONNECTION WITH SUCH INVESTMENT.

The Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason or to sell less than the aggregate principal amount of the Notes offered hereby. Distribution of this Prospectus to any person other than the intended recipient is unauthorised. Each prospective purchaser of the Notes, by accepting delivery of this document, agrees to the foregoing.

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Forward-Looking Statements

Some statements in this Prospectus, as well as written and oral statements which Abanka or its representatives make from time to time in reports, filings, news releases, conferences, teleconferences, web postings or otherwise, may be deemed to be “forward-looking statements”. Forward-looking statements include statements concerning Abanka’s plans, objectives, goals, strategies and future operations and performance and the assumptions underlying these forward-looking statements. Abanka uses the words “anticipates”, “estimates”, “expects”, “believes”, “intends”, “plans”, “may”, “will”, “should” and any similar expressions to identify forward-looking statements. These forward-looking statements are contained in “Overview of Abanka and the Offering”, “Risk Factors”, “Business” and other sections of this Prospectus. Abanka has based these forward-looking statements on the current view of its management with respect to future events and financial performance. These views reflect the best judgement of Abanka’s management but involve uncertainties and are subject to certain risks the occurrence of which could cause actual results to differ materially from those predicted in Abanka’s forward-looking statements and from past results, performance or achievements. Although Abanka believes that the estimates and the projections reflected in its forward-looking statements are reasonable, if one or more of the risks or uncertainties materialise or occur, including those which Abanka has identified in this Prospectus, or if any of Abanka’s underlying assumptions prove to be incomplete or incorrect, Abanka’s actual results of operations may vary from those expected, estimated or projected.

Abanka is not obliged to, and does not intend to, update or revise any forward-looking statements made in this Prospectus whether as a result of new information, future events or otherwise. All subsequent written or oral forward-looking statements attributable to Abanka, or persons acting on Abanka’s behalf, are expressly qualified in their entirety by the cautionary statements contained throughout this Prospectus. As a result of these risks, uncertainties and assumptions, a prospective purchaser of the Notes should not place undue reliance on these forward-looking statements.

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Presentation of Financial and Other Information

PRESENTATION OF FINANCIAL INFORMATION

a Abanka’s financial information set forth herein has, unless otherwise indicated, been extracted, without material adjustments, from its unaudited interim consolidated financial statements as of and for the six months ended 30 June 2006, as set forth starting on page F-2 of this document (the “Interim Financial A9.11.4.1 Statements”), and from its audited annual consolidated financial statements as of and for the years ended A9.11.3.1 31 December 2005 and 2004, as set forth starting on page F-17 of this document (the “Annual Financial A9.11.3.3 Statements”). The Interim Financial Statements and the Annual Financial Statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” and International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board and adopted by the European Union, respectively. The Interim Financial Statements and the Annual Financial Statements are together referred to in this Prospectus as the “IFRS Financial Statements”.

Abanka keeps the accounting records relating to itself and its Subsidiaries (the “Group”) in accordance with Slovenian banking legislation. Slovenian banking legislation required Slovenian banks to keep their accounting records in accordance with Slovenian Accounting Standards (“SAS”) for financial periods ending on or prior to 31 December 2005, and certain financial information included herein is presented in accordance with SAS. Since 1 January 2006, Slovenian banks have been required to keep their accounting records in accordance with IFRS. The Annual Financial Statements have therefore been prepared based on those accounting records prepared in accordance with SAS and adjusted as necessary in order to comply with IFRS.

Abanka has previously presented its financial statements in Slovene tolar (“SIT”) and will do so for the year ended 31 December 2006. However, for comparative purposes only, this Prospectus presents translations of certain SIT amounts into euro at specified rates. Unless otherwise stated, any balance sheet data in euro is translated from SIT at the exchange rate published by the Bank of Slovenia applicable on the date of such balance sheet (or, if no such rate was published for such date, the immediately preceding date), and any income statement data in euro is translated from SIT into euro at the average exchange rate published by the Bank of Slovenia applicable to the period to which such income statement data relates.

As referred to above, the IFRS Financial Statements are presented in Slovene tolar. However, in the light of the adoption by Slovenia of the euro on 1 January 2007, the annual and interim financial statements published by the Bank in respect of financial periods commencing on or after 1 January 2007 will be presented in euro.

See “Exchange Rates and Exchange Controls” for further information regarding rates of exchange between the SIT and the euro.

CURRENCY In this Prospectus, the following currency terms are used: • “SIT” or “Slovene tolar” means the former currency of Slovenia; • “USD”, “U.S. dollar” or “U.S.$” means the lawful currency of the United States; • “EUR”, “euro” or “€” means the lawful currency of the member states of the European Union that adopted the single currency (including Slovenia) in accordance with the Treaty of Rome establishing the European Economic Community, as amended; • “CHF” means the lawful currency of the Swiss Confederation; • “GBP” means the lawful currency of the United Kingdom; and • “CAD” means the lawful currency of Canada.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

ABANKA’S MARKET SHARE INFORMATION Save where specifically indicated, Abanka has calculated its market share information presented in this Prospectus on the basis of market data regularly published by the Bank of Slovenia.

ROUNDING Some numerical figures included in this Prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that preceded them.

AUDITORS

a Abanka’s Annual Financial Statements included in this Prospectus have been audited by A9.11.3.1 PricewaterhouseCoopers d.o.o., independent auditors, whose reports thereon are included at pages F-18 and F-60. Abanka’s Interim Financial Statements included in this Prospectus have been subject to a limited review in accordance with International Standard on Review Engagements 2400 by PricewaterhouseCoopers d.o.o., independent auditors, whose report thereon is included at page F-3.

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Overview of Abanka and the Offering

This overview may not contain all the information that may be important to prospective purchasers of the Notes. Prospective purchasers of the Notes should read this entire Prospectus, including the more detailed information regarding Abanka’s business and the IFRS Financial Statements included elsewhere in this Prospectus. Investing in the Notes involves risks, and prospective purchasers should carefully consider the information set forth under “Risk Factors”. Certain statements in this Prospectus are also forward-looking statements that involve risks and uncertainties as described under “Forward-Looking Statements”.

ABANKA Abanka Vipa d.d. is incorporated in Slovenia as a public limited company. It holds a full operating licence issued by the Bank of Slovenia to provide banking services and various other financial services.

The Bank commenced operations as a branch of the Yugoslav Bank for Foreign Trade in 1955 and changed its name to Jugobanka-Temeljna Banka Ljubljana in 1977. It started independent operations as Abanka d.d. Ljubljana in January 1990. On 31 December 2002, Abanka acquired Banka Vipa d.d. and now operates as one bank under the name Abanka Vipa d.d.

At 31 December 2005, the Bank had an 8.6 per cent. market share in terms of the Slovene banking system’s total assets according to Bank of Slovenia statistics, ranking third in Slovenia by that measure.

The Group had SIT 604 billion in total assets as at 31 December 2005. At such date, its consolidated equity capital amounted to SIT 46 billion and it had a consolidated total capital ratio of 10.3 per cent. and a consolidated Tier 1 capital ratio of 8.0 per cent. As at 31 December 2005, customer deposits amounted to SIT 372 billion and loans and advances to customers reached SIT 361 billion.

The Group consists of the Bank and its six subsidiaries, which cover factoring, fund management, lease finance, project finance and real estate management.

At 31 December 2005, the Bank had a network of 42 outlets and 148 ATMs in Slovenia and employed 843 people.

The Bank’s activities can be categorised broadly under: • corporate banking (including opening of transaction accounts for corporates, providing export finance in co-operation with the Slovene Export Corporation and providing investment loans); • retail banking (including savings deposits in euro (previously in tolars) and foreign currency, bank card operations and providing consumer loans and bancassurance); and • financial markets (including fixed income trading and trading in money market instruments and financial derivatives).

Zavarovalnica Triglav, Slovenia’s largest insurance company, is the largest single shareholder of Abanka, with a 33.0 per cent. stake held by it and its affiliates as at 3 January 2007. Abanka and Zavarovalnica Triglav co-operate closely, particularly in the areas of: • life insurance: jointly developing and distributing life insurance products through Abanka’s branch network; and • mortgage financing: providing complementary services. Abanka arranges loan origination, processing distribution and funding and Zavarovalnica Triglav offers accompanying property and life insurance products.

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OVERVIEW OF ABANKA AND THE OFFERING

a THE OFFERING A13.4.2

a The Offering: €120,000,000 Floating Rate Perpetual Loan Participation A13.4.1 Notes with interest rate step-up in 2017. A13.4.5 A13.4.10 Issuer and participant under the Sub- Afinance B.V. Participation Agreement:

Lender under the Subordinated Loan VTB Bank Europe plc. Agreement and obligor under the Sub- Participation Agreement:

Borrower: Abanka Vipa d.d., with its registered office and business headquarters at Slovenska 58, 1517 Ljubljana, Slovenia.

Issue Price: 100 per cent. of the principal amount of the Notes.

Use of Proceeds: The Issuer will use the gross proceeds of the issue of the Notes, amounting to €120,000,000, for the sole purpose of funding its Sub-Participation in the Subordinated Loan in the same amount. The Lender will use such proceeds from the Sub- Participation for the sole purpose of funding the Subordinated Loan to Abanka in the same amount.

Abanka will separately pay estimated total commissions and other expenses payable in connection with the offering of the Notes and the other arrangements referred to in this Prospectus of approximately €2,390,000. The proceeds of the Subordinated Loan will be used by Abanka for general corporate purposes and to strengthen its capital base.

a Interest: The Issuer will account to the Noteholders for an amount equal A13.4.8(a) to the amounts of interest actually received by it pursuant to the Sub-Participation Agreement. To the extent payable as described herein, interest shall accrue during the period from and including the Closing Date to but excluding the Reset Date at a floating rate equal to the sum of three month EURIBOR and 1.90 per cent. per annum and shall be payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2007, with the last such payment due on the Reset Date, save that the first payment of interest will be made on 3 May 2007 in respect of the period from (and including) the Closing Date to (but excluding) 3 May 2007. If the Subordinated Loan has not been prepaid (and the Notes have not been redeemed) on or prior to the Reset Date, interest (to the extent payable as described herein) shall accrue at a floating rate equal to the sum of three month EURIBOR and 2.85 per cent. per annum from and including the Reset Date and thereafter and shall be payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2017. See “Terms and Conditions of the Notes”.

Limited Recourse: The Notes will constitute the obligation of the Issuer to apply an amount equal to the proceeds from the issue of the Notes solely for the purpose of funding the Sub-Participation pursuant to the terms of the Sub-Participation Agreement. The Issuer will only account to the Noteholders for all amounts

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OVERVIEW OF ABANKA AND THE OFFERING

equivalent to those (if any) received from the Lender under the Sub-Participation Agreement (including pursuant to the Lender Security granted to the Issuer in connection therewith) and the Lender will account to the Issuer for all amounts equivalent to those (if any) received from Abanka under the Subordinated Loan Agreement, in each case less any amounts in respect of the Reserved Rights (as defined under “Terms and Conditions of the Notes”).

a Status of the Notes: The Notes constitute direct, limited recourse and A13.4.6 unsubordinated obligations of the Issuer. The Notes are secured in the manner described below and shall at all times rank pari passu and without preference among themselves, all as more fully described under “Terms and Conditions of the Notes – Condition 2 (Status and Limited Recourse)” and “Condition 3 (Security)”.

a Status of the Subordinated Loan: Any rights (excluding the Reserved Rights) under the provisions A13.4.6 of the Subordinated Loan Agreement against Abanka in respect of the principal of, and interest on, the Subordinated Loan will rank junior to the claims of all holders of Senior Debt (as defined in the Subordinated Loan Agreement), will rank pari passu among themselves and with the claims of holders of Parity Securities (as defined in the Subordinated Loan Agreement) and will rank senior to the claims of holders of Junior Securities (as defined in the Subordinated Loan Agreement). See Clause 2.3 of the Subordinated Loan Agreement.

Security: Subject as provided in the Trust Deed, the Lender will, in the Trust Deed as security for its payment obligations under the Sub-Participation Agreement: (i) charge to the Issuer by way of first fixed charge its rights and interests as lender under the Subordinated Loan Agreement (including all sums due to the Lender thereunder, other than in respect of certain reserved rights); (ii) charge to the Issuer by way of first fixed charge its rights and interests in and to all sums held in the Lender Account (other than in respect of certain reserved rights) (together with (i), the “Lender Charged Property”); and (iii) assign to the Issuer its administrative rights under the Subordinated Loan Agreement (the “Lender Transferred Rights”). In addition, subject as provided in the Trust Deed, the Issuer will, in the Trust Deed as security for its payment obligations in respect of the Notes: (x) charge to the Trustee by way of first fixed charge its rights and interests as participant under the Sub-Participation Agreement (including all sums due to the Issuer thereunder) and the Lender Charged Property; (y) charge to the Trustee by way of first fixed charge its rights and interests in and to all sums held in the Issuer Account; and (z) assign to the Trustee its administrative rights under the Sub- Participation Agreement and the Lender Transferred Rights. Subject to the provisions of the Trust Deed, (a) the security granted by the Lender shall only become enforceable following the occurrence of a Lender Relevant Event and (b) the security granted by the Issuer shall only become enforceable following the occurrence of an Issuer Relevant Event. See “Terms and

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OVERVIEW OF ABANKA AND THE OFFERING

Conditions of the Notes – Condition 3 (Security)” and the Trust Deed for further details.

a Form: The Notes will be issued in registered form in the denomination A13.4.4 of €50,000 each and integral multiples of €1,000 in excess thereof and will be represented by a Global Note Certificate which will be exchangeable for Individual Note Certificates in the limited circumstances described under “Summary of Provisions Relating to the Notes in Global Form”.

Cancellation of Interest under Abanka may elect to cancel payments of interest in its sole and Subordinated Loan: absolute discretion in whole or in part in accordance with Clause 4.2(b)(i)(B) of the Subordinated Loan Agreement provided no payment was made in respect of any Parity Securities or Junior Securities during the six months prior to the relevant Interest Payment Date under the Subordinated Loan Agreement. Notwithstanding the foregoing, Abanka may also elect to cancel payments of interest on any Interest Payment Date if there is no Balance Profit (as defined in the Subordinated Loan Agreement) shown in Abanka’s most recent annual unconsolidated financial statements prepared in accordance with IFRS. In addition, Abanka will be required to cancel interest otherwise payable under the Subordinated Loan upon a breach by Abanka or the Group of the Bank of Slovenia’s capital adequacy regulations. Any interest cancelled in accordance with the provisions of the Subordinated Loan Agreement will be non-cumulative and will cease to be outstanding for all purposes.

Dividend/Capital Stopper: In the event that Abanka elects to, or is required to, cancel interest in accordance with the terms of the Subordinated Loan Agreement, Abanka will be unable to, and will not permit its subsidiaries to, authorise, declare pay or distribute any dividends or other distributions in respect of, or redeem or acquire, any Parity Securities or Junior Securities during the Dividend/Capital Stopper Period (as defined in the Subordinated Loan Agreement). See Clause 4.2(b)(iii) of the Subordinated Loan Agreement and “Risk Factors - The Bank will have the discretion, and in some cases, the obligation, to cancel payments of interest under the Subordinated Loan Agreement”.

Call Option: Under the terms of the Subordinated Loan Agreement, Abanka will have the right to prepay the Subordinated Loan in whole but not in part, subject to the consent of the Bank of Slovenia, on the business day following 3 February 2017 (the “First Optional Prepayment Date”) or any Optional Prepayment Date thereafter at its principal amount together with any accrued and unpaid interest.

Gross-Up Event: Abanka may, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part at any time after 3 February 2012 and prior to the First Optional Prepayment Date, at its principal amount plus accrued and unpaid interest thereon if Abanka is required to pay additional amounts in respect of Slovenian, Dutch or United Kingdom taxes (or taxes in other relevant jurisdictions)

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OVERVIEW OF ABANKA AND THE OFFERING

in respect of the Subordinated Loan and this cannot be avoided by Abanka taking reasonable measures available to it or it must pay the Lender: (i) Additional Amounts in respect of additional amounts payable by the Lender pursuant to the Sub- Participation Agreement or; (ii) Additional Amounts in respect of additional amounts payable by the Issuer pursuant to the terms of the Notes.

Special Tax Event: Abanka may, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part, at any time after 3 February 2012 and prior to the First Optional Prepayment Date, at its principal amount plus accrued and unpaid interest thereon, if it will be unable to obtain a tax deduction for Slovenian corporation tax purposes in respect of the next payment of interest due under the Subordinated Loan and this cannot be avoided by Abanka taking reasonable measures available to it.

Increased Costs Events: Abanka may, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part, at any time after 3 February 2012 and prior to the First Optional Prepayment Date, at its principal amount plus accrued and unpaid interest thereon, if it must pay the Lender amounts in respect of increased costs incurred by the Lender in respect of the Subordinated Loan.

Regulatory Event: Abanka may, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part at any time after the drawdown of the advance under the Subordinated Loan Agreement and prior to the First Optional Prepayment Date, at its principal amount plus accrued and unpaid interest thereon, if the Subordinated Loan ceases to have regulatory capital treatment as Innovative Tier One capital under the Bank of Slovenia’s regulations.

Illegality: If it becomes illegal Lender or Abanka to allow all or part of the Subordinated Loan to remain outstanding or the Issuer to allow all or part of the Notes to remain outstanding, or in each case, to maintain or give effect to any of their obligations thereunder, the Lender shall, following a period of consultation, assign or transfer the Subordinated Loan to a Qualifying Bank (as defined in the Subordinated Loan Agreement). If, after 3 February 2012, such assignment has not occurred within 30 days, Abanka shall, subject to the prior consent of the Bank of Slovenia, prepay the Subordinated Loan, in whole but not in part at its principal amount together with any accrued and unpaid interest.

Failure to Pay: If Abanka shall not make payment of any principal or any interest payable in respect of the Subordinated Loan for a period of 10 days or more after the due date for the same (which, subject to Clause 4.2(b)(iv) of the Subordinated Loan Agreement, failure to make payment shall constitute prima facie evidence of Abanka’s inability to make such payment), the Trustee or the Issuer (as directed by the Trustee) pursuant to the Lender Transferred Rights (as defined under “Terms and Conditions of the Notes — Condition 3 (Security)”), may

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OVERVIEW OF ABANKA AND THE OFFERING

institute proceedings in Slovenia (but not elsewhere) for the winding-up of Abanka and/or prove in the winding-up of Abanka.

Relevant Event: If an Issuer Relevant Event (as defined in the Trust Deed) occurs, the Trustee may enforce the security granted by the Issuer and if a Lender Relevant Event (as defined in the Trust Deed) occurs, the Trustee or the Issuer (as directed by the Trustee) may enforce the security granted by the Lender in each case subject to the provisions of the Trust Deed.

Withholding Tax: All payments of principal and interest under the Notes will be made free and clear of all taxes, duties, assessments or governmental charges of The Netherlands, save as required by law. All payments of principal and interest under the Sub- Participation Agreement will be made free and clear of all taxes, duties, assessments or governmental charges of the United Kingdom, save as required by law. All payments of principal and interest under the Subordinated Loan Agreement will be made free and clear of all taxes, duties assessments or governmental charges of Slovenia, The Netherlands or the United Kingdom, save as required by law. If any taxes, duties, assessments or governmental charges are payable in any of the above jurisdictions, the sum payable by Abanka will (subject to certain exceptions) be required to be increased to the extent necessary to ensure that the Issuer receives from the Lender a net sum under the Sub-Participation Agreement which it would have received had no such deduction or withholding been made or required to be made. The sole obligation of the Issuer in this respect will be to pay to the Noteholders sums equivalent to the sums received from the Lender. See “Terms and Conditions of the Notes”.

Amendments and Waivers: As long as any of the Notes remains outstanding, the Lender will not, without the prior written consent of the Trustee, agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Subordinated Loan Agreement or the Sub-Participation Agreement, except as otherwise expressly provided in the Trust Deed, the Subordinated Loan Agreement or the Sub- Participation Agreement, as the case may be.

As long as any of the Notes remains outstanding, the Issuer will not, without the prior written consent of the Trustee, agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Sub-Participation Agreement and/or the Lender Security granted to it in connection therewith, except as otherwise expressly provided in the Trust Deed or the Sub-Participation Agreement.

Listing: Application has been made to the CSSF as competent authority under the Prospectus Directive for the Prospectus to be approved. Application has been made for the Notes to be admitted to trading on the Luxembourg Stock Exchange’s regulated market and to be listed on the Luxembourg Stock Exchange.

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OVERVIEW OF ABANKA AND THE OFFERING

a Rating: The Notes have been rated BB+ by Fitch Ratings Ltd and Baa3 A13.7.5 by Moody’s Investors Service Limited.

Credit ratings assigned to the Notes do not necessarily mean that they are a suitable investment. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid on any particular date. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes or Abanka could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating.

Selling Restrictions: The Notes, the Sub-Participation and the Subordinated Loan have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States. The Notes may be offered or sold in other jurisdictions (including the United Kingdom, Slovenia, Italy and Switzerland) only in compliance with applicable laws and regulations. See “Subscription and Sale”.

a Governing Law: The Notes, the Sub-Participation Agreement, the Subordinated A13.4.3 Loan Agreement and the Trust Deed will be governed by and construed in accordance with English law, except for the subordination provisions included in the Subordinated Loan Agreement which will be governed by and construed in accordance with Slovenian law.

Managers: UBS Limited and VTB Bank Europe plc.

Trustee: Deutsche Trustee Company Limited.

a Principal Paying and Transfer Agent and Deutsche Bank AG, London Branch. A13.4.11 Calculation Agent: A13.4.8(f) A13.5.2 Registrar: Deutsche Bank Luxembourg S.A.

Risk Factors: An investment in the Notes involves a high degree of risk. See “Risk Factors”.

a Security Codes for the Notes: ISIN: XS0283183084 A13.4.2

Common Code: 028318308

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Description of the Transaction

The following summary contains basic information about the Notes, the Sub-Participation and the Subordinated Loan and should be read in conjunction with, and is qualified in its entirety by, the information set forth under “Terms and Conditions of the Notes” and “The Subordinated Loan Agreement” appearing elsewhere in this Prospectus.

Principal and Interest

Issuer Lender

Sub-Participation

Principal and Principal and Proceeds Subordinated Interest on the Interest on the of the Loan Subordinated Notes Notes Loan

Noteholders Abanka

The transaction will be structured as a subordinated loan to Abanka by the Lender. The Issuer will issue the Notes which will be limited recourse loan participation notes issued for the sole purpose of funding a 100 per cent. Sub-Participation by the Issuer in the Subordinated Loan. The Lender will use the proceeds of the Sub-Participation for the sole purpose of funding the Subordinated Loan. The Notes will be subject to, and have the benefit of, the Trust Deed. The obligation of the Issuer to make payments under the Notes shall constitute an obligation only to pay to the Noteholders an amount equal to and in the same currency as sums of principal, interest and/or additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Sub-Participation Agreement and/or the Lender Security granted to it by the Lender in connection therewith.

Noteholders must rely upon Abanka’s ability to pay under the Subordinated Loan Agreement and the credit and financial standing of Abanka. They must also rely on the Lender’s covenant to pay under the Sub- Participation Agreement (see “Risk Factors – Risks Relating to the Notes and the Subordinated Loan – Additional credit risk” for further details). Noteholders shall have no recourse (direct or indirect) to any assets of the Issuer or the Lender other than the Issuer’s rights under the Sub-Participation Agreement and/or the Lender Security granted to it by the Lender in connection therewith. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided in the Terms and Conditions and in the Trust Deed. Assuming the due performance by Abanka of its obligations under the Subordinated Loan Agreement and by the Lender under the Sub-Participation Agreement to pay such amounts and subject to the limited recourse nature of the Notes and certain circumstances where Abanka has discretion to, or is obliged to, cancel payments of interest under the Subordinated Loan, the Subordinated Loan Agreement and the Sub-Participation Agreement have the capacity to produce funds to service any payments due and payable on the Notes.

Subject as provided in the Trust Deed:

(i) the Lender will charge to the Issuer, by way of first fixed charge as security for its payment obligations under the Sub-Participation Agreement, (a) its rights to principal, interest and additional amounts (if any) as lender under the Subordinated Loan Agreement, (b) its right to receive all sums payable by Abanka under any claim, award or judgment relating to the Subordinated Loan Agreement and (c) amounts received pursuant to the Subordinated Loan Agreement into an account with Deutsche Bank AG, London Branch in the name of the Lender, together with the debt represented thereby (the “Lender Account”), in each case other than certain amounts in respect of certain Reserved Rights (as

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DESCRIPTION OF THE TRANSACTION

defined in “Terms and Conditions of the Notes”). The Lender will also assign certain administrative rights under the Subordinated Loan Agreement to the Issuer (all security granted by the Lender to the Issuer under the Trust Deed being referred to herein as the “Lender Security”); and

(ii) the Issuer will charge to the Trustee, for the benefit of the Noteholders, by way of first fixed charge as security for its payment obligations in respect of the Notes, (a) its rights and interests under the Lender Security, (b) its rights to principal, interest and additional amounts (if any) as the participant under the Sub-Participation Agreement, (c) its right to receive all sums payable by the Lender under any claim, award or judgment relating to the Sub-Participation Agreement and (d) amounts received pursuant to the Sub-Participation Agreement into an account with Deutsche Bank AG, London Branch in the name of the Issuer, together with the debt represented thereby (the “Issuer Account” and, together with the Lender Account, the “Accounts”). The Issuer will also assign certain administrative rights under the Sub-Participation Agreement, as well as the administrative rights assigned to it as described in (i) above, to the Trustee.

See “Terms and Conditions of the Notes” and the Trust Deed for further details.

Abanka will be obliged to make payments under the Subordinated Loan to the Lender to the Lender Account in accordance with the terms of the Subordinated Loan Agreement, and the Lender will be obliged to make payments under the Sub-Participation to the Issuer to the Issuer Account in accordance with the terms of the Sub-Participation Agreement. The Lender’s obligation to make payments under the Sub- Participation will be deemed to be satisfied to the extent that payments are made to the Issuer Account by the Lender in amounts equal to those received into the Lender Account (less any amounts in respect of the Reserved Rights) by the Lender from Abanka pursuant to the Subordinated Loan Agreement.

Each of the Lender and the Issuer will covenant in the Trust Deed not to agree to any amendment to or any modification or waiver of, or authorise any breach or potential breach of, the terms of the Subordinated Loan Agreement and the Sub-Participation Agreement (as appropriate) unless the Trustee has given its prior written consent. Any amendments, modifications, waivers or authorisations made with the Trustee’s consent shall be notified to the Noteholders in accordance with the Terms and Conditions of the Notes and will be binding on the Noteholders.

The relevant security created under the Trust Deed will become enforceable upon the occurrence of a Lender Relevant Event or an Issuer Relevant Event (as appropriate), as further described in the Terms and Conditions of the Notes.

Payments in respect of the Notes will be made without any deduction or withholding for or on account of taxes of The Netherlands, except as required by law. In that event, the Issuer will only be required to pay additional amounts to the extent that it receives corresponding amounts under the Sub-Participation Agreement and the Lender receives the corresponding amount under the Subordinated Loan Agreement. The Subordinated Loan Agreement will provide for Abanka to pay such corresponding amounts in these circumstances. Payments under the Sub-Participation Agreement will be made without any deduction or withholding for or on account of United Kingdom taxes, except as required by law. In that event, the Lender will only be required to pay additional amounts to the extent that it receives corresponding amounts under the Subordinated Loan Agreement. In addition, payments under the Subordinated Loan Agreement will be made without any deduction or withholding for or on account of Slovenian, United Kingdom or Dutch taxes, except as required by law, in which event Abanka will be obliged to increase the amounts payable under the Subordinated Loan Agreement (save in certain circumstances).

In certain circumstances, subject to Bank of Slovenia consent, the Subordinated Loan may be prepaid at its principal amount, together with accrued but unpaid interest, as more fully set out in the Subordinated Loan Agreement. In each case (to the extent the Lender has actually received the relevant funds from Abanka) the payment amount of all outstanding Notes will be prepaid by the Issuer together with accrued interest, to the extent that the relevant amount has been received by it under the Sub-Participation Agreement and/or the Lender Security.

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Use of Proceeds

The Issuer will use the gross proceeds of the issue of the Notes, amounting to €120,000,000, for the sole purpose of funding its Sub-Participation in the Subordinated Loan in the same amount. The Lender will use such proceeds from the Sub-Participation for the sole purpose of funding the Subordinated Loan to Abanka in the same amount.

Abanka will separately pay estimated total commissions and other expenses payable in connection with the A13.6.1 offering of the Notes and the other arrangements referred to in this Prospectus of approximately €2,390,000. The proceeds of the Subordinated Loan Agreement will be used by Abanka for general corporate purposes and to strengthen its capital base.

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Exchange Rates and Exchange Controls

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of SIT, all expressed in SIT per euro. These translations should not be construed as representations that SIT amounts actually represent such euro amounts or could be converted into euro at the rate indicated as of any of the dates mentioned in this Prospectus or at all.

High Low Average Period End

(SIT per €) 2006 ...... 239.8512 238.2354 239.5251 239.4102 2005 ...... 239.9122 239.3038 239.5057 239.4171 2004 ...... 240.0120 235.4197 238.9392 239.7352 2003 ...... 236.7326 224.7458 233.2797 236.7133 2002 ...... 234.5799 211.1165 225.4444 231.8894 2001 ...... 222.3676 213.0632 216.8579 219.7608

Source: Bloomberg.

As at the date of this Prospectus, there are no exchange controls applicable in Slovenia that would restrict the payment of any amounts by Abanka under the Subordinated Loan Agreement.

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Capitalisation

The financial information in the following table has been extracted from the unaudited Interim Financial Statements as at 30 June 2006 and sets out Abanka’s unaudited consolidated capitalisation as at 30 June 2006. As at 30 June 2006 111111111111111 unaudited

(thousands of (thousands of SIT) EUR)(1) Equity Capital and reserves attributable to the Bank’s equity holders Share capital ...... 19,333,589 80,682 Retained earnings ...... 25,219,967 105,246 Other reserves ...... 11 3,277,4631112 111 13,677112 147,831,01911112 11 199,6051112 Minority interest ...... 1111 9,93612 11111 412 Total equity ...... 1 47,840,95511112 11 199,6461112 Liabilities Senior long-term debt(2) ...... 186,184,971 776,973 (2) Subordinated long-term debt ...... 1 11,599,42511112 111 48,406112 Total non-current debt ...... 197,784,396111112 11 825,3791112 Total capitalisation ...... 245,625,351 1,025,025 111112 111112 Capital adequacy (consolidated) Total Tier 1 capital ratio ...... 7.5% Total capital adequacy ratio ...... 9.0%

Notes: (1) Based on the Bank of Slovenia SIT/EUR exchange rate of SIT 239.6285: €1.00 on 30 June 2006. (2) Long-term debt represents liabilities that fall due after more than one year.

There has been no material change in Abanka’s capitalisation, indebtedness, contingent liabilities and guarantees provided since 30 June 2006.

The above table has not been adjusted to reflect the effect of the Subordinated Loan on Abanka’s total capitalisation. The Subordinated Loan, in the amount of €120,000,000, will be accounted for as a liability in the financial statements to be prepared by Abanka for the year ending 31 December 2007, notwithstanding that the Subordinated Loan has been approved by the Bank of Slovenia as eligible for inclusion in Abanka’s Innovative Tier 1 Capital.

The Subordinated Loan is expected to improve Abanka’s capital position, and the capital adequacy ratios set out in the above table. However, although eligible for inclusion in Abanka’s Innovative Tier 1 Capital, the full amount of the Subordinated Loan will not qualify as Innovative Tier 1 Capital, given regulatory limits imposed by the Bank of Slovenia on the amount of Innovative Tier 1 Capital as a percentage of Abanka’s total capital. As a proportion of the Subordinated Loan will therefore only qualify for a lower tier of capital, the total amount of the Subordinated Loan will not impact fully on Abanka’s Total Tier 1 capital ratio as at future balance sheet dates.

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Selected Financial Information

Abanka’s selected financial information presented below has been prepared in accordance with IFRS and A9.11.1 extracted without material adjustment from Abanka’s audited Annual Financial Statements as of and for A9.11.3.1 the years ended 31 December 2005 and 2004 and from its unaudited Interim Financial Statements as of and A9.11.3.3 for the six months ended 30 June 2006. The results reported in the unaudited Interim Financial Statements A9.11.4.1 should not be regarded as necessarily indicative of the results expected for the year ending 31 December A9.14(C) 2006.

The selected financial information presented below should be read in conjunction with the IFRS Financial Statements included elsewhere in this Prospectus.

CONSOLIDATED INCOME STATEMENT INFORMATION 1111111111111244Year ended 31 December 111111111111111111344 Six months ended 30 June 11112004 1111111123 2005 1111111123 2005 1111111123 2006 SIT SIT €(1) SIT €(2) SIT €(3)

(thousands) (thousands) (thousands) (thousands) (thousands) (thousands) (thousands) (unaudited) (unaudited) (unaudited) Net interest income ...... 10,789,413 12,345,553 51,518 5,713,579 23,837 6,190,046 25,836 Net fee and commission income ...... 7,321,269 8,133,274 33,940 3,740,243 15,604 4,174,839 17,425 Operating profit ...... 4,993,060 4,428,945 18,482 709,852 2,961 4,579,754 19,115 Profit before tax ...... 5,306,469 4,428,945 18,482 708,840 2,957 4,579,754 19,115 Net profit for the period ...... 3,934,741 4,167,514 17,391 581,249 2,425 3,594,694 15,003

Notes: (1) Based on an exchange rate of SIT 239.6356 : €1.00, being the average of the daily exchange rates published by the Bank of Slovenia for the year ended 31 December 2005. (2) Based on an exchange rate of SIT 239.6940 : €1.00, being the average of the daily exchange rates published by the Bank of Slovenia for the six months ended 30 June 2005. (3) Based on an exchange rate of SIT 239.5922 : €1.00, being the average of the daily exchange rates published by the Bank of Slovenia for the six months ended 30 June 2006.

CONSOLIDATED BALANCE SHEET INFORMATION 1111111111111123As at 31 December 11111111134 As at 30 June 11112004 11111111134 2005 11111111134 2006 SIT SIT €(1) SIT €(2)

(thousands) (thousands) (thousands) (thousands) (thousands) (unaudited) (unaudited) Loans and advances to banks ...... 35,101,586 53,618,422 223,806 67,886,785 283,300 Loans and advances to customers...... 317,597,895 361,640,399 1,509,504 409,250,774 1,707,855 Total assets...... 491,109,700 603,885,824 2,520,648 675,265,463 2,817,968 Due to customers ...... 325,349,664 372,368,236 1,554,283 400,157,424 1,669,907 Total liabilities ...... 453,060,526 557,860,048 2,328,534 627,424,508 2,618,322 Total equity ...... 38,049,174 46,025,776 192,114 47,840,955 199,646

Notes: (1) Based on the Bank of Slovenia SIT/EUR exchange rate of SIT 239.5756 : €1.00 on 31 December 2005. (2) Based on the Bank of Slovenia SIT/EUR exchange rate of SIT 239.6285 : €1.00 on 30 June 2006.

HALF YEAR REVIEW In comparison to the six months ended 30 June 2005, net interest income for the six months ended 30 June 2006 increased by 8.3 per cent.

In comparison to the six months ended 30 June 2005, net fee and commissions income for the six months ended 30 June 2006 increased by 11.6 per cent.

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SELECTED FINANCIAL INFORMATION

In the six months ended 30 June 2006, net trading income amounted to SIT 1,110 million, an improvement from the six months ended 30 June 2005 where, due to unfavourable market conditions, negative trading income of SIT (501) million was generated.

In comparison to the position as at 31 December 2005, loans and advances to customers as at 30 June 2006 increased by 13.2 per cent.

Loans to the public sector increased by 37.5 per cent. as at 30 June 2006 as compared to the position as at 31 December 2005.

The largest item under loans and advances to customers was loans to the corporate sector. This item increased by 11.9 per cent. as at 30 June 2006 when compared to the position as at 31 December 2005.

Loans to the retail sector increased by 13.3 per cent. as at 30 June 2006 when compared to the position at and as at 31 December 2005.

The smallest item under loans and advances to customers was loans to the non-residents sector which increased by 11.9 per cent. as at 30 June 2006 as compared to the position as at 31 December 2005.

Asset quality indicators remained stable in the six months ended 30 June 2006. The share of loans to bank and non-bank customers classified as C, D and E in the total loan portfolio decreased from 9.1 per cent. as at 1 January 2006 compared to 8.1 per cent. as at 30 June 2006. In comparison to the six months ended 30 June 2005, impairment losses for loans to bank and non-bank customers for the six months ended 30 June 2006 increased by 18.6 per cent., mainly due to the increased loan portfolio.

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Selected Financial Ratios

Except as set out in the notes, the financial ratios in the table below have been calculated on the basis of information appearing in the unaudited Interim Financial Statements as at and for the six months ended 30 June 2006 and the audited Annual Financial Statements as at and for the years ended 31 December 2005 and 2004. As at and for the six months ended As at and for the year 111130 June 11111111134 ended 31 December 2006 2005 2004 Performance ratios: Net interest margin (before provisions) ...... 1.90%(1) 2.20% 2.32% Non-interest income to operating income ...... 47.8% 52.6% 47.2% Cost income ratio ...... 49.6% 51.9% 57.5% Return on shareholders’ equity ...... 15.3%(1) 9.9% 10.8% Return on average assets ...... 1.12%(1) 0.76% 0.85% Balance sheet ratios (at period end): Customer deposits to total deposits ...... 91.1% 93.8% 97.1% Customer loans to customer deposits...... 102.3% 97.1% 97.6% Asset quality (at period end): Non-performing loans (categories C, D and E) to total loans (gross)(2) 8.1% N.A. N.A. Non-performing loans (categories D and E only) to total loans (gross)(2) ...... 2.6% N.A. N.A. Provisions to non-performing loans (C, D and E)(2) ...... 58.3% N.A. N.A. Capital adequacy:(3) Tier 1 capital ratio...... 7.5% 8.0% 7.2% Total capital ratio ...... 9.0% 10.3% 10.3%

Notes: (1) Annualised. (2) The Bank’s asset quality ratios as at 30 June 2006 are calculated on the basis of accounting records prepared in accordance with IFRS. Equivalent ratios as at 31 December 2005 and 2004 are not presented in the table due to a change in methodology introduced by the Bank of Slovenia commencing in respect of financial periods after 31 December 2005. For information purposes only, the asset quality ratios as at 31 December 2005 and 31 December 2004 which were calculated in accordance with SAS were as follows: 2005 2004 Non-performing loans (categories C, D and E) to total loans (gross): 6.8% 5.9% Non-performing loans (categories D and E only) to total loans (gross): 2.4% 2.3% Total provisions to non-performing loans (categories C, D and E): 75.9% 82.3% For comparative analysis, the following figures which are prepared in accordance with IRFS as at 1 January 2006 should be considered: Non-performing loans (categories, C, D and E) to total loans (gross): 9.1% Non-performing loans (categories D and E only) to total loans (gross): 2.5% Provisions to non-performing loans (categories C, D and E): 54.0% (3) The Bank’s consolidated tier 1 capital ratio and total capital ratio as at 30 June 2006 are calculated on the basis of accounting records prepared in accordance with IFRS and in line with the regulations of the Bank of Slovenia. The Bank’s consolidated tier 1 capital ratio and total capital ratio as at 31 December 2005 and 2004 are calculated on the basis of accounting records prepared in accordance with SAS and in line with the regulations of the Bank of Slovenia. The Bank believes that the change in accounting basis prescribed by Slovenian banking legislation (as described under “Presentation of Financial and Other Information”) has not had a material impact on the ratios as presented in the above table and that they are therefore comparable. By way of illustration, the Bank’s consolidated total capital ratio as at 1 January 2006, prepared under IFRS, was 10.4 per cent. and the consolidated total capital ratio as at 31 December 2005, prepared in accordance with SAS, was 10.3 per cent.

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Business

OVERVIEW

Abanka Vipa d.d. (“Abanka” or the “Bank”) is incorporated in Slovenia as a public limited company under A9.4.1.1 the Slovene Companies Act – 1 (published in the Official Gazette of the Republic of Slovenia No.42/2006) A9.4.1.2 and under the Banking Act – 1 (published in the Official Gazette of the Republic of Slovenia No. 131/2006. It is entered in the Register of Companies at the District Court in Ljubljana (application registration number 1/02828/00) and has its registered office at Slovenska cesta 58, 1000 Ljubljana, Slovenia (telephone +386 1 47 18 100). It holds a full operating licence issued by the Bank of Slovenia to provide banking services and various other financial services. A9.4.1.3

The Bank commenced operations as a branch of the Yugoslav Bank for Foreign Trade in 1955 and changed its name to Jugobanka-Temeljna Banka Ljubljana in 1977. It started independent operations as Abanka d.d. Ljubljana in January 1990. On 31 December 2002, Abanka acquired Banka Vipa d.d. and now operates as one bank under the name Abanka Vipa d.d. The Bank has developed a national network of branches throughout Slovenia.

The Group consists of the Bank and its six subsidiaries, which cover factoring, fund management, lease finance, project finance and real estate management.

At 31 December 2005, the Bank had a network of 42 outlets and 148 ATMs in Slovenia and employed 843 people. Its consolidated equity capital amounted to SIT 46 billion with a consolidated capital ratio of 10.3 per cent. (Consolidated Tier 1 8.0 per cent.).

As at 31 December 2005, customer deposits amounted to SIT 372 billion and loans and advances to customers reached SIT 361 billion. Consolidated total assets as at the same date amounted to SIT 604 billion.

At 31 December 2005, the Bank had an 8.6 per cent. market share in terms of the Slovene banking system’s total assets according to Bank of Slovenia statistics, ranking third in Slovenia by that measure. There have been no recent events particular to the Bank which are to a material extent relevant to the evaluation of the Bank’s solvency.

The Bank is a universal bank, holding a full operating licence issued by the Bank of Slovenia and providing various banking services. These can be categorised broadly under: • corporate banking (including opening of transaction accounts for corporates, providing export finance in co-operation with the Slovene Export Corporation and providing investment loans); • retail banking (including savings deposits in euro (previously in tolars) and foreign currency, bank card operations and providing consumer loans and bancassurance); and • financial markets (including fixed income trading and trading in money market instruments and financial derivatives).

STRATEGY The Bank’s strategy is based on: • organic growth in operations, targeting growth at a rate higher than the Slovene banking system as a whole; and • in the future, on institutional growth, including the acquisitions of, and integration with, other banks. There are, however, no immediate plans for institutional growth in or outside Slovenia. Abanka monitors changes in the banking system, both in Slovenia and in the wider environment, relating to the operations of its clients and is prepared to co-operate with other financial institutions where that would result in it being able to improve and increase its range of services, streamline operations and increase the Bank’s revenues

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BUSINESS and cost-effectiveness. Abanka strives to continue to build long-term business relations with its customers, to ensure that the services it provides are of the highest quality, to deliver profitability which is above the average for Slovenian banks, to maintain its market share in Slovenia and to establish and strengthen its position in the markets of South-Eastern Europe.

Expansion into South-Eastern Europe

The Bank aims gradually to enter and strengthen its position in the markets of South-Eastern Europe. It plans to seek joint venture partners among banks operating in the markets of South-Eastern Europe to provide banking services to Slovene customers operating in those markets. Ultimately, the Bank may expand its activities in those markets by greater direct presence over time. Management see a strategy for such expansion evolving around product segmentation reflecting specific market requirements and close co-operation with SID (Slovenian Export Company) and Zavarovalnica Triglav.

Focus on SMEs

Abanka also aims to increase its volume of business in the segment of small and medium-sized (SME) companies. The Bank is pursuing a strategy to achieve this objective by: • ensuring greater central co-ordination of the Bank’s activities in this segment; • placing greater emphasis on the Bank’s advisory role and personal communication with its customers in this segment; and • taking a more active role in connection with state or regional funds and local communities in the financing of SMEs.

Corporate Banking

In corporate banking, Abanka maintains relatively high market shares in Slovenia in loans, deposits and payment transactions. One of Abanka’s key strengths in this segment is its extensive and stable co-operation with corporate clients. In this segment, Abanka aims to increase its commercial activity inside and outside Slovenia (especially in the markets of South-Eastern Europe as described above), to improve its product offering, adjusted accordingly to the needs of SMEs, and to develop new products and services to be offered to its corporate customers generally.

Retail Banking

As at 31 December 2005, the Bank enjoyed market shares in Slovenia of 6.5 per cent. of loans and 7.6 per cent. of deposits, according to Bank of Slovenia statistics. The Bank aims to grow its market share in each of these segments of the retail banking sector in the medium term. The Bank intends to achieve these goals by increased product bundling and cross selling of bancassurance products in co-operation with Zavarovalnica Triglav, introduction of new mortgage products, multi card reward loyalty programme, structured deposits, upgrading of the Bank’s mobile and electronic sales channels and expanding the Bank’s ATM network.

The Bank is also focusing its efforts in this segment on increasing mortgages and long-term deposits, as well as increasing the volume of products with non-interest revenues, such as bancassurance and loyalty cards.

Financial Markets

In running its banking book Abanka focuses mainly on Asset and Liability Management strategies. For trading activities the Bank pursues market opportunities as they arise.

The Bank is currently the leading provider of custody services in Slovenia, according to management estimates based on publicly available information. It aims to become the leading Slovene bank in the wider financial markets segment by providing knowledge-based services, focusing on customer needs and increasing its use of information technology in its operations.

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BUSINESS

ORGANISATIONAL STRUCTURE OF THE ABANKA GROUP

The Group comprises Abanka Vipa d.d. and its six subsidiaries. Abanka Vipa d.d. is not dependent upon A9.6.1 any other entities within the Group. The following diagram summarises the structure of the principal subsidiaries of the Group as at the date of this Prospectus:

Abanka

Abančna DZU Afaktor Alcasing Vogo leasing Argolina Analožbe 99% 100% 100% 100% 75% 100%

A description of the activities of the Bank’s subsidiaries is set out under “— Operations of the Bank’s Subsidiaries” below.

ACTIVITIES OF THE ABANKA GROUP SEGMENTAL OVERVIEW The Group, either through the Bank or its subsidiaries, provides a wide variety of banking products and services to retail customers and corporate clients. The Bank is organised into three main business segments: retail banking, corporate banking and financial markets.

A breakdown, extracted from the Annual Financial Statements, of revenues, profits, assets and liabilities as at and for the year ended 31 December 2005 by business segment is as set out below (all figures in thousands of SIT):

111111111111111111111111112As at and for the year ended 31 December 2005 Retail Corporate Financial banking banking markets(1) Other Group

Revenues ...... 10,572,185 16,636,774 6,965,344 821,799 34,996,102 Segment result ...... (2,291,840) (1,469,720)(2) 8,284,541(3) (94,036) 4,428,945 Operating profit ...... 4,428,945 Income tax expense ...... 11112 (261,431) Net profit for the period...... 11112 11112 11112 11112 11112 4,167,514 Segment assets ...... 75,513,911 296,935,974 221,485,573 7,077,160 601,012,618 Associates ...... 6,024 6,024 Unallocated assets...... 11112 2,867,182 Total assets...... 11112 11112 11112 11112 11112 603,885,824 Segment liabilities...... 203,513,604 126,370,829 220,503,096 5,187,762 555,575,291 Unallocated liabilities ...... 11112 2,284,757 Total liabilities ...... 11112 557,860,048

Notes: (1) The Financial markets segment is comprised of the treasury, investment banking and interbank relations departments. The treasury department receives interest income from funds lent to the corporate and retail banking segments, which affects the segment results for the respective business segments. (2) There were higher impairment losses in the corporate banking segment in 2005. These were due to an increase of impairments resulting from lower expected repayment of claims of certain clients, and increase in the volumes of business. (3) The Financial markets segment result includes gains amounting to SIT 3.6 billion arising from the sale of Abanka’s stake in Nacionalna Finančna Družba d.o.o. (NFD), an asset management company, in 2005.

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BUSINESS

A breakdown, extracted from the Interim Financial Statements, of revenues, profits, assets and liabilities as at and for the six months ended 30 June 2006 by business segment is as set out below (all figures in thousands of SIT):

As at and for the six months ended 30 June 2006

111111111111111111111111112(unaudited) Retail Corporate Financial banking banking markets Other Group

Revenues ...... 5,433,273 8,894,154 4,069,843 360,588 18,757,858 Segment result ...... 19,200 1,092,195 3,289,053 179,306 4,579,754 Operating profit ...... 4,579,754 Income tax expense ...... 11112 (985,060) Net profit for the period...... 11112 11112 11112 11112 11112 3,594,694 Segment assets ...... 81,713,974 340,871,752 242,027,969 7,027,889 671,641,584 Unallocated assets...... 11112 3,623,879 Total assets...... 11112 11112 11112 11112 11112 675,265,463 Segment liabilities...... 206,863,310 139,518,592 275,475,255 2,099,22111112 623,956,378 Unallocated liabilities ...... 11112 3,468,130 Total liabilities ...... 11112 627,424,508

GEOGRAPHICAL ANALYSIS The Group operates principally in Slovenia, where it is based. The geographical concentrations of assets, liabilities and off-balance sheet items, in each case as extracted without material adjustment from the Annual Financial Statements included elsewhere in this Prospectus, are as follows:

Total Total Credit Capital assets liabilities commitments(1) expenditure(2)

(thousands of SIT) As at 31 December 2005 Slovenia ...... 542,607,306 445,596,150 122,595,624 2,494,539 European Union...... 40,328,569 105,180,764 85,749 – Other former Yugoslavia ...... 7,715,760 4,685,228 672,330 – Other ...... 11112 13,234,189 11112 2,397,906 11112 31,065 11112 – Total ...... 11112 603,885,824 11112 557,860,048 11112 123,384,768 11112 2,494,539 At 31 December 2004 Slovenia ...... 453,001,019 365,846,054 140,309,373 3,037,399 European Union...... 33,025,053 73,831,378 13,762,194 – Other former Yugoslavia ...... 3,083,911 6,118,722 26,033 – Other ...... 11112 1,999,717 11112 7,264,372 11112 3,007,424 11112 – Total ...... 11112 491,109,700 11112 453,060,526 11112 157,105,024 11112 3,037,399

Notes: (1) “Credit commitments” refers to guarantees and commitments to extend credit and documentary and commercial letters of credit. See Note 31(c) to the Annual Financial Statements. (2) “Capital expenditure” refers to purchases of property and equipment.

RETAIL BANKING In 2005, the retail banking segment accounted for 30.2 per cent. of the Group’s revenues and recorded a SIT (2,291,840) thousand segment loss, due largely to additional formed provisions. These revenues arose mainly from interest income. In the first half of 2006, the retail banking segment accounted for 29 per cent. of the Group’s revenues, and recorded a SIT 19,200 thousand segment profit, arising mainly from interest income.

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The Bank’s retail banking arm incorporates private banking services, private customer current accounts, savings, deposits, investment savings products, credit and debit cards, consumer loans and mortgages.

The Bank is able to provide a wide range of card products aimed at various customer segments. This range includes: • Visa Classic, Gold, Business and AMZS co-branded cards; • Visa Electron: debit and credit cards; • Karanta; • MasterCard: Classic and Business; and • BA Maestro: Classic, Student and Children. Abanka not only issues cards but also has a well-developed network of points of sale which accept the range of cards above.

Abanka implemented EMV (chip) technology on all card products (except the domestic Karanta) and started upgrading point of sale terminals in 2006. This upgrading process is expected to be completed in 2007.

Personal bank accounts

Personal bank accounts are accounts for payment transactions of individuals. Abanka offers a wide range of different personal bank accounts adapted to meet the needs of different population groups.

Standard personal bank accounts

Standard personal bank accounts are aimed at those persons who receive regular cash inflows and offer customers the best opportunities for carrying out a wide range of cash transactions. Services included in standard personal accounts include: • use of an internationally valid BA Maestro bank card for use at cash machines (ATMs) and for payments at point of sale terminals at home and abroad; • the choice between a number of charge cards from Visa and MasterCard – with deferred payment – and the Visa Electron credit card; • direct debit facilities; • normal or special overdrafts, should one be required; • cheque facilities; and • accident and supplementary health insurance.

Cash personal bank accounts

Cash accounts are suitable for customers who only need personal bank accounts for time deposits or for customers who want a simpler form of banking transaction. There is no overdraft facility available on cash bank accounts. Customers can make use of the internationally valid Visa Electron debit card to withdraw cash from ATMs and to make payments at point of sale terminals at home and abroad.

Personal account with bank book

Personal accounts with a bank book are intended for older customers who are unfamiliar with card transactions, and who prefer to maintain personal contact with employees at the teller windows in a branch. The bank book records all transactions on the account.

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Personal bank accounts for primary school children

This account is for our younger customers. Accounts for children aged six to 15 can be opened by parents or guardians. With the permission of the parent or guardian, the Bank can issue the child with a BA Maestro bank card, which can be used to withdraw cash from ATMs and to make payments at point of sale terminals at home and abroad. There is no overdraft facility available on primary school bank accounts.

Abanet online banking

Abanet online banking is a service for retail clients and sole traders wanting to carry out transactions with Abanka online. Online banking can be used for transactions within Slovenia using the payment orders for internal transfers.

Online banking can also be used in connection with a number of Abanka services, including bank accounts, savings, loans, cards (Visa, MasterCard, Karanta) and investments (AIII mutual pension fund, securities portfolios, Abanka DZU mutual funds).

Abasms mobile service

This service is intended for individual customers and sole traders enabling them to check their balance and historic transactions on their personal or business account via their mobile phone.

Service users send a key word in an SMS-text message to a dedicated phone number. The reply indicates the account balance and the most recent credit or debit to the account. The SMS-text message also gives the overdraft limit for the selected account.

The Bank provides the service via the two main mobile phone operators in Slovenia. Users can register a telephone number that can be used to review one personal and/or business account.

Deposits

The Bank offers short-term and long-term euro (previously, tolars) and foreign currency deposits which are typically renewed automatically unless the customer decides otherwise. Abanka offers such deposits in euro, United States dollars, Swiss francs, Australian dollars, Canadian dollars and Swedish kronor. The interest rate for the relevant deposit will depend on the amount and period of the time deposit.

Deposits are also offered with an increasing interest rate, where the renewal of a time deposit increases the interest rate by a bonus amount that applies on the day of renewal. Funds held in a time deposit earn higher interest than sight (demand) accounts.

Savings

Abanka also offers various savings products: savings accounts, children’s savings account with savings book, specific-purpose and annuity saving.

Specific purpose savings plans involve monthly deposits for various purposes, including education and travel. A range of various forms of saving are available, from three months up to five years.

Annuity savings plans are intended to meet long-term objectives of the Bank’s retail customers (such as supplementary insurance, the purchase of housing and the provision of education for children). The shortest annuity savings plan offered by Abanka is five years, which can later be extended. At maturity of the annuity savings plan, savings can be paid out as regular monthly annuities from one to 30 years, or as a one-off payment, or as a combination of these options.

Consumer credit

Customers can obtain short or long-term consumer loans in bank branches. For smaller amounts with repayment over a period of up to two years, customers can also take out a credit contract at point of sale from sales outlets, and/or from credit agencies with which the Bank has a business co-operation agreement.

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The amount of approved loans depends on the customers’ creditworthiness, the length of the loan (three to 180 months) and the form of insurance or guarantee provided by the customer. The Bank has a rating system to assess credit risk. This is discussed further under “– Risk Management – Credit Risk” below. The interest rate depends on the customer’s business relationship with Abanka, as well as on the type and the length of the credit. No additional customer scoring is used.

Consumer credit products accounted for 18 per cent. of the Bank’s retail division revenues in 2005, as compared to 18 per cent. in 2004 and 16 per cent. in the first six months of 2006.

Housing credit

Housing loans are generally long-term in nature. The range of possible periods for repayment of loans is from one to 20 years. The interest rate and the amount of a loan will depend on the credit rating of the customer. Various forms of insurance are also available. Loans guaranteed by a mortgage are intended for larger investments with a long repayment period (up to 30 years). The Abanka mortgage credit is a special combination of housing credit and insurance from the Zavarovalnica Triglav insurance company. See “Principal Shareholders” for further details in respect of the Bank’s relationship with Zavarovalnica Triglav, its largest shareholder.

The benefits of Abanka mortgage credit compared to other housing loans offered by the Bank are the lower interest rates available, and longer repayment periods. Creditworthiness is determined on the basis of wages, as well as other earnings, annuities, rental income and other income. Agreeing a mortgage loan combined with life insurance reduces the interest rate on the mortgage-backed loan, and provides further cover for family members.

Housing credit products accounted for 56 per cent. of the Bank’s retail division revenues in 2005, as compared to 53 per cent. in 2004 and 59 per cent. in the first six months of 2006.

Bancassurance products

In November 2003, Abanka entered the insurance market as an insurance intermediary. In co-operation with Zavarovalnica Triglav, it offered its customers the following bancassurance products: • accident insurance products for holders of regular retail transaction accounts and for secondary school and university students holding special accounts with the Bank; • life assurance products; • unit-linked life insurance products; and • single premium unit-linked life insurance (unit-linked life insurance with one premium paid at inception).

In unit-linked life insurance, the funds paid in by the policyholder are linked to movements of units of selected mutual funds managed by Abančna DZU, the investment funds management company which is also 99.0 per cent. owned by the Bank.

Since 2005, customers raising mortgage loans have also been offered a mortgage life insurance policy, which covers them and their family members in case of unforeseeable events, as well as insurance of the immovable property pledged as collateral for the mortgage loan. The policy covers fire insurance, earthquake insurance, home contents insurance and home assistance.

Although still relatively small in importance in absolute terms, the Bank has seen a trend of rapid revenue growth in this area. Bancassurance products accounted for 0.6 per cent. of the Bank’s retail division revenues in 2005, as compared to 0.3 per cent. in 2004. In the first six months of 2006, bancassurance products accounted for 1.1 per cent. of the Bank’s retail division revenues.

The Bank’s strategy includes putting greater emphasis on the cross-selling of bank and insurance products. Management believes that product bundling is a key driver towards building a customer relationship and

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Branch network

The Bank has developed a network of 41 outlets, of which seven are branches of the Bank, throughout Slovenia. In addition, customers are able to use 160 ATMs operated by the Bank.

CORPORATE BANKING In 2005, the corporate banking segment accounted for 47.5 per cent. of Group revenues and recorded a SIT (1,469,720) thousand segment loss due to higher impairment losses arising from an increase of impairments resulting from lower expected repayment of claims of certain clients and increase in the volume of business. In the first half of 2006, the corporate banking segment accounted for 47.4 per cent. of Group revenues and recorded a SIT 1,092,195 thousand segment profit. Profits in this area arise mainly from interest income.

Abanka is a universal bank for domestic and foreign corporate clients. The Bank’s corporate banking activities incorporate direct debit facilities, current accounts, deposits, overdrafts, loans and other credit facilities, international and domestic payments and documentary operations. Documentary operations include trade finance instruments, guarantees, letters of credit, collections and cash letter services.

According to Bank of Slovenia statistics for 2005, Abanka has a market share in Slovenia of 11.5 per cent. of loans to the corporate sector, 11.0 per cent. of deposits from the corporate sector and 11.7 per cent. of all international payment transactions in Slovenia.

Abanka’s business focus is to maintain intensive contacts with its corporate clients and to optimise the relationship though cross selling. Corporate relationship management for sole proprietors and small companies is dealt with separately from corporate relationship management for SMEs and large companies, because of the specialised needs of sole traders and small businesses. The focus for the Bank with regard to SMEs and larger corporates is in optimising procedures to minimise administration and to free up resource for special financial solutions for clients. In that regard, the Bank is undertaking an intensive modernisation programme to upgrade its e-banking and data warehousing facilities.

The Bank will focus on increasing the amounts of deposits from the corporate and public sector, with an emphasis on sight deposits and long-term deposits, and on increasing the volume of products with non- interest revenues, including documentary transactions and payment transactions. The Bank also plans to formulate a product offering specifically for SMEs, adjusted to the needs of such customers. Examples of those product offerings are: • finance in conjunction with schemes offered by specialised outside institutions; • treasury dealings for protection against currency, interest rate and other risks; and • special offers of investment crediting. In pursuing this strategy, the Bank intends to continue to monitor and retain the quality of its loan portfolio, by controlling the share of C, D, and E investments in its total exposure. For further information on credit quality, see “–Risk Management” below.

Further, the Bank will continue to focus on meeting customer needs with new products and developing technological routes such as e-invoices and electronic deposits to serve its customers better.

The Bank’s cross selling efforts are enhanced by the services provided by its specialised subsidiaries, Afaktor (purchase of claims), Aleasing and Vogo leasing (leasing) and Abančna DZU (investment funds). The contribution of the subsidiaries to profits is currently relatively small but management of the Bank believes

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FINANCIAL MARKETS In 2005, the financial markets segment accounted for 19.9 per cent. of Group revenues and recorded a SIT 8,284,541 thousand segment profit. This includes gains of SIT 3.6 billion arising from the sale of Abanka’s stake in NFD, an asset management company, in 2005. The remainder arose principally from interest income on debt securities. In the first half of 2006, the financial markets segment accounted for 21.7 per cent. of Group revenues and recorded a SIT 3,289,053 thousand segment profit. This arose partly from equity trading income and partly from interest income on debt securities.

Financial markets incorporates financial instruments trading, foreign currency and derivative products, merger and acquisition advice, individual asset management, custodian services and interbank relations.

The treasury department manages the Bank’s liquidity (in domestic and foreign currency) and portfolio of debt securities (both the banking and trading book of the Bank). The treasury department is also responsible for asset and liability management and offers sales activities on treasury products.

With respect to fixed income trading, the treasury department manages the trading and banking book of fixed income securities and acts as a primary dealer and market maker for Slovenia’s sovereign securities. As at 30 September 2006, the total portfolio was approximately €500 million.

The Bank has three main groups of securities in its portfolio: • debt securities issued by sovereigns, agencies and various supranational organisations; • debt securities of financial institutions; and • corporate debt securities. The investment banking department is authorised to conduct proprietary trading activities in equities and equity-related securities on domestic and foreign markets.

Abanka has historically been one of the most active members of the Ljubljana Stock Exchange in terms of the volume of transactions, both in proprietary trading and brokerage. In 2005, Abanka accounted for SIT 116 billion out of SIT 708 billion (excluding block trades) of transactions carried out on the Ljubljana Stock Exchange. With regard to proprietary trading activities, the Bank aims to gradually increase the proportion of foreign securities in its portfolio. This strategy of achieving a greater geographical diversification is aimed at improving the portfolio’s risk/reward profile. The investment banking department is focusing on asset management services and corporate finance services, where management see potential for further growth of fee income. Abanka will seek to strengthen its role as underwriter of primary market issues and in acting as an adviser in takeovers and management buyouts. In respect of brokerage services, the Bank will pursue a differentiation strategy from its competitors, with advisory services being the key factor to allow it to stand out from other local brokerage houses.

In respect of foreign exchange, money markets and derivatives products, the Bank is involved in foreign exchange swaps, spot and forward transactions, options and interest rate swaps. These transactions arise partly due to the Bank’s proprietary trading. However, most of these transactions came from the Bank’s sales function. Besides domestic clients, the Bank’s counterparties are generally major foreign banks with high levels of credit ratings (such as those with corporate ratings of “A” and above as awarded by Fitch Ratings Limited).

The Bank manages domestic and foreign currency liquidity using classical treasury products. Domestic currency liquidity is managed mostly on domestic money markets with interbank deposits, whereas foreign currency liquidity is managed mostly on the euro financial market using foreign exchange, money markets and derivatives products. For further information on management of liquidity risk, see “–Risk Management” below.

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Abanka provides custody services to Slovenian open-ended and closed-ended investment funds as well as mutual pension funds. Its market share in Slovenia (according to internal calculations by Abanka based on net asset values of Slovenian investment funds that are published in daily newspapers and on specialised portals) is in excess of 60 per cent. In addition to custody services (which include all functions of a depositary bank for Slovenian investment funds), Abanka also offers administrative services for investment funds including accounting and reporting services. Global custody for clients is provided with agreements signed with two global custodians, The Bank of New York and Raiffeisen Zentralbank Österreich AG.

OPERATIONS OF THE BANK’S SUBSIDIARIES The substantial majority of the Group’s activities are conducted by the Bank itself. However, a small proportion of the Group’s activities is conducted by the Group through the Bank’s six subsidiaries, five of which are operational, and one of which has not yet commenced operations, as at the date of this Prospectus, as described below. • Abančna DZU is an investment funds management company which manages the following investment funds on behalf of investors in the respective investment funds:

• DELNIŠKI SVET, DELNIŠKI ZDA (Global Fund): this fund invests at least 80 per cent. and up to 100 per cent. of its funds in equity securities. 40 per cent. of its allowable exposure is in Asian and Oceanian assets, up to 15 per cent. in Slovenian assets, up to 40 per cent. in other EU assets, up to 20 per cent. in non-EU member country assets and up to 40 per cent. in countries of North and South American assets;

• DELNIŠKI ZDA (USA Fund): this fund invests mainly in equity securities (at least 80 per cent. of its funds) and in loan stock and money market instruments (up to 20 per cent. of its funds) of companies located in the USA;

• DELNIŠKI AZIJA (Asia Fund): this fund invests its assets mainly in equity securities (at least 80 per cent.) and loan stock or money market instruments (up to 20 per cent.) in companies located in Asia and Oceania;

• DELNIŠKI EVROPA VIPA INVEST: this fund invests in securities and money market instruments in European companies. At least 80 per cent. of the fund’s investments are in equity securities; and

• four special investment funds with different investment strategies: DELNIŠKI Zajček (at least 75 and up to 100 per cent. in equity securities), VIPEK (mixed – at least 50 per cent. and up to 70 per cent. in equity securities and at least 10 per cent. and at most 50 per cent. in fixed income), URAVNOTEŽENI Polžek (at least 40 per cent. and up to 60 per cent. in equity securities and at least 20 per cent. and at most 60 per cent. in fixed income) in OBVEZNIČNA Sova (at least 75 per cent. and at most 100 per cent. in money market instruments and fixed income).

In 2004, custody services were introduced. As at 31 December 2005, Abančna DZU had approximately SIT 19.05 billion in funds under management. For the year ended 31 December 2005, it made profits of SIT 60.8 million, contributing 1.24 per cent. of Group profits for the year. • Afaktor, d.o.o., with its headquarters in Ljubljana, is Abanka’s specialised factoring company, whose primary activity is company financing based on instalment acceptance of claims. This subsidiary also purchases claims based on yearly factoring contracts and purchase of existing claims. For the year ended 31 December 2005, it made profits of SIT 46.7 million, contributing 0.95 per cent. of Group profits for the year. • Aleasing, d.o.o., with its headquarters in Slovenj Gradec, was acquired by the Bank in January 2006. Its acquisition forms part of the Bank’s strategy to move into lease finance, which commenced with the acquisition of Vogo leasing, described below. Aleasing, d.o.o. offers financial and operational leasing services. It is mainly active in financial leasing, particularly financial leasing of vehicles,

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although it has also recently expanded into real estate leasing. For the financial year ended 2005, it made a loss of SIT 103.7 million. • Vogo leasing, d.o.o., with its headquarters in Šempeter at Gorica, was acquired by Abanka in January 2005. Vogo leasing, d.o.o. offers general financial and operational leasing services covering all kinds of vehicles, production and service activity equipment, computer equipment and real estate. For the year ended 31 December 2005, it made profits of SIT 71.5 million, contributing 1.53 per cent. of Group profits for the year. • Argolina, d.o.o. was established in July 2003 as an investor in the construction of the Argolina business and housing complex in the Slovene coastal resort of Izola. After completion of the building Argolina, d.o.o. will, unless alternative arrangements are put in place by the new owners, take over the management of the estate. Abanka increased its share in Argolina, d.o.o. to 75 per cent. in June 2006. The aggregate exposure (loans and equity investment) of the Group to Argolina, d.o.o. as at 31 December 2005 was SIT 2.9 billion. Relax d.o.o., a hotel and facilities design company, owns the remaining 25 per cent. of the equity in Argolina d.o.o. • Analožbe was established on 8 November 2006 and is 100 per cent. owned by Abanka. The subsidiary has been newly incorporated for the purposes of participating in the forthcoming sale of equity investments by both state-owned and private investment funds, which Abanka believes will offer good investment opportunities. Analožbe does not yet have any employees, has not commenced any investment activity and there are no specific investments currently being contemplated by it.

RISK MANAGEMENT The Bank manages risk on an integrated bank-wide basis. Integrated risk management is conducted by two units – a Risk Management Department and the Management Board’s Assets and Liability Committee (“ALCO”).

The Risk Management Department is independent from the Bank’s operational business lines and reports directly to the Bank’s Management Board. Its main responsibilities include: • identifying the Bank’s risks and monitoring the adequacy and consistency of risk management protocols; • defining and validating the framework used to analyse, assess, approve and monitor risks; • setting credit, country and market risk limits and monitoring compliance with such limits; • regularly overseeing the Bank’s overall credit portfolio and risk profile; and • analysing, measuring and controlling risks associated with new products. Further, the Bank’s risk profile is evaluated monthly at the sessions of the ALCO. The ALCO comprises: • AlešŽajdela – Chairman of the Committee, President of the Management Board, responsible for the Bank’s General Services division and Finance and Process Support division; • Gregor Hudobivnik – Deputy Chairman of the Committee, Member of the Management Board, responsible for the Bank’s Financial Markets division and Information and Banking Technology division; • Radovan Jereb – Committee Member, Member of the Management Board, responsible for the Bank’s Corporate Banking division, Branch Network and Primorska division; • Nada Mertik – Committee Member, Executive Director for Finance and process support; • Anica Vehovar Žnidaršič – Committee Member, Executive Director for Corporate Banking; • Franc Bračun – Committee Member, Executive Director for Branch Network;

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• Vera Dolinar – Committee Member, Executive Director for Financial Markets;

• Simona Kogovšek – Committee Member, Executive Director for Information and Banking Technology; and

• Zvonka Črmelj – Committee Member, Director for Corporate Banking in Primorska division.

Credit Risk

In common with all banks, the Bank takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. This exposure to credit risk is carefully managed by the Bank by structuring the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical segments and by setting out limits for investments in one or more particular industries.

The Bank has a standard methodology for monitoring and rating corporations, banks, sole proprietors, farmers and private individuals, and a methodology for rating claims. Assessment of credit risk includes assessment of the financial position of the counterparty, the counterparty’s ability to provide sufficient cash flow for loan servicing in the future, the counterparty’s loan servicing track record and the type and size of the collateral (if provided) used to secure loans to the counterparty. When rating counterparties, the Bank takes both objective criteria and a subjective assessment of the counterparty into consideration. The estimated risk level is expressed by an internal scale for defining counterparties’ credit ratings, which is in accordance with that prescribed by the Bank of Slovenia. The Risk Management Department forwards all counterparty rating proposals for corporate entities and farmers to the Bank’s Credit Committee (discussed below) and ALCO (for classification of banks) for discussion and approval. Credit rating of self employed business customers other than farmers has been carried out under an automated system since 2005.

The Bank’s rating system for all corporate clients and sole proprietor clients has been in existence for 10 years. The Bank’s tailored system for automatically rating self employed customers and its rating system for farmers comply with the requirements of the Bank of Slovenia. However they differ from the proposals in the new Basel Capital Accord. The Bank aims to build on the existing rating system and to adapt it to the new capital requirements under the supervision of, and in compliance with the requirements of, the Bank of Slovenia.

In accordance with Bank of Slovenia regulations, authorised banks in Slovenia are given an A rating (Pass). In rating other banks, the credit ratings of international agencies (Fitch Ratings Ltd, Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies Inc., Moody’s Investors Service Limited) are taken into consideration, and transposed into internal credit ratings. Should external credit ratings not be available, the Bank makes its own credit rating of a counterparty bank on the basis of an assessment of the bank’s financial statements and country risk.

The Bank has also set up a credit rating system for its retail clients. When granting loans, the Bank takes into account the client’s credit rating, its financial discipline and regularity of incoming payments. If a borrower is an existing client of Abanka, its financial discipline and credit rating, as well as the regularity of incoming payments, are also monitored via the Bank’s database. In granting loans to new clients, data on the regularity of incoming payments, which such borrower must supply from its existing bank, are taken into account. A credit bureau has not yet been established in Slovenia, nor is there a national credit scoring system.

Before approving a particular loan application, the client relationship officer responsible for the counterparty must obtain the counterparty’s credit rating. The client relationship officers are responsible for administration of the loan documentation from the lodging of the application to repayment. Standardised loan applications are forwarded for decision-making to the Bank’s Credit Committee or person(s) authorised by the Bank in accordance with internal regulations on individual decision making powers. There is separate treatment for corporations, sole proprietors and farmers, and for private individuals.

Staff at different seniority may approve loans up to a certain amount, as set out below:

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Amount (up to) 1111111111(in SIT millions) Approved by: Corporate Retail Head of Branch...... – 5 Head of Department ...... 350 10 Director of Sectors and Main Branches...... 1,050 20 Executive Director...... 1,400 50 Credit Committee ...... Up to 25 per cent. of the regulatory capital of the Bank if previously approved by the Supervisory Board

Decisions of the Credit Committee are taken by majority voting. In accordance with the Slovene Companies Act, the Bank’s Management Board has the power to veto decisions taken by the Credit Committee. The Credit Committee meets once a week and its members comprise employees from corporate banking and risk management and the board member responsible for corporate and retail banking.

Short-term indebtedness limits are set for all corporate clients. This limit provides a guideline for client relationship officers in deciding on optimal short-term indebtedness of companies. For every client group of related parties to which the Bank’s exposure exceeds 10 per cent. of its regulatory capital, the maximum indebtedness limit is set and, prior to any loan being granted, approved by the Supervisory Board upon a proposal therefor being made by the Risk Management Department. The Bank complies with the large exposure limits legally prescribed by Slovene banking legislation. See “Risk Factors – Risks Relating to Abanka and its Ability to Fulfil its Obligations under the Subordinated Loan – Risks concerning borrower credit quality and non-performing loans” for further details.

Limits for exposure to foreign corporate clients and banks are set according to a client’s credit rating and the relevant country risk. These limits are adopted and distributed by the Credit Committee and the ALCO. Guidelines for increasing or decreasing the share of placements in a particular industry are determined on the basis of analysis of such industries and adopted at the Bank’s annual business conference.

The powers and responsibilities of authorised personnel derive from the Bank’s business functions as defined in Abanka’s rules of organisation. Authorised personnel have the power to make decisions on investments up to a total exposure of SIT 1,400 million for a single counterparty, depending on the rating and maturity of the investment and the quality of any collateral. Personnel authorised under these regulations must brief the Bank’s Credit Committee once a month on the exercise of their powers in the form of a standardised report.

The Bank’s Credit Committee is responsible for making decisions on investments that would create an exposure to a single counterparty of more than SIT 1,400 million.

With the introduction of IFRS, a new regulation on the individual powers of authorised personnel in dealing with corporations, sole proprietors and private individuals with farmer status was adopted in 2006 to restrict individual powers. Authorised personnel may only make decisions on investments that are group impaired in accordance with Bank of Slovenia regulations.

Market Risk

Market risk is the potential loss from changes in the value of financial instruments arising from movements in interest rates, foreign exchange rates, equity and commodity prices, and also from only indirectly observable variables, such as volatilities and correlations.

Abanka is exposed to market risk in its trading activities, including market making and sales of financial products and arbitrage. Abanka is also exposed to market risk in its investment activities for the purposes of the Bank’s own investment portfolio. Risk positions arise in the Treasury and Investment Banking departments.

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The Bank manages market risk by adopting internal rules which lay down: • trading procedures, duties, authorisations and responsibilities within individual organisational units; • segregation of duties between various organisational units which includes a mandatory delimitation of responsibilities between the trading department and back office; • internal control requirements with regard to safety and prudence; • reporting methods; • trading limits; and • an investment and trading strategy. Market risk policies are periodically reviewed and revisions are approved by the Management Board. The Risk Management Department is responsible for independent control of market risk, including identification of all market risks, establishment of necessary controls and limits, monitoring of positions and exposures, and ensuring the capture of market risk in risk measurement and reporting systems. Market risk reports are periodically reviewed by ALCO.

Abanka identifies and measures market risk using accepted market risk analysis techniques such as Value- at-Risk (VaR) indicators. The Bank’s Value-at-Risk calculations are further discussed in Note 2.4 to the Annual Financial Statements appearing elsewhere in this Prospectus.

The Bank identifies, measures, monitors and manages market risk by setting a variety of limits that are consistent with the approved business plan and its tolerance for market risk. The individual limits are set by the Risk Management Department according to different risk factors, and are prescribed at the level of individual traders, the portfolio level, the business level and the aggregate level. The variety of limits includes VaR, rating, counterparty, financial instrument, sector, currency and trader limits.

Market risk management also deals with capital requirements by forecasting and calculating capital requirements on a quarterly basis.

Abanka has launched a project to introduce new software solutions for trading as well as monitoring and risk management of treasury operations. Apart from risk measurements, this software is expected to facilitate monitoring limits, making risk analyses, simulating and testing emergency situations and examining the efficacy of back-testing. The project is expected to be concluded in the second half of 2007.

Liquidity Risk

The Bank manages liquidity risk in accordance with the liquidity management policy adopted by the Management Board on at least an annual basis, ensuring that all regulations issued by the Bank of Slovenia covering liquidity are observed.

The Bank’s liquidity situation is monitored monthly at meetings of ALCO, through which the Bank adjusts and adopts measures concerning liquidity management.

On a day to day level, decisions relating to liquidity management are adopted by the Liquidity Committee, chaired by Gregor Hudobivnik, Member of the Management Board. The Liquidity Committee considers the following factors on a daily basis: domestic currency and foreign-exchange cash flows for the preceding, current and following business days, the implementation of the Bank of Slovenia’s measures relating to liquidity management, the Bank’s open foreign-exchange position, Abanka’s borrowing on the interbank market and with the Bank of Slovenia, coefficients of liquidity and foreign-exchange rate trends.

Liquidity is operationally managed by the treasury department on the basis of monthly, weekly and daily cash flow plans prepared by all of the Bank’s business sectors. The treasury department proposes a joint cash flow plan to the Liquidity Committee, which adopts activities necessary to balance cash flows.

See Note 2.7 to the Annual Financial Statements appearing elsewhere in this Prospectus for further details.

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Operational Risk

The Risk Management Department is responsible for defining the Bank’s operational risk framework and related policies, with responsibility for implementation of these policies falling on the individual business units.

In December 2005, the Risk Management Department prepared its Strategy of Developing and Implementing the Operational Risk Management Framework, which is based on the new Basel Capital Accord (Basel II) and the new European Banking Directives (CAD 3). This strategy specifies the principles and instructions that are designed to enable Abanka to manage operational risk by identifying, assessing, monitoring and controlling it. As a part of this process, a clear assignation of duties and responsibilities for implementing identification processes and for assessing, monitoring and controlling operational risk will be carried out between senior management and the Risk Management Department.

Abanka has already identified potential loss events resulting from operational risk and assessed the probability of occurrence and the seriousness of the consequences in the case of a loss event. This has served as the basis for preparing a database of possible loss events resulting from operational risk at Abanka and the qualitatively assessed profile of operational risks by organisational units.

The Bank continues to develop its organisational structures, procedures and resources to enable it to deal with natural and accidental disasters or acts of wilful damage in order to protect its staff, assets and key activities, as well as resume normal activities should any such event occur. In December 2006, the review of the Bank’s disaster recovery procedures was completed, which will serve as a basis for further improvements of the policies currently in place.

Interest Rate Risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in prevailing levels of market interest rates on both its fair value and cash flow risks. The Group’s exposure to interest rate risks at 31 December 2005 is analysed in Note 2.6 to the Annual Financial Statements appearing elsewhere in this Prospectus.

Foreign Exchange Risk

The Group takes on exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The Group’s exposure to foreign currency exchange rate risk at 31 December 2005 is analysed in Note 2.5 to the Annual Financial Statements appearing elsewhere in this Prospectus.

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ANALYSIS OF LOAN PORTFOLIO Loan portfolio by sector

At 31 December 2005, net loans as a percentage of total assets was 68.8 per cent. The loan portfolio of the Bank is diversified across various sectors, as set out below in respect of the position at 31 December 2005. The analysis of loan portfolio by sector as presented in the following table differs from the information included in the Annual Financial Statements. This information was derived from statutory management accounts prepared in accordance with the SKD (Slovene standard classification of activities) on an unconsolidated basis under SAS and reported to the Bank of Slovenia:

Loans per cent. (at 31 of loans December per cent. rated C, D 2005) of total and E(1)

(in thousands of SIT) (unaudited) Agriculture, Hunting and Forestry...... 4,951,261 1.15 4.5 Fishing ...... 100,000 0.02 0.0 Mining and Quarrying...... 26,675 0.01 0.0 Food, Beverages and Tobacco ...... 12,291,861 2.85 16.3 Textile and Textile Products...... 10,685,840 2.48 48.7 Leather and Leather Products ...... 1,741,440 0.40 0.9 Wood and Wood Products...... 3,336,230 0.77 29.4 Pulp, Paper and Paper Products, Publishing and Printing ...... 5,709,410 1.33 34.2 Coke, Refined Petroleum Products and Nuclear Fuel ...... 12,180 0.00 0.0 Chemicals, Chemical Products and Man-made Fibres ...... 11,814,943 2.74 3.3 Rubber and Plastic Products ...... 3,325,955 0.77 18.1 Other Non-metallic Mineral Products ...... 2,024,881 0.47 0.0 Basic Metals and Fabricated Metal Products ...... 18,239,082 4.24 2.4 Machinery and Equipment not elsewhere classified ...... 8,928,712 2.07 3.1 Electrical and Optical Equipment ...... 8,697,620 2.02 4.9 Transport Equipment...... 4,183,730 0.97 0.2 Furniture and Other Manufacturing ...... 3,350,540 0.78 29.4 Electricity, Gas and Water Supply ...... 42,177 0.01 0.0 Construction ...... 31,842,853 7.40 3.4 Wholesale and Retail Trade; Repairs ...... 77,977,640 18.11 8.9 Hotels and Restaurants ...... 9,899,777 2.30 13.4 Transport, Storage and Communication ...... 18,832,200 4.37 2.4 Financial Intermediation ...... 20,246,782 4.70 0.4 Real Estate, Renting and Business Activities ...... 52,341,967 12.16 6.9 Public Administration and Defence; Compulsory Social Security...... 2,468,170 0.57 0.0 Education ...... 74,004 0.02 0.0 Health and Social Work...... 2,168,500 0.50 1.3 Other Community, Social and Personal Service Activities ...... 3,626,875 0.84 12.4 Others ...... 11112 314,166 111120.07 11112 65.8 Total Economic Sectors ...... 319,255,47111112 11112 74.14 11112 8.7 Citizens ...... 11112 55,721,051 11112 12.94 111121.5 Foreign Corporates (including Foreign Banks) ...... 11112 55,619,021 11112 12.92 11112 1.1 Total ...... 430,595,54311112 11112100.00 11112 6.8

Notes: (1) C, D and E loans are classified as Substandard, Doubtful and Loss respectively – see below for further details. (2) The classification of loans into industry sectors under SKD is based on the main business activity of the client for which it is officially registered. Clients, active in more than one industry are thus not included in other industries. For example, the “Real Estate, Renting and Business Activities” category includes clients with very diversified business portfolios (eg holding companies which are active in food, energy, tourism, investments, rubber manufacturing, real estate, financial and other services).

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Loan portfolio by type of customer

The table below sets out the composition, by type of customer, of the Bank’s loan portfolio as at the dates indicated. The information in respect of the breakdown of the Bank’s loan portfolio by type of customer as presented in the following table differs from the information included in the Annual Financial Statements as it reflects data that is based on the unconsolidated statutory management accounts, prepared under SAS, which have been reported to the Bank of Slovenia.

31 December 31 December 2005 per cent. 2004 per cent. (unaudited) (unaudited)

(in thousands (in thousands of SIT) of SIT) Domestic corporates ...... 297,301,015 96 258,583,917 97 Foreign corporates ...... 11112 11,922,255 11112 4 11112 8,376,472 11112 3 Total corporates ...... 309,223,27011112 11112 72 266,960,389 11112 11112 73 Government entities ...... 9,377,906 62 3,695,886 30 Municipalities ...... 42,073 0 42,630 0 Other public sector ...... 11112 5,675,077 11112 38 11112 8,645,271 11112 70 Total public sector ...... 11112 15,095,056 11112 4 11112 12,383,787 11112 3 Domestic banks...... 1,078,654 2 4,967,335 15 Foreign banks ...... 11112 43,696,766 11112 98 11112 27,467,442 11112 85 Total banks ...... 11112 44,775,420 11112 10 11112 32,434,777 11112 9 Retail – individuals ...... 11112 55,721,051 11112 13 11112 47,124,082 11112 13 Sole traders ...... 11112 5,780,746 11112 1 11112 5,735,342 11112 2 Total ...... 430,595,54311112 11112 100 364,638,377 11112 11112 100

Classification of customer loans

The Bank classifies A (Pass), B (Watch), C (Substandard), D (Doubtful), E (Loss) rated loans on the basis of objective criteria (such as how frequently loans are serviced) and subjective criteria (such as the financial position of the defaulter and capability of providing sufficient cash flow for loan servicing in the future). The Bank’s criteria for rating loans are in accordance with regulations promulgated by the Bank of Slovenia.

A (Pass) rated claims comprise the following: • claims against the Bank of Slovenia and the Slovene government, claims against the European Union, and claims against the government and central banks of EEA countries and comparable OECD countries; • claims insured with high quality collateral meeting the Bank’s requirements; • claims against counterparties whose payments are made on time, or exceptionally up to 15 days in arrears.

B (Watch) rated claims comprise claims against counterparties: • whose cash flow the Bank estimates to be sufficient for meeting obligations as they fall due but whose current financial standing has deteriorated, although it is unlikely to worsen significantly in the future; • whose payments are often up to 30 days in arrears and occasionally 31 to 90 days in arrears. C (Substandard) rated claims comprise claims against counterparties: • whose cash flow the Bank estimates not to be sufficient for the regular settlement of due liabilities;

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• who are substantially undercapitalised; • who lack sufficient long-term sources of funds to finance long-term investments; • who do not provide to the Bank sufficient up-to-date information or appropriate documentation related to the settlement of liabilities; • whose payments are often up to 90 days in arrears and occasionally 91 to 180 days in arrears. D (Doubtful) rated claims comprise claims against counterparties: • for whom there exists a substantial probability of loss of part of the financial asset or payment of the assumed liability; • that are insolvent or have no liquidity; • against whom a motion for initiation of compulsory settlement or bankruptcy proceedings has been lodged at the competent court; • that are undergoing rehabilitation or compulsory settlement; • that are in bankruptcy; • whose payments are often 91 to 180 days in arrears, and occasionally 181 to 360 days in arrears, but where the Bank has reason to expect the claim to be covered in part.

E (Loss) rated claims comprise the following: • claims that in the Bank’s assessment will not be repaid; • claims with a disputed legal basis; • claims against counterparties whose payments are more than 360 days in arrears. Non-Performing claims include C, D and E rated claims.

The following table provides information in respect of the classification of the Bank’s customer loans, excluding loans to other banks, as at 31 December 2005. The information in respect of the classification of the Bank’s customer loans, excluding loans to other banks, as presented in the following table, differs from the information included in the Annual Financial Statements as it reflects data that is based on the audited unconsolidated statutory accounts, prepared in accordance with SAS, which have been reported to the Bank of Slovenia.

Amounts Specific in SIT Per cent. Provisions thousands Loan in SIT Per cent. (Gross) Distribution thousands Provided

(A) Pass...... 293,948,528 77.6 2,919,812 1.0(1) (B) Watch ...... 56,159,834 14.8 5,717,627 10.2(1) (C) Substandard ...... 18,584,723 4.9 4,778,702 25.7 (D) Doubtful ...... 5,120,955 1.4 2,729,360 53.3 (E) Loss...... 4,993,083 1.3 4,994,215 100.0 Non-performing (C, D and E)...... 11112 28,698,761 11112 7.6 11112 12,502,277 11112 43.6 Total Loans...... 378,807,12311112 11112 100.0 11112 21,139,716 11112 5.6

Note: (1) Bank of Slovenia regulations require provisions to be formed on A and B loans. Required provisions are 1 per cent. for A loans and 10 per cent. for B loans.

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The following table provides information in respect of the classification of the Bank’s customer loans, including loans to other banks, as at 31 December 2005. The information in respect of the classification of the Bank’s customer loans, including loans to other banks, as presented in the following table, differs from the information included in the Annual Financial Statements as it reflects data that is based on the audited unconsolidated statutory accounts, prepared under SAS, which have been reported to the Bank of Slovenia.

Amounts Specific in SIT Per cent. Provisions thousands Loan in SIT Per cent. (Gross) Distribution thousands Provided

(A) Pass...... 344,552,435 80.02 3,386,084 0.98 (B) Watch ...... 56,880,791 13.21 5,887,960 10.35 (C) Substandard ...... 18,776,383 4.36 4,869,794 25.94 (D) Doubtful ...... 5,120,955 1.19 2,729,360 53.30 (E) Loss...... 5,264,979 1.22 5,266,111 100.02 Non-performing (C, D and E)...... 11112 29,162,317 11112 6.77 11112 12,865,265 11112 44.12 Total Loans...... 430,595,54311112 11112 100.00 11112 22,139,309 11112 5.14

Loan portfolio by maturity

The following table sets out details of the Bank’s consolidated net loans to banks and non-bank customers by maturity as at the dates indicated (based on data extracted from Note 2.6 to the Annual Financial Statements):

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Maturity Up to 1 month ...... 69,759,745 16.80% 64,914,219 18.40% From 1 to 3 months ...... 32,148,442 7.74% 34,239,014 9.71% From 3 to 12 months ...... 107,284,951 25.84% 117,826,420 33.41% From 1 to 5 years ...... 160,014,618 38.53% 79,892,965 22.65% Over 5 years ...... 11112 46,051,065 11112 11.09% 11112 55,826,863 11112 15.83% Total ...... 415,258,82111112 11112 100.00% 352,699,481 11112 11112 100.00%

The following table sets out details of the Bank’s consolidated net loans to non-bank customers by maturity as at the dates indicated as extracted without material adjustment from the Annual Financial Statements:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Maturity Up to 1 month ...... 25,008,086 6.92% 32,891,552 10.36% From 1 to 3 months ...... 31,069,619 8.59% 34,238,968 10.78% From 3 to 12 months ...... 106,772,095 29.52% 117,826,420 37.10% From 1 to 5 years ...... 152,739,534 42.24% 76,814,092 24.19% Over 5 years ...... 11112 46,051,065 11112 12.73% 11112 55,826,863 11112 17.58% Total ...... 361,640,39911112 11112 100.00% 317,597,895 11112 11112 100.00%

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Loan portfolio by currency

The following table sets out details of the Bank’s net loans to banks and non-bank customers by currency as at the dates indicated as extracted without material adjustment from the Annual Financial Statements prepared under IFRS:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Currency SIT ...... 212,064,703 51.1% 219,419,694 62.2% EUR ...... 188,747,590 45.5% 122,436,473 34.7% USD ...... 10,595,927 2.6% 5,956,411 1.7% Other currencies ...... 11112 3,850,601 11112 0.9% 11112 4,886,903 11112 1.4% Total ...... 415,258,82111112 11112 100.0% 352,699,481 11112 11112 100.0%

The following table sets out details of the Bank’s net loans to non-bank customers by currency as at the dates indicated as extracted without material adjustment from the Annual Financial Statements prepared under IFRS:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Currency SIT ...... 201,567,999 55.7% 211,610,223 66.6% EUR ...... 154,815,691 42.8% 102,260,280 32.2% USD ...... 4,005,263 1.1% 1,942,544 0.6% CHF ...... 11112 1,251,446 11112 0.3% 11112 1,784,848 11112 0.6% Total ...... 361,640,39911112 11112 100.0% 317,597,895 11112 11112 100.0%

Write-offs

The following table sets out details of loan write-offs by type of customer for the years indicated, as extracted from the Bank’s statutory management accounts prepared in accordance with IFRS:

2005 2004

(in thousands of SIT) (unaudited) Bad debts written off directly – corporate ...... 169,320 25,056 – retail ...... 100,992 9,683 – SMEs ...... 46,106 24,992 – other...... 11112 699,345 11112 281,692 Total...... 11112 1,015,763 11112 341,423

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Outstanding obligations

The following table sets out the outstanding obligations of clients towards the Bank which were more than 90 days overdue (this information reflects data that is based on the unconsolidated statutory management accounts, prepared under SAS, which have been reported to the Bank of Slovenia):

As at As at 31 December 31 December 2005 2004

(in thousands of SIT) (unaudited) Outstanding obligations(1) Obligations more than 90 days overdue – corporate clients and sole proprietors ...... 6,616 2,694 – retail clients ...... 11112 65 11112 63 Total obligations more than 90 days overdue ...... 11112 6,681 11112 2,757 Doubtful debt – corporate clients and sole proprietors ...... 5,178 5,533 – retail clients ...... 11112 1,609 11112 1,676 Total doubtful debt ...... 11112 6,787 11112 7,209 Total obligations more than 90 days overdue ...... 1111213,468 11112 9,966 Total overdue obligations ...... 15,060 10,674 11112 11112 Share of obligations more than 90 days overdue in total overdue obligations (in %) 89% 93% Exposure (classified) – corporate clients and sole proprietors ...... 495,995 407,106 – retail clients ...... 11112 71,033 11112 66,460 Total exposure ...... 567,028 473,566 11112 11112 Share of obligations more than 90 days overdue in total exposure (in %) ...... 2.38% 2.10%

Note: (1) Outstanding obligations consist of outstanding loans, outstanding interest and outstanding fees and commissions.

As set out under “– Classification of customer loans”, C and D rated loans are not necessarily more than 90 days overdue. In many cases, C rated loans are not overdue at all, leading to otherwise current loans being classified as non-performing for other reasons, as described under “– Classification of customer loans” above. The table above has therefore been presented to reflect the quality of the Bank’s exposure to its clients, measured solely by reference to the number of days overdue.

ANALYSIS OF FUNDING Historically, Abanka’s funding has been built largely on deposits with additional wholesale financing arising from the issuance of debt securities. In March 2006, as part of its strategy to broaden its funding base, the Bank entered into a €180,000,000 Term Loan Facility Agreement, all of which has been drawn down as at the date of this Prospectus. The facility was entered into with a consortium of nine foreign banks and is for a five year term.

Aggregate Customer Balances (Excluding Banks)

At 31 December 2005, taking into account term deposits and current accounts combined, the 20 largest aggregate customer depositors accounted for 27.08 per cent. of total customer deposits. The two largest depositors represented 15.42 per cent. of total customer deposits as at that date.

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At 31 December 2004, taking into account term deposits and current accounts combined, the 20 largest aggregate customer depositors accounted for 13.37 per cent. of total customer deposits. The two largest depositors represented 5.45 per cent. of total customer deposits as at that date.

Aggregate Bank Balances At 31 December 2005, the 10 largest aggregate bank balances accounted for 81.68 per cent. of total interbank loans, deposits and loro accounts. The three largest bank lenders represented 47.91 per cent. of total interbank funding. At 31 December 2004, the 10 largest aggregate bank balances accounted for 73.48 per cent. of total interbank loans. The three largest bank lenders represented 45.53 per cent. of total interbank funding.

Funding by maturity The following table sets out details of deposits by non-bank customers by maturity as at the dates indicated as extracted without material adjustment from the Annual Financial Statements prepared under IFRS:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Maturity Up to 1 month ...... 223,666,922 60.07% 190,462,754 58.54% From 1 to 3 months ...... 77,387,814 20.78% 56,903,294 17.49% From 3 to 12 months ...... 40,868,439 10.98% 35,937,529 11.05% From 1 to 5 years ...... 28,351,257 7.61% 39,039,841 12.00% Over 5 years ...... 11112 2,093,804 11112 0.56% 11112 3,006,246 11112 0.92% Total ...... 372,368,23611112 11112 100.00% 325,349,664 11112 11112 100.00%

Funding by type of customer The following table sets out details of deposits by type of non-bank customer as at the dates indicated as extracted without material adjustment from the Annual Financial Statements prepared under IFRS:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Large corporate customers ...... 145,977,401 39.20% 107,440,744 33.02% SMEs...... 32,220,594 8.65% 27,730,459 8.52% Retail customers ...... 194,170,24111112 11112 52.14% 190,178,461 11112 11112 58.45% Total ...... 372,368,23611112 11112 100.00% 325,349,664 11112 11112 100.00%

Funding by type of deposit The following table sets out details of sight and term deposits by non-bank customers as at the dates indicated as extracted without material adjustment from the Annual Financial Statements prepared under IFRS:

As at 31 As at 31 December Percentage December Percentage 2005 of total 2004 of total

(in thousands (in thousands of SIT) of SIT) Current/settlement accounts ...... 106,584,929 28.62% 96,354,325 29.62% Term deposits ...... 265,783,30711112 11112 71.38% 228,995,339 11112 11112 70.38% Total ...... 372,368,23611112 11112 100.00% 325,349,664 11112 11112 100.00%

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Other funding sources

As described above, the Bank’s principal source of funding is from sight and term deposits by its non-bank customers, principally retail and large corporate customers, with the former accounting for more than half of all non-bank deposits as at 31 December 2005.

However, the Bank also satisfies a substantial portion of its funding requirements from other banks. As at 31 December 2005, it had SIT 12.8 billion of deposits from banks and SIT 112.3 billion of Other borrowed funds, principally representing long-term foreign currency funding from foreign banks.

Furthermore, the Bank is an active participant in the domestic capital markets in Slovenia, and had SIT 33.3 billion of debt securities in issue as at 31 December 2005, principally denominated in euro. These debt securities are listed on the Ljubljana Stock Exchange and the majority of these securities are issued on a subordinated basis (and which rank prior to the Subordinated Loan described elsewhere in this Prospectus). See Notes 24, 27 and 28 of the Annual Financial Statements included elsewhere in this Prospectus for further details in respect of these amounts.

CAPITAL ADEQUACY Abanka is required to prepare Capital Adequacy Ratio (“CAR”) calculations under regulations promulgated by the Bank of Slovenia. The Bank of Slovenia requires the Bank to maintain a total CAR of at least 8 per cent. of risk-weighted assets. However, the Bank of Slovenia does not impose any requirements regarding the Bank’s Tier 1 ratio.

From 31 December 2005 to 30 June 2006, the Bank’s consolidated Tier 1 capital ratio decreased from 8.0 per cent. (prepared under SAS) to 7.5 per cent. (prepared under IFRS). The changes in this ratio arose largely as a result of the Bank’s risk-weighted assets growing higher than the growth in regulatory capital.

During the same period, the Bank’s total consolidated capital ratio decreased from 10.3 per cent. (prepared under SAS) to 9.0 per cent. (prepared under IFRS), also as a result of the Bank’s risk-weighted assets growing higher than the growth in regulatory capital.

See “Capitalisation” for further details regarding the effect of the entry into by the Bank of the Subordinated Loan on its capital position.

CONTINGENT LIABILITIES AND COMMITMENTS Credit related commitments

The primary purpose of the Bank’s credit-related instruments is to ensure that funds are available to customers upon request. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet their obligations to third parties, carry the same credit risk as loans, documentary and commercial letters of credit (which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions) and are collateralised by the underlying shipments of goods to which they relate and therefore involve significantly less risk. Cash requirements under guarantees and standby letters of credit are considerably lower than the amount of the commitment, because the Group does not generally expect the third party to draw funds under the agreement.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in the amount equal to the total unused commitments. However, the likely amount of loss, though not easy to quantify, is considerably lower than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards.

While there is some credit risk associated with the remainder of commitments, the risk is viewed as modest, since it results from the possibility of unused portions of loan authorisations being drawn by the customer and, secondly, from these drawings subsequently not being repaid when due. The Group monitors the term

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The following table, extracted without material adjustment from Note 31 to the Annual Financial Statements, indicates the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers, as at the dates indicated:

As at 31 As at 31 December December 2005 2004

(SIT thousands) Guarantees and commitments Guarantees and commitments to extend credit...... 123,578,113 153,707,186 Documentary and commercial letters of credit ...... 11112 5,320,427 11112 6,972,015 128,898,54011112 160,679,201 11112 Provision for guarantees and commitments – Legal proceedings ...... (2,054,742) (1,822,360) – Other...... 11112 (3,459,030) 11112 (1,751,817) 123,384,76811112 157,105,024 11112

TECHNOLOGY In order to reduce operational risks related to its use of information technology, Abanka is constantly seeking to improve its security policies. The Bank has worked intensively on a business continuity plan project. The project is designed to produce detailed plans aimed at minimising or eradicating interruption to operations for all products and organisational units of the bank in the event of a general calamity or disaster. A change management methodology has been developed to ensure the business continuity plan is kept up to date.

In organising its information and data protection and security systems, the Bank’s main objective has been to ensure optimal availability, confidentiality and integrity of information. The Bank’s security policy is founded on rules and policies on protection and security of the information system, the protection and security of data, hardware and software, instructions on the protection of personal data databases and related elements of the Bank’s security policy. In addition, the Bank’s information technology systems are in compliance with the Data Protection Code (Slovene standard PSIST BS 7799).

The protection and security system covers documents, data and communications as well as all hardware and software. The system is based on a suitable method of storing protected data and regulating access to protected data, software applications and communication channels. The Bank has also developed its own data protection programme and uses a combination of differential and complete backups.

The Risk Management Department is involved in the euro introduction project which was launched in 2005 with a preliminary analysis of risks arising from the euro changeover. Effecting integral adjustments to the Bank’s products and services to cope with the introduction of the euro with effect from 1 January 2007 was the principal focus of the Bank’s information technology personnel during 2006, focusing in particular on payment transaction applications. Following a risk analysis of cash and ATM transactions, measures have been taken to reduce the number of possible loss events in these segments.

Since July 2005, Abanka has been a direct participant in the German RTGSplus system. Accordingly, preparations are underway for the Bank to participate in the TARGET 2 initiative currently scheduled to become effective in November 2007. The Bank is adapting its systems to be compliant with the functional specifications and required connection supplements to the system through SWIFT.

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COMPETITORS The market within which the Bank operates is highly competitive. The Bank competes with a number of other credit institutions, including domestic and foreign banks. On 1 May 2004, Slovenia became a member of the European Union, which has intensified competition, in particular with an increasing number of foreign banks commencing or increasing their business interests in the country, including by acquisition of interests in existing banks, establishing branches of the relevant foreign bank or acquiring a domestic banking licence of their own.

At 31 December 2005, the Bank had an 8.6 per cent. market share in terms of the Slovenian banking system’s total assets, according to Bank of Slovenia statistics, ranking third in Slovenia by that measure.

The top two banks, Nova Ljubljanska Banka (“NLB”) and Nova Kreditna banka Maribor (“NKBM”), together represented approximately 41.8 per cent. of total banking assets as at 31 December 2005 and the top five banks accounted for a combined 63.5 per cent. market share as at such date. Abanka’s main competitors include NLB, NKBM, SKB Banka d.d., Bank Austria Creditanstalt d.d., Banka Koper d.d. and Banka Celje d.d.

EMPLOYEES At 31 December 2005, the Bank employed 843 people, as compared to 812 at 31 December 2004.

The Group is legally obliged to provide benefits for its employees. These employee benefits are included in staff costs and in other liabilities as provisions for employees’ benefits. Abanka has no unfunded pension liabilities.

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Management

Management Board

The management board of Abanka as at the date of this Prospectus is as follows:

Name Function Significant Outside Activity A9.9.1 AlešŽajdela...... President of the Management KDD Centralna Klirinško depotna A9.9.1(A) Board, responsible for Risk družba d.d. A9.9.2 Management, the General Chairman of the Supervisory Board Services division and the Združenje bank Slovenije Finance and Process Support division Member of the Supervisory Board

Radovan Jereb ...... Member of the Management Javor Pivka d.d. Board, responsible for the Member of the Supervisory Board Corporate Banking division, the Branch Network and the Primorska division

Gregor Hudobivnik ...... Member of the Management Abančna DZU d.o.o. Board, responsible for the Chairman of the Supervisory Board Financial Markets division and the Information and Banking Technology division

The appointment of AlešŽajdela as President of the Management Board became fully effective on 1 September 2005 with the approval of the Governing Board of the Bank of Slovenia. The Governing Board of the Bank of Slovenia licensed Gregor Hudobivnik and Radovan Jereb to perform the function of members of Abanka’s management board on 28 September 2005.

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MANAGEMENT

Supervisory Board

The supervisory board of Abanka functions in accordance with the powers that its holds pursuant to the A9.9.1(A) Slovenian Companies Act – 1 and the Slovenian Banking Act – 1. As at the date of this Prospectus, it is composed of:

Name Function Significant Outside Activity Tomaž Toplak ...... Chairman of the Kapitalska družba pokojninskega in Supervisory Board invalidskega zavarovanja d.d. President of the Management Board Zavarovalnica Triglav, d.d. Member of the Supervisory Board Istrabenz, d.d. Member of the Supervisory Board

Dr. Alenka Žnidaršič KranjcDeputy Chairwoman of the Prva pokojninska družba d.d. Supervisory Board Chairwoman of the Management Board Deos Member of the Supervisory Board KB Prvo penzijsko društvo Makedonija A. Member of the Supervisory Board

Andrej Klanjšček ...... Member of the Supervisory HIT d.d. Board Director for Economics and Finance Vodi Gorica d.d. Member of the Supervisory Board

Dragiša Milosavljevič...... Member of the Supervisory Štajerski avto dom d.d. Board CEO

Irena Vodopivec Jean...... Member of the Supervisory Ministrstvo za finance Board (Ministry of Finance) Head of the Financial Sector department

Simon Zdolšek...... Member of the Supervisory Zvon Ena Holding, finančna Board družba d.d. President of the Management Board Belinka d.d Member of the Supervisory Board Helios d.d. Member of the Supervisory Board Pivovarna Laško d.d. Member of the Supervisory Board Goričane d.d. Member of the Supervisory Board

Stojan Petrič...... Member of the Supervisory Kolektor Group d.o.o. Board CEO Vipa Holding d.d. Member of the Supervisory Board FMR d.d. Chairman of the Supervisory Board Fond d.d. Chairman of the Supervisory Board

Other than as disclosed above, no member of the Management Board or Supervisory Board has any activities outside Abanka which are significant with respect to Abanka. The current composition of the

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MANAGEMENT supervisory board will be adjusted by 31 August 2007 to comply with the new requirements imposed on supervisory board members of a bank. The new regulation prohibits membership of a supervisory board for board members of other regulated financial entities or financial holding companies. Three members (Tomaž Toplak, Dr. Alenka Žnidaršič Kranjc and Simon Zdolšek) do not currently satisfy the new membership criteria.

The business address of each person identified above is:

Name Business entity Address Tomaž Toplak ...... Kapitalska družba Dunajska 119, 1000 Ljubljana pokojninskega in invalidskega zavarovanja, d.d.

Dr. Alenka Žnidaršič Kranjc Prva pokojninska družba, d.d. Železna cesta 18, 1000 Ljubljana

Andrej Klanjšček ...... HIT d.d. Delpinova 7a, 5000 Nova Gorica

Dragiša Milosavljevič...... Štajerski avto dom d.o.o. Traška 38, 2000 Maribor

Irena Vodopivec Jean...... Ministrstvo za finance Župančičeva 3, 1000 Ljubljana

Simon Zdolšek...... Zvon Ena Holding, finančna Slovenska cesta 17, 2000 Maribor družba d.d.

Stojan Petrič...... Kolektor Idrija Vojkova 10, 5280 Idrija

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Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and deposits. The volume of transactions involving related parties for the years ended 31 December 2005 and 2004 are as follows (audited data extracted from the Annual Financial Statements):

Members of the Board of directors and Entities with 1111111111Supervisory Board 1111111111 significant influence 1111111111 Associates Type of related party 2005 2004 2005 2004 2005 2004

(in thousands of SIT) (in thousands of SIT) (in thousands of SIT) Loans Loans outstanding as at the beginning of year...... 72,763 55,886 5,804,350 5,099,558 2,727,172 2,104,329 Loans issued during the year .... 387 30,475 2,077,143 11,297,100 195,981 781,222 Loan repayments during the year ...... (57,614) (13,598) (6,340,508)(10,592,308) (27,058) (158,379) Loans outstanding as at the end of year ...... 15,536 72,763 1,540,985 5,804,350 2,896,095 2,727,172 Interest income and fee earned 1,314 3,363 108,541 375,522 – 1,707 Deposits Deposits as at the beginning of year ...... 492,220 319,708 2,905,885 5,449,509 – – Deposits received...... 633,309 652,472 27,628,234 47,246,546 – – Deposits repaid ...... (953,752) (479,960)(27,510,477)(49,790,170) – – Deposits as at the end of year .. 171,777 492,220 3,023,642 2,905,885 – – Interest expense on deposits .... 6,293 9,110 245,581 230,787 – – Foreign exchange trading Aggregated gain/(loss) ...... – – 0 276,839 – – Other revenue – fee income .... – – 2,202 30,575 – 50 Guarantees issued by the Group – – 44,394 1,097,878 – –

Related companies consist of the Board of directors and Supervisory Board, entities with significant influence and associates. The Bank’s associates Aleasing d.o.o. and Afaktor d.o.o. account for the largest proportion of loans to related parties. Abanka’s main shareholder Zavarovalnica Triglav is the largest depositor among related parties, and most guarantees were issued to Abanka's shareholders Štajerski avto dom d.o.o. and HIT d.d.

Remuneration

In 2005 total remuneration of the members of the Board of directors and Supervisory Board was SIT 70,605 thousand (2004: SIT 51,800 thousand).

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Principal Shareholders

Abanka’s share capital as at the date of this Prospectus is SIT 5,500,000,000, consisting of 5,500,000 ordinary shares, all of which have been issued. The following table sets out the holdings of the ten largest investors in the Bank as at 3 January 2007:

Name of shareholder Total shares per cent. A9.10.1 Zavarovalnica Triglav, d.d.(1)(2) ...... 1,170,028 21.27 Fmr d.d.(2) ...... 541,058 9.84 Delniški Vzajemni Sklad Triglav Steber 1(1)(2) ...... 402,537 7.32 Zvon Ena Holding, d.d...... 381,687 6.94 Hit d.d. Nova Gorica(2) ...... 335,275 6.10 Poteza Naložbe d.o.o...... 289,259 5.26 Štajerski Avto Dom d.d...... 275,001 5.00 Zavarovalnica Triglav-Kritni Sklad(1)(2) ...... 241,575 4.39 Kingshouse Investments Limited ...... 220,434 4.01 (2) Daimond d.d...... 11211 195,373 11211 3.55 Total ...... 4,052,227 73.68 11211 11211

Notes: (1) Related parties, whose shareholdings represent the aggregate interests of Zavarovalnica Triglav, d.d., the Bank’s single largest shareholder. (2) These parties are believed by management of the Bank to be party to the shareholders’ agreement referred to below.

As can be seen from the above table, the ten largest shareholders in the Bank together own approximately 73.7 per cent. of the Bank’s share capital as at 3 January 2007. Zavarovalnica Triglav, d.d. (“Zavarovalnica Triglav”), Slovenia’s largest insurance company, is the Bank’s single largest shareholder, with a directly held stake of approximately 21.3 per cent. and, when taken together with shareholders affiliated with it, a total interest in the Bank of approximately 33.0 per cent. Zavarovalnica Triglav and certain shareholders affiliated with it have also entered into a shareholders’ agreement governing their shareholdings in the Bank, although the terms of such agreement have not been made available to the Bank. Together, the shareholders party to the shareholders’ agreement are believed to own 52.5 per cent. in aggregate of the Bank’s share capital. See “Risk Factors - Risks Relating to Abanka and its Ability to Fulfil its Obligations under the Subordinated Loan - Significant influence may be exerted over the Bank by Zavarovalnica Triglav and other large shareholders in the Bank”.

Abanka and Zavarovalnica Triglav co-operate closely, particularly in the areas of: • life insurance: jointly developing and distributing life insurance products through Abanka’s branch network; and • mortgage financing: providing complementary services. Abanka arranges loan origination, processing distribution and funding and Zavarovalnica Triglav offers accompanying property and life insurance products.

To the knowledge of Abanka, there are no arrangements which may at a subsequent date result in a change in control of Abanka.

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The Issuer

GENERAL A10.26.1 A10.26.3 Afinance B.V. was incorporated as a private company with limited liability (besloten vennootschap met A10.26.2 beperkte aansprakelijkheid) under, and subject to, the laws of The Netherlands on 16 November 2006 for an unlimited duration. It is registered in the Commercial Register of the Chamber of Commerce of Amsterdam, The Netherlands under number 34260083.

The Issuer is wholly-owned by Stichting Afinance, established as a foundation (stichting) on 8 November 2006 under, and subject to, the laws of The Netherlands. It is registered in the Commercial Register of the Chamber of Commerce of Amsterdam, The Netherlands under number 34259603.

The Articles of Association (the “Articles”) of the Issuer dated 16 November 2006 (as currently in effect) provide under clause 2.1 that the objects of the Issuer are:

(a) to raise funds through, inter alia, borrowing under loan agreements, the issuance of bonds and other debt instruments, the use of financial derivatives or otherwise and to invest and apply funds obtained by the Issuer in, inter alia, (interests in) loans, bonds, debt instruments, shares, warrants and other similar securities and also in financial derivatives;

(b) to grant security for the Issuer’s obligations and debts;

(c) to enter into agreements, including, but not limited to, financial derivatives such as interest and/or currency exchange agreements, in connection with the objects mentioned under (a) and (b); and

(d) to enter into agreements, including, but not limited to, bank, securities and cash administration agreements, asset management agreements and agreements creating security in connection with the objects mentioned under (a), (b) and (c) above.

The registered office of the Issuer is at Locatellikade 1, 1076 AZ Amsterdam, The Netherlands and its A10.26.1 telephone number is +31 20 6730 016.

The issue of the Notes and the entering into by the Issuer of the Sub-Participation Agreement, the Trust Deed and other matters relating to the issue of the Notes and the Sub-Participation were duly authorised by resolutions of the management board of the Issuer dated 17 November 2006 and 15 January 2007.

CAPITALISATION The following table sets forth the unaudited capitalisation of the Issuer as at the date of this Prospectus, as adjusted to give effect to the issue of the Notes:

(€) Shareholders’ Equity Capital Stock of €20,000 ...... 20,000 Indebtedness €120,000,000 Floating Rate Perpetual Loan Participation Notes with interest rate step-up in 2017 ...... 120,000,000 Total Indebtedness ...... 120,000,000111121 Total Capitalisation and Indebtedness ...... 120,020,000 111121

BUSINESS So long as any of the Notes remain outstanding, the Issuer will be subject to the restrictions set out in the Conditions and the Trust Deed under which it has agreed to conduct no business other than in connection with the issue and servicing of the Notes and the entry into and performance of the Sub-Participation Agreement.

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THE ISSUER

The Issuer has been established as a special purpose entity for the purpose of issuing the Notes and has not carried out any business since its incorporation.

CORPORATE ADMINISTRATION TMF Management B.V., a private company with limited liability incorporated under the laws of The Netherlands, has been appointed as the managing director of the Issuer and is responsible for the management and administration of the Issuer. TMF Management B.V. specialises in providing trustee services and the incorporation and management of trusts, funds, foundations and companies for institutions, multinationals and private individuals. The managing director of the Issuer has its corporate seat in Amsterdam, The Netherlands and its place of business is at Locatellikade 1, 1076 AZ Amsterdam, The Netherlands.

DIRECTORS The sole managing director of the Issuer is TMF Management B.V., which may engage in other activities and have other interests which may conflict with the interests of the Issuer. TMF Management B.V. specialises in providing trustee services and the incorporation and management of trusts, funds, foundations and companies for institutions, multinationals and private individuals. It is registered in the Commercial Register of the Chamber of Commerce of Amsterdam, The Netherlands under number 33203015.

The sole managing director of Stichting Afinance is TMF Management B.V.

The directors of TMF Management B.V. are Rene Antonius Rijntjes, Franciscus Adrianus Josephus van Oers, Robertus Alphonsus Maria van de Voort, Maria Christina van der Sluijs-Plantz, Jan Reint Baron de Vos van Steenwijk, Timo Johannes van Rijn, Robert Willem de Koning and Johan Versluis, each of whose business address is the registered address of TMF Management B.V.

FINANCIAL STATEMENTS The Issuer has not published financial statements.

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The Lender

VTB Bank Europe plc (“VTB”) was founded in London in 1919. At an Extraordinary General Meeting of its shareholders on, and with effect from, 23 October 2006, VTB changed its name from Moscow Narodny Bank Limited and re-registered as a public company. VTB is an English bank which is majority-owned by the Bank for Foreign Trade (Vneshtorgbank), a bank organised and existing under the laws of the Russian Federation. It has significant business relationships with customers both in and outside Russia. VTB is an authorised person under the Financial Services and Markets Act 2000 (“FSMA”) and is regulated pursuant to the FSMA by the United Kingdom Financial Services Authority. VTB’s registered and head office is located in the United Kingdom at 81 King William Street, London EC4N 7BG, United Kingdom. VTB has a branch in Singapore and representative offices in Moscow and Beijing.

Neither VTB nor any of its affiliates is an affiliate of Abanka.

The authorised and issued share capital of VTB as at the date of this Prospectus is £144,269,653.26, divided into 540,335,780 fully paid ordinary shares of 26.7 pence each.

The members of the Board of Directors of VTB as at the date of this Prospectus are:

Chairman and CEO ...... I. Souvorov Executive directors ...... E. Grevtsev, S. Clark, V. Sokolov Non-executive directors ...... I. Lomakin, D. Charters, G. Casey

The address of each director and the Chairman is the registered office of VTB referred to above.

Since VTB’s sole obligation in respect of the Notes is to make certain payments to the Issuer, pursuant to the Sub-Participation Agreement, as and when payments on the Subordinated Loan are received by VTB from Abanka pursuant to the Subordinated Loan Agreement, financial or other more detailed information in relation to VTB has not been included in this Prospectus.

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The Subordinated Loan Agreement

The following is substantially all of the text of the Subordinated Loan Agreement entered into between Abanka and the Lender, save for the schedules thereto.

Subordinated Loan Agreement dated 18 January 2007 between:

(1) Abanka Vipa d.d., a bank incorporated under the laws of Slovenia whose registered office is at Slovenska cesta 58, 1517 Ljubljana, Slovenia (the “Borrower”); and

(2) VTB Bank Europe plc, a legal entity incorporated under the laws of England and Wales, of 81 King William Street, London EC4N 7BG, United Kingdom (the “Lender”).

Whereas, the Lender has at the request of the Borrower agreed to make available to the Borrower a single A13.4.1 disbursement subordinated loan facility in the amount of €120,000,000 on the terms and subject to the A13.4.2 conditions of this Agreement; A13.4.5

Whereas, it is intended by the Borrower that the Loan (as defined below) will be eligible for inclusion as part of the Borrower’s Tier 1 Capital (as defined below) under the Capital Adequacy Regulations (as defined below);

Whereas, it is intended that the Lender and the Issuer (as defined below) will enter into the Sub- Participation Agreement (as defined below); and

Whereas, the Issuer will issue certain loan participation notes based on amounts payable by the Borrower under the Facility (as defined below).

Now it is hereby agreed as follows:

1 Definitions and Interpretation

1.1 Definitions

In this Agreement (including the recitals), the following terms shall have the meanings indicated:

“Additional Amounts” means such amounts payable by the Borrower in accordance with Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up) and Clause 6.3 (Withholding or Tax Payable on Notes);

“Advance” means the advance to be made under Clause 3.1 (Drawdown) of the sum equal to the amount of the Facility;

“Affiliates” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect control of such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing;

“Agreed Form” means that the form of the document in question has been agreed between the proposed parties thereto or such document has been signed on behalf of the parties thereto and delivered to Linklaters to be held in escrow pending release on the Closing Date;

“Agreed Funding Source” means any Person (including a designated representative of such Person) to whom the Lender owes any Financial Indebtedness (including securities), which Financial Indebtedness was incurred solely and expressly to fund the Loan;

“Agreement” means this Agreement as originally executed or as it may be amended from time to time in accordance with its provisions;

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THE SUBORDINATED LOAN AGREEMENT

“Balance Profit” means the balance profit (“bilančni dobiček”) of the Borrower determined in accordance with Article 66, paragraph 5 of the Slovenian Companies Act (“Zakon o gospodarskih družbah – 1”), which shall be an amount equal to the sum of the Borrower’s:

(i) net profit or loss;

(ii) net profit or loss brought forward;

(iii) reduction of reserves; and

(iv) increase of reserves,

in each case as shown in the Borrower’s most recent annual unconsolidated financial statements prepared in accordance with IFRS;

“Bank of Slovenia” means the Banka Slovenije, or any successor as banking supervisory authority of Slovenia;

“Business Day” means a day (other than a Saturday or Sunday) on which (a) the London Interbank Market is open for dealing between banks generally, and (b) if on that day a payment is to be made hereunder, commercial banks generally are open for business in Ljubljana and London and TARGET settles payment and (if different) commercial banks are generally open for business in the city where the specified office of the Principal Paying and Transfer Agent is located;

“Calculation Agent” means Deutsche Bank AG, London Branch or such other entity as may be A13.4.8(f)l appointed in accordance with the Paying Agency Agreement;

“Capital Adequacy Regulations” means the Bank of Slovenia’s Regulation entitled “Sklep o kapitalski ustreznosti bank in hranilnic” (Official Gazette of the RS, No. 135/2006 as the same is amended, supplemented or replaced from time to time, and any other minimum capital, capital or other requirements specified for banks and applicable to the Borrower;

“Change of Law” means any of the enactment or introduction of any new law, the variation, amendment or repeal of an existing or new law, and any ruling on or interpretation or application by a competent authority of any existing or new law which, in each case, occurs after the date hereof and for this purpose the word “law” means all or any of the following whether in existence at the date hereof or introduced hereafter and with which it is obligatory or customary for banks or other financial institutions or, as the case may be, companies in the relevant jurisdiction to comply:

(i) any statute, treaty, order, decree, instruction, letter, directive, instrument, regulation, ordinance, or similar legislative or executive action by any national or international or local government or authority or by any ministry or department thereof and other agencies of state power and administration (including, but not limited to, taxation departments and authorities); and/or

(ii) any letter, regulation, decree, instruction, request, notice, guideline, directive, statement of policy or practice statement given by, or required of, the Bank of Slovenia or other monetary authority, or by or of any Taxing Authority or fiscal or other authority or agency (whether or not having the force of law); and

(iii) the decision or ruling on, the interpretation or application of, or a change in the interpretation or application of, any of the foregoing by any court of law, any tribunal, the Bank of Slovenia, any monetary authority or agency or any Taxing Authority or fiscal or other competent authority or agency;

“Closing Date” means 23 January 2007; A13.4.13L

“Conditions” means the terms and conditions of the Notes;

“Day Count Fraction” has the meaning given to it in Clause 4.1 (Rates of Interest);

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THE SUBORDINATED LOAN AGREEMENT

“Dividend/Capital Stopper Period” means with respect to any Interest Payment Date, one calendar year from and including the earlier of the date (i) on which a full instalment of interest is not paid under the Loan or; (ii) on which a full instalment of interest or equivalent distribution on any Parity Security is not paid in accordance with the terms of such Parity Securities which are equivalent to those set out in Clauses 4.2(b)(i) and/or (ii);

“Encumbrance” means any mortgage, charge, pledge, lien (other than a lien arising solely by operation of law which is discharged within 90 days of arising) or other security interest securing any obligation of any Person or any other type of preferential arrangement (including any title transfer and retention arrangement) having a similar effect;

“EUR”, “euro” and “€” means the single currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community (as amended) and the lawful currency of Slovenia from 1 January 2007;

“Euro-zone” means the region comprised of member states of the European Union that adopt the euro in accordance with the Treaty establishing the European Community (as amended);

“Facility” means the facility specified in Clause 2.1 (Facility);

“Financial Indebtedness” means any obligation for the payment of money in any currency, whether sole, joint or several, and whether actual or contingent, in respect of:

(i) moneys borrowed or raised (including the capitalised value of obligations under financial leases and hire purchase agreements which would, in accordance with IFRS, be treated as finance or capital leases but excluding moneys raised by way of the issue of share capital (whether or not for a cash consideration) and any premium on such share capital) and interest and other charges thereon or in respect thereof;

(ii) any liability under any debenture, bond, note, loan stock or other security or under any acceptance or documentary credit, bill discounting or note purchase facility or any similar instrument;

(iii) any liability in respect of the deferred acquisition cost of property, assets or services to the extent payable after the time of acquisition or possession thereof by the party liable, but not including any such liability in respect of normal trade credit for a period not exceeding six months for goods or services supplied;

(iv) any liability under any interest rate or currency hedging agreement (and the amount for the Financial Indebtedness in relation to any such transaction shall be calculated by reference to the mark-to-market valuation of such transaction (if it shows a sum owed to the counterparty of the Lender, the Borrower or any Subsidiary of the Borrower (as the case may be)), at the relevant time);

(v) any liability under or in respect of any bonding facility, guarantee facility or similar facility; and

(vi) (without double counting) any guarantee or other assurance against financial loss in respect of such moneys borrowed or raised, interest, charges or other liability (whether the person liable in respect of such moneys borrowed or raised, interest, charges or other liability is or is not a member of the Group);

“First Optional Prepayment Date” means the Business Day following 3 February 2017;

“Gross-Up Event” means the Borrower has or will on the next Interest Payment Date become obliged to pay Additional Amounts pursuant to Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up) or Clause 6.3 (Withholding or Tax Payable on Notes) and this cannot be avoided by the Borrower taking reasonable measures available to it;

“Group” means the Borrower and its Subsidiaries taken as a whole;

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THE SUBORDINATED LOAN AGREEMENT

“IAS” means International Accounting Standards issued by the IASB;

“IASB” means the International Accounting Standards Board;

“IFRS” means the International Financial Reporting Standards (formerly International Accounting Standards) issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time);

“IFRS Financial Statements” means the audited consolidated financial statements of the Borrower for the financial years ended 31 December 2004 and 31 December 2005 and the unaudited financial statements of the Borrower for the six month period ended 30 June 2006, prepared in accordance with IFRS as adopted by the EU and International Accounting Standard No. 34 “Interim Financial Reporting”, respectively;

“Increased Costs Event” means the Borrower has or will become obliged to pay additional amounts pursuant to Clause 9.1 (Compensation) on or prior to the next Interest Payment Date and this cannot be avoided by the Borrower taking reasonable measures available to it;

“Initial Margin” has the meaning given to it in Clause 4.1;

“Innovative Tier One Instrument” means an instrument which satisfies Article 11 of the Capital Adequacy Regulation (or any such successor paragraph or regulation, as the case may be) in order to be eligible to be included in the Borrower’s core capital (“Temeljni Kapital”);

“Interest Amount” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Interest Determination Date” means the second TARGET Settlement Day prior to the commencement of each Interest Period;

“Interest Payment Date” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Interest Period” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Issuer” means Afinance B.V. as issuer of the Notes;

“Junior Securities” means any and all of the Borrower’s non-cumulative preference shares and ordinary shares from time to time;

“Lender Account” means the account in the name of the Lender at Deutsche Bank AG, London Branch, IBAN number GB60DEUT40508130396603;

“Loan”, at any time, means an amount equal to the aggregate principal amount of the Facility granted by the Lender pursuant to this Agreement;

“Loan Administration Transfer” means the assignment by the Lender to the Issuer of the Lender’s rights hereunder pursuant to clause 4 (Note Security) of the Trust Deed;

“Loss” has the meaning given to it in Clause 12.1 (Indemnification);

“Management Board” means the management board (“Uprava”) of the Borrower or a duly authorised committee thereof;

“Mandatory Cancellation Event” means a breach by the Borrower or the Group or any member of the Group of the Capital Adequacy Regulations;

“Material Adverse Effect” means a material adverse effect on (a) the financial condition or operations of the Borrower or of the Group or (b) the Borrower’s ability to perform its obligations under this Agreement or (c) the validity, legality or enforceability of this Agreement or the rights or remedies of the Lender under this Agreement;

“Noteholder” means the registered holder of any Notes from time to time and as more particularly defined in the terms and conditions of the Notes;

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THE SUBORDINATED LOAN AGREEMENT

“Notes” means the perpetual non-cumulative loan participation notes proposed to be issued by the Issuer pursuant to the Trust Deed for the purpose of financing the Loan by way of the Sub- Participation Agreement;

“Officer’s Certificate” means a certificate signed on behalf of the Borrower by two officers of the Borrower (at least one of whom shall be the principal executive officer, principal accounting officer or principal financial officer of the Borrower);

“Opening Credit Line Fee” means the fee payable by the Borrower to the Lender in consideration of the Lender making the Facility available to the Borrower under this Agreement including all necessary activity for its arrangement;

“Opinion of Counsel” means a written opinion in form and substance satisfactory to the Lender from recognised international legal counsel as reasonably selected by the Borrower;

“Optional Prepayment Date” means the First Optional Prepayment Date and each subsequent Interest Payment Date thereafter;

“Parity Securities” means any and all of the Borrower’s non-cumulative undated loans, securities or other obligations (excluding any of its non-cumulative preference shares) from time to time outstanding, ranking or expressed to rank pari passu with the Loan including a guarantee or support (or any similar) agreement issued or entered into by the Borrower which ranks or is expressed to rank pari passu with the Loan;

“Paying Agency Agreement” means the paying agency agreement in the Agreed Form to be dated on or prior to the Closing Date, as amended, varied or supplemented between the parties thereto relating to the Notes;

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organisation, government, or any agency or political subdivision thereof or any other entity;

“Prepayment Event” means a Gross-Up Event, an Increased Costs Event, a Regulatory Event or a Special Tax Event (as the case may be);

“Principal Paying and Transfer Agent” means Deutsche Bank AG, London Branch as principal paying and transfer agent under the Paying Agency Agreement and any successor thereto as provided thereunder;

“Qualifying Bank” means a bank which is resident in a Qualifying Jurisdiction;

“Qualifying Jurisdiction” means any jurisdiction in which the Lender or any successor thereto or assignee thereof is entitled to receive payment of interest on the Loan under a double taxation agreement in force on such date (subject to the completion of any necessary procedural formalities) providing for full exemption from Slovenian withholding tax on interest derived from a source within Slovenia to a resident of such jurisdiction;

“Rate of Interest” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Reference Banks” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Regulatory Event” means that due to a change in law, ruling or interpretation thereof, in each case which occurs and becomes effective after the date of this Agreement, the Loan has ceased to have regulatory capital treatment as an Innovative Tier One Instrument and it is no longer eligible for inclusion in the Borrower’s core capital (“Temeljni Kapital”) under the Capital Adequacy Regulations (in each case save where the relevant event has occurred only as a result of any applicable limitation on the amount of capital so treated or eligible, as the case may be);

“Relevant Screen Page” means (A) Telerate Page 248-249 on the Dow Jones Telerate Service or Reuters: EURIBOR01/EURIBOR 365; (B) such other page as may replace that page on the relevant

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service for the purpose of displaying such information; or (C) if that service ceases to display such information, such page as displays such information on such service (or if more than one, that one selected at the discretion of the Calculation Agent) as may replace the Dow Jones Telerate Service or Reuters, as the case may be;

“Reserved Rights” has the meaning assigned to such term in the Trust Deed;

“Reset Date” means 3 February 2017;

“Same-Day Funds” means euro funds settled through the TARGET system or such other funds for payment in euro as the Lender may at any time determine to be customary for the settlement of international transactions in the Euro-zone of the type contemplated hereby;

“Senior Debt” means any and all of the Borrower’s securities or other relevant obligations from time to time outstanding save for any Parity Securities and Junior Securities. Senior Debt shall include, without limitation (i) any claims of the Borrower’s creditors, except those ranking or expressed to rank junior to or pari passu with the Loan (including any guarantee or support (or any similar) agreement issued or entered into by the Borrower which ranks or is expressed to rank junior to or pari passu with the Loan), (ii) obligations in respect of trade accounts payable, any liability for income, franchise, real estate or other taxes owed or owing, unsubordinated and/or dated subordinated creditors and existing undated subordinated creditors, except those ranking or expressed to rank junior to or pari passu with the Loan, (iii) any cumulative preference shares of the Borrower and (iv) any claims of the Lender in respect of the Reserved Rights;

“Slovenia” means the Republic of Slovenia;

“Special Tax Event” means that due to a change in law, ruling or interpretation thereof, which in each case occurs and becomes effective after the date of this Agreement, the Borrower will not, in respect of the next payment of interest due under this Agreement, obtain a tax deduction for the purposes of Slovenian corporation tax for such payment of interest and this cannot be avoided by the Borrower taking reasonable measures available to it;

“Step-up Margin” has the meaning given to it in Clause 4.1 (Rates of Interest);

“Subscription Agreement” means the agreement dated the date hereof between the Lender, the Borrower and UBS Limited providing for the issuance of the Notes;

“Sub-Participation Agreement” means the sub-participation agreement dated the date hereof between the Lender and the Issuer for the purposes of the Issuer’s 100 per cent. sub-participation in the Loan (the “Sub-Participation”) using the proceeds of the issue of the Notes;

“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which at least 50 per cent. of the total voting power entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or any combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof);

“TARGET” means the Trans-European Automated Real-Time Gross Settlement Express Transfer System and references to “TARGET System” should be interpreted accordingly;

“TARGET Settlement Day” means any day on which TARGET is open;

“Taxes” means any taxes (including interest or penalties thereon arising from the non-payment thereof) which are now or at any time hereafter imposed, assessed, charged, levied, collected, demanded, withheld or claimed by Slovenia, The Netherlands, the United Kingdom (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) or

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any Taxing Authority relating thereto; provided, however, that for the purposes of this definition the references to the United Kingdom shall, upon the occurrence of a Relevant Event (as defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term “Taxation” shall be construed accordingly;

“Taxing Authority” means any government or political subdivision or territory or provision of any government or authority or agency therein or thereof having the power to tax within Slovenia, The Netherlands or the United Kingdom (or any Qualifying Jurisdiction in which the Lender or any successor is resident for tax purposes);

“three month EURIBOR” means the offered rate for deposits in euros with a designated maturity of A13.4.8(c)L three months which appear on the Relevant Screen Page as of 11:00 a.m. (Brussels time) on the relevant Interest Determination Date;

“Tier 1 Capital” has the meaning ascribed to innovative tier one instruments (innovative instruments qualifying as core capital (“Temeljni kapital”)) in the Capital Adequacy Regulations and shall include Innovative Tier One Instruments;

“Trust Deed” means the trust deed in the Agreed Form to constitute the Notes for the equal and rateable benefit of the Noteholders to be dated on or prior to the Closing Date between the Issuer, the Lender and the Trustee as amended, varied or supplemented from time to time; and

“Trustee” means Deutsche Trustee Company Limited, as trustee under the Trust Deed and any successor thereto as provided thereunder.

1.2 Other Definitions

Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement shall have the meanings assigned to such terms therein.

1.3 Interpretation

Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement:

(a) all references to a “Clause” are references to a Clause of this Agreement;

(b) the “equivalent” on any given date in one currency (the “first currency”) of an amount denominated in another currency (the “second currency”) is a reference to the amount of the first currency which could be purchased with the amount of the second currency at the spot rate of exchange quoted on the relevant Reuters page;

(c) a “month” means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a business day, it shall end on the next succeeding business day, unless that day falls in the next calendar month, in which case it shall end on the immediately preceding business day, provided that, if a period starts on the last business day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last business day in that later month (and references to “months” shall be construed accordingly);

(d) the terms “hereof”, “herein” and “hereunder” and other words of similar import shall mean this Agreement as a whole and not any particular part hereof;

(e) words importing the singular number include the plural and vice versa;

(f) all references to “taxes” include all present or future taxes, levies, imposts and duties of any nature and the terms “tax” and “taxation” shall be construed accordingly; and

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(g) the table of contents and the headings are for convenience only and shall not affect the construction hereof.

2 Facility, Purpose, Subordination

2.1 Facility

On the terms and subject to the conditions set forth herein and on the condition that the Lender shall A13.4.1L have received the full amount of the Sub-Participation pursuant to the Sub-Participation Agreement, A13.4.5L the Lender hereby agrees to lend the Borrower, and the Borrower hereby agrees to borrow from the Lender, €120,000,000.

2.2 Purpose

The Loan is intended by the Borrower to be eligible for inclusion as part of its Tier 1 Capital and the proceeds of the Advance will be used for general corporate purposes, but the Lender shall not be concerned with the application thereof nor with such eligibility or lack thereof.

2.3 Subordination

(a) The claims of the Lender under this Agreement, excluding the Reserved Rights, constitute A13.4.2L perpetual, direct, unconditional, unsecured and subordinated obligations ranking junior to the A13.4.6L claims of Senior Debt, pari passu among themselves and with Parity Securities and senior to Junior Securities. In the event of the winding-up, liquidation, dissolution, insolvency or other proceeding for the avoidance of insolvency of, or against, the Borrower (which, for the purposes of this Agreement, include bankruptcy (“stečaj”) and liquidation (“likvidacija”) in accordance with the applicable provisions of Slovenian law), (i) the Lender’s claims under this Agreement will be subordinated to the claims of all holders of Senior Debt, so that in any such event no amounts shall be payable in respect of this Agreement until the claims of all holders of the Borrower’s Senior Debt shall have first been satisfied in full and (ii) the Lender shall not be entitled to claim for or receive or retain any amount payable hereunder unless and until all amounts due to holders of Senior Debt have been paid in full. The Reserved Rights constitute the direct, unconditional, unsecured and unsubordinated obligations of the Borrower and will rank at least equally with other unsecured and unsubordinated obligations of the Borrower, and will therefore constitute Senior Debt for the purposes of the foregoing.

(b) The Lender may not exercise, claim or plead any right of set-off, counter-claim or retention or any similar right in respect of any amount owed to it by the Borrower arising under or in connection with this Agreement, excluding the Reserved Rights, and the Lender hereby waives all such rights.

(c) The subordination provisions of this Clause 2.3 are governed by the laws of Slovenia and such provisions are irrevocable and shall take precedence over any other contradictory provision contained herein.

3 Drawdown

3.1 Drawdown

On the terms and subject to the conditions set forth herein, on the Closing Date the Lender shall make the Advance to the Borrower and the Borrower shall make a single drawing in the full amount of the Facility.

3.2 Fees and Expenses

The Borrower hereby agrees that it shall, so that the relevant amount is received by the Lender prior to the Advance being made, pay to the Lender, in Same-Day Funds, the agreed commissions, fees, costs and expenses (including the Opening Credit Line Fee) of the Lender in connection with this

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Agreement and the proposed Loan hereunder in the total amount of €1,975,021.51 as submitted in an invoice of the Lender substantially in the form set out in Schedule 2 to this Agreement (it being understood that, to the extent that amounts are actually received by the Lender from the Borrower, the Lender will pay the commissions, fees, costs and expenses of: (a) the Issuer as set forth in clause 9.1 (Costs and Expenses) of the Subscription Agreement, (b) the managers of the offering of the Notes as set forth in clauses 9.3 (Commissions) and 9.4 (Costs and Expenses of the Joint Lead Managers) of the Subscription Agreement, (c) the Principal Paying and Transfer Agent and (d) the Trustee). The Opening Credit Line Fee and the other commissions, fees, costs and expenses referred to above shall be payable in one instalment so as to be received by the Lender prior to the Advance being made and not by way of a deduction from the Advance.

For the avoidance of doubt, the Lender acknowledges that, if the Lender receives such fees (including the Opening Credit Line Fee) prior to or on the Closing Date, and the Advance is not subsequently made to the Borrower, by reason of the Conditions Precedent set out in Clauses 8.1 and 8.2 (with the exception of Paragraph 13 of Schedule 1) not having been satisfied, it shall, subject to Clause 13.1, return such funds as soon as reasonably practicable.

3.3 Disbursement

Subject to the conditions set forth herein, on the Closing Date the Lender shall transfer the amount of the Advance to the Borrower’s account as separately notified.

A13.4.10L 4 Interest

4.1 Rates of Interest

(a) Subject to Clause 4.2(b), the Borrower will pay interest (the “Rate of Interest”) in euro on the A13.4.7L outstanding principal amount of the Loan from time to time hereunder as follows: A13.4.8L

(i) from (and including) the Closing Date to (but excluding) the Reset Date at a floating rate equal to the sum of three month EURIBOR and 1.90 per cent. per annum (the “Initial A13.4.8(a)L Margin”) payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2007 and ending on the Reset Date, save that the first payment of interest will be made on 3 May 2007 in respect of the period from (and including) the Closing Date to (but excluding) 3 May 2007; and

(ii) (to the extent that the Loan is not prepaid on or before the First Optional Prepayment A13.4.8(c)L Date), from (and including) the Reset Date and thereafter at a floating rate equal to the sum of three month EURIBOR and 2.85 per cent. per annum (the “Step-up Margin”) payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2017.

Each such date on which interest is payable, before or after, and including, the Reset Date, shall be an “Interest Payment Date”.

If any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month in which event it shall be brought forward to the immediately preceding Business Day. Interest Payment Dates shall be adjusted for purposes of accrual of interest.

The period beginning on (and including) the Closing Date and ending on (but excluding) the next succeeding Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is called an “Interest Period”.

(b) If interest is required to be calculated for an Interest Period of less than a full year, such interest shall be on the basis of the actual number of days in such Interest Period divided by 360 (the “Day Count Fraction”).

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(c) If three month EURIBOR does not appear on the Relevant Screen Page on the relevant Interest A13.4.8(d)L Determination Date, the Borrower shall procure that the Calculation Agent will:

(i) request the principal Euro-zone office of each of four major banks in the Euro-zone interbank market (the “Reference Banks”) to provide a quotation of the rate at which deposits in euros are offered by it at approximately 11:00 a.m. (Brussels time) on the Interest Determination Date to prime banks in the Euro-zone interbank market for a period of three months commencing on the first day of the relevant Interest Period and in an amount that is representative for a single transaction in the market at that time. The Rate of Interest for such Interest Period shall be the aggregate of the Initial Margin or the Step-up Margin, as the case may be, plus the arithmetic mean of such quotations to the nearest five decimal places (with 0.00005 being rounded upwards) determined by the Calculation Agent;

(ii) if fewer than two quotations are provided as requested, the Borrower will procure that the Calculation Agent will determine the arithmetic mean of the rates quoted by major banks (being at least three in number) in the Euro-zone selected by the Calculation Agent at approximately 11:00 a.m. (Brussels time) on such Interest Determination Date for loans in euros to leading European banks for a period of three months commencing on the first day of the relevant Interest Period and in an amount that is representative for a single transaction in the relevant market at that time. The Rate of Interest for such Interest Period shall be the aggregate of the Initial Margin, or the Step-up Margin, as the case may be, plus the arithmetic mean of such quotations (to the nearest five decimal places (with 0.00005 being rounded upwards)) determined by the Calculation Agent; or

(iii) if the Calculation Agent is unable to determine an arithmetic mean in accordance with the above provisions in relation to any Interest Period, the Rate of Interest applicable to the Loan during such Interest Period will be:

(i) subject to (ii) below, the Rate of Interest in effect for the last preceding Interest Period to which one of the preceding determinations of this Clause 4.1(c) shall have applied; or

(ii) if the relevant Interest Period is the Interest Period commencing on the Reset Date, the Rate of Interest in effect for the last preceding Interest Period plus 0.95 per cent. per annum.

(d) The Borrower will procure that the Calculation Agent will, as soon as practicable after the Interest Determination Date in relation to each Interest Period, calculate the interest amount payable in respect of the Loan for the relevant Interest Period (the “Interest Amount”). The Interest Amount will be calculated by applying the Rate of Interest for such Interest Period to the principal amount of the Loan, multiplying the product by the Day Count Fraction and rounding the resulting figure to the nearest euro (half a euro being rounded upwards).

(e) The Borrower will procure that the Calculation Agent will cause the Rate of Interest and the Interest Amount for each Interest Period together with the relevant Interest Payment Date to be notified to the Borrower and the Lender as soon as practicable after their determination but in no event later than the second Business Day thereafter. The Interest Amount and Interest Payment Date so notified may subsequently be amended without notice in the event of an extension or shortening of the Interest Period.

(f) The Borrower will procure that, so long as the Loan is outstanding, there will at all times be the number of Reference Banks provided above (where the Rate of Interest is to be calculated by reference to them) and a Calculation Agent for the purposes of the Loan. If any such bank (acting through its relevant office) is unable or unwilling to continue to act as a Reference Bank or the Calculation Agent or if the Calculation Agent fails duly to establish the Rate of Interest for any Interest Period or to calculate the Interest Amount, the Borrower will appoint some

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other leading bank engaged in the London interbank market (acting through its principal London office) to act as such in its place. The Calculation Agent may not resign its duties without a successor having been so appointed.

(g) All notifications, opinions, determinations, certificates, quotations and decisions given, expressed, made or obtained for the purposes of this Clause by the Calculation Agent will (in the absence of manifest error) be binding on the Borrower and the Lender and (subject as aforesaid) no liability to any such person will attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes.

(h) Interest will cease to accrue on the Loan on the due date for prepayment unless payment of principal is improperly withheld or refused, in which event interest will continue to accrue (after as well as before judgment) at the Rate of Interest in the manner provided in this Clause 4.1 to but excluding the date on which payment in full of the principal is made.

4.2 Payment and Cancellation of Interest A13.4.7L

The Loan shall qualify as an innovative instrument of the Borrower within the meaning of the provisions of Article 11 of the Capital Adequacy Regulations and shall have, among others, the characteristic of enabling the Borrower to absorb losses on a going-concern basis. For this purpose the Borrower shall be entitled to suspend payments of interest under the Loan as described below and dispose freely with the amount so suspended, and the amount so suspended shall not accumulate.

(a) Interest payments

Interest which accrues during an Interest Period to but excluding an Interest Payment Date will be payable in cash on that Interest Payment Date, save to the extent that the Borrower has elected or is required to cancel such payment of interest pursuant to Clause 4.2(b), subject to the provisions of Clause 6.1 (Making of Payments).

(b) Cancellation of interest payments

(i) With respect to any Interest Payment Date, if (1) no dividend, other distribution or payment was declared by the Borrower in respect of any Parity Securities (except where such parity payment is itself required on a pro rata basis) or Junior Securities during the six months preceding such Interest Payment Date; (2) no dividend, other distribution or payment was in fact made by the Borrower in respect of any Parity Securities (except where such parity payment is itself required on a pro rata basis) or Junior Securities during the six months preceding such Interest Payment Date; (3) no Subsidiary of the Borrower has declared, paid or distributed a dividend or made any other payment or distribution on any security or other instrument issued by it and benefiting from any guarantee or support (or any similar) agreement in the form of Parity Securities or Junior Securities during the six months preceding such Interest Payment Date; and (4) no redemption, repurchase or acquisition of Junior Securities, Parity Securities or any instruments benefiting from any guarantee or support (or any similar agreement) in the form of Parity Securities or Junior Securities has been made by the Borrower or any of its Subsidiaries either directly or indirectly during the six months preceding such Interest Payment Date, the Borrower may:

(A) declare and pay in full on such Interest Payment Date the interest which accrued during the Interest Period to but excluding such Interest Payment Date; or

(B) elect in its sole and absolute discretion to cancel in whole or in part the payment of interest (including any Additional Amounts) which accrued during the Interest Period to but excluding such Interest Payment Date by giving notice in accordance with Clause 14.4 not less than three Business Days prior to such Interest Payment Date (which notice shall be irrevocable).

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(ii) Notwithstanding the conditions set out in sub-paragraph (i) above which are required to be satisfied before the Borrower is able to elect to cancel the payment of interest on any Interest Payment Date as set out therein, the Borrower (A) may elect to cancel the payment of interest on any Interest Payment Date if there is no Balance Profit (“bilančni dobiček”) shown in the Borrower’s most recent annual unconsolidated financial statements prepared in accordance with IFRS (but without any other condition therefor); and (B) shall be required to cancel the interest otherwise due on any Interest Payment Date if and to the extent that the Management Board determines that a Mandatory Cancellation Event has occurred or would occur as a result of the relevant payment of interest.

(iii) If the Borrower elects or is required to cancel an interest payment pursuant to sub- paragraph (ii) above in part or in full, the Borrower shall not during the Dividend/Capital Stopper Period: (1) authorise, declare or pay dividends or other distributions or payments in respect of any Parity Securities (except where such parity payment is itself required on a pro rata basis) or Junior Securities (subject in each case to mandatory provisions of Slovene company law); (2) permit any Subsidiary of the Borrower to declare, pay or distribute any dividends or make any other payment or distribution on any security or other instrument issued by it and benefiting from any guarantee or support (or any similar) agreement in the form of Parity Securities or Junior Securities; or (3) redeem, repurchase or acquire any Junior Securities, Parity Securities or any instruments benefiting from any guarantee or support (or any similar agreement) in the form of Parity Securities or Junior Securities or permit any of its Subsidiaries to do so, either directly or indirectly.

(iv) If the Borrower elects or is required to cancel an interest payment pursuant to Clause 4.2(b), such interest will be non-cumulative and will cease to be outstanding for all purposes and the Borrower will not have any obligation to make such interest payment on the relevant Interest Payment Date or thereafter and the failure to pay such interest will not constitute a default by the Borrower or any other breach of its obligations under the Loan or for any other purpose. No interest will accrue in respect of any interest payment so cancelled.

(v) In the event of a partial payment of interest, interest will be paid on a pro rata basis with Parity Securities.

(vi) For the purposes of Clause 4.2(b)(i), the occurrence of any of the following shall not restrict the Borrower’s ability to cancel any payment of interest, provided that the conditions set out therein have otherwise been satisfied:

(A) repurchases, redemptions or other acquisitions of Parity Securities or Junior Securities in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or shareholder share purchase plan;

(B) the purchase of fractional interests in Parity Securities or Junior Securities pursuant to the conversion or exchange provisions of such Parity Securities or Junior Securities or the security being converted or exchanged;

(C) any dividend in the form of shares, warrants, options or other rights where the dividend or the shares issuable upon exercise of such warrants, options or other rights are of the same class of shares as that on which the dividend is being paid or ranks equally with or junior to such shares; or

(D) the Borrower or any of its Subsidiaries redeeming, repurchasing or otherwise acquiring any Parity Securities or Junior Securities or any instruments benefiting

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from any guarantee or support (or any similar) agreement in the form of Parity Securities or Junior Securities:

(aa) by conversion or exchange of the relevant security into or in exchange for Ordinary Shares; or

(bb) in connection with transactions effected by or for the account of the Issuer’s customers or for the customers of the Issuer’s Subsidiaries or in connection with trading or market-making activities in respect of the relevant securities.

A13.4.7L 5 Repayment and Prepayment A13.4.9L The Loan shall qualify as an innovative instrument of the Borrower within the meaning of the provisions of Article 11 of the Capital Adequacy Regulations and shall have, among others, the characteristic of enabling the Borrower to absorb losses on a going-concern basis. For this purpose it should be noted that, as provided below, the Loan has no maturity and shall only be repayable in accordance with the provisions set out in Clause 5, Clause 11 (Events of Default) and Clause 14.5(d). Accordingly the principal sum raised by the Loan may be utilised to absorb losses should the need arise.

5.1 Perpetual Loan

The Loan has no maturity and shall only become repayable in accordance with the provisions set out A13.4.9L in this Clause 5, Clause 11 (Events of Default) and Clause 14.5(d).

5.2 Early Prepayment Events

Subject to Clause 5.5 (Limitation of Prepayment Rights), if (i) at any time after 3 February 2012 and prior to the First Optional Prepayment Date a Prepayment Event occurs (save in the case of a Regulatory Event); and (ii) if at any time after the drawdown of the Advance and prior to the First Optional Prepayment Date a Regulatory Event occurs, the Borrower may prepay the Loan in whole but not in part at any time thereafter and prior to the First Optional Prepayment Date on giving not less than 30 nor more than 60 days’ irrevocable notice to the Lender in accordance with Clause 5.3(b) (such notice to expire no later than the First Optional Prepayment Date), in an amount equal to the principal amount of the Loan plus accrued and unpaid interest to the date fixed for prepayment provided that prior to or simultaneous with the giving of any such notice of prepayment, the Borrower will deliver or procure that there is delivered to the Lender:

(a) a certificate signed by two members of the Management Board stating that the Borrower is entitled to effect that prepayment and setting out a statement of facts showing that the relevant Prepayment Event has occurred; and

(b) save in the case of an Increased Costs Event, an Opinion of Counsel to the effect that the Borrower has or will become subject to the Prepayment Event in question.

5.3 Prepayment at the option of the Borrower

(a) Subject to Clause 5.5 (Limitation of Prepayment Rights), the Borrower may at its option, upon giving not less than 30 nor more than 60 days’ notice in accordance with Clause 5.3(b), prepay the Loan in whole but not in part at its principal amount together with any accrued and unpaid interest on any Optional Prepayment Date.

(b) Any option to prepay the Loan shall, if exercised, be notified by the Borrower to the Lender in accordance with Clause 14.4 (Notices). The notice shall be irrevocable and shall specify:

(i) that the Loan is subject to prepayment;

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(ii) the Business Day (in the case of prepayment prior to the First Optional Prepayment Date) or Optional Prepayment Date (in the case of prepayment on or subsequent to the First Optional Prepayment Date) on which the Loan is to be prepaid; and

(iii) that the conditions set forth in Clause 5.5 (Limitation of Prepayment Rights) have been complied with.

5.4 No Prepayment at the option of the Lender

The Lender shall not be entitled to call for the prepayment of the Loan at any time.

5.5 Limitation of Prepayment Rights

(a) The Borrower may prepay the Loan in accordance with Clause 5.2 (Early Prepayment Events) A13.4.7L or Clause 5.3 (Prepayment at the option of the Borrower) or Clause 14.5(d) only if the Bank of Slovenia has given (and not subsequently withdrawn) its consent to the prepayment, to the extent such consent is required.

(b) If the Loan is prepaid in circumstances other than as described in this Clause 5, then, notwithstanding Clause 5.6 (Payment of Other Amounts) and irrespective of any agreement to the contrary, the amount so prepaid must be repaid by the Lender to the Borrower.

5.6 Payment of Other Amounts

If the Loan is to be prepaid by the Borrower pursuant to any of the provisions of Clauses 5.2 (Early Prepayment Events), 5.3 (Prepayment at the option of the Borrower) or Clause 14.5(d), the Borrower shall not later than 10:00 a.m. (Brussels time) one Business Day prior to the scheduled date of prepayment pay to the Lender accrued interest (calculated up to but excluding the scheduled date of prepayment), and all other sums payable by the Borrower pursuant to this Agreement.

5.7 Provisions Exclusive

The Borrower may not voluntarily prepay the Loan except in accordance with the express terms of this Agreement. Any amount prepaid may not be reborrowed.

6 Payments

6.1 Making of Payments

The Borrower agrees to pay, as and when due, principal and interest (including Additional Amounts) payable under the Loan in euros. All payments of principal and interest (including Additional Amounts) to be made by the Borrower under this Agreement shall be made to the Lender not later than 10:00 a.m. (Brussels time) one Business Day prior to each Interest Payment Date or the due date for such payment or prepayment (as the case may be) in Same-Day Funds to the Lender Account with the Principal Paying and Transfer Agent. The Lender agrees with the Borrower that it will not deposit any other monies into such account and that no withdrawals shall be made from such account other than as provided for and in accordance with the Trust Deed and the Paying Agency Agreement.

6.2 No Set-Off, Counterclaim or Withholding; Gross-Up

All payments to be made by the Borrower under this Agreement (including, for the avoidance of doubt, payments made pursuant to the enforcement of the security granted under the Trust Deed) shall be made in full without set-off or counterclaim and (except to the extent required by law) free and clear of and without deduction for or on account of any Taxes. If the Borrower shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of any Taxes, it shall (i) increase any payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in euros equal to the full amount which

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it would have received had payment not been made subject to such Taxes (“Additional Amounts”), (ii) account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and (iii) deliver to the Lender (and, following the Loan Administration Transfer, the Trustee) without undue delay evidence in the form of a payment order and an Officer’s Certificate (or such other evidence as the parties may mutually agree) of such deduction or withholding and of the payment thereof to the relevant Taxing Authority. If the Lender pays any amount in respect of such Taxes, the Borrower shall reimburse the Lender in euros for such payment on demand, on the basis of an invoice substantially in the form set out in Schedule 2 to this Agreement, amended as appropriate in the circumstances. For the avoidance of doubt, this Clause 6.2 is without prejudice to the obligations of the Lender pursuant to Clauses 6.6 (Residency Certificate) and 6.7 (Delivery of Forms). The provisions of this Clause 6.2 shall not apply to any tax imposed on and calculated by reference to the income of the Lender.

6.3 Withholding or Tax Payable on the Sub-Participation or the Notes

6.3.1 Without prejudice to the provisions of Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up), if the Lender notifies the Borrower (i) that the Lender has become obliged to make any withholding or deduction for or on account of any Taxes from any payment which it is obliged to make under or in respect of the Sub-Participation Agreement in circumstances where the Lender is required to make such a payment and to pay additional amounts pursuant to the Sub-Participation Agreement; and/or (ii) that the Issuer has become obliged to make any withholding or deduction for or on account of any Taxes from any payment which the Issuer is required to make under or in respect of the Notes in circumstances where the Issuer is required to make such a payment and to pay additional amounts pursuant to Condition 8 (Taxation) of the Notes, the Borrower agrees to pay to the Lender, not later than 10:00 a.m. (Brussels time) one Business Day prior to the date on which payment is due under the Sub- Participation Agreement or under the Notes, as the case may be, in Same-Day Funds to the Lender Account, such additional amounts (such amounts, also “Additional Amounts”) as are equal to the said additional amounts which the Lender must pay pursuant to the Sub- Participation Agreement and/or the Issuer must pay pursuant to Condition 8 (Taxation) of the Notes; provided, however, that the Lender shall immediately upon receipt from any Paying and Transfer Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Issuer is not entitled to such additional amounts pursuant to the terms of the Sub- Participation Agreement and/or the Noteholders are not entitled to such additional amounts pursuant to the Conditions of the Notes, as the case may be, pay the relevant proportion of such Additional Amounts to the Borrower (to such account as shall be separately notified by the Borrower to the Lender at the relevant time) (it being understood that neither the Lender, the Issuer, nor the Principal Paying and Transfer Agent nor any other Paying and Transfer Agent shall have any obligation to determine whether the Issuer or any Noteholder, as the case may be, is entitled to such additional amount).

6.3.2 If the Lender notifies the Borrower (setting out in reasonable detail the nature and extent of the obligation with such evidence as the Borrower may reasonably require) that it has become obliged to make any payment to a Person (other than to or for the account of any Agreed Funding Source) for or on account of any Taxes in respect of the Sub-Participation Agreement or the Issuer has become obliged to make any payment to a Person (other than to or for the account of any Noteholders) for or on account of any Taxes in respect of the Notes, imposed by any Taxing Authority or any liability in respect of any such payment is asserted, imposed, levied or assessed against the Lender or the Issuer (as the case may be), the Borrower agrees to pay to the Lender, no later than 10:00 a.m. (Brussels time) one Business Day prior to the date on which payment is due to such Person in Same-Day Funds to the Lender Account, such sums as are equal to the said payments which the Lender or the Issuer (as the case may be) must pay in respect of Taxes (it being understood that neither the Lender, the Issuer nor the Principal Paying and Transfer Agent nor any other Paying and Transfer Agent shall have any obligation to determine whether any Person is entitled to such sums).

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6.4 Reimbursement

To the extent that the Lender subsequently obtains or uses any tax credit, relief or allowance or other reimbursements relating to a deduction or withholding with respect to which the Borrower has made a payment pursuant to this Clause 6, it shall pay to the Borrower so much of the benefit it received as will leave the Lender, in its reasonable opinion, in substantially the same position as it would have been had no Additional Amount been required to be paid by the Borrower pursuant to this Clause 6; provided, however, that the question of whether any such benefit has been received, and accordingly, whether any payment should be made to the Borrower, the amount of any such payment and the timing of any such payment, shall be determined solely by the Lender. The Lender shall have the absolute discretion whether, and in what order and manner, it claims any credits or refunds available to it, and the Lender shall in no circumstances be obliged to disclose to the Borrower any information regarding its tax affairs or computations, provided that the Lender shall notify the Borrower of any tax credit or allowance. Any such reimbursement shall, in the absence of manifest error and subject to the Lender specifying in writing in reasonable detail the calculation of such credit, relief, allowance or other reimbursement and of such payment and providing relevant supporting documents evidencing such matters, be conclusive evidence of the amount due to the Borrower hereunder and shall be accepted by the Borrower in full and final settlement of its rights of reimbursement hereunder in respect of such deduction or withholding.

If as a result of a failure to obtain relief from deduction or withholding of any tax imposed by Slovenia or any Qualifying Jurisdiction (i) such tax is deducted or withheld by the Borrower and pursuant to this Clause 6 an increased amount is paid by the Borrower to the Lender in respect of such deduction or withholding and (ii) following the deduction or withholding of tax as referred to above the Lender applies to the relevant Slovenian or Qualifying Jurisdiction tax authorities for a tax refund and such tax refund is credited by the Slovenian or Qualifying Jurisdiction tax authorities to a bank account of the Lender, the Lender shall as soon as reasonably practicable notify the Borrower of the receipt of such tax refund and promptly transfer the entire amount of the tax refund to a bank account of the Borrower specified for that purpose by the Borrower. The Borrower agrees to use its reasonable endeavours to assist the Lender in the making of any such application.

6.5 Qualifying Bank

The Lender represents that it is a bank which at the date hereof is resident in the United Kingdom. The Lender (and any successor thereto) shall promptly, upon becoming aware of such, notify the Borrower if it ceases to be resident in the United Kingdom.

6.6 Residency Certificate

(a) The Lender (and any successor thereto) shall use its reasonable endeavours to provide the Borrower no later than 20 Business Days before the first Interest Payment Date (and thereafter as soon as possible at the beginning of each calendar year but not later than 20 Business Days prior to the first Interest Payment Date in that year) with a certificate, issued and certified by the competent Qualifying Jurisdiction authorities, as the case may be, confirming that the Lender is resident in a Qualifying Jurisdiction. Such certificate shall be appropriately apostilled.

(b) The Borrower and the Lender agree that, should the Slovenian legislation regulating the procedure for obtaining an exemption from Slovenian income tax withholding change then the Lender will use its reasonable endeavours to comply with such legislation.

6.7 Delivery of Forms

The Lender shall use its reasonable endeavours to within 30 days of the request of the Borrower (to the extent it is able to do so under applicable law including Slovenian laws) deliver to the Borrower such other information or forms, including a power of attorney in form and substance acceptable to the Borrower authorising it to file the certificate on behalf of the Lender with the relevant tax authority, as may need to be duly completed and delivered by the Lender to enable the Borrower to

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obtain relief from deduction or withholding of Slovenian Taxes or, as the case may be, to obtain a tax refund if a relief from deduction or withholding of Slovenian Taxes has not been obtained. If required, the other forms referred to in this Clause 6.7 shall be duly signed by the Lender and stamped or otherwise approved by the competent tax authority in the Qualifying Jurisdiction and the power of attorney shall be duly signed and apostilled or otherwise legalised (if required). If a relief from deduction or withholding of Slovenian Taxes or a tax refund under this Clause 6 has not been obtained and further to an application of the Borrower to the relevant Slovenian tax authorities the latter requests the Lender’s Euro bank account details, the Lender shall at the request of the Borrower (a) use reasonable efforts to procure that such Euro bank account of the Lender is duly opened and maintained, and (b) thereafter furnish the Borrower with the details of such Euro bank account. The Borrower shall provide the Lender with all assistance it may reasonably require to ensure that the Lender can obtain the certificate referred to in Clause 6.6 (Residency Certificate) and deliver the certificate and complete and deliver the other information or forms specified in this Clause 6.7.

6.8 Tax Treatment

As at the date hereof and based on legal advice received, the Borrower and the Lender hereby agree to treat the Loan as a subordinated debt obligation of the Borrower payable to the Lender, as the beneficial owner of such debt obligation, for Slovenian and U.K. tax purposes.

6.9 Mitigation

If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of the Borrower to make any deduction, withholding or payment as described in Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up) or 6.3 (Withholding or Tax Payable on Notes), then, without in any way limiting, reducing or otherwise qualifying the Lender’s rights or the Borrower’s obligations under such Clauses, such party shall promptly upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of such party is prejudicial to its own position, take such reasonable steps as may be reasonably available to it to avoid such obligation or mitigate the effect of such circumstance, including in the case of the Lender (without limitation) by the change of its lending office or transfer of its rights or obligations under this Agreement to another bank, provided that the Lender shall be under no obligation to take any such action if, in its reasonable opinion, to do so would have any adverse effect upon its business, operations or financial condition or would be in breach of any arrangements which it may have made with an Agreed Funding Source or otherwise.

6.10 Costs

The costs of all applications, certifications and administrative costs of compliance by the Lender with Slovenian tax authority requirements and legislation as envisaged under this Clause 6 shall be borne by the Borrower.

7 Tax receipts

7.1 Notification of Requirement to Deduct Tax

If, at any time, the Borrower is required by law to make any deduction or withholding from any payment of principal, interest or any other payment on the Loan, or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated, the Borrower shall promptly notify the Lender.

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7.2 Evidence of Payment of Tax

The Borrower will make all reasonable endeavours to obtain certified copies, and translations into English, of tax receipts evidencing the payment of any Taxes relating to any payment of principal or interest on the Loan so deducted or withheld from each Taxing Authority imposing such Taxes. The Borrower will furnish to the Lender within 60 calendar days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by the Borrower or, if such receipts are not obtainable, other evidence of such payments by the Borrower.

8 Conditions precedent

8.1 Documents to be Delivered

The obligation of the Lender to make the Advance shall be subject to the receipt by the Lender on or prior to the Closing Date of an executed copy of each of the documents listed in Schedule 1 hereto (Conditions Precedent Documents), each dated the Closing Date (save where Schedule 1 states otherwise), in the Agreed Form.

8.2 Further Conditions

The obligation of the Lender to make the Advance shall be subject to the further conditions precedent that as of the Closing Date, (a) the representations and warranties made and given by the Borrower in Clause 10 (Representations and Warranties) shall be true and accurate as if made and given on the Closing Date with respect to the facts and circumstances then existing, (b) no liquidation (“likvidacija”) proceedings in respect of, or bankruptcy (“stečaj”) of, the Borrower shall have been initiated or have occurred, as applicable, and be continuing, (c) the Borrower shall not be in breach of any of the terms, conditions and provisions of this Agreement, (d) the Sub-Participation Agreement, the Subscription Agreement, the Trust Deed and the Paying Agency Agreement shall have been executed and delivered, and the Issuer shall have received the full amount of the proceeds of the issue of the Notes pursuant to the Subscription Agreement and the Issuer shall have confirmed receipt of such moneys and the Lender shall have received the full amount of the Sub-Participation and the Lender shall have confirmed receipt of such moneys, (e) the Lender shall have received in full the amount referred to in Clause 3.2 (Fees and Expenses) and (f) the Bank of Slovenia shall have issued its consent in relation to the capital treatment of this Agreement as an Innovative Tier One Instrument.

9 Change in Law or Banking Practices; Increase in Cost

9.1 Compensation

If, by reason of (a) any Change of Law and/or (b) change of any regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) or in the interpretation or application thereof by any person charged with the administration thereof:

(a) the Lender incurs an additional cost as a result of the Lender’s entering into or performing its obligations (including its obligation to make, fund or maintain the Advance) under this Agreement other than any such cost incurred as a result of any increase in the rate of tax payable by the Lender on its income or as a result of any taxes, withholding or deduction, as the case may be, referred to in Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross- Up) or 6.3 (Withholding or Tax Payable on Notes); or

(b) the Lender becomes liable to make any additional payment on account of tax or otherwise on or calculated by reference to the amount of the Advance and/or to any sum received or receivable by it hereunder other than any such tax on the Lender’s income or any tax,

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withholding or deduction, as the case may be, referred to in Clause 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up) or 6.3 (Withholding or Tax Payable on Notes),

then the Borrower shall, on demand of the Lender, pay to the Lender amounts sufficient to hold harmless and indemnify it from and against, as the case may be, such properly documented (1) cost or (2) liability, provided that the Lender will not be entitled to indemnification where such additional cost or liability arises as a result of the gross negligence, fraud or wilful default of the Lender.

9.2 Increased Costs Claims

If the Lender intends to make a claim pursuant to Clause 9.1 (Compensation), it shall promptly after the Lender becomes aware of the relevant reason notify the Borrower thereof and provide a description in writing in reasonable detail of the relevant reason (as described in Clause 9.1 (Compensation)), including a description of the relevant affected jurisdiction or country and the date on which the change in circumstances took effect. This written description shall demonstrate the connection between the change in circumstance and the additional costs and shall be accompanied by relevant supporting documents (if available) evidencing the matters described therein.

9.3 Mitigation

In the event that the Lender becomes entitled to make a claim pursuant to Clause 9.1 (Compensation), the Lender shall, prior to making any claim pursuant to Clause 9.1 (Compensation), consult in good faith with the Borrower and shall use reasonable efforts (based on the Lender’s reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, the Borrower’s obligations to pay any Additional Amount pursuant to such Clause, including (without limitation) by the change of its lending office or transfer of its rights or obligations under this Agreement to another bank, except that nothing in this Clause 9.3 shall oblige the Lender to incur any costs or expenses or to take any action which, in the reasonable opinion of the Lender, may be prejudicial to its interests or would be in breach of any arrangements which the Lender has made with an Agreed Funding Source or otherwise.

10 Representations and Warranties

10.1 The Borrower’s Representations and Warranties

The Borrower represents and warrants to the Lender as follows, to the extent that such shall form the basis of this Agreement and shall remain in full force and effect at the date hereof and shall be deemed to be repeated by the Borrower on the Closing Date:

(a) The Borrower is duly organised and incorporated and validly existing under the laws of A13.4.12 Slovenia and has the power and legal right to own its property, to conduct its business as currently conducted and to enter into and to perform its obligations under this Agreement and to borrow the Advance; the Borrower has taken all necessary corporate, legal and other action required to authorise the borrowing of the Advance on the terms and subject to the conditions of this Agreement and to authorise the execution and delivery of this Agreement and all other documents to be executed and delivered by it in connection with this Agreement, and the performance of this Agreement in accordance with its terms.

(b) This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, (i) to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and (ii) with respect to the enforceability of a judgment whether there is a treaty in force relating to the mutual recognition of foreign judgments.

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(c) The execution, delivery and performance of this Agreement by the Borrower will not conflict with or result in any breach or violation of (i) any law or regulation or any order of any governmental, judicial or public body or authority in Slovenia, (ii) the constitutive documents, rules and regulations of the Borrower or (iii) any agreement or other undertaking or instrument which is material in the context of the Borrower’s obligations under this Agreement to which the Borrower is a party or which is binding upon the Borrower or any of its assets, nor result in the creation or imposition of any Encumbrance on any of its assets pursuant to the provisions of any such agreement or other undertaking or instrument.

(d) All consents, authorisations, approvals or other orders of, or filings with, any governmental, judicial, regulatory or public body, administrative agency or other governmental body of Slovenia required by the Borrower in connection with the execution, delivery, performance, legality, validity, enforceability, and admissibility in evidence of this Agreement have been obtained or effected and are in full force and effect.

(e) No event has occurred that constitutes, or that, with the giving of notice or the lapse of time, or both, would to the best of the Borrower’s knowledge result in liquidation (“likvidacija”) proceedings in respect of, or bankruptcy (“stečaj”) of, the Borrower or a default under any agreement or instrument evidencing any Financial Indebtedness of the Borrower, and no such event will occur upon the making of the Advance.

(f) There are no judicial, arbitral or administrative actions, proceedings or claims pending or, to the knowledge of the Borrower, threatened, against the Borrower or any of its Subsidiaries, relating to claims or amounts which individually or in the aggregate could have a Material Adverse Effect.

(g) (i) The Borrower’s obligations under the Loan constitute direct, unconditional and unsecured obligations of the Borrower and (ii) based on the view of the Bank of Slovenia, the Borrower reasonably believes that this Loan shall qualify as an Innovative Tier One Instrument in accordance with the Capital Adequacy Regulation (subject to the Borrower obtaining such view from the Bank of Slovenia).

(h) The IFRS Financial Statements were prepared pursuant to the relevant laws of Slovenia and in accordance with IFRS current as at the date thereof and give (in conjunction with the notes thereto) a true and fair view of the financial condition of the Group at the date as of which they were prepared and the results of the Group’s operations and changes in financial position during the financial years or periods then ended.

(i) There has been no material adverse change to the condition (financial or otherwise), prospects, results of operations or general affairs of the Borrower or the Group taken as a whole since 31 December 2005.

(j) PricewaterhouseCoopers d.o.o, who have reported on certain financial statements of the Borrower, are independent auditors with respect to the Borrower; the consolidated financial statements of the Group for the years ended 31 December 2004 and 31 December 2005 were prepared in accordance with IFRS and have been audited by PricewaterhouseCoopers d.o.o without qualification; the consolidated financial statements of the Group for the six months ended 30 June 2006 were prepared in accordance with IAS 34 and have been reviewed by PricewaterhouseCoopers d.o.o in accordance with International Standard on Review Engagements 2400.

(k) The Borrower and each of its Subsidiaries makes and keeps accurate books and records and maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions by the Borrower and its Subsidiaries are executed in accordance with management’s general or specific authorisations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with the all applicable accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorisation; and (iv) the recorded

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accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(l) The execution, delivery and enforceability of this Agreement is not subject to any tax, duty, fee or other charge, including, without limitation, any registration or transfer tax, stamp duty or similar levy, imposed by or within Slovenia or any political subdivision or taxing authority thereof or therein.

(m) Neither the Borrower nor its property has any right of immunity from suit, execution, attachment or other legal process on the grounds of sovereignty or otherwise in respect of any action or proceeding relating in any way to this Agreement.

(n) The Borrower is in compliance in all respects with all applicable provisions of law and regulations in jurisdictions where it carries on its business except where failure to be so in compliance would not have a Material Adverse Effect.

(o) There are no strikes or other employment disputes against the Borrower which are pending or, to the best of the Borrower’s knowledge, threatened in writing which could have a Material Adverse Effect.

(p) Under the laws of Slovenia currently in force, it will not, subject to Clauses 6.6 (Residency Certificate) and 6.7 (Delivery of Forms), be required to make any deduction or withholding from any payment of principal or interest on the Loan.

(q) Its execution of this Agreement constitutes, and its exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts done and performed for private and commercial purposes.

(r) It has no overdue tax liabilities which could have a Material Adverse Effect other than those which it has disclosed to the Lender prior to the date hereof or which it is contesting in good faith.

10.2 Lender’s Confirmation

The Lender confirms that (i) it is a bank which at the date hereof is a resident of the United Kingdom, is subject to taxation in the United Kingdom on the basis of its registration as a legal entity, location of its management body or another similar criterion and it is not subject to taxation in the United Kingdom merely on income from sources in the United Kingdom or connected with property located in the United Kingdom; (ii) it will account for the Loan on the date of closing on its balance sheet as an asset under “loans and advances to banks”; and (iii) at the date hereof, it does not have a permanent establishment in Slovenia.

11 Events of Default

11.1 Failure to pay A13.4.7L

If the Borrower shall not make payment of any principal or any interest payable in respect of the Loan for a period of 10 days or more after the due date for the same, the Lender may give notice to the Borrower that the Loan is due and repayable immediately (and the Loan shall thereby become, subject always to Clause 2.3 (Subordination), so due and repayable) at its principal amount together with accrued interest and any Additional Amounts, the Lender may institute proceedings in Slovenia (but not elsewhere) for the winding-up of the Borrower or the Lender may prove in the liquidation or winding-up of the Borrower. For the avoidance of doubt, non-payment of any amount of interest as a result of it being cancelled in accordance with Clause 4.2 (Payment and Cancellation of Interest) shall not constitute a default.

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11.2 Other breach

The Lender shall be entitled to institute such proceedings against the Borrower as it may think fit to enforce any obligation, condition or provision binding on the Borrower under the Loan (other than any obligation for payment of any principal or interest or other sums payable in respect of the Loan, including, without limitation, any damages awarded for breach of any obligations hereunder) provided that the Borrower shall not by virtue of any such proceedings be obliged to pay, and the Lender shall not be entitled to claim for or receive or retain, any sum or sums sooner than the same would otherwise have been payable by it.

11.3 Insolvency

In the event of the commencement of liquidation (“likvidacija”) proceedings in respect of, or the bankruptcy (“stečaj”) of, the Borrower, the Lender may (i) give notice to the Borrower that the Loan is due and repayable immediately (and the Loan shall thereby become, subject always to Clause 2.3 (Subordination), so due and repayable) at its principal amount together with accrued interest and any Additional Amounts and (ii) prove in the winding-up of the Borrower.

11.4 Remedies

No remedy against the Borrower, other than as referred to in this Clause 11, shall be available to the A13.4.7L Lender in Slovenia or elsewhere, whether for the recovery of amounts owing in respect of the Loan or in respect of any breach by the Borrower of any of its other obligations under or in respect of the Loan.

12 Indemnity

12.1 Indemnification

The Borrower undertakes to indemnify the Lender and each director, officer, employee or agent of the Lender (each an “Indemnified Party”) against any reasonably incurred and properly documented cost, claim, demand, action, liability, damages, loss or expense (including, without limitation, legal fees and expenses and any amount payable by the Lender under the Sub-Participation Agreement, Trust Deed and/or the Paying Agency Agreement, where such amount is subject to receipt by the Lender of the relevant amount from the Borrower) (each a “Loss”) or liability, together with any VAT thereon, which an Indemnified Party may sustain or incur as a consequence of or in connection with the occurrence of any default by the Borrower in the performance of any of the obligations expressed to be assumed by it in this Agreement or in connection with the Sub-Participation Agreement, the Notes, the Notes being outstanding, enforcement of this Agreement or any combination of the above. Except as expressly provided in the Trust Deed, the Lender shall not have any duty or obligation, whether as fiduciary or trustee, for any Indemnified Party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause 12.1.

For the purposes of this Clause 12.1 Loss shall be regarded as properly documented if it is supported by an itemised invoice from the Lender to the Borrower, on the headed paper of the Lender and signed by an authorised officer of the Lender, supported, to the extent available, by a documented evidence of the respective Loss.

Without limiting the generality of the foregoing, the Borrower also undertakes to indemnify the Lender against any Loss arising out of, or in connection with, the Notes (excluding any amounts already claimed under Clause 6.3 (Withholding or Tax Payable on Notes) issued to the Noteholders or any other Agreed Funding Source, as the case may be, or based on any dispute or issue arising out of, or in connection with, any Notes issued to the Noteholders or any other Agreed Funding Source, as the case may be, unless, in circumstances where this indemnity is enforced by someone other than an assignee under Clause 14.5(c), such Loss was either caused by the Lender’s fraud, negligence or wilful misconduct or arises out of a breach of any undertakings of the Lender contained herein (or,

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following the execution of any other agreements entered into in connection with the Noteholders or any other Agreed Funding Source, as the case may be, in such other agreements).

For the avoidance of doubt, it is understood that the Lender may not recover twice from the Borrower in respect of the same Loss.

12.2 Independent Obligation

Clause 12.1 (Indemnification) constitutes a separate and independent obligation of the Borrower from its other obligations under or in connection with this Agreement or any other obligations of the Borrower in connection with the issuance of the Notes and shall not affect, or be construed to affect, any other provision of this Agreement or any such other obligations.

12.3 Evidence of Loss

A certificate of the Lender setting forth the amount of losses, expenses and liabilities described in Clause 12.1 (Indemnification) and specifying in full detail the basis therefor shall be prima facie evidence of the amount of such losses, expenses and liabilities.

12.4 Survival

The obligations of the Borrower pursuant to Clauses 6.2 (No Set-Off, Counterclaim or Withholding; Gross-Up) or 6.3 (Withholding or Tax Payable on Notes) and 12.1 (Indemnification) shall survive the execution and delivery of this Agreement, the drawdown of the Facility and the repayment of the Loan, in each case by the Borrower.

12.5 Payments to the Lender

On each date on which this Agreement requires an amount denominated in euros to be paid by the Borrower, the Borrower shall make the same available to the Lender by payment in euros and in same day funds on such date, or in such other funds as may for the time being be customary in the Euro- zone for the settlement in the Euro-zone of international banking transactions in euros, to the Lender Account. The Borrower shall procure that the bank effecting payment on its behalf confirms to the Lender or to such person as the Lender may direct by tested telex or authenticated SWIFT message three Business Days prior to the date that such payment is required to be made by this Agreement the payment instructions relating to such payment.

12.6 Alternative Payment Arrangements

If, at any time, it shall become impracticable, by reason of any action of any governmental authority or any Change of Law, exchange control regulations or any similar event, for the Borrower to make payments as specified in Clause 12.5 (Payments to the Lender), then the Borrower may agree with the Lender alternative arrangements for such payments to be made; provided that, in the absence of any such agreement, the Borrower shall be obliged to make such payments due to the Lender in the manner specified herein.

13 Expenses

13.1 Front-end Expenses for the Provision of the Loan by the Lender

Save as set out below in this Clause 13.1, the Borrower will be responsible for the amounts separately agreed in a side letter dated on or about the date of this Agreement in respect of costs and expenses incurred by the Lender in connection with the negotiation, preparation and execution (including ongoing execution) of this Agreement and all related documents. If the Advance is not made to the Borrower for the reasons beyond the Lender’s control, the Borrower will pay to the Lender, on the basis of an invoice substantially in the form set out in Schedule 2 to this Agreement, an amount equal

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to the amount of all such costs and expenses reasonably incurred and properly documented by the Lender as provided above in this Clause 13.1.

13.2 Payment of Ongoing Expenses

In addition, the Borrower hereby agrees to pay to the Lender on demand in euro all ongoing commissions, costs, fees and expenses payable by the Lender under or in respect of this Agreement. Payments to the Lender referred to in this Clause 13.2 shall be made by the Borrower at least one Business Day before the relevant payment is to be made or expense incurred provided that before such payment is made by the Borrower the Lender shall submit an invoice providing, in reasonable detail, the nature and calculation of the relevant payment or expense.

13.3 Lender’s Costs and Fees

The Borrower shall:

(a) from time to time on demand of the Lender, and without prejudice to the provisions of Clauses 13.1 (Front-end Expenses for the Provision of the Loan by the Lender) and 13.2 (Payment of Ongoing Expenses), compensate the Lender for all agreed costs and expenses (including telephone, fax, copying, travel and such personnel costs) incurred and properly documented by the Lender in connection with its taking such action as it may deem appropriate or in complying with any request by the Borrower in connection with:

(i) the granting or proposed granting of any waiver or consent requested hereunder by the Borrower;

(ii) any actual breach by the Borrower of its obligations hereunder; or

(iii) any amendment or proposed amendment hereto requested by the Borrower,

(b) pay the Lender an annual facility fee on the terms agreed between them pursuant to a separate facility mandate letter dated 20 October 2006 (the “VTB Mandate Letter”), executed by the Lender under its former name “Moscow Narodny Bank Limited”. For the avoidance of doubt, such fee was defined in the VTB Mandate Letter as the "MNB Annual Fee" and shall continue to be payable on the terms set out in the VTB Mandate Letter notwithstanding the termination of such mandate letter.

13.4 Issuer’s Fees

The Borrower hereby agrees to pay to the Lender for the account of the Issuer the Issuer’s annual fees, costs and expenses as separately agreed between the Borrower and the Issuer, provided that before such payment is made by the Borrower, the Issuer shall have submitted an invoice to the Borrower and the Lender providing the amounts payable in respect of such fees, costs and expenses at least 10 Business Days before the relevant Interest Payment Date on which each relevant payment is to be made by the Borrower.

14 General

14.1 Evidence of Debt

The entries made in the account referred to in Clause 6.1 (Making of Payments) shall, in the absence of manifest error, constitute prima facie evidence of the existence and amounts of the Borrower’s obligations recorded therein.

14.2 Stamp Duties

(a) The Borrower shall pay all stamp, registration and documentary taxes or similar charges (if any) imposed on the Borrower by any person in Slovenia, The Netherlands or the United

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Kingdom which may be payable or determined to be payable in connection with the execution, delivery or performance of this Agreement.

(b) The Borrower agrees that if the Lender incurs a liability to pay any stamp, registration and documentary taxes or similar charges (if any) imposed by any person in Slovenia, The Netherlands or the United Kingdom which may be payable or determined to be payable in connection with the execution, delivery or performance of this Agreement, the Borrower shall reimburse the Bank on demand an amount equal to such stamp or other documentary taxes or duties.

14.3 Waivers

No failure to exercise and no delay in exercising, on the part of the Lender or the Borrower, any right, power or privilege hereunder and no course of dealing between the Borrower and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by applicable law.

14.4 Notices

All notices, requests, demands or other communications to or upon the respective parties hereto shall be given or made in the English language in writing to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement addressed as follows:

(a) if to the Borrower: Abanka Vipa d.d. Slovenska 58 1517 Ljubljana Republic of Slovenia Tel: +386 1 4718170 Fax: +386 1 4325328 Attention: Benjamin Jošar

(b) if to the Lender: VTB Bank Europe plc 81 King William Street London EC4N 7BG United Kingdom Tel: + 44 20 7623 2006 Fax: + 44 20 7929 2354 Attention: Alex Medlock

or to such other address or SWIFT or telex number as any party may hereafter specify in writing to the other.

Any notice, request, demand or other communication given by courier shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by SWIFT or telex, on the day of transmittal thereof, in each case if given during the normal business hours of the recipient, and on the business day during which such normal business hours next occur if not given during such hours on any day.

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14.5 Assignment

(a) This Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a party’s rights or obligations under this Agreement. Any reference in this Agreement to any party shall be construed accordingly and, in particular, references to the exercise of rights and discretions by the Lender, following the enforcement of the security and/or assignment referred to in Clause 14.5(c) below, shall be references to the exercise of such rights or discretions by the Trustee (as Trustee). Notwithstanding the foregoing, the Trustee shall not be entitled to participate in any discussions between the Lender and the Borrower or any agreements of the Lender or the Borrower pursuant to Clauses 6.4 (Reimbursement), Clause 6.9 (Mitigation), Clause 9 (Change in Law or Banking Practices; Increase in Cost) or Clause 14.5(d).

(b) The Borrower shall not assign or transfer all or any part of its rights or obligations hereunder A13.4.7L to any other party. A13.4.14L

(c) The Lender may only assign or transfer, in whole or in part, any of its rights and benefits or obligations under this Agreement (i) on the Closing Date in accordance with the provisions of the Trust Deed; (ii) as set out in sub-paragraph (d) below; (iii) to a Qualifying Bank in accordance with the provisions of the Trust Deed; and (iv) to such bank as Abanka shall nominate in writing in accordance with the terms of the Trust Deed (in the case of (iii) and (iv), with the prior approval of the Issuer, the Agreed Funding Source and/or any other person in whose favour security may have been granted by the Lender in respect of this Agreement (the “Secured Party”) and subject to the completion of such documentation as may be agreed in connection therewith between the Secured Party and the Lender at the relevant time).

(d) If at any time by reason of the introduction of any change after the date of this Agreement in any applicable law or regulation or regulatory requirement or directive of any agency or any state or otherwise, the Lender reasonably determines that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive (i) for the Lender to allow all or part of the Loan or the Issuer to allow all or part of the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement and/or to charge or receive or to be paid interest at the rate then applicable in relation to the Loan, or (ii) for the Borrower to borrow the Loan or to allow all or part of the Loan to remain outstanding or to give effect to any of its obligations in connection with this Agreement and/or to pay interest at the rate then applicable to the Loan, then upon notice by the Lender to the Borrower in writing (setting out in reasonable detail the nature and extent of the relevant circumstances), the Borrower and the Lender shall, to the extent reasonably practicable in the circumstances and at the expense of the Borrower, consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 days of the date on which it so notified the Borrower. If such a basis has not been determined within such 30 day period, then the Lender shall by notice in writing to the Borrower prior to the expiry of such 30 day period be entitled to assign or transfer without the consent of the Borrower, in whole or in part, its rights and benefits or obligations under this Agreement to a Qualifying Bank subject to (i) the prior approval of any Secured Party and (ii) the completion of such documentation as may be agreed in connection therewith between the Secured Party and the Lender at the relevant time. If, after 3 February 2012, such an assignment has not occurred within the 30 days, then the Borrower shall, subject to Clause 5.5 (Limitation of Prepayment Rights), prepay the Loan in whole but not in part at its principal amount together with any accrued and unpaid interest on the next Interest Payment Date or on such earlier date as the Lender shall certify to be necessary to comply with such requirements. For the avoidance of doubt, no such prepayment may occur prior to 3 February 2012.

(e) Any references in this Agreement to any such assignee or transferee pursuant to Clause 14.5(c) or (d) shall be construed accordingly and, in particular, references to the rights, benefits and

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obligations hereunder of the Lender, following such assignment or transfer, shall be references to such rights, benefits or obligations of the assignee or transferee.

14.6 Currency Indemnity

For the avoidance of doubt, the euro is the currency of account and payment for each and every sum A13.4.5 at any time due from the Borrower hereunder. To the fullest extent permitted by law, the obligation of the Borrower in respect of any amount due in euros under this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in euros that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in euros that may be so purchased for any reason falls short of the amount originally due (the “Due Amount”), the Borrower hereby agrees to indemnify and hold harmless the Lender against any deficiency in euros. Any obligation of the Borrower not discharged by payment in euros shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect. If the amount in euros that may be purchased exceeds that Due Amount the Lender shall promptly pay the amount of the excess to the Borrower.

14.7 Prescription

Subject to the Lender having received the principal amount thereof or interest thereon from the A13.4.8(b)L Borrower, the Lender shall forthwith repay to the Borrower the principal amount or the interest amount thereon, respectively, of any Notes upon such Notes becoming void pursuant to Condition 9 of the Notes.

14.8 Contracts (Rights of Third Parties) Act 1999

A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.

14.9 Choice of Law

This Agreement shall be governed by, and construed in accordance with, the laws of England save for A13.4.3L the provisions of Clause 2.3 (Subordination) which shall be governed by, and construed in accordance with, the laws of Slovenia.

14.10 Jurisdiction

(a) The Borrower hereby irrevocably agrees for the benefit of the Lender that the courts of England shall have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceeding (collectively, “Proceedings”) arising out of or in connection with this Agreement may be brought in such courts.

(b) The Borrower irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any Proceedings in any such court referred to in this Clause 14.10 and any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a final and conclusive judgment in any Proceedings brought in the English courts with competent jurisdiction shall be conclusive and binding and may be enforced in the courts of any other jurisdiction.

(c) Nothing contained in this Agreement shall limit the right of any party to take Proceedings against another party in any other court of competent jurisdiction to the extent permitted by any applicable law, nor shall the taking of Proceedings in connection with this Agreement in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction or in any

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other court of competent jurisdiction in connection with this Agreement to the extent permitted by any applicable law.

(d) The Borrower agrees that the process by which any Proceedings in England are begun may be served on it by being delivered to Law Debenture Corporate Services Limited at Fifth Floor, 100 Wood Street, London EC2V 7EX or at any other address for the time being at which process may be served on such person in accordance with Part XXIII of the Companies Act 1985 (as modified or re-enacted from time to time). If such person is not or ceases to be effectively appointed to accept service of process on the Borrower’s behalf, the Borrower shall, on the written demand of the Lender, appoint a further person in England to accept service of process on its behalf and, failing such appointment within 15 days, the Lender shall be entitled to appoint such a person by written notice to the Borrower. Nothing in this Clause 14.10 shall affect the right of the Lender to serve process in any other manner permitted by law.

14.11 Waiver of Immunity

To the extent that the Borrower may in any jurisdiction claim for itself or its assets or revenues immunity from suit, execution, attachment (whether in aid of execution, before making of a judgment or award or otherwise) or other legal process and to the extent that such immunity (whether or not claimed) may be attributed in any such jurisdiction to the Borrower or its assets or revenues, the Borrower agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction.

14.12 Counterparts

This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement.

14.13 Language

The language which governs the interpretation of this Agreement is the English language.

14.14 Amendments

Except as otherwise provided by its terms, this Agreement may not be varied except by an agreement in writing signed by the parties. Save for any modification of any of the provisions of this Agreement which is of a formal, minor or technical nature or is made to correct a manifest error, no modification to this Agreement shall become effective unless written notice is given to, and no objection is received from, the Bank of Slovenia (for so long as there is a requirement to give such notice).

14.15 Partial Invalidity

The illegality, invalidity or unenforceability to any extent of any provision of this Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision.

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Terms and Conditions of the Notes

The following is the text of the Terms and Conditions of the Notes, which will be endorsed on each Note in definitive form (if and to the extent issued). The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to Notes in definitive form to the extent described under “Summary of the Provisions Relating to the Notes in Global Form” below.

The €120,000,000 Floating Rate Perpetual Loan Participation Notes with interest rate step-up in 2017 (the A13.4.5 “Notes”, which expression shall in these Terms and Conditions, unless the context otherwise requires, A13.4.10 include any further notes issued pursuant to Condition 14 (Further Issues) and forming a single series with the Notes) of Afinance B.V. (the “Issuer”) are constituted and secured by a trust deed (such trust deed as modified and/or restated and/or supplemented from time to time, the “Trust Deed”) dated 23 January 2007 between the Issuer, VTB Bank Europe plc (in its capacity as lender pursuant to the Subordinated Loan Agreement defined below, the “Lender”) and Deutsche Trustee Company Limited as trustee (the “Trustee”, which expression shall include its successor(s)) for the holders of the Notes (the “Noteholders”). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of funding a 100 per cent. participation by the Issuer (the “Sub-Participation”) in a €120,000,000 subordinated loan (the “Subordinated Loan”) to Abanka Vipa d.d. (“Abanka”) by the Lender pursuant to a sub-participation agreement dated 18 January 2007 (such agreement as modified and/or restated and/or supplemented from time to time, the “Sub-Participation Agreement”) between the Issuer and the Lender. Pursuant to the Sub- Participation Agreement, the Lender will use the proceeds of the Sub-Participation for the sole purpose of financing the Subordinated Loan, which has been recorded under an agreement dated 18 January 2007 (such agreement as modified and/or restated and/or supplemented from time to time, the “Subordinated Loan Agreement”) between the Lender and Abanka as borrower.

The statements in these Terms and Conditions relating to the obligations of the Issuer to pay principal, A13.4.7 interest and additional amounts, if any, due in respect of the Notes, are subject to Clause 6 (Payments) of the Subordinated Loan Agreement and Condition 2 (Status and Limited Recourse). Where any amount of principal or interest or any additional amounts, if any, payable pursuant to Condition 8 (Taxation) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts, if any, are due in respect of the Notes, for an amount equivalent to the sums of principal, interest and additional amounts, if any, actually received by, or for the account of, the Issuer from the Lender pursuant to the Sub-Participation Agreement.

Noteholders must therefore rely upon (i) the covenant by Abanka to pay under the Subordinated Loan A13.4.7 Agreement (which has been assigned to the Issuer as described in Condition 3 (Security)) and the credit and financial standing of Abanka and (ii) the covenant by the Lender to pay under the Sub-Participation Agreement. Noteholders shall have no recourse (direct or indirect) to any assets of the Issuer or the Lender other than the assets subject to the Note Security (as defined in Condition 3 (Security)).

The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and an agency agreement (such agreement as modified and/or restated and/or supplemented from time to time, the “Paying and Transfer Agency Agreement”) dated 23 January 2007 between the Issuer, Deutsche Bank AG, London Branch as principal paying and transfer agent (the “Principal Paying and Transfer Agent”, which expression includes any successor principal paying and transfer agent appointed from time to time in connection with the Notes), the other paying agents named therein (together with the Principal Paying and Transfer Agent, the “Paying and Transfer Agents”, which expression includes any additional or successor paying and transfer agents appointed from time to time in connection with the Notes), Deutsche Bank Luxembourg S.A. as registrar (the “Registrar”, which expression includes any successor registrar appointed from time to time in connection with the Notes), and the Trustee are available for inspection during normal business hours at the registered office for the time being of the Trustee, being at the date hereof at Winchester House, 1 Great Winchester Street, London EC2N 2DB, and at the specified office of each Paying and Transfer Agent.

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TERMS AND CONDITIONS OF THE NOTES

Certain provisions of these Conditions include definitions to be found in, and summaries of detailed provisions of, the Trust Deed, the Subordinated Loan Agreement and/or, as the case may be, the Paying and Transfer Agency Agreement and such summaries are subject to their detailed provisions and definitions. The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Paying and Transfer Agency Agreement applicable to them.

1 FORM, DENOMINATION, TITLE AND TRANSFERS

1.1 Form and Denomination

The Notes are in registered form, without interest coupons attached, in the denomination of €50,000 each and integral multiples of €1,000 in excess thereof.

1.2 Register

The Registrar will maintain outside the United Kingdom a register (the “Register”) in respect of the A13.4.14 Notes in accordance with the provisions of the Paying and Transfer Agency Agreement. In these Conditions, the holder of a Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and “Noteholder” and “Holder” shall be construed accordingly. A certificate (each, a “Note Certificate”) will be issued to each Noteholder in respect of its registered holding. Each Note Certificate will be numbered serially with an identifying number which will be recorded in the Register.

1.3 Title

Each Noteholder shall (except as otherwise required by law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Note Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Note Certificate) and no person shall be liable for so treating such Noteholder.

1.4 Transfers

Subject to Conditions 1.7 and 1.8 below, a Note may be transferred upon surrender of the relevant A13.4.14 Note Certificate, with the endorsed form of transfer duly completed (including any certificates as to compliance with restrictions on transfer included therein), at the specified office of the Registrar or any Paying and Transfer Agent, together with such evidence as the Registrar or (as the case may be) such Paying and Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer, provided that a Note may not be transferred unless the principal amount of Notes transferred and (where not all of the Notes held by a Noteholder are being transferred) the principal amount of the balance of Notes not transferred equal or exceed €50,000. Where not all the Notes represented by the surrendered Note Certificate are the subject of the transfer, a new Note Certificate in respect of the balance of the Notes will be issued to the transferor.

1.5 Registration and delivery of Note Certificates

Within five business days of the surrender of a Note Certificate in accordance with Condition 1.4, the Registrar will register the transfer in question and deliver a new Note Certificate of a like principal amount to the Notes transferred to each relevant Noteholder at its specified office or (as the case may be) the specified office of any Paying and Transfer Agent or (at the request and risk of any such relevant Noteholder) by uninsured first-class mail (airmail if overseas) to the address specified for the purpose by such relevant Noteholder. In this paragraph, “business day” means a day on which banks are open for general business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Paying and Transfer Agent has its specified office.

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1.6 No charge

The transfer of a Note will be effected without charge by or on behalf of the Issuer, the Registrar or any Paying and Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Paying and Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer.

1.7 Closed periods

Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes.

1.8 Regulations concerning transfers and registration

All transfers of Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Paying and Transfer Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar and/or any Paying and Transfer Agent to any Noteholder who requests in writing a copy of such regulations. So long as any of the Notes are admitted to trading on the Luxembourg Stock Exchange’s regulated market, a copy of the current regulations will be publicly available at the specified offices of the Principal Paying and Transfer Agent in Luxembourg.

2. STATUS AND LIMITED RECOURSE The Notes constitute direct limited recourse obligations of the Issuer. Recourse in respect of the Notes is limited in the manner described in this Condition 2 (Status and Limited Recourse). The Notes are secured in the manner described in Condition 3 (Security) and shall rank at all times pari passu and without preference amongst themselves.

The sole purpose of the issue of the Notes is to provide the funds for the Sub-Participation in the A13.4.6 Subordinated Loan and, by this means, to fund the Subordinated Loan itself. The Notes constitute A13.4.7 the obligation of the Issuer to apply an amount equal to the gross proceeds from the issue of the Notes for funding the Sub-Participation and to account to the Noteholders for an amount equivalent to sums of principal, interest and additional amounts, if any, actually received by, or for the account of, the Issuer from the Lender pursuant to the Sub-Participation Agreement, the right to receive which is, inter alia, being charged by way of security to the Trustee by virtue of the charge as security for the Issuer’s payment obligations under the Trust Deed and in respect of the Notes.

Noteholders must, therefore, rely upon the ability of Abanka to pay under the Subordinated Loan Agreement and the credit and financial standing of Abanka and the covenant of the Lender to comply with its obligations under the Sub-Participation Agreement. Noteholders shall have no recourse (direct or indirect) to any assets of the Issuer or the Lender other than the assets subject to the Note Security.

Payments in respect of the Notes equivalent to the sums actually received by or for the account of, the Issuer by way of principal, interest or additional amounts, if any, pursuant to the Sub- Participation Agreement will be made pro rata among all Noteholders (subject to Condition 8 (Taxation)), on the corresponding payment dates of, and in the currency of, and subject to the conditions attaching to, the equivalent payment in accordance with the Sub-Participation and the Subordinated Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein. The Issuer shall be under no obligation to exercise in favour of the Noteholders any rights of set-off or of banker’s lien or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and the Lender.

Any payment made by the Lender under the Sub-Participation Agreement to, or to the order of, the Trustee or the Principal Paying and Transfer Agent will satisfy pro tanto the obligations of the Issuer

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in respect of the Notes except in each case to the extent that there is failure in its subsequent payment to the relevant Noteholders. In the circumstances described in the Trust Deed and these Terms and Conditions where payments under the Subordinated Loan Agreement may be made by Abanka to or to the order of, the Trustee, such payments will satisfy pro tanto the obligations of the Lender in respect of the Sub-Participation Agreement and shall satisfy pro tanto the obligations of the Issuer in respect of the Notes.

Only the Trustee may pursue the remedies available under the Trust Deed to enforce the rights of the Noteholders and none of the Noteholders is entitled to proceed against the Issuer or the Lender unless the Trustee, having become bound to proceed in accordance with the Trust Deed, has failed or neglected to do so within a reasonable time and such failure or neglect is continuing.

Notwithstanding any other provision of these Terms and Conditions and the provisions of the Trust Deed, the Trustee and the Noteholders shall have recourse only to the Note Security in respect of the Notes in accordance with Clause 7.4 (Limited Recourse) of the Trust Deed and the Trustee having realised the same and distributed the proceeds of the Note Security in accordance with Clause 8 (Application of Moneys received by the Trustee) of the Trust Deed, none of the Trustee nor the Noteholders, nor anyone acting on behalf of any of them, shall be entitled to take any further steps against the Issuer or the Lender to recover any further sum and no debt shall be owed by the Issuer or the Lender in respect of such sum. In particular, none of the Trustee, any Noteholder, nor any other party to the Trust Deed shall be entitled to institute, or join with any other person in bringing, instituting, or joining, insolvency proceedings (whether court based or otherwise) in relation to the Issuer or the Lender.

Noteholders are deemed to have accepted that:

(i) (A) neither the Issuer nor the Trustee makes any representation or warranty in respect of, and shall at no time have any responsibility for, or liability, or obligation in respect of the performance and observance by Abanka of its obligations under the Subordinated Loan Agreement or by the Lender under the Sub-Participation Agreement or the recoverability of any sum of principal, interest or additional amounts, if any, due or to become due from Abanka under the Subordinated Loan Agreement and/or from the Lender under the Sub-Participation Agreement; and (B) the Lender makes no representation or warranty in respect of, and shall at no time have any responsibility for, or (save as otherwise expressly provided in the Trust Deed) liability or obligation in respect of the performance and observance by Abanka of its obligations under the Subordinated Loan Agreement or the recoverability of any sum of principal, interest or Additional Amounts or other amounts, if any, due or to become due from Abanka under the Subordinated Loan Agreement;

(ii) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial, operational or otherwise), creditworthiness, affairs, status, nature or prospects of Abanka or the Lender;

(iii) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, any misrepresentation or breach of warranty or any act, default or omission of Abanka under or in respect of the Subordinated Loan Agreement or the Lender under or in respect of the Sub-Participation Agreement;

(iv) the Trustee shall not at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Registrar or any Paying and Transfer Agent of its obligations under the Paying and Transfer Agency Agreement;

(v) the financial servicing and the performance of the terms of the Notes depend upon (i) the performance by Abanka of its obligations under the Subordinated Loan Agreement, its ability to pay under the Subordinated Loan Agreement and its credit and financial standing and (ii) the performance by the Lender of its obligations under the Sub-Participation Agreement, which are dependent on receipt by it of corresponding payments under the Subordinated Loan;

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(vi) neither the Issuer (nor the Trustee) will be monitoring whether Abanka is complying with its obligations under the Subordinated Loan Agreement and shall not be responsible for investigating any aspect of Abanka’s performance in relation thereto and will be entitled to rely on self-certification by Abanka and where applicable, third parties as a means of monitoring whether Abanka is complying with its obligations (other than its obligations to make any payment of principal or interest) under the Subordinated Loan Agreement and the Trustee will not be liable for any failure to make the usual or any investigations which might be made by a security holder in relation to the property which is the subject of the Note Security (as defined in Condition 3 (Security)) and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to such secured property whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will it have any liability for the enforceability of the security created by the Note Security (as defined in Condition 3 (Security)) whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security and the Trustee will have no responsibility for the value of such security; and

(vii) if Abanka is required by law to make any withholding or deduction for or on account of tax from any payment under the Subordinated Loan Agreement, if the Lender is required by law to make any withholding or deduction for or on account of tax from any payment under the Sub-Participation Agreement or if the Issuer is required by law to make any withholding or deduction for or on account of tax from any payment in respect of the Notes, the sole obligation of the Issuer will be to pay to the Noteholders sums equivalent to the sums actually received from the Lender pursuant to the Sub-Participation Agreement in respect of such payment, including, if applicable, additional amounts (in respect of the tax required to be so withheld or deducted) and the Lender will only pay such equivalent sums to the Issuer to the extent and at such time as it shall have actually received equivalent sums from Abanka under the Subordinated Loan Agreement in respect of such payment, including, if applicable, by way of additional amounts (in respect of tax required to be withheld or deducted).

Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer’s rights under or in respect of the Sub-Participation Agreement or the Sub- Participation exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions in the Sub-Participation Agreement or have direct recourse to the Lender except through action by the Trustee under the Note Security. Neither the Issuer nor the Trustee pursuant to the Issuer Transferred Rights shall be required to take proceedings to enforce payment under the Sub-Participation Agreement, unless it has been indemnified and/or secured by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith.

Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Lender’s rights under or in respect of the Subordinated Loan Agreement or the Subordinated Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions in the Subordinated Loan Agreement or have direct recourse to Abanka except through action by the Trustee under the Note Security. Neither the Lender nor the Trustee pursuant to the Lender Transferred Rights shall be required to take proceedings to enforce payment under the Subordinated Loan Agreement unless it has been indemnified and/or secured by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith.

3. SECURITY 3.1 The Issuer has in the Trust Deed as security for its payment obligations under the Notes and the Trust Deed:

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(i) charged by way of first fixed charge to the Trustee all of the Issuer’s rights, interests and benefits in and to: (a) principal, interest and other amounts now or hereafter paid and/or payable by the Lender to the Issuer under the Sub-Participation Agreement; (b) all amounts now or hereafter paid or payable by the Lender to the Issuer under or in respect of any claim, award or judgment relating to the Sub-Participation Agreement; and (c) the Lender Charged Property;

(ii) charged by way of first fixed charge to the Trustee all of the Issuer’s rights, interest and benefits in and to all sums held on deposit from time to time, in the Issuer Account (as defined in the Trust Deed) with the Principal Paying and Transfer Agent, together with the debt represented thereby pursuant to the Trust Deed (the property charged pursuant to this Condition 3.1(ii), together with the property charged pursuant to Condition 3.1(i), the “Issuer Charged Property”); and

(iii) assigned absolutely to the Trustee all of the Issuer’s rights, interest and benefits whatsoever, both present and future, whether proprietary, contractual or otherwise under or arising out of or evidenced by (a) the Sub-Participation Agreement (including, without limitation, the right to take proceedings to enforce the obligations of the Lender thereunder) other than the Issuer Charged Property and amounts payable by Abanka in relation to the Issuer Charged Property and (b) the Lender Transferred Rights (as defined below) (together referred to as the “Issuer Transferred Rights” and together with the Issuer Charged Property and, for the avoidance of doubt, the Lender Security, the “Note Security”).

3.2 The Lender has in the Trust Deed as security for its payment obligations to the Issuer under the Sub- Participation Agreement:

(i) charged by way of first fixed charge to the Issuer all of the Lender’s rights, interests and benefits in and to: (a) principal, interest and other amounts now or hereafter paid and/or payable by Abanka to the Lender under the Subordinated Loan Agreement; and (b) all amounts now or hereafter paid or payable by Abanka to the Lender under or in respect of any claim, award or judgment relating to the Subordinated Loan Agreement (in each case other than any rights and benefits constituting Reserved Rights as such term is defined in the Trust Deed);

(ii) charged by way of first fixed charge to the Issuer all of the Lender’s rights, interest and benefit in and to all sums held on deposit from time to time, in the Lender Account (as defined in the Subordinated Loan Agreement) with the Principal Paying and Transfer Agent, together with the debt represented thereby (except to the extent such debt relates to Reserved Rights) pursuant to the Trust Deed (the property charged pursuant to this Condition 3.2(ii), together with the property charged pursuant to Condition 3.2(i) other than the Reserved Rights, the “Lender Charged Property”); and

(iii) assigned absolutely to the Issuer all of the Lender’s rights, interests and benefits whatsoever, both present and future, whether proprietary, contractual or otherwise under or arising out of or evidenced by the Subordinated Loan Agreement (including, without limitation, the right to institute proceedings against Abanka in the circumstances provided therein) other than the Lender Charged Property and the Reserved Rights and amounts payable by Abanka in relation to the Lender Charged Property and the Reserved Rights (the “Lender Transferred Rights” and, together with the Lender Charged Property, the “Lender Security”).

In the circumstances set out in Condition 13 (Enforcement), the Trustee can (subject to it being indemnified and/or secured to its satisfaction) be required by Noteholders holding at least one-quarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as defined in the Trust Deed) of Noteholders to exercise certain of its powers under the Trust Deed (including those arising in connection with the Note Security).

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4. ISSUER’S COVENANT; LENDER’S COVENANT As provided in the Trust Deed, so long as any of the Notes remains outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee, agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Sub-Participation Agreement and/or the Lender Security granted to it in connection therewith and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Sub-Participation Agreement and the Lender Security, except as otherwise expressly provided in the Trust Deed and the Sub-Participation Agreement. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition 15 (Notices).

As provided in the Trust Deed, so long as any of the Notes remains outstanding, the Lender will not, without the prior written consent of the Trustee, agree to any amendments to, any modification of, any waiver of or authorise any breach or proposed breach of the terms of the Subordinated Loan Agreement and will act at all times in accordance with any instructions of the Trustee, from time to time, with respect to the Subordinated Loan Agreement, except as otherwise expressly provided in the Trust Deed and the Subordinated Loan Agreement. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and shall be notified by the Issuer to the Noteholders in accordance with Condition 15 (Notices).

A13.4.8 5. INTEREST 5.1 Accrual of Interest

On each Interest Payment Date (as defined in the Subordinated Loan Agreement) (i) the Lender shall A13.4.8(a) A13.4.7

account to the Issuer for an amount equivalent to amounts of interest and Additional Amounts (if A13.4.8(c) any) actually received by or for the account of the Lender pursuant to the Subordinated Loan Agreement (or on such later date as such amounts are actually received by the Lender) and (ii) the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Sub- Participation Agreement (or on such later date as such amounts are actually received by the Issuer).

Subject to Clause 4.2(b) (Cancellation of Interest Payments) of the Subordinated Loan Agreement, pursuant to which Abanka may have the right or the obligation not to pay interest under the Subordinated Loan Agreement on any Interest Payment Date, interest accrues on the Subordinated Loan from and including 23 January 2007 to but excluding 3 February 2017 (the “Reset Date”) at a floating rate equal to the sum of three month EURIBOR (determined in accordance with the Subordinated Loan Agreement) and 1.90 per cent. per annum and shall be payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2007, with the last such payment due on the Reset Date, save that the first payment of interest will be made on 3 May 2007 in respect of the period from (and including) the 23 January 2007 to (but excluding) 3 May 2007, subject in each case to the Business Day Convention (as defined below). If the Subordinated Loan has not been prepaid or the Notes have not otherwise been redeemed on or prior to the Reset Date, interest (to the extent payable as provided in Clause 4.2(b) (Cancellation of Interest Payments) of the Subordinated Loan Agreement) shall accrue at a floating rate equal to the sum of three month EURIBOR (determined as aforesaid) and 2.85 per cent. per annum from and including the Reset Date and thereafter and shall be payable quarterly in arrear on 3 February, 3 May, 3 August and 3 November in each year, commencing on 3 May 2017, subject in each case to the Business Day Convention (as defined below), all as more particularly described in the Subordinated Loan Agreement. Three month EURIBOR will be determined on the second TARGET Settlement Day (as defined in the Subordinated Loan Agreement) immediately preceding the commencement of the relevant Interest Period (as defined below), as more fully set out in the Subordinated Loan Agreement, by the Calculation Agent (as defined in the Subordinated Loan Agreement) (such determination by the Calculation Agent being final and binding on the Lender and Abanka, in the absence of manifest error).

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Under the Subordinated Loan Agreement, if any Interest Payment Date would otherwise fall on a day which is not a Business Day (as defined in the Subordinated Loan Agreement), it shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month in which event it shall be brought forward to the immediately preceding Business Day (the “Business Day Convention”). Interest Payment Dates shall be adjusted for purposes of accrual of interest in accordance with the Subordinated Loan Agreement.

Under the Subordinated Loan Agreement, the period beginning on (and including) the Closing Date (as defined in the Subordinated Loan Agreement) and ending on (but excluding) the next succeeding Interest Payment Date (as defined in the Subordinated Loan Agreement) and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is an “Interest Period”.

If interest is required to be calculated for an Interest Period of less than a full year, such interest shall be calculated in accordance with the Subordinated Loan Agreement.

5.2 Overdue Interest

In the event that, and to the extent that, the Lender actually receives any amounts in respect of interest on unpaid sums from Abanka under the Subordinated Loan Agreement (other than amounts so received forming part of the Reserved Rights) and the Issuer actually receives such amounts from the Lender under the Sub-Participation Agreement, then the Issuer shall account to the Noteholders for an amount equivalent to the amounts in respect of interest on unpaid sums actually so received.

5.3 Notification to the Paying and Transfer Agents and Stock Exchange

The Issuer will cause the rate of interest payable on the Notes as described in Condition 5.1 to be notified to the Paying and Transfer Agents and each stock exchange (if any) on which the Notes are then listed as soon as practicable after receipt by the Issuer of notice from the Calculation Agent of such determination but in any event not later than the first day of the relevant Interest Period.

5.4 Status of Notification

All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition by or on behalf of the Issuer or, failing which, the Calculation Agent will (in the absence of manifest error) be binding on the Issuer, the Calculation Agent, the Paying and Transfer Agents, the Trustee and the Noteholders and (subject as aforesaid) no liability to any such person will attach to the Issuer or the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes.

6. REDEMPTION 6.1 No Fixed Redemption Date

The Notes are perpetual securities in respect of which there is no fixed redemption date. A13.4.9

6.2 Mandatory Redemption

If the Subordinated Loan becomes repayable pursuant to Clause 5.2 (Early Prepayment Events), or A13.4.9 Clause 5.3 (Prepayment at the option of the Borrower) or Clause 14.5(d) (Assignment) of the Subordinated Loan Agreement and is repaid and the Sub-Participation becomes repayable pursuant to the terms of the Sub-Participation Agreement and is repaid, the Notes will be redeemed in whole, but not in part, on giving not less than 10 days’ nor more than 20 days’ notice to the Noteholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable), at the outstanding principal amount thereof together with interest accrued on the amount of principal so repaid to (but excluding) the date fixed for redemption (which shall be the date fixed for prepayment under Clause

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5 (Repayment and Prepayment) of the Subordinated Loan Agreement and the date fixed for prepayment under the Sub-Participation Agreement).

Prior to the publication of any notice of redemption referred to in this Condition 6.2, the Issuer shall deliver to the Trustee a certificate signed by the managing director of the Issuer stating (i) that the Issuer is entitled to effect such redemption in accordance with this Condition 6.2 and (ii) the date fixed for redemption of the Notes, and the Trustee shall be entitled to accept the certificate as sufficient evidence of the satisfaction of the applicable condition set out above, in which event it shall be conclusive and binding on the Noteholders.

Upon the expiry of any such notice given by the Issuer to the Noteholders as is referred to in this Condition 6.2, the Issuer shall be bound to redeem the Notes in accordance with this Condition 6, subject as provided in Condition 7 (Payments).

6.3 No Other Redemption A13.4.9

Except where the Subordinated Loan becomes due and payable pursuant to Clause 11 (Events of Default) of the Subordinated Loan Agreement, the Issuer shall not be entitled to redeem the Notes otherwise than as provided in this Condition 6. The Noteholders shall not be entitled to redeem the Notes at any time.

7. PAYMENTS

7.1 Principal

Payments of principal shall be made by euro cheque drawn on, or, upon application by a Noteholder to the specified office of the Principal Paying and Transfer Agent not later than the fifteenth day before the due date for any such payment, by transfer to a euro account maintained by the payee with, a bank in the Euro-zone, and shall only be made upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificates at the specified office of any Paying and Transfer Agent.

7.2 Interest

Payments of interest shall be made by euro cheque drawn on, or, upon application by a Noteholder to the specified office of the Principal Paying and Transfer Agent not later than the fifteenth day before the due date for any such payment, by transfer to a euro account maintained by the payee with, a bank in the Euro-zone, and (in the case of interest payable on redemption), shall only be made upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificates at the specified office of any Paying and Transfer Agent.

7.3 Payments subject to applicable laws

Payments in respect of principal, interest and additional amounts (if any) on the Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8 (Taxation).

7.4 Payment only on a Presentation Date

A holder shall be entitled to present a Note Certificate for payment only on a Presentation Date and shall not be entitled to any further interest or other payment if a Presentation Date is after the due date.

“Presentation Date” means a day which (subject to Condition 9 (Prescription)):

(i) is or falls after the relevant due date;

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(ii) is a Business Day in the place of the specified office of the Paying or Transfer Agent at which the Note Certificate is presented for payment; and

(iii) in the case of payment by credit or transfer to a euro account in the Euro-zone as referred to above, is a Target Settlement Day.

In this Condition 7.4, “Business Day” means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place.

7.5 Paying and Transfer Agents

The names of the initial Paying and Transfer Agents and their initial specified offices are set out at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Paying and Transfer Agent and to appoint additional or other Paying and Transfer Agents provided that it will at all times maintain:

(i) a Paying and Transfer Agent with a specified office in a Member State of the European Union that will not be obliged to withhold or deduct tax pursuant to any law implementing the European Council Directive on Taxation of Savings Income in the form of Interest Payments (“European Council Directive 2003/48/EC”) or any other Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000; and

(ii) so long as the Notes are listed on the Luxembourg Stock Exchange’s regulated market, a Paying and Transfer Agent having its specified office in Luxembourg.

Notice of termination or appointment and of any changes in specified offices will be given to the Noteholders promptly by the Issuer in accordance with Condition 15 (Notices).

7.6 Partial payments

If a Paying and Transfer Agent makes a partial payment in respect of any Note, the Issuer shall procure that the amount and date of such payment are noted on the Register and, in the case of partial payment upon presentation of a Note Certificate, that a statement indicating the amount and the date of such payment is endorsed on the relevant Note Certificate.

7.7 Record date

Each payment in respect of a Note will be made to the person shown as the Noteholder in the Register at the opening of business in the place of the Registrar’s specified office on the fifteenth day before the due date for such payment (the “Record Date”). Where payment in respect of a Note is to be made by cheque, the cheque will be mailed to the address shown as the address of the Noteholder in the Register at the opening of business on the relevant Record Date.

7.8 Payment to the Issuer Account and the Lender Account

Save as the Trustee may otherwise direct at any time after the security created pursuant to the Trust Deed becomes enforceable, the Issuer will pursuant to the provisions of Clause 7 of the Agency Agreement require the Lender to make all payments of principal, interest, additional amounts or other amounts, if any, to be made pursuant to the Sub-Participation Agreement to the Issuer Account. Save as the Trustee may otherwise direct at any time after the security created pursuant to the Trust Deed becomes enforceable, the Lender will pursuant to the provisions of Clause 7 of the Agency Agreement require Abanka to make all payments of principal, interest, Additional Amounts or other amounts, if any, to be made pursuant to the Subordinated Loan Agreement to the Lender Account (less any amounts in respect of the Reserved Rights).

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7.9 Payment Obligations Limited

The obligations of the Issuer to make payments under Condition 6 (Redemption) and this Condition 7 shall constitute an obligation only to pay to the Noteholders on such date upon which a payment is due in respect of the Notes, to the extent of sums of principal, interest, additional amounts or other amounts, if any, actually received by or for the account of the Issuer from the Lender pursuant to the Sub-Participation Agreement and the Lender will only pay such sums of principal, interest and additional amounts, if any, to the Issuer to the extent of the sums of principal, interest and Additional Amounts, if any, actually received by or for the account of the Lender from Abanka pursuant to the Subordinated Loan Agreement (less any amounts in respect of the Reserved Rights).

8. TAXATION All payments of principal and interest by or on behalf of the Issuer in respect of the Notes shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatsoever nature (“Taxes”) imposed or levied by or on behalf of The Netherlands or any political subdivision or any authority thereof or therein having power to tax (the “Taxing Authority”), unless the withholding or deduction of the Taxes is required by law. In that case, the Issuer shall, subject as provided below, pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the absence of the withholding or deduction, except that no additional amounts shall be payable in respect of any Note:

(a) presented for payment by or on behalf of a holder which is liable to the Taxes in respect of such Note by reason of his having some connection with the Taxing Authority or any political subdivision or any authority thereof or therein having power to tax other than the mere holding of the Note;

(b) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive;

(c) presented for payment by or on behalf of a holder who would be able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a Member State of the European Union;

(d) presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that such additional payment would have been payable if the relevant Note had been presented for payment on such 30th day; or

(e) for any Taxes that are imposed or withheld by reason of the failure of the holder of the Note to comply with a request of, or on behalf of, the Issuer addressed to the holder to provide information concerning the nationality, residence or identity of such holder or to make any declaration or similar claim or satisfy any information or reporting requirement, which is required or imposed by a statute, treaty, regulation, protocol or administrative practice as a precondition to exemption from all or part of such Taxes.

Notwithstanding the foregoing provisions, the Issuer shall only make such additional payments to the Noteholders to the extent and at such time as it shall have actually received an equivalent amount from the Lender under the Sub-Participation Agreement and the Lender will only pay such equivalent amount to the Issuer to the extent and at such time as it shall have actually received an equivalent amount from Abanka under the Subordinated Loan Agreement by way of Additional Amounts or otherwise.

To the extent that the Issuer does not receive from the Lender such equivalent amount in full, the Issuer shall account to each Noteholder entitled to receive such additional amount pursuant to this Condition 8 for an additional amount equivalent to a pro rata proportion of such additional amount

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(if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Sub-Participation Agreement on or as soon as may be practicable after the date of the receipt of, in the currency of, and subject to any conditions attaching to the payment of, such additional amount to the Issuer.

In these Conditions, “Relevant Date” means the date on which the payment in question first becomes due except that if the full amount of the money payable has not been received in London by the Principal Paying and Transfer Agent or the Trustee on or before the due date, it means the date on which (the full amount of the money having been so received) notice to that effect has been duly given to the Noteholders by the Issuer in accordance with Condition 15 (Notices).

Any reference in these Conditions to principal or interest shall be deemed to include, without duplication, any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 8 or any undertaking given in addition to or in substitution for this Condition 8 pursuant to the Trust Deed, the Sub-Participation Agreement or the Subordinated Loan Agreement.

9. PRESCRIPTION Claims for principal and interest on redemption shall become void unless the relevant Note Certificates are surrendered for payment within 10 years, and claims for interest due other than on redemption shall become void unless made within five years, in each case of the appropriate Relevant Date.

10. REPLACEMENT OF NOTES If any Note Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Registrar and/or the Principal Paying and Transfer Agent having its specified office in Luxembourg, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Note Certificates must be surrendered before replacements will be issued.

11. TRUSTEE AND PAYING AND TRANSFER AGENTS 11.1 Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances, including provisions relieving it from taking action unless indemnified to its satisfaction.

11.2 Trustee Contracting with the Issuer, the Lender and/or Abanka

The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (i) to enter into business transactions with the Issuer, the Lender and/or Abanka and/or any subsidiary of the Issuer, the Lender and/or Abanka and to act as trustee for the holders of any other securities issued or guaranteed by or relating to, the Issuer, the Lender and/or Abanka and/or any subsidiary of the Issuer, the Lender and/or Abanka, (ii) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders and (iii) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.

11.3 Trustee to have regard to Interests of Noteholders as one Class

In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or

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substitution), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Lender, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders except to the extent provided for in Condition 8 (Taxation) and/or any undertaking given in addition to, or in substitution for, Condition 8 (Taxation) pursuant to the Trust Deed and/or the Subordinated Loan Agreement.

11.4 Paying and Transfer Agents

In acting under the Paying and Transfer Agency Agreement and in connection with the Notes, the Paying and Transfer Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders. The Paying and Transfer Agency Agreement contains provisions for the indemnification of the Paying and Transfer Agents and for their relief from responsibility in certain circumstances.

12. MEETING OF NOTEHOLDERS; MODIFICATION, WAIVER, AUTHORISATION AND DETERMINATION; SUBSTITUTION 12.1 Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of Noteholders to consider matters A13.4.11 affecting their interests, including the modification or abrogation by Extraordinary Resolution of any provisions of the Subordinated Loan Agreement, these Terms and Conditions, the Sub-Participation Agreement or the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than 50 per cent. of the aggregate principal amount of the outstanding Notes or, at any adjourned meeting, one or more persons present being or representing Noteholders whatever the outstanding principal amount of the Notes held or represented; provided, however, that certain matters set out in the Trust Deed may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which one or more persons present, holding or representing not less than two-thirds or, at any adjourned meeting, one-third of the aggregate principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Noteholders, whether present or not.

12.2 Modification

The Trustee may, without the consent of the Noteholders, agree to any modification of these Terms and Conditions, the Trust Deed, the Sub-Participation Agreement or the Subordinated Loan Agreement (other than in the case of the Subordinated Loan Agreement, any matter for which the consent of the Bank of Slovenia is required and such consent is not obtained) which is, in the opinion of the Trustee, of a formal, minor or technical nature or is to correct a manifest or proven error and any other modification (save as mentioned in the Trust Deed) which is, in the opinion of the Trustee, not materially prejudicial to the interests of Noteholders.

12.3 Waiver, Authorisation and Determination

In addition, the Trustee may, without the consent of the Noteholders, authorise or waive any breach or proposed breach of these Terms and Conditions or the Trust Deed by the Issuer or, pursuant to the Issuer Transferred Rights, the Sub-Participation Agreement by the Lender or, the Subordinated Loan

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Agreement by Abanka, or determine that any Relevant Event shall not be treated as such if, in the opinion of the Trustee, the interests of the Noteholders would not be materially prejudiced thereby.

12.4 Notification to Noteholders

Unless the Trustee agrees otherwise, any such modification, waiver, determination or authorisation shall be notified to the Noteholders in accordance with Condition 15 (Notices) as soon as practicable thereafter.

12.5 Substitution

The Trust Deed contains provisions under which the Trustee may, without the consent of the Noteholders, transfer the obligations of the Issuer as principal debtor under the Trust Deed and the Notes to a third party provided that certain conditions specified in the Trust Deed are fulfilled. In the case of such a substitution, the Trustee may agree, without the consent of the Noteholders, to a change of law governing the Notes and the Trust Deed provided that such change would not, in the opinion of the Trustee, be materially prejudicial to the Noteholders.

The Trust Deed also contains provisions under which the Trustee may, upon a Lender Relevant Event, without the consent of the Noteholders, agree to a transfer by the Lender of its rights under the Subordinated Loan Agreement and its obligations under the Sub-Participation Agreement to another bank nominated by Abanka provided that certain conditions specified in the Trust Deed are fulfilled.

So long as any of the Notes are admitted to trading on the Luxembourg Stock Exchange, in the event of any such substitution, the Luxembourg Stock Exchange will be informed of such substitution, a supplemental prospectus will be produced and will be made publicly available at the specified office of the Paying and Transfer Agent in Luxembourg and such substitution shall be notified to the Noteholders as soon as practicable thereafter and in accordance with Condition 15 (Notices).

13. ENFORCEMENT 13.1 Enforcement by the Trustee

At any time after an Event of Default, an Issuer Relevant Event or a Lender Relevant Event (each as defined below) shall have been initiated or occurred, the Trustee may, at its discretion and without notice, (i) in the case of an Event of Default, give notice that the Subordinated Loan is due and repayable immediately, institute proceedings in Slovenia (but not elsewhere) for the winding-up of Abanka and/or prove in the winding-up of Abanka and do all such other acts in connection therewith that the Trustee or the holders may direct, and/or (ii) in the case of an Issuer Relevant Event, enforce the security created by the Issuer, or (iii) in the case of a Lender Relevant Event, enforce the security created by the Lender (or direct the Issuer to do so) or (iv) in any such case institute such proceedings as it thinks fit or is directed so to do by the Noteholders to enforce its and/or the Noteholders’ rights under the Trust Deed in respect of the Notes, but it shall not be bound to do so unless:

(i) it has been so requested in writing by the holders of at least one-quarter in principal amount of the Notes outstanding or has been so directed by an Extraordinary Resolution; and

(ii) it has been indemnified and/or provided with security to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith.

Upon repayment of the Subordinated Loan (and the Sub-Participation), the Notes will be redeemed or repaid at their principal amount together with interest accrued to the date fixed for redemption together with additional amounts (if any) due in respect thereof and thereupon shall cease to be outstanding. The Issuer shall have no right to take any action under the Subordinated Loan Agreement in the case of a default in payments of principal, interest or other amounts due under the Subordinated Loan Agreement.

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TERMS AND CONDITIONS OF THE NOTES

The Trust Deed also provides that, in the case of an Issuer Relevant Event or Lender Relevant Event, the Trustee may, and shall if requested to do so by Noteholders of at least one-quarter in principal amount of the Notes outstanding or if directed to do so by an Extraordinary Resolution and, in either case, subject to it being secured and/or indemnified to its satisfaction, (i) enforce (or require the Issuer to enforce) the security created in the Trust Deed by the Issuer in the case of an Issuer Relevant Event or (ii) enforce (or require the Issuer to enforce) the security created in the Trust Deed by the Lender in the case of a Lender Relevant Event, as the case may be, in favour of the Noteholders.

For the purposes of these Conditions, the following definitions shall apply:

(x) “Event of Default” means the occurrence of any of: (i) Abanka shall not make payment of any principal or any interest payable in respect of the Subordinated Loan for a period of 10 days or more after the due date for the same as provided in Clause 11.1 (Failure to Pay) of the Subordinated Loan Agreement; or (ii) the commencement of liquidation proceedings in respect of, or the bankruptcy of Abanka as provided in Clause 11.3 (Insolvency) of the Subordinated Loan Agreement;

(y) “Issuer Relevant Event” means the occurrence of any of: (i) the failure by the Issuer to make any payment of principal or interest on the Notes when due; (ii) the Issuer being adjudged, by law or a court, to be insolvent or bankrupt or unable to pay its debts; (iii) the Issuer stopping, suspending or threatening to stop or suspend payment of all or a material part (in the opinion of the Trustee) of its debts (or a particular type of its debts) or proposing to make a general assignment or arrangement or composition with or for the benefit of the relevant creditors in respect of any such debts; (iv) a moratorium being agreed or declared in respect of or affecting all or any part of (or a particular type of) the debts of the Issuer; or (v) an order being made or an effective resolution being passed for the winding-up or dissolution of the Issuer; and

(z) “Lender Relevant Event” means the occurrence of any of: (i) the Lender failing to make payment of principal or interest under the Sub-Participation Agreement when due; (ii) the Lender is or could be deemed, by law or a court, to be insolvent or bankrupt or unable to pay its debts; (iii) the Lender stopping, suspending or threatening to stop or suspend payment of all or a material part of (or a particular type of) its debts or proposing to make a general assignment or arrangement or composition with or for the benefit of the relevant creditors in respect of any such debts; (iv) a moratorium being agreed or declared in respect of or affecting all or any part of the debts (or a particular type of debts) of the Lender; (v) an administrator is appointed, an order being made or an effective resolution being passed for the winding-up or dissolution or administration of the Lender; or (vi) the Lender ceasing or threatening to cease to carry on all or a material part of its business or operations, except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation on terms approved by the Trustee or by an Extraordinary Resolution of Noteholders.

13.2 Enforcement by the Noteholder

No Noteholder may proceed directly against the Issuer unless the Trustee, having become bound to do so, fails to do so within a reasonable time and the failure is continuing.

14. FURTHER ISSUES The Issuer may from time to time, with the consent of the Lender and Abanka but without the consent of the Noteholders and in accordance with the Trust Deed, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the issue price, issue date and/or first payment of interest on such further notes) so as to be consolidated and form a single series with the Notes.

Such further notes shall be issued under a deed supplemental to the Trust Deed. In relation to such further issue, the Issuer will enter into a sub-participation agreement supplemental to the Sub- Participation Agreement with the Lender on the same terms as the original Sub-Participation

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TERMS AND CONDITIONS OF THE NOTES

Agreement (or on the same terms except for the first payment of interest) subject to any modifications which, in the sole opinion of the Trustee, would not materially prejudice the interests of the Noteholders. The Issuer will provide a further fixed charge and absolute assignment in favour of the Trustee of its rights under such supplemental sub-participation agreement (and in respect of its rights under the further security granted to it by the Lender as referred to below) equivalent to the rights charged and assigned as Note Security in relation to the Issuer’s rights under the original Sub- Participation Agreement and the Lender Security which will, together with the Note Security referred to in the Conditions, secure both the Notes and such further notes. In relation to such further issue, the Lender will enter into a subordinated loan agreement supplemental to the Subordinated Loan Agreement with Abanka on the same terms as the original Subordinated Loan Agreement (or on the same terms except for the first payment of interest) subject to any modifications which, in the sole opinion of the Trustee, would not materially prejudice the interests of the Noteholders (save for any modifications for which the consent of the Bank of Slovenia is required and such consent is not obtained). The Lender will provide a further fixed charge and absolute assignment in favour of the Issuer of its rights under such supplemental subordinated loan agreement equivalent to the rights charged and assigned as Lender Security in relation to the Lender’s rights under the original Subordinated Loan Agreement which will, together with the Lender Security referred to in the Conditions, secure both the Sub-Participation Agreement and the further sub-participation agreement supplemental thereto.

15. NOTICES Notices to the Noteholders will be sent to them by first-class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed to have been given on the fourth day after the date of mailing. In addition, so long as the Notes are admitted to trading on the Luxembourg Stock Exchange and the rules of that exchange so require, notices to Noteholders will also be published on the date of such mailing in a daily newspaper of general circulation in Luxembourg (which is expected to be the d’Wort). If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may approve.

16. GOVERNING LAW AND SUBMISSION TO JURISDICTION

16.1 Governing Law A13.4.3

The Notes, the Trust Deed, the Subordinated Loan Agreement and the Sub-Participation Agreement are governed by, and shall be construed in accordance with, English law, save for the subordination provisions in the Subordinated Loan Agreement which are governed by, and shall be construed in accordance with, Slovenian law.

16.2 Jurisdiction

The Issuer has in the Trust Deed irrevocably agreed for the benefit of the Trustee that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed and the Notes and accordingly has submitted to the jurisdiction of the English courts. The Issuer has also, in the Trust Deed, waived any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum.

16.3 Appointment of Process Agent

The Issuer has in the Trust Deed irrevocably and unconditionally appointed Law Debenture Corporate Services Limited, for the time being as its agent for service of process in England in respect of any suit, action or proceeding arising out of or in connection with the Trust Deed, and has undertaken that in the event of such agent ceasing so to act it will appoint such other person as the Trustee may approve as its agent for that purpose.

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TERMS AND CONDITIONS OF THE NOTES

17 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

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Summary of the Provisions Relating to the Notes in Global Form

The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Global Note Certificate which will apply to, and in some cases modify, the Terms and Conditions of the Notes while the Notes are represented by the Global Note Certificate.

1 Form of Notes

The Notes will be represented by a Global Note Certificate which will be registered in the name of BT Globenet Nominees Limited as nominee for and deposited with Deutsche Bank AG, London Branch as common depositary for Euroclear and Clearstream, Luxembourg.

2 Exchange

The Global Note Certificate will become exchangeable in whole, but not in part, for individual note certificates (“Individual Note Certificates”) if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; or (b) the Issuer fails to pay an amount in respect of the Notes within five days of the date on which such amount became due and payable under the Conditions. Thereupon the Issuer shall notify the Noteholder of the occurrence of any of the events specified in (a) and (b) as soon as practicable thereafter.

Whenever the Global Note Certificate is to be exchanged for Individual Note Certificates, such Individual Note Certificates shall be issued in an aggregate principal amount equal to the principal amount of the Global Note Certificate within five business days of the delivery, by or on behalf of the registered holder of the Global Note Certificate, Euroclear and/or Clearstream, Luxembourg, to the Registrar of such information as is required to complete and deliver such Individual Note Certificates (including, without limitation, the names and addresses of the persons in whose names the Individual Note Certificates are to be registered and the principal amount of each such person’s holding) against the surrender of the Global Note Certificate at the specified office of the Registrar. Such exchange will be effected in accordance with the provisions of the Paying and Transfer Agency Agreement and the regulations concerning the transfer and registration of Notes scheduled thereto and, in particular, shall be effected without charge to any holder or the Trustee, but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange.

“Exchange Date” means a date falling not less than 60 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the Principal Paying and Transfer Agent is located and, except in the case of exchange pursuant to (a) above, in the city or cities in which the relevant clearing system(s) is/are located.

In addition, the Global Note Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Note Certificate. The following is a summary of certain of those provisions:

3 Notices

Notwithstanding Condition 15 (Notices), so long as the Global Note Certificate is held on behalf of Euroclear, Clearstream, Luxembourg or any other clearing system (an “Alternative Clearing System”), the mailing of notices, as referred to therein, to Holders of Notes represented by the Global Note Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System; provided, however, that, so long as the Notes are admitted to trading on the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the d’Wort).

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SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM

4 Meetings

The Holder shall be treated at any meeting of Noteholders as having one vote in respect of each €1,000 principal amount of Notes for which the Global Note Certificate may be exchanged.

5 Payment

To the extent that the Issuer has actually received the relevant funds from the Lender, payments in respect of Notes represented by a Global Note Certificate will be made against presentation for endorsement and, if no further payment of principal or interest is to be made in respect of the Notes, against presentation and surrender of such Global Note Certificate to or to the order of the Registrar. Upon payment of any principal, the amount so paid shall be endorsed by or on behalf of the Registrar on behalf of the Issuer on the schedule to the Global Note Certificate. Payment while Notes are represented by a Global Note Certificate will be made in accordance with the procedures of Euroclear and Clearstream, Luxembourg or any Alternative Clearing System as appropriate.

6 Cancellation

Cancellation of any Note will be effected by a reduction in the principal amount of the Notes in the Register.

7 Transfers

Transfers of interests in the Notes will be effected through the records of Euroclear and Clearstream, Luxembourg or any Alternative Clearing System and their respective direct and indirect participants.

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The Banking Sector and Banking Regulation in Slovenia A913.2

Overview

At the end of 2005, 19 commercial banks were operating in Slovenia (six of which were subsidiaries of foreign banking institutions), three branches of foreign banking institutions and three savings banks. Slovenia’s banking sector is dominated by commercial banks, which accounted for 99.4 per cent. of total banking assets at 31 December 2005. Savings banks and savings and loan undertakings made up the remaining 0.6 per cent.

The banking system is highly concentrated, with the top two banks, Nova Ljubljanska Banka (“NLB”) and Nova Kreditna banka Maribor (“NKBM”), representing approximately 41.8 per cent. of total banking assets as at 31 December 2005 and the top five banks accounting for a combined 63.5 per cent. market share.

Concentration has however started to decrease slightly as foreign banks have sought to increase their presence in the Slovenian market. By the end of 2005, a total of 108 foreign banks, mostly from Austria, the UK and Germany, had notified the Bank of Slovenia that they intended to offer banking services in Slovenia.

Ownership Structure

The following table shows the ownership structure of the total equity capital of the banking sector in Slovenia as at 31 December 2003, 2004 and 2005:

111111111111111As at 31 December 2003 2004 2005

(per cent. of equity capital) Shareholder Non-residents with more than 50 per cent. stake ...... 16.6 16.5 19.6 Non-residents with less than 50 per cent. stake ...... 15.8 15.9 15.5 Central government ...... 19.4 19.1 18.2 Other domestic entities ...... 48.2 48.6 46.1

Source: Bank of Slovenia

As at 31 December 2005, approximately 35.7 per cent. of the total equity capital of the banking sector in Slovenia was foreign-owned, compared to approximately 32.4 per cent. as at 31 December 2004.

Total assets of banks and savings banks (including savings and loans undertakings) have in recent years risen as a proportion of GDP. At the end of 2005, total banking assets accounted for 94.5 per cent. of Slovenia’s GDP, which remains relatively low in comparison with that of other European countries, thus providing potential growth opportunities for the banking system generally.

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THE BANKING SECTOR AND BANKING REGULATION IN SLOVENIA

Assets

The following table sets out details of the average total assets of banks in Slovenia as a proportion of GDP:

111111111111111As at 31 December 2003 2004 2005

(in million SIT) Average total assets of banks and savings banks ...... 4,841,493 5,367,482 6,288,341 GDP at current prices ...... 5,747,168 6,191,161 6,620,145* Average total assets (per cent. GDP) ...... 84.2 86.7 94.5

* Statistical Office of Republic of Slovenia, 15 September 2006. Source: Bank of Slovenia

Trends in Financial Performance in 2005

In 2005, banks have seen an increase in their net profits, which were SIT 51.48 billion in aggregate, compared to SIT 36.76 billion in aggregate in 2004. The average return on equity (ROE) rose from 13.3 per cent. in 2004 to 13.8 per cent. in 2005, while the average return on assets decreased to 1.0 per cent. The net interest margin fell from 1.86 per cent. in 2004 to 1.84 per cent. in 2005.

In 2005, total assets of the Slovenian banking system increased by SIT 1,301 billion and at 31 December 2005 amounted to SIT 6,980 billion. Foreign-owned banks continued to grow at an above-average rate. The nominal growth of the Slovenian banking system’s total assets compared to 2004 was 22.9 per cent., while real growth was 20.1 per cent., representing the highest annual real growth for the last five years.

As in previous years, the principal source of financing in 2005 was borrowing from foreign banks. Foreign borrowing strengthened further in 2005 and grew by 83.3 per cent. (compared to 43.6 per cent. in 2004). Liabilities to foreign banks therefore increased by SIT 846 billion and amounted to SIT 1,861 billion at 31 December 2005, representing 26.7 per cent. of total liabilities in the Slovenian banking sector. Banks used these funds to increase their total assets by an average of 65 per cent. (compared to 49.6 per cent. in 2004). Most Slovenian banks increased borrowing from foreign banks compared with previous years, though smaller domestic banks did not follow this trend.

Banks directed the majority of the increase in total assets to lending to non-bank sectors, in particular to private individuals and non-financial companies and have continued to do so during 2006.

Foreign currency lending increased in 2005, with 91.5 per cent. of all investments to non-bank sectors being made in foreign currency. Non-financial companies repaid loans denominated in SIT (amounting to approximately SIT 53.4 billion in aggregate), while increasing their foreign currency liabilities by SIT 473.4 billion. For private individuals, SIT borrowing continued to predominate, representing 60 per cent. of all approved loans. The proportion of lending to non-bank sectors in foreign currency increased by 11 per cent., reaching 45.9 per cent. by the end of 2005.

There were no large securities issues in 2005 in Slovenia, with one exception, as banks used other methods of financing. In 2005 deposits in foreign currency grew by 38.0 per cent., whereas deposits in SIT grew by only 14.9 per cent., largely due to increased borrowing from foreign banks. Foreign currency liabilities increased by SIT 740 billion, increasing by 7.8 per cent. as a proportion of total liabilities.

Solvency

The average capital adequacy ratio of banks in Slovenia as at 31 December 2005 was 10.56 per cent. Capital risk coverage at Slovenian banks has tended to be lower than that of banks in Euro-zone countries. This can be attributed to the Bank of Slovenia’s more conservative approach regarding the items of capital and risk-adjusted assets included in the calculation of capital adequacy.

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THE BANKING SECTOR AND BANKING REGULATION IN SLOVENIA

Regulation

The Bank of Slovenia, the banking regulator, is committed to following the European Central Bank’s regulatory directives and legislation. Banks will, in particular, be expected to comply with Basel II, following its implementation in the Banking Act – 1.

The Bank of Slovenia is the bank of issue and the central bank of the Republic of Slovenia. It was established on 25 June 1991 when the Parliament of the Republic of Slovenia passed the Law on the Bank of Slovenia.

The Bank of Slovenia’s primary task is to protect the stability of the domestic currency and to ensure the liquidity of payments within Slovenia and with other countries. The Bank of Slovenia is a non-governmental independent institution; it is obliged to present a report on its operations to the Slovenian Parliament at least every six months and to the European System of Central Banks in accordance with its requirements. It is the supervisor of the banking system (but not of other financial intermediaries who are non-banks) and the lender of last resort. The Bank of Slovenia is the banker of the government and conducts no corporate business and none with natural persons. The Bank of Slovenia is not permitted to take up loans abroad for its own account, nor for the account of third persons.

For the financial year commencing 1 January 2006, all Slovenian banks will be required to prepare their financial statements in accordance with IFRS. New standards for 2006 have introduced changes in the calculations of specific provisions, in the treatment of some commissions as interest income, in the allowance for insurances and in the calculation of capital.

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Taxation

The following is a general description of certain tax laws relating to the Notes, the Sub-Participation and the Subordinated Loan as in effect on the date hereof and does not purport to be a comprehensive discussion of the tax treatment of the Notes, the Sub-Participation and the Subordinated Loan. Prospective purchasers of the Notes should consult their own tax advisers as to which countries’ tax laws could be relevant to acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of those countries.

Slovenia

Corporate Investors

(a) Tax on Interest Income

Pursuant to the Slovenian Corporate Income Tax Act (Zakon o davku od dohodka pravnih oseb), the income derived by a legal entity that is a Slovenian resident or through a permanent establishment of a non-Slovenian resident in Slovenia from interest on the Notes will constitute a part of the overall annual income of such Slovenian resident or, as the case may be, permanent establishment, and will be subject to the corporate income tax (Davek od dohodka pravnih oseb) imposed on the overall net income at the rate of 23 per cent. in 2007, which will be decreased to 20 per cent. by 2010. The decreases are to be implemented gradually, with the tax rate decreasing to 23 per cent. in 2007, 22 per cent. in 2008, 21 per cent. in 2009 and finally to 20 per cent. in 2010.

As at the date of this Prospectus, payments of interest under the Subordinated Loan Agreement can be made free of withholding or deduction of any taxes of whatsoever nature imposed, levied, withheld or assessed by Slovenia. In case the withholding exemption provided under the Slovenian Corporate Income Tax, which currently applies to payments of interest by the Bank to qualifying banks (such as the Lender) or financial institutions, is no longer applicable to the Bank, Slovenian withholding tax would apply to such payments at a rate of 15 per cent., unless another exemption or reduced rate can be applied in reliance on an applicable double taxation treaty.

(b) Tax on Capital Gains

Capital gains realised by a legal entity that is a Slovenian resident or through a permanent establishment of a non-Slovenian resident in Slovenia will constitute a part of the overall annual income of such Slovenian resident or, as the case may be, permanent establishment, and will be subject to the corporate income tax (Davek od dohodka pravnih oseb) imposed on the overall net income at the rate of 23 per cent. in 2007, which will be decreased to 20 per cent. by 2010. The decreases are to be implemented gradually, with the tax rate decreasing to 23 per cent. in 2007, 22 per cent. in 2008, 21 per cent. in 2009 and finally to 20 per cent. in 2010.

Individuals

(a) Tax on Interest Income

Pursuant to the Slovenian Personal Income Tax Act (Zakon o dohodnini), interest on the Notes paid to natural persons who are Slovenian residents for the purposes of that Act is taxable for the financial year 2007 at a flat rate of 15 per cent. and thereafter at a flat rate of 20 per cent. This tax is the definitive tax imposed by Slovenia on such interest income and may be levied in one of the two ways described below.

If a payment of interest is effected via a person (other than via a natural person who is not conducting business activity), entity or association of persons (whether or not having a separate legal personality) which is a Slovenian resident for tax purposes or has a permanent establishment in Slovenia, Slovenian tax on interest shall be withheld at the rate of 15 per cent. for the financial year 2007 and

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TAXATION

thereafter at a rate of 20 per cent. (but may be reduced by the amount of any non-Slovenian withholding taxes).

If, however, the interest is paid without the intervention of any such person, the recipient must declare each such payment by the 15th of a relevant month for the last three months with the competent office of Slovenian tax administration (Davčna uprava Republike Slovenije) and pay the tax thereon after it is assessed. The amount of tax payable in Slovenia on such interest may be reduced by the amount of any non-Slovenian tax subject to the presentation of sufficient proof that such non- Slovenian tax has been paid or assessed.

Subject to the application of certain conditions set forth under the Slovenian Personal Income Tax Act (Zakon o dohodnini) implementing EC Council Directive 2003/48/EC, a resident may claim a full refund of any excessive non-Slovenian withholding tax paid abroad.

(b) Tax on Capital Gains

Capital gains resulting from disposal of the Notes realised by natural persons are not subject to Slovenian taxation except where the gains are realised within the scope of conducting such person’s business activity (in which case they will constitute a part of their overall income and will be subject to the tax rate applicable to the relevant amount of overall annual income).

(c) Inheritance and Gift Tax

Acquisition of any assets in Slovenia by a natural person as an inheritance or a gift may be subject to taxation in Slovenia. The tax rate ranges from 5 per cent. to 39 per cent. depending on the value of the assets and on the personal relationship between the transferor and transferee.

Other Taxes

No Slovene stamp duty or transfer taxes are payable in connection with the issue, delivery, transfer or redemption of any Note.

The Netherlands

The comments below are of a general nature based on taxation law and practice in The Netherlands as at the date of this Prospectus and are subject to any changes therein. They relate only to the position of persons who are absolute beneficial owners of the Notes. The following is a general description of certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes and so should be treated with appropriate caution. In particular, it does not take into consideration any tax implications that may arise on a substitution of the Issuer. Prospective investors should consult their own professional advisers concerning the possible tax consequences of purchasing, holding and/or selling Notes and receiving payments of interest, principal and/or other amounts under the Notes under the applicable laws of their country of citizenship, residence or domicile.

The Issuer has been advised that under the existing laws of The Netherlands:

(a) all payments of interest and principal by the Issuer under the Notes can be made free of withholding or deduction of any taxes of whatsoever nature imposed, levied, withheld or assessed by The Netherlands or any political subdivision or taxing authority thereof or therein;

(b) a holder of a Note who derives income from a Note or who realises a gain on the disposal or redemption of a Note will not be subject to Dutch taxation on such income or capital gain, unless:

(i) the holder is, or is deemed to be, resident in The Netherlands or, where the holder is an individual, such holder has elected to be treated as a resident of The Netherlands; or

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(ii) such income or gain is attributable to an enterprise or part thereof which is either effectively managed in The Netherlands or carried on through a permanent establishment (vaste inrichting) or a permanent representative (vaste vertegenwoordiger) in The Netherlands; or

(iii) the holder is an individual and such income or gain qualifies as income from activities that exceed normal active portfolio management in The Netherlands;

(c) Dutch gift, estate or inheritance taxes will not be levied on the occasion of the transfer of a Note by way of gift by, or on the death of, a holder unless:

(i) the holder is, or is deemed to be, resident in The Netherlands for the purpose of the relevant provisions; or

(ii) the transfer is construed as an inheritance or as a gift made by or on behalf of a person who, at the time of the gift or death, is, or is deemed to be, resident in The Netherlands for the purpose of the relevant provisions; or

(iii) such Note is attributable to an enterprise or part thereof which is either effectively managed in The Netherlands or carried on through a permanent establishment or a permanent representative in The Netherlands;

(d) there is no Dutch registration tax, stamp duty or any other similar tax or duty payable in The Netherlands in respect of or in connection with the execution, delivery and/or enforcement by legal proceedings (including any foreign judgment in the courts of The Netherlands, except for minimal court fees) of the Notes or the performance of the Issuer’s obligations under the Notes;

(e) there is no Dutch value added tax payable in respect of payments in consideration for the issue of the Notes or in respect of the payment of interest or principal under the Notes or the transfer of a Note, provided that Dutch value added tax may, however, be payable in respect of fees charged for certain services rendered to the Issuer, if for Dutch value added tax purposes such services are rendered, or are deemed to be rendered, in The Netherlands and an exemption from Dutch value added tax does not apply with respect to such services; and

(f) a holder of a Note will not be treated as a resident of The Netherlands by reason only of the holding of a Note or the execution, performance, delivery and/or enforcement of the Notes.

United Kingdom

The Sub-Participation

Payment of Interest under the Sub-Participation

Provided that it continues to be a bank within the meaning of section 840A of the United Kingdom Income and Corporation Taxes Act 1988 (the “Act”), and provided that the interest on the Sub-Participation is paid in the ordinary course of its business within the meaning of section 349 of the Act, payments of interest by the Lender to Issuer under the Sub-Participation can be made without withholding or deduction for or on account of United Kingdom income tax.

The Notes

The comments below are of a general nature based on current United Kingdom law and HM Revenue and Customs practice and are not intended to be exhaustive. Any Noteholders who are in doubt as to their own tax position should consult their professional advisers.

Interest on the Notes

Persons in the United Kingdom (i) paying interest to or receiving interest on behalf of another person who is an individual, or (ii) paying amounts due on redemption of any Notes which constitute deeply discounted securities as defined in Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005 to or

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TAXATION receiving such amounts on behalf of another person who is an individual, may be required to provide certain information to HM Revenue and Customs regarding the identity of the payee or person entitled to the interest and, in certain circumstances, such information may be exchanged with tax authorities in other countries.

European Union Directive on the Taxation of Savings Income

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payment of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries, including Switzerland and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (being either the provision of information or, as in the case of Switzerland, transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident in a Member State. In addition, Member States have entered into reciprocal provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident in one of those territories.

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Subscription and Sale A13.4.14

UBS Limited and VTB Bank Europe plc (each a “Manager” and together the “Managers”) have, pursuant to the terms and conditions set forth in a subscription agreement dated 18 January 2007 (the “Subscription Agreement”), agreed with the Issuer, the Lender and Abanka, subject to the satisfaction of certain conditions set forth therein, jointly and severally to subscribe and pay for the Notes at the issue price of 100 per cent. of the principal amount of the Notes. Abanka has agreed to pay certain commissions, fees, costs and expenses in connection with the Subordinated Loan and the offering of the Notes and to reimburse the Managers, the Issuer and the Trustee for certain of their expenses in connection with the offering of the Notes. The Managers are entitled to be released and discharged from their obligations under the Subscription Agreement in certain circumstances prior to payment being made to the Issuer.

United States

The Notes, the Sub-Participation and the Subordinated Loan have not been and will not be registered under the Securities Act, the securities laws of any State or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act.

Prior to the expiration of a 40-day distribution compliance period commencing on the Closing Date, the Notes may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons, and any such sales conducted by a broker/dealer (whether or not it is participating in the offering) may violate the registration requirements of the Securities Act. Thereafter, the Notes may not be offered or sold within the United States or to or for the account or benefit of U.S. persons except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act. Each Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date within the United States or to, or for the account or benefit of, U.S. persons and that it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases any Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

United Kingdom

Each Manager has represented and agreed that (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer, the Lender or Abanka and (ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Slovenia

The Notes may only be offered publicly in Slovenia if:

(a) a prospectus in relation to the Notes has been published in Slovenia during the period of the last 12 months which has been previously either (i) approved by the Slovenian Securities Market Agency (Agencija za trg vrednostnih papirjev) (the “ATVP”) or (ii) by the competent authority of another member state of the European Union (each a “Member State”) and notified to the ATVP in accordance with Directive 2003/71/EC (the “Prospectus Directive”); or

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SUBSCRIPTION AND SALE

(b) an exemption from the obligation to publish a prospectus, as provided in the Slovenian Securities Market Act (Zakon o trgu vrednostnih papirjev) (the “ZTVP-1”), applies to such offer such as, among others:

(i) if the offer is addressed solely to qualified investors (dobro poučeni investitorji), as defined in the ZTVP-1; or

(ii) if the offer is addressed to fewer than 100 natural or legal persons, known in advance, not being qualified investors, having a permanent residence or corporate seat in Slovenia or any other Member State; or

(iii) if the offer is addressed to investors, known in advance, who undertake to acquire the Notes for a total consideration of at least EUR 50,075.11 per investor, for each separate offer; or

(iv) if the minimum amount per one offered unit amounts to at least EUR 50,075.11; or

(v) if the total consideration for the Notes being offered is less than EUR 100,150.23, which limit shall be calculated over a period of 12 months.

For the purposes of the ZTVP-1, the term “public offering” means a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities. This definition shall also be applicable to the initial placing of securities through financial intermediaries but shall not apply to the offers placed through trading systems on the organised markets.

According to the ZTVP-1, the term “qualified investor” (dobro poučeni investitor) includes, among others:

(i) banks (banke), stockbrokers (borzno posredniške družbe), insurance companies (zavarovalnice), investment funds (investicijski skladi) and the managers thereof, pension funds (pokojninski skladi) and the managers thereof, other regulated financial organisations (as defined in Art. 10a. of the ZTVP-1) as well as other entities whose corporate purpose is solely to invest in securities;

(ii) national, regional or local governments;

(iii) central banks;

(iv) international organisations such as the International Monetary Fund, the European Investment Bank, the European Central Bank and similar;

(v) large companies (i.e. companies fulfilling at least two of the following conditions: (1) an average of at least 250 employees in the last financial year; (2) net annual total revenues from sales exceeding EUR 50,075,112.67 in the last financial year; and (3) a total balance sheet at the end of the last financial year exceeding EUR 43,064,596.90); and

(vi) other legal entities having their corporate seat in Slovenia and individuals, permanent residents of Slovenia in each case meeting certain criteria that expressly request to be considered as qualified investors and are registered as such with the ATVP.

The Netherlands

VTB Bank Europe plc has represented and agreed that it will not offer or sell any Notes in the Netherlands or to Netherlands investors other than through one or more securities firms or institutions acting as principal(s) and having the Dutch regulatory capacity to make such offers or sales.

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SUBSCRIPTION AND SALE

Switzerland

This Prospectus does not constitute an offer to buy or to subscribe to securities of the Issuer or any of its affiliates and it does not constitute an offering circular within the meaning of Art. 1156 of the Swiss Code of Obligations or Art. 652a of the Swiss Code of Obligations or a listing prospectus within the meaning of the listing rules of the SWX Swiss Exchange. Potential investors are furthermore advised to consult their bank and financial adviser.

Republic of Italy

Each Manager has acknowledged that the offer of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa (“CONSOB”) (the Italian Securities and Exchange Commission) pursuant to Italian securities legislation and, accordingly, Notes may not be offered, sold or delivered, nor may copies of this document or of any other document relating to the Notes be distributed in the Republic of Italy in a solicitation to the public at large (sollecitazione all’investimento) within the meaning of Article 1, paragraph 1, letter (t) of Legislative Decree no. 58 of 24 February 1998, unless an exemption applies. Accordingly, in the Republic of Italy, the Notes:

(a) shall only be offered or sold to professional investors (operatori qualificati), as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of 1 July 1998, as amended and effected in compliance with the terms and procedures provided therein (“Regulation No. 11522”); or

(b) shall only be offered or sold in circumstances which are exempted from the rules on solicitations of investments pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998 (the “Financial Services Act”) and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as amended.

Moreover, and subject to the foregoing, each Manager has acknowledged that any offer, sale or delivery of the Notes or distribution of copies of this document or any other document relating to the Notes in the Republic of Italy under (a) or (b) above must be:

(i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, Legislative Decree No. 385 of 1 September 1993 (the “Banking Act”), Regulation No. 11522 and any other applicable laws and regulations; and

(ii) in compliance with any other applicable laws and regulations including any relevant limitations which may be imposed by CONSOB or the Bank of Italy.

Insofar as the requirements above are based on laws which are superseded at any time pursuant to the implementation of the EU Directive No 2003/71 (the “Prospectus Directive”), such requirements shall be replaced by the applicable requirements under the Prospectus Directive or the relevant implementing provisions.

General

The Managers have agreed that, to the best of their knowledge and belief, they have complied and will comply with applicable laws and regulations in each jurisdiction in which they offer, sell or deliver Notes or distribute this Prospectus (and any amendments thereof and supplements thereto) or any other offering or publicity material relating to the Notes, the Issuer, the Lender or Abanka.

No action has or will be taken in any jurisdiction by the Issuer, Abanka or any of the Managers that would, or is intended to, permit a public offer of the Notes or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Accordingly, each Manager has undertaken to the Issuer and Abanka that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any offering circular, prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms.

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General Information

1. Application has been made to the Luxembourg Stock Exchange for the Notes to be listed on the Luxembourg Stock Exchange and for such Notes to be admitted to trading on the Luxembourg Stock Exchange’s regulated market.

2. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The A13.4.2 Common Code of the Notes is 028318308 and the ISIN is XS0283183084.

3. So long as any of the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall so require, the Issuer will maintain a paying and transfer agent in Luxembourg.

4. For so long as any of the Notes are listed on the Luxembourg Stock Exchange, copies of the following documents may be inspected at and are available free of charge from the specified offices of the Paying and Transfer Agent in Luxembourg during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted): • the articles of association of the Issuer; • this Prospectus; • the Paying and Transfer Agency Agreement; • the Subordinated Loan Agreement; • the Trust Deed, which includes the forms of the Global Note Certificate and the Individual Note Certificates; • the Sub-Participation Agreement; • Abanka’s audited annual and unaudited interim consolidated financial statements prepared in A9.14(c) accordance with IFRS, to the extent published after the date of this Prospectus; and • the authorisations listed below. In addition, the Prospectus will be published on the website of the Luxembourg Stock Exchange (www.bourse.lu).

5. Abanka and the Issuer have obtained all necessary consents, approvals and authorisations required in connection with the Subordinated Loan, the Sub-Participation and the issue and performance of the Notes (as the case may be). The issuance of the Notes was authorised by the Issuer by resolutions A13.4.12 of its sole managing director passed on 17 November 2006 and 15 January 2007. The Subordinated Loan Agreement was authorised by Abanka by resolutions of the Management Board passed on 27 November 2006 and 16 January 2007.

6. Since the Issuer’s date of incorporation, there has been no significant change in the financial or A9.11.6 trading position, or material adverse change in the prospects, of the Issuer. Since 30 June 2006, there has been no significant change in the financial or trading position, and since 31 December 2005 there A9.7.1 has been no material adverse change in the prospects, of Abanka and its subsidiaries.

7. Abanka’s IFRS consolidated financial statements as at and for the years ended 31 December 2005 and 2004 included in this document have been audited by PricewaterhouseCoopers d.o.o., who have A9.2.1 expressed unqualified opinions on those statements, as stated in their report appearing in this Prospectus. PricewaterhouseCoopers d.o.o. are members of the Slovenian Institute of Auditors.

8. No consents, approvals, authorisation or orders of any regulatory authorities are required by the Issuer under the laws of The Netherlands for acquiring and maintaining the Sub-Participation or for the issue and performance of the Notes.

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GENERAL INFORMATION

9. All necessary consents, approvals, authorisations or orders of any regulatory authorities required by the Lender under the laws of the United Kingdom and Slovenia for the granting and maintaining of the Subordinated Loan and the Sub-Participation have been obtained by the Lender.

10. Neither Abanka nor the Issuer has entered into any material contracts outside the ordinary course of A9.12 its business which could result in any Group member being under an obligation or entitlement that is material to Abanka’s ability to meet its obligations under the Subordinated Loan Agreement or the Issuer or Lender’s ability to make payments under the Sub-Participation Agreement, the Notes or the Trust Deed, as the case may be.

11. There are no governmental, legal or arbitration proceedings (including any such proceedings which A9.11.5 are pending or threatened of which Abanka or the Issuer is aware), and there have been no such proceedings during the 12 months preceding the date of this Prospectus, which may have, or have had in the recent past, significant effects on Abanka and its subsidiaries’ or the Issuer’s financial position and profitability.

12. The total fees and expenses in connection with the admission of the Notes to trading on the Luxembourg Stock Exchange’s regulated market are expected to be approximately €16,000. See “Use of Proceeds”.

13. Other than as disclosed in this Prospectus, in “Terms and Conditions of the Notes” and “Subscription A13.4.14 and Sale”, there are no restrictions on transfer of the Notes. Chapter XII, Sub-chapter 1, Article 4, A.II.2 of the Rules and Regulations of the Luxembourg Stock Exchange requires the Notes to be freely transferable. The breach of any transfer restrictions existing with regard to the Notes may result in a transaction made on the Luxembourg Stock Exchange with respect to the Notes being cancelled.

14. The Issuer does not intend to provide any post-issuance information in relation to the Subordinated Loan Agreement, the Sub-Participation Agreement or any other assets forming part of the Note Security.

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Index to Financial Statements

Unaudited interim condensed consolidated financial statements prepared in accordance A9.11.1 A9.11.2 with IFRS as at and for the half year ended 30 June 2006 A9.11.3.3 Independent Accountant’s Review Report dated 14 December 2006 ...... F-3

Condensed Consolidated Unaudited Interim Income Statement for the Six Months Ended 30 June 2006 ...... F-4

Condensed Consolidated Unaudited Interim Balance Sheet as at 30 June 2006 ...... F-5 A9.11.4.1

Condensed Consolidated Unaudited Interim Statement of Changes in Equity as at 30 June 2006 ...... F-6

Condensed Consolidated Unaudited Interim Cash Flow Statement for the Six Months Ended 30 June 2006 ...... F-7

Notes to the Condensed Consolidated Financial Statements as at and for the Six Months Ended 30 June 2006 ...... F-8

Audited annual consolidated financial statements prepared in accordance with IFRS as at and for the year ended 31 December 2005

Independent Auditors’ Report dated 14 December 2006 ...... F-18

Consolidated Income Statement for the Year Ended 31 December 2005 ...... F-19

Consolidated Balance Sheet as at 31 December 2005...... F-20

Consolidated Statement of Changes in Equity as at 31 December 2005...... F-21

Consolidated Cash Flow Statement for the Year Ended 31 December 2005...... F-22

Notes to the Consolidated Financial Statements as at and for the Year Ended 31 December 2005 ...... F-23

Audited annual consolidated financial statements prepared in accordance with IFRS as at and for the year ended 31 December 2004

Independent Auditors’ Report dated 14 December 2006 ...... F-60

Consolidated Income Statement for the Year Ended 31 December 2004 ...... F-61

Consolidated Balance Sheet as at 31 December 2004...... F-62

Consolidated Statement of Changes in Equity as at 31 December 2004...... F-63

Consolidated Cash Flow Statement for the Year Ended 31 December 2004...... F-64

Notes to the Consolidated Financial Statements as at and for the Year Ended 31 December 2004 ...... F-65

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UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IAS 34, “INTERIM FINANCIAL REPORTING”, AS AT AND FOR THE HALF YEAR ENDED 30 JUNE 2006

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ABANKA VIPA d.d. Consolidated Financial Statements – 30 June 2006

PricewaterhouseCoopers d.o.o. Cesta v Klee 15, SI-1000 Ljubljana, Slovenia Telephone: +386 1 5836 000 Facsimile: +386 1 5836 099 Matriculation No.: 5717159 VAT No.: SI35498161

REVIEW REPORT OF THE AUDITORS

To the Shareholders and Board of Directors of Abanka Vipa d.d., Ljubljana

We have reviewed the accompanying condensed consolidated interim balance sheet of Abanka Vipa and its subsidiaries (‘the Group’) as of 30 June 2006 and the related condensed consolidated interim statements of income, cash flows and changes in shareholders’ equity for the six months then ended. This condensed consolidated interim financial information is the responsibility of Abanka Vipa’s management. Our responsibility is to issue a report on this condensed consolidated interim financial information based on our review.

We conducted our review in accordance with the International Standard on Review Engagements 2400. This Standard requires that we plan and perform the review to obtain moderate assurance about whether the condensed consolidated interim financial information is free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information has not been properly prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”.

PricewaterhouseCoopers d.o.o.

14 December 2006 Ljubljana

The company is registered by District court in Ljubljana under the number 12156800 as well in to the register of the Auditing companies by Slovene Audit Institute under the number RD-A-014. The amount of the registered share capital is SIT 8.340.000. The list of employed auditors is available at the registered office of the company.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Condensed consolidated unaudited interim income statement

11Half11 year1 1ended11 301 June11341 2006 2005 Interest and similar income ...... 13,907,204 12,014,333 Interest expense and similar charges ...... 111121 (7,717,158) 111121 (6,300,754) Net interest income ...... 6,190,046 5,713,579 Fee and commission income ...... 4,780,910 4,410,114 Fee and commission expense ...... 111121 (606,071) 111121 (669,871) Net fee and commission income ...... 4,174,839 3,740,243 Dividend income ...... 399,454 297,592 Net trading income ...... 1,110,042 (500,620) Gains less losses from investment securities...... (78,148) 32,434 Other operating income...... 69,744 53,930 Operating expenses ...... (5,886,488) (5,699,851) Impairment losses (note 8)...... 111121 (1,399,735) 111121 (2,927,455) Operating profit ...... 4,579,754 709,852 (Loss) from associates ...... 111121 – 111121 (1,012) Profit before tax ...... 4,579,754 708,840 Tax expense...... 111121 (985,060) 111121 (127,591) Net profit for the period ...... 3,594,694 581,249 111121 111121 Attributable to: Equity holders of the Bank ...... 3,595,649 565,359 Minority interest ...... 111121 (955) 111121 15,890 3,594,694 581,249 111121 111121

EPS for profit attributable to the equity holders of the Bank, expressed in Slovenian tolars:

- Basic ...... 653 106 - Diluted ...... 653 106

The accompanying notes form an integral part of this condensed interim financial information.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Condensed consolidated unaudited interim balance sheet

As at As at 30 June 31 December 2006 2005 ASSETS Cash and balances with central bank ...... 12,408,883 11,566,819 Treasury bills and other eligible bills ...... 78,002,138 83,674,357 Loans and advances to banks ...... 67,886,785 53,618,422 Trading securities ...... 23,754,637 23,418,045 Derivative financial instruments ...... 100,163 191,908 Loans and advances to customers ...... 409,250,774 361,640,399 Investment securities ...... 58,856,522 50,770,167 - available-for-sale ...... 55,641,777 50,770,167 - held-to-maturity ...... 3,214,745 – Investments in associates ...... – 6,024 Property and equipment ...... 13,505,149 10,050,154 Deferred tax assets ...... 491,459 537,803 Other assets, including tax assets ...... 111121 11,008,953 111121 8,411,726 Total assets ...... 675,265,463 603,885,824 111121 111121 LIABILITIES Deposits from banks ...... 18,975,366 12,755,642 Other deposits ...... 20,040,158 11,702,707 Derivative financial instruments ...... 98,766 187,028 Due to customers...... 400,157,424 372,368,236 Debt securities in issue (note 6) ...... 32,116,613 33,267,321 Other borrowed funds ...... 139,723,028 112,343,308 Deferred tax liabilities ...... 851,708 851,708 Other liabilities, including tax liabilities ...... 111121 15,461,445 111121 14,384,098 Total liabilities...... 627,424,508 557,860,048 111121 111121 EQUITY Capital and reserves attributable to the Bank’s equity holders Share capital ...... 19,333,589 19,333,589 Retained earnings ...... 25,219,967 23,312,015 Other reserves ...... 111121 3,277,463 111121 3,277,463 47,831,019 45,923,067 Minority interest ...... 9,936 102,709 Total equity ...... 111121 47,840,955 111121 46,025,776 Total equity and liabilities ...... 675,265,463 603,885,824 111121 111121

The accompanying notes form an integral part of this condensed interim financial information.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Condensed consolidated unaudited interim statement of changes in equity

11111111111111134Attributable to equity holders of the Bank Share Other Retained Minority capital reserves earnings Interest Total As at 1 January, 2005 ...... 12,960,553 3,207,463 21,689,127 192,031 38,049,174 Net change in available-for-sale investments, net of tax ...... – – (468,785) – (468,785) Net profit for the half year...... 11111 – 11111 – 11111 565,359 11111 15,890 11111 581,249 Total recognised income for the half year...... 11111 – 11111 – 11111 96,574 11111 15,890 11111 112,464

Dividends relating to 2004 paid in 2005 ...... – – (956,536) – (956,536) Net decrease in minority interest ...... – – (56,890) (56,890) Issue of share capital ...... 6,300,000–––6,300,000 Transfer to statutory reserve ...... 70,000 (70,000) – – Purchase of treasury shares ...... (86,978) – – – (86,978) Sale of treasury shares ...... 11111 132,143––– 11111 11111 11111 11111132,143 As at 30 June, 2005 ...... 19,305,718 3,277,463 20,759,165 151,031 43,493,377 11111 11111 11111 11111 11111

As at 1 January, 2006 ...... 19,333,589 3,277,463 23,312,015 102,709 46,025,776 Net change in available-for-sale investments, net of tax ...... – – (467,957) – (467,957) Net profit for the half year...... 11111 – 11111 – 11111 3,595,649 11111 (955) 11111 3,594,694

Total recognised income for the half year...... 11111 – 11111 – 11111 3,127,692 11111 (955) 11111 3,126,737 Dividends relating to 2005 paid in 2006 ...... – – (1,219,740) – (1,219,740) Net decrease in minority interest ...... –––11111 11111 11111 11111(91,818) 11111 (91,818) As at 30 June, 2006 ...... 19,333,589 3,277,463 25,219,967 9,936 47,840,955 11111 11111 11111 11111 11111

Revaluation reserves of available-for-sale investments are included within retained earnings in the amount of SIT 1,888,280 thousand at 1 January 2006 and in the amount of SIT 1,420,322 thousand at 30 June 2006. The accompanying notes form an integral part of this condensed interim financial information.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Condensed consolidated unaudited interim cash flow statement

11Half11 year1 1ended11 301 June11341 2006 2005 Cash flow from operating activities Cash flows from operating profits before changes in operating assets and liabilities ...... 4,715,347 3,558,557 Changes in operating assets and liabilities: Net (increase) in trading securities...... (336,592) (1,315,649) Net (increase) in loans and advances to banks and customers...... (46,633,729) (13,320,443) Net (increase) in other assets ...... (2,666,333) (3,381,047) Net increase in deposits, due to customers, other borrowed funds and debt securities in issue ...... 65,696,157 47,891,234 Net increase in other liabilities ...... 111121 2,867,811 111121 4,118,234 Net cash from operating activities ...... 23,642,661 37,550,886 111121 111121 Cash flows from investing activities Purchase of property and equipment ...... (4,400,806) (402,280) Proceeds from sale of property and equipment ...... 66,216 46,423 Decrease in investment securities...... 34,149,613 6,650,746 (Increase) in investment securities ...... (22,312,230) (69,674,024) Acquisitions of subsidiaries ...... (111,953) (1,039,164) Disposals of investments in associates ...... 111121 – 111121 3,498,778 Net cash from/(used in) investing activities ...... 7,390,840 (60,919,521) 111121 111121 Cash flows from financing activities Proceeds from subordinated debt securities ...... 1,220,181 2,869,208 Repayments of subordinated debt securities ...... (158,760) (2,471,556) Issue of ordinary shares...... – 6,300,000 Sales of treasury shares ...... – 20,087 Dividends paid ...... 111121 (12,554) 111121 (812,918) Net cash from financing activities ...... 1,048,867 5,904,821 111121 111121 Effect of exchange rate changes on cash and cash equivalents...... 111121 441,188 111121 1,204,442 Net increase/(decrease) in cash and cash equivalents...... 32,523,556 (16,259,372) 111121 111121 Cash and cash equivalents at the beginning of the year...... 105,165,639111121 111121 95,360,918 Cash and cash equivalents at the end of the period...... 137,689,195 79,101,546 111121 111121

The accompanying notes form an integral part of this condensed interim financial information.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

NOTES

1. GENERAL INFORMATION Abanka Vipa d.d. (the Bank) is a bank with a 50 year tradition in the Slovene banking sector. The legal successor of Jugobanka - Basic Bank of Ljubljana has been known under its present name as a public limited company since 1 January, 1990. On 31 December 2002 Abanka acquired Banka Vipa, and, since then, has operated as one bank under the name Abanka Vipa d.d. or the shortened name Abanka d.d. Before the merger by acquisition at the end of 2002, Banka Vipa, with a 1.7% market share, ranked twelfth in the Slovene banking sector in terms of total assets. By acquiring Banka Vipa, Abanka raised its market share to 8.5% at the end of 2002, and thus became the third largest bank in the Slovene banking industry. At the end of June 2006, Abanka’s market share was 8.8%.

Abanka is well established internationally, both in inter-bank relations and international payment transactions. Abanka’s prime customers are export and import companies. A global network of correspondents has enhanced Abanka’s ability to serve the needs of its customers in international transactions. At Abanka, investment banking is also well developed. The Bank’s subsidiary company, Abančna DZU, specialises in this line of business, managing nine mutual funds (Polžek Mutual Fund, Zajček Mutual Fund, Sova Mutual Fund, Vipek Mutual Fund, Delniški svet Mutual Fund and Delniški Evropa Vipa Invest Mutual Fund, Abančna DZU Delniški Azija Mutual fund, Abančna DZU Delniški ZDA Mutual fund, Abančna DZU Denarni EURO Mutual fund). AIII VPS Mutual Pension Fund is also managed within the scope of Abanka’s investment banking. Another important part of Abanka’s operations is retail banking, servicing personal customers and SMEs. Abanka has developed a national network of branches throughout Slovenia. During the period ended 30 June 2006, there were 41 outlets operating.

Abanka is a universal bank, holding a full operating licence issued by the Bank of Slovenia.

All Abanka’s transactions are carried out directly.

At the end of June 2006, the Bank employed 849 people (843 at the end of 2005).

Banking services by business segments

Corporate banking • opening of transaction accounts for corporates • certificates of deposit • sight deposits, short and long-term deposits • current account loans • short-term working capital financing • investment loans • export financing in co-operation with the Slovene Export Corporation • guarantees and standby letters of credit • loro and nostro letters of credit • loro and nostro documentary and clean collections • encashing of foreign cheques

International and Domestic Payments

• management of foreign currency accounts of domestic corporates • management of non-resident accounts of foreign corporates • payments from abroad to domestic and foreign corporate and retail customers • payments made abroad and issuance of cheques for domestic and foreign corporate and retail customers • providing domestic payment transaction services to corporate customers

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Retail banking • savings deposits in tolars and foreign currency • direct transfer accounts, transaction accounts • non-resident accounts • exchange operations • bank card operations • consumer loans • housing loans • bankassurance products • call/marketing centre Treasury • fixed income trading • trading money market instruments • trading financial derivatives • liquidity management Investment banking • brokerage • asset management (including management of Abanka's mutual pension fund AIII) • corporate finance • proprietary trading Custodian services for investment funds • custodian services for investment funds • administrative services Interbank relations • correspondent banking • raising foreign-currency loans • loans to foreign banks (participation in syndicated loans and bilateral facilities)

The group The principal unlisted subsidiaries are (as at 30 June 2006):

Company Year of incorporation Activity % ownership Abančna DZU d.o.o. 1994 Investment management 99 Afaktor d.o.o. Ljubljana 2002 Factoring 100 Aleasing d.o.o. 2003 Leasing 100 Vogo Leasing d.o.o. 2005 Leasing 100 Argolina d.o.o. 2006 Project financing 75

The Group ended the 30 June 2006 period with SIT 675,265,463 thousand in total assets (SIT 603,885,824 thousand at the 2005 year-end). The Bank planned for 6% and recorded a 12% increase in the volume of business during the period ended 30 June 2006. With an 8.8% market share in terms of the banking system’s total assets, Abanka ranks third in Slovenia. During the period January – June 2006, net profit amounted to SIT 3,594,694 thousand (SIT 581,249 thousand during the period January – June 2005).

The Bank is run by the Management Board: Mr. AlešŽajdela, President, Mr. Gregor Hudobivnik, Member, and Mr. Radovan Jereb, Member.

ABANKA’S REGISTERED OFFICE:

ABANKA VIPA d.d. Slovenska 58 1517 Ljubljana Slovenia

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Ownership structure

The ownership structure of Abanka (ten major shareholders) is the following:

Stake in % Company 30 June 2006 Zavarovalnica Triglav d.d...... 21.3 FMR d.d...... 9.8 Poteza naložbe d.o.o...... 7.4 VS Triglav Steber I ...... 7.3 HIT d.d. Nova Gorica ...... 6.1 Štajerski avtodom d.d...... 5.0 Kingshouse investments limited ...... 4.9 Zavarovalnica Triglav – Kritni sklad ŽZ ...... 4.4 Vipa d.d. Nova Gorica ...... 4.3 Daimond d.d...... 3.6

Almost all shares issued as at 30 June 2006 were held by Slovene corporations and individuals.

The condensed consolidated interim financial information was approved for issue on 4 December 2006.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2005, as described in the annual financial statements for the year ended 31 December 2005.

The following new standards, amendments to standards and interpretations are mandatory for financial year ending 31 December 2006.

• Amendment to IAS 19, ‘Actuarial gains and losses, group plans and disclosures’, effective for annual periods beginning on or after 1 January 2006. The adoption of this did not result in substantial changes to the Group’s accounting policies;

• Amendment to IAS 39, Amendment to ‘The fair value option’, effective for annual periods beginning on or after 1 January 2006. This amendment does not have any impact on the classification and valuation of the Group's financial instruments classified as at fair value through profit or loss prior to 1 January 2006, as the Group had no financial instruments classified at the fair value option;

• Amendment to IAS 21, Amendment ‘Net investment in a foreign operation’, effective for annual periods beginning on or after 1 January 2006. This amendment is not relevant to the group;

• Amendment to IAS 39, Amendment ‘Cash flow hedge accounting of forecast intragroup transactions’, effective for annual periods beginning on or after 1 January 2006. This amendment is not relevant to the group;

• Amendment to IAS 39 and IFRS 4, Amendment ‘Financial guarantee contracts’, effective for annual periods beginning on or after 1 January 2006. This amendment is not relevant to the group.

The following new standards, amendments to standards and interpretations have been issued but are not effective for 2006 and have not been adopted yet:

• IFRIC 9, ‘Reassessment of Embedded Derivatives’, effective for annual periods beginning on or after 1 June 2006. Management believes that this interpretation should not have a significant impact on the reassessment of embedded derivatives, as the Group already assess if embedded derivatives should be separated using principles consistent with IFRIC 9; and

• IFRS 7, ‘Financial instruments: Disclosures’, effective for annual periods beginning on or after 1 January 2007. IAS 1, ‘Amendments to capital disclosures’, effective for annual periods beginning on

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

or after 1 January 2007. The Group will apply IFRS 7 and the amendment to IAS 1 for annual periods beginning 1 January 2007.

The consolidated financial statements are presented in Slovene tolars, which is the entity’s functional and presentational currency.

3. SEASONALITY OR CYCLICALITY OF INTERIM OPERATIONS The Group does not generate any seasonal or cyclical income nor does it usually have any one-off income.

In its interim reporting the Group defers those expenses that can be deferred at the end of the financial year.

4. THE NATURE AND AMOUNT OF UNUSUAL ITEMS In the first half of 2006 there were no unusual items that in terms of their nature, scope or occurrence could have an impact on assets, debts, capital, net profit or cash flow.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment on at least a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash 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 in estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(b) Fair value of derivatives

The fair value of financial instruments that are not quoted in active markets are determined using valuation techniques. The valuation techniques (e.g. models) are created/reviewed and used by the risk management department, which is independent of trading units. All models reflect comparative market prices and actual data.

(c) Fair value of available for sale financial assets

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.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

6. ISSUE, REPURCHASE AND REPAYMENT OF DEBT AND EQUITY SECURITIES

Debt securities in issue (in thousand of Slovenian tolars) As at As at 30 June 31 December 2006 2005 Short–term tolar debt securities ...... 8,331 21,880 Bonds 4th issue due 1 June, 2007 in EUR ...... 2,408,622 2,408,124 Bonds 5th issue due 15 April, 2006 in EUR ...... – 2,425,387 Bonds 6th issue due 15 May, 2009 in EUR ...... 3,260,032 3,257,722 Bonds 7th issue due 21 May, 2010 in EUR ...... 4,409,192 4,168,181 Bonds 8th issue due 1 March, 2011 in EUR ...... 2,195,903 2,494,172 Bonds 9th issue due 1 March, 2011 in EUR ...... 2,433,930 2,490,155 Bonds 10th issue due 1 October, 2011 in EUR ...... 5,205,367 5,089,421 Bonds 11th issue due 1 December, 2010 in SIT...... 5,096,731 4,995,353 Bonds 12th issue due 12 December, 2010 in SIT...... 5,080,549 4,983,663 Bonds 13th issue due 24 June, 2008 in SIT ...... 1,221,360 – DEM-denominated 5m fixed rate notes falling due in 2006 ...... 54,861 78,724 DEM-denominated 4m fixed rate notes falling due in 2007 ...... 103,807 126,080 EUR-denominated 2m fixed rate notes falling due in 2008 ...... 154,245 184,674 EUR-denominated 2m fixed rate notes falling due in 2009 ...... 213,530 243,655 EUR-denominated 2m fixed rate notes falling due in 2010 ...... 111121 270,153 111121 300,130 32,116,613 33,267,321 111121 111121

Abanka Vipa issued the subordinated AB13 bonds on 24 June 2006. The bonds were sold at auction, with the bid prices ranging from 99.85% to 100.25%. The final coupon and the principal will mature on 24 June 2008. The total principal is paid out when the bond matures, while the interest is paid half-yearly, in line with the amortisation schedule. The interest and the principal are paid in tolars. The interest rate on the bond is variable, and is equivalent to the six-month Euribor + 0.5000% per annum. The interest is uncompounded, and is calculated from the bond’s nominal value. The total nominal value of the issue was €5,097,000. The bonds each had a nominal value of €100.

The tenth and final coupon of the 5th-issue AB05 bonds to the amount of €102.95 matured on 15 April 2006. The coupon consists of the principal of €100, and interest to the amount of €2.95. The total value of the matured AB05 coupon with the foreign currency clause was €10,295,000.

7. DIVIDENDS PAID ON ORDINARY SHARES The Bank’s share capital is comprised of 5,500,000 authorised shares with a nominal value of SIT 1,000 each, of which 100% are ordinary shares with voting rights. All shares issued are fully paid.

Based on the shareholders’ decision, dividends to the amount of SIT 1,207,090 thousand were paid out. The dividend per ordinary share was SIT 220. The dividend was paid to shareholders entered in the share register on the day of the Bank’s assembly meeting. The Bank began paying the dividends on 10 July 2006.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

8. IMPAIRMENT LOSSES (In thousands of Slovenian tolars) Half year ended Half year ended 30 June 2006 30 June 2005 Loans and advances to banks ...... (56,833) 129,014 Loans and advances to customers ...... 2,852,838 2,229,243 Other assets...... (30,188) (30,743) Guaranties and commitments ...... (1,304,137) 631,112 Recoveries on loans previously written off ...... 111121 (61,945) 111121 (31,171) 1,399,735 2,927,455 111121 111121

Release of provisions for guaranties and commitments mainly relates to the provision for the litigation against the bank to the amount of SIT 2,054,742 thousand, based on the final decision of the Supreme Court in the bank’s favour in the first half of year 2006.

9. PRIMARY SEGMENT INFORMATION The Bank is organised into three main business segments:

• Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, credit and debit cards, consumer loans and mortgages; • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, international payments and domestic payment system and documentary operations; and • Financial markets – incorporating financial instruments trading, foreign currency and derivative products, merger and acquisition advice, custodian services and inter-bank relations.

The allocation of costs between the business segments is made in accordance with a controlling financial system based on profit and cost centres. As at and for the half year ended 30 June 2005 Retail Corporate Financial banking banking markets Other Group Total segment revenue ...... 5,071,826 7,816,954 3,281,021 308,576 16,478,377 Inter-segment revenue...... ––––– Revenues ...... 5,071,826 7,816,954 3,281,021 308,576 16,478,377 Segment result ...... (512,177) 92,538 1,059,135 70,356 709,852 Operating profit ...... 709,852 Charge from associates...... (1,012) (1,012) Profit before tax...... 708,840 Income tax expense ...... 121111 (127,591) Net profit for the period ...... 581,249 121111 Segment assets ...... 69,783,879 276,430,456 195,878,995 6,541,502 548,634,832 Associates...... 2,733,518 2,733,518 Unallocated assets ...... 111112 2,979,298 Total assets...... 554,347,648111211 Segment liabilities...... 202,296,322 119,137,386 183,555,072 3,083,429 508,072,209112111 Unallocated liabilities ...... 112111 2,782,062 Total liabilities ...... 510,854,271 112111 Capital expenditure ...... 344,965 3,285 16,825 37,205 402,280 Depreciation...... 324,126 12,125 19,913 630,370 986,534 Impairment charge ...... 332,959 1,102,733 (32,859) (3,098) 1,399,735

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

As at and for the half year ended 30 June 2006 Retail Corporate Financial banking banking markets Other Group Total segment revenue ...... 5,433,273 8,894,154 4,069,843 360,588 18,757,858 Inter-segment revenue...... ––––– Revenues ...... 5,433,273 8,894,154 4,069,843 360,588 18,757,858 Segment result ...... 19,200 1,092,195 3,289,053 179,306 4,579,754 Operating profit ...... 4,579,754 Profit before tax...... 4,579,754 Income tax expense ...... 121111 (985,060) Net profit for the period ...... 3,594,694 121111 Segment assets ...... 81,713,974 340,871,752 242,027,969 7,027,889 671,641,584 Associates...... ––––– Unallocated assets ...... ––––3,623,879 121111 Total assets...... 675,265,463 121111 Segment liabilities...... 206,863,310 139,518,592 275,475,255 2,099,221 623,956,378 Unallocated liabilities ...... ––––1211113,468,130 Total liabilities ...... 627,424,508 121111 Capital expenditure 621,090 3,342,427 27,366 409,923 4,400,806 Depreciation 340,480 14,034 12,933 488,370 855,817 Impairment charge 205,794 2,227,347 340,838 153,476 2,927,455

10. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE Based on a contract signed on 28 June 2005, an investment in the associate NFD d.o.o., Ljubljana was disposed of on 1 July 2005 when all contractual clauses were fulfilled. The cash received on 30 June 2005 amounted to SIT 3,498,778 thousand and was recognised as prepayment within other liabilities. The rest of cash to the amount of SIT 2,301,222 thousand was received on 1 July 2005. The gain on the disposal of the investment was recognised in the second half of year 2005 to the amount of SIT 3,588,431 thousand.

On 17 July 2006 the Bank took subordinated deposits (in euros) to the amount of SIT 1,500,000 thousand. The annual interest rate on the subordinated deposits is 3.872%. The principal will be paid out in a lump sum when the deposit matures on 18 July 2008. The interest is charged monthly and is paid out half-yearly and at maturity.

At the end of October 2006, the Bank established Analožbe, a subsidiary focusing on project financing. The Bank owns 100% of the subsidiary. Its initial capital was SIT 24,000 thousand.

Since 30 June 2006, the Bank has been preparing for the issue of an innovative instrument. The process of issue is planned to be finalised in the first few weeks of 2007. The issue is nominated to the amount of €100,000,000, non-redeemable for ten years, with a step-up clause, variable interest rate, and 15% of it is eligible for inclusion in Tier 1 capital, the rest of it will contribute to the increase of Tier 2 capital.

11. THE EFFECT OF ACQUSITIONS AND DISPOSALS DURING THE INTERIM PERIOD On 7 February 2006, the Group acquired a further 32.23% of Aleasing financiranje, svetovanje, trženje d.o.o., thus becoming the sole owner of the company. This acquisition will allow the bank to further integrate leasing into its overall range of financial services, with the target of further growth and development in this field.

On 23 June 2006, the Group acquired an additional 49.9% of the capital of Argolina d.o.o., Ljubljana for a cash consideration of SIT 11,976 thousand. As of 30 June, Abanka Vipa owns 75% of Argolina.

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

The business acquired contributed revenue of SIT 15 thousand and a net loss of SIT 4,673 thousand to the Group for the period from the acquisition to 30 June 2006.

Purchase consideration: – cash paid ...... 11,976 – direct cost relating to the acquisition...... 1111 – Total purchase consideration:...... 11,976 1111 – fair value of net identifiable assets acquired (see below) ...... 19,502

The Group has yet to finalise the amount of the fair value of the net identifiable assets acquired. Based on the management’s estimate, the acquiree’s carrying amount does not significantly differ from the fair value of the assets and liabilities acquired.

The assets and liabilities arising from the acquisition are as follows:

(in SIT thousands) Acquiree’s carrying amount Cash and balances with central bank ...... 23 Property and equipment ...... 3,338,563 Other assets ...... 62,503 Other borrowed funds - banks ...... (3,361,292) Other liabilities...... 1111 (20,295) 111119,502 Outflow of cash to acquire business, net of cash acquired: – cash consideration ...... 11,976 – cash and cash equivalents in subsidiary acquired...... 1111 (23) Cash outflow on acquisition...... 1111 11,953

12. CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS There were no material changes in the Group’s contingent liabilities or contingent assets in the first half of 2006.

13. INCOME TAXES Income tax expense is recognised based on management’s best estimate of the weighted average annual effective income tax rate expected for the full financial year. The estimated average annual effective tax rate used for 2006 is 21%. (The estimated tax rate for the first half of 2005 was 18%.)

14. RELATED-PARTY TRANSACTIONS Parties are considered to be related, if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and deposits. The volume of transactions involving related parties for the half year 2006 and for the half year 2005 is as follows:

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ABANKA VIPA d.d. Unaudited Interim Condensed Consolidated Financial Statements – 30 June 2006 (All amounts in SIT thousands unless otherwise stated)

Members of the Board of directors and Entities with significant 1111111121Supervisory Board 1111111121 influence 1111111121 Associates 30 June 30 June 30 June 30 June 30 June 30 June Type of related party 2006 2005 2006 2005 2006 2005 Loans Loans outstanding as at the beginning of the year ...... 15,536 72,763 1,540,985 5,804,350 2,896,095 2,727,172 Loans issued during the period ...... 1,000 360 7,027,371 3,694,152 – 110,441 Loan repayments during the period ..1111 (11,529) 1111 (26,267) (5,190,013) 1111 (7,531,074) 1111 (2,896,095) 1111 1111 (27,058) Loans outstanding as at the end of the period ...... 1111 5,007 1111 46,856 1111 3,378,343 1111 1,967,428 1111 – 1111 2,810,555 Interest income and fee earned...... 131 1,723 121,816 65,547 – – Deposits Deposits as at the beginning of the year ...... 171,777 492,220 3,023,642 2,905,885 – – Deposits received ...... 110,320 590,383 18,899,342 13,893,354 – – Deposits repaid ...... 1111 (191,115) 1111 (730,077) (19,213,794) 1111 (13,525,831) 1111 1111 – 1111 – Deposits as at the end of the period..1111 90,982 1111 352,526 1111 2,709,190 1111 3,273,408 1111 – 1111 – Interest expense on deposits...... 1,165 8,587 72,527 86,916 – – Foreign exchange trading Aggregated gain/(loss) ...... –––––– Other revenue – fee income ...... – – 1,510 2,887 – – Guarantees issued by the Group ...... – – 398,607 128,934 – – Guarantees fee income...... – – 1,192 1,005 – –

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AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2005

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005

PricewaterhouseCoopers d.o.o Cesta v Kleče 15 Sl-1000 Ljubljana, Slovenia Telephone: +386 1 5836 000 Facsimile: +386 1 5836 099 Matriculation No.: 5717159 VAT No.: Sl35498161

AUDITORS’ REPORT

To the Shareholders and the Board of Abanka Vipa, d.d., Ljubljana

We have audited the accompanying consolidated balance sheet of Abanka Vipa and its subsidiaries (the “Group”) as of 31 December 2005 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These financial statements (as set out on pages 9 to 57) are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2005, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Without qualifying our opinion, we draw your attention to Note 36 to the financial statements. Management has revised the previously issued 2005 consolidated financial statements on which we issued an audit report dated June 16, 2006 due to a reclassification within cash and cash equivalents with related impact to the cash flow statement.

PricewaterhouseCoopers d.o.o.

14 December 2006 Ljubljana

The company is registered by District court in Ljubljana under the number 12156800 as well in to the register of the Auditing companies by Slovene Audit Institute under the number RD-A-014. The amount of the registered share capital is SIT 8.340.000. The list of employed auditors is available at the registered office of the company.

References to page numbers in the first paragraph of the above report are to page numbers in the financial statements as originally published, and not as presented in this Prospectus.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Consolidated income statement

11Year11 ended11 311 December1111341 Note 2005 2004 Interest and similar income ...... 5 25,263,460 24,901,077 Interest expense and similar charges ...... 5111121 (12,917,907) 111121 (14,111,664) Net interest income ...... 12,345,553 10,789,413 Fee and commission income ...... 6 9,508,000 8,564,941 Fee and commission expense...... 6111121 (1,374,726) 111121 (1,243,672) Net fee and commission income ...... 8,133,274 7,321,269 Dividend income ...... 7 739,761 506,033 Net trading income ...... 8 1,020,246 1,266,676 Gains less losses from investment securities ...... 9 3,593,481 83,106 Other operating income ...... 224,642 147,303 Operating expenses ...... 10 (13,513,080) (11,754,741) Impairment losses ...... 12111121 (8,114,932) 111121 (3,365,999) Operating profit ...... 4,428,945 4,993,060 Income from associates ...... 21111121 – 111121 313,409 Profit before tax ...... 4,428,945 5,306,469 Tax expense...... 13111121 (261,431) 111121 (1,371,728) Net profit for the period ...... 4,167,514 3,934,741 111121 111121 Attributable to: Equity holders of the Bank ...... 4,203,397 3,901,684 Minority interest ...... 111121 (35,883) 111121 33,057 4,167,514 3,934,741 111121 111121

The accompanying notes are an integral part of these consolidated financial statements.

EPS for profit attributable to the equity holders of the Bank, expressed in Slovenian tolars: – Basic...... 758 820 – Diluted ...... 758 820

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Consolidated balance sheet

111As1 at1 311 December11111341 Note 2005 2004 ASSETS Cash and balances with central bank ...... 14 11,566,819 7,708,070 Treasury bills and other eligible bills...... 15 83,674,357 61,857,254 Loans and advances to banks ...... 16 53,618,422 35,101,586 Trading securities ...... 17 23,418,045 13,863,089 Derivative financial instruments ...... 18 191,908 350,455 Loans and advances to customers ...... 19 361,640,399 317,597,895 Investment securities ...... 20 50,770,167 35,702,541 - available-for-sale ...... 50,770,167 26,411,428 - held-to-maturity ...... – 9,291,113 Investments in associates...... 21 6,024 2,734,530 Property and equipment ...... 22 10,050,154 9,099,159 Deferred tax assets ...... 30 537,803 79,346 Other assets, including tax assets ...... 23111121 8,411,726 111121 7,015,775 Total assets ...... 603,885,824 491,109,700 111121 111121 LIABILITIES Deposits from banks ...... 24 12,755,642 4,760,065 Other deposits...... 25 11,702,707 5,120,759 Derivative financial instruments ...... 18 187,028 380,634 Due to customers ...... 26 372,368,236 325,349,664 Debt securities in issue ...... 27 33,267,321 27,646,234 Other borrowed funds...... 28 112,343,308 79,497,733 Deferred tax liabilities...... 30 851,708 1,371,392 Other liabilities, including tax liabilities ...... 29111121 14,384,098 111121 8,934,045 Total liabilities ...... 557,860,048 453,060,526 111121 111121 EQUITY Capital and reserves attributable to the Bank’s equity holders Share capital ...... 33 19,333,589 12,960,553 Retained earnings ...... 34 23,312,015 21,689,127 Other reserves ...... 34111121 3,277,463 111121 3,207,463 45,923,067 37,857,143 Minority interest ...... 32 102,709 192,031 Total equity...... 111121 46,025,776 111121 38,049,174 Total equity and liabilities...... 603,885,824 491,109,700 111121 111121

The accompanying notes are an integral part of these consolidated financial statements.

These financial statements have been approved for issue by the Management Board on 13 December 2006 and signed on its behalf by:

Management board

Radovan Jereb, M.Sc.Econ. Gregor Hudobivnik AlešŽajdela, M.Sc. Member Member President

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Consolidated statement of changes in equity

Share Other Retained Minority Note capital reserves earnings Interest Total

As at 1 January, 2004 ...... 12,975,923 3,207,463 18,625,644 199,069 35,008,099 Net change in available-for-sale investments, net of tax ...... 34 – – 18,517 – 18,517 Net profit for the year...... 1111 – 1111 – 1111 3,901,684 1111 33,057 1111 3,934,741 Total recognised income for 2004...... 1111 – 1111 – 1111 3,920,201 1111 33,057 1111 3,953,258 Dividends for 2003 ...... – – (859,945) – (859,945) Purchase of additional stake ...... 32–––(40,095) (40,095) Purchase of treasury shares ...... 33 (60,144) – – – (60,144) Sale of treasury shares...... 33 44,774–––44,774 Unpaid dividends ...... 341111 – 1111 – 1111 3,227 1111 – 1111 3,227 As at 31 December, 2004 ...... 1111 12,960,553 1111 3,207,463 1111 21,689,127 1111 192,031 1111 38,049,174 As at 1 January, 2005 ...... 12,960,553 3,207,463 21,689,127 192,031 38,049,174 Net change in available-for-sale investments, net of tax ...... 34 – – (1,172,408) – (1,172,408) Net profit for the year...... 1111 – 1111 – 1111 4,203,397 1111 (35,883) 1111 4,167,514 Total recognised income for 2005...... 1111 – 1111 – 1111 3,030,989 1111 (35,883) 1111 2,995,106 Other ...... 34 – – (384,415) – (384,415) Dividends for 2004 ...... 35 – – (956,536) – (956,536) Purchase of additional stake ...... 32–––(53,439) (53,439) Issue of share capital...... 33 6,300,000–––6,300,000 Transfer to statutory reserve ...... 34 – 70,000 (70,000) – – Purchase of treasury shares ...... 33 (105,338) – – – (105,338) Sale of treasury shares...... 33 178,374–––178,374 Unpaid dividends ...... 341111 – 1111 – 1111 2,850 1111 – 1111 2,850 As at 31 December, 2005 ...... 1111 19,333,589 1111 3,277,463 1111 23,312,015 1111 102,709 1111 46,025,776

The accompanying notes are an integral part of these consolidated financial statements.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Consolidated cash flow statement

11Year11 ended11 311 December1111341 Note 2005 2004 Cash flow from operating activities Interest and commission received ...... 24,280,517 23,817,634 Interest paid ...... (11,616,400) (12,478,403) Dividends received ...... 739,761 506,033 Fee and commission received ...... 8,214,159 7,285,720 Net trading and other income ...... 3,922,662 1,215,238 Recoveries on loans previously written off ...... 163,213 153,716 Cash payments to employees and suppliers...... (10,159,753) (9,376,376) Income taxes paid ...... 111121 (1,165,096) 111121 (1,536,509) Cash flows from operating profits before changes in operating assets and liabilities ...... 14,379,063 9,587,053 Changes in operating assets and liabilities: Net (increase)/decrease in trading securities ...... (10,298,943) 2,401,038 Net (increase)/decrease in loans and advances to banks ...... (9,018,446) 7,705 Net (increase) in loans and advances to customers ...... (49,372,899) (47,226,516) Net (increase) in other assets...... (2,858,569) (385,954) Net increase/(decrease) in deposits from other banks ...... 12,156,339 (6,045,848) Net increase/(decrease) in other deposits ...... 6,461,913 (3,225,790) Net increase in amounts due to customers ...... 53,945,554 23,211,756 Net increase/(decrease) in other liabilities ...... 111121 3,097,838 111121 (354,398) Net cash from/(used in) operating activities ...... 18,491,850 (22,030,954) 111121 111121 Cash flows from investing activities Purchase of property and equipment...... (2,494,539) (3,037,399) Proceeds from sale of property and equipment ...... 8,760 63,256 Purchase of investment securities ...... (47,225,643) (5,584,530) Proceeds from sale of investment securities ...... 111121 8,692,310 111121 5,845,574 Net cash used in investing activities ...... (41,019,112) (2,713,099) 111121 111121 Cash flows from financing activities Proceeds from borrowed funds and debt securities ...... 64,745,146 95,128,568 Repayments of borrowed funds and debt securities ...... (38,931,946) (62,976,306) Issue of ordinary shares...... 6,300,000 – Purchase/sales of treasury shares ...... 31,398 (30,312) Dividends paid ...... 111121 (958,280) 111121 (859,945) Net cash from financing activities ...... 31,186,318 31,262,005 111121 111121 Effect of exchange rate changes on cash and cash equivalents ...... 1,145,665 (411,113) Net increase in cash and cash equivalents ...... 9,804,721 6,106,839 Cash and cash equivalents at the beginning of the year ...... 111121 95,360,918 111121 89,254,079 Cash and cash equivalents at the end of the year ...... 36 105,165,639 95,360,918 111121 111121

The accompanying notes are an integral part of these consolidated financial statements.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

NOTES 1 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below:

1.1 Basis of presentation

The consolidated financial statements of Abanka Vipa d.d. Ljubljana (the Group) have been prepared in accordance with International Financial Reporting Standards adopted by the EU. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets, held for trading financial assets and all derivative contracts.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates.

The Group keeps its records in accordance with the Slovene banking legislation. These consolidated financial statements have been prepared based on those accounting records and adjusted as necessary in order to comply with International Financial Reporting Standards issued by the International Accounting Standards Board.

In 2005, the Group adopted the following IFRS, which are relevant to its operations. The 2004 accounts have been amended as required, in accordance with the relevant requirements.

IAS 1 (revised 2003) Presentation of Financial Statements IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 28 (revised 2003) Investments in Associates IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation IAS 39 (revised 2003) Financial Instruments: Recognition and Measurement IFRS 5 (issued 2004) Non-current Assets Held for Sale and Discontinued Operations

The adoption of IAS 1, 27, 28, 32, 39 (all revised 2003) and IFRS 5 (issued 2004) did not result in substantial changes to the Group’s accounting policies. In summary:

– IAS 1 (revised 2003) has affected the presentation of minority interest and other disclosures.

– IAS 27, 28, 32, 39 (all revised 2003), IAS 39 (revised 2004) and IFRS 5 (issued 2004) had no material effect on the Group’s policies.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Group require retrospective application other than:

– IAS 39 – the de-recognition of financial assets is applied prospectively.

The income statement for the year 2004 has been restated in order to reflect changes to new IFRS 39 in the amount SIT 24,590 thousand of gains less losses from investment securities, which were transferred to retained earnings in the amount of SIT 18,517 thousand, the difference amounted to SIT 6,073 thousand and was included in tax expenses (Note 13).

Standards, interpretations and amendments to published standards, that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January, 2006 or later periods but which the Group has not early adopted, as follows:

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– IAS 39 (Amendment), The Fair Value Option (effective from 1 January, 2006). This amendment changes the definition of financial instruments classified at fair value through profit or loss and restricts the ability to designate financial instruments as part of this category. The Group will apply this amendment from annual periods beginning 1 January, 2006.

– IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements – Capital Disclosures (effective from 1 January, 2007). IFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group will apply IFRS 7 and the amendment to IAS 1 from annual periods beginning 1 January, 2007.

– IFRIC 4, Determining whether an Arrangment contains a Lease (effective from 1 January 2006). IFRIC 4 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. It requires an assessment of whether: (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the arrangement conveys a right to use the asset. Management is currently assessing the impact of IFRIC 4 on the Group’s operations.

Since the 2004 and 2005 financial statements were published, the Management Board of the bank has revised the items cash and cash equivalents (Note 36). This has led to amendments to the following individual items in the Consolidated Cash Flow Statement: net (increase)/decrease in trading securities, net (increase)/decrease in loans and advances to banks, net cash from/(used in) operating activities, proceeds from sale of investment securities in 2005, purchase of investment securities in 2004, net cash used in investing activities, effect of exchange rate changes on cash and cash equivalents in 2005, net increase in cash and cash equivalents, cash and cash equivalents at beginning of the year, cash and cash equivalents at end of the year.

In addition, the following disclosures were amended or added in the Consolidated Financial Statements: EPS, 2.6 Cash flow and fair value interest rate risk: Interest sensitivity of assets, liabilities and of off-balance sheet items, Critical accounting estimates, and judgements in applying accounting policies: (c) Fair value of available for sale financial assets, Business segments, Note 20, 21, 23, 32 and 38.

1.2 Consolidation

(a) Subsidiaries

Subsidiaries, which are those companies and other entities in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated.

Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition, plus costs directly attributable to the acquisition. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless costs cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

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(b) Associates

Investments in associates are accounted for by the equity method of accounting. Under this method, the Group’s share of the post-acquisition profits or losses of associates is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment.

Associates are entities in which the Group has between 20% and 50% of the voting rights, and over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s principal associated undertakings is shown in Note 21.

1.3 Segment reporting

Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments.

1.4 Foreign currency translation

(a) Functional and presentation currency

The consolidated financial statements are presented in Slovene tolars, which is the entity’s functional and presentation currency.

(b) Transactions and balances

Income and expenditure arising in foreign currencies are translated into Slovene tolars at the official rates of exchange ruling at the transaction date. Gains and losses resulting from foreign currency translation and foreign currency dealings are included in the income statement for the year. Monetary assets and liabilities denominated in foreign currencies are translated into Slovene tolars at the midmarket exchange rate ruling on the last day of the accounting period and are included in the income statement as net foreign exchange gains or losses.

1.5 Derivative financial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. All effects of derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e., the fair value of the consideration given or received).

All derivatives of the Bank are classified as held for trading and do not qualify for hedge accounting. Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

1.6 Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield method. Interest income includes coupons earned on fixed income investment and trading securities and accrued discount and premium on

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treasury bills and other discounted instruments. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

1.7 Fee and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans for which a draw down is probable, are deferred (together with related direct cost) and recognised as an adjustment to the effective yield on the loan. Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of business, are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Asset management fees related to investment funds are recognised rateably over the period the service is provided. The same principle is applied to wealth management, financial planning and custody services that are continuously provided over an extended period of time.

1.8 Trading securities

Trading securities are securities which were either acquired for generating a profit from short-term fluctuations (within a year) in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading securities are initially recognised at fair value and subsequently re-measured at fair value, based on quoted bid prices. All related realised and unrealised gains and losses are included in net trading income in the period in which they arise. Interest earned whilst holding trading securities is reported as interest income. Dividends received are included separately in dividend income. Management determines the classification of its investments at initial recognition.

All purchases and sales of trading securities that require delivery within the time frame established by regulation or market convention are recognised at trade date, which is the date that the Group commits to purchase or sell the asset.

1.9 Investment securities

The Group classifies its investment securities into the following two categories: held-to-maturity and available-for-sale assets. Investment securities with fixed or determinable payments and fixed maturities where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Were the Group to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available for sale. Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for- sale. Management determines the appropriate classification of its investments at the time of the purchase.

Investment securities are initially recognised at fair value plus transaction costs. Available-for-sale financial assets are subsequently re-measured at fair value based on quoted bid prices or amounts derived from cash flow models. Fair values of unquoted equity instruments are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised directly in equity. When the securities are disposed of or impaired, the related accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

Held-to-maturity investments are carried at amortised cost using the effective yield method, less any provision for impairment.

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A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset’s carrying amount and the present value of expected future cash flows discounted at the financial instrument’s original effective interest rate. By comparison, the recoverable amount of an instrument measured at fair value is the present value of expected future cash flows discounted at the current market rate of interest for a similar financial asset.

Interest earned whilst holding investment securities is reported as interest income. Dividends receivable are included separately in dividend income when a dividend is declared. All regular purchases and sales of investment securities are recognised at trade date, which is the date that the Group commits to purchase or sell the assets.

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.

1.10 Loans and receivables and provisions for loan impairment

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are carried at amortised cost using the effective interest method. Loans are recognised when cash is advanced to the borrowers. Loans are initially recognised at fair value plus transaction costs.

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 if, and 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 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.

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, 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 has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. 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. The methodology and assumptions used for estimating future cash flows are

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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. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.

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.

1.11 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 set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

1.12 Sale and repurchase agreements

Securities sold under sale and repurchase agreements (‘repos’) are retained in the consolidated financial statements as trading or investment securities and the counterparty’s liability is included in deposits from banks or customers as appropriate. Securities purchased under agreements to resell (reverse repos) are recorded as loans and advances to other customers. The difference between the sale and repurchase price is treated as interest and accrued evenly over the life of the repo agreements, using the effective yield method.

1.13 Computer software development costs

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Costs associated with developing computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads.

Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of 5 years. The assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

1.14 Property and equipment

All property and equipment is carried at cost less accumulated depreciation and impairment losses.

Land is not depreciated. Depreciation on other assets is calculated on the straight line method to write down the cost of such assets to their residual values over their estimated useful lives as follows:

Buildings 5% Equipment 25% Vehicles 12.5% Computers 50% Intangible fixed assets 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Property and equipment are periodically reviewed for impairment. Where the carrying

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amount of an asset is greater than its estimated recoverable amount, it is immediately written down to its recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. Subsequent costs are included in the asset’s carrying amount 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. Repairs and maintenance are charged to the income statement when the expenditure is incurred.

1.15 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with central bank, treasury bills and other eligible bills, amounts due from other banks, and securities.

1.16 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

1.17 Employee benefits

The Group provides benefits for employees as a legal obligation: jubilee rewards and retirement bonuses. These obligations are valued by independent qualified actuaries. Employee benefits are included in staff costs and in other liabilities as provisions for employee benefits.

1.18 Taxation

Taxation was provided for in the consolidated financial statements in accordance with the Slovene legislation currently in force. The charge for taxation in the income statement for the year comprises current tax and changes in deferred tax. Current tax is calculated on the basis of the expected taxable profit for the year, using the tax rates enacted at the balance sheet date.

Deferred income tax is provided in full using the balance sheet liability method for all temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income tax payable on profits, based on the applicable tax law in each jurisdiction is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carrying forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

1.19 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

1.20 Treasury shares

Where the Bank or other members of the consolidated Group purchases the Bank’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.

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1.21 Managed funds

The Bank manages a significant amount of assets on behalf of legal entities and citizens. A fee is charged for this service. These assets are not shown in the consolidated financial statements of the Group but details of the funds under management are given in Note 37.

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

1.22 Fiduciary activities

The Group commonly 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 therefrom are excluded from these financial statements, as they are not assets of the Group.

1.23 Comparatives

Where necessary (Note 9 and Note 13), comparative figures have been reclassified to conform to changes in presentation in the current year.

Before restatement gains less losses from investment securities (Note 9) amounted to SIT 107,696 thousand, after restatement it was changed to SIT 83,106 thousand in order to conform to the new IFRS 39.

Before restatement tax expense (Note 13) amounted to SIT 1,377,801 thousand, after restatement it was reduced by SIT 6,073 thousand and amounted to SIT 1,371,728 thousand.

2 Financial risk management 2.1 Strategy in using financial instruments

By its nature, the Group’s activities are principally related to the use of financial instruments. The Group accepts deposits from customers mainly at floating rates and for various periods and seeks to earn above average interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due.

The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to corporate and retail borrowers with a range of credit standings. Such exposures involve only on-balance sheet loans and advances and guarantees and other commitments such as letters of credit and performance, and other bonds.

The Group also trades in financial instruments where it takes positions in traded instruments, including derivatives, to take advantage of short-term market movements in the equity and bond markets and in currency, interest rate and commodity prices. The Management Board places trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions.

2.2 Credit risk

The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Impairment provisions are provided for losses that have been incurred at the balance sheet date. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Group’s portfolio, could result in losses that are different from those provided for at the balance sheet date. Management therefore carefully manages its credit risk exposure.

F-30 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

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 groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and are subject to an annual or more frequent review. Limits on the level of credit risk by product, industry sector and by country are approved by the Management Board.

Credit risk exposure is 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. Exposure to credit risk is also managed in part by obtaining collateral as well as corporate and personal guarantees.

2.3 Geographical concentrations of assets, liabilities and off-balance-sheet items

Total Total Credit Capital assets liabilities commitments expenditure As at 31 December, 2005 Slovenia ...... 542,607,306 445,596,150 122,595,624 2,494,539 European Union ...... 40,328,569 105,180,764 85,749 – Other former Yugoslavia...... 7,715,760 4,685,228 672,330 – Other ...... 111112 13,234,189 111112 2,397,906 111112 31,065 121111 – Total ...... 603,885,824 557,860,048 123,384,768 2,494,539 111112 111112 111112 121111 As at 31 December, 2004 Slovenia ...... 453,001,019 365,846,054 140,309,373 3,037,399 European Union ...... 33,025,053 73,831,378 13,762,194 – Other former Yugoslavia...... 3,083,911 6,118,722 26,033 – Other ...... 111112 1,999,717 111112 7,264,372 111112 3,007,424 121111 – Total ...... 491,109,700 453,060,526 157,105,024 3,037,399 111112 111112 111112 121111

The Group operates principally in Slovenia, where it is based. Transactions with other countries are principally in the form of inter-bank relations. As an active participant in the international banking markets, the Group has a significant concentration of credit risk with other financial institutions. In total, credit risk exposure to financial institutions is estimated to have amounted to SIT 43,643,628 thousand as at 31 December, 2005 (SIT 27,565,711 thousand as at 31 December, 2004).

2.4 Market risk

The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Assets and Liabilities Committee of the Bank sets limits on the VaR that may be accepted, which is monitored on a monthly basis.

The market VaR measure is an estimate, with a confidence level set at 95% for internal use (99% for regulatory purposes), of the potential loss that might arise if the current positions were to be held unchanged for 10 business days. The Group uses a historical VaR simulation method.

VaR limits are set by the Assets and Liabilities Committee of the Bank for various trading portfolios. Actual exposure against limits is reviewed monthly by the Assets and Liabilities Committee of the Bank. The highest VaR in 2005 was established on 31 March.

F-31 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Measure VaR for different trading subportfolios in 2005

11domestic1122 equities22222231 11 domestic11222 bonds2222231 11 foreign112 2equities22222231 VaR VaR VaR Date in % VaR in SIT in % VaR in SIT in % VaR in SIT 31.12.2005 ...... 2.76 141,046,220 0.44 36,321,408 3.88 22,286,391 30.11.2005 ...... 3.32 268,576,196 0.43 65,410,033 4.23 16,867,568 31.10.2005 ...... 3.11 246,801,562 0.37 56,793,973 4.03 26,011,203 30.09.2005 ...... 3.18 244,301,464 0.37 54,024,267 4.29 24,145,015 31.08.2005 ...... 2.98 219,148,838 0.35 41,984,558 4.18 20,857,742 31.07.2005 ...... 2.96 213,525,653 0.35 42,550,571 5.47 12,370,056 30.06.2005 ...... 2.55 179,770,554 0.35 42,227,188 4.88 12,785,671 31.05.2005 ...... 2.60 163,073,540 0.39 50,012,944 5.58 22,593,263 30.04.2005 ...... 3.53 213,437,264 0.44 62,072,006 5.20 35,965,915 31.03.2005 ...... 4.00 261,864,201 0.46 62,198,017 6.83 27,646,260

VaR of different trading subportfolios in 2005

8,0% 7,0% 6,0% 5,0% Domestic equities 4,0% Domestic bonds 3,0% Foreign equities VaR in % VaR 2,0% 1,0% 0,0% mar.05 apr.05 maj.05 jun.05 jul.05 avg.05 sep.05 okt.05 nov.05 dec.05

Date

However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

2.5 Currency risk

The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December. The Group’s assets and liabilities at carrying amounts, categorised by currency, are included in the table.

F-32 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Concentrations of assets, liabilities and off-balance sheet items

EUR USD Tolars Other Total As at 31 December, 2005 Assets Cash and balances with central bank...... 568,163 61,086 10,851,721 85,849 11,566,819 Treasury bills and other eligible bills ...... 35,656,704 - 48,017,653 – 83,674,357 Loans and advances to banks ...... 33,931,899 6,590,664 10,496,704 2,599,155 53,618,422 Trading securities...... 89,860 485,139 22,791,077 51,969 23,418,045 Derivative financial instruments ...... 2,854 9,971 179,083 – 191,908 Loans and advances to customers ...... 154,815,691 4,005,263 201,567,999 1,251,446 361,640,399 Investment securities ...... 5,882,134 406,732 44,274,362 206,939 50,770,167 Investments in associates ...... – – 6,024 – 6,024 Property and equipment ...... – – 10,050,154 – 10,050,154 Deferred tax assets...... – – 537,803 – 537,803 Other assets ...... 112112 766,736 112112 559,005 112112 6,791,602 112112 294,383 112112 8,411,726 Total assets ...... 112112 231,714,041 112112 12,117,860 112112 355,564,182 112112 4,489,741 112112 603,885,824 Liabilities Deposits from banks ...... 6,871,115 106,335 5,632,957 145,235 12,755,642 Other deposits ...... 2,866,785 14,108 8,821,814 – 11,702,707 Derivative financial instruments ...... 1,331 9,578 176,119 – 187,028 Due to customers...... 104,836,686 10,560,287 253,175,774 3,795,489 372,368,236 Other borrowed funds – banks ...... 111,122,939 1,027,517 192,852 – 112,343,308 Debt securities in issue ...... – – 33,267,321 – 33,267,321 Other liabilities ...... 1,073,412 563,264 12,747,338 84 14,384,098 Deferred tax liability ...... 112112 – 112112 – 112112 851,708 112112 – 112112 851,708 Total liabilities...... 112112 226,772,268 112112 12,281,089 112112 314,865,883 112112 3,940,808 112112 557,860,048 Net on-balance sheet position ...... 112112 4,941,773 112112 (163,229) 112112 40,698,299 112112 548,933 112112 46,025,776 Credit commitments ...... 112112 20,744,494 112112 5,268,154 112112 94,657,779 112112 2,714,341 112112 123,384,768

Concentrations of assets, liabilities and off-balance sheet items

EUR USD Tolars Other Total As at 31 December, 2004 Assets Cash and balances with central bank...... 843,908 57,121 6,723,931 83,110 7,708,070 Treasury bills and other eligible bills ...... 53,045,424 7,080,147 1,731,683 – 61,857,254 Loans and advances to banks ...... 20,176,193 4,013,867 7,809,471 3,102,055 35,101,586 Trading securities...... 124,312 143,687 13,366,271 228,819 13,863,089 Derivative financial instruments ...... – – 350,455 – 350,455 Loans and advances to customers ...... 102,260,280 1,942,544 211,610,223 1,784,848 317,597,895 Investment securities ...... 3,247,026 370,077 32,085,438 – 35,702,541 Investments in associates ...... – – 2,734,530 – 2,734,530 Property and equipment ...... – – 9,099,159 – 9,099,159 Deferred tax assets...... – – 79,346 – 79,346 Other assets ...... 112112 401,088 112112 9,131 112112 6,603,998 112112 1,558 112112 7,015,775 Total assets ...... 112112 180,098,231 112112 13,616,574 112112 292,194,505 112112 5,200,390 112112 491,109,700

F-33 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

EUR USD Tolars Other Total As at 31 December, 2004 Liabilities Deposits from banks ...... 1,035,676 96,585 2,388,803 1,239,001 4,760,065 Other deposits ...... – – 5,120,759 – 5,120,759 Derivative financial instruments ...... – – 380,634 – 380,634 Due to customers...... 96,082,017 12,085,066 213,465,554 3,717,027 325,349,664 Other borrowed funds – banks ...... 76,410,021 1,868,071 1,219,641 – 79,497,733 Debt securities in issue ...... 2,230,441 65,017 25,350,776 – 27,646,234 Other liabilities ...... 276,971 17,667 8,635,140 4,267 8,934,045 Deferred tax liability ...... 112112 – 112112 – 112112 1,371,392 112112 – 112112 1,371,392 Total liabilities...... 112112 176,035,126 112112 14,132,406 112112 257,932,699 112112 4,960,295 112112 453,060,526 Net on-balance sheet position ...... 112112 4,063,105 112112 (515,832) 112112 34,261,806 112112 240,095 112112 38,049,174 Credit commitments ...... 112112 42,577,634 112112 25,329,946 112112 85,837,790 112112 3,359,654 112112 157,105,024

2.6 Cash flow and fair value interest rate risk

Interest sensitivity of assets, liabilities and off-balance sheet items

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. The table below summarises the Group’s exposure to interest rate risks. The Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates, are included in the table.

Non- Up to 1 1-3 3-12 1-5 Over 5 interest month months months years years bearing Total

As at 31 December, 2005 Assets Cash and balances with central bank – – 8,374,432 – – 3,192,387 11,566,819 Treasury bills and other eligible bills 46,123,519 37,550,838 – – – – 83,674,357 Loans and advances to banks ...... 49,739,696 2,071,903 1,775,835 30,988 – – 53,618,422 Trading securities ...... 69,402 11,195 17,365 7,697,545 7,769,829 7,852,709 23,418,045 Derivative financial instruments ...... –––––191,908 191,908 Loans and advances to customers .... 54,123,900 98,163,414 136,241,632 63,945,084 9,166,369 – 361,640,399 Investment securities ...... 86,031 928,401 3,419,001 9,900,088 25,713,857 10,722,789 50,770,167 Investments in associates ...... –––––6,024 6,024 Property and equipment ...... –––––10,050,154 10,050,154 Deferred tax assets ...... –––––537,803 537,803 Other assets...... –––––11131 11113 11311 11113 11131 113118,411,726 11113 8,411,726 Total assets ...... 150,142,5481111 138,725,751 1111 149,828,265 1111 1111 81,573,705 1111 42,650,055 1111 40,965,500 603,885,824 1111 Liabilities Deposits from banks ...... 8,181,916 3,439,727 1,129,999 4,000 – – 12,755,642 Other deposits...... 2,717,697 674,533 3,710,477 4,600,000 – – 11,702,707 Derivative financial instruments ...... –––––187,028 187,028 Due to customers ...... 116,016,908 194,328,143 44,586,944 15,372,209 2,064,032 – 372,368,236 Other borrowed funds – banks ...... 2,806,767 31,395,940 57,772,688 20,367,913 – – 112,343,308 Debt securities in issue ...... 434,284 98,859 2,584,455 10,327,069 19,822,654 – 33,267,321 Other liabilities ...... –––––14,384,098 14,384,098 Deferred tax liability ...... 1111––––– 1111 1111 1111 1111 1111851,708 1111 851,708 vTotal liabilities ...... 130,157,572 1111 229,937,202 1111 109,784,563 1111 1111 50,671,191 1111 21,886,686 1111 15,422,834 557,860,048 1111 Total interest sensitivity gap ...... 1111319,984,976 11311 (91,211,451) 11131 40,043,702 11311 30,902,514 11311 20,763,369

F-34 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

The table below summarises the effective interest rate by major currencies for monetary financial instruments:

% EUR USD SIT As at 31 December, 2005 Assets Cash and balances with central bank ...... – – 0.90 Treasury bills and other eligible bills ...... 2.31 3.48 4.10 Loans and advances to banks...... 2.12 2.96 3.82 Trading securities ...... – – 3.69 Loans and advances to customers ...... 3.22 4.75 6.50 Investment securities...... 4.40 2.94 4.92 111 111 111 Liabilities Deposits from banks ...... 2.02 3.24 3.04 Other deposits ...... 1.88 2.69 5.92 Due to customers ...... 1.65 2.48 2.97 Debt securities in issue ...... – – 5.22 Other borrowed funds ...... 2.80 3.69 – 111 111 111

Assuming the financial assets and liabilities on hand at 31 December, 2005 were to remain on hand until maturity or settlement without any action by the Group to alter the resulting interest rate risk exposure, a decrease of 1% in market interest rates across all maturities would reduce net income for the following year by approximately SIT 552,000 thousand, while a decrease of 1% in market interest rates across all maturities would reduce net income for the year 2004 by approximately SIT 481,000 thousand.

% EUR USD SIT As at 31 December, 2004 Assets Cash and balances with central bank ...... – – 0.97 Treasury bills and other eligible bills ...... 2.04 1.45 5.51 Loans and advances to banks...... 1.99 1.22 4.03 Trading securities ...... – – 7.10 Loans and advances to customers ...... 3.31 3.60 8.43 Investment securities...... 5.50 2.02 6.96 111 111 111 Liabilities Deposits from banks ...... 1.30 0.57 3.18 Other deposits ...... – – 5.56 Due to customers ...... 0.98 0.57 4.16 Debt securities in issue ...... 1.88 0.74 6.78 Other borrowed funds ...... 2.65 2.07 – 111 111 111

F-35 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

(Interest sensitivity of assets, liabilities and off-balance sheet items

Non- Up to 1 1 - 3 3 - 12 1 - 5 Over 5 interest month months months years years bearing Total

As at 31 December, 2004 Assets Cash and balances with central bank 287,692 – 4,305,400 – – 3,114,978 7,708,070 Treasury bills and other eligible bills 115,936 642,826 61,098,492 – – – 61,857,254 Loans and advances to banks ...... 31,763,782 258,917 – 3,078,887 – – 35,101,586 Trading securities ...... 175,618 – 248 314,426 1,532,319 11,840,478 13,863,089 Derivative financial instruments ...... –––– -350,455 350,455 Loans and advances to customers .... 31,673,308 29,700,036 117,327,594 79,827,513 59,069,444 – 317,597,895 Investment securities ...... – 531,733 1,696,242 16,307,808 16,478,329 688,429 35,702,541 Investments in associates ...... –––––2,734,530 2,734,530 Property and equipment ...... –––––9,099,159 9,099,159 Deferred tax assets ...... –––––79,346 79,346 Other assets...... 11113 96,666 11311 – 11131 – 11311 – 11311 – 11131 6,919,109 11131 7,015,775 Total assets ...... 11113 64,113,002 11311 31,133,512 11131184,427,976 11311 99,528,634 11311 77,080,092 11131 34,826,484 11131491,109,700 Liabilities Deposits from banks ...... 3,900,142 632,056 227,867 – – – 4,760,065 Other deposits...... 458,966 531,001 929,876 3,200,916 – – 5,120,759 Derivative financial instruments ...... –––––380,634 380,634 Due to customers ...... 98,718,577 53,050,427 131,501,708 39,043,958 3,034,994 – 325,349,664 Other borrowed funds – banks ...... 3,306,727 23,694,312 50,149,881 2,346,813 – – 79,497,733 Debt securities in issue ...... 1,553,027 96,345 2,751,825 8,770,206 14,474,831 – 27,646,234 Other liabilities ...... – 11,120 – – – 8,922,925 8,934,045 Deferred tax liability ...... 11113––––– 11311 11131 11311 11311 111311,371,392 11131 1,371,392 Total liabilities ...... 11113 107,937,439 11311 78,015,261 11131185,561,157 11311 53,361,893 11311 17,509,825 11131 10,674,951 11131453,060,526 Total interest sensitivity gap ...... 11113 (43,824,437) 11311 (46,881,749) 11131 (1,133,181) 11311 46,166,741 11311 59,570,267

2.7 Liquidity risk

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw-downs and guarantees, and from margin and other calls on cash-settled derivatives. The Group does not maintain cash resources to meet all of these needs, as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, as many of these commitments will expire or terminate without being funded.

The table below analyses assets and liabilities of the Group into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date.

F-36 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Maturities of assets and liabilities

Up to 1 1 - 3 3 - 12 1 – 5 Over 5 No stated month months months years years maturity Total

As at 31 December, 2005 Assets Cash and balances with central bank ...... 11,566,819 – – – – – 11,566,819 Treasury bills and other eligible bills 40,872,010 37,832,895 4,969,452 – – – 83,674,357 Loans and advances to banks ...... 44,751,659 1,078,823 512,856 7,275,084 – – 53,618,422 Trading securities ...... 7,510,709 11,501 95,000 7,885,795 7,915,040 – 23,418,045 Derivative financial instruments ...... 37,795 59,492 83,575 11,046 – – 191,908 Loans and advances to customers .... 25,008,086 31,069,619 106,772,095 152,739,534 46,051,065 – 361,640,399 Investment securities ...... 211,551 949,093 1,532,059 14,819,162 33,258,302 – 50,770,167 Investments in associates ...... –––––6,024 6,024 Other assets...... 2,572,845 42,524 5,623,301 30,889 142,167 10,050,154 18,461,880 Deferred tax assets ...... 231112 – 231112 – 231112 – 231112 537,803 231112 – 231112 – 231112 537,803 Total assets ...... 231112 132,531,474 231112 71,043,947 231112119,588,338 231112183,299,313 231112 87,366,574 231112 10,056,178 231112603,885,824 Liabilities Deposits from banks ...... 8,774,149 2,847,493 1,130,000 4,000 – – 12,755,642 Other deposits...... 2,509,765 690,143 3,796,345 4,706,454 – – 11,702,707 Derivative financial instruments ...... 37,043 57,076 82,130 10,779 – – 187,028 Due to customers ...... 223,666,922 77,387,814 40,868,439 28,351,257 2,093,804 – 372,368,236 Other borrowed funds – banks ...... 579,889 – 16,024,841 95,738,578 – – 112,343,308 Debt securities in issue ...... 52,175 100,008 2,614,489 10,447,080 20,053,569 – 33,267,321 Other liabilities ...... 2,723,824 1,988,780 8,087,136 925,603 658,755 – 14,384,098 Deferred tax liability ...... 231112 – 231112 – 231112 – 231112 851,708 231112 – 231112 – 231112 851,708 Total liabilities ...... 231112 238,343,767 231112 83,071,314 231112 72,603,380 231112141,035,459 231112 22,806,128 231112 – 231112557,860,048 Net liquidity gap ...... (105,812,293)231112 231112 (12,027,367) 231112 46,984,958 231112 42,263,854 231112 64,560,446 231112 10,056,178 231112 46,025,776

Up to 1 1 - 3 3 - 12 1 – 5 Over 5 No stated month months months years years maturity Total

As at 31 December, 2004 Assets Cash and balances with central bank 7,708,070–––––7,708,070 Treasury bills and other eligible bills 115,936 642,826 61,098,492 – – – 61,857,254 Loans and advances to banks ...... 32,022,667 46 – 3,078,873 – – 35,101,586 Trading securities ...... 13,863,089 – – – – – 13,863,089 Derivative financial instruments ...... 17,460 41,724 154,148 137,123 350,455 Loans and advances to customers .... 32,891,552 34,238,968 117,826,420 76,814,092 55,826,863 – 317,597,895 Investment securities ...... 107,058 424,211 1,694,759 16,293,549 17,182,964 – 35,702,541 Investments in associates ...... –––––2,734,530 2,734,530 Other assets...... 3,926,485 42,179 1,654,715 1,045,443 346,953 9,099,159 16,114,934 Deferred tax assets ...... 231112–––– 231112 231112 231112 23111279,346 231112 - 231112 79,346 Total assets ...... 231112 90,652,317 231112 35,389,954 231112182,428,534 231112 97,369,080 231112 73,436,126 231112 11,833,689 231112491,109,700 Liabilities Deposits from banks ...... 3,948,666 652,089 159,310 – – – 4,760,065 Other deposits...... 458,966 531,001 929,876 3,200,916 – – 5,120,759 Derivative financial instruments ...... 22,156 49,955 172,314 136,209 – – 380,634 Due to customers ...... 190,462,754 56,903,294 35,937,529 39,039,841 3,006,246 – 325,349,664 Other borrowed funds – banks ...... – 5,161,402 13,724,116 60,612,215 – – 79,497,733 Debt securities in issue ...... 1,551,515 99,886 2,750,021 8,770,122 14,474,690 – 27,646,234 Other liabilities ...... 2,268,968 1,642,879 3,867,699 327,818 826,681 – 8,934,045 Deferred tax liability ...... 231112 – 231112 – 231112 – 231112 805,654 231112 565,738 231112 - 231112 1,371,392 Total liabilities ...... 231112 198,713,025 231112 65,040,506 231112 57,540,865 231112112,892,775 231112 18,873,355 231112 – 231112453,060,526 Net liquidity gap ...... (108,060,708)231112 231112 (29,650,552) 231112124,887,669 231112 (15,523,695) 231112 54,562,771 231112 11,833,689 231112 38,049,174

F-37 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

2.8 Fair values of financial assets and liabilities

Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis.

Financial instruments held for trading and available for sale are measured at fair value. Loans and receivables and held to maturity assets are measured at amortised cost less impairment.

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

(a) Due from other banks

Due from other banks includes inter-bank placements and items in the course of collection. 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.

(b) 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.

(c) Investment securities

Investment securities include only interest-bearing assets held to maturity, as assets available- for-sale are measured at fair value. Fair value for held to maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value has been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics.

(d) Deposits and borrowings

The estimated fair value of deposits with no stated maturity, which includes non-interest- bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest- bearing deposits and other borrowings without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

(e) Debt securities in issue

The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity.

2.9 Fiduciary activities

The Group provides custody, 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.

F-38 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

3 Critical accounting estimates, and judgements in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash 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.

(b) Fair value of derivatives

The fair value of financial instruments that are not quoted in active markets are determined using valuation techniques. The valuation techniques (e.g. models) are created/reviewed and used by the risk management department, which is independent of trading units. All models reflect comparative market prices and actual data.

(c) Fair value of available for sale financial assets

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.

4 Business segments The Bank is organised into three main business segments: • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, credit and debit cards, consumer loans and mortgages; • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, international payments and domestic payment system and documentary operations; and • Financial markets – incorporating financial instruments trading, foreign currency and derivative products, merger and acquisition advice, custody services and inter-bank relations.

Transactions between the business segments are on normal commercial terms and conditions.

The allocation of costs between the business segments is made in accordance with a controlling financial system based on profit and cost centres.

F-39 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Primary segment information

Retail Corporate Financial banking banking markets Other Group As at 31 December, 2005 Total segment revenue...... 10,572,185 16,636,774 6,965,344 821,799 34,996,102 Inter-segment revenue ...... ––––– Revenues ...... 10,572,185 16,636,774 6,965,344 821,799 34,996,102 Segment result...... (2,291,840) (1,469,720) 8,284,541 (94,036) 4,428,945 Operating profit ...... 4,428,945 Income from associates ...... – Profit before tax ...... 4,428,945 Income tax expense...... 11112 (261,431) Net profit for the year...... 11112 4,167,514 Segment assets...... 75,513,911 296,935,974 221,485,573 7,077,160 601,012,618 Associates ...... 6,024 6,024 Unallocated assets ...... 11112 2,867,182 Total assets ...... 603,885,82411112 Segment liabilities ...... 203,513,604 126,370,829 220,503,096 5,187,762 555,575,291 Unallocated liabilities ...... 11112 2,284,757 Total liabilities ...... 557,860,04811112 Capital expenditure...... 1,070,644 18,461 96,770 1,308,664 2,494,539 Depreciation ...... 671,999 27,113 29,957 1,003,637 1,732,706 Impairment charge ...... 1,083,723 6,577,695 453,514 – 8,114,932 Other non-cash expenses...... –––––

Retail Corporate Financial banking banking markets Other Group As at December, 2004 Total segment revenue...... 10,085,877 17,234,147 5,774,946 518,351 33,613,321 Inter-segment revenue ...... ––––– Revenues ...... 10,085,877 17,234,147 5,774,946 518,351 33,613,321 Segment result...... (1,128,895) 3,036,975 3,594,007 (509,027) 4,993,060 Operating profit ...... 4,993,060 Income from associates ...... 313,409 313,409 Profit before tax ...... 5,306,469 Income tax expense...... 11112 (1,371,728) Net profit for the year...... 111123,934,741 Segment assets...... 65,907,008 262,916,508 150,901,833 6,287,497 486,012,846 Associates ...... 2,734,530 2,734,530 Unallocated assets ...... 11112 2,362,324 Total assets ...... 491,109,70011112 Segment liabilities ...... 199,361,981 110,828,359 138,884,950 1,515,782 450,591,072 Unallocated liabilities ...... 11112 2,469,454 Total liabilities ...... 453,060,52611112 Capital expenditure...... 1,797,811 35,710 46,762 1,157,116 3,037,399 Depreciation ...... 606,544 38,570 17,775 939,748 1,602,637 Impairment charge ...... 905,639 2,441,908 18,452 – 3,365,999 Other non-cash expenses...... –––––

F-40 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

5 Net interest income

2005 2004 Interest income Loans and advances...... 20,174,143 20,088,649 Investment securities ...... 2,928,787 2,709,207 Trading securities...... 1,834,771 1,524,042 Cash and short-term funds ...... 102,275 132,337 Other...... 111121 223,484 111121 446,842 25,263,460 24,901,077 111121 111121 Interest expense Banks and customers ...... 8,229,156 9,801,068 Debt securities in issue...... 1,815,954 2,058,150 Other borrowed funds...... 2,833,069 2,201,967 Other...... 111121 39,728 111121 50,479 12,917,907 14,111,664 111121 111121

6 Fee and commission income and expense

1111Income111111 1111 Expense111111 2005 2004 2005 2004 Enterprises ...... 4,380,000 4,079,985 360,479 313,288 Banks ...... 54,035 59,529 124,330 102,739 Citizens ...... 5,029,153 4,386,728 889,917 827,645 Foreigners...... 11112 44,812 11112 38,699 11112 – 11112 – Total...... 9,508,000 8,564,941 1,374,726 1,243,672 11112 11112 11112 11112

7 Dividend income

2005 2004 Trading securities...... 437,541 178,887 Available-for-sale securities ...... 111121 302,220 111121 327,146 739,761 506,033 111121 111121

8 Net trading income

2005 2004 Foreign exchange translation losses ...... (101,190) (2,677) Foreign exchange gains ...... 325,622 577,855 Net gains from securities: • Interest rate instruments ...... 233,033 (6,572) • Equity holdings ...... 659,794 1,202,357 Unrealised losses of securities • Trading ...... 111121 (97,013) 111121 (504,287) 1111211,020,246 111121 1,266,676

F-41 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

9 Gains less losses from investment securities

2005 2004

Realised available-for-sale ...... 112112 3,593,481 112112 83,106 3,593,481 83,106 112112 112112

The gain on the disposal of the investment in an associate NFD d.o.o., Ljubljana to the amount of SIT 3,588,431 thousand is included within gains from investment securities in year 2005.

10 Operating expenses

Note 2005 2004 Staff costs ...... 11 6,398,290 5,622,789 Professional services ...... 2,944,960 2,655,804 Advertising and marketing ...... 573,015 529,864 Administrative expenses ...... 629,037 447,267 Depreciation ...... 22 1,732,706 1,602,637 Software development costs ...... 553,063 509,163 Profit on sale of property and equipment ...... (32,298) (33,758) Rent payable ...... 62,550 2,081 Other...... 112112 651,757 112112 418,894 13,513,080 11,754,741 112112 112112

11 Staff costs

2005 2004 Wages and salaries...... 5,408,920 5,002,517 Social security costs ...... 281,642 257,794 Pension costs ...... 342,225 314,150 Provisions for employee benefits ...... 112112 365,503 112112 48,328 6,398,290 5,622,789 112112 112112 The number of people employed by the Group at 31 December ...... 112112 879 112112 841

12 Impairment losses

Note 2005 2004 Loans and advances to banks ...... 16 16,103 (69,980) Loans and advances to customers ...... 19 5,315,145 2,510,760 Other assets...... 23 (258,461) 40,293 Other long term provisions ...... 29 999,694 – Guarantees and commitments ...... 29 1,189,901 697,219 Bad debts written off directly ...... 1,015,763 341,423 Recoveries on loans previously written off ...... 112112 (163,213) 112112 (153,716) 8,114,932 3,365,999 112112 112112

F-42 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

13 Tax expense

2005 2004 Current tax ...... 1,906,989 1,375,664 Deferred tax (credit)/charge...... (1,645,558) (59,272) Other tax...... 112112 – 112112 55,336 ...... 261,431 1,371,728 112112 112112 Reported profit before tax...... 112112 4,428,945 112112 5,306,469 Prima facie tax calculated at a tax rate of 25% (2004: 25%) ...... 1,107,236 1,326,617 Income not assessable for tax ...... (990,979) (364,316) Expenses not deductible for tax purposes ...... 145,174 354,091 Other tax...... 112112 – 112112 55,336 Tax expense...... 261,431 1,371,728 112112 112112

The other tax item includes balance sheet tax, which was abolished in 2005.

The tax authorities carried out a full scope tax audit at the Bank for the years 1999 and 2000.

In accordance with local regulations, the tax authorities may at any time inspect the Bank’s books and records within 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Bank’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

14 Cash and balances with central bank

2005 2004 Cash in hand ...... 3,291,975 3,159,560 Obligatory reserve ...... 8,274,844 4,260,818 Other...... 112112 – 112112 287,692 11,566,819 7,708,070 112112 112112 Included in cash and cash equivalents (Note 36)...... 3,291,975 3,447,252 112112 112112

Obligatory reserve is not available for financing the Group’s day-to-day operations. The obligatory reserve was calculated in 2004 as follows: 4.5% of demand and time deposits up to three months; 2% of time deposits from three months up to two years and 0% of time deposits over two years. The current rates of obligatory reserve are: 2% of demand and time deposits up to two years and 0% of time deposits over two years. The Group maintains sufficient liquid assets to fully comply with the central bank’s requirements.

F-43 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

15 Treasury bills and other eligible bills

2005 2004 Available for sale: Central bank bills ...... 67,715,717 61,373,701 Other eligible bills ...... 112112 – 112112 483,553 67,715,717 61,857,254 Trading: Central bank bills ...... 10,000,000 – Other eligible bills ...... 112112 5,958,640 112112 – 15,958,640 – 83,674,357112112 61,857,254112112 Included in cash and cash equivalents (Note 36)...... 56,744,538 60,333,913 112112 112112

Central bank bills are debt securities issued by the Bank of Slovenia. The whole amount is due in 2006. Other eligible bills are securities issued by the Slovene Government falling due in 2006.

Movements in available-for-sale treasury bills and other eligible bills are as follows:

2005 2004 Available- Available- for-sale for-sale As at 1 January ...... 61,857,254 70,524,599 Exchange differences on monetary assets ...... 358,564 89,733 Additions...... 384,447,001 160,664,930 Disposals ...... (378,947,102)11212312 (16 113211229,422,008) As at 31 December ...... 67,715,717 61,857,254 11212312 11321122

16 Loans and advances to banks

2005 2004 Items in the course of collection from other banks ...... 238,412 240,118 Placements with other banks ...... 6,709,157 2,755,427 Loans and advances to other banks...... 46,937,869112112 32,356,954112112 53,885,438 35,352,499

Provision for impairment...... 112112 (267,016) 112112 (250,913) 53,618,422 35,101,586 112112 112112 Included in cash and cash equivalents (Note 36)...... 45,129,126112112 31,579,753112112

Movements in provisions for impairment are as follows:

Note As at 1 January, 2004 ...... 320,893 Provision for impairment...... 12 (69,980) As at 31 December, 2004 ...... 250,913 Provision for impairment...... 1211212312 16,103 As at 31 December, 2005 ...... 267,016 11212312

F-44 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

17 Trading securities 2005 2004 Government bonds – listed ...... 15,475,510 210,728 Other debt securities – listed...... 511,090 25 – unlisted...... 95,000 1,811,858 Equity securities – listed...... 5,379,749 8,008,279 – unlisted...... 112112 1,956,696 111123,832,199 23,418,045 13,863,089 112112 11112

18 Derivative financial instruments The Group uses the following derivative instruments for non-hedging purposes: Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions. Currency swaps are commitments to exchange one set of cash flows for another. Currency swaps result in an economic exchange of currencies. No exchange of principal takes place, except for certain currency swaps. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities. Foreign currency options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of a foreign currency at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption of foreign exchange risk. Options are negotiated between the Group and a customer (OTC). The Group is exposed to credit risk on purchased options only, and only to the extent of their carrying amount, which is their fair value. The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in foreign exchange rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time. The fair values of derivative instruments held are set out below. 111111Fair11 values11121 Contract/ notional amount Assets Liabilities As at 31 December 2005 Derivatives held for trading Foreign exchange derivatives (OTC): Currency forwards ...... 9,269,945 190,086 184,931 Currency swaps...... 15,709,664 1,356 2,097 OTC currency options bought and sold ...... 21,148,55611212312 466 11212312 – Total derivative assets/(liabilities) held for trading ...... 191,908 187,028 11212312 11212312

F-45 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

111111Fair11 values11121 Contract/ notional amount Assets Liabilities As at 31 December, 2004 Derivatives held for trading Foreign exchange derivatives (OTC): Currency forwards ...... 11,356,001 349,383 378,780 Currency swaps...... 15,180,257 167 1,854 OTC currency options bought and sold ...... 43,334,07311212312 905 11212312 – Total derivative assets/(liabilities) held for trading ...... 350,455 380,634 11212312 11212312

19 Loans and advances to customers

2005 2004 Loans to corporate entities: – overdrafts ...... 2,977,021 2,748,561 – credit cards ...... 179,927 186,801 – term loans...... 305,357,945 269,347,608 – other...... 754,563 764,084 Loans to individuals: – overdrafts ...... 6,366,525 5,867,122 – commercial loans ...... 46,080,827 37,721,634 – term loans ...... 11212312 21,213,049 11212312 16,936,398 Gross loans and advances ...... 382,929,857 333,572,208 Provision for impairment...... 11212312 (21,289,458) 11212312 (15,974,313) 361,640,399 317,597,895 11212312 11212312

There is no significant difference between the fair value and the carrying value of the loans and advances to customers.

Movements in provisions for impairment are as follows: Note As at 1 January, 2004 ...... 13,051,775 Acquisition during the year ...... 411,778 Provision for impairment...... 12 2,510,760 As at 31 December, 2004 ...... 15,974,313 Provision for impairment...... 1211212312 5,315,145 As at 31 December, 2005 ...... 21,289,458 11212312

F-46 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

All loans were written down to their recoverable amounts. Economic sector risk concentrations within the customer loan portfolio were as follows:

2005 % 2004 % Government bodies...... 2,920,709 0.8 9,420,075 2.8 Manufacturing ...... 148,761,878 38.8 116,835,741 35.0 Agriculture ...... 5,051,261 1.3 3,309,056 1.0 Private individuals...... 69,139,865 18.1 56,433,962 16.9 Services ...... 148,718,596 38.8 144,264,318 43.2 Other ...... 11212312 8,337,548 11212312 2.2 11212312 3,309,056 11212312 1.0 Gross loans and advances ...... 382,929,857 333,572,208 Provision for impairment ...... 11212312 (21,289,458) 11212312 11212312 (15,974,313) 11212312 361,640,399 100 317,597,895 100 11212312 11212312 11212312 11212312

Geographic sector risk concentrations within the customer loan portfolio were as follows:

2005 % 2004 % Slovenia ...... 350,258,992 97 309,657,482 97 Other European countries...... 11212312 11,381,407 11212312 3 11212312 7,940,413 11212312 3 361,640,399 100 317,597,895 100 11212312 11212312 11212312 11212312

Loans and advances are further analysed in the following notes: Currency risk (Note 2.5), Interest rate risk (Note 2.6), Liquidity risk (Note 2.7), Fair value (Note 2.8) and Related party (Note 38).

20 Investment securities

2005 2004 Securities available-for-sale Debt securities – at fair value: – listed...... 35,905,540 20,574,108 – unlisted...... 5,006,661 5,148,891 Equity holdings – at fair value: – listed...... – – – unlisted...... 11212312 1,676,595 11212312 688,429 Equities – at fair value: – listed...... 3,904,426 – – unlisted...... 11212312 4,276,945 11212312 – Total securities available-for-sale...... 50,770,167 26,411,428 11212312 11212312 Securities held-to-maturity Debt securities – at amortised cost: – listed...... – – – unlisted...... 11212312 – 11212312 9,291,113 Total held-to-maturity securities ...... 11212312 – 11212312 9,291,113 1121231250,770,167 11212312 35,702,541

The carrying value of held-to-maturity securities approximates their fair value.

F-47 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Included in debt securities were securities pledged under repurchase agreements concluded with other customers whose value at 31 December, 2004 was SIT 3,160,972 thousand. Movements in investment securities are as follows:

2005 2005 2004 2004 Available- Held-to- Available- Held-to- for sale maturity for-sale maturity As at 1 January...... 26,411,428 9,291,113 16,309,587 8,309,651 Exchange differences on monetary assets.... 50,250 – (11,278) – Additions ...... 63,484,201 – 12,773,449 981,462 Disposals (sale and redemption) ...... (38,286,306) (9,291,113) (2,684,920) – Change in fair value ...... 111112 (889,406) 111112 – 111112 24,590 111112 – As at 31 December ...... 50,770,167 – 26,411,428 9,291,113 111112 111112 111112 111112

Disposal of HTM securities relates to government bonds which were redeemed based on the discretion of the government.

21 Investment in associates

2005 2004 Beginning of the year...... 2,734,530 2,789,615 Additions/(Disposals)...... (2,728,461) (368,494) Share of profits in respect of previous years ...... (45) – Share of profits for the current year ...... 111112 – 111112 313,409 6,024 2,734,530 111112 111112

The principal associates, which are unlisted are:

Country of % 2005 incorporation Assets Liabilities Revenues Profit/(Loss) interest held Name Argolina d.o.o., Ljubljana ...... Slovenia 2,932,862 2,908,687 0 0 25.1

Country of % 2004 incorporation Assets Liabilities Revenues Profit/(Loss) interest held Name NFD d.o.o., Ljubljana ...... Slovenia 8,504,854 132,071 1,640,107 802,313 44.4 Argolina d.o.o., Ljubljana ...... Slovenia 2,734,794 2,710,616 2,580 164 25.1

In year 2005 Abanka d.d. disposed of an investment in associate NFD d.o.o., Ljubljana and realized gain from investment securities in amount of SIT 3,588,431 thousand.

F-48 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

22 Property and equipment Non- Assets current Land and Other under Intangible assets held buildings Computers equipment construction fixed assets for sale Total

As at 31 December, 2004 Cost or revalued cost...... 9,503,548 2,220,441 4,076,929 318,012 1,845,958 – 17,964,888 Accumulated depreciation...... 1111 3,523,524 1111 1,769,357 11112,810,679 1111– 1111762,169 1111–8,865,729 1111 Net book amount ...... 1111 5,980,024 1111 451,084 11111,266,250 1111 318,012 11111,083,789 1111 – 1111 9,099,159 Cost or valuation As at 1 January, 2005 ...... 9,503,548 2,220,441 4,076,929 318,012 1,845,958 – 17,964,888 Additions...... 785,306 474,095 1,269,409 150,205 568,995 219,253 3,467,263 Disposals ...... (305,327) (228,000) (410,673) – (116,407) – (1,060,407) As at 31 December, 2005 ...... 1111 9,983,527 1111 2,466,536 11114,935,665 1111 468,217 11112,298,546 1111 219,253 111120,371,744 Depreciation As at 1 January, 2005 ...... 3,523,524 1,769,357 2,810,679 – 762,169 –8,865,729 Depreciation (Note 10) ...... 441,776 382,798 535,230 – 372,902 – 1,732,706 Additions...... 59,313 522 176,574 – 7,024 – 243,433 Disposals ...... 1111 (298) 1111 (224,177) 1111 (256,162) 1111 – 1111 (39,641) 1111 – 1111(520,278) As at 31 December, 2005 ...... 1111 4,024,315 11111,928,500 11113,266,321 1111 – 11111,102,454 1111 – 111110,321,590 Net book amount as at 31 December, 2005 ...... 1111 5,959,212 1111538,036 11111,669,344 1111468,217 11111,196,092 1111219,253 111110,050,154 Assets Land and Other under Intangible buildings Computers equipment construction fixed assets Total As at 31 December, 2003 Cost or revalued cost ...... 9,012,007 2,012,883 3,526,200 652,047 1,284,670 16,487,807 Accumulated depreciation ...... 11111 3,553,554 11111 1,581,942 11111 2,576,012 11111 – 11111 472,770 11111 8,184,278 Net book amount ...... 5,458,453 430,941 950,188 652,047 811,900 8,303,529 11111 11111 11111 11111 11111 11111 Cost or valuation As at 1 January, 2004 ...... 9,012,007 2,012,883 3,526,200 652,047 1,284,670 16,487,807 Additions ...... 1,521,681 431,179 821,803 – 596,771 3,371,434 Disposals ...... 11111 (1,030,140) 11111 (223,621) 11111 (271,074) 11111 (334,035) 11111 (35,483) 11111 (1,894,353) As at 31 December, 2004...... 9,503,548 2,220,441 4,076,929 318,012 1,845,958 17,964,888 11111 11111 11111 11111 11111 11111 Depreciation As at 1 January, 2004 ...... 3,553,554 1,581,942 2,576,012 – 472,770 8,184,278 Depreciation (Note 10) ...... 412,681 410,276 492,951 – 286,729 1,602,637 Additions ...... 159,943 – 11,281 – 5,750 176,974 Disposals ...... 11111 (602,654) 11111 (222,861) 11111 (269,565) 11111 – 11111 (3,080) 11111 (1,098,160) As at 31 December, 2004...... 3,523,524 1,769,357 2,810,679 – 762,169 8,865,729 11111 11111 11111 11111 11111 11111 Net book amount as at 31 December, 2004 ...... 5,980,024 451,084 1,266,250 318,012 1,083,789 9,099,159 11111 11111 11111 11111 11111 11111

F-49 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

23 Other assets

2005 2004 Investment property...... 107,178 128,764 Due from customers ...... 228,571 247,300 VISA card receivables ...... 181,087 1,758,102 Inventories...... 81,355 72,040 Prepayments ...... 2,629,834 1,982,013 Receivables from factoring ...... 2,879,076 2,109,173 Court receivables...... – – Receivables from foreign exchange dealing ...... 1,594,009 222,961 Prepaid taxes ...... 16,341 46,674 Other receivables: • Citizens...... 282,524 21,507 • Debtors...... 68,076 22,515 • Cheques ...... 30,497 96,666 Other...... 11111 313,178 11111 308,060 8,411,726 7,015,775 11111 11111

Movements in provisions for impairment are as follows:

Note As at 1 January, 2004 ...... 1,530,889 111211

Acquisition during the year ...... 5,171 Provision for impairment ...... 1211111 40,293 As at 31 December, 2004 ...... 1,576,353 111211

Provision for impairment ...... 12111211 (258,461) As at 31 December, 2005 ...... 1,317,892 111211

24 Deposits from banks

2005 2004

Deposits from other banks ...... 111211 12,755,642 111211 4,760,065 12,755,642 4,760,065 111211 111211

25 Other deposits

2005 2004 Certificates of deposit (falling due: 2006 to 2011, interest rate: 1.90% - 6.20%) ...... 11,702,707 4,913,330 Subordinated deposits ...... 111211 – 111211 207,429 11,702,707 5,120,759 111211 111211

Subordinated deposits are deposits with the instances of debt instruments and form a part of supplementary regulatory capital.

F-50 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

26 Due to customers

2005 2004 Large corporate customers: – current/settlement accounts ...... 20,970,551 16,976,709 – term deposits ...... 125,006,850 90,464,035 Small and medium sized enterprises: – current/settlement accounts ...... 12,085,581 11,033,668 – term deposits ...... 20,135,013 16,696,791 Retail customers: – current/demand accounts ...... 73,528,797 68,343,948 – term deposits ...... 120,641,444111211 121,834,511112113 372,368,236 325,349,664 111211 111211

27 Debt securities in issue Interest rate on 31 December 2005 2004 Short–term tolar debt securities...... 21,880 19,182 Foreign currency denominated certificates of deposit ...... – 2,295,457 Bonds 3rd issue due 1 November, 2005 in EUR ...... 5% – 1,692,186 Bonds 4th issue due 1 June, 2007 in EUR...... 6.25% 2,408,124 2,409,806 Bonds 5th issue due 15 April, 2006 in EUR ...... 6% 2,425,387 2,426,695 Bonds 6th issue due 15 May, 2009 in EUR...... 5.9% 3,257,722 3,259,997 Bonds 7th issue due 21 May, 2010 in EUR...... 5.3% 4,168,181 4,171,094 Bonds 8th issue due 1 March, 2011 in EUR ...... 4.9% 2,494,172 2,495,534 Bonds 9th issue due 1 March, 2011 in EUR ...... 4.7% 2,490,155 2,491,529 Bonds 10th issue due 1 October, 2011 in EUR ...... 4.6% 5,089,421 5,092,982 Bonds 11th issue due 1 December, 2010 in SIT...... 4.0% 4,995,353 – Bonds 12th issue due 12 December, 2010 in SIT...... 3.8% 4,983,663 – DEM-denominated 4m fixed rate notes falling due in 2005 10% – 31,413 DEM-denominated 5m fixed rate notes falling due in 2006 7.5% 78,724 158,636 DEM-denominated 4m fixed rate notes falling due in 2007 7% 126,080 189,253 EUR-denominated 2m fixed rate notes falling due in 2008.. 6% 184,674 246,403 EUR-denominated 2m fixed rate notes falling due in 2009.. 5.5% 243,655 305,292 EUR-denominated 2m fixed rate notes falling due in 2010.. 6.2%111211 300,130 111211 360,775 33,267,321 27,646,234 111211 111211

There is no significant difference between the fair value and the carrying value of the debt securities in issue.

28 Other borrowed funds 112311111113112005 1111111111311 2004 Short-term Long-term Short-term Long-term From other banks: – in local currency...... – 176,000 – 1,202,935 – in foreign currency...... 111211 16,604,730 111211 95,562,578 111211 18,940,359 111211 59,354,439 11121116,604,730 111211 95,738,578 111211 18,940,359 111211 60,557,374 112,343,308 79,497,733 111211 111211

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Other borrowed funds are further analysed as part of the balance sheet in the following notes: Currency risk (Note 2.5), Interest rate risk (Note 2.6), Liquidity risk (Note 2.7), Fair value (Note 2.8) and Related party transactions (Note 38). 29 Other liabilities 2005 2004 Current taxes ...... 1,332,174 454,627 Creditors ...... 690,839 461,237 Liabilities from factoring ...... 2,917,905 2,048,987 Liabilities to VISA centre ...... 399,209 381,803 Prepayments ...... 37,192 31,305 Liabilities to employees ...... 223,937 204,517 Provisions for employee benefits ...... 658,755 317,384 Provisions for guarantees and commitments (Note 31) ...... 2,709,336 3,574,177 Other provisions...... 3,054,436 – Cash in transit ...... 242,972 121,335 Items in course of payment...... 1,719,900 249,587 Other ...... 111211 397,443 111211 1,089,086 14,384,098 8,934,045 111211 111211

Commitments Provisions for and Other employee Note contingencies provisions benefits

As at 1 January, 2004 ...... 2,876,958 – 287,185 Additional provisions ...... 12,11 697,219 – 48,328 Utilised during year...... – – (18,129) As at 31 December, 2004 ...... 3,574,177 – 317,384 Additional provisions ...... 12,11 1,189,901 999,694 365,503 Utilised during year...... – – (24,132) Transfer to other provisions ...... 111211 (2,054,742) 111211 2,054,742 111211 – As at 31 December, 2005 ...... 2,709,336 3,054,436 658,755 111211 111211 111211 30 Deferred tax Deferred income tax is calculated on all temporary differences under the liability method using an effective tax rate of 25% (2004: 25%). Movements in the deferred tax account are as follows:

Deferred tax liability 2004 Movement 2005 Available-for-sale investments ...... 184,291 283,002 467,293 Other...... – 384,415 384,415 Trading securities ...... 625,453 (625,453) – Loan loss provisions ...... 11111 561,648 11111 (561,648) 11111 – 1,371,392 (519,684) 851,708 11111 11111 11111 Deferred tax assets Available-for-sale investments ...... – 24,544 24,544 Trading securities ...... – 170,507 170,507 Provisions ...... – 230,300 230,300 Other...... – 112,452 112,452 Provisions for employee benefits ...... 11111 79,346 11111 (79,346) 11111 – 79,346 458,457 537,803 11111 11111 11111

F-52 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

31 Contingent liabilities and commitments

(a) Legal Proceedings

As at 31 December, 2005 and 31 December, 2004, there were some legal proceedings against the Group, however Bank management considers that the provision booked is appropriate and no further loss is expected.

(b) Capital commitments

As at 31 December, 2005 and 31 December, 2004, the Group had no capital commitments in respect of building and equipment purchases.

(c) Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to customers upon request. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet their obligations to third parties, carry the same credit risk as loans, documentary and commercial letters of credit, (which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions) and are collateralised by the underlying shipments of goods to which they relate and therefore involve significantly less risk. Cash requirements under guarantees and standby letters of credit are considerably lower than the amount of the commitment, because the Group does not generally expect the third party to draw funds under the agreement.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in the amount equal to the total unused commitments. However, the likely amount of loss, though not easy to quantify, is considerably lower than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards.

While there is some credit risk associated with the remainder of commitments, the risk is viewed as modest, since it results from the possibility of unused portions of loan authorisations being drawn by the customer and, secondly, from these drawings subsequently not being repaid when due. The Group monitors the term to maturity of credit commitments, because long-term commitments generally involve greater credit risk than short-term ones. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being financed.

The following table indicates the contractual amounts of the Bank’s guarantees and commitments to extend credit to customers:

Guarantees and commitments Note 2005 2004 Guarantees and commitments to extend credit ...... 123,578,113 153,707,186 Documentary and commercial letters of credit ...... 111211 5,320,427 111211 6,972,015 128,898,540 160,679,201 111211 111211 Provision for guarantees and commitments ...... 29 – Legal proceedings ...... (2,054,742) (1,822,360) – Other ...... 111211 (3,459,030) 111211 (1,751,817) 123,384,768 157,105,024 111211 111211

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

(d) Assets pledged

Assets are pledged mainly as collateral.

2005 2004

Government bonds ...... 111211 – 111211 3,160,972 – 3,160,972 111211 111211

32 Acquisitions and minority interest

2005 2004 As at 1 January ...... 192,031 199,069 Share of net (loss)/profit of subsidiaries ...... (35,883) 33,057 Minority interest in subsidiaries acquired...... 111211 (53,439) 111211 (40,095) As at 31 December ...... 102,709 192,031 111211 111211 Movements in minority interest are as follows: As at 1 January ...... 192,031 199,069 Minority interest in subsidiaries acquired...... 111211 (89,322) 111211 (7,038) As at 31 December ...... 102,709 192,031 111211 111211

Decrease in minority interest relates to additional 2.7% share increase in subsidiary Aleasing d.o.o.

In July 2004 Abanka Vipa acquired assets and assumed liabilities from Panonka savings co-operative (HKS Panonka). The difference between assets and liabilities was covered through the income statement of Abanka Vipa.

The details of the assets and liabilities acquired are as follows:

2004 Loans and advances to customers ...... 757,641 Other assets ...... 202,607 Borrowed funds ...... (1,087,873) Other liabilities ...... 111211 (7,749) Net (liabilities)/assets...... (135,374) 111211 Share of net (liabilities)/assets acquired ...... 111211 – Consideration paid ...... –111211

33 Share capital The Bank’s share capital is comprised of 5,500,000 authorised shares with a nominal value of SIT 1,000 each, of which 100.0% are ordinary shares with voting rights. All shares issued are fully paid. Shareholders with a holding in excess of 5% of the issued share capital are as follows:

Zavarovalnica Triglav Group ...... 32.9% FMR d.d...... 9.8% HIT d.d. Nova Gorica ...... 6.1% Ítajerski avtodom d.d...... 5.0%

In the normal course of its equity trading and market activities, the Group buys and sells its own shares. This is in accordance with the Bank’s By-Laws and in compliance with all aspects of the Slovene legislation.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Number of Ordinary Share Treasury Capitalisation shares shares premium shares of reserves Total As at 1 January, 2004 ...... 4,800,000 4,800,000 5,885,523 (65,136) 2,355,536 12,975,923 Purchase of treasury shares ...... –––(60,144) – (60,144) Sale of treasury shares ...... 11111 – 11111 – 11111 14,942 11111 29,832 11111 – 11111 44,774 As at 31 December, 2004...... 4,800,000 4,800,000 5,900,465 (95,448) 2,355,536 12,960,553 11111 11111 11111 11111 11111 11111 Issue of shares ...... 700,000 700,000 5,600,000 – – 6,300,000 Transfer ...... – – 2,355,536 – (2,355,536) – Purchase of treasury shares ...... –––(105,338) – (105,338) Sale of treasury shares ...... 11111 – 11111 – 11111 41,638 11111 136,736 11111 – 11111 178,374 As at 31 December, 2005...... 5,500,000 5,500,000 13,897,639 (64,050) – 19,333,589 11111 11111 11111 11111 11111 11111

34 Reserves and retained earnings

2005 2004 Statutory reserves ...... 550,000 480,000 Retained earnings ...... 23,312,015 21,689,127 Revaluation reserve ...... 111211 2,727,463 111211 2,727,463 Reserves ...... 26,589,478 24,896,590 111211 111211

In accordance with the Slovene legislation, at least 10% of the nominal value of the Bank’s share capital is required to be transferred to statutory reserves.

Movements in reserves and retained earnings are as follows:

Statutory Revaluation Retained reserve reserve earnings Total

As at 1 January, 2004 ...... 111211 480,000 111211 2,727,463 111211 18,625,644 111211 21,833,107 Net change in available-for-sale investments, net of tax – – 18,517 18,517 Dividends for 2003 ...... – – (859,945) (859,945) Net profit for the year ...... – – 3,901,684 3,901,684 Unpaid dividends ...... 111211 – 111211 – 111211 3,227 111211 3,227 As at 31 December, 2004 ...... 480,000 2,727,463 21,689,127 24,896,590 111211 111211 111211 111211 Net change in available-for-sale investments, net of tax ...... – – (1,172,408) (1,172,408) Other ...... – – (384,415) (384,415) Dividends for 2004 ...... – – (956,536) (956,536) Net profit for the year ...... – – 4,203,397 4,203,397 Transfer to statutory reserve ...... 70,000 – (70,000) – Unpaid dividends ...... 111211 – 111211 – 111211 2,850 111211 2,850 As at 31 December, 2005 ...... 550,000 2,727,463 23,312,015 26,589,478 111211 111211 111211 111211

F-55 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:06 pm – mac7 – 3585 Section 16 : 3585 Section 16

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

Net change in available-for-sale investments, net of tax includes:

Note 2005 2004 Net gains/(losses) from changes in fair value...... 20 (889,406) 24,590 Deferred tax ...... 3011111 (283,002) 11111 (6,073) (1,172,408) 18,517 11111 11111

Deferred tax liabilities as of 31 December 2005 have been calculated on the basis of the temporary differences at that date. Information for 2004 was not available and as such it was not practicable to calculate comparatives for 2004. Cumulative effect is included in 2005 balance.

35 Dividends per share Final dividends are not accounted for until they have been ratified at the Annual General Meeting. At the meeting in June 2006, a dividend in respect of 2005 of SIT 220 per ordinary share (2004: actual dividend SIT 200 per ordinary share) is to be proposed. The consolidated financial statements for the year ended 31 December, 2005 do not reflect this resolution, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December, 2006.

36 Cash and cash equivalents 2005 revised 2005 2004 revised 2004 Cash and balances with central banks – Note 14 3,291,975 3,291,975 3,447,252 3,447,252 Treasury bills and other eligible bills – Note 15 .. 56,744,538 78,704,905 60,333,913 758,762 Loans and advances to banks – Note 16 ...... 45,129,126 45,830,482 31,579,753 32,024,653 Trading securities – Note 17...... 0 7,522,210 0 13,863,089 Investment securities – Note 20 ...... 111112 0 111112 1,160,644 111112 0 111112 508,650 105,165,639 136,510,216 95,360,918 50,602,406 111112 111112 111112 111112

Equities included in trading securities and investment securities which do not meet the criteria according to IAS 7.7 are excluded in the revised version of cash and cash equivalents.

Treasury bills and other eligible bills, loans and advances to banks, governments bonds and other debt securities included in trading securities and investment securities were included in cash equivalents based on remaining contractual maturity, which is not in accordance with IAS 7.7. The revised calculation has been prepared in accordance with IAS 7.7 since treasury bills and other eligible bills, loans and advances to banks are included in cash equivalents based on the original contractual maturity.

37 Managed funds The Group manages assets totalling SIT 127,663,475 (2004: 140,429,091) on behalf of third parties. Managed fund assets are accounted for separately from those of the Group. Income and expenses of these funds are for the account of the respective fund and no liability falls on the Group in connection with these transactions. The Group is compensated for its services by fees chargeable to the funds.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

38 Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and deposits. The volume of transactions involving related parties for the year is as follows:

Members of the Board of directors and Entities with 1111111112344Supervisory Board 1111111112344 significant influence 1111111112344 Associates Type of related party 2005 2004 2005 2004 2005 2004 Loans Loans outstanding as at the beginning of year ...... 72,763 55,886 5,804,350 5,099,558 2,727,172 2,104,329 Loans issued during the year ...... 387 30,475 2,077,143 11,297,100 195,981 781,222 Loan repayments during the year...... 11112 (57,614) 11112 (13,598) 11112 (6,340,508) (10,592,308)11112 11112 (27,058) 11112 (158,379) Loans outstanding as at the end of year ...... 11112 15,536 11112 72,763 11112 1,540,985 11112 5,804,350 11112 2,896,095 11112 2,727,172 Interest income and fee earned...... 1,314 3,363 108,541 375,522 – 1,707 Deposits Deposits as at the beginning of year 492,220 319,708 2,905,885 5,449,509 – – Deposits received ...... 633,309 652,472 27,628,234 47,246,546 – – Deposits repaid ...... 11112 (953,752) 11112 (479,960) (27,510,477)11112 (49,790,170)11112 11112 – 11112 – Deposits as at the end of year ...... 11112 171,777 11112 492,220 11112 3,023,642 11112 2,905,885 11112 – 11112 – Interest expense on deposits...... 6,293 9,110 245,581 230,787 – – Foreign exchange trading...... Aggregated gain/(loss) ...... – – 0 276,839 – – Other revenue – fee income ...... – – 2,202 30,575 – 50 Guarantees issued by the Group ...... – – 44,394 1,097,878 – –

Related companies consist of the Board of directors and Supervisory Board, entities with significant influence and associates.

Remuneration

In 2005 total remuneration of the members of the Board of directors and Supervisory Board was SIT 70,605 thousand (2004: SIT 51,800 thousand).

39 Subsidiaries 2005 2004 Country % interest % interest Abancna DZU d.o.o., Ljubljana – unlisted ...... Slovenia 99.00 99.00 Afaktor d.o.o., Ljubljana – unlisted ...... Slovenia 100.00 100.00 Vogo Leasing d.o.o., Íempeter pri Novi Gorici – unlisted.... Slovenia 100.00 – Aleasing d.o.o., Slovenj Gradec – unlisted (former Eurofin Leasing)...... Slovenia 67.77 53.07

40 Post balance sheet events On 15 March, 2006 the Bank signed a EUR 180 million 5-year syndicated facility agreement. The funds will be disbursed in three tranches, in April and in May 2006.

On 7 February, 2006 the Bank increased its equity stake in Aleasing to 100%.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2005 (All amounts in SIT thousands unless otherwise stated)

41 Reconciliation of net profit and equity from local standards (SAS) to IFRS

2005 2004 Net profit in accordance with local standards ...... 4,875,501 4,227,969 Directors’ remuneration ...... – (51,800) Provisions for employee benefits ...... (341,371) (30,199) Deferred tax ...... (79,346) 7,550 Share of net profits in associates ...... – 193,040 Acquisition of subsidiary and disposal of associate company...... (1,181,416) (289,411) Minority interest (difference from SAS to IFRS)...... 3,076 – Fair value adjustment according to adopted IAS 39 ...... (260,148) (207,187) Deferred income taxes (IAS 39) ...... 111211 1,187,101 111211 51,722 Net profit attributable to equity holders of the Bank in accordance with IFRS ...... 4,203,397 3,901,684 111211 111211 Net profit in accordance with local standards ...... 4,875,501 4,227,969 Total adjustments ...... 111211 (672,104) 111211 (326,285) Net profit attributable to equity holders of the Bank in accordance with IFRS...... 4,203,397 3,901,684 111211 111211 Equity in accordance with local standards ...... 44,648,272 36,086,135 Treasury shares (taken as diminution of share capital in accordance with IFRS) ...... (64,050) (95,448) Directors’ remuneration ...... – (51,800) Provisions for employee benefits ...... (658,755) (238,038) Share of net profits in associates ...... – 357,003 Valuation of loans ...... 2,630,322 2,609,035 Valuation of securities and equity holdings ...... 218,986 – Deferred tax on valuation of securities and other...... 111211 (851,708) 111211 (809,744) Equity attributable to equity holders of the Bank in accordance with IFRS ...... 45,923,067 37,857,143 111211 111211 Equity in accordance with local standards ...... 44,648,272 36,086,135 Total adjustments ...... 111211 1,274,795 111211 1,771,008 Equity attributable to equity holders of the Bank in accordance with IFRS ...... 45,923,067 37,857,143 111211 111211

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AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2004

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004

PricewaterhouseCoopers d.o.o Cesta v Kleče 15 Sl-1000 Ljubljana, Slovenia Telephone: +386 1 5836 000 Facsimile: +386 1 5836 099 Matriculation No.: 5717159 VAT No.: SI35498161 AUDITORS’ REPORT

To the Shareholders and the Board of Abanka Vipa, d.d., Ljubljana

We have audited the accompanying consolidated balance sheet of Abanka Vipa and its subsidiaries (the “Group”) as of 31 December 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These financial statements (as set out on pages 9 to 46) are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2004, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Without qualifying our opinion, we draw your attention to Note 33 to the financial statements. Management has revised the previously issued 2004 consolidated financial statements on which we issued an audit report dated April 15, 2005 due to a reclassification within cash and cash equivalents with related impact to the cash flow statement.

PricewaterhouseCoopers d.o.o.

14 December 2006 Ljubljana

The company is registered by District court in Ljubljana under the number 12156800 as well in to the register of the Auditing companies by Slovene Audit Institute under the number RD-A-014. The amount of the registered share capital is SIT 8.340.000. The list of employed auditors is available at the registered office of the company.

References to page numbers in the first paragraph of the above report are to page numbers in the financial statements as originally published, and not as presented in this Prospectus.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Consolidated income statement

11Year11 ended11 311 December1111341 Note 2004 2003 Interest and similar income ...... 4 24,901,077 27,811,481 Interest expense and similar charges ...... 4111121 (14,111,664) 111121 (16,852,031) Net interest income ...... 10,789,413 10,959,450 Fee and commission income ...... 5 8,564,941 7,445,388 Fee and commission expense...... 5111121 (1,243,672) 111121 (967,962) Net fee and commission income ...... 7,321,269 6,477,426 Dividend income ...... 6 506,033 391,019 Net trading income ...... 7 1,266,676 3,609,629 Gains less losses from investment and originated securities.. 7a 107,696 (680,122) Other operating income ...... 111121 147,303 111121 72,575 Operating income ...... 20,138,390 20,829,977 Operating expenses ...... 8 (11,754,741) (11,023,541) Impairment losses ...... 10111121 (3,365,999) 111121 (3,051,244) Operating profit ...... 5,017,650 6,755,192 Income from associates ...... 18111121 313,409 111121 720,146 Profit before tax ...... 5,331,059 7,475,338 Tax expense...... 11111121 (1,377,801) 111121 (1,821,877) Profit after tax...... 3,953,258 5,653,461 Minority interest ...... 29111121 (33,057) 111121 (92,392) Net profit for the period ...... 3,920,201 5,561,069 111121 111121 EPS for profit attributable to the equity holders of the Bank, expressed in Slovenian tolars: – Basic ...... 820 1,144 – Diluted ...... 820 1,144

The accompanying notes are an integral part of these consolidated financial statements.

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Consolidated balance sheet

111As1 at1 311 December11111341 Note 2004 2003 ASSETS Cash and balances with central bank ...... 12 7,708,070 8,512,087 Treasury bills and other eligible bills...... 13 61,857,254 70,524,599 Loans and advances to banks ...... 14 35,101,586 23,111,121 Trading securities ...... 15 13,863,089 17,279,409 Loans and advances to customers ...... 16 317,597,895 276,994,997 Investment and originated securities ...... 17 35,702,541 25,671,023 Investments in associates...... 18 2,734,530 2,789,615 Property and equipment ...... 19 9,099,159 8,303,529 Deferred tax assets ...... 27 79,346 71,796 Other assets, including tax assets ...... 20111121 7,366,230 111121 6,145,501 Total assets ...... 491,109,700 439,403,677 111121 111121 LIABILITIES Deposits from banks ...... 21 4,760,065 7,826,635 Other deposits...... 22 5,120,759 8,391,811 Due to customers ...... 23 325,349,664 304,935,640 Debt securities in issue ...... 24 27,646,234 18,699,826 Other borrowed funds ...... 25 79,497,733 55,790,029 Deferred tax liabilities...... 27 1,371,392 1,417,041 Other liabilities, including tax liabilities ...... 26111121 9,314,679 111121 7,334,596 Total liabilities ...... 453,060,526111121 404,395,578111121 Minority interest ...... 29 192,031 199,069 111121 111121 EQUITY Share capital ...... 30 7,155,536 7,155,536 Share premium ...... 30 5,900,465 5,885,523 Less treasury shares...... 30 (95,448) (65,136) Reserves ...... 31111121 24,896,590 111121 21,833,107 Total equity...... 111121 37,857,143 111121 34,809,030 Total equity and liabilities...... 491,109,700 439,403,677 111121 111121

The accompanying notes are an integral part of these consolidated financial statements.

These financial statements have been approved for issue by the Management Board on 13 December 2006 and signed on its behalf by:

Management board

Radovan Jereb, M.Sc.Econ. Gregor Hudobivnik AlešŽajdela, M.Sc. Member Member President

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Consolidated statement of changes in equity

Share Share Treasury capital Premium shares Reserves Total At 1 January 2003 ...... 6,391,574 2,992,460 (107,676) 16,979,380 26,255,738 Dividends for 2002...... –––(720,000) (720,000) Net profit for the year ...... –––5,561,069 5,561,069 Issue of share capital ...... 763,962 2,880,137 – – 3,644,099 Purchase of treasury shares ...... – – (20,168) – (20,168) Sale of treasury shares ...... – 12,926 62,708 – 75,634 Treasury shares and unpaid dividends ...... –––11111 1111 1111 11112,658 111112,658 At 31 December 2003 ...... 1111 7,155,536 1111 5,885,523 1111 (65,136) 21,833,107 1111 34,809,030 1111 At 1 January 2004 ...... 7,155,536 5,885,523 (65,136) 21,833,107 34,809,030 Dividends for 2003...... –––(859,945) (859,945) Net profit for the year ...... –––3,920,201 3,920,201 Purchase of treasury shares ...... – – (60,144) – (60,144) Sale of treasury shares ...... – 14,942 29,832 – 44,774 Treasury shares and unpaid dividends ...... –––1111 1111 1111 11113,227 11113,227 At 31 December 2004 ...... 1111 7,155,536 1111 5,900,465 1111 (95,448) 24,896,590 1111 37,857,143 1111

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated cash flow statement

11Year11 ended11 311 December1111341 Note 2004 2003 Cash flow from operating activities Interest and commission received ...... 23,817,634 26,419,557 Interest paid ...... (12,478,403) (14,640,402) Dividends received ...... 506,033 391,019 Fee and commission received ...... 7,285,720 6,436,461 Net trading and other income ...... 1,215,238 3,198,154 Recoveries on loans previously written off ...... 153,716 119,136 Cash payments to employees and suppliers...... (9,376,376) (9,133,757) Income taxes paid ...... 111121 (1,536,509) 111121 (1,239,941) Cash flows from operating profits before changes in operating assets and liabilities ...... 9,587,053 11,550,227 Changes in operating assets and liabilities: Net decrease in trading securities ...... 2,401,038 6,035,045 Net decrease/ (increase) in loans and advances to banks .... 7,705 (2,146,641) Net (increase) in loans and advances to customers ...... (47,226,516) (65,229,936) Net (increase) in other assets...... (385,954) (1,802,291) Net (decrease) in deposits from other banks ...... (6,045,848) (866,402) Net (decrease)/ increase in other deposits ...... (3,225,790) 2,854,842 Net increase in amounts due to customers ...... 23,211,756 15,099,579 Net (decrease) in other liabilities...... 111121 (354,398) 111121 (5,382,844) Net cash used in operating activities ...... (22,030,954) (39,888,421) 111121 111121 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired...... – (60,000) Purchase of property and equipment...... (3,037,399) (2,504,807) Proceeds from sale of property and equipment ...... 63,256 154,228 Purchase of investment securities ...... (5,584,530) (2,829,244) Proceeds from sale of investment securities ...... 111121 5,845,574 111121 857,452 Net cash used in investing activities ...... (2,713,099) (4,382,371) 111121 111121 Cash flows from financing activities Proceeds from borrowed funds and debt securities ...... 95,128,568 35,998,538 Repayments of borrowed funds and debt securities ...... (62,976,306) (12,514,906) Issue of ordinary shares...... – 3,644,099 Purchase/sales of treasury shares ...... (30,312) 58,353 Dividends paid ...... 111121 (859,945) 111121 (723,583) Net cash from financing activities ...... 31,262,005 26,462,501 111121 111121 Effect of exchange rate changes on cash and cash equivalents ...... (411,113) 611,448 Net increase/(decrease) in cash and cash equivalents ...... 6,106,839 (17,196,843) Cash and cash equivalents at beginning of the year ...... 111121 89,254,079 106,450,922111121 Cash and cash equivalents at end of the year ...... 33 95,360,918 89,254,079 111121 111121

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES 1. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below:

1.1 Basis of presentation

The consolidated financial statements of Abanka Vipa d.d. Ljubljana (the Group) have been prepared in accordance with International Financial Reporting Standards. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of certain assets.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates.

The Group keeps its records in accordance with the Slovene banking legislation. These consolidated financial statements have been prepared based on those accounting records and adjusted as necessary in order to comply with International Financial Reporting Standards issued by the International Accounting Standards Board.

Since the 2004 and 2005 financial statements were published, the Management Board of the bank has revised the items cash and cash equivalents (Note 33). This has led to amendments to the following individual items in the Consolidated Cash Flow Statement: net decrease in trading securities, net decrease/(increase) in loans and advances to banks, net cash used in operating activities, purchase of investment securities, net cash used in investing activities, net increase/(decrease) in cash and cash equivalents, cash and cash equivalents at beginning of the year, cash and cash equivalents at end of the year.

In addition, the following disclosures were amended or added in the Consolidated Financial Statements: EPS, 1.4 (a) Functional and presentation currency, 2.6 Interest rate risk: Interest sensitivity of assets, liabilities and off balance sheet items; 2.8 Fair values of financial assets and liabilities: Investment securities carried at cost, Note 18 and Note 35.

1.2 Consolidation

(a) Subsidiaries

Subsidiaries, which are those companies and other entities in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated.

Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition, plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

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(b) Associates

Investments in associates are accounted for by the equity method of accounting. Under this method, the Group’s share of the post-acquisition profits or losses of associates is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment.

Associates are entities in which the Group has between 20% and 50% of the voting rights, and over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s principal associated undertakings is shown in Note 18.

1.3 Segment reporting

Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments.

1.4 Foreign currency translation

(a) Functional and presentation currency

The consolidated financial statements are presented in Slovene tolars, which is the entity’s functional and presentation currency.

(b) Transactions and balances

Income and expenditure arising in foreign currencies are translated into Slovene tolars at the official rates of exchange ruling at the transaction date. Gains and losses resulting from foreign currency translation and foreign currency dealings are included in the income statement for the year. Monetary assets and liabilities denominated in foreign currencies are translated into Slovene tolars at the midmarket exchange rate ruling on the last day of the accounting period and are included in the income statement as net foreign exchange gains or losses.

1.5 Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield method. Interest income includes coupons earned on fixed income investment and trading securities and accrued discount and premium on treasury bills and other discounted instruments. When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

1.6 Fee and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan origination fees for loans which are probable of being drawn down, are deferred

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(together with related direct cost) and recognised as an adjustment to the effective yield on the loan. Commission and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of business, are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Asset management fees related to investment funds are recognised rateably over the period the service is provided. The same principle is applied to wealth management, financial planning and custody services that are continuously provided over an extended period of time.

1.7 Trading securities

Trading securities are securities which were either acquired for generating a profit from short-term fluctuations (within a year) in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading securities are initially recognised at cost (which includes transactions costs) and subsequently re-measured at fair value, based on quoted bid prices. All related realised and unrealised gains and losses are included in net trading income. Interest earned whilst holding trading securities is reported as interest income. Dividends received are included separately in dividend income.

All purchases and sales of trading securities that require delivery within the time frame established by regulation or market convention are recognised at trade date, which is the date that the Group commits to purchase or sell the asset.

1.8 Investment and originated securities

The Group classifies its investment securities into the following three categories: held-to-maturity, originated securities and available-for-sale assets. Investment securities where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for- sale. Management determines the appropriate classification of its investments at the time of the purchase.

Investment securities are initially recognised at cost. Available-for-sale financial assets are subsequently re-measured at fair value based on quoted bid prices or amounts derived from cash flow models. Fair values of unquoted equity instruments are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in the income statement. When the securities are disposed of or impaired, the related accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

Held-to-maturity investments and originated securities are carried at amortised cost using the effective yield method, less any provision for impairment.

A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset’s carrying amount and the present value of expected future cash flows discounted at the financial instrument’s original effective interest rate. By comparison, the recoverable amount of an instrument measured at fair value is the present value of expected future cash flows discounted at the current market rate of interest for a similar financial asset.

Interest earned whilst holding investment securities is reported as interest income. Dividends receivable are included separately in dividend income when a dividend is declared. All regular way purchases and sales of investment securities are recognised at trade date, which is the date that the Group commits to purchase or sell the assets.

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1.9 Originated loans and provisions for loan impairment

Loans originated by the Group by providing money directly to the borrower or to a sub-participation agent at draw down are categorised as loans originated by the Group and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate those loans as is determinable by reference to market prices at origination date, and the book values approximate the fair value. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction. All loans and advances are recognised when cash is advanced to borrowers.

An allowance for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans.

The loan loss provision also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the balance sheet date. These have been estimated based upon the historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectable, it is written off against the related provision for impairments; subsequent recoveries are credited to the provision for loan losses in the income statement.

If the amount of the impairment subsequently decreases due to an event occurring after the write- down, the release of the provision is credited as a reduction of the provision for loan losses.

1.10 Other credit related commitments

In the normal course of its business, the Group enters into other credit related commitments including loan commitments, letters of credit and guarantees. The accounting policy and provisioning methodology is similar to that for loans noted above.

1.11 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 set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

1.12 Sale and repurchase agreements

Securities sold under sale and repurchase agreements (‘repos’) are retained in the consolidated financial statements as trading or investment securities and the counterparty’s liability is included in deposits from banks or customers as appropriate. Securities purchased under agreements to resell (reverse repos) are recorded as loans and advances to other customers. The difference between the sale and repurchase price is treated as interest and accrued evenly over the life of the repo agreements, using the effective yield method.

1.13 Computer software development costs

Costs associated with developing computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads.

Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of

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the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of 5 years.

1.14 Property and equipment

All property and equipment is carried at the appreciate valued amounts less subsequent impairment loss. Revaluations are based on the fair value of the assets. An upward revaluation of assets is credited directly to shareholders’ equity unless it reverses a decrease on the same assets previously charged to income. A downward revaluation is charged to expense unless there is a balance in the revaluation surplus arising from a previous upward revaluation of the same assets.

Depreciation is calculated on the straight line method to write down the cost of such assets to their residual values over their estimated useful lives as follows:

Buildings ...... 5% Equipment ...... 25% Vehicles...... 12.5% Computers ...... 50% Intangible fixed assets ...... 20%

Property and equipment are periodically reviewed for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. Repairs and renewals are charged to the income statement when the expenditure is incurred.

1.15 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with central banks, treasury bills and other eligible bills, amounts due from other banks, and securities.

1.16 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

1.17 Employee benefits – pension obligations

Abanka also manages a mutual pension fund. In 2002 Abanka’s Group and Individual Pension Insurance Schemes were aligned with the amended Pension and Disability Insurance Act. In November 2002 the Securities Market Agency issued the decision on approving the amendments to the Fund Management Rules, which enabled marketing of individual pension insurance. AIII VPS is fully aligned with the amended legislation. Apart from the contribution to the state pension schemes (8.85% of gross salaries) employees pay monthly contributions to AIII VPS.

1.18 Taxation

Taxation was provided for in the consolidated financial statements in accordance with the Slovene legislation currently in force. The charge for taxation in the income statement for the year comprises current tax and changes in deferred tax. Current tax is calculated on the basis of the expected taxable profit for the year, using the tax rates enacted at the balance sheet date.

Deferred income tax is provided in full using the balance sheet liability method for all temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the

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financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income tax payable on profits, based on the applicable tax law in each jurisdiction is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carrying forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

1.19 Borrowings

Borrowings are recognised initially at cost, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, which is defined as the fair value of cash consideration given to originate those borrowings as is determinable by reference to market prices at origination date.

1.20 Treasury shares

Own shares of the Bank held on the balance sheet date are stated as treasury shares. These shares are treated as a deduction from the shareholders’ equity. The gains and losses on sales of own shares are charged or credited to the share premium account.

1.21 Managed funds

The Bank manages a significant amount of assets on behalf of legal entities and citizens. A fee is charged for this service. These assets are not shown in the consolidated financial statements of the Group but details of the funds under management are given in Note 34.

1.22 Comparatives

Where necessary, comparative figures have been reclassified to conform with changes in presentation in the current year.

2. Financial risk management 2.1 Strategy in using financial instruments

By its nature, the Group’s activities are principally related to the use of financial instruments. The Group accepts deposits from customers mainly at floating rates and for various periods and seeks to earn above average interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due.

The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to corporate and retail borrowers with a range of credit standings. Such exposures involve only on-balance sheet loans and advances and guarantees and other commitments such as letters of credit and performance, and other bonds.

The Group also trades in financial instruments where it takes positions in traded instruments, including derivatives, to take advantage of short-term market movements in the equity and bond markets and in currency, interest rate and commodity prices. The Management Board places trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions.

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2.2 Credit risk

The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. 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 groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and are subject to an annual or more frequent review. Limits on the level of credit risk by product, industry sector and by country are approved by the Management Board.

Exposure to credit risk is 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. Exposure to credit risk is also managed in part by obtaining collateral as well as corporate and personal guarantees.

2.3 Geographical concentrations of assets, liabilities and off-balance-sheet items

Total Total Credit Capital assets liabilities commitments expenditure Slovenia ...... 453,001,019 365,846,054 140,309,373 3,037,399 European Union ...... 33,025,053 73,831,378 13,762,194 – Other former Yugoslavia...... 3,083,911 6,118,722 26,033 – Other ...... 111112 1,999,717 111112 7,264,372 111112 3,007,424 121111 – Total ...... 491,109,700 453,060,526 157,105,024 3,037,399 111112 111112 111112 121111 At 31 December 2003 Slovenia ...... 411,677,964 338,749,560 91,209,856 2,504,807 European Union ...... 23,026,100 53,602,459 – – Other former Yugoslavia...... 3,442,110 6,058,465 6,982 – Other ...... 111112 1,257,503 111112 5,985,094 111112 281,762 121111 – Total ...... 439,403,677 404,395,578 91,498,600 2,504,807 111112 111112 111112 121111

The Group operates principally in Slovenia, where it is based. Transactions with other countries are principally in the form of interbank relations. As an active participant in the international banking markets, the Group has a significant concentration of credit risk with other financial institutions. In total, credit risk exposure to financial institutions is estimated to have amounted to SIT 27,565,711 thousand at 31 December 2004 (SIT 16,922,088 thousand at 31 December 2003).

2.4 Market risk

The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Management Board sets limits on the value of risk that may be accepted, which is monitored on a daily basis.

2.5 Currency risk

The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by currency.

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Concentrations of assets, liabilities and off balance sheet items

EUR USD Tolars Other Total At 31 December 2004 Assets Cash and balances with central bank ...... 843,908 57,121 6,723,931 83,110 7,708,070 Treasury bills and other eligible bills 53,045,424 7,080,147 1,731,683 – 61,857,254 Loans and advances to banks...... 20,176,193 4,013,867 7,809,471 3,102,055 35,101,586 Trading securities ...... 124,312 143,687 13,366,271 228,819 13,863,089 Loans and advances to customers .. 102,260,280 1,942,544 211,610,223 1,784,848 317,597,895 Investment and originated securities 3,247,026 370,077 32,085,438 – 35,702,541 Investments in associates ...... – – 2,734,530 – 2,734,530 Property and equipment ...... – – 9,099,159 – 9,099,159 Deferred tax assets ...... – – 79,346 – 79,346 Other assets ...... 112112 401,088 112112 9,131 112112 6,954,453 112112 1,558 112112 7,366,230 Total assets...... 180,098,231 13,616,574 292,194,505 5,200,390 491,109,700 112112 112112 112112 112112 112112 Liabilities Deposits from banks ...... 1,035,676 96,585 2,388,803 1,239,001 4,760,065 Other deposits ...... – – 5,120,759 – 5,120,759 Due to customers ...... 96,082,017 12,085,066 213,465,554 3,717,027 325,349,664 Other borrowed funds – banks ...... 76,410,021 1,868,071 1,219,641 – 79,497,733 Debt securities in issue ...... 2,230,441 65,017 25,350,776 – 27,646,234 Other liabilities ...... 276,971 17,667 9,015,774 4,267 9,314,679 Deferred tax liability ...... 112112 – 112112 – 112112 1,371,392 112112 – 112112 1,371,392 Total liabilities ...... 176,035,126112112 14,132,406112112 257,932,699 112112 112112 4,960,295 453,060,526 112112 Net on-balance sheet position ...... 4,063,105 (515,832) 34,261,806 240,095 38,049,174 112112 112112 112112 112112 112112 Credit commitments...... 42,577,634112112 25,329,946112112 85,837,790112112 112112 3,359,654 157,105,024 112112 As at 31 December, 2003 Total assets...... 151,585,241 14,988,451 267,559,783 5,270,202 439,403,677 Total liabilities ...... 147,197,101112112 14,893,222112112 237,269,042 112112 112112 5,036,213 404,395,578 112112 Net on-balance sheet position ...... 4,388,140 95,229 30,290,741 233,989 35,008,099 112112 112112 112112 112112 112112 Credit commitments...... 18,456,910112112 112112 2,744,778 69,476,763112112 112112 820,149 91,498,600112112

2.6 Interest rate risk

Interest sensitivity of assets, liabilities and off balance sheet items

The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its financial position and cash flow risks. The table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

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Non- Up to 1 1-3 3-12 1-5 Over 5 interest month months months years years bearing Total

At 31 December 2004 Assets Cash and balances with central bank 287,692 – 4,305,400 – – 3,114,978 7,708,070 Treasury bills and other eligible bills 115,936 642,826 61,098,492 – – – 61,857,254 Loans and advances to banks ...... 31,763,782 258,917 – 3,078,887 – – 35,101,586 Trading securities ...... 175,618 – 248 314,426 1,532,319 11,840,478 13,863,089 Loans and advances to customers .... 31,673,308 29,700,036 117,327,594 79,827,513 59,069,444 – 317,597,895 Investment and originated securities – 531,733 1,696,242 16,307,808 16,478,329 688,429 35,702,541 Investments in associates ...... –––––2,734,530 2,734,530 Property and equipment ...... –––––9,099,159 9,099,159 Deferred tax assets ...... –––––79,346 79,346 Other assets...... 1111 96,666 1111 – 1111 – 1111 – 1111 – 1111 7,269,564 1111 7,366,230 Total assets ...... 1111 64,113,002 1111 31,133,512 184,427,976 1111 1111 99,528,634 1111 77,080,092 1111 34,826,484 491,109,700 1111 Liabilities Deposits from banks ...... 3,900,142 632,056 227,867 – – – 4,760,065 Other deposits...... 458,966 531,001 929,876 3,200,916 – – 5,120,759 Due to customers ...... 98,718,577 53,050,427 131,501,708 39,043,958 3,034,994 – 325,349,664 Other borrowed funds – banks ...... 3,306,727 23,694,312 50,149,881 2,346,813 – – 79,497,733 Debt securities in issue ...... 1,533,027 96,345 2,751,825 8,770,206 14,474,831 – 27,646,234 Other liabilities ...... – 11,120 – – – 9,303,559 9,314,679 Deferred tax liability ...... 1111––––– 1111 1111 1111 1111 11111,371,392 1111 1,371,392 Total liabilities ...... 107,937,4391111 1111 78,015,261 185,561,157 1111 1111 53,361,893 1111 17,509,825 1111 10,674,951 453,060,526 1111 Total interest sensitivity gap ...... (43,824,437)1111 (46,881,749)1111 1111 (1,133,181) 1111 46,166,741 1111 59,570,267 At 31 December 2003 Total assets ...... 62,536,384 89,665,812 124,511,288 82,461,201 38,938,310 41,290,682 439,403,677 Total liabilities...... 171,980,8641111 1111 58,602,330 1111 75,473,187 1111 74,996,567 1111 10,777,427 1111 12,565,203 404,395,578 1111 Total interest sensitivity gap ...... (109,444,480)1111 1111 31,063,482 1111 49,038,101 1111 7,464,634 1111 28,160,883

The table below summarises the effective interest rate by major currencies for monetary financial instruments:

% EUR USD SIT At 31 December 2004 Assets Cash and balances with central bank ...... – – 0.97 Treasury bills and other eligible bills ...... 2.04 1.45 5.51 Loans and advances to banks...... 1.99 1.22 4.03 Trading securities ...... – – 7.10 Loans and advances to customers ...... 3.31 3.60 8.43 Investment and originated securities...... 5.50 2.02 6.96 111 111 111 Liabilities Deposits from banks ...... 1.30 0.57 3.18 Other deposits ...... – – 5.56 Due to customers ...... 0.98 0.57 4.16 Debt securities in issue ...... 1.88 0.74 6.78 Other borrowed funds ...... 2.65 2.07 – 111 111 111

Assuming the financial assets and liabilities on hand at 31 December 2004 were to remain on hand until maturity or settlement without any action by the Group to alter the resulting interest rate risk exposure, a decrease of 1% in market interest rates across all maturities would reduce net income for the following year by approximately SIT 481,000 thousand, while a decrease of 1% in market interest rates across all maturities would reduce net income for the year 2003 by approximately SIT 438,000 thousand.

F-73 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

% EUR USD SIT At 31 December 2003 Assets Cash and balances with central bank ...... – – 1.00 Treasury bills and other eligible bills ...... 2.28 1.23 9.03 Loans and advances to banks...... 3.18 1.10 6.23 Trading securities ...... – – 8.63 Loans and advances to customers ...... 3.47 1.90 10.86 Investment and originated securities...... 5.19 – 11.45 111 111 111 Liabilities Deposits from banks ...... 0.41 0.47 5.40 Other deposits ...... – – 5.70 Due to customers ...... 1.30 0.85 6.13 Debt securities in issue ...... 2.02 0.94 8.57 Other borrowed funds ...... 2.80 – – 111 111 111

2.7 Liquidity risk

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain term and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, as many of these commitments will expire or terminate without being funded.

The table below analyses assets and liabilities of the Group into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date.

F-74 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Maturities of assets and liabilities

Non- Up to 1 1 - 3 3 - 12 1 - 5 Over 5 interest month months months years years bearing Total

At 31 December 2004 Assets Cash and balances with central bank 7,708,070–––––7,708,070 Treasury bills and other eligible bills 115,936 642,826 61,098,492 – – – 61,857,254 Loans and advances to banks ...... 32,022,667 46 – 3,078,873 – – 35,101,586 Trading securities ...... 13,863,089 – – – – – 13,863,089 Loans and advances to customers .. 32,891,552 34,238,968 117,826,420 76,814,092 55,826,863 – 317,597,895 Investment and originated securities 107,058 424,211 1,694,759 16,293,549 17,182,964 – 35,702,541 Investments in associates ...... –––––2,734,530 2,734,530 Other assets...... 3,943,945 83,903 1,808,863 1,182,566 346,953 9,099,159 16,465,389 Deferred tax assets ...... 11113–––– 11311 11131 11311 1131179,346 11131 - 11131 79,346 Total assets ...... 11113 90,652,317 11311 35,389,954 11131182,428,534 11311 97,369,080 11311 73,436,126 11131 11,833,689 11131491,109,700 Liabilities Deposits from banks ...... 3,948,666 652,089 159,310 – – – 4,760,065 Other deposits...... 458,966 531,001 929,876 3,200,916 – – 5,120,759 Due to customers ...... 190,462,754 56,903,294 35,937,529 39,039,841 3,006,246 – 325,349,664 Other borrowed funds – banks ...... – 5,161,402 13,724,116 60,612,215 – – 79,497,733 Debt securities in issue ...... 1,551,515 99,886 2,750,021 8,770,122 14,474,690 – 27,646,234 Other liabilities ...... 2,291,124 1,692,834 4,040,013 464,027 826,681 – 9,314,679 Deferred tax liability ...... 11113 – 11311 – 11131 – 11311 805,654 11311 565,738 11131 - 11131 1,371,392 Total liabilities ...... 11113 198,713,025 11311 65,040,506 11131 57,540,865 11311112,892,775 11311 18,873,355 11131 0 11131453,060,526 Net liquidity gap ...... (108,060,708)11113 11311 (29,650,552) 11131124,887,669 11311 (15,523,695) 11311 54,562,771 11131 11,833,689 11131 38,049,174 At 31 December 2003 Total assets ...... 81,828,613 90,605,974 129,529,281 87,261,106 50,178,703 0 439,403,677 Total liabilities...... 11113 163,529,280 11311 59,415,131 11131 82,388,908 11311 80,085,409 11311 11,988,767 11131 6,988,083 11131404,395,578 Net liquidity gap ...... 11113 (81,700,667) 11311 31,190,843 11131 47,140,373 11311 7,175,697 11311 38,189,936 11131 (6,988,083) 11131 35,008,099

2.8 Fair values of financial assets and liabilities

Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis.

Financial instruments held for trading and available for sale are measured at fair value. Originated loans and receivables and held to maturity assets are measured at amortised cost less impairment.

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

Loans and advances

Fair value of loans and advances is calculated based on discounted expected future principal and interest cash flows. Loan repayments are assumed to occur at contractual repayment dates, where applicable. For loans that do not have fixed repayment dates or that are subject to prepayment risk, repayments are estimated based on experience in previous periods when interest rates were at levels similar to current levels, adjusted for any differences in the interest rate outlook. Expected future cash flows are estimated considering credit risk and any indication of impairment. Expected future cash flows for homogeneous categories of loans, such as residential mortgage loans, are estimated on a portfolio basis and discounted at current rates offered for similar loans to new borrowers with similar credit profiles. The estimated fair values of loans reflect changes in credit status since the loans were made and changes in interest rates in the case of fixed rate loans. As the Bank has a limited portfolio of loans and advances with fixed rate and longer term maturity, the fair value of loans and advances is not significantly different from their carrying value.

F-75 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Investment securities carried at cost

Investment securities include only interest-bearing assets held-to-maturity, as assets available-for-sale are measured at fair value. For held-to-maturity investment securities a quoted market price is not available and fair value is estimated using discounted cash flow techniques. Estimated future cash flows are based on the discount rate which is a market related rate for securities with similar credit and maturity.

Bank and customer deposits

For demand deposits and deposits with no defined maturities, fair value is taken to be the amount payable on demand at the balance sheet date. The estimated fair value of fixed-maturity deposits is based on discounted cash flows using rates currently offered for deposits of similar remaining maturities. The value of long-term relationships with depositors is not taken into account in estimating fair values. As most of the Bank’s deposits are given with variable rate, being market rate, there is no significant difference between the fair value of these deposits and their carrying value.

Borrowings

Most of the Bank’s long-term debt has no quoted market prices and its fair value is estimated as the present value of future cash flows, discounted at interest rates available at the balance sheet date to the Bank for new debt of similar type and remaining maturity. Again, as the majority of the Bank’s long-term debt is with variable interest rates, there is no significant difference between their carrying and fair value.

3 Business segments The Bank is organised into three main business segments: • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products, international payments and domestic payment system and documentary operations; and • Financial markets – incorporating financial instruments trading, structured financing, and merger and acquisition advice.

Transactions between the business segments are on normal commercial terms and conditions.

F-76 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Primary segment information

Retail Corporate Financial banking banking markets Other Group At 31 December 2004 Operating income ...... 7,255,156 7,480,519 4,958,687 444,028 20,138,390 Segment result...... (1,128,895) 3,036,975 3,618,597 (509,027) 5,017,650 Operating profit ...... 5,017,650 Income from associates ...... 313,409 313,409 Profit before tax ...... 5,331,059 Income tax expense ...... (1,377,801) Group profit after tax ...... 3,953,258 Minority interest ...... 11112 (33,057) Net profit for the year ...... 11112 3,920,201 Segment assets...... 65,907,008 262,916,508 150,901,833 6,287,497 486,012,846 Associates ...... 2,734,530 2,734,530 Unallocated assets ...... 11112 2,362,324 Total assets ...... 491,109,70011112 Segment liabilities ...... 199,361,981 110,828,359 138,884,950 1,515,782 450,591,072 Unallocated liabilities ...... 11112 2,469,454 Total liabilities ...... 453,060,52611112 Capital expenditure...... 1,797,811 35,710 46,762 1,157,116 3,037,399 Depreciation ...... 606,544 38,570 17,775 939,748 1,602,637

Retail Corporate Financial banking banking markets Other Group At 31 December 2003 Operating income ...... 6,830,388 6,774,790 6,957,514 267,285 20,829,977 Segment result...... (440,999) 2,274,270 5,567,247 (645,326) 6,755,192 Operating profit ...... 6,755,192 Income from associates ...... 720,146 720,146 Profit before tax ...... 7,475,338 Income tax expense ...... (1,821,877) Group profit after tax ...... 5,653,461 Minority interest ...... 11112 (92,392) Net profit for the year...... 11112 5,561,069 Segment assets...... 55,866,825 229,482,464 143,245,842 6,375,459 434,970,590 Associates ...... 2,789,615 2,789,615 Unallocated assets ...... 11112 1,643,472 Total assets ...... 439,403,67711112 Segment liabilities ...... 182,265,127 102,054,085 116,946,958 1,456,482 402,722,652 Unallocated liabilities ...... 11112 1,672,926 Total liabilities ...... 404,395,57811112 Capital expenditure...... 911,888 8,178 16,002 1,568,739 2,504,807 Depreciation ...... 498,042 54,652 13,725 815,521 1,381,940

F-77 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

4 Net interest income

2004 2003 Interest income Loans and advances...... 20,088,649 20,674,213 Investment and originated securities ...... 2,709,207 4,099,716 Trading securities...... 1,524,042 2,725,578 Cash and short-term funds ...... 132,337 96,127 Other...... 111121 446,842 111121 215,847 24,901,077 27,811,481 111121 111121 Interest expense Banks and customers ...... 9,801,068 13,321,737 Debt securities in issue...... 2,058,150 1,957,141 Other borrowed funds...... 2,201,967 1,570,747 Other...... 111121 50,479 111121 2,406 14,111,664 16,852,031 111121 111121

5 Fee and commission income and expense

1111Income111111 1111 Expense111111 2004 2003 2004 2003 Enterprises ...... 4,079,985 3,586,633 313,288 323,504 Banks ...... 59,529 47,506 102,739 76,191 Citizens ...... 4,386,728 3,735,983 827,645 568,267 Foreigners...... 11112 38,699 11112 75,266 11112 – 11112 – Total...... 8,564,941 7,445,388 1,243,672 967,962 11112 11112 11112 11112

6 Dividend income

2004 2003 Trading securities...... 178,887 151,452 Available-for-sale securities ...... 111121 327,146 111121 239,567 506,033 391,019 111121 111121

7 Net trading income

2004 2003 Foreign exchange translation losses ...... (2,677) (153,041) Foreign exchange gains ...... 577,855 621,254 Net gains from securities: • Interest rate instruments ...... (6,572) 173,229 • Equity holdings ...... 1,202,357 1,640,182 Unrealised losses/gains of securities • Trading ...... 111121 (504,287) 111121 1,328,005 1,266,676 3,609,629 111121 111121

F-78 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

7a Gains less losses from investment and originated securities

2004 2003 Realised available-for-sale ...... 83,106 (774,972) Unrealised available-for-sale ...... 111121 24,590 111121 94,850 107,696 (680,122) 111121 111121

8 Operating expenses

Note 2004 2003 Staff costs ...... 9 5,622,789 5,491,398 Professional services ...... 2,655,804 2,595,675 Advertising and marketing ...... 529,864 433,127 Administrative expenses ...... 447,267 443,879 Depreciation ...... 19 1,602,637 1,381,940 Software development costs ...... 509,163 478,906 Profit on sale of property and equipment ...... (33,758) (130,986) Rent payable ...... 2,081 5,132 Other...... 111121 418,894 111121 324,470 11,754,741 11,023,541 111121 111121

9 Staff costs

2004 2003 Wages and salaries...... 5,002,517 4,655,623 Social security costs ...... 257,794 247,238 Pension costs ...... 314,150 301,352 Provisions for employees’ benefits ...... 111121 48,328 111121 287,185 5,622,789 5,491,398 111121 111121 The number of people employed by the Group at 31 December ...... 111121 841 111121 827

10 Impairment losses

Note 2004 2003 Loans and advances to banks ...... 14 (69,980) 87,382 Loans and advances to customers ...... 16 2,510,760 2,541,977 Other assets...... 20 40,293 6,537 Guarantees and commitments ...... 26 697,219 214,422 Bad debts written off directly ...... 341,423 320,062 Recoveries on loans previously written off ...... 111121 (153,716) 111121 (119,136) 3,365,999 3,051,244 111121 111121

F-79 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

11 Tax expense

2004 2003 Current tax ...... 1,255,295 1,137,152 Deferred tax (credit)/charge...... (53,199) 393,533 Other tax...... 55,336 108,223 Share of tax of associates ...... 111121 120,369 111121 182,969 1,377,801 1,821,877 111121 111121 Reported profit before tax...... 5,331,059 7,475,338 Prima facie tax calculated at a tax rate of 25% (2003: 25%) ...... 1,332,765 1,868,835 Income not assessable for tax ...... (364,391) (543,118) Expenses not deductible for tax purposes ...... 233,722 204,968 Share of tax of associates ...... 120,369 182,969 Other tax...... 111121 55,336 111121 108,223 Tax expense...... 1,377,801 1,821,877 111121 111121 Balance sheet tax Reported total assets before tax ...... 491,109,700 439,403,677 Differences from statutory to IFRS reporting ...... 111121 (2,398,286) 111121 (1,973,888) 488,711,414 437,429,789 111121 111121 Prima facie tax calculated at a tax rate of 3% (2003: 3%) ...... 14,661,342 13,122,894 Foreign currency liabilities...... (5,741,886) (4,904,911) Local currency loans ...... (6,354,216) (5,798,156) Short-term local currency loans to banks ...... (138,004) (154,290) Trading securities...... (342,443) (427,230) Claims and liabilities for taxes ...... (217,777) (160,422) 7% of current and term local currency deposits ...... (632,405) (591,876) Income tax expense ...... 111121 (1,179,275) 111121 (977,786) Tax on total assets...... 55,336 108,223 111121 111121

The tax authorities carried out a full scope tax audit at the Bank for the years 1999 and 2000.

In accordance with local regulations, the tax authorities may at any time inspect the Bank’s books and records within 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Bank’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

12 Cash and balances with central bank

Note 2004 2003 Cash in hand...... 3,159,560 3,152,904 Obligatory reserve ...... 4,260,818 5,359,183 Other...... 111121 287,692 111121 – 7,708,070 8,512,087 111121 111121 Included in cash and cash equivalents ...... 33 3,447,252 3,152,904

Obligatory reserve is not available for financing the Group’s day-to-day operations. The obligatory reserve was calculated in 2003 as follows: 7% of demand and time deposits up to three months; 2% of time deposits from three months up to two years and 0% of time deposits over two years. The current rates of

F-80 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated) obligatory reserve are between 0 and 4.5%. The Group maintains sufficient liquid assets to fully comply with the central bank’s requirements.

13 Treasury bills and other eligible bills – available for sale

2004 2003 Central bank bills ...... 61,373,701 70,466,131 Other eligible bills ...... 111121 483,553 111121 58,468 61,857,254 70,524,599 111121 111121

Central bank bills are debt securities issued by the Bank of Slovenia. The whole amount is due in 2005. Other eligible bills are securities issued by the Slovene Government falling due within three and twelve months.

Included in cash and cash equivalents ...... 33 60,333,913 65,067,537

14 Loans and advances to banks

2004 2003 Items in the course of collection from other banks ...... 240,118 205,090 Placements with other banks ...... 2,755,427 366,134 Loans and advances to other banks...... 111121 32,356,954 111121 22,860,790 35,352,499 23,432,014

Provision for impairment...... 111121 (250,913) 111121 (320,893) 35,101,586 23,111,121 111121 111121 Included in cash equivalents (Note 33) ...... 111121 31,579,753 111121 21,033,638

Movements in provisions for impairment are as follows:

Note At 1 January 2003...... 233,511 Provision for impairment...... 10 87,382 At 31 December 2003 ...... 320,893 Provision for impairment...... 10111121 (69,980) At 31 December 2004 ...... 250,913 111121

15 Trading securities

2004 2003 Government bonds – listed ...... 210,728 651,526 Other debt securities – listed...... 25 33,152 – unlisted...... 1,811,858 69,448 Equity securities – listed...... 8,008,279 12,544,079 – unlisted...... 111121 3,832,199 111121 3,981,204 13,863,089 17,279,409 111121 111121

F-81 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

16 Loans and advances to customers

2004 2003 Loans to corporate entities: – overdrafts ...... 2,748,561 1,851,289 – credit cards ...... 186,801 200,228 – term loans...... 269,347,608 236,250,951 – other...... 764,084 1,281,373 Loans to individuals: – overdrafts ...... 5,867,122 5,717,639 – commercial loans ...... 37,721,634 32,674,275 – term loans ...... 111121 16,936,398 111121 12,071,017 Gross loans and advances ...... 333,572,208 290,046,772

Provision for impairment...... 111121 (15,974,313) 111121 (13,051,775) 317,597,895111121 276,994,997111121 111121 111121 Movements in provisions for impairment are as follows: Note At 1 January 2003...... 10,509,798 Provision for impairment...... 10 2,541,977 At 31 December 2003 ...... 13,051,775 Acquisition during the year ...... 411,778

Provision for impairment...... 10111121 2,510,760 At 31 December 2004 ...... 15,974,313 111121

All loans were written down to their recoverable amounts. Economic sector risk concentrations within the customer loan portfolio were as follows:

2005 % 2004 % Government bodies...... 9,420,075 2.8 13,772,569 4.7 Manufacturing ...... 116,835,741 35.0 96,530,324 33.3 Agriculture ...... 3,309,056 1.0 2,030,286 0.7 Private individuals...... 56,433,962 16.9 50,758,900 17.5 Services ...... 144,264,318 43.2 125,027,556 43.1 Other ...... 11212312 3,309,056 11212312 1.0 11212312 1,927,137 11212312 0.7 Gross loans and advances ...... 333,572,208 290,046,772 Provision for impairment ...... 11212312 (15,974,313) 11212312 11212312 (13,051,775) 11212312 317,597,895 100 276,994,997 100 11212312 11212312 11212312 11212312

Geographic sector risk concentrations within the customer loan portfolio were as follows:

2005 % 2004 % Slovenia ...... 309,657,482 97 268,177,342 97 Other European countries...... 11212312 7,940,413 11212312 3 11212312 8,817,655 11212312 3 317,597,895 100 276,994,997 100 11212312 11212312 11212312 11212312

F-82 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Loans and advances are further analysed in the following notes: Currency risk (Note 2.5), Interest rate risk (Note 2.6), Liquidity risk (Note 2.7), Fair value (Note 2.8) and Related party (Note 35).

17 Investment and originated securities

2004 2003 Securities available-for-sale Debt securities – at fair value: – listed...... 20,574,108 9,269,444 – unlisted...... 5,148,891 4,450,235 Equity holdings – at fair value: – listed...... – 3,227,694 – unlisted...... 111121 688,429 111121 413,999 Total securities available-for-sale...... 26,411,428 17,361,372 111121 111121 Originated securities – held to maturity Debt securities – at amortised cost: – listed...... – – – unlisted...... 111121 9,291,113 111121 8,309,651 Total originated securities ...... 9,291,113 8,309,651 111121 111121 35,702,541 25,671,023 111121 111121

The carrying value of originated securities approximates their fair value.

Included in debt securities were securities pledged under repurchase agreements concluded with other customers whose value at 31 December, 2004 was SIT 3,160,972 thousand (2003: SIT 3,027,856 thousand). Movements in investment securities are as follows:

2004 2004 2003 2003 Available- Held-to- Available- Held-to- for sale maturity for-sale maturity At 1 January ...... 16,309,587 8,309,651 14,590,755 7,978,981 Exchange differences on monetary assets .... (11,278) – 92,554 – Additions ...... 12,773,449 981,462 9,021,566 333,698 Disposals...... (2,684,920) – (6,385,950) (3,028) Unrealised gains from change in fair value ..111112 24,590 111112 – 111112 42,447 111112 – At 31 December ...... 26,411,428 9,291,113 17,361,372 8,309,651 111112 111112 111112 111112

18 Investment in associates

2004 2003 Beginning of year...... 2,789,615 2,063,445 Additions/(disposals) ...... (368,494) 6,024 Share of profits for the current year ...... 111121 313,409 111121 720,146 2,734,530 2,789,615 111121 111121

F-83 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

The principal associates, which are unlisted are:

2004 Country of % Interest incorporation Assets Liabilities Revenues Profit/(Loss) held Name NFD d.o.o., Ljubljana ...... Slovenia 8,504,854 132,071 1,640,107 802,313 44.4 Argolina d.o.o., Ljubljana ...... Slovenia 2,734,794 2,710,616 2,580 164 25.1

2003 Country of % Interest incorporation Assets Liabilities Revenues Profit/(Loss) held Name NFD d.o.o., Ljubljana ...... Slovenia 6,576,217 416,068 2,992,576 1,453,017 44.4 BPT Tržič d.d., Tržič ...... Slovenia 2,026,252 111,497 1,166,872 87,058 28.9 Argolina d.o.o., Ljubljana ...... Slovenia 2,192,629 2,168,614 52 15 25.1

19 Property and equipment

Assets Land and Other under Intangible buildings Computers equipment construction fixed assets Total

At 31 December 2003 Cost or revalued cost ...... 9,012,007 2,012,883 3,526,200 652,047 1,284,670 16,487,807 Accumulated depreciation ...... 11113,553,554 1111 1,581,942 1111 2,576,012 1111 – 1111 472,770 1111 8,184,278 Net book amount ...... 1111 5,458,453 1111 430,941 1111 950,188 1111 652,047 1111 811,900 1111 8,303,529 Cost or valuation At 1 January 2004 ...... 9,012,007 2,012,883 3,526,200 652,047 1,284,670 16,487,807 Additions ...... 1,521,681 431,179 821,803 (334,035) 596,771 3,037,399 Disposals ...... 1111 (1,030,140) 1111 (223,621) 1111 (271,074) 1111 1111 (35,483) 1111 (1,560,318) At 31 December 2004 ...... 1111 9,503,548 1111 2,220,441 1111 4,076,929 1111 318,012 1111 1,845,958 1111 17,964,888 Depreciation At 1 January 2004 ...... 3,553,554 1,581,942 2,576,012 – 472,770 8,184,278 Depreciation (Note 8) ...... 412,681 410,276 492,951 – 286,729 1,602,637 Additions ...... 159,943 – 11,281 – 5,750 176,974 Disposals ...... 1111 (602,654) 1111 (222,861) 1111 (269,565) 1111 – 1111 (3,080) 1111 (1,098,160) At 31 December 2004 ...... 1111 3,523,524 11111,769,357 11112,810,679 1111 – 1111 762,169 11118,865,729 Net book amount at 31 December 2004 ...... 1111 5,980,024 1111 451,084 11111,266,250 1111 318,012 11111,083,789 11119,099,159

F-84 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

20 Other assets

2004 2003 Other accrued income ...... 479,219 379,371 Due from customers ...... 247,300 183,987 VISA card receivables ...... 1,758,102 1,791,208 Inventories...... 72,040 40,566 Prepayments ...... 1,982,013 1,481,234 Receivables from factoring ...... 2,109,173 1,592,583 Court receivables ...... 545,861 540,833 Receivables from foreign exchange dealing ...... 222,961 – Prepaid taxes ...... 46,674 6,465 Other receivables: • Citizens ...... 702,225 663,940 • Debtors ...... 22,515 20,822 • Cheques ...... 96,666 37,973 Other...... 111121 657,834 111121 937,408 8,942,583 7,676,390

Provisions ...... 111121 (1,576,353) 111121 (1,530,889) 7,366,230 6,145,501 111121 111121 Movements in provisions for impairment are as follows:

Note At 1 January 2003...... 1,524,352 Provision for impairment...... 10 6,537 At 31 December 2003 ...... 1,530,889 Acquisition during the year ...... 5,171 Provision for impairment...... 10111121 40,293 At 31 December 2004 ...... 1,576,353 111121

21 Deposits from banks

2004 2003

Deposits from other banks ...... 111121 4,760,065 111121 7,826,635 4,760,065 7,826,635 111121 111121

22 Other deposits

2004 2003 Certificates of deposit (falling due: 2005 to 2010, interest rate: 2.10% – 6.20%) ...... 4,913,330 7,933,755 Subordinated deposits (falling due in 2005, interest rate: 3.90%) ...... 111121 207,429 111121 458,056 5,120,759 8,391,811 111121 111121

Subordinated deposits are deposits with the instances of debt instruments and form a part of supplementary regulatory capital.

F-85 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

23 Due to customers

2004 2003 Large corporate customers: – current/settlement accounts ...... 16,976,709 16,236,536 – term deposits ...... 90,464,035 87,552,926 Small and medium sized enterprises: – current/settlement accounts ...... 11,033,668 9,595,715 – term deposits ...... 16,696,791 15,378,295 Retail customers: – current/demand accounts ...... 68,343,948 54,831,105 – term deposits ...... 121,834,513111121 121,341,011112163 325,349,664 304,935,640 111121 111121

24 Debt securities in issue Interest rate on 31 December 2004 2003 Short–term tolar debt securities ...... 19,182 38,052 Foreign currency denominated certificates of deposit ...... 1.83% 2,295,457 3,208,479 Bonds 3rd issue due 1 November, 2005 in EUR ...... 5% 1,692,186 1,670,639 Bonds 4th issue due 1 June, 2007 in EUR...... 6.25% 2,409,806 2,378,726 Bonds 5th issue due 15 April, 2006 in EUR ...... 6% 2,426,695 2,396,177 Bonds 6th issue due 15 May, 2009 in EUR...... 5.9% 3,259,997 3,218,487 Bonds 7th issue due 21 May, 2010 in EUR...... 5.3% 4,171,094 4,117,982 Bonds 8th issue due 1 March, 2011 in EUR ...... 4.9% 2,495,534 – Bonds 9th issue due 1 March, 2011 in EUR ...... 4.7% 2,491,529 – Bonds 10th issue due 1 October, 2011 in EUR ...... 4.6% 5,092,982 – DEM-denominated 2m fixed rate notes falling due in 2004 10% – 15,506 DEM-denominated 4m fixed rate notes falling due in 2005 10% 31,413 93,039 DEM-denominated 5m fixed rate notes falling due in 2006 7.5% 158,636 233,328 DEM-denominated 4m fixed rate notes falling due in 2007 7% 189,253 249,125 EUR-denominated 2m fixed rate notes falling due in 2008.. 6% 246,403 304,082 EUR-denominated 2m fixed rate notes falling due in 2009.. 5.5% 305,292 361,081 EUR-denominated 2m fixed rate notes falling due in 2010.. 6.2%111121 360,775 111121 415,123 27,646,234 18,699,826 111121 111121

25 Other borrowed funds 112311111113112004 1111111111311 2003 Short-term Long-term Short-term Long-term From other banks: – in local currency...... – 1,202,935 – – – in foreign currency...... 111211 18,940,359 111211 59,354,439 111211 20,946,878 111211 34,843,151 11121118,940,359 111211 60,557,374 111211 20,946,878 111211 34,843,151 79,497,733 55,790,029 111211 111211

Other borrowed funds are further analysed as part of the balance sheet in the following notes: Currency risk (Note 2.5), Interest rate risk (Note 2.6), Liquidity risk (Note 2.7), Fair value (Note 2.8) and Related party transactions (Note 35).

F-86 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

26 Other liabilities

2004 2003 Current taxes...... 454,627 440,256 Other accrued income ...... 380,634 281,416 Creditors ...... 461,237 460,545 Liabilities from factoring ...... 2,048,987 1,571,454 Liabilities to VISA center...... 381,803 180,217 Prepayments ...... 31,305 21,620 Liabilities to employees ...... 204,517 191,847 Provisions for employees’ benefits ...... 317,384 287,185 Provisions for guarantees and commitments (Note 28) ...... 3,574,177 2,876,958 Cash in transit ...... 121,335 106,446 Items in course of payment ...... 249,587 162,733 Other...... 111121 1,089,086 111121 753,919 9,314,679 7,334,596 111121 111121

Commitments Provisions for and employees’ Note contingencies benefits At 1 January 2003 ...... 2,662,536 – Additional provisions ...... 10 214,422 287,185 At 31 December 2003 ...... 2,876,958 287,185 Additional provisions ...... 10 697,219 48,328 Utilised during year...... 111121 – 111121 (18,129) At 31 December 2004 ...... 3,574,177 317,384 111121 111121

27 Deferred tax Deferred income tax is calculated on all temporary differences under the liability method using an effective tax rate of 25% (2003: 25%).

Movements in the deferred tax account are as follows:

Deferred tax liability 2003 Movement 2004 Available-for-sale investments ...... 178,218 6,073 184,291 Trading securities ...... 751,450 (125,997) 625,453 Loan loss provisions ...... 111121 487,373 111121 74,275 111121 561,648 1,417,041 (45,649) 1,371,392 111121 111121 111121 Deferred tax assets Provisions for employees’ benefits...... 111121 71,796 111121 7,550 111121 79,346 71,796 7,550 79,346 111121 111121 111121

28 Contingent liabilities and commitments a) Legal Proceedings

At 31 December 2004 and 31 December 2003, there were some legal proceedings against the Group, however Bank management considers that the provision booked is appropriate and no further loss is expected.

F-87 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated) b) Capital commitments

At 31 December 2004 and 31 December 2003, the Group had no capital commitments in respect of building and equipment purchases. c) Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to customers upon request. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet their obligations to third parties, carry the same credit risk as loans, documentary and commercial letters of credit, (which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions) and are collateralised by the underlying shipments of goods to which they relate and therefore involve significantly less risk. Cash requirements under guarantees and standby letters of credit are considerably lower than the amount of the commitment, because the Group does not generally expect the third party to draw funds under the agreement.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in the amount equal to the total unused commitments. However, the likely amount of loss, though not easy to quantify, is considerably lower than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards.

While there is some credit risk associated with the remainder of commitments, the risk is viewed as modest, since it results from the possibility of unused portions of loan authorisations being drawn by the customer and, secondly, from these drawings subsequently not being repaid when due. The Group monitors the term to maturity of credit commitments, because long-term commitments generally involve greater credit risk than short-term ones. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being financed.

The following table indicates the contractual amounts of the Bank’s guarantees and commitments to extend credit to customers:

Guarantees and commitments Note 2004 2003 Guarantees and commitments to extend credit ...... 153,707,186 88,702,253 Documentary and commercial letters of credit ...... 111211 6,972,015 111211 5,673,305 160,679,201 94,375,558 Provision for guarantees and commitments ...... 26 – Legal proceedings ...... (1,822,360) (1,514,178) – Other ...... 111211 (1,751,817) 111211 (1,362,780) 157,105,024 91,498,600 111211 111211 d) Assets pledged

Assets are pledged mainly as collateral.

2004 2003

Government bonds ...... 111211 3,160,972 111211 3,027,856 3,160,972 3,027,856 111211 111211

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

29 Acquisitions and minority interest

2004 2003 At 1 January ...... 199,069 – Share of net profit of subsidiaries ...... 33,057 92,392 Minority interest in subsidiaries acquired ...... 111211 (40,095) 111211 106,677 At 31 December ...... 192,031 199,069 Movements in minority interest are as follows: At 1 January ...... 199,069 – Minority interest in subsidiaries acquired ...... 111211 (7,038) 111211 199,069 At 31 December ...... 192,031 199,069 111211 111211

In July 2004 Abanka Vipa acquired assets and assumed liabilities from Panonka savings co-operative (HKS Panonka). The difference between assets and liabilities was covered through the income statement of Abanka Vipa.

The details of the assets and liabilities acquired are as follows:

2004 2003 Loans and advances to customers ...... 757,641 5,160,394 Other assets...... 202,607 52,481 Borrowed funds...... (1,087,873) (4,977,721) Other liabilities ...... 111211 (7,749) 111211 (117,507) Net (liabilities)/assets...... (135,374) 117,647 111211 111211 Share of net (liabilities)/assets acquired ...... 111211 – 111211 60,000 Consideration paid ...... 111211 – 111211 60,000

30 Share capital, share premium and treasury shares The Bank’s share capital is comprised of 4,800,000 authorised shares with a nominal value of SIT 1,000 each, of which 100.0% are ordinary shares with voting rights. All shares issued are fully paid. Shareholders with a holding in excess of 5% of the issued share capital are as follows:

Zavarovalnica Triglav Group ...... 32.1 % FMR d.d...... 9.7 % Poteza naloÏbe d.o.o...... 9.6 % HIT d.d. Nova Gorica ...... 7.0 %

In the normal course of its equity trading and market activities, the Group buys and sells its own shares. This is in accordance with the Bank’s By-Laws and in compliance with all aspects of the Slovene legislation.

31 Reserves

2004 2003 Statutory reserves ...... 480,000 480,000 Retained earnings ...... 21,689,127 18,625,644 Revaluation reserves ...... 111211 2,727,463 111211 2,727,463 Reserves ...... 24,896,590 21,833,107 111211 111211

In accordance with the Slovene legislation, at least 10% of the nominal value of the Bank’s share capital is required to be transferred to statutory reserves.

F-89 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

32 Dividends per share Final dividends are not accounted for until they have been ratified at the Annual General Meeting. At the meeting in June 2005, a dividend in respect of 2004 of SIT 200 per ordinary share (2003: actual dividend SIT 180 per ordinary share) is to be proposed. The consolidated financial statements for the year ended 31 December 2004 do not reflect this resolution, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2005.

33 Cash and cash equivalents

2004 2003 revised 2004 revised 2003 Cash and balances with central banks – Note 12 .... 3,447,252 3,447,252 3,152,904 3,152,904 Treasury bills and other eligible bills – Note 13 ...... 60,333,913 758,762 65,067,537 65,067,537 Due from other banks – Note 14 ...... 31,579,753 32,024,653 21,033,638 23,052,185 Trading securities – Note 15...... 0 13,863,089 0 17,279,409 Investment and originated securities – Note 17 ...... 211121 0 211121 508,650 211121 0 211121 233,106 95,360,918 50,602,406 89,254,079 108,785,141 211121 211121 211121 211121

Equities included in trading securities and investment securities which do not meet the criteria according to IAS 7.7 are excluded in the revised version of cash and cash equivalents.

Treasury bills and other eligible bills, loans and advances to banks, governments bonds and other debt securities included in trading securities and investment securities were included in cash equivalents based on remaining contractual maturity, which is not in accordance with IAS 7.7. The revised calculation has been prepared in accordance with IAS 7.7 since treasury bills and other eligible bills, loans and advances to banks are included in cash equivalents based on the original contractual maturity.

34 Managed funds The Group manages assets totalling SIT 140,429,091 on behalf of third parties. Managed fund assets are accounted for separately from those of the Group. Income and expenses of these funds are for the account of the respective fund and no liability falls on the Group in connection with these transactions. The Group is compensated for its services by fees chargeable to the funds.

35 Related party transactions Parties are considered to be related, if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and deposits. These transactions were carried out under commercial terms and conditions and at market rates. The volume of transactions involving related parties for the year is as follows:

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ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

Members of the Board of directors Entities with significant 1111111111and Supervisory Board 1111111111 influence 1111111111 Associates Type of related party 2004 2003 2004 2003 2004 2003 Loans Loans outstanding as at the beginning of year ...... 55,886 58,635 5,099,558 237,797 2,104,329 345,361 Loans issued during the year .. 30,475 33,847 11,297,100 16,559,227 781,222 2,505,956 Loan repayments during the year ...... (13,598) (36,596) (10,592,308) (11,697,466) (158,379) (746,988) Loans outstanding as at the end of year ...... 72,763 55,886 5,804,350 5,099,558 2,727,172 2,104,329 Interest income and fee earned 3,363 5,374 375,522 326,292 1,707 23,217 Deposits Deposits as at the beginning of year ...... 319,708 173,160 5,449,509 5,285,189 – – Deposits received ...... 652,472 583,369 47,246,546 26,673,719 – – Deposits repaid...... (479,960) (436,821) (49,790,170) (26,509,399) – – Deposits as at the end of year .. 492,220 319,708 2,905,885 5,449,509 – – Interest expense on deposits .... 9,110 8,829 230,787 291,342 – – Foreign exchange trading Aggregated gain/(loss) ...... – – 276,839 423,712 – – Other revenue – fee income .... – – 30,575 55,632 50 – Guarantees issued by the Group – – 1,097,878 1,140,772 – –

Related companies consist of member of the Board of directors and Supervisory Board, entities with significant influence and associates.

Directors’ remuneration

In 2004 total remuneration of the executives and the members of the Board of directors and Supervisory Board was SIT 51,800 thousand (2003: SIT 49,900 thousand).

36 Subsidiaries 2004 2003 Country % interest % interest Abančna DZU d.o.o., Ljubljana – unlisted ...... Slovenia 99.00 99.00 Afaktor d.o.o., Ljubljana – unlisted ...... Slovenia 100.00 100.00 Avip DZU d.o.o., Nova Gorica – unlisted ...... Slovenia – 100.00 Aleasing d.o.o., Slovenj Gradec – unlisted (former Eurofin Leasing)...... Slovenia 53.07 51.00

37 Post balance sheet events On 10th of March 2005 the Bank signed a EUR 115 million 5-year syndicated facility agreement. The funds will be disbursed in three tranches, in March and in April 2005.

On 25th of March 2005 the Bank increased its share capital by 700,000 shares.

F-91 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 16a : 3585 Section 16a

ABANKA VIPA d.d. Consolidated Financial Statements – 31 December 2004 (All amounts in SIT thousands unless otherwise stated)

38 Reconciliation of net profit and shareholders’ equity from local standards (SAS) to IFRS

2004 2003 Net profit in accordance with local standards ...... 4,227,969 3,893,197 Directors’ remuneration...... (51,800) (49,900) Provisions for employees’ benefits ...... (30,199) (287,185) Deferred tax ...... 7,550 71,796 Share of net profits in associates ...... 193,040 537,177 Acquisition of subsidiary and disposal of associate company ...... (289,411) – Fair value adjustment according to adopted IAS 39 ...... (182,597) 1,861,313 Deferred income taxes (IAS 39)...... 111211 45,649 111211 (465,329) Net profit in accordance with IFRS...... 3,920,201 5,561,069 111211 111211 Net profit in accordance with local standards ...... 4,227,969 3,893,197 Total adjustments ...... 111211 (307,768) 111211 1,667,872 Net profit in accordance with IFRS...... 3,920,201 5,561,069 111211 111211

2004 2003 Shareholders’ equity in accordance with local standards ...... 36,086,135 33,313,762 Treasury shares (taken as diminution of share capital in accordance with IFRS) ...... (95,448) (65,136) Directors’ remuneration...... (51,800) (49,900) Provisions for employees’ benefits ...... (238,038) (215,389) Share of net profits in associates ...... 357,003 369,151 Valuation of loans ...... 2,609,035 2,386,210 Deferred tax on valuation of securities ...... 111211 (809,744) 111211 (929,668) Shareholders’ equity in accordance with IFRS...... 37,857,143 34,809,030 111211 111211 Shareholders’ equity in accordance with local standards ...... 36,086,135 33,313,762 Total adjustments ...... 111211 1,771,008 111211 1,495,268 Shareholders’ equity under IFRS ...... 37,857,143 34,809,030 111211 111211

F-92 Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 17 : 3585 Section 17

BORROWER Abanka Vipa d.d. Slovenska 58 1517 Ljubljana Slovenia

LENDER VTB Bank Europe plc 81 King William Street London EC4N 7BG United Kingdom

ISSUER A10.26.1 Afinance B.V. Locatellikade 1 1076 AZ Amsterdam The Netherlands

LEGAL ADVISERS TO THE BORROWER

As to English law As to Slovenian law A13.7.1 Allen & Overy LLP Jadek & Pensa One Bishops Square Tavčarjeva 6 London E1 6AO 1000 Ljubljana United Kingdom Slovenia

LEGAL ADVISERS TO THE MANAGERS AND THE TRUSTEE A13.7.1 as to English law as to Slovenian law Linklaters Colja, Rojs & partnerji o.p., d.n.o. One Silk Street Tivolska 48 London EC2Y 8HQ 1000 Ljubljana United Kingdom Slovenia

LEGAL ADVISERS TO THE LENDER A13.7.1 White & Case LLP 5 Old Broad Street London EC2N 1DW United Kingdom

LEGAL ADVISERS TO THE ISSUER A13.7.1 Clifford Chance LLP Droogbak 1A 1013 GE Amsterdam The Netherlands Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 17 : 3585 Section 17

TRUSTEE Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

PRINCIPAL PAYING AND TRANSFER AGENT AND CALCULATION AGENT Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

REGISTRAR, LUXEMBOURG PAYING AND TRANSFER AGENT AND LISTING AGENT Deutsche Bank Luxembourg S.A. 2 boulevard Konrad Adenauer L-1115 Luxembourg

AUDITORS TO THE BORROWER PricewaterhouseCoopers d.o.o. Cesta v Kleče 15 1000 Ljubljana Slovenia Level: 10 – From: 10 – Wednesday, January 17, 2007 – 7:07 pm – mac7 – 3585 Section 17 : 3585 Section 17

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