Annual Report 2019 Key data based on the financial statements drawn up in accordance with IFRS 1) EUR m Selected items of the Profit or Loss statement 2019 2018 +/-(%) Net banking income 51.9 48.8 6.4% Net interest income 41.0 38.9 5.7% Net fee and commission income 10.9 9.9 10.1% Net result on financial instruments 1.4 5.4 -74.1% Other operating result -2.9 -2.3 26.1% Operating expenses -27.7 -26.6 4.1% Operating result before change in credit loss expense 22.7 25.4 -10.6% Credit loss expenses on financial assets 2.0 2.2 -9.7% Tax on income -6.2 9.5 -165.3% Result after tax 18.4 37.2 -50.5% Performance ratios 2019 2018 +/-(%) Net interest income/total average assets 2.5% 2.5% 0.0% Return on tangible equity 10.3% 21.7% -52.5% Cost/income ratio 53.3% 54.5% -2.2% Cost of risk ratio -0.1% -0.2% -50.0% Selected items of the Statement of financial position 2019 2018 +/-(%) Loans and advances to customers 1,203.3 1,240.2 -3.0% o/w gross performing loans 1,184.6 1,145.5 3.4% Deposits of customers 1,223.2 1,174.2 4.2% Equity 181.6 173.8 4.5% Total assets 1,617.3 1,618.1 0.0% Risk-weighted assets 1,045.0 1,028.4 1.6% Balance sheet ratios 2019 2018 +/-(%) Loan to deposit ratio 96.4% 95.1% 2.4% NPE ratio 1.5% 1.9% -22.1% NPE coverage ratio 70.6% 70.6% 0.0% Liquidity coverage ratio 205.6% 155.2% 32.5% Common equity tier 1 ratio 15.5% 13.5% 14.8% Total capital ratio 17.0% 14.9% 14.1% 1) The indicators are calculated in accordance with the Instructions for the preparation of the statement of financial position, income statement and statement of comprehensive income and the calculation of indicators of operations of banks and savings banks (3.12.2019) Annual Report 2019 Content MANAGEMENT LETTER FOR 2019 ......................................................................................... 4 THE MANAGEMENT BOARD ................................................................................................. 6 MANAGEMENT REPORT ...................................................................................................... 7 1. OVERVIEW OF THE BANK ............................................................................................................................ 7 2. GENERAL ECONOMIC ENVIRONMENT............................................................................................................. 7 3. SIGNIFICANT EVENTS IN 2019 ..................................................................................................................... 8 4. FINANCIAL DEVELOPMENT OF THE BANK .......................................................................................................10 5. MARKET AND OPERATIONS DEVELOPMENT ....................................................................................................13 6. ANALYSIS OF NON-FINANCIAL KEY PERFORMANCE INDICATORS ..........................................................................14 7. INTERNAL CONTROL SYSTEM FOR ACCOUNTING PROCEDURES ...........................................................................19 8. NON-FINANCIAL REPORT ...........................................................................................................................20 9. OTHER DISCLOSURES ................................................................................................................................20 10. RESEARCH & DEVELOPMENT ....................................................................................................................22 11. OUTLOOK 2020 ....................................................................................................................................22 12. REPORT BY THE PRESIDENT OF THE SUPERVISORY BOARD ...............................................................................24 13. INDEPENDENT AUDITOR’S REPORT .............................................................................................................29 FINANCIAL REPORT ......................................................................................................... 34 STATEMENT OF MANAGEMENT'S RESPONSIBILITY ..................................................................................................34 I. INCOME STATEMENT ................................................................................................... 37 II. STATEMENT OF OTHER COMPREHENSIVE INCOME .............................................................. 38 III. STATEMENT OF FINANCIAL POSITION ............................................................................. 39 IV. STATEMENT OF CHANGES IN EQUITY ............................................................................. 40 V. STATEMENT OF CASH FLOWS ........................................................................................ 41 VI. NOTES ................................................................................................................... 43 COMPANY .....................................................................................................................................................43 ACCOUNTING POLICIES.....................................................................................................................................43 NOTES TO THE PROFIT OR LOSS STATEMENT ..........................................................................................................67 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...........................................................................73 RISK REPORT .................................................................................................................................................92 SUPPLEMENTARY INFORMATION REQUIRED BY IFRS .............................................................................................116 SUPPLEMENTARY INFORMATION REQUIRED BY ZGD .............................................................................................129 GLOSSARY ................................................................................................................... 131 BUSINESS CENTRES AND BRANCH OFFICES .......................................................................... 134 Annual Report 2019 In 2019, the Bank further reinforced its presence on the Management Letter for market by renovating its cornerstone branches in Kranj and Maribor Centre and opening a renovated one in a 2019 new location in Domžale. The Bank aims to continue to provide banking services where customers need them most and where spontaneous needs for financing often Dear Shareholders, Customers, Partners and Employees, arise. Also, the digital corner within the branch allows the customers to make previously complicated credit over the past three years, Addiko Bank has managed to transactions by themselves, providing an entirely new build and position Addiko in the Slovenian banking mar- banking experience in the sense of quick and conven- ket as a strong, “straightforward” banking brand, con- ient personal finance management in line with the tinuously focused on what is relevant. Addiko is an im- Bank’s value proposition. portant brand not only on the Slovenian banking market but also internationally, which was also importantly re- The Bank continued to face increasingly dynamic mar- flected in the successful listing of the shares of Addiko ket challenges in an innovative way using promotion ac- Bank AG on the Official Market of the Vienna Stock Ex- tivities such as Addiko Red Wednesday. With this, the change and trading in the ATX Prime market segment. Bank further strengthened its position on the market as an unsecured consumer loan specialist. What does it mean to be a straightforward bank? Addiko Bank ensures efficiency and communicates in In the corporate segment, Addiko Bank expanded the clear, understandable language. Simple, convenient usage of a new, technologically advanced application and quick access to banking services thus enables the for the management of the loan underwriting process, Bank to grow steadily in the focus segment of consumer specifically tailored to SME clients, which makes the loans. process of digital lending and transactions more con- venient, faster and more efficient. This simplified lend- Through consistent monitoring of business strategies ing process, enabled by end-to-end automated back of- and by focusing on innovative market solutions, fice processes, allows granting of financing to custom- Addiko Bank achieved all business objectives set for ers within up to three days, in virtually half the time 2019. Revenue was within planned and amounted to required previously. The bank remained present in the EUR 51.9 million. CIR was reduced to 53.3% through segment of large enterprises and continued their fi- strict cost management, despite numerous develop- nancing in line with its strategy. ment activities and projects. In the previous year, the Bank further strengthened its Through its advanced credit risk management approach sources of long-term financing and achieved growth aimed at long-term sustainability of operations, the mainly in the area of retail deposits. With active fund- Bank achieved a country wide low NPL ratio of 1.6%, ing management, the funding concentration of 10 big- with a provision coverage of 64.3%, and ensured a high ger depositors was reduced by 20 percentage points quality of new lending business in its focus areas of un- compared to 2018. The Bank enhanced its short-term secured Consumer loans and SME. In 2019, the Bank and long-term liquidity position and secured stability managed to maintain