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At present, IFRSs as adopted by the EU do not differ significantly from regulations adopted by the IASB, except

for the following standards, amendments to the existing standards and interpretations, which were not endorsed for use as at 8 March 2013:

• IFRS 9 – Financial Instruments (effective for annual

periods beginning on or after 1 January 2015). The

implementation of IFRS 9 will have an impact on the

Groupʹs financial statements, but its application will not

be mandatory before 1 January 2015. The Group has

not yet calculated the impact of IFRS 9 on its financial

statements.

• Amendments to IFRS 1 – First-time adoption of IFRSs

– Government Loans (effective for annual periods beginning on or after 1 January 2013).

• Amendments to IFRS 9 – Financial Instruments,

and IFRS 7 – Financial Instruments: Disclosures –

Mandatory Effective Date and Transition Disclosures (the effective date of application has not been

determined yet).

• Amendments to IFRS 10 – Consolidated Financial

Statements, IFRS 11 – Joint Arrangements, and

IFRS 12 – Disclosures of Interests in Other Entities

– Transition Guidance (effective for annual periods beginning on or after 1 January 2013).

• Amendments to IFRS 10 – Consolidated Financial

Statements, IFRS 12 – Disclosure of Interests in Other

Entities, and IAS 27 – Separate Financial Statements

– Investment Entities (effective for annual periods

beginning on or after 1 January 2014).

• Amendments to various standards – Improvements

to IFRSs (2012) arising from the annual improvements

project, published on 17 May 2012 (IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34). Improvements were made mainly with the aim of remedying inconsistencies and clarifying the

wording of the standards (effective for annual periods beginning on or after 1 January 2013).

Hedge accounting in respect of the portfolio of financial

assets and liabilities, the principles of which have not yet

been adopted by the EU, remains unregulated. The Group

estimates that the application of hedge accounting in

respect of the portfolio of financial assets and financial liabilities, as required by IAS 39 – Financial Instruments: Recognition and Measurement, would have no material

impact on its financial statements, if applied as at the

reporting date.

The Group has not early adopted any standard or

interpretation issued but not yet effective.

The Group anticipates that the adoption of the aforementioned standards, amendments to the existing standards and interpretations, with the exception of IFRS

9, will have no material impact on its financial statements

in the period of initial recognition.

4

risK exposure

The Group revises the document Strategy of the Nova KBM Group on an annual basis. The Strategy is the key document in the preparation of annual business plans. The Bank’s Management Board delegates risk oversight and management to the senior management (policy

holders). The policy holders, together with officers

responsible for particular policies, determine the method

of measuring individual risks. The responsible officers are specialised in defining, measuring and controlling

defining the acceptable level of a specific type of risk

and the method of measuring and monitoring the risk is organisationally separate from the unit it monitors. In accordance with the rules of procedure, each risk management policy has to be approved by the committee in charge of overseeing risk management policies and, in addition, agreed by the President of the Management Board or his deputy. The Group companies may use their own approach in managing individual risks, taking into consideration the importance of risk and the regulatory framework.

4.1 Credit risK

Credit risk is the risk of loss resulting from the failure of a Group’s debtor to discharge its liabilities. The Group is exposed to credit risk through its loan portfolio.

The management of credit risk is carried out at the customer level, by individual Group members, as well as at the Group level. The Bank controls credit risk to which the Group companies are exposed through its representatives on supervisory boards and credit committees of subsidiary companies.

The Group manages credit risk in several ways, such as by: • identifying the risk related to debtors and recognising

impairment of financial assets and provisions for off-

balance sheet liabilities in accordance with International Financial Reporting Standards

• providing capital to ensure sufficient capital coverage of

credit risk

• setting exposure limits for debtors, groups of related persons, industry sectors and market segments • properly securing financial assets.

The Group’s exposure to credit risk arising from loans and advances given to banks and customers is described below.

4.1.1 Bad and douBtful loans

The Group defines as non-performing loans (NPLs) such

loans for which it reasonably believes that the debtor will

not settle all of its liabilities within the contractual period.

In a narrower sense, loans to D- and E-rated customers

are treated as NPLs, while in a broader sense, loans to C-rated customers are also included in NPLs.

The following customers are classified into the D and E

credit rating category:

• customers that have been over 180 days late in paying their liabilities to any of the Group companies

• customers that have filed for receivership

• customers that have filed for bankruptcy

• customers for whom the Group has information which indicates that they may be incapable of paying their liabilities to any of the Group companies.

The Group defines as doubtful loans such loans that are classified in the C credit rating category. The following customers are classified into this category:

• customers that have been over 90 days late in paying a

significant amount due to any of the Group companies

• customers for whom substantial likelihood exists that

their future cash flows will not set off their liabilities to

any of the Group companies

• customers for whom the Group has negative information on their performance

• customers who have disclosed insufficient or negative capital in their financial statements.

4.1.2 interest rates and loan approval

fees

Interest rates are determined in accordance with the adopted credit policies of Group companies. Interest rates depend on the basic interest rate, the purpose of a loan, the borrower’s track record of cooperation with Group companies, the borrower’s rating, the maturity of a loan, and the type of collateral provided for a loan.

Loan approval fees are determined in accordance with applicable decisions adopted by the management board of individual Group companies, and in accordance with their respective credit policies.

4.1.3 exposure limits

With respect to limiting its exposure, the Group takes into account all applicable regulatory limitations. In compliance with Slovene banking laws and regulations, exposure to a single customer or to a group of related

customers shall not exceed 25% of the Group’s equity.

4.1.4 loan Collateral poliCy

As a rule, loans are not granted without the borrower providing at least one type of collateral.

Unsecured loans are exception and are approved only to

risk-free customers. Loans granted to all other customers are secured by at least one type of collateral. The type of

collateral required depends on:

• type of a customer (including its legal status) • customer’s credit rating

• type and maturity of a loan

• customer’s repayment capabilities

• customer’s relationship with the Group and with other customers

• customer’s track record of cooperation with the Group.

Banks in the Group determine eligibility criteria for collateral to be provided in their loan collateral policies. With respect to

the adequacy of collateral provided for reducing credit risk, the following classification has been adopted:

• prime collateral • adequate collateral

• pledge of moveable property or real estate • other types of collateral.

Leasing companies in the Group are legal owners of assets leased under lease agreements.

Non-banking Group companies define the type of

collateral to be provided in their risk management policies.

4.1.5 Counterparty Credit risK

As of 31 December 2012, the share of performing loans (A- and B-rated loans) accounted for 59.73% of the total loans, compared to 70.09% at the 2011 year-end.

The following table sets forth, for the periods indicated, the structure of the loan portfolio by credit rating category:

31.12.2012 31.12.2011

Credit rating category % of portfolio % of portfolio

A 39.05 45.15

B 20.68 24.94

C 18.06 14.84

D 5.15 3.28