NLB clarification regarding the Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs

The Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia (including NLB) as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010, and provides for a cap on the exchange rate between Swiss francs and the Euro to be set at 10% volatility (the "FX Cap") and shall be applied from the conclusion of any of the affected loan agreements. During the validity of the FX cap, the value of instalments and other payments under such loans shall equal the amount at which the FX cap has been triggered and the lender would be required to repay any overpayment to the relevant borrower. Further, any overpayment on such loans by the relevant borrowers shall be subject to default interest to be paid by the lender.

Since the Law affects civil law contractual relationships retroactively, the constitutionality of the Law has been extensively debated during the legislative process with a number of national and European authorities considering the Law to violate the Slovenian Constitution. The shareholders of affected Slovenian banks (including NLB) submitted a joint letter to several Slovenian and European authorities expressing great concern regarding the Law. NLB intends to use all legal remedies against the Law before the Constitutional Court and, if necessary, in front of relevant European forums.

Based on the assessment of the Law adopted by the Slovenian National Assembly and if outlined legal remedies are unsuccessful, NLB estimates a negative pre-tax effect on the operations of NLB and NLB Group between 70 - 75 million EUR, subject to further detailed analysis. Impact on NLB and NLB Group is material but very manageable given the historically limited extent to which NLB engaged in Swiss francs lending. NLB considers this as a non-adjusting event after the reporting period.