he report, covering the period between the beginning of 2013 and 2 September 2016, notes that the bank took several measures to better manage credit risks, including by setting up an early-warning mechanism and compiling lists of clients that are monitored and dealt with even before potential default.

But the court found that despite the measures, derogations from appropriate conduct in the approval and monitoring of loans continued.

The court found problems with the selection of non-performing loans for the transfer to the Bank Asset Management Company (BAMC) in that not NPLs were transferred and the transfer criteria were not fixed or clear.

The bank also failed to establish an appropriate auditing trace that would ensure the transparency of the transfer process because it is not clear who was responsible for the decision-making. All details of the transfer of NPLs to BAMC were labelled as a business secret or bank secrecy.

The NLB group had a total of EUR 3.7bn in NPLs as of the end of 2012. Despite the transfer to BAMC, a year later the bank still had EUR 2.8bn worth of such loans representing 25.6% of the loan portfolio.

From the beginning of 2013 to the end of 2015, the volume of NPLs was reduced by EUR 1.8bn, the bulk due to the transfer to BAMC and claim write-off.

The court finds that the proportion of NPLs in NLB's portfolio remains high above the average of European banks; at the end of 2015 the proportion at the group was 19.3%, which compares to the European average of 5.7%.

The bank has also failed to define at a strategic level the target scope of NPLs or the deadline to achieve the goal.

While a strategy for the reduction of NPLs was adopted in 2015, including goals and measures, the targets were not fully determinable due to changes in methodology, while there were no indicators that would enable the monitoring of measures, nor were targets given for all measures.

The court also found several issues in management of contracts, and in selection of external contractors for a review and investigation of NPLs.

In the latter the bank failed to state in advance its demands, and later unexpectedly expanded the scope of services, which dissuaded the best bidder from entering into contract.

NLB also failed to obtain from the bidders an appropriate guarantee that the references given were appropriate or credible, failing to check whether the bidders met the requirements for a quality implementation of the review.

The Court of Audit made several recommendations to NLB to improve risk management in the management of NPLs and contract management.

Moreover, the court's president Tomaž Vesel told TV Slovenija the report had been handed over to the police and the Commission for the Prevention of Corruption due to questions regarding consultancy agreements.

NLB said in response it was glad the Court of Audit had noticed the progress, adding that procedures would be improved further.

It also expressed surprise at the report being handed to police. "NLB is not privy to the reasons why the Court of Audit would provide anything to law enforcement. They never mentioned any suspicions of criminal activity during the audit," the bank said in a press release.