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RISK MANAGEMENT AND CAPITAL ADEQUACY DISCLOSURE (PILLAR 3) REPORT 2020 LUMINOR HOLDING AS

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Table of Contents

1. SCOPE OF DISCLOSURE ......................................................................................................................................... 3

2. RISK MANAGEMENT, OBJECTIVES AND POLICIES .............................................................................................. 4

2.1. General information on risk management, objectives and policies ............................................................................. 4

2.1.1. Risk statement ........................................................................................................................................................ 4

2.1.2. Internal control framework ....................................................................................................................................... 5

2.1.3. Risk management framework ................................................................................................................................. 6

2.1.3.1. Risk appetite framework ...................................................................................................................................... 6

2.1.3.2. Recovery planning ............................................................................................................................................... 7

2.1.3.3. Resolution planning ............................................................................................................................................. 7

2.1.3.4. Aggregated risk reporting .................................................................................................................................... 7

2.2. Solvency risk management ......................................................................................................................................... 8

2.2.1. Internal Capital Adequacy Assessment Process ..................................................................................................... 8

2.2.2. Leverage ................................................................................................................................................................. 9

2.3. Credit risk management.............................................................................................................................................. 9

2.3.1. Credit risk mitigation.............................................................................................................................................. 10

2.3.2. Measurement of credit risk .................................................................................................................................... 10

2.3.3. Counterparty credit risk management ................................................................................................................... 11

2.4. Market risk management and measurement ............................................................................................................ 11

2.4.1. Interest rate risk .................................................................................................................................................... 11

2.4.1.1. Interest rate risk in the Banking Book ................................................................................................................ 12

2.4.1.2. Interest rate risk in the Trading Book ................................................................................................................. 13

2.4.2. Credit spread risk .................................................................................................................................................. 13

2.4.3. Foreign exchange risk ........................................................................................................................................... 13

2.5. Liquidity risk management ........................................................................................................................................ 14

2.5.1. Measurement of liquidity risk ................................................................................................................................. 15

2.5.2. Liquidity stress testing ........................................................................................................................................... 15

2.5.3. Pricing of liquidity risk............................................................................................................................................ 15

2.5.4. Contingency Funding Plan .................................................................................................................................... 16

2.5.5. Internal Liquidity Adequacy Assessment Process ................................................................................................. 16

2.6. Operational risk management ................................................................................................................................... 16

2.7. Other risks ................................................................................................................................................................ 17

2.7.1. Model risk .............................................................................................................................................................. 17

2.7.2. Reputational risk ................................................................................................................................................... 17

2.7.3. Business model risk .............................................................................................................................................. 17

3. REMUNERATION POLICY ...................................................................................................................................... 18

3.1. Total Reward Policy .................................................................................................................................................. 18

3.2. Variable remuneration .............................................................................................................................................. 19

3.3. Equality and diversity commitments ......................................................................................................................... 20

3.4. Directorships effectively held by Management Board members ............................................................................... 20

3.5. Suitability and succession planning .......................................................................................................................... 20

3.5.1. Principles for selection, election and re-election ................................................................................................... 20

3.5.2. Criteria for assessing the suitability of members of the Management Body .......................................................... 21

3.5.3. Principles for overseeing the suitability of key personnel ...................................................................................... 21

3.5.4. Principles for succession planning ........................................................................................................................ 21

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1. SCOPE OF DISCLOSURE

Luminor Holding AS is a financial holding company incorporated in Estonia which solely owns Luminor Bank AS (the Bank). Both Luminor Holding AS and Luminor Bank AS are directly supervised by the ECB.

In this report, Luminor Holding AS together with Luminor Bank AS and its subsidiaries are referred to as the Group or

Luminor Group, and Luminor Bank AS with its subsidiaries is referred to as the Bank or Luminor.

The Risk Management and Capital Adequacy Disclosure (hereinafter – Pillar 3) report is prepared according to the EU Regulation No 575/2013 (the CRR) Part Eight, European Commission implementing regulations as well as European Banking Authority’s (the EBA) guidelines No EBA/GL/2016/11. The Pillar 3 report is part of the capital adequacy framework requiring to disclose comprehensive information about Luminor’s risks, risk management policies and associated capital.

The Pillar 3 report is focused on the description of policies and strategies of managing risks in Luminor Group and should be read in conjunction with Annual Report and quantitative tables disclosed in accordance with EBA/GL/2016/11 in the Excel format as follows:

1. KM1 “Key metrics at consolidated level”

2. OV1 “Overview of Risk Weighted Assets”

3. MCR “Minimum capital requirements”

4. LI1 “Difference between accounting and regulatory scopes of consolidation and the mapping of financial statement categories with regulatory risk categories”

5. LI2 “Main sources of differences between regulatory exposure amounts and carrying values in financial statements”

6. LI3 “Outline of the differences in the scopes of consolidation (entity by entity)”

7. Annex_I “Balance sheet reconciliation”

8. Annex II “Main features of regulatory capital instruments and of other TLAC-eligible instruments”

9. Annex IV “Own funds disclosure template

10. CCyB (1) “Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer”

11. CCyB (2) “Amount of institution-specific countercyclical capital buffer”

12. BB(1) “Banking book equity exposures - balance sheet amount and fair value”

13. BB(2) “Banking book equity exposures – gains and losses”

14. LRSUM “Summary comparison of accounting assets vs leverage ratio exposure measure”

15. LRCOM “Leverage ratio common disclosure template”

16. LRSPL “Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures)”

17. CRB-B “Total and average net amount of exposure”

18. CRB-C “Geographical breakdown of exposures”

19. CRB-D “Concentration of exposures by industry or counterparty types”

20. CRB-E “Maturity of exposures”

21. CR1-A “Credit quality of exposures by exposure class and instrument”

22. CR2-A “Changes in the stock of general and specific credit risk adjustments”

23. CR2-B “Changes in the stock of defaulted and impaired loans and debt securities”

24. Template 1 “Credit quality of forborne exposures”

25. Template 2 “Credit quality of forborne exposures”

26. Template 3 “Credit quality of performing and non-performing exposures by past due days”

27. Template 4 “Performing and non-performing exposures and related provisions”

28. Template 5 “Quality of non-performing exposures by geography”

29. Template 6 “Credit quality of loans and advances by industry”

30. Template 7 “Collateral valuation - loans and advances”

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31. Template 8 “Changes in the stock of non-performing loans and advances”

32. Template 9 “Collateral obtained by taking possession and execution processes”

33. Template 10 “Collateral obtained by taking possession and execution processes – vintage breakdown”

34. CR3 “CRM techniques – Overview”

35. CR4 “Standardised approach – Credit risk exposure and CRM effects”

36. CR5 “Standardised approach - Including a breakdown of exposures post conversion factor and post risk mitigation techniques”

37. CCR1 “Analysis of CCR exposures by approach”

38. CCR2 “CVA capital charge”

39. CCR3 “Standardised approach – CCR exposures by regulatory portfolio and risk”

40. CCR5-B “Composition of collateral for exposures to CCR”

41. MR1 “Market risk under the standardised approach”

42. LIQ1 “Liquidity Coverage Ratio (LCR)”

43. Template A “Encumbered and unencumbered assets”

44. Template B “Collateral received”

45. Template C “Sources of encumbrance”

46. REM1 “Quantitative information on remuneration by business area”

47. REM2 “Quantitative information on remuneration of senior management and Identified Risk Takers”

48. REM3 “Deferred remuneration

49. REM4 “Sign-on and severance payments”

50. Covid-19 disclosure Template 1 “Information on loans and advances subject to legislative and non-legislative moratoria”

51. Covid-19 disclosure Template 2 “Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual maturity of moratoria”

52. Covid-19 disclosure Template 3 “Information on newly originated loans and advances provided under newly applicable public guarantee schemes introduced in response to COVID-19 crisis”

Luminor Group is disclosing information which is not (a) regarded as immaterial, proprietary or confidential in accordance with Article 432 of the CRR, (b) protected under the law, (c) related to operational events that could threaten the security of Luminor’s operational processes, (d) undermining the market position of Luminor or result in an increase of reputational risk.

The Pillar 3 report is approved by the Supervisory Council of Luminor Holding AS.

Luminor’s Chief Risk Officer (CRO) is of the opinion, that the Pillar 3 report, if read in conjunction with Annual Report 2020 of Luminor Holding AS and relevant quantitative tables, provides an accurate description of Luminor Group’s risk profile and of the way material risks are identified, assessed, measured, monitored, mitigated and reported.

2. RISK MANAGEMENT, OBJECTIVES AND POLICIES

In this section, information about Luminor’s risk management is disclosed as per EBA/GL/2016/11 guidelines’ flexible format tables EU-OVA, EU CRA, EU CCRA, EU MRA, EU CRB-A, EU CRC and EU CRD to the extent relevant for Luminor.

Luminor has established the Risk Committee of the Supervisory Council that was operating in 2020. Detailed information about Risk Committee is provided in the Annual Report’s section Corporate Governance Report.

2.1. General information on risk management, objectives and policies

2.1.1. Risk statement

Luminor is a retail and corporate bank operating in the Baltics. Luminor is the third-largest provider of financial services in the Baltics, with approximately 0.9 million clients, 2 378 employees, and a market share of 16.1% in deposits and 17.2% in

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lending as at the end of 2020. Luminor’s goal is to improve the financial health of the home region, i.e. the Baltic countries, to match its dynamism and innovation.

After the transaction between DNB, Nordea and Blackstone had been concluded on 30 September 2019, a consortium led by private equity funds managed by affiliates of Blackstone through a new incorporated entity, Braavos BidCo Limited, acquired a 60.1% majority stake in Luminor Holding AS, while Nordea through a Swedish subsidiary Nordea Baltic AB retained 19.95%, and DNB through a Swedish subsidiary DNB Baltic Invest AB retained 19.95% ownership in Luminor Holding AS. Luminor Holding AS is ultimately controlled by BCP VII, an investment fund managed by an affiliate of Blackstone Group Inc. There is no ultimate beneficial owner (natural person) owning directly or indirectly 10% or more of the capital or interest in Luminor. Total shareholders’ equity amounted to 1.7 billion EUR and the Common Equity Tier 1 (CET1) ratio was 22.39% as of end of 2020.

Having completed its cross-border merger in 2019, Luminor continued its transformation in 2020. We achieved a fully independent funding structure and paid back the part of the credit line from DNB and Nordea that had previously been used, while retaining the credit line as a stand-by facility. In March, Luminor issued the first covered bond from the Baltic region, for 500 million EUR, which matures in 2025. In December, Luminor sold a 300 million EUR, four-year bond issue and repurchased 250.7 million EUR of an existing bond that matures in 2021.

The targets defined in Luminor’s non-performing loans’ strategy have been fulfilled – over a 3-year period, non-performing loans were reduced by more than 500 million EUR. The key drivers for the reduction in the non-performing portfolio were collection activities including sales of collaterals, sales of claim rights, and write-offs of the amounts remaining after collection activities.

In 2020, Luminor also completed the full technology carve-out from our former parent banks and established our own network of correspondent banks, gaining independence in international payments. All our customers were migrated to the Luminor information systems by the end of the year. Since the end of November, our operating technology platforms are fully independent of the systems of either DNB or Nordea.

Luminor develops and maintains a culture that entails a strong focus on risk management and control, and the establishment and maintenance of a robust and comprehensive internal control framework. The aim of risk management in Luminor is to achieve an optimal balance between the risk of losses and the earnings potential in a medium- and long-term perspective. Luminor’s risk management framework includes policies, procedures, risk limits and risk controls ensuring adequate, timely and continuous identification, assessment, measurement, monitoring, mitigation and reporting of all material risks. Detailed information about risk management is provided in the Annual Report’s section Note 5. General Risk Management Policies.

Luminor’s internal control framework is a combination of organisational measures, actions, processes and mechanisms that ensure effective and efficient operations and prudent conduct of business, sound change management, adequate identification, measurement, and mitigation of risks, reliability of financial and non-financial information reported both internally and externally, sound administrative and accounting procedures, and compliance with laws, regulations, supervisory requirements, and the institution’s internal policies, processes, rules and decisions.

Luminor has a conservative overall risk profile and will only assume risks which Luminor is able to assess, manage and monitor. The risk appetite is reviewed at least annually reflecting Luminor’s financial plan, business and risk strategy and is translated into overall risk appetites for each risk type: solvency risk, credit risk, model risk, market risk, liquidity risk, operational risk, reputational risk and business model risk. As per internal methodology, each risk appetite can be set to one of five different levels: low, low-to-medium, medium, medium-to-high and high. Risk appetites are internally further described in risk appetite statements, metrics and limits for each risk type and closely monitored. As of December 2020, Luminor’s overall risk appetites ranged between low to low-to-medium categories for all types of risks.

Luminor remains vigilant and committed to detecting and preventing financial crime, regularly reviews anti-financial crime (AFC) practices and invests in the required human and technological resources that are needed. Luminor is working tirelessly to better understand its customers and their transactions, and to manage and report any potential financial crime risk. Luminor predominantly serves residents of the Baltic countries, and customers who have a strong personal or business connection to these countries.

Luminor recognizes the importance of having a sound and consistent risk culture as a key element of effective risk management and to enable Luminor to take sound and informed decisions. The Management Board of Luminor sets and communicates Luminor’s core values and expectations. Luminor’s risk culture promotes an environment of open communication and challenge.

2.1.2. Internal control framework

The internal control framework in Luminor is based on the model of three lines of defence and is organised in such a way that any possible conflicts of interest are avoided or escalated:

- The first line of defence are all Luminor business divisions and supporting divisions. The customer-oriented divisions and support functions (divisions), under the oversight of the Management Board, own their risks and are responsible for ongoing management of risks in line with Luminor’s policies, procedures and controls. The first line of defence ensures that the combined risks over all divisions remain within set risk appetite limits.

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- The second line of defence is an independent control and reporting function authorized to verify that the first line of defence is operating as intended. The Risk and Compliance divisions as a part of the second line of defence are independent from the customer-oriented divisions and support functions whose risks they control.

- The third line of defence consists of the Internal Audit function which provides independent assessments of the total risk management and controls in the first and second lines of defence.

More details, e.g. on the management structure and information about authority and statute of the Supervisory Council Committees and Internal Control functions are presented in the Annual Report’s sections Corporate Governance Report and Note 5. General Risk Management Policies.

On 27 January, Auri Loog joined Luminor as the Head of Internal Audit division. Auri is a Certified Internal Auditor with an experience in banking and auditing sectors. The former Head of Internal Audit, Jelena Gute, was appointed to lead Luminor’s Group Finance Department.

At the end of 2020, Marilin Pikaro announced her decision to resign as Head of the Compliance division and Member of the Management Board of Luminor Bank AS effective 5 January. Mari Mõis, Head of the Legal division, was appointed as Chief Compliance Officer from 6 January.

More details on the changes of the Luminor Management Board and the Supervisory Council members are presented in the Annual Report’s section Management Report.

2.1.3. Risk management framework

As part of the overall internal control framework, Luminor establishes and maintains a group-wide risk management framework extended across all its business lines and internal units, including internal control functions. It enables Luminor to establish and maintain an overview of all identified material risks and to take fully informed decisions on risk-taking.

Risk identification is performed on a continuous basis and uses various tools and processes including e.g. regular top down risk assessments, internal capital and liquidity adequacy assessment processes, stress tests, new product approval and change management processes and is itself further input for strategic and financial planning, scenario analysis and the annual risk taxonomy review. The risk taxonomy is Luminor’s central inventory of identified risk types and risk drivers.

Luminor’s risk management framework includes policies, procedures, risk limits and risk controls ensuring that identified material risks are assessed, measured, monitored and mitigated in an adequate, continuous and timely manner (for more details refer to the respective sections per risk type, please).

The risk management framework is subject to regular independent internal review performed by the Internal Audit function.

2.1.3.1. Risk appetite framework

The risk appetite framework (RAF) is a central part of the risk management framework of Luminor. It describes the aggregated level of risk that Luminor is willing to assume to achieve its strategic objectives. The RAF is structured in a way to promote an aggregation of risk exposures via a cascading limit system as well as to state clear requirements on roles and responsibilities to ensure timely escalations in case of limit breaches. The setting of risk appetites starts with Luminor’s maximum risk capacity which is defined as the level of risk Luminor can assume under stressed conditions given its regulatory requirements. Above the risk capacity, the Supervisory Council establishes Luminor’s risk tolerance, which sets both quantitative buffers above the risk capacity as well as qualitative requirements the organisation should adhere to at all times. The risk tolerance can be understood as the frame in which Luminor is willing to operate, while the risk appetite is set within that frame based on the strategic objectives translated into risk type based risk appetites, statements and limits.

Risk tolerance statements in brief

Next to the quantitative buffers, which are set above applicable regulatory requirements in both forward-looking stressed scenarios and under normal business conditions, the following qualitative risk tolerance statements are set, where Luminor shall:

- dedicate adequate resources to comply with all applicable laws and regulations. - avoid any severe disruptions in critical processes. - act to ensure that the Bank is viewed positively in the media and by our stakeholders in society. - minimize the extent and severity of any impact on clients from operational risk events. - carefully manage its reputational risk and shall not do business with clients that could lead to significant reputational

risk. - not do business with clients when there are reasonable doubts about the credibility of their financials or about the legality

of their activities. - not sell unapproved products and make decisions that may lead to poor outcomes for Luminor customers. - not tolerate internal malicious acts by employees or vendors.

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The RAF is applicable to all Luminor structural units, functional areas and business processes. Ownership of the RAF rests with the Supervisory Council. The RAF is reviewed at least annually, risk exposures are monitored on an ongoing basis and reported towards risk appetite limits at least quarterly using a “Red Yellow Green” limit system.

2.1.3.2. Recovery planning

The Recovery Plan is developed in accordance with the EU legislation. The Recovery Plan is reviewed annually and the ownership of the document rests with Luminor’s Supervisory Council. The Recovery Plan is assessed on a yearly basis by the ECB.

The Recovery Plan serves to:

- define the governance to trigger and carry out conservation and recovery phase, i.e., escalation and decision-making processes, as well as internal and external communications.

- identify core business lines and assure continuation of critical economic functions in a severe stress situation. - establish an indicator framework to activate conservation and recovery phases. - assess the available recovery options, outline their implementation, and quantify their recovery potential within stress

scenarios.

Luminor can enter conservation / recovery phase with the decision made by the Supervisory Council consequent to either persistent breaches of RAF statements’ red-light limits or breach of conservation indicators or recovery indicators. The decision to enter respective phases is made with the goal to restore Luminor financial position in terms of capital and/or liquidity.

Luminor’s Limit Structure

The Recovery Plan includes:

- governance processes in recovery planning as well as the Recovery Plan implementation process. - conservation and recovery indicators, their derivation and calibration of respective thresholds. - strategic analysis of Luminor’s business model and organisational structure. - communication procedures in case of conservation or recovery indicator breaches and respective actions. - recovery options that can be used to restore Luminor’s capital and liquidity positions. - crisis scenarios that could trigger recovery situation. - overall recovery capacity estimation and the underlying analysis. - preparatory measures with regard to recovery options and the Recovery Plan in general.

2.1.3.3. Resolution planning

Luminor’s resolution authority is the Single Resolution Board of the European Banking Union (the SRB). The resolution framework is determined in the EU bank recovery and resolution directive and it addresses the situations of failing banks. While the SRB is responsible for proactively drafting and updating resolution plans for all banks under its remit, banks are responsible for cooperating with the resolution authority through providing data and information necessary for resolution plans and through ensuring resolvability. Resolution planning is an integral part of Luminor’s risk management framework. Luminor closely cooperates with the SRB to provide all the necessary information and data and to ensure the resolvability.

2.1.3.4. Aggregated risk reporting

Regular and transparent monitoring, reporting and escalation mechanisms are established within Luminor so that its management bodies are provided with aggregated risk reports in a timely, accurate, concise, understandable and meaningful manner.

The risk report provides an overview of Luminor’ risk profile and is presented to the Management Board’s Risk and Compliance Forum, Management Board, Supervisory Council’s Risk Committee and Supervisory Council. It is prepared on a quarterly basis combining input from all departments of the Risk division ensuring an independent view from business reporting. The report includes an assessment of the current risk situation including status of the risk appetite limits and Recovery Plan indicators, main conclusions, as well as information on observed trends and risk issues regarding major risk types – solvency risk, credit risk, model risk, market risk, liquidity risk, operational risk, reputational risk and business model risk.

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2.2. Solvency risk management

Luminor’s solvency risk management aims to ensure that the capitalization of the Bank is adequate to secure effective and efficient use of capital relative to the scope and risk profile of Luminor’s operations. In particular, Luminor ensures compliance with minimum capital requirements and regulatory buffer requirements in a way that is consistent with Luminor’s risk profile and tolerance in a forward-looking manner through adequate stress testing, as well as managing the trade-off between holding enough capital to exploit potential growth opportunities and achieving a competitive return on equity.

Luminor’s capital requirements are comprised of the minimum capital requirements, the Pillar 2 requirement set by the ECB, the Other Significant Institution (O-SII) requirement, and the Systemic Risk Buffer and Countercyclical Risk Buffer requirements set by the supervisory authorities in the Baltic countries. Combined, Luminor is required to hold capital exceeding 10.1% of CET1 and 14.5% of Total Capital as of 31 December 2020 (excluding Pillar 2 guidance). In response to the Covid-19 outbreak, the Baltic countries have set their systemic risk buffer and countercyclical buffer requirements to 0%. The buffers are expected to be reviewed once the economic outlook has stabilised.

Luminor Group regulatory capital requirements

Luminor Group Capital Requirements CET 1 Total Capital

Minimum requirements 4.5% 8.0%

Pillar 2 requirement* 1.1% 2.0%

Total SREP Capital Requirement (TSCR) 5.6% 10.0%

O-SII (other systematically important institution) buffer 2.0% 2.0%

Capital conservation buffer 2.5% 2.5%

Systematic risk buffer** 0.0% 0.0%

Countercyclical buffer*** 0.0% 0.0%

Overall Capital Requirement (OCR) 10.1% 14.5%

* In reaction to the Covid-19 pandemic, on 12 March 2020, the ECB allowed banks to partially use capital instruments that do not qualify as CET1 capital, for example Additional Tier 1 and Tier 2 instruments to meet the Pillar 2 Requirements. According to the decision, institutions are allowed to meet their Pillar 2 CET1 requirements with at least 56.25% of CET1 capital and at least 75% of Tier 1 capital. ** As response to the Covid-19 pandemic, the systemic risk buffer is set to 0% starting from 1 May 2020. *** As response to the Covid-19 pandemic, the countercyclical buffer is set to 0% starting from 1 April 2020.

2.2.1. Internal Capital Adequacy Assessment Process

In accordance with the European capital requirements regulations, Luminor has implemented processes for assessing its risk profile and internal capital adequacy. The Internal Capital Adequacy Assessment Process (ICAAP) is performed on a continuous basis and includes risk identification, development of relevant scenarios, scenario analysis, stress testing and risk quantification. The calculations assessing Luminor’s capital adequacy are updated at least on a quarterly basis, are monitored through the integration of limits in Luminor’s risk appetite framework and quarterly reported as part of the risk report. The ICAAP is considered a working tool that enables the bank to have a sound capital management throughout the year.

The objectives, scope, and key principles of the ICAAP are:

- to be risk-based and forward-looking, and thus to consider at least the following aspects: regulatory requirements, economic environment of the Baltic countries, capital targets, identified current and projected risks and available capital.

- the complexity and level of detail of ICAAP is proportionate to the size of the Luminor. - the ICAAP is, where applicable, integrated with the business plans, internal governance framework and internal control

systems. - individual risk types are combined, in order to assess the scope of the overall risk and capital requirement (overall

ICAAP result). - to guarantee that an effective and well-functioning mechanism for identifying the internal capital requirement is

developed and approved by the bank’s management bodies. - to guarantee adequate coverage of internal capital needs relative to Luminor’s risks.

The overall ICAAP approach in Luminor is to comprehensively assess whether the current, projected and stressed levels of capital are adequate considering both the regulatory requirements and targets set by the Supervisory Council. Annually, Luminor prepares a full ICAAP report in line with the regulatory expectations. The process usually starts during the last quarter of the year and is finalized by the 30 April of the following year. The Bank’s supervisory authorities review the ICAAP as a part of the Supervisory Review and Evaluation Process (SREP). Integration of the ICAAP with the financial and strategic planning processes makes the ICAAP an important tool for efficient capital allocation and for identification of capital needs.

The ICAAP 2020 process was initiated and coordinated by the Enterprise Risk department. The ICAAP was prepared on a financial group level based on the financials considering the implications of the Covid-19 and for the planning period of three years, i.e. 2020 – 2022. During the ICAAP process, Luminor performed a self-assessment of internal risks in order to assess

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their materiality. The following risks were identified as material: credit risk, model risk, market risk (including interest rate risk in banking book, credit spread risk, FX risk and refinancing risk), operational risk (including information and communication technology risk, information security risk, data management and protection risk, people risk, process and reporting risk, change and project risk, third party / outsourcing risk, fraud and financial crime risk, compliance risk, legal risk, conduct risk), reputational risk and business model risk.

Stress testing results are integrated into the ICAAP in order to ensure adequate capitalisation and resilience towards adverse and severe adverse developments. Luminor’s maximum potential loss and in turn its capital adequacy ratios assessed under three different scenarios – Baseline, Adverse and Severe-Adverse scenarios:

- Baseline scenario based on the financial plan. - Severe Adverse scenario mainly focused on the implications of severely stressed conditions caused by a further

deteriorating Covid-19 pandemic. - Assumptions used for the Adverse scenario are similar to the Severe Adverse scenario set to a softer stress level.

Reverse stress testing was performed to enable assessment of severity and plausibility of the three solvency stress testing scenarios.

Overall, Luminor is well positioned to meet regulatory capitalisation requirements. Moreover, the capital level is adequate to absorb large additional potential losses stemming from risks to which it is exposed or may be exposed in the future.

Internal Audit regularly reviews and assesses the Luminor’s ICAAP.

2.2.2. Leverage

The leverage ratio is determined as Tier 1 capital divided by the total leverage exposure measure. This ratio ensures additional level of protection against model risks and assessment errors.

As of 31 December 2020, the leverage ratio of Luminor was 10.2%. The capital measure is Tier 1 capital, the total exposure measure is the aggregate amount of assets and off-balance sheet items. Luminor is not exposed to the risk of excessive leverage and in 2020 the ratio did not substantially change.

Luminor regularly monitors and evaluates leverage risk. The information on the leverage ratio is presented to Luminor’s Management Board’s Risk and Compliance Forum, Management Board, Supervisory Council Risk Committee and Supervisory Council as a part of quarterly risk reports. The management bodies in case needed make decisions on appropriate actions to decrease the risk of excessive leverage. Such actions may include:

- increase of own capital, - limiting lending - reducing the offer of markets products to Luminor customers (derivatives in the Trading Book), - reducing unused credit limits for off-balance sheet exposures, - sale of assets.

2.3. Credit risk management

Luminor defines credit risk as the risk to incur a significant loss due to the lack of borrower's ability or willingness to meet contractual obligations and repay a loan. Credit risk (including counterparty credit risk and credit value adjustment risk) is Luminor’s largest risk type representing 90.2% of risk-weighted assets (RWAs) at the end of 2020.

The objective of credit risk management in Luminor is to maintain a low to moderate risk profile of the loan portfolio that ensures the profitability in the short and long term.

The overall risk appetite for credit risk is derived from the overarching solvency risk appetite. The overall credit risk appetite is further translated into risk appetite statements and cascaded down to lower level credit strategy limits, which business units must follow in their day-to-day operations.

Credit risk management is performed according to the three lines of defence framework. The business units representing the first line of defence are primarily responsible for their assumed risks. The Risk division performs independent controls and acts as the second line of defence. The Compliance division is also part of the second line of defence and ensures compliance with the internal risk management framework and external requirements. Internal Audit as the third line of defence is reviewing credit risk management practices as per audit plans.

Within the Risk division, the Credit Risk department has the accountability to oversee and control credit risk. The Credit Risk department owns the credit risk framework (the Credit Policy, the Credit Strategies, the Credit Manuals), participates directly in the decision making (as pre control) for larger exposures and performs post control activities (reviews credit decisions after they have been made) based on samples of decisions made in the first line of defence. The Credit Risk department also ensures a regular presentation of credit risk developments to Luminor’s management bodies. Some controls, which are related to operational risk but affect credit risk, are performed by the Operational Risk department. Credit risk modelling is

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performed by the Risk Data and Analytics department and credit risk validation activities are the responsibility of the Model Risk and Internal Validation department. All mentioned departments report directly to the CRO.

Strategies and policies to manage credit risk and authorisations for credit decisions are described in the Annual Report’s section Note 5. General Risk Management Policies, Credit Risk.

At the end of 2020, 92% of the loan portfolio had low or medium risk as per internal risk classification. Private individuals and legal entities made up 57% and 43% of the loan portfolio respectively. Main industries are real estate, wholesale and retail trade, manufacturing and agriculture. Luminor’s strategy is to reduce the level of non-performing loans in line with the separate non-performing loan strategy and operation plan which is reviewed annually and approved by the Supervisory Council. The credit restructuring and recovery activities are a focus area for Luminor and therefore a dedicated Credit Advisory and Restructuring division was established in 2020.

2.3.1. Credit risk mitigation

Collateral is the main applied credit risk mitigation measure. Collateral pledge is treated as a safety measure but never replaces the sustainable debt servicing capacity. Luminor has a dedicated internal regulation on collateral valuation. All collaterals in Luminor have to be evaluated and reviewed on a regular basis. Valuations performed by external valuators (or purchase price, whichever is lower) are used to define the real estate collateral value. Internal evaluations for real estate collaterals are provided only in exceptional cases. The internal valuation function in Luminor is primarily responsible for quality control of valuations performed by external valuators and it is independent from the main user of the valuation, i.e. the business function. For movable assets external valuation, the purchase price of new assets or the book value for existing assets is accepted.

Asset type specific haircuts are applied to determine the possible realisation value of the collateral. The haircuts are adjusted depending on the specific circumstances related to the certain collateral. 100% haircut (value of zero) is applied for non-insured collateral assets.

As a main rule, collateral should be in the Baltic countries. In exceptionally rare cases, when the collateral is located abroad, higher haircuts are applied.

The value of collateral is reconsidered periodically. The frequency mostly depends on the performing/non-performing status and exposure size. The value of residential real estate is recalculated periodically by applying relevant indices. The revaluation of collateral for non-performing exposures follows the ECB Guidance to Banks on Non-performing Loans.

For further details, i.e. main types of collateral, concentration of collaterals by collateral type, comments on the collateral valuation, please see the Annual Report’s section Note 5. General Risk Management Policies, in particular sections Collateral and Information about Collaterals of Loans.

In Luminor, financial asset and liability netting is not used as a credit risk mitigation technique. Luminor does not use credit derivatives.

2.3.2. Measurement of credit risk

Luminor measures credit risk using rating models that estimate probability of default (PD) as well as loss given default (LGD). The PD assessment is made by using the customer segment/product specific rating models, which are used for homogeneous groups of customers. The internal LGD model calculates LGD using a collateral based formula for legal entities; for private individuals the fixed LGD values are used which are product type specific and based on historical losses. For more details, refer to the Annual Report’s section Note 5. General Risk Management Policies, Credit Risk Measurement.

Luminor identifies default on individual customer level in case of more than 90 days past due on any material amount and/or indication of unlikeliness to pay. For default identification purposes, Luminor recognises the customer as past due if the sum of all unpaid overdue amounts for principal, interest and, where relevant, fees breaches absolute and relative materiality thresholds: in case of private individuals more than 100 EUR and more than 1% of its credit obligations towards Luminor, in case of legal entities more than 500 EUR and more than 1% of its credit obligations towards Luminor. For more detailed information, including the list of unlikeliness to pay indicators, refer to the Annual Report’s section Note 5. General Risk Management Policies, please. Luminor equates “defaulted”, “non-performing” and “credit-impaired” exposures for accounting and regulatory purposes. For some specific external and internal reports, Luminor recognizes the exposures as past due if any unpaid overdue amount exists without application of the materiality threshold.

One of the unlikeliness to pay indicators applied by Luminor is distressed restructuring of the exposure, where this is likely to result in a diminished financial obligation caused by the material forgiveness or postponement of principal, interest or, where relevant, fees. It has the same meaning as forbearance triggering non-performing status in accordance with financial reporting (FINREP) instruction requirements.

With the introduction of IFRS 9 all impairment amounts are classified as specific credit risk adjustments.

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2.3.3. Counterparty credit risk management

Counterparty credit risk (CCR) is the risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows. The objective of counterparty credit risk management is to avoid potential loss. Counterparty credit risk management is an integral part of credit risk management in Luminor. High level guidance is set in the Credit Strategy for Legal Entities while further described in the Credit Manual for Legal Entities and in the Guidelines on Country and Bank Credit Risk Limits. Counterparty credit risk is managed primarily through selection of high-quality counterparties, limitation of exposures to each counterparty, regular valuation of exposures and collateralization of exposures. Luminor does not have any triggers for posting additional collateral given a credit rating change. At least once a year Luminor reviews the credit limits set for each counterparty, and on quarterly basis monitors developments of the external ratings of counterparties, respective early warning system established. For counterparties which are financial institutions, own funds requirements for credit risk are calculated based on the external ratings. For further details, i.e. names of the external credit assessment institutions used, process description, alignment of the alphanumerical scale of each agency, refer to the Annual Report’s section Note 5. General Risk Management Policies, Due from Banks and Other Credit Institutions, please.

Counterparty credit risk reporting specifics

Exposure to counterparty credit risk is calculated using the mark-to-market method for derivatives.

Luminor reflects counterparty credit risk and uncertainty around the valuation in fair values of over-the-counter (OTC) derivative positions. Considering CCR exposure, the market value of individual OTC derivatives can be reduced by credit valuation adjustment (CVA).

2.4. Market risk management and measurement

Market risk represents 0.3% of RWAs at the end of 2020. Luminor has a low risk appetite for market risk, which is defined as the risk of losses from on- and off-balance sheet positions arising from adverse movements in market parameters such as interest rates, credit spreads, currency exchange rates, equity prices or commodity prices. Based on Luminor’s internal risk self-assessment, the most significant parts of market risk for Luminor are interest rate risk, credit spread risk and foreign exchange risk, which all stayed well within internal risk appetite and lower level limits. The significance of other risks is lower, as Luminor does not have any open positions in equity instruments for trading, and all commodity deals with customers are hedged with back-to-back transactions.

The overall market risk appetite is further translated into risk appetite statements and cascaded down to lower level limits business units must follow in their day-to-day operations.

Market risk management and control is organized in three lines of defence as per Luminor’s internal control framework. The first line of defence is the ongoing risk management and internal control by the business units. Each business unit is responsible for daily risk management within their area and to ensure the quality of the portfolio within the set risk appetite limits. The second line of defence is the Market and Liquidity Risk department which performs an independent control function, authorised to verify that the first line is operating as intended. In 2020, Luminor reorganized the market and liquidity risk function. The first line of defence tasks previously performed by the Market and Liquidity Risk department were transferred to the Markets and Treasury Middle Office function, which was moved out of the Risk division to the first line of defence as of January 2021. Luminor’s Internal Audit performs validation of all related processes and is the third line of defence.

Principles for market risk management, measurement, reporting and control throughout Luminor are set in the Market Risk Policy and the Procedure on Market Risk and Liquidity Risk Control.

Market risk reporting specifics

A comprehensive quarterly report on market risk is prepared and presented to the Management Board. This report includes follow-up on the risk appetite level and lower level limits and qualitative comments on major changes during the reporting period. On a fortnight basis, a shorter risk report is prepared and presented to the Management Board to cover interest rate risk in the Banking Book, interest rate risk in the Trading Book and foreign exchange risk.

In the next paragraphs three major risk subtypes are described in more detail – interest rate risk, credit spread risk, and foreign exchange risk.

2.4.1. Interest rate risk

The most significant part of market risk for Luminor is interest rate risk. The main source of interest rate risk in Luminor is repricing risk – risk related to the timing mismatch in the maturity and repricing of assets and liabilities of on- and off-balance sheet positions. Pursuant to Luminor’s Market Risk Policy, interest rate risk is measured and limited in terms of Basis Point Value (BPV), i.e. the change in net cash flows (gaps) given a one basis point (0.01%) parallel shift in market interest rates. Separate limits for banking and trading activities are approved by the Management Board, which also include separation by different currencies: EUR, USD, NOK and other currencies. When calculating the total exposure, the sums of BPV in each

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currency are aggregated irrespective if the total exposure in each individual currency is a short or long position, i.e. netting of positions between currencies is not allowed.

Interest rate sensitive derivative instruments used for trading operations are hedged back-to-back meaning that the impact to interest rate risk from these derivatives is immaterial for Luminor. Whereas, using derivatives as hedges is a major part of interest risk management in the banking book. Interest rate swaps are used to achieve and maintain an acceptable level of interest rate risk. The BPV calculations are performed by Markets and Treasury Middle Office on a regular basis (at least weekly) and submitted to the Luminor’s Management Board.

Luminor performs regular stress testing for interest rate sensitive instruments using various scenarios for changes in interest rate curves. Stressed interest rate risk is managed to remain within the limits set in the risk appetite framework. Luminor in general applies a conservative approach to managing interest rate risk. In 2020, interest rate risk was managed within set limits at all times.

2.4.1.1. Interest rate risk in the Banking Book

Non-traded market risk arises in the course of core banking activities such as lending, deposit taking and debt issuance. The main component of non-traded market risk is Interest Rate Risk in the Banking Book (IRRBB) that refers to the current or prospective risk to both Luminor’s capital and earnings arising from adverse movements in interest rates affecting Luminor’s Banking Book exposures. IRRBB can materialize through changes in the net present value of future cash flow from the Banking Book or change in net interest rate income.

IRRBB is measured as BPV, which is the change in market value per 0.01% interest rate change, referred to as basis point rate change. Risk resulting from all types of on- and off-balance sheet instruments is transformed to BPV. IRRBB is monitored using BPV exposure limits for banking activities. The Treasury and Asset Liability Management department (TALM) is responsible for managing IRRBB BPV exposures and keeping them within levels approved by the Management Board and/or the Supervisory Council. Market and Liquidity Risk department coordinates Luminor’s business and risk units’ proposal of internal IRRBB limits, while Markets and Treasury Middle Office function is responsible for limit utilization monitoring at least on a weekly basis. IRRBB BPV results are reported to the Management Board and the Supervisory Council as part of quarterly risk reports. In case of a limit breach, TALM provides comments on the reasons and the necessary corrective actions to Market and Liquidity Risk department which provides an immediate limit excesses reporting to the CRO, Chief Financial Officer and Head of Internal Audit. Luminor complies with internal limits established for major currencies separately, for all other currencies and all currencies together, while netting of risk between currencies is not allowed.

Based on the EBA guidelines EBA/GL/2018/02 on the management of interest rate risk arising from non-trading book activities, which states that institutions should establish a framework to quantify and monitor the sensitivity of the bank's net interest income to interest rate risk from banking book, Luminor measures its exposure to IRRBB in terms of potential changes to both the economic value (EVE) and earnings (NII) on a quarterly basis. Moreover, corresponding limits for measuring EVE and NII impact to IRRBB are defined in the risk appetite framework.

EVE measures the change in the net present value of the current balance sheet and therefore of its equity value resulting from an interest rate shock. EVE stress testing is based on a duration analysis which approximates the relative change in the net present value of a financial instruments due to a marginal shift of the yield curve. The starting point is the allocation of all cash flows of interest rate sensitive instruments into time bands. The duration of each instrument is then calculated from the change of its net present value due to a shift of the yield curve. The present value of equity is obtained by multiplying the duration of equity by the value of equity (i.e. assets minus liabilities). In this method the value of equity under alternative stress scenarios is compared with the value under a base scenario. EVE is then computed as the present value of assets less liabilities, excluding equity capital. The accuracy of the valuation of the balance sheet positions is mostly dependent on the cash flows calculated and the discount rates used.

NII is calculated using a static gap model which is a simple tool for identifying and estimating the interest rate exposure to repricing risk. It measures the difference between interest-sensitive assets and liabilities in the banking book over 12 months horizon. Gap analysis allocates all relevant interest-sensitive assets and liabilities into a certain number of predefined time buckets based on repricing date or maturity. Gaps where volume of assets is larger than liabilities reflect increasing value (income) of the Banking Book. In time buckets where liability volume exceeds assets create liability gaps which reflect decreasing value (income) of the Banking Book. A gap is then multiplied by an assumed change in interest rates (six interest rate shocks) which are defined in the same way as in EVE calculations, i.e. based on the EBA guidelines.

Six different interest rate shocks are applied for measuring EVE and NII sensitivity based on the EBA guidelines EBA/GL/2018/02. The shock size for those six scenarios is based on historical interest rates. More precisely, for capturing the local interest rate environment and cycle, a historical time series ranging from 2000 to 2019 for various maturities is used to calculate the parallel, short-end and long-end shocks for a given currency. It is worth noting that interest rates are floored at -1% based on the EBA guidance.

At the end of 2020, the highest negative impact on Luminor’s EVE comes from the Parallel up scenario which corresponds to the projected decrease in capital of 7.7 MEUR. In Luminor’s current EVE modelling, the impact arising from floor options embedded into the loan agreements is not captured. Whereas the Steepener scenario is the most severe in NII terms

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projecting an annual NII loss of 22.3 million EUR – floor optionality is taken into account in NII model. Luminor is currently implementing a sophisticated asset and liability management tool in order to remediate the current data and technical limitations for managing interest rate risk.

Summary of EVE/NII results

Scenario Rate scenario description* EVE (MEUR) NII (MEUR)

Parallel up Parallel shift up +200bp throughout the entire 10Y rate curve -7.7 125.4

Flattener Positive shift up +221bp at the short end of the 10Y rate curve with

gradual decrease to negative rates at the long end of the curve. -1.7 138.9

Short up

Positive shift up +227bp at the short end of the 10Y rate curve with

gradual decay towards zero at the longest tenor on the term

structure.

-5.4 1 741.3

Parallel down Parallel shift down -200bp throughout 10Y rate curve 2.7 -22.2

Steepener Negative shift down -49bp at the short end of the 10Y rate curve

with gradual increase to positive rates at the long end of the curve. -0.4 -22.3

Short down

Negative shift down -49bp at the short end of the 10Y rate curve

with gradual approach towards zero at the longest tenor on the term

structure.

1.6 -22.2

*Shock intervals are different depending on the currency. Figures in the table represent euro currency shocks which are the most significant for Luminor.

2.4.1.2. Interest rate risk in the Trading Book

For regulatory purposes, interest rate risk positions are assigned to either the Trading Book or the Banking Book. This classification impacts the regulatory capital requirements. The criteria for the allocation of positions to either the Trading Book or Banking Book are set out in the internal guidelines. Luminor includes in the Trading Book all positions in financial instruments held either with trading intent, or to hedge positions held with trading intent. Any position not defined as a Trading Book position is assigned to the Banking Book.

Interest rate risk in the Trading Book (IRRTB) is relatively small in Luminor, as all open positions coming from over-the-counter derivatives are immediately closed by Markets department making back-to-back transactions, while exposures of sovereign and corporate bonds must fit within internal limits and correspond to certain quality requirements and business strategy.

There is a dedicated limit set in the risk appetite framework for IRRTB. The limit for trading activities is approved by the Management Board and is separated by different currencies: EUR, USD, NOK and other currencies. At least once in a week Luminor calculates the sums of BPV in each currency to evaluate how the volatility of interest rates and mismatches between the interest rate reset dates for assets and liabilities held in the Trading Book could impact current or anticipated earnings or extra capital need.

2.4.2. Credit spread risk

Credit spread risk for Luminor arises from debt securities in the liquidity bond portfolio (sovereign and covered/ supranational bonds) and exposures in the trading debt portfolio (sovereign and corporate bonds). The main objective of the trading bond desk activities is to serve customers or counterparties originating from the Baltic countries or trading in Debt Instruments with Baltic origin by providing execution services in both primary and secondary markets. It is achieved either by entering into back-to-back transactions or by taking short term positions and building inventory in Luminor’s fixed income trading portfolio.

2.4.3. Foreign exchange risk

Luminor’s main exposure is towards euro currency (EUR), while positions of other currencies are not significant. As part of the Foreign exchange (FX) risk management strategy Luminor is managing assets, liabilities and off-balance sheet items in foreign currencies in a way that ensures FX risk is within the limits set in the RAF and lower-level limits set by the Management Board and/or the Supervisory Council. The exposure is measured as the nominal value of the open FX positions converted to EUR using the ECB rates. Markets department is responsible for staying within the decided limits – both intraday and overnight. Luminor has approved conservative limits for non-EUR currencies, including limits for USD, sum of other currencies, maximum of other currencies and total currencies.

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FX risk is managed by monitoring open FX positions and keeping them close to zero on intraday basis by Markets department, whereas Close of Business positions are verified by the Markets and Treasury Middle Office function.

FX positions are reported to the Management Board and the Supervisory Council on a quarterly basis as the part of the risk report. The main part of the balance sheet is denominated in EUR, while open positions in all other currencies are immaterial and well below the limits.

Luminor applies a value-at-risk (VaR) model for simulation of volatility parameters which are then applied to the actual open FX positions to estimate a possible loss due to changes in FX rates. The VaR model assumes a 99 percent confidence level, a 10-day holding period and is calibrated from a minimum of 5-year long time series, which includes periods of high market turbulence. Due to materiality, Luminor currently calculates VaR volatility parameters only for EUR/USD. For currency pairs other than EUR/USD, due to their immateriality, the resulting VaR volatility parameters are simply increased by 50%. End of 2020 calculations of the sensitivity of FX risk resulted in 45 thousand EUR potential losses, which can be considered as immaterial for Luminor.

2.5. Liquidity risk management

Liquidity risk is the risk to incur a significant loss from the inability to meet short-term debt obligations. The objective of liquidity risk management is to ensure that Luminor can always meet cash flow obligations, including on an intraday basis and across market cycles and during periods of stress. Luminor’s liquidity risk management framework consists of the Liquidity Risk Management Policy, Liquidity Risk Management Strategy, Contingency Funding Plan and related procedures. Liquidity risk management framework is aligned with Luminor’s strategy and integrated into Luminor’s enterprise-wide risk management process, including credit, market, operational and reputational risks. Liquidity Risk Management Policy and Liquidity Risk Management Strategy are approved by the Supervisory Council and the liquidity risk management framework is established and maintained by the Management Board of Luminor.

The overall risk appetite for liquidity risk is expressed as survival horizon analysed across different stress scenarios. The overall liquidity risk appetite is further translated into risk appetite statements and cascaded down to lower level limits business units must follow in their day-to-day operations.

Liquidity risk is managed across the three lines of defence. The first line of defence comprises the Group’s Treasury and Asset Liability Management department (TALM) and the business areas. TALM is responsible for the daily liquidity management and Funds Transfer Pricing (FTP). To ensure funding in situations where Luminor is in urgent need of cash and the normal funding sources do not suffice, Luminor holds a liquidity buffer that consists of cash deposits with central banks and high-quality securities that can be readily sold or used as collateral in funding operations. Market and Liquidity Risk department acts as the second line of defence and is responsible for providing independent oversight of liquidity risk. In 2020, Luminor reorganized the market and liquidity risk function. The first line of defence tasks previously performed by the Market and Liquidity Risk department were transferred to the Markets and Treasury Middle Office, which was moved out of the Risk division to the first line of defence as of January 2021. Internal Audit is the third line of defence, which is responsible for validation of respective processes within the first and second lines of defence.

Liquidity risk management is divided into long-term (over one year), short-term (up to one year) risk management and intraday liquidity management. As mentioned above, Luminor holds a liquidity buffer for short term liquidity needs. The buffer’s size is linked to liquidity stress testing results which form the basis of the liquidity risk appetite. The liquidity buffer consists of central bank cash and central bank eligible high-grade liquid securities, that can be readily sold or used as collateral in funding operations. The aim of short-term liquidity management is to meet the daily need for funds to ensure the compliance with the reserve and liquidity requirements set by the ECB, as well as the compliance with internal liquidity limits. Short-term liquidity is maintained through daily monitoring of the liquidity status, day-to-day funding of the appropriate financial instruments for the liquidity purposes. Long-term liquidity risk management is supported by analysing the estimated future cash flows taking into account deposit and loan portfolio growth as well as possible refinancing sources.

The funding strategy forms an important element in Luminor’s liquidity risk management framework and considers diversification of funding in terms of investor types, regions, products and instruments. A key objective of the funding strategy is to create a self-sustainable banking group. To achieve this, major part of parent funding was gradually replaced with other forms of funding – deposits and wholesale borrowing from third parties. Deposits are and will remain the main funding source for Luminor, and the bank will continue to optimize its deposits base towards stable deposits. Funding strategy considers market conditions such as market capacity and credit rating. To that end the strategy strives to preserve and improve Luminor’s credit rating, enabling access to customer deposits and wholesale funding both in periods of stress and at an attractive cost.

Intra-day liquidity risk arises from intra-day timing mismatches of payments, where Luminor sends payments and expects to receive funds back later in the day to meet other outgoing payment obligations. Luminor mitigates the intra-day risk by effective operational management of intra-day liquidity (e.g. via position monitoring, payment and collateral management, client and product management). In addition, intra-day liquidity risk can be mitigated by having access to surplus of intra-day liquidity, such as balances at central banks, unencumbered liquid assets that can converted to intra-day liquidity by pledging with the central banks, or balances with other banks that can be used for intra-day settlement.

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Liquidity risk reporting specifics

Liquidity risk is a part of Luminor’s risk report prepared and presented to the Management Board and the Supervisory Council on a quarterly basis. This report includes follow-up on the status of risk appetite levels and lower level limits, and qualitative comments on major changes during the reporting period. In order to support the identification process of increased risk in the liquidity risk position or potential funding needs, Luminor has developed early warning indicators. Those indicators are monitored daily and reported to supervisory authorities on a weekly basis.

2.5.1. Measurement of liquidity risk

Liquidity risk is measured and monitored through liquidity gap, Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and Survival Horizon.

For the purposes of liquidity risk-assessment, the liquidity gap is analysed taking into account the maturity of cash flows. Liquidity risk is restricted by imposing internal limits on the liquidity gap. Utilization of this limit is subject to regular monitoring and reporting to various management bodies in Luminor. The Liquidity gap is calculated by analysing Luminor’s net refinancing situation within one week, one month and three months applying a "business as usual" approach. Liquid assets and short-term liabilities are included in liquidity gap calculations for respective terms (1 week to 3 months).

LCR is calculated as the ratio of a credit institution’s liquidity buffer to its net liquidity outflows over a 30-calendar day stress period. Since the Baltic countries are all members of the EU, LCR is applicable to Luminor as a Europe wide requirement. The minimum regulatory requirement of the LCR is set at 100%, according to the Regulation (EC) No 575/2013, however Luminor has limits for a higher ratio in place to maintain a buffer for short term fluctuations. LCR is intended to promote short-term resilience of Luminor’s liquidity risk profile and requires to hold risk-free assets that may be easily liquidated on markets in order to meet required payments for outflows net of inflows during a thirty-day crisis period without the support from the central bank.

The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding over a one-year time horizon. Minimum regulatory requirement set in the Regulation (EC) No 575/2013 for NSFR is 100%, however Luminor holds a substantial buffer through a designated NSFR limit as part of the RAF.

The Survival Horizon is defined as a period (measured in days) with a positive cumulative cash flow under assumed stress scenarios. This figure is regularly calculated and reported to Luminor’s management bodies to ensure that Luminor has adequate liquidity against contractual and potential stressed outflows. Assumptions include but are not limited to a loss of a volatile portion of deposits, decrease in asset value of the liquidity portfolio, decrease in income from planned customer loan repayments, drawdown of undrawn credit lines and withdrawal of balances from top depositors.

2.5.2. Liquidity stress testing

Liquidity stress testing is carried out to identify liquidity risk drivers and stress scenarios, which could impair Luminor’s ability to meet cash-flow obligations when they come due, either because of scarce liquidity resources or significantly increased costs of funding needed. Liquidity stress testing is an important tool for evaluating the impact of exceptional but plausible events on the liquidity position of Luminor.

Liquidity stress-testing is conducted according to at least three scenarios: idiosyncratic, market-wide and a combination of the two. The stress-testing period Luminor considers includes at least two phases: a short-term acute phase and a prolonged but less acute phase. To the extent practical, Luminor seeks to analyse the behavioural characteristics of its assets, liabilities and off-balance sheet items, including those that are non-contractual in nature, to facilitate understanding of how these items may contribute to, or place demands on, its liquidity under stress scenarios. The idiosyncratic crisis scenario is based on either real or perceived problems of Luminor, which affect public confidence (e.g. asset quality problems, solvency concerns, rumours on Luminor’s credibility). The essence of the scenario is a loss of a volatile portion of deposits and inability to roll-over or replace many of Luminor’s liabilities, resulting in the need to utilize the liquidity buffer. In this scenario the rest of the financial sector is not directly affected. Market-wide crisis scenario is associated with an event, such as global financial distress, local government crisis, sudden and deep economic recession, a set of negative economic indicators, etc. The essence of the scenario is a decline in the liquidity value of some assets and deterioration in funding-market conditions. The combined crisis scenario generally combines the worst assumptions from the idiosyncratic and market-wide scenarios.

2.5.3. Pricing of liquidity risk

Appropriate transfer pricing mechanisms are maintained to ensure that transactions are subject to market-based charges or benefits and incentivise behaviours that ultimately drive the balance sheet and liquidity profile according to Luminor’s strategy. The internal funds transfer pricing framework indicates how Luminor’s funding costs, as well as those costs associated with maintaining liquidity buffers, are allocated to specific business or product areas.

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2.5.4. Contingency Funding Plan

The Contingency Funding Plan addresses the strategy for managing a liquidity crisis. The plan ensures that the Management Board can make well-informed, timely and effective decisions in the event of a liquidity crisis. The plan sets out an approach for the protection of Luminor from negative and potentially damaging consequences of a liquidity crisis. The plan describes the activities to be performed and measures that will be applied during such a crisis as well as monitoring and reporting of events that would lead to the implementation of the Contingency Funding Plan. The Chief Executive Officer of Luminor (or, in their absence, the Chief Financial Officer) decides whether the liquidity crisis has occurred / discontinued, according to the information received from the Head of the Market and Liquidity Risk department.

2.5.5. Internal Liquidity Adequacy Assessment Process

The Internal Liquidity Adequacy Assessment Process (ILAAP) is a continuous process for Luminor. The ILAAP provides an assessment of liquidity adequacy through a comprehensive analysis of liquidity risk management practices in Luminor. It is integrated in the risk management framework and closely connected to the risk identification and assessment processes. Next to the ongoing assessment, Luminor prepares annually a fully comprehensive ILAAP report – usually in parallel with the ICAAP as many process steps for ILAAP are similar to the ICAAP (refer to the section 2.2.1. for general comments regarding the process, please). Liquidity stress testing results as of the end of 2020 are assessed as acceptable and indicate a low liquidity risk profile that is ensured by the implemented Liquidity Risk Management Strategy.

Internal Audit regularly reviews and assesses ILAAP in Luminor.

2.6. Operational risk management

Luminor defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people, and systems or external events. Operational risk in Luminor incorporates legal risk, compliance risk, fraud & financial crime risk, conduct risk, information and communication technology (ICT) risk, information security risk, data management and protection risk, people risk, third party and outsourcing risk, change and project risk, process and reporting risk.

Operational risk represented 9.5% of RWAs at the end of 2020. RWAs are calculated using the Basic Indicators Approach.

Luminor’s operational risk appetite and corresponding limits are defined in the Bank’s risk appetite framework . The overall risk appetite for operational risk is derived from the overarching solvency risk appetite and is further translated into risk appetite statements and cascaded down to lower level limits. Luminor’s operational risk limits have been validated and verified by quantitative and qualitative operational risk analysis tools.

Operational risk management in Luminor is governed by the Operational Risk Policy and other relevant governance documentation comprising the operational risk management framework. Each manager and process owner within the Bank is responsible for the management of risks inherent in the activities and processes within their respective area. This includes fostering a sound risk culture in their respective reporting lines to ensure that employees understand the operations that are performed by them, the risks inherent in these, and the importance of controls they execute or oversee the execution of.

A key objective of the operational risk management function is to identify any deviations of Luminor’s operational risk profile from the desired risk level that is stated in the risk appetite framework and to do so on time to ensure any deviations can be effectively managed without significant detriment to the bank, its customers or other stakeholders.

Luminor manages operational risk through the following mechanisms:

- A change risk management framework, involving a comprehensive analysis of operational risks that may result from planned changes, is carried out before change decisions are made, and before changes ‘go-live’. Where risks are identified and assessed to required mitigation, effective mitigating actions are defined and followed up to ensure the risk is managed effectively. The change risk management framework and process also include an evaluation of whether the Group has adequate internal tools and expertise to understand and monitor the risks associated with new products, services, markets, and businesses.

- The risk and control self-assessment process, which enables and requires owners of products and business processes to identify and assess potential operational risks, alongside an evaluation of relevant controls.

- Key risk indicators (KRIs), extrapolated from Luminor’s operational risk appetite are defined, calibrated, monitored, and reported to senior management. KRIs serve to inform the bank of potential changes to its risk profile and levels on time, so that such changes are managed to ensure the risk levels remain within appetite.

- Operational risk incident management is the collection, analysis, and follow up of information related to operational risk events. Such information includes (but is not limited to) financial and other impacts (realised or potential), root causes and required control improvements.

- Operational risk stress testing and scenario analysis, serve to inform the Bank of the potential risk impacts that could materialise under extreme conditions. The processes include the identification and assessment of potential operational risk, the evaluation of existing controls, analysis of necessary risk-mitigating actions, and the modelling of potential outcomes.

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- Luminor’s whistleblowing framework, is designed to encourage all employees to escalate any concerns regarding the conduct of the Bank’s operations, potential deviations from internal rules and instructions, as well as applicable laws and regulations.

- Risk transfer is achieved through group-level insurance contracts, which are implemented to limit the financial consequences of undesirable events which occur despite the bank’s control environment.

- Contingency, Business Continuity, and Crisis Communication Plans, are developed and maintained according to a comprehensive business continuity framework, and designed to ensure business continuity in crises, which would otherwise result in serious losses and damage to Luminor and the bank’s stakeholders.

- Luminor’s management is kept transparently updated on the status of the Bank’s operational risk profile through regular reporting of operational risk levels, exposures, and events. The content and structure of the risk report has undergone significant improvement during 2020 to facilitate more holistic and systematic oversight.

- Scenario analysis is an important source of forward-looking risk information. Established scenarios cover possible risk scenarios coming from “business-as-usual" activities, as well as scenarios relevant due to significant on-going changes.

2.7. Other risks

2.7.1. Model risk

Model risk is the risk of adverse effects on capital adequacy, financial loss, poor business- or strategic decision-making from the use of inadequate or deficient quantitative models.

Periodical validation of Luminor’s Credit Risk, IFRS9, ICAAP and ILAAP models is performed by the Model Risk and Validation department according to the Standard on Validation. Identified observations are addressed following the defined corrective actions and deadlines.

Luminor is currently further improving major elements of Luminor’s model risk management framework to provide more focus on designated processes related to the identification, estimation, control, monitoring and reporting of model risk.

2.7.2. Reputational risk

The Bank defines reputational risk as the risk arising from a negative perception on the part of customers, counterparties, shareholders, investors, debtholders, market analysts, other relevant parties or supervisory authorities that can adversely affect the Bank’s ability to maintain existing or establish new business relationships and continued access to sources of funding.

Luminor demonstrates an absolute commitment to the highest standards of ethics, values and expected behaviours. All of Luminor’s activities are conducted in compliance with applicable law, regulation, and internal policies.

The procurement process includes background checks for vendors and suppliers, to prevent engagement with third parties where Luminor would be exposed to reputational risk, particularly in case third parties are / may be related to financial crime activities.

A robust change risk management framework, requiring key risk management steps to be followed before launching new products, or making significant changes thereto, serves as a measure to mitigate any reputational risk associated with changes. Such changes would include inter alia the launch of potentially non-compliant products, or products that do not meet customer expectations, considering all financial and non-financial risk types (including reputational risk).

The Customer Risk Forum has been operational in Luminor to solve any disputable, and/or high-risk related cases. Due diligence on financial institutions with whom Luminor performs transactions / other types of activities is performed to ensure financial counterparties are reputable.

2.7.3. Business model risk

Business model risk is risk to Luminor’s profitability from potential adverse developments in the commercial aspects of Luminor’s business, in particular the (partial) failure to implement Luminor’s business strategy.

Luminor sets key performance indicators for the respective year in annual strategic and financial planning process. On top of that, group-wide strategic activities and other financial targets are identified which helps to drive Luminor’s business and operations towards strategy implementation. Luminor’s targets are furthermore cascaded into division targets and strategic activities.

Luminor has established a quarterly performance review process which follows up on Luminor’s performance to deliver the annual key performance indicators, as well as group-wide strategic activities and other financial targets. The Performance Management and Insights department prepares an update on the status of financial targets and each division submits its status on the implementation of strategic activities (in terms of green/ yellow/ red lights). Detailed discussions are organised at the Management Board to plan further steps, including corrective actions, if needed. In addition, discussions about peers and market developments are completed to understand changes of the broader business environment.

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3. REMUNERATION POLICY

3.1. Total Reward Policy

The Group’s strategy and objectives for remuneration are defined in the Total Reward Policy (the Policy) which is approved by the Supervisory Council. The Policy aligns remuneration with prevailing strategies, values and goals while promoting sound risk management and covers all staff within Luminor Group. The Policy is developed in accordance with the EU Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR), among other. The Policy is reviewed annually.

The Supervisory Council approves the Policy after examining the recommendation of the Supervisory Council’s Remuneration Committee in respect of the Policy.

The Supervisory Council Remuneration Committee ensures that Luminor Group’s remuneration systems conform to effective risk management and are designed to reduce the risk of excessive risk-taking. The Remuneration Committee is appointed by the Supervisory Council from the members of the Supervisory Council. The Remuneration Committee consists of at least three members. The Chair of the Remuneration Committee is appointed by the Supervisory Council amongst the members of the Remuneration Committee. When appointing the members of the Remuneration Committee, the Supervisory Council should ensure that the Remuneration Committee is not composed of the same group of members that forms another committee.

The members of the Remuneration Committee should have collectively appropriate knowledge, expertise and professional experience concerning remuneration policies and practices, risk management and control activities, namely with regard to the mechanism for aligning the remuneration structure to Banks’ risk and capital profiles.

The Supervisory Council appoints all the members of the Remuneration Committee for a term of two years at a time. In order to avoid undue concentration of power and to promote fresh perspectives, a member of the Supervisory Council might not be appointed to be a member of the Remuneration Committee for more than three consecutive terms of office.

The Remuneration Committee shall:

- prepare internal regulations related to remuneration to be approved by the Supervisory Council (including those which impact Luminor’s risk profile and quality of risk management or otherwise have implications for Luminor’s risk and risk management);

- prepare draft decisions, recommendations and conclusions to be taken by the Supervisory Council regarding remuneration (including those which have implications for Luminor’s risk and the risk management, including Management Board members and members of staff whose professional activities have a material impact to Luminor’s risk profile (Material Risk Takers));

- provide support and advice to the Supervisory Council on the design of the Bank’s remuneration policy;

- supervise the remuneration of the members of the Management Board and Material Risk Takers;

- make recommendations to the Supervisory Council regarding design of the remuneration package and amounts of remuneration to be paid to the Management Board and Material Risk Takers as well as senior staff members of the control functions of the Bank;

- advice Supervisory Council on the lists of the identified roles within the Group for the purpose of the identification of the Material Risk Takers;

- make recommendations to the Supervisory Council on variable remuneration arrangement and benefits arrangement other than those established in the Total Reward Policy;

- support the Supervisory Council in overseeing the remuneration policies, practices and processes and ensuring compliance with the remuneration policy and if necessary, make proposals for updates on aforesaid;

- assess the achievement of performance targets and the need for ex post risk adjustment, including the application of malus and clawback arrangements and make relevant proposals for the decisions at Supervisory Council;

During 2020, the Remuneration Committee held 10 meetings. The People and Culture division participates in and informs on the drawing up and the evaluation of the remuneration policy for Luminor, including the remuneration structure, remuneration levels and incentive schemes, in a way that would not only attract and retain the employees but would also assure that the remuneration policy is aligned with Luminor’s risk profile.

The Compliance division operates in close co-ordination with the People and Culture division in order to support the design and application of the Policy and related processes. In particular, the Compliance division:

- is involved in advising on consistency of the Policy with the regulatory requirements, Luminor’s internal policies, Code of Conduct and risk culture;

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- reports on all identified compliance risks and issues of non-compliance in relation with the implementation of the Policy both to the Supervisory Council (through the Remuneration Committee) and to the Management Board.is involved in the assessment process for the definition of the Material Risk Takers;

- provides effective input for setting variable remuneration pools, severance payments, performance criteria, by assessing risk-taking of business units, and, where possible, individual performance.

The Risk division operates in close co-ordination with People and Culture division in order to support the design and application of the Policy and related processes. In particular, the Risk division:

- supports definition of performance criteria which reflect Luminor’s objectives, strategy, corporate culture, values, long term interests and risk appetite;

- assesses risk-taking of business units and, where possible, individual performance, towards risk-based criteria, which is used as a basis when calculating actual variable remuneration pool and individual reward;

- is involved in the assessment process for the definition of the Material Risk Takers.

The Internal Audit function at least once per year checks implementation of the requirements set in the Policy within Luminor as well reviews design and effects of Luminor’s remuneration policies on its risk profile and the way these effects are managed.

The general meeting of Luminor’s shareholders approves:

- decisions specifying the procedure for and amount of remuneration for the members of the Supervisory Council (including also decisions to approve payments persons can be awarded at the termination of their Employment Agreement);

- decisions setting a higher maximum level of the ratio between the variable and fixed component of remuneration of up to 200% as well as decisions on a reduction of the higher maximum ratio that has been approved in the past.

The Group-wide provisions of the Policy shall be appropriately implemented by all Bank’s Subsidiaries in their remuneration policies, practices and processes (including, among other things, through development, approval by competent management bodies of the Bank’s Subsidiaries and application of the relevant policies and other internal regulations of the respective Bank’s Subsidiaries to the extent necessary according to applicable regulatory enactments) in accordance with applicable regulatory requirements and internal regulations, taking into account that the requirements set in the Policy are prevalent, except when the requirements set in the applicable regulatory enactments are more stringent.

3.2. Variable remuneration

The variable remuneration is designed to differentiate Luminor from other sector players adopting a culture focused on performance and long-term company value. The variable remuneration awards take into account the risks taken and support Luminor in achieving and maintaining a sound capital base in line with applicable regulatory enactments. The variable remuneration promotes Luminor’s long-term interests, which are in line with legitimate interests of the depositors and other clients, and is determined by: (1) financial and non-financial targets set to Luminor’s staff, (2) an overall assessment of staff’s compatibility to Luminor’s values, leadership principles and Code of Conduct, (3) an overall staff’s contribution to Luminor’s sustainable performance. Therefore, the variable remuneration awards are conditional, discretionary and contingent on a sustainable and risk-adjusted performance.

The variable remuneration system is based on a methodology that defines principles for calculating and allocating the variable remuneration pool, as well as calculating the individual reward. The Group-level and structural unit performance are considered to estimate and distribute the variable remuneration pool, while individual performance evaluation leads to the calculation of individual reward as part of the allocated variable remuneration pool.

The following principles are examples of the framework established to ensure sound risk management in relation to the variable remuneration:

- The amount of variable remuneration cannot exceed 100% of the annual fixed remuneration for a staff member in a given performance year. The variable remuneration to staff members of Luminor internal control functions (including risk management function performed by the Risk division, compliance function performed by the Compliance division and internal audit function performed by Internal Audit) does not depend on performance of the business units they control.

- The severance payments should reflect performance achieved over time and not reward failure or misconduct.

- Material Risk Takers are identified in accordance with the criteria set in Commission Delegated Regulation (EU) 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile.

With regards to the potential risk related to the evaluated performance of the Material Risk Takers, payment of at least 50% of the variable remuneration awarded to them is deferred over a period which is not less than 3 to 5 years and is paid out in

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suitable instruments which are subject to an appropriate retention policy designed to align incentives with the longer-term interests of Luminor.

3.3. Equality and diversity commitments

Luminor has developed Equality, Non-discrimination and Diversity Policy (ENDD) approved by the Supervisory Council. The ENDD has been drawn up in accordance with legislation of labour relations as well as other legal acts in order to promote and support an environment which values and affirms equal opportunity, diversity and inclusion in accordance with universal principles of equality, fairness and social justice.

Luminor commits to:

- creating an environment in which individual differences and the contributions of all team members are recognized and valued and that promotes dignity and respect for every employee;

- promoting equality in the workplace, which facilitates collaboration and helps to create business value for customers, stakeholders, employees and society, which includes:

- applying equal selection criteria and conditions for recruitment; - using equal work evaluation criteria; - setting equal salary ranges for equal work; - creating equal working conditions and providing equal privileges; - providing equal opportunities for improvement, professional development, requalification, acquiring practical

working experience;

- not tolerating any form of intimidation, bullying, scapegoating, harassment, sexual harassment at workplace based on discrimination and from any instructions to discriminate and to discipline those that breach the ENDD;

- encouraging anyone who feels they have been subject to discrimination to raise their concerns;

- avoiding victimisation and protecting employees from adverse treatment or negative consequences as a reaction to complaints against discrimination or involvement in proceeding against discrimination when such situation arises.

In order to maintain independent opinions, critical thinking and allow a variety of views, management bodies including the Management Board, Boards of Subsidiaries are formed in line with local law and will be sufficiently diverse, including, for example, gender, age, geographical origin, education and experience.

3.4. Directorships effectively held by Management Board members

According to the Estonian Credit Institutions Act the Management Board members of the Credit Institution cannot have any Management Board memberships outside of the Credit Institution. Luminor’s Management Board members had no effectively held directorships outside Luminor as at the end of 2020.

3.5. Suitability and succession planning

Luminor has established a Suitability and Succession Planning Policy (Suitability Policy) approved by the Supervisory Council. Suitability Policy introduces principles to be followed so that the members of the management bodies, employees representing critical business or support function areas (Key Function Holders), internal auditors and Head of Customer Risk Management department (Officers) possess the substantive knowledge, skills and experience necessary and are suitable for their positions, as well as to ensure the adequate reserve of staff for the management body or Key Function Holder positions in the event of a vacancy.

The Suitability Policy applies to Luminor, including also those not subject to regulations explicitly requiring the Suitability assessment of the members of the management body.

3.5.1. Principles for selection, election and re-election

While selecting, electing or re-electing the members for the management body, Key Function Holder or an Officer, Luminor’s business and risk strategies, risk appetite framework have to be taken into consideration.

Luminor aims to achieve an adequately diverse composition of the appointees’ complying with the principles of diversity, as well as avoiding conflicts of interest and does not discriminate the appointee based on his/her gender, race, colour, ethnic or social origin, genetic features, religion or belief, membership of a national minority, property, birth, disability, age, or sexual orientation.

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3.5.2. Criteria for assessing the suitability of members of the Management Body

All members of the management body, Key Function Holder or an Officer must be suitable at all times, individually and collectively. For transparent and unbiased suitability assessment, the following principles and criteria have to be applied:

- The member of the management body, Key Function Holder or an Officer is considered to be suitable for the position, if he/she holds a higher education (at least a bachelor’s degree from a recognised university), has adequate skills (incl. appropriate personal soft skills), previous professional experience and proven track record of qualification by having enrolled to different courses and training.

- The member of the management body, Key Function Holder or an Officer has to have an impeccable reputation (not only limited to business reputation) and has to be able to act with honesty and integrity.

In order to facilitate independent opinions and challenge the “group thinking”, the member of the management body, Key Function Holder or an Officer should have an independence of mind and perform his/her duties independently and objectively, absence of conflicts of interests is always required.

- For the member of the management body, Key Function Holder or an Officer to understand Luminor’s business, its main risks and implications of the business, he/she should allocate sufficient time for the position and has to have the willingness to take accountability for his/her actions and the area of responsibility.

- The level and nature of the required knowledge, skills and experience may differ for members of the management bodies in the Luminor Group, Key Function Holders and Officers.

3.5.3. Principles for overseeing the suitability of key personnel

Luminor oversees the suitability of the management body members, Key Function Holders and Officers on an on-going basis to ensure continuous suitability of the member of the management body and the management body collectively, also of Key Function Holders and Officers in accordance with the internal and external regulations.

The responsible unit in Luminor has to perform the re-assessment of suitability and / or collective suitability in the following cases:

- one year has passed from the last collective suitability assessment;

- the member of the management body, Key Function Holder or an Officer takes up additional position internally or externally;

- there are concerns regarding the suitability or collective suitability;

- in the event of a material impact on the reputation of a member of the management body, or Luminor, including cases where the members do not comply with the conflict of interest principles valid in Luminor;

- as part of the review of internal governance arrangements (changes of strategies, business model, shift in responsibilities etc);

- any event that can otherwise materially affect the Suitability of the member of the management body, Key Function Holder or an Officer.

- The suitability assessment process shall be duly documented.

3.5.4. Principles for succession planning

Succession planning is part of the talent management process, which builds a pool of trained employees who are ready to fill key roles in the Supervisory Council, the Management Board or step in positions of Key Function Holders or Officers when the current leaders step down.

Succession planning ensures that there’s a strategy in place for the successor to step in, get promoted and take over the previous leader’s duties without a loss in productivity either in case of short-term absences or permanent departures.

The succession planning relies on a pool of internal talents who are being prepared for the key roles. These employees have the right skills, energy and leadership qualities, which will benefit Luminor across the spectrum of roles, departments and seniority levels.

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