RNS Number : 6386V
Turkiye Garanti Bankasi
31 January 2017
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Türkiye Garanti Bankası Anonim Şirketi

Unconsolidated Financial Statements

As of and For the Year Ended

31 December 2016

(Convenience Translation of Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish)

With Independent Auditors' Report Thereon

 

 

 

DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ

30 January 2017

This report contains "Independent Auditors' Report" comprising 2 pages and;"Unconsolidated Financial Statements and Related Disclosures and Footnotes"comprising 128 pages.

 

 


 

 

 

 

 

 

 

INDEPENDENT AUDITORS' REPORT

 

 

To the Board of Directors of Türkiye Garanti Bankası A.Ş.

 

Report on the Financial Statements

 

We have audited the accompanying unconsolidated financial statements of Türkiye Garanti Bankası A.Ş. ("the Bank"), which comprise the unconsolidated balance sheet as at 31 December 2016, and the unconsolidated statement of income, statement of income and expense items under shareholders' equity, statement of changes in shareholders' equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management's Responsibility for the Financial Statements

 

The Bank Management is responsible for the preparation and fair presentation of the financial statements in accordance with "the Banking Regulation and Supervision Agency ("BRSA") Accounting and Reporting Regulation" which includes the regulation on "The Procedures and Principles Regarding Banks' Accounting Practices and Maintaining Documents" published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards for the matters not regulated by the aforementioned legislations and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors' Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the regulation on "Independent Auditing of Banks" published in the Official Gazette dated 2 April 2015 with No. 29314 and Independent Auditing Standards which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority ("POA"). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

 

 

 

Basis for Qualified Opinion

 

Subsequent to the reversal of TL 30,000 thousands in the current period the accompanying unconsolidated financial statements include a general reserve amounting to TL 300,000 thousands as of the balance sheet date, provided by the Bank Management in prior periods in line with conservatism principle considering the circumstances which may arise from any changes in the economy or market conditions.

 

Qualified Opinion

 

In our opinion, except for the effect of the matter described in the basis for qualified opinion paragraph, the unconsolidated financial statements present fairly, in all material respects, the financial position of Türkiye Garanti Bankası A.Ş. as at 31 December 2016 and the results of its operations and its cash flows for the year then ended in accordance with the BRSA Accounting and Reporting Regulations.

 

Report on Other Legal and Regulatory Requirements

 

In accordance with paragraph four of the Article 402 of the Turkish Commercial Code No. 6102 ("TCC"), nothing has come to our attention that may cause us to believe that the Bank's set of accounts for the period 1 January-31 December 2016 does not comply with TCC and the provisions of the Bank's articles of association in relation to financial reporting.

 

In accordance with paragraph four of the Article 402 of TCC, the Board of Directors provided us all the required information and documentation with respect to our audit.

 

Additional paragraph for English translation

         

The effect of the differences between the accounting principles summarized in Section 3 and the accounting principles generally accepted in countries in which the accompanying financial statements are to be distributed and International Financial Reporting Standards (IFRS) have not been quantified and reflected in the accompanying financial statements. The accounting principles used in the preparation of the accompanying financial statements differ materially from IFRS. Accordingly, the accompanying financial statements are not intended to present the Bank's financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the financial statements and IFRS.

 

 

DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK AŞ

Member of DELOITTE TOUCHE TOHMATSU LIMITED

 

 

 

 

 

Müjde Şehsuvaroğlu

Partner

 

Istanbul, 30 January 2017



(Convenience Translation of Financial Statements and Related Disclosures and Footnotes
Originally Issued in Turkish)

 

 

 

TÜRKİYE GARANTİ BANKASI ANONİM ŞİRKETİ

UNCONSOLIDATED FINANCIAL REPORT

AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2016

 

                                                                                                               Levent Nispetiye Mah.Aytar Cad.

                                                                                                                      No:2 Beşiktaş 34340 Istanbul

                                                                                                                           Telephone: 212 318 18 18

                                                                                                                                     Fax: 212 216 64 22

www.garanti.com.tr

                                                                                                                 investorrelations@garanti.com.tr

 

The unconsolidated year-end financial report prepared in accordance with the communiqué of Financial Statements and Related Disclosures and Footnotes to be Announced to Public by Banks as regulated by Banking Regulation and Supervision Agency, is comprised of the following sections:

 

1.  General Information about the Bank

2.  Unconsolidated Financial Statements of the Bank

3.  Accounting Policies

4.  Financial Position and Results of Operations, and Risk Management Applications of the Bank

5.  Disclosures and Footnotes on Unconsolidated Financial Statements

6.  Other Disclosures and Footnotes

7.  Independent Auditors' Report

 

The unconsolidated financial statements and related disclosures and footnotes that were subject to independent audit, are prepared in accordance with the Regulation on Accounting Applications for Banks and Safeguarding of Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards and the related statements and guidances, and in compliance with the financial records of our Bank and, unless stated otherwise, presented in thousands of Turkish Lira (TL).

 

 

 

Ferit F. Şahenk

Ali Fuat Erbil

Aydın Güler

Hakan Özdemir

Board of Directors Chairman

General Manager

Financial Reporting Executive Vice President

General Accounting

Senior Vice President

 

 

 


Javier Bernal Dionis

Jorge Saenz - Azcunaga

Carranza



Audit Committee Member

Audit Committee Member


 

The authorized contact person for questions on this financial report:

Name-Surname/Title: Handan SAYGIN/Senior Vice President of Investor Relations

Phone no: 90 212 318 23 50

Fax no:     90 212 216 59 02                                                                   


 

 

                                                                            SECTION ONE                                                                                             Page No:

                                                                         General Information                                                                                                   

I.          History of the bank including its incorporation date, initial legal status, amendments to legal status                                                                      1

II.         Bank's shareholder structure, management and internal audit, direct and indirect shareholders, change

             in shareholder structure during the year and information on bank's risk group                                                                                                       1

III.        Information on the bank's board of directors chairman and members, audit committee members, chief

             executive officer, executive vice presidents and their shareholdings in the bank                                                                                                  2

IV.        Information on the bank's qualified shareholders                                                                                                                                                 3

V.         Summary information on the bank's activities and services                                                                                                                                  4

VI.        Current or likely actual or legal barriers to immediate transfer of equity or repayment of debts between the  bank and its affiliates                     4

                                                                           SECTION TWO

                                                            Unconsolidated Financial Statements

I.          Balance sheet - Assets                                                                                                                                                                                        5

II.         Balance sheet - Liabilities                                                                                                                                                                                   6

III.        Off-balance sheet items                                                                                                                                                                                     7

IV.        Income statement                                                                                                                                                                                              8

V.         Statement of income/expense items accounted under shareholders' equity                                                                                                           9

VI.        Statement of changes in shareholders' equity                                                                                                                                                    10

VII.       Statement of cash flows                                                                                                                                                                                     11

VIII.     Statement of profit distribution                                                                                                                                                                         12

                                                                          SECTION THREE

                                                                         Accounting Policies

I.          Basis of presentation                                                                                                                                                                                         13

II.         Strategy for use of financial instruments and foreign currency transactions                                                                                                       13

III.        Investments in associates and affiliates                                                                                                                                                              14

IV.        Forwards, options and other derivative transactions                                                                                                                                           14

V.         Interest income and expenses                                                                                                                                                                             15

VI.        Fees and commissions                                                                                                                                                                                         15

VII.       Financial assets                                                                                                                                                                                                   15

VIII.     Impairment of financial assets                                                                                                                                                                            16

IX.        Netting and derecognition of financial instruments                                                                                                                                            17      

X.         Repurchase and resale agreements and securities lending                                                                                                                                     17

XI.        Assets held for sale, discontinued operations and related liabilities                                                                                                                      18

XII.      Goodwill and other intangible assets                                                                                                                                                                   18

XIII.     Tangible assets                                                                                                                                                                                                   18

XIV.     Leasing activities                                                                                                                                                                                                19

XV.       Provisions and contingent liabilities                                                                                                                                                                   19

XVI.     Contingent assets                                                                                                                                                                                                20

XVII.    Liabilities for employee benefits                                                                                                                                                                         20

XVIII.   Taxation                                                                                                                                                                                                            22

XIX.     Funds borrowed                                                                                                                                                                                                   23

XX.      Share issuances                                                                                                                                                                                                   23

XXI.     Confirmed bills of exchange and acceptances                                                                                                                                                      24

XXII.    Government incentives                                                                                                                                                                                      24

XXIII.  Segment reporting                                                                                                                                                                                              24

XXIV.   Other disclosures                                                                                                                                                                                                25

                                                                           SECTION FOUR

                                     Financial Position and Results of Operations and Risk Management

I.          Capital                                                                                                                                                                                                               26

II.         Credit risk                                                                                                                                                                                                           30

III.        Currency risk                                                                                                                                                                                                      39

IV.        Interest rate risk                                                                                                                                                                                                  41

V.         Position risk of equity securities                                                                                                                                                                         44

VI.        Liquidity risk                                                                                                                                                                                                      46

VII.       Leverage ratio                                                                                                                                                                                                   52      

VIII.     Fair values of financial assets and liabilities                                                                                                                                                        53

IX.        Transactions carried out on behalf of customers and items held in trust                                                                                                             54

X.         Risk management objectives and policies                                                                                                                                                           54

                                                                            SECTION FIVE

                                     Disclosures and Footnotes on Unconsolidated Financial Statements

I.          Assets                                                                                                                                                                                                               72

II.         Liabilities                                                                                                                                                                                                          97

III.        Off-balance sheet items                                                                                                                                                                                    106

IV.        Income statement                                                                                                                                                                                             111

V.         Statement of changes in shareholders' equity                                                                                                                                                   118

VI.        Statement of cash flows                                                                                                                                                                                   119 

VII.       Related party risks                                                                                                                                                                                           121

VIII.     Domestic, foreign and off-shore branches or equity investments, and foreign representative offices                                                                  124

IX.        Matters arising subsequent to balance sheet date                                                                                                                                               125

                                                                             SECTION SIX

                                                          Other Disclosures on Activities of Bank

I.          Bank's latest international risk ratings                                                                                                                                                            126

II.         Dividends                                                                                                                                                                                                        127

III.        Other disclosures                                                                                                                                                                                                          127      

                                                                          SECTION SEVEN

                                                                 Independent Auditors' Report

I.          Disclosures on independent auditors' report                                                                                                                                                                 128

II.         Disclosures and footnotes prepared by independent auditors                                                                                                                                        128

 


 

 

 

 

 

 

 

 

 

1         General Information

1.1         History of the bank including its incorporation date, initial legal status, amendments to legal status

Türkiye Garanti Bankası Anonim Şirketi (the Bank) was established by the decree of Council of Ministers numbered 3/4010 dated 11 April 1946 as a "private bank" and its "Articles of Association" was issued in the Official Gazette dated 25 April 1946.

Following the acquisition on 27 July 2015, Banco Bilbao Vizcaya Argentaria SA (BBVA)'s stake in the Bank has reached to 39.90% and BBVA has become the main shareholder. Accordingly, the Bank was moved to the "Foreign Deposit Banks" category from the "Private Deposit Bank" category by the Banking Regulation and Supervision Agency (the BRSA).

The Bank provides banking services through 959 domestic branches, nine foreign branches and three representative offices abroad. The Bank's head office is located in Istanbul.

1.2         Bank's shareholder structure, management and internal audit, direct and indirect shareholders, change in shareholder structure during the period and information on bank's risk group

As of 31 December 2016, group of companies under BBVA that currently owns 39.90% shares of the Bank, is named the BBVA Group (the Group) and it is the main shareholder.

On 22 March 2011, BBVA had acquired; 78.120.000.000 shares of the Bank owned by GE Capital Corporation at a total nominal value of TL 781,200 thousands representing 18.60% ownership, and 26.418.840.000 shares of the Bank owned by Doğuş Holding AŞ at a total nominal value of TL 264,188 thousands representing 6.29% ownership.  BBVA, purchasing 24.89% shares of the Bank, had joint control on the Bank's management together with group of companies under Doğuş Holding AŞ (the Doğuş Group).

Subsequently, on 7 April 2011, BBVA had acquired 503.160.000 shares at  a nominal value of TL 5,032 thousands and increased its ownership in the Bank's share capital to 25.01%.  Accordingly, BBVA and the Doğuş Group continued to have mutual control on the Bank's management.

Finally, in accordance with the terms of the agreement between BBVA and the Doğuş Group which was previously disclosed on 19 November 2014, the sale of shares representing 14.89% of the share capital of the Bank with a face value of TL 625,380 thousands and 62.538.000.000 shares by the Doğuş Group to BBVA, has been completed on 27 July 2015. Following the acquisition, BBVA's stake in the Bank has reached to 39.90% and BBVA has become the main shareholder. The Bank was moved to "Foreign Deposit Banks" category from "Private Deposit Bank" category by the BRSA.

As of balance sheet date, the Doğuş Group's interest in the share capital of the Bank is at 10%.

BBVA Group

BBVA is operating for more than 150 years, providing variety of wide spread financial and non-financial services to over 47 million retail and commercial customers.

 

The Group's headquarter is in Spain, where the Group has concrete leadership in retail and commercial markets. BBVA adopting innovative, and customer and community oriented management style, besides banking, operates in insurance sector in Europe and portfolio management, private banking and investment banking in global markets.

 

BBVA that owns a bank being the largest financial institution in Mexico, the market leader in South America, and one of the largest 15 commercial banks in United States, operates in more than 30 countries with more than 100 thousand employees.

 

Doğuş Group

The Doğuş Group that was established in 1951 initially for investments in construction sector, operates in seven sectors namely financial services, automotive, construction, real estate, tourism, media and energy with 132 companies and more than 30 thousand employees.

The major worldwide joint ventures of the Group are; Volkswagen AG and TÜVSÜD in automotive, CNBC, MSNBC and Condé Nast in media and, Hyatt International Ltd and HMS International Hotel GmbH (Maritim) in tourism.

The major investments of the Group in financial sector are; Türkiye Garanti Bankası AŞ, Garanti Bank International NV, Garanti Bank SA, Garanti Finansal Kiralama AŞ, Garanti Faktoring AŞ, Garanti Yatırım Menkul Kıymetler AŞ, Garanti Portföy Yönetimi AŞ, Garanti Emeklilik ve Hayat AŞ, Doğuş Gayrimenkul Yatırım Ortaklığı AŞ and Volkswagen Doğuş Tüketici Finansmanı AŞ.

1.3         Information on the bank's board of directors chairman and members, audit committee members, chief executive officer, executive vice presidents and their shareholdings in the bank

  Board of Directors Chairman and Members: 

Name and Surname

Responsibility

Appointment Date

Education

Experience in Banking and Business Administration

Ferit Faik Şahenk

Chairman

18.04.2001

University

26 years

Süleyman Sözen

Vice Chairman

08.07.2003

University

34 years

Dr. Muammer Cüneyt Sezgin

Member

30.06.2004

PhD

28 years

Jorge Saenz Azcunaga Carranza

Independent Member of BOD and Audit Committee

31.03.2016

University

22 years

Jaime Saenz de Tejada Pulido

Member

02.10.2014

University

23 years

Maria Isabel Goiri Lartitegui

Member

27.07.2015

Master

26 years

Javier Bernal Dionis

Independent Member of BOD and Audit Committee

27.07.2015

Master

26 years

Inıgo Echebarria Garate

Member

31.03.2016

Master

33 years

Belkıs Sema Yurdum

Independent Member

30.04.2013

University

36 years

Sait Ergun Özen

Member

14.05.2003

University

29 years

Ali Fuat Erbil

Member and CEO

02.09.2015

PhD

24 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  CEO and Executive Vice Presidents:

Name and Surname

Responsibility

Appointment Date

Education

Experience in Banking and Business Administration

Ali Fuat Erbil

CEO

02.09.2015

PhD

24 years

Gökhan Erün

EVP-Corporate Banking and Treasury

Deputy CEO

01.09.2005

Master

22 years

Onur Genç

EVP-Retail Banking

Deputy CEO

20.03.2012

Master

17 years

Faruk Nafiz Karadere

EVP-SME Banking

01.05.1999

University

34 years

Halil Hüsnü Erel

EVP-Technology, Operation Center, Marketing and Business Development

16.06.1997

University

41 years

Recep Baştuğ

EVP-Commercial Banking

01.01.2013

University

26 years

Avni Aydın Düren

EVP-Legal Services

01.02.2009

Master

22 years

Betül Ebru Edin

EVP-Project Finance

25.11.2009

University

22 years

Osman Nuri Tüzün

EVP- Human Resources and Support Services

19.08.2015

Master

24 years

Aydın Güler

EVP-Finance and Accounting

03.02.2016

University

26 years

Ali Temel

Head of Credit Risk Management

03.02.2016

University

26 years

Didem Başer

EVP-Digital Banking

20.03.2012

Master

21 years

Changes in the executive board as of 1 January 2017;

-    Nafiz Karadere resigned from his duty as EVP-SME Banking.

-    Onur Genç resigned from his duty as EVP-Retail Banking and Deputy CEO.

Changes in the executive board as of 17 January 2017;

-    Cemal Onaran is assigned as EVP-SME Banking.

-    Gökhan Erun is responsible EVP of Financial Institutions, Corporate Banking and Treasury.

-    Mahmut Akten is assigned as EVP-Retail Banking and is responsible for Retail Banking, Mass Retail Banking and Affluent Banking Marketing units.

-    Didem Dinçer is responsible EVP of Corporate Brand Management and Marketing Communications, Insurance and Pension Coordination, Call Center, Customer Experience and Satisfaction.

The top management listed above does not hold any unquoted shares of the Bank.

1.4         Information on the bank's qualified shareholders

 Name / Company

Shares

Ownership

Paid-in Capital

Unpaid Portion

 Banco Bilbao Vizcaya Argentaria SA

1,675,800

39,9000%

1,675,800

-

 Doğuş Holding AŞ

259,846

6,1868%

259,846

-

According to the decision made at the "General Assembly of Founder Shares Owners" and the "Extraordinary General Shareholders" meetings held on 13 June 2008, the Bank repurchased all the 370 founder share-certificates issued in order to redeem and exterminate them, subsequent to the permissions obtained from the related legal authorities, at a value of TL 3,876 thousands each in accordance with the report prepared by the court expert and approved by the Istanbul 5th Commercial Court of First Instance. A total payment of TL 1,434,233 thousands has been made to the owners of 368 founder share-certificates from "extraordinary reserves", and the value of remaining 2 founder share-certificates has been blocked in the bank accounts.

Subsequent to these purchases, the clauses 15, 16 and 45 of the Articles of Association of the Bank have been revised accordingly.

1.5         Summary information on the bank's activities and services

Activities of the Bank as stated at the third clause of its Articles of Association are as follows:

·   All banking operations,

·   Participating in, establishing, and trading the shares of enterprises at various sectors within the limits setforth by the Banking Law;

·   Providing attorneyship, insurance agency, brokerage and freight services in relation with banking activities,

·   Purchasing/selling debt securities, treasury bills, government bonds and other share certificates issued by Turkish government and other official and private institutions,

·   Developing economical and financial relations with foreign organizations,

·   Dealing with all economic operations in compliance with the Banking Law.

The Bank's activities are not limited to those disclosed in that third clause, but whenever the Board of Directors deems any operations other than those stated above to be of benefit to the Bank, it is recommended in the general meeting, and the launching of the related project depends on the decision taken during the General Assembly which results in a change in the Articles of Association and on the approval of this decision by the Ministry of Industry and Commerce. Accordingly, the approved decision is added to the Articles of Association.

The Bank is not a specialized bank but deals with all kinds of banking activities. Deposits are the main sources of the lendings to the customers. The Bank grants loans to companies operating in various sectors while aiming to maintain the required level of efficiency.

The Bank also grants non-cash loans to its customers; especially letters of guarantee, letters of credit and acceptance credits.

1.6         Current or likely actual or legal barriers to immediate transfer of equity or repayment of debts between the bank and its affiliates

None.


 

3         Accounting policies

3.1         Basis of presentation

The Bank  prepares its financial statements in accordance with the BRSA Accounting and Reporting Regulation" which includes the regulation on "The Procedures and Principles Regarding Banks' Accounting Practices and Maintaining Documents" published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards published by the Public Oversight Accounting and Auditing Standards Authority for the matters not regulated by the aforementioned legislations.

The accompanying unconsolidated financial statements are prepared in accordance with the historical cost basis except for financial instruments at fair value through profit or loss, financial assets available for sale, real estates and investments in affiliates valued at equity basis of accounting.

The accounting policies and the valuation principles applied in the preparation of the accompanying financial statements are explained in Notes 3.2 to 3.24.

3.2         Strategy for use of financial instruments and foreign currency transactions

3.2.1      Strategy for use of financial instruments

The liability side of the Bank's balance sheet is intensively composed of short-term deposits in line with the general trend in the banking sector. In addition to deposits, the Bank has access to longer-term borrowings via the borrowings from abroad.

In order to manage the interest rate risk arising from short-term deposits, the Bank is keen on maintaining floating rate instruments such as government bonds with quarterly coupon payments and instruments like credit cards and consumer loans providing regular cash inflows.

A portion of the fixed-rate securities and loans, and the bonds of the Bank are hedged under fair value hedges. The fair value risks of such fixed-rate assets and financial liabilities are hedged with interest rate swaps and cross currency swaps. The fair value changes of the hedged fixed-rate financial assets and financial liabilities together with the changes in the fair value of the hedging instruments, namely interest rate swaps and cross currency swaps, are accounted under net trading income/losses in the income statement. At the inception of the hedge and during the subsequent periods, the hedge is expected to achieve the offsetting of changes in fair value attributable to the hedged risk for which the hedge is designated, and accordingly, the hedge effectiveness tests are performed.

The Bank may classify its financial assets and liabilities as at fair value through profit or loss, at the initial recognition in order to eliminate any accounting inconsistency.

The fundamental strategy to manage the liquidity risk that may incur due to short-term structure of funding, is to expand the deposit base through customer-oriented banking philosophy, and to increase customer transactions and retention rates. The Bank's widespread and effective branch network, advantage of primary dealership and strong market share in the treasury and capital markets, are the most effective tools in the realisation of this strategy. For this purpose, serving customers by introducing new products and services continuously and reaching the customers satisfaction are very important.

Another influential factor in management of interest and liquidity risks on balance sheet is product diversification both on asset and liability sides.

Exchange rate risk, interest rate risk and liquidity risk are controlled and measured by various risk management systems, and the balance sheet is managed under the limits set by these systems and the limits legally required. Asset-liability management and value at risk models, stress tests and scenario analysis are used for this purpose.

Purchase and sale of short and long-term financial instruments are allowed within the pre-determined limits to generate risk-free return on capital.

The foreign currency position is controlled by the equilibrium of a currency basket to eliminate the foreign exchange risk.

 

3.2.2      Foreign currency transactions

Foreign exchange gains and losses arising from foreign currency transactions are recorded at transaction dates. At the end of the periods, foreign currency assets and liabilities evaluated with the Bank's spot purchase rates and the differences are recorded as foreign exchange gain or loss in the income statement. 

In the unconsolidated financial statements, the financial affiliates are accounted for using the equity method in accordance with the Communique published on the Official Gazette dated 9 April 2015 no. 29321 related to the amendments to the Turkish Accounting Standard 27 (TAS 27) "Separate Financial Statements". In this context, foreign affiliates' asset and liability items in the balance sheet are translated into Turkish Lira by using foreign exchange rates as of the balance sheet date whereas income and expense items are translated into Turkish Lira by using average foreign exchange rates for the related period. Foreign exchange differences arising from translation of income and expense items and other equity items are accounted under capital reserves under equity.

From 1 September 2015, it has been started to apply net investment hedge amounting to EUR 333,487,913 in total among net investments in Garanti Bank International NV and Garanti Holding BV having capitals denominated in foreign currencies and long term foreign currency borrowings. Foreign exchange losses in the amount of TL 147,648 thousands, arising from conversion of both foreign currency net investments and long term foreign currency borrowings are accounted under capital reserves and hedging reserves, respectively under equity as of 31 December 2016. There is no ineffective portion arising from net investment hedge accounting.

3.3         Investments in associates and affiliates

In the unconsolidated financial statements, the financial affiliates are accounted for using the equity method in accordance with the Communique published on the Official Gazette dated 9 April 2015 no. 29321 related to the amendments to the Turkish Accounting Standard 27 (TAS 27) "Separate Financial Statements".

In accordance with the Turkish Accounting Standard 28 (TAS 28) for "Investments in Associates and Joint Ventures" through the equity method, the carrying value of financial affiliates are accounted in the financial statements with respect to the Bank's share in these investments' net asset value. While the Bank's share on profits or losses of financial affiliates are accounted in the Bank's income statement, the Bank's share in other comprehensive income of financial affiliates are accounted in the Bank's other comprehensive income statement.

Non-financial affiliates are accounted at cost in the financial statements after provisions for inpairment losses deducted, if any, in accordance with TMS 27.

3.4         Forwards, options and other derivative transactions

As per the Turkish Accounting Standard 39 (TAS 39) "Financial Instruments: Recognition and Measurement"; forward foreign currency purchases/sales, swaps, options and futures are classified as either "hedging purposes" or "trading purposes".

 

3.4.1      Derivative financial instruments held for trading

              The derivative transactions mainly consist of foreign currency and interest rate swaps, foreign currency options and forward foreign currency purchase/sale contacts. There are no embedded derivatives.

Derivatives are initially recorded in off-balance sheet accounts at their purchase costs including the transaction costs. Subsequently, derivative transactions are valued at their fair values and the changes in their fair values are recorded on balance sheet under "derivative financial assets held for trading" or "derivative financial liabilities held for trading", respectively depending on the fair values being positive or negative. Fair value changes for trading derivatives are recorded under income statement.

The spot legs of currency swap transactions are recorded on the balance sheet and the forward legs in the off-balance sheet accounts as commitment.

 

3.4.2      Derivative financial instruments held for risk management

The Bank enters into interest rate and cross currency swap transactions in order to hedge the change in fair values of fixed-rate financial instruments. While applying fair value hedge accounting, the changes in fair values of hedging instrument and hedged item are recognised in  income statement. If the hedging is effective, the changes in fair value of the hedged item is presented in statement of financial position together with the fixed-rate loan, and in case of fixed-rate financial assets available for sale, such changes are reclassified from shareholders' equity to income statement.

The Bank enters into interest rate and cross currency swap transactions in order to hedge the changes in cash flows of the floating-rate financial instruments While applying cash flow hedge accounting, the effective portion of the changes in the fair value of the hedging instrument is accounted for under hedging reserves in shareholders' equity, and the ineffective portion is recognised in income statement. The changes recognised in shareholders' equity is removed and included in income statement in the same period when the hedged cash flows effect the income or loss.

The Bank performs effectiveness test at the beginning of the hedge accounting period and at each reporting period. The effectiveness tests are carried out using the "Dollar off-set model" and the hedge accounting is applied as long as the test results are between the range of 80%-125% of effectiveness.

The hedge accounting is discontinued when the hedging instrument expires, is exercised, sold or no longer effective. When discontinuing fair value hedge accounting, the cumulative fair value changes in carrying value of the hedged item arising from the hedged risk are amortised to income statement over the life of the hedged item from that date of the hedge accounting is discontinued. While discontinuing cash flow hedge accounting, the cumulative gains/losses recognised in shareholders' equity and presented under hedging reserves are continued to be kept in this account. When the cash flows of hedged item are recognised in income statement, the gain/losses accounted for under shareholders' equity, are recognised in income statement.

3.5         Interest income and expenses

Interests are recorded according to the effective interest rate method (rate equal to the rate in calculation of present value of future cash flows of financial assets or liabilities) defined in the Turkish Accounting Standard 39 (TAS 39) "Financial Instruments: Recognition and Measurement".

In case an interest was accrued on a security before its acquisition, the collected interest is divided into two parts as interest before and after the acquisition and only the interest of the period after the acquisition is recorded as interest income in the financial statements.

The accrued interest income on non-performing loans are reversed and subsequently recognised as interest income only when collected.

3.6         Fees and commissions

Except for certain fees related with certain banking transactions and recognized when received, fees and commissions received or paid, and other fees and commissions paid to financial institutions are accounted under accrual basis of accounting. The income derived from agreements or asset purchases from real-person or corporate third parties are recognized as income when realized.

3.7         Financial assets

3.7.1      Financial assets at fair value through profit or loss

Financial assets valued at fair value through profit or loss, such assets are valued at their fair values and gain/loss arising on those assets is recorded in the income statement. Interest income earned on trading securities and the difference between their acquisition costs and amortized costs  are recorded as interest income in the income statement. The differences between the amortized costs and the fair values of such securities are recorded under trading account income/losses in the income statement. In cases where such securities are sold before their maturities, the gains/losses on such sales are recorded under trading account income/losses.

 

The Bank classifies certain loans and securities issued at their origination dates, as financial assets/liabilities at fair value through profit or loss in compliance with TAS 39. The interest income/expense earned and the difference between the acquisition costs and the amortized costs of financial insturuments are recorded under interest income/expense in income statement, the difference between the amortized costs and the fair values of financial instruments are recorded under trading account income/losses in income statement.

3.7.2      Investments held-to-maturity, financial assets available-for-sale and loans and receivables

Financial assets are initially recorded at their purchase costs including the transaction costs.

Investments held-to-maturity are financial assets with fixed maturities and pre-determined payment schedules that the Bank has the intent and ability to hold until maturity, excluding originated loans and receivables.

There are no financial assets that are not allowed to be classified as investments held-to-maturity for two years due to the tainting rules applied for the breach of classification rules.

Investments held-to-maturity are measured at amortized costs using internal rate of return after deducting impairments, if any.

Financial assets available-for-sale, are financial assets other than assets held for trading purposes, investments held-to-maturity and originated loans and receivables.

Financial assets available-for-sale are measured at their fair values subsequently. However, assets for which fair values can not be determined reliably, are valued at amortized costs by using discounting method with internal rate of return for floating-rate securities; and by using valuation models or discounted cash flow techniques for fixed-rate securities. Unrecognised gain/losses derived from the difference between their fair values and the discounted values are recorded in "securities value increase fund" under the shareholders' equity. In case of sales, the gain/losses arising from fair value measurement under shareholders' equity are recognized in income statement.

The Bank owns consumer price indexed government bonds (CPI) portfolio. CPI's are valued and accounted according to the effective interest rate method which is calculated according to the real coupon rate and the reference inflation index on the issue date. As it is mentioned in the Undersecretariat of Treasury's Investor Guide of CPI, the reference index used during the calculation of the actual coupon payment amount is the previous two months CPI's. The bank determines its expected inflation rates in compliance with this guide. The estimated inflation rate according to the Central Bank of Turkey and the Bank's expectations, is updated during the year when it is considered necessary.

Purchase and sale transactions of securities are accounted at delivery dates.

Loans and receivables are financial assets raised by the Bank providing money, commodity and services to debtors.

Loans are financial assets with fixed or determinable payments and not quoted in an active market.

Loans and receivables are recognized at cost and measured at amortized cost using the effective interest method. Duties paid, transaction costs and other similar expenses on assets received against such risks are considered as a part of transaction cost and charged to customers.

3.8         Impairment of financial assets

Financial asset or group of financial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such indication exists, the Bank estimates the amount of impairment.

Impairment loss incurs if, and only if, there is an objective evidence that the expected future cash flows of financial asset or group of financial assets are adversely effected by an event(s) ("loss event(s)") incurred subsequent to recognition. The losses expected to incur due to future events are not recognized even if the probability of loss is high.

 

If there is an objective evidence that certain loans will not be collected, for such loans; the Bank provides specific and general allowances for loan and other receivables classified in accordance with the Regulation on Identification of and Provision against Non-Performing Loans and Other Receivables (the Provisioning Regulation) published on the Official Gazette no.2633 dated 1 November 2006. The allowances are recorded in income statement of the related period.

Provisions made during the period are recorded under "provision for losses on loans and other receivables". Provisions booked in the prior periods and released in the current year are recorded under "other operating income".

3.9         Netting and derecognition of financial instruments

3.9.1      Netting of financial instruments

In cases where the fair values of trading securities, securities available-for-sale, securities quoted at the stock exchanges, associates and affiliates are less then their carrying values, a provision for impairment is allocated, and the net value is shown on the balance sheet.

The Bank provides specific allowances for non-performing loan and other receivables in accordance with the Regulation on Identification of and Provision against Non-Performing Loans and Other Receivables. Such allowances are recorded under "loans" as negative balances on the asset side.

Otherwise, the financial assets and liabilities are netted off only when there is a legal right to do so.

3.9.2      Derecognition of financial assets

The Bank derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, it continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in income statement.

In case an existing financial asset is replaced with another financial asset from the same counterparty where the terms on the initial financial asset are substantially modified, the existing financial asset is derecognized and a new financial asset is recognized.  The difference between the carrying values of the respective financial assets is recognized in income statement.

3.10       Repurchase and resale agreements and securities lending

Securities sold under repurchase agreements are recorded on the balance sheet in compliance with the Uniform Chart of Accounts. Accordingly, government bonds and treasury bills sold to customers under repurchase agreements are classified as "Investments Subject to Repurchase Agreements" and valued based on the Bank management's future intentions, either at market prices or using discounting method with internal rate of return. The funds received through repurchase agreements are classified separately under liability accounts and the related interest expenses are accounted for on an accrual basis.

Securities purchased under resale agreements are classified under "interbank money markets" separately. An income accrual is accounted for the positive difference between the purchase and resale prices earned during the period.

 

3.11       Assets held for sale, discontinued operations and related liabilities

A tangible asset (or a disposal group) classified as "asset held for sale" is measured at lower of carrying value or fair value less costs to sell. An asset (or a disposal group) is regarded as "asset held for sale" only when the sale is highly probable and the asset (disposal group) is available for immediate sale in its present condition. For a highly probable sale, there must be a valid plan prepared by the management for the sale of asset including identification of possible buyers and completion of sale process. Furthermore, the asset should be actively marketed at a price consistent with its fair value.

A discontinued operation is a part of the Bank's business classified as sold or held-for-sale. The operating results of the discontinued operations are disclosed separately in income statement. The Bank has no discontinued operations.

3.12       Goodwill and other intangible assets

The Bank's intangible assets consist of softwares, intangible rights and other intangible assets.

Goodwill and other intangible assets are recorded at cost in compliance with the Turkish Accounting Standard 38 (TAS 38) "Intangible Assets".

The costs of other intangible assets purchased before 31 December 2004 are restated from the purchasing dates to 31 December 2004, the date the hyperinflationary period is considered to be ended. The intangible assets purchased after this date are recorded at their initial purchase costs.

As per TAS 38, internally-generated softwares should be recognised as intangible assets if they meet the below listed criterias:

- The technical feasibility of completing the intangible asset so that it will be available for use,

- Availability of the Bank's intention to complete and use the intangible asset,

- The ability to use the intangible asset,

- Clarity in probable future economic benefits to be generated from the intangible asset,

- The availability of adequate technical, financial and other resources to complete the development phase and to start using the intangible asset,

- The availability to measure reliably the expenditure attributable to the intangible asset during the development phase.

The directly attributable development costs of intangible asset are included in the the cost of such assets, however the research costs are recognised as expense as incurred.

The intangible assets are amortised by the Bank over their estimated useful lives based on their inflation adjusted costs on a straight-line basis. Estimated useful lives of the Bank's intangible assets are 3-15 years, and amortisation rates are 6.67-33.3%.

If there is objective evidence of impairment, the asset's recoverable amount is estimated in accordance with the Turkish Accounting Standard 36 (TAS 36) " Impairment of Assets" and if the recoverable amount is less then the carrying value of the related asset, a provision for impairment loss is provided.

3.13       Tangible assets

The cost of the tangible assets purchased before 31 December 2004 are restated from the purchasing dates to 31 December 2004, the date the hyperinflationary period is considered to be ended. The tangible assets purchased after this date are recorded at their historical costs.

As of 1 November 2015, changing the existing accounting policy, it has been decided to apply revaluation model for properties recorded under tangible assets instead of cost model in accordance with the Turkish Accounting Standard 16 (TAS 16) "Property, Plant and Equipment". Accordingly, for all real estates registered in the ledger, a valuation study was performed by independent expertise firms.



 

 

If there is objective evidence of impairment, the asset's recoverable amount is estimated in accordance with the Turkish Accounting Standard 36 (TAS 36) " Impairment of Assets" and if the recoverable amount is less than the carrying value of the related asset, a provision for impairment loss is provided.

Gains/losses arising from the disposal of the tangible assets are calculated as the difference between the net book value and the net sale price.

Maintenance and repair costs incurred for tangible assets, are recorded as expense.

There are no restrictions such as pledges, mortgages or any other restriction on tangible assets. The depreciation rates and the estimated useful lives of tangible assets are presented below. Depreciation method in use was not changed in the current period.

 

 

Tangible assets

Estimated Useful Lives (Years)

 

Depreciation Rates %

Buildings

50

2

Vaults

50

2

Motor Vehicles

5-7

15-20

Other Tangible Assets

4-20

5-25

The depreciation of an asset held for a period less than a full financial year is calculated as a proportion of the full year depreciation charge from the date of acquisition to the financial year end.

Useful lives of buildings are reviewed at least once a year and if current estimates are different than previous estimates, then the revised estimates are considered as accounting policy change in accordance with Turkish Accounting Standard 8 (TAS 8) "Accounting Policies, Changes in Accounting Estimates and Errors".

Investment properties

Land and buildings that are held to earn rentals or for capital appreciation or both rather than for use in production, supply of goods or services, administrative purposes or sale in the ordinary course of business are clasified as investment property. As of 1 November 2015, changing the existing accounting policy, it has been decided to apply fair value model for investment properties instead of cost model in accordance with the Turkish Accounting Standard 40 (TAS 40) "Investment Property" Accordingly, for all the investment properties registered in the ledger, a valuation study was performed by independent expertise firms. Fair value changes in investment properties were accounted in the income statement for the period they occurred.

Investment properties accounted at fair value are not depreciated.

3.14       Leasing activities

Leased assets are recognized by recording an asset or a liability. In the determination of the related asset and liability amounts, the lower of the fair value of the leased asset and the present value of leasing payments is considered. Financial costs on leasing agreements are expanded in lease periods at a fixed interest rate.

In cases where leased assets are impaired or the expected future benefits of the assets are less than their book values, the book values of such leased assets are reduced to their net realizable values. Depreciation for assets acquired through financial leases is calculated consistently with the same principle as for the tangible assets.

In operating leases, the rent payments are charged to the statement of operations in equal installments.

3.15       Provisions and contingent liabilities

In the financial statements, a provision is made for an existing commitment resulted from past events if it is probable that the commitment will be settled and a reliable estimate can be made of the amount of the obligation. Provisions are calculated based on the best estimates of management on the expenses to incur as of the balance sheet date and, if material, such expenses are discounted for their present values. If the amount is not reliably estimated and there is no probability of cash outflow from the Bank to settle the liability, the related liability is considered as "contingent" and disclosed in the notes to the financial statements.

 

3.16       Contingent assets

The contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the Bank. If an inflow of economic benefits to the Bank has become probable, then the contingent asset is disclosed in the footnotes to the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs.

3.17       Liabilities for employee benefits

Severance indemnities and short-term employee benefits

As per the existing labour law in Turkey, the Bank is required to pay certain amounts to the employees retired or fired except for resignations or misbehaviours specified in the Turkish Labour Law.

Accordingly, the Bank reserved for employee severance indemnities in the accompanying financial statements using actuarial method in compliance with the Turkish Accounting Standard 19 (TAS 19) "Employee Benefits" for all its employees who retired or whose employment is terminated, called up for military service or died. The major actuarial assumptions used in the calculation of the total liability are as follows:


31 December 2016

31 December 2015


%

%

Net Effective Discount Rate

3.43

2.99

Discount Rate

11.50

10.30

Expected Rate of Salary Increase

9.30

8.60

Inflation Rate

7.80

7.10

      The above rates are effective rates, whereas the rates applied for the calculation differ according to the employees' years-in-service.

The Bank provided for undiscounted short-term employee benefits earned during the financial periods as per services rendered in compliance with TAS 19.

The actuarial gains/losses are recognised under shareholders' equity as per the revised TAS 19.

Retirement benefit obligations

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee (and his/her dependents) will receive on retirement.

The Bank's defined benefit plan (the "Plan") is managed by "Türkiye Garanti Bankası Anonim Şirketi Memur ve Müstahdemleri Emekli ve Yardım Sandığı Vakfı" (the Fund) established as per the provisional article 20 of the Social Security Law no.506 and the Bank's employees are the members of this Fund.

The Plan is funded through contributions of both by the employees and the employer as required by Social Security Law numbered 506. These contributions are as follows:


31 December 2016


Employer

Employee

Pension contributions

15.5%

10.0%

Medical benefit contributions

6.0%

5.0%

The Plan is composed of a) the contractual benefits of the employees, which are subject to transfer to Social Security Foundation ("SSF") as per the Social Security Law no.5754 ("the Law"), and b) other social rights and medical benefits provided by the Bank but not transferable to SSF.



 

 

a) Benefits transferable to SSF

The first paragraph of the provisional article 23 of Banking Law no.5411, published in the Official Gazette on 1 November 2005, no.25983, which requires the transfer of the members of the funds subject to the provisional article 20 of the Social Security Law no.506, and the persons who are paid under insurance coverage for disablement, old-age and mortality and their right-holders to the SSF within three years following the effective date of the related article was cancelled with the decision of the Constitutional Court dated 22 March 2007, no.2007/33. The reasoned ruling regarding the cancellation of the Constitutional Court was published in the Official Gazette no.26731, dated 15 December 2007. The Constitutional Court stated that the reason behind this cancellation was the possible loss of antecedent rights of the fund members.

Following the publication of the verdict, the Turkish Grand National Assembly ("Turkish Parliament") started to work on the new legal arrangements by taking the cancellation reasoning into account and the articles of the Law no.5754 regulating the principles related with such transfers were accepted and approved by Turkish Parliament on 17 April 2008, and enacted on 8 May 2008 after being published in the Official Gazette no.26870.

As per the Law, the present value of post-employment benefits as at the transfer date for the fund members to be transferred, are to be calculated by a commission composing from the representatives of the SSF, the Ministry of Finance, the Undersecretariat of Treasury, the Undersecretariat of State Planning Organisation, the BRSA, the Savings Deposit Insurance Fund, the banks and the funds, by using a technical discount rate of 9.80% taking into account the funds' income and expenses as per insurance classes and the transferable contributions and payments of the funds including any salary and income differences paid by the funds above the limits of SSF for such payments.The transfers are to take place within the three-year period starting from 1 January 2008. Subsequently, the transfer of the contributors and the persons receiving monthly or regular income and their right-holders from such funds established for employees of the banks, insurance and reinsurance companies, trade chambers, stock markets and unions that are part of these organizations subject to the provisional article 20 of the Social Security Law no.506 to the SSF, has been postponed for two years. The decision was made by the Council of Ministers on 14 March 2011 and published in the Official Gazette no. 27900 dated 9 April 2011 as per the decision of the Council of Ministers, no.2011/1559, and as per the letter no. 150 of the Ministry of Labor and Social Security dated 24 February 2011 and according to the provisional article 20 of the Social Security and Public Health Insurance Law no.5510.

On 19 June 2008, Cumhuriyet Halk Partisi ("CHP") applied to the Constitutional Court for the cancellation of various articles of the Law including the first paragraph of the provisional Article 20. At the meeting of the Constitutional Court on 30 March 2011, it was decided that the first paragraph of the provisional Article 20 of the Law is not contradictory to the Constitutional Law, and accordingly the dismissal of the cancellation request has been denied with the majority of votes.

Before the completion of two-years period set by the Council of Ministers on 14 March 2011, as per the Article no. 51 of the law no. 6645, published in the Official Gazette no. 29335 dated 23 April 2015, the Article no. 20 of the law no. 5510 was amended giving the Council of Ministers the authority to determine the date of transfer without defining any timeline.

b) Other benefits not transferable to SSF

Other social rights and payments provided in the existing trust indenture but not covered through the transfer of the funds' members and their right-holders to the SSF, are to be covered by the funds and the institutions that employ the funds' members.

The actuarial gains/losses are recognised under shareholders' equity as per the revised TAS 19.

 

3.18       Taxation

3.18.1    Corporate tax

Effective from 1 January 2006, statutory income is subject to corporate tax at 20% in Turkey. This rate is applied to accounting income modified for certain exemptions (like dividend income) and deductions (like investment incentives), and additions for certain non-tax deductable expenses and allowances for tax purposes. If there is no dividend distribution planned, no further tax charges are made.

Dividends paid to the resident institutions and the institutions working through local offices or representatives are not subject to withholding tax. As per the decisions no.2009/14593 and no.2009/14594 of the Council of Ministers published in the Official Gazette no.27130 dated 3 February 2009, certain duty rates included in the articles no.15 and 30 of the new Corporate Tax Law no.5520 are revised. Accordingly, the withholding tax rate on the dividend payments other than the ones paid to the nonresident institutions generating income in Turkey through their operations or permanent representatives and the resident institutions is 15%. In applying the withholding tax rates on dividend payments to the nonresident institutions and the individuals, the withholding tax rates covered in the related Double Tax Treaty Agreements are taken into account. Appropriation of the retained earnings to capital is not considered as profit distribution and therefore is not subject to withholding tax.

The prepaid taxes are calculated and paid at the rates valid for the earnings of the related years. The prepayments can be deducted from the annual corporate tax calculated for the whole year earnings.

In accordance with the tax legislation, tax losses can be carried forward to offset against future taxable income for up to five years. Tax losses cannot be carried back to offset profits from previous periods.

In Turkey, there is no procedure for a final and definite agreement on tax assessments. Companies file their tax returns with their tax offices by the end of 25th of the fourth month following the close of the accounting period to which they relate. Tax returns are open for five years from the beginning of the year that follows the date of filing during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings.

The tax applications for foreign branches;

NORTHERN CYPRUS

According to the Corporate Tax Law of the Turkish Republic of Northern Cyprus no.41/1976 as amended, the corporate earnings (including foreign corporations) are subject to a 10% corporate tax and 15% income tax. This tax is calculated based on the income that the taxpayers earn in an accounting period. Tax base is determined by modifying accounting income for certain exclusions and allowances for tax purposes. The corporations cannot benefit from the rights of offsetting losses, investment incentives and amortisation unless they prepare and have certified their balance sheets, income statements and accounting records used for tax calculations by an auditor authorized by the Ministry of Finance. In cases where it is revealed that the earnings of a corporation were not subject to taxation in prior years or the tax paid on such earnings are understated, additional taxes can be charged in the next twelwe years following that the related taxation period. The corporate tax returns are filed in the tax administration office in April after following the end of the accounting year to which they relate. The corporate taxes are paid in two equal installments in May and October.

MALTA

The corporate earnings are subject to a 35% corporate tax. This rate is determined by modifying accounting income for certain exclusions and allowances for tax purposes. The earnings of the foreign corporations' branches in Malta are also subject to the same tax rate that the resident corporations in Malta are subject to. The earnings of such branches that are transferred to their head offices are not subject to an additional tax. The taxes payable is calculated by the obligating firm and the calculation is shown at the tax declaration form that is due till the following year's September and the payment is done till this date.



 

 

LUXEMBOURG

The corporate earnings are subject to a 21% corporate tax. This rate is determined by modifying accounting income for certain exclusions and allowances for tax purposes. An additional 7% of the calculated corporate income tax is paid as a contribution to unemployment insurance fund. 3% of the taxable income is paid as municipality tax in addition to corporate tax. The municipalities have the right to increase this rate up to 200%-350%. The municipality commerce tax, which the Bank's Luxembourg branch subject to currently is applied as 7.50% of the taxable income. The tax returns do not include any tax amounts to be paid.

The tax calculation is done by the tax office and the amount to be paid is declared to corporate through an official letter called Note. The amounts and the payment dates of prepaid taxes are determined and declared by the tax office at the beginning of the taxation period. The corporations whose head offices are outside Luxembourg, are allowed to transfer the rest of their net income after tax following the allocation of 5% of it for legal reserves, to their head offices.

3.18.2    Deferred taxes

According to the Turkish Accounting Standard 12 (TAS 12) "Income Taxes"; deferred tax assets and liabilities are recognized, using the balance sheet method, on all taxable temporary differences arising between the carrying values of assets and liabilities in the financial statements and their corresponding balances considered in the calculation of the tax base, except for the differences not deductible for tax purposes and initial recognition of assets and liabilities which affect neither accounting nor taxable profit.

If transactions and events are recorded in the income statement, then the related tax effects are also recognized in the income statement. However, if transactions and events are recorded directly in the shareholders' equity, the related tax effects are also recognized directly in the shareholders' equity.

The deferred tax assets and liabilities are reported as net in the financial statements.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

3.18.3    Transfer pricing

The article no.13 of the Corporate Tax Law describes the issue of transfer pricing under the title of "Disguised Profit Distribution by Way of Transfer Pricing". "The General Communiqué on Disguised Profit Distribution by Way of Transfer Pricing" published at 18 November 2007, explains the application related issues on this topic. 

According to this communiqué, if the taxpayers conduct transactions like purchase and sale of goods or services with the related parties where the prices are not determined according to the arm's length principle, then it will be concluded that there is a disguised profit distribution by way of transfer pricing. Such disguised profit distributions will not be deducted from the corporate tax base for tax purposes.

As stated in the "7.1 Annual Documentation" section of this communiqué, the taxpayers are required to fill out the "Transfer Pricing, Controlled Foreign Entities and Thin Capitalization" form for the purchase and sale of goods or services conducted with their related parties in a taxation period, attach these forms to their corporate tax returns and submit to the tax offices.

3.19       Funds borrowed

The Bank, whenever required, generates funds from domestic and foreign sources in the form of borrowings, syndications, securitizations, and bill and bond issuances in the local and international markets.The funds borrowed are recorded at their purchase costs and valued at amortised costs using the effective interest method.

In cases where such funds are valued at their amortised costs and such application results in measurement or accounting inconsistencies due to having the relevant financial instruments valued using different methods or the related gains or losses are recorded differently, such fundings are valued and recorded at their fair values as per TAS 39 in order to minimise or prevent such inconsistencies.

3.20       Share issuances

None.

3.21       Confirmed bills of exchange and acceptances

Confirmed bills of exchange and acceptances are realized simultaneously with the customer payments and recorded in off-balance sheet accounts as possible debt and commitment, if any.

3.22       Government incentives

As of 31 December 2016, the Bank does not have any government incentives or grants.

3.23       Segment reporting

The Bank operates in corporate, commercial, retail and investment banking. Accordingly, the banking products served to customers are; custody services, time and demand deposits, accumulating deposit accounts, repos, overdraft facilities, spot loans, foreign currency indexed loans, consumer loans, automobile and housing loans, working capital loans, discounted bills, gold loans, foreign currency loans, Eximbank loans, pre-export loans, ECA covered financing, letters of guarantee, letters of credit, export factoring, acceptance credits, draft facilities, forfaiting, leasing, insurance, forward, futures, salary payments, investment account (ELMA), cheques, safety boxes, bill payments, tax collections, payment orders. GarantiCard, BonusCard, Miles&Smiles Card, FlexiCard, MoneyCard, BusinessCard under the brand names of Visa and Mastercard, virtual cards and also American Express credit cards and "Paracard" debit cards with Maestro, Electron, Visa and Mastercard brand names, are available.

The Bank provides service packages to its corporate, commercial and retail customers including deposit, loans, foreign trade transactions, investment products, cash management, leasing, factoring, insurance, credit cards, and other banking products. A customer-oriented branch network has been built in order to serve customers' needs effectively and efficiently. The Bank also utilizes alternative delivery channels intensively.

The Bank provides corporate banking products to international and national holdings in Turkey by coordinating regional offices, suppliers and intermediaries, utilizing cross-selling techniques. Mainly, it provides services through its commercial and mixed type of branches to export-revenue earning sectors like tourism and textile and exporters of Turkey's traditional agricultural products.

Additionally, the Bank provides banking services to enterprises and their employees working in retail and service sectors through product packages including overdraft accounts, POS machines, credit cards, cheque books, Turkish Lira and foreign currency deposits, investment accounts, internet banking and call-center, debit cards and bill payment modules.

Retail banking customers form a wide-spread and sustainable deposit base for the Bank. Individual customers' needs are met by diversified consumer banking products through branches and alternative delivery channels.

Information on the business segments is as follows:

Current Period

Retail Banking

Corporate / Commercial Banking

Invesment Banking

Other

Total Operations

Total Operating Profit

6,394,734

4,936,333

1,050,130

2,440,469

14,821,666

Other

-

-

-

-

-

Total Operating Profit

6,394,734

4,936,333

1,050,130

2,440,469

14,821,666

Net Operating Profit

2,752,763

1,731,805

711,270

1,090,698

6,286,536

Income from Associates and Affiliates

-

-

-

6,902

6,902

Net Operating Profit

2,752,763

1,731,805

711,270

1,097,600

6,293,438

Provision for Taxes

-

-

-

1,222,889

1,222,889

Net Profit

2,752,763

1,731,805

711,270

(125,289)

5,070,549







 Segment Assets

59,084,680

126,963,548

81,188,982

11,707,628

278,944,838

 Investments in Associates and Affiliates

-

-

-

5,210,562

5,210,562

Total Assets

59,084,680

126,963,548

81,188,982

16,918,190

284,155,400

 Segment Liabilities

106,985,273

61,415,792

74,568,141

5,647,114

248,616,320

 Shareholders' Equity

-

-

-

35,539,080

35,539,080

Total Liabilities and Shareholders' Equity

106,985,273

61,415,792

74,568,141

41,186,194

284,155,400

 

Prior Period

Retail Banking

Corporate / Commercial Banking

Invesment Banking

Other

Total Operations

Total Operating Profit

4,858,538

4,049,262

1,337,625

1,759,530

12,004,955

Other

-

-

-

-

-

Total Operating Profit

4,858,538

4,049,262

1,337,625

1,759,530

12,004,955

Net Operating Profit

(158,709)

1,900,294

1,007,811

1,554,379

4,303,775

Income from Associates and Affiliates

-

-

-

5,102

5,102

Net Operating Profit

(158,709)

1,900,294

1,007,811

1,559,481

4,308,877

Provision for Taxes

-

-

-

902,370

902,370

Net Profit

(158,709)

1,900,294

1,007,811

657,111

3,406,507







 Segment Assets

53,086,559

106,251,482

79,563,977

10,957,371

249,859,389

 Investments in Associates and Affiliates

-

-

-

4,483,197

4,483,197

Total Assets

53,086,559

106,251,482

79,563,977

15,440,568

254,342,586

 Segment Liabilities

91,670,983

53,507,379

71,649,459

6,533,710

223,361,531

 Shareholders' Equity

-

-

-

30,981,055

30,981,055

Total Liabilities and Shareholders' Equity

91,670,983

53,507,379

71,649,459

37,514,765

254,342,586

 

 3.24         Other disclosures

None.

 

4         Financial Position and Results of Operations and Risk Management

4.1         Total capital

The capital items calculated as per the "Regulation on Equities of Banks" published on 5 September 2013, are presented below:

4.1.1      Components of total capital


Amount

Amount as per the regulation before

1/1/2014 (*)

COMMON EQUITY TIER I CAPITAL



Paid-in Capital to be Entitled for Compensation after All Creditors

4,972,554


Share Premium

11,880


Reserves

23,385,730


Other Comprehensive Income according to TAS

2,759,735


Profit

5,070,549


      Current Period Profit

5,070,549


      Prior Period Profit

-


Bonus Shares from Associates, Affiliates and Joint-Ventures not Accounted in Current Period's Profit

1,891


Common Equity Tier I Capital Before Deductions

36,202,339


Deductions From Common Equity Tier I Capital



Valuation adjustments calculated as per the article 9. (i) of the Regulation on Bank Capital

-

-

Current and Prior Periods' Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-)

732,893

-

Leasehold Improvements on Operational Leases (-)

103,037

-

Goodwill Netted with Deferred Tax Liabilities

-

-

Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights

128,006

213,344

Net Deferred Tax Asset/Liability (-)

-

-

Differences arise when assets and liabilities not held at fair value, are subjected to cash flow hedge accounting

-

-

Total credit losses that  exceed total expected loss calculated according to the Regulation on Calculation of Credit Risk by Internal Ratings Based Approach

-

-

Securitization gains

-

-

Unrealized gains and losses from changes in bank's liabilities' fair values due to changes in creditworthiness

-

-

Net amount of defined benefit plans

-

-

Direct and Indirect Investments of the Bank on its own Tier I Capital (-)

1,730

-

Shares Obtained against Article 56, Paragraph 4 of the Banking Law (-)

-

-

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-)

-

-

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-)

-

-

Mortgage Servicing Rights Exceeding the 10% Threshold of Tier I Capital (-)

-

-

Net Deferred Tax Assets arising from Temporary Differences Exceeding the10% Threshold of Tier I Capital (-)

-

-

Amount Exceeding the 15% Threshold of Tier I Capital as per the Article 2, Clause 2 of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks (-)

-

-

The Portion of Net Long Position of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital not deducted from Tier I Capital (-)

-

-

Mortgage Servicing Rights not deducted (-)

-

-

Excess Amount arising from Deferred Tax Assets from Temporary Differences (-)

-

-

Other items to be Defined by the BRSA (-)

-

-

Deductions from Tier I Capital in cases where there are no adequate Additional Tier I or Tier II Capitals (-)

-



Amount

Amount as per the regulation before

1/1/2014 (*)

Total Deductions from Common Equity Tier I Capital

965,666


Total Common Equity Tier I Capital

35,236,673


ADDITIONAL TIER I CAPITAL



Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums

-


Debt Instruments and the Related Issuance Premiums Defined by the BRSA

-


Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4)

-


Additional Tier I Capital before Deductions

-


Deductions from Additional Tier I Capital



Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-)

-

-

Investments in Equity Instruments Issued by Banks or Financial Institutions Invested in Bank's Additional Tier I Capital and Having Conditions Stated in the Article 7 of the Regulation

-

-

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-)

-

-

The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share Capital (-)

-

-

Other items to be defined by the BRSA (-)

-


Items to be Deducted from Tier I Capital during the Transition Period

-


Goodwill and Other Intangible Assets and Related Deferred Taxes not deducted from Tier I Capital as per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks (-)

85,338

-

Net Deferred Tax Asset/Liability not deducted from Tier I Capital as per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks (-)

-

-

Deduction from Additional Tier I Capital when there is not enough Tier II Capital (-)

-

-

Total Deductions from Additional Tier I Capital

-


Total Additional Tier I Capital

-


Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital)

35,151,335


TIER II CAPITAL



Debt Instruments and the Related Issuance Premiums Defined by the BRSA

-


Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4)

-


Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital)

2,596,082


Total Deductions from Tier II Capital

2,596,082


Deductions from Tier II Capital



Direct and Indirect Investments of the Bank on its own Tier II Capital (-)

-

-

Investments in Equity Instruments Issued by Banks and Financial Institutions Invested in Bank's Tier II Capital and Having Conditions Stated in the Article 8 of the Regulation

-

-

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-)

-

-

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-)

-


The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital and Tier II Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital Exceeding the 10% Threshold of Tier I Capital (-)

-

-

Other items to be defined by the BRSA (-)

-

-

Total Deductions from Tier II Capital

-


Total Tier II Capital

2,596,082


Total Equity (Total Tier I and Tier II Capital)

37,747,417


Total Tier I Capital and Tier II Capital ( Total Equity)




Amount

Amount as per the regulation before

1/1/2014 (*)

Loans Granted against the Articles 50 and 51 of the Banking Law (-)

31


Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of the Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more than Five Years (-)

55,860


Other items to be Defined by the BRSA (-)

36,994


Items to be Deducted from the Sum of Tier I and Tier II Capital (Capital) During the Transition Period



The Portion of Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital not deducted from Tier I Capital, Additional Tier I Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regulation (-)

-

-

The Portion of Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital not deducted from Additional Tier I Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regulation (-)

-

-

The Portion of Net Long Position of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital, of the Net Deferred Tax Assets arising from Temporary Differences and of the Mortgage Servicing Rights not deducted from Tier I Capital as per the Temporary Article 2, Clause 2, Paragraph (1) and (2) and Temporary Article 2, Clause 1 of the Regulation (-)

-

-

CAPITAL



Total Capital ( Total of Tier I Capital and Tier II Capital )

37,654,532

-

Total Risk Weighted Assets

232,322,344

-

CAPITAL ADEQUACY RATIOS



CET1 Capital Ratio (%)

15.17

-

Tier I Capital Ratio (%)

15.13

-

Capital Adequacy Ratio (%)

16.21

-

BUFFERS



Bank-specific total CET1 Capital Ratio

4.50

-

Capital Conservation Buffer Ratio (%)

0.625

-

Bank-specific Counter-Cyclical Capital Buffer Ratio (%)

0.01

-

Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation

8.21

-

Amounts Lower Than Excesses as per Deduction Rules



Remaining Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital

-

-

Remaining Total of Net Long Positions of the Investments in Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% or less of the Issued Share Capital

-

-

Remaining Mortgage Servicing Rights

-

-

Net Deferred Tax Assets arising from Temporary Differences

153,379

-

Limits for Provisions Used in Tier II Capital Calculation



General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand)

3,171,163

-

General Loan Provisions for Exposures in Standard Approach Limited by 1.25% of  Risk Weighted Assets

2,596,082

-

Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqu on Calculation of Credit Risk by Internal Ratings Based Approach

-

-

Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqu on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets

-

-

Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022)



Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4

-

-

Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit

-

-

Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4

-

-

Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit

-

-

(*)   Under this item fully loaded amounts were reported for items that are subject to phasing in according to "Bank Capital Regulation" dated 1 January 2014.

 

The Bank plans its Common Equity Tier 1 (CET1) Capital by considering 10% as the minimum target while considering its additional CET 1 requirements during the phase-in period due to aforementioned regulations.

4.1.2      Items included in capital calculation

              None.

4.1.3      Reconciliation of capital items to balance sheet

Current Period

Carrying value

Amount of correction

Value of the capital report

Explanation of differences

Paid-in Capital

4,200,000

772,554

4,972,554

Inflation adjustments included in Paid-in Capital according to  Regulation's Temporary Article 1

Capital Reserves

2,882,801

(842,188)

2,040,613


Other Comprehensive Income According to TAS

2,869,030

(842,188)

2,026,842


  Securities Value Increase Fund

622,143

-

622,143


  Revaluation Surplus on Tangible

  Assets

1,626,437

-

1,626,437


  Revaluation Surplus on Intangible

  Assets

-

-

-


  Revaluation Surplus on Investment

  Property

-

-

-


  Hedging Reserves (Effective

  Portion)

(48,486)

(69,634)

(118,120)

Items not included in the calculation as per Regulation's Article 9-1-f

  Revaluation Surplus on Assets Held

  for Sale and Assets of Discontinued

  Operations

-

-

-


  Other Capital Reserves

668,936

(772,554)

(103,618)

Inflation adjustments included in Paid-in Capital according to  Regulation's Temporary Article 1

Bonus Shares of Associates, Affiliates and Joint-Ventures

1,891

-

1,891


Share Premium

11,880

-

11,880


Profit Reserves

23,385,730

-

23,385,730


Profit or Loss

5,070,549

-

5,070,549


  Prior Periods Profit/Loss

-

-

-


  Current Period Net Profit/Loss

5,070,549

-

5,070,549


Deductions from Common Equity Tier I Capital (-)

-


232,773

Deductions from Common Equity Tier 1 Capital as per the Regulation

Common Equity Tier I Capital

35,539,080


35,236,673


Subordinated Debts



-


Deductions from Tier I Capital (-)



85,338

Deductions from Tier 1 Capital as per the Regulation

Tier I Capital



35,151,335


Subordinated Debts



-


General Provisions



2,596,082

General Loan Provision added to Tier II Capital as per the Regulation's Article 8

Deductions from Tier II Capital (-)



-

Deductions from Tier II Capital as per the Regulation

Tier II Capital



2,596,082


Deductions from Total Capital (-)



92,885

Deductions from Capital as per the Regulation

Total



37,654,532


 

4.2         Credit risk

Credit risk is defined as risks and losses that may occur if the counterparty fails to comply with the agreement's requirements and cannot perform its obligations partially or completely on the terms set. In compliance with the legislation, the credit limits are set for the financial position and credit requirements of customers within the authorization limits assigned for Branches, Lending Departments, Executive Vice President responsible of Lending, General Manager, Credit Committee and Board of Directors. The limits are subject to revision if necessary.

The debtors or group of debtors are subject to credit risk limits. Sectoral risk concentrations are reviewed on a monthly basis.

Credit worthiness of debtors is reviewed periodically in compliance with the legislation by the internal risk rating models. The credit limits are revised and further collateral is required if the risk level of debtor deteriorates. For unsecured loans, the necessary documentation is gathered in compliance with the legislation.

Geographical concentration of credit customers is reviewed monthly. This is in line with the concentration of industrial and commercial activities in Turkey.

In accordance with the Bank's lending policies, the debtor's creditworthiness is analysed and the adequate collateral is obtained based on the financial position of the company and the type of loan; like cash collateral, bank guarantees, mortgages, pledges, bills and corporate guarantees.

The Bank has control limits on the position held through forwards, options and other similar agreements. Credit risk of such instruments is managed together with the risk from market fluctuations. The Bank follows up the risk arising from such instruments and takes the necessary actions to decrease it when necessary.

The liquidated non-cash loans are subject to the same risk weight with the overdue loans.

The Bank performs foreign trade finance and other interbank credit transactions through widespread correspondents network. Accordingly, the Bank assigns limits to domestic and foreign banks and other financial institutions based on review of their credit worthiness, periodically.

The Bank's largest 100 and 200 cash loan customers compose 25.48% (31 December 2015: 24.93%) and 32.15% (31 December 2015: 31.56%) of the total cash loan portfolio, respectively.

The Bank's largest 100 and 200 non-cash loan customers compose 52.48% (31 December 2015: 54.96%) and 61.81% (31 December 2015: 63.60%) of the total non-cash loan portfolio, respectively.

The Bank's largest 100 ve 200 cash and non-cash loan customers represent 9.26% (31 December 2015: 9.26%) and 11.84% (31 December 2015: 11.78%) of the total "on and off balance sheet" assets, respectively.

The general provision for credit risks amounts to TL 3,171,163 thousands (31 December 2015: TL 3,002,057  thousands).

The Bank developed a statistical-based internal risk rating model for its credit portfolio of corporate/ commercial/medium-size companies. This internal risk rating model has been in use for customer credibility assessment since 2003. Risk rating has become a requirement for loan applications, and ratings are used both to determine branch managers' credit authorization limits and in credit assessment process.

The concentration table of the cash and non-cash loans for the Bank according to the risk rating system for its customers defined as corporate, commercial and medium-size enterprises is presented below:


Current Period

Prior Period

%

%

Above Avarage

40.20

39.60

Average

47.99

50.04

Below Average

11.81

10.36

Total

100.00

100.00

Total amount of exposures after offsetting transactions but before applying credit risk mitigations and the average exposure amounts that are classified in different risk groups and types, are disclosed below for the relevant period:

Exposure Categories

Current Period

Prior Period

Risk Amount (*)

Average

Risk Amount(**)

Risk Amount (*)

Average

Risk Amount(**)

Conditional and unconditional exposures to central governments or central banks

63,012,273

70,027,891

65,579,586

58,311,686

Conditional and unconditional exposures to regional governments or local authorities

119,677

75,353

57,405

61,395

Conditional and unconditional exposures to administrative bodies and non-commercial undertakings

48,854

47,360

54,708

48,936

Conditional and unconditional exposures to multilateral development banks

1,443,371

1,136,416

1,092,922

135,683

Conditional and unconditional exposures to international organisations

-

-

-

-

Conditional and unconditional exposures to banks and brokerage houses

42,679,125

37,815,617

41,174,380

24,981,902

Conditional and unconditional exposures to corporates

116,602,947

113,385,121

106,347,841

89,799,499

Conditional and unconditional retail exposures

62,984,633

56,101,792

44,312,464

42,012,670

Conditional and unconditional exposures secured by real estate property

35,952,134

30,167,033

27,318,928

24,460,455

Past due items

705,142

632,390

560,568

470,914

Items in regulatory high-risk categories

512,758

3,354,838

16,531,744

16,488,374

Exposures in the form of bonds secured by mortgages

-

-

-

-

Securitisation positions

-

-

-

-

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

Exposures in the form of collective investment undertakings

-

-

-

-

Shares (***)

5,266,254

4,192,217

-

-

Other items

9,044,068

8,998,966

12,509,263

9,528,579

 (*)     Includes total risk amounts before the effect of credit risk mitigation but after credit conversions.

(**)     Average risk amounts are the arithmetical average of the amounts in monthly reports prepared as per the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks.

(***)   Shares are reported under "Other Items" in the prior period.

4.2.1      Profile of significant exposures in major regions

 

Current Period (***)

Conditional and unconditional exposures to central governments or central banks

Conditional and unconditional exposures to banks and brokerage houses

Conditional and unconditional exposures to corporates

Conditional and unconditional retail exposures

Conditional and unconditional exposures secured by real estate property

Items in regulatory high-risk categories

Other

Total


Domestic

61,853,834

11,052,564

107,275,365

62,571,431

35,868,863

495,276

10,111,602

289,228,935

European Union (EU) Countries

672,569

28,379,177

1,969,165

30,689

53,051

14,096

1,443,441

32,562,189

OECD Countries (*)

95

544,225

2,945,951

2,669

5,675

17

1

3,498,632

Off-Shore Banking Regions

-

3,051

305,653

1,290

580

-

1

310,574

USA, Canada

1,131

709,376

1,788,553

3,815

3,165

-

-

2,506,040

Other Countries

484,644

251,168

1,151,653

374,739

20,800

3,369

2,693

2,289,067

Associates, Subsidiaries and Joint -Ventures

-

1,739,564

1,166,607

-

-

-

5,069,628

7,975,799

Unallocated Assets/Liabilities (**)

-

-

-

-

-

-

-

-

Total

63,012,273

42,679,125

116,602,947

62,984,633

35,952,134

512,758

16,627,366

338,371,236

 

 

Prior Period (***)

Conditional and unconditional exposures to central governments or central banks

Conditional and unconditional exposures to banks and brokerage houses

Conditional and unconditional exposures to corporates

Conditional and unconditional retail exposures

Conditional and unconditional exposures secured by real estate property

Items in regulatory high-risk categories

Other

Total


Domestic

64,580,953

12,975,347

98,429,954

44,071,401

27,272,448

16,399,492

8,555,272

272,284,867

European Union (EU) Countries

670,260

24,923,003

1,835,187

38,115

32,475

6,393

1,093,054

28,598,487

OECD Countries (*)

45

258,180

2,111,583

4,496

3,301

361

-

2,377,966

Off-Shore Banking Regions

-

2,483

20

1,544

-

-

-

4,047

USA, Canada

726

1,370,753

1,717,831

2,495

1,459

7

1

3,093,272

Other Countries

327,602

1,007,008

1,007,674

194,413

9,245

125,491

284,276

2,955,709

Associates, Subsidiaries and Joint -Ventures

-

637,606

1,245,592

-

-

-

4,342,263

6,225,461

Unallocated Assets/Liabilities (**)

-

-

-

-

-

-

-

-

Total

65,579,586

41,174,380

106,347,841

44,312,464

27,318,928

16,531,744

14,274,866

315,539,809

(*)   Includes OECD countries other than EU countries, USA and Canada.

(**)  Includes assets and liabilitiy items that can not be allocated on a consistent basis.

(***) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions.


4.2.2      Risk profile by sectors or counterparties

Current Period (*)

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

TL

FC

Total

Agriculture

-

-

-

-

-

-

435,612

543,159

432,799

12,950

4,298

-

-

-

-

-

1,151,167

277,651

1,428,818

Farming and Stockbreeding

-

-

-

-

-

-

285,797

502,588

395,558

12,546

4,055

-

-

-

-

-

1,079,632

120,912

1,200,544

Forestry

-

-

-

-

-

-

81,028

19,013

28,632

404

120

-

-

-

-

-

32,248

96,949

129,197

Fishery

-

-

-

-

-

-

68,787

21,558

8,609

-

123

-

-

-

-

-

39,287

59,790

99,077

Manufacturing

5

-

-

-

-

128,678

49,376,204

5,886,803

7,153,576

173,086

106,603

-

-

-

-

-

19,773,085

43,051,870

62,824,955

Mining and Quarrying

-

-

-

-

-

-

2,059,850

248,550

117,122

4,201

1,182

-

-

-

-

-

754,606

1,676,299

2,430,905

Production

-

-

-

-

-

-

26,587,997

5,529,300

4,295,457

130,193

71,217

-

-

-

-

-

15,714,365

20,899,799

36,614,164

Electricity, Gas and Water

5

-

-

-

-

128,678

20,728,357

108,953

2,740,997

38,692

34,204

-

-

-

-

-

3,304,114

20,475,772

23,779,886

Construction

-

-

173

-

-

-

5,887,167

2,881,476

2,370,595

89,145

53,471

-

-

-

-

-

7,212,587

4,069,440

11,282,027

Services

489

-

2,389

1,443,371

-

41,624,542

51,999,308

13,585,101

9,510,218

376,715

268,489

-

-

-

55,693

-

79,962,914

38,903,401

118,866,315

Wholesale and Retail Trade

-

-

268

-

-

-

21,269,667

10,338,394

4,959,252

147,569

79,675

-

-

-

-

-

22,611,794

14,183,031

36,794,825

Accomodation and Dining

-

-

13

-

-

-

2,962,373

774,569

2,689,619

80,017

6,117

-

-

-

-

-

1,753,450

4,759,258

6,512,708

Transportation and Telecom.

-

-

10

-

-

-

12,551,212

1,675,775

602,465

139,447

14,648

-

-

-

-

-

3,059,554

11,924,003

14,983,557

Financial Institutions

-

-

-

1,443,371

-

41,624,542

7,496,410

104,881

65,118

350

162,431

-

-

-

55,693

-

49,697,828

1,254,968

50,952,796

Real Estate and Rental Services

-

-

-

-

-

-

4,932,407

198,883

621,903

5,087

631

-

-

-

-

-

1,307,888

4,451,023

5,758,911

Professional Services

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Educational Services

1

-

2,098

-

-

-

253,021

144,598

353,320

2,673

1,251

-

-

-

-

-

610,905

146,057

756,962

Health and Social Services

488

-

-

-

-

-

2,534,218

348,001

218,541

1,572

3,736

-

-

-

-

-

921,495

2,185,061

3,106,556

Others

63,011,779

119,677

46,292

-

-

925,905

8,904,656

40,088,094

16,484,946

53,245

79,897

-

-

-

5,210,561

9,044,069

72,851,435

71,117,686

143,969,121

Total

63,012,273

119,677

48,854

1,443,371

-

42,679,125

116,602,947

62,984,633

35,952,134

705,141

512,758

-

-

-

5,266,254

9,044,069

180,951,188

157,420,048

338,371,236

  1- Conditional and unconditional exposures  to central governments or central banks

  2- Conditional and unconditional exposures  to regional governments or local authorities

  3- Conditional and unconditional exposures  to administrative bodies and non-commercial undertakings

  4- Conditional and unconditional exposures  to multilateral development banks

  5- Conditional and unconditional exposures  to international organisations

  6- Conditional and unconditional exposures  to banks and brokerage houses

  7- Conditional and unconditional exposures  to corporates

  8- Conditional and unconditional retail exposures

  9- Conditional and unconditional exposures  secured by real estate property 

10- Past due receivables

11- Receivables in regulatory high-risk categories 

12- Exposures in the form of bonds secured by mortgages                   

13- Securitisation positions

14- Short term exposures to banks, brokerage houses and corporates

15- Shares

16- Other receivables

(*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions.


 

Prior Period (*)

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

TL

FC

Total

Agriculture

-

-

-

-

-

-

385,902

436,837

370,282

10,757

46,989

-

-

-

-


1,053,624

197,143

1,250,767

Farming and Stockbreeding

-

-

-

-

-

-

281,304

399,193

341,299

10,610

42,047

-

-

-

-


972,695

101,758

1,074,453

Forestry

-

-

-

-

-

-

20,912

19,800

17,528

67

693

-

-

-

-


28,220

30,780

59,000

Fishery

-

-

-

-

-

-

83,686

17,844

11,455

80

4,249

-

-

-

-


52,709

64,605

117,314

Manufacturing

5

-

4

-

-

-

45,736,627

3,971,473

3,734,935

179,773

254,156

-

-

-

-

-

15,180,415

38,696,558

53,876,973

Mining and Quarrying

-

-

-

-

-

-

1,254,599

162,879

134,480

9,969

6,998

-

-

-

-

-

519,091

1,049,834

1,568,925

Production

-

-

3

-

-

-

23,246,702

3,740,300

3,486,457

139,299

242,792

-

-

-

-

-

12,842,253

18,013,300

30,855,553

Electricity, Gas and Water

5

-

1

-

-

-

21,235,326

68,294

113,998

30,505

4,366

-

-

-

-

-

1,819,071

19,633,424

21,452,495

Construction

-

-

209

-

-

-

5,818,221

1,704,248

2,622,197

48,168

146,710

-

-

-

-

-

5,982,438

4,357,315

10,339,753

Services

405

-

4,295

1,092,922

-

34,528,863

51,124,232

10,127,000

10,183,106

254,921

1,159,633

-

-

-

-

50,773

46,628,000

61,898,150

108,526,150

Wholesale and Retail Trade

366

-

319

-

-

-

21,737,572

7,822,263

5,026,445

176,336

555,635

-

-

-

-

-

20,072,674

15,246,262

35,318,936

Accomodation and Dining

-

-

298

-

-

-

3,183,450

506,444

2,239,133

40,623

55,509

-

-

-

-

-

1,748,152

4,277,305

6,025,457

Transportation and Telecom.

-

-

4

-

-

-

8,408,153

1,273,987

833,456

25,281

91,904

-

-

-

-

-

2,807,608

7,825,177

10,632,785

Financial Institutions

-

-

-

1,092,922

-

40,344,863

6,436,560

74,969

59,277

8,373

404,344

-

-

-

-

50,773

19,417,942

29,054,139

48,472,081

Real Estate and Rental Services

-

-

-

-

-

-

3,720,599

128,215

1,532,275

932

12,206

-

-

-

-

-

1,127,657

4,266,570

5,394,227

Professional Services

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Educational Services

2

-

3,391

-

-

-

387,119

84,326

197,273

904

9,135

-

-

-

-

-

543,829

138,321

682,150

Health and Social Services

37

-

283

-

-

-

1,434,779

236,796

295,247

2,472

30,900

-

-

-

-

-

910,138

1,090,376

2,000,514

Others

65,579,176

57,405

50,200

-

-

829,517

9,098,859

28,072,906

10,408,408

66,949

14,924,256

-

-

-

-

12,458,490

101,670,310

39,875,856

141,546,166

Total

65,579,586

57,405

54,708

1,092,922

-

41,174,380

106,347,841

44,312,464

27,318,928

560,568

16,531,744

-

-

-

-

12,509,263

170,514,787

145,025,022

315,539,809

  1- Conditional and unconditional exposures  to central governments or central banks

  2- Conditional and unconditional exposures  to regional governments or local authorities

  3- Conditional and unconditional exposures  to administrative bodies and non-commercial undertakings

  4- Conditional and unconditional exposures  to multilateral development banks

  5- Conditional and unconditional exposures  to international organisations

  6- Conditional and unconditional exposures  to banks and brokerage houses

  7- Conditional and unconditional exposures  to corporates

  8- Conditional and unconditional retail exposures

  9- Conditional and unconditional exposures  secured by real estate property 

10- Past due receivables

11- Receivables in regulatory high-risk categories 

12- Exposures in the form of bonds secured by mortgages                   

13- Securitisation positions

14- Short term exposures to banks, brokerage houses and corporates

15- Shares

16- Other receivables

(*)          Includes risk amounts before the effect of credit risk mitigation but after the credit conversions.


4.2.3  Analysis of maturity-bearing exposures according to remaining maturities

Current Period

Term To Maturity

Exposure Categories (*)

Up to 1 Month

1-3 Months

3-6 Months

6-12 Months

 

Over 1 Year

Conditional and unconditional exposures to central governments or central banks

6,877,124

14,069,704

87,825

5,445

36,605,758

Conditional and unconditional exposures to regional governments or local authorities

-

-

-

1,881

117,796

Conditional and unconditional exposures to administrative bodies and non-commercial undertakings

394

104

1,500

189

43,973

Conditional and unconditional exposures to multilateral development banks

-

-

-

6,379

1,436,992

Conditional and unconditional exposures to international organisations

-

-

-

-

-

Conditional and unconditional exposures to banks and brokerage houses

13,675,680

2,254,641

1,364,836

2,306,504

22,483,788

Conditional and unconditional exposures to corporates

6,445,897

8,331,269

10,638,293

16,181,977

69,832,703

Conditional and unconditional retail exposures

13,507,480

7,465,096

2,334,488

4,820,056

28,830,747

Conditional and unconditional exposures secured by real estate property

226,130

470,653

779,895

1,826,813

30,639,253

Past due items

-

-

-

-

-

Items in regulatory high-risk categories

1,244

162,801

2,350

3,446

42,770

Exposures in the form of bonds secured by mortgages

-

-

-

-

-

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

-

Exposures in the form of collective investment undertakings

-

-

-

-

-

Shares

-

-

-

-

-

Other items

646,707

-

-

-

-

Total

41,380,656

32,754,268

15,209,187

25,152,690

190,033,780

(*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 



 

Prior  Period

Term To Maturity

Exposure Categories (*)

Up to 1 Month

1-3 Months

3-6 Months

6-12 Months

 

Over 1 Year

Conditional and unconditional exposures to central governments or central banks

6,612,762

20,527,333

223,550

3,497,122

31,977,550

Conditional and unconditional exposures to regional governments or local authorities

2,000

-

-

-

55,405

Conditional and unconditional exposures to administrative bodies and non-commercial undertakings

1,315

2,349

1,761

41,811

6,710

Conditional and unconditional exposures to multilateral development banks

-

-

-

-

1,092,922

Conditional and unconditional exposures to international organisations

-

-

-

-

-

Conditional and unconditional exposures to banks and brokerage houses

14,212,426

2,207,557

3,046,810

2,798,437

18,893,862

Conditional and unconditional exposures to corporates

7,415,455

7,084,795

9,918,170

19,117,403

61,800,148

Conditional and unconditional retail exposures

10,716,218

4,049,414

6,122,293

3,984,908

13,340,904

Conditional and unconditional exposures secured by real estate property

672,225

1,283,615

1,799,574

2,537,428

20,973,719

Past due items

-

-

-

-

-

Items in regulatory high-risk categories

2,033

466,630

1,496

1,008,013

14,841,673

Exposures in the form of bonds secured by mortgages

-

-

-

-

-

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

-

Exposures in the form of collective investment undertakings

-

-

-

-

-

Other items

-

-

-

-

-

Total

39,634,434

35,621,693

21,113,654

32,985,122

162,982,893

(*)   Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 

4.2.4      Exposure categories

An international rating firm, Fitch Ratings' external risk ratings are used to determine the risk weigths of the risk categories as per the Article 6 of the "Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks".

The international risk ratings are used for the exposures to central governments and central banks, whereas for central governments and central banks that are not rated by Fitch Ratings, the published country ratings as announced by the Organisation for Economic Cooperation and Development (OECD) are used.

According to the regulation on capital adequacy, external risk ratings are used only for the exposures to banks and brokerage houses and to corporates where the counterparties are resident in abroad, to determine their risk weights. Where the counterparties are domestic, the related exposures are included in the calculation of capital adequcy as unrated.

In the determination of risk weights for items that are not included in trading book; if a relevant rating is available then such rating, but if it is an unrated exposure then the rating available for the issuer is used.



 

Fitch Ratings' risk ratings as per the credit quality grades and the risk weights according to exposure categories are presented below:

Credit 

Quality Grade

Fitch Ratings Long Term Credit Rating

Exposure Categories

Exposures to Central Governments or  Central Banks

Exposures to Banks and   Brokerage Houses

Exposures to Corporates

Exposures with Original Maturities Less Than 3 Months

Exposures with Original Maturities More Than 3 Months

1

AAA to AA-

0%

20%

20%

20%

2

A+ to A-

20%

20%

50%

50%

3

BBB+ to BBB-

50%

20%

50%

100%

4

BB+ to BB-

100%

50%

100%

100%

5

B+ to B-

100%

50%

100%

150%

6

CCC+ and below

150%

150%

150%

150%

4.2.5    Exposures by risk weights

 Current Period

0%

10%

20%

35%

50%

75%

100%

150%

200%

250%

Deductions from Equity

 Risk Weights












 Exposures before  

 Credit Risk Mitigation

43,202,244

-

11,155,816

18,651,705

78,781,647

62,981,696

123,124,624

320,125

-

153,379

410,963

 Exposures after Credit

 Risk Mitigation

38,772,528

-

7,701,489

18,645,667

59,084,603

62,393,126

120,613,171

320,121

-

153,379

410,963

 

Prior Period

0%

10%

20%

50%

75%

100%

150%

200%

250%

Deductions from Equity

Risk Weights

Exposures before Credit Risk Mitigation

61,545,115

-

17,879,816

56,854,873

38,639,041

124,127,113

6,216,968

9,629,940

646,943

488,652

Exposures after Credit Risk Mitigation

55,176,759

-

10,665,220

48,243,166

38,349,975

111,416,563

6,166,690

9,570,865

646,943

488,652

4.2.6       Information by major sectors and type of counterparties

As per the TAS and TFRS;

Impaired Credits; are the credits that either overdue more than 90 days as of the reporting date or are treated as impaired due to their creditworthiness. For such credits, "specific provisons" are allocated as per the Provisioning Regulation.

Past Due Credits; are the credits that overdue upto 90 days but not impaired. For such credits, "general provisions" are allocated as per the Provisioning Regulation.

 

Current Period

Credit Risks

Impaired

Credits

Past Due

Credits

Value

Adjustments

Provisions

Agriculture

 40,139   

 15,965   

 509   

 23,619   

Farming and Stockbreeding

 36,921   

 13,265   

 475   

 21,313   

Forestry

 2,077   

 1,002   

 14   

 1,352   

Fishery

 1,141   

 1,698   

 20   

 954   

Manufacturing

 658,603   

 246,348   

 16,311   

 428,556   

Mining and Quarrying

 29,767   

 3,882   

 114   

 23,429   

Production

 486,364   

 157,683   

 9,254   

 335,728   

Electricity, Gas and Water

 142,472   

 84,783   

 6,943   

 69,399   

Construction

 464,155   

 105,302   

 4,593   

 297,577   

Services

 1,408,404   

 3,802,304   

 60,341   

 882,420   

Wholesale and Retail Trade

 715,407   

 275,028   

 15,039   

 455,836   

Accomodation and Dining

 137,599   

 58,333   

 3,417   

 47,625   

Transportation and Telecommunication

 472,588   

 3,425,754   

 39,641   

 314,073   

Financial Institutions

 19,101   

 1,326   

 43   

 18,588   

Real Estate and Rental Services

 13,515   

 18,330   

 1,081   

 7,592   

Professional Services

 -     

 -     

 -     

 -     

Educational Services

 31,667   

 9,181   

 172   

 26,644   

Health and Social Services

 18,527   

 14,352   

 948   

 12,062   

Others

 3,057,335   

 4,008,042   

 93,102   

 2,769,484   

Total

 5,628,636   

 8,177,961   

 174,856   

 4,401,656   

 

Prior Period

Credit Risks

Impaired

Credits

Past Due

Credits

Value

Adjustments

Provisions

Agriculture

36,937

14,220

336

15,628

Farming and Stockbreeding

32,259

13,013

318

14,812

Forestry

411

781

10

228

Fishery

4,267

426

8

588

Manufacturing

698,449

78,776

1,203

447,654

Mining and Quarrying

32,811

3,348

43

18,935

Production

515,468

73,712

1,126

310,241

Electricity, Gas and Water

150,170

1,716

34

118,478

Construction

246,831

76,734

1,213

116,875

Services

1,165,642

332,927

7,036

683,758

Wholesale and Retail Trade

761,034

167,377

2,418

412,423

Accomodation and Dining

148,421

33,564

466

85,920

Transportation and Telecommunication

203,392

111,408

3,963

156,491

Financial Institutions

30,577

791

12

17,754

Real Estate and Rental Services

3,471

3,616

35

1,972

Professional Services

-

-

-

-

Educational Services

5,653

1,961

40

3,690

Health and Social Services

13,094

14,210

102

5,508

Others

2,570,149

3,037,456

134,043

2,405,892

Total

4,718,008

3,540,113

143,831

3,669,807

4.2.7       Movements in value adjustments and provisions


Current Period

Opening Balance

Provision for Period

Provision Reversals

Other Adjustments(*)

Closing Balance

1

 Specific Provisions

 3,669,807   

 2,822,117   

 2,090,268   

-

 4,401,656   

2

 General Provisions

       3,002,057

                 161,626

                     64

7,544

          3,171,163

 


Prior Period

Opening Balance

Provision for Period

Provision Reversals

Other Adjustments(*)

Closing Balance

1

 Specific Provisions

2,782,842

1,951,849

1,064,884

-

3,669,807

2

 General Provisions

2,434,629

562,604

510

5,334

3,002,057

(*) Includes foreign exchange differences, mergers, acquisitions and disposals of subsidiaries.

4.2.8      Exposures subject to countercyclical capital buffer

Country

RWAs of Banking Book for Private Sector Lending

RWAs of

Trading Book

Total

Turkey

167,512,628

350,751

167,863,379

the Netherlands

965,364

-

965,364

Malta

800,187

-

800,187

NCTR

568,033

-

568,033

Cayman Islands

530,529

-

530,529

Switzerland

522,731

73

522,804

USA

155,705

-

155,705

Macedonian Republic

109,574

-

109,574

Sweden

75,583

-

75,583

Romania

66,050

-

66,050

Other

172,526

-

172,526

4.3         Currency risk

Foreign currency position limit is set in compliance with the legal standard ratio of net foreign currency position. As of 31 December 2016, the Bank's net 'on balance sheet' foreign currency short position amounts to TL 17,200,230 thousands (31 December 2015: TL 7,778,023 thousands), net 'off-balance sheet' foreign currency long position amounts to TL 18,461,666 thousands (31 December 2015: TL 9,467,068 thousands), while net foreign currency long open position amounts to TL 1,261,436 thousands (31 December 2015: TL 1,689,045 thousands).

The foreign currency position risk of the Bank is measured by "standard method" and "value-at-risk (VaR) model". Measurements by standard method are carried out monthly, whereas measurements by "VaR" are done daily. The foreign currency exchange risk is managed through transaction, dealer, desk and stop-loss limits approved by the board of directors for the trading portfolio beside the foreign currency net position standard ratio and the VaR limit.

The Bank's effective exchange rates at the date of balance sheet and for the last five working days of the period announced by the Bank in TL are as follows:


USD

EUR

Foreign currency purchase rates at balance sheet date

3.5130

3.7020

Exchange rates for the days before balance sheet date;



Day 1

3.5130

3.7020

Day 2

3.5250

3.6863

Day 3

3.5370

3.6776

Day 4

3.5170

3.6756

Day 5

3.5020

3.6610

Last 30-days arithmetical average rates

3.4955

3.6814



 

The Bank's currency risk:

Current Period

EUR

USD

Other FCs

Total

Assets





Cash (Cash on Hand, Money in Transit, Purchased

Cheques) and Balances with the Central Bank of Turkey

5,164,997

10,577,018

1,319,416

17,061,431

Banks

4,695,750

6,561,692

614,830

11,872,272

Financial Assets at Fair Value through Profit/Loss

130,512

305,288

3

435,803

Interbank Money Market Placements

351,691

-

-

351,691

Financial Assets Available-for-Sale

72,795

1,342,492

1

1,415,288

Loans (*)

28,543,720

44,473,359

700,722

73,717,801

Investments in Associates, Affiliates and Joint-

  Ventures

2,747,797

-

-

2,747,797

Investments Held-to-Maturity

129,789

11,371,272

-

11,501,061

Derivative Financial Assets Held for Risk Management

-

65,495

-

65,495

Tangible Assets

14

266

-

280

Intangible Assets

-

-

-

-

Other Assets

330,013

557,320

5,073

892,406

Total Assets

42,167,078

75,254,202

2,640,045

120,061,325






Liabilities





Bank Deposits

1,566,570

1,196,588

192,104

2,955,262

Foreign Currency Deposits

22,619,712

55,507,914

1,839,025

79,966,651

Interbank Money Market Takings

-

-

-

-

Other Fundings

9,385,338

28,776,969

2,399

38,164,706

Securities Issued

2,192,240

8,736,764

738,652

11,667,656

Miscellaneous Payables

56,132

835,181

5,380

896,693

Derivative Financial Liabilities Held for Risk

   Management

19,224

69,112

-

88,336

Other Liabilities (**)

383,664

1,101,357

2,037,230

3,522,251

Total Liabilities

36,222,880

96,223,885

4,814,790

137,261,555






Net 'On Balance Sheet' Position

5,944,198

(20,969,683)

(2,174,745)

(17,200,230)

Net 'Off-Balance Sheet' Position

(4,526,285)

20,945,530

2,042,421

18,461,666

  Derivative Assets

14,374,090

58,983,474

4,395,536

77,753,100

  Derivative Liabilities

18,900,375

38,037,944

2,353,115

59,291,434

  Non-Cash Loans

-

-

-

-

 





Prior Period





Total Assets

32,703,430

76,415,779

5,438,306

114,557,515

Total Liabilities

31,085,884

86,871,090

4,378,564

122,335,538

Net 'On Balance Sheet' Position

1,617,546

(10,455,311)

1,059,742

(7,778,023)

Net 'Off-Balance Sheet' Position

(552,341)

11,191,825

(1,172,416)

9,467,068

  Derivative Assets

11,681,920

43,870,033

6,336,208

61,888,161

  Derivative Liabilities

12,234,261

32,678,208

7,508,624

52,421,093

  Non-Cash Loans

-

-

-

-

(*)      The foreign currency-indexed loans amounting TL 6,396,564 thousands included under TL loans in the accompanying balance sheet are presented above under the related foreign currency codes.

(**)   Other liabilities include gold deposits of TL 2,024,532 thousands.



4.4         Interest rate risk

The interest rate risk resulting from balance sheet maturity mismatch presents the possible losses that may arise due to the changes in interest rates of interest sensitive assets and liabilities in the on- and off-balance sheet. Interest sensitivity of assets, liabilities and off-balance sheet items is evaluated during the Weekly Assesment Commitee and Assets-Liabilities Committee meetings taking into consideration the developments in market conditions.

The Bank's interest rate risk is measured by using economic value, economic capital, net interest income, income at risk, market price sensitivity of marketable securities portfolio, duration-gap and sensitivity analysis.

The results are supported by the sensitivity and scenario analysis performed periodically due to the possible instabilities in the markets. Furthermore, the interest rate risk is monitored according to the limits approved by the board of directors.

4.4.1      Interest rate sensitivity of assets, liabilities and off balance sheet items (based on repricing dates)

Current Period

Up to 1 Month

1-3

Months

3-12

Months

1-5 Years

5 Years and Over

Non-Interest Bearing (*)

Total

Assets








Cash (Cash on Hand, Money in Transit,

   Purchased Cheques) and Balances

   with the Central Bank of Turkey

17,892,432

-

-

-

-

5,892,702

23,785,134

Banks

3,926,271

1,934,196

1,989,280

-

-

4,469,179

12,318,926

Financial Assets at Fair Value through

   Profit/Loss

7,624

22,679

15,205

26,655

42,663

3,391,602

3,506,428

Interbank Money Market Placements

351,690

-

-

-

-

1

351,691

Financial Assets Available-for-Sale

2,613,361

5,750,771

5,630,419

2,729,802

1,684,778

1,503,438

19,912,569

Loans

43,310,831

22,078,517

55,780,392

48,273,126

12,730,401

3,874,961

186,048,228

Investments Held-to-Maturity

1,025,906

2,002,859

5,554,835

5,329,013

7,297,741

2,429,830

23,640,184

Other Assets

3,886

176

-

16,494

2,306

14,569,378

14,592,240

Total Assets

69,132,001

31,789,198

68,970,131

56,375,090

21,757,889

36,131,091

284,155,400









Liabilities








Bank Deposits

645,554

9,261

207,533

-

-

2,856,198

3,718,546

Other Deposits

88,684,664

20,652,616

11,479,265

180,101

-

36,516,405

157,513,051

Interbank Money Market Takings

9,763,295

-

-

-

-

6,092

9,769,387

Miscellaneous Payables 

-

-

-

-

-

9,088,139

9,088,139

Securities Issued 

506,828

1,335,786

4,599,655

7,523,662

2,143,691

327,257

16,436,879

Other Fundings

13,807,571

14,873,592

6,853,254

4,343,480

164,288

244,183

40,286,368

Other Liabilities

6,058

9,469

20,681

1,686

-

47,305,136

47,343,030

Total Liabilities

113,413,970

36,880,724

23,160,388

12,048,929

2,307,979

96,343,410

284,155,400









On Balance Sheet Long Position

-

-

45,809,743

44,326,161

19,449,910

-

109,585,814

On Balance Sheet Short Position

(44,281,969)

(5,091,526)

-

-

-

(60,212,319)

(109,585,814)

Off-Balance Sheet Long Position

8,000,925

10,184,917

12,492,698

4,640,715

4,244,593

-

39,563,848

Off-Balance Sheet Short Position

(1,313,961)

(4,549,173)

(9,696,072)

(12,903,699)

(11,205,806)

-

(39,668,711)

Total Position

(37,595,005)

544,218

48,606,369

36,063,177

12,488,697

(60,212,319)

(104,863)

(*)     Interest accruals are also included in non-interest bearing column.



 

Prior Period

Up to 1 Month

1-3

Months

3-12

Months

1-5 Years

5 Years and Over

Non-Interest Bearing (*)

Total

Assets








Cash (Cash on Hand, Money in Transit,

   Purchased Cheques) and Balances

   with the Central Bank of Turkey

237,533

-

-

-

-

24,913,990

25,151,523

Banks

4,891,625

1,627,764

1,721,756

-

-

3,606,350

11,847,495

Financial Assets at Fair Value through

   Profit/Loss(**)

6,123

43,980

24,243

64,552

27,070

1,484,381

1,650,349

Interbank Money Market Placements

61,068

-

-

-

-

1

61,069

Financial Assets Available-for-Sale

1,056,789

8,255,927

5,535,331

2,886,934

1,398,732

1,386,088

20,519,801

Loans (**)

36,234,817

19,851,601

47,116,862

41,487,703

11,718,450

2,928,608

159,338,041

Investments Held-to-Maturity

1,314,880

1,839,477

5,475,789

4,164,735

7,166,113

1,794,818

21,755,812

Other Assets

8,141

-

-

-

3,126

14,007,229

14,018,496

Total Assets

43,810,976

31,618,749

59,873,981

48,603,924

20,313,491

50,121,465

254,342,586









Liabilities








Bank Deposits

2,559,672

1,004,936

136,962

-

-

1,819,409

5,520,979

Other Deposits

69,211,491

23,297,959

12,546,330

155,766

-

30,166,807

135,378,353

Interbank Money Market Takings

12,530,501

242

2,520,164

-

-

17,254

15,068,161

Miscellaneous Payables 

-

-

-

-

-

8,336,852

8,336,852

Securities Issued 

1,065,962

1,063,971

1,884,600

6,724,385

3,155,359

304,492

14,198,769

Other Fundings

13,072,799

12,976,046

2,387,108

4,813,288

154,377

193,971

33,597,589

Other Liabilities

2,961

41,686

13,766

3,020

-

42,180,450

42,241,883

Total Liabilities

98,443,386

38,384,840

19,488,930

11,696,459

3,309,736

83,019,235

254,342,586









On Balance Sheet Long Position

-

-

40,385,051

36,907,465

17,003,755

-

94,296,271

On Balance Sheet Short Position

(54,632,410)

(6,766,091)

-

-

-

(32,897,770)

(94,296,271)

Off-Balance Sheet Long Position

5,220,980

7,262,160

11,606,458

5,101,636

2,626,080

-

31,817,314

Off-Balance Sheet Short Position

(1,478,854)

(4,029,766)

(9,071,991)

(10,112,625)

(7,396,845)

-

(32,090,081)

Total Position

(50,890,284)

(3,533,697)

42,919,518

31,896,476

12,232,990

(32,897,770)

(272,767)

(*)     Interest accruals are also included in non-interest bearing column.

(**)   Loans amounting to TL 198,118 thousands included under "financial assets at fair value through profit or loss" in the accompanying balance sheet, are presented above under "Loans".



 

4.4.2      Average interest rates on monetary financial instruments

Current Period

EUR

USD

JPY

TL


%

%

%

%

Assets





  Cash (Cash on Hand, Money in Transit,

      Purchased Cheques) and Balances with

      the Central Bank of Turkey

-

0.52

-

4.22

  Banks

0.05

0.90

-

9.09

  Financial Assets at Fair Value through

      Profit/Loss

2.18

5.77

-

10.16

  Interbank Money Market Placements

0.05

-

-

-

  Financial Assets Available-for-Sale

-

5.64

-

10.08

  Loans

3.92

5.61

3.41

15.26

  Investments Held-to-Maturity

0.19

5.53

-

10.22

Liabilities





  Bank Deposits

0.20

1.21

-

9.39

  Other Deposits

0.88

1.95

1.22

7.48

  Interbank Money Market Takings

-

-

-

8.30

  Miscellaneous Payables 

-

-

-

-

  Securities Issued 

3.48

5.13

0.64

10.34

  Other Fundings

0.95

2.60

-

10.26

 

Prior Period

EUR

USD

JPY

TL


%

%

%

%

Assets





  Cash (Cash on Hand, Money in Transit,

     Purchased Cheques) and Balances with the

     Central Bank of Turkey

-

0.35

-

2.90

  Banks

0.13

0.15

-

11.43

  Financial Assets at Fair Value through

     Profit/Loss

4.66

4.64

-

10.29

  Interbank Money Market Placements

-

0.55

-

-

  Financial Assets Available-for-Sale

-

5.67

-

10.54

  Loans

3.94

5.17

3.04

15.20

  Investments Held-to-Maturity

0.19

5.49

-

10.76

Liabilities





  Bank Deposits

0.56

1.05

-

10.69

  Other Deposits

0.95

1.43

1.19

8.20

  Interbank Money Market Takings

-

2.12

1.49

9.31

  Miscellaneous Payables 

-

-

-

-

  Securities Issued 

3.42

4.83

1.01

9.94

  Other Fundings

1.09

2.17

1.50

11.06



 

4.5         Position risk of equity securities in banking book

4.5.1      Equity shares in associates and affiliates

Accounting policies for equity shares in associates and affiliates are disclosed in Note 3.3.

4.5.2      Comparison of carrying, fair and market values of equity shares

Current Period

Comparison

Equity Securities (shares)

Carrying Value

Fair Value(*)

Market Value 

1

Investment in Shares- Grade A

5,109,467

4,997,355

83,689


Quoted Securities

79,275

79,275

83,689

2

Investment in Shares- Grade B

99,371

72,273

82,466


Quoted Securities

72,273

72,273

82,466

3

Investment in Shares- Grade C

662

-

-


Quoted Securities

-

-

-

4

Investment in Shares- Grade D

-

-

-


Quoted Securities

-

-

-

5

Investment in Shares- Grade E

1,014

-

-


Quoted Securities

-

-

-

6

Investment in Shares- Grade F

48

-

-


Quoted Securities

-

-

-

(*)     The balances are as per the results of equity accounting application.

Prior Period

Comparison

Equity Securities (shares)

Carrying Value

Fair Value(*)

Market Value 

1

Investment in Shares- Grade A

4,389,688

4,277,576

70,875


Quoted Securities

70,956

70,956

70,875

2

Investment in Shares- Grade B

91,785

64,688

69,839


Quoted Securities

64,688

64,688

69,839

3

Investment in Shares- Grade C

662

-

-


Quoted Securities

-

-

-

4

Investment in Shares- Grade D

-

-

-


Quoted Securities

-

-

-

5

Investment in Shares- Grade E

1,014

-

-


Quoted Securities

-

-

-

6

Investment in Shares- Grade F

48

-

-


Quoted Securities

-

-

-

 

 

(*)     The balances are as per the results of equity accounting application.



 

4.5.3      Realised gains/losses, revaluation surpluses and unrealised gains/losses on equity securities and results included in core and supplementary capitals

Current Period

Gains/Losses in Current Period

Revaluation Surpluses

Unrealised Gains and Losses

 

Portfolio

Total

Amount in

Tier I Capital(*)

Total

Amount in Core Capital

Amount in

Tier I Capital(*)

1

Private Equity Investments

-

-

-

-

-

-

2

Quoted Shares

-

66,295

66,295

-

-

-

3

Other Shares

-

2,915,577

2,915,577

-

-

-


Total

-

2,981,873

2,981,873

-

-

-

(*)     The balances are as per the results of equity accounting application.

 

Prior Period

Gains/Losses in Current Period

Revaluation Surpluses

Unrealised Gains and Losses

 

Portfolio

Total

Amount in

Tier I Capital

Total

Amount in Core Capital

Amount in

Tier I Capital(*)

1

Private Equity Investments

-

-

-

-

-

-

2

Quoted Shares

-

50,392

50,392

-

-

-

3

Other Shares

-

2,493,817

2,493,817

-

-

-


Total

-

2,544,209

2,544,209

-

-

-

(*)     The balances are as per the results of equity accounting application.

4.5.4      Capital requirement as per equity shares


Current Period


Portfolio

Carrying Value

RWA Total

Minimum Capital Requirement

1

Private Equity Investments

-

-

-

2

Quoted Shares

151,548

151,548

12,124

3

Other Shares

5,059,013

5,059,013

404,721


Total

5,210,561

5,210,561

416,845

 


Prior Period


Portfolio

Carrying Value

RWA Total

Minimum Capital Requirement

1

Private Equity Investments

-

-

-

2

Quoted Shares

135,644

135,644

10,852

3

Other Shares

4,347,553

4,347,553

347,804


Total

4,483,197

4,483,197

358,656



 

4.6         Liquidity risk management and liquidity coverage ratio

Liquidity risk is managed by asset and liability management department (ALMD) and asset and liability committee (ALCO) in line with risk management policies and risk appetite approved by the board of directors in order to take the necessary measures in a timely and correct manner against possible liquidity shortages that may result from market conditions and balance sheet structure. Under stressed conditions, liquidity risk is managed within the contingency funding plan framework.

The board of directors  reviews the liquidity risk management policy and approves the liquidity and funding risk policies, ensures the effective of practice of policies and integrations with the Bank's risk management system. The board of directors determines the basic metrics in liquidity risk measurement and monitoring. The board of directors establishes risk appetite of the Bank in liquidity risk management and identifies the risk limits in accordance with the risk appetite and reviews it regularly.

ALCO takes necessary decisions which will be executed by related departments by assessing the liquidity risk that the Bank is exposed to and considering the Bank's strategy and conditions of competition and pursues the implementations.

ALMD, performs daily liquidity management by ensuring compliance with regulatory and internal liquidity limits and monitoring related early warning indicators in case of probable liquidity squeezes. The medium and long term liquidity and funding management is performed by ALMD in accordance with ALCO decisions.

Risk management head defines the Bank's liquidity risk,  measures and monitors the risks with liquidity risk measurement methods that are in compliance with international standards, presents measurement results periodically to related departments, committees and senior management. Risk management department coordinates related parties in order to ensure compliance of risk management process in accordance with the Bank's risk profile, operation environment and strategic plan with regulations. Risk management department analyses, develops and revises relevant liquidity risk measurement in accordance with changing market conditions and the Bank's structure. Risk management department reviews assumptions and parameters used in liquidity risk analysis.

The liquidity risk analysis and the important liquidity indicators are reported monthly to related senior management. Additionally, analysis and monitored internal ratios related to liquidity risk are presented in ALCO report. Internal liquidity metrics are monitored with limit and alert levels approved by the Board of Directors and reported regularly to related parties. 

Decentralized management approach is adopted in the Bank's liquidity management. Each subsidiary controlled by the Bank performs daily, medium and long term liquidity management independently from the Bank by the authorities in each subsidiary responsible for managing liquidity risk. In addition, within the scope of consolidated risk management, liquidity and funding risk of each subsidiary in control are monitored via the liquidity risk management methods identified by the Bank by considering the operations, risk profile and regulations of the related subsidiary.

The Bank's funding management is carried out in compliance with the ALCO decisions. Funding and placement strategies are developed by assessing liquidity of the Bank.

In liquidity risk management actions that will be taken and procedures are determined by considering normal economic conditions and stress conditions.

Diversification of assets and liabilities is assured so as to be able to continuously meet the obligations, also taking into account the relevant currencies. Funding sources are monitored actively during identification of concentration risk related to funding. The Bank's funding base of customer deposits, interbank and other borrowing transactions are diversified in order to prevent the concentration of a particular funding source. Factors that could trigger the sudden and significant run off in funds or impair the accessibility of the funding sources are analyzed. Additionally, securities which are eligible as collateral at CBRT issued by Republic of Turkey Treasury and have active secondary market are comprised in the Bank's assets.



 

In the context of TL and foreign currencies liquidity management, the Bank monitors the cash flows regarding assets and liabilities and forecasts the required liquidity in future periods. In cash flow analysis, stress is applied to items that affect the liquidity by volume and rate of change from a liquidity management point of view.

Liquidity risk exposed by the Bank is managed by establishing risk appetite, risk mitigation according to the liquidity and funding  policies (diversification of funding sources, holding high quality liquid assets reserve) and effective control environment and closely monitoring by limits. For those risks that cannot be reduced, the adoption of the current level of risk, reduction or  termination of the activities that cause the risk is considered.

In liquidity risk stress testing framework, the level of the Bank's ability to cover cash outflows in liquidity crisis scenario based on the Bank's current cash flow structure, by high quality liquid assets is calculated. Scenario analysis are performed by assessing changing balance sheet structure, liquidity requirements and market conditions.

The results of liquidity risk stress testing are taken into consideration in the assessment of liquidity adequacy and identification of policy regarding liquidity risk and contingency funding plan is prepared within this framework.

There exists "Liquidity Emergency Plan" in the Bank including mechanisms to prevent increase in liquidity risk scenarios for different conditions and levels. Available liquidity sources are  determined by considering the liquidity squeezes. Within the framework of this plan, the Bank  monitors liquidity risk in terms of early warning indicators and probable scenarios where liquidity risk crises and possible actions that can be taken.

The Bank's liabilities consist of TL and foreign currency funding, of which a large portion is USD/EUR. Deposits and capital constitute most of TL funding. For the reasons like real person customers can not use foreign currency credit but are able to deposit foreign currency funds, TL and foreign currency deposit and credit amount may differ. Long term funding obtained from foreign banks and creditors are mainly in foreign currency. For these reasons overall foreign currency liabilities are usually more than foreign currency liabilities. Unused portion of USD and EUR foreign currency funding is turned to TL via currency swap transactions and used in TL funding. Lines extended by CBRT and BİST aren't used to full extent, unused limits and high quality liquid asset stock is held is kept to use in the case of a liquidity scarcity in market. Also T.C. Eurobonds aren't used to secure funding and kept as reserve to use in the case of a foreign currency liquidity scarcity in market. In TL and foreign currency liquidity management, regulatory ratios, internally set warnings, limits and other liquidity and funding metrics are monitored.

4.6.1      Liquidity coverage ratio

Liquidity Coverage Ratio (LCR), aims for the banks having the ability to cover 30 days of liquidity needs with their own cash and high quality liquid assets that are easy to convert to cash during liquidity shortages in the markets. With that perspective and according to "Regulation for Banks' Liquidity Coverage Ratio Calculations" (the Regulation) terms LCR ratio is calculated by having high quality liquid assets divided by net cash outflows. After a transition period that will end by 1 January 2019, in both bank-only and consolidated basis, LCR ratio should be at least 80% for foreign currency and 100% for total.

Items in balance sheet and off balance sheet items are taken into account after being multiplied by the coefficients advised in the Regulation. In LCR calculation cash inflows are limited by 75% of cash outflows and cash inflows from high quality liquid assets aren't included.

High quality liquid assets consist of cash, deposits in central banks and securities considered as high quality liquid assets. Reserve deposits are included in high quality liquid assets, limited by the amount that is allowed by central bank to use in liquidity shortages. The Bank's high quality liquid assets are composed of 4.66% cash, 50.58% deposits in central banks and 44.62% securities considered as high quality liquid assets.



 

The Bank's main funding sources are deposits, funds borrowed, money market borrowings and securities issued. Funding source composition in report date is 68.08% deposits, 21.14% funds borrowed and money market borrowings and 6.94% securities issued.

In LCR calculation, cash outflows are mainly consist of deposits, secured and unsecured borrowings, securities issued and off balace sheet items.

The cash flows from derivative financial instruments are included in LCR calculations according to Regulation's terms. The Bank also considers changes in fair value of the liabilities that result in margin calls when calculating cash outflows.

 

Current Period

Total Unweighted Value (Average) (*)

Total Weighted Value (Average) (*)


TL+FC

FC

TL+FC

FC

High-Quality Liquid Assets



38,835,305

19,540,092

1

Total high-quality liquid assets (HQLA)

46,512,925

25,746,123

38,835,305

19,540,092

Cash Outflows





 

2

Retail deposits and deposits from small business customers, of which:

105,424,258

46,163,615

8,669,017

4,286,621

3

  Stable deposits

24,131,224

-

1,120,378

-

4

  Less stable deposits

81,293,033

46,163,615

7,548,639

4,286,621

5

Unsecured wholesale funding, of which:

43,358,024

23,960,602

22,621,537

12,415,263

6

  Operational deposits

-

-

-

-

7

  Non-operational deposits

34,102,671

21,343,725

16,418,382

10,064,078

8

  Unsecured funding

9,255,353

2,616,877

6,203,155

2,351,184

9

Secured wholesale funding



342,707

342,707

10

Other cash outflows of which:

51,592,370

14,605,068

10,661,642

9,671,066

 

11

  Outflows related to derivative exposures and

  other collateral requirements

7,987,916

9,169,525

7,417,350

8,514,559

12

  Outflows related to restructured financial

   instruments

-

-

-

-

13

  Payment commitments and other off-balance

  sheet commitments granted for debts to

  financial markets

43,604,454

5,435,543

3,244,292

1,156,507

14

Other revocable off-balance sheet commitments and contractual obligations

1,451,196

1,444,887

67,377

67,084

15

Other irrevocable or conditionally revocable off-balance sheet obligations

55,210,937

38,427,025

2,563,365

1,784,112

16

Total Cash Outflows



44,925,645

28,566,853

Cash Inflows





17

Secured receivables

-

-

-

-

18

Unsecured receivables

14,943,851

4,830,047

9,153,351

3,425,254

19

Other cash inflows

1,325,052

5,914,162

1,230,405

5,491,722

20

Total Cash Inflows

16,268,903

10,744,209

10,383,756

8,916,976





Total Adjusted Value

21

Total HQLA



     38,835,305  

     19,540,092  

22

Total Net Cash Outflows



     34,541,889  

     19,649,877  

23

Liquidity Coverage Ratio (%)



            113.06  

              94.26  

(*)   The average of last three months' liquidity coverage ratio calculated by weekly simple averages.

 



 

The table below presents highest, lowest and average liquidity coverage ratios of the last three months of 2016:

Current Period

Highest

Date

Lowest

Date

Average

TL+FC

128.41

 

21.10.2016

 

99.22

 

23.11.2016

 

113.06

FC

128.99

 

22.12.2016

 

71.48

 

01.01.2017

 

94.26

 

 

 

Prior Period

Total Unweighted Value (Average) (*)

Total Weighted Value (Average) (*)


TL+FC

FC

TL+FC

FC

High-Quality Liquid Assets



38,348,358

25,408,589

1

Total high-quality liquid assets (HQLA)

42,874,723

29,921,484

38,348,358

25,408,589

Cash Outflows





 

2

Retail deposits and deposits from small business customers, of which:

92,521,984

41,069,069

7,905,352

3,760,902

3

  Stable deposits

26,936,931

6,920,088

1,346,847

346,004

4

  Less stable deposits

65,585,053

34,148,981

6,558,505

3,414,898

5

Unsecured wholesale funding, of which:

41,271,520

24,505,286

23,947,340

14,163,857

6

  Operational deposits

-

-

-

-

7

  Non-operational deposits

32,677,280

21,047,652

16,872,374

10,757,484

8

  Unsecured funding

8,594,240

3,457,634

7,074,966

3,406,373

9

Secured wholesale funding



11,883

11,883

10

Other cash outflows of which:

51,866,774

15,188,053

9,926,636

7,329,223

 

11

  Outflows related to derivative exposures and

  other collateral requirements

6,204,411

5,718,456

6,204,411

5,718,456

12

  Outflows related to restructured financial

   instruments

-

-

-

-

13

  Payment commitments and other off-balance

  sheet commitments granted for debts to

  financial markets

45,662,364

9,469,598

3,722,225

1,610,767

14

Other revocable off-balance sheet commitments and contractual obligations

1,142

1,142

57

57

15

Other irrevocable or conditionally revocable off-balance sheet obligations

48,496,094

33,790,824

2,424,805

1,689,539

16

Total Cash Outflows



44,216,072

26,955,461

Cash Inflows





17

Secured receivables

-

-

-

-

18

Unsecured receivables

15,152,924

4,637,853

10,363,531

3,768,776

19

Other cash inflows

629,706

272,874

629,706

272,874

20

Total Cash Inflows

15,782,628

4,910,727

10,993,237

4,041,651





Total Adjusted Value

21

Total HQLA



38,348,358

25,408,589

22

Total Net Cash Outflows



33,222,835

22,913,810

23

Liquidity Coverage Ratio (%)



115.74

112.46

(*)   The average of last three months' liquidity coverage ratio calculated by weekly simple averages.

 

The table below presents highest, lowest and average liquidity coverage ratios of the last three months of 2015:

Prior Period

Highest

Date

Lowest

Date

Average

TL+FC

128.31

21.12.2015

98.31

02.11.2015

115.74

FC

155.29

29.09.2015

92.10

12.11.2015

112.46

4.6.2       Contractual maturity analysis of liabilities according to remaining maturities

The remaining maturities table of the contractual liabilities includes the undiscounted future cash outflows for the principal amounts of the Bank's financial liabilities as per their earliest likely contractual maturities.

 Current Period

 

Carrying Value

Gross Nominal Outflows

Demand

 

Up to 1 Month

1-3

Months

3-12

Months

1-5 Years

5 Years

and  Over

Bank Deposits

3,718,546

3,711,684

2,849,336

645,554

9,261

207,533

-

-

Other Deposits

157,513,051

156,948,877

35,952,232

88,681,184

20,644,243

11,443,292

219,303

8,623

Other Fundings

40,286,368

40,042,185

-

446,491

1,466,844

17,535,162

13,512,311

7,081,377

Interbank Money Market Takings

9,769,387

9,763,295

-

9,763,295

-

-

-

-

Securities Issued

16,436,879

16,109,622

-

471,698

1,258,500

4,599,655

7,636,078

2,143,691

Total

227,724,231

226,575,663

38,801,568

100,008,222

23,378,848

33,785,642

21,367,692

9,233,691

 

Prior Period

 

Carrying Value

Gross Nominal Outflows

Demand

 

Up to 1 Month

1-3

Months

3-12

Months

1-5 Years

5 Years

and  Over

Bank Deposits

5,520,979

5,515,577

1,814,011

2,559,671

1,004,933

136,962

-

-

Other Deposits

135,378,353

134,876,900

29,665,353

69,206,976

23,288,593

12,511,667

194,246

10,065

Other Fundings

33,597,589

33,403,617

-

1,000,751

1,312,560

11,554,641

13,604,248

5,931,417

Interbank Money Market Takings

15,068,161

15,050,907

-

12,530,501

242

2,520,164

-

-

Securities Issued

14,198,769

13,894,277

-

124,634

985,455

2,811,388

6,817,441

3,155,359

Total

203,763,851

202,741,278

31,479,364

85,422,533

26,591,783

29,534,822

20,615,935

9,096,841



 

4.6.3      Maturity analysis of assets and liabilities according to remaining maturities:


 

Demand

Up to 1 Month

1-3

Months

3-12

Months

1-5 Years

5 Years

and  Over

Undistributed (*)

 

Total

Current Period









Assets









Cash (Cash on Hand, Money in

   Transit, Purchased Cheques) and

   Balances with the Central Bank

   of Turkey

8,284,784

15,500,350

-

-

-

-

-

23,785,134

Banks

4,447,952

2,173,450

1,242,864

884,960

3,569,700

-

-

12,318,926

Financial Assets at Fair Value

   through Profit/Loss

-

956,423

624,092

1,239,370

364,422

322,121

-

3,506,428

Interbank Money Market Placements

-

351,691

-

-

-

-

-

351,691

Financial Assets Available-for-Sale

194,907

23,065

31,068

498,172

10,102,810

9,062,547

-

19,912,569

Loans

336,437

31,107,678

15,169,005

45,379,745

68,144,813

21,969,347

3,941,203

186,048,228

Investments Held-to-Maturity

-

139,741

452,201

181,994

9,023,268

13,842,980

-

23,640,184

Other Assets

1,965,197

1,300,264

176

5,870

424,349

177,796

10,718,588

14,592,240

Total Assets

15,229,277

51,552,662

17,519,406

48,190,111

91,629,362

45,374,791

14,659,791

284,155,400










Liabilities









Bank Deposits

2,849,464

648,098

9,275

211,709

-

-

-

3,718,546

Other Deposits

35,952,232

88,989,563

20,761,897

11,579,545

221,134

8,680

-

157,513,051

Other Fundings

-

578,184

1,548,844

17,565,510

13,512,453

7,081,377

-

40,286,368

Interbank Money Market Takings

-

9,769,387

-

-

-

-

-

9,769,387

Securities Issued 

-

472,538

1,260,374

4,625,139

7,902,731

2,176,097

-

16,436,879

Miscellaneous Payables 

1,152,182

7,935,957

-

-

-

-

-

9,088,139

Other Liabilities (**)

1,800,785

1,056,502

823,203

1,089,573

669,368

646,105

41,257,494

47,343,030

Total Liabilities

41,754,663

109,450,229

24,403,593

35,071,476

22,305,686

9,912,259

41,257,494

284,155,400










Liquidity Gap

(26,525,386)

(57,897,567)

(6,884,187)

13,118,635

69,323,676

35,462,532

(26,597,703)

-










Net Off-Balance Sheet Position

-

568,524

(102,511)

547,321

(14,041)

87,715

-

1,087,008

 Derivative Financial Assets

-

57,011,286

23,414,855

29,279,277

7,694,661

967,692

-

118,367,771

 Derivative Financial Liabilities

-

56,442,762

23,517,366

28,731,956

7,708,702

879,977

-

117,280,763

 Non-Cash Loans

-

5,280,818

3,890,088

5,972,633

136,128

-

89,084,131

104,363,798










Prior Period









Total Assets

11,849,181

54,008,097

13,649,684

43,790,139

77,418,789

41,432,766

12,193,930

254,342,586

Total Liabilities

35,708,826

93,434,062

27,222,063

30,759,578

21,373,798

9,521,998

36,322,261

254,342,586485

Liquidity Gap

(23,859,645)

(39,425,965)

(13,572,379)

13,030,561

56,044,991

31,910,768

(24,128,331)

-

Net Off-Balance Sheet Position

-

(2,435)

(23,324)

(503,480)

9,882

87,117

-

(432,240)

 Derivative Financial Assets

-

40,312,873

17,317,421

31,938,167

9,819,947

1,027,585

-

100,415,993

 Derivative Financial Liabilities

-

40,315,308

17,340,745

32,441,647

9,810,065

940,468

-

100,848,233

 Non-Cash Loans

-

3,916,751

2,668,070

7,640,061

294,530

-

83,888,838

98,408,250

(*)       Certain assets on the balance sheet that are necessary for the banking operations but not convertable into cash in short period such as tangible assets, investments in associates and affiliates, stationary supplies, prepaid expenses and loans under follow-up, are included in this column.

 (**)    Shareholders' equity is included in "other liabilities" line under "undistributed" column.



 

4.7         Leverage ratio

The leverage ratio table prepared in accordance with the communiqué "Regulation on Measurement and Assessment of Leverage Ratios of Banks" published in the Official Gazette no. 28812 dated 5 November 2013 is presented below:

The Bank's leverage ratio calculated by taking average of end of month leverage ratios for the last three-month period is 8.83% (31 December 2015: 8.42%).  Main reason for the variance compared to December 2015, is the increase in Tier I Capital higher than other items. While the capital increased by 14.9% mainly as a result of increase in net profits, the balance sheet exposure increased by 11.33% and the off balance sheet exposure increased by 3.63%. Therefore, the current period leverage ratio increased by 41 basis points compared to prior period.

 

On-balance sheet assets

Current Period (*)

Prior Period (*)

 

1

On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral)

278,685,369

250,277,784

2

(Assets deducted in determining Tier I capital)

(300,326)

(220,586)

3

Total on-balance sheet risks (sum of lines 1 and 2)

278,385,043

250,057,198

Derivative financial instruments and credit derivatives



4

Replacement cost associated with all derivative instruments and credit derivatives

3,285,514

2,353,340

5

Add-on amounts for PFE associated with all derivative instruments and credit derivatives

8,303,567

7,129,895

6

Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5)

11,589,080

9,483,235

Securities or commodity financing transactions (SCFT)



7

Risks from SCFT assets (excluding on-balance sheet)

1,586,346

1,038,962

8

Risks from brokerage activities related exposures

-

-

9

Total risks related with securities or commodity financing transactions (sum of lines 7 to 8)

1,586,346

1,038,962

Other off-balance sheet transactions



10

Gross notional amounts of off-balance sheet transactions

105,623,641

99,470,017

11

(Adjustments for conversion to credit equivalent amounts)

(2,550,420)

(3,948)

12

Total risks of off-balance sheet items (sum of lines 10 and 11)

103,073,221

99,466,069

Capital and total risks



13

Tier I capital

34,842,798

30,325,091

14

Total risks (sum of lines 3, 6, 9 and 12)

394,633,690

360,045,464

Leverage ratio



15

Leverage ratio

8.83%

8.42%

(*)       Amounts in the table are three-month average amounts.

4.8         Fair values of financial assets and liabilities


Carrying Value

Fair Value

Current Period

Prior Period

Current Period

Prior Period

Finansal Assets

263,138,119

236,364,856

264,414,464

237,884,362

  Interbank Money Market Placements

351,691

61,069

351,691

61,069

  Banks (*)

33,185,447

34,690,133

33,185,447

34,690,133

  Financial Assets Available-for-Sale

19,912,569

20,519,801

19,912,569

20,519,801

  Investments Held-to-Maturity

23,640,184

21,755,812

23,329,795

21,906,006

  Loans

186,048,228

159,338,041

187,634,962

160,707,353

Financial Liabilities

227,042,983

197,032,542

227,042,983

197,032,542

  Bank Deposits

3,718,546

5,520,979

3,718,546

5,520,979

  Other Deposits

157,513,051

135,378,353

157,513,051

135,378,353

  Other Fundings

40,286,368

33,597,589

40,286,368

33,597,589

  Securities Issued

16,436,879

14,198,769

16,436,879

14,198,769

  Miscellaneous Payables

9,088,139

8,336,852

9,088,139

8,336,852

(*) Including the balances at the Central Bank of Turkey

Fair values of financial assets available-for-sale and investments held-to-maturity are derived from market prices or in case of absence of such prices, market prices of other securities quoted in similar qualified markets and having substantially similar characteristics in terms of interest, maturity and other conditions.

Fair values of loans are calculated discounting future cash flows at current market interest rates for fixed-rate loans. The carrying values of floating-rate loans are deemed an approximation for their fair values.

Fair values of other financial assets and liabilities represent the total acquisition costs and accrued interest.

The table below analyses financial instruments carried at fair value, by valuation method:

Current Period

Level 1

Level 2

Level 3

Total

Financial Assets Available-for-Sale

19,104,438

246,183

561,948

19,912,569

Financial Assets Held for Trading

115,443

-

-

115,443

Derivative Financial Assets Held for Trading

12,449

3,378,536

-

3,390,985

Loans

-

-

-

-

Investments in Associates and Subsidiaries

-

-

5,069,628

5,069,628

Derivative Financial Assets Held for Risk Management

-

589,214

-

589,214

Financial Assets at Fair Value

19,232,330

4,213,933

5,631,576

29,077,839






Derivative Financial Liabilities Held for Trading

977

3,495,645

-

3,496,622

Funds Borrowed

-

1,763,177

-

1,763,177

Derivative Financial Liabilities Held for Risk Management

-

279,536

-

279,536

Financial Liabilities at Fair Value

977

5,538,358

-

5,539,335

 



 

 

Prior Period

Level 1

Level 2

Level 3

Total

Financial Assets Available-for-Sale

14,267,634

5,721,163

531,004

20,519,801

Financial Assets Held for Trading

135,535

31,325

-

166,860

Derivative Financial Assets Held for Trading

285

1,483,204

-

1,483,489

Loans

-

198,118

-

198,118

Investments in Associates and Subsidiaries

-

-

4,342,263

4,342,263

Derivative Financial Assets Held for Risk Management

-

680,997

-

680,997

Financial Assets at Fair Value

14,403,454

8,114,807

4,873,267

27,391,528






Derivative Financial Liabilities Held for Trading

3,617

2,260,020

-

2,263,637

Funds Borrowed

-

5,688,704

-

5,688,704

Derivative Financial Liabilities Held for Risk Management

-

250,491

-

250,491

Financial Liabilities at Fair Value

3,617

8,199,215

-

8,202,832

Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

4.9         Transactions carried out on behalf of customers and items held in trust

None.

4.10       Risk management objectives and policies

The notes under this caption are prepared as per the "Regulation on Calculation of Risk Management Disclosures" published in the Official Gazette no. 29511 dated 23 October 2015.

4.10.1    Risk management strategy and weighted amounts

4.10.1.1 Risk management strategy

The Bank's risk management strategy is to ensure that risk management culture is recognized and risk management principles are widely embraced throughout the Bank and its affiliates, an integrated risk management system is established which pursues risk-return-capital relationship. Essential principles are adopted in order to ensure that policies determined to assess and manage risks the Bank is exposed to, are kept updated, adapted to changing conditions, applied and managed.

It is the ultimate responsibility of the senior management to apply and improve risk management strategies, policies and procedures that are approved by the board of directors, inform the board of directors about the important risks the Bank is exposed to, assess internal control, internal audit and risk reports with regard to the Banks' departments and to eliminate the risks, deficiencies or defects identified in these departments or to take the necessary precautionary actions to prevent those risks, deficiencies and defects and participate in the determination of risk limits.

Policies and procedures regarding risk management are established for consolidated affiliates. Policies and procedures are prepared in compliance with applicable legislations that the affiliate subject to and the parent Bank's risk management strategy, reviewed regularly and revised if necessary. The parent Bank ensures that risk management system is applied in affiliates where  risks are defined, measured, monitored and controlled.

Risk management activities are structured under the responsibility of the board of directors. The Risk Committee composed of the members of the board is responsible to oversee the Bank's risk management policies and practices, including the alignment with its strategic objectives and management's ability to assess and manage the various risks present in its activities including capital adequacy and planning and liquidity adequacy, as well as all other risk management functions envisioned under the applicable laws and regulations. Upper level management is responsible against the board of directors for the monitoring and management  of  risks  that their  departments  are exposed to.  Accordingly, the Risk Management,  which

 

performs risk management functions, reports to the board of directors via the Risk Committee, whereas the Internal Audit Department, performing internal audit functions, the Internal Control Unit, performing internal control functions, and the Compliance Department, which implements compliance controls and performs activities to prevent laundering proceeds of crime, and financing of terrorism, report directly to the board of directors.

The Bank's main approach for the implementation of risk management model is establishing risk culture throughout the Bank, and aims that the importance of risk management for maintaining business operations is understood and risk awareness and sensitivity is ensured for decision making and implementation mechanisms process by all employees.

The Bank measures and monitors risks that exposed to, considering methods suitable with international standards, compliant with legislation. Risk measuring and reporting are performed via advanced methods and risk management softwares. Risk based detailed reports are prepared for management of significant risks, in order to determine strategies and take decisions, in this scope, periodic and non-periodic reports are prepared for board of directors, relevant committees and senoir management

The Bank's risk appetite framework determines the risk level that the board of directions is prepared to accept in order to accomplish the goals and strategies with due consideration to the capacity of the institution to safely absorbs those risks and the Bank monitors regularly risk appetite metrics regarding capital, liquidity, income recurrence and risk based limits. Risks that the Bank is exposed, is managed by providing effective control environment and monitoring limits. Unmitigated risks are either accepted with current risk levels or decreasing/ terminating the activity that causes the risk.

 

The Risk Management conducts the implementation of internal capital adequacy assessment report to be sent to the BRSA, by coordinating relevant parties. Stress test report is reported to the BRSA, which  evaluates how adverse effects on macroeconomic parameters, in the scope of determined scenarios, affect the Bank's three year budget plan and results, and certain ratios, including capital adequacy. 

Training programs for employees, risk reports to the board of directors, senior management and committees, risk appetite framework established by the Bank and internal capital adequacy assessment process generate significant inputs to ensure that risk management culture is widely embraced.



 

   4.10.1.2 Risk weighted amounts


 

Risk Weighted Amounts

Minimum Capital Requirements


Current Period

Prior Period

Current Period

1

 Credit risk (excluding counterparty credit risk) (CCR) (*)

202,032,520

193,517,157

16,162,602

2

 Of which standardised approach (SA)

202,032,520

193,517,157

16,162,602

3

 Of which internal rating-based (IRB) approach

-

-

-

4

 Counterparty credit risk

5,270,570

2,378,806

421,646

5

 Of which standardised approach for counterpary credit

 risk (SA-CCR)

5,270,570

2,378,806

421,646

6

 Of which internal model method (IMM)

-

-

-

7

 Equity position in banking book under basic risk

 weighting or internal rating-based

-

-

-

8

 Equity investments in funds - look-through approach

-

-

-

9

 Equity investments in funds - mandate-based approach

-

-

-

10

 Equity investments in funds - 1250% risk weighting

 approach

-

-

-

11

 Settlement risk

-

-

-

12

 Securitisation exposures in banking book

-

-

-

13

 Of which IRB ratings-based approach (RBA)

-

-

-

14

 Of which IRB supervisory formula approach (SFA)

-

-

-

15

 Of which SA/simplified supervisory formula

 approach  (SSFA)

-

-

-

16

 Market risk

5,704,124

6,279,160

456,330

17

 Of which standardised approach (SA)

5,704,124

6,279,160

456,330

18

 Of which internal model approaches (IMM)

-

-

-

19

 Operational risk

18,931,681

16,906,172

1,514,534

20

 Of which basic indicator approach

18,931,681

16,906,172

1,514,534

21

 Of which standardised approach

-

-

-

22

 Of which advanced measurement approach

-

-

-

23

 Amounts below the thresholds for deduction from capital (subject to 250% risk weight)

383,449

998,611

30,676

24

 Floor adjustment

-

-

-

25

 Total (1+4+7+8+9+10+11+12+16+19+23+24)

232,322,344

220,079,906

18,585,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(*)   Excluding equity investments in funds and amounts below the thresholds for deductions from capital.



 

4.10.2    Linkages between financial statements and risk amounts

4.10.2.1 Differences and matching between asset and liabilities' carrying values in financial statements and risk amounts in capital adequacy calculation



Carrying values of items in accordance with Turkish Accounting Standards


Carrying values in financial statements prepared as per TAS

 

Subject to credit risk

 

Subject to counterparty credit risk

 

Subject to market risk (*)

Not subject to capital requirements or subject to deduction from capital

Assets






 

Cash (Cash on Hand, Money in Transit, Purchased Cheques) and Balances With Central Bank of Turkey

23,785,134

23,785,134

-

-

-

Financial Assets Held for Trading

3,506,428

7,840

3,383,147

1,298,044

-

Financial Assets at Fair Value Through Profit or Loss

-

-

-

-

-

Banks

12,318,926

12,318,926

-

-

-

Interbank Money Markets Placements

351,691

351,691

-

-

-

Financial Assets Available-for-Sale

19,912,569

18,829,615

5,044,027

1,081,227

1,730

Loans

186,048,228

186,011,235

-

-

36,994

Factoring Receivables

-

-

-

-

-

Investment Held-to-Maturity

23,640,184

23,640,184

8,308,738

-

-

Investment in Associates

36,698

36,698

-

-

-

Investment in Subsidiaries

5,173,864

5,173,864

-

-

-

Investment in Joint-Ventures

-

-

-

-

-

Lease Receivables

-

-

-

-

-

Derivative Financial Assets Held for Risk Management

589,214

-

589,214

-

-

Tangible Assets

3,388,748

3,285,711

-

-

103,037

Intangible Assets

239,013

25,669

-

-

213,344

Investment Property

670,370

670,370

-

-

-

Tax Asset

127,709

127,709

-

-

-

Assets Held for Sale and Assets of Discontinued Operations

589,726

533,866

-

-

55,860

Other Assets

3,776,898

3,776,898

-

-

-

Total Assets

284,155,400

278,575,410

17,325,126

2,379,271

410,965

Liabilities






Deposits

161,231,597

-

-

-

161,231,597

Derivative Financial Liabilities Held for Trading

3,496,622

-

-

-

3,496,622

Funds Borrowed

40,286,368

-

5,798,862

-

34,487,506

Interbank Money Markets

9,769,387

-

7,268,206

-

2,501,181

Securities Issued

16,436,879

-

-

-

16,436,879

Funds

-

-

-

-

-

Miscellaneous Payables

9,088,139

-

-

-

9,088,139

Other External Fundings Payable

2,981,312

-

-

21,136

2,960,176

Factoring Payables

-

-

-

-

-



 

Lease Payables

17,092

-

-

-

17,092

Derivative Financial Liabilities Held for Risk Management

279,536

-

-

-

279,536

Provisions

4,614,004

-

-

-

4,614,004

Tax Liability

415,384

-

-

-

415,384

Liabilities for Assets Held for Sale and Assets of Discontinued Operations

-

-

-

-

-

Subortinated Debts

-

-

-

-

-

Shareholders' Equity

35,539,080

-

-

-

35,539,080

Total Liabilities

284,155,400

-

13,067,068

21,136

271,067,196

(*)      Disclosed based on gross position amounts subject to general market risk and specific risk.

4.10.2.2 Major items causing differences between assets and liabilities' carrying values in financial statements and risk amounts in capital adequacy calculation



Total

Credit risk

Counterparty credit risk

Market risk (*)

1

Carrying Value of Assets in Accordance with Communiqué  "Preparation of Financial Statements"

270,391,670

265,222,644

3,972,361

2,379,271

2

Carrying Value of Debt Instruments that are Subjected to Counterparty Credit Risk as per TAS

13,352,765

13,352,766

13,352,765

-

3

Carrying Value of  Liabilities that are Subjected to Counterparty Credit Risk as per TAS

13,067,068

-

13,067,068

-

4

Carrying Value of Other Liabilities as per TAS

21,136

-

-

21,136

5

Total Net Amount

270,656,231

278,575,410

4,258,058

2,358,135

6

Off-balance Sheet Amounts (**)

249,440,858

40,412,624

1,639,214

158,558,970

7

Differences Resulted from the BRSA's Applications


(18,671,213)

(9,751)

-

8

Repurchase Transactions


-

1,479,742

-

9

Risk Amounts


300,316,821

7,367,263

160,917,105

(*)      Disclosed based on gross position amounts subject to general market risk and specific risk.

 (**)    Off-balance sheet amounts subject to capital adequacy ratios.

4.10.2.3 Explanations on differences between carrying values in financial statements and risk amounts in capital adequacy calculation of assets and liabilities

There is no material differences between the carrying values in financial statements and the risk amounts in capital adequacy calculation of assets and liabilities.

4.10.3    Credit risk

4.10.3.1 General information on credit risk

4.10.3.1.1 General qualitative information on credit risk

The Bank's credit risk management policies; under the relevant legislation in line with the bank's credit strategy approved by the Board are created based on the prudence, sustainability and customer's credit worthiness principles.

Diversification to avoid concentrations are performed while determining the Bank's credit risk profile. Credit portfolios are evaluated depending upon the credit type, managed aggregately during their life cycle. Customer selection is made in accordance with the policies and strategies, affordability of the borrower to fulfil on a timely basis all financial obligations with his expected cash flows from foreseeable specific  transactions or  from its  regular operations;  without depending  upon guarantors, bails or pledged assets is predicated. Necessary risk rating/scoring models are developed for the different portfolios of the Bank. These models are created by ensuring the best separation of the customers in terms of their credibility and grading them using the objective criteria. The outputs of the internal rating and scoring  models that  developed  based  on the each portfolio,  as well as an important  part of  the  loan

 

approval process, but also these models are used measuring the default risk of the customer and the portfolio, doing analysis regarding expected loss, internal capital, risk-based analysis.

The general risk policy including the risk appetite and indicators is determined by the board of directors. Risk management is handled, in order to reach the determined targets, by carrying out a continuous monitoring process with a proper classification of risks and customers in scope of the effective management mentality. The limit framework and delegation rules are specified by establishing proper decision systems in order to assess the risks correctly. Optimum limit levels are determined by taking into account the loss and returns during the limit setting process.

The security intelligence and analysis are done in order to measure the creditworthiness of the customer that will be entered in a credit relationship. Before the credit decisions, customer analysis is examined and evaluated by producing all factors (qualitative and quantitative data) that effected and will be effected the historical, current and future performance of the customer.

Credit risk management is a structured process where credit risks are consistently assessed, quantified and monitored. In order to take the right decision, during the credit process which begins with the application of the customer and includes the phases of determination of the customer's credibility, collateralization, loan configuration, approval and usage, monitoring and closing the exposure, all required information and documents intended to identify the customer are collected in a centralized database, with this information the customer's financial strength is analysed, credit risk analysis is done, are graded according to customer segment and activity fields and the information is kept updated by inquiring the customers. Before a loan is granted, it is ensured that risks are well-understood, sufficient evaluation has been done and after the loan is granted the loan is monitored, controlled and reported.

Credit risk is managed on a portfolio basis considering the risk/return balance and asset quality of the Bank in the scope of the principles specified in the credit risk policy documents. Furthermore, loan based assessment, allocation and monitoring are carried out within the framework of related processes by related units in the Credit Group. Credit proposals, on the basis of the determined amount and in the framework of levels of authority, are concluded after being evaluated by the Regional Offices, Loans units of Headquarter, if required by the credit committee and the board of directors. The credit approval authority can be transferred starting from the board of directors. The authorities of the Headquarter and Credit Regional Offices are notified in written and the transfer of authority is done.

Each unit operating in credit risk management is responsible for identifying risks arising from its own process, activities and systems, informing senior management and taking necessary action to reduce risk level.

Risk management activities are conducted in accordance with the Bank's risk appetite and capacity by using risk measurement and management tools within the policies which is established by the board of directors.

In this context, organizational structure related to credit risk management and control functions are detailed below: Units within the scope of Credit Risk Management; Corporate and Special Loans, Commercial Loans, Featured Collections, Commercial Products Collection, Bank and Country Risk, Retail and SME Loans Risk Strategies, Retail and SME Loans Evaluation, Retail Products Collection, Risk Planning Monitoring and Reporting, Risk Analytics, Technology and Innovation, Market Risk and Credit Risk Control and Region Coordination.

In addition, decisions regarding the credit policy in the corporate governance framework are taken by the relevant committees. In this context, there are Corporate and Commercial Loans Risk Committee, Retail Loans Risk Committee, Risk Management Committee and Board of Risk Committee. Allocated limits and conditions that exceeding the limits with their usage, evaluations regarding major risks and non-performing loans with high risk, information regarding NPLs, the data regarding the portfolios of subsidiaries are reported to senior management on a regular basis.

The Risk Management measures, monitors and reports credit risks by using the Bank's probability of defaults obtained from the Bank's rating models, loss that is caused by defaulted customer and credit conversion factors. Bank's internal capital is calculated and adequacy is assesed by considering stress tests and scenario anaylsis. Also, the limits are determined for credit portfolios by considering optimum  risk return balance and credit concentrations are monitored.

For credit risk, on-site and centralized controls of guarantees and contract are carried out by employees of the Internal Control Center. In this context, it is implemented a strategy which covers all branches. Internal control activities are carried out under the control programs prepared for the designated checkpoints and methodologies.

4.10.3.1.2 Credit quality of assets



Gross carrying value as per TAS

Allowances/amortisation and impairments

Net values



Defaulted

Non-defaulted exposures

1

Loans

5,272,774

218,543,090

4,267,491

219,548,373

2

Debt securities

-

42,400,852

-

42,400,852

3

Off-balance sheet exposures

355,861

68,200,685

134,609

68,421,937

4

Total

5,628,635

329,144,627

4,402,100

330,371,162

4.10.3.1.3 Changes in stock of default loans and debt securities



Current Period

1

Defaulted loans and debt securities at end of the previous reporting period

4,404,024

2

Loans and debt securities defaulted since the last reporting period

3,232,458

3

Receivables back to non-defaulted status

-

4

Amounts written off

1,077,347

5

Other changes

1,286,361

6

Defaulted loans and debt securities at end of the reporting period

5,272,774

4.10.3.1.4 Additional disclosure related to the credit quality of assets

4.10.3.1.4.1 Qualitative disclosures related to the credit quality of assets

Taking into consideration the general economic outlook, sector specific situations and possible regulation changes, the Bank determines the provision rates that will be applied and the collateral types that will be taken into account in the calculations; provided that those rates cannot be lower than what is determined in the related regulation. Related decisions are applied after the approval of the Bank's Risk Management Committee.   

A refinancing/restructuring refers to; extending a new loan with the purpose of repayment of a part or whole of the outstanding loans or related interest payments granted previously or, amending the conditions of such outstanding loans in order to facilitate the repayment capacity; due to current or foreseeable financial difficulties of the borrower or the related risk group.

4.10.3.1.4.2 Breakdown of exposures by geographical areas, industry and ageing

Disclosed under section 4.2 credit risk.

4.10.3.1.4.3 Exposures provisioned against by major regions and sectors

Current Period

Loans Under Follow-Up

Specific Provisions

Write-Offs

Domestic

 5,140,707   

 4,144,576   

 1,073,843   

European Union (EU) Countries

 4,526   

 1,409   

 495   

OECD Countries

 20   

 3   

 -     

Off-Shore Banking Regions

 74,413   

 74,413   

 -     

USA, Canada

 -     

 -     

 1   

Other Countries

 53,108   

 47,090   

 3,008   

Total

 5,272,774   

 4,267,491   

 1,077,347   

 

Current Period

Loans Under Follow-Up

Specific Provisions

Write-Offs

Agriculture

 42,998   

 26,300   

 10,734   

Farming and Stockbreeding

 40,477   

 24,289   

 10,387   

Forestry

 1,488   

 1,084   

 201   

Fishery

 1,033   

 927   

 146   

Manufacturing

 659,549   

 449,476   

 126,534   

Mining and Quarrying

 29,091   

 23,832   

 4,636   

Production

 488,299   

 356,108   

 121,333   

Electricity, Gas and Water

 142,159   

 69,536   

 565   

Construction

 404,457   

 278,947   

 60,051   

Services

 1,420,865   

 946,327   

 267,685   

Wholesale and Retail Trade

 734,157   

 509,407   

 223,128   

Accomodation and Dining

 134,656   

 50,820   

 9,009   

Transportation and Telecommunication

 470,766   

 318,912   

 29,692   

Financial Institutions

 18,921   

 18,553   

 463   

Real Estate and Rental Services

 10,713   

 7,508   

 1,238   

Professional Services

 3,894   

 1,225   

 21   

Educational Services

 30,779   

 27,586   

 1,472   

Health and Social Services

 16,979   

 12,316   

 2,662   

Others

 2,744,905   

 2,566,441   

 612,343   

Total

 5,272,774   

 4,267,491   

 1,077,347   

4.10.3.1.4.4 Ageing of past-due exposures

Current Period

Up to 3 Months

3-12 Months

1-3 Years

3-5 Years

5 Years and Over

Corporate and Commercial Loans

 288,599   

 1,060,817   

 765,933   

 414,637   

 283,861   

Retail Loans

 211,890   

 515,627   

 552,775   

 139,108   

 53,015   

Credit Cards

 130,262   

 318,213   

 323,479   

 110,403   

 104,155   

Others

 -     

-

-

-

-

Total

 630,751   

 1,894,657   

 1,642,187   

 664,148   

 441,031   

4.10.3.2 Credit risk mitigation

4.10.3.2.1 Qualitative disclosure on credit risk mitigation techniques

The Bank assesses the cash flow of the activity or investment subject to credit as the primary repayment source during the credit assignment process.

Calculating the value of the collateral depends on margins determined according to market and FX risks. Standard margins in use throughout the Bank are specific to type of the collateral and changes  according to the currency of the collateral. 

If credit assignment is conditioned to a collateral extension, the data of the collaterals must be entered to the banking information system. Operational transactions are handled by centralized Operation unit (ABACUS). During the credit utilization, compliance of all conditions between credit decision and credit utilization (such as collateral conditions) are controlled systematically.

The Bank monitors up to date value of the collaterals by type. Credit monitoring process involves the control of the balance between the value of the collateral and risk besides creditworthiness of the  customer.

The Bank's credit risk exposure and mitigation techniques used in order to reduce the exposure level are taken into account according to the principles stated in the related regulation. The Bank applies credit risk mitigation according to the comprehensive method that includes risk mitigation calculations considering the volatility-adjusted values of financial collaterals The standardized risk weights are applied to the rest of the loans and receivables that remained unprotected after credit risk mitigation techniques. Financial collaterals, that are composed of cash or similar assets and instruments of a high credit quality as well as real estate mortgages have been used in credit risk mitigation.

4.10.3.2.2 Credit risk mitigation techniques



Exposures unsecured: carrying amount as per TAS

Exposures secured by
collateral

Collateralized amount of exposures secured by collateral

Exposures secured by financial guarantees

Collateralized amount of exposures secured by financial guarantees

Exposures secured by credit derivatives

Collateralized amount of exposures secured by credit derivatives

1

Loans

169,225,213

50,323,160

41,649,191

-

-

-

-

2

Debt securities

42,400,852

-

-

-

-

-

-

3

Total

211,626,065

50,323,160

41,649,191

-

-

-

-

4

Of which defaulted

5,263,721

9,053

3,539

-

-

-

-

4.10.3.3 Credit risk under standardised approach

4.10.3.3.1 Qualitative disclosures on banks' use of external credit ratings under the standardised approach for credit risk

An international rating firm, Fitch Ratings' external risk ratings are used to determine the risk weights of the risk categories as per the Article 6 of the "Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks".

The international risk ratings are used for the exposures to central governments and central banks, whereas for central governments and central banks that are not rated by Fitch Ratings, the published country ratings as announced by the Organisation for Economic Cooperation and Development (OECD) are used.

According to the regulation on capital adequacy, external risk ratings are used only for the exposures to banks and brokerage houses and to corporates where the counterparties are resident in abroad, to determine their risk weights. Where the counterparties are domestic, the related exposures are included in the calculation of capital adequacy as unrated.

In the determination of risk weights; if a relevant rating is available then such rating, but if it is an unrated exposure then the rating available for the issuer is used.

Rating notes issued by Fitch Ratings are presented in the table below, as per credit quality levels and risk weights per risk classes:

Credit Quality Level

Fitch Ratings long term credit rating

 

Risk Classes

Exposures to

Central Governments or

Central Banks

Exposures to Banks and

Brokerage Houses

Exposures to

Corporates

Exposures with

Original

Maturities Less

Than 3 Months

Exposures with

Original

Maturities More

Than 3 Months

1

AAA to AA-

0%

20%

20%

20%

2

A+ to A-

20%

20%

50%

50%

3

BBB+ to BBB-

50%

20%

50%

100%

4

BB+ to BB-

100%

50%

100%

100%

5

B+ to B-

100%

50%

100%

150%

6

CCC+ and below

150%

150%

150%

150%

 



 

4.10.3.3.2 Credit risk exposure and credit risk mitigation techniques



Exposures before CCF and CRM

Exposures post-CCF and CRM

RWA and RWA density


Risk classes

On-balance sheet amount

Off-balance sheet amount

On-balance sheet amount

Off-balance sheet amount

RWA

RWA density

1

Exposures to sovereigns and their central banks

59,026,025

943,275

59,026,025

305,675

12,008,190

20.24%

2

Exposures to regional and local governments

119,617

144

119,617

60

56,248

47.00%

3

Exposures to administrative bodies and non-commercial entities

46,803

5,550

46,803

1,836

48,639

100.00%

4

Exposures to multilateral development banks

190,237

-

190,237

-

55,402

29.12%

5

Exposures to international organizations

-

-

-

-

-

-

6

Exposures to banks and brokerage houses

19,460,274

16,155,852

15,231,090

3,025,652

7,381,825

40.43%

7

Exposures to corporates

90,625,121

50,984,161

88,536,942

20,026,901

105,680,104

97.34%

8

Retail exposures

59,175,832

41,226,791

58,766,787

3,582,135

46,760,767

75.00%

9

Exposures secured by residential property

18,572,321

151,697

18,568,045

77,622

6,525,984

35.00%

10

Exposures secured by commercial property

16,338,647

1,655,679

16,323,202

960,619

11,054,150

63.96%

11

Past-due items

705,142

1,363

705,142

-

596,794

84.63%

12

Exposures in high-risk categories

300,186

129,325

300,186

58,543

509,274

141.97%

13

Exposures in the form of bonds secured by mortgages

-

-

-

-

-

-

14

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

-

-

15

Exposures in the form of collective investment undertakings

-

-

-

-

-

-

16

Other exposures

9,044,069

-

9,044,069

-

6,125,946

67.73%

17

Equity share investments

5,266,254

-

5,266,254

-

5,229,197

99.30%

18

Total

278,870,528

111,253,837

272,124,399

28,039,043

202,032,520

67.31%

 



 

4.10.3.3.3 Exposures by asset classes and risk weights


Regulatory portfolio

 

 

0%

 

 

10%

 

 

20%

35% secured by property mortgage

 

 

50%

 

 

75%

 

 

100%

 

 

150%

 

 

200%

 

 

Others

Total risk amount (post-CCF and CRM)

1

Exposures to sovereigns and their central banks

35,315,311

-

25

-

24,016,357

-

7

-

-

-

59,331,700

2

Exposures to regional and local government

-

-

11,970

-

107,707

-

-

-

-

-

119,677

3

Exposures to administrative bodies and non-commercial entities

-

-

-

-

-

-

48,639

-

-

-

48,639

4

Exposures to multilateral development banks

-

-

132,386

-

57,851

-

-

-

-

-

190,237

5

Exposures to international organizations

-

-

-

-

-

-

-

-

-

-

-

6

Exposures to banks and brokerage houses

-

-

6,040,661

-

12,084,776

-

131,305

-

-

-

18,256,742

7

Exposures to corporates

-

-

479,188

-

5,000,778

-

103,083,877

-

-

-

108,563,843

8

Retail exposures

-

-

630

-

2,307

62,345,985

-

-

-

-

62,348,922

9

Exposures secured by residential property

-

-

-

18,645,667

-

-

-

-

-

-

18,645,667

10

Exposures secured by commercial property

-

-

-

-

12,459,341

-

4,824,480

-

-

-

17,283,821

11

Past-due items

-

-

-

-

216,697

-

488,445

-

-

-

705,142

12

Exposures in high-risk categories

-

-

-

-

19,031

-

19,577

320,121

-

-

358,729

13

Exposures in the form of bonds secured by mortgages

-

-

-

-

-

-

-

-

-

-

-

14

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

-

-

-

-

-

-

-

15

Exposures in the form of collective investment undertakings

-

-

-

-

-

-

-

-

-

-

-

16

Equity share investments

37,057

-

-

-

-

-

5,229,197

-

-

-

5,266,254

17

Other exposures

2,916,168

-

2,444

-

-

-

6,125,457

-

-

-

9,044,069

18

Total

38,268,536

-

6,667,304

18,645,667

53,964,845

62,345,985

119,950,984

320,121

-

-

300,163,442

4.10.4    Counterparty credit risk

4.10.4.1 Qualitative disclosure on counterparty credit risk

Counterparty credit risk management policies include evaluating and monitoring risk developments, taking necessary measures, setting risk limits, ensuring that the risks remain within the limits, and establishing required reporting, control and audit mechanisms by using the methods aligned with both international standards and local regulations. The policies regarding counterparty credit risk measurement, monitoring, and limit settings are defined by the board of directors.

Counterparty credit risk arising from derivative transactions is periodically being monitored and reported by the Market Risk and Credit Risk Control units on product, country, counterparty and counterparty type basis.

International framework agreements (ISDA, CSA, GMRA, etc.) are being used through collateral and margin call mechanisms in order to mitigate the counterparty credit risk.

4.10.4.2 Counterparty credit risk (CCR) approach analysis



Replacement cost

Potential future exposure

EEPE(Effective Expected Positive Exposure)

Alpha used for computing regulatory EAD

EAD post-CRM

RWA

1

Standardised Approach -CCR (for derivatives)

3,972,361

1,639,214


-

5,601,824

2,911,950

2

Internal Model Method (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions)



-

-

-

-

3

Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions)





-

-

4

Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions)





1,765,439

552,309

5

Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions





-

-

6

Total






3,464,259

 



 

4.10.4.3 Capital requirement for credit valuation adjustment (CVA)



 

EAD post-CRM

RWA


Total portfolios subject to the Advanced CVA capital obligation

-

-

1

(i) VaR component (including the 3×multiplier)


-

2

(ii) Stressed VaR component (including the 3×multiplier)


-

3

All portfolios subject to the Standardised CVA capital obligation

5,601,824

1,806,311

4

Total subject to the CVA capital obligation

5,601,824

1,806,311

 

4.10.4.4 CCR exposures by risk class and risk weights

              Risk weight

 

Regulatory portfolio

0%

10%

20%

50%

75%

100%

150%

Other

Total credit exposure

Exposures to sovereigns and their central banks

90,039

-

-

-

-

-

-

-

90,039

Exposures to regional and local governments

-

-

-

-

-

-

-

-

-

Exposures to administrative bodies and non-commercial entities

-

-

-

-

-

4

-

-

4

Exposures to multilateral development banks

413,953

-

-

-

-

-

-

-

413,954

Exposures to international organizations

-

-

-

-

-

-

-

-

-

Exposures to banks and brokerage houses

-

-

1,033,639

5,082,247

-

-

-

-

6,115,886

Exposures to corporates

-

-

546

37,511

4

662,183

-

-

700,243

Retail exposures

-

-

-

-

47,137

-

-

-

47,137

Exposures secured by mortgage property

-

-

-

-

-

-

-

-

-

Exposures secured by commercial property

-

-

-

-

-

-

-

-

-

Past-due items

-

-

-

-

-

-

-

-

-

Exposures in high-risk categories

-

-

-

-

-

-

-

-

-

Exposures in the form of bonds secured by mortgages

-

-

-

-

-

-

-

-

-

Securitization positions

-

-

-

-

-

-

-

-

-

Short term exposures to banks, brokerage houses and corporates

-

-

-

-

-

-

-

-

-

Exposures in the form of collective investment undertakings

-

-

-

-

-

-

-

-

-

Equity share investments

-

-

-

-

-

-

-

-

-

Other exposures

-

-

-

-

-

-

-

-

-

Other assets

-

-

-

-

-

-

-

-

-

Total

503,992

-

1,034,185

5,119,758

47,141

662,187

-

-

7,367,263

 



 

4.10.4.5 Collaterals for CCR


Collateral for derivative transactions

Collateral for other transactions


Fair value of collateral received

 

Fair value of collateral given

Fair value of collateral received

Fair value of collateral given


Segregated

Unsegregated

Segregated

Unsegregated

Cash-domestic currency

4,944

-

-

-

8,257,240

-

Cash-foreign currency

4,807

-

-

-

4,804,917

-

Domestic sovereign debts

-

-

-

-

-

13,323,129

Other sovereign debts

-

-

-

-

-

-

Government agency debts

-

-

-

-

-

-

Corporate debts

-

-

-

-

-

-

Equity securities

-

-

-

-

-

-

Other collateral

-

-

-

-

-

-

Total

9,751

-

-

-

13,062,157

13,323,129

 

4.10.4.6 Credit derivatives


Protection bought

Protection sold

Notionals



     Single-name credit default swaps

            87,825   

 -

     Index credit default swaps

 -

 -

     Total return swaps

 -

              7,026,000   

     Credit options

 -

 -

     Other credit derivatives

 -

 -

Total Notionals

            87,825   

              7,026,000   

Fair Values



     Positive fair values (asset)

                 215   

                     6,677   

     Negative fair values (liability)

                    -     

(401,821)   

4.10.5    Securitisations

None.

4.10.6    Market risk

4.10.6.1 Qualitative disclosure on market risk

Market risk is managed in accordance with the strategies and policies defined by the Bank. The Bank takes economic climate, market and liquidity conditions and their effects on market risk, the structure of portfolio subject to market risk, the sufficiency of the Bank's definition, measurement, evaluation, monitoring, reporting, control and mitigation of market risk and the availability of the related processes into account while defining the Strategy. Market risk strategies and policies are reviewed by the board of directors and related top management by considering  financial performance, capital required for market risk, and the existing market developments. Market risk for internal use, implementation fundamentals and procedures are being developed on bank-only and consolidated level in consideration of the size and complexity of the operations.

Market risk is managed through measuring the risks in parallel with the international standards, setting the limits, capital reserving and additionally through mitigating via hedging transactions.

Market Risk Function under Market Risk and Credit Risk Control Department monitors the activities of Treasury Department via risk reports and the limits approved by the Board of Directors.

Market Risk, which is defined as the risk arising from the price fluctuations in balance sheet and off-balance sheet  trading positions, is being calculated and reported daily via Value at Risk (VaR) Model.

4.10.6.2 Market risk under standardised approach

 

 

RWA



Current Period

Prior Period


Outright products

5,266,724

3,821,248

1

          Interest rate risk (general and specific)

1,718,225

1,343,063

2

          Equity risk (general and specific)

42,274

 90,950

3

          Foreign exchange risk

3,067,938

2,368,775

4

          Commodity risk

438,287

18,460


Options

437,400

2,457,913

5

          Simplified approach

-

 -

6

          Delta-plus method

437,400

 2,457,913

7

          Scenario approach

-

 -

8

Securitisation

-

 -

9

Total

5,704,124

 6,279,160

4.10.7    Operational risk

The value at operational risk is calculated according to the basic indicator approach as per the Article 14 of "Regulation regarding Measurement and Assessment of Capital Adequacy Ratios of Banks".

The annual gross income is composed of net interest income and net non-interest income after deducting realised gains/losses from the sale of securities available-for-sale and held-to-maturity, extraordinary income and income derived from insurance claims at year-end.

Basic Indicator Approach

Current Period

31 December

2013

31 December

2014

31 December

2015

Total/ No. of Years of Positive Gross Income

Rate (%)

Total

Gross Income

9,180,910

10,054,838

   11,052,683   

10,096,144

15   

1,514,422

Value at Operational Risk

  (Total x % 12.5)






18,930,270

 

Basic Indicator Approach

Priod Period

31 December

2012

31 December

2013

31 December

2014

Total/ No. of Years of Positive Gross Income

Rate (%)

Total

Gross Income

7,814,126

9,180,910

10,054,838

9,016,625

15

1,352,494

Value at Operational Risk

  (Total x % 12.5)






16,906,172

4.10.8    Banking book interest rate risk

4.10.8.1            Nature of interest rate risk resulting from banking book, major assumptions on early repayment of loans and movements in deposits other than term deposits and frequency of measuring interest rate risk

The interest rate risk resulting from the banking book is assessed in terms of repricing risk, yield-curve risk, base risk and option risk, measured as per international standards and managed through limitations and mitigations through hedging transactions.

The interest sensitivity of assets, liabilities and off balance-sheet items are evaluated at the Weekly Review Committee and Monthly Asset-Liability meetings considering also the market developments.

The measurement process of interest rate risk resulting from the banking book, is designed and managed by the Bank on a bank-only basis to include the interest rate positions defined as banking book by the Bank and to consider the relevant repricing and maturity data.

Within the scope of monitoring the re-pricing risk arising from maturity mismatch, the sensitivity of the durations/gap, economic value, economic capital, net interest income, earnings at risk, market price of securities portfolio are measured and the internal early warning and limit levels in this context are monitored and reported regularly. Calculated risk metrics and generated reports are used in the management

of the balance sheet interest risk under the supervision of the Asset and Liability Committee. In the said analyses, the present value and the net interest income are calculated over the cash flows of the sensitive assets and liability items by using the yield curves constructed by using the market interest rates. For non-matured products, maturity is determined based on interest rate determination frequency and customer behaviour. These results are supported by periodic sensitivities and scenario analyses against fluctuations that may be experienced in the markets.

The interest rate risk resulting from the banking book is measured legally as per the "Regulation on Measurement and Evaluation of Interest Rate Risk Resulting from Banking Book as per Standard Shock Method" published in the Official Gazette no.28034 dated 23 August 2011, and the legal limit as per this measurement is monitored and reported monthly. The capital level is maintained considering the interest rate risk resulting from the banking book.

The interest rate risk on the interest-rate-sensitive financial instruments of the trading portfolio is evaluated as part of the market risk.

Branches and lines of business are eliminated from interest rate risk through the transfer pricing system and these risks are transferred to the Asset and Liability Management Department (ALM) and managed by ALM in a central structure.

 4.10.8.2          Economic value differences resulted from interest rate instabilities calculated according to Regulation on Measurement and Evaluation of Interest Rate Risk Resulted from Banking Book as per Standard Shock Method


Current Period

Shocks Applied (+/- basis points)

Gains/Losses

Gains/Equity-Losses/Equity

Type of Currency

1

TL

(+) 500bp

(4,209,703)

(11.18)%

2

TL

(-) 400bp

4,052,171

10.76%

3

USD

(+) 200bp

(810,330)

(2.15)%

4

USD

(-) 200bp

1,055,840

2.80%

5

EUR

(+) 200bp

(14,342)

(0.04)%

6

EUR

(-) 200bp

(44,364)

(0.12)%


Total (of negative shocks) 


5,063,647

13.44%


Total (of positive shocks) 


(5,034,375)

(13.37)%

 


Prior Period

Shocks Applied (+/- basis points)

Gains/Losses

Gains/Equity-Losses/Equity

Type of Currency

1

TL

(+) 500 bps

(3,581,363)

(10.83)%

2

TL

(-) 400 bps

3,477,727

10.51%

3

USD

(+) 200 bps

(766,486)

(2.32)%

4

USD

(-) 200 bps

1,031,044

3.12%

5

EUR

(+) 200 bps

(52,426)

(0.16)%

6

EUR

(-) 200 bps

50,223

0.15%


Total (of negative shocks) 


4,558,994

13.78%


Total (of positive shocks) 


(4,400,275)

(13.30)%

 



 

4.10.9    Remuneration policy

4.10.9.1 Qualitative disclosures regarding remuneration policies

4.10.9.1.1 Disclosures related with Remuneration Committee

The Bank's Remuneration Committee is comprised of two non-executive directors. The committee has convened for once during the year. The duties and responsibilities of the Committee include the following:

·   To conduct the necessary monitoring and audit process in order to ensure that the remuneration policy and practices are implemented in accordance with the related laws and regulations and risk management principles;

·   To review and if necessary, revise the remuneration policy at least once a year in order to ensure its compliance with the laws and regulations or market practices in Turkey;

·   To determine and approve remuneration packages of the executive and non-executive Board of Directors, Chief Executive Officer and Executive Vice Presidents;

·   To follow up the revision requirements of the policies, procedures and regulations related with its areas of responsibility and to take actions in order to ensure that they are kept updated.

The Bank has received consultancy service from Willis Towers Watsons company within the framework of the activities for compliance with the Guidelines on Sound Remuneration Practices in Banks.

The fundamental principles of the remuneration policy are applicable for all bank employees.

The bank board members, senior management and the bank staff deemed to perform the functions having material impact on the bank's risk profile are considered as identified staff; and by the end of 2016, the number of identified staff is 29.

4.10.9.1.2 Information on the design and structure of remuneration process

The Bank relies on the following values while managing its Remuneration Policy. These values are considered in all compensation practices.

a.  Fair

b.  Transparent

c.  Based on measurable and balanced performance targets

d.  Encouraging sustainable success

e.  In line with the Bank Risk Management Principles

The main objective of the Remuneration Policy is to maintain the internal and external balances in the remuneration structure. Internal balance is ensured with the principles of "equal pay for equal work" and performance-based remuneration".  As for external balance, the data obtained from employee reward and benefit researches conducted by independent research organizations are taken into account.

In the meeting dated 14 December 2016, the Remuneration Committee evaluated its decisions previously taken with respect to remuneration of the senior managers and members of the board of directors considering the provisions of the Guidelines on Sound Remuneration Practices in Banks.

Increases in the remuneration of employees working in the units responsible for internal systems are determined depending on the basic rate of increase specified by the Bank and their personal performances. In the variable remuneration, only the performance criteria associated with their personal performance or the performance of the unit that they work in are taken into account independently of the performance of the business units that they control.

4.10.9.1.3 Evaluation about how the bank's remuneration processes take the current and future risks into account

The Bank follows the Risk Management Principles while implementing the remuneration processes. It adopts the remuneration policies that are in line with Bank's long-term objectives and risk management structures and avoiding excessive risk-taking. 



 

4.10.9.1.4 Evaluation about how the Bank associates variable remunerations with performance

In the association of variable remunerations with performance, various indicators considered among financial and non-financial performance criteria specified by the Bank such as return on regulatory capital, efficiency, profitability, customer satisfaction (NTS), digital sales are taken into account.

In the variable remuneration for the identified staff, personal performance criteria, the Bank's performance criteria and BBVA Group's performance criteria are collectively taken into account. The weightings of such performances taken into account as such may vary according to the position of the identified staff member.

In case of occurrence of risky situations regarding capital adequacy or if and when necessary, Bank may pursue a more conservative policy in relation to all remuneration issues, particularly regarding variable remunerations. In this context, methodological changes such as deferral, retention, malus and clawback may be applied in relation to variable remunerations in accordance with the principles set out by the applicable laws.

4.10.9.1.5 Evaluation about the bank's methods to adjust remunerations according to long-term performance

Regarding variable remunerations of identified staff, it has been adopted based on the principles in the "Guidelines on Sound Remuneration Practices in Banks" that 40% of variable remunerations will be deferred for at least 3 years and at least 50% of it will be paid in non-cash instruments.

The same rules apply for the ratios of deferral for all identified staff members regarding their variable remunerations. Remuneration Committee decided on that variable remuneration of identified staff is subject to cancellation and clawback.

4.10.9.1.6 Evaluation about the instruments used by the bank for variable remunerations and the purposes of use of such instruments

The variable remunerations of identified staff are paid using cash and share-linked non-cash instruments. Considering the principles in the "Guidelines on Sound Remuneration Practices in Banks" variable remunerations of identified staff are paid both with cash and non-cash(share-linked) instruments. Regarding variable remunerations of identified staff for the financial period of 2016, Banco Bilbao Vizcaya Argentaria S.A. shares are taken as referance for payments based on non-cash instruments.

The type and weight of non-cash instruments used in payment of variable remuneration are same for all identified staff.

 



                                                         

5         Disclosures and Footnotes on Unconsolidated Financial Statements

5.1         Assets

5.1.1      Cash and balances with Central Bank


Current Period

Prior Period

TL

FC

TL

FC

 Cash in TL/Foreign Currency

1,357,688

681,875

1,313,068

750,950

 Central Bank of Turkey

5,366,015

15,500,506

946,596

21,896,042

 Others

-

879,050

-

244,867

 Total

6,723,703

17,061,431

2,259,664

22,891,859

Balances with the Central Bank of Turkey


Current Period

Prior Period

TL

FC

TL

FC

 Unrestricted Demand Deposits

5,366,015

155

946,596

1,556,782

 Unrestricted Time Deposits

-

38

-

5

 Restricted Time Deposits

-

15,500,313

-

20,339,255

 Total

5,366,015

15,500,506

946,596

21,896,042

The reserve deposits kept as per the Communique no. 2005/1 "Reserve Deposits" of the Central Bank of Turkey in Turkish Lira, foreign currencies and gold, are included in the table above.

5.1.2      Information on financial assets at fair value through profit/loss

5.1.2.1   Financial assets at fair value through profit/loss subject to repurchase agreements and provided as collateral/blocked

None.

5.1.2.2   Positive differences on derivative financial assets held for trading


Current Period

Prior Period

TL

FC

TL

FC

 Forward Transactions

257,212

38,001

243,525

41,894

 Swap Transactions

1,936,417

702,752

363,131

324,633

 Futures

-

1,097

-

34

 Options

426,694

28,812

442,320

67,952

 Other

-

-

-

-

 Total

2,620,323

770,662

1,048,976

434,513

5.1.2.3   Financial assets at fair value through profit/loss

              None.

 



 

5.1.3      Banks


Current Period

Prior Period

TL

FC

TL

FC

 Banks





   Domestic banks

55,714

746

231,280

247,879

   Foreign banks

390,940

11,871,526

44,855

11,323,481

   Foreign headoffices and branches

-

-

-

-

 Total

446,654

11,872,272

276,135

11,571,360

Due from foreign banks


Unrestricted Balances

Restricted Balances

Current Period

Prior Period

Current Period

Prior Period

 EU Countries

4,263,606

2,833,374

6,943,130

6,988,096

 USA and Canada

269,751

907,844

400,420

291,511

 OECD Countries (*)

6,529

4,210

-

-

 Off-Shore Banking Regions

248,595

220,152

96,147

65,059

 Other

34,288

58,090

-

-

 Total

4,822,769

4,023,670

7,439,697

7,344,666

(*)  OECD countries other than the EU countries, USA and Canada

The placements at foreign banks include blocked accounts amounting TL 7,439,697 thousands (31 December 2015: TL 7,344,666 thousands) of which TL 116,841 thousands (31 December 2015: TL 96,799 thousands) and TL 96,147 thousands (31 December 2015: TL 65,058 thousands) are kept at the central banks of Malta and Turkish Republic of Northern Cyprus, respectively as reserve deposits and TL 7,226,709 thousands (31 December 2015: TL 7,182,809 thousands) as collateral against funds borrowed at various banks.

5.1.4      Financial assets available-for-sale

5.1.4.1   Financial assets subject to repurchase agreements and provided as collateral/blocked


Current Period

Prior Period

TL

FC

TL

FC

 Collateralised/Blocked Assets

2,976,848

-

2,170,335

-

 Assets subject to Repurchase Agreements

4,306,605

-

10,879,108

1,449

 Total

7,283,453

-

13,049,443

1,449

5.1.4.2   Details of financial assets available-for-sale 


Current Period

     Prior Period

 Debt Securities

18,572,775

19,301,827

   Quoted at Stock Exchange

18,035,819

18,699,925

   Unquoted at Stock Exchange

536,956

601,902

 Common Shares/Investment Funds

155,150

69,704

   Quoted at Stock Exchange (*)

82,203

7,669

   Unquoted at Stock Exchange

72,947

62,035

 Value Increases/Impairment Losses (-)

1,184,644

1,148,270

 Total

19,912,569

20,519,801

 



 

5.1.5      Loans

5.1.5.1   Loans and advances to shareholders and employees of the Bank


Current Period

Prior Period

Cash Loans

Non-Cash Loans

Cash Loans

Non-Cash Loans

 Direct Lendings to Shareholders

-

166,331

146

408,529

     Corporates

-

166,331

146

408,529

     Individuals

-

-

-

-

 Indirect Lendings to Shareholders

2,121,617

474,103

2,043,036

263,954

 Loans to Employees

222,026

101

185,470

88

 Total

2,343,643

640,535

2,228,652

672,571

5.1.5.2   Loans and other receivables classified in groups I and II including contracts with revised terms

 Current Period

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-Up


Loans and Other Receivables (Total) (*)

Loans and Receivables with Revised Contract Terms

Loans and Other Receivables (Total)

Loans and Receivables with Revised Contract Terms

Cash Loans

Extension of Repayment Plan

Other Changes

Extension of Repayment Plan

Other Changes

 Loans

175,775,487

3,571,299

428,047

9,267,458

4,128,388

718,164

     Working Capital Loans

21,388,726

475,748

-

1,165,695

512,795

175,499

     Export Loans

8,998,517

136,762

-

254,813

109,642

23,312

     Import Loans

241

-

-

-

-

-

     Loans to Financial Sector

4,913,881

318

-

48

-

-

     Consumer Loans

40,856,208

2,333,953

-

1,919,430

647,127

55,300

     Credit Cards

18,332,885

-

428,047

521,527

-

280,601

     Others

81,285,029

624,518

-

5,405,945

2,858,824

183,452

 Specialization Loans

-

-

-

-

-

-

 Other Receivables

-

-

-

-

-

-

 Total

175,775,487

3,571,299

428,047

9,267,458

4,128,388

718,164

(*)   The loan granted to the shareholder of a strategically important company operating in the telecommunication sector amounting to USD 951,407,360.63 is classified under "Performing Loans and Other Receivables". Discusssions between the shareholders of the company, creditor banks and related sovereign institutions have started regarding restructuring of loans granted including a possible change in shareholder structure, and a positive outcome of these discussions is expected.

As of 31 December 2016, loans amounting to TL 5,269,501 thousands (31 December 2015: TL 5,781,904 thousands) are benefited as collateral under funding transactions.

Prior Period

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-Up


Loans and Other Receivables (Total)

Loans and Receivables with Revised Contract Terms

Loans and Other Receivables (Total)

Loans and Receivables with Revised Contract Terms

 Cash Loans

Extension of Repayment Plan

Other Changes

Extension of Repayment Plan

Other Changes

 Loans

150,695,419

2,179,145

233,976

7,806,295

3,228,253

622,963

     Working Capital Loans

14,870,509

175,956

-

915,921

358,070

85,796

     Export Loans

6,399,197

8,136

-

143,651

67,004

35,188

     Import Loans

15,160

-

-

-

-

-

     Loans to Financial Sector (*)

5,160,937

-

-

-

-

-

     Consumer Loans

35,883,920

1,627,563

-

1,729,724

623,376

47,914

     Credit Cards

16,364,078

-

233,976

589,131

-

406,106

     Others

72,001,618

367,490

-

4,427,868

2,179,803

47,959

 Specialization Loans

-

-

-

-

-

-

 Other Receivables

-

-

-

-

-

-

 Total

150,695,419

2,179,145

233,976

7,806,295

3,228,253

622,963

(*)   Loans amounting to TL 198,118 thousands included under "financial assets at fair value through profit or loss" in the accompanying balance sheet, are presented above under "Loans to Financial Sector".

Collaterals received for loans under follow-up;

Current Period

Corporate/

Commercial

Loans

Consumer Loans

Credit Cards

 Total

 Loans Collateralized by Cash

 47,618

 4,620

 -  

52,238

 Loans Collateralized by Mortgages

 3,995,662

 974,409

 -  

4,970,071

 Loans Collateralized by Pledged Assets

 1,006,009

 69,944

 -  

1,075,953

 Loans Collateralized by Cheques and Notes

 12,488

 560,040

 -  

572,528

 Loans Collateralized by Other Collaterals

 1,370,667

 9,058

 -  

1,379,725

 Unsecured Loans

 394,057

 301,359

 521,527

1,216,943

 Total

6,826,501

1,919,430

521,527

9,267,458

 

Prior Period

Corporate/

Commercial

Loans

Consumer Loans

Credit Cards

 Total

 Loans Collateralized by Cash

17,538

2,356

-

19,894

 Loans Collateralized by Mortgages

2,863,460

690,628

-

3,554,088

 Loans Collateralized by Pledged Assets

763,943

59,786

-

823,729

 Loans Collateralized by Cheques and Notes

86,223

574,200

-

660,423

 Loans Collateralized by Other Collaterals

1,404,793

10,353

-

1,415,146

 Unsecured Loans

351,483

392,401

589,131

1,333,015

 Total

5,487,440

1,729,724

589,131

7,806,295

Delinquency periods of loans under follow-up;

 

Current Period

Corporate/ Commercial

Loans

Consumer Loans

Credit Cards

Total

  31-60 days

 174,568

 740,357

 194,622

 1,109,547

  61-90 days

 153,267

 261,027

 56,740

 471,034

  Others

 6,498,666

 918,046

 270,165

 7,686,877

  Total

 6,826,501

 1,919,430

 521,527

 9,267,458

 

Prior Period

Corporate/ Commercial

Loans

Consumer Loans

Credit Cards

Total

  31-60 days

180,970

633,756

152,905

967,631

  61-90 days

45,445

202,495

45,596

293,536

  Others

5,261,025

893,473

390,630

6,545,128

  Total

5,487,440

1,729,724

589,131

7,806,295

Loans and other receivables with extended payment plans;


Current Period

Prior Period

No. of Extensions

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-up

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-up

1 or 2 times

 3,247,551  

 4,038,596  

 1,979,491  

       2,929,711

3, 4 or 5 times

 106,419  

 78,645  

      111,249  

 282,660  

Over 5 times

 217,329  

 11,147  

  88,405  

     15,882  

 



 


Current Period

Prior Period

Extention Periods

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-up

Performing Loans and Other Receivables

Loans and Other Receivables under Follow-up

0-6 months

 341,505  

 702,729  

     336,391  

   566,273

6-12 months

 442,811  

 182,553  

     367,841  

      149,516  

1-2 years

 1,406,109  

 302,040  

     893,626  

      393,138  

2-5 year

 1,219,866  

 1,753,567  

    518,336  

   1,595,092  

5 years and over

 161,008  

 1,187,499  

    62,951  

    524,234  

5.1.5.3   Maturity analysis of cash loans

 

 

 

Current Period

Performing Loans and Other Receivables

Loans under Follow-Up and Other Receivables

Loans and Other Receivables

Loans and Receivables with Revised Contract Terms

Loans and Other Receivables

Loans and Receivables with Revised Contract Terms

 Short-term Loans

 51,681,248

 683,937

 1,299,908

 492,861

     Loans

 51,681,248

 683,937

 1,299,908

 492,861

     Specialization Loans

 -  

 -  

 -  

 -  

     Other Receivables

 -  

 -  

 -  

 -  

 Medium and Long-term Loans

124,094,239

 3,315,409

 7,967,550

 4,353,691

     Loans

124,094,239

 3,315,409

 7,967,550

 4,353,691

     Specialization Loans

 -  

 -  

-

 -  

     Other Receivables

 -  

 -  

 -  

 -  

 

 

 

 

Prior Period

Performing Loans and Other Receivables

Loans under Follow-Up and Other Receivables

Loans and Other Receivables

Loans and Receivables with Revised Contract Terms

Loans and Other Receivables

Loans and Receivables with Revised Contract Terms

 Short-term Loans

44,408,008

508,040

1,110,993

601,823

     Loans

44,408,008

508,040

1,110,993

601,823

     Specialization Loans

-

-

-

-

     Other Receivables

-

-

-

-

 Medium and Long-term Loans

106,287,411

1,905,081

6,695,302

3,249,393

     Loans

106,287,411

1,905,081

6,695,302

3,249,393

     Specialization Loans

-

-

-

-

     Other Receivables

-

-

-

-

 



 

5.1.5.4   Consumer loans, retail credit cards, personnel loans and personnel credit cards

Current Period

Short-Term

Medium and Long-Term

Total

 Consumer Loans - TL

 745,039

 41,174,705

 41,919,744

     Housing Loans

 29,927

 21,414,214

 21,444,141

     Automobile Loans

 66,063

 2,133,790

 2,199,853

     General Purpose Loans

 649,049

 17,626,701

 18,275,750

     Other

 -  

 -  

 -  

 Consumer Loans - FC-indexed

 188

 172,014

 172,202

     Housing Loans

 188

 171,585

 171,773

     Automobile Loans

 -  

 2

 2

     General Purpose Loans

 -  

 427

 427

     Other

 -  

 -  

 -  

 Consumer Loans - FC

 141

 46,333

 46,474

     Housing Loans

 -  

 26,918

 26,918

     Automobile Loans

 112

 12,136

 12,248

     General Purpose Loans

 29

 7,279

 7,308

     Other

 -  

 -  

 -  

 Retail Credit Cards - TL

 15,172,949

 775,677

 15,948,626

     With Installment

 7,403,316

 775,677

 8,178,993

     Without Installment

 7,769,633

 -  

 7,769,633

 Retail Credit Cards - FC

 45,286

 -  

 45,286

     With Installment

 16

 -  

 16

     Without Installment

 45,270

 -  

 45,270

 Personnel Loans - TL

 21,508

 91,980

 113,488

     Housing Loan

 -  

 1,165

 1,165

     Automobile Loans

 -  

 90

 90

     General Purpose Loans

 21,508

 90,725

 112,233

     Other

 -  

 -  

 -  

 Personnel Loans - FC-indexed

 -  

 378

 378

     Housing Loans

 -  

 378

 378

     Automobile Loans

 -  

 -  

 -  

     General Purpose Loans

 -  

 -  

 -  

     Other

 -  

 -  

 -  

 Personnel Loans - FC

 -  

 163

 163

     Housing Loans

 -  

 -  

 -  

     Automobile Loans

 -  

 -  

 -  

     General Purpose Loans

 -  

 163

 163

     Other

 -  

 -  

 -  

 Personnel Credit Cards - TL

 106,354

 1,060

 107,414

     With Installment

 43,217

 1,060

 44,277

     Without Installment

 63,137

 -  

 63,137

 Personnel Credit Cards - FC

 583

 -  

 583

     With Installment

 -  

 -  

 -  

     Without Installment

 583

 -  

 583

 Deposit Accounts- TL (Real persons)

 523,189

 -  

 523,189

 Deposit Accounts- FC (Real persons)

 -  

 -  

 -  

 Total

 16,615,237

 42,262,310

 58,877,547



                                                                                                                               

Prior Period

Short-Term

Medium and Long-Term

Total

 Consumer Loans - TL

686,400

36,127,573

36,813,973

     Housing Loans

25,062

18,582,778

18,607,840

     Automobile Loans

37,616

1,522,036

1,559,652

     General Purpose Loans

623,722

16,022,759

16,646,481

     Other

-

-

-

 Consumer Loans - FC-indexed

-

170,849

170,849

     Housing Loans

-

168,194

168,194

     Automobile Loans

-

2

2

     General Purpose Loans

-

2,653

2,653

     Other

-

-

-

 Consumer Loans - FC

3

40,033

40,036

     Housing Loans

-

25,999

25,999

     Automobile Loans

-

7,504

7,504

     General Purpose Loans

3

6,530

6,533

     Other

-

-

-

 Retail Credit Cards - TL

14,279,715

566,447

14,846,162

     With Installment

6,850,008

566,447

7,416,455

     Without Installment

7,429,707

-

7,429,707

 Retail Credit Cards - FC

38,371

-

38,371

     With Installment

2,685

-

2,685

     Without Installment

35,686

-

35,686

 Personnel Loans - TL

17,241

74,439

91,680

     Housing Loan

-

1,055

1,055

     Automobile Loans

-

86

86

     General Purpose Loans

17,241

73,298

90,539

     Other

-

-

-

 Personnel Loans - FC-indexed

-

330

330

     Housing Loans

-

330

330

     Automobile Loans

-

-

-

     General Purpose Loans

-

-

-

     Other

-

-

-

 Personnel Loans - FC

-

112

112

     Housing Loans

-

-

-

     Automobile Loans

-

-

-

     General Purpose Loans

-

112

112

     Other

-

-

-

 Personnel Credit Cards - TL

92,376

460

92,836

     With Installment

37,692

460

38,152

     Without Installment

54,684

-

54,684

 Personnel Credit Cards - FC

512

-

512

     With Installment

86

-

86

     Without Installment

426

-

426

 Deposit Accounts- TL (Real persons)

496,664

-

496,664

 Deposit Accounts- FC (Real persons)

-

-

-

 Total

15,611,282

36,980,243

52,591,525



 

5.1.5.5   Installment based commercial loans and corporate credit cards

 

Current Period

Short-Term

Medium and Long-Term

Total

 Installment-based Commercial Loans - TL

 1,767,307

 11,094,610

 12,861,917

     Real Estate Loans

 3,262

 831,376

 834,638

     Automobile Loans

 107,647

 2,174,041

 2,281,688

     General Purpose Loans

 1,656,398

 8,089,193

 9,745,591

     Other

 -  

 -  

 -  

 Installment-based Commercial Loans - FC-indexed

 264,798

 2,405,434

 2,670,232

     Real Estate Loans

 -  

 72,529

 72,529

     Automobile Loans

 8,927

 730,518

 739,445

     General Purpose Loans

 255,871

 1,602,387

 1,858,258

     Other

 -  

 -  

 -  

 Installment-based Commercial Loans - FC

 710

 86,457

 87,167

     Real Estate Loans

 -  

 637

 637

     Automobile Loans

 42

 14,356

 14,398

     General Purpose Loans

 668

 71,464

 72,132

     Other

 -  

 -  

 -  

 Corporate Credit Cards - TL

 2,687,757

 53,475

 2,741,232

     With Installment

 1,279,033

 53,475

 1,332,508

     Without Installment

 1,408,724

 -  

 1,408,724

 Corporate Credit Cards - FC

 11,271

 -  

 11,271

     With Installment

 176

 -  

 176

     Without Installment

 11,095

 -  

 11,095

 Deposit Accounts- TL (Corporates)

 881,614

 -  

 881,614

 Deposit Accounts- FC (Corporates)

 -  

 -  

 -  

 Total

 5,613,457

 13,639,976

 19,253,433

                                                                                                                                        

 

Prior Period

Short-Term

Medium and Long-Term

Total

 Installment-based Commercial Loans - TL

1,335,639

9,681,444

11,017,083

     Real Estate Loans

3,237

725,187

728,424

     Automobile Loans

88,500

1,968,503

2,057,003

     General Purpose Loans

1,243,902

6,987,754

8,231,656

     Other

-

-

-

 Installment-based Commercial Loans - FC-indexed

160,480

1,885,722

2,046,202

     Real Estate Loans

369

53,546

53,915

     Automobile Loans

3,355

542,030

545,385

     General Purpose Loans

156,756

1,290,146

1,446,902

     Other

-

-

-

 Installment-based Commercial Loans - FC

160

46,675

46,835

     Real Estate Loans

-

925

925

     Automobile Loans

84

12,304

12,388

     General Purpose Loans

76

33,446

33,522

     Other

-

-

-

 Corporate Credit Cards - TL

1,963,886

3,750

1,967,636

     With Installment

953,402

3,750

957,152

     Without Installment

1,010,484

-

1,010,484

 Corporate Credit Cards - FC

7,692

-

7,692

     With Installment

61

-

61

     Without Installment

7,631

-

7,631

 Deposit Accounts- TL (corporates)

831,746

-

831,746

 Deposit Accounts- FC (corporates)

-

-

-

 Total

4,299,603

11,617,591

15,917,194

5.1.5.6   Allocation of loans by customers 


Current Period

Prior Period

 Public Sector

 792,965

866,521

 Private Sector (*)

 184,249,980

157,635,193

 Total

 185,042,945

158,501,714

(*)  As of 31 December 2015, loans amounting to TL 198,118  thousands (31 December 2016: -) included under "Financial Assets at Fair Value through Profit/Loss" in the accompanying balance sheet, are presented above under "Private Sector".

5.1.5.7   Allocation of domestic and foreign loans


Current Period

Prior Period

 Domestic Loans

 181,422,064

156,494,318

 Foreign Loans (*)

 3,620,881

2,007,396

 Total

 185,042,945

158,501,714

(*)   As of 31 December 2015, loans amounting to TL 198,118  thousands (31 December 2016: -) included under "Financial Assets at Fair Value through Profit/Loss" in the accompanying balance sheet, are presented above under "Foreign Loans".

5.1.5.8   Loans to associates and affiliates


Current Period

Prior Period

 Direct Lending

842,967

1,089,363

 Indirect Lending

-

-

 Total

842,967

1,089,363

 

5.1.5.9   Specific provisions for loans


Current Period

Prior Period

 Substandard Loans and Receivables - Limited Collectibility  

451,816

 599,750  

 Doubtful Loans and Receivables

1,126,227

 579,036  

 Uncollectible Loans and Receivables

2,689,448

 2,388,912  

 Total

 4,267,491

 3,567,698  

 

5.1.5.10 Non-performing loans and other receivables (NPLs) (Net)

Non-performing loans and other receivables restructured or rescheduled


Group III

Group IV

      Group V

Substandard Loans and Receivables

Doubtful Loans and Receivables

Uncollectible Loans and Receivables

Current Period




 (Gross Amounts before Specific Provisions)

125,617

665,093

717,588

   Restructured Loans and Receivables

125,617

665,093

717,588

   Rescheduled Loans and Receivables

 -

 -

 -

 




Prior Period




 (Gross Amounts before Specific Provisions)

 252,165  

 230,646  

 489,801  

   Restructured Loans and Receivables

 252,165  

 230,646  

 489,801  

   Rescheduled Loans and Receivables

-

-

-

Movements in non-performing loans and other receivables

 

 

Current Period

Group III

Group IV

Group V

Substandard Loans and Receivables

Doubtful Loans and Receivables

Uncollectible Loans and Receivables

Balances at Beginning of Period

786,183

756,847

2,860,995

   Additions during the Period (+)

 3,048,885

 56,393

 127,180

   Transfer from Other NPL Categories (+)

 -

 2,781,448

 1,798,932

   Transfer to Other NPL Categories (-)

 2,781,448

 1,798,932

 -

   Collections during the Period (-)

 477,133

 317,939

 491,290

   Write-offs (-) (*)

 -

 1,328

 1,076,019

       Corporate and Commercial Loans

 -

 1,178

 515,367

Retail Loans

 -

 -

 289,608

Credit Cards

 -

 150

 271,044

Others

 -

 -

 -

Balances at End of Period

 576,487

 1,476,489

 3,219,798

   Specific Provisions (-)

 451,816

 1,126,227

 2,689,448

Net Balance on Balance Sheet

 124,671

 350,262

 530,350

(*)   of which TL 1,059,931 thousands is resulted from sale of non-performing loans.



 

 

 

Prior Period

Group III

Group IV

Group V

Substandard Loans and Receivables

Doubtful Loans and Receivables

Uncollectible Loans and Receivables

Balances at Beginning of Period

 405,091  

 748,030  

 2,147,708  

   Additions during the Period  (+)

 2,241,205  

 59,594  

 47,548  

   Transfer from Other NPL Categories  (+)

 -    

 1,543,105  

 1,350,938  

   Transfer to Other NPL Categories (-)

 1,543,105  

 1,350,938  

 -    

   Collections during the Period  (-)

 316,471  

 242,333  

 488,662  

   Write-offs (-) (*)

 537  

 611  

 196,537  

       Corporate and Commercial Loans

 537  

 609  

 119,188  

       Retail Loans

 -    

 -    

 33,424  

       Credit Cards

 -    

 2  

 43,925  

       Others

 -    

 -    

 -    

Balances at End of Period

 786,183  

 756,847  

 2,860,995  

   Specific Provisions (-)

 599,750  

 579,036  

 2,388,912  

Net Balance on Balance Sheet

 186,433  

 177,811  

 472,083  

(*)   of which TL 83,080 thousands is resulted from sale of non-performing loans.

Movements in specific loan provisions

Current Period

Corporate/

Commercial Loans

Consumer Loans

Credit Cards

 Total

Balances at End of Prior Period

1,329,001

1,270,403

968,294

3,567,698

 Additions during the Period(+)

1,255,839

897,204

591,817

2,744,860

 Restructured/Rescheduled Loans (-)

-

-

-

-

 Collections during the Period (-)

152,378

514,410

302,405

969,193

 Write-offs (-) (*)

515,810

288,870

271,194

1,075,874

Balances at End of Period

1,916,652

1,364,327

986,512

4,267,491

(*)   of which TL 1,058,459 thousands is resulted from sale of non-performing loans.

 

             Prior Period

Corporate/

Commercial Loans

Consumer Loans

Credit Cards

 Total

Balances at End of Prior Period

1,158,403

823,655

691,903

2,673,961

 Additions during the Period(+)

509,512

857,543

528,196

1,895,251

 Restructured/Rescheduled Loans (-)

-

-

-

-

 Collections during the Period (-)

220,938

377,383

207,878

806,199

 Write-offs (-)

117,976

33,412

43,927

195,315

Balances at End of Period

1,329,001

1,270,403

968,294

3,567,698

(*)   of which TL 80,710 thousands is resulted from sale of non-performing loans.

 

Non-performing loans and other receivables in foreign currencies


Group III

Group IV

      Group V

Substandard Loans and Receivables

Doubtful Loans and Receivables

Uncollectible Loans and Receivables

Current Period




    Balance at End of Period

 34,476   

 363,587   

 722,774   

     Specific Provisions (-)

 29,951   

 234,409   

 512,422   

    Net Balance at Balance Sheet

 4,525   

 129,178   

 210,352   





Prior Period




    Balance at End of Period

 180,731  

 37,931  

 535,189  

     Specific Provisions (-)

 138,781  

 10,172  

 422,070  

    Net Balance at Balance Sheet

 41,950  

 27,759  

 113,119  

Gross and net non-performing loans and receivables as per customer categories

 

Group III

Group IV

      Group V

Substandard Loans and Receivables

Doubtful Loans and Receivables

Uncollectible Loans and Receivables

Current Period (Net)

 124,671   

 350,262   

 530,350   

Loans to Individuals and Corporates (Gross)

 576,487   

 1,476,489   

 3,218,482   

       Specific Provision (-)

 451,816   

 1,126,227   

 2,688,132   

Loans to Individuals and Corporates (Net)

 124,671   

 350,262   

 530,350   

Banks (Gross)

 -     

 -     

 311   

       Specific Provision (-)

 -     

 -     

 311   

Banks (Net)

 -     

 -     

 -     

Other Loans and Receivables (Gross)

 -     

 -     

 1,005   

       Specific Provision (-)

 -     

 -     

 1,005   

Other Loans and Receivables (Net)

 -     

 -     

 -     

Prior Period (Net)

186,433

177,811

472,083

Loans to Individuals and Corporates (Gross)

786,183

756,847

2,859,679

       Specific Provision (-)

599,750

579,036

2,387,596

Loans to Individuals and Corporates (Net)

186,433

177,811

472,083

Banks (Gross)

-

-

311

       Specific Provision (-)

-

-

311

Banks (Net)

-

-

-

Other Loans and Receivables (Gross)

-

-

1,005

       Specific Provision (-)

-

-

1,005

Other Loans and Receivables (Net)

-

-

-

Collaterals received for non-performing loans

 Current Period

Corporate/

Commercial Loans

Consumer Loans

Credit Cards

 Total

 Loans Collateralized by Cash

 3,016    

 184    

 -      

 3,200    

 Loans Collateralized by Mortgages

 1,391,416    

 142,402    

 -      

 1,533,818    

 Loans Collateralized by Pledged Assets

 192,660    

 47,119    

 -      

 239,779    

 Loans Collateralized by Cheques and Notes

 211,665    

 7,286    

 -      

 218,951    

 Loans Collateralized by Other Collaterals

 919,836    

 861,462    

 -      

 1,781,298    

 Unsecured Loans

 95,253    

 413,963    

 986,512    

 1,495,728    

 Total

 2,813,846    

 1,472,416    

 986,512    

 5,272,774    

 

Prior Period

Corporate/

Commercial Loans

Consumer Loans

Credit Cards

 Total

 Loans Collateralized by Cash

 1,999  

 201  

 -    

 2,200  

 Loans Collateralized by Mortgages

 911,000  

 88,562  

 -    

 999,562  

 Loans Collateralized by Pledged Assets

 224,454  

 53,650  

 -    

 278,104  

 Loans Collateralized by Cheques and Notes

 299,845  

 9,390  

 -    

 309,235  

 Loans Collateralized by Other Collaterals

 530,469  

 829,081  

 -    

 1,359,550  

 Unsecured Loans

 120,701  

 366,379  

 968,294  

 1,455,374  

 Total

 2,088,468  

 1,347,263  

 968,294  

 4,404,025  

 

5.1.5.11 Liquidation policy for uncollectible loans and receivables

Such loans and receivables are collected through legal follow-up and liquidation of collaterals.

5.1.5.12  Write-off policy

The Bank's general policy for write-offs of loans and receivables under follow-up is to write of such loans and receivables that are proven to be uncollectible in legal follow-up process.

5.1.6      Investments held-to-maturity

5.1.6.1   Investment subject to repurchase agreements and provided as collateral/blocked


Current Period

Prior Period

TL

FC

TL

FC

 Collateralised/Blocked Investments

5,793,705

4,341,183

4,956,015

2,108,752

 Investments subject to Repurchase Agreements

3,147,892

-

4,081,537

317,809

 Total

8,941,597

4,341,183

9,037,552

2,426,561

 

5.1.6.2   Government securities held-to-maturity


Current Period

Prior Period

 Government Bonds

19,108,804

17,776,978

 Treasury Bills

-

-

 Other Government Securities

-

-

 Total

19,108,804

17,776,978

 

5.1.6.3   Investments held-to-maturity


Current Period

Prior Period

 Debt Securities

21,236,112

19,961,209

   Quoted at Stock Exchange

20,462,344

19,106,455

    Unquoted at Stock Exchange

773,768

854,754

 Valuation Increase/(Decrease)

2,404,072

1,794,603

 Total

23,640,184

21,755,812

 

5.1.6.4   Movement of investments held-to-maturity


Current Period

Prior Period

 Balances at Beginning of Period

21,755,812

21,014,502

 Foreign Currency Differences On Monetary Assets

1,963,183

1,945,865

 Purchases during the Period

498,479

1,331,647

 Disposals through Sales/Redemptions (*)

(1,186,759)

(2,971,899)

 Valuation Effect

609,469

435,697

 Balances at End of Period

23,640,184

21,755,812

In the prior period,

(*)         As per the exceptions set out in the relevant accounting standards (TAS 39) for the sale or reclassification of investments, certain credit linked notes with a total face value of USD 300,000,000 were sold.

5.1.7      Investments in associates

5.1.7.1   Investments in associates          


Associate

Address (City/ Country)

Bank's Share - If Different, Voting Rights (%)

Bank's Risk Group Share (%)

1

Bankalararası Kart Merkezi AŞ (1)

İstanbul/Turkey

10.15

10.15

2

Yatırım Finansman Menkul Değerler AŞ (1)

İstanbul/Turkey

0.77

0.77

3

İstanbul Takas ve Saklama Bankası AŞ (1)

İstanbul/Turkey

5.25

5.28

4

Borsa İstanbul AŞ (1)

İstanbul/Turkey

0.30

0.34

5

KKB Kredi Kayıt Bürosu AŞ (1)

İstanbul/Turkey

9.09

9.09

6

Türkiye Cumhuriyet Merkez Bankası AŞ (2)

Ankara /Turkey

2.48

2.48

7

Kredi Garanti Fonu AŞ (1)

Ankara /Turkey

1.75

1.75

 


 

Total Assets

 

Shareholders' Equity

Total Fixed

Assets (*)

 

Interest Income

Income on Securities Portfolio

Current Period Profit/Loss

Prior Period Profit/Loss

Company's Fair Value

1

75,434

44,177

48,085

672

-

14,517

9,605

-

2

885,750

70,170

3,534

12,885

1,102

(3,130)

(791)

-

3

7,494,521

994,440

98,224

216,309

5,881

162,178

132,453

-

4

1,084,281

1,043,795

211,102

27,176

979

223,697

289,559

-

5

185,448

129,648

135,578

2,817

90

16,458

26,782

-

6

450,139,064

54,629,350

684,192

6,120,123

2,238,649

20,736,851

8,529,957

-

7

324,489

298,991

7,562

12,390

-

17,738

19,890

-

(1)     Financial information is as of 30 September 2016.

(2)     Financial information is as of 31 December 2015.

(*)     Total fixed assets include tangible and intangible assets.

 



5.1.7.2   Movement of investments in associates


Current Period

Prior Period

 Balance at Beginning of Period

36,698

36,698

 Movements during the Period

-

-

     Acquisitions

-

-

     Bonus Shares Received  

-

-

     Dividends from Current Year Profit

-

-

     Sales

-

-

     Increase in Market Values

-

-

     Impairment Reversals/(Losses)

-

-

 Balance at End of Period

36,698

36,698

 Capital Commitments

-

-

 Share Percentage at the End of Period (%)

-

-

5.1.7.3   Sectoral distribution of investments and associates

 Investments in Associates

Current Period

Prior Period

 Banks

-

-

 Insurance Companies

-

-

 Factoring Companies

-

-

 Leasing Companies

-

-

 Finance Companies

34,984

34,984

 Other Associates

1,714

1,714

5.1.7.4   Quoted associates

None.

 

5.1.7.5   Valuation methods of investments in associates

 Investments in Associates

Current Period

Prior Period

 Valued at Cost

36,698

36,698

 Valued at Fair Value

-

-

5.1.7.6   Investments in associates sold during the current period

None.

5.1.7.7   Investments in associates acquired during the current period

None.



 

5.1.8      Investments in affiliates

5.1.8.1     Information on capital adequacy of major affiliates

The Bank does not have any capital needs for its affiliates included in the calculation of its consolidated capital adequacy standard ratio. Information on capital adequacy of major affiliates is presented below.

Current Period

Garanti Bank International NV

Garanti Finansal Kiralama AŞ

Garanti Holding BV

COMMON EQUITY TIER I CAPITAL

 

 


Paid-in Capital to be Entitled for Compensation after All Creditors

511,324

357,848

1,426,711

Share Premium

-

-

48,030

Share Cancellation Profits

-

-

-

Reserves

894,029

483,911

(267,654)

Other Comprehensive Income according to TAS

652,504

-

17,074

Current and Prior Periods' Profits

50,997

84,003

9,425

General Reserves for Possible Losses

-

-

-

Common Equity Tier I Capital Before Deductions

2,108,854

925,762

1,233,586

Deductions From Common Equity Tier I Capital




Current and Prior Periods' Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-)

76,159

452

317,070

Leasehold Improvements on Operational Leases (-)

-

87

7,930

Goodwill and Other Intangible Assets and Related Deferred Taxes (-)

10,193

4,694

131,009

Net Deferred Tax Asset/Liability (-)

-

-

7,129

Total Deductions from Common Equity Tier I Capital

86,352

5,233

463,138

Total Common Equity Tier I Capital

2,022,502

920,529

770,448

Total Deductions From Tier I Capital

6,795

3,129

92,092

Total Tier I Capital

2,015,707

917,400

678,356

TIER II CAPITAL

185,100

-

81,435

CAPITAL BEFORE DEDUCTIONS

2,200,807

917,400

759,791

Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of the Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more than Five Years (-)

-

465

-

TOTAL CAPITAL

2,200,807

916,935

759,791

 



 

Prior Period

Garanti Bank International NV

Garanti Finansal Kiralama AŞ

Garanti Holding BV

COMMON EQUITY TIER I CAPITAL

 

 


Paid-in Capital to be Entitled for Compensation after All Creditors

438,130

357,848

1,168,942

Share Premium

-

-

41,090

Share Cancellation Profits

-

-

-

Reserves

859,634

329,714

(327,914)

Other Comprehensive Income according to TAS

406,771

75,795

27,141

Current and Prior Periods' Profits

34,395

110,292

58,156

General Reserve for Possible Losses

-

11,814

-

Common Equity Tier I Capital Before Deductions

1,738,930

885,463

967,415

Deductions From Common Equity Tier I Capital




Current and Prior Periods' Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-)

92,365

399

231,882

Leasehold Improvements on Operational Leases (-)

-

113

9,131

Goodwill and Other Intangible Assets and Related Deferred Taxes (-)

6,285

2,351

73,220

Net Deferred Tax Asset/Liability (-)

-

-

6,768

Total Deductions from Common Equity Tier I Capital

98,650

2,863

321,001

Total Common Equity Tier I Capital

1,640,280

882,600

646,414

Total Deductions From Tier I Capital

9,427

3,527

119,982

Total Tier I Capital

1,630,853

879,073

526,432

TIER II CAPITAL

253,368

-

57,607

CAPITAL BEFORE DEDUCTIONS

1,884,221

879,073

584,039

Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of the Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more than Five Years (-)

-

-

-

TOTAL CAPITAL

1,884,221

879,073

584,039

5.1.8.2   Investments in affiliates


Affiliate

Address (City/ Country)

Bank's Share - If Different, Voting Rights (%)

Bank's Risk Group Share (