ANNUAL REPORT 2018 WE ARE WE ARE CARRYING CARRYING OUR WELL- THE FUTURE ESTABLISHED ESTABLISHED HERITAGE INTO HERITAGE INTO
ŞEKERBANK ANNUAL REPORT 2018 This report has been published using recycled has been published using recycled This report technologies. paper and environment-friendly ŞEKERBANK T.A.Ş. ŞEKERBANK Mahallesi Evleri Emniyet Caddesi Eski Büyükdere No: 1/1A 34415 Kağıthane-Istanbul 319 70 00 +90 212 - Office Registry Trade Istanbul Number: 536973 Registry Trade INTRODUCTION 02 Mission, Vision and Values 04 Şekerbank’s Strategy and Position in the Sector 06 Shareholding Structure 07 Agenda of the Ordinary General Assembly 07 Amendments to the Articles of Association and Justifications 07 Forward-Looking Statements 08 Financial Indicators 10 Şekerbank: From Past to Present 16 2018 in Stride 20 Chairman’s Message 22 General Manager’s Message 26 Agricultural Banking 32 SME Banking 34 Corporate and Commercial Banking 35 Cash Management 38 Retail Banking 41 Financial Institutions 44 Sustainable Development Banking 46 Distribution Channels Management 48 Information Technologies ŞEKERBANK 50 Human Resources 52 Subsidiaries of Şekerbank 54 Independent Audit Company 55 Independent Audit Company’s Compliance Opinion
MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES
56 Board of Directors ANNUAL REPORT 2018 58 Senior Management 60 Summary Report of the Board of Directors 61 Board and Committees Evaluation Disclosures 62 Succession Planning and Nomination in the Board of Directors 63 General Policy on Insider Trading 64 Board of Directors Activities 65 Declaration of Compliance with Corporate Governance Principles 66 Ethical Rules and Social Responsibility 69 Şekerbank’s Strategic Objectives 70 Structure and Composition of the Board of Directors 73 Information on the Bank’s Transactions with Its Risk Group 74 Profit Distribution Policy 74 Remuneration of the Members of the Board of Directors and Senior Management 75 Corporate Governance Principles Compliance Rating 75 Managers of the Units within Internal Systems 76 Information on Support Services Providers 77 Şekerbank’s Policy against the Laundering of Criminal Proceeds and Terrorism Financing 78 Declaration of Responsibility for the Annual Report 2018
FINANCIAL INFORMATION 79 Disclosures on the Bank’s Financial Position, Profitability and Debt Servicing Capability 80 Expectations for the Future 81 Şekerbank’s Credit Ratings 82 Five-Year Summary Financial Highlights 83 The Audit Committee’s Assessment of the Internal Systems in 2018 85 Risk Management System Strategy 90 Şekerbank T.A.Ş. Head Office Organizational Chart 93 Independent Auditors’ Report on Unconsolidated Financial Statements and Notes to the Financial Statements for January 1 – December 31, 2018 287 Independent Auditors’ Report on Consolidated Financial Statements and Notes to the Financial Statements for January 1 – December 31, 2018 495 Our Branches
Proudly produced by FİNAR. www.finarkurumsal.com We provide financial support to shopkeepers, small manufacturers, agricultural households and female entrepreneurs in small towns and villages. We are aware that this type of support has the power not only to transform our customers, but also to transform society.
We renew ourselves continuously by connecting the local with the global, taking our 65-year tradition of responsible banking forward into the future and supporting Turkey’s development journey. INTRODUCTION Mission, Vision and Values
OUR MISSION With the “Community Banking” understanding from village to city, we are a modern bank that considers both local features and needs, introduces banking services to those who do not use a bank, grows by creating value together with its satisfied customers, employees and partners, and gains its strength from its deep rooted past.
OUR VISION
To become the “leading bank in financing small enterprises” among Turkey’s top 10 private banks in terms of asset size.
ŞEKERBANK ANNUAL REPORT 2018
2 INTRODUCTION
OUR VALUES
Open Communication Customer Orientation and We respect different perspectives. Acting Locally We are open to any suggestions We take heed of meeting the from our colleagues and customers. expectations and needs of all our Striving to create added value for our customers and ensuring customer Bank and our colleagues, we share all satisfaction by presenting products kinds of ideas and knowledge across and services fast and graciously, the organization in a timely manner by while also taking local features into keeping all communication channels consideration. open. Result Orientation Continuous Development We focus on achieving desired We aspire and strive to acquire new results/goals, proactively solving thoughts, knowledge, and skills with emerging problems without delay, an interrogative viewpoint; we are closely monitoring our operations, willing to work together and assume and fulfilling our duties in a manner to responsibility for the continuous increase profitability and efficiency. development of ourselves and others. Corporate Loyalty We believe in the value of contributing to the performance of our corporation and being loyal to our corporation by working in a respectful, fair, self-sacrificing, sharing, participative manner and with solidarity within our own team and with our other colleagues.
ŞEKERBANK ANNUAL REPORT 2018
3 INTRODUCTION Şekerbank’s Strategy and Position in the Sector
The Şekerbank brand is strongly equated with trust in local communities and a tradition of strong relationship banking, which is reflected on its solid deposits structure and broad-based customer profile in farmers and SMEs who have been working with Şekerbank for many generations.
Şekerbank was established 65 years strategy, Şekerbank aims to further ago, on October 12, 1953, for the In line with increase the financing provided to purpose of supporting the agricultural the mission shopkeepers, farmers, small and industry and sustainable production. medium sized enterprises, while Today, the Bank remains a pioneer in of supporting expanding access to finance widely financing the development of rural production dating throughout broad-based customer areas and fostering inclusive growth. segments. With this approach, the Şekerbank is pursuing its traditional back to the Bank’s Bank plans to maintain its pioneering “Community Banking” mission with a founding, and with role in financing sustainable and “sustainable development banking” inclusive growth in the future. perspective. the power of the valuable branch For 65 years, Şekerbank has Most Şekerbank branches are located conducted its business operations outside Turkey’s three biggest network of which with a responsible banking philosophy. metropolitan areas. With locations that 70% is located The Bank has steadily improved its have not changed for a half century, activities in a way that contributes Şekerbank branches play a key role in Anatolia, to Turkey’s development, in line in reaching out to local residents, Şekerbank with the United Nations Sustainable shopkeepers, the rural population Development Goals in order to achieve and farmers. The Şekerbank brand targets SMEs a better and more sustainable future is strongly equated with trust in and agriculture for all. The Bank is transforming its local communities and a tradition of local experience into an international strong relationship banking, which as its strategic model with a global perspective. is reflected on its solid deposits priorities. structure and broad-based customer Şekerbank focuses on financing that profile in farmers and SMEs who have is both environmentally sustainable been working with Şekerbank for and socially inclusive. Reaching out to many generations. people who have not yet used banking services is a significant component In line with the mission of supporting of the Bank’s mission. To this end, the production dating back to the Bank’s Bank is implementing Turkey’s first very foundation, and with the power of and only microfinancing model, which its valuable branch network of which addresses farmers, shopkeepers and 70% is located in Anatolia, Şekerbank female producers who have limited targets SMEs and agriculture as its access to financing. strategic priorities. Pursuant to this
ŞEKERBANK ANNUAL REPORT 2018
4 INTRODUCTION
Şekerbank’s responsible banking approach is affirmed by the many “ŞEKERBANK innovations and firsts achieved by the Bank in its core segments. IS PURSUING ITS Şekerbank is one of the first banks in Turkey to take environmental and TRADITIONAL social impacts into consideration during loan decision processes. EKOkredi, which launched in 2009, is COMMUNITY BANKING a first of its kind loan product that can be used to finance energy efficiency projects. With EKOkredi, more than MISSION WITH 100 thousand people have reduced their energy consumption. EKOkredi A SUSTAINABLE has also prevented 6.3 million tons of carbon emissions with TL 1 billion invested in energy efficiency efforts. DEVELOPMENT BANKING
To prevent migration from rural areas to urban centers, the Bank PERSPECTIVE.” launched the Family Farming Banking product in 2014 – another first of its kind both in Turkey and worldwide. This product provided TL 7 billion in financing to farmer families over the last four years. These funds were used for unifying individual parcels of agricultural fields, energy efficiency investments, applying modern agricultural methods, and efficiency in agricultural production.
In 2018, Şekerbank initiated a digital transformation program to take the Bank’s competitive advantages stemming from its roots forward into the future. Şekerbank is actively developing international applications that will create common value for all the Bank’s stakeholders. Şekerbank is committed to supporting the production of Anatolian farmers, whom form the backbone of this Bank.
ŞEKERBANK ANNUAL REPORT 2018
5 INTRODUCTION Shareholding Structure
NUMBER OF TOTAL NOMINAL SHARE SHAREHOLDERS SHARES VALUE (TL) RATIO (%) Şekerbank T.A.Ş. Voluntary Pension Fund 410,388,833.70 410,388,833.70 35.44
Samruk-Kazyna, the National Welfare Fund of Kazakhstan 224,353,416.50 224,353,416.50 19.37
Şekerbank T.A.Ş. 109,211,666.24 109,211,666.24 9.43
Other 18,092,679.30 18,092,679.30 1.57
Publicly Traded 395,953,404.26 395,953,404.26 34.19
TOTAL 1,158,000,000.00 1,158,000,000.00 100.00
The Bank’s capital does not have any privileged shares.
35.44% Şekerbank T.A.Ş. Voluntary Pension Fund 9.43% Şekerbank T.A.Ş.
1.57% Other 19.37% Samruk-Kazyna, the National 34.19% Welfare Fund of Kazakhstan Publicly Traded
There is not a reciprocal affiliate relationship where direct contribution to capital exceeds 5%.
ŞEKERBANK ANNUAL REPORT 2018
6 INTRODUCTION Agenda of the Ordinary General Assembly Dated March 27, 2019
1. Opening & Establishment of Presidential Board, 2. Reading the Board of Director’s Annual Report and discussion, 3. Reading the Summary Audit Report and election of an Auditor for the year 2019, 4. Reading the Balance Sheet and Profit & Loss Statements, discussion, and approval, 5. Discharging the Board of Directors, 6. Discussing and approving profit distribution for the year 2018, 7. Approving the amendments made to Article 18 titled “Issuance of Debenture Bonds,” and Article 28 titled “The Duties and Authorizations of the Board of Directors” of the Bank’s Articles of Association; on the condition that the necessary permits are obtained from the Banking Regulation and Supervision Agency, Capital Markets Board, and the Turkish Ministry of Trade, 8. Determining the Board of Directors’ compensations, 9. Providing consent to the Board of Directors to conduct transactions with the Bank, as per Articles 395 and 396 of the Turkish Commercial Code, 10. Requests, wishes and closing. Amendments to the Articles of Association and Justifications
No amendment was made in the Articles of Association in 2018. Forward-Looking Statements
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,’ ‘expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future-including statements relating to volume growth, sales of shares and earnings per share growth, and statements expressing general views about future operating results – are forward-looking statements.
The Board of Directors believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. The Bank undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Bank’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part 3, ‘Assessment of the Audit Committee on the Functioning of Internal Systems’ and elsewhere in this report and those described from time to time in our future reports filed with the Capital Markets Board.
ŞEKERBANK ANNUAL REPORT 2018
7 INTRODUCTION Financial Indicators
In 2018, Şekerbank reported total loans of TL 20.6 billion, total deposits of TL 23.1 billion, and total assets of TL 31.3 billion. The Bank posted a net profit of TL 86.4 million and a capital adequacy ratio of 15.14% at year’s end.
Committed to fostering responsible financial 31.3 20.6 inclusion, Şekerbank TL billion TL billion gives priority to small-scale producers, micro-enterprises and 2018 2018 female entrepreneurs TOTAL TOTAL in rural areas when ASSETS LOANS extending SME and agricultural loans. 15.1% 23.1 TL billion
CAPITAL 2018 ADEQUACY TOTAL RATIO DEPOSITS
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8 INTRODUCTION
UNCONSOLIDATED SELECTED FINANCIAL INDICATORS
(TL THOUSAND) 2014 2015 2016 2017 2018* Total Assets 21,187,288 24,415,966 23,818,856 31,346,461 31,321,320
Total Loans (Net) 14,655,079 16,737,565 17,613,068 20,676,280 20,564,181
Shareholders’ Equity 2,391,813 2,526,942 2,532,793 2,712,151 2,377,326
Total Deposits 13,538,608 14,867,633 16,136,281 19,726,988 23,089,134
Profit Before Tax 280,701 85,246 139,615 139,527 104,813
Net Profit 223,969 102,649 125,194 114,890 86,358
UNCONSOLIDATED FINANCIAL RATIOS
(%) 2014 2015 2016 2017 2018 Capital Adequacy Ratio 14.60 13.66 13.11 15.40 15.14
Total Securities/Total Assets 11.46 12.30 10.44 8.81 12.79
Total Loans/Total Assets 69.17 68.55 73.95 65.96 65.66
Total Deposits/Total Assets 63.90 60.89 67.75 62.93 73.72
*As per the provisions of TFRS 9 (Turkish Financial Reporting Standards) on transition, 2018 financial information was prepared according to different rules.
ŞEKERBANK ANNUAL REPORT 2018
9 INTRODUCTION Şekerbank: From Past to Present
1956 1980s
From Eskişehir to A Period of Focusing Ankara on Commercial Pancar Kooperatifleri New Products and The Bank’s Head Banking Bankası A.Ş. Office was relocated Services During this period, Şekerbank’s foundation This period was to Ankara and with the Şekerbank focused on was laid with the marked by change Council of Ministers’ commercial banking. establishment of and growth. The Bank decree its name was By 1983, the number Pancar Kooperatifleri gradually evolved changed to Şekerbank of branches had risen Bankası (Sugar Beet from a cooperatives’ Türk Anonim Şirketi. to 161. The Bank Cooperatives Bank) in bank to a full-service increased its foreign Eskişehir on October bank capable of trade transactions 12, 1953. The Bank’s providing a full range of and strengthened its mission during those products and services. correspondent banking early years was to The Bank opened a relationships. The meet the funding representative office Şeker Çocuk (Şeker needs of sugar beet in Cologne, Germany Child) Magazine has producers and their in 1972. By 1979, been launched and industry. Şekerbank’s service Şekerbank opened one network totaled 134 of Turkey’s first bank branches. art galleries in Ankara.
1953 1970s
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10 INTRODUCTION
2002 1997 2004
Initial Public Offering 2002 | Customer- Şekerbank completed Oriented Service Private Bank Status an initial public Transfer of Shares Şekerbank initiated A total of 10% of the Şekerbank’s majority offering of its a comprehensive outstanding shares of shares changed hands: shares and became restructuring program T. Şeker Fabrikaları a 51% stake was institutionalized. With to be transformed into A.Ş. were acquired acquired by Şekerbank a major corporate a customer-oriented, by Pankobirlik (7%), T.A.Ş. Voluntary development initiative multi-channel bank. and Şekerbank Pension Fund and implemented during Voluntary Pension Şekerbank Personnel the same period, 2003 | 50th Anniversary Fund (3%) from the Social Security the foundation for Şekerbank became one State Partnership Foundation. a more modern of the cornerstones of Administration of and contemporary the Turkish banking Turkey. As a result, Şekerbank was laid. sector in its 50th year. Şekerbank ceased to be part of the public 2004 | The Redesigned sector. Subsequently, Corporate Identity the Bank was Şekerbank relocated restructured with its Head Office to a a private sector new office building in commercial bank Istanbul; in addition, approach. the Bank redesigned its corporate identity and logo.
1993 2000
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11 INTRODUCTION Şekerbank: From Past to Present
2008 2009
2008 | First Turkish 2009 | EKOkredi Bank Assigned a Launched Turkey’s Fastest Corporate Governance Şekerbank launched One of the Five Turkish Growing Bank EKOkredi, a ground Banks Included in the th Rating Şekerbank ranked 6 Şekerbank became breaking product in CDP Report among the world’s the first bank in the Turkey to finance energy Şekerbank was one 50 fastest growing country to receive a savings and efficiency of five Turkish banks banks in the Top 1,000 corporate governance initiatives targeted at included in the 2010 World Banks survey rating as a result of a the protection of natural report of the Carbon conducted by The criteria assessment resources and waste Disclosure Project Banker Magazine, a of “Shareholders,” prevention. It was (CDP), one of the most leading international “Public Disclosure selected as the Banking important initiatives finance publication, and and Transparency,” Product of the Year in worldwide in the fight was named Turkey’s “Stakeholders” and 2009. against climate change. fastest growing bank “Board of Directors” thanks to its strong provided by ISS performance. Corporate Services Inc., recognized as the world’s leading corporate governance rating firm and authorized by the Capital Markets Board to provide services in Turkey.
2007 2010
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12 INTRODUCTION
2011 2013
The World’s First Contemporary Art in “An Open Door for Small Turkish Lira Anatolia with Açıkekran Businesses” Platform Denominated Borrowing In line with its Turkey’s “Sustainable Şekerbank created Transaction Covered by sustainable development Development” a ground breaking SME Loans strategy and the Representative platform for more than Şekerbank issued SME corporate objective of As a result of an 1.5 million tradesmen loan backed Covered increasing access to assessment conducted in Turkey during its Bond, as a first in Turkey. contemporary art and by the Turkey’s Ministry 60th anniversary year. The bond issuance was culture, Şekerbank of Development, Through this platform, the first Turkish lira- founded Açıkekran Şekerbank’s project was the Bank invites denominated borrowing New Media Arts in named one of the best consumers to shop from transaction structured May 2011. Rather than country applications local tradesmen. The in international capital being a conventional in sustainable platform was unveiled markets as well as gallery project that is development and with the sponsorship of was the world’s first limited to a physical green economy at the Ministry of Customs Covered Bond issue venue, Açıkekran is the Rio+20 United and Trade and with the covered by SME loans. a contemporary arts Nations Conference support of the nationwide The Bank’s covered bond platform that embraces on Sustainable Confederation of program established a the wide range of Development. Turkish Tradesmen and major financing bridge possibilities of new Şekerbank participated Craftsmen (TESK). The between international digital media and that in Rio+20 as the sole “Open Door for Small financial institutions and is accessible to the representative of Businesses” platform Turkey’s craftsmen and public via the Bank’s the Turkish financial in effect brings small small enterprises. branches. Açıkekran services industry. enterprises together hosts curated exhibitions with the private sector, that bring together public sector, NGOs and major artists and new consumers. talents. At Açıkekran, Şekerbank provides local communities with an opportunity to meet contemporary art through its extensive branch network.
2012
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13 INTRODUCTION Şekerbank: From Past to Present
2015
Şekerbank Moves to New efficiency. The lending Headquarters facility, consisting of four Nobel Laureate of Finance, Mehmet Şimşek, During its 62nd anniversary tranches denominated in Prof. J. Shiller at the and attracted a huge year, Şekerbank moved TL, EURO and USD with “Financing Sustainable turnout from the business into its new headquarters different maturities of up Development and finance world. in Istanbul, a landmark to five years, has been Conference” building that bears its provided by leading Asian At the Financing A First in the World: name. The new head and European institutions Sustainable “Family Farming Banking” office is located in Levent, under the co-lead of Development Conference To stem the tide of rural- a central district that is the Dutch Development held as part of the urban migration and home to many important Bank and the Korean th Bank’s 60 anniversary provide support to rural financial institutions. The Development Bank. celebration, Şekerbank development, in November structure stands out for its With these significant hosted one of the world’s 2014, Şekerbank launched unique architectural style international resources, leading economists, the Family Farming Banking, a that symbolizes the Bank’s Şekerbank continues winner of the 2013 Nobel first of its kind worldwide. long history and has quickly to back the real sector, Prize for Economics, Launched in line with the become a key factor of finance foreign trade and Robert J. Shiller, a Bank’s founding objective prestige for Şekerbank. support energy efficiency Sterling Professor at of supporting agricultural investments for a wide Yale University, which production, this innovative The Bank Secured Turkey’s range of clients, from is the Ivy League initiative provides financing First 5-Year Syndicated enterprises to individual Institution’s highest opportunities to farmers Loan Facility customers. academic rank. Hosted whose incomes have been Şekerbank, which makes by Dr. Hasan Basri reduced and who have left the long-term resources it Göktan, the Chairman their villages due to reasons receives from international of Şekerbank’s Board of such as divided or shrinking financial institutions Directors, the conference agricultural land holdings accessible to its broad featured a keynote via inheritance, limited customer base in line with address by the Minister irrigation facilities and a its “Community Banking” lack of modern farming mission, obtained a USD techniques. Through the 115 million syndicated loan effective communication in 2015. The feature of this of the project, significant first 5-year syndicated loan awareness was generated in Turkey was to provide among the public about the finance to SMEs in order importance of agriculture to support investments in and rural development. foreign trade and energy 2014
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14 INTRODUCTION
2017
Signatory to the “Declaration on th Şekerbank Wins Sustainable Finance” Şekerbank Celebrates Its 65 anniversary! “Leaders in Water Since 2009, Şekerbank For the last 65 years, Şekerbank has supported Management” Award has assessed the entrepreneurship and production to contribute Thanks to its pioneering environmental and social to Turkey’s development. Placing humanitarian work in energy efficiency, impacts of its lending values at the heart of its business culture, the Şekerbank, which has processes – and is one Bank has a proud history filled with success garnered a number of of the first banks in environment-related stories. On October 12, Şekerbank celebrated its Turkey to conduct this 65th anniversary, marking a major milestone for national and international assessment. Keeping in the Bank. awards in the past, also line with its leading role received the “CDP 2016 in financing sustainable Turkey Water Leadership” development, Şekerbank Şekerbank is Listed on the BIST Sustainability award. The Bank ranks signed the Declaration Index among the leading on Sustainable Finance Having played a key role in financing companies in this area in – a statement of Turkey’s sustainable development since its Turkey. Şekerbank is also commitment to consider founding, Şekerbank was included in the BIST a voluntary member of the environmental and Carbon Disclosure Project Sustainability Index in 2018, which is comprised social impacts in project of companies that are traded on Borsa Istanbul (CDP) “Water Program”, finance – together with and demonstrate an exceptional sustainability a platform that aims to six leading banks in fight climate change by Turkey. performance. globally reporting the environmental impact of participating companies to international investors.
2016 2018
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15 INTRODUCTION 2018 in Stride
February April
Şekerbank received a Supporting exporter SMEs Silver Ingot at the Midas in cooperation with Turkish EKOkredi has introduced Awards Şekerbank employees put Exporters Assembly 107 thousand people to Having supported producers on their running shoes Şekerbank entered into energy conservation since its founding, for tradesmen and small an agreement with the To date, Şekerbank has Şekerbank’s advertising enterprises Turkish Exporters Assembly introduced the concept campaign “Glad to Have Şekerbank employees ran the (TIM) to meet the financial of energy conservation You” garnered the Silver Runatolia Marathon, held on requirements of exporter to nearly 107 thousand Ingot in the “Financial March 4, 2018 in Antalya, to companies. Seven banks people across the country Advertising” category promote the Bank’s “An Open that signed the agreement and allocated TL 1 billion at the Midas Awards, a Door for Small Businesses” at a ceremony to mark the in financing with EKOkredi prestigious international platform, which aims to occasion, aim to provide – the first banking product competition organized by support small businesses, financing to 71 thousand TİM in Turkey designed to New York Festivals. The production, and the national members. finance energy efficiency advertising campaign is economy. investments. The energy based on the true stories of Şekerbank donated its efficiency investments customers and highlights Şekerbank supports “Earth electronic waste and planted financed by EKOkredi have the Bank’s support for Hour” movement 3 thousand trees! resulted in a total of energy initiatives that add value to In 2018, Şekerbank once Şekerbank participated in savings of 29.7 billion people, the environment, again took part in “Earth the “Turn Your Waste into kWh and a total reduction and our country in line with Hour,” a global environmental Trees” campaign, carried of 6.3 million tons in CO2 its responsible banking movement organized by out by the Association emissions. approach. WWF Turkey (World Wide for Recycling and Waste Fund for Nature). Şekerbank Management of Electrical and has supported the Earth Electronic Equipment (ELDAY). Hour movement for the last Şekerbank supported the nine years to draw attention planting of 5 thousand to the problem of climate saplings – 3 thousand of change. On March 24, the which were from the Bank Bank switched off the lights – in an afforestation area at its headquarters building, located in the village of Operations Center in Kartal, Akalan (Çatalca). and some service centers outside of Istanbul between “Şeker Çocuk” magazine 8:30 and 9:30 pm to show received Best Social support for the movement. Responsibility Project award “Şeker Çocuk” magazine, distributed free of charge to children via the Bank’s branches and village schools across Turkey, received a Special Prize as the Best Social Responsibility Project at the Third TCMA Capital Markets Awards, organized by the Turkish Capital Markets Association (TCMA). January March
ŞEKERBANK ANNUAL REPORT 2018
16 INTRODUCTION
June
Special financing for natural gas conversion Support for insulation and Şekerbank received Most projects with EKOkredi Şekerbank offers loans energy efficiency continued Ethical Company award for Şekerbank launched a for Paid Military Service thanks to EKOkredi the third time new campaign for natural Exemption Şekerbank worked to bolster As the first bank in Turkey gas conversion projects Şekerbank developed a its collaborations with the to receive a corporate under EKOkredi. The special loan product for real sector via the EKOkredi governance rating, Bank provided cost-free those who want to benefit product. In 2018, the Bank Şekerbank won the ETİKA financing for customers from the paid military organized meetings in Ankara, 2017 Ethics Award for who want to start a natural service exemption. The Erzurum, Bursa, Tekirdağ the third time. ETİKA gas subscription or renew Bank provided loans of up and Izmir as part of the Turkey Ethics Awards is their existing natural gas to TL 15 thousand with low insulation initiative launched organized by the Center equipment. interest rates to finance in collaboration with Filli Boya for Ethical Values (EDMER) the paid military service Capatect in 2015. to recognize business Ramadan support for exemption. Under this ethics and ethical values in tradesmen campaign, the Bank also companies. Şekerbank provided special waived the loan allocation financing to tradesmen and fees. Cost-free loans on small businesses, whose May 14 World Farmers’ Day cash needs increase during Şekerbank offers loans for Şekerbank once again the month of Ramadan. The Zoning Peace conducted a special Bank also offered discounts Şekerbank supported the loan campaign in on food purchases to Zoning Peace initiative commemoration of World “Üreten Kart (Producer introduced by the Ministry Farmers’ Day in order to Card)” holders. Under the of Environment and finance the agricultural “İşinize Ramazan Bereketi Urbanization. The Bank needs of farmers with (Ramadan Prosperity for provided loans of up to favorable interest rates and Your Business)” campaign, TL 30 thousand to individual payment terms. The Bank Şekerbank offered customers who wanted celebrated World Farmers’ tradesmen and small to benefit from the Zoning Day by giving support to businesses loans with lower Peace program. Turkey’s farmers. rates to meet their cash needs.
May July
ŞEKERBANK ANNUAL REPORT 2018
17 INTRODUCTION 2018 in Stride
September November
Special campaign for Şekerbank responded to Ahi Brotherhood Week the “Orange the World” call Şeker Mobile Branch is Having provided support to Şekerbank celebrates its Şekerbank supported revamped... production and producers 65th anniversary! the UN Women’s global Şekerbank revamped for the last 65 years, For the last 65 years, grassroots campaign “16 its mobile branch with Şekerbank repeated its Şekerbank has supported Days of Activism against a simplistic design to annual campaign for Ahi entrepreneurship and Gender-Based Violence,” make it even more user Brotherhood Week, also production to contribute to which was organized under Turkey’s development. Placing friendly for individual and known as the Craftsmen the theme “Orange the humanitarian values at the corporate customers. Festival, in 2018. This World: #HearMeToo” from heart of its business culture, The Bank redesigned series of events aims to the Bank has a proud history November 25 to December the Şeker Mobile Branch maintain and celebrate filled with success stories. 10. application based on user the deep-rooted trading On October 12, Şekerbank experiences, enabling users culture in Anatolia dating celebrated its 65th anniversary, to customize the home page back 1 thousand years. For which marked a major for a more personalized the 31st anniversary of Ahi milestone for the Bank. mobile banking experience. Brotherhood Week, which Additionally, Şekerbank was celebrated throughout Şekerbank continued conducted a sweepstakes the country on September its support for female campaign for customers 17-23, Şekerbank provided entrepreneurs in rural areas... who performed their affordable financing to For four years, Şekerbank has transactions on the Şeker tradesmen and craftsmen, supported the “Empowering Mobile Branch from August who cherish Ahi values and Women Entrepreneurs in 13 to September 30, 2018, contribute to trade growth. Agriculture” program initiated for a chance to win 10 Apple by the Ministry of Agriculture and Forestry. As part of the Watches (Series 3). Açıkekran visits program, the best projects Contemporary Istanbul of 2018 were recognized at Şekerbank Açıkekran a special awards ceremony New Media Arts Gallery held on October 16th Women presented the performance Farmer’s Day in Ankara. The video “Surprise Visit” by awards ceremony was hosted German video artist and by Dr. Bekir Pakdemirli, Minister director Bettina Hutschek, of Agriculture and Forestry. at the 13th edition of Turkey’s First Lady Emine Contemporary Istanbul. Erdoğan also attended the The event took place on event. September 20-23, 2018 at the Lütfi Kırdar International Congress and Exhibition Center and the Istanbul Congress Center.
August October
ŞEKERBANK ANNUAL REPORT 2018
18 INTRODUCTION
Şekerbank is listed in the “ŞEKERBANK IS INCLUDED BIST Sustainability Index Having played a key role in financing sustainable IN THE BIST SUSTAINABILITY development for the last 65 years since its establishment, INDEX, WHICH IS COMPRISED Şekerbank was included in the BIST Sustainability Index in 2018. The index is OF COMPANIES LISTED ON comprised of companies traded on Borsa Istanbul that demonstrate an exceptional BORSA ISTANBUL THAT sustainability performance.
Şekerbank provided DEMONSTRATE AN EXCEPTIONAL USD 20 million to support employment CORPORATE SUSTAINABILITY Under the Inclusive Access to Finance Project, initiated by World Bank PERFORMANCE.” (IBRD – International Bank for Reconstruction and Development) under the guarantee of the Turkish Ministry of Treasury and Finance, Şekerbank signed a Financial Intermediary Loan Agreement with Türkiye Sınai Kalkınma Bankası (TSKB) in 2018. The agreement was for a loan facility of USD 20 million, which has a three-year grace period and six-year payment term. The Bank intends to use this credit facility to provide financing to private companies that actively support the participation of women in the work force. The Bank also aims to provide financing and working capital for investment projects undertaken by SMEs located in cities that have high growth potential. December
ŞEKERBANK ANNUAL REPORT 2018
19 INTRODUCTION Chairman’s Message
Our Bank, established on October 12, 1953 with the small savings of hundreds of thousands of farmers and celebrating its 65th anniversary this year, continues to support farmers, shopkeepers, SMEs based on close relationships established from Şekerbank’s heritage and encourage even the smallest savings amounts, in order to create value for all our stakeholders and support Turkey’s development journey with our responsible banking philosophy.
Esteemed Shareholders, We will combine of policies required to face increasing downside risks of economic growth. In 2018, global economic growth our strong local This is a positive development for came closer to reaching levels prior experience with emerging markets in need of external to the 2008-2009 financial crisis, financing at affordable costs. largely thanks to the acceleration of international best advanced economies. However, the practices. Looking at Turkey, I believe that it is a world economy is widely expected to better approach to evaluate the first experience a slowdown compared to and second halves of 2018 separately, this year’s performance. The IMF’s when forming our expectations for Economic Outlook Report revised 2019. Although our country went down its global growth forecast for through an election process in the 2019 from 3.7% to 3.5%, and lowered first half of the year, GDP expanded its projection for 2020 from 3.7% 6.3%, outperforming many developing to 3.6%. A weaker performance is countries. expected for 2019-2020, slightly less than the 3.7% forecast for 2018. The effective and rapidly executed This conservative outlook for 2019 measures taken by Turkey’s accounts for key factors constricting government minimized the negative the world economy. These include the economic impact of the sharp and rise of global protectionist policies, baseless depreciation in the TL in the uncertainty surrounding the impact third quarter. Although GDP growth of Brexit on EU economies, decreased was 1.6% in the third quarter due to international fund flows, and weak these events, a major rebound started economic growth in emerging in the balance of payments during the markets. quarter. This recovery in balance of payments reflects not only slowing Furthermore, in response to a weaker domestic demand and falling demand growth environment, the central banks for imports, but also rising exports in of developed countries are expected goods and services. Meanwhile, the to slow their return to monetary robust uptrend in tourism revenues normalization policies. The Federal is an especially bright spot for the Reserve Bank of the United States economy. (Fed) ended 2018 with four interest rate hikes. However, the current The positive impact of steps to ensure baseline scenario widely expects the trust in the government’s economic Fed to keep interest rates steady. policy while also supporting the real Additionally, the European Central sector is accompanied by encouraging Bank (ECB) indicated following its recent developments in international January meeting that it had all the set relations. This agreeable trend is ŞEKERBANK ANNUAL REPORT 2018
20 INTRODUCTION
expected to continue in the coming months. Against this backdrop, we “WE TAKE OUR MISSION OF expect Turkey’s economy to record about 3% growth in 2019. SUPPORTING PRODUCTION The banking industry plays a key role STEMMING FROM OUR in the country realizing its economic growth potential. Encouraged by the FOUNDATION FORWARD supportive measures of the state authorities, the sector will continue to do its part in financing production, INTO THE FUTURE.” exports and sustainable economic growth.
Our Bank, established on October our valuable local experience with 12, 1953 with the small savings of international digital best practices. hundreds of thousands of farmers and As a whole, we are committed celebrating its 65th anniversary this to developing and operating a year, continues to support farmers, banking model that will be admired shopkeepers, SMEs based on close as exemplary both in Turkey and relationships established from worldwide. Şekerbank’s heritage and encourage even the smallest savings amounts, As we leave our 65th anniversary in order to create value for all our behind and stride confidently towards stakeholders and support Turkey’s the future, I hereby express my utmost development journey with our respect and gratitude to the founders responsible banking philosophy. of our Bank. I also give my sincere thanks to all our employees who have Şekerbank has worked to renew and worked so hard in making Şekerbank develop for 65 years, always adding the success it is today. I also want to value to Turkey. During the present thank our shareholders, customers, day when the ways of doing business state authorities, business partners are increasingly changing from local and international financial institutions to global, we initiated a transformation who have trusted and invested in our program where our technology Bank, for their continued support. systems infrastructure and work flows will be reconfigured end-to- Respectfully yours, end. With this major effort, we aim to implement our responsible banking philosophy more effectively.
Our objectives for this transformation program include increasing the DR. HASAN BASRI GÖKTAN number of persons benefiting from CHAIRMAN OF THE BOARD OF DIRECTORS, our agriculture and SME banking EXECUTIVE BOARD MEMBER services and financing growth more effectively where it is environmentally sustainable and socially inclusive. We also aim to take the Bank’s founding mission of “supporting production” forward into the future by connecting ŞEKERBANK ANNUAL REPORT 2018
21 INTRODUCTION General Manager’s Message
We operate a valuable branch network across the country. 70% of Şekerbank branches are in Anatolia; most have served customers at the same location for half a century. This network has always warmly welcomed even small savings, demonstrated once again with our deposits growing 17% in 2018, climbing to TL 23 billion.
Esteemed Stakeholders, our loans. As a result, 55% of our loans were SME and agricultural loans at 2018 was a year marked by great 17% year-end. economic volatility, both in our country and worldwide. However, in In 2014, Şekerbank launched a new the end, a positive outlook emerged, banking service to pursue our founding thanks to effective measures taken mission of supporting production. This to quickly restore economic stability, Annual growth rate service included providing support close cooperation between the real of Şekerbank’s to farming families for sustainable economy and the financial sector to production in rural areas, thus move the Turkish economy forward, deposits is 17% encouraging farmers to remain in their confidence created by government in 2018. villages and not to migrate to urban authorities in their economic decision- areas. Family Farming Banking is the making, and recent encouraging first of its kind in the world. To date, we developments in international have provided TL 7 billion in financing relations. to 100 thousand farming families under this effort. Banking services for small manufacturers, shopkeepers, We are committed to supporting agricultural producers and SMEs has women entrepreneurs in rural always been our strength, since our areas in line with our pioneering founding. We continued to expand role in inclusive finance. In 2018, these customer segments that benefit Şekerbank continued its support to the from our services, to encourage “Empowering Women Entrepreneurs incremental savings amounts and in Agriculture” program initiated by the to support Turkey’s economy on its Ministry of Agriculture and Forestry. development journey in 2018, under The Bank has supported this program our responsible banking philosophy. since 2015 in line with its Community Our asset size totaled TL 31.3 billion Banking mission. In 2018, we provided at year’s end. Our assets generated 35 projects with TL 180 thousand in TL 86.4 million in net profit while our financing. Over the last four years, shareholders’ equity amounted to more than 4 thousand projects have TL 2.4 billion. been evaluated as part of this initiative. The Bank has contributed a total of In 2018, we focused on loans for TL 530 thousand to projects deemed production and continued our support worthy of support. to farmers, shopkeepers and SMEs. Our approach led to a loans portfolio We operate a valuable branch network totaling TL 20.6 billion for the year. across the country. 70% of Şekerbank Under our core strategy, we aimed to branches are in Anatolia; most have expand the volume of loans extended served customers at the same location to broad-based customer segments, ŞEKERBANK ANNUAL REPORT 2018 for half a century. This network has instead of increasing the amount of 22 INTRODUCTION
always warmly welcomed even small savings, demonstrated once again “IN 2018, WE FOCUSED ON with our deposits growing 17% in 2018, climbing to TL 23 billion. LOANS FOR PRODUCTION During the year, Şekerbank added more value to its deposits portfolio. AND CONTINUED OUR SUPPORT At the same time, we continued to support production, with both TO FARMERS, SHOPKEEPERS innovative instruments in addition to our extensive experience and deep AND SMEs.” expertise in local banking. Under the Inclusive Access to Finance project, initiated by World Bank (IBRD – International Bank for Reconstruction and Development) under the guarantee of the Turkish Ministry of sustainable development process Treasury and Finance, Şekerbank with a more effective strategy signed a Financial Intermediary implementation. While we are Loan Agreement with Türkiye Sınai renewing our technology systems Kalkınma Bankası (TSKB) for a loan end-to-end, we are developing a facility of USD 20 million. The facility series of applications that will enable has a three-year grace period and us to meet the financing requirements six-year payment term. Pursuant of farmers, shopkeepers, female to the loan agreement, financing entrepreneurs, enterprises and SMEs was provided to support women’s with a superior service quality. employment. In the coming year, we plan to In 2009, Şekerbank developed continue supporting our farmer, EKOkredi as Turkey’s first energy shopkeeper, SME and small savings efficiency financing product. To customers who we reach out to date, the Bank has extended a total via our valuable branch network of nearly TL 1 billion in EKOkredi in Anatolia. With this approach, loans, preventing some 6 million Şekerbank continues its support tons of carbon emissions. Şekerbank to Turkey’s economy with utmost is one of the first banks to assess commitment and resolve. I hereby environmental and social impacts express my gratitude to our valued in its loan extension processes. The employees who work toward this Bank has been a pioneer of financing mission, our customers who trust sustainable development for 65 us, domestic and overseas business years, since its establishment. In partners, our shareholders who stand 2018, the Bank was included in the by the Bank, and to the Board of BIST Sustainability Index, which is Directors. comprised of companies listed on Borsa Istanbul that demonstrate an Respectfully yours, exceptional corporate sustainability performance.
During the year, we also initiated a transformation program to undertake end-to-end improvements in our technology infrastructure. Our SERVET TAZE transformation effort will help us GENERAL MANAGER actively participate in Turkey’s ŞEKERBANK ANNUAL REPORT 2018
23 TO ADD VALUE TO FARMERS’ LABOR
We are a bank that has served farming families for three generations, all across Turkey. Our Family Farming Banking initiative launched in November 2014 and is the first of its kind in the world. This innovative effort was designed to keep Turkey’s agricultural fields from being divided into smaller parcels due to inheritance, prevent farmers from abandoning their land due to non-productiveness, and to decrease rural to urban migration. Share of agricultural THOUSAND lending within Number of farmers total cash we serve across 11% loans 350 Turkey THOUSAND TL BILLION Number of families Financing we extended we reached in 2018 via in 2018 via “Family 40 “Family Farming Banking” 1.5 Farming Banking” INTRODUCTION Agricultural Banking
Şekerbank’s founding mission was to finance sustainable agriculture. Pursuant to this mission, the Bank embraces agriculture as a strategic priority sector due to the importance of continuity of production in rural areas, equitable distribution of social welfare, and Turkey’s sustainable development. All agricultural banking activities are conducted with the awareness of this responsibility.
Agricultural banking is a core respective areas. They also serve as specialty area for Şekerbank, which 11% a bridge between headquarters and was founded with the mission of the branches. By reaching out to more supporting sustainable agriculture than 350 thousand farmer customers and rural development. Şekerbank across Turkey, Şekerbank fulfills conducts its business operations with its founding mission of financing the understanding that agriculture agriculture and supporting Turkey’s is a strategically important industry As of year-end sustainable development. in terms of spreading wealth and ensuring the country’s sustainable 2018, agricultural DEVELOPMENT IN FIGURES development. With its expert staff, loans comprised At year-end 2018, Şekerbank’s Şekerbank provides consulting to agricultural loan portfolio totaled agricultural producers in the areas 11% of Şekerbank’s TL 2.1 billion. As of year-end 2018, of production, productivity, cost total cash loans. agricultural loans comprised 11% of optimization and supply, in addition to Şekerbank’s total cash loans. As of agricultural finance. The Bank offers year-end 2018, Şekerbank captures value added banking services that a 7.2% market share in agricultural serve as a benchmark. loans among private banks in Turkey.
Şekerbank’s Agricultural Banking FAMILY FARMING BANKING Department develops new products, Having served farming families services and solutions tailored to its for three generations, Şekerbank customer base and designs relevant continued to support production promotional campaigns, keeping pace under Family Farming Banking, which with industry developments. launched in 2014. In 2018, the Bank continued efforts aimed at reducing The Bank has designated 153 of its rural-to-urban migration; enabling branches as “Agricultural Branches”, small-scale producers to access which are generally located in rural productive resources, inputs and areas. Approximately, 250 Agricultural financial services; supporting land Banking Customer Representatives, consolidation activity; lowering costs most of whom are agricultural in agricultural production by boosting engineers, serve customers at productivity; and encouraging these branch locations. Agricultural energy efficiency investments in the Regional Sales Managers, who are agricultural industry. based in nine regional offices, provide coaching to the branch staff in their
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26 INTRODUCTION
Under the Family Farming Banking initiative, Şekerbank served “ŞEKERBANK approximately 40 thousand farming families in 2018 and extended TL 1.5 billion in financing. As part CONTINUES TO of the travel tours around Anatolia, organized annually since 2008 to FINANCE SUSTAINABLE support the agricultural sector, Bank representatives visited nearly 14 thousand villages and held AGRICULTURE, face-to-face meetings with 330 thousand farmers. The Bank’s Agricultural Customer PURSUANT TO ITS Representatives visited farmers in the fields, at village coffeehouses or FOUNDING MISSION.” cooperatives and conducted effective interviews to determine their needs.
HASAT KART (HARVEST CARD) Şekerbank developed Harvest Card to support and protect farmers by ensuring their financial survival Pursuant to the Bank’s collaboration under changing market conditions. In with Lukoil since 2008, Harvest Card addition to providing easy access to users can buy fuel with interest-free agricultural financing, Harvest Card financing for up to five months from features other benefits, including contracted Lukoil dealers. Under the discounts on pesticides, diesel, agreements with Meram and Çamlıbel fertilizer, seeds, and seedlings that electricity companies, farmers can are offered by contracted dealers. pay their bills with Harvest Card. Şekerbank currently has about 150 Şekerbank continues its collaboration thousand Harvest Card users. with several cooperatives and unions, mainly the beet farmers’ cooperative, Harvest Card users can enjoy 0% and conducts negotiations for new interest on purchases for up to six agreements. Producers can also pay months when they buy diesel, feed, TARSİM insurance premiums with fertilizer, pesticides, seeds, seedlings, Harvest Card. and veterinary services from any one of the 4 thousand contracted dealers across Turkey.
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27 INTRODUCTION Agricultural Banking
Şekerbank applies the principles of sustainability to all processes of agricultural production. The Bank aims to maximize agricultural profitability by ensuring efficiency at every stage.
OTHER PRODUCTS AND SERVICES Şekerbank acts as an intermediary to Şekerbank’s Agricultural Installment 7.2% facilitate delivery of farmers’ products Loan aims to help producers with to the Turkish Grain Board (TMO) with their investment needs and operating the TMO Card, which was introduced expenses. This loan product is offered in 2017. Farmers, as soon as they with up to a three-year payment term receive their TMO cards at Şekerbank and the option to make a one-time As of year-end branch locations, are able to deliver payment every year. their products to TMO immediately 2018, Şekerbank after the harvest, without having Additionally, Şekerbank offers farmers captured a 7.2% to bear inventory costs. In 2018, Bağ-Kur Backed Overdraft Accounts, Şekerbank issued more than enabling farming customers to pay market share in 1 thousand TMO Cards to farmers and their premiums even if they lack agricultural loans executed payments for their products sufficient funds in their accounts. totaling more than TL 5 million. Thanks to this product, farmers who among private are SGK members can make a one- banks in Turkey. CAMPAIGNS time payment to the Bank during the By remaining in close contact harvest period. As a result, farmers with farmers throughout the year, can continue to enjoy insurance Şekerbank is able to determine their benefits. needs and design campaigns to meet these needs in a timely manner. Şekerbank applies the principles In 2018, the Bank launched various of sustainability to all processes of loan campaigns to finance farming agricultural production and aims to customers’ agricultural needs at maximize agricultural profitability favorable interest rates and payment by ensuring efficiency at every terms. Of these, the May 14th World stage. With this approach, the Bank Farmers’ Day campaign was the most supports farming families in their popular with customers. During this energy efficiency investments and loan campaign, the Bank provided cost-saving efforts while conserving nearly TL 50 million in financing to natural resources – the most more than 2 thousand customers. important agricultural commodity. Şekerbank provided TL 305 million The Bank provides 100% financing in financing to some 12 thousand for modern irrigation systems with producers under the Harvest Support its EKOkredi product, which was developed to reduce energy costs and achieve cost savings with the use of renewable energy sources.
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28 INTRODUCTION
Loan Campaign. The campaign aimed to help farmers harvest their products “ŞEKERBANK FINANCES at the right time and sell their products at fair prices to maximize profit. 100% OF FARMING Under an agreement with Kayseri FAMILIES’ MODERN Şeker Fabrikası A.Ş., the Bank initiated a loan campaign for farmers who provide sugar beets to that company. IRRIGATION PROJECTS
Şekerbank signed new collaboration agreements with approximately 300 WITH THE AGRICULTURAL chambers, unions and cooperatives to be able to offer its products and EKOKREDİ PRODUCT.” services to producers via these organizations.
ORGANIZATIONS THE BANK SUPPORTS AND ENGAGES WITH Şekerbank places great importance on building collaborative partnerships force. In 2018, the Bank continued with stakeholders in the agricultural its sponsorship of the “Empowering ecosystem by taking part in various Women Entrepreneurs in Agriculture” organizations that create added value program, initiated by the Ministry of for the industry. To this end, the Bank Agriculture and Forestry. Under this participated in six major agricultural program, 2,600 entrepreneur women fairs and festivals around Turkey in farmers from 29 cities attended a 2018. During the year, 76 Şekerbank four-day entrepreneurship training branches hosted iftar (fast-breaking) course organized jointly with KOSGEB dinners to come together with (Small and Medium Enterprise farmers and representatives of civil Development Organization) and İŞKUR society organizations, including (Turkish Employment Agency). In chambers, unions, cooperatives, 2018, Şekerbank provided a total of and local administrations, which TL 180 thousand in financing for are key stakeholders in agricultural 35 projects under this program. production. Approximately 4 thousand people attended these events.
Şekerbank believes in the importance of women’s empowerment in agriculture to support rural development and agricultural productivity, as women comprise a large portion of the agricultural labor
ŞEKERBANK ANNUAL REPORT 2018
29 TO POWER SMEs
In line with our “Community Banking” mission, we continue to meet the needs of SMEs, who account for more than half of our loan portfolio. We provide special products tailored to the needs of tradesmen and small enterprises, and customized for different industries. We actively reach out to tradesmen and farmers, who are not familiar with banking services or have limited access to financial resources. Share of funding sources provided through the Credit Guarantee Fund to 62% SMEs in Anatolia
Of total funding obtained from international SME share in financial institutions, total loans the rate of financing 55% 42% extended to SMEs INTRODUCTION SME Banking
In keeping with its core strategy of supporting production, Şekerbank has remained committed to serving all types of SMEs since its founding. Small and medium enterprises are the backbone of Turkey’s economy and play a central role in economic activity, including production, investment, employment and foreign trade. In 2018, Şekerbank continued to support SMEs with its expertise and know-how in this key segment.
In line with its “Community Banking” trade. In 2018, Şekerbank continued to mission, Şekerbank regards SMEs TL 6,3 support SMEs with its expertise and as the building blocks for Turkey’s know-how in this key segment. economic and social development. SMEs play an important role in billion In March 2018, Şekerbank reorganized ensuring balanced growth between all of its departments that serve metropolitan areas and other regions, micro-, small- and medium-sized reducing unemployment, and creating enterprises under SME Banking in new business areas. order to deliver better service to Şekerbank recorded SMEs. In Turkey, SMEs make up 99.9% of SME Banking all businesses; employ 75.8% of the The Bank undertook an organizational workforce; account for 50% of all loans totaling restructuring at the headquarters investments, 59.2% of total exports, TL 6.3 billion that was reflected at regional offices 65.5% of total sales; produce 55% and branches. Work flows were of the added value; and have 26% in 2018. also restructured during this effort. share in total loans in the banking SME customers were divided into industry. For these reasons, SMEs are segments – such as shopkeepers, positioned at the heart of Şekerbank’s micro-enterprises, small- and business strategy. Since its founding, medium-sized enterprises. This way, the Bank has always taken the lead in each segment will receive focused financing sustainable development. service based on their specific requirements. Şekerbank supports SMEs so that they can build and acquire competitive DEVELOPMENT IN FIGURES advantages and achieve healthy Şekerbank boasts extensive growth. experience and deep expertise as well as a broad customer base in the In keeping with its core strategy of SME segment, which Turkey’s banking supporting production, Şekerbank industry has only begun to focus on has remained committed to serving recently. During the year, Şekerbank all types of SMEs since its founding. expanded its collaboration with the Small and medium enterprises are Credit Guarantee Fund (KGF). The the backbone of Turkey’s economy Bank provides financing to SMEs that and play a central role in economic struggle to find sufficient collateral, as activity, including production, part of the support packages offered investment, employment and foreign to these businesses. Şekerbank
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32 INTRODUCTION
extended approximately TL 4.1 billion in KGF-guaranteed loans to customers “ŞEKERBANK HAS in this segment.
In 2018, Şekerbank recorded SME A BROAD CUSTOMER Banking loans totaling TL 6.3 billion. BASE AND DEEP SME Banking time deposits grew 21.6% year-on-year. EXPERTISE IN SME As of December 2018, the number of Şekerbank’s Producer Card holders exceeded 53 thousand, BANKING.” which combines credit and debit card features. This innovative card enables tradesmen and small MARKETING ACTIVITIES As a result of other campaigns, business owners to pay their business Şekerbank conducts special Producer the Bank’s automatic payment expenses, apply for commercial Card campaigns for chambers of service user base expanded 39% installment loans without having to merchants and craftsmen. The year-on-year. Meanwhile, the Bank’s visit a branch, and withdraw their Bank offers customers discounts on insurance commission revenues loans in cash from ATMs. Producer (seasonal) tourism expenditures and grew by 11% and the number of DDS Card use helped boost Şekerbank’s food purchases during Ramadan, dealers jumped by 70%. commercial card turnover by 14% in which are applied to their statements, 2018. as well as special deals with In addition to various campaigns installment cash advances. executed through the year, Şekerbank Thanks to efforts to improve efficiency offered campaigns to shopkeepers at contracted dealers, the Bank Şekerbank bolstered its relations during Ahi Brotherhood Week, which expanded its POS system network with local NGOs via its partnerships is a special celebration week for to 23,780 POS devices in 2018. with chambers of merchants and shopkeepers. The Bank also provided Şekerbank’s POS turnover rose 16% craftsmen. The Bank strives to financing to women entrepreneurs year-on-year to TL 2.8 billion thanks facilitate access to financing for with special packages developed to new customers. all producers by offering favorable for female merchants and business interest rates and POS pricing. owners for March 8 International PRODUCTS AND SERVICE PACKAGES Women’s Day. In 2018, the Bank developed new CAMPAIGNS packages with varying upper limits In 2018, Şekerbank launched several As part of SME Banking services, and the fixed-rate Fiks POS device to campaigns focused on diversified Şekerbank continues to use the expand the product portfolio. products for SME Banking clients. cash flow-based lending model, a During the year, the Bank repeated first-of-its-kind initiative in Turkey. During the year, Şekerbank completed some of its previous promotional This model allows the Bank to the certification process for the campaigns aimed at boosting provide microfinance loans to TechPOS platform. This platform was installment loan volume, such micro-enterprises, tradesmen and established by Interbank Card Center as “İşinize Ramazan Bereketi small farmers who were previously (BKM) to enable banks to easily and (Ramadan Prosperity to Your unbanked, or had limited access to quickly adapt to new regulations Business).” In addition to segment- banking services. related to Next Generation Cash based loan campaigns, Şekerbank Registers (NGCR). The Bank plans to expended efforts to ramp up Producer complete the dealer contracts, finish Card and POS activation. the compliance process with NGCRs that will run on the TechPOS system, and start using these devices more extensively in 2019. ŞEKERBANK ANNUAL REPORT 2018 33 INTRODUCTION Corporate and Commercial Banking
Financing sustainable investments that support production and employment, and establishing deep, long-term relationships with loan customers are the main pillars of the Bank’s Corporate and Commercial Banking lending policy.
In 2018, Şekerbank further enhanced Corporate and Commercial Banking its effectiveness in Corporate and also provides customers with solutions Commercial Banking services in order to 36% in areas such as project financing that boost customer satisfaction by meeting require special expertise. The Bank gives different needs and expectations, priority to energy efficiency-related despite continued volatility and heavy projects in line with its responsible competition in financial markets. The banking approach. Bank continued to provide project In 2018, Corporate finance in accordance with its rational DEVELOPMENT IN FIGURES credit allocation policies. To that and Commercial In 2018, Corporate and Commercial end, the Bank regularly performed Banking’s total Banking’s total client deposits increased multidimensional analyses to maintain 36% year-on-year. growth, profitability and an acceptable client deposits risk balance. Corporate and Commercial Banking increased 36% aims to become an expert business As a part of its Corporate and year-on-year. partner and a part of the solution for its Commercial Banking activities and in customers. To this end, Corporate and accordance with its customer-oriented Commercial Banking’s top priorities service approach, Şekerbank aims to include responding to customer needs build long-term business partnerships with appropriate instruments, improving with customers. The Bank is committed existing deposit products and services to providing innovative products and in line with customers’ needs and services that promptly meet all the expectations, and maintaining a broad- financial needs of customers by creating based deposit structure. a value chain and generating synergy across business units. Rediscount Loans for Exports and Foreign Currency Services were Boasting deep-rooted expertise in introduced to bolster the Bank’s corporate and commercial banking, competitive advantages and offer the Şekerbank delivers services at three right service to meet customer needs. Corporate Branches located in Istanbul and Ankara, 32 mixed branches, and In 2018, Corporate and Commercial eight regional offices. Banking customers increased their foreign trade transactions by 4% Financing sustainable investments that year-over-year. In the coming period, support production and employment, Şekerbank aims to boost its market and establishing deep, long-term share and contribution to foreign relationships with loan customers are trade financing by offering products the main pillars of the Bank’s Corporate and services in line with Turkey’s fast and Commercial Banking lending policy. growing foreign trade volume. In addition to conventional products,
ŞEKERBANK ANNUAL REPORT 2018
34 INTRODUCTION Cash Management
The Cash Management Department aims to enable customers to perform their transactions more swiftly and accurately in line with changes in market demand. To this end, the Department developed new products to diversify its portfolio and thereby created more customer value.
In 2018, Şekerbank’s Cash PAYMENT SYSTEMS Management Department developed 39% In 2018, Şekerbank diversified its new products that can create added products and services that enable value and deliver high quality Bank customers to make their customer services by creating synergy bulk payments in Turkish lira and between business units. foreign currencies more swiftly. Şekerbank’s bulk The Cash Management Department As a result, the number of Bank aims to enable customers to perform payment customer customers who make bulk payments their transactions more swiftly and numbers jumped increased 39% while transaction accurately in line with changes in volume grew 16% in 2018. market demand. To this end, the 39% in 2018. Department developed new products Şekerbank’s Cash Management to diversify its portfolio and thereby Department aims to provide its created further customer value. customers with special and innovative solutions. The Department is ELECTRONIC COLLECTION continuously improving its systems SOLUTIONS infrastructure and developing new During the year, the online banking payment and debt collection products channel was launched to improve that enable instant transactions. service quality, due to the increased number of companies and dealers In addition to customer acquisition within the Direct Debiting System. efforts, the Cash Management Department aims to develop unique Thanks to innovative products solutions for more customers via introduced in 2018, the number of its collaborations with FinTech DDS companies and DDS dealers companies. increased by 35% and 70%, respectively. As a result of such efforts, DDS debt collection through Şekerbank improved by 92%.
ŞEKERBANK ANNUAL REPORT 2018
35 TO EMBRACE OUR COMMON FUTURE
EKOkredi is the product we developed in 2009 to finance energy efficiency. With this product, we aim to support every investment whose goal is saving energy. We raise awareness in society about the importance of energy efficiency, protect nature and embrace our common future. NEARLY THOUSAND 107 Number of persons reached by EKOkredi 29.7 MILLION M3 Natural gas saved BILLION kWh 137 with EKOkredi Energy saved with EKOkredi MILLION TONS
CO2 saved with EKOkredi’s results from 2009 to 2018. 6.3 EKOkredi INTRODUCTION Retail Banking
In line with its strategy to support financial inclusiveness, Şekerbank operates an extensive branch network that is 70% located in Anatolia. The Bank is home to savings of customers from broad-based segments.
Şekerbank conducts its business account for 67% of Şekerbank’s operations with the aim of expanding 14.9 total term deposits. The number of its individual client base and building Gece Gündüz (Night & Day) Deposit long-term customer relationships Accounts, aimed at supporting the with its wide variety of products and TL billion Bank’s broad-based deposit structure, exclusive services. In 2018, the Bank increased by 10% during the year. recorded a successful performance despite tough competition. The Bank offers exclusive services to customers living abroad and to retired Physical bank branches continue to In 2018, customers. The time deposits of these play an important role in providing Şekerbank’s customer segments expanded 29% access to financial services to people and 20%, respectively. across Anatolia and in rural areas. Retail Banking In line with its strategy to support deposits totaled EKOkredi, developed in 2009 to raise financial inclusiveness, Şekerbank awareness about energy efficiency operates an extensive branch network TL 14.9 billion. and protect the natural environment, that is 70% located in Anatolia. was once again a major product The Bank is home to the savings for the Bank in 2018. Since 2009, of customers from broad-based Şekerbank has allocated about segments. TL 535 million in financing to more than 98 thousand retail banking DEVELOPMENT IN FIGURES customers via EKOkredi, introducing Şekerbank actively encourages them to the concept of conserving small savings amounts. In 2018, the energy. EKOkredi Insulation helps Bank’s retail deposits continued to reduce energy bills up to 50%. More expand, posting a 17.6% increase in than 154 thousand residences savings deposits. In the Retail Banking have been insulated with EKOkredi segment, total deposits amounted to financing since 2009. TL 14.9 billion, while time deposits and demand deposits grew by 23% RETAIL LOANS and 10%, respectively in 2018. Şekerbank continued marketing activities for its EKOkredi product. Always supporting its clients with The Bank offered various small savings, in 2018, Şekerbank remuneration models and pricing recorded a 27% increase in individual options to customers under its deposits of under TL 1 million that collaborations with leading brands,
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38 INTRODUCTION
including Filli Boya, Polisan, Terraco, Weber, DYO, and Marshall. Effective “ŞEKERBANK PROVIDES visits to dealers continued in 2018.
In addition to the Bank’s collaboration EXCLUSIVE PRODUCTS agreement with Zorlu Energy Group’s distribution company GAZDAŞ for AND SERVICES TO EKOkredi, Şekerbank introduced various campaigns to support individual customers in their natural PENSIONER CUSTOMERS.” gas conversion efforts. The Bank also launched new campaigns for Class A electrical appliances and visited home appliance manufacturers during the year.
Şekerbank organized 10 meetings in In 2018, Şekerbank offered its 70,000 five cities to convene with dealers of pensioner customers exemption Filli Boya (a Betek Group company) from account maintenance fees, and managers of apartment buildings. fee-free online money transfer/EFT The meetings were held in Tekirdağ, transactions, free-of-charge salary Ankara, Erzurum, Bursa, and Izmir. withdrawals from all branches and The Bank also launched a new ATMs, as well as free-of-charge campaign for Betek dealers. salary withdrawals from the ATMs of other banks and provided the As a part of EKOkredi marketing cash withdrawals within the daily efforts, Şekerbank branch and maximum limit. headquarters personnel participated in the Real Estate Managers Şekerbank offered cash bonuses Conference, which is organized of up to TL 450 to customers who annually by GN Yapı, one of the committed to keep their pension leading firms in the sector. At the accounts at the Bank for a three-year conference, the Bank presented the period. Additionally, customers who features of EKOkredi to more than 700 signed up for two automatic payments managers of residential buildings and received an additional bonus of condominiums. TL 150.
PENSIONERS CAN WITHDRAW All across Turkey, Şekerbank THEIR SALARIES FROM ANY representatives visited pensioner BANK’S ATM, AT NO COST associations and locales such as The Bank aims to develop services village cafés and talked about the that improve the quality of life for Bank’s privileged products and retired customers and increase their services for pensioners. prosperity.
ŞEKERBANK ANNUAL REPORT 2018
39 INTRODUCTION Retail Banking
Şekerbank continued to offer the Şeker Çocuk (Şeker Child) Account, which enables small savings to earn interest and encourages children to save.
As a unique practice that In 2018, Turkey’s DEPOSIT AND INVESTMENT differentiates Şekerbank from the PRODUCTS competition, the Home Delivery first national In 2018, Şekerbank continued to be Pensioner Salary service is provided payment method the home for small savings by further to pensioners who cannot visit the bolstering its broad-based deposit branches due to medical reasons. “TROY” was structure. Thanks to this service, the Bank launched. expanded its pensioner customer The Bank offers a wide variety of base. Şekerbank started products with diversified benefits to offer the TROY to meet all customer needs. CREDIT CARDS Some of these products include: In 2018, Şekerbank organized extra Debit Card to an Accumulating Future Account bonus and discount campaigns in line customers during developed for small savings; a with card holders’ needs and card Şeker Çocuk (Şeker Child) Account usage habits. The Bank also offered the year. to encourage kids to save money; a additional installments on different Multi-Currency Time Deposit Account, types of purchases. which offers interest and exchange rate benefits; a Deposit Account with ATM CARDS Periodic Interest Payment, which Şekerbank believes that quick comes with two options such as access to services is as important fixed and variable interest rates; as service quality for boosting the Sözünde Duran Account, which customer satisfaction. In 2018, the enables money withdrawal without Bank’s customers actively used losing interest; and the Gece Gündüz the “Hazır (Ready)” Debit Card Account, which offers favorable product. While opening a bulk salary interest rates on daily savings. The payment account or current account, Bank also continues to provide special or obtaining a loan at the branch, packages and exclusive banking customers are provided with an ATM services to customers living abroad card that allows immediate access to and to retired customers, featuring their accounts. Following the launch of favorable conditions for their savings. “TROY,” Turkey’s first national payment method, the Bank introduced the TROY Debit card in 2018.
ŞEKERBANK ANNUAL REPORT 2018
40 INTRODUCTION Financial Institutions
In line with its expertise in “Community Banking,” Şekerbank deepened its relations with the world’s leading development banks in 2018 and continued to diversify its foreign trade financing services for customers.
Şekerbank’s Financial Institutions Şekerbank provides Under the Asset-Backed Securities Department continued to have (ABS) program, a unique initiative access to new international funding long-term financing introduced in 2011 to support resources and facilitate fund flows by using its SMEs, tradesmen, small and for a growing economy. Şekerbank micro-enterprises, and entrepreneurs, provides long-term financing by using expertise in local to date, the Bank has completed 12 its expertise in local banking, acting covered bond (CB) issues for the total as a bridge between international banking, acting as amount of TL 1.83 billion, including financial institutions and Anatolia’s a bridge between the redeemed ones. The maturity of producers. the securities issued ranged between international one and five years. In line with its expertise in financial “Community Banking”, Şekerbank Under the “Inclusive Access to deepened its relations with the institutions Finance Project,” initiated by World world’s leading development banks and Anatolia’s Bank (IBRD – International Bank for in 2018 and continued to diversify Reconstruction and Development) foreign trade financing services for producers. under the guarantee of the Turkish customers. Ministry of Treasury and Finance, Şekerbank signed a Financial In foreign trade, Şekerbank continued Intermediary Loan Agreement to deliver high quality services in with Türkiye Sınai Kalkınma Bankası 2018. The Bank offers a wide range (TSKB) in 2018. The agreement was of foreign trade services, including for a loan facility of USD 20 million, money transfers, foreign currency which has a three-year grace check collection, documentary credits period and six-year payment term. and import/export financing, in The Bank intends to use this credit addition to special products, such as facility to provide financing to private structured overseas financing, project companies that actively support the finance and country-specific loans. participation of women in the work force. The Bank also aims to provide Şekerbank constantly improves financing and working capital for the quality of foreign trade finance SMEs located in cities that have high services. As proof of the excellent growth potential. service provided by the Bank’s Foreign Transactions Operation Unit, the In the coming year, Şekerbank plans Bank once again received a number to continue its efforts to obtain of service quality awards from long-term resources from foreign correspondent banks in 2018. development agencies, commercial banks, and other funding providers, as it did successfully in 2018.
ŞEKERBANK ANNUAL REPORT 2018
41 TO SUPPORT FEMALE PRODUCERS IN RURAL AREAS
We reach out to female shopkeepers and farmers who have not used banking services yet, or who have limited access to financial resources. We reach out to thousands of women enterpreneurs and shopkeepers with financing methods that are the first of their kind in Turkey. We train our new hires who have just graduated from university to take our responsible banking philosophy forward into the future. Number of female entrepreneurs we 3,000 have supported Percentage of TL MILLION new graduates among new hires Financing provided to 60% 130 female entrepreneurs INTRODUCTION Sustainable Development Banking
Şekerbank measures the environmental and social impact of the projects it finances, and encourages customers to make sustainable investments.
Şekerbank is aware of the importance With a 65-year When specifying the main subjects of a sustainability vision in banking. of the report, sector analyses were With valuable experience in this tradition of conducted both at a local and concept, the Bank aims to increase responsible international level. Additionally, at the value added to customers, a workshop attended by the Board shareholders, employees, society and banking, Şekerbank of Directors, the Bank’s strategy for the environment each day, placing the sustainability was shaped. Senior financing of sustainable development maintains its management remained involved in at the foundation of all its business pioneering role coordinating related activities. activities. in financing During the year, Şekerbank updated Şekerbank published the third edition sustainable its internal Procedure for Sustainable of its Sustainability Report in 2018. Development, and included the Social, The report informs stakeholders development. Environmental and Ethical Rules for about the environmental, social and Suppliers. This effort ensures that the economic impacts of its banking Bank’s suppliers are evaluated with activities, the Bank’s performance regard to their environmental and in these areas and the support social impact, and any related adverse provided to ensure the sustainable effects are minimized. development of our country. Şekerbank was the first bank Under the guidance of United Nations in Turkey to receive a corporate Sustainable Development Goals (SDG), governance rating and to be included the Sustainability Report included in the Borsa Istanbul Corporate Şekerbank’s performance for the Governance Index (2008). In 2018, period January 1, 2016–December Şekerbank was also included 31, 2017 on sustainability with in the BIST Sustainability Index, regards to the environment, society which is comprised of companies and governance and its banking that demonstrate an exceptional activities. The report was prepared in sustainability performance. compliance with the comprehensive option of GRI Standards. Şekerbank Şekerbank measures the is one of the signatories to the environmental and social impact United Nations Global Compact of the projects it finances, and (UNGC); the Bank also complied with encourages customers to make UNGC principles in its report. The sustainable investments. International Sustainability Report materializes Finance Corporation (IFC) – a World Şekerbank’s performance under the Bank Group entity – is a shareholder categories of sustainable agriculture, energy efficiency, inclusive growth and humanitarian banking.
ŞEKERBANK ANNUAL REPORT 2018
44 INTRODUCTION
of Şekerbank. Since 2009, the Bank has benefited from the “ŞEKERBANK CONTINUES know-how of IFC. Şekerbank uses and continuously improves the Social and Environmental Management System TO SUPPORT THE (SEMS), as an integral part of its work flows. DEVELOPMENT OF Since 2010, Şekerbank has actively worked to decrease its own carbon footprint, under the Carbon Disclosure FINANCIAL LITERACY Project (CDP). The Bank regularly measures carbon emissions and issues reports to international IN RURAL AREAS VIA A investors. Şekerbank also works on responsible consumption of water, MICROFINANCE LENDING joining the CDP Water Program in 2015. According to the results of CDP 2018 reports, Şekerbank’s rating MODEL.” for 2018 CDP Climate Change was Management (B), and for the 2018 CDP Water Program, the rating was Management (B-). banks in Turkey to have signed the emerging markets to ensure financial Şekerbank participated in the WEP and that has actively worked on inclusiveness. Şekerbank continues to 24th Conference of the Parties to behalf of these principles. On June expand the coverage of this practice, the United Nations Framework 8, 2018, the Mother Child Education contributing to the financing of Convention on Climate Change Foundation (AÇEV) delivered a production in rural areas. In 2018, the (COP24), held in Katowice, Poland seminar to Şekerbank employees, Bank conducted training courses on in 2018. The Bank was one of the titled “Gender Equality in Society.” microfinance. Some 218 employees four banking institutions on stage in Key concepts such as equality, participated in these training courses, the “Sustainable Development and discrimination, gender roles in society, including customer representatives Financial Innovation: Turkish Banking and gender equality in the workplace working in agricultural banking and Practices,” session held on December were covered in the seminar. at nine regional offices. Şekerbank’s 13. lending model is centered around Şekerbank supported the “Orange cash flow based on total household Şekerbank participated in the the World” call that was made as income. This model also helps boost studies of the Expert Commission part of the “16 Days of Activism financial literacy in rural areas. on Sustainable Management of against Gender-Based Violence” by Environmental and Natural Resources. UN Women worldwide. The Bank Şekerbank is a member of the The commission met under the illuminated its headquarters building Business Council for Sustainable preparations of the 11th Development in the color orange from November Development Turkey (BCSD Turkey). Plan, on December 18-19, 2017 and 25 to December 10 in order to raise The Guidelines for Best Practices in on January 9-10, 2018 in Ankara. awareness for gender-based violence. Sustainable Agriculture, published by the Council, features Şekerbank’s Women’s Empowerment Principles Şekerbank has offered Turkey’s first Family Farming Banking practice. (WEPs) is one of the most effective microfinance model since 2006, as a global initiatives toward having reflection of its Community Banking women participate in economic mission. The model is a unique activity across all sectors and at all example of sustainable development levels. Şekerbank is one of the few banking practices applied in
ŞEKERBANK ANNUAL REPORT 2018
45 INTRODUCTION Distribution Channels Management
Şeker Mobile Branch, one of the first mobile banking applications in the industry, was revamped in 2018 with a new user interface and design to offer more speed and ease of use.
INTERNET BANKING AND As part of the transformation program MOBILE BANKING 25% currently underway, the Bank will In 2018, Şekerbank revamped its deploy a structure including individual and corporate online multi-channels and integrated branches, which provide fast, easy channels. Then, mobile will be the and safe execution of banking primary channel to reach customer transactions. The upgrade added Şeker Mobile focus groups in rural areas. new banking transactions in line with customer demands and suggestions. Branch’s active user ATM MANAGEMENT As a result of these efforts, the base expanded by In 2018, Şekerbank relocated Bank diversified its online banking some of its ATMs based on the transactions and maximized service 25% in 2018. customers’ concentration, salary quality. payment contracts and business line expectations. Şeker Mobile Branch, one of the first mobile banking applications in the During the year, the Bank also industry, was revamped in 2018 with a improved branch and ATM new user interface and design to offer accessibility for customers with more speed and ease of use. disabilities in accordance with legal requirements to make banking Şeker Mobile Branch is continuously products and services easily improved to effectively meet the reachable. mobile banking needs of younger generations, which heavily use online In accordance with the Regulation and mobile applications. The active on the Accessibility of Banking user base of Şeker Mobile Branch Services, Şekerbank improved ATM increased 25% over the previous functionality, including depositing year. Meanwhile, the number of money to other bank accounts with mobile banking transactions and debit cards, paying credit card debt, transaction volume grew by 8% and viewing the credit card balance, and 41%, respectively. adding cross-transaction features. In addition, the Bank introduced voice-guided ATMs to enable visually impaired customers to access banking products and services.
ŞEKERBANK ANNUAL REPORT 2018
46 INTRODUCTION
Şekerbank offered customers with disabilities and aged over 70 “WITH THE RENEWED the opportunity to perform their transactions free-of-charge at Şekerbank ATMs and shared ATMs. ŞEKER MOBILE BRANCH,
CALL CENTER ŞEKERBANK CONTINUES In 2018, Şekerbank continued to provide round-the-clock, high-quality call center services that TO IMPROVE SERVICE responded to customers’ queries and requests effectively and accurately. While maintaining cost efficiency, QUALITY AND USER effectiveness and high quality in general call center operations, EXPERIENCE.” Şekerbank Call Center also handles a wide variety of transactions related to insurance products, credit card and overdraft deposit products, cash In April, Mobile Sales teams attended In 2018, the Bank continued to develop and installment cash advances, and a Microfinance Loan training course new insurance products tailored to its installments for payments made by and participated in field orientation. customer base and needs. Şekerbank credit card. The teams commenced selling this provided insurance products to some product on May 14. 250,000 customers during the year. Thanks to an upgrade completed in 2018, the Bank’s Call Center became Since May 14, Mobile Sales teams As of January 1, 2017, the Auto- capable of accepting applications collected loan requests from 1,800 Enrollment in Personal Pension for additional credit cards. As part customers who fit the profile for System (BES) has been implemented of efforts to improve Accessible microfinancing. in Turkey, requiring private sector Banking, Call Center agents, who companies to enroll all employees are in direct contact with customers, INSURANCE aged under 45 years and over in received awareness training on how In 2018, Şekerbank continued to private pension plans. Some 8,331 to communicate with customers expand its bancassurance activities, customers were included in BES with disabilities. The Voice Response and achieved 11% growth in premium through Şekerbank, and the fund size System allows visually impaired production year-on-year. amounted to TL 2.2 million. customers longer time to enter their selections. Şekerbank offers a wide variety of insurance products, including MOBILE SALES Accident, Fire, Personal Accident, Şekerbank’s Mobile Sales teams DASK (Compulsory Earthquake visited 656 districts and villages from Insurance), Agriculture, Engineering, January 1 to April 10, 2018. The teams Liability, Private Pension, and Life delivered a total of 4,632 Harvest insurance with accumulation options. Cards to customers.
ŞEKERBANK ANNUAL REPORT 2018
47 INTRODUCTION Information Technologies
Şekerbank aims to acquire new customers by building its digital channels according to a customer-oriented business model, pursuant to the Bank’s core business strategy.
Şekerbank continues to make the In line with In line with Şekerbank’s growth necessary technology investments strategy, which focuses on multi- to move forward. The Bank aims to Şekerbank’s channels and digitalization, the align its systems with international growth strategy Bank plans to optimize business standards and contemporary norms, processes, and boost the sales ensure security and efficiency, which focuses on force’s effectiveness and efficiency. undertake projects in line with tactical multi-channels To accomplish these objectives, the and strategic goals, and deliver high preferred digitalization strategy is quality infrastructure services. and digitalization, to start with inner circles and move the Bank plans to toward outer circles. The Bank aims to While the digital revolution is changing simplify internal business processes consumer habits and behaviors, optimize business for its employees, thereby increasing all sectors, including the banking processes, and the satisfaction of both internal and industry must adapt to these major external customers. The goal is to changes. Therefore, Şekerbank closely boost the sales undertake investments not only in follows technological trends in the force’s effectiveness customer interfaces, but also in the sector and undertakes the necessary entire systems infrastructure in order investments to keep pace. and efficiency. to establish a multi-channel structure. To accomplish Under the transformation program, The Mobile Banking application was which was initiated in 2018, these objectives, revamped to facilitate execution of Şekerbank’s technology systems the preferred mobile banking transactions and infrastructure will be upgraded relaunched in 2018. User-friendly from end-to-end. The Bank targets digitalization strategy interfaces and simple steps allow for acquiring new customers by building is to start with inner faster and easier transacting. High its digital channels according to a security standards offer enhanced customer-oriented model, which circles and move safety to customers while they is part of the Bank’s core business toward outer circles. perform their transactions on the strategy. mobile banking app.
ŞEKERBANK ANNUAL REPORT 2018
48 INTRODUCTION
In 2018, the Bank completed the necessary upgrades and revisions “ŞEKERBANK IS RENEWING in order to comply with regulatory changes introduced by the Banking Regulation and Supervision Agency ITS TECHNOLOGY SYSTEMS (BRSA) in accordance with IFRS 9 requirements. INFRASTRUCTURE Under the TROY-National Payment System project, the Bank’s credit and END-TO-END FROM A debit cards were reprinted with the TROY logo in 2018. CUSTOMER-CENTRIC Şekerbank completed construction of the Tier 3 data center at its PERSPECTIVE, WITH A headquarters facility. The Bank plans to move to the new data center in first quarter 2019. COMPREHENSIVE DIGITAL
Since it uses Oracle database in most of its information systems, Şekerbank TRANSFORMATION upgraded its credit card, ATM and POS systems with Oracle Exadata PROGRAM.” hardware. The Bank started to use Exadata hardware in its reporting system as well. The IT Department continued to Data protection and cyber security deliver high quality service to have become critically important employees and customers by with the rapid increase in usage of adhering to ISO 9001, ISO 27000, mobile technologies, internet, and ISO 10002, ISO 22301 and ISO 20000 digitalization across all industries, standards. including financial services. Providing a faster, safer and more In 2018, the IT Department made effective transaction environment for significant progress in achieving employees, business partners and digitalization and ensuring safe customers became a top priority for adaptation to changing business the Bank’s IT Department in 2018. models. In 2019, the Department plans to continue undertaking the Şekerbank reviewed the entire necessary investments and efforts infrastructure and processes of the to make the Bank’s IT systems fast Swift system in accordance with new and secure. The IT Department will and advanced security standards in establish an advanced technology order to create a more effective and infrastructure and develop advanced secure transaction environment. security solutions to guard against next generation threats.
ŞEKERBANK ANNUAL REPORT 2018
49 INTRODUCTION Human Resources
Şekerbank provides services even in remote districts across Turkey where bank branches are not available, in line with its “Community Banking” mission. The Bank also contributes to employment by providing educated, young people with career opportunities at its widespread branch locations.
Şekerbank shapes its human At Şekerbank, Some 40% of the Bank’s employees resources policies in line with its are members of the Banking responsible banking philosophy. This career management, and Insurance Employees Union approach is based on the principles (BASİSEN) and are therefore of financial inclusion, sustainable and staff loyalty, considered “covered” personnel. collective development. The Bank competency Şekerbank signed the 18th Collective implements its human resources Labor Agreement with BASİSEN. policies with forward-looking methods development, and techniques. RECRUITMENT improving employee In 2018, the Bank recruited 480 Şekerbank provides services even in employees for non-management remote districts across Turkey where motivation and positions. Of these newly recruited bank branches are not available, in performance are staff, 60% were new university line with its “Community Banking” graduates and 40% were experienced mission. The Bank also contributes key factors in candidates. About 73% of new recruits to employment by providing staffed branch positions; of which, educated, young people with career achieving strategic 60% were hired for sales positions. opportunities at its branch locations. objectives. The Bank employed 34 assistant auditors for the Internal Audit As of December 31, 2018, Şekerbank Department via the Assistant Internal employed 3,571 personnel. The Auditor Program. Bank offers producers customized solutions that meet their local needs CAREER MANAGEMENT POLICY in line with its long-standing tradition At Şekerbank, career management, of responsible banking. The Bank staff loyalty, competency development operates across Turkey with 273 and improving employee motivation branches, 70% of which are located and performance are key factors in Anatolia, nine Regional Offices and in achieving strategic objectives. nine Loan Allocation Regional Offices. Şekerbank formulated its Career The Bank’s operations cover all 71 Management Policy based on this provinces and about 100 off-center understanding as well as international districts. norms.
Şekerbank employees have an Şekerbank sees recruiting and average tenure of seven years and an mentoring the responsible bankers average age of 35. The workforce is and finance executives of the future composed of 50% women and 50% as central to its mission. The Bank men. Four percent of the staff hold a adopted a human resources policy postgraduate degree while 79% hold a that offers equal opportunities to bachelor’s degree. employees, who will then take the corporate culture forward into the future, thus adding value to Turkey’s development journey.
ŞEKERBANK ANNUAL REPORT 2018
50 INTRODUCTION
In 2018, Şekerbank transferred 390 employees to new positions. Pursuant to the Bank’s sales-oriented approach, “ŞEKERBANK SEES 82 personnel from the Operations Department, who were nominated to the Sales Pool, were subsequently RECRUITING AND transferred to the Sales Department. Moreover, 502 staff members were promoted one level up after their MENTORING THE performance appraisal.
Şekerbank appointed 21 Branch RESPONSIBLE BANKERS Managers during the year. About 88% of management positions were filled with candidates selected from OF THE FUTURE AS the Branch Manager Pool Program. Program participants include those employees who are identified as CENTRAL TO ITS MISSION.” embodying the corporate culture and are committed to meeting strategic goals, who have managerial skills and demonstrate high leadership potential. EMPLOYEE LOYALTY All new employees of Şekerbank, Additionally, Human Resources Employee loyalty is an important whether they are experienced or managers and employees visited 62 parameter of successful human inexperienced, as well as staff who branches and conducted face-to-face resources policies. Therefore, were transferred or promoted to a meetings with 558 employees of the the level of employee loyalty is new position, are invited to participate Bank in 2018. measured regularly, using proven in technical or competence-based up-to-date methods. In 2018, the training programs related to their PERFORMANCE MANAGEMENT Bank commissioned a firm with position and/or job description. At Şekerbank, performance international expertise to conduct a management is defined as loyalty survey to measure employee As of end-2018, 54% of Bank performance appraisal based satisfaction with human resources employees attended at least one on objective criteria, taking into practices and commitment levels. in-class training program during the consideration the goals and business The results of the survey showed that year. results achieved by employees. the staff loyalty score was 71%. Based Individual employee performance on these findings, the Bank conducted In 2018, the Bank also provided is evaluated against tangible and six focus group discussions and two supplementary e-learning courses measurable factors in order to ensure action planning workshops in order on the changes made to products a fair and transparent appraisal to increase employee loyalty. As a and systems, in accordance with system. result of these meetings and analyses, the request from relevant business several projects were developed and units. About 90% of the Bank’s staff WAGES AND PERFORMANCE BASED launched to improve staff loyalty and participated in at least one e-learning PAYMENTS commitment levels in the coming course/exam during the year. Şekerbank’s Remuneration period. Committee is responsible for ensuring Regional managers and regional that wage-setting practices are TRAINING loan managers participated in a compatible with the Bank’s ethical In accordance with the Bank’s human three-day training program titled values and strategy; overseeing the resources policy, as well as national “Turning Potential into Superior remuneration policy; and presenting and international norms, Şekerbank Performance,” which was organized their recommendations about these provides equal opportunities to under the Leadership School. practices to the Board of Directors. its employees, and supports staff Strategic objectives, competition, specialization with focused training individual employee performance programs. and assigned responsibilities are the main factors that are considered for determining fair wages at Şekerbank.
ŞEKERBANK ANNUAL REPORT 2018
51 INTRODUCTION Subsidiaries of Şekerbank
ŞEKER YATIRIM MENKUL Şeker Securities offers individual ŞEKERBANK (KIBRIS) LTD. DEĞERLER A.Ş. (ŞEKER SECURITIES) and corporate customers national Founded as a Şekerbank affiliate in Şeker Securities was founded on and international capital market Nicosia in 1996, Şekerbank (Kıbrıs) December 24, 1996 in accordance products at its Head Office building in Ltd. operates today as a private with the Capital Market Law and Levent, Istanbul, and its two branches. capital local commercial bank with applicable regulations to engage in The orders are submitted via all 6 branches located in Lefkoşa Centre, capital market activities. Şekerbank Şekerbank branches under an agency Gazimağusa, Güzelyurt, Girne, Iskele T.A.Ş. is a founding partner. agreement between Şeker Securities and Akdoğan. and Şekerbank. Founded with a paid-in capital of ŞEKERBANK INTERNATIONAL TL 125,000, today Şeker Securities ŞEKER FAKTORİNG A.Ş. BANKING UNIT LTD. has a paid-in capital of TL 30 million (ŞEKER FACTORING) Founded in 1994 in Lefkoşa, the and shareholders’ equity amounting to Founded in 2000 to provide domestic Turkish Republic of Northern Cyprus, TL 45 million. and foreign factoring services, Şeker Şekerbank Offshore Ltd. was renamed Factoring’s headquarters is located in as Şekerbank International Banking Maintaining robust and steady Istanbul. The company has 8 branches Unit Ltd. in 2009. The company growth in its sector, Şeker Securities in Ankara, Izmir, Bursa, Denizli, operates in the area of offshore is a “Broker Company with Broad Gaziantep, Antalya, İkitelli and Dudullu banking. Authority,” and it is legally permitted (Istanbul). to engage in the following investment and business activities: ŞEKER FİNANSAL KİRALAMA A.Ş. (ŞEKER LEASING) • Transaction Brokerage Founded in 1997 to conduct financial • Portfolio Brokerage leasing activities, Şeker Leasing has • Private Portfolio Management a broad customer portfolio composed • Investment Consulting of numerous companies operating in a • Brokerage and Underwriting of wide range of sectors. Şeker Leasing’s Public Offerings headquarters is located in Istanbul • Limited and General Custody and the Company has three branches Services in Ankara, Izmir and Gaziantep. Şeker Leasing’s shares are being traded on the BIST since July 21, 2004.
ŞEKERBANK ANNUAL REPORT 2018
52 INTRODUCTION
ŞEKER FİNANSMAN A.Ş. ŞEKER PROJE GELİŞTİRME VE (ŞEKER FINANCE) GAYRİMENKUL YATIRIM A.Ş. Istanbul Mortgage Finansman A.Ş. Şeker Proje Geliştirme ve Gayrimenkul was founded in 2008 to provide Yatırım A.Ş. was founded in 2017, mortgage financing and extend as a 100% Şekerbank subsidiary. housing loans appropriate for As of the end of 2018, the company securitization. The company became continues its activities with a paid-in a subsidiary of Şekerbank in 2010 capital of TL 603.5 million. Şeker Proje and was renamed Şeker Mortgage Geliştirme ve Gayrimenkul Yatırım A.Ş. Finansman A.Ş. Since 2015, other will be converted into a real estate credits secured by mortgage such as investment trust (REIT) in 2019, and Personal Loans were also added to the activities have been continuing for the product portfolio, and as a result, this conversion. in addition to retail customers, the company started to provide long-term mortgage and retail loans to tradesmen and farmers. The company was renamed Şeker Finansman A.Ş. in 2016.
ZAHLUNGSDIENSTE GMBH DER ŞEKERBANK T.A.Ş. Operating in Cologne as a representative office between 1973 “ŞEKERBANK OPERATES and 1998, and a financial services branch from 1998 to 2011, Şekerbank T.A.Ş. Cologne has been conducting IN SYNERGY WITH ITS business as Zahlungsdienste GmbH der Şekerbank T.A.Ş. since June 2011. The company was founded as a 100% SUBSIDIARIES, CREATING Şekerbank affiliate in accordance with the German law. CONTINUOUS VALUE.”
ŞEKERBANK ANNUAL REPORT 2018
53 INTRODUCTION Independent Audit Company
Neither DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi (a member firm of Deloitte Touche Tohmatsu Limited), which carries out the independent audit of Şekerbank, nor the audit company employees and other personnel employed by the company, render consultancy services to the Bank with or without charge. Independent audit companies are subject to rotation at certain intervals pursuant to the regulations of the Banking Regulation and Supervision Agency and the Turkish Commercial Code.
Accordingly, based on the decision of the Board of Directors, it was agreed to procure an independent audit service for the Bank from DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi (a member firm of Deloitte Touche Tohmatsu Limited) for the 2018 accounting period; furthermore, it has been approved at the Ordinary General Assembly on March 28, 2018.
ŞEKERBANK ANNUAL REPORT 2018
54 INTRODUCTION Independent Audit Company’s Compliance Opinion
(CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ON THE MANAGEMENT’S ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH)
INDEPENDENT AUDITOR’S REPORT ON THE MANAGEMENT’S ANNUAL REPORT
To the General Assembly of Şekerbank T.A.Ş.
1) Opinion As we have audited the full set consolidated and unconsolidated financial statements of Şekerbank T.A.Ş. (“the Bank”) and its consolidated subsidiaries (“the Group”) for the period between 01/01/2018–31/12/2018, we have also audited the annual report for the same period.
In our opinion, the consolidated and unconsolidated financial information provided in the Management’s annual report and the Management’s discussions on the Group’s financial performance, are fairly presented in all material respects, and are consistent with the full set audited consolidated and unconsolidated financial statements and the information obtained from our audit.
2) Basis for Opinion 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 the Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibility is disclosed under Responsibilities of the Independent Auditor on the Independent Audit of the Annual Report in detail. We declare that we are independent from the Bank in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) issued by POA and ethical provisions stated in the regulation of audit. We have fulfilled other responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
3) Auditor’s Opinion for the Full Set Consolidated and Unconsolidated Financial Statements We have presented unqualified opinion for the Bank’s full set consolidated and unconsolidated financial statements for the period between 01/01/2018–31/12/2018 in our Auditor’s Report dated 5 March 2019.
4) Management’s Responsibility for the Annual Report The Bank Management is responsible for the following in accordance with Article 514 and 516 of the Turkish Commercial Code No. 6102 (“TCC”) and the regulation on “Preparing and Publishing the Annual Report by Banks” published in the Official Gazette dated 1 November 2006 and No. 26333 (“the Communiqué”): a) Preparing the annual report within the three months following the reporting date and presenting it to the General Assembly, b) Preparing the annual report with the all respects of the Bank’s flow of operations for that year and the Bank’s financial performance accurately, completely, directly and fairly. In this report, the consolidated financial position is assessed in accordance with the financial statements. The Bank’s development and risks that the Bank may probably face are also pointed out in this report. The Board of Director’s evaluation on those matters are also stated in this report. c) The annual report also includes the matters stated below: - The significant events occurred in the Bank’s activities subsequent to the financial year ends, - The Bank’s research and development activities, - The compensation paid to key management personnel and members of Board of Directors including financial benefits such as salaries, bonuses and premiums, allowances, travelling, accommodation and representation expenses, in cash and kind facilities, insurances and other similar guarantees.
The Board of Directors also considers the secondary regulations prepared by the Banking Regulation and Supervision Agency and the Ministry of Trade and related institutions while preparing the annual report.
5) Responsibilities of the Independent Auditor on the Independent Audit of the Annual Report Our aim is to express an opinion and prepare a report about whether the Management’s discussions and consolidated financial information in the annual report within the scope of the provisions of the TCC and the Communiqué are fairly presented and consistent with the information obtained from 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 the SIA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Management’s discussions on the Group’s financial performance, are fairly presented in all material respects, and are consistent with the full set audited consolidated and unconsolidated financial statements and the information obtained from our audit.
The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat.
ŞEKERBANK ANNUAL REPORT 2018
55 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Board of Directors
DR. HASAN BASRİ GÖKTAN accounting and finance in Kordai, HALİT YILDIZ Chairman of the Board of Directors, Dzhambul region. From 1996 to Board Member Executive Board Member 2008, he held senior management Halit Yıldız is a graduate of Marmara Dr. Hasan Basri Göktan holds positions at the Tax Authorities of University, Faculty of Business undergraduate degrees in Almaty city and Center for Judicial Administration. He has an MBA and Engineering, Economics and Law, Economics Expertise under the MS in Management and Finance from as well as a PhD in Economics. He Ministry of Justice of the Republic of Istanbul University. Mr. Yıldız has held began his professional career in Kazakhstan. Between 2008 and 2014, management positions at various 1973 at Türkiye Şeker Fabrikalari Mr. Karymsakov worked as Head of private banks. He served as Executive A.Ş. and served as Chairman of the Tax Department of Almaty Region Vice President at Şekerbank from Board of Directors and General and Head of the Tax Department of 2009 to 2014; subsequently, he served Manager of Sugar Beet Cooperatives Almaty City. He later served as Head as General Manager at Şekerbank (Pankobirlik) from 1983 to 1993. of Administration for the Mayor T.A.Ş. between 2014 and 2016. Dr. Göktan concurrently served as of Almaty from 2014 to 2015. Mr. Yıldız was appointed Board General Manager of Pankobirlik and Mr. Karymsakov was Managing Member of Şekerbank T.A.Ş. in Chairman of the Board of Directors Director of “Astana Expo-2017” February 2016. of Şekerbank T.A.Ş. and Konya Şeker National Company between 2015 Fabrikası A.Ş. from 1988 until 1993. and 2018. Since January 2018, he EMİN ERDEM Under his leadership, Konya Şeker has served as CFO at the National Executive Board Member Fabrikası A.Ş. has been successfully Welfare Fund “Samruk-Kazyna.” Emin Erdem began his professional privatized – a first in the Turkish Mr. Karymsakov was appointed Vice career as Internal Auditor at sugar industry. Between 1993 and Chairman of the Board of Directors of Ziraat Bank. After working in the 2002, Dr. Göktan also briefly served as Şekerbank T.A.Ş. in March 2018. International Relations Department of Chairman of the Board of Directors of the bank, he served as Representative Yüksel Inşaat A.Ş. alongside his role SERVET TAZE of Ziraat Bank in Germany and the as General Manager of Şekerbank General Manager, Board Member Netherlands, and later as Country T.A.Ş. and Board Member of T. Şeker Servet Taze graduated from Manager of Ziraat Bank London Fabrikaları A.Ş. Dr. Göktan served as Çukurova University, Department Branch in the UK. Subsequently, General Manager and Chairman of the of Business Administration. He Mr. Erdem was appointed Executive Board of Directors of Şekerbank T.A.Ş. began his professional career at Vice President and Board Member from 2002 until 2007. On February 1, Koçbank in 1992. Mr. Taze held senior at Ziraat Bank; at the same time, he 2008, Dr. Göktan assumed the position management positions at Finansbank served as Chairman of the Board of Chairman of the Board of Directors Turkey, Netherlands, Switzerland, of Directors at Deutsche-Türkische of Şekerbank T.A.Ş. and its financial Germany, Russia, Ukraine and Bank in Germany. He has served as subsidiaries; in addition, he currently Romania organizations between 1995 a Member of Şekerbank’s Board of serves as Executive Board Member. and 2006. He served as Executive Vice Directors since 2002. President of Corporate Banking at ING BEİBİT KARYMSAKOV Bank, and later as Deputy CEO at ING ERDAL BATMAZ Vice Chairman Factoring and ING Leasing from 2006 Executive Board Member of the Board of Directors to 2012. Subsequently, he served as Erdal Batmaz graduated from Beibit Karymsakov graduated from General Manager at Turkish Bank and Ankara University, Faculty of Political Almaty Institute of National Economy Board Member at the subsidiaries of Sciences, Department of Economics. as an engineer-economist in 1985. Turkish Bank from 2013 to 2016. He worked at the State Industry and He received his Law degree in 2004 Mr. Taze was appointed General Laborer Investment Bank (DESIYAB) from Taraz State University. From Manager of Şekerbank T.A.Ş. in on a Konrad Adenauer Foundation 1987 to 1996, Mr. Karymsakov February 2016. scholarship. Later, Mr. Batmaz served worked in various positions in as Specialist and Consultant in the Prime Minister’s Office. He went on to
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56 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES
hold various administrative positions Board Member of Şekerbank T.A.Ş. at Alliance Bank JSC, and GarantiBank at Emlak Bank. Mr. Batmaz later the General Assembly meeting held International N.V. In May 2008, he served as Assistant General Manager in March 2018. He is also in charge joined BTA Bank JSC as Head of the and Vice Chairman of the Board of of the Risk Management and Internal Financial Institutions Department. Directors at Emlak Bank. In addition, Control Systems as part of his role as Mr. Zharkinbayev was appointed Mr. Batmaz was a Board Member at Board Member. Board Member at Şekerbank T.A.Ş. in several insurance companies and November 2012. tourism firms. From 1997 to 2003, ÜZEYİR BAYSAL he served as Board Member at the Independent Board Member AİDAR RYSKULOV Capital Markets Board for two terms. Üzeyir Baysal is a graduate of Board Member Mr. Batmaz has served as Executive Ankara University, Faculty of Aidar Ryskulov graduated from Board Member at Şekerbank since Political Sciences, Department of Karaganda State University, 2003. Economy-Finance. He began his Department of Finance and Credit professional career in 1985 and in 2002. He holds an MBA from MEHMET AYHAN ALTINTAŞ worked as Banking Certified Chief Nazarbayev University. Between 2003 Board Member Auditor at the Banking Regulation and 2012, Mr. Ryskulov worked in Mehmet Ayhan Altıntaş graduated and Supervision Agency. He was an various positions at ATF Bank JSC, from Hacettepe University, Independent Board Member of Şeker Bank Center Credit JSC, Halyk Bank of Department of Business Finansal Kiralama A.Ş. between April Kazakhstan JSC, and National Holding Administration. He earned his 2012 and March 2013. Mr. Baysal was KazAgro JSC in Kazakhstan. From Master’s degree from the University appointed Independent Board Member 2012 to 2014, he served as Manager of Westminster in London, and of Şekerbank T.A.Ş. in 2013. of the Financial Assets Department his PhD degree in Accounting and at Sovereign Wealth Fund Samruk Finance from Başkent University ÇETİN AYDIN Kazyna JSC; since 2014, he has in Ankara. Mr. Altıntaş began his Board Member served as Manager of the Corporate professional career in January 1985 Çetin Aydın graduated from Uludağ Finance Department. Mr. Ryskulov at the Board of Sworn-in Auditors of University, Faculty of Economics and was appointed Board Member at Banks under the Undersecretariat Administrative Sciences, Department Şekerbank T.A.Ş. in March 2017. of Treasury and Foreign Trade. He of Economics. He joined Şekerbank served on the Board as Assistant in 1988 as Assistant Internal Auditor. ALMAT ZHAMIYEV Auditor, and later as Auditor for 10 Later, he held several positions Board Member years. Subsequently, he was President within the Bank. Mr. Aydın served as Almat Zhamiyev graduated (with of Banking Administration under Executive Vice President between Honors) from Al Farabi National the Undersecretariat of Treasury; 2005 and 2016. He was appointed University of Kazakhstan, Faculty of Counselor for Economic Affairs at the Board Member at Şekerbank T.A.Ş. at Law in 2001. He earned his Master Turkish Embassy in London; Head of the General Assembly meeting held of Laws (LLM) degree from the same Finance Department at the Savings on March 2018. university. Mr. Zhamiyev worked at Deposit Insurance Fund (TMSF); Head ATF Bank JSC between 2003 and of the Supervision Department at the NARİMAN ZHARKINBAYEV 2004, and at Transtelecom JSC from Banking Regulation and Supervision Executive Board Member 2004 to 2005. Later, Mr. Zhamiyev Agency (BRSA); Head of the Research Nariman Zharkinbayev graduated served as Legal Counsel and Department at BRSA; Head of the Risk from T. Ryskulov Kazakh Economics Member of the Credit Committee at Management Department at Ziraat University, with degrees in Kazkommertsbank JSC between 2005 Bankası A.Ş.; Board Member at Ziraat International Economy and and 2008. He has been Head of the Bank AD Skopje; Director of Central International Relations. From 2002 to Legal Department and Member of the Risk and Collateral Management 2008, he worked in various positions Credit Committee at Sovereign Wealth Group at Istanbul Takas ve Saklama and companies in Kazakhstan and Fund Samruk-Kazyna JSC since 2008. Bankası A.Ş. Mr. Altıntaş was elected abroad including BTA Bank JSC, Mr. Zhamiyev was appointed Board Member at Şekerbank T.A.Ş. in March ŞEKERBANK ANNUAL REPORT 2018 2017. 57 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Senior Management
SERVET TAZE AYTAY TOLGA ŞENEFE UMUT ÜLBEGİ General Manager, Board Member Executive Vice President – Executive Vice President – Please refer to the Board of Directors Treasury Corporate and Commercial Banking section. Tolga Şenefe graduated from Istanbul Marketing University, Department of Economics Umut Ülbegi graduated from AYBALA ŞİMŞEK in 1990 and received his Master’s Dokuz Eylül University, Faculty of Executive Vice President – degree in Accounting-Finance Management (English). He started Strategy and Human Resources from Marmara University in 1993. his banking career at Pamukbank Aybala Şimşek holds an MBA During his career, he has worked as in 1999. Subsequently, Mr. Ülbegi degree from the Faculty of Business Assistant Inspector at Istanbul Stock served as Corporate Banking Branch Administration at Bilgi University Exchange (1992-1995); Supervisor Manager at Finansbank and Corporate and a Bachelor’s degree from the in the Treasury Department of Alfa Banking Director at Turkish Bank. He Faculty of Communication at Ankara Menkul Değerler A.Ş. (1995-1997); was appointed Vice President of the University. She is also a graduate Manager in the Treasury Department Corporate and Commercial Banking of the Harvard Business School of Ulusal Bank A.Ş. (1997-2000); Marketing Department at Şekerbank General Management Program. Deputy General Manager and Director in May 2016. Mr. Ülbegi became After beginning her career in 1999 at Ulusal Yatırım A.Ş. (2000-2003); Executive Vice President of Corporate by editing and hosting news tv General Manager of Ziraat Portföy and Commercial Banking Marketing at programmes, Şimşek was appointed Yönetimi A.Ş. (2004-2006); Project Şekerbank T.A.Ş. on August 2, 2016. as Department Head at Şekerbank Manager at Helix Management T.A.Ş. in March 2007 and in 2013 Danışmanlık (2006-2007); Head of the SELİM GÜRAY ÇELİK she was promoted to Group Head of Treasury Department at Anadolubank Executive Vice President – Strategy. In 2015, she also became A.Ş. (2007-2011); and Executive Vice Financial Control, Reporting, Budget responsible for the Sustainable President of Treasury at ABank (2011- and Performance Management Development Banking Department, 2016). In May 2016, Tolga Şenefe was Selim Güray Çelik was born in which includes the Microfinance appointed Executive Vice President at 1971 and graduated from Ankara programme. Appointed as Executive Şekerbank T.A.Ş. University, Faculty of Political Vice President in April 2016, Şimşek’s Science, Department of Business areas of responsibility have gradually Administration. He completed expanded and she now oversees his Master’s degree in Finance at Şekerbank’s Strategy, Human University of Illinois (USA). Beginning Resources & Organization, Marketing his professional career at the & Risk Analytics, Sustainable Undersecretariat of Treasury, Development Banking, Process Mr. Çelik subsequently served as Head Development, Digital Banking, of Auditors at the Banking Regulation Distribution Channels and Corporate and Supervision Agency and then as Communications Departments. Executive Vice President and Chief Şimşek has also undertaken the Assistant General Manager at T.C. leadership of Şekerbank’s Digital Ziraat Bankası. In November 2013, Transformation Program since June Selim Güray Çelik was appointed 2018. Executive Vice President at Şekerbank T.A.Ş.
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NİHAT BÜYÜKBOZKOYUN Head of the Supervisory Board at Yapı HÜSEYİN ÜST Executive Vice President – Kredi Moscow, and Executive Vice Executive Vice President – Operations President of Loans. Subsequently, Credit Monitoring and Follow-up Nihat Büyükbozkoyun graduated Mr. Eken served as CFO and CEO Hüseyin Üst graduated from Marmara from Middle East Technical at various tourism and media University, Faculty of Economics and University, Faculty of Economics and companies. He joined Şekerbank as Administrative Sciences, Department Administrative Sciences, Department Vice President of Credit Monitoring in of Finance. He began his professional of Public Administration. He joined September 2014. Subsequently, career as Assistant Specialist at Şekerbank as Assistant Auditor Mr. Eken was promoted to Group Head Şekerbank in 1995. After serving as in 1992. After serving at the Bank of the Loan Monitoring and Follow- Assistant Auditor and Senior Auditor as Head Office Operations Group Up Department. A. Hakan Eken has at Şekerbank between 1996 and 1999, Manager, Mr. Büyükbozkoyun was served as Executive Vice President he worked as Marketing Director, appointed Executive Vice President at of Credit Management at Şekerbank Branch Manager and Regional Şekerbank T.A.Ş. in November 2013. since December 2016. Director, respectively. Mr. Üst was appointed Executive Vice President at GÖKHAN ERTÜRK ERDAL ERDEM Şekerbank T.A.Ş. in November 2017. Executive Vice President – Executive Vice President – Agriculture and Retail Banking SME Banking Marketing ZEKİ ÖNDER Marketing Erdal Erdem graduated from Kocaeli Executive Vice President – Gökhan Ertürk holds Bachelor’s University, Faculty of Economics and Financial Institutions degrees in Electronic Programming, Administrative Sciences, Department Salih Zeki Önder is a graduate Business Administration and of Finance. He then earned his of California State University, International Relations from Boğaziçi Master’s degree at Beykent University. Department of International Business University. Having started his Mr. Erdem began his professional and Marketing; he also has a minor professional career at İktisat Bank, he career at Family Finans Kurumu in Economics. During his professional subsequently worked at Türk Ekonomi A.Ş. in 1995. He went on to serve as career, Mr. Önder has worked at Bankası and Akbank T.A.Ş before Board Member and Credit Committee various private banks. Since 2002, serving as Executive Vice President Member at Ziraat Bank A.Ş.; Vice Mr. Önder has served as Executive at DenizBank A.Ş. He was appointed Chairman at Ziraat Finansal Kiralama Vice President of Financial Institutions Executive Vice President at Şekerbank A.Ş.; and Board Member at Ziraat at Şekerbank. T.A.Ş. in April 2014. Bank Moskova CJSC. Subsequently, Mr. Erdem was Executive Vice AHMET HAKAN EKEN President at Halk Bank A.Ş., Chairman Executive Vice President – at Halk Faktoring A.Ş. and Board Credit Management Member at Halkbank Belgrade A.Ş. Ahmet Hakan Eken graduated from Mr. Erdem was appointed Executive Marmara University, Department of Vice President at Şekerbank T.A.Ş. in Business Administration. He started November 2017. his professional career as Auditor at Yapı Kredi Bank in 1986. Mr. Eken worked in senior management for many years at Yapı Kredi Bank in the following positions: Vice Chairman of the Inspection Board, Head of the Credit-Risk Management Department,
ŞEKERBANK ANNUAL REPORT 2018
59 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Üst Yönetim Summary Report of the Board of Directors
We have examined the financial statements of the Bank for 2018. We concluded that it does not have any material misstatements or omissions that may be construed as misleading and that it accurately reflects the Bank’s financial position along with the major risks and uncertainties it is exposed to.
2018 has been a successful year with respect to implementation of strategic plans. The matters regarding the Bank’s activities, performance, targets, compliance with internal and external regulations, implementation and realization of strategic decisions, safeguarding the rights of shareholders and stakeholders were duly overseen. Full attendance was attained in all Board of Directors meetings held in 2018 and the self-assessment practice has been continued.
It is decided that, 2018 Annual Report submitted to the approval of the Board of Directors is approved and presented to the shareholders.
The dates of approvals of the Board of Directors of 2018 Financial Statements and Reports are given in the table below:
REPORT DATE OF APPROVAL OF THE BOARD OF DIRECTORS 31.03.2018 Unconsolidated Independent Auditors’ Report 10.05.2018
31.03.2018 Consolidated Independent Auditors’ Report 21.05.2018
30.06.2018 Unconsolidated Independent Auditors’ Report 09.08.2018
30.06.2018 Consolidated Independent Auditors’ Report 16.08.2018
30.09.2018 Unconsolidated Independent Auditors’ Report 09.11.2018
30.09.2018 Consolidated Independent Auditors’ Report 09.11.2018
2018 Corporate Governance Principles Compliance Report 14.02.2019
31.12.2018 Unconsolidated Independent Auditors’ Report 28.02.2019
31.12.2018 Consolidated Independent Auditors’ Report 05.03.2019
Annual Report 2018 05.03.2019
As of December 31, 2018, Total deposits TL 23,089 million, Total loans TL 20,564 million, Shareholders’ equity TL 2,377 million, Total assets reached TL 31,321 million, Net profit was TL 86 million. Capital adequacy ratio was 15.14%.
Şekerbank will continue providing its customers with the best services, and will reach its target of becoming the leading bank in financing small enterprises while maintaining its consistent growth in the following years with the support of our business partners, investors and customers.
We hereby present the Annual Report 2018, balance sheet and income statement for the approval of our shareholders, and their proxies.
ŞEKERBANK ANNUAL REPORT 2018
60 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Board and Committees Evaluation Disclosures
Şekerbank was the first bank to obtain Each year the Corporate Governance the Corporate Governance Rating Committee (CGC) of the Bank reviews measured against the Corporate the Board of Directors and its Governance Principles set by the Committees’ self-assessment results Capital Markets Board. The Board of and submits to the Board of Directors Directors believes that solid corporate a comprehensive analysis of the governance of the Bank is one of reporting year assessment results the major bricks for the sustainable together with the trend/progress successful performance of the analysis. The CGC provides the Board company. of Directors with recommendations on further improvement of the Each year the Board of Directors Board of Directors and Committees conducts in-house self-assessment of effectiveness, addressing the Board the Board and its Committees. of Directors members’ evaluation The Board Self-Assessment and proposals done within the Process is designed to evaluate self-assessment process. the effectiveness of the Board and Committee meetings; the Board The comprehensive discussion of and Committee processes and the CGC report on the results of relationships with executive directors; the self-assessment of the Board quality and timing of meeting Members and their approval of the agendas; sufficiency and timing of the CGC recommendations, ensures that Board and Committee documents/ the Board remains fully effective as reports; and diversity in the Board and Corporate Governance continues to Committees, including composition, evolve. In 2018, the Board of Directors location, nationality and gender, reviewed the recommendations of by focusing on skills, experience, the Corporate Governance Committee independence and information about based on the 2017 self-assessment the Bank. In order to meet these results and made some improvements objectives in the best way, the Board in the working and effectiveness of the self-assessment questionnaire, Board and the Corporate Governance introduced in 2008, was further Committee: reviewed and enhanced based on the best international practices and Board Continuous improvement in the of Directors members’ evaluation corporate governance practices of the results with the focus on four related Bank is evidenced by the corporate areas: governance rating, which increases • Board Structure & Composition every year. In 2018, an agreement was • Oversight of Strategy, Risk and signed with SAHA Kurumsal Yönetim Control ve Kredi Derecelendirme Hizmetleri • Decision Making and Accountability A.Ş., and the activities for compliance • Development and Culture with Corporate Governance Principles continued.
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61 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Succession Planning and Nomination in the Board of Directors
In 2018, there were no changes of interest. The content of an made in the succession planning introduction session for the new policy for the Board and senior Board members allows for new executives of the Bank. The Corporate members to make a smooth transition Governance Committee, which also when joining the Board of Directors. performs a Nomination Committee The Corporate Governance Committee function, ensured that the succession makes recommendations on the planning for the senior executives, nominees’ list for election to fill which includes the list of key leading the Board vacancies subject to the positions, the identified competencies, approval by the General Assembly. experience and duties required, The list is composed based on the evaluation of personality, political skills matrix and “gap” analysis as savvy, judgment and leadership well as consideration of the diversity skills, has been reviewed on time and and cultural aspects. The Corporate complied by the Bank. The succession Governance Committee oversees planning for the Board of Directors that the Board composition and is also overseen by the Corporate number of the independent directors Governance Committee (CGC), which are adequate. In 2017, the Board of set the competency based criteria to Directors supported the Corporate be used as a guideline for evaluation Governance Committee’s initiative of the new Board members to be to create a database of female elected to the Board of Directors. Board candidates for the purpose of The criteria are described in detail in supporting the gender equality policy. the Corporate Governance Committee The Board of Directors offered to the Regulation. main shareholders of the Bank to set a goal of appointing one female The Corporate Governance director to the Board of Directors with Committee reviews all potential the principle intention of increasing nominees, evaluates the professional the number of female directors in the competences of a nominee and following years. whether they have the right mix of knowledge, skills and experience and that his/her cultural fit to the Bank’s profile and Board ensures the diversity principles on the Board. Attention is paid to the nominees’ assignments and commitments outside of the Bank and its Board in order to avoid potential conflicts
ŞEKERBANK ANNUAL REPORT 2018
62 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES General Policy on Insider Trading
Under the Insider Trading Policy, Violations of any portion of the the Bank sets standards of conduct standards of conduct may result applicable to all employees of the in disciplinary action, including Bank and its direct subsidiaries termination of employment. In whenever they are conducting addition, violations of insider securities transactions, whether trading requirements may subject for themselves or on behalf of an employee to civil and criminal others. It applies also to an penalties, fines and jail terms, and employee’s family members who serious sanctions could be imposed reside in his/her household. It is against him or her. prohibited from buying, selling, recommending or making other During 2018, there have not been any transfers of securities if an employee conflicts of interest with entities that of the Bank or its subsidiary is aware are providing services to the Bank of material, non-public information such as investment advisory and about the issuer of the securities. It rating services, as per the conflict also prohibits from disclosing such of interest policy. Also, there has not information to others who may trade been a violation of rules of access to in those securities. insider information.
The detailed rules are incorporated in the related internal policies and procedures of the Bank and are provided to each employee upon his or her commencement of employment.
Information is considered “material” if a reasonable investor would consider it important in deciding whether to buy, sell or hold a company’s securities. (In other words, if the information is reasonably certain to have an effect on the price of the securities, whether such effect is positive or negative). Information is considered “non-public” if it is not generally available to the public or the investment community.
ŞEKERBANK ANNUAL REPORT 2018
63 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Board of Directors Activities
In 2018, the Board of Directors The Bank acknowledges that the main The Bank pays special attention continued to perform its functions responsibilities of the Chairman of to the compliance of its top appropriately and acted within the the Board of Directors are to manage management and employees with framework of good faith through and steer the Board of Directors, ethical principles. Thus, every newly maintaining the interest balance establish a bond between the General elected director signs the “Code of between the Bank, the shareholders Manager/CEO and the Board of Ethics of the Bank,” which includes and the stakeholders. A good practice Directors, and take the interests of the the professional ethical codes of of setting the dates and major topics shareholders and other stakeholders the sector. A comprehensive update of the Board of Directors meetings at into consideration and make sure is given to said member on Board the beginning of the year helps the that the Board of Directors functions member responsibilities and duties. Board Members in increasing their independently. However, the duties The Corporate Governance Committee attendance and ensuring the and responsibilities of the Chairman of ensures that the Board of Directors well-structured oversight of the the Board of Directors are determined understands the Code of Ethics, Bank’s activities within the year. The differently from those of the General cultural and professional code of Board of Directors agenda comprises Manager/CEO and provisioned in behavior. The Chairman of the Board of regular issues, like monthly the Articles of Association, Board of secures an open atmosphere in updates on the financial position Directors Decisions and Regulations. the Board. Corporate Governance of the Bank, periodic reviews of its Thus, the functions of these roles Committee and regularly reviews standing in the sector and towards do not conflict with each other. the legislation regulating the timely the peer group, monthly reviews of The main role of the General Manager renewal of Board members. There has risk exposures, quarterly reviews of is to be in charge of all aspects of the not been any change in regulations the internal audit reports. The Board Bank’s operations and processes. in 2018 which would significantly pays special attention to ensuring the Such separation in roles ensures affect the Bank’s activities. To Bank is managed prudently and in an a well-balanced management of strengthen the effectiveness of the efficient manner for the stable and the Bank with due consideration of Board, some measures have been sustainable activities of the Bank. the business opportunities, while additionally stipulated in the internal not ignoring the risks involved, as regulation of the Bank. For example, The actions of those discussions are well as ensuring a sound business non-attendance to more than five shared in the current report under the strategy and its execution and Board meetings in a calendar year, section of the Board self-assessment. securing the continuity of the Bank’s leads to the automatic discharge of rich history and trade mark together the Board Member from the Board of with continuous innovation and the Bank. Any legal violations by the development. Board Member are subject to Turkey’s legislative framework.
ŞEKERBANK ANNUAL REPORT 2018
64 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Declaration of Compliance with Corporate Governance Principles
In line with the resolution of the Changes were made in 2018 in the Capital Markets Board dated Committees of the Board of Directors, 10.01.2019 and numbered 2/49; to comply with the Communiqué pursuant to the Communiqué on on Corporate Governance. The Corporate Governance numbered committees of the Board of Directors II-17.1, Corporate Governance are active, and they are carrying out Compliance Reporting of the Bank their activities effectively. The Bank’s which is prepared using the templates corporate website and annual report of URF-Corporate Governance were reviewed, and improvements Compliance Report and were made to comply with the KYBF-Corporate Governance principles. In the coming period, Information Form of the Public compliance activities will continue Disclosure Platform (KAP) is available taking into consideration the changes at the following addresses: https:// in regulations and banking practices. www.kap.org.tr/tr/Bildirim/739914 and https://www.kap.org.tr/tr/ There has not been a conflict of Bildirim/739917. interest due to voluntary principles not being complied with. Our Bank is aware that, corporate governance practices are just as important as financial performance. In this regard, the Bank has specified as a principle to comply with the Corporate Governance Principles issued by the Capital Markets Board (CMB). The Bank believes in these principles, and improves its management practices continuously, considering these principles, as well as the valuable institutional structure of the Bank.
The Bank complies with the mandatory principles of CMB’s Communiqué on Corporate Governance numbered II-17.1, and complies with the majority of the voluntary principles. Some of them could not be complied with because of the difficulties in implementation, and some of them could not be complied with because they did not align with the market’s and our Bank’s structure and philosophy. However, compliance activities continued throughout the year.
ŞEKERBANK ANNUAL REPORT 2018
65 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Ethical Rules and Social Responsibility
Şekerbank was established with Şekerbank facilitates access to Şekerbank continues to increase the the small savings of hundreds of financial resources for tradesmen, social and environmental benefits thousands of farmers, and has farmers, and female entrepreneurs in created by its activities, and to create been standing by small producers, rural regions, who have not worked value for its all social stakeholders. shopkeepers, the agriculture sector with a bank before, through its lending Within this scope, Şekerbank has and SME’s since then. The Bank processes of inclusive finance, which provided almost TL 1 billion in is encouraging small savings, and are unique and a first of its kind in the funds and introduced the concept supporting Turkey’s development sector. The Bank continues to support of energy saving to approximately focused journey in determination, development of financial literacy 107 thousand people through under a responsible banking in rural areas through a microfinance EKOkredi, which it developed as a philosophy. lending model that includes first of its kind product in Turkey in face-to-face communication and 2009 in order to popularize energy Şekerbank was established 65 years is aimed at the development of efficiency investments and support ago, on October 12th, 1953, with the entrepreneurial capabilities and the sustainability of natural resources. purpose of supporting agricultural production capacity growth. Thanks to the energy efficiency industry and sustainable production. investments made with EKOkredi, Today, the Bank is still a pioneer Şekerbank continues its important 29.7 billion kWh of energy has been in financing the development of efforts aimed at incorporating female saved and 6.3 million tons of CO2 rural areas, and inclusive growth. entrepreneurs from rural areas emissions have been prevented. Up Şekerbank is pursuing the old and into the economy. In 2018, the Bank until today, 137 million m3 of natural lasting “Community Banking” mission continued to support the “Program gas have been saved thanks to the with a perspective of “sustainable for Reinforcement of Women’s insulation projects carried out in development banking.” Entrepreneurship in Agriculture,” over 154 thousand households that which was started by the Ministry of were financed by EKOkredi. In 2012, Under the guidance of the Food and Agriculture and Forestry four years the Bank represented Turkey in the Agriculture Organization of the United ago. During 2018, Şekerbank provided Rio+20 United Nations Sustainable Nations (FAO), Şekerbank initiated 35 projects with a total of TL 180 Development Summit with EKOkredi, “Family Farming Banking,” a first thousand in financial support. In the which has been selected as one of its kind in Turkey and the world, last four years, more than 4 thousand of the best practices in the field of which aims to consolidate partitioned projects were evaluated, and the sustainability. lands, increase agricultural production Bank’s total contribution to rewarded efficiency through energy efficiency projects has been TL 530 thousand in Having conducting its own annual investments and to prevent migration total. carbon footprint measurements from village to city by supporting since 2010, Şekerbank continues to farmers’, has reached out to 100 be a part of the Carbon Disclosure thousand farmer families in four Project (CDP) which is one of the years, and provided them with more world’s leading platforms fighting than TL 7 billion in financial support. against climate change and was one of the two banks which participated voluntarily in the CDP 2015 Turkey Water Program, which included Turkey for the first time, by performing measurements for the year 2014. Şekerbank, as a voluntarily participant of the ‘Turkey Leaders in the Water Program,” was the recipient of the “CDP 2016 Turkey Water Leadership” award.
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66 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES
As a part of the activities carried out On the other hand, Şekerbank’s Şekerbank improves its sustainability for the purpose of fighting climate deep-rooted strength in financing strategy within the framework of change, Şekerbank supported the sustainable development enables it Sustainable Development Goals. The “Let Waste be Trees” campaign that to play active roles in the relevant Bank attended the 24th Conference was organized by the Association for international initiatives. The Bank of the Parties to the United Nations Recycling and Waste Management of is one of the few institutions from Framework Convention on Climate Electrical and Electronic Equipment. Turkey which are parties to the United Change (COP24), which was organized The Bank supported the planting of Nations Environment Programme in Katowice, Poland and participated 5 thousand tree seedlings (of which Finance Initiative (UNEP FI) and the in the session titled “Sustainable 3 thousand were done by the Bank) in UN Global Compact, which aim to Development and Financial a forestation area located in Akalan support sustainable financing and a Innovation: Turkish Banking Practices” Village (Çatalca). sustainable world economy. as one of just four banks. The session was planned to support the Şekerbank’s efforts in this scope are In this context, Şekerbank participated negotiations that are being carried out not limited to internal operations, in the United Nations Climate Change by the Ministry of Environment and and the Bank also evaluates the Conference of the Parties (COP21) Urbanization on climate change. environmental and social impacts of held in Paris in December 2015, and the projects which it finances. Social signed the Business World Leadership Şekerbank’s magazine Şeker and Environmental Management Criteria on Carbon Pricing created Çocuk (Şeker Child) has been in System is an integral part of lending by the UN Global Compact. The publication for 35 years. Its content processes. This system was created Bank is also a signer of Women’s mainly addresses primary school under the guidance of International Empowerment Principles (WEPs), students, and aims to support their Finance Corporation (IFC) –one of which are created by the partnership fundamental education. The magazine the entities under the World Bank of the United Nations Global Compact reaches thousands of children in Group–, which is one of the Bank’s and the United Nations Gender Turkey, through 273 Şekerbank shareholders. The system’s basic Equality and Women Empowerment branches in 71 provinces and 97 function is assessment of the Unit. WEPs is one of the most districts, hundreds of primary schools environmental and social impact of important initiatives made by the in villages, kindergartens under Child the loans to be extended. private sector. Protection Institution and hospitals. The Braille Alphabet version of the Şekerbank, as a member of the Sustainable development banking is magazine (published in the tactile Business Council for Sustainable a common value adopted by all of the writing system used by people who Development Turkey (BCSD Turkey), Bank’s activities. With its performance are blind or visually impaired) is also which is Turkey’s representative in this field, the Bank was included in published and delivered to schools in the World Business Council for Borsa Istanbul (BIST) Sustainability and rehabilitation centers for visually Sustainable Development (WBCSD), Index in 2018. impaired children. leads the Sustainable Finance work group in organizing a special summit “2017 Sustainability Report” was At the “TCMA 3rd Capital Markets every year and in creating awareness prepared under the guidance Awards” organized by the Turkish in this field. of United Nations Sustainable Capital Markets Association, the Bank Development Goals (SDG) and based was awarded with the Best Social on international GRI Standards, Responsibility Project under Special and published in 2018. The report Awards category, for Şeker Çocuk summarizes the Bank’s sustainability magazine. performance with respect to environment, society and governance and the Bank’s activities.
ŞEKERBANK ANNUAL REPORT 2018
67 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Ethical Rules and Social Responsibility
Şekerbank is the sponsor of the “Color communication channels. Şekerbank’s I Touch” project created by Istanbul website contains the Banking Modern. The project is prepared Ethics Principles, which reflect for the benefit of visually impaired the Bank’s corporate sensitivities children, where they can participate such as honesty, impartiality, in various workshops and film reliability, transparency, respect for screenings, accompanied by experts public interest and caring for the of the field. In this project that has environment, which all employees are been sponsored since 2011, the Bank committed to comply with. reached out to approximately 3,000 visually impaired children, teenagers Additionally, Şekerbank won the and adults. With the “Color I Touch” ETİKA 2017 Turkey Ethics Award project, the Bank aimed to increase for the 3rd time. ETİKA Turkey Ethics the quality of life for visually impaired Awards is organized by the Center for individuals, and help them to discover Ethical Values (EDMER) to recognize their creativity. business ethics and ethical values in companies. Şekerbank Açıkekran New Media Arts Gallery was Turkey’s first culture-art initiative that emphasizes new media and video art. In 2018, the gallery continued to exhibit works that are also exhibited in some of the world’s most reputable art institutions. Through the Açıkekran platform, Şekerbank has transported new media and contemporary art out of the main cities, by exhibiting world- renowned works in nine Şekerbank branches in eight Anatolian cities, being Istanbul Main Branch, Ankara Küçükesat and Kızılay, Tekirdağ Alpullu, Ordu, Izmir, Bodrum, Mardin and Edirne.
Being the first bank to obtain a corporate governance rating in Turkey, Şekerbank bases its human resources policy on sustainability and gives priority to the following headings: an environment suitable for development, equal career opportunities, fair remuneration, and open internal
ŞEKERBANK ANNUAL REPORT 2018
68 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Şekerbank’s Strategic Objectives
Şekerbank’s core strategy is centered This program includes undertaking Modifications can be made in short on key customer segments: farmers, initiatives in digital transformation and term budget targets depending on shopkeepers and SMEs. This strategy business process excellence, boosting developments in the global and aligns with the aim of supporting the sales force’s effectiveness local economy. However, the Bank’s production – the Bank’s founding with data-based analytical models, strategic objectives are formulated mission. Şekerbank’s major strengths establishing a risk sensitive and to support Turkey’s development in achieving its strategic objectives healthy growth infrastructure for SME journey, encourage production include the extensive branch network and agricultural loans. Şekerbank and foster savings. This is an (where most branch locations have aims to take a sustainable, healthy unwavering constant at the Bank. The not changed for half a century) and robust growth path with this specific activities conducted under and a strong trustworthy brand comprehensive effort. Şekerbank’s strategy implementation perception in local communities. plan and the expectations for the The Bank implements an action plan The Board of Directors monitors future are stated in the Annual that further bolsters the presence of the realization of the objectives set Report chapters “2018 Activities” and broad-based customer segments in out in the Bank’s strategic plan, “Expectations for the Future.” its deposit and loan structure. ensuring that the Bank’s growth is aligned with its strategic objectives. Şekerbank’s strategy aims to utilize Şekerbank headquarters makes sure resources more for the Bank’s core that the strategic objectives of the business areas, where it has excelled headquarters units, regional offices in historically. The Bank seeks and branches that are set forth in the competitive advantage in segments budget have concrete and measurable and geographies with structured indicators. All these processes are services and value propositions. conducted in an effective information To implement this strategy more system. Monitoring and evaluation effectively, Şekerbank initiated a are shaped in a way that provides for digital transformation program institutional learning and continuous in 2018, which includes about 20 improvement as well as accountability projects. Under this effort, the Bank and transparency. plans to renew is technology systems infrastructure and business processes end-to-end.
ŞEKERBANK ANNUAL REPORT 2018
69 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Structure and Composition of the Board of Directors
BOARD OF DIRECTORS The Bank is managed and represented by the Board of Directors. According to the Bank’s Articles of Association, the Board of Directors should be comprised of a minimum of 9, and a maximum of 13 members. The number of independent members of the Board and their qualifications are specified according to the regulations of the Capital Markets Board on corporate governance. Board Members are elected for a term of three years. The current Board Members were elected at the General Assembly Meeting dated March 28, 2018 for a term of three years. The Board of Directors convenes when the business and transactions of the Bank require so. A total of 24 meetings were held during the reporting period. The Board Members’ duties undertaken outside the Bank are given below:
NAME, SURNAME DUTY CURRENT DUTIES TAKEN OUTSIDE THE COMPANY COMMITTEE ASSIGNMENTS AND DUTIES HASAN BASRİ Chairman of the Şeker Yatırım Menkul Değerler A.Ş. Chairman of the Board of Credit Committee GÖKTAN Board of Directors Directors Corporate Governance and Executive Board Şeker Finansal Kiralama A.Ş. Chairman of the Board of Directors Committee Member Şekerbank Kıbrıs Ltd. Chairman of the Board of Directors Remuneration Committee Şekerbank International Banking Unit Ltd. Chairman of the Board of Directors Desmer Güvenlik Hiz. Tic. A.Ş. Chairman of the Board of Directors BEIBIT KARYMSAKOV Vice Chairman “Samruk-Kazyna” Ulusal Varlık Fonu A.Ş. – Executive Director of Remuneration Committee of the Board of Economy and Finance Directors “Samruk-Kazyna Enerji” A.Ş. – Chairman of the Board of Directors “KazPost” A.Ş.– Chairman of the Board of Directors “KazAtomProm” A.Ş. – Board Member SERVET TAZE Board Member – Şekerbank International Banking Unit Ltd. Board Member Credit Committee General Manager Remuneration Committee - Observer HALİT HAYDAR YILDIZ Board Member Şeker Yatırım Menkul Değerler A.Ş. Vice Chairman of the Board of Remuneration Committee Directors Şeker Mortgage Finansman A.Ş. Chairman of the Board of Directors Şeker Faktoring A.Ş. Board Member Turkish Finance Executives Foundation – Board Member ERDAL BATMAZ Executive Board Şeker Yatırım Menkul Değerler A.Ş. Board Member Member Istanbul Mülkiye Graduates Foundation – Board Member EMİN ERDEM Executive Board Şeker Faktoring A.Ş. Chairman of the Board of Directors Credit Committee Member Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. Chairman of the Board of Directors ÜZEYİR BAYSAL** Independent Board -.- Audit Committee Member Corporate Governance Committee ÇETİN AYDIN* Board Member -.- Audit Committee MEHMET AYHAN Board Member -.- Internal Systems ALTINTAŞ* Responsible NARIMAN Executive Board -.- Credit Committee ZHARKINBAYEV Member Corporate Governance Committee AIDAR RYSKULOV Board Member “Samruk-Kazyna” Ulusal Varlık Fonu A.Ş. Corporate Finance Audit Committee Department Head Member of the Strategic Committee for Investments (expert) ALMAT ZHAMIYEV Board Member “Samruk-Kazyna” Ulusal Varlık Fonu A.Ş. Legal and Methodology Corporate Governance Department Head Committee Member of the Strategic Committee for Investments (expert)
* In addition, pursuant to the paragraph 3/a of the article 6 of CMB “Communiqué on Corporate Governance,” which reads: “The board members who are assigned as the audit committee members within the board structures of the banks are regarded as the independent board members within the frame of this Communiqué.,” the Audit Committee Members Çetin AYDIN and Aidar RYSKULOV are accepted as independent Board Members. ** Pursuant to the independence criteria specified in the article 4.3.6 of Annex “Corporate Governance Principles” to CMB “Communiqué on Corporate Governance” Üzeyir BAYSAL is an independent member.
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70 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES
The independence declaration of Independent Board Member Üzeyir BAYSAL is included below:
DECLARATIONS OF INDEPENDENT BOARD MEMBERS As the Independent Member to the Board of Directors of Şekerbank T.A.Ş. (Bank), in accordance with the requirements for an Independent Member of a Board of Directors stipulated in the legislation, the Articles of Association of the Bank and the Capital Markets Board’s Corporate Governance Principles, I hereby declare to the Board of Directors of Şekerbank T.A.Ş, shareholders, all related persons and institutions that: a) In the last five years, myself, my spouse, my blood relatives and my relatives by marriage up to second-degree consanguinity have not established any commercial relation with the Bank, or any of the related parties of the Bank, or legal persons to which shareholders having directly or indirectly at least 10% shares in the Bank capital are related in terms of management or capital to take on important tasks and responsibilities directly or indirectly, to be employed at management level, to be engaged in capital- related matters, or to have any other commercial relation of vital nature, b) I have not acted as an Independent Board Member for more than six years within the last ten years in the Board of Directors of the Bank, c) In the last five years, I have not worked for or functioned as the board member at companies conducting all or a particular part of activity or organization of the Bank within the framework of the agreements signed, companies performing auditing, rating and consulting of the Bank being in the first place, d) In the last five years, I have not been any partner, employee or board member in any of the companies providing services and products for the Bank to a considerable extent, e) My share in the bank’s capital is less than 1% and these shares are not privileged/I have no share in the bank’s capital, f) As can be seen in my resume; I have vocational training, knowledge and experience necessary to fulfill the tasks undertaken by me as an independent board member, g) I did not work full time at public institutions and organizations after I was elected as a member, h) I’m considered to be a resident in Turkey pursuant to the Income Tax Law, i) I have strong ethical standards, professional reputation and experience to make a positive contribution to corporate actions, to keep my impartiality in conflicts of interest to come out among company shareholders, and to make decisions freely by taking into account the rights of stakeholders, j) I allocated enough time for corporate affairs in order to follow the functioning of activities of the Bank and to absolutely fulfill the requirements of the tasks I undertake.
I comply with all criteria related to “Independent Board Member” defined especially in the Capital Markets Board Legislation, related legislation provisions and if for any reason when my status is changed, I will immediately inform about this situation to the Board of Directors of the Bank.
Respectfully yours,
ÜZEYIR BAYSAL
ŞEKERBANK ANNUAL REPORT 2018
71 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Structure and Composition of the Board of Directors
AUDIT COMMITTEE duties of that committee. Within this system. Committee members are Established pursuant to the Article scope; the Corporate Governance Hasan Basri GÖKTAN (Chairman of 24 of the Banking Law No. 5411, the Committee ensures that a transparent the Board, Executive Board Member), Audit Committee is comprised of system on nomination, evaluation and Beibit KARYMSAKOV (Vice Chairman members nominated by the Board of training of the candidates suitable of the Board) and Halit Haydar YILDIZ Directors from among its members for the positions of the Board of (Board Member). Servet TAZE (General to assist the Board of Directors in the Directors and executives exists and Manager, Board Member) is attending fulfillment of audit and supervision advises on the policies and strategies as an observer. The Remuneration tasks, and who assume no executive in this regard, evaluates regularly the Committee held three meetings in roles, but have the qualifications structure and efficiency of the Board 2018. specified in Article 6 of the Regulation of Directors and submits its proposals on Internal Systems of the Banks. The to the Board of Directors regarding CREDIT COMMITTEE Chairman of the Committee is Üzeyir necessary improvements in this The Credit Committee ensures BAYSAL (Independent Board Member), respect. Chairman of the Committee compliance of the Bank’s credit committee members are Çetin AYDIN is Üzeyir Baysal (Independent Board activities with the Bank’s strategy as (Board Member) and Aidar RYSKULOV Member), Committee members are well as evaluates credit proposals (Board Member). The Audit Committee Hasan Basri GÖKTAN (Chairman of across the Bank within the limits held four meetings in 2018. The the Board, Executive Board Member), set by the Board of Directors. Committee presented two reports to Mehmet Ayhan ALTINTAŞ (Board Additionally, the Committee evaluates the Board of Directors on its activities. Member), Nariman ZHARKINBAYEV credit proposals, within the limits (Executive Board Member) and Almat specified by the Board of Directors. CORPORATE GOVERNANCE ZHAMIYEV (Board Member). The The Committee can approve or reject COMMITTEE Corporate Governance Committee those that are within its limits, or According to the “Communiqué On held four meetings in 2018. submit it to the Board of Directors. Corporate Governance” numbered The Credit Committee discusses II-17.1 of the CMB, the Corporate REMUNERATION COMMITTEE systems related to improvement of Governance Committee was According to the CMB “Communiqué credit processes and quality in order established in order to determine as On Corporate Governance” numbered to make further recommendations to to whether principles of corporate II-17.1, the Remuneration Committee the Board of Directors. 50 meetings governance are applied in a sufficient was established under the Board were held during 2018. Committee manner, implement the conflict of of Directors to provide the Board Members are Dr. Hasan Basri GÖKTAN interest policy and supervise the of Directors the proposals related (Chairman of the Board, Executive compliance with the principles with the principles, criteria and Board Member), Emin ERDEM and policies, advise the Board applications of remuneration of the (Executive Board Member), Nariman of Directors in order to enhance Board of Directors and Executives ZHARKINBAYEV (Executive Board the implementation of corporate taking into consideration the Member) and Servet TAZE (General governance and supervise the work of long-term goals of the company and Manager, Board Member). the investor relations department. The to supervise its implementation. The Nomination Committee has not been Committee was established under established due to the structure of the the Board of Directors to monitor and Board of Directors, and the Corporate audit the policies and practices of Governance Committee fulfills the the Bank regarding the remuneration
ŞEKERBANK ANNUAL REPORT 2018
72 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Information on the Bank’s Transactions with Its Risk Group
RISK GROUP COVERING THE BANK SUBSIDIARIES, AFFILIATES AND THE BANK'S DIRECT AND JOINTLY CONTROLLED JOINT INDIRECT SHAREHOLDERS VENTURES
CASH NON-CASH CASH NON-CASH Loans 31,880 4,555 830,489 18,697
Interest and Commission Income Received 11,427 96 98,727 189
RISK GROUP COVERING THE BANK SUBSIDIARIES, AFFILIATES AND THE BANK'S DIRECT AND JOINTLY CONTROLLED JOINT INDIRECT SHAREHOLDERS VENTURES Deposits 416,812 376,221
Interest Expense for Deposits 10,806 22,852
TRANSACTIONS WHERE THE FAIR VALUE SUBSIDIARIES, AFFILIATES AND THE BANK'S DIRECT AND DIFFERENCE IS POSTED AS PROFIT OR JOINTLY CONTROLLED JOINT INDIRECT SHAREHOLDERS LOSS VENTURES 282,222 -
Total Profit/Loss (*) (132,571) -
(*) The Bank does not engage in derivative transactions with its affiliates for profit purposes. Derivative transactions are carried out for hedging purposes, under the risk management of affiliates. Risks arising out of the derivative transactions made with affiliates are hedged with transactions made with third parties.
ŞEKERBANK ANNUAL REPORT 2018
73 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Profit Distribution Policy
The principles for Şekerbank’s profit distribution are stipulated in Article 69 of Şekerbank T.A.Ş.’s Articles of Association.
According to this article, the amount remaining after the deduction of all expenses, provisions and taxes from the income derived by the Bank within an accounting period is the net profit.
• 5% of the net profit is set aside as the legal reserve requirement. • Of the remaining amount, an amount equal to 5% of the paid-in-capital is set aside as the first dividend for shareholders. • The General Assembly is authorized to decide whether the remaining profit shall, in whole or in part, be distributed to shareholders, be paid to the Board of Directors as dividend, or be allocated to extraordinary reserve. • Pursuant to sub-paragraph three (3) of paragraph two (2) of the Article 466 of the Turkish Commercial Code, after setting aside the legal reserve requirement amount stipulated in paragraph one (1) of the Article 466, as well as the profit share for the shareholders equal to 5% of the paid-in-capital, one-tenth (1/10) of the remaining net profit decided to be distributed to the shareholders and to other partakers in profit shall be allocated to the legal reserve fund as the second allotment.
Remuneration of the Members of the Board of Directors and Senior Management
At the Ordinary General Assembly meeting held on March 28, 2018, it was decided to raise Board Members’ salaries, which are paid according to the principles set at the Ordinary General Assembly dated March 31, 2017, by 10% in 2018, in line with the inflation rate. It was also decided to pay additional income taxes arising from the income tax declaration of earnings from multiple employers, as per tax regulations, and other liabilities. The related Minutes of the General Assembly are published in the Bank’s website.
The Bank’s remuneration policy is based on the corporate governance principles and is overseen by the Remuneration Committee. In 2018, the Bank paid TL 8,094 thousand to Board Members and TL 13,035 thousand to senior managers - TL 21,129 thousand in total.
ŞEKERBANK ANNUAL REPORT 2018
74 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Corporate Governance Principles Compliance Rating
SAHA Kurumsal Yönetim ve Kredi Derecelendirme Hizmetleri A.Ş upgraded the Bank’s Corporate Governance Rating to 9.42 (94.23%) for the year 2018 from 9.27 (92.70%) as of 2017. The upgrade was announced to the public by means of a public disclosure of material event on January 25, 2018.
Şekerbank became the first bank in Turkey to be assigned a corporate governance rating in 2008. The distribution of Şekerbank’s rating scores by subcategories for the years 2017-2018 is stated below:
SUBCATEGORIES WEIGHT 2017 2018 Shareholders 0.25 92.45% 94.89% Public Disclosure and Transparency 0.25 92.84% 96.41% Stakeholders 0.15 95.34% 99.20% Board of Directors 0.35 91.69% 90.07% TOTAL 1.00 92.70% 94.23%
The Bank’s 2018 corporate governance rating report is accessible on the Bank’s website (www.sekerbank.com.tr).
Managers of the Units within Internal Systems
SADI TAŞ SERKAN SALIK Aircraft Engineering from Istanbul Internal Audit Department Head Head of Internal Control & Technical University, Faculty of Space Sadi Taş was born in 1971 in Kayseri, Compliance Sciences in 1995. Mr. Menevşe has Sarıoğlan and graduated from Serhan Salık graduated from been an ISACA member since 2004, Kayseri High School. He received Marmara University, Faculty of received CISA certification in 2005 and his undergraduate degree from Economics and Administrative obtained CRISC certification in 2010. Istanbul University, Faculty of Political Sciences, Department of Political He started work at Şekerbank in 2007 Sciences, Public Administration Science and International Relations. as Information Systems Auditor. In Department in 1994. Mr. Taş started In 1999, he joined Şekerbank as 2009, Mr. Menevşe joined the Bank’s working as Assistant Specialist at Assistant Auditor in the Internal Risk Management Department. He Şekerbank T.A.Ş. in 1995. He went Audit Department. Mr. Salık currently is also President of the Technical on to serve as Auditor in the Internal serves as Compliance Officer and Committee for Turkey of the ISO Audit Department in 1996. Between Vice President of Internal Control & 31000 Risk Management Standards 2005 and 2011, Mr. Taş was the Compliance. and Working Group Member of the branch manager of various Şekerbank UNECE GRM (United Nations Economic branches. Subsequently, he served ALPASLAN MENEVŞE Commission for Europe – Group of as Manager, then Group Head of Head of Risk Management Experts on Risk Management). the Credit Monitoring & Follow-up Alpaslan Menevşe graduated from Mr. Menevşe is one of the authors Department. In 2015, Mr. Taş was Boğaziçi University, Department of the book titled “Implementing assigned to the Mediterranean of Computer Engineering in 1990. Enterprise Risk Management: Case Regional Office as Regional Manager. He received his Master’s degree in Studies and Best Practices.” Since March 21, 2018, he has served as Internal Audit Department Head. ŞEKERBANK ANNUAL REPORT 2018
75 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Information on Support Services Providers
ITEM NO SUPPORT SERVICES PROVIDER AGREEMENT TERM 1. Desmer Bilgi ve İletişim Hizmetleri Tic. A.Ş. The agreement was drawn up with a ten-year term and signed on March 1, 2012. The contract expiry date is renewed with an additional agreement and is stated as 31.12.2023. 2. C/S Enformasyon Teknolojileri Limited Şirketi The agreement was drawn up with a five-year term. If either party fails to notify the other party upon the cancellation of the agreement via written notification 3 months prior to the contract expiry date, the agreement is considered as renewed for five years. According to the transfer protocol dated October 14, 2015, the contract signed with Şeker Bilişim San. A.Ş. was transferred to C/S Enformasyon Teknolojileri Limited Şirketi on the same terms. 3. Hobim Dijital Elektronik Hizmetleri A.Ş. The agreement was drawn up with a three-year term. If either party fails to notify the other party upon the cancellation of the agreement via written notification 3 months prior to the contract expiry date, the agreement is considered as renewed for a year. 4. Austria Card Turkey Kart Operasyonları A.Ş. The agreement, which was renewed on August 5, 2014 upon the amendment of the company’s title and shareholding structure, remains valid for two years from the signing date and is extended for one year unless either party issues a notice of cancellation to the other party one month before the contract expiry date. 5. Desmer Güvenlik Hizmetleri Tic. A.Ş. The duration of the Security Service Procurement Agreement was drawn up with a 10 year term with the additional protocol signed on May 31, 2011. (The agreement is extended under the same conditions unless either party notifies the other party via written notification 30 days before the end of this term.) Carriage, Storage and Protection (Archive) of Valuable Items Agreement was drawn up with a three-year term. (The agreement is extended under the same conditions unless either party notifies the other party via written notification 45 days before the end of this term.) 6. MTM Holografi Güvenlikli Basım ve Bilişim Teknolojileri The agreement was drawn up with a one-year term. San. ve Tic. A.Ş. 7. Formalis Bilgi Teknolojileri Ltd. Şti. The agreement was drawn up with a one-year term. The agreement is considered extended for one year under the same conditions unless the parties issue a notice of cancellation one month before the contract expiry date. 8. E-Kart Elektronik Kart Sistemleri San. ve Tic. A.Ş. The agreement was drawn up with a one-year term. The agreement is considered extended for one year under the same conditions unless the parties issue a notice of cancellation three months before the contract expiry date. 9. Asseco See Teknoloji A.Ş. The agreement was drawn up with a one-year term. The agreement is considered extended for one year under the same conditions unless the parties issue a notice of cancellation 30 days before the contract expiry date. 10. ODC İş Çözümleri Danışmanlık Tic. A.Ş. The agreement was drawn up with a one-year term. The agreement is considered extended for one year under the same conditions unless the parties issue a notice of cancellation one month before the contract expiry date. 11. Kurye-Net Motorlu Kuryecilik ve Dağıtım Hizmetleri A.Ş. The agreement is valid until 31.12.2012. In the absence of a termination notice by the parties one month before the expiry date of the contract, the contract shall be deemed extended for one year under the same terms and conditions. 12. Aras Kurye Servisi A.Ş. The agreement was drawn up till December 31, 2016 and is considered extended for one year unless the parties issue a notice of cancellation 30 days before the contract expiry date.
ŞEKERBANK ANNUAL REPORT 2018
76 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Şekerbank’s Policy against the Laundering of Criminal Proceeds and Terrorism Financing
Within the scope of its Program for LEGISLATION COMPLIANCE POLICY Compliance with Legislation Against While providing banking services, the Laundering of Criminal Proceeds it is essential to comply with laws and Terrorism Financing, Şekerbank and regulations adopted by agencies has completed such processes as authorized by the laws. For this designation of a compliance officer, purpose, the Internal Control and establishment of the Compliance Compliance Unit monitors relevant Unit and the setting of in-house legislation changes, provides policies in written form; and the Bank comments on it, and announces undertakes control, monitoring, risk them across the Bank. The possible management, training and internal impact of such legislation changes on audit operations against criminal the banking operations is assessed proceeds. and the related Bank’s units work in coordination to resolve any issues By expending these efforts, Şekerbank that might arise while ensuring aims to comply with laws and compliance with such changes. regulations adopted by agencies Furthermore, compliance controls are authorized by the laws; prevent the performed to ensure that the Bank’s use of the Bank’s facilities for money current or planned activities as well laundering purposes; identify any as new transactions and products are risky transactions, services and in full compliance with the Banking locations which might be prone to Law and other applicable legislation, money laundering; raise awareness internal policies and procedures, among employees in regard to as well as widely accepted banking compliance with legal obligations; practices. protect the Bank’s reputation and the quality of its customer base, while carrying out banking operations.
In line with its customer acceptance policy established for the above stated purposes, Şekerbank takes SERKAN SALIK preventive measures to avoid Compliance Officer accepting as customers those individuals and institutions, whose wealth and funds might not have been acquired through legitimate means; refrains from establishing customer relations - including the extension of retail or commercial loans -with such individuals, and refuses the collaterals and guarantees from such individuals even when they are not its direct customers, and does not include banks in risky regions in its correspondent bank network.
ŞEKERBANK ANNUAL REPORT 2018
77 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Declaration of Responsibility for the Annual Report 2018
DECLARATION OF RESPONSIBILITY, AS PER ARTICLE 9 OF SECTION 2 OF THE COMMUNIQUE ON “FINANCIAL REPORTING RULES IN CAPITAL MARKETS,” BY THE CAPITAL MARKETS BOARD
We reviewed the “Consolidated Financial Statements and Independent Audit Report” of our Bank pertaining to the Accounting Period ending on 31 December 2018, which is approved by the Audit Committee and the Board of Directors, and which is prepared according to the provisions of the Communique on “Financial Reporting Rules in Capital Markets” numbered as Series II 14.1 issued by the Capital Markets Board; the “Annual Report of the Board of Directors;” Corporate Governance Reporting by our Bank which are prepared according to the Resolution of the Capital Markets Board dated 10.01.2019, numbered 2/49, using the templates in the Public Disclosure Platform (KAP) under the headings of URF- Corporate Governance Compliance Report and KYBF-Corporate Governance Information Form, and which are published at the following addresses: https://www.kap.org.tr/tr/Bildirim/739914 and https://www.kap.org.tr/tr/Bildirim/739917; a.) Within the framework of the information we have in the scope of our tasks and responsibilities at our Bank, the Financial Statements and Independent Auditor Report, Annual Report of the Board of Directors and the related Compliance reporting do not include any misleading disclosure on material matters or deficiencies that might cause misconception about the disclosure as of the date it was made, b.) Within the framework of the information we have in the scope of our tasks and responsibilities at our Bank, we do declare that the financial statements prepared according to the applicable Financial Reporting Standards, together with the consolidated financial statements, honestly reflect the facts on the Bank’s assets, liabilities, financial position, profit and loss, and that the annual report honestly reflects the facts, progress and performance of the business and the financial situation of the Bank including the consolidated entities, together with significant risks and uncertainties, and also declare that we are responsible for the explanations we made.
SERVET TAZE SELIM GÜRAY ÇELİK ÜZEYİR BAYSAL General Manager, Executive Vice President Independent Board Member, Board Member in charge of Financial Control, Chairman of the Audit Committee Reporting, Budget & Performance Management
ÇETIN AYDIN AIDAR RYSKULOV Board Member, Board Member, Member of the Audit Committee Member of the Audit Committee
ŞEKERBANK ANNUAL REPORT 2018
78 FINANCIAL INFORMATION Disclosures on the Bank’s Financial Position, Profitability and Debt Servicing Capability
Within the framework of general PROFITABILITY policies specified by Assets and In parallel to the balanced and profit- Liabilities Committee, meetings oriented growth policy pursued in are held weekly, where domestic response to the market conditions, and international developments interest income from loans reached are evaluated. Additionally, market TL 3,479,240 thousand while the information, economic activities and interest expenses on deposits developments of the week within the reached TL 2,168,330 thousand. The Bank are discussed. At the Assets Bank’s net interest income reached and Liabilities Committee, analyses TL 1,463,728 thousand, as its net fee made on issues such as interest and and commission income amounted liquidity risk, expenses, financing, to TL 351,405 thousand while its solvency, risk management, market operating income was TL 1,310,195 risk, credit risk and operational risk, thousand. The Bank’s net profit for real interest rate calculations for 2018, as a result of all its activities, domestic and international markets was TL 86,358 thousand. and the created financial models are discussed. As a result of these DEBT SERVICING CAPABILITY activities, in 2018, the Bank’s net profit Şekerbank’s loans to deposits ratio reached TL 86,358 thousand, and its stands at 89.06% as of 2018 year- asset size amounted to TL 31,321,320 end, indicating the growth potential of thousand. the Bank’s loans that can be funded by deposits. In addition, an extensive DEVELOPMENT IN ASSETS branch network and a stable savings Loans reached 65.66% of total assets. deposit base have positive effects on At the end of 2018, the Bank allocated Şekerbank’s debt servicing capability. 73.60% provision for non-performing Interest sensitivity of the time deposit loans. The rate of the securities and solid demand deposit volume also portfolio within total assets was make Şekerbank more advantageous 12.79% in 2018. compared to its rivals in terms of liquidity. DEVELOPMENT IN LIABILITIES Focusing on growing its deposit base, the main funding source, the Bank’s deposits constitute 73.72% of the total liabilities while the ratio of deposits to loans stands at 89.06%. Despite the competitive environment, the Bank managed to increase its deposits by 17.04% over the previous year. In 2018, the Bank’s shareholders’ equity was TL 2,377,326 thousand. Consequently, its capital adequacy ratio was 15.14% in 2018.
ŞEKERBANK ANNUAL REPORT 2018
79 FINANCIAL INFORMATION Expectations for the Future
In 2018, global economic growth In the first half of the year, Turkey reform with an emphasis on came closer to reaching the levels registered GDP growth of 6.3%, budgetary discipline and efficiency. prior to the 2008-2009 financial crisis, becoming one of the world’s Meanwhile, the CBT signals that largely thanks to the acceleration of fastest expanding emerging market it will maintain a contractionary advanced economies. However, major economies. In August, the Turkish lira monetary policy and we expect that international institutions expect that experienced a sudden and baseless a moderately stable international the world economy in 2019-2020 depreciation due to tense international relations environment will prevail, will experience a slowdown relative relations and speculative attacks. This allowing Turkey to continue being to its performance in 2018. Growth event constricted economic growth in an attractive market in the face of expectations for the coming year the second half of the year. However, global risks. We see this positive trend were revised down due to pressure on in September, the government’s New continuing during the course of the the global economy stemming from Economy Program helped restore year. two key factors: the rise of global economic stability, leading to a quick protectionist policies and uncertainty rebound. Measures taken under the New surrounding the impact of Brexit on Economy Program both restored the EU’s leading economies. As part of the economic stabilization confidence in Turkey’s economy and process, Turkey’s balance of supported the real sector. Projecting Although mounting risks on a global payments entered into a significant that the positive impact of these scale dampen growth prospects for recovery trend, closing 2018 at corrective measures will continue in developed countries, announcements USD 27.4 billion, or 3.5% of GDP. The the coming year, we expect Turkey made by the Federal Reserve of the acceleration in exports of goods and to record GDP growth of around 3% United States (Fed) and the European services and the strong uptrend in in 2019. Meanwhile, the banking Central Bank (ECB) signal that tourism revenues, two key indicators industry, a major driver of the slow steps would be taken toward in Turkey’s economy, allow us to have economy, is forecast to demonstrate normalization of monetary policy. positive expectations for the coming 10-15% loan growth, with some This stance opens a new window of year. Reflecting the transformation contraction in profit margins. opportunity for capital flows. in the economy, Turkey’s balance of payments is projected to be about Against this backdrop, Turkey, always USD 20-25 billion in 2019. a country closely watched by foreign investors among other emerging In the coming year, central banks markets, closed the year with upward of developed countries are widely positive momentum, thanks to quick expected to not yet adopt a monetary and effective corrective measures tightening stance. In Turkey, taken by government officials. government authorities state their Turkey both minimized economic commitment to combat inflation by environment risks and applied a focusing on stability and economic gradual stabilization policy.
ŞEKERBANK ANNUAL REPORT 2018
80 FINANCIAL INFORMATION Şekerbank’s Credit Ratings
FITCH RATINGS (28.01.2018) Long-term Foreign and Local Currency B
Short-term Foreign and Local Currency B
Financial Capacity Rating b
Long-term National Rating BBB-(tur)
Outlook Negative
Support 5
MOODY’S (28.08.2018) Long-term Foreign Currency Deposit Rating Caa1
Long-term Local Currency Deposit Rating Caa1
National Scale Long-term Deposit Rating Ba3.tr
National Scale Short-term Deposit Rating TR-4
Financial Strength Rating caa1
Long-term Counterparty Risk Assessment Rating B3(cr)
Outlook Negative
JCR EURASIA RATING (27.09.2018) Foreign Currency Long-term Rating BBB-
Local Currency Long-term Rating BBB-
Long-term National Rating AA- (TrK)
Foreign Currency Short-term Rating A-3
Local Currency Short-term Rating A-3
Short-term National Rating A-1+ (TrK)
Support Rating 3
Financial Capacity Rating AB
Outlook Negative
ŞEKERBANK ANNUAL REPORT 2018
81 FINANCIAL INFORMATION Five-Year Summary Financial Highlights
UNCONSOLIDATED SELECTED FINANCIAL INDICATORS
(THOUSAND TL) 2014 2015 2016 2017 2018 Total Assets 21,187,288 24,415,966 23,818,856 31,346,461 31,321,320
Total Loans (Net) 14,655,079 16,737,565 17,613,068 20,676,280 20,564,181
Shareholders’ Equity 2,391,813 2,526,942 2,532,793 2,712,151 2,377,326
Total Deposits 13,538,608 14,867,633 16,136,281 19,726,988 23,089,134
Profit Before Tax 280,701 85,246 139,615 139,527 104,813
Net Profit 223,969 102,649 125,194 114,890 86,358
UNCONSOLIDATED FINANCIAL RATIOS
(%) 2014 2015 2016 2017 2018 Capital Adequacy Ratio 14.60 13.66 13.11 15.40 15.14
Total Securities/Total Assets 11.46 12.30 10.44 8.81 12.79
Total Loans/Total Assets 69.17 68.55 73.95 65.96 65.66
Total Deposits/Total Assets 63.90 60.89 67.75 62.93 73.72
ŞEKERBANK ANNUAL REPORT 2018
82 FINANCIAL INFORMATION The Audit Committee’s Assessment of the Internal Systems in 2018
In order to ensure effective and The Bank’s senior management and It is anticipated that the credit rating efficient execution of the activities business lines revise the Bank’s risk models and validation, which are under the Internal Systems in 2018, management policies at least once overseen by the Risk Management the Audit Committee performed its a year with regard to the Bank’s Unit, as well as organizational oversight and audit responsibilities. growth strategy and prevailing market structuring efforts will have a positive conditions. The revised and updated impact on the effectiveness of the INTERNAL SYSTEMS policies come into force with the rating and scoring models used by The Risk Management Unit operates approval of the Board of Directors. the Bank, and also on the update under the active monitoring and and validation processes of TFRS 9 supervision of the Board of Directors The major risks of the Bank – expected loss models. and the Board of Directors Member strategic risk, credit risk, market risk, responsible for Internal Systems. interest rate risk arising from banking The Internal Audit Department is accounts, liquidity risk and operational responsible for auditing the Bank’s The Risk Management Unit carries out risk – are limited in proportion to the activities in terms of compliance its activities to determine, measure, Bank’s net worth; as such, “risk limits” with the Banking Law and its related analyze and monitor the Bank’s risk are structured and implemented. regulations, other relevant legislation exposure with a systematic approach. Compliance with the risk limits is and the Bank’s internal strategies, taken into account in the Bank’s policies, principles and objectives. Thus, the Risk Management Unit strategic decision making processes, The Department provides assurance uses advanced risk measurement, and is a mandatory agenda item at the to the Bank’s senior management evaluation and analysis techniques in Board meetings. regarding the effectiveness and its assessment of credit risk, market adequacy of the internal control risk, interest rate risk arising from Within the Bank’s “Internal Capital and risk management systems. banking accounts, liquidity risk and Adequacy Assessment Process,” The Internal Audit Department operational risk. The Unit ensures Şekerbank carries out stress tests is authorized to conduct audits, the timely and healthy functioning and scenario analyses to measure the examinations and investigations of information flow and reporting impact of the possible losses that may in all departments, branches and channels. occur in the most extreme conditions subsidiaries of the Bank. on the Bank’s financial structure. The The Risk Management Unit monitors results are presented to the Board In addition, the Department domestic and international economic of Directors. The “Internal Capital focused on “central audits” that and financial developments as well as Adequacy Assessment Process” is use remote auditing techniques banking laws, rules and regulations. considered to be a building block that and performed process audits to The Unit develops risk management is fed and developed by “Corporate test and evaluate the effectiveness, solutions and applications based on Governance,” rather than simply being adequacy and compliance of the its findings. As such, good corporate a measurement process. internal controls over the banking governance is conducted in an processes. Furthermore, information effective manner. systems processes were reviewed in accordance with the COBIT control framework.
ŞEKERBANK ANNUAL REPORT 2018
83 FINANCIAL INFORMATION The Audit Committee’s Assessment of the Internal Systems in 2018
In 2018, the Department conducted To prevent interruptions of banking The main objectives are compliance thorough audits at 200 branches, loan activities, Şekerbank carried out of the Bank personnel with legal audits at 38 branches, operational necessary controls to make sure obligations; and maintenance of the transaction audits at 25 branches; that the Bank’s business continuity Bank’s reputation and customer a total of 22 audits at the Head and backup plans are efficient and quality during the conduct of its Office, unit and service departments in harmony with the current targets banking activities. Pursuant to the and regional offices; and also 6 and strategic priorities. As for the customer acceptance policy set as a partnership audits; 10 process controls in place, it has been ensured part of this effort, measures are taken audits, and 1 IT audit. Thanks to the that customer credit files, investment to prevent the Bank from accepting Bank’s risk-based audit structure, operations, branch operations and as customers those individuals and a large portion of Şekerbank’s loan security activities were done in entities for which there is doubt about portfolio was audited and operational accordance with legal requirements the legality of the source of their processes were reviewed in an and the Bank’s internal regulations. wealth and funds. effective manner using sampling Support services received from third techniques in 2018. party providers were also controlled In conducting banking activities, to prevent possible risks that may it is of paramount importance to The audit results were grouped based originate from obtaining external comply with the Banking Law as well on its importance and significance support services. Findings and as with the regulations set out by and reported to the Audit Committee, recommendations were regularly the agencies authorized under the the Bank’s senior management and presented to the Internal Systems Banking Law. Additionally, relevant relevant business units. The actions Responsible, the Audit Committee legislation changes are monitored taken in response to the audit findings and the senior management. Control and communicated within the Bank were also monitored closely by the results and the outcomes of the together with the relevant comments; Inspection Board. findings were monitored at branch, adequate support is provided to department and regional office levels. the business lines in regard to the During the central control process necessary changes required to executed by the Internal Control The Bank actively conducts control, be done in the banking processes and Compliance Unit, the operations monitoring, risk management, training in terms of possible changes in of the Bank’s business lines were and internal audit activities to combat legislation. periodically monitored. Furthermore, money laundering and financing of control activities have been terrorism. The fundamental objective of the performed to ensure that the internal Audit Committee is to improve the communication channel for the “risk perception” and “control culture” accounting and financial reporting of the Bank’s decision-making and system is functioning effectively. compliance mechanisms. This Controls were performed on the perspective will be maintained in the banking processes and information period ahead as part of our strong systems within the COBIT framework corporate governance approach. to ensure that management of the Bank’s information systems adheres to the principles of integrity, sustainability, accessibility and confidentiality.
ŞEKERBANK ANNUAL REPORT 2018
84 FINANCIAL INFORMATION Risk Management System Strategy
1. The Risk Management System, STRUCTURE AND SCOPE OF THE FUNDAMENTAL POLICY OF THE taken as a whole, is structured so RISK MANAGEMENT SYSTEM RISK MANAGEMENT SYSTEM as to incorporate organizational, 1. The Risk Management System’s 1. The Risk Management System managerial and operational structure covers the following and activities within this scope processes and IT Systems, and mechanisms of decision making are organized and are actively create risk awareness. and execution, as well as the supervised and audited. 2. The Risk Management System monitoring, control and audit 2. Strategies, policies, risk limits and is intrinsic to all of the Bank’s mechanisms: procedures of implementation are operations; as such, each and every • Board of Directors, shaped in accordance with the employee is responsible for the • Senior management, scope and structure of the Bank’s implementation of the system. • Units forming the Internal Systems, strategies and activities, and in view 3. The Risk Management System • Committees established by the of changing conditions. is structured so as to cover all Board of Directors within the scope 3. A relevant division of duties is set establishments within the scope of of the Risk Management System, across the Bank to prevent error, consolidation. • Committees established by the fraud, conflict of interest, misuse of 4. The Risk Management System senior management within the information and Bank resources. aims to reach the following targets scope of the Risk Management 4. The duties, authorities and as regards the Bank’s internal System, responsibilities of the units, assessment process for capital • Committees established by the committees and staff across the adequacy: senior management within the Bank are clearly defined in written • To preserve the Bank’s financial scope of the Risk Management form. integrity, System. 5. The IT Systems infrastructure • To align the Bank’s risk appetite is aligned with the quality and with its strategies and activities, PURPOSES OF THE RISK complexity of the Bank’s strategies, • To set the Bank’s capital MANAGEMENT SYSTEM activities and products/services. requirement in line with its risk 1. To establish a common risk 6. The IT Systems infrastructure appetite, culture by means of efficient is organized so as to enable the • To adopt a risk-based perspective in risk management strategies and identification, measurement, the following areas: policies, monitoring, control and timely - Across the units, 2. To set Risk Limits and manage their reporting of any risk the Bank might - While structuring portfolios, procedures of implementation in an be exposed to. - In processes of authorization, efficient manner, 7. Information flow is organized - In pricing. 3. To improve the Bank’s asset quality, across the Bank so as to reach • To make the Performance 4. To meet the Bank’s obligations in management echelons and Management System efficient, full, staff vertically and horizontally, • To enhance “Corporate Governance 5. To align the Bank’s risk appetite in accordance with IT security Principles” and transparency. with its strategies and activities, principles. 6. To set the Bank’s capital 8. It is ensured that the management requirement in line with its risk echelons and staff have full appetite. knowledge of the Bank’s objectives and strategies, policies, risk limits and their procedures of implementation.
ŞEKERBANK ANNUAL REPORT 2018
85 FINANCIAL INFORMATION Risk Management System Strategy
TOOLS OF THE RISK MANAGEMENT As for its internal assessment Credit allocation is performed on SYSTEM process for capital adequacy, the a debtor or a debtor group basis 1. Establishment of Risk Limits, Bank sets limits for the credit risk, within certain limits. These limits 2. Creation of an efficient division of market risk and operational risk, are allocated in accordance with the duties (including decision making which are included in the calculation regulations and within the framework mechanisms), of the Capital Adequacy Ratio, as of lending authorization determined 3. Establishment of efficient well as for those risk factors that are by the Board of Directors. information flow channels not included in the said calculation (including financial/managerial (concentration risk, interest rate During the loan allocation process, reporting), risk arising from the banking risk rating and scoring systems are 4. Efficient process management, accounts, liquidity risk, etc.), with due effectively deployed. According to 5. Establishment of effective internal consideration of the Bank’s net worth. the Bank’s loan policy, in addition to controls, these systems, limit and collateral 6. Emergency and business continuity “Risk Limits” and “Key Risk Indicators” processes are also utilized as planning. have been defined accordingly, complementary elements reducing stress tests and scenario analyses credit risk. The credit worthiness of INFORMATION ON RISK have been conducted in parallel, and debtors is monitored periodically; MANAGEMENT POLICIES APPLIED the adequacy of the internal capital loan limits are updated once a year, BY RISK TYPES requirement is assessed concerning or whenever necessary according to The Bank’s risk management current and future operations. economic conditions. strategies, policies and procedures, approved by the Board of Directors, CREDIT RISK The Bank’s Board of Directors has frame the written standards Credit risk is the possibility of loss defined concentration limits based for systematic identification, that the Bank might suffer in case the on industry, region, debtor or debtor measurement, monitoring, analysis loan recipient, whether an individual group. These limits are monitored and control of the risks that the Bank or institution, fails to comply with the regularly, revised once a year, and may be exposed to. loan agreement partially, entirely or in updated whenever it is necessary a timely manner. according to economic conditions and These standards are revised and changes in the Bank’s strategy. if necessary updated at least once In accordance with the applicable a year by the senior management, legislation and the policies and The Bank’s credit risk profile is under the lead of the General procedures of implementation set by monitored and assessed by the Manager and the coordination of the the Board of Directors, the Bank’s loan Risk Management Unit. The Risk Risk Management Unit, according to allocation activities are performed in Management Unit presents the results changes in market conditions and the line with the principle of “division of of compliance of the Bank’s activities Bank’s strategy. authorities,” that is, executed through and monitoring assessment activities independent marketing, allocation, to the Assets & Liabilities Committee The revision process is geared toward monitoring, control and audit on a weekly basis and to the Board identifying whether the current functions. of Directors on a monthly basis. This strategies, policies and procedures presentation is a mandatory agenda are meaningful and sufficient as item at the meetings of the Board of regards the Bank’s activities. Directors. The updated strategies, policies and procedures enter into force upon the approval of the Board of Directors.
ŞEKERBANK ANNUAL REPORT 2018
86 FINANCIAL INFORMATION
MARKET RISK VaR measurements are based on • The yield curve risk, which arises Market risk is the possibility of loss an observation period covering from a change in the shape and/or that the Bank may suffer due to the last 250 workdays and a 99% slope of the yield curve due to the changes in the prices of financial confidence level. In “Economic variation in the change in market instruments featured in the trading Capital” measurements based on interest rates by different maturity accounts, arising from fluctuations in VaR, a 10-day holding period is segments, market prices. applied. Additionally, stress tests • The basis risk, which arises from and scenario analyses are applied the impact of relative changes The Bank’s policies and procedures in order to measure and monitor the in interest rates on interest rate of implementation as regards impact of excessive market volatility, sensitive instruments that have market risk are in accordance with while the effectiveness of the Bank’s similar tenors but are priced using the current banking legislation and internal model is tested by using different interest rate indices. Basis approved by the Bank’s Board of “retrospective tests” on a daily basis. risk arises from the imperfect Directors. correlation in the adjustment of the The Bank’s market risk profile is rates earned and paid on different The Board of Directors has monitored and assessed by the interest rate sensitive instruments approved both nominal-based limits Risk Management Unit. The Risk with otherwise similar rate (transaction, dealer, desk and Management Unit presents the results change characteristics, and it may stop-loss limits) and risk-based limits of its compliance, monitoring and negatively impact the Bank’s net (Value-at-Risk limits) monitored on a assessment activities to the Assets interest income or economic value, daily basis; all of which are reviewed & Liabilities Committee on a weekly • The option risk, which arises from at least once a year according to basis and to the Board of Directors options (embedded and explicit), market conditions and changes in on a monthly basis. This presentation where the Bank or its customer the Bank’s strategies, and updated is a mandatory agenda item at the can alter the level and timing of whenever deemed necessary. meetings of the Board of Directors. their cash flows, namely the risk arising from interest rate sensitive At Şekerbank, market risk exposure INTEREST RATE RISK ARISING FROM instruments where the holder will is measured, monitored and reported BANKING ACCOUNTS almost certainly exercise the option on a daily basis. In this vein, The Bank can be exposed to interest if it is in their financial interest to do “Value-at-Risk (VaR) Methods” are rate risk arising from the banking so (embedded or explicit automatic applied as an internal model. Among accounts as a result of the following options) and the risk arising from these VaR methods, the “Variance factors: flexibility embedded implicitly or Covariance Method,” also known as • The reprising risk, which arises within the terms of interest rate the “Parametric Method,” is used from the mismatch between the sensitive instruments, such that for reporting purposes, while the maturity of the Bank’s assets and changes in interest rates may affect “Historical Simulation” and the “Monte liabilities, and interest-sensitive off- a change in the behavior of the Carlo Simulation” methods, on the balance sheet items (fixed interest client (embedded behavioral option other hand, are used for comparison, items) and repricing periods risk). Option risk may negatively in times of significantly increased (variable interest items), impact the Bank’s net interest volatility. income or economic value.
ŞEKERBANK ANNUAL REPORT 2018
87 FINANCIAL INFORMATION Risk Management System Strategy
The Bank’s policies and procedures It is the priority of the Asset Liability The Bank employs GAP analyses in related to the interest rate risk arising Management to provide protection order to measure and monitor the from the banking accounts are in line against fluctuations in market interest impact of liquidity risk, which shows with banking legislation and approved rates. In this vein, gap analyses, the current and future liquidity needs. by the Bank’s Board of Directors. duration and economic value analyses The Bank bases those analyses on as well as sensitivity analyses are certain maturity segments approved The Board of Directors has approved evaluated on a weekly basis by the by the Board of Directors for assets Risk Limits based on the net worth, as Bank’s Assets & Liabilities Committee. and liabilities and average maturity regards the interest rate risk arising segments for the off-balance sheet from the banking accounts outside The Bank’s interest rate risk profile items. These assumptions include the trading accounts. Monitored on is monitored and assessed by the the behavioral attributes for revolving a weekly basis, and reviewed and Risk Management Unit. The Risk loans and overdraft accounts as well revised at least once a year with Management Unit presents the results as demand and time deposits. respect to market conditions and of its compliance, monitoring and These analyses are evaluated on a changes in the Bank’s strategies, assessment activities to the Assets weekly basis by the Bank’s these limits are based on the & Liabilities Committee on a weekly Assets&Liabilities Committee. Bank’s net worth and determine the basis and to the Board of Directors acceptable level of interest rate risk on a monthly basis. This presentation The Bank’s policy requires sustaining by certain maturity segments. is a mandatory agenda item at the an asset structure able to satisfy any meetings of the Board of Directors. liability in time with liquid sources. The Bank employs two separate The Board of Directors supervises approaches, i.e. “Income Approach” LIQUIDITY RISK the policies and procedures related and “Economic Value Approach” in Liquidity risk is the possibility of loss to liquidity management in an active order to measure and monitor the that the Bank may face, when the cash manner. impact of interest rate risk on its inflows and cash outflows are not met income and capital. The “Income fully and/or on time due to the low The Bank’s liquidity risk profile is Approach” is employed in order to level of cash or cash inflows. monitored and assessed by the calculate the impact of movements in Risk Management Unit. The Risk market interest rates on Net Interest The Bank’s policies and procedures Management Unit presents the results Income, while the “Economic Value related to the liquidity risk are in of its compliance, monitoring and Approach” is employed in order to line with the banking legislation and assessment activities to the Assets calculate the same impact on the approved by the Bank’s Board of & Liabilities Committee on a weekly Economic Value of Equity. As the Directors. basis and to the Board of Directors “Economic Value Approach” offers a on a monthly basis. This presentation much more comprehensive view since The Board of Directors has approved is a mandatory agenda item at the it considers the present value of all Risk Limits compliant with the legal meetings of the Board of Directors. the future cash flows, it constitutes “Liquidity Adequacy Ratios” and based the basis for the Bank’s Asset Liability on the Bank’s net worth, monitored on Management. Additionally, stress tests a weekly basis; these limits determine and scenario analyses are applied the acceptable level of liquidity risk in order to measure and monitor the by certain maturity segments. They changes in interest rate sensitive on- are reviewed and revised at least and off-balance sheet items, arising once a year, with respect to market from adverse movements in interest conditions and changes in the Bank’s rates. strategies.
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88 FINANCIAL INFORMATION
OPERATIONAL RISK The Bank’s operational risk profile The operational risk is the possibility is monitored and assessed by of loss that the Bank may suffer due the Risk Management Unit. The to failures in internal processes, Risk Management Unit created systems or human resources, or the Operational Risk Matrix to external factors such as earthquake, analyze anticipations of possible fire, flood and terrorist attack. threats of operational risk arising due to the activities of different In order to keep its operations on a Bank departments; to identify and consistent, competitive and improving report the impact, probability and path, the Bank abides by the principle concentration of the identified risks; of aligning its operational risk policies to make suggestions to the related and practices with both its overall departments regarding required business targets and up-to-date COBIT measures to be taken. The Risk and Information Technology Risk Management Unit presents the provisions. results of compliance, monitoring and assessment activities in the form The functions related to the Bank’s of Risk Limits Report to the Board of processes of generation, distribution, Directors on a monthly basis. This reporting and storage of critical presentation is a mandatory agenda information have been separated. The item at the meetings of the Board of information generated by the Bank is Directors. categorized; the possible threats to each of these categories are identified; CONSOLIDATED RISK MANAGEMENT risk analyses and assessments are POLICIES conducted and inventoried. Before and The Risk Management System has after important changes (technology, been configured so as to include the business flow, etc.) that might impact subsidiaries, which are subject to banking processes, risk analyses consolidation. These subsidiaries set and assessments of information and implement the risk management and processes are revised; the policies, which suit in a best manner information inventory is updated. The to their structure, in accordance with Bank creates certain control points the strategies, objectives and main across banking processes and its policies of the Risk Management performance is regularly monitored to System and with due consideration ensure its efficiency. of the conditions in their own fields of activity.
ŞEKERBANK ANNUAL REPORT 2018
89 FINANCIAL INFORMATION Şekerbank T.A.Ş. Head Office Organizational Chart
BOARD OF DIRECTORS
INTERNAL SYSTEMS
Board of Directors Secretariat
GENERAL MANAGER
EVP EVP EVP Strategy EVP Financial Operations & Human Treasury Institutions Resources
Digital Banking, Process & Group Head Channel Human Inspection Board Legal Advisor Management Resources Group Head
Process Development Treasury Branches Strategy & Human Financial Risk Internal Control & Customer Marketing Operation Analytics Resources Institutions Management & Compliance Communication & Sales Department Department Department Department Department Department Management Department Department
Investor Payment Corporate Distribution Treasury Asset Relations & Systems Communications Channel & Liability Structured Operations & Advertising Management Management Finance Department Department Department Department Department
Sustainable Development Chief Economist Banking Department
ŞEKERBANK ANNUAL REPORT 2018
90 FINANCIAL INFORMATION
Consultants
EVP EVP EVP Financial Control, EVP EVP Corporate Agricultural & EVP Reporting, Budget Credit Monitoring SME Banking & Commercial Individual Banking Credit Management & Performance & Follow-Up Marketing Banking Marketing Marketing Management
Group Head Group Head Financial Control, Group Head Information Subsidiaries Logistics Technologies & Shareholder Relations
Software Property, Budget Corporate Development SME Banking Agricultural Corporate & Purchasing & & Performance Legal Processing & Commercial & Project Marketing Banking Marketing Commercial Credits Construction Management Department Banking Marketing Management Department – 1 Department Department Department Department Department Department
IT Security SME Banking Individual Banking & Quality Financial Reporting Legal Operations Cash Management SME Credits Marketing Marketing Management Department Department Department Department Department – 2 Department Department
Corporate, Commercial & Technology SME Banking SME Credits Agricultural Credits Operations Administrative Marketing Department Department Follow-Up & Department – 3 Structuring Department
Small Enterprises & Agricultural Credits Micro Credits Administrative Follow-Up & Department Structuring Department
Credit Monitoring Credit Policies Department Department
Credit Analysis & Reporting Department
ŞEKERBANK ANNUAL REPORT 2018
91
ŞEKERBANK TÜRK ANONIM ŞIRKETI UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 WITH INDEPENDENT AUDITORS’ REPORT THEREON
(CONVENIENCE TRANSLATION OF UNCONSOLIDATED FINANCIAL STATEMENTS AND RELATED DISCLOSURES AND FOOTNOTES ORIGINALLY ISSUED IN TURKISH) FINANCIAL INFORMATION
(CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH)
INDEPENDENT AUDITOR’S REPORT
To the General Assembly of Şekerbank T.A.Ş.
A) Report on the Audit of the Financial Statements
1) Opinion
We have audited the financial statements of Şekerbank T.A.Ş. (“the Bank”), which comprise the statement of financial position as at 31 December 2018, and the statement of income, statement of income and expense items accounted for under shareholders’ equity, statement of changes in shareholders’ equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulations” including 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 provisions of Turkish Financial Reporting Standards (TFRS) for the matters not legislated by the aforementioned regulations.
2) Basis for Opinion
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 Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3) Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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94 FINANCIAL INFORMATION
Key Audit Matter How the matter was addressed in the audit First time adaptation of TFRS 9 Financial Instruments Standard and Impairment of loans in accordance with TFRS 9
The Bank has the total loans amounting to TRY 22,056,150 thousands, As part of our audit work, the following procedures were performed: which comprise 70,42% of the Bank’s total assets in its unconsolidated financial statements and the total provision for impairment amounting The Bank’s IFRS 9 policy of the classification of financial assets and to TRY 1,491,969 as at 31 December 2018. Impairment of loans is a key financial liabilities has been read and compared with the requirements area of judgement for the management. of TFRS 9.
As of 1 January 2018, the Bank has started to recognize provisions for The Bank’s contractual cash flows tests for its financial instruments impairment in accordance with the TFRS 9 requirements according to have been reviewed, its criteria and results have been evaluated. the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official The appropriateness of the opening balance adjustments and the Gazette dated 22 June 2016 numbered 29750. disclosures presented were checked.
TFRS 9 standard introduced significant changes in accounting policies The procedures applied for the expected credit losses are set out in and required adjustments to be made to the amounts previously the key audit matter related to the “Impairment of loans in accordance recognized in accordance with the transition rules. with TFRS 9” above.
For the first time adoption of TFRS 9, the Bank included more We assessed and tested the design, implementation and operating significant estimates and judgments in determining the business effectiveness of key controls applied by the Bank with respect model and the cash flows characteristics of contracts. Since the Bank to classification of loans and determination and calculation of had a fundamental change in its financial reporting framework and had impairments. an impact on many significant financial statement line-items, the first time adoption of TFRS 9 has been considered as a key audit matter. We have read and analysed the relevant contract terms to assess management’s accounting policy and classification of the instrument In this respect, as of 31 December 2017, the method of provisions for selected samples. for impairment as set out in accordance with the related legislation of BRSA as mentioned in the Section 3 Note XXIII of Explanation on We have performed loan review procedures on selected samples Accounting Policies has been changed by applying the expected of loans with the objective of identifying whether the loss event credit loss model under TFRS 9. The expected credit loss estimates had occurred and whether the provision for impairment has been are required to be unbiased, probability-weighted and should include recognized in a timely manner within the framework of the provisions supportable information about past events, current conditions, and of the relevant legislation. forecasts of future economic conditions. We have tested relevant inputs and assumption used by the The Bank exercises significant decisions using judgement, management in each stage of the expected credit loss calculation by interpretation and assumptions over calculating loan impairments. considering whether the inputs and assumptions appear reasonable, These judgements, interpretations and assumptions are key in the the relationship between the assumptions and whether the development of the financial models built to measure the expected assumptions are interdependent and internally consistent, whether credit losses on loans. the assumptions appropriately reflect current market information and collections, and whether the asumptions appear reasonable when considered collectively with other assumptions, including those for the same accounting estimates and those for other accounting estimates.
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There is a potential risk of impairment losses/provisions provided/ We have tested historical loss data to validate the completeness and will be provided may not meet the requirements of the TFRS 9. Failure accuracy of key parameters. in determining the loans that are impaired and not recording the adequate provision for these impaired loans is the aforementioned We have tested whether the model is applied to appropriate groupings risk. Accordingly, impairment of loans is considered as a key audit of assets which share credit risk characteristics and whether the matter. historical loss rates were incurred under economic conditions representative of those that may exist during the assets’ exposure Related explanations relating to the impairment of loans are presented periods. in Section 5 Note I.5. Based on our discussions with the Bank management, we evaluated whether the key assumptions and other judgements underlying the estimations of impairments were reasonable.
Our specialists are involved in all procedures related to models and assumptions.
We have reviewed disclosures made within the TFRS 9 framework in the financial statements of the Bank with respect to loans and related impairment provisions. Key Audit Matter How the matter was addressed in the audit Valuation of Pension Fund Obligations
Defined benefit pension plan that the Bank provides to its employees Our audit work included the following procedures: is managed by Şekerbank T.A.Ş. Personeli Sosyal Sigorta Sandığı Vakfı which were established by the 20th provisional article of the Social We involved external experts (actuary) in our audit team to evaluate the Security Law numbered 506 (“Law”). assumptions used in the calculation of the pension obligations and the appropriateness of the estimates. As disclosed in the Section III note XVI to the unconsolidated financial statements, the Plan is composed of benefits which are subject to It has been tested whether the plan assets meet plan obligations in transfer to the Social Security Foundation (“SSF”) as per the Social accordance with the methods and assumptions used. Security Law no.5510 provisional article 20, and other social rights and pension benefits provided by the Bank that are not transferable We have assessed whether there is a significant change in the to the SSF. The Council of Ministers has been authorized to determine actuarial assumptions, methods, legal regulations and legislation used the transfer date. Following the transfer, the funds and the institutions in the calculations and whether the assumptions are reasonable. that employ the funds’ members will cover the non-transferable social rights and pension benefits provided under the Plan.
As of 31 December 2018, the Pension Fund’s present value of transferrable liabilities are calculated by an independent actuary using the actuarial assumptions regulated by the Law, and in accordance with the Decision of the Council of Ministers announced dated 30 November 2006 and No.2006/11345. The valuation of the Plan liabilities requires judgment in determining appropriate assumptions such as defining the transferrable social benefits, discount rates, salary increases, inflation rates, demographic assumptions, and the impact of changes in the Plan. Management uses expert opinion of the independent actuary in assessing uncertainties related to these underlying assumptions and estimates.
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As described in Section V note II.9.f considering the subjectivity of key judgments and assumptions, plus the uncertainty around the transfer date and basis of the transfer calculation given the fact that the technical interest rate is prescribed under the Law, we considered this a key audit matter.
Key Audit Matter How the matter was addressed in the audit Information Technologies Audit
The Bank and its finance functions are dependent on the IT- Procedures within the context of our information technology audit infrastructure for the continuity of its operations, and the demand work: for technology-enabled business services is rapidly growing in the Bank and its subsidiaries. Controls over reliability and continuity of We identified and tested the Banks’ controls over information systems the electronic data processing are within the scope of the information as part of our audit procedures. systems internal controls audit. The reliance on information systems within the Bank means that the controls over access rights, continuity Information generation comprise all layers of information systems of systems, privacy and integrity of the electronic data are critical and including applications, networks, transmission systems and database. found to be key area of focus as part of our risk based scoping. The information systems controls tested are categorized in the following areas:
• Manage security • Manage changes • Manage operations
We selected high-risk areas as, database logging and change management control activities, to prevent and detect whether accesses to financial data had been identified in a timely manner.
We tested the accesses and logging controls underlying all applications that have direct or indirect impacts on financial data generation.
Automated controls and integration controls are tested to underly and detect changes and accesses in the process of financial data generation.
We also tested the appropriateness and accuracy of the information produced by the entity and information used in controls reports as inputs to our controls and outputs generated by the IT components.
Finally, we understood and tested the controls over database, network, application and operating system layers of applications.
4) Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the BRSA Accounting and Reporting Regulations, 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.
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In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
5) Auditor’s Responsibilities for the Audit of the Financial Statements
Responsibilities of independent auditors in an independent audit are as follows:
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.) • Obtain an understanding of internal control relevant to the audit 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 Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
B) 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 2018 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.
The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat.
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 A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED
Yaman Polat Partner
Istanbul, 28 February 2019
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THE UNCONSOLIDATED FINANCIAL REPORT OF ŞEKERBANK T.A.Ş. FOR THE YEAR ENDED 31 DECEMBER 2018
Address : Emniyet Evleri Mah. Eski Büyükdere Cad. No:1/1A 34415 Kağıthane/İstanbul Telephone : (212) 319 70 00 Fax : (212) 319 73 79 Web Site : www.sekerbank.com.tr E-mail Address : [email protected]
The unconsolidated financial report designed by the Banking Regulation and Supervision Agency in line with Communiqué on Financial Statements to be Publicly Announced and the Related Policies and Disclosures consists of the sections listed below:
• GENERAL INFORMATION ABOUT THE BANK • UNCONSOLIDATED FINANCIAL STATEMENTS OF THE BANK • EXPLANATIONS ON THE CORRESPONDING ACCOUNTING POLICIES APPLIED IN THE RELATED PERIOD • INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK • EXPLANATORY DISCLOSURES AND FOOTNOTES ON UNCONSOLIDATED FINANCIAL STATEMENTS • OTHER DISCLOSURES • INDEPENDENT AUDITORS’ REPORT
The unconsolidated financial statements and the explanatory footnotes and disclosures, unless otherwise indicated, are prepared in Thousands of Turkish Lira, in accordance with the Communiqué on Banks’ Accounting Practice and Maintaining Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards, related communiqués and the Banks’ records, have been independently audited and presented as attached.
The 31 December 2018 financial tables are audited and they do not include any false explanation in material subjects and absences that may result in misleading statements and fairly reflect the Bank’s financial position, the risks faced and uncertainty.
Dr. Hasan Basri GÖKTAN Servet TAZE Çetin AYDIN Chairman of The General Manager Member of the Board of Directors Audit Committee
Aidar RYSKULOV Üzeyir BAYSAL Selim Güray ÇELİK Orhan ULUYOL Member of the Member of the Executive Vice President Group Head Audit Committee Audit Committee
Information related to responsible personnel for the questions about financial statements: Name-Surname/Title : Oya SARI/Investor Relations and Structured Finance Manager Telephone No : (212) 319 71 58 Fax No : (212) 319 71 62
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Page Number SECTION ONE General Information I. Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in the Mentioned Status 102 II. Explanations Regarding Bank’s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the Managing and Controlling Power and Changes in Current Year, if any and Explanations on the Controlling Group of the Bank 102 III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit Committee, General Manager and Executive Vice Presidents and Their Shares and Their Rights of Responsibility in the Bank 103 IV. Information about the person and institutions that have qualified shares 104 V. Summary on the Bank’s Functions and Areas of Activity 104 VI. Differences Between The Communique On Preparation Of Consolidated Financial Statements Of Banks And Turkish Accounting Standards And Short Explanatıon About The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And Institutions Which Are Deducted From Equity Or Not Included In These Three Methods 104 VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders’ Equity Between The Parent Bank And its Subsidiaries Or The Reimbursement Of Liabilities 104
SECTION TWO Unconsolidated Financial Statements I. Balance Sheet (Statement of Financial Position) (Current Period) 106 II. Statement of Off Balance Sheet Contingencies and Commitments (Current Period) 108 III. Statement of Income (Current Period) 109 IV. Statement of Profit or Loss And Other Comperehensive Income (Current Period) 110 V. Statement of Changes in Shareholders’ Equity (Current Period) 111 VI. Statement of Cash Flows (Current Period) 112 VI. Profit Distribution Table (Current Period) 113 VII. Balance Sheet (Statement of Financial Position) (Prior Period) 114 VIII. Statement of Off Balance Sheet Contingencies and Commitments (Prior Period) 116 IX. Statement of Income (Prior Period) 117 X. Statement of Profit and Loss Accounted for Under Equity(Prior Period) 118 XI. Statement of Changes in Shareholders’ Equity (Prior Period) 119 XII. Statement of Cash Flows (Prior Period) 120 VI. Profit Distribution Table (Prior Period) 121
SECTION THREE Accounting Principles I. Basis of Presentation 122 II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions 122 III. Explanations on Associates and Subsidiaries 123 IV. Explanations on Forward and Option Contracts and Derivative Instruments 123 V. Explanations on Interest Income and Expenses 124 VI. Explanations on Fees and Commission Income and Expenses 124 VII. Explanations on Financial Assets 124 VIII. Explanations on Impairment on Financial Assets 127 IX. Explanations on Offsetting of Financial Assets and Liabilities 128 X. Explanations on Sales and Repurchase Agreements and Lending of Securities 128 XI. Explanations on Assets Held For Sale and Discontinued Operations 129 XII. Explanations on Goodwill and Other Intangible Assets 129 XIII. Explanations on Tangible Fixed Assets 129 XIV. Explanations on Leasing Transactions 130 XV. Explanations on Provisions and Contingent Liabilities 131 XVI. Explanations on Liabilities Regarding Employee Benefits 131 XVII. Explanations on Taxation 133 XVIII. Additional Explanations on Borrowings 134 XIX. Explanations on Share Certificates 134 XX. Explanations on Independent Guarantees and Acceptances 134 XXI. Explanations on Government Incentives 134 XXII. Explanations on Segment Reporting 135 XXIII. Explanations on Other Matters 136
SECTION FOUR Information Related to Financial Position and Risk Management of the Bank I. Explanations Related to Equity 143 II. Explanations Related to Credit Risk 153 III. Explanations Related to Currency Risk 163 IV. Explanations Related to Interest Rate Risk 166 V. Explanations Related to Equity Securities Position Risk 170 VI. Explanations Related to Liquidity Risk Management and Liquidity Coverage Ratio 171 VII. Explanations Related to Leverage Ratio 179 VIII. Explanations Related to Presentation of Financial Assets and Liabilities at Fair Value 179 IX. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust 181 X. Explanations Related to Risk Management 181
SECTION FIVE Explanations and Disclosures on Unconsolidated Financial Statements I. Explanations Related to the Assets (Current Period) 205 II. Explanations Related to the Assets (Prior Period) 222 III. Explanations Related to the Liabilities (Current Period) 241 IV. Explanations Related to the Liabilities (Prior Period) 251 V. Explanations Related to the Off-Balance Sheet Contingencies and Commitments (Current Period) 261 VI. Explanations Related to the Off-Balance Sheet Contingencies and Commitments (Prior Period) 265 VII. Explanations Related to the Income Statement (Current Period) 269 VIII. Explanations Related to Statement of Shareholders’ Equity Movement (Current Period) 274 IX. Explanations Related to Statement of Cash Flows (Current Period) 274 X. Explanations Related to the Income Statement (Prior Period) 275 XI. Explanations Related to Statement of Shareholders’ Equity Movement (Current Period) 280 XII. Explanations Related to Statement of Cash Flows (Current Period) 281 XIII. Explanations on the Risk Group of the Bank 282 XIV. Explanations on the Bank’s Domestic Branches, Agencies and Branches Abroad and Off-shore Branches 284 XV. Explanations and notes related to subsequent events 284
SECTION SIX Other Explanations I. Explanations on the Operations of the Bank 285
SECTION SEVEN Independent Auditors’ Report I. Explanations on the Auditors’ Report 285 II. Other Footnotes and Explanations Prepared by the Independent Auditors 285
ŞEKERBANK ANNUAL REPORT 2018
101 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION ONE GENERAL INFORMATION
I. Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in the Mentioned Status
Şekerbank T.A.Ş. (‘the Bank’) was founded in 1953 as a Turkish bank with 14 partners in Eskişehir and started its operations under Pancar Kooperatifleri Bankası A.Ş. in Eskişehir and changed the name to Şekerbank T.A.Ş. by moving headquarters to Ankara in 1956. 15 % of the Bank shares were offered to public in 1997 and currently 34.19 % of the Bank shares are publicly traded. The Bank’s one of the main shareholders, Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı, gives its members additional social rights and retirement guarantees in the social security system. The Bank has affiliates and subsidiaries in the finance, real estates and tourism sectors.
Business line of the Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and providing other banking services.
II. Explanations Regarding Bank’s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the Managing and Controlling Power and Changes in Current Year, if any and Explanations on the Controlling Group of the Bank
Amounts Paid in Unpaid Name of Shareholders of Share Share (%) Capital Capital Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389 - Samruk-Kazyna, the National Wel-fare Fund of Kazakhstan 224,353 19.37 224,353 - Şekerbank T.A.Ş. 109,212 9.43 109,212 - Others 18,092 1.57 18,092 - Public offerings 395,954 34.19 395,954 - Total 1,158,000 100.00 1,158,000 -
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102 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit Committee, General Manager and Executive Vice Presidents and Their Shares and Their Rights of Responsibility in the Bank
Title Name and Surname Responsibility Areas Chairman of the Board of Directors Dr.Hasan Basri Göktan Chairman & Executive Board Member, Credit Committee, Corporate Governance Committee, Remuneration Committee
General Manager Servet Taze Board Member, General Manager, Credit Committee, Observer in the Remuneration Committee
Members of the Board of Directors Beibit Karymsakov Vice-Chairman, Remuneration Committee Emin Erdem Executive Board Member, Credit Committee Erdal Batmaz Executive Board Member Nariman Zharkinbayev Executive Board Member, Credit Committee, Corporate Governance Committee Üzeyir Baysal (*) Independent Member, Corporate Governance Committee, Audit Committee Halit Haydar Yıldız Renumeration Committee Aidar Ryskulov (*) Audit Committee Almat Zhamiyev Corporate Governance Committee Çetin Aydın (*) Audit Committee Mehmet Ayhan Altıntaş Internal Systems, Corporate Governance Committee
Executive Vice Presidents Hüseyin Üst Credit Monitoring & Follow-Up Nihat Büyükbozkoyun Operations Selim Güray Çelik Financial Control, Reporting, Budget and Performance Management, Corporate Governance Committee Gökhan Ertürk Agricultural & Individual Banking Marketing Umut Ülbegi Corporate and Commercial Banking Marketing Salih Zeki Önder Financial Institutions Ahmet Hakan Eken Credit Management Aybala Şimşek Strategy and Human Resources Erdal Erdem SME Banking Marketing Aytay Tolga Şenefe Treasury
(*) According to Communiqué On Corporate Governance Principles of Capital Markets Board, No: II-17.1, Audit Committee members of the banks are accepted as independent members of the Board of Directors.
The Chairman of the Board of Directors Dr. Hasan Basri Göktan has total shares of 0.05 % in nominal, amounting to TRL 577 Thousand, which obtained from public offering.
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IV. Information About the Persons and Institutions That Have Qualified Shares in the Bank:
Amounts of Paid in Share TRL Capital TRL Unpaid Name/Commercial Name Thousand Share (%) Thousand Capital Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389 - Samruk-Kazyna, the National Well-fare Fund of Kazakhstan 224,353 19.37 224,353 -
V. Summary on the Bank’s Functions and Areas of Activity
Business line of the Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and providing other banking services. As of 31 December 2018, the Bank has 273 domestic branches (31 December 2017 – 273 domestic branches).
VI. Differences Between The Communique On Preparation Of Consolidated Financial Statements Of Banks And Turkish Accounting Standards And Short Explanation About The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And Institutions Which Are Deducted From Equity Or Not Included In These Three Methods
According to the Communique On Preparation Of Consolidated Financial Statements Of Banks, the Bank’s subsidiaries Şekerbank (Kıbrıs) Ltd., Şeker Finansal Kiralama A.Ş., Şekerbank International Banking Unit Ltd., Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş., Şeker Finansman A.Ş. and Zahlungsdienste GmbH der Şekerbank T.A.Ş. are included in the scope of consolidation by line-by-line method and Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. is not subject to consolidation as it is not a financial subsidiary.
Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated in the financial statements and is recorded at cost since the Bank has no control and it is not a financial subsidiary.
According to Turkish Accounting Standards, all financial and non-financial subsidiaries are consolidated.
VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders’ Equity Between The Parent Bank And its Subsidiaries Or The Reimbursement Of Liabilities
There is no transfer of the shareholders’ equity between the Bank and its subsidiaries. Dividend distribution from shareholders’ equity is done according to related regulations. There is no existing or potential, actual or legal obstacle to the repayment of liabilities between the Bank and its subsidiaries.
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SECTION TWO UNCONSOLIDATED FINANCIAL STATEMENTS
I. Balance Sheet (Statement of Financial Position) II. Statement of Off Balance Sheet Contingencies and Commitments III. Statement of Income IV. Statement of Profit Or Loss And Other Comperehensive Income V. Statement of Changes in Shareholders’ Equity VI. Statement of Cash Flows VII. Profit Distribution Table
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105 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD ASSETS Note Ref. 31.12.2018 TRL FC Total I. FINANCIAL ASSETS (Net) 4,120,920 3,978,509 8,099,429 1.1 Cash and Cash Equivalents 964,013 2,756,790 3,720,803 1.1.1 Cash Balances and Central Bank (1) 918,291 2,640,353 3,558,644 1.1.2 Banks (3) 357 116,437 116,794 1.1.3 Money Market Placements 45,365 - 45,365 1.2 Financial Assets at Fair Value Through Profit and Loss (2) 1,501 9,524 11,025 1.2.1 Public Sector Debt Securities 1,501 9,524 11,025 1.2.2 Equity Securities - - - 1.2.3 Other Financial Assets - - - 1.3 Financial Assets at Fair Value Through Other Comprehensive Income (4) 555,003 15,301 570,304 1.3.1 Public Sector Debt Securities 547,586 - 547,586 1.3.2 Equity Securities 7,417 15,301 22,718 1.3.3 Other Financial Assets - - - 1.4 Financial Assets at Amortised Cost (6) 2,447,744 976,131 3,423,875 1.4.1 Public Sector Debt Securities 2,447,744 293,076 2,740,820 1.4.2 Other Financial Assets - 683,055 683,055 1.5 Derivative Financial Assets (2),(11) 168,323 220,763 389,086 1.5.1 Derivative Financial Assets Measured at Fair Value Through Profit and Loss 168,323 220,763 389,086 1.5.2 Derivative Financial Assets Measured at Fair Value Through Other Comprehensive Income - - - 1.6 Non-Performing Financial Assets - - - 1.7 Expected Losses (-) (15,664) - (15,664) II. LOANS (Net) (5) 13,907,696 6,656,485 20,564,181 2.1 Loans 14,219,540 6,656,485 20,876,025 2.1.1 Loans at Amortised Cost 14,219,540 6,656,485 20,876,025 2.1.2 Loans at Fair Value Through Profit and Loss - - - 2.1.3 Loans at Fair Value Through Other Comprehensive Income - - - 2.2 Leasing Receivables (10) - - - 2.2.1 Financial Leasing Receivables - - - 2.2.2 Operational Leasing Receivables - - - 2.2.3 Unearned income (-) - - - 2.3 Factoring Receivables - - - 2.3.1 Factoring Receivables at Amortised Cost - - - 2.3.2 Factoring Receivables at Fair Value Through Profit and Loss - - - 2.3.3 Factoring Receivables at Fair Value Through Other Comprehensive Income - - - 2.4 Non-Performing Receivables 1,180,125 - 1,180,125 2.5 Expected Credit Losses (-) (1,491,969) - (1,491,969) 2.5.1 12-Month Expected Credit Losses (Stage 1) (106,835) - (106,835) 2.5.2 Significant Increase in Credit Risk (Stage 2) (516,562) - (516,562) 2.5.3 Default Credits (Stage 3/Specific Provision) (868,572) - (868,572) III. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (16) 318,321 - 318,321 3.1 Held for sale 318,321 - 318,321 3.2 Discontinued operations - - - IV. OWNERSHIP INVESTMENTS (Net) 779,704 7,668 787,372 4.1 Associates (Net) (7) 4,140 - 4,140 4.1.1 Associates Consolidated Under Equity Accounting - - - 4.1.2 Unconsolidated Associates 4,140 - 4,140 4.2 Subsidiaries (Net) (8) 775,564 7,668 783,232 4.2.1 Unconsolidated Financial Subsidiaries 172,098 7,668 179,766 4.2.2 Unconsolidated Non-Financial Subsidiaries 603,466 - 603,466 4.3 Joint Ventures (Net) (9) - - - 4.3.1 Joint-Ventures Consolidated Under Equity Accounting - - - 4.3.2 Unconsolidated Joint-Ventures - - - V. TANGIBLE ASSETS (Net) (12) 627,949 - 627,949 VI. INTANGIBLE ASSETS (Net) (13) 92,434 - 92,434 6.1 Goodwill - - - 6.2 Other 92,434 - 92,434 VII. INVESTMENT PROPERTY (Net) (14) - - - VIII. CURRENT TAX ASSET 1,422 - 1,422 IX. DEFERRED TAX ASSET (15) 142,324 - 142,324 X. OTHER ASSETS (17) 365,124 322,764 687,888
TOTAL ASSETS 20,355,894 10,965,426 31,321,320
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
106 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD LIABILITIES Note Ref. 31.12.2018 TRL FC Total I. DEPOSITS (1) 12,744,487 10,344,647 23,089,134 II. FUNDS BORROWED (3) 97,532 2,229,784 2,327,316 III. MONEY MARKET BALANCES (4) 124,596 - 124,596 IV. MARKETABLE SECURITIES ISSUED (Net) (5) 865,828 - 865,828 4.1 Bills 163,978 - 163,978 4.2 Asset backed securities 701,850 - 701,850 4.3 Bonds - - - V. FUNDS - - - 5.1 Borrower funds - - - 5.2 Other - - - VI. FINANCIAL LIABILITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS - - - VII. DERIVATIVE FINANCIAL LIABILITIES (2),(8) 167,222 90,010 257,232 7.1 Derivative Financial Liabilities Measured at Fair Value Through Profit and Loss 167,222 90,010 257,232 7.2 Derivative Financial Liabilities Measured at Fair Value Through Comprehensive Income - - - VIII. FACTORING PAYABLES - - - IX. FINANCE LEASE PAYABLES (7) - - - 9.1 Financial Leasing Payables - - - 9.2 Operational Leasing Payables - - - 9.3 Other - - - 9.4 Deferred Financia Leasing Expenses (-) - - - X. PROVISIONS (9) 479,080 3,617 482,697 10.1 Restructuring provisions - - - 10.2 Reserve for employee benefits 82,298 - 82,298 10.3 Insurance technical provisions (Net) - - - 10.4 Other provisions 396,782 3,617 400,399 XI. CURRENT TAX LIABILITY (10) 56,723 - 56,723 XII. DEFERRED TAX LIABILITY (10) - - - XIII. PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (11) - - - 13.1 Held for sale - - - 13.2 Discontinued operations - - - XIV. SUBORDINATED DEBTS (12) 452,571 451,050 903,621 14.1 Loans - - - 14.2 Other Debt Instruments 452,571 451,050 903,621 XV. OTHER LIABILITIES (6) 438,835 398,012 836,847 XVI. SHAREHOLDERS' EQUITY (13) 2,373,279 4,047 2,377,326 16.1 Paid-in capital 1,158,000 - 1,158,000 16.2 Capital Reserves (174,718) - (174,718) 16.2.1 Share Premium 1,278 - 1,278 16.2.2 Share Cancellation Profits - - - 16.2.3 Other Capital Reserves (175,996) - (175,996) 16.3 Other Comprehensive Income/Expense Items not to be Reclassified to Profit or Loss 52,816 - 52,816 16.4 Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss (8,592) 4,047 (4,545) 16.5 Profit Reserves 1,736,546 - 1,736,546 16.5.1 Legal Reserves 285,989 - 285,989 16.5.2 Status Reserves - - - 16.5.3 Extraordinary Reserves 1,364,154 - 1,364,154 16.5.4 Other Profit Reserves 86,403 - 86,403 16.6 Profit or Loss (390,773) - (390,773) 16.6.1 Prior Years’ Income/(Loss) (477,131) - (477,131) 16.6.2 Current Year Income/(Loss) 86,358 - 86,358 16.7 Minority Shares - - -
TOTAL LIABILITIES 17,800,153 13,521,167 31,321,320
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
107 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED OFF-BALANCE SHEET CONTINGENCIES AND COMMITMENTS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018
Note Ref. TRL FC Total A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) 11,244,924 11,276,391 22,521,315 I. GUARANTEES AND SURETIES (1) 3,396,221 2,517,867 5,914,088 1.1. Letters of guarantee 3,388,786 991,562 4,380,348 1.1.1. Guarantees subject to State Tender Law 148,504 3,772 152,276 1.1.2. Guarantees given for foreign trade operations - - - 1.1.3. Other letters of guarantee 3,240,282 987,790 4,228,072 1.2. Bank loans - 132,949 132,949 1.2.1. Import letter of acceptance - 132,949 132,949 1.2.2. Other bank acceptances - - - 1.3. Letters of credit 1,976 260,858 262,834 1.3.1. Documentary letters of credit 1,976 260,858 262,834 1.3.2. Other letters of credit - - - 1.4. Prefinancing given as guarantee - - - 1.5. Endorsements - 174,680 174,680 1.5.1. Endorsements to the Central Bank of Turkey - 174,680 174,680 1.5.2. Other endorsements - - - 1.6. Purchase guarantees for securities issued - - - 1.7. Factoring guarantees - - - 1.8. Other guarantees 5,459 957,818 963,277 1.9. Other sureties - - - II. COMMITMENTS (1) 2,321,902 84,759 2,406,661 2.1. Irrevocable commitments 1,822,705 84,759 1,907,464 2.1.1. Forward asset purchase commitments 22,231 73,933 96,164 2.1.2. Forward deposit purchase and sales commitments - - - 2.1.3. Share capital commitment to associates and subsidiaries - - - 2.1.4. Loan granting commitments 980,296 10,826 991,122 2.1.5. Securities underwriting commitments - - - 2.1.6. Commitments for reserve deposit requirements - - - 2.1.7. Payment commitment for checks 336,022 - 336,022 2.1.8. Tax and fund liabilities from export commitments 10,032 - 10,032 2.1.9. Commitments for credit card expenditure limits 473,623 - 473,623 2.1.10. Commitments for promotions related with credit cards and banking activities 501 - 501 2.1.11. Receivables from short sale commitments on securities - - - 2.1.12. Payables for short sale commitments on securities - - - 2.1.13. Other irrevocable commitments - - - 2.2. Revocable commitments (4) 499,197 - 499,197 2.2.1. Revocable loan granting commitments 499,197 - 499,197 2.2.2. Other revocable commitments - - - III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 5,526,801 8,673,765 14,200,566 3.1 Derivative financial instruments for hedging purposes 936,000 - 936,000 3.1.1 Fair value hedge 936,000 - 936,000 3.1.2 Cash flow hedge - - - 3.1.3 Hedge of net investment in foreign operations - - - 3.2 Held for trading transactions 4,590,801 8,673,765 13,264,566 3.2.1 Forward foreign currency buy/sell transactions 434,716 656,456 1,091,172 3.2.1.1 Forward foreign currency transactions-buy 226,608 322,233 548,841 3.2.1.2 Forward foreign currency transactions-sell 208,108 334,223 542,331 3.2.2 Swap transactions related to f.c. and interest rates 3,698,020 7,298,273 10,996,293 3.2.2.1 Foreign currency swap-buy 970,090 3,847,410 4,817,500 3.2.2.2 Foreign currency swap-sell 2,327,930 2,255,145 4,583,075 3.2.2.3 Interest rate swaps-buy 200,000 597,859 797,859 3.2.2.4 Interest rate swaps-sell 200,000 597,859 797,859 3.2.3 Foreign currency, interest rate and securities options 458,065 610,742 1,068,807 3.2.3.1 Foreign currency options-buy 234,015 289,080 523,095 3.2.3.2 Foreign currency options-sell 224,050 321,662 545,712 3.2.3.3 Interest rate options-buy - - - 3.2.3.4 Interest rate options-sell - - - 3.2.3.5 Securities options-buy - - - 3.2.3.6 Securities options-sell - - - 3.2.4 Foreign currency futures - - - 3.2.4.1 Foreign currency futures-buy - - - 3.2.4.2 Foreign currency futures-sell - - - 3.2.5 Interest rate futures - - - 3.2.5.1 Interest rate futures-buy - - - 3.2.5.2 Interest rate futures-sell - - - 3.2.6 Other - 108,294 108,294 B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) 429,099,857 223,214,524 652,314,381 IV. ITEMS HELD IN CUSTODY 1,617,052 1,231,282 2,848,334 4.1. Customer fund and portfolio balances - - - 4.2. Investment securities held in custody 142,774 89,844 232,618 4.3. Checks received for collection 1,348,012 128,918 1,476,930 4.4. Commercial notes received for collection 65,098 158,429 223,527 4.5. Other assets received for collection 2,124 695,644 697,768 4.6. Assets received for public offering - - - 4.7. Other items under custody 59,043 158,447 217,490 4.8. Custodians 1 - 1 V. PLEDGED ITEMS 423,429,725 220,986,135 644,415,860 5.1. Marketable securities 22,000 59 22,059 5.2. Guarantee notes 99,952,446 37,881,245 137,833,691 5.3. Commodity - - - 5.4. Warranty - - - 5.5. Properties 28,316,799 11,630,413 39,947,212 5.6. Other pledged items 293,982,660 171,441,146 465,423,806 5.7. Pledged items-depository 1,155,820 33,272 1,189,092 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 4,053,080 997,107 5,050,187
TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) 440,344,781 234,490,915 674,835,696 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
108 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD INCOME STATEMENT Note Ref. 01.01.2018-31.12.2018 I. INTEREST INCOME (1) 4,192,368 1.1 Interest on Loans 3,479,240 1.2 Interest Received From Reserve Deposits 59,375 1.3 Interest Received From Banks 22,971 1.4 Interest Received From Money Market Placements 66,200 1.5 Interest Received From Marketable Securities Portfolio 562,270 1.5.1 Financial Assets at Fair Value Through Profit and Loss 1,552 1.5.2 Financial Assets at Fair Value Through Comperehensive Income 50,955 1.5.3 Financial Assets at Amortised Cost 509,763 1.6 Financial Leasing Income - 1.7 Other Interest Income 2,312 II. INTEREST EXPENSE (2) 2,728,640 2.1 Interest on Deposits 2,168,330 2.2 Interest on Funds Borrowed 108,909 2.3 Interest on Money Market Transactions 155,392 2.4 Interest on Securities Issued 257,925 2.5 Other Interest Expense 38,084 III. NET INTEREST INCOME (I-II) 1,463,728 IV. NET FEES AND COMMISSIONS INCOME 351,405 4.1 Fees and Commissions Received 445,250 4.1.1 Non-cash Loans 77,578 4.1.2 Other 367,672 4.2 Fees and Commissions Paid (-) 93,845 4.2.1 Non-cash Loans - 4.2.2 Other 93,845 V. PERSONNEL EXPENSES (-) 423,995 VI DIVIDEND INCOME (3) 2,717 VII. NET TRADING INCOME/LOSSES (NET) (4) (143,835) 7.1 Trading gains/(losses) on securities 16,724 7.2 Gains/(loses) on derivative financial transactions 1,004,471 7.3 Foreign exchange gains/(losses) (1,165,030) VIII. OTHER OPERATING INCOME (5) 60,175 IX. TOTAL OPERATING PROFIT (III+IV+V+VI+VII+VIII) 1,310,195 X. EXPECTED CREDIT LOSSES (-) (6) 516,884 XI. OTHER OPERATING EXPENSES (-) (7) 688,498 XII. NET OPERATING INCOME/(LOSS) (IX-X-XI) 104,813 XIII. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - XIV. GAIN/(LOSS) ON EQUITY METHOD - XIV. GAIN/(LOSS) ON NET MONETARY POSITION - XVI. PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XII+...+XV) (8) 104,813 XVII. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) (18,455) 17.1 Current tax charge (17,370) 17.2 Deferred tax charge (+) (111,818) 17.3 Deferred tax credit (-) 110,733 XVIII. NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XVI±XVII) (10) 86,358 XIX. INCOME ON DISCONTINUED OPERATIONS - 19.1 Income on assets held for sale - 19.2 Income on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 19.3 Income on other discontinued operations - XX. LOSS FROM DISCONTINUED OPERATIONS (-) - 20.1 Loss from assets held for sale - 20.2 Loss on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 20.3 Loss from other discontinued operations - XXI. PROFIT/(LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES(XIX-XX) (8) - XXII. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) (9) - 22.1 Current tax charge - 22.2 Deferred tax charge (+) - 22.3 Deferred tax credit (-) - XXIII. NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XXI±XXII) (10) - XXIV. NET PROFIT/LOSS (XVIII+XXIII) (11) 86,358 Earnings per share 0.0746 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
109 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPEREHENSIVE INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 01.01.2018-31.12.2018 I. PROFIT/LOSS FOR THE PERIOD 86,358 II. OTHER COMREHENSIVE INCOME (4,204) 2.1 Other Income/Expense Items not to be Reclassified to Profit or Loss 6,436 2.1.1 Revaluation Surplus on Tangible Assets 3,375 2.1.2 Revaluation Surplus on Intangible Assets - 2.1.3 Defined Benefit Plans' Actuarial Gains/Losses 4,670 2.1.4 Other Income/Expense Items not to be Reclassified to Profit or Loss - 2.1.5 Deferred Taxes on Other Comprehensive Income not to be Reclassified to Profit or Loss (1,609) 2.2 Other Income/Expense Items to be Reclassified to Profit or Loss (10,640) 2.2.1 Translation Differences - 2.2.2 Income/Expenses from Valuation and/or Reclassification of Financial Assets Measured at FVOCI (13,353) 2.2.3 Gains/losses from Cash Flow Hedges - 2.2.4 Gains/Losses on Hedges of Net Investments in Foreign Operations - 2.2.5 Other Income/Expense Items to be Reclassified to Profit or Loss - 2.2.6 Deferred Taxes on Other Comprehensive Income to be Reclassified to Profit or Loss 2,713 III. TOTAL COMPREHENSIVE INCOME (I+II) 82,154
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
110 FINANCIAL INFORMATION ------
Total Equity 86,358 (4,204) (416,979) (416,979) 2,712,151 2,295,172 2,377,326 ------
(Loss) Profit/ Period 86,358 86,358 Current Current ------
Prior (Loss) Profit/ Period 362,949 (477,131) (477,131) (114,182) (362,949) (362,949) (477,131) ------
Profit 362,949 362,949 Reserves 1,373,597 1,373,597 1,736,546 ------
6 ------
5 6,095 60,152 60,152 (4,545) Profit or Loss Profit (54,057) (10,640) to be Reclassified to to be Reclassified Other Comprehensive Other Comprehensive ------
4 Income/Expense Items ------
3 ------
2 3,736 (8,991) Profit or Loss Profit (12,727) (12,727) Other Comprehensive Other Comprehensive ------
1 Income/Expense Items not to be Reclassified to not to be Reclassified 2,700 59,107 59,107 61,807 ------
Other Capital Reserves (175,996) (175,996) (175,996) ------
Share Share Profits Certificate Cancellation Cancellation ------
1,278 1,278 1,278 Share Premium ------
Capital Paid-in 1,158,000 1,158,000 1,158,000
Ref. (13) Note The accompanying explanations and notes form an integral part of these financial statements. an integral and notes form explanations The accompanying AUDITED CURRENT PERIOD CURRENT 01.01.2018-31.12.2018 Balances at Beginning of Period Correction Made as Per TAS 8 TAS Made as Per Correction Effect of Corrections Effect Effect of Changes in Accounting Policies of Changes in Accounting Effect Adjusted Balances at the Beginning of the Period (I+II) Balances at the Beginning of Period Adjusted Total Comprehensive Income Comprehensive Total Capital Inrease in Cash Capital Inrease Capital Inrease in Internal Sources Capital Inrease Inflation Adjustment to Paid-in Capital to Paid-in Inflation Adjustment Convertible Bonds Convertible Subordinated Debt Instruments Subordinated Increase/Decrease due to Other Changes Increase/Decrease Profit Distribution Profit Dividends Paid Transfers to Reserves Transfers Other Balances at end of the period (III+IV…+X+XI) CHANGES IN SHAREHOLDERS’ EQUITY
I. II. 2.1 2.2 III. IV. V. VI. VII. VIII. IX. X. XI. 11.1 11.2 11.3
ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) 1. Accumulated Revaluation Increase/Decrease of Fixed Assets, of Fixed Increase/Decrease Revaluation Accumulated 1. Plan, Gain/Loss of Defined Benefit Pension Remeasurement Accumulated 2. or Loss) Other Profit Through Income Items Not Reclassified Amounts of Other Comprehensive or Loss and Other Accumated Profit Through Income Not Classified Equity Method in Other Comprehensive by Valued of Investments Other (Shares 3. Differences, Exchange Currency Foreign 4. Income, Other Comprehensive Through Value Gain/Loss of the Financial Assets at Fair and/or Remeasurement Revaluation Accumulated 5. or Loss). Other Profit Through Income Items Reclassified Amounts of Other Comprehensive or Loss and Other Accumated Profit Through Income Classified Equity Method in Other Comprehensive by Valued of Investments Shares Hedge Gain/Loss, Other (Cash Flow 6. separately. presented 2017 financial statements are principles, on different prepared 2017 and 2018 financial statements are Since, rules. TFRS 9 transition as permitted by not restated are disclosures The prior period financial statements and related Note:
ŞEKERBANK ANNUAL REPORT 2018
111 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF CASH FLOWS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD Note Ref. 01.01.2018-31.12.2018
A. CASH FLOWS FROM BANKING OPERATIONS
1.1 Operating profit before changes in operating assets and liabilities (1,099,261)
1.1.1 Interests received 3,221,749 1.1.2 Interests paid (2,568,344) 1.1.3 Dividend received 2,717 1.1.4 Fees and commissions received 445,250 1.1.5 Other income 881,647 1.1.6 Collections Accounted as Loss from previously written off loans 711,066 1.1.7 Cash payments to personnel and service suppliers (427,144) 1.1.8 Taxes paid (31,086) 1.1.9 Other (3,335,116)
1.2 Changes in operating assets and liabilities (181,229)
1.2.1 Net (increase) decrease in financial assets measured at FVTPL 6,015 1.2.2 Net (increase) decrease in due from banks - 1.2.3 Net (increase) decrease in loans (219,416) 1.2.4 Net (increase) decrease in other assets (1) 241,319 1.2.5 Net increase (decrease) in bank deposits (4,146,104) 1.2.6 Net increase (decrease) in other deposits 3,490,861 1.2.7 Net (increase) decrease in financial liabilities measured at FVTPL - 1.2.8 Net increase (decrease) in funds borrowed (36,387) 1.2.9 Net increase (decrease) in matured payables - 1.2.10 Net increase (decrease) in other liabilities (1) 482,483
I. Net cash flow from banking operations (1,280,490)
B. CASH FLOWS FROM INVESTING ACTIVITIES
II. Net cash flow from investing activities (807,852)
2.1 Cash paid for purchase of associates, subsidiaries and joint-ventures (12,500) 2.2 Cash obtained from sale of associates, subsidiaries and joint-ventures - 2.3 Purchases of tangible assets (397,657) 2.4 Sales of tangible assets 115,317 2.5 Cash paid for purchase of financial assets measured at FVOCI (1,100,202) 2.6 Cash obtained from sale of financial assets measured at FVOCI 873,656 2.7 Cash paid for purchase of financial assets measured at amortised cost (366,124) 2.8 Cash obtained from sale of financial assets measured at amortised cost 155,215 2.9 Others (75,557)
C. CASH FLOWS FROM FINANCING ACTIVITIES
III. Net cash flow from financing activities 2,281
3.1 Cash obtained from funds borrowed and securities issued 1,091,760 3.2 Cash used for repayment of funds borrowed and securities issued (1,086,461) 3.3 Equity instruments issued - 3.4 Dividends paid - 3.5 Payments for financial leases (3,018) 3.6 Others - IV. Effect of translation differences on cash and cash equivalents (1) 414,317
V. Net increase/(decrease) in cash and cash equivalents (1,671,744)
VI. Cash and cash equivalents at beginning of period (2) 3,595,658
VII. Cash and cash equivalents at end of period (3) 1,923,914
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
112 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED PROFIT DISTRIBUTION TABLE (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018(*)
I. DISTRIBUTION OF CURRENT YEAR INCOME
1.1 CURRENT YEAR INCOME 104,813 1.2 TAXES AND DUTIES PAYABLE (-) (18,455) 1.2.1 Corporate tax (Income tax) (17,370) 1.2.2 Income witholding tax - 1.2.3 Other taxes and duties (**) (1,085)
A. NET INCOME FOR THE YEAR (1.1-1.2) 86,358
1.3 PRIOR YEARS’ LOSSES (-) - 1.4 FIRST LEGAL RESERVES (-) - 1.5 OTHER STATUTORY RESERVES (-) -
B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 86,358
1.6 FIRST DIVIDEND TO SHAREHOLDERS (-) - 1.6.1 To owners of ordinary shares - 1.6.2 To owners of preferred shares - 1.6.3 To owners of preferred shares (preemptive rights) - 1.6.4 To profit sharing bonds - 1.6.5 To holders of profit and loss sharing certificates - 1.7 DIVIDENDS TO PERSONNEL (-) - 1.8 DIVIDENDS TO BOARD OF DIRECTORS (-) - 1.9 SECOND DIVIDEND TO SHAREHOLDERS (-) - 1.9.1 To owners of ordinary shares - 1.9.2 To owners of preferred shares - 1.9.3 To owners of preferred shares (preemptive rights) - 1.9.4 To profit sharing bonds - 1.9.5 To holders of profit and loss sharing certificates - 1.10 SECOND LEGAL RESERVES (-) - 1.11 STATUTORY RESERVES (-) - 1.12 EXTRAORDINARY RESERVES - 1.13 OTHER RESERVES - 1.14 SPECIAL FUNDS -
II. DISTRIBUTION OF RESERVES
2.1 DISTRIBUTED RESERVES - 2.2 SECOND LEGAL RESERVES (-) - 2.3 DIVIDENDS TO SHAREHOLDERS (-) - 2.3.1 To owners of ordinary shares - 2.3.2 To owners of preferred shares - 2.3.3 To owners of preferred shares (preemptive rights) - 2.3.4 To profit sharing bonds - 2.3.5 To holders of profit and loss sharing certificates - 2.4 DIVIDENDS TO PERSONNEL (-) - 2.5 DIVIDENDS TO BOARD OF DIRECTORS (-) -
III. EARNINGS PER SHARE
3.1 TO OWNERS OF ORDINARY SHARES 0.07458 3.2 TO OWNERS OF ORDINARY SHARES ( % ) 7.458 3.3 TO OWNERS OF PREFERRED SHARES - 3.4 TO OWNERS OF PREFERRED SHARES ( % ) -
IV. DIVIDEND PER SHARE
4.1 TO OWNERS OF ORDINARY SHARES - 4.2 TO OWNERS OF ORDINARY SHARES ( % ) - 4.3 TO OWNERS OF PREFERRED SHARES - 4.4 TO OWNERS OF PREFERRED SHARES ( % ) -
(*) Resolution regarding profit distribution will be decided at the General Meeting. (**) Defered tax gain is not included in the profit distribution in accordance with 2004/3 Numbered circular of BRSA
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
113 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD Note 31.12.2017 ASSETS ref TRL FC Total I. CASH AND BALANCES WITH THE CENTRAL BANK (1) 965,952 2,079,280 3,045,232 II. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (Net) (2) 60,912 64,452 125,364 2.1 Held for trading financial assets 57,231 64,452 121,683 2.1.1 Public sector debt securities 6,079 8,228 14,307 2.1.2 Equity securities - - - 2.1.3 Derivative financial assets held for trading 48,535 56,224 104,759 2.1.4 Other marketable securities 2,617 - 2,617 2.2 Financial assets at fair value through profit and loss 3,681 - 3,681 2.2.1 Public sector debt securities - - - 2.2.2 Equity securities - - - 2.2.3 Loans 3,681 - 3,681 2.2.4 Other marketable securities - - - III. BANKS (3) 228,880 167,988 396,868 IV. MONEY MARKET PLACEMENTS 2,433,052 - 2,433,052 4.1 Interbank money market placements 2,433,052 - 2,433,052 4.2 Istanbul Stock Exchange money market placements - - - 4.3 Receivables from reverse repurchase agreements - - - V. FINANCIAL ASSETS AVAILABLE FOR SALE (Net) (4) 1,322,358 71,537 1,393,895 5.1 Equity securities 7,417 9,445 16,862 5.2 Public sector debt securities 1,311,976 4,138 1,316,114 5.3 Other marketable securities 2,965 57,954 60,919 VI. LOANS AND RECEIVABLES (5) 15,757,256 4,915,343 20,672,599 6.1 Loans and Receivables 15,300,478 4,915,343 20,215,821 6.1.1 Loans to Risk Group of the Bank 36,393 541,826 578,219 6.1.2 Public sector debt securities - - - 6.1.3 Other 15,264,085 4,373,517 19,637,602 6.2 Non-performing loans 1,016,788 - 1,016,788 6.3 Specific provisions (-) (560,010) - (560,010) VII. FACTORING RECEIVABLES - - - VIII. HELD TO MATURITY INVESTMENTS (Net) (6) 877,317 473,826 1,351,143 8.1 Public sector debt securities 877,317 82,263 959,580 8.2 Other marketable securities - 391,563 391,563 IX. INVESTMENTS IN ASSOCIATES (Net) (7) 4,140 - 4,140 9.1 Accounted for under equity method - - - 9.2 Unconsolidated associates 4,140 - 4,140 9.2.1 Financial investments - - - 9.2.2 Non-financial investments 4,140 - 4,140 X. INVESTMENTS IN SUBSIDIARIES (Net) (8) 763,545 7,668 771,213 10.1 Unconsolidated financial subsidiaries 160,079 7,668 167,747 10.2 Unconsolidated non-financial subsidiaries 603,466 - 603,466 XI. ENTITIES UNDER COMMON CONTROL (JOINT VENT.) (Net) (9) - - - 11.1 Consolidated under equity method - - - 11.2 Unconsolidated - - - 11.21 Financial subsidiaries - - - 11.22 Non-financial subsidiaries - - - XII. FINANCE LEASE RECEIVABLES (Net) (10) - - - 12.1 Finance lease receivables - - - 12.2 Operating lease receivables - - - 12.3 Other - - - 12.4 Unearned income (-) - - - XIII. DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES (11) 2,786 - 2,786 13.1 Fair value hedge 2,786 - 2,786 13.2 Cash flow hedge - - - 13.3 Hedge of net investment risks in foreign operations - - - XIV. TANGIBLE ASSETS (Net) (12) 308,605 - 308,605 XV. INTANGIBLE ASSETS (Net) (13) 86,791 - 86,791 15.1 Goodwill - - - 15.2 Other 86,791 - 86,791 XVI. INVESTMENT PROPERTY (Net) (14) - - - XVI. TAX ASSET (15) 59,764 - 59,764 17.1 Current tax asset - - - 17.2 Deferred tax asset 59,764 - 59,764 XVI. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (16) 257,420 - 257,420 18.1 Held for sale 257,420 - 257,420 18.2 Discontinued operations - - - XIX. OTHER ASSETS (17) 219,639 217,950 437,589
TOTAL ASSETS 23,348,417 7,998,044 31,346,461 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
114 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD Note 31.12.2017 LIABILITIES Ref TRL FC Total I. DEPOSITS (1) 12,342,722 7,384,266 19,726,988 1.1 Deposits from Risk Group of the Bank 65,770 108,356 174,126 1.2 Other 12,276,952 7,275,910 19,552,862 II. DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (2) 54,128 121,286 175,414 III. FUNDS BORROWED (3) 112,794 2,251,116 2,363,910 IV. MONEY MARKET BALANCES 1,274,585 2,709,290 3,983,875 4.1 Interbank money market takings 190,202 2,399,769 2,589,971 4.2 Istanbul Stock Exchange money market takings 60,710 - 60,710 4.3 Funds provided under repurchase agreements (4) 1,023,673 309,521 1,333,194 V. MARKETABLE SECURITIES ISSUED (Net) (5) 930,481 - 930,481 5.1 Bills 229,096 - 229,096 5.2 Asset backed securities 701,385 - 701,385 5.3 Bonds - - - VI. FUNDS - - - 6.1 Borrower funds - - - 6.2 Other - - - VII. SUNDRY CREDITORS 107,204 149,039 256,243 VIII. OTHER LIABILITIES (6) 98,228 5,772 104,000 IX. FACTORING PAYABLES - - - X. FINANCE LEASE PAYABLES (7) 2,838 - 2,838 10.1 Finance lease payables 3,018 - 3,018 10.2 Operating lease payables - - - 10.3 Other - - - 10.4 Deferred finance lease expenses (-) (180) - (180) XI. DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING PURPOSES (8) - - - 11.1 Fair value hedge - - - 11.2 Cash flow hedge - - - 11.3 Hedge of net investment in foreign operations - - - XII. PROVISIONS (9) 386,092 2,030 388,122 12.1 General loan loss provisions 72,887 - 72,887 12.2 Restructuring provisions - - - 12.3 Reserve for employee benefits 78,019 - 78,019 12.4 Insurance technical provisions (Net) - - - 12.5 Other provisions 235,186 2,030 237,216 XIII. TAX LIABILITY (10) 60,958 - 60,958 13.1 Current tax liability 60,958 - 60,958 13.2 Deferred tax liability - - - XIV. PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (11) - - - 14.1 Held for sale - - - 14.2 Discontinued operations - - - XV. SUBORDINATED LOANS (12) 301,275 340,206 641,481 XVI. SHAREHOLDERS' EQUITY (13) 2,710,837 1,314 2,712,151 16.1 Paid-in capital 1,158,000 - 1,158,000 16.2 Supplementary capital (183,709) 1,314 (182,395) 16.2.1 Share premium 1,278 - 1,278 16.2.2 Share cancellation profits - - - 16.2.3 Marketable securities value increase fund (13) (55,371) 1,314 (54,057) 16.2.4 Tangible assets revaluation differences 59,107 - 59,107 16.2.5 Intangible assets revaluation differences - - - 16.2.6 Investment properties revaluation differences - - - 16.2.7 Bonus shares obtained from associates, subsidiaries and jointly controlled entities (Joint Vent.) - - - 16.2.8 Hedging funds (Effective portion) - - - 16.2.9 Accumulated valuation differences from assets held for sale and from discontinued operations - - - 16.2.10 Other capital reserves (17) (188,723) - (188,723) 16.3 Profit reserves 1,373,597 - 1,373,597 16.3.1 Legal reserves (14) 280,244 - 280,244 16.3.2 Status reserves - - - 16.3.3 Extraordinary reserves (15) 1,007,077 - 1,007,077 16.3.4 Other profit reserves 86,276 - 86,276 16.4 Profit or loss 362,949 - 362,949 16.4.1 Prior years’ income/(loss) 248,059 - 248,059 16.4.2 Current year income/(loss) 114,890 - 114,890
TOTAL LIABILITIES AND EQUITY 18,382,142 12,964,319 31,346,461
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
115 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED OFF-BALANCE SHEET CONTINGENCIES AND COMMITMENTS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD 31.12.2017 Note Ref TRL FC Total A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) 12,998,543 11,760,742 24,759,285 I. GUARANTEES AND SURETIES (1) 3,342,021 1,974,830 5,316,851 1.1. Letters of guarantee 3,335,237 927,822 4,263,059 1.1.1. Guarantees subject to State Tender Law 65,935 4,015 69,950 1.1.2. Guarantees given for foreign trade operations - - - 1.1.3. Other letters of guarantee 3,269,302 923,807 4,193,109 1.2. Bank loans 1,365 139,693 141,058 1.2.1. Import letter of acceptance 1,000 139,693 140,693 1.2.2. Other bank acceptances 365 - 365 1.3. Letters of credit 843 445,828 446,671 1.3.1. Documentary letters of credit 843 445,828 446,671 1.3.2. Other letters of credit - - - 1.4. Prefinancing given as guarantee - - - 1.5. Endorsements - - - 1.5.1. Endorsements to the Central Bank of Turkey - - - 1.5.2. Other endorsements - - - 1.6. Purchase guarantees for securities issued - - - 1.7. Factoring guarantees - - - 1.8. Other guarantees 4,576 461,487 466,063 1.9. Other sureties - - - II. COMMITMENTS (1) 2,628,829 395,137 3,023,966 2.1. Irrevocable commitments 2,369,208 395,137 2,764,345 2.1.1. Forward asset purchase commitments 328,715 387,703 716,418 2.1.2. Forward deposit purchase and sales commitments - - - 2.1.3. Share capital commitment to associates and subsidiaries - - - 2.1.4. Loan granting commitments 905,147 7,434 912,581 2.1.5. Securities underwriting commitments - - - 2.1.6. Commitments for reserve deposit requirements - - - 2.1.7. Payment commitment for checks 665,639 - 665,639 2.1.8. Tax and fund liabilities from export commitments 6,526 - 6,526 2.1.9. Commitments for credit card expenditure limits 462,487 - 462,487 2.1.10. Commitments for promotions related with credit cards and banking activities 694 - 694 2.1.11. Receivables from short sale commitments on securities - - - 2.1.12. Payables for short sale commitments on securities - - - 2.1.13. Other irrevocable commitments - - - 2.2. Revocable commitments (4) 259,621 - 259,621 2.2.1. Revocable loan granting commitments 259,621 - 259,621 2.2.2. Other revocable commitments - - - III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 7,027,693 9,390,775 16,418,468 3.1 Derivative financial instruments for hedging purposes 223,000 - 223,000 3.1.1 Fair value hedge 223,000 - 223,000 3.1.2 Cash flow hedge - - - 3.1.3 Hedge of net investment in foreign operations - - - 3.2 Held for trading transactions 6,804,693 9,390,775 16,195,468 3.2.1 Forward foreign currency buy/sell transactions 1,016,125 1,081,647 2,097,772 3.2.1.1 Forward foreign currency transactions-buy 448,990 592,563 1,041,553 3.2.1.2 Forward foreign currency transactions-sell 567,135 489,084 1,056,219 3.2.2 Swap transactions related to f.c. and interest rates 4,697,341 6,443,155 11,140,496 3.2.2.1 Foreign currency swap-buy 517,092 4,548,705 5,065,797 3.2.2.2 Foreign currency swap-sell 3,840,249 846,368 4,686,617 3.2.2.3 Interest rate swaps-buy 170,000 524,041 694,041 3.2.2.4 Interest rate swaps-sell 170,000 524,041 694,041 3.2.3 Foreign currency, interest rate and securities options 1,091,227 1,420,585 2,511,812 3.2.3.1 Foreign currency options-buy 637,839 608,467 1,246,306 3.2.3.2 Foreign currency options-sell 453,388 812,118 1,265,506 3.2.3.3 Interest rate options-buy - - - 3.2.3.4 Interest rate options-sell - - - 3.2.3.5 Securities options-buy - - - 3.2.3.6 Securities options-sell - - - 3.2.4 Foreign currency futures - - - 3.2.4.1 Foreign currency futures-buy - - - 3.2.4.2 Foreign currency futures-sell - - - 3.2.5 Interest rate futures - - - 3.2.5.1 Interest rate futures-buy - - - 3.2.5.2 Interest rate futures-sell - - - 3.2.6 Other - 445,388 445,388 B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) 396,875,169 161,047,225 557,922,394 IV. ITEMS HELD IN CUSTODY 2,186,630 973,689 3,160,319 4.1. Customer fund and portfolio balances - - - 4.2. Investment securities held in custody 185,938 64,773 250,711 4.3. Checks received for collection 1,938,054 115,106 2,053,160 4.4. Commercial notes received for collection 59,226 12,728 71,954 4.5. Other assets received for collection 2,571 667,908 670,479 4.6. Assets received for public offering - - - 4.7. Other items under custody 840 113,174 114,014 4.8. Custodians 1 - 1 V. PLEDGED ITEMS 391,107,451 159,426,001 550,533,452 5.1. Marketable securities 27,000 208 27,208 5.2. Guarantee notes 91,401,455 27,117,989 118,519,444 5.3. Commodity - - - 5.4. Warranty - - - 5.5. Properties 25,881,291 7,563,004 33,444,295 5.6. Other pledged items 272,653,641 124,719,397 397,373,038 5.7. Pledged items-depository 1,144,064 25,403 1,169,467 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 3,581,088 647,535 4,228,623
TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) 409,873,712 172,807,967 582,681,679 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
116 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD INCOME STATEMENT Note Ref 01.01.2017-31.12.2017 I. INTEREST INCOME (1) 2,822,473 1.1 Interest on loans 2,417,695 1.2 Interest received from reserve deposits 26,205 1.3 Interest received from banks 12,529 1.4 Interest received from money market placements 81,404 1.5 Interest received from marketable securities portfolio 283,745 1.5.1 Held-for-trading financial assets 791 1.5.2 Financial assets at fair value through profit and loss - 1.5.3 Available-for-sale financial assets 150,041 1.5.4 Investments held-to-maturity 132,913 1.6 Finance lease income - 1.7 Other interest income 895 II. INTEREST EXPENSE (2) 1,567,318 2.1 Interest on deposits 1,185,972 2.2 Interest on funds borrowed 84,668 2.3 Interest on money market transactions 145,360 2.4 Interest on securities issued 115,809 2.5 Other interest expense 35,509 III. NET INTEREST INCOME (I-II) 1,255,155 IV. NET FEES AND COMMISSIONS INCOME 331,103 4.1 Fees and commissions received 400,389 4.1.1 Non-cash loans 68,366 4.1.2 Other 332,023 4.2 Fees and commissions paid 69,286 4.2.1 Non-cash loans - 4.2.2 Other 69,286 V. DIVIDEND INCOME (3) 4,930 VI. NET TRADING INCOME/LOSSES (NET) (4) (217,974) 6.1 Trading gains/(losses) on securities 20 6.2 Gains/(loses) on derivative financial transactions (96,092) 6.3 Foreign exchange gains/(losses) (121,902) VII. OTHER OPERATING INCOME (5) 228,834 VIII. TOTAL OPERATING INCOME (III+IV+V+VI+VII) 1,602,048 IX. PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) (6) 471,362 X. OTHER OPERATING EXPENSES (-) (7) 991,159 XI. NET OPERATING INCOME/(LOSS) (VIII-IX-X) 139,527 XII. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - XIII. GAIN/(LOSS) ON EQUITY METHOD - XIV. GAIN/(LOSS) ON NET MONETARY POSITION - XV. PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XI+…+XIV) (8) 139,527 XVI. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) (24,637) 16.1 Provision for current income taxes (35,830) 16.2 Provision for deferred taxes 11,193 XVII. NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) (10) 114,890 XVIII. INCOME ON DISCONTINUED OPERATIONS - 18.1 Income on assets held for sale - 18.2 Income on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 18.3 Income on other discontinued operations - XIX. LOSS FROM DISCONTINUED OPERATIONS (-) - 19.1 Loss from assets held for sale - 19.2 Loss on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 19.3 Loss from other discontinued operations - XX. PROFIT/(LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES (XVIII-XIX) (8) - XXI. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) (9) - 21.1 Provision for current income taxes - 21.2 Provision for deferred taxes - XXII. NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) (10) - XXIII. NET PROFIT/LOSS (XVII+XXII) (11) 114,890 Earnings per share 0.10
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
117 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF INCOME AND EXPENSE ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD INCOME AND EXPENSE ITEMS UNDER SHAREHOLDERS' EQUITY 01.01.2017-31.12.2017 I. ADDITIONS TO MARKETABLE SECURITIES REVALUATION DIFFERENCES FOR AVAILABLE FOR SALE FINANCIAL ASSETS 8,018 II. TANGIBLE ASSETS REVALUATION DIFFERENCES (234,020) III. INTANGIBLE ASSETS REVALUATION DIFFERENCES - IV. CURRENCY TRANSLATION DIFFERENCES - V. PROFIT/LOSS FROM DERIVATIVE FINANCIAL INSTRUMENTS FOR CASH FLOW HEDGE PURPOSES (Effective portion of fair value differences) - VI. PROFIT/LOSS FROM DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS (Effective portion of fair value differences) - VII. THE EFFECT OF CORRECTIONS OF ERRORS AND CHANGES IN ACCOUNTING POLICIES - VIII. OTHER PROFIT LOSS ITEMS ACCOUNTED UNDER EQUITY DUE TO TAS (3,487) IX. DEFERRED TAX OF VALUATION DIFFERENCES 46,331 X. TOTAL NET PROFIT/LOSS ACCOUNTED UNDER EQUITY (I+II+…+IX) (183,158) XI. CURRENT PERIOD PROFIT/LOSS 114,890 11.1 Change in fair value of marketable securities (Transfer to Profit/Loss) (53) 11.2 Reclassification and transfer of derivatives accounted for cash flow hedge purposes to Income Statement - 11.3 Transfer of hedge of net investments in foreign operations to Income Statement - 11.4 Other 114,943
XII. TOTAL PROFIT/LOSS ACCOUNTED FOR THE PERIOD (X±XI) (68,268)
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
118 FINANCIAL INFORMATION ------
Total Total 6,414 Equity 60,843 (2,789) 114,890 2,712,151 2,532,793 ------
Acc. Acc. from from assets assets 49,054 held for held for disc. op. disc. (49,054) sale and diff. from from diff. valuation valuation ------
Funds Hedging ------
from from Bonus shares shares obtained Associates ------
and Assets 59,107 197,269 Tangible Tangible (138,162) Intangible Differences Revaluation Revaluation ------
Fund Value Value 6,414 (54,057) (60,471) Increase Increase Securities Marketable Marketable ------
Net Prior (Loss) Period Period 248,059 248,059 176,025 Income/ (176,025) (176,025) ------
Net (Loss) Period Period Current Current 114,890 114,890 Income/ ------
Other 53,090 53,090 (2,789) Reserves (102,447) (152,748) ------
116,675 116,675 890,402 Reserves 1,007,077 Extraordinary Extraordinary ------
Reserves Statutory ------
Legal 6,260 6,260 280,244 273,984 Reserves ------
Share Share profits certificate certificate cancellation cancellation ------
1,278 1,278 Share Share premium ------
Capital inflation Effect of Effect Reserves and Other on Capital Accounting Accounting ------
Capital Paid-in Paid-in 1,158,000 1,158,000
The accompanying explanations and notes form an integral part of these financial statements. an integral and notes form explanations The accompanying ref. (13) Note Cash Capital increase The effect of change in associate’s equity The effect The reclassification of assets The reclassification The disposal of assets Foreign exchange differences exchange Foreign Bonus shares obtained from associates, associates, obtained from Bonus shares entities controlled subsidiaries and jointly (Joint vent.) Intangible assets revaluation differences Intangible assets revaluation
Tangible assets revaluation differences assets revaluation Tangible Transfers to reserves Transfers Other Closing Balance (I+II+III+…+XVI+XVII+XVIII) Hedge of net investment in foreign operations in foreign Hedge of net investment Profit distribution Profit Dividends distributed Cash-flow hedge Cash-flow Other Period net income/(loss) Period Hedging Funds (Effective Portion) (Effective Hedging Funds Inflation adjustment to paid-in capital Changes in period Marketable securities valuation differences securities valuation Marketable Share cancellation profits cancellation Share Prior period balance Increase/Decrease related to merger related Increase/Decrease Share premium Share 01.01.2017-31.12.2017 Internal sources
PRIOR PERIOD AUDITED 12.1 XII. XI. X. IX. VIII. VII. VI. V. 18.2 18.3
4.2 XVIII. 18.1 4.1 XVI. XVII. IV. XV. III. XIV. I. II. XIII.
12.2
ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) separately. presented 2017 financial statements are principles, on different prepared 2017 and 2018 financial statementsare Since, rules. TFRS 9 transition as permitted by not restated are disclosures The prior period financial statements and related Note:
ŞEKERBANK ANNUAL REPORT 2018
119 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED STATEMENT OF CASH FLOW (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED Note PRIOR PERIOD Ref. 01.01.2017-31.12.2017 A. CASH FLOWS FROM BANKING OPERATIONS
1.1 Operating profit before changes in operating assets and liabilities (175,405)
1.1.1 Interest received 2,612,489 1.1.2 Interest paid (1,597,750) 1.1.3 Dividend received 4,753 1.1.4 Fees and commissions received 400,389 1.1.5 Other income 228,834 1.1.6 Collections Accounted as Loss from previously written off loans 305,968 1.1.7 Payments to personnel and service suppliers (385,141) 1.1.8 Taxes paid (22,811) 1.1.9 Other (1,722,136)
1.2 Changes in operating assets and liabilities 3,238,175
1.2.1 Net (increase) decrease in financial assets held for trading (4,931) 1.2.2 Net (increase) decrease in financial assets at fair value through profit or loss - 1.2.3 Net (increase) decrease in due from banks and other financial institutions - 1.2.4 Net (increase) decrease in loans (2,839,720) 1.2.5 Net (increase) decrease in other assets (1) (677,308) 1.2.6 Net increase (decrease) in bank deposits 3,855,225 1.2.7 Net increase (decrease) in other deposits 3,144,800 1.2.8 Net increase (decrease) in funds borrowed (73,743) 1.2.9 Net increase (decrease) in matured payables - 1.2.10 Net increase (decrease) in other liabilities (1) (166,148)
I. Net cash provided from banking operations 3,062,770
B. CASH FLOWS FROM INVESTING ACTIVITIES
II. Net cash provided from investing activities (111,067)
2.1 Cash paid for purchase of entities under common control, associates and subsidiaries (25,500) 2.2 Cash obtained from sale of entities under common control, associates and subsidiaries - 2.3 Purchases of tangible assets (210,819) 2.4 Sales of tangible assets 145,661 2.5 Cash paid for purchase of financial assets available for sale (330,520) 2.6 Cash obtained from sale of financial assets available for sale 504,440 2.7 Cash paid for purchase of investment securities (581,979) 2.8 Cash obtained from sale of investment securities 413,434 2.9 Others (25,784)
C. CASH FLOWS FROM FINANCING ACTIVITIES
III. Net cash provided from financing activities 351,688
3.1 Cash obtained from funds borrowed and securities issued 1,363,709 3.2 Cash used for repayment of funds borrowed and securities issued (1,006,954) 3.3 Equity instruments issued - 3.4 Dividends paid - 3.5 Payments for finance leases (5,067) 3.6 Other -
IV. Effect of change in foreign exchange rate on cash and cash equivalents (1) 32,531
V. Net increase/(decrease) in cash and cash equivalents 3,335,922
VI. Cash and cash equivalents at beginning of the period (2) 259,736
VII. Cash and cash equivalents at end of the period (3) 3,595,658
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statementsare prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
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120 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. UNCONSOLIDATED PROFIT DISTRIBUTION TABLE (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD I. DISTRIBUTION OF CURRENT YEAR INCOME 31.12.2017(*)
1.1 CURRENT YEAR INCOME 139,527 1.2 TAXES AND DUTIES PAYABLE (-) (24,637) 1.2.1 Corporate tax (Income tax) (35,830) 1.2.2 Income witholding tax - 1.2.3 Other taxes and duties (**) 11,193
A. NET INCOME FOR THE YEAR (1.1-1.2) 114,890
1.3 PRIOR YEARS’ LOSSES (-) - 1.4 FIRST LEGAL RESERVES (-) 5,745 1.5 OTHER STATUTORY RESERVES (-) -
B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 109,145
1.6 FIRST DIVIDEND TO SHAREHOLDERS (-) - 1.6.1 To owners of ordinary shares - 1.6.2 To owners of preferred shares - 1.6.3 To owners of preferred shares (preemptive rights) - 1.6.4 To profit sharing bonds - 1.6.5 To holders of profit and loss sharing certificates - 1.7 DIVIDENDS TO PERSONNEL (-) - 1.8 DIVIDENDS TO BOARD OF DIRECTORS (-) - 1.9 SECOND DIVIDEND TO SHAREHOLDERS (-) - 1.9.1 To owners of ordinary shares - 1.9.2 To owners of preferred shares - 1.9.3 To owners of preferred shares (preemptive rights) - 1.9.4 To profit sharing bonds - 1.9.5 To holders of profit and loss sharing certificates - 1.10 SECOND LEGAL RESERVES (-) - 1.11 STATUTORY RESERVES (-) - 1.12 EXTRAORDINARY RESERVES 357,077 1.13 OTHER RESERVES - 1.14 SPECIAL FUNDS 127
II. DISTRIBUTION OF RESERVES
2.1 DISTRIBUTED RESERVES - 2.2 SECOND LEGAL RESERVES (-) - 2.3 DIVIDENDS TO SHAREHOLDERS (-) - 2.3.1 To owners of ordinary shares - 2.3.2 To owners of preferred shares - 2.3.3 To owners of preferred shares (preemptive rights) - 2.3.4 To profit sharing bonds - 2.3.5 To holders of profit and loss sharing certificates - 2.4 DIVIDENDS TO PERSONNEL (-) - 2.5 DIVIDENDS TO BOARD OF DIRECTORS (-) -
III. EARNINGS PER SHARE
3.1 TO OWNERS OF ORDINARY SHARES 0.09921 3.2 TO OWNERS OF ORDINARY SHARES ( % ) 9.921 3.3 TO OWNERS OF PREFERRED SHARES - 3.4 TO OWNERS OF PREFERRED SHARES ( % ) -
IV. DIVIDEND PER SHARE
4.1 TO OWNERS OF ORDINARY SHARES - 4.2 TO OWNERS OF ORDINARY SHARES ( % ) - 4.3 TO OWNERS OF PREFERRED SHARES - 4.4 TO OWNERS OF PREFERRED SHARES ( % ) -
(*) Resolution regarding profit distribution will be decided at the General Meeting. (**) Defered tax gain is not included in the profit distribution in accordance with 2004/3 Numbered circular of BRSA
The accompanying explanations and notes form an integral part of these financial statements.
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121 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION THREE ACCOUNTING PRINCIPLES
I. Basis of Presentation
The Bank prepares financial statements and notes in accordance with the Turkish Accounting Standards (TAS) and the Turkish Financial Reporting Standards (TFRS) and the related statements and guidances announced by the Public Oversight, Accounting and Auditing Standards Authority (“POA”) and the Communiqué on Banks’ Accounting Practice and Maintaining Documents, other regulations, communiqués and circulars in respect of accounting and financial reporting and pronouncements issued by the Banking Regulation and Supervision Agency (BRSA).
Within the “IFRS 16 Leases” standard which was published in the official gazette dated 16 April 2018 and numbered 30393 for the period starting from 1 January 2019 the operating lease transactions will also be accounted in a similar manner as the finance lease transactions.
According to this standard leasing transactions will be included in the balance sheet as assets with the right of use and liabilities regarding the leasing transactions. The Bank continues to work on compliance with the mentioned standard as of the report date. The Bank does not expect a significant impact in its financials with the adaptation of TFRS 16 as of 1 January 2019.
Accounting policies and valuation principles applied in the preparation of financial statements are disclosed in the footnotes below.
Additional paragraph for convenience translation to English
The effects of differences between accounting principles and standards set out by regulations in conformity with Article 37 of the Banking Law No. 5411, accounting principles generally accepted in countries in which the accompanying unconsolidated financial statements are to be distributed and the International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying unconsolidated financial statements. Accordingly, the accompanying unconsolidated financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS.
II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions
The Bank aims to keep up its activities in every line of banking.
The Bank shapes its strategies for financial instruments depending on the source of funds, which mainly consists of deposits. Investment instruments are usually choosen from liquid instruments. A level of liquidity which allows covering the Bank’s obligations is secured.
The Bank controls risk by managing currency positions in harmony with market movements on the strength of short- term strategies instead of carrying long-term currency positions in big amounts, in order to avoid risks which might arise from floating currency (exchange rate) regime. A currency risk arising from customer transactions, the Bank tries to close by carrying out counter-transactions.
Yield (return) and risk analyses are made in regard of maturity structure of balance sheet items, re-pricing periods and interest rates, and appropriate investment decisions are made. Budget contains limits on maturity basis and distributions of assets items are defined.
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122 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Bank’s off-balance sheet term transactions are managed by including such transactions in the Bank’s total currency and interest positions. Term transactions to be made by customers are carried out within loan and risk limits established on customer basis. Currency swaps, in particular, being a larger part of the off-balance sheet transactions, are carried out to manage the Bank’s currency cash flow without causing currency and interest risks.
The Bank aims to get longer-term funds (resources) in order to be able to hedge itself against risks arising from short- term character of deposits, while trying to increase the share of floating interest rate items in its assets.
The foreign currency monetary assets and liabilities followed under balance sheet are converted into Turkish Lira at exchange rate at the balance sheet date. The non-monetary accounts carried at fair value are converted from the exchange rates at the time the fair value was determined. Exchange rate differences or collection and disbursement arising from monetary items conversion is stated under the income statement.
III. Explanations on Associates and Subsidiaries
Associates and subsidiaries are recorded at the cost of acquisition and provision is provided for any impairment in value.
IV. Explanations on Forward and Option Contracts and Derivative Instruments
The Bank’s derivative instruments mainly consist of foreign currency swaps, interest swaps, option and forward buy/sell transactions. Fair values of foreign currency forward and swap transactions are determined by comparing the Bank’s period end foreign exchange rates and current market foreign exchange rates to the balance sheet date. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term income statement. Discounted values calculated using the interest rates between the transaction date and repricing date are used in determination of the fair values of interest rate swaps. While some derivative transactions provide economic hedging, these transactions are subject to hedge accounting. The purpose of hedge accounting; is to present the effect of the risk management activities using appropriate financial instruments to manage certain risks that may affect profit or loss in the financial statements. For the purpose of hedging the fair value of a portfolio of financial assets or financial liabilities, the Bank may apply the provisions of TFRS 9 or TAS 39. In this context, the Bank has chosen to apply TFRS 9 for hedge accounting.
The Bank enters into interest rate swap transactions in order to hedge the changes 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 the statement of income. The change in the fair value of the hedged item of the fixed rate financial asset is shown in the financial statements together with the related asset as long as the hedge is effective. If the hedged item is a fixed rate financial asset at fair value through profit or loss, then any loss or gain on hedged risk is recognized in the income statement.
Hedge accounting applies to hedging only when all the following criteria are met:
- The hedging relationship only includes suitable hedging instruments and hedged items. - At the beginning of the hedging relationship, there is a formal identification and certification of the risk management objective and strategy that leads to the hedging relationship. This certification includes the assessment of the Bank on the hedging instrument, the hedged item and the structure of the hedged risk, and whether the hedging relationship will provide an effective protection against the hedged risk (including analysis of inefficiency resources in the hedging process and how the hedging rate is determined). - The hedging relationship meets all of the following provisions for the effectiveness of the hedging.
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123 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
- There is an economic relationship between the hedged item and the hedging tool. - The credit risk effect is not dominated by changes in value arising from this economic relationship, and the hedging rate in the hedging relationship is equal to the amount of the item that the entity actually hedges and the amount calculated according to the amount of hedging that the entity actually uses to hedge this item. However, the hedging shall not reflect an imbalance between the hedged item and the hedging instrument’s weights, which is not consistent with the objectives of hedge accounting and will result in hedging ineffectiveness.
The Bank terminates hedge accounting forward only if the hedging relationship (or part of it) no longer meets the required criteria (after considering rebalancing). This also applies if the hedging item is expired or sold, terminated or used.
The effect of fair value hedge accounting is shown in the table below:
Fair Value Net Fair Value of the Hedging Net Gain/(Loss) Type of Hedging Hedged Item(asset and Difference of Instrument Recognised in the İnstrument liability) Hedged Risks Hedged Item Asset Liability Statement of Income Fixed interest commercial Fixed interest Interest Rate Swaps loans with installment rate risk 1,260 19,178 16,592 (722) Fixed interest government Fixed interest Constant Maturity Swap bonds rate risk 14,672 (12,312) - 14,672
V. Explanations on Interest Income and Expenses
The interest income and expenses are accounted by accrual basis of accounting using the effective interest rate (the ratio that equalizes the future cash flow of financial assets and liabilities to the current net book value).
Starting from 1 January 2018, the Bank has started accruing interest income on non-performing loans. The non- performing loans are rediscounted at the effective interest rate on the net book value and the related amount is classified between the “Expected Loss Provisions” account and the “Interest on Loans” account in the income statement.
VI. Explanations on Fees and Commission Income and Expenses
Fees for various banking services are recorded as income when collected and prepaid commission income on cash loans using the effective interest rate method and then recorded as income in the related period.
Fees and commissions for funds borrowed paid to other financial institutions, as part of the transaction costs, are recorded as prepaid expenses and using the effective interest rate expensed within the related periods.
The dividend income is reflected in the financial statements on a cash basis when the profit distribution is realized by the associates and subsidiaries.
VII. Explanations on Financial Assets
In the framework of “TFRS 9 Financial Instruments”, which was effective as of 1 January 2018, the Bank classifies its financial assets as “Financial assets at fair value through profit or loss”, “Financial assets at fair value through other comprehensive income” or “Financial assets at amortised cost”. This classification is made during initial recognition based on the contractual cash flow characteristics with the business model of the financial assets determined by management.
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124 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Financial assets are recognized or derecognized according to the provision ‘Taking into Financial Statements and Excluding the Financial Statements’ of section three of TFRS 9.
Financial instruments have the feature of detecting, affecting and diminishing liquidity, credit and interest risks in the financial statements. All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Bank. Settlement date accounting requires (a) accounting of the asset when acquired by the Bank and (b) disposing of the asset out of the balance sheet on the date settled by the Bank; and accounting of gain or loss upon disposal. In case of application of settlement date accounting, for the financial assets at fair value through profit and loss and financial assets at fair value through other comprehensive income the Bank accounts for the changes that occur in the fair value of the asset in the period between trade transaction date and settlement date.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted in the same way as the acquired assets. Fair value differences are not accounted for financial assets presented at cost or amortized cost; gain or loss of financial assets at fair value through profit and loss are reflected in the statement of income; gain or loss of financial assets at fair value through other comprehensive income are accounted for in the shareholders’ equity.
The following are details of the financial instruments that are classified in the financial statements.
Financial Assets at Fair Value Through Profit and Loss
Financial assets at fair value through profit and loss are financial assets other than the ones that are managed with business model that aims to hold assets to collect contractual cash flows or to collect cash flows that are solely payments of principal and interest on the principal outstanding amount; that are either acquired for generating a profit from short-term fluctuations in prices or are financial assets included in a portfolio aiming to short-term profit taking.
The fair value of financial assets at fair value thourgh profit and loss, which are traded in active markets, is determined according to the price of the stock exchange and in the case that the stock market price is not available, according to the price in the Official Gazette. Where there is no quoted price in an active market, the fair value is determined by using other methods specified in TFRS 13.
Financial assets at the fair value through profit or loss are initially recognized at fair value. The positive difference between the cost and fair value of such securities is accounted as interest and income accrual, and the negative difference between the cost and fair value is accounted as as loss accrual in the profit and loss.
Financial Assets at Fair Value Through Other Comprehensive Income
The financial assets, which are acquired with the aim to collect the contractual cash flows and to sell the financial asset in future, are classified as financial assets at fair value through other comprehensive income.
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125 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Bank’s management may retain both the contractual cash flows as well as the portfolio for sale, in order to meet daily liquidity needs, maintain a certain level of interest income and align the maturity of financial assets with the valuation of the financial liabilities for funding purposes.
Financial assets at fair value through other comprehensive income are initially recognized at fair value including transaction costs.
The results of the subsequent changes in the fair value of financial assets at fair value through other comprehensive income, namely unrealized gain or loss are recorded in “Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss”. Accumulated fair value gain or loss, previously reflected in equity, is recorded to the income statement when the said financial assets are disposed.
The fair value of financial assets at fair value through other comprehensive income, which are traded in active markets is determined according to the price of the stock exchange and in the case that the stock market price is not available, according to the price in the Official Gazette. Where there is no quoted price in an active market, the fair value is determined by using other methods specified in TFRS 13. The financial assets at Fair Value Through Other Comprehensive Income, that are unquoted on the stock exchange, amount to TRL 22,718 Thousand and are classified under “Equity securities” in the current period.
Financial assets at amortised cost
A financial asset is classified as a financial asset measured at amortized cost, if the financial asset is held within the scope of a business model for the collection of contractual cash flows and the contractual terms of the financial asset result in cash flows that include payments arising only from principal and interest on the principal amounts on specific dates.
After the initial recognition, provision for impairment to be deducted, if any, financial assets measured at amortized cost are recognized with discounted value using effective interest method (internal rate of return).
Interest earned from financial assets measured at amortized cost is recorded as interest income.
The Bank classifies financial assets in accordance with the classifications explained above during the acquisition of the mentioned assets.
There are treasury bonds indexed to consumer prices (“CPI”) in the securities portfolio where fair value difference is reflected through profit and loss, the fair value difference is reflected in other comprehensive income and measured at amortized cost. The real coupon of State Treasuries Indexed to Consumer Prices remains stable throughout the term. In addition to the effects of inflation changes, valuations of these securities are made according to the announcements made by the Presidency Ministry of Treasury and Finance at the issue date, based on the reference index at the issue date and the reference index at the balance sheet date.
Loans
Loans, other than those with intention to be sold, are the financial assets, the contractual terms of which result in cash flows that include payments arising only from principal and interest on the principal amounts on specific dates.
The Bank initially recognises loans at the cost of the acquisition and accounts for the amortized cost using the effective interest method in subsequent periods.
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126 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Foreign currency-indexed individual and commercial loans are shown under Turkish Currency (“TRL”) accounts after having been converted into Turkish Lira at exchange rate at transaction date. Repayments are calculated at exchange rate at date of payment and exchange rate differences encountered are reflected in profit and loss accounts. Net foreign exchange gains of the foreign currency indexed loans are presented under foreign exchange gain/loss.
All loans of the Bank are monitored under the “Financial Assets at Amortized Costs” account.
VIII. Explanations on Impairment of Financial Assets
Expected Credit Losses
Starting from 1 January 2018, the Bank recognizes the impairment in accordance with the TFRS 9 “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette No. 29750 dated 22 June 2016.
Within this framework, evaluation of the expected credit losses is applied for the financial lease recievables, contractual assets, credit commitments and financial guarantee contracts that are not measured at fair value through profit or loss, financial assets measured at amortized cost and fair value through other comprehensive income.
Expected Credit Losses
The expected credit losses measured and recorded at the initial recognition of the financial asset and updated according to the rate of the impairment on the credit risk in accordance with measurement performed at each reporting date to reflect changes in credit risk.
The basic principle of the expected credit loss model is to reflect the deterioration or improvement in credit risk to the general pattern. The expected loss measurement is aimed to identify the degree of credit deterioration at the first issuance of the loan and to reflect the changes in the expected credit loss during the lifetime of the related loan.
Financial assets are classified into the following three categories based on the degree of the credit risks observed at the initial recognition of financial assets:
12 Months Expected Loss Provision (First Stage):
For the financial assets at initial recognition or that do not have a significant increase in credit risk since initial recognition, the expected credit loan loss provision is calculated for 12 months.
Significant Increase in Credit Risk (Second Stage):
In the event of a significant increase in credit risk since initial recognition, the financial asset is transferred to Stage 2. Expected credit loss provision is determined by the expected credit loss for the life-time of the related financial asset.
The main reasons for the significant increase in the credit risk and its transfer to the second stage are as follows:
• Number of overdue loan dates exceeding 30 days. • The presence of loans under restructuring due to financial difficulties. • Suggesting to ‘Liquidate Risk’ to the customers by the Bank’s early warning system.
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127 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Default (Third Stage):
The Bank takes into account the following criteria for the classification of a financial asset as a default;
-Overdue by more than 90 days -The Bank’s observation that the debtor cannot fulfill his/her debts related to the loan although it is not more than 90 days.
Includes financial assets that have objective evidence of impairment as of the reporting date. Life expectancy for these assets is recorded as credit loss.
The Bank measures the expected credit losses for a financial asset to reflect the following:
• A weighted and unbiased amount of loss based on probabilities of default determined taking into account possible outcomes, • Time value of money, • Reasonable and supportable information on estimates of past events, current conditions, and future economic conditions without undue cost or effort as of the reporting date.
IX. Explanations on Offsetting of Financial Assets and Liabilities
Financial assets and liabilities are offset when the Bank has a legally enforceable right to set off, and the intention of collecting or paying the net amount of related assets and liabilities or the right to offset the assets and liabilities simultaneously.
X. Explanations on Sales and Repurchase Agreements and Lending of Securities
The sales and purchase of government securities under repurchase agreements made with the customers are being recorded in balance sheet accounts in accordance with the Uniform Chart of Accounts. Accordingly in the financial statements, the government bonds and treasury bills sold to customers under repurchase agreements are classified under Financial Assets at Fair Value Through Profit and Loss, Financial Assets at Fair Value Through Other Comprehensive Income and Financial assets at amortised cost depending on the portfolio they are originally included in and are valued according to the valuation principles of the related portfolios. Funds obtained from repurchase agreements are classified under money market borrowings account in the liabilities.
The income and expenses from these transactions are reflected in the “Interest Income on Marketable Securities” and “Interest Expense on Money Market Borrowings” accounts in the income statement.
As of 31 December 2018, the Bank does not have reverse repo transactions (31 December 2017-None).
As of 31 December 2018, the Bank does not have marketable securities lending transactions. (31 December 2017-None).
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128 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XI. Explanations on Assets Held for Sale and Discontinued Operations
Assets held for sale are those assets or group of assets, which will be disposed under a plan prepared by the management regarding the sale of those asset or the group of assets that have high probability of sale together with an active program for determination of buyers and plan completion date. Those assets (or else the group of assets) are marketed in conformity with its fair value. On the other hand, the mentioned sale is expected to be recorded at the completed sale within one year after the classification date; and the necessary transactions and procedures to complete the plan should demonstrate the fact that the possibility of making significant changes or cancelling the plan is low.
As of 31 December 2018, the Bank has TRL 318,321 Thousand assets held for sale. (31 December 2017 – TRL 257,420 Thousand).
A discontinued operation is a division of a bank that is either disposed or held for sale. Results of discontinued operations are included in the statement of income separately.
The Bank does not have any discontinued operations.
XII. Explanations on Goodwill and Other Intangible Assets
There is no goodwill regarding the investments in associates and subsidiaries.
Intangible assets are accounted for at restated cost until 31 December 2004 in accordance with inflation accounting and are amortized with straight-line method. After 31 December 2004 the cost of assets subject to amortization is restated as the acquisition cost and any other costs incurred in order to make the intangible asset ready for use less reserve for impairment, if any, are amortized on a straight-line method. The cost of assets subject to amortization is restated after deducting the exchange differences, capitalized financial expenses and revaluation increases, if any, from the cost of the assets.
Those items classified as intangible assets mainly consist of software. These items are determined to have 5 years of amortization. Software is mainly outsourced and the related expenses are not capitalized.
There are no anticipated changes in the accounting estimates about the amortization rate and method and residual values that would have a significant impact in the current and future periods.
The Bank has no written off intangible fixed assets in the current period (31 December 2017-None).
XIII. Explanations on Tangible Fixed Assets
The cost of the Bank’s immovables has been adjusted for inflation until 31 December 2004. As of 31 December 2006, the Bank changed its accounting policy and adopted revaluation method on annual basis under scope of Standard on Tangible Fixed Assets (TAS 16) with respect to valuation of immovables included in its tangible fixed assets. Tangible Fixed Assets’ appraisal valuation was conducted by an independent valuation company as at 31 December 2018 reflected in the financial statements, accordingly. The valuation difference of immovables under equity as of 31 December 2018 is TRL 77,259 Thousand gross (after net off deferred tax, net amount is TRL 61,807 Thousand). (31 December 2017 TRL 73,884 Thousand gross, (after net off deferred tax, net amount is TRL 59,107 Thousand)).
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129 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Other tangible fixed assets were accounted at their restated costs in line with inflation accounting until 31 December 2004; afterwards the acquisition cost and any other cost incurred to prepare the fixed asset for usage are reflected less reserve for impairment, if any, and depreciated on a straight-line method. Depreciation of assets held less than one year as of the balance sheet date is accounted for proportionately. There is no change in amortization method in current period and the annual rates used, which approximate rates based on the estimated economic useful lives of the related assets, are as follows:
% Buildings 2 Motor vehicles 20 Furniture, fixtures and office equipment and others 2 – 20 Leasehold improvements During the lease agreement
Gain or loss resulting from disposals of the tangible fixed assets is reflected to the income statement as the difference between the net proceeds and net book value.
Maintenance costs of tangible fixed assets are capitalized if they extend the economic useful life of related assets. Other maintenance costs are expensed. There are no pledges, mortgages or other restrictions on the tangible fixed assets.
There is no purchase commitments related to the tangible fixed assets.
The Bank reviews the residual value and the useful life of buildings at least at each financial year-end and, if expectations differ from previous estimates, the changes accounted for as a change in an accounting estimate in accordance with TAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The Bank has no written off fixed assets in the current period (31 December 2017-None).
XIV. Explanations on Leasing Transactions
Tangible fixed assets acquired by financial leases are accounted for in accordance with TAS 17 “Leases”. In accordance with this standard, the leasing transactions, which consist of foreign currency liabilities, are translated to Turkish Lira with the exchange rates prevailing at the transaction dates and they are recorded as an asset or a liability. The foreign currency liabilities are translated to Turkish Lira with the Bank’s period end exchange rates. The increases/decreases resulting from the differences in the foreign exchange rates are recorded as expense/income in the relevant period. The financing cost resulting from leasing is distributed through the lease period to form a fixed interest rate.
In addition to the interest expense, the Bank records depreciation expense for the depreciable leased assets in each period. The depreciation rate is determined in accordance with TAS 16 “Accounting Standard for Tangible Fixed Assets” and the depreciation rate of these assets is 20 % per year.
Operating lease payments are recognized as expenses in the income statement on a straight line basis over the lease term.
The Bank does not have any leasing transactions as lessor.
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XV. Explanations on Provisions and Contingent Liabilities Provisions are recognized when there is a present obligation, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by using the Bank’s best expectation of expenses in fulfilling the obligation, and discounted to present value if material.
XVI. Explanations on Liabilities Regarding Employee Benefits
Defined Benefit Plans
In accordance with existing social legislation in Turkey, the Bank is required to make lump-sum termination indemnities over a 30 day salary for each employee who has completed over each year of service, whose employment is terminated due to retirement or for reasons other than resignation or misconduct. The Bank is also required to make a payment for the period of notice calculated over each service year of the employee whose employment is terminated for reasons other than resignation or misconduct. Total benefit is calculated in accordance with TAS 19 “Turkish Accounting Standard on Employee Benefits”.
Such benefit plans are unfunded since there is no funding requirement in Turkey. The cost of providing benefits to the employees for the services rendered by them under the defined benefit plan is determined by independent actuaries annually using the projected unit credit method.
In calculating the related liability to be recorded in the financial statements for these defined benefit plans, the Bank uses independent actuaries and also assumptions and estimations are made relating to the discount rate to be used, turnover of employees, future change in salaries/limits, etc. These estimations are reviewed annually. According to revised TAS 19 published as at 1 January 2013, actuarial gain/losses are recorded under equity. As of 31 December 2018, the carrying value of employee benefit provisions is TRL 82,298 Thousand that consists of employee termination benefit provisions amounting to TRL 75,147 Thousand and employee vacation pay provisions amounting to TRL, 7,151 Thousand. (31 December 2017-employee termination benefit provisions was TRL 70,834 Thousand and employee vacation benefit provisions was TRL 7,185 Thousand).
Defined Contribution Plans
Şekerbank T.A.Ş. Pension Fund, of which most of the Bank’s employees are members, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
After the justified decree related to cancelling the provisional article 23 of the Banking Law was announced by the Constitutional Court in the Official Gazette dated 15 December 2007 and numbered 26731, Turkish Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health Insurance Act and Certain Laws and Decree Laws”, which was published in the Official Gazette dated 8 May 2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation. The three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
ŞEKERBANK ANNUAL REPORT 2018
131 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
In addition, by the Law numbered 6283 “Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years after that related transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette dated 3 May 2013 and numbered 28636, also this period has revalidated one more year by the Cabinet decision dated 24 February 2014, which was published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335.
This authority was transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated July 9, 2018. This authority was transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated 9 July 2018.
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations”. There was TRL 159,499 Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers decision no: 26377 on 15 December 2006 (31 December 2017-TRL 81,454 Thousand deficit).
As of 31 December 2018, TRL 159,499 Thousand provision is recorded in the financial statements of the Bank. (31 December 2017-TRL 81,454 Thousand).
ŞEKERBANK ANNUAL REPORT 2018
132 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XVII. Explanations on Taxation
Corporate tax
According to the Article 37 of the Corporate Tax Law, starting from 1 January 2006 earnings of companies will be taxed by %20. In accordance with the regulation numbered 7061, “Amendments to Certain Tax Laws and Other Certain Other Laws”, the tax rate has been set as 22 % for 2018, 2019 and 2020. The Council of Ministers is authorized to reduce this rate up to 20% anytime.
The tax legislation requires advance tax payment to be calculated and paid based on earnings generated for each quarter. The amounts thus calculated and paid are offset against the final tax liability for the year.
Annual tax returns are required to be filed between the first and twenty fifth day of the fourth month following the balance sheet date and paid in one installment until the end of the related month.
Tax provision related with items that are credited or charged directly to equity are charged or credited to equity.
According to the Corporate Tax Law, tax losses can be carried forward for a maximum period of five years following the year in which the losses are incurred. Tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years.
Deferred Tax Liability/Asset
The Bank calculates and reflects deferred tax asset or liability on timing differences which will result in taxable or deductible amounts in determining taxable profit of future periods.
As of 31 December 2018 and 31 December 2017, in accordance with TAS 12 “Turkish Accounting Standard on Income Taxes” and the changes in the circular of the BRSA numbered BDDK.DZM.2/13/1-a-3 dated 8 December 2004, the Bank calculated deferred tax asset on all deductible temporary differences, if sufficient taxable profit in future periods to recover such amounts is probable; as well as deferred tax liability on all taxable temporary differences.Deferred tax assets and liabilities are shown in the accompanying financial statements on a net basis.
The net deferred tax asset is reflected under the deferred tax asset and the net deferred tax liability is reflected under the deferred tax liability in the balance sheet. The deferred tax benefit of TRL 110,733 Thousand is stated under the tax provision line in the income statement, the deferred tax expense of TRL 111,818 Thousand is presented in the deferred tax expense effect line in the income statement.
Furthermore, as per the above circular of the BRSA, deferred tax benefit balance resulting from netting of deferred tax assets and liabilities should not be used in dividend distribution and capital increase.
Effective from 1 January 2018, deferred tax assets have started to be calculated over the expected losses that are temporary differences according to TFRS 9.
ŞEKERBANK ANNUAL REPORT 2018
133 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XVIII. Additional Explanations on Borrowings
The borrowing costs related to purchase, production, or construction of qualifying assets that require significant time to be prepared for use and sale are included in the cost of assets until the relevant assets become ready to be used or to be sold. Financial investment income obtained by temporary placement of undisbursed investment loan in financial investments is offset against borrowing costs qualified for capitalization.
All other borrowing costs are recorded to the income statement in the period they are incurred.
The Bank’s issued bills amount is TRL 163,978 Thousand as of 31 December 2018. (31 December 2017 – TRL 229,096 Thousand).
The Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Bank’s SME loans were used as collateral. The outstanding Asset Covered Bond amount is TRL 701,850 Thousand as of 31 December 2018. (31 December 2017 – TRL 701,385 Thousand).
Issue Date Series Investors Amount Remaining Principal Amount Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
The Bank has not issued convertible bonds.
XIX. Explanations on Share Certificates
There are no share certificates issued by the Bank.
XX. Explanations on Independent Guarantees and Acceptances
Acceptances are realized simultaneously with the payment dates of the customers and they are presented as probable commitments in off-balance sheet accounts.
XXI. Explanations on Government Incentives
There are no government incentives utilized by the Bank.
ŞEKERBANK ANNUAL REPORT 2018
134 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XXII. Explanations on Segment Reporting
The Bank primarily deals with and engages in corporate, retail and SME banking in line with its strategy.
Current Period Corporate SME Retail Other Total
Net Interest Income 329,290 444,674 324,755 365,009 1,463,728 Net Fees and Commission Income and Other Operating Income 100,226 227,862 40,690 42,802 411,580 Personnel Expenses - - - (423,995) (423,995) Dividend Income - - - 2,717 2,717 Trading Profit/(Loss) - - - (143,835) (143,835) Expected Loss Provisions (190,891) (223,767) (2,466) (99,760) (516,884) Other Operating Expenses - - - (688,498) (688,498)
Profit/(Loss) before taxes 238,625 448,769 362,979 (945,560) 104,813 Taxation - - - - (18,455)
Net Profit for the Period - - - - 86,358
Treasury/ Current Period Commercial SME Retail Investment Undistributed Total Assets 7,899,136 11,670,744 994,301 8,099,429 2,657,710 31,321,320 Liabilities 4,469,175 1,591,741 17,028,218 4,478,593 3,753,593 31,321,320
Prior Period Corporate SME Retail Other Total
Net Interest Income 273,354 412,421 210,478 358,902 1,255,155 Net Fees and Commission Income and Other Operating Income 115,764 337,503 48,492 58,178 559,937 Dividend Income - - - 4,930 4,930 Trading Profit/(Loss) - - - (217,974) (217,974) Impairment provision for loans and other receivables (99,865) (318,804) (23,466) (29,227) (471,362) Other Operating Expenses - - - (991,159) (991,159)
Profit/(Loss) before taxes 289,253 431,120 235,504 (816,350) 139,527 Taxation - - - - (24,637)
Net Profit for the Period - - - - 114,890
Treasury/ Prior Period Commercial SME Retail Investment Undistributed Total Assets 9,874,080 9,616,607 1,185,593 9,327,600 1,342,581 31,346,461 Liabilities 7,034,249 2,425,292 10,267,447 8,095,161 3,524,312 31,346,461
ŞEKERBANK ANNUAL REPORT 2018
135 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XXIII. Explanations on Other Matters
Disclosures of TFRS 9 Financial Instruments:
TFRS 9 “Financial Instruments”, which is effective as of 1st of January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. TFRS 9 has been replaced TAS 39 Financial Instruments: recognition and measurement, related to the classification and measurement of financial instruments.
All recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding unless they are designated at fair value through profit and loss, are measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on cash flows that are solely payments of principal and interest on the principal amount outstanding,, unless they are designated at fair value through profit and loss, are measured at FVTOCI (Fair Value through Comprehensive Income). All other debt investments and equity investments are measured at their fair value through profit and loss at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income recognized in profit or loss.
Classification and measurement of financial assets: According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model used for managing the financial asset and the asset’s contractual cash flow characteristics whether the cash flows represent “solely payments of principal and interest (SPPI). At initial recognition, each financial asset has been classified as a financial asset to be recognized at either fair value through profit or loss (“FVTPL”), amortized cost or fair value through other comprehensive income (“FVOCI”).
Impairment of financial assets: As of 1 January 2018, the Bank recognized provisions for impairment in accordance with the TFRS 9 requirements and the “Regulation on Procedures and Principles for the classification of Loans and the Provisions to be Reserved” published in the Official Gazette dated 22 June 2016 numbered 29750. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions.
ŞEKERBANK ANNUAL REPORT 2018
136 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Explanations on the effect of the Bank’s application of TFRS 9 are given in the following tables: a) Classification and measurement of financial assets:
According to TFRS 9, Held for Trading Financial Assets are classified as Financial Assets Through Profit or Loss, Available for Sale Financial Assets are classified as Financial Assets Through Comprehensive Income and Held to Maturity Financial Assets are classified as Financial Assets at Amortized Cost as of 1 January 2018.
The reconciliation table related to TFRS 9 transition effect of financial assets is presented below table:
Measurement TFRS 9 TFRS 9 Principle Before Book Value Reclassification Remeasurement Carrying Value TFRS 9 Before TFRS 9 Effect Effect After TFRS 9 31 December 1 January Financial Assets 2017 2018 Cash and Balances with Measured at Central Bank amortized cost 3,045,232 - - 3,045,232 Measured at Banks and Money Markets amortized cost 2,829,920 - - 2,829,920 Fair value through profit and loss marketable Fair value through securities profit and loss 16,924 - - 16,924 Fair value through Fair value through comprehensive income comprehensive marketable securities income 1,393,895 (1,064,050) 3,112 332,957 Marketable securities at Measured at amortised cost amortized cost 1,351,143 1,064,050 72,562 2,487,755 Fair value through Loans profit and loss 3,681 (3,811) 130 - Measured at amortized cost 20,215,821 3,558 - 20,219,379 Non Performing Loans 1,016,788 820 - 1,017,608 Specific provisions (-) (560,010) (567) - (560,577)
The Bank has classified the fair value through comprehensive income marketable securities portfolio amounting to TRL 1,277,887 Thousand as of 31 December 2017 to marketable securities at amortised cost and marketable securities at amortised cost portfolio amounting to TRL 213,837 Thousand to the fair value through comprehensive income marketable securities as of 1 January 2018.
In the financial statements as of 1 January 2018, “Cash and Cash Equivalents” item includes “Cash and Central Bank”, “Banks” and “Money Market Receivables” items which are presented separately in the 31 December 2017 financial statements. In addition, “Other Liabilities” item on the financial statements as of 1 January 2018 includes “Sundry Creditors” and “Other Liabilities” items presented separately in the 31 December 2017 financial statements.
Fair value throug profit or loss loans which are prsented at 31 December 2017 financial statements amounting to TRL 3,681 Thousand, are measured at amortized cost as of 1 January 2018 and classified in loans at amortised cost line in the financial statements.
ŞEKERBANK ANNUAL REPORT 2018
137 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Expected Loss related with financial assets
The reconciliation of the provision for impairment calculated as of 31 December 2017 and the expected loss calculated in accordance with TFRS 9 as of 1 January 2018 is included in the following table:
Carrying Value before TFRS 9 TFRS 9 31 December 2017 Remeasurement Effect Carrying Value after 1 January 2018 Loans 617,272 582,726 1,199,998 Stage 1 37,511 76,611 114,122 Stage 2 19,184 334,298 353,482 Stage 3 560,577 171,817 732,394 Financial Assets (*) 8,121 (3,287) 4,834 Non-cash Loans (**) 69,380 (4,241) 65,139 Stage 1 7,284 6,863 14,147 Stage 2 787 2,955 3,742 Stage 3 61,309 (14,059) 47,250
(*) Within the scope of TFRS 9, provisions include provisions for Amortized Cost, Fair Value Through Other Comprehensive Income, Receivables from Banks, Receivables from Money Markets and Other Assets. (**) Before TFRS 9, the expected credit loss for stage 1 and 2 non-cash loans is classified under “General Provision” and expected credit loss for stage 3 non-cash loans is classified under “Other Provisions” under liabilities. In accordance with TFRS 9, the expected loss provisions for the 1st, 2nd and 3rd stage non-cash loans are in the “Other Provisions” column in the liabilities. c) Equity effect of TFRS 9 transition
According to paragraph 15 of Section 2 of Article 7 of TFRS 9 Financial Instruments Standards published in the Official Gazette numbered 29953 dated 19 January 2017, it is stated that it is not compulsory to restate previous period information in accordance with TFRS 9 and if the previous period information is not revised, it is stated that the difference between the book value of 1 January 2018 at the date of application should be reflected in the opening effect of equity. The explanations about the transition effects to TFRS 9 presented in the equity items under the scope of this article are given below.
After the adoption of TFRS 9 as of 1 January 2018, the Bank has increased its shareholders’ equity amounting to TRL 60,152 Thousand after deferred tax due to reclassification of marketable securities and decreased TRL 477,131 Thousand shareholders’ equity after deferred tax due to expected credit loss provision calculation.
Deferred tax assets are calculated for general provisions (TFRS 9 expected loss provisions for stage 1 and stage 2 loans) as of 1 January 2018, as stated in the Communiqué on “Uniform Chart of Accounts and Prospectus” issued on 20 September 2017. Within this scope, deferred tax asset amounting to TRL 98,065 Thousand has been reflected to opening balances on 1 January 2018 and such amount has been accounted under equity.
ŞEKERBANK ANNUAL REPORT 2018
138 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Explanations On Prior Period Accounting Policies Not Valid For The Current Period
Explanations on Financial Assets
Financial instruments comprise financial assets, financial liabilities and derivative instruments. Financial instruments form a significant part of the Bank’s operations. Financial instruments affect liquidity, market, and credit risks on the Bank’s balance sheet in all respects. The Bank trades these instruments on behalf of its customers and on its own behalf.
Financial instruments have the feature of detecting, affecting and diminishing liquidity, credit and interest risks in the financial statements. All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Bank. Settlement date accounting requires (a) accounting of the asset when acquired by the Bank and (b) disposing of the asset out of the balance sheet on the date settled by the Bank; and accounting of gain or loss upon disposal. In case of application of settlement date accounting, for the financial assets at fair value through profit and loss, available-for-sale financial assets and securities held for trading, the Bank accounts for the changes that occur in the fair value of the asset in the period between trade transaction date and settlement date.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted for in the same way as the acquired assets. Fair value differences are not accounted for assets presented at cost or amortized cost; gain or loss of financial assets at fair value through profit and loss are reflected in the statement of income; gain or loss of available-for- sale assets are accounted for in the shareholders’ equity.
The financial instruments are mentioned below with regard to their accounts classified in the financial statements and their valuations according to these classifications.
Cash, Banks and Other Financial Institutions
Cash and cash equivalents comprise cash on hand, demand deposits, and highly liquid short-term investments with maturity of 3 months or less following the purchase date, not bearing risk of significant value change, and these investments that are readily convertible to a known amount of cash. The book values of these assets approximate their fair values.
Financial Assets at Fair Value Through Profit and Loss
Trading securities are securities which were either acquired to generate a profit from short-term fluctuations in price or dealer’s margin, or they are the securities included in a portfolio with a pattern of short-term profit taking.
Trading securities are initially recognized at cost. Transaction costs of the related securities are included in the initial cost. The positive difference between the cost and fair value of such securities is accounted for as interest and income accrual, and the negative difference is accounted for as “Impairment Provision on Marketable Securities”.
ŞEKERBANK ANNUAL REPORT 2018
139 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
In addition, customer deposits, the Bank is funding its growing long term and fixed interest rate TRL loan portfolio through long term floating interest rate foreign currency resources provided from international markets. The Bank transforms the foreign currency liquidity which is created by funds provided from international markets to TRL liquidity through long term swap contracts, as a result of this situation the Bank can both provide TRL funds for the long term fixed rate loans and provide protection against interest rate risk.
The Bank reflects swaps, used for funding long term and fixed interest rate TRL loan portfolio, with fair value in the financial statements. The Bank has initially classified the long term and fixed interest rate TRL loan portfolio funded through swaps as “financial assets at fair value through profit and loss” and follows it at fair value in the financial statements.
TRL 3,681 Thousand of the housing, commercial installment, consumer, vehicle and finance lendings’ principal amounts are classified as under the account of financial asset at fair value through profit and loss.
Held-to-maturity Investments, Financial Assets Available-for-Sale and Loans
Investments held-to-maturity include securities with fixed or determinable payments and fixed maturity where there is an intention of holding till maturity and the relevant conditions for fulfilment of such intention, including the funding ability and excluding loans and receivables.
Available-for-sale financial assets include all securities other than loans and receivables, securities held-to-maturity and securities held for trading. The securities are initially recognized at cost including the transaction costs.
After the initial recognition, available-for-sale securities are measured at fair value and the unrealized gain/loss originating from the difference between the amortized cost and the fair value is recorded in “Marketable Securities Value Increase Fund” under the equity. Fair values of debt securities that are traded in an active market are determined based on quoted prices or current market prices. In the absence of prices formed in an active market, fair values of these securities are determined using the Official Gazette prices or other valuation methods stated in TAS. In case there is no market price in an active market, the other methods explained in TAS 39 are used for determination of the fair value.
The real coupon rates for government bonds indexed to consumer price index are fixed throughout maturities. As per the statements made by the Turkish Treasury on the dates of issuance, such securities are valued taking into account the difference between the reference index at the issue date and the reference index at the balance sheet date to reflect the effects of inflation.
Loans and receivables are financial assets raised by the Bank providing money to debtors, other than assets held for trading purposes or for the purpose of selling in the short-term.
After initial recognition held-to-maturity investments are measured at amortized cost by using effective interest rate less impairment losses, if any.
The interests received from held-to-maturity investments are recorded as interest income.
ŞEKERBANK ANNUAL REPORT 2018
140 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
There are no financial assets that have been previously classified as held-to-maturity investments but cannot be currently classified as held-to-maturity for two years due to “tainting” rules.
The Bank classifies its securities as referred to above at the acquisition date of related assets.
Shares unquoted on the stock exchange amounting to TRL 16,862 Thousand are classified under “Equity securities” of Financial Assets Available-for-Sale in the current period.
Loans and Provisions for Impairment
Loans and receivables are initially recognized at cost according to their original balances, after the initial recognition, they are accounted at amortized cost by using effective interest rate as stated in the TAS 39.
Foreign currency-indexed individual and commercial loans are shown under Turkish Currency (“TRL”) accounts after having been converted into Turkish Lira at exchange rate at transaction date. Repayments are calculated at exchange rate at date of payment and exchange rate differences encountered are reflected in profit and loss accounts. Net foreign exchange gains of the foreign currency indexed loans are presented under foreign exchange gain/loss.
Provision is set for the doubtful loans and the amount is charged in the current period income statement. The provisioning amount for non-performing loans are determined by the Bank’s management for compensating the probable losses of the doubtful loan portfolio, by evaluating the quality of loan portfolio, risk factors and considering the economy conditions, other facts and related regulations.
The Bank classifies its loans and receivables to related groups and calculates specific or general provisions in accordance with the “Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” published in the Official Gazette dated 1 November 2006, no.26333 and by considering other regulations and explanations announced by the BRSA.
Specific provisions are transferred to the profit and loss by using the Provision for Loan Losses and Other Receivables account. In the collections made related to such loans, first of all the principal debts of the loan are covered and then interest receivables are collected.
Specific provisions are accounted under “Provision for Loan Losses and Other Receivables” in the income statement and deducted from the net income of the period. If a receivable is collected which is provisioned in the same year, it is deducted from the “Provision for Loan Losses and Other Receivables”. If there is a subsequent collection from a receivable which has already been provisioned in previous years, the recovery amount is classified under “Other Operating Income”. Uncollectible receivables are written-off after all the legal procedures are finalized.
ŞEKERBANK ANNUAL REPORT 2018
141 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Explanations on Forward and Option Contracts and Derivative Instruments
The Bank’s derivative instruments consist of foreign currency swaps, interest swaps, option and forward foreign currency buy/sell transactions. Fair values of foreign currency forward and swap transactions are determined by comparing the Bank’s period end foreign exchange rates and current market foreign exchange rates to the balance sheet date. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term income statement. Discounted values calculated using the interest rates between the transaction date and repricing date are used in determination of the fair values of interest rate swaps. Some of the derivative instruments, although made for economical hedging purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument as per “Financial Instruments: Recognition and Measurement” (“TAS 39”). Realized gains or losses on these derivative instruments are reflected in the statement of income.
The Bank enters into interest rate swap transactions in order to hedge the changes 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 the statement of income. 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.
Effectiveness tests are performed at the beginning of the hedge accounting period and at each reporting period. The effectiveness tests are carried out 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 the statement of income over the life of the hedged item from that date of the hedge accounting is discontinued.
Explanations on Impairment of Financial Assets
At each balance sheet date, the Bank evaluates the carrying amounts of a financial asset or a group of financial assets to determine whether there is an objective indication that those assets have suffered an impairment loss. If any such indication exists, the Bank determines the related impairment.
A financial asset or a financial asset group incurs impairment loss only if there is an objective indicator related to the occurrence (or non-occurrence) of one or more than one event (“loss event”) after the recognition of that asset; and such loss event (or events) causes, an impairment as a result of the effect on the reliable estimate of the expected future cash flows of the related financial asset and asset group. Irrespective of high probability, the expected losses caused by the future events are not recorded.
ŞEKERBANK ANNUAL REPORT 2018
142 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION FOUR INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT
I. Explanations Related to Shareholders’ Equity
The method used for risk measurement in determining capital adequacy standard ratio; capital adequacy standard ratio is calculated in accordance with the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks”, which was published on 23 October 2015 in the Official Gazette numbered 29511 and effective since 31 March 2016 and Communiqué on “Banks’ Equity” which was published on 5 September 2013 and in the Official Gazette numbered 28756. The Bank’s unconsolidated capital adequacy ratio in accordance with the related communiqués is 15.14 % (31 December 2017 – 15.40 %).
In the computation of capital adequacy standard ratio, data prepared in accordance with statutory accounting requirements are used. Additionally, the market risk exposure as well as the operational risk exposure are calculated in accordance with the communiqué on the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks” and are taken into consideration in the capital adequacy standard ratio calculation.
The values deducted from the capital base in the shareholders’ equity computation are excluded while calculating risk-weighted assets. Assets subject to depreciation and impairment among risk-weighted assets are included in the calculations over their net book values after deducting the relative depreciations and provisions.
In the calculation process of credit risk, risk types are classified based on “Measurement and Assessment of Capital Adequacy of Banks-Appendix 1” and financial collaterals taken into account according to the credit risk mitigation techniques communiqué and classified in the related risk weight. According to the credit risk mitigation techniques communiqué while simple approach is taken into account for banking book items, the Bank uses comprehensive approach for trading book items in the credit mitigation process.
While calculating the basis of non-cash loans subject to credit risk, the net receivable amount from the counter parties net of provision amount set in accordance with the “Communiqué on Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” is multiplied by the loan conversion rates presented in the Article 5 and related clauses of the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks”, and calculated by applying the risk weights presented in the Capital Adequacy Analysis Form.
In the calculation of counterparty credit risk, the current exposure method is used according to the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks” the Article 21 and Appendix 2.
ŞEKERBANK ANNUAL REPORT 2018
143 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014 (*) COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 - Share issue premiums 1,278 - Reserves 1,691,807 - Gains recognized in equity as per TAS 61,807 - Profit 86,358 - Current Period Profit 86,358 - Prior Period Profit - - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period - - Common Equity Tier 1 Capital Before Deductions 2,999,250 - Deductions from Common Equity Tier 1 Capital Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - - Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected in equity in accordance with TAS 13,536 - Improvement costs for operating leasing 70,485 - Goodwill (net of related deferred tax liability) 92,434 - Other intangibles other than mortgage-servicing rights (net of related deferred tax liability) - - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related deferred tax liability) 66,790 - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provison - - Gains arising from securitization transactions - - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity 175,996 - Shares obtained contrary to the 4th clause of the 56th Article of the Law - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of mortgage servicing rights exceeding 10% of the Common Equity - - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the Regulation on the Equity of Banks - - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital 65,551 - Excess amount arising from mortgage servicing rights - - Excess amount arising from deferred tax assets based on temporary differences - - Other items to be defined by the BRSA - - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - - Total Deductions From Common Equity Tier 1 Capital 419,241 - Total Common Equity Tier 1 Capital 2,580,009 -
ŞEKERBANK ANNUAL REPORT 2018
144 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014 (*) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity and the Related Share Premiums - - Debt instruments and premiums approved by BRSA - - Debt instruments and premiums approved by BRSA(Temporary Article 4) - - Additional Tier I Capital before Deductions - - Deductions from Additional Tier I Capital Direct and indirect investments of the Bank in its own Additional Tier I Capital - - Investments of Bank to Banks that invest in Bank’s additional equity and components of equity issued by financial institutions with compatible with Article 7. - - 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 - - Transition from the Core Capital to Continue to deduce Components - Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - - Net deferred tax asset/liability which is not deducted from Common Equity Tier 1 capital for the purposes of the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - - Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not available (-) - - Total Deductions From Additional Tier I Capital - - Total Additional Tier I Capital - - Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,580,009 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA 898,885 - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - - Provisions (Article 8 of the Regulation on the Equity of Banks) - - Tier II Capital Before Deductions 898,885 - Deductions From Tier II Capital Direct and indirect investments of the Bank on its own Tier II Capital (-) - - Investments of Bank to Banks that invest on Bank’s Tier 2 and components of equity issued by financial institutions with the conditions - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - - Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 898,885 - Total Capital (The sum of Tier I Capital and Tier II Capital) 3,478,894 - The Sum of Tier I Capital and Tier II Capital (Total Capital) - Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - - 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 - - Other items to be defined by the BRSA (-) 5,780 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity) in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -
ŞEKERBANK ANNUAL REPORT 2018
145 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014 (*) TOTAL CAPITAL Total Capital (The sum of Tier I Capital and Tier II Capital) 3,473,114 - Total risk weighted amounts 22,938,402 - CAPITAL ADEQUACY RATIOS Core Capital Adequacy Ratio (%) 11.25 - Tier 1 Capital Adequacy Ratio (%) 11.25 - Capital Adequacy Ratio (%) 15.14 - BUFFERS Total additional Common Equity Tier 1 Capital requirement ratio (a+b+c) a) Bank specific total common equity tier 1 capital ratio 1.875 - b) Capital conservation buffer requirement 0.020 - c) Systemically important bank buffer ratio (**) 0.000 - The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets - Amounts below the Excess Limits as per the Deduction Principles - Portion of the total of net long positions of 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 - - Portion of the total of 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 - - Remaining Mortgage Servicing Rights - - Amount arising from deferred tax assets based on temporary differences - - Limits related to provisions considered in Tier II calculation General provisions for standard based receivables (before limit of one hundred and twenty five per ten Thousand) - - Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used - - Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Excess amount of total provision amount to % 0,6 of risk weighted receivables of credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Debt instruments subjected to Article 4 (to be implemented between January 1, 2018 and January 1, 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - - Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -
(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014 and taken into consideration at the end of transition process. (**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank, which are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.
ŞEKERBANK ANNUAL REPORT 2018
146 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Prior Period 1/1/2014(*) COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 - Share issue premiums 1,278 - Reserves 1,373,597 - Gains recognized in equity as per TAS 59,107 - Profit 362,949 - Current Period Profit 114,890 - Prior Period Profit 248,059 - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period - - Common Equity Tier 1 Capital Before Deductions 2,954,931 - Deductions from Common Equity Tier 1 Capital Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - - Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected in equity in accordance with TAS 66,784 - Improvement costs for operating leasing 93,199 - Goodwill (net of related tax liability) 69,433 - Other intangibles other than mortgage-servicing rights (net of related tax liability) - - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 47,811 - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provison - - Gains arising from securitization transactions - - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity 175,996 - Shares obtained contrary to the 4th clause of the 56th Article of the Law - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of mortgage servicing rights exceeding 10% of the Common Equity - - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the Regulation on the Equity of Banks - - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital - - Excess amount arising from mortgage servicing rights - - Excess amount arising from deferred tax assets based on temporary differences - - Other items to be defined by the BRSA - - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - - Total Deductions From Common Equity Tier 1 Capital 453,223 - Total Common Equity Tier 1 Capital 2,501,708 -
ŞEKERBANK ANNUAL REPORT 2018
147 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014 (*) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity and the Related Share Premiums - - Debt instruments and premiums approved by BRSA - - Debt instruments and premiums approved by BRSA(Temporary Article 4) - - Additional Tier I Capital before Deductions - - Deductions from Additional Tier I Capital Direct and indirect investments of the Bank in its own Additional Tier I Capital - - Investments of Bank to Banks that invest in Bank’s additional equity and components of equity issued by financial institutions with compatible with Article 7. - - 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 - - Transition from the Core Capital to Continue to deduce Components Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) 17,358 - Net deferred tax asset/liability which is not deducted from Common Eguity Tier 1 capital for the purposes of the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) 11,953 - Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not available (-) - - Total Deductions From Additional Tier I Capital - - Total Additional Tier I Capital - - Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,472,397 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) 620,612 - Provisions (Article 8 of the Regulation on the Equity of Banks) 72,887 - Tier II Capital Before Deductions 693,499 - Deductions From Tier II Capital Direct and indirect investments of the Bank on its own Tier II Capital (-) - - Investments of Bank to Banks that invest on Bank’s Tier 2 and components of equity issued by financial institutions with the conditions - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - - Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 693,499 - Total Capital (The sum of Tier I Capital and Tier II Capital) 3,165,896 - Deductions from Total Capital - - Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - - 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 - - Other items to be defined by the BRSA (-) 10,883 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components - - The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity) in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -
ŞEKERBANK ANNUAL REPORT 2018
148 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014 (*) The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - TOTAL CAPITAL Total Capital (The sum of Tier I Capital and Tier II Capital) 3,155,013 - Total risk weighted amounts 20,488,331 - CAPITAL ADEQUACY RATIOS Core Capital Adequacy Ratio (%) 12.21 - Tier 1 Capital Adequacy Ratio (%) 12.07 - Capital Adequacy Ratio (%) 15.40 - BUFFERS Bank specific total Common Equity Tier 1 Capital requirement (%) 1.250 - Capital conservation buffer requirement (%) 0.088 - Bank specific counter-cyclical buffer requirement (%) 0.000 - The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets (%) - Amounts below the Excess Limits as per the Deduction Principles Portion of the total of net long positions of 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 - - Portion of the total of 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 - - Remaining Mortgage Servicing Rights - - Amount arising from deferred tax assets based on temporary differences - - Limits related to provisions considered in Tier II calculation General provisions for standard based receivables (before limit of one hundred and twenty five per ten Thousand) - - Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used 72,887 - Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Excess amount of total provision amount to % 0,6 of risk weighted receivables of credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Debt instruments subjected to Article 4 (to be implemented between January 1, 2018 and January 1, 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - - Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -
(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014 and taken into consideration at the end of transition process. (**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank, which are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.
ŞEKERBANK ANNUAL REPORT 2018
149 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Details on Subordinated Liabilities:
Current Period Issuer ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement) TRSSKBK52818 XS1626188491 TRSSKBKA2716 Subject to Turkish Regulations. It is Subject to Turkish Regulations. It is Subject to Turkish Regulations. It is issued within the scope of the Debt issued within the scope of the Debt issued within the scope of the Debt Instruments Disclosure of the Capital Instruments Disclosure of the Capital Instruments Disclosure of the Capital Markets Board and the Regulation on Markets Board and the Regulation on Markets Board and the Regulation on Governing law(s) of the instrument Equities of Banks of the BRSA. Equities of Banks of the BRSA. Equities of Banks of the BRSA. Regulatory Treatment Subject to 10% deduction as of 1/1/2015 No No No Eligible on Unconsolidated/ consolidated/both unconsolidated and Valid on Consolidated and Valid on Consolidated and Valid on Consolidated and consolidated Unconsolidated Basis Unconsolidated Basis Unconsolidated Basis Instrument type Subordinated Liabilities (Securities) Subordinated Liabilities (Securities) Subordinated Liabilities (Securities) Amount recognised in regulatory capital (Currency in million TRL, as of most recent reporting date) 150 448.9 300 Par value of instrument (Million TRL) 150 448.9 300 Accounting classification 346 347 346 Original date of issuance 24.05.2018 12.06.2017 22.12.2017 Demand or time Maturity Maturity Maturity Original maturity date 11.05.2028 12.06.2027 10.12.2027 Issuer call subject to prior supervisory approval Yes Yes Yes May 17, 2023, TRL 150 Million (10 December 16, 2022, TRL 300 Million (10 year maturity with early redemption year maturity with early redemption Optional call date, contingent call dates option in the 5th year, subject to BRSA option in the 5th year, subject to BRSA and redemption amount approval) 13 June 2022, 85 Million USD approval) Subsequent call dates, if applicable - - - Coupons/dividends Variable interest (The Borrowing Variable interest (The Borrowing instrument will make coupon payments instrument will make coupon payments from the beginning of the maturity from the beginning of the maturity to the date of redemption (including to the date of redemption (including the redemption date) once a month the redemption date) once a month Fixed or floating dividend/coupon (variable days).) Fixed (variable days).) 5 Years Term Indicator + 475 bps on 5 Years Term Indicator + 475 bps on Coupon rate and any related index government securities 9.75% p.a. government securities Existence of a dividend stopper - - - Fully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Existence of step up or other incentive to redeem - - - Noncumulative or cumulative Noncumulative Noncumulative Noncumulative Convertible or non-convertible If convertible, conversion trigger (s) - - - If convertible, fully or partially - - - If convertible, conversion rate - - - If convertible, mandatory or optional conversion - - -
ŞEKERBANK ANNUAL REPORT 2018
150 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Current Period Issuer ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş If convertible, specify instrument type convertible into - - - If convertible, specify issuer of instrument it converts int - - - Write-down feature According to the Article 8 (2) (ğ) of the According to the Article 8 (2) (ğ) of the Regulation on Equities of Banks, the Due to the losses incurred, in the Regulation on Equities of Banks, the bonds have a write-off option. If, in framework of Article 71 of the bonds have a write-off option. If, in accordance with the related regulation, Banking Law that: (1) the removal and accordance with the related regulation, there is a possibility of abolishing the liquidation of the Bank’s operating there is a possibility of abolishing the bank’s operating permit or transferring permit or (2) the rights of all its bank’s operating permit or transferring it to the SDIF in the framework of shareholders (except to dividends), and it to the SDIF in the framework of the Article 71 of the Banking Law the management and supervision of the Article 71 of the Banking Law due to the losses it incurs, The Bank the Bank, are to be transferred to the due to the losses it incurs, The Bank can write down these bonds from SDIF on the condition that losses are can write down these bonds from the related financial records with the deducted from the capital of existing the related financial records with the decision of the BRSA, in the event of the shareholders, the bonds can be written- decision of the BRSA, in the event of the If write-down, write-down trigger(s) bankruptcy down. bankruptcy If write-down, full or partial Partially or fully Partially or fully Partially or fully If write-down, permanent or temporary Continuously Continuously Continuously If temporary write-down, description of write-up mechanism - - - Position in subordination hierarchy in In priority of receivables, it comes liquidation (specify instrument type In priority of debt and comes after after the debt instruments which are In priority of debt and comes after immediately senior to instrument) deposits and all other receivables nonsubordinated loans deposits and all other receivables Whether conditions which stands in article of 7 and 8 of Banks’ shareholder The instrument is in compliance with The instrument is in compliance with The instrument is in compliance with equity law are possessed or not article number 8. article number 8. article number 8. According to article 7 and 8 of Banks’ shareholders equity law that are not The instrument is not in compliant with The instrument is not in compliant with The instrument is not in compliant with possessed article numbered 7. article numbered 7. article numbered 7.
The Bank, within the framework of its capital adequacy assessment process, determines limits for risks (credit risk, market risk and operational risk) covered under the Capital Adequacy calculations as well as for risks (concentration risk, interest rate risk in the banking book, liquidity risk, etc.) which are not covered under these calculations. Thus, the Bank determines its “Risk Limits” and with the help of these limits and by means of applying stress tests and scenario analyses, it evaluates the adequacy of its capital level against a background of its current and also projected activities.
The Bank determines “Key Risk Indicators” as “early warning signals” within the context of the “Risk Limits”. Both the “Risk Limits” and “Key Risk Indicators” are determined by taking into consideration the Bank’s annual budget and strategy; its risk appetite; the volume, qualifications and complexity of its products/services; its experience and prior performance as well as the market conditions. The “Risk Limits” and “Key Risk Indicators” are determined through risk based amounts and nominal amounts. In this scope, regulatory limits and applications, Basel Committee applications, international best practices, concentrations and tolerance levels as well as criteria based on the Bank’s capital levels are used. In any case, the “Risk Limits” and “Key Risk Indicators” cannot violate the Banking Law and related regulations.
The “Risk Limits” and “Key Risk Indicators” are reviewed and revised at least annually by the senior management with respect to market conditions and changes in the Bank’s strategies. The review process aims to determine whether the current “Risk Limits” and “Key Risk Indicators” are meaningful and sufficient enough compared to the Bank’s risk appetite. The revised “Risk Limits” and “Key Risk Indicators” become effective upon the approval of the Board of Directors.
ŞEKERBANK ANNUAL REPORT 2018
151 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Reconciliation of capital items to balance sheet
The difference between Total Capital and Equity in the balance sheet mainly arises from expected credit loss provisions arising from loans classified under stage 1and stage 2 and subordinated loans. In the calculation of Total Capital, up to 1.25% of the expected credit loss provision from stage 1 and stage 2 over the credit risk amount and subordinated loans are taken into consideration as Tier II Capital. On the other hand, in the calculation of the Total Capital, improvement costs for operating leases followed under tangible assets in the balance sheet, intangible assets and related deferred tax liabilities, other items defined by the regulator are taken into consideration as amounts deducted from Total Capital.
T T-1 T-2 T-3 T-4 TOTAL CAPITAL Common Equity Tier 1 Capital 2,540,912 2,488,608 2,397,208 2,305,807 2,214,407 Transition Process Not Applied Common Equity Tier 1 Capital (*) 2,214,407 2,214,407 2,214,407 2,214,407 2,214,407 Tier I Capital 2,540,912 2,488,608 2,397,208 2,305,807 2,214,407 Transition Process Not Applied Tier I Capital (**) 2,214,407 2,214,407 2,214,407 2,214,407 2,214,407 Total Capital 3,368,580 3,386,955 3,379,041 3,371,129 3,363,217 Transition Process Not Applied Total Capital (***) 3,363,217 3,363,217 3,363,217 3,363,217 3,363,217
TOTAL RISK WEIGHTED AMOUNTS Total risk weighted amounts 22,938,402 22,938,402 22,938,402 22,938,402 22,938,402
CAPITAL ADEQUACY RATIOS Common Equity Tier 1 Capital Adequacy Ratio (%) 11.25 10.85 10.45 10.05 9.65 Transition Process Not Applied Common Equity Tier 1 Capital Adequacy Ratio (%) (****) 9.65 9.65 9.65 9.65 9.65 Tier 1 Capital Adequacy Ratio (%) 11.25 10.85 10.45 10.05 9.65 Transition Process Not Applied Tier 1 Capital Adequacy Ratio (%) (****) 9.65 9.65 9.65 9.65 9.65 Capital Adequacy Ratio (%) 15.14 14.77 14.73 14.70 14.66 Transition Process Not Applied Capital Adequacy Ratio (%) (****) 14.66 14.66 14.66 14.66 14.66
LEVERAGE RATIO Leverage ratio total risk amount 40,178,326 40,178,326 40,178,326 40,178,326 40,178,326 Leverage ratio 6.41 6.19 5.97 5.74 5.51 Transition Process Not Applied Leverage ratio (%) (*****) 5.51 5.51 5.51 5.51 5.51
(*) Amount of Common Equity Tier 1 Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks (**)Amount of Tier I Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks (***)Amount of Total Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks (****)Amount of capital adequacy ratios calculated with equity componentsin case of non-application of Provisional Article 5 of the Regulation on Equities of Banks (*****)Amount of leverage ratio calculated with equity components in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks
ŞEKERBANK ANNUAL REPORT 2018
152 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
II. Explanations Related to Credit Risk
Credit risk is the possibility of loss that the Bank may face, in the event that the counter party fails to fulfil wholly or partly of its obligations in a timely manner, by breaching of its contractual obligations.
The Bank’s lending activities are executed in line with the legislation and in accordance with the policies and procedures approved by the Bank’s Board of Directors under the principle of “segregation of duties” throughout marketing, allocation, monitoring, controlling and auditing activities.
Credit allocation is performed on a debtor or a debtor group basis within certain limits. The limits are determined within a framework of authorisation limits, set in line with the legislation, for the Board of Directors, Credit Committee, General Manager, Assistant General Managers (Credit Management, Financial Institutions), Head Office Credit Units, Regional Office Credit Committee as well as the Branch Credit Committees, and are approved taking into consideration the financial position and needs of the credit customer.
The rating/scoring systems are effectively used in credit allocation. As per the Bank’s credit policies, limits and collaterals are regarded as risk mitigating factors complementary to each other. Credit qualities of the debtors are regularly monitored, and credit limits are revised once a year or whenever deemed necessary parallel to the economic conditions. The majority of the statements of accounts received for loans are derived from audited financial statements. The Bank also receives sufficient amounts of collateral for loans and other receivables. These can be in the form of guarantees, mortgages on real estates, cash blockage or cheques depending on the customer’s financial structure and the type of the credit facility.
The Board of Directors has approved concentration limits by industries, regions, debtors/debtor groups monitored within the Risk Limits Report on a regular basis and presented to the Board of Directors on a monthly basis; all of which are reviewed and revised at least once a year, with respect to market conditions and changes in the Bank’s strategies.
Since the volume of prolonged and restructured loans and other receivables are not material with regard to the Bank’s financial statements, no additional follow-up methodology is needed to be developed in addition to those specified in the legislation.
There are transaction limits as well as dealer limits by transaction types approved by the Board of Directors regarding the counterparty risk arising from the Bank’s on-and off-balance sheet transactions monitored on a daily basis. The limits of correspondent banks allocated according to their credit qualities are controlled on a daily basis, while risk concentration is monitored systematically. When reverse positions of open positions are required in order to minimize potential risks, positions are closed through the use of derivative transactions aiming at risk downsizing.
Within the framework of the capital adequacy calculations, indemnified non-cash loans are subject to the same risk weighting treatment as overdue loans.
ŞEKERBANK ANNUAL REPORT 2018
153 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Bank prefers to take country risk only for those financial institutions and countries regarded at investment level by the international rating agencies and thus, do not have the risk of failing to fulfil their minimum liabilities. Therefore, the related potential risks do not constitute any material risk factor with regards to the Bank’s financial structure.
When evaluated together with financial activities of other financial institutions, the Bank, as an active participant in the international banking environment, has no significant credit risk concentration.
Provision is set for the doubtful loans and the expense is deducted from the current period profit by the Bank. The provisioning amount for non-performing loans are determined by the Bank’s management for compensating the probable losses of the doubtful loan portfolio, by evaluating the quality of loan portfolio, risk factors and considering the economy conditions, other facts and related regulations.
The Bank classifies and monitors its doubtful loans and receivables and calculates expected loss provisions in accordance with the “Procedures and principals regarding classification of loans and allowances allocated for such loans” published in the Official Gazette dated 22 June 2016, no.29750 and by considering other regulations announced by the BRSA and “ TFRS 9-Financial Instruments” standard. Detailed explanations related to accounting practices and provisions are given in footnotes VII and VIII of Section Three.
As of 31 December 2018, the receivables of the Bank from its top 100 cash loan customers amount to TRL 9,605,686 Thousand (31 December 2017– TRL 7,680,259 Thousand) with a share of 46.01% in the total cash loans (31 December 2017– 37.98%). The receivables of the Bank from its top 200 cash loan customers amount to TRL 10,979,522 Thousand (31 December 2017 – TRL 9,140,732 Thousand) with a share of 52.59% (31 December 2017-45.21 %) in the total cash loans.
As of 31 December 2018, the receivables of the Bank from its top 100 non-cash loan customers amount to TRL 3,548,736 Thousand (31 December 2017 – TRL 2,655,755 Thousand) with a share of 60 % in the total non-cash loans (31 December 2017 – 49.95 %).The receivables of the Bank from its top 200 non-cash loan customers amount to TRL 4,126,541 Thousand (31 December 2017 – TRL 3,247,151 Thousand) with a share of 69.77% (31 December 2017 – 61.07 %) in the total non-cash loans.
As of 31 December 2018, the share of cash and non-cash receivables of the Bank from its top 100 customers in total balance sheet and off-balance sheet assets is 1.86 % (31 December 2017 – 1.68%).The share of cash and non-cash receivables of the Bank from its top 200 customers in total balance sheet and off-balance sheet assets is 2.14 % (31 December 2017 – 2.02 %).
As of 31 December 2018, the expected loss provision related with the credit risk taken by the Bank is TRL 623,397 Thousand (31 December 2017 – TRL 72,887 Thousand).
ŞEKERBANK ANNUAL REPORT 2018
154 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Total amount of exposures after offsetting specific provisions before credit risk mitigation adjustments and the risk- weighted exposure amounts classified in different risk groups and types according to the Basel II, are disclosed below for the relevant period:
Current Period Prior Period Average Risk Average Risk Credit Risk Weighted Credit Risk Weighted Risk Classifications Amount (*) Assets (**) Amount (*) Assets (**) Contingent and Non-Contingent Claims on Sovereigns 6,159,282 2,120,335 4,979,191 431,866 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities 75,021 37,507 73,567 18,466 Contingent and Non-Contingent Claims on Administrative Units and Non-commercial Enterprises 99,418 99,418 22,467 22,467 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - Contingent and Non-Contingent Claims on International Organizations - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 2,971,447 1,370,721 804,569 410,937 Contingent and Non-Contingent Claims on Corporate Receivables 10,199,047 10,193,603 6,879,157 6,877,809 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 7,761,746 5,821,326 6,805,004 5,106,359 Contingent and Non-Contingent Claims Secured by Residential Property 5,248,373 4,593,619 4,743,587 4,072,444 Past Due Loans 241,864 178,019 351,443 308,607 Higher-Risk Categories Defined by Agency 37,192 38,826 329,882 538,662 Collateralized Mortgage Marketable Securities - - - - Securitization Exposures - - - - Short-Term Claims on Banks and Corporate - - - - Undertakings for Collective Investments in Transferable Securities - - - - Other Claims 2,355,854 1,974,300 1,831,220 1,560,128 Total 35,149,244 26,427,674 26,820,087 19,347,745
(*) The figures represent total risk amounts before Credit Risk Mitigation and before credit conversion factor. (**) Total risk weighted assets are the arithmetical monthly average amounts in 2018.
ŞEKERBANK ANNUAL REPORT 2018
155 ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Geographical concentration of the significant risks in the significant areas as follows;
Risk Profile According to Geographical Concentrations:
Risk Types Contingent Contingent Contingent and Non- Contingent and Non-
and Non- Contingent Contingent and Non- Contingent Contingent FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Undertakings Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Higher- Short- for Collective and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Risk Collateralized Term Investments Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage Claims on in Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization Banks and Transferable Other Current Period(***) Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims Total Domestic 6,505,008 58,570 115,839 - - 2,150,823 10,866,508 6,777,064 5,691,137 268,897 42,625 - - - - 681,169 33,157,640 European Union Countries - - - - - 263,253 12 2,520 4,040 31 ------269,856 156 OECD Countries (*) - - - - - 6,974 - 224 298 ------7,496 Off-shore Banking Regions - - - - - 4,024 6,076 1,389 291 ------11,780 USA, Canada - - - - - 139,647 286 50 ------139,983 Other Countries - - 361 - - 161,273 939 203 1,027 ------163,803 Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) ------787,372 787,372 Unallocated Assets/Liabilities(**) ------1,419,516 1,419,516 Total 6,505,008 58,570 116,200 - - 2,725,994 10,873,821 6,781,450 5,696,793 268,928 42,625 - - - - 2,888,057 35,957,446
(*) OECD countries other than EU countries, USA and Canada (**) Assets and liabilities that are not distributed according to specific bases. (***)The balance sheet and off-balance sheet assets and liabilities are presented with their CCF values without taking into consideration collateral amounts.
Risk Types Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Undertakings Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Higher- Short- for Collective and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Risk Collateralized Term Investments Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage Claims on in Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization Banks and Transferable Other Prior Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims Total Domestic 7,563,651 64,839 36,009 - - 2,178,946 9,057,152 7,766,084 5,027,722 322,336 134,603 - - - - 439,441 32,590,780 European Union Countries - - - - - 196,318 605 3,559 5,237 56 ------205,775 OECD Countries (*) - - - - - 11,533 4 362 649 ------12,548 Off-shore Banking Regions - - - - - 7,268 8,162 876 794 ------17,100 USA, Canada - - - - - 67,293 2 99 79 37 ------67,509 Other Countries 59,765 - - - - 72,668 13 635 124 ------10 133,213 Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) ------767,685 767,685 Unallocated Assets/Liabilities(**) ------689,129 689,136 Total 7,623,416 64,839 36,009 - - 2,534,026 9,065,938 7,771,616 5,034,605 322,429 134,603 - - - - 1,896,265 34,483,746 (*) OECD countries other than EU countries, USA and Canada (**) Assets and liabilities that are not distributed according to specific bases.
ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Risk Profile According to Counterparty and Sector Concentrations
Risk Types
Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Short- Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Term Undertakings and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Higher-Risk Collateralized Claims for Collective
Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage on Banks Investments in FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization and Transferable Other Current Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims TRL FC Total
Agricultural - - 362 - - - 129,630 1,780,562 697,561 53,194 13,401 - - - - - 2,608,364 66,346 2,674,710
Farming and Livestock - - 362 - - - 127,450 1,765,614 694,928 52,979 13,401 - - - - - 2,596,061 58,673 2,654,734
Forestry ------2,128 3,444 2,465 ------6,055 1,982 8,037
Fishery ------52 11,504 168 215 ------6,248 5,691 11,939 157 Industry - - 4 - - - 2,834,308 1,246,021 524,325 59,424 4,821 - - - - - 2,820,975 1,847,928 4,668,903
Mining and Quarrying ------339,858 42,389 23,527 316 ------204,153 201,937 406,090
Manufacturing - - 4 - - - 1,829,407 1,199,611 488,343 59,108 4,821 - - - - - 2,356,012 1,225,282 3,581,294
Electricity, Gas and Water ------665,043 4,021 12,455 ------260,810 420,709 681,519
Construction - - 5 - - - 2,531,411 735,976 1,638,363 31,809 2,508 - - - - - 3,087,178 1,852,894 4,940,072
Services 6,505,005 - 81,602 - - 2,725,994 4,986,857 2,338,529 2,510,256 102,954 1,278 - - - - - 11,119,357 8,133,118 19,252,475
Wholesale and Retail Trade - - 361 - - - 1,292,518 1,778,649 645,895 67,344 1,224 - - - - - 3,007,440 778,551 3,785,991
Hotel, Food and Beverage Services ------1,245,839 96,310 981,524 2,724 ------733,889 1,592,507 2,326,396
Transportation and Communication - - 86 - - - 570,998 193,107 158,044 13,241 ------455,900 479,576 935,476
Financial Institutions 6,505,005 - - - - 2,725,994 60,146 344 157 443 ------5,582,647 3,709,442 9,292,089
Real Estate and Renting Services ------1,675,813 216,364 613,239 15,587 ------1,017,755 1,503,248 2,521,003
Professional Employment ------
Education Services ------16,202 23,886 10,325 376 ------40,241 10,548 50,789
Health and Social Services - - 81,155 - - - 125,341 29,869 101,073 3,239 54 - - - - - 281,485 59,246 340,731
Other 3 58,570 34,227 - - - 391,615 680,362 326,287 21,547 20,617 - - - - 2,888,057 3,583,641 837,645 4,421,286
Total 6,505,008 58,570 116,200 - - 2,725,994 10,873,821 6,781,450 5,696,793 268,928 42,625 - - - - 2,888,057 23,219,515 12,737,931 35,957,446 ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Risk Types
Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Short- Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Term Undertakings and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Higher-Risk Collateralized Claims for Collective Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage on Banks Investments in Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization and Transferable Other Prior Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims TRL FC Total
Agricultural - - 289 - - - 115,461 1,736,100 632,081 43,725 27,122 - - - - - 2,512,384 42,394 2,554,778 FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Farming and Livestock - - 289 - - - 104,026 1,724,494 629,066 43,347 26,452 - - - - - 2,489,966 37,708 2,527,674
Forestry ------9,624 1,848 2,724 204 ------11,279 3,121 14,400
Fishery ------1,811 9,758 291 174 670 - - - - - 11,139 1,565 12,704
Industry - - 341 - - - 2,492,319 1,460,144 436,686 68,761 28,083 - - - - - 2,817,672 1,668,662 4,486,334
Mining and Quarrying ------205,771 46,266 14,335 2,108 1,067 - - - - - 83,198 186,349 269,547
158 Manufacturing - - 341 - - - 1,761,529 1,410,562 419,316 66,419 27,016 - - - - - 2,497,769 1,187,414 3,685,183
Electricity, Gas and Water ------525,019 3,316 3,035 234 ------236,705 294,899 531,604
Construction - - 4,965 - - - 2,007,492 925,783 1,383,815 59,304 17,276 - - - - - 3,092,900 1,305,735 4,398,635
Services 7,555,766 - 1,084 - - 2,534,026 4,021,348 2,762,539 2,067,418 128,605 59,972 - - - - - 13,408,026 5,722,734 19,130,760
Wholesale and Retail Trade - - 83 - - - 1,453,039 1,963,428 608,657 87,756 45,248 - - - - - 3,512,334 645,877 4,158,211
Hotel, Food and Beverage Services ------816,774 99,282 599,275 1,166 1,501 - - - - - 454,456 1,063,542 1,517,998
Transportation and Communication - - 462 - - - 486,209 256,374 165,700 9,154 5,682 - - - - - 565,840 357,741 923,581
Financial Institutions 7,555,766 - - - - 2,534,026 62,583 238 102 676 1 - - - - - 7,552,492 2,600,902 10,153,394
Real Estate and Renting Services ------1,064,886 368,629 593,928 18,882 6,887 - - - - - 1,041,490 1,011,722 2,053,212
Professional Employment ------
Education Services - - 51 - - - 15,094 26,776 11,291 1,623 ------54,835 - 54,835
Health and Social Services - - 488 - - - 122,763 47,812 88,465 9,348 653 - - - - - 226,579 42,950 269,529
Other 67,650 64,839 29,330 - - - 429,318 887,050 514,605 22,034 2,150 - - - - 1,896,265 3,559,899 353,340 3,913,239
Total 7,623,416 64,839 36,009 - - 2,534,026 9,065,938 7,771,616 5,034,605 322,429 134,603 - - - - 1,896,265 25,390,881 9,092,865 34,483,746 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Division of the Risks by Remaining Maturities:
Risk Types Remaining Maturities Current Period 1 month 1–3 months 3–6 months 6–12 months Over 1 year Contingent and Non-Contingent Claims on Sovereigns 1,310,660 534,864 1,181 162,989 2,600,397 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities - 149 3,019 3,817 51,565 Contingent and Non-Contingent Claims on Administrative Units and Non-commercial Enterprises 369 106,797 - 51 2,236 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - - Contingent and Non-Contingent Claims on International Organizations - - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 369,920 71,439 1,407 3,596 738,651 Contingent and Non-Contingent Claims on Corporate Receivables 1,195,201 1,558,256 421,971 834,440 5,857,264 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 590,359 1,581,728 338,220 808,861 2,751,296 Contingent and Non-Contingent Claims Secured by Residential Property 117,882 1,168,298 142,319 326,465 3,588,363 Past Due Loans - - - - - Higher-Risk Categories Defined by Agency - - - - - Collateralized Mortgage Marketable Securities - - - - - Securitization Exposures - - - - - Short-Term Claims on Banks and Corporate - - - - - Undertakings for Collective Investments in Transferable Securities - - - - - Other Claims 275,083 - 114,796 - 18,506 Total 3,859,474 5,021,531 1,022,913 2,140,219 15,608,278
Amounts According to Risk Weights:
Deductions from Risk Weights Shareholders’ Current Period 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% Equity Amount Before Credit Risk Mitigation 318,729 - 93,789 - 9,747,874 9,611,053 16,186,001 - - - 5,780 Amount After Credit Risk Mitigation 10,252,087 - 289,909 1,428,259 8,030,754 4,723,688 11,190,133 42,616 - - 5,780
ŞEKERBANK ANNUAL REPORT 2018
159 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Division of the Risks by Remaining Maturities:
Risk Types Remaining Maturities Prior Period 1 month 1–3 months 3–6 months 6–12 months Over 1 year Contingent and Non-Contingent Claims on Sovereigns 1,607,288 - 84 - 2,275,609 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities - - - - 64,771 Contingent and Non-Contingent Claims on Administrative Units and Non-commercial Enterprises 221 18,342 29 371 10,774 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - - Contingent and Non-Contingent Claims on International Organizations - - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 1,190,277 193,369 14,428 2,103 80,230 Contingent and Non-Contingent Claims on Corporate Receivables 828,371 1,478,042 301,855 764,525 4,706,019 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 434,023 1,498,537 373,302 785,795 3,838,363 Contingent and Non-Contingent Claims Secured by Residential Property 95,245 968,011 114,408 276,068 3,224,456 Past Due Loans - - - - - Higher-Risk Categories Defined by Agency - - - - - Collateralized Mortgage Marketable Securities - - - - - Securitization Exposures - - - - - Short-Term Claims on Banks and Corporate - - - - - Undertakings for Collective Investments in Transferable Securities - - - - - Other Claims 194,721 - 102,530 - 9,258 Total 4,350,146 4,156,301 906,636 1,828,862 14,209,480
Amounts According to Risk Weights:
Deductions from Risk Weights Shareholders’ Current Period 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% Equity Amount Before Credit Risk Mitigation 7,570,509 - 1,120,914 - 1,920,324 10,293,278 13,444,118 134,603 - - 10,883 Amount After Credit Risk Mitigation 11,645,060 - 1,179,471 1,647,761 5,299,770 5,285,796 9,291,286 134,603 - - 10,883
In calculating the Amount Subject to Credit Risk, the credit note of the Islamic International Rating Agency (IIRA) for Turkey’s long-term foreign currency rating is used for calculation of the receivables from Centralized Administrations and Central Banks in line with the risk groups indicated in the article 6 of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks”.
While the international rating score is used for the risk classification of the exposures with the centralized administration and central banks, for the exposures of the non-rated centralized administration and central banks the Bank uses the country risk classification issued by the Organization for Economic Co-operation and Development (OECD).
ŞEKERBANK ANNUAL REPORT 2018
160 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The table matching the risk weights used for the risk-weight calculations for the receivables from Centralized Administrations and Central Banks with the credit quality grade indicated in the appendix of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks” is stated below.
Islamic International Rating Agency Risk weight for Receivables from Centralized Credit Quality Grade Long-Term Credit Rating Administrations or Central Banks 1 Between AAA and AA- 0% 2 Between A+ and A- 20% 3 Between BBB+ and BBB- 50% 4 Between BB+ and BB- 100% 5 Between B+ and B- 100% 6 CCC+ and Below 150%
Information According to Counterparty and Sectors
The Bank evaluates its financial assets in 3 stages under TFRS 9, as explained in Section VII and VIII, Section Three. For impaired loans, classified as Stage 3, the Bank calculates the expected credit losses for lifetime and considers the probability of default as 100%.
The Bank has classifies the loans that are not overdue but the credit risk is significantly increased as Stage 2 and calculates the expected lifetime credit loss for these loans.
Loans Provisions Impaired Receivables Expected Significant Increase in Impaired Loans Credit Losses Current Period Credit Risk (Stage 2) (Stage 3) Provisions Significant Sectors/Counterparties Agricultural 404,894 165,811 134,003 Farming and Livestock 401,377 165,146 133,403 Forestry 3,345 1 138 Fishery 172 664 462 Industry 532,969 280,247 305,042 Mining and Quarrying 16,639 4,378 5,766 Manufacturing 515,978 275,864 299,173 Electricity, Gas and Water 352 5 103 Construction 642,896 171,027 247,708 Services 1,406,384 501,191 647,673 Wholesale and Retail Trade 566,910 315,704 326,615 Hotel, Food and Beverage Services 292,659 7,866 35,583 Transportation and Communication 95,264 39,626 32,914 Financial Institutions 11,518 1,228 843 Real Estate and Renting Services 178,137 66,852 69,359 Professional Employment - - - Education Services 18,638 2,780 3,309 Health and Social Services 243,258 67,135 179,050 Other 50,586 61,849 50,708 Total 3,037,729 1,180,125 1,385,134
ŞEKERBANK ANNUAL REPORT 2018
161 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Loans Impaired Past Due Value Prior Period Loans (*) Loans Adjustments Provisions (*) Significant Sectors/Counterparties Agricultural 134,172 171,393 1,797 63,253 Farming and Livestock 132,805 169,924 1,782 63,020 Forestry 290 23 - - Fishery 1,077 1,446 15 233 Industry 211,172 143,063 1,500 114,366 Mining and Quarrying 4,564 3,042 32 1,392 Manufacturing 206,271 139,943 1,467 112,872 Electricity, Gas and Water 337 78 1 102 Construction 156,381 199,258 2,089 79,838 Services 451,206 424,249 4,449 252,814 Wholesale and Retail Trade 293,276 246,302 2,583 160,410 Hotel, Food and Beverage Services 5,008 26,489 278 2,345 Transportation and Communication 30,874 61,050 640 16,052 Financial Institutions 1,417 889 9 739 Real Estate and Renting Services 57,024 48,131 505 31,289 Professional Employment - - - - Education Services 2,260 2,478 26 634 Health and Social Services 61,347 38,910 408 41,345 Other 64,677 138,715 1,455 50,306 Total 1,017,608 1,076,678 11,290 560,577
(*) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 820 Thousand and Specific provision amounting to TRL 567 Thousand in the current period.
Information related with Value Adjustments and Loan Loss Provisions
Openning Charge Provision Other Closing Current Period Balance(**) of the Period Reversals (*) Adjustments Balance Stage 3 Provisions 732,394 281,235 (145,057) - 868,572 Stage 1 and Stage 2 Provisions 467,604 216,198 (60,405) - 623,397
(*) It also includes the provision reversals of the loans that have been transferred to follow-up during the period. (**) Balances as of 01 January 2018.
ŞEKERBANK ANNUAL REPORT 2018
162 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Openning Charge of the Provision Other Closing Prior Period Balance Period Reversals (*) Adjustments Balance Specific Provision (**) 495,966 438,152 (373,541) - 560,577 General Loan Loss Provision 103,773 35,161 (66,047) - 72,887
(*) It also includes the provision reversals of the loans that have been transferred to follow-up during the period. (**) Specific provision at the prior period amounting to TRL 567 Thousand for loans classified as “Financial assets at fair value through profit and loss”.
Exposures subject to countercyclical capital buffer
RWAs of Banking Book for RWAs of Trading Country Private Sector Lending Book Total Turkey 19,075,981 80,967 19,156,948 USA 119,074 103,992 223,066 Germany 53,181 48,492 101,673 England 29,238 451 29,689 Netherlands 27,438 - 27,438 Saudi Arabia 16,023 451 16,474 Albania 17,817 14,850 32,667 Switzerland 9,662 - 9,662 Italy 6,161 - 6,161 Azerbaijan 2,011 - 2,011 Other 13,487 - 13,487
III. Explanations Related to Currency Risk
Currency risk is the possibility of loss that the Bank may face, in its total on-and off-balance sheet accounts and positions in foreign currencies, arising from changes in exchange rates.
The Bank’s policies and procedures related to currency risk are in line with the “Regulation on Internal Systems and Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and Evaluation of the Capital Adequacy of Banks” and approved by the Bank’s Board of Directors.
The Board of Directors has approved limits (position limits, stop-loss limits) compliant with the regulatory “Foreign Exchange Net General Position/Equity Standard Ratio” and based on the Bank’s capital. These limits are monitored on a daily basis and reviewed and revised at least once a year, with respect to market conditions and changes in the Bank’s strategies.
ŞEKERBANK ANNUAL REPORT 2018
163 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Within the context of Capital Adequacy, the Bank’s currency risk exposure is calculated through the use of the “Standard Method” in line with the legislation. In these calculations, the Bank’s foreign currency assets and foreign currency liabilities together with the forward transactions and gold position are all taken into consideration. Within the Bank, currency risk exposure is measured, monitored and reported on a daily basis. In this context, “Value-at-Risk (VaR) Methods” are applied as internal model. Among these methods, the “Parametric Method” that is also called as ‘’Variance Covariance Method’’ is used among the VaR Methods; while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used for comparison, in times when volatility increases to a great extent. VaR measurements are based on an observation period covering the last 252 workdays and a 99 % confidence level. In “Economic Capital” measurements based on VaR, a 10-day holding period is applied. Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse movements in the markets, while the effectiveness of the Bank’s internal model is tested by using retroperspective tests on a daily basis.
As of 31 December 2018, the Bank’s balance sheet short position is TRL 1,450,369 Thousand (31 December 2017 – TRL 3,605,963 Thousand short) and the off balance sheet long position amounts to TRL 1,467,532 Thousand (31 December 2017-TRL 3,665,658 Thousand long), resulting in total net long position of TRL 17,163 Thousand (31 December 2017-TRL 59,695 Thousand total net long).
The announced current foreign exchange buying rates of the Bank at 31 December 2018 and the previous five working days in full TRL are as follows:
24.12.2018 25.12.2018 26.12.2018 27.12.2018 28.12.2018 31.12.2018 USD 5.2926 5.3034 5.2832 5.2889 5.2609 5.2810 CHF 5.3117 5.3634 5.3321 5.3206 5.3352 5.3496 GBP 6.6877 6.7245 6.6954 6.6761 6.6528 6.7135 100 JPY 4.7538 4.7973 4.7690 4.7579 4.7547 4.7830 EURO 6.0291 6.0419 6.0185 6.0245 6.0280 6.0422
The simple arithmetic averages of the major current foreign exchange buying rates of the Bank for the thirty days before 31 December 2018 are as follows:
Monthly Average Foreign Exchange Rate USD 5.3022 CHF 5.3317 GBP 6.7120 100 JPY 4.7146 EURO 6.0355
ŞEKERBANK ANNUAL REPORT 2018
164 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
EUR USD Other Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 875,073 1,345,574 419,706 2,640,353 Banks 62,583 18,730 35,124 116,437 Financial Assets at Fair Value Through Profit and Loss 2,827 6,697 - 9,524 Money Market Placements - - - - Financial Assets at Fair Value Through Other Comprehensive Income - 15,301 - 15,301 Loans (*) 4,589,160 3,304,663 8,271 7,902,094 Subsidiaries, Associates and Entities Under Common Control 7,668 - 7,668 Financial Assets at Amortised Cost - 976,131 - 976,131 Derivative Financial Assets For Hedging Purposes - - - - Tangible Assets - - - - Intangible Assets - - - - Other Assets 196,855 101,553 10,825 309,233 Total Assets 5,726,498 5,776,317 473,926 11,976,741
Liabilities Bank Deposits 61,086 299,070 15,304 375,460 Foreign Currency Deposits 4,437,998 5,140,111 391,078 9,969,187 Money Market Borrowings - - - - Funds Provided From Other Financial Institutions 486,397 1,737,645 5,742 2,229,784 Securities Issued (**) - 451,050 - 451,050 Sundry Creditors 120,688 131,875 133,003 385,566 Derivative Financial Liabilities For Hedging Purposes - - - - Other Liabilities 8,421 7,631 11 16,063 Total Liabilities 5,114,590 7,767,382 545,138 13,427,110
Net Balance Sheet Position 611,908 (1,991,065) (71,212) (1,450,369) Net Off-Balance Sheet Position (573,274) 1,959,771 81,035 1,467,532 Financial Derivative Assets 1,297,444 3,597,552 212,523 5,107,519 Financial Derivative Liabilities 1,870,718 1,637,781 131,488 3,639,987 Non-Cash Loans 1,236,653 1,281,087 127 2,517,867
Prior Period Total Assets 4,351,891 4,184,179 699,686 9,235,756 Total Liabilities 4,529,643 7,891,676 420,400 12,841,719 Net Balance Sheet Position (177,752) (3,707,497) 279,286 (3,605,963) Net Off-Balance Sheet Position 295,395 3,620,966 (250,703) 3,665,658 Financial Derivative Assets 1,132,424 5,377,320 212,324 6,722,068 Financial Derivative Liabilities 837,029 1,756,354 463,027 3,056,410 Non-Cash Loans 655,269 1,317,696 1,865 1,974,830
(*) About Currency Risk Table as of 31 December 2018; The principal amount of currency indexed loans amounting TRL 702,036 Thousand and accruals amounting TRL 543,573 Thousand are shown under loans. According to the regulation about Foreign Currency Net General Position/Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table are as follows: Derivative Financial Assets Held-for-Trading: TRL 220,763 Thousand Unearned income from installment sale of assets: TRL 3,965 Thousand Prepaid expenses: TRL 17,496 Thousand, Derivative Financial Liabilities Held-for-Trading: TRL 90,010 Thousand Marketable securities value increase fund: TRL 4,047 Thousand Financial Derivative Asset amount includes TRL 34,411 Thousand forward asset purchase commitment and TRL 305,606 Thousand option contracts. Financial Derivative Liabilities amount includes TRL 39,522 Thousand forward asset selling commitment and TRL 305,136 Thousand option contracts. (**) Securities Issued includes also the issuances of subordinated debts amounting to TRL 451,050 Thousand which are shown under subordinated loans line in the balance sheet (*) About Currency Risk Table as of 31 December 2017; The principal amount of currency indexed loans amounting TRL 1,024,309 Thousand and accruals amounting TRL 299,773 Thousand are shown under loans. According to the regulation about Foreign Currency Net General Position/Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table are as follows: Derivative Financial Assets Held-for-Trading: TRL 56,224 Thousand Unearned income from installment sale of assets: TRL 3,440 Thousand. Prepaid expenses: TRL 33,586 Thousand, Derivative Financial Liabilities Held-for-Trading: TRL 121,286 Thousand Marketable securities value increase fund: TRL 1,314 Thousand Financial Derivative Asset amount includes TRL 335,741Thousand forward asset purchase commitment and TRL 721,018 Thousand option contracts. Financial Derivative Liabilities amount includes TRL 51,962 Thousand forward asset selling commitment and TRL 699,567 Thousand option contracts.
ŞEKERBANK ANNUAL REPORT 2018
165 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Foreign currency sensitivity:
The Bank is mainly exposed to EUR and USD currencies.
The following table details the Bank’s sensitivity to a 10 % increase or decrease in the TRL against USD and EUR. 10 % is the sensitivity rate used when reporting foreign currency risk internally to the top management and represents management’s assessment of the possible change in foreign exchange rates. A positive number indicates an increase in profit or loss and equity when the TRL appreciates against USD and EUR.
Increase in currency rate in % Effect on profit or loss Effect on equity 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 USD 10 10 (3,129) (8,653) 405 131 EUR 10 10 3,863 11,764 - -
The Bank’s sensitivity to foreign currency rates has not changed much during the current period.
IV. Explanations Related to Interest Rate Risk
Interest rate risk is the possibility of loss that the Bank may face, in relation to its structural position arising from adverse movements in interest rates.
The Bank’s policies and procedures related to interest rate risk are in line with the “Regulation on Internal Systems of Banks” and the “Regulation on Measurement and Evaluation of the Capital Adequacy of Banks” and approved by the Bank’s Board of Directors.
Within the context of Capital Adequacy, the Bank’s interest rate risk exposure is calculated through the use of the “Standard Method” in line with the legislation.
The Bank takes interest rate risk positions in both the trading book and banking book. The interest rate risk arising from the trading book is evaluated within the scope of market risk, and thus, measured, monitored, and managed in line with market risk policies and procedures.
Within the Bank, interest rate risk exposure is measured, monitored and reported on a daily basis. In this context, “Value- at-Risk (VaR) Methods” are applied as internal model.
Among these methods, the “Parametric Method” that is also called as ‘’Variance Covariance Method’’ is used among the VaR Methods; while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used for comparison, in times when volatility increases to a great extent.
VaR measurements are based on an observation period covering the last 252 workdays and a 99 % confidence level. In “Economic Capital” measurements based on VaR, a 10-day holding period is applied.
Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse movements in the markets, while the effectiveness of the Bank’s internal model is tested by using back tests on a daily basis.
ŞEKERBANK ANNUAL REPORT 2018
166 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
It is the priority of the Asset Liability Management to provide protection against adverse movements in market interest rates. In this context, gap analyses, duration and economic value analyses as well as sensitivity analyses are evaluated on a monthly basis by the Bank’s Asset Liability Committee. Simulations on net interest income are performed according to macroeconomic indicator estimations in the Bank’s budget targets, while the potential negative impact of adverse movements in market interest rates on the financial position and cash flows is minimized through target revisions. The Bank management monitors the market interest rates on a daily basis, and is able to change the interest rates applied by the Bank whenever it is necessary by ALCO decisions.
Average interest rates applied to monetary financial instruments
EUR USD JPY TRL Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey - - - - Due From Other Banks and Financial Institutions 0.01 2.19 0.50 13.50 Financial Assets at Fair Value Through Profit and Loss 2.12 5.33 - 10.97 Money Market Placements - - - 15.25 Financial Assets at Fair Value Through Comprehensive Income - 4.40 - 11.62 Loans 6.07 8.65 3.53 19.24 Financial Assets at Amortised Cost - 5.06 - 3.96 Liabilities Bank Deposits 1.35 3.88 - 18.00 Other Deposits 1.98 4.18 0.80 17.94 Money Market Borrowings - 2.00 - 16.78 Sundry Creditors 0.33 1.98 - - Securities Issued - 6.82 - 13.03 Funds Provided From Other Financial Institutions 1.30 3.64 - 9.49
EUR USD JPY TRL Prior Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey - - - - Due From Other Banks and Financial Institutions 0.01 1.28 - 12.68 Financial Assets at Fair Value Through Profit and Loss 1.93 5.04 - 8.85 Money Market Placements - - - 12.42 Financial Assets Available-for-Sale 3.33 4.39 - 3.80 Loans 5.42 7.28 3.69 16.00 Held-to-Maturity Investments - 5.15 - 5.12 Liabilities Bank Deposits 0.60 2.18 - 13.35 Other Deposits 1.58 3.2 0.74 12.24 Money Market Borrowings - 1.42 - 11.26 Sundry Creditors 0.01 1.04 - - Securities Issued - 6.82 - 11.51 Funds Provided From Other Financial Institutions 1.25 3.04 - 8.45
ŞEKERBANK ANNUAL REPORT 2018
167 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based on repricing dates)
Non- Up to 1-3 3-12 1-5 5 Years Interest Current Period 1 Month Months Months Years and Over Bearing Total Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 302,110 - - - - 3,256,534 3,558,644 Banks 41,020 - - - - 75,774 116,794 Financial Assets at Fair Value Through Profit and Loss 197,819 17,738 77,819 98,271 8,464 - 400,111 Money Market Placements 45,365 - - - - - 45,365 Financial Assets at Fair Value Through Other Comprehensive Income - 51 62,638 484,897 15,301 7,417 570,304 Loans 7,881,124 2,510,993 3,203,851 6,283,365 375,548 309,300 20,564,181 Financial Assets at Amortised Cost 378 862,475 1,465,903 614,070 481,049 - 3,423,875 Other Assets 344,081 1,422 - 10,576 - 2,285,967 2,642,046 Total Assets 8,811,897 3,392,679 4,810,211 7,491,179 880,362 5,934,992 31,321,320
Liabilities Bank Deposits 292,452 60,429 14,606 - - 190,190 557,677 Other Deposits 12,598,859 4,608,123 2,596,349 78,243 - 2,649,883 22,531,457 Money Market Borrowings 124,596 - - - - - 124,596 Sundry Creditors - - - - - 489,137 489,137 Securities Issued (*) 452,571 672,365 644,513 - - - 1,769,449 Funds Provided From Other Financial Institutions 254,019 914,333 674,965 482,429 1,570 - 2,327,316 Other Liabilities 399,778 67,377 86,976 105,493 2,041 2,860,023 3,521,688 Total Liabilities 14,122,275 6,322,627 4,017,409 666,165 3,611 6,189,233 31,321,320
Balance Sheet Long Position - - 792,802 6,825,014 876,751 - 8,494,567 Balance Sheet Short Position (5,310,378) (2,929,948) - - - (254,241) (8,494,567) Off-Balance Sheet Long Position 50,000 100,000 50,000 468,000 597,859 - 1,265,859 Off-Balance Sheet Short Position (50,000) (100,000) (50,000) (468,000) (597,859) - (1,265,859) Total Position (5,310,378) (2,929,948) 792,802 6,825,014 876,751 (254,241) -
(*) The subordinated debts in balance sheet also include the TRL 903,621 Thousand bonds issued as subordinated loans.
ŞEKERBANK ANNUAL REPORT 2018
168 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Non- Up to 1 1-3 3-12 1-5 5 Years Interest Prior Period Month Months Months Years and Over Bearing Total Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 180,620 - - - - 2,864,612 3,045,232 Due From Other Banks and Financial Institutions 336,311 - - - - 60,557 396,868 Financial Assets at Fair Value Through Profit and Loss 21,427 12,905 23,066 56,335 8,119 2,617 124,469 Money Market Placements 2,433,052 - - - - - 2,433,052 Financial Assets Available-for-Sale 3,259 561,905 392,826 376,656 51,832 7,417 1,393,895 Loans (*) 6,990,857 2,424,141 2,761,256 7,506,162 536,833 - 20,219,249 Held-to-Maturity Investments - 276,848 600,469 289,602 184,224 - 1,351,143 Other Assets 234,080 - 23 9,234 - 2,139,216 2,382,553 Total Assets 10,199,606 3,275,799 3,777,640 8,237,989 781,008 5,074,419 31,346,461
Liabilities Bank Deposits 770,618 20,553 - - - 60,210 851,381 Other Deposits 12,212,799 3,056,907 1,509,012 28,993 - 2,067,896 18,875,607 Money Market Borrowings 3,623,854 250,298 109,723 - - - 3,983,875 Sundry Creditors - - - - - 256,243 256,243 Securities Issued(**) - 737,482 515,141 301,275 - - 1,553,898 Funds Provided From Other Financial Institutions 491,570 588,758 932,159 368,933 554 - 2,381,974 Other Liabilities 190,049 71,813 24,588 54,909 1,850 3,100,274 3,443,483 Total Liabilities 17,288,890 4,725,811 3,090,623 754,110 2,404 5,484,623 31,346,461
Balance Sheet Long Position - - 687,017 7,483,879 778,604 - 8,949,500 Balance Sheet Short Position (7,089,284) (1,450,012) - - - (410,204) (8,949,500) Off-Balance Sheet Long Position 100,000 - 157,500 24,000 - - 281,500 Off-Balance Sheet Short Position (100,000) - (157,500) (24,000) - - (281,500) Total Position (7,089,284) (1,450,012) 687,017 7,483,879 778,604 (410,204) -
(*) The Bank classified Loans and Receivables amounting to TRL 3,681 Thousand, under financial assets at fair value through profit and loss. Non-performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 820 Thousand and Specific provision amounts to TRL 567 Thousand. (**) The subordinated loans in balance sheet also include the TRL 623,417 Thousand bonds issued as subordinated loans.
ŞEKERBANK ANNUAL REPORT 2018
169 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Interest rate sensitivity:
As of the balance sheet date, under the assumption that market interest rates change by 1 % for both the Turkish Lira and foreign currency denominated items and all other things stay constant:
In case interest rate increases by 1%, it is estimated that the net interest income will be decreased by TRL 83,120 Thousand as of the end of the year, which is 5.68 % of net interest income. (31 December 2017-The assumed decrease of the net interest income of the Bank was TRL 76,071 Thousand, being 5.47% of the net interest income).
Interest rate sensitivity is calculated by defining the Net Position, which is the difference between the assets and liabilities that are sensitive to cash flow changes in one year and with maturity up to 1 year. The effect of the 1% increase in the market interest rates on the interest rate sensitive assets and liabilities to the net interest income (sensitivity to net interest income) is calculated by applying 1% increase to the Net Position.
V. Explanations Related to Equity Securities Position Risk
Associates and subsidiaries are recorded at the cost of acquisition in the financial statements.
Current Period Comparison Stock Investment Balance Sheet Value Fair Value Market Value Stock Investment Group A - - - Stock Exchange Securities - - - Stock Investment Group B 28,594 28,717 76,321 Stock Exchange Securities 28,594 28,717 76,321 Stock Investment Group C - - - Stock Exchange Securities - - -
Prior Period Comparison Stock Investment Balance Sheet Value Fair Value Market Value Stock Investment Group A - - - Stock Exchange Securities - - - Stock Investment Group B 25,888 26,517 62,599 Stock Exchange Securities 25,888 26,517 62,599 Stock Investment Group C - - - Stock Exchange Securities - - -
- Types and amounts of positions traded at the exchange and sufficiently diversified private capital portfolios and other exposures: None - Cumulative realized gains or losses arising from the sale or liquidation during the period: None - Total unrealized gains or losses, revaluation increases of total supplementary and core capital: None - The breakdown of equity investments on the basis of the amount of capital requirement
ŞEKERBANK ANNUAL REPORT 2018
170 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Current Period Equity Investments Balance Sheet Value Total RWA Minimum Capital Requirement Stock Exchange Securities 28,594 28,594 2,288
Prior Period Equity Investments Balance Sheet Value Total RWA Minimum Capital Requirement Stock Exchange Securities 25,888 25,888 2,071
VI. Explanations Related to Liquidity Risk Management and Liquidity Coverage Ratio
Liquidity risk is the possibility of a loss that the Bank may face, when there is not sufficient cash or cash inflow to meet the cash outflow in full and in time.
Liquidity risk may also occur when the market penetration is not adequate, when open positions cannot be closed in time, at suitable prices and at sufficient amounts, due to some barriers and some break-ups in the markets. a. Information on risk capacity of the Bank, responsibilities and structure of liquidity risk management, the Bank’s internal liquidity risk reporting, communication between the Board of Directors and business lines on liquidity risk strategy, policy and application:
The main policy of the Bank is to maintain an asset structure that it will be sufficient to fulfill all its obligations through the use of liquid sources in time and in a sound manner.
The objective of the liquidity risk management is to maintain the Bank’s financial stability by means of maintaining the Bank’s liquidity risk exposure at measurable and tolerable levels. Thus, it is also the objective to protect the Bank’s shareholders from any potential loss that might arise from adverse movements in the Bank’s liquidity position.
The Bank’s policies and procedures related to the liquidity risk are approved by the Bank’s Board of Directors.
The major factors mentioned below are addressed in those policies and procedures:
The Oversight of the Board of Directors:
- The Board of Directors approves policies and procedures related to the liquidity risk, all in line with the Bank’s annual budget and the growth strategies for medium and long term. - The Board of Directors plans the capital structure to cover the Bank’s liquidity risk profile, all in line with the Bank’s annual budget and the growth strategies for medium and long term. - The Board of Directors segregates the duties, authorities and responsibilities related to measuring, monitoring, controlling, auditing and management of the liquidity risk, through internal regulations on related committies and units.
The Oversight of the Senior Management:
- The Bank’s senior management implements systems and standards related to measuring, monitoring, controling, auditing and management of the liquidity risk, with respect to its duties, authorities, and responsibility areas. - The Bank’s senior management takes measures to ensure the development of technical konwledge and competencies of human resources as well as information systems infrastructure so that the measuring, monitoring, controling and auditing of the liquidity risk, are all executed in a sound manner. - The Bank’s senior management analyses potential liquidity risk, which may arise from the new banking products and services, which the Bank plans to implement.
ŞEKERBANK ANNUAL REPORT 2018
171 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Board of Directors and senior management segregate the responsibilities within the scope of the liquidity risk management among the Asset Liability Committee, Treasury and Risk Management Units.
Accordingly, the Board of Directors set the Asset Liability Committee (ALCO) as the senior management committee responsible for management of the Bank’s balance sheet, usage of funds, and financial management.
ALCO sets the strategies for management of the balance sheet, funding, source planning and liquidity as well as conducting stress tests and scenario analyses. The Treasury Unit implements these strategies in order to manage liquidity.
The Board of Directors has accepted “Risk Limits” and “Key Risk Indicators” as part of the Bank’s policies and procedures related to the liquidity risk. The compliance with these limits are monitored on a regular basis; all of which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market conditions and changes in the Bank’s strategies.
The compliance with the “Risk Limits” is a mandatory agenda item in the regular monthly meetings of the Board of Directors. The liquidity risk profile is analysed, monitored, and assessed by the Risk Management Unit. The said Unit presents its findings through those assessments as well as the compliance with the “Risk Limits” to ALCO on a weekly basis and to the Board of Directors on a monthly basis. b. Information on the centralization degree of liquidity management and funding strategy and the functioning between the Bank and the Bank’s subsidiaries:
The management of liquidity has a decentralised structure. In this context, each subsidiary executes its liquidity management function by its own units/departments/services responsible for carrying out the function of the financial management. Besides, the Bank provides funding to its subsidiaries in line with the regulatory limits while also considering the market conditions.
The Bank’s liquidity management is carried out in line with budgeted growth strategies and taking into account the legal requirements, as well as current market conditions and expectations regarding economic and financial conjuncture.
In liquidity management, liquidity planning is realized by predicting the effects of global conditions both on the country and on the sector.
In liquidity management policy, the stable core deposit base is determined as the Bank’s main funding resources. In order to increase the diversity of funding resources, domestic and foreign capital markets are utilized for medium and long-term funding sources. To prevent the concentration risk of liquidity obligations, the concentration limits for deposit and non-deposit indebtment is closely monitored. Liquidity ratios (LCR, NFSR) are followed and liquidity projections are performed within the scope of Basel III. c. Information on the Bank’s funding strategy including the policies on funding types and variety of maturities:
The spread between the Bank’s total and 3-month Turkish lira and foreign currency deposit interest rates and the sector is monitored by the ALCO committee and measures are taken to ensure that there is no significant division of the Bank’s spreads. The analysis of the time deposits extension rates is done weekly, taking measures to increase the liquid assets against the changes that may occur in the liquidity needs.
ŞEKERBANK ANNUAL REPORT 2018
172 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Deposit base movements are analyzed under the following two separate titles:
- Movement in time deposit base: renewal rate of time deposits is determined, - Movement in demand deposit base: it is aimed to determine the movement of the demand deposits in time and determination of the core parts.
In order to meet the liquidity requirements that may arise due to market fluctations, special attention is paid to ensure availability of sufficient liquidity based on the continious projections made for Turkish Lira and Foreign Currency cash flows. The term structure of TL and FC deposits, its cost and balances are monitored on a daily basis. The projections are made based on historical data and future expectations, and submitted to the Asset-Liability Committee on a weekly basis. Based on cash flow projections, price is differentiated for different maturity buckets, and measures to meet liqudity requirements are taken accordingly. Moreover, potential alternative sources of liqudity are determined to be used in case of emergency.
In order to ensure effectiveness and sustainability of liquidity management, funding resources for the subsidiaries that are subject to consolidation and its diversification possibilities are evaluated taking into consideration markets, instruments and funds providers.The liquidity position of the subsidiaries that are subject to consolidation is continuously monitored by the Bank. d. Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Bank’s total liabilities:
In order to measure and monitor the impact of the liquidity risk, the Bank uses cash flow gap analyses indicating both current and future transactions. The assets, liabilities and interest bearing off balance sheet items are grouped into the maturity buckets based on their maturites and analyzed based on the calculated time gaps.
In cash flow gap analyses:
- Aggregate, Turkish Lira and foreign currency items are tabulated seperately. - Calculation for currency items that exceed 5 % of the Bank’s total assets (USD, EUR, etc. items) are done seperately. - Currency items that do not exceed 5 % of the Bank’s total assets are aggregated with the EUR items. e. Information on liquidity risk mitigation techniques:
The Bank, while monitoring its liquity position, thoroughly oversees its compliance with the regulatory liquidity coverage ratios. The Bank’s Board of Directors approved these regulatory limits as the Bank’s “Risk Limits” and “Key Risk Indicators” to be complied by the Bank.
In addition to the legal liquidity coverage ratios related to the liquidity risk, the Board of Directors has approved “Risk Limits” associated with the net worth and set the limits for allowed possible liquidity mistmatch as percentage to the net worth for the certain maturity buckets. The compliance with these limits are monitored on a regular basis; all of which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market conditions and changes in the Bank’s strategies.
ŞEKERBANK ANNUAL REPORT 2018
173 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Bank’s liqudity risk is also assessed through the following “Risk Limits”:
Liquidity Risk Cash Loans with maturities longer than 1 year (as per cash flows)/Capital Time Deposits higher than 1 million TRL/Total time deposits
In addition to these, the Bank applies liquidity risk mitigation techniques, among which are opting for loans with a regular cash flow structure; opting for a “granular” deposit base; and diversifying the sources of funding by regularly executing the Bank’s TRL bond issues and obtaining long-term finance resources from the financial institutions (Covered Bonds, syndications, and other). f. Information on the use of stress tests:
In terms of liquidity stress testing, the Bank opts for a “reverse stress testing” procedure, in order to measure the risks arising from both the Bank’s liquidity and the market liquidity. The use of such “reverse stress testing” enables the Bank to determine the adverse conditions under which it might breach the liquidity coverage ratios. Initially, it is simulated at which levels the liquidity coverage ratios will approximately be for the next 3-year horizon. Then, the liquidity gaps pertaining to those ratios are compared to the liquidity gaps under which the Bank might breach the said ratios and ALCO decides on the actions to be taken for the existing liquidity gaps based on the results of such simulations. g. General information on urgent and unexpected liquidity situation plans:
The Bank’s O/N repo limits in the Central Bank of Turkish republic and the Borsa Istanbul Stock Exchange as well as unutilised limits are also regularly monitored. As a precaution for a worst-case scenario such as the withdrawal of all demand deposits, it is essential to keep a limit unused as much as the amount of current demand deposits. Within this scope, the ALCO sets the alternative liquidity strategies with regards to the current market environment.
The Bank set the “Liquidity Management Urgent Action Plan”, which defines the level of coverage, implementation guidelines, possible scenarios, emergency action plan, available funding sources, stress tests and the obstacles to be addressed.
Liquidity Coverage Ratio:
The Liquidity coverage ratio is calculated by comparing the “high quality liquid assets” of the Bank to the net cash outflow in the coming next 30-day period, in line with the “Regulation on the Calculation of Banks’ Liquidity Coverage Ratios” issued by the Banking Regulation and Supervision Agency of Turkey.
Hence, these ratios are effected by the levels of a bank’s liquid assets which can be liquidified easily and the cash in- flows as well as the cash out-flows arising from a bank’s assets, liabilities and also off balance sheet items.
In the fourth quarter of 2018, the average total liquidity coverage ratio increased compared to average of third quarter of 2018 and also fourth quarter of 2017. The average total liquidity coverage ratio, which was 121.3 in the previous quarter and 108.3 in the fourth quarter of 2017, increased to 191.5 with the decrease in the net cash outflow level. The ratio of FX liquidity coverage on average has decreased to 244.9 in comparison to the fourth quarter of 2017 and increased compared to the previous quarter. Both of the ratios are still above the minimum level predicted by the legislation.
The Bank’s “high quality liquid assets” comprise of cash and the balance sheet items held within the Central Bank of the Turkish Republic as well as borrowing instruments issued by the Turkish Treasury, which are not subject to repurchase agreements or not pledged as collateral. The high quality liquid assets are represented by cash (6.82%), balances with the central banks (72.91%) and first quality liquid borrowing instruments (20.27%).
ŞEKERBANK ANNUAL REPORT 2018
174 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Items that represent the cash outflows used in the calculation of liquidity coverage ratio include mainly the deposit base, secured and unsecured borrowings, the securities issued and off balance sheet transactions. Main items of the cash inflows include secured and unsecured receivables and other cash inflows. Other cash inflows and outflows derive from derivative transactions and the cash flows of the derivative financial instruments are included in the calculation.
While the effect of derivative transactions on the net cash outflow is limited, the fluctuations in the volume of foreign currency derivatives can effect FC liquidity coverage ratio.
The major funding source for the Bank is the deposit base. In addition to the deposits, the other significant sources of funding include funds received through REPO transactions, issued securities, long-term recources obatined from the financial institutions (Covered Bonds, syndications, and other).
Total Unweighted Value Total Weighted Value (Average) (*) (Average) (*) Current Period TRL+FC FC TRL+FC FC HIGH QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) 5,696,571 2,281,985 CASH OUTFLOW 2 Retail deposits and deposits from small business customers, of which: 17,729,980 6,897,360 1,521,063 689,736 3 Stable deposits 5,038,700 - 251,935 - 4 Less stable deposits 12,691,280 6,897,360 1,269,128 689,736 5 Unsecured wholesale funding, of which: 5,767,480 3,301,066 3,324,020 1,739,290 6 Operational deposits 798,652 603,688 199,663 150,922 7 Non-operational deposits 4,098,904 2,333,933 2,254,433 1,224,923 8 Unsecured funding 869,924 363,445 869,924 363,445 9 Secured wholesale funding - - 10 Other cash outflows of which: 1,133,336 496,419 1,133,336 496,419 11 Outflows related to derivative exposures and other collateral requirements 1,034,760 397,843 1,034,760 397,843 12 Outflows related to restructured financial instruments - - - - 13 Payment commitments and other off-balance sheet commitments granted for debts to financial markets 98,576 98,576 98,576 98,576 14 Other revocable off-balance sheet commitments and contractual obligations 140,520 142,940 7,026 7,147 15 Other irrevocable or conditionally revocable off-balance sheet obligations 4,151,299 638,046 733,442 94,082 16 TOTAL CASH OUTFLOWS 6,718,887 3,026,674
17 Secured receivables - - - - 18 Unsecured receivables 113,871,663 36,156,775 2,650,131 1,409,122 19 Other cash inflows 1,093,247 685,672 1,093,247 685,672 20 TOTAL CASH INFLOWS 114,964,910 36,842,447 3,743,378 2,094,794 Total Adjusted Value 21 TOTAL HQLA 5,696,571 2,281,985 22 TOTAL NET CASH OUTFLOWS 2,975,509 931,880 23 LIQUIDITY COVERAGE RATIO (%) 191.45 244.88
(*) The average of last three months’ liquidity coverage ratio calculated based on monthly and weekly simple averages.
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175 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Total Unweighted Value Total Weighted Value (Average) (*) (Average) (*) Prior Period TRL+FC FC TRL+FC FC HIGH QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) 4,731,511 2,682,541 CASH OUTFLOW 2 Retail deposits and deposits from small business customers, of which: 13,245,120 4,724,130 1,132,116 472,413 3 Stable deposits 3,847,920 - 192,396 - 4 Less stable deposits 9,397,200 4,724,130 939,720 472,413 5 Unsecured wholesale funding, of which: 7,113,412 4,320,279 4,127,356 2,132,068 6 Operational deposits 269,988 111,704 67,497 27,926 7 Non-operational deposits 5,063,261 2,849,297 2,840,729 1,305,897 8 Unsecured funding 1,780,163 1,359,278 1,219,130 798,245 9 Secured wholesale funding - - 10 Other cash outflows of which: 2,630,344 366,319 2,630,344 366,319 11 Outflows related to derivative exposures and other collateral requirements 2,587,851 325,431 2,587,851 325,431 12 Outflows related to restructured financial instruments 1,605 - 1,605 - 13 Payment commitments and other off-balance sheet commitments granted for debts to financial markets 40,888 40,888 40,888 40,888 14 Other revocable off-balance sheet commitments and contractual obligations 105,440 105,300 5,272 5,265 15 Other irrevocable or conditionally revocable off-balance sheet obligations 3,884,532 510,557 575,379 79,632 16 TOTAL CASH OUTFLOWS 8,470,467 3,055,697
17 Secured receivables - - - - 18 Unsecured receivables 67,826,405 18,496,591 1,489,909 242,794 19 Other cash inflows 2,613,476 2,296,863 2,613,476 2,296,863 20 TOTAL CASH INFLOWS 70,439,881 20,793,454 4,103,385 2,539,657 Total Adjusted Value 21 TOTAL HQLA 4,731,511 2,682,541 22 TOTAL NET CASH OUTFLOWS 4,367,082 763,924 23 LIQUIDITY COVERAGE RATIO (%) 108.34 351.15
(*) The average of last three months’ liquidity coverage ratio calculated based on monthly and weekly simple averages.
In accordance with the “Regulation on calculation of Bank’s liquidity coverage ratio”, the information on the highest and the lowest weekly liquidity coverage ratio during the last three months is presented below.
Current Period Date Maximum Date Minimum TRL+FC 19.10.2018 218.85 02.11.2018 161.91 FC 07.12.2018 285.51 12.10.2018 194.77
Prior Period Date Maximum Date Minimum TRL+FC 29.12.2017 118.95 15.12.2017 94.88 FC 06.10.2017 387.43 29.12.2017 241.61
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176 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Presentation of assets and liabilities according to their remaining maturities:
1-3 3-12 5 Years Demand Up to 1 Month Months Months 1-5 Years and Over Undistributed (*) Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 2,225,601 1,333,043 - - - - - 3,558,644 Banks 75,774 41,020 - - - - - 116,794 Financial Assets at Fair Value Through Profit and Loss - 197,819 17,738 77,049 98,886 8,619 - 400,111 Money Market Placements - 45,365 - - - - - 45,365 Financial Assets at Fair Value Through Other Comprehensive Income 7,417 - 51 - 547,535 15,301 - 570,304 Loans (**) 110,374 1,766,388 4,247,024 2,302,846 9,635,598 2,190,398 311,553 20,564,181 Financial Assets at Amortised Cost - - 534,646 162,989 1,736,864 989,376 - 3,423,875 Other Assets 265,609 344,081 1,422 - 10,576 - 2,020,358 2,642,046 Total Assets 2,684,775 3,727,716 4,800,881 2,542,884 12,029,459 3,203,694 2,331,911 31,321,320
Liabilities Bank Deposits 190,190 292,452 60,429 14,606 - - - 557,677 Other Deposits 2,649,883 12,598,416 4,606,564 2,592,597 83,997 - - 22,531,457 Funds Provided From Other Financial Institutions - 95,321 491,978 794,782 468,672 476,563 - 2,327,316 Money Market Borrowings - 124,596 - - - - - 124,596 Securities Issued (***) - - 485,431 - 380,397 903,621 - 1,769,449 Sundry Creditors 489,137 ------489,137 Other Liabilities 301,584 415,485 224,614 95,145 105,493 2,041 2,377,326 3,521,688 Total Liabilities 3,630,794 13,526,270 5,869,016 3,497,130 1,038,559 1,382,225 2,377,326 31,321,320 Liquidity Gap (946,019) (9,798,554) (1,068,135) (954,246) 10,990,900 1,821,469 (45,415) - Net Off-Balance Sheet Position - 133,494 (6,074) (2,331) 5 - - 125,094 Derivative Financial Assets - 4,500,398 600,176 545,055 967,328 597,859 - 7,210,816 Derivative Financial Liabilities - 4,367,096 606,250 547,386 967,323 597,859 - 7,085,914 Non-Cash Loans 2,086,270 237,294 559,915 2,196,607 735,805 98,197 - 5,914,088
Prior Period Total Assets 1,708,321 6,677,775 3,932,946 2,303,359 11,905,886 2,803,683 2,014,491 31,346,461 Total Liabilities 2,637,171 16,883,309 3,948,796 2,709,735 1,607,431 847,868 2,712,151 31,346,461 Liquidity Gap (928,850) (10,205,534) (15,850) (406,376) 10,298,455 1,955,815 (697,660) - Net Off-Balance Sheet Position - (63,565) 1,930 (17,265) (1,312) - - (80,212) Derivative Financial Assets - 5,052,287 971,123 1,169,031 810,855 524,041 - 8,527,337 Derivative Financial Liabilities - 5,115,852 969,193 1,186,296 812,167 524,041 - 8,607,549 Non-Cash Loans 1,785,385 124,351 504,945 2,122,628 714,735 64,807 - 5,316,851
(*) Those assets such as tangible assets, investments in subsidiaries and associates, office supply inventory, prepaid expenses and non-performing loans, which are necessary for continuation of banking activities, unavailable for conversion into cash in a short term and other assets account and equity accounts are classified under undistributed. (**) Overdraft Loans are presented in 1-3 months period. (***) The subordinated debts in balance sheet also include the TRL 903,621 Thousand bonds issued as subordinated loans.
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177 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Analysis of financial liabilities by remaining contractual maturities:
Up to 1 1-3 3-12 Over 5 Demand Month Months Months 1-5 Years Years Adjustments Total Current Period Liabilities Bank deposits 190,190 292,455 60,433 17,276 - - (2,677) 557,677 Other deposits 2,649,883 12,660,009 4,710,814 2,736,575 95,943 7 (321,774) 22,531,457 Funds provided from other financial institutions - 95,321 492,056 812,371 513,030 574,247 (159,709) 2,327,316 Money market borrowings - 125,121 - - - - (525) 124,596 Securities Issued - - 586,081 - 423,076 903,621 (143,329) 1,769,449 Total Liabilities 2,840,073 13,172,906 5,849,384 3,566,222 1,032,049 1,477,875 (628,014) 27,310,495
Prior Period Liabilities Bank deposits 60,210 771,546 20,644 - - - (1,019) 851,381 Other deposits 2,067,896 12,251,770 3,099,085 1,542,780 36,864 - (122,788) 18,875,607 Funds provided from other financial institutions - 64,282 255,522 1,055,083 861,016 312,406 (166,335) 2,381,974 Money market borrowings - 3,623,853 250,298 109,724 - - - 3,983,875 Securities Issued - - 257,587 - 775,864 668,241 (147,794) 1,553,898 Total Liabilities 2,128,106 16,711,451 3,883,136 2,707,587 1,673,744 980,647 (437,936) 27,646,735
Analysis of contractual maturity of the Bank’s derivative financial instruments:
Up to 1 1-3 3-12 Over 5 Month Months Months 1-5 Years Years Total Current Period Net Settled Foreign exchange forward contracts ------Currency swaps ------Interest rate swaps ------Foreign currency options ------Interest rate options ------Gross settled Foreign exchange forward contracts 169,137 55,785 295,023 22,386 - 542,331 Currency swaps 3,683,731 335,880 127,785 584,805 - 4,732,201 Interest rate swaps 53,224 109,222 55,854 470,281 598,283 1,286,864 Foreign currency options 322,222 118,192 105,298 - - 545,712 Interest rate options ------Total 4,228,314 619,079 583,960 1,077,472 598,283 7,107,108
Prior Period Net Settled Foreign exchange forward contracts ------Currency swaps ------Interest rate swaps ------Foreign currency options ------Interest rate options ------Gross settled Foreign exchange forward contracts 278,710 363,893 230,925 182,691 - 1,056,219 Currency swaps 3,747,807 291,412 185,903 594,400 - 4,819,522 Interest rate swaps 110,854 2,665 169,990 31,526 526,952 841,987 Foreign currency options 190,802 320,058 647,868 106,778 - 1,265,506 Interest rate options ------Total 4,328,173 978,028 1,234,686 915,395 526,952 7,983,234
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178 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
VII. Explanations Related to Leverage Ratio
The Bank’s unconsolidated leverage ratio calculated according to “Regulation on Measurement and Assessment of Leverage Ratios of Banks” is 6.41% (31 December 2017 – 6.63 %). Change in the leverage ratio is mainly due to the increase of the on balance sheet assets. The minimum leverage ratio set by the above mentioned regulation is 3%.
On-balance sheet assets Current Period (*) Prior Period (*) 1 On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) 31,797,575 29,275,741 2 (Assets deducted in determining Tier 1 capital) (418,381) (406,106) 3 Total on-balance sheet risks (sum of lines 1 and 2) 31,379,194 28,869,635 Derivative financial instruments and credit derivatives 4 Replacement cost associated with all derivative instruments and credit derivatives 502,591 154,142 5 Add-on amounts for PFE associated with all derivative instruments and credit derivatives 90,885 103,702 6 Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5) 593,476 257,844 Securities or commodity financing transactions (SCFT) 7 Risks from SCFT assets - - 8 Risks from brokerage activities related exposures 4,334 143,389 9 Total risks related with securities or commodity financing transactions (sum of lines 7 to 8) 4,334 143,389 Other off-balance sheet transactions 10 Gross notional amounts of off-balance sheet transactions 8,647,517 8,578,902 11 (Adjustments for conversion to credit equivalent amounts) (446,195) (248,322) 12 Total risks of off-balance sheet items (sum of lines 10 and 11) 8,201,322 8,330,580 Capital and total risks 13 Tier 1 capital 2,574,328 2,491,522 14 Total risks (sum of lines 3, 6, 9 and 12) 40,178,326 37,601,448 Leverage ratio 15 Leverage ratio 6.41 6.63
(*) Amounts in the table are three-month average amounts.
VIII. Explanations Related to Presentation of Financial Assets and Liabilities at Fair Value
The fair value of financial assets at amortised cost and financial assets at fair value through comprehensive income are based on market prices and quoted market prices for other marketable securities subject to the same nature of interest, maturity and other similar conditions in circumstances where such price cannot be determined.
ŞEKERBANK ANNUAL REPORT 2018
179 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The book value of demand deposits, money market placements with floating interest rate and overnight deposits represents their fair values due to their short-term nature. The estimated fair value of deposits, funds provided from other financial institutions with fixed interest rate and securities issued is calculated by determining their cash flows discounted by the current interest rates used for other liabilities with similar characteristics and maturity structure. The fair value of loans is calculated by determining the cash flows discounted by the current interest rates used for receivables with similar characteristics and maturity structure. The book value of the sundry creditors reflects their fair values since they are short-term.
The market values of the items shown in the table are calculated by combining the accrued interest and the market value of principal amounts, based on term till maturity for the fixed rate items and term till the repricing day for the floating rate items and compared to its book values.
The table below shows the book value and the fair value of the financial assets and liabilities:
Book Value Fair Value Current Period Prior Period Current Period Prior Period Financial Assets Money Market Placements 45,365 2,433,052 45,365 2,433,052 Banks 116,794 396,868 116,794 396,337 Financial Assets at Fair Value Through Other Comprehensive Income 570,304 1,393,895 570,304 1,393,895 Financial Assets at Amortised Cost 3,423,875 1,351,143 3,135,237 1,335,748 Loans 19,525,001 20,219,249 20,910,111 20,414,526 Financial Liabilities Bank Deposits 557,677 851,381 555,545 850,511 Other Deposits 22,531,457 18,875,607 22,513,876 18,859,301 Funds Borrowed From Other Financial Institutions 2,327,316 2,381,974 2,261,113 2,344,452 Interbank Borrowings 124,596 3,983,875 124,055 3,978,928 Securities Issued 1,769,449 1,553,898 1,402,833 1,316,793 Sundry Creditors 489,137 256,243 489,137 256,243
TFRS 7 “Financial Instruments: Disclosures” standard require those items which are recorded in the balance sheet with their fair values to be disclosed in the footnotes by groups, based on the the data used for fair value measurement of these assets. The first group composes the financial instruments whose fair values were determined according to prices of identical assets or liabilities recorded in active markets; the second group is for financial instruments whose fair values were determined according to data of directly or indirectly observable markets; and the third group includesthe financial instruments whose fair values are not determined as based on observable market data. These financial instruments recorded in the balance sheet of the Bank with their fair values are grouped aacordingly and are shown the table below:
ŞEKERBANK ANNUAL REPORT 2018
180 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Level 1 Level 2 Level 3 Current Period Financial Assets Financial Assets At Fair Value Through Profit And Loss 11,025 - - Derivative Financial Assets - 389,086 - Loans - - - Financial Assets at Fair Value Through Other Comprehensive Income 547,586 15,301 7,417 Financial Liabilities Derivative Financial Liabilities - 257,232 - Prior Period Financial Assets Financial Assets at fair value through profit and loss - - - Trading Financial Assets 16,924 - - Derivative Financial Assets Held for Trading - 104,759 - Loans - 3,681 - Financial Assets Available-for-Sale 1,316,114 70,364 7,417 Financial Liabilities Derivative Financial Liabilities Held for Trading - 175,414 -
IX. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust
The Bank performs buying and selling transactions on behalf of customers, but does not provide custody, administration and consultancy services.
There are no transactions made with other financial institutions under the trust transaction contract and direct financial services provided within this scope.
X. Explanations Related to Risk Management
Notes and explanations in this section have been prepared in accordance with the Communiqué on ‘‘Disclosures about Risk Management to Be Announced to Public by Banks’’ that have been published in the Official Gazette no. 29511 on 23 October 2015. a. Explanations on Risk Management and Risk Weighted Amount a.1. Risk management strategy
Especially in the financial sector, the importance of the existence of then effective risk management approach for a sustainable growth based on solid foundations has been growing day-by-day. Having this in mind, the Bank aims to ensure that the risk management approach is adopted as a corporate culture, that the strategy and business plans are prepared in this respect, that decision-making, execution and audit processes are configured accordingly and that a dynamic and effective risk management system is established completely.
The establishement of the risk management systemis under the responsibility of the Bank’s Board of Directors and has been configured in a way to cover the institutions, which are subject to consolidation, under the coordination of the Bank’s Board of Directors.
ŞEKERBANK ANNUAL REPORT 2018
181 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Management is responsible for execution and coordination of the strategies, policies, risk limits and implementation of the procedures, which are approved by the Board of Directors; reviewing its effectiveness and making proposals on including the new risks. The Management set the Asset/Liability Committee, the Operational Findings Improvement Committee and the Product Development Committee for these purposes.
In order to monitor and control the risks encountered, the Bank has configured the Internal Systems, which include the Internal Audit Department, the Internal Control & Compliance Unit and the Risk Management Unit. These departments report to the member of the Board of Directors who is responsible for the Internal Systems. All departments and branches of the Bank as well as all institutions within consolidation are subject to supervision and audit by the Internal Systems. The Bank Internal Systems departments periodically report to the Board of Directors and the committees formed under the Board of Directors. The Bank defined in the internal regulations the internal systems, its operation and position in the organization, the interaction with the other departments.
The Bank’s risk management policies are the written standards which are prepared based on the must-have factors in relation to the local regulations, the Bank’s good practice guides and the international practices and are approved by the Board of Directors. These policies define the organization of risk management function, the risks to which the Bank is exposed to, structure and classification of the risks by the rank of significance, the measurement tools for the risk’ impacts on the Bank’s activities, risk profile and appetite of the Bank, as well as reporting requirements. The Bank’s risk management processes are executed in conformity with the matters specified in the Risk Management Policies and reguilations.
The Bank monitors its risk profile through the “Risk Limits and “Risk Indicators” which are set by the management and approved by the Board of Directors and conducts scenario analyses in this respect. In order to measure, monitor and report the risks, to which it is exposed to, the Bank uses the measurement methodologies and risk management software.
The Bank takes necessary actions for ensuring that the risk management approach is adopted as a corporate culture. All measures have been taken for ensuring that the instructions and regulations introduced in the Bank are prepared in compliance with the strategy, the risk management policies, limits and risk management practices. All Bank’s employees are informed on the risk management policies, procedures and the instructions and manuals prepared in connection to these policies. Furthermore, all departments, branches and consolidated subsidiaries are all subject to supervision and audit.
The Bank has established a written Internal Capital Adequacy Assessment Process (“ICAAP”) in line with the legislation. The Bank conducts holistic stress tests and scenario analyses in compliance with the methods and approaches set in the ICAAP. In addition to its own scenarios within the stress test programme, the Bank also conducts the scenarios, which are required by the BRSA.
ŞEKERBANK ANNUAL REPORT 2018
182 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2. Overview of Risk Weighted Amount
a b c Minimum capital Risk Weighted Amount requirement Current Period Prior Period Current Period 1 Credit risk (excluding counterparty credit risk) (CCR) 20,169,930 17,375,836 1,613,594 2 Standardised approach (SA) 20,169,930 17,375,836 1,613,594 3 Internal rating-based (IRB) approach - - - 4 Counterparty credit risk 272,701 201,771 21,816 5 Standardised approach for counterparty credit risk (SA-CCR) 272,701 201,771 21,816 6 Internal model method (IMM) - - - 7 Basic risk weight approach to internal models equity position in the banking account - - - 8 Investments made in collective investment companies – look- through approach - - - 9 Investments made in collective investment companies – mandate-based approach - - - 10 Investments made in collective investment companies-1250% weighted risk approach - - 11 Settlement risk - - - 12 Securitization positions in banking accounts - - - 13 IRB ratings-based approach (RBA) - - - 14 IRB Supervisory Formula Approach (SFA) - - - 15 SA/simplified supervisory formula approach (SSFA) - - - 16 Market risk 117,363 666,025 9,389 17 Standardised approach (SA) 117,363 666,025 9,389 18 Internal model approaches (IMM) - - - 19 Operational Risk 2,378,408 2,244,699 190,273 20 Basic Indicator Approach 2,378,408 2,244,699 190,273 21 Standart Approach - - - 22 Advanced measurement approach - - - 23 The amount of the discount threshold under the equity (subject to a 250% risk weight) - - - 24 Floor adjustment - - - 25 Total (1+4+7+8+9+10+11+12+16+19+23+24) 22,938,402 20,488,331 1,835,072
ŞEKERBANK ANNUAL REPORT 2018
183 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Explanations on Risk Management and Risk Weighted Amount b.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 Not subject values in to capital financial Amount requirements statements Subject to recognised or subject prepared as Subject to counterparty Subject to in regulatory to deduction Current Period per TAS credit risk credit risk market risk capital from capital Assets Cash and Balances With Central Bank of Turkey 3,720,803 3,720,803 - - - - Financial Assets at Fair Value Through Profit or Loss 11,025 - - 11,025 - - Financial Assets at Fair Value Through Comprehensive Income 570,304 22,718 - 547,586 - - Financial Assets at Amortised Cost 3,423,875 683,055 - 2,740,820 - - Derivative Financial Assets 389,086 - 6,866 382,220 - - Non-Performing Financial Receivables ------Expected Credit Loss (-) 15,664 - - 15,664 - Loans(Net) 20,564,181 20,558,401 - - 5,780 - Loans 20,876,025 20,870,245 - 5,780 - Leasing Receivables ------Factoring Receivables ------Non-Performing Receivables 1,180,125 1,180,125 - - - - Expected Credit Loss (-) 1,491,969 1,491,969 - - - - Assets Held for Sale and Assets of Discontinued Operations 318,321 318,321 - - - - Ownership Investments 787,372 787,372 - - - - Tangible Assets (net) 627,949 557,464 - - 70,485 - Intangible Assets (net) 92,434 - - - 92,434 - Investment Property (net) ------Current Tax Asset 1,422 - - - - 1,422 Deferred Tax Asset 142,324 75,534 - - 66,790 - Other Assets 687,888 687,888 - - - - Total Assets 31,321,320 27,411,556 6,866 3,681,651 219,825 1,422 Liabilities Deposits 23,089,134 - - - - 23,089,134 Funds Borrowed 2,327,316 - - - - 2,327,316 Interbank Money Markets 124,596 - 124,596 - Securities Issued 865,828 - - - - 865,828 Funds ------Financial Liabilities Measured At Fair Value Through Profıt And Loss ------Derivative Financial Liabilities 257,232 16,592 - 240,640 - Factoring Payables ------Lease Payables ------Provisions 482,697 - - - - 482,697 Current Tax Liability 56,723 - - - - 56,723 Deferred Tax Liability ------Liabilities for Assets Held for Sale and Assets of Discontinued Operations ------Subordinated Debts 903,621 - - - - 903,621 Other Payables 836,847 - - - - 836,847 Shareholders’ Equity 2,377,326 - - - - 2,377,326 Total Liabilities 31,321,320 16,592 124,596 240,640 - 30,939,492
ŞEKERBANK ANNUAL REPORT 2018
184 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Carrying values of items in accordance with Turkish Accounting Standards Carrying Not subject values in to capital financial requirements statements Subject to Subject to the or subject prepared as Subject to counterparty securitisati on Subject to to deduction Prior Period per TAS credit risk credit risk framework market risk from capital Assets Cash (Cash on Hand, Money in Transit, Purchased Cheques) and Balances With Central Bank of Turkey 3,045,232 3,045,232 - - - - Financial Assets Held for Trading 121,683 - - - 16,924 - Derivative financial assets held for trading - - 104,759 - - - Financial Assets at Fair Value Through Profit or Loss 3,681 - 3,681 - - - Banks 396,868 396,868 - - - - Interbank Money Markets Placements 2,433,052 2,433,052 - - - - Financial Assets Available-for-Sale 1,393,895 77,781 - - 1,316,114 - Loans 20,672,599 20,661,716 - - - 10,883 Factoring Receivables ------Investment Held-to-Maturity 1,351,143 1,351,143 - - - - Investment in Associates 4,140 4,140 - - - - Investment in Subsidiaries 771,213 771,213 - - - - Investment in Joint-Ventures ------Lease Receivables ------Derivative Financial Assets Held for Risk Management 2,786 2,786 - - - - Tangible Assets 308,605 215,406 - - - 93,199 Intangible Assets 86,791 - - - - 86,791 Investment Property - - - - - Tax Asset 59,764 - - - - 59,764 Assets Held for Sale and Assets of Discontinued Operations 257,420 257,420 - - - - Other Assets 437,589 437,589 - - - - Total Assets 31,346,461 29,654,346 108,440 - 1,333,038 250,637 Liabilities - Deposits 19,726,988 - - - - 19,726,988 Derivative Financial Liabilities Held for Trading 175,414 - 175,414 - - - Funds Borrowed 2,363,910 - - - - 2,363,910 Interbank Money Markets 3,983,875 - 3,983,875 - - - Securities Issued 930,481 - - - - 930,481 Funds ------Miscellaneous Payables 256,243 - - - - 256,243 Other External Fundings Payable 104,000 - - - - 104,000 Factoring Payables ------Lease Payables 2,838 - - - - 2,838 Derivative Financial Liabilities Field for Risk Management ------Provisions 388,122 - - - - 388,122 Tax Liability 60,958 - - - - 60,958 Liabilities for Assets Held for Sale and Assets of Discontinued Operations ------Subordinated Debts 641,481 - - - - 641,481 Shareholders’ Equity 2,712,151 - - - - 2,712,151 Total Liabilities 31,346,461 - 4,159,289 - - 27,187,172
ŞEKERBANK ANNUAL REPORT 2018
185 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b.2. Major items causing differences between assets and liabilities’ carrying values in financial statements and risk amounts in capital adequacy calculation
Items subject Items subject Items subject to to counterparty Items subject to credit risk securitisation credit risk to market risk Current Period Total framework framework framework framework 1 Asset carrying value amount under scope of regulatory consolidation 31,101,495 27,411,556 - 6,866 3,681,651 2 Liabilities carrying value amount under regulatory scope of consolidation - 16,592 - 124,596 240,640 3 Total net amount under regulatory scope of consolidation 31,101,495 27,394,964 - (117,730) 3,441,011 4 Off-balance sheet amounts 8,657,854 4,499,990 - 479,544 - 5 Differences in valuations - - - - - 6 Differences due to different netting rules, other than those already included in row 2 - - - - - 7 Differences due to consideration of provisions - - - - - 8 Differences due to prudential filters - - - - - 9 Differences due to risk reduction - - - - - 10 Exposure amounts 39,759,349 31,894,954 - 361,814 3,441,011
Items subject Items subject Items subject to to counterparty Items subject to credit risk securitisation credit risk to market risk Prior Period Total framework framework framework framework 1 Asset carrying value amount under scope of regulatory consolidation 31,095,824 29,654,346 - 111,226 1,333,038 2 Liabilities carrying value amount under regulatory scope of consolidation - - - (4,159,289) - 3 Total net amount under regulatory scope of consolidation 31,095,824 29,654,346 - 4,270,515 1,333,038 4 Off-balance sheet amounts 7,779,159 3,738,243 - 218,913 5 Differences in valuations - - - - - 6 Differences due to different netting rules, other than those already included in row 2 - - - - - 7 Differences due to consideration of provisions - - - - - 8 Differences due to prudential filters - - - - - 9 Differences due to risk reduction - - - - - 10 Exposure amounts 38,874,983 33,392,589 - 4,489,428 1,333,038 b.3. Explanations on differences between carrying values in financial statements and risk amounts in capital adequacy calculation of assets and liabilities
In principle, the Bank aims to use methods that measure the fair value in accordance with TFRS 13 “Fair Value Measurement” standard.In this respect, the valued amounts of the items, which are subject to market risk show the fair value of the financial instruments for trading. Valuation models that use market data such as interest rates, efficiency curves, currency, and volatility curves are used as the basis for derivative transactions, while third party valuation services are also available. On the other hand, the amount shown in the “risk amount line” represents the amount of the market risk based on the calculated capital requirement for losses that may be caused by factors such as interest rate risk, equity securities price risk and exchange rate risk of the market risk under the “Regulation on Measurement and Evaluation of Banks’ Capital Adequacy”.
ŞEKERBANK ANNUAL REPORT 2018
186 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. General information on credit risk c.1. General qualitative information on credit risk
The Bank conducts the lending operations in compliance with the principles and procedures, which are approved by the Board of Directors. With in this scope, marketing, financial analysis, allocation, monitoring and controlling functions are carried out through segregation of duties according to policies and procedures approved by the Board of Directors.
The methodologies and responsibilities for credit risk management, controlling, monitoring and the framework of credit risk limitations are set in the credit risk management policy and procedures. The Bank ensures that the credit risk related to its products is defined, measured and managed. At least annually, the Board of Directors reviews the Bank’s credit risk policies and credit risk strategy. The Management is responsible for the execution of the credit risk policies that are approved by the Board of Directors.
In the Bank’s credit risk management, along the limits as required by legal regulations, the Bank applies the risk limits for the maximum credit risk within risk groups and for the sectors, which are set by the Board of Directors. The Risk Management Unit conducts measurement, monitoring and reporting of the credit risk by using statistical models and submits the results of the risk-limit compliance, assessments of these limits and credit portfolio concentration analyses to the Management and the Board of Directors.
In the credit allocation process, customers are allocated to business and segment based portfolios in accordance with the established criteria and each credit customer is subjected to a rating or scoring system which is developed in accordance with the portfolio and periodically validated. The cash flow of the activity or investment that is subject to lending is considered as the main source of payment and the sustainability of the income situation of the client is taken into account when credit limits are set. According to the rating/scoring results, credit applications are evaluated and approved in accordance with the credit allocation policies. A credit disbursement is made after approval of a loan application by the related allocation authorities.
The Bank has established loan monitoring system that generate the necessary early warnings and assessments of the loan portfolio, allowing effective monitoring of the loan portfolio.
All branches, departments, regional offices and subsidiaries involved in crediting processes are subject to audit and monitoring by the internal systems departments. All the findings are regularly reported to the Board of Directors and the Bank Management. In addition to transaction and company based risk assessment process refers to an approach that includes monitoring and management of parameters such as maturity, sector, collateral, geography, currency, credit type and credit rating.
ŞEKERBANK ANNUAL REPORT 2018
187 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.2. Credit quality of assets
Current Period Gross carrying value as per TAS Allowances/impairements Net values Defaulted Non-defaulted 1 Loans 1,180,125 20,876,025 868,572 21,187,578 2 Debt securities - 10,275,996 - 10,275,996 3 Off-balance sheet exposures 135,706 8,568,423 46,275 8,657,854 4 Total 1,315,831 39,720,444 914,847 40,121,428
Prior Period Gross carrying value as per TAS Allowances/impairements Net values Defaulted Non-defaulted 1 Loans 1,017,608 20,219,249 560,577 20,676,280 2 Debt securities - 10,073,936 - 10,073,936 3 Off-balance sheet exposures 148,344 7,692,084 61,269 7,779,159 4 Total 1,165,952 37,985,269 621,846 38,529,375 c.3. Changes in stock of defaulted loans and debt securities
Current Period Prior Period (*) 1 Defaulted loans and debt securities at end of the previous reporting period 1,017,608 1,080,273 2 Loans and debt securities that have defaulted since the last reporting period 966,075 512,535 3 Returned to non-defaulted status - - 4 Amounts written off (92,492) (269,232) 5 Other changes (711,066) (305,968) 6 Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) Definitions 1,180,125 1,017,608
(*) TRL 820 Thousand non performing loans classified as “Financial assets at fair value through profit and loss” in the prior period.
ŞEKERBANK ANNUAL REPORT 2018
188 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.4. Additional disclosure related to the credit quality of assets c.4.1. Qualitative disclosures related to the credit quality of assets
The Bank reclassifies loans and performs credit impairment loss calculations according to TFRS 9 as stated in Note VIII “Impairment of Financial Assets” in Section three.
The Bank calculates expected loss provision based on the degree of impairment in credit risk by performing calculations as of each reporting date to reflect changes in the credit risk from the initial recognition of financial assets. Negative developments in the customer’s ability to pay or cash flows are subjected to a new loan to cover all or part of the receivables or to re-financing or restructuring by creating a new payment plan. c.4.2. Breakdown of exposures by geographical areas, industry and ageing
Related explanations are disclosed in section IV note II. c.4.3. Exposures provisioned against by major regions and sectors
Current Period Loans Under Follow-Up Specific Provisions Write-Offs (*) Domestic 1,172,417 860,895 92,492 European Union (EU) Countries 101 70 - OECD Countries 7,557 7,557 - Off-Shore Banking Regions - - - USA, Canada 50 50 - Other Countries - - - Total 1,180,125 868,572 92,492
(*) Sold non performing loan amount.
Prior Period Loans Under Follow-Up(**) Specific Provisions Write-Offs (*) Domestic 1,007,571 552,469 269,225 European Union (EU) Countries 89 33 3 OECD Countries 7,557 7,557 - Off-Shore Banking Regions 2,342 505 3 USA, Canada 48 12 1 Other Countries 1 1 - Total 1,017,608 560,577 269,232
(*) Sold non performing loan amount. (**) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 820 Thousand and Specific provision for these loansamounting to TRL 567 Thousand in the current period.
ŞEKERBANK ANNUAL REPORT 2018
189 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.4.4. Exposures provisioned against by major regions and sectors
Current Period Loans Under Follow-Up Specific Provisions Write-Offs (*) Agricultural 165,992 99,398 5,601 Farming and raising livestock 165,320 98,941 5,536 Forestry 1 1 1 Fishing 671 456 64 Manufacturing 280,165 215,920 20,337 Mining 4,374 4,058 384 Production 275,782 211,853 19,627 Electricity, Gas, Water 9 9 326 Construction 171,080 136,763 16,081 Services 501,164 368,552 44,354 Wholesale and Retail Trade 315,813 247,245 32,810 Hotel,Food,Beverage Services 7,811 5,087 463 Transportation and Telecommunication 39,644 26,403 3,851 Financial Institutions 1,230 787 73 Real Estate and Lending Services 66,847 51,260 5,305 Self employment Service - - - Education Service 2,766 2,390 11 Health and social Services 67,053 35,380 1,841 Other 61,724 47,939 6,119 Total 1,180,125 868,572 92,492
(*) Sold non performing loan amount.
Prior Period Loans Under Follow-Up Specific Provisions Write-Offs (*) Agricultural 133,599 63,010 16,503 Farming and raising livestock 132,232 62,690 16,396 Forestry 290 87 - Fishing 1,077 233 107 Manufacturing 209,407 113,296 90,582 Mining 4,541 1,387 1,061 Production 204,529 111,807 89,496 Electricity, Gas, Water 337 102 25 Construction 156,047 79,627 30,789 Services 400,558 213,604 107,154 Wholesale and Retail Trade 290,101 158,185 91,833 Hotel,Food,Beverage Services 4,725 2,159 1,331 Transportation and Telecommunication 30,364 15,728 5,510 Financial Institutions 1,352 673 - Real Estate and Lending Services 56,491 30,965 6,656 Self employment Service - - - Education Service 2,247 622 136 Health and social Services 15,278 5,272 1,688 Other 117,997 91,040 24,204 Total 1,017,608 560,577 269,232
(*) Sold non performing loan amount.
ŞEKERBANK ANNUAL REPORT 2018
190 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Current Period Up to 3 Months 3-12 Months 1-3 Years 3-5 Years 5 Years and Over Corporate and Commercial Loans 66,202 17,344 77,328 6,981 34,519 Small and Medium Enterprises 151,130 170,589 396,840 136,802 50,778 Retail Loans 7,540 12,408 32,469 4,505 1,133 Others 1,903 1,249 3,248 1,886 5,271 Total 226,775 201,590 509,885 150,174 91,701
Prior Period Up to 3 Months 3-12 Months 1-3 Years 3-5 Years 5 Years and Over Corporate and Commercial Loans 17,001 43,356 108,165 45,802 17,967 Small and Medium Enterprises 89,416 192,364 340,543 63,525 31,298 Retail Loans 8,927 20,141 21,339 4,552 1,470 Others 1,733 4,533 5,383 86 7 Total 117,077 260,394 475,430 113,965 50,742 c.4.5. Breakdown of restructured receivables based on whether or not provisions are allocated
Current Period Prior Period Loans Structured from Standard Loans and Other Receivables 32,805 932,314 Loans Restructred from Loans Under Close Monitoring and Other Receivables 740,495 1,309,140 Loans Restructured from Non-Performing Loans 27,837 57,540
The Bank evaluates its financial assets in 3 stages under TFRS 9, as explained in Section Three Note VII and VIII. For the Impaired stage 3 loans, the Bank calculates the expected credit losses for lifetime and considers the probability of default to be 100%.
The Bank classifies loans that have not been impaired yet but the credit risk has increased significantly, as Second Stage and calculates the lifetime expected credit loss for these loans. c.5. Credit Risk Mitigation Techniques c.5.1. Qualitative requirements to be disclosed to the public regarding credit risk mitigation techniques
The Bank calculates credit risk using mitigation techniques specified in the “Notification Related to the Credit Risk Mitigation Techniques” that entered into force through the publication in the Official Gazette dated 06.09.2014 and numbered 29111.
The Bank considers the deposit or cash values as financial security and real estate mortgages as physical security.
In accordance with the provisions of the “Communiqué on Credit Risk Mitigation Techniques”, the Bank periodically reviews the real estates, which are received as collateral and, if necessary, the real estate appraisals are being renewed at specific intervals. Appraisal of these real estate is made by the appraisal institutions authorized by the BRSA and the CMB. The collaterals are insured for possible damage.
The general principles and practices regarding the collateralization of loans and other receivables are stated in the internal regulations of the Bank and its compliance is subject to audit by the internal systems departments.
ŞEKERBANK ANNUAL REPORT 2018
191 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.5.2. Credit risk mitigation techniques – overview
Exposures Exposures Exposures Amounts unsecured Exposures secured by Amount of secured secured (according secured by Amount of financial Financial by credit by credit Current Period to TAS) collateral Collateral guarantees guarantees derivatives derivatives 1 Loans 12,278,645 8,597,380 7,042,620 - - - - 2 Debt Securities 10,275,996 ------3 Total 22,554,641 8,597,380 7,042,620 - - - - 4 Of which defaulted 924,710 255,415 531,644 - - - -
Exposures Exposures Exposures Amounts unsecured Exposures secured by Amount of secured secured (according secured by Amount of financial Financial by credit by credit Prior Period to TAS) collateral Collateral guarantees guarantees derivatives derivatives 1 Loans 12,768,110 7,451,139 5,564,009 - - - - 2 Debt Securities 10,073,936 ------3 Total 22,842,046 7,451,139 5,564,009 - - - - 4 Of which defaulted 695,830 321,778 630,665 - - - - c.6. Qualitative disclosures on banks’ use of external credit ratings under the standardised approach for credit risk
In calculation of the amount subject to credit risk, determining the risk weights releated to risk classes stated in the article 6 of the “Regulation on measurement and evaluation of capital achievement of banks”, is based on the Islamic International Rating Agency (IIRA) for Turkey’s long-term foreign currency rating.
While the international rating score is used for the risk classification of the exposures with the central governmenmts and central banks, for the exposures of the non-rated central governments and central banks the Bank uses the country risk classification issued by the Organization for Economic Co-operation and Development (OECD).
The table matching the risk weights used for the risk-weight calculations for the receivables from Central Governments and Central Banks with the credit quality grade indicated in the appendix of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks” is stated below.
Islamic International Rating Agency Risk weight for Receivables from Central Credit Quality Grade Long-Term Credit Rating Governments or Central Banks 1 Between AAA and AA- 0% 2 Between A+ and A- 20% 3 Between BBB+ and BBB- 50% 4 Between BB+ and BB- 100% 5 Between B+ and B- 100% 6 CCC+ and Below 150%
ŞEKERBANK ANNUAL REPORT 2018
192 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.7. Standardised approach – Credit risk exposure and credit risk mitigation (CRM) effects
Exposures before CCF and Exposures after CCF and Current Period CRM CRM RWA and RWA Weights On-balance Off-balance On-balance Off-balance sheet sheet sheet sheet RWA Risk classes amount amount amount amount RWA density 1 Exposures to sovereigns and their central banks 6,499,054 5,954 6,499,054 5,954 305,332 %4.70 2 Exposures to regional and local governments 58,550 40 58,550 20 29,285 %50.02 3 Exposures to administrative bodies and non-commercial entities 109,092 14,605 109,092 7,108 113,157 %103.73 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 1,223,812 1,721,600 1,223,812 1,502,182 1,219,720 %99.67 7 Exposures to corporates 9,048,646 3,998,227 9,048,646 1,825,175 8,946,557 %98.87 8 Retail exposures 5,998,072 2,285,131 5,998,072 783,378 3,604,926 %60.10 9 Exposures secured by residential property 1,321,086 245,981 1,321,086 131,571 523,589 %39.63 10 Exposures secured by commercial property 3,999,636 385,812 3,999,636 244,500 2,135,900 %53.40 11 Past-due items 268,928 - 268,928 - 182,975 %68.04 12 Exposures in high-risk categories 42,625 - 42,625 - 63,904 %149.92 13 Exposures in the form of bonds secured by mortgages - - - - - 0.00 14 Short term exposures to banks, brokerage houses and corporates ------15 Exposures in the form of collective investment undertakings ------16 Other exposures 2,888,300 504 2,887,954 103 2,244,727 %77.73 17 Equity share investments ------18 Total 31,457,801 8,657,854 31,457,455 4,499,991 19,370,072 %61,58
ŞEKERBANK ANNUAL REPORT 2018
193 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Exposures before CCF and Exposures after CCF and Prior Period CRM CRM RWA and RWA Weights On-balance Off-balance On-balance Off-balance sheet sheet sheet sheet RWA Risk classes amount amount amount amount RWA density 1 Exposures to sovereigns and their central banks 7,623,189 226 7,623,416 - 133,624 %1.75 2 Exposures to regional and local governments 64,771 275 64,771 68 32,420 %50.05 3 Exposures to administrative bodies and non-commercial entities 29,737 13,938 29,738 6,271 33,881 %113.93 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 1,663,483 1,043,542 1,663,481 870,545 924,956 %55.60 7 Exposures to corporates 7,480,670 3,445,119 7,480,671 1,585,267 7,440,507 %99.46 8 Retail exposures 6,881,101 2,564,462 6,881,101 890,515 3,964,346 %57.61 9 Exposures secured by residential property 1,497,209 290,117 1,497,210 150,818 576,982 %38.54 10 Exposures secured by commercial property 3,153,279 414,135 3,153,279 233,298 1,696,788 %53.81 11 Past-due items 322,428 - 322,429 - 278,284 %86.31 12 Exposures in high-risk categories 134,603 - 134,603 - 201,904 %150.00 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 1,894,352 7,347 1,894,804 1,461 1,636,340 %86.36 17 Equity share investments ------18 Total 30,744,822 7,779,161 30,745,503 3,738,243 16,920,032 %55.03
ŞEKERBANK ANNUAL REPORT 2018
194 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.8. Exposures by asset classes and risk weights
50% secured by property Total risk Current Period 0% 10% 20% 35% mortgage 75% 100% 150% 200% Others amount Risk classes 1 Exposures to sovereigns and their central banks 5,894,344 - - - 610,664 - - - - - 6,505,008 2 Exposures to regional and local government - - - - 58,570 - - - - - 58,570 3 Exposures to administrative bodies and non- commercial entities 3,044 - - - - - 113,156 - - - 116,200 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 232,116 - 130,991 - 2,338,732 - 24,155 - - - 2,725,994 7 Exposures to corporates 1,666,776 - 157,065 - 268,857 1,627 8,779,496 - - - 10,873,821 8 Retail exposures 1,932,088 - 1,746 - 125,073 4,722,016 527 - - - 6,781,450 9 Exposures secured by residential property - - - 1,428,259 1,399 - 22,999 - - - 1,452,657 10 Exposures secured by commercial real estate - - - - 4,216,471 - 27,665 - - - 4,244,136 11 Past-due loans - - - - 171,942 - 96,950 36 - - 268,928 12 Higher-risk categories by the Agency Board - - - - - 45 - 42,580 - - 42,625 13 Exposures in the form of covered bonds ------14 Exposures to institutions and corporates with a short-term credit assessment ------15 Exposures in the form of units or shares in collective investment undertakings ------16 Investments in equities ------17 Other assets 523,721 - 107 - 239,047 - 2,125,182 - - - 2,888,057 18 Total 10,252,089 - 289,909 1,428,259 8,030,755 4,723,688 11,190,130 42,616 - - 35,957,446
50% secured by property Total risk Prior Period 0% 10% 20% 35% mortgage 75% 100% 150% 200% Others amount Risk classes 1 Exposures to sovereigns and their central banks 7,356,168 - - - 267,248 - - - - - 7,623,416 2 Exposures to regional and local government - - - - 64,839 - - - - - 64,839 3 Exposures to administrative bodies and non- commercial entities 2,127 - - - - - 33,882 - - - 36,009 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 67,091 - 1,073,909 - 1,365,701 - 27,325 - - - 2,534,026 7 Exposures to corporates 1,540,994 - 105,557 - - - 7,419,387 - - - 9,065,938 8 Retail exposures 2,485,818 - - - - 5,285,798 - - - - 7,771,616 9 Exposures secured by residential property - - - 1,647,761 - - 267 - - - 1,648,028 10 Exposures secured by commercial real estate - - - - 3,379,577 - 7,000 - - - 3,386,577 11 Past-due loans - - - - 88,289 - 234,140 - - - 322,429 12 Higher-risk categories by the Agency Board ------134,603 - - 134,603 13 Exposures in the form of covered bonds ------14 Exposures to institutions and corporates with a short-term credit assessment ------15 Exposures in the form of units or shares in collective investment undertakings ------16 Investments in equities ------17 Other assets 192,861 - 5 - 134,118 - 1,569,281 - - - 1,896,265 18 Total 11,645,059 - 1,179,471 1,647,761 5,299,772 5,285,798 9,291,282 134,603 - - 34,483,746
ŞEKERBANK ANNUAL REPORT 2018
195 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Counterparty credit risk d.1. Qualitative disclosure on counterparty credit risk
The Bank may expose to losses due to the inability of one of the counterparties to fulfill its obligation within the transaction period. The Bank may be exposed to credit risk based on both trading accounts and banking accounts due to repurchase transactions, securities and commodity lent transactions, and derivative financial instruments.
Counterparty Credit Risk is considered as a quantifiable risk. In the framework of the Capital Adequacy Ratio calculation, it is calculated within the scope of the credit risk principal amount and market risk principal amount, which is calculated according to standart approach.
The counterparty credit risk arising from liability transactions on both sides, such as derivatives and repo-like transactions, is calculated within the framework of the provisions of “Annex-2 of the Regulation on Measurement and Evaluation of Capital Adequacy of Banks” published in the Official Gazette dated 23.10.2015 and numbered 29511. Valuation method according to the fair value is applied for derivative transactions in calculating the counterparty credit risk. In calculating the amount of risk related to the derivative transactions, the amount of the potential credit risk amounts and positive renewal costs are taken. In calculating the potential credit risk, the contract sum is multiplied with the ratios that are stated in the capital adequacy regulation. The renewal costs of the derivative transactions are obtained through valuation according to the fair value of the relevant contracts
The Bank determines the maximum risk amount that can be occurred on a counterparty basis through the limits of the counterparty in order to prevent concentration. d.2. Counterparty credit risk approach analysis
Alpha used for computing Potential regulatory Exposure at Replacement future exposure at default after Current Period cost exposure EEPE default CRM RWA 1 Standardised Approach (for derivatives) 777,631 181,461 - 1.4 470,337 267,999 2 Internal Model Method (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------3 Simple Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------4 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------5 VaR for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit - - - - 319 99 6 Total 777,631 181,461 - - 470,656 268,098
ŞEKERBANK ANNUAL REPORT 2018
196 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Alpha used for computing Potential regulatory Exposure at Replacement future exposure at default after Prior Period cost exposure EEPE default CRM RWA 1 Standardised Approach (for derivatives) 102,362 116,552 1.4 218,913 133,571 2 Internal Model Method (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------3 Simple Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------4 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------5 VaR for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit - - - - 2,465 180 6 Total 102,362 116,552 - - 221,378 133,751 d.3. Credit valuation adjustment capital charge
Current Period Prior Period Exposure at Exposure at default after CRM RWA default after CRM RWA Total portfolios subject to the Advanced CVA capital charge - - 1 (i) Value at Risk (VaR) component (including the 3×multiplier) - - - - 2 (ii) Stressed VaR component (including the 3×multiplier) - - - - 3 All portfolios subject to the Standardised CVA capital charge 969,130 77,530 657,575 52,606 4 Total subject to the CVA capital charge 969,130 77,530 657,575 52,606
ŞEKERBANK ANNUAL REPORT 2018
197 ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
d.4. Standardised approach – CCR exposures by regulatory portfolio and risk weights
Total credit Current Period 0% 10% 20% %50 75% 100% 150% Others exposure(*) Risk weight/ Risk Classes Exposures to sovereigns and their central banks - - - 5,954 - - - - 2,977 FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Exposures to regional and local govermnents ------Exposures to administrative bodies and non-commercial entities - - - - - 1 - - 1 Exposures to multilateral development banks ------Claims from international organizations ------
198 Claims from institutions - - 5,199 389,089 - - - - 195,584 Corporates - - - - - 66,863 - - 66,863 Retail portfolios - - - - 3,564 - - - 2,673 Claims on landed real estate ------Past due loans ------Claims which are determined as high risk by the board of BRSA ------Mortgage securities ------Securitization positions ------Claims from corporates, banks and financial intermediaries which have short term credit rating ------Investments which are qualified as collective investment institutions ------Stock investment ------Other claims ------Other assets (**) ------Total - - 5,199 395,043 3,564 66,864 - - 268,098
(*)Total credit exposure: the amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. (**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk.
ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
d.4. Standardised approach – CCR exposures by regulatory portfolio and risk weights
Total credit Prior Period 0% 10% 20% %50 75% 100% 150% Others exposure(*) Risk weight/ Risk Classes Exposures to sovereigns and their central banks 1,860 - - 226 - - - - 113 FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Exposures to regional and local govermnents ------Exposures to administrative bodies and non-commercial entities - - - - - 4 - - 4 Exposures to multilateral development banks ------Claims from international organizations ------
199 Claims from institutions - - 18,913 139,894 - - - - 73,730 Corporates 22 - - - - 58,173 - - 58,173 Retail portfolios - - - - 2,308 - - - 1,731 Claims on landed real estate ------Past due loans ------Claims which are determined as high risk by the board of BRSA ------Mortgage securities ------Securitization positions ------Claims from corporates, banks and financial intermediaries which have short term credit rating ------Investments which are qualified as collective investment institutions ------Stock investment ------Other claims ------Other assets (**) ------Total 1,882 - 18,913 140,120 2,308 58,177 - - 133,751
(*)Total credit exposure: the amount relevant for the capital requirements calculation applied CRM techniques. (**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk.
FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.5. Composition of collateral for CCR exposure
Collateral for other Collateral for derivative transactions transactions Fair value of collateral received Fair value of collateral given Fair Fair value of value o f collateral collateral Current Period Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - 52 - 67,563 Cash-foreign currency 248,839 - 285,484 - - - Domestic sovereign debts - - - - - 827,324 Other sovereign debts - - - - - 252,757 Government agency debts ------Corporate debts ------Equity securities ------Other collateral - - - - - 50,000 Total 248,839 - 285,484 52 - 1,197,645
Collateral for other Collateral for derivative transactions transactions Fair value of collateral received Fair value of collateral given Fair Fair value of value of collateral collateral Prior Period Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - 45 - 67,563 Cash-foreign currency 23,139 - 168,531 - - - Domestic sovereign debts - - - - - 1,111,688 Other sovereign debts - - - - - 81,503 Government agency debts ------Corporate debts ------Equity securities ------Other collateral - - - - - 40,000 Total 23,139 - 168,531 - - 1,300,754 d.6. Credit derivatives: None.
ŞEKERBANK ANNUAL REPORT 2018
200 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.7. Exposures to central counterparties (CCP)
Exposure at default Current Period (post-CRM) RWA 1 Exposure to Qualified Central Counterparties (QCCPs) (total) - - 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which - - 3 (i) OTC Derivatives - - 4 (ii) Exchange-traded Derivatives - - 5 (iii) Securities financing transactions 319 99 6 (iv) Netting sets where cross-product netting has been approved - - 7 Segregated initial margin - - 8 Non-segregated initial margin - - 9 Pre-funded default fund contributions - - 10 Unfunded default fund contributions - - 11 Exposures to non-QCCPs (total) - - 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which ) - - 13 (i) OTC Derivatives - - 14 (ii) Exchange-traded Derivatives - - 15 (iii) Securities financing transactions - - 16 (iv) Netting sets where cross-product netting has been approved - - 17 Segregated initial margin - - 18 Non-segregated initial margin - - 19 Pre-funded default fund contributions - - 20 Unfunded default fund contributions - -
Exposure at default Prior Period (post-CRM) RWA 1 Exposure to Qualified Central Counterparties (QCCPs) (total) - - 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which - - 3 (i) OTC Derivatives - - 4 (ii) Exchange-traded Derivatives - - 5 (iii) Securities financing transactions 2,465 180 6 (iv) Netting sets where cross-product netting has been approved - - 7 Segregated initial margin - - 8 Non-segregated initial margin - - 9 Pre-funded default fund contributions - - 10 Unfunded default fund contributions - - 11 Exposures to non-QCCPs (total) - - 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which ) - - 13 (i) OTC Derivatives - - 14 (ii) Exchange-traded Derivatives - - 15 (iii) Securities financing transactions - - 16 (iv) Netting sets where cross-product netting has been approved - - 17 Segregated initial margin - - 18 Non-segregated initial margin - - 19 Pre-funded default fund contributions - - 20 Unfunded default fund contributions - -
ŞEKERBANK ANNUAL REPORT 2018
201 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Securitization explanations: None. f. Explanations on market risk f.1. Qualitative disclosure requirements related to market risk
Market risk is the risk that the Bank may be exposed to due to changes in the value of the positions related to the financial instruments monitored in the trading accounts, depending on the volatility in market prices. Banking accounts are interest-sensitive on-balance sheet and off-balance sheet accounts and positions except for the Bank’s trading accounts and the subordinated debts which are considered in the equity calculation in accordance with the BRSA’s “Regulation on the Equity of Banks”.
Interest rate risk, exchange rate risk, equity risk, option risk and commodity risk are calculated using the standard method in calculation of market risk based on the risk arising from trading accounts. The processes related to the calculations are audited by the internal audit system and reported to the Bank’s top management. In addition, market risk is measured, monitored and reported on a daily basis within the Bank and “risk-exposed value (REV) methods” are applied using the internal model. The “historical simulation” method is used in the reporting of “variance Covariance method”, also called Parametric method, among REV methods. To calculate the REV amount, an observation range covering the last 252 working days and a level of confidence of 99% are taken into account. In the calculation of “economic capital” through REV, a 10-day holding period is applied in accordance with the legislation.
The principal goal of the Asset & Liability Management is to mitigate the impacts of the interest rate risks arising in the banking accounts. The market risks are reviewed during the Asset & Liability Committee meetings, using the results of the analyses on duration, gap, economic value and sensitivity. Negative impacts that may be caused by the volatility of the market interest rates on both financial position and cash flow are monitored through analyses and the risk levels are reduced to minimum.
Market risk policies, monitoring and assessment processes are stated in details in the Bank’s releated internal regulations, approved by the Board of Directors.
Risk Management policies and application methods covering the asset-liability management process and relevant to market risk are approved by the Board of Directors. The assignments, authorizations and responsibilities to effectively perform the functions such as measurement, monitoring, controlling, auditing and managing of the market risk are described in the regulations of the relevant committees and departments.
Within this framework the Management established the information system structure and provides the resources that will ensure development of the technical and academic knowledge of human resources. Asset & Liability Committee supervises the conformity with the policies and implementation methods on behalf of the Board of Directors and shapes the protection and tactic strategies within this scope. The departments within the internal systems perform the functions such as measurements, monitoring, analyses and auditing.
ŞEKERBANK ANNUAL REPORT 2018
202 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f.2. Market risk under standardised approach
Current Period Prior Period RWA RWA Outright products 5,817 45,875 1 Interest rate risk (general and specific) 3,914 41,450 2 Equity risk (general and specific) - 111 3 Foreign exchange risk 1,903 4,314 4 Commodity risk - - Options 3,572 7,407 5 Simplified approach - - 6 Delta-plus method 3,572 7,407 7 Scenario approach - - 8 Securitisation - - 9 Total 9,389 53,282 g. Explanations on operational risk a) The amount subject to Operational Risk is calculated using Basic Indicator Approach annually, in line with the articles 23 and 24 of the Regulation on Measurement and Assessment of Capital Adequacy of Banks. The amount for the current period is TRL 2,378,408 Thousand (31 December 2017-TRL 2,244,699 Thousand).
Annual gross income is calculated as the sum of the net amounts of interest income and non-interest income after deducting the profit/(loss) arising from the sale of financial assets at fair value through comprehensive ıncome and financial assets at amortised cost, the amounts of extraordinary income and compensation amount from insurance.
2 Prior 1 Prior Current Total/Positive Period Period Period GI Year Amount Amount Amount Numbers Ratio (%) Total Gross income (GI) 1,164,695 1,249,990 1,390,769 3 15 190,273 Amount subject to Operational Risk (Amount*12,5) 2,378,408 b) The Bank does not use Standard Approach. h. Interest rate risk related to banking book
In connection to the following factors, the Bank may be exposed to interest rate risk arasing from banking accounts:
• Repricing risk arising from mismatches between the maturities of the bank’s assets, liabilities, interest-sensitive off- balance sheet items (fixed-interest items) and the repricing periods (variable interest rate), • The risk of the return curve resulting from the change in the slope and/or shape of the yield curve as a result of the change in market interest rates at different levels according to different maturity periods, • The core risk arising from the change in the interest rate applied to assets and liabilities with similar characteristics and interest-sensitive off-balance sheet items at different times and/or different amounts as a result of the change in the spreads,
ŞEKERBANK ANNUAL REPORT 2018
203 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
• The option risk arising from the fact that the Bank’s assets and liabilities and interest-sensitive off-balance sheet items have different characteristics than the contractual maturities in cases such as closing credits before maturity (partially/completely), recall of syndicated loans, withdrawal or renewal of demand and time deposits.
The policy and application procedures related to interest rate risk arising from banking accounts are structured in accordance with the the “Regulation On The Internal Systems of the Banks” and the “Regulation On The Measurement and Assessment of the Capital Adequacy of the Banks” and further been approved by the Bank’s Board of Directors.
The Bank’s Board of Directors has accepted risk limits related to equity related to the risk of structural interest rate risk arising from banking accounts other than trading accounts, and has determined the rate of the mismatch level to be occured within specific matuirty buckets, which can be tolerated by the Net Worth. The compliance of these limits is monitored on a weekly basis, reviewed at least once a year and updated if deemed necessary, depending on the changes in the economic conditions and the Bank’s strategy.
The Bank’s Board of Directors has adopted Risk Limits related to equity with respect to the structural interest rate risk arising from banking accounts other than trading accounts and has determined the rate of structural interest rate nonconformities that may arise in certain maturity brackets and the ratio of equity to total liabilities.
In order to measure and monitor the effect of the interest-rate risk on both income and equity, the Bank uses two methods, which include “income approach” and “economic value approach”. “Income approach” is used to calculate the effect of volatility of market interest rates on the Bank’s Net Interest Revenue while the “Economic Value Approach” is used to calculate the effect of volatility of market interest rates on the Economic Value of the Equity. In “Economic Value Approach”, the recent value of all future cash flows is taken into consideration it provides a comprehensive perspective and is based on the Bank’s Assets & Liability Management. Stress tests and scenario analyses are also used for the measurement and monitoring of the changes in the present value of the items sensitive to interest on the balance sheet and off-balance sheet, depending on the movements in market interest rates.
Calculation of the interest rate risk derived from banking books is presented below:
Shocks Applied Gains/Equity – Current Period Type of Currency (+/-basis points) Gains/Losses Losses/Equity 1 TRL +500 (337,368) (9.71) % -400 310,991 8.95% 2 EURO +200 (19,756) (0.57) % -200 21,485 0.62% 3 USD +200 (39,539) (1.14) % -200 43,642 1.26% Total (of negative shocks) 376,118 10.83% Total (of positive shocks) (396,663) (11.42) %
Shocks Applied Gains/Equity – Prior Period Type of Currency (+/-basis points) Gains/Losses Losses/Equity 1 TRL +500 (465,809) (14.82) % -400 430,697 13.71% 2 EURO +200 (21,360) (0.68) % -200 20,190 0.64% 3 USD +200 (26,906) (0.86) % -200 29,357 0.93% Total (of negative shocks) 480,244 15.28% Total (of positive shocks) (514,075) (16.36) %
ŞEKERBANK ANNUAL REPORT 2018
204 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION FIVE EXPLANATIONS AND DISCLOSURES ON UNCONSOLIDATED FINANCIAL STATEMENTS
I. Explanations Related to the Assets (Current Period)
1. Information related to cash equivalents and the account of the Central Bank of the Republic of Turkey (the “CBRT”): a) Information on Cash and Balances with the Central Bank of Turkey:
Current Period TRL FC Cash in TRL/Foreign Currency 131,639 392,082 Balances with the Central Bank of Turkey 786,652 2,248,264 Other - 7 Total 918,291 2,640,353 b) Information related to the account of the Central Bank of Turkey:
Current Period TRL FC Unrestricted demand deposit 786,652 1,946,154 Unrestricted time deposit - - Restricted time deposit - 302,110 Total 786,652 2,248,264
The reserve deposits include TRL 1,008,550 Thousand of FC unrestricted demand deposit and TRL 786,549 Thousand of the TRL unrestricted demand deposit. TRL unrestricted demand deposit includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average.
In accordance with the principles of the Communiqué numbered 2013/15 of The Central Bank of Turkey on “Required Reserves” the required reserve ratios to be held in the The Central Bank of Turkey vary according to the currency denomination and term of the liabilities subject to the reserve requirements. Thus, the reserve requirement rate range between1.5%-8% is applied for TRY deposits, participation funds and other liabilities and 4%-20% for FX deposits, participation funds and other liabilities.
2. Information on financial assets at fair value through profit and loss (net): i. Information on financial assets at fair value through profit and loss given as collateral or blocked: None. ii. Financial assets at fair value through profit and loss subject to repurchase agreements: None.
Net book value of unrestricted financial assets at fair value through profit and loss is TRL 11,025 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
205 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) iii. Positive differences related to derivative financial assets held-for-trading:
Derivative financial assets held for trading are classified in the financial statements as Fair Value of Derivative financial assets through profit and loss.
Current Period Derivatives Held for Trading TRL FC Forward Transactions - 53,261 Swap Transactions 161,351 157,349 Futures Transactions - - Options 106 10,153 Other - - Total 161,457 220,763
3. Information on banks: a. Information on banks account
Current Period TRL FC Banks 357 116,437 Domestic 334 33,053 Foreign 23 83,384 Branches and head office abroad - - Total 357 116,437 b. Information on foreign bank accounts:
Current Period Unrestricted Amount Restricted Amount European Union Countries 41,497 - USA and Canada 36,736 - OECD Countries (*) 3,341 - Off-shore banking regions - - Other 1,833 - Total 83,407 -
(*) OECD countries other than European Union countries, USA and Canada.
ŞEKERBANK ANNUAL REPORT 2018
206 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
4. Information on Financial Assets at Fair Value Through Other Comprehensive Income: a.1. Information on financial assets at fair value through other comprehensive income given as collateral or blocked:
Current Period TP YP Share certificates - - Bonds, Treasury bills and similar investment securities 171,631 - Other - - Total 171,631 - a.2. Financial assets at fair value through other comprehensive income subject to repurchase agreements: None.
Net book value of unrestricted financial assets at fair value through other comprehensive income is TRL 398,673 Thousand. b. Information on financial assets at fair value through other comprehensive income portfolio:
Current Period Debt securities 556,263 Quoted on a stock exchange 556,263 Not quoted on a stock exchange - Share certificates 24,700 Quoted on a stock exchange - Not quoted on a stock exchange 24,700 Impairment provision(-) (10,659) Total 570,304
5. Information on loans: a. Information on all types of loans and advances given to shareholders and employees of the Bank:
Current Period Cash Loans Non-Cash Loans Direct loans granted to shareholders - - Corporate shareholders - - Individual shareholders - - Indirect loans granted to shareholders 830,489 18,697 Loans granted to employees 18,949 - Total 849,438 18,697
ŞEKERBANK ANNUAL REPORT 2018
207 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on standart loans and restructured loans under close monitoring:
Loans under close monitoring Restructured Standard Out of the scope Amendment of Cash loans loans of Restructuring Contract Conditions Refinanced Non-specialized loans 15,945,493 2,037,588 - 693,477 Corporation loans - - - 16,009 Export loans 4,780,916 286,831 - 16,905 Import loans 10,101 664 - 841 Loans given to financial sector 46,073 398 - - Consumer loans 750,487 54,534 - 7,389 Credit cards 246,473 12,210 - - Other 10,111,443 1,682,951 - 652,333 Specialized loans 1,887,459 243,271 - 47,018 Other receivables 5,344 16,375 - - Total 17,838,296 2,297,234 - 740,495
Current Period Loans under Standard loans close monitoring 12 Months Expected Loss Provision 106,835 - Significant Increase in Credit Risk - 516,562
Information related with loans that payment plan has been extended:
Current Period Number of Amendments in Contract Related to the Extension of the Loans under close Payment Plan Standard loans monitoring Extended for 1 or 2 times 668,453 19,248 Extended for 3,4 or 5 times 209,896 - Extended for more than 5 times 21,224 329
Current Period Loans under close The Time extended via the Amendment on Payment Plan Standard loans monitoring 0-6 Months 328,026 15,087 6 Months-12 Months 40,427 636 1-2 Years 371,904 77 2-5 Years 46 - 5 Years and More 159,170 3,777 c. Loans and other receivables according to their maturity structure:
Loans Under Close Monitoring Standard Out of the Scope Loans of Restructuring Restructured Short-term loans and other receivables 6,379,025 352,439 80,543 Medium and Long-term loans 11,459,271 1,944,795 659,952 Total 17,838,296 2,297,234 740,495
ŞEKERBANK ANNUAL REPORT 2018
208 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Information on consumer loans, individual credit cards, personnel loans and credit cards given to personnel:
Short Term Medium and Long Term Total Consumer Loans-TRL 17,141 692,851 709,992 Housing Loans 16 251,546 251,562 Car Loans 460 9,187 9,647 General Purpose Loans 16,665 432,118 448,783 Other - - - Consumer Loans –Indexed to FC - 241 241 Housing Loans - 241 241 Car Loans - - - General Purpose Loans - - - Other - - - Consumer Loans-FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Individual Credit Cards-TRL 161,863 - 161,863 With Installments 44,250 - 44,250 Without Installments 117,613 - 117,613 Individual Credit Cards-FC 251 - 251 With Installments - - - Without Installments 251 - 251 Personnel Loans-TRL 359 6,519 6,878 Housing Loans - - - Car Loans - 18 18 General Purpose Loans 359 6,501 6,860 Other - - - Personnel Loans-Indexed to FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Loans-FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Credit Cards-TRL 7,081 - 7,081 With Installments 1,894 - 1,894 Without Installments 5,187 - 5,187 Personnel Credit Cards-FC 14 - 14 With Installments - - - Without Installments 14 - 14 Overdraft Accounts-TRL(Real Person) (*) 95,299 - 95,299 Overdraft Accounts-FC (Real Person) - - - Total 282,008 699,611 981,619
(*) As of 31 December 2018, overdraft accounts for real persons include TRL 4,976 Thousand personnel overdraft account.
ŞEKERBANK ANNUAL REPORT 2018
209 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Information on commercial loans with installments and corporate credit cards:
Short Term Medium and Long Term Total Commercial loans with installment facility-TRL 293,020 4,521,298 4,814,318 Business Loans - 11,974 11,974 Car Loans 1,710 38,367 40,077 General Purpose Loans 291,310 4,470,957 4,762,267 Other - - - Commercial loans with installment facility-Indexed to FC 344 1,108,570 1,108,914 Business Loans - 2,781 2,781 Car Loans - 39,220 39,220 General Purpose Loans 344 1,066,569 1,066,913 Other - - - Commercial loans with installment facility –FC 5,351 1,047,362 1,052,713 Business Loans - - - Car Loans - - - General Purpose Loans 5,351 1,047,362 1,052,713 Other - - - Corporate Credit Cards-TRL 89,470 - 89,470 With Installments 18,928 - 18,928 Without Installments 70,542 - 70,542 Corporate Credit Cards-FC 4 - 4 With Installments - - - Without Installments 4 - 4 Overdraft Accounts-TRL (Legal Entity) 136,864 - 136,864 Overdraft Accounts-FC (Legal Entity) - - - Total 525,053 6,677,230 7,202,283 f. Loans according to borrowers:
Current Period Public 54,729 Private 20,821,296 Total 20,876,025 g. Domestic and foreign loans:
Current Period Domestic loans 20,865,463 Foreign loans 10,562 Total 20,876,025
ŞEKERBANK ANNUAL REPORT 2018
210 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) h. Loans granted to subsidiaries and associates:
Current Period Direct loans granted to subsidiaries and associates 31,880 Indirect loans granted to subsidiaries and associates - Total 31,880 i. Impaired Loans (Stage 3) provisions provided against loans:
Current Period Loans with limited collectability 40,316 Loans with doubtful collectability 120,734 Uncollectible loans 707,522 Total 868,572 j. Information on non-performing loans (Net): j.1. Information on non-performing loans and restructured loans:
III. Group: IV. Group: V. Group Loans with limited Loans with doubtful Uncollectable collectability collectability loans Current period Gross amounts before Provisions 97,121 220,088 862,916 Loans which are restructured 1,809 3,457 22,571 j.2. The movement of non-performing loans:
III. Group IV. Group V. Group Loans with limited Loans with doubtful Uncollectable collectability collectability loans Prior period end balance 116,205 191,954 709,449 Additions (+) 478,535 256,326 231,214 Transfers from other categories of non-performing loans (+) - 205,437 243,352 Transfers to other categories of non-performing loans (-) (205,437) (243,352) - Collections (-) (292,182) (189,941) (228,943) Write-off (-) - - - Sold (-) - (336) (92,156) Corporate and commercial loans - (336) (86,126) Retail loans - - (5,567) Credit cards - - (463) Current period end balance 97,121 220,088 862,916 Provision (-) 40,316 120,734 707,522 Net Balances on Balance Sheet 56,805 99,354 155,394
ŞEKERBANK ANNUAL REPORT 2018
211 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) j.3. Informations on non-performing loans and other receivables in foreign currency: None. j.4. Information regarding gross and net amounts of non-performing loans with respect to user groups:
III. Group IV. Group V. Group Loans with limited Loans with doubtful Uncollectable collectability collectability loans Current Period (Net) Loans to Real Persons and Legal Entities (Gross) 97,121 220,088 862,916 Provision (-) (40,316) (120,734) (707,522) Loans to Real Persons and Legal Entities (Net) 56,805 99,354 155,394 Banks (Gross) - - - Provision (-) - - - Banks (Net) - - - Other Loans (Gross) - - - Provision (-) - - - Other Loans (Net) - - - j.5. Information on interest accruals for non-performing loans, rediscounts and valuation differences and their provisions regarding the banks that allocate expected loan loss provisions according to IFRS 9:
III. Grup IV. Grup V. Grup Loans with limited Loans with doubtful Uncollectable collectability collectability loans Current Period (Net) Interest accruals, rediscounts and valuation differences 6,812 15,415 2,449 Provisions (-) 6,812 15,415 2,449 k. Main principles of uncollectable loans and receivables:
The Bank Management applies provision policy for the “non-performing loans” in accordance with the requirements of the Turkish banking regulation adopted by the BRSA. l. Explanations on write-off policy:
The Bank sold uncollectable non-performing loans amounting to TRL 92,492 Thousand for total cash amount of TRL 2,150 Thousand to Birleşim Varlık Yönetim A.Ş.
ŞEKERBANK ANNUAL REPORT 2018
212 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) m. Other explanations and disclosures
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate Small Business Consumer Total Current Period At 1 January 2018 170,897 515,270 46,227 732,394 Charge for the year 63,001 278,794 18,478 360,273 Recoveries(*) (70,742) (51,451) (9,410) (131,603) Amounts written off (12,681) (73,781) (6,030) (92,492) At 31 December 2018 150,475 668,832 49,265 868,572
(*) Includes provision reversals of non-performing loans classified in the related period.
Collaterals of nonperforming loans:
Current Period III. Group IV. Group V. Group Mortgages 34,266 101,398 403,064 Asset Pledges - 145 1,811 Cheques and Notes of Consumers 558 141 135 Pledged Vehicles 17,335 6,277 30,130 Allowance Alienation - 2 13,461 Deposit Pledge 139 43 106
Aging analysis of past due but not impaired loans per classes of financial statements:
Less than 30 days 31-60 days 61-90 days Total Current Period Loans and advances to customers Corporate loans 61,151 43,985 130,829 235,965 Small business loans 377,382 235,419 489,470 1,102,271 Consumer loans 64,555 27,318 22,505 114,378 Total 503,088 306,722 642,804 1,452,614
6. Information on Financial Assets at Amortised Cost: a.1. Information on investments at amortised cost given as collateral or blocked:
Current Period Treasury Bill - Bond and Similar Securities 957,904 Other - Total 957,904
ŞEKERBANK ANNUAL REPORT 2018
213 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2. Financial assets at amortised cost subject to repurchase agreements are TRL 131,270 Thousand.
Net book value of unrestricted financial assets at amortised cost is TRL 2,334,701 Thousand. b. Information on public sector debt investments at amortised cost:
Current Period Government Bonds 2,447,744 Treasury Bills 293,076 Other Public Sector Debt Securities - Total 2,740,820 c. Information on financial assets at amortised costs:
Current Period Debt Securities 3,430,738 Quoted on a stock exchange 2,744,855 Not quoted on a stock exchange 685,883 Accruals (6,863) Total 3,423,875 d. Movement of financial assets at amortised costs:
Current Period Beginning Balance 1,351,143 TFRS 9 Impact (*) 1,136,612 Foreign Exchange Differences in Monetary Assets 215,449 Purchases during the year 366,124 Disposals through Sales and Amortisation (2,900) Provision reversal/Impairment provision (-) (3,552) Revaluation Effect 360,999 Total 3,423,875
(*)Securities amounting to TRL 148,051 Thousand as of 01.01.2018 are transferred from the financial assets at amortized cost portfolio to financial assets at fair value through other comprehensive income portfolio. Securities amounting to TRL 1,160,427 Thousand are transferred from the financial assets at fair value through other comprehensive income portfolio to the financial assets at amortized cost portfolio.
ŞEKERBANK ANNUAL REPORT 2018
214 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Information on associates (Net): a. Information on associates:
Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated since the Bank does not have control power and it is not a financial entity.
Address Bank’s Share Percentage-If Bank’s Risk Group Share Description (City/Country) Different Voting Percentage (%) Percentage (%) Seltur Turistik İşletmeler Yatırım A.Ş.(*) Muğla/Turkey 11.32 11.43
(*) Unaudited financial information of the associate as of 31 December2018 is stated below. b. Information on associates with the order as presented in the table above:
Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Total Asset Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Fair Value 43,903 35,154 36,791 214 - 2,657 2,013 137,342 c. Movement of associates:
Current Period Balance at the beginning of the period 4,140 Movement during the period - Purchases - Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - Provision of Impairment (-) - Balance at the end of the period 4,140 Capital Commitment - Share percentage at the end of the period (%) 100 d. Measurement of associates
Current Period Measured with cost 4,140 Measured with fair value - Measured with equity method -
ŞEKERBANK ANNUAL REPORT 2018
215 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Sectoral information and the related carrying amounts on Associates:
Seltur Turistik İşletmeler A.Ş. is operating in tourism sector. f. Associates quoted to stock exchange: None. g. Information on associates, which are sold in the current period: None. h. Information on associates purchased in the current period: None.
8. Information on subsidiaries (Net): a. Information related to consolidated equity components of subsidiaries (*):
The Bank does not have any capital requirements arising from subsidiaries that are included in the consolidated capital adequacy standard ratio. The capital information of the significant subsidiaries is presented in the following table.
Şekerbank Şeker Yatırım Zahlungsdienste Şekerbank Şeker Finansal International Menkul Şeker Şeker GmbH Der Kıbrıs Ltd. Kiralama A.Ş. Banking Unit Ltd. Değerler A.Ş. Faktoring A.Ş. Finansman A.Ş. Şekerbank T.A.Ş. CORE CAPITAL Paid in Capital 28,554 66,808 29,951 31,195 81,041 26,000 1,738 Share Premiums - 1,208 - - - - - Marketable Securities Value Increase Fund - - 5,819 (919) - - (398) Legal Reserves 1,689 7,608 4,793 2,308 2,021 614 - Extraordinary Reserves 1 5,939 - 4,991 4,913 (13,712) - Tangible assets revaluation differences - 31 - (335) 7,876 (45) - Other capital reserves - (4,343) - - 12,901 - - Other Income Reserves ------Profit/Loss (897) (14,383) (388) 2,682 (43,578) 13,834 (261) Prior Years’ Profits and Losses (2,165) (25,285) (983) (905) (33,973) (1,773) (165) Current Year’s Profit ans Losses 1,268 10,902 595 3,587 (9,605) 15,607 (96) Total Core Capital 29,347 62,868 40,175 39,922 65,174 26,691 1,079 SUPPLEMENTARY CAPITAL ------CAPITAL 29,347 62,868 40,175 39,922 65,174 26,691 1,079 NET AVAILABLE EQUITY 29,347 62,868 40,175 39,922 65,174 26,691 1,079
(*) Financial information is as of 30 September 2018.
ŞEKERBANK ANNUAL REPORT 2018
216 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on the unconsolidated subsidiaries:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (City/Country) Different Voting Percentage (%) Share Percentage (%) Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. İstanbul/Türkiye 100 100
(*) Unaudited financial information of the associate as of 31 December 2018 is stated below.
Income from Marketable Shareholders’ Tangible Interest Securities Current Period Prior Period Fair Amount of Total Asset Equity Assets Income Portfolio Profit/Loss Profit/Loss Value Equity Needed 589,665 589,337 584,673 191 - (14,151) 21 - -
Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. has not been included the scope of the consolidataion because it is not a financial subsidiary and it is accounted with the cost method. c. Information on the subsidiaries:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (*) (City/Country) Different Voting Percentage (%) Share Percentage (%) Şekerbank Kıbrıs Ltd. Nicosia/TRNC 97.93 97.93 Şeker Finansal Kiralama A.Ş. Istanbul/Turkey 54.13 64.95 Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.79 95.79 Şeker Yatırım Menkul Değerler A.Ş. Istanbul/Turkey 99.04 100.00 Şeker Faktoring A.Ş. Istanbul/Turkey 99.99 100.00 Şeker Finansman A.Ş. Istanbul/Turkey 62.31 62.31 Zahlungsdienste GmbH Der Şekerbank T.A.Ş. Cologne/Germany 100.00 100.00
(*) Latest financial information of the related subsidiaries as of 30 September2018 is stated below.
“Zahlungsdienste GMBH Der Şekerbank T.A.Ş.” (Zahlungsdienste)’s payment services activities as a financial services branch in order to comply with the Payment Services Supervision Act (ZAG) have been stopped and liquidation procedures are in progress. d. Information on the consolidated subsidiaries with the order as presented in the table above:
Total Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Fair Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value(*) 326,409 29,347 5,702 21,446 302 1,268 (2,165) 13,555 599,915 62,868 26,805 44,285 - 10,902 (25,285) 53,054 51,814 40,175 3,944 1,624 - 595 (983) 19,554 220,883 39,922 20,935 16,230 1,416 3,587 (905) 37,708 457,298 65,174 47,787 66,226 - (9,605) (33,973) 81,436 1,161,136 26,691 311 22,368 - 15,607 (1,773) 32,245 1,966 1,079 - - - (96) (165) -
(*) Fair values of the related subsidiaries are stated as of 31 December 2018.
ŞEKERBANK ANNUAL REPORT 2018
217 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Movement of consolidated subsidiaries:
Current Period Balance at the beginning of the period 167,747 Movement during the period 12,019 Purchases 12,500 Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - Provision reversal/Provision of Impairment (-) (481) Balance at the end of the period 179,766 Capital Commitment - Share percentage at the end of the period (%) 100 f. Measurement of consolidated subsidiaries
Current Period Measured with cost 179,766 Measured with fair value - Measured with equity method - g. Sectoral information and the related carrying amounts on consolidated subsidiaries
Subsidiaries Current Period Banks 20,077 Insurance Companies - Factoring Companies 81,427 Leasing Companies 28,594 Finance Companies 16,658 Other Financial Subsidiaries 33,010 h. Subsidiaries Quoted to Stock Exchange
Current Period Quoted to Domestic Stock Exchange 28,594 Quoted to Foreign Stock Exchange -
ı. Information on Subsidiaries which are sold in the Current Period: None. i. Information on Subsidiaries Purchased in the Current Period: None.
9. Information on entities under common control: None.
10. Information on finance lease receivables (Net): None.
ŞEKERBANK ANNUAL REPORT 2018
218 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. Information on derivative financial assets for hedging purposes:
Derivative financial assets for hedging purposes are classified in the financial statement Derivative Financial Assets at Fair Value Through Profit and Loss.
Current Period Derıvative Financial Assets For Hedging Purposes TRL FC Fair Value Hedge 6,866 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 6,866 -
12. Information on tangible assets:
Other Fixed Assets Held Under Buildings (*) Assets (**) Finance Leases Total Cost Opening Balance, 1 January 2018 250,720 299,404 2,698 552,822 Additions 335,729 61,928 - 397,657 Write off - - - - Transfer (157) 2,623 (2,466) - Disposals (-) - (62,443) - (62,443) Revaluation 3,375 - - 3,375 Impairment Provision/Reversal 4,431 - - 4,431 Closing Balance, 31 December 2018 594,098 301,512 232 895,842 Accumulated Amortization Opening Balance, 1 January 2018 97,756 145,161 1,300 244,217 Write off - - - - Transfer - 1,603 (1,603) - Charge for the year 1,730 27,250 391 29,371 Revaluation - - - - Impairment Provision/Reversal 5,209 - - 5,209 Disposals (-) - (10,904) - (10,904) Closing Balance, 31 December 2018 104,695 163,110 88 267,893 Net Book Value, 31 December 2018 489,403 138,402 144 627,949
Net Book Value, 31 December 2017 152,964 154,243 1,398 308,605
(*) As of 31 December 2018, value increase and decrease impairment of the buildings are calculated according to the independent appraisal reports dated December 2018. (**) Development costs of leasehold improvements are classified among other fixed assets in the current period. a. If impairment amount on individual asset recorded or reversed in the current period is material for the overall financial statements: a.1. Events and conditions for recording or reversing impairment: None.
ŞEKERBANK ANNUAL REPORT 2018
219 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2. Amount of recorded or reversed impairment in the financial statements: The Bank has allocated TRL 2,597 Thousand of impairment provision for the buildings in the accompanying financial statements. b. The impairment provision set or cancelled in the current period according to the asset groups not individually significant but materially effecting the overall financial statements, and the reason and conditions for this: None. c. Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets: None.
13. Information on intangible assets:
Other Total Cost Opening Balance, January 1, 2018 236,424 236,424 Additions 40,600 40,600 Disposals - - Write Off - - Closing Balance, 31 December 2018 277,024 277,024 Accumulated Amortization Opening Balance, 1 January 2018 149,633 149,633 Charge for the year 34,957 34,957 Disposals - - Write Off - - Closing Balance, 31 December 2018 184,590 184,590 Net Book Value, 31 December 2018 92,434 92,434
Net Book Value, 31 December 2017 86,791 86,791
The useful lives of the intangible fixed assets, which are amortized with straight-line amortization method, are averagely 5 years. a. Disclosures for book value, description and remaining depreciation time for a specific intangible fixed asset that is material to the financial statements: None. b. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. c. The method of subsequent measurement for intangible fixed assets that are acquired through government incentives and recorded at fair value at the initial recognition: None. d. The book value of intangible fixed assets that are pledged or restricted for use: None.
ŞEKERBANK ANNUAL REPORT 2018
220 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Amount of purchase commitments for intangible fixed assets: None. f. Information on revalued intangible assets according to their types: None. g. Amount of total research and development expenses recorded in statement of income within the period if any: None. h. Information on goodwill: None. i. Movements on goodwill in the current period: None.
14. Information on investment property: None.
15. Explanations on deferred tax asset: a. Breakdown of deferred tax:
Current Period Tangible Assets Base Differences (14,844) Provisions (*) 214,617 Valuation of Financial Assets (57,449) Financial Losses - Net Deferred Tax Assets/(Liabilities) 142,324
(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions, employee termination benefit provisions, retirement fund provision, SDIF premium provision, general provisions and other provisions. b. Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in prior periods: None. c. Allowance for deferred tax and deferred tax assets from reversal of allownce: None. d. Movement of deferred tax asset/(liability):
Current and prior year deferred tax movements are shown in the table below.
Current Period Deferred Tax Asset/(Liability), Period Beginning 59,764 Current Period (Expense)/Income (1,085) Deferred Tax Classified under Equity 1,104 Transition Effects of IFRS 9 82,541 Deferred Tax Asset/(Liability), Period Ending 142,324
ŞEKERBANK ANNUAL REPORT 2018
221 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
16. Information on assets held for sale and discontinued operations:
Current Period Cost Opening Balance, 1 January 2018 257,420 Additions 157,458 Write off - Transfer - Disposals (-) (94,217) Revaluation value increase/(decrease)(*) (2,599) Impairment Provision/Reversal 259 Closing Balance, 31 December 2018 318,321
(*)Impairment of immovables held for sale are calculated according to the independent appraisal reports dated December 2018and TRL 2,599 Thousand impairement has been provided.
17. Information on other assets:
Other assets do not exceed 10 % of the total balance sheet (excluding off balance sheet commitments).
II. Explanations Related to the Assets (Prior Period)
I. Information related to cash equivalents and the account of the Central Bank of the Republic of Turkey (the “CBRT”): a) Information on Cash and Balances with the Central Bank of Turkey:
Prior Period TRL FC Cash in TRL/Foreign Currency 115,562 76,845 Balances with the Central Bank of Turkey 850,390 2,002,430 Other - 5 Total 965,952 2,079,280 b) Information related to the account of the Central Bank of Turkey:
Prior Period TRL FC Unrestricted demand deposit 850,390 1,821,810 Unrestricted time deposit - - Restricted time deposit - 180,620 Total 850,390 2,002,430
The reserve deposits include TRL 1,424,808 Thousand of FC unrestricted demand deposit and TRL 850,310 Thousand of the TRL unrestricted demand deposit. TRL unrestricted demand deposit includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average.
ŞEKERBANK ANNUAL REPORT 2018
222 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Starting from 09.09.2016, reserve deposit ratios for TRL deposits are regulated as follows: -Unrestricted, TRL deposit call accounts and special current accounts are 10.5%, -Deposits up to one month (including one month) are 10.5%, -Deposits up to three month (including three month) are 10.5%, -Deposits up to six month (including six month) are 7.5%, -Deposits up to one year are 5.5%, -Deposits/participation accounts with 1-year and longer maturity and cumulative deposits/participation accounts are 4%, -Other TRL liabilities up to one year (including one year) are 10.5%, -Other liabilities up to 3-year maturity (including 3-year) are 7%, -Other liabilities longer than 3-year maturity are 4%.
Starting from 30.12.2016, reserve deposit ratios for the FC deposits are regulated as follows: -Unrestricted FC deposit call accounts, special current accounts and precious metal deposit accounts and deposits up to one month, up to three month, up to six month, up to one year FC deposits, FC participate accounts and precious metal deposits are 12%, -FC Deposits, precious metal deposit and FC participate accounts and FC accumulated accounts and FC participate accounts longer than one year (including one year) are 8%.
Starting from 30.12.2016, reserve deposit ratios for FC other liabilities that occur after 28.08.2015 are regulated as follows: -Other liabilities up to one year (including one year) are 24 %, -Other liabilities up to two year (including two year) are 19 %, -Other liabilities up to three year (including three year) are14%, -Other liabilities up to five year (including five year) are 6%, -Other liabilities longer than five year are 4%.
Starting from 28.08.2015, reserve deposit ratios for FC other liabilities are regulated as follows: -Other liabilities up to one year (including one year) are 19 %, -Other liabilities up to two year (including two year) are 13 %, -Other liabilities up to three year (including three year) are 7%, -Other liabilities up to five year (including five year) are 6 %, -Other liabilities longer than five year are 5%.
2. Information on financial assets at fair value through profit and loss (net): i. Information on financial assets at fair value through profit and loss given as collateral or blocked: None. ii. Financial assets at fair value through profit and loss subject to repurchase agreements: None.
Net book value of unrestricted financial assets at fair value through profit and loss is TRL 16,924 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
223 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) iii. Positive differences related to derivative financial assets held-for-trading:
Prior Period Derivatives Held for Trading TRL FC Forward Transactions - 25,565 Swap Transactions 48,214 17,273 Futures Transactions - - Options 321 13,386 Other - - Total 48,535 56,224 iv. Loans at fair value through profit and loss
Prior Period Opening Balance 7,086 Additions (+) - Change in Interest Rates (*) (135) Change in Credit Risk (**) (452) Impairment Provision 20 Collections (-) (2,838) Net Balance 3,681
(*) Change in interest rates shows the effect of TRLIBOR (basic interest rate) difference on loans at fair value through profit and loss between two periods. (**) Change in credit risk shows the effect of the difference of basic interest rates and similar loans interest rates on loans at fair value through profit and loss as of 31 December 2017.
As of 31 December 2017, TRL 3,681 Thousand of loans which are classified as financial assets at fair value through profit and loss have amortised cost of TRL 3,811 Thousand.
3. Information on banks: a. Information on banks account
Prior Period TRL FC Banks 228,880 167,988 Domestic 228,855 107,567 Foreign 25 60,421 Branches and head office abroad - - Total 228,880 167,988
ŞEKERBANK ANNUAL REPORT 2018
224 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on foreign bank accounts:
Prior Period Unrestricted Amount Restricted Amount European Union Countries 16,650 - USA and Canada 33,922 - OECD Countries (*) 6,688 - Off-shore banking regions - - Other 3,186 - Total 60,446 -
(*) OECD countries other than European Union countries, USA and Canada.
4. Information on financial assets available-for-sale: a.1. Information on financial assets available-for-sale given as collateral or blocked:
Prior Period TRL FC Share certificates - - Bonds, Treasury bills and similar investment securities 827,468 - Other - - Total 827,468 - a.2. Financial assets available-for-sale subject to repurchase agreements:
Prior Period TRL FC Government bonds 418,380 - Treasury bills - - Other public sector debt securities - - Bank bonds and bank guaranteed bonds - - Asset backed securities - - Other - 57,955 Total 418,380 57,955
Net book value of unrestricted financial assets available-for-sale is TRL 90,092 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
225 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on financial assets available-for-sale portfolio:
Prior Period Debt securities 1,406,747 Quoted on a stock exchange 1,406,747 Not quoted on a stock exchange - Share certificates 18,844 Quoted on a stock exchange - Not quoted on a stock exchange 18,844 Impairment provision(-) (31,696) Total 1,393,895
5. Information on loans: a. Information on all types of loans and advances given to shareholders and employees of the Bank:
Prior Period Cash Loans Non-Cash Loans Direct loans granted to shareholders - - Corporate shareholders - - Real person shareholders - - Indirect loans granted to shareholders 552,666 16,912 Loans granted to employees 16,639 - Total 569,305 16,912 b. Information on the first and second group loans and other receivables including restructured or rescheduled loans:
Loans and other receivable under Standard loans and other receivables close monitoring Amendments on Amendments on Conditions of Contract Conditions of Contract Loans Amendments Loans Amendments and other related to the and other related to the receivables extension of the receivables Extension of the Cash loans (*) (Total) payment plan Other (Total) payment plan Other Non-specialized loans 16,310,087 881,385 - 1,777,135 1,243,945 - Corporation loans ------Export loans 3,312,889 15,814 - 176,623 153,346 - Import loans ------Loans given to financial sector 56,955 - - 779 205 - Consumer loans 909,751 20,399 - 93,145 47,554 - Credit cards 238,120 - - 8,937 - - Other 11,792,372 845,172 - 1,497,651 1,042,840 - Specialized loans 1,914,073 50,929 - 217,954 65,195 - Other receivables ------Total 18,224,160 932,314 - 1,995,089 1,309,140 -
(*) The Bank has classified Loans and Receivables amount to TRL 3,681 Thousand, under financial assets at fair value through profit and loss. Non- performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 820 Thousand and Specific provision amounts to TRL 567 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
226 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Prior Period Number of Amendments Related to the Extension of the Standard loans and other Loans and other receivable Payment Plan receivables under close monitoring Extended for 1 or 2 times 671,759 1,309,117 Extended for 3,4 or 5 times 59,905 23 Extended for more than 5 times 200,650 -
Prior Period Standard loans and other Loans and other receivable The Time extended via the Amendment on Payment Plan receivables under close monitoring 0-6 Months 17,868 76,556 6 Months-12 Months 17,685 131,538 1-2 Years 152,638 147,240 2-5 Years 156,196 641,793 5 Years and More 587,927 312,013 c. Loans and other receivables according to their maturity structure:
Standard Loans and Other Loans and Other Receivables Receivables Under Follow-Up Amendments on Amendments on Loans and Other Conditions Loans and Other Conditions Receivables (*) of Contract Receivables (*) of Contract Short-term loans and other receivables 6,419,367 368,894 125,017 77,833 Non-specialized loans 5,783,254 365,694 97,846 55,655 Specialized loans 636,113 3,200 27,171 22,178 Other receivables - - - - Medium and Long-term loans 10,872,479 563,420 560,932 1,231,307 Non-specialized loans 9,645,448 515,691 435,344 1,188,290 Specialized loans 1,227,031 47,729 125,588 43,017 Other receivables - - - - Total 17,291,846 932,314 685,949 1,309,140
(*) The Bank has classified Loans and Receivables amount to TRL 3,681 Thousand, under financial assets at fair value through profit and loss.. Non- performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 820 Thousand and Specific provision amounts to TRL 567 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
227 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Information on consumer loans, individual credit cards, personnel loans and credit cards given to personnel:
Short Term Medium and Long Term Total Consumer Loans-TRL 97,612 858,629 956,241 Housing Loans 261 266,752 267,013 Car Loans 43 17,625 17,668 General Purpose Loans 97,308 574,252 671,560 Other - - - Consumer Loans –Indexed to FC - 832 832 Housing Loans - 832 832 Car Loans - - - General Purpose Loans - - - Other - - - Consumer Loans-FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Individual Credit Cards-TRL 162,974 - 162,974 With Installments 50,016 - 50,016 Without Installments 112,958 - 112,958 Individual Credit Cards-FC 240 - 240 With Installments - - - Without Installments 240 - 240 Personnel Loans-TRL 350 6,457 6,807 Housing Loans - - - Car Loans - 38 38 General Purpose Loans 350 6,419 6,769 Other - - - Personnel Loans-Indexed to FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Loans-FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Credit Cards-TRL 6,532 - 6,532 With Installments 2,040 - 2,040 Without Installments 4,492 - 4,492 Personnel Credit Cards-FC 27 - 27 With Installments - - - Without Installments 27 - 27 Overdraft Accounts-TRL(Real Person) (*) 39,016 - 39,016 Overdraft Accounts-FC (Real Person) - - - Total 306,751 865,918 1,172,669
(*) As of 31 December 2017, overdraft accounts for real persons include TRL 3,273 Thousand personnel overdraft account.
ŞEKERBANK ANNUAL REPORT 2018
228 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Information on commercial loans with installments and corporate credit cards:
Short Term Medium and Long Term Total Commercial loans with installment facility-TRL 325,851 5,065,379 5,391,230 Business Loans 2,500 11,602 14,102 Car Loans 1,428 66,864 68,292 General Purpose Loans 321,923 4,986,913 5,308,836 Other - - - Commercial loans with installment facility-Indexed to FC 36,032 1,027,467 1,063,499 Business Loans - 4,845 4,845 Car Loans 566 43,215 43,781 General Purpose Loans 35,466 979,407 1,014,873 Other - - - Commercial loans with installment facility –FC 507 1,041,458 1,041,965 Business Loans - - - Car Loans - - - General Purpose Loans 507 1,041,458 1,041,965 Other - - - Corporate Credit Cards-TRL 77,249 11 77,260 With Installments 22,030 11 22,041 Without Installments 55,219 - 55,219 Corporate Credit Cards-FC 24 - 24 With Installments - - - Without Installments 24 - 24 Overdraft Accounts-TRL (Legal Entity) 114,490 - 114,490 Overdraft Accounts-FC (Legal Entity) - - - Total 554,153 7,134,315 7,688,468 f. Loans according to borrowers:
Prior Period Public 61,781 Private 20,157,468 Total 20,219,249 g. Domestic and foreign loans:
Prior Period Domestic loans 20,207,479 Foreign loans 11,770 Total 20,219,249
ŞEKERBANK ANNUAL REPORT 2018
229 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) h. Loans granted to subsidiaries and associates:
Prior Period Direct loans granted to subsidiaries and associates 25,553 Indirect loans granted to subsidiaries and associates - Total 25,553 i. Specific provisions provided against loans:
Specific Provisions (*) Prior Period Loans and receivables with limited collectability 13,531 Loans and receivables with doubtful collectability 60,219 Uncollectible loans and receivables 486,827 Total 560,577
(*) Specific provision amounting to TRL 567 Thousand for loans classified as “Financial assets at fair value through profit and loss”in the prior period. j. Information on non-performing loans (Net): j.1. Information on loans and other receivables included in non-performing loans which are restructured or rescheduled:
III. Group: IV. Group: V. Group Loans and receivables Loans and receivables Uncollectable loans with limited collectability with doubtful collectability and receivables Prior Period (Gross amounts before the specific reserves) 1,907 10,585 45,048 Loans and other receivables which are restructured - - - Rescheduled loans and other receivables 1,907 10,585 45,048
ŞEKERBANK ANNUAL REPORT 2018
230 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) j.2. The movement of non-performing loans:
III. Group IV. Group V. Group Loans and receivables Loans and receivables Uncollectable loans with limited collectability with doubtful collectability and receivables Prior period end balance 193,296 306,192 580,785 Additions (+) 461,890 13,185 37,460 Transfers from other categories of non- performing loans (+) - 474,408 518,629 Transfers to other categories of non- performing loans (-) (474,408) (518,629) - Collections (-) (64,573) (83,202) (158,193) Write-offs (-) - - (269,232) Corporate and commercial loans - - (246,101) Retail loans - - (15,316) Credit cards - - (7,815) Current period end balance (*) 116,205 191,954 709,449 Specific provision (-) (*) 13,531 60,219 486,827 Net Balances on Balance Sheet 102,674 131,735 222,622
(*) Non performing loans amounting to TRL 820 Thousand and specific provision amounting to TRL 567 Thousand are classified as “Financial assets at fair value through profit and loss” j.3. Informations on non-performing loans and other receivables in foreign currency: None j.4. Information regarding gross and net amounts of non-performing loans with respect to user groups:
III. Group IV. Group V. Group Loans and receivables Loans and receivables Uncollectable loans with limited collectability with doubtful collectability and receivables Prior Period (Net) (*) Loans to Real Persons and Legal Entities (Gross) 116,205 191,954 709,449 Specific provision (-) (13,531) (60,219) (486,827) Loans to Real Persons and Legal Entities (Net) 102,674 131,735 222,622 Banks (Gross) - - - Specific provision (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - - - Specific provision (-) - - - Other Loans and Receivables (Net) - - -
(*) Non-performing loans amounting to TRL 820 Thousand and specific provision amounting to TRL 567 Thousand are classified as “Financial assets at fair value through profit and loss”.
ŞEKERBANK ANNUAL REPORT 2018
231 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) k. Main principles of uncollectable loans and receivables:
The Bank Management applies provision policy for the “non-performing loans” in accordance with the requirements of the Turkish banking regulation adopted by the BRSA. l. Explanations on write-off policy:
On 31 May 2017, the Bank sold uncollectable non-performing loans amounting to TRL 109,365 Thousand for total cash amount of TRL 3,100 Thousand to Efes Varlık Yönetim A.Ş. On 10 November 2017, the Bank sold uncollectable non- performing loans amounting to TRL 3,496 Thousand for total cash amount of TRL 47 Thousand to Efes Varlık Yönetim A.Ş. On 15 September 2017, the Bank sold uncollectable non-performing loans amounting to TRL 2,510 Thousand for total cash amount of TRL 853 Thousand to Final Varlık Yönetim A.Ş. On 31 October 2017, the Bank sold uncollectable non- performing loans amounting to TRL 15,498 Thousand for total cash amount of TRL 175 Thousand to Final Varlık Yönetim A.Ş. On 29 November 2017, the Bank sold uncollectable non-performing loans amounting to TRL 138,363 Thousand for total cash amount of TRL 7,300 Thousand to Final Varlık Yönetim A.Ş. and Efes Varlık Yönetim A.Ş. m. Other explanations and disclosures
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate Small Business Consumer Total Prior Period(*) At 1 January 2017 131,469 312,926 51,571 495,966 Charge for the year 219,839 184,789 33,524 438,152 Recoveries(**) (43,297) (49,370) (11,642) (104,309) Amounts written off (159,728) (86,373) (23,131) (269,232) At 31 December 2017 148,283 361,972 50,322 560,577
(*) Specific provision amounting to TRL 567 Thousand for loans classified as “Financial assets at fair value through profit and loss” at the current period. (**) Includes provision reversals of non-performing loans classified in the related period.
Collaterals of nonperforming loans:
Prior Period III. Group IV. Group V. Group Mortgages 82,579 95,548 443,683 Asset Pledges - - 3,743 Cheques and Notes of Consumers 162 5 864 Pledged Vehicles 9,474 9,799 49,056 Allowance Alienation - 477 1,684 Deposit Pledge 29 73 127
ŞEKERBANK ANNUAL REPORT 2018
232 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Aging analysis of past due but not impaired loans per classes of financial statements:
Prior Period Less than 30 days 31-60 days 61-90 days Total Loans and advances to customers (*) Corporate loans 111,499 16,107 30,742 158,348 Small business loans 411,808 205,743 170,538 788,089 Consumer loans 75,780 31,975 22,486 130,241 Total 599,087 253,825 223,766 1,076,678
(*)The table shows only past due loans of customers,non past due loans of related customers are not included.
6. Information on held-to-maturity investments: a.1. Information on held-to-maturity investments given as collateral or blocked:
Prior Period Treasury Bill - Bond and Similar Securities 335,904 Other - Total 335,904 a.2. Held-to-maturity investments subject to repurchase agreements are TRL 1,006,637 Thousand.
Net book value of unrestricted held-to-maturity investments is TRL 8,602 Thousand. b. Information on public sector debt investments held-to-maturity:
Prior Period Government Bonds 877,317 Treasury Bills 82,263 Other Public Sector Debt Securities - Total 959,580 c. Information on held-to-maturity investments:
Prior Period Debt Securities 1,153,371 Quoted on a stock exchange 762,376 Not quoted on a stock exchange 390,995 Impairment Provision (-) (1,210) Accruals 198,982 Total 1,351,143
ŞEKERBANK ANNUAL REPORT 2018
233 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Movement of held-to-maturity investments:
Prior Period Beginning Balance 926,415 Foreign currency differences on monetary assets 35 Purchases during year 581,979 Disposals through sales and redemptions (355,752) Provision reversal/Impairment provision (-) (516) Closing Balance 1,152,161 Accruals 198,982 Total 1,351,143
7. Information on associates (Net): a. Information on associates:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (City/Country) Different Voting Percentage (%) Share Percentage (%) Seltur Turistik İşletmeler Yatırım A.Ş.(*) Muğla/Turkey 11.32 11.43
(*) Unaudited financial information of the associate as of 31 December 2017 is stated below. b. Information on associates with the order as presented in the table above:
Total Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Fair Asset Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value 42,289 31,799 37,736 182 - 2,013 (785) 294,000 c. Movement of associates:
Prior Period Balance at the beginning of the period 4,140 Movement during the period - Purchases - Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - Provision of Impairment (-) - Balance at the end of the period 4,140 Capital Commitment - Share percentage at the end of the period (%) 100
ŞEKERBANK ANNUAL REPORT 2018
234 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Measurement of associates
Prior Period Measured with cost 4,140 Measured with fair value - Measured with equity method - e. Sectoral information and the related carrying amounts on Associates:
Seltur Turistik İşletmeler A.Ş. is operating in tourism sector. f. Associates quoted to stock exchange: None. g. Information on associates, which are sold in the current period: None. h. Information on associates purchased in the current period: None.
8. Information on subsidiaries (Net): a. Information related to consolidated equity components of subsidiaries (*):
The Bank does not have any capital requirements arising from subsidiaries that are included in the consolidated capital adequacy standard ratio. The capital information of the significant subsidiaries is presented in the following table.
Şeker Şekerbank Şeker Yatırım Zahlungsdienste Şekerbank Finansal International Menkul Şeker Şeker GmbH Der Kıbrıs Ltd. Kiralama A.Ş. Banking Unit Ltd. Değerler A.Ş. Faktoring A.Ş. Finansman A.Ş. Şekerbank T.A.Ş. CORE CAPITAL Paid in Capital 24,104 61,808 17,761 31,195 76,041 26,000 1,048 Share Premiums - 1,207 - - - - - Marketable Securities Value Increase Fund - - - (135) - - - Legal Reserves 1,495 7,433 4,310 1,853 1,999 614 - Extraordinary Reserves 1 1,024 - 7,753 4,913 (4,412) - Tangible assets revaluation differences ------Other capital reserves - (4,373) - (167) 12,769 (10) - Other Income Reserves - - 1,770 - - - (157) Profit/Loss (1,571) (10,636) (566) 173 (18,702) (8,383) (159) Prior Years’ Profits and Losses (1,842) (13,650) (957) - (18,871) - (159) Current Year’s Profit ans Losses 271 3,014 391 173 169 (8,383) - Total Core Capital 24,029 56,463 23,275 40,672 77,020 13,809 732 SUPPLEMENTARY CAPITAL ------CAPITAL 24,029 56,463 23,275 40,672 77,020 13,809 732 NET AVAILABLE EQUITY 24,029 56,463 23,275 40,672 77,020 13,809 732
(*)Financial information is as of 31 December 2017.
ŞEKERBANK ANNUAL REPORT 2018
235 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on the unconsolidated subsidiaries:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (City/Country) Different Voting Percentage (%) Share Percentage (%) Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. İstanbul/Türkiye 100 100
(*) Unaudited financial information of the associate as of 31 December 2017 is stated below.
Income from Marketable Total Shareholders’ Tangible Interest Securities Current Period Prior Period Fair Amount of Asset Equity Assets Income Portfolio Profit/Loss Profit/Loss Value Equity Needed 603,493 603,466 602,966 32 - 26 - - -
Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. has not been included the scope of the consolidataion because it is not a financial subsidiary and it is accounted with the cost method. c. Information on the subsidiaries:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (*) (City/Country) Different Voting Percentage (%) Share Percentage (%) Şekerbank Kıbrıs Ltd. Nicosia/TRNC 96.11 96.11 Şeker Finansal Kiralama A.Ş. Istanbul/Turkey 54.13 62.86 Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.80 95.80 Şeker Yatırım Menkul Değerler A.Ş. Istanbul/Turkey 99.04 100.00 Şeker Faktoring A.Ş. Istanbul/Turkey 99.99 99.99 Şeker Finansman A.Ş. Istanbul/Turkey 62.31 62.31 Zahlungsdienste GmbH Der Şekerbank T.A.Ş. Cologne/Germany 100.00 100.00
(*) Latest financial information of the related subsidiaries as of 31 December 2017 is stated below. d. Information on the consolidated subsidiaries with the order as presented in the table above:
Total Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Fair Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value (*) 245,958 24,029 6,107 16,383 258 271 (1,842) 12,311 499,917 56,463 38,639 30,874 - 3,014 (13,650) 48,990 26,273 23,275 2,333 1,205 - 391 (957) 14,341 156,430 40,672 21,496 8,359 936 173 - 43,432 504,763 77,020 34,745 55,758 - 169 (18,871) 80,323 638,335 13,809 354 30,550 - (8,383) - 26,733 1,272 732 - 4 - - (159) 1,257
(*) Fair values of the related subsidiaries are stated as of 31 December 2017.
ŞEKERBANK ANNUAL REPORT 2018
236 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Movement of consolidated subsidiaries:
Prior Period Balance at the beginning of the period 145,052 Movement during the period 22,695 Purchases 25,000 Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - Provision reversal/Provision of Impairment (-) (2,305) Balance at the end of the period 167,747 Capital Commitment - Share percentage at the end of the period (%) 100 f. Measurement of consolidated subsidiaries
Prior Period Measured with cost 167,747 Measured with fair value - Measured with equity method - g. Sectoral information and the related carrying amounts on consolidated subsidiaries
Subsidiaries Prior Period Banks 15,283 Insurance Companies - Factoring Companies 76,908 Leasing Companies 25,888 Finance Companies 16,658 Other Financial Subsidiaries 33,010 h. Subsidiaries Quoted to Stock Exchange
Prior Period Quoted to Domestic Stock Exchange 25,888 Quoted to Foreign Stock Exchange - i. Information on Subsidiaries which are sold in the Prior Period: None. j. Information on Subsidiaries Purchased in the Prior Period: None.
9. Information on entities under common control: None.
ŞEKERBANK ANNUAL REPORT 2018
237 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
10. Information on finance lease receivables (Net): None.
11. Information on derivative financial assets for hedging purposes:
Prior Period Derıvative Financial Assets For Hedging Purposes TRL FC Fair Value Hedge 2,786 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 2,786 -
12. Information on tangible assets:
Foreclosed Other Fixed Assets Held Under Buildings (*) Assets (*) (***)(****) Assets (**) Finance Leases Total Cost Opening Balance, 1 January 2017 596,701 611,647 223,870 8,954 1,441,172 Additions 63,755 108,498 147,064 - 319,317 Write off - - - - - Transfer - (269,077) 6,256 (6,256) (269,078) Disposals (-) (428,879) (448,766) (77,786) - (955,430) Revaluation 19,722 (2,759) - - 16,963 Impairment Provision/Reversal (579) 457 - - (122) Closing Balance, 31 December 2017 250,720 - 299,404 2,698 552,822 Accumulated Amortization Opening Balance, 1 January 2017 289,900 26,668 126,857 4,814 448,239 Write off - - - - - Transfer - (11,657) 4,160 (4,160) (11,658) Charge for the year 1,406 7,685 25,122 646 34,859 Revaluation 6,737 - - - 6,737 Impairment Provision/Reversal (160) - - - (160) Disposals (-) (200,127) (22,696) (10,978) - (233,800) Closing Balance, 31 December 2017 97,756 - 145,161 1,300 244,217 Net Book Value, 31 December 2017 152,964 - 154,243 1,398 308,605
Net Book Value, 31 December 2016 306,801 584,979 97,013 4,140 992,933
(*) As of 31 December 2017, value increase and impairment of the buildings and impairment of immovable held for sale are calculated according to the independent appraisal reports dated December 2017. (**) Cost of leasehold improvements are classified among other fixed assets in the current period. (***) Foreclosed assets contain tangible assets acquired through recoveries from non-performing loans. (****) Disposals from “Buildings”at Cost in the amount of TRL 427,808 Thousand and Accumulated Ammortization in the amount of TRL 200,019 Thousand,Disposals from “Foreclosed Assets”at Cost in the amount of TRL 327,559 Thousand andAccumulated Amortization in the amount of TRL 16,931 Thousand are transferred to Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. as of 31.12.2017. The foreclosed Assets with the gross amount of TRL 269,077 Thousand and accumulated amortization in the amount of TRL 11,657 Thousand arere-classified to Assets Held ForSale and Discontinued Operations as of 31.12.2017.
ŞEKERBANK ANNUAL REPORT 2018
238 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a. If impairment amount on individual asset recorded or reversed in the current period is material for the overall financial statements:
a.1. Events and conditions for recording or reversing impairment: None.
a.2. Amount of recorded or reversed impairment in the financial statements: The Bank has allocated TRL 2,759 Thousand of impairment provision for the foreclosed real estates in the accompanying financial statements. b. The impairment provision set or cancelled in the prior period according to the asset groups not individually significant but materially effecting the overall financial statements, and the reason and conditions for this: None. c. Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets: None.
13. Information on intangible assets:
Other Total Cost Opening Balance, January 1, 2017 210,640 210,640 Additions 25,784 25,784 Disposals - - Write Off - - Closing Balance, 31 December 2017 236,424 236,424 Accumulated Amortization Opening Balance, 1 January 2017 117,006 117,006 Charge for the year 32,627 32,627 Disposals - - Write Off - - Closing Balance, 31 December 2017 149,633 149,633 Net Book Value, 31 December 2017 86,791 86,791
Net Book Value, 31 December 2016 93,634 93,634
The useful lives of the intangible fixed assets, which are amortized with straight-line amortization method, are 5 years. a. Disclosures for book value, description and remaining depreciation time for a specific intangible fixed asset that is material to the financial statements: None. b. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. c. The method of subsequent measurement for intangible fixed assets that are acquired through government incentives and recorded at fair value at the initial recognition: None. d. The book value of intangible fixed assets that are pledged or restricted for use: None.
ŞEKERBANK ANNUAL REPORT 2018
239 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Amount of purchase commitments for intangible fixed assets: None. f. Information on revalued intangible assets according to their types: None. g. Amount of total research and development expenses recorded in statement of income within the period if any: None. h. Information on goodwill: None. i. Movements on goodwill in the current period: None.
14. Information on investment property: None.
15. Explanations on deferred tax asset: a. As of 31 December 2017, deferred tax asset computed on the temporary differences is reflected in the financial statements by netting off with deferred tax liability and is presented in Section V. Note II.10. b. Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in prior periods: None. c. Allowance for deferred tax and deferred tax assets from reversal of allowance: None. d. Movement of deferred tax: mentioned in Section V. Note II.10-b1.
16. Information on assets held for sale and discontinued operations:
As of 31 December 2017 the Bank has TRL 257,420 Thousand assets held for sale.
Prior Period Period Beginning Net Book Value 64,750 Additions (*) 257,420 Disposals (-)(*) (64,750) Period Ending Net Book Value 257,420
(*) Foreclosed Assetsamounting to TRL 257,420 Thousand in net book value classified as Assets Held For Sale and Discontinued Operations line. Assets Held For Sale and Discontinued Operations amounting to TRL 64,750 Thousand s are transferred to Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş as of 31.12.2017.
17. Information on other assets:
Other assets do not exceed 10 % of the total balance sheet (excluding off balance sheet commitments).
ŞEKERBANK ANNUAL REPORT 2018
240 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
III. Explanations Related to the Liabilities (Current Period)
1. Information on Maturity Structure Of Deposits a. Maturity structure of deposits
7 Day Call Up to 1 1-3 3-6 6 Month- 1 Year Accumulated Current Period Demand Accounts month Month Month 1 Year And over Deposits Total Saving deposits 352,818 - 1,038,374 4,100,049 3,459,759 401,013 490,684 5,394 9,848,091 Foreign currency deposits 1,157,977 - 724,738 4,499,937 1,398,757 453,020 1,433,973 391 9,668,793 Residents in Turkey 1,066,462 - 683,877 3,999,870 1,079,131 192,671 284,183 364 7,306,558 Residents abroad 91,515 - 40,861 500,067 319,626 260,349 1,149,790 27 2,362,235 Public sector deposits 78,820 - 1,710 4,706 9,879 941 992 - 97,048 Commercial deposits 770,875 - 446,402 915,981 127,053 11,909 7,013 11 2,279,244 Other institutions deposits 43,118 - 10,663 227,185 53,035 3,371 515 - 337,887 Precious metals deposits 246,275 - - - 37,725 3,031 13,363 - 300,394 Interbank deposits 190,190 - 250,637 102,244 - 8,348 6,258 - 557,677 Central Bank of Turkey ------Domestic Banks 2,877 - 143,759 2,285 - 8,348 6,258 163,527 Foreign Banks 868 - 106,878 99,959 - - - - 207,705 Participation Banks 186,445 ------186,445 Other ------Total 2,840,073 - 2,472,524 9,850,102 5,086,208 881,633 1,952,798 5,796 23,089,134 b. Information on saving deposits under the guarantee of saving deposit insurance and exceeding the limit of saving deposit insurance:
Under the guarantee Exceeding the limit of insurance (*) of insurance Saving Deposits Current Period Current Period Saving deposits 5,048,732 1,752,827 Foreign currency saving deposits 1,975,908 739,974 Other deposits in the form of saving deposits - - Branches’ deposits under foreign authorities’ insurance - - Off-shore banking regions’ deposits under foreign authorities’ insurance - - Total 7,024,640 2,492,801
(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts.
ŞEKERBANK ANNUAL REPORT 2018
241 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Information on the saving deposits of the bank with head office abroad, if the saving deposits in the branches of the bank located in Turkey are under the guarantee of saving deposit insurance in that country abroad:
Headquarter of the Bank is in Turkey and the Bank is under the coverage of saving deposit insurance. d. Retail deposits not guaranteed by insurance:
Deposit of real persons not under the guarantee of saving deposit insurance:
Current Period Deposits and other accounts in branches abroad - Deposits and other accounts of ultimate shareholders and their Mother, Father, Spouse, Dependent Children - Deposits and other accounts of chairman and members of the Board of Directors and their Mother, Father, Spouse, Dependent Children 9,347 Deposits and other accounts obtained through illegal acts defined in the 282nd Article of the 5237 numbered Turkish Criminal Code dated 26 September 2004. - Saving deposits in banks established in Turkey exclusively for off shore banking activities -
2. Information on derivative financial liabilities:
Negative differences table related to derivative financial liabilities held-for-trading:
Derivative financial liabilities held-for-trading are classified in the financial statement as Derivative Financial liabilities at Fair Value Through Profit and Loss.
Current Period Liabilities due to held for trading derivatives TRL FC Forward Transactions - 54,994 Swap Transactions 150,470 23,575 Futures Transactions - - Options 160 11,441 Other - - Total 150,630 90,010
3. Information on banks and other financial institutions: a. Information on banks and other financial institutions:
Current Period TRL FC Loans from Central Bank of Turkey - - From Domestic Banks and Institutions 68,308 233,902 From Foreign Banks, Institutions and Funds 29,224 1,995,882 Total 97,532 2,229,784
ŞEKERBANK ANNUAL REPORT 2018
242 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Maturity analysis of borrowings:
Current Period TRL FC Short-term 67,187 167,301 Medium and long-term 30,345 2,062,483 Total 97,532 2,229,784 c. Additional explanation related to the concentrations of the Bank’s major liabilities:
Within the scope of normal banking activities, the Bank’s funding sources are deposits, funds borrowed, marketable securities issued and money market balances. The Bank’s deposit structure shows a balanced distribution in TRL and FC terms. The funds borrowed mainly consist of foreign currency denominated syndicated loans, in TRL denominated funds provided from repurchase agreement transactions and marketable securities denominated in TRL and foreign currency.
4. Information on Money market borrowings:
Current Period TP YP Interbank money market takings - - Istanbul Stock Exchange money market takings - - Borsa Istanbul Debts to Money Markets - - Funds Provided Through Repo Transactions 124,596 - Total 124,596 -
5. Marketable securities issued:
The Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Bank’s SME loans were used as colleteral. The outstanding Asset Covered Bond amount is TRL 701,850 Thousand as of 31 December 2018.
Issue Group Series Investors Amount Remaining Principal Amount Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
Current Period TRL FC Bills 163,978 - Asset Backed Securities 701,850 - Bonds - - Total 865,828 -
ŞEKERBANK ANNUAL REPORT 2018
243 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance sheet commitments) and the breakdown of these which constitute at least 20 % of grand total:
Other liabilities do not exceed 10 % of the balance sheet total.
7. Explanations on financial lease obligations (Net): None.
8. Information on derivative financial liabilities for hedging purposes:
Cari Dönem Derıvative Financial Assets For Hedging Purposes TP YP Fair Value Hedge 16,592 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 16,592 -
9. Information on provisions: a. Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: None. b. The specific provisions provided for unindemnified non-cash loans amount to TRL 66,938 Thousand. c. Information on employee termination benefits and unused vacation accrual:
The Bank has calculated reserve for employee termination benefits by using actuarial valuations as set out in the TAS 19 and reflected this in the financial statements.
Main actuarial assumptions used for calculation of employment termination benefit are as follows:
- Discount rate for the current period is 16%, inflation rate is 11.30%. - TRL 5,434.42 (full TRL) of maximum wage amount which was in effect was taken as maximum amount for the calculation regarding the current period. - It was assumed that maximum wage would be increased by inflation rate for every consecutive year. - CSO 1980 table was used for mortality averages of females and males.
As of 31 December 2018, the Bank has recorded in the financial statements TRL 75,147 Thousand reserve for employee termination benefits
As of 31 December 2018, the Bank allocated a reserve of TRL 7,151 Thousand for the unused vacations, which is classified under reserve for employee benefits provisions in the financial statements. c.1. Movement of employee termination benefits:
Current Period As of 1 January 70,834 Service Cost 10,235 Interest Cost 8,041 Actuarial Loss/(Gain) (4,670) Indemnity Paid During the Term (9,293) Total 75,147
ŞEKERBANK ANNUAL REPORT 2018
244 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Information on other provisions: d.1. Provisions for possible losses: None. d.2. The breakdown of other provisions:
Current Period Unindemnified Non-Cash Loans 66,938 Credit Card Liquid Point Promotion Provisions 432 Retirement Fund Provision 159,499 SDIF Premium Provision 6,984 Other Provisions (*) 166,546 Total 400,399
(*) Includes legal case provisions amounting to TRL 21,362Thousand, provision for payments amounting to TRL 21,000 Thousand and provision for repayment of arbitration board objections. e. Liabilities on pension rights: e.1. Liabilities for pension funds established in accordance with “Social Security Institution”:
Şekerbank T.A.Ş. Pension Fund, of which each Bank employee is a member, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
Following the issuance of the justified order in relation to the annulment of the provisional Article 23 of the Banking Law by the Constitutional Court in the Official Gazette No: 26731 on 15 December 2007, TBMM started to work on establishing new legal regulations, the Law No: 5754 “Amendments to the Social Security and General Health Insurance Act Including Certain Laws and Decrees”, which was published in the Official Gazette No: 26870 on 8 May 2008 has become effective following the approval of the General Assembly of the TBMM. The new law decrees that the contributors of the bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation, and that the three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
ŞEKERBANK ANNUAL REPORT 2018
245 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
In addition, by the Law numbered 6283 “Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years. Further the transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette, dated 3 May 2013 and numbered 28636. The prolongation for another one year has been taken by the Cabinet on 24 February 2014, and has been published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335. This authority was transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated 9 July 2018.
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations” issued based on the Article 38. There was TRL 159,499 Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers published on 15 December 2006 and no 26377. As of 31 December 2018, TRL 159,499 Thousand provision is recorded in the financial statements of the Bank.
The actuarial audit described above, which has been carried out in accordance with the related law, measures the present value of the liability as of 31 December 2018, in other words, the estimated payment amount to be made to the SGK by the Bank is measured by the actuary audit. In actuarial calculations, CSO 1980 mortality table, 9.80% technical interest rate and 34.50% premium rate were taken into account.
ŞEKERBANK ANNUAL REPORT 2018
246 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Present values of bonuses and salaries payments taking into account the health expenditures in the scope of Social Security Institution are shown in the following table in as of 31 December 2018.
31.12.2018 Reserve of Probable Retirement Pensions (153,436) Reserve of Probable Widow and Orphant (133,359) Reserve of Liability Items (1,028,626) Reserve for Salary Portions to be Given to Social Insurance Institution for those who leave the Pension Fund (254,790) Health and Funeral Expenses Reserve (152,739) Assets (*) 315,700 Cash Value of the Premiums of the Active Members 1,123,687 Reserve of Common Members’ Salary Proportion Receivables from other social insurance institutions. 124,064 Actual and Technical Surplus/(Deficit) Amount (159,499)
(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.
Assets of the Pension Fund consist of following items:
31.12.2018 Banks and Other Financial Investments 238,816 Associates 125,757 Immovable 4,103 Other (52,976) Total 315,700 e.2. Liabilities resulting from all kinds of pension funds, foundations etc., which provide post-retirement benefits for the employees: See footnote, f.1 II/9 of Section Five.
10. Explanations on taxes payable: a. Information on current tax liability: a.1. Information on tax provision:
As of 31 December 2018, the Bank has TRL 17,370 Thousand corporate tax provision and reflected in the financial statements by netting off with TRL 18,792 Thousand prepaid corporate tax.
ŞEKERBANK ANNUAL REPORT 2018
247 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2 Information on taxes payable:
Current Period Corporate Tax - Taxation on Securities 17,214 Capital Gains Tax on Property 610 Banking Insurance Transaction Tax (BITT) 30,281 Value Added Tax Payable 1,350 Other 6,621 Total 56,076 a.3 Information on premiums:
Current Period Social Security Premiums-Employee 213 Social Security Premiums-Employer 427 Bank Social Aid Pension Fund Premiums-Employee 3 Bank Social Aid Pension Fund Premiums-Employer 4 Pension Fund Membership Fees and Provisions-Employee - Pension Fund Membership Fees and Provisions-Employer - Unemployment insurance-Employee - Unemployment insurance-Employer - Other - Total 647 b. Explanations on deferred tax liabilities: b.1. Deferred tax asset/liability table:
As of 31 December 2018, deferred tax asset computed on the temporary differences is reflected in the financial statements by netting off with deferred tax liability and is presented in Section V. Note I.15-a. b.2. Movement of deferred tax: mentioned in Section V. Note I.15-d.
11. Information on liabilities regarding assets held for sale and discontinued operations: None.
ŞEKERBANK ANNUAL REPORT 2018
248 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
12. Explanations on the maturity, interest rate and the number of subordinated debt instruments the Bank had, institution that is the creditor of the debt instrument, and conversion option, if any:
Information on subordinated borrowing instruments is included in the footnote 4.1. Information on borrowing instruments to be included in the equity calculation.
Current Period TRL FC Borrowing Instruments Included in Additional Tier I Capital Calculation - - Subordinated Loans - - Subordinated Debt Instruments - - Borrowing Instruments Included in Tier II Calculation 452,571 451,050 Subordinated Loans - - Subordinated Debt Instruments 452,571 451,050 Total 452,571 451,050
13. Information on Shareholders’ Equity a. Presentation of Paid-in capital:
Current Period Common stock (*) 1,158,000 Preferred stock -
(*) Nominal Capital b. Paid-in capital amount, explanation as to whether the registered share capital system is applicable at Bank and if so amount of registered share capital ceiling:
Registered share capital system is applied in the Bank: Maximum registered capital amount is TRL 1,250,000 Thousand.
Capital System Paid-in Capital Maximum Registered Capital 1,158,000 1,250,000 c. Information on share capital increases and their sources; other information on increased capital shares in current period: None. d. Information on share capital increases from capital reserves: None. e. Capital commitments in the last fiscal year and at the end of the following period, the general purpose of these commitments and projected resources required to meet these commitments: None.
ŞEKERBANK ANNUAL REPORT 2018
249 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f. Indicators of the Bank’s income, profitability and liquidity for the previous periods and possible effects of these future assumptions on the Bank’s equity due to the uncertainty of these indicators:
Retained and current year income, profitability and liquidity of the Bank are closely monitored, reported by the Financial Control, Reporting, Budget and Performance Management Department to the Board of Directors, Asset and Liability Committee. This department prognoses the effects of interest, currency and maturity fluctuations with static and dynamic scenario analysis. Net asset value, which is defined as the difference of fair values of assets and liabilities, is measured. Prognoses are made for Bank’s future interest income via simulations of net interest income and scenario analysis. g. Information on preferred shares: The Bank has no preferred shares. h. Information on marketable securities value increase fund:
Current Period TRL FC From Subsidiaries, Associations and Entities Under Common Control - - Valuation Difference (8,592) 4,047 Foreign Exchange Difference - - Total (8,592) 4,047
14. Information on legal reserves:
Current Period Legal reserves 109,993 Other legal reserves appropriated in accordance with special legislation 175,996 Total 285,989
15. Information on extraordinary reserves:
Current Period Reserves appropriated by the General Assembly 1,364,154 Retained earnings - Accumulated losses - Foreign currency share capital exchange difference - Total 1,364,154
16. Other Information on Shareholders’ Equity:
None.
ŞEKERBANK ANNUAL REPORT 2018
250 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
IV. Explanations Related to the Liabilities (Prior Period)
1. Information on maturity structure of deposits a. Maturity structure of deposits
7 Day Call Up to 1 6 Month- 1 Year Accumulated Prior Period Demand Accounts month 1-3 Month 3-6 Month 1 Year And over Deposits Total Saving deposits 409,155 - 1,049,396 6,245,110 214,288 104,745 239,398 3,744 8,265,836 Foreign currency deposits 719,056 - 394,021 4,112,576 367,401 283,214 1,086,004 252 6,962,524 Residents in Turkey 666,298 - 381,092 3,718,608 279,622 135,058 211,992 237 5,392,907 Residents abroad 52,758 - 12,929 393,968 87,779 148,156 874,012 15 1,569,617 Public sector deposits 42,407 - 1 2,815 129 858 915 - 47,125 Commercial deposits 680,308 - 482,252 1,619,197 58,232 3,017 4,457 8 2,847,471 Other institutions deposits 40,443 - 12,525 446,749 34,226 1,342 2,292 - 537,577 Precious metals deposits 176,527 - - - 28,235 1,659 8,653 - 215,074 Interbank deposits 60,210 - 313,040 460,896 17,235 - - - 851,381 Central Bank of Turkey ------Domestic Banks 472 - 312,670 123,733 8,178 - - 445,053 Foreign Banks 1,723 - 370 337,163 9,057 - - - 348,313 Participation Banks 58,015 ------58,015 Other ------Total 2,128,106 - 2,251,235 12,887,343 719,746 394,835 1,341,719 4,004 19,726,988 b. Information on saving deposits under the guarantee of saving deposit insurance and exceeding the limit of saving deposit insurance:
Under the guarantee Exceeding the limit of insurance (*) of insurance Saving Deposits Prior Period Prior Period Saving deposits 4,237,967 4,041,034 Foreign currency saving deposits 1,694,297 2,956,584 Other deposits in the form of saving deposits - - Branches’ deposits under foreign authorities’ insurance - - Off-shore banking regions’ deposits under foreign authorities’ insurance - - Total 5,932,264 6,997,618
(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts. c. Information on the saving deposits of the bank with head office abroad, if the saving deposits in the branches of the bank located in Turkey are under the guarantee of saving deposit insurance in that country abroad:
Headquarter of the Bank is in Turkey and the Bank is under the coverage of saving deposit insurance.
ŞEKERBANK ANNUAL REPORT 2018
251 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Retail deposits not guaranteed by insurance:
Prior Period Deposits and other accounts in branches abroad - Deposits and other accounts of ultimate shareholders and their Mother, Father, Spouse, Dependent Children - Deposits and other accounts of chairman and members of the Board of Directors and their Mother, Father, Spouse, Dependent Children 5,648 Deposits and other accounts obtained through illegal acts defined in the 282nd Article of the 5237 numbered Turkish Criminal Code dated 26 September 2004. - Saving deposits in banks established in Turkey exclusively for off shore banking activities -
2. Information on derivative financial liabilities:
Negative differences table related to derivative financial liabilities held-for-trading:
Prior Period Liabilities due to held for trading derivatives TRL FC Forward Transactions - 34,899 Swap Transactions 54,019 71,946 Futures Transactions - - Options 109 14,441 Other - - Total 54,128 121,286
3. Information on banks and other financial institutions: a. Information on banks and other financial institutions:
Prior Period TRL FC Loans from Central Bank of Turkey - - From Domestic Banks and Institutions 68,965 204,462 From Foreign Banks, Institutions and Funds 43,829 2,046,654 Total 112,794 2,251,116 b. Maturity analysis of borrowings:
Prior Period TRL FC Short-term 67,544 415,491 Medium and long-term 45,250 1,835,625 Total 112,794 2,251,116
ŞEKERBANK ANNUAL REPORT 2018
252 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Additional explanation related to the concentrations of the Bank’s major liabilities:
The Bank’s liabilities do not have any concentration in any sector.
4. Information on funds provided from repurchase agreement transactions:
Prior Period TRL FC From domestic transactions 1,023,673 - Financial institutions and organizations 1,016,351 - Other institutions and organizations 2,651 - Real persons 4,671 - From foreign transactions - 309,521 Financial institutions and organizations - 309,521 Other institutions and organizations - - Real persons - - Total 1,023,673 309,521
5. Marketable securities issued:
The Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Bank’s SME loans were used as colleteral. The outstanding Asset Covered Bond amount is TRL 701,385 Thousand as of 31 December 2017.
Issue Group Series Investors Amount Outstanding Amount (*) Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
(*)Outstanding amounts do not include accruals.
Prior Period TRL FC Bills 229,096 - Asset Backed Securities 701,385 - Bonds - - Total 930,481 -
6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance sheet commitments) and the breakdown of these which constitute at least 20 % of grand total:
Other liabilities do not exceed 10 % of the balance sheet total.
ŞEKERBANK ANNUAL REPORT 2018
253 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Explanations on financial lease obligations (Net):
Prior Period TRL FC Lease Payables 3,018 - Deferred Lease Expenses (180) - Total 2,838 -
8. Information on derivative financial liabilities for hedging purposes: None.
9. Information on provisions: a. Information on general provisions:
Prior Period General Provisions 72,887 Provisions for first group loans and receivables 37,511 Additional provisions for the loans with extended payment plan - Provisions for second group loans and receivables 19,184 Additional provisions for the loans with extended payment plan - Provisions for non-cash loans 8,071 Other 8,121 b. Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: TRL 490 Thousand. c. The specific provisions provided for unindemnified non-cash loans amount to TRL 61,309 Thousand. d. Information on employee termination benefits and unused vacation accrual:
The Bank has calculated reserve for employee termination benefits by using actuarial valuations as set out in the TAS 19 and reflected this in the financial statements.
Main actuarial assumptions used for calculation of employment termination benefit are as follows:
- Discount rate as of 31 December 2017 is 11.50%, inflation rate is 8.30%. - TRL 4,732.48 (full TRL) of maximum wage amount which was in effect as of 31 December 2017 was taken as maximum amount for the calculation as of 31 December 2017. - It was assumed that maximum wage would be increased by inflation rate for every consecutive year. - CSO 1980 table was used for mortality averages of females and males.
As of 31 December 2017, the Bank has recorded in the financial statements TRL 70,834 Thousand reserve for employee termination benefits.
As of 31 December 2017, the Bank allocated a reserve of TRL 7,185 Thousand for the unused vacations, which is classified under reserve for employee benefits provisions in the financial statements.
ŞEKERBANK ANNUAL REPORT 2018
254 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.1. Movement of employee termination benefits:
Prior Period As of 1 January 62,146 Service Cost 9,025 Interest Cost 6,934 Actuarial Loss/(Gain) (*) 3,487 Indemnity Paid During the Term (10,758) Total 70,834
(*) Actuarial loss/gain shown under other capital reserves after netting of deferred tax. e Information on other provisions: e.1. Provisions for possible losses: None. e.2. The breakdown of the sub-accounts if other provisions exceed 10 % of the grand total of provisions:
Prior Period Unindemnified Non-Cash Loans 61,309 Credit Card Liquid Point Promotion Provisions 564 Retirement Fund Provision 81,454 Legal Case Provisions 20,564 Bonus Provision 16,502 SDIF Premium Provision 10,572 BRSA Pay Provision - Other Provisions 46,251 Total 237,216 f. Liabilities on pension rights: f.1. Liabilities for pension funds established in accordance with “Social Security Institution”:
Şekerbank T.A.Ş. Pension Fund, of which each Bank employee is a member, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
ŞEKERBANK ANNUAL REPORT 2018
255 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Following the issuance of the justified order in relation to the annulment of the provisional Article 23 of the Banking Law by the Constitutional Court in the Official Gazette No: 26731 on 15 December 2007, TBMM started to work on establishing new legal regulations, the Law No: 5754 “Amendments to the Social Security and General Health Insurance Act Including Certain Laws and Decrees”, which was published in the Official Gazette No: 26870 on 8 May 2008 has become effective following the approval of the General Assembly of the TBMM. The new law decrees that the contributors of the bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation, and that the three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
In addition, by the Law numbered 6283“Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years. Further the transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette, dated 3 May 2013 and numbered 28636. The prolongation for another one year has been taken by the Cabinet on 24 February 2014, and has been published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335.
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations” issued based on the Article 38. There was TRL 81,454 Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers decision no: 2006/11345 on 30 November 2006. As of 31 December 2017, TRL 81,454 Thousand provision is recorded in the financial statements of the Bank.
ŞEKERBANK ANNUAL REPORT 2018
256 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The actuarial audit described above, which has been carried out in accordance with the related law, measures the present value of the liability as of 31 December 2017, in other words, the estimated payment amount to be made to the SGK by the Bank is measured by the actuary audit. In actuarial calculations, CSO 1980 mortality table, 9.80% technical interest rate and 34.50% premium rate were taken into account.
Present values of bonuses and salaries payments taking into account the health expenditures in the scope of Social Security Institution are shown in the following table in as of 31 December 2017.
31.12.2017 Reserve of Probable Retirement Pensions (135,200) Reserve of Probable Widow and Orphant (109,984) Reserve of Liability Items (893,514) Reserve for Salary Portions to be Given to Social Insurance Institution for those who leave the Pension Fund (206,262) Health and Funeral Expenses Reserve (143,023) Assets (*) 428,110 Cash Value of the Premiums of the Active Members 868,745 Reserve of Common Members’ Salary Proportion Receivables from other social insurance institutions. 109,674 Actual and Technical Surplus/(Deficit) Amount (81,454)
(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.
Assets of the Pension Fund consist of following items:
31.12.2017 Banks and Other Financial Investments 282,536 Associates 122,545 Immovable 8,924 Other 14,105 Total 428,110 f.2. Liabilities resulting from all kinds of pension funds, foundations etc., which provide post-retirement benefits for the employees: See footnote, f.1 II/9 of Section Five.
10. Explanations on taxes payable: a. Information on current tax liability: a.1. Information on tax provision:
As of 31 December 2017, the Bank has TRL 35,830 Thousand corporate tax provision and reflected in the financial statements by netting off with TRL 22,946 Thousand prepaid corporate tax.
ŞEKERBANK ANNUAL REPORT 2018
257 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2 Information on taxes payable:
Prior Period Corporate Tax 12,884 Taxation on Securities 17,834 Capital Gains Tax on Property 535 Banking Insurance Transaction Tax (BITT) 22,153 Value Added Tax Payable 1,363 Other 6,189 Total 60,958 a.3 Information on premiums: None. b. Explanations on deferred tax liabilities, if any: b.1. Breakdown of deferred tax:
Prior Period Deferred Tax Assets/(Liabilities) Tangible Assets Base Differences (12,500) Provisions (*) 48,226 Valuation of Financial Assets 24,038 Financial Losses - Net Deferred Tax Assets/(Liabilities) 59,764
(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions and other provisions. b.2. Current and prior year deferred tax movements are shown in the table below.
Prior Period Deferred Tax Asset/(Liability), Period Beginning 2,240 Current Period (Expense)/Income 11,193 Deferred Tax Classified under Equity 46,331 Deferred Tax Asset/(Liability), Period Ending 59,764
11. Information on liabilities regarding assets held for sale and discontinued operations: None.
ŞEKERBANK ANNUAL REPORT 2018
258 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
12. Explanations on the number of subordinated loans the Bank used maturity, interest rate, institution that the loan was borrowed from, and conversion option, if any:
Prior Period TRL FC Domestic Banks - - Other Domestic Institutions 301,275 - Banks Abroad - 340,206 Other Institutions Abroad - - Total 301,275 340,206
13. Information on Shareholders’ Equity a. Presentation of Paid-in capital:
Prior Period Common stock (*) 1,158,000 Preferred stock -
(*)Nominal Capital b. Paid-in capital amount, explanation as to whether the registered share capital system is applicable at Bank and if so amount of registered share capital ceiling:
Registered share capital system is applied in the Bank: Maximum registered capital amount is TRL 1,250,000 Thousand.
Capital System Paid-in Capital Maximum Registered Capital 1,158,000 1,250,000 c. Information on share capital increases and their sources; other information on increased capital shares in prior period: None. d. Information on share capital increases from capital reserves in prior period: None. e. Capital commitments in the last fiscal year and at the end of the following period, the general purpose of these commitments and projected resources required to meet these commitments: None. f. Indicators of the Bank’s income, profitability and liquidity for the previous periods and possible effects of these future assumptions on the Bank’s equity due to the uncertainty of these indicators:
Retained and current year income, profitability and liquidity of the Bank are closely monitored, reported by the Financial Control, Reporting, Budget and Performance Management Department to the Board of Directors, Asset and Liability Committee. This department prognoses the effects of interest, currency and maturity fluctuations with static and dynamic scenario analysis. Net asset value, which is defined as the difference of fair values of assets and liabilities, is measured. Prognoses are made for Bank’s future interest income via simulations of net interest income and scenario analysis.
ŞEKERBANK ANNUAL REPORT 2018
259 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) g. Information on preferred shares: The Bank has no preferred shares. h. Information on marketable securities value increase fund:
Prior Period TRL FC From Subsidiaries, Associations and Entities Under Common Control - - Marketable Securities Available-for-Sale (55,371) 1,314 Valuation Difference - - Foreign Exchange Difference - - Total (55,371) 1,314
14. Information on legal reserves:
Prior Period First legal reserves 89,142 Second legal reserves 15,106 Other legal reserves appropriated in accordance with special legislation 175,996 Total 280,244
15. Information on extraordinary reserves:
Prior Period Reserves appropriated by the General Assembly 1,007,077 Retained earnings - Accumulated losses - Foreign currency share capital exchange difference - Total 1,007,077
16. Other Information on Shareholders’ Equity:
On 29 April 2016 the Bank acquired 109,211,666.248 shares at TRL 175,000 Thousand through the auction. After the notification to the Bank through the letter of Istanbul 14th Enforcement Office dated 25 July 2016, in accordance with the provisions of the Turkish Commercial Code and the Turkish Accounting Standards; TRL 175,996 Thousand, being “the charges-and-taxes-included cost value” of the repurchased shares is deducted from the Bank’s “Other Capital Reserves” equity account as of 31 July 2016.
17. Information on other capital reserves:
Actuarial gain/loss is shown under other capital reserves.
ŞEKERBANK ANNUAL REPORT 2018
260 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
V. Explanations Related to the Off-Balance Sheet Contingencies and Commitments (Current Period)
1. Information on off-balance sheet liabilities: a. Nature and amount of irrevocable loan commitments:
Current Period Forward Asset Purchase Commitments 96,164 Loan Granting Commitments 991,122 Payment Commitments for Cheques 336,022 Commitments for Credit Card Expenditure limits 473,623 Commitments for Promotions related with Credit Cards and Banking Transactions 501 Subsidiaries and Associates Capital Commitments - Tax and Fund Obligations for Export Commitments 10,032 Total 1,907,464 b. Possible losses and commitments related to off-balance sheet items including items listed below:
The Bank, within the context of banking activities, undertakes certain commitments, consisting of loan commitments, letters of guarantee, acceptance credits and letters of credit. b.1. Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:
Current Period Guarantees 963,277 Bank Loans 132,949 Letters of Credit 262,834 Endorsements 174,680 Total 1,533,740 b.2. Guarantees, surety ships, and similar transactions:
Current Period Definite Letter of Guarantees 2,659,446 Temporary Letter of Guarantees 190,525 Surety ships and Similar Transactions - Other Letter of Guarantees 1,530,377 Total 4,380,348
ŞEKERBANK ANNUAL REPORT 2018
261 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Information on non-cash loans: c.1. Total amount of non-cash loans:
Current Period Letters of Guarantees issued for cash loans 1,190,647 With maturity of 1 year or less than 1 year 738,297 With maturity of more than 1 year 452,350 Other non-cash loans 4,723,441 Total 5,914,088 c.2. Information on sectoral risk breakdown of non-cash loans:
Current Period TRL (%) FC (%) Agricultural 5,652 0.17 25,320 1.01 Farming and raising livestock 5,017 0.15 25,320 1.01 Forestry 547 0.02 - - Fishery 88 0.00 - - Manufacturing 281,013 8.28 1,239,627 49.23 Mining 30,920 0.91 106,051 4.21 Production 235,897 6.95 995,314 39.53 Electric, gas and water 14,196 0.42 138,262 5.49 Construction 1,028,420 30.28 551,680 21.91 Services 2,076,182 61.14 699,369 27.78 Wholesale and retail trade 504,041 14.84 150,741 5.99 Hotel, food and beverage services 12,653 0.37 11,621 0.46 Transportation and telecommunication 80,678 2.38 291,043 11.56 Financial institutions 1,198,912 35.30 127,466 5.06 Real estate and renting services 227,052 6.69 108,151 4.30 Self-employment services - - - - Education services 2,679 0.08 - - Health and social services 50,167 1.48 10,347 0.41 Other 4,954 0.13 1,871 0.07 Total 3,396,221 100.00 2,517,867 100.00 c.3. Information on Ist and IInd Group non-cash loans:
Ist Group IInd Group Non-cash loans TRL FC TRL FC Letters of guarantee 3,096,964 808,749 203,000 162,601 Bank acceptances - 132,949 - - Letters of credit 1,976 260,546 - - Endorsements - 174,680 - - Underwriting commitments - - - - Guaranteed prefinancing credits - - - - Other commitments and surety ships 4,151 957,818 1,308 -
ŞEKERBANK ANNUAL REPORT 2018
262 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information related to derivative financial instruments:
Current Period Types of trading transactions Foreign currency related derivative transactions (I): 11,560,554 Forward transactions 1,091,172 Swap transactions 9,400,575 Futures transactions - Option transactions 1,068,807 Interest related derivative transactions (II) : 1,595,718 Forward rate transactions - Interest rate swap transactions 1,595,718 Interest option transactions - Futures interest transactions - Other trading derivative transactions (III) 108,294 A. Total trading derivative transactions (I+II+III) 13,264,566
Types of hedging transactions Fair value hedges 936,000 Cash flow hedges - Net investment hedges - B.Total hedging related derivatives 936,000
Total Derivative Transactions (A+B) 14,200,566
Related to agreements of forward transactions and options; the information based on the type of forward and options transactions are disclosed separately, specified with related amounts, type of agreement, purpose of transaction, nature of risk, strategy of risk management, hedging relationship, possible effects on the Bank’s financial position, timing of cash flows, reasons of unrealized transactions which previously projected to be realized, income and expenses that could not be linked to statement of income in the current period because of the agreements:
The Bank’s derivative instruments consist of foreign currency swaps, option and forward foreign currency buy/sell transactions. The Bank revalues foreign currency forward and swap transactions using the Bank’s end of reporting foreign exchange rates. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term’s statement of income. Some of the derivative instruments, although made for economical hedging purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument.
ŞEKERBANK ANNUAL REPORT 2018
263 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
As of 31 December 2018, breakdown of the Bank’s foreign currency forward and swap transactions based on currencies are disclosed below in their TRL equivalents:
Forward Forward Swap Swap Option Option Futures Futures Buy Sell Buy Sell Buy Sell Buy Sell Current Period TRL 226,608 208,108 1,638,090 2,995,930 234,015 224,050 - - USD 157,246 126,182 3,142,322 1,204,366 264,011 299,591 - - EURO 157,275 207,258 1,101,494 1,632,941 25,069 22,071 - - OTHER 7,712 783 201,453 123,991 - - - - Total 548,841 542,331 6,083,359 5,957,228 523,095 545,712 - -
As of 31 December 2018, the Bank has fair value hedge with the nominal amount of TRL 936,000 Thousand.
As of 31 December 2018, the Bank has no cash flow hedges.
As of 31 December 2018, the Bank has no hedge of net investment in foreign operations.
3. Credit derivatives and risk exposures on credit derivatives: None.
4. Explanations on contingent liabilities and assets:
As of 31 December 2018, there are 582 continuing legal cases against the Bank based on information received from the Law Department of the Bank. The total amount of these cases is TRL 57,638 Thousand. Provision amount for these cases is TRL 21,362 Thousand.
The bank has no contingent assets.
Explanations on revocable commitments: In the current period, the Bank’s revocable commitments amount to TRL 499,197 Thousand.
5. Custodian and intermediary services:
The Bank performs buying and selling transactions on behalf of customers but does not provide custody, administration and consultancy services.
ŞEKERBANK ANNUAL REPORT 2018
264 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
VI. Explanations Related to the Off-Balance Sheet Contingencies and Commitments (Prior Period)
1. Information on off-balance sheet liabilities: a. Nature and amount of irrevocable loan commitments:
Prior Period Forward Asset Purchase Commitments 716,418 Loan Granting Commitments 912,581 Payment Commitments for Cheques 665,639 Commitments for Credit Card Expenditure limits 462,487 Commitments for Promotions related with Credit Cards and Banking Transactions 694 Subsidiaries and Associates Capital Commitments - Tax and Fund Obligations for Export Commitments 6,526 Total 2,764,345 b. Possible losses and commitments related to off-balance sheet items including items listed below:
The Bank, within the context of banking activities, undertakes certain commitments, consisting of loan commitments, letters of guarantee, acceptance credits and letters of credit. b.1. Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:
Prior Period Guarantees 466,063 Bank Loans 141,058 Letters of Credit 446,671 Total 1,053,792 b.2. Guarantees, surety ships, and similar transactions:
Prior Period Definite Letter of Guarantees 2,630,872 Temporary Letter of Guarantees 453,602 Surety ships and Similar Transactions - Other Letter of Guarantees 1,178,585 Total 4,263,059
ŞEKERBANK ANNUAL REPORT 2018
265 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Information on non-cash loans c.1. Total amount of non-cash loans:
Prior Period Letters of Guarantees issued for cash loans 875,078 With maturity of 1 year or less than 1 year 475,054 With maturity of more than 1 year 400,024 Other non-cash loans 4,441,773 Total 5,316,851 c.2. Information on sectoral risk breakdown of non-cash loans:
Prior Period TRL (%) FC (%) Agricultural 4,560 0.13 13,181 0.66 Farming and raising livestock 3,062 0.09 12,127 0.61 Forestry 1,408 0.04 1,054 - Fishery 90 - - - Manufacturing 247,414 7.40 992,271 50.24 Mining 19,255 0.58 79,860 4.04 Production 215,687 6.45 792,474 40.13 Electric, gas and water 12,472 0.37 119,937 6.07 Construction 1,282,251 38.37 437,460 22.15 Services 1,803,786 53.97 531,417 26.91 Wholesale and retail trade 506,079 15.14 263,245 13.33 Hotel, food and beverage services 11,044 0.34 13,810 0.71 Transportation and telecommunication 81,352 2.43 50,590 2.56 Financial institutions 787,083 23.55 109,482 5.54 Real estate and renting services 346,588 10.37 81,189 4.11 Self-employment services - - - - Education services 2,373 0.07 - - Health and social services 69,267 2.07 13,101 0.66 Other 4,010 0.13 501 0.04 Total 3,342,021 100.00 1,974,830 100.00
ŞEKERBANK ANNUAL REPORT 2018
266 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.3. Information on Ist and IInd group non-cash loans:
Ist Group IInd Group Non-cash loans TRL FC TRL FC Letters of guarantee 3,131,386 807,592 203,851 120,230 Bank acceptances 1,365 139,693 - - Letters of credit 843 445,828 - - Endorsements - - - - Underwriting commitments - - - - Guaranteed prefinancing credits - - - - Other commitments and surety ships - 417,463 4,576 44,024
The Bank provided reserve amounting to TRL 61,309 Thousand for unindemnified non-cash loans amounting to TRL 127,556 Thousand.
2. Information related to derivative financial instruments:
Prior Period Types of trading transactions Foreign currency related derivative transactions (I): 14,361,998 Forward transactions 2,097,772 Swap transactions 9,752,414 Futures transactions - Option transactions 2,511,812 Interest related derivative transactions (II) : 1,388,082 Forward rate transactions - Interest rate swap transactions 1,388,082 Interest option transactions - Futures interest transactions - Other trading derivative transactions (III) 445,388 A. Total trading derivative transactions (I+II+III) 16,195,468
Types of hedging transactions Fair value hedges 223,000 Cash flow hedges - Net investment hedges - B.Total hedging related derivatives 223,000
Total Derivative Transactions (A+B) 16,418,468
ŞEKERBANK ANNUAL REPORT 2018
267 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Related to agreements of forward transactions and options; the information based on the type of forward and options transactions are disclosed separately, specified with related amounts, type of agreement, purpose of transaction, nature of risk, strategy of risk management, hedging relationship, possible effects on the Bank’s financial position, timing of cash flows, reasons of unrealized transactions which previously projected to be realized, income and expenses that could not be linked to statement of income in the current period because of the agreements:
The Bank’s derivative instruments mainly consist of foreign currency swaps, option and forward foreign currency buy/ sell transactions. The Bank revalues foreign currency forward and swap transactions using the Bank’s end of reporting foreign exchange rates. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term’s statement of income. Some of the derivative instruments, although made for economical hedging purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument as per Turkish Accounting Standard on “Financial Instruments: Recognition and Measurement” (“TAS 39”).
As of 31 December 2017, breakdown of the Bank’s foreign currency forward and swap transactions based on currencies are disclosed below in their TRL equivalents:
Forward Forward Swap Swap Option Option Futures Future Buy Sell Buy Sell Buy Sell Buy Sell Prior Period TRL 448,990 567,135 798,592 4,121,749 637,839 453,388 - - USD 289,806 353,527 4,350,175 713,613 534,461 710,816 - - EURO 301,487 134,287 534,427 641,444 66,603 85,794 - - OTHER 1,270 1,643 188,144 460,367 7,403 15,508 - - Total 1,041,553 1,056,592 5,871,338 5,937,173 1,246,306 1,265,506 - -
As of 31 December 2017, the Bank has fair value hedge with the nominal amount of TRL 223,000 Thousand.
As of 31 December 2017, the Bank has no cash flow hedges.
As of 31 December 2017, the Bank has no hedge of net investment in foreign operations.
3. Credit derivatives and risk exposures on credit derivatives
None.
ŞEKERBANK ANNUAL REPORT 2018
268 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
4. Explanations on contingent liabilities and assets:
As of 31 December 2017, there are 784 continuing legal cases against the Bank based on information received from the Law Department of the Bank. The total amount of these cases is TRL 54,695 Thousand. Provision amount for these cases is TRL 20,564 Thousand.
The bank has no contingent assets.
Explanations on revocable commitments: In the prior period, the Bank’s revocable commitments amount to TRL 259,621 Thousand.
5. Custodian and intermediary services:
The Bank performs buying and selling transactions on behalf of customers, but does not provide custody, administration and consultancy services.
VII. Explanations Related to the Income Statement (Current Period)
1. Information on interest income: a. Information on interest income on loans:
Current Period TRL FC Interest on Loans (*) 2,975,017 504,223 Short Term Loans 1,543,343 41,288 Medium and Long Term Loans 1,372,082 462,935 Interest on Non-Performing Loans 59,592 - Premiums received from Resource Utilization Support Fund - -
(*) Includes fees and commissions obtained from cash loans. b. Information on interest received from banks:
Current Period TRL FC The Central Bank of Turkey - 489 Domestic Banks 10,232 5,680 Foreign Banks - 6,570 Branches and Head Office Abroad - - Total 10,232 12,739
ŞEKERBANK ANNUAL REPORT 2018
269 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Interest income from marketable securities portfolio:
Current Period TRL FC Financial Assets At Fair Value Through Profit And Loss 1,008 544 Financial Assets At Fair Value Through Other Comprehensive Income 50,955 - Financial Assets at Amortised Cost 460,863 48,900 Total 512,826 49,444 d. Information on interest income received from associates and subsidiaries:
Current Period Interest Income Received from Associates and Subsidiaries 11,427
2. Information on interest expense a. Information on interest expense on funds borrowed:
Current Period TRL FC Banks (*) 10,951 97,958 The Central Bank of Turkey - - Domestic Banks 5,480 5,479 Foreign Banks 5,471 92,479 Branches and Head Office Abroad - - Other Financial Institutions - - Total 10,951 97,958
(*) Includes fees and commission expenses of cash loans. b. Information on interest expense to associates and subsidiaries:
Current Period Interest Expense to Associates and Subsidiaries 10,806 c. Information on interest expense to marketable securities issued:
Current Period TRL FC Interest expense on securities issued 216,750 41,175
ŞEKERBANK ANNUAL REPORT 2018
270 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Distribution of interest expense on deposits based on maturity of deposits:
Time Deposits Demand Up to 1 Up to 3 Up to 6 More than Accumulated Current Period Deposits Month Months Months Up to 1 Year 1 Year Deposits Total TRL Bank deposits - 11,430 20,635 - - - - 32,065 Saving deposits 475 170,644 1,051,035 169,627 28,166 45,423 473 1,465,843 Public sector deposits - 104 494 112 158 70 - 938 Commercial deposits 65 59,032 258,744 7,699 1,049 631 1 327,221 Other deposits 12 1,462 67,548 7,908 229 262 - 77,421 7 days call accounts ------Precious metal deposits ------Total 552 242,672 1,398,456 185,346 29,602 46,386 474 1,903,488 Foreign Currency Foreign currency deposits 1,798 19,380 167,550 15,648 7,215 31,787 - 243,378 Bank deposits 19,640 3 1,345 - - - - 20,988 7 days call accounts ------Precious metal deposits 476 ------476 Total 21,914 19,383 168,895 15,648 7,215 31,787 - 264,842 Grand Total 22,466 262,055 1,567,351 200,994 36,817 78,173 474 2,168,330
3. Information on dividend income:
Current Period Financial assets at fair value through profit and loss - Financial assets at fair value through other comprehensive income - Other 2,717 Total 2,717
4. Information on net trading income:
Current Period Income 31,230,089 Profit on capital market operations 18,800 Profit on derivative financial instruments 4,312,768 Foreign exchange gains 26,898,521 Losses (-) 31,373,924 Losses on capital market operations 2,076 Losses on derivative financial instruments 3,308,297 Foreign exchange losses 28,063,551
ŞEKERBANK ANNUAL REPORT 2018
271 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
5. Information on other operating income:
The information on the factors affecting the Bank’s income including new developments, and the explanation on nature and amount of income earned from such items:
As of 31 December 2018, TRL 60,175 Thousand stated under other operating income in the statement of income includes TRL 25,782 Thousand prior years’ expense and provisions reversal income and TRL 34,393 Thousand other operating income.
As of 31 December 2018, prior years expense and provision reversal income includes TRL 7,287 Thousand collection and reversal of specific provisions of cash loans, TRL 2,224 Thousand reversal of non-cash provisions and TRL 16,271 Thousand reversals of legal case provision and other provisions.
6. Provision expenses of banks for loans and other receivables:
Current Period Expected Credit Losses 434,938 12-Month ECL (Stage 1) 15,489 Significant Increase in Credit Risk (Stage 2) 167,183 Impaired Credits (Stage 3) 252,266 Impairment Losses on Securities 148 Financial Assets Measured at Fair Value through Profit or Loss 148 Financial Assets Measured at Fair Value through Other Comprehensive Income - Impairment Losses on Associates, Subsidiaries and Joint-ventures 481 Associates - Subsidiaries 481 Joint-ventures (business partnership) - Other (*) 81,317 Total 516,884
(*) Other provisions also include provisions for non-cash loans.
ŞEKERBANK ANNUAL REPORT 2018
272 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Information on other operating expenses:
Current Period Personnel expenses (***) 423,995 Reserve for employee termination benefits 8,983 Bank social aid provision fund deficit provision 78,045 Impairment losses on fixed assets 1,066 Depreciation expenses of fixed assets 29,371 Impairment losses on intangible assets - Goodwill impairment losses - Depreciation expenses of intangible assets 34,957 Impairment for investments accounted for under equity method - Impairment losses on assets held for resale 2,599 Depreciation expenses of assets held for resale - Impairment losses on assets held for sale - Other operating expenses 412,000 Services Rent expenses 86,188 Maintenance expenses 26,083 Advertisement expenses 24,664 Other expenses (**) 275,065 Loss on sales of assets 490 Other (*) 120,987 Total 1,112,493
(*) “Other” includes TRL 34,800 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 5,514 Thousand legal case provision. (**) Other expenses include TRL 23,003 Thousand communication expenses, TRL 43,703 Thousand computer usage expenses, TRL 10,826 Thousand promotion applications related with credit cards and banking services. (***) The Personnel Expenses, which is shown as a separate item not included in Other Operating Expenses in the Income Statement, is also included in the table.
8. Information on profit/loss from continued and discontinued operations before taxes:
As of 31 December 2018, the Bank has TRL 104,813 Thousand profit before tax, TRL 1,310,195 Thousand of operating income, TRL 351,405 Thousand of fees and commissions income, TRL 516,884 Thousand of provision expenses, TRL 60,175 Thousand of other operating income and TRL 688,498 Thousand of other operating income.
9. Information on tax provision for continued and discontinued operations:
As of 31 December 2018, the Bank has TRL 17,370 Thousand current tax charge and deferred tax benefit on temporary differences is TRL 110,733 Thousand, deferred tax charge is TRL 111,818 Thousand.
10. Information on net profit/loss from continued and discontinued operations:
The Bank’s net profit for the period ended on 31 December 2018 is TRL 86,358 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
273 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. The explanations on net profit/loss for the period: a. The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for the complete understanding of the Bank’s performance for the period: None. b. Effect of changes in accounting estimates on income statement for the current and, if any, for subsequent periods: None. c. If the other items in the income statement exceed 10 % of the income statement total, accounts amounting to at least 20 % of these items are shown below:
Other Fees and commissions received Current Period Banking Services Income 367,672
Other Fees and commissions given Current Period Fees and commissions given to Banks 15,863 Fees and commissions given for Credit Cards 40,612 Other 37,370 Total 93,845
VIII. Explanations Related to Statement of Shareholders’ Equity Movement (Current Period)
1. Information on the changes from valuation of financial assets at fair value through comprehensive income
Value increase or loss from the revaluation of financial assets at fair value through comprehensive incomeis recorded under shareholders equity. In the current period, the value increase recorded under shareholders equity is TRL 13,353 Thousand and net value increase from investments at fair value through other comprehensive income is TRL 2,713 Thousand with netted off deferred tax asset amounting to TRL 10,640 Thousand.
2. Information on revaluation of tangible assets
As a result of the revaluation of the Bank’s real estates within the scope of “TAS 16 Tangible Assets Standard”, the value increase amounting to TRL 2,700 Thousand has been reflected to the financial statements after the deferred tax effect in the current period.
IX. Explanations Related to Statement of Cash Flows (Current Period)
1. The effects of the other items stated in the cash flow statement and the changes in foreign currency exchange rates on cash and cash equivalents:
“Net increase/decrease in other liabilities” amounting to TRL 482,483 Thousand in “Changes in operating assets and liabilities” consists of changes in sundry creditors and other liabilities. “Net increase/decrease in other assets” with a total amount of TRL 241,319 Thousand consists of changes in sundry debtors and other assets.
The effect of change in foreign exchange rate on “cash and cash equivalents” is an increase amounting to TRL 414,317 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
274 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Cash and cash equivalents at beginning of periods
The recorded amounts of the cash and cash equivalent assets at the balance sheet and the recorded amounts in the cash flow statement:
01.01.2018 Cash Cash in TRL/Foreign Currency 192,407 Central Bank of Turkey 577,702 Other 5 Cash Equivalents Banks (Maturity is less than 3 months) 396,157 Money Market Placements 2,429,387 Total Cash and Cash Equivalents 3,595,658
3. Cash and cash equivalents at the end of periods
31.12.2018 Cash Cash in TRL/Foreign Currency 523,721 Central Bank of Turkey 1,239,817 Other 7 Cash Equivalents Banks (Maturity is less than 3 months) 116,369 Money Market Placements 44,000 Total Cash and Cash Equivalents 1,923,914
X. Explanations Related to the Income Statement (Prior Period)
1. Information on interest income: a. Information on interest income on loans:
Prior Period TRL FC Interest on Loans (*) 2,139,853 277,842 Short Term Loans 931,766 30,367 Medium and Long Term Loans 1,171,446 247,475 Interest on Non-Performing Loans 36,641 - Premiums received from Resource Utilization Support Fund - -
(*) Includes fees and commissions obtained from cash loans.
ŞEKERBANK ANNUAL REPORT 2018
275 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on interest received from banks:
Prior Period TRL FC The Central Bank of Turkey - - Domestic Banks 10,609 356 Foreign Banks 435 1,129 Branches and Head Office Abroad - - Total 11,044 1,485 c. Interest income from marketable securities portfolio:
Prior Period TRL FC Trading securities 290 501 Financial assets at fair value through profit and loss - - Available-for-sale securities 146,226 3,815 Held-to-maturity securities 118,845 14,068 Total 265,361 18,384 d. Information on interest income received from associates and subsidiaries:
Prior Period Interest Income Received from Associates and Subsidiaries 6,294
2. Information on interest expense a. Information on interest expense on funds borrowed:
Prior Period TRL FC Banks (*) 5,927 78,741 The Central Bank of Turkey - - Domestic Banks 3,675 3,264 Foreign Banks 2,252 75,477 Branches and Head Office Abroad - - Other Financial Institutions - - Total 5,927 78,741
(*) Includes fees and commission expenses of cash loans. b. Information on interest expense to associates and subsidiaries:
Prior Period Interest Expense to Associates and Subsidiaries 6,990
ŞEKERBANK ANNUAL REPORT 2018
276 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Information on interest expense to marketable securities issued:
Prior Period TRL FC Interest expense on securities issued 98,419 17,390 d. Distribution of interest expense on deposits based on maturity of deposits:
Time Deposits Demand Up to 1 Up to 3 Up to 6 Up to More than Accumulated Prior Period Deposits Month Months Months 1 Year 1 Year Deposits Total TRL Bank deposits 1 35,018 21,986 - - - - 57,005 Saving deposits 171 54,002 652,500 23,433 11,484 25,594 236 767,420 Public sector deposits - - 188 62 185 73 - 508 Commercial deposits 42 19,434 145,441 4,240 806 5,487 1 175,451 Other deposits 1 574 43,861 1,987 92 63 - 46,578 7 days call accounts ------Precious metal deposits ------Total 215 109,028 863,976 29,722 12,567 31,217 237 1,046,962 Foreign Currency Foreign currency deposits 611 7,215 88,078 17,130 3,775 18,220 - 135,029 Bank deposits 3,216 - 453 - - - - 3,669 7 days call accounts ------Precious metal deposits 312 ------312 Total 4,139 7,215 88,531 17,130 3,775 18,220 - 139,010 Grand Total 4,354 116,243 952,507 46,852 16,342 49,437 237 1,185,972
3. Information on dividend income:
Prior Period Trading Securities - Financial assets at fair value through profit and loss - Available-for-sale securities - Other 4,930 Total 4,930
4. Information on net trading income:
Prior Period Income 13,330,599 Profit on capital market operations 754 Profit on derivative financial instruments 2,086,047 Foreign exchange gains 11,243,798 Losses (-) 13,548,573 Losses on capital market operations 734 Losses on derivative financial instruments 2,182,139 Foreign exchange losses 11,365,700
ŞEKERBANK ANNUAL REPORT 2018
277 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
5. Information on other operating income:
The information on the factors affecting the Bank’s income including new developments, and the explanation on nature and amount of income earned from such items:
As of 31 December 2017, TRL 228,834 Thousand stated under other operating income in the statement of income includes TRL 187,737 Thousand prior years’ expense and provisions reversal income and TRL 41,097 Thousand other operating income.
As of 31 December 2017, prior years expense and provision reversal income includes TRL 90,187 Thousand collection and reversal of specific provisions of cash loans, TRL 8,692 Thousand reversal of non-cash provisions, TRL 3,177 Thousand of securities impairment provision reversal and TRL 85,681 Thousand reversals of legal case provision and other provisions.
Visa Europe Ltd, the payment systems company to which the Bank was also a member, has been transferred to Visa Inc., operating in the same field, and TRL 14,225 Thousand that has been paid to the Bank as a result of this transaction. Within the scope of the said acquisition, the Bank has also acquired 1,574 units of C type shares of Visa Inc., which were recorded at the value of TRL 4,559 Thousand.
6. Provision expenses of banks for loans and other receivables:
Prior Period Specific provisions for loans and other receivables 423,936 III. Group Loans and Receivables 53,240 IV. Group Loans and Receivables 97,787 V. Group Loans and Receivables 272,909 General loan loss provision expenses - Provision expenses for possible losses - Marketable securities impairment losses 2,018 Financial assets at fair value through profit and loss 53 Investment securities available-for-sale 1,965 Impairment provision expense 3,517 Associates - Subsidiaries 2,305 Entities under common control - Investments held-to-maturity 1,211 Other (*) 41,892 Total 471,362
(*) Other provisions include TRL 18,197 Thousand unindemnified non-cash loans provision.
ŞEKERBANK ANNUAL REPORT 2018
278 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Information on other operating expenses:
Prior Period Personnel expenses 367,471 Reserve for employee termination benefits 5,201 Bank social aid provision fund deficit provision 48,904 Impairment losses on fixed assets 1,474 Depreciation expenses of fixed assets 27,174 Impairment losses on intangible assets - Goodwill impairment losses - Depreciation expenses of intangible assets 32,627 Impairment for investments accounted for under equity method - Impairment losses on assets held for resale 2,759 Depreciation expenses of assets held for resale 7,685 Impairment losses on assets held for sale - Other operating expenses 367,402 Services Rent expenses 72,014 Maintenance expenses 21,195 Advertisement expenses 19,030 Other expenses (**) 255,163 Loss on sales of assets 55 Other (*) 130,407 Total 991,159
(*) “Other” includes TRL 36,500 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 5,310 Thousand legal case provision and TRL 15,994 Thousand premium provision. (**) Other expenses include TRL 22,001 Thousand communication expenses, TRL 37,487 Thousand computer usage expenses, TRL 8,033 Thousand promotion applications related with credit cards and banking services.
8. Information on profit/loss from continued and discontinued operations before taxes:
Profit before tax of the Bank has decreased by 0.06 % for the period ended 31 December 2017 as compared to the related prior period. In comparison with the related prior period, the Bank’s operating income increased by 3%, net fees and commissions’ income increased by 15.28 %, provision expenses decreased by 10.85 %, other operating income decreased by 20.45 % and other operating expenses increased by 11.74%.
9. Information on tax provision for continued and discontinued operations: a. As of 31 December 2017, current tax charge is TRL 35,830 Thousand and deferred tax benefit is TRL 11,193 Thousand. b. Deferred tax benefit on temporary differences is TRL 11,193 Thousand.
10. Information on net profit/loss from continued and discontinued operations:
The net profit of the Bank decreased for the period ended 31 December 2017 by 8.23 % as compared to the related prior period profit.
ŞEKERBANK ANNUAL REPORT 2018
279 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. The explanations on net profit/loss for the period: a. The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for the complete understanding of the Bank’s performance for the period: None. b. Effect of changes in accounting estimates on income statement for the current and, if any, for subsequent periods: None. c. If the other items in the income statement exceed 10 % of the income statement total, accounts amounting to at least 20 % of these items are shown below:
Other Fees and commissions received Prior Period Banking Services Income 332,023
Other Fees and commissions given Prior Period Fees and commissions given to Banks 15,274 Fees and commissions given for Credit Cards 26,418 Other 27,594 Total 69,286
XI. Explanations Related to Statement of Shareholders’ Equity Movement (Prior Period)
1. Information on the changes from valuation of financial assets available-for-sale
Value increase or loss from the revaluation of available-for-sale investment is recorded under shareholders equity. In the current period, the value increase recorded under shareholders equity is TRL 8,018 Thousand and net value increase from available-for-sale investments is TRL 6,414 Thousand with netted off deferred tax liability amounting to TRL 1,604 Thousand.
2. Information on revaluation of tangible assets
As a result of the revaluation of the Bank’s real estates within the scope of “TAS 16 Tangible Assets Standard”, the value increase amounting to TRL 11,567 Thousand has been reflected to the financial statements after the deferred tax effect in the current period.
ŞEKERBANK ANNUAL REPORT 2018
280 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XII. Explanations Related to Statement of Cash Flows (Prior Period)
1. The effects of the other items stated in the cash flow statement and the changes in foreign currency exchange rates on cash and cash equivalents:
“Net increase/decrease in other liabilities” amounting to TRL 166,148 Thousand in “Changes in operating assets and liabilities” consists of changes in sundry creditors and other liabilities. “Net increase/decrease in other assets” with a total amount of TRL 677,308 Thousand consists of changes in sundry debtors and other assets.
The effect of change in foreign exchange rate on “cash and cash equivalents” is an increase amounting to TRL 32,351 Thousand.
2. Cash and cash equivalents at beginning of periods
The recorded amounts of the cash and cash equivalent assets at the balance sheet and the recorded amounts in the cash flow statement:
01.01.2017 Cash Cash in TRL/Foreign Currency 182,599 Central Bank of Turkey 1,626 Other 4 Cash Equivalents Banks (Maturity is less than 3 months) 75,507 Money Market Placements - Total Cash and Cash Equivalents 259,736
3. Cash and cash equivalents at the end of periods
31.12.2017 Cash Cash in TRL/Foreign Currency 192,407 Central Bank of Turkey 577,702 Other 5 Cash Equivalents Banks (Maturity is less than 3 months) 396,157 Money Market Placements 2,429,387 Total Cash and Cash Equivalents 3,595,658
ŞEKERBANK ANNUAL REPORT 2018
281 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XIII. Explanations on the Risk Group of the Bank
1. Volume of related party transactions, income and expense amounts involved and outstanding loan and deposit balances: a. Current Period:
Associates, Subsidiaries Direct and Indirect Other Components in Risk and Joint-Ventures Shareholders of the Bank Group Related Parties Cash Non-Cash Cash Non-Cash Cash Non-Cash Loans and other receivables Balance at beginning of period 25,553 15,816 552,666 16,912 - - Balance at end of period 31,880 4,555 830,489 18,697 - - Interest and commission income 11,427 96 98,727 189 - - b. Prior Period:
Subsidiaries and Direct and Indirect Other Entities Included in Associates Shareholders of the Bank the Risk Group Related Parties Cash Non-Cash Cash Non-Cash Cash Non-Cash Loans and other receivables Balance at beginning of period 23,507 18,305 474,015 15,344 - - Balance at end of period 25,553 15,816 552,666 16,912 - - Interest and commission income 6,294 200 46,768 154 - - c.1. Information on related party deposits balances:
Associates, Subsidiaries Direct and Indirect Other Components in Risk Related parties and Joint-Ventures Shareholders of the Bank Group Current Prior Current Prior Current Prior Deposits Period Period Period Period Period Period Balance at beginning of period 81,329 246,859 92,797 57,410 - - Balance at end of period 416,812 81,329 376,221 92,797 - - Interest on deposits 10,806 6,990 22,852 14,345 - - c.2. Information on forward and option agreements and other similar agreements made with related parties:
Associates, Subsidiaries Direct and Indirect Other Components in Risk Related Parties and Joint-Ventures Shareholders of the Bank Group Financial Assets at Fair Value Current Prior Current Prior Current Prior Through Profit and Loss Period Period Period Period Period Period Beginning Balance 545,276 420,688 - - - - Ending Balance 282,222 545,276 - - - - Total Profit/Loss (*) (132,571) (38,648) - - - -
(*)The Bank and its subsidiaries do not conduct derivative transactions “for-profit”, derivative transactions for hedging are carried out in the framework of subsidiaries’ risk management policy. The risks arising from derivative transactions conducted with subsidiaries are covered by the derivative transactions with third parties.
ŞEKERBANK ANNUAL REPORT 2018
282 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Disclosures for related parties: a. The relations of the Bank with the entities controlled by the Bank and its related parties, regardless of whether there are any transactions or not:
In the normal course of its banking activities, the Bank conducted various business transactions with related parties at commercial terms and at rates which approximate market rates. b. Nature of the transactions amount and ratio to the total volume of transactions, amount of major items and ratio to all items, pricing policies and other factors:
Amount Shares (%) Cash loans 862,369 4.19 Non-cash loans 23,252 0.39 Deposits 793,033 3.43 Forward transactions and option agreements 282,222 1.99
These transactions are priced in accordance with the general pricing policies of the Bank and are in line with market rates. c. In cases separate disclosure is not necessary, in order to present the total impact on the financial statements, total of similar items: Explained in b). d. Transactions accounted under the equity method: None. e. Disclosures related to purchase and sale of real estate and other assets, services given/received, agency contracts, leasing contracts, transferring information as a result of research and development, license contracts, financing (including supports in the form of loans, capital in cash and capital in kind), guarantees, and management contracts:
The Bank enters into lease agreements with Şeker Finansal Kiralama A.Ş. As of 31 December 2018 there is no leasing obligations related to those agreements (31 December 2017-TRL 20 Thousand). Additionally, the Bank provides agency services for Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş. and Şeker Finansman A.Ş through its branches.
With-in the limits of the Banking Law, the Bank renders cash and non-cash loans to its related parties and the ratio of these loans to the Bank’s total cash and non-cash loan portfolio is 3.34% as of end of the reporting period. Details of these loans are explained in the Section V, Note VII 1a. f. Benefits provided to top management personnel as of 31 December 2018 amount to TRL 21,129 Thousand (31 December 2017-TRL 21,692 Thousand).
ŞEKERBANK ANNUAL REPORT 2018
283 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XIV. Explanations on the Bank’s domestic branches, agencies and branches abroad and off-shore branches:
Number of Branches Number of Employees Domestic branches 273 3,571 Country Rep-offices Abroad - - -
Total Assets Capital Branches abroad - - - - - Off-shore Branches - - - -
2. Explanations on Branch and Agency Openings or Closings of the Bank:
None.
XV. Explanations and notes related to subsequent events:
The Bank’s note Corporate Governance Rating of 2017, which was 9.27 (92.70%) announced to the public on 25 January 2018, was increased to 9.42 (94.23%) on 23 January 2019 by Saha Corporate Governance and credit rating services, as a result of the evaluation made for 2018 year.
On 28 January 2019 international credit rating agency Fitch Ratings has confirmed to Bank’s long-term local and foreign currency rating as “B”, short-term local and foreign currency rating as “B”, financial capacity the rating as “b”, support rating as “5” and outlook as “negative” and has disclosed long-term national credit rating at “BBB-(Tur)”.
Within the scope of the resolution of the Capital Markets Board dated 25 October 2018 and numbered 53/1227, the Bank has completed the sale of discounted financing bills with a nominal value of TL 50,000 Thousand with a maturity of 77 days with a TRFSKBK41917 ISIN Code at 11 February 2019.
At the meeting of the Board of Directors, dated 13 February 2019 has been decided to be held the 66th Ordinary General Assembly Meeting of Bank for the fiscal year of 2018 on 27 March 2019 Wednesday at 10:00 am at the headquarters located at Emniyet Evleri Mah. Eski Büyükdere Caddesi No: 1/1A Kağıthane/İSTANBUL and has been authorized the General Management to make all necessary announcements, correspondence and all other preparations for these transactions.
On 19 February 2019, an application was made for permission to the Capital Markets Board and the Banking Regulation and Supervision Agency regarding the amendment of the Article 18 titled “Issuance of Debenture Bond” and the Article 28 titled “The Duties and Authorizations of the Board of Directors” of the Articles of Association of Bank.
ŞEKERBANK ANNUAL REPORT 2018
284 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION SIX OTHER EXPLANATIONS
I. Other Explanations
The results of the Bank’s rating by the international rating institutions are shown below
Fitch Ratings: September 2018 JCR: September 2018 Foreign Currency Foreign Currency Long Term B International Long Term BBB- Short Term B International Short Term A-3 Outlook Negative Local Currency Local Currency International Long Term BBB- Long Term B International Short Term A-3 Short Term B Outlook Negative Outlook Negative Long Term National AA-(Trk) National BBB (tur) Short Term National A-1+ (Trk) Outlook Viability Negative Support Rating 3 Support Rating B Individual Rating AB Foreign Currency 5
Moody’s: August 2018 Foreign Currency Long Term Caa1 Short Term NP Local Currency Long Term Caa1 Short Term NP National Long Term Ba3.tr National Short Term TR-4 Outlook Negative
SECTION SEVEN INDEPENDENT AUDITORS’ REPORT
I. Explanations on the Independent Auditors’ Report:
The unconsolidated financial statements for the period ended 31 December 2018 were audited by DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ Member of Deloitte Touche Tohmatsu) and independent Auditors’ Report dated 28 February 2019 is presented in the introduction of this report.
II. Other Footnotes and Explanations Prepared by Independent Auditors:
None.
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285
ŞEKERBANK TÜRK ANONIM ŞIRKETI AND ITS FINANCIAL SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2018 WITH AUDITORS’ REPORT THEREON
(CONVENIENCE TRANSLATION OF CONSOLIDATED FINANCIAL STATEMENTS AND RELATED DISCLOSURES AND FOOTNOTES ORIGINALLY ISSUED IN TURKISH) FINANCIAL INFORMATION
(CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH)
INDEPENDENT AUDITOR’S REPORT
To the General Assembly of Şekerbank T.A.Ş.
A) Report on the Audit of the Consolidated Financial Statements
1) Opinion
We have audited the consolidated financial statements of Şekerbank T.A.Ş. (“the Bank”) and its consolidated subsidiaries (“the Group”), which comprise the consolidated balance sheet as at 31 December 2018, and the consolidated statement of income, consolidated statement of income and expense items accounted for under shareholders’ equity, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulations” including 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 provisions of Turkish Financial Reporting Standards (TFRS) for the matters not legislated by the aforementioned regulations.
2) Basis for Opinion
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 Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3) Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Key Audit Matter How the matter was addressed in the audit First time adaptation of TFRS 9 Financial Instruments Standard and Impairment of loans in accordance with TFRS 9
The Group has the total loans amounting to TRY 21,956,861 As part of our audit work, the following procedures were thousands, which comprise 66.6% of the Group’s total assets in performed: its unconsolidated financial statements and the total provision for impairment amounting to TRY 1,625,322 as at 31 December The Group’s IFRS 9 policy of the classification of financial assets 2018. Impairment of loans is a key area of judgement for the and financial liabilities has been read and compared with the management. requirements of TFRS 9.
As of 1 January 2018, the Group has started to recognize The Group’s contractual cash flows tests for its financial provisions for impairment in accordance with the TFRS 9 instruments have been reviewed, its criteria and results have been requirements according to the “Regulation on the Procedures and evaluated. Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 The appropriateness of the opening balance adjustments and the numbered 29750. disclosures presented were checked.
TFRS 9 standard introduced significant changes in accounting The procedures applied for the expected credit losses are set policies and required adjustments to be made to the amounts out in the key audit matter related to the “Impairment of loans in previously recognized in accordance with the transition rules. accordance with TFRS 9” above.
For the first time adoption of TFRS 9, the Group included more We assessed and tested the design, implementation and operating significant estimates and judgments in determining the business effectiveness of key controls applied by the Group with respect model and the cash flows characteristics of contracts. Since to classification of loans and determination and calculation of the Group had a fundamental change in its financial reporting impairments. framework and had an impact on many significant financial statement line-items, the first time adoption of TFRS 9 has been We have read and analysed the relevant contract terms to considered as a key audit matter. assess management’s accounting policy and classification of the instrument for selected samples. In this respect, as of 31 December 2017, the method of provisions for impairment as set out in accordance with the related We have performed loan review procedures on selected samples legislation of BRSA as mentioned in the Section 3 Note XXIII of of loans with the objective of identifying whether the loss event Explanation on Accounting Policies has been changed by applying had occurred and whether the provision for impairment has the expected credit loss model under TFRS 9. The expected credit been recognized in a timely manner within the framework of the loss estimates are required to be unbiased, probability-weighted provisions of the relevant legislation. and should include supportable information about past events, current conditions, and forecasts of future economic conditions. We have tested relevant inputs and assumption used by the management in each stage of the expected credit loss calculation The Group exercises significant decisions using judgement, by considering whether the inputs and assumptions appear interpretation and assumptions over calculating loan impairments. reasonable, the relationship between the assumptions and These judgements, interpretations and assumptions are key in the whether the assumptions are interdependent and internally development of the financial models built to measure the expected consistent, whether the assumptions appropriately reflect current credit losses on loans. market information and collections, and whether the asumptions appear reasonable when considered collectively with other There is a potential risk of impairment losses/provisions provided/ assumptions, including those for the same accounting estimates will be provided may not meet the requirements of the TFRS and those for other accounting estimates. 9. Failure in determining the loans that are impaired and not recording the adequate provision for these impaired loans is We have tested historical loss data to validate the completeness the aforementioned risk. Accordingly, impairment of loans is and accuracy of key parameters. considered as a key audit matter.
Related explanations relating to the impairment of loans are presented in Section 5 Note I.5.
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We have tested whether the model is applied to appropriate groupings of assets which share credit risk characteristics and whether the historical loss rates were incurred under economic conditions representative of those that may exist during the assets’ exposure periods.
Based on our discussions with the Group management, we evaluated whether the key assumptions and other judgements underlying the estimations of impairments were reasonable.
Our specialists are involved in all procedures related to models and assumptions.
We have reviewed disclosures made within the TFRS 9 framework in the financial statements of the Group with respect to loans and related impairment provisions. Key Audit Matter How the matter was addressed in the audit Valuation of Pension Fund Obligations
Defined benefit pension plan that the Parent Bank provides Our audit work included the following procedures: to its employees is managed by Şekerbank T.A.Ş. Personeli Sosyal Sigorta Sandığı Vakfı which were established by the 20th We involved external experts (actuary) in our audit team to provisional article of the Social Security Law numbered 506 evaluate the assumptions used in the calculation of the pension (“Law”). obligations and the appropriateness of the estimates.
As disclosed in the Section III note XVI to the consolidated financial It has been tested whether the plan assets meet plan obligations statements, the Plan is composed of benefits which are subject in accordance with the methods and assumptions used. to transfer to the Social Security Foundation (“SSF”) as per the Social Security Law no.5510 provisional article 20, and other We have assessed whether there is a significant change in the social rights and pension benefits provided by the Bank that are actuarial assumptions, methods, legal regulations and legislation not transferable to the SSF. The Council of Ministers has been used in the calculations and whether the assumptions are authorized to determine the transfer date. Following the transfer, reasonable. the funds and the institutions that employ the funds’ members will cover the non-transferable social rights and pension benefits provided under the Plan.
As of 31 December 2018, the Pension Fund’s present value of transferrable liabilities are calculated by an independent actuary using the actuarial assumptions regulated by the Law, and in accordance with the Decision of the Council of Ministers announced dated 30 November 2006 and No.2006/11345. The valuation of the Plan liabilities requires judgment in determining appropriate assumptions such as defining the transferrable social benefits, discount rates, salary increases, inflation rates, demographic assumptions, and the impact of changes in the Plan. Management uses expert opinion of the independent actuary in assessing uncertainties related to these underlying assumptions and estimates.
As described in Section V note III.9.e considering the subjectivity of key judgments and assumptions, plus the uncertainty around the transfer date and basis of the transfer calculation given the fact that the technical interest rate is prescribed under the Law, we considered this a key audit matter.
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Key Audit Matter How the matter was addressed in the audit Information Technologies Audit
The Bank and its finance functions are dependent on the IT- Procedures within the context of our information technology audit infrastructure for the continuity of its operations, and the demand work: for technology-enabled business services is rapidly growing in the Bank and its subsidiaries. Controls over reliability and We identified and tested the Groups’ controls over information continuity of the electronic data processing are within the scope systems as part of our audit procedures. of the information systems internal controls audit. The reliance on information systems within the Group means that the controls Information generation comprise all layers of information systems over access rights, continuity of systems, privacy and integrity of including applications, networks, transmission systems and the electronic data are critical and found to be key area of focus as database. The information systems controls tested are categorized part of our risk based scoping. in the following areas:
• Manage security • Manage changes • Manage operations
We selected high-risk areas as, database logging and change management control activities, to prevent and detect whether accesses to financial data had been identified in a timely manner.
We tested the accesses and logging controls underlying all applications that have direct or indirect impacts on financial data generation.
Automated controls and integration controls are tested to underly and detect changes and accesses in the process of financial data generation.
We also tested the appropriateness and accuracy of the information produced by the entity and information used in controls reports as inputs to our controls and outputs generated by the IT components.
Finally, we understood and tested the controls over database, network, application and operating system layers of applications.
4) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the BRSA Accounting and Reporting Regulations, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
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5) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Responsibilities of independent auditors in an independent audit are as follows:
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.)
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
B) 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 2018 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.
The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat.
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 consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified and reflected in the accompanying consolidated financial statements. The accounting principles used in the preparation of the accompanying consolidated financial statements differ materially from IFRS. Accordingly, the accompanying consolidated financial statements are not intended to present the Group’s consolidated financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the consolidated financial statements and IFRS.
DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED
Yaman Polat, SMMM Partner
İstanbul, 5 March 2019
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THE CONSOLIDATED FINANCIAL REPORT OF ŞEKERBANK T.A.Ş. FOR THE YEAR ENDED 31 DECEMBER 2018
Address : Emniyet Evleri Mah. Eski Büyükdere Cad. No:1/1A 34415 Kağıthane / İstanbul Telephone : (212) 319 70 00 Fax : (212) 319 73 79 Web Site : www.sekerbank.com.tr E-mail Address : [email protected]
The consolidated financial report designed by the Banking Regulation and Supervision Agency in line with Communiqué on Financial Statements to be Publicly Announced and the Related Policies and Disclosures consists of the sections listed below:
• GENERAL INFORMATION ABOUT THE PARENT BANK • CONSOLIDATED FINANCIAL STATEMENTS OF THE PARENT BANK • EXPLANATIONS ON THE CORRESPONDING ACCOUNTING POLICIES APPLIED • INFORMATION ON FINANCIAL POSITION AND RISK MANAGEMENT OF THE GROUP WHICH IS UNDER CONSOLIDATION • EXPLANATORY DISCLOSURES AND FOOTNOTES ON CONSOLIDATED FINANCIAL STATEMENTS • OTHER EXPLANATIONS • INDEPENDENT AUDITORS’ REPORT
Subsidiaries whose financial statements have been consolidated in the consolidated financial report are as follows:
Subsidiaries Şekerbank (Kıbrıs) Ltd. Şekerbank International Banking Unit Ltd. Şeker Faktoring A.Ş. Şeker Yatırım Menkul Değerler A.Ş. Şeker Finansal Kiralama A.Ş. Şeker Finansman A.Ş. Zahlungsdienste GmbH der Şekerbank T.A.Ş.
The consolidated financial statements and the explanatory footnotes and disclosures, unless otherwise indicated, are prepared in Thousands of Turkish Lira, in accordance with the Communiqué on Banks’ Accounting Practice and Maintaining Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards, related communiqués and the Banks’ records, have been independently audited and presented as attached.
The consolidated 31 December 2018 financial statements are audited and they do not include any false explanation in material subjects and absences that may result in misleading statements and fairly reflect the Bank’s financial position, the risks faced and uncertainty.
Dr. Hasan Basri GÖKTAN Servet TAZE Çetin AYDIN Chairman of The Board of General Manager Member of the Audit Directors Committee
Aidar RYSKULOV Üzeyir BAYSAL Selim Güray ÇELİK Orhan ULUYOL Member of the Member of the Executive Vice President Group Head Audit Committee Audit Committee
Information related to responsible personnel for the questions about financial statements: Name-Surname / Title : Oya SARI / Investor Relations and Structured Finance Manager Telephone No : (212) 319 71 58 Fax No : (212) 319 71 62
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INDEX Page Number SECTION ONE General Information I. Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in the Mentioned Status 296 II. Explanations Regarding Bank’s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the Managing and Controlling Power and Changes in Current Year, if any and Explanations on the Controlling Group of the Bank 296 III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit Committee, General Manager and Executive Vice Presidents and Their Shares and Their Rights of Responsability in the Bank 297 IV. Information about the person and institutions that have qualified shares 298 V. Summary on the Bank’s Functions and Areas of Activity 298 VI. Differences Between The Communique On Preparation Of Consolidated Financial Statements Of Banks And Turkish Accounting Standards And Short Explanatıon About The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And Institutions Which Are Deducted From Equity Or Not Included In These Three Methods 298 VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders’ Equity Between The Parent Bank And its Subsidiaries Or The Reimbursement Of Liabilities 298
SECTION TWO Consolidated Financial Statements I. Consolidated Balance Sheet (Consolidated Statement of Financial Position) (Current Period) 300 II. Consolidated Statement of Off Balance Sheet Contingencies and Commitments (Current Period) 302 III. Consolidated Statement of Income (Current Period) 303 IV. Consolidated Statement of Profit Or Loss And Other Comprehensive Income (Current Period) 304 V. Consolidated Statement of Changes in Shareholders’ Equity (Current Period) 305 VI. Consolidated Statement of Cash Flows (Current Period) 306 VI. Profit Distribution Table (Current Period) 307 VII. Consolidated Balance Sheet (Consolidated Statement of Financial Position) (Prior Period) 308 VIII. Consolidated Statement of Off Balance Sheet Contingencies and Commitments (Prior Period) 310 IX. Consolidated Statement of Income (Prior Period) 311 X. Consolidated Statement of Profit and Loss Accounted for Under Equity (Prior Period) 312 XI. Consolidated Statement of Changes in Shareholders’ Equity (Prior Period) 313 XII. Consolidated Statement of Cash Flows (Prior Period) 314 VI. Profit Distribution Table (Prior Period) 315
SECTION THREE Accounting Principles I. Basis of Presentation 316 II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions 316 III. Explanations on Associates and Consolidated Subsidiaries 317 IV. Explanations on Forward and Option Contracts and Derivative Instruments 318 V. Explanations on Interest Income and Expenses 319 VI. Explanations on Fees and Commission Income and Expenses 319 VII. Explanations on Financial Assets 319 VIII. Explanations on Impairment on Financial Assets 322 IX. Explanations on Offsetting of Financial Assets and Liabilities 323 X. Explanations on Sales and Repurchase Agreements and Lending of Securities 323 XI. Explanations on Assets Held For Sale and Discontinued Operations 324 XII. Explanations on Goodwill and Other Intangible Assets 324 XIII. Explanations on Tangible Fixed Assets 324 XIV. Explanations on Leasing Transactions 325 XV. Explanations on Provisions and Contingent Liabilities 326 XVI. Explanations on Liabilities Regarding Employee Benefits 326 XVII. Explanations on Taxation 328 XVIII. Additional Explanations on Borrowings 329 XIX. Explanations on Share Certificates 330 XX. Explanations on Independent Guarantees and Acceptances 330 XXI. Explanations on Government Incentives 330 XXII. Explanations on Segment Reporting 330 XXIII. Explanations on Other Matters 331
SECTION FOUR Information Related to Consolidated Financial Position and Risk Management of the Bank I. Explanations Related to Consolidated Shareholders’ Equity 338 II. Explanations Related to Consolidated Credit Risk 348 III. Explanations Related to Consolidated Currency Risk 360 IV. Explanations Related to the Consolidated Interest Rate Risk 363 V. Explanations Related to Equity Securities Position Risk of Equity Securities in Banking Book 367 VI. Explanations Related to Consolidated Liquidity Risk Management and Consolidated Liquidity Coverage Ratio 367 VII. Explanations Related to Consolidated Leverage Ratio 376 VIII. Explanations Related to Presentation of Consolidated Financial Assets and Liabilities at Fair Value 377 IX. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust 379 X. Explanations Related to Consolidated Risk Management 379
SECTION FIVE Explanations and Disclosures on Consolidated Financial Statements I. Explanations Related to the Consolidated Assets (Current Period) 404 II. Explanations Related to the Consolidated Assets (Prior Period) 424 III. Explanations Related to the Consolidated Liabilities (Current Period) 446 IV. Explanations Related to the Consolidated Liabilities (Prior Period) 457 V. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and Commitments (Current Period) 467 VI. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and Commitments (Prior Period) 472 VII. Explanations Related to the Consolidated Statement of Income (Current Period) 476 VIII. Explanations Related to Consolidated Statement of Shareholders’ Equity Movement (Current Period) 481 IX. Explanations Related to Consolidated Statement of Cash Flows (Current Period) 482 X. Explanations Related to the Consolidated Statement of Income (Prior Period) 483 XI. Explanations Related to Consolidated Statement of Shareholders’ Equity Movement (Prior Period) 488 XII. Explanations Related to Consolidated Statement of Cash Flows (Prior Period) 488 XIII. Explanations on the Risk Group of the Parent Bank 489 XIV. Explanations on the Parent Bank’s domestic branches, agencies and branches abroad and off-shore branches 491 XV. Explanations and Notes Related to Subsequent Events 492
SECTION SIX Other Explanations I. Other Explanations on Group’s Opeations 493
SECTION SEVEN Independent Auditors’ Report I. Explanations on the Matters Related to Independent Auditors’ Report 494 II. Other Footnotes and Explanations Prepared by the Independent Auditors 494
ŞEKERBANK ANNUAL REPORT 2018
295 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION ONE GENERAL INFORMATION
I. Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in the Mentioned Status
Şekerbank T.A.Ş. (“the Parent Bank”) founded as a Turkish bank by 14 partners started its operations in 1953 as Pancar Kooperatifleri Bankası A.Ş. in Eskişehir, and in 1956 the Bank changed its name to Şekerbank T.A.Ş and moved its headquarters to Ankara in 1956. 15 % of the Parent Bank shares were offered to public in 1997 and currently 34.19 % of the Parent Bank shares are publicly traded. The Parent Bank’s one of the main shareholders, Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı, provide its members with additional social rights and retirement guarantees within the social security system. The Parent Bank has affiliates and subsidiaries in the finance, real estate and tourism sectors.
Business line of the Parent Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and providing other banking services.
II. Explanations Regarding The Parent Bank’s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the Managing and Controlling Power and Changes in Current Year, if any and Explanations on the Controlling Group of the Parent Bank
Amounts Paid in Unpaid Name of Shareholders of Share Share (%) Capital Capital Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389 - Samruk-Kazyna, the National Welfare Fund of Kazakhstan 224,353 19.37 224,353 - Şekerbank T.A.Ş. 109,212 9.43 109,212 - Others 18,092 1.57 18,092 - Public offerings 395,954 34.19 395,954 - Total 1,158,000 100.00 1,158,000 -
ŞEKERBANK ANNUAL REPORT 2018
296 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit Committee, General Manager and Executive Vice Presidents and Their Shares and Their Rights of Responsability in the Bank
Title Name and Surname Responsibility Areas Chairman of the Board of Directors Dr. Hasan Basri Göktan Chairman & Executive Board Member, Credit Committee, Corporate Governance Committee, Remuneration Committee
General Manager Servet Taze Board Member, General Manager, Credit Committee, Observer in the Remuneration Committee
Members of the Board of Directors Beibit Karymsakov Vice-Chairman, Remuneration Committee Emin Erdem Executive Board Member, Credit Committee Erdal Batmaz Executive Board Member Nariman Zharkinbayev Executive Board Member, Credit Committee, Corporate Governance Committee Üzeyir Baysal (*) Independent Member, Corporate Governance Committee, Audit Committee Halit Haydar Yıldız Renumeration Committee Aidar Ryskulov (*) Audit Committee Almat Zhamiyev Corporate Governance Committee Çetin Aydın (*) Audit Committee Mehmet Ayhan Altıntaş Internal Systems, Corporate Governance Committee
Executive Vice Presidents Hüseyin Üst Credit Monitoring & Follow-Up Nihat Büyükbozkoyun Operations Selim Güray Çelik Financial Control, Reporting, Budget and Performance Management, Corporate Governance Committee Gökhan Ertürk Agricultural & Individual Banking Marketing Umut Ülbegi Corporate and Commercial Banking Marketing Salih Zeki Önder Financial Institutions Ahmet Hakan Eken Credit Management Aybala Şimşek Strategy and Human Resources Erdal Erdem SME Banking Marketing Aytay Tolga Şenefe Treasury
(*) According to Communiqué On Corporate Governance Principles of Capital Markets Board, No: II-17.1, Audit Committee members of the banks are accepted as independent members of the Board of Directors.
The Chairman of the Board of Directors Dr. Hasan Basri Göktan has total shares of 0.05 % in nominal, amounting to TRL 577 Thousand; which is obtained from public offering.
ŞEKERBANK ANNUAL REPORT 2018
297 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
IV. Information About the Persons and Institutions That Have Qualified Shares in the Parent Bank:
Amounts of Paid in Capital Unpaid Name/ Commercial Name Share TRL Thousand Share (%) TRL Thousand Capital Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389 - Samruk-Kazyna, the National Well-fare Fund of Kazakhstan 224,353 19.37 224,353 -
V. Summary on the Parent Bank’s Functions and Areas of Activity
Business line of the Parent Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and providing other banking services. As of 31 December 2018, the Parent Bank has 273 domestic branches (31 December 2017 - 273 domestic branches).
VI. Differences Between The Communiqué On Preparation Of Consolidated Financial Statements Of Banks And Turkish Accounting Standards And Short Explanation About The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And Institutions Which Are Deducted From Equity Or Not Included In These Three Methods
According to the Communique On Preparation Of Consolidated Financial Statements Of Banks, the Bank’s subsidiaries Şekerbank (Kıbrıs) Ltd., Şeker Finansal Kiralama A.Ş., Şekerbank International Banking Unit Ltd., Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş., Şeker Finansman A.Ş. and Zahlungsdienste GmbH der Şekerbank T.A.Ş. are included in the scope of consolidation by line-by-line method and Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. is not subject to consolidation as it is not a financial subsidiary.
Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated in the financial statements since the Parent Bank has no control and it is not a financial subsidiary.
According to Turkish Accounting Standards, all financial and non-financial subsidiaries are consolidated.
VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders’ Equity Between The Parent Bank And its Subsidiaries Or The Reimbursement Of Liabilities
There is no immediate transfer of the shareholders’ equity between the Parent Bank and its subsidiaries. Dividend distribution from shareholders’ equity is done according to related regulations. There is no existing or potential, actual or legal obstacle to the repayment of liabilities between the Parent Bank and its subsidiaries.
ŞEKERBANK ANNUAL REPORT 2018
298 FINANCIAL INFORMATION
SECTION TWO CONSOLIDATED FINANCIAL STATEMENTS
I. Consolidated Balance Sheet (Consolidated Statement of Financial Position) II. Consolidated Statement of Off Balance Sheet Contingencies and Commitments III. Consolidated Statement of Income IV. Consolıdated Statement of Profıt Or Loss And Other Comprehensive Income V. Consolidated Statement of Changes in Shareholders’ Equity VI. Consolidated Statement of Cash Flows VII. Consolidated Profit Distribution Table
ŞEKERBANK ANNUAL REPORT 2018
299 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018 ASSETS Note Ref. TRL FC Total I. FINANCIAL ASSETS (Net) 4,260,008 4,083,415 8,343,423 1.1 Cash and Cash Equivalents 1,018,257 2,866,191 3,884,448 1.1.1 Cash Balances and Central Bank (1) 930,193 2,689,044 3,619,237 1.1.2 Banks (3) 34,699 171,320 206,019 1.1.3 Money Market Placements 53,365 5,827 59,192 1.2 Financial Assets at Fair Value Through Profit and Loss (2) 76,065 9,524 85,589 1.2.1 Public Sector Debt Securities 16,048 9,524 25,572 1.2.2 Equity Securities - - - 1.2.3 Other Financial Assets 60,017 - 60,017 1.3 Financial Assets at Fair Value Through Other Comprehensive Income (4) 562,381 15,301 577,682 1.3.1 Public Sector Debt Securities 554,804 - 554,804 1.3.2 Equity Securities 7,577 15,301 22,878 1.3.3 Other Financial Assets - - - 1.4 Financial Assets at Amortised Cost (6) 2,452,249 976,473 3,428,722 1.4.1 Public Sector Debt Securities 2,447,744 293,076 2,740,820 1.4.2 Other Financial Assets 4,505 683,397 687,902 1.5 Derivative Financial Assets (2),(11) 167,185 216,034 383,219 1.5.1 Derivative Financial Assets Measured at Fair Value Through Profit and Loss 167,185 216,034 383,219 1.5.2 Derivative Financial Assets Measured at Fair Value Through Other Comprehensive Income - - - 1.6 Non-Performing Financial Assets - - - 1.7 Expected Losses (-) (16,129) (108) (16,237) II. LOANS (Net) (5) 14,845,675 7,111,186 21,956,861 2.1 Loans 14,609,830 6,797,883 21,407,713 2.1.1 Loans at Amortised Cost 14,387,951 6,797,883 21,185,834 2.1.2 Loans at Fair Value Through Profit and Loss 221,879 - 221,879 2.1.3 Loans at Fair Value Through Other Comprehensive Income - - - 2.2 Leasing Receivables (10) 133,007 313,846 446,853 2.2.1 Financial Leasing Receivables 197,781 361,545 559,326 2.2.2 Operational Leasing Receivables - - - 2.2.3 Unearned income ( - ) (64,774) (47,699) (112,473) 2.3 Factoring Receivables (18) 395,937 - 395,937 2.3.1 Factoring Receivables at Amortised Cost 395,937 - 395,937 2.3.2 Factoring Receivables at Fair Value Through Profit and Loss - - - 2.3.3 Factoring Receivables at Fair Value Through Other Comprehensive Income - - - 2.4 Non-Performing Receivables 1,322,461 9,219 1,331,680 2.5 Expected Losses (-) (1,615,560) (9,762) (1,625,322) 2.5.1 12-Month Expected Credit Losses (Stage 1) (112,417) (543) (112,960) 2.5.2 Significant Increase in Credit Risk (Stage 2) (529,518) - (529,518) 2.5.3 Default Credits (Stage 3/Specific Provision) (973,625) (9,219) (982,844) III. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (16) 320,984 - 320,984 3.1 Held for sale 320,984 - 320,984 3.2 Discontinued operations - - - IV. OWNERSHIP INVESTMENTS (Net) 612,829 - 612,829 4.1 Associates (Net) (7) 4,236 - 4,236 4.1.1 Associates Consolidated Under Equity Accounting - - - 4.1.2 Unconsolidated Associates 4,236 - 4,236 4.2 Subsidiaries (Net) (8) 608,593 - 608,593 4.2.1 Unconsolidated Financial Subsidiaries - - - 4.2.2 Unconsolidated Non-Financial Subsidiaries 608,593 - 608,593 4.3 Joint Ventures (Net) (9) - - - 4.3.1 Joint-Ventures Consolidated Under Equity Accounting - - - 4.3.2 Unconsolidated Joint-Ventures - - - V. TANGIBLE ASSETS (Net) (12) 708,376 3,456 711,832 VI. INTANGIBLE ASSETS (Net) (13) 94,111 - 94,111 6.1 Goodwill - - - 6.2 Other 94,111 - 94,111 VII. INVESTMENT PROPERTY (Net) (14) 61,125 - 61,125 VIII. CURRENT TAX ASSET 5,369 - 5,369 IX. DEFERRED TAX ASSET (15) 173,996 - 173,996 X. OTHER ASSETS (17) 492,004 192,250 684,254
TOTAL ASSETS 21,574,477 11,390,307 32,964,784
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
300 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018 LIABILITIES Note Ref. TRL FC Total I. DEPOSITS (1) 12,835,889 10,104,968 22,940,857 II. FUNDS BORROWED (3) 473,392 3,126,688 3,600,080 III. MONEY MARKET BALANCES (4) 192,096 - 192,096 IV. MARKETABLE SECURITIES ISSUED (Net) (5) 1,243,684 - 1,243,684 4.1 Bills 516,302 - 516,302 4.2 Asset backed securities 701,850 - 701,850 4.3 Bonds 25,532 - 25,532 V. FUNDS - - - 5.1 Borrower funds - - - 5.2 Other - - - VI. FINANCIAL LIABILITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS - - - VII. DERIVATIVE FINANCIAL LIABILITIES (2),(8) 30,261 91,824 122,085 7.1 Derivative Financial Liabilities Measured at Fair Value Through Profit and Loss 30,261 91,824 122,085 7.2 Derivative Financial Liabilities Measured at Fair Value Through Comprehensive Income - - - VIII. FACTORING PAYABLES 554 - 554 IX. FINANCE LEASE PAYABLES (7) 12,363 12,744 25,107 9.1 Financial Leasing Payables 15,722 13,404 29,126 9.2 Operational Leasing Payables - - - 9.3 Other - - - 9.4 Deferred Financia Leasing Expenses ( - ) (3,359) (660) (4,019) X. PROVISIONS (9) 486,646 4,236 490,882 10.1 Restructuring provisions - - - 10.2 Reserve for employee benefits 87,508 533 88,041 10.3 Insurance technical provisions (Net) - - - 10.4 Other provisions 399,138 3,703 402,841 XI. CURRENT TAX LIABILITY (10) 63,038 45 63,083 XII. DEFERRED TAX LIABILITY (10) 1,532 - 1,532 XIII. PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (11) - - - 13.1 Held for sale - - - 13.2 Discontinued operations - - - XIV. SUBORDINATED DEBTS (12) 452,571 451,050 903,621 14.1 Loans - - - 14.2 Other Debt Instruments 452,571 451,050 903,621 XV. OTHER LIABILITIES (6) 505,778 422,595 928,373 XVI. SHAREHOLDERS' EQUITY (13) 2,423,436 29,394 2,452,830 16.1 Paid-in capital 1,158,000 - 1,158,000 16.2 Capital Reserves (164,083) - (164,083) 16.2.1 Share Premium 1,835 - 1,835 16.2.2 Share Cancellation Profits - - - 16.2.3 Other Capital Reserves (165,918) - (165,918) 16.3 Other Comprehensive Income/Expense Items not to be Reclassified to Profit or Loss 68,744 - 68,744 16.4 Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss (13) (9,167) 24,511 15,344 16.5 Profit Reserves 1,758,536 4,146 1,762,682 16.5.1 Legal Reserves (14) 296,784 4,220 301,004 16.5.2 Status Reserves - - - 16.5.3 Extraordinary Reserves (15) 1,375,349 - 1,375,349 16.5.4 Other Profit Reserves 86,403 (74) 86,329 16.6 Profit or Loss (427,440) (766) (428,206) 16.6.1 Prior Years’ Income/ (Loss) (515,982) (1,622) (517,604) 16.6.2 Current Year Income/ (Loss) 88,542 856 89,398 16.7 Minority Shares (17) 38,846 1,503 40,349
TOTAL LIABILITIES 18,721,240 14,243,544 32,964,784
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
301 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED OFF-BALANCE SHEET CONTINGENCIES AND COMMITMENTS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018 Note Ref. TRL FC Total A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) 11,200,444 10,906,698 22,107,142 I. GUARANTEES AND SURETIES (1) 3,399,645 2,519,339 5,918,984 1.1. Letters of guarantee 3,392,210 993,034 4,385,244 1.1.1. Guarantees subject to State Tender Law 148,504 3,772 152,276 1.1.2. Guarantees given for foreign trade operations - - - 1.1.3. Other letters of guarantee 3,243,706 989,262 4,232,968 1.2. Bank loans - 132,949 132,949 1.2.1. Import letter of acceptance - 132,949 132,949 1.2.2. Other bank acceptances - - - 1.3. Letters of credit 1,976 260,858 262,834 1.3.1. Documentary letters of credit 1,976 260,858 262,834 1.3.2. Other letters of credit - - - 1.4. Prefinancing given as guarantee - - - 1.5. Endorsements - 174,680 174,680 1.5.1. Endorsements to the Central Bank of Turkey - 174,680 174,680 1.5.2. Other endorsements - - - 1.6. Purchase guarantees for securities issued - - - 1.7. Factoring guarantees - - - 1.8. Other guarantees 5,459 957,818 963,277 1.9. Other sureties - - - II. COMMITMENTS (1) 2,587,245 86,990 2,674,235 2.1. Irrevocable commitments 2,050,562 84,759 2,135,321 2.1.1. Forward asset purchase commitments 22,231 73,933 96,164 2.1.2. Forward deposit purchase and sales commitments - - - 2.1.3. Share capital commitment to associates and subsidiaries - - - 2.1.4. Loan granting commitments 976,300 10,826 987,126 2.1.5. Securities underwriting commitments - - - 2.1.6. Commitments for reserve deposit requirements - - - 2.1.7. Payment commitment for checks 341,685 - 341,685 2.1.8. Tax and fund liabilities from export commitments 10,032 - 10,032 2.1.9. Commitments for credit card expenditure limits 473,944 - 473,944 2.1.10. Commitments for promotions related with credit cards and banking activities 501 - 501 2.1.11. Receivables from short sale commitments on securities - - - 2.1.12. Payables for short sale commitments on securities - - - 2.1.13. Other irrevocable commitments 225,869 - 225,869 2.2. Revocable commitments (4) 536,683 2,231 538,914 2.2.1. Revocable loan granting commitments 535,704 - 535,704 2.2.2. Other revocable commitments 979 2,231 3,210 III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 5,213,554 8,300,369 13,513,923 3.1 Derivative financial instruments for hedging purposes 936,000 - 936,000 3.1.1 Fair value hedge 936,000 - 936,000 3.1.2 Cash flow hedge - - - 3.1.3 Hedge of net investment in foreign operations - - - 3.2 Held for trading transactions 4,277,554 8,300,369 12,577,923 3.2.1 Forward foreign currency buy/sell transactions 447,560 672,968 1,120,528 3.2.1.1 Forward foreign currency transactions-buy 231,148 332,755 563,903 3.2.1.2 Forward foreign currency transactions-sell 216,412 340,213 556,625 3.2.2 Swap transactions related to f.c. and interest rates 3,371,929 6,908,365 10,280,294 3.2.2.1 Foreign currency swap-buy 693,999 3,847,410 4,541,409 3.2.2.2 Foreign currency swap-sell 2,327,930 1,865,237 4,193,167 3.2.2.3 Interest rate swaps-buy 175,000 597,859 772,859 3.2.2.4 Interest rate swaps-sell 175,000 597,859 772,859 3.2.3 Foreign currency, interest rate and securities options 458,065 610,742 1,068,807 3.2.3.1 Foreign currency options-buy 234,015 289,080 523,095 3.2.3.2 Foreign currency options-sell 224,050 321,662 545,712 3.2.3.3 Interest rate options-buy - - - 3.2.3.4 Interest rate options-sell - - - 3.2.3.5 Securities options-buy - - - 3.2.3.6 Securities options-sell - - - 3.2.4 Foreign currency futures - - - 3.2.4.1 Foreign currency futures-buy - - - 3.2.4.2 Foreign currency futures-sell - - - 3.2.5 Interest rate futures - - - 3.2.5.1 Interest rate futures-buy - - - 3.2.5.2 Interest rate futures-sell - - - 3.2.6 Other - 108,294 108,294 B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) 436,117,794 224,698,837 660,816,631 IV. ITEMS HELD IN CUSTODY 4,261,936 1,578,609 5,840,545 4.1. Customer fund and portfolio balances - - - 4.2. Investment securities held in custody 513,304 436,509 949,813 4.3. Checks received for collection 1,807,316 135,081 1,942,397 4.4. Commercial notes received for collection 64,174 158,429 222,603 4.5. Other assets received for collection 2,124 682,216 684,340 4.6. Assets received for public offering - - - 4.7. Other items under custody 1,875,017 166,374 2,041,391 4.8. Custodians 1 - 1 V. PLEDGED ITEMS 427,323,477 221,791,699 649,115,176 5.1. Marketable securities 22,000 59 22,059 5.2. Guarantee notes 100,340,591 38,821,464 139,162,055 5.3. Commodity - - - 5.4. Warranty - - - 5.5. Properties 29,033,655 12,149,563 41,183,218 5.6. Other pledged items 296,771,411 170,744,419 467,515,830 5.7. Pledged items-depository 1,155,820 76,194 1,232,014 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 4,532,381 1,328,529 5,860,910
TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) 447,318,238 235,605,535 682,923,773 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
302 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD INCOME STATEMENT Note Ref. 01.01.2018 - 31.12.2018 I. INTEREST INCOME (1) 4,416,077 1.1 Interest on Loans 3,607,364 1.2 Interest Received From Reserve Deposits 59,996 1.3 Interest Received From Banks 36,742 1.4 Interest Received From Money Market Placements 66,531 1.5 Interest Received From Marketable Securities Portfolio 564,809 1.5.1 Financial Assets at Fair Value Through Profit and Loss 4,059 1.5.2 Financial Assets at Fair Value Through Comprehensive Income 50,987 1.5.3 Financial Assets at Amortised Cost 509,763 1.6 Financial Leasing Income 56,556 1.7 Other Interest Income 24,079 II. INTEREST EXPENSE (2) 2,906,150 2.1 Interest on Deposits 2,174,145 2.2 Interest on Funds Borrowed 196,476 2.3 Interest on Money Market Transactions 163,960 2.4 Interest on Securities Issued 329,804 2.5 Other Interest Expense 41,765 III. NET INTEREST INCOME (I - II) 1,509,927 IV. NET FEES AND COMMISSIONS INCOME 360,116 4.1 Fees and Commissions Received 468,927 4.1.1 Non-cash Loans 77,611 4.1.2 Other 391,316 4.2 Fees and Commissions Paid 108,811 4.2.1 Non-cash Loans 1,414 4.2.2 Other 107,397 V. PERSONNEL EXPENSES (-) 468,122 VI DIVIDEND INCOME (3) 1,382 VII. NET TRADING INCOME/LOSSES (NET) (4) (116,761) 7.1 Trading gains/ (losses) on securities 18,304 7.2 Gains/(loses) on derivative financial transactions 1,111,776 7.3 Foreign exchange gains/ (losses) (1,246,841) VIII. OTHER OPERATING INCOME (5) 88,894 IX. TOTAL OPERATING PROFIT (III+IV+V+VI+VII+VIII) 1,375,436 X. EXPECTED CREDIT LOSSES (-) (6) 542,381 XI. OTHER OPERATING EXPENSES (-) (7) 725,472 XII. NET OPERATING INCOME/(LOSS) (IX-X-XI) 107,583 XIII. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - XIV. GAIN / (LOSS) ON EQUITY METHOD - XV. GAIN / (LOSS) ON NET MONETARY POSITION - XVI. PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XII+...+XV) (8) 107,583 XVII. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) (18,836) 17.1 Current tax charge (18,153) 17.2 Deferred tax charge (+) (109,247) 17.3 Deferred tax credit (-) 108,564 XVIII. NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XVI±XVII) (10) 88,747 XIX. INCOME ON DISCONTINUED OPERATIONS - 19.1 Income on assets held for sale - 19.2 Income on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 19.3 Income on other discontinued operations - XX. LOSS FROM DISCONTINUED OPERATIONS (-) - 20.1 Loss from assets held for sale - 20.2 Loss on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 20.3 Loss from other discontinued operations - XXI. PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES(XIX-XX) (8) - XXII. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) (9) - 22.1 Current tax charge - 22.2 Deferred tax charge (+) - 22.3 Deferred tax credit (-) XXIII. NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XXI±XXII) (10) - XXIV. NET PROFIT/LOSS (XVIII+XXIII) (11) 88,747 24.1 Group’s Profit/Loss 89,398 24.2 Non-Controlling Income (651) Earnings per share 0.0766
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
303 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPEREHENSIVE INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 01.01.2018 - 31.12.2018 I. PROFIT/LOSS FOR THE PERIOD 88,747 II. OTHER COMREHENSIVE INCOME 23,409 2.1 Other Income/Expense Items not to be Reclassified to Profit or Loss 24,237 2.1.1 Revaluation Surplus on Tangible Assets 24,314 2.1.2 Revaluation Surplus on Intangible Assets - 2.1.3 Defined Benefit Plans' Actuarial Gains/Losses 4,750 2.1.4 Other Income/Expense Items not to be Reclassified to Profit or Loss - 2.1.5 Deferred Taxes on Other Comprehensive Income not to be Reclassified to Profit or Loss (4,827) 2.2 Other Income/Expense Items to be Reclassified to Profit or Loss (828) 2.2.1 Translation Differences 10,245 2.2.2 Income/Expenses from Valuation and/or Reclassification of Financial Assets Measured at FVOCI (13,913) 2.2.3 Gains/losses from Cash Flow Hedges - 2.2.4 Gains/Losses on Hedges of Net Investments in Foreign Operations - 2.2.5 Other Income/Expense Items to be Reclassified to Profit or Loss - 2.2.6 Deferred Taxes on Other Comprehensive Income to be Reclassified to Profit or Loss 2,840 III. TOTAL COMPREHENSIVE INCOME (I+II) 112,156
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
304 FINANCIAL INFORMATION ------88,747 23,704 (1,000) (1,000) (449,167) (449,167) 2,790,546 2,341,379 2,452,830 Total Equity Total ------Non- (651) 5,136 40,870 35,864 (5,006) (5,006) 40,349 Interest controlling controlling ------
Before Before 89,398 18,568 (1,000) (1,000) Minority (444,161) (444,161) 2,749,676 2,305,515 2,412,481 Total Equity Total Shares Equity Shares ------
- 89,398 89,398 Profit/ (Loss) Profit/ Current Period Period Current ------
(1,000) 346,670 (504,313) (504,313) (157,643) (359,961) (358,961) (517,604) Prior Period Prior Period Profit/ (Loss) Profit/ ------
(131) Profit Profit 358,961 358,961 Reserves 1,403,852 1,403,852 1,762,682
------
6 ------
5 5,953 60,152 60,152 (5,120) (54,199) (11,073) ------
4 Reclassified to Profit or Loss to Profit Reclassified 10,219 10,219 10,245 20,464 Other Comprehensive Income/Expense Items to be Other Comprehensive ------
3 ------
2 3,821 (9,378) (13,199)
(13,199) ------
1 be Reclassified to Profit or Loss to Profit be Reclassified 62,153 62,153 15,969 78,122 Other Comprehensive Income/Expense Items not to Other Comprehensive ------
(264) Reserves (165,654) (165,654) (165,918) Other Capital
------
Share Share Profits Certificate Certificate Cancellation Cancellation ------
1 1,834 1,834 1,835 Share Share Premium ------
Capital Paid-in Paid-in 1,158,000 1,158,000 1,158,000
Ref. (13) Note The accompanying explanations and notes form an integral part of these financial statements. an integral and notes form explanations The accompanying
CHANGES IN SHAREHOLDERS’ EQUITY AUDITED CURRENT PERIOD CURRENT 01.01.2018 - 31.12.2018 Balances at Beginning of Period Correction Made as Per TAS 8 TAS Made as Per Correction Effect of Corrections Effect Effect of Changes in Accounting Policies of Changes in Accounting Effect Adjusted Balances at the Beginning of the Period (I+II) Balances at the Beginning of Period Adjusted Total Comprehensive Income Comprehensive Total Capital Inrease in Cash Capital Inrease Capital Inrease in Internal Sources Capital Inrease Inflation Adjustment to Paid-in Capital to Paid-in Inflation Adjustment Convertible Bonds Convertible Subordinated Debt Instruments Subordinated Increase/ Decrease due to Other Changes Decrease Increase/ Profit Distribution Profit Dividends Paid Transfers to Reserves Transfers Other
Balances at end of the period (III+IV…+X+XI)
I. II. 2.1 2.2 III. IV. V. VI. VII. VIII. IX. X. XI. 11.1 11.2 11.3
ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) 1. Accumulated Revaluation Increase/Decrease of Fixed Assets, of Fixed Increase/Decrease Revaluation Accumulated 1. or Loss) Other Profit Through Income Items Not Reclassified Amounts of Other Comprehensive or Loss and Other Accumated Profit Through Income Not Classified Equity Method in Other Comprehensive by Valued of Investments Other (Shares 3. Differences, Translation Currency Foreign 4. Income, Other Comprehensive Through Value Gain/Loss of the Financial Assets at Fair and/or Remeasurement Revaluation Accumulated 5. separately. presented 2017 financial statements are principles, on different prepared 2017 and 2018 financial statements are Since, rules. TFRS 9 transition as permitted by not restated are disclosures The prior period financial statements and related Note: 2. Accumulated Remeasurement Gain/Loss of Defined Benefit Pension Plan, Gain/Loss of Defined Benefit Pension Remeasurement Accumulated 2. 6. Other (Cash Flow Hedge Gain/Loss, Shares of Investments Valued by Equity Method in Other Comprehensive Income Classified Through Profit or Loss and Other Accumated Amounts of Other Comprehensive Income Items Reclassified Through Other Profit or Loss). Other Profit Through Income Items Reclassified Amounts of Other Comprehensive or Loss and Other Accumated Profit Through Income Classified Equity Method in Other Comprehensive by Valued of Investments Shares Hedge Gain/Loss, Other (Cash Flow 6.
ŞEKERBANK ANNUAL REPORT 2018
305 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED Note CURRENT PERIOD Ref. 01.01.2018 - 31.12.2018
A. CASH FLOWS FROM BANKING OPERATIONS
1.1 Operating profit before changes in operating assets and liabilities (1,076,062)
1.1.1 Interests received 3,426,398 1.1.2 Interests paid (2,740,321) 1.1.3 Dividend received 1,382 1.1.4 Fees and commissions received 468,927 1.1.5 Other income 938,827 1.1.6 Collections Accounted as Loss from previously written off loans 740,240 1.1.7 Cash payments to personnel and service suppliers (504,420) 1.1.8 Taxes paid (35,291) 1.1.9 Other (3,371,804)
1.2 Changes in operating assets and liabilities (347,431)
1.2.1 Net (increase) decrease in financial assets measured at FVTPL (22,979) 1.2.2 Net (increase) decrease in due from banks (7,163) 1.2.3 Net (increase) decrease in loans (293,612) 1.2.4 Net (increase) decrease in other assets (1) 308,328 1.2.5 Net increase (decrease) in bank deposits (4,167,880) 1.2.6 Net increase (decrease) in other deposits 3,196,253 1.2.7 Net (increase) decrease in financial liabilities measured at FVTPL - 1.2.8 Net increase (decrease) in funds borrowed 119,662 1.2.9 Net increase (decrease) in matured payables - 1.2.10 Net increase (decrease) in other liabilities (1) 519,960
I. Net cash flow from banking operations (1,423,493)
B. CASH FLOWS FROM INVESTING ACTIVITIES
II. Net cash flow from investing activities (762,000)
2.1 Cash paid for purchase of associates, subsidiaries and joint-ventures - 2.2 Cash obtained from sale of associates, subsidiaries and joint-ventures - 2.3 Purchases of tangible assets (398,456) 2.4 Sales of tangible assets 115,317 2.5 Cash paid for purchase of financial assets measured at FVOCI (1,100,202) 2.6 Cash obtained from sale of financial assets measured at FVOCI 873,656 2.7 Cash paid for purchase of financial assets measured at amortised cost (366,124) 2.8 Cash obtained from sale of financial assets measured at amortised cost 155,215 2.9 Others (41,406)
C. CASH FLOWS FROM FINANCING ACTIVITIES
III. Net cash flow from financing activities 6,408
3.1 Cash obtained from funds borrowed and securities issued 1,770,037 3.2 Cash used for repayment of funds borrowed and securities issued (1,753,075) 3.3 Equity instruments issued - 3.4 Dividends paid (1,000) 3.5 Payments for financial leases (9,554) 3.6 Others -
IV. Effect Of Translation Differences On Cash And Cash Equivalents (1) 334,200
V. Net Increase/(Decrease) In Cash And Cash Equivalents (1,844,885)
VI. Cash And Cash Equivalents At Beginning Of Period (2) 3,889,468
VII. Cash And Cash Equivalents At End Of Period (3) 2,044,583
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
306 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES PROFIT DISTRIBUTION TABLE (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED CURRENT PERIOD 31.12.2018(*)
I. DISTRIBUTION OF CURRENT YEAR INCOME
1.1 CURRENT YEAR INCOME 104,813 1.2 TAXES AND DUTIES PAYABLE (-) (18,455) 1.2.1 Corporate tax (Income tax) (17,370) 1.2.2 Income witholding tax - 1.2.3 Other taxes and duties (**) (1,085)
A. NET INCOME FOR THE YEAR (1.1-1.2) 86,358
1.3 PRIOR YEARS’ LOSSES (-) - 1.4 FIRST LEGAL RESERVES (-) - 1.5 OTHER STATUTORY RESERVES (-) -
B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 86,358
1.6 FIRST DIVIDEND TO SHAREHOLDERS (-) - 1.6.1 To owners of ordinary shares - 1.6.2 To owners of preferred shares - 1.6.3 To owners of preferred shares (preemptive rights) - 1.6.4 To profit sharing bonds - 1.6.5 To holders of profit and loss sharing certificates - 1.7 DIVIDENDS TO PERSONNEL (-) - 1.8 DIVIDENDS TO BOARD OF DIRECTORS (-) - 1.9 SECOND DIVIDEND TO SHAREHOLDERS (-) - 1.9.1 To owners of ordinary shares - 1.9.2 To owners of preferred shares - 1.9.3 To owners of preferred shares (preemptive rights) - 1.9.4 To profit sharing bonds - 1.9.5 To holders of profit and loss sharing certificates - 1.10 SECOND LEGAL RESERVES (-) - 1.11 STATUTORY RESERVES (-) - 1.12 EXTRAORDINARY RESERVES - 1.13 OTHER RESERVES - 1.14 SPECIAL FUNDS -
II. DISTRIBUTION OF RESERVES
2.1 DISTRIBUTED RESERVES - 2.2 SECOND LEGAL RESERVES (-) - 2.3 DIVIDENDS TO SHAREHOLDERS (-) - 2.3.1 To owners of ordinary shares - 2.3.2 To owners of preferred shares - 2.3.3 To owners of preferred shares (preemptive rights) - 2.3.4 To profit sharing bonds - 2.3.5 To holders of profit and loss sharing certificates - 2.4 DIVIDENDS TO PERSONNEL (-) - 2.5 DIVIDENDS TO BOARD OF DIRECTORS (-) -
III. EARNINGS PER SHARE
3.1 TO OWNERS OF ORDINARY SHARES 0.07458 3.2 TO OWNERS OF ORDINARY SHARES ( % ) 7.458 3.3 TO OWNERS OF PREFERRED SHARES - 3.4 TO OWNERS OF PREFERRED SHARES ( % ) -
IV. DIVIDEND PER SHARE
4.1 TO OWNERS OF ORDINARY SHARES - 4.2 TO OWNERS OF ORDINARY SHARES ( % ) - 4.3 TO OWNERS OF PREFERRED SHARES - 4.4 TO OWNERS OF PREFERRED SHARES ( % ) -
(*) Resolution regarding profit distribution will be decided at the General Meeting. (**) Defered tax gain is not included in the profit distribution in accordance with 2004/3 Numbered circular of BRSA
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
307 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD Note 31.12.2017 ASSETS ref TRL FC Total I. CASH AND BALANCES WITH THE CENTRAL BANK (1) 980,718 2,126,918 3,107,636 II. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (Net) (2) 383,215 60,788 444,003 2.1 Held for trading financial assets 112,851 60,788 173,639 2.1.1 Public sector debt securities 19,479 8,228 27,707 2.1.2 Equity securities - - - 2.1.3 Derivative financial assets held for trading 46,202 52,560 98,762 2.1.4 Other marketable securities 47,170 - 47,170 2.2 Financial assets at fair value through profit and loss 270,364 - 270,364 2.2.1 Public sector debt securities - - - 2.2.2 Equity securities - - - 2.2.3 Loans 270,364 - 270,364 2.2.4 Other marketable securities - - - III. BANKS (3) 255,898 389,409 645,307 IV. MONEY MARKET PLACEMENTS 2,439,052 8,852 2,447,904 4.1 Interbank money market placements 2,439,052 8,852 2,447,904 4.2 Istanbul Stock Exchange money market placements - - - 4.3 Receivables from reverse repurchase agreements - - - V. FINANCIAL ASSETS AVAILABLE FOR SALE (Net) (4) 1,324,265 71,537 1,395,802 5.1 Equity securities 7,417 9,445 16,862 5.2 Public sector debt securities 1,313,723 4,138 1,317,861 5.3 Other marketable securities 3,125 57,954 61,079 VI. LOANS AND RECEIVABLES (5) 15,910,015 5,020,137 20,930,152 6.1 Loans and Receivables 15,440,421 5,020,137 20,460,558 6.1.1 Loans to Risk Group of the Bank 12,676 562,328 575,004 6.1.2 Public sector debt securities - - - 6.1.3 Other 15,427,745 4,457,809 19,885,554 6.2 Non-performing loans 1,041,200 6,584 1,047,784 6.3 Specific provisions (-) (571,606) (6,584) (578,190) VII. FACTORING RECEIVABLES 423,014 - 423,014 VIII. HELD TO MATURITY INVESTMENTS (Net) (6) 882,168 473,826 1,355,994 8.1 Public sector debt securities 877,317 82,263 959,580 8.2 Other marketable securities 4,851 391,563 396,414 IX. INVESTMENTS IN ASSOCIATES (Net) (7) 4,236 - 4,236 9.1 Accounted for under equity method - - - 9.2 Unconsolidated associates 4,236 - 4,236 9.2.1 Financial investments - - - 9.2.2 Non-financial investments 4,236 - 4,236 X. INVESTMENTS IN SUBSIDIARIES (Net) (8) 606,009 - 606,009 10.1 Unconsolidated financial subsidiaries - - - 10.2 Unconsolidated non-financial subsidiaries 606,009 - 606,009 XI. ENTITIES UNDER COMMON CONTROL (JOINT VENT.) (Net) (9) - - - 11.1 Consolidated under equity method - - - 11.2 Unconsolidated - - - 11.2.1 Financial subsidiaries - - - 11.2.2 Non-financial subsidiaries - - - XII. FINANCE LEASE RECEIVABLES (Net) (10) 158,541 280,840 439,381 12.1 Finance lease receivables 215,886 327,268 543,154 12.2 Operating lease receivables - - - 12.3 Other - - - 12.4 Unearned income ( - ) (57,345) (46,428) (103,773) XIII. DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES (11) 2,786 - 2,786 13.1 Fair value hedge 2,786 - 2,786 13.2 Cash flow hedge - - - 13.3 Hedge of net investment risks in foreign operations - - - XIV. TANGIBLE ASSETS (Net) (12) 396,952 2,462 399,414 XV. INTANGIBLE ASSETS (Net) (13) 88,303 - 88,303 15.1 Goodwill - - - 15.2 Other 88,303 - 88,303 XVI. INVESTMENT PROPERTY (Net) (14) - - - XVII. TAX ASSET (15) 87,765 - 87,765 17.1 Current tax asset 2,062 - 2,062 17.2 Deferred tax asset 85,703 - 85,703 XVIII. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (16) 266,025 - 266,025 18.1 Held for sale 266,025 - 266,025 18.2 Discontinued operations - - - XIX. OTHER ASSETS (17) 308,293 177,662 485,955
TOTAL ASSETS 24,517,255 8,612,431 33,129,686 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
308 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD Note 31.12.2017 LIABILITIES Ref TRL FC Total I. DEPOSITS (1) 12,433,209 7,451,087 19,884,296 1.1 Deposits from Risk Group of the Bank 56,533 39,002 95,535 1.2 Other 12,376,676 7,412,085 19,788,761 II. DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (2) 14,512 118,200 132,712 III. FUNDS BORROWED (3) 518,850 2,954,199 3,473,049 IV. MONEY MARKET BALANCES 1,353,271 2,711,096 4,064,367 4.1 Interbank money market takings 229,202 2,401,575 2,630,777 4.2 Istanbul Stock Exchange money market takings 60,710 - 60,710 4.3 Funds provided under repurchase agreements (4) 1,063,359 309,521 1,372,880 V. MARKETABLE SECURITIES ISSUED (Net) (5) 1,227,684 - 1,227,684 5.1 Bills 486,950 - 486,950 5.2 Asset backed securities 701,385 - 701,385 5.3 Bonds 39,349 - 39,349 VI. FUNDS - - - 6.1 Borrower funds - - - 6.2 Other - - - VII. SUNDRY CREDITORS 143,214 154,949 298,163 VIII. OTHER LIABILITIES (6) 102,648 6,513 109,161 IX. FACTORING PAYABLES 7,912 - 7,912 X. FINANCE LEASE PAYABLES (7) 20,753 14,008 34,761 10.1 Finance lease payables 27,541 15,060 42,601 10.2 Operating lease payables - - - 10.3 Other - - - 10.4 Deferred finance lease expenses ( - ) (6,788) (1,052) (7,840) XI. DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING PURPOSES (8) - - - 11.1 Fair value hedge - - - 11.2 Cash flow hedge - - - 11.3 Hedge of net investment in foreign operations - - - XII. PROVISIONS (9) 395,760 3,659 399,419 12.1 General loan loss provisions 74,415 1,146 75,561 12.2 Restructuring provisions - - - 12.3 Reserve for employee benefits 82,852 373 83,225 12.4 Insurance technical provisions (Net) - - - 12.5 Other provisions 238,493 2,140 240,633 XIII. TAX LIABILITY (10) 66,120 15 66,135 13.1 Current tax liability 65,218 15 65,233 13.2 Deferred tax liability 902 - 902 XIV. PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (11) - - - 14.1 Held for sale - - - 14.2 Discontinued operations - - - XV. SUBORDINATED LOANS (12) 301,275 340,206 641,481 XVI. SHAREHOLDERS' EQUITY (13) 2,775,253 15,293 2,790,546 16.1 Paid-in capital 1,158,000 - 1,158,000 16.2 Supplementary capital (170,379) 1,314 (169,065) 16.2.1 Share premium 1,834 - 1,834 16.2.2 Share cancellation profits - - - 16.2.3 Marketable securities value increase fund (13) (55,513) 1,314 (54,199) 16.2.4 Tangible assets revaluation differences 62,153 - 62,153 16.2.5 Intangible assets revaluation differences - - - 16.2.6 Investment properties revaluation differences - - - 16.2.7 Bonus shares obtained from associates, subsidiaries and jointly controlled entities (Joint Vent.) - - - 16.2.8 Hedging funds (Effective portion) - - - 16.2.9 Accumulated valuation differences from assets held for sale and from discontinued operations - - - 16.2.10 Other capital reserves (17) (178,853) - (178,853) 16.3 Profit reserves 1,400,144 13,927 1,414,071 16.3.1 Legal reserves (14) 290,007 3,757 293,764 16.3.2 Status reserves - - - 16.3.3 Extraordinary reserves (15) 1,023,861 - 1,023,861 16.3.4 Other profit reserves 86,276 10,170 96,446 16.4 Profit or loss 347,664 (994) 346,670 16.4.1 Prior years’ income/ (loss) 234,538 (1,529) 233,009 16.4.2 Current year income/ (loss) 113,126 535 113,661 16.5 Minority Shares 39,824 1,046 40,870
TOTAL LIABILITIES AND EQUITY 19,360,461 13,769,225 33,129,686
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
309 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED OFF-BALANCE SHEET CONTINGENCIES AND COMMITMENTS (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND PRİOR PERİOD AUDITED Note 31.12.2017 Ref TRL FC Total A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) 12,623,405 11,175,287 23,798,692 I. GUARANTEES AND SURETIES (1) 3,347,857 1,975,897 5,323,754 1.1. Letters of guarantee 3,341,073 928,512 4,269,585 1.1.1. Guarantees subject to State Tender Law 65,935 4,015 69,950 1.1.2. Guarantees given for foreign trade operations - - - 1.1.3. Other letters of guarantee 3,275,138 924,497 4,199,635 1.2. Bank loans 1,365 139,693 141,058 1.2.1. Import letter of acceptance 1,000 139,693 140,693 1.2.2. Other bank acceptances 365 - 365 1.3. Letters of credit 843 445,828 446,671 1.3.1. Documentary letters of credit 843 445,828 446,671 1.3.2. Other letters of credit - - - 1.4. Prefinancing given as guarantee - - - 1.5. Endorsements - - - 1.5.1. Endorsements to the Central Bank of Turkey - - - 1.5.2. Other endorsements - - - 1.6. Purchase guarantees for securities issued - - - 1.7. Factoring guarantees - - - 1.8. Other guarantees 4,576 461,487 466,063 1.9. Other sureties - 377 377 II. COMMITMENTS (1) 2,827,851 400,259 3,228,110 2.1. Irrevocable commitments 2,535,445 395,137 2,930,582 2.1.1. Forward asset purchase commitments 328,715 387,703 716,418 2.1.2. Forward deposit purchase and sales commitments - - - 2.1.3. Share capital commitment to associates and subsidiaries - - - 2.1.4. Loan granting commitments 903,149 7,434 910,583 2.1.5. Securities underwriting commitments - - - 2.1.6. Commitments for reserve deposit requirements - - - 2.1.7. Payment commitment for checks 671,707 - 671,707 2.1.8. Tax and fund liabilities from export commitments 6,526 - 6,526 2.1.9. Commitments for credit card expenditure limits 463,694 - 463,694 2.1.10. Commitments for promotions related with credit cards and banking activities 694 - 694 2.1.11. Receivables from short sale commitments on securities - - - 2.1.12. Payables for short sale commitments on securities - - - 2.1.13. Other irrevocable commitments 160,960 - 160,960 2.2. Revocable commitments (4) 292,406 5,122 297,528 2.2.1. Revocable loan granting commitments 290,848 - 290,848 2.2.2. Other revocable commitments 1,558 5,122 6,680 III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 6,447,697 8,799,131 15,246,828 3.1 Derivative financial instruments for hedging purposes 223,000 - 223,000 3.1.1 Fair value hedge 223,000 - 223,000 3.1.2 Cash flow hedge - - - 3.1.3 Hedge of net investment in foreign operations - - - 3.2 Held for trading transactions 6,224,697 8,799,131 15,023,828 3.2.1 Forward foreign currency buy/sell transactions 1,016,125 1,081,647 2,097,772 3.2.1.1 Forward foreign currency transactions-buy 448,990 592,563 1,041,553 3.2.1.2 Forward foreign currency transactions-sell 567,135 489,084 1,056,219 3.2.2 Swap transactions related to f.c. and interest rates 4,117,345 5,851,511 9,968,856 3.2.2.1 Foreign currency swap-buy 100,666 4,408,164 4,508,830 3.2.2.2 Foreign currency swap-sell 3,696,679 395,265 4,091,944 3.2.2.3 Interest rate swaps-buy 160,000 524,041 684,041 3.2.2.4 Interest rate swaps-sell 160,000 524,041 684,041 3.2.3 Foreign currency, interest rate and securities options 1,091,227 1,420,585 2,511,812 3.2.3.1 Foreign currency options-buy 637,839 608,467 1,246,306 3.2.3.2 Foreign currency options-sell 453,388 812,118 1,265,506 3.2.3.3 Interest rate options-buy - - - 3.2.3.4 Interest rate options-sell - - - 3.2.3.5 Securities options-buy - - - 3.2.3.6 Securities options-sell - - - 3.2.4 Foreign currency futures - - - 3.2.4.1 Foreign currency futures-buy - - - 3.2.4.2 Foreign currency futures-sell - - - 3.2.5 Interest rate futures - - - 3.2.5.1 Interest rate futures-buy - - - 3.2.5.2 Interest rate futures-sell - - - 3.2.6 Other - 445,388 445,388 B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) 409,944,629 162,063,931 572,008,560 IV. ITEMS HELD IN CUSTODY 7,807,704 1,223,461 9,031,165 4.1. Customer fund and portfolio balances - - - 4.2. Investment securities held in custody 539,471 306,546 846,017 4.3. Checks received for collection 2,379,927 122,287 2,502,214 4.4. Commercial notes received for collection 57,068 12,728 69,796 4.5. Other assets received for collection 2,571 658,045 660,616 4.6. Assets received for public offering - - - 4.7. Other items under custody 4,828,666 123,855 4,952,521 4.8. Custodians 1 - 1 V. PLEDGED ITEMS 398,171,170 160,047,800 558,218,970 5.1. Marketable securities 27,000 208 27,208 5.2. Guarantee notes 91,766,472 27,804,352 119,570,824 5.3. Commodity - - - 5.4. Warranty - - - 5.5. Properties 26,619,132 7,945,106 34,564,238 5.6. Other pledged items 278,614,502 124,243,657 402,858,159 5.7. Pledged items-depository 1,144,064 54,477 1,198,541 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 3,965,755 792,670 4,758,425
TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) 422,568,034 173,239,218 595,807,252 Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
310 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED Note PRIOR PERIOD INCOME STATEMENT Ref 01.01.2017 - 31.12.2017 I. INTEREST INCOME (1) 3,006,996 1.1 Interest on loans 2,542,278 1.2 Interest received from reserve deposits 26,478 1.3 Interest received from banks 18,034 1.4 Interest received from money market placements 81,540 1.5 Interest received from marketable securities portfolio 285,494 1.5.1 Held-for-trading financial assets 2,190 1.5.2 Financial assets at fair value through profit and loss - 1.5.3 Available-for-sale financial assets 150,041 1.5.4 Investments held-to-maturity 133,263 1.6 Finance lease income 41,446 1.7 Other interest income 11,726 II. INTEREST EXPENSE (2) 1,676,618 2.1 Interest on deposits 1,191,972 2.2 Interest on funds borrowed 145,096 2.3 Interest on money market transactions 150,344 2.4 Interest on securities issued 150,053 2.5 Other interest expense 39,153 III. NET INTEREST INCOME (I - II) 1,330,378 IV. NET FEES AND COMMISSIONS INCOME 343,610 4.1 Fees and commissions received 423,121 4.1.1 Non-cash loans 68,440 4.1.2 Other 354,681 4.2 Fees and commissions paid 79,511 4.2.1 Non-cash loans 865 4.2.2 Other 78,646 V. DIVIDEND INCOME (3) 2,064 VI. NET TRADING INCOME/LOSSES (NET) (4) (241,047) 6.1 Trading gains/ (losses) on securities 2,176 6.2 Gains/(loses) on derivative financial transactions (96,596) 6.3 Foreign exchange gains/ (losses) (146,627) VII. OTHER OPERATING INCOME (5) 246,395 VIII. TOTAL OPERATING INCOME (III+IV+V+VI+VII) 1,681,400 IX. PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) (6) 484,602 X. OTHER OPERATING EXPENSES (-) (7) 1,061,206 XI. NET OPERATING INCOME/(LOSS) (VIII-IX-X) 135,592 XII. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - XIII. GAIN / (LOSS) ON EQUITY METHOD - XIV. GAIN / (LOSS) ON NET MONETARY POSITION - XV. PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XI+…+XIV) (8) 135,592 XVI. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) (23,442) 16.1 Provision for current income taxes (36,669) 16.2 Provision for deferred taxes 13,227 XVII. NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) (10) 112,150 XVIII. INCOME ON DISCONTINUED OPERATIONS - 18.1 Income on assets held for sale - 18.2 Income on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 18.3 Income on other discontinued operations - XIX. LOSS FROM DISCONTINUED OPERATIONS (-) - 19.1 Loss from assets held for sale - 19.2 Loss on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) - 19.3 Loss from other discontinued operations - XX. PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES (XVIII-XIX) (8) - XXI. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) (9) - 21.1 Provision for current income taxes - 21.2 Provision for deferred taxes - XXII. NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) (10) - XXIII. NET PROFIT/LOSS (XVII+XXII) (11) 112,150 23.1 Group’s profit/loss 113,661 23.2 Non-controlling interest (1,511) Earnings per share 0.10
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
311 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD 01.01.2017 - 31.12.2017 I. Additions to marketable securities revaluation differences for available for sale financial assets 7,980 II. Tangible assets revaluation differences (230,974) III. Intangible assets revaluation differences - IV. Currency translation differences 1,729 V. Profit/Loss from derivative financial instruments for cash flow hedge purposes (Effective portion of fair value differences) - VI. Profit/Loss from derivative financial instruments for hedge of net investment in foreign operations (Effective portion of fair value differences) - VII. The effect of corrections of errors and changes in accounting policies - VIII. Other profit loss items accounted under equity due to TAS (3,716) IX. Deferred tax of valuation differences 46,387 X. Total Net Profit/Loss accounted under equity (I+II+…+IX) (178,594) XI. Current Period Profit/Loss 112,150 11.1 Change in fair value of marketable securities (Transfer to Profit/Loss) (53) 11.2 Reclassification and transfer of derivatives accounted for cash flow hedge purposes to Income Statement - 11.3 Transfer of hedge of net investments in foreign operations to Income Statement - 11.4 Other 112,203
XII. Total Profit/Loss accounted for the period (X±XI) (66,444)
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
312 FINANCIAL INFORMATION ------
Total Total 6,384 1,857 Equity (1,237) 63,889 (2,983) (3,149) (3,149) 112,150 2,613,635 2,790,546 ------(10) 128 Non- (990) 45,263 (1,511) (2,010) 40,870 (2,010) Interest controlling controlling ------Total Total (247) 6,384 1,729 Equity Equity Before Before 63,889 (2,973) (1,139) (1,139) Shares Shares 113,661 Minority 2,568,372 2,749,676 ------
Acc. Acc. from from assets assets 49,054 held for held for disc. op. disc. (49,054) sale and diff. from from diff. valuation valuation ------
Funds Hedging ------
from from Bonus shares shares obtained Associates ------
and Assets 62,153 197,269 Tangible Tangible (135,116) Intangible Differences Revaluation Revaluation ------
Fund Value Value 6,384 (60,583) (54,199) Increase Increase Securities Marketable Marketable ------
Net Prior (101) (Loss) Period Period (1,139) 176,493 248,059 233,009 Income/ (191,442) (190,303) ------
Net (Loss) Period Period Current Current 113,661 113,661 Income/ ------
(503) Other 1,729 65,991 65,991 (2,973) (82,407) Reserves (146,651) ------
(781) 907,525 117,117 117,117 Reserves 1,023,861 Extraordinary Extraordinary ------
Reserves Statutory ------
995 Legal 7,195 7,195 285,574 293,764 Reserves ------
Share Share profits certificate certificate cancellation cancellation ------
143 1,691 1,834 Share Share premium ------
Capital inflation Effect of Effect Reserves and Other on Capital Accounting Accounting ------
The accompanying explanations and notes form an integral part of these financial statements. an integral and notes form explanations The accompanying Capital Paid-in Paid-in 1,158,000 1,158,000
ref. (13) Note Capital increase AUDITED PRIOR PERIOD Cash 01.01.2017 - 31.12.2017 Internal sources Prior period balance Share premium Share Increase/Decrease related to merger related Increase/Decrease Changes in period Share cancellation profits cancellation Share Marketable securities valuation securities valuation Marketable differences Inflation adjustment to paid-in capital Hedging Funds (Effective Portion) (Effective Hedging Funds Other Cash-flow hedge Cash-flow Period net income/(loss) Period Hedge of net investment in foreign in foreign Hedge of net investment operations Profit distribution Profit Tangible assets revaluation assets revaluation Tangible differences Dividends distributed Intangible assets revaluation Intangible assets revaluation differences Transfers to reserves Transfers Bonus shares obtained from obtained from Bonus shares subsidiaries and jointly associates, entities (Joint vent.) controlled Other Foreign exchange differences exchange Foreign
The disposal of assets Closing Balance (I+II+III+…+XVI+XVII+XVIII) The reclassification of assets The reclassification The effect of change in associate’s The effect equity
XII.
12.1
12.2 I. XIII. II.
XIV. III. XV. IV. XVI. 4.1 XVII. 4.2 XVIII. V. 18.1 VI. 18.2 VII. 18.3 VIII.
IX.
X. XI. ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) separately. presented 2017 financial statements are principles, on different prepared 2017 and 2018 financial statements are Since, rules. TFRS 9 transition as permitted by not restated are disclosures The prior period financial statements and related Note:
ŞEKERBANK ANNUAL REPORT 2018
313 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD Note Ref. 01.01.2017 - 31.12.2017
A. CASH FLOWS FROM BANKING OPERATIONS
1.1 Operating profit before changes in operating assets and liabilities 565,789
1.1.1 Interest received 2,790,036 1.1.2 Interest paid (1,646,448) 1.1.3 Dividend received 517 1.1.4 Fees and commissions received 423,121 1.1.5 Other income 248,700 1.1.6 Collections Accounted as Loss from previously written off loans 311,109 1.1.7 Payments to personnel and service suppliers (443,056) 1.1.8 Taxes paid (25,214) 1.1.9 Other (1,092,976)
1.2 Changes in operating assets and liabilities 2,305,739
1.2.1 Net (increase) decrease in financial assets held for trading (40,686) 1.2.2 Net (increase) decrease in financial assets at fair value through profit or loss - 1.2.3 Net (increase) decrease in due from banks and other financial institutions 2 1.2.4 Net (increase) decrease in loans (3,808,983) 1.2.5 Net (increase) decrease in other assets (1) (903,550) 1.2.6 Net increase (decrease) in bank deposits 3,581,064 1.2.7 Net increase (decrease) in other deposits 3,617,176 1.2.8 Net increase (decrease) in funds borrowed 7,608 1.2.9 Net increase (decrease) in matured payables - 1.2.10 Net increase (decrease) in other liabilities (1) (146,892)
I. Net cash provided from banking operations 2,871,528
B. CASH FLOWS FROM INVESTING ACTIVITIES
II. Net cash provided from investing activities (126,943)
2.1 Cash paid for purchase of entities under common control, associates and subsidiaries (27,036) 2.2 Cash obtained from sale of entities under common control, associates and subsidiaries - 2.3 Purchases of tangible assets (227,894) 2.4 Sales of tangible assets 145,661 2.5 Cash paid for purchase of financial assets available for sale (330,520) 2.6 Cash obtained from sale of financial assets available for sale 504,440 2.7 Cash paid for purchase of investment securities (581,979) 2.8 Cash obtained from sale of investment securities 413,434 2.9 Others (23,049)
C. CASH FLOWS FROM FINANCING ACTIVITIES
III. Net cash provided from financing activities 780,426
3.1 Cash obtained from funds borrowed and securities issued 1,838,027 3.2 Cash used for repayment of funds borrowed and securities issued (1,044,364) 3.3 Equity instruments issued - 3.4 Dividends paid (3,149) 3.5 Payments for finance leases (10,088) 3.6 Other -
IV. Effect of change in foreign exchange rate on cash and cash equivalents (1) 42,356
V. Net increase / (decrease) in cash and cash equivalents 3,567,367
VI. Cash and cash equivalents at beginning of the period (2) 322,101
VII. Cash and cash equivalents at end of the period (3) 3,889,468
Note: The prior period financial statements and related disclosures are not restated as permitted by TFRS 9 transition rules. Since, 2017 and 2018 financial statements are prepared on different principles, 2017 financial statements are presented separately.
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
314 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. PROFIT DISTRIBUTION TABLE (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
TRL THOUSAND AUDITED PRIOR PERIOD 31.12.2017(*)
I. DISTRIBUTION OF CURRENT YEAR INCOME
1.1 CURRENT YEAR INCOME 139,527 1.2 TAXES AND DUTIES PAYABLE (-) (24,637) 1.2.1 Corporate tax (Income tax) (35,830) 1.2.2 Income witholding tax - 1.2.3 Other taxes and duties (**) 11,193
A. NET INCOME FOR THE YEAR (1.1-1.2) 114,890
1.3 PRIOR YEARS’ LOSSES (-) - 1.4 FIRST LEGAL RESERVES (-) 5,745 1.5 OTHER STATUTORY RESERVES (-) -
B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 109,145
1.6 FIRST DIVIDEND TO SHAREHOLDERS (-) - 1.6.1 To owners of ordinary shares - 1.6.2 To owners of preferred shares - 1.6.3 To owners of preferred shares (preemptive rights) - 1.6.4 To profit sharing bonds - 1.6.5 To holders of profit and loss sharing certificates - 1.7 DIVIDENDS TO PERSONNEL (-) - 1.8 DIVIDENDS TO BOARD OF DIRECTORS (-) - 1.9 SECOND DIVIDEND TO SHAREHOLDERS (-) - 1.9.1 To owners of ordinary shares - 1.9.2 To owners of preferred shares - 1.9.3 To owners of preferred shares (preemptive rights) - 1.9.4 To profit sharing bonds - 1.9.5 To holders of profit and loss sharing certificates - 1.10 SECOND LEGAL RESERVES (-) - 1.11 STATUTORY RESERVES (-) - 1.12 EXTRAORDINARY RESERVES 357,077 1.13 OTHER RESERVES - 1.14 SPECIAL FUNDS 127
II. DISTRIBUTION OF RESERVES
2.1 DISTRIBUTED RESERVES - 2.2 SECOND LEGAL RESERVES (-) - 2.3 DIVIDENDS TO SHAREHOLDERS (-) - 2.3.1 To owners of ordinary shares - 2.3.2 To owners of preferred shares - 2.3.3 To owners of preferred shares (preemptive rights) - 2.3.4 To profit sharing bonds - 2.3.5 To holders of profit and loss sharing certificates - 2.4 DIVIDENDS TO PERSONNEL (-) - 2.5 DIVIDENDS TO BOARD OF DIRECTORS (-) -
III. EARNINGS PER SHARE
3.1 TO OWNERS OF ORDINARY SHARES 0.09921 3.2 TO OWNERS OF ORDINARY SHARES ( % ) 9.921 3.3 TO OWNERS OF PREFERRED SHARES - 3.4 TO OWNERS OF PREFERRED SHARES ( % ) -
IV. DIVIDEND PER SHARE
4.1 TO OWNERS OF ORDINARY SHARES - 4.2 TO OWNERS OF ORDINARY SHARES ( % ) - 4.3 TO OWNERS OF PREFERRED SHARES - 4.4 TO OWNERS OF PREFERRED SHARES ( % ) -
(*) Resolution regarding profit distribution will be decided at the General Meeting. (**) Defered tax gain is not included in the profit distribution in accordance with 2004/3 Numbered circular of BRSA
The accompanying explanations and notes form an integral part of these financial statements.
ŞEKERBANK ANNUAL REPORT 2018
315 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION THREE ACCOUNTING PRINCIPLES
I. Basis of Presentation
The Parent Bank prepares financial statements and notes in accordance with the Turkish Accounting Standards (TAS) and the Turkish Financial Reporting Standards (TFRS) and the related statements and guidances announced by the Public Oversight, Accounting and Auditing Standards Authority (“POA”) and the Communiqué on Banks’ Accounting Practice and Maintaining Documents, other regulations, communiqués and circulars in respect of accounting and financial reporting and pronouncements issued by the Banking Regulation and Supervision Agency (BRSA).
Within the “IFRS 16 Leases” standard which was published in the official gazette dated 16 April 2018 and numbered 30393 for the period starting from 1 January 2019 the operating lease transactions will also be accounted in a similar manner as the finance lease transactions.
According to this standard leasing transactions will be included in the balance sheet as assets with the right of use and liabilities regarding the leasing transactions. The Parent Bank continues to work on compliance with the mentioned standard as of the report date. The Parent Bank does not expect a significant impact in its financials with the adaptation of TFRS 16 as of 1 January 2019.
Accounting policies and valuation principles applied in the preparation of financial statements are disclosed in the footnotes below.
Additional paragraph for convenience translation to English
The effects of differences between accounting principles and standards set out by regulations in conformity with Article 37 and Article 38 of the Banking Act No. 5411, accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and the International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying consolidated financial statements. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS.
II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions
The Parent Bank aims to keep up its activities in every line of banking.
The Parent Bank shapes its strategies for financial instruments depending on the source of funds, which mainly consists of deposits. Investment instruments are usually choosen from liquid instruments. A level of liquidity which allows covering obligations of the Group is secured.
The Group controls risk by managing positions in harmony with market movements on the strength of short-term strategies instead of carrying long-term currency positions in big amounts, in order to avoid risks which might arise from floating currency (exchange rate) regime. A currency risk arising from customer transactions, the Group tries to close by carrying out counter-transactions. Within the budget, limits are set in terms of maturity and distribution of assets is determined.
Yield (return) and risk analyses are made in regard of maturity structure of balance sheet items, re-pricing periods and interest rates, and appropriate investment decisions are made.
ŞEKERBANK ANNUAL REPORT 2018
316 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Group off-balance sheet derivative transactions are managed by including such transactions in the total currency and interest positions. Derivative transactions to be made by customers are carried out within loan and risk limits established on customer basis. Currency swaps, in particular, being a larger part of the off-balance sheet transactions, are carried out to manage the currency cash flow without causing currency and interest risks.
The Parent Bank aims to get longer-term funds (resources) in order to be able to hedge itself against risks arising from short-term character of deposits, while trying to increase the share of floating interest rate items in its assets.
Gains or loss arising from foreign currency transactions are reflected to the statement of income as they are realized during the year. Foreign currency assets and liabilities at each period-end are translated into Turkish lira at the period- end foreign exchange buying rates announced by the Parent Bank and the resulting foreign exchange gains or losses are recorded in the statement of income as foreign exchange gain or loss. As of 31 December 2018 the Parent Bank translates its foreign currency transactions with the Parent Bank’s exchange rates and subsidiaries of the Parent Bank translate their foreign currency transactions with the Central Bank’s exchange rates.
There are no capitalized foreign exchange differences.
The information regarding the principles of foreign currency risk management is stated in the Section Four, Note III. Foreign exchange gains and losses arising from translating monetary financial assets are reflected to “Foreign Exchange Gains / Losses” in the statement of income.
The foreign currency net investment in consolidated foreign subsidiaries are translated into Turkish Lira using the Parent Bank’s exchange rate prevailing at the balance sheet date for their assets and liabilities and annual average exchange rate for their statement of income items. The currency translation derived from the consolidated subsidiaries’ currency translation differences amounting to TRL 10,245 Thousand gain (31 December 2017 - TRL 1,729 Thousand gain) has been recorded in “Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss” under shareholders’ equity.
III. Information about the Consolidated Subsidiaries
The accompanying consolidated financial statements are prepared in accordance with “Communiqué on Preparation of Consolidated Financial Statements of Banks” published in the Official Gazette dated 8 November 2006 numbered 26340. The Parent Bank and the subsidiaries included in the consolidation are referred to as “the Group” in this report.
The financial statements of the subsidiaries, which were prepared in accordance with the prevailing principles and rules regarding financial accounting and reporting standards in their respective country of incorporation and the Turkish Commercial Code, Financial Leasing, Factoring and Financing Companies Law, communiqués of the Capital Market Board and the BRSA, are duly adjusted in order to present their financial statements in accordance with the accounting policies of the Parent Bank.
Explanations on Consolidation Method and Scope
The commercial names of the entities included in consolidation and the locations of the head offices of these institutions are:
Commercial Name Head Office Consolidation Method Şekerbank (Kıbrıs) Ltd. Nicosia/TRNC full consolidation Şeker Finansal Kiralama A.Ş. Istanbul/Turkey full consolidation Şekerbank International Banking Unit Ltd. Nicosia / TRNC full consolidation Şeker Yatırım Menkul Değerler A.Ş. Istanbul/Turkey full consolidation Şeker Faktoring A.Ş. Istanbul/Turkey full consolidation Şeker Finansman A.Ş. Istanbul/Turkey full consolidation Zahlungsdienste GmbH der Şekerbank T.A.Ş. Cologne/Germany full consolidation
ŞEKERBANK ANNUAL REPORT 2018
317 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
When there are differences between the accounting policies of the subsidiaries and the Parent Bank, the financial statements are adjusted in accordance with the principle of materiality. The financial statements of the subsidiaries are prepared as of 31 December 2018.
The transactions and balances between the consolidated financial subsidiaries and the Parent Bank are blaterally eliminated.
IV. Explanations on Forward and Option Contracts and Derivative Instruments
The Group’s derivative instruments mainly consist of foreign currency swaps, interest swaps, option and forward foreign currency buy/sell transactions. Fair values of foreign currency forward and swap transactions are determined by comparing the period end foreign exchange rates and current market foreign exchange rates at the balance sheet date. The resulting gain or loss is reflected in the statement of income. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term statement of income. Discounted values calculated using the interest rates between the transaction date and repricing date and are used in determination of the fair values of interest rate swaps.
While some derivative transactions provide economic hedging, these transactions are subject to hedge accounting. The purpose of hedge accounting; is to present the effect of the risk management activities using appropriate financial instruments to manage certain risks that may affect profit or loss in the financial statements. For the purpose of hedging the fair value of a portfolio of financial assets or financial liabilities, the Parent Bank may apply the provisions of TFRS 9 or TAS 39. In this context, the Parent Bank has chosen to apply TFRS 9 for hedge accounting.
The Parent Bank enters into interest rate swap transactions in order to hedge the changes 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 statement of income. The change in the fair value of the hedged item of the fixed rate financial asset is shown in the financial statements together with the related asset as long as the hedge is effective. If the hedged item is a fixed rate financial asset at fair value through profit or loss, then any loss or gain on hedged risk is recognized in the income statement.
Hedge accounting applies to hedging only when all the following criteria are met:
- The hedging relationship only includes suitable hedging instruments and hedged items. - At the beginning of the hedging relationship, there is a formal identification and certification of the risk management objective and strategy that leads to the hedging relationship. This certification includes the assessment of the Parent Bank on the hedging instrument, the hedged item and the structure of the hedged risk, and whether the hedging relationship will provide an effective protection against the hedged risk (including analysis of inefficiency resources in the hedging process and how the hedging rate is determined). - The hedging relationship meets all of the following provisions for the effectiveness of the hedging. - There is an economic relationship between the hedged item and the hedging tool. - The credit risk effect is not dominated by changes in value arising from this economic relationship, and the hedging rate in the hedging relationship is equal to the amount of the item that the entity actually hedges and the amount calculated according to the amount of hedging that the entity actually uses to hedge this item. However, the hedging shall not reflect an imbalance between the hedged item and the hedging instrument’s weights, which is not consistent with the objectives of hedge accounting and will result in hedging ineffectiveness.
The Parent Bank terminates hedge accounting forward only if the hedging relationship (or part of it) no longer meets the required criteria (after considering rebalancing). This also applies if the hedging item is expired or sold, terminated or used. The effect of fair value hedge accounting is shown in the table below:
ŞEKERBANK ANNUAL REPORT 2018
318 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Net Fair Value Net Gain/(Loss) Fair Value of the Hedging Recognised in Type of Hedging Hedged Item Difference of Instrument the Statement İnstrument (asset and liability) Hedged Risks Hedged Item Asset Liability of Income Interest Rate Fixed interest commercial Fixed interest Swaps loans with installment rate risk 1,260 19,178 16,592 (722) Constant Maturity Fixed interest Fixed interest Swap government bonds rate risk 14,672 (12,312) - 14,672
V. Explanations on Interest Income and Expenses
The interest income and expenses are accounted by accrual basis of accounting using the effective interest rate (the ratio that equalizes the future cash flow of financial assets and liabilities to the current net book value).
Starting from 1 January 2018, the Group has started accruing interest income on non-performing loans. The non- performing loans are rediscounted at the effective interest rate on the net book value and the related amount is classified between the “Expected Loss Provisions” account and the “Interest on Loans” account in the income statement.
VI. Explanations on Fees and Commission Income and Expenses
Fees for various banking services are recorded as income when collected and prepaid commission income on cash loans using the effective interest rate method and recorded as income in the related period.
Fees and commissions for funds borrowed paid to other financial institutions, as part of the transaction costs, are recorded as prepaid expenses and using the effective interest rate expensed within the related periods.
The dividend income is reflected in the financial statements on a cash basis when the profit distribution is realized by the associates and subsidiaries.
VII. Explanations on Financial Assets
In the framework of “TFRS 9 Financial Instruments”, which was effective as of 1 January 2018, the Group classifies its financial assets as “Financial assets at fair value through profit or loss”, “Financial assets at fair value through other comprehensive income” or “Financial assets at amortised cost”. This classification is made during initial recognition based on the contractual cash flow characteristics with the business model of the financial assets determined by management.
Financial assets are recognized or derecognized according to the provision ‘Taking into Financial Statements and Excluding the Financial Statements’ of section three of TFRS 9.
Financial instruments have the feature of detecting, affecting and diminishing liquidity, credit and interest risks in the financial statements. All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Group. Settlement date accounting requires (a) accounting of the asset when acquired by the Group and (b) disposing of the asset out of the balance sheet on the date settled by the Group; and accounting of gain or loss upon disposal. In case of application of settlement date accounting, for the financial assets at fair value through profit and loss and financial assets at fair value through other comprehensive income the Group accounts for the changes that occur in the fair value of the asset in the period between trade transaction date and settlement date.
ŞEKERBANK ANNUAL REPORT 2018
319 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted in the same way as the acquired assets. Fair value differences are not accounted for financial assets presented at amortized cost; gain or loss of financial assets at fair value through profit and loss is reflected in the statement of income; gain or loss of financial assets at fair value through other comprehensive income is accounted for in the other comprehensive income.
The following are details of the financial instruments that are classified in the financial statements.
Financial Assets at Fair Value Through Profit and Loss
Financial assets at fair value through profit and loss are financial assets other than the ones that are managed with business model that aims to hold assets to collect contractual cash flows or to collect cash flows that are solely payments of principal and interest on the principal outstanding amount; and that are either acquired for generating a profit from short-term fluctuations in prices or are financial assets included in a portfolio aiming to short-term profit taking.
The fair value of financial assets at fair value thourgh profit and loss, which are traded in active markets, is determined according to the price of the stock exchange and in the case that the stock market price is not available, according to the price in the Official Gazette. Where there is no quoted price in an active market, the fair value is determined by using other methods specified in TFRS 13.
Financial assets at the fair value through profit or loss are initially recognized at fair value. The positive difference between the cost and fair value of such securities is accounted as interest and income accrual, and the negative difference between the cost and fair value is accounted as loss accrual in the profit and loss.
Financial Assets at Fair Value Through Other Comprehensive Income
The financial assets, which are acquired with the aim to collect the contractual cash flows and to sell the financial asset in future, are classified as financial assets at fair value through other comprehensive income.
The Bank’s management may retain both the contractual cash flows as well as the portfolio for sale, in order to meet daily liquidity needs, maintain a certain level of interest income and align the maturity of financial assets with the valuation of the financial liabilities for funding purposes.
Financial assets at fair value through other comprehensive income are initially recognized at fair value including transaction costs.
ŞEKERBANK ANNUAL REPORT 2018
320 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The results of the subsequent changes in the fair value of financial assets at fair value through other comprehensive income, namely unrealized gain or loss are recorded in “Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss”. Accumulated fair value gain or loss, reflected in equity, is recorded to the income statement when the said financial assets are disposed.
The fair value of financial assets at fair value through other comprehensive income, which are traded in active markets is determined according to the price of the stock exchange and in the case that the stock market price is not available, according to the price in the Official Gazette. Where there is no quoted price in an active market, the fair value is determined by using other methods specified in TFRS 13. The financial assets at Fair Value Through Other Comprehensive Income, that are unquoted on the stock exchange, amount to TRL 22,878 Thousand and are classified under “Equity securities” in the current period.
Financial Assets at Amortised Cost
A financial asset is classified as a financial asset measured at amortized cost, if the financial asset is held within the scope of a business model for the collection of contractual cash flows and the contractual terms of the financial asset result in cash flows that include payments arising only from principal and interest on the principal amounts on specific dates.
After the initial recognition, provision for impairment to be deducted, if any, financial assets at amortized cost are measured at discounted value using effective interest method (internal rate of return).
Interest earned from financial assets measured at amortized cost is recorded as interest income.
The Group classifies financial assets in accordance with the classifications explained above during the acquisition of the mentioned assets.
There are treasury bonds indexed to consumer prices (“CPI”) in the securities portfolio which are classified as financial assets at fair value through profit and loss, at fair value through other comprehensive income and financial asstes at amortized cost. The real coupon of State Treasuries Indexed to Consumer Prices remains stable throughout the term. In addition to the effects of inflation changes, valuations of these securities are made according to the announcements made by the Presidency Ministry of Treasury and Finance at the issue date, based on the reference index at the issue date and the reference index at the balance sheet date.
Loans
Loans, other than those with intention to be sold, are the financial assets , the contractual terms of which result in cash flows that include payments arising only from principal and interest on the principal amounts on specific dates. The Bank initially recognises loans at the cost of the acquisition and accounts for at the amortized cost using the effective interest method in subsequent periods besides Group reflects swaps, used for funding of long term fixed interest rate TRL loan portfolio, with fair value in the financial statements. The Group has initially classified the long term fixed interest rate TRL loan portfolio funded through swaps as “Loans at Fair Value Through Profit and Loss” and follows it at fair value in the financial statements.
As of 31 December 2018, loans with fair value of TRL Thousand 221,879 are classified as the “Loans at Fair Value Through Profit and Loss” in the financial statements.
ŞEKERBANK ANNUAL REPORT 2018
321 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Foreign currency-indexed individual and commercial loans are shown under Turkish Currency (“TRL”) accounts after having been converted into Turkish Lira at exchange rate at transaction date. Repayments are calculated at exchange rate at date of payment and exchange rate differences encountered are reflected in profit and loss accounts. Net foreign exchange gains of the foreign currency indexed loans are presented under foreign exchange gain/loss.
VIII. Explanations on Impairment of Financial Assets
Expected Credit Losses
Starting from 1 January 2018, the Group recognizes the impairment in accordance with the TFRS 9 “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette No. 29750 dated 22 June 2016.
Within this framework, evaluation of the expected credit losses is applied for the financial lease recievables, contractual assets, credit commitments and financial guarantee contracts that are not measured at fair value through profit or loss, financial assets measured at amortized cost and fair value through other comprehensive income.
The expected credit losses measured and recorded at the initial recognition of the financial asset and updated according to the rate of the impairment on the credit risk in accordance with measurement performed at each reporting date to reflect changes in credit risk.
The basic principle of the expected credit loss model is to reflect the deterioration or improvement in credit risk to the general pattern. The expected loss measurement is aimed to identify the degree of credit deterioration at the first issuance of the loan and to reflect the changes in the expected credit loss during the lifetime of the related loan.
Financial assets are classified into the following three categories based on the degree of the credit risks observed at the initial recognition of financial assets:
12 Months Expected Loss Provision (First Stage):
For the financial assets at initial recognition or that do not have a significant increase in credit risk since initial recognition, the expected credit loan loss provision is calculated for 12 months.
Significant Increase in Credit Risk (Second Stage):
In the event of a significant increase in credit risk since initial recognition, the financial asset is transferred to Stage 2. Expected credit loss provision is determined by the expected credit loss for the life-time of the related financial asset. The main reasons for the significant increase in the credit risk and its transfer to the second stage are as follows:
• Number of overdue loan dates exceeding 30 days. • The presence of loans under restructuring due to financial difficulties. • Suggesting to ‘Liquidate Risk’ to the customers by the Bank’s early warning system.
ŞEKERBANK ANNUAL REPORT 2018
322 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Default (Third Stage):
The Parent Bank takes into account the following criteria for the classification of a financial asset as a default;
• Overdue by more than 90 days • The Group’s observation that the debtor cannot fulfill his / her debts related to the loan although it is not more than 90 days.
Includes financial assets that have objective evidence of impairment as of the reporting date. Life expectancy for these assets is recorded as credit loss.
The Parent Bank measures the expected credit losses for a financial asset to reflect the following:
• A weighted and unbiased amount of loss based on probabilities of default determined taking into account possible outcomes, • Time value of money, • Reasonable and supportable information on estimates of past events, current conditions, and future economic conditions without undue cost or effort as of the reporting date.
IX. Explanations on Offsetting of Financial Assets and Liabilities
Financial assets and liabilities are offset when the Group has a legally enforceable right to set off, and the intention of collecting or paying the net amount of related assets and liabilities or the right to offset the assets and liabilities simultaneously.
X. Explanations on Sales and Repurchase Agreements and Lending of Securities
The sales and purchase of government securities under repurchase agreements made with the customers are being recorded in the balance sheet accounts in accordance with the Uniform Chart of Accounts. Accordingly in the financial statements, the government bonds and treasury bills sold to customers under repurchase agreements are classified under Financial Assets at Fair Value Through Profit and Loss, Financial Assets at Fair Value Through Other Comprehensive Income and Financial assets at amortised cost depending on the portfolio they are originally included in and are valued according to the valuation principles of the related portfolios. Funds obtained from repurchase agreements are classified as a separate sub-account under money market borrowings account in the liabilities.
The income and expenses from these transactions are reflected in the “Interest Income on Marketable Securities” and “Interest Expense on Money Market Borrowings” accounts in the statement of income.
As of 31 December 2018, the Group has no reverse repo transactions (31 December 2017 – None).
As of 31 December 2018 , the Group does not have marketable securities lending transactions (31 December 2017 - None).
ŞEKERBANK ANNUAL REPORT 2018
323 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XI. Explanations on Assets Held for Sale and Discontinued Operations
Assets held for sale are those assets or group of assets, which will be disposed under a plan prepared by the management regarding the sale of those asset or the group of assets that have high probability of sale together with an active program for determination of buyers and plan completion date. Those assets (or else the group of assets) are marketed in conformity with its fair value. On the other hand, the mentioned sale is expected to be recorded at the completed sale within one year after the classification date; and the necessary transactions and procedures to complete the plan should demonstrate the fact that the possibility of making significant changes or cancelling the plan is low.
As of 31 December 2018, the Group has TRL 320,984 Thousand assets held for sale (31 December 2017 - TRL 266,025 Thousand).
A discontinued operation is a division of a Group that is either disposed or held for sale. Results of discontinued operations are included in the statement of income separately. The Group does not have any discontinued operations.
XII. Explanations on Goodwill and Other Intangible Assets
There is no goodwill regarding the investments in associates and subsidiaries.
Intangible assets are accounted for at restated cost until 31 December 2004 in accordance with inflation accounting and are amortized with straight-line method. After 31 December 2004 the cost of assets subject to amortization is restated as the acquisition cost and any other costs incurred in order to make the intangible asset ready for use less reserve for impairment, if any, are amortized on a straight-line method. The cost of assets subject to amortization is restated after deducting the exchange differences, capitalized financial expenses and revaluation increases, if any, from the cost of the assets.
Those items classified as intangible assets mainly consist of software. These items are determined to have 5 years of amortization. Software is mainly outsourced and the related expenses are not capitalized.
There are no anticipated changes in the accounting estimates about the amortization rate and method and residual values that would have a significant impact in the current and future periods.
The Group has no written-off intangible fixed assets, in the current period (31 December 2017 - None).
XIII. Explanations on Tangible Fixed Assets
The cost of the Parent Bank’s immovables has been adjusted for inflation until 31 December 2004. As of 31 December 2006, the Parent Bank changed its accounting policy and adopted revaluation method on annual basis under scope of Standard on Tangible Fixed Assets (TAS 16) with respect to valuation of immovables included in its tangible fixed assets. Tangible Fixed Assets’ appraisal valuation was conducted by an independent valuation company as of 31 December 2018 and reflected in the financial statements, accordingly. The valuation difference of immovables under equity as of 31 December 2018 is TRL 98,195 Thousand gross (after net off deferred tax, net amount is TRL 82,569 Thousand) (31 December 2017 - TRL 76,906 Thousand gross, net-off deferred tax amount TRL 62,153 Thousand).
ŞEKERBANK ANNUAL REPORT 2018
324 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Other tangible fixed assets were accounted at their restated costs in line with inflation accounting until 31 December 2004; afterwards the acquisition cost and any other cost incurred to prepare the fixed asset for usage are reflected less reserve for impairment, if any, and depreciated on a straight-line method. Depreciation of assets held less than one year as of the balance sheet date is accounted for proportionately. There is no change in amortization method in current period and the annual rates used, which approximate rates based on the estimated economic useful lives of the related assets, are as follows:
% Buildings 2 Motor vehicles 20 Furniture, fixtures and office equipment and others 2 – 33 Leasehold improvements During Leasehold
Gain or loss resulting from disposals of the tangible fixed assets is reflected to the statement of income as the difference between the net proceeds and net book value.
Maintenance costs of tangible fixed assets are capitalized if they extend the economic useful life of related assets. Other maintenance costs are expensed. There are no pledges, mortgages or other restrictions on the tangible fixed assets.
There is no purchase commitments related to the tangible fixed assets.
The Group reviews the residual value and the useful life of buildings at each financial year-end and, if expectations differ from previous estimates, the adjustments are accounted as a change in an accounting estimate in accordance with TAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The Group has no written-off tangible fixed assets in the current period (31 December 2017 - None).
XIV. Explanations on Leasing Transactions
Tangible fixed assets acquired by financial leases are accounted for in accordance with TAS 17 “Leases”. In accordance with this standard, the leasing transactions, which consist of foreign currency liabilities, are translated to Turkish Lira with the exchange rates prevailing at the transaction dates and they are recorded as an asset or a liability. The foreign currency liabilities are translated to Turkish Lira with the Parent Bank’s period end exchange rates. Subsidiaries’ foreign currency liabilities are translated to Turkish Lira wih the Central Bank of the Republic of Turkey’s exchange rates. The increases/decreases resulting from the differences in the foreign exchange rates are recorded as expense/income in the relevant period. The financing cost resulting from leasing is distributed through the lease period to form a fixed interest rate.
In addition to the interest expense, the Group records depreciation expense for the depreciable leased assets in each period. The depreciation rate is determined in accordance with TAS 16 “Accounting Standard for Tangible Fixed Assets” and the depreciation rate of these assets is 20%.
Operating lease payments are recognized as expenses in the statement of income on a straight line basis over the lease term.
ŞEKERBANK ANNUAL REPORT 2018
325 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The gross lease receivables including interest and principal amounts regarding the Group’s financial leasing activities conducted by Şeker Finansal Kiralama A.Ş. as “Lessor” are stated under the receivables from the financial leasing activities. The difference between the total of rent payments and the cost of the related fixed assets are reflected to the “unearned income” account. The interest income is calculated and recorded to create a constant rate of return over the lessor’s net investment on the leased item.
XV. Explanations on Provisions and Contingent Liabilities
Provisions are recognized when there is a present obligation, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by using the Group’s best expectation of expenses in fulfilling the obligation, and discounted to present value if material.
XVI. Explanations on Liabilities Regarding Employee Benefits
Defined Benefit Plans
In accordance with existing social legislation in Turkey, the Group is required to make lump-sum termination indemnities over a 30 day salary for each employee who has completed over one year of service, whose employment is terminated due to retirement or for reasons other than resignation or misconduct. The Group is also required to make a payment for the period of notice calculated over each service year of the employee whose employment is terminated for reasons other than resignation or misconduct. Total benefit is calculated in accordance with TAS 19 “Turkish Accounting Standard on Employee Benefits”.
Such benefit plans are unfunded since there is no funding requirement in Turkey. The cost of providing benefits to the employees for the services rendered by them under the defined benefit plan is determined by independent actuaries annually using the projected unit credit method.
In calculating the related liability to be recorded in the financial statements for these defined benefit plans, the Group uses independent actuaries and also makes assumptions and estimation relating to the discount rate to be used, turnover of employees, future change in salaries/limits, etc. These estimations are reviewed annually.
According to revised TAS 19 effective from 1 January 2013, actuarial gain/losses are recorded under equity. As of 31 December 2018, the carrying value of employee benefit provisions is TRL 88,041 Thousand that consists of employee termination benefit provisions amounting to TRL 79,953 Thousand and employee vacation pay provisions amounting to TRL 8,088 Thousand (31 December 2017 - total employee benefit provision was TRL 83,225 Thousand, employee termination benefit provisions was TRL 75,411 Thousand and employee vacation pay provisions was TRL 7,814 Thousand).
Defined Contribution Plans
Şekerbank T.A.Ş. Pension Fund, of which most of the Parent Bank’s employees are members, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
ŞEKERBANK ANNUAL REPORT 2018
326 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
After the justified decree related to cancelling the provisional article 23 of the Banking Law was announced by the Constitutional Court in the Official Gazette dated 15 December 2007 and numbered 26731, the Turkish Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health Insurance Act and Certain Laws and Decree Laws”, which was published in the Official Gazette dated 8 May 2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Banks’ pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation. The three year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
In addition, by the Law “Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years after that related transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette dated 3 May 2013 and numbered 28636 also this period has revalidated one more year by the Cabinet decision dated 24 February 2014, which was published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335. This authority was transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated 9 July 2018.
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations”. There was TRL 159,499Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate rate of 9.80 % in accordance with the basis set out in the Council of Ministers decision no: 26377 on 15 December 2006 (31 December 2017 - TRL 81,454 Thousand actuarial deficit).
As of 31 December 2018, TRL 159,499 Thousand provision is recorded in the financial statements (31 December 2017 - TRL 81,454 Thousand).
ŞEKERBANK ANNUAL REPORT 2018
327 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XVII. Explanations on Taxation
Corporate tax
According to the Article 37 of the Corporate Tax Law, starting from 1 January 2006 earnings of companies will be taxed by %20. In accordance with the regulation numbered 7061, “Amendments to Certain Tax Laws and Other Certain Other Laws”, the tax rate has been set as 22 % for 2018, 2019 and 2020. The Council of Ministers is authorized to reduce this rate up to 20% anytime.
The tax legislation requires advance tax payment to be calculated and paid based on earnings generated for each quarter. The amounts thus calculated and paid are offset against the final tax liability for the year.
Annual tax returns are required to be filed between the first and twenty fifth day of the fourth month following the balance sheet date and paid in one installment until the end of the related month.
Tax provision related with items that are credited or charged directly to equity are charged or credited to equity.
According to the Corporate Tax Law, tax losses can be carried forward for a maximum period of five years following the year in which the losses are incurred. Tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years.
Deferred Tax Liability / Asset
The Group calculates and reflects deferred tax asset or liability on timing differences which will result in taxable or deductible amounts in determining taxable profit of future periods.
As of 31 December 2018 and 31 December 2017, in accordance with TAS 12 “Turkish Accounting Standard on Income Taxes” and the changes in the circular of the BRSA numbered BDDK.DZM.2/13/1-a-3 dated 8 December 2004, the Group calculated deferred tax asset on all deductible temporary differences, if sufficient taxable profit in future periods to recover such amounts is probable; as well as deferred tax liability on all taxable temporary differences. Deferred tax assets and liabilities calculated for the subsidiaries subject to consolidation are shown netted in their financial statements. In accordance with TAS 12, deferred tax assets and liabilities arising from the different subsidiaries subject to consolidation are presented separately in the financial statements on a consolidated basis, without netting.
The net deferred tax asset is reflected under the deferred tax asset and the net deferred tax liability is reflected under the deferred tax liability in the balance sheet. The deferred tax benefit of TRL 108,564 Thousand is stated under the tax provision line in the income statement, the deferred tax expense of TRL 109,247 Thousand is presented in the deferred tax expense effect line in the income statement.
Furthermore, as per the above circular of the BRSA, deferred tax benefit balance resulting from netting of deferred tax assets and liabilities should not be used in dividend distribution and capital increase. Effective from 1 January 2018, deferred tax assets have started to be calculated over the expected losses that are temporary differences according to TFRS 9.
ŞEKERBANK ANNUAL REPORT 2018
328 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XVIII. Additional Explanations on Borrowings
The borrowing costs related to purchase, production, or construction of qualifying assets that require significant time to be prepared for use and sale are included in the cost of assets until the relevant assets become ready to be used or to be sold. Financial investment income obtained by temporary placement of undisbursed investment loan in financial investments is offset against borrowing costs qualified for capitalization.
All other borrowing costs are recorded to the statement of income in the period they are incurred.
As of 31 December 2018 outstanding issued bonds amount of the Group is TRL 516,302 Thousand (31 December 2017 – TRL 486,950 Thousand).
Issuer Issuance Date Issuance Amount Maturity Şekerbank T.A.Ş. 09.11.2018 40,000 91 days Şekerbank T.A.Ş. 05.12.2018 130,000 85 days Şeker Finansal Kiralama A.Ş. 20.02.2018 22,754 350 days Şeker Finansal Kiralama A.Ş. 17.04.2018 15,205 350 days Şeker Finansal Kiralama A.Ş. 07.06.2018 9,931 350 days Şeker Finansal Kiralama A.Ş. 05.09.2018 4,591 350 days Şeker Finansal Kiralama A.Ş. 20.09.2018 78,000 120 days Şeker Finansal Kiralama A.Ş. 23.10.2018 22,237 78 days Şeker Finansal Kiralama A.Ş. 04.12.2018 40,000 80 days Şeker Faktoring A.Ş. 24.05.2018 25,891 364 days Şeker Faktoring A.Ş. 07.09.2018 1,000 364 days Şeker Faktoring A.Ş. 20.09.2018 5,479 106 days Şeker Faktoring A.Ş. 05.10.2018 11,076 119 days Şeker Faktoring A.Ş. 07.12.2018 51,800 105 days Şeker Yatırım Menkul Değerler A.Ş. 12.12.2018 20,001 84 days Şeker Yatırım Menkul Değerler A.Ş. 18.12.2018 14,155 91 days
As of 31 December 2018 outstanding issued marketable securities amount of the Group is TRL 25,532 Thousand and details are shown the in table below (31 December 2017 – TRL 39,349 Thousand).
Issuer Issuance Date Issuance Amount Maturity Şeker Finansal Kiralama A.Ş. 07.03.2017 7,345 728 days Şeker Finansal Kiralama A.Ş. 02.05.2017 3,772 728 days Şeker Finansal Kiralama A.Ş. 11.07.2017 2,369 546 days Şeker Finansal Kiralama A.Ş. 27.07.2018 2,895 420 days Şeker Faktoring A.Ş. 05.07.2018 12,500 538 days Şeker Faktoring A.Ş. 01.08.2017 1,603 546 days
ŞEKERBANK ANNUAL REPORT 2018
329 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Parent Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Parent Bank’s SME loans were used as collateral.
Issue Date Series Investors Amount Remaining Principal Amount Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
As of 31 December 2018 the Group has the Asset Covered Bonds amounting to TRL 701,850 Thousand (31 December 2017 - TRL 701,385 Thousand).
The Group has not issued convertible bonds.
XIX. Explanations on Share Certificates
None.
XX. Explanations on Independent Guarantees and Acceptances
Acceptances are realized simultaneously with the payment dates of the customers and they are presented as probable commitments in off-balance sheet accounts.
XXI. Explanations on Government Incentives
The Parent Bank’s subsidiary Şeker Finansal Kiralama A.Ş. has TRL 53,265 Thousand of unused investment incentives as of 31 December 2018 (31 December 2017 – TRL 64,320 Thousand).
XXII. Explanations on Segment Reporting
The Group primarily deals with and engages in corporate, retail and SME finance in line with its strategy.
Current Period Corporate SME Retail Other Total
Net Interest Income 277,832 574,260 321,508 336,327 1,509,927 Net Fees and Commission Income and Other Operating Income 147,126 227,862 43,062 30,960 449,010 Personnel Expenses - - - (468,122) (468,122) Dividend Income - - - 1,382 1,382 Trading Profit/(Loss) 34,220 - (957) (150,024) (116,761) Expected Loss Provisions (193,231) (251,800) (3,388) (93,962) (542,381) Other Operating Expenses (24,071) (2,458) (2,369) (696,574) (725,472)
Profit/(Loss) before taxes 241,876 547,864 357,856 (1,040,013) 107,583 Taxation - - - - (18,836)
Net Profit for the Period - - - - 88,747
ŞEKERBANK ANNUAL REPORT 2018
330 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Current Period Commercial SME Retail Treasury /Investment Undistributed Total Assets 8,452,154 12,183,332 1,321,375 8,343,423 2,664,500 32,964,784 Liabilities 4,257,807 1,591,741 17,091,309 6,061,566 3,962,361 32,964,784
Prior Period Corporate SME Retail Other Total
Net Interest Income 251,163 486,211 244,008 348,996 1,330,378 Net Fees and Commission Income and Other Operating Income 148,759 338,763 51,408 51,075 590,005 Dividend Income - - - 2,064 2,064 Trading Profit/(Loss) 8,394 - (405) (249,036) (241,047) Impairment provision for loans and other receivables (102,096) (329,967) (25,903) (26,636) (484,602) Other Operating Expenses (38,405) (21) (4,449) (1,018,331) (1,061,206)
Profit/(Loss) before taxes 267,815 494,986 264,659 (891,868) 135,592 Taxation - - - - (23,442)
Net Profit for the Period - - - - 112,150
Prior Period Commercial SME Retail Treasury/Investment Undistributed Total Assets 10,330,486 10,172,016 1,560,409 9,544,405 1,522,370 33,129,686 Liabilities 7,116,543 2,425,292 10,342,461 9,539,293 3,706,097 33,129,686
XXIII. Explanations on Other Matters
Disclosures of TFRS 9 Financial Instruments:
TFRS 9 “Financial Instruments”, which is effective as of 1st of January 2018, is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. TFRS 9 has been replaced TAS 39 Financial Instruments: recognition and measurement, related to the classification and measurement of financial instruments.
All recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding unless they are designated at fair value through profit and loss, are measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on cash flows that are solely payments of principal and interest on the principal amount outstanding, unless they are designated at fair value through profit and loss, are measured at FVTOCI (Fair Value through Comprehensive Income). All other debt investments and equity investments are measured at their fair value through profit and loss at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income recognized in profit or loss.
ŞEKERBANK ANNUAL REPORT 2018
331 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Classification and measurement of financial assets: According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model used for managing the financial asset and the asset’s contractual cash flow characteristics whether the cash flows represent “solely payments of principal and interest (SPPI). At initial recognition, each financial asset has been classified as a financial asset to be recognized at either fair value through profit or loss (“FVTPL”), amortized cost or fair value through other comprehensive income (“FVOCI”).
Impairment of financial assets: As of 1 January 2018, the Group recognized provisions for impairment in accordance with the TFRS 9 requirements and the “Regulation on Procedures and Principles for the classification of Loans and the Provisions to be Reserved” published in the Official Gazette dated 22 June 2016 numbered 29750. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions.
Explanations on the effect of the Group’s application of TFRS 9 are given in the following tables. a) Classification and measurement of financial assets
According to TFRS 9, Held for Trading Financial Assets are classified as Financial Assets Through Profit or Loss, Available for Sale Financial Assets are classified as Financial Assets Through Comprehensive Income and Held to Maturity Financial Assets are classified as Financial Assets at Amortized Cost as of 1 January 2018.
The reconciliation table related to TFRS 9 transition effect of financial assets is presented below table:
Measurement TFRS 9 TFRS 9 Bases Before Book Value Reclassification Remeasurement Book Value TFRS 9 Before TFRS 9 Effect Effect After TFRS 9 Financial Assets 31 December 2017 1 January 2018 Cash and Balances with Central Measured at Bank amortized cost 3,107,636 - - 3,107,636 Banks and Money Markets Measured at amortized cost 3,093,211 - - 3,093,211 Fair value through profit and loss Fair value through marketable securities profit and loss 74,877 - - 74,877 Fair value through comprehensive Fair value through income marketable securities comprehensive income 1,395,802 (1,064,050) 3,112 334,864 Marketable securities at Measured at amortised cost amortized cost 1,355,994 1,064,050 72,562 2,492,606 Loans Fair value through profit and loss 270,364 (3,811) 130 266,683 Measured at amortized cost 20,460,558 3,558 - 20,464,116 Non Performing Loans 1,047,784 820 - 1,048,604 Specific provisions (-) (578,190) (567) - (578,757)
ŞEKERBANK ANNUAL REPORT 2018
332 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Parent Bank has classified the fair value through comprehensive income marketable securities portfolio amounting to TRL 1,277,887 Thousand as of 31 December 2017 to marketable securities at amortised cost and marketable securities at amortised cost portfolio amounting to TRL 213,837 Thousand to the fair value through comprehensive income marketable securities as of 1 January 2018.
In the financial statements as of 1 January 2018, “Cash and Cash Equivalents” item includes “Cash and Central Bank”, “Banks” and “Money Market Receivables” items which are presented separately in the 31 December 2017 financial statements. In addition, “Other Liabilities” item on the financial statements as of 1 January 2018 includes “Sundry Creditors” and “Other Liabilities” items presented separately in the 31 December 2017 financial statements.
Fair value throug profit or loss loans which are presented at 31 December 2017 financial statements amounting to TRL 3,681 Thousandof the Parent Bank, are measured at amortized cost as of 1 January 2018 and classified in loans at amortised cost line in the financial statements. b) Expected Loss related with financial assets
The reconciliation of the provision for impairment calculated as of 31 December 2017 and the expected loss calculated in accordance with TFRS 9 as of 1 January 2018 is included in the following table:
Book Value before TFRS 9 TFRS 9 Book Value after 31 December 2017 Remeasurement Effect 1 January 2018 Loans 687,125 620,207 1,307,332 Stage 1 38,898 79,318 118,216 Stage 2 19,576 346,213 365,789 Stage 3 628,651 194,676 823,327 Financial Assets (*) 8,121 (1,660) 6,461 Non-cash Loans (**) 69,502 (4,241) 65,261 Stage 1 7,312 6,863 14,175 Stage 2 795 2,955 3,750 Stage 3 61,395 (14,059) 47,336
(*) Within the scope of TFRS 9, provisions include provisions for Amortized Cost, Fair Value Through Other Comprehensive Income, Receivables from Banks, Receivables from Money Markets and Other Assets. (**) Before TFRS 9, the expected credit loss for stage 1 and 2 non-cash loans is classified “General Provision” and expected credit loss for stage 3 non-cash loans is classified “Other Provisions” under liabilities. In accordance with TFRS 9, the expected loss provisions for the 1st, 2nd and 3rd stage for non-cash loans are in the “Other Provisions” column in the liabilities. c) Equity effect of TFRS 9 transition
According to paragraph 15 of Section 2 of Article 7 of TFRS 9 Financial Instruments Standards published in the Official Gazette numbered 29953 dated 19 January 2017, it is stated that it is not compulsory to restate previous period information in accordance with TFRS 9 and if the previous period information is not revised, it is stated that the difference between the book value of 1 January 2018 at the date of application should be reflected in the opening effect of equity. The explanations about the transition effects to IFRS 9 presented in the equity items under the scope of this article are given below.
ŞEKERBANK ANNUAL REPORT 2018
333 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
After the adoption of TFRS 9 as of 1 January 2018, the Group has increased its shareholders’ equity amounting to TRL 60,152 Thousand after deferred tax due to reclassification of marketable securities and decreased TRL 509,319 Thousand shareholders’ equity after deferred tax due to expected credit loss provision calculation.
Deferred tax assets are calculated for expected credit loss provisions as of 1 January 2018, as stated in the Communiqué on “Uniform Chart of Accounts and Prospectus” issued on 20 September 2017. Within this scope, deferred tax asset amounting to TRL 105,852 Thousand has been reflected to opening balances on 1 January 2018 and such amount has been accounted under equity.
Explanations On Prior Period Accounting Policies Not Valid For The Current Period
Explanations on Financial Assets
Financial instruments comprise financial assets, financial liabilities and derivative instruments. Financial instruments form a significant part of the Group’s operations. The risks associated with these instruments cover a significant portion of the Group’s total risk. Financial instruments affect liquidity, market, and credit risks on the Group’s balance sheet in all respects. The Group trades these instruments on behalf of its customers and on its own behalf.
Financial instruments have the feature of detecting, affecting and diminishing liquidity, credit and interest risks in the financial statements. All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Group. Settlement date accounting requires (a) accounting of the asset when acquired by the institution and (b) disposing of the asset out of the balance sheet on the date settled by the institution; and accounting of gain or loss upon disposal. In case of application of settlement date accounting, for the financial assets at fair value through profit and loss, available for sale financial assets and securities held for trading, the Group accounts for the changes that occur in the fair value of the asset in the period between trade transaction date and settlement date.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted for in the same way as the acquired assets.
Fair value differences are not accounted for assets presented at cost or amortized cost; gain or loss of financial assets at fair value through profit and loss are reflected in the statement of income; gain or loss of available for sale assets are accounted for in the shareholders’ equity.
The financial instruments are mentioned below with regard to their accounts classified in the financial statements and their valuations according to these classifications.
Cash, Banks and Other Financial Institutions
Cash and cash equivalents comprise cash on hand, demand deposits, and highly liquid short-term investments with maturity of 3 months or less following the purchase date, not bearing risk of significant value change, and these investments that are readily convertible to a known amount of cash. The book values of these assets approximate their fair values.
ŞEKERBANK ANNUAL REPORT 2018
334 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Financial Assets at Fair Value Through Profit and Loss
Trading securities are securities which were either acquired to generate a profit from short-term fluctuations in price or dealer’s margin, or they are the securities included in a portfolio with a pattern of short-term profit taking.
Trading securities are initially recognized at cost. Transaction costs of the related securities are included in the initial cost. The positive difference between the cost and fair value of such securities is accounted for as interest and income accrual, and the negative difference is accounted for as “Impairment Provision on Marketable Securities”.
In addition to customer deposits, the Parent Bank is funding its growing long term and fixed interest rate TRL loan portfolio through long term floating interest rate foreign currency resources obtained from international markets. The Parent Bank transforms the foreign currency liquidity which is created by funds obtained from international markets into TRL liquidity through long term swap contracts, as a result of this situation the Parent Bank can provide TRL funds for the long term fixed rate loans and have protection against interest rate risk.
The Group reflects swaps, used for funding of long term fixed interest rate TRL loan portfolio, with fair value in the financial statements. The Group has initially classified the long term fixed interest rate TRL loan portfolio funded through swaps as “Financial Assets At Fair Value Through Profit And Loss” and follows it at fair value in the financial statements.
TRL 270,364 Thousand of the housing, commercial installment, consumer, vehicle and finance lendings’ principal amounts are classified as under the account of financial asset at fair value through profit and loss.
Held to Maturity Investments, Financial Assets Available for Sale and Loans
Investments held-to-maturity include financial assets with fixed or flexible cashflows and fixed maturity with an intention of holding till maturity excluding financial assets at fair value through profit and loss, available for sale financial assets and loans and receivables.
Available for sale financial assets include all securities other than loans and receivables, securities held-to-maturity and securities held for trading.
The securities are initially recognized at cost including the transaction costs. After the initial recognition, available-for- sale securities are measured at fair value and the unrealized gain/loss originating from the difference between the amortized cost and the fair value is recorded in “Marketable Securities Value Increase Fund” under the equity. Fair values of debt securities that are traded in an active market are determined based on quoted prices or current market prices. In the absence of prices formed in an active market, fair values of these securities are determined using the Official Gazette prices or other valuation methods stated in TAS. In case there is no market price in an active market, the other methods explained in TAS 39 are used for determination of the fair value.
The real coupon rates for government bonds indexed to consumer price index are fixed throughout maturities. As per the statements made by the Turkish Treasury on the dates of issuance, such securities are valued taking into account the difference between the reference index at the issue date and the reference index at the balance sheet date to reflect the effects of inflation.
Loans and receivables are financial assets raised by the Group providing money to debtors, other than assets held for trading purposes or for the purpose of selling in the short-term.
ŞEKERBANK ANNUAL REPORT 2018
335 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
After initial recognition held-to-maturity investments are measured at amortized cost by using effective interest rate less impairment losses, if any.
The interests received from held-to-maturity investments are recorded as interest income.
There are no financial assets that have been previously classified as held-to-maturity investments but cannot be currently classified as held-to-maturity for two years due to “tainting” rules.
The Group classifies its financial assets as referred to above at the acquisition date of related assets.
Shares unquoted on the stock exchange amounting to TRL 16,862 Thousand are classified under “Equity Securities” of Financial Assets Available-for-Sale of the Parent Bank in the prior period.
Loans and Provisions for Impairment
The Group recognizes loans and receivables initially at cost according to their original balances, after the initial recognition, they are accounted at amortized cost by using effective interest rate as stated in the TAS 39.
Foreign currency-indexed individual and commercial loans are shown under Turkish Currency (“TRL”) accounts after having been converted into Turkish Lira at exchange rate at transaction date. Repayments are calculated at exchange rate at date of payment and exchange rate differences encountered are reflected in profit and loss accounts. Net foreign exchange gains of the foreign currency indexed loans are presented under foreign exchange gain/loss.
Provision is set for the doubtful loans and the amount is charged in the current period statement of income. The provisioning amount for non-performing loans are determined by the Parent Bank’s management for compensating the probable losses of the doubtful loan portfolio, by evaluating the quality of loan portfolio, risk factors and considering the economy conditions, other facts and related regulations.
The Group classifies its loans and receivables to related groups and calculates specific or general provisions in accordance with the “Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” published in the Official Gazette dated 1 November 2006, no.26333 and by considering other regulations and explanations announced by the BRSA. Among the activities of the Group, for the receivables from the financial leasing and factoring companies provisions are set aside in accordance with the communiques “Financial Leasing. Factoring and Financing Companies and Financial Statements of the Regulation on Accounting Policy” published on the Official Gazette numbered 28861 dated 24 December 2013.
Specific provisions are transferred to the profit and loss by using the Provision for Loan Losses and Other Receivables account. In the collections made related to such loans, first of all the principal debts of the loan are covered and then interest receivables are collected.
Specific provisions are accounted under “Provision for Loan Losses and Other Receivables” in the income statement and deducted from the net income of the period. If a receivable is collected which is provisioned in the same year, it is deducted from the “Provision for Loan Losses and Other Receivables”. If there is a subsequent collection from a receivable which has already been provisioned in previous years, the recovery amount is classified under “Other Operating Income”. Uncollectible receivables are written-off after all the legal procedures are finalized.
ŞEKERBANK ANNUAL REPORT 2018
336 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
X. Explanations on Forward and Option Contracts and Derivative Instruments
The Group’s derivative instruments consist of foreign currency swaps, interest swaps, option and forward foreign currency buy/sell transactions. Fair values of foreign currency forward and swap transactions are determined by comparing the Parent Bank’s period end foreign exchange rates and current market foreign exchange rates to the balance sheet date. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term income statement. Discounted values calculated using the interest rates between the transaction date and repricing date are used in determination of the fair values of interest rate swaps.
Some of the derivative instruments, although made for economical hedging purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument as per “Financial Instruments: Recognition and Measurement” (“TAS 39”). Realized gains or losses on these derivative instruments are reflected in the statement of income.
The Parent Bank enters into interest rate swap transactions in order to hedge the changes 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 the statement of income. 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.
Effectiveness tests are performed at the beginning of the hedge accounting period and at each reporting period. The effectiveness tests are carried out 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 the statement of income over the life of the hedged item from that date of the hedge accounting is discontinued.
XI. Explanations on Impairment of Financial Assets
At each reporting date, the Group evaluates the carrying amounts of a financial asset or a group of financial assets to determine whether there is an objective indication that those assets have suffered an impairment loss. If any such indication exists, the Group determines the related impairment.
A financial asset or a financial asset group incurs impairment loss only if there is an objective indicator related to the occurrence (or non-occurrence) of one or more than one event (“loss event”) after the recognition of that asset; and such loss event (or events) causes, an impairment as a result of the effect on the reliable estimate of the expected future cash flows of the related financial asset and asset group. Irrespective of high probability, the expected losses caused by the future events are not recorded.
ŞEKERBANK ANNUAL REPORT 2018
337 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION FOUR INFORMATION RELATED TO CONSOLIDATED FINANCIAL POSITION AND RISK MANAGEMENT
I. Explanations Related to the Shareholders’ Equity
The method used for risk measurement in determining capital adequacy standard ratio; capital adequacy standard ratio is calculated in accordance with the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks”, which was published on 23 October 2015 in the Official Gazette numbered 29511 and effective since 31 March 2016 and Communiqué on “Banks’ Equity” which was published on 5 September 2013 and in the Official Gazette numbered 28756. The Group’s consolidated capital adequacy ratio in accordance with the related communiqués is 14.33 % (31 December 2017 – 14.29 %).
In the computation of capital adequacy standard ratio, data prepared in accordance with statutory accounting requirements are used. Additionally, the market risk exposure as well as the operational risk exposure are calculated in accordance with the communiqué on the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks” and is taken into consideration in the capital adequacy standard ratio calculation.
The values deducted from the capital base in the shareholders’ equity computation are excluded while calculating risk-weighted assets. Assets subject to depreciation and impairment among risk-weighted assets are included in the calculations over their net book values after deducting the relative depreciations and provisions.
In the calculation process of credit risk, risk types are classified based on “Measurement and Assessment of Capital Adequacy of Banks-Appendix 1” and financial collaterals taken into account according to the credit risk mitigation techniques communiqué and classified in the related risk weight. According to the credit risk mitigation techniques communiqué while simple approach is taken into account for banking book items, the Group uses comprehensive approach for trading book items in the credit mitigation process
While calculating the basis of non-cash loans subject to credit risk, the net receivable amount from the counter parties net of provision amount set in accordance with the “Communiqué on Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” is multiplied by the loan conversion rates presented in the Article 5 and related clauses of the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks”, and calculated by applying the risk weights presented in the Capital Adequacy Analysis Form. In the calculation of counterparty credit risk, the current exposure method is used according to the Communiqué on “Measurement and Assessment of Capital Adequacy of Banks” the Article 21 and Appendix 2.
ŞEKERBANK ANNUAL REPORT 2018
338 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014(*) COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 - Share issue premiums 1,835 - Reserves 1,705,427 - Gains recognized in equity as per TAS 69,591 - Profit 89,398 - Current Period Profit 89,398 - Prior Period Profit - - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period - - Minorities’ Share 29,315 - Common Equity Tier 1 Capital Before Deductions 3,053,566 - Deductions from Common Equity Tier 1 Capital Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - - Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected in equity in accordance with TAS (14,498) - Improvement costs for operating leasing 70,935 - Goodwill (net of related deferred tax liability) 94,111 - Other intangibles other than mortgage-servicing rights (net of related deferred tax liability) - - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related deferred tax liability) 69,529 - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provison - - Gains arising from securitization transactions - - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity 175,996 - Shares obtained contrary to the 4th clause of the 56th Article of the Law - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of mortgage servicing rights exceeding 10% of the Common Equity - - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the Regulation on the Equity of Banks - - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital 66,028 - Excess amount arising from mortgage servicing rights - - Excess amount arising from deferred tax assets based on temporary differences - - Other items to be defined by the BRSA - - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - - Total Deductions From Common Equity Tier 1 Capital 396,073 - Total Common Equity Tier 1 Capital 2,657,493 -
ŞEKERBANK ANNUAL REPORT 2018
339 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014(*) ADDITIONAL TIER I CAPITAL - Preferred Stock not Included in Common Equity and the Related Share Premiums - - Debt instruments and premiums approved by BRSA - - Debt instruments and premiums approved by BRSA(Temporary Article 4) - - Third parties’ share in the Additional Tier I capital - - Third parties’ share in the Additional Tier I capital (Temporary Article 3) - - Additional Tier I Capital before Deductions - Deductions from Additional Tier I Capital - - Direct and indirect investments of the Bank in its own Additional Tier I Capital - - Investments of Bank to Banks that invest in Bank’s additional equity and components of equity issued by financial institutions with compatible with Article 7. - - 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 - Transition from the Core Capital to Continue to deduce Components - Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - - Net deferred tax asset/liability which is not deducted from Common Eguity Tier 1 capital for the purposes of the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - - Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not available (-) - - Total Deductions From Additional Tier I Capital - - Total Additional Tier I Capital - - Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,657,493 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA 898,885 - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - - Third parties’ share in the Tier II Capital - - Third parties’ share in the Tier II Capital (Temporary Article 3) - - Provisions (Article 8 of the Regulation on the Equity of Banks) - - Tier II Capital Before Deductions 898,885 - Deductions From Tier II Capital - Direct and indirect investments of the Bank on its own Tier II Capital (-) - - Investments of Bank to Banks that invest on Bank’s Tier 2 and components of equity issued by financial institutions with the conditions - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - - Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 898,885 - Total Capital (The sum of Tier I Capital and Tier II Capital) 3,556,377 - Deductions from Total Capital - - Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - - 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 - - Other items to be defined by the BRSA 5,780 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity) in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -
ŞEKERBANK ANNUAL REPORT 2018
340 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Current Period 1/1/2014(*) The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 cap7ital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - TOTAL CAPITAL Total Capital (The sum of Tier I Capital and Tier II Capital) 3,550,598 - Total risk weighted amounts 24,785,039 CAPITAL ADEQUACY RATIOS - Core Capital Adequacy Ratio (%) 10.72 - Tier 1 Capital Adequacy Ratio (%) 10.72 - Capital Adequacy Ratio (%) 14.33 BUFFERS - Total additional Common Equity Tier 1 Capital requirement ratio (a+b+c) 1.933 - a) Bank specific total common equity tier 1 capital ratio 1.875 - b) Capital conservation buffer requirement 0.058 c) Systemically important bank buffer ratio (**) 0.000 - The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets - Amounts below the Excess Limits as per the Deduction Principles Portion of the total of net long positions of 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 - - Portion of the total of 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 - - Amount arising from deferred tax assets based on temporary differences - - Limits related to provisions considered in Tier II calculation - Limits related to provisions considered in Tier II calculation General provisions for standard based receivables (before limit of one hundred and twenty five per ten Thousand) - - Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used - - Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Excess amount of total provision amount to 0,6% of risk weighted receivables of credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - Debt instruments subjected to Article 4 (to be implemented between 1 January 2018 and 1 January 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - - Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -
(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014 and taken into consideration at the end of transition process. (**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank, which are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.
ŞEKERBANK ANNUAL REPORT 2018
341 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment Prior Period before 1/1/2014 (*) COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 - Share issue premiums 1,834 - Reserves 1,414,071 - Gains recognized in equity as per TAS 62,153 - Profit 346,670 - Current Period Profit 113,661 - Prior Period Profit 233,009 - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period - - Minorities’ Share 18,752 - Common Equity Tier 1 Capital Before Deductions 3,001,480 - Deductions from Common Equity Tier 1 Capital Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - - Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected in equity in accordance with TAS 54,199 - Improvement costs for operating leasing 93,794 - Goodwill (net of related tax liability) 70,643 - Other intangibles other than mortgage-servicing rights (net of related tax liability) - - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 67,841 - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provison - - Gains arising from securitization transactions - - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity 175,996 - Shares obtained contrary to the 4th clause of the 56th Article of the Law - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of mortgage servicing rights exceeding 10% of the Common Equity - - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the Regulation on the Equity of Banks - - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital - - Excess amount arising from mortgage servicing rights - - Excess amount arising from deferred tax assets based on temporary differences - - Other items to be defined by the BRSA - - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - - Total Deductions From Common Equity Tier 1 Capital 462,473 - Total Common Equity Tier 1 Capital 2,539,007 -
ŞEKERBANK ANNUAL REPORT 2018
342 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Prior Period 1/1/2014 (*) ADDITIONAL TIER I CAPITAL - Preferred Stock not Included in Common Equity and the Related Share Premiums - - Debt instruments and premiums approved by BRSA - - Debt instruments and premiums approved by BRSA(Temporary Article 4) - - Third parties’ share in the Additional Tier I capital - - Third parties’ share in the Additional Tier I capital (Temporary Article 3) - - Additional Tier I Capital before Deductions - Deductions from Additional Tier I Capital Direct and indirect investments of the Bank in its own Additional Tier I Capital - - Investments of Bank to Banks that invest in Bank’s additional equity and components of equity issued by financial institutions with compatible with Article 7. - - 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 - Transition from the Core Capital to Continue to deduce Components Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) 17,660 - Net deferred tax asset/liability which is not deducted from Common Eguity Tier 1 capital for the purposes of the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) 16,960 - Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not available (-) - - Total Deductions From Additional Tier I Capital - - Total Additional Tier I Capital - - Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,504,387 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) 620,612 - Third parties’ share in the Tier II Capital - - Third parties’ share in the Tier II Capital (Temporary Article 3) - - Provisions (Article 8 of the Regulation on the Equity of Banks) 75,561 - Tier II Capital Before Deductions 696,173 - Deductions From Tier II Capital - Direct and indirect investments of the Bank on its own Tier II Capital (-) - - Investments of Bank to Banks that invest on Bank’s Tier 2 and components of equity issued by financial institutions with the conditions - - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - - Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 696,173 - Total Capital (The sum of Tier I Capital and Tier II Capital) 3,200,559 - Deductions from Total Capital - - Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - - 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 2,150 - Other items to be defined by the BRSA 10,883 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity) in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -
ŞEKERBANK ANNUAL REPORT 2018
343 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Amounts related to treatment before Prior Period 1/1/2014 (*) The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - - The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - TOTAL CAPITAL Total Capital (The sum of Tier I Capital and Tier II Capital) 3,187,526 - Total risk weighted amounts 22,311,921 CAPITAL ADEQUACY RATIOS - Core Capital Adequacy Ratio (%) 11.38 - Tier 1 Capital Adequacy Ratio (%) 11.22 - Capital Adequacy Ratio (%) 14.29 BUFFERS - Bank specific total Common Equity Tier 1 Capital requirement (%) 1.367 - Capital conservation buffer requirement (%) 1.250 - Bank specific counter-cyclical buffer requirement (%) 0.117 - The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets (%) - Amounts below the Excess Limits as per the Deduction Principles Portion of the total of net long positions of 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 - - Portion of the total of 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 - - Amount arising from deferred tax assets based on temporary differences - - Limits related to provisions considered in Tier II calculation - Limits related to provisions considered in Tier II calculation General provisions for standard based receivables (before limit of one hundred and twenty five per ten Thousand) - - Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used 75,561 - Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Excess amount of total provision amount to 0,6% of risk weighted receivables of credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - Debt instruments subjected to Article 4 (to be implemented between 1 January 2018 and 1 January 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - - Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -
(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014and taken into consideration at the end of transition process. (**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank, which are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.
ŞEKERBANK ANNUAL REPORT 2018
344 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information on borrowing instruments to be included in the equity calculation:
Current Period Issuer ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement) TRSSKBK52818 XS1626188491 TRSSKBKA2716 Governing law(s) of the instrument Subject to Turkish Regulations. It is Subject to Turkish Regulations. It is Subject to Turkish Regulations. It is issued within the scope of the Debt issued within the scope of the Debt issued within the scope of the Debt Instruments Disclosure of the Capital Instruments Disclosure of the Capital Instruments Disclosure of the Capital Markets Board and the Regulation on Markets Board and the Regulation on Markets Board and the Regulation on Equities of Banks of the BRSA. Equities of Banks of the BRSA. Equities of Banks of the BRSA. Regulatory treatment Subject to 10% deduction as of 1/1/2015 No No No Eligible on Unconsolidated/ consolidated / both unconsolidated Valid on Consolidated and Valid on Consolidated and Valid on Consolidated and and consolidated Unconsolidated Basis Unconsolidated Basis Unconsolidated Basis Instrument type Subordinated Liabilities (Securities) Subordinated Liabilities (Securities) Subordinated Liabilities (Securities) Amount recognised in regulatory capital (Currency in million TRL, as of most recent reporting date) 150 448.9 300 Par value of instrument (Million TRL) 150 448.9 300 Accounting classification 346 347 346 Original date of issuance 24.05.2018 12.06.2017 22.12.2017 Demand or time Maturity Maturity Maturity Original maturity date 11.05.2028 12.06.2027 10.12.2027 Issuer call subject to prior supervisory approval Yes Yes Yes Optional call date, contingent call May 17, 2023, TRL 150 Million (10 13 June 2022, 85 Million USD (10 December 16, 2022, TRL 300 dates and redemption amount year maturity with early redemption year maturity with early redemption Million (10 year maturity with early option in the 5th year, subject to option in the 5th year, subject to redemption option in the 5th year, BRSA approval) BRSA approval) subject to BRSA approval) Subsequent call dates, if applicable - - - Coupons / dividends Fixed or floating dividend/coupon Variable interest (The Borrowing Variable interest (The Borrowing instrument will make coupon instrument will make coupon payments from the beginning of the payments from the beginning of the maturity to the date of redemption maturity to the date of redemption (including the redemption date) once (including the redemption date) once a month (variable days).) Fixed a month (variable days).) Coupon rate and any related index 5 Years Term Indicator + 475 bps on 5 Years Term Indicator + 475 bps on government securities 9.75% p.a. government securities Existence of a dividend stopper - - -
ŞEKERBANK ANNUAL REPORT 2018
345 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Fully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Existence of step up or other incentive to redeem - - - Noncumulative or cumulative Noncumulative Noncumulative Noncumulative Convertible or non-convertible If convertible, conversion trigger (s) - - - If convertible, fully or partially - - - If convertible, conversion rate - - - If convertible, mandatory or optional conversion - - - If convertible, specify instrument type convertible into - - - If convertible, specify issuer of instrument it converts int - - - Write-down feature If write-down, write-down trigger(s) According to the Article 8 (2) (ğ) of According to the Article 8 (2) (ğ) of the Regulation on Equities of Banks, Due to the losses incurred, in the the Regulation on Equities of Banks, the bonds have a write-off option. framework of Article 71 of the the bonds have a write-off option. If, in accordance with the related Banking Law that: (1) the removal If, in accordance with the related regulation, there is a possibility of and liquidation of the Bank’s regulation, there is a possibility of abolishing the bank’s operating operating permit or (2) the rights abolishing the bank’s operating permit or transferring it to the SDIF of all its shareholders (except to permit or transferring it to the SDIF in the framework of the Article dividends), and the management in the framework of the Article 71 of the Banking Law due to the and supervision of the Bank, are 71 of the Banking Law due to the losses it incurs, The Bank can write to be transferred to the SDIF losses it incurs, The Bank can write down these bonds from the related on the condition that losses are down these bonds from the related financial records with the decision deducted from the capital of existing financial records with the decision of the BRSA, in the event of the shareholders , the bonds can be of the BRSA, in the event of the bankruptcy written-down. bankruptcy If write-down, full or partial Partially or fully Partially or fully Partially or fully If write-down, permanent or temporary Continuously Continuously Continuously If temporary write-down, description of write-up mechanism - - - Position in subordination hierarchy in In priority of receivables, it comes liquidation (specify instrument type In priority of debt and comes after after the debt instruments which are In priority of debt and comes after immediately senior to instrument) deposits and all other receivables nonsubordinated loans deposits and all other receivables Whether conditions which stands in article of 7 and 8 of Banks’ shareholder equity law are The instrument is in compliance with The instrument is in compliance with The instrument is in compliance with possessed or not article number 8. article number 8. article number 8. According to article 7 and 8 of Banks’ shareholders equity law that are not The instrument is not in compliant The instrument is not in compliant The instrument is not in compliant possessed with article numbered 7. with article numbered 7. with article numbered 7.
ŞEKERBANK ANNUAL REPORT 2018
346 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Group, within the framework of its capital adequacy assessment process, determines limits for risks (credit risk, market risk and operational risk) covered under the Capital Adequacy calculations as well as for risks (concentration risk, interest rate risk in the banking book, liquidity risk, etc.) which are not covered under these calculations. Thus, the Parent Bank determines its “Risk Limits” and with the help of these limits and by means of applying stress tests and scenario analyses, it evaluates the adequacy of its capital level against a background of its current and also projected activities.
The Group determines “Key Risk Indicators” as “early warning signals” within the context of the “Risk Limits”. Both the “Risk Limits” and “Key Risk Indicators” are determined by taking into consideration the annual budget and strategy; its risk appetite; the volume, qualifications and complexity of its products/services; its experience and prior performance as well as the market conditions. The “Risk Limits” and “Key Risk Indicators” are determined through risk based amounts and nominal amounts. In this scope, regulatory limits and applications, Basel Committee applications, international best practices, concentrations and tolerance levels as well as criteria based on the Group’s capital levels are used. In any case, the “Risk Limits” and “Key Risk Indicators” cannot violate the Banking Law and related regulations.
The “Risk Limits” and “Key Risk Indicators” are reviewed and revised at least annually by the senior management with respect to market conditions and changes in the Group’s strategies. The review process aims to determine whether the current “Risk Limits” and “Key Risk Indicators” are meaningful and sufficient enough compared to the risk appetite. The revised “Risk Limits” and “Key Risk Indicators” become effective upon the approval of the Boards of Directors.
Reconciliation of capital items to balance sheet
The difference between Total Capital and Equity in the balance sheet mainly arises from expected credit loss provisions arising from loans classified under stage 1 and stage 2 and subordinated loans. In the calculation of Total Capital, up to 1.25% of the expected credit loss provision from stage 1 and stage 2 over the credit risk amount and subordinated loans are taken into consideration as Tier II Capital. On the other hand, in the calculation of the Total Capital, improvement costs for operating leases followed under tangible assets in the balance sheet, intangible assets and related deferred tax liabilities, other items defined by the regulator are taken into consideration as amounts deducted from Total Capital.
ŞEKERBANK ANNUAL REPORT 2018
347 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
T T-1 T-2 T-3 T-4 TOTAL CAPITAL Common Equity Tier 1 Capital 2,657,493 2,559,787 2,462,082 2,364,377 2,266,672 Transition Process Not Applied Common Equity Tier 1 Capital (*) 2,266,672 2,266,672 2,266,672 2,266,672 2,266,672 Tier I Capital 2,657,493 2,559,787 2,462,082 2,364,377 2,266,672 Transition Process Not Applied Tier I Capital (**) 2,266,672 2,266,672 2,266,672 2,266,672 2,266,672 Total Capital 3,550,598 3,452,892 3,355,187 3,257,482 3,159,777 Transition Process Not Applied Total Capital (***) 3,159,777 3,159,777 3,159,777 3,159,777 3,159,777
TOTAL RISK WEIGHTED AMOUNTS Total risk weighted amounts 24,785,039 24,785,039 24,785,039 24,785,039 24,785,039
CAPITAL ADEQUACY RATIOS Common Equity Tier 1 Capital Adequacy Ratio (%) 10.72 10.33 9.93 9.54 9.15 Transition Process Not Applied Common Equity Tier 1 Capital Adequacy Ratio (%) (****) 9.16 9.16 9.16 9.16 9.16 Tier 1 Capital Adequacy Ratio (%) 10.72 10.33 9.93 9.54 9.15 Transition Process Not Applied Tier 1 Capital Adequacy Ratio (%) (****) 9.16 9.16 9.16 9.16 9.16 Capital Adequacy Ratio (%) 14.33 13.93 13.54 13.14 12.75 Transition Process Not Applied Capital Adequacy Ratio (%) (****) 12.75 12.75 12.75 12.75 12.75
LEVERAGE RATIO Leverage ratio total risk amount 42,062,407 42,062,407 42,062,407 42,062,407 42,062,407 Leverage ratio 6.27 6.09 5.85 5.62 5.39 Transition Process Not Applied Leverage ratio (%) (*****) 5.39 5.39 5.39 5.39 5.39
(*) Amount of Common Equity Tier 1 Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks. (**)Amount of Tier I Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks. (***)Amount of Total Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks. (****)Amount of capital adequacy ratios calculated with equity componentsin case of non-application of Provisional Article 5 of the Regulation on Equities of Banks. (*****)Amount of leverage ratio calculated with equity components in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks.
II. Explanations Related to the Consolidated Credit Risk
Credit risk is the possibility of loss that the Group may face, in the event that the counter party fails to fulfil wholly or partly of its obligations in a timely manner, by breaching of its contractual obligations.
The Parent Bank’s lending activities are executed in line with the legislation and in accordance with the policies and procedures approved by the Parent Bank’s Board of Directors under the principle of “segregation of duties” throughout marketing, allocation, monitoring, controlling and auditing activities.
ŞEKERBANK ANNUAL REPORT 2018
348 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Credit allocation is performed on a debtor or a debtor group basis within certain limits. The limits are determined within a framework of authorisation limits, set in line with the legislation, for the Board of Directors, Credit Committee, General Manager, Assistant General Managers (Credit Management, Financial Institutions), Head Office Credit Units, Regional Office Credit Committee as well as the Branch Credit Committees, and are approved taking into consideration the financial position and needs of the credit customer.
The rating / scoring systems are effectively used in credit allocation. As per the Parent Bank’s credit policies, limits and collaterals are regarded as risk mitigating factors complementary to each other. Credit qualities of the debtors are regularly monitored, and credit limits are revised once a year or whenever deemed necessary parallel to the economic conditions. The majority of the statements of accounts received for loans are derived from audited financial statements. The Parent Bank also receives sufficient amounts of collateral for loans and other receivables. These can be in the form of guarantees, mortgages on real estates, cash blockage or cheques depending on the customer’s financial structure and the type of the credit facility.
The Parent Bank’s Board of Directors has approved concentration limits by industries, regions, debtors / debtor groups monitored within the Risk Limits Report on a regular basis and presented to the Board of Directors on a monthly basis; all of which are reviewed and revised at least once a year, with respect to market conditions and changes in the Parent Bank’s strategies.
Since the volume of prolonged and restructured loans and other receivables are not material with regard to the Bank’s financial statements, no additional follow-up methodology is needed to be developed in addition to those specified in the legislation.
There are transaction limits as well as dealer limits by transaction types approved by the Parent Bank’s Board of Directors regarding the counterparty risk arising from the Parent Bank’s balance sheet and off-balance sheet transactions monitored on a daily basis. The limits of correspondent banks allocated according to their credit qualities are controlled on a daily basis, while risk concentration is monitored systematically. When reverse positions of open positions are required in order to minimize potential risks, positions are closed through the use of derivative transactions aiming at risk downsizing.
Within the framework of the capital adequacy calculations, indemnified non-cash loans are subject to the same risk weighting treatment as overdue loans.
The Group prefers to take country risk only for those financial institutions and countries regarded at investment level by the international rating agencies and thus, do not have the risk of failing to fulfil their minimum liabilities. Therefore, the related potential risks do not constitute any material risk factor with regards to the Group’s financial structure.
When evaluated together with financial activities of other financial institutions, the Group has no significant credit risk concentration.
Provision is set for the doubtful loans and the expense is deducted from the current period profit by the Group. The provisioning amount for non-performing loans are determined by the Parent Bank’s management for compensating the probable losses of the doubtful loan portfolio, by evaluating the quality of loan portfolio, risk factors and considering the economy conditions, other facts and related regulations.
Group classifies and monitors its doubtful loans and receivables and calculates expected loss provisions in accordance with the “Procedures and principals regarding classification of loans and allowances allocated for such loans” published in the Official Gazette dated 22 June 2016, no.29750 and by considering other regulations announced by the BRSA and “ TFRS 9- Financial Instruments” standard. Detailed explanations related to accounting practices and provisions are given in footnotes VII and VIII of Section Three.
ŞEKERBANK ANNUAL REPORT 2018
349 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
As of 31 December 2018, the receivables of the Group from its top 100 cash loan customers amount to TRL 9,555,801 Thousand (31 December 2017 – TRL 7,676,504 Thousand) with a share of 44.64 % in the total cash loans (31 December 2017– 36.21 %). The receivables of the Group from its top 200 cash loan customers amount to TRL 10,947,641 Thousand (31 December 2017 – TRL 9,124,911 Thousand) with a share of 51.14% (31 December 2017 – 43.04 %) in the total cash loans.
As of 31 December 2018, the receivables of the Group from its top 100 non-cash loan customers amount to TRL 3,548,736 Thousand (31 December 2017 – TRL 2,655,755 Thousand) with a share of 59.96 % in the total non-cash loans (31 December 2017 – 49.89 %).The receivables of the Group from its top 200 non-cash loan customers amount to TRL 4,126,541 Thousand (31 December 2017 – TRL 3,247,151 Thousand) with a share of 69.72 % (31 December 2017 – 60.99 %) in the total non-cash loans.
As of 31 December 2018, the share of cash and non-cash receivables of the Group from its top 100 customers in total balance sheet and off-balance sheet assets is 1.83 % (31 December 2017 – 1.64 %).The share of cash and non-cash receivables of the Group from its top 200 customers in total balance sheet and off-balance sheet assets is 2.11 % (31 December 2017 – 1.97 %).
As of 31 December 2018, the expected loss provision related with the credit risk taken by the Group is TRL 642,478 Thousand (31 December 2017 – TRL 75,561Thousand).
Total amount of exposures after offsetting specific provisions before credit risk mitigation adjustments and the risk- weighted exposure amounts classified into different risk groups according to the Basel II, are disclosed below for the relevant period:
Current Period Prior Period Risk Average Risk Average Risk Classifications Amount (*) Risk Amount (**) Amount (*) Risk Amount (**) Contingent and Non-Contingent Claims on Sovereigns 6,306,595 2,136,219 5,846,011 79,682 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities 77,317 39,803 78,582 40,584 Contingent and Non-Contingent Claims on Administrative Units and Non- commercial Enterprises 99,418 99,418 66,285 66,285 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - Contingent and Non-Contingent Claims on International Organizations - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 3,189,889 1,479,942 1,700,128 692,816 Contingent and Non-Contingent Claims on Corporate Receivables 11,024,093 11,018,649 8,293,256 8,292,999 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 7,915,446 5,936,601 7,227,894 5,420,920 Contingent and Non-Contingent Claims Secured by Residential Property 5,657,548 4,789,060 5,273,614 4,388,415 Past Due Loans 300,084 232,616 417,772 362,467 Higher-Risk Categories Defined by Agency 54,218 64,364 167,878 251,817 Collateralized Mortgage Marketable Securities - - - - Securitization Exposures - - - - Short-Term Claims on Banks and Corporate - - - - Undertakings for Collective Investments in Transferable Securities - - - - Other Claims 2,427,515 2,045,961 1,990,400 1,736,766 Total 37,052,123 27,842,633 31,061,820 21,332,751
(*) The figures represent total risk amounts before Credit Risk Mitigation and before credit conversion factor. (**) Total risk weighted assets are the arithmetical monthly average amounts in 2018.
ŞEKERBANK ANNUAL REPORT 2018
350 ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Geographical concentration of the significant risks in the significant areas as follows;
Risk Profile According to Geographical Concentrations:
Risk Types Contingent Contingent Contingent and Non- and Non- and Non- Contingent Contingent Contingent Contingent Contingent FINANCIAL INFORMATION ŞEKERBANK ANNUAL REPORT 2018 Contingent Claims on and Non- Contingent and Non- Contingent Claims and Non- Contingent Claims on Administrative Contingent and Non- Contingent and Non- Included Contingent Higher- Short- Undertakings and Non- Regional Units and Claims on Contingent Claims on Contingent in the Claims Risk Collateralized Term for Collective Contingent Governments Non- Multilateral Claims on Banks and Claims on Regulatory Secured by Categories Mortgage Claims on Investments in Claims on and Local commercial Development International Capital Market Corporate Retail Residential Past Due Defined by Marketable Securitization Banks and Transferable Other Current Period(***) Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims Total Domestic 6,632,620 61,175 115,839 - - 2,221,054 11,680,657 6,922,084 6,095,428 325,356 66,941 - - - - 1,181,132 35,302,286 351 European Union Countries - - - - - 281,608 12 2,520 4,040 31 ------288,211 OECD Countries (*) - - - - - 6,974 - 224 298 ------7,496 Off-shore Banking Regions - - - - - 4,024 6,076 1,389 291 ------11,780 USA, Canada - - - - - 142,165 286 50 ------142,501 Other Countries - - 361 - - 161,273 939 203 1,028 ------163,803 Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) ------787,372 787,372 Unallocated Assets/Liabilities(**) 16,115 - - - - - 3,211 ------1,043,309 1,062,636 Total 6,648,735 61,175 116,200 - - 2,817,098 11,691,181 6,926,470 6,101,085 325,387 66,941 - - - - 3,011,813 37,766,085
(*) OECD countries other than EU countries, USA and Canada (**) Assets and liabilities that are not distributed according to specific bases. (***)The balance sheet and off-balance sheet assets and liabilities are presented with their CCF values without taking into consideration collateral amounts after they are applied ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Risk Types Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Higher- Undertakings and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Risk Collateralized Short-Term for Collective Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage Claims on Investments in Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization Banks and Transferable Other Prior Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims Total FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Domestic 7,639,547 67,085 36,007 - - 2,452,566 9,824,664 7,931,003 5,430,821 381,191 144,604 - - - - 676,867 34,584,355 European Union Countries - - - - - 209,017 605 3,559 5,237 56 - - - - - 63 218,537 OECD Countries (*) - - - - - 11,533 4 4,250 649 ------2,360 18,796 Off-shore Banking Regions - - - - - 7,268 8,162 876 794 ------17,100 USA, Canada - - - - - 69,099 2 99 79 36 ------69,315
352 Other Countries 59,764 - - - - 72,670 12 635 122 ------10 133,213 Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) ------767,685 767,685 Unallocated Assets/Liabilities(**) 12,258 - - - - - 6,680 ------505,541 524,479 Total 7,711,569 67,085 36,007 - - 2,822,153 9,840,129 7,940,422 5,437,702 381,283 144,604 - - - - 1,952,526 36,333,480
(*) OECD countries other than EU countries, USA and Canada (**) Assets and liabilities that are not distributed according to specific bases. ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Risk Profile According to Counterparty and Sector Concentrations
Risk Types
Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Short- Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Term Undertakings and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Higher-Risk Collateralized Claims for Collective
Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage on Banks Investments in FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization and Transferable Other Current Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims TRL FC Total
Agricultural - - 362 - - - 153,714 1,781,039 697,562 53,194 13,401 - - - - - 2,624,667 74,605 2,699,272
Farming and Livestock - - 362 - - - 143,086 1,766,091 694,929 52,979 13,401 - - - - - 2,611,204 59,644 2,670,848
Forestry ------10,576 3,444 2,465 ------7,215 9,270 16,485
Fishery ------52 11,504 168 215 ------6,248 5,691 11,939 353 Industry - - 4 - - - 2,888,486 1,332,563 527,242 94,361 14,821 - - - - - 2,868,636 1,988,841 4,857,477
Mining and Quarrying ------408,132 45,477 23,527 316 ------248,802 228,650 477,452
Manufacturing - - 4 - - - 1,767,211 1,282,994 491,260 94,045 14,821 - - - - - 2,336,837 1,313,498 3,650,335
Electricity, Gas and Water ------713,143 4,092 12,455 ------282,997 446,693 729,690
Construction - - 5 - - - 2,639,592 753,111 1,638,361 37,899 2,508 - - - - - 3,200,241 1,871,235 5,071,476
Services 6,544,615 - 81,602 - - 2,783,038 5,357,692 2,399,959 2,577,933 112,141 1,279 - - - - - 11,142,336 8,715,922 19,858,259
Wholesale and Retail Trade - - 361 - - - 1,342,718 1,820,711 645,894 75,682 1,224 - - - - - 3,072,819 813,771 3,886,590
Hotel, Food and Beverage Services ------1,395,382 97,681 982,656 2,744 ------738,502 1,739,960 2,478,463
Transportation and Communication - - 86 - - - 611,380 201,525 158,044 13,241 1 - - - - - 482,435 501,842 984,277
Financial Institutions 6,544,615 - - - - 2,783,038 165,661 430 66,702 443 ------5,481,736 4,079,153 9,560,889
Real Estate and Renting Services ------1,680,206 217,108 613,239 15,587 ------1,022,109 1,504,031 2,526,140
Professional Employment ------145 535 - 133 ------524 289 813
Education Services ------20,651 28,538 10,325 448 ------46,393 13,569 59,962
Health and Social Services - - 81,155 - - - 141,549 33,431 101,073 3,863 54 - - - - - 297,818 63,307 361,125
Other 104,120 61,175 34,227 - - 34,060 651,697 659,798 659,987 27,792 34,932 - - - - 3,011,813 4,790,277 972,090 5,279,601
Total 6,648,735 61,175 116,200 - - 2,817,098 11,691,181 6,926,470 6,101,085 325,387 66,941 - - - - 3,011,813 24,626,157 13,622,693 37,766,085
ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Risk Types
Contingent Contingent Contingent and Non- Contingent and Non- and Non- Contingent Contingent and Non- Contingent Contingent Contingent Claims on and Non- Contingent Contingent Contingent Claims and Non- Short- Contingent Claims on Administrative Contingent and Non- Claims on and Non- Included Contingent Term Undertakings and Non- Regional Units and Claims on Contingent Banks and Contingent in the Claims Higher-Risk Collateralized Claims for Collective Contingent Governments Non- Multilateral Claims on Capital Claims on Regulatory Secured by Categories Mortgage on Banks Investments in Claims on and Local commercial Development International Market Corporate Retail Residential Past Due Defined by Marketable Securitization and Transferable Other Prior Period Sovereigns Authorities Enterprises Banks Organizations Intermediary Receivables Portfolios Property Loans Agency Securities Exposures Corporate Securities Claims TRL FC Total
Agricultural - - 289 - - - 134,415 1,736,350 632,219 43,785 27,122 - - - - - 2,529,678 44,502 2,574,180 FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 Farming and Livestock - - 289 - - - 121,402 1,724,744 629,204 43,407 26,452 - - - - - 2,506,880 38,618 2,545,498
Forestry ------11,202 1,848 2,724 204 ------11,659 4,319 15,978
Fishery ------1,811 9,758 291 174 670 - - - - - 11,139 1,565 12,704
Industry - - 341 - - - 2,595,813 1,535,774 447,303 104,996 38,083 - - - - - 2,911,026 1,811,284 4,722,310
Mining and Quarrying ------281,925 46,773 16,943 2,591 1,067 - - - - - 135,632 213,667 349,299
354 Manufacturing - - 341 - - - 1,727,985 1,485,601 427,325 102,158 37,016 - - - - - 2,509,787 1,270,639 3,780,426
Electricity, Gas and Water ------585,903 3,400 3,035 247 ------265,607 326,978 592,585
Construction - - 4,965 - - - 2,164,632 930,880 1,395,444 61,885 17,276 - - - - - 3,244,734 1,330,348 4,575,082
Services 7,619,836 - 1,084 - - 2,758,192 4,318,312 2,801,539 2,085,798 137,457 59,973 - - - - 1,217 13,669,180 6,114,228 19,783,408
Wholesale and Retail Trade - - 83 - - - 1,502,407 1,972,342 623,650 91,444 45,248 - - - - - 3,569,314 665,860 4,235,174
Hotel, Food and Beverage Services ------935,280 100,551 599,524 1,400 1,501 - - - - - 459,129 1,179,127 1,638,256
Transportation and Communication - - 462 - - - 542,024 264,355 166,259 10,472 5,683 - - - - - 615,400 373,855 989,255
Financial Institutions 7,619,836 - - - - 2,758,192 110,892 651 102 739 1 - - - - 1,217 7,657,466 2,834,164 10,491,630
Real Estate and Renting Services ------1,070,038 368,701 594,608 18,998 6,887 - - - - - 1,046,633 1,012,599 2,059,232
Professional Employment ------
Education Services - - 51 - - - 16,059 28,631 13,190 2,202 ------57,362 2,771 60,133
Health and Social Services - - 488 - - - 141,612 66,308 88,465 12,202 653 - - - - - 263,876 45,852 309,728
Other 91,733 67,085 29,328 - - 63,961 626,957 935,879 876,938 33,160 2,150 - - - - 1,951,309 4,225,693 452,807 4,678,500
Total 7,711,569 67,085 36,007 - - 2,822,153 9,840,129 7,940,422 5,437,702 381,283 144,604 - - - - 1,952,526 26,580,311 9,753,169 36,333,480
FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Division of the Risks by Remaining Maturities:
Risk Types Remaining Maturities Current Period 1 month 1–3 months 3–6 months 6–12 months Over 1 year Contingent and Non-Contingent Claims on Sovereigns 1,366,315 534,864 4,050 169,552 2,602,219 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities - 149 3,019 3,817 54,170 Contingent and Non-Contingent Claims on Administrative Units and Non- commercial Enterprises 369 106,797 - 51 2,236 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - - Contingent and Non-Contingent Claims on International Organizations - - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 275,006 208,264 1,408 3,596 738,651 Contingent and Non-Contingent Claims on Corporate Receivables 1,366,640 1,407,599 549,819 929,116 6,175,325 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 594,755 1,543,715 341,970 870,082 2,861,949 Contingent and Non-Contingent Claims Secured by Residential Property 191,106 1,180,000 163,194 366,125 3,837,113 Past Due Loans 104 - - - 56,355 Higher-Risk Categories Defined by Agency - - - - - Collateralized Mortgage Marketable Securities - - - - - Securitization Exposures - - - - - Short-Term Claims on Banks and Corporate - - - - - Undertakings for Collective Investments in Transferable Securities - - - - - Other Claims 471,024 5,891 114,796 - 18,506 Total 4,265,319 4,987,279 1,178,256 2,342,339 16,346,524
Amounts According to Risk Weights:
Deductions from Risk Weights Shareholders’ Current Period 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% Equity Amount Before Credit Risk Mitigation 426,928 - 93,789 324,759 9,866,684 9,756,073 17,273,536 24,316 - - 5,780 Amount After Credit Risk Mitigation 10,360,286 - 289,909 1,753,018 8,149,564 4,868,708 12,277,668 66,932 - - 5,780
ŞEKERBANK ANNUAL REPORT 2018
355 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Division of the Risks by Remaining Maturities:
Risk Types Remaining Maturities Prior Period 1 month 1–3 months 3–6 months 6–12 months Over 1 year Contingent and Non-Contingent Claims on Sovereigns 1,683,551 - 84 7,328 2,280,107 Contingent and Non-Contingent Claims on Regional Governments and Local Authorities - - - - 67,018 Contingent and Non-Contingent Claims on Administrative Units and Non- commercial Enterprises 221 18,342 29 371 10,774 Contingent and Non-Contingent Claims on Multilateral Development Banks - - - - - Contingent and Non-Contingent Claims on International Organizations - - - - - Contingent and Non-Contingent Claims on Banks and Capital Market Intermediary 1,312,707 296,210 29,381 15,553 90,570 Contingent and Non-Contingent Claims on Corporate Receivables 967,592 1,346,258 384,432 853,351 5,092,084 Contingent and Non-Contingent Claims Included in the Regulatory Retail Portfolios 438,740 1,572,097 375,222 817,165 3,895,603 Contingent and Non-Contingent Claims Secured by Residential Property 102,812 980,727 134,025 324,062 3,536,049 Past Due Loans 759 - - - 58,096 Higher-Risk Categories Defined by Agency - - - - - Collateralized Mortgage Marketable Securities - - - - - Securitization Exposures - - - - - Short-Term Claims on Banks and Corporate - - - - - Undertakings for Collective Investments in Transferable Securities - - - - - Other Claims 342,505 7,366 102,941 821 14,005 Total 4,848,887 4,221,000 1,026,114 2,018,651 15,044,306
Amounts According to Risk Weights:
Deductions from Risk Weights Shareholders’ Current Period 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% Equity Amount Before Credit Risk Mitigation 7,618,719 - 1,120,914 335,580 2,238,953 10,462,086 14,412,624 144,604 - - 13,033 Amount After Credit Risk Mitigation 11,693,270 - 1,179,471 1,983,341 5,618,399 5,454,604 10,259,792 144,604 - - 13,033
ŞEKERBANK ANNUAL REPORT 2018
356 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
In calculating the amount subject to credit risk, the credit note of the Islamic International Rating Agency (IIRA) for Turkey’s long-term foreign currency sovereign rating is used for calculation of the receivables from Central Governments and Central Banks in line with the risk groups indicated in the article 6 of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks”.
While the international rating score is used for the risk classification of the exposures with the central governments and central banks, for the exposures of the non-rated central governments and central banks the Parent Bank uses the country risk classification issued by the Organization for Economic Co-operation and Development (OECD).
The table matching the risk weights used for the risk-weight calculations for the receivables from Central Governments and Central Banks with the credit quality grade indicated in the appendix of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks” is stated below.
Islamic International Rating Agency Long- Risk weight for Receivables from Centralized Credit Quality Grade Term Credit Rating Administrations or Central Banks 1 Between AAA and AA- 0% 2 Between A+ and A- 20% 3 Between BBB+ and BBB- 50% 4 Between BB+ and BB- 100% 5 Between B+ and B- 100% 6 CCC+ and Below 150%
ŞEKERBANK ANNUAL REPORT 2018
357 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information According to Counterparty and Sectors
The Group evaluates its financial assets in 3 stages under TFRS 9, as explained in Section VII and VIII, Section Three. For impaired loans, classified as Stage 3, the Group calculates the expected credit losses for lifetime and considers the probability of default as 100%.
The Group has classifies the loans that are not overdue but the credit risk is significantly increasedat as Stage 2 and calculates the expected lifetime credit loss for these loans
Loans(*) Provisions Current Period Impaired Receivables Expected Significant Increase in Impaired Loans Credit Losses Significant Sectors/Counterparties Credit Risk (Stage 2) (Stage 3) Provisions Agricultural 405,936 178,654 142,826 Farming and Livestock 402,114 177,641 141,886 Forestry 3,650 348.3 478 Fishery 171.79 664.23 462 Industry 683,053 340,752 364,032 Mining and Quarrying 41,826 12,820 13,034 Manufacturing 622,831 325,796 349,439 Electricity, Gas and Water 18,396 2,136 1,559 Construction 710,344 183,674 258,579 Services 1,676,958 555,628 682,056 Wholesale and Retail Trade 607,021 323,402 331,107 Hotel, Food and Beverage Services 441,360 9,271 38,590 Transportation and Communication 116,808 48,935 41,386 Financial Institutions 53,714 1,228 1,952 Real Estate and Renting Services 180,025 71,746 71,471 Professional Employment 72 - 36 Education Services 22,052 2,780 3,707 Health and Social Services 255,906 98,266 193,807 Other 83,239 86,969 68,507 Total 3,559,530 1,345,677 1,516,000
(*) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 13,997 Thousand and the Stage 3 expected credit loss provision amounting to TRL 3,638 Thousand in the current period.
ŞEKERBANK ANNUAL REPORT 2018
358 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Loans Impaired Past Due Value Prior Period Loans (*) Loans Adjustments Provisions (*) Significant Sectors/Counterparties Agricultural 134,172 171,393 1,685 63,253 Farming and Livestock 132,805 169,924 1,671 63,020 Forestry 290 23 - - Fishery 1,077 1,446 14 233 Industry 211,379 143,169 1,408 114,516 Mining and Quarrying 4,564 3,042 30 1,392 Manufacturing 206,478 140,049 1,377 113,022 Electricity, Gas and Water 337 78 1 102 Construction 157,222 203,786 2,004 80,162 Services 456,082 434,054 4,268 254,444 Wholesale and Retail Trade 297,219 256,107 2,519 161,600 Hotel, Food and Beverage Services 5,028 26,489 260 2,355 Transportation and Communication 30,874 61,050 600 16,052 Financial Institutions 1,470 889 9 739 Real Estate and Renting Services 57,024 48,131 473 31,289 Professional Employment 133 - - 66 Education Services 2,332 2,478 24 670 Health and Social Services 62,002 38,910 383 41,673 Other 102,166 195,723 1,924 69,868 Total 1,061,021 1,148,125 11,289 582,243
(*) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 13,237 Thousand and Specific provision amounting to TRL 4,053 Thousand in the current period.
Information related with Value Adjustments and Loan Loss Provisions
Openning Charge of Provision Other Closing Current Period Balance(**) the Period Reversals (*) Adjustments Balance Stage 3 Provisions (***) 835,008 310,000 (158,526) - 986,482 Stage 1 and Stage 2 Provisions 482,102 225,823 (65,447) - 642,478
(*) It also includes the provision reversals of the loans that have been transferred to follow-up during the period. (**) Balances as of 01 January 2018. (***)TRL 3,638 Thousand Stage 3 expected credit loss provision has been made for the loans classified as “Loans at fair value through profit and loss.
Openning Charge of the Provision Other Closing Prior Period Balance Period Reversals (*) Adjustments Balance Specific Provision (**) 516,303 443,849 (377,909) - 582,243 General Loan Loss Provision 112,339 36,089 (72,867) - 75,561
(*) It also includes the provision reversals of the loans that have been transferred to follow-up during the period. (**) Specific provision amounting to TRL 4,053 Thousand for loans classified as “Financial assets at fair value through profit and loss”.
ŞEKERBANK ANNUAL REPORT 2018
359 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Exposures subject to countercyclical capital buffer
RWAs of Banking Book for RWAs of Current Period Private Sector Lending Trading Book Total Country Turkey 19,075,981 80,967 19,156,948 USA 119,074 103,992 223,066 Germany 53,181 48,492 101,673 England 29,238 451 29,689 Netherlands 27,438 - 27,438 Saudi Arabia 16,023 451 16,474 Albania 17,817 14,850 32,667 Switzerland 9,662 - 9,662 Italy 6,161 - 6,161 Azerbaijan 2,011 - 2,011 Other 13,487 - 13,487
RWAs of Banking Book for RWAs of Prior Period Private Sector Lending Trading Book Total Country Turkey 16,741,212 68,683 16,809,895 USA 81,561 12,385 93,947 Germany 40,376 27,725 68,101 England 21,965 18,938 40,903 Netherlands 10,101 - 10,101 Saudi Arabia 6,640 9,599 16,239 Albania 3,726 6,765 10,491 Switzerland 3,589 - 3,589 Italy 2,238 - 2,238 Azerbaijan 1,159 - 1,159 Other 7,586 - 7,586
III. Explanations Related to the Consolidated Currency Risk
Currency risk is the possibility of loss that the Group may face, in its total on- and off-balance sheet accounts and positions in foreign currencies, arising from changes in exchange rates.
The Parent Bank’s policies and procedures related to currency risk are in line with the “Regulation on Internal Systems and Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and Evaluation of the Capital Adequacy of Banks” and approved by the Parent Bank’s Board of Directors.
The Boards of Directors has approved limits (position limits, stop-loss limits) compliant with the regulatory “Foreign Exchange Net General Position / Equity Standard Ratio” and based on the Group’s capital. These limits are monitored on a daily basis and reviewed and revised at least once a year, with respect to market conditions and changes in the Group’s strategies.
ŞEKERBANK ANNUAL REPORT 2018
360 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Within the context of Capital Adequacy, the Group’s currency risk exposure is calculated through the use of the “Standard Method” in line with the legislation. In these calculations, the Group’s foreign currency assets and foreign currency liabilities together with the forward transactions and gold position are all taken into consideration.
Within the Group, currency risk exposure is measured, monitored and reported on a daily basis. In this context, “Value- at-Risk (VaR) Methods” are applied as internal model. Among these methods, the “Parametric Method” that is also called as ‘’Variance Covariance Method’’ is used among the VaR Methods; while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used for comparison, in times when volatility increases to a great extent. VaR measurements are based on an observation period covering the last 252 workdays and a 99 % confidence level. In “Economic Capital” measurements based on VaR, a 10-day holding period is applied.
Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse movements in the markets, while the effectiveness of the Parent Bank’s internal model is tested by using retroperspective tests on a daily basis.
As of 31 December 2018, the Group’s balance sheet short position is TRL 1,649,176 Thousand (31 December 2017 – TRL 3,818,233 Thousand short) and long position on the off balance sheet amounting to TRL 1,861,972 Thousand (31 December 2017 - TRL 3,976,220 Thousand long), resulting in total net long position of TRL 212,796 Thousand (31 December 2017 - TRL 157,987 Thousand total net long).
The announced current foreign exchange buying rates of the Parent Bank at 31 December 2018 and the previous five working days in full TRL are as follows:
24.12.2018 25.12.2018 26.12.2018 27.12.2018 28.12.2018 31.12.2018 USD 5.2926 5.3034 5.2832 5.2889 5.2609 5.2810 CHF 5.3117 5.3634 5.3321 5.3206 5.3352 5.3496 GBP 6.6877 6.7245 6.6954 6.6761 6.6528 6.7135 100 JPY 4.7538 4.7973 4.7690 4.7579 4.7547 4.7830 EURO 6.0291 6.0419 6.0185 6.0245 6.0280 6.0422
The simple arithmetic averages of the major current foreign exchange buying rates of the Parent Bank for the thirty days before 31 December 2018 are as follows:
Monthly Average Foreign Exchange Rate USD 5.3022 CHF 5.3317 GBP 6.7120 100 JPY 4.7146 EURO 6.0355
ŞEKERBANK ANNUAL REPORT 2018
361 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information on the foreign currency risk of the Group:
EUR USD Other FC Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 877,731 1,368,856 442,457 2,689,044 Banks 74,818 55,980 40,522 171,320 Financial Assets at Fair Value Through Profit and Loss 2,827 6,697 - 9,524 Money Market Placements 792 - 5,035 5,827 Financial Assets at Fair Value Through Other Comprehensive Income - 15,301 - 15,301 Loans (*) 4,718,164 3,660,094 68,532 8,446,790 Subsidiaries, Associates and Entities Under Common Control - - - - Financial Assets at Amortised Cost - 976,131 342 976,473 Derivative Financial Assets For Hedging Purposes - - - - Tangible Assets - 3,456 - 3,456 Intangible Assets - - - - Other Assets 41,579 124,181 11,060 176,820 Total Assets 5,715,911 6,210,696 567,948 12,494,555
Liabilities Bank Deposits 66,797 302,416 14,980 384,193 Foreign Currency Deposits 4,325,709 4,903,683 491,383 9,720,775 Money Market Borrowings - - - - Funds Provided From Other Financial Institutions 604,942 2,537,409 5,742 3,148,093 Securities Issued (**) - 451,050 - 451,050 Sundry Creditors 120,688 131,875 133,003 385,566 Other Liabilities 23,327 30,716 11 54,054 Total Liabilities 5,141,463 8,357,149 645,119 14,143,731
Net Balance Sheet Position 574,448 (2,146,453) (77,171) (1,649,176) Net Off-Balance Sheet Position (573,274) 2,344,141 91,105 1,861,972 Financial Derivative Assets 1,297,444 3,612,606 207,991 5,118,041 Financial Derivative Liabilities 1,870,718 1,268,465 116,886 3,256,069 Non-Cash Loans 1,236,975 1,281,615 750 2,519,340
Prior Period Total Assets 4,441,413 4,673,683 760,104 9,875,200 Total Liabilities 4,693,228 8,507,202 493,003 13,693,433 Net Balance Sheet Position (251,815) (3,833,519) 267,101 (3,818,233) Net Off-Balance Sheet Position 295,395 3,919,361 (238,536) 3,976,220 Financial Derivative Assets 1,132,424 5,224,612 224,491 6,581,527 Financial Derivative Liabilities 837,029 1,305,251 463,027 2,605,307 Non-Cash Loans 655,748 1,318,284 1,865 1,975,897
About Currency Risk Table as of 31 December 2018; The principal amount of currency indexed loans amounting TRL 758,949 Thousand and accruals amounting TRL 549,655 Thousand are shown under loans. The principal amount of currency indexed funds borrowed amounting to TRL 21,098 Thousand and accruals amounting TRL 307 Thousand are shown in the Funds Provided From Other Financial Institutions line. According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table are as follows: Derivative Financial Assets Held-for-Trading: TRL 383,219 Thousand Marketable securities value increase fund: TRL 4,047 Thousand Prepaid expenses: TRL 19,287 Thousand .Derivative Financial Liabilities Held-for-Trading: TRL 91,824 Thousand Unearned income from installment sale of assets: TRL 3,965 Thousand, Receivables from foreign currency in equity: TRL 24,511 Thousand Financial Derivative Asset amount includes TRL 34,411 Thousand forward asset purchase commitment and TRL 305,606 Thousand option contracts. Financial Derivative Liabilities amount includes TRL 39,522 Thousand forward asset selling commitment and TRL 305,136 Thousand option contracts. (**) Securities Issued includes also the issuances of subordinated debts amounting to TRL 451,050 Thousand which are shown under subordinated loans line in the balance sheet About Currency Risk Table as of 31 December 2017; The principal amount of currency indexed loans amounting TRL 1,046,909 Thousand and accruals amounting TRL 299,900Thousand are shown under loans. The principal amount of currency indexed funds borrowed amounting to TRL 57,574 Thousand and accruals amounting TRL 1,273 Thousand are shown in the Funds Provided From Other Financial Institutions line. According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table are as follows: Derivative Financial Assets Held-for-Trading: TRL 52,560 Thousand. Marketable securities value increase fund: TRL 1,314 Thousand Prepaid expenses: TRL 34,920 Thousand .Derivative Financial Liabilities Held-for-Trading: TRL 118,200 Thousand Unearned income from installment sale of assets: TRL 3,440 Thousand..General Provisions:TRL 1,146 Thousand, Receivables from foreign currency in equity: TRL 15,293 Thousand Financial Derivative Asset amount includes TRL 335,741 Thousand forward asset purchase commitment and TRL 721,018 Thousand option contracts. Financial Derivative Liabilities amount includes TRL 51,962 Thousand forward asset selling commitment and TRL 699,567 Thousand option contracts
ŞEKERBANK ANNUAL REPORT 2018
362 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Foreign currency sensitivity:
The Group is mainly exposed to EUR and USD currencies.
The following table details the Group’s sensitivity to a 10 % increase or decrease in the TRL against USD and EUR. 10 % is the sensitivity rate used when reporting foreign currency risk internally to the top management and represents management’s assessment of the possible change in foreign exchange rates. A positive number indicates an increase in profit or loss and equity when the TRL appreciates against USD and EUR.
Increase in currency rate in % Effect on profit or loss Effect on equity 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 USD 10 10 19,769 8,584 2,451 1,529 EUR 10 10 117 4,358 - -
The Group’s sensitivity to foreign currency rates has not changed much during the current period.
IV. Explanations Related to the Consolidated Interest Rate Risk
Interest rate risk is the possibility of loss that the Group may face, in relation to its structural position arising from adverse movements in interest rates.
The Parent Bank’s policies and procedures related to interest rate risk are in line with the “Regulation on Internal Systems and Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and Evaluation of the Capital Adequacy of Banks” and approved by the Board of Directors.
Within the context of Capital Adequacy, the Group’s interest rate risk exposure is calculated through the use of the “Standard Method” in line with the legislation.
The Group takes interest rate risk positions in both the trading book and banking book. The interest rate risk arising from the trading book is evaluated within the scope of market risk, and thus, measured, monitored, and managed in line with market risk policies and procedures.
Within the Parent Bank, interest rate risk exposure is measured, monitored and reported on a daily basis. In this context, “Value-at-Risk (VaR) Methods” are applied as internal model.
Among these methods, the “Parametric Method” that is also called as ‘’Variance Covariance Method’’ is used among the VaR Methods; while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used for comparison, in times when volatility increases to a great extent.
VaR measurements are based on an observation period covering the last 252 workdays and a 99 % confidence level. In “Economic Capital” measurements based on VaR, a 10-day holding period is applied.
Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse movements in the markets, while the effectiveness of the Parent Bank’s internal model is tested by using back tests on a daily basis.
ŞEKERBANK ANNUAL REPORT 2018
363 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
It is the priority of the Asset Liability Management to provide protection against adverse movements in market interest rates. In this context, gap analyses, duration and economic value analyses as well as sensitivity analyses are evaluated a monthly basis by the Parent Bank’s Asset Liability Committee. Simulations on net interest income are performed according to macroeconomic indicator estimations in the Parent Bank’s budget targets, while the potential negative impact of adverse movements in market interest rates on the financial position and cash flows is minimized through target revisions. The Group management monitors the market interest rates on a daily basis, and is able to change the interest rates applied by the Group whenever it is necessary by ALCO decisions.
Average interest rates applied to monetary financial instruments
EUR USD JPY TRL Current Period (*) Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey - - - - Banks 0.01 2.19 0.50 13.50 Financial Assets at Fair Value Through Profit and Loss 2.12 5.33 - 10.97 Money Market Placements - - - 15.25 Financial Assets at Fair Value Through Other Comprehensive Income - 4.40 - 11.62 Loans 6.07 8.65 3.53 19.24 Financial Assets at Amortised Cost - 5.06 - 3.96 Liabilities Bank Deposits 1.35 3.88 - 18.00 Other Deposits 1.98 4.18 0.80 17.94 Money Market Borrowings - 2.00 - 16.78 Sundry Creditors 0.33 1.98 - - Securities Issued - 6.82 - 13.03 Funds Provided From Other Financial Institutions 1.30 3.64 - 9.49
EUR USD JPY TRL Prior Period (*) Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey - - - - Due From Other Banks and Financial Institutions 0.01 1.28 - 12.68 Financial Assets at Fair Value Through Profit and Loss 1.93 5.04 - 8.85 Money Market Placements - - - 12.42 Financial Assets Available-for-Sale 3.33 4.39 - 3.80 Loans 5.42 7.28 3.69 16.00 Held-to-Maturity Investments - 5.15 - 5.12 Liabilities Bank Deposits 0.60 2.18 - 13.35 Other Deposits 1.58 3.20 0.74 12.24 Money Market Borrowings - 1.42 - 11.26 Sundry Creditors 0.01 1.04 - - Securities Issued - 6.82 - 11.51 Funds Provided From Other Financial Institutions 1.25 3.04 - 8.45
(*) Interest rates belong to the Parent Bank.
ŞEKERBANK ANNUAL REPORT 2018
364 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based on repricing dates)
Non- Up to 1 1-3 3-12 5 Years Interest Current Period Month Months Months 1-5 Years and Over Bearing Total Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 362,591 - - - - 3,256,646 3,619,237 Banks 96,086 120 - 7,163 - 102,650 206,019 Financial Assets at Fair Value Through Profit and Loss 63,642 168,664 121,718 100,093 11,826 2,865 468,808 Money Market Placements 59,192 - - - - - 59,192 Financial Assets at Fair Value Through Other Comprehensive Income - 51 62,638 484,897 22,679 7,417 577,682 Loans 8,063,190 2,656,443 3,527,972 6,849,083 517,229 342,944 21,956,861 Financial Assets at Amortised Cost 378 862,475 1,470,553 614,070 481,246 - 3,428,722 Other Assets 405,879 7,313 - 10,576 2,065 2,222,430 2,648,263 Total Assets 9,050,958 3,695,066 5,182,881 8,065,882 1,035,045 5,934,952 32,964,784
Liabilities Bank Deposits 291,011 60,429 14,606 10,183 - 189,527 565,756 Other Deposits 12,480,853 4,552,006 2,612,359 78,245 - 2,651,638 22,375,101 Money Market Borrowings 192,096 - - - - - 192,096 Sundry Creditors 144,603 44,888 - 3,138 - 359,183 551,812 Securities Issued (*) 653,529 812,299 681,477 - - - 2,147,305 Funds Provided From Other Financial Institutions 476,886 1,053,366 830,539 639,584 379,276 220,429 3,600,080 Other Liabilities 256,972 75,044 90,725 129,134 2,041 2,978,718 3,532,634 Total Liabilities 14,495,950 6,598,032 4,229,706 860,284 381,317 6,399,495 32,964,784
Balance Sheet Long Position - - 953,175 7,205,598 653,728 - 8,812,501 Balance Sheet Short Position (5,444,992) (2,902,966) - - - (464,543) (8,812,501) Off-Balance Sheet Long Position 50,000 100,000 50,000 468,000 597,859 - 1,265,859 Off-Balance Sheet Short Position (50,000) (100,000) (50,000) (468,000) (597,859) - (1,265,859) Total Position (5,444,992) (2,902,966) 953,175 7,205,598 653,728 (464,543) -
(*) The subordinated debt instruments in balance sheet also includes the TRL 903,621 Thousand bonds issued as subordinated loans.
ŞEKERBANK ANNUAL REPORT 2018
365 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
5 Years Non- Up to 1 1-3 3-12 and Interest Prior Period Month Months Months 1-5 Years Over Bearing Total Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 242,976 - - - - 2,864,660 3,107,636 Due From Other Banks and Financial Institutions 484,661 84,843 - - - 75,803 645,307 Financial Assets at Fair Value Through Profit and Loss 24,640 5,756 58,724 71,245 9,693 6,367 176,425 Money Market Placements 2,447,904 - - - - - 2,447,904 Financial Assets Available-for- Sale 3,259 561,905 392,826 376,656 53,579 7,577 1,395,802 Loans (*) 7,003,362 2,436,211 2,832,405 7,767,555 678,593 3,612 20,721,738 Held-to-Maturity Investments - 277,136 604,777 289,602 184,479 - 1,355,994 Other Assets 406,190 149,939 171,406 386,717 25,668 2,138,960 3,278,880 Total Assets 10,612,992 3,515,790 4,060,138 8,891,775 952,012 5,096,979 33,129,686
Liabilities Bank Deposits 772,425 29,290 - 2,455 - 59,610 863,780 Other Deposits 12,319,551 3,083,079 1,520,691 28,993 - 2,068,202 19,020,516 Money Market Borrowings 3,704,345 250,298 109,724 - - - 4,064,367 Sundry Creditors 70,104 8,684 - 4,379 - 214,996 298,163 Securities Issued (**) 95,917 797,531 642,620 315,033 - - 1,851,101 Funds Provided From Other Financial Institutions 1,325,487 680,627 1,071,561 412,529 554 355 3,491,113 Other Liabilities 139,325 85,220 27,189 92,792 1,986 3,194,134 3,540,646 Total Liabilities 18,427,154 4,934,729 3,371,785 856,181 2,540 5,537,297 33,129,686
Balance Sheet Long Position - - 688,353 8,035,594 949,472 - 9,673,419 Balance Sheet Short Position (7,814,162) (1,418,939) - - - (440,318) (9,673,419) Off-Balance Sheet Long Position 100,000 - 157,500 24,000 - - 281,500 Off-Balance Sheet Short Position (100,000) - (157,500) (24,000) - - (281,500) Total Position (7,814,162) (1,418,939) 688,353 8,035,594 949,472 (440,318) -
(*) The Group classified Loans and Receivables amounting to TRL 270,364 Thousand, under financial assets at fair value through profit and loss. Non- performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 13,237 Thousand and Specific provision amounts to TRL 4,053 Thousand. (**) The subordinated loans in balance sheet also includes the TRL 623,417 Thousand bonds issued as subordinated loans.
ŞEKERBANK ANNUAL REPORT 2018
366 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Interest rate sensitivity:
As of the balance sheet date, under the assumption that market interest rates change by 1 % for both the Turkish Lira and foreign currency denominated items and all other things stay constant:
In case interest rate increases by 1%, it is estimated that the net interest income will be decreased by TRL 72,004 Thousand as of the end of the year, which is 4.77% of net interest income. (31 December 2017 - The assumed decrease of the net interest income of the Bank was TRL 86,941 Thousand, being 6.54% of the net interest income).
Interest rate sensitivity is calculated by defining the Net Position, which is the difference between the assets and liabilities that are sensitive to cash flow changes in one year and with maturity up to 1 year. The effect of the 1% increase in the market interest rates on the interest rate sensitive assets and liabilities to the net interest income (sensitivity to net interest income) is calculated by applying 1% increase to the Net Position.
V. Explanations Related to the Consolidated Position Risk of Equity Securities in Banking Book
Consolidated Position Risk of Equity Securities in Banking Book: None
VI. Explanations Related to Consolidated Liquidity Risk Management and Consolidated Liquidity Coverage Ratio
Liquidity risk is the possibility of a loss that the Group may face, when there is not sufficient cash or cash inflow to meet the cash outflow in full and also in time.
Liquidity risk may also occur when the market penetration is not adequate, when open positions cannot be closed in time, at suitable prices and at sufficient amounts, due to some barriers and some break-ups in the markets. a) Information on risk capacity of the Parent Bank, responsibilities and structure of liquidity risk management, the Parent Bank’s internal liquidity risk reporting, communication between the Board of Directors and business lines on liquidity risk strategy, policy and application:
The main policy of the Parent Bank is to maintain an asset structure that it will be sufficient to fulfill all its obligations through the use of liquid sources in time and in a sound manner.
The objective of the liquidity risk management is to maintain the Parent Bank’s financial stability by means of maintaining the Parent Bank’s liquidity risk exposure at measurable and tolerable levels. Thus, it is also the objective to protect the Parent Bank’s shareholders from any potential loss that might arise from adverse movements in the Parent Bank’s liquidity position.
The Parent Bank’s policies and procedures related to the liquidity risk are approved by the Parent Bank’s Board of Directors.
ŞEKERBANK ANNUAL REPORT 2018
367 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The major factors mentioned below are addressed in those policies and procedures:
The Oversight of the Board of Directors:
- The Board of Directors approves policies and procedures related to the liquidity risk, all in line with the Parent Bank’s annual budget and the growth strategies for medium and long term. - The Board of Directors plans the capital structure to cover the Parent Bank’s liquidity risk profile, all in line with the Parent Bank’s annual budget and the growth strategies for medium and long term. - The Board of Directors segregates the duties, authorities and responsibilities related to measuring, monitoring, controlling, auditing and management of the liquidity risk, through internal regulations on related committies and units.
The Oversight of the Senior Management:
- The Parent Bank’s senior management implements systems and standards related to measuring, monitoring, controling, auditing and management of the liquidity risk, with respect to its duties, authorities, and responsibility areas. - The Parent Bank’s senior management takes measures to ensure the development of technical konwledge and competencies of human resources as well as information systems infrastructure so that the measuring, monitoring, controling and auditing of the liquidity risk, are all executed in a sound manner. - The Parent Bank’s senior management analyses potential liquidity risk which may arise from the new banking products and services which the Bank plans to implement.
The Parent Bank’s Board of Directors and senior management segregate the responsibilities within the scope of the liquidity risk management among the Asset Liability Committee, Treasury Department and Risk Management Unit.
Accordingly, the Parent Bank’s Board of Directors set the Asset Liability Committee (ALCO) as the senior management committee responsible for management of the Group’s balance sheet, usage of funds, and financial management. ALCO sets the strategies for management of the balance sheet, funding, source planning and liquidity as well as conducting stress tests and scenario analyses. The Treasury Unit implement these strategies in order to manage liquidity.
The Boards of Directors have approved “Risk Limits” and “Key Risk Indicators” as part of the policies and procedures related to the liquidity risk. The compliance with these limits are monitored on a regular basis; all of which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market conditions and changes in the strategies.
The compliance with the “Risk Limits” is a mandatory agenda item in the regular monthly meetings of the Boards of Directors.
The liquidity risk profile is analysed, monitored, and assessed by the Risk Management Unit of the Parent Bank. The said Unit presents its findings through those assessments as well as the compliance with the “Risk Limits” to ALCO on a weekly basis and to the Board of Directors of the Parent Bank on a monthly basis. b) Information on the centralization degree of liquidity management and funding strategy and the functioning between the Parent Bank and the Parent Bank’s subsidiaries:
The management of liquidity has a decentralised structure. In this context, each subsidiary executes its liquidity management function by its own units/departments/services responsible for carrying out the function of the financial management. Besides, the Parent Bank provides funding to its subsidiaries in line with the regulatory limits while also considering the market conditions.
ŞEKERBANK ANNUAL REPORT 2018
368 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Parent Bank’s liquidity management is carried out in line with budgeted growth strategies and taking into account the legal requirements, as well as current market conditions and expectations regarding economic and financial conjuncture.
In liquidity management, liquidity planning is realized by predicting the effects of global conditions both on the country and on the sector.
In liquidity management policy, the stable core deposit base is determined as the Parent Bank’s main funding resources. In order to increase the diversity of funding resources, domestic and foreign capital markets are utilized for medium and long-term funding sources. To prevent the concentration risk of liquidity obligations, the concentration limits for deposit and non-deposit indebtment is closely monitored. Liquidity ratios (LCR, NFSR) are followed and liquidity projections are performed within the scope of Basel III. c) Information on the Parent Bank’s funding strategy including the policies on funding types and variety of maturities:
The spread between the Parent Bank’s total and 3-month Turkish lira and foreign currency deposit interest rates and the sector is monitored by the Parent Bank’s ALCO committee and measures are taken to ensure that there is no significant division of the Parent Bank’s spreads. The analysis of the time deposits extension rates is done weekly, taking measures to increase the liquid assets against the changes that may occur in the liquidity needs.
Deposit base movements are analyzed under the following two separate titles:
- Movement in time deposit base: renewal rate of time deposits is determined. - Movement in demand deposit base: it is aimed to determine the movement of the demand deposits in time and and determination of the core parts.
In order to meet the liquidity requirements that may arise due to market fluctations, special attention is paid to ensure availability of sufficient liquidity based on the continious projections made for Turkish Lira and Foreign Currency cash flows. The term structure of TRL and FC deposits, its cost and balances are monitored on a daily basis. The projections are made based on historical data and future expectations, and submitted to the Parent Bank’s Asset-Liability Committee on a weekly basis. Based on cash flow projections, price is differentiated for different maturity buckets, and measures to meet liqudity requirements are taken accordingly. Moreover, potential alternative sources of liqudity are determined to be used in case of emergency.
In order to ensure effectiveness and sustainability of liquidity management, funding sources for the subsidiaries that are subject toconsalidation and the diversification possibilities are evaluated taking into consideration markets, instruments and funds providers. The liquidity position of the subsidiaries that are subject to consolidation is continuously monitored by the Parent Bank. d) Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Parent Bank’s total liabilities:
In order to measure and monitor the impact of the liquidity risk, the Parent Bank uses cash flow gap analyses indicating both current and future transactions. The assets, liabilities and interest bearing off balance sheet items are grouped into the maturity buckets based on their maturites and analyzed based on the calculated time gaps.
ŞEKERBANK ANNUAL REPORT 2018
369 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
In cash flow gap analyses:
- Aggregate, Turkish Lira and foreign currency items are tabulated seperately; - Calculation for currency items that exceed 5 % of the Parent Bank’s total assets (USD, EUR, etc. items) are done seperately; - Currency items that do not exceed 5 % of the Parent Bank’s total assets are aggregated with the EUR items. e) Information on liquidity risk mitigation techniques:
While monitoring liquity position, thoroughly oversee its compliance with the regulatory liquidity coverage ratios. These regulatory limits as “Risk Limits” to be complied with and additionally set “Key Risk Indicators” approved by Boards of Directors.
In addition to legal liquidity coverage ratios related to the liquidity risk, Boards of Directors have approved “Risk Limits” associated with the net worth and set the limits for allowed possible liquidity mistmatch as percentage to the net worth for the certain maturity buckets. The compliance with these limits are monitored on a regular basis; all of which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market conditions and changes in the strategies.
Liqudity risk is also assessed through the following “Risk Limits”:
Liquidity Risk Cash Loans with maturities longer than 1 year (as per cash flows) / Capital Time Deposits higher than 1 million TRL / Total time deposits
In addition to these, the Parent Bank applies liquidity risk mitigation techniques, among which are opting for loans with a regular cash flow structure; opting for a “granular” deposit base; diversifying the sources of funding by regularly executing the Parent Bank’s TRL bond issues and obtaining long-term finance resources from the financial institutions (Covered Bonds, syndications, and other). f) Information on the use of stress tests:
In terms of liquidity stress testing, the Parent Bank opts for a “reverse stress testing” procedure, in order to measure the risks arising from both the Parent Bank’s liquidity and the market liquidity. The use of such “reverse stress testing” enables the Parent Bank to determine the adverse conditions under which it might breach the liquidity coverage ratios. Initially, it is simulated at which levels the liquidity coverage ratios will approximately be for the next 3-year horizon. Then, the liquidity gaps pertaining to those ratios are compared to the liquidity gaps under which the Parent Bank might breach the said ratios and ALCO of the Parent Bank decides on the actions to be taken for the existing liquidity gaps based on the results of such simulations.
ŞEKERBANK ANNUAL REPORT 2018
370 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) g) General information on urgent and unexpected liquidity situation plans:
The Group’s O/N repo limits in the Central Bank of the Turkish Republic and Borsa Istanbul Stock Exchange as well as unutilised limits are also regularly monitored. As a precaution for a worst-case scenario such as the withdrawal of all demand deposits, it is essential to keep limits unused equal to the amount of current demand deposits. Within this scope, the Parent Bank’s ALCO set the alternative liquidity strategies with regards to the current market environment.
“Liquidity Management Urgent Action Plan” was set, which defines the level of coverage, implementation guidelines, possible scenarios, emergency action plan, available funding sources, stress tests and the obstacles to be addressed.
Consolidated Liquidity Coverage Ratio:
The Liquidity coverage ratio is calculated by comparing the “high quality liquid assets” of the Group to the net cash outflow in the coming next 30-day period, in line with the “Regulation on the Calculation of Banks’ Liquidity Coverage Ratios” issued by the Banking Regulation and Supervision Agency of Turkey.
Hence, these ratios are effected by the levels of a Group’s liquid assets which can be liquidified easily and the cash in- flows as well as the cash out-flows arising from a Group’s assets, liabilities and also off balance sheet items.
In the fourth quarter of 2018, the average total liquidity coverage ratio increased compared to average of third quarter of 2018 and also fourth quarter of 2017. The average total liquidity coverage ratio, which was 119.5 in the previous quarter and 103.7 in the fourth quarter of 2017, increased to 180.2 with the decrease in the net cash outflow level. The ratio of FX liquidity coverage on average has decreased to 260.1 in comparison to the fourth quarter of 2017 and increased compared to the previous quarter. Both of the ratios are still above the minimum level predicted by the legislation.The Group’s “high quality liquid assets” comprise of cash and the balance sheet items held within the Central Bank of the Turkish Republic as well as borrowing instruments issued by the Turkish Treasury, which are not subject to repurchase agreements or not pledged as collateral. The high quality liquid assets are represented by cash (6.79%), balances with the central banks (73.16%) and first quality liquid borrowing instruments (20.05%).
Items that represent the cash outflows used in the calculation of liquidity coverage ratio include mainly the deposit base, secured and unsecured borrowings, the securities issued and off balance sheet transactions. Main items of the cash inflows iclude secured and unsecured receivables and other cash inflows. Other cash inflows and outflows derive from derivative transactions and the cash flows of the derivative financial instruments are included in the calculation. While the effect of derivative transactions on the net cash outflow is limited, the fluctuations in the volume of foreign currency derivatives can effect FC liquidity coverage ratio.
The major funding source for the Group is the deposit bases. In addition to the deposits, the another main sources of funding include funds received through REPO transactions, issued securities, long-term recources obatined from the financial institutions (Covered Bonds, syndications, and other).
ŞEKERBANK ANNUAL REPORT 2018
371 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Total Unweighted Value Total Weighted Value (Average) (*) (Average) (*) Current Period TRL+FC FC TRL+FC FC HIGH QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) 5,734,703 2,327,557 CASH OUTFLOW 2 Retail deposits and deposits from small business customers, of which: 17,732,290 6,893,820 1,521,103 689,382 3 Stable deposits 5,042,520 - 252,126 - 4 Less stable deposits 12,689,770 6,893,820 1,268,977 689,382 5 Unsecured wholesale funding, of which: 6,438,294 3,557,557 3,988,098 1,988,633 6 Operational deposits 808,592 612,308 202,148 153,077 7 Non-operational deposits 4,202,747 2,406,010 2,358,995 1,296,317 8 Unsecured funding 1,426,955 539,239 1,426,955 539,239 9 Secured wholesale funding - - 10 Other cash outflows of which: 1,137,811 496,268 1,137,811 496,268 11 Outflows related to derivative exposures and other collateral requirements 1,039,235 397,692 1,039,235 397,692 12 Outflows related to restructured financial instruments - - - - 13 Payment commitments and other off-balance sheet commitments granted for debts to financial markets 98,576 98,576 98,576 98,576 14 Other revocable off-balance sheet commitments and contractual obligations 140,120 142,540 7,006 7,127 15 Other irrevocable or conditionally revocable off-balance sheet obligations 4,154,370 638,136 733,751 94,131 16 TOTAL CASH OUTFLOWS 7,387,769 3,275,541
17 Secured receivables - - - 9,993 18 Unsecured receivables 117,415,690 38,688,001 3,007,364 1,673,286 19 Other cash inflows 1,107,055 697,459 1,197,582 697,459 20 TOTAL CASH INFLOWS 118,522,745 39,385,460 4,204,946 2,380,738 Total Adjusted Value 21 TOTAL HQLA 5,734,703 2,327,557 22 TOTAL NET CASH OUTFLOWS 3,182,823 894,803 23 LIQUIDITY COVERAGE RATIO (%) 180.18 260.12
(*) The average of last three months’ liquidity coverage ratio calculated based on monthly and weekly simple averages.
ŞEKERBANK ANNUAL REPORT 2018
372 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Total Unweighted Value Total Weighted Value (Average) (*) (Average) (*) Prior Period TRL+FC FC TRL+FC FC HIGH QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) 4,841,609 2,757,794 CASH OUTFLOW 2 Retail deposits and deposits from small business customers, of which: 13,389,120 4,775,190 1,144,413 477,519 3 Stable deposits 3,889,980 - 194,499 - 4 Less stable deposits 9,499,140 4,775,190 949,914 477,519 5 Unsecured wholesale funding, of which: 7,634,003 4,460,603 4,558,824 2,205,077 6 Operational deposits 275,652 115,552 68,913 28,888 7 Non-operational deposits 5,222,386 2,963,364 2,919,019 1,359,575 8 Unsecured funding 2,135,965 1,381,687 1,570,892 816,614 9 Secured wholesale funding 101,014 97,706 10 Other cash outflows of which: 3,128,226 428,897 2,941,750 393,374 11 Outflows related to derivative exposures and other collateral requirements 2,722,716 369,692 2,722,716 369,692 12 Outflows related to restructured financial instruments 1,658 - 1,658 - 13 Payment commitments and other off-balance sheet commitments granted for debts to financial markets 403,852 59,205 217,376 23,682 14 Other revocable off-balance sheet commitments and contractual obligations 106,740 106,600 5,337 5,330 15 Other irrevocable or conditionally revocable off-balance sheet obligations 3,656,507 457,033 430,933 56,853 16 TOTAL CASH OUTFLOWS 9,182,271 3,235,859
17 Secured receivables - - - - 18 Unsecured receivables 2,673,974 630,454 1,803,277 450,725 19 Other cash inflows 2,708,713 2,388,889 2,708,713 2,388,890 20 TOTAL CASH INFLOWS 5,382,687 3,019,343 4,511,990 2,839,615 Total Adjusted Value 21 TOTAL HQLA 4,841,609 2,757,794 22 TOTAL NET CASH OUTFLOWS 4,670,281 808,965 23 LIQUIDITY COVERAGE RATIO (%) 103.67 340.9
(*) The average of last three months’ liquidity coverage ratio calculated based on monthly and weekly simple averages.
The information on the highest and the lowest weekly liquidity coverage ratio during the last three months of 2018 and 2017 is presented below.
Current Period TRL+FC FC October 191.52 215.98 November 154.95 229.94 December 181.25 243.57
Prior Period TRL+FC FC October 106.3 362.74 November 102.54 365.80 December 102.06 294.46
ŞEKERBANK ANNUAL REPORT 2018
373 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Presentation of assets and liabilities according to their remaining maturities:
Up to 1-3 3-12 1-5 5 Years Demand 1 Month Months Months Years and Over Undistributed (*) Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 2,225,715 1,393,522 - - - - - 3,619,237 Banks 102,650 96,084 122 - 7,163 - - 206,019 Financial Assets at Fair Value Through Profit and Loss 8,720 228,515 21,732 96,109 98,886 14,846 - 468,808 Money Market Placements - 59,192 - - - - - 59,192 Financial Assets at Fair Value Through Other Comprehensive Income 7,417 - 51 - 554,913 15,301 - 577,682 Loans (**) 141,034 1,959,657 4,377,810 2,668,027 10,158,948 2,332,079 319,306 21,956,861 Financial Assets at Amortised Cost - - 534,646 167,639 1,736,864 989,573 - 3,428,722 Other Assets 266,706 383,513 7,313 - 12,641 92,128 1,885,962 2,648,263 Total Assets 2,752,242 4,120,483 4,941,674 2,931,775 12,569,415 3,443,927 2,205,268 32,964,784
Liabilities Bank Deposits 189,527 291,011 60,429 14,606 10,183 - - 565,756 Other Deposits 2,651,638 12,480,410 4,550,449 2,608,607 83,997 - - 22,375,101 Funds Provided From Other Financial Institutions 806 321,878 635,508 968,342 682,705 990,841 - 3,600,080 Money Market Borrowings - 192,096 - - - - - 192,096 Securities Issued (***) 78,809 108,653 597,834 77,991 380,397 903,621 - 2,147,305 Sundry Creditors 362,272 183,824 314 1,412 3,522 468 - 551,812 Other Liabilities 344,779 422,701 84,147 108,273 117,863 2,041 2,452,830 3,532,634 Total Liabilities 3,627,831 14,000,573 5,928,681 3,779,231 1,278,667 1,896,971 2,452,830 32,964,784 Liquidity Gap (875,589) (9,880,090) (987,007) (847,456) 11,290,748 1,546,956 (247,562) - Net Off-Balance Sheet Position - 95,732 (5,459) 10,214 (88,428) - - 12,059 Derivative Financial Assets - 4,455,567 587,339 489,237 681,071 597,859 - 6,811,073 Derivative Financial Liabilities - 4,359,835 592,798 479,023 769,499 597,859 - 6,799,014 Non-Cash Loans 2,082,767 238,777 560,449 2,200,668 737,914 98,410 - 5,918,985
Prior Period Total Assets 1,767,726 7,052,695 4,161,800 2,610,806 12,558,030 2,950,970 2,027,659 33,129,686 Total Liabilities 2,611,450 17,423,938 4,146,266 3,060,849 1,858,475 1,238,162 2,790,546 33,129,686 Liquidity Gap (843,724) (10,371,243) 15,534 (450,043) 10,699,555 1,712,808 (762,887) - Net Off-Balance Sheet Position - (56,920) (528) (7,254) 22,197 - - (42,505) Derivative Financial Assets - 4,935,170 793,606 1,104,068 603,486 524,041 - 7,960,371 Derivative Financial Liabilities - 4,992,090 794,134 1,111,322 581,289 524,041 - 8,002,876 Non-Cash Loans 1,785,385 124,629 509,289 2,126,576 716,172 64,819 - 5,326,870
(*) Those assets such as tangible assets, investments in subsidiaries and associates, office supply inventory, prepaid expenses and non-performing loans, which are necessary for continuation of banking activities, unavailable for conversion into cash in a short term and other assets account and equity accounts are classified under “Undistributed”. (**) Overdraft Loans are presented in 1-3 months period. (***) The subordinated loans in balance sheet also includes the TRL 903,621 Thousand bonds issued as subordinated loans.
ŞEKERBANK ANNUAL REPORT 2018
374 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Analysis of financial liabilities by remaining contractual maturities:
Up to 1 1-3 3-12 1-5 Over 5 Demand Month Months Months Years Years Adjustments Total Current Period Liabilities Bank deposits 189,527 291,016 69,079 17,276 10,183 - (11,325) 565,756 Other deposits 2,651,638 12,574,432 4,628,262 2,752,466 95,943 7 (327,647) 22,375,101 Funds provided from other financial institutions 806 348,873 647,292 1,016,504 805,962 1,420,107 (639,464) 3,600,080 Money market borrowings - 205,613 - - - - (13,517) 192,096 Securities Issued(*) 78,809 111,351 701,064 166,991 423,076 903,621 (237,607) 2,147,305 Total Liabilities 2,920,780 13,531,285 6,045,697 3,953,237 1,335,164 2,323,735 (1,229,560) 28,880,338
Prior Period Liabilities Bank deposits 59,610 773,354 29,381 - 2,455 - (1,020) 863,780 Other deposits 2,068,204 12,365,445 3,134,212 1,550,309 36,864 - (134,518) 19,020,516 Funds provided from other financial institutions 355 318,365 353,493 1,253,247 1,006,597 936,375 (377,319) 3,491,113 Money market borrowings - 3,704,345 250,298 109,724 - - - 4,064,367 Securities Issued - 74,872 301,625 177,025 791,696 668,241 (162,358) 1,851,101 Total Liabilities 2,128,169 17,236,381 4,069,009 3,090,305 1,837,612 1,604,616 (675,215) 29,290,877
(*) The subordinated loans in balance sheet also includes the TRL 903,621 Thousand bonds issued as subordinated loans.
Analysis of contractual maturity of the Group’s derivative financial instruments:
Up to 1-3 3-12 1-5 Over 5 1 Month Months Months Years Years Total Current Period Net Settled Foreign exchange forward contracts ------Currency swaps ------Interest rate swaps ------Foreign currency options ------Interest rate options ------Gross settled Foreign exchange forward contracts 183,431 55,785 295,023 22,386 - 556,625 Currency swaps 3,604,912 328,892 84,960 252,074 41,539 4,312,377 Interest rate swaps 53,224 109,222 30,854 470,281 598,283 1,261,864 Foreign currency options 322,222 118,192 105,298 - - 545,712 Interest rate options ------Total 4,163,789 612,091 516,135 744,741 639,822 6,676,578
Prior Period Net Settled ------Foreign exchange forward contracts ------Currency swaps ------Interest rate swaps ------Foreign currency options ------Interest rate options ------Gross settled Foreign exchange forward contracts 278,710 363,893 230,925 182,691 - 1,056,219 Currency swaps 3,623,653 103,644 128,729 348,105 - 4,204,131 Interest rate swaps 110,854 2,665 159,990 31,526 526,952 831,987 Foreign currency options 190,802 320,058 647,868 106,778 - 1,265,506 Interest rate options ------Total 4,204,019 790,260 1,167,512 669,100 526,952 7,357,843
ŞEKERBANK ANNUAL REPORT 2018
375 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
VII. Explanations Related to the Consolidated Leverage Ratio a. Information on subjects that causes difference in leverage ratio between current and prior periods
The Group’s consolidated leverage ratio calculated according to “Regulation on Measurement and Assessment of Leverage Ratios of Banks” is 6.27 % (31 December 2017 – 6.39 %). Change in the leverage ratio is mainly due to the increase of the on balance sheet assets. The minimum leverage ratio set by the above mentioned regulation is 3%. b. Comparison table of total assets and total risk amounts in the financial statements prepared in accordance with TAS:
Current Period (**) Prior Period (**) Total assets in the consolidated financial statements prepared in accordance with TAS (*) 34,496,650 33,186,347 Differences between the total assets in the consolidated financial statements prepared in accordance with TAS and the total assets in the consolidated financial statements prepared in accordance with Communique on Preparation of Consolidated Financial Statements of the Banks 76,512 56,661 Differences between the balances of derivative financial instruments and the credit derivatives in the consolidated financial statements prepared in accordance with the Communique on Preparation of Consolidated Financial Statements of the Banks and their risk exposures (262,411) (119,361) Differences between the balances of securities financing transactions in the consolidated financial statements prepared in accordance with the Communique on Preparation of Consolidated Financial Statements of the Banks and their risk exposures 4,380 143,427 Differences between off- balance sheet itmes in the consolidated financial statements prepared in accordance with the Communique on Preparation of Consolidated Financial Statements of the Banks and their risk exposures 2,881,188 2,560,944 Other differences in the consolidated financial statements prepared in accordance with the Communique on Preparation of Consolidated Financial Statements of the Banks and their risk exposures - - Total Risk 42,062,407 39,594,213
(*) The consolidated financial statements as of 30 June 2018 in current period and 31 December 2017 in prior period prepared in accordance with the sixth paragraph of the Article 5 of the Communique on Preparation of Consolidated Financial Statements of the Banks. (**) The arithmetic average of the last 3 months in the related periods.
ŞEKERBANK ANNUAL REPORT 2018
376 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Disclosure of Leverage Ratio template
On-balance sheet assets Current Period (*) Prior Period (*) 1 On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) 33,435,723 31,057,253 2 (Assets deducted in determining Tier 1 capital) (410,250) (411,867) 3 Total on-balance sheet risks (sum of lines 1 and 2) 33,025,473 30,645,386 Derivative financial instruments and credit derivatives 4 Replacement cost associated with all derivative instruments and credit derivatives 502,592 154,142 5 Add-on amounts for PFE associated with all derivative instruments and credit derivatives 90,884 103,702 6 Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5) 593,476 257,844 Securities or commodity financing transactions (SCFT) 7 Risks from SCFT assets - - 8 Risks from brokerage activities related exposures 4,380 143,427 9 Total risks related with securities or commodity financing transactions (sum of lines 7 to 8) 4,380 143,427 Other off-balance sheet transactions 10 Gross notional amounts of off-balance sheet transactions 8,923,422 8,843,604 11 (Adjustments for conversion to credit equivalent amounts) (484,344) (296,048) 12 Total risks of off-balance sheet items (sum of lines 10 and 11) 8,439,078 8,547,556 Capital and total risks 13 Tier 1 capital 2,636,681 2,526,394 14 Total risks (sum of lines 3, 6, 9 and 12) 42,062,407 39,594,213 Leverage ratio 15 Leverage ratio 6.27 6.39
(*) Amounts in the table are three-month average amounts
VIII. Explanations Related to Presentation of Financial Assets and Liabilities at Fair Value
The fair value of financial assets at amortised cost and financial assets at fair value through comprehensive income are based on market prices and quoted market prices for other marketable securities subject to the same nature of interest, maturity and other similar conditions in circumstances where such price can not be determined.
The book value of demand deposits, money market placements with floating interest rate and overnight deposits represents their fair values due to their short-term nature. The estimated fair value of deposits, funds provided from other financial institutions with fixed interest rate and securities issued is calculated by determining their cash flows discounted by the current interest rates used for other liabilities with similar characteristics and maturity structure. The fair value of loans is calculated by determining the cash flows discounted by the current interest rates used for receivables with similar characteristics and maturity structure. The book value of the sundry creditors reflects their fair values since they are short-term.
ŞEKERBANK ANNUAL REPORT 2018
377 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The market values of the items shown in the table are calculated by combining the accrued interest and the market value of principal amounts, based on term till maturity for the fixed rate items and term till the repricing day for the floating rate items and compared to its book values.
The table below shows the book value and the fair value of the financial assets and liabilities of the Group.
Book Value Fair Value Current Period Prior Period Current Period Prior Period Financial Assets Money Market Placements 59,192 2,447,904 59,192 2,447,904 Banks 206,019 645,307 206,019 644,776 Financial Assets at Fair Value Through Other Comprehensive Income 577,682 1,395,802 577,682 1,395,802 Financial Assets at Amortised Cost 3,428,722 1,355,994 3,140,084 1,340,599 Loans 22,250,503 20,721,738 21,110,026 20,765,634 Financial Liabilities Bank Deposits 565,756 863,780 607,774 887,346 Other Deposits 22,375,101 19,020,516 22,406,608 19,055,281 Funds Borrowed From Other Financial Institutions 3,600,080 3,491,113 3,531,928 3,322,965 Interbank Borrowings 192,096 4,064,367 235,696 4,061,997 Securities Issued 2,147,305 1,851,101 1,594,438 1,500,175 Sundry Creditors 551,812 298,163 551,812 298,163
TFRS 7 “Financial Instruments: Disclosures” standard require those items which are recorded in the balance sheet with their fair values to be disclosed in the footnotes by groups, based on the the data used for fair value measurement of these assets. The first group composes the financial instruments whose fair values were determined according to prices of identical assets or liabilities recorded in active markets; the second group is for financial instruments whose fair values were determined according to data of directly or indirectly observable markets; and the third group includesthe financial instruments whose fair values are not determined as based on observable market data. These financial instruments recorded in the balance sheet of the Group with their fair values are grouped aacordingly and are shown the table below:
ŞEKERBANK ANNUAL REPORT 2018
378 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Level 1 Level 2 Level 3 Current Period Financial Assets Financial Assets At Fair Value Through Profit And Loss 85,589 - - Derivative Financial Assets - 383,219 - Loans - 221,879 - Financial Assets at Fair Value Through Other Comprehensive Income 554,804 15,301 7,577 Financial Liabilities - - - Derivative Financial Liabilities - 122,085 - Prior Period Financial Assets Financial Assets at fair value through profit and loss Trading Financial Assets 74,877 - - Derivative Financial Assets Held for Trading - 98,762 - Loans - 270,364 - Financial Assets Available for Sale 1,317,861 70,524 7,417 Financial Liabilities - - - Derivative Financial Liabilities Held for Trading - 132,712 -
IX. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust
The Parent Bank performs securities buying and selling transactions, brokerage and custody services on behalf of customers.
There are no transactions made with other financial institutions under the trust transaction contract and direct financial services provided within this scope.
X. Explanations Related to the Consolidated Risk Management
Notes and explanations in this section have been prepared in accordance with the Communiqué on ‘‘Disclosures about Risk Management to Be Announced to Public by Banks’’ that have been published in the Official Gazette no. 29511 on 23 October 2015. a. Explanations on Risk Management and Risk Weighted Amount a.1. Risk Management Strategy
Especially in the finance sector, the importance of the existence of an effective risk management approach for a sustainable growth based on solid foundations has been growing day-by-day. Having this in mind, the Group aims to ensure that the risk management approach is adopted as a corporate culture, that the strategy and business plans are prepared in this respect, that decision-making, execution and audit processes are configured accordingly and that a dynamic and effective risk management system is established completely.
The establishement of the risk management systemis under the responsibility of the Parent Bank’s Board of Directors and has been configured in a way to cover the institutions, which are subject to consolidation, under the coordination of the Parent Bank’s Board of Directors.
ŞEKERBANK ANNUAL REPORT 2018
379 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Group Management is responsible for execution and coordination of the strategies, policies, risk limits and implementation of the procedures, which are approved by the Board of Directors; reviewing its effectiveness and making proposals on including the new risks. The Parent Bank Management set the Asset / Liability Committee, the Operational Findings Improvement Committee and the Product Development Committee for these purposes.
In order to monitor and control the risks encountered, the Group has configured the Internal Systems, which include the Internal Audit Department, the Internal Control & Compliance Unit and the Risk Management Unit. These departments report to the member of the Board of Directors who is responsible for the Internal Systems. All departments and branches of the Group as well as all institutions within consolidation are subject to supervision and audit by the Internal Systems. The Group’s Internal Systems departments periodically report to the Board of Directors and the committees formed under the Board of Directors of the Parent Bank. The Group defined in the internal regulations the internal systems, its operation and position in the organization, the interaction with the other departments.
The Group’s risk management policies are the written standards which are prepared based on the must-have factors in relation to the local regulations, the Group’s good practice guides and the international practices and are approved by the Boards of Directors. These policies define the organization of risk management function, the risks to which the Group is exposed to, structure and classification of the risks by the rank of significance, the measurement tools for the risk’ impacts on the Group’s activities, risk profile and appetite of the Group, as well as reporting requirements. The Group’s risk management processes are executed in conformity with the matters specified in the Risk Management Policies and reguilations.
The Group monitors its risk profile through the “Risk Limits and “Risk Indicators” which are set by the management and approved by the Boards of Directors and conducts scenario analyses in this respect. In order to measure, monitor and report the risks, to which it is exposed to, the Group uses the measurement methodologies and risk management software.
The Group takes necessary actions for ensuring that the risk management approach is adopted as a corporate culture. All measures have been taken for ensuring that the instructions and regulations introduced in the Group are prepared in compliance with the strategy, the risk management policies, limits and risk management practices. All Group’s employees are informed on the risk management policies, procedures and the instructions and manuals prepared in connection to these policies. Furthermore, all departments, branches and consolidated subsidiaries are all subject to supervision and audit.
The Group has established a written Internal Capital Adequacy Assessment Process (“ICAAP”) in parallel to legal regulations. The Group conducts holistic stress tests and scenario analyses in compliance with the methods and approaches set in the ICAAP. In addition to its own scenarios within the stress test programme, the Group also conducts the scenarios, which are required by the BRSA.
ŞEKERBANK ANNUAL REPORT 2018
380 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2. Overview of Risk Weighted Amount
a b c Minimum capital Risk Weighted Amount requirement Current Period Prior Period Current Period 1 Credit risk (excluding counterparty credit risk) (CCR) 21,508,128 18,762,717 1,720,650 2 Standardised approach (SA) 21,508,128 18,762,717 1,720,650 3 Internal rating-based (IRB) approach - - - 4 Counterparty credit risk 272,701 201,771 21,816 5 Standardised approach for counterparty credit risk (SA-CCR) 272,701 201,771 21,816 6 Internal model method (IMM) - - - 7 Basic risk weight approach to internal models equity position in the banking account - - - 8 Investments made in collective investment companies – look- through approach - - - 9 Investments made in collective investment companies – mandate-based approach - - - 10 Investments made in collective investment companies – 1250% weighted risk approach - - - 11 Settlement risk - - - 12 Securitization positions in banking accounts - - - 13 IRB ratings-based approach (RBA) - - - 14 IRB Supervisory Formula Approach (SFA) - - - 15 SA/simplified supervisory formula approach (SSFA) - - - 16 Market risk 458,013 916,938 36,641 17 Standardised approach (SA) 458,013 916,938 36,641 18 Internal model approaches (IMM) - - - 19 Operational Risk 2,546,198 2,430,495 203,696 20 Basic Indicator Approach 2,546,198 2,430,495 203,696 21 Standart Approach - - - 22 Advanced measurement approach - - - 23 The amount of the discount threshold under the equity (subject to a 250% risk weight) - - - 24 Floor adjustment - - - 25 Total (1+4+7+8+9+10+11+12+16+19+23+24) 24,785,039 22,311,921 1,982,803
ŞEKERBANK ANNUAL REPORT 2018
381 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Explanations on Risk Management and Risk Weighted Amount b.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 Not subject values in to capital financial Subject Amount requirements statements Subject to to the recognised or subject prepared as Subject to counterparty market in regulatory to deduction Current Period per TAS credit risk credit risk risk capital from capital Assets Cash and Balances With Central Bank of Turkey 3,884,448 3,884,448 - - - - Financial Assets at Fair Value Through Profit or Loss 85,589 - - 85,589 - - Financial Assets at Fair Value Through Comprehensive Income 577,682 22,878 - 554,804 - - Financial Assets at Amortised Cost 3,428,722 687,902 - 2,740,820 - - Derivative Financial Assets 383,219 - 6,866 376,353 - - Non-Performing Financial Receivables ------Expected Credit Loss (-) 16,237 - - - 16,237 - Loans(Net) 21,956,861 21,951,081 - - 5,780 - Loans 21,407,713 21,401,933 - - 5,780 - Leasing Receivables 446,853 446,853 - - - - Factoring Receivables 395,937 395,937 - - - - Non-Performing Receivables 1,331,680 1,331,680 - - - - Expected Credit Loss (-) 1,625,322 1,625,322 - - - - Assets Held for Sale and Assets of Discontinued Operations 320,984 320,984 - - - - Ownership Investments 612,829 612,829 - - - - Tangible Assets (net) 711,832 640,897 - - 70,935 - Intangible Assets (net) 94,111 - - - 94,111 - Investment Property (net) 61,125 61,125 - - - - Current Tax Asset 5,369 - - - - 5,369 Deferred Tax Asset 173,996 104,467 - - 69,529 - Other Assets 684,254 684,254 - - - - Total Assets 32,964,784 28,970,865 6,866 3,757,566 224,118 5,369 Liabilities Deposits 22,940,857 - - - - 22,940,857 Funds Borrowed 3,600,080 - - - - 3,600,080 Interbank Money Markets 192,096 - 192,096 - - - Securities Issued 1,243,684 - - - - 1,243,684 Funds ------Financial Liabilities Measured At Fair Value Through Profıt And Loss ------Derivative Financial Liabilities 122,085 16,592 - 105,493 - - Factoring Payables 554 - - - - 554 Lease Payables 25,107 - - - - 25,107 Provisions 490,882 - - - - 490,882 Current Tax Liability 63,083 - - - - 63,083 Deferred Tax Liability 1,532 - - - - 1,532 Liabilities for Assets Held for Sale and Assets of Discontinued Operations ------Subordinated Debts 903,621 - - - - 903,621 Other Payables 928,373 - - - - 928,373 Shareholders’ Equity 2,452,830 - - - - 2,452,830 Total Liabilities 32,964,784 16,592 192,096 105,493 - 32,650,603
ŞEKERBANK ANNUAL REPORT 2018
382 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Carrying values of items in accordance with Turkish Accounting Standards Carrying Not subject values in to capital financial requirements statements Subject to or subject prepared as Subject to counterparty Subject to the Subject to to deduction Prior Period per TAS credit risk credit risk securitisation market risk (*) from capital Assets Cash (Cash on Hand, Money in Transit, Purchased Cheques) and Balances With Central Bank of Turkey 3,107,636 3,107,636 - - - - Financial Assets Held for Trading 74,877 - - - 74,877 - Derivative financial assets held for trading 98,762 - 98,762 - - - Financial Assets at Fair Value Through Profit or Loss 270,364 - - - - - Banks 645,307 645,307 - - - - Interbank Money Markets Placements 2,447,904 2,447,904 - - - - Financial Assets Available-for-Sale 1,395,802 77,941 - - 1,317,861 - Loans 20,930,152 20,919,269 - - - 10,883 Factoring Receivables 423,014 423,014 - - - - Investment Held-to-Maturity 1,355,994 1,355,994 - - - - Investment in Associates 4,236 4,236 - - - - Investment in Subsidiaries 606,009 606,009 - - - - Investment in Joint-Ventures ------Lease Receivables 439,381 439,381 - - - - Derivative Financial Assets Held for Risk Management 2,786 - 2,786 - - - Tangible Assets 399,414 305,620 - - - 93,794 Intangible Assets 88,303 - - - - 88,303 Investment Property ------Tax Asset 87,765 17,774 - - - 69,991 Assets Held for Sale and Assets of Discontinued Operations 266,025 266,025 - - - - Other Assets 485,955 485,955 - - - - Total Assets 33,129,686 31,102,065 371,912 - 1,392,738 262,971 Liabilities Deposits 19,884,296 - - - - 19,884,296 Derivative Financial Liabilities Held for Trading 132,712 - 132,712 - - - Funds Borrowed 3,473,049 - - - - 3,473,049 Interbank Money Markets 4,064,367 - 4,064,367 - - - Securities Issued 1,227,684 - - - - 1,227,684 Funds ------Miscellaneous Payables 298,163 - - - - 298,163 Other External Fundings Payable 109,161 - - - - 109,161 Factoring Payables 7,912 - - - - 7,912 Lease Payables 34,761 - - - - 34,761 Derivative Financial Liabilities Field for Risk Management ------Provisions 399,419 - - - - 399,419 Tax Liability 66,135 - - - - 66,135 Liabilities for Assets Held for Sale and Assets of Discontinued Operations ------Subordinated Debts 641,481 - - - - 641,481 Shareholders’ Equity 2,790,546 - - - - 2,790,546 Total Liabilities 33,129,686 - 4,197,079 - - 28,932,607
ŞEKERBANK ANNUAL REPORT 2018
383 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b.2. Major Items Causing Differences Between Assets and Liabilities’ Carrying Values in Financial Statements and Risk Amounts in Capital Adequacy Calculation
Items Items subject to Items Items subject subject to counterparty subject to Current Period Total to credit risk securitisation credit risk market risk 1 Asset carrying value amount under scope of regulatory consolidation 32,740,666 28,970,865 - 6,866 3,757,566 2 Liabilities carrying value amount under regulatory scope of consolidation - 16,592 - 192,096 105,493 3 Total net amount under regulatory scope of consolidation 32,740,666 28,954,273 - (185,230) 3,652,073 4 Off-balance sheet amounts 8,930,325 4,547,141 - 462,637 - 5 Differences in valuations - - - - - 6 Differences due to different netting rules, other than those already included in row 2 - - - - - 7 Differences due to consideration of provisions - - - - - 8 Differences due to prudential filters - - - - - 9 Differences due to risk reduction - - - - - 10 Exposure amounts 41,670,991 33,501,414 - 277,407 3,652,073
Items Items subject to Items Items subject subject to counterparty subject to Prior Period Total to credit risk securitisation credit risk market risk 1 Asset carrying value amount under scope of regulatory consolidation 32,866,715 31,102,065 - 371,912 1,392,738 2 Liabilities carrying value amount under regulatory scope of consolidation - - - (4,197,079) - 3 Total net amount under regulatory scope of consolidation 32,866,715 31,102,065 - 4,568,991 1,392,738 4 Off-balance sheet amounts 7,990,208 3,774,113 - 218,913 - 5 Differences in valuations - - - - - 6 Differences due to different netting rules, other than those already included in row 2 - - - - - 7 Differences due to consideration of provisions - - - - - 8 Differences due to prudential filters - - - - - 9 Differences due to risk reduction - - - - - 10 Exposure amounts 40,856,923 34,876,178 - 4,787,904 1,392,738
ŞEKERBANK ANNUAL REPORT 2018
384 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b.3. Explanations on Differences Between Carrying Values in Financial Statements and Risk Amounts in Capital Adequacy Calculation of Assets and Liabilities
In principle, the Group aims to use methods that measure the fair value in accordance with TFRS 13 ‘Fair Value Measurement’ standard. In this respect, the valued amounts of the items which are subject to market risk show the fair value of the financial instruments for trading. Valuation models that use market data such as interest rates, efficiency curves, currency, volatility curves are used as the basis for derivative transactions, while third party valuation services are also available. On the other hand, the amount shown in the” risk amount line” represents the amount of the market risk based on the calculated capital requirement for losses that may be caused by factors such as interest rate risk, equity securities price risk and exchange rate risk of the market risk under the “Regulation on Measurement and Evaluation of Banks’ Capital Adequacy”. c. General Information on Consolidated Credit Risk c.1. General Qualitative Information on Consolidated Credit Risk
The Group conducts the lending operations in compliance with the principles and procedures, which are approved by the Boards of Directors. With in this scope, marketing, financial analysis, allocation, monitoring and controlling functions are carried through within segregation of duties according to policies and procedures approved by the Boards of Directors.
The methodologies and responsibilities of credit risk management, controlling and monitoring and the framework of credit risk limitations specified with credit risk management policy and procedures. The Group ensures that the credit risk related to its products is defined, measured and managed. At least annually, the Boards of Directors reviews the Group’s credit risk policies and credit risk strategy. The Group Management is responsible for the execution of the credit risk policies that are approved by the Boards of Directors.
In the Group’s credit risk management, along the limits as required by legal regulations, the Group utilizes the risk limits to undertake the maximum credit risk within risk groups or sectors that the Board of Directors determines. The Risk Management Unit conducts measurement, monitoring and reporting of the credit risk by using statistical models and submits the results of the risk-limit compliance, assessments on these limits and credit portfolio concentration analyses to the Management and the Board of Directors.
In the credit allocation process, customers are divided into portfolios on a branch and segment basis in accordance with the defined criteria and each credit customer is subjected to a rating system which is developed in accordance with the portfolio and periodically validated. The cash flow of the activity or investment that is subject to credit in lending is considered as the main source of payment and while setting the credit limits, the sustainability of the customers’ income is taken into consideration. According to the rating results, credit demands are concluded in accordance with the credit allocation policies. A credit disbursement is made after approval of a loan application by the related allocation authorities.
The Group has established loan monitoring systems that generate the necessary early warnings and assessments of the loan portfolio, allowing effective monitoring of the loan portfolio.
All branches, departments, regional offices and subsidiaries involved in crediting processes are subject to audit and monitoring by the internal systems departments. All the findings are regularly reported to the Boards of Directors and the Group Management. In addition to transcation and company based risk assessment process, monitoring of credict risk also refers to an approach with monitoring and managing the credit as a whole maturity, sector, collateral, geography, currency, credit type and credit rating.
ŞEKERBANK ANNUAL REPORT 2018
385 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.2. Credit Quality of Assets
Gross carrying value as per TAS Allowances/ Current Period Defaulted Non-defaulted impairements Net values 1 Loans 1,345,677 22,250,503 986,482 22,609,698 2 Debt securities - 10,609,374 - 10,609,374 3 Off-balance sheet exposures 135,706 8,840,894 46,275 8,930,325 4 Total 1,481,383 41,700,771 1,032,757 42,149,397
Gross carrying value as per TAS Allowances/ Prior Period Defaulted Non-defaulted impairements Net values 1 Loans 1,164,608 21,538,887 640,584 22,062,911 2 Debt securities - 10,454,060 - 10,454,060 3 Off-balance sheet exposures 148,344 7,903,131 61,269 7,990,206 4 Total 1,312,952 39,896,078 701,853 40,507,177 c.3. Changes in Stock of Defaulted Loans and Debt Securities
Current Period Prior Period 1 Defaulted loans and debt securities at end of the previous reporting period 1,164,608 1,243,444 2 Loans and debt securities that have defaulted since the last reporting period (*) 1,023,866 537,465 3 Returned to non-defaulted status - - 4 Amounts written off (102,505) (290,808) 5 Other changes (740,292) (325,493) 6 Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) Definitions 1,345,677 1,164,608
(*) TRL 13,997 Thousand non performing loans classified as “Financial assets at fair value through profit and loss”. (31 December 2017 –TRL 13,237 Thousand)
The Group reclassifies loans and performs credit impairment loss calculations according to TFRS 9as stated in Note VIII “Impairment of Financial Assets” in Section three.
ŞEKERBANK ANNUAL REPORT 2018
386 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Group calculates expected loss provision based on the degree of impairment in credit risk by performing calculations as of each reporting date to reflect changes in the credit risk from the initial recognition of financial assets. Negative developments in the customer’s ability to pay or cash flow are subject to a new loan to cover all or part of the observed receivables or to re-financing or restructuring by creating a new payment plan. c.4.2. Breakdown of Exposures by Geographical Areas, Industry and Ageing
Related explanations are disclosed in section IV note II. c.4.3. Exposures Provisioned Against by Major Regions and Sectors
Current Period Loans Under Follow-Up(**) Specific Provisions Write-Offs(*) Domestic 1,337,969 978,805 102,505 European Union (EU) Countries 101 70 - OECD Countries 7,557 7,557 - Off-Shore Banking Regions - - - USA, Canada 50 50 - Other Countries - - - Total 1,345,677 986,482 102,505
(*) Sold non performing loan amount. (**) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 13,997 Thousand and Stage 3 expected credit lossprovision amounting to TRL 3,638 Thousand in the current period.
Prior Period Loans Under Follow-Up(**) Specific Provisions Write-Offs (*) Domestic 1,154,571 632,475 290,801 European Union (EU) Countries 89 33 3 OECD Countries 7,557 7,557 - Off-Shore Banking Regions 2,342 505 3 USA, Canada 48 13 1 Other Countries 1 1 - Total 1,164,608 640,584 290,808
(*) Sold non performing loan amount. (**) Non performing loans classified as “Financial assets at fair value through profit and loss” amounting to TRL 13,237 Thousand and Specific provision amounting to TRL 4,053 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
387 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Current Period Loans Under Follow-Up Specific Provisions Write-Offs (*) Agricultural 178,834 108,263 6,115 Farming and raising livestock 177,815 107,468 6,050 Forestry 348 339 1 Fishing 671 456 64 Manufacturing 338,685 268,835 26,529 Mining 12,582 10,665 735 Production 325,900 257,976 25,468 Electricity, Gas, Water 203 194 326 Construction 189,817 148,278 17,784 Services 535,083 388,821 45,958 Wholesale and Retail Trade 331,849 254,139 33,160 Hotel,Food,Beverage Services 8,827 6,015 463 Transportation and Telecommunication 48,953 34,377 4,633 Financial Institutions 1,230 787 73 Real Estate and Lending Services 71,311 53,287 5,305 Self employment Service 133 58 - Education Service 2,838 2,421 11 Health and social Services 69,942 37,737 2,313 Other 103,258 72,285 6,119 Total 1,345,677 986,482 102,505
(*) Sold non performing loan amount.
Prior Period Loans Under Follow-Up Specific Provisions Write-Offs (*) Agricultural 146,899 67,432 16,575 Farming and raising livestock 145,375 66,955 16,429 Forestry 447 244 39 Fishing 1,077 233 107 Manufacturing 263,970 154,021 103,446 Mining 11,376 7,975 2,791 Production 252,063 145,887 100,630 Electricity, Gas, Water 531 159 25 Construction 167,637 84,106 33,315 Services 430,203 224,014 113,255 Wholesale and Retail Trade 301,533 161,317 93,877 Hotel,Food,Beverage Services 5,685 2,463 1,519 Transportation and Telecommunication 40,173 18,851 7,617 Financial Institutions 1,405 673 - Real Estate and Lending Services 60,135 32,411 7,059 Self employment Service 133 66 - Education Service 2,341 680 136 Health and social Services 18,798 7,553 3,047 Other 155,899 111,011 24,217 Total 1,164,608 640,584 290,808
(*) Sold non performing loan amount.
ŞEKERBANK ANNUAL REPORT 2018
388 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.4.4. Ageing of Past Due Loans
Current Period Up to 3 Months 3-12 Months 1-3 Years 3-5 Years 5 Years and Over Corporate and Commercial Loans 66,284 17,520 87,710 35,740 53,893 Small and Medium Enterprises 157,206 177,856 417,565 169,456 62,008 Retail Loans 9,586 16,697 40,315 5,149 15,136 Others 1,903 1,249 3,248 1,886 5,271 Total 234,979 213,322 548,838 212,231 136,307
Prior Period Up to 3 Months 3-12 Months 1-3 Years 3-5 Years 5 Years and Over Corporate and Commercial Loans 17,001 43,356 121,522 74,984 33,077 Small and Medium Enterprises 89,473 193,420 388,666 75,246 41,872 Retail Loans 9,239 21,131 23,518 5,881 14,169 Others 1,746 4,588 5,506 194 19 Total 117,459 262,495 539,212 156,305 89,137 c.4.5. Breakdown of Restructured Receivables Based on Whether or not Provisions are Allocated
Current Period Prior Period Loans Structured from Standard Loans and Other Receivables 392,998 932,314 Loans Composed of Follow-on Loans and Other Receivables 1,255,410 1,309,140 Loans Restructured from Non-Performing Loans 56,138 57,540
The Group evaluates its financial assets in 3 stages under TFRS 9, as explained in Section Three Note VII and VIII. For the Impaired stage 3 loans, the Group calculates the expected credit losses for lifetime and considers the probability of default to be 100%.
The Group classifies loans that have not been impaired yet but the credit risk has increased significantly, as Second Stage and calculates the lifetime expected credit loss for these loans. c.5. Explanations Related to Consolidated Credit Risk Mitigation Techniques c.5.1. Qualitative Requirements to be Disclosed to the Public Regarding Credit Risk Mitigation Techniques
The Group calculates credit risk using mitigation techniques specified in the “Notification Related to the Credit Risk Mitigation Techniques” that entered into force through the publication in the Official Gazette dated 06.09.2014 and numbered 29111.
The Group considers the deposit or cash values as financial security and real estate mortgages as physical security.
In accordance with the provisions of the “Communiqué on Credit Risk Mitigation Techniques”, the Group periodically reviews the real estates which received as collateral and, if necessary, the real estate appraisals are being renewed at specific intervals. Appraisal of these real estates is made by the appraisal institutions authorized by the BRSA and the CMB. The collaterals are insured for possible damage.
ŞEKERBANK ANNUAL REPORT 2018
389 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The general principles and practices regarding the collateralization of loans and other receivables are stated in the internal regulations and its compliance is subject to audit by the internal systems departments. c.5.2. Credit Risk Mitigation Techniques – overview
Exposures Exposures Exposures Amounts unsecured Exposures secured by Amount of secured secured (according secured by Amount of financial Financial by credit by credit Current Period to TAS) collateral Collateral guarantees guarantees derivatives derivatives 1 Loans 13,328,364 8,922,139 7,367,379 - - - - 2 Debt Securities 10,609,374 ------3 Total 23,937,738 8,922,139 7,367,379 - - - - 4 Of which defaulted 1,090,262 255,415 531,644 - - - -
Exposures Exposures Exposures Amounts unsecured Exposures secured by Amount of secured secured (according secured by Amount of financial Financial by credit by credit Prior Period to TAS) collateral Collateral guarantees guarantees derivatives derivatives 1 Loans 13,752,168 7,786,719 5,899,589 - - - - 2 Debt Securities 10,454,060 ------3 Total 24,206,228 7,786,719 5,899,589 - - - - 4 Of which defaulted 842,830 321,778 630,665 - - - - c.6. Qualitative Disclosures on Banks’ Use of External Credit Ratings Under the Standardised Approach for Credit Risk
In calculation of the amount subject to credit risk, determining the risk weights releated to risk classes stated in the article 6 of the “Regulation on measurement and evaluation of capital achievement of banks”, is based on the Islamic International Rating Agency (IIRA) for Turkey’s long-term foreign currency rating.
While receivables from Central Governments or Central Banks are considered as an international rating grade for the entire risk class, the country risk classification published by the OECD is based on unrated Central Government and the Economic Cooperation and Development Organization for Central Banks.
The table matching the risk weights used for the risk-weight calculations for the receivables from Central Governments and Central Banks with the credit quality grade indicated in the appendix of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks” is stated below.
ŞEKERBANK ANNUAL REPORT 2018
390 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Islamic International Rating Agency Risk weight for Receivables from Centralized Credit Quality Grade Long-Term Credit Rating Administrations or Central Banks 1 Between AAA and AA- 0% 2 Between A+ and A- 20% 3 Between BBB+ and BBB- 50% 4 Between BB+ and BB- 100% 5 Between B+ and B- 100% 6 CCC+ and Below 150% c.7. Standardised Approach – Credit Risk Exposure and Credit Risk Mitigation (CRM) Effects
Exposures before Exposures after Current Period CCF and CRM CCF and CRM RWA and RWA Weights On-balance Off-balance On-balance Off-balance Risk classes sheet amount sheet amount sheet amount sheet amount RWA RWA density 1 Exposures to sovereigns and their central banks 6,642,781 5,954 6,642,781 5,954 330,010 4.97% 2 Exposures to regional and local governments 61,155 40 61,155 20 31,888 52.14% 3 Exposures to administrative bodies and non-commercial entities 109,092 14,605 109,092 7,108 113,157 103.73% 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 1,314,916 1,721,600 1,314,916 1,502,182 1,265,272 96.22% 7 Exposures to corporates 9,818,855 4,270,698 9,818,855 1,872,326 9,763,917 99.44% 8 Retail exposures 6,143,092 2,285,131 6,143,092 783,378 3,713,691 60.45% 9 Exposures secured by residential property 1,667,764 245,981 1,667,764 131,571 659,174 39.52% 10 Exposures secured by commercial property 4,057,250 385,812 4,057,250 244,500 2,193,514 54.06% 11 Past-due items 325,387 - 325,387 - 236,432 72.66% 12 Exposures in high-risk categories 66,941 - 66,941 - 100,378 149.95% 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 3,012,057 504 3,011,711 102 2,368,484 78.64% 17 Equity share investments ------18 Total 33,219,290 8,930,325 33,218,944 4,547,141 20,775,917 62.54%
ŞEKERBANK ANNUAL REPORT 2018
391 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Exposures before Exposures after Prior Period CCF and CRM CCF and CRM RWA and RWA Weights On-balance Off-balance On-balance Off-balance Risk classes sheet amount sheet amount sheet amount sheet amount RWA RWA density 1 Exposures to sovereigns and their central banks 7,711,343 226 7,711,570 - 161,022 2.09% 2 Exposures to regional and local governments 67,018 275 67,017 68 34,666 51.73% 3 Exposures to administrative bodies and non-commercial entities 29,737 13,938 29,736 6,271 33,881 113.93% 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 1,951,608 1,043,542 1,951,608 870,545 1,069,019 54.78% 7 Exposures to corporates 8,218,992 3,656,166 8,218,992 1,621,137 8,214,699 99.95% 8 Retail exposures 7,049,909 2,564,462 7,049,907 890,515 4,090,952 58.03% 9 Exposures secured by residential property 1,850,533 290,117 1,850,533 150,818 712,179 38.49% 10 Exposures secured by commercial property 3,203,054 414,135 3,203,053 233,298 1,746,563 54.53% 11 Past-due items 381,283 - 381,283 - 334,433 87.71% 12 Exposures in high-risk categories 144,604 - 144,604 - 216,906 150.00% 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 1,950,605 7,347 1,951,064 1,461 1,692,593 86.75% 17 Equity share investments ------18 Total 32,558,686 7,990,208 32,559,367 3,774,113 18,306,913 56.23%
ŞEKERBANK ANNUAL REPORT 2018
392 ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
c.8. Exposures by Asset Classes and Risk Weights
50% secured by property Total risk Current Period 0% 10% 20% 35% mortgage 75% 100% 150% 200% Others amount Risk classes FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 1 Exposures to sovereigns and their central banks 6,002,543 - - - 632,365 - 13,827 - - - 6,648,735 2 Exposures to regional and local government - - - - 58,570 - 2,605 - - - 61,175 3 Exposures to administrative bodies and non-commercial entities 3,044 - - - - - 113,156 - - - 116,200 4 Exposures to multilateral development banks ------
393 5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 232,116 - 130,991 - 2,429,836 - 24,155 - - - 2,817,098 7 Exposures to corporates 1,666,776 - 157,065 - 268,857 1,627 9,596,856 - - - 11,691,181 8 Retail exposures 1,932,088 - 1,746 - 125,073 4,867,036 527 - - - 6,926,470 9 Exposures secured by residential property - - - 1,753,018 1,399 - 44,918 - - - 1,799,335 10 Exposures secured by commercial real estate - - - - 4,216,471 - 85,279 - - - 4,301,750 11 Past-due loans - - - - 177,947 - 147,404 36 - - 325,387 12 Higher-risk categories by the Agency Board - - - - - 45 - 66,896 - - 66,941 13 Exposures in the form of covered bonds ------14 Exposures to institutions and corporates with a short-term credit assessment ------15 Exposures in the form of units or shares in collective investment undertakings ------16 Investments in equities ------17 Other assets 523,721 - 107 - 239,047 - 2,248,938 - - - 3,011,813 18 Total 10,360,288 - 289,909 1,753,018 8,149,565 4,868,708 12,277,665 66,932 - - 37,766,085
ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
50% secured by property Total risk Prior Period 0% 10% 20% 35% mortgage 75% 100% 150% 200% Others amount Risk classes 1 Exposures to sovereigns and their central banks 7,404,378 - - - 292,340 - 14,852 - - - 7,711,570 2 Exposures to regional and local government - - - - 64,838 - 2,247 - - - 67,085 FINANCIAL INFORMATION
ŞEKERBANK ANNUAL REPORT 2018 3 Exposures to administrative bodies and non-commercial entities 2,127 - - - - - 33,880 - - - 36,007 4 Exposures to multilateral development banks ------5 Exposures to international organizations ------6 Exposures to banks and brokerage houses 67,092 - 1,073,909 - 1,653,826 - 27,326 - - - 2,822,153
394 7 Exposures to corporates 1,540,994 - 105,557 - - - 8,193,578 - - - 9,840,129 8 Retail exposures 2,485,819 - - - - 5,454,603 - - - - 7,940,422 9 Exposures secured by residential property - - - 1,983,341 - - 18,010 - - - 2,001,351 10 Exposures secured by commercial real estate - - - - 3,379,577 - 56,774 - - - 3,436,351 11 Past-due loans - - - - 93,701 - 287,582 - - - 381,283 12 Higher-risk categories by the Agency Board ------144,604 - - 144,604 13 Exposures in the form of covered bonds ------14 Exposures to institutions and corporates with a short-term credit assessment ------15 Exposures in the form of units or shares in collective investment undertakings ------16 Investments in equities ------17 Other assets 192,861 - 5 - 134,118 - 1,625,541 - - - 1,952,525 18 Total 11,693,271 - 1,179,471 1,983,341 5,618,400 5,454,603 10,259,790 144,604 - - 36,333,480
FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Explanations Related to Consolidated Counterparty Credit Risk d.1. Qualitative Disclosure on Counterparty Credit Risk
The Group may expose to losses due to the inability of one of the counterparties to fulfill its obligation within the transaction period. The Group might be exposed to counterparty credit risk based on both trading accounts and banking accounts, repurchase transactions, securities and commodity lent transactions, and derivative financial instruments.
Counterparty Credit Risk is considered as a quantifiable risk. In the framework of the Capital Adequacy Ratio calculation, it is calculated within the scope of the credit risk principal amount and market risk principal amount, which is calculated according to standart approach.
The counterparty credit risk arising from liability transactions on both sides, such as derivatives and repo-like transactions, is calculated within the framework of the provisions of “Annex-2 of the Regulation on Measurement and Evaluation of Capital Adequacy of Banks” published in the Official Gazette dated 23.10.2015 and numbered 29511. Valuation method according to the fair value is applied for derivative transactions in calculating the counterparty credit risk. In calculating the amount of risk related to the derivative transactions, the amount of the potential credit risk amounts and positive renewal costs are taken. In calculating the potential credit risk, the contract sum is multiplied with the ratios that are stated in the capital adequacy regulation. The renewal costs of the derivative transactions are obtained through valuation according to the fair value of the relevant contracts.
The Parent Bank determines the maximum risk amount that can be occurred on a counterparty basis through the limits of the counterparty in order to prevent concentration. d.2. Counterparty Credit Risk Approach Analysis
Alpha used for computing Potential regulatory Exposure Replacement future exposure at at default Current Period cost exposure EEPE default after CRM RWA 1 Standardised Approach (for derivatives) 771,456 170,726 - 1.4 453,430 251,090 2 Internal Model Method (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------3 Simple Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------4 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------5 VaR for for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit - - - - 319 99 6 Total 771,456 170,726 - - 453,749 251,189
ŞEKERBANK ANNUAL REPORT 2018
395 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Alpha used for computing Potential regulatory Exposure Replacement future exposure at at default Prior Period cost exposure EEPE default after CRM RWA 1 Standardised Approach (for derivatives) 96,517 103,434 - 1.4 218,913 113,720 2 Internal Model Method (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------3 Simple Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------4 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) ------5 VaR for for derivatives, Repo Transactions, Marketable Securities or EMTIA lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit - - - - 2,465 180 6 Total 96,517 103,434 - - 221,378 113,900 d.3. Credit Valuation Adjustment Capital Charge
Current Period Prior Period Exposure at Exposure at default after CRM RWA default after CRM RWA Total portfolios subject to the Advanced CVA capital charge 1 (i) Value at Risk (VaR) component (including the 3×multiplier) - - - - 2 (ii) Stressed VaR component (including the 3×multiplier) - - - - 3 All portfolios subject to the Standardised CVA capital charge 886,497 70,920 602,788 48,223 4 Total subject to the CVA capital charge 886,497 70,920 602,788 48,223
ŞEKERBANK ANNUAL REPORT 2018
396 ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
d.4. Standardised Approach – CCR Exposures by Regulatory Portfolio and Risk Weights
Total credit Current Period 0% 10% 20% %50 75% 100% 150% Others exposure* Risk weight/Risk Classes
Exposures to sovereigns and their central banks - - - 5,954 - - - - 2,977 FINANCIAL INFORMATION ŞEKERBANK ANNUAL REPORT 2018 Exposures to regional and local govermnents ------Exposures to administrative bodies and non-commercial entities - - - - - 1 - - 1 Exposures to multilateral development banks ------Claims from international organizations ------397 Claims from institutions - - 5,199 389,089 - - - - 195,584 Corporates - - - - - 49,954 - - 49,954 Retail portfolios - - - - 3,564 - - - 2,673 Claims on landed real estate ------Past due loans ------Claims which are determined as high risk by the board of BRSA ------Mortgage securities ------Securitization positions ------Claims from corporates, banks and financial intermediaries which have short term credit rating ------Investments which are qualified as collective investment institutions ------Stock investment ------Other claims ------Other assets (**) ------Total - - 5,199 395,043 3,564 49,955 - - 251,189
(*)Total credit exposure: the amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. (**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk. ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Total credit Prior Period 0% 10% 20% %50 75% 100% 150% Others Exposure(*) Risk weight/Risk Classes Exposures to sovereigns and their central banks 1,860 - - 226 - - - - 113 Exposures to regional and local govermnents ------
Exposures to administrative bodies and non-commercial entities - - - - - 4 - - 4 FINANCIAL INFORMATION ŞEKERBANK ANNUAL REPORT 2018 Exposures to multilateral development banks ------Claims from international organizations ------Claims from institutions - - 18,913 139,894 - - - - 73,730
398 Corporates 22 - - - - 38,322 - - 38,322 Retail portfolios - - - - 2,308 - - - 1,731 Claims on landed real estate ------Past due loans ------Claims which are determined as high risk by the board of BRSA ------Mortgage securities ------Securitization positions ------Claims from corporates, banks and financial intermediaries which have short term credit rating ------Investments which are qualified as collective investment institutions ------Stock investment ------Other claims ------Other assets (**) ------Total 1,882 - 18,913 140,120 2,308 38,326 - - 113,900
(*)Total credit exposure: the amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. (**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk. FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.5. Composition of Collateral for CCR Exposure
Collateral for other Collateral for derivative transactions transactions Fair value of collateral Fair value of collateral Fair Fair received given value of value of collateral collateral Current Period Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - 52 - 69,477 Cash-foreign currency 248,839 - 151,287 - - - Domestic sovereign debts - - - - - 834,542 Other sovereign debts - - - - - 252,757 Government agency debts ------Corporate debts ------Equity securities ------Other collateral - - - - - 140,501 Total 248,839 - 151,287 52 - 1,297,277
Collateral for other Collateral for derivative transactions transactions Fair value of collateral Fair value of collateral Fair Fair received given value of value of collateral collateral Prior Period Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - 45 48 67,563 Cash-foreign currency 23,139 - 125,769 - 2 - Domestic sovereign debts - - - - - 1,113,652 Other sovereign debts - - - - - 81,503 Government agency debts ------Corporate debts ------Equity securities - - - - - 5,000 Other collateral - - - - - 109,002 Total 23,139 - 125,769 - - 1,376,721 d.6. Credit Derivatives: None.
ŞEKERBANK ANNUAL REPORT 2018
399 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.7. Exposures to Central Counterparties (CCP)
Exposure at default Current Period (post-CRM) RWA 1 Exposure to Qualified Central Counterparties (QCCPs) (total) - - 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of Which - - 3 (i) OTC Derivatives - - 4 (ii) Exchange-traded Derivatives - - 5 (iii) Securities financing transactions 319 99 6 (iv) Netting sets where cross-product netting has been approved - - 7 Segregated initial margin - - 8 Non-segregated initial margin - - 9 Pre-funded default fund contributions - - 10 Unfunded default fund contributions - - 11 Exposures to non-QCCPs (total) - - 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which ) - - 13 (i) OTC Derivatives - - 14 (ii) Exchange-traded Derivatives - - 15 (iii) Securities financing transactions - - 16 (iv) Netting sets where cross-product netting has been approved - - 17 Segregated initial margin - - 18 Non-segregated initial margin - - 19 Pre-funded default fund contributions - - 20 Unfunded default fund contributions - -
Exposure at default Prior Period (post-CRM) RWA 1 Exposure to Qualified Central Counterparties (QCCPs) (total) - - 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of Which - - 3 (i) OTC Derivatives - - 4 (ii) Exchange-traded Derivatives - - 5 (iii) Securities financing transactions 2,465 180 6 (iv) Netting sets where cross-product netting has been approved - - 7 Segregated initial margin - - 8 Non-segregated initial margin - - 9 Pre-funded default fund contributions - - 10 Unfunded default fund contributions - - 11 Exposures to non-QCCPs (total) - - 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which ) - - 13 (i) OTC Derivatives - - 14 (ii) Exchange-traded Derivatives - - 15 (iii) Securities financing transactions - - 16 (iv) Netting sets where cross-product netting has been approved - - 17 Segregated initial margin - - 18 Non-segregated initial margin - - 19 Pre-funded default fund contributions - - 20 Unfunded default fund contributions - -
ŞEKERBANK ANNUAL REPORT 2018
400 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e.Explanations Related to Securitization: None. f. Explanations Related to Consolidated Market Risk f.1. Qualitative Disclosure Requirements Related to Market Risk
Market risk is the risk that the Group may be exposed to due to changes in the value of the positions related to the financial instruments monitored in the trading accounts, depending on the volatility in market prices Banking accounts are interest-sensitive on-balance sheet and off-balance sheet accounts and positions except for the Bank’s trading accounts and the subordinated debts which are considered in the equity calculation in accordance with the BRSA’s “Regulation on the Equity of Banks”.
Interest rate risk, exchange rate risk, equity risk, option risk and commodity risk are calculated using the standard method in calculation of market risk based on the risk arising from trading accounts. The processes related to the calculations are audited by the internal audit system and reported to the Group’s top management. In addition, market risk is measured, monitored and reported on a daily basis within the Group and “risk-exposed value (REV) methods” are applied using the internal model. The “historical simulation” method is used in the reporting of “variance Covariance method”, also called Parametric method, among REV methods. To calculate the REV amount, an observation range covering the last 252 working days and a level of confidence of 99% are taken into account. In the calculation of “economic capital” through REV, a 10-day holding period is applied in accordance with the legislation.
The principal goal of the Asset / Liability Management is to mitigate the impacts of the interest rate risks arising in the banking accounts. The market risks are reviewed during the Asset / Liability Committee meetings, using the results of the analyses on duration, gap, economic value and sensitivity. Negative impacts that may be caused by the volatility of the market interest rates on both financial position and cash flow are monitored through analyses and the risk levels are reduced to minimum.
Market risk policies, monitoring and assessment processes are stated in details in the Parent Bank’s releated internal regulations, approved by the Parent Banks Board of Directors.
Risk Management policies and application methods covering the asset-liability management process and relevant to market risk are approved by the Parent Bank Board of Directors. The assignments, authorizations and responsibilities to effectively perform the functions such as measurement, monitoring, controlling, auditing and managing of the market risk are described in the regulations of the relevant committees and departments.
Within this framework the Group Management established the information system structure and provides the resources that will ensure development of the technical and academic knowledge of human resources. Asset/Liability Committee of the Parent Bank supervises the conformity with the policies and implementation methods on behalf of the Parent Bank’s Board of Directors and shapes the protection and tactic strategies within this scope. The departments within the internal systems perform the functions such as measurements, monitoring, analyses and auditing.
ŞEKERBANK ANNUAL REPORT 2018
401 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f.2. Market risk under standardised approach
Current Period Prior Period RWA RWA Outright products 33,069 65,948 1 Interest rate risk (general and specific) 13,590 49,115 2 Equity risk (general and specific) - 411 3 Foreign exchange risk 19,479 16,422 4 Commodity risk - - Options 3,572 7,407 5 Simplified approach - - 6 Delta-plus method 3,572 7,407 7 Scenario approach - - 8 Securitisation - - 9 Total 36,641 73,355 g. Explanations Related to Consolidated Operational Risk a) The amount subject to Operational Risk is calculated using Basic Indicator Approach annually, in line with the articles 23 and 24 of the Regulation on Measurement and Assessment of Capital Adequacy of Banks. The amount for the current period is TRL 2,546,198 Thousand (31 December 2017 - TRL 2,430,495 Thousand).
Annual gross income is calculated as the sum of the net amounts of interest income and non-interest income after deducting the profit / (loss) arising from the sale of financial assets at fair value through comprehensive ıncome and financial assets at amortised cost, the amounts of extraordinary income and compensation amount from insurance.
Total/ 2 Prior 1 Prior Current Positive Period Period Period GI Year Amount Amount Amount Numbers Ratio (%) Total Gross income (GI) 1,269,449 1,349,789 1,454,678 3 15 203,696 Amount subject to Operational Risk (Amount*12,5) 2,546,198 b) The Parent Bank does not use Standard Approach. h. Explanations Related to Consolidated Interest Rate Risk Related to Banking Book
In connection to the following factors, the Group may be exposed to interest rate risk arasing from banking accounts:
• Repricing risk arising from mismatches between the maturities of the Group’s assets, liabilities, interest-sensitive off-balance sheet items (fixed-interest items) and the repricing periods (variable interest rate), • The risk of the return curve resulting from the change in the slope and/or shape of the yield curve as a result of the change in market interest rates at different levels according to different maturity periods, • The core risk arising from the change in the interest rate applied to assets and liabilities with similar characteristics and interest-sensitive off-balance sheet items at different times and/or different amounts as a result of the change in the spreads, • The option risk arising from the fact that the Group’s assets and liabilities and interest-sensitive off-balance sheet items have different characteristics than the contractual maturities in cases such as closing credits before maturity (partially / completely), recall of syndicated loans, withdrawal or renewal of demand and time deposits.
ŞEKERBANK ANNUAL REPORT 2018
402 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The policy and application procedures related to interest rate risk arising from banking accounts are structured in accordance with the “Regulation On The Internal Systems of the Banks” and the “Regulation On The Measurement and Assessment of the Capital Adequacy of the Banks” and further been approved by the Parent Bank’s Board of Directors.
The Parent Bank’s Board of Directors has accepted risk limits related to equity related to the risk of structural interest rate risk arising from banking accounts other than trading accounts, and has determined the rate of the mismatch level to be occured within specific matuirty buckets, which can be tolerated by the Net Worth. The compliance of these limits is monitored on a weekly basis, reviewed at least once a year and updated if deemed necessary, depending on the changes in the economic conditions and the Parent Bank’s strategy.
In order to measure and monitor the effect of the interest-rate risk on both income and equity, the Parent Bank uses two methods which include “income approach” and “economic value approach”. “Income approach” is used to calculate the effect of volatility of market interest rates on the Parent Bank’s Net Interest Revenue while the “Economic Value Approach” is used to calculate the effect of volatility of market interest rates on the Economic Value of the Equity. In “Economic Value Approach”, the recent value of all future cash flows is taken into consideration it provides a comprehensive perspective and is based on the Parent Bank’s Assets & Liability Management. Stress tests and scenario analyses are also used for the measurement and monitoring of the changes in the present value of the items sensitive to interest on the balance sheet and off-balance sheet, depending on the movements in market interest rates.
Calculation of the interest rate risk derived from banking books is presented below:
Shocks Applied Gains/Equity – Current Period Type of Currency (+/- basis points) Gains/Losses Losses/Equity 1 TRL +500 (337,368) (9.71)% -400 310,991 8.95% 2 EURO +200 (19,756) (0.57)% -200 21,485 0.62% 3 USD +200 (39,539) (1.14)% -200 43,642 1.26% Total (of negative shocks) 376,118 10.83% Total (of positive shocks) (396,663) (11.42)%
Shocks Applied Gains/Equity – Prior Period Type of Currency (+/- basis points) Gains/Losses Losses/Equity 1 TRL +500 (465,809) (14.82) % -400 430,697 13.71% 2 EURO +200 (21,360) (0.68) % -200 20,190 0.64% 3 USD +200 (26,906) (0.86) % -200 29,357 0.93% Total (of negative shocks) 480,244 15.28% Total (of positive shocks) (514,075) (16.36) %
ŞEKERBANK ANNUAL REPORT 2018
403 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION FIVE EXPLANATIONS AND DISCLOSURES ON THE FINANCIAL STATEMENTS
I. Explanations Related to the Consolidated Assets (Current Period)
1. Information related to cash equivalents and the account of the Central Bank of the Republic of Turkey (the “CBRT”): a) Information on Cash and Balances with the Central Bank of Turkey:
Current Period TRL FC Cash in TRL/Foreign Currency 133,420 392,847 Balances with the Central Bank of Turkey 796,773 2,296,190 Other - 7 Total 930,193 2,689,044 b) Information related to the account of the Central Bank of Turkey:
Current Period TRL FC Unrestricted demand deposit 796,773 1,978,035 Unrestricted time deposit - 2 Restricted time deposit - 318,153 Total 796,773 2,296,190
• The reserve deposits include TRL 1,034,773 Thousand of FC unrestricted demand deposit and TRL 793,416 Thousand of the TRL unrestricted demand deposit. TRL unrestricted demand deposit includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average. • CBRT amounts include the funds of Şekerbank (Kıbrıs) Ltd. held with the Central Bank of Turkish Republic of Northern Cyprus. The Central Bank of Turkish Republic of Northern Cyprus amount is TRL 41,932 Thousand and it includes TRL 17,047 Thousand reserve deposit amount. • In accordance with the principles of the Communiqué numbered 2013/15 of The Central Bank of Turkey on “Required Reserves” the required reserve ratios to be held in the Central Bank of Turkey vary according to the currency denomination and term of the liabilities subject to the reserve requirements. Thus, the reserve requirement rate range between 1.5% - 8% is applied for TRY deposits, participation funds and other liabilities and 4% - 20% - for FX deposits, participation funds and other liabilities.
2. Information on financial assets at fair value through profit and loss (net): i. Information on financial assets at fair value through profit and loss given ascollateral or blocked: None. ii. Financial assets at fair value through profit and loss subject to repurchase agreements:
Net book value of unrestricted financial assets at fair value through profit and loss is TRL 85,589 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
404 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) iii. Positive differences related to derivative financial assets held-for-trading:
Derivative financial assets held for trading are classified in the financial statements as Fair Value of Derivative financial assets through profit and loss.
Current Period Derivatives Held for Trading TRL FC Forward Transactions - 53,261 Swap Transactions 160,213 152,620 Futures Transactions - - Options 106 10,153 Other - - Total 160,319 216,034 iv) Loans at fair value through profit and loss
Current Period Opening Balance 266,683 Additions (+) 16,239 Change in Interest Rates (*) (15,056) Change in Credit Risk (**) (3,369) Impairment Provision (152) Collections (-) (42,466) Net Balance 221,879
(*) Change in interest rates shows the effect of TRLIBOR (basic interest rate) difference on loans at fair value through profit and loss between two periods. (**) Change in credit risk shows the effect of the difference of basic interest rates and similar loans interest rates on loans at fair value through profit and loss.
As of 31 December 2018, TRL 221,879 Thousand of loans which are classified as Financial Assets at Fair Value Through Profit and Loss have amortised cost of TRL 235,302 Thousand.
3. Information on banks: a. Information on banks account:
Current Period TRL FC Banks 34,699 171,320 Domestic 34,676 64,767 Foreign 23 106,553 Branches and head office abroad - - Total 34,699 171,320
ŞEKERBANK ANNUAL REPORT 2018
405 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Information on foreign bank accounts:
Current Period Unrestricted Amount Restricted Amount European Union Countries 56,213 - USA and Canada 36,736 2,518 OECD Countries (*) 9,276 - Off-shore banking regions - - Other 1,833 - Total 104,058 2,518
(*) OECD countries other than European Union countries, USA and Canada.
4. Information on Financial Assets at Fair Value Through Other Comprehensive Income: a.1. Information on financial assets at fair value through other comprehensive income given as collateral or blocked:
Current Period TRL FC Share certificates - - Bonds, Treasury bills and similar investment securities 171,631 - Other - - Total 171,631 - a.2. Financial assets at fair value through other comprehensive income subject to repurchase agreements: None.
Net book value of unrestricted financial assets at fair value through other comprehensive income is TRL 406,051 Thousand. b. Information on financial assets at fair value through other comprehensive income portfolio:
Current Period Debt securities 563,641 Quoted on a stock exchange 563,481 Not quoted on a stock exchange 160 Share certificates 24,700 Quoted on a stock exchange - Not quoted on a stock exchange 24,700 Impairment provision(-) (10,659) Total 577,682
ŞEKERBANK ANNUAL REPORT 2018
406 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
5. Information on loans: a. Information on all types of loans and advances given to shareholders and employees of the Group:
Current Period Cash Loans Non-Cash Loans Direct loans granted to shareholders 447 11 Corporate shareholders - - Individual shareholders 447 11 Indirect loans granted to shareholders 898,986 18,697 Loans granted to employees 21,760 46 Total 921,193 18,754 b. Information on standart loans and restructured loans under close monitoring: (*)
Loans under close monitoring Restructured Out of the scope Amendment of Cash loans Standard loans of Restructuring Contract Conditions Refinanced Non-specialized loans 16,787,811 2,044,474 502,254 706,138 Corporation loans 94,935 - 12,967 16,009 Export loans 4,780,916 286,831 - 16,905 Import loans 10,101 664 - 841 Loans given to financial sector 77,391 398 - - Consumer loans 822,869 54,534 4,213 7,389 Credit cards 246,473 12,210 - - Other 10,755,126 1,689,837 485,074 664,994 Specialized loans 1,887,459 243,271 - 47,018 Other receivables 5,344 16,375 - - Total 18,680,614 2,304,120 502,254 753,156
(*) The Group has classified Loans and Receivables amount to TRL 221,879 Thousand, under financial assets at fair value through profit and loss in the current period. TRL 13,997 Thousand non-performing loans have been classified under “Loans at fair value through profit and loss”and the Stage 3 expected credit loss provision in the amount of TRL 3,638 Thousand have been made.
Current Period Standard loans Loans under close monitoring 12 Months Expected Loss Provision 112,960 - Significant Increase in Credit Risk - 529,518
ŞEKERBANK ANNUAL REPORT 2018
407 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Information related with loans that payment plan has been extended:
Current Period Number of Amendments in Contract Related to the Extension of the Loans under Payment Plan Standard loans close monitoring Extended for 1 or 2 times 668,453 201,755 Extended for 3,4 or 5 times 209,896 - Extended for more than 5 times 21,224 329
Current Period Loans under The Time extended via the Amendment on Payment Plan Standard loans close monitoring 0-6 Months 328,026 28,461 6 Months- 12 Months 40,427 7,273 1-2 Years 371,904 1,475 2-5 Years 46 161,098 5 Years and More 159,170 3,777 c. Loans and other receivables according to their maturity structure:
Loans Under Close Monitoring Out of the Scope Standard Loans of Restructuring Restructured Short-term loans and other receivables 6,773,848 359,325 128,333 Medium and Long-term loans 11,906,766 1,944,795 1,127,077 Total 18,680,614 2,304,120 1,255,410
ŞEKERBANK ANNUAL REPORT 2018
408 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Information on consumer loans, individual credit cards, personnel loans and credit cards given to personnel:
Short Term Medium and Long Term Total Consumer Loans-TRL 17,154 733,031 750,185 Housing Loans 16 252,948 252,964 Car Loans 460 9,471 9,931 General Purpose Loans 16,676 444,766 461,442 Other 2 25,846 25,848 Consumer Loans –Indexed to FC - 241 241 Housing Loans - 241 241 Car Loans - - - General Purpose Loans - - - Other - - - Consumer Loans-FC - 29,748 29,748 Housing Loans - 23,666 23,666 Car Loans - 1,293 1,293 General Purpose Loans - 4,789 4,789 Other - - - Individual Credit Cards-TRL 161,863 - 161,863 With Installments 44,250 - 44,250 Without Installments 117,613 - 117,613 Individual Credit Cards-FC 251 - 251 With Installments - - - Without Installments 251 - 251 Personnel Loans-TRL 359 7,753 8,112 Housing Loans - 48 48 Car Loans - 18 18 General Purpose Loans 359 6,501 6,860 Other - 1,186 1,186 Personnel Loans- Indexed to FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Loans-FC - 1,897 1,897 Housing Loans - 1,533 1,533 Car Loans - - - General Purpose Loans - 364 364 Other - - - Personnel Credit Cards-TRL 7,081 - 7,081 With Installments 1,894 - 1,894 Without Installments 5,187 - 5,187 Personnel Credit Cards-FC 14 - 14 With Installments - - - Without Installments 14 - 14 Overdraft Accounts-TRL(Real Person) (*) 95,299 3,523 98,822 Overdraft Accounts-FC (Real Person) - - - Total 282,021 776,193 1,058,214
(*) As of 31 December 2018, overdraft accounts for real persons include TRL 5,103 Thousand personnel overdraft account.
ŞEKERBANK ANNUAL REPORT 2018
409 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Information on commercial loans with installments and corporate credit cards:
Short Term Medium and Long Term Total Commercial loans with installment facility-TRL 307,673 4,537,954 4,845,627 Business Loans - 11,974 11,974 Car Loans 1,710 38,417 40,127 General Purpose Loans 291,473 4,487,563 4,779,036 Other 14,490 - 14,490 Commercial loans with installment facility - Indexed to FC 344 1,108,570 1,108,914 Business Loans - 2,781 2,781 Car Loans - 39,220 39,220 General Purpose Loans 344 1,066,569 1,066,913 Other - - - Commercial loans with installment facility –FC 47,630 1,077,854 1,125,484 Business Loans - - - Car Loans - 706 706 General Purpose Loans 5,363 1,077,148 1,082,511 Other 42,267 - 42,267 Corporate Credit Cards-TRL 89,470 - 89,470 With Installments 18,928 - 18,928 Without Installments 70,542 - 70,542 Corporate Credit Cards-FC 4 - 4 With Installments - - - Without Installments 4 - 4 Overdraft Accounts-TRL (Legal Entity) 136,864 - 136,864 Overdraft Accounts-FC (Legal Entity) - - - Total 581,985 6,724,378 7,306,363 f. Loans according to borrowers:
Current Period Public 56,303 Private 22,183,841 Total 22,240,144 g. Domestic and foreign loans:
Current Period Domestic loans 22,186,916 Foreign loans 53,228 Total 22,240,144 h. Loans granted to subsidiaries and associates: None.
ŞEKERBANK ANNUAL REPORT 2018
410 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) i. Impaired Loans (Stage 3) provisions provided against loans:
Current Period(*) Loans with limited collectability 40,689 Loans with doubtful collectability 125,649 Uncollectible loans 820,144 Total 986,482
(*)TRL 3,638 Thousand Stage 3 expected credit loss provision has been made for the loans classified as “Loans at fair value through profit and loss”. j. Information on non-performing loans (Net): j.1. Information on non-performing loans and restructured loans:
III. Group: IV. Group: V. Group Loans with limited Loans with doubtful collectability collectability Uncollectable loans Current period Gross amounts before Provisions(*) 99,764 230,961 1,014,952 Loans which are restructured 6,189 27,250 22,699
(*) TRL 13,997 Thousand non-performing loans have been classified under “Loans at fair value through profit and loss” j.2. The movement of non-performing loans:
III. Group IV. Group V. Group Loans with limited Loans with doubtful collectability collectability Uncollectable loans Prior period end balance 118,174 195,752 850,682 Additions (+) 489,642 285,295 248,929 Transfers from other categories of non-performing loans (+) - 215,068 255,033 Transfers to other categories of non-performing loans (-) (215,172) (254,929) - Collections (-) (292,880) (209,837) (237,523) Write-off (-) - (52) - Sold (-) - (336) (102,169) Corporate and commercial loans - (336) (96,139) Retail loans - - (5,567) Credit cards - - (463) Current period end balance (*) 99,764 230,961 1,014,952 Provision (-) (*) 40,689 125,649 820,144 Net Balances on Balance Sheet 59,075 105,312 194,808
(*) TRL 13,997 Thousand non-performing loans have been classified under “Loans at fair value through profit and loss”and the Stage 3 expected credit loss in the amount of TRL 3,638 Thousand have been made.
ŞEKERBANK ANNUAL REPORT 2018
411 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) j.3. Informations on non-performing loans and other receivables in foreign currency: In the current period the Group has TRL 9,219 Thousand non-performing foreign currency loans and specific provision for these loans amounting to TRL 9,219 Thousand. j.4. Information regarding gross and net amounts of non-performing loans with respect to user groups:
III. Group IV. Group V. Group Loans with limited Loans with doubtful collectability collectability Uncollectable loans Current Period (Net) (*) Loans to Real Persons and Legal Entities (Gross) 99,764 230,961 1,014,952 Provision (-) (40,689) (125,649) (820,144) Loans to Real Persons and Legal Entities (Net) 59,075 105,312 194,808 Banks (Gross) - - - Provision (-) - - - Banks (Net) - - - Other Loans (Gross) - - - Provision (-) - - - Other Loans (Net) - - -
(*) TRL 13,997 Thousand non-performing loans have been classified under “Loans at fair value through profit and loss”and the credit loss provision in the amount of TRL 3,638 Thousand have been made. j.5. Information on interest accruals for non-performing loans, rediscounts and valuation differences and their provisions regarding the banks that allocate expected loan loss provisions according to TFRS 9:
III. Grup IV. Grup V. Grup Loans with limited Loans with doubtful collectability collectability Uncollectable loans Current Period (Net) Interest accruals, rediscounts and valuation differences 6,812 15,415 2,449 Provisions (-) 6,812 15,415 2,449 k. Main principles of uncollectable loans and receivables:
The Parent Bank Management applies provision policy for the “non-performing loans” in accordance with the requirements of the Turkish banking regulation adopted by the BRSA. l. Explanations on write-off policy:
The Parent Bank sold uncollectable non-performing loans amounting to TRL 92,492 Thousand for total cash amount of TRL 2,150 Thousand to Birleşim Varlık Yönetim A.Ş.
As of 28 November 2018, Şeker Faktoring A.Ş sold its receivables amounting to TRL 10,013 Thousand through its revenue share agreement for total cash amount of TRL 64 Thousand to Sümer Varlık Yönetim A.Ş.
ŞEKERBANK ANNUAL REPORT 2018
412 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
On 26 September 2018, Şeker Faktoring A.Ş. liquidated TRL 52 Thousand from its non-performing receivables in accordance with the decision of the Board of Directors. m. Loans at fair value through profit and loss:
Current Period Opening Balance 266,683 Additions (+) 16,239 Change in Interest Rates (*) (15,056) Change in Credit Risk (**) (3,369) Impairment Provision (152) Collections (-) (42,466) Net Balance 221,879
(*) Change in interest rates shows the effect of TRLIBOR (basic interest rate) difference on loans at fair value through profit and loss between two periods. (**) Change in credit risk shows the effect of the difference of basic interest rates and similar loans interest rates on loans at fair value through profit and loss.
As of 31 December 2018, the value of the loans amounting to TRL 221,879 Thousand and classified as Financial assets at Fair Value Throught Profit and Loss discounted using the effective interest rate method is TRL 235,302 Thousand. n. Other explanations and disclosures
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate Small Business Consumer Total Current Period (*) At 1 January 2018 209,360 574,617 51,031 835,008 Charge for the year 68,972 297,019 23,047 389,038 Recoveries(**) (70,674) (52,689) (11,644) (135,007) Amounts written off (15,102) (81,425) (6,030) (102,557) At 31 December 2018 192,556 737,522 56,404 986,482
(*)TRL 3,638 Thousand Stage 3 expected credit loss provision has been made for the loans classified as “Loans at fair value through profit and loss”. (**) Includes provision reversals of non-performing loans classified in the related period.
Collaterals of nonperforming loans:
Current Period III. Group IV. Group V. Group Mortgages 40,045 113,262 429,223 Asset Pledges - 145 1,811 Cheques and Notes of Consumers 558 141 135 Pledged Vehicles 17,335 6,277 30,130 Allowance Alienation - 2 13,461 Deposit Pledge 139 43 106
ŞEKERBANK ANNUAL REPORT 2018
413 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Aging analysis of past due but not impaired loans per classes of financial statements:
Less than 30 days 31-60 days 61-90 days Total Current Period Loans and advances to customers Corporate loans 61,151 43,985 130,829 235,965 Small business loans 377,382 235,419 489,470 1,102,271 Consumer loans 82,259 36,994 67,042 186,295 Total 520,792 316,398 687,341 1,524,531
6. Information on Financial Assets at Amortised Cost: a.1. Information on investments at amortised cost given as collateral or blocked:
Current Period Treasury Bill - Bond and Similar Securities 957,904 Other - Total 957,904 a.2. Financial assets at amortised cost subject to repurchase agreements are TRL 131,270 Thousand. b. Information on public sector debt investments at amortised cost:
Current Period Government Bonds 2,447,744 Treasury Bills 293,076 Other Public Sector Debt Securities - Total 2,740,820
Net book value of unrestricted financial assets at amortised cost is TRL 2,339,548 Thousand. c. Information on financial assets at amortised costs:
Current Period Debt Securities 3,435,585 Quoted on a stock exchange 2,749,702 Not quoted on a stock exchange 685,883 Impairment Provision (-) (6,863) Total 3,428,722
ŞEKERBANK ANNUAL REPORT 2018
414 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Movement of financial assets at amortised costs:
Current Period Beginning Balance 1,355,739 TFRS 9 Impact (*) 1,136,612 Foreign Exchange Differences in Monetary Assets 215,449 Purchases during the year 367,015 Disposals through Sales and Amortisation (3,686) Provision reversal / Impairment provision (-) (3,552) Revaluation Effect 361,145 Total 3,428,722
(*)Securities amounting to TRL 148,051 Thousand as of 01.01.2018 are transferred from the financial assets at amortized cost portfolio to financial assets at fair value through other comprehensive income portfolio. Securities amounting to TRL 1,160,427 Thousand are transferred from the financial assets at fair value through other comprehensive income portfolio to the financial assets at amortized cost portfolio.
7. Information on unconsolidated associates (Net): a) Information on associates:
Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated since the Bank does not have control power and it is not a financial entity.
Address Bank’s Share Percentage-If Bank’s Risk Group Share Description (City/ Country) Different Voting Percentage (%) Percentage (%) Seltur Turistik İşletmeler Yatırım A.Ş.(*) Muğla/Turkey 11.32 11.43
(*) Unaudited financial information of the associate as of 31 December 2018 is stated below.
Total Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Fair Asset Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value 43,903 35,154 36,791 214 - 2,657 (39,341) 296,942 b) Information on consolidated associates: None. c) Information on associates: There is no consolidated associate. d) Measurement of associates: Measured with cost amounts. e) Sectoral information and the related carrying amounts on consolidated associates: None.
ŞEKERBANK ANNUAL REPORT 2018
415 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f) Associates quoted to stock exchange: None. g) Information on associates which are sold in the current period: None. h) Information on associates purchased in the current period: None.
8. Information on subsidiaries (Net): a. Information related to consolidated equity components of subsidiaries (*):
The Parent Bank does not have any capital requirements arising from subsidiaries that are included in the consolidated capital adequacy standard ratio. The capital information of the significant subsidiaries is presented in the following table.
Şeker Şekerbank Şeker Yatırım Şeker Şeker Zahlungsdienste Şekerbank Finansal International Menkul Faktoring Finansman GmbH Der Kıbrıs Ltd. Kiralama A.Ş. Banking Unit Ltd. Değerler A.Ş. A.Ş. A.Ş. Şekerbank T.A.Ş. CORE CAPITAL Paid in Capital 28,554 66,808 26,405 31,195 81,041 26,000 1,511 Share Premiums - 1,208 - - - - - Other Comprehensive Income/Expense Items not to be Reclassified to Profit or Loss - - 4,601 (575) - - (306) Legal Reserves 1,910 7,608 4,793 2,308 2,021 614 - Extraordinary Reserves 1 5,939 - 4,991 4,913 (13,712) - Other Comprehensive Income/Expense Items to be Reclassified to Profit or Loss - 12,730 - (205) 7,891 (41) - Other capital reserves - (4,344) - - 12,901 - - Other Income Reserves ------Profit/Loss (2,427) (25,403) (24) (1,719) (31,663) (3,496) (228) Prior Years’ Profits and Losses (2,385) (25,285) (983) (905) (33,973) (1,773) (165) Current Year’s Profit ans Losses (42) (118) 959 (814) 2,310 (1,723) (63) Total Core Capital 28,038 64,546 35,775 35,995 77,104 9,365 977 SUPPLEMENTARY CAPITAL ------CAPITAL 28,038 64,546 35,775 35,995 77,104 9,365 977 NET AVAILABLE EQUITY 28,038 64,546 35,775 35,995 77,104 9,365 977
(*)Financial information is audited as of 31 December 2018. b. Information on the unconsolidated subsidiaries:
Address The Parent Bank’s Share Percentage- The Parent Bank’s Risk Description (City/ Country) If Different Voting Percentage (%) Group Share Percentage (%) Sekar Oto Filo Yönetim Hizmetleri ve Ticaret A.Ş. Istanbul/Turkey - 100 Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş.(*) Istanbul/Turkey 100 100
(*)Latest unaudited financial information of the related subsidiaries as of 31 December 2018 is presented..
ŞEKERBANK ANNUAL REPORT 2018
416 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Income from Amount Total Shareholders’ Tangible Interest Marketable Current Period Prior Period Fair of Equity Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value Needed 90,566 8,730 57,708 47 - (182) 1,220 74,871 - 589,665 589,337 584,673 191 - (14,151) 21 - -
Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. has not been included for the consolidataion as it is not a financial subsidiary and it is accounted with the cost method. c. Information on the consolidated subsidiaries:
Address Bank’s Share Percentage-If Bank’s Risk Group Description (City/ Country) Different Voting Percentage (%) Share Percentage (%) Şekerbank Kıbrıs Ltd. Nicosia/TRNC 97.93 97.93 Şeker Finansal Kiralama A.Ş. Istanbul/ Turkey 54.13 64.95 Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.79 95.79 Şeker Yatırım Menkul Değerler A.Ş. Istanbul/ Turkey 99.04 100.00 Şeker Faktoring A.Ş. Istanbul/ Turkey 99.99 100.00 Şeker Finansman A.Ş. Istanbul/ Turkey 62.31 62.31 Zahlungsdienste GmbH Der Şekerbank Cologne/ T.A.Ş. Germany 100.00 100.00
“Zahlungsdienste GMBH Der Şekerbank T.A.Ş.” (Zahlungsdienste)’s payment services activities as a financial services branch in order to comply with the Payment Services Supervision Act (ZAG) have been stopped and liquidation procedures are in progress. d. Information on the consolidated subsidiaries with the order as presented in the table above:
Income from Total Shareholders’ Tangible Interest Marketable Current Period Prior Period Fair Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value (*) 303,799 28,038 5,706 29,604 451 (42) (2,385) 13,555 532,431 64,546 28,077 58,724 - (118) (25,285) 53,054 46,186 35,775 3,456 2,382 - 959 (983) 19,554 241,002 35,995 20,864 23,478 2,088 (814) (905) 37,708 504,714 77,104 29,809 90,747 - 2,310 (33,973) 81,436 934,612 9,365 311 42,160 - (1,723) (1,773) 32,245 1,705 977 - - - (63) (165) -
(*)Fair values of the related subsidiaries are stated as of 31 December 2018.
ŞEKERBANK ANNUAL REPORT 2018
417 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e. Movement of consolidated subsidiaries:
Current Period Balance at the beginning of the period 172,831 Movement during the period 15,993 Purchases 16,474 Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - Provision reversal / Provision of Impairment (-) (481) Balance at the end of the period 188,824 Capital Commitment - Share percentage at the end of the period (%) 100 f. Measurement of consolidated subsidiaries:
Current Period Measured with cost 188,824 Measured with fair value - Measured with equity method - g. Sectoral information and the related carrying amounts on consolidated subsidiaries:
Subsidiaries Current Period Banks 20,077 Insurance Companies - Factoring Companies 81,427 Leasing Companies 37,324 Finance Companies 16,658 Other Financial Subsidiaries 33,338 h. Subsidiaries Quoted to Stock Exchange:
Current Period Quoted to Domestic Stock Exchange 37,324 Quoted to Foreign Stock Exchange -
ı. Information on Subsidiaries which are sold in the Current Period: None. i. Information on Subsidiaries Purchased in the Current Period: None.
9. Information on entities under common control: None.
ŞEKERBANK ANNUAL REPORT 2018
418 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
10. Information on finance lease receivables (Net):
Current Period Gross Leasing Investment 559,326 Unearned Financial Profit from Leasing (-) (112,473) Cancelled Leasing Amounts (-) - Net Leasing Investment 446,853 a) Other Explanation and Disclosures:
Current Period Corporate SME Consumer Other Total
Neither past due nor impaired 323,796 102,553 - - 426,349 Past due not impaired - 11,460 - - 11,460 Individually impaired - 61,359 - - 61,359 Total 323,796 175,372 - - 499,168 - Less: allowance for individually impaired loans - 56,081 - - 56,081 - Net Finance Lease Receivables 323,796 119,291 - - 443,087
Reconciliation of the allowance for impairment losses and advances by classes is as follows:
Current Period Corporate SME Consumer Other Total At 1 January 2018 - 48,280 - - 48,280 Charge for the year - 8,397 - - 8,397 Recoveries - (596) - - (596) Amounts written off - - - - - At 31 December 2018 - 56,081 - - 56,081
Aging analysis of past due but not impaired loans per classes of financial statements:
Current Period Less than 30 days 31-60 days 61-90 days More than 91 days Total Financial Lease Receivables Corporate - - - - - SME 2,641 2,247 3,069 3,503 11,460 Consumer - - - - - Other - - - - - Total 2,641 2,247 3,069 3,503 11,460
ŞEKERBANK ANNUAL REPORT 2018
419 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. Information on derivative financial assets for hedging purposes:
Derivative financial assets for hedging purposes are classified in the financial statement Derivative Financial Assets at Fair Value Through Profit and Loss.
Current Period Derıvative Financial Assets For Hedging Purposes TRL FC Fair Value Hedge 6,866 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 6,866 -
12. Information on tangible assets:
Foreclosed Assets Other Fixed Assets Held Under Buildings (*) (*)(***)(****) Assets (**) Finance Leases Total Cost Opening Balance, 1 January 2018 340,960 2,246 312,944 4,176 660,326 Additions 335,744 - 62,712 - 398,456 Write off - - - - - Transfer (23,918) (96) 2,623 (2,466) (23,857) Disposals (-) - - (62,413) - (62,413) Revaluation 19,391 - - - 19,391 Foreign Exchange Difference 746 860 89 - 1,695 Impairment Provision/Reversal 4,431 - - - 4,431 Closing Balance, 31 December 2018 677,354 3,010 315,955 1,710 998,029 Accumulated Amortization Opening Balance, 1 January 2018 104,081 9 154,073 2,749 260,912 Write off - - - - - Transfer (686) (9) 1,603 (1,603) (695) Charge for the year 2,146 - 28,524 391 31,061 Revaluation - - - - - Foreign Exchange Difference 574 - 40 - 614 Impairment Provision/Reversal 5,209 - - - 5,209 Disposals (-) - - (10,904) - (10,904) Closing Balance, 31 December 2018 111,324 - 173,336 1,537 286,197 Net Book Value, 31 December 2018 566,030 3,010 142,619 173 711,832
Net Book Value, 31 December 2017 236,879 2,237 158,871 1,427 399,414
(*) As of 31 December 2018, value increase and impairment of the buildings and impairment of immovable held for sale are calculated according to the independent appraisal reports dated December 2018. (**) Cost of leasehold improvements are classified among other fixed assets in the current period. (***) TRL 23,075 Thousand in the transfer line for the buildings is classified as investment properties as of 31 December 2018.
ŞEKERBANK ANNUAL REPORT 2018
420 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a. If impairment amount on individual asset recorded or reversed in the current period is material for the overall financial statements:
a.1. Events and conditions for recording or reversing impairment: None.
a.2. Amount of recorded or reversed impairment in the financial statements:
Within the scope of revaluation for Group properties, TRL 18,612 Thousand value increase is reflected in the accompanying financial statements. b. The impairment provision set or cancelled in the current period according to the asset groups not individually significant but materially effecting the overall financial statements, and the reason and conditions for this: None. c. Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets: None.
13. Information on intangible assets:
Other Total Cost Opening Balance, January 1, 2018 247,283 247,283 Additions 41,610 41,610 Disposals 22 22 Write Off - - Closing Balance, 31 December 2018 288,915 288,915 Accumulated Amortization - - Opening Balance, 1 January 2018 158,980 158,980 Charge for the year 35,824 35,824 Disposals - - Write Off - - Closing Balance, 31 December 2018 194,804 194,804 Net Book Value, 31 December 2018 94,111 94,111
Net Book Value, 31 December 2017 88,303 88,303
The useful lives of the intangible fixed assets, which are amortized with straight-line amortization method, are averagely 5 years. a. Disclosures for book value, description and remaining depreciation time for a specific intangible fixed asset that is material to the financial statements: None. b. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. c. The method of subsequent measurement for intangible fixed assets that are acquired through government incentives and recorded at fair value at the initial recognition: None.
ŞEKERBANK ANNUAL REPORT 2018
421 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. The book value of intangible fixed assets that are pledged or restricted for use: None. e. Amount of purchase commitments for intangible fixed assets: None. f. Amount of total research and development expenses recorded in statement of income within the period if any: None. g. Information on goodwill: None. h. Movements on goodwill in the current period: None. i. Information on revalued intangible assets according to their types: None.
14. Information on investment property:
As of 31 December 2018, the Group has TRL 61,125 Thousand of investment property.
Investment Properties Cost Opening Balance, 1 January 2018 - Additions 12,292 Write off - Transfer 23,075 Disposals (-) - Revaluation value increase/(decrease)(*) 25,758 Impairment Provision/Reversal - Closing Balance, 31 December 2018 61,125
(***) TRL 23,075 Thousand in the transfer line for the buildings is classified as investment properties as of 31 December 2018.
15. Explanations on deferred tax asset: a. As of 31 December 2018, deferred tax asset computed on the financial losses is TRL 172,464 Thousand. Carried forward tax losses over which deferred tax asset computed is TRL 33,614 Thousand.
Current Period Tangible Assets Base Differences (15,261) Provisions (*) 237,215 Valuation of Financial Assets (94,296) Investment Incentive 6,784 Tax Deductions and Exceptions 4,408 Financial Losses 33,614 Net Deferred Tax Assets/(Liabilities) 172,464
(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions, employee termination benefit provisions, retirement fund provision, SDIF premium provision, expected credit loss provisions and other provisions. b. Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in prior periods: None.
ŞEKERBANK ANNUAL REPORT 2018
422 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c. Allowance for deferred tax and deferred tax assets from reversal of allowance: None. d. Movement of deferred tax asset/(liability):
Deferred tax assets and liabilities for the current and previous periods are as follows:
Current Period Deferred Tax (Net), Beginning of the Period 84,801 Current Period (Expense)/Income (683) Deferred Tax Classified under Equity (1,987) TFRS 9 Impact 90,333 Deferred Tax Asset (Liability), End of the Period 172,464
Şeker Finansal Kiralama A.Ş. recognized deferred tax asset amounting to TRL 6,784 Thousand as of 31 December 2018 financial statements assuming that it will take advantage of the unused investment incentive in the subsequent periods.
16. Information on assets held for sale and discontinued operations:
Current Period Cost Opening Balance, 1 January 2018 266,025 Additions 157,719 Write off - Transfer - Disposals (-) (100,420) Revaluation value increase/(decrease)(*) (2,599) Impairment Provision/Reversal 259 Closing Balance, 31 December 2018 320,984
(*)Impairment of immovables held for sale are calculated according to the independent appraisal reports dated December 2018and TRL 2,599 Thousand impairement has been provided.
17. Information on other assets:
Other assets do not exceed 10 % of the total balance sheet (excluding off balance sheet commitments).
18. Information on factoring receivables of the Group: a) Maturity Analysis:
Current Period TRL FC Short term 372,403 - Medium and Long Term 23,534 - Total 395,937 -
ŞEKERBANK ANNUAL REPORT 2018
423 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Other Explanations and Disclosures:
Current Period Corporate SME Consumer Other Total
Neither past due nor impaired 99,444 280,954 - - 380,398 Past due not impaired 1,020 14,519 - - 15,539 Individually impaired 1,544 46,432 - - 47,976 Total gross 102,008 341,905 - - 443,913
Less: allowance for individually impaired factoring receivables (1,540) (30,066) - - (31,606) - - Total net 100,468 311,839 - - 412,307
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate SME Consumer Other Total
At 1 January 2018 3,564 30,136 - - 33,700 Charge for the year 396 8,178 - - 8,574 Recoveries - (603) - - (603) Amounts written off (2,421) (7,644) - - (10,065) At 31 December 2018 1,539 30,067 - - 31,606
II. Explanations Related to the Consolidated Assets (Prior Period)
1. Information related to cash equivalents and the account of the Central Bank of the Republic of Turkey (the “CBRT”): a) Information on Cash and Balances with the Central Bank of Turkey:
Prior Period TRL FC Cash in TRL/Foreign Currency 117,361 77,542 Balances with the Central Bank of Turkey 863,357 2,049,371 Other - 5 Total 980,718 2,126,918
ŞEKERBANK ANNUAL REPORT 2018
424 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Information related to the account of the Central Bank of Turkey:
Prior Period TRL FC Unrestricted demand deposit 863,357 1,856,494 Unrestricted time deposit - 64 Restricted time deposit - 192,813 Total 863,357 2,049,371
• The reserve deposits include TRL 1,446,657 Thousand of FC unrestricted demand deposit and TRL 857,866 Thousand of the TRL unrestricted demand deposit. TRL unrestricted demand deposit includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average. The Central Bank of Turkish Republic started to apply interest on TRL and USD reserve deposits as of November 2014 and May 2015, respectivly. • CBRT amounts include the funds of Şekerbank (Kıbrıs) Ltd. held with the Central Bank of Turkish Republic of Northern Cyprus. The Central Bank of Turkish Republic of Northern Cyprus amount is TRL 47,650 Thousand and it includes TRL 17,212 Thousand reserve deposit amount.
Interest rates applied by the Central Bank of Turkish Republic of Northern Cyprus on reserve deposits are as follows:
- Deposits up to three month (including three month) 8%, - Deposits up to six month (including six month) 7%, - Deposits up to one year(including one year) 6%, -Deposits longer than one year 5%, -Other TRL liabilities except deposits (including one year) 8%.
• Starting from 09.09.2016, reserve deposit ratios for TRL deposits are regulated as follows:
- Unrestricted, TRL deposit call accounts and special current accounts 10.5%, - Deposits up to one month (including one month) 10.5%, - Deposits up to three month (including three month) 10.5%, - Deposits up to six month (including six month) 7.5%, - Deposits up to one year 5.5%, - Deposits/participation accounts with 1-year and longer maturity and cumulative deposits/participation accounts are 4%, - Other TRL liabilities up to one year (including one year) 10.5%, - Other liabilities up to 3-year maturity (including 3-year) 7%, - Other liabilities longer than 3-year maturity 4%.
• Starting from 30.12.2016, reserve deposit ratios for the FC deposits and precious metal deposits are as follows:
- Unrestricted FC deposit call accounts, special current accounts and precious metal deposit accounts and deposits up to one month, up to three month, up to six month, up to one year FC deposits, FC participate accounts and precious metal deposits are 12%, - FC Deposits, precious metal deposit and FC participate accounts and FC accumulated accounts and FC participate accounts longer than one year (including one year) are 8%.
Starting from 30.12.2016, reserve deposit ratios for FC other liabilities that will occur after 28.08.2015 are regulated as follows
- Other liabilities up to one year (including one year) 24 %, - Other liabilities up to two year (including two year) 19 %, - Other liabilities up to three year (including three year) 14%, - Other liabilities up to five year (including five year) 6 %, - Other liabilities longer than five year 4%.
Starting from 28.08.2015, reserve deposit ratios for FC other liabilities are as follows:
- Other liabilities up to one year (including one year) 19 %, - Other liabilities up to two year (including two year) 13 %, - Other liabilities up to three year (including three year) 7%, - Other liabilities up to five year (including five year) 6 %, - Other liabilities longer than five year 5 %.
ŞEKERBANK ANNUAL REPORT 2018
425 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information on financial assets at fair value through profit and loss (net): i) Information on financial assets at fair value through profit and loss given as collateral or blocked: None. ii) Financial assets at fair value through profit and loss subject to repurchase agreements: None.
Net book value of unrestricted financial assets at fair value through profit and loss is TRL 74,877 Thousand. iii) Positive differences related to derivative financial assets held-for-trading:
Prior Period Derivatives Held for Trading TRL FC Forward Transactions - 26,345 Swap Transactions 45,881 12,829 Futures Transactions - - Options 321 13,386 Other - - Total 46,202 52,560 iv) Loans at fair value through profit and loss
Prior Period Opening Balance 336,335 Additions (+) 3,188 Change in Interest Rates (*) (1,195) Change in Credit Risk (**) (6,449) Impairment Provision (1,089) Collections (-) (60,426) Net Balance 270,364
(*) Change in interest rates shows the effect of TRLIBOR (basic interest rate) difference on loans at fair value through profit and loss between two periods. (**) Change in credit risk shows the effect of the difference of basic interest rates and similar loans interest rates on loans at fair value through profit and loss.
As of 31 December 2017, TRL 270,364 Thousand of loans which are classified as Financial Assets at Fair Value Through Profit and Loss have amortised cost of TRL 265,339 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
426 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
3. Information on banks: a. Information on banks account
Prior Period TRL FC Banks 255,898 389,409 Domestic 255,873 318,661 Foreign 25 70,748 Branches and head office abroad - - Total 255,898 389,409 b. Information on foreign bank accounts:
Prior Period Unrestricted Amount Restricted Amount European Union Countries 17,960 - USA and Canada 33,922 1,806 OECD Countries (*) 6,193 58 Off-shore banking regions - - Other 10,834 - Total 68,909 1,864
(*) OECD countries other than European Union countries, USA and Canada.
4. Information on financial assets available-for-sale: a.1) Information on financial assets available-for-sale given as collateral or blocked:
Prior Period TRL FC Share certificates - - Bonds, Treasury bills and similar investment securities 827,468 - Other - - Total 827,468 -
ŞEKERBANK ANNUAL REPORT 2018
427 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.2) Financial assets available-for-sale subject to repurchase agreements:
Prior Period TRL FC Government bonds 418,380 - Treasury bills - - Other public sector debt securities - - Bank bonds and bank guaranteed bonds - - Asset backed securities - - Other - 57,955 Total 418,380 57,955
Net book value of unrestricted financial assets available-for-sale is TRL 91,999 Thousand. b) Information on financial assets available for sale portfolio:
Prior Period Debt securities 1,408,494 Quoted on a stock exchange 1,408,494 Not quoted on a stock exchange - Share certificates 19,004 Quoted on a stock exchange - Not quoted on a stock exchange 19,004 Impairment provision (-) (31,696) Total 1,395,802
5. Information on loans: a) Information on all types of loans and advances given to shareholders and employees of the Group:
Prior Period Cash Loans Non-Cash Loans Direct loans granted to shareholders 268 - Corporate shareholders - - Real person shareholders 268 - Indirect loans granted to shareholders 575,004 16,912 Loans granted to employees 25,358 - Total 600,630 16,912
ŞEKERBANK ANNUAL REPORT 2018
428 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Information on the first and second group loans and other receivables including restructured or rescheduled loans:
Loans and other receivable under close Standard loans and other receivables monitoring Amendments on Conditions of Amendments on Conditions of Loans Contract Loans Contract and other Amendments related and other Amendments related receivables to the extension of the Receivables to the extension of the Cash loans (*) (Total) payment plan Other (Total) payment plan Other Non-specialized loans 16,779,142 881,385 - 1,810,569 1,243,945 - Corporation loans 78,752 - - 17,606 - - Export loans 3,312,889 15,814 - 176,623 153,346 - Import loans ------Loans given to financial sector 56,955 - - 779 205 - Consumer loans 977,071 20,399 - 96,165 47,554 - Credit cards 238,120 - - 8,937 - - Other 12,115,355 845,172 - 1,510,459 1,042,840 - Specialized loans 1,914,073 50,929 - 217,954 65,195 - Other receivables ------Total 18,693,215 932,314 - 2,028,523 1,309,140 -
(*) The Group has classified Loans and Receivables amount to TRL 270,364 Thousand, under financial assets at fair value through profit and loss in the current period .Non performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 13,237 Thousand and Specific provision amount to TRL 4,053 Thousand.
Prior Period Number of Amendments Related to the Standard loans Loans and other receivable Extension of the Payment Plan and other receivables under close monitoring Extended for 1 or 2 times 671,759 1,309,117 Extended for 3,4 or 5 times 59,905 23 Extended for more than 5 times 200,650 -
ŞEKERBANK ANNUAL REPORT 2018
429 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Prior Period The Time extended via the Amendment on Standard loans and Loans and other receivable Payment Plan other receivables under close monitoring 0-6 Months 17,868 76,556 6 Months- 12 Months 17,685 131,538 1-2 Years 152,638 147,240 2-5 Years 156,196 641,793 5 Years and More 587,927 312,013 c) Loans and other receivables according to their maturity structure:
Standard Loans and Other Loans and Other Receivables Receivables Under Follow-Up Amendments Amendments Loans and Other on Conditions of Loans and Other on Conditions of Prior Period Receivables (*) Contract Receivables (*) Contract Short-term loans and other receivables 6,498,330 368,894 142,623 77,833 Non-specialized loans 5,862,217 365,694 115,452 55,655 Specialized loans 636,113 3,200 27,171 22,178 Other receivables - - - - Medium and Long-term loans 11,262,571 563,420 576,760 1,231,307 Non-specialized loans 10,035,540 515,691 451,172 1,188,290 Specialized loans 1,227,031 47,729 125,588 43,017 Other receivables - - - - Total 17,760,901 932,314 719,383 1,309,140
(*) The Group has classified Loans and Receivables amount to TRL 270,364 Thousand, under financial assets at fair value through profit and loss in the current period .Non performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 13,237 Thousand and Specific provision amount to TRL 4,053 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
430 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d) Information on consumer loans, individual credit cards, personnel loans and credit cards given to personnel:
Short Term Medium and Long Term Total Consumer Loans-TRL 108,508 1,222,053 1,330,561 Housing Loans 307 595,317 595,624 Car Loans 86 17,865 17,951 General Purpose Loans 108,115 608,578 716,693 Other - 293 293 Consumer Loans –Indexed to FC - 832 832 Housing Loans - 832 832 Car Loans - - - General Purpose Loans - - - Other - - - Consumer Loans-FC 757 10,659 11,416 Housing Loans 433 9,401 9,834 Car Loans 209 630 839 General Purpose Loans 115 628 743 Other - - - Individual Credit Cards-TRL 162,974 - 162,974 With Installments 50,016 - 50,016 Without Installments 112,958 - 112,958 Individual Credit Cards-FC 240 - 240 With Installments - - - Without Installments 240 - 240 Personnel Loans-TRL 1,043 14,242 15,285 Housing Loans - 7,785 7,785 Car Loans - 38 38 General Purpose Loans 1,043 6,419 7,462 Other - - - Personnel Loans- Indexed to FC - - - Housing Loans - - - Car Loans - - - General Purpose Loans - - - Other - - - Personnel Loans-FC - 211 211 Housing Loans - 211 211 Car Loans - - - General Purpose Loans - - - Other - - - Personnel Credit Cards-TRL 6,532 - 6,532 With Installments 2,040 - 2,040 Without Installments 4,492 - 4,492 Personnel Credit Cards-FC 27 - 27 With Installments - - - Without Installments 27 - 27 Overdraft Accounts-TRL (Real Person) (*) 39,865 - 39,865 Overdraft Accounts-FC (Real Person) - - - Total 319,946 1,247,997 1,567,943
(*) As of 31 December 2017 overdraft accounts for real persons include TRL 3,303 Thousand of personnel overdraft account.
ŞEKERBANK ANNUAL REPORT 2018
431 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) e) Information on commercial loans with installements and corporate credit cards:
Short Term Medium and Long Term Total Commercial loans with installment facility-TRL 350,506 5,082,768 5,433,274 Business Loans 2,500 11,602 14,102 Car Loans 1,428 66,864 68,292 General Purpose Loans 321,923 4,986,913 5,308,836 Other 24,655 17,389 42,044 Commercial loans with installment facility - Indexed to FC 36,032 1,030,870 1,066,902 Business Loans - 4,845 4,845 Car Loans 566 43,215 43,781 General Purpose Loans 35,466 979,407 1,014,873 Other - 3,403 3,403 Commercial loans with installment facility –FC 27,306 1,056,125 1,083,431 Business Loans - - - Car Loans - 74 74 General Purpose Loans 507 1,041,458 1,041,965 Other 26,799 14,593 41,392 Corporate Credit Cards-TRL 77,249 11 77,260 With Installments 22,030 11 22,041 Without Installments 55,219 - 55,219 Corporate Credit Cards-FC 24 - 24 With Installments - - - Without Installments 24 - 24 Overdraft Accounts-TRL(Legal Entity) 115,089 - 115,089 Overdraft Accounts-FC (Legal Entity) - - - Total 606,206 7,169,774 7,775,980 f) Loans according to borrowers:
Prior Period Public 61,781 Private 20,659,957 Total 20,721,738 g) Domestic and foreign loans:
Prior Period Domestic loans 20,697,892 Foreign loans 23,846 Total 20,721,738 h) Loans granted to subsidiaries and associates: None.
ŞEKERBANK ANNUAL REPORT 2018
432 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) i) Specific provisions provided against loans:
Specific Provisions (*) Prior Period Loans and receivables with limited collectability 13,640 Loans and receivables with doubtful collectability 60,716 Uncollectible loans and receivables 507,887 Total 582,243
(*) Specific provision amounting to TRL 4,053 Thousand for loans classified as “Financial assets at fair value through profit and loss” at the current period. j) Information on non-performing loans (Net): j.1) Information on loans and other receivables included in non-performing loans which are restructured or rescheduled:
III. Group: IV. Group: V. Group Loans and Loans and receivables Uncollectable receivables with with doubtful loans and limited collectability collectability receivables Prior period (Gross amounts before the specific reserves) 1,907 10,585 45,048 Loans and other receivables which are restructured - - - Rescheduled loans and other receivables 1,907 10,585 45,048 j.2) The movement of non-performing loans:
III. Group IV. Group V. Group Loans and Loans and receivables Uncollectable receivables with with doubtful loans and limited collectability collectability receivables Prior period end balance 201,300 318,161 603,457 Additions (+) 466,811 13,368 38,265 Transfers from other categories of non-performing loans (+) - 484,520 533,087 Transfers to other categories of non-performing loans (-) (484,520) (533,087) - Collections (-) (64,765) (84,033) (162,311) Write-offs (-) - - (269,232) Corporate and commercial loans - - (246,101) Retail loans - - (15,316) Credit cards - - (7,815) Current period end balance (*) 118,826 198,929 743,266 Specific provision (-) (*) 13,640 60,716 507,887 Net Balances on Balance Sheet 105,186 138,213 235,379
(*) Non-performing loans amounting to TRL 13,237 Thousand and specific provision amounting to TRL 4,053 Thousand are classified as “Financial assets at fair value through profit and loss”.
ŞEKERBANK ANNUAL REPORT 2018
433 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) j.3) Information on non-performing loans and other receivables in foreign currency: The Group has TRL 6,584 Thousand non-performing foreign currency loans and specific provision for these loans amounting to TRL 6,584 Thousand. j.4) Information regarding gross and net amounts of non-performing loans with respect to user groups:
III. Group IV. Group V. Group Loans and receivables Loans and receivables Uncollectable with limited with doubtful loans and collectability collectability receivables Prior Period (Net) (*) Loans to Real Persons and Legal Entities (Gross) 118,826 198,929 743,266 Specific provision (-) (13,640) (60,716) (507,887) Loans to Real Persons and Legal Entities (Net) 105,186 138,213 235,379 Banks (Gross) - - - Specific provision (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - - - Specific provision (-) - - - Other Loans and Receivables (Net) - - -
(*) Non-performing loans amounting to TRL 13,237 Thousand and specific provision amounting to TRL 4,053 Thousand are classified as “Financial assets at fair value through profit and loss”. k) Main principles of uncollectable loans and receivables:
The Parent Bank Management applies provision policy for the “non-performing loans” in accordance with the requirements of the Turkish banking regulation adopted by the BRSA.
Subsidiaries of the Parent Bank apply provisions of the regulation on “Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves”. l) Explanations on write-off policy:
On 31 May 2017, the Parent Bank sold uncollectable non-performing loans amounting to TRL 109,365 Thousand for total cash amount of TRL 3,100 Thousand to Efes Varlık Yönetim A.Ş. On 10 November 2017, the Parent Bank sold uncollectable non-performing loans amounting to TRL 3,496 Thousand for total cash amount of TRL 47 Thousand to Efes Varlık Yönetim A.Ş. On 15 September 2017, the Parent Bank sold uncollectable non-performing loans amounting to TRL 2,510 Thousand for total cash amount of TRL 853 Thousand to Final Varlık Yönetim A.Ş. On 31 October 2017, the Parent Bank sold uncollectable non-performing loans amounting to TRL 15,498 Thousand for total cash amount of TRL 175 Thousand to Final Varlık Yönetim A.Ş. On 29 November 2017, the Parent Bank sold uncollectable non-performing loans amounting to TRL 138,363 Thousand for total cash amount of TRL 7,300 Thousand to Final Varlık Yönetim A.Ş. and Efes Varlık Yönetim A.Ş.
ŞEKERBANK ANNUAL REPORT 2018
434 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) m) Other explanations and disclosures
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate Small Business Consumer Total Prior Period(*) At 1 January 2017 144,790 312,926 58,587 516,303 Charge for the year 221,207 184,789 37,853 443,849 Recoveries(**) (44,461) (49,370) (14,846) (108,677) Amounts written off (159,728) (86,373) (23,131) (269,232) At 31 December 2017 161,808 361,972 58,463 582,243
(*) Specific provision amounting to TRL 4,053 Thousand for loans classified as “Financial assets at fair value through profit and loss” at the current period. (**) Includes provision reversals of non-performing loans classified in the related period.
Collaterals of nonperforming loans:
Prior Period III. Group IV. Group V. Group Mortgages 83,850 103,921 468,562 Asset Pledges - - 3,743 Cheques and Notes of Consumers 162 5 864 Pledged Vehicles 9,474 9,799 49,056 Allowance Alienation - 477 1,684 Deposit Pledge 29 73 127
Aging analysis of past due but not impaired loans per classes of financial statements:
Prior Period Less than 30 days 31-60 days 61-90 days Total Loans and advances to customers (*) Corporate loans 111,499 29,256 30,742 171,497 Small business loans 411,808 205,743 170,538 788,089 Consumer loans 100,509 52,736 35,294 188,539 Total 623,816 287,735 236,574 1,148,125
(*)The table shows only past due loans of customers,non past due loans of related customers are not included.
ŞEKERBANK ANNUAL REPORT 2018
435 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
6. Information on held-to-maturity investments: a.1) Information on held-to-maturity investments given as collateral or blocked:
Prior Period Treasury Bill - Bond 335,904 Other - Total 335,904 a.2) Held-to-maturity investments subject to repurchase agreements are TRL 1,006,637. b) Information on public sector debt investments held-to-maturity:
Prior Period Government Bonds 877,317 Treasury Bills 82,263 Other Public Sector Debt Securities - Total 959,580
Net book value of unrestricted held-to-maturity investments is TRL 13,453 Thousand . c) Information on held-to-maturity investments:
Prior Period Debt Securities 1,157,967 Quoted on a stock exchange 762,376 Not quoted on a stock exchange 395,591 Impairment Provision (-) (1,210) Accruals 199,237 Total 1,355,994 d) Movement of held-to-maturity investments:
Prior Period Beginning Balance 930,184 Foreign currency differences on monetary assets 35 Purchases during year 582,806 Disposals through sales and redemptions (355,752) Provision reversal / Impairment provision (-) (516) Closing Balance 1,156,757 Accruals 199,237 Total 1,355,994
ŞEKERBANK ANNUAL REPORT 2018
436 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Information on associates (Net): a) Information on unconsolidated associates:
Address The Parent Bank’s Share Percentage- The Parent Bank’s Risk Description (City/ Country) If Different Voting Percentage (%) Group Share Percentage (%) Seltur Turistik İşletmeler Yatırım A.Ş.(*) Muğla/Turkey 11.32 11.43
(*) Latest financial information of the related associate as of 31 December 2017 is stated below.
Income from Total Shareholders’ Tangible Interest Marketable Current Period Prior Period Asset Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Fair Value 42,289 31,799 37,736 182 - 2,013 (785) 294,000 b) Information on consolidated associates: None. c) Information on associates: There is no consolidated associate. d) Measurement of associates: Measured with cost amounts. e) Sectoral information and the related carrying amounts on consolidated associates: None. f) Associates quoted to stock exchange: None. g) Information on associates which are sold in the current period: None. h) Information on associates purchased in the current period: None.
ŞEKERBANK ANNUAL REPORT 2018
437 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
8. Information on subsidiaries (Net): a) Information related to equity components of subsidiaries (*):
Şeker Şekerbank Şeker Yatırım Şeker Şeker Zahlungsdienste Şekerbank Finansal International Menkul Faktoring Finansman GmbH Der Kıbrıs Ltd. Kiralama A.Ş. Banking Unit Ltd. Değerler A.Ş. A.Ş. A.Ş. Şekerbank T.A.Ş. CORE CAPİTAL Paid in Capital 24,104 61,808 18,860 31,195 76,041 26,000 1,129 Share Premiums - 1,207 - - - - - Marketable Securities Value Increase Fund - - - (142) - - - Legal Reserves 1,689 7,087 4,310 1,853 1,999 614 - Extraordinary Reserves 1 1,370 - 7,753 4,913 (4,412) - Tangible assets revaluation differences - - - - 3,046 - - Other capital reserves - (4,047) - (306) 12,749 (45) - Other Income Reserves - - 2,117 - - - (183) Profit/Loss 40 (8,561) (392) 192 (18,417) (9,301) (166) Prior Years’ Profits and Losses (2,036) (13,650) (958) - (18,871) - (159) Current Year’s Profit and Losses 2,076 5,089 566 192 454 (9,301) (7) Total Core Capital 25,834 58,864 24,895 40,545 80,331 12,856 780 SUPPLEMENTARY CAPİTAL ------CAPITAL 25,834 58,864 24,895 40,545 80,331 12,856 780 NET AVAILABLE EQUITY 25,834 58,864 24,895 40,545 80,331 12,856 780
(*) Audited financial information is as of 31 December 2017. b) Information on the unconsolidated subsidiaries:
Address The Parent Bank’s Share Percentage- The Parent Bank’s Risk Description (City/ Country) If Different Voting Percentage (%) Group Share Percentage (%) Sekar Oto Filo Yönetim Hizmetleri ve Ticaret A.Ş. Istanbul/Turkey - 99 Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. Istanbul/Turkey 100 100
(*) Latest unaudited financial information of the related subsidiaries as of 31 December 2017 is presented.
Income from Current Prior Amount Total Shareholders’ Tangible Interest Marketable Period Period Fair of Equity Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value Needed 60,445 8,700 42,722 6,147 - 1,220 447 50,656 - 603,493 603,466 602,966 32 - 26 - - -
Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. has not been included for the consolidataion as it is not a financial subsidiary and it is accounted with the cost method.
ŞEKERBANK ANNUAL REPORT 2018
438 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c) Information on the consolidated subsidiaries:
Address The Parent Bank’s Share Percentage- The Parent Bank’s Risk Description (City/ Country) If Different Voting Percentage (%) Group Share Percentage (%) Şekerbank Kıbrıs Ltd. Nicosia/TRNC 96.11 96.11 Şeker Finansal Kiralama A.Ş. Istanbul/Turkey 54.13 62.86 Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.80 95.80 Şeker Yatırım Menkul Değerler A.Ş. Istanbul/Turkey 99.04 100.00 Şeker Faktoring A.Ş. Istanbul/Turkey 99.99 99.99 Şeker Finansman A.Ş. Istanbul/Turkey 62.31 62.31 Zahlungsdienste GmbH Der Şekerbank T.A.Ş Cologne/Germany 100.00 100.00 d) Information on the consolidated subsidiaries with the order as presented in the table above (*):
Total Shareholders’ Tangible Interest Income from Marketable Current Period Prior Period Fair Assets Equity Assets Income Securities Portfolio Profit/Loss Profit/Loss Value 267,359 25,834 5,773 23,105 350 2,076 (2,036) 12,311 509,438 58,864 33,346 42,971 - 5,089 (13,650) 48,990 28,133 24,895 2,462 1,601 - 566 (958) 14,341 172,402 40,545 21,332 11,834 1,399 192 - 43,432 482,754 80,331 37,669 77,311 - 454 (18,871) 80,323 702,539 12,856 344 41,923 - (9,301) - 26,733 1,377 780 - 4 - (7) (159) 1,257
(*) Latest financial information of the related subsidiaries as of 31 December 2017 is presented. e) Movement of consolidated subsidiaries:
Prior Period Balance at the beginning of the period 148,600 Movement during the period 24,231 Purchases 26,536 Bonus shares obtained - Share in the current year income - Sales - Revaluation increase - (Provision)/Reversal of Impairment (2,305) Balance at the end of the period 172,831 Capital Commitment - Share percentage at the end of the period (%) 100
ŞEKERBANK ANNUAL REPORT 2018
439 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f) Measurement of consolidated subsidiaries
Prior Period Measured with cost 172,831 Measured with fair value - Measured with equity method - g) Sectoral information and the related carrying amounts on consolidated subsidiaries
Subsidiaries Prior Period Banks 15,283 Insurance Companies - Factoring Companies 76,908 Leasing Companies 30,644 Finance Companies 16,658 Other Financial Subsidiaries 33,338 h) Subsidiaries Quoted to Stock Exchange
Prior Period Quoted to Domestic Stock Exchange 30,644 Quoted to Foreign Stock Exchange - i) Information on Subsidiaries which are Sold in the Current Period: None. j) Information on Subsidiaries Acquired in the Current Period: None.
9. Information on entities under common control: None.
10. Information on finance lease receivables (Net):
Prior Period Gross Leasing Investment 543,154 Unearned Financial Profit from Leasing (-) (103,773) Cancelled Leasing Amounts (-) - Net Leasing Investment (*) 439,381
(*)Net Leasing Investment contains non-performing leasing receivables amounting to TRL 55,266 Thousand and specific provisions amounting to TRL 37,173 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
440 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Other Explanation and Disclosures:
Prior Period Corporate SME Consumer Other Total
Neither past due nor impaired 298,433 119,197 - - 417,630 Past due not impaired - 3,658 - - 3,658 Individually impaired - 55,266 - - 55,266 Total 298,433 178,121 - - 476,554 - Less: allowance for individually impaired loans - (37,173) - - (37,173) - Net Finance Lease Receivables 298,433 140,948 - - 439,381
Reconciliation of the allowance for impairment losses and advances by classes is as follows:
Prior Period Corporate SME Consumer Other Total At 1 January 2017 - 42,936 - - 42,936 Charge for the year - 7,940 - - 7,940 Recoveries - (2,212) - - (2,212) Amounts written off - (11,491) - - (11,491) At 31 December 2017 - 37,173 - - 37,173
Aging analysis of past due but not impaired loans per classes of financial statements:
Prior Period Less than 30 days 31-60 days 61-90 days More than 91 days Total Financial Lease Receivables Corporate - - - - - SME 1,435 819 373 1,031 3,658 Consumer - - - - - Other - - - - - Total 1,435 819 373 1,031 3,658
ŞEKERBANK ANNUAL REPORT 2018
441 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. Information on derivative financial assets for hedging purposes:
Prior Period Derıvative Financial Assets For Hedging Purposes TRL FC Fair Value Hedge 2,786 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 2,786 -
12. Information on tangible assets:
Foreclosed Other Fixed Assets Held Under Buildings (*) Assets (*)(***)(****) Assets (**) Finance Leases Total Cost Opening Balance, 1 January 2017 681,102 614,325 239,901 10,432 1,545,760 Additions 78,283 108,498 149,611 - 336,392 Write off - - - - - Transfer - (269,077) 6,256 (6,256) (269,077) Disposals (-) (440,715) (449,342) (82,837) - (972,894) Revaluation 22,744 (2,759) - - 19,985 Foreign Exchange Difference 125 144 13 - 282 Impairment Provision/Reversal (579) 457 - - (122) Closing Balance, 31 December 2017 340,960 2,246 312,944 4,176 660,326 Accumulated Amortization Opening Balance, 1 January 2017 295,300 26,677 135,140 6,263 463,380 Write off - - - - - Transfer - (11,657) 4,160 (4,160) (11,657) Charge for the year 2,221 7,685 26,396 646 36,948 Revaluation 6,737 - - - 6,737 Foreign Exchange Difference 120 - (7) - 113 Impairment Provision/Reversal (160) - - - (160) Disposals (-) (200,137) (22,696) (11,616) - (234,449) Closing Balance, 31 December 2017 104,081 9 154,073 2,749 260,912 Net Book Value, 31 December 2017 236,879 2,237 158,871 1,427 399,414
Net Book Value, 31 December 2016 385,802 587,648 104,761 4,169 1,082,380
(*) As of 31 December 2017, value increase and impairment of the buildings and impairment of immovable held for sale are calculated according to the independent appraisal reports dated December 2017. (**) Cost of leasehold improvements are classified among other fixed assets in the current period. (***) Foreclosed assets contain tangible assets acquired through recoveries from non-performing loans. (****) Disposals from “Buildings”at Cost in the amount of TRL 427,808 Thousand and Accumulated Ammortization in the amount of TRL 200,019 Thousand ,Disposals from “Foreclosed Assets”at Cost in the amount of TRL 327,559 Thousand andAccumulated Amortization in the amount of TRL 16,931 Thousand are transferred to Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. as of 31.12.2017. The foreclosed Assetswith the gross amount of TRL 269,077 Thousand and accumulated amortization in the amount of TRL 11,657 Thousand arere-classified to Assets Held ForSale and Discontinued Operations as of 31.12.2017.
ŞEKERBANK ANNUAL REPORT 2018
442 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a) If impairment amount on individual asset recorded or reversed in the current period is material for the overall financial statements: a.1) Events and conditions for recording or reversing impairment: None. a.2) Amount of recorded or reversed impairment in the financial statements:The Parent Bank has allocated TRL 4,232 Thousand of impairment provision. . b) The impairment provision set or cancelled in the current period according to the asset groups not individually significant but materially effecting the overall financial statements, and the reason and conditions for this: None. c) Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets: None.
13. Information on intangible assets:
Other Total Cost Opening Balance, January 1, 2017 221,221 221,221 Additions 26,548 26,548 Disposals (486) (486) Write Off - - Closing Balance, 31 December 2017 247,283 247,283 Accumulated Amortization - - Opening Balance, 1 January 2017 125,805 125,805 Charge for the year 33,661 33,661 Disposals (486) (486) Write Off - - Closing Balance, 31 December 2017 158,980 158,980 Net Book Value, 31 December 2017 88,303 88,303
Net Book Value, 31 December 2016 95,416 95,416
The useful lives of the intangible fixed assets, which are amortized with straight line amortization method, are 5 years. a. Disclosures for book value, description and remaining depreciation time for a specific intangible fixed asset that is material to the financial statements: None. b. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. c. The method of subsequent measurement for intangible fixed assets that are acquired through government incentives and recorded at fair value at the initial recognition: None. d. The book value of intangible fixed assets that are pledged or restricted for use: None. e. Amount of purchase commitments for intangible fixed assets: None.
ŞEKERBANK ANNUAL REPORT 2018
443 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f. Information on revalued intangible assets according to their types: None. g. Amount of total research and development expenses recorded in statement of income within the period if any: None h. Information on goodwill: None. i. Movements on goodwill in the current period: None.
14. Information on investment properties: None.
15. Explanations on deferred tax asset: a) As of 31 December 2017, deferred tax asset computed on the temporary differences is TRL 84,801 Thousand. Carried forward tax losses over which deferred tax asset computed is TRL 12,215 Thousand. b) Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in prior periods: None. c) Allowance for deferred tax and deferred tax assets from reversal of allowance: None. d) Movement of deferred tax asset/(liability):
Prior Period Deferred Tax Assets/(Liabilities) - Tangible Assets Base Differences (9,595) Provisions (*) 58,919 Valuation of Financial Assets 13,834 Investment Incentive 9,428 Financial Losses 12,215 Net Deferred Tax Assets/(Liabilities) 84,801
(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions and other provisions.
Current and prior period deferred tax movements are shown in the table below.
Prior Period Deferred Tax (Net), Beginning of the Period 25,187 Current Period (Expense)/Income 13,227 Deferred Tax Classified under Equity 46,387 Deferred Tax Asset (Liability), End of the Period 84,801
Şeker Finansal Kiralama A.Ş. recognized deferred tax asset amounting to TRL 9,428 Thousand in the financial statements assuming that it will take advantage of the unused investment incentive in the subsequent periods.
ŞEKERBANK ANNUAL REPORT 2018
444 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
16. Information on assets held for sale and discontinued operations:
The Group had TRL 266,025 Thousand assets held for sale as of 31 December 2017.
Prior Period Period Beginning Net Book Value 72,964 Additions (*) 257,811 Disposals (-)(*) (64,750) Period Ending Net Book Value 266,025
(*) Foreclosed Assetsamounting to TRL 257,420 Thousand in net book value classified as Assets Held For Sale and Discontinued Operations line. Assets Held For Sale and Discontinued Operations amounting to TRL 64,750 Thousands are transferred to Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş as of 31.12.2017.
17. Information on other assets:
Other assets do not exceed 10 % of the total balance sheet total (excluding off balance sheet commitments).
18. Information on factoring receivables of the Group: a) Maturity Analysis:
Current Period TRY FC Short term 333,693 - Medium and Long Term 89,321 - Total 423,014 - b) Other Explanations and Disclosures:
Current Period Corporate SME Consumer Other Total
Neither past due nor impaired 53,998 334,076 - - 388,074 Past due not impaired 84 7,703 - - 7,787 Individually impaired 3,952 44,369 - - 48,321 Total gross 58,034 386,148 - - 444,182
Less: allowance for individually impaired factoring receivables 2,815 18,353 - - 21,168
Total net 55,219 367,795 - - 423,014
ŞEKERBANK ANNUAL REPORT 2018
445 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
A reconciliation of the allowance for impairment losses and advances by classes is as follows:
Corporate SME Consumer Other Total
At 1 January 2017 3,307 22,210 - - 25,517 Charge for the year 1,183 5,593 - - 6,776 Recoveries - (1,040) - - (1,040) Amounts written off (1,675) (8,410) - - (10,085) At 31 December 2017 2,815 18,353 - - 21,168
III. Explanations Related to the Consolidated Liabilities (Current Period)
1. Information on Maturity Structure Of Deposits a) Information on maturity structure of deposits:
7 Day Call Up to 1-3 3-6 6 Month - 1 Year Accumulated Current Period Demand Accounts 1 Month Month Month 1 Year and Over Deposits Total Saving deposits 356,638 - 1,073,162 4,123,806 3,459,931 401,567 490,684 5,394 9,911,182 Foreign currency deposits 1,155,303 - 388,206 4,521,926 1,415,426 505,156 1,433,973 391 9,420,381 Residents in Turkey 1,063,701 - 347,251 4,021,564 1,095,800 244,807 284,183 364 7,057,670 Residents abroad 91,602 - 40,955 500,362 319,626 260,349 1,149,790 27 2,362,711 Public sector deposits 79,143 - 1,796 9,481 21,080 941 992 - 113,433 Commercial deposits 771,126 - 443,895 917,236 127,087 11,915 7,013 11 2,278,283 Other institutions deposits 43,153 - 24,169 227,185 53,035 3,371 515 - 351,428 Precious metals deposits 246,275 - - - 37,725 3,031 13,363 - 300,394 Interbank deposits 189,527 - 255,602 95,838 - 8,348 16,441 - 565,756 Central Bank of Turkey ------Domestic Banks 4,273 - 149,590 (3,545) - 8,348 6,258 - 164,924 Foreign Banks (1,191) - 106,012 99,383 - - 10,183 - 214,387 Participation Banks 186,445 ------186,445 Other ------Total 2,841,165 - 2,186,830 9,895,472 5,114,284 934,329 1,962,981 5,796 22,940,857
ŞEKERBANK ANNUAL REPORT 2018
446 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Information on saving deposits under the guarantee of saving deposit insurance and exceeding the limit of saving deposit insurance:
Under the guarantee Exceeding the limit Saving Deposits of insurance (*) of insurance Current Period Current Period Saving deposits 5,111,823 1,752,827 Foreign currency saving deposits 1,975,908 739,974 Other deposits in the form of saving deposits - - Branches’ deposits under foreign authorities’ insurance - - Off-shore banking regions’ deposits under foreign authorities’ insurance - - Total 7,087,731 2,492,801
(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts. c) Information on the saving deposits of the Parent Bank with head office abroad, if the saving deposits in the branches of the bank located in Turkey are under the guarantee of saving deposit insurance in that country abroad:
Headquarter of the Parent Bank is in Turkey and the Parent Bank is under the coverage of saving deposit insurance. d) Saving deposits not guaranteed by insurance:
Deposit of real persons not under the guarantee of saving deposit insurance:
Current Period Deposits and other accounts in branches abroad - Deposits and other accounts of ultimate shareholders and their Mother, Father, Spouse, Dependent Children - Deposits and other accounts of chairman and members of the Board of Directors and their Mother, Father, Spouse, Dependent Children 9,347 Deposits and other accounts obtained through illegal acts defined in the 282nd Article of the 5237 numbered Turkish Criminal Code dated 26 September 2004. - Saving deposits in banks established in Turkey exclusively for off shore banking activities -
ŞEKERBANK ANNUAL REPORT 2018
447 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information on derivative financial liabilities:
Negative differences table related to derivative financial liabilities held-for-trading:
Derivative financial liabilities held-for-trading are classified in the financial statement as Derivative Financial liabilities at Fair Value Through Profit and Loss.
Current Period Liabilities due to held for trading derivatives TRL FC Forward Transactions - 59,314 Swap Transactions 13,509 19,186 Futures Transactions - - Options 160 11,441 Other - 1,883 Total 13,669 91,824
3. Information on banks and other financial institutions: a. Information on banks and other financial institutions:
Current Period TRL FC Loans from Central Bank of Turkey - - From Domestic Banks and Institutions 444,168 316,788 From Foreign Banks, Institutions and Funds 29,224 2,809,900 Total 473,392 3,126,688 b. Maturity analysis of borrowings:
Current Period TRL FC Short-term 443,047 281,131 Medium and long-term 30,345 2,845,557 Total 473,392 3,126,688
Due to the loan used from the Overseas Private Investment Corporation “OPIC”, Şeker Finansman A.Ş.’ shares, one of the subsidiaries of the Parent Bank, have been pledged to the OPIC according to the “share pledge and share lien” agreement between the OPIC and the Company which is valid for current debt relationship and recorded to share ledger. c. Additional explanation related to the concentrations of the Group’s major liabilities:
Within the scope of normal banking activities, the Group’s funding sources are deposits, funds borrowed, marketable securities issued and money market balances. The Group’s deposit structure shows a balanced distribution in TRL and FC terms. The funds borrowed mainly consist of foreign currency denominated syndicated loans, in TRL denominated funds provided from repurchase agreement transactions and marketable securities denominated in TRL and foreign currency.
ŞEKERBANK ANNUAL REPORT 2018
448 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
4. Information on Money market borrowings:
Current Period TRL FC Interbank money market takings 3,000 - Istanbul Stock Exchange money market takings - - Borsa Istanbul Debts to Money Markets 64,500 - Funds Provided Through Repo Transactions 124,596 - Total 192,096 -
5. Marketable Securities Issued:
As of 31 December 2018 outstanding issued bonds amount of the Group is TRL 516,302 Thousand.
Issuer Issuance Date Issuance Amount Maturity Şekerbank T.A.Ş. 09.11.2018 40,000 91 days Şekerbank T.A.Ş. 05.12.2018 130,000 85 days Şeker Finansal Kiralama A.Ş. 20.02.2018 22,754 350 days Şeker Finansal Kiralama A.Ş. 17.04.2018 15,205 350 days Şeker Finansal Kiralama A.Ş. 07.06.2018 9,931 350 days Şeker Finansal Kiralama A.Ş. 05.09.2018 4,591 350 days Şeker Finansal Kiralama A.Ş. 20.09.2018 78,000 120 days Şeker Finansal Kiralama A.Ş. 23.10.2018 22,237 78 days Şeker Finansal Kiralama A.Ş. 04.12.2018 40,000 80 days Şeker Faktoring A.Ş. 24.05.2018 25,891 364 days Şeker Faktoring A.Ş. 07.09.2018 1,000 364 days Şeker Faktoring A.Ş. 20.09.2018 5,479 106 days Şeker Faktoring A.Ş. 05.10.2018 11,076 119 days Şeker Faktoring A.Ş. 07.12.2018 51,800 105 days Şeker Yatırım Menkul Değerler A.Ş. 12.12.2018 20,001 84 days Şeker Yatırım Menkul Değerler A.Ş. 18.12.2018 14,155 91 days
As of 31 December 2018 outstanding issued marketable securities amount of the Group is TRL 25,532 Thousand and details are shown the table below.
Issuer Issuance Date Issuance Amount Maturity Şeker Finansal Kiralama A.Ş. 07.03.2017 7,345 728 days Şeker Finansal Kiralama A.Ş. 02.05.2017 3,772 728 days Şeker Finansal Kiralama A.Ş. 11.07.2017 2,369 546 days Şeker Finansal Kiralama A.Ş. 27.07.2018 2,895 420 days Şeker Faktoring A.Ş. 05.07.2018 12,500 538 days Şeker Faktoring A.Ş. 01.08.2017 1,603 546 days
ŞEKERBANK ANNUAL REPORT 2018
449 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Parent Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Parent Bank’s SME loans were used as collateral.
Issue Date Series Investors Amount Remaining Principal Amount Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
As of 31 December 2018 the Group has the Asset Covered Bonds amounting to TRL 701,850 Thousand.
Current Period TRL FC Bills 516,302 - Asset Backed Securities 701,850 - Bonds 25,532 - Total 1,243,684 -
6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance sheet commitments) and the breakdown of these which constitute at least 20 % of grand total:
Other liabilities do not exceed 10 % of the balance sheet total.
7. Explanations on financial lease obligations (Net):
Current Period TRL FC Lease Payables 15,722 13,404 Deferred Lease Expenses (3,359) (660) Total 12,363 12,744
8. Information on derivative financial liabilities for hedging purposes:
Current Period Derıvative Financial Assets For Hedging Purposes TP YP Fair Value Hedge 16,592 - Cashflow Hedge - - Hedge of net investment risks in foreign operations - - Total 16,592 -
ŞEKERBANK ANNUAL REPORT 2018
450 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
9. Information on provisions: a) Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: None. b) The specific provisions provided for unindemnified non-cash loans amount to TRL 67,045 Thousand. c) Information on employee termination benefits and unused vacation accrual:
The Group has calculated reserve for employee termination benefits by using actuarial valuations as set out in the TAS 19 and reflected this in the financial statements.
Main actuarial assumptions used for calculation of employment termination benefit are as follows:
- Discount rate for the current period is 16%, inflation rate is 11.30%. - TRL 5,434.42 (full TRL) of maximum wage amount which was in effect was taken as maximum amount for the calculation regarding the current period. - It was assumed that maximum wage would be increased in inflation rate for every consecutive year. - CSO 1980 table was used for mortality averages of females and males.
As of 31 December 2018, the Group has recorded in the financial statements TRL 79,953 Thousand reserve for employee termination benefits.
As of 31 December 2018, the Group allocated a reserve of TRL 8,088 Thousand for the unused vacations, which is classified under reserve for employee benefits provisions in the financial statements. c.1) Movement of employee termination benefits:
Current Period As of 1 January 75,411 Cost Service 10,931 Interest Cost 8,483 Actuarial Loss/(Gain) (4,747) Indemnity Paid During the Term (10,125) Total 79,953 d) Information on other provisions: d.1) Provisions for possible losses: None.
ŞEKERBANK ANNUAL REPORT 2018
451 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.2) The breakdown of the of provisions:
Current Period Unindemnified Non-Cash Loans 67,045 Credit Card Liquid Point Promotion Provisions 432 Retirement Fund Provisions 159,499 SDIF Premium Provision 6,984 Other Provisions (*) 168,881 Total 402,841
(*) Includes legal case provisions amounting to TRL 21,987 Thousand, provision for payments amounting to TRL 21,000 Thousand and TRL 5,000 Thousand provision for repayment of arbitration board objections. e) Liabilities on pension rights: e.1) Liabilities for pension funds established in accordance with “Social Security Institution”:
Şekerbank T.A.Ş. Pension Fund, of which most of the Parent Bank’s employees are members, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
Following the issuance of the justified order in relation to the annulment of the provisional Article 23 of the Banking Law by the Constitutional Court in the Official Gazette No: 26731 on 15 December 2007, TBMM started to work on establishing new legal regulations, the Law No: 5754 “Amendments to the Social Security and General Health Insurance Act Including Certain Laws and Decrees”, which was published in the Official Gazette No: 26870 on 8 May 2008 has become effective following the approval of the General Assembly of the TBMM. The new law decrees that the contributors of the bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation, and that the three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
In addition, by the Law numbered 6283 “Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years. Further the transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette, dated 3 May 2013 and numbered 28636. The prolongation for another one year has been taken by the Cabinet on 24 February 2014, and has been published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335. transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated 9 July 2018.
ŞEKERBANK ANNUAL REPORT 2018
452 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation of the value in cash • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations” issued based on the Article 38. There was TRL 159,499 Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers published on 15 December 2006 and no 26377. As of 31 December 2018, TRL 159,499 Thousand provision
The actuarial audit described above, which has been carried out in accordance with the related law, measures the present value of the liability as of 31 December 2018, in other words, the estimated payment amount to be made to the Social Security Institution by the Parent Bank is measured by the actuary audit. In actuarial calculations, CSO 1980 mortality table, 9.80% technical interest rate and 34.50% premium rate were taken into account.
Present values of bonuses and salaries payments taking into account the health expenditures in the scope of Social Security Institution are shown in the following table in as of 31 December 2017.
31.12.2018 Reserve of Probable Retirement Pensions (153,436) Reserve of Probable Widow and Orphant (133,359) Reserve of Liability Items (1,028,626) Reserve for Salary Portions to be Given to Social Insurance Institution for those who leave the Pension Fund (254,790) Health and Funeral Expenses Reserve (152,739) Assets (*) 315,700 Cash Value of the Premiums of the Active Members 1,123,687 Reserve of Common Members’ Salary Proportion Receivables from other social insurance institutions. 124,064 Actual and Technical Surplus / (Deficit) Amount (159,499)
(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.
ŞEKERBANK ANNUAL REPORT 2018
453 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Assets of the Pension Fund consist of following items:
31.12.2018 Banks and Other Financial Investments 238,816 Associates 125,757 Immovable 4,103 Other (52,976) Total 315,700 e.2. Liabilities resulting from all kinds of pension funds, foundations etc., which provide post-retirement benefits for the employees: See footnote, f.1 II/9 of Section Five.
10. Explanations on taxes payable a. Information on current tax liability: a.1. Information on tax provision: Group had TRL 505 Thousand corporate tax to be paid as of 31 December 2018. a.2. Information on taxes payable:
Current Period Corporate Tax 505 Taxation on Securities 17,247 Capital Gains Tax on Property 610 Banking Insurance Transaction Tax (BITT) 30,925 Foreign Exchange Tax - Value Added Tax Payable 1,408 Other 11,167 Total 61,862 a.3. Information on premiums:
Current Period Social Security Premiums-Employee 430 Social Security Premiums-Employer 705 Bank Social Aid Pension Fund Premiums-Employee 3 Bank Social Aid Pension Fund Premiums-Employer 4 Pension Fund Membership Fees and Provisions-Employee 16 Pension Fund Membership Fees and Provisions-Employer 23 Unemployment insurance-Employee 4 Unemployment insurance-Employer 26 Other 10 Total 1,221
ŞEKERBANK ANNUAL REPORT 2018
454 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Explanations on deferred tax liabilities, if any:
As of 31 December 2018, the Group has TRL 1,532 Thousand deferred tax liability as mentioned in the Section V. Note I.15
11. Information on liabilities regarding assets held for sale and discontinued operations: None.
12. Explanations on the maturity, interest rate and the number of subordinated debt instruments the Parent Bank had, institution that is the creditor of the debt instrument, and conversion option, if any:
Information on subordinated borrowing instruments is included in the footnote 4.1. Information on borrowing instruments to be included in the equity calculation.
Current Period TRL FC Borrowing Instruments Included in Additional Tier I Capital Calculation - - Subordinated Loans - - Subordinated Debt Instruments - - Borrowing Instruments Included in Tier II Calculation 452,571 451,050 Subordinated Loans - - Subordinated Debt Instruments 452,571 451,050 Total 452,571 451,050
13. Information on Shareholders’ Equity: a) Presentation of Paid-in capital:
Current Period Common stock (*) 1,158,000 Preferred stock -
(*) Nominal Capital b) Paid-in capital amount, explanation as to whether the registered share capital system is applicable at the Parent Bank and if so amount of registered share capital ceiling:
Registered share capital system is applied in the Parent Bank. Maximum registered capital amount is TRL 1,250,000 Thousand.
Capital System Paid-in Capital Maximum Registered Capital 1,158,000 1,250,000 c) Information on share capital increases and their sources; other information on increased capital shares in current period: None. d) Information on share capital increases from capital reserves: None. e) Capital commitments in the last fiscal year and at the end of the following period, the general purpose of these commitments and projected resources required to meet these commitments: None.
ŞEKERBANK ANNUAL REPORT 2018
455 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) f) Indicators of the Parent Bank’s income, profitability and liquidity for the previous periods and possible effects of these future assumptions on the Parent Bank’s equity due to the uncertainty of these indicators:
Retained and current year income, profitability and liquidity of the Parent Bank are closely monitored, reported by the Financial Control, Reporting, Budget and Performance Management Department to the Board of Directors and Asset and Liability Committee of the Parent Bank. This department prognoses the effects of interest, currency and maturity fluctuations with static and dynamic scenario analysis. Net asset value, which is defined as the difference of fair values of assets and liabilities, is measured. Prognoses are made for the Parent Bank’s future interest income via simulations of net interest income and scenario analysis. g) Information on preferred shares: None. h) Information on marketable securities value increase fund:
Current Period TRL FC From Subsidiaries, Associations and Entities Under Common Control - - Valuation Difference (9,167) 4,047 Foreign Exchange Difference - - Total (9,167) 4,047
14. Information on legal reserves:
Current Period Legal reserves 115,016 Other legal reserves appropriated in accordance with special legislation 185,988 Total 301,004
15. Information on extraordinary reserves:
Current Period Reserves appropriated by the General Assembly 1,370,812 Retained earnings 4,537 Accumulated losses - Foreign currency share capital exchange difference - Total 1,375,349
16. Other Information on Shareholders’ Equity:
Şeker Finansal Kiralama A.Ş. through Şeker Yatırım Menkul Değerler A.Ş. sold 62 shares, purchased 430 shares due to capital increase during the reporting period and bought back 3,929 shares in the prior period, as a result total 4,297 shares were bought back.
17. Information on Minority Shares:
As of 31 December 2018 TRL 40,349 Thousand minority shares shown in the accompanying financial statements.
ŞEKERBANK ANNUAL REPORT 2018
456 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
IV. Explanations Related to the Consolidated Liabilities (Prior Period)
1. Information on maturity structure of deposits a) Information on maturity structure of deposits:
7 Day Call Up to 1-3 3-6 6 Month - 1 Year Accumulated Prior Period Demand Accounts 1 Month Month Month 1 Year and Over Deposits Total Saving deposits 415,980 - 1,053,151 6,304,703 217,563 105,307 240,402 3,744 8,340,850 Foreign currency deposits 715,726 - 332,128 4,164,500 371,494 322,700 1,109,794 252 7,016,594 Residents in Turkey 662,891 - 319,199 3,770,146 283,715 174,544 235,782 237 5,446,514 Residents abroad 52,835 - 12,929 394,354 87,779 148,156 874,012 15 1,570,080 Public sector deposits 42,407 - 366 2,881 129 10,276 915 - 56,974 Commercial deposits 677,119 - 478,395 1,623,725 58,274 3,048 4,463 8 2,845,032 Other institutions deposits 40,443 - 12,582 455,107 34,226 1,342 2,292 - 545,992 Precious metals deposits 176,527 - - - 28,235 1,659 8,653 - 215,074 Interbank deposits 59,610 - 313,040 462,069 21,445 5,161 - 2,455 863,780 Central Bank of Turkey 915 ------915 Domestic Banks 472 - 312,670 124,906 9,533 - - - 447,581 Foreign Banks 208 - 370 337,163 11,912 5,161 - 2,455 357,269 Participation Banks 58,015 ------58,015 Other ------Total 2,127,812 - 2,189,662 13,012,985 731,366 449,493 1,366,519 6,459 19,884,296 b) Information on saving deposits under the guarantee of saving deposit insurance and exceeding the limit of saving deposit insurance:
Under the guarantee Exceeding the limit of insurance (*) of insurance Saving Deposits Prior Period Prior Period Saving deposits 4,312,981 4,041,034 Foreign currency saving deposits 1,694,297 2,956,584 Other deposits in the form of saving deposits - - Branches’ deposits under foreign authorities’ insurance - - Off-shore banking regions’ deposits under foreign authorities’ insurance - - Total 6,007,278 6,997,618
(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts. c) Information on the saving deposits of the Parent Bank with head office abroad, if the saving deposits in the branches of the bank located in Turkey are under the guarantee of saving deposit insurance in that country abroad:
Headquarter of the Parent Bank is in Turkey and the Parent Bank is under the coverage of saving deposit insurance.
ŞEKERBANK ANNUAL REPORT 2018
457 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d) Saving deposits not guaranteed by insurance:
Deposit of real persons not under the guarantee of saving deposit insurance:
Prior Period Deposits and other accounts in branches abroad - Deposits and other accounts of ultimate shareholders and their Mother, Father, Spouse, Dependent Children - Deposits and other accounts of chairman and members of the Board of Directors and their Mother, Father, Spouse, Dependent Children 5,648 Deposits and other accounts obtained through illegal acts defined in the 282nd Article of the 5237 numbered Turkish Criminal Code dated 26 September 2004. - Saving deposits in banks established in Turkey exclusively for off shore banking activities -
2. Information on derivative financial liabilities: a) Negative differences table related to derivative financial liabilities held-for-trading:
Prior Period Liabilities due to held for trading derivatives TRL FC Forward Transactions - 34,899 Swap Transactions 14,449 68,860 Futures Transactions - - Options 63 14,441 Other - - Total 14,512 118,200
3. Information on banks and other financial institutions a) Information on banks and other financial institutions:
Prior Period TRL FC Loans from Central Bank of Turkey - - From Domestic Banks and Institutions 465,021 245,528 From Foreign Banks, Institutions and Funds 53,829 2,708,671 Total 518,850 2,954,199 b) Maturity analysis of borrowings:
Prior Period TRL FC Short-term 457,797 506,837 Medium and long-term 61,053 2,447,362 Total 518,850 2,954,199
ŞEKERBANK ANNUAL REPORT 2018
458 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Due to the loan used from the Overseas Private Investment Corporation “OPIC”, Şeker Finansman A.Ş.’ shares, one of the subsidiaries of the Parent Bank, have been pledged to the OPIC according to the “share pledge and share lien” agreement between the OPIC and the Company which is valid for current debt relationship and recorded to share ledger. c) Additional explanation related to the concentrations of the Group’s major liabilities:
The Group’s liabilities do not have any concentration in any sector.
4. Information on funds provided from repurchase agreement transactions:
Prior Period TRL FC From domestic transactions 1,063,359 - Financial institutions and organizations 1,016,351 - Other institutions and organizations 9,403 - Real persons 37,605 - From foreign transactions - 309,521 Financial institutions and organizations - 309,521 Other institutions and organizations - - Real persons - - Total 1,063,359 309,521
5. Marketable Securities Issued:
As of 31 December 2017 outstanding issued bonds amount of the Group is TRL 486,950 Thousand.
Issuer Issuance Date Issuance Amount Maturity Şekerbank T.A.Ş. 25.08.2017 108,900 175 days Şekerbank T.A.Ş. 20.11.2017 125,750 120 days Şeker Finansal Kiralama A.Ş. 07.03.2017 13,748 350 days Şeker Finansal Kiralama A.Ş 02.05.2017 1,700 350 days Şeker Finansal Kiralama A.Ş. 06.06.2017 5,422 364 days Şeker Finansal Kiralama A.Ş. 11.07.2017 1,000 364 days Şeker Finansal Kiralama A.Ş. 24.10.2017 39,143 175 days Şeker Finansal Kiralama A.Ş. 24.10.2017 2,857 364 days Şeker Finansal Kiralama A.Ş. 28.11.2017 23,573 91 days Şeker Finansal Kiralama A.Ş. 28.11.2017 14,045 175 days Şeker Finansal Kiralama A.Ş. 28.11.2017 30,382 364 days Şeker Finansal Kiralama A.Ş. 14.12.2017 17,000 91 days Şeker Finansal Kiralama A.Ş. 14.12.2017 22,000 175 days Şeker Finansal Kiralama A.Ş. 14.12.2017 2,000 350 days Şeker Faktoring A.Ş. 25.05.2017 16,000 364 days Şeker Faktoring A.Ş. 10.07.2017 16,000 178 days Şeker Faktoring A.Ş. 01.08.2017 43,997 175 days Şeker Faktoring A.Ş. 02.10.2017 3,000 360 days Şeker Faktoring A.Ş. 02.10.2017 10,000 360 days Şeker Faktoring A.Ş. 01.12.2017 6,400 350 days
ŞEKERBANK ANNUAL REPORT 2018
459 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
As of 31 December 2017 outstanding issued marketable securities amount of the Group is TRL 39,349 Thousand and details are shown the table below.
Issuer Issuance Date Issuance Amount Maturity Şeker Finansal Kiralama A.Ş. 17.05.2016 4,820 728 days Şeker Finansal Kiralama A.Ş. 06.12.2016 3,564 728 days Şeker Finansal Kiralama A.Ş 07.03.2017 7,346 728 days Şeker Finansal Kiralama A.Ş 02.05.2017 3,772 728 days Şeker Finansal Kiralama A.Ş 06.06.2017 3,263 546 days Şeker Finansal Kiralama A.Ş 11.07.2017 2,369 546 days Şeker Faktoring A.Ş. 07.02.2017 3,000 546 days Şeker Faktoring A.Ş. 01.08.2017 1,603 546 days Şeker Yatırım Menkul Değerler A.Ş. 15.11.2017 14,647 62 days
The Parent Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table below. Among the institutions and organizations investing up to this time are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related Capital Market Board regulation and the Parent Bank’s SME loans were used as collateral.
Issue Date Series Investors Amount Outstanding Amount (*) Currency Maturity 18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019 25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021 19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020
(*) Outstanding amounts do not include accruals.
As of 31 December 2017 the Group has the Asset Covered Bonds amounting to TRL 701,385 Thousand.
Prior Period TRL FC Bills 486,950 - Asset Backed Securities 701,385 - Bonds 39,349 - Total 1,227,684 -
6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance sheet commitments) and the breakdown of these which constitute at least 20 % of grand total:
Other liabilities do not exceed 10 % of the balance sheet total.
ŞEKERBANK ANNUAL REPORT 2018
460 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Explanations on financial lease obligations (Net):
Prior Period TRL FC Lease Payables 27,541 15,060 Deferred Lease Expenses (6,788) (1,052) Total 20,753 14,008
8. Information on derivative financial liabilities for hedging purposes: None.
9. Information on provisions: a) Information on general provisions:
Prior Period General Provision 75,561 Provisions for first group loans and receivables 39,415 Additional provisions for the loans with extended payment plan - Provisions for second group loans and receivables 19,327 Additional provisions for the loans with extended payment plan - Provisions for non cash loans 8,098 Other 8,721 b) Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: TRL 490 Thousand. c) The specific provisions provided for unindemnified non-cash loans amount to TRL 61,395 Thousand. d) Information on employee termination benefits and unused vacation accrual:
The Group has calculated reserve for employee termination benefits by using actuarial valuations as set out in the TAS 19 and reflected this in the financial statements.
Main actuarial assumptions used for calculation of employment termination benefit are as follows:
- Discount rate for the current period is 11.50 %, inflation rate is 8.30%. - TRL 4,732.48 (full TRL) of maximum wage amount which was in effect as of 31 December 2017, was taken as maximum amount for the calculation regarding the current period.. - It was assumed that maximum wage would be increased in inflation rate for every consecutive year. - CSO 1980 table was used for mortality averages of females and males.
As of 31 December 2017, the Group has recorded in the financial statements TRL 75,411 Thousand reserve for employee termination benefits.
As of 31 December 2017, the Group allocated a reserve of TRL 7,814 for the unused vacations, which is classified under reserve for employee benefits provisions in the financial statements.
ŞEKERBANK ANNUAL REPORT 2018
461 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d.1) Movement of employee termination benefits:
Prior Period As of 1 January, 66,450 Cost Service 9,337 Interest Cost 7,281 Actuarial Loss/(Gain) (*) 3,716 Indemnity Paid During the Term (11,373) Total 75,411
(*) Actuarial loss/gain shown under other capital reserves after netting of deferred tax. e) Information on other provisions: e.1) Provisions for possible losses: None. e.2) The breakdown of the sub-accounts if other provisions exceed 10 % of the grand total of provisions:
Prior Period Unindemnified Non-Cash Loans 61,395 Credit Card Liquid Point Promotion Provisions 564 Retirement Fund Provisions 81,454 Legal Case Provisions 21,189 Bonus Provision 16,952 SDIF Premium Provision 10,572 BRSA Provisions - Other Provisions 48,507 Total 240,633 f) Liabilities on pension rights: f.1) Liabilities for pension funds established in accordance with “Social Security Institution”:
Şekerbank T.A.Ş. Pension Fund, of which most of the Parent Bank’s employees are members, is established in accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of the issuance date of the order.
ŞEKERBANK ANNUAL REPORT 2018
462 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
After the justified decree related to cancelling the provisional article 23 of the Banking Law was announced by the Constitutional Court in the Official Gazette dated 15 December 2007 and numbered 26731, Turkish Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health Insurance Act and Certain Laws and Decree Laws”, which was published in the Official Gazette dated 8 May 2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation. The three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900.
In addition, by the Law “Emendating Social Security and General Health Insurance Act”, which was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years after that related transfer period has been prolonged for one more year by the Cabinet decision dated 08 April 2013, which was published in the Official Gazette dated 3 May 2013 and numbered 28636 also this period has revalidated one more year by the Cabinet decision dated 24 February 2014, which was published in the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and numbered 29335.
The above mentioned law also includes the following:
• Through a commission constituted by the attendance of one representative separately from the Social Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.8% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors.
On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore- mentioned court on 30 March 2011.
The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary Regulations” issued based on the Article 38. There was TRL 81,454 Thousand actuarial deficit in the actuary report which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers decision no: 2006/11345 on 30 November 2006.
As of 31 December 2017, TRL 81,454 Thousand provision is recorded in the financial statements.
The actuarial audit described above, which has been carried out in accordance with the related law, measures the present value of the liability as of 31 December 2017, in other words, the estimated payment amount to be made to the Social Security Institution by the Parent Bank is measured by the actuarial audit. In actuarial calculations, CSO 1980 mortality table, 9.80% technical interest rate and 34.50% premium rate were taken into account.
ŞEKERBANK ANNUAL REPORT 2018
463 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
Present values of bonuses and salaries payment including health expenses reserve are shown in the following table in accordance with Social Security Institution as of 31 December 2017.
31 December 2017 Reserve of Probable Retirement Pensions (135,200) Reserve of Probable Widow and Orphant (109,984) Reserve of Liability Items (893,514) Reserve for Salary Portions to be Given to Social Insurance Institution for those who leave the Pension Fund. (206,262) Health and Funeral Expenses Reserve (143,023) Assets (*) 428,110 Cash Value of the Premiums of the Active Members 868,745 Reserve of Common Members’ Salary Proportion Receivables from other social insurance institutions. 109,674 Actual and Technical Surplus / (Deficit) Amount (81,454)
(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.
Assets of the Pension Fund consist of following items:
31 December 2017 Banks and Other Financial Investments 282,536 Associates 122,545 Immovable 8,924 Other 14,105 Total 428,110 f.2) Liabilities resulting from all kinds of pension funds, foundations etc. which provide post retirement benefits for the employees of Group: See footnote, II/9 f.1 of Section Five.
10. Explanations on taxes payable: a) Information on current tax liability: a.1) Corporate taxes:
Group had TRL 12,884 Thousand corporate tax to be paid as of 31 December 2017. a.2) Information on taxes payable:
Prior Period Corporate Tax 12,884 Taxation on Securities 17,888 Capital Gains Tax on Property 535 Banking Insurance Transaction Tax (BITT) 22,627 Foreign Exchange Transaction Tax 2 Value Added Tax Payable 4,213 Other 6,547 Total 64,696
ŞEKERBANK ANNUAL REPORT 2018
464 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) a.3) Information on premiums:
Prior Period Social Security Premiums-Employee 212 Social Security Premiums-Employer 278 Bank Social Aid Pension Fund Premiums-Employee - Bank Social Aid Pension Fund Premiums-Employer - Pension Fund Membership Fees and Provisions-Employee - Pension Fund Membership Fees and Provisions-Employer - Unemployment insurance-Employee 16 Unemployment insurance-Employer 31 Other - Total 537 b) Explanations on deferred tax liabilities, if any: As of 31 December 2017, the Group had TRL 902 Thousand deferred tax liability as mentioned in the Section V. Note I.15.
11. Information on liabilities regarding assets held for sale and discontinued operations: None.
12. Explanations on the number of subordinated loans the Bank used, maturity, interest rate, institution that the loan was borrowed from, and conversion option, if any:
Prior Period TRL FC Domestic Banks - - Other Domestic Institutions 301,275 - Banks Abroad - 340,206 Other Institutions Abroad - - Total 301,275 340,206
13. Information on Shareholders’ Equity: a) Presentation of Paid-in capital:
Prior Period Common stock (*) 1,158,000 Preferred stock -
(*) Nominal Capital
ŞEKERBANK ANNUAL REPORT 2018
465 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b) Paid-in capital amount, explanation as to whether the registered share capital system is applicable at the Parent Bank and if so amount of registered share capital ceiling:
Registered share capital system is applied in the Parent Bank. Maximum registered capital amount is TRL 1,250,000 Thousand.
Capital System Paid-in Capital Maximum Registered Capital 1,158,000 1,250,000 c) Information on share capital increases and their sources; other information on increased capital shares in current period: None. d) Information on share capital increases from capital reserves: None. e) Capital commitments in the last fiscal year and at the end of the following period, the general purpose of these commitments and projected resources required to meet these commitments: None. f) Indicators of the Parent Bank’s income, profitability and liquidity for the previous periods and possible effects of these future assumptions on the Parent Bank’s equity due to the uncertainty of these indicators:
Retained and current year income, profitability and liquidity of the Parent Bank are closely monitored, reported by the Financial Control, Reporting, Budget and Performance Management Department to the Board of Directors and Asset and Liability Committee of the Parent Bank. This department prognoses the effects of interest, currency and maturity fluctuations with static and dynamic scenario analysis. Net asset value, which is defined as the difference of fair values of assets and liabilities, is measured. Prognoses are made for the Parent Bank’s future interest income via simulations of net interest income and scenario analysis. g) Information on preferred shares: None. h) Information on marketable securities value increase fund:
Prior Period TRL FC From Subsidiaries, Associations and Entities Under Common Control - - Marketable Securities Available for Sale (55,513) 1,314 Valuation Difference - - Foreign Exchange Difference - - Total (55,513) 1,314
14. Information on legal reserves:
Prior Period First legal reserves 97,437 Second legal reserves 16,254 Other legal reserves appropriated in accordance with special legislation 180,073 Total 293,764
ŞEKERBANK ANNUAL REPORT 2018
466 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
15. Information on extraordinary reserves:
Prior Period Reserves appropriated by the General Assembly 1,019,880 Retained earnings 3,981 Accumulated losses - Foreign currency share capital exchange difference - Total 1,023,861
16. Other Information on Shareholders’ Equity:
On 29 April 2016, the Parent Bank acquired 109,211,666.248 shares at TRL 175,000 Thousand through the auction. After the notification to the Parent Bank through the letter of Istanbul 14th Enforcement Office dated 25 July 2016, in accordance with the provisions of the Turkish Commercial Code and the Turkish Accounting Standards; TRL 175,996 Thousand, being “the charges-and-taxes-included cost value” of the repurchased shares is deducted from the Parent Bank’s “Other Capital Reserves” equity account as of 31 July 2016.
Şeker Finansal Kiralama A.Ş. through Şeker Yatırım Menkul Değerler A.Ş. bought back 2,686 shares and sold 2,354 shares during the reporting period and bought back 3,597 shares in the prior period, as a result total 3,929 shares were bought back.
17. Information on minority shares:
TRL 40,870 Thousand of minority shares are shown in the accompanying financial statements.
18. Information on other capital reserves:
Cumulative actuarial gain/loss is shown under other capital reserves as of 31 December 2017.
V. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and Commitments (Current Period)
1. Information on off-balance sheet liabilities: a. Nature and amount of irrevocable loan commitments:
Current Period Forward Asset Purchase Commitments 96,164 Loan Granting Commitments 987,126 Payment Commitments for Cheques 341,685 Commitments for Credit Card Expenditure limits 473,944 Commitments for Promotions related with Credit Cards and Banking Transactions 501 Subsidiaries and Associates Capital Commitments - Tax and Fund Obligations for Export Commitments 10,032 Other Commitments 225,869 Total 2,135,321
ŞEKERBANK ANNUAL REPORT 2018
467 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) b. Possible losses and commitments related to off-balance sheet items including items listed below:
The Group, within the context of banking activities, undertakes certain commitments, consisting of loan commitments, letters of guarantee, acceptance credits and letters of credit. b.1. Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:
Current Period Guarantees 963,277 Bank Loans 132,949 Letters of Credit 262,834 Endorsements 174,680 Total 1,533,740 b.2. Guarantees, surety ships, and similar transactions:
Current Period Definite Letter of Guarantees 2,666,086 Temporary Letter of Guarantees 190,548 Surety ships and Similar Transactions - Other Letter of Guarantees 1,528,610 Total 4,385,244 c. Information on non-cash loans: c.1. Total amount of non-cash loans:
Current Period Letters of Guarantees issued for cash loans 1,199,047 With maturity of 1 year or less than 1 year 746,485 With maturity of more than 1 year 452,562 Other non-cash loans 4,719,937 Total 5,918,984
ŞEKERBANK ANNUAL REPORT 2018
468 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.2. Information on sectoral risk breakdown of non-cash loans:
Current Period TRL (%) FC (%) Agricultural 5,702 0.17 25,320 1.01 Farming and raising livestock 5,067 0.15 25,320 1.01 Forestry 547 0.02 - - Fishery 88 - - - Manufacturing 283,063 8.33 1,240,193 49.23 Mining 30,920 0.91 106,051 4.21 Production 237,947 7.00 995,880 39.53 Electric, gas and water 14,196 0.42 138,262 5.49 Construction 1,028,496 30.25 551,680 21.90 Services 2,077,372 61.10 699,400 27.75 Wholesale and retail trade 506,845 14.91 152,502 6.05 Hotel, food and beverage services 12,653 0.37 11,627 0.46 Transportation and telecommunication 80,718 2.37 291,043 11.55 Financial institutions 1,197,165 35.21 125,730 4.99 Real estate and renting services 227,052 6.68 108,151 4.29 Self-employment services 30 - - - Education services 2,679 0.08 - - Health and social services 50,230 1.48 10,347 0.41 Other 5,012 0.15 2,746 0.11 Total 3,399,645 100 2,519,339 100 c.3. Information on I st and II nd Group non-cash loans:
I. Group II. Group Non-cash loans TRL FC TRL FC Letters of guarantee 3,100,277 810,221 203,111 162,601 Bank acceptances - 132,949 - - Letters of credit 1,976 260,546 - - Endorsements - 174,680 - - Underwriting commitments - - - - Guaranteed prefinancing credits - - - - Other commitments and surety ships 4,151 957,818 1,308 -
ŞEKERBANK ANNUAL REPORT 2018
469 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information related to derivative financial instruments:
Current Period Types of trading transactions Foreign currency related derivative transactions (I) 10,923,911 Forward transactions 1,120,528 Swap transactions 8,734,576 Futures transactions - Option transactions 1,068,807 Interest related derivative transactions (II) 1,545,718 Forward rate transactions - Interest rate swap transactions 1,545,718 Interest option transactions - Futures interest transactions - Other trading derivative transactions (III) 108,294 A. Total trading derivative transactions (I+II+III) 12,577,923
Types of hedging transactions Fair value hedges 936,000 Cash flow hedges - Net investment hedges - B.Total hedging related derivatives 936,000
Total Derivative Transactions (A+B) 13,513,923
Related to agreements of forward transactions and options; the information based on the type of forward and options transactions are disclosed separately, specified with related amounts, type of agreement, purpose of transaction, nature of risk, strategy of risk management, hedging relationship, possible effects on the Bank’s financial position, timing of cash flows, reasons of unrealized transactions which previously projected to be realized, income and expenses that could not be linked to statement of income in the current period because of the agreements:
The Group’s derivative instruments mainly consist of foreign currency swaps, interest swaps, option and forward buy/ sell transactions. Fair values of foreign currency forward and swap transactions are determined by comparing the Parent Bank’s period end foreign exchange rates and current market foreign exchange rates to the balance sheet date. The resulting gain or loss is reflected in the income statement. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term income statement. Discounted values calculated using the interest rates between the transaction date and repricing date are used in determination of the fair values of interest rate swaps. While some derivative transactions provide economic hedging, these transactions are subject to hedge accounting. The purpose of hedge accounting; is to present the effect of the risk management activities using appropriate financial instruments to manage certain risks that may affect profit or loss in the financial statements. For the purpose of hedging the fair value of a portfolio of financial assets or financial liabilities, the Group may apply the provisions of TFRS 9 or TAS 39. In this context, the Group has chosen to apply TFRS 9 for hedge accounting.
ŞEKERBANK ANNUAL REPORT 2018
470 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
As of 31 December 2018, breakdown of the Group’s foreign currency forward and swap transactions based on currencies are disclosed below in their TRL equivalents:
Forward Forward Swap Swap Option Option Futures Futures Buy Sell Buy Sell Buy Sell Buy Sell Current Period TRL 220,477 208,108 1,361,999 2,970,930 234,015 224,050 - - USD 178,439 145,008 3,117,322 824,528 264,011 299,591 - - EURO 157,275 202,726 1,101,494 1,632,941 25,069 22,071 - - OTHER 7,712 783 201,453 113,921 - - - - Total 563,903 556,625 5,782,268 5,542,320 523,095 545,712 - -
As of 31 December 2018, the Group has fair value hedge with nominal amount of TRL 936,000 Thousand.
As of 31 December 2018, the Group has no cash flow hedges.
As of 31 December 2018, the Group has no hedge of net investment in foreign operations.
3. Credit derivatives and risk exposures on credit derivatives: None.
4. Explanations on contingent liabilities and assets:
As of 31 December 2018, there are 616 continuing legal cases against the Group based on information received from the Law Departments of the Group. The total amount of these cases is TRL 76,228 Thousand. Provision amount for these cases is TRL 21,987 Thousand.
The Group has no contingent assets.
Explanations on revocable commitments: In the current period, the Group’s revocable commitments amount to TRL 538,914 Thousand.
5. Custodian and intermediary services:
The Group provides buying and selling securities transacions, custody, brokerage and management on behalf of customers.
ŞEKERBANK ANNUAL REPORT 2018
471 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
VI. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and Commitments (Prior Period)
1. Information on off-balance sheet liabilities: a) Nature and amount of irrevocable loan commitments:
Prior Period Forward Asset Purchase Commitments 716,418 Loan Granting Commitments 910,583 Payment Commitments for Cheques 671,707 Commitments for Credit Card Expenditure limits 463,694 Commitments for Promotions related with Credit Cards and Banking Transactions 694 Subsidiaries and Associates Capital Commitments - Tax and Fund Obligations for Export Commitments 6,526 Other Commitments 160,960 Total 2,930,582 b) Possible losses and commitments related to off-balance sheet items including items listed below:
The Group, within the context of banking activities, undertakes certain commitments, consisting of loan commitments, letters of guarantee, acceptance credits and letters of credit. b.1) Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:
Prior Period Guarantees 466,063 Bank Loans 141,058 Letters of Credit 446,671 Total 1,053,792 b.2) Guarantees, suretyships, and similar transactions:
Prior Period Definite Letters of Guarantee 2,639,208 Temporary Letters of Guarantee 453,628 Suretyships and Similar Transactions - Other Letters of Guarantee 1,176,749 Total 4,269,585
ŞEKERBANK ANNUAL REPORT 2018
472 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.1) Total amount of non-cash loans
Prior Period Letters of Guarantee issued for cash loans 885,085 With maturity of 1 year or less than 1 year 483,623 With maturity of more than 1 year 401,462 Other non-cash loans 4,438,669 Total 5,323,754 c.2) Information on sectoral risk breakdown of non-cash loans:
Prior Period TRL (%) FC (%) Agricultural 4,610 0.13 13,181 0.66 Farming and raising livestock 3,112 0.09 12,127 0.61 Forestry 1,408 0.04 1,054 0.05 Fishery 90 - - - Manufacturing 249,724 7.46 992,685 50.24 Mining 19,255 0.58 79,860 4.04 Production 217,987 6.51 792,888 40.13 Electric, gas and water 12,482 0.37 119,937 6.07 Construction 1,282,327 38.30 437,478 22.14 Services 1,807,096 53.98 531,824 26.92 Wholesale and retail trade 511,084 15.27 264,737 13.40 Hotel, food and beverage services 11,044 0.33 14,005 0.71 Transportation and telecommunication 81,392 2.43 50,590 2.56 Financial institutions 785,317 23.46 108,202 5.48 Real estate and renting services 346,588 10.35 81,189 4.11 Self-employment services - - - - Education services 2,373 0.07 - - Health and social services 69,298 2.07 13,101 0.66 Other 4,100 0.13 729 0.04 Total 3,347,857 100.00 1,975,897 100.00
ŞEKERBANK ANNUAL REPORT 2018
473 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.3) Information on I st and II nd Group non-cash loans:
I. Group II. Group Non-cash loans TRL FC TRL FC Letters of guarantee 3,135,147 808,282 205,926 120,230 Bank acceptances 1,365 139,693 - - Letters of credit 843 445,828 - - Endorsements - - - - Underwriting commitments - - - - Guaranteed prefinancing credits - - - - Other commitments and suretyships - 417,840 4,576 44,024
The Group provided reserve amounting to TRL 61,395 Thousand for non-indemnified non-cash loans amounting to TRL 127,728 Thousand .
2. Information related to derivative financial instruments:
Prior Period Types of trading transactions Foreign currency related derivative transactions (I) 13,180,358 Forward transactions 2,097,772 Swap transactions 8,570,774 Futures transactions - Option transactions 2,511,812 Interest related derivative transactions (II) 1,398,082 Forward rate transactions - Interest rate swap transactions 1,398,082 Interest option transactions - Futures interest transactions - Other trading derivative transactions (III) 445,388 A. Total trading derivative transactions (I+II+III) 15,023,828
Types of hedging transactions - Fair value hedges 223,000 Cash flow hedges - Net investment hedges - B.Total hedging related derivatives 223,000
Total Derivative Transactions (A+B) 15,246,828
Related to agreements of forward transactions and options; the information based on the type of forward and options transactions are disclosed separately, specified with related amounts, type of agreement, purpose of transaction, nature of risk, strategy of risk management, hedging relationship, possible effects on the Group’s financial position, timing of cash flows, reasons of unrealized transactions which previously projected to be realized, income and expenses that could not be linked to statement of income in the current period because of the agreements:
ŞEKERBANK ANNUAL REPORT 2018
474 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The Group’s derivative instruments consist of foreign currency swaps, option and forward foreign currency buy/sell transactions. The Parent Bank revalues foreign currency forward and swap transactions using the Parent Bank’s end of reporting foreign exchange rates. The resulting gain or loss is reflected in the statement of income. In calculation of fair values of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and discounted in accordance to valid interest rates in the current market and the differences have been reflected to the current term’s statement of income. Some of the derivative instruments, although made for economical hedging purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument as per “Financial Instruments: Recognition and Measurement” (“TAS 39”).
As of 31 December 2017 the breakdown of the Group’s foreign currency forward and swap transactions based on currencies are disclosed below in their TRL equivalents:
Forward Forward Swap Swap Option Option Futures Futures Buy Sell Buy Sell Buy Sell Buy Sell Prior Period TRL 448,990 567,135 382,166 3,968,179 637,839 453,388 - - USD 289,806 353,527 4,199,634 274,677 534,461 710,816 - - EURO 301,487 134,287 534,427 641,444 66,603 85,794 - - OTHER 1,270 1,643 188,144 448,200 7,403 15,508 - - Total 1,041,553 1,056,592 5,304,371 5,332,500 1,246,306 1,265,506 - -
As of 31 December 2017, the Group has fair value hedge with nominal amount of TRL 223,000 Thousand
As of 31 December 2017, the Group has no cash flow hedges.
As of 31 December 2017, the Group has no hedge of net investment in foreign operations .
3. Credit derivatives and risk exposures on credit derivatives: None.
4. Explanations on contingent liabilities and assets:
As of 31 December 2017, there were 814 continuing legal cases against the Group based on information received from Law Departments of the Group. The total amount of these cases was TRL 71,086 Thousand. Provision amount for these cases was TRL 21,189 Thousand.
The Group has no contingent assets.
As of 31 December 2017, the Group’s revocable commitments amounted to TRL 297,528 Thousand.
5. Custodian and intermediary services:
The Group provides buying and selling securities transacions, custody, brokerage and management on behalf of customers.
ŞEKERBANK ANNUAL REPORT 2018
475 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
VII. Explanations Related to the Consolidated Statement of Income (Current Period)
1. Information on interest income: a. Information on interest income on loans:
Current Period TRL FC Interest on Loans (*) 3,095,514 511,850 Short Term Loans 1,638,531 44,401 Medium and Long Term Loans 1,394,456 467,423 Interest on Non-Performing Loans 62,527 26 Premiums received from Resource Utilization Support Fund - -
(*) Includes fees and commissions obtained from cash loans. b. Information on interest received from banks:
Current Period TRL FC The Central Bank of Turkey 360 691 Domestic Banks 21,474 7,587 Foreign Banks 51 6,579 Branches and Head Office Abroad - - Total 21,885 14,857 c. Interest income from marketable securities portfolio:
Current Period TRL FC Financial Assets At Fair Value Through Profit And Loss 3,515 544 Financial Assets At Fair Value Through Other Comprehensive Income 50,987 - Financial Assets at Amortised Cost 460,863 48,900 Total 515,365 49,444 d. Information on interest income received from associates and subsidiaries: None.
ŞEKERBANK ANNUAL REPORT 2018
476 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information on interest expense a. Information on interest expense on funds borrowed:
Current Period TRL FC Banks (*) 74,481 121,995 The Central Bank of Turkey - - Domestic Banks 66,808 10,893 Foreign Banks 7,673 111,102 Branches and Head Office Abroad - - Other Financial Institutions - - Total 74,481 121,995
(*) Includes fees and commission expenses of cash loans. b. Information on interest expense to associates and subsidiaries:
Current Period Interest Expense to Associates and Subsidiaries 210 c. Information on interest expense to marketable securities issued:
Current Period TRL FC Interest expense on securities issued 288,629 41,175
ŞEKERBANK ANNUAL REPORT 2018
477 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d. Distribution of interest expense on deposits based on maturity of deposits:
Time Deposits Demand Up to 1 Up to 3 Up to 6 More than Accumulated Current Period Deposits Month Months Months Up to 1 Year 1 Year Deposits Total TRL Bank deposits 432 11,340 20,635 - - - - 32,407 Saving deposits 477 175,120 1,053,529 169,668 28,240 45,423 473 1,472,930 Public sector deposits - 115 2,663 455 158 70 - 3,461 Commercial deposits 66 58,801 249,598 7,702 1,049 631 1 317,848 Other deposits 12 2,950 67,548 7,908 229 262 - 78,909 7 days call accounts ------Precious metal deposits ------Total 987 248,326 1,393,973 185,733 29,676 46,386 474 1,905,555 Foreign Currency - Foreign currency deposits 1,798 20,974 167,971 16,058 8,203 31,787 - 246,791 Bank deposits 19,640 338 1,345 - - - - 21,323 7 days call accounts ------Precious metal deposits 476 ------476 Total 21,914 21,312 169,316 16,058 8,203 31,787 - 268,590 Grand Total 22,901 269,638 1,563,289 201,791 37,879 78,173 474 2,174,145
3. Information on dividend income:
Current Period Financial assets at fair value through profit and loss - Financial assets at fair value through other comprehensive income - Other 1,382 Total 1,382
4. Information on net trading income:
Current Period Income 31,572,664 Profit on capital market operations 20,380 Profit on derivative financial instruments 4,447,914 Foreign exchange gains 27,104,370 Losses (-) 31,689,425 Losses on capital market operations 2,076 Losses on derivative financial instruments 3,336,138 Foreign exchange losses 28,351,211
ŞEKERBANK ANNUAL REPORT 2018
478 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
5. Information on other operating income:
The information on the factors affecting the Group’s income including new developments, and the explanation on nature and amount of income earned from such items:
As of 31 December 2018, TRL 88,894 Thousand stated under other operating income in the statement of income includes TRL 28,774 Thousand prior years’ provisions reversal income and TRL 60,120 Thousand other operating income.
As of 31 December 2018, prior years expense and provision reversal income include TRL 7,797 Thousand reversal of credit loss provisions due to collection of cash loans, TRL 3,012 Thousand reversals of non-cash provisions, and TRL 17,965 Thousand reversal of legal case provision and other provisions.
6. Provision expenses of banks for loans and other receivables:
Current Period Expected Credit Losses 452,888 12-Month ECL (Stage 1) 18,884 Significant Increase in Credit Risk (Stage 2) 169,573 Impaired Credits (Stage 3) 264,431 Impairment Losses on Securities 148 Financial Assets Measured at Fair Value through Profit or Loss 148 Financial Assets Measured at Fair Value through Other Comprehensive Income - Impairment Losses on Associates, Subsidiaries and Joint-ventures - Associates - Subsidiaries - Joint-ventures (business partnership) - Other (*) 89,345 Total 542,381
(*) Other provisions also include provisions for non-cash loans.
ŞEKERBANK ANNUAL REPORT 2018
479 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
7. Information on other operating expenses:
Current Period Personnel expenses(***) 468,122 Reserve for employee termination benefits 9,417 Bank social aid provision fund deficit provision 78,045 Impairment losses on fixed assets 1,066 Depreciation expenses of fixed assets 31,061 Impairment losses on intangible assets - Goodwill impairment losses - Depreciation expenses of intangible assets 35,824 Impairment for investments accounted for under equity method - Impairment losses on assets held for resale 2,599 Depreciation expenses of assets held for resale - Impairment losses on assets held for sale - Other operating expenses 423,791 Services Rent expenses 88,062 Maintenance expenses 27,665 Advertisement expenses 24,795 Other expenses(**) 283,269 Loss on sales of assets 490 Other(*) 143,179 Total 1,193,594
(*) “Other” includes TRL 35,328 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 5,514 Thousand legal case provision. (**) Other expenses include TRL 23,504 Thousand communication expenses, TRL 44,155 Thousand computer usage expenses, TRL 10,826 Thousand promotion applications related with credit cards and banking services. (***) The Personnel Expenses, which is shown as a separate item and not included in Other Operating Expenses in the Income Statement, is also included in the table.
8. Information on profit/ loss from continued and discontinued operations before taxes:
As of 31 December 2018, the Group has TRL 107,583 Thousand profit before tax, TRL 1,375,436 Thousand of operating income, TRL 360,116 Thousand of fees and commissions income, TRL 542,381 Thousand of provision expenses, TRL 88,894 Thousand of other operating income and TRL 725,472 Thousand of other operating income.
9. Information on tax provision for continued and discontinued operations:
As of 31 December 2018, the Group has TRL 18,153 Thousand current tax charge and deferred tax benefit on temporary differences is TRL 108,564 Thousand, deferred tax charge is TRL 109,247 Thousand.
10. Information on net profit/ loss from continued and discontinued operations:
The Group’s net profit for the period ended on 31 December 2018 is TRL 88,747 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
480 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
11. The explanations on net profit/loss for the period: a) The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for the complete understanding of the Group’s performance for the period: None. b) Effect of changes in accounting estimates on statement of income for the current and, if any, for subsequent periods: None. c) Profit or loss attributable to minority shares: Loss attributable to minority shares is TRL 651Thousand. d) If the other items in the statement of income exceed 10 % of the statement of income total, accounts amounting to at least 20 % of these items are shown below:
Other Fees and commissions received Current Period Banking Services Income 357,875 Other 33,441 Total 391,316
Other Fees and commissions given Current Period Fees and commissions given to Banks 26,538 Fees and commissions given for Credit Cards 40,612 Other 40,247 Total 107,397 e) Nature and amount of changes in accounting estimates, which have a material effect on current period or expected to have a material effect on subsequent periods: None.
VIII. Explanations Related to Consolidated Statement of Shareholders’ Equity Movement (Current Period)
1. Information on the changes from valuation of financial assets at fair value through comprehensive income
Value increase or loss from the revaluation of financial assets at fair value through comprehensive incomeis recorded under shareholders equity. In the current period, the value increase recorded under shareholders equity is TRL 13,913 Thousand and net value increase from investments at fair value through other comprehensive income is TRL 2,840 Thousand with netted off deferred tax liability amounting to TRL 11,073 Thousand.
2. Information on revaluation of tangible assets
As a result of the revaluation of the Group’s real estates within the scope of “TAS 16 Tangible Assets Standard”, the value increase amounting to TRL 15,969 Thousand has been reflected to the financial statements after the deferred tax effect in the current period.
ŞEKERBANK ANNUAL REPORT 2018
481 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
IX. Explanations Related to Consolidated Statement of Cash Flows (Current Period)
1. The effects of the other items stated in the cash flow statement and the changes in foreign currency exchange rates on cash and cash equivalents:
“Net increase/decrease in other liabilities” amounting to TRL 519,960 Thousand in “Changes in operating assets and liabilities” consists of changes in sundry creditors and other liabilities. “Net increase/decrease in other assets” with a total amount of TRL 308,328 Thousand consists of changes in sundry debtors and other assets.
The effect of change in foreign exchange rate on “cash and cash equivalents” is an increase amounting to TRL 334,200 Thousand.
2. Cash and cash equivalents at beginning of periods
The recorded amounts of the cash and cash equivalent assets at the balance sheet and the recorded amounts in the cash flow statement:
01.01.2018 Cash Cash in TRL/Foreign Currency 194,903 Central Bank of Turkey 608,206 Other 5 Cash Equivalents Banks (Maturity is less than 3 months) 638,450 Money Market Placements 2,447,904 Total Cash and Cash Equivalents 3,889,468
3. Cash and cash equivalents at the end of periods
31.12.2018 Cash Cash in TRL/Foreign Currency 526,267 Central Bank of Turkey 1,264,774 Other 7 Cash Equivalents Banks (Maturity is less than 3 months) 195,708 Money Market Placements 57,827 Total Cash and Cash Equivalents 2,044,583
ŞEKERBANK ANNUAL REPORT 2018
482 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
X. Explanations Related to the Consolidated Statement of Income (Prior Period)
1. Information on interest income: a) Information on interest income on loans:
Prior Period TRL FC Interest on Loans (*) 2,259,603 282,675 Short Term Loans 1,012,571 32,157 Medium and Long Term Loans 1,208,257 250,516 Interest on Non-Performing Loans 38,775 2 Premiums received from Resource Utilization Support Fund - -
(*) Includes fees and commissions obtained from cash loans. b) Information on interest received from banks:
Prior Period TRL FC The Central Bank of Turkey 361 172 Domestic Banks 11,483 4,415 Foreign Banks 470 1,133 Branches and Head Office Abroad - - Totald 12,314 5,720 c) Interest received income from marketable securities portfolio:
Prior Period TRL FC Trading Securities 1,689 501 Financial Assets at Fair Value Through Profit and Loss - - Available-for-Sale Securities 146,226 3,815 Held-to-Maturity Securities 119,195 14,068 Total 267,110 18,384 d) Information on interest income received from associates and subsidiaries: None
ŞEKERBANK ANNUAL REPORT 2018
483 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
2. Information on interest expense a) Information on interest expense on funds borrowed:
Prior Period TRL FC Banks(*) 51,527 93,569 The Central Bank of Turkey - - Domestic Banks 46,624 6,978 Foreign Banks 4,903 86,591 Branches and Head Office Abroad - - Other Financial Institutions - - Total 51,527 93,569
(*) Includes fees and commission expenses of cash loans. b) Information on interest expense to associates and subsidiaries:
Prior Period Interest Expense to Associates and Subsidiaries 277 c) Information on interest expense to marketable securities issued:
Prior Period TRL FC Interest expense on securities issued 150,053 - d) Distribution of interest expense on deposits based on maturity of deposits:
Time Deposits Demand Up to 1 Up to 3 Up to 6 Up to More than Accumulated Account name Deposits Month Months Months 1 Year 1 Year Deposits Total TRL Bank deposits 112 35,028 21,986 - - - - 57,126 Saving deposits 172 59,714 652,809 23,558 11,584 25,594 236 773,667 Public sector deposits - 7 1,755 396 185 73 - 2,416 Commercial deposits 42 16,883 141,944 4,242 806 5,487 1 169,405 Other deposits 1 1,011 43,861 1,987 92 63 - 47,015 7 days call accounts ------Precious metal deposits ------Total 327 112,643 862,355 30,183 12,667 31,217 237 1,049,629 Foreign Currency Foreign currency deposits 611 8,388 88,219 18,452 4,105 18,220 - 137,995 Bank deposits 3,218 365 453 - - - - 4,036 7 days call accounts ------Precious metal deposits 312 ------312 Total 4,141 8,753 88,672 18,452 4,105 18,220 - 142,343 Grand Total 4,468 121,396 951,027 48,635 16,772 49,437 237 1,191,972
ŞEKERBANK ANNUAL REPORT 2018
484 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
3. Information on dividend income:
Prior Period Trading Securities - Financial assets at fair value through profit and loss - Available-for-sale securities - Other 2,064 Total 2,064
4. Information on net trading income:
Prior Period Income 13,676,565 Profit on capital market operations 2,910 Profit on derivative financial instruments 2,191,003 Foreign exchange gains 11,482,652 Losses (-) 13,917,612 Losses on capital market operations 734 Losses on derivative financial instruments 2,287,599 Foreign exchange losses 11,629,279
5. Information on other operating income:
The information on the factors affecting the Group’s income including new developments, and the explanation on nature and amount of income earned from such items:
As of 31 December 2017, TRL 246,395 Thousand stated under other operating income in the statement of income includes TRL 195,936 Thousand prior years’ provisions reversal income and TRL 50,459 Thousand other operating income.
As of 31 December 2017, prior years expense and provision reversal income include TRL 91,338 Thousand reversal of specific provisions due to collection of cash loans, TRL 8,692 Thousand reversals of non-cash provisions, TRL 3,177 Thousand of securities impairment provision reversal and TRL 92,729 Thousand reversal of legal case provision and other provisions.
Visa Europe Ltd, the payment systems company to which the Parent Bank was also a member, has been transferred to Visa Inc. operating in the same field, and TRL 14,225 Thousand that has been paid to the Parent Bank as a result of this transaction. Within the scope of the said acquisition, the Parent Bank has also acquired 1,574 units of C type shares of Visa Inc., which were recorded at the value of TRL 4,559 Thousand.
ŞEKERBANK ANNUAL REPORT 2018
485 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
6. Provision expenses of banks for loans and other receivables:
Prior Period Specific provisions for loans and other receivables 438,345 III.Group Loans and Receivables 59,013 IV.Group Loans and Receivables 98,278 V.Group Loans and Receivables 281,054 General loan loss provision expenses 1,136 Provision expenses for possible losses - Marketable securities impairment losses 2,018 Financial assets at fair value through profit and loss 53 Investment securities available for sale 1,965 Impairment provision expense 1,211 Associates - Subsidiaries - Entities under common control - Investments held to maturity 1,211 Other (*) 41,892 Total 484,602
(*) Other provisions include TRL 18,197 Thousand unindemnified non-cash loans provision..
7. Information on other operating expenses:
Prior Period Personnel expenses 407,716 Reserve for employee termination benefits 5,840 Bank social aid provision fund deficit provision 48,904 Impairment losses on fixed assets 1,474 Depreciation expenses of fixed assets 29,263 Impairment losses on intangible assets - Goodwill impairment losses - Depreciation expenses of intangible assets 33,661 Impairment for investments accounted for under equity method - Impairment losses on assets held for resale 2,759 Depreciation expenses of assets held for resale 7,685 Impairment losses on assets held for sale - Other operating expenses 376,528 Services Rent expenses 73,302 Maintenance expenses 22,556 Advertisement expenses 19,117 Other expenses (**) 261,553 Loss on sales of assets 55 Other(*) 147,321 Total 1,061,206
(*) Other” includes TRL 37,593 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 5,310 Thousand legal case provision and TRL 16,631 Thousand bonus provision. (**) Other expenses include TRL 22,514 Thousand communication expenses, TRL 37,687 Thousand computer usage expenses, TRL 8,033 Thousand promotion applications related with credit cards and banking services.
ŞEKERBANK ANNUAL REPORT 2018
486 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
8. Information on profit/loss from continued and discontinued operations before taxes:
Profit before tax of the Group has decreased by 1.20 % for the period ended 31 December 2017 as compared to the prior period. In comparison with in the same period, the Group’s operating income increased by 1.54 %, net fees and commissions income increased by 13.35 %, other operating expense increased by 10.77 %, provision expenses decreased by 13.57 % and other operating income decreased by 21.91%.
9. Information on tax provision for continued and discontinued operations: a) A As of 31 December 2017, current tax charge is TRL 36,669 Thousand and deferred tax benefit is TRL 13,227 Thousand. b) Deferred tax charge on temporary differences is TRL 13,227 Thousand.
10. Information on net profit/loss from continued and discontinued operations:
The net profit of the Group decreased for the period ended 31 December 2017 by 10.92 % as compared to the prior period profit.
11. The explanations on net profit/loss for the period: a) The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for the complete understanding of the Group’s performance for the period: None. b) Effect of changes in accounting estimates on income statement for the current and, if any, for subsequent periods: None. c) Profit or loss attributable to minority shares: Loss attributable to minority shares is TRL 1,511 Thousand. d) If the other items in the income statement exceed 10 % of the income statement total, accounts amounting to at least 20 % of these items are shown below:
Other fees and commissions received Prior Period Banking Services Income 322,799 Other 31,882 Total 354,681
Other fees and commissions given Prior Period Fees and commissions given to Banks 15,254 Fees and commissions given for Credit Cards 26,418 Other 36,974 Total 78,646 e) Nature and amount of changes in accounting estimates, which have a material effect on current period or expected to have a material effect on subsequent periods: None.
ŞEKERBANK ANNUAL REPORT 2018
487 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XI. Explanations Related to Consolidated Statement of Shareholders’ Equity Movement (Prior Period)
1. Information on the changes from valuation of financial assets available-for-sale
Value increase or loss from the revaluation of available-for-sale investment is recorded under shareholders equity. In the current period, the value increase recorded under shareholders equity is TRL 7,980 Thousand and net value increase from available-for-sale investments is TRL 1,596 Thousand netted off deferred tax liability amounting to TRL 6,384 Thousand.
2. Information on revaluation of tangible assets
As a result of the revaluation of the Group’s real estates within the scope of “TAS 16 Tangible Assets Standard”, the value increase amounting to TRL 14,613 Thousand has been reflected to the financial statements after the deferred tax effect in the current period.
XII. Explanations Related to Consolidated Statement of Cash Flows (Prior Period)
1. The effects of the other items stated in the cash flow statement and the changes in foreign currency exchange rates on cash and cash equivalents:
“Net increase/decrease in other liabilities” amounting to TRL 146,892 Thousand in “Changes in operating assets and liabilities” consists of changes in sundry creditors and other liabilities. “Net increase/decrease in other assets” with a total amount of TRL 903,550 Thousand of changes in sundry debtors and other assets.
The effect of change in foreign exchange rate on “cash and cash equivalents” is an increase amounting to TRL 42,356 Thousand.
2. Cash and cash equivalents at beginning of periods
The recorded amounts of the cash and cash equivalent assets at the balance sheet and the recorded amounts in the cash flow statement:
01.01.2017 Cash Cash in TRL/Foreign Currency 184,834 Central Bank 28,799 Other 4 Cash Equivalents - Banks (Maturity is less than 3 months) 104,545 Money Market Placements 3,919 Total Cash and Cash Equivalents 322,101
ŞEKERBANK ANNUAL REPORT 2018
488 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
3. Cash and cash equivalents at the end of periods
31.12.2017 Cash Cash in TRL/Foreign Currency 194,903 Central Bank 608,206 Other 5 Cash Equivalents - Banks (Maturity is less than 3 months) 638,450 Money Market Placements 2,447,904 Total Cash and Cash Equivalents 3,889,468
XIII. Explanations on the Risk Group of the Parent Bank
1. Volume of related party transactions, income and expense amounts involved and outstanding loan and deposit balances: a. Current Period:
Associates, Subsidiaries Direct and Indirect Other Components in Risk and Joint-Ventures Shareholders of the Bank Group Related Parties Cash Non-Cash Cash Non-Cash Cash Non-Cash Loans and other receivables Balance at beginning of period - 11,754 575,004 16,912 - - Balance at end of period - - 898,986 18,697 - - Interest and commission income - - 101,497 189 - - b. Prior Period:
Subsidiaries and Direct and Indirect Other Entities Included in Associates Shareholders of the Bank the Risk Group Related Parties Cash Non-Cash Cash Non-Cash Cash Non-Cash Loans and other receivables Balance at beginning of period - 14,184 493,508 15,344 - - Balance at end of period - 11,754 575,004 16,912 - - Interest and commission income - 110 46,768 154 - -
ŞEKERBANK ANNUAL REPORT 2018
489 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) c.1. Information on related party deposits balances:
Associates, Subsidiaries and Direct and Indirect Other Components in Risk Related parties Joint-Ventures Shareholders of the Bank Group Deposits Current Period Prior Period Current Period Prior Period Current Period Prior Period Balance at beginning of period 3,020 2,247 92,515 57,410 - - Balance at end of period 2,546 3,020 374,329 92,515 - - Interest on deposits 210 277 22,852 14,317 - - c.2. Information on forward and option agreements and other similar agreements made with related parties: None.
2. Disclosures for related parties: a) The relations of the Parent Bank with the entities controlled by the Parent Bank and its related parties, regardless of whether there are any transactions or not:
In the normal course of its banking activities, the Parent Bank conducted various business transactions with related parties at commercial terms and at rates which approximate market rates. Any transaction among the Group subsidiaries and/or related parties are executed on arm-lengths conditions. b) Nature of the transactions amount and ratio to the total volume of transactions, amount of major items and ratio to all items, pricing policies and other factors:
Amount Shares % Cash loans 898,986 4.09 Non-cash loans 18,697 0.32 Deposits 376,875 1.64
These transactions are priced in accordance with the general pricing policies of the Parent Bank and are in line with market rates . c) In cases separate disclosure is not necessary, in order to present the total impact on the financial statements, total of similar items: Explained in b.
ŞEKERBANK ANNUAL REPORT 2018
490 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.) d) Transactions accounted under the equity method: None. e) Disclosures related to purchase and sale of real estate and other assets, services given/received, agency contracts, leasing contracts, transferring information as a result of research and development, license contracts, financing (including supports in the form of loans, capital in cash and capital in kind), guarantees, and management contracts:
The Parent Bank enters into lease agreements with Şeker Finansal Kiralama A.Ş. As of 31 December 2018 there is no leasing obligations related to those agreements (31 December 2017 - TRL 20 Thousand). Additionally, the Parent Bank provides agency services for Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş. and Şeker Finansman A.Ş. through its branches.
Within the limits of the Banking Law, the Group renders cash and non-cash loans to its related parties and the ratio of these loans to the Group’s total cash and non-cash loan portfolio is 3.29%. Details of these loans are explained in the Section V, Note V-1a.
As of 31 December 2018 the Group has no purchases and sale of real estate and other assets, transfer of information as a result of research and development, and management contracts with the related parties. f) Benefits provided to the top management of the Group during current period amount to TRL 32,711 Thousand (31 December 2017 - TRL 32,345 Thousand).
XIV. Explanations on the Parent Bank’s domestic branches, agencies and branches abroad and off-shore branches:
1. Parent Bank’s domestic branches, agencies and branches abroad and off-shore branches:
Number of Branches Number of Employees Domestic branches 273 3,571 Country Rep-offices Abroad - - - Total Assets Capital Branches abroad - - - - Off-shore Branches - - - -
2. Explanations on Branch and Agency Openings or Closings of the Parent Bank:
None.
ŞEKERBANK ANNUAL REPORT 2018
491 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
XV. Explanations and notes related to subsequent events:
The Parent Bank’s note Corporate Governance Rating of 2017, which was 9.27 (92.70%) announced to the public on 25 January 2018, was increased to 9.42 (94.23%) on 23 January 2019 by Saha Corporate Governance and credit rating services, as a result of the evaluation made for 2018 year.
On 28 January 2019 international credit rating agency Fitch Ratings has confirmed to Parent Bank’s long-term local and foreign currency rating as “B”, short-term local and foreign currency rating as “B”, financial capacity the rating as “b”, support rating as “5” and outlook as “negative” and has disclosed long-term national credit rating at “BBB-(Tur)”.
Within the scope of the resolution of the Capital Markets Board dated 25 October 2018 and numbered 53/1227, the Parent Bank has completed the sale of discounted financing bills with a nominal value of TL 50,000 Thousand with a maturity of 77 days with a TRFSKBK41917 ISIN Code at 11 February 2019.
At the meeting of the Parent Bank’s Board of Directors, dated 13 February 2019 has been decided to be held the 66th Ordinary General Assembly Meeting of the Parent Bank for the fiscal year of 2018 on 27 March 2019 Wednesday at 10:00 am at the headquarters located at Emniyet Evleri Mah. Eski Büyükdere Caddesi No: 1/1A Kağıthane/İSTANBUL and has been authorized the General Management to make all necessary announcements, correspondence and all other preparations for these transactions.
On 19 February 2019, an application was made for permission to the Capital Markets Board and the Banking Regulation and Supervision Agency regarding the amendment of the Article 18 titled “Issuance of Debenture Bond” and the Article 28 titled “The Duties and Authorizations of the Board of Directors” of the Articles of Association of the Parent Bank.
ŞEKERBANK ANNUAL REPORT 2018
492 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
SECTION SIX OTHER EXPLANATIONS
I. Other Explanations on Group’s Opeations
The results of the Bank’s rating by the international rating institutions are shown below
Information on the activities carried out by the international rating agencies for the Parent Bank is as follows:
Fitch Ratings: September 2018 JCR: September 2018 Foreign Currency Foreign Currency Long Term B International Long Term BBB- Short Term B International Short Term A-3 Outlook Negative Local Currency Local Currency International Long Term BBB- Long Term B International Short Term A-3 Short Term B Outlook Negative Outlook Negative Long Term National AA- (Trk) National BBB (tur) Short Term National A-1+ (Trk) Outlook Viability Negative Support Rating 3 Support Rating B Individual Rating AB Foreign Currency 5
Moody’s: August 2018 Foreign Currency Long Term Caa1 Short Term NP Local Currency Long Term Caa1 Short Term NP National Long Term Ba3.tr National Short Term TR-4 Outlook Negative
ŞEKERBANK ANNUAL REPORT 2018
493 FINANCIAL INFORMATION ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TRL) UNLESS OTHERWISE STATED.)
The results of the rating performed by JCR Eurasia Rating for Şeker Finansal Kiralama A.Ş. is shown below:
JCR Eurasia Rating: May 2017 Foreign Currency Commitments Long term BBB- Short term A-3 View Negative Long Term National BBB+ (Trk) Short Term National A-2 (Trk) Turkish Lira Commitments Long term BBB- Short term A-3 View Negative Long Term National BBB+ (Trk) Short Term National A-2 (Trk) Individual Rating AB Support Points 2
SECTION SEVEN INDEPENDENT AUDITORS’ REPORT
I. Explanations on the Matters Related to Independent Auditors’ Report:
The consolidated financial statements for year ended 31 December 2018 were reviewed by DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (Member of Deloitte Touche Tohmatsu) and Independent Auditors’ Report dated 5 March 2019 is presented in the introduction of this report.
II. Other Footnotes and Explanations Prepared by Independent Auditors:
None.
ŞEKERBANK ANNUAL REPORT 2018
494 FINANCIAL INFORMATION
Our Branches
BRANCH NAME BRANCH ADDRESS TELEPHONE Acıpayam Yukarı Mah. Atatürk Bulvarı No: 66 Acıpayam/Denizli +90 258 - 518 18 15 Adana Abidinpaşa Cad. No: 40 Seyhan/Adana +90 322 - 352 95 54 Adapazarı Cumhuriyet Mah. Doktor Kamil Sokak No: 16/B Adapazarı/Sakarya +90 264 - 274 53 71 Adıyaman Hocaömer Mah. No: 160 Adıyaman +90 416 - 213 89 22 Afşin Ebülfez Elçibey Cad. No: 59 Afşin/Kahramanmaraş +90 344 - 511 43 72 Afyon Karaman Mah. Milli Egemenlik Cad.No.32/A Afyonkarahisar +90 272 - 215 24 26 Ağrı Yavuz Mah. Kağızman Cad. No: 4 Merkez/Ağrı +90 472 - 215 07 49 Akçaabat Dürbinar Mah. Hükümet Cad. Tosun İşhanı No: 81/A Akçaabat/Trabzon +90 462 - 228 44 45 Akdeniz (Mediterranean) Cumhuriyet Cad. No: 75/C Antalya +90 242 - 248 37 08 Akdeniz Sanayi Sitesi Şafak Mah. 5012. Sok. No: 52 Kepez/Antalya +90 242 - 221 50 40 Akhisar Şehit Teğmen Tahir Ün Cad. Paşa Mah. 14.sok No: 89 Akhisar/Manisa +90 236 - 412 96 55 Aksaray Ankara Cad. Mecit Mutlu İşhanı No: 7/B Aksaray +90 382 - 212 52 84 Aksaray/Istanbul Aksaray Mah. İnkilap Cad. No: 43/A Aksaray Fatih/Istanbul +90 212 - 530 73 43 Akşehir Selçuk Mah. İnönü Cad. No: 43 Akşehir/Konya +90 332 - 813 62 72 Akyazı Konuralp Mah. Ada Cad. No: 318 Akyazı/Sakarya +90 264 - 418 24 65 Alanya Bostancı Pınarı Cad. No: 26/B Alanya/Antalya +90 242 - 513 61 90 Alaşehir Kışla Cad. No: 94 Alaşehir/Manisa +90 236 - 654 20 54 Aliağa Kültür Mah. İstiklal Cad. No: 54/A Aliağa/Izmir +90 232 - 617 19 19 Alpullu Ordu Cad. No: 22/B Alpullu Babaeski/Kırklareli +90 288 - 523 10 51 Altunizade Altunizade Mah. Kısıklı Cad. No: 5B Üsküdar/Istanbul +90 216 - 651 32 41 Amasya Mustafa Kemal Paşa Cad. No:47/A Amasya +90 358 - 218 50 85 Anafartalar Anafartalar Cad. No: 62/D Ulus Altındağ/Ankara +90 312 - 310 60 17 Anamur Esentepe (Saray) Mah. Atatürk Bulvarı No: 8 Anamur/Mersin +90 324 - 814 88 51 Ankara Cad./Bursa Anadolu Mah. Ankara Cad. No: 75 Yıldırım/Bursa +90 224 - 362 41 54 Ankara Kurumsal Korkutreis Mah. Hanımeli Sokak No: 1 Sıhhıye Çankaya/Ankara +90 312 - 231 91 48 (Corporate) Antakya Yavuz Selim Cad. Zühtiye Ökten İşhanı B Blok No: 1 Hatay +90 326 - 225 19 70 Antalya Tahılpazarı Mah.Adnan Menderes Bulvarı No: 15/1 Antalya +90 242 - 248 59 50 Antalya Hal Yeni Toptancı Hali No: 868 Antalya +90 242 - 339 73 48 Artvin Çarşı Mah. Cumhuriyet Cad. No: 10 Merkez/Artvin +90 466 - 212 74 44 Avcılar Avcılar Mah. Londra Asfaltı Cad. No: 201 Avcılar/Istanbul +90 212 - 509 84 84 Aydın Ramazanpaşa Mah. İstiklal Cad. Halil Zühtü Özçelik Apt. No: 15 Aydın +90 256 - 225 49 30 Ayrancılar/Izmir İnönü Mah. Aydın Cad. No: 89/A Torbalı/Izmir +90 232 - 854 81 84 Azerbaycan Bulvarı/ Egemenlik Mah. Azerbaycan Bulvarı No: 53/A Kahramanmaraş +90 344 - 235 08 25 Kahramanmaraş Babaeski Hacı Hasan Mah. Adil Onat Cad. No: 5 Babaeski/Kırklareli +90 288 - 512 11 52 Bafra Tekel Cad. No: 33/A Bafra/Samsun +90 362 - 543 37 54 Bahçelievler/Ankara 6. Cad. No: 15/A Bahçelievler Çankaya/Ankara +90 312 - 215 96 35 Bakırköy Istanbul Cad. No: 42/B Bakırköy/Istanbul +90 212 - 542 76 46 Balgat Ceyhun Atıf Kansu Cad. No.48 Balgat Çankaya/Ankara +90 312 - 285 58 07 Balıkesir Milli Kuvvetler Cad. No: 50/A Balıkesir +90 266 - 245 89 00 Banaz Başaran Cad. No: 4 Banaz/Uşak +90 276 - 315 34 00 Bandırma Haydarçavuş Mah. İnönü Cad. No: 25 Bandırma/Balıkesir +90 266 - 714 66 64 Başkent (Capital) Birlik Mah. 441.Cadde No: 3/A Çankaya/Ankara +90 312 - 442 20 35 Batman GAP Mah. Turgut Özal Bulvarı Safir Plaza No: 298-A Batman +90 488 - 215 00 72 Bayburt Cumhuriyet Cad. No: 12 Bayburt +90 458 - 211 96 91 Bayrampaşa Yenidoğan Mah. Abdi İpekçi Cad. No: 24/A Bayrampaşa/Istanbul +90 212 - 612 89 49 Beşevler/Bursa Üçevler Mah. 2 No’lu Sokak No: 16 Nilüfer/Bursa +90 224 - 443 63 84 Beşiktaş Barbaros Bulvarı No: 97/1 Beşiktaş/Istanbul +90 212 - 258 79 80
ŞEKERBANK ANNUAL REPORT 2018
495 FINANCIAL INFORMATION
Our Branches
BRANCH NAME BRANCH ADDRESS TELEPHONE Beylikdüzü Büyükşehir Mah. Belediye Cad. Beylicium Alışveriş Merkezi No: 9 Beylikdüzü/ +90 212 - 872 13 19 Istanbul Beypazarı Beytepe Mah. İrfan Gümüşel Cad. No: 59 Beypazarı/Ankara +90 312 - 763 60 13 Beyşehir Evsat Mah. Şehit Mahmut Akşin Sokak No: 33 Beyşehir/Konya +90 332 - 512 49 50 Biga İstiklal Mah. İstiklal Cad. No: 69 Biga/Çanakkale +90 286 - 317 45 04 Bodrum Kıbrıs Şehitleri Cad. Ataman İş Merkezi B Blok No: 31 Bodrum/Muğla +90 252 - 313 54 61 Boğazlıyan Çarşı İçi Kayseri Cad. No: 1 Boğazlıyan/Yozgat +90 354 - 645 11 22 Bolu Tabaklar Mah. İzzet Baysal Cad. No: 79 Merkez/Bolu +90 374 - 213 62 63 Bornova Mustafa Kemal Cad. No:130/A Bornova/Izmir +90 232 - 374 66 92 Bozüyük İsmet İnönü Cad. Yeni Mah. Ulu Cami Yanı No: 21 Bozüyük/Bilecik (Temporary +90 228 - 314 01 40 Address) Bucak Konak Mah. Süleyman Demirel Bulvarı No: 24 Bucak/Burdur +90 248 - 325 02 20 Buğday Pazarı Fevzi Çakmak Mah. Adana Çevre Yolu Cad. No: 26 – G Karatay/Konya +90 332 - 236 20 21 Burdur Konak Mah. Gazi Cad. No: 38 Burdur +90 248 - 233 19 56 Bursa Haşim İşçan Cad. Burçin 1 İşhanı No: 8 Osmangazi/Bursa +90 224 - 224 15 90 Büsan Organized Fevzi Çakmak Mah. Büsan Sanayi Sitesi KOSGEB Cad. No: 4 Karatay/KONYA +90 332 - 345 33 56 Industrial Zone Cebeci Cemal Gürsel Cad. No: 59/A Cebeci Çankaya/Ankara +90 312 - 362 01 68 Ceyhan Büyük Kırım Mah. Atatürk Cad. Emniyet Müdürlüğü Bitişiği No: 325 Ceyhan/Adana +90 322 - 613 75 35 Cumhuriyet Cad./ Şair Nabi Mah. Recep Tayyip Erdoğan Bulvarı 175.Sokak No: 56 Şanlıurfa +90 414 - 315 23 30 Şanlıurfa Çağlayan Kağıthane Cad. No: 145 Çağlayan Kağıthane/Istanbul +90 212 - 233 56 13 Çamdibi/Izmir Mersinli Mah. Fatih Cad. No: 84 Konak/Izmir +90 232 - 486 19 89 Çanakkale Fevzipaşa Mah. Çarşı Cad. No: 100 Çanakkale +90 286 - 217 60 40 Çankaya Hoşdere Cad. No: 195/A Çankaya/Ankara +90 312 - 440 60 39 Çankırı Atatürk Bulvarı Belediye Sarayı Altı No: 13/B Çankırı +90 376 - 213 13 68 Çarşamba Orta Mah. Dr.Tevfik Türker Cad. No: 6 Çarşamba/Samsun +90 362 - 833 68 28 Çay Aşağı Mah. Cumhuriyet Cad. No: 10-A Çay/Afyonkarahisar +90 272 - 632 40 49 Çemberlitaş Yeniçeriler Cad. No: 23 Çemberlitaş - Fatih/Istanbul +90 212 - 516 54 50 Çerkezköy Atatürk Cad. No: 42 Çerkezköy/Tekirdağ +90 282 - 726 94 01 Çivril Çatlar Mah. Cumhuriyet Cad. No: 15 Çivril/Denizli +90 258 - 713 10 56 Çorlu Omurtak Cad. No: 136/1-2 Çorlu/Tekirdağ +90 282 - 652 66 84 Çorum İnönü Cad. No: 35 Çorum +90 364 - 212 57 06 Çubuk Cumhuriyet Mah. Atatürk Bulvarı No: 4 Çubuk/Ankara +90 312 - 837 92 63 Denizli Topraklık Mah. Gazi Mustafa Kemal Bulvarı No: 21/B Pamukkale/Denizli +90 258 - 264 87 27 Develi Harman Mah. Aşık Seyrani Cad. No: 7 Develi/Kayseri +90 352 - 621 82 77 Dikmen Dikmen Cad. No: 294/5-6 Dikmen/Ankara +90 312 - 478 25 85 Dinar Cumhuriyet Cad. No: 38 Dinar/Afyonkarahisar +90 272 - 353 60 52 Diyarbakır Akkoyunlu Cad. No: 31 Bağlar/Diyarbakır +90 412 - 228 70 81 Dörtyol/Hatay Numuneevler Mah. Çaylı Cad. No: 43 Dörtyol/Hatay +90 326 - 712 00 53 Dudullu Yukarı Dudullu Mah. Alemdağ Cad. No: 802 Ümraniye/Istanbul +90 216 - 508 10 81 Düzce Cedidiye Mah. Köprü Sok. No: 1 Düzce +90 374 - 524 07 09 Edirne Talatpaşa Cad. No: 10/B Edirne +90 284 - 212 00 13 Edremit Sıtkıpaşa Cad. No: 3 Edremit/Balıkesir +90 266 - 373 52 55 Elazığ Çarşı Mah. Hürriyet Cad. No: 271 Elazığ +90 424 - 218 10 06 Elbistan İbrahim Karaoğlan Mey. Yeni Belediye Pasajı No: 2 Elbistan/Kahramanmaraş +90 344 - 413 10 91 Ellialtılar İstiklal Cad. No: 158/B Samsun +90 362 - 201 00 86 Elmadağ Cumhuriyet Cad. No: 141/A Harbiye Şişli/Istanbul +90 212 - 361 62 24 Emirdağ Yenimahalle Arabacılar Sok. No: 21 Emirdağ/Afyonkarahisar +90 272 - 442 72 01 Erbaa Cumhuriyet Mah. Gazi Bulvarı No: 160-A Erbaa/Tokat +90 356 - 715 74 24
ŞEKERBANK ANNUAL REPORT 2018
496 FINANCIAL INFORMATION
BRANCH NAME BRANCH ADDRESS TELEPHONE Erciyes Hacısaki Mah. Eski Sanayi Bölg. 4.Cad. No: 76 Kocasinan/Kayseri +90 352 - 320 74 90 Ereğli Selçuklu Mah. Yeniçarşı Yolu No: 3 Ereğli/Konya +90 332 - 713 15 32 Erenköy Erenköy Mah. Ethem Efendi Cad. No: 3 Kadıköy/Istanbul +90 216 - 368 77 60 Erzincan Atatürk Mah. Nerim Tombul Cad. No: 5 Erzincan +90 446 - 223 84 32 Erzurum Bakırcılar Mah. Menderes Cad. Ömer Erturan İş Merkezi Zemin Kat Merkez/ +90 442 - 235 74 81 Erzurum Esenyurt Doğan Araslı Bulvarı No: 90/B Esenyurt/Istanbul +90 212 - 450 17 49 Eskişehir Akçağlan Mah. Yunus Emre Cad. No: 94 Odunpazarı/Eskişehir +90 222 - 221 96 17 Etimesgut İstasyon Mah. 2310 Cad. No: 4 A Etimesgut/Ankara +90 312 - 245 56 94 Etlik Emrah Mah. Yunus Emre Cad. No: 4 Keçiören/Ankara +90 312 - 322 38 34 Fatsa Dumlupınar Mah. Reşadiye Cad. No: 57 Fatsa/Ordu +90 452 - 423 62 56 Fethiye Cumhuriyet Mah. Çarşı Cad. No: 62 Fethiye/MUĞLA +90 252 - 612 06 02 Gaziantep Hürriyet Cad. No: 16 Şahinbey/Gaziantep +90 342 - 231 00 24 Gazibulvarı İsmet Kaptan Mah. Gazibulvarı Cad. No: 108/A Konak/Izmir +90 232 - 483 87 41 Gaziosmanpaşa/Ankara Uğur Mumcu Cad. No: 51/A Gaziosmanpaşa Çankaya/Ankara +90 312 - 446 81 96 Gaziosmanpaşa/Istanbul Eyüp Yolu Cad. No: 16 Gaziosmanpaşa/Istanbul +90 212 - 563 63 57 Gazipaşa Gazipaşa Bulvarı Seçkin Apt. No: 39 Seyhan/Adana +90 322 - 458 58 58 Gebze Yeni Bağdat Cad. No: 605/B-C Gebze/Kocaeli +90 262 - 641 58 74 Gebze Organized Güzeller Mah. Güzeller Organize Sanayi Bölgesi Atatürk Bulvarı Big Center 2/B No: +90 262 - 751 49 32 Industrial Zone 13 Gebze/Kocaeli Gezici Şube (Mobile Emniyet Evleri Mah. Eski Büyükdere Cad. No: 1A Kağıthane/Istanbul +90 212 - 319 70 00 Branch) Giresun Hacımiktat Mah. Fatih Cad. No: 7 Giresun +90 454 - 212 40 40 Gölbaşı Gaziosmanpaşa Mah. Ankara Cad. No: 66 G-H Gölbaşı/Ankara +90 312 - 484 57 01 Gönen Kurtuluş Mah. Hüseyin Tümer Cad. Gönen/Balıkesir +90 266 - 763 16 91 Göztepe Bağdat Cad. Sarıgül Sok. No: 38 Göztepe Kadıköy/Istanbul +90 216 - 363 37 77 Gümüşhane Karaer Mah. Atatürk Cad. No: 10/5 Gümüşhane +90 456 - 213 60 64 Gümüşsuyu İnönü Cad. No: 36/A Gümüşsuyu/Istanbul +90 212 - 293 18 76 Güneşli Koçman Cad. Tekstil Market C Blok No: 36 Güneşli Bağcılar/Istanbul +90 212 - 657 74 52 Hadımköy Yolu Osman Gazi Mah. Hadımköy Yolu Cad. No: 38B/3 Esenyurt/Istanbul +90 212 - 886 33 97 Hatay/Izmir İnönü Cad. No: 330/B Konak/Izmir +90 232 - 250 43 63 Hayrabolu Hisar Mah. Tekirdağ Cad. No: 35 Hayrabolu/Tekirdağ +90 282 - 315 14 55 Hopa Merkez Kuledibi Mah. Turgay Ciner Cad. No: 32 Hopa/Artvin +90 466 - 351 59 48 Iğdır Atatürk Cad. No: 1 Iğdır +90 476 - 227 68 13 Ilgın Hükümet Cad. No: 85 Ilgın/Konya +90 332 - 881 20 82 Isparta Piri Mehmet Mah. Mimar Sinan Cad. No: 46 Isparta +90 246 - 232 21 78 İkitelli İkitelli Organize Sanayi Bölgesi Atatürk Bulvarı Botaş İş Merkezi No: 102 +90 212 - 671 60 71 Başakşehir/Istanbul İncesu Cumhuriyet Cad. No: 7 İncesu/Kayseri +90 352 - 691 26 26 İncirliova Prof. Dr. Türkan Saylan Cad. No: 74 İncirliova/Aydın +90 256 - 585 19 26 İnegöl Nuri Duğrul Cad. No: 11/A İnegöl/Bursa +90 224 - 711 17 37 İskenderun Ulucami Cad. Şirin İşhanı No: 10/1 İskenderun/Hatay +90 326 - 613 15 80 Istanbul Kemeraltı Cad. Tophane İşhanı No: 46/A Tophane Beyoğlu/Istanbul +90 212 - 251 58 80 İstoç/Istanbul İSTOÇ Ticaret Merkezi 2. Ada (3.Yol Sokak) No: 1-3 Bağcılar/Istanbul +90 212 - 659 60 51 İvedik Organized Ostim Mah. 1475. Sokak 1/A İvedik Organized Industrial Zone Yenimahalle/Ankara +90 312 - 394 37 71 Industrial Zone Izmir Cumhuriyet Bulvarı No: 22/A Konak/Izmir +90 232 - 441 48 16 İzmit Karabaş Mah. Cengiz Topel Cad. No: 8 İzmit/Kocaeli +90 262 - 322 10 80 Kadıköy Kuşdili Cad. Efes İşhanı No: 16/18 Kadıköy/Istanbul +90 216 - 346 22 24 Kadirli Savrun Mah. Atatürk Cad. No: 59 Kadirli/Osmaniye +90 328 - 717 17 12
ŞEKERBANK ANNUAL REPORT 2018
497 FINANCIAL INFORMATION
Our Branches
BRANCH NAME BRANCH ADDRESS TELEPHONE Kahramanmaraş Trabzon Cad. Emek İşhanı Altı No: 4/A Kahramanmaraş +90 344 - 223 00 32 Karabağlar Karabağlar Mah. Yeşillik Cad. No: 399 Konak/Izmir +90 232 - 264 16 64 Karabük Bayır Mah. Fevzi Fırat Cad. No: 95 Karabük +90 370 - 412 75 79 Karacabey Bursa Cad. No: 51/D Karacabey/Bursa +90 224 - 676 13 08 Karadeniz Ereğli Müftü Mah. Erdemir Cad. No: 64 Ereğli/Zonguldak +90 372 - 316 29 40 Karaman Tahsin Ünal Mah. İsmetpaşa Cad. No: 11 Karaman +90 338 - 213 15 51 Kars Yusufpaşa Mah. Kazımpaşa Cad. No: 85 Kars +90 474 - 212 03 35 Karşıyaka Bahariye Mah. Dr. Orhan Alpyörük Sok. No: 4/4A Karşıyaka/Izmir +90 232 - 368 21 05 Kartal Ankara Cad. No: 110/1-A Kartal/Istanbul +90 216 - 306 62 00 Kastamonu Cumhuriyet Cad. No: 26 Kastamonu +90 366 - 214 14 19 Kavacık Kavacık Mah. Fatih Sultan Mehmet Cad. Universal Plaza N:36 Beykoz/Istanbul +90 216 - 680 16 20 Kayseri Kiçikapı Cad. No: 14 Melikgazi/Kayseri +90 352 - 222 58 36 Kazasker Şemsettin Günaltay Cad. No: 87 Kazasker Kadıköy/Istanbul +90 216 - 463 21 82 Keçiören Kızlar Pınarı Cad. No: 156 Keçiören/Ankara +90 312 - 381 12 24 Keşan Büyük Cami Mah. İsmail Saraç Cad. No: 39 Keşan/Edirne +90 284 - 714 79 29 Kınık Belediye Cad. No: 8 Kınık Kaş/Antalya +90 242 - 845 49 00 Kırıkkale Cumhuriyet Cad. No: 31/A Kırıkkale +90 318 - 224 41 15 Kırklareli Karakaş Mah. Kuyumcular Cad. No.16 Kırklareli +90 288 - 212 95 21 Kırşehir Medrese Mah. Melikgazi Cad. No: 5 Merkez/Kırşehir +90 386 - 213 90 14 Kızılay Ziya Gökalp Cad. No: 3 Çankaya/Ankara +90 312 - 435 99 36 Kilis Tekye Mah. Cumhuriyet Cad. No: 35 Merkez/Kilis +90 348 - 822 22 08 Konya İhsaniye Mah. Vatan Cad. No: 21/A Selçuklu/Konya +90 332 - 322 74 66 Konyaaltı Gürsu Mah. Gazi Mustafa Kemal Bulvarı No: 61A Konyaaltı/Antalya +90 242 -228 33 14 Kozan Arslanpaşa Mah. Irmak Cad. No: 13 Kozan/Adana +90 322 - 516 55 33 Kozyatağı Bayar Cad. Rıza Çemberci İş Merkezi No: 72 Kozyatağı Kadıköy/Istanbul +90 216 - 368 62 70 Kumluca Meydan Mah. Bosna Sokak No: 1/B Kumluca/Antalya +90 242 - 889 08 41 Kurtköy Şeyhli Mah. Ankara Cad. No: 243A Kurtköy Pendik/Istanbul +90 216 - 378 66 17 Kuşadası Türkmen Mah. Atatürk Bulvarı Belvü Sitesi C Blok No: 4/7 Kuşadası/Aydın +90 256 - 612 86 71 Küçükbakkalköy Kayışdağı Cad. No: 131 Ataşehir/Istanbul +90 216 - 576 25 95 Küçükesat Tunalı Hilmi Cad. No: 61/A Küçükesat Çankaya/Ankara +90 312 - 425 61 66 Küçükyalı Altıntepe Mah. Bağdat Cad. No: 83 Küçükyalı Maltepe/Istanbul +90 216 - 489 12 53 Kütahya Cumhuriyet Cad. No: 1 Kütahya +90 274 - 223 64 31 Lara Şirinyalı Mah. Özgürlük Bulv. İsmet Gökşen Cad. No: 36/4 Lara/Antalya +90 242 - 316 38 74 Lüleburgaz İstanbul Cad. No: 20/A Lüleburgaz/Kırklareli +90 288 - 417 11 12 Malatya Fuzuli Cad. No: 8 Malatya +90 422 - 323 10 46 Malkara Camiatik Mah. 14 Kasım Cad. No: 67/15 Malkara/Tekirdağ +90 282 - 427 92 83 Maltepe E-5 Sanayi Cad. No: 13 Maltepe/Istanbul +90 216 - 518 31 21 Maltepe/Ankara G.M.K. Bulvarı No: 101/A Maltepe Çankaya/Ankara +90 312 - 232 00 92 Maltepe/Istanbul Bağdat Cad. No: 113 Maltepe/Istanbul +90 216 - 441 23 81 Manavgat Antalya Cad. No: 43 Manavgat/Antalya +90 242 - 742 19 25 Manisa Gazi Mustafa Kemal Bulv. Anafartalar Mah. No: 1 Manisa +90 236 - 231 55 11 Mardin Yenişehir Mah. Vali Ozan Cad. No: 73/19 Artuklu/Mardin +90 482 - 212 41 34 Marmaris Ulusal Egemenlik Cad. No. 46 Marmaris/Muğla +90 252 - 413 77 40 Maslak Maslak Mah. Ahi Evran Cad. Polaris Plaza No: 21 Sarıyer/Istanbul +90 212 - 286 66 81 Mecidiyeköy Büyükdere Cad. No: 36/A Mecidiyeköy/Istanbul +90 212 - 288 74 70 Menemen Ertuğrul Cad. No: 2 Menemen/Izmir +90 232 - 832 78 78 Merkez Eski Büyükdere Cad. No: 1 Kağıthane/Istanbul +90 212 - 296 20 49 Mersin Çankaya Mah. Kuvai Milliye Cad. No: 8 Akdeniz/Mersin +90 324 - 238 19 71 Merter Keresteciler Sitesi Fatih Cad. No: 30/A Merter Güngören/Istanbul +90 212 - 637 80 60
ŞEKERBANK ANNUAL REPORT 2018
498 FINANCIAL INFORMATION
BRANCH NAME BRANCH ADDRESS TELEPHONE Merzifon Harmanlar Cad. No: 6 Merzifon/Amasya +90 358 - 513 13 30 Milas Hacı İlyas Mah. Menteşe Cad. No: 38 Milas/Muğla +90 252 - 513 77 25 Muğla Emirbeyazıt Mah. Zübeyde Hanım Cad. No: 14/B +90 252 - 212 69 98 Mustafakemalpaşa Balıkesir Cad. Şekerci Sokak No: 26/A-B-C Mustafakemalpaşa/Bursa +90 224 - 614 18 02 Nazilli Hürriyet Cad. No:335 Nazilli/Aydın +90 256 - 312 21 12 Nevşehir Lale Cad. No: 32 Nevşehir +90 384 - 212 39 50 Niğde Esenbey Mah. Ayhan Şahenk Bulvarı No: 30/B Niğde +90 388 - 232 35 25 Niksar Gaziosmanpaşa Mah. Şehit Er Naci Yıldırım Cad. No: 7 Niksar/Tokat +90 356 - 527 11 90 Nişantaşı Harbiye Mah. Teşvikiye Cad. Karaosmanoğlu Apt. No: 37 Kat:2 Nişantaşı Şişli/ +90 212 - 231 44 52 Istanbul Nizip Fevzi Paşa Mah. Necip Mahmut Cad. No: 82 Nizip/Gaziantep +90 342 - 517 14 32 Ordu Düz Mah. Süleyman Felek Cad. No: 40/A Ordu +90 452 - 225 01 98 Orhangazi Camiikebir Mah. Garaj Sokak No: 26 Orhangazi/Bursa +90 224 - 573 00 17 Ortaca Atatürk Mah. Atatürk Bulvarı No: 111/B Ortaca/Muğla +90 252 - 282 86 50 Osmaniye Atatürk Mah. Atatürk Bulvarı No: 111/B Ortaca/Muğla +90 328 - 813 06 47 Ostim 100.Yıl Bulvarı No: 32 Ostim/Ankara +90 312 - 385 25 25 Ödemiş Akıncılar Mah. Gazi Cad. No: 30 Ödemiş/Izmir +90 232 - 545 00 12 Pendik Doğu Mah. Erol Kaya Cad. No: 112/1 Pendik/Istanbul +90 216 - 390 87 00 Pınarbaşı Kemalpaşa Mah. Çanakkale Cad. No: 96/B Pınarbaşı Bornova/Izmir +90 232 - 478 65 20 Polatlı Eti Cad. No: 17/B Polatlı/Ankara +90 312 - 622 08 25 Porsuk İsmet İnönü Cad. (Doktorlar Cad.) No: 38/A Eskişehir +90 222 - 221 17 33 Pozcu Aydınlıkevler Mah. Gazi Mustafa Kemal Bulvarı No: 394 Yenişehir/Mersin +90 324 - 326 77 24 Rize Piriçelebi Mah. Cumhuriyet Cad. No: 95/A Rize +90 464 - 213 00 25 Salihli Mithatpaşa Mah. Mithatpaşa Cad. No: 87 Salihli/Manisa +90 236 - 714 78 75 Samsun Saitbey Mah. İstiklal Cad. No: 19 İlkadım/Samsun +90 362 - 431 70 40 Sandıklı Ece Mah. Alaattin Sok. No: 25 Sandıklı/Afyonkarahisar +90 272 - 515 12 05 Saray Ayaspaşa Mah. Vize Cad. No: 3/A Saray/Tekirdağ +90 282 - 768 72 33 Sarıgazi Sarıgazi Mah. Eski Ankara Cad. Saray Sokak No: 65 Ümraniye/Istanbul +90 216 - 622 68 75 Sefaköy Fevzi Çakmak Mah. Ahmet Kocabıyık Sokak No: 10/B Küçükçekmece/Istanbul +90 212 - 580 24 27 Serik Orta Mah. Dr. Baki Özpınar Cad. No: 4 Serik/Antalya +90 242 - 722 95 03 Seydişehir Hürriyet Cad. No: 20/A Seydişehir/Konya +90 332 - 582 57 37 Silifke Pazarkaşı Mah. Menderes Cad. Adas İşhanı No: 54 Silifke/Mersin +90 324 - 714 00 96 Silivri Ali Çetinkaya Cad. No: 13/A Silivri/Istanbul +90 212 - 729 01 93 Sincan Atatürk Mah. Ankara Cad. No: 18 Sincan/Ankara +90 312 - 270 75 68 Siteler Taşdelen Cad. No: 9/2 Siteler Altındağ/Ankara +90 312 - 353 21 60 Sivas Bankalar Cad. 2. Park Sokak No: 3 Sivas +90 346 - 224 84 10 Soma Kurtuluş Mah. Hürriyet Bulv. No: 5 Soma/Manisa +90 236 - 613 13 57 Söke Konak Mah. İstasyon Cad. No: 85/A Söke +90 256 - 518 16 13 Sultançiftliği 50.Yıl Mah. Eski Edirne Asfaltı No: 514 B Sultangazi/Istanbul +90 212 - 594 01 24 Sultandağı Kayran Mah. Kocatepe Cad. No: 3 Sultandağı/Afyonkarahisar +90 272 - 656 45 57 Sultanhamam Bahçekapı Cad. Rasimpaşa İşhanı No: 13 Bahçekapı Eminönü/Istanbul +90 212 - 512 16 23 Sungurlu Şekerpınar Mah. Muhsin Yazıcıoğlu Cad. No: 117 Sungurlu/Çorum +90 364 - 311 00 84 Susurluk Han Mah. 5 Eylül Cad. Şakar Apt. No: 28/A Susurluk/Balıkesir +90 266 - 865 18 90 Şanlıurfa Atatürk Bulv. No: 26 Şanlıurfa +90 414 - 313 28 40 Şarkikaraağaç Camikebir Mah. 1144 Ulu Sokak No: 16/A Şarkikaraağaç/Isparta +90 246 - 411 39 68 Şaşmaz Bahçekapı Mah. Sanayi Bulvarı No: 14/B Şaşmaz Etimesgut/Ankara +90 312 - 278 22 53 Şehitkamil İncilipınar Mah. Muammmer Aksoy Bul. Dünya İş Mer. No: 34/3-4 Şehitkamil/ +90 342 - 215 26 71 Gaziantep Şirinevler Eski Londra Asfaltı E-5 Karayolu Üzeri No: 8 Şirinevler Bahçelievler/Istanbul +90 212 - 551 39 91 Şirinyer Cemil Şeboy Bul. No: 166/A Buca/Izmir +90 232 - 438 47 33
ŞEKERBANK ANNUAL REPORT 2018
499 FINANCIAL INFORMATION
Our Branches
BRANCH NAME BRANCH ADDRESS TELEPHONE Şuhut Afyon Cad. Eski Belediye Saray Altı Şuhut/Afyonkarahisar +90 272 - 718 34 29 Tarsus Mersin Cad. Halitaslan İşhanı No: 8/A Tarsus/Mersin +90 324 - 614 17 51 Taşbaşı Belediye İş ve Kültür Merkezi Altı Eskişehir +90 222 - 220 61 43 Taşköprü Tabakhane Mah. Atatürk Cad. No: 22/A Taşköprü/Kastamonu +90 366 - 417 11 27 Tefenni Cumhuriyet Cad. No: 28 Tefenni/Burdur +90 248 - 491 29 03 Tekirdağ Çınarlı Mah. Köprübaşı Cad. No: 10 Süleymanpaşa/Tekirdağ +90 282 - 263 08 65 Tire Kurtuluş Mah. İsmail Taşlı Cad. No: 25 Tire/Izmir +90 232 - 511 21 32 Tokat Gazi Osman Paşa Bulv. No: 183/A Tokat +90 356 - 214 15 63 Torbalı Tepeköy Mah. Ağalar Cad. Yaman Apartmanı No: 24 Torbalı/Izmir +90 232 - 855 55 20 Toros Turgut Özal Bulvarı Mahve Sığmaz Mah. Necati Gizer Apt. No: 131/D Seyhan/Adana +90 322 - 232 36 84 Tosya Cumhuriyet Meydanı Cad. No: 34/A Tosya/Kastamonu +90 366 - 313 55 90 Trabzon Kunduracılar Cad. No: 74 Trabzon +90 462 - 326 65 71 Turgutlu Cumhuriyet Mah. Atatürk Bulvarı 248/A Turgutlu/Manisa +90 236 - 312 00 06 Turhal Cumhuriyet Cad. No: 16 Turhal/Tokat +90 356 - 275 13 56 Tuzla Sanayi İstanbul Deri Organize Sanayi Bölgesi Kazlıçeşme Cad. Çarşı Kompleksi No: 5/25- +90 216 - 394 84 83 26 Zemin Kat Tuzla/Istanbul Uludağ Yenikaraman Mah. Sanayi Cad. No: 150/57 Osmangazi/Bursa +90 224 - 273 30 73 Ulus Rüzgarlı Sok. No: 15 Ulus Altındağ/Ankara +90 312 - 309 14 90 Uşak İsmetpaşa Cad. No: 53/A Uşak +90 276 - 215 15 20 Uzunköprü Muradiye Mah. Gazi Cad. No: 66 Uzunköprü/Edirne +90 284 - 513 29 09 Ümitköy Prof. Dr. Ahmet Taner Kışlalı Mah. 2846 Sokak Dora Park Villaları No: 2 C2-C3 +90 312 - 236 10 40 Çayyolu Yenimahalle Çankaya/Ankara Ümraniye Alemdağ Cad. No: 111/5 Ümraniye/Istanbul +90 216 - 443 31 64 Ünye Hükümet Cad. No: 44/A Ünye/Ordu +90 452 - 323 42 23 Üsküdar Ahmet Çelebi Mah. Halk Cad. No: 16 Üsküdar/Istanbul +90 216 - 391 56 44 Van Cumhuriyet Cad. Mavi Plaza Karşısı Pulkar İş Merkezi Van +90 432 - 216 16 25 Vezirköprü Fazıl Ahmet Paşa Mah. Fazıl Mustafa Paşa Cad. No: 75 Vezirköprü/Samsun +90 362 - 646 15 10 Yalova Yalı Cad. No: 15/A Yalova +90 226 - 812 66 01 Yalvaç Yeşil Çınar Bulv. No: 34 Yalvaç/Isparta +90 246 - 441 50 93 Yeni Sanayi Yeni Sanayi Zuhal Cad. 2 Sokak No: 1 Kocasinan/Kayseri +90 352 - 336 33 83 Yeniçubuk Yeni Doğan Mah. İstanbul Cad. No: 40/A Yeniçubuk Gemerek/Sivas +90 346 - 654 88 85 Yenişehir/Ankara Mithatpaşa Cad. No: 49/A Kızılay/Ankara +90 312 - 433 35 60 Yenişehir/Bursa Cumhuriyet Cad. No: 11/C Yenişehir/Bursa +90 224 - 773 01 59 Yeşilköy İstasyon Cad. No: 21 Yeşilköy Bakırköy/Istanbul +90 212 - 663 89 15 Yıldızevler Turan Güneş Bulvarı No: 56/1 Çankaya/Ankara +90 312 - 440 41 30 Yozgat Aşağınohutlu Mah. Sakarya Cad. No: 8/B Yozgat +90 354 - 212 51 80 Yüreğir Cumhuriyet Mah. Karataş Bulvarı No: 99 Yüreğir/Adana +90 322 - 321 44 22 Zeytinburnu Muammer Aksoy Cad. No: 55 Zeytinburnu/Istanbul +90 212 - 679 54 60 Ziverbey Eğitim Mah. Fahrettin Kerim Gökay Cad. No: 113A Kadıköy/Istanbul +90 216 - 418 61 38 Zonguldak Mithatpaşa Mah. Alemdar Cad. No: 4/A Zonguldak +90 372 - 253 14 69
ŞEKERBANK ANNUAL REPORT 2018
500 INTRODUCTION 02 Mission, Vision and Values 04 Şekerbank’s Strategy and Position in the Sector 06 Shareholding Structure 07 Agenda of the Ordinary General Assembly 07 Amendments to the Articles of Association and Justifications 07 Forward-Looking Statements 08 Financial Indicators 10 Şekerbank: From Past to Present 16 2018 in Stride 20 Chairman’s Message 22 General Manager’s Message 26 Agricultural Banking 32 SME Banking 34 Corporate and Commercial Banking 35 Cash Management 38 Retail Banking 41 Financial Institutions 44 Sustainable Development Banking 46 Distribution Channels Management 48 Information Technologies ŞEKERBANK 50 Human Resources 52 Subsidiaries of Şekerbank 54 Independent Audit Company 55 Independent Audit Company’s Compliance Opinion
MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES
56 Board of Directors ANNUAL REPORT 2018 58 Senior Management 60 Summary Report of the Board of Directors 61 Board and Committees Evaluation Disclosures 62 Succession Planning and Nomination in the Board of Directors 63 General Policy on Insider Trading 64 Board of Directors Activities 65 Declaration of Compliance with Corporate Governance Principles 66 Ethical Rules and Social Responsibility 69 Şekerbank’s Strategic Objectives 70 Structure and Composition of the Board of Directors 73 Information on the Bank’s Transactions with Its Risk Group 74 Profit Distribution Policy 74 Remuneration of the Members of the Board of Directors and Senior Management 75 Corporate Governance Principles Compliance Rating 75 Managers of the Units within Internal Systems 76 Information on Support Services Providers 77 Şekerbank’s Policy against the Laundering of Criminal Proceeds and Terrorism Financing 78 Declaration of Responsibility for the Annual Report 2018
FINANCIAL INFORMATION 79 Disclosures on the Bank’s Financial Position, Profitability and Debt Servicing Capability 80 Expectations for the Future 81 Şekerbank’s Credit Ratings 82 Five-Year Summary Financial Highlights 83 The Audit Committee’s Assessment of the Internal Systems in 2018 85 Risk Management System Strategy 90 Şekerbank T.A.Ş. Head Office Organizational Chart 93 Independent Auditors’ Report on Unconsolidated Financial Statements and Notes to the Financial Statements for January 1 – December 31, 2018 287 Independent Auditors’ Report on Consolidated Financial Statements and Notes to the Financial Statements for January 1 – December 31, 2018 495 Our Branches
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