ABank 2012 ANNUAL REVIEW AB a nk 2012 A NN UAL REVIEW
The first letter of growth
Head Office: Cumhuriyet Cad. No: 46 34367 Şişli/Istanbul-TURKEY T: +90212 315 65 00 F: +90212 225 76 15 www.abank.com.tr Contents
ABANK AT A GLANCE ABank in Brief ...... 02 Vision, Mission and Working Principles ...... 06 Financial Highlights ...... 14...... Message from the Chairman ...... 16 ...... Board of Directors ...... 18 ...... Message from the CEO ...... 20 Senior Management ...... 24 ...... Activities in 2012 ...... 26 International Financial Institutions ...... 40 Market Position ...... 42 Research and Development Activities ...... 43......
MANAGEMENT AND CORPORATE GOVERNANCE Corporate Governance ...... 44 Information on Human Resources Implementations ...... 46 Organization Structure ...... 48
FINANCIAL INFORMATION AND RISK MANAGEMENT Risk Management Policies ...... 49
ADDITIONAL INFORMATION Anadolu Group in Brief ...... 50 ...... Anadolu Group Financial Subsidiaries ...... 52...... ABank Financial Subsidiaries ...... 53 ...... AYatırım ...... 53 Alternatif Yatırım Ortaklığı ...... 53...... Financial Tables ...... 54 Directory ...... 56 Branch Network ...... 60...... Alternatifbank A .Ş . Consolidated Financial Statements Together With Auditor’s Report 31 December 2012 ...... 63. . . . As a medium sized bank established in 1992, we have succeeded in attracting attention in a short span of time thanks to our outstanding performance.
We have always prioritized the satisfaction and happiness of our customers, employees and investors. Thanks to our achievements in this area, we have become identified with the concept of “Happy Banking.”
As we are just at the beginning of our long success story, we are committed to sustaining strong and steady growth while adding value to life by making a difference in the banking sector with only one letter, A. 2 ABank 2012 ANNUAL REVIEW
ABank in Brief Thanks to the strong support provided by Anadolu Group, ABank is a highly reliable, reputable and preferred solution partner in both international and domestic markets.
Established in 1991 and opening the inspires the confidence of its customers. with 66 branches in 25 cities in Turkey as doors to it first branch in 1992, ABank With a customer-oriented and dynamic well as alternative distribution channels ranks among the most active players service approach, ongoing investments, and employing a well-skilled team of in the Turkish banking sector, by sophisticated technological solutions, 1,230 personnel. maintaining steady growth on a solid professional staff and high quality corporate and financial foundation. services, ABank sustains robust growth ABank has been trading on the by taking confident steps forward. Istanbul Stock Exchange under the Providing corporate, commercial and symbol ALNTF since July 3, 1995. As of retail banking customers with high value ABank is also a highly reliable, reputable December 31, 2012, Anadolu Endüstri added products, services and solutions, and preferred solution partner in Holding A.Ş., a subsidiary of Anadolu ABank is also taking determined steps international markets. Group, holds a 77.71% stake in ABank. to develop its SME banking business to Some 18.12% of the Bank’s shares are contribute to the country’s development. Having the vision of becoming a held by other various Anadolu Group steadily growing, most preferred and companies, and the remaining 4.17% Offering shares to the public in 1995, highly competitive bank, ABank strives shares are publicly held. ABank began to operate under the to be efficient and profitable without ownership of Anadolu Group in 1996. compromising its service quality. The With the strong support of its major Bank provides solutions for customers shareholder Anadolu Group, the Bank under all market conditions, operating ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 3
ABank has maintained its steady growth.
Working to achieve its ambition of growing steadily, ABank’s total assets reached TL 8 billion as of year-end 2012. 23.3% INCREASE IN TOTAL ASSETS
7,893
6,401
2011 2012
TL million IFRS Consolidated
Bengühan Dizi, Maltepe Branch mbition 6 ABank 2012 ANNUAL REVIEW
Vision To become the “preferred bank” of customers, by providing solution-oriented and world-class services in the region. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 7
Mission To become the pioneer financial institution by creating economic value, for the benefit and satisfaction of customers, shareholders and employees. 8 ABank 2012 ANNUAL REVIEW
Working Principles • To provide excellence for our customers within the economic rationale • To remain strictly committed to ethical principles • To be dedicated to banking discipline • To create a working environment where success is awarded • To encourage creativity • To place corporate social responsibilities at the forefront ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 9
ABank has continued to exceed its targets.
In 2012, ABank increased its net profit by 289% to TL 81.3 million, and demonstrated great advancement with return on equity of 16.02%, compared to 4.24% a year earlier. 289% 81.3 INCREASE IN NET PROFIT
20.9
2011 2012
TL million IFRS Consolidated
Andaç Oral, Levent Branch dvancement 12 ABank 2012 ANNUAL REVIEW
Financial Highlights (IFRS Consolidated)
Volumes (TL million)
5,144 4,170 4,281
3,648
20.2% 14.3%
Increase In Increase In 2011 2012 CASH LOANS 2011 2012 DEPOSITS
601
507 2,468
1,730
42.7%
18.5% Increase In FUNDS BORROWED Increase In AND OTHER MONEY 2011 2012 EQUITY 2011 2012 MARKET ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 13
Key Ratios (%)
16.02
4.24
1.14 0.39 Net PROFIT/ Return on 2011 2012 Average Assets 2011 2012 EquIty
123 117
66.8 65.2
Cash Loans / 2011 2012 Total Assets 2011 2012 Loans / DeposIts
23.8
20.6 16.6
13.1 funds borrowed / Securities / 2011 2012 TOTAL LIABILITIES 2011 2012 Total Assets 14 ABank 2012 ANNUAL REVIEW
Message from the Chairman ABank completed its transformation process which was launched to achieve sustainable growth and further development for the future, after implementing fundamental changes in its technological and organizational structure over the last several years.
The postponement of the “fiscal cliff” in the US at the end of 2012 coupled with decreased country-based risks in Europe resulted in a decline in global risk perception and a stronger capital markets performance. Meanwhile, questions related to the long-term risks of central banks’ preferences for expansionary monetary policies increased.
Due to its effective economic policies and robust banking industry, Turkey differentiated itself positively in 2012. In 2012, economic growth rates in emerging markets remained below their potential due to the slowdown in the The Turkish banking sector, The risks in the global economy world’s developed economies. Despite posting 3% growth for the year, Turkey after enduring the global prevail. Expansionary monetary policies adopted saw a significant decline in the current crisis, has now rebounded and by the central banks of developed account deficit to GDP ratio, an important sustained its robust outlook. countries during the post crisis period risk factor for the economy. This positive to stimulate the economy, continued development was a consequence of in 2012. The positive impacts of these the effective economic and monetary efforts on economic activity began to be policies implemented during 2012. As a felt with a delay while a weak outlook on result of this solid performance, Turkey’s the growth side persists. credit rating was raised to investment grade by Fitch, while declining interest rates and lower inflation further bolstered the country’s stable economic environment. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 15
Due to the slowdown in the global ABank closed the year 2012 with a The Anadolu Group will continue to economy and the Central Bank’s policy solid performance. provide support to ABank on its journey of controlled growth to sustain economic An expanded branch network and a achieving solid and sustainable growth. stability, the Turkish banking sector grew more diversified customer portfolio made at a slower pace in 2012 compared to ABank more resilient in the intensely With its strong shareholder structure 2011. The sector’s total assets rose 10% competitive market environment. While and highly skilled professional team, to TL 1.3 trillion, compared to 21% growth enhancing its loan quality in 2012, ABank ABank looks to the future with utmost in the previous year. During the first half also achieved its targets for loan growth. confidence and commitment to of the year, the banking sector recorded achieving even more ambitious targets. limited growth due to the tightening ABank completed its transformation I would like to extend my gratitude policies of the Central Bank. However, in process which was implemented to our employees for their successful the third and fourth quarters lowered risk to achieve sustainable growth and performance in 2012, to our shareholders factors caused the Central Bank to adopt development for the future, after making for their continuous support and to our a more expansionary stance, which fundamental changes in its technological clients for their unfaltering trust. fueled growth in the sector. and organizational structure over the last several years. Thanks to the higher levels Yours faithfully, Asset growth in the banking sector was of efficiency and dynamism resulting driven by increased lending and funded from this transformation, ABank will by rising deposits, repo transactions, continue to move forward in line with its obligations to foreign institutions and long-term strategy. securities issued. Meanwhile, the share of non-deposit sources in funding, steadily ABank plans to expand its branch network further while focusing rose during the year. Tuncay Özilhan on achieving additional efficiency Chairman Policy measures to curtail lending improvements. Pursuant to the Bank’s limited the sector’s growth in 2012. Also, organic growth strategy, ABank targets new market entrants made for a more reaching a 150 branch network while challenging competitive environment. sustaining high asset quality. However, the higher efficiency and more flexible operations of small and medium size banks helped increase their competitive edge. 16 ABank 2012 ANNUAL REVIEW Board of Directors
Tuncay Özilhan, Board of Directors Chairman Born in 1947 in Kayseri, Tuncay Özilhan graduated from Saint Joseph High School, Istanbul, and Istanbul University, Faculty of Economics, before obtaining his master’s degree at Long Island University, US. After working at Erciyas Biracılık ve Malt Sanayii A.Ş. as General Manager, Mr. Özilhan became the Beer Group Coordinator at Anadolu Group, followed by General Coordinator, before finally being appointed Anadolu Group Executive Chairman in 1984. Mr. Özilhan, who rose to the position of Chairman of the Board of Directors of the Group in 2007, continues to serve as Chairman of the Board in many of the Group companies in addition to ABank, which joined Anadolu Group in 1996. From 2001 to 2003, Mr. Özilhan served as Chairman of TÜSİAD (Turkish Industrialists’ and Businessmen’s Association). Currently, he is the Vice Chairman of TÜSİAD High Counsel, member of the Board of Directors at DEİK (Foreign Economic Relations Board), Chairman of the Turkish – Russian Executive Business Council of DEİK, Estonian Honorary Consulate General and President of the Anadolu Efes Sports Club.
Adnan Aykol, Member of the Board Born in 1958, Adnan Aykol graduated from Marmara University, Department of Public Administration. He began his professional career at Garanti Bank in 1980 as Inspector. Subsequently, Mr. Aykol joined İktisat Bankası where he served as Inspector between 1985 and 1987 and as Operations Manager from 1987 to 1989. Between 1989 and 2008, he held various managerial positions at Demirbank and HSBC Bank. In 2008, Mr. Aykol started working at BankPozitif as Assistant General Manager responsible for the Corporate Credits Department where he served for two years. Mr. Aykol joined ABank as a Board Member in April 2012.
Bahattin Gürbüz, Member of the Board Born in 1954, Bahattin Gürbüz graduated from Middle East Technical University, Department of Political Sciences and Public Administration. He also holds an executive MBA from Kavrakoğlu Management Institute. Mr. Gürbüz began his professional career at Türkiye İş Bankası, Kayseri in the Export-Import and Foreign Operations Department. In 1983, he joined Turkish Foreign Trade Bank as Inspector and held various positions from 1983 to 2004. Between 1997 and 2004, he served as a Member of the Board of Directors at Dış Factoring, Dış Leasing and Dışbank Malta. During the same period, he was also the Executive Member of the Board of Poliport Kimya Sanayi. From 2004 until 2005, he worked as Consultant to the Turkish Foreign Trade Bank. In 2006, he became the member of the Supervisory Board of D Commerce Bank AD, Bulgaria in addition to serving as Consultant to Alfa Group Companies. In April 2011, he joined ABank as a Board Member.
Cesur Kılınç, Member of the Board Born in Istanbul in 1957, Cesur Kılınç graduated from Istanbul University, Faculty of Law. Subsequently, he worked as Legal Counsel for ENKA and Coşar Müşavirlik A.Ş. He joined Anadolu Group as Legal Director in 1994 and became President of Legal Affairs of Anadolu Group in 1999. Since that time, he has also served as a Board Member of ABank and since 2008, as a Board Member of ALease and AYatırım and other companies within Anadolu Group.
Didem Çerçi, Member of the Board Born in 1966, Didem Çerçi graduated from Boğaziçi University, Department of Business Administration. She started her professional career as Product Manager at Bekoteknik Sanayi, a subsidiary of Koç Holding in 1990. In 1991, Ms. Çerçi joined İktisat Bankası where she worked as Account Officer in the Corporate Banking Department until 1994. Subsequently, she joined WestLB, Istanbul Branch as Account Manager in the Corporate Banking Department. In 1995, Ms. Çerçi started work at Demirbank and served as Senior Vice President in the Corporate Banking Department. In 2000, she became Executive Vice President in the Corporate Banking Department at Ulusalbank. In 2001, Ms. Çerçi joined İktisat Bank where she became the Executive Vice President of Corporate Banking-Credit Risk Management. During the same period, she served as Board Member at Interbank Card Center (BKM), İktisat Yatırım Menkul Değerler and Kablonet İletişim Sistemleri. In 2002, Ms. Çerçi started work at ING Bank A.Ş. and held various positions including Regional Manager, Senior Vice President and Executive Vice President in the Commercial Banking Department as well as Board Member of ING Factoring and ING Leasing. In January 2011, Ms. Çerçi joined Aras Holding as CFO and then starting serving as a Board Member at ABank in April 2011. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 17
Güniz S. Şengölge, Member of the Board Born in 1963, Güniz Şengölge graduated from Istanbul Robert College and Boğaziçi University, Faculty of British English Literature before obtaining her master’s degree in International Management from Istanbul University. She began her banking career in 1985 at Citibank, Istanbul and later moved on to Credit Lyonnais, Istanbul and Société Générale, Istanbul. In 1993, Ms. Şengölge joined Garanti Bank as Assistant Manager in the Marketing Division and held various managerial positions there for 11 years; for the last six years at Garanti, she has served as Executive Vice President in charge of Corporate Banking. In 2007, she joined ABank as a Board Member.
Kemal Semerciler, Member of the Board Born in 1958, Kemal Semerciler graduated from Uludağ University, Faculty of Economic and Administrative Sciences. He started his professional career in 1981 at Yapı Kredi Bankası (YKB) as Inspector. Mr. Semerciler held various managerial positions in the Financial Control Department, Accounting Department, Board of Inspectors at YKB and served as Assistant General Manager responsible for Compliance between 2006 and 2008. From 2008 until 2009, he worked as Consultant to the CEO at YKB. During his tenure, he also held various board member and auditor positions at several YKB affiliates. In March 2010, Mr. Semerciler joined ABank as a Board Member.
Mehmet Hurşit Zorlu, Member of the Board Born in 1959, Mehmet Hurşit Zorlu holds a BCs degree in Economics from Istanbul University. Prior to joining Anadolu Group in 1984, he held various positions at Toz Metal and Turkish Airlines. Mr. Zorlu joined Anadolu Group as a Marketing Specialist in the Efes Beverage Group and held various positions including Assistant Marketing Manager, Assistant Project Development Manager, Project Development Manager and Business Development & Investor Relations Director. He served as Chief Financial Officer (CFO) of Efes Beverage Group from 2000 until 2008 and CFO of Anadolu Group between 2008 and 2013. In January 2013, Mr. Zorlu was appointed Deputy CEO of Anadolu Group. Currently acting as Board Member in various Anadolu Group companies, Mr. Zorlu also serves as Board Member in several organizations such as TKYD, TÜYİD, TEİD and KOTEDER.
Metin Ecevit, Member of the Board Born in 1946, Metin Ecevit graduated from Political Sciences Faculty in 1967. He also received a master’s degree from Syracuse University in economics. Between 1967 and 1980, he worked as Tax Inspector and Deputy General Manager of General Directorate of Revenues in the Ministry of Finance. Mr. Ecevit joined Anadolu Group in 1980 and worked at various levels, serving as General Manager in the automotive companies of the Group, as well as Board Member and Chairman of the Board of Directors. He retired in 2006, when he held the position of Automotive Group President. He also served as Board Member and Chairman in the Association of Imported Car Distributors in Turkey between 1992 and 2004. He is member of the board of directors of various Anadolu Group companies and Chairman of Yazıcılar Holding. Mr. Ecevit joined the Board of Directors of ABank in April 2012.
Hamit Aydoğan, Member of the Board and CEO Born in 1958, Hamit Aydoğan graduated from Middle East Technical University, Department of Political Sciences and Public Administration. He joined Yapı Kredi Bank as Inspector in 1981. From 1986 until 1993, he held managerial positions in YKB branches in various regions. Between 1993 and 1997, he served as Executive Vice President responsible for Corporate Credits Marketing at Yapı Kredi Bank and held member positions on the boards of Yapı Kredi Leasing and Yapı Kredi Factoring. After working as CEO of Yapı Kredi Leasing and Koç Leasing from 1997 to 2003, he served as First Executive Vice President responsible for Corporate and Commercial Banking at Koçbank and Yapı Kredi Bankası between 2003 and 2009. He joined ABank in August 2009 as Board Member and Credit Committee Member and has held the position of CEO since February 2010. 18 ABank 2012 ANNUAL REVIEW
Message from the CEO Despite the ongoing global economic risk factors and the tight monetary policies of the Central Bank of Turkey, ABank managed to outperform the banking sector in 2012.
growth prevailed particularly in the most advanced economies.
Turkey saw a significant improvement in the current account deficit owing to the monetary policy implemented by the Central Bank to sustain economic stability. Meanwhile, a decrease in actual and expected inflation, a sharp fall in interest rates, foreign exchange rate stability and Fitch’s decision to raise Turkey’s credit rating to investment grade all contributed to the buoyant optimism in the domestic markets.
In 2012, the Turkish banking sector sustained growth with a solid capital structure and high profitability. Although 2012 was a The Turkish economy and the Loan growth in the Turkish banking challenging year for the world banking sector positively stand out in sector remained at 15% during the year the global crisis environment. due to the low level of domestic demand economy, ABank achieved its The expansionary monetary policies in line with the targets of the Central financial performance targets implemented throughout the year by Bank. and outpaced the Turkish the central banks of the developed banking sector. economies eased the negative outlook The slowdown in lending growth resulted of the global economy as a whole, which in increased competition within the was quite dim at the beginning of 2012. sector especially during the second half While the weak expectations for the US of the year. Despite the pressure of these economy turned somewhat positive developments on profitability, the Turkish due to a slight recovery, the significant banking sector sustained its strong and counteractive measures taken in Europe solid position in 2012. Maintaining a boosted confidence to some extent. basic capital structure composed of high Despite the modest improvement in the quality assets and equities is key in terms global risk perception, low economic ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 19
of the sector’s resilience against external The Bank’s capital adequacy ratio The Bank’s loan portfolio grew 20% and vulnerabilities. remained at a comfortable 14.3% as a totaled TL 5.1 billion in 2012. With a cash result of its sound investment structure loans to total assets ratio of 65.2%, ABank In 2012, the importance of non-deposit and strong equity base, which reached ranked among the leading banks in the sources for banks grew in line with the TL 601 million on a consolidated basis at sector. diversified funding options of the sector. year-end. Compared to 2011, the share of non- ABank outperformed the sector in deposit sources significantly increased in Thanks to its solid reputation in 2012. the funding of bank loans. international markets, ABank secured Despite the ongoing global economic a 1-year syndicated loan facility in the risk factors and the tight monetary Despite increasing competition amount of US$ 205 million, with the policies of Turkey’s Central Bank, ABank and challenging market conditions, participation of 20 local and international managed to outperform the banking ABank achieved its performance financial institutions. sector in 2012. targets in 2012. The Bank’s consolidated balance sheet External funds comprise an important Having a high level of flexibility due to grew 23% in 2012 while total assets part of ABank’s funding sources. In its market position, ABank has adopted reached TL 8 billion at year’s end. ABank 2012, the Bank’s share of external funds an efficiency based growth strategy to increased profit by 289% to TL 81.3 within its total funds was 21.6%. Total achieve profitable growth. Even though million while the sector’s profit increased deposits, ABank’s primary funding rising competition within the sector 18% in the reporting year. source, increased 14% and outpaced the adversely impacts funding costs, ABank’s sector’s deposit growth. As of the year- success in expense management allows The Bank’s interest and non-interest end, the Bank’s total deposits reached the Bank to control increasing costs. income continued to increase in 2012. TL 4.2 billion and comprised 53% of total Non-interest income, a stable income liabilities. By transforming and upgrading its base, increased 30% compared to the technological and organizational previous year. As a result of its strong performance infrastructure, ABank increased the in local bond issuances in 2012, ABank number of its active customers by 35% ABank preserved its solid position in obtained TL 150 million funding as of the to 39,500. The Bank also achieved terms of its expenditure ratios in 2012. year-end. This amount had risen to TL significant growth in its retail banking The potential of revenues to cover 300 million at the beginning of 2013. business in 2012. expenses provided a comfortable cushion to the Bank for implementing its growth strategy. 20 ABank 2012 ANNUAL REVIEW
Message from the CEO ABank is committed to sustaining profitable growth with its team of professionals who have fully embraced the deep-rooted corporate and business culture of Anadolu Group.
The Bank continues the on-lending of by expanding the active customer I would like to extend my appreciation the US$ 40 million 5-year loan facility base, acquiring new customers and to our clients for their ongoing trust, our secured from the International Finance diversifying the loan portfolio and deposit shareholders and our Board of Directors Corporation (IFC) and the Netherlands base. While pursuing this sustainable for their support, and all of my colleagues Development Finance Company (FMO) growth strategy, the Bank will focus on for their intensive efforts in achieving our to support women entrepreneurs. differentiating itself with new services targets. This credit facility was provided by the especially in the retail banking segment. IFC and FMO to ABank as a first of its In the medium-term, ABank targets to Yours sincerely, kind in Turkey. ABank will continue to establish a strong customer base which provide support to the country’s female is composed mainly of diversified small entrepreneurs within the framework of a and medium enterprises. corporate social responsibility project. ABank is committed to sustaining Hamit Aydoğan In line with its long-term strategy, ABank profitable growth with its team of CEO plans to further strengthen its position professionals who have fully embraced in the banking sector. In 2013, the Bank the deep-rooted corporate and business will sustain its successful performance culture of Anadolu Group. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 21
ABank has continued to provide support to the real economy.
With advantageous financial solutions customized for small and medium- size enterprises, ABank continued to provide support to trade and the real economy, and achieved a significant rise in revenues thanks to a higher market share in SME banking. 20.2% INCREASE IN LOANS
5,144
4,281
2011 2012
IFRS Consolidated
Hilmi Güneş, Sahray-ı Cedit Branch dvantage 24 ABank 2012 ANNUAL REVIEW
Senior Management (in alphabetic order)
Hamit Aydoğan, Member of the Board and CEO Born in 1958, Hamit Aydoğan graduated from Middle East Technical University, Department of Political Sciences and Public Administration. He joined Yapı Kredi Bank as Inspector in 1981. From 1986 until 1993, he held managerial positions in YKB branches in various regions. Between 1993 and 1997, he served as Executive Vice President responsible for Corporate Credits Marketing at Yapı Kredi Bank and held member positions on the boards of Yapı Kredi Leasing and Yapı Kredi Factoring. After working as the CEO of Yapı Kredi Leasing and Koç Leasing from 1997 to 2003, he served as First Executive Vice President responsible for Corporate and Commercial Banking at Koçbank and Yapı Kredi Bankası between 2003 and 2009. He joined ABank in August 2009 as Board Member and Credit Committee Member and has held the position of CEO since February 2010.
A. Tolga Şenefe, EVP, Treasury Born in 1969, A. Tolga Şenefe graduated from Istanbul University, Faculty of Economics before obtaining a master’s degree from Marmara University, Department of Accounting and Finance. He started his professional career as Assistant Inspector at the Board of Inspections of the Istanbul Stock Exchange in 1992. From 1995 to 1997, Mr. Şenefe served as Senior Vice President at Alfa Menkul Değerler A.Ş. Between 1997 and 2000, he worked as Treasury Manager at Ulusal Bank; he was appointed Deputy General Manager at Ulusal Yatırım in 2000. From 2002 until 2003, Mr. Şenefe worked as Director at Standard Yatırım Istanbul. Between 2004 and 2006, he served as General Manager at Ziraat Portfolio Management. Subsequently, he moved on to work as Project Manager at Helix Management Consultants. From 2007 to 2011, Mr. Şenefe served as Treasury Group Head at Anadolubank A.Ş. He joined ABank in 2011 as Executive Vice President responsible for Treasury.
Cem Şipal, EVP, Financial Control Born in 1964, Cem Şipal graduated from Istanbul University, Department of Econometrics. He received his executive MBA degree from Koç University in 1995. Mr. Şipal started his career at Yatırımbank in the Credit Department. In 1991, he joined Koçbank and worked in the Financial Control Department, where he held various positions at different levels during his 10-year tenure there. He joined ABank in 2001.
Dilek Algan, EVP, Credit Monitoring, Administrative & Legal Follow Up Born in 1972, Dilek Algan graduated from Ankara University, Faculty of Political Sciences - Economics. She started her banking career at Dışbank in 1995 where she held various managerial positions until 2003. In 2003, Ms. Algan joined Fortis Bank and served as Vice President in the Risk Surveillance Unit; later, she managed the Risk Surveillance, Restructuring and Legal Follow-up units between 2003 and 2008. Subsequently, she began work at Finansbank where she served as Senior Vice President responsible for Corporate, SME and Micro Credits between 2008 and 2011. Ms. Algan joined ABank in 2011 as Executive Vice President responsible for Credit Monitoring, Administrative & Legal Follow-up.
Işıl Funda Öney Babacan, EVP, Information Technologies. Born in 1973, Işıl Funda Öney Babacan graduated from Istanbul Technical University, Department of Management Engineering and received her master’s degree in Industrial Engineering from Boğaziçi University. She started her professional career in 1995 at Strateji Mori as Researcher, after which she joined Intertech in 1996 as Analyst. Later, Ms. Babacan was appointed Vice President in the Core Banking Department and Executive Vice President in the Functional Analysis and Project Development Department, respectively. She joined ABank in September 2012 as the Executive Vice President responsible for Information Technologies.
Murad Büyükkürkçü, EVP, Credit Administration Born in 1965, Murad Büyükkürkçü graduated from Istanbul University, Department of Business Administration. He later received an MBA from Istanbul Technical University. In 1991, Mr. Büyükkürkçü began work at Yapı Kredi Bank as Inspector and later held several positions in various departments. In 2009, he joined ING Bank as Group Director in Commercial Sales. In the same year, he transferred to Akbank as Head of the SME Loans Department. He joined ABank in January 2012 as Executive Vice President responsible for Credit Administration. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 25
Murat Özer, EVP, Human Resources Born in 1967, Murat Özer graduated from Istanbul University, Faculty of Economics. He started his banking career at Turkish Bank in 1991. Mr. Özer joined ABank in 1992, where he held several positions in the Treasury Department and was appointed Executive Vice President in 2004. He became the Executive Vice President in charge of Human Resources in June 2011.
Mutlu Çalışkan, Chief Audit Executive (CAE), Internal Audit Born in 1969, Mutlu Çalışkan graduated from Galatasaray High School and Istanbul University, Faculty of Economics in 1993. He started his career as Assistant Inspector at Garanti Bank in 1994. Subsequently, Mr. Çalışkan joined İktisat Bank in 1996, where he served as Inspector and Manager on the Inspection Board, respectively, between 1998 and 2002. From 2003 until 2005, he worked as a manager at the Internal Audit Department at ABank. In 2005, he became the Director of the Accounting, Budgeting and Management Control Department of Renault Mais A.Ş. Mr. Çalışkan returned to ABank in 2008 as Manager in the Internal Control Department. In November 2011, he was appointed Chief Audit Executive in charge of the Internal Audit.
Muzaffer Öztürk, EVP, Corporate and Commercial Banking Born in 1957, Muzaffer Öztürk graduated from Uludağ University, Bursa, Faculty of Economic and Administrative Sciences. He started his banking career at Yapı Kredi Bank, Istanbul as Assistant Inspector in 1984 and became the Assistant Vice President of the Inspection Board in 1991. Mr. Öztürk became Branch Manager from 1993 to 1997 serving at various YKB branches. Between 1997 and 2000, he held the position of Corporate Banking Coordinator responsible for different groups of branches at the same bank. In October 2000, he was appointed EVP in charge of Retail and SME Marketing at YKB. He joined ABank in February 2011.
Oğuz Korkmaz, Group Head, Retail Banking Born in 1969, Oğuz Korkmaz graduated from Marmara University, Department of Public Administration. In 1994, he received his master’s degree from Université Libres de Bruxelles in EU Studies. In 1996, Mr. Korkmaz started working as Assistant Marketing Manager at Koç Consumer Finance and Card Services. In 2000, he joined the Retail Banking Department at Oyak Bank as Sales and Marketing Manager. Between 2003 and 2007, Mr. Korkmaz worked at TEB and BankPozitif as Sales and Marketing Director in Retail Banking. In 2007, he moved to Anadolubank where he served as Retail Banking Group Director. He joined ABank in September 2012 as Retail Banking Group Head.
Suat Çetin, EVP, Operations Born in 1967, Suat Çetin graduated from Middle East Technical University, Department of Political Sciences and Public Administration. In 1991, he started his professional career at the Turkish Statistical Institute. Mr. Çetin later joined Osmanlı Bankası where he served as Vice President in the Branch and Treasury Operations Department. In 2002, he briefly worked as Project Leader in the General Manager Consultancy Department of Akbank. Mr. Çetin then moved on to Koçbank as Vice President in charge of Central Operations. Since 2006, after the merger of Yapı Kredi Bank and Koçbank, he worked as Banking Operations Group Director at Yapı Kredi Bank. Mr. Çetin joined ABank in September 2012 as Executive Vice President responsible for Operations Management.
Şakir Sömek, EVP, International Financial Institutions Born in Cyprus in 1963, Şakir Sömek graduated from University of Wisconsin, River Falls with an undergraduate degree in Business Administration in 1985 and received his master’s degree in Economics from American University, Washington, DC in 1987. He began his banking career at Turkish Bank in 1988 as Account Officer. Mr. Sömek then started work at Industrial Bank of Cyprus as Credit & Marketing Officer in 1990. In 1995, he joined Körfezbank where he held various positions in the Financial Institutions Department. Mr. Sömek began work at ABank in 1998 as Head of the International Financial Institutions Department and he was promoted to the Executive Vice President position in 2008. 26 ABank 2012 ANNUAL REVIEW
Activities in 2012 With its corporate and commercial banking sales team, which was further strengthened in 2012, ABank focused on achieving sustainable, well-diversified and efficient growth by serving customers with a business partnership approach.
In 2012, ABank achieved its ABank continues to grow in ABank focuses on achieving performance objectives and corporate and commercial banking. sustainable growth by maintaining a outperformed the sector. With 250 customer representatives well-diversified risk profile. ABank maintained its steady growth serving clients in 66 branch locations in In 2012, ABank strived to continue in 2012. The Bank’s total cash loans 25 cities by using a solutions-oriented managing risk effectively, by diversifying increased 20.2% to TL 5.1 billion. approach, ABank provides corporate the existing risk profile, establishing Consolidated total assets grew 23.3% and commercial banking products to long-term business partnerships with over the 2011 figure and amounted to companies in various sectors that have customers and improving the cost/ TL 8 billion. ABank is one of the leading annual turnover of over TL 5 million. income ratio. The Bank also works banks in the sector with a cash loans to to achieve sustainable and profitable total assets ratio of 65.2%. In line with its strategic objective of growth by acquiring new customers and becoming a specialized bank primarily increasing product diversity. ABank sustained its solid capital focused on SMEs, ABank offers financial structure with shareholders’ equity that services at world class standards to meet ABank’s marketing strategy targets increased 20% to TL 601 million, and all of the needs and expectations of its small and medium size companies. By a capital adequacy ratio of 14.3% on a clients. increasing its SME penetration rate, consolidated basis as of year-end 2012. ABank aims to shift its dependence on The Bank supported its strong growth ABank serves customers with a a limited number of enterprises and to strategy with a syndicated loan facility of holistic service approach supported distribute risks to a broader client base. US$ 205 million obtained in 2012. by a complementary product range to meet all their requirements and By strengthening the sales teams in Total deposits currently comprise 52% expectations. With this approach, the corporate and commercial banking, and of the Bank’s total liabilities and are the Bank takes into consideration all of by serving customers with a business Bank’s primary source of funding; at end- the companies throughout the value partnership approach, ABank focused on of-year, the Bank’s deposits totaled TL 4.1 chain of its customers. ABank aims to sustainable, well-diversified and efficient billion, up 14% over 2011. add value in all phases of customers’ growth. As a result, the number of the commercial activities by providing Bank’s active commercial/corporate In 2012, ABank’s net profit rose 289% on a effective and timely solutions including a customers rose 25% to 9,812 and its total consolidated basis to TL 81.3 million. variety of deposit, investment and cash loan volume increased 11.4% climbing to management products. This holistic TL 7.1 billion. approach also represents the core of the Bank’s success in enhancing relations with its clientele and establishing customer loyalty. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 27
ABank continued to make customers smile.
ABank continues to grow by fostering customer loyalty and showing appreciation to its clients. With exceptional products and services that make each of its customers feel special, ABank reached the level of 80% customer satisfaction and once again became “The Most Appreciated Bank.” 58% INCREASE IN NUMBER OF BRANCHES 63
40
2007 2012
Figen Tekin, Levent Branch ppreciation 30 ABank 2012 ANNUAL REVIEW
Activities in 2012 Through a relationship banking approach, the Bank aims to enhance its retail banking activities by offering customer-oriented products and services as well as by allocating quality time to customers.
ABank provides differentiated for hydroelectric power plant projects ABank develops cash management financial solutions with varying and US$ 20 million for a business center/ products tailored for customer terms and characteristics. office development through cash and needs. ABank meets the long-term funding non-cash credit facilities. In order to keep the cash flows of needs of specific customer segments customers within the Bank by fully through tailor-made product packages At the end of 2011, ABank received meeting all their banking needs, for the tourism and agricultural sectors as US$ 40 million in external funding from ABank offers a wide variety of cash well as project financing loans to support the International Finance Corporation management products and services. energy related projects. Additionally, the (IFC) and the Netherlands Development These include check books, salary Bank continues to extend project-based Finance Company (FMO) to finance small payments, bill payments, tax and social loans to large corporate customers and medium-size enterprises as well security premium payments, collective through international trade finance as women entrepreneurs. Through this payments and automatic bill payments/ facilities. facility, SMEs and female entrepreneurs collection systems. were provided loans totaling US$ 19.5 In 2012, the Bank continued to contribute million and US$ 14 million, respectively, With its experienced cash management to export financing by intermediating by the year-end 2012. The Bank also team, ABank develops project-based Eximbank loans and allocated US$ 130 continues to provide support to women DDS (Direct Debit System) products million in credit facilities to exporters entrepreneurs who own or manage small and tailored solutions to meet the cash as of December 2012. The Bank meets and medium enterprises. management requirements of customers customer needs in foreign trade by enabling product infrastructure transactions with a diversified product In the last quarter of 2012, ABank integration with their accounting portfolio designed in line with their launched the SME Support Loan, systems. expectations. which offers various advantages in the daily banking transactions of small Technology-based cash management ABank also allocates loans from external and medium businesses. The amount products such as DDS provide a bridge resources guaranteed by multilateral of financing support to this segment between the parent company and its institutions including the World Bank, through the SME Support Loan product dealer and supplier network. ABank aims International Finance Corporation (IFC) totaled TL 30 million. to help customers reduce their operating and European Investment Bank (EIB). In costs and gain cost advantage by 2012, the Bank provided € 35.8 million strengthening their collection capabilities. The total volume of transactions intermediated by the Bank through DDS exceeded TL 4.3 billion in 2012. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 31
In line with the expansion of its branch network, the Bank also grew its enterprise banking customer base during the year.
In 2013, ABank targets expanding its market share in this segment by further increasing number of customers and ensuring a diversified risk profile through a broad client base. Meanwhile, the Bank’s plan to further deepen existing customer relationships will serve to increase the share of the enterprise banking segment in the Bank’s total transaction volume.
The Bank also targets serving a broader client base in the coming period after ABank also aims to enhance its ABank moves forward in line with its raising the annual turnover criteria for relationships with other Anadolu Group profitable growth strategy. enterprise banking customers from TL 5 In 2013, ABank’s primary strategy in companies by further taking advantage million to TL 10 million. corporate and commercial banking will of the existing synergy. be to support sustainable profitability through effective risk management and a ABank’s market share in retail diversified customer portfolio. banking is growing rapidly. Following a rapid entry into retail banking Among its prioritized objectives, the in 2011, ABank continued to expand its Bank also plans to strengthen its deposit activities in this area in particular by base, develop new products and sustain focusing on both the individual and a favorable balance in its asset-liability enterprise banking segments. structure by exiting unprofitable business areas. 32 ABank 2012 ANNUAL REVIEW
ABank Bonus credit card launched in 2012.
In 2013, ABank plans to continue offering As a result of more intensive marketing In addition to the advantages provided various advantageous promotional activities in 2012, ABank’s active by the Bonus brand, ABank offers campaigns and sector packages to customer base in individual banking and additional benefits to cardholders such meet the needs of enterprise banking enterprise banking increased 135% and as assistance and support services, customers. In 2012, the Bank launched 195%, respectively. Meanwhile, the total discounted airport transportation and customer campaigns for the Tourism number of active customers in the retail private foreign travel health insurance for Package, Commercial Auto, Capital banking business line exceeded 30,800, platinum cardholders. Support for SMEs, Year-end Support up 9,450 from the previous year. and Holiday Support. The Bank plans The Bank plans to reach a broader to further expand its promotional The Bank’s retail loan portfolio grew customer base by offering the ABank campaigns and develop new packages rapidly and consistently in line with the Bonus commercial credit card product targeted at the services, food and expanding customer base. The Bank’s in 2013. stationery sectors in 2013. individual and enterprise loans recorded about a twofold increase compared to In 2013, ABank will also roll out a POS ABank targets middle and upper middle- the previous year. product for its enterprise and commercial income groups as well as professionals banking clients. for its individual banking business line. Thanks to various campaigns to promote time deposit accounts, the ABank increases its targets in retail Through a relationship banking Bank’s customer deposits rose 14% and banking. approach, the Bank aims to enhance amounted to TL 4.1 billion in 2012. ABank targets increasing customer its retail banking activities by offering satisfaction and loyalty as well as new customer-oriented products and services ABank Bonus credit card launched in customer acquisition; as a result, the as well as by allocating quality time to 2012. Bank will strengthen its market position customers. To help achieve its retailing banking by improving service quality, increasing growth targets, ABank launched Bonus product diversification and by enhancing To achieve this objective, the Bank credit cards in 2012. distribution channels. increased the portfolio manager staff in the branches, the primary point of Comprehensive information related to The contribution of retail banking to the contact with customers, to 145, up 20% the ABank Bonus Card including product Bank’s balance sheet and profitability is from 2011. information, program partners and increasing thanks to the intensive efforts promotional campaigns are provided to in this business line during the reporting customers at www.abankbonus.com. year. ABank 2012 ANNUAL REVIEW
ABank continued to accomplish new successes with the efforts of its employees. ABank places great importance on employee satisfaction as well as customer satisfaction. The Bank demonstrates an outstanding performance owing to its employees who are among the best in the sector; they work in accord with each other and with in the corporate culture. 1.230 1.185
2011 2012
4% INCREASE IN NUMBER OF EMPLOYEES
Simden Hereke, Corporate/Commercial Banking Sales ccord 36 ABank 2012 ANNUAL REVIEW
Activities in 2012 ABank’s primary strategy is to establish long-term relationships based on mutual benefit with leading global banks, export credit agencies and supranational institutions through its relationship and communication focused approach.
In 2012, ABank launched three new of the year, the Bank organized eight Allocation Group into two separate units: deposit products in retail banking: campaigns for consumer loans and two Retail and Commercial/Corporate. The for auto loans in addition to its housing Retail Credit Allocation Unit will assess • The Gold Account enables customers loan drive. credit applications of individuals and to make money transfers through time companies with annual turnover of less and demand deposit accounts. In 2013, the Bank’s objective is to grow in than TL 5 million while the Commercial/ • The Withdrawable Deposit offers loan and deposit products in particular. Corporate Unit will assess company customers the opportunity to withdraw applicants with annual turnover of more The new investment products the Bank at most three times and 30% of the than TL 5 million. plans to offer in 2013 include: Depofund, outstanding balance of the account which includes both deposit and B-type within the maturity period. ABank joined the Bonus Card Platform in liquid fund; One-year Time Deposit with 2012 and the Bank’s Retail Allocation Unit • The Happy Money Account, a cash interim payments; physical purchase approves credit card limits. Thanks to its management product, invests and sale of gold; and Gold Account with rapid and effective process management, customers’ outstanding TL balances in features such as gold loans. the Unit finalizes limit approvals of a liquid fund, overnight repo or foreign credit card applications within the same exchange account while payments Loans for urban renewal, 2B loans, TOKİ business day. linked to the account can also be housing project loans and boat loans will made automatically. be included in the Bank’s lending product Through the organizational changes range in 2013. made to further strengthen coordination The Gold Account was included in the between the Credit Allocation Group ABank aims to expand its portfolio product range in October 2012, and and the branches, ABank structured management staff by 79 personnel, to a reached a total of 66.4 kg, equivalent to allocation teams according to the total of 224 employees, in 2013 to achieve TL 6.3 million. geographic location of the branches. As the Bank’s growth targets. a result of the restructuring, the Bank Due to the positive effects of the ABank maintains its competitive accelerated its credit allocation processes campaign initiated in May, the volume of edge with a rapid and efficient credit despite the expanding branch network. housing loans more than doubled and allocation process. reached TL 125.1 million at end-2012, up In line with the Bank’s objective to from TL 56.8 million a year earlier. focus on SMEs, the driving force of Undertaking an intensive promotional the Turkish economy, and to provide campaign period in individual loans them with rapid and customer-oriented particularly during the last quarter services, ABank restructured the Credit ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 37
ABank strictly adheres to • In 2012, the Bank replaced its existing ABank Rating Notes international risk management risk model, Value at Risk (VaR), with a Long Term Local Currency Rating BB new model that is generally accepted principles as one of the fundamental Long Term Foreign Currency in Turkey, and thus increased the components of its corporate Rating BB operations. efficiency of its risk management Short Term Local Currency Rating B ABank has adopted international risk implementations in terms of both Short Term Foreign Currency management principles as one of product diversity and functionality. Rating B the fundamental components of its • The Bank reviewed its existing rating Viability Rating bb corporate operations, in addition to systems and the new commercial/ National Long Term Rating AA the legal requirements of the Banking corporate model was put into use Regulation and Supervision Agency and throughout the Bank during the year. the risk management criteria set forth in • The Bank purchased a new ABank is a leading market player the Basel II framework. software application to ensure more in fund management and treasury Ensuring an effective distribution of efficient asset-liability and liquidity transactions. With its market expertise and experience, tasks and clearly separating the related management. Once installation is ABank is actively involved in the fixed responsibilities, the risk management complete, the application will increase income securities and money markets. function aims to prevent conflict of the efficiency in both the decision In addition, the Bank aims to be a major interests among the managerial and making and risk management player in derivatives transactions, which operational units including the Board of processes. has gradually gained importance in Directors and the senior management, Since Basel II criteria has become a Turkey’s financial markets, with its rapidly clients and other shareholders. legal requirement as of July 2012 in growing expertise in this area. Turkey, the country’s banks began to The credit risks that the Bank is subject measure, report and manage their capital to, both on and off the balance sheet, Rapid growth in treasury adequacy requirements in accordance transactions volume and profit in are monitored and managed exclusively with the new legislative framework. and on a portfolio basis through an 2012 According to the new calculation ABank’s Treasury Department performed IT-supported effective risk management method, ABank’s capital adequacy ratio highly effective TL and FX liquidity model that makes use of current increased approximately 70 basis points. management during and after the global international methodologies. financial crisis. The Bank demonstrated In 2013, ABank will continue its efforts to another outstanding performance in ABank considers risk as an instrument improve the existing risk management 2012 thanks to its FX and fixed-income to reach potential return and follows a systems and processes as well as to securities strategies, which are based on risk-based business strategy, taking the design new models and methodologies expertise in maintaining the risk-return risks that are adjusted with potential to meet future requirements as they balance. returns. For the Bank, risk management arise. Accordingly, the Bank will improve is not limited to merely a risk control the balance between its activities and In 2012, ABank ranked second in terms function; instead, it is a strategic function the relative risks taken, use and return on of its transaction volume and fourth that works to support the achievement capital as well as risk-based management including over-the-counter transactions of the Bank’s business targets. As such, competency. on the ISE Bonds and Bills Market. risk management, which includes The growth of the Bank’s derivatives identification, measurement, monitoring ABank has a solid ratings profile in transactions in 2012 also confirms its and mitigation of risks, is fully integrated the Turkish banking sector. rising status in this nascent market. into strategic, tactical and operational The international agency Fitch Ratings decision making processes of the Bank. affirmed ABank’s credit ratings as follows Effective fund management through in its report dated July 24, 2012. Fitch In accordance with legal requirements function based specialization Ratings assessed the Bank’s long-term ABank’s Treasury Department is and best global practices, ABank outlook as “stable.” comprised of the Treasury Marketing continuously enhances its risk Unit, Asset/Liability Management Unit, management practices by implementing Trading Unit and Economic Research new applications to its existing capacity. Unit. 38 ABank 2012 ANNUAL REVIEW
Activities in 2012
The Asset/Liability Management Unit The Economic Research Unit provides Strong support to branches in is responsible for the management of information to the Treasury Department, providing treasury products to the Bank’s assets and liabilities positions senior management and the Bank’s clients in TL and FX and contributes to the customers on a regular basis with its ABank aims to be one of the leading and profitability of the Bank via management reports on the trends and risks in the strong players of the derivatives market of liquidity and balance sheet risks. In markets and the overall economy. both for its clients and other market 2012, the Unit also contributed to the participants. enhancement of the deposit structure Increasing share and importance of through its pricing policies. During the derivatives To this end, the Bank strengthened year, the use of interest rate derivatives The demand for derivative products the Treasury Marketing Unit’s team was increased to control balance sheet is rapidly increasing in Turkey, as in in 2012. Representatives from the risks. The Asset/Liability Management the rest of the world, due to changing Unit visited the Bank’s customers and Unit takes advantage of all opportunities risk perceptions, the real economy’s branches throughout the year to inform to reduce costs by actively participating requirements and the rapid development them about the use and advantages in the issuance of debt instruments. As of the country’s financial markets. In of derivative products as well as to a result of the bond issues, the Unit was addition, the rising foreign trade volume discuss recent market developments. able to obtain longer maturities and wider with the Middle East is expected to also Staff members responded to the diversification in its debt structure. increase the demand for derivatives specific financing needs of customers from those trading with this region. by developing a range of tailored Upon completion of the Asset/Liability Recently, derivative products have been products. Due to the close cooperation Management Module, which started an increasingly used to avoid balance sheet and synergy with branches, the Bank integration process in 2012, the Bank’s risks within the framework of asset-liability attracted new clients, particularly in the risk management quality will be further management while exotic financial SME segment, and achieved significant enhanced in 2013. products, which are more effective and success in the sale of derivative products. sophisticated instruments, have gained Responsible for trading TL, fixed income importance as well. In 2013, the Treasury Marketing Unit securities, FX and derivatives, the Trading plans to further enhance its activities and Unit assumes an important role in Offering services and solutions with expand the range of services offered to strengthening the position of the Bank high added value in derivatives markets, clients. in capital markets. Ensuring competitive ABank’s Treasury Marketing Unit pricing, the Unit also supports the intensively undertakes efforts to protect ABank calculates market risk Treasury Marketing Department its customers against various risks. according to the Value at Risk (VaR) particularly in international transactions. method. As structured products are being more ABank calculates FX, interest rate and Providing strong support to the frequently used in Turkish capital markets, liquidity risks according to the Value profitability of the Bank with its efforts in ABank plans to establish a Structured at Risk (VaR) method by meticulously 2012, the Unit took its place among the Products Desk under the Treasury Unit analyzing, studying and using Turkish significant players in the Turkish capital in 2013. As a result, the Unit will provide capital markets data. This model allows markets. tailored solutions to meet the needs of the Bank to make sensitivity analyses customers with more competitive pricing for various money market products Thanks to its competitive pricing options. including loans, coupon and discount policy during the year, the Trading Unit bonds, forward FX buying and selling recorded an outstanding increase in the transactions, forward interest transactions transaction volume with domestic and and interbank transactions. The risk international clients. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 39
management software program, which is In 2013, ABank plans to deploy new offer the best quality services to clients. approved by the BRSA, produces detailed applications through the new technology As a result of these efforts, the Bank’s reports with respect to the positions platform in order to support customer- accuracy rate in operational transactions carried by customers and allows Bank oriented banking efforts, expand product was more than 99% in 2012. management to continuously monitor and channel diversity, and contribute to the balance sheet in detail in terms of effective process and risk management. During the year, ABank offered its clients interest, maturity and liquidity. the Bonus Card, the most popular credit Maximizing efficiency through card in Turkey. Meanwhile, ABank debit At the Bank, the Board of Directors central operations cards can be used at all points with Visa/ determines all purchase/sale and In order to increase efficiency and Master logo both in Turkey and abroad. position limits. Predetermined risk better manage operational risk, ABank limits as well as profit/loss limits are centralized all operations except those Corporate Communications continuously monitored during the day. transactions that should be carried out With responsibility for all communication Upon completion of the Asset/Liability at the branch level. As a result, the Bank activities including general publicity of Management Module, the effectiveness further improved the customer focus the Bank and its subsidiaries in addition of risk management will be further and service quality provision of branch to brand positioning, the Corporate enhanced in 2013. employees. Communications Department carries out advertising and media relations With its upgraded technological After clearly defining the operational to enhance the brand recognition of infrastructure, ABank moves transactions of the sales units at the ABank. During the last quarter of 2012, confidently toward achieving its branch level, the Bank transferred the Department released the Bank’s objectives. these duties to the operational units. advertisement film clip for broadcast for The primary objective of ABank’s This shift enables branches to achieve the first time on national and theme TV Information Technologies Department is the highest level of efficiency in their channels. to implement customer-focused projects sales activities and transforms branch that create product and channel diversity, locations into more effective distribution Supporting in-house communication increase efficiency and allow effective channels. Meanwhile, ABank branch as well, the Corporate Communications revenue/cost management. operation teams are skilled in sales of Department organizes social activities all of the relevant products. Service under the roof of AClub to increase At the beginning of 2012, ABank’s level agreements are made between the motivation and loyalty of Bank Information Technologies Department business and operational units; duration employees. AClub is a social club put into operation the InterNext banking of services are also measured and shared established to facilitate internal package, which is compliant with the with relevant units to provide clients with communication throughout ABank and Bank’s strategy, meets legal requirements standardized services. its subsidiaries. and features the latest technology. With this advanced banking application, ABank serves customers through all Given that individuals are often happiest the Bank upgraded the platforms in its its distribution channels. Customers when engaging in their hobbies, AClub infrastructure with more flexible and are supported 7/24 through telephone also helps employees who work for up-to-date technology and enhanced banking, internet banking and the ATM “Happy Banking” feel happy and special information security. network. themselves. AClub includes various clubs and social activity groups for music, Thanks to the systems related flexibility ABank provides employees with in- dance, theatre, photography, cooking, introduced with the InterNext Banking house and outsourced regular training wine tasting, among others. Platform, the Bank adapts to new opportunities to maintain the highest technological developments much more level of quality in human capital and to rapidly. 40 ABank 2012 ANNUAL REVIEW
International Financial Institutions A relationship and communication focused approach is key to ABank’s success in international financial markets.
Establishing long lasting relations The International Financial Institutions ABank continued its international based on mutual benefits Department also supports and achievements in 2012. ABank’s primary strategy is to establish intermediates the activities of the In 2012, ABank was once again presented long-term relationships based on mutual Treasury Department to carry out with the Outstanding Performance benefits with leading global banks, correspondent relations based on the Award by Citibank in recognition of export credit agencies and supranational principle of mutual benefit in an efficient its regular and error-free overseas institutions through its relationship and and healthy manner. payments. communication focused approach. ABank’s active correspondent ABank’s successful performance in The International Financial Institutions network expanded to 170 banks. international banking is one of the Department promotes the Bank to its Owing to the Department’s intensive Bank’s core competencies and a key correspondent network, credit rating efforts, ABank broadened its component of its sound reputation. The agencies and supranational institutions existing correspondent network and Bank enjoys strong brand recognition and undertakes initiatives to expand the strenghtened its solid relationships with and credibility in international markets Bank’s credit facilities and to diversify its correspondent banks in 2012. In parallel thanks to its robust financial structure products, services and solutions. with developments in the global financial and its place under the umbrella of such markets and customer requirements and a well-respected shareholder as the In 2012, the Department represented demands, ABank’s active correspondent Anadolu Group. the Bank at high profile international network continued to expand with 30 events and meetings by focusing on new banks and reached a network of 170 Therefore, ABank has external credit strengthening ABank’s brand recognition, institutions by the year-end. facilities established by the world’s vision and strategy internationally. The leading banks and financial institutions Department conducted its activities in The increasing credibility of Turkey in at advantageous terms. Solid and line with the targets of increasing the international markets in addition to the deep relationships with international product range especially in foreign trade, Bank’s strong performance enabled financial institutions support the Bank’s expanding the correspondent network ABank to expand its external borrowing competitive pricing policy and thus and securing new borrowing facilities. capacity during the year. As a result, 2012 reinforce its market position. was a successful year especially in terms of bilateral borrowing for the Bank. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 41
2
1 3 4 5 6 7
1. Aylin Tayıncı 2. Barış Nerezoğlu 3. Ezgi Demiray 4. Erol Bakkalbaşı 5. İrem Gürkan 6. Şakir Sömek 7. Ahmet Kınalısoy
Another successful year in foreign ABank was also included in the IFC’s ABank plans to focus on bond trade financing Global Trade Finance Program with the issuance in international capital ABank provides flexible and rapid agreement signed in 2011. Pursuant markets in 2013. solutions to the requirements of to the Confirming Bank Agreement In the coming year, due to Turkey’s international trade customers with an of the program, IFC undertakes the increasing credibility in international experienced staff, enhanced operational risk of the issuing bank and ABank is markets, ABank plans to rapidly move infrastructure, effective correspondent provided guarantee for its foreign trade forward in line with its growth strategy. network and a customer-oriented transactions issued by the banks on The Bank targets sustaining its solid approach. The Bank is an efficient IFC’s list of “Issuing Banks.” In January performance in international markets and primary business partner of its 2012, ABank signed an Issuance Bank by further strengthening its credibility, customers in their international trade Agreement with IFC and thus expanded increasing and diversifying borrowing transactions, not only with the most the foreign trade transaction potential options, raising its profile and broadening advanced economies, but also with with the banks on IFC’s “Issuing Banks” the correspondent network. relatively risky countries and emerging list. markets. ABank also plans to further enhance The total volume of international trade its strong relations with supranational ABank improved the costs and the transactions intermediated by ABank institutions in 2013 by including new maturity of its funding portfolio by reached US$ 1.9 billion in 2012. Thanks banks/institutions to already established diversifying its external funding base in to its high credibility in international relationships. The new borrowing 2012. In May, the Bank secured a US$ 205 markets, ABank takes advantage options in international capital markets, million equivalent dual currency tranche of providing competitive pricing to which recently Turkish banks benefited syndicated loan with the participation of its customers in their foreign trade through external bond issues, are closely 20 banks from 11 different countries to transactions. monitored by ABank. In the coming intermediate in financing exports. The period, the Bank plans to enter this arena. facility was comprised of two tranches of € 123.5 million and US$ 42.5 million.
Obtained in a challenging global economic environment, this loan facility is quite significant in terms of confirming the confidence of leading and highly reputable international banks in ABank. 42 ABank 2012 ANNUAL REVIEW
Market Position ABank ranked fifth in terms of the securities/total assets ratio.
As of December 31, 2012, ABank provides according to BRSA results for the ratios services primarily in commercial/SME of loans, deposits and total assets banking with 63 branches and 1,230 calculated on a consolidated basis as employees. of September 30, 2012, for 20 private sector deposit banks and public banks, ABank: excluding private sector banks with only one branch. • Ranked fifth in terms of the securities/ total assets ratio, All these results once more clearly • Ranked third in terms of the cash+non- demonstrate that ABank left behind cash loans/branches ratio, another successful year. • Ranked third in terms of net profit increase, • Increased cash loans 17.1% compared to the 9.6% average of the 20 banks in the sector, • Ranked 11th in terms of the expenditures to income ratio while among the immediate peer group the Bank ranked second, ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 43
Research and Development Activities At the beginning of 2012, ABank’s Information Technologies Department put into operation the InterNext banking package, which is compliant with the Bank’s strategy and legal regulations as well as equipped with the latest technology.
Focusing on corporate/commercial and In 2012, the Bank launched customer The Bank offered three new deposit retail banking, ABank offers the best campaigns for the Tourism Package, account products, Gold Account, services to its customers by developing Commercial Auto, Capital Support for Withdrawable Deposit and Happy Money new products in line with evolving SMEs, Year-end Support, and Holiday Account, to retail banking customers in preferences within the sector as well Support. The Bank plans to further 2012. as changing conditions in the overall expand its promotional campaigns and economy. develop new packages targeted at the Within ABank’s corporate and services, food and stationery sectors in commercial banking business line, When the Bank’s marketing units make 2013. small and medium businesses received new product launch requests, relevant financing support with the SME Support departments in the General Directorate In line with its retail banking growth Loan introduced during the last quarter evaluate the proposed offerings in targets, the Bank offered credit cards with of 2012. terms of legal compliance. Following “Bonus” features to its customers. ABank the approval and registration of the new Bonus Card was initially introduced to At the beginning of 2012, ABank’s product, the Bank’s IT infrastructure ABank employees in June 2012 and then Information Technologies Department is modified to accommodate its rolled out to all customers in September. put into operation the InterNext banking requirements. The Bank places great package, which is compliant with the importance on informing customers Comprehensive information related to Bank’s strategy and legal regulations about the risks, if any, features, results the ABank Bonus Card including product as well as equipped with the latest and tax issues of the new offerings. information, program partners and technology. With this advanced banking promotional campaigns are provided to application, the Bank upgraded the customers at www.abankbonus.com. platforms in its infrastructure with more flexible and up-to-date technology and enhanced information security. 44 ABank 2012 ANNUAL REVIEW
Corporate Governance
ABank’s management believes that an Comprehensive information on ABank The processes and policies of ABank’s effective corporate governance system, can also be accessed through its regularly management structure are designed within an individual company and across updated website (www.abank.com.tr). to comply with the legal and regulatory an economy as a whole, helps provide framework and to provide clarity and The Accounting and Finance Group the confidence necessary for the proper transparency in decision-making and and the Compliance Department are functioning of a market economy. accountability. The Board of Directors responsible for procedural actions Therefore, the set of relationships among has ten members, five of whom are regarding investors (Capital Increases, the Bank’s management, its board, its independent. The Board of Directors AGM, etc), as well as for duly informing shareholders and other stakeholders has formulates ABank’s vision, mission, and the public. Questions forwarded to the been structured in line with the Principles short and long-term strategic objectives. management by investors, except those of Corporate Governance set out by the The Board meets at least twice a month, regarding proprietary information, are Banking Regulation and Supervision where the Board of Directors measures answered immediately and appropriately. Agency of Turkey (BRSA) and the Turkish the Bank’s progress against its strategic The Annual General Meeting (AGM) notice Capital Market Board (CMB). objectives and evaluates performance. is provided via the media and internet, The annual budget of the Bank and its ABank is committed to implementing meeting all of the requirements stipulated strategic plan are approved by the Board accepted standards of corporate by the CMB and related regulations. of Directors, which also follows up the governance. Accordingly, all management All shareholders are invited to attend budget and its actual implementation, procedures and practices depend on the AGM. When the Board of Directors receives information about variations from four pillars of corporate governance; i) decides on the date of the AGM, the the budget, and follows up its decisions. transparency, ii) Equality, iii) Responsibility information is immediately communicated The Board of Directors tracks strategic and iv) Accountability. With the exception to the CMB and the Istanbul Stock objectives, budget targets, and actual of information deemed to contain trade Exchange (ISE). Shareholders may apply figures through internal and external audit secrets and is not yet available to the to attend the AGM. Information and systems. The Board also monitors various public, ABank discloses information guidance about procedures and voting financial and non-financial indicators on a about the Bank, with or without financial may be obtained from ABank’s branches, particular customer, branch, business unit, content, in an accurate, thorough, rational, Head Office and its internet website. or general basis. The Board of Internal interpretable and accessible manner. In According the new obligatory process Auditors is responsible for submitting compliance with legal and regulatory determined by the CMB, ABank’s AGM internal audit reports directly to the Board requirements, ABank communicates was held on-line (“E-Genel Kurul”) for the of Directors. information in a timely, reliable, consistent, first time in 2012. There are no privileged and orderly fashion and distributes such voting rights stated in the Articles of information to the investment community. Association. No subsidiary owns shares in the Bank. It is possible to vote by proxy. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 45
In compliance with Banking Law, ABank The Intranet has also been set up to new committee has been established on has established a Risk Committee. provide information to employees; all 19.09.2011 for the purpose of monitoring The Bank’s Board members play an announcements have been transferred and auditing the Bank’s payroll practices important role in the management of from a paper environment to an on behalf of the Board of Directors and the Bank’s risk exposure by developing electronic site. In addition to cost cutting two of the Bank’s Board Members have strategies, policies, limit systems, and and efficient communications, the intranet been assigned as the members of the procedures through the activities of the aims to underscore the importance of a new committee. The committee conducts Risk Committee. The Risk Committee common corporate culture. its activities in line with BRSA’s “Regulation is headed by an independent Board on Corporate Governance Principles” ABank’s Board members, managers of member. An independent Board member which has been published in the Official all levels and employees are in a position also heads the Audit Committee of the Gazette dated 01.11.2006 number 26333. to obtain insider information. ABank Board, established in 2004 and bearing Participation in management is always restricts those individuals in a position the responsibility of ensuring the accuracy encouraged; the personal opinions of the to obtain insider information from of financial information provided to all staff on improvements to daily workload trading its equity shares. ABank places stakeholders. are collected through an evaluation great emphasis on the management of system that is analyzed carefully. The The Corporate Governance Committee relations with the Bank’s stakeholders. Human Resources Unit is organized was established in 2005 and is also Not only shareholders, but also potential in conformity with the structures, headed by an independent Board investors, the public, regulatory bodies, requirements, and expectations of the member. The Committee monitors customers, suppliers, employees and other business units so as to support compliance. Finally the Pre-diagnosis and others are defined as stakeholders. these units on all human resources issues. Management of Risks Committee was Relations with customers and suppliers No complaints concerning discrimination established in 2012 and is headed by an are carried out within the framework have been received from employees. independent Board member. of ethical rules and in accordance with ABank is committed to the development written procedures. All employees are The ultimate controlling shareholders of our society. The Bank’s donation aware that the most important means of of the Bank are announced in annual policy is defined in the Bank’s Articles of creating an advantage over competitors is reports and on the Bank’s internet website. Association. to provide the best service to customers ABank strives to maintain the highest and act accordingly. Employees endeavor The Anadolu Foundation was established standards by providing guidance to to solve any customer problems, provided 30 years ago and is engaged primarily all its employees; as part of this effort, that they fall within the confines of general in education, health, the arts, and sport; it employees are guided and educated to principles and the Bank’s procedures, has completed a wide range of projects, conduct themselves within the standards and take measures and exert every effort including hospitals, health centers, of professional and ethical conduct. The to prevent recurrence. The Bank has a schools, dormitory buildings, and sport ethical principles of ABank has been Customer Complaints Division dedicated complexes. While these have been revised in 2011 in line with the Ethical Code to customer relations, where all customer donated to the state, free scholarships are of the Turkish Banks Association and complaints are analyzed thoroughly and granted to competent students in need of approved by ABank’s Board of Directors immediately by this department and financial support. In 2005, the foundation on 01.08.2011 as “Instructions on Ethical resolved appropriately. Suppliers are completed the non-profit Anadolu Principles and Working Regulations”. evaluated by the Purchase Department. Medical Center. All income generated The principles are announced in brief to from this contemporary health center the public on ABank’s website. The top ABank seeks to maximize its employees’ will be channeled to meet education and management of the Bank ensures that competencies, efficiency, and satisfaction research expenditures. At least 10% of the all the employees and managers comply through its performance evaluation patients at the Anadolu Medical Center with the rules set by the ethical principles and career planning system. The Bank are treated free of charge. The Anadolu of ABank. All applications regarding career has a transparent and fair performance Medical Center provides seminars and planning, professional training, disciplinary management system and reward organizes special programs to spread rules, ethical codes, fringe benefits, and system which encourages and supports public awareness of free checkups, patient all other rights and employee-related high performance. In accordance with education programs, first aid courses, and issues are available to all staff on a closed article 6 of the “Regulation on Corporate protective medication. circuit corporate portal, or “Intranet.” Governance Principles of the Banks”, a 46 ABank 2012 ANNUAL REVIEW
Information on Human Resources Implementations
ABank usually fills its vacancies at the months of basic banking training, the ABank’s human resources related managerial level internally. All horizontal recruits are assigned to the respective activities in 2012 included: departments and branches. Placing great and vertical career opportunities arising • Conducted competency within the Bank are announced to the importance on career management, the measurements for all positions in the employees first through the intranet Bank aims to ensure the continuity of Bank. portal. With the Vacant Positions Model, its human resources via Career Training • Completed job assessment work for all Bank employees have the opportunity programs. Additionally, ABank organizes units in the Bank. to map out their own future career plans “Management Trainee” programs in order • Launched the ABank HR Facebook and work toward their own personal to train the managers of the future. Page to provide information on human preferences. Meanwhile, successful Promotion Management and resources activities and open positions, employees who demonstrate an Premium System expand the candidate pool, raise the outstanding performance and produce Promotion management at ABank is Bank’s profile and increase interaction significant added value can be promoted on social media. based on the performance management up to the highest positions within the system. Aimed at ensuring continuous • Visited 35 branches and four organization. departments in order to increase development, performance management employee motivation and enhance Job applications can be submitted is an open system based on concrete corporate communications. through the Bank’s website, by e-mail or and measurable targets. The employee’s • Held training programs on a job by fax. All applications are included in performance in reaching each of the function basis for all branch personnel the Bank’s human resources database targets set out at the beginning of the in conjunction with the transformation and database entries are retained for year is evaluated together with his or of its main banking system; 572 one year. In the event of any additional her competencies. The assessment employees participated in these staffing requirement beyond the Bank’s results, which are shared with the training sessions that lasted for 48 annual labor force plan or in case of any employee, are used as input for career days, and a total of 7,966 hours of vacant positions, candidates are selected planning and promotion decisions. training was provided. from this database and those who have The Personnel Committee makes • Conducted total training of 46,386 the required credentials are invited for an the promotion decisions in line with hours with total number of participants interview. the performance evaluation results. of 3,585 in 2012, representing an Determined by considering the Bank’s average of 37 hours per employee The Bank recruits and trains English overall performance together with that over the year. speaking university graduates from of individual employees, each year more economics, business administration and ABank personnel are paid bonusses. engineering departments after a series of tests and interviews. Following three ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 47
Human Resources Statistics
Number of Employees 2010 2011 2012 Head Office 435 452 483
Branches 651 733 747
TOTAL 1,086 1,185 1,230
Gender and Age 2010 2011 2012 Male (%) 53 52 52
Female (%) 47 48 48
Average Age 34 35 35
Education 2010 2011 2012 Primary School 28 25 22
High School 188 186 179
University 794 857 898
Post-graduate 76 114 131
Proficiency in a Foreign Language 443 471 460
Average Seniority 2010 2011 2012 5.0 5.7 5.6 48 ABank 2012 ANNUAL REVIEW Organizational Structure
ABank’s Board of Directors determines The Legislation and Compliance, Within the structure of the the organizational structure of the Bank Audit Board, Internal Control, and Risk Operations Group, and any changes in the organization. Management, units under Internal • The Retail Banking Operations The existing organizational structure was Systems directly report to the Board Department, which was previously formed pursuant to the resolution of the of Directors through the committees working under the Operations Group, Board of Directors numbered 15/D and constituted within the Board. was restructured as a unit under dated June 25, 2012. the Corporate/Commercial Banking Changes made in the Bank’s Operations Department. In this organizational structure and as organizational structure in 2012 are required by law, the departments in the reported below on the basis of the • Following the integration of the Retail Head Office are separated into two: (1) business groups reporting to the Board of Banking Operations Department, the departments under the roof of Internal Directors and the CEO. name of the Corporate/Commercial Systems and (2) executive units directly Banking Operations Department was Within the structure of the Board of reporting to the CEO. Ten Executive Vice changed as the Central Operations Directors, Presidents report to the CEO. The Legal Department. • The Committee of Early Detection and Department also directly reports to the • The management of the transportation Identification of Risk was established CEO. of cash assets was transferred from the while the duties and responsibilities Treasury Operations Department to of the Nomination Committee the Administrative Affairs Department. were assumed by the Corporate Governance Committee. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 49 Risk Management Policies
Credit Risk over the last 252 business days, constitute creation of liquidity. The Bank aims to Credit risk is defined as the potential loss the basis of the Bank’s risk based trading ensure that necessary precautions are arising from a borrower’s inability to meet limits. The validity of the VaR model is taken in a timely and appropriate manner its contractual financial obligations to the monitored through retroactively applied to address possible liquidity risks associated Bank. Credit risk is of the highest concern test methodology. In this methodology, with cash-flow volatility caused by market for the Bank and it is vitally important to theoretical losses/gains, which are calculated conditions and/or its balance sheet manage it appropriately. Therefore, credit risk in the VaR model, are compared to the real structure. The Bank monitors its liquidity management policies were set up to ensure losses/gains the next business day and any position in TL and FX terms, as well as the independence and integrity of the risk deviations, if any, are monitored. in terms of total liquidity. Moreover, the evaluation practices. Another purpose of Bank’s liquidity status is monitored within Structural Interest Rate Risk these policies and procedures is to ensure the framework of the Communiqué on Structural interest rate risks are those that all personnel who are involved in the the Measurement and Assessment of the risks that the Bank is exposed to through decision making process share the same Bank’s Liquidity Adequacy, published by products such as credits, securities and views in similar matters and reach similar the Banking Regulation and Supervision deposits, which bear interest sensitivity actions, if necessary. All credit risks, to which Agency on November 1, 2006, while the despite being monitored in non-trading the Bank is exposed, either on- or off- Risk Management Department reports on accounts. The Bank aims to keep changes balance sheet, are monitored and managed the issue to the Asset Liability Committee in its economic value within the limits, individually on a portfolio basis. In order to and the Market Risk Committee. The which have been determined based on its maintain its quality, the Bank’s credit portfolio Bank’s liquidity is monitored according shareholders’ equity, in the event that the is analyzed on a regular basis and reported to legal liquidity adequacy ratios as well Bank is subject to standard interest rate in terms of sectors, exposure, collateral as various parameters that are internally shocks determined by the BRSA as well as structure, loan size, rating and other various determined and tested under various stress internal interest rate shocks. Duration/gap aspects. assumptions, while test results are reported reports, which are used in the measurement to the above referenced committees and the Customer selection and monitoring of the and management of structural interest rate Board of Directors. credit ratings of customers are performed risk, are produced by placing those financial by expert credit teams with the use of products that are monitored in non-trading Operational Risk internal rating systems. The rating systems accounts into the cash flow statements on Operational risk is defined as the possibility are continuously reviewed and monitored a currency basis, according to the re-pricing of a direct or indirect loss, caused by people, for their performance independently by periods or durations. The structural interest processes, systems and external factors. the Risk Management Department. The rate risk that the Bank is subject to because The Risk Management Department is Bank intensively pursues efforts to improve of maturity mismatch is measured by responsible for defining, measuring and the rating systems and to design more applying standard interest rate shocks to the following up operational risks that fall under successful statistical models for arising gaps on a maturity tranche basis and the risk the risk definition, as well as establishing requirements in order to comply with Basel is continuously monitored for its compliance coordination of respective managerial criteria, make customer evaluations through with determined limits. The interest initiatives. All respective units, particularly more objective criteria and improve the sensitivity of the balance sheet is measured the Internal Control and Inspection Bank’s risk measurement capability. every two weeks by the Risk Management Board, contribute to the efforts aimed at Department and evaluated at Asset Liability determining and eliminating the operational Market Risk Committee meetings. When required, risks that arise during the Bank’s operations. Market risk refers to the risk of any loss interest rate risk is hedged or limited with The compliance of services with applicable that may occur in the value of positions derivatives transactions. The Asset Liability regulations and with the Bank’s current in trading accounts due to movements in Committee takes necessary actions to procedures and policies is followed closely. interest rates, share prices and exchange maintain the Bank’s net economic value and Records of events leading to monetary rates. ABank calculates the legal capital to create a stable income structure. losses are stored in a database established requirements for market risk by using to follow up on operational risks. Operational the standard method, which complies Liquidity Risk events that frequently occur or lead to with BRSA regulations. Moreover, market The purpose of liquidity risk management significant losses are evaluated by the risks associated with trading accounts are is to prevent the sum of cash held by Operational Risk Committee while these quantified and monitored on a daily basis the Bank and the borrowing resources events are managed by undertaking the through the Value at Risk (VaR) method. available to the Bank from falling below necessary action plans after determining Measurements, which are performed using a pre-determined ratio of the sum of the reasons of such losses and increasing the exponentially weighted parametric, VaR, deposits and other liabilities that require internal control and audit activities. 50 ABank 2012 ANNUAL REVIEW
Anadolu Group In Brief
Anadolu Group is one of Turkey’s Highlights From Operations In March 2012, Anadolu Efes established leading conglomerates operating a strategic alliance with SABMiller. Under in the beer, soft drinks, automotive, Beer Operations this agreement, SABMiller’s Russian and retail, finance and energy sectors The flagship company of Anadolu Group’s Ukrainian operations were acquired by in 16 countries with more than 80 beer operations, Anadolu Efes Biracılık Anadolu Efes, which thereby became the companies. ve Malt Sanayi A.Ş. (Anadolu Efes), was second largest beer company in Russia Anadolu Group (“The Group”) was established in 2000. Anadolu Efes came with eight breweries and one additional founded in the early 1950s by the Yazıcı into existence through the merger of brewery in Ukraine. As a part of this and Özilhan families, which are jointly five beer and two malt factories, the transaction, 24% shares of Anadolu Efes the major shareholders of all Group first of which was established in 1969. were transferred to SABMiller. operations through their respective Currently, Anadolu Efes is the leader in Anadolu Efes is listed on the Istanbul holding companies, Yazıcılar Holding A.Ş. the Turkish beer market with more than Stock Exchange (ISE) with a market and Özilhan Sınai Yatırım A.Ş. an 80% share and runs international capitalization of about US$ 8.6 billion as of beer operations through its subsidiary, The Group is structured and primarily end-of year 2012. Efes Breweries International (EBI) based managed in five principal sectors: beer, in the Netherlands. Anadolu Efes beer Soft Drinks Operations soft drinks, automotive, financial services, division operates in six countries (Turkey, Coca-Cola İçecek A.Ş. (CCİ), which is 50.3% retail and other operations, which include Russia, Kazakhstan, Moldova, Georgia owned by Anadolu Efes, runs Coca-Cola energy, tourism, IT and healthcare and Ukraine) with 18 breweries that have bottling operations in eight countries services. The Group has strong expertise a total beer producing capacity of 43.7 (Turkey, Kazakhstan, Azerbaijan, Pakistan, in doing business through partnerships million hectoliters and seven malteries Kyrgyzstan, Turkmenistan, Jordan, Iraq) with globally known companies, brands with a total malt production capacity of with 22 production facilities yielding a total and institutions, including Coca-Cola, 290,000 tons. As of end-2012, Anadolu bottling capacity of 1,154 million unit/case. Miller, Beck’s, Foster’s, Isuzu, Kia, Geely, Efes generated a sales volume of 52.7 mhl As of end-2012, CCİ generated a sales Lombardini, Faber-Castell, McDonald’s and with year-on-year growth of 17.7%. volume of 851 million unit/case with year- Johns Hopkins. over-year growth of 11.7%. The combined revenues of the Group as CCİ is listed on the ISE with a market of year-end 2012 amounted to about TL capitalization of approximately US$ 5.3 11.6 billion. The Group employs around billion as of year’s end 2012. 27,500 personnel in total. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 51
Automotive Operations Finance Operations Corporate Social Responsibility Anadolu Group has been active in the Anadolu Group conducts operations in Anadolu Group places special emphasis automotive sector since the beginning of the banking sector with Alternatifbank on corporate social responsibility projects. the 1960s. Within the automotive sector, A.Ş. operating in commercial/corporate Since its establishment in 1979, the Anadolu Group imports and markets KIA banking with a special focus on the SME Anadolu Education and Social Assistance and Geely branded passenger cars, light segment. In addition, the Group operates Foundation has developed more than commercial vehicles as well as Cooper a leasing company (ALease) and a 50 long-term initiatives in different and Avon branded tires in Turkey; the brokerage firm (AYatırım). social fields ranging from education to Group also runs fleet leasing operations healthcare. Also granting scholarships Other Operations with an overall fleet size of 12,000 vehicles. every year to around 850 students, the Anadolu Etap Tarım Ürünleri A.Ş., which foundation has provided scholarships for Anadolu Group is also a manufacturer is 33.3% owned by Anadolu Efes, joined 20,000 students to date. in the automotive sector. Anadolu Isuzu Anadolu Group in 2009. As one of the Otomotiv Sanayi ve Ticaret A.Ş. (Anadolu largest manufacturers of fruit juice Anadolu Medical Center (Istanbul) has Isuzu), whose major shareholders include ingredients in Turkey, the company exclusive affiliation with Johns Hopkins Anadolu Group, Isuzu Motors and Itochu currently fills Cappy branded fruit Medicine of Baltimore, Maryland, USA, Co., is one of the leading medium-size juices and nectars for Coca-Cola. The and operates the largest and most coach manufacturing companies in company also serves the beverage and technologically advanced healthcare Europe. Its main fields of operation are food markets with various tailor made facility in the region. the production and marketing of light products in Turkey, Europe, Russia, the Anadolu Group has made major duty trucks and midibuses. Since the Commonwealth of Independent States contributions to the field of sports as well. establishment of the company in 1984, (CIS) and the Middle East. Established in 1976, Efes Pilsen Sports more than 125,000 vehicles have been Anadolu Group strategically targets Club is the first Turkish basketball team to manufactured under the Isuzu Motors becoming one of the leading players in bring the European Championship Title license agreement. the energy sector. The Group established to Turkey and the first and only Turkish Through its subsidiary, Anadolu Motor, a partnership with Doğuş Holding basketball team that qualified for the final Anadolu Group also produces generators, and Doğan Holding for the Aslancık four in the Euroleague. Free basketball engines, spare parts; additionally, the hydroelectric power plant (120 MW), training schools organized by Efes Pilsen company imports and distributes which is in the construction phase and Sports Club in collaboration with the Lombardini and Honda branded engines expected to be operational by the end General Directorate of Youth and Sports and applications, LS branded tractors and of 2013 in the Black Sea region. Anadolu have produced many nationally and some Gallignani branded balers. Group is also constructing a hydroelectric globally known players. plant in Georgia (Paravani) with a Retail Operations Anadolu Group supports arts and culture capacity of 85.5 MW; it is scheduled for As part of its retail operations as a through music festivals and provides completion in 2014. The flagship project manufacturer, Anadolu Group imports, sponsorships for various initiatives each of Anadolu Group in the energy sector is produces and exports writing instruments year. During recent years, the Group has a coal-powered energy plant with a total in partnership with Faber-Castell (Adel been also very active in supporting new capacity of 1,200 MW in Gerze in Turkey’s Kalemcilik); the Group also operates a tourism projects especially in the eastern Black Sea region; this project is currently leading production company in the edible regions of Turkey. in the environmental assessment report oil sector with the Komili and Kırlangıç stage. brands in Turkey (Ana Gıda). As an importer and distributor in the retail sector, Anadolu Group has held the exclusive operating rights of McDonald’s in Turkey since 2005; McDonald’s operates through 206 restaurants across Turkey as of year-end 2012 with over 4,500 employees. The Group also operates in the IT and tourism sectors. 52 ABank 2012 ANNUAL REVIEW
Anadolu Group Financial Subsidiaries
ALease The company recorded a business As of year-end 2012 ALease employed a Established in 1997 as the Anadolu Group’s volume of US$ 151 million on the basis of total of 56 people. leasing arm, ALease is a prominent player 644 contracts signed as compared to In the year 2012, with the new law of of the leasing sector since its inception. US$ 93 million in 2011. financial leasing, factoring and finance The Company offers high quality financial ALease pursues the strategy of companies allowing operating leases, sale leasing services to a well-diversified diversifying its delivery channels via and lease back transactions and software clientele. Having made it a principle to ABank branches and the representative leases etc., growth in the leasing volume adhere to the highest business ethics in offices. Within the total transactions is expected to accelerate in the coming its operations, ALease enjoys a respected realized by ALease in 2012, those referred years. presence in the market owing to fast, by its sister company ABank have 49% flexible and quality solutions produced in share. ALease has three representative line with the expectations of its selected offices located in Ankara, Izmir and Adana, customers. established to expand its delivery network SMEs are the key constituents of ALease’s throughout the country. client portfolio. In the year 2012, ALease ALease’s net lease receivables and total increased its business volume at a level assets stood at US$ 195 million and which surpassed the sectoral average, US$ 220 million respectively in 2012 as achieving a 71% year on growth versus compared to US$ 150 million and the sector’s growth stood at 10% and US$ 193 million in 2011. ALease posted increasing its market share to 2.4% from US$ 1 million in net profit. 1.5% in 2011. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 53
ABank Financial Subsidiaries
AYatırım The Asset Management Unit manages Alternatif Yatırım Ortaklığı Founded in 1997, AYatırım is a wholly six ABank domestic mutual funds and Alternatif Yatırım Ortaklığı is an ABank owned subsidiary of ABank and operates an investment trust company, Alternatif subsidiary established in 1995. Operating as a boutique investment bank specialized Yatırım Ortaklığı, which is listed on the under the regulatory framework of the in asset management and brokerage ISE with a total mutual fund/closed fund Capital Markets Board, the Company’s services for domestic and international size of about US$ 64 million at end-2012. main activities involve the management clients in the Turkish equity and A discretionary portfolio management of stock, repo and other securities derivatives markets. AYatırım is a member service is offered to institutional investors. portfolios on domestic exchanges. of the Istanbul Stock Exchange (ISE), the The total fund size held by individual/ Alternatif Yatırım Ortaklığı is Turkey’s third Turkish Derivatives Exchange (TurkDEX) institutional investors totaled US$ 5 million largest investment trust and commands a and is regulated by the Capital Markets as of December 2012. 6.8% market share of assets managed by Board of Turkey. investment trusts in Turkey. AYatırım provides its products and In 2012, the Company’s market shares services through five branches, a call The Company’s paid-in capital stood at in the overall trading volume of the center and the Internet. ABank branches TL 22.3 million as of December 31, 2012 ISE and TurkDEX were 0.4% and 0.7 %, also act as agents of AYatırım. with 95.96% of its shares trading on the ISE. respectively. The Company’s paid-in capital was TL 8.5 million as of December 31, 2012. 54 ABank 2012 ANNUAL REVIEW Financial Tables
ALTERNATİFBANK A.Ş. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER* (Amounts expressed in thousands of Turkish lira (“TL”) unless otherwise indicated.) ASSETS 2012 2011 Cash and balances with the Central Bank of Turkey 627,297 503,029 Loans and advances to banks 73,614 111,650 Financial assets held for trading - Trading securities 50,255 199,321 - Derivative financial instruments 12,205 45,733 Loans and advances to customers 5,143,949 4,280,845 Investment securities - Available-for-sale 783,046 290,592 - Held-to-maturity 1,045,707 828,300 Other intangible assets 19,741 3,442 Property and equipment 21,165 24,237 Deferred income tax assets 26,665 8,248 Other assets 88,862 106,049 Total assets 7,892,506 6,401,446 LIABILITIES Deposits from banks 1,436,925 660,555 Due to customers 4,169,526 3,647,555 Other borrowed funds 1,031,102 1,064,537 Obligations under finance leases - 356 Debt securities in issue 146,263 - Derivative financial instruments 21,022 23,841 Current income taxes payable 4,959 3,915 Other provisions 29,420 15,654 Retirement benefit obligations 4,878 4,081 Other liabilities 190,028 199,256 Subordinated debt 257,489 274,470 Total liabilities 7,291,612 5,894,220 EQUITY Share capital 420,000 300,000 Share premium 98 85 Other reserves 21,468 3,836 Retained earnings 143,517 183,746 Equity attributable to shareholders of the Parent 585,083 487,667 Non-controlling interests in equity 15,811 19,559 Total equity 600,894 507,226 Total liabilities and equity 7,892,506 6,401,446
* The IFRS report can be reached from the attached CD. ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 55
ALTERNATİFBANK A.Ş. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER* (Amounts expressed in thousands of Turkish lira (“TL”) unless otherwise indicated.)
2012 2011 Interest income 860,523 520,157
Interest expense 441,189 283,895
Net interest income 419,334 236,262 Fee and commission income 46,323 43,710
Fee and commission expense 6,113 3,433
Net fee and commission income 40,210 40,277 Foreign exchange gains and losses, net 7,522 (15,683)
Trading gains and losses, net (25,172) 4,210
Gains / losses from investment securities, net 16,939 4,052
Other operating income 17,769 3,842
Operating income 476,602 272,960 Impairment losses on loans and
credit related commitments, net (181,901) (83,857)
Other operating expenses (195,952) (162,060)
Profit before income tax 98,749 27,043 Income tax expense (17,470) (6,158)
Profit for the year 81,279 20,885
Attributable to: Equity holders of the Bank 79,682 20,782
Non-controlling interest 1,597 103
81,279 20,885 Basic earnings per share attributable to the equity holders of 0.21262 0.06927 the Bank (expressed in TL per thousand share)
* The IFRS report can be reached from the attached CD. 56 ABank 2012 ANNUAL REVIEW Directory
BRANCH NAME BRANCH ADDRESS TEL FAX Head Office Cumhuriyet Cad. No: 46 Şişli 34367 Istanbul +90 212 315 65 00 +90 212 233 15 00
Operation and Technology Kaptanpaşa Mah. Piyalepaşa Bulvarı +90 212 314 27 00 +90 212 314 29 69 Center Ortadoğu Plaza Kat: 13-14-15-16-17 No: 73 Şişli/Istanbul
Adana Branch Ziyapaşa Bulvarı Refah Apt. No. 29/A 01130 +90 322 459 18 88 +90 322 458 35 73 Adana
Adapazarı Branch Yenigün Mah.Yenicami Sok. Palmiye İş +90 264 272 25 10 +90 264 272 25 22 Merkezi No: 8 Sakarya/Adapazarı
Afyonkarahisar Branch Dumlupınar Mah. Ordu Bulvarı Süleyman +90 272 213 22 40 +90 272 213 22 16 Göncen Cad. No: 2 Merkez/Afyonkarahisar
Alanya Branch Güllerpınarı Mah. Çevreyolu Cad. Bulvar Palas +90 242 511 06 08 +90 242 513 89 02 Apt. No: 286 Dükkan No: 1 ve 2, Daire No: 3 Alanya/Antalya
Altunizade Branch Mahir İz Caddesi No: 20 A Blok Altunizade +90 216 474 74 88 +90 216 474 70 99 34662 Istanbul
Anadolu Sağlık Merkezi Cumhuriyet Mah. 2255. Sok. No: 3 Çayırova- +90 212 314 29 21 +90 262 653 63 14 Branch Gebze/Izmit
Ankara Branch Turan Güneş Bulvarı No:17/A Yıldız +90 312 442 21 40 +90 312 442 41 61 Çankaya/Ankara
Antakya Branch Yavuz Selim Cad. Zühtiye Ökten Çarşısı A Blok +90 326 225 37 37 +90 326 225 37 08 No: 7-8-16 Antakya/Hatay
Antalya Branch Balbey Mah. İsmet Paşa Cad. No: 3-4 07040 +90 242 243 22 03 +90 242 247 77 85 Antalya
Avcılar Branch Cihangir Mah. E-5 Yanyol Düz Sok. No: 1 +90 212 422 24 10 +90 212 422 76 65 34840 Avcılar/Istanbul
Aydın Branch Hasanefendi Mah. Hükümet Bulvarı 1905. +90 256 214 75 44 +90 256 214 43 12 Sokak No: 11 Merkez /Aydın
Bakırköy Branch İncirli Cad. No: 106 34144 Bakırköy /Istanbul +90 212 542 56 54 +90 212 543 53 18
Bakırköy Çarşı Branch Cevizlik Mah. Hüsreviye Sok. No: 14 +90 212 660 30 46 +90 212 572 53 02 Bakırköy/Istanbul
Balgat Ankara Branch Ceyhun Atıf Kansu Cad. Başkent Plaza +90 312 472 18 00 +90 312 472 10 40 İş Merkezi No: 106/56 Çankaya/Ankara
Bayrampaşa Branch Yeni Maltepe Cad. No: 2 Doğa Plaza 34030 +90 212 501 53 00 +90 212 501 43 15 Bayrampaşa /Istanbul
Beylikdüzü Branch Yakuplu Merkez Mah. Hürriyet Bulvarı No: 1 +90 212 879 26 80 +90 212 879 26 93 SkyPort Residence Beylikdüzü/Istanbul
Bodrum Branch Kıbrıs Şehitleri Cad. No: 112 48400 +90 252 313 90 07 +90 252 313 42 30 Bodrum/Muğla ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 57
BRANCH NAME BRANCH ADDRESS TEL FAX Bursa Branch Kırcaali Mah. Kayalı Sok. Ortaklar İş Merkezi +90 224 272 68 80 +90 224 272 68 90 No: 34/ B 16220 Bursa
Caddebostan Branch Bağdat Cad. Deniz Apt. No: 298 Caddebostan +90 216 363 49 90 +90 216 478 02 19 /Istanbul
Çallı Antalya Branch Vatan Bulvarı Güvenlik Mah. 282 Sok. Kadri +90 242 345 36 80 +90 242 346 22 18 Melli İş Merkezi No: 10 /1 ve 3 Çallı/Antalya
Çorlu Branch Kazimiye Mah. Omurtak Cad. Kılıçoğlu Plaza +90 282 673 63 63 +90 282 673 63 73 (Kipa Karşısı) A Blok Zemin Kat No: 4 59850 Çorlu/Tekirdağ
Çorum Branch İnönü Cad. No: 61 Çorum +90 364 201 03 10 +90 364 201 03 22
Denizli Branch Saraylar Mah. 2. Ticari Yol No: 32/20100 +90 258 262 42 60 +90 258 242 65 90 Bayramyeri /Denizli
Efes Merter Branch Bahçelievler Mah. Şehit İbrahim Koparır Cad. +90 212 449 38 67 +90 212 677 55 13 No: 4 Bahçelievler/Istanbul
Eskişehir Branch Sakarya Cad. No: 56/A 26100 Eskişehir +90 222 230 71 72 +90 222 230 70 92
Gatem Gaziantep Branch Gatem Toptancılar Sitesi, Mavi Ada 3. Blok No: +90 342 238 21 80 +90 342 238 21 96 2 Şehitkamil/Gaziantep
Gaziantep Branch İncirlipınar Mah. Profösör Muammer Aksoy +90 342 215 31 15 +90 342 220 03 91 Bulvarı F&H İş Merkezi No: 9-10 ŞehitKamil/Gaziantep
Gaziemir Izmir Branch Akçay Cad. No: 213/1 35410 Gaziemir/Izmir +90 232 252 55 77 +90 232 252 18 45
Gaziosmanpaşa Istanbul Cumhuriyet Meydanı No: 19 Gaziosmanpaşa / +90 212 581 83 83 +90 212 581 85 08 Branch Istanbul
Gebze Branch Osman Yıldız Mah. Istanbul Cad. No: 64 41400 +90 262 643 20 00 +90 262 643 61 44 Gebze/Kocaeli
Güneşli Branch Gülbahar Cad. Evren Mah. Günnur Sok. No: 1 +90 212 550 63 53 +90 212 550 79 84 34212 Güneşli/Istanbul
Hadımköy Branch Akçaburgaz Mah. Hadımköy Yolu No: 190 +90 212 886 85 50 +90 212 886 13 09 Esenyurt /Hadımköy/Istanbul
İkitelli Branch İkitelli Organize Sanayi Bölgesi Demirciler +90 212 671 46 43 +90 212 671 46 67 Sanayi Sitesi G-1 Blok No: 484 34306 Başakşehir/ Istanbul 58 ABank 2012 ANNUAL REVIEW
Directory
BRANCH NAME BRANCH ADDRESS TEL FAX Istanbul Deri ve Endüstri Hakkı Matraş Cad. No: 11 34953 Tuzla/Istanbul +90 216 394 26 67 +90 216 394 26 72 Free Zone Branch
İvedik Ankara Branch İvogsan Melih Gökçek Bulvarı 1476 Sokak No: +90 312 395 71 18 +90 312 395 87 14 8 /2 Yenimahalle/Ankara
Izmir Branch Şehit Nevres Bulvarı No: 23/A/ 35210 +90 232 422 69 10 +90 232 463 90 19 Alsancak/ Izmir
Izmit Branch Karabaş Mah. Cumhuriyet Cad. No: 180 41100 +90 262 322 06 05 +90 262 322 06 30 Izmit/Kocaeli
Karşıyaka Izmir Branch Cemal Gürsel Cad. 164/1 35600 +90 232 369 99 00 +90 232 369 19 67 Karşıyaka - Izmir
Kartal Branch Ankara Asfaltı Yan Yol. Kurfalı Mah. Kartal İş +90 216 452 44 44 +90 216 452 44 37 Merkezi B Blok 34861 Kartal/Istanbul
Kayseri Branch Cumhuriyet Mah. Millet Cad. No: 36 38040 +90 352 222 11 11 +90 352 222 35 40 Kayseri
Kaynarca Branch Fevzi Çakmak Mah. Cemal Gürsel Cad. No: 161 +90 216 397 64 24 +90 216 397 93 68 Pendik/Istanbul
Konya Branch Fevzi Çakmak Mah. Ankara Yolu Üzeri No: 212 +90 332 342 54 66 +90 332 342 34 46 42090 Karatay/Konya
Kozyatağı Branch Ankara Asfaltı Üzeri F.S.M. Hastanesi Yanı +90 216 574 79 74 +90 216 573 74 11 Umut Sok. No: 12 34752 İçerenköy/Istanbul
Levent Branch Sanayi Mah. Eski Büyükdere Cad. No: 31/A +90 212 280 62 10 +90 212 280 60 72 Kağıthane /Istanbul
Main Branch Cumhuriyet Cad. No: 46 A 34367 Şişli/Istanbul +90 212 315 65 00 +90 212 232 99 07
Malatya Branch İzzetiye Mah. Posta Cad. No: 14 Malatya +90 422 324 95 95 +90 422 324 95 82
Maltepe Branch Atatürk Cad. No: 41/2 Maltepe /Istanbul +90 216 442 00 85 +90 216 442 00 79
Manisa Branch 75. Yıl Mah. Bahri Sarıtepe Cad. +90 236 233 94 30 +90 236 236 03 78 No: 67/A Manisa
Marmaris Branch Tepe Mah. Ulusal Egemenlik Cad. 71. Sokak +90 252 413 21 00 +90 252 413 21 13 No: 1 Marmaris/Muğla
Mersin Branch Camii Şerif Mah. İstiklal Cad. No: 32 33060 +90 324 237 90 00 +90 324 237 76 15 Mersin
Merter Branch Fatih Cad. No: 18 Merter-Güngören/Istanbul +90 212 637 27 60 +90 212 637 27 95
Nilüfer Bursa Branch Izmir Yolu Girişi F.S.M Bulvarı +90 224 247 36 00 +90 224 245 40 97 No: 128/19 16010 Bursa ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 59
BRANCH NAME BRANCH ADDRESS TEL FAX Ostim Ankara Branch Alınteri Bulvarı No: 80 06370 Ostim Ankara +90 312 385 69 10 +90 312 385 69 20
Pınarbaşı Izmir Branch Kemalpaşa Cad. No: 19/A Zemin Kat 35060 +90 232 479 90 10 +90 232 479 90 14 Pınarbaşı/Izmir
Rami Topçular Branch Rami Kışla Cad. Cicoz Yolu Bülent Kuşcu İş +90 212 544 62 10 +90 212 544 62 40 Merkezi No: 1 Eyüp/Istanbul
Sahra-i Cedit Branch Şemsettin Günaltay Cad. Osmanlı Sitesi No: +90 216 363 48 10 +90 216 360 03 20 213 34738 Erenköy/Istanbul
Samsun Branch Merkez Kale Mah Kazımpaşa Cad. No: 21 +90 362 432 34 55 +90 362 432 63 87 55000 Samsun
Sincan Ankara Branch Atatürk Mah. Ankara Cad. No: 54 Sincan/ +90 312 275 01 15 +90 312 275 02 14 Ankara
Sirkeci Branch Bahçekapı Cad. No: 29 Arpacılar 34112 +90 212 511 95 09 +90 212 522 26 90 Sirkeci/Istanbul
Siteler Ankara Branch Demirhendek Cad. No: 128 06160 +90 312 348 34 00 +90 312 348 68 08 Siteler/Ankara
Şişli Branch Halaskargazi Cad. Çankaya Apt. No: 150/A +90 212 219 41 51 +90 212 219 41 63 34371 Şişli/Istanbul
Sultanbeyli Branch Abdurrahman Mah. Fatih Bulvarı Av. Ahmet +90 216 398 95 60 +90 216 398 95 83 Kaya İşhanı No: 107/A Sultanbeyli/Istanbul
Trabzon Branch Kemerkaya Mah. Maraş Cad. Ahmet Selim +90 462 326 98 87 +90 462 321 95 46 Teymur Sokak No: 5/A 61200 Trabzon
Tuzla O.S.B Melek Aras Bulvarı A1 Blok No: 2 Kat: 2-3 +90 216 593 17 99 +90 216 593 17 95 Tuzla/Istanbul
Ümraniye - İmes Branch İmes Sanayi Sitesi C Blok 302 Sok. No: 2 +90 216 364 53 53 +90 216 364 53 52 34735 Yukarı Dudullu/Istanbul
Ümraniye Branch Alemdağ Cad. No: 160 Ümraniye /Istanbul +90 216 505 70 20 +90 216 505 70 18 60 ABank 2012 ANNUAL REVIEW Branch Network
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ALTERNATİFBANK A.Ş.
CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH AUDITOR’S REPORT
31 DECEMBER 2012
ALTERNATİFBANK A.Ş. CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH AUDITOR’S REPORT 31 DECEMBER 2012 64 ABank 2012 ANNUAL REVIEW ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 65 66 ABank 2012 ANNUAL REVIEW
ALTERANLTAETRİFNBAATNİKFB AA.ŞN.K A.Ş. ALTERNATİFBANK A.Ş.
INDEXINDEX TO THE TO CONSOLIDATED THE CONSOLIDATED FINANCIAL FINANCIAL STATEMENTS STATEMENTS CONSOLIDATED BALANCE SHEET AT 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) CONTENTSCONTENTS PAGEPAGE PAGE Note 2012 2011 CONSOLIDATEDCONSOLIDATED BALANCE BALANCE SHEET...... SHEET...... 67 1 1 ASSETS Cash and balances with the Central Bank of Turkey 6 627,297 503,029 CONSOLIDATEDCONSOLIDATED INCOME INCOME STATEMENT...... STATEMENT...... 68 2 2 Loans and advances to banks 7 73,614 111,650 Financial assets held for trading CONSOLIDATEDCONSOLIDATED STATEMENT STATEMENT OF COMPREHENSIVE OF COMPREHENSIVE INCOME INCOME ...... 69 3 3 - Trading securities 8 50,255 199,321 - Derivative financial instruments 9 12,205 45,733 CONSOLIDATEDCONSOLIDATED STATEMENT STATEMENT OF CHANGES OF CHANGES IN EQUITY...... IN EQUITY...... 70 4 4 Loans and advances to customers 5,143,949 4,280,845 Investment securities CONSOLIDATEDCONSOLIDATED CASH CASHFLOW FLOW STATEMENT STATEMENT ...... 71 5 5 - Available-for-sale 11 783,046 290,592 - Held-to-maturity 11 1,045,707 828,300 NOTESNOTES TO THE TO CONSOLIDATED THE CONSOLIDATED FINANCIAL FINANCIAL STATEMENTS:...... STATEMENTS:...... 72-124 6-58 6-58 Other intangible assets 12 19,741 3,442 Property and equipment 13 21,165 24,237 NOTE 1NOTE GENERAL 1 GENERAL INFORMATION INFORMATION ...... 72 6 6 Deferred income tax assets 19 26,665 8,248 NOTE 2NOTE SUMMARY 2 SUMMARY OF SIGNIFICANT OF SIGNIFICANT ACCOUNTING ACCOUNTING POLICIES...... POLICIES...... 73-88 7-22 7-22 Other assets 14 88,862 106,049 NOTE 3NOTE CRITICAL 3 CRITICAL ACCOUNTING ACCOUNTING ESTIMATES ESTIMATES AND JUDGEMENTS AND JUDGEMENTS IN APPLYINGIN APPLYING ACCOUNTING ACCOUNTING POLICIES POLICIES ...... 22 22 88 Total assets 7,892,506 6,401,446 NOTE 4NOTE FINANCIAL 4 FINANCIAL RISK MANAGEMENT...... RISK MANAGEMENT...... 89-104 23-36 23-36 NOTE 5NOTE CASH 5 AND CASH CASH AND EQUIVALENTS CASH EQUIVALENTS ...... 103 37 37 NOTE 6NOTE CASH 6 AND CASH BALANCES AND BALANCES WITH THE WITH CENTRAL THE CENTRAL BANK OF BANK TURKEY OF TURKEY ...... 103 37 37 LIABILITIES NOTE 7NOTE LOANS 7 ANDLOANS ADVANCES AND ADVANCES TO BANKS...... TO BANKS...... 104 38 38 Deposits from banks 15 1,436,925 660,555 NOTE 8NOTE FINANCIAL 8 FINANCIAL ASSETS ASSETS HELD FOR HELD TRADING...... FOR TRADING...... 104 38 38 Due to customers 16 4,169,526 3,647,555 NOTE 9NOTE DERIVATIVE 9 DERIVATIVE FINANCIAL FINANCIAL INSTRUMENTS...... INSTRUMENTS...... 104 39 39 Other borrowed funds 17 1,031,102 1,064,537 NOTE 10NOTE LOANS 10 ANDLOANS ADVANCES AND ADVANCES TO CUSTOMERS TO CUSTOMERS ...... 106 40 40 Obligations under finance leases - 356 NOTE 11NOTE INVESTMENT 11 INVESTMENT SECURITIES...... SECURITIES...... 107-108 41-42 41-42 Debt securities in issue 18 146,263 - NOTE 12NOTE OTHER 12 INTANGIBLEOTHER INTANGIBLE ASSETS ASSETS...... 42-43 42-43 108-109 Derivative financial instruments 9 21,022 23,841 NOTE 13NOTE PROPERTY 13 PROPERTY AND EQUIPMENT...... AND EQUIPMENT...... 43-44110 43-44 NOTE 14NOTE OTHER 14 ASSETSOTHER ASSETS...... 110 44 44 Current income taxes payable 19 4,959 3,915 NOTE 15NOTE DEPOSITS 15 DEPOSITS FROM BANKS FROM ...... BANKS ...... 111 45 45 Other provisions 20 29,420 15,654 NOTE 16NOTE DUE 16 TO DUE CUSTOMERS TO CUSTOMERS ...... 111 45 45 Retirement benefit obligations 21 4,878 4,081 NOTE 17NOTE OTHER 17 BORROWEDOTHER BORROWED FUNDS AND FUNDS SUBORDINATED AND SUBORDINATED DEBT ...... DEBT ...... 112 46 46 Other liabilities 22 190,028 199,256 NOTE 18NOTE DEBT 18 SECURITIES DEBT SECURITIES IN ISSUE...... IN ISSUE...... 112 46 46 Subordinated debt 17 257,489 274,470 NOTE 19NOTE TAXATION 19 TAXATION ...... 113-114 47-48 47-48 NOTE 20NOTE OTHER 20 PROVISIONS...... OTHER PROVISIONS...... 49 49 115 Total liabilities 7,291,612 5,894,220 NOTE 21NOTE RETIREMENT 21 RETIREMENT BENEFIT BENEFIT OBLIGATIONS...... OBLIGATIONS...... 115-116 49-50 49-50 NOTE 22NOTE OTHER 22 LIABILITIES...... OTHER LIABILITIES...... 116 50 50 NOTE 23NOTE SHARE 23 CAPITAL SHARE CAPITAL AND SHARE AND PREMIUM...... SHARE PREMIUM...... 116 50 50 EQUITY NOTE 24NOTE RETAINED 24 RETAINED EARNINGS EARNINGS AND OTHER AND RESERVESOTHER RESERVES ...... 117 51 51 Share capital 23 420,000 300,000 NOTE 25NOTE NET 25 INTEREST NET INTEREST INCOME...... INCOME...... 118 52 52 Share premium 23 98 85 NOTE 26NOTE NET 26 FEE NET AND FEE COMMISSION AND COMMISSION INCOME INCOME ...... 118 52 52 Other reserves 24 21,468 3,836 NOTE 27NOTE TRADING 27 TRADING GAINS AND GAINS LOSSES, AND LOSSES, NET ...... NET ...... 119 53 53 Retained earnings 24 143,517 183,746 NOTE 28NOTE OTHER 28 OPERATINGOTHER OPERATING EXPENSES EXPENSES ...... 119 53 53 NOTE 29NOTE IMPAIRMENT 29 IMPAIRMENT LOSSES LOSSES ON LOANS ON ANDLOANS CREDIT AND CREDIT RELATED RELATED COMMITMENTS...... COMMITMENTS...... 119 53 53 NOTE 30NOTE ASSETS 30 ASSETS PLEDGED PLEDGED AND RESTRICTED...... AND RESTRICTED...... 120 54 54 Equity attributable to shareholders of the Parent 585,083 487,667 NOTE 31NOTE COMMITMENTS 31 COMMITMENTS AND CONTINGENT AND CONTINGENT LIABILITIES LIABILITIES ...... 120-121 54-55 54-55 NOTE 32NOTE SEGMENT 32 SEGMENT ANALYSIS ANALYSIS ...... 122 56 56 Non-controlling interests in equity 15,811 19,559 NOTE 33NOTE RELATED 33 RELATED PARTY TRANSACTIONS PARTY TRANSACTIONS ...... 123 57 57 NOTE 34NOTE ASSETS 34 ASSETS UNDER UNDERMANAGEMENT MANAGEMENT ...... 124 58 58 NOTE 35NOTE POST 35 BALANCE POST BALANCE SHEET EVENTS...... SHEET EVENTS...... 124 58 58 Total equity 600,894 507,226 Total liabilities and equity 7,892,506 6,401,446
The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. 1 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 67
ALTERNATİFBANK A.Ş.
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
Note 2012 2011
ASSETS Cash and balances with the Central Bank of Turkey 6 627,297 503,029 Loans and advances to banks 7 73,614 111,650 Financial assets held for trading - Trading securities 8 50,255 199,321 - Derivative financial instruments 9 12,205 45,733 Loans and advances to customers 5,143,949 4,280,845 Investment securities - Available-for-sale 11 783,046 290,592 - Held-to-maturity 11 1,045,707 828,300 Other intangible assets 12 19,741 3,442 Property and equipment 13 21,165 24,237 Deferred income tax assets 19 26,665 8,248 Other assets 14 88,862 106,049
Total assets 7,892,506 6,401,446
LIABILITIES Deposits from banks 15 1,436,925 660,555 Due to customers 16 4,169,526 3,647,555 Other borrowed funds 17 1,031,102 1,064,537 Obligations under finance leases - 356 Debt securities in issue 18 146,263 - Derivative financial instruments 9 21,022 23,841 Current income taxes payable 19 4,959 3,915 Other provisions 20 29,420 15,654 Retirement benefit obligations 21 4,878 4,081 Other liabilities 22 190,028 199,256 Subordinated debt 17 257,489 274,470
Total liabilities 7,291,612 5,894,220
EQUITY Share capital 23 420,000 300,000 Share premium 23 98 85 Other reserves 24 21,468 3,836 Retained earnings 24 143,517 183,746
Equity attributable to shareholders of the Parent 585,083 487,667
Non-controlling interests in equity 15,811 19,559
Total equity 600,894 507,226
Total liabilities and equity 7,892,506 6,401,446
TheThe accompanying accompanying notes notes set set out out on on pages pages 96 6 to 58148 form form an an integral integral part part of of these these consolidated consolidated financial financial statements. statements. 1 68 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER FOR THE YEAR ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
Note 2012 2011 Note 2012 2011
Interest income 25 860,523 520,157 Profit for the year 81,279 20,885 Interest expense 25 441,189 283,895 Net gains on available- for sale financial assets, net of tax Net interest income 419,334 236,262 - Unrealised net gains arising during the year, before tax 26,798 (4,601) - Net change in fair value of financial assets transferred to Fee and commission income 26 46,323 43,710 income statement (5,748) (2,301) Fee and commission expense 26 6,113 3,433 Income tax relating to components of other comprehensive income (5,360) 1,150
Net fee and commission income 40,210 40,277 Other comprehensive income for the period, net of tax 15,690 (5,752)
Foreign exchange gains and losses, net 7,522 (15,683) Total comprehensive income for the year 96,969 15,133 Trading gains and losses, net 27 (25,172) 4,210 Gains / losses from investment securities, net 27 16,939 4,052 Total comprehensive income attributable to: Other operating income 17,769 3,842 Equity holders of the parent entity (total) 95,372 15,030 Non-controlling interests (total) 1,597 103 Operating income 476,602 272,960
Impairment losses on loans and credit related commitments, net 29 (181,901) (83,857) Other operating expenses 28 (195,952) (162,060)
Profit before income tax 98,749 27,043
Income tax expense 19 (17,470) (6,158)
Profit for the year 81,279 20,885
Attributable to: Equity holders of the Bank 79,682 20,782 Non-controlling interest 1,597 103
81,279 20,885
Basic earnings per share attributable to the equity holders of the Bank (expressed in TL per thousand share) 2.28 0.21262 0.06927
The accompanying notes set out on pages 96 to 148 form an integral part of these consolidated financial statements.
The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. 2 3 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 69
ALTERNATİFBANK A.Ş.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
Note 2012 2011
Profit for the year 81,279 20,885
Net gains on available- for sale financial assets, net of tax - Unrealised net gains arising during the year, before tax 26,798 (4,601) - Net change in fair value of financial assets transferred to income statement (5,748) (2,301) Income tax relating to components of other comprehensive income (5,360) 1,150
Other comprehensive income for the period, net of tax 15,690 (5,752)
Total comprehensive income for the year 96,969 15,133
Total comprehensive income attributable to: Equity holders of the parent entity (total) 95,372 15,030 Non-controlling interests (total) 1,597 103
The accompanying notes set out on pages 96 to 148 form an integral part of these consolidated financial statements. The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. 3 70 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER FOR THE YEAR ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
Attributable to equity holders of the Bank Note 2012 2011 Non- Note Share Share Other Retained controlling Total Cash flows from operating activities capital premium Reserves earnings Total interest equity Interest received 855,115 520,157 Balance at 1 January 2011 300,000 85 8,017 164,535 472,637 19,836 492,473 Interest paid (449,240) (283,895) Net change in available for sale investments, Fees and commissions received 34,760 37,324 net of tax 24 - - (5,752) - (5,752) - (5,752) Income from banking services 11,563 6,386 Profit for the year - - - 20,782 20,782 103 20,885 Trading income 36,427 11,973 Total comprehensive income for the year - - (5,752) 20,782 15,030 103 15,133 Recoveries of loans previously written off 14,422 8,285 Fees and commissions paid (6,113) (3,434) Transfer to statutory reserves - - 1,571 (1,571) - - - Cash payments to employees and other parties (118,403) (100,288) Dividend paid to minority - - - - - (380) (380) Cash received from other operating activities 109,846 10,917 Cash paid for other operating activities (209,320) (66,150) Balance at 31 December 2011 300,000 85 3,836 183,746 487,667 19,559 507,226 Taxes paid (10,384) (1,193) Cash flows from operating profits before changes in operating assets and liabilities 268,673 140,082 Net change in available for sale investments, net of tax 24 - - 15,690 - 15,690 - 15,690 Changes in operating assets and liabilities: Profit for the year - - - 79,682 79,682 1,597 81,279 Trading securities 149,102 8,310 Total comprehensive income for the year - - 15,690 79,682 95,372 1,597 96,969 Loans and advances (939,026) (1,144,659) Other assets 17,044 (58,481) Purchase from non-controlling interests - 13 127 1,904 2,044 (5,324) (3,280) Deposits from other banks 5,017 (147,209) Dividend paid to minority - - - - - (21) (21) Deposits 529,851 1,203,338 Capital increase 120,000 - - (120,000) - - - Other money market deposits 771,353 349,477 Transfer to statutory reserves - - 1,815 (1,815) - - - Other liabilities (45,575) 18,779
Balance at 31 December 2012 420,000 98 21,468 143,517 585,083 15,811 600,894 Net cash from operating activities 487,766 229,555
Cash flows from investing activities Purchases of available for sale securities (13,733,933) (1,041,367) Proceeds from sale and redemption of available-for-sale securities 13,273,627 749,097 Purchases of held to maturity securities (686,353) (841,231) Redemption of held to maturity securities 464,809 435,901 Purchases of premises and equipment (4,258) (14,283) Proceeds from sale property and equipment 71 9,120 Purchase of intangible assets, net (18,515) (1,862)
Net cash (used in) investing activities (704,552) (704,625)
Cash flows from financing activities Proceeds from funds borrowed 741,700 1,015,234 Payments for funds borrowed (790,526) (486,944) Proceeds from bond issue 145,020 - Payments of finance lease liabilities (356) (635)
Net cash from financing activities 95,838 527,655
Net increase in cash and cash equivalents 147,725 192,667 Effects of foreign exchange-rate changes on cash and cash equivalents (37,138) (26,048)
Cash and cash equivalents at beginning of the year 5 360,259 193,640
Cash and cash equivalents at end of the year 5 470,846 360,259
The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. The accompanying notes set out on pages 96 to 148 form an integral part of these consolidated financial statements. The accompanying notes set out on pages 6 to 58 form an integral part of these consolidated financial statements. 4 5 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 71
ALTERNATİFBANK A.Ş.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
Note 2012 2011
Cash flows from operating activities Interest received 855,115 520,157 Interest paid (449,240) (283,895) Fees and commissions received 34,760 37,324 Income from banking services 11,563 6,386 Trading income 36,427 11,973 Recoveries of loans previously written off 14,422 8,285 Fees and commissions paid (6,113) (3,434) Cash payments to employees and other parties (118,403) (100,288) Cash received from other operating activities 109,846 10,917 Cash paid for other operating activities (209,320) (66,150) Taxes paid (10,384) (1,193) Cash flows from operating profits before changes in operating assets and liabilities 268,673 140,082
Changes in operating assets and liabilities: Trading securities 149,102 8,310 Loans and advances (939,026) (1,144,659) Other assets 17,044 (58,481) Deposits from other banks 5,017 (147,209) Deposits 529,851 1,203,338 Other money market deposits 771,353 349,477 Other liabilities (45,575) 18,779
Net cash from operating activities 487,766 229,555
Cash flows from investing activities Purchases of available for sale securities (13,733,933) (1,041,367) Proceeds from sale and redemption of available-for-sale securities 13,273,627 749,097 Purchases of held to maturity securities (686,353) (841,231) Redemption of held to maturity securities 464,809 435,901 Purchases of premises and equipment (4,258) (14,283) Proceeds from sale property and equipment 71 9,120 Purchase of intangible assets, net (18,515) (1,862)
Net cash (used in) investing activities (704,552) (704,625)
Cash flows from financing activities Proceeds from funds borrowed 741,700 1,015,234 Payments for funds borrowed (790,526) (486,944) Proceeds from bond issue 145,020 - Payments of finance lease liabilities (356) (635)
Net cash from financing activities 95,838 527,655
Net increase in cash and cash equivalents 147,725 192,667 Effects of foreign exchange-rate changes on cash and cash equivalents (37,138) (26,048)
Cash and cash equivalents at beginning of the year 5 360,259 193,640
Cash and cash equivalents at end of the year 5 470,846 360,259
TheThe accompanying accompanying notes notes set set out out on on pages pages 96 6 to 58148 form form an an integral integral part part of of these these consolidated consolidated financial financial statements. statements. 5 72 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 1 - GENERAL INFORMATION NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alternatifbank A.Ş. (a Turkish joint stock company - “the Bank”) was incorporated in Istanbul on The principal accounting policies applied in the preparation of these consolidated financial statements 6 November 1991 and started operations in February 1992, The Bank was acquired by Anadolu Group are set out below. These policies have been consistently applied to all the years presented, unless in 1996, Certain shares of the Bank, representing 4.16% of the total, are listed on the Istanbul Stock otherwise stated. Exchange (“ISE”). 2.1 Basis of Presentation of Financial Statements The registered office address of the Bank is at Cumhuriyet Caddesi No: 46 Elmadağ / Istanbul. These consolidated financial statements are prepared in accordance with International Financial The consolidated financial statements of the Bank were authorized for issue by the management on Reporting Standards (“IFRS”) including International Accounting Standards and Interpretations issued 26 February 2013. The ultimate parents of the Bank are Yazıcılar Holding A.Ş., Özilhan Sınai Yatırım by the International Accounting Standards Board (“IASB”). A.Ş. and Anadolu Endüstri Holding A.Ş. The Bank is a member of Anadolu Group. The consolidated financial statements have been prepared under the historical cost convention, except For the purposes of the consolidated financial statements, the Bank and its consolidated subsidiaries for available-for-sale securities and derivative financial instruments that have been measured at fair are referred to as “the Group”. value.
The operations of the Group consist of banking, brokerage and portfolio management in capital The Bank maintains its books of accounts and prepares its statutory financial statements in accordance markets conducted mainly with local customers. with the Banking Law and the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No. 26333 dated 1 November 2006, which refers to The Bank provides banking services through 63 (2011: 63) branches in Turkey. At 31 December 2012, Turkish Accounting Standards and Turkish Financial Reporting Standards and additional explanations the Group has 1,230 employees (2011: 1,234). and notes related to them and other decrees, notes and explanations related to accounting and financial reporting principles published by the Banking Regulation and Supervision Agency (“BRSA”) and The subsidiaries and the Bank’s shareholding included in consolidation and their shareholding other relevant rules promulgated by the Turkish Commercial Code, Capital Markets Board and Tax percentages at 31 December 2012 and 2011 are as follows: Regulations. The subsidiaries maintain their books of accounts based on statutory rules and regulations applicable in their jurisdictions. The subsidiaries are incorporated in Turkey maintain their books of Effective Effective account and prepare their statutory financial statements in accordance with the regulations on Place of shareholding % shareholding % accounting and tax legislation in Turkey and the regulations issued by Capital Markets Board. Incorporation 2012 2011 Alternatif Yatırım A.Ş. (1) Istanbul/Turkey 99.99 99.99 2.2 Basis of Consolidation Alternatif Yatırım Ortaklığı A.Ş. (2) Istanbul/Turkey 65.50 52.60 The consolidated financial statements comprise the financial statements of the Bank and all its The principal activities of the consolidated subsidiaries are as follows: subsidiaries, drawn up to 31 December 2012.
(1) Alternatif Yatırım A.Ş. renders brokerage and investment banking services to customers in line with the Subsidiaries are all entities over which the Group has the power to govern the financial and operating rules of the Capital Market Board of Turkey. policies so as to benefit from its activities. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital and is (2) Alternatif Yatırım Ortaklığı A.Ş. is a closed ended mutual fund managing portfolios which are made up able to govern the financial and operating policies of an enterprise so as to benefit from its activities. of the capital market instruments according to the rules of the related regulation and the Capital Market The Bank also consolidates a subsidiary in which it has less than 50% shareholding since it has power Law. Alternatif Yatırım Ortaklığı A.Ş. is a subsidiary since the Bank has the power to govern the to govern the financial and operating policies of such subsidiary under a statute, to appoint or remove financial and operating policies of such subsidiary under a statute, to appoint or remove the majority of the majority of the members of the board of directors and to cast the majority of votes at the meetings the members of the board of directors and to cast the majority of votes at the meetings of board of of board of directors. directors. The Bank holds also a golden share which leads to full control. The Bank applied entity concept method for the changes in ownership interests in this subsidiary. Therefore; where there is a subsequent increase in the ownership interest in this subsidiary, the carrying amount of the non-controlling interest is Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to adjusted to reflect the change in its interest in the subsidiary’s net assets. The difference between the be consolidated from the date on which control is transferred out of the Group. amount by which the non-controlling interest is so adjusted and the consideration paid, if any, is recognized directly in equity and attributed to equity holders of the Bank. No goodwill is recognized on The financial statements of the subsidiaries are prepared for the same reporting period as the parent such a transaction. Bank, using consistent accounting policies.
The equity and net income attributable to non controlling interests are shown separately in the consolidated balance sheet and income statement, respectively.
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ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of Presentation of Financial Statements
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) including International Accounting Standards and Interpretations issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale securities and derivative financial instruments that have been measured at fair value.
The Bank maintains its books of accounts and prepares its statutory financial statements in accordance with the Banking Law and the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No. 26333 dated 1 November 2006, which refers to Turkish Accounting Standards and Turkish Financial Reporting Standards and additional explanations and notes related to them and other decrees, notes and explanations related to accounting and financial reporting principles published by the Banking Regulation and Supervision Agency (“BRSA”) and other relevant rules promulgated by the Turkish Commercial Code, Capital Markets Board and Tax Regulations. The subsidiaries maintain their books of accounts based on statutory rules and regulations applicable in their jurisdictions. The subsidiaries are incorporated in Turkey maintain their books of account and prepare their statutory financial statements in accordance with the regulations on accounting and tax legislation in Turkey and the regulations issued by Capital Markets Board.
2.2 Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Bank and all its subsidiaries, drawn up to 31 December 2012.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to benefit from its activities. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The Bank also consolidates a subsidiary in which it has less than 50% shareholding since it has power to govern the financial and operating policies of such subsidiary under a statute, to appoint or remove the majority of the members of the board of directors and to cast the majority of votes at the meetings of board of directors.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent Bank, using consistent accounting policies.
The equity and net income attributable to non controlling interests are shown separately in the consolidated balance sheet and income statement, respectively.
7 74 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
All intra-group balances, transactions and unrealized gains on intra-group transactions are eliminated 2.8 Premises and Equipment including inter-company profits and unrealized profits and losses. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Premises and equipment are stated at cost less accumulated depreciation and any impairment in value.
2.3 Use of Estimates and Judgments Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
The preparation of financial statements in conformity with IFRS requires management to make Furniture and fixtures and motor vehicles 2 years to 5 years estimates and assumptions that affect the reported amounts of assets and liabilities within the next Office equipment 5 years financial year. Estimates and judgments are continually evaluated and are based on historical Leasehold improvements 5 years, or over the period of the lease experience and other factors, including expectations of future events that are believed to be reasonable if less than 5 years under the circumstances. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The areas The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at involving a higher degree of judgment or complexity, or areas where assumptions and estimates are each financial year end. The carrying values of premises and equipment are reviewed for impairment significant to the consolidated financial statements are disclosed in related accounting policies when events or changes in circumstances indicate the carrying value may not be recoverable. If any (Note 3). such indication exists and where the carrying values exceed the estimated recoverable amount, the assets of cash generating units are written down to their recoverable amount. The recoverable amount 2.4 Functional and Presentation Currency is defined as the amount that is the higher of the asset’s fair value less costs to sell and value in use. Impairment losses are recognized in the income statement. There is no impairment recorded related to Items included in the financial statements of each of the Group’s entities are measured using the premises and equipment. currency of the primary economic environment in which the entity operates (“the functional currency”). An item of premises and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognizing of the asset The consolidated financial statements are presented in Turkish lira, which is the Company’s functional (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is and the Group’s presentation currency. included in the income statement in the year the asset is derecognized.
2.5 Fund Management 2.9 Intangible Assets
The Group manages and administers open-ended mutual funds. The financial statements of these Intangible assets acquired separately from a business are capitalized at cost. Following initial entities are not included in these consolidated financial statements except when the Group controls the recognition intangible assets are carried at cost less any accumulated amortization and any entity. Information about the Group’s funds management is set out in Note 34. accumulated impairment losses. Intangible assets with finite lives are amortized on a straight-line basis over the best estimate of their useful lives and assessed for impairment whenever there is an indication 2.6 Foreign Currency Transactions and Translation that the intangible asset may be impaired. There is no impairment recorded related to intangible assets. The amortization period and the amortization method for an intangible asset with a finite useful life Transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded are reviewed at least at each financial year-end. Changes in the expected useful life or the expected at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, pattern of consumption of future economic benefits embodied in the asset is accounted for by monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance changing the amortization period or method, as appropriate, and treated as changes in accounting sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are estimates. Patents and licenses mainly relate to software and were amortized over their useful retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items economic lives of 5 years. Development costs for software were amortized over their useful economic that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange useful lives of 5 years. There are no intangible assets with indefinite useful lives. differences are recognized in profit or loss in the period in which they arise. Gains or losses arising from de-recognition of an intangible asset are measured as the difference 2.7 Due from Banks between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is derecognized. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or 2.10 Financial Assets determinable dates. Amounts due from other banks are carried at amortised cost. The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments and available-for-sale financial assets. When financial assets are recognized initially, they are measured at fair value. The Group determines the classification of its financial assets at initial recognition.
8 9 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 75
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.8 Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and any impairment in value.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Furniture and fixtures and motor vehicles 2 years to 5 years Office equipment 5 years Leasehold improvements 5 years, or over the period of the lease if less than 5 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. The carrying values of premises and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets of cash generating units are written down to their recoverable amount. The recoverable amount is defined as the amount that is the higher of the asset’s fair value less costs to sell and value in use. Impairment losses are recognized in the income statement. There is no impairment recorded related to premises and equipment.
An item of premises and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognizing of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognized.
2.9 Intangible Assets
Intangible assets acquired separately from a business are capitalized at cost. Following initial recognition intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets with finite lives are amortized on a straight-line basis over the best estimate of their useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. There is no impairment recorded related to intangible assets. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Patents and licenses mainly relate to software and were amortized over their useful economic lives of 5 years. Development costs for software were amortized over their useful economic useful lives of 5 years. There are no intangible assets with indefinite useful lives.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is derecognized.
2.10 Financial Assets
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments and available-for-sale financial assets. When financial assets are recognized initially, they are measured at fair value. The Group determines the classification of its financial assets at initial recognition.
9 76 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the For investments that are actively traded in organized financial markets, fair value is determined by date that the asset is delivered to or by the Group. Regular way purchases or sales are purchases or reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet sales of financial assets that require delivery of assets within the time frame generally established by date. For investments where there is no quoted market price, fair value is determined by reference to regulation or convention in the market place. Changes in fair value of assets to be received during the the current market value of another instrument which is substantially the same or is calculated based period between the trade date and the settlement date are accounted for in the same way as the on the expected cash flows of the underlying net asset base of the investment. Equity securities for acquired assets i.e. for assets carried at cost or amortized cost; change in value is not recognized. which fair values cannot be measured reliably are recognized at cost less impairment.
Financial assets at fair value through profit or loss Loans and receivables
Financial assets classified as held-for-trading are included in this category. Trading securities are Loans and receivables are non-derivative financial assets with fixed or determinable payments that are securities, which were either acquired for generating a profit from short term fluctuations in price or not quoted in an active market. They arise when the Group provides money, goods or services directly dealer’s margin, or are securities included in a portfolio in which a pattern of short term profit taking to a debtor with no intention of trading the receivable. Such assets are carried at amortized cost using exist. Derivatives are also classified as held-for-trading unless they are designated as effective hedging the effective interest method less any impairment in value. Gains and losses are recognized in income instruments. Trading securities are initially recognised and subsequently re-measured at fair value. All when the loans and receivables are derecognized or impaired, as well as through the amortization related realised and unrealised fair value gains and losses are included in net trading income. Interest process. Interest earned on such loans and receivables is reported as interest income. earned whilst holding trading securities is reported as interest income. Repurchase and Resale Transactions Held- to- maturity securities The Group enters into sales of securities under agreements to repurchase such securities at a fixed Non-derivative financial assets with fixed or determinable payments and fixed maturity where price at a fixed future date. Such securities, which have been sold subject to a repurchase agreement management has both the intent and the ability to hold to maturity are classified as held-to-maturity. (‘repos’), are recognized in the balance sheet and are measured in accordance with the accounting Investments intended to be held for an undefined period are not included in this classification. The policy of the security portfolio which they are part of. The difference between sale and repurchase Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or price is treated as interest expense and accrued over the life of the repurchase agreement using the determinable payments and fixed maturity as held-to-maturity. This classification requires significant effective interest method. Securities sold subject to repurchase agreements (‘repos’) are reclassified in judgments. In making this judgment, the Group evaluates its intention and ability to hold such the financial statements as loaned securities when the transferee has the right by contract or custom to investments to maturity. If the Group fails to keep these investments to maturity other than for the sell or re-pledge the collateral. The counterparty liability for amounts received under these agreements specific circumstances - for example selling an insignificant amount close to maturity - it will be is included in deposits from banks. required to classify the entire class as available- for- sale. The investments would therefore be measured at fair value; not amortized cost. Securities purchased with a corresponding commitment to resell at a fixed price at a specified future date (‘reverse repos’) are not recognized in the balance sheet, as the Group does not obtain control Held-to-maturity investments are subsequently measured at amortized cost using the effective interest over the assets. Amounts paid under these agreements are included in other money market placements. method, less any impairment in value. Amortized cost is calculated by taking into account all fees paid The difference between purchase and resale price is treated as interest income and accrued over the or received between parties to the contract that are an integral part of the effective interest rate, life of the reverse repurchase agreement using the effective interest method. transaction costs and all other premiums or discounts. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as Netting off Financial Assets and Liabilities through the amortization process. Interest earned with holding held to maturity securities is reported as interest income. Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net Available- for- sale securities basis or realize the asset and settle the liability simultaneously.
Available-for-sale financial assets are those non-derivative financial assets that are designated as Recognition and Derecognition of Financial Instruments available-for-sale or are not classified in any of the three other categories. After initial recognition, available-for-sale financial assets are measured at fair value. Gains or losses on re-measurement to fair The Group recognizes a financial asset or financial liability in its balance sheet when and only when it value are recognized as a separate component of equity until the investment is derecognized, or until becomes a party to the contractual provisions of the instrument. the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. However, interest calculated on available-for- The Group derecognizes a financial asset (or, where applicable a part of a financial asset or part of a sale financial assets using effective interest method is reported as interest income. group of similar financial assets) when the rights to receive cash flows from the asset have expired; or while retaining the right to receive cash flows from the asset the Group has also assumed an obligation Dividends received are included in dividend income, if any. to pay them in full without material delay to a third party; or the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has transferred the control of the asset.
10 11 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 77
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For investments that are actively traded in organized financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. Equity securities for which fair values cannot be measured reliably are recognized at cost less impairment.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Such assets are carried at amortized cost using the effective interest method less any impairment in value. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Interest earned on such loans and receivables is reported as interest income.
Repurchase and Resale Transactions
The Group enters into sales of securities under agreements to repurchase such securities at a fixed price at a fixed future date. Such securities, which have been sold subject to a repurchase agreement (‘repos’), are recognized in the balance sheet and are measured in accordance with the accounting policy of the security portfolio which they are part of. The difference between sale and repurchase price is treated as interest expense and accrued over the life of the repurchase agreement using the effective interest method. Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as loaned securities when the transferee has the right by contract or custom to sell or re-pledge the collateral. The counterparty liability for amounts received under these agreements is included in deposits from banks.
Securities purchased with a corresponding commitment to resell at a fixed price at a specified future date (‘reverse repos’) are not recognized in the balance sheet, as the Group does not obtain control over the assets. Amounts paid under these agreements are included in other money market placements. The difference between purchase and resale price is treated as interest income and accrued over the life of the reverse repurchase agreement using the effective interest method.
Netting off Financial Assets and Liabilities
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
Recognition and Derecognition of Financial Instruments
The Group recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the contractual provisions of the instrument.
The Group derecognizes a financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) when the rights to receive cash flows from the asset have expired; or while retaining the right to receive cash flows from the asset the Group has also assumed an obligation to pay them in full without material delay to a third party; or the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has transferred the control of the asset.
11 78 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Where the Group has transferred its rights to receive cash flows from an asset and has neither If it is determined that no objective evidence of impairment exists for an individually assessed transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the financial asset, whether significant or not, the asset is included in a group of financial assets with asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. similar credit risk characteristics and that group of financial assets is collectively assessed for Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the impairment. Assets that are individually assessed for impairment and for which an impairment loss is lower of the original carrying amount of the asset and the maximum amount of the consideration that or continues to be recognized are not included in a collective assessment of impairment. the Group could be required to repay. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related The Group derecognizes a financial liability when the obligation under the liability is discharged or objectively to an event occurring after the impairment was recognized (such as an improvement in the cancelled or expires. When an existing liability is replaced by another from the same lender on debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the substantially different terms, or the terms of an existing liability are substantially modified, such an allowance account. Any subsequent reversal of impairment loss is recognized in income statement, to exchange or modification is treated as a de-recognition of the original liability and the recognition of a the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. new liability, and the difference in the respective carrying amounts is recognized in profit or loss. A write off is made when all or part of a loan is deemed uncollectible or in the case of debt 2.11 Impairment of Financial Assets forgiveness. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Write offs are charged against previously established Financial assets carried at amortized cost allowances and reduce the principal amount of a loan. Subsequent recoveries of amounts previously written off are included in income. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as to whether there is any observable data indicating that there is a measurable For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of decrease in the estimated amounts recoverable from a portfolio of loans and individual loans and held similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash to maturity investments. Objective evidence that a financial asset or group of assets is impaired flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due includes observable data that comes to the attention of the Group about the following loss events: according to the contractual terms of the assets being evaluated.
a) Significant financial difficulty of the issuer or obliger; Future cash flows in a group of financial assets that are collectively evaluated for impairment are b) A breach of contract, such as a default or delinquency in interest or principal payments by more estimated on the basis of the contractual cash flows of the assets and the experience of Management in than 90 days; respect of the extent to which amounts will become overdue as a result of past loss events and the c) The Group granting to the borrower, for economic or legal reasons relating to the borrower’s success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable financial difficulty, a concession that the lender would not otherwise consider; data to reflect the effects of current conditions that did not affect past periods and to remove the effects d) It becoming probable that the borrower will enter bankruptcy or other financial of past conditions that do not exist currently. reorganization; or e) Observable data indicating that there is a measurable decrease in the estimated future cash flows Group adopted Incurred but not reported (“IBNR”) model for performing loans, based on Basel II from a group of financial assets since the initial recognition of those assets, although the expected loss concept with intrinsic elements such as loss detection period, probability of default, loss decrease cannot yet be identified with the individual financial assets in the group, including: given default and expert views. IBNR impairments on loans represent the provisions that are created not only for transaction on which loss events were individually identified, but also for these i) Adverse changes in the payment status of borrowers; or transactions where loss events have already occurred, but have not been reported yet. In such case ii) National or local economic conditions that correlate with defaults on the assets in the provision is created in such proportion to the exposure that reflects the amount of losses that have been group of financial assets. incurred as a result of the past but not reported events.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity Assets carried at cost investments carried at amortized cost has been incurred, the amount of the loss is measured based on the difference between the asset’s carrying amount and the estimated recoverable amount. The If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carrying amount of the asset is reduced through the use of an allowance account. The amount of the carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is loss is recognized in the income statement. The estimated recoverable amount of a collateralized linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the financial asset is measured based on the amount that is expected to be realized from foreclosure less amount of the loss is measured as the difference between the asset’s carrying amount and the present costs for obtaining and selling the collateral, whether or not the foreclosure is probable. value of its recoverable amount. There is no impairment recorded related to assets carried at cost.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Loans with principal and/or interest overdue for more than 90 days are considered as non-performing and are assessed for impairment.
12 13 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 79
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of impairment loss is recognized in income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
A write off is made when all or part of a loan is deemed uncollectible or in the case of debt forgiveness. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Write offs are charged against previously established allowances and reduce the principal amount of a loan. Subsequent recoveries of amounts previously written off are included in income.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of Management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past conditions that do not exist currently.
Group adopted Incurred but not reported (“IBNR”) model for performing loans, based on Basel II expected loss concept with intrinsic elements such as loss detection period, probability of default, loss given default and expert views. IBNR impairments on loans represent the provisions that are created not only for transaction on which loss events were individually identified, but also for these transactions where loss events have already occurred, but have not been reported yet. In such case provision is created in such proportion to the exposure that reflects the amount of losses that have been incurred as a result of the past but not reported events.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of its recoverable amount. There is no impairment recorded related to assets carried at cost.
13 80 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Available-for-sale financial assets 2.15 Provisions
For available-for-sale financial investments, the Group assess at each balance sheet date if there is Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of objective evidence that an investments is impaired. a past event, 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. The In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether expense relating to any provision is presented in the income statement net of any reimbursement. If the there is objective evidence of impairment based on the same criteria as financial assets carried at effect of the time value of money is material, provisions are determined by discounting the expected amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the future cash flows at a pre-tax rate that reflects current market assessments of the time value of money difference between the amortised cost and the current fair value, less any impairment loss on that and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the investment previously recognized in the income statement. Future interest income is based on the provision due to the passage of time is recognized as interest expense. reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. If, in a subsequent period, the fair value of a debt 2.16 Share Capital instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the Share capital is recognized at the nominal amount and amounts received in excess of the par value are income statement. recognized in share premium account. Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction. 2.12 Cash and Cash Equivalents 2.17 Leases For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash and Finance leases balances with the Central Bank of Turkey, deposits with banks and other financial institutions and other money market placements with an original maturity of three months or less. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased 2.13 Financial Liabilities property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant Financial liabilities including deposits from banks, due to customers and other borrowed funds are rate of interest on the remaining balance of the liability. recognised initially at cost. Subsequently, financial liabilities are stated at amortised cost, including transaction costs, and any difference between net proceeds and the redemption value is recognised in Finance charges are charged directly against income. Capitalized leased assets are depreciated over the the income statement over the period of the financial liability using the effective interest method. estimated useful life of the asset. 2.14 Employee Benefits Operating leases Defined Benefit Plans Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are In accordance with existing social legislation in Turkey, the Group is required to pay lump-sum classified as operating leases. Operating lease payments are recognized as an expense in the income termination indemnities to each employee who has completed over one year of service with the Group statement on a straight-line basis over the lease term. When an operating lease is terminated before the and whose employment is terminated due to retirement or for reasons other than resignation or lease period has expired, any payment required to be made to the lesser by way of penalty is misconduct. recognized as an expense in the period in which the termination takes place.
Such defined benefit plan is unfunded. The cost of providing benefits under the defined benefit plan is 2.18 Income and Expense Recognition determined using the projected unit credit method. All actuarial gains and losses are recognized in the income statement. Interest income and expense are recognized in the income statement for all interest bearing instruments on an accrual basis using the effective interest method. The effective interest method is a Defined Contribution Plans method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over For defined contribution plans the Group pays contributions to the Social Security Institution of the relevant period. Turkey on a mandatory basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due.
14 15 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 81
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.15 Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, 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. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.
2.16 Share Capital
Share capital is recognized at the nominal amount and amounts received in excess of the par value are recognized in share premium account. Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction.
2.17 Leases
Finance leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income. Capitalized leased assets are depreciated over the estimated useful life of the asset.
Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lesser by way of penalty is recognized as an expense in the period in which the termination takes place.
2.18 Income and Expense Recognition
Interest income and expense are recognized in the income statement for all interest bearing instruments on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
15 82 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off through the expected life of the financial instrument or, when appropriate, a shorter period to the net current tax assets against current tax liabilities, and deferred taxes related to the same taxable entity carrying amount of the financial asset or financial liability. When calculating the effective interest rate, and the same taxation authority. the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to Income tax relating to items recognized directly in equity is recognized in equity and not in the income the contract that are an integral part of the effective interest rate, transaction costs, and all other statement. premiums or discounts. 2.20 Derivative Financial Instruments Fees and commissions are generally recognized on an accrual basis when the service has been provided. Commission and fees arising from negotiating or participating in the negotiation of a The Group enters into transactions with derivative instruments including forwards, swaps and options transaction for a third party are recognized on completion of the underlying transaction. Portfolio and in the foreign exchange and capital markets. Most of these derivative transactions are considered as other management advisory and service fees are recognized based on the applicable service contracts. effective economic hedges under the Group's risk management policies; however since they do not Asset management fees and custody service fees that are continuously provided over an extended qualify for hedge accounting under the specific provisions of IAS 39, they are treated as derivatives period of time are recognized over the period service is provided. Fee for bank transfers and other held-for-trading. Derivative financial instruments are initially recognized at fair value on the date banking transaction services are recorded as income when collected. Borrowing fees and commissions which a derivative contract is entered into and subsequently re-measured at fair value. Any gains or expenses paid to other financial institutions are recognized as transaction costs and recorded using the losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are “Effective interest rate method”. recognized in the income statement.
Loans with principal and/or interest overdue for more than 90 days are considered as non-performing Fair values are obtained from quoted market prices in active markets, including recent market and interest thereon is not recognized until collection. transactions, to the extent publicly available, and the fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. If there is a valuation 2.19 Income Tax technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Group Tax expense/(income) is the aggregate amount included in the determination of net profit or loss for uses that technique. All derivatives are carried as assets when fair value is positive and as liabilities the period in respect of current and deferred taxes. when fair value is negative.
Income taxes currently payable In the absence of forward foreign currency market rates and reliable forward rate estimations in a volatile market, values of foreign currency forward and swap transactions are determined by Current tax assets and liabilities for the current and prior periods are measured at the amount expected comparing the period end foreign exchange rates with the forward rates discounted to the balance to be recovered or paid to the taxation authorities. The tax rates and tax laws used to compute the sheet date. The resulting gain or loss is reflected to the income statement. In determination of the fair amount are those that are enacted or substantively enacted by the balance sheet date. values of interest rate swaps, discounted values calculated using the fixed and floating interest rates between the transaction date and re-pricing date are used. Changes in assumptions about these factors Taxes other than on income are recorded within operating expenses (Note 28). could affect the reported fair values of financial instruments.
Deferred income taxes Embedded derivatives are separated from the host contract and accounted for as a derivative in accordance with IAS 39, if and only if: Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial - the economic characteristics and risks of the embedded derivative are not closely related to the statements. economic characteristics and risks of the host contract - a separate instrument with the same terms as the embedded derivative would meet the definition The rates enacted, or substantively enacted, at the balance sheet date are used to determine deferred of a derivative; and income tax. The principal temporary differences arise from measurement of financial assets and - the hybrid (combined) instrument is not measured at fair value with changes in fair value liabilities at fair value, loan loss provisions and provision for employment termination benefits. recognised in profit or loss (i.e. a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss is not separated). Deferred income tax liabilities and assets are recognised when it is probable that the future economic benefit resulting from the reversal of temporary differences will flow to or from the Group. Deferred If an embedded derivative is separated, the host contract shall be accounted for under IAS 39 if it is a income tax assets resulting from temporary differences are recognised to the extent that it is probable financial instrument and in accordance with other appropriate standards if it is not a financial that future taxable profit will be available against which the deferred income tax asset can be utilised instrument. (Note 19).
16 17 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 83
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities, and deferred taxes related to the same taxable entity and the same taxation authority.
Income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.
2.20 Derivative Financial Instruments
The Group enters into transactions with derivative instruments including forwards, swaps and options in the foreign exchange and capital markets. Most of these derivative transactions are considered as effective economic hedges under the Group's risk management policies; however since they do not qualify for hedge accounting under the specific provisions of IAS 39, they are treated as derivatives held-for-trading. Derivative financial instruments are initially recognized at fair value on the date which a derivative contract is entered into and subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recognized in the income statement.
Fair values are obtained from quoted market prices in active markets, including recent market transactions, to the extent publicly available, and the fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Group uses that technique. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
In the absence of forward foreign currency market rates and reliable forward rate estimations in a volatile market, values of foreign currency forward and swap transactions are determined by comparing the period end foreign exchange rates with the forward rates discounted to the balance sheet date. The resulting gain or loss is reflected to the income statement. In determination of the fair values of interest rate swaps, discounted values calculated using the fixed and floating interest rates between the transaction date and re-pricing date are used. Changes in assumptions about these factors could affect the reported fair values of financial instruments.
Embedded derivatives are separated from the host contract and accounted for as a derivative in accordance with IAS 39, if and only if:
- the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract - a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and - the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in profit or loss (i.e. a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss is not separated).
If an embedded derivative is separated, the host contract shall be accounted for under IAS 39 if it is a financial instrument and in accordance with other appropriate standards if it is not a financial instrument.
17 84 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.21 Provisions, contingent assets and contingent liabilities 2.27 Adoption of New and Revised Standards
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a.Standards, amendments and IFRICs applicable to 31 December 2012 year ends past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Standard/ Applicable for financial interpretation Content years beginning on/after Where the effect of the time value of money is material, the amount of a provision shall be the present IFRS 7 Financial instruments: Disclosures on transfers of assets 1 July 2011 value of the expenditures expected to be required to settle the obligation. The discount rate reflects IFRS 1 First-time adoption of IFRS 1 July 2011 current market assessments of the time value of money and the risks specific to the liability. The IAS 12 Income taxes 1 January 2012 discount rate shall be a pre-tax rate and shall not reflect risks for which future cash flow estimates have been adjusted. • IFRS 7 (amendment), “Financial instruments: Disclosures on transfers of assets”, is effective for annual periods beginning on or after 1 July 2011. This amendment will promote transparency in Possible assets or obligations that arise from past events and whose existence will be confirmed only the reporting of transfer transactions and improve users’ understanding of the risk exposures by the occurrence or non-occurrence of one or more uncertain future events not wholly within the relating to transfers of financial assets and the effect of those risks on an entity’s financial position, control of the Group are not included in the consolidated financial statements and are treated as particularly those involving securitisation of financial assets. Comparative information is not contingent assets or liabilities. needed in the first year of adoption. Earlier adoption is permitted. The adoption of the amendment results in additional disclosures but does not have an impact on the financial position or the 2.22 Fiduciary Assets comprehensive income of the Group.
Assets held by the Group in a fiduciary, agency or custodian capacity for its customers are not • IFRS 1 (amendment), “First-time adoption of IFRS”, is effective for annual periods beginning on included in the balance sheet, since such items are not treated as assets of the Group. or after 1 July 2011. The application of this amendment does not have any effect for the Group.
2.23 Acceptances • IAS 12 (amendment), “Income taxes” on deferred tax, is effective for annual periods beginning on or after 1 January 2012. This amendment introduces an exception to the existing principle for the Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers, if the measurement of deferred tax assets or liabilities arising on investment property measured at fair latter fails to meet their obligation. Acceptances are accounted for as off-balance sheet transactions. value. The application of this amendment does not have any effect for the Group.
2.24 Other credit related commitments b.New IFRS standards, amendments and IFRICs effective after 1 January 2013
In the normal course of business, the Group enters into other credit related commitments including The Group has chosen not to adopt early the following standards and interpretations that were issued but loan commitments, letters of credit and guarantees. These are reported as off-balance sheet items at not yet effective for accounting periods beginning on 1 January 2013: their notional amounts and are assessed using the same criteria as originated loans (Note 2.10). Specific provisions are therefore established when losses are considered probable and recorded as Standard/ Applicable for financial other provisions. The provision for credit related commitments also covers losses from the collective interpretation Content years beginning on/after assessment where the commitments are grouped using the internal models developed by the Group IAS 19 Employee benefits 1 January 2013 stemming from the classification of credit related commitments into risk rating classes based on the IAS 1 Presentation of financial statements 1 July 2012 observation of a series of parameters related to the borrower and/or to the utilisation of the loan. IFRS 10 Consolidated financial statements 1 January 2013 IFRS 11 Joint arrangements 1 January 2013 2.25 Segment Reporting IFRS 12 Disclosures of interests in other entities 1 January 2013 IFRS 10, 11 and 12 Transition guidance 1 January 2013 A business segment is a group of assets and operations engaged in providing products or services that IFRS 13 Fair value measurement 1 January 2013 are subject to risks and returns that are different from those of other business segments. A IAS 27 Separate financial statements 1 January 2013 geographical segment is engaged in providing products and services within a particular economic IAS 28 Associates and joint ventures 1 January 2013 environment that are subject to risks and return that are different from those of segments operating in IFRS 7 Financial instruments: Disclosures 1 January 2013 other economic environments. IAS 32 Financial instruments: Presentation 1 January 2014 IFRS 1 First time adoption’, on government loans 1 January 2013 2.26 Related Parties IFRS 9 Financial instruments: Classification and Measurement 1 January 2015 IFRS 10 Amendment to Consolidated Financial Statements 1 January 2013 For the purpose of these consolidated financial statements, shareholders, companies controlled by or IFRIC 20 Stripping costs in the production phase of a surface mine 1 January 2013 affiliated with them and other companies within the Anadolu Group are considered and referred to as related parties (Note 33).
18 19 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 85
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.27 Adoption of New and Revised Standards
a.Standards, amendments and IFRICs applicable to 31 December 2012 year ends
Standard/ Applicable for financial interpretation Content years beginning on/after IFRS 7 Financial instruments: Disclosures on transfers of assets 1 July 2011 IFRS 1 First-time adoption of IFRS 1 July 2011 IAS 12 Income taxes 1 January 2012
• IFRS 7 (amendment), “Financial instruments: Disclosures on transfers of assets”, is effective for annual periods beginning on or after 1 July 2011. This amendment will promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. Comparative information is not needed in the first year of adoption. Earlier adoption is permitted. The adoption of the amendment results in additional disclosures but does not have an impact on the financial position or the comprehensive income of the Group.
• IFRS 1 (amendment), “First-time adoption of IFRS”, is effective for annual periods beginning on or after 1 July 2011. The application of this amendment does not have any effect for the Group.
• IAS 12 (amendment), “Income taxes” on deferred tax, is effective for annual periods beginning on or after 1 January 2012. This amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. The application of this amendment does not have any effect for the Group.
b.New IFRS standards, amendments and IFRICs effective after 1 January 2013
The Group has chosen not to adopt early the following standards and interpretations that were issued but not yet effective for accounting periods beginning on 1 January 2013:
Standard/ Applicable for financial interpretation Content years beginning on/after IAS 19 Employee benefits 1 January 2013 IAS 1 Presentation of financial statements 1 July 2012 IFRS 10 Consolidated financial statements 1 January 2013 IFRS 11 Joint arrangements 1 January 2013 IFRS 12 Disclosures of interests in other entities 1 January 2013 IFRS 10, 11 and 12 Transition guidance 1 January 2013 IFRS 13 Fair value measurement 1 January 2013 IAS 27 Separate financial statements 1 January 2013 IAS 28 Associates and joint ventures 1 January 2013 IFRS 7 Financial instruments: Disclosures 1 January 2013 IAS 32 Financial instruments: Presentation 1 January 2014 IFRS 1 First time adoption’, on government loans 1 January 2013 IFRS 9 Financial instruments: Classification and Measurement 1 January 2015 IFRS 10 Amendment to Consolidated Financial Statements 1 January 2013 IFRIC 20 Stripping costs in the production phase of a surface mine 1 January 2013
19 86 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
• IAS 19 (amendment), “Employee benefits”, is effective for annual periods beginning on or after • IAS 28 (revised), “Associates and joint ventures”, is effective for annual periods beginning on or 1 January 2013. These amendments eliminate the corridor approach and calculate finance costs on after 1 January 2013. The standard includes the requirements for joint ventures, as well as a net funding basis. Early adoption is permitted. The Group is assessing the application of this associates, to be equity accounted following the issue of IFRS 11. The application of this revision amendment. does not have any effect for the Group.
• IAS 1 (amendment), “Presentation of financial statements”, regarding other comprehensive • IFRS 7 (amendment), “‘Financial instruments: Disclosures’, on offsetting financial assets and income is effective for annual periods beginning on or after 1 July 2012. The main change financial liabilities”, is effective for annual periods beginning on or after 1 January 2013. The resulting from these amendments is a requirement for entities to group items presented in ‘other amendment reflects the joint IASB and FASB requirements to enhance current offsetting comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit disclosures. These new disclosures are intended to facilitate comparison between those entities or loss subsequently (reclassification adjustments). The amendments do not address which items that prepare IFRS financial statements and those that prepare US GAAP financial statements. The are presented in OCI. Early adoption is permitted. The application of this amendment does not application of this amendment does not have any material effect for the Group. have any material effect for the Group. • IAS 32 (amendment), “‘Financial instruments: Presentation’, on offsetting financial assets and • IFRS 10, “Consolidated financial statements”, is effective for annual periods beginning on or after financial liabilities”, is effective for annual periods beginning on or after 1 January 2014. The 1 January 2013. The standard builds on existing principles by identifying the concept of control as amendment updates the application guidance in IAS 32, ‘Financial instruments: Presentation’, to the determining factor in whether an entity should be included within the consolidated financial clarify some of the requirements for offsetting financial assets and financial liabilities on the statements of the parent company. The Group is assessing the effects of the application of this balance sheet. The application of this amendment does not have any material effect for the Group. standard on the financial performance and position. • IFRS 1 (amendment), “‘First time adoption’, on government loans”, is effective for annual periods • IFRS 11, “Joint arrangements”, is effective for annual periods beginning on or after 1 January beginning on or after 1 January 2013. The application of this amendment does not have any effect 2013. IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and for the Group. obligations of the arrangement rather than its legal form. Proportional consolidation of joint ventures is no longer allowed. The application of this amendment does not have any effect for the • Annual Improvements to IFRSs 2011 is effective for annual periods beginning on or after Group. 1 January 2013. Amendments affect five standards: IFRS 1, IAS 1, IAS 16, IAS 32 and IAS 34.
• IFRS 12, “Disclosures of interests in other entities”, is effective for annual periods beginning on or • IFRS 9, “Financial instruments: Classification and Measurement”, is effective for annual periods after 1 January 2013. The standard includes the disclosure requirements for all forms of interests beginning on or after 1 January 2015. The standard addresses the classification, measurement and in other entities, including joint arrangements, associates, special purpose vehicles and other off recognition of financial assets and financial liabilities. It replaces the parts of IAS 39 that relate to balance sheet vehicles. The Group is assessing the effects of the application of this standard on the the classification and measurement of financial instruments. The Group is assessing the effects of financial performance and position. the application of this standard on the financial performance and position.
• IFRS 10, 11 and 12 on transition guidance (amendment), is effective for annual periods beginning • IFRS 10, (amendment) “Consolidated Financial Statements”, IFRS 12 and IAS 27 for investment on or after 1 January 2012. The amendment also provide additional transition relief in IFRSs 10, entities is effective for annual periods beginning on or after 1 January 2013. The Group is 11 and 12, limiting the requirement to provide adjusted comparative information to only the assessing the effects of the application of this standard on the financial performance and position. preceding comparative period. The Group is assessing the effects of the application of this standard on the financial performance and position. • IFRIC 20, “Stripping costs in the production phase of a surface mine” is effective for annual periods beginning on or of 1 January 2013. The application of this amendment does not have any • IFRS 13, “Fair value measurement”, is effective for annual periods beginning on or after effect for the Group. 1 January 2013. The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure 2.28 Earnings per share requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it Earnings per share disclosed in the consolidated income statement are determined by dividing net should be applied where its use is already required or permitted by other standards within IFRSs income by the weighted average number of shares outstanding during the year concerned. or US GAAP. The adoption of the amendment results in additional disclosures but is not expected to have an impact on the financial position or the comprehensive income of the Group. 2012 2011
• IAS 27 (revised), “Separate financial statements”, is effective for annual periods beginning on or Profit attributable to equity holders of the Bank 79,682 20,782 after 1 January 2013. The standard includes the provisions on separate financial statements that Weighted average number of ordinary shares in issue (thousand) 374,754 300,000 are left after the control provisions of IAS 27 have been included in the new IFRS 10. The Group is assessing the effects of the application of this standard on the financial performance and Basic earnings per share (expressed in TL per 1,000 share) 0.21262 0.06927 position.
20 21 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 87
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
• IAS 28 (revised), “Associates and joint ventures”, is effective for annual periods beginning on or after 1 January 2013. The standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The application of this revision does not have any effect for the Group.
• IFRS 7 (amendment), “‘Financial instruments: Disclosures’, on offsetting financial assets and financial liabilities”, is effective for annual periods beginning on or after 1 January 2013. The amendment reflects the joint IASB and FASB requirements to enhance current offsetting disclosures. These new disclosures are intended to facilitate comparison between those entities that prepare IFRS financial statements and those that prepare US GAAP financial statements. The application of this amendment does not have any material effect for the Group.
• IAS 32 (amendment), “‘Financial instruments: Presentation’, on offsetting financial assets and financial liabilities”, is effective for annual periods beginning on or after 1 January 2014. The amendment updates the application guidance in IAS 32, ‘Financial instruments: Presentation’, to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The application of this amendment does not have any material effect for the Group.
• IFRS 1 (amendment), “‘First time adoption’, on government loans”, is effective for annual periods beginning on or after 1 January 2013. The application of this amendment does not have any effect for the Group.
• Annual Improvements to IFRSs 2011 is effective for annual periods beginning on or after 1 January 2013. Amendments affect five standards: IFRS 1, IAS 1, IAS 16, IAS 32 and IAS 34.
• IFRS 9, “Financial instruments: Classification and Measurement”, is effective for annual periods beginning on or after 1 January 2015. The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. The Group is assessing the effects of the application of this standard on the financial performance and position.
• IFRS 10, (amendment) “Consolidated Financial Statements”, IFRS 12 and IAS 27 for investment entities is effective for annual periods beginning on or after 1 January 2013. The Group is assessing the effects of the application of this standard on the financial performance and position.
• IFRIC 20, “Stripping costs in the production phase of a surface mine” is effective for annual periods beginning on or of 1 January 2013. The application of this amendment does not have any effect for the Group.
2.28 Earnings per share
Earnings per share disclosed in the consolidated income statement are determined by dividing net income by the weighted average number of shares outstanding during the year concerned.
2012 2011
Profit attributable to equity holders of the Bank 79,682 20,782 Weighted average number of ordinary shares in issue (thousand) 374,754 300,000
Basic earnings per share (expressed in TL per 1,000 share) 0.21262 0.06927
21 88 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT
2.29 Comparatives Strategy in using financial instruments
Comparative figures are reclassified, where necessary, to conform to changes in presentation of the To maintain and improve the soundness of its operations, the Bank accords top management priority to 31 December 2012 consolidated financial statements. upgrading its risk management systems and capabilities.
The Company has prepared certain reclassifications in the financial statement at 31 December 2011 in Risk Management is responsible for monitoring and managing all potential risks for the Bank in a order to conform to presentation of financial statements at 31 December 2012: centralized and efficiently coordinated manner. The primary goal of Risk Management is to provide business lines appropriate capital allocation for risks they are exposed to and increase value-added by a) Checks in clearance accounted under “Other Assets” and “Other Liabilities” amounting to TL maximizing risk adjusted return on capital. In this connection, each business line is geared to design 36,670 have been offset. appropriate cost-benefit schedule to maximize its return expectation with minimum cost of capital. b) “Other provision expenses” amounting to TL 276 has been reclassified to operating expenses in the income statement. The Bank’s Risk Management Policy covers market, structural interest rate, credit, operational and c) Expenses reimbursed from the customers accounted under “Other operating income” amounting liquidity risks management. to TL 7,073 have been netted from “Other operating expenses” in the income statement. The risk management governance at the Bank starts with the Board of Directors. The Bank Risk NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING Committee, Asset Liability Committee (ALCO), Credit Risk Committee (CRC), Market Risk ACCOUNTING POLICIES Committee (MRC), Operational Risk Committee (ORC) and the Risk Management Department are the most important bodies of the risk management structure. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on The Board of Directors determines the general risk policy and the risk appetite of the Bank. The Bank Management’s experience and other factors, including expectations of future events that are believed Risk Committee defines risk policies and strategies, reviews all types of risks the Bank is exposed to to be reasonable under the circumstances. Management also makes certain judgements, apart from in its quarterly meetings, monitors the implementation of the risk management strategies and brings those involving estimations, in the process of applying the accounting policies. These disclosures the important risk issues to the attention of the Board. The ALCO, meeting bi-weekly, is responsible supplement the commentary significant accounting policies (Note 2) and financial risk management for monitoring and managing any structural asset liability mismatch of the Bank, as well as monitoring (Note 4). Judgements that have the most significant effect on the amounts recognised in the and controlling liquidity risk and foreign currency exchange rate risk. The CRC meets quarterly and is consolidated financial statements and estimates that can cause a significant adjustment to the carrying responsible for monitoring and evaluating the Bank’s lending portfolio and determining principles and amount of assets and liabilities within the next financial year include: policies regarding credit risk management processes, such as loan approval, limit setting, rating, monitoring and problem management. The MRC is responsible for implementing risk policies Held-to-maturity financial assets. Management applies judgement in assessing whether financial regarding both the trading book and the investment book and establishing relevant control systems. In assets can be categorised as held-to-maturity, in particular its intention and ability to hold the assets to addition, it defines certain limits and regularly reviews these in order to limit and minimize the maturity. If the Group fails to keep these investments to maturity other than for certain specific potential adverse effects of market conditions on the Bank’s profitability and economic value. The circumstances - for example, selling an insignificant amount close to maturity - it will be required to ORC also meets quarterly and is responsible for reviewing the Bank’s operational risks and defining reclassify the entire class as available-for-sale. The investments would therefore be measured at fair the necessary actions to be taken to minimize these risks. value rather than amortised cost. A. Credit risk Impairment losses on loans and advances. The methodology and assumptions used for estimating both the amount and timing of future cash flows from a portfolio of loans are reviewed regularly to Credit risk is defined as the potential loss arising from a borrower’s inability to meet its financial reduce any differences between loss estimates and actual loss experience. To the extent that the obligations to the Bank. Credit risk is the risk of highest concern due to its large presence on the present value of estimated cash flows differ by +/- 5% the provision would be estimated TL 3,189 balance sheet. Consequently, the Bank’s credit risk management framework was designed in a manner (2011: TL 3,275) higher or lower. The Group calculated IBNR provision which combines the Basel II to ensure that non-performing loans are kept as low as possible. In order to keep the quality of the concept of expected loss with intrinsic elements such as loss detection period and expert views. Bank’s credit portfolio at a predefined level, the credit portfolio is regularly analyzed and reported in terms of economic sectors, large exposures, rating distribution, collateral structure, non-performing Fair value of derivatives. Where valuation techniques (for example, models) are used to determine loans amount, and other various aspects. In measuring credit risk, the Bank estimates the probability of fair values, they are validated and periodically reviewed. To the extent practical, models use only default and the potential size of loss in the event of such default. Probability of default is generated by observable data, however areas such as credit risk (both own and counterparty), volatilities and the Bank’s internal rating tool and outputs for potential size of loss are derived from assessments of correlations require Management to make estimates. Changes in assumptions about these factors could collateral quality and recovery rates. This grading process draws upon a scorecard containing affect reported fair values. Changing the assumptions not supported by observable market data to a quantitative and qualitative measures and the expertise of the Bank’s credit officers. The validation reasonably possible alternative would not result in a significantly different profit, income, total assets and ongoing monitoring of the grading models are the responsibilities of the Risk Management or total liabilities. Department and depending on validation results models are continuously reviewed and improved if necessary. Tax legislation. Turkish tax, currency and customs legislation is subject to varying interpretations as disclosed in Note 19. The Group have no derivative loan instruments e.g. 22 23 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 89
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
To maintain and improve the soundness of its operations, the Bank accords top management priority to upgrading its risk management systems and capabilities.
Risk Management is responsible for monitoring and managing all potential risks for the Bank in a centralized and efficiently coordinated manner. The primary goal of Risk Management is to provide business lines appropriate capital allocation for risks they are exposed to and increase value-added by maximizing risk adjusted return on capital. In this connection, each business line is geared to design appropriate cost-benefit schedule to maximize its return expectation with minimum cost of capital.
The Bank’s Risk Management Policy covers market, structural interest rate, credit, operational and liquidity risks management.
The risk management governance at the Bank starts with the Board of Directors. The Bank Risk Committee, Asset Liability Committee (ALCO), Credit Risk Committee (CRC), Market Risk Committee (MRC), Operational Risk Committee (ORC) and the Risk Management Department are the most important bodies of the risk management structure.
The Board of Directors determines the general risk policy and the risk appetite of the Bank. The Bank Risk Committee defines risk policies and strategies, reviews all types of risks the Bank is exposed to in its quarterly meetings, monitors the implementation of the risk management strategies and brings the important risk issues to the attention of the Board. The ALCO, meeting bi-weekly, is responsible for monitoring and managing any structural asset liability mismatch of the Bank, as well as monitoring and controlling liquidity risk and foreign currency exchange rate risk. The CRC meets quarterly and is responsible for monitoring and evaluating the Bank’s lending portfolio and determining principles and policies regarding credit risk management processes, such as loan approval, limit setting, rating, monitoring and problem management. The MRC is responsible for implementing risk policies regarding both the trading book and the investment book and establishing relevant control systems. In addition, it defines certain limits and regularly reviews these in order to limit and minimize the potential adverse effects of market conditions on the Bank’s profitability and economic value. The ORC also meets quarterly and is responsible for reviewing the Bank’s operational risks and defining the necessary actions to be taken to minimize these risks. A. Credit risk
Credit risk is defined as the potential loss arising from a borrower’s inability to meet its financial obligations to the Bank. Credit risk is the risk of highest concern due to its large presence on the balance sheet. Consequently, the Bank’s credit risk management framework was designed in a manner to ensure that non-performing loans are kept as low as possible. In order to keep the quality of the Bank’s credit portfolio at a predefined level, the credit portfolio is regularly analyzed and reported in terms of economic sectors, large exposures, rating distribution, collateral structure, non-performing loans amount, and other various aspects. In measuring credit risk, the Bank estimates the probability of default and the potential size of loss in the event of such default. Probability of default is generated by the Bank’s internal rating tool and outputs for potential size of loss are derived from assessments of collateral quality and recovery rates. This grading process draws upon a scorecard containing quantitative and qualitative measures and the expertise of the Bank’s credit officers. The validation and ongoing monitoring of the grading models are the responsibilities of the Risk Management Department and depending on validation results models are continuously reviewed and improved if necessary.
The Group have no derivative loan instruments e.g. 23 90 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
Credit quality per class of financial assets is as follows; d. Fair value of collaterals (loans and advances to customers): a. Information on loans and receivables past due but not impaired: Collateral mainly comprises the following: cash funds, deposits, mortgages of real estate at the land registry and mortgages of real estate built on allocated land, export documents, guarantees, 2012 Corporate SME Consumer Credit Card Total and acceptances and pledge on vehicles. Past due up to 30 days 24,130 36,246 12,511 - 72,887 Past due 30-60 days 7,008 3,824 4,445 - 15,277 2012 Corporate SME Consumer Total Past due 60-90 days 2,802 6,265 3,413 - 12,480 Watch listed loans 37,674 62,700 24,877 125,251 Total 33,940 46,335 20,369 - 100,644 Loans under legal follow - up 80,434 131,045 490 211,969
2011 Corporate SME Consumer Credit Card Total Total 118,108 193,745 25,367 337,220 Past due up to 30 days 44,882 66,629 6,173 - 117,684 Past due 30-60 days 67,969 75,464 833 - 144,266 2011 Corporate SME Consumer Total Past due 60-90 days - 2,741 1,152 - 3,893 Watch listed loans 181,779 191,549 8,604 381,932 Loans under legal follow - up 388,729 273,301 1,117 663,147 Total 112,851 144,834 8,158 - 265,843
b. Information on debt securities, treasury bills and other bills: Total 570,508 464,850 9,721 1,045,079
2012 Financial Assets Available for Sale Type of Collaterals 2012 2011 at Fair Value Financial Assets Held to Maturity Fitch’s Rating through P/L (Net) (Net) (*) Securities (Net) Total Real-estate mortgage 316,936 976,477 BBB- 7,380 783,046 1,045,707 1,836,133 Car pledge 3,271 851 Unrated 22,340 - - 22,340 Cash and cash equivalents 2,179 1,105 Other 14,834 66,646 Total 29,720 783,046 1,045,707 1,858,473 Total 337,220 1,045,079 (*) Available for sale investments consist of Yapı ve Kredi Bankası A.Ş. bonds amounted to TL 37,905 and İş Bank bonds amounting to TL 19,272. e. Concentration of credit risk based on geographical regions: 2011 Financial Assets Available for Sale at Fair Value Financial Assets Held to Maturity Turkey EU Other Total Fitch’s Rating through P/L (Net) (Net) Securities (Net) (*) Total Cash and balances with the Central Bank of Turkey 627,297 - - 627,297 BB+ 161,601 290,592 828,300 1,280,493 Loans and advances to banks 52,780 11,907 8,927 73,614 Financial assets held for trading Unrated 13,281 - - 13,281 -Trading securities 50,255 - - 50,255 - Derivative financial instruments 2,497 9,708 - 12,205 Total 174,882 290,592 828,300 1,293,774 Loans and advances to customers, net - Corporate 2,150,796 11,880 41,614 2,204,290 (*) Held-to-maturity investments consist of Yapı ve Kredi Bankası A.Ş. bonds amounting to TL 42,020. - SME 2,741,920 - - 2,741,920 - Consumer 191,771 - - 191,771 c. Information on rating concentration: -Credit card 5,968 - - 5,968 Investment securities Credit risk of the Bank is evaluated via internal assessment system. Loans are graded on the - Available-for-sale 783,046 - - 783,046 basis of their probability of default, are aligned from highest (the best) ratings to lowest (sub- - Held-to-maturity 1,045,707 - - 1,045,707 standard) ratings as below and non-performing loans (impaired ones) are shown at the bottom of Other intangible assets 19,741 - - 19,741 the table. Property and equipment 21,165 - - 21,165 Deferred income tax assets 26,665 - - 26,665 The rating category named as ''high'' indicates that debtor has a sound financial structure, the Other assets 78,907 9,955 - 88,862 category ''standard'' displays that debtor has a good and satisfactory financial structure, while the As of 31 December 2012 7,798,515 43,450 50,541 7,892,506 category named as ''sub-standard'' indicates that debtor's financial position is not sound. As of 31 December 2011 6,294,286 78,309 28,851 6,401,446 2012 2011 Letter of guarantees 1,675,583 - - 1,675,583 High Grade (A,B) 55.38% 49.32% Letter of credits 305,450 - - 305,450 Standard Grade (C) 37.30% 46.26% Acceptance credits 28,179 - - 28,179 Sub Standard Grade (D) 4.04% 3.59% Impaired (E) 0.50% 0.65% As of 31 December 2012 2,009,212 - - 2,009,212 Not rated 2.78% 0.17% As of 31 December 2011 2,164,639 - - 2,164,639
24 25 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 91
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
d. Fair value of collaterals (loans and advances to customers): Collateral mainly comprises the following: cash funds, deposits, mortgages of real estate at the land registry and mortgages of real estate built on allocated land, export documents, guarantees, and acceptances and pledge on vehicles.
2012 Corporate SME Consumer Total
Watch listed loans 37,674 62,700 24,877 125,251 Loans under legal follow - up 80,434 131,045 490 211,969
Total 118,108 193,745 25,367 337,220
2011 Corporate SME Consumer Total
Watch listed loans 181,779 191,549 8,604 381,932 Loans under legal follow - up 388,729 273,301 1,117 663,147
Total 570,508 464,850 9,721 1,045,079
Type of Collaterals 2012 2011 Real-estate mortgage 316,936 976,477 Car pledge 3,271 851 Cash and cash equivalents 2,179 1,105 Other 14,834 66,646
Total 337,220 1,045,079
e. Concentration of credit risk based on geographical regions: Turkey EU Other Total Cash and balances with the Central Bank of Turkey 627,297 - - 627,297 Loans and advances to banks 52,780 11,907 8,927 73,614 Financial assets held for trading -Trading securities 50,255 - - 50,255 - Derivative financial instruments 2,497 9,708 - 12,205 Loans and advances to customers, net - Corporate 2,150,796 11,880 41,614 2,204,290 - SME 2,741,920 - - 2,741,920 - Consumer 191,771 - - 191,771 -Credit card 5,968 - - 5,968 Investment securities - Available-for-sale 783,046 - - 783,046 - Held-to-maturity 1,045,707 - - 1,045,707 Other intangible assets 19,741 - - 19,741 Property and equipment 21,165 - - 21,165 Deferred income tax assets 26,665 - - 26,665 Other assets 78,907 9,955 - 88,862
As of 31 December 2012 7,798,515 43,450 50,541 7,892,506
As of 31 December 2011 6,294,286 78,309 28,851 6,401,446
Letter of guarantees 1,675,583 - - 1,675,583 Letter of credits 305,450 - - 305,450 Acceptance credits 28,179 - - 28,179
As of 31 December 2012 2,009,212 - - 2,009,212
As of 31 December 2011 2,164,639 - - 2,164,639
25 92 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
f. Sectoral concentration: C. Currency Risk 2012 2011 Cash Non-cash Cash Non-cash Foreign exchange exposure is the result of the mismatch of foreign currency denominated assets and Trade 1,362,307 437,243 1,168,142 511,702 liabilities (including foreign currency indexed ones) together with exposures resulting from off- Finance 558,971 88,796 106,159 64,575 balance sheet foreign exchange derivative instruments. The Group takes on exposure to the effects of Construction 567,055 498,590 451,216 443,428 fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Textile 361,882 104,829 305,461 124,282 Production 308,822 136,938 327,541 168,646 The table below summarizes the Group’s exposure to foreign currency exchange rate risk..Included in Iron and Steel 198,439 162,306 179,285 189,938 Transportation 208,263 84,019 215,119 88,163 the table are the Group’s assets and liabilities at carrying amounts, categorised by currency. The off- Mining 112,657 13,997 111,089 25,454 balance sheet gap represents the difference between the notional amounts of purchase and sale foreign Food and Beverage 281,065 85,205 191,108 102,739 currency derivative financial instruments. Automotive 114,396 41,532 120,046 41,328 Tourism 111,814 9,624 126,760 4,803 2012 Foreign currency Forest Product and Agriculture 163,992 37,758 131,697 48,477 US$ EUR Other Total TL Total Machinery 97,877 61,915 88,233 61,239 Chemical 109,473 25,420 91,734 35,579 Assets Paper 32,898 4,179 33,154 16,867 Cash and balances with the Central Bank of Turkey 181,765 79,897 63,706 325,368 301,929 627,297 Petroleum 52,592 52,386 51,858 51,880 Loans and advances to banks 42,071 6,727 6,378 55,176 18,438 73,614 Electrics and Electronics 21,584 13,874 30,390 6,890 Financial assets held for trading Others 452,014 150,601 501,813 178,649 - Trading securities 708 10 - 718 49,537 50,255 - Derivative financial instruments 3,057 1,122 50 4,229 7,976 12,205 Loans and advances to customers (1) 981,788 628,983 638 1,611,409 3,532,540 5,143,949 Total 5,116,101 2,009,212 4,230,805 2,164,639 Investment securities - Available-for-sale 155,854 - - 155,854 627,192 783,046 Loans in arrears 234,001 - 214,311 - - Held- to- maturity - - - - 1,045,707 1,045,707 Allowance for individually impaired loans (105,709) - (108,130) - Other intangible assets - - - - 19,741 19,741 Property and equipment - - - - 21,165 21,165 Allowance for collectively impaired loans (100,444) - (56,141) - Deferred income tax assets - - - - 26,665 26,665 Other assets 9,964 - - 9,964 78,898 88,862 Total 5,143,949 2,009,212 4,280,845 2,164,639 Total assets 1,375,207 716,739 70,772 2,162,718 5,729,788 7,892,506 g. Carrying amounts per class of financial assets whose terms have been renegotiated: Liabilities 2012 2011 Deposits from banks 76,116 19 - 76,135 1,360,790 1,436,925 Loans and advances to customers Due to customers 932,025 240,209 9,722 1,181,956 2,987,570 4,169,526 Other borrowed funds and subordinated debt 756,548 482,276 - 1,238,824 49,767 1,288,591 - Corporate lending 66,986 6,707 Obligations under finance leases - - - - 146,263 146,263 - Small business lending - 16 Derivative financial instruments 2,939 1,400 94 4,433 16,589 21,022 - Consumer lending - - Current income taxes payable - - - - 4,959 4,959 Other provisions - - - - 29,420 29,420 Retirement benefit obligations - - - - 4,878 4,878 Total 66,986 6,723 Other liabilities 25,647 17,028 23 42,698 748,224 790,922
B. Market Risk Total liabilities 1,793,275 740,932 9,839 2,544,046 5,348,460 7,892,506
Market risk is the risk of potential loss arising from the adverse effects of interest rates, exchange rates Net balance sheet position (418,068) (24,193) 60,933 (381,328) 381,328 -
and equity price volatility inherent in the Bank's trading portfolio. The Bank calculates the regulatory Off-balance sheet derivative capital requirement for market risk using the standardized method within the framework of Banking instruments net notional position 394,663 70,435 (81,646) 383,452 (382,891) 561 Regulatory and Supervision Agency guidelines. In accordance with international best practices, Value at Risk (VaR) is measured daily. VaR, which is a measure of the maximum potential loss on the Net foreign currency position (23,405) 46,242 (20,713) 2,124 (1,563) 561 trading portfolio, is calculated using the historical simulation VaR method, adjusted for EWMA 2011 (Exponentially Weighted Moving Average). In order to manage the market risk efficiently and to be Total assets 1,386,751 819,459 2,183 2,208,393 4,193,053 6,401,446 consistent with the risk appetite, position limits for asset classes, an overall "Bank Risk Tolerance" and Total liabilities 1,649,800 929,127 13,541 2,592,468 3,808,978 6,401,446 VaR limits for each risk factor are determined. Limit monitoring is done daily by the Risk Net balance sheet position (263,049) (109,668) (11,358) (384,075) 384,075 - Management Group. VaR results are supported by regular stress tests and scenario analysis. Off-balance sheet derivative instruments net notional position 286,332 115,726 12,185 414,243 (386,674) 27,569 The Bank utilizes back testing to verify the predictive power of the value-at-risk calculations. In back testing, theoretical gains/losses calculated by VAR on positions at the close of each business day are Net foreign currency position 23,283 6,058 827 30,168 (2,599) 27,569 compared with the actual gains/losses arising from these positions on the next business day. The (1) Collective impairment allowance of TL 100,444 (2011: TL 56,141) is presented as TL balance in the above currency position table. assumptions used in the VaR model are reviewed and revised as needed based on the results of the back testing process.
26 27 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 93
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
C. Currency Risk
Foreign exchange exposure is the result of the mismatch of foreign currency denominated assets and liabilities (including foreign currency indexed ones) together with exposures resulting from off- balance sheet foreign exchange derivative instruments. The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.
The table below summarizes the Group’s exposure to foreign currency exchange rate risk..Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by currency. The off- balance sheet gap represents the difference between the notional amounts of purchase and sale foreign currency derivative financial instruments.
2012 Foreign currency US$ EUR Other Total TL Total
Assets Cash and balances with the Central Bank of Turkey 181,765 79,897 63,706 325,368 301,929 627,297 Loans and advances to banks 42,071 6,727 6,378 55,176 18,438 73,614 Financial assets held for trading - Trading securities 708 10 - 718 49,537 50,255 - Derivative financial instruments 3,057 1,122 50 4,229 7,976 12,205 Loans and advances to customers (1) 981,788 628,983 638 1,611,409 3,532,540 5,143,949 Investment securities - Available-for-sale 155,854 - - 155,854 627,192 783,046 - Held- to- maturity - - - - 1,045,707 1,045,707 Other intangible assets - - - - 19,741 19,741 Property and equipment - - - - 21,165 21,165 Deferred income tax assets - - - - 26,665 26,665 Other assets 9,964 - - 9,964 78,898 88,862
Total assets 1,375,207 716,739 70,772 2,162,718 5,729,788 7,892,506
Liabilities Deposits from banks 76,116 19 - 76,135 1,360,790 1,436,925 Due to customers 932,025 240,209 9,722 1,181,956 2,987,570 4,169,526 Other borrowed funds and subordinated debt 756,548 482,276 - 1,238,824 49,767 1,288,591 Obligations under finance leases - - - - 146,263 146,263 Derivative financial instruments 2,939 1,400 94 4,433 16,589 21,022 Current income taxes payable - - - - 4,959 4,959 Other provisions - - - - 29,420 29,420 Retirement benefit obligations - - - - 4,878 4,878 Other liabilities 25,647 17,028 23 42,698 748,224 790,922
Total liabilities 1,793,275 740,932 9,839 2,544,046 5,348,460 7,892,506
Net balance sheet position (418,068) (24,193) 60,933 (381,328) 381,328 -
Off-balance sheet derivative instruments net notional position 394,663 70,435 (81,646) 383,452 (382,891) 561
Net foreign currency position (23,405) 46,242 (20,713) 2,124 (1,563) 561
2011 Total assets 1,386,751 819,459 2,183 2,208,393 4,193,053 6,401,446 Total liabilities 1,649,800 929,127 13,541 2,592,468 3,808,978 6,401,446
Net balance sheet position (263,049) (109,668) (11,358) (384,075) 384,075 -
Off-balance sheet derivative instruments net notional position 286,332 115,726 12,185 414,243 (386,674) 27,569
Net foreign currency position 23,283 6,058 827 30,168 (2,599) 27,569
(1) Collective impairment allowance of TL 100,444 (2011: TL 56,141) is presented as TL balance in the above currency position table.
27 94 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
At 31 December 2012, assets and liabilities denominated in foreign currency were translated into TL Interest rate sensitivity: using a foreign exchange rate of TL1.7776=US$1, and TL2,3452=EUR1 (2011: TL1.9065=US$1, and TL2.4592=EUR1). Applied Shock Gains/Shareholders’ (+/- x basis Gains/ Equity -Losses/ 2012 point) Losses Shareholders’ Equity For the purpose of calculating currency risks, foreign currency indexed loans and securities have been Currency reported in table above in the relevant currency of indexation. 1. TRY (+) 500bp (66,520) (7.77%) 2. TRY (-) 400bp 60,293 7.04% Foreign currency sensitivity 3. USD (+) 200bp 742 0.09% 4. USD (-) 200bp 85 0.01% The Group is mainly exposed to EUR and USD currencies. 5. EUR (+) 200bp (5,729) (0.67) 6. EUR (-) 200bp 7,752 0.90% Total (for negative shocks) 68,130 7.95% The following table details the Group’s sensitivity to a 10% increase and decrease in the TL against Total (for positive shocks) (71,507) (8.35%) the relevant foreign currencies. A positive number indicates an increase in profit or loss and other equity where the TL strengthens against the relevant currency. The table below summarises the Group’s exposure to interest rate risk at 31 December 2012 and 2011. Included in the table are the Group’s assets and liabilities in carrying amounts classified in terms 2012 Change in foreign of periods remaining to contractual repricing dates. currency Effect of profit / loss Effect of equity USD (+/-)10% +/- 4,410 +/- 4,410 2012 Up to 3 months 1 year to Over Non-interest EUR (+/-)10% +/- 4,624 +/- 4,624 3 months to 1 year 5 years 5 years bearing Total
Assets Cash and balances with the Central Bank of Turkey - - - - 627,297 627,297 2011 Change in foreign Loans and advances to banks 33,948 - -- 39,666 73,614 currency Effect of profit / loss Effect of equity Financial assets held for trading USD (+/-)10% +/- 2,379 +/- 2,379 - Trading securities 8,794 13,585 7,197 122 20,557 50,255 EUR (+/-)10% +/- 606 +/- 606 - Derivative financial instruments 9,970 1,779 456 - - 12,205 Loans and advances to customers 3,771,916 502,948 684,384 156,855 27,846 5,143,949 Investment securities D. Interest Rate Risk - Available-for-sale 730,424 52,622 -- - 783,046 - Held-to-maturity 732,493 313,214 -- - 1,045,707 Even though the Bank is exposed to structural interest rate risk on its balance sheet due to the nature of Other intangible assets - - -- 19,741 19,741 Property and equipment - - -- 21,165 21,165 its existing activities, it ensures that this risk remains within pre-defined limits. The ALCO aims to Deferred income tax assets - - - - 26,665 26,665 protect the economic value of equity, while sustaining a stable earnings profile. Duration/GAP Other assets 417 - -- 88,445 88,862 analyses, which rely on calculations of net discounted future cash flows of interest rate sensitive balance sheet items, are conducted to manage this risk. Total assets 5,287,962 884,148 692,037 156,977 871,382 7,892,506
The bank runs net economic value sensitivity scenarios with changes in interest rates and interest rate Liabilities Deposits from banks 1,435,993 - -- 932 1,436,925 margins, so as to calculate their impact on net economic value, as defined in the relevant regulation Due to customers 3,724,201 100,720 7,947 - 336,658 4,169,526 published by BRSA. Beside the BRSA standard interest rate shock scenario, other internally defined Other borrowed funds and subordinated debt 190,142 767,852 73,107 257,490 - 1,288,591 Debt securities in issue - 146,263 -- - 146,263 scenarios are also simulated. Obligations under finance leases ------Derivative financial instruments 10,235 2,920 7,867 - - 21,022 Trading and non-trading risks are approved separately in the policy documents and the Market Risk Current income taxes payable - - -- 4,959 4,959 Other provisions - - -- 29,420 29,420 Committee is given discretion in defining the tools and methodology used in measuring, monitoring Retirement benefit obligations - - -- 4,878 4,878 and managing both trading and non-trading risks. Other liabilities 472 - - - 790,450 790,922
Total liabilities 5,361,043 1,017,755 88,921 257,490 1,167,297 7,892,506
Net interest repricing gap (73,081) (133,607) 603,116 (100,513) (295,915) -
28 29 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 95
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
Interest rate sensitivity:
Applied Shock Gains/Shareholders’ (+/- x basis Gains/ Equity -Losses/ 2012 point) Losses Shareholders’ Equity Currency 1. TRY (+) 500bp (66,520) (7.77%) 2. TRY (-) 400bp 60,293 7.04% 3. USD (+) 200bp 742 0.09% 4. USD (-) 200bp 85 0.01% 5. EUR (+) 200bp (5,729) (0.67) 6. EUR (-) 200bp 7,752 0.90% Total (for negative shocks) 68,130 7.95% Total (for positive shocks) (71,507) (8.35%)
The table below summarises the Group’s exposure to interest rate risk at 31 December 2012 and 2011. Included in the table are the Group’s assets and liabilities in carrying amounts classified in terms of periods remaining to contractual repricing dates.
2012 Up to 3 months 1 year to Over Non-interest 3 months to 1 year 5 years 5 years bearing Total
Assets Cash and balances with the Central Bank of Turkey - - - - 627,297 627,297 Loans and advances to banks 33,948 - -- 39,666 73,614 Financial assets held for trading - Trading securities 8,794 13,585 7,197 122 20,557 50,255 - Derivative financial instruments 9,970 1,779 456 - - 12,205 Loans and advances to customers 3,771,916 502,948 684,384 156,855 27,846 5,143,949 Investment securities - Available-for-sale 730,424 52,622 -- - 783,046 - Held-to-maturity 732,493 313,214 -- - 1,045,707 Other intangible assets - - -- 19,741 19,741 Property and equipment - - -- 21,165 21,165 Deferred income tax assets - - - - 26,665 26,665 Other assets 417 - -- 88,445 88,862
Total assets 5,287,962 884,148 692,037 156,977 871,382 7,892,506
Liabilities Deposits from banks 1,435,993 - -- 932 1,436,925 Due to customers 3,724,201 100,720 7,947 - 336,658 4,169,526 Other borrowed funds and subordinated debt 190,142 767,852 73,107 257,490 - 1,288,591 Debt securities in issue - 146,263 -- - 146,263 Obligations under finance leases ------Derivative financial instruments 10,235 2,920 7,867 - - 21,022 Current income taxes payable - - -- 4,959 4,959 Other provisions - - -- 29,420 29,420 Retirement benefit obligations - - -- 4,878 4,878 Other liabilities 472 - - - 790,450 790,922
Total liabilities 5,361,043 1,017,755 88,921 257,490 1,167,297 7,892,506
Net interest repricing gap (73,081) (133,607) 603,116 (100,513) (295,915) -
29 96 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
2011 Up to 3 months 1 year to Over Non-interest E. Liquidity Risk 3 months to 1 year 5 years 5 years bearing Total
Assets Liquidity risk refers to the possibility of an institution being unable to access necessary funds due to Cash and balances with the Central Bank of Turkey - - - - 503,029 503,029 declining fund-raising capacity; The Group closely monitors its overall liquidity level and operates Loans and advances to banks 88,290 - -- 23,360 111,650 under strict limits based on stress conditions. To address liquidity risk, the Group has adopted a Financial assets held for trading - Trading securities 11,334 112,520 4,028 46,911 24,528 199,321 unified approach to TL and foreign currency fund-raising opportunities. The key limit puts a ceiling on - Derivative financial instruments 31,549 14,184 -- - 45,733 the share of overnight borrowing in the current funding pool and acts as a warning signal for the senior Loans and advances to customers 2,992,698 542,813 525,004 160,072 60,258 4,280,845 Investment securities management to adjust the composition and/or the pricing of the borrowing instruments. - Available-for-sale 61,339 55,814 43,265 130,174 - 290,592 - Held-to-maturity 535,887 292,413 -- - 828,300 The Group uses domestic and foreign markets for its liquidity needs, Low level of liquidity needs Other intangible assets - - -- 3,442 3,442 Property and equipment - - -- 24,237 24,237 enables an easy way of loan borrowing from the corresponding markets (Central Bank of the Republic Deferred income tax assets - - -- 8,248 8,248 of Turkey (“CBRT”), ISE, Interbank money market, ISE Settlement and Custody Bank and other Other assets 204 10 - - 105,835 106,049 markets). The potential cash resources are: money market debts which can be obtained from the domestic banks and repurchase transactions in foreign markets with Eurobonds in the portfolio. Total assets 3,721,301 1,017,754 572,297 337,157 752,937 6,401,446 The Group’s fund resources consist mainly of deposits. The investments portfolio consists mainly of Liabilities Deposits from banks 654,490 5,719 -- 346 660,555 the held to maturity investments. Due to customers 3,179,053 133,532 84 - 334,886 3,647,555 Other borrowed funds and subordinated debt 658,629 680,378 -- - 1,339,007 Obligations under finance leases 140 216 -- - 356 The liquidity position is assessed and managed under a variety of scenarios, giving due consideration Derivative financial instruments 8,267 15,574 -- - 23,841 to stress factors relating to both the market in general and specifically to the Group. In accordance Current income taxes payable - - -- 3,915 3,915 with the “Communiqué on the Measurement and Assessment of Liquidity of the Banks”, liquidity Other provisions - - -- 15,654 15,654 Retirement benefit obligations - - -- 4,081 4,081 ratio of the banks on a weekly and monthly basis should not be less than 80% for foreign currency Other liabilities 4,477 5,116 15,801 - 681,088 706,482 denominated assets and liabilities, and for total assets and liabilities it should not be less than 100%. Liquidity ratios as at 31 December 2012 and 2011 are represented below; Total liabilities 4,505,056 840,535 15,885 - 1,039,970 6,401,446 2012 Primary Maturity Segment Secondary Maturity Segment Stock Values Net interest repricing gap (783,755) 177,219 556,412 337,157 (287,033) - FX FX + TL FX FX + TL FX + LT Average (%) 167.18 155.03 130.79 120.74 13.30 The table below summarises weighted average interest rates for financial instruments by major Highest (%) 294.05 204.65 186.82 176.75 17.11 currencies outstanding at 31 December 2012 and 2011 based on yearly contractual rates. Lowest (%) 120.39 126.28 103.75 107.38 11.07
2012 2011 2011 Primary Maturity Segment Secondary Maturity Segment Stock Values FX FX + TL FX FX + TL FX + LT US$ (%) EUR (%) TL (%) US$ (%) EUR (%) TL (%) Average (%) 222.11 196.05 146.59 135.96 11.86 Highest (%) 415.32 255.04 232.20 155.77 13.81 146.63 149.26 105.15 110.34 8.82 Assets Lowest (%) Loans and advances to banks 0.45 - - 2.94 0.30 0.83 Financial assets held for trading 5.18 3.76 5.33 10.47 5.50 10.79 Investment securities - Available-for-sale 4.14 - 7.02 - - 9.54 - Held-to-maturity - - 8.67 6.00 - 8.95 Loans and advances to customers 6.68 6.32 13.70 7.72 7.91 17.83
Liabilities Deposits from banks - - - 3.90 - - Due to customers 3.40 3.14 8.34 5.27 4.94 11.54 Other borrowed funds and subordinated debt 3.99 3.47 7.90 2.71 3.44 7.34 Debt securities in issue - - 7.04 ---
30 31 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 97
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
E. Liquidity Risk
Liquidity risk refers to the possibility of an institution being unable to access necessary funds due to declining fund-raising capacity; The Group closely monitors its overall liquidity level and operates under strict limits based on stress conditions. To address liquidity risk, the Group has adopted a unified approach to TL and foreign currency fund-raising opportunities. The key limit puts a ceiling on the share of overnight borrowing in the current funding pool and acts as a warning signal for the senior management to adjust the composition and/or the pricing of the borrowing instruments.
The Group uses domestic and foreign markets for its liquidity needs, Low level of liquidity needs enables an easy way of loan borrowing from the corresponding markets (Central Bank of the Republic of Turkey (“CBRT”), ISE, Interbank money market, ISE Settlement and Custody Bank and other markets). The potential cash resources are: money market debts which can be obtained from the domestic banks and repurchase transactions in foreign markets with Eurobonds in the portfolio.
The Group’s fund resources consist mainly of deposits. The investments portfolio consists mainly of the held to maturity investments.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. In accordance with the “Communiqué on the Measurement and Assessment of Liquidity of the Banks”, liquidity ratio of the banks on a weekly and monthly basis should not be less than 80% for foreign currency denominated assets and liabilities, and for total assets and liabilities it should not be less than 100%. Liquidity ratios as at 31 December 2012 and 2011 are represented below;
2012 Primary Maturity Segment Secondary Maturity Segment Stock Values FX FX + TL FX FX + TL FX + LT Average (%) 167.18 155.03 130.79 120.74 13.30 Highest (%) 294.05 204.65 186.82 176.75 17.11 Lowest (%) 120.39 126.28 103.75 107.38 11.07
2011 Primary Maturity Segment Secondary Maturity Segment Stock Values FX FX + TL FX FX + TL FX + LT Average (%) 222.11 196.05 146.59 135.96 11.86 Highest (%) 415.32 255.04 232.20 155.77 13.81 Lowest (%) 146.63 149.26 105.15 110.34 8.82
31 98 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
The following table presents the cash flows payable by the Group under non-derivative financial F. Operational risk liabilities remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed risk based on expected undiscounted cash inflows. internal processes, people and systems or from external events. 2012 Demand and up to 3 3 months 1 year to Over Operational Risk is managed based on a framework for identifying, measuring, monitoring and months to 1 year 5 years 5 years Total managing all risks within the scope of the definition of operational risk. The Bank’s risk management and internal controls allow it to control and minimize operational risks effectively under a detailed set Liabilities of written procedures. These procedures are readily accessible and continuously updated and include Deposits from banks 1,437,474 - - - 1,437,474 procedures to handle all contingency events. Due to customers 4,077,444 102,357 8,532 - 4,188,333 Other borrowed funds 102,226 734,212 148,974 435,694 1,421,106 Debt securities in issue - 150,000 - - 150,000 Studies of activity-based operational risks are continuing through the Risk Control Self Assessment. These are categorized according to cause, event and effect categories as proposed by Basel II, and Total liabilities 5,617,144 986,569 157,506 435,694 7,196,913 action has been taken for severe risks.
2011 Demand The Business Continuity Management Plan, prepared in order to minimize losses due to business and up to 3 3 months 1 year to Over disruption, has been implemented. Comprehensive annual testing of the Disaster Recovery Center months to 1 year 5 years 5 years Total (DRC) is conducted with the participation of business units and IT. Liabilities Deposits from banks 654,913 5,719 - - 660,632 For the regulatory purposes and consideration in statutory capital adequacy ratio, on a consolidated Due to customers 3,522,277 141,567 94 - 3,663,938 base the Group calculates the amount subject to operational risk with the basic indicator method in Other borrowed funds 141,427 661,374 226,632 502,275 1,531,708 accordance with the Section 4 of the “ Regulation Regarding Measurement and Evaluation of Banks’ Capital Adequacy Ratio” published in the Official Gazette No, 28337 dated 28 June 2012, namely Total liabilities 4,318,617 808,660 226,726 502,275 5,856,278 “The Calculation of the Amount Subject to Operational Risk”, based on the gross income of the Group for the years ended 2011, 2010 and 2009, As of 31 December 2012, the total amount subject to The following table represents the outstanding derivative cash flows of the Group on undiscounted operational risk is calculated as TL 470,605 (2011: TL 445,848) and the amount of the related capital contractual maturity basis: requirement is TL 37,648 (2011: TL 35,668). Derivatives settled on a gross basis G. Capital management 2012 Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA, Derivatives held for trading: which are based upon the standards established by the Bank of International Settlements (“BIS”), Foreign exchange derivatives: These guidelines require banks to maintain adequate levels of regulatory capital against risk-bearing - Outflow 1,201,975 382,286 257,691 26,583 80,484 1,949,019 - Inflow 1,201,672 380,131 252,544 12,845 40,001 1,887,193 assets and off-balance sheet exposures. Interest rate derivatives: - Outflow - 2,391 5,750 4,003 615 12,759 A bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier I capital (which - Inflow - 1,757 4,875 3,530 460 10,622 comprises paid-in capital, reserves, retained earnings and profit for the current periods minus period Total outflow 1,201,975 384,677 263,441 30,586 81,099 1,961,778 loss (if any)) its Tier II capital (which comprises general loan and free reserves, revaluation funds and subordinated loans obtained) and its Tier III capital (which comprises certain qualified subordinated Total inflow 1,201,672 381,888 257,419 16,375 40,461 1,897,815 loans in accordance with BIS guidelines) minus deductions (which comprises participations to financial institutions, special and preliminary and pre-paid expenses, subordinated loans extended, 2011 Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total goodwill and capitalized costs), and dividing this aggregate by risk weighted assets, which reflect both credit risk and market risk, In accordance with these guidelines, banks must maintain a total capital Derivatives held for trading: adequacy ratio of a minimum of 8%. Foreign exchange derivatives: - Outflow 670,706 358,437 565,837 11,700 - 1,606,680 - Inflow 665,501 362,816 580,296 19,065 - 1,627,678 The Bank and its individually regulated operations have complied with externally imposed capital Interest rate derivatives: requirements throughout the period. - Outflow - 1,542 4,643 4,592 - 10,777 - Inflow - 2,095 6,602 6,597 - 15,294 Total outflow 670,706 359,979 570,480 16,292 - 1,617,457 Total inflow 665,501 364,911 586,898 25,662 - 1,642,972 32 33 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 99
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
F. Operational risk
Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
Operational Risk is managed based on a framework for identifying, measuring, monitoring and managing all risks within the scope of the definition of operational risk. The Bank’s risk management and internal controls allow it to control and minimize operational risks effectively under a detailed set of written procedures. These procedures are readily accessible and continuously updated and include procedures to handle all contingency events.
Studies of activity-based operational risks are continuing through the Risk Control Self Assessment. These are categorized according to cause, event and effect categories as proposed by Basel II, and action has been taken for severe risks.
The Business Continuity Management Plan, prepared in order to minimize losses due to business disruption, has been implemented. Comprehensive annual testing of the Disaster Recovery Center (DRC) is conducted with the participation of business units and IT.
For the regulatory purposes and consideration in statutory capital adequacy ratio, on a consolidated base the Group calculates the amount subject to operational risk with the basic indicator method in accordance with the Section 4 of the “ Regulation Regarding Measurement and Evaluation of Banks’ Capital Adequacy Ratio” published in the Official Gazette No, 28337 dated 28 June 2012, namely “The Calculation of the Amount Subject to Operational Risk”, based on the gross income of the Group for the years ended 2011, 2010 and 2009, As of 31 December 2012, the total amount subject to operational risk is calculated as TL 470,605 (2011: TL 445,848) and the amount of the related capital requirement is TL 37,648 (2011: TL 35,668).
G. Capital management
Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA, which are based upon the standards established by the Bank of International Settlements (“BIS”), These guidelines require banks to maintain adequate levels of regulatory capital against risk-bearing assets and off-balance sheet exposures.
A bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier I capital (which comprises paid-in capital, reserves, retained earnings and profit for the current periods minus period loss (if any)) its Tier II capital (which comprises general loan and free reserves, revaluation funds and subordinated loans obtained) and its Tier III capital (which comprises certain qualified subordinated loans in accordance with BIS guidelines) minus deductions (which comprises participations to financial institutions, special and preliminary and pre-paid expenses, subordinated loans extended, goodwill and capitalized costs), and dividing this aggregate by risk weighted assets, which reflect both credit risk and market risk, In accordance with these guidelines, banks must maintain a total capital adequacy ratio of a minimum of 8%.
The Bank and its individually regulated operations have complied with externally imposed capital requirements throughout the period.
33 100 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
The Group’s regulatory capital position on a consolidated basis is as follows: The following methods and assumptions were used to estimate the fair value of the Group’s financial instruments: 2012 2011 Loans and advances to banks Tier I capital 550,693 495,020 Tier II capital 327,174 281,107 The fair value of overnight deposits is considered to approximate its carrying amounts. The estimated Deductions 107 518 fair value of long term interest bearing placements is based on discounted cash flows using prevailing money market interest rates at the balance sheet date with similar credit risk and remaining maturity. Total regulatory capital 877,760 775,609 Loans and advances to customers Amount subject to credit risk 5,463,141 5,072,733 Amount subject to market risk 141,975 150,013 Loans and advances to customers are net of allowances for impairment. The estimated fair value of Amount subject to operational risk 470,605 445,848 loans and advances to customers represent the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates with similar credit Capital adequacy ratio (%) 14.45 13.68 risk, currency and remaining maturity to determine their fair value.
H. Fair value of financial instruments Investment securities
Fair value is the amount at which a financial instrument could be exchanged in a current transaction Fair value for held-to-maturity securities is based on market prices or prices prevailing at the balance between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted sheet date announced by the ISE. market price, if one exists. Due to customers, deposits from banks, other borrowed funds The estimated fair values of financial instruments have been determined by the Group using available market information and appropriate valuation methodologies. However, judgement is necessarily The estimated fair value of deposits with no stated maturity, which includes non-interest bearing required to interpret market data to develop the estimated fair value. Accordingly, the estimates deposits, is the amount repayable on demand. presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The estimated fair value of other borrowings and debt securities in issue without quoted market price is of estimated future cash flows expected to be paid using money market interest rates prevailing at The following table summarises the carrying amounts and fair values of those financial assets the balance sheet date with similar credit risk, currency and remaining maturity. and liabilities not presented on the Group’s balance sheet at their fair value. The estimated fair value of interest bearing liabilities due to customers is based on discounted cash 2012 2011 flows of estimated future cash flows expected to be paid. Carrying Fair Carrying Fair value value value value Fair value hierarchy
Financial assets: IFRS 7 requires classification of line items at fair value presented at financial statements according to Loans and advances to banks 73,614 73,614 111,650 111,650 the defined levels. These levels depend on the observability of data used during fair value calculations; Investment securities (held-to-maturity) 1,045,707 1,074,978 828,300 823,689 Classification for fair value is generated as below: Loans and advances to customers 5,143,949 5,052,611 4,280,845 4,630,672 Level 1: Assets or liabilities with prices recorded (unadjusted) in active markets Financial liabilities: Level 2: Assets or liabilities that are excluded in the Level 1 of recorded prices directly observable by Deposits from banks 1,436,925 1,436,925 660,555 660,666 prices or indirectly observable derived through prices observable from similar assets or liabilities Due to customers 4,169,526 4,141,282 3,647,555 3,662,749 Other borrowed funds Level 3: Assets and liabilities where no observable market data can be used for valuation and subordinated debt 1,288,591 1,279,708 1,339,007 1,481,984 Debt securities in issue 146,263 142,976 - - There are not any significant transfers between Level 1 and Level 2 of the fair value hierarchy.
According to these classification principles stated, the Group’s classification of financial assets and liabilities carried at their fair value are as follows:
34 35 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 101
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)
The following methods and assumptions were used to estimate the fair value of the Group’s financial instruments:
Loans and advances to banks
The fair value of overnight deposits is considered to approximate its carrying amounts. The estimated fair value of long term interest bearing placements is based on discounted cash flows using prevailing money market interest rates at the balance sheet date with similar credit risk and remaining maturity.
Loans and advances to customers
Loans and advances to customers are net of allowances for impairment. The estimated fair value of loans and advances to customers represent the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates with similar credit risk, currency and remaining maturity to determine their fair value.
Investment securities
Fair value for held-to-maturity securities is based on market prices or prices prevailing at the balance sheet date announced by the ISE.
Due to customers, deposits from banks, other borrowed funds
The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand.
The estimated fair value of other borrowings and debt securities in issue without quoted market price is of estimated future cash flows expected to be paid using money market interest rates prevailing at the balance sheet date with similar credit risk, currency and remaining maturity.
The estimated fair value of interest bearing liabilities due to customers is based on discounted cash flows of estimated future cash flows expected to be paid.
Fair value hierarchy
IFRS 7 requires classification of line items at fair value presented at financial statements according to the defined levels. These levels depend on the observability of data used during fair value calculations; Classification for fair value is generated as below:
Level 1: Assets or liabilities with prices recorded (unadjusted) in active markets
Level 2: Assets or liabilities that are excluded in the Level 1 of recorded prices directly observable by prices or indirectly observable derived through prices observable from similar assets or liabilities
Level 3: Assets and liabilities where no observable market data can be used for valuation
There are not any significant transfers between Level 1 and Level 2 of the fair value hierarchy.
According to these classification principles stated, the Group’s classification of financial assets and liabilities carried at their fair value are as follows:
35 102 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued) NOTE 5 - CASH AND CASH EQUIVALENTS
Assets and liabilities measured at fair value For the purposes of the cash flow statement, cash and cash equivalents comprise the following 2012 Level 1 Level 2 Level 3 Total balances with less than three months maturity from the date of acquisition: Financial assets held for trading 2012 2011 - Debt securities 29,720 - - 29,720 - Derivatives - 12,205 - 12,205 Cash and cash equivalents 56,979 46,021 - Equity securities 20,535 - - 20,535 Demand deposits with the Central Bank of Turkey 340,253 202,620 Available-for-sale financial assets Loans and advances to banks - Investments securities - debt 783,046 - - 783,046 (with original maturity less than three months) 73,614 111,618
Total assets 833,301 12,205 - 845,506 Total 470,846 360,259
Financial liabilities at fair value through profit and loss - Derivatives - 21,022 - 21,022 NOTE 6 - CASH AND BALANCES WITH THE CENTRAL BANK OF TURKEY Total liabilities - 21,022 - 21,022 2012 2011 2011 Level 1 Level 2 Level 3 Total Cash and cash equivalents Financial assets held for trading Cash in hand - foreign currency 30,915 25,928 - Debt securities 174,882 - - 174,882 Cash in hand - TL 25,704 20,093 - Derivatives - 45,733 - 45,733 Other- TL 360 - - Equity securities 24,439 - - 24,439 Available-for-sale financial assets 56,979 46,021 - Investments securities - debt 290,592 - - 290,592 Demand deposits at central banks Total assets 489,913 45,733 - 535,646 Foreign currency 64,388 59,725 TL 275,865 142,895 Financial liabilities at fair value through profit and loss - Derivatives - 23,841 - 23,841 340,253 202,620 Total liabilities - 23,841 - 23,841 Reserve deposits at central banks Foreign currency 230,065 254,388 I. Fiduciary activities The Group provides custody services to third parties. Those assets that are held in a fiduciary capacity 230,065 254,388 are not included in these consolidated financial statements. Fiduciary capacity of the Group is as follows: Total 627,297 503,029 2012 2011 Banks that are established in Turkey or performing their operations by opening new branches in Investment securities held in custody 952,876 860,824 Turkey are subject to the Central Bank of the Republic of Turkey’s Communiqué numbered 2005/1 Cheques received for collection 217,077 280,203 “Required Reserves”. The Bank’s total domestic liabilities excluding the items stated in the Customer investment security portfolio 54,443 - Communiqué as deductibles, the deposits accepted on behalf of foreign branches from Turkey and Commercial notes received for collection 28,664 31,844 loans obtained by the banks but followed under foreign branches constitute the required reserves liabilities. 1,253,060 1,172,871 The reserve rates for TL liabilities vary between 5% and 11% for TL deposits and other liabilities according to their maturities as of 31 December 2012 (2011: 5% and 11% for all TL liabilities). The reserve rates for foreign currency liabilities vary between 6% and 11% for deposit and other foreign currency liabilities according to their maturities as of 31 December 2012 (2011: 6% and 11% for all foreign currency liabilities).
No interest is charged by CBRT for Turkish lira and foreign currency denominated reserve requirements. 36 37 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 103
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 5 - CASH AND CASH EQUIVALENTS
For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition: 2012 2011 Cash and cash equivalents 56,979 46,021 Demand deposits with the Central Bank of Turkey 340,253 202,620 Loans and advances to banks (with original maturity less than three months) 73,614 111,618
Total 470,846 360,259
NOTE 6 - CASH AND BALANCES WITH THE CENTRAL BANK OF TURKEY
2012 2011 Cash and cash equivalents Cash in hand - foreign currency 30,915 25,928 Cash in hand - TL 25,704 20,093 Other- TL 360 -
56,979 46,021
Demand deposits at central banks Foreign currency 64,388 59,725 TL 275,865 142,895
340,253 202,620
Reserve deposits at central banks Foreign currency 230,065 254,388
230,065 254,388
Total 627,297 503,029
Banks that are established in Turkey or performing their operations by opening new branches in Turkey are subject to the Central Bank of the Republic of Turkey’s Communiqué numbered 2005/1 “Required Reserves”. The Bank’s total domestic liabilities excluding the items stated in the Communiqué as deductibles, the deposits accepted on behalf of foreign branches from Turkey and loans obtained by the banks but followed under foreign branches constitute the required reserves liabilities.
The reserve rates for TL liabilities vary between 5% and 11% for TL deposits and other liabilities according to their maturities as of 31 December 2012 (2011: 5% and 11% for all TL liabilities). The reserve rates for foreign currency liabilities vary between 6% and 11% for deposit and other foreign currency liabilities according to their maturities as of 31 December 2012 (2011: 6% and 11% for all foreign currency liabilities).
No interest is charged by CBRT for Turkish lira and foreign currency denominated reserve requirements. 37 104 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 7 - LOANS AND ADVANCES TO BANKS NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS
2012 2011 The Group utilises the following derivative instruments: Domestic Foreign Total Domestic Foreign Total “Currency forwards” represent commitments to purchase or sell foreign and domestic currency, TL: including undelivered spot transactions. Nostro/ demand deposits 16,423 - 16,423 419 - 419 Interbank money market 2,015 - 2,015 34,801 - 34,801 “Currency swaps” are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates. Currency swaps involve the exchange of the 18,438 - 18,438 35,220 - 35,220 principal as well. The Group risks are represented by the potential cost of replacing the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with Foreign currency: reference to the current fair value and the liquidity of the market. To control the level of risk taken, the Nostro/ demand deposits 2,409 20,834 23,243 3,118 19,824 22,942 Group assesses counterparties using the same techniques as for its lending activities. Time deposits 31,933 - 31,933 18,444 35,044 53,488 Options are the right to buy or sell for the buyer and are the obligations for the writer an asset at a 34,342 20,834 55,176 21,562 54,868 76,430 specified price until a specified expiration date. Options are traded for clients’ needs. Total 52,780 20,834 73,614 56,782 54,868 111,650 The notional amounts of certain types of financial instruments provide a basis for comparison with Current 52,780 20,834 73,614 56,782 54,868 111,650 instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash Non-current ------flows involved or the current fair value of the instruments, and therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in foreign exchange rates and interest rates relative NOTE 8 - FINANCIAL ASSETS HELD FOR TRADING to their terms. 2012 2011 2012 Government bonds and treasury bills 6,941 136,021 Contract/ notional Fair values amount Assets Liabilities Government bonds and treasury bills Derivatives held for trading sold under repurchase agreements 439 25,580 Other debt securities 22,340 13,281 Currency forwards 247,237 262 1,369 Currency swaps 1,268,377 7,383 12,116 Total debt securities 29,720 174,882 OTC currency options 1,670,540 4,560 4,242 Marketable security options 71,104 - 207 Equity securities - listed 20,535 24,439 Interest rate swaps 442,208 - 3,088 Total derivative assets/ (liabilities) held for trading 3,699,466 12,205 21,022 Total equity securities 20,535 24,439 Current 7,751 20,005 Derivative financial instruments 12,205 45,733 Non-current 4,454 1,017
Total financial assets held for trading 62,460 245,054 2011 Contract/ notional Fair values Current 39,965 75,483 amount Assets Liabilities Non-current 22,495 169,571 Derivatives held for trading
Government bonds and treasury bills are discount and coupon securities issued by the Government of Currency forwards 303,817 2,728 3,488 Currency swaps 838,223 19,023 565 the Republic of Turkey. Other debt securities represent corporate bonds issued by companies OTC currency options 2,092,318 19,778 19,788 incorporated in Turkey. Interest rate swaps 200,000 4,204 -
Total derivative assets / (liabilities) held for trading 3,434,358 45,733 23,841
Current 36,373 23,841 Non-current 9,360 -
38 39 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 105
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS
The Group utilises the following derivative instruments:
“Currency forwards” represent commitments to purchase or sell foreign and domestic currency, including undelivered spot transactions.
“Currency swaps” are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates. Currency swaps involve the exchange of the principal as well. The Group risks are represented by the potential cost of replacing the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value and the liquidity of the market. To control the level of risk taken, the Group assesses counterparties using the same techniques as for its lending activities.
Options are the right to buy or sell for the buyer and are the obligations for the writer an asset at a specified price until a specified expiration date. Options are traded for clients’ needs.
The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments, and therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in foreign exchange rates and interest rates relative to their terms.
2012 Contract/ notional Fair values amount Assets Liabilities Derivatives held for trading
Currency forwards 247,237 262 1,369 Currency swaps 1,268,377 7,383 12,116 OTC currency options 1,670,540 4,560 4,242 Marketable security options 71,104 - 207 Interest rate swaps 442,208 - 3,088
Total derivative assets/ (liabilities) held for trading 3,699,466 12,205 21,022
Current 7,751 20,005 Non-current 4,454 1,017
2011 Contract/ notional Fair values amount Assets Liabilities Derivatives held for trading
Currency forwards 303,817 2,728 3,488 Currency swaps 838,223 19,023 565 OTC currency options 2,092,318 19,778 19,788 Interest rate swaps 200,000 4,204 -
Total derivative assets / (liabilities) held for trading 3,434,358 45,733 23,841
Current 36,373 23,841 Non-current 9,360 -
39 106 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 10 - LOANS AND ADVANCES TO CUSTOMERS NOTE 11 - INVESTMENT SECURITIES
2012 (i) Securities available-for-sale Corporate SME Consumer Credit Card Total 2012 2011
Performing loans 2,148,417 2,604,165 190,895 5,979 4,949,456 Debt securities - at fair value: Loans under close monitoring 67,489 80,710 18,118 328 166,645 Government bonds and treasury bills 725,869 290,592 Loans under legal follow-up 105,444 127,617 940 - 234,001 Corporate bonds and bills 57,177 -
Gross 2,321,350 2,812,492 209,953 6,307 5,350,102 Total securities available-for-sale 783,046 290,592 Specific allowance for impairment 79,217 24,862 1,630 - 105,709 Collective allowance for impairment 34,581 48,972 16,552 339 100,444 Current - 8,189 Total allowance for impairment 113,798 73,834 18,182 339 206,153 Non-current 783,046 282,403
Net 2,207,552 2,738,658 191,771 5,968 5,143,949 Government bonds and treasury bills are discount and coupon securities issued by the Government of the Republic of Turkey. Corporate bonds and bills are discount and coupon securities issued by Yapı Current 4,259,855 Non-current 884,094 ve Kredi Bankası A.Ş. and Türkiye İş Bankası A.Ş.
2011 Net gains from changes in the fair value of available-for-sale investment securities, net of tax Corporate SME Consumer Credit Card Total TL 15,690 (2011: TL 5,752 net losses). There are no impairments recognised for available-for-sale securities. Performing loans 1,697,991 2,284,557 100,098 - 4,082,646 Loans under close monitoring 67,969 78,205 1,985 - 148,159 Loans under legal follow-up 77,829 134,764 1,718 - 214,311 The movement in available-for-sale securities at 31 December is as follows: 2012 2011 Gross 1,843,789 2,497,526 103,801 - 4,445,116 At 1 January 290,592 182 Specific allowance for impairment 49,817 57,541 772 - 108,130 Collective allowance for impairment 18,211 33,468 4,462 - 56,141 Additions 13,746,468 1,046,697 Total allowance for impairment 68,028 91,009 5,234 - 164,271 Disposals / redemption (13,273,627) (749,097) Changes in fair value (1) 19,613 (7,190) Net 1,775,761 2,406,517 98,567 - 4,280,845 Exchange differences on monetary assets - - Current 3,451,544 Non-current 829,301 At 31 December 783,046 290,592 (1) Includes net fair value differences of outstanding available-for-sale portfolio. Reconciliation of allowance account for losses on loans and advances by class is as follows:
2012 2011 (ii) Securities held-to-maturity 2012 2011 Corporate SME Consumer Total Total Debt securities - at amortised cost - listed: At 1 January 68,028 91,009 5,234 164,271 83,236 Government bonds and treasury bills 114,575 311,324 Provision for loan impairment 56,935 112,729 13,287 182,951 89,320 Corporate bonds and bills - 42,020 Amounts recovered Government bonds and treasury bills during the year (-) (867) (13,555) - (14,422) (8,285) Loans written off during the year sold under repurchase agreements 931,132 474,956 as uncollectible (-)(1) (10,298) (116,349) - (126,647) - Total securities held-to-maturity 1,045,707 828,300 At 31 December 113,798 73,834 18,521 206,153 164,271
(1) A part of impaired loans amounting to TL 93,082 have been sold to Girişim Varlık Yönetim A.Ş for a total consideration Current 440,027 335,640 of TL 18,000 on 20 June 2012 and another part of impaired loans amounting to TL 58,434 have been sold to Final Varlık Non-current 605,680 492,660 Yönetim A.Ş. for a total consideration of TL 7,750 on 12 December 2012. Government bonds and treasury bills are discount and coupon securities issued by the Government of the Republic of Turkey. Corporate bonds and bills are discount and coupon securities issued by Yapı ve Kredi Bankası A.Ş.
40 41 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 107
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 11 - INVESTMENT SECURITIES (i) Securities available-for-sale 2012 2011 Debt securities - at fair value: Government bonds and treasury bills 725,869 290,592 Corporate bonds and bills 57,177 -
Total securities available-for-sale 783,046 290,592
Current - 8,189 Non-current 783,046 282,403
Government bonds and treasury bills are discount and coupon securities issued by the Government of the Republic of Turkey. Corporate bonds and bills are discount and coupon securities issued by Yapı ve Kredi Bankası A.Ş. and Türkiye İş Bankası A.Ş.
Net gains from changes in the fair value of available-for-sale investment securities, net of tax TL 15,690 (2011: TL 5,752 net losses). There are no impairments recognised for available-for-sale securities.
The movement in available-for-sale securities at 31 December is as follows: 2012 2011
At 1 January 290,592 182
Additions 13,746,468 1,046,697 Disposals / redemption (13,273,627) (749,097) Changes in fair value (1) 19,613 (7,190) Exchange differences on monetary assets - -
At 31 December 783,046 290,592 (1) Includes net fair value differences of outstanding available-for-sale portfolio.
(ii) Securities held-to-maturity 2012 2011
Debt securities - at amortised cost - listed: Government bonds and treasury bills 114,575 311,324 Corporate bonds and bills - 42,020 Government bonds and treasury bills sold under repurchase agreements 931,132 474,956
Total securities held-to-maturity 1,045,707 828,300
Current 440,027 335,640 Non-current 605,680 492,660
Government bonds and treasury bills are discount and coupon securities issued by the Government of the Republic of Turkey. Corporate bonds and bills are discount and coupon securities issued by Yapı ve Kredi Bankası A.Ş.
41 108 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 11 - INVESTMENT SECURITIES (Continued) NOTE 12 - OTHER INTANGIBLE ASSETS (Continued)
The movement in held-to-maturity securities at 31 December is as follows: 2011 Rights and 2012 2011 licenses Software Total Cost At 1 January 828,300 391,159 At 1 January 31,150 4,537 35,687 Additions 1,694 168 1,862 Additions 684,281 518,181 Disposals - -- Disposals / redemption (1) (464,809) (83,207) Impairment losses (2,065) 2,167 At 31 December 32,844 4,705 37,549
At 31 December 1,045,707 828,300 Accumulated amortisation At 1 January (28,907) (4,254) (33,161) (1) As per the regulation on capital adequacy (Basel II) effective from 1 July 2012, the risk weighting of Amortisation charge (Note 28) (764) (182) (946) securities in foreign currencies issued by the Turkish Treasury increased from 0% to 100%. Accordingly, in the Disposals - - - current year, the Bank reclassified its Eurobonds from held-to-maturity portfolio to available-for-sale portfolio in accordance with the exception granted by IAS 39 whose total carrying value was TL 39,803 at 30 September At 31 December (29,671) (4,436) (34,107) 2012. Net book amount at 31 December 3,173 269 3,442 NOTE 12 - OTHER INTANGIBLE ASSETS
2012 2011 NOTE 13 - PROPERTY AND EQUIPMENT
Cost 56,064 37,549 2012 2011 Accumulated amortisation (36,323) (34,107) Cost 84,841 82,579 Net book amount 19,741 3,442 Accumulated depreciation and impairment (63,676) (58,342)
Movements of other intangible assets were as follows: Net book amount 21,165 24,237
2012 2012 Furniture and Leasehold Motor Office Equipment Improvements Vehicles Leasing Total Rights and Cost licenses Software Total At 1 January 42,387 31,830 96 8,266 82,579 Cost Additions 2,775 1,483 - - 4,258 At 1 January 32,844 4,705 37,549 Disposals (1,376) (329) - (291) (1,996) Additions 18,227 288 18,515 Disposals - -- At 31 December 43,786 32,984 96 7,975 84,841
At 31 December 51,071 4,993 56,064 Accumulated depreciation and impairment At 1 January (31,674) (19,007) (81) (7,580) (58,342) Depreciation charge (Note 28) (2,888) (4,109) (7) (255) (7,259) Accumulated amortisation Disposals 1,341 297 - 287 1,925 At 1 January (29,671) (4,436) (34,107) Amortisation charge (Note 28) (2,083) (133) (2,216) At 31 December (33,221) (22,819) (88) (7,548) (63,676) Disposals - -- Net book amount at 31 December 10,565 10,165 8 427 21,165 At 31 December (31,754) (4,569) (36,323)
Net book amount at 31 December 19,317 424 19,741
42 43 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 109
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 12 - OTHER INTANGIBLE ASSETS (Continued)
2011 Rights and licenses Software Total Cost At 1 January 31,150 4,537 35,687 Additions 1,694 168 1,862 Disposals - --
At 31 December 32,844 4,705 37,549
Accumulated amortisation At 1 January (28,907) (4,254) (33,161) Amortisation charge (Note 28) (764) (182) (946) Disposals - - -
At 31 December (29,671) (4,436) (34,107)
Net book amount at 31 December 3,173 269 3,442
NOTE 13 - PROPERTY AND EQUIPMENT
2012 2011
Cost 84,841 82,579 Accumulated depreciation and impairment (63,676) (58,342)
Net book amount 21,165 24,237
2012 Furniture and Leasehold Motor Office Equipment Improvements Vehicles Leasing Total Cost At 1 January 42,387 31,830 96 8,266 82,579 Additions 2,775 1,483 - - 4,258 Disposals (1,376) (329) - (291) (1,996)
At 31 December 43,786 32,984 96 7,975 84,841
Accumulated depreciation and impairment At 1 January (31,674) (19,007) (81) (7,580) (58,342) Depreciation charge (Note 28) (2,888) (4,109) (7) (255) (7,259) Disposals 1,341 297 - 287 1,925
At 31 December (33,221) (22,819) (88) (7,548) (63,676)
Net book amount at 31 December 10,565 10,165 8 427 21,165
43 110 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 13 - PROPERTY AND EQUIPMENT (Continued) NOTE 15 - DEPOSITS FROM BANKS
2011 Furniture and Leasehold Motor 2012 2011 Office Equipment Improvements Vehicles Leasing Total Demand Term Total Demand Term Total Cost At 1 January 35,967 26,612 186 8,266 71,031 Additions 6,776 5,218 - - 11,994 Foreign currency: Disposals (356) - (90) - (446) Foreign banks 886 - 886 - 5,719 5,719 Domestic banks - - - 329 - 329 At 31 December 42,387 31,830 96 8,266 82,579 Funds deposited under repurchase agreements - 75,249 75,249 --- Accumulated depreciation and impairment At 1 January (29,695) (15,082) (154) (6,805) (51,736) 886 75,249 76,135 329 5,719 6,048 Depreciation charge (Note 28) (2,240) (3,925) (7) (775) (6,947) Disposals 261 - 80 - 341 TL: Domestic banks 46 - 46 17 - 17 At 31 December (31,674) (19,007) (81) (7,580) (58,342) Funds deposited under repurchase agreements - 1,360,744 1,360,744 - 654,490 654,490 Net book amount at 31 December 10,713 12,823 15 686 24,237 46 1,360,744 1,360,790 17 654,490 654,507 At 31 December 2012, there is no provision for impairment on property and equipment (2011: None). Total 932 1,435,993 1,436,925 346 660,209 660,555
NOTE 14 - OTHER ASSETS Current 932 1,435,993 1,436,925 346 660,209 660,555 Non-current ------2012 2011
Asset held for resale 40,992 34,509 NOTE 16 - DUE TO CUSTOMERS Contractually sold repossessed assets 16,338 29,802 Collaterals given for securities 3,225 16,076 2012 2011 Collaterals given for derivative transactions 9,955 11,469 Demand Term Total Demand Term Total Prepaid expenses 8,241 7,672 Others 10,111 6,521 Foreign currency deposits: Saving deposits 24,316 590,042 614,358 28,495 492,945 521,440 Total 88,862 106,049 Commercial deposits 115,173 452,425 567,598 128,123 572,426 700,549 Current 7,949 7,240 139,489 1,042,467 1,181,956 156,618 1,065,371 1,221,989 Non-current 80,913 98,809
Assets held for resale represent mainly foreclosed assets received against uncollectible loans and TL deposits: Saving deposits 49,566 1,479,241 1,528,807 42,552 1,223,471 1,266,023 advances to customers, to be sold as required by the Turkish Banking Law. Movements in assets held Commercial deposits 125,752 1,310,456 1,436,208 124,715 1,012,973 1,137,688 for resale at 31 December were as follows: Funds deposited under repurchase agreements - 704 704 - 10,854 10,854 2012 2011 Public sector deposits 21,851 - 21,851 11,001 - 11,001 Net book amount at 1 January 34,509 28,189 197,169 2,790,401 2,987,570 178,268 2,247,298 2,425,566 Additions 20,621 23,728 Disposals (13,985) (17,173) Total 336,658 3,832,868 4,169,526 334,886 3,312,669 3,647,555 Impairment charge for the year, net - (235) Depreciation charge for the year (153) - Current 336,658 3,824,921 4,161,579 334,886 3,312,585 3,647,471 Non-current - 7,947 7,947 - 84 84 Net book amount at 31 December 40,992 34,509
44 45 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 111
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 15 - DEPOSITS FROM BANKS
2012 2011 Demand Term Total Demand Term Total
Foreign currency: Foreign banks 886 - 886 - 5,719 5,719 Domestic banks - - - 329 - 329 Funds deposited under repurchase agreements - 75,249 75,249 ---
886 75,249 76,135 329 5,719 6,048
TL: Domestic banks 46 - 46 17 - 17 Funds deposited under repurchase agreements - 1,360,744 1,360,744 - 654,490 654,490
46 1,360,744 1,360,790 17 654,490 654,507
Total 932 1,435,993 1,436,925 346 660,209 660,555
Current 932 1,435,993 1,436,925 346 660,209 660,555 Non-current ------
NOTE 16 - DUE TO CUSTOMERS
2012 2011 Demand Term Total Demand Term Total
Foreign currency deposits: Saving deposits 24,316 590,042 614,358 28,495 492,945 521,440 Commercial deposits 115,173 452,425 567,598 128,123 572,426 700,549
139,489 1,042,467 1,181,956 156,618 1,065,371 1,221,989
TL deposits: Saving deposits 49,566 1,479,241 1,528,807 42,552 1,223,471 1,266,023 Commercial deposits 125,752 1,310,456 1,436,208 124,715 1,012,973 1,137,688 Funds deposited under repurchase agreements - 704 704 - 10,854 10,854 Public sector deposits 21,851 - 21,851 11,001 - 11,001
197,169 2,790,401 2,987,570 178,268 2,247,298 2,425,566
Total 336,658 3,832,868 4,169,526 334,886 3,312,669 3,647,555
Current 336,658 3,824,921 4,161,579 334,886 3,312,585 3,647,471 Non-current - 7,947 7,947 - 84 84
45 112 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 17 - OTHER BORROWED FUNDS AND SUBORDINATED DEBT NOTE 19 - TAXATION
2012 2011 2012 2011
Foreign institutions and banks Current tax expense (35,887) (4,963) Syndication loans 365,522 415,025 Deferred tax income/(expense) 18,417 (1,195) Subordinated debt 257,489 274,470 Other 432,413 335,617 (17,470) (6,158)
Total foreign 1,055,424 1,025,112 Turkish tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return, Therefore, provisions for taxes, as reflected in these consolidated financial statements, have Domestic banks 233,167 313,895 been calculated on a separate-entity basis,
Total domestic 233,167 313,895 Under the Corporate Tax Law numbered 5520, the applicable corporate tax rate is 20% for 2012 (2011: 20%). Corporate tax is payable at a rate of 20% over the corporate tax base of the company Total 1,288,591 1,339,007 after adjusting for certain disallowable expenses, exempt income, investment allowance and other additions and deductions. The annual corporate income tax return is required to be filed until 25th day of the fourth month following the close of the related fiscal year. Payments will be carried out in Current 836,257 794,611 single installment until the end of the month in which the tax return is to be filed. Non-current 452,334 544,396 Dividends paid to non-resident corporations, which have a fixed place of business or permanent As of 31 December 2012, funds borrowed from foreign institutions include a syndicated credit facility, representative in Turkey, or resident corporations are not subject to withholding tax. Otherwise, in the amount of EUR 123.5 million and USD 42.5 million dual-tranche multi-currency term loan dividends paid are subject to withholding tax at the rate of 15% An increase in capital via issuing facility dated 6 June 2012, with an interest rate of annual Libor+2.25% provided by 25 international bonus shares is not considered as a profit distribution and thus does not incur withholding tax, banks with Commerzbank acting as agent, and matures on 5 June 2013. Provisions of bilateral treaties are reserved.
The details of subordinated loans of the Bank as of 31 December 2012 are presented in the table Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their below: quarterly determined corporate income. Advance tax return is filed by the 14th of the second month following the each quarterly period and is payable on the 17th of the same month, Advance tax paid by corporations is credited against the annual corporation tax liability. The balance of the advance tax Principal Interest rate Lender Amount Opening Date Maturity (%) paid may be refunded or used to offset against other liabilities to the government. International Finance Corporation USD 50.000 29 December 2010 10 year Libor + 4,50 In accordance with Tax Law No: 5024 “Law Related to Changes in Tax Procedure Law, Income Tax Black Sea Trade and Development Bank USD 30.000 29 December 2010 10 year Libor + 4,50 Law and Corporate Tax Law” that was published on the Official Gazette on 30 December 2003 to FMO Amsterdam USD 25.000 29 December 2010 10 year Libor + 4,50 amend the tax base for non-monetary assets and liabilities, effective from 1 January 2004, the income DEG KOLN EUR 20.000 29 December 2011 10 year Libor + 4,50 and corporate taxpayers will prepare the statutory financial statements by adjusting the non-monetary EFSE SA.SICAV-SIF EUR 10.000 29 December 2011 10 year Libor + 4,50 assets and liabilities for the changes in the general purchasing power of the Turkish Lira, In accordance with the aforementioned law provisions, in order to apply inflation adjustment, cumulative inflation rate (SIS-WPI) over last 36 months and 12 months must exceed 100% and 10%, respectively, NOTE 18 - DEBT SECURITIES IN ISSUE Inflation adjustment has not been applied as these conditions were not fulfilled in the year 2012.
In May 2012, the Bank finalised a bond issuance of TL 150,000 with an interest rate of 7.04% as of 31 In Turkey, there is no procedure for a final and definitive agreement on tax assessments, Tax December 2012. authorities have the right to audit tax declarations and accounting records for 5 years, and may issue re-assessment based on their findings for tax purposes.
Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years, Tax losses cannot be carried back to offset profits from previous periods.
75% of the capital gains of corporations’ from sale of participation shares and property which have been in their assets at least for two years is exempt from corporate tax provided that this amount is kept in a special reserve account in the liabilities side of the balance sheet for 5 years,
46 47 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 113
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 19 - TAXATION
2012 2011
Current tax expense (35,887) (4,963) Deferred tax income/(expense) 18,417 (1,195)
(17,470) (6,158)
Turkish tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return, Therefore, provisions for taxes, as reflected in these consolidated financial statements, have been calculated on a separate-entity basis,
Under the Corporate Tax Law numbered 5520, the applicable corporate tax rate is 20% for 2012 (2011: 20%). Corporate tax is payable at a rate of 20% over the corporate tax base of the company after adjusting for certain disallowable expenses, exempt income, investment allowance and other additions and deductions. The annual corporate income tax return is required to be filed until 25th day of the fourth month following the close of the related fiscal year. Payments will be carried out in single installment until the end of the month in which the tax return is to be filed.
Dividends paid to non-resident corporations, which have a fixed place of business or permanent representative in Turkey, or resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15% An increase in capital via issuing bonus shares is not considered as a profit distribution and thus does not incur withholding tax, Provisions of bilateral treaties are reserved.
Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their quarterly determined corporate income. Advance tax return is filed by the 14th of the second month following the each quarterly period and is payable on the 17th of the same month, Advance tax paid by corporations is credited against the annual corporation tax liability. The balance of the advance tax paid may be refunded or used to offset against other liabilities to the government.
In accordance with Tax Law No: 5024 “Law Related to Changes in Tax Procedure Law, Income Tax Law and Corporate Tax Law” that was published on the Official Gazette on 30 December 2003 to amend the tax base for non-monetary assets and liabilities, effective from 1 January 2004, the income and corporate taxpayers will prepare the statutory financial statements by adjusting the non-monetary assets and liabilities for the changes in the general purchasing power of the Turkish Lira, In accordance with the aforementioned law provisions, in order to apply inflation adjustment, cumulative inflation rate (SIS-WPI) over last 36 months and 12 months must exceed 100% and 10%, respectively, Inflation adjustment has not been applied as these conditions were not fulfilled in the year 2012.
In Turkey, there is no procedure for a final and definitive agreement on tax assessments, Tax authorities have the right to audit tax declarations and accounting records for 5 years, and may issue re-assessment based on their findings for tax purposes.
Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years, Tax losses cannot be carried back to offset profits from previous periods.
75% of the capital gains of corporations’ from sale of participation shares and property which have been in their assets at least for two years is exempt from corporate tax provided that this amount is kept in a special reserve account in the liabilities side of the balance sheet for 5 years,
47 114 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 19 - TAXATION (Continued) NOTE 20 - OTHER PROVISIONS
Reconciliation between the theoretical tax amount that would arise using the basic tax rate of the 2012 2011 Parent and the actual taxation charge for the year is stated below: Provision for losses on credit related commitments 27,263 13,891 2012 2011 Other legal provision 1,646 987 Other 511 776 Profit before income taxes 98,749 27,043 Total 29,420 15,654 Theoretical income tax of the applicable tax rate of 20% (19,750) (5,409) Expenditure not deductable for income tax purposes 101,924 44,316 Income exempt from taxation (198,393) (72,108) Current - - Non-current 29,420 15,654 Income tax expense (17,470) (6,158) Other legal provisions Deferred income taxes At 31 December 2012, the Group is involved in number of legal disputes, The Group’s lawyers advise that, owing to developments in some of these cases; it is probable that the Group will be found liable. For all subsidiaries and the Parent, deferred income taxes are calculated on temporary differences that Therefore, the management has recognised a provision of TL 1,646 (2011: TL 987) as the best estimate are expected to be realised or settled based on the taxable income in fiscal year 2010 under the liability of the amount to settle these potential obligations. method using a principal tax rate of 20% at 31 December 2012 (2011: 20%). The temporary differences giving rise to the deferred income tax assets and deferred income tax liabilities are as follows: NOTE 21 - RETIREMENT BENEFIT OBLIGATIONS
Cumulative Temporary Deferred Tax 2012 2011 Differences Asset/Liability 2012 2011 2012 2011 Balance sheet obligations for: Loan loss impairment provision 69,325 59,643 13,865 11,929 - Reserve for employment termination benefits 4,878 4,081 Valuation differences on investment securities 36,808 - 7,362 - Bonus provision 12,577 8,752 2,515 1,750 4,878 4,081 Employee termination benefits and vacation pay liability 8,155 6,954 1,631 1,391 Revaluation of derivative instruments at fair value 2,974 - 595 - Court case provision 1,646 987 329 197 The movement in the reserve for employee benefits is as follows: Other 5,903 1,384 1,181 277 2012 2011
Deferred income tax assets 137,388 77,720 27,478 15,544 1 January 4,081 3,907
Difference between carrying value and Interest costs 190 182 tax base of property and equipment 4,064 4,726 813 946 Actuarial gains and losses 708 1,027 Revaluation of derivative instruments at fair value - 21,513 - 4,303 Charge for the year - 345 Valuation differences on investment securities - 10,234 - 2,047 Paid during the year (101) (1,380)
Deferred income tax liabilities 4,064 36,473 813 7,296 31 December 4,878 4,081
Deferred income tax assets, net 26,665 8,248 Under the Turkish Labour Law, the Parent and its subsidiaries are required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated The movements of deferred income taxes at 31 December were as follows: without due cause, is called up for military service, dies or who retires. Since the legislation was changed on 8 September 1999, there are certain transitional provisions relating to length of service 2012 2011 prior to retirement. The amount payable consists of one month’s salary limited to a maximum of TL 1 January 8,248 9,443 3,033.98 (1 January 2012: TL 2,805.04) for each year of service. Charge for the year, net 18,417 (1,195) There are no agreements for pension commitments other than the legal requirement as explained 31 December 26,665 8,248 above. The liability is not funded, as there is no funding requirement.
At 31 December 2012, there are no deductible temporary differences for which no deferred tax asset is recognised in the balance sheet (2011: None). 48 49 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 115
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 20 - OTHER PROVISIONS
2012 2011
Provision for losses on credit related commitments 27,263 13,891 Other legal provision 1,646 987 Other 511 776
Total 29,420 15,654
Current - - Non-current 29,420 15,654
Other legal provisions At 31 December 2012, the Group is involved in number of legal disputes, The Group’s lawyers advise that, owing to developments in some of these cases; it is probable that the Group will be found liable. Therefore, the management has recognised a provision of TL 1,646 (2011: TL 987) as the best estimate of the amount to settle these potential obligations.
NOTE 21 - RETIREMENT BENEFIT OBLIGATIONS
2012 2011
Balance sheet obligations for: - Reserve for employment termination benefits 4,878 4,081
4,878 4,081
The movement in the reserve for employee benefits is as follows: 2012 2011
1 January 4,081 3,907
Interest costs 190 182 Actuarial gains and losses 708 1,027 Charge for the year - 345 Paid during the year (101) (1,380)
31 December 4,878 4,081
Under the Turkish Labour Law, the Parent and its subsidiaries are required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires. Since the legislation was changed on 8 September 1999, there are certain transitional provisions relating to length of service prior to retirement. The amount payable consists of one month’s salary limited to a maximum of TL 3,033.98 (1 January 2012: TL 2,805.04) for each year of service.
There are no agreements for pension commitments other than the legal requirement as explained above. The liability is not funded, as there is no funding requirement.
49 116 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 21 - RETIREMENT BENEFIT OBLIGATIONS (Continued) NOTE 24 - RETAINED EARNINGS AND OTHER RESERVES
IFRS requires actuarial valuation methods to be developed to estimate the enterprise’s obligation 2012 2011 under defined benefit plans. In the consolidated financial statements, the Group reflected a liability calculated using the projected unit credit method and based upon the factors derived using their Statutory reserve 11,529 9,587 Revaluation reserve - available-for-sale investments 9,939 (5,751) experience of personnel terminating their services and being eligible to receive employment termination benefits. The provision has been calculated by estimating the present value of the future Total other reserves 21,468 3,836 probable obligation of the Group arising from the retirement of the employees. Retained earnings 143,517 183,746 Accordingly the following financial and demographical actuarial assumptions were used in the calculations of the provision: Movements in other reserves were as follows: 2012 2011 Statutory Revaluation Discount rate (%) 2.48 4.66 reserves reserves Total The probability of retirement (%) 89.92 90.48 At 1 January 2012 9,587 (5,751) 3,836 NOTE 22 - OTHER LIABILITIES Net change in available-for-sale 2012 2011 investments, net of tax - 15,690 15,690 Purchase from non controlling interests 127 - 127 Blocked accounts 53,470 92,706 Transfer to statutory reserves 1,815 - 1,815 Cheques in collection 51,328 27,491 Taxes other than income and withholdings 14,347 14,363 At 31 December 2012 11,529 9,939 21,468 Bonus accrual for personnel 12,577 8,832 Letter of credit suspense account 10,248 347 Statutory Revaluation Liabilities for property and equipment held for sale 9,057 7,417 reserves reserves Total Provision for unused annual vacation 3,279 2,895 Collaterals received for securities 5,396 16,076 At 1 January 2011 8,016 1 8,017 Other 30,326 29,129 Net change in available-for-sale investments, net of tax - (5,752) (5,752) Total 190,028 199,256 Transfer to statutory reserves 1,571 - 1,571
Current 93,651 86,584 At 31 December 2011 9,587 (5,751) 3,836 Non-current 96,377 112,672 Retained earnings as per the statutory financial statements other than legal reserves are available for NOTE 23 - SHARE CAPITAL AND SHARE PREMIUM distribution, subject to the legal reserve requirement referred to below.
The historic amount of share capital of the Company consists of 420 million (2011: 300 million) Under the Turkish Commercial Code, the Group is required to create the following legal reserves from authorised shares with a nominal value of TL 1 each. The Company’s authorised capital amounts to appropriation of earnings, which are available for distribution only in the event of liquidation or TL 420,000 (2011: TL 300,000). The issued and fully paid-in share capital and share premium are as losses: follows: 2012 2011 a) First legal reserve, appropriated at the rate of 5% of net income, until the total reserve is equal to Shareholders Participation TL Participation TL 20% of issued and fully paid-in share capital. rate (%) thousand rate (%) thousand b) Second legal reserve, appropriated at the rate of at least 10% of distribution in excess of 5% of Anadolu Endüstri Holding A.Ş. 77.71% 326,399 77.71% 233,142 issued and fully paid-in share capital, without limit. It may be used to absorb losses. Other 22.29% 93,601 22.29% 66,858
Historical share capital 100.00% 420,000 100.00% 300,000 After deducting taxes and setting aside the legal reserves as discussed above, the remaining balance of net profit is available for distribution to shareholders. Share premium 98 85
Total share capital and share premium 420,098 300,085
50 51 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 117
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 24 - RETAINED EARNINGS AND OTHER RESERVES
2012 2011
Statutory reserve 11,529 9,587 Revaluation reserve - available-for-sale investments 9,939 (5,751)
Total other reserves 21,468 3,836
Retained earnings 143,517 183,746
Movements in other reserves were as follows:
Statutory Revaluation reserves reserves Total
At 1 January 2012 9,587 (5,751) 3,836
Net change in available-for-sale investments, net of tax - 15,690 15,690 Purchase from non controlling interests 127 - 127 Transfer to statutory reserves 1,815 - 1,815
At 31 December 2012 11,529 9,939 21,468
Statutory Revaluation reserves reserves Total
At 1 January 2011 8,016 1 8,017
Net change in available-for-sale investments, net of tax - (5,752) (5,752) Transfer to statutory reserves 1,571 - 1,571
At 31 December 2011 9,587 (5,751) 3,836
Retained earnings as per the statutory financial statements other than legal reserves are available for distribution, subject to the legal reserve requirement referred to below.
Under the Turkish Commercial Code, the Group is required to create the following legal reserves from appropriation of earnings, which are available for distribution only in the event of liquidation or losses:
a) First legal reserve, appropriated at the rate of 5% of net income, until the total reserve is equal to 20% of issued and fully paid-in share capital.
b) Second legal reserve, appropriated at the rate of at least 10% of distribution in excess of 5% of issued and fully paid-in share capital, without limit. It may be used to absorb losses.
After deducting taxes and setting aside the legal reserves as discussed above, the remaining balance of net profit is available for distribution to shareholders.
51 118 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 25 - NET INTEREST INCOME NOTE 27 - TRADING GAINS AND LOSSES, NET
2012 2011 2012 2011 Interest income on: Loans and advances: Trading securities (6,503) (8,350) - to banks 778 1,389 Derivative financial transactions (18,669) 12,560 - to customers 664,166 436,780 Trading securities 46,975 8,011 Net (Loss) / Income (25,172) 4,210 Investment securities 143,055 66,594 Money market transactions 1,950 3,966 Net trading income from derivative financial instruments includes gains and losses from spot and Other 3,599 3,417 forward contracts, options, futures, and swaps due to changes in interest rates.
Total interest income 860,523 520,157 Net gains from investment securities amounting to TL 16,939 (2011: TL 4,052) comprise of net results on disposals of available for sale financial assets. Interest expense on: Due to customers 301,552 214,554 Repurchase agreements 84,274 23,550 NOTE 28 - OTHER OPERATING EXPENSES Other borrowed funds and subordinated debt 45,260 36,279 Debt securities in issues 8,577 - 2012 2011 Deposits from banks 359 6,940 Other 1,167 2,572 Staff costs 123,615 99,700
Total interest expense 441,189 283,895 Depreciation on property and equipment (Note 13) 7,259 6,947 Amortisation of intangible assets (Note 12) 2,216 946 Net interest income 419,334 236,262 Depreciation and amortisation 9,475 7,893 NOTE 26 - NET FEE AND COMMISSION INCOME Operational lease expenses 19,766 16,824 2012 2011 Sundry taxes 10,513 7,897 Fee and commission income on: Marketing and advertisement costs 4,751 2,247 Letter of guarantee 26,908 25,061 Repair and maintenance expenses 1,178 897 Brokerage 4,473 10,173 Other 26,654 26,602 Account management 4,615 1,978 Money transfers 2,475 225 General administrative expenses 62,862 54,467 Expertise 2,067 1,590 Insurance 1,179 836 Total 195,952 162,060 Other 4,606 3,847 Reserve for employment termination benefit, accrual for unused vacation rights and provision for Total fee and commission income 46,323 43,710 personnel bonus are included in the staff costs in the table above.
Fee and commission expense on: Debit cards 1,365 1,185 NOTE 29 - IMPAIRMENT LOSSES ON LOANS AND CREDIT RELATED COMMITMENTS Correspondent banks 1,146 626 CBRT Interbank money market transactions 763 712 2012 2011 Effective and future transactions 121 127 Money transfers 7 20 Impairment losses on loans and receivables (Note 10) (168,529) (79,468) Other 2,711 763 Impairment losses on credit related commitments (Note 20) (13,372) (4,389)
Total fee and commission expense 6,113 3,433 Total (181,901) (83,857)
Net fee and commission income 40,210 40,277
52 53 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 119
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 27 - TRADING GAINS AND LOSSES, NET
2012 2011
Trading securities (6,503) (8,350) Derivative financial transactions (18,669) 12,560
Net (Loss) / Income (25,172) 4,210
Net trading income from derivative financial instruments includes gains and losses from spot and forward contracts, options, futures, and swaps due to changes in interest rates.
Net gains from investment securities amounting to TL 16,939 (2011: TL 4,052) comprise of net results on disposals of available for sale financial assets.
NOTE 28 - OTHER OPERATING EXPENSES
2012 2011
Staff costs 123,615 99,700
Depreciation on property and equipment (Note 13) 7,259 6,947 Amortisation of intangible assets (Note 12) 2,216 946
Depreciation and amortisation 9,475 7,893
Operational lease expenses 19,766 16,824 Sundry taxes 10,513 7,897 Marketing and advertisement costs 4,751 2,247 Repair and maintenance expenses 1,178 897 Other 26,654 26,602
General administrative expenses 62,862 54,467
Total 195,952 162,060
Reserve for employment termination benefit, accrual for unused vacation rights and provision for personnel bonus are included in the staff costs in the table above.
NOTE 29 - IMPAIRMENT LOSSES ON LOANS AND CREDIT RELATED COMMITMENTS
2012 2011
Impairment losses on loans and receivables (Note 10) (168,529) (79,468) Impairment losses on credit related commitments (Note 20) (13,372) (4,389)
Total (181,901) (83,857)
53 120 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 30 - ASSETS PLEDGED AND RESTRICTED NOTE 31 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Group has the following assets pledged as collateral: Credit related commitments
2012 2011 The primary purpose of these instruments is to ensure that funds are available to a customer as and if Related Related required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Assets liability Assets liability Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written Trading securities (Note 8) 439 430 25,580 25,089 undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Investment securities (Note 11) 1,364,566 1,435,563 474,956 633,751 Group up to a stipulated amount under specific terms and conditions, are collateralised by the Other assets pledged (1) 13,180 - 27,545 - underlying shipments of goods to which they relate and therefore have significantly less risk.
Total 1,378,185 1,435,993 528,081 658,840 Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment. (1) Other assets pledged are the collaterals given to the counter parties of the derivative financial instruments and other collaterals given. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without Held for trading and held-to-maturity securities whose total carrying amount is TL 1,365,005 as of being funded. 31 December 2012 (2011: TL 500,536) are pledged to banks and other financial institutions against funds obtained under repurchase agreements (Note 15 and Note 16). Total amount of funds obtained The following table shows the outstanding credit related commitments of the Group: under repurchase agreements is TL 1,436,697 s of 31 December 2012 (2011: TL 658,840). Not later Over 2012(1) Indefinite than 1 year 1-5 years 5 years Total Held for trading and held-to-maturity securities are also pledged to regulatory authorities for legal requirements and other financial institutions as a guarantee for stock exchange and money market Letter of credits 1,675,583 - - - 1,675,583 operations. These are mainly the CBRT, ISE Settlement and Custody Bank and other financial Letter of guarantees - 119,402 186,048 - 305,450 institutions and amount to TL 242,406 (2011: TL 82,151). Acceptance credits - 7,382 20,797 - 28,179
At 31 December 2012, the Group’s reserve deposits that are not available to finance the Group’s day- Total 1,675,583 126,784 206,845 - 2,009,212 to-day operations amount to TL 230,065 (2011: TL 254,388). Not later Over 2011(1) Indefinite than 1 year 1-5 years 5 years Total
NOTE 31 - COMMITMENTS AND CONTINGENT LIABILITIES Letter of credits 1,533,919 - - - 1,533,919 Letter of guarantees - 348,960 24,535 - 373,495 In the normal course of its activities, the Group undertakes various commitments and incurs certain Acceptance credits - 132,451 83,653 - 216,104 contingent liabilities that are not presented in these financial statements, including letters of guarantee, Other commitments - 30,070 11,051 - 41,121 acceptances and letters of credit. The following is a summary of significant commitments and contingent liabilities at 31 December. Total 1,533,919 511,481 119,239 - 2,164,639
Legal proceedings (1) Based on original maturities, Due to the nature of its business, the Group is involved in a number of claims and legal proceedings, arising in the ordinary course of business. The Group recognises provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated (Note 20). In respect of the further claims asserted against the Group ,which according to the principles outlined above, have not been provided for, it is the opinion of the management and its professional advisors that such claims are either without merit, can be successfully defended or will not have a material adverse effect on the Group’s financial position.
54 55 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 121
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 31 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as and if required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore have significantly less risk.
Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment.
The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.
The following table shows the outstanding credit related commitments of the Group:
Not later Over 2012(1) Indefinite than 1 year 1-5 years 5 years Total
Letter of credits 1,675,583 - - - 1,675,583 Letter of guarantees - 119,402 186,048 - 305,450 Acceptance credits - 7,382 20,797 - 28,179
Total 1,675,583 126,784 206,845 - 2,009,212
Not later Over 2011(1) Indefinite than 1 year 1-5 years 5 years Total
Letter of credits 1,533,919 - - - 1,533,919 Letter of guarantees - 348,960 24,535 - 373,495 Acceptance credits - 132,451 83,653 - 216,104 Other commitments - 30,070 11,051 - 41,121
Total 1,533,919 511,481 119,239 - 2,164,639
(1) Based on original maturities,
55 122 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş. ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 32 - SEGMENT ANALYSIS NOTE 33 - RELATED PARTY TRANSACTIONS
The Group is organized into two main business segments which are organized and managed separately Parties are considered to be related if one party has the ability to control the other party or exercise according to the nature of the products and services provided. significant influence over the other party in making financial or operational decisions, The Group is controlled by Anadolu Endüstri Holding A.Ş. owning 77.71% of the ordinary shares. Commercial Investment 2012 Banking Banking Other Group A number of transactions were entered into with related parties in the normal course of business. Net interest income (1) 359,662 60,047 (375) 419,334 Net fees and commission income and other operating income (1) 49,352 5,182 - 54,534 (i) Balances with related parties: Dividend income - 926 3 929 2012 2011 (Provisions for)/ recoveries from impairment loan receivables (1) (181,901) - - (181,901) Share in Share in Trading gain / loss - (8,233) - (8,233) Total total % Total total % Other operating expenses (1) (183,123) (4,388) - (187,511) Loans and advances to customers, net 47,272 0.92 5,439 0.13 Profit before income tax 43,990 53,534 (372) 97,152 Tax provision - 30 (17,500) (17,470) Profit from after income tax 43,990 53,564 (17,872) 79,682 Total assets 47,272 5,439
Non-controlling interest - - 1,597 1,597 Due to customers 430,179 10.32 776,186 21.03 Obligations under finance leases - - 356 100 Net profit 43,990 53,564 (16,275) 81,279 Asset and liabilities Total liabilities 430,179 776,542
Segment assets 5,128,601 2,521,248 242,657 7,892,506 Credit related commitments 95,987 4.78 95,571 4.42 Total assets 5,128,601 2,521,248 242,657 7,892,506 Total commitments and contingent liabilities 95,987 95,571 Segment liabilities 4,087,630 2,428,752 775,214 7,291,596 Unallocated liabilities - - 600,910 600,910 (ii) Transactions with related parties: Total liabilities 4,087,630 2,428,752 1,376,124 7,892,506 2012 2011 Share in Share in Commercial Investment Total total % Total total % 2011 Banking Banking Other Group Interest income on loans and advances to customers 2,957 0.34 1,612 0.31 Net interest income (1) 144,425 32,820 30,879 208,124 Net fees and commission income and other operating income (1) 81,875 (1,761) (540) 79,574 Commission income on credit related commitments 1,971 4.25 1,741 3.98 Dividend income - 680 32 712 (Provisions for)/ recoveries from impairment Total interest and fee income 4,928 3,353 loan receivables (1) (82,901) - - (82,901) Trade gain / loss 2,956 (10,512) - (7,556) Other operating expenses (1) (110,628) (19,825) (40,560) (171,013) Interest expense on deposits 55,112 18.28 44,336 20,66 Other operating expense 2,375 1.21 1,625 0.96 Profit before income tax 35,727 1,402 (10,189) 26,940 Tax provision - (602) (5,556) (6,158) Profit from after income tax 35,727 800 (15,745) 20,782 Total interest and fee expense 57,487 45,961
Non-controlling interest - - 103 103 (iii) Balances with directors and other key management personnel:
Net profit 35,727 800 (15,642) 20,885 Included in the tables above are the following balances with directors and other key management Asset and liabilities personnel: Segment assets 4,439,389 1,920,093 41,964 6,401,446 2012 2011 Total assets 4,439,389 1,920,093 41,964 6,401,446 Loans and advances to customers, net 23 - Due to customers 14,248 53,297 Segment liabilities 3,714,055 1,849,813 330,352 5,894,220 Interest expense on deposits 3,767 3,273 Unallocated liabilities - - 507,226 507,226
Total liabilities 3,714,055 1,849,813 837,578 6,401,446 Salaries and other benefits paid to the Group’s key management approximately amount to TL 10,636 as of 31 December 2012 (2011: TL 8,276).
(1) Classification differences with income statement exist since business reporting of the Bank was used.
56 57 ABank 2012 ANNUAL REVIEW ABANK AT A GLANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION ADDITIONAL INFORMATION FINANCIAL TABLES 123
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 33 - RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, The Group is controlled by Anadolu Endüstri Holding A.Ş. owning 77.71% of the ordinary shares.
A number of transactions were entered into with related parties in the normal course of business.
(i) Balances with related parties: 2012 2011 Share in Share in Total total % Total total %
Loans and advances to customers, net 47,272 0.92 5,439 0.13
Total assets 47,272 5,439
Due to customers 430,179 10.32 776,186 21.03 Obligations under finance leases - - 356 100
Total liabilities 430,179 776,542
Credit related commitments 95,987 4.78 95,571 4.42
Total commitments and contingent liabilities 95,987 95,571
(ii) Transactions with related parties:
2012 2011 Share in Share in Total total % Total total %
Interest income on loans and advances to customers 2,957 0.34 1,612 0.31 Commission income on credit related commitments 1,971 4.25 1,741 3.98
Total interest and fee income 4,928 3,353
Interest expense on deposits 55,112 18.28 44,336 20,66 Other operating expense 2,375 1.21 1,625 0.96
Total interest and fee expense 57,487 45,961
(iii) Balances with directors and other key management personnel:
Included in the tables above are the following balances with directors and other key management personnel:
2012 2011 Loans and advances to customers, net 23 - Due to customers 14,248 53,297 Interest expense on deposits 3,767 3,273
Salaries and other benefits paid to the Group’s key management approximately amount to TL 10,636 as of 31 December 2012 (2011: TL 8,276).
57 124 ABank 2012 ANNUAL REVIEW
ALTERNATİFBANK A.Ş.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)
NOTE 34 - ASSETS UNDER MANAGEMENT
At 31 December 2012, the Group manages 6 (2011: 6) mutual funds which were established under Capital Markets Board Regulations. At 31 December 2012, the Funds’ investment portfolio mainly includes government bonds, treasury bills and share certificates amounting to TL 43,961 (2011: TL 39,011). In accordance with the Funds’ statute, the Group purchases and sells marketable securities for the Funds, markets their participation certificates and provides other services and charges management fees ranging from 0,003% to 0,010% (2011: 0.005% to 0.010%). At 31 December 2012, management fees earned by the Group amounted to TL 541 (2011: TL 1,522).
NOTE 35 - POST BALANCE SHEET EVENTS
1) On 24 December 2012, it was announced that Anadolu Endustri Holding A.Ş., the majority shareholder of the Bank, has begin negotiations with Commercial Bank of Qatar for the sale of a majority stake in the Bank. The discussions regarding the sale of the shares which represents 75% of total share capital of the Bank are ongoing and details of the deal have not been finalised yet. However, it is expected that the negotiations will be finalised within March 2013.
2) On 16 January 2013, the Bank finalised a bond issuance of TL 100,000 with 175 days maturity and the bond has been sold to qualified investors without public offering.
3) On 16 January 2013, the Bank finalised another bond issuance of TL 50,000 with 728 days maturity and the bond has been sold to qualified investors without public offering.
4) Alternatif Portföy Yönetimi A.Ş. was established with a paid in capital of TL 1,000 and registration of incorporation was declared in the Trade Registry on 1 February 2013. Alternatif Portföy Yönetimi A.Ş. is wholly owned by Alternatif Yatırım A.Ş. In the forthcoming days, following the registration, all required applications will be made to Capital Markets Board of Turkey for operational permissions.
5) On 19 February 2013, the Bank has applied to Capital Markets Board of Turkey for a bond issuance of TL 100,000 with 371 days maturity. Furthermore, the Bank has signed an intermediation agreement with Alternatif Yatırım A.Ş. regarding the related bond issuance.
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58 Contents
ABANK AT A GLANCE ABank in Brief ...... 02 Vision, Mission and Working Principles ...... 06 Financial Highlights ...... 14...... Message from the Chairman ...... 16 ...... Board of Directors ...... 18 ...... Message from the CEO ...... 20 Senior Management ...... 24 ...... Activities in 2012 ...... 26 International Financial Institutions ...... 40 Market Position ...... 42 Research and Development Activities ...... 43......
MANAGEMENT AND CORPORATE GOVERNANCE Corporate Governance ...... 44 Information on Human Resources Implementations ...... 46 Organization Structure ...... 48
FINANCIAL INFORMATION AND RISK MANAGEMENT Risk Management Policies ...... 49
ADDITIONAL INFORMATION Anadolu Group in Brief ...... 50 ...... Anadolu Group Financial Subsidiaries ...... 52...... ABank Financial Subsidiaries ...... 53 ...... AYatırım ...... 53 Alternatif Yatırım Ortaklığı ...... 53...... Financial Tables ...... 54 Directory ...... 56 Alternatifbank A .Ş . Consolidated Financial Statements Together With Auditor’s Report 31 December 2012 ...... 61. . . . ABank 2012 ANNUAL REVIEW AB a nk 2012 A NN UAL REVIEW
The first letter of growth
Head Office: Cumhuriyet Cad. No: 46 34367 Şişli/Istanbul-TURKEY T: +90212 315 65 00 F: +90212 225 76 15 www.abank.com.tr