ANNUAL REVIEW 2009
ONTENTS
3 Introduction 4 Financial Highlights 6 Business Highlights 10 Message from the Chairman 12 Board of Directors 14 Message from the CEO 16 Senior Management 18 The Anadolu Group 23 Corporate Governance 26 Business Review 28 International Financial Institutions 29 Treasury 31 Corporate and Commercial Banking 35 Retail Banking 35 Internal Systems 41 Business Development 42 Human Resources 44 Information Technology 47 ABank Financial Subsidiaries 48 Anadolu Group Financial Subsidiaries 50 Consolidated Balance Sheet and Statement of Income December 31, 2009 52 Directory CFS Auditors’ Report and Financial Statements CFS Interim Financial Statements - 30 June 2010
ABank in Turkey ABank continues to improve its performance, operating within a prudent and efficient structure that revives in accordance with the changing objectives and requirements. ABank Annual Review 2009
NTRODUCTION
A Brief History
ABank was established in 1991 and became a listed company in 1995, when it offered 20% of its shares to the public. The following year, the Anadolu Group, one of Turkey's leading conglomerates, purchased 80% of ABank’s shares from the Do¤an Group. Today, the Anadolu Group owns 96% of ABank’s shares, with the remaining 4% publicly traded on the Istanbul Stock Exchange (ISE).
ABank is a medium-sized Turkish bank that predominately serves medium-sized companies through a network of 46 branches throughout Turkey, as of year-end 2009. This network places ABank in a strong position to cater to the major industrial and commercial regions of Turkey, where 75% of the country’s GNP is generated. With its dynamic structure, efficiency, customized services, product range, and strong, sustained growth, ABank has established itself as a reputable name in Turkey’s growing banking sector.
Strategy
ABank provides commercial/corporate banking services and products, with a special focus on the growing segment of Small and Medium-Sized Enterprises. The Bank excels in designing customized solutions that mesh efficiency, strength, and flexibility, and it maintains close relations with its growing customer base. ABank’s highly efficient branch network has a proven track record of effectiveness and sustained profitability, and it is a key component of the Bank’s operating strategy. ABank closely monitors its branches and the related business units, constantly looking to improve efficiency and profitability - the cornerstones of the Bank’s business philosophy.
In the wake of the recent global financial crisis, ABank has placed utmost importance on preserving its asset quality while simultaneously maintaining support for its core customers.
ABank has recently made a strategic decision to re-enter Retail Banking, offering selective retail products and targeting the “mass affluent” customer segment with tailor-made products. The Retail Banking organization has been set up for both Head Office and branch operations.
Service and Product Range
ABank values the close relations it enjoys with its customers, to whom it offers a complete range of services, including commercial/corporate banking, treasury, and investment banking. The Bank’s main product ranges cover trade finance instruments, working capital finance, cash management, and portfolio management. ABank’s subsidiary, AYat›r›m, and ALease, an Anadolu Group company, provide financial leasing, brokerage services, and investment banking. The marketing synergy between ABank and these two financial institutions have created a remarkable competitive advantage; AYat›r›m’s strong customer portfolio and ALease’s ability to offer long-term contract-based leases give ABank’s customers a solid source of financial support. ABank conducts its banking operations at global standards, offering banking services that stress discipline, flexibility, and customer-awareness. These qualities are supported by the Bank’s high-tech infrastructure, strong capital base, sophisticated risk management, operating efficiency, and, most importantly, its talented and dynamic staff.
3 ABank Annual Review 2009
INANCIAL HIGHLIGHTS
(USD million) 2006 2007 2008 2009 % Change
Total Assets 1,416 2,248 2,483 2,419 -2.6
Total Loans (cash + non cash) 1,624 2,541 2,397 2,844 18.7
Cash Loans (after provisioning) 956 1,600 1,574 1,800 14.3
Non Cash Loans 668 941 823 1,045 27.0
Customer Deposits 793 1,457 1,753 1,657 -5.5
Total Securities 90 124 196 355 90.9
Total Equity 138 296 265 307 15.8
Net Income 27 65 35 43 20.1
Funds Borrowed 397 298 353 264 -25.2
Number of Branches 29 40 46 46
Total Assets Total Loans (cash + non cash) 2,844 (USD Million) (USD Million) 2,483 2,541 2,419 2,248 2,397
1,624 1,416
20062007 2008 2009 20062007 2008 2009
Customer Deposits (USD Million) 1,753 1,657 1,457
793
20062007 2008 2009
4 ABank Annual Review 2009
Total Equity Net Income (USD Million) 307 (USD Million) 296 265 65
43 138 35 27
2006 2007 2008 2009 2006 2007 2008 2009
Cost / Income Capital adequacy ratio (%) (%) 58 58 14.91 14.21 54 13.05 49 12.94
2006 2007 2008 2009 2006 2007 2008 2009
Return on equity (%) 30.7
24.9
15.6 16.0
2006 2007 2008 2009
Number of branches Number of employees
1006 999 46 46 868 40 680 29 626 607 537 459 380 392 331 221
2006 2007 2008 2009 2006 2007 2008 2009
Head office Branches Total
Ratings From Fitch
Foreign Currency Turkish Lira
Long -Term Short Term Individual Support Long Term Short Term National
BB B D 3 BB B AA (tur) (stable outlook) (stable outlook) (stable outlook)
5 ABank Annual Review 2009
USINESS HIGHLIGHTS
Strong Results
ABank had another successful year in 2009. Net profit was an impressive USD 43 million, reflecting the successful completion and implementation of the right strategies during the course of the year.
These positive results have been clearly reflected on the Bank’s balance sheet. As of year-end 2009, total consolidated assets had reached USD 2.419 billion, and total equity USD 307 million. ROE and ROA stood at 16,0% and 1.7%, respectively.
ABank increased its cash loans by 14% and non-cash loans by 27% over 2008 year-end figures. Total cash loans in 2009 were USD 1,880 million and non-cash loans USD 1,045 million. The capital adequacy ratio as of the year-end 2009 was at a comfortable level of 13,0%. The Bank’s operational efficiency is reflected in its cost-to-income ratio, which stood at 58% as of year-end 2009.
Prudent Risk Management
ABank is very cautious in its management of credit and market risk; loan exposure in general does not exceed 15% in any sector, which protects the Bank from market fluctuations and turmoils. ABank’s sophisticated credit risk management systems provide the Bank with sound knowledge of its customers’ financial requirements and allow it to deliver diverse products to an expanding portfolio without deviating from the principles of risk prudence. SMEs account for 70% of ABank’s active commercial/corporate customers, representing a risk exposure of approximately 44%. Special attention is given to asset quality at all times, as the Bank maintains prudently conservative risk policies. Close monitoring of sectoral and individual company risks through sophisticated analysis methodology has led to a high quality asset portfolio. In spite of loan growth and the unfavorable market conditions, ABank’s non-performing loan ratio remained at 6.77% in 2009. Considering the dominance of the SME customers in our loan portfolio and the Turkish banking sector’s SME default rate of more than 8.5%, ABank’s NPL ratio could be considered a modest level.
Core Banking Philosophy
ABank’s business model aims at long-term profitability and growth through commercial/corporate banking services. As such, ABank places particular emphasis on serving Turkey’s vibrant and rapidly growing SME segment. In this capacity, ABank has taken up a strong and valuable position in Turkey’s banking sector.
New Products and Services
ABank has always given high priority to upgrading and investing in technological infrastructure and developing new and sophisticated banking products and solutions.
ABank has supported its demand deposit and loan volume by placing itself at the center of its customers’ cash flow. Created under ABank’s Electronic Revenue Management umbrella structure, the Direct Debit System (DDS) projects are tailor-made and mesh seamlessly with the infrastructure and needs of the customers. These projects have once again highlighted ABank’s dynamic and hassle-free style. Accepting challenges and designing tailor-made solutions are equally important parts of the Bank’s activities on a broader level. 6 ABank Annual Review 2009
Efficient Branch Network
ABank has become one of Turkey’s most active banks in lending volume per branch. Branch expansion plans are assessed against concrete efficiency measures, such as branch profitability and cost-to-income and cost-to-asset ratios.
To this end, ABank conducts thorough demographic feasibility work aimed at optimizing its domestic customer reach. ABank follows quantitative and systematic studies to identify the most favorable geographic areas in which to expand its branch network and extend this reach. The method for these studies relies on scoring and fieldwork practices applied on a provincial basis.
ABank had a network of 46 branches as of year-end 2009, spread across the major industrial regions of Turkey. The Bank is well-positioned to serve Turkey's most important commercial and densely-populated regions, where 75% of the country’s GNP is generated.
Strong Shareholders
ABank’s principal shareholder is the Anadolu Group, one of Turkey’s largest and most respected industrial conglomerates. The Group is engaged in a wide range of businesses, from beverages to automotive and stationery, financial services, energy, tourism, consumer durables, IT, and healthcare services in both domestic and international markets, making it a central feature of the Turkish business landscape.
Anadolu Group is best known for its strength in the beverage sector. The Group generates around 70% of its revenues from beverage operations, including production, sales, and distribution of beer and soft drinks over a broad geographical area covering Turkey, Russia, the CIS, Central Asia and Middle East.
Group Exposure
Related party exposure in 2009 was 1,9%. Not a significant exposure, however, does not mean low synergies; since the Anadolu Group acquired ABank in 1996, the Bank has introduced products and services that integrate well with the Group’s wide distribution network and supplier base, creating new opportunities for the Group and streamlining its operations. Group and the bank’s business relations are based on the arms length phenomenon.
Diversified Portfolio
ABank’s active commercial/corporate customer base grew to approximately 8,800 in 2009, a 3% increase over the prior year. Growth in the number of customers has been stable and strong since 2003. Despite the heavily reduced economic activity during 2009, increase in customer base even at modest levels could be considered as an important success. ABank strategically targets SMEs, who are generally identified as companies with an annual turnover of up to USD 10 million, and the Bank makes every effort to interact with these customers on a close, face-to-face level or through KOSGEB (Small and Medium Industry Development Organization), a non-profit organization for SMEs. This personalized, customer-driven approach has allowed ABank to maintain a loyal base and steadily draw in new firms.
7 ABank Annual Review 2009
Strong Corporate Culture
ABank conducts its business along disciplined and prudent banking principles, which are supported by strong internal controls, state-of-the-art computing, robust risk management, and, above all, experienced personnel.
ABank employees and management work together on an “open door” basis, emphasizing the value of continuous communication and collaboration. Employees regularly attend training programs designed to develop technical skills and knowledge as well as social interaction. The result is a bank of outstanding professionalism and social depth. Up-to-date training programs that cover operational and related areas are offered to employees at regular intervals.
International Correspondent Banking
2009 was a successful year for ABank in securing short- and long-term external funding. In 2009 internationally-sourced funds amounted to USD 264 million, accounting for 11% of balance sheet liabilities. ABank intermediated USD 1.8 billion of foreign trade in 2009. The Bank’s relatively small size and relationship-oriented banking approach give it a competitive advantage in delivering sophisticated and tailor-made solutions to companies whose business involves foreign trade, thanks to its strong relationships with the world’s leading financial and supranational institutions and export credit agencies. The Bank’s correspondent banking network includes active relations with approximately 120 foreign banks. In the overall trade activity, ABank had better performance then the country’s total trade behaviour. In the prevailing global contraction, during 2009, ABank had experienced only 9% reduction in the import- export volumes, as opposed to 27% decrease in Turkey’s total trade activity.
Cutting-Edge Information Technology
ABank places great importance on the continuous investment in and upgrading of its IT systems, which has resulted in powerful, flexible, and reliable systems.
Overall, 2009 was a very fruitful year from the IT perspective, mainly due to direct investments and new projects and initiatives. Among the new projects, a lotus notes based work flow system has been developed to increase efficiency and productivity in credit application and approval process. Some of the government related IT projects were also introduced in 2009.
8 Going forward, ABank’s vision is to increase its prominence in the sector, with its sophisticated banking practices, improved product diversity, customer oriented approach and efficient branch network. ABank Annual Review 2009
ESSAGE FROM THE CHAIRMAN
Although the signs of recovery in the global economy have begun to emerge particularly in the second half of 2009, eruptions of debt woes at both corporate and sovereign levels, as in the examples of Dubai and some other European countries, have proved that the after-shocks of the crisis were not over. In this environment Turkey impressively singled out in the emerging market universe, by means of the successfully implemented monetary and fiscal policies. This phenomenon was further supported and applauded by the positive statements and assessments of international financial institutions and worldwide rating agencies as well.
Turkish banking sector, on the other hand has once again proven its solid standing despite the unfavourable global market conditions, and demonstrated successful financial results in terms of increased sectoral profitability, strong capitalization, sound asset quality and its appropriately implemented crisis management techniques in the creation of overall resilience.
10 ABank Annual Review 2009
As part of this sector, ABank has also achieved succesful financial performance, with a 20% increase in net profitability to reach USD 43 million, supported by its well-diversified and strongly collateralized loan portfolio.
In the same period our Bank’s consolidated equity grew by 16% to reach USD 307 million while ROE stood at 16% whereas ROA reached 1.7%. The capital adequacy ratio was at 13% maintaining a comfortable level for future organic growth prospects. With these successful results achieved in these key and crucial financial indicators, we have preserved and strengthened our solid standing and reputation in the growing Turkish Banking sector.
With our branch network of 46 as of the year-end 2009, we have offered tailor-made products and services to our clientele through our main business lines of corporate and commercial banking activities. We will continue to further increase our presence in the regions with industrial and commercial growth potential through organic growth. Our customer deposit base continued to be the main source of funding, encompassing a portion of 68.5% in our total liabilities.
Going forward, our vision and mission is to sustain and strengthen our position in the sector, by adding value to the banking practices in Turkey with our improving product diversity, cross-sell opportunities, efficient branch network and the contributions of our highly skilled staff, without conceding from our customer-oriented approach in serving our clients.
Taking this opportunity, I would like to express my sincere appreciation for the valuable contributions of the Members of the Board, our staff and our customers in making these successfull results achievable.
Yours Sincerely,
Tuncay Özilhan Chairman
11 ABank Annual Review 2009
OARD OF DIRECTORS
1) Tuncay ÖZ‹LHAN, Chairman 4) Hamit Aydo¤an, Member of the Board Born in 1947. Graduated from ‹stanbul University, Faculty of Economics. Born in 1958. Graduated from Middle East Technical University, Political MBA from Long Island University, USA. General Manager of Erciyas Science and Public Administration. He began his banking career as a Birac›l›k ve Malt Sanayi A.fi. from 1975 to 1983. Since 1983, Chairman Financial Analyst at Sumerbank in 1980. He joined Yapi Kredi Bank of the Executive Committee of Anadolu Endüstri Holding A.fi. Since as an Auditor in 1981, later held Managerial positions in various branches May 2007, Chairman of Anadolu Endüstri Holding A.fi. between 1986 and 1993. He became the Executive Vice President responsible for Corporate Credits Marketing in Yap› Kredi in 1993 and 2) Metin TOKPINAR, Vice Chairman served at various Top Management and Board Member positions in Born in 1932. Graduate of ‹stanbul University, Faculty of Economics. Yap› Kredi Factoring, Yapi Kredi Leasing, Koç Leasing and Yapi Kredi Masters degree from Vanderbilt University, under a Fulbright Bankasi between 1993 and 2009. He joined ABank in August 2009 as Scholarship. He has held various management positions at Türkiye a Board Member and a Credit Committee Member and was appointed S›nai Kalk›nma Bankas›, where he served for 36.5 years before retiring as the CEO in February 2010. from his last post as General Manager of the Bank in 1993. Currently he is the Board Member of various Anadolu Group companies and 5) ‹brahim YAZICI, Member of the Board chairman of a factoring company. He has retired from ABank on 31 Born in 1949. Graduated from Bursa University, Department of March 2010. Business Administration, Faculty of Economic and Commercial Sciences. He holds an MBA from Atlanta University. Joined Anadolu 3) Murat ARI⁄, Member of the Board and CEO Endüstri Holding in 1980, where he held various management Born in 1960. Graduate of Bosphorus University, Mechanical positions until 1990. Since 1990 he has acted as the Chairman and Engineering. MBA degree from Florida Institute of Technology. He Board Member of several Anadolu Group Companies, and since May started his professional career as a marketing and credit analyst at 2007 he has been the Vice President of Anadolu Endüstri Holding ‹ktisat Bank. In 1988, he joined Credit Lyonnais, ‹stanbul office, as A.fi. He has been appointed as the Vice Chairman on 31 March 2010. an assistant manager responsible for marketing. From 1991 to 1994, he assumed responsibilities as Cross Border Leasing Manager at Credit Lyonnais Leasing International in Paris. After heading the ‹zmir Branch of Credit Lyonnais, Mr. Ar›¤ became Executive Vice President for Corporate and Correspondent Banking at Credit Lyonnais Turkey. In 1997, he joined Anadolu Group and became General Manager of ALease until he was appointed as the CEO of ABank in January 2003. In February 2010 he was appointed as the President of the Finance Group of Anadolu Endustri Holding.
12 ABank Annual Review 2009
6 4 10 5 7 3 9 8 1 2
6) Cesur KILINÇ, Member of the Board 9) Mustafa Murat AKPINAR, Member of the Board Born in Istanbul in 1957. Graduated from ‹stanbul University Faculty Born in 1944, Mr. Akpinar graduated from Izmir School of Economics of Law. Prior to joining Anadolu Group, he worked as the Legal and Administrative Sciences. He started his career at Turkiye Is Bankasi Counsel for ENKA and Coflar Müflavirlik A.fi. He joined Anadolu in 1971, where he held several positions, the latest as Deputy Chief Group as Legal Director in 1994 and became the Genaral Legal Executive between 1996 and 2002. He has also served as an auditor Counsel of Anadolu Group in 1999. Since 1999, he has also acted and Board Member at TSKB from 1989 to 2005. Between 2005 and as a Board Member of ABank, and since 2008, as a Board Member 2006, he was a Board Member of Is Leasing. He joined ABank as a of ALease and AYat›r›m and other companies within the Anadolu Board Member in April 2008. Group. 10)Mehmet Hursit ZORLU, Member of the Board 7) Tanbey VEZ‹RO⁄LU, Member of the Board Born in 1959, Mr. Zorlu has a BSc degree in economics from Istanbul Born in 1944. Graduated from Ankara University, Faculty of Political University. Mr. Zorlu previously worked with Toz Metal and Turkish Sciences, Economics Department. He began his banking career as an Airlines. He began his career in the Efes Beverage Group in 1984, as a Internal Auditor at Türkiye ‹fl Bankas› in 1967. He subsequently Marketing Specialist. Throughout his career with the Efes Beverage Group, worked at Koçbank, and in 2001 became the Head of the Collection Mr. Zorlu was appointed to various posts including Assistant Marketing Services Department at the Savings Deposit Insurance Fund. Between Manager, Assistant Project Development Manager, Project Development 2003 and 2004 he acted as Board Member of Yap› Kredi Bank’s Manager, Business Development and Investor Relations Director and Credit Committee before joining ABank as a Board Member in 2004. Chief Financial Officer and Investor Relations Director. He was appointed as Chief Financial Officer of Anadolu Group in April, 2008. He is also 8) Güniz S. B‹LG‹N, Member of the Board serving as a board member in various Anadolu Group companies. He Born in 1963. Ms. Bilgin graduated from ‹stanbul Robert College joined ABank as a Board Member in April 2008. and the Faculty of English Literature at Bosphorus University, she holds a Masters Degree from the Department of International Management of ‹stanbul University. She began her banking career in 1985 at Citibank, ‹stanbul and later moved on to Credit Lyonnais, ‹stanbul, and Societe Generale, ‹stanbul. In 1993, she joined Garanti Bank as Assistant Manager in the Marketing Division, and held various managerial positions for 11 years. For the last 6 years she was Executive Vice President in charge of Corporate Banking. In 2007 she joined ABank as a Board Member.
13 ABank Annual Review 2009
ESSAGE FROM THE CEO
Turkish economy once again has proven its resilience, during the global financial crisis, by strongly responding to the external shocks and both political and economic turbulences. Owing to the easing policy of the Central Bank and the accompanying successful monetary policy measures and despite the absence of the IMF Stand-by Agreement, Turkish economy has demonstrated examplary performance within the emerging market group.
Built on solid foundations, Turkish banking sector has an important role in this resilient performance that Turkish economy has staged during the course of the global financial turmoil and the following economic slowdown. In this crisis environment the relatively small size of the banking system compared to developed nations, its strong capitalization and sound asset quality have emerged as the prominent competitive edges of the sector. As evidenced by these developments, the sovereign rating of Turkey and the ratings of 19 Turkish banks including ABank were upgraded by Fitch, approaching the investment grade level.
14 ABank Annual Review 2009
ABank has closed the year 2009 by portraying a successful performance, evidenced by our consolidated net profit of USD 43 milllion, corresponding to a 20% increase compared to 2008. Under the prevailing market conditions, as a result of the cost-cutting measures pursued, our cost-to-income ratio stood at 58% at the end of the year.
Despite the slowdown in the financial markets, ABank has accomplished to increase its lending book by 19% to reach USD 2,844 million, through focusing on the sectors and clientele on a selective basis with conservative approach. Our deposit base, which continued to be the main source of funding, stood at USD 1,657 million at the end of the year. Furthermore, external borrowing contributed modestly to the general funding base composing 11% of the liabilities.
ABank’s strong capitalization is evidenced by our Capital Adequacy Ratio of 13% as of the year-end 2009, well above the regulatory minimum, which will be crucial for our organic growth strategy going forward. Indeed, we are planning to expand our physical presence by opening up to 10 new branches in 2010, which will cater the requirements of our corporate and commercial customers as well as building on a selective retail base. Finally our ROA and ROE stood at 1,7% and 16% respectively.
Under the unfavourable market conditions, the major challenge has been preserving the asset quality, particularly taking into account our main focus on SMEs. Our strong collaterals provide us further comfort in this respect.
I would like to take this opportunity to extend my sincere thanks and appreciation to our Board Members, business partners and our employees who put their valuable efforts in creating this outstanding performance.
Yours Sincerely
Murat Ar›¤ CEO
15 ABank Annual Review 2009
ENIOR MANAGEMENT
1) Murat ARI⁄, Chief Executive Officer and Member 4) Cem fi‹PAL, Executive Vice President, Financial of the Board Control (See “Board of Directors”). Born in 1964. Graduate of ‹stanbul University Econometrics Department. Obtained an MBA from Koç University in 1995. Mr. 2) Haluk GÜVEN, Executive Vice President, fiipal initially joined Yat›r›mbank and worked in the Credit Department Corporate/Commercial Banking for one and a half years. In 1991, he joined Koçbank and spent 10 years in the Financial Control Department, where he held various Born in 1955. Graduate in Management from the School of Business positions at different levels. He joined ABank in 2001. and Economics of Marmara University, ‹stanbul. M.B.A. From Mercer University in Atlanta. Started his banking career at Saudi American Bank, ‹stanbul, as Credit Department Head in 1985. 5) Güldem KARAÇALI, CFE, CPA, Executive Vice Assistant Manager at the same bank from 1986 to 1988. Held various President, Board of Inspections management positions at Finansbank A.fi. between 1988 and 1993, Born in 1956. Graduate of Ankara University, Faculty of Political where he last served as Credit Marketing Group Head. Assistant Sciences. Obtained a Masters Degree in Finance at Faculty of Business General Manager in the Corporate Banking Department of Bank Administration, in Istanbul University. She started her banking career Indosuez Generale Euro Türk A.fi. from 1993 to 1994. Before joining at Osmanl› Bank T.A.fi. as an internal auditor in 1979. She also held ABank in 1997, he was Assistant General Manager, Credit and management positions in Interbank from 1982 to 1990. Later she Marketing, at Bank Ekspress A.fi. worked in Vak›fbank as Vice President of Istanbul Territory Credit Administration Department. In 1992, she joined ABank as a Corporate 3) Sad›k SAYGICI, Executive Vice President, Credit Marketing Department Head. Prior to becoming an Executive Vice Administration President in 1998 at the Bank, she was the Vice President of the Internal Auditing Department. She is also a founder member of TIDE Born in 1952. Graduate of ‹stanbul University, Faculty of Economics. (Institute of Internal Audit- Turkey). Began his banking career at Akbank in 1977 as an Assistant Inspector. Previously worked at ‹ktisat Bankas› as Executive Vice President of the Credit Department prior to joining ABank in 1998. 6) Murat ÖZER, Executive Vice President, Treasury Born in 1967. Graduated from ‹stanbul University, Faculty of Economics. He started his banking career at Turkishbank AS in 1991. He joined ABank in 1993, where he held several positions in the Treasury Department before becoming Executive Vice President in 2004.
16 ABank Annual Review 2009
2 6 10 11 5 1 3 7 4 9 8
7) Mehmet SARAÇ, Executive Vice President, Operations 10)fiakir SÖMEK, Executive Vice President, International Born in 1954. Graduated from Atatürk University’s French Department Financial Institutions of the Literature Faculty. Mr. Saraç started his career at Akbank in Born in Cyprus in 1963. Received his B.S. Degree in Business 1980 as Assistant Exchange Chief. From 1983 onwards, he held Administration from the University of River Falls, Wisconsin, USA various managerial positions within the Operations Departments in in 1985 and later completed his M.A. degree in Economics at The several banks. After serving as Assistant General Manager responsible American University, Washington, D.C., USA in 1987. Mr. Somek for Operations at Denizbank for four years, he joined ABank in 2007 began his banking career at the Turkish Bank Ltd. in 1988 as an as Executive Vice President, Operations. account officer of the foreign exchange department. Later he has joined Industrial Bank of Cyprus as the Credit & Marketing officer 8) Ertan GÜVENER, Executive Vice President, in 1990. In 1995, he joined Körfezbank A.fi., where he held various Information Technologies positions in the Financial Institutions Department. He joined ABank Born in 1952. A Graduate of the Middle East Technical University, in 1998 as Head of the International Financial Institutions Department. Department of Electronic Engineering, Mr. Güvener also holds a He became Executive Vice President of the International Financial Masters Degree from the same faculty. He started his banking career Institutions Department in March 2008. at Citibank in 1985 as Manager responsible for the Information Technology Department. After serving in various managerial positions, 11)Sedef KARADADAfi, Executive Vice President, Human Mr. Güvener joined ABank as Executive Vice President, Information Resources Technology, in 2007. Born in 1962. Graduate of Middle East Technical University, Department of Economics. Began her banking career in Iktisat 9) Ziya ALPMAN, Executive Vice President, Retail Bankas›, ‹zmir Branch, in 1985. She became Assistant Vice President Banking in the Organization and System Development Department of the Born in 1959. Graduated from ‹stanbul Technical University. Mr. same bank in 1989. She served as Vice President – Organization and Alpman started his banking career at Yap› ve Kredi Bankas› in 1985. System Development at Pamukbank (1992-1993), Finansbank (1993- In 1997, he joined Fortis Bank, where he was appointed Executive 1997) and Ulusal Bank (1997-1999). She joined ABank in 1999 as Vice President of the Retail Banking department. In 2007, he joined Vice President - Human Resources. She became Executive Vice ABank as Executive Vice President of Retail Banking. President in February 2008.
17 HE ANADOLU GROUP
Anadolu Group’s depth of entrepreneurship together with its global perspective and local strengths, enabled it to be a leading industrial conglomerate in a diversified range of businesses. ABank Annual Review 2009
19 ABank Annual Review 2009
he combined revenues of the Group as of year-end 2009 reached to approximately USD 5 billion.
The Anadolu Group was founded in the early 1950’s by the Yaz›c› and Özilhan families, which are jointly the major shareholders of all Group operations through their respective holding companies, Yaz›c›lar Holding and Özilhan S›nai Yat›r›m.
The Group is structured and primarily managed in four principal sectors; beer and soft drinks, automotive, financial services, retail and other operations, which include energy, tourism, consumer durables, IT, and healthcare services. The Group has strong expertise in doing business in partnership with globally reputable companies, such as Coca-Cola, Heineken, Miller, Beck’s, Foster’s, Isuzu, Kia, Lada, Geely, Lombardini, Samsung, Faber-Castell, McDonald’s and Johns Hopkins.
The combined revenues of the Group as of year-end 2009 were approximately USD 5 billion. The total number of employees in the Group is approximately 23,000.
The flagship company of Anadolu Group’s beer operations is Anadolu Efes, established in 2000. Anadolu Efes came into existence through the merger of five beer and two malt factories, the first of which was established in 1969. Presently, Anadolu Efes is the leader in the Turkish beer market, with an 89% share, and also runs international beer operations through its subsidiary Efes Breweries International (EBI), based in the Netherlands. Anadolu Efes operates in five countries (Turkey, Russia, Kazakhstan, Moldova, Georgia) with 14 breweries producing a total beer capacity of 35.7 million hectoliters and 6 malteries with a total malt capacity of 254,000 tons.
44% of the shares of Anadolu Efes are listed on the Istanbul Stock Exchange (ISE), and 27% of the shares of EBI are listed on the London Stock Exchange in the form of GDRs. The market capitalization (Mcap) of Anadolu Efes as of year-end 2009 was approximately USD 5 billion.
Coca-Cola ‹çecek, which is 50.3% owned by Anadolu Efes, runs Coca-Cola bottling operations in 10 countries (Turkey, Kazakhstan, Azerbaijan, Pakistan, Kyrgyzstan, Tajikistan, Turkmenistan, Jordan, Iraq, Syria) with 20 production facilities yielding a total bottling capacity of 881 million unit/case. Coca-Cola ‹çecek is listed on the ISE with Mcap of approximately USD 2 billion as of year-end 2009.
Anadolu Etap Tar›m Ürünleri A.fi., which is 33.3% owned by Anadolu Efes, joined Anadolu Group in 2009. The company is one of the biggest manufacturers of fruit juice ingredients in Turkey, and currently fills Cappy-branded fruit juice and nectars for Coca-Cola. In addition, the company serves the beverage and food industry mainly in Turkey, Europe, Russia, CIS, Middle East with many tailor made products.
Anadolu Group has been active in the automotive sector since the begining of the 1960s. In the automotive sector, Anadolu Group imports and markets KIA, Lada and Geely-branded passenger cars and light commercial vehicles and Coopertires-branded tires in Turkey, and runs fleet leasing operations.
20 ABank Annual Review 2009
Anadolu Group is also a manufacturer in the automotive sector. Anadolu Isuzu Automotive Industry & Trading Co. is one of the leading medium-size coach manufacturing companies in Europe, whose major shareholders are the Anadolu Group from Turkey and Isuzu Motors and Itochu Co. from Japan. Its main fields of operation are the production and marketing of light duty trucks and midibuses. Since the establishment of the company in 1984, more than 80.000 vehicles have been manufactured in accordance with the Isuzu Motors license agreement. Anadolu Isuzu is the first Turco-Japanese joint venture in the automotive sector. Through Anadolu Motor company, Anadolu Group also produces generators, spare parts and pumping units under the Lombardini license name in addition to importing and selling LS- branded tractors.
Cooperating with ABank, InvestA and ALease in the finance sector, Anadolu Group’s retail operations as a producer include the import, production and export of writing instruments through Adel Kalemcilik, a pioneer and leader of the Turkish writing instruments and stationery industry, in partnership with Faber- Castell, and a leading company in the edible oil sector, Ana G›da which produces and sells under the Komili and K›rlang›ç brand names in Turkey.
As an importer and distributor, the group has held the exclusive operating rights to McDonald’s in Turkey since 2005, and as of year-end 2009, McDonald’s operates over 130 restaurants with over 4,000 employees.
Anadolu Group’s other major operations include the import and distribution rights of Samsung-branded consumer durables. The group also operates in the IT and tourism sectors.
Anadolu Group is also strategically aiming to be a leading player in the energy sector, both in the production and distribution segments. Anadolu Group formed a consortium with Luxembourg-based Unit Investments, Turkey-based Do¤ufl Holding and Turkey-based Do¤an Holding in 2006 for jointly evaluating various investment opportunities in the energy sector. The consortium’s current projects include the Aslanc›k hydroelectric plant in the Black Sea region (120 MW) and wind farms with a total capacity of 227.7 MW in the Aegean region. Separately, Anadolu Group is also working on a coal-powered power plant with a total installed capacity of 1,200 MW in the Black Sea region and a hydroelectric plant investment (Paravani) in Georgia (90 MW).
Corporate social responsibility projects are very important to the Anadolu Group. The Anadolu Education and Social Assistance Foundation has created more than 40 perpetual pieces in social fields, such as education and healthcare, since its establishment in 1979. It also grants scholarships every year to around 750 students; a total of 10,000 scholarships have been granted to date.
The Anadolu Medical Center (Istanbul) has exclusive affiliation with Johns Hopkins Medicine of Baltimore, USA and has the largest and most technologically advanced healthcare investment in the region.
21 ABank Annual Review 2009
Anadolu Group has made major contributions to sports. Established in 1976, the Efes Pilsen Sports Club was the first Turkish basketball team that brought the European Title to Turkey and the first and only Turkish basketball team to qualify for the final four in Euroleague. Free basketball training schools, organized by the Efes Pilsen Sports Club in collaboration with the General Directorate of Youth and Sports, have raised many nationwide and some worldwide famous players.
Anadolu Group supports arts and culture with organizations of music festivals and sponsorship of various projects.
Anadolu Group’s Extensive Operating Geography
RUSSIA
BELARUS
KAZAKHSTAN
MOLDOVA
GEORGIA SERBIA
KYRGYZSTAN
AZERBAIJAN TURKMENISTAN TURKEY TAJIKISTAN
SYRIA
IRAQ
JORDAN
PAKISTAN Anadolu Efes Production Plants
22 ABank Annual Review 2009
ORPORATE GOVERNANCE
ABank’s management believes that an effective corporate governance system, within an individual company and across an economy as a whole, helps to provide the confidence necessary for the proper functioning of a market economy. Therefore, the set of relationships among the Bank’s management, its board, its shareholders, and other stakeholders has been undergoing a restructuring in line with the Corporate Governance Principles set by the OECD and the Turkish Capital Market Board (CMB).
ABank is committed to implementing accepted standards of corporate governance. Accordingly, all management procedures and practices depend on four pillars of corporate governance, namely, i) Transparency, ii) Equality, iii) Responsibility and iv) Accountability. Except for information deemed to be a trade secret and not yet available to the public, ABank discloses information about the Bank, with or without financial content, in an accurate, thorough, rational, interpretable, and accessible manner. In compliance with legal and regulatory requirements, ABank communicates information in a timely, reliable, consistent, and orderly fashion and promptly distributes that information to the investment community. Comprehensive information on ABank can also be accessed through its regularly updated website (www.abank.com.tr).
The Accounting and Financial group is responsible for procedural actions regarding investors (Capital Increase, General Assembly, etc), as well as for duly informing the public. Questions forwarded to management by investors, except those regarding proprietary information, are answered immediately and appropriately. General Assembly notice is provided via the media and internet, meeting all requirements of the CMB and related legislation. The General Assembly is held once a year. All shareholders are invited to attend. When the Board of Directors decides on the date of the Assembly, the information is immediately communicated to the CMB and the ‹stanbul Stock Exchange (ISE). Shareholders may apply for admission to the Assembly. Information and guidance about procedures and voting may be obtained from ABank’s branches, headquarters, and internet website. There are no privileged voting rights stated in the Articles of Association. No subsidiary owns shares in the Bank. It is possible to vote by proxy.
The processes and policies of ABank’s management structure are designed to comply with the legal and regulatory framework and to provide clarity and transparency in decision-making and accountability. The Board of Directors has ten members, of whom three are independent. The Board of Directors formulates ABank’s vision, mission, and short and long-term strategic objectives. The Board meets at least twice a month. In its meetings, the Board of Directors measures the Bank’s progress against its strategic objectives and evaluates performance. The annual budget of the Bank and its strategic plan are approved by the Board of Directors. The Board of Directors closely follows the budget and its actual implementation, receives information about variations from the budget, and follows up its decisions. The Board of Directors tracks strategic objectives, budget targets, and actual figures through internal and external audit systems. The Board also monitors various financial and non-financial indicators on a particular customer, branch, business unit, or general basis. The Board of Internal Auditors is responsible for submitting internal audit reports directly to the Board of Directors.
In compliance with Banking Law, ABank has established a Risk Committee. The Bank’s Board members play an important role in the management of the Bank’s risk exposure by developing strategies, policies, limit systems, and procedures through the activities of the Risk Committee. The Risk Committee is headed by an independent Board member. An independent Board member also heads the Audit Committee of the Board, bearing the responsibility of ensuring the accuracy of financial information provided to all stakeholders.
23 ABank Annual Review 2009
The Corporate Governance Committee was established in 2005 and is also headed by an independent Board member. The Committee monitors compliance.
The ultimate controlling shareholders of the Bank are announced in annual reports and on the Bank’s internet website. ABank strives to maintain the highest standards by providing guidance to all its employees. As part of this effort, employees are guided and educated to conduct themselves within the standards of professional and ethical conduct. All employees are presented with the Ethical Code of the Turkish Banks Association and the Ethical Code of Anadolu Group before they start working, and all employees sign these codes as evidence of their knowledge of these rules. All applications regarding career planning, professional training, disciplinary rules, ethical codes, fringe benefits, and all other rights and employee- related issues are available to all staff on a closed circuit corporate portal, or “Intranet.” The Intranet has also been set up to provide information to employees; all announcements have been transferred from a paper environment to an electronic site. In addition to cost cutting and efficient communications, the Intranet aims to underscore the importance of a common corporate culture.
ABank’s Board members, managers of all levels, and employees are in a position to obtain insider information. ABank restricts individuals in a position to obtain insider information from trading its equity shares. ABank places great emphasis on the management of relations with the Bank’s stakeholders. Not only shareholders, but also potential investors, the public, regulatory bodies, customers, suppliers, employees and others are defined as stakeholders. Relations with customers and suppliers are carried out within the framework of ethical rules and in accordance with written procedures. All employees are aware that the most important way to create an advantage over competitors is to provide the best service to customers and act accordingly. Employees endeavor to solve any customer problems, provided that they fall within the confines of general principles and the Bank’s procedures, and take measures and exert every effort to prevent recurrence. Moreover, the Bank has a Customer Complaints Division dedicated to customer relations. All customer complaints are analyzed thoroughly and immediately by this department and resolved appropriately. Suppliers are evaluated by the Purchase Department.
ABank seeks to maximize its employees’ competencies, efficiency, and satisfaction through its performance evaluation and career planning system. The Bank has a transparent and fair performance management system and reward system that encourage and support high performance. Participation in management is always encouraged; the personal opinions of the staff on improvements to daily workload are collected through an evaluation system that is analyzed carefully. The Human Resources Unit is organized in conformity with the structures, requirements, and expectations of the other business units so as to support these units on all human resources issues. No complaints concerning discrimination have been received from employees. ABank is committed to the development of our society. The donation policy of the Bank is defined in The Articles of Association of the Bank. The Anadolu Foundation was established 30 years ago and is engaged primarily in education, health, the arts, and sports. The Foundation has completed many projects, including hospitals, health centers, schools, dormitory buildings, and sport complexes. While these were donated to the state, free scholarships were granted to competent students in need of financial support. In 2005, the foundation has completed the non-profit Anadolu Medical Center. All the income generated from this contemporary health center will be channeled to meet education and research expenditures. At least 10% of the patients at Anadolu Medical Center are treated free of charge. The Anadolu Medical Center gives seminars and organizes special programs to spread public awareness of free check-ups, patient education programs, First Aid courses, and protective medication.
24 ABank has a significant flexibility in providing tailored banking solutions as a consequence of its highly responsive and active customer driven approach ABank Annual Review 2009
USINESS REVIEW
Customized Services
As a commercial/corporate bank providing products and services to leading businesses in Turkey, ABank’s most common services include customer loans, payment and collection systems, and foreign trade instruments, as well as currency, interest, and other risk management tools. ABank has highly sophisticated cash management systems, such as custom-designed direct debit and direct collection system projects which allow for cash flow optimization and the most efficient use of resources.
ABank makes every effort to provide its customers with products and services that match particular requirements. Customized solutions are therefore fundamental part of the Bank’s operations. This approach requires a customer relationship that is both highly responsive and active; ABank takes pride in its intimate knowledge of its customers’ businesses and their requirements. Understanding customers and creating suitable products and services have been the key elements in ABank’s continuous portfolio growth and profitability.
Target Segment and Diversified Portfolio
ABank’s sophisticated and fine-tuned risk-analysis techniques and rapid credit allocation systems enable the Bank to maintain prudent credit policies while fueling high rates of growth in business volume and profitability, both for itself and for its customers.
ABank’s credit marketing, allocation, and central operations are intertwined with risk management and internal audit mechanisms to create a fully integrated system. Credit decisions are thoroughly researched and made quickly. The role of the Central Operations Unit in these processes is to act as the Bank’s procedural and control hub, monitoring all branch activities and transactions. The Central Operations Unit is a major contributor to ABank’s efficiency. The Unit operates under a set of standardized processes that are designed to maximize efficiency and minimize risk. Before proceeding with any transaction, the Central Operations Unit rigorously conducts all necessary audits and legal background checks, in addition to implementing all possible measures to prevent money-laundering.
Credit Allocation and Credit Rating System
ABank works under a strict and centralized credit approval process, comprising well defined operating and lending policies, and reflecting the Bank’s commitment to a strong credit culture. ABank’s credit process starts with a strategic decision on setting the General Target Market and Terms of Acceptance Criteria, which include sector, size and performance criteria. These general criteria are subject to regular revisions, along with the changes in economic and sectoral developments.
Credit applications are initiated by account officers at branches. Account officers prepare credit application packages for potential clients, which complies with the Bank’s previously set general target market and acceptance criteria. The customer is then assigned a rating which the Bank’s system calculates based on various quantitative and qualitative criteria. ABank’s credit rating system is sophisticated, comprehensive, and thorough, as demonstrated by the Bank’s low ratio of non-performing loans to total loans. The credit rating system is updated every year in accordance with changes in market conditions. Upon approval by experienced Branch Managers, credit packages are sent to the Head Office and analyzed by the Credit Administration Department.
26 ABank Annual Review 2009
Evaluations of customers’ financial and the nature of business performances cover all key and relevant measures, such as liquidity ratios, collection periods for receivables, inventory to turnover ratios, leverage, and profit margins. Industry and sector data, information from the Central Bank and other reliable statistical sources are also carefully assessed, providing ABank with a strong understanding of industry trends, company operations, quality of management and industry activity.
According to these evaluations, various sizes of loans are approved by different bodies, depending on the assigned rating and type of collateral received. The most important bodies in the credit approval process are the Credit Committee and the Board of Directors. The Credit Committee meets once every week and Board of Directors meets twice a month.
Cash Management Services
ABank provides classic cash management services to its commercial, corporate and individual customers, including such standard features as checking, salary accounts, bill payments, and tax and social security payments. Within its focus on commercial/corporate banking, ABank’s direct payment and products and services relating to collections are available throughout the country via the Bank’s branch network. These cash management products and services are designed to link a company’s headquarters and its dealers into a common payment structure built on a system of receivable and payment balances. ABank’s cash management platform also enables it to offer its customers other cross-sell products and custom solutions, thus further enhancing diversification.
Direct Debit System is the leading tool of the electronic cash collection methods. The system enables cash flows from the sales of goods and services via electronic data exchange under bank guarantee. These projects are designed in conformity with customer requirements and their infrastructure systems.
27 ABank Annual Review 2009
Bank's international banking strategy, based on operational efficiency, specialized solutions, business focus and worldwide correspondent and branch network, lead to prospering results.
International Financial Institutions
Strategy
ABank is committed to developing strong relations with its correspondent bank network and to working with international financial institutions that are well-positioned to support the Bank’s business strategy both in developed countries and also in difficult markets. ABank has enjoyed success in its international banking strategy as a result of its business focus, operational efficiency, ability to design and implement specialized solutions, and the high degree of coordination between its related divisions and branch network. ABank’s branches and relevant divisions are immediately informed of developments and new products relating to the Bank’s correspondent bank network. In this respect, ABank’s efficiency and speed to market are reflected in the increasing levels of import/export transactions and favorable cost of external funding.
The International Financial Institutions Department maintains the Bank’s relationships with its correspondent bank network. Expanding and optimizing the correspondent network, increasing the range of products for international business, offering flexible solutions to the customers’ international banking service needs and improving the cost of external funding are all fundamental elements of these relationships. A general rise in international trade activities has led to a corresponding increase in pre-export and re-financing of bilateral funding opportunities throughout 2009.
Notable Transactions
In April 2009, ABank secured a one-year USD 30 million and EUR 31 million dual tranche term loan facility from major relationship banks. Given the unfavorable market conditions and the ongoing liquidity crunch, the transaction was a success both in its amount and pricing, and ABank once again confirmed its credibility and strong standing in the international financial community. This facility also marked the Bank’s strong reputation in the syndicated loan market, as being the only bank within its peer group to close a deal in the difficult market realities.
As part of its long-term external funding, ABank has obtained a USD 45 million and EUR 20 million seven-year World Bank export-credit facility and a EUR 20 million EIB loan, which has been a valuable resource for Turkish companies conducting international trade. Throughout 2009, the Bank also managed to raise USD 80 million in funds from bilateral transactions.
28 ABank Annual Review 2009
Strong Relationships With World’s Leading Financial Institutions
ABank enjoys a comfortable position in the international banking community, thanks to its strong network of correspondent banks. Indeed, ABank’s active correspondent banking network includes around 120 banks worldwide. This extensive correspondent bank network continues to grow in line with our customers’ requirements and global trends and developments. Sustaining strong relations with world’s foremost export credit agencies constitutes another important area in accommodating the Bank’s export oriented customers’ needs. The Bank also maintains close and long-standing relationships with leading financial and supranational institutions worldwide, including the World Bank, IFC, KfW, U.S. Commodity Credit Corporation and Islamic Development Bank.
The high degree of credibility that the Bank enjoys in the international arena is manifested in comfortable credit limits received from the world's premier banks and financial institutions. This credibility gives the Bank a competitive edge in its pricing ability when serving its customers' trade finance requirements.
Treasury
ABank’s market knowledge and experience enables it to perform in the fixed income and money market areas actively. ABank has a reputation as a strong market player, and it is also stepping up its activities in the derivatives market, which will enhance its competitive advantage and be of great importance in the developing financial markets. The Treasury Department’s success in the trading of treasury instruments helps the Bank in accessing liquidity through OTC markets. In addition to its risk management and funding duties, the Treasury Department, with its highly qualified team, is a profit and market information center for the Bank.
ABank’s Treasury Department has two major responsibilities: managing market risk and acting as a fund management unit. ABank's Treasury Department has the well-defined objective and responsibility of focusing on liability management and serving primarily as a fund management unit for both the Commercial and Retail Banking Departments.
Organizational Set-up
ABank's Treasury has four business units. The Treasury Marketing Unit (TMU) is responsible for sales activities, while the Asset and Liability Management (ALM) Desk manages both the TRY and FX asset and liability positions. The ALM Desk is organized under two separate divisions: the FX management unit and the TRY money market/liquidity management units. The FX division covers TRY/FX and FX/FX activities and plays a crucial role in providing the TMU with competitive pricing, especially for international trade transactions. TRY/Fixed Income unit manages the TRY liquidity of the Bank and determines the pricing of deposits and TRY fixed income instruments. The Trading Desk is responsible for the trading of TRY fixed income, FX and derivatives instruments.
29 ABank Annual Review 2009
Bank's Treasury Department has well-defined objectives and responsibilities as the fund management unit of the bank.
The Treasury Department has a market research team that provides both the Department and the Bank's management with frequent updates on trends and risks in the economy and markets, as well as enabling the branches to fulfill their responsibility of conveying resourceful information to customers concerning market dynamics. The team produces both periodical and special reports, in Turkish and English versions.
Liquidity management both in local and foreign currencies is one of the main priorities of the Treasury, which has performed well even on the cloudy days of strong market fluctuations during the global financial crisis. FX and fixed income market strategies, built on risk-benefit optimization intelligence, have enabled Treasury to perform beyond expectations in 2009.
Treasury Marketing Unit (TMU)
In order to enhance coordination between treasury and marketing activities, TMU works closely with the branches, visits customers regularly, and provides tailor-made solutions for their financial requirements.
Recent developments in risk perception, the needs of the real sector, and the growing financial markets have increased the need for derivatives and a more regulated derivatives market. Placing customer requirements at the forefront, ABank has begun to respond to their hedging needs by strengthening the TMU. The TMU has increased its customer and branch visits and has started to inform both parties about the benefits of derivatives and recent developments in that particular market. The feedback received from the branches has shown that customers have an increasing interest in derivatives products. In addition to increasing customer satisfaction, derivatives operations have become another important profit center within the Treasury. When compared with the EU average and the new members of the EU, Turkey's banking sector and the derivatives market have high development potential. A growing economy and the needs of the real sector have boosted interest in derivative products as a means of risk hedging. The Treasury Department aims to become a powerful player at the forefront of the derivatives market.
Managing Market Risks Prudently
Foreign exchange, interest rate and liquidity risks are calculated at ABank with the Value at Risk (VaR) methodology, in which particular data on the Turkish markets has been thoroughly researched and utilized. The model incorporates limits designed for each type of product. The software package that is currently being used is produced in-house, providing detailed reports on different positions carried, allowing for close control of the balance sheet by the management.
Interest rate risk is tracked with the VAR model. The model provides sensitivity analysis for different types of money market products, including loans, coupon and discount bonds, forwards, FRAs, and interbank placements.
All trading and position limits are determined by the Board of Directors, and positions are reported to ALCO members weekly. The Treasury Control Unit (TCU), which reports to the Internal Control Center, is responsible for monitoring treasury activity for counterparty, price, and liquidity risk limits, as well as for reporting these to ALCO. As a result of the reports, market risks taken by market operations are kept well contained.
30 ABank Annual Review 2009
Corporate and Commercial Banking
Corporate and Commercial Marketing Strategy
ABank’s corporate and commercial marketing strategy is centered on providing world class financial services predominantly to small and medium-sized companies as a specialized bank.
Relying on its experience in Corporate and Commercial Banking (CCB) and its young and dynamic staff, ABank pursues this mission by acting in accordance with the following principals:
- Dynamic and innovative approach - Customer-oriented service - Unwavering commitment to high quality
In this context, SME’s have been identified as the Bank’s core market target.
Organization
ABank’s dynamic and expert CCB staff constitutes one of the Bank’s main advantages in its sector. The primary goal of the marketing group is to satisfy clients’ needs in a timely manner and at the highest possible level of quality through a relationship-driven approach to banking.
The branch marketing staff are responsible for the entire loan process, from application to allocation and monitoring of credit lines, and report to the branch manager. Branch marketing staff and branch managers report directly to the Executive Vice President for Marketing with respect to budget fulfillment and for performance assessment.
The branches, which serve as the Bank’s main marketing units, are complemented by the CCB Department located in the Head Office. The ultimate function of the CCB Department is to coordinate branch marketing units and the Head Office support teams, as well as to provide price quotations and product development services.
In addition to designing new products and determining base sale prices, the department directs potential customers to the most appropriate branch locations and monitors follow up activity. Alongside this function, the department also structures and manages projects – cash management projects first and foremost – assigns and monitors branch targets, assesses branch performance and prepares new branch feasibility reports. When necessary, the CCB team also accompanies branch marketing teams on visits to customers. In coordination with other related departments which function as support units, new products are designed to enhance the cross-sell activities of the Bank.
31 ABank Annual Review 2009
Bank's corporate and commercial banking services rely on dynamic and innovative approach, together with customer-oriented services and unwavering commitment to high quality.
Diversified Product Range
Through its CCB activities, ABank delivers a variety of tailor-made products and services to many of Turkey’s leading companies and conglomerates.
CCB activities include standard commercial banking products and services such as loans, collections, and the financing and settlement of foreign trade transactions, which together constitute the main products that customers demand. In addition, ABank also offers risk management products that enable clients to control financial risks, such as foreign exchange and interest rate risks.
ABank makes every effort to provide its customers with products and services that match particular requirements. Customized solutions are therefore a fundamental part of the Bank’s operations. This approach requires a customer relationship that is both highly responsive and active, and ABank takes pride in its intimate knowledge of its customers’ businesses and their requirements. Understanding customers and creating suitable products and services have been the key elements in ABank’s continuous portfolio growth and profitability.
Functioning as an agency for Turkey’s leading insurance companies, ABank provides customers with insurance instruments that best suit their expectations. This is done through “special solution” insurance applications that address risks envisaged under workplace, transportation, engineering and liability insurance, in addition to the standard insurance products offered to individual clients.
Expertise in SME Banking
Within its CCB activities, ABank also contributes to the growth of SMEs, which account for a significant portion of the Turkish economy, by assuming a guidance and advisory role through the procurement of various banking services and short and medium-term financing instruments. A medium and long-term loan program targeting SMEs was implemented in 2009 in cooperation with KOSGEB (Small and Medium Industry Development Organization).
Companies with an annual turnover of up to USD 10 million are defined as SMEs. In identifying such companies as its strategic target segment, ABank has adopted a relationship-driven client service philosophy in order to draw in these companies. Besides offering customary banking products and services, ABank also offers companies ad hoc financial solutions and develops projects that enhance their management quality and financial performance.
SMEs account for 70% of ABank’s total active corporate-commercial customer portfolio. Although more sizeable project-based loan transactions are undertaken with large corporations, ABank generally aims to distribute risk among a broader customer base, avoiding dependency on a handful of companies for profitability. The Bank accomplishes this through its penetration of the SME segment, and its marketing strategies have been built upon on this pillar. ABank aims to increase its market share particularly in SME segment with its close customer approach and tailor made product and services developed for this segment.
32 ABank Annual Review 2009
2009 Overview of Corporate and Commercial Banking
ABank entered 2009 with a network of 46 branches and maintained that number of branches throughout the year. ABank now has a presence in all of the industrial and trading hubs of Turkey, and as such has taken a crucial step in further increasing the number of corporate-commercial clients to which it has access.
In line with its overall strategy, ABank concentrated on CCB in 2009 and increased its number of active customers by 3%. From 2003 to 2009, ABank’s corporate-commercial customer numbers mainly have displayed a stable and increasing trend. Our clients with no credit lines but with notable volumes of other banking products are labelled as “active clients with no credit lines”, who provide us with risk-free returns.
2006 2007 2008 2009
Clients with Credit Line 4,443 5,097 5,750 5,645
Active clients with No Credit Line 1,997 2,458 2,843 3,184
TOTAL Active Clients 6,440 7,555 8,593 8,829
*Of the 5,645 active clients with credit lines, 70% fall into the category of SMEs with respect to annual turnover volume
Corporate loans and project finance
ABank provides long term project financing facilities to its clients both through its own resources and from sources secured through domestic and international institutions such as the World Bank, KOSGEB (Small and Medium Industry Development Organization), IFC, EIB and Eximbank. These projects are prudently evaluated and screened-out as to fall in line with the long term requirements of these supranational institutions which act as the major creditors.
Cash management products
ABank offers continuous services to all of its retail and corporate customers with conventional cash management products, such as checkbooks, salary payment accounts, utility bill payments (electricity, water etc.), tax and social security premium payments.
33 ABank Annual Review 2009
As a bank specializing in CCB, ABank delivers tailor-made solutions to its customers via project-based cash management products and services, such as the “Direct Debit System” and “Direct Collection System”, which allows for cash flow optimization and the most efficient use of resources. ABank’s bureaucracy-free and dynamic organization, coupled with its tailor-made approach to developing solutions for customers, are equally important parts of the Bank’s broader activities. This approach has enabled ABank to participate in significant projects and achieve unmatched speed in the completion of projects. Direct Debit System is the leading tool of electronic cash collection methods. The system enables cash flows from the sales of goods and services via electronic data exchange under bank guarantee. These projects are designed in conformity with customer requirements and their infrastructure systems.
Service and product development
The CCB Department bases its development of new products and services on requests and demands from the branch network and on the results of its market research. Much of the development work requires cooperation between legal, technical, credit management, and operational units, which the CCB Department coordinates and oversees. The success of new products and services depends not only on marketability, low cost, and adequate returns, but also on a balance between fair pricing and revenue generation, ease of implementation, speed to market, and contingency planning. ABank follows systematic and rigorous workflow structures in its design of new projects, ensuring maximum coordination and efficiency and clear allocation of duties and responsibilities.
Market research
In order to gain access to a wider client base, expand its branch network and be present in the right locations, ABank pursues a quantitative and systematic working modality. This modality relies on field research and scoring on a provincial basis.
ABank’s standard fees and commissions are determined by the CCB Department in accordance with the cost base, which is based on periodic benchmark studies, calculating overall cost of funding base of the Bank.
In addition, the CCB Department channels potential clients to the most conveniently located branches and monitors subsequent actions. Furthermore, customers are visited by the related department heads or by the senior management of the Bank in order to sustain the good business relationship particularly clients with high rate of return potentials.
34 ABank Annual Review 2009
Bank offers a wide array of innovative products that match with particular requirements of customers.
Retail Banking
ABank has decided to re-enter retail banking, targeting select customers with tailor-made products. The retail banking organization has been set up to include both the Head Office and branches.
Ongoing infrastructure and organizational framework of Retail Banking is being conducted, and Individual Banking account managers have begun sales of retail banking products to select customer segments.
Successful results have been attained from these activities, resulting in an expansion of the deposit base and an increase of 41% in the targeted deposit tranches. This approach has been also adopted to bring better and healthier concentration of the deposit base.
For the initiation of SME Banking, infrastructure studies and the necessary development work has been carried out with the relevant parties. A custom-made product sales strategy for the upper and medium groups of customers has also been formed. “Affluent Mass” has been designated as the major customer focus in particular for the retail banking activities.
Internal Systems
ABank’s Internal Systems oversee and coordinate all audit, control, compliance and risk management activities through the Internal Audit, Internal Control Risk Management Departments and Compliance Officer. While each department’s duties and responsibilities are separate and unique as laid out in charters approved by the Board of Directors, the departments coordinate to form a balanced and comprehensive system of internal control. The Internal Systems ensure that all of ABank’s activities conform to governance and organizational structures approved and established by the Bank’s Board of Directors, Audit Committee, Senior Management, and government laws and regulations. All of ABank’s employees are held responsible for upholding management’s strategies and policies, adhering to applicable laws and regulations, and performing their work in a manner that is consistent with the Bank’s operating principals. The Internal Audit and Internal Control Departments issue periodical reports and hold quarterly meetings with the Audit Committee and Bank Risk Committee. These reports and meetings serve as platforms through which the departments’ activities are reviewed and risk management issues and the activities of the risk committees are discussed. Internal Systems of the Bank and affiliates as a whole are reviewed through presentations by management and meetings with the Bank Risk Committee and the Audit Department, which aim at identifying and resolving any weaknesses or deficiencies and seek to ensure that Internal Systems possess the optimum capacity to monitor, measure, and control all risks.
35 ABank Annual Review 2009
Know Your Customer and Anti-Money Laundering
ABank takes all the necessary measures to prevent money laundering. ABank’s KYC and AML vision is to:
• Ensure the Bank’s compliance with international and domestic legal requirements regarding anti-money laundering. • Acquire knowledge about the legal and administrative duties of our employees. • Protect the respectability of the Bank and the quality of the Bank’s customer portfolio.
In order to fulfill the above commitments, ABank adheres to the following policies:
• ABank and its employees are required to know and to comply with information and regulations provided by governmental and professional institutions combating the laundering of proceeds of crime and the financing of terrorism at national and international levels; • ABank employees are trained in their legal and administrative duties in combating the laundering of proceeds of crime and the financing of terrorism, and this training is regularly updated; • In combating the laundering of proceeds of crime, ABank cooperates with any and all kinds of entities and institutions, provided that such cooperation is not in violation of applicable regulations.
In order to comply with the new rules and regulations issued by Banking Regulatory and Supervision Agency (BRSA), a locally-developed AML system has been purchased from a local software house. This new system will bring in new facilities and tools to the Audit and internal control groups.
Internal Audit Department
The responsibilities of the Internal Audit Department cover audit, investigation, and inspection activities to ensure the Bank’s compliance with internal procedures and government laws and regulations; the accuracy and completeness of financial and management information; upholding the principals of efficiency and effectiveness; and engaging in a banking approach that is centered on risk management and income generation.
All audit activities are performed in accordance with International Audit Standards and are based on risk assessment.
The principal activities of the Internal Audit Department include:
Audit Activities: • Periodic audits of all branches, departments, and affiliates • Periodic audits of the Internal Control Coordination and Risk Management Departments • Periodic audits of Compliance with AML Legislation • Periodic IT audits • Inspection and investigation • Follow-up measures to verify that audited units have implemented agreed-upon corrective actions • Periodic Activity Reports to the Audit Committee regarding all audit facilities and non-corrected findings
36 ABank Annual Review 2009
Bank's Internal Systems is committed to the highest level of risk control and management.
Advisory Activities: • Providing recommendations to maximize the efficiency and effectiveness of all banking activities and to minimize and manage risks • Joining all workshops conducted for new projects planned to maximize efficiency of all banking activities • Supplying input on new products and services and providing relevant procedural guidelines • Providing training to maximize performance and efficiency within the Internal Audit Department • Maintaining relations with the Banking Regulatory and Supervision Agency (BRSA) and External Audit Firms
Internal Control Coordination Department
The Internal Control Unit operates under the guidance of the Board Member in charge of internal systems and it is directly responsible to the Board. The Unit carries out its responsibilities to the Board through the Supervision Committee.
The Head Office Control Unit, Branches Control Unit and Fundamental Control and Auxiliary bodies operate under the Unit’s oversight, and employees of the Unit are assigned accordingly.
The Unit is designed to be a part of the bank’s daily functioning and conducts its activities in compliance with Turkish laws, regulations and other official communiqués as well as the Bank’s internal procedures, intrinsic policies and principles. The control functions of the Unit include:
• Controlling of the operational processes related to the implementation of banking activities • Controlling of information systems and communication channels • Controlling of financial reporting systems • Checking the compatibility of new products and transactions and other outstanding or planned activities of the bank with laws and related regulations, customary banking practices and principles
The fundamental duty of the Unit is to preserve the assets of the bank and conduct control and supervision requirements to assure the integrity, and reliability of the accounting and financial reporting systems and the timeliness of the data collection processes, and to ensure that the activities of the Bank are implemented efficiently and in compliance with laws and related regulations and cardinal rules of banking. The Internal Control System and the manner in which it carries out its duties are decided and designed according to the special features of the Bank’s intrinsic activities though the participation of the managers of relevant departments.
In addition to laying the very foundations of the Internal Control System, the Unit also coordinates the various departments that conduct a range of control and supervisory duties in order to assure the integrity of the overall control function.
37 ABank Annual Review 2009
The Unit is authorized to monitor, examine and control the activities of branches, departments based in the head office and subsidiaries subject to consolidation on a daily, weekly, monthly and other periodic basis, in addition to spot inspections. Moreover, the Unit also conducts special controls as requested by the Board and the Supervisory Committee.
In order to monitor, examine and control the safe implementation of each function of the Bank through internal control mechanisms, the staff of the Internal Control Unit requires information based on reporting from relevant departments, and it conducts examinations of various control documents and other processes based on specific or general observations. The findings are reported or processed as warnings to be notified to the relevant departments. Moreover, the Unit staff is authorized to demand additional explanations from the bank’s employees or seek their opinion regarding matters that are controlled, examined and monitored.
The Internal Control Unit also follows up on corrections to any reported deficiencies. A steady flow of information is provided by the relevant department to the Internal Control Unit relating to the correction of the problem as determined through the Unit’s findings.
The staff of the Unit presents the outcomes of their studies to the Internal Control Coordinator. The Coordinator then prepares and communicates monthly reports to the Supervisory committee, the CEO and the relevant members of the senior management, along with advice and recommendations. The Coordinator may also share the findings with branch and other smaller unit managers if deemed necessary. Periodic assessments based on these reports serve to develop and amend existing control systems and to ensure that necessary precautions are taken. These discussions are presented to the Supervisory Committee during quarterly meetings.
Risk Management Department
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 (economic capital) 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.
ABank’s Risk Management Policy covers market, credit, and liquidity risk management. ABank places a high degree of importance on risk management. Every stage of the Bank’s operations is structured in line with the Bank’s risk management principles and every employee undertakes a commitment to those principles. ABank’s size and flexibility also enable it to adopt its risk management policies to continuously changing market conditions. ABank’s risk management policy ensures the quantification of actual risks, the establishment of active risk limits, and the optimal allocation of capital.
ABank aims to adopt the best practices regarding risk management and designs all processes in compliance with the requirements of the Basel II & Capital Requirements Directive (CRD), while also significantly enhancing the risk management capabilities of the Bank and thereby delivering substantial business benefits across the organization.
38 ABank Annual Review 2009
Organizational Structure
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 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.
The Risk Management Department, working independently from the executive functions and reporting to the Board of Directors, is organized under three groups: market, credit and operational risk. Each group has the responsibility of identifying, measuring, monitoring, controlling and managing these relevant risks.
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.
39 ABank Annual Review 2009
mproved feasibility, advanced cost efficiency and optimization of operations relating to technology and organization, play a significant role in the success of ABank.
The validation and ongoing monitoring of the grading models are the responsibilities of the Risk Management Department, and the studies for the replacement of current rating systems with most up-to-date ones with higher discriminatory power are ongoing.
Market Risk
Market risk is the risk of potential loss arising from the adverse effects of interest rates, exchange rates and equity price volatility inherent in the Bank's trading portfolio.
ABank calculates the regulatory capital requirement for market risk using the standardized method within the framework of Banking Regulatory and Supervision Agency (BRSA) 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 trading portfolio, is calculated using the parametric VaR method, adjusted for EWMA (Exponentially Weighted Moving Average) enhanced by a mixture of two normal densities, one with low (actual) volatility and the other with high volatility. In order to manage the market risk efficiently and to be consistent with the risk appetite, position limits for asset classes, an overall "Bank Risk Tolerance" and VaR limits for each risk factor are determined. Limit monitoring is done daily by the Risk Management Group. VaR results are supported by regular stress tests and scenario analysis. Throughout 2009, the overall VaR limit for trading activities was TRY 4 million, at 99% confidence and with a one-day holding period.
The Bank utilizes backtesting to verify the predictive power of the value-at-risk calculations. In backtesting, theoretical gains/losses calculated by VAR on positions at the close of each business day are compared with the actual gains/losses arising from these positions on the next business day. The assumptions used in the VaR model are reviewed and revised as needed based on the results of the backtesting process.
Interest Rate Risk in Banking Book
Even though the Bank is exposed to structural interest rate risk on its balance sheet due to the nature of its existing activities, it ensures that this risk remains within pre-defined limits. The ALCO aims to protect the economic value of equity, while sustaining a stable earnings profile. Duration/GAP analyses, which rely on calculations of net discounted future cash flows of interest rate sensitive balance sheet items, are conducted to manage this risk.
The bank runs net economic value sensitivity scenarios with changes in interest rates and interest rate margins, so as to calculate their impact on net economic value, as defined in the “The Second Pillar- Supervisory Review Process” section of the “International Convergence of Capital Measurement and Capital Standards” published by Basel Committee in June 2004. Beside the Basel standard interest rate shock scenario, other internally defined scenarios are also simulated.
ABank uses the Cox-Ingersoll-Ross (CIR) interest rate model for simulation of future interest rate volatility. Trading and non-trading risks are approved separately by the Board, and the Market Risk Committee is given discretion in defining the methodology used in converting available economic capital into limits for trading and non-trading market risks.
40 ABank Annual Review 2009
Liquidity Risk
Liquidity Risk is defined as the current or prospective risk to earnings and capital arising from a bank’s inability to meet its liabilities – either due to balance sheet structure or market movements – when they are due. ABank aims to maintain its ‘cash and available funding sources/ deposits’ ratio within defined limits.
Liquidity levels are rigorously monitored, and ABank operates under strict, stress-tested limits. The Bank takes a unified approach to fund raising opportunities for both TRY and foreign currency. The Market Risk Committee monitors liquidity-related issues and assesses the Bank’s ability to withstand periods of strain.
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. ABank’s well-established 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 completed with the participation of business units and IT.
Business Development
The Business Development Department creates work flows, feasibility and cost efficiency analysis reports; improves and streamlines transaction processes and service quality; creates cost saving solutions; and monitors all work flows throughout every unit of the Bank.
The department also sets forth system and procedural requirements and leads feasibility and conceptual work throughout the Bank. These functions are conducted in cooperation with the Information Technologies Department so as to coordinate work simplification and improve the functioning of the central operations departments and branches.
Strategies
Priority is given to: • coordinating all needs and projects of the branches and central operations relating to technology and organization; • Analyzing and improving the feasibility and cost efficiency of all of the Bank’s work flows, and infrastructure.
41 ABank Annual Review 2009
elivery of excellence to customers, honesty, discipline, creativity and motivation for success lie in the core of ABank's human resources policy.
Human Resources
ABank’s human resource policy encompasses the following values: • Delivery of excellence to customers • Unwavering commitment to honesty • Upholding banking discipline • Maintaining an environment in which success is rewarded • Encouraging creativity • Never abandoning social responsibilities
ABank’s Human Resources Department plays a strategic role for the Bank by laying the foundation upon which the various business elements cooperate to achieve the Bank’s goals.
Recruitment
ABank generally fulfills its vacancies at managerial levels internally. As of year-end 2009, 73% of the Bank’s managers had been promoted from within the Bank. In support of this approach, ABank implements “management trainee” programs for new university graduates, who are carefully selected based on their academic backgrounds, their performance in a series of examinations, and their English language skills. After three months of intensive basic banking training, these new recruits are placed in relevant departments and branches within the Bank. In 2009, the Bank recruited 87 staff, who were hired primarily for the operations and marketing departments, to reach a total of 999 personnel. The turnover rate stood at 9%.
Number of Personel 2006 2007 2008 2009 Headquarters 221 191 240 255 Centralized operations 120 140 140 137 Branches 405 537 626 607 Total personnel 680 868 1006 999
Gender and Age 2006 2007 2008 2009 Male staff 55% 55% 54.5% %53 Female staff 45% 45% 45.5% %47 Average age 33 33 33 34
Educational Background of Staff 2006 2007 2008 2009 Post Graduate Degrees 43 85 96 91 University Graduate 420 559 667 673 High School Graduate 180 186 208 204 Primary School Graduate 37 38 35 31 Number of Personnel Fluent in a Foreign Language 244 298 356 380 Total Personnel 680 868 1006 999
Average Seniority 2006 2007 2008 2009 5 4,5 4 5
42 ABank Annual Review 2009
Performance Evaluation
The Bank’s performance evaluation system is structured to give employees the opportunity for continuous development towards concrete and measurable goals. ABank’s performance evaluation methodology considers individual, department, and overall Bank targets as an integrated whole. An Internal Service Evaluation assesses the effectiveness of exchanges between branches and central units and is an important tool in detecting areas of potential improvement in quality of service, teamwork, and coordination. The outcomes of performance evaluations are used to support decisions on promotion, which are made by the Bank’s Personnel Committee.
Training
ABank organizes comprehensive and intensive training programs for the staff of all of its departments. The Bank places top priority on maximizing the knowledge and skills of its staff, and the Human Resources Department is instrumental in facilitating relevant training programs. In 2009, ABank’s employees received nearly 16,095 hours of training, for an average of 16 hours per person. The personal satisfaction rate of the training program measured 4.5 out of 5. Throughout 2009, the HR Department organized 54 internal training programs.
Working Environment
The degree of satisfaction the working environment brings the Bank’s staff, directly affects the degree of efficiency of the staff. ABank is very conscientious about creating harmony and cooperation in this regard. Hierarchical divisions are shunned, doors are always open, and top managers are accessible to all. Each department and branch at ABank has the opportunity to assess the services it receives from the others under a system of cross evaluation, which also applies to top management. Awarded the “Special Award for Personnel Relations” in 2001 by Management Center Turkey, ABank continues working hard to help its employees connect closely on a personal and professional level.
A-Club
A-Club is a platform that organizes regular social events during the course of the year and brings together the various members of the ABank family. A-Club was jointly founded by the Bank and its employees, and it serves as an important bridge linking professional and social life. A-Club is also a valuable medium for encouraging communication and interaction between the Bank’s staff and various departments. In 2009, A-Club organized 16 different social events.
43 ABank Annual Review 2009
Bank continues to invest in its IT structure, which has resulted in powerful, flexible, and reliable systems.
Information Technology
Continuous upgrading and investment in IT systems are fundamental principles at ABank. The Bank’s system base is platform and brand-independent and provides maximum flexibility, sophistication, and speed in the development of new applications and technology sub-structures. In today’s banking environment, secure and cutting-edge technology is a critical source of competitive advantage, and ABank takes pride in maintaining up-to-date standards. Some examples of how ABank distinguishes itself include its internal development of Internet services, compact development platform for new software development, elegant middleware and application administration, and relational database model.
New Projects in 2009
Credit Application / Approval Workflow In order to increase efficiency and productivity in the credit application and approval process in the bank, a lotus notes based workflow system has been developed internally in coordination with the relevant parties in the bank. A new Web-based system has enabled us to work remotely (irrespective of physical location and office hours). The same team is working on the second phase of this very important Bank-wide project, which will enable it to go live on other subsystems such as the rating system, collaterals, etc.
Disaster Recovery Center (DRC) Major improvements have been achieved in 2009 concerning the disaster recovery center in Ankara. The backup data lines of all the branches have been linked to the DRC. SQL databases have begun to be replicated periodically. Almost all the system programs have been copied to the DRC, which has enabled us to access our entire system from Ankara.
Upgrade of branch data lines. The capacity of the existing data lines have been upgraded (512 to 1MB) to improve system performance. Parallel to this capacity increase, new G.SHDSL technology has also been applied in order to benefit from new technology features, which has also led to considerable cost savings on technology expenditures.
Virtualisation In order to conform to new technologies, server consolidation and virtualization began 2009. In doing so, significant savings have been achieved with minimum effort. After virtualization, cloud computing will be considered in the upcoming years as a way to further increase efficiency and productivity, as well as decrease costs in the Technology department.
SAP In line with our retail banking plans and organic growth strategies, a new fully automated "budget and financial performance measuring system" has been procured from SAP. This new system will enable us to manage the budgeting process efficiently. The second phase of the project will address measurement of the financial performance of the branches, portfolios and relevant managers.
44 ABank Annual Review 2009
Anti Money Laundering (AML) In order to comply with the new rules and regulations issued by BRSA, a locally developed AML system has been purchased from a local software house. This new system will bring in new facilities and tools to the Audit and Internal Control Groups.
System Improvements Retail banking-related modules in the existing core banking system have been re-engineered in line with business requirements. By doing so, considerable improvement has been achieved in the existing functionalities of our systems.
In this regard, a Time Deposit system has been developed to address to the current needs of our clients and to meet new local requirements.
A Customer Management System has been developed to maintain a range of static and dynamic customer data. Approximately 100 different fields are entered for each and every customer in our database, which are then used for local as well as MIS reporting. All transactions are linked to various fields of this data base, thus allowing for easy extraction of an array of Profitability reports from the system (account, customer, sector, etc.).
Compliance and Audit 2009 was a year of success from the compliance and BRSA audit points of view. The BT department spent considerable time and effort on compliance issues in 2009, and as a direct consequence of these efforts, BT has obtained positive results from BRSA audit as well as from internal and group audits. e-Government Projects Some of the government-related IT projects completed in 2009 are as follows.
- e-Tax Parallel to the existing off-line tax payments, government authorities have requested us to provide an on- line tax payment system as well. Financial institutions that are not part of the on-line system would be kept out of the county’s tax payment mechanism. ABank gave top priority to this project and completed it on time.
- e-Bidding In line with the State Procurement Law, an Electronic State Procurement Platform has been established by government authorities. Now banks are expected to take part electronically in bidding process by providing Letters of Guarantee, References, etc. ABank is also taking the initiative on this very important project.
- e-Pledge This project has been initiated by the Security Department, which will allow for the pledging of vehicles and related processes to be conducted through the Internet and electronic means. Efficiency and productivity gains are the main goals of the project.
45 ABank Annual Review 2009
- e-Sequestration This project has served to overcome the cumbersome manual process of sequestration, and the life cycle of an individual sequestration process has been shortened from several weeks to a day. ABank was one of the first banks to switch seamlessly to this platform.
- IBAN project The Central Bank of Turkey has mandated that all banks in the country use the International Bank Account structure. By doing so, all the Turkish banks have unique account numbers both domestically and globally. This was one of the financial sector’s major challenges, due to the massive number of client accounts, workload, communication, customer management, customer instructions, etc. ABank gave utmost importance to this project in 2009. The target date was January 1, 2010 and ABank went live on the target date without any major or minor issues, neither from clients nor other financial institutions in Turkey.
46 ABank Annual Review 2009
BANK FINANCIAL SUBSIDIARIES
AYat›r›m
AYat›r›m is a wholly-owned subsidiary of ABank and acts as a boutique investment bank specializing in asset management and brokerage services for domestic and international clients in the Turkish equity and derivatives markets. Founded in 1997, Alternatif Yatirim A.fi. is a member of the ‹stanbul Stock Exchange, the Turkish Derivatives Exchange and is regulated by the Capital Markets Board of Turkey.
The company’s market share of the overall trading volume of the Istanbul Stock Exchange was 0.5% in 2009. Its market share in the Turkish derivatives market was 0.7% for the year.
The asset management unit of AYat›r›m manages 6 mutual funds for ABank and has USD 52 million of assets under management, and provides portfolio management and investment consultancy services. The company also manages Alternatif Yat›r›m Ortakl›¤›, which is listed on the ISE.
AYat›r›m distributes its products via five branches, a call center, and the Internet. ABank branches also act as agents of AYat›r›m. The average number of employees in 2009 was 52.
Alternatif Yat›r›m Ortakl›¤›
Alternatif Yat›r›m Ortakl›¤› is an ABank subsidiary that was established in 1995. Operating under the regulatory framework of the Capital Markets Board, the company’s main activities involve the management of stock, repo and other securities portfolios on domestic exchanges. Alternatif Yat›r›m Ortakl›¤› is the 5th largest investment trust in Turkey and holds a 5.2% market share of assets managed by investment trusts in Turkey.
47 ABank Annual Review 2009
NADOLU GROUP FINANCIAL SUBSIDIARIES
Alternatif Finansal Kiralama A.fi. (ALease), ‹stanbul
Established in 1997 as the Anadolu Group’s leasing arm, ALease has been a prominent player in the leasing sector since its inception. Thanks to its proficient, young and dynamic team, well-defined business processes and shrewd management philosophy, ALease is among the growing companies in the sector.
In 2009, ALease had a total business volume of USD 70 million though 188 transactions, and the Company increased its market share from 2.0% in 2008 to 2.6 % in 2009.
ALease’s total assets stood at USD 211 million in 2009, and it posted USD 12.8 million in net profit.
Extending support to SMEs since its foundation, ALease persevered unyieldingly in this mission and maximized awareness of its brand among vendors. Through its improved sales team and the increased number of sales points accessed, the Company upgraded its strategy to finance low-volume transactions to medium-scale transactions.
Vendor leasing and the branch network of ABank form the core of ALease’s marketing and sales strategy. The strength derived from working through ABank branches and many years of vendor leasing give the company strong muscle in offering expansive geographical coverage.
Number of employees: 50
Key highlights (USD Million) 2009 2008 2007
Lease receivables, net 176 190 193
Total Assets 211 219 219
Total Equity 45 32 34
Transaction Volume 70 105 156
48 INANCIAL STATEMENTS*
Strong capital base, operational efficiency and customer-awareness underpin the ongoing success and reputation of ABank
*The enclosed CD contains the full audited consolidated financial statements for the year ended December 31, 2009 ABank Annual Review 2009
Alternatifbank Anonim fiirketi Consolidated Balance Sheet as at December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
December 31, December 31, ASSETS Notes 2009 2008 Cash and balances with central bank 4 143.760 114.672 Deposits with banks and other financial institutions 4 57.390 363.436 Other money market placements 4 17.384 400.789 Reserve deposits at the central bank 5 69.942 96.913 Financial Assets at Fair Value through Profit or Loss (Net) 6 27.235 32.430 Derivative financial instruments 17 7.237 28.912 Loans and receivables 7 2.709.620 2.367.283 Available for sale financial assets 6 31.775 74.904 Held to maturity investments 6 475.337 189.271 Investment property 8 12.355 9.265 Premises and equipment (net) 9 16.879 20.793 Intangible assets (net) 10 2.551 2.240 Deferred tax assets (net) 16 7.214 1.968 Other assets 11 34.341 39.290 Assets classified as held for sale 12 28.966 12.727 Total Assets 3.641.986 3.754.893
December 31, December 31, LIABILITIES Notes 2009 2008 Deposits from other banks 13 53.422 1.244 Customers' deposits 13 2.494.884 2.650.574 Other money market deposits 13 101.416 17.332 Derivative financial instruments 18 8.688 27.385 Funds borrowed 14 397.223 533.095 Obligations under finance leases 15 2.278 4.003 Other liabilities 16 109.122 111.882 Provisions 16 12.785 9.054 Income tax payable 17 447 - Total liabilities 3.180.265 3.354.569
EQUITY Share capital issued 19 300.000 300.000 Share premium 85 83 Unrealized gains on available for sale investments 287 2,837 Legal reserves and accumulated deficits 143.827 83.355 Equity attributable to equity holders of parent 444.199 386.275 Minority interest 17.522 14,049 Total Equity 461.721 400.324
Total Liabilities And Equity 3.641.986 3.754.893
50 ABank Annual Review 2009
Alternatifbank Anonim fiirketi Consolidated Statement of Income For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
January 1- January 1- Notes December 31, 2009 December 31, 2008 Interest income Interest on loans and advances 378.697 397.561 Interest on securities 80.007 39.531 Interest on deposits with other banks and financial institutions 1.205 7.620 Interest on other money market placements 2.981 11.743 Other interest income 11.935 12.400 Total interest income 474.825 468.855 Interest expense Interest on customer deposits (197.094) (215.981) Interest on other money market deposits (12.429) (3.821) Interest on funds borrowed and deposits from other banks (21.533) (32.792) Other interest expense (1.886) (685) Total interest expense (232.942) (253.279) Net interest income 241.883 215.576
Provision for impairment of loans and advances (72.208) (42.184) Net interest income after provision for impairment of loans and advances 169.675 173.392 Foreign exchange loss (24.424) (10.528) - Derivative instruments (35.326) 21.457 - Other 10.902 (31.985) Net interest income after foreign exchange gain and provision for impairment of loans and advances 145.251 162.864 Other operating income Fees and commissions income 23 36.523 32.348 Income from banking services 3.877 3.099 Gains less losses from trading securities (1.387) (21.495) Gains less losses from investment securities 6.208 (424) Other income 25 7.808 4.258 53.029 17.786 Other operating expense Fees and commissions expense 23 (8.102) (9.460) Salaries and employee benefits 24 (72.548) (61.572) Depreciation and amortization (5.885) (4.977) Taxes other than on income (2.935) (3.026) Other expenses 25 (30.995) (31.819) (120.465) (110.854)
Income from operating activities before income tax 77.815 69.796
Income tax 17 (13.709) (16.183) Current income tax (19.027) (8.114) Deferred income tax 5.318 (8.069) Net profit for the year 64.106 53.613
Attributable to: Equity holders of the parent 60.116 58.007 Minority interest 3.990 (4.394)
Earnings per share (full TRY) 21 0,204621 0,258654
51 ABank Annual Review 2009
IRECTORY
Head Office Central Operations and Technology Center Cumhuriyet Cad. No: 46 Kaptanpafla Mah. Piyalepafla Bulvar› 34367 Elmada¤ - ‹stanbul Ortado¤u Plaza Kat: 14-15-16-17 No: 73 Tel : +90 212 315 65 00 (pbx) 34384 fiiflli - ‹stanbul Fax : +90 212 233 15 00 Tel : +90 212 314 27 00 (pbx) Fax : +90 212 314 29 69
Main Branch Bodrum Branch ‹kitelli Branch Manisa Branch Cumhuriyet Cad. No:46/A K›br›s fiehitleri Cad. No: 219 ‹kitelli Organize Sanayi Bölgesi 75. Y›l Mah. Bahri Sar›tepe Cad. 34367 Elmada¤ - ‹stanbul 48400 Yeniköy - Bodrum Demirciler Sanayi Sitesi No:67 Manisa Tel: +90 212 315 65 00 pbx Tel: +90 252 313 90 07 pbx G-1Blok No: 484 Tel: +90 236 233 94 30 pbx Fax: +90 212 232 99 07 Fax: +90 252 313 42 30 34306 Küçükçekmece - ‹stanbul Fax: +90 236 236 03 78 Tel: +90 212 671 46 43 pbx Adana Branch Bursa Branch Fax: +90 212 671 42 81 Maslak Branch Ziyapafla Bulvar› Refah Apt. K›rcaali Mah. Kayal› Sok. Büyükdere Cad. No: 29/A 01130 Adana Ortaklar ‹fl Merkezi No: 44 ‹stanbul Deri ve Endüstri Serbest Nurol Plaza No:255-F Tel: +90 322 459 18 88 pbx 16220 Bursa Bölge Branch 34398 Maslak - ‹stanbul Fax: +90 322 458 35 73 Tel: +90 224 272 68 80 pbx Hakk› Matrafl Cad. No:11 Tel: +90 212 276 57 00 pbx Fax: +90 224 272 68 90 34953 Tuzla Fax: +90 212 276 43 72 Alanya Branch Tel: +90 232 422 69 10-11 pbx Güllerp›nar› Mah. Çevreyolu Cad. Bursa Nilüfer Branch Fax: +90 232 463 90 19 Mersin Branch Bulvar Palas Apt. No: 286 ‹zmir Yolu Girifli Camii fierif Mah. Dükkan No:1 ve 2, Daire No:3 F.S.M Bulvar› No: 128/19 ‹zmir Branch ‹stiklal Cad. No:32 Alanya - Antalya 16010 Bursa fiehit Nevres Bulvar› No:23/A 33033 Mersin Tel: +90 242 511 06 08 pbx Tel: +90 224 247 36 00 pbx 35210 Alsancak, ‹zmir Tel: +90 324 237 90 00 pbx Fax: +90 242 513 89 02 Fax: +90 224 245 40 97 Tel: +90 232 422 69 10 pbx Fax: +90 324 237 78 71 Fax: +90 232 463 90 19 Alltunizade Branch Caddebostan Branch Rami Topçular Branch Mahir ‹z Caddesi Ba¤dat Cad. Çetintafl Apt. No:291 ‹zmir Gaziemir Branch Rami K›flla Cad. Cicoz Yolu No: 20 A Blok Altunizade 34728 Caddebostan - ‹stanbul Akçay Cad. No:213/1 Bülent Kuflcu ‹fl merkezi No:1 34662 Üsküdar - ‹stanbul Tel: +90 216 363 49 90 pbx 35410 Gaziemir - ‹zmir Eyüp - ‹stanbul Tel: +90 216 474 74 88 pbx Fax: +90 216 411 89 07 Tel: +90 232 252 55 77 pbx Tel: +90 212 544 62 10 pbx Fax: +90 216 474 70 99 Fax: +90 232 252 18 45 Fax: +90 212 544 62 40 Çorlu Branch Anadolu Sagl›k Merkezi Branch K›l›ço¤lu Plaza Kazimiye Mah. ‹zmir Karfl›yaka Branch Sahra-i Cedit Branch Anadolu Cad. No:1 Çay›rova Mevkii Omurtak Cad. ABlok No:4 Cemal Gürsel Cad. No: 164/1 fiemsettin Günaltay Cad. 41400 Gebze - ‹zmit 59850-59860 Çorlu - Tekirda¤ 35600 Karfl›yaka - ‹zmir No:213 Osmanl› Sitesi Tel: +90 262 678 54 17 pbx Tel: +90 282 673 63 63 pbx Tel: +90 232 369 99 00 pbx 34738 Erenköy - ‹stanbul Fax: +90 262 653 63 14 Fax: +90 282 673 63 73 Fax: +90 232 369 19 67 Tel: +90 216 363 48 10 pbx Fax: +90 216 360 21 75 Ankara Ostim Branch Denizli Branch ‹zmir P›narbafl› Branch Al›nteri Bulvar› No:80 Saraylar Mah. 2.Ticari yol No:32 Kemalpafla Cad. Bina Samsun Branch 06370 Ostim - Ankara 20100 Bayramyeri - Denizli No:19 /A Daire No:19/A Merkez Kale Mah. Tel: +90 312 385 69 10 pbx Tel: +90 258 262 42 62 pbx 35060 P›narbafl› - ‹zmir Kaz›mpafla Cad. No: 21 Fax: +90 312 385 69 20 Fax: +90 258 242 65 90 Tel: +90 232 479 90 10 pbx 55000 Samsun Fax: +90 232 479 90 14 Tel: +90 362 432 34 55 pbx Ankara Siteler Branch Efes Merter Branch Fax: +90 362 432 63 87 Demirhendek Cad. No:128 Bahçelievler Mah. Adnan Kahveci ‹zmit Branch 06160 Siteler - Ankara Bulvar› No:5 Karabafl Mah. Sirkeci Branch Tel: +90 312 348 34 00 pbx Bahçelievler - ‹stanbul Cumhuriyet Cad.No: 180 Bahçekap› Cad. No:29 Fax: +90 312 348 68 08 Tel: +90 212 449 38 67 41100 ‹zmit - Kocaeli Arpac›lar 34112 Sirkeci - ‹stanbul Fax: +90 212 677 55 13 Tel: +90 262 322 06 05 pbx Tel: +90 212 511 95 09 pbx Ankara Branch Fax: +90 262 322 06 30 Fax: +90 212 511 99 48 Cinnah Cad. No: 56/14 Eskiflehir Branch 06690 Çankaya - Ankara Sakarya Cad. No:56/A Kartal Branch fiiflli Branch Tel: +90 312 442 21 40 pbx 26100 Eskiflehir Ankara Asfalt› Yan Yol. Halaskargazi Cad. Fax: +90 312 442 41 61 Tel: +90 222 230 71 72 pbx Kurfal› Mah. Kartal ‹fl Merkezi Çankaya Apt. No. 150/ A Fax: +90 222 230 70 92 B Blok 34861 Kartal - ‹stanbul 34371 fiiflli - ‹stanbul Antalya Branch Tel: +90 216 452 44 44 pbx Tel: +90 212 219 41 51 pbx Balbey Mah. ‹smet Pafla Cad. Gaziantep Branch Fax: +90 216 452 44 37 Fax: +90 212 219 41 63 No: 3-4 Gazi Muhtar Pafla Bulvar› 07040 Antalya Efes ‹fl Merkezi No:13 Kayseri Branch Trabzon Branch Tel: +90 242 243 22 03 pbx 27090 Gaziantep Cumhuriyet Mah. Kemerkaya Mah. Marafl Cad. Fax: +90 242 247 77 85 Tel: +90 342 220 06 66 pbx Millet Cad. No:36 Ahmet Selim Teymur Sok. Fax: +90 342 220 03 91/92 38040 Kayseri No:5 /A 61200 Trabzon Avc›lar Branch Tel: +90 352 222 11 11 pbx Tel: +90 462 322 31 55 pbx Cihangir Mah. E-5 Yanyol Gebze Branch Fax: +90 352 222 35 40 Fax: +90 462 321 95 46 Düz Sok.No. 1 Osman Y›ld›z Mah. 34840 Avc›lar - ‹stanbul ‹stanbul Cad. No: 64 Konya Branch Tuzla O. S. B. Branch Tel: +90 212 422 24 10 pbx 41400 Gebze - Kocaeli Fevzi Çakmak Mah. O.S.B Kimya Sanayicileri Fax: +90 212 422 76 65 Tel: 0262 643 20 00 pbx Ankara Yolu Üzeri No:212 Organize Sanayi Bölgesi Fax: 0262 643 61 44 42090 Karatay - Konya Melek Aras Bulvar› A Blok No:2 Bak›rköy Branch Tel: +90 332 342 54 66 pbx Kat:2 Tuzla - ‹stanbul ‹ncirli Cad. No:106 Güneflli Branch Fax: +90 332 342 24 29 Tel: +90 216 593 17 99 pbx 34144 Bak›rköy - ‹stanbul Gülbahar Cad. Evren Mah. Fax: +90 216 593 17 95 Tel: +90 212 542 56 54 pbx Günnur Sok. No:1 Kozyatag› Branch Fax: +90 212 543 53 18 34212 Güneflli - ‹stanbul Ankara Asfalt› Üzeri PTT Ümraniye-‹mes Branch Tel: +90 212 550 63 53 pbx Hastanesi Yan› Umut Sok. No:12 ‹mes Sanayi Sitesi C Blok Bayrampafla Branch Fax: +90 212 550 81 37 34752 ‹çerenköy - ‹stanbul 302 Sok. No: 2 Yeni Maltepe Cad. No:2 Do¤a Plaza Tel: +90 216 574 79 74 pbx 34735 Yukar› Dudullu - ‹stanbul 34030 Bayrampafla - ‹stanbul Had›mköy Branch Fax: +90 216 573 74 11 Tel: +90 216 364 53 53 pbx Tel: +90 212 501 53 00 pbx Akçaburgaz Mah. Gürp›nar Fax: +90 216 364 38 51- 52 Fax: +90 212 501 43 15 Had›mköy Yolu No: 190 Levent Branch Esenyur, Had›mköy - ‹stanbul Eski Büyükdere Cad. No:27 Tel: +90 212 886 85 50 pbx 34330 4. Levent - ‹stanbul Fax: +90 212 886 11 82 Tel: +90 212 280 62 10 pbx Fax: +90 212 280 60 72
52
Alternatifbank Anonim fiirketi Consolidated Balance Sheet as at December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
December 31, December 31, ASSETS Notes 2009 2008 Cash and balances with central bank 4 143.760 114.672 Deposits with banks and other financial institutions 4 57.390 363.436 Other money market placements 4 17.384 400.789 Reserve deposits at the central bank 5 69.942 96.913 Financial Assets at Fair Value through Profit or Loss (Net) 6 27.235 32.430 Derivative financial instruments 17 7.237 28.912 Loans and receivables 7 2.709.620 2.367.283 Available for sale financial assets 6 31.775 74.904 Held to maturity investments 6 475.337 189.271 Investment property 8 12.355 9.265 Premises and equipment (net) 9 16.879 20.793 Intangible assets (net) 10 2.551 2.240 Deferred tax assets (net) 16 7.214 1.968 Other assets 11 34.341 39.290 Assets classified as held for sale 12 28.966 12.727 Total Assets 3.641.986 3.754.893
December 31, December 31, LIABILITIES Notes 2009 2008 Deposits from other banks 13 53.422 1.244 Customers' deposits 13 2.494.884 2.650.574 Other money market deposits 13 101.416 17.332 Derivative financial instruments 18 8.688 27.385 Funds borrowed 14 397.223 533.095 Obligations under finance leases 15 2.278 4.003 Other liabilities 16 109.122 111.882 Provisions 16 12.785 9.054 Income tax payable 17 447 -- Total liabilities 3.180.265 3.354.569
EQUITY Share capital issued 19 300.000 300.000 Share premium 85 83 Unrealized gains on available for sale investments 287 2,837 Legal reserves and accumulated deficits 143.827 83.355 Equity attributable to equity holders of parent 444.199 386.275 Minority interest 17.522 14,049 Total Equity 461.721 400.324
Total Liabilities And Equity 3.641.986 3.754.893
The accompanying notes form an integral part of these financial statements.
2 Alternatifbank Anonim fiirketi Consolidated Statement of Income For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
January 1- January 1- Notes December 31, 2009 December 31, 2008 Interest income Interest on loans and advances 378.697 397.561 Interest on securities 80.007 39.531 Interest on deposits with other banks and financial institutions 1.205 7.620 Interest on other money market placements 2.981 11.743 Other interest income 11.935 12.400 Total interest income 474.825 468.855 Interest expense Interest on customer deposits (197.094) (215.981) Interest on other money market deposits (12.429) (3.821) Interest on funds borrowed and deposits from other banks (21.533) (32.792) Other interest expense (1.886) (685) Total interest expense (232.942) (253.279) Net interest income 241.883 215.576
Provision for impairment of loans and advances (72.208) (42.184) Net interest income after provision for impairment of loans and advances 169.675 173.392 Foreign exchange loss (24.424) (10.528) - Derivative instruments (35.326) 21.457 - Other 10.902 (31.985) Net interest income after foreign exchange gain and provision for impairment of loans and advances 145.251 162.864 Other operating income Fees and commissions income 23 36.523 32.348 Income from banking services 3.877 3.099 Gains less losses from trading securities (1.387) (21.495) Gains less losses from investment securities 6.208 (424) Other income 25 7.808 4.258 53.029 17.786 Other operating expense Fees and commissions expense 23 (8.102) (9.460) Salaries and employee benefits 24 (72.548) (61.572) Depreciation and amortization (5.885) (4.977) Taxes other than on income (2.935) (3.026) Other expenses 25 (30.995) (31.819) (120.465) (110.854)
Income from operating activities before income tax 77.815 69.796
Income tax 17 (13.709) (16.183) Current income tax (19.027) (8.114) Deferred income tax 5.318 (8.069) Net profit for the year 64.106 53.613
Attributable to: Equity holders of the parent 60.116 58.007 Minority interest 3.990 (4.394)
Earnings per share (full TRY) 21 0,204621 0,258654
The accompanying notes form an integral part of these financial statements.
3 Alternatifbank Anonim fiirketi Consolidated Statement Of Comprehensive Income For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
January 1- January 1- December 31, 2009 December 31, 2008 Profit for the period 60.116 58.007
Change in proportion held by minority 356 324
Other comprehensive income
Fair value gains on avaiable-for sale financial assets , net of tax (2.556) 2.757
Net change in fair values (2.091) 2.798 Net amount transferred to income (465) (41)
Currency translation differences 6 -
Other comprehensive income for the period, net of tax (2.550) 2.757
Total comprehensive income for the period 57.922 61.088
The accompanying notes form an integral part of these financial statements.
4 Alternatifbank Anonim fiirketi Consolidated Statement Of Changes In Shareholders’ Equity For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
Attributable to Equity Holders of Parent
Equity Portion Legal Equity Unrealized Gains of Reserves and Attributable to Adjustment to on Available for Subordinated Share Capital Accumulated Equity Holders Minority Share Capital Share Capital Sale Investments Loans Premium Deficit of the Parent Interest Total TRY’000 TRY’000 TRY’000 TRY’000 TRY’000 TRY’000 TRY’000 TRY’000 TRY’000
At 1 January 2008 224.265 - 79 - 72 25.025 249.441 19.057 268.498 Capital increase 75.735 - - - 11 - 75.746 - 75.746 Total comprehensive income for the period - - 2.758 - - 58.330 61.088 (5.008) 56.080
At December 31,2008 300.000 - 2.837 - 83 83.355 386.275 14.049 400.324
At 1 January 2009 300.000 - 2.837 - 83 83.355 386.275 14.049 400.324
Total comprehensive income for the period - - (2.550) - 2 60.472 57.924 3.473 61.397
At December 31,2009 300.000 - 287 - 85 143.827 444.199 17.522 461.721
The accompanying notes form an integral part of these financial statements.
5 Alternatifbank Anonim fiirketi Consolidated Statement Of Cash Flow For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
January 1- January 1- Notes December 31, 2009 December 31, 2008 Cash flow from operating activities Interest received 401.307 323.668 Interest paid (204.604) (249.523) Fees and commissions received 36.523 35.501 Income from banking services 3.877 12.524 Trading income (1.119) (17.185) Recoveries of loans previously written off 48.290 60.515 Fees and commissions paid (8.102) (10.925) Cash payments to employees and other parties (70.253) (62.358) Cash received from other operating activities 7.808 4.258 Cash paid for other operating activities (33.925) (34.992) Taxes paid (8.034) (29.936)
Cash flows from operating activities before changes in operating assets and liabilities 171.768 31.547
Changes in operating assets and liabilities Trading securities 10.188 11.845 Loans and advances (384.457) (507.987) Other assets 15.864 44.602 Deposits from other banks 52.090 (5.869) Deposits (158.420) 946.784 Other money market deposits 84.101 (3.883) Other liabilities (38.824) (45.413) Assets classified as held for sale (35.976) -
Net cash used in operating activities (283.666) 471.626
Cash flows from investing activities Purchases of available for sale securities (329.191) (46.263) Proceeds from sale and redemption of available for sale securities 369.735 2.548 Purchases of held to maturity securities (270.273) (119.106) Disposal of investment properties (3.090) 11.941 Purchases of premises and equipment (1.121) (8,496) Purchase of intangible assets (1.191) (1.206) Purchs.of assets held for sale (22.912) - Disposal of assets held for sale 19.737 -
Net cash (used in) provided by investing activities (238.306) (160.582)
Cash flows from financing activities Proceeds from issue of share capital - - Proceeds from / (payments for) funds borrowed (136.453) 187.180 Payments of finance lease liabilities (1.725) (509)
Net cash provided by financing activities (138.178) 186.671
Net increase in cash and cash equivalents (660.150) 497.715 Effect of foreign exchange rate changes (24.424) (10.528) Cash and cash equivalents at beginning of year 972.094 483.263
Cash and cash equivalents at the end of period 287.520 970.450
The accompanying notes form an integral part of these financial statements.
6 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
1. ACTIVITIES OF THE BANK AND THE GROUP
General
Alternatifbank A.fi. (a Turkish joint stock company – ABank, the Bank) was incorporated in Istanbul on 6 November 1991 and started operations in February 1992. The Bank was acquired by the Anadolu Group in 1996. Certain shares of the Bank, representing 4, 16% of the total, are listed on the ‹stanbul Stock Exchange.
The registered office address of the Bank is at Cumhuriyet Caddesi No: 46 Elmada¤ / ‹stanbul.
The consolidated financial statements of the Bank were authorized for issue by the management on March 22, 2010. The ultimate parents of the Bank are Yaz›c›lar Otomotiv ve G›da Yat›r›m ve Pazarlama San. Tic. A.fi. and Özilhan S›nai Yat›r›m A.fi. The Bank is a member of Anadolu Group.
The financial statements are approved by the Board of Directors March 22, 2010.
Nature of Activities of the Group
For the purposes of the consolidated financial statements, the Bank and its consolidated subsidiaries are referred to as “the Group”.
The operations of the Group consist of banking, brokerage and portfolio management in capital markets conducted mainly with local customers.
The Bank provides banking services through 46 (December 31, 2008: 46) branches in Turkey.
The subsidiaries and the Bank’s shareholding included in consolidation and their shareholding percentages at December 31, 2009 and 2008 are as follows:
Place of Effective shareholding % Incorporation December 31, 2009 December 31, 2008 Alternatif Yat›r›m A.fi. ( A-Yat›r›m) Istanbul/Turkey 99,99% 99,99% Alternatif Yat›r›m Ortakl›¤› A.fi. (AYO) Istanbul/Turkey 52,60% 50,79%
The principal activities of the consolidated subsidiaries are as follows:
A- Yat›r›m: Rendering brokerage and investment banking services to customers in line with the rules of the Capital Market Board of Turkey.
AYO: Closed ended mutual fund managing portfolios which are made up of the capital market instruments according to the rules of the related regulation and the Capital Market Law.
AYO is a subsidiary since the Bank has the 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. 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 minority interest is adjusted to reflect the change in its interest in the subsidiary’s net assets. The difference between the amount by which the minority 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 a such transaction.
7 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Presentation of Financial Statements
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale securities, financial assets at fair value through profit and loss and derivative financial instruments that have been measured at fair value.
The Bank and its 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. The accompanying financial statements differ from the financial statements prepared for statutory purposes in that they reflect certain adjustments, appropriate to present the financial position, results of operations and cash flows in accordance with IFRS, which are not recorded in the accounting books of Group’s entities.
In the accompanying financial statements, certain reclassifications are made to prior year financial statements for comparative purposes.
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 2009.
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 minority shareholders’ interests are shown separately in the consolidated balance sheet and income statement, respectively.
All intra-group balances, transactions and unrealized gains on intra-group transactions are eliminated 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.
2.3 Use of Estimates and Judgments
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable 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 involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in related accounting policies.
8 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Functional and Presentation Currency
Functional currency of the Bank and its subsidiaries operating in Turkey, is the Turkish Lira (TRY).
The financial statements of the Bank and its Turkish subsidiaries for the periods before 1 January 2006 were adjusted to compensate for the effect of changes in the general purchasing power of the Turkish Lira based on IAS 29 “Financial Reporting in Hyperinflationary Economies”. Turkish Economy is accepted to come off its highly inflationary status as of 1 January 2006. Based on this consideration, IAS 29 has not been applied in the preparation of the consolidated financial statements since 1 January 2006. Amounts expressed in the measuring unit current at 31 December 2005 were treated as the basis for the carrying amounts after 1 January 2006.
In accordance with Law No: 5083 “Monetary Unit of the Turkish Republic” (Law No: 5083), the name of the Turkish Republic’s monetary unit and its sub-currency unit is changed to the New Turkish Lira and the New Turkish Cent, respectively. However, in accordance with the additional resolution of the Council of Ministers in regards to the order on the removal of the phrase “New” in the New Turkish Lira and the New Turkish Cent and Its Application Principles, the phrase “New” used in the Turkish Republic’s monetary unit is removed both from New Turkish Lira and the New Turkish Cent as of January 1, 2009.
2.5 Foreign Currency Transactions and Translation
Transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in profit or loss in the period in which they arise.
Foreign currency translation rates used by the Group as of respective period-ends are as follows:
Dates TRY (full) / USD TRY (full) / EUR 31 December 2007 1,1647 1,7102 31 December 2008 1,5123 2,1408 31 December 2009 1,5057 2,1603
2.6 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:
Machinery and equipment Up to 5 years Office equipment Up to 5 years Furniture, fixtures and vehicles 2-25 years Leasehold improvements Lease period
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.
9 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Premises and Equipment (continued)
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.
2.7 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.
2.8 Investment Properties
Investment properties are stated at cost less accumulated depreciation and any impairment in value. Investment properties are depreciated on a straight-line basis over the estimated useful live which is 50 years.
Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the income statement in the year of retirement or disposal.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by the commencement of owner-occupation or commencement of development with a view to sale.
2.9 Investments and Other 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.
All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Group. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted for in the same way as the acquired assets i.e. for assets carried at cost or amortized cost; change in value is not recognized.
10 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.9 Investments and Other Financial Assets (continued)
Financial assets at fair value through profit or loss
Financial assets classified as held-for-trading are included in this category. Trading securities are securities, which were either acquired for generating a profit from short term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short term profit taking exist. Derivatives are also classified as held- for-trading unless they are designated as effective hedging instruments. Gains or losses on investments held-for- trading are recognized in income.
Held- to- maturity securities
Non-derivative financial assets with fixed or determinable payments and fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investments intended to be held for an undefined period are not included in this classification. The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgments. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstances – for example selling an insignificant amount close to maturity - it will be required to classify the entire class as available- for- sale. The investments would therefore be measured at fair value; not amortized cost.
Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method, less any impairment in value. Amortized cost is calculated by taking into account all fees paid or received between parties to the contract that are an integral part of the effective interest rate, 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 through the amortization process.Interest earned with holding held to maturity securities is reported as interest income.
Available- for- sale securities
Available-for-sale financial assets are those non-derivative financial assets that are designated as 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 value are recognized as a separate component of equity until the investment is derecognized, or until 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-sale financial assets using effective interest method is reported as interest income.
Interest earned on available-for-sale investments is reported as interest income. Dividends received are included in dividend income, if any.
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.
11 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.9 Investments and Other Financial Assets (continued)
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 other money market deposits.
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.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that the Group could be required to repay.
12 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.9 Investments and Other Financial Assets (continued)
Recognition and Derecognition of Financial Instruments (continued)
The Group derecognizes a financial liability when the obligation under the liability is discharged or cancelled or expires. When an existing liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de- recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
2.10 Impairment of Financial Assets a) Assets carried at amortized cost
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 decrease in the estimated amounts recoverable from a portfolio of loans and individual loans and held to maturity investments. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:
(a) Significant financial difficulty of the issuer or obliger; (b) A breach of contract, such as a default or delinquency in interest or principal payments by more than 90 days; (c) The Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider; (d) It becoming probable that the borrower will enter bankruptcy or other financial reorganization; (e) The disappearance of an active market for that financial asset because of financial difficulties; or (f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: (i) Adverse changes in the payment status of borrowers; or (ii) National or local economic conditions that correlate with defaults on the assets in the group of financial assets.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity 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 carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognized in the income statement. The estimated recoverable amount of a collateralized financial asset is measured based on the amount that is expected to be realized from foreclosure less costs for obtaining and selling the collateral, whether or not the foreclosure is probable.
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.
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.
13 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Impairment of Financial Assets (continued) a) Assets carried at amortized cost (continued)
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. b) 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. c) Available-for-sale financial assets
The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment.
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
2.11 Cash and Cash Equivalents
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash and balances with Central Bank, deposits with banks and other financial institutions and other money market placements with an original maturity of three months or less.
2.12 Interest - bearing Deposits and Borrowings
All deposits and borrowings are initially recognized at the fair value of consideration received less directly attributable transaction costs. After initial recognition interest-bearing deposits and borrowings are subsequently measured at amortized cost using the effective interest method. Gains or losses are recognized in the income statement when the liabilities are derecognized as well as through the amortization process.
14 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.13 Employee Benefits
(a) Defined Benefit Plans
In accordance with existing social legislation in Turkey, the Group is required to pay lump-sum termination indemnities to each employee who has completed over one year of service with the Group and whose employment is terminated due to retirement or for reasons other than resignation or misconduct.
Such defined benefit plan is unfunded. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. All actuarial gains and losses are recognized in the income statement.
(b) Defined Contribution Plans
For defined contribution plans the Group pays contributions to the Social Security Institution of 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.
2.14 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.
2.15 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.
2.16 Leases
The Group as Lessee
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.
15 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 Leases (continued)
The Group as Lessee (continued)
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.
2.17 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.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate of the loan. Commission and fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognized on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts. Asset management fees and custody service fees that are continuously provided over an extended period of time are recognized ratably over the period service is provided. Fee for bank transfers and other banking transaction services are recorded as income when collected.
Loans with principal and/or interest overdue for more than 90 days are considered as non-performing and interest thereon is not recognized until collection.
16 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.18 Income Tax
Tax expense / (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of current and deferred tax.
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except for the taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilized:
- except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and recognized to the extent it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
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.
17 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.19 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. Fair value of option transactions are determined by comparing the option rates discounted to balance sheet date with the period end foreign exchange rates and the resulting gain or loss is reflected to the income statement taking into account exercisability of the option. Changes in assumptions about these factors could affect the reported fair values of financial instruments.
2.20 Fiduciary Assets
Assets held by the Group in a fiduciary, agency or custodian capacity for its customers are not included in the balance sheet, since such items are not treated as assets of the Group.
2.21 Segment Reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products and services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments.
2.22 Adoption of New and Revised Standards
In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (“the IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 January 2009. The adoption of these new and revised Standards and Interpretations has resulted in changes to the Group’s accounting policies in the following areas:
18 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.22 Adoption of New and Revised Standards (cont’d)
• IAS 1 (Revised) , “Presentation of Financial Statements”
The revised standard prohibits the presentation of items of income and expenses (referred to as ‘non-owner changes in equity’) in the statement of changes in equity. Non-owner changes in equity are to be presented separately from owner changes in equity and are required to be disclosed in a Statement of Comprehensive Income. Entities have the option of either presenting one statement or two statements. The Bank has applied IAS1 (Revised) from January 1, 2009 and have chosen to present both a statement of income/ (loss) and a statement of comprehensive income/ (loss). The adoption of IAS 1 (Revised) does not have any impact on the reported results or financial position of the Group.
• IFRS 7 (Amendments), “Financial Instruments: Disclosures”
Amendments to IFRS 7 which was issued in March 2009 is applicable to the Group beginning on January 1, 2009. These amendments require enhanced disclosure on fair value measurements as well as on liquidity risks. Specifically, the amendments require the Group to disclose changes in valuation techniques for classes of financial instruments where valuation techniques were used to determine fair values. In addition for each class of financial instrument, the Group is required to disclose the level in the fair value hierarchy into which the fair value measurements are categorized. When valuation techniques used to determine fair values of financial instrument changes, the transfers between levels of the fair value hierarchy are required to be disclosed. Furthermore, the Group is required to provide a reconciliation of fair values measurements that are determined based on unobservable inputs. Sensitivity analysis on changes in assumptions related to unobservable inputs should also be presented if such changes would produce significant fair value changes.
IFRS 7 further clarifies that the current maturity analysis for non-derivative financial instruments should include issued financial guarantee contracts, and requires the Group to add disclosure of a maturity analysis for derivative financial liabilities.The Group has implemented the amendments to IFRS 7 in 2009 and has disclosed fair value hierarchy information in Note 27 to the financial statements. In the current year, the Group did not make significant transfers between fair value hierarchy levels.
Standards, amendments and interpretations effective in 2009 but not relevant
The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2009 but they are not relevant to the Group’s operations:
19 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.22 Adoption of New and Revised Standards (cont’d)
• IFRS 1 “First time adoption of IFRS” and IAS 27 “Consolidated and separate financial statements’”(Amendment relating to cost of an investment on first-time adoption) • IFRS 2 “Share-based Payment” (Amendment relating to vesting conditions and cancelations) • IFRS 8 “Operating Segments” • IAS 1 “Presentation of Financial Statements” and IAS 32 “Financial Instruments – Presentation” (Amendments relating to disclosure of puttable instruments and obligations arising on liquidation) • IAS 39 “Financial Instruments: Recognition and Measurement” (Amendments for embedded derivatives when reclassifying financial instruments) • Amendments resulting from May 2008 Annual Improvements to IFRSs (IAS 1 “Presentation of Financial Statements”, IAS 16 “Property, Plant and Equipment”, IAS 19 “Employee Benefits”, IAS 20 “Government Grants and Disclosure of Government Assistance”, IAS 23 “Borrowing Costs”, IAS 27 “Consolidated and Separate Financial Statements”, IAS 28 “Investment in Associates”, IAS 31 “Interests in Joint Ventures”, IAS 29 “Financial Reporting in Hyperinflationary Economies”, IAS 36 “Impairment of Assets”, IAS 39 “Financial Instruments: Recognition and Measurement”, IAS 40 “Investment Property”, IAS 41 “Agriculture”) • IFRIC 13, “Customer Loyalty Programmes” • IFRIC 15, “Agreements for the Construction of Real Estate” • IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”
Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
• IFRS 1 “First Time Adoption of IFRS” (Amendments relating to oil and gas assets and determining whether an arrangement contains a lease) • IFRS 2 “Share-based Payment” (Amendment relating to group cash-settled share-based payment transactions) • IFRS 3 “Business Combinations”, IAS 27 ‘Consolidated and separate financial statements’, IAS 28 “Investment in Associates”, IAS 31 “Interests in Joint Ventures” (Comprehensive revision on applying the acquisition method) • IFRS 9 “Financial Instruments” (First stage of the project to replace IAS 39 “Financial Instruments: Recognition and Measurement” including provisions related to recognition and derecognition, classification and measurement of financial instruments) • IAS 39 “Financial Instruments: Recognition and Measurement” (Amendments for eligible hedged items) • IFRIC 17 “Distributions of Non-cash Assets to Owners” • Amendments resulting from May 2008 Annual Improvements to IFRSs (IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations) • Amendments resulting from April 2009 Annual Improvements to IFRSs (IFRS 2 “Share-based Payment”, IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations, IFRS 8 “Operating Segments”, IAS 1 “Presentation of Financial Statements”, IAS 7 “Statement of Cash Flows”, IAS 17 “Leases”, IAS 36 “Impairment of Assets, IAS 38 “Intangible Assets”, IAS 39 “Financial Instruments: Recognition and Measurement” • IFRIC 18 “Transfers of Assets from Customers” is effective for all transfers received on or after July 1, 2009.
Other than IFRS 9, these changes are not expected to have any significant influence on the financial statements of the Group.
20 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
3. SEGMENT INFORMATION
The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services provided. Secondary information is reported geographically.
Business segments
The Group is organized into two main business segments which are organized and managed separately according to the nature of the products and services provided.
Year ended December 31, 2009:
Commercial Investment Other Group Banking Banking
Net interest income 147.887 51.068 41.127 240.082 Net fees and commission income and other operating income 43.563 (28.970) (10) 14.583
Dividend income - 336 - 336 (Provisions for) / recoveries from impairment loan receivables (71.114) (192) - (71.306) Other operating expenses (81.040) (15.763) (13.067) (109.870)
Profit from before income tax 39.296 6.479 28.050 73.825 Tax provision - (68) (13.641) (13.709) Profit from after income tax 39.296 6.411 14.409 60.116
Minority interest - - 3.990 3.990 Net profit 39.296 6.411 18.399 64.106 Asset and liabilities Segment assets 2.773.297 814.963 53.725 3.641.985
Total assets 2.773.297 814.963 53.725 3.641.985 Segment liabilities 2.516.734 604.216 59.314 3.180.264 Unallocated liabilities - - 461.721 461.721 Total liabilities 2.516.734 604.216 521.035 3.641.985
Transactions between the business segments are on normal commercial terms and conditions. Those transactions are eliminated in consolidation.
21 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
3. SEGMENT INFORMATION (continued)
Year ended December 31, 2008:
Commercial Investment Other Group Banking Banking
Net interest income 113.399 28.966 56.569 198.934 Net fees and commission income and other operating income 47.443 (1.700) 28.701 74.444
Dividend income - 506 - 506 (Provisions for) / recoveries from impairment loan receivables (38.338) (27.532) - (65.870) Other operating expenses (79.088) (17.241) (37.495) (133.824)
Profit from before income tax 43.416 (17.001) 47.775 74.190 Tax provision - 211 (16.394) (16.183) Profit from after income tax 43.416 (16.790) 31.381 58.007
Minority interest - - (4.394) (4.394) Net profit 43.416 16.790 26.987 53.613 Asset and liabilities Segment assets 2.456.869 1.298.024 - 3.754.893
Total assets 2.456.869 1.298.024 - 3.754.893 Segment liabilities 2.456.869 897.700 - 3.354.569 Unallocated liabilities 400.324 400.324 Total liabilities 2.456.869 897.700 400.324 3.754.893
Transactions between the business segments are on normal commercial terms and conditions. Those transactions are eliminated in consolidation.
Geographical segments
The Group’s geographical segments are based on the location of Group’s assets. The Group’s activities are conducted predominantly in Turkey. The areas of operation include all the primary business segments. The Group conducts majority of its business activities with local customers in Turkey. Accordingly, geographical segment revenue from customers outside of Turkey does not exceed 10% of the total entity revenue.
22 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
4. CASH AND CASH EQUIVALENTS
December December 31,2009 31,2008
Cash on hand 30.389 27.427 Balances with Central Bank 113.371 87.245
Cash and Balances with Central Bank 143.760 114.672
Demand deposits - Turkish Lira 1.464 1.691 Demand deposits - Foreign Currency 8.411 131.280 Time deposits 47.515 230.465
Deposits with banks and other financial institutions 57.390 363.436
Funds lent under reverse repurchase agreements 17.384 12.831 Interbank placements - 387.958
Other money market replacement 17.384 400.789
Less: Time deposits with original maturities of more than three months - (2.760)
Cash and cash equivalents 218.534 876.137
The effective interest rates on deposits and placements are as follows:
December 31, 2009 December 31, 2008 Effective interest rate Effective interest rate Foreign Foreign Turkish Lira currency Turkish Lira currency Balances with the Central Bank - - - 0,15% Reserve Deposit 5,20% - 12,00% 0,15% Deposits with banks and other financial institutions 6,50% 0,20% - 1,22% Funds lent under reverse repurchase agreements 6,66% - 14,99% - Interbank placements - - 15,00% 1,00%
5. RESERVE DEPOSITS AT THE CENTRAL BANK
December December 31, 2009 31, 2008 Foreign Currency 69.942 96.913 Total 69.942 96.913
According to the regulations of the Central Bank of Turkish Republic (the Central Bank), banks are obliged to reserve a portion of certain liability accounts as specified in the related decrees. Such mandatory reserves are not available for use in the Group’s day to day operations. Reserves deposited with the Central Bank of Turkish Republic amounted to TRY 69.942 thousand (December 31, 2008: TRY 96.913 thousand).
As of December 31, 2009 and 2008, reserve deposit requirements applicable in Turkey for Turkish lira liabilities is 5% and 20%, respectively.
23 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
6. INVESTMENTS IN FINANCIAL INSTRUMENTS
Financial assets at fair value through profit and loss:
December 31, 2009 December 31, 2008 Effective Effective Amount TRY interest Amount TRY interest rate rate
Debt instruments - TRY Turkish government bonds 8.179 7,82% 14.377 16,93% Turkish treasury bills 75 7,39% 88 16,06% Debt instruments - FC Eurobonds issued by the Turkish government - - 4.942 7,74%
Total 8.254 19.407
Equity securities Listed 18.981 13.023
Total 18.981 13.023
Total trading securities 27.235 32.430
Investment Securities:
Available for Sale Securities
December 31, 2009 December 31, 2008 Effective Effective Amount TRY interest Amount TRY interest rate rate
Available for sale securities at fair value
Debt instruments-TRY Turkish government bonds 31.605 11,82% 43.786 21,74%
Debt instruments-FC Eurobonds issued by the Turkish government - - 30.948 6,00%
Total 31.605 74.734
Available- for-sale securities at cost
Equity instruments unlisted 170 170
Total available for sale securities 31.775 74.904
24 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
6. INVESTMENTS IN FINANCIAL INSTRUMENTS (continued)
Held to Maturity Securities
December 31, 2009 December 31, 2008
Effective Effective Amount TRY interest Amount TRY interest rate rate
Held to maturity securities at amortized cost
Debt instruments-TRY Turkish government bonds 475.337 10,43% 189.271 24,39%
Total held-to-maturity securities 475.337 189.271
Loaned Securities:
Carrying value of debt instruments given as collateral under repurchase agreements and related liabilities are:
December December 31,2009 31,2008
Financial assets at fair value through profit and loss 5.508 662 Available for sale securities - 8.297 Held to maturity securities 100.013 3.592
Carrying value of securities given as collateral under repurchase agreement 105.521 12.551
Repurchase agreements mature within one month.
TRY 77.655 thousand of debt securities included in the trading, investment and loaned securities have floating interest rates, whereas the rest of the debt securities have fixed interest rate. Equity securities do not earn interest.
The movement in investment securities is summarized as follows:
December 31, 2009 Available for Sale Held to Maturity Total
At 1 January 2009 74.904 189.271 264.175 Additions 329.191 324.514 653.705 Disposals (sale and/or redemption) (369.735) (28.092) (397.827) Changes in fair value (2.585) (10.356) (12.941)
At 31 December 2009 31.775 475.337 507.112
According to amendment to IAS 39 Financial Instruments: Recognition and Measurement which is issued by IASB (“International Accounting Standards Board”) at October 2008, marketable securities held for trading with a fair value of TRY 6.875 thousand and available for sale investments with a fair value of TRY 32.251 thousand are reclassified and recognized as held to maturity investments as at 30 September 2008. The fair value of these investments at the reclassification date which amounts to TRY 39.126 thousand is recognized in held to maturity investments as the cost value at the reclassification date. 25 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
6. INVESTMENTS IN FINANCIAL INSTRUMENTS (continued)
As of the reclassification date of above mentioned available for sale investments in held to maturity investments, TRY 86 thousand had been recognized in unrealized gains/(losses) on available for sale investments account under equity in relation to such securities.
If the reclassifications above have not been done, unrealized gains/(losses) on available for sale investments account under equity would be TRY 500 thousand less and interest income on profit and loss would be TRY 500 thousand more.
December 31, 2008 Available for Sale Held to Maturity Total
At 1 January 2008 58.822 25.796 84.618 Additions 46.263 163.998 210.261 Disposals (sale and redemption) (34.800) - (34.800) Changes in fair value 4.619 (523) 4.096 At 31 December 2008 74.904 189.271 264.175
7. LOANS AND ADVANCES
December 31, 2009 December 31, 2008
Corporate loans(*) 1,470.302 869.555 Small business loans 1,179.381 1.425.438 Consumer loans 3.673 13.032 Other 6.152 4.025
Total performing loans 2,659,508 2,312,050
Non performing loans 192.677 128.893 Less:allowance for individually impaired loans (114.786) (49.255) Less:allowance for collectively impaired loans (27.779) (24.405)
Total 2,709,620 2,367,283
(*) Corporate loans include restructured loans amounting to TRY 31.641 thousand (December 31, 2008: TRY 2.530 thousand). (**) Small business loans, which are described by BRSA reporting disclosures, have personnel below 250 and net sales or total assets are less than TRY 25.000 thousand.
Non performing loans represent impaired loans and advances on which interest is not being accrued and loans overdue generally for more than 90 days for which interest is suspended.
Loans and advances with variable rates are TRY 1.694.492 thousand (December 31, 2008: TRY 1.526.403 thousand) and fixed rates are TRY 965.016 thousand (December 31, 2008: TRY 785.647 thousand).
The portfolio reserve for impairment is provided based on past experience, management’s assessment of current economic condition, the quality and inherent risk in the credit portfolio of the Group.
26 Alternatifbank Anonim fiirketi Notes To The Consolidated Financial Statements For The Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
7. LOANS AND ADVANCES
December 31,2009 Amount TRY'000 Effective Interest Rate Foreign Foreign Foreign currency Turkish Foreign currency Turkish Lira Currency Indexed Total Lira Currency Indexed Corporate loans 925.566 274.320 270.416 1.470.302 12,39% 7,17% 7,32% Small business loans 729.644 172.296 277.441 1.179.381 14,08% 6,69% 7,80% Consumer Loans 2.409 - 1.264 3.673 29,65% 7,80% Other 6.152 - - 6.152 13,95%
Total performing loans 1.663.771 446.616 549.121 2.659.508 December 31,2008 Amount TRY'000 Effective Interest Rate Foreign Foreign Foreign currency Turkish Foreign currency Turkish Lira Currency Indexed Total Lira Currency Indexed
Corporate loans 392.412 194.092 283.051 869.555 27,01% 9,78% 10,11% Small business loans 801.909 256.399 367.130 1.425.438 27,83% 9,85% 10,73% Consumer Loans 1.135 - 11.897 13.032 31,71% 0,00% 9,08% Other 4.025 - - 4.025 21,59% 0,00% 0,00%
Total performing loans 1.199.481 450.491 662.078 2.312.050
Small Corporate Business Consumer Other Total
Neither past due nor impaired 1.383.924 1.042.402 3.591 6.152 2.436.069 Past due not impaired (*) 86.378 136.979 82 - 223.439 Individually impaired 67.869 124.728 80 - 192.677 Total Gross 1.538.171 1.304.109 3.753 6.152 2.852.185
Less: allowance for individually impaired loans (45.780) (69.006) - - (114,786) Less: allowance for collectively impaired loans (12.647) (15.132) - - (27,779) Total Allowance for impairment (58.427) (84.138) - - 142,565)
Total net 1.479.744 1.219.971 3.753 6.152 2.709.620 (*): Past due not impaired loans include interest or principal payments delayed less than 90 days.
A reconciliation of the allowance for individual impairment losses on loans and advances by classes is as follows;
Small Corporate Business Consumer Total
At January 1, 2009 15.878 33.008 369 49.255 Charge for the year 40.979 54.112 (172) 94.919 Recoveries (10.863) (16.420) (196) (27.479) Amounts written of (214) (1.694) (1) (1.909) At December 31, 2009 45.780 69.006 - 114.786
27 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
7. LOANS AND ADVANCES (continued)
Small Corporate Business Consumer Total At January 1, 2008 15.500 33.335 1.433 50.268 Charge for the year 12.683 19.799 48 32.530 Recoveries (12.305) (19.474) (1.097) (32.876) Amounts written off - (652) (15) (667) At December 31, 2008 15.878 33.008 369 49.255
Movements in the total reserve for impairment on loans and advances:
December 31, 2009 December 31, 2008 Reserve at the beginning of the year 73.660 65.786 Provision net of recoveries 70.814 8.541 -Provision for loan impairment 102.367 42.092 -Recoveries (*) (31.553) (33.551) Loans written off (1.909) (667) Reserve at the end of year 142.565 73.660
(*) Based on the contract signed as of December 24, 2008 between the Bank and Anadolu Varl›k Yönetim A.fi (“the Company”) (fully owned subsidiary of Anadolu Endüstri Holding A.fi.), non-performing loan amounting to TRY 51.548 thousand (net book value of TRY 13.061 thousand) and loan receivable amounting to TRY 5.231 thousand was sold to the Company with the amount of TRY 30.230 thousand. TRY 27.600 thousand of recoveries stems from reversal of allowances for loans sold to Anadolu Varl›k Yönetimi A.fi. Net income amounting TRY 12.399 thousand was recorded on the Bank's income statement consequently. TRY 10.676 thousand of the amount is netted- off in provision for impairment of loans.
Book value of collaterals are given below as of the balance sheet date:
Small Corporate Business Consumer Total
Residential, commercial or industrial property 1.886.120 1.913.980 27.019 3.827.119 Financial assets 244.924 153.538 80 398.542 Other 174.202 129.312 2.211 305.725 Total 2.305.246 2.196.830 29.310 4.531.386
Aging analysis of past due but not impaired loans per class of financial statements is as follows:
Less than 31-60 days 61-90 days Total 30 days Loans and advances to customers Corporate lending 51.174 13.129 22.075 86.378 Small business lending 118.843 6.121 12.015 136.979 Consumer lending 48 - 34 82 Total 170.065 19.250 34.124 223.439
28 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
8. INVESTMENT PROPERTIES
2009 2008
At January 1 9.265 21.206 Disposal of investment property (19.736) (14.160) Additions to investment properties 22.912 2.340 Depreciation charge for the year (86) (121)
At December 31 12.355 9.265
Investment properties represent land and buildings acquired to recover impaired loans. As of December 31, 2009, the fair value of investment properties which have been determined based on the valuations performed by independent appraisal companies on the basis of market value is TRY 20.066 thousand( December 31, 2008: TRY 13.264).
9. PREMISES AND EQUIPMENT
Furniture and Office Leasehold Motor Equipment improvements Vehicles Leasing Total At January 1, 2009, net of accumulated depreciation and impairment 4.528 12.339 22 3.904 20.793
Additions 894 227 - - 1.121 Disposals - - - - - Depreciation of disposals - - - - - Depreciation charge for the year (1.086) (2.664) (6) (1.279) (5.035)
At Dec. 31, 2009, net of accumulated depreciation and impairment 4.336 9.902 16 2.625 16.879 - At January 01, 2009 - Cost - Accumulated depreciation 37.013 22.685 191 9.907 69.796 Accumulated impairment (32.485) (10.346) (169) (6.003) (49.003) - Net carrying amount 4.528 12.339 22 3.904 20.793
At Dec. 31, 2009 - Cost 37.203 22.913 191 9.362 69.669 Accumulated depreciation (32.867) (13.011) (175) (6.737) (52.790) Accumulated impairment - - - - -
Net carrying amount 4.336 9.902 16 2.625 16.879
29 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
9. PREMISES AND EQUIPMENT (continued)
Furniture and Office Leasehold Motor Equipment improvements Vehicles Leasing Total At January 1, 2008, net of accumulated depreciation and impairment 2.323 8.843 32 5.231 16.429 Additions 2.985 5.441 - 70 8.496 Disposals - - - - - Depreciation charge for the year (780) (1.945) (10) (1.397) (4.132) At Dec. 31, 2008, net of accumulated depreciation and impairment 4.528 12.339 22 3.904 20.793 At January 01, 2008 Cost 34.931 18.552 250 11.419 65.152 Accumulated depreciation (32.608) (9.709) (218) (6.188) (48.723) Accumulated impairment - - - - - Net carrying amount 2.323 8.843 32 5.231 16.429 At Dec. 31, 2008 Cost 37.018 22.685 191 9.907 69.801 Accumulated depreciation (32.490) (10.346) (169) (6.003) (49.008) Accumulated impairment - - - - -
Net carrying amount 4.528 12.339 22 3.904 20.793
Patents and Devolopment Licences Costs Total December 31, 2009 TRY’000 TRY’000 TRY’000 At January 1, 2009, net of accumulated amortization and impairment 1.617 623 2.240 Additions 1.191 - 1.191 Disposals - - - Amortization charge for the year (693) (187) (880)
At Dec. 31, 2009, net of accumulated amortization 2.115 436 2.551
At January 01, 2009 Cost (gross carrying amont) 29.090 4.507 33.597 Accumulated amortization (27.473) (3.884) (31.357)
Net carrying amount 1.617 623 2.240
At December 31, 2009 Cost (gross carrying amont) 30.280 4.507 34.787 Accumulated amortization and impairment (28.165) (4.071) (32.236) - Net carrying amount 2.115 436 2.551 30 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
10. INTANGIBLE ASSETS
Patents and Devolopment Licences Costs Total December 31, 2008 TRY’000 TRY’000 TRY’000 At January 1, 2008, net of accumulated amortization and impairment 1.134 624 1.758 Additions 1.034 172 1.206 Disposals - - - Amortization charge for the year (551) (173) (724) At Dec. 31, 2008, net of accumulated amortization 1.617 623 2.240 At January 01, 2008 Cost (gross carrying amont) 28.058 4.335 32.393 Accumulated amortization (26.924) (3.711) (30.635)
Net carrying amount 1.134 624 1.758
At December 31, 2008 Cost (gross carrying amont) 29.090 4.507 33.597 Accumulated amortization and impairment (27.473) (3.884) (31.357) - Net carrying amount 1.617 623 2.240
11. OTHER ASSETS
December 31, December 31, 2009 2008 Receivables from check clearance 17.138 20.414 Colleterals given for derivative transactions 2.989 2.263 Colleterals given for securities 5.855 5.406 Prepaid expenses 3.471 3.810 Other 4.888 7.397
Total 34.341 39.290
12. ASSETS CLASSIFIED AS HELD FOR SALE
December 31, 2009 December 31, 2008
Assets classified as held for sale 28.966 12.727
Total 28.966 12.727
Assets classified as held for sale comprise land and buildings acquired to recover impaired loan receivables. These properties are owned by the Bank and repurchase agreements have been signed with the prior owners.
31 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
13. DEPOSITS
Deposits from other banks
December 31, 2009 December 31, 2008 Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Lira Currency Lira Currency
Demand 2.712 - - 134 - - Time 50.710 8,40% 0,43 1.110 21,30% - Total 53.422 1.244
Customers' deposits
December 31, 2009 December 31, 2008 Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Lira Currency Lira Currency
Saving Demand 37.884 - - 25.169 - - Time 1.307.759 10,43% 3,10% 1.523.033 22.24% 7.69% 1.345.643 1.548.202 Commercial and other Demand 173.489 - - 109.683 - - Time 975.752 8,98% 2,91% 992.689 19,83% 7,15%
1.149.241 1.102.372
Total 2.494.884 2.650.574
Other money market deposits
December 31, 2009 December 31, 2008 Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Lira Currency Lira Currency Obligations under repurchase agreements: -Due to customers 15.652 5,70% - 11.729 13,17% - -Due to banks 78.166 6,61% - - - -
93.818 11.729
Interbank deposits 7.598 6,68% - 5.603 14,37% -
Total 101.416 17.332
32 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
14. FUNDS BORROWED
December 31, 2009 Effective interest rate Amount Turkish Lira Foreign Currency
Short-term Fixed interest 165.816 10,43% 3,66% Floating interest 118.550 - 3,03% Medium/long-term Fixed interest 6.297 - 2,75% Floating interest 106.560 - 2,41%
Total 397.223
December 31, 2008 Effective interest rate Amount Turkish Lira Foreign Currency
Short-term Fixed interest 210.502 16,66% 4,76% Floating interest 228.066 - 3,29% Medium/long-term Fixed interest 17.993 - 4,90% Floating interest 76.534 - 5,32%
Total 533.095
Repayment plan of medium and long-term borrowings is as follows:
December 31, 2009 December 31, 2008 Fixed rate Floating rate Fixed rate Floating rate
2009 - - 9.034 - 2010 2.838 112.650 8.959 76.534 2011 and thereafter 3.460 106.559 - -
Total 6.298 219.209 17.993 76.534 As of December 31, 2009, the Bank's foreign currency funds borrowed include a syndicated loan of USD 30 million and EUR 31 million obtained on April 20, 2009 with a maturity of 12 months. Funds borrowed are unsecured.
15. OBLIGATIONS UNDER FINANCE LEASES
December December 31, 2009 31, 2008
Finance lease repayment schudule No later than 1 year 1.227 219 Later than 1 year and no later than 4 years 1.051 3.784
Total minimum finance lease obligation 2.278 4.003
33 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
16. OTHER LIABILITIES AND PROVISIONS December 31, December 31, 2009 2008 Other liabilities
Taxes and dues payable 8.413 14.119 Other blocked accounts 37.694 21.293 Cheques clearance account 17.138 20.414 Export blocked acounts 3.228 8.312 Colleterals received for securities 5.855 5.406 Cheques in collection 16.502 13.436 Others 20.292 28.902 109.122 111.882
Provisions
Employee termination benefits 3.000 2.440 Unused vacation provision 2.104 1.849 Provision of lawsuits 519 469 Employee bonus provision 6.099 4.000 Other provisions 1.063 296 12.785 9.054 Total 121.907 120.936
Employee Termination Benefits
In accordance with existing social legislation, the Bank and its subsidiaries are required to make lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation or misconduct. Such payments are calculated on the basis of 30 days' pay per year of employment at the rate of pay applicable at the date of retirement or termination. In the financial statements as of December 31, 2009 and 2008, the Group reflected a liability calculated using the Projected Unit Credit Method and based upon factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and discounted by using the current market yield on government bonds at the balance sheet date. The annual ceiling has been increased to TRY 2.427,04 effective January 1, 2010.
The principal actuarial assumptions used in the calculation of the total liability at the balance sheet dates are as follows: December 31, December 31, 2009 2008 Discount rate 4,80% 5,40% Expected rates of inflation 11,00% 12,00%
Movements in the present value of the defined benefit obligations in the current period were as follows:
2009 2008 At January 1, 2.440 1.988 Arising during the year 151 794 Utilized/paid 409 (342)
At December 31, 3.000 2.440
34 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
17. INCOME TAXES
Corporate Tax:
The Group is subject to Turkish corporate taxes. Provision is made in the accompanying financial statements for the estimated charge based on the Group's results for the years and periods.
Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment incentives utilized.
The effective rate of tax in 2009 is 20% (2008: 20%).
In Turkey, advance tax returns are filed on a quarterly basis. The advance corporate income tax rate was decreased to 20% for 2009 (2008: 20%). The excess advance tax paid of corporate income that was calculated at the rate of 20% during the taxation of the corporate income in advance taxation periods after January 2009 over 20% will be deducted from future temporary tax returns.
Losses are allowed to be carried 5 years maximum to be deducted from the taxable profit of the following years. However, losses incurred cannot be deducted from the profits incurred in the prior years retrospectively.
In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns between 1-25April following the close of the accounting year to which they relate. Tax authorities may, however, examine such returns and the underlying accounting records and may revise assessments within five years.
Income Withholding Tax
In addition to corporate taxes, companies should also calculate income withholding taxes on any dividends distributed, except for companies receiving dividends who are resident companies in Turkey and Turkish branches of foreign companies. The rate of income withholding tax is 15%. Undistributed dividends incorporated in share capital are not subject to income withholding taxes.
As of December 31, 2009 and 2008 prepaid income taxes are netted off with the current income tax liability as stated below:
December December 31, 2009 31, 2008
Income tax liability 19.027 8.114 Prepaid income tax (18.580) (8.114)
Income tax (refundable) payable 447 -
35 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
17. INCOME TAXES (continued)
Income Withholding Tax: (continued)
Major components of income tax expense for the year ended December 31, 2009 and 2008 are:
2009 2008
Consolidated income statement Current income tax Deferred income tax charge (19.027) (8.114) Deferred income tax Relating to origination and reversal of temporary differences 5.318 (8.069)
Income tax expense reported in consolidated income statement (13.709) (16.183)
Reconciliation between tax expense and the product of accounting profit multiplied by the statutory income tax rate of the parent for the year ended December 31, 2009 and 2008 are as follows:
December December 31, 2009 31, 2008 Income from operating activities before income tax 77.815 69.796
At Turkish statutory income tax rate of 20% (15.563) (13.959) Expenditure not allowable for income tax purposes (23.158) (15.952) Utilization of previously unrecognized tax losses - - Revenue exempt from tax 19.527 21.200 Effect of adjustments and other 5.485 (7.472)
Income tax (13.709) (16.183)
Deferred Tax:
The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial statements as reported for IFRS purposes and its statutory tax financial statements. These differences usually result in the recognition of revenue and expenses in different reporting periods for IFRS and tax purposes and they are given below.
For calculation of deferred tax asset and liabilities, the rate of 20% (2008: 20%) is used.
In Turkey, the companies cannot declare a consolidated tax return, therefore subsidiaries that have deferred tax assets position were not netted off against subsidiaries that have deferred tax liabilities position and disclosed separately.
36 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
17. INCOME TAXES (continued)
Deferred Tax: (continued)
Deferred tax relates to the following:
Consolidated Consolidated Balance Sheet Income Statement December 31 December 31 December 31 December 31 2009 2008 2009 2008
Deferred income tax liabilities Reversal of specific loan provision deducted for tax purposes 3.886 4.844 (958) 3.527 Difference between tax and reporting bases of premises and equipment and intangible assets 702 173 529 (361) Valuation differences of trading and investment securities and derivatives 384 283 101 260 Others - 276 (276) 276
Gross deferred income tax liabilities 4.972 5.576 (604) 3.702
Deferred income tax assets Loan loss provison adjustment 5.556 4.881 675 1.279 Tax losses carried forward - - - - Valuation differences of trading and investment securities and derivatives 2.493 - 2.493 (6.349) Employee termination benefits and vacation pay liability 1.008 855 1.008 180 Bonus provision 1.200 - 345 - Others 1.929 1.808 193 523
Gross deferred income tax liabilities 12.186 7.544 4.714 (4.367)
Deferred income tax asset, net 7.214 1.968
Deferred income tax credit (charge) recognized in income statement, net 5.318 (8.069)
Reflected as:
December December 31, 2009 31, 2008
Deferred tax asset 7.214 1.968
Total 7.214 1.968
18. DERIVATIVES
In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial instruments. A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial instruments, reference rates or indices. The table below shows the fair values of derivative financial instruments. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year-end and are neither indicative of the market risk nor credit risk. 37 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
18. DERIVATIVES (continued)
December 31, 2009 December 31, 2008 Notional Notional amount in amount in Fair value Fair value Turkish Lira Fair value Fair value Turkish Lira assets liabilities equivalent assets liabilities equivalent Derivatives held-for-trading 7.237 8.688 959.825 28.912 27.385 1.745.273 Forward contracts 34 739 42.308 8.755 6.457 417.972 Swap contacts 5.016 5.539 549.698 14.669 6.614 678.060 Futures contracts - - - - 8.865 290.378 Options 2.187 2.129 367.819 5.488 5.449 358.863 Other - 281 ----
The Group uses derivative financial instruments to manage market risks. As of December 31, 2009 the Group does not have any derivative financial instruments designated as hedges (December 31, 2008: Nil). All derivative financial instruments are considered as trading.
19. SHARE CAPITAL
December 31, 2009 December 31,2008 Total number of shares, TRY 1 (in full TRY), par value authorized 300 million; Issued and outstanding 300 million in December 31, 2008 (December 31, 2008: 300 million) 300.000 300.000
As of December 31, 2009 and 2008, the Bank’s subscribed and issued share capital was TRY 300.000 thousand.
As of December 31, 2009 and 2008 the composition of shareholders and their respective percentage of ownership can be summarized as follows:
December 31, December 31, 2009 Amount 2009 Amount TRY'000 % TRY'000 % Anadolu Endüstri Holding A.fi. 233.142 77,71% 233.142 77,71% Other Group Companies 54.374 18,12% 54.374 18,12% Publicly Owned 12.483 4,16% 12.483 4,16% Others 1 <0,01% 1 <0,01% Total 300.000 100,00% 300.000 100,00%
Each shareholder has voting rights equivalent to their number of shares possessed.
38 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
20. LEGAL RESERVES AND ACCUMULATED DEFICIT
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with the Turkish Commercial Code. The first legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of 20% of the entity's share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in excess of 5% of the entity's share capital. The first and second legal reserves are not available for distribution unless they exceed 50% of the share capital, but may be used to absorb losses in the event that the general reserve is exhausted. As of December 31, 2009, the Group's legal reserves, which were included within the legal reserves and accumulated deficit balance amount to TRY 143.827 thousand (December 31, 2008: TRY 6.047 thousand).
Dividends Paid and Proposed
Final dividends are not accounted for until they have been ratified at the Annual General Meeting.
21. EARNINGS / (LOSS) PER SHARE
Basic earnings per share (EPS) is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
In Turkey, companies can increase their share capital by making a pro rata distribution of shares (“Bonus Shares”) to existing shareholders without consideration for amounts resolved to be transferred to share capital from retained earnings and revaluation surplus. For the purpose of the EPS calculation such Bonus Share issues are regarded as stock dividends. Dividend payments, which are immediately reinvested in the shares of the Bank, are regarded similarly. Accordingly the weighted average number of shares used in EPS calculation is derived by giving retroactive effect to the issue of such shares without consideration through December 31, 2009.
December 31, 2009 December 31, 2008
Net profits attributable to ordinary shareholders for basic earnings per share (full TRY) 0,20039 0,19744
December 31, 2009 December 31, 2008
Weighted average number of ordinary shares (in millions) for basic earnings per share 300 294
22. RELATED PARTY DISCLOSURES
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 the financial and operating decisions. The Group is controlled by Anadolu Endü'fcstri Holding A.fi. which owns 77,71% (December 31, 2008 – 77,71%) of ordinary shares, and included in Anadolu Group. For the purpose of these consolidated financial statements, shareholders and Anadolu Group companies are referred to as related parties. Related parties also include individuals that are principal owners, management and members of the Group’s Board of Directors and their families.
In the course of conducting its banking business, the Group conducted various business transactions with related parties.
39 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
22. RELATED PARTY DISCLOSURES (continued)
The following transactions have been entered into with related parties:
Cash Non-cash Fees and loans loans commisions Related Party receivable receivable Deposits taken Interest expense income
Shareholders 2009 1.131 34.457 389.409 28.317 2.735 2008 1.172 47.857 270.517 38.174 248
Others 2009 5.069 41.543 130.726 11.561 2.674 2008 885 27.920 251.629 13.847 880
Compensation of Key Management Personnel of the Group
The executive and non-executive members of the Board of Directors and senior management received remuneration and fees totaling TRY 6.215 thousand (December 31, 2008: TRY 6.124 thousand).
23. FEES AND COMMISSIONS INCOME AND EXPENSES
2009 2008 Fees and commissions income Letter of Guarantee 18.902 14.513 Letters of credit 2.758 2.225 Portfolio and other management fees 4.916 5.809 Option premium commissions 9.462 9.425 Other 485 376
Total 36.523 32.348 Fees and commissions expense Option premium expenses 5.719 7.208 Debit card commisions 780 717 CBRT Interbank money market transaction commisions 412 473 Correspondent bank commisions 478 384 Effective and future transaction commisions 181 175 Transfer commisions 40 60 Others 492 443
Total 8.102 9.460
24. SALARIES AND EMPLOYEE BENEFITS
2009 2008 Staff costs Wages and salaries (51.136) (46.026) Other social security premiums and other legal expenses (13.785) (7.798) Provision for employee termination benefits (1.562) (1.051) Cost of defined contribution (employers share of social premiums) (6.065) (6.697) Total (72.548) (61.572)
40 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
24. SALARIES AND EMPLOYEE BENEFITS (continued)
The average number of employees during the year is:
2009 2008 The Bank 1.002 940 Subsidiaries 56 74
Total 1.058 1.014
The number of employees as of December 31, 2009 and 2008 is:
December 31, December 31, 2009 2008 The Bank 999 1.006 Subsidiaries 45 71
Total 1.044 1.077
25. OTHER INCOME/OTHER EXPENSES
Other income
2009 2008 Gain on sale of fixed assets 1.783 198 Expenses charged to customers 941 2.832 Others 5.084 1.228
Total 7.808 4.258
Other expenses
2009 2008 Operating lease expense (11.673) (9.947) Saving deposits insurance fund premium (2.175) (1.481) Various administrative expenses (*) (17.147) (20.391)
Total (30.995) (31.819)
(*) Various administrative expenses include consultancy expenses, participation fees and other general administrative expenses.
41 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
26. COMMITMENTS AND CONTINGENCIES
In the normal course of business activities, the Bank and its subsidiaries undertake various commitments and incur certain contingent liabilities that are not presented in the financial statements including:
December December 31, 2009 31, 2008 Letters of guarantee issued 1.197.207 992.241 Letters of credit 245.626 214.078 Acceptance credits 117.084 16.924 Others 13.230 21.069
Total non-cash loans 1.573.147 1.244.312
Payment commitment for checks 270.544 82.852 Tax and fund liabilities from export commitments 81.964 3.738 Loan granting commitments 3.738 355.707 Derivative purchase commitments 420.587 42.398 Other commitments 222.174 15.474
Total 2.572.154 1.744.481
Fiduciary Activities
As of December 31, 2009, the fair values of the TRY denominated assets held by the Group in fiduciary, agency or custodian capacities amounted to TRY 939.360 thousand (December 31, 2008: TRY 920.671 thousand) and foreign currency denominated assets amounted to TRY 29.451 thousand (December 31, 2008: TRY 35.047 thousand). The Group also holds 657.070 shares of open ended investment funds in custodian capacities.
The Group manages six open-ended investment funds, which were established under the regulations of the Turkish Capital Markets Board. In accordance with the fund's charters, the Group purchases and sells marketable securities on behalf of funds, markets their participation certificates and provides other services in return for a management fee and undertakes management responsibility for their operations. The funds management fee obtained by the Group is amounting 1.391 thousand.
Litigation
There were a number of legal proceedings outstanding against the Group as of December 31, 2009 amounting to approximately TRY 6.333 thousand (December 31, 2008: TRY 1.163 thousand). These mainly include matters relating to personal claims of customers and ex employees of the Group. Although the outcome of these matters can not always be ascertained with precision, management, based on professional advice, provided provision amounted to TRY 519 thousand (December 31, 2008: 469 thousand).
42 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
26. COMMITMENTS AND CONTINGENCIES (continued)
Other
The Group manages six open-ended investment funds, which were established under the regulations of the Turkish Capital Board. In accordance with the funds' charters, The Group purchases and sells marketable securities on behalf of funds, markets their participation certificates and provides other services in return for a management fee and undertakes management responsibility for their operations.
Letters of Guarantee Given to Istanbul Stock Exchange (ISE) and Istanbul Gold Market (IGM)
As of December 31, 2009, in line with the requirements of IGM, letters of guarantee amounting to USD 260.000 (December 31, 2008: USD 260.000) had been obtained from local banks and were provided to IGM for transactions conducted in that market.
As of December 31, 2009, according to the general requirements of the ISE, letters of guarantee amounting to TRY 12.910 thousand (December 31, 2008: TRY 12.910 thousand) had been obtained from various local banks and were provided to ISE for bond and stock market transactions.
27. 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. According to the Bank's “Risk Management Policy”, Financial Risks are composed of Market, Credit and Liquidity risks. These risks are supervised by the “Bank Risk Committee” while the various Risk Committees and Risk Control Unit carry out the risk management related tasks. Risk Management Policy includes details about the framework for defining, measuring, monitoring and managing the risks taken by the business units across the bank. Risk Management Policy covers sound and optimum capital allocation quantification of the actual risks establishment of dynamic risk limit.
The Bank determines risk-based limits, with respect to available economic capital and monitors actual risks against these limits.
All risks (market, credit or liquidity), arising from any type financial instrument are subject to aforementioned risk based limits.
43 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Credit Risk
Seeking to maintain a sound asset portfolio and prevent non-performing loans, the Bank has clearly separated its sales-related departments and credit management department. Credit Officers at the Bank work under a strict and centralized credit approval process, comprise well defined operating and lending policies, reflecting the Bank's commitment to a strong credit culture. The Bank has its own score-sheet and rating scale and uses the output of this internal rating tool in managing the credit portfolio, setting limits, and policies of pricing and collateralization. This tool uses a two-tier rating system; first an obligor rating, mapped to a default probability bucket. Second, a facility rating that determines the severity in case of default, such as the quality of the collateral and guarantees and the seniority of the facility. Obligor rating process is mainly built upon the score-sheet, which takes both financial and qualitative data as input, yet it allows professional judgment to significantly influence a rating where this is appropriate. The risk rating system generates the key data for calculating credit risk provisions (expected loss), and the required economic capital (unexpected loss). The Bank sees the expected loss as a predictable cost of doing business and pass on this cost to the borrowers. Unexpected loss, however, is defined as the volatility of the average loss rate and covered with a balance sheet cushion of economic capital. The final step is the optimum allocation of the capital across the profit centers and eventually the evaluation of the risk-adjusted performance of each.
Sectoral breakdown of cash and non-cash loans is as follows:
December 31, 2009 Cash Non-cash Automotive 128.337 38.433 Chemical 53.127 43.058 Construction 323.560 329.852 Electrics and Electronics 27.115 13.978 Finance 265.679 86.475 Food and Beverage 146.799 94.283 Forest Product and Agriculture 64.775 38.779 Iron and Steel, non metal 182.429 117.234 Machinery 55.242 22.436 Mining 51.395 47.898 Paper 21.371 14.390 Petroleum 44.420 42.638 Production 183.485 75.377 Textile 200.966 67.906 Tourism 61.544 6.625 Trade 406.571 243.588 Transportation 115.907 49.165 Others 326.786 241.032
Total 2.659.508 1.573.147 Loans in arrears 192.677 - Allowance for individually impaired loans (114.786) - Allowance for collectively impaired loans (27.779) -
Total 2.709.620 1.573.147
44 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Credit Risk (continued)
The table below shows the maximum exposure to credit risk for the components of the financial statements;
Gross maximum exposure December 31, 2009 December 31, 2008
Central Bank 183.341 184.158 Depos›ts w›th banks and other f›nanc›al ›nst›tut›ons 57.390 363.436 Other money market placements 17.384 400.789 Financial assetsat fair value through profit and loss 27.235 32.430 Derivative financial instruments 7.237 28.912 Loans and advances to customers 2.709.620 2.380.010 Available-for-sale 31.775 74.904 Held-to-maturity 475.337 189.271 Other assets 2.989 2.298 Total 3.512.308 3.656.208
Contingent liabilities 1.573.144 1.244.312 Commitments 999.010 500.169 Total 2.572.154 1.744.481
Total credit exposure 6.084.462 5.400.689
(*): The balance shows the central bank including reserve deposits. (**): The balance shows the collaterals given for derivative transactions.
Credit quality per class of financial assets as of December 31, 2009 is as follows;
Neither past Past due or due nor impaired individually impaired Total Due from banks 57.390 - 57.390 Loans and advances to customers 2.659.508 192.677 2.852.185 Corporate lending 1.188.501 67.869 1.256.370 Small business lending 1.461.127 124.728 1.585.855 Consumer lending 3.728 80 3.808 Other 6.152 - 6.152 Total 2.716.898 192.677 2.909.575
Financial investments Quoted-Government debt securities 515.195 - 515.195 Quoted-Other debt securities 18.982 - 18.982 Unquoted - Debt securities 170 - 170 Total 534.347 - 534.347
Total 3.251.245 192.677 3.443.922
Historical Default Total Rates % TRY High Grade 0,91 2.370.558 Standard Grade 2,24 1.528.347 Sub Standard Grade 7,75 328.157 Impaired - 192.677
45 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Credit Risk (continued)
Carrying amount per class of financial assets whose terms have been renegotiated;
December 31, 2009 December 31, 2008 Loans and advences to customers 31.641 2.530 Corporate lending 20.557 2.530 Small business lending 11.084 - Consumer lending - - Other -- Total 31.641 2.530
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 TRY 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 (CBRT, ISE, Interbank money market, Settlement and Custody Bank and other markets). The Group has a lower ratio of the deposits compared to other banks with similar-sized balance sheets; this indicates that larger loans can be obtained from the markets when needed. 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. According to BRSA regulations the liquidity ratios during the year was as follows;
December 31, 2009 December 31, 2008 %%
December 31 149,20 183,88% Average during the period 147,75 161,42% Highest 192,17 211,68% Lowest 128,38 129,21%
(*) The minimum legal limit set by BRSA regulations for the liquidity ratio stated above is 100 %.
46 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Liquidity Risk (continued)
Analysis of financial liabilities by remaining contractual maturities;
Up to 1-3 3-12 1-5 Over December 31, 2009 1 Month Months Months Years 5 Years Adjustments Total Deposits 1.878.885 623.656 59.468 - - (13.703) 2.548.306 Repo's 101.470 - - - - (54) 101.416 Funds borrowed - - 174.311 139.591 98.160 (14.839) 397.223
Total 1.980.355 623.656 233.779 139.591 98.160 (28.596) 3.046.945
Up to 1-3 3-12 1-5 Over December 31, 2008 1 Month Months Months Years 5 Years Adjustments Total Deposits 1.844.676 683.970 7.688 142.837 - (27.353) 2.651.818 Repo's 17.343 - - - - (11) 17.332 Funds borrowed 18.254 251.276 187.145 84.572 17.001 (25.153) 533.095
Total 1.880.273 935.246 194.833 227.409 17.001 (52.517) 3.202.245
Analysis of contractual expiry by maturity of the Group’s contingent liabilities and commitments;
Up to 1-3 3-12 1-5 Over December 31, 2009 1 Month Months Months Years 5 Years Total Contingent liabilities 34.286 161.101 304.203 428.567 644.987 1.573.144 Commitments 478.241 - - - 521.269 999.510
Total 512.527 161.101 304.203 428.567 1.166.256 2.572.654
Up to 1-3 3-12 1-5 Over December 31, 2008 1 Month Months Months Years 5 Years Total Contingent liabilities 1.323 18.409 156.657 75.682 992.241 1.244.312 Commitments 42.400 - 3.000 2.581 452.188 500.169
Total 43.723 18.409 159.657 78.263 1.444.429 1.744.481
47 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated. 57.390 17.384 69.942 143.760 101.416 2.5517.214 2.551 7.214 12.35516.879 12.355 16.879 28,966 28,966 balance sheet date to contractual maturity date. ------447447 On Up to 1 to 3 3 to 12 1 to 5 Over Demand 1 month month month years 5 years Unallocated Total Deposits with banks and other financial institutionsOther money market placements Reserve deposits at the Central Bank Trading securitiesInvestment securities Loans and advancesAssets held for resale 9.874Derivative financial instrumentsInvestment properties 47.516 Premises and equipmentIntangible assetsDefferred tax asset Other assets Assets classified as held for sale - - 69.942 17.384 18.981 - - 3.349 - 758 851.889 661 - - - 705.728 1.253 806.331 1.289 17.160 1.964 292.099 261.511 - - - 2.955 - 228.271 3.262 3.460 24 50.113 - - 2.709.620 - 1.782 - - 170 42 - 507.112 - 27.235 273 7.237 277 - 31.943 34.341 As at 31 December 2009 Assets Cash and balances with the Central Bank 30.401 113.359 27. FINANCIAL RISK MANAGEMENT (continued) Liquidity Risk (continued) The table below analyses assets and liabilities of the Group into relevant maturity groupings based on remaining period at Total assetsLiabilities: Deposits from other banksCustomers’ depositsOther money market deposits Funds borrowed Obligations under Finance LeaseDerivative financial instrumentsOther liabilities and provisionsIncome taxes payableTotal liabilitiesNet liquidity gapAs at 31 December 2008 Total AssetsTotal LiabilitiesNet liquidity gap 2.712 49.691 211.373 - 59.280 1.610.834 1.105.979 - 101.416 615.443 - 724.844 1.071.368 - - 57.234 526.864 91 1.241 - 1.019 1.847 3.460 1.567 222 6.834 - 150.191 (154.805) 214.085 3.641.986 (665.975) 1.771.954 53.402 - 787 - 914 670.634 54.210 226.969 - 292.923 134.986 5.093 6.000 778.445 174.671 106.561 1.051 1.877.280 1.839.728 39.685 112.705 - 414.159 933.622 491.990 (37.552) 3.457 (441.632) 197.904 3.457 388.044 - - - 2.494.884 - 190.140 114.507 715.852 82.090 3 - 3.180.265 633.762 - 12.836 3.973 35.684 53.422 (8.863) 397.223 - - 115.851 - 140.635 461.721 3.354.569 3.754.893 24.784 114.060 8.688 2.278 400.324 121.907
48 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Market Risk
The Group takes an exposure to market risks which arise from open positions in interest rate, currency and equity products all of which are exposed to general and specific market movements. This risk group is handled in two broad categories, Trading and Structural Interest Rate Risk, which requires different models and assumptions. Trading Risk refers to the daily volatility of values of tradable assets, such as Foreign Exchange, Fixed Income Securities, Stocks, and related derivative instruments. Value-at-Risk (VaR) is the primary tool for day-to-day monitoring of trading-related market risk. VaR is a statistical measure of the potential losses that could occur due to movements in market rates and prices under normal market circumstances. Trading limit violations are reported through all levels of risk management including the related member of the Board and senior management on a daily basis. Unless otherwise told by the member of the Board, Treasury Department is obliged to unwind its excess positions the following day.
Secondly, Structural Interest Rate, addresses the risk which stems from sensitivity of the relatively illiquid items of the balance sheet to the shifts of the yield curve. Market risk exposure of the Group as a whole is bound by the economic capital allocated by the Board.
Currency Risk
The Group centralized its currency risk and assigned Treasury Department to manage this risk. In principle, the balance sheet is assumed to be currency risk free. Any residual currency risk is treated as trading risk and it is subject to Value-at-Risk limits and nominal limits set by the Board.
49 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Currency Risk (continued)
The concentrations of assets, liabilities and off balance sheet items:
Turkish Lira US Dollars Euro Others Total As at December 31, 2009 Assets Cash and balances with the Central Bank 91.000 44.535 8.084 141 143.760 Deposits with banks and other financial institutions 8.464 14.587 33.917 422 57.390 Other money market placements 17.384 - - - 17.384 Reserve deposits at the Central Bank - 69.942 - - 69.942 Trading securities 27.235 - - - 27.235 Investment securities 507.112 - - - 507.112 Loans and advances 1.713.884 615.787 379.612 337 2.709.620 Derivative financial instruments 7.172 65 - - 7.237 Investment property 12.355 - - - 12,355 Premises and equipment 16.879 - - - 16.879 Intangible assets 2.551 - - - 2.551 Deffered tax asset 7.214 - - - 7.214 Other assets 31.344 2.538 459 - 34.341 Assets classified as held for sale 28.966 - - - 28.966 Total assets 2.471.560 747.454 422.072 900 3.641.986 Liabilities Deposits from other banks 1.031 50.389 819 1.183 53.422 Customers’ deposits 1.503.522 645.351 340.072 5.939 2.494.884 Other money market deposits 101.416 - - - 101.416 Funds borrowed 38.708 223.674 134.505 336 397.223 Obligations under Finance Lease - 202 2.076 - 2.278 Derivative financial instruments 8.669 19 - - 8.688 Other liabilities and provisions 100.714 12.006 8.974 213 121.907 Income taxes payable 447 - - - 447 Deferred tax liability ----- Total liabilities 1.754.507 931.641 486.446 7.671 3.180.265 Net on-balance sheet position 717.053 (184.187) (64.374) (6.771) 461.721 Off-balance sheet position Net notional amount of derivatives (203.927) 210.740 58.818 6.787 72.418 Non- cash loans (*) 793.794 471.401 301.806 6.146 1.573.147 As at December 31, 2008 Total Assets 2.040.710 1.060.925 651.296 1.962 3.754.893 Total Liabilities 1.652.836 1.187.027 511.853 2.853 3.354.569 Net on balance sheet position 387.874 (126.102) 139.443 (891) 400.324 Off-balance sheet position Net notional amount of derivatives 11.705 150.742 (138.791) 944 24.600 Non- cash loans (*) 629.041 433.842 176.107 5.321 1.244.311
(*) There are no effects on the net off balance sheet position. (**) The Bank's net on-balance sheet position excluding Turkish Lira as of December 31, 2009 is TRY 255.332 thousand short (December 31,2008: 12.450 thousand long) and off balance sheet position is TRY 276.345 thousand long (December 31,2008: 12.985 thousand long). 50 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Currency Risk (continued)
Foreign currency sensitivity
The Group is mainly exposed to EUR and USD currencies.
The following table details the Group's sensitivity to a 10% increase and decrease in the TRY against the relevant foreign currencies. A positive number indicates an increase in profit or loss and other equity where the TRY strengthens against the relevant currency.
Change in foreign currency Effect of profit/loss Effect of equity Current period Prior Period Current period Prior Period USD +/- 10 % +/- 2.656 +/- 2.146 +/- 2.656 +/- 2.146 EUR +/- 10 % +/- 555 +/- 4 +/- 555 +/- 4
51 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Currency Risk (continued)
Forward foreign exchange contracts
The following table details the forward foreign currency contracts outstanding as at reporting date: Notional Principal Fair Value Average exchange rate TRY TRY TRY TRY Outstanding contracts 31.12.2009 31.12.2008 31.12.2009 31.12.2008 31.12.2009 31.12.2008 USD purchase-EUR sell 1,4381 1,4683 37.326 68.489 (71) 384 Less than 3 months - - 37.326 68.489 (71) 384 Between 3-6 months ------6 months and more ------USD purchase-TRY sell 1,3623 1,4824 350.989 404.440 (307) 3.335 Less than 3 months - - 165.972 165.972 1.047 1.047 Between 3-6 months - - 196.656 51.105 1.648 (1.127) 6 months and more - 187.363 187.363 3.415 3.415 EUR purchase-USD sell 1,4380 1,4563 132.411 40.771 (264) (1.225) Less than 3 months - - 131.993 40.342 (263) (1.223) Between 3-6 months - - 418 429 (1) (2) 6 months and more ------EUR purchase-TRY sell 2,2711 2,1345 31.256 54.456 (572) 715 Less than 3 months - - 18.382 45.776 (332) 563 Between 3-6 months - - 9.167 8.680 (181) 152 6 months and more - - 3.707 - (59) - TRY purchase-USD sell 1,3733 1,5086 2.883 504.534 15 7.094 Less than 3 months - - 2.725 397.140 15 (744) Between 3-6 months - - 158 107.130 - 7.834 6 months and more - - - 264 - 4 TRY purchase-EUR sell 2,2719 2,1393 - 12.529 - 71 Less than 3 months - - - 12.529 - 71 Between 3-6 months ------6 months and more ------USD purchase-Other sell - - 11.770 3.517 35 (4) Less than 3 months - - 11.770 3.517 35 (4) Between 3-6 months - - - - Over 6 months -- Other purchase-USD sell - - 25.369 6.878 (62) 2 Less than 3 months - - 25.369 6.878 (62) 2 Between 3-6 months - - - - Over 6 months -- TRY purchase-Other sell - - - - - Less than 3 months - - - - - Between 3-6 months - - - - - Over 6 months - - - - - Other purchase-TRY sell - - 418 - (19) Less than 3 months - - 418 - (19) Between 3-6 months - - - - - Over 6 months --- Other purchase-EUR sell - - - - - Less than 3 months - - - - - Between 3-6 months - - - - - Over 6 months ------EUR purchase-Other sell - - - - - Less than 3 months - - - - - Between 3-6 months - - - - - Over 6 months - - - - -
Total 592.004 1.096.032 (1.226) 10.353 52 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Interest Rate Risk The net present value of the Banking Book are driven by interest rate differentials in terms of maturity and market characteristics. Trading securities are sensitive to treasury bill rates, therefore they are treated in the trading book and subject to Value-at-Risk limits. Items such as loans, deposits and other interest rate sensitive assets and liabilities are assumed to be sensitive to the structural changes in the interest rates and thus classified in the banking book. The relevant risk is measured with simulation based interest rate models. Applied limits on the risks posed by the asset-liability mismatches are derived from the capital set aside by the Board for Asset-Liability Management purposes. The table below summarizes the Group's exposure to interest rate risk on the basis of the remaining period at the balance sheet date to the re-pricing date. Interest rate sensitivity: If interest rates had been increased / decreased by 1% in TRY and FC and all other variables were held constant, the Group's:
Current Period Prior Period Profit / loss effect Equity effect Profit / loss effect Equity effect Interest rate increase / decrease (+) %1 (438) (355) (733) (181) (-) %1 491 408 827 275
Price sensitivity: If ISE share price indexes had been increased /decreased 10% and all other variables were held constant, the Group's:
• Profit for the year ended December 31, 2009 would increase / decrease by TRY 1.908 thousand. (December 31, 2008: increase / decrease 1.300 thousand). Interest rate swap contracts The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date: Average Contracted Notional Principal Fixed Interest Rate Amount (USD) Fair Value (TRY) Outstanding floating for fixed contracts 31.12.2009 31.12.2008 31.12.2009 31.12.2008 31.12.2009 31.12.2008 Less than 1 year - 11,25% - 10.000.000 - (1.200) - 11,35% - 10.000.000 - (1.131) - 17,50% - (20.000.000) - 1.416 1-2 years 11,90% 17,43% 15.000.000 15.000.000 (2.597) (2.804) 11,90% 17,43% 5.000.000 15.000.000 (862) (2.795) 17,43% 17,43% 15.000.000 20.000.000 (2.838) (3.720) 17,43% 18,18% 15.000.000 20.000.000 (2.843) (4.019) 17,43% 14,40% 20.000.000 10.000.000 (3.773) (2.433) 18,18% - 20.000.000 - (3.880) - 10,75% - 10.461.539 - (791) - 10,75% - 10.665.761 - (768) - 2-5 years 14,40% - 10.000.000 - (87) - Over 5 years - - - - -
The interest rate swaps settle on a quarterly basis on FX side and annually basis on TRY side. Net gain/loss from these contracts in derivative instruments are stated at income statement amounting to TRY (18.260) thousand for the year ended December 31, 2009 (December 31, 2008: TRY 5.001 thousand).
53 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated. 7.214 7.214 date to the re-pricing date. ----- Up to 1 to 3 3 to 12 1 to 5 Over Non interest 1 month month month years 5 years bearing Total 27. FINANCIAL RISK MANAGEMENT (continued) Interest Rate Risk (continued) The table below summarizes the Group's exposure to interest rate risk on basis of remaining period at balance sheet As at 31 December 2009 Assets Cash and balances with the Central BankDeposits with banks and other financial institutionsOther money market placements Reserve deposits at the Central Bank Trading securities Investment securities Loans and advancesAssets held for resaleDerivative financial instrumentsInvestment propertiesPremises and equipment 47.516Intangible assets Defferred tax asset 113.359 - - 69.942 17.384 ------4.972 14.402 2.016.589 - 3.469 - - 282.690 152.829 1.975 209.850 1.077 237.991 - 9.874 - - 248.638 - 290 1.179 57.390 30.401 - 3.460 - - 143.760 2.529 - - - 50.113 - 2.709.620 ------18.981 170 - - 69.942 - 17.384 507.112 27.235 - - - - - 7.237 - - - - 12.355 12.355 16.879 - 16.879 - 2.551 - 2.551 Other assets Assets classified as held for saleTotal assetsLiabilities: Deposits from other banksCustomers’ depositsOther money market deposits Funds borrowed Obligations under Finance LeaseDerivative financial instrumentsOther liabilities and provisionsIncome taxes payableTotal liabilitiesOn balance sheet interest sensitivity gapOff balance sheet interest sensitivity gap - 49.691 101.416 - 588 2.288.221 1.610.834 438.589 615.443 90 1.241 - - 449.575 18 57.234 - 216.690 251.443 1.567 1.019 308.259 222 - (251.057) 72.414 3.460 265 - 275.403 787 108.119 - - 914 210.698 - 245.298 - 3.641.986 - 276 - 5.093 1.052 3.460 1.979.962 - - - (119.642) - 6.099 689.646 - - - 461.721 211.373 - 174.172 - 28.966 - 2.494.884 - 2.712 - 33.194 28.966 - 6.145 - 53.422 34.341 ------8.688 101.416 - 2.278 397.223 115.808 330.340 - 3.180.265 121.907 - - - 447 447 -
54 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated. date to the re-pricing date. Up to 1 to 3 3 to 12 1 to 5 Over Non interest 1 month month month years 5 years bearing Total 27. FINANCIAL RISK MANAGEMENT (continued) Interest Rate Risk (continued) The table below summarizes the Group's exposure to interest rate risk on basis of remaining period at balance sheet As at 31 December 2008 Assets Cash and balances with the Central Bank Deposits with banks and other financial institutionsOther money market placements Reserve deposits at the Central Bank Trading securities Investment securities Loans and advancesAssets held for resale Derivative financial instrumentsInvestment propertiesPremises and equipment 230.465 Intangible assets Defferred tax asset 86.014 Other assets - Assets classified as held for saleTotal assetsLiabilities: - Deposits from other banks - 400.789 96.913 Customers’ deposits Other money market deposits - Funds borrowed - - - Obligations under Finance LeaseDerivative financial instrumentsOther liabilities and provisions - - Income taxes payable - 10.913 - 14.023 132.971 Total liabilities 1.609.791 148.758 363.436 6.306 109.720 On balance sheet interest sensitivity gap - 38 176.973 Off balance sheet interest sensitivity gap 11.692 - - 415.564 28.658 Total interest sensitiyity gap 521 114.672 - - 101.224 1 2.575 - - - - - 12.408 - - 55.235 2.367.283 - 3.863 ------13.025 400.789 17.332 - 170 - 96.913 32.430 264.175 2.449.011 65 - 1.832.940 - - 265.330 - - 668.136 146 - 191.471 7.568 28.912 493.106 - - - 529.442 (696.518) 7.482 25 14.974 293 - 116 3.863 - 19.896 97.803 - - 7.164 - 4.843 520.007 278.445 1.293 315.776 - 1.110 231 3.754.893 - - - 156.847 3.863 2.271 - - - 9.265 - 245 - - 493.106 59.970 - (696.518) - 1.955.905 - - 134.852 20.793 - 400.324 - 2.650.574 9.265 - 961.848 19.896 - 20.793 - 171.575 12.727 - - 520.007 - - - - 12.727 - 3.863 - 9.435 - - 38.724 2.240 1.968 39.290 - - 59.970 - 134 2.240 400.324 1.968 - - 4.003 - - - - 1.244 27.385 255.806 3.354.569 - 533.095 17.332 106.996 - - 107.112 - - 13.824 13.824 -
55 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
27. FINANCIAL RISK MANAGEMENT (continued)
Operational Risk
Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal process, people and systems or from external events.
Operational risk which is inherent in all business activities is associated with human error, system failure and inadequate controls and procedures. Operational risk includes errors and omissions in business activities, internal and external fraud and natural disasters.
The Group has Risk Management and Internal Control practices to keep operational risks under control and minimize it by operating under detailed written procedures. All documents, including Risk Management policies and contingency procedures, are kept up-to-date and accessible to all staff in electronic media.
Capital Adequacy
To monitor the adequacy of its capital, the Group uses ratios established by Banking Regulation and Supervision Agency (BRSA). These ratios measure capital adequacy (minimum 8% as required by BRSA) by comparing the Group's eligible capital with its balance sheet assets, off-balance sheet commitments and market and other risk positions at weighted amounts to reflect their relative risk. As of December 31, 2009, its capital adequacy ratio on a consolidated basis is 12, 94% (December 31, 2008: 14, 21%).
28. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial assets and financial liabilities are determined as follows:
• The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; • The fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions; and • The fair value of derivative instruments, are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.
The Group considers that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair values.
Carrying value Fair value December 31, December 31, December 31, December 31, 2009 2008 2009 2008 Financial Assets 3.242.347 2.919.990 2.884.679 2.930.239 Deposit with banks and other financial institutions 57.390 363.436 57.390 363.436 Held to maturity 475.337 189.271 441.777 192.191 Loans and advances 2.709.620 2.367.283 2.385.512 2.374.612 Financial Liabilities 2.892.112 3.183.669 2.524.185 3.044.652 Customer's deposit 2.494.887 2.650.574 2.232.072 2.525.859 Funds borrowed 397.225 533.095 292.113 518.793
56 Alternatifbank Anonim fiirketi Notes to the Consolidated Financial Statements For the Year Ended December 31, 2009
Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.
28. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements : i-Current Libor rates are used for other items
The following table shows an analysis of financial instruments recorded at fair value, between those whose fair value is recorded on quoted market prices, those involving valuation techniques where all model inputs are observable in the market and, those where the valuation techniques involves the use of non observable inputs.
Valuation Valuation techniques- techniques- Fair value Quoted market non market not December 31, 2009 market observable observable available
Financial assets Held-to-maturity 441.777 - - - Deposit with banks and other financial institutions - - - - Loans and advances - 2.385.512 - - Financial liabilities - - - - Customer's deposits - 2.232.072 - - Funds borrowed - 292.113 - -
Valuation Valuation techniques- techniques- Fair value Quoted market non market not December 31, 2008 market observable observable available
Financial assets Held-to-maturity 192.191 - - - Deposit with banks and other financial institutions - 363.436 - - Loans and advances - 2.374.612 - - Financial liabilities - - - - Customer's deposits - 2.525.859 - - Funds borrowed - 518.793 - -
29. SUBSEQUENT EVENTS
Hamit Aydo¤an is assigned as the general manager of the Bank as at February 2, 2010 and Murat Ar›¤, former general manager, has been appointed as the chief executive of Anadolu Group Finance Companies. Murat Ar›¤ is currently a member of the board of directors and is responsible for subsidiaries and international relations of the Bank.
The Bank decided to propose to the General Assembly of the Bank to keep its profits attributable to 2009 in accordance with the board of directors' decision on March 1, 2010.
57 ABank Annual Review 2009
Alternatifbank Anonim fiirketi Consolidated Balance Sheet - June 30, 2010 and December 31, 2009
Currency - Thousands of YTL in equivalent purchasing power at June 30, 2009
Thousands of TL Thousands of USD ASSETS 30/06/2010 31/12/2009 30/06/2010 31/12/2009 Cash and balances with the Central Bank 92.557 143.760 58.778 95.477 Deposits with banks and other financial institutions 77.236 57.390 49.048 38.115 Other money market placements 13.971 17.384 8.872 11.545 Reserve deposits at the Central Bank 90.961 69.942 57.764 46.451 Financial assets at fair value through profit and loss 50.288 27.235 31.935 18.088 Derivative financial instruments 8.503 7.237 5.400 4.806 Loans and advances(net) 2.987.126 2.709.620 1.896.949 1.799.575 Investment securities(net) 429.857 507.112 272.977 336.795 -available for sale 9.831 31.775 6.243 21.103 -held-to-maturity 420.026 475.337 266.734 315.692 Investment Property -- Assets held for resale 28.906 28.966 18.357 19.238 Premises and equipment(net) 15.174 16.879 9.636 11.210 Intangible assets(net) 2.339 2.551 1.485 1.694 Deferred tax asset(net) 8.311 7.214 5.278 4.791 Other assets 83.297 46.696 52.896 31.013 Total assets 3.888.526 3.641.986 2.469.375 2.418.799
LIABILITIES AND EQUITY Deposits from other banks 8.587 53.422 5.453 35.480 Customers’ deposits 2.450.507 2.494.884 1.556.174 1.656.960 Other money market deposits 114.250 101.416 72.554 67.355 Derivative financial instruments 9.809 8.688 6.229 5.770 Funds borrowed 640.269 397.223 406.597 263.813 Obligations under Finance Leases 1.445 2.278 918 1.513 Other liabilities 155.280 109.122 98.609 72.473 Provisions 20.225 12.785 12.844 8.491 Income tax payable 3.130 447 1.988 297 - Current 3.130 447 1.988 297 - Deferred - - - - Total liabilities 3.403.502 3.180.265 2.161.365 2.112.151
EQUITY Share capital issued 300.000 300.000 190.512 199.243 Adjustment to share capital - - 0 - Equity portion of subordinated loan - - 0 - Share premium 85 85 54 56 Unrealized gains on available for sale investments 9 287 6 191 Legal reserves and retained earnings 166.005 143.827 105.420 95.522 Equity attributable to equity holders of the parent 466.099 444.199 295.992 295.012 Minority interest 18.925 17.522 12.018 11.637 Total equity 485.024 461.721 308.010 306.649
Total liabilities and equity 3.888.526 3.641.986 2.469.375 2.418.799
30.06.2010 FX Conversion Rate 1,5747 31.12.2009 FX Conversion Rate 1,5057 1 ABank Annual Review 2009
Alternatifbank Anonim fiirketi Consolidated Income Statement - June 30, 2010 and 2009
Currency - Thousands of YTL in equivalent purchasing power at June 30, 2009
Thousands of TL Thousands of USD 30/06/2010 30/06/2009 30/06/2010 30/06/2009 Interest income Interest on loans and advances 143.295 205.921 90.998 134.580 Interest on securities 15.629 36.620 9.925 23.933 Interest on deposits with other banks and other financial institutions 67 798 43 522 Interest on other money market placements 667 2.318 424 1.515 Other interest income 3.777 6.563 2.399 4.289 Total interest income 163.435 252.220 103.788 164.839 Interest expense Interest on customer deposits (70.805) (114.180) (44.964) (74.623) Interest on other money market deposits (5.704) (7.291) (3.622) (4.765) Interest on funds borrowed and deposits from banks (7.393) (11.411) (4.695) (7.458) Other interest expense (590) (1.603) (375) (1.048) Total interest expense (84.492) (134.485) (53.656) (87.893) Net interest income 78.943 117.735 50.132 76.946
Provision for impairment of loans and advances (10.565) (29.949) (6.709) (19.573) Net interest income after provision for impairment of loans and advances 68.378 87.786 43.423 57.373 Foreign exchange gain / (loss) (14.502) (10.126) (9.209) (6.618) - Derivative Instruments (37.481) (7.247) (23.802) (4.736) - Other 22.979 (2.879) 14.592 (1.881) Net interest income after foreign exchange loss and provision for impairment of loans and advances 53.876 77.660 34.214 50.755 Other operating income Fees and commissions income 16.435 18.292 10.437 11.955 Income from banking services 2.104 5.510 1.336 3.601 Gains less losses from trading securities 1.914 1.616 1.215 1.056 Gains less losses from investment securities 356 4.440 226 2.902 Other income 14.157 4.295 8.990 2.807 Total other operating income 34.966 34.153 22.205 22.321
Other operating expense Fees and commissions expense (1.383) (2.690) (878) (1.758) Salaries and employee benefits (36.771) (35.492) (23.351) (23.196) Depreciation and amortization (3.167) (2.926) (2.011) (1.912) Taxes other than on income (2.641) (2.016) (1.677) (1.318) Other expenses (16.804) (15.343) (10.671) (10.027) Total other operating expense (60.766) (58.467) (38.589) (38.211)
Income from operating activities before income tax, monetary loss and minority interest 28.076 53.346 17.829 34.864
Income tax (4.498) (8.726) (2.856) (5.703) - Current income tax (5.521) (8.663) (3.506) (5.662) - Deferred income tax 1.023 (63) 650 (41) Monetary loss - Net profit for the period 23.578 44.620 14.973 29.161
Attrituble to: Equity holders of the parent 22.175 41.886 14.082 27.375 Minority interest 1.403 2.734 891 1.787
Earnings per share for profit att to the equity holders of the parent during the period (full YTL) 0,073917 0,1396
30.06.2010 FX Conversion Rate 1,5747 30.06.2009 FX Conversion Rate 1,5301 2 BANK IN TURKEY
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